REG - Kefi Gold and Copper - Tulu Kapi Update

KEFI Gold and CopperAnnouncement

10/07/2024 07:00

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RNS Number : 7583V  Kefi Gold and Copper PLC  10 July 2024

10 July 2024

KEFI Gold and Copper plc

("KEFI" or the "Company")

Tulu Kapi Update

Progress of Tulu Kapi Early Works and Project Financing

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

Early Works Progress

Excellent progress is being made with the intense Early Works programme
following Project launch in May 2024 to take Tulu Kapi through to September
2024, and provide the basis for full financial close and commencement of Major
Works in October 2024, ahead of commissioning of production in mid-2026.

The dismantling of the old exploration camp is progressing and the planned
security system is being installed, including private on-site security, with
permanent off-site Government protection.  Site inspections confirm progress
as expected.

Recently appointed Senior Project Manager, Jacques Kruger, has further
optimised the overall development schedule with principal contractor
Lycopodium in preparation for the final confirmations for fixed-price-lump-sum
components, which is a precondition for signing all Project financing
definitive documentation.

Along with both the Project's banks, KEFI executives are in regular contact
with the relevant Government officials to resolve the remaining few
administrative issues, having previously successfully dealt with all required
regulatory revisions and permissions. Since the receipt of ground-breaking
exemptions from exchange and capital controls, as announced on 5 October 2023,
the Government has continued to implement far-reaching reforms of the
financial and general regulatory system as part of its drive to generate
private sector growth.

Project Finance Approval Process

The US$320 million full Project funding package remains as previously
announced:

·    US$190 million secured lenders, being East and Southern African Trade
and Development Bank Ltd and African Finance Corporation Limited;

·    US$20 million equity investors in TKGM, being the Ethiopian Federal
and Regional Governments; and

·    US$110 million regional equity and note Investors in the Ethiopian
holding company.

If historical investment by KEFI and the mining fleet supplied by PW Mining
are included, total Project spending from the Project's original inception
will aggregate to approximately US$500 million.

The foreshadowed internal corporate re-organisation is being implemented to
facilitate closing with regional investors and, in due course, the local stock
exchange listing of securities issued to locals by the Ethiopian holding
company which will hold the shares in Tulu Kapi Gold Mines Share Company
("TKGM") and all licences and applications for other projects which include
gold, lithium, nickel and copper.

Subject to finalisation of full Project financing, KEFI's current beneficial
ownership of 95% in TKGM will likely be diluted to c.80% upon closing. Equity
subscriptions into TKGM are at entry valuation of approximately US$200 million
whilst the NPV of TKGM equity is estimated at c.US$650 million*.

* NPV calculations are based on the DFS (Definitive Feasibility Study)
financial model for the Tulu Kapi open pit updated for refinements in
consultation with lenders, contractors and input pricing updates generally,
plus the PEA (Preliminary Economic Assessment) financial model for the Tulu
Kapi underground mine. Assumed gold price US$2360/oz being the current spot
market; and £/$ exchange rate = 1.27, discount rate of 5% applied against net
cash flow to equity, after debt service and after tax.

 

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 Financial 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

 

Notes to Editor

Early Works comprise a number of activities with the community and other
stakeholders to ensure that everyone is fully informed and consulted, and the
site is prepared for the Major Works to commence.  Major Works would lead to
production starting in 2026.

Tulu Kapi is the first gold mine in Ethiopia that complies with World Bank IFC
Performance Standards, applying the same standards for social, environmental
and safety performance as those used in the world's most advanced mining
jurisdictions.  Our banks and contractors are of the highest international
repute and would not otherwise be supportive.  The Directors of KEFI are
internationally noted for having received major environmental awards for the
manner they conducted developments in their past.

Features of the performance standards that are applied include the following:

·    Transparency will be assured as the activities proceed, with
websites, newsletters, observation platforms and inspection tours being
provided; and

·    All systems in the mine adhere to international environmental
standards. It is especially noted that detailed base-line surveys have been
independently completed to ensure scientific monitoring from day one.

As highlighted in the recent KEFI Annual Report, given the current
all-time-high gold prices, this is a very opportune time for all stakeholders
to start gold production.

At current levels, the Project is expected to generate annual export sales
revenue of, on average, US$340 million starting from mid-2026 onwards. The
financial proceeds of these revenues would be allocated along the following
lines so as to maximise long term benefits for all stakeholders:

·    Approximately 40% or US$140 million would be spent on operating
costs:

o which is mainly spent within Ethiopia and preferring local suppliers
whenever possible subject of course to quality and price being competitive

o direct and indirect employment would be the largest single cost with Tulu
Kapi likely to create 5,000-10,000 direct and indirect jobs

o we will also continue and increase the funding of local development as
prioritised by the separate board of the Tulu Kapi Charitable Endowment.
 Development activities will focus on long-term sustainable programmes for
the local communities directly impacted by Tulu Kapi

 

·    Approximately 20% or US$70 million will be spent on taxes paid to all
layers of the Ethiopian Government from local government (Wereda) and
ultimately also to the Federal Government

 

·    Approximately 15% or US$50 million repayments to international and
local financiers

 

·    The above-mentioned "stay-in-business" costs absorb approximately 75%
of TKGM's revenue. Once we have paid for these obligations, we would then be
able to allocate the remaining money to other important areas. The allocations
would vary from year to year depending upon the priorities set by the Boards
of Tulu Kapi Gold Mines SC and the Tulu Kapi Charitable Endowment. These could
potentially be to:

o set aside a "an operational safety reserve" for protecting the project in
case of unforeseen costs or operating challenges;

o invest into extending Project life via exploration and development, so that
the Project can provide benefits for the long term and not just the short
term;

o prepay the international lenders to reduce risk and so that more of the cash
flows can be retained in future periods; and, of course

o pay dividends for shareholders, who had invested the initial exploration and
other high-risk capital up to 20 years earlier with no dividends to date. All
stakeholders want shareholders to be successful and to "invest in our next
Tulu Kapi".

 

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