rumble in the jungle clearing

of interest guys-----

http://www.miningmx.com/mybk08/779451.htm


Rumble in the jungle
Allan Seccombe
Posted: Tue, 07 Oct 2008
[miningmx.com] -- There are signs the logjam in Democratic Republic of Congo (DRC) – caused by an unsettling review of 61 licences – could be beginning to clear. The common perception is that the DRC holds a veritable treasure trove of minerals.


A number of companies have taken a wait-and-see approach as the mining licence review process grinds on, unsettling investors and mining groups alike. In February the DRC’s government committed itself to speeding up the process to remove uncertainty hanging over the sector.

South African diversified miner Metorex, which is operating the Ruashi copper and cobalt project and working on developing another in the DRC, and the Central African Mining and Exploration Company (Camec) have both been named by DRC Deputy Mines Minister Victor Kasongo as being well on track to secure their licences.

“Camec is in order with us,” Kasongo told wire service Bloomberg News in May. “We’re happy that Camec has recognised there’s a government and it follows its rules. It’s a good example to other companies.”

Kasongo said in June: “(Metorex’s) obligations are substantially met.” He told the newswire, together with Mines Minister Martin Kabwelulu, he recently met Metorex’s management. The company was “on the right track”' and would be among the first to receive confirmation.

“They’re an African company,'' Kasongo said, adding that African investors could be favoured by the DRC.

Investors are watching developments in the country carefully and, if the licence review is resolved satisfactorily, it could prompt a flood of inward investment, possibly company takeovers or partnerships with those already operating there.

Banro CEO Mike Prinsloo says he wouldn’t be surprised if there was a great deal of interest in partnering the company on a large gold project in the north-eastern corner of the DRC. He reckoned by the time Banro had completed two bankable studies into separate projects in the DRC by year-end it could be “very saleable” – but says Banro wasn’t setting itself up for sale.

The major gold producers have not – with the exception of AngloGold Ashanti’s 12m oz discovery in Colombia – found any substantial gold deposits in recent times and they need replacement ounces, making companies such as Banro prime targets.

We will find investors very keen to fast track itKatanga Mining CEO Arthur Ditto told Bloomberg: “In the aftermath of the mining review – with more clarity – somebody would be interested in acquiring Katanga.” Katanga bought out Nikanor, which had a contiguous project to its property near Kolwezi. After the US$1bn transaction Katanga has said it will produce 300 000 t of copper by 2011 from 40 000 t this year.

Banro has undergone a significant shift away from being just an exploration company since Prinsloo was brought on board in September 2007, bringing with him a strong operations pedigree won at some of the world’s deepest and toughest gold mines.

Two of the projects Banro has closest to development, and for which bankable studies are almost complete, are Twangiza and Namoya. Twangiza is the bigger of the two projects and, according to the scoping study, could be a 240 000 oz or 320 000 oz/year project, depending on whether two or three mills respectively are installed. The cost of Twangiza is $400m and Namoya between $120m and $189m, depending on the development option selected.

No partner is needed at Namoya, a smaller project, which could involve a relatively quick and cheap heap leach approach or a slightly more expensive and longer to bring to production carbon-in-leach process. The economics and early cash flow could push Banro towards the heap leach option.

Bankable studies on both projects will be completed in December and the results released early in January 2009. Construction on Namoya could start in January or February. However, a partner will be needed at Twangiza, which could begin a bit later.

“There’s interest. The thing for me is Twangiza is a big project and we’ll find a partner or investors very keen to fast track it. In the year that’s passed the big mining companies have mined out 20m oz and found nothing else,” says Prinsloo.

“I think the pre-feasibility and the bankable results will bring parties to us. Once we start placing long lead items people will believe we’re serious. Up to now people out there think we’re not going to build those projects. Well, they’re wrong. We’re building them.”

Once Banro has the two projects “spitting cash” after a very quick payback period of about three years it will look at diversifying, Prinsloo says. “When we diversify it will be more than just the DRC – but that’s three to five years’ away.”

Other companies are looking elsewhere in Africa. However, it’s not a continent for the faint hearted. “There’s no other country in Africa that has what South Africa has in relation to mining. For any company thinking about mining in Africa, if they think South Africa is too hard then they shouldn’t come to Africa because South Africa is as good as it gets,” said AngloGold Ashanti CEO Mark Cutifani.

Arguably one of the most successful explorers around, Randgold Resources has an exploration pipeline of 170 prospects. CEO Mark Bristow is justifiably proud that the London-listed company’s growth is all coming from internally generated projects.

West Africa has better prospects for gold projects than places in southern Africa and parts of east, south and central Africa, where politics, electricity shortages and changes to legislation makes it a tough environment, says Bristow.
It's a good example to other companiesRandgold kept its cool in Cote d’Ivoire, when tensions sparked by a coup in 1999 degenerated into a two-year civil war that ended in 2004. A fragile peace is holding up, allowing Randgold to pull the trigger on its Tongon project, which is projected to be a 250 000 oz to 290 000 oz/year mine.

