Banro Corporation (BAA) – The Newest Mid-Tier Gold Producer in Gold’s Final Frontier Friday, Aug 12 2011 

While most investors chase mid to large cap names in the Americas, Africa remains the final frontier for gold mining stocks based on a number of factors. Political risk in North Africa, rumblings about nationalization in South Africa, and the stability or lack thereof in Zimbabwe and Somalia can be enough to give many investors pause.

But for those who take a look closer they will find compelling stories and valuations in Central Africa and with one of those companies being Banro Corporation (BAA).

Banro has 13 Exploitation Permits along the Twangiza-Namoya gold belt in the Democratic Republic of the Congo which is similar in size and geology to the famous Ashanti Gold Belt in Ghana.

Within the 13 permits four deposits have been discovered. The first deposit, Twangiza, is on schedule for completion in the fourth quarter of 2011. The mill, located on top of a mountain, will process 1.7 million tonnes per year with an annual production of 120,000 ounces of gold for the first 5 years at cash cost of $356 per ounce. According to Michael Cooper at CFMonitor.com cash costs could rise to $450 per ounce with the effects of oil price increases, still at the low end of the cost spectrum.

The latest 43-101 for Twangiza shows Measured and Indicated Resources of 5.6 million ounces of gold of which will be upgraded to Proven and Probable in the third quarter to this year.

Cash flow from Twangiza will go towards the build-out of the Namoya project in the southwestern part of the gold belt. Namoya is expected to cost $118 million to build and produce an estimated 124,000 ounces of gold per year when completed at a total cash cost of $400 per ounce. Project capex would be paid back in one year’s time at current gold prices.

Upon completion of Namoya cash flows will be directed towards the creation of a hydroelectric plant 25 km from Twangiza which could be built without a dam and provide enough power to reduce production cash costs at Twangiza Phase 1 and 2 by $100 per ounce.

Twangiza Phase 2 will access the ore at the bottom of the mountain using a new processing facility with an estimated capex of less than $400 million.

The final two deposits, Lugushwa and Kamituga, are still in the exploration phase and show strong upside potential.

Once the first three projects are complete Banro will have an estimated annual gold production of almost 500,000 ounces by 2016.

Banro has been active in the local communities as well building schools through the Banro Foundation building two high schools, two primary schools, a health care center, and the rehabilitation of local infrastructure.

Investors have spent the final few years racing towards the low hanging fruit in the mining sector grabbing companies with properties in the Americas. While many have done well Africa has been largely ignored but that may be changing soon.

Despite swimming in cash from high gold prices mining companies are finding that excess cash gets eaten away by inflation for large scale projects.

Inflation is beginning to rear its ugly head in Brazil and Argentina where they are fighting inflationary forces for different reasons. Already we have seen capex numbers increase by more than 25% for projects like Cerro Casale or be scaled back as is the case with Galore Creek in Canada.

The threat of nationalization in Bolivia and higher taxes in Peru has been giving companies consternation as project costs rise and margins fall.

In the Congo, inflation risk is stabilizing as the inflation rate trends lower and economic growth moves forward.

In a sign of increasing faith in the long-term future of the Congo, Newmont Mining (NEM) recently took a 16.8% stake in Loncor Resources (LON) which holds rights to more than 21,000 square kilometers in the Congo.

While Newmont’s production profile has been flat for the last few years Africa is the only area showing growth. The investment in Loncor is not just an investment in an exploration company with strong potential but a stamp of approval for the Congo.

While investors are rushing into gold and silver stocks located in the Americas Africa remains overlooked. Instead of chasing returns investors should look for value in African mining stocks like Banro who will enter into production later this year and rising to almost 500,000 ounces per year by 2015.

Disclaimer
Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

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Currency Risk in South America – Brazil and Argentina Sunday, Mar 13 2011 

Brazil and Argentina are on two different paths with respect to their economies yet fighting the same currency and inflation risks.

