July 28, 2009Anvil Mining Begins To Open Up The Hatches It...

July 28, 2009

Anvil Mining Begins To Open Up The Hatches It Battened Down At The End Of Last Year

By Charles Wyatt / www.minesite.com

Even when a share price nearly doubles in a short time it is as well to keep things in perspective. Prices were a lot higher this time last year and there is still plenty of catching up to do. Anvil Mining, which is listed on the ASX and in Canada, didn’t double last week, but it rose by A77 cents to A2.55, as reported by Our Man In Oz, after announcing that it had successfully amended its agreement with Gecamines, the state mining company of the Democratic Republic of Congo (DRC), over its Mutoshi joint venture. At the same time chief executive Bill Turner also revealed that his company had recommenced engineering and design work for the Kinsevere Stage 11 copper project which is only 30 kilometres north of Lumumbashi, the capital of Katanga province in the DRC and the centre of all things Copperbelt on the Congolese side.

This dual announcement brought Canadian broker Raymond James quickly onto the scene with a “Strong Buy” rating and a target price of C$4.00 per share. The broker’s previous target was C$2.50 so this is quite a jump. The broker reckons that’s justified by improved political stability in the DRC, and improving credit conditions which should help Anvil secure the outstanding US$200 million needed for Kinsevere 11 on favourable terms. The improved political stability presumably refers to the fact that the mining review which started back in 2007, and was heralded by the newly elected government as likely to be a quick and speedy process, had dragged on for two years as far as Anvil was concerned, and has only now been finally settled with the announcement on Mutoshi. During that time the ownership of projects has effectively been in limbo, hardly the ideal position from which to conduct a financing, especially during the second half of last year.

Bill Turner is a pretty phlegmatic man, as he would have to be to put up with the problems of operating in that part of Africa. He simply battened down the hatches, putting his company’s first mine, Dikulushi, on care and maintenance, holding off on engineering and construction work at the Kinsevere 11 SX-EW (solvent extraction-electrowinning) project, and slowing down on metallurgical testwork and infill drilling at Mutoshi. Here production through the HMS plant has been stopped and an upgrade to SX-EW is planned, but this is some way off as there is plenty more work to be done. It is a relief, however, that agreement has now been reached with Gecamines on the structure of the ongoing joint venture at Mutoshi. It is not unmitigated good news as Anvil has to pay an entry premium of US$14.2 million and will have its interest reduced from 80 per cent to 70 per cent, but, as Bill says, it is a lot better than continued uncertainty.

The focus at the moment is very much on Kinsevere Stage 11, where engineering design, fabrication, construction work and procurement had been put on hold towards the end of last year when it was half finished. Now Anvil is ready to restart, although it now has to pay a net US$12.8 million as entry payment by early 2010. The funding for both Kinsevere and Mutoshi was safeguarded by a placing that raised a gross C$34.5 million in May, but the price at which that raise was undertaken was only C$1.15 per share. Many a company director would be frothing at the mouth at the thought of the dilution this caused when the shares are now C$2.13, but Bill remains calmly focused on the future, which is Kinsevere 11. If he let things like that get to him, how much more upset he would be by the fact that Anvil shares were priced at C$10.00 a year ago?

In those days, however, the price of copper was over US$8,500 per tonne, and it is a measure of how far it fell in the second half of 2008 that it has risen by 75 per cent since Christmas Eve. It’s now trading at US$5,550.25, and already there are rumours of market manipulation. It must be so difficult for North Americans to accept that the economy of China is growing at a rate of eight per cent, while theirs is still in reverse, but this is where the answer lies. Anyway, at this level, according to Bill Turner, the Kinsevere HMS plant is on target to have produced 8,900 tonnes of concentrate through to the third quarter of the year since restart in March. This concentrate sells for around US$1 per pound, so it should generate around US$12 million in positive cash flow over the period. The discount is due to the fact that 25 per cent of the concentrate is oxide, but this still leaves a reasonably margin when compared with the production cost of US40 cents per pound.

At mid-May Anvil had around US$54 million in the till following the placement, so it is well positioned to pay the DRC entry premiums, which total US$27 million, and have funds in hand for recommencing the well-advanced engineering and design work at Kinsevere 11. The fact that US$190 million has been spent so far signals Bill’s confidence that the US$200 million needed to get the project into production at a rate of 60,000 tonnes of copper in concentrate per year will be forthcoming. He is currently reviewing a number of offers, including strategic partnerships, but the outcome will depend on the attractiveness from Anvil’s viewpoint and the timing. If the funds are in place by the end of 2009 construction will take a year. It will then take another couple of months for production to start at Kinsevere 11, and a further six months of ramping- up until it reaches full capacity at low cost.

No doubt the share price will advance significantly once the funding is in the bag, but in the meantime it is good to see that Canadian brokers are getting behind the company once again. Like most mining companies Anvil has plenty of catching up to do after the disastrous end to 2008, but it will be the brave souls getting involved at this stage who make the most money in the end.