KUMTOR GOLD MINE

KUMTOR GOLD MINE

The Kumtor mine in western Kyrgyzstan — 350 kilometers southeast of Bishkek — is the largest goldmine operated by a Western company in Central Asia. It has been ranked at various times as the world’s fifth largest and seventh largest gold mine. Located at an elevation of 4,000 meters in the Tien Shan, it opened in 1996 at a cost of $452 million and is run by Centerra Gold, a Toronto-based mining company. In the early 2000s, it yielded 19 tons of gold a year, generating 10 percent of Kyrgyzstan’s GNP and 40 percent of its export income.[Source: Harry Maurer, Business Week, October 29, 2001]

Kyrgyzstan now owns 33 percent of Centerra Gold Inc. The mine produced 17.66 tons of gold in 2010, generating approximately 10 per cent of Kyrgyzstan's GDP but also has created significant environmental and social threats. The mine was estimated to have reserves of 7.8 million ounces of gold in the 1990s. It was expected to close in 2007 and shut down its milling operation in 2009 but now there are plans to further expand operations. [Source: Bankwatch,org]

The Kumtor mine produced more than 9.9 million ounces of gold between 1997 and the end of 2014. In the early 2000s, the mine employed 1,500 people, 93 percent of them Kyrgyzstanis. The mine also provided 5,000 jobs through subcontractors and purchases from local businesses. The mine produced $200 million of gold a year but earned only $4 million in profits because of: 1) high production costs; 2) production-sharing deals with the Kyrgyzstan government; and 3) money spent on bureaucracy, giving officials perks and providing local people with necessities like medical care and funds to complete their harvests. Profitability has also been hurt by falling gold prices.

Kumtor had an estimated value of US$5.5 billion when was opened the Canadian Metals Company (Cameco, Centerra’s predecessor), a uranium company, in a joint-venture operation. The terms of the agreement for Kumtor exploitation with Cameco, which gains one-third of profits from gold extraction, caused public concern in 1992. To improve control of the mineral-extraction and refining processes, and to address the uncontrolled movement of precious metals out of the country, President Akayev created a new administrative agency, Kyrgyzaltyn (Kyrgyzstan Gold), to replace Yuzhpolmetal, the Soviet-era body responsible for precious metals. In January 1993, Akayev also brought the country's antimony and mercury mines into Kyrgyzaltyn. The latter are especially important because mercury is used to refine gold. Control of the mercury mines makes more likely the realization of Akayev's hope that Kyrgyzstan will become more than just a supplier of raw materials. [Source: Library of Congress, March 1996]

Mining at Kumtor Gold Mine

Located at an elevation of 4,000 meters among majestic surrounding in the Tien Shan mountains, Kumtor is an open pit mine in which ore-bearing rock is blasted with explosives, scooped with bulldozers and loaded on to trucks, which take the ore to a processing facility where the gold is removed with cyanide. The mine receives continued support by the European Bank for Reconstruction and Development, despite several accidents in the past and ongoing environmental damages from the mining operations.

Mining in the Tien Shan can be a daunting task. In the early 2000s, everyday 27 heavy trucks, loaded with explosives and steel grinding balls, climbed the switchbacks on a gravel road, past glaciers, yurts, nomads and sheep, from Lake Issyk-Kul to the mine. Because workers occasionally fainted from lack of oxygen an oxygen chamber was installed at a cost of $1 million.

The mine has been at the center of corruption, abuse, and environmental scandals over the years. According to Bankwatch.org: “The seasonal glacier melt-waters and the ground water flow into the mine’s open pit at a rate up to 1000 liters/sec]. After contact with the rock, the water becomes chemically-degraded and is then pumped out and discharged to the environment. [Source: Bankwatch.org *^*]

“The mine's tailings (i.e. chemically polluted leftovers) are located below Lake Petrov. The lake grew by more than 92,000 square metres annually in recent years due to a melting glacier. The lake's natural dam has become less and less stable (according to Torgoev Isakbek, author of a State Commission report on the subject). Although there is no imminent danger, the lake's tremendous growth might cause it to break out at some point. In a worst-case scenario, the downstream tailings could then be washed away, with unforeseeable impacts on the environment. The tailings dam foundation is also experiencing horizontal deformations and is moving down the slope. Inspite of measures to stabilise the dam in 2003 and 2006 (so-called shear keys and toe berm), the dam is still continuing to move. Kyrgyz scientists believe it is caused by the facts that it has been built on an uneven slope and that the dam never freezes. *^*

