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Banro Corp. president and CEO Mike Prinsloo, left, and vice-president of exploration Dan Bansah discuss the company's gold mining project in the eastern Congo at their offices in Bukavu. (Erin Conway-Smith/Erin Conway-Smith/The Globe and Mail)
Banro Corp. president and CEO Mike Prinsloo, left, and vice-president of exploration Dan Bansah discuss the company's gold mining project in the eastern Congo at their offices in Bukavu. (Erin Conway-Smith/Erin Conway-Smith/The Globe and Mail)

Mining

Cutting through red tape to strike gold in Congo Add to ...

As it begins construction of the first modern gold mine in war-ravaged Congo, the junior Canadian miner Banro Corp. worries less about the violence than it does about the bureaucracy.

Military clashes still plague Congo's eastern provinces, reaching within 150 kilometres of Banro's mine site at Twangiza. Roads and bridges here are in desperate shape, and skilled labour is almost non-existent. Yet the biggest obstacle, the company says, is red tape.

"The challenge here is not to go crazy," said Banro's chief executive, Mike Prinsloo. "If you wait, it will take 20 years to build this mine."

Most foreign miners are too intimidated to venture into a country that contains, by one estimate, $24-trillion in mineral wealth.

Modern copper mines have been developed in Congo, but its gold sector is still dominated by thousands of impoverished artisanal miners who pan for gold for an average return of $1 a day.

Banro's determination to overcome a litany of obstacles in developing its mine shows the lengths small mining companies are going to in order to bring new gold projects on stream - at a time when major gold companies struggle to replace reserves as they mine out existing deposits.

Global gold production has been slipping since 2001, leaving junior mining firms to make risky moves in far-flung countries not usually associated with modern mining.

A Toronto-based company that has invested $200-million in exploring a swath of potential mines in this country since 1996, Banro has been regarded skeptically for years. It was a junior with no history of production. How could it put a gold mine into operation in one of the most difficult countries in the world?

Its $377-million planned investment in Twangiza is dwarfed by the estimated $20-billion that the Canadian mining industry has invested in Africa. But the 11 million ounces Banro believes it has found, if verified, would be almost in the same ballpark as one of the biggest Canadian gold operations on the continent, the five properties of African Barrick Gold in Tanzania, which hold 18.4 million ounces of proven and probable reserves.

Ignoring the skeptics, Banro is pushing ahead, spending $130-million to start production at Twangiza by the end of 2011. And it hopes to develop another six mines in the years to follow. "I think people are going to be surprised when we pour gold by December next year," Mr. Prinsloo said.

With its gold-processing plant due to arrive at the mine site in 180 forty-foot shipping containers this summer, the company has already begun building a 35-kilometre road through the bush to the mine site, strengthening bridges to handle its heavy equipment, constructing houses for 850 families who are being relocated from the site, and offering jobs or schooling opportunities to the 450 artisanal miners who work the spot.

Because the Banro property is so deep in the landlocked eastern region of the Democratic Republic of the Congo (nearly 1,500 kilometres from the capital, Kinshasa), it takes four weeks longer for Banro's heavy equipment to reach the mine site, compared with most other African sites. And because it lacks a larger partner, the company needs to raise $100-million from private lenders this year, even after drawing an initial $100-million from equity markets last year.

But the technical and financial problems are not as significant as the whims of Congolese officials, who have the power to delay a work permit or customs clearance for months at a time. "If you try to bulldoze them, they just block you, and then you're dead - you might sit there for six months," Mr. Prinsloo said.

Banro hit upon a solution that it insists is completely above board: It buys computers for "contact people" in each government office, ensuring that its needs won't be neglected. The company calls it an "education" program, supplying the computers through the Banro Foundation, its community development charity.

"They don't have money for computers, so you have to help them," Mr. Prinsloo said. "If they switch off their cellphones, where do you find them? It means that we can e-mail them and they can download pictures to keep their bosses informed."

The program seems to be working. When the company's first heavy machinery arrived in January, it took 20 days for it to clear customs. But the next shipment took just eight hours.

Banro's shareholders acquired a stake in the region in 1996, buying a controlling interest in a Congolese mining company and renaming it Sakima. The government of president Laurent Kabila, which owned 28 per cent of Sakima, expropriated all of Banro's mining properties in 1998, prompting Banro to file a $1-billion claim in international arbitration court in Washington. At one point, four employees and legal advisers were jailed for treason in Congo.

By 2002, however, Mr. Kabila was dead and the new president was his son, Joseph, who was eager to promote foreign investment. Congo was emerging as "the next frontier" for miners, and Banro was able to negotiate a deal with the government.

Under the agreement, Banro gave up two-thirds of the property, along with a hydro station and rights to all minerals on site aside from gold. In exchange, Banro gained 100-per-cent ownership of the gold. Today, Banro says it has explored 9 per cent of its property. The gold it believes it has found lies primarily at Twangiza, about 45 kilometres from Bukavu, capital of South Kivu province.

Banro believes that Twangiza will have a 28-year life. However, to save money, the company will begin with a 12-year open-pit phase to mine the higher-grade gold on the site.

Banro's shares languish at a little more than $2 on the TSX, a fraction of their former worth. Banro's original shareholders have seen their positions diluted as other shareholders have acquired stakes in the company - including $3.7-million worth from the Canada Investment Fund for Africa, a $200-million public-private partnership fund set up by prime minister Jean Chrétien to invest in Africa after the G8 summit in 2002.

Critics have complained that the fund was meant to be devoted to African companies, not Canadian companies that have ready access to capital markets. Some activists also argue that Banro's 10-year tax holiday and relatively low royalty rates are unfair to the impoverished people of Congo, since the company could reap $12-billion in revenue from the project.

"I find it astounding that Kinshasa essentially gave away this lucrative mining concession," said Dave Donelson, a journalist and entrepreneur who has written extensively about Congo, in a recent blog post about the deal. "The agreement has to go down as one of the worst ever for the DRC."

Mr. Prinsloo maintains that the royalty rate (4 per cent of net profits, 1 per cent of revenue, and a 5-per-cent administration fee on spending) is standard under Congo's mining policies, and will increase sharply after the tax holiday ends.

He also notes that the company is allocating $13.8-million to the resettlement project, and says the project will create 1,000 jobs at the peak of construction. The company's charity, the Banro Foundation, is spending up to $900,000 annually on community projects.

But Mr. Prinsloo acknowledges profits will be substantial if gold prices remain high: "Our projects make money at $650 an ounce and they are lucrative at $850. And at $1,050, they are nice projects."

While the government has confirmed Banro's ownership arrangement more than once, the possibility of a revision lingers in the minds of some investors, said Canaccord analyst Eric Zaunscherb.

"The market has always questioned whether that is a deal that is too good to be true," Mr. Zaunscherb said.

That said, the company's long experience with Congo's bureaucracy is an advantage for Banro. The next challenge is arranging the financing to reach production - "a highly important milestone," Mr. Zaunscherb said.

With a report from Brenda Bouw in Vancouver

Follow on Twitter: @geoffreyyork

 
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