REG - Kefi Gold and Copper - Q2 2022 Operational Update

KEFI Gold and CopperAnnouncement

13/07/2022 07:00

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RNS Number : 2981S  Kefi Gold and Copper PLC  13 July 2022

13 July 2022

KEFI Gold and Copper plc

("KEFI" or the "Company")

Q2 2022 Operational Update

KEFI (AIM: KEFI), the gold exploration and development company with projects
in the Federal Democratic Republic of Ethiopia and the Kingdom of Saudi
Arabia, is pleased to provide its latest quarterly operational update.

This update encompasses the activities of KEFI Minerals (Ethiopia) Ltd ("KME")
and Tulu Kapi Gold Mines Share Company ("TKGM") in Ethiopia, and Gold &
Minerals Ltd ("G&M") in Saudi Arabia, for the period from 1 April 2022 to
30 June 2022 ("Q2 2022"), along with any material subsequent developments.

The Tulu Kapi Gold Project ("Tulu Kapi") is under TKGM (planned to be c. 70%
owned by KEFI).  The Hawiah Copper-Gold Project ("Hawiah"), the Jibal Qutman
Gold Project ("Jibal Qutman") and other Saudi projects are under G&M
(planned to be c. 30% owned by KEFI).  Both TKGM and G&M are technically
guided and supported by KEFI so that each of these operating joint venture
companies as soon as possible builds the local organisational structure
suitable for long term production as well as exploration and future
development opportunities.

Ethiopia

 

The security situation has materially improved in Ethiopia since the end of
last year, with the end of the civil war in the country's northern regions
during December 2021, the lifting of the national state of emergency in
February 2022 and the agreed ceasefire in March 2022. The focus of the
political rivals is now peaceful negotiation and the focus of the domestic
security forces has now switched to the policing of priority areas which still
experience localised conflicts from time to time. No such conflicts have taken
place in the vicinity of the project site. Tulu Kapi's stakeholder management
and security systems (apparatus, policies, procedures and team structure) have
been upgraded, whilst field activities within the Tulu Kapi district have
continued to build ahead of full project launch, focusing both on the site and
its transport and supply routes.

 

TKGM seeks to maintain its strong social licence through intense relationship
management. There is no artisanal activity at or near Tulu Kapi, no mining
legacy issues, no inter-ethnic rivalry and despite the wide-ranging changes in
local politics over recent years it remains the case that no local parties
have ever sought to obstruct TKGM and that the community's enthusiasm for the
project remains strong.

 

Tulu Kapi

 

No other mining project of this scale in Ethiopia has been brought to Tulu
Kapi's stage of advancement during recent years and Tulu Kapi will be the
first industrial scale mine development in Ethiopia in over 30 years. It has
taken years of extensive technical re-design of the project, years of overhaul
by the Ethiopian authorities of financial policies which previously hindered
mining project finance and the patient and cautious traversing by the Company
of recent well-publicised events within the country. The project has imposed
many demands on a regulatory system which the Ethiopian Government continues
to upgrade, determined to build a modern minerals sector. KEFI is honored to
play its part in this process and has assembled a first-tier syndicate of
international industry expert management, contractors, banks and investors.

 

During Q2-2022 TKGM continued its project launch preparations and has
regularly formally advised the Ethiopian Ministry of Mines of its progress and
of the tasks outstanding to ensure joint collaborative focus. The project
financing Umbrella Agreement has been signed in Q2 2022, the associated
documentation has been assembled with the project's lead lenders and equity
investors, and the focus has been maintained on full project launch in the
Ethiopian dry season starting in October 2022, pre-conditioned on the security
situation being independently assessed as completely ready and the few
remaining regulatory administrative tasks being completed.

In collaboration with the regulatory agencies at all four levels of the
Ethiopian Government, notable progress during Q2-2022 included:

·   initial community youth employment programmes being established which
support the project, such as those covering road maintenance and expansion of
revegetation nurseries;

·   the Ministry of Mines has now audited and endorsed the historical
project costs incurred up to 2020 of c.US$80 million and can now report this
to the Ethiopian central bank; and

·    the central bank has now permitted that both development banks be
allowed to lend on the same terms and formal ratification is awaited from the
Government.

Tulu Kapi District Exploration

 

KEFI remains keen to re-commence its exploration of the additional prospects
it has successfully identified within the Tulu Kapi district exploration area
from within which the mining licence was duly excised as a result of the
successful discovery of the Tulu Kapi deposit. Whilst most historical drilling
was naturally of the Tulu Kapi deposit, there was significant work done on
many further prospects which await follow-up.

