It’s common to see brightly coloured mattresses decorating the thatched roofs of Congolese huts during the rainy season. Downpours often reach inside the dwellings, forcing villagers to dry their belongings once the sun comes up.
But over the past several months, Anvil has ramped up production and introduced new corporate policies to prevent further human rights violations. In essence, like the water-logged mattresses, it is bringing itself out to dry.
“It’s a bit of Murphy’s law,” says David Davidson, an analyst with Paradigm Capital, of the succession of bad news for Anvil. “When one thing goes wrong, more things go wrong.”
However, Davidson says, Anvil has begun to turn the corner, and the market has responded.
Share prices have risen to the $5.00 range since early October up from a 52-week low of $3.55 in June. Before the big February tumble, shares had been at a 52-week high of $7.45.
So what has the company done to win back investor confidence?
For starters, it did what it said it would do. It reached planned production levels at Dikulushi, the only operating mine in Anvil’s portfolio. Copper and silver production jumped roughly 125% and 140%, respectively, over first-quarter results, as the company eliminated a waste backlog that developed when the mine contractor went into receivership in June 2004. The contractor’s insolvency had prevented Anvil from finding a replacement mining and haulage fleet and exploiting the high-grade sections of the Dikulushi orebody.
The improved third-quarter productivity was good enough to beat Haywood Securities analyst Kerry Smith’s expectations. In a report published on Oct. 4, Smith wrote that Anvil’s 2005 copper-in-concentrate production was on target for 17,500 tonnes, “significantly higher than our current estimate” of 12,900 tonnes.
Anvil is now focusing on the third stage of development at Dikulushi, which will see underground mining below a 150-metre open pit. Previous reports indicate mineralization to a vertical depth of roughly 300 metres. Highlights included 25.4 metres grading 12.1% copper and 404 grams silver per tonne at a vertical depth of 143 metres, and 10.3 metres grading 16.6% copper and 506 grams silver per tonne at a vertical depth of 157 metres. More in-fill drilling is scheduled before the end of the year.
In his report, Smith also noted that the heavy-media separation (HMS) plant at the Kulu copper mine was nearly finished.
Anvil’s vice-president of investor relations, Robert La Valliere, says Kulu will be up and running by December, producing roughly 20,000 tonnes of copper per year.
According to Smith’s report, Anvil will take copper oxide mineralization from coarse rejects, tailings and riverbed gravels nearest to the source. Kulu has an inferred resource of 1.5 million tonnes with an average grade of more than 6% copper for the first three years. An updated resource estimate is expected by mid-November.
Smith, who rates Anvil as a “sector outperform” with a 12-month target of $7.00, wrote that Anvil has capitalized on its first-mover status. Smith added that the company has secured “a growth profile with near-term production and a pipeline of prospective exploration projects.”
On the flip side of being one of the first companies to operate in the Congo — Anvil began activities in 1995 while infamous dictator Mobutu Sese Seko was still at the helm — are the difficulties associated with doing business in a region with an unstable government and a military prone to acting without regard for human rights.
Anvil’s association with the massacre at Kilwa — where activist groups estimate 100 people, many of them innocent civilians, were killed by a military aiming to cut down a loosely held uprising — has been alleged in news reports.
As Anvil continues to make the economics of its operations more robust, doubts persist around what happened at Kilwa. For its part, the company has admitted to supplying the military with equipment, transportation, food, and minor pay and personnel. The company says all were granted under duress.
A report in June by the Australian Broadcasting Corp.’s (ABC) Four Corners public affairs program tarnished the company’s international image, claiming Anvil had associations with the military and with Katumba Mwanke, an aide to President Joseph Kabila and Kabila’s strongman in Katanga.
The report’s sources were largely drawn from the participants in a lawsuit against Anvil and from non-governmental organizations associated with Oxford, U.K.-based Rights and Accountability in Development (RAID), which has taken an interest in mining activity in Katanga province. The plaintiffs’ Australian law firm, Slater & Gordon, timed a news release on the lawsuit to coincide with the ABC broadcast.
In the ABC report, plaintiffs Adle Nwayuma, Kitenge Kalunga, and Pierre Musopelo, along with their lawyer — Slater & Gordon’s class action specialist Richard Meeran — accused Congolese Army troops of massacring Kilwa residents and looting homes while driving trucks supplied by Anvil. William Turner, Anvil’s president, maintained the trucks were commandeered by the army, which also demanded that an Anvil-chartered aircraft evacuating the company’s staff from the area carry troops to the scene on return flights to Kilwa.
Speaking from company offices in Montreal, La Valliere defends his company and points to an internal legal inquiry led by Perth lawyer Wayne Martin, whose report exonerated Anvil of any wrongdoing in the incident.
But Patricia Feeney, the executive director of RAID — another source interviewed in the ABC documentary — says Anvil should be doing more to fully explain its role in the massacre and to encourage its employees to speak openly about the incident.
Anvil invited Feeney to its operations in late August (at her request), but did not allow her to speak with Anvil employees about Kilwa because of the lawsuit in Australia. Feeney had agreed to those conditions in advance.
“They are taking certain external steps,” Feeney says from her office in Oxford. “They want to have a protocol and I might be more supportive of all that if I thought their behaviour in Katanga was different. But I can’t help feeling that this is to show the Canadian and Australian people that things have changed, but at heart I’m not so sure they have.”
The protocol alluded to by Feeney should be implemented by the end of the year, La Valliere says. It will be between Anvil and the government and the army, and would make any army or government request immediately known to the public. La Valliere says such transparency would alert concerned parties should the army make another request like the one that preceded the massacre at Kilwa.
“We’ve learned lessons,” La Valliere says of the Kilwa killings. “We are a new generation of mine in the DRC in the way we provide documents, in the way we give 10% (of earnings) to local communities, in the way we are proactive.”
Asked if Anvil’s early foray into the Congo might have exposed them to an undue amount of risk, Paradigm’s Davidson says the benefits associated with such risk are proving to be worth taking.
Davidson points to
Adds Davidson: “If (Anvil) waited until now to get in, they’d be hard pressed to get land concessions.”
(Note: It was not immediately clear if Smith holds Anvil shares, but Haywood Securities has had an investment-ban
king relationship with the company. Davidson does not hold Anvil shares and Paradigm Capital does not have an investment-banking relationship with Anvil.)
— David Davidson, an analyst with Paradigm Capital, discussing the recent spat of bad news for Anvil Mining.
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