An Ontario court has approved a restructuring plan for beleaguered junior Canadian gold company Banro Corp., paving the way for it to emerge from creditor protection.
Under the terms approved by the Ontario Superior Court of Justice, holders of US$207.5-million in debt instruments and US$20-million in gold-forward agreements will swap their securities for equity in a revamped Banro. Additional obligations under gold-forward agreements worth US$30.9-million will be deferred for a number of years. (A gold forward is an agreement to sell a portion of gold at a set price in the future.)
Banro’s existing common shareholders are set to be completely wiped out. In November, trading in the shares was suspended on the Toronto Stock Exchange; the stock was delisted in January.
In a release on Tuesday, the Toronto-based company, which operates two gold mines in the Democratic Republic of Congo (DRC), said the development “significantly reduces debt, improves liquidity, and allows the Banro Group to continue ongoing operations in the DRC.”
In December, Banro was granted protection from creditors under the Companies’ Creditors Arrangement Act (CCAA), with its chief financial backers Gramercy Funds Management, a Connecticut-based hedge fund, and Chinese investment fund Baiyin International Investment, owed about US$319-million.
While Banro’s gold resource in the eastern Congo is considered to be world class, it has had a difficult run since its inception in the late 1990s. The company has dealt with civil war, seen its assets seized by the DRC government and encountered tensions with local artisanal miners, some of whom were relocated by the company during construction of Banro’s gold mines. The company also encountered myriad operational problems through the years, including significant cost overruns and delays in the construction of its second mine. Banro’s woes came to a head in 2017 with multiple flare-ups on the ground in DRC, culminating in the suspension of production at one of its mines.
While Banro’s operating difficulties in the DRC were publicized at various times, one disgruntled shareholder alleges the company didn’t do enough to inform investors.
Earlier this month, Lawrence Lepard, a Massachusetts-based fund manager filed a proposed class action lawsuit in a U.S. court, alleging that Banro and its chief executive officer, John Clarke, violated securities laws by playing down the extent of its difficulties in the DRC, and in the process deceived investors and artificially inflated the stock price.
“Unbeknownst to plaintiffs and class members, a violent and ongoing conflict between Banro … and a local population of disenfranchised inhabitants has persisted for years,” the suit alleges.
“The violence has caused significant disruption to Banro’s operations in the DRC, which ultimately rendered the company insolvent by late 2017.”
Mr. Lepard claims that while Banro released some information about the extent of its difficulties, it omitted certain other damaging details. For example, the suit alleges that shortly after production began at Namoya, its second mine, in January of 2016, the site was shut down for three days after local protesters stormed the property.
“Banro made no mention of the fact that in its first month of operation at Namoya it lost complete control of the mine to protesters,” the suit alleges.
In an e-mail to The Globe and Mail last week, Mr. Lepard said that he and his fund have lost more than US$5-million by being exposed to the stock over the years.
Banro and Mr. Clarke declined to comment on the lawsuit.
Since entering creditor protection, production has since restarted at Banro’s Namoya mine, meaning a key cash-flow source has returned.
Its two chief backers, Gramercy and Baiyin, are also sticking with the company, and injected US$20-million in debtor-in-possession financing as part of the restructuring process.