Whilst awaiting regulatory permission to re-activate the Company's Ethiopian
exploration, which is critical for long term planning for all stakeholders in
the community as well as the Company, the exploration focus has been
successfully switched to Saudi Arabia.

Saudi Arabia

 

In recent years KEFI's Saudi operating joint venture company G&M has built
the largest exploration team in the country and has brought two major projects
to the feasibility study stage for development. This has coincided with the
Saudi Government's widely publicised recent initiatives to welcome
international expertise and fast-track the development of its mining sector.
G&M's activities during Q2 2022 showed rapid progress, as outlined below.

 

Jibal Qutman

 

As previously announced, KEFI's local partner ARTAR (on behalf of G&M) has
been actively engaged in discussions with the Saudi Arabian Ministry for
Industry and Mineral Resources ("MIM") regarding its Jibal Qutman mining
licence application. These discussions have now reached an advanced stage and
it is the view of G&M's management that a positive outcome to these
discussions is now imminent.

 

In line with these discussions, G&M will need to submit an updated
Development Plan and Environmental and Social Impact Assessment to enable the
resubmission of the mining licence application under the new Saudi Arabian
Mining Investment law, ahead of the award of the expected Jibal Qutman Mining
Licence ("ML").

 

In advance of this, it is anticipated that G&M will be granted three
exploration licences covering the Jibal Qutman area to enable the above
studies to be completed.

 

As announced on 16 June 2022, G&M has engaged one of TKGM's principal
contractors Lycopodium to complete a Detailed Feasibility Study ("DFS") for
Jibal Qutman by December 2022.  In addition to this, the Company has
initiated steps to re-establish its operational base in the nearby city of
Bisha.

 

The initial Jibal Qutman development project is now seen as a + 500,000 oz
production plan for extraction over 10 years based on a conventional open
pit/CIL (Carbon-in-Leach Process). Subject to regulatory approvals and
financing, Jibal Qutman may be in production around the same time or
potentially before Tulu Kapi in Ethiopia.

 

Hawiah

 

Work at the Hawiah Copper-Gold Project (including its adjacent recently
granted Al Godeyer exploration licences) continued during Q2 2022, focusing on
providing inputs across all required fronts for the Hawiah Preliminary
Feasibility Study ("PFS"), also scheduled for completion in H2 2022.

 

Hawiah's in-situ metal content already ranks this project as KEFI's largest at
present and it is intended to produce copper, gold, zinc and silver. Four
drill rigs were operational in the period, enabling significant progress on
the resource upgrade and expansion programme. Early assay results from this
programme are expected to be reported during the current quarter, contributing
to an upgraded JORC Resource being released later this year. A positive
outcome of ongoing exploration work is the expectation of an initial open pit
mine, which would have the effect of reducing initial capital expenditure and
expediting early cash flows from a development that would likely follow soon
after the start-up of Tulu Kapi and Jibal Qutman.

 

Two New Projects Added in Saudi Arabia - Jabal Hillit and Qunnah

The granting of the Jabal Hillit and Qunnah "Al Qassim" exploration licences,
as announced on 12 July 2022, represents the start of a new and exciting phase
of exploration and discovery for the Company. These licences are situated
approximately 30km apart, straddling the Ad Dawadimi and Afif terranes in the
eastern portion of the Arabian Shield in Saudi Arabia. Both represent
attractive gold exploration targets, and the granting of these additional
licences represents a new frontier for the G&M exploration team.

·   The exploration licences are situated within the eastern area of the
Arabian Shield, located 30km apart and cover a combined area of 184.29 km(2)
of prospective ground

·   23 known gold occurrences have been historically documented, with
significant ancient workings located within the tenements

·   The exploration licences have identified gold within shear-hosted
quartz veins, with grades of up to 15.3g/t at Jabal Hillit and 46 g/t Au at
Qunnah as noted by the Bureau de Recherches Géologiques et Minières (BRGM)
and United States Geological Survey (USGS)

·   The Exploration Licences present an excellent opportunity to make
discoveries within a highly prospective and under explored area of the Arabian
shield

The G&M regional exploration team are gearing up for a busy summer of
mapping and sampling within these new licences to ground truth historical
data, extend the known limits of mineralisation and define the structural
framework controlling mineralisation, ahead of more advanced exploration works
this year.

KEFI Group

 

The improvement in the local working environment in both Ethiopia (security)
and Saudi Arabia (regulatory) since late 2021 has allowed KEFI to continue the
rapid progress of the previous quarter in both jurisdictions. KEFI now has a
much-improved position as an early-mover in both countries and with a more
balanced portfolio of advancing projects.

