KEFI Gold and Copper plc (LON: KEFI), the gold exploration and development company with projects in the Federal Democratic Republic of Ethiopia and the Kingdom of Saudi Arabia, has presented the key outcomes of the initial Preliminary Economic Assessment (“PEA”) for the Hawiah Project, located in Saudi Arabia. This Internal PEA is likely to be the first of several studies as we expand the resource and, in collaboration with our independent consultants, complete the work required for an Independent Preliminary Feasibility Study (“PFS”) to support an initial mine development within a district which is considered to have world-class prospectivity.
Highlights of the Initial PEA
· Positive Internal Preliminary Economic Assessment (“PEA”) included the following outcomes:
o confirms Hawiah is a high priority project, with a significant maiden resource of 19.3Mt at 1.9% copper equivalent in-situ (0.9% copper, 0.8% zinc, 0.6g/t gold, 10.3g/t silver), after only seven months of initial drilling;
o the maiden resource alone potentially supports a production rate of 2 million tonnes per annum for seven years for net operating cash flow of c.$70 million p.a. at current metal prices. After initial and sustaining capital expenditure of c.$222 million and c.$46 million respectively, this would indicate an estimated net cash surplus of over $200 million before financing costs and tax; and
o clear potential for expansion of resources with further drilling below the currently drilled depth of 350 metres of this structurally consistent tabular structure. A doubling of the resource with material of similar characteristics as the maiden resource would indicate an estimated net cash surplus of over $500 million before financing costs and tax.
The Directors of KEFI-operated Saudi joint-venture company Gold and Minerals Co. Limited (“G&M”) have resolved to trigger the KEFI-recommended next stage of the Project, comprising the following:
o deeper drilling targeting with the goal of seeking to double the maiden resource during the next drilling phase;
o infill drilling to upgrade the resource to the indicated category so as to warrant mine planning and estimation of an Ore Reserve;
o staged studies and surveys required for completion of a PFS during 2021; and
o scout drill for a large stockwork zone or “feeder zone” to the massive sulphides which represents a separate and even larger-scale target.
KEFI’s operations in Saudi Arabia are conducted through its 34% owned joint-venture company, G&M, where KEFI is the operating partner.
As expected, the PEA outlined the work programme required to advance Hawiah towards development and confirmed the merit of further drilling to expand and upgrade the resource, and in particular to focus on higher-grade zones of mineralisation.
Harry Anagnostaras-Adams, Executive Chairman of KEFI Gold and Copper, commented:
“The positive Hawiah PEA demonstrates how far the Project has advanced after only seven months of initial drilling.
“Hawiah’s copper-zinc-gold-silver mineralisation extends over 4km long and we are confident that further drilling will add substantial tonnage to the potential mining inventory. And this is only a small part of the mineralised system we have begun to assess on the Hawiah licence.
“Further drilling at Hawiah has been triggered to commence in Q4 2020 which will target extensions to the current resource and particularly to test for depth extensions of specific higher-grade zones.
“The current size of the known Hawiah mineralisation is limited only by the modest drilling completed so far. The local geology strongly indicates that the Hawiah resource will become much larger. Comparisons with similar deposits in the Arabian-Nubian Shield also indicate strong potential for Hawiah to become a much larger scale orebody.
“The Hawiah discovery already has material value. And our G&M team is excited at the likely opportunity to quickly deliver much higher value by quickly adding to the resource and generally progressing the Hawiah Project, especially when the prices for copper, zinc, gold and silver are all increasing strongly.”
The PEA was conducted by the KEFI planning team which is being switched over from the Company’s Tulu Kapi project as appropriate, as will the development team in due course when Tulu Kapi moves into operational mode. The KEFI team is supported by internationally recognised specialists in the various disciplines. The PEA included technical analysis, high-level assessments and trade-off studies to determine the likely key components of a potential mine development:
· mine design and mining method – underground mine utilising long-hole open stoping;
· production rate – c. 2 million tonnes per annum for 7 years from the maiden resource and, of course, longer from any additional resource added by the next stage of drilling;
· initial capital expenditure in the order of c.$222 million and, at August 2020 metal prices, annual net revenue in the order of c.$150 million for net operating cash flow of c.$70 million p.a.;
· processing flowsheet – two-stage flotation to produce separate copper and zinc concentrates, with a cyanide leach circuit allowing the production of gold dore from the zinc concentrate and tailings stream; and
· tailing storage facility and required project infrastructure.
Next Steps
Following completion of the PEA, the priorities to advance Hawiah towards development are:
· seeking to double the maiden Mineral Resource through the next drilling phase;
· undertake a metallurgical testwork programme;
· undertake an Environmental and Social Impact Assessment baseline and water resources study;
· report updated PEA results as progress is made, culminating in updates to the PEA financial model prior to commencing a PFS study for a long-life mining operation; and
· extend exploration activities into the surrounding district as licencing warrants.
