REG - Kefi Gold and Copper - Tulu Kapi Project Financing

KEFI Gold and CopperAnnouncement

06/11/2024 07:00

For best results when printing this announcement, please click on link below:
https://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20241106:nRSF0725La&default-theme=true

RNS Number : 0725L  Kefi Gold and Copper PLC  06 November 2024

6 November 2024

 

KEFI Gold and Copper plc

("KEFI" or the "Company")

Initial Committee Approval Received from Second Bank for Tulu Kapi Project

Increased Proposed Bank Loan Facilities from US$190 million to US$240 million

KEFI (AIM: KEFI), the gold and copper exploration and development company
focused on the Arabian-Nubian Shield ("ANS") since 2008, is pleased to provide
an update regarding the Company's high-grade Tulu Kapi Gold Project ("Tulu
Kapi" or the "Project"), focusing in particular on the Tulu Kapi project
financing.

Highlights

·    Banks increase proposed loan facilities from US$190 million to US$240
million

·    Initial committee approval granted by second co-lending bank for
increased amount, with final approvals subject to remaining conditions being
satisfied (as outlined below)

·    First co-lending bank to refresh its existing completed board
approval, now for the increased loan

·    Targeting finalisation of these formal approvals and of definitive
detailed documentation this quarter

·   US$320 million development finance package now covered by plans at
subsidiary level.  Expected 80% KEFI beneficial interest in Tulu Kapi

·    NPV (5%) to KEFI of 6.9-10.5 pence per KEFI share in issue at
US$2,100-2,600/oz* gold price, excluding other assets

·    KEFI has facilitated local participation in a manner designed
specifically to suit Ethiopian investment conditions, as follows:

o  Public sector, via shares issued by Tulu Kapi Gold Mines S.C. ("TKGM", the
Project company) to both Federal and Regional Governments

o  Private sector, via Equity Risk Notes (gold-linked bonds and preference
shares) of KEFI Minerals Ethiopia Ltd ("KME", the local holding company), to
be followed by their listing on the new Ethiopian Stock Exchange

·    Expanding pipeline of majority-owned projects, with KME currently
progressing exploration licence applications in Ethiopia for both gold and
critical metals

·     Ethiopia:

o  Has reclaimed its longstanding position amongst the world's highest growth
countries and is now ranking in the global top 13 for growth

o  Has reclaimed its medium country-risk rating amongst gold-producing
African countries, in the same category as Ghana, Egypt and Tanzania

o  At the level of the Tulu Kapi district, our Early Works programme was
launched in May 2024 and is successfully serving to demonstrate the readiness
of the community and security generally for the launch of Major Works.

o  Has one +100,000 oz pa operating gold project (Lege Dembe) and two more in
the early stages of preparing for production (Tulu Kapi and Kurmuk) which,
between them, are considered likely to lift Ethiopian gold exports in about
two years to a level which approximates today's coffee exports (today's
largest Ethiopian export sector)

o  Has significant under-explored mineralisation for critical metals

·    Saudi and UAE Capital Allocation to mining:

o  Saudi and UAE mining investment institutions have launched programmes to
invest in East African precious and critical metals with a view to, inter
alia, diversifying away from reliance on hydrocarbons and making their region
a leader in minerals processing

KEFI Executive Chairman, Harry Anagnostaras-Adams commented:

"Today's announcement that our project finance banks are looking to increase
the Tulu Kapi project debt offering from US$190 million to US$240 million is
testament to KEFI's focus, diligence and tenacity - and that the fact that the
various stars are aligning around our Tulu Kapi project in Ethiopia, as they
also have around our emerging projects in Saudi Arabia.

"The past two years has seen regulatory reforms in both countries, our
flagship Tulu Kapi project being readied for development with the two Saudi
advanced projects following, and metal prices having taken off.