Brazil’s economy has been on a tear for the past decade. Once known as a basket case and a huge investment risk, Brazil undertook difficult reforms and renewed an agreement with the IMF in 2001. Within two years Brazil achieved a primary budget surplus and plaid off the IMF 2 years ahead of schedule.

During this period, Brazilian companies have grown into global leaders and were awarded the 2016 Summer Olympics.

The growth does not come without a price. Currently, Brazil is in a very touchy situation with respect to their economy. IPCA inflation rose to 6% in January forcing the central bank to increase the SELIC rate 50 bp to 11.75%. Economic growth looks to continue its strong pace coming in around 7.5% for 2010.

Brazil’s problem is that it needs FDI ahead of the Rio Olympics and has been trying to stem the hot money inflows with a combination of capital controls, FX intervention, and interest rate increases.

The problem with increasing interest rates is that it attracts even more hot money in the global fixed income area as investors chase yield.

In Argentina they are having the opposite inflationary problem. The Mercal government has emabarked on a program creating hyperinflation across the country.

While issues related to the Argentina’s IMF default in 2001 lie unresolved, Argentina has been cutoff of international capital markets and CDS spreads on Argentine debt are in default territory.

The government has been raiding Central Bank reserves since former Central Bank President Martin Redrado was let go for not backing a plan that would allow the Argentine government to tap Central Bank reserves in order to pay debtors.

The current government has been giving employees generous raises to the tune of 25% in order to combat inflation and a loss of purchasing power. The additional salaries then flow back into the consumer markets as consumers look to spend their cash as prices continue to rise further eroding their purchasing power and any gains they have made. This creates a hyperinflationary cycle which continues to feed upon itself ultimately ending in a government default and economic collapse.

Compounding the problems in Argentina are provincial and national elections scheduled for later this year. As the government tries to maintain its hold on power the promises will become greater as they promise everything to everybody.

Investors looking at mining companies in Brazil and Argentina need to be aware of the risks forming in South America. It was only a few short years ago that investors woke up to Bolivian President Evo Morales attempt at nationalization for the mining industry which caused immediate haircuts in those stocks with operations in Bolivia.

This is not to say that you should avoid every stock with Brazilian and Argentine operations but investors need to be aware of the potential risks. There is a risk of overheating in Brazil and hyperinflation in Argentina while both countries attempt to deal with inflation attacking their economies in very different ways.

Disclaimer
Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

Currency Risk in South America Sunday, Mar 6 2011 

Currency Risk is South America – Brazil and Argentina

2011 Investment Commentary Part 1 of 3 Monday, Jan 3 2011 

The problem with making a year long commentary is that things can change which throws off your initial theory. That was the main problem with my forecast as Bernanke decided to launch QE2 amidst criticism from global central banks. This put a floor under the market and lit the fuse for the rally in equities and commodities.

So what happens in 2011 and how does that affect investment portfolios? From my chair looking out over the world here is what I see happening based on current events.

This is the first of three parts. The first will focus on global regional commentary. The second will focus on investment areas and the third will tie the first two together.

EUROPE

Europe will be marked with a growing divergence between the economically strong countries like Germany and France and the PIIGS. As the year progresses expect Spain and Portugal to accept programs similar to Ireland and Greece.

Current chairman Trichet’s term ends on October 31, 2011 and there will likely be an internal tug of war between the PIIGS who would want a dove and Germany and France who will be pushing for a hawk.

In September, Trichet made some criptic comments in a speech saying that the problematic countries need to get their collective houses in order soon or risk being left behind.

Germany’s exports will continue to carry Eurozone growth in 2011. If the Euro begins to decline versus the US Dollar and global currencies we may begin to see inflationary problems as the year goes on with Germany possibly pressing the ECB to removing some excess credit.

This will provide the new ECB President with his first and possibly most important test. Will he be an inflationary hawk with a nod to removing some excess credit measures and attempting to get ahead of the inflationary curve or acquiesce to the PIIGS who will need a time to heal their sovereign balance sheets.

