Centerra Gold has entered into a non-binding MoU with the Government of the Kyrgyz Republic in connection with a potential restructuring transaction under which Kyrgyzaltyn JSC would exchange its 32.7% equity interest in Centerra for an interest in a joint venture company that would own the Kumtor Gold Project.
The MoU records the current status of ongoing negotiations between management of Centerra and the Kyrgyz Republic advisory working group and provides, among other things, that the following principles will guide the potential restructuring transaction:
- Kyrgyzaltyn would receive a 50% interest in the JV company that would own Kumtor in exchange for its 32.7% equity ownership in Centerra and US$100 million which will be provided to Centerra by way of an adjustment to JV distributions otherwise due to Kyrgyzaltyn.
- The adjustment to JV distributions otherwise due to Kyrgyzaltyn would occur over 10 years commencing in 2015 (in 2014 only interest would be paid) with an appropriate interest rate.
- All of the state agency environmental claims against the Kumtor project would be resolved prior to the restructuring, by Centerra’s implementation of certain recommendations contained in a report provided to the Government working group by a third-party environmental consultant, and consistent with the laws and procedures of the Kyrgyz Republic and existing agreements between the parties.
- The agreements entered into between, among others, Centerra, Kyrgyzaltyn and Government of the Kyrgyz Republic in 2009 would remain in full force and effect, including the tax regime set out in such agreements.
- The Board of the JV company would be composed of an equal number of Centerra and Kyrgyzaltyn representatives. Major decisions of the JV company would be subject to discussion and approval by the Board of the JV company.
- Centerra would remain the operator/manager of the project pursuant to an operating agreement which would contain terms and provisions which are typical of such agreements. The operating agreement would also include provisions for compensation for services provided by Centerra and Kyrgyzaltyn.
- Kyrgyzaltyn would receive 6 million warrants to acquire Centerra shares, with an exercise price of Can$10, exercisable for two years.
Centerra anticipates that, on the basis of the MoU, the Kyrgyz Government will request an appropriate extension from Kyrgyz Republic Parliament’s previously set deadline of September 10, 2013 for the Government to present final agreements incorporating a mutually acceptable solution with respect to the Kumtor project and certain issues raised in Parliamentary and State Commission reports.
In accordance with the principles set out in the MoU, Centerra will continue its discussions and negotiations with the Kyrgyz Republic working group, however, no binding agreement between the parties has been reached and any definitive agreement for a potential restructuring remains subject to Centerra Special Committee and Board approval, as well as compliance with all applicable legal and regulatory requirements and approvals, including a formal independent valuation and minority shareholder approval.