🏆New Chapter 11 Bankruptcy Filing – Kumtor Gold Company CJSC🏆
On May 31, 2021, Kyrgyzstan-based Kumtor Gold Company CJSC and one affiliate (together, the “debtors”) filed chapter 11 in the Southern District of New York. For those who could use a geography refresher:
Kumtor is a gold mining operation in Kyrgyzstan that’s wholly owned by Toronto-based Centerra Gold Inc. ($CGAU). To say that it’s an important aspect of the country’s economy would be an understatement. Per the company:
At a great altitude reaching the glaciers of southeastern Kyrgyzstan “hides” one of the key pillars of this country’s economy, the unique Kumtor mine.
This first and most important operation in the Kyrgyz mining sector is based on foreign investment. At the present time, Kumtor’s output accounts for more than one-third of the national export of goods and services, its mission being not limited to production alone.
The Kumtor open pit mine is the largest gold mine in Kyrgyz Republic.
The mine produces gold doré (partially refined gold). Here’s the kicker: all of that gold doré is purchased by Kyrgyzaltyn JSC, a Kyrgyzstan state-owned corporation that operates a gold refining monopoly in the country. This whole setup is governed by a deal that the parties papered in 2009. In addition, Kyrgzaltyn owns 26.2% of Centerra.
The debtors are highly balance-sheet solvent—they hold $1.14b in assets versus $147.5m in liabilities, effectively none of which is funded debt. The company’s liabilities include:
$88.5m in accounts payable;
$56.5m provision for site restoration relating to the Kumtor mine; and
$2.6m in unspecified funded debt.
It’s rare, but not unheard of, for a debtor to be solvent when entering chapter 11. Sometimes, like in the case of PG&E Corporation ($PCG), widespread litigation is more properly managed in chapter 11. Other times, like in the case of the National Rifle Association, the chapter 11 petition is just straight up filed in bad faith. This situation more closely resembles the former.
The debtors have been struggling to navigate the volatile Kyrgyz political environment, which includes alleged government corruption. In 2014, for example, the Kyrgyz government had an INTERPOL Red Notice issued for the arrest of Centerra’s CEO. The debtors claim this was an attempt to pressure Centerra to enter a new revenue-sharing agreement with the government. Centerra’s CEO was ultimately released by a Bulgarian court after it determined that there was no evidence.
The following description of events involving the country’s current President sums up how insane the past few years have been:
In 2017, the current President of the Republic, Sadyr Japraov, was convicted of attempted kidnapping and the hostage-taking of another Kyrgyz official during protests against the Kumtor Mine that occurred in 2013 (the “2013 Kidnapping Incident”). Mr. Japarov was sentenced to 11.5 years in prison and began to serve his sentence in that year.
In October 2020, the Republic held parliamentary elections. Violent protests followed the results of those elections. In the wake of those protests, Sadyr Japarov saw his conviction overturned and, within days, Mr. Japarov was appointed interim President of the Republic following the forced resignation of his predecessor. Mr. Japarov was later elected President of the Republic in new elections held in January 2021 and, following a referendum, has significantly expanded the powers of the presidency in the first half of this year.
As part of that expansion of power, the Kyrgyz government began taking actions that, according to the debtors, are an attempt to nationalize the Kumtor mine. The debtors are currently facing the following actions:
The criminal investigation into and seizure of the Kumtor mine under new law and government orders;
A $3.1b judgment for environmental damages and a levy of $15.45m in favor of the government;
A $24.9m insurance penalty judgment; and
Tax claims totaling $124m.
Strange coincidence that each of these just so happened to appear as soon as the government started trying to nationalize the Kumtor mine. According to the debtors, these actions violate the parties’ 2009 agreement. The debtors and Centerra initiated binding arbitration alleging breaches of the 2009 agreement and seeking injunctive relief against the government.
One has to wonder how much of an impact this chapter 11 process will have considering the tight grip that the Kyrgyz government has on the Kumtor mine.
Jurisdiction: S.D.N.Y. (Judge Lisa G. Beckerman)
Legal: Sullivan & Cromwell LLP (James L. Bromley) & Stikeman Elliot LLP
Claims Agent: Stretto (Click here for free docket access)
Other Parties in Interest:
Legal: Arnold & Porter Kaye Scholer LLP (Benjamin Mintz, Seth Kleinman, Lucas Barrett)