Background
Hawiah is located within the Wadi Bidah Mineral District (“WBMD”) in the southwest of the Arabian Shield. The WBMD is a 120-kilometre-long belt which hosts over 20 Volcanogenic Massive Sulphide (“VMS”) known occurrences and historic workings for copper and gold.
G&M commenced drilling at Hawiah in September 2019 and quickly confirmed that large-scale VMS style of mineralisation underlies the gossanous ridgeline at surface.
The Hawiah deposit contains three weathering domains: oxide, transitional and fresh. The oxide domain typically shows supergene gold enrichment with minor secondary copper, while certain parts of the transitional domain shows copper enrichment. The fresh mineralised domain appears to be a dominantly pyritic stratiform massive sulphide body containing variable amounts of copper, zinc gold and silver.
Independent consultant SRK Consulting (UK) Ltd (“SRK”) was commissioned by the Company to prepare a Mineral Resource Estimate (“MRE”) for Hawiah. The maiden MRE totals 19.3Mt at 0.9% copper, 0.8% zinc, 0.6g/t gold and 10.3g/t silver as summarised in the table below, all reported in the Inferred category.
August 2020 Hawiah Mineral Resource
| Material | Tonnes | Grade | Metal Content | ||||||
| Type | (Mt) | Cu | Zn | Au | Ag | Cu | Zn | Au | Ag |
| (%) | (%) | (g/t) | (g/t) | (kt) | (kt) | (koz) | (koz) | ||
| Oxide | 0.1 | 0.1 | 0.03 | 1.7 | 3.9 | 0.1 | 0.04 | 7 | 16 |
| Transitional | 2 | 1.1 | 0.8 | 0.7 | 12 | 21 | 16 | 45 | 763 |
| Fresh | 17.2 | 0.9 | 0.8 | 0.5 | 10.1 | 147 | 141 | 297 | 5,595 |
| Total | 19.3 | 0.9 | 0.8 | 0.6 | 10.3 | 168 | 157 | 349 | 6,373 |
Note: For further information, see KEFI announcement “Maiden Hawiah Resource” dated 19 August 2020.
The MRE is based on 12,027 metres of diamond drilling completed since September 2019 and is reported in accordance with the Australasian Code for the Reporting of Exploration Targets, Mineral Resources and Ore Reserves, The JORC Code (2012).
The MRE is based on the tabular massive sulphide deposit which has now been confirmed by drilling to extend more than 4km along strike and drilled to maximum depth of only 350 metres below surface. The copper-zinc-gold-silver mineralisation remains open at depth where elevated copper and gold grades have been intersected.
The current drill spacing on the Camp and Crossroads Lodes is approximately 120 to 140 metres with only a few short scout holes have been drilled into the Central Area.
Exploration potential remains significant at depth below all areas. The down-dip continuation of Camp Lode is of particular interest with the deepest two holes, HWD_005 returning 1.27% copper over a true width of 9 metres and HWD_059 returning 1.55% copper over a true width of 8.7 metres.
Plans for the next phase of the drill programme are focused particularly on the potential extensions of the Camp Lode where drilling results to date have reported grade and thickness increasing significantly at depth. If copper-zinc-gold-silver mineralisation is intercepted in line with expectations this would extend mineralisation to a depth of ~800m vertical depth (“VD”). The increase in copper grade with depth at Camp Lode is particularly exciting, as it may indicate that resources are nearing the source (vent) of the VMS system, an area where higher grade copper mineralisation is typically found.
Further strong resource potential is located below the Central Zone as highlighted by a strong IP/Rho geophysical anomaly. Planned drilling is targeting deeper mineralisation at ~450 metres VD. The Central Zone has only previously tested to 80 metres VD.
Metallurgical testwork has not yet been completed for the Hawiah Project. Based on geological observations, petrographic assessment and similar deposit types/styles located within Saudi Arabia, the conceptual process flowsheet in the PEA includes two-stage flotation to produce separate copper and zinc concentrates, gold recovery by cyanidation of zinc concentrate and flotation tailings.
The Hawiah deposit is suited to underground mining utilising long-hole open stoping with rib and sill pillars for support. External dilution and mining losses (“mining modifying factors”) have been assumed for the PEA and applied to the mineral inventory considered for underground mining.
All-in Sustaining Costs (“AISC”) associated with underground mining, processing and general & administrative (“G&A”) at Hawiah were estimated (based on initial benchmarking) to be $43/tonne for a 2 million tonne per annum operation. Based on limited overall sensitivity of the mining inventory to the Net Smelter Return (“NSR”), a base-case NSR cut-off value of $50/tonne was used to delineate the grade and tonnage in the preliminary mining schedule.
