Exclusive: Evidence of Chinese Interests driving Effort to block Stans Energy in Kyrgyzstan
Robert Mackay, CEO of Stans Energy Corp (‘Stans’, TSXV: HRE | OTCQX: HREEF) spoke to ProEdgeWire about what appears to be a Chinese government backed rare earth company’s efforts to block, and possibly take over Stan’s rare earth producing and processing facility in Kyrgyzstan. Stans Energy is the sole owner of Kutessay II, a past-producing heavy rare earth mine.
Stans Energy Corp. (‘Stans’, TSX-V: HRE,) was forced to halt trading from April 1 to April 3 in response to a renewed effort by some Kyrgyz government members to interfere in Stan’s activities by targeting its local subsidiary ‘Kutessay Mining LLC’. The MP’s alleged that Stans improperly acquired the license to develop the Kutessay-2 deposit. However, Stans has already successfully and irrefutably defended its legal right to the property in a series of Court cases, the last ending on March 4. On that date, the Kyrgyz Republic’s legal representative was forced to withdraw an appeal against the Company in the Inter-District Court of Bishkek in the face of overwhelming evidence in Stan’s favor, formally validating its rights over the Kutessay-II license and backing a previous verdict issued in Stans’s favor to this effect last November.
Stans acquired a 20-year license for the development of the Kutessay-2 field in 2009, at the price $860.000. Two years later the company completed the purchase of the local Kashkinsky plant of rare earth elements, specialized in the processing of rare earth elements from the Kutessay-2 field during Soviet times, delivering up to 80% of the USSR’s rare earth supply. Kutessay-2 contains up to 15 rare-earth elements, as well as lead, zinc, silver, bismuth, molybdenum, thorium, tin, and copper. In addition, it contains niobium, tantalum and hafnium. The property is very desirable because of its proven metallurgy and until Lynas (ASX: LYC) started production last March, Stans was the only operational REE processing facility outside of China
Stans has always been able to defend itself, producing all relevant documents filed since the outset of its venture, confident in its right of ownership owing to its unwavering and transparent observation of Kyrgyz law and with the approval of the Kyrgyz Parliament from the time of acquisition to the launch of operations. Indeed, were the case to move to international arbitration, Stans would win it outright. Mining is crucial to the Kyrgyz economy and the legal entanglements affecting Stans Energy suggests that the obstacles have a political motivation. Yet this is only partially so. Certainly, factional politics have had their repercussions on foreign owned businesses, mining ones in particular. The nationalist Ata Zhurt party, in opposition, has shown hostility to foreign owned companies, in the hopes of intimidating them into abandoning the country.
A wasteful legal quagmire
The pointless pursuit of legal disputes with foreign investors is self destructive as it will discourage others from even considering Kyrgyzstan. Oddly, the current government in Bishkek, the capital, has a mandate to improve the investment climate in order to attract foreign investment. It is clear, however, that some MP’s have been deliberately sabotaging these valuable goals as well as showing a lack of respect for the judiciary and its verdicts. Such an attitude, given its plain contradiction to Kyrgyz national interest, raises suspicions. The most obvious is that the MP’s acting against Stans – and against the interests of the Kyrgyz people-have strong personal incentives or motivations to act against Stans. Given that the country is in dire need of investment, it is unlikely that there is a domestic party interested in taking over Stans’s license and developing the project. Evidently, there must be an external entity involved. It had been suggested in a previous article that the source of the ‘odd’ attitude from certain MP’s might be Chinese in origin.
China has been investing billions in Central Asia as it needs security and stability to prevail in this crucial region at the crossroads of energy pipelines and mineral resources. The anti-Stans MP’s then may be looking for a ‘better deal’ with China, by taking Stans’ license away and granting it to a Chinese company. Even if that were legally possible, it would still fall short in explaining why the MP’s might have been persuaded. Stans management has decades of mining experience, bringing novel practices to the country and offering better conditions to employees and Kyrgyz government alike. It would be most unusual for a Chinese investor to be able to do better. No, the motivation for the MP’s is personal and points to some form of baksheesh having been promised, or already given, to specific MP’s. Robert Mackay has come across evidence pointing precisely in this direction.
In the exclusive interview given to ProEdgeWire, he has disclosed the details of an orchestrated attack against Stans by a Chinese organization through Kyrgyz public officials, namely, members of the Ar-Namys Party including MP Nurzhan Badykeeva, who led a parliamentary committee of the Jorgorku Kenesh, (the Kyrgyz parliament) to demand the State Geological Agency to annul Stan’s licences for Kutessay II and the Kalesay deposit, subjecting them to a new government auction. The matter was brought before the Courts, which validated Stans’s ownership in two separate cases. It seemed that the end of the nine months of legal bickering had been reached last March 4 when Badykeeva’s Committee dropped all claims. Yet, this was not because the MP’s had suddenly remembered where they had last seen their reason. It was a mere shift of tactic because on March 15, the same parliamentary group put pressure on the Kyrgyz State Geological Agency, suing it over Stans’ mining license acquisition in 2009 and citing its local subsidiary, Kutessay Mining LTD, as a co-defendant in the case. Meanwhile, the Kyrgyz Chemical and Metallurgical Plant” (KCMP), from which Stans had acquired all legal rights to the Kashka plants, to the surprise of all concerned was still claiming to the Chinese that they owned the plants.
