KEFI Minerals update Tulu Kapi gold project plans with reduced capex

KEFI Minerals plc (LON:KEFI), the gold exploration and development company with projects in the Democratic Republic of Ethiopia and the Kingdom of Saudi Arabia, has now provided an update regarding the Company’s Tulu Kapi Gold Project and its progress towards the goals of closing full Project funding in October 2020 and for gold production to commence in 2022.

Harry Anagnostaras-Adams, Executive Chairman of KEFI Minerals, commented: “I am pleased to report that development and financing activities have been adjusted following recent operational and global events, and plans remain on schedule for project finance closure in October 2020, acceleration of construction in 2021 and gold production in 2022.

“After inputs from all Project contractors, last week TKGM has now signed off all capital expenditure, operating and financing requirements as the final 2020 Tulu Kapi Plan. These detailed and comprehensive Project updates and revisions were within expectations and show a reduced overall Project funding requirement.

“The senior secured financiers are fully engaged in achieving our timetable and the final details of the finance plan await confirmation of the level of commitment from Ethiopian institutional investors, which we still expect will be clarified later this month.”

The following highlights the Project activities since the release of the last update on 24 April 2020.

Project Development Activities Continuing

As previously reported, despite COVID-19, the implementation of the Project development activities has continued as planned:

Infrastructure for connection of roads & power and security upgrade:

·   This long-lead activity is on schedule, so that it does not hold up on-site construction over the next two years when new roads and electricity are required.

·    Road now being built into new host lands for Tulu Kapi residents to be resettled.

·    Security has been significantly expanded in the Mine License Area and surrounding district.

Infrastructure for ore processing:

·  Process plant Front-End-Engineering-and-Design (“FEED”) was completed by principal contractors Lycopodium Limited (“Lycopodium”), after updating pricing from the plant fabricators and integrating the results of recent geotechnical drilling in final designs of foundations for plant and dams.

Capital Requirements

·    The 2020 Tulu Kapi Plan shows total funding needs of c US$221 million, which is US$21 million less than reported in the 2018 KEFI Annual Report of US$242 million:

·    Over the past 12 months:

o  Estimated capital expenditure for infrastructure has generally moved within the range of plus or minus 5% as refinements were considered and procurement markets varied with exchange rates, recent COVID-19 impacts and other factors.

o Estimated capital expenditure on Owner’s Costs and Interest during construction and Other Finance Effects have fluctuated, with a net material overall saving despite some costs having increased, as follows:

– certain Owners’ Costs increased by US$4 million, namely:

·    financial compensation allocations for the community, due to the introduction of more generous regulations, and

·    a larger provision for the costs of training and other operational readiness preparations.

– However, this is being more than offset by:

·    significant savings by changing the mix of the proposed funding sources and in particular utilizing a more traditional project financing approach (see Project Finance Plan below for explanation).

Project Finance Plan:

The updated Project finance plans are compared below with the estimates of 12 months ago.

The material changes over the past 12 months are summarised as follows:

1.    Total funding needs are c. US$21 million lower, now estimated at US$221 million;

2.    The revised senior secured portion of US$110 million reflects that in late 2019, KEFI announced that it had selected a bank-loan based project financing proposal. The Company can today advise the selected proposal was from Eastern and Southern African Trade and Development Bank (“TDB”) and Africa Finance Corporation (“AFC”), two leading African development finance institutions as underwriters and co-lenders.  The loan-based proposal is preferred over the previously considered Bond based financing and the revised senior secured portion of the funding reflects this change. A term sheet was signed, subject to the banks’ internal credit approval processes. Subsequently, key provisions which required regulatory review for foreign loans have received approvals from the Ethiopian central bank.

3.    The revised project level equity of US$111 million (including subordinated debt and offtake facilities) reflects the following:

a.  The expected contributions by the Ethiopian Government of US$20 million, other Ethiopian investors of up to US$38 million, working capital facilities of US$28 million and by KEFI Minerals (Ethiopia) Ltd (“KME”) of US$10 million (which is already being invested and the balance to be sourced from the proposed facilities). Also, the final structure will look to source some offtake-linked subordinated facilities for the balance of funds required depending upon the final participation confirmed from Ethiopian institutions.

b.   Some expenditure has already started and been funded by the existing Tulu Kapi Gold Mines Share Company (“TKGM”) partners (the Government and KME) on long-lead development activities, such as:

i.  US$20 million (Ethiopian Birr-equivalent) Government-funded infrastructure for connection of roads & power; and

ii. KEFI-funded completed FEED for infrastructure for ore processing and for other activities such as community preparations;

c.    The various parties are confidentially engaging to finalise the structure with TKGM and with the approval of the senior secured financiers, for their participation in the companies below KEFI. These parties include local institutions and international mining-experienced investors and offtake specialists.