Components of PEA Operating Costs
| $ / Tonne of Ore Processed | |
| Mining | $18 |
| Processing | $13 |
| G&A | $8 |
| Cash Operating Cost | $39 |
| Sustaining Capex | $4 |
| All-in Sustaining Cost | $43 |
Note: Freight charges of $113/tonne of concentrate are netted off of revenue.
For the purposes of the PEA, the base case Run-of-Mine (“RoM”) mineral inventory was estimated to be 13.8Mt at 0.87% copper, 0.78% zinc, 0.53g/t gold and 9.9g/t silver at a NSR cut-off of US$50/tonne. Sensitivities undertaken on the NSR cut-off value have demonstrated that a relatively high proportion of the maiden Inferred (underground) Mineral Resource of 19.3Mt remains potentially feasible to underground mining after application of long-term metal prices and appropriate mining modifying factors.
The PEA RoM Mineral Inventory represents an early-stage target for development of an Ore Reserve; however, additional drilling and sampling and more detailed, site-specific multi-discipline technical work including a PFS is required to support an Ore Reserve.
Components of PEA Revenue
| Copper | Zinc | Gold | Silver | |
| August 2020 Prices | $6,603/t | $2,315/t | $1,956/oz | $27.5/oz |
| RoM Grade | 0.87% | 0.78% | 0.53g/t | 9.9g/t |
| Overall Recoveries | 87% | 85% | 69% | 69% |
| Metal in Concentrate and Dore | 17ktpa | 13ktpa | 23koz | 436koz |
| Payable Metal | 95.5% | 85% | 90% | 90% |
| Annual Net Revenue | $79m p.a. | $20m p.a. | $44m p.a. | $11m p.a. |
| % of Total Revenue | 52% | 13% | 28% | 7% |
Note: Payable metal percentages are for copper concentrate except zinc in the zinc concentrate. Revenue is based on processing 2Mtpa of ore ($50/tonne NSR Cut-off) and is net of freight charges of $113/tonne of concentrate and typical treatment and refining charges.
Summary of PEA Economics (Base case, August 2020 metal prices)
| Ore Processing Rate | 2.0Mtpa |
| Life of Mine | 7 years |
| Average Operating Costs – Annual | $79m p.a. |
| Revenue – Annual | $153m p.a. |
| Average All-in Sustaining Costs – Annual | $85m p.a. |
| Steady-State Net Free Cash Flow – Annual, pre-tax | $67m p.a. |
| After-tax NPV (8% discount rate) | $96m |
| After-tax IRR | 22% |
| Pre-production Capital Expenditure | $222m |
At this early stage , the potential NPV impact of extending the mine life by adding tonnes to the mining inventory is the key sensitivity to Project economics. As an illustration, the scenario of adding an additional 20Mt at the average grade of the Camp Lode below the 1070m RL elevation is estimated to increase the estimated after-tax NPV from $96 million to $362 million and lifts the unleveraged IRR from 22% to 28% at an 8% discount rate at the same August 2020 prices. The extra mine life would be expected to allow 75% project debt finance and elevate the IRR to over 50% on a leveraged after-tax basis.
However, there is no certainty that the PEA will be realised. Whilst assumptions as regards metallurgical recoveries are based on similar nearby projects, no level of accuracy can be placed on the metallurgical assumptions used at this time pending testing and confirmation. And whilst all estimates are considered “most likely estimates”, the level of accuracy associated with the internal PEA study, in terms of operating and capital cost estimates, is typically +/- 50% accuracy.
VMS Deposits
VMS deposits are major sources of copper-lead-zinc-gold-silver ore bodies. Examples of recent discoveries and developments of large VMS deposits in the Arabian-Nubian Shield include:
· Eritrea – Bisha (Nevsun/Zijin) and Asmara (Sichuan Road and Bridge Mining Investment Development) deposits;
· Sudan – Hassaii (Ariab) deposits; and
· Saudi Arabia – Jabal Sayid (Barrick and Ma’aden) and Al Masane (Al Kobra Mining) deposits.
The Hawiah EL and surrounding under-explored WBMD are considered to be very prospective for copper-gold VMS deposits.
VMS systems often include high-grade, smaller tonnage style of metal deposits, which can make very attractive opportunities for rapid and economically attractive development.
Note: All $ figures refer to US$
Cautionary Statement Regarding Preliminary Nature of the PEA
Readers are cautioned that the PEA summarized in this press release is preliminary in nature and is intended to provide an initial, high-level review of the project’s economic potential and design options. The PEA mine plan and economic model includes numerous assumptions and the use of Indicated and Inferred Resources. Indicated and Inferred Resources are considered to be too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves and as such, there is no certainty that the PEA will be realized. Actual results may vary, perhaps materially. The projections, forecasts and estimates presented in the PEA constitute forward-looking statements and readers are urged not to place undue reliance on such forward-looking statements. Additional cautionary and forward-looking statement information is detailed at the end of this news release.
