December 5, 2012
PRODUCTION FOR NOVEMBER 20% ABOVE NAMEPLATE
EVENT: TWANGIZA PRODUCES 8,559KOZ IN NOVEMBER AT COSTS UNDER US$700/OZ
Banro announced Twangiza production at 103koz pa for November (up from 61koz pa in October), with 85.4% recovery (up from 81.5%), at costs under US$700/oz. Recovery lifted to 90% at times, underpinning Banro’s confidence that recovery will lift to 90% from 2H13 as planned with new CIL tanks (to increase residence time / throughput). The company reiterated that it remains on target to lift throughput to 1.7Mtpa at that time, after which cash costs of US$500-600 will be targeted. We previously forecast 22.7koz for 4Q12 at US$750/oz costs – if December stays at the same rate as November, this would equate to 22.2koz, so today’s results are in line with our forecasts. As such, we make no changes to our model.
IMPACT: CONFIRMS TWANGIZA RUNNING SMOOTHLY, NAMOYA UP NEXT
We see two key impacts from the news, (1) we are of the view that a line has been drawn under ramp-up issues experienced at Twangiza in the first three quarters of the year, and (2) the implicit strong cash generation, along with the previously reported US$43m debt top-up, should reduce any market uncertainty about funding for Namoya. Although this ramp up has been slower than management would like, that it was done with a second hand plant in remote parts of the DRC is ultimately a good performance. At group level, this will now enable investors and management to refocus on the 2013 Namoya build. Banro’s strategy is to run at 1.2Mtpa / 85koz pa / US$700-800/oz costs from now until 3Q12, then 1.7Mtpa / 85koz pa / US$600-700/oz after new CIL tanks are added (increasing recovery with longer residence time, and throughput), and finally to 2.0Mtpa / 135koz pa / US$500-600/oz in 2014 once old CIP tanks are retrofitted to increase throughput in a CIL configuration. That a run-rate of 103koz pa has now been achieved in November (up from 61koz pa in October), with cash costs below the targeted US$700-800 range, clearly demonstrates the plant has achieved current targets.
RECOMMENDATION: ALL CATALYSTS SUPPORT POSITIVE PRICE MOMENTUM, RETAIN BUY RATING
From here on in we expect Twangiza to ramp up in 2013, Namoya to commission in 2H13, and the political situation regarding the M23 rebels to dissipate. On that basis, we remain very positive on Banro at current prices, so retain our BUY rating and C$6.00 target price based on 1.0xNAV for Twangiza oxides, 0.7xNAV for Namoya, and a nominal US$100m for the Namoya CIL expansion, Kamituga, and regional exploration (each of which will potentially be new mining centres). Given the tax holidays, Banro’s current price equates to a P/CF of only 2.3x for 2014, showing good upside in our view.