Europe will survive intact helped in part by their current account surpluses.

ASIA

Inflation will begin to turn its ugly head as 2011 goes on. Right now Asian central banks have begun a tightening cycle aimed at removing excess credit and attempting to stay ahead of the inflationary curve.

Unlike the late 1990’s Asian economies are on a much better footing to fight inflation with significant excess reserves, low debt ratios, and a willingness to move ahead of the inflationary curve.

One significant fly in the ointment is not coming from China but Australia, whose interest rate increases are slowing the Australian economy almost to the point of a recession. The ripples here will likely be limited to Australia and New Zealand.

Japan will continue to muddle along economically. This may upset market participants as many people have bet on some sort of crisis but Japan has continued on this path for more than a decade now. One area which may help economic growth is the Japan-Thailand FTA in which Japan has begun to outsource low end production to Thailand which is then exported to Japan where final assembly and export to the world takes place. Benefits from this FTA should become apparent as the year goes on.

The key for Japan will be a rise in exports combined with lower public spending. While this may continue to hold back economic growth a retraction in the public sector would be good for the Japanese economy long-term.

India and China will lead the rate raising cycle with increases of at least 100 bps expected across the board.

LATIN AMERICA

Argentina remains the wild card for South America. South America is undergoing an incredible economic growth story built upon the economies of Brazil, Chile, and Peru.

Central banks across the region will continue on a rate tightening cycle in an attempt to stay ahead of the inflationary curve.

Argentina remains a huge political risk with elections in 2011 with inflation already out of control.

NORTH AMERICA

In Canada, a combination of the H.SI implementation and high consumer debt levels will put a cap on the economic recovery. This is very good for the long-term.

Canada is ahead of the Federal Reserve with respect to interest rates. Baby steps are being taken to let the air out of the bubble and it is likely this will continue as 2011 goes on. We will likely see a couple of rate increases as the Bank of Canada would like to normalize interest rates but is very cognizant of the high debt levels and slow economic recovery. The divergent economic policy relative to the United States will continue.

No interest rate increases by the Federal Reserve until mid 2012 at the earliest and more than likely a slow incremental rate increase policy will begin in 2013.

Not until the mortgage resets have made their way through the system will the Federal Reserve entertain the thought of raising interest rates.

There is a tremendous aversion by consumers in the US to leveraging up. If you were foreclosed on and went back to renting it is unlikely that you have 20% for a downpayment after losing a house purchased with no downpayment.

We will continue to see problems and the grey market overhang will continue to depress prices.

There will be isolated pockets for growth but that is more driven by vulture buying.

Economic growth in the US will be higher than this year but lower than 4% with building inflationary pressures in the food and oil markets.

US POLITICS

The rush of voters to elect new candidates to Washington has changed the political landscape. Never before has the country experienced a split Congress with a Democratic President.

The question will be how closely will they move to cut spending when a strong proportion of the American public is against cutting Medicare, Social Security, and Defense and how quickly will the public turn on them when the spending is less than expected.

Right now the 2012 Presidential race has yet to kick into gear but as the year goes on the drumbeat from candidates canvassing Iowa will pick up and grab more and more of the headlines.

Expect lots of bluster and backpeddling from the new Congress. Notice how they are already going back on the earmarks promise before taking office. That will be something major to consider for the 2012 election.

Good economic growth will help tax receipts but I do not see any strong impetus to get spending under control. A great way to slow economic growth and help the Federal Reserve put off increasing interest rates (this creates new problem) would be to combine an increase in tax receipts through lower capital gains, dividend, and overseas profit repatriation tax rates with decreased spending. That would show the world that we are taking our budget deficit problem seriously.

If that happened as businesses and employment began to gain traction the government would be creating a drag to ensure we do not grow to fast and let inflation get out of control.

BTW, I am not a Keynesian. The above policy just makes sense to me at this point in time.

Disclaimer
Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.