Anvil And Equinox, Two Of Australia’s Best Copper Plays, Still Rate At Discounts To Stay-At-Homes.
Interesting to hear from Our Man In Oz over the weekend that the excitement in nickel stocks of all sorts and sizes is starting to spill over into copper. For example Exco rose by 76 per cent last week to A$0.22 after reporting high-grade copper intersections from drilling at its Mt Margaret project in Queensland and Equinox Resources jumped by 44 per cent to A$0.18. There was no specific news from Equinox, but everyone is waiting for publication of the bankable feasibility study at its Lumwana copper project in Zambia and the name of the new partner in the project to replace Phelps Dodge. The study should be published any day now, but the disclosure of the new partner is unlikely before Christmas as the candidates will have to do their own due diligence on the feasibility first.
Equinox originally earned a 51 per cent interest in Lumwana from Phelps Dodge in November 2002, but the US major decided earlier this year that it did not want to maintain its interest. This left Equinox free to negotiate a 100 per cent interest and it was made clear at the time that a majority interest and operatorship of the project was on offer to a partner with appropriate experience in mine development and deep pockets. Craig Williams, the managing director of Equinox, is in a much stronger position in these negotiations now that copper has moved onto firmer ground. At the end of last week it closed at US$1,860/tonne which was US$200/tonne more than at the start of the year and a rise that is fully supported by the decline in LME inventories. These now stand 577,000 tonnes, a massive decline from the peak of 800,000 tonnes. Of course these are not the only inventories. Significant stocks in China, Chile and the US do exist, but the trend is in the right direction..
This same message about copper is even more encouraging for Australia’s other copper play in Africa, Anvil Mining, which is already mining the high grade Dikulushi copper-silver deposit in the south east of the Democratic Republic of Congo, near Lake Mweru on the Zambian border. The Dikulushi deposit has an average grade of 8.5 % copper and 9 ozs/tonne silver , making it the highest grade mine of its type in the world. The orebody is open to depth and one of the deepest drill intersections graded 16% copper and 15 ounces/tonne silver so there is plenty of scope to increase the present 8 year mine life with drilling. Stage 1 is an open pit operation mining 250,000 tonnes/year which is then put through a heavy media separation plant to produce 13,000 tpa copper and 900,000 ounces of silver contained in concentrates grading 37% copper and 32 ozs/tonne silver. The new pit design has just been announced based on recent drilling results. It extends the depth of the open pit to 150 metres, adds 15,770 tonnes of copper and 453,000 ounces of silver to the open pittable reserves, and extends the life of the open pit.
Stage 11 of the open pit is expected to click in early in 2004 with the addition of a ball mill and flotation circuit which will just about double the grades of copper and silver in the concentrate and push cash operating costs net of silver credits down to US$0.37 cents/lb which is in the lowest cost quartile in the world. In fact Bill Turner has acquired two ball mills from the old Woodcutters project in the Northern Territory and these are on their way to Africa. An offtake agreement is in place with Republic House, a Swiss trader, which guarantees a high proportion of the recoverable metal value as soon as the concentrate reaches a smelter. At the moment funding is being sought for this additional capital investment, but Bill Turner is confident that it is little more than a formality given the performance being achieved at Dikulushi.
The open pit will now last at least six years and an underground operation will then take over for another three or more years. Exploration around the mine already guarantees significant further additions to the mine’s life. Recently, moreover, Anvil added a small spiral circuit in order to retreat tailings discharged from the heavy media separation plant. As a result of what would seem a small adjustment, the total cash operating cost after silver credits and including concentrate transport costs , smelting and refining costs and realisation costs fell to US cents 39.6/lb. The cost of this spiral circuit was only US$91,000 and this was paid back in less than a fortnight. It is a prime example of Anvil’s policy of minimising initial capital cost and funding upgrades out of cash flow.
Bill Turner reckons that over 30 per cent of the Anvil equity is in North American hands. Australian investors just could not get attuned to a company operating in the DRC and even now he reckons that the shares rate at a discount to peer companies which stayed at home. The plan now is to get a secondary listing for the company on the Venture Exchange in Canada and move up as soon as possible to a full Toronto listing. At that stage Canada might well become the primary listing, but a secondary listing would always be maintained in Oz. He took a look at AIM, but felt he owed it to shareholders who had come in during the difficult times and kept the show on the road. Doubtless he also listened to AIM listed First Quantum, a major shareholder in Anvil, which operates in the same part of the world and whose shares have put up a strong performance in Canada where it has its primary listing. It is a disappointment to London as Anvil is a class company, but understandable. Maybe Equinox will fill the gap in London when it has decided on its major partner.