"Tulu Kapi's high grades and high recoveries offer the potential to repay all
project finance debt from the estimated net cash flows of the first full year
of production, at US$2,600/oz gold price.  Moreover, at US$2,100/oz to
2,600/oz gold, Project NPV to KEFI shareholders is 6.9 to 10.5 pence per
share, 12-17 times the current share price, ignoring our other assets."

Updated investor presentation

An updated investor presentation is today being uploaded to the KEFI website,
providing some extra detail around the substantive points in this
announcement.

* NPV calculations are based on applying a discount rate of 5% to net cash
flows after all costs, taxes and debt service. Current spot gold is at or
higher than $2,600/oz and the latest S&P Global consensus long term
forecast is US$2,100/oz. additional comments provided below.

Market Abuse Regulation (MAR) Disclosure

This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is
disclosed in accordance with the Company's obligations under Article 17 of
MAR.

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

 

Additional Information on Tulu Kapi

Increased Tulu Kapi Project loan proposal from banks

The Company is pleased to report that the Tulu Kapi's project finance banks
are now focusing on  increasing the proposed project finance debt package
from US$190 million to US$240 million, naturally subject to all conditions
being satisfied and remaining formal approvals.  We are all working to
complete these formal approvals and definitive detailed documentation this
quarter.

Document execution and launch of Major Works are expected to follow as the
remaining conditions are satisfied.  This expanded bank facility, combined
with the other initiatives being taken, indicates that the US$320 million
development finance package is covered.  Following these refinements to the
development finance package, KEFI is now expecting an 80% beneficial interest
in Tulu Kapi.

The increased Tulu Kapi loan proposal reflects the conclusions of the banks'
due diligence on the Project and its economics, noting that the consequential
lending ratios remain well within normal conventions.  This reflects the
Project's high-grades (open pit grade 2.1g/t), high metallurgical recovery of
c. 94% and low unit costs (all-in sustaining cost (AISC) of c.US$800-1,000/oz
depending on the assumed gold price).

The outstanding conditions precedent of the banks for approving all detailed
definitive documents are that the Ethiopian Government formally ratifies the
already approved Country Membership of the second bank, the whole syndicate
confirms the already drafted detailed definitive documentation and other
normal conditions for mining project finance transactions.  This is all
expected to be achieved in the current quarter.

At today's gold price (in excess of US$2,700/oz) it is estimated that KEFI
will now be potentially capable of repaying all debt from the estimated net
cash flows in excess of US$258 million (a figure which assumed a gold price
US$2,600/oz) of the Project's first full year of production.

Excluding historical investment of US$100 million and the investment by the
mining services contractor, the updated Project finance plan is summarised
below:

·    Finance plan changed from that set out in the 2023 KEFI Annual Report
published in June 2024 of:

o  US$280-300 million from bank debt and Equity Risk Notes ("ERN"):

§ US$190 million bank debt

§ US$90-110 million ERN

o  US$20-40 million from share subscriptions to KEFI subsidiaries

·    To the following:

o  US$285 million from bank debt and Equity Risk Notes ("ERN"):

§ US$240 million bank debt

§ US$45 million ERN

o  US$35 million share subscriptions to KEFI subsidiaries:

§ US$20 million share subscription to TKGM by Governments of Ethiopia and the
Ethiopian Region of Oromia

§ US$15 million from one of a number of identified sources being considered.

The Bank Loan proposal includes:

·    US$190 million senior secured; and

·    US$50 million subordinated secured.

The Equity Risk Note has been conditionally agreed to be placed with Ethiopian
qualified investors as follows

·    US$15 million (or equivalent in Ethiopian BIRR) from the subsidiary
of a multinational operating in Ethiopia, which is repayable in cash or
convertible into KEFI shares (at KEFI's election) at the VWAP applicable as
from the second year of Tulu Kapi production; and

·    US$30 million (or equivalent in Ethiopian BIRR) with repayment
thereof linked to the US Dollar or the Gold Price (at the investors' election)
and to take place after bank debts repaid.  To provide the ERN investors with
liquidity pending bond or preference share (whichever form is selected by the
investor) maturity, we would arrange a local stock exchange listing of the
Note.

