congo review, page-7

Interesting article on minesite.com. I'll attach the text:

Anvil Mining Flashes Red And Green At The Same Time As Grade And Production Balance Congolese Risk

By Our Man in Oz

There are two ways of looking at Anvil Mining. The first view is coloured red. The second view is coloured green. Red is the colour of Anvil’s share price on traders’ screens as the African-focused miner gets beaten up by the falling copper price, by a government-sponsored revamp of local mining law, and by a failed capital raising. Green is the colour of the ultra-rich malachite ore being mined by Anvil in its mines in the Democratic Republic of Congo. Investors over the past year have tended only to see Anvil through red-tinted glasses, and have marked the Toronto-listed stock down from a high of C$19.50 to recent trades at C$3.00, an 84.6 per cent slide which includes all possible and imaginable bad news in the stock. Looking ahead, as Anvil re-groups after the disappointments of the past year, the colour-coding for the company switches to green for a very simple reason: grade is king.

For non-geologists, the latest annual report of Anvil provides the best example of the high-quality ore it is mining at its Dikilushi and Kinsevere mines. On page 10 of the annual report there is an in-pit photograph of a truck being loaded with super-premium malachite ore at the Kinsevere mine. It shows rich seams of the stuff in a freshly cut wall of ore behind the truck. It looks, in the words of one older geologist, good enough to eat – which would be rather unwise.

However, that picture is enough to make most other copper miners around the world weep with jealousy, because while they struggle along with ore grading between 1% and 2%, Anvil’s mines grade an average of between 4% and 5% per cent, and sometimes much higher than that. Grade, in times like these, is the equivalent of cash in the bank. It’s the best possible asset, because mining costs and schedules can be adjusted to confront lower copper prices while other miners without high-grade ore can do little, except pray.

But if Anvil’s geology is superb, the same cannot be said for the capital and license issues confronting the company. At the very least these are annoying. To find out more, Minesite trotted along to the company’s Australian office for a chat with Anvil’s chief executive, Bill Turner. The first question Minesite pitched was: what killed the planned C$237 million capital raising which was supposed to pay for an expanded solvent extraction, electrowinning (SX-EW) copper smelting facility at the Kinsevere mine? Turner’s answer, in a word, timing. “We were just a couple of months late”, he said. “We needed shareholder approval, and that meant 60 days notice, and the deterioration in the market meant we got overtaken by events.”

If Anvil had been able to complete the capital raising, which at one stage was re-priced from C$12.50 a share to C$10.00, it would have left the Israeli-backed Catala Global group with a 25 per cent stake in the company. However, it would also have provided the funds to more than double the company’s copper output from last year’s 47,633 tonnes to a targeted 100,000 tonnes produced at a cost of less than US85 cents a pound, all up and running by 2011. Getting back on track after the collapse of the Catala deal is now a priority for Anvil, which wants to move up the value chain by producing higher value copper cathode, in order to maximise profits which have lately become somewhat skinny.

Turner declined to comment on the preferred funding mechanism he will now follow, but during his talk with Minesite’s Man in Oz the conversation did include several references to using debt, rather than equity. “We don’t really want to say anything about the funding at this stage,” Turner said. “What I can say is that all existing operations are unaffected by the end of the Catala deal. The money which was to be raised there was to build a new facility. We’re continuing with the feasibility study into the new SX-EW plant, which is planned to start at 15,000 tonnes a year, rising to 30,000 tonnes. That study will be finished in the next month, or so.”

Effectively, the failure of the equity raising has delayed Anvil’s plans but not jeopardised the intent. The question then becomes how much time has been lost? Turner’s response to that was: “Well, it depends on what happens on the markets, but the cost of capital is a hell of a lot higher than it was last November. We’re a company that has no debt, so we have some capacity to bring some debt onto our books. The aim is to develop stage two of Kinsevere, have it on stream towards the end of next year, when you might see us use some debt rather than raise additional equity.”

Turner said the review of mining law being undertaken by the Congo government, which has caused concern to some investors, was now coming to an end. “It has gone on longer than we expected, and the market is concerned, but we’re hoping it will conclude in the next month,” he said – leaving an opening for a question about whether Turner was as concerned as the market? “No, we’ve been in Congo for 13 years,” he said. “It is an emerging country. It’s just had its first democratic election, and we have a new government finding its feet, so it’s a bit of a challenge for everybody. Notwithstanding the logistics and risk we have been able to develop three mines in the country since 2002 and we have some capacity to manage ourselves.”

“We’ve had some challenges over the years, and we’ve been knocked off our horse a couple of times, but we always manage to get up. We’re going through quite a test with the mining review and with the equity and debt markets. You might even call this combination the perfect storm. But what we do have in Congo is production and that puts us in a different league to companies trying to get into production. We are confident of bringing the expansion at Kinsevere into production by the end of 2009, and it will be our future cornerstone.”

That final point about being in production is arguably the strongest card held by Anvil, because mines planned as recently as six months ago, but not yet in construction or funded, will struggle. “The cost of capital has gone up sharply,” Turner said. “That means projects people were planning to bring on stream are going to be more difficult. In Congo, we have world-class resources with ore of the highest grade and a vast spread of exploration targets. The balance is political risk, and our 13 years in country means we have skills to handle it.”