DRC Government Confirms Banro’s Holdings

Banro (BAA-T, BAA-X) says it had received official confirmation that its mining convention and mining licences in the Democratic Republic of the Congo (DRC) “are in accordance with Congolese law.”

The Canadian junior with four exploration projects in the eastern part of the country says the confirmation came from deputy prime minister Emile Bongeli, the country’s mines minister, and “the official responsible for the review process of mining contracts.”

Banro quoted Martin Kabwelulu, the DRC’s minister of mines, as saying that the company would receive “full support and assistance from the central and regional governments of the DRC to ensure we together achieve Banro’s objectives, as they move forward to build their projects.” The company also quoted deputy prime minister Bongeli as saying that the government looked forward to working with and supporting the Toronto-based company “on all projects to achieve a win/win for all stakeholders.”

The fate of Banro’s wholly owned gold projects along the 210-kmlong Twangiza-Namoya gold belt was in doubt early last year when the country’s mines minister declared that the non-payment of surface taxes on Banro’s four exploitation claims was a concern. (Banro argued that the exemption was included in the mining convention it had signed with the government in 2003.)

Unlike other mining companies, Banro was not subjected to a government review of all mining contracts that was decreed in late 2007.

But a dark cloud hung over Banro’s future in the country nevertheless, with rumours circulating that state-owned Gcamines was trying to raise its stake in foreign mining projects without buying in. Then, in September, a Bloomberg article quoted an official as saying that the government wanted to take a 51% stake in DRC projects for which feasibility studies had not been completed.

Michael Prinsloo, Banro’s president and chief executive, told The Northern Miner that the news its mining licences and convention had been officially confirmed symbolized a “new starting point” for Banro.

“We’ve always had the convention but we’ve always (also) had the perception that it was too good to be true,” he explains.

Among other things, Banro’s mining convention on its flagship Twangiza project gives the company a tax holiday for the first 10 years of production.

Prinsloo notes that in the company’s three-day (Feb. 19-21) discussions with the DRC government, the company pledged 5% of all future net profits after return of capital would go to building infrastructure projects, including roads and bridges, schools and healthcare facilities for communities in South Kivu and Maniema provinces.

Banro will also provide an advance payment of US$1 million to the government as soon as it succeeds in coming up with the financing to build Twangiza, about 41 km south-southwest of Bukavu, the capital of South Kivu province.

In addition, the company has pledged US$200,000 to settle legacy issues and the transfer to the government of certain real estate assets that are redundant to the company’s operations.

But it wasn’t a one-way street. Prinsloo notes that Banro had also tabled some of its own requests, insisting for example that the company “not be held up in the permitting process” or “tied up in paperwork, permissions and procedures.”

Prinsloo says: “We got their full assurance that they would give us total support in that sense. They want to see a mine built on the eastern side of the Congo and are very supportive towards the project.”

Banro is eager to push ahead with its projects and has some of the cash it needs to do it. On Feb. 19, it closed a US$14-million financing by placing 10 million shares with existing shareholders.

Prinsloo says Banro is “fine with cash flow” and that the financing would cover the company for the rest of this year and into the next. It will also take “any pressure off us when we go into negotiations or discussions with a strategic partner.”

The company has enlisted the help of a major bank in the United Kingdom to help it cast a wider net for a strategic partner interested in funding Twangiza. Banro hopes the same partner will be able to assist it in bringing its other projects in the DRC through development as well, but adds that it would be fine to have more than one strategic partner.

Despite the economic downturn, Prinsloo says he is confident Banro would have no difficulty finding a partner interested in its projects, not just because of their size and the “ease of bringing them into production,” but because they are low-cost.

“The fact that these projects are (projected to be) in the bottom quartile of cost in terms of current gold producers (and) with gold touching US$1,000 per oz., I have no doubt that we will find a partner willing to form a strategic partnership with us,” he maintains.

In late January, Banro completed a feasibility study on Twangiza demonstrating that a mine there could produce gold at an average operating cash cost of US$274 per oz. for the first three years of production.

The study indicated the proposed mine would average annual production of 319,960 oz. gold for the first three years and 261,970 oz. gold for the first five years at an average operating cash cost of US$358 per oz.

During its 15-year lifespan and based on current reserves, the mine is forecast to produce 2.62 million oz. gold at an average total operating cash cost of US$429 per oz., the study forecast.

At a gold price of US$850 per oz. and a discount rate of 5%, the project’s post-tax net present value (NPV) was calculated at US$342 million. At US$750 per oz. gold, the NPV drops to US$154 million.

The study also projected total net cash flow after tax and after capital spending of US$593 million.

Twangiza hosts a measured and indicated resource (at a cutoff of 0.5 gram gold per tonne) of 107.5 million tonnes grading 1.6 grams gold per tonne.

The estimate incorporates all three deposits: Twangiza Main, containing 85% of the total mineral resource; Twangiza North, containing 13%; and the Twangiza “Valley Fill” deposit, containing 2%.

A separate and standalone 30-megawatt hydroelectric scheme to supply power to the project is estimated to cost US$133.8 million (including a contingency of US$20.1 million) and is to be financed in whole or in part by a third party.

Under its mining convention, a 5% administrative tax for imports of plant, machinery and consumables was included in the mine’s projected capital and operating costs. Banro’s four neighbouring targets are within trucking distance of the proposed Twangiza plant site: Luhwindja (adjacent to Twangiza North), Kaziba, Mufwa and Tshondo.

In Toronto, Banro has 62.5 million shares outstanding and a 52-week trading range of 80¢ to $10.25 per share. The most recent news nudged its shares up 7¢ to close at $1.56 apiece.