The anticipated share subscriptions to KEFI subsidiaries are summarised as
follows:

·    The Government US$20 million share subscription to TKGM

·    The Ethiopian US$15 million private sector subscription to KME

·    the entry valuations are based on the TKGM shareholders' agreement
which provides for an internal valuation basis for partner dealings at this
stage of US$174 million

Credit approvals by banks

As previously reported, one of our two banks granted full approval earlier in
2024.  It will now move to update its formal approval for the larger proposed
loan package.

KEFI is pleased to report that it has now also received initial approval from
the second co-lending bank subject to, inter alia, the formal ratification of
its Country Membership from the Ethiopian Government.  The Country Membership
has already been approved by the relevant Ministry and the relevant
documentation for its ratification is already in place, therefore no
administrative delays are anticipated.

Following the award of this Country Membership, already in place for our first
co-lender, both banks are expected to proceed to full and final credit
approval on the enlarged debt package as the residual few conditions are
satisfied.

Ethiopia's recovery

Ethiopia was one of the world's top 10 growth countries for nearly 20 years
running until stalling in the lead-up to, and aftermath of, the internal
conflicts of 2020-2022 which flowed from the rapid introduction of
wide-sweeping democratic reform.

The Government lifted the National State of Emergency in early 2022 and the
country's security rating is no longer in the high-risk category.  It now
ranks alongside Ghana, Egypt and Tanzania in the medium-risk category.
 Economic growth has recommenced and being reinforced by sweeping reforms to
encourage growth of the private sector in particular, and especially mining.
These reforms include the floating of the local currency and exemption from
foreign exchange controls for strategic mining projects like Tulu Kapi.
Ethiopia has already climbed back into the rankings of global top 13 growth
countries and its country risk rating has dropped back down to amongst the
lowest-risk African gold producers.

At the Project level, the community is actively engaging in preparations for
Major Works and the local security environment has settled down.

History of KEFI's involvement in Tulu Kapi

KEFI was invited by Tulu Kapi's previous key shareholders to take control,
overhaul Project plans and take it into production.  By corporate
re-organisation, all of the previous owners' shareholders became KEFI
shareholders and thus KEFI took control in January 2014 and its enlarged body
of shareholders included all who had funded previous investment.  KEFI then
quickly overhauled the plans and was awarded a mining licence in 2015.  KEFI
joint ventured with the Government of Ethiopia in 2017 whilst preparing for
Project financing and launch.  The launch was then repeatedly delayed by
changing circumstances in the country between 2018 and 2022.

After the Ethiopian Government lifted the country's State of Emergency in
early 2022, KEFI signed an umbrella agreement with the Project syndicate in
mid-2022 to refresh preparations for launch and, at the time, set out the
conditions for proceeding.  With all conditions precedent either satisfied or
then appearing achievable, Early Works were launched in May 2024 to
demonstrate the readiness of the community and the security systems we have
installed.  Major Works will follow signing of detailed definitive
documentation.  This is now the focus of final formal approval processes by
banks and other syndicate members.

Environment, Social and Governance ("ESG")

Tulu Kapi was entered into by KEFI largely because of its standing vis a vis
the feasibility of complying with our high corporate ESG standards.  We
considered it a straightforward project from those viewpoints compared with
most projects we had inspected in Africa: Tulu Kapi is not near a border and
the associated security issues often arising, it has no artisanal history or
relevance and it has no environmental legacy because there is no historical
mining of any note.  And in particular, the community comprises peaceful
decent people dedicated to their own community development and opportunities
for further responsible development.

The Company has close relationships with all local stakeholders and already
has established a pattern of providing social development benefits above its
legal obligations.  We comply with World Bank IFC Performance Principles and
other leading international standards.

A strategic advantage of being located in Ethiopia is the access to low cost
(2-3 cents kw/hr) power for running all the infrastructure - with the
electricity being generated almost entirely from renewables, mainly from
Africa's largest hydro-electricity scheme - the Great Renaissance Dam.

