# KEFI Minerals strengthening gold price continues to highlight a strong investment case for Tulu Kapi

- Link: https://www.directorstalkinterviews.com/kefi-minerals-strengthening-gold-price-continues-to-highlight-a-strong-investment-case-for-tulu-kapi/412846469
- Published: 2020-07-28T07:25:26+01:00
- Author: Giles Arbor

**KEFI Minerals plc** ([LON:KEFI](https://www.directorstalkinterviews.com/company/kefi-gold-and-copper/kefi.l)),
the gold exploration and development company with projects in the Federal Democratic
Republic of Ethiopia and the Kingdom of Saudi Arabia, has provided its latest quarterly
operational update.

This update encompasses the activities of KEFI Minerals (Ethiopia) Ltd and Tulu 
Kapi Gold Mines Share Company in Ethiopia, and Gold & Minerals Ltd in Saudi Arabia
for the period from 1 April 2020 to 30 June 2020, together with more recent developments
where appropriate.

Any material events have already been reported in separate announcements, which 
are referred to below.

**Key business targets preserved despite COVID-19 restrictions**

KEFI remains focused on achieving the key targets set out in February 2020.  These
are to:

o  allow major site activities to start for the Company’s Tulu Kapi Gold Project
in Ethiopia from October 2020; and

o  to deliver a maiden Mineral Resource for the Hawiah Project in Saudi Arabia, 
scheduled for August 2020.

> **_Harry Anagnostaras-Adams, Executive Chairman of KEFI, commented:_**
> “We are very fortunate that the strengthening gold price continues to highlight
> the strong investment case for Tulu Kapi to both investors and the Ethiopian Government.
> The Directors and various industry experts consider the outlook for the gold price
> to continue to be positive, as interest rates remain near zero and COVID-19 responses
> increase government debt to unprecedented levels.
> “Tulu Kapi is the first modern mine development in Ethiopia for decades and we
> could not ask for a more committed community and Government. This Project is a
> national priority and will be the largest single export generator for Africa’s
> highest growth country.
> “Given the robust economics of the Project we have received significant interest
> to potentially provide the outstanding asset level equity and other forms of duly
> subordinated investment.
> “Our discussions are progressing with Ethiopian investors and international specialist
> mining financiers, with the aim of securing the required Project equity ahead 
> of closing the full financing package in October 2020.
> “We are also encouraged by the recent approval by the Saudi Cabinet of a new mining
> investment law, which is a very positive development for our two other advanced
> projects –  Hawiah (copper-gold) and Jibal Qutman (gold) projects in Saudi Arabia.
> “We look forward to releasing the initial Hawiah Mineral Resource in August 2020
> and thus providing further confirmation that our valuable Hawiah deposit has the
> scale and grades for a potential long-life, profitable mine. At current copper
> prices, it is notable that the in-situ value of Hawiah is already likely to be
> more than US$2.5 billion.”

**Ethiopia – Focus on development funding for the Tulu Kapi Gold Project**

TKGM remains focused on the preparations and subsequent completion of the outlined
finance milestones to ensure the closing of full Project funding in October 2020
and for gold production to commence in 2022, in line with recent guidance.

As previously reported, despite COVID-19, the implementation of the Project development
activities has continued as planned. This includes long-lead activities such as:

·    commencement of infrastructure for connection of roads and power, with the 
road now being built into new host lands for Tulu Kapi residents to be resettled;
and

·    process plant Front-End-Engineering-and-Design was completed by principal contractors
Lycopodium Limited.

Earlier in the year, capital expenditure, operating and financing requirements were
updated and incorporated into the final 2020 Tulu Kapi Plan. Total Project funding
requirements are now US$221 million, compared with US$242 reported in the 2018 Annual
Report.

Funding sources are planned to be approximately half as senior debt (US$110 million)
and half as Project level equity, which for these purposes includes any subordinated
debt and offtake facilities (US$111 million). 

The 2020 Tulu Kapi Plan re-affirmed the Project’s gold production averaging 140,000
ounces per annum for 8 years from the planned open pit.

The spot gold price is currently more than US$800/oz higher than our Ore Reserves
assumption of US$1,098/oz and US$600/oz higher than our base case assumption of 
US$1,300/oz used for financing plans.

As announced on 19 June 2010, the strong Project fundamentals are summarised below
at different gold prices, based on the 2020 Tulu Kapi Plan for the open pit added
to that of the PEA-based NPV of the underground project.  NPV’s are based on after-
debt and after-tax cash flows discounted at 8% from the viewpoint of KEFI shareholders
as at today.

