Interesting gold mining junior: BAA

[raylopez99]

From a Yahoo message board on BAA, Banro Corporation (Public,
AMEX:BAA), a Congo gold miner. It has the potential to double your
money (if you don't lose it)

RL

warmcamp: "Your calculations are way off the mark. 8MOz M&I gold
resource is worth, in general, $800M, and if construction expense is
$150/oz (it is higher in Twangiza) then it is still the same valuation
when M&I is converted to P&P. Gold price appreciation is helpful, but
costs have unpleasant tendency following the price."

Actually my calculations can include all of your assumptions. Assuming
8MOz M&I gold, a world price of $900/oz (with NO price appreciation),
a cost of $375/oz (when the world average is $238/oz), a total life of
all the projects of 20 years, 40.5M shares (with no further dilution),
and a discount rate of 25%/yr (Ok even for Africa, don't you think?),
you get a PV price of $828M. Divide by the float at you get $20.5/
share.

If you want to play with expenses more, all you do is note that the
world price of gold is $950 now, so expenses can go to $425/oz and not
change the calculation. And BAA has correctly said that costs go down
as a project proceeds.

Thus BAA is a buy.

Now to get to the current price, given the above assumptions, you have
to assume a huge discount rate, which will account for things like
theft in Africa, cost overruns, etc. To give $4.96/share, the discount
rate has to be 99%! Or, since a 99% discount rate is clearly too high,
let's use say 70% (so your money a year from now is worth half in
Congo, which means your costs, if gold is $950/oz, have to go to $600
an oz, to give $4.9 or about $5 a share. $600/oz extraction is too
high, even for Africa, no? So the other parameter to play with is the
float--let's assume, because of financing pressure due to bank
distress, they have to borrow more money and have to resort to
floating more shares, let's say 4 times as much as they have now, to
160M shares. So $20.5 (see above) / 4 = $5.1/share. That's quite a
dilution--doesn't seem realistic to me.

Conclusion: the market fears something in BAA--such as political
takeover of the mines?--that is not warranted rationally. BAA is a
speculative buy here. You can easily double your money, just like in
the case of FNM (Fannie Mae) this week, as I almost did (I'm up 50%).


Sentiment : Buy