Banro Ponders Production Options

Red Back Mining’s (RBI-T, RBIFF-O) move to acquire Moto Goldmines (MGL-T, MTOGF-O) and its gold-rich Moto project in the eastern Democratic Republic of the Congo (DRC) has had investors pondering more gold acquisitions in the mineral-rich country.

Fellow DRC-focused gold explorer Banro (BAA-T, BAA-X) saw its share price shoot up around the time Red Back’s $513-million offer was announced on June 1. On May 28, Banro’s shares were trading for $1.60 apiece, but on June 12 they closed at $3.13.

Unfortunately for Banro, its shares began a steady decline from there and in Toronto at presstime traded at just $1.75.

“There was a drop in the price of gold,” Martin Jones, a spokesman for Banro, said, “and I think the market was expecting rival bids for Moto, but that hasn’t happened.”

Share dilution is also likely a factor. On June 25, Banro announced the closing of an equity financing that saw another 43.5 million common shares issued at $2.30 per share for proceeds of roughly $100 million.

The money is to go towards developing the company’s Twangiza gold project — just one of four projects the company holds on the Twangiza-Namoya gold belt.

“Gold in the ground has little value assigned to it whereas gold being produced has considerable value assigned to it,” Jones says. “We’re taking Banro and transforming it into a producing company, so that the total value of the company should increase.”

Details of how development will proceed, however, are still up in the air. The company is considering building a full-scale plant that would handle both oxide and sulphide ore, or taking a more conservative route of building a mine in phases.

A full-scale plant would have a $377-million price tag, which would go up to $444 million if Banro were to fund half the cost of building a hydroelectric power plant. Jones says the company is now negotiating with European energy companies for the other 50% of funding.

Clearly, the scale of such a project would require amounts of capital that can be difficult for a junior to acquire. And while Banro is talking to prospective lenders about terms, it is also playing host to visitors from larger gold miners at the project, with an eye towards a possible joint venture.

Another option is to push ahead with a smaller plant that would mine only oxide ore at Twangiza and would begin production by 2011. Jones says the company is currently crunching numbers on how much the capex would be for such a “phase one” approach, adding it will have a better idea in a matter of weeks.

But with its newly acquired $100 million — $75 million of which the company says will “go towards developing gold projects” — it would seem the company is in a good position to push ahead with such a plan.

Measured and indicated oxide resources at Twangiza come in at 17.9 million tonnes with an average grade of 2.3 grams gold for 1.3 million oz. of gold; inferred resources stand at 1.7 million tonnes grading 3.1 grams gold for 200,000 oz.

As for the DRC’s much-discussed, ongoing mining review, Jones explains that Banro doesn’t have a contract with the government or any state-owned mining companies, so it hasn’t had any contracts under review.

“Nor were our mining convention or licences ever under any review,” Jones says.

The only issue between the company and the government is taxation and revenue sharing — an agreement Jones expects the DRC cabinet to approve fairly soon.

“We have confirmation in writing from the DRC government that the agreement reached with them and announced in February 2009 is acceptable to the government, with the addition of a couple of minor, nonmaterial adjustments, which the company has agreed to,” he says.