Sunday 4th December 2016

Resource Clips


Not without risk

Mongolia offers huge resources but with political challenges

By Greg Klein

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Reputedly this company is used to weathering Asian storms. So a long wait that has just ended for Centerra Gold TSX:CG in Mongolia must have been borne with patience. On September 19 the company received approval to resume heap leap operations at its Boroo Mine. The facility operated from June 2008 to April 2009, when a temporary permit expired. Beginning in December, recommissioning should add around 2,000 gold ounces a month to the mill, which has been processing stockpiled ore since the mine closed in November 2010.

The news shot Centerra’s stock from a September 19 open of $10.40 to a high of $12.08 before closing at $11.95.

The $2.75-billion-cap company shows dogged determination in a country where giants tread carefully due to government interference. The Boroo mill was also intended to handle ore from Gatsuurt, just 55 kilometres away. Centerra was ready to develop an open-pit gold mine there after the Mongolian government approved a feasibility study in March 2008. The following year, however, the government brought in new environmental legislation that blocked the mine.

Mongolia offers huge resources but with political challenges

Tremendous mineral resources could bring big changes to Mongolian society.

Last November Centerra VP of Investor Relations John Pearson told ResourceClips, “The site is completely prepared. We have the admin buildings on site, the trucks fleet has been purchased, the road connecting the Gatsuurt mine site to the Boroo mill is complete. Everything is ready to go. Until the government and parliament resolve the issues with that particular piece of legislation, Gatsuurt is currently on hold waiting the final approval.”

According to an estimate completed in December 2010, Gatsuurt has probable reserves of 1.5 million gold ounces, measured and indicated resources of 426,000 ounces and inferred resources of 491,000 ounces.

But the company faces greater obstacles at its flagship Kumtor Mine in the Kyrgyz Republic, on China’s western border. Last month Centerra blamed a Q2 loss of $54.6 million largely on Kumtor’s “abnormal mining costs.” Over the last several months the operation has been hit by an illegal roadblock, a strike and technical problems, as well as government threats to revise its operating licence, change its tax regimen and increase the government’s own interest. The Kyrgyz Republic already holds 33% of the project. Centerra is the country’s largest investor.

Yet the company’s ability to overcome challenges hasn’t gone unnoticed.

Last June the Financial Post quoted Scotia Capital analyst Trevor Turnbull calling Centerra an “unusual buying opportunity.” He added, “Centerra is used to weathering political storms, including the 2010 coup d’e'tat, without impact to its Kumtor Mine, which has been in continuous operation since 1997 and a major component of the economy.”

Getting back to Mongolia, on September 19 Centerra also announced receipt of a mining licence for its Altan Tsagaan Ovoo Project, 800 kilometres from Boroo. ATO’s December 2011 resource shows 824,000 gold ounces measured and indicated, and 26,000 inferred. Exploration drilling continues.

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