At site, our social engagement is well established, with an exploration camp
established nearly 20 years ago and an exemplary security record, never having
suffered any serious injury to any personnel.  Our relationship with the
community is well embedded and we have already provided a local school to year
12, local roads, water and other local developments.  We have established the
Tulu Kapi Foundation under an independent Board to oversee these policies and
programmes to be affected as we progress from development to production.

Organisational development around the stage of each project

KEFI was founded by the Chairman and initially managed by a team of successful
discoverers drawing mainly on experience from similar geological terrain in
Western Australia.  Upon prioritisation of development of the Company's
discoveries, the leadership team became dominated by development experts with
track records of success on "Tulu Kapi style" developments and operations.

The teams at Board, Executive Committee (KEFI) and Operating Committee (TKGM)
levels today include individuals with track records of successful leadership
in planning, permitting, finance and development covering all disciplines from
geology to safety and finance.  Upon triggering Major Works, operational
management will be on-boarded to implement 'Operational Readiness' and
'Production'.

As we progress, KEFI is committed to a process of "Ethiopianisation", through
knowledge transfer of the TKGM team.

Overall direction of Tulu Kapi production planning and Project economics

The 'Banked Plan' is based on a 1 million ounce JORC-compliant Ore Reserve of
free-milling gold ore at a head grade of 2.1g/t, with mining plans designed
around a pit shell derived at US$1,250/oz gold.  Cut off grade is 0.5g/t,
with all ore below 0.9g/t stockpiled for processing at end of open pit mining.
This plan assumes we mine at 2.5Mtpa and process at warranted minimum or
"nameplate" 2Mtpa, to produce 135 Kozpa average over 7-8 years.

The 'Business Plan' is to introduce initial underground mining from within the
existing Resources, to increase plant throughput by 20% so as to process at c.
2.4Mtpa and to lift gold production to 179,000 oz pa average over 7-8 years
and, ultimately, potentially beyond 200,000 oz pa.  Progress with such plans
will be reported in due course. It will include a Definitive Feasibility Study
("DFS") on the underground start-up, to be completed during construction of
the open pit and infrastructure along with extensional drilling below the
underground mine resource.

The combination of the opportunity to retain a high beneficial interest in
Tulu Kapi and to expand production quickly, combined with the improved gold
price outlook, has had a significant impact on potential returns on investment
from Tulu Kapi for KEFI, for our shareholders and for our partners, the
Governments of Ethiopia and of the Oromia Region.

The NPV of estimated future net cash flows from Tulu Kapi to KEFI represents
6.9-10.5 pence per current share in issue.  This is based on applying the
industry norm 5% discount rate against estimated net cash flows to
shareholders assuming a gold price of US$2,100-US$2,600 per ounce gold and
including initial underground production.  This gold price range reflects a
low based on long-term consensus forecasts published by S&P Global and a
high based on the recent spot gold price.

The table below shows a range of estimated financial projections:

·    the right-hand column is the 'Banked Case' at US$1,800/oz gold i.e.
open pit only, name-plate processing rate only and no refinancing of the
initial project development finance package.

·    The next three columns from the right model the impact of refinancing
with corporate facilities in production year 2.

The first three columns from the left represent the 'Business Plan' case,
reflecting the introduction of initial underground production plus winding up
the processing rate by 20%, as well as the refinancing with corporate
facilities in production year two.

