Anvil taps commodity trader for $200M financing deal; Kinsevere project
Peter Koven
Financial Post
11 August 2009
For the second time this year, a cash-strapped miner working in the Democratic Republic of Congo (DRC) has turned to a commodity trader to get some much-needed cash.
Anvil Mining Ltd. announced a $200-million financing yesterday from Trafigura Beheer BV, the world's third-largest oil trader and second-largest trader of nonferrous metals.
The deal gives Anvil the money it needs to complete its stalled Kinsevere Stage II project, but hands over about 36% of the company and three board seats to Trafigura.
"On a trade-off basis I think it makes sense," said Kerry Smith, an analyst at Haywood Securities.
As metal prices and market sentiment improved over the last several months, mining companies have been able to raise money by issuing large amounts of equity without too much dilution.
But it was not going to be so easy for Anvil, as it operates in the politically turbulent DRC and ran into a serious liquidity crunch last year.
Katanga Mining Ltd., another company in the DRC, also faced a liquidity problem. It ended up getting bailed out in January by Glencore International AG, the world's largest commodity trader, which now controls the company.
In Anvil's case, it got partway through construction of Kinsevere Stage II when metal prices and credit markets collapsed, leaving it without enough money to finish the job. It had no choice but to shut the project down.
Anvil evaluated all its options, including the outright sale of the company.
Like Katanga, it ultimately decided that financing from Trafigura, a deep-pocketed commodities trader, was the way to go. One key factor was that Trafigura could complete the financing quickly.
"[Anvil's] internal capability is somewhat thin at the moment," chief executive Bill Turner said on a conference call. "And as we go forward we're going to have to rebuild that capability. And the support of Trafigura at a time like this will be welcome."
Where most investors are shying away, commodity traders are showing a willingness to invest.
Both Glencore and Trafigura are very active in Central Africa and know the region well.
Their extremely deep pockets make it easier for them to take on the political risk of the DRC. Trafigura has access to US$17-billion in credit facilities, and traded US$73-billion of commodities last year.
Mr. Turner said that Trafigura is committed to being a long-term strategic partner for Anvil, and could even provide technical assistance to the company.
And like Anvil, it sees a lot of growth opportunities for the company in the DRC once the Kinsevere Stage II project is up and running.
"The dynamics in Congo have changed in recent years and it is an environment with an interesting risk-reward balance. There are a lot of opportunities there," Mr. Turner said.
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