Interesting read in investing thesis.com : Having talked about the challenges of mining in the DRC, I would like to turn our attention to the potential and opportunities that the DRC has to offer. Both Loncor and Banro, two companies that you cover have focused their efforts in the DRC – why is that? In terms of geology, what makes the DRC such a great place to be exploring for gold?
A: I am not a geologist, however I have read and continue to read everything I can get my hands on regarding the geology of this region. I have not heard anyone dispute the attractiveness of the geology of this region. Much of the previously discovered gold in Africa has been found in South Africa as well as the Birimian Greenstone Belt which centers on western Africa and has resulted in the discovery of over 200 million oz of gold resources, and counting. This greenstone belt has rewarded Ghana, Senegal, Ivory Coast, Burkina Faso and other Western African nations and pulled many people out of poverty. More recently, the discovery of vast tracks of greenstone belts around the Lake Victoria region has resulted in, arguably, one of the fastest growing greenstone belts in the world. This region has spawned world class gold deposits including African Barrick Corporation’s (LON:ABG) Bulyanhulu 15 million oz deposit, the Buswagi 5 million oz deposit and AngloGold Ashanti’s Geita 17 million oz gold mine. This geology in Tanzania is similar to the greenstone belts in N.E. DRC where Loncor Resources (TSX-V:LN)(PINK:LNRFF) and Kilo Goldmines Ltd. (TSX-V:KGL) and Randgold Resources Ltd. (Nasdaq:GOLD) are exploring. Newmont Mining of Canada also has a stake in this region through its Loncor investment. Because of the historical political situation, these large greenstone belts had been unexplored. Now with the improvements in the DRC, we believe this will become a hotbed of exploration and development activity.
Q: Banro has delineated 11.2 million oz. of gold resources (including inferred) in four deposits along the Twangiza-Namoya gold belt and is fully financed for development of Phase 1 of Twangiza with construction expected to be completed in Q3/2011 and production to begin in Q4/2011. Given this backdrop, Mr. Cooper, can you elaborate on the more salient points about the company that we missed? What are your thoughts on the company’s current valuation? When do you see the company get re-rated as it turns into a gold producer and at that point where do you see the stock trading?
A: The company is trading at 30% to 50% of its intrinsic value in my opinion. Banro is now less than 7 months from production. I believe a revaluation process is inevitable imminently. There is little choice for this stock but to move substantially higher over the next 12 months. Banro should produce $0.60 per share in cash flow in its first full year of operation. That on a share price of less than $3.50. Therefore I strongly believe in the steady, or sharp, rise of Banro’s share price.
Some of the complimentary points of the Banro story include the quality and track record of Banro’s management team. Arnold Kondrat founded the company and has led the company through 15 years of challenges to emerge as a successful first mover in the country. Martin Jones heads up the Banro Foundation which ensures that the interests of the local people are being met. Simon Village has a very strong background with leading institutions throughout Africa and Europe. Also, do not forget about the exploration potential. With 210 km of highly prospective land along the Twangiza-Namoya gold belt, Banro could be producing exciting new discovery potential for decades to come. Another major benefit that has come to light with rising oil prices includes the ability to generate inexpensive hydro electric energy in the DRC. The DRC is loaded with mountains, rivers, and plenty of rainfall. These are ideal conditions to generate electricity. The cost of energy is critical for a mining project. At some projects, power can account for 40% of the cash operating costs. By switching from oil and diesel to electricity, Banro’s costs structure could fall from $350 per oz to an estimated $250 per oz. To understand the extent of hydro potential in the DRC, consider the capacity of the Congo River, which is reported to have the ability to increase the world electricity capacity by 13%. This is a staggering figure and points to the attention the DRC will continue to receive in a world that needs clean renewable sources of energy.