THE KYRGYZ REPUBLIC

COUNTRY OVERVIEW

Demographics and Geography

The Kyrgyz Republic is a landlocked, independent republic situated in Central Asia. It is bordered by Kazakhstan in the north, China in the east, Tajikistan in the south and Uzbekistan in the west. The capital city of Bishkek is located in the northern part of the country. Osh is the second largest city, located in the south. The population of the Kyrgyz Republic is approximately 5 million people.

The Kyrgyz Republic has a total area of approximately 200,000 km2 - about the same size as the Australian State of Victoria. The climate varies greatly: dry continental to polar in the high Tien Shan region; subtropical in the south-west Fergana Valley; and temperate in the northern foothill zone. The mountainous peaks, associated valleys and extensive river systems of the Tien Shan encompass the entire nation.

The official languages of the Kyrgyz Republic are Kyrgyz and Russian. In terms of religion, 75% of the country is Muslim, and 20% Russian Orthodox.

Politics and Government

The area that is now the Kyrgyz Republic was annexed by Russia in 1864. The country declared its independence from the Soviet Union in 1991 and became a member of the Commonwealth of Independent States (CIS).

President Kurmanbek Bakiev was elected to power after the resignation of Askar Akaev in March 2005. The period immediately following the departure of Askar Akaev was marked by power struggles and challenges to authority. The adoption of a new Constitution by national referendum in 2007, followed by parliamentary elections in December of the same year, appears to have resolved all outstanding issues about how the country is governed. President Bakiev's party commands a sound majority in the Kyrgyz national parliament, and this has led to a more constructive relationship between government, the presidential administration, and parliament.

The Constitution of the Kyrgyz Republic lays down the division of powers between the executive, the legislature and the judiciary.

Executive power is vested in the President, who is elected for a five-year term by universal suffrage. All citizens over the age of 18 years are eligible to vote. The President is Head of State and Commander-in-Chief of the armed forces and may only serve for two consecutive terms in office. The Prime Minister, Ministers and leading state officers are appointed by the President.

The Kyrgyz Parliament, the Jogorku Kenesh, consists of a single chamber of Deputies (90 seats). Deputies of the Jogorku Kenesh are elected for a five-year term. The next parliamentary elections will be held in 2012.

Justice in the Kyrgyz Republic is administered by the Constitutional Court, the Supreme Court, the Higher Arbitration Court and local courts (courts of oblasts, Bishkek City court, district and municipal courts, arbitration courts of the oblasts and city of Bishkek and military courts). The Constitutional Court is the highest judicial body for the protection of the Constitution. The Supreme Court of the Kyrgyz Republic is the highest judicial body in the areas of civil, criminal and administrative court proceedings.

Economy

The national currency of the Kyrgyz Republic, the Som, is freely convertible at a floating exchange rate and has remained relatively stable since 2004. The economy is predominantly agricultural with two thirds of the country's population living in rural areas. The country contains deposits of gold and rare earth metals as well as coal, oil and natural gas.

The Kyrgyz economy has undergone a transition to a market-oriented economy with support of leading international development institutions such as: the International Monetary Fund (IMF); the World Bank; the Asian Development Bank (ADB); and the European Bank for Reconstruction and Development (EBRD).

The Kyrgyz Republic was one of the first member-countries in the CIS and became a member of the World Trade Organization (WTO) in 1998 to enhance its economy through increased international trade.

The relatively small size of the economy means that mining and, specifically the Kumtor mine operated by Canadian company Centerra Gold Inc, plays a particularly important role in the economy. Kumtor has operated since 1997 and is the largest private sector employer and foreign investment in the country. It contributes more than 30% of Kyrgyz export earnings and about 10% of tax revenues. Consequently, exploration and potential mine development has a very high profile within the country.

The income tax rate remains low at 10 percent for both individuals and corporations. Since 2008, the Kyrgyz Government has been making efforts to improve fiscal regulation through the adoption of a new tax code. It is believed that the new tax code will respond to modern economic trends and simulate business activities.

Exploration Activity

Sustained exploration activity in Kyrgyz Republic has resulted in significant discoveries by Perseus Mining Ltd and Chaarat Gold Holdings. Fifteen western listed companies are active in the republic, with gold and uranium being the favoured targets.

The Kyrgyz exploration field season generally runs over the summer months from June to October. Kentor Gold places its exploration team into the field for intensive exploration activity during this period. The Company's prospects are located both in the lower part of the country (2000m above sea level), where the season is slightly longer, and in high country (4000m above sea level) where conditions are more extreme and the season is approximately one month shorter.

Kentor Gold has progressed exploration at the Savoyardy project sufficiently to allow for underground operations. Therefore the Company now has the advantage of year-round exploration at this site.

Mining Sector Regulation

The legal system has undergone substantial reform since the country became an independent state in 1991 and it is still evolving. Many exploration and mining related laws are now similar to those of countries with a strong mining sector.

Mineral exploration and mining activity is subject to the Law on Subsoil which regulates the relationship between government and private entities when conducting mineral resource exploration and mining. The mining sector is administered by the State Agency for Geology and Mineral Resources (SAGM). The Director of the SAGM reports to the Prime Minister.

The appointment of a new SAGM Director in 2008 with a degree in geology, reflects the determination of government to continue the high level of activity in the minerals sector.

The SAGM is working on the draft of a new Law on Subsoil which is due to be enacted in 2008 and will acknowledge the role of market forces rather than relying on bureaucratic controls.

The two forms of licence relevant to Kentor Gold's activities are:

• the licence for geological study of underground mineral resources (The Australian equivalent of an exploration licence); and
• the licence for development of mineral deposits.

Exploration licences are issued for an initial period of two or three years, and are then renewable annually for up to a total of 10 years, provided that the licensee has kept to the conditions specified under the licence agreement.

Discovery of a deposit gives the licence holder the automatic right to a mining licence.

All the tenements held by Kentor Gold's subsidiaries, CJSC Kentor and CJSC Kyldoo, are licenced for geological study of underground mineral resources and are administered by the SAGM.

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