DRC could turn out to be a gold mine
Bummed by all the gray-haired killjoys telling you that all the fun is gone from investing, that small caps are dead, emerging markets are over, commodities are a bust and cash is king?
Then step right up to Jon’s little House of Crazy Joy, because have I got a thrill-ride stock for you.
It’s an idea for these stressed-out times so ridiculous that no one in their right mind would consider it. So, you know, it just might work.
Don’t call your financial adviser, in other words. She’ll never go for it.
Instead, put down your granny glasses, twirl a globe to equatorial Africa and put your finger smack in the middle on the fat patch of country the size of Western Europe.
It’s probably labelled Zaire, but after decades of civil war, dictatorship, corruption and name-changing, this minerals-blessed nation with fewer than 400 miles of paved roads prefers to be known as the Democratic Republic of the Congo (DRC).
Hey, you know: Tomato, to-mah-to. If a United Nations-sponsored election in three weeks works out as expected, you could call this place the Democratic Republic of Buried Treasure because political stability will lead world credit-rating agencies to upgrade its sovereign rating ‘ an important step toward unlocking its incredible resources.
For hidden beneath the DRC’s dense mountain jungles are tens of billions of dollars worth of unexploited gold, diamonds, uranium, cobalt, tin and tungsten that have escaped major miners’ grasp because the countryside has been far too dangerous to deploy modern equipment and workers.
The smart and sane way to play a new era of peace and prosperity in the DRC would be the shares of large international diggers such as BHP Billiton.
But if you want to get all Jack Sparrow about it, then you’ll want to know that the really big commercial winners will be a handful of small Canadian public companies with untapped claims that rank with the richest in the world.
One of the most compelling investment opportunities of the bunch may lie with tiny Banro, a Toronto-based company that has substantial Amerucan and British capital backing, a strong management team and, most importantly, four 100 percent-owned properties in the heart of the country’s key 130-mile-long gold belt.
If geological testing continues to pan out as it has so far, the company’s annual gold production is expected to start as soon as 2009, at around 50,000 ounces a year, and run up to 500,000 ounces annually by 2012, at an average cost of less than US$250 an ounce.
Raymond James and RBC Capital Markets analysts who have studied the company believe Banro has access to at least 12 million ounces of gold, and probably much more.
At current prices, that would make the company, which now sports a US$400 million market cap, worth well over US$1 billion in the next
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couple of years.
High risk, high reward
Before your eyes get too big, keep in mind that there are many significant physical and psychological hurdles for both the country, once known as the Belgian Congo, to leap.
Four million people have died from war, disease and famine in the past decade, and the election ‘ which is costing the United Nations around US$400 million as part of an effort to stabilise all of central Africa ‘ may fail.
The interim government, led by soft-spoken Joseph Kabila, has won surprising kudos from Western civil rights organisations and is ahead in the running to form the country’s first freely elected leadership.
But it has also imprisoned journalists to muffle dissent, so its acceptance on the world stage is not a slam dunk.
Still, almost anything would be better than the outrageous thievery of brutal dictator Mobutu Sese Seko, ousted in 1997, or the vicious ethnic strife that followed.
And also note that several other small Canadian developmental miners with significant stakes in the Congo, including Moto Goldmines and First Quantum Minerals may do better than Banro.
So might larger, and thus more diversified, miners with claims in the area, such as South Africa-based AngloGold Ashanti and Gold Fields, or BHP Billiton, the Aussie.
Of the so-called “junior golds” in the DRC, Banro appears to be special in the quality of its executives, its remarkable focus on providing jobs and scientific development opportunity for native Congolese, and the potential for its properties.
After so many stormy years of death and frustration, a Raymond James analyst calls Banro “the gold at the end of the rainbow.”
Companies with major mining claims in the Democratic Republic of Congo:
Precious Metals 7/11 Close Mkt. Cap. Home
Banro US$9.52 US$322 M Canada
Moto Goldmines US$4.95 US$276 M Canada
BHP Billiton US$43.07 US$77 B Australia
AngloGold Ashanti US$48.25 US$12 B S. Africa
Gold Fields US$23.58 US$11.6 B S. Africa
Adastra Minerals US$3.54 US$288 M Canada
Anvil Mining US$7.35 US$388 M Canada
African Copper US$1.40 US$72 MM Canada
Phelps Dodge US$80.37 US$16.3 B USA