Moto keeps on driving in DRC

Building a mine on the Kilo-Moto gold belt in the Democratic Republic of the Congo’s northeast has been a mucky adventure for Moto Goldmines (MGL-T, MOE-L).

The company sloshed through on-going disputes with its joint venture partner, the state-owned L’Office des mines d’or Kilo- Moto (OKIMO), and weathered the market’s trepidation related to a newly announced review by the DRC government of all mining contracts in the country.

The two problems took their toll on the company’s share price: while it began 2007 in the $7.60 range, it finished the year trading as low as $2.71.

But better days are returning, as investors have rushed back into the company’s stock after positive words came down from the government’s review board on Feb.

18. This is in contrast to review’s effect on most of the other Western metal miners and developers in the country, who saw their share prices slashed.

The review committee ruled that Moto’s leases for gold claims on the Kilo-Moto belt would not be revoked, as some market watchers had feared. The impact of the news was swift: while Moto shares had been trading for just $3.46 as recently as Feb. 7, they gained 56% to plateau at $5.40 at press time.

The Moto gold project is made up of one half of the Kilo-Moto gold belt, while the Kilo portion is heldby AngloGold Ashanti (AU-N, AGG-A) and OKIMO.

While the property’s abundant mineral wealth has long been known — the Belgians mined there in the first half of the 20th century — war in the late 1990s and the ensuing political uncertainty made mine development an arduous task.

Things have been looking up for the people of the region over the last five years, as a massive U.N. presence and the organization of a democratic election

brought a peace that continues groe and deepen.

Unfortunately for Moto, though, as the country’s fortunes improved, its own travails began to grow as relations soured between it and OKIMO.

The former chief executive of OKIMO, Victor Kasango, accused Moto of not honouring its initial agreement, and then demanded an increased stake in the project for OKIMO, all the while claiming that Moto’s resource estimate was suspiciously high — a speculation which consultant Snowden Mining’s independent audit showed to be inaccurate, as it confirmed resource estimates calculated by Cube Consulting for Moto.

Kasango departed OKIMO in 2007 to become deputy minister of mines for the country. He left a board that Moto described as being “at odds” with its departing chief executive.

Thus, the DRC government’s endorsement of Moto’s leases is a good indication that relations have improved.

The vote of confidence from the Ministry of Mines, however, doesn’t come without stipulations: Moto must pay more for its leases and hand over greater participation to OKIMO, which already has a 30% stake in the project.

The amount of the lease-fee hike has not been released, so the effect on Moto’s bottom line is unknown. But a feasibility study finished in November 2007 showed the potential for a mine that’s economically robust enough to handle some uptick in costs.

The study put annual cash flows at US$89.5 million over 8 years, with pay back coming in just three years. Cash costs were estimated at just US$294 per oz.

Open-pit, probable reserves stand at 25.6 million tonnes grading 3.41 grams per tonne for 2.81 million oz. of gold. The project also has indicated resources of 95.3 million tonnes grading 3.4 grams per tonne for 10.3 million oz., and a further 96.5 million inferred tonnes grading 3.6 grams for 11.3 million oz.

Capital and infrastructure costs are estimated at US$296 million, which includes the building of a hydro electric power station.