(B) Kumtor Has Received Claims from Kyrgyz Authorities for Alleged Environmental Violations
As previously disclosed, Kumtor received in mid-December 2012, five claims from the SIETS for alleged environmental violations. The claims are for an aggregate amount of approximately $152 million, including (i) a claim for approximately $142 million for alleged damages in relation to the placement on waste dumps of waste rock (unprocessed rock) from mining operations for the period from 2000 to 2011; (ii) a claim for approximately $4 million for use of water resources from Petrov Lake for the period of 2000 to 2011; and (iii) a claim for approximately $2.3 million for alleged damages caused to land resources, including in some cases from the time of initial construction of the Kumtor facilities in 1995. One Claim for $2.8 million for waste placed in the tailings management facilities and for emissions for 2009-2011 was withdrawn after discussions with the applicable Kyrgyz regulatory authorities, although there are no assurances that further claims will not be issued on this matter. The claims reference the review of the Kumtor Project carried out by the environmental and technical working group of the State Commission. Kumtor disagrees with these claims and has responded to them in detail in writing to the relevant authority. While the Company believes that such claims are exaggerated or without merit, there can be no assurances that these claims will be successfully resolved in favour of the Company or that further claims will not be issued.
© Government Decree #34
The Kyrgyz Government received the State Commission Report on January 24, 2013 and issued a decree, Decree of the Kyrgyz Government dated January 24, 2013, #34 ("Decree #34"), accepting the State Commission Report and sending it to the Kyrgyz Parliament. Pursuant to Decree 34, the Kyrgyz Government also established a working group to hold discussions on the revisions of terms governing the Kumtor Project, particularly on revisions to the tax regime and other matters identified in the State Commission Report.
The Company intends to meet with the working group and other Kyrgyz Government officials, with the objective of resolving matters through constructive dialogue. However, there can also be no assurance that such discussions will result in a successful outcome for the Company, or that the Kyrgyz Government will not take actions that are inconsistent with its obligations under the Kumtor Project Agreements or cancel government decrees, orders or licenses under which the Kumtor Project currently operates. Any such actions could have a material adverse impact on the Company's future cash flows, earnings, results of operations and financial conditions.
(D) Parliament Review and Draft Resolution
On February 20, 2013, the Parliament of the Kyrgyz Republic debated the State Commission Report and discussed a draft resolution (the "Draft Resolution") that endorses the Report and calls on the Government to hold negotiations with Centerra with a view to revising the Kumtor Project Agreements in the interests of the Kyrgyz Republic. The Company understands that the Draft Resolution further recommends that if mutually advantageous terms cannot be agreed the Government should take a number of steps including the following:
i. annul the legislation enacted by Parliament in 2009 approving the Kumtor Project Agreements;ii. terminate the Kumtor Project Agreements, including the Restated Investment Agreement and Restated Concession Agreement dated June 6, 2009;iii.initiate legal proceedings with a view to implementing a Government decree of July 5, 2012 "On Cancellation of the Government's Decree on granting land plots to Kumtor Gold Company CJSC dated as of March 25, 2010. (Such March 25, 2010 decree granted Kumtor certain surface rights in relation to the project. See Centerra's news release dated July 6, 2012.);iv. review Government decisions issued between 1992 and 2012 which granted areas for carrying out exploration, mining operations and construction of facilities for the Kumtor Project; andv. develop and submit amendments to laws on biosphere territories and prevention of damage to glaciers.