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4-Traders Homepage  >  Equities  >  Toronto Stock Exchange  >  Centerra Gold Inc.    CG   CA1520061021

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Centerra Gold : Economic Conditions Kyrgyzstan

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06/24/2017 | 11:09pm CEST


Kyrgyzstan is a landlocked and mostly mountainous country. Its economy is dominated by agriculture, which accounts for about 35 percent of GDP and 50 percent of the labor force. Cotton, tobacco, wool and meat are the main agricultural products, with tobacco and cotton serving as major export commodities. Exports from the industrial sector include gold, mercury, natural gas and electricity. The country's agricultural and industrial production base is small, making the economy vulnerable to natural disasters and external shocks. Kyrgyzstan remains one of the poorest nations in the world; about 35 percent of its population lives below the poverty line. After coping with economic difficulties stemming from the collapse of the Soviet Union and its subsequent independence in 1991 as well as the Russian financial crisis in the late 1990s, the Kyrgyz government has maintained macroeconomic discipline in recent years and established a good track record under successive International Monetary Fund-supported PRGF (Poverty Reduction and Growth Facility) programs. Sound macroeconomic policies contributed to strong economic performance, with acceleration of GDP growth, relatively low inflation, and strengthened fiscal position.

Kyrgyzstan was hit hard by the global economic crisis, in particular by the significant economic slowdown in Russia and Kazakhstan (key trading partners of Kyrgyzstan) through falling exports, investment, remittances, and financial channels. But the government’s anti-crisis response with a significant fiscal stimulus helped Kyrgyzstan weather the crisis relatively well, with the economy still fairly growing in 2009, albeit a substantial decline from the rapid expansion of the previous two years.

As Kyrgyzstan entered 2010 amidst uncertainties in the global economic situation, civil tensions came to a head in April 2010 when President Bakiyev was ousted and an interim government was set up under the leadership of Roza Otunbayeva. Soon after the new interim government took power, its authority was tested by the outbreak of ethnic violence between Kyrgyz and Uzbeks in June 2010. These developments, which damaged the country’s infrastructure, were illustrative of the instability and unrest that often characterizes Kyrgyzstan's political landscape. Shrinking trade and agricultural production, as well as the political instability, led to a contraction in GDP in 2010 and to a huge surge in prices in 2010. The fiscal deficit also widened to about $445 million in 2010, according to government figures, as a result of significant increases in crisis-related spending, including both repair of damaged infrastructure and bank recapitalization. In February 2011, Prime Minister Almazbek Atambayev said Kyrgyzstan badly needed international donor assistance to cut its budget deficit. Inflation is still an issue for Kyrgyzstan, and the region as a whole. The economy grew and the budget deficit was reduced in 2011. In late December 2011, Kyrgyzstan's parliament elected Omurbek Babanov as the country’s new prime minister. “At the first stage, we need to achieve stability, eradicate corruption and fight crime,” Babanov, who previously served as deputy prime minister, told parliament before the vote, according to Reuters. "The nation wants to have more jobs, peace and stability." He went on to say that the government’s main task is to build an economy that would allow the country’s people to feed themselves. Added Babanov: “Our budget now hinges on foreign borrowing, but foreign loans should be channeled to develop the economy, not to support the budget.” As of the end of 2011, Kyrgyzstan's foreign debt totaled about $2.8 billion, more than half of its annual gross domestic product of around $5 billion. Looking ahead, the country needs to focus on progress in reconstruction, fighting corruption, restructuring domestic industry, and attracting foreign aid and investment.

Kyrgyzstan's economy shrank in 2012 due to ice movement in the open-pit Kumtor mine in the Tien Shan mountains. But by early October 2013, the International Monetary Fund revealed expectations that Kyrgyzstan's economy would grow strongly in 2013 and 2014. The IMF cited rising gold output at the country's flagship venture with Canada's Centerra Gold as being behind the positive performance. In a statement, the IMF predicted growth would rebound to as much as 7.8 percent due to "the recovery in gold production and continued strong performance in the non-gold sector."

