KEFI Gold and Copper Results and bonuses for specific milestones on Tulu Kapi project

KEFI Gold and Copper

KEFI Gold and Copper plc (LON:KEFI), the gold and copper exploration and development company with projects in the Federal Democratic Republic of Ethiopia and the Kingdom of Saudi Arabia, has reported a Related Party Transaction.

As part of the launch of its overall senior executive remuneration and incentivisation plan for the Company’s next chapter of organisational development, the Company has entered into arrangements with executive directors Harry Anagnostaras-Adams and John Leach whereby certain cash bonuses will be paid on the achievement of defined and specific milestones in relation to the Tulu Kapi project as follows:

Milestones for cash bonusHarry Anagnostaras-AdamsJohn Leach
Tranche 1: Arranging a long term project finance facility for the Tulu Kapi Project and, not later than 31 December 2021, receipt by the Company of at least the first US$20 million of project funding.US$500,000US$500,000
Tranche 2: Completion of the Project within the Project budget approved by the senior lendersUS$500,000
Tranche 3: Upon the sale and physical delivery of 35,000 ounces of gold equivalentUS$500,000

The cash bonus payable to Mr. Anagnostaras-Adams and Mr. Leach is considered a related-party transaction for the purposes of Rule 13 of the AIM Rules for Companies.  The Directors independent of the cash bonus consider, having consulted with SP Angel Corporate Finance LLP, the Company’s nominated adviser, that the cash bonus is fair and reasonable in so far as KEFI Gold and Copper shareholders are concerned.

KEFI also announced today its audited financial results for the year ended 31 December 2020.


The underlying value of KEFI’s assets has increased substantially over the past year.

On a Net Present Value (“NPV”) basis, the indicative value of KEFI’s share of its two main assets has increased to $465 million in May 2021, or about £339 million, more than double the comparable figure of £153 million twelve months ago. This is due to KEFI raising its planned interest in Tulu Kapi from c. 45% to c.75-80% and having made a significant discovery at Hawiah in Saudi Arabia in late 2020. It should be noted that these statistics are merely illustrative indicators of changes in underlying intrinsic value and are based on prevailing high metal prices and the other explanations provided in the Finance Director’s Report and Footnotes.

KEFI is preparing to develop the Tulu Kapi Gold Project in Ethiopia, to complete the Preliminary Feasibility Study for potential subsequent development at the Hawiah Copper-Gold Project in Saudi Arabia and to push ahead on ambitious exploration in Ethiopia and Saudi Arabia.

Because of the manner in which we have assembled development finance for Tulu Kapi, we can now target c. 75-80% ownership. It is also pleasing that we have assembled a particularly strong project finance syndicate and, most importantly, kept debt-leverage at a prudent level. The core of our financing syndicate is familiar with and supportive of Ethiopia. Upon execution of the arrangements planned to follow our shareholder meeting on 30 June 2021, our Company will be well positioned for our next chapter.

Our reported mineral resources provide a solid starting position for our imminent growth. JORC-compliant gold resources at TKGM in Ethiopia are 1.7 million ounces and gold-equivalent resources in Saudi Arabia at Hawiah and Jibal Qutman are 2.2 million ounces, for a combined 3.9 million oz gold-equivalent. The Company’s beneficial interest in the in-situ metal content of the three projects is a combined 2.1 million oz in gold equivalent terms. KEFI’s market capitalization at the time of writing (21 May 2021) is only $29/oz gold-equivalent compared to a current gold price of approximately $1,874/oz.

KEFI’s standing in both host countries is that of an internationally-experienced team which has developed solid relationships with strong local partners, industry-leading contractors and financiers; and we have exciting projects.

Our assets, relationships and people accordingly provide a strong platform to develop profitable mines in two of the larger countries within the highly prospective Arabian Nubian Shield. In Ethiopia, security and administrative challenges remain quite prominent in the current pre-election atmosphere, but we nevertheless cautiously drive the project forward. The mining regulator is also pushing us very hard to keep to our timetable as it is determined for the sector to contribute its significant potential.

