KEFI Minerals (AIM: KEFI), the gold exploration and development company with projects in the Federal Democratic Republic of Ethiopia and the Kingdom of Saudi Arabia, provides 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 January 2020 to 31 March 2020 ("Q1"), together with more recent developments where appropriate.
Any material events have already been reported in separate announcements, which are referred to below.
Key business targets preserved, COVID-19 procedures implemented and costs minimised
KEFI adjusted its modus operandi due to COVID-19 and remains focused on the key targets set out in February 2020. These are to:
o allow major site activities to start for the Company's Tulu Kapi Gold Project (the "Project" or "Tulu Kapi") in Ethiopia from October 2020; and
o to deliver a maiden Mineral Resource for the Hawiah Project in Saudi Arabia in mid-2020.
KEFI working capital requirements reduced
KEFI has reduced its short-term expenditure to reflect the current environment by:
o Adjusting parts of the TKGM budget, whilst preserving key business targets;
o Diluting from 38% to 34% of Saudi joint-venture company Gold and Minerals Limited ("G&M") by not contributing its pro rata share of expenses to G&M in H1 2020. Given the positive results seen to date from the current drilling programme, KEFI expects to fund its pro rata share going forward;
o A decision by the KEFI Board and senior executives not to draw any salaries in the year to date whilst plans were reviewed and adjusted in light of the pandemic; and
o Ongoing salary reductions by senior management of 25% from 1 January 2020, pending progress reviews.
Corporate Funding secured to offset delayed Project-level funding
As announced on 11 May 2020, KEFI arranged an equity placing ("Placing") for £3.7 million (gross) to maintain Project preparations despite the challenges created by COVID-19, including the delays in Project-level equity funding from the Ethiopian private sector.
The Placing was priced a 12.6% discount to KEFI's VWAP for the three days preceding commencement of the book-build and, assuming the resolutions are passed at the forthcoming General Meeting of the Company, to be held on 28 May 2020, establishes long-standing shareholder RAB Capital as a substantial shareholder who has been granted the right to appoint a Director to the Board of the Company.
The Placing protects KEFI's solvency and allows the key business milestones to be achieved in order to maximise KEFI shareholder value. The Directors are seeking to close the gap between the Company's market capitalisation and the significantly higher intrinsic valuations of the Company's projects. For example, KEFI's share of Tulu Kapi's NPV* at the current gold price of US$1,700/oz, equating to £163 million, according to the Company's financial model prepared by its project finance adviser, is approximately 11 times the Company's current market capitalisation at yesterday's share price based on the proposed expanded issued capital.
The spot gold price also now sits at more than US$600/oz higher than our Ore Reserves assumption of US$1,098/oz and US$400/oz higher than our base case assumption of US$1,300/oz used for financing plans. This reinforces the attractiveness of the Project and a range of illustrative NPV's was set out in the Company's announcement of 24 April 2020.
The Company encourages investment in Company shares by the Board and Senior Management. They have, in aggregate, invested more into Company shares since KEFI took control of the Project in 2014 than they have, in aggregate, received as cash remuneration.
*Tulu Kapi's NPV is based on the Definitive Feasibility Study or DFS-based NPV of the open pit added to that of the PEA-based NPV of the underground project, on after-debt net after-tax cash flows discounted at 8% to today, for KEFI's planned 45% beneficial interest (being 80% of KEFI Minerals Ethiopia which is planned to own 56% of TKGM).
Ethiopia's Tulu Kapi Gold Project
The Placing proceeds will provide the Company with the funds to enable the closing of the c.US$260 million project financing of the Company's Tulu Kapi Gold Project. This includes the anticipated initial closing of the Project level equity in Q2 2020, along with that of the identified debt funding in October 2020, which was set out in the Company's announcement on 24 April 2020 and included details of support for the local investors available from the Ethiopian Government if required. The start of full gold production at Tulu Kapi remains targeted for 2022.
Saudi Arabia's Hawiah copper-gold-zinc-silver exploration prospect
As announced on 27 February 2020, G&M has made a significant discovery of a copper-gold VMS (Volcanogenic Massive Sulphide). Drilling continues at Hawiah and the current phase will be completed this month. The results will then be assessed with a view to reporting a maiden Mineral Resource in mid-2020 and conducing a Preliminary Economic Assessment.
Harry Anagnostaras Adams, Chairman of KEFI Minerals commented:
"The current gold price has highlighted the strong investment case for Tulu Kapi to both investors and the Ethiopian Government. The outlook is for the gold price to continue to increase as interest rates remain near zero and COVID-19 responses increase government debt to unprecedented levels.
"The Tulu Kapi consortium is focused on closing the full Project financing in October 2020. Tulu Kapi is the first modern mine development in Ethiopia for decades and we could not ask for a more committed community and Government. This Project is a national priority and will be the largest single export generator for Africa's highest growth country.
"We are also encouraged by the results to date of our ongoing drilling programme in Saudi Arabia, which has encountered drill intercept grades of up to 5% copper-equivalent this year. KEFI is targeting a maiden JORC resource for Hawiah in mid-2020 following the completion of the current drilling programme."