Banro: Where there’s smoke there’s fire

Just a few days after announcing that a document regarding a possible takeover was a fake, Banro (BAA-T, BAA-X) has announced that it will team up with a major Chinese gold mining firm to develop its large swath of gold properties in the Democratic Republic of the Congo.

While details of the aforementioned document were not forthcoming, the impression was that some significant deal was in the works.

After the TSX ordered a halt to trading of its shares – which had been surging thanks to the document – Banro issued a statement denying that the document came from its management team and said only that any possible deals were in the preliminary stages.

Well perhaps not quite as preliminary as some might think.

On Apr. 20 the company revealed that it had signed a non-binding memorandum of understanding with China Gold International Resources Corporation (CCG-T). If consummated the deal would give Banro access to the significant stores of capital it will require to meet its aim of establishing a new gold district in the eastern DRC.

While Banro has funding in place for the construction of a smaller mine at Twangiza – construction that is currently 60% compete – finding the capital for its more ambitious phase 2 development remained an unanswered question.

One of the larger capital expenditures that phase two envisions is the construction of a hydro electricity plant that would provide not only enough power for more production at Twangiza, but also for future mines at the three other projects that stretch south from Twangiza along the Twangiza-Namoya gold belt.

While specific dollar values were not released, the company says the deal does outline an intention to extend the partnership to the other projects outside of Twangiza.

Banro says the MOU is still in the early stages of discussion and that a definitive agreement that lays out the transaction structure and other terms still needs to be negotiated.

“The MOU does not create an obligation on the part of either party to consummate any transaction,” Banro said in a statement. “There is no assurance that any transaction will be consummated.”

Beyond the security of capital that a deal between the two companies would bring, Banro also says having China Gold on board would fast-track development of all of Banro’s properties.

China Gold International is an off-shoot of the Chinese state-owned entity China National Gold. The company is the largest gold producer in China and holds roughly 39.3% of the outstanding shares of China Gold International.

In Toronto on Apr. 21 China Gold shares were off 3% or 15¢ to $5.00 on 312,000 shares traded, while Banro shares continued there torrid pace climbing another 8% to close out at $3.51 on 3.4 million shares. The company’s shares had been trading for just $2.35 as recently as April 14.