REG - Kefi Gold and Copper - Q1 2024 Quarterly Operational Update

KEFI Gold and CopperAnnouncement

13/05/2024 07:00

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RNS Number : 0692O  Kefi Gold and Copper PLC  13 May 2024

13 May 2024

KEFI Gold and Copper plc

("KEFI" or the "Company")

Q1 2024 Quarterly Operational Update

Ethiopia - Tulu Kapi Gold progressing towards launch

Hawiah - Successful large infill-drilling programme and development studies
progress

Saudi Arabia - Jibal Qutman Gold development scenarios being reviewed

Regional Exploration - Progress in both Ethiopia and Saudi Arabia

KEFI (AIM: KEFI), the gold and copper exploration and development company, has
focused on the Arabian-Nubian Shield since 2008, assembling a pipeline of
projects in the Kingdom of Saudi Arabia and in the Federal Democratic Republic
of Ethiopia, with the most advanced being the shovel-ready, high-grade Tulu
Kapi Gold Project ("Tulu Kapi") in Ethiopia which is being prepared for its
launch.

We are pleased to provide this operational update covering the three months to
31 March 2024 and more recent developments. This update encompasses the
activities of the Company, as well as wholly owned KEFI Minerals (Ethiopia)
Ltd ("KME") and majority-owned Tulu Kapi Gold Mines Share Company ("TKGM") in
Ethiopia, and minority-owned Gold & Minerals Ltd ("GMCO") in Saudi Arabia.

ETHIOPIA

(TKGM currently 95% owned)

The take-off of the Ethiopian Gold Mining Sector

Tulu Kapi's remaining finance syndicate approval processes are on track for
final (conditional) approvals during May 2024. Project launch preparations
have commenced at site.

Ethiopia's Prime Minister visited the area last week to demonstrate the
importance of, and his support for, the regional developments spinning off our
and similar project.

Our developments coincide with:

·    early construction works commencing at another industrial scale
gold-mine development west of Tulu Kapi; and

·    commencement of a modernisation programme at the only large operating
gold mine in Ethiopia, south of Tulu Kapi.

Taken as a whole, these private sector initiatives reflect the positive
turnaround in Ethiopia over the past two years on the back of wide-sweeping
reforms, some of which were absolutely critical and most helpful for the
mining sector, as was negotiated and previously reported by KEFI.

Ethiopia is now striving hard to reclaim its previous long-standing ranking
amongst the world's top ten growth countries. The private sector is now
intended to play the key role in growth going forward. Particularly important
for KEFI is that Ethiopia's top five gold development projects look likely to
raise Ethiopia's aggregate annual gold production from c.400,000 oz per annum
at present to an estimated 1.5 million oz per annum within the next five
years, which would rank Ethiopia amongst Africa's top ten gold producing
countries.

Financing progress in Ethiopia

KEFI recently reported (see announcement of 25 March 2024) the following:

·    all of the required development budget of US$320 million (exclusive
of the historical equity investment of c.US$100 million) has been assembled at
the subsidiary level in the form of US$190 million secured debt, US$100
million Equity Risk Note ("ERN") and US20-40 million share subscriptions to
KEFI subsidiaries;

·    the receipt of final approvals from the Federal Government of
Ethiopia (co-shareholder in TKGM), Eastern and Southern Trade and Development
Bank ("TDB") (the lead lender of secured debt) and the lead-investor in the
ERN (a multinational organisation which has operated in Ethiopia for decades);
and

·    approval processes having been triggered for the remaining parties,
in particular the long-planned co-lender of secured project finance debt, the
co-investor in the ERN and the co-subscriber to TKGM share capital.

The following further progress was reported on 7 May 2024:

·    KEFI now targets an elevated beneficial interest in TKGM of 80%. This
was made possible by the change in the permissible capital ratio agreed with
the Ethiopian central bank, combined with the lowering of the weighted average
cost of debt finance by virtue of attracting more ERN demand as a result of
the central bank approval of our exemptions from exchange and capital
controls. A consequence of these refinements is the improvement in the
estimated IRR for the investors of share capital into TKGM (KEFI and the
Government);

·    all syndicate parties have now either confirmed final (conditional)
approval or that they target providing their approval this month; and

·    corporate activity is increasing in the Arabian-Nubian Shield and
KEFI has received expressions of interest from other parties to potentially
participate should the opportunity arise in Ethiopia, either at Tulu Kapi or
in other growth opportunities being considered.

