Banro - unbekannt, aber mit Potential

Banro hunts for Congo mine partner - MIningmx - Tue, 07 Jul 2009 11:32

- Allan Seccombe -
www.miningmx.com/news/gold_and_silver/banro-hunts-partner-fo…

"[miningmx.com] -- BANRO Resources hopes to wrap up debt financing soon that will allow it to negotiate from a position of strength in striking up a partnership to develop its Twangiza gold prospect in northeastern Congo as a 300,000 once/year mine.

Banro recently raised C$100m in a rights issue, which means it can now approach banks for matching finance, said Banro CEO Mike Prinsloo, who used to head up the South African division of Gold Fields.

Of those funds, C$75m is earmarked for the Congo project.

Prinsloo said Banro is talking to nine parties - ranging from large companies to mid-tier gold producers to private funds - to join it in developing the Twangiza prospect, which it has said has 4.5 million oz of proven and probable reserves.

The initial capital cost to develop a mine and plant at the project near Bukavu in the Democratic Republic of Congo is $409m and should take about 30 months to build.

“The only thing preventing the project from going ahead was funding. We’ve got that now with money in the bank and the debt funders will match that, giving us $200m,” Prinsloo told Miningmx.

Banro has to overcome a legacy of management talk in the past that tried to ramp the shares and promote the company for sale, leading to a great deal of scepticism in the market about the project and the company’s intentions and ability to build a mine.

With the appointment of Prinsloo two years ago, the company has started talking more seriously to the market about developing the mine itself.

“What this $100m capital raising is telling me is that they’ve realised they actually have to build the mine themselves and I think they can do it,” said Cailey Barker at RBC Capital Markets.

“They can build the mine but it’s not going to be easy by any means. It’s a tough area logistically and politically. There are big hurdles to overcome like hydropower, and they probably need more oxide ounces to make it more attractive,” Barker said.

The interesting development in the Congo for Banro was Red Back’s $513m proposed acquisition of Moto Goldmines, which should be concluded in August. It has reduced the pool of suitors for Banro, but it has also taken a large undeveloped gold project off the market.


SUITORS

Another company that might be interested in Twangiza is London-listed Randgold Resources, which has already walked away from making a play for Banro in the past because the price tag was too high.

“Randgold is unlikely to go back in. The majors have their own problems and issues, so we can’t see anybody going in there at the moment. Banro raising the $100m is probably it telling the market they don’t have a deal forthcoming immediately,” Barker said.

Randgold's chief executive Mark Bristow said: "We are not interested."

"It's not for us. It's just a bit messy," he told Miningmx. Randgold has a pipeline of sizeable projects in West Africa that is keeping it busy and growing.

Banro does have the option, if it cannot find a partner, to go it alone at Twangiza. It would then spend $200m to build a smaller plant processing just oxide ore for 140,000 oz/year of gold production, which would generate cash to build the rest of the plant to handle a refractory-type ore.

In the current economic environment where banks are ultra-cautious about lending money, there is likely to be an insistence for Banro to hedge production, but Prinsloo said the company will rather push for a put option that caps the downside risk for banks.

South African banks are likely to be at the forefront of any capital raising exercise, said both Prinsloo and Barker.

TSX-listed Banro had wanted to conclude finding a partner by early August, but it has pushed this back to September at the latest, Prinsloo said.

The process to find a partner was broadened by the board and initiated two months ago. CIBC World Markets is leading the process of finding a partner.

“The thing that counts against us is our Congo address,” he said. “Big companies are generally prepared to wait for all the risk to be taken out of a project before stepping in and paying a premium.”

“From a partnership point of view, however, the bigger the partner the less equal the partnership is,” he said.

The immediate focus for Banro, when it triggers the project within the next month, is the relocation of 750 families off the site in a $13m project to build new homes for the people it’s moving, as well as upgrading the road to the site to take heavy loads like mills, flotation tanks and other parts of the plant.

Banro plans to use a technology called Leachox that involves ultra-fine grinding of the refractory-type ore in a vertical mill, a float process and an injection of oxygen before the concentrate is returned to the industry standard carbon-in-leach process. Laboratory testing shows recovery percentages in the mid-70s.

Banro will be one of the first to deploy the technology commercially.

“I don’t think it’s risky,” said Prinsloo.

The capital cost to deploy Leachox and the associated mill is $50m, but he argued that even with that cost built into the project, gold would still be produced in the bottom quartile of industry wide costs.

Banro plans to use Kenya’s Mombasa port and then road freight material up through Uganda, across the northern tip of Rwanda to Bukavu, the Congolese city on the southern tip of Lake Kivu. "