For more than a year, CENTERRA GOLD INC COM NPV (OTCMKTS:CAGDF) was entangled in a bitter dispute with Kyrgyzstan, the host country of one of its important mine operations. The dispute forced Centerra to suspend dividend distribution due to a disruption of profit flow from its keyKumtor gold mine in Kyrgyzstan.
Today, we confirm that Centerra and the government of Kyrgyzstan have settled all their disputes. In this review, we delve into this landmark development and show you how the settlement frees Centerrato hit the ground running to create more value for its shareholders.
Before we get into the details, have a look at Centerra’s share price action.
Just in case you are reading about Centerrafor the first time, here’s everything you need to acquaint yourself with this company.
Centerrais a gold mining and exploration company headquartered in Toronto, Canada. The company has a global footprint, with operations in North America, Asia and other parts of the world.In its line of operation, Centerraengages in activities such as acquisition, exploration, development and operation of gold properties. The company also deals in copper, which it treats as a byproduct of its mining activities.
Centerra’sprincipal projects include Kumtor gold mine in Kyrgyzstan and the Mount Milligan mine in Canada. For its 2Q17, which was reported in August, Centerragenerated total revenue of $279.2 million, up 74.1% from a similar quarter last year. The company earned a profit of $23 million, or $0.08 per share, during the quarter.
On September 11, Centerra announced that it had reached a comprehensive agreement with the government of Kyrgyzstan to settle all outstanding disputes between them, ending a long standoff that had derailed the activities of both parties.
Centerra is Kyrgyzstan’s largest foreign investor and taxpayer, contributing up to 10% of the country’s GDP.
The settlement means that Kyrgyzstani government will drop all lawsuits and court orders against Centerra. The government will also remove restrictions that prevented Centerra from transferring its funds out of the country. The deal also frees Kumtor to distribute profits to its parent Centerra.
On December 9, 2016, Centerra announced suspension of all dividend distributions to its shareholders, tying the decision to a financial restriction imposed by Kyrgyzstan on its Kumtor subsidiary – a key operation for the company.As such, the settlement not only paves way for Centerra to resume dividend distribution, but also improve the payout if it can take advantage of the favorable gold prices.
Kyrgyzstan owns 26.6% stake in Centerra through a state-controlled entity called Kyrgyzaltyn JSC.
As part of the settlement with the Kyrgyzstani government, Centerrahas also made a number of commitments. For example, the company agreed to support a new environment fund that will be run by the Kyrgyzstani government. As such, Centerra pledged to make a one-off payment of $50 million to the fund and continue to support the fund with $2.7 million annually.Additionally, Centerra committed $10 million to a cancer care support.
Last year, a Kyrgyzstani court slapped Centerra with a nearly $100 million fine tied to environmental damage. Another Kyrgyzstani regulator sued to claim $230 million from the company.
With the long and disruptive disputes settled, Centerra and government have not only pledged to act in good faith in future negotiations, but also said that they would explore other potential investment opportunities in Kyrgyzstan.
Here’s what Centerra CEO Scott Perry had to say about the settlement:
“This agreement represents a symbol of commitment from Centerra and the Kyrgyz Republic Government, a commitment not only to stability for foreign investment in the Kyrgyz Republic but a commitment to the environment, health and wellbeing of the citizens of Kyrgyzstan.”
On July 31, Centerra agreed with its holding company Centerra BC Holdings to increase its revolver credit facility. The credit facility was to increase by $50 million to $125 million. Centerra decided to amend the terms of its credit facility so that it could gain greater financial flexibility in the short-term.
At the end of 2Q17, Centerra had $401 million in cash balance. The company has also continued to reduce its debt level. It’s debt load dropped by $60 million in 2Q17 to $447 million.
The settlement with the Kyrgyzstani government removes a lot of uncertainties in Centerra’sway. Regaining access to frozen funds and profit distribution from Kumtor subsidiary will provide Centerra with increased financial flexibility and financial resources it needs to drive more growth and profitability.
Last year, Centerra put its funds into good use by acquiring Thompson Creek, a move that added a high-quality, low-cost mine to the company’s asset portfolio and made it a more diversified gold producer.
The acquisition of Thompson Creek demonstrated Centerra’s commitment to use its capital prudently to create long-term shareholder value. The settlement with the Kyrgyzstani government paves the way for the company to invest in ways that would drive more shareholder value and lift the stock higher.
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Disclosure: We have no position in CAGDF and have not been compensated for this article.