It is fortunate that gold and copper are now among the best performing investment sectors globally. The longer-term outlook for gold and copper markets and prices is especially strong. At the time of writing (21 May 2021), copper’s price is at US$4.55/lb, less than 10% off the all-time high as is gold at US$1,874/oz.

We are indeed at an opportune moment, created by our team’s hard work, your support as shareholders and the serendipity of markets strengthening as we launch our projects. The Directors are deeply appreciative of all personnel’s tenacity and steadfast dedication and of the support the Company receives from shareholders and other stakeholders.

We also feel a deep sense of responsibility towards our host countries and the many prominent organisations which have offered their support to our mission. Our alliances are at the core of our corporate structure and are summarised as follows:

· Partners:
oin Saudi Arabia: Abdul Rahman Saad Al Rashid and Sons Ltd (“ARTAR”)
oin Ethiopia:
§Federal Government of the Democratic Republic of Ethiopia
§Oromia Regional Government
· Principal contractors for Tulu Kapi: 
oFor mining: Corica
oFor process plant: Lycopodium Ltd (“Lycopodium”)
· Senior project finance lenders for Tulu Kapi: 
oEast African Trade and Development Bank Ltd (“TDB”)
oAfrican Finance Corporation Limited (“AFC”)

I should explain that as the result of our re-tendering the mining services contract Corica, which has recently emerged as Africa’s largest mining contractor, was recently selected as provider of mining services. The basis of the arrangement remains as has always been intended, a conventional schedule of rates mining services agreement.

Updated DFS-based (“Definitive Feasibility Study”), as updated in accordance with contracting) economic projections for the Tulu Kapi open pit indicate returns as follows, based on the assumed price range of current analyst consensus long-term prices and current spot prices (see Footnotes to Finance Director’s Report):

Average EBITDA of $100-136 million per annum (KEFI 75-80% being c. $78-106 million);
Net cash flow of $473-674 million over the 7 years 2023-2030 (KEFI 75-80% being c. $369-525 million);
All-in Sustaining Costs of $826-846/oz, (note that royalty costs increase with the gold price);
All-in Costs (“AIC”) of $1,048-1,068/oz.

These projections excluded the underground mine at Tulu Kapi and the Saudi Hawiah project. Taking all into account, KEFI is thus planning c. 78% of TKGM’s 190,000 oz pa gold production along with 34% ownership of G&M, which we expect could yield us a higher production interest than our larger percentage interest in TKGM.

Simultaneous with the triggering of full development at Tulu Kapi we will re-commence exploration programs in Ethiopia and expand our exploration program in Saudi Arabia. In Saudi Arabia we focus on our recent significant copper-gold discovery at Hawiah and we are also working towards being awarded new licences. In Ethiopia we will focus underneath the open pit where we already have established a maiden resource for underground mining at average grade of 5.7g/t gold and will also follow-up already-drill-intercepted potential satellite deposits in the Tulu Kapi district.

The potential of the Arabian Nubian Shield has recently been more widely recognised and the world’s two largest gold companies, Barrick Gold and Newmont Mining, are now active in Saudi Arabia and Ethiopia respectively. And many international explorers have entered Ethiopia in the past two years. KEFI’s chairman and deputy chairman in Ethiopia have been elected to chair the International Progress Association for Mining in Ethiopia and Ethiopian Mining Association.

In respect of capital management, the obvious challenge for any public-listed junior explorer is how to discover and develop such capital-intensive mining projects when the investment appetite of the public capital markets is particularly cyclical. As a consequence, KEFI focuses mainly on funding at the project levels. In both Ethiopia and Saudi Arabia, our projects’ predecessors and partners have provided over 60% of project funding to date. And as we are demonstrating with Tulu Kapi, going forward the development funding will remain largely at project levels.

From an ownership dilution viewpoint, this plan may best be summarised as an indicative doubling in underlying asset values over the past 12 months from £153 million to £339 million ($185 million to $465 million). 

The Company has been positioned to bring in c. $320 million of funds to fully develop Tulu Kapi and to finance exploration in Ethiopia and Saudi Arabia, with c. $309 million already having been conditionally arranged at the project level and preparing for financial completion as soon as possible after the Annual General Meeting on 30 June 2021. A more detailed explanation of our financing plan is set out in the Finance Director’s Report.