Operational progress and preparing for a safe construction programme at Tulu
Kapi

These activities are focused on the Tulu Kapi Gold Project launching in
mid-2024 for production in mid-2026:

·    dedicated policing has been formed for permanent presence around Tulu
Kapi and the other strategic mining projects, reporting to the Prime Ministry
to ensure safe working conditions for the community and any parties brought to
site by the Company;

·    whilst no-one is threatening the project or the Company, these
precautionary measures are requirements for compliance with international
standards and our arrangement is being formalised and signed off to satisfy
all stakeholders of the commitment to safety and international standards by
Government and the project syndicate;

·    independent international experts have already confirmed that TKGM's
project launch plans, and the arrangements with Government, adhere to the
leading international standards for environment, community and safety. This
follows the equivalent reports late last year in respect of the technical
aspects;

·    these experts, including SLR for environment and social, Constellis
for safety and security systems, and Behre Dolbear for technical matters and
operational systems, oversee all critical aspects of project implementation
ensuring compliance and excellence;

·    additional independent security experts are now being instructed to
also monitor and report to their individual clients within the syndicate, as
an added layer of due diligence as we ramp up launch activities;

·    these commitments and independent checks have allowed the syndicate
parties to advance their processes and remain on track for completing final
approvals this month, May 2024; and

·    Organisational appointments include:

o Jacques Kruger as the new Project Development Manager and is working closely
with Project Director Norman Green, the founder of Green Team International;
and

o Simon Cleghorn, KEFI's original Resource Geologist and a core team member
during our overhaul of the Project in 2014-2015, rejoining the Company at the
Executive Committee level after serving as Chief Geologist and Chief Operating
Officer respectively at leading Kazakh mining groups, Eurasian Resources Group
and JSC AK Altynamas.

Economic Metrics of Tulu Kapi

·    The Tulu Kapi Mineral Resource Estimate stands at 1.7 million ounces
at an average grade of 2.7 g/t. Management has previously reported the
potential to add another one million ounces to the mineral resources of the
underground mine planned to follow the start of the open pit.

·    The development plan commenced with the DFS and was complemented by
refinements, optimisations, contract tendering and senior lender input to
emphasise risk-mitigation. The evolution of the plans and the independent
experts who contributed are set out in the KEFI website. Key elements
included:

o pit shell selection and Ore Reserves based on gold at US$1,098/oz;

o mining the open pit at an average of 2.5mtpa, but processing only 2mtpa;

o ensuring that all secured debt can be fully repaid at a gold price of
US$1,200/oz;

o ensuring covenant compliance by stress testing projections at US$1,550/oz;
and

o average borrowing costs for secured debt and ERN's of 13% (weighted
average).

To facilitate equity investor analyses (as compared with the lender-dominated
analyses regularly reported in respect of the open-pit), the financial
projections were updated to reflect the Company's business plan:

·    development of the underground deposit so that it begins to
contribute to production and facilitates grade optimisation from multiple ore
sources;

·    processing of the low-grade stockpiles at end of mine life, noting
that the cut-off grade for mining in the open pit is 0.5g/t, but that any ore
below 0.9g/t is sent to low-grade stockpile;

·    equity analysts' consensus long-term gold prices (as per Standard and
Poor's) now at US$1,965/oz;

·    lifting the processing rate by 20-25% to c.2.4Mtpa; and

·    to refinance with conventional corporate finance during the early
years of production.

 Tulu Kapi Gold Project 100% Basis - Summary Economic Metrics
 Assumed Gold Price                                            US$/oz    2,350   1,950  1,550

 Production Statistics
 Tonnes Processed                                              T 000     22,999  22999  22,999
 Tonnes Processed Per Annum                                    T 000     2,486   2486   2,486
 Grade                                                         G/T       2.1     2.1    2.1
 Recovery                                                      %         93.7%   93.7%  93.7%
 Waste to Ore                                                  X:Y       6.2     6.2    6.2

 Cash Cost Metrics
 AISC                                                          (US$/oz)  887     859    831
 AIC                                                           (US$/oz)  1,088   1060   1,032
 Breakeven Cost - inc everything e.g. debt repayment, taxes    (US$/oz)  1,315   1199   1,091

