EDITOR: | February 11th, 2014 | 6 Comments

Kyrgyz chessboard of Russian, Chinese and U.S. interests takes pragmatic turn

| February 11, 2014 | 6 Comments
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kyrgyzStans Energy Corp. OTCQX:HREEF was up + 53.62% and TSXV:HRE was up +36.36% for the week ending Friday, February 7th, so Tracy asked me to find out what was going on…literally on a plane this morning with a top-notch Kyrgyzstan expert, this is my geo-economic perspective…

Stans Energy Corp.  (‘Stans’) recently announced the Government of Kyrgyzstan has established an inter-departmental working group to deal with the Company’s current International Arbitration claim. The working group has the mandate to negotiate with Stans and to reach an out-of-court settlement. Prime Minister Satybaldiyev himself formed the group, appointing a series of mining and geological authorities to it. The announcement comes in what appears to be a favorable evolution of the Kyrgyz legal context. Two of the main political figures who mobilized disruptive action against the Kumtor gold mine, Bakhtiyar Kurmanov and Ermek Dzhunushbayev, were recently sentenced to 7 years of imprisonment by the chief judge of the Pervomai District Court, Almazbek Moldobayev.

The two men had organized and participated in disorders blocking work at the mine as well as extorting one of Kumtor’s top managers. They were sentenced under the Articles “Hooliganism” and “Arbitrariness” of the Criminal Code. This is a welcome development because it suggests that the courts are hitting hard against those organizing illegal action against – especially foreign owned – mining operations. Stans Energy, as an employer, was well respected in the local community and enjoyed its support, even if has suffered similar disruptions as those faced by Kumtor. Meanwhile, the arbitration proceedings will continue as was determined at a hearing on February 6, 2014, in Moscow and a detailed plan of the hearings should be released promptly.

This is another encouraging signal. The resumption of arbitration hearings imply that the Kyrgyz government and Stans will be re-engaging in dialogue, allowing both sides to express their needs and concerns, eventually leading to Stans resuming full activity, producing rare earths, at its Kutessay II property as the desired outcome. Stans’ interim CEO and President, Rodney Irwin, is said to be optimistic about the arbitration talks. Opportunist political leaders use foreign companies as scapegoats to gain stature and influence even as they drive away necessary investment. However, a new and more pragmatic government, which came into power toward the end of September, has shown that it is serious about improving the business conditions for mining companies. The government has made it very clear that it considers mining and extraction to be core economic sectors that are not to be tampered with, much to the satisfaction of mining firms. The government has also announced that it would vastly increase the number of mining and geological experts working at the State Agency for Geology and Mineral Resources, which is oversees licensing procedures and management.

Stans filed an arbitration claim on October 30, 2013, claiming, “Certain actions by agencies and/or representatives acting on behalf of the Government of Kyrgyzstan were aimed to impede the Company from executing its responsibilities under its licence and have created conditions for termination of the operations of Kutessay Mining LLC”. Stans claims that the Kyrgyz government adopted a series of regulations since 2012 that led to the closure of Kutessay II. In March 2013, the Kyrgyz Prosecutor General’s Office filed a lawsuit against the state Kyrgyz Agency for Geology and Mineral Resources complaining about the terms under which Stans Energy acquired the mining license for Kutessay II. In fact, then CEO Robert Mackay, legally and rightfully 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.

Kyrgyzstan is one of the diplomatic chessboards where the confrontation between Russian, Chinese interests and US will be most intense. The country has also suffered ethnic strife, as tensions between Chinese and Uzbek minorities exploded in violence in 2010, discouraging foreign investment. Kyrgyzstan, unlike its neighbors, has been a parliamentary republic with a strong prime ministerial role since 2010, yet its path to democracy has been marred by factional confrontations loaded with repercussions for foreign owned mining businesses. The Kyrgyz Parliament has continued to attempt nationalizing the Canadian owned Cemterra Kumtor goldmine in a ploy aimed to secure a greater government share in the profits. The opposition has been using mining as a weapon in a purely political struggle, dragging rural communities and alleged environmental violations into the mix as buffers.

The government has been taking the right steps; however, in order to offer foreign mining firms a more reliable regulatory framework, it should establish more control in rural areas, leaving the locals less susceptible to unscrupulous manipulation. Nevertheless, the current government has been very serious about improving the investment climate and reducing political risks for such companies as Stans Energy and the other miners operating in Kyrgyzstan. Kyrgyzstan’s parliament, last week, isolated the nationalists who wanted to lift Centerra Gold’s license to operate at the Kumtor mine, by proposing a 50/50 joint venture agreement that investors seemed to appreciate as the company’s stock rose 1.5% on the news. The government will have to restructure the project under the terms of the agreement and further negotiations with Centerra are expected, but the parliamentary in Kyrgyzstan barometer appears to have swung back in favor of the pragmatists, which is good news for Stans.


Editor:


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Comments

  • @legant66

    Love to hear from the Horses mouth on exactly where this fantastic prospect / project is going.When will we hear more from Management? Has the dust finally settled on the contentious side of this one?

    February 11, 2014 - 12:37 PM

  • Sunnyvale

    A welcome piece on what has been an opaque process. Thank you.

    February 11, 2014 - 12:55 PM

  • David Mortimer

    Stans should already be in production but for chinese interests behind the scenes bribing Kyryg politicians who have put road blocks in front of Stans lets hope we will shortly be able to do some mining .

    February 11, 2014 - 5:20 PM

  • Alexander

    I was told that Stans want to re-sale their licence instead of organizing real production.

    February 12, 2014 - 2:39 AM

    • David Mortimer

      Where did you hear that ? At the AGM that was never mentioned they would have to get the share holders to agree to that before they could do it.

      February 12, 2014 - 5:40 AM

  • jochen reuter

    Stans wants to come into production but Stans will not be willing to be buttered up by those who right now offered the mediation.

    They hopefully will insist on international arbitration- which means also a “monitoring” in the future : Only this approach keeps a) away the Chinese guys ( I was told that they have left KG already once they had lost the latest court meeting and that hongbo has not been backed by chinese government…) and b) under control KG authorities.

    We now have a two-pillar strategy: mediation and / or arbitration.
    The best what could have happened !
    The whole thing will be decided very quickly. A matter of weeks, not years.
    Sincerely spoken: I prefer a bit of political trouble instead of a missing or insufficient metallurgy. Remember that Stans and Solvay are the only ones outside china who can cope with the metallurgy.
    I am confident.

    February 12, 2014 - 9:31 AM

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