Banro looks to move on to mining

Red Back Mining’s (RBI-T) move to acquire Moto Goldmines (MGL-T) and its gold rich Moto project in the eastern Democratic Republic of the Congo had investors pondering more gold acquisitions in the mineral rich country.

Fellow DRC gold explorer, Banro (BAA-T, BAA-X), saw its share price shoot up around the time Red Back’s $513 million offer was announced on June 1. On May 28 Banro’s shares were trading for $1.60, but by June 12 they had closed at $3.13.

Unfortunately for Banro, its shares began a steady decline from there and in Toronto on June 26 they closed at just $2.12.

“There was a drop in the price of gold,” Martin Jones, a spokesman for Banro, says by way of explanation, “and I think the market was expecting rival bids for Moto, but that hasn’t happened.”

Share dilution is also likely a factor. On June 25 Banro announced the closing of an equity financing that saw another 43.5 million common shares issued at $2.30 per share for proceeds of roughly $100 million.

The money is to go towards the development of the company’s gold rich Twangiza project – just one of four projects the company holds on the gold rich Twangiza-Namoya gold belt.

“Gold in the ground has little value assigned to it where as gold being produced has considerable value assigned to it,” Jones says. “We’re taking Banro and transforming it into a producing company, so that the total value of the company should increase.”

Details of how development will proceed, however, are still up in the air. The company is considering building a full scale plant that would handle both oxide and sulphide ore, or taking the more conservative route of building a mine in phases.

A full scale plant would have a price tag of $377 million, which would go up to $444.33 million if Banro was to fund 50% of the costs of building a hydro electric power plant. Jones says the company is currently in negotiations with European energy companies for funding the other 50%.

Clearly the scale of such a project would require amounts of capital that can be difficult for a junior to acquire. And while Banro is talking to prospective lenders about terms, it is also hosting larger gold miners at the project, with an eye towards a possible joint venture.

Another option is to push ahead with a smaller plant that would mine only oxide ore at Twangiza and would be producing gold by 2011. Jones says the company is currently crunching numbers on how much the capex would be for such a “phase one” approach, and said the company would have a better idea in a few weeks.

But with its newly acquired $100 million — $75 million of which the company says will “go towards developing gold projects” — it would seem the company is in a good position to push ahead with a such a plan.

Measured and indicated oxide resources at Twangiza come in at 17.9 million tonnes with an average grade of 2.3 grams gold for 1.3 million oz. of gold and another 1.7 million tonnes grading 3.1 grams for 200,000 oz. in the inferred category.

As for the much discussed mining review that still lingers on in the country, Jones explains that unlike other miners under review Banro doesn’t have a contract with the government or any state-owned mining companies so no contract was under review.

“Nor was our mining convention or our licenses ever under any review,” Jones says.

The only issue between the company and the government is taxation and revenue sharing — an agreement on which Jones expects the DRC cabinet to approve in the near term.

“We have confirmation in writing from the DRC government that the agreement reached with them and announced in February 2009 is acceptable to the government, with the addition of a couple of minor, nonmaterial adjustments, which the company has agreed to,” he says.