 Cash Flow Outcomes
 Cashflow Available for Senior Debt Service                    US$M      1,742   1342   943
 Cashflow Available for Equity Risk Ranking Note               US$M      1,497   1087   667
 Net Cashflow Available To Other Shareholders                  US$M      1,415   1005   585

 NPV, IRR & Valuation
 Leveraged IRR @ Construction Start                            %         64%     47%    27%
 Leveraged NPV @ 5%. At Construction  Start                    US$M      896     596    290
 Leveraged NPV @ 5%. At Production  Start                      US$M      1,114   774    429
 EBITDA (Average of first 3 production years)                  US$M      260     193    126
 Enterprise Valuation @ 3.5x EBITDA                            US$M      911     675    440

Footnote:

·    beneficial ownership: the final beneficial ownership may change upon
refinement of respective positions at finance close

·    NPV calculations: KEFI has hitherto reported its NPV (post debt and
post tax) using an 8% discount rate, On advice from Orior Capital, whose
latest research report is available on the KEFI website, a better basis for
"apples and apples" comparison with industry analogs is to apply a discount
rate of 5% as that is the commonly used discount rate against which companies
are compared as they progress their projects through the various stages of
advance, from DFS-stage, to being financed, to being in construction, to
having established reliable production.

Tulu Kapi's combined open pit and underground production is targeted at +/-
200,000oz p.a. of gold production which now represents an estimated gold
export revenue of circa US$400 million per annum (assuming a gold price of
US$1,965/oz), which would today be Ethiopia's largest single export generator
and a significant economic engine for local and regional benefits.

With projected all-In-sustaining costs of approximately US$860/oz and
break-even costs (after all debt-service) of approximately US$1,200/oz, this
presents a solid position for generation of net cash flow to KEFI. With a
now-targeted KEFI beneficial ownership 80%, this represents net cash flow
entitlement to KEFI of approximately £63 million (US$74 million) per annum
over the first 9 years, commencing from H2 2026.

SAUDI ARABIA

(GMCO 25%-owned)

The take-off of the Saudi Gold Mining Sector

An illustration of the priority given to mineral exploration and recent
Government prioritisation of the Saudi mining sector is that our Saudi Joint
venture has been granted 14 exploration licences in the past two years
compared with three in the previous 13 years.

Many international explorer / developers have lodged applications. Amongst the
biggest are the JV between the Government-controlled Maaden and Ivanhoe
Electric, Barrick and Eurasian Resources Group.

Hawiah Copper-Gold Development Project

In gold-equivalent resource terms, Hawiah is now approximately 30Mt at 2.5/t
gold-equivalent or 2.5 million ounce gold-equivalent and is expected to grow
further based on recent results. In copper-equivalent terms, it represents
approximately 30Mt at 1.7% copper-equivalent or 510Kt of copper (based on
prices of US$9,500/t copper, US$2,600/t zinc, US$1,965/oz gold and US$24/oz
silver).

·    At the main Hawiah deposit, over 50,000m of the 65,000m infill
drilling programme is complete in preparation for updating the existing 29.0Mt
Mineral Resource Estimate ("MRE") (see announcement on 9 January 2023), with
results in-line with expectations as modelled.

·    At the satellite Al Godeyer deposit, a second phase of drilling
comprising 4,500m has recently commenced to infill and expand its maiden MRE
reported in 2023 (see announcement dated 3 April 2023).

·    These two drilling programmes are on track to upgrade at least 90% of
the >30 million tonne combined MRE to the Indicated Resource category,
forming the basis for Ore Reserves.

·    Down-plunge expansion drilling at the Crossroads Lode in Hawiah has
also extended the known limits of mineralisation by 270m to a vertical depth
of 740m. This should also lead to an expanded Hawiah MRE.

·    Earlier-stage exploration is also ongoing at other potential Hawiah
satellite deposits, including at the recently announced Abu Salal discovery.

·    Hawiah's status as the third largest base-metal project in the now
burgeoning Saudi Arabian minerals sector has been reaffirmed by this highly
successful exploration programme.

·    PFS-level studies were reported in mid-2023 in respect of initial
mine plans and metallurgical studies. These and other relevant matters will be
fully addressed in the DFS.

