Recently I called Anthem the “rising star” of the Toll Milling industry… Today we might have to revise that to simply: The Star.
Earlier today Anthem United announced that they will be purchasing a second 350 tpd mill in Chaparra, Arequipa, Peru.
So quickly what does this means for Anthem, and Toll Milling in Peru?
Size – Once in production they will be by far (x2) the largest toll miller in the country, with a combined milling capacity of 700 tpd. Even industry pioneer Dynacor, once their second mill is created, will only be at 550 tpd. Note: This also includes all private toll millers.
Proximity – both mills are located in the South of the country roughly 200 km from one another one to the North the other to the South of Chala. This will provide Anthem with tremendous control in the region, as any miner driving into Chala (the toll milling capital of Peru) will have to pass by one of their plants.
Price – The scale at which anthem now operates should cause serious concern for their competitors. In a disorganized industry of single asset producers, they’ve just become the first multi project company. Anthem’s ability to make money purely on scale/mill throughput allows them to greatly influence the market in the region; potentially enabling them to set the price of ore by purchasing at a price other public companies simply can’t compete with.
Supply Security – Perhaps the biggest point: Anthem has acquired mining concessions currently being mined by informals. This, unlike any of the other public toll millers, provides them with control over their ore streams. Anthem can now assist informal miners on their concessions in complying with government regulations, and can provide capital and expertise to help miners increase output. And unlike anyone else they can be assured all benefits (read: ore supply) will flow directly to their mills. In an industry where reliable ore supply is the biggest risk factor, this is a huge advantage. If they can supply enough ore from their own properties to cover mill capacity they could conceivably purchase additional ore from informals at cost and simply stockpile it until gold prices go up, thereby choking off competitors supply chain.
What are the risks?
- The biggest risk is that Anthem is unable to secure enough feed for both mills and they essentially cannibalize one another. With both running under capacity and at a loss they could slowly drain the cash from the company.
- It is possible they will be unable to get ore of desired quality or quantity from the acquired concessions, creating further challenges in meeting mill capacity.
- In an area very “Wild West-ish” in mentality they’ve made themselves a target for competitor and illegal millers, many of whom are associated with the less than civil elements of society.
- They’ve paid a large chunk of money ($14M total) with $10M due by Feb 29th, 2016 and the rest due over the next two years. For a company’s whose first (still incomplete) mill had a price tag of $10M (including initial ore purchase) this is a bold move.
Is this the right call?
Only time will tell. But Knowing CEO Greg Smith and the Anthem team, I can’t imagine they entered into this decision lightly, and in a company controlled by CA’s and ex Investment Bankers you can be sure they ran the numbers.
Regardless: The toll milling game just changed, and Anthem is playing to win.