In the world of mining, as an investor you are trying to make money from companies which tend to have proven assets in countries which can make getting the mineral out of the ground the easy part. To offset the risk, investors tend to follow the large institutions lead. In an article about Banro Mining Company, Niall McGee examined the risks involved for investors.

Banro is listed on the Toronto Stock Exchange, there is a large infrastructure for mining companies on the Toronto area. Any time metals begin to reach new highs, look to Toronto Stock Exchange for names of companies. Banro is gold mining company and in the fall of 2012, gold prices were still high they announced Blackrock had taken a 11% holding in their company and they were developing the gold region in the Democratic Republic of Congo. The DRC outside of the capital city, is not a very democratic country but it is blessed with many minerals in the ground, including gold which are world class projects. The gold content is high.

This year, the company has declared bankruptcy and the shareholders will own less of the company as it restructures. There is still gold, however in the DRC, the country has gone through a civil war, they have not built up infrastructure to facilitate gold mining, parts of country’s road have extra tolls from the local militia, and not surprisingly construction time lines in the gold producing sites have fallen backwards. There is still a very good resource in the ground.

If gold prices remain high, many of the barriers can be worked around, but when the price of the commodity such as gold falls, it puts a damper on forward movement. In the case of Banro, they had to seek money other than the equity markets and went for a preferred share offering. but it has not enough money to keep full steam ahead.

Linking to dividend paying stocks, one of the reasons you like them is their ability to make profits, pay their bills and have the ability to move into the equity markets for the correct reasons. The risk remains low. Dealing with junior companies the lesson to learn is they need to be overcapitalized in equity, rather than debt. If it is the reverse, then restructuring will be coming. To avoid risk, invest in the largest companies and wait till they buy the juniors.

There are more questions than answers, till the next time – to raising questions.