 

Now having three (not one) advanced projects in two countries places the
Company into a much better risk position than was hitherto the case. KEFI also
de-risked the balance sheet by raising £8 million of equity in April 2022 to
repay all outstanding liabilities and reinforce the momentum of its projects.

 

Since that capital raising, broader financial markets, and the AIM Market in
particular, have shown some volatility and weakness flowing from global
events. We note that long term consensus metal prices (as published by CIBC)
have remained relatively stable based on the comparison as at 2 May 2022 and
as at 30 June 2022, with the consensus forecast for gold moving from
US$1,641/oz to US$1,651/oz, copper from US$3.51/lb to US$3.60/lb, zinc
US$1.13/lb to US$1.14/lb and silver remaining unchanged at US$22/oz.

 

The following high-level statistics illustrate the importance of KEFI's
newly-established position across its three advanced projects in the two
countries:

 

·    KEFI's beneficial interest in gold-equivalent mineral resources has
grown from 1.2 million ounces in mid-2020 to 2.1 million ounces at the end of
2021, with further growth anticipated in 2022 and subsequent years.

·    KEFI's market capitalisation of approximately £28 million at 0.7
pence per share represents US$17/oz-equivalent on JORC resources and the
following at December 2021 metal prices:

•     Estimated 7% of NPV (8%); and

•   Estimated potential net operating cash flow (earnings before
interest, taxes (taxes and royalties payable), depreciation and amortisation)
is £137 million (c. US$185 million) per annum from the combination of all
three development projects at their targeted start-up production rates.

·    The NPV (see note 2 below) for KEFI of its projects has tripled from
mid-2020 (£114 million) to mid-2022 (£348 million), at the same set of 31
December 2021 metal prices. At the current KEFI shares in issue this
represents a tripling from 3p per share to 9p per share (now approximately
50/50 split between Ethiopia and Saudi Arabia). All KEFI's projects have
resources which remain open and there is a pipeline of  additional
exploration projects with walk-up drill targets.

 

Harry Anagnostaras-Adams, Executive Chairman of KEFI, commented:

"Work is gathering pace on many fronts. We are firmly on track to achieve the
following milestones in Q4 2022:  in Ethiopia for financial close and the
launch of construction of our Tulu Kapi Gold Project and in Saudi Arabia our
larger Hawiah Copper-Gold Project to deliver its PFS.

"In addition, we have other exciting developments in Saudi Arabia. Our Jibal
Qutman Gold Project is fast-tracking its DFS, mining licence and financing
work so as to launch in 2023. Plus we have been greatly honoured by the Saudi
authorities to be granted two new exciting gold exploration projects.

"KEFI now has an excellent project pipeline in two fast-improving (for mining)
large jurisdictions within the highly prospective Arabian Nubian Shield. Three
development projects lined up for sequential construction schedules leading to
combined production of c. 400,000 oz gold or gold-equivalent per annum by
2026. Plus exciting earlier-stage exploration projects which can be addressed
concurrently.

"This marks the beginning of an exciting chapter for both our joint-venture
partnerships and continues to demonstrate our ability to operate as a
first-mover explorer and developer in challenging environments."

Investor Webinar

The Company will provide a presentation and live webinar via the Investor Meet
Company platform during August 2022, in light of having recently conducted the
Annual General Meeting presentation. Details will be published closer to the
time.

The webinar will subsequently be available on the Company's website at:

http://www.kefi-minerals.com/news/webcasts
(http://www.kefi-minerals.com/news/webcasts) .

Enquiries

 KEFI Gold and Copper plc
 Harry Anagnostaras-Adams (Managing Director)                         +357 99457843
 John Leach (Finance Director)                                        +357 99208130
 SP Angel Corporate Finance LLP (Nominated Adviser and Joint Broker)  +44 (0) 20 3470 0470
 Jeff Keating, Adam Cowl
 Tavira Securities Limited (Joint Broker)                             +44 (0) 20 7100 5100
 Oliver Stansfield, Jonathan Evans
 WH Ireland Limited (Joint Broker)                                    +44 (0) 20 7220 1666
 Katy Mitchell, Andrew de Andrade
 IFC Advisory Ltd (Financial PR and IR)                               +44 (0) 20 3934 6630
 Tim Metcalfe, Florence Chandler

 

Notes

Note 1 - Metal prices:

 31 December 2021 Metal Prices:                     31 January 2021 Analyst Consensus Long Term Prices:
 Gold Price is US$1,830/oz          Gold Price is US$1,607/oz
 Copper Price is: US$9,750/t        Copper Price is: US$7,590/t
 Zinc Price is US$3,590/t           Zinc Price is US$2,442/t
 Silver Price is US$23/oz           Silver Price is US$21/oz

