The Kyrgyzstan government has given Centerra Gold a three month window to re-negotiate the terms of an agreement to operate its flagship Kumtor gold mine, while at the same time issuing a new damages claim for $315 million.

The Canadian miner is accused of ‘colossal’ environmental damage and underpaying the state with the Kyrgyz government resolving to ask for a revised deal to be drawn up in a bid to overturn the 2009 contract by then president Kurmanbek Bakiyev which gave the state a 33% stake in Centerra.

“If within three months our negotiations yield no results, the government will unilaterally cancel the agreement,” says Kyrgyzstan Economy Minister Temir Sariyev.

The Kumtor mine is the largest gold mine in Central Asia operated by a Western company. It is the industrial centrepiece of the fragile Kyrgyz economy, contributing 12% of GDP in 2011, however a 40% reduction in output at the mine last year due to ice movement in the pit has impacted the 2012 GDP. Sporadic protests have also disrupted operations at the mine during the last year.

Centerra maintains it has broken no laws and believes the allegations in the latest claim are ‘exaggerated or without merit’. “We think the environmental claims are unfounded,” says the company’s chief executive Ian Atkinson, who visited Bishkek last week to meet Prime Minister Zhantoro Satybaldiyev.

“We managed to resolve this in the past through discussions. We hope to do it again this time,” he told Reuters in an interview.

As operations recover in 2013, Centerra forecasts consolidated gold output - including its Boroo mine in Mongolia - in a range of 605,000 to 660,000 ounces, compared to 387,076 ounces in 2012.

“Once we get through this year, our production profile at Kumtor for the next 10 years is going to be back up to 650,000 ounces a year,” Ian Atkinson says.

However, the company must first reach accord with the government, which is hoping to receive an additional $105 million from Centerra every year in a renegotiated contract, as well as $10 million annually for alleged ecological damage.

The additional damages claim for $315 million relates to tailings, rock dumps and other waste from the mine. This comes on top of the government’s previous environmental damages claim worth $142 million.

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