Juniors have flocked to Cote d’Ivoire, but so have majors: Newmont Gold, which has filed for exploration permits, and Rio Tinto.

“If the politicians can keep their focus this will be one of the best growth stories on the continent,” Bristow says. Tongon will play a key role in building Randgold’s production to 600 000 oz by 2011 from 400 000 oz currently. Bristow has completed a long trip from West Africa to the east, visiting mines and drilling projects in a year that’s going to be challenging for the company in which it builds Tongon and moves underground at its Loulo mine.

It’s taken management control of the Morila gold mine in Mali from AngloGold, but talks to buy the company from the world’s third-largest gold miner foundered over the price. Randgold will give the Morila mine, which will complete mining of pits and dumps by 2012, much more focused attention than AngloGold, with its 21 operations worldwide, could, says Bristow.

The gold sector is showing signs of years of neglect, Bristow says. “My personal view – and the company’s strategic scenario view – is that the gold industry is incredibly stressed and in decline. It’s suffering from huge pressures, both from a lack of intellectual capital and growth and asset quality. Companies have turned to mergers & acquisitions (M&As) to maintain growth stories.”

Whether that means a move on Randgold is a moot point, but Bristow says it isn’t one that keeps him awake at night. Besides, he says, mergers and acquisitions ultimately make for weaker companies, “destroying human capital” and lower production because takeover targets are “cleaned up” and smaller, marginal assets disposed of.

Africa-focused Randgold has added reserves at a cost of $13/oz since it was incorporated 11 years ago. Companies currently involved in M&As are adding reserve ounces at between $100 and $200/oz, he says.

The lack of targets has forced the industry to look towards the world’s under-explored regions, such as Africa and South America.


Click Here to subscribe to our daily newsletter“Compared to South America – where you’ve seen radical rewrites of legislation and people ignoring contracts they have with industry – Africa, despite its challenging lack of infrastructure, has real potential,” Bristow says.

Randgold is looking further afield from its five or six big exploration projects contiguous to Tongon and Loulo, as well as Senegal and Burkina Faso. In the latter, Randgold has identified a 2m oz resource but it’s very low grade. Unless the deposit can be expanded by 50% to 100% it will most likely be sold, says Bristow. Randgold is investigating potential in Cameroon, Sudan and Egypt but, again, the latter’s tax regime is unfavourable to the company.

One company truly feeling the onerous burden of working in an African country – where overseas companies are only allowed to hold minority stakes in diamond firms but fund all the capital expenditure – is Trans Hex in Angola. Tough lessons have been learnt in setting up the first two of three mining ventures in Angola for the South Africa-based diamond company.

While Trans Hex executives are reluctant to discuss the negatives of the country it’s not hard to find the source of its difficulties in what many diamond companies describe as one of the most prospective. Angolan partners – state diamond organisation Endiama and local business groups – have managed the two ventures exploiting alluvial deposits in remote parts of the country, something that Trans Hex has experience of mining in South Africa.

Endiama is extremely sensitive to criticism, making it difficult for its minority partners in joint ventures to speak frankly about the issues confronting them in Angola.

The third project – Luana – has been set up differently to Fucauma, for which Trans Hex has only just won a four-year management contract to turn the embattled operation around, and Luarica. The intention is for the partners to build indicated and probable resources to 5m carats before signing off on the project.

The prospecting will be done more thoroughly at Luana and more carefully planned than the other two alluvial projects.

One market commentator says Trans Hex had spent roughly R1bn for more than a decade but precious little to show for it. However, CEO since 2004 Llewellyn Delport says he’s doing things differently.

Trans Hex since the early Nineties dipped into Canada and Swaziland before pulling out. It’s looking to exit the marine diamond business. A joint exploration venture in Liberia appears to be crumbling and Trans Hex will complete its portion of the funding to year-end before deciding what to do there.

“This management believes it’s gone through the university of Angola and we’ll leverage that experience in other African countries and South Africa,” says Delport. “We’ve chosen a process in Angola that we believe will bear fruit and we’ll be able to report on that in a year’s time.”

An example of its more cautious approach is the deal with Kimberley Consolidated Mines (KCM) to explore for diamonds. Trans Hex can earn up to 51% of a joint venture with KCM by spending R30m. But there’s a softly-softly approach, letting the market know step-by-step what results it’s generating. “We have a number of outs in this contract and we’ll only spend the R30m if that process is successful,” says Delport.

It has, subsequent to the time of writing, pulled out of the KCM venture.

It seems Trans Hex is adopting the hackneyed cliché of “better the devil you know” when it comes to looking for growth, noting difficulties its peers are having in the DRC and West African countries Sierra Leone and Liberia. “We won’t just take ground because it’s there.”