Investment Commentary — Anvil Range receives thumbs-up from analyst

With production of lead and zinc concentrates now under way at the Faro open-pit mine in the Yukon, Toronto-based broker Puccetti Farrell Capital continues to look favorably upon mine owner Anvil Range Mining (TSE).

Analyst Anoop Prihar originally issued a buy recommendation on Anvil at the end of May, when the issue was trading at the $4.85 level. He repeated the recommendation in a recent, updated report, when the trading price was $6.75. Puccetti projects fourth-quarter earnings equivalent to 23 cents per share for the period ended Oct. 31, 1995, and 8 cents per share for fiscal 1995.

Earnings for fiscal 1996 are projected at $1.71 per share (based on a fully diluted 17.8 million shares outstanding), while cash flow is estimated at $3.12 per share. The 1996 estimate is based on a zinc price of US50 cents per lb. and a lead price of US28 cents per lb.

Anvil, which completed an initial public offering late last year, expects to produce about 324 million lb. of zinc and 216 million lb. of lead per year at its Faro mine.

The company purchased the Faro asset from Curragh Resources’ bankruptcy receiver for $28 million in late 1994.

The newly re-opened mine will obtain most of its millfeed from the Grum deposit, which contains an estimated 24.8 million tonnes grading 4.54% zinc and 2.74% lead, as well as 46 grams silver and 0.7 gram gold per tonne, at an overall stripping ratio of 6.13-to-1. Puccetti bases its recommendation on three major points, including: Anvil’s strong capital structure with little debt; Anvil’s experienced management team, which, in addition to being intimately familiar with the Faro property, is made up of significant shareholders in the company; and, finally, Anvil’s low-cost profile, which is determined by an estimated cash break-even price of US38 cents per lb. for zinc and a US28 cents-per-lb. lead price.

Projected costs are lower than those suffered by Curragh Resources, the previous owner, partly because Anvil plans to concentrate its mining activities on one deposit, whereas Curragh mined several orebodies simultaneously.

Secondly, Anvil is expected to experience minimal financing costs, compared with Curragh which had an interest expense of $19 million in 1992 on $311 million in long-term debt.

Finally, Anvil Range expects to have significantly less corporate overhead than Curragh had.

Anvil has leverage with regard to price movements. A US1 cents change in zinc or lead prices translates into 11 cents and 13 cents, respectively, in earnings per share.