TSX and ASX-quoted AnvilMining Ltd. is the latest in the growing list of companies that are beingforced to dig deep into their pockets to develop their projects in theDemocratic Republic of Congo (DRC).
The costs of developing thesecond stage of its flagship Kinsevere copper mine in the central Africancountry overshadowed the company's first quarter financial results, announcedthis week, but were a good testimony to the challenges of doing business in themineral-endorsed DRC, where ruined infrastructure and logistics problems defythe wisdom of developing any project.
Anvil now faces a bill ofUS$$380-million after the costs of developing the Kinsevere Stage II projectrose by 48% over the US$257-million that had been estimated in the feasibilitystudy. About 75% of the new costs would be incurred during 2008, with thebalance in 2009 before the project is brought on stream in the second half ofthat year.
The stage I development ofKinsevere comprised an open pit mining operation, started during the firstquarter of 2007 on the Tshifufia and Tshifufiamashi pits, aone-million-ton-a-year dense-media separation plant, and an electric arcfurnace, with a capacity to produce 23,000 to 25,000 tons per year of blackcopper ingots grading 85% to 95% copper.
The Kinsevere mine stage IIdevelopment includes the construction of a 60,000-ton per year solventextraction electrowinning plant, designed to produce London Metal ExchangeGrade A quality copper cathode directly at the mine site in the DRC's copperbelt.
The company faceschallenging conditions in the DRC with regards to the logistics andtransportation of parts and equipment to site, the company said in a statementaccompanying the company's first quarter financial report this week.
In addition, it added,increases in the price of fuel, materials, and steel, as well as the increasedglobal demand for construction and engineering labour have had an importantimpact on the revised cost estimate.
The revised construction costestimates reflected the benefit of detailed design and engineering as well asadditional infrastructure at the mine site and general cost escalationcurrently affecting the construction of new projects in the mining sectorworldwide, the company said.
Anvil is thus caught in thesame dilemma Lundin Mining Corp. and Freeport McMoRan Copper and Gold Co. -joint venture partners in the DRC's mega Tenke Fungurume copper-cobalt project- currently find themselves in.
The estimated costs ofprogressing that project have swollen from US$1-billion last October, nearlydoubling to US$1.9-billion currently. And since the inception of theconstruction phase of the project, US$475-million have so far been spent.
A civil war between 1998 and2003 left four million people dead, copper and cobalt mines in ruins andtransportation and power infrastructure destroyed. Electricity shortages in theregion have caused some mines in the DRC's southern neighbour Zambiaand in South Africa toclose in recent months.
Our efforts are currentlyfocused on the construction and development of Kinsevere Stage II in order tobe in position to deliver the first copper cathodes in the second half of2009, Anvil's president and CEO, Bill Turner, however said.
His company's first quarterprofit increased marginally from last year, despite a 79% growth in sales. Netincome for the first quarter was US$21.4-million or US$0.30 per share, comparedto US$21.1-million or US$0.36 per share in the prior year quarter.
Total comprehensive incomerose to US$21.5-million from US$21-million in the year-ago quarter. Thecompany's concentrate sales jumped 79% to US$75.3-million from US$42.03-millionin the same quarter last year. During the latest quarter, Anvil Mining produced12,027 tons of copper and 482,655 ounces of silver contained in concentrates.
The company has however revised its 2008 production forecasts to 47,000 tons ofcopper and 950,000 ounces of silver, due to lower than expected production atits Dikulushi and Kulu properties.
It said despitethe Dikulushi operation achieving its copper and silver production targets inthe first half, the rate of extraction of ore from underground stopes using thesub-level caving method and that of developing its underground operation wereslower than expected.
At Kulu, Anvil isencountering finer grained and lower grade material with a poor metallurgicalrecovery through the HMS plant as mining progresses further downstream, and itis currently modifying the plant to enable it to process the material. Thesemodifications are expected to be completed in the third quarter of 2008.
Anvil is alsoworking on an engineering cost study for the construction of an expandable15,000 tonnes per year Vat Leach / Solvent Extraction and Electrowinningprocessing facility at Kulu and expects to complete the study before mid-year.
It is also fasttracking the process to turn the Kulu HMS operation into a cathode copperproduction facility to increase metallurgical recovery and realise the fullvalue of this project, Turner said.