TORONTO (miningweekly.com) – Canadian gold hopeful Banro is a potential takeover target, because of its low market value, plus the difficulties the firm is likely to face in raising money for working capital, let alone project development, RBC Capital Markets analyst Cailey Barker said.

There are several gold-miners on the prowl for acquisition prospects, particularly as producing gold companies are almost the only miners raising capital in current markets, while their less-fortunate peers flounder, but the fact that all four of the company's projects are in the Democratic Republic of Congo (DRC) could deter some risk-averse suitors.

On Monday, Banro released the results of a feasibility study on its Twangiza project, in the DRC, in which it estimates the mine will cost $409,6-million, plus $133-million for a hydro-electric power plant of which Banro would pay no more than half at most.

The capital cost figure also includes a contingency of $39-million.

Banro said that it plans to initiate talks with potential strategic partners, but Barker commented in a research note that RBC believes the company will be “challenged” to finance the project, given the high capital cost requirements.

"We believe Banro will find it difficult to find a partner, given the current global economic climate, DRC political risk and challenges of the project."

Further, Barker estimates that Banro will soon need to raise up to $20-million in equity, to cover working capital requirements.

“This could be significantly dilutive to the current share price,” the analyst commented.

Banro shares were trading at C$2,45 a share on Tuesday, after jumping 48% from Monday's closing price.

On Monday, RBC lowered its 12-month target price to C$1,50 a share, from C$2,00.

Barker estimated that a takeout value for the company could be around C$2,25 a share.

"This would equate to a premium of around 50% to the current share price, which in our view is a reasonably applied metric to many deals."

Barker maintained his recommendation of 'sector perform'.

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