Centerra Gold suspends dividends as cash flow tightens

Cash-strapped Centerra Gold Inc said on Friday that it will suspend its third-quarter and future dividends, citing financial restrictions by Kyrgyzstan on its key subsidiary, Kumtor Gold Co. The company, whose stock dropped as much as 7.15 percent to C$6.75 on the Toronto Stock Exchange in volatile Friday trading, said its board would reassess the decision after the issue with Kyrgyzstan is resolved.
A Kyrgyzstan court ruling in June restricted Kumtor from making certain financial transactions, including the transfer of money to parent Centerra. Centerra added the dispute to an international arbitration proceeding it initiated in May to challenge of Kyrgyzstan's actions and claims. The Kyrgyzstan government has long sought to renegotiate its 2009 agreement with Centerra to secure a bigger share of income. Centerra, the country's biggest foreign investor and taxpayer, has been the subject of lawsuits, multimillion-dollar fines and a criminal probe there.
The Central Asian country holds a 27 percent stake in Centerra though state miner Kyrgyzaltyn, and will lose approximately $9.5 million in annual dividends under the suspension, said RBC Capital Markets analyst Stephen Walker in a note to clients. Kumtor had a $122 million third-quarter cash balance, which Walker estimates could grow to about $200 million by year-end as higher-grade ore is mined in the current quarter. Given Centerra's restricted cash flow, it is a "prudent decision" to suspend the dividend, which equates to $35 million annually, he wrote.
Toronto-based Centerra agreed to buy US-based Thompson Creek Metals in July for about $1.1 billion, including nearly $900 million of debt. Factoring in that deal, and excluding Kumtor's cash, Walker estimates that Centerra has about $190 million of available liquidity. Centerra also said on Friday that it gained an extension for an undrawn $150 million credit facility, earmarked for the development of its Oksut project in Turkey. The company cautioned, however, that there is no assurance it will meet facility conditions on permitting by the new June 30, 2017 deadline.