Environmental Problems at Kumtor Gold Mine

According to Bankwatch.org: “The Kumtor mine is located in a remote area of the Tian-Shan mountain range next to the Sarychat-Ertash reserve and not far from the Issyk-Kul lake, an important regional tourist attraction. The mine is being developed in fragile conditions of permafrost and in the vicinity of glaciers that feed fresh waters into the transboundary Naryn River. It is an area of surreal beauty. [Source: Bankwatch.org *^*]

“The mine pit slices through two glaciers (Lysyi and Davidov). This vicinity and the practice of storing waste rock directly on the glaciers damages these enormous natural ice sheets. The glaciers, already suffering from the impacts of climate change, are melting much faster and have shrunk tremendously in recent years. *^*

“Likely the most serious problem at Kumtor is the slow long-term release of contaminants from current and future mining operations. During summer operations (May through October) some five million cubic metres of waste water from the tailings are treated and discharged into the Kumtor River and eventually flow into the Naryn River (later Syrdarya) towards Tajikistan, Kazakhstan, Uzbekistan. While Centerra Gold Inc. does not publicise data on the quality of the discharged water, people living near the Kumtor River observed an enormous decrease in fish stock in recent years and suspect that the river has already been polluted. *^*

The Kyrgyzstan environmental protection agency is reportedly reluctant to approve future mining plan and permits because of how Centerra plans to deal with the fact that the the Davydov Glacier glacier is melting and sliding into the open pit. According to 24.kg, “these activities contradict the Water Code of Kyrgyzstan, which prohibits any activity that could affect the natural state of glaciers or quality of water contained therein.” In response to this Centerra claims the “project agreements support the view that the Water Code does not apply to the Kumtor operations”. The Kyrgyz parliament is considering amendments to the Water Code that would clear the way for Centerra’s permits. [Source: Catherine Putz, The Diplomat, June 8, 2015 *^*]

In 2014, the European Bank for Reconstruction and Development (EBRD) came under some scrutiny for providing loans to Centerra despite the mining company’s failure to release information pertaining to the impact of the mine on the nearby glaciers. A report claimed that Centerra had been operating the mine without a permit for waste disposal until 2012 — and dumping waste onto the glacier. *^*

Accidents at Kumtor Gold Mine

Throughout the mine’s operation, several accidents occurred, leaving several people dead and hundreds in need of treatment. Among these were: 1) a cyanide and sodium cyanide spill into the Barskoon River in May 1998; 2) a spill of 70 liters nitric acid in July 1998; 3) an ammonium nitrate spill in January 2000; and 4) collapses of a 200 metre high pit walls at the mine in 2002 and 2006. [Source: Bankwatch.org *^*]

In May 1998, a truck traveling to gold mine of Kumtour ran off a bridge near the town of Barskaun and overturned, dumping 1,744 kilograms of sodium cyanide into a river which flowed into Lake Issyk Kul. The mine waited five hours to inform villagers. No one was killed and no long term damage was caused, but toxins did temporarily affect life in the river. Still, thousands were evacuated, people refused to swim or draw water from the lake. The mine was fined $8 million.

According to Bankwatch.org: “A blockade by villagers demanded proper compensation for the 1998 accident at the Kumtor mine While the company plays down the cyanide spill in 1998, more than 1000 people have turned to the Barskoon local public association “Karek” in need of assistance to protect their rights and to claim compensations for the damages caused by the spill. A law suit is ongoing since 2005. Barskoon villagers with documented proofs of poisoning demand compensation for moral and health impacts from the mining company. “The company did not notify residents of Barskaun, who use the water for drinking and irrigation, until 5 hours after the accident. As a result, over 2,500 people were poisoned, 850 people were hospitalized and at least four of those patients died.” *^*

