Centerra shares drop on concern over Mongolia

By Julie Gordon

TORONTO (Reuters) - Shares of Centerra Gold fell nearly 7 percent on Thursday on concern about political risk in Mongolia even as the company said its Gatsuurt project was not on the Asian country's list of licenses to be revoked.

This week, Mongolia's cabinet announced a plan to start pulling mining licenses under the Water and Forest Law, beginning with 254 alluvial gold-mining licenses.

Toronto-based Centerra has four licenses on the list, but it said none of them are material to the company.

The company had previously received notice that Mongolia could revoke its Gatsuurt license under the legislation and was asked to provide the government with a compensation estimate.

"I think there's a lot of risk there that (Gatsuurt) might get taken over," said Salman Partners analyst David West, adding that shares were falling on investor concern about such a possibility.

The Gatsuurt project is located some 35 km (21.7 miles) from Centerra's Boroo mine, its main Mongolian property, and has 1.2 million ounces of indicated gold resources.

BAD FOR BOROO

Centerra said Boroo was exempt from the law, as it is a "mineral deposit of strategic importance."

Regulatory issues have hampered the project since June 2009, but the mine produced 27,551 ounces of gold in the third quarter of 2010.

A heap leach facility at the site, which uses cyanide to extract gold from crushed ore, has been shut down since April 2009 pending a final operating permit.

"As far as Boroo moving forward, that kind of depends on Gatsuurt," said West. "If Gatsuurt does not get permitted, then really, at that point, Mongolia is nonexistent for Centerra."

In July 2009, the Mongolian Parliament enacted legislation that would prohibit mineral prospecting, exploration and mining in water basins and forest areas, and provided for the revocation of licenses affecting such areas.

Canada's Khan Resources has been caught in an eight-month-long legal dispute with Mongolia's Nuclear Energy Agency (NEA) over exploration at Mongolia's largest uranium deposit.

Shares of the Toronto-based miner were down as much as 6.8 percent at C$16.11 on Thursday, before recovering slightly to C$16.48 by midday on the Toronto Stock Exchange.

($1=$1.02 Canadian)

(Additional reporting by Isheeta Sanghi in Bangalore; Editing by Frank McGurty)