·    A smaller but analogous polymetallic VMS mine is Al Masane which is
in the same region in Saudi Arabia. That operation is owned by the publicly
listed AMAK, which has a market capitalisation of over US$1 billion.

Jibal Qutman Gold Development Project

·    GMCO is progressing evaluating alternative development scenarios
whilst also seeking lower-cost solutions for inputs like water and power. GMCO
plans to then select its preferred development scenario.

·    Systematic exploration is ongoing across the three contiguous Jibal
Qutman Gold Exploration Licences ("EL's") to confirm structural controls on
higher-grade gold mineralisation and identify further resource potential:

o previous exploration primarily focused on an 8km-long section of the
original Jibal Qutman EL and the full 35km mineralised strike length will now
be tested;

o drill rigs are onsite working on resource upgrade and expansion programmes;
and

o other drill rigs are testing targets generated across major structures
during the 2023 mapping and geophysical surveying campaigns.

·    During the quarter, scout drilling discovered the Asfingia satellite
deposit located c.1km northwest of a planned open pit with results including:

o JQD_232: 13.9m (12.7m estimated true width ("ETW") at 7.9 g/t gold from
53.6m; and

o JQD_265: 25.5m (37.5m ETW) at 1.9 g/t gold from 86.0m (including 7.4m at 5.2
g/t gold).

·    Asfingia was discovered when GMCO drilled a cross-cutting fault zone
which interacts with the main structurally controlled gold trend. Similar
interacting structures have good potential for high grade gold mineralisation
and are being identified along the 35km strike length of the main mineralised
trend. The successful UAV ("unmanned aerial vhicle") magnetic geophysical
surveying technique deployed in 2023 is set to recommence in new areas of the
licence to assist in the building of this structural framework.

·    Drilling is ongoing to define the limits of gold mineralisation and
estimate a Maiden Resource at Asfingia as well as other prospects at Jibal
Qutman.

REGIONAL EXPLORATION

Whilst we do not publish an exploration strategy, it is notable that we are
pegging in both Ethiopia and Saudi Arabia. We have a number of gold, base
metal and critical metal prospects granted or under application covering
brownfields and grassroots targets. In all these prospects there is historical
evidence of mineralisation and the opportunity to apply certain exploration
technology and techniques for the first time.

Being amongst the early movers in the region has yielded our three advanced
projects and, we believe, will undoubtedly yield more. The aggregate of the
gold-equivalent resources assembled is approximately 5 million ounces and we
see clear potential to double that via brownfields exploration.

Some of our regional exploration is in collaboration with local investors with
a view to perhaps listing particular projects on local bourses as they are
launched and promoted by the authorities. KEFI shareholders would be given the
opportunity to participate if feasible from a regulatory viewpoint.

KEFI CORPORATE

Share Placing and General Meeting

KEFI completed a share placing raising £5.0 million (before expenses) in
March 2024.

At a General Meeting held on 26 March, shareholders approved the issue of
shares to directors and corporate advisers have elected to receive shares in
lieu of accrued fees of £0.5 million.

INVESTOR BRIEFINGS AND WEBINAR

Institutional investor relations advisers 3PPB (contact details shown below)
have commenced arranging briefings for institutional investors on request.

Research group Orior Capital is today publishing a research report on KEFI,
which will be accessible from the KEFI website.

The quarterly open-forum webinar for all investors will be at 3pm London time,
on Wednesday 22 May 2024. Details of these two events will be announced in due
course, encouraging the submission of questions before and during the webinar.

Enquiries

 

 KEFI Gold and Copper plc
 Harry Anagnostaras-Adams (Executive Chairman)       +357 99457843
 John Leach (Finance Director)                       +357 99208130

 SP Angel Corporate Finance LLP (Nominated Adviser)  +44 (0) 20 3470 0470
 Jeff Keating, Adam Cowl

 Tavira Securities Limited (Lead Broker)             +44 (0) 20 7100 5100
 Oliver Stansfield, Jonathan Evans

 IFC Advisory Ltd (Financial PR and IR)              +44 (0) 20 3934 6630
 Tim Metcalfe, Florence Chandler

 3PPB LLC (Institutional IR)
 Patrick Chidley                                     +1 (917) 991 7701
 Paul Durham                                         +1-203-940-2538

 

 

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