**Long term Gold Price**

|   | US$1,400/oz | US$1,700/oz | US$2,000/oz | 
| IRR for Open Pit Only | 29% | 52% | 70% | 
|   |   |   |   | 
| All-in Sustaining Costs (“AISC”) – USD/oz | 856 | 877 | 898 | 
| All-in Costs (“AIC”) – USD/oz | 1,066 | 1,087 | 1,108 | 
| Average EBITDA for 100% of Project (USD Millions) | 79 | 111 | 148 | 
|   |   |   |   | 
| NPV’s for 100% of Project |   |   |   | 
|   USD Millions | 236 | 422 | 607 | 
|   GBP Millions | 189 | 337 | 485 | 
| NPV’s for 45% of Project |   |   |   | 
|   USD Millions | 105 | 180 | 273 | 
|   GBP Millions | 85 | 152 | 218 |

The value-indictors set out above with ranges of £85-218 million exclude KEFI’s 
two other advanced projects – Hawiah (copper-gold) and Jibal Qutman (gold) projects
in Saudi Arabia and compare favourably with the Company’s current market capitalisation
of approximately £34 million.

These illustrative NPV’s are shown for 100% of the Project and for KEFI’s base case
assumed 45% beneficial interest (being 80% of KME which is planned to own 56% of
TKGM).

As announced on 1 July 2020, based on discussions and proposals received to date
from Specialist Mining Financiers and Ethiopian investors, TKGM is now also seeking
to potentially reduce the number of shares it issues to any third party by increasing
the amount of funds raised by TKGM from the Specialist Mining Financiers in other
acceptable forms, and by doing so increasing existing shareholders’ ultimate beneficial
interest in TKGM. If successful, this would have the effect of increasing KEFI’s
beneficial interest in TKGM above the planned base case level of 45%.

Saudi Arabia – Initial copper-gold-zinc-silver Resource imminent for Hawiah Project

Following the completion of the first 12,000m diamond drilling programme at Hawiah
in May 2020, the work required to estimate the initial Hawiah Mineral Resource Estimate
is now expected to be finalised and published in August 2020.

Diamond drilling undertaken by G&M since September 2019 has consistently intersected
copper-zinc-gold-silver mineralisation contained within massive sulphide, across
more than 4 kilometres of strike length. The wireframes constructed for the MRE 
currently indicate that the combined tonnage of the three defined massive sulphide
lodes is likely be in the region of 20 million tonnes before being constrained for
preliminary design of the selected mining zones. The Hawiah deposit has only been
drilled to a vertical depth of 350m and remains open at depth and along strike. 
Increasing copper grades intersected in the deepest drill hole at the Camp Lode 
indicate an excellent opportunity to add additional high-grade copper-gold resources
during the next phase of drilling.  

Copper will contribute the majority of potential revenue at Hawiah, therefore it
is useful to convert the copper-zinc-gold-silver grades into a copper-equivalent
grade. At current metal prices we estimated average grade of c. 2% in-situ copper-
equivalent for the expected mining zones.

A preliminary economic assessment (“PEA”) is planned to be completed after the initial
Mineral Resource is finalised. 

Saudi Arabia – New mining law also positive for the Jibal Qutman Gold Project

KEFI notes and welcomes the approval by the Saudi Arabian Cabinet in June 2020 of
a new Mining Investment Law which is aimed at boosting the country’s mining industry
and is part of Saudi Arabia’s plan to diversify its economy away from hydrocarbons.
The Company also welcomes the expanded role of the Saudi Investment Development 
Fund specifically to support mining project finance. 

This new regulatory impetus is expected to also help clarify the path forward to
unlock value from KEFI’s Saudi gold discovery at Jibal Qutman, which has been on
hold awaiting Mining Licence tenure confirmation. An Internal Preliminary Economic
Assessment in 2015 suggesting estimated operating costs of c. US$600/oz and estimated
capital expenditure of US$30 million demonstrate that Jibal Qutman’s Mineral Resources,
totalling 733,000 ounces of near-surface gold, should be highly profitable in the
current gold price environment.

KEFI corporate requirements adjusted to reflect the current environment

During the quarter, KEFI reduced its short-term expenditure by:

o  adjusting parts of the TKGM budget, whilst preserving key business targets;

o  diluting from 38% to 34% of Saudi joint-venture company  Gold and Minerals Limited
by not contributing its pro rata share of expenses to G&M in H1 2020. Given the 
positive results seen to date from the current drilling programme, KEFI expects 
to fund its pro rata share going forward;

o  a decision by the KEFI Board and senior executives not to draw any salaries whilst
plans were reviewed and adjusted in light of the pandemic; and

o  ongoing salary reductions by senior management of 25%, pending progress reviews.

KEFI encourages investment in Company’s shares by the Board and Senior Management.
They have, in aggregate, invested more into Company shares since KEFI took control
of the Project in 2014 than they have, in aggregate, received as cash remuneration.

As announced on 11 May 2020, KEFI arranged an equity placing for £3.7 million (gross)
to maintain Project preparations despite the challenges created by COVID-19, including
the delays in Project-level equity funding from the Ethiopian private sector.

As announced on 20 July 2020, Mr Adam Taylor was appointed as a Non-executive Director
of the Company following the recent investment in the Company by RAB Capital, an
international investment company, which holds approximately 12% of the Company’s
issued share capital. RAB Capital is viewed as a long-term shareholder and has been
granted a right to nominate a director to the Board of the Company for as long as
RAB Capital’s interest remains at 10% or above.

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