Kentor Gold's Andash project to benefit from new Kyrgyz Republic...

Kentor Gold's Andash project to benefit from new Kyrgyz Republic laws
Monday, September 24, 2012 by John Phillips

For Kentor Gold’s Andash project, the overall impact of the new Kyrgyz Republic laws to improve mining industry development should be positive, balancing the increased tax burden at higher gold prices.

Kentor Gold (ASX: KGL) has provided an update to the market on the Andash Gold Copper Project, located in the Kyrgyz Republic - which has the potential to be one of the world’s lowest cost gold mines.

The plan for Andash is to be a high grade, low cost operation. The project is development ready, awaiting site access and targeting 2013 for production at an average annual rate of 70,000 gold ounces and 7,400 tonnes copper for an initial six years, with high potential for expansion.

Andash has a JORC Ore Reserve of 539,730 gold ounces and 63,486 tonnes copper, and a Resource of 19.2 million tonnes at 1.1g/t gold and 0.4% copper for 679,023 gold ounces and 77,300 tonnes copper.

International environmental audit

Kentor has provided an update on recent activity towards finalising local approval for the development of Andash. The international environmental audit has concluded that the Andash Project as designed is environmentally sound.

The Russian environmental auditing organisation EMAS was commissioned in mid-July to review the Andash project. Kyrgyz Government authorities will now coordinate public presentations of the EMAS findings. The report has been provided to the Interdepartmental Commission on Andash.

Kentor advised the market last month that the Kyrgyz Government established a Commission to resolve the issue of expediency.

New laws will have a positive impact on Andash

New laws that will have a positive impact on the Andash Project and the mining industry generally came into force on 17 September 2012.

The new legislation comprised a new Law on Subsoil, and amendment to the Land Code, the Tax Code and the Law on Non-Tax Payment. The Minister of Economy and Antitrust Policy Temir Sariyev said that the new legislation had been designed expressly to improve the investment climate in the Kyrgyz Republic.

For Kentor’s Andash, the overall impact of the new legislation should be positive, balancing the increased tax burden at higher gold prices. The increased security of tenure and guarantees of access to land give significant comfort.

Simon Milroy, managing director of Kentor, commented: “We look forward to such a demonstration of resolve from the new Prime Minister immediately on taking office resulting in the effective application and enforcement of the laws throughout the Kyrgyz Republic, and a new era in cooperation between mining companies and local communities.”

Taxation

- Gold production is now exempt from income tax. Instead, gold production will be subject to a sliding scale of revenue tax ranging from zero at gold prices below US$1,200 per ounce to 20% at gold prices above US$2,500; and

- A contribution to local government budgets of 2% of gross revenue is now mandatory. Kentor had already volunteered 1%; and

- Royalty of 5% on gold production and 3% on copper production remains unchanged.

Analysis

The importance of the new Kyrgyz Republic mining laws is that they have the potential to deliver a positive impact for Kentor's Andash project.

Andash could be one of the world’s lowest cost gold mines, with a cash cost US$29/oz gold (after copper credits and royalty). The Capital Cost is US$96 million, with a Base Case NPV of US$130 million (US$1,000/oz gold and US$2.75/lb copper).

These metrics would be boosted on current metal prices of over US$1700 per gold ounce and US$3.70/lb copper. The Corporate Income Tax is 10%, with Sales Tax 1.5% and Royalties of gold 5%, copper 3%.

The plan for Andash is a 1.6mtpa to 3.2mtpa throughput, simple and conventional open pit and flotation plant, with a three stage crush, grind, float process.

Average annual production is 70,000 gold ounces and 7400 tonnes copper, with a high grade concentrate 24.5% copper and 72g/t gold.

The initial mine life is six years, with resource/reserve expansion likely to significantly increase mine life.


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