Banro shares plummet as CEO exits, costs rise at Namoya

Banro (BAA-T, BAA-X) slumped nearly 22% after the gold explorer announced the sudden departure of its president and chief executive, Simon Village, after markets closed on March 6.

Banro says it has appointed John Clarke, a director since 2004 and a member of the board’s technical team, as interim president and CEO until it finds a permanent replacement for Village.

In a corporate update on March 7, Clarke said he wanted to reassure the company’s stakeholders and partners that business will continue as usual following the management changes, but investors appeared unconvinced as the update revealed cost overruns at Namoya — the second gold mine that Banro is trying to put into production in the Democratic Republic of the Congo (DRC).

It’s first producing asset and main priority is the Twangiza gold mine in South Kivu province, where it’s working to improve mill capacity to bring production to the levels it had previously anticipated.

Twangiza — located in the 210-km-long Twangiza-Namoya gold belt, which hosts Namoya and two of its other gold projects — reached commercial production last August, after starting production in October 2011. It is still ramping up to produce 100,000–120,000 oz. gold a year.

To reach that target, the firm is optimizing the Twangiza plant. It plans to install a crusher/sizer before the end of March to improve throughput and minimize stoppages due to congestion in the crushing circuit.

Four elution tanks are slated to be added by the end of May to increase gold recovery levels to 88-90%, up from the 83% realized in the three months of 2012, where it produced 19,750 gold oz. grading 2.98 grams.

The upgrades are projected to bring the plant to its nameplate capacity and output up to its annual target of 100,000–120,000 oz. gold.

At the southern end of the gold belt in Maniema province, where Banro is developing the Namoya gold project, it has reported that sections of the road used to access the property have been damaged by heavy rains and require “substantial reconstruction including bridge strengthening or replacement.”

This has delayed the delivery of plant components to Namoya, pushing back the first scheduled gold pour to the third quarter from the first half of 2013. The extra costs related to road repairs, transportation and construction overheads are anticipated to add up to 15% to the base cost of US$185 million.

Banro plans to cover the additional expense by the financing it announced on Feb. 21, where it agreed to issue US$40 million worth of preferred shares to BlackRock World Mining Trust and sign credit facilities with two African commercial banks, totalling US$30 million. The junior is still working on the financing, previously expected to close on Feb. 28.

On the news, the gold producer lost 22% or 49¢ to close March 7 at $1.78 on 6 million shares traded.