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Banro's Twangiza Mine sits at an elevation of approximately 2,350 metres above sea level in a mountainous area, 80 km by road, 40 km by helicopter, from the town of Bukavu, Democratic Republic of the Congo.Philip Mostert

It has come to this: Banro Corp., a junior gold explorer, is trying to raise $100-million (U.S.) by issuing a mix of preferred and common shares.

The common shares aren't anything shocking, but the preferred shares have prompted some head scratching.

Because preferred shares typically pay fixed dividends, they are most commonly issued by blue-chip companies such as telcos. In recent years different types of issuers have started to experiment with them, such as real estate investment trusts and Rona Inc., but junior mining is a bit of a stretch.

Not only are commodity prices quite volatile, but junior developers often run into problems as they ramp up their project. On top of that, Banro operates in the Democratic Republic of Congo, which is politically risky and in the midst of clashes between rebels and government troops. The company could not be reached for comment.

The proposed best-efforts financing is structured in three parts. BlackRock World Mining Trust has agreed to buy $30-million worth of preferred shares, while Banro must sell $30-million to $50-million more preferred shares to public investors as well as $20-million to $40-million worth of common shares. This structure replaces a deal with BlackRock signed last month that did not include raising any money from publicly issued preferred or common shares.

The new offering comes with some specific stipulations. Banro will be able to redeem the preferred shares either in five years or when the company reaches 800,000 ounces of production (whichever is later) and BlackRock will only buy its portion if the total deal size is at least $100-million.

To compensate all buyers for the inherent risk, the preferred shares will pay dividends that yield 10 to 15 per cent a year. The exact amount of the payments will be tied to the company's gold production.

Despite the big dividend, selling the shares could prove difficult. Many of the big miners have turned to debt financing because they feel shut out from equity markets, and some of the miners that do try to sell stock, such as Romarco Minerals Inc., learned their lesson the hard way.

Banro's shareholders aren't happy with the attempt. On Wednesday they sent the shares plunging 11 per cent, meaning the stock has lost more than 60 per cent in the past year.

(Tim Kiladze is a Globe and Mail Reporter.)

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