gold in the congo

Gold and more gold
By: Jim Jones
Posted: '17-FEB-06 06:21' GMT © Mineweb 1997-2004

JOHANNESBURG (Mineweb.com) -- Investing can be awfully risky. Not necessarily because of any inherent fault in the investment itself, but because of misperceptions about the environment in which the firm is operating.

That must surely go for Canadian junior Banro which is busy proving up one of the world’s most prospective gold resources in the Congo. Now the Congo, as the uninformed do not hesitate to proclaim, is chaotic, with warlords leading badly controlled gangs on rampages from one end of the country to another.

Well, isn’t it?

Fact of the matter is that Banro’s exploration areas are not guarded by armed security personnel – there is no need for them to be armed. Security personnel are there to protect the company’s property and properties from nothing more mundane than theft. And that is no different from any other normal mine site anywhere across the world.

But perceptions are hard to dispel. I first visited the Congo in 1963 shortly after independence and during Katanga’s secessionist war – hitch hiked with a UN convoy to what was then called Elisabethville (now Lubumbashi), past destroyed power lines into a town that had been completely shot up as the Congolese army chased the Katangese secessionists out. Then there were 30-odd years of systematic pillaging and plundering by Mobutu, and yet another military uprising to oust him from the capital Kinshasa (formerly Leopoldville). The man who ousted Mobutu, Laurent Kabila was assassinated, but was succeeded by his son Joseph who has set about restoring normality to a totally destroyed country.

This week, the Congolese people voted overwhelmingly in favour of a new constitution. Come April, they will vote in parliamentary elections that will elect a prime minister. And mid-year they will vote in presidential elections. That is the emerging reality even if there are sporadic outbursts of violence and the odd volcano that can destroy an entire town.

So where does that leave a company like Banro? Essentially, busy and concentrating on, as it should, drilling and proving resources at four major potential gold deposits stretching over 210 kilometres in South Kivu province, near the Congo’s eastern border and planning a drilling programme that will take it through to the end of 2007.

So far, Banro has identified 2.45 million ounces of measured and indicated resources, with a further 5.5 million ounces in the inferred category. That is a total of 8 million ounces and, given the known geology of the region, there remains a great deal more to be discovered.

The Twangiza deposit alone has some 3.2 million ounces of inferred reserves over an explored strike length of 800 metres – but Twangiza’s mineralisation has been indicated over a strike of four kilometres, and the remaining 80% of the deposit has yet to be evaluated fully. Proving adequate inferred reserves is likely to take at least 9 months – count on completion of the exploration programme by the end of this year.

If drilling continues to prove reserves, then, we have a year to pre-feasibility, another to complete the feasibility and scoping studies and a further 12 to 18 months to construct a mine and processing plant.

Then there is Lugushwa, where inferred reserves amount to 2.7 million ounces and where drilling is slightly behind Twangiza. Less-well drilled are the Kamituga and Namoya resources, both of which show signs of being as promising as the other two, but where significantly more exploration is needed to prove them to a point where mining feasibility studies can be justified.

Point is that Banro seems to be sitting on four potentially stand-alone mines. Can it afford to bring them to production or, at least, to the pre-development stage?

In round figures, the company has a C$20 million exploration budget for the current year and cash reserves to maintain the present rate of cash burn until the end of the first quarter of 2007. But it also has several very-supportive institutional shareholders, which points to no difficulty in raising additional funds to complete next year’s exploration programme.

At this early stage, it seems that Banro could eventually be looking at four individual mines, each with, say, 3 million ounces in the ground, producing some 200,000 ounces to 300,000 ounces a year and each costing, say, $110 million to $130 million to bring to production. Funding would be a combination of debt and equity.

And will Banro take in partners? Other gold majors operating in the Congo – AngloGold Ashanti and Gold Fields to name but two – have been paying increasing attention to Banro’s exploration over the entire Twangiza-Namoya gold belt. There will come a point at which consideration might be given to JVs or partnerships. But that will only come after Banro itself has fully evaluated the geological potential of each deposit. Until then, it itself has the skills, technical and financial resources needed to complete the present programme.

As it is, Banro has conducted most of its exploration programme with local geologists and geologists drawn from other African countries as far afield as Ghana and Tanzania. And, in an interview this week, CEO Peter Cowley was confident that, when it comes to establishing mining operations, local skills will be available and adequate. As he puts it, the skills situation in the Congo is similar to that in Ghana in the mid-1980s or Tanzania in the mid 1990s – the skills are there, though they may be under-employed at present.

For the rest of this year, then, there will be a steady flow of drilling and geological information as the deposits are fully evaluated. Next year will be crucial as feasibility or scooping studies start getting under way.