Scores Injured as Hundreds Storm Centerra Offices

In May 2013, hundreds of protesters stormed the office Centerra Gold, the operators of the Kumtor mine, demanding its nationalization and more social benefits. Reporting from Barskoon, a town near the mine, Leila Saralayeva of Associated Press wrote: “Hundreds of protesters attempted to storm a Canadian gold mine office... clashing violently with riot police and prompting the Central Asian nation to declare a state of emergency. Dozens of people were wounded. Riot police used stun grenades and rubber bullets to disperse the stone-throwing protesters, the Health Ministry said, adding that at least 55 people, including 13 police, were wounded in clashes. A police bus was set on fire. [Source: Leila Saralayeva, Associated Press, May 31 2013 /~/]

“About 2,000 protesters had descended upon the Kumtor mine office near the eastern village of Barskoon, furthering a protest that began earlier in the week to demand that the mine be nationalized and provide more social benefits in the impoverished nation. Protesters had blocked the road leading to the mine. On Thursday night, several hundred demonstrators, some on horseback, besieged a power transformer unit and cut off electricity to the mine for several hours. Riot police moved in overnight, detaining about 80 protesters and restoring the power supply. /~/

“Kyrgyz President Almazbek Atambayev introduced a state of emergency in the area. Centerra says the protests are illegal and that it’s working with the government and local authorities to resolve the situation. A senior cabinet member visited the area Friday and tried to persuade the protesters to disperse, saying that further disruptions to the electric supply would have crippled the mine and cost significant economic losses. Kumtor, which accounts for about 12 per cent of the economy of the ex-Soviet nation, has been at the centre of heated political debate between those seeking its nationalization and officials who believe that would deter much-needed foreign investment.” /~/

Dispute Over Kumtor and Centerra Ownership

Catherine Putz wrote in The Diplomat: Centerra wholly owns Kumtor and Kyrgyzstan owns a third of Centerra. In early 2013, the Kyrgyz parliament voted to trash the arrangement, but a replacement proposed by Centerra and the government — a 50-50 split of the mine ownership which would also entail Kyrgyzstan giving up its Centerra shares — hasn’t moved much. Meanwhile, some parliamentarians regularly call for nationalization of the mine. [Source: Catherine Putz, The Diplomat, June 8, 2015 |+|]

In April, 2015, “then-Prime Minister Djoomart Otorbaev told Parliament that the 50-50 deal wasn’t a good one as the mines reserves estimate had been revised downward. He said that a better deal could be found by pushing for more Kyrgyz influence in Centerra’s Board of Directors (Kyrgyzstan appoints three of 11 directors). The head of the Kyrgyz state-owned mining company, Kyrgyzaltyn, disagreed. Acting Chairman Kylychbek Shakirov told Eurasianet that “the possibility to get a 50-50 deal is much greater than [the possibility of] changing the board of directors. Kyrgyzaltyn only has a 33-percent share [in Centerra], nothing more. We do not have majority control.” Kyrgyzaltyn holds the state’s shares in Centerra.” |+|

Corruption, Political Instability and the Kumtour Mine

Ryskeldi Satke wrote in The Diplomat, “Throughout the history of the Kumtor gold mine, the lead operator of the project, Canada’s Centerra Gold Inc., has insisted that it has adhered to international mining standards and to the laws of the Kyrgyz Republic. Of course, it is no secret that doing business in the post-Soviet states (with the exception of Georgia) requires discretion with respect to the corruption that is rampant in those countries. Allegations of bribery and behind-the-scenes deals involving the government are hardly news in Kyrgyzstan. [Source: Ryskeldi Satke, The Diplomat, February 19, 2015, Ryskeldi Satke is a contributing writer with research institutions and news organizations in Central Asia, Turkey and the U.S. Contact e-mail: rsatke@gmail.com =|=]

“But after two violent regime changes – in 2005 and 2010 – that left scores dead, the Kyrgyz public pressed parliament to launch an investigation into Kumtor in 2012. Two Israeli-based firms were hired to lead an unprecedented probe into the gold mine, which has revealed episodes of bribery and shady deals during the first restructuring of the Kumtor project in 2003. =|=