In September 2013, Centerra reached a memorandum of understanding with Kyrgyzstan that was designed to allow for joint ownership of the Kumtor mine and lead to the resolution of a long-standing dispute. The IMF did give Kyrgyzstan's government credit for fiscal consolidation in 2013 but said the shutdown of the U.S. military base in the country was "creating headwinds." The Kyrgyzstan parliament had voted in July 2013 to give the U.S. one year to close down the base, which is used to fly U.S. troops and cargo in and out of Afghanistan. The U.S. government has paid Kyrgyzstan $60 million a year to lease the base. On top of that, the country was able to collect revenues for other associated services. In September 2013, the cabinet and Centerra had agreed that Kyrgyzstan would trade its 32.7 percent stake in Canada's Centerra Gold for 50 percent in a venture that would own Kumtor. But in late October, Kyrgyzstan's parliament voted to seek control over the proposed gold mining venture with Centerra and nix the 50-50 agreement. Instead, parliament was demanding a 67 percent stake in the new gold venture with Centerra, which currently owns 100 percent of the Kumtor gold mine. The Kumtor mine alone reportedly accounted for 12 percent of the country's GDP in 2011.

As of December 2013, Kyrgyzstan was targeting strong growth in 2014 in large part thanks to a ramp up in production from its gold mining venture with Centerra Gold. However, a disagreement between the state and the Canadian firm threatened to disrupt those plans. The government wanted more revenue from the prosperous Kumtor mine.

By June 2014, the government approved Centerra Gold’s mine plan for 2014 after the company threatened to shut down operations at the Kumtor mine, the country’s largest gold deposit. Under the draft agreement in December 2013, Kyrgyzstan would swap its 32.7 percent stake in Centerra for half of the Kumtor mine, the company's main asset. Kumtor's gold production was expected to be about 550,000 to 600,000 ounces in full-year 2014, according to Reuters.

In July 2014, the IMF moderated its outlook for Kyrgyzstan to around 4.1 percent for the year. Then, in August 2014, Russia pledged about $500 million in financial aid to Kyrgyzstan to support the country’s integration into the Customs Union and the Eurasian Economic Union (EEU). Then in December 2014, Kyrgyzstan agreed to join the Eurasian Economic Union in early 2015.

In June 2015, Kyrgyzstan's government revised the country’s budget for the year, forecasting slower economic growth and a wider fiscal gap due to Russia’s recession and expected lower gold output. The budget had originally forecast GDP growth to accelerate to 6.2 percent this year from an estimated 3.6 percent rise in 2014. The cabinet was now forecasting GDP growth at 2 percent in 2015, according to documents seen by Reuters.

Money transfers by Kyrgyz workers dropped by 37.3 percent year-on-year in the first quarter of 2015 to $199.2 million, according to central bank data cited by Reuters.

In July 2015, it was reported that the U.S. Agency for International Development (USAID) would lose its privileged status in Kyrgyzstan. Kyrgyz Prime Minister Temir Sariyev ordered his cabinet to renounce a 1993 bilateral agreement with the United States, effective Aug. 20. The agreement was the legal framework facilitating U.S. humanitarian and technical economic assistance to Kyrgyzstan. The move was in protest of the award of a U.S. State Department human rights prize to Azimjon Askarov, a journalist and activist who was serving a life sentence on charges of inciting ethnic hatred in Kyrgyzstan.

Economic Performance

After a negative growth in 2005 because of the political upheaval of the Tulip Revolution, real GDP recovered in 2006 and accelerated in 2007 and 2008. But as a result of the deepening of the global economic crisis, real GDP growth slowed sharply in 2009 and contracted in 2010.

According to CountryWatch estimated calculations for 2014:

Real GDP growth rate was: 6.5 percent The fiscal deficit/surplus as percent of GDP (%) was: -6.3 percent Inflation was measured at: 6.4 percent

Updated in 2015

*Please note that the figures in our Economic Performance section are estimates or forecasts based on IMF-based data that are formulated using CountryWatch models of analysis.

Supplementary Sources: Xinhua, Radio Free Europe, Radio Liberty and Reuters

(c) CountryWatch, Inc. 2017. All Rights Reserved. Provided by SyndiGate Media Inc. (Syndigate.info)., source Middle East & North African Newspapers

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Financials ($)
Sales 2017 1 087 M
EBIT 2017 275 M
Net income 2017 191 M
Debt 2017 57,5 M
Yield 2017 0,11%
P/E ratio 2017 8,12
P/E ratio 2018 8,91
EV / Sales 2017 1,48x
EV / Sales 2018 1,42x
Capitalization 1 553 M
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Mean consensus HOLD
Number of Analysts 10
Average target price 6,15 $
Spread / Average Target 15%
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Scott Graeme Perry Chief Executive Officer & Director
Frank H. Herbert President
Stephen A. Lang Non-Executive Chairman
Gordon D. Reid Chief Operating Officer & Vice President
Darren J. Millman Chief Financial Officer & Vice President
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