 

Note 2 - NPV

 Explanatory Notes:
 * NPV is derived by KEFI using independently created financial models of net
 cash flows after tax
 and debt service, using a discount rate of 8%;
 * Tulu Kapi open pit model is based on the Definitive Feasibility Study
 ("DFS") as updated for any
 refinements during project contracting and in-country experience;
 * Tulu Kapi underground mine model is based on the internal Preliminary
 Economic Assessment ("PEA");
 * Hawiah assumes preliminary mine modelling for open pit and underground
 because the MRE has only
  recently been updated. Also includes preliminary debt leverage;
 * Jibal Qutman model is based on the internal PEA, preliminary debt-leverage
 applied.

 

KEFI Gold and Copper plc

KEFI is focused primarily on the advancement of its three development projects
in Ethiopia and Saudi Arabia, plus its pipeline of highly prospective
exploration projects in these two large jurisdictions of the under-explored
Arabian-Nubian Shield.  KEFI targets that production at Tulu Kapi in Ethiopia
and Jibal Qutman in Saudi Arabia will, between them, generate cash flows for
capital repayments, further organic growth and dividends to shareholders.

Both TKGM and G&M are technically guided and supported by KEFI so that
each of these operating joint venture companies as soon as possible builds the
local organisational structure suitable for long term production as well as
exploration and future development opportunities.

KEFI Gold and Copper in Ethiopia

Ethiopia is currently undergoing a remarkable transformation both politically
and economically.

The Tulu Kapi gold project in western Ethiopia is being progressed towards
development, following a grant of a Mining Licence in April 2015. No other
mining project of this scale in Ethiopia has been brought to Tulu Kapi's stage
of advancement during recent years and Tulu Kapi will be the first industrial
scale mine development in Ethiopia in over 30 years. It has taken years of
extensive technical re-design of the project, years of overhaul by the
Ethiopian authorities of financial policies which previously hindered mining
project finance and the patient and cautious traversing by the Company of
recent well-publicised events within the country. The project has imposed many
demands on a regulatory system which the Ethiopian Government continues to
upgrade, determined to build a modern minerals sector. KEFI is honored to play
its part in this process and has assembled a first-tier syndicate of
international industry expert management, contractors, banks and investors.

 

The Company has now refined contractual terms for project construction and
operation. Estimates include open pit gold production of c. 140,000oz pa for a
7-year period. All-in Sustaining Costs (including operating, sustaining
capital, royalties and closure but not including leasing and other financing
charges) remain c. US$800-900/oz depending on the gold price. Tulu Kapi's Ore
Reserve estimate totals 15.4Mt at 2.1g/t gold, containing 1.1Moz.

All aspects of the Tulu Kapi (open pit) gold project have been reported in
compliance with the JORC Code (2012) and subjected to reviews by appropriate
independent experts.

A Preliminary Economic Assessment has been published that indicates the
economic attractiveness of mining the underground deposit adjacent to the Tulu
Kapi open pit, after the start-up of the open pit and after positive cash
flows have begun to repay project debts.

KEFI remains keen to re-commence its exploration of the additional prospects
it has successfully identified within the Tulu Kapi district exploration area
from within which the mining licence was duly excised as a result of the
successful discovery of the Tulu Kapi deposit. Whilst most historical drilling
was naturally of the Tulu Kapi deposit, there was significant work done on
many further prospects which await follow-up.

Whilst awaiting regulatory permission to re-activate the Company's Ethiopian
exploration, which is critical for long term planning for all stakeholders in
the community as well as the Company, the exploration focus has been
successfully switched to Saudi Arabia.

KEFI Gold and Copper in the Kingdom of Saudi Arabia

In 2009, KEFI formed Gold & Minerals Limited ("G&M") in Saudi Arabia
with local Saudi partner, ARTAR, to explore for gold and associated metals in
the Arabian-Nubian Shield. KEFI has a c. 30% interest in G&M.

ARTAR, on behalf of G&M, and G&M directly held over 16 Exploration
Licence (EL) applications pending the introduction of the new Mining Law.
These new regulations have recently been proclaimed and G&M has had five
new licences issued in the past seven months.  ELs are renewable for up to
five years and bestow the exclusive right to explore and to obtain a 30-year
exploitation (mining) licence within the area.

In addition, G&M has a Mining Licence Application over the Jibal Qutman
Gold Project which recent informal indications by the authorities provide some
confidence that the licence will be granted shortly.

 

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