Centerra Gold and Kyrgyzstan: time for a marriage counsellor – by David Trilling (Globe and Mail/Report on Business Magazine – April 26, 2013)

Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

The guys who had set up the roadblock agreed to meet me in the dirt lane outside the village of Barskoon’s school. At sunset, as arranged, a black Mercedes-Benz comes creeping along the edge of the soccer field. An electric window drops and a hand waves me over. The local “youth council” has arrived to talk about the gold mine.

The question at the heart of our meeting: Is a Canadian mining company here in the Central Asian nation of Kyrgyzstan taking advantage of the locals, as the young men say–or the other way around?

Naris Kalchayev and his two friends, all in their 20s, look a little out of place in the village. Kalchayev prefers speaking Russian over Kyrgyz. Wearing a turquoise baseball cap with a Superman decal pulled low over his eyes, he looks like a nightclub DJ—not a shepherd, like most of the local guys.

Kalchayev says he’s concerned about what’s happening on the remote plateau far above this sleepy hamlet. But it’s unclear if he is legitimately worried about the environment and corruption, or is just political muscle. He might be more persuasive if he didn’t use the words “blah, blah, blah” to punctuate his arguments.

He promises to e-mail me documents about pollution and corruption before speeding off to “meetings in Bishkek,” Kyrgyzstan’s Soviet-built capital. But he never does.

At 4,000 metres, Kumtor is one of the highest-altitude gold mines in the world. It’s a 90-minute drive up into the mountains from the schoolyard in Barskoon. Having produced about 270 tonnes of gold since opening in 1997, the open-pit mine is the largest and most valuable asset of Centerra Gold, which is one-third owned by the government of Kyrgyzstan—a small, landlocked country, one of the poorest in both the former Soviet Union and Asia. Centerra is Kyrgyzstan’s largest taxpayer and biggest investor: In a good year, Kumtor accounts for nearly 12 per cent of the country’s GDP and half of its exports—over $900-million in gross revenues (all currency in U.S. dollars).

“Kumtor is the only cow giving milk in Kyrgyzstan,” one rights activist memorably said last year.

Indeed, the mine is one of few things working smoothly in Kyrgyzstan, where popular uprisings have ousted two presidents in the past eight years, basic infrastructure—like roads, schools and hospitals—is crumbling, the rule of law is virtually absent, and a third of the country’s 5.5 million people live below the poverty line.

But the dependency runs in both directions: Kumtor accounted for 81 per cent of TSX-listed Centerra’s revenues last year. And that was a bad year at the mine.

Despite Centerra’s outsized contributions to the Kyrgyz economy, the company has a major image problem. Little of the wealth it generates trickles down in any visible way. On the contrary, there’s a perception that Centerra colludes with venal officials or thuggish local power brokers.

By the company’s account, that perception is fiction. But in this charged atmosphere, Kumtor is an easy scapegoat for leaders contending with Kyrgyzstan’s entrenched problems. Like Canadian miners working everywhere in the developing world, Centerra finds that regardless of whether complaints about pollution—or corruption or wealth-sharing—are legitimate, they make good vehicles for resource nationalism and its provincial cousin, the local shakedown.

Since calls for nationalization of Kumtor picked up in February, 2012, the company’s stock has dropped about 70 per cent. For now, Kyrgyz authorities insist they are not interested in expropriating the mine. But in February, parliament gave officials until June 1 to come up with a new operating agreement. Centerra, for its part, has threatened to seek international arbitration.

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