DRC government confirms Banro’s titles

Banro‘s (BAA-T, BAA-x) shares jumped 8.1% or 12¢ per share to $1.61 apiece in early afternoon trading in Toronto after news the government of the Democratic Republic of Congo had confirmed the company’s mining convention and titles.

The Canadian junior with four exploration projects in the eastern part of the country announced it had received “official confirmation” from the DRC’s deputy prime minister, Emile Bongeli, and “the official responsible for the review process of mining contracts,” that Banro’s mining convention and mining licences “are in accordance with Congolese law.”

Banro quoted Martin Kabwelulu, the DRC’s minister of mines, as saying that Banro 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 the Toronto-based company “and supporting them on all projects to achieve a win/win for all stakeholders.”

The fate of Banro’s wholly owned gold projects along the 210-km-long Twangiza-Namoya gold belt was in doubt early last year when the country’s minister of mines 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 rumors circulating that state-owned Gecamines was trying to raise its stake in foreign mining projects without buying in and a Bloomberg article in September that quoted an official as saying that projects for which there were no feasibility studies would be subject to the government taking a 51% stake in them.

Mike 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 the company.

“We’ve always had the convention but we’ve always [also] had the perception that it was too good to be true and now that has been confirmed,” he explained.

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

Prinsloo noted 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 noted 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 paper work, permissions and procedures.”

“We got their full assurance that they would give us total support in that sense,” Prinsloo said. “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 ten million shares with existing shareholders.

Prinsloo said Banro was “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 assist the company 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 said he was 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 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 maintained.

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 that the proposed mine would average annual production of 319,962 oz. gold for the first three years and 261,965 oz. gold for the first five years of operation 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 will 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.