The Directors expect that, as milestones are achieved, the Company’s share price will naturally narrow the gap between the Company’s market capitalisation of £43 million or $60 million (on 21 May 2021) and what we believe to be the significantly higher intrinsic valuations of the Company’s projects.

Local geopolitics and the COVID-19 pandemic have disturbed our past progress. At the time of writing, the outlook on both fronts is much more promising than it was twelve months ago. The Company’s systems and capital plans have been expanded to cater for these new realities. Plus it is notable that Ethiopia is holding a landmark democratic election on 21 June 2021 which is expected to lead to Ethiopia maintaining its pro-democratic and pro-development trajectory. And as regards the pandemic, our prognosis is that the COVID vaccine roll-out will reduce the pandemic’s threats to our projects.

Annual General Meeting

We are grateful for the patience and support of our communities and our Governments, our principal contractors, our hard-working small organisation of highly-experienced personnel and, of course, our 1,000’s of extremely patient shareholders. We will certainly advance as fast as is physically possible.

Because of COVID safety protocols, we will conduct the shareholder meeting in London and with remote participation.

As regards voting, shareholders are encouraged to submit proxies to Share Registrars Limited. The Annual General Meeting will be in London, England at 10am on 30 June 2021 at Marlin, Lower Ground Floor, 111 Westminster Bridge Road, Waterloo, SE1 7HR, United Kingdom.

Yours faithfully,

Harry Anagnostaras-Adams

Executive Chairman.

4 June 2020


Finance Director’s Review

KEFI is a first-mover within a fast-changing geopolitical environment and has been financing its activities in the midst of a global pandemic – a challenging environment indeed.

Successful implementation will see KEFI emerge in 2023 as a profitable producer of 140,000 oz pa with advanced growth plans in Ethiopia and Saudi Arabia which already can see much higher gold equivalent production within the following few years.

Subject to the approval of KEFI shareholders, the Company has been positioned to, as soon as possible after the Annual General Meeting, bring in c. $320 million of funds to fully develop Tulu Kapi and to finance exploration in Ethiopia and Saudi Arabia. The plan would leave KEFI with project ownership levels as follows:

·    75-80% of the Ethiopian mining development and production operation, via the shareholding in TKGM

·    100% of the Ethiopian exploration projects, via the shareholding in KME

·    34% of the Saudi development and exploration projects, via the shareholding in G&M

Using Net Present Valuation (NPV) methodology in respect of Tulu Kapi and Hawiah (and excluding Jibal Qutman given its regulatory status), these levels of beneficial interest indicate combined NPV’s as follows for KEFI shareholders comparing the results at consensus long-term prices and prevailing spot prices (refer Footnotes) is $259-465 million or £187-339 million, as at 2021 start of construction at Tulu Kapi.

These indicators provide some illustrative measure of the value to be potentially created for shareholders.  KEFI’s current market capitalisation is $60 million (£43 million).

KEFI has funded all of its past activities with equity capital raised at then prevailing share market prices. This avoided the superimposing of debt-repayment risk onto the risks of exploration, permitting and other challenges that always exist during the early phases of project exploration and development in frontier markets. We do however avail ourselves of unsecured advances from time to time as arranged by our Corporate Broker, Brandon Hill Capital, to provide working capital pending the achievement of a short-term business milestone. This is taking place now pending the finalisation of the Tulu Kapi financing in preference to availing ourselves of several other much appreciated bridging financing facilities on offer.

