DRC gold – Banro proving up four potential mines

DRC gold explorer/developer Banro is proving up some excellent tonnages and grades along the Twangiza/Namoya gold belt which could turn into four mines by early in the next decade.

LONDON - 

As pointed out by my colleague, Barry Sergeant, in his review of gold stock performance in the light of the big recent metal price increase - Gold at 27 year high - stocks beginning to celebrate - exploration and development stocks have not moved up to the same extent the Tier 1 and Tier 2 producer stocks have. And some have actually performed badly - notably the two big DRC gold exploration outfits Banro and Moto Gold which are still well of their stock price high points. It is significant that these are both operating on licences in the Democratic Republic of the Congo (DRC) where recent moves to re-assess the legality of exploration and mining licences, and in particular for those awarded prior to the current government regime under Joseph Kabila taking office, have created some investor uncertainty.

In an interview with Mineweb in London today, Banro's new CEO - former Gold Fields senior executive Mike Prinsloo - was at pains to point out that Banro's licences were awarded under the current regime and thus should not be considered in the same light as some earlier license awards which are likely to be under close scrutiny. The company is completely confident that no problems will materialise in this respect.

So saying, perhaps Banro shares should be re-rated given the extremely positive progress reports relating to its properties on the Twangiza-Namoya gold belt in the Eastern DRC. Here the company is proving up four major gold targets at Twangiza, Namoya, Lugushwa and Kamituga - all around old artisanal workings and a mjor source of small-scale gold mining over the years. The first two of these projects are at the pre-feasibility study stage and the other two at scooping study stage - but Prinsloo told Mineweb he is confident that all four of these will support mining operations in their own right.

Twangiza is perhaps the most advanced and infill drilling results announced yesterday are particularly encouraging in further confirming tonnages and grades at the Twangiza North section - a very short distance away from the would-be main Twangiza open pit . Twangiza North, prior to these results is estimated to have an inferred resource of 885,500 ounces of gold (7,836,000 tonnes grading 3.51 g/t Au), which was announced earlier this year. At the main Twangiza project, Measured Resources are estimated at 1,313,400 ounces of gold (14,510,000 tonnes grading 2.82 g/t Au), Indicated Resources are estimated at 1,832,800 ounces of gold (31,460,000 tonnes grading 1.81 g/t Au), and Inferred Resources (including Twangiza North) are estimated at 3,088,100 ounces of gold (47,474,000 tonnes grading 2.02 g/t Au).

This is a substantial discovery by any standards and Prinsloo is confident that additional drilling will bring in considerably more material into the various resource categories. What's more, proposed stripping ratios are very low for the open pit and the first five years of production - should the decision be made to move ahead - would be in oxide ores with excellent recovery rates predicted. The Twangiza scoping study suggests a 5 million tonne a year mine with a 13 year life (on the already drilled resource) producing 315,700 ounces a year gold output during the first five years at a capital cost of US$347.5 million. At an operating cost of US$ 214.79 per ounce, putting it very much into the lower quartile of producers. At a $600 gold price this indicates a payback time of 2.6 years.

A higher mining rate is also under consideration for Twangiza - at 8 million tonne a year mill throughput.

Namoya, the other advanced project, has higher grades, but the proposed open pits there would require a higher stripping ratio. The proposed operation would be about half the size of that at Twangiza with an eight year life to produce 194,000 ounces a year of gold during the first five years. Capital cost is put at $186.6 million and operating costs at US$217 an ounce giving a payback at the $600 gold price of 2.3 years.

Banro is looking at a timetable to bring these properties into production end-2010/early 2011.

The Lugushwa and Kamituga prospects are equally exciting for Banro and here scooping studies are due for completion during the first quarter of 2008.

At the moment Banro is looking to go it alone on bringing the first two properties to production, but is also prepared to consider investment from major mining corporations - of which several have already been showing a good amount of interest as deposits of this size are not that easy to find, and they all need to build reserves to replace diminishing tonnages at older operations.

While the projects are located in a fairly remote northeastern part of the DRC, they are relatively close to the regional city of Bukavu and the National N2 Highway, currently being upgraded by the Chinese, runs close to all four properties. Recommissioning of old hydro-electric plants is being looked at by consultancy Knight Piesold, although studies are predicated on utilising diesel generators at start-up with hydro-electric capacity coming on line later.

If this project was located in a less politically risky country than the DRC, Banro would be being trampled in the rush of companies wanting to get involved. But the longer the current DRC government remains in at least reasonable control, and as some other big projects start coming on stream in the base metals sector, and the licence investigations are brought to fruition, perceived risks may diminish and interest accelerate. But there are still risks which is why Banro's stock has been trading well off its highs. One can take a view on these. For an optimist on the gold price and DRC political risk the stock is probably a steal. For a pessimist - well probably nowhere in the world is viewed as safe. Perhaps not the stock for the proverbial widows and orphans, but one which has the kind of potential which could just pay off for those prepared to add a degree of risk to their portfolio.

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