“Long before the first restructuring agreement with the Canadian miner Cameco (Centerra’s predecessor) in the 1990s, the Kumtor project was rocked by a corruption scandal. This occurred during the presidency of the first ruler of the republic, Askar Akayev. Suspicions arose in the Kyrgyz parliament over the awarding of the mining contract to Cameco following revelations over the involvement of a trading firm called the Seabeco Group, which had close ties to Akayev, in lobbying on the Canadian mining company’s behalf in the bidding process. A Financial Times investigative report from January 1994 indicated that the role of the Seabeco Group’s owner, Boris Bershtein in facilitating the Kumtor deal with Cameco was crucial if not major. Cameco told the Financial Times that Bershtein “did a good job in helping them arrange the deal.” =|=

“The controversy surrounding Soviet émigré Boris Bershtein was also stoked by the Israeli investigative audit. Barlev noted that Cameco hired Bershtein as its representative at a time when the latter was “head of an official Committee for the Reconstruction and Development of Kyrgyzstan.” In one bizarre episode, Boris Bershtein’s private jet ferried 1.6 tons of Kyrgyz gold to Switzerland in 1992. The incident spurred a public outcry, prompting Kyrgyzstan’s parliament to launch an investigation into irregularities. Former MP Shergazy Mambetov, who headed the probe, told Azattyk, the Kyrgyz language service of Radio Free Europe/Radio Liberty that the findings of the nine-month investigation (1993-1994) had threatened the then president’s grip on power. In the months following, the president clashed with parliament over the results of the probe, the Kyrgyz cabinet resigned, and the Parliament was ultimately dismissed. =|=

“However, the controversy didn’t end there. The initial shareholding agreement between Cameco, with a 33 percent stake in the Kumtor mine, and Kyrgyzstan, with 67 percent, was modified in a mutually agreed restructuring of the gold mine project in 2002-2003. It was decided that Centerra Gold Inc. would be set up to run the gold mine, and the Kyrgyz government would swap its majority stake with a 28.8 percent holding in the newly created Centerra Gold, with Cameco having 58.5 percent. =|=

“A report issued by Israeli firm Muszkat Consultants after a detailed investigation in 2012 concluded that the first restructuring deal was littered with dubious schemes via an offshore company Eckerd Ltd. (based in the British Virgin Islands), which was linked to the suspicious transactions involving amounts of $4 and $11 million. Both Cameco and Centerra Gold have repeatedly denied wrongdoing. Muszkat Consultants stated that the ”sums of $4 and $11 million were ‘recorded’ in such a way to justify the payments to Eckerd Ltd., an offshore company whose real owners were presumably linked to former President Akayev. These sums were in reality bribes and for money laundering.” =|=

“In its letter to the Kyrgyz Parliament, the Israeli investigative firm recommended going to international arbitration with a claim of $3.5 billion against Centerra Gold. Kyrgyz authorities did charge ten former government officials with corruption over the 2003 restructuring. However, five fled to Russia and the remaining five, although put on trial, were later released because of the statute of limitations.” =|=

Allegations of Torture in Connection with the Kumtour Mine

Ryskeldi Satke wrote in The Diplomat, “The Kyrgyz government has largely ignored local grievances, prompting affected communities to stage acts of civil disobedience and encouraged widespread enmity towards Centerra Gold. In one episode, environmental activists from the village of Saruu quietly traveled to a guarded gold mine in July 2013 and documented the destruction of the Davidov glacier. Sweeping arrests followed during and after the protest in October 2013. Scores of community activists have been arrested and tortured by Kyrgyz law enforcement agencies. In light of these disturbing reports, Kyrgyz state ombudsman Bakyt Amanbayev visited mistreated activists in the prison and compiled video evidence of torture (here and here). Speaking with Azattyk, the ombudsman confirmed that torture had taken place and added that a complaint was filed with the Kyrgyz courts calling for an official investigation into the matter. [Source: Ryskeldi Satke, The Diplomat, February 19, 2015 =|=]

“Despite the strides Kyrgyzstan has made on basic freedoms in Central Asia over the last two decades, the UN Human Rights Committee remains ”concerned about widespread practice of torture and ill-treatment, in particular for the purpose of extracting confessions.” The Committee Against Torture meanwhile highlighted “the failure of Kyrgyzstan to investigate fully the many allegations of torture and ill-treatment.” Out of twelve activists, four were sentenced to prison terms (4-8 years), four were given probation, and the rest were released on bail. The Kyrgyz government has failed to investigate torture cases, further degrading the country’s human rights record. =|=

