KEFI Minerals plc (LON: KEFI), the gold exploration and development company with projects in the Federal Democratic Republic of Ethiopia and the Kingdom of Saudi Arabia, has today provided its quarterly operational update to the market.
This update encompasses the activities of KEFI Minerals Ltd and Tulu Kapi Gold Mines Share Company in Ethiopia, and Gold & Minerals Ltd in Saudi Arabia for the period from 1 April 2019 to 30 June 2019, together with more recent developments where appropriate.
Any material events have been reported in separate announcements, which are referred to below, in the Company’s recently published 2018 Annual Report and also as presented at the Annual General Meeting held in London on 28 June 2019.
Tulu Kapi Gold Project in Ethiopia
· Since the Prime Ministerial go-ahead for the Project, as announced on 5 March 2019, the final federal policy consent was received from the Ethiopian central bank, as reported in the announcement of 6 June 2019.
Project Financing Activities:
· The total planned Project finding package, as reported in the 2018 Annual Report, is as follows:
o The Project consortium now includes KEFI, the Government of Ethiopia, the project contractors Lycopodium and Ausdrill, ANS Mining Share Company Limited (“ANS Mining”), and the proposed infrastructure financiers. The finance plan is clear and its execution is subject to the compliance procedures for each party in the relevant jurisdiction.
o Excluding the past investment of c. US$55-US$60 million to the end of 2018 and also excluding the c. US$50 million mining equipment to be supplied by the mining contractor, the overall US$242 million funding plan for Tulu Kapi is summarised in the tables below:
· Further detail on the TKGM Project equity is as follows:
|Owner’s Costs (community, working capital, management, spares, contingency,||54.5|
|Interest during grace and other finance effects||32.8|
|Aggregate Funding Requirements||242.2|
|Sources of Funds||US$|
|TKGM Project Equity|
|– ANS Mining||38.0|
|Working Capital Facility||14.2|
|Aggregate of Funding Sources||242.2|
o The KEFI Project equity contribution has either already been spent or is planned to be sourced from existing working capital facilities or refunds to KEFI on closing of full Project development funding;
o Ethiopian Government Project equity of US$20 million (Ethiopian Birr equivalent), has started being deployed for off-site infrastructure in the Tulu Kapi district, as set out in the announcement of 24 June 2019; and
o Ethiopian private sector partner ANS Mining equity of US$38 million (Ethiopian Birr equivalent):
- Injection of the first equity instalment of US$11.4 million (Ethiopian Birr equivalent) will be made upon satisfaction of certain conditions as detailed in the announcements of 8 April 2019 and 28 June 2019;
- Several recent security incidents were reported on 28 June 2019, including some elsewhere in the country and also a minor robbery and fire at Tulu Kapi which led to the theft of some exploration equipment and damaged some drill core. Whilst the Tulu Kapi incident caused minor financial loss and no loss of data, it necessitated the activation of strong measures and checks at site before commencement of resettlement activities along with the commissioning of an updated independent security report prior to the equity closing and then the triggering of community resettlement; and
- The updated independent security report has been arranged to be provided in August 2019 following on from the authorities’ rapid and firm response to KEFI’s requests for extra security protection and extra local administrative capacity before resettlement starts. KEFI remains confident that the evaluation will not have changed from similar previous independent assessments and that the Project equity closings can complete this quarter and the overall Project timeline will remain unaffected.
· The mandated US$160 million bond financing awaits the triggering of the balance of its compliance procedures and their associated costs, with full Project finance to close after initial development work has been funded with Project equity.
Tulu Kapi Project development preparations:
· Project development planning has remained focused on production start-up mid-2021.
· Field work has commenced at the Hawiah Exploration Licence, within the Wadi Bidah Mineral District, by the KEFI-operated joint venture, Gold & Minerals Limited, as announced on 21 June 2019.
Secured Convertible Working Capital Facility:
· £4 million working capital loan facility (convertible at 2p), has been drawn as to £900,000 of which £450,000 has been already repaid in KEFI shares at 2p;
· The financier agreed to share security with Ethiopian project partner ANS Mining as regards their first equity instalment of US$11.4 million (Ethiopian Birr equivalent); and
· The facility’s maturity date was extended to May 2020 to provide additional flexibility.
Unsecured Working Capital Advances:
· The Company has a long-standing arrangement with certain shareholders (unrelated parties) to provide unsecured advances from time to time and this has only been utilised as to minor amounts.
· KEFI Shareholders passed resolutions at its AGM on 28 June 2019 granting authority to the Directors to issue shares under the Secured Convertible Working Capital Facility, to satisfy amounts owed to any third party service providers and also place of up to 10% of the existing share capital. The nominal value of KEFI shares was also reduced to 0.1p per share; and
· The revision to the nominal value and the granting of authorities to the Directors are intended to provide the greatest flexibility to the Directors to help manage the process of full closing of the US$242 million Tulu Kapi Project financing in the future, rather than for any immediate equity raise.
Ongoing Corporate Costs:
Once TKGM can stand on its own financing-wise, KEFI-borne direct costs are expected to contract back to c. £1 million per annum, excluding exploration.
Tulu Kapi Project Economics:
· The Project economics have improved as a result of the higher gold price outlook:
o Financing refinements:
- The latest Project finance plans provide for equity-funding of the first six of a twenty-four-month programme. The important consequence of this is that cash can build up before first lease-payment i.e. cash can build to a projected c. US$80 million from a projected c. US$40 million (per the base case assumed gold price of US$1,300/oz); and
- Likewise, gold in ore stockpiles are also projected to increase, providing further “margin of safety”.
o TKGM projected economic statistics have improved markedly with the increased gold price, as announced on 8 April 2019:
- TKGM’s NPV at today’s gold price of approximately $1,400/oz and applying an 8% discount rate, is £130 million (US$165 million) at start of construction and £196 million (US$249 million) at start of production;
- The NPV of KEFI’s planned 45% beneficial interest ranges between a low of £41 million (US$52 million) at US$1,300/oz at start of construction this year and a high of £88 million (US$112 million) at US$1,400/oz at start of production in 2021 i.e. within the range of 6 to 12 times the current market capitalization of the Company; and
- These figures ignore the underground deposit and exploration assets.
Major Milestones Targeted for 2019
The Tulu Kapi Gold Project, Ethiopia:
· Update of the independent assessment of security and readiness of community and local administration, to ensure compliance with local laws and World Bank IFC Standards;
· Project equity closing of first instalment US$11.4 million (Ethiopian Birr equivalent);
· Community resettlement triggered and subsequently completed;
· Construction contracts commenced for off-site infrastructure for roads and power and subsequent mobilisation to field for construction, financed by project equity;
· Start updating front end engineering and design for on-site infrastructure;
· Start and completion of compliance procedures for Project infrastructure finance implementation;
· Mobilisation of contractors for bulk earthworks, financed by project equity
Hawiah Exploration Project, Saudi Arabia:
· Completion of satellite multi-spectral and ground geophysical surveys, followed by scout drilling of a large copper-gold target.
The Company will host a live webinar in August 2019 and details will be provided in due course.