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TORONTO – The government of Kyrgyzstan has lobbed many nationalization threats at Centerra Gold Inc. over the past 17 years. But a court ruling has turned the tables and made a large chunk of the government’s own Centerra shares vulnerable to potential seizure.
The strange turn of events is tied to Canadian junior miner Stans Energy Corp., which is also active in Kyrgyzstan. In 2012, a parliamentary committee revoked Stans’ licence for a rare earths project under highly suspicious circumstances, and the company launched legal action to protect its rights.
Those efforts culminated in a key ruling this week, as an arbitration court in Moscow ordered Kyrgyzstan to pay US$118.2-million to Toronto-based Stans.
It is highly unlikely that Kyrgyzstan will respect the ruling and pay out any cash. That leaves Stans the option of securing verdicts against one or more of the state’s foreign assets. And a logical one to go after would be Kyrgyzstan’s 32.7% stake in Centerra, currently worth almost $500-million.
David Vinokurov, vice-president of corporate development at Stans, declined to comment on whether the company would target Centerra, also based in Toronto, shares for payment. But he acknowledged that it would be a logical place to look.
“That’s the low-hanging fruit,” he said in an interview. “It’s a Toronto-based company on a Toronto exchange.”
A Turkish company called Sistem, which won an US$8.5-million arbitration case against Kyrgyzstan in 2009, is already seeking payment in Centerra shares. It recently won a ruling in the Ontario Court of Appeal, which declared Centerra shares could be seized to satisfy international arbitration awards.
Stans’ shares on the TSX Venture Exchange soared 54% on Thursday following the arbitration decision.
If Stans does go after Centerra shares, then Centerra could be caught in yet another chaotic political situation in Kyrgyzstan. Over the past couple of years, the company has faced outrageous allegations of misconduct at its Kumtor mine, and was strong-armed into renegotiating its investment agreement.
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