Stans found this out when it started to entertain calls from the Chinese Baotou Hongbo Te Technology LLC (Baotou), a group that had previously owned 60% of Central Asian Metals, the license holders of Kutessay II from 2006-2009. Baotou claimed to have reached an agreement with KCMP when they re-acquired the license, demanding some form of cooperation. Stans’ management met Baotou in June 2012 but refused to continue the discussions noting that their proposals presented to Stans would have no benefit for Stans’ investors. Baotou thought it was dealing with amateurs, trying to entice Stans into collaboration by boasting that it could put Kutessay II back into production at double the historic rate for USD$ 10 million. Stans had a market capitalization of over $100 million dollars at the time, and Baotou was essentially asking to buy 60% of the property for 6 million dollars – an absurd offer, and one that was structured in antagonism with Kyrgyz law. Stans refused any deal with Baotou. Coincidentally, it was shortly after that meeting that MP Badykeeva launched the anti-Stans rhetoric. And Baotou has been actively seeking to regain control of the Kutessay II deposit. To this effect, Baotou contacted international rare earth processing groups, claiming to have control of the Kutessay II license.
One of the groups in question was Solvay/Rhodia, which disclosed the Chinese efforts to Stans. Moreover, in its haste and greed, Baotou also sent 3 separate letters to Kyrgyz Government officials, revealing an intent to pay a USD$100,000 ‘baksheesh’ to certain government officials to keep their license in 2009 –before Stans acquired it through legal and transparent methods. Baotou’s effort failed because the partner entrusted to deliver the kickbacks was rather unreliable, keeping the entire sum. More evidence of such unsavory practices emerged when Alastair Neill, a well known consultant in the Rare Earths mining industry with many years of experience in China as well, was asked by Baotou to discuss project finance prospects for a rare earth property in Kyrgyzstan, adding that it had lost the property in an unfair manner. Baotou also claimed to own 67% of Central Asia Metals while a legal contact in Kyrgyzstan owned 13% and held an additional 20% in trust on behalf Kyrgyz Government officials that are secretly hiding ownership of Kutessay through Baotou. In addition, they also revealed that one legal contact in particular was working behind the scenes to take back Stans’ license by the third quarter of 2013 and for the ‘fee’ of USD$1.5 million. Alistair Neill’s role would have been to find the financing to complete the deal.
Chinese actions against Stans hurt its own Interests – as well as those of other Investors and Kyrgyzstan
The series of meetings and links has ultimately explained why and how it has been possible for Stans to be the target of such a relentless campaign to shut it down by certain parliamentary officials. There are no environmental concerns, no social concerns and no labor rights concerns at heart; the campaign has been motivated by personal gain and through methods that in any Court would be called out for the corruption that it represents. If Stans has been targeted, apart from the obvious political risks, it can also produce significant evidence, if any were needed that its Kutessay II project has tremendous strategic value and metallurgy having is a highly desirable characteristic. Stans’ ordeal also strengthens the need for Western and other companies to secure reliable rare earths supplies to avoid dependence on China.
If any more proof were needed of selfishly motivated interference into Stans’ activities in Kyrgyzstan, its geological society fears that the country has fewer mineral resources than at first believed. It is evident, therefore, that its development requires foreign expertise and foreign capital. And given the importance of mining to the economy, foolish practices would eventually come back to bite corrupt or misguided officials, breeding suspicions with the population, which will grow ever more upset by its leaders. In Kyrgyzstan’s difficult economic and political situation, the pursuit of goals through corrupt and unfair means is not affordable. The actions of politicians, subjected to offers of illicit gain from abroad, may go out of control and generate an unpredictable situation. Chinese companies such as Baotou, moreover, are acting against Kyrgyz and Chinese interests alike, apart from illegally encroaching on Stans Energy’s efforts. China needs a stable Central Asia and the planned withdrawal of U.S. troops from Afghanistan, in 2014, could lead to instability in the region, jeopardizing the safety and growth of Chinese investment in this area and in the breakaway province of China’s Xinjiang region.
China’s main interests in Central Asia are energy supply and security of the western border. Kazakhstan, Kyrgyzstan and Tajikistan (as well as Afghanistan and Pakistan) border with the Chinese province of Xinjiang region, where much of the population is of Uyghur origin, a Muslim people with much in common with their Central Asian neighbors. If China wants to keep the spread of Islamic fundamentalism in check, one of its biggest fears, it must allow the States of the region to develop in the best way possible and to attract foreign investors. The government of Kyrgyzstan must reduce corruption and ensure greater transparency. Its measure of success will be its ability to raise the country’s economic performance and contain, and reverse, the spread of poverty. Honoring its commitment to Stans Energy will send the right signals to foreign investors and go a long way to achieving its goals.