“The Kumtor project has clearly been a political issue since its very earliest days, and remains so today. Ultimately, the Centerra Gold controversy in Kyrgyzstan has proceeded in lockstep with the declining image of the country’s mining industry. It is quite likely that the Kumtor gold mine agreement will be reassessed once again if the country witnesses further strife.” =|=

Women Activists Beaten For Kumtor Mine Protests

Antoine Blua wrote in Radio Free Europe, “In 1998, a truck belonging to Kyrgyzstan's Kumtor gold mine overturned on a mountain road, spilling more than a ton of cyanide into a river that supplies water to many of the villages on the southern shore of Lake Issyk-Kul. [Source: Antoine Blua, Radio Free Europe, November 6, 2009 <^>]

“The environmental NGO Karek has been campaigning for compensation for local residents and for the use of environment-friendly methods at Kumtor. Its head, Erkingul Imankojoeva, tells Radio Free Europe's Kyrgyz Service about the intimidations that members of the group, mainly women, have faced since 2002. <^>

“Imankojoeva says the authorities "detained all the women activists, about 20 of them," and took blood from them using a single syringe. She says they were beaten, leaving some in serious condition, and that half of them left the area due to official harassment. "They even went to my family and my parents. They were from KGB, today's National Security Service. They shot our house with their video camera," Imankojoeva says. "They also told our neighbors that if they had a daughter like me, they would shoot her. And they forced the neighbors to tell this to us." <^>

Developing the Jeeroy Gold Mine

In May 2015, Kyrgyzstan’s State Geology and Mineral Resources Agency announced that it was awarding a tender to Vostok-Geoldobycha, a Russian company, to develop the Jerooy mine, the site of the country’s second-largest gold deposit after Kumtor. Jerooy, more than 3,000 meters above sea level and 60 kilometers from Talas, is estimated to contain 97 tons of gold. [Source: Catherine Putz, The Diplomat, May 6, 2015 ^=^]

Catherine Putz wrote in The Diplomat: “ A London-based company, Oxus Gold, held the license to develop Jerooy in 2005 when the Tulip Revolution swept the country’s first president, Askar Akayev, out of office. The revolution upset relations with Oxus Gold. In 2006, Oxus Gold said local Kyrgyz police forced their way into a warehouse owned by Oxus Gold and “ejected the residents and other Oxus staff at short notice.” ^=^

“Visor Holding, a Kazakh company, says it paid for the settlement of Kyrgyzstan’s disputes with Oxus Gold when it was acquiring the license in 2008. In 2010, Visor Holding’s license was expropriated by the Kyrgyz government, which said the company — that had had a 60 percent stake in a joint venture with Kyrgyzaltyn to develop the mine — had failed to start production. In 2013, Visor Holding filed a request for arbitration with the International Center for Settlement of Investment Disputes (ICSID), seeking $400 million for what the company called “illegal expropriation” of their license. ^=^

“According to Reuters, the claim is now $549 million and a hearing is expected this November. Meanwhile, Kyrgyzstan went ahead with opening bidding earlier this year to determine would take control of the mine next. Vostok-Geoldobycha, which is affiliated with Russian Platinum Corporation, beat out the Kyrgyz state mining company, Kyrgyzaltyn, with a bid worth $100 million and a commitment to take on legal costs associated with battling the mine’s previous investors in court, which is a considerable risk. Kyrgyzaltyn’s bid was for $111 million. ^=^

“The Kyrgyz government itself is not terribly pleased with the result. Vice President Sagynbek Abdyrakhmanov told Radio Free Europe/Radio Liberty that awarding the tender to Vostok-Geoldobycha was “against Kyrgyzstan’s national interests.” “We have full capacity to operate the mine ourselves. We have 30 years of experience,” he said. “However, our experience and our capacities have been ignored and the deposit was given to a foreign company.” ^=^

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Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, U.S. government, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.

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© 2008 Jeffrey Hays

Last updated April 2016

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