Why Banro is looking for a Chinese dance partner in the DRC

Progress at Banro’s Twangiza gold project could speed up if a Chinese-backed joint venture partner comes into the fold.

Before Banro (TSX: BAA) announced it had signed a non-binding MOU to explore a joint venture with China Gold International (CGG), Banro’s go-it-alone plan in the Democratic Republic of Congo (DRC) at its Twangiza gold project went like this: The first phase of Twangiza – mining of the deposit’s oxide cap – would get up and running by the fourth quarter 2011. That would bring in around 30,000 ounces gold this year and 130,000 ounces gold in 2012.

From there, Twangiza cash flow would fund construction of Namoya, a satellite gold deposit, and Banro could bring it on stream in 2013. As it stands, Banro expects production at Twangiza to hit nearly 150,000 ounces that year, and combined with Namoya, production would jump to just over 200,000 ounces, further increasing the chances of higher cash flow.

Meanwhile, with extra cash flowing in, Banro could build the second phase of Twangiza, which targets sulphide ores below the oxide cap in the open pit, and a related hydropower plant, which will help immensely with energy-intensive sulphide ore processing.

Hydropower pumping out electricity and ore churning through Twangiza Phase II, Banro forecasts gold production to top 400,000 ounces in 2015. Then, in the years to follow, Banro could continue to ramp up production beyond 500,000 ounces gold.

At least that was the plan as related to Mineweb by Tomas Sipos, Banro’s vice president of corporate development, in an telephone interview following the announcement of ongoing joint-venture negotiations with China Gold.

But with a cash-flush partner, in this case one backed by the Chinese government, the whole schedule could change: construction can speed up, mining phases can come on line earlier, and geologists can explore for even more mineralization.

“With a bigger balance sheet this can go forward more quickly,” Sipos says. It’s the thrust of why Banro is looking at a bringing a company like China Gold on board.

Though talks between Banro and China Gold are at a preliminary, non-binding stage – the MOU equivalent of a teenage promise ring – Sipos calls them serious. The match of Banro and China Gold, he argues, is a good one.

He characterizes it as a joint venture of equals in the sense that Banro has strong assets – 4.54 million ounces gold in reserves – as well as extensive connections in the DRC going back 15 years, while China Gold has deep pockets and, likewise, a decent DRC-Rolodex. It’s a severe understatement when he says, “China Gold is clearly well funded.”

While nothing definitive has been agreed to between Banro and China Gold, Sipos stresses that by joint-venture Banro and China Gold are, by definition, in talks at the project level. There aren’t plans to sign away equity stakes. Instead the joint venture would cover all the properties in the Twangiza-Namoya belt and include hydropower plans. Given that Banro has already fully-funded construction of Twangiza’s $208 million first phase, with much earth moved and equipment in place, it won’t need help there through a joint venture.

When negotiations with China Gold began, Sipos wouldn’t say. But China Gold has been watching Banro for a while, he says, adding, “They’re not the only ones looking at us either.”

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