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Centerra, Tahoe and Eldorado stir markets with news of foreign government deals

September 11, 2017 - 11:21 AM

Shares in three Canadian gold mining companies pitched and soared Monday as investors digested news about long-standing disagreements with foreign governments in their far-flung fields of operation.

Centerra Gold (TSX:CG) stock rose three per cent in early trading after it announced it had settled its dispute with the government of the Kyrgyz Republic. The rise took its gain to 17 per cent since it announced a preliminary deal last week.

Meanwhile, Tahoe Resources (TSX:THO) shares bounded ahead by more than 40 per cent after announcing the Guatemalan Supreme Court had ordered the reinstatement of its Escobal mining licence.

And Eldorado Gold (TSX:ELD) dipped as much as 4.6 per cent after it said it would suspend investment in several Greek mines over delays in obtaining government permits.

"I think the question for (Tahoe), as with Centerra, as with Eldorado and really any company facing uncertain geopolitical environments and an unstable tax regime or ownership regime, is how much of a discount will the market place on those assets going forward?" said Michael Siperco, an analyst for Macquarie Capital Markets.

Centerra said it had finalized a deal that lifts government restrictions on the ability of its Kyrgyz subsidiary Kumtor Gold to transfer cash back to Canada and allow the free movement of its employees.

CEO Scott Perry said the deal is a "comprehensive resolution to all of the outstanding matters affecting the Kumtor project" in a statement.

Kumtor Gold is to make a one-time payment of US$50 million and annual payments of US$2.7 million to a new government-administered nature development fund, along with a one-time payment of US$7 million and a second payment of US$3 million to a new cancer care support fund.

In addition, Kumtor Gold will accelerate its annual payments to a reclamation trust fund in the amount of US$6 million a year until the total reaches the estimated reclamation cost for the Kumtor Project.

Analysts applauded the news, noting that the ongoing fighting with the Kyrgyz government, which owns 27 per cent of Centerra's stock, had robbed the company of cash needed for investment in other current and future projects.

"It's a lot of money. It's unfortunate they have to pay anything," said analyst Trevor Turnbull of Scotiabank.

"But they had US$300 million locked up there and US$400 million in potential (environmental claims), so to settle US$400 million worth of these claims for US$50 million, that's not a bad outcome."

Siperco said Eldorado's announcement is a "Groundhog Day scenario" because it also suspended investment between January and May 2016 over a disagreement with the Greek government.

One of Greece's largest foreign investors, Eldorado operates mines in northern Greece that have faced vehement opposition from parts of local communities on environmental grounds, with protests often turning violent.

Tahoe said in a news release Sunday the Supreme Court had reversed a preliminary decision to suspend its license in connection with a legal action against Guatemala's mining ministry.

However, it said an ongoing "illegal" roadblock will prevent an immediate restart of its operations.

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News from © The Canadian Press, 2017
The Canadian Press

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