Big miners follow Mother NatureJamie Freed 29 October...

Big miners follow Mother Nature
Jamie Freed

29 October 2007
Source: The Sydney Morning Herald

THE DRUM

"MOTHER Nature has this peculiarity of putting the best [minerals] deposits in probably the worst locations."

That is how the managing director of BlackRock Investment Management, Evy Hambro, replies when asked about the prospects of mining companies in central Africa.

Even so, he has invested some of his natural resources fund's $US40 billion in companies operating in the Democratic Republic of Congo and Zambia.

"Some of the highest-grade copper projects are located in that region," he says.

"There is no doubt they will be key producers in the future."

Citigroup and Credit Suisse reckon it is only a matter of time before global miners get their hands on producing mines to gain a foothold in central Africa. BHP Billiton has a large exploration team in Kinshasa looking for diamonds and studying a $US3 billion aluminium smelter. It's believed the big companies are also keeping a watching brief on emerging copper producers.

In his secondary role as the manager of the Australian-listed Global Mining Investments fund, Hambro has chosen Canadian-listed First Quantum Minerals as one of the top-15 holdings of the $480 million fund. Since GMI was founded in April 2004, First Quantum's share price has risen 652 per cent. The firm expects to produce 215,000 tonnes of copper this year from mines in the Democratic Republic of Congo and Zambia.

First Quantum has never been listed on the Australian Securities Exchange.

Investors can gain exposure to First Quantum through GMI. But given some may prefer to invest directly in companies operating in the Democratic Republic of Congo and Zambia, The Drum has examined some locally listed options.

Anvil digging deep

Within the industry, Perth's Anvil Mining is considered the grandaddy of the miners operating in the Democratic Republic of Congo, even though its first project, the Dikulushi copper and silver mine, has only been in production five years.

For the past two years Anvil has tried to shake off the fallout from a report on ABC TV's Four Corners into a 2004 massacrein the nearby town of Kilwa.

Armed rebels commandeered Anvil's vehicles and went to Kilwa, where more than 100 villagers were killed. This year a military court and inquiry cleared Anvil and its employees of involvement.

Despite the distraction, Anvil has managed to grow its production and add new mines.

Anvil produced about 40,000 tonnes of copper from two mines last year and is confident of producing more than 100,000 tonnes a year by 2010. It opened the $US35 million first stage of its Kinsevere mine in June, and it has hit its intended production rate of 25,000 tonnes a year. Anvil last week started construction on the $US238 million second stage, which will increase Kinsevere's production to 60,000 tonnes a year. Additionally, Anvil is conducting feasibility studies on Mutoshi, a mine that could start production in 2010 based on a potential copper resource of 500,000 tonnes. Credit Suisse has rated Anvil one of the top low-cost Congo copper producers.

Mawson's exploration

Anvil's first-mover advantage in the Democratic Republic of Congo helped it pick up a lot of ground - none of which is subject to a government review of licences that has affected some London-listed companies.

Since Anvil had too much ground to explore by itself it brought in Australian-listed Mawson West as a joint venture partner. Mawson can earn 65 per cent of the 5500-square-kilometre Kapulo project on the border of the Democratic Republic of Congo and Zambia by spending $US4 million on exploration over four years.

So far Mawson has focused on the high-grade Kapulo deposits.

Although there is a historic resource of 50,000 tonnes of copper, Mawson expects to reveal the maiden modern resource in the second quarter next year. Recent hits include 10 metres at 3.2 per cent copper, and it plans to drill deeper than the 50-metre historical resource.

Zambia the favourite

Some companies, such as Zinifex, are willing to consider investing in Zambia but not in the Democratic Republic of Congo. BlackRock's Evy Hambro notes Zambia seems to be "better accepted" by the market as a place to do business, particularly given the recent licensing review.

Mr Frances adds that Zambia seems to be about 10 years ahead of the Democratic Republic of Congo in mining rules. For Australian investors looking for exposure to Zambia, it is hard to look past Perth's Equinox Minerals. Its Lumwana project should start producing by the middle of next year, making it one of the biggest copper producers on the ASX. It is also doing a feasibility study on a uranium project. Equinox is listed on the Canadian market, helping helped it gain access to more funds.