Banro faces delay during Twangiza ramp-up

VANCOUVER — Just days after taking the keys from mine developer Banlaw Afrique, Canadian gold outfit Banro Corp. (BAA-T, BAA-X) has run into delays during the comissioning of its 100%-owned Twangiza open-pit mine 45 km southwest of Bukavu in the Democractic Republic of Congo (DRC). The company reported issues with a framing structure supporting its ball-mill motor, and has been forced to delay ramp-up by roughly one month.

“Although the difficulties we have experienced with the mill motor have frustrated our scheduled ramp up to full production, I am confident that with the issue now pinpointed and in the process of being rectified, we can achieve our targeted monthly production rate within the third quarter,” Banro Chairman and CEO Simon Village commented.

Twazinga is Banro’s first gold mine and kick-started production this past October. The open-pit operation focuses on twin gold-oxide deposits with proven and probable reserves totalling 15.5 million tonnes grading 2.26 grams gold per tonne for 1.13 million contained oz. Banro has had persistent problems with its ball-mill motor since the operation hit first production, though first quarter output of 17,400 oz. of gold at average costs of US$613 per oz. appeared to indicate the mine was on track.

“We are pleased with Twangiza’s ramp-up progress to date and continue to be confident that we can achieve our 2012 target production levels and cash costs,” Village said. “Although cash costs for the first quarter are respectable relative to the industry, and considering the mine is not yet operating at full capacity, having now operated for a full quarter at Twangiza it is clear that there is further opportunity for meaningful cost reductions.”

Banro is aiming to drop average costs to around US$550 per oz. gold as Twazinga ramps-up to full production during the third quarter. Metallurgical recoveries are also expected to improve as the operation moves towards a forecast full-production level of 10,000 oz. gold per month. First quarter recoveries clocked in at 84%, eventually expected to increase to 90% at the Oxide Main deposit and 91% at the Oxide North deposit.

In a bid to increase its operational expertise, Banro hired Colin Belshaw as vice president of operations in early May. Belshaw is a mining engineer with 30 years experience who has worked with producers like Kinross Gold (K-T, KGC-N), Golden Star Resources (GSC-T, GSS-X), and Avocet Mining (AVM-L). Belshaw is expected to assume direct responsibility over all of Banro’s operations including the Twangiza gold-oxide mine as well as the company’s nearby Namoya gold mine, which is currently under development.

“Colin’s proven track record in both mining and operating in Africa should contribute towards adding value at this stage of our development,” stated Village. “We are very pleased given the competing forces within the industry at present for high calibre, experienced professionals.”

Twangiza is one of four potential gold projects along the 210-km Twangiza-Namoya gold belt running through the DRC’s South Kivu and Maniema provinces. Banro intends to focus solely on its gold-oxide deposits during initial development in order to control costs thereby minimizing share dilution, though the company does have a second phase planned for Twangiza that would tap measured and indicated non-oxide resources totalling 90 million tonnes grading 1.5 grams gold for 4.3 million contained oz.

Banro expects its Namoya gold mine to hit first gold production in early 2013 with full output projected at 10,000 to 12,000 oz. of gold per month.

The delay caused Bank of Montreal Precious Metals and Markets analyst Andrew Breichmanas to drop his target price to $5.75, due to a minor impact on the Twangiza’s phase-one net present value estimates.

“During the ramp-up phase, gold production has averaged approximately 60% of the rated plant capacity as a result of downtime associated with the ball mill motor,” Breichmanas wrote in a June 22 research note. “The project commissioning phase can often present unforeseen challenges, but at Twangiza the final hurdle appears to be in sight.”

Banro’s shares took a bit of a tumble following news of the mill delay, falling 5.3% or 21¢ on 684,700 share volumes en route to a $3.79 presstime close. The company has 200 million shares outstanding with a $760 million market capitalization. Banro completed a US$175 million debt financing in early March compromised of 175,000 senior secured notes with a 10% interest rate and March 2017 maturity date, as well as 8.4 million warrants exercisable at $6.65 per share.