 Tulu Kapi Stats 100% Basis                                                         Open Pit + Start Underground Mine             Open Pit Only and plant at nameplate
                                                                                    reduce stocks + process extra 20%pa           refinance in production year 3         no refi

 Gold Price                                                               (US$/oz)  2,600         2,100         1,800             2,600        2,100        1,800        1,800

 Production Statistics
 Tonnes Processed                                                         T 000     18,400        18,400        18,400            15,395       15,395       15,395       15,395
 Tonnes Processed Per Annum                                               T 000     2,390         2,390         2,390             1,999        1,999        1,999        1,999
 Grade                                                                    G/T       2.7           2.7           2.7               2.1          2.1          2.1          2.1
 Recovery                                                                 %         93.7%         93.7%         93.7%             93.7%        93.7%        93.7%        93.7%
 Gold oz sold per annum                                                   oz '000   179           179           179               135          135          135          135
 Waste to Ore                                                             X:Y       6.2           6.2           6.2               7.5          7.5          7.5          7.5

 Cash Cost Metrics
 AISC                                                                     (US$/oz)  877           842           821               1,016        981          960          1,061
 AIC                                                                      (US$/oz)  1,084         1,049         1,029             1,310        1,275        1,254        1,355
 Breakeven Cost - inc everything e.g. debt repayment, taxes               (US$/oz)  1,432         1,289         1,208             1,565        1,437        1,371        1,459

 Cash Flow Outcomes
 Cashflow Available for Senior Debt Service                               US$M      1,903         1,441         1,165             1,288        962          769          678
 Cashflow Available for Equity Risk Ranking Note & unsecured bonds        US$M      1,584         1,108         816               992          640          419          417
 Net Cashflow Available to shareholders                                   US$M      1,503         1,026         735               938          586          365          332

 DSCR for Secured Debt - Average                                          Ratio     5.7           9.3           7.4               5.2          7.8          5.7          2.1
 DSCR for Unsecured Notes - Average                                       Ratio     19.4          13.6          10.1              18.4         11.9         7.8          4.9

 NPV, IRR & Valuation For KEFI
 Leveraged IRR @ Construction Start                                                 186.9%        100.5%        66.7%             70.8%        46.9%        29.2%        18.0%
 Leveraged NPV @ 5%. At Construction Start                                US$M      1,046         688           466               616          348          180          125
 Leveraged NPV @ 5%. At Production Start                                  US$M      1,213         809           565               766          462          273          253
 EBITDA (Average of first 3 production years)                             US$M      286           206           158               232          165          125          102
 Enterprise Valuation @ 3.5x EBITDA                                       US$M      1,000         720           553               813          578          437          356

 Initial Development Capex (exclude historical and mining contractor)     US$M      305           314           320               322          330          334          341

 Secured Debt Position at Q1 of PY3                                       US$M      15            69            105               22           84           121          138
 Secured Debt less cash at Q1 of PY3                                      US$M      -203          -74           9                 -170         -43          48           102

 Net Cash Flow Available for Shareholders over the 10 Years in aggregate  US$M      1,503         1,026         735               938          586          365          332

 

These projections exclude any potential contribution from the exploration
outside the existing Mineral Resource Estimate.

The overriding priority of KEFI is to now proceed to establish the open pit
and underground mines at Tulu Kapi.

During construction of the open pit and infrastructure, we intend to complete
the DFS on the underground mine and to also carry out extensional drilling at
depth. The last drill hole returned 90 metres at 2.8 grammes per tonne.

Early Works progress

The Early Works programme was launched in May 2024 and has successfully served
to demonstrate the readiness of the community and security generally for the
launch of Major Works.

All key construction and supply agreements have been assembled for execution,
including plant construction, mining services, construction of new all-weather
access road and on-site airstrip, electricity connection to mains grid and
Power Purchase Agreement (for low-cost hydro power), on-site private security
and off-site Government-provided security and policing.

KEFI's approach to risk-mitigation includes that (a) approximately one third
of the capital budget will be of a fixed price nature; and (b) contingency
provisions have been included for the remainder of the capital budget.

Major Works

The Project syndicate is preparing for launch of Major Works for project
construction and production start-up.  The exact timing of launching Major
Works relies on a number of interdependencies but the Company still intends to
complete all definitive documentation for signing in the current quarter and
be ready therefrom.

Targeted production start

We plan to start process plant commissioning programmes mid-2026, with 2027
being the first full production year.

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  UPDZZMGMRKMGDZM