Monday, June 6, 2016

How To Assess The Quality Of A Miner - Banro's Case

In my  opinion, one of the best ways to assess whether a miner makes any progress is to compare the economics of its operating mine / mines, using at least one fixed parameter. 
Let me explain it, taking Banro Corp as an example. 

In my last article on Banro, published on Seeking Alpha, I have noted that this company is regressing. Banro's flagship property, the Twangiza mine, is a good example of this sad process. 

Let me assume that Banro sells its gold at fixed prices, realized in 1Q 2016, i.e. $1,109 per ounce. Using this theorethical price, I may calculate Twangiza's basic economic measures in a little bit different perspective.

Firstly, if the gold produced at Twangiza had been sold for $1,109 per ounce in 2014, 2015 and 1Q 2016, the company would get $79.9, $87.4 and $71.4 per ton of ore processed. This revenue, called net smelter return (NSR), varies from period to period, mainly due to two factors:

  • grades of ore processed
  • recovery ratios

Then, because costs of production do not depend on the price of gold, I am subtracting these costs (actual ones) from NSR. As a result, I am calculating a margin delivered by the mine. The table below shows results:

                                          source: Simple Digressions

Now it is easy to spot that in 1Q 2016 Twangiza delivered very poor results. 

First of all, even if gold prices were the same in all periods the mine would generate smaller NSR - $71.8 per ton in 1Q 2016 vs. $79.9 per ton in 2014 or $87.4 per ton in 2015. Why? Because the ore processed at Twangiza was of lower quality (lower grades, lower recovery ratios). 

As a result, despite lower costs of production ($38.9 per ton in 1Q 2016 vs. $43.8 in 2015 etc.), in 1Q 2016 Twangiza delivered quite a low margin of just $33.0 per ton of ore processed.  

Summarizing - the biggest Banro's problem are not its costs of production (here the company is making good progress) but the quality of the ore processed (and mined). But to disclose this problem, the above analysis has to be done.


  1. Congratulations on handling so many questions from the community of SA on your Banro write-up. Tough crowd. It must be a lot of work coming up with replies... especially when, no matter what researched detail you reply with sometimes, negativity is what comes back at you.

    Anyway, always fun reading your gold resource company write-ups. Thanks.

    1. Thanks for nice words. It is sad that some people think I have something personal against Banro or other companies.
      Indeed, all I want to deliver is a decent analysis.
      If Banro becomes a better miner I will surely admit it.