Overall, the current finance plan is shown below and caters for all planned development expenditure at TKGM in addition to all exploration and corporate funding requirements, estimated at c. $320 million ($310-330 million, depending upon final procurement price confirmations). It will be optimised by KEFI and the TKGM syndicate which has already conditionally indicated the following participation as at 31 May 2021:

$ Million 
70Mining capital to be paid for on a per tonne mined basis via the mining agreement
140Senior project debt, to be repaid out of operating cash surpluses
15Subordinated debt linked to offtake rights. To be repaid out of operating cash surpluses
14Mining contractor charges, convertible into KEFI shares at the price in 2 years
45Subordinated loan in subsidiary, convertible into KEFI shares at the price in 3 years
25Project equity issued to Government for 20% of TKGM shares; and $5 million to other local institutions
309Total so far, with the remainder to be finalised for settlement

By 30 June 2021, the following needs to be carried out so as to proceed to earliest project finance settlement:

Final construction procurement pricing confirmed;
Detailed documentation to be approved by the relevant Government agencies, including the Ministry of Mines and the National Bank of Ethiopia, so that execution may proceed by all syndicate parties;
Finalised position for local equity investors and off-taker

Ownership Value and Ownership Dilution

Upon execution of the Tulu Kapi project finance plan, KEFI will replenish its working capital, launch full development at Tulu Kapi and also underpin at least the next 12 months of planned exploration in Ethiopia and Saudi Arabia.

From an ownership value perspective and measuring the Company’s underlying assets on a Net Present Value (“NPV”) basis, compared with the position as at the time of the last AGM, this plan has resulted in the indicative value of KEFI’s share of its two main assets having more than doubled from $185 million in June 2020 to $465 million in May 2021. This is the result of KEFI raising its planned interest in Tulu Kapi from 45% to c.78% and making a significant discovery at Hawiah. The basis for these estimates is prevailing metal prices and other explanations provided in the Footnotes below.

From an ownership dilution perspective, successful completion of the finance plan will necessarily also increase issued capital but ownership dilution will be minimised vis a vis the quantum of development capital raised because it is intended that the share issues by KEFI for a subset of these amounts will largely be at prices two and three years from project finance completion.

Financial Risk Management

In designing the balance sheet gearing overall, the senior debt: equity ratio for TKGM is 58%:42% $140 million: ($140 million: $ 100 million) excluding equity funded historical pre-development costs and 33%:67% ($140 million: $210 million) including equity funded historical pre-development costs.

And in structuring the TKGM project finance, a number of key parameters had a driving influence on Company policy:

·    The breakeven gold price after debt service is $1,107/oz (flat) for 10 years, whilst over the past 10 years the gold price was under that price for only 2.4% of the time; and

·    At analyst consensus US$1,591/oz it could be repaid within 2 years of production start.

It is important that we now proceed to financial completion in accordance with the latest plans agreed with the Government. Indeed the Government has warned of administrative consequences if we fail to do so and our syndicate have all made it clear that all wish to proceed to plan subject only to normal safety and compliance procedures.

We have conditionally assembled c. US$309 million of development finance at the Project level from our small, efficient and economical corporate office in Cyprus. Other than our Nicosia-based financial control/corporate governance team, all operational staff are based at the sites for project work. This approach increases efficiency at a lower cost. 

Accounting Policy

KEFI writes off all exploration expenditure.

KEFI’s carrying value of the investment in KME, which holds the Company’s share of Tulu Kapi is £13.7 million as at 31 December 2020. It is important to note KEFI’s planned circa.75% -80% beneficial interest in the underlying valuation of Tulu Kapi is circa £172 million based on project net present value (NPV 8% discount and @ gold price of US$1591/oz, including underground).

In addition, the balance sheet of TKGM at full closing of all project funding will reflect all equity subscriptions which are currently estimated to exceed £113 million or US$156 million (Ethiopian Birr equivalent).

John Leach

Finance Director

4 June 2020


(1)   Long term analysts’ consensus forecast is sourced from CIBC Global Mining Group Analyst Consensus Long Term Commodity Price Forecasts 30 April 2027;

(2)   current analyst consensus long-term prices are US$1,591/oz for gold, US$3.25/lb for copper, US$1.09/lb for zinc and US$21.08/oz for silver;

(3)   Spot prices for gold & silver on 31 May 2020 were $1,731/oz & $18/oz; on 21 May 2021 were $1,874/oz & $28/oz;

(4)   Spot prices for copper and zinc on 21 May 2021 were $4.55/lb and $1.34/lb;

(5)   NPV calculations are based on an 8% discount rate applied against net cash flow to equity, after debt service and after tax.

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