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Alamos Gold announces investment treaty claim against Republic of Turkey

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Global Mining Review,

Alamos Gold Inc has announced that its Netherlands wholly-owned subsidiaries Alamos Gold Holdings Coöperatief U.A, and Alamos Gold Holdings B.V. will file an investment treaty claim against the Republic of Turkey for expropriation and unfair and inequitable treatment, among other things, with respect to their Turkish gold mining project.

The claim will be filed under the Netherlands-Turkey Bilateral Investment Treaty, and is expected to exceed US$1 billion, representing the value of the company’s Turkish assets.

Alamos has had an active presence in Turkey since 2010. Over that time frame, the company’s Turkish operations have met all legal and regulatory requirements, complied with best practices relating to sustainable development including meeting the highest environmental and social management standards, created hundreds of jobs, and developed trusting relationships with the local communities. Alamos and the Subsidiaries have invested over US$250 million in Turkey, unlocked over a billion dollars worth of project value, and contributed over US$20 million in royalties, taxes, and forestry fees to the Turkish government. Over the life of the project, government revenues alone are expected to total US$551 million. Additionally, Alamos and the Subsidiaries have invested US$25 million to date towards various community and social initiatives.

In October 2019, well into construction of the Kirazli Gold Mine, the government failed to grant a routine renewal of the company’s mining licenses, despite the company having met all legal and regulatory requirements for their renewal. This past October, the Turkish government refused the renewal of the company’s Forestry Permit. The company had been granted approval of all permits required to construct Kirazli including the Environmental Impact Assessment approval, Forestry Permit, and GSM (business opening and operation) permit, and certain key permits for the nearby Agi Dagi and Çamyurt Gold Mines. These permits were granted by the Turkish government after the project earned the support of the local communities and passed an extensive multi-year environmental review and community consultation process.

In its effort to secure the renewal of its mining licenses, the company has attempted to work cooperatively with the Turkish government, has raised with the Turkish government its obligations under the treaty, has sought to resolve the dispute by good faith negotiations, and has made considerable effort to build support among stakeholders and host communities. The Turkish government has failed to provide the company with a reason for the non-renewal or a timeline for renewal of its licenses.

The failure to renew the company’s mining licenses will result in the loss of over a half a billion dollars in future economic benefits to the Republic of Turkey, including tax and other revenues, and thousands of jobs within Turkey. In addition to the lost job opportunities, this will also have a lasting impact on the local population through the disruption of ongoing investments into community projects.

“Alamos began investing in Turkey in 2010, warmly welcomed by the Turkish government through its foreign investment office. After 10 years of effort and over US$250 million invested by the company we have been shut down for over 18 months in a manner without precedent in Turkey, despite having received all the permits required to build and operate a mine. The company has worked in Turkey to the highest standard of conduct with respect to social and environmental best practices. Despite this effort, the Turkish government has given us no indication that relief is in sight, nor will they engage with us in an effort to renew the outstanding licenses. We are hopeful that the arbitration process will bring about the engagement that we have sought from the Turkish state, and lead to an equitable resolution to this impasse,” said John A. McCluskey, President and CEO of Alamos Gold.

Alamos and its subsidiaries are being represented by the leading Canadian law firm Torys LLP, with a team that includes John Terry and former Canadian Supreme Court Justice, the Hon. Frank Iacobucci. The company is also being supported by its strategic advisor John Baird, former Canadian Minister of Foreign Affairs and Senior Advisor to Bennett Jones LLP.

Bilateral investment treaties are agreements between countries to assist with the protection of investments. The treaty establishes legal protections for investment between Turkey and the Netherlands. The subsidiaries directly own and control the company’s Turkish assets. The subsidiaries invoking their rights pursuant to the treaty does not mean that they relinquish their rights to the Turkish project, or otherwise cease the Turkish operations. The company will continue to work towards a constructive resolution with the Republic of Turkey. If required, Alamos and its subsidiaries are confident in the subsidiaries’ ability to recover and enforce any favourable judgement pursuant to this treaty, which will be rendered by three independent international arbitrators. Although timelines with respect to bilateral investment treaty arbitration can vary depending on procedural steps and delay tactics employed by nation states, it is estimated to have finality within five years. A portion of the cost of such an arbitral process is expected to be recovered as part of the arbitration process.

The failure by the Republic of Turkey to renew the mining licenses in the 18 months since their expiry, the failure of discussions with the Republic of Turkey to date to resolve the situation, and the resulting current decision to proceed with a bilateral investment treaty claim is an impairment trigger for accounting purposes. As a result, Alamos and its subsidiaries expect to incur an after-tax impairment charge of approximately US$215 million, which will be recorded in the second quarter financial statements. The non-cash charge reflects Alamos’ and its subsidiaries’ entire net carrying value of the Turkish assets.

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