Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
This article consists of interviews with three executives of foreign based mining companies operating in Kyrgyzstan. We interviewed these executives to better understand the business climate in that country following the change in Government in April and the unrest in the southern part of the country in early June. This article gives a voice to the businesses who are operating in the country and they tell us how these events have impacted them and what is like to operate in that country now.
Participants:
Company Overview
Centerra (Symbol CG.T) is a leading North American gold producer and the largest Western-based gold producer in Central Asia. This Canadian gold mining and exploration company is engaged in the acquisition, exploration, development and operation of gold properties in Central Asia, the former Soviet Union and other emerging markets worldwide. In 2009, two gold mines operated by Centerra produced over 675,592 ounces of gold at a total cash cost of $459 per ounce. Centerra operates a gold mine in Kumtor – Kyrgyzstan.
Stans Energy Corporation (TSXV: RUU) is focused on developing properties containing Rare Earth Elements (REEs), Uranium, and Associated Metals. The company continuously examines and evaluates new opportunities to acquire and develop proven resource properties in areas of the former Soviet Union. The headquarters of the company is located in Toronto, Ontario, Canada, and its wholly-owned subsidiary, Stans Energy KG, is located in Bishkek, Kyrgyzstan. Stans Energy Corp’s Chairman, Rodney Irwin, was the former ambassador to the Russian Federation for Canada, and currently serves as the Honorary Consul of the Kyrgyz Republic for Canada.
Chaarat Gold Holdings Ltd. (Symbol CGH.L) is a gold exploration and development company listed on London’s Alternative Investment Market (AIM). Chaarat has a 100% interest in the 604 square kilometre exploration licence in the western part of the Kyrgyz Republic. This license covers an area of extensive gold mineralization, within the Tien Shan Gold Belt. Chaarat’s objective is to become a low cost gold producer targeting an initial production of over 200,000 ounces per annum by early 2013.
Kidela: Following the recent unrest in Southern Kyrgyzstan – the stock price of some companies doing business in the country dropped significantly, yet now only weeks later many share prices have recovered all of the ground they lost since then. Can you comment on this?
Pearson: Looking at our stock in particular, the recent June events had some impact on our stock price, but really the major impact was the events in early April. That is when the civil and political unrest resulted in a new interim government being put in place. That is when the markets reacted negatively and our stock price lost 18% in two days. The stock price has come back to that same price level as early April.
Mackay: The stock prices dropped in April after the expulsion of the past Government by the people of Kyrgyzstan, Stans Energy Corp also saw its stock decline with the general weakness in all of the rare earth stocks. Since then our stock has recovered.
Golan: Like several other public companies in the situation of Kyrgyzstan, we experienced some short drop in share price. It feels like it could mainly be attributed to the concern about what has been happening, the sense of stability and concern for the future and the effect it might have. It feels like that once people realized the situation is not as bad as it looked, and it certainly has advanced since the events of June and April, things started to move forward and look better.
Kidela: What do you attribute the price swing to?
Pearson: It is partly due to the interest in the gold sector, the analysts, research and investment houses raising their gold price estimates, but second of all, investors realizing they may have overreacted back in April, and that the change in Government is a positive thing giving more stability in the country. Certainly since the June 27th referendum where a new constitution was approved plus the appointment of Rosa Otunbayeva as the President for a transition period. That led investors to believe there is more stability in the country and I think that is where some of the investors and people have come back into our stock or have increased their positions.
Mackay: People started to understand that this change in the government and the fact that 90% of the people voted for a new Constitution strengthens the Democratic structure in the country and that has a long term positive outlook for the country.
Golan: This is an issue with smaller companies where swings in margins and share price of the company make a big difference. With some retail members of the public, if they see something which concerns them, their immediate reaction is to push the sell button which creates a situation that doesn’t help companies. Even when the situations have nothing to do with fundamental values or anything like that. The more institutional shareholders you have, the less adversely your shares will be impacted.
Kidela: Given the recent events in the southern part of the country, has your strategy or outlook related to Kyrgyzstan changed in any way?
Pearson: Centerra hasn’t changed the way it is doing business there or our plans – or – anything else. In fact we are investing in the country, we have a $196 million capital program going this year at the Kumptor mine and so we haven’t scaled back our investment at all. In fact, we are increasing our investment, expanding the mining fleet, we’ve expanded the mine life out to 2019, we are going underground and are spending significant funds developing an underground mine at the site as well.
Mackay: We have always had a wonderful relationship with the people of Kyrgyzstan as our local employees are extremely well respected and are consummate professionals that always work in the best interest of the country and the shareholders of Stans Energy Corp. We are planning a very big program once we have finished our data gathering and that will allow us to start a feasibility study on Kutessay II.
Golan: The events in and around Osh in the South of the country was a real tragedy and nothing more can be said about it. Having said that our strategy has not changed a bit. We recently have even extended our company footprint in the Northern part of the country where we hold four licence areas for some more gold, silver and copper deposits. We feel that Kyrgyzstan is a mining friendly country going in the right direction. Although there may be bumps in the road, it should not change our strategy in any way.
Kidela: How welcoming is Kyrgyzstan to foreign businesses now?
Pearson: I think it is welcoming. They want western investment; they see they need foreign investment. We’ve been there a long time and have operated the Kumtor mine since 1997. It’s getting better; they are more welcoming because they want the foreign investment.
Mackay: I would rank Kyrgyzstan VERY HIGHLY compared to so many countries in the world. The key to any company is its people and we have a superb group of professionals that understand the country and its business practices. I look forward to my visits to Kyrgyzstan and meeting the Government officials both federal and locally as they have always been extremely supportive of our company.
Golan: I think Kyrgyzstan is very welcoming, their tax strategy is definitely the best in the region and one of the best in the world. The mining law is definitely the most progressive of all of the former Soviet Union countries it has been involved a number of times since independence with the involvement of US AID and the World Bank. It is not perfect but it is moving forward and it seems to be the most forward and progressive former Soviet countries. You know we’ve been operating in Kyrgyzstan for fifteen years so I have a bit of time dimension and I recently feel the country is very welcoming. Perhaps to give one example, in many countries the government has the right to demand a certain participation in a project where in Kyrgyzstan the companies can own 100%, and in our case we own 100% of the project which I think is quite an important asset.
Kidela: What would you tell other foreign companies who are considering doing business in Kyrgyzstan?
Pearson: Have patience. It is a country with great potential.
Mackay: Do not expect to be successful in any country unless you have the right people in place that understand the culture and politics of where you are working. The most important thing for us is the support we have been shown by everyone in Kyrgyzstan to help develop their mining industry and create jobs. Recently, we held a town hall meeting at Actuyz and explained exactly what our plans were and received a very positive response from the people who attended. The pictures and minutes of the meeting will be posted on our website.
Golan: Kyrgyzstan has a wealth of unexplored mineral opportunities. We’ve discovered a really nice gold province, and another mining company – Gold Fields (GFIJ.J) recently called the country the next gold frontier. So the opportunity there is quite immense in the sense that this is the central part of the Tien Shan gold belt. You know it is a new frontier and with that, as I said before, you should expect some bumps in the road. It is a unique culture and success comes from hard work and the opportunities are there if you are in the mining industry. Let’s put it like this . . . if I had to compare Kyrgyzstan to many countries in Africa or South America, which I am quite familiar with both, I think that Kyrgyzstan – by far – is a much better place to operate.
Via: Kidela click here for source article
