KEFI Gold and Copper plc (LON:KEFI), the gold exploration and development company with projects in the Democratic Republic of Ethiopia and the Kingdom of Saudi Arabia, has announced its unaudited interim results for the six months ended 30 June 2022.
The interim results for the Group encompass 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.
The Tulu Kapi Gold Project (“Tulu Kapi”) is under TKGM (planned to be c.70% owned by KEFI). The Hawiah Copper-Gold Project (“Hawiah”), the Jibal Qutman Gold Project (“Jibal Qutman”) and other Saudi projects are under G&M (planned to be c.30% owned by KEFI). Both TKGM and G&M are technically and financially supported by KEFI so that each operating company can build a local organisation that is suitable to manage long term production activities, further exploration activities and exploit future development opportunities.
Executive Chairman’s Statement
Overview
The improvement in the local working environment in both Ethiopia (security) and Saudi Arabia (regulatory) since late 2021 has allowed KEFI to make rapid progress during the period in both jurisdictions. KEFI now has a much-improved position as an early-mover in both countries and with a more balanced portfolio of advancing projects.
The Company now has three advanced projects in two countries which places it in a lower risk position than in prior years. KEFI has also de-risked its balance sheet by raising £8 million of equity in April 2022 to repay all outstanding liabilities and reinforce the momentum of its projects.
Tulu Kapi Gold Project, Ethiopia
No other mining project of this scale in Ethiopia has been brought to Tulu Kapi’s stage of advancement in recent years and it will be the first industrial scale mine development in the country in over 30 years. It has taken some years to complete an extensive technical re-design of the project, overhaul financial policies by the Ethiopian authorities which hindered mining project finance and the patient and cautious traversing by the Company of recent well-publicised events within the country. The project has imposed many demands on a regulatory system which the Ethiopian Government continues to upgrade, determined to build a modern minerals sector.
During the first half of 2022 TKGM continued its project launch preparations and has regularly formally advised the Ethiopian Ministry of Mines of its progress and of the tasks outstanding to ensure joint collaborative focus. The focus has been maintained on full project launch later this year, pre-conditioned on the security situation being independently assessed as project-ready and the few remaining regulatory administrative tasks being completed.
In collaboration with the regulatory agencies at all four levels of the Ethiopian Government, notable progress during the period included:
· triggered detailed engineering – minimising procurement and construction time;
· undertaking regular security monitoring;
· initial community youth employment programmes being established which support the project, such as those covering road maintenance and expansion of revegetation nurseries;
· the Ministry of Mines has now audited and endorsed the historical project costs incurred up to 2020 of c.US$80 million and can now report this to the Ethiopian central bank; and
· the central bank has now permitted that both development banks be allowed to lend on the same terms and formal ratification is awaited from the Government of remaining detail.
On the 30 June 2022 the TKGM project finance syndicate signed a funding ‘Umbrella Agreement’. The Umbrella Agreement sets out the role and contribution of each finance syndicate member in relation to the Tulu Kapi Gold Project and, whilst reflecting the conditionality of the plan and intended flexibility within the syndicate, it sets out a full funding package, covering historical and budgeted future expenditure.
Tulu Kapi District Exploration
KEFI remains keen to re-commence its exploration of the additional prospects it has successfully identified within the Tulu Kapi district exploration area from within which the mining licence was duly excised because of the successful discovery of the Tulu Kapi deposit. Whilst most historical drilling was naturally of the Tulu Kapi deposit, there was significant work done on many further prospects which await follow-up.
Whilst awaiting regulatory permission to re-activate the Company’s Ethiopian exploration, which is critical for long term planning for all stakeholders in the community as well as the Company, the exploration focus has been successfully switched to Saudi Arabia.
G&M, Saudi Arabia
G&M, rapidly becoming a leading explorer/developer/producer in the fast-emerging Saudi minerals sector, has built the largest exploration team in the country and has two major projects advancing towards development, one in Preliminary Feasibility Study stage and one in Definitive Feasibility Study stage. This has coincided with the Saudi Government’s widely publicised recent initiatives to welcome international expertise and fast-track the development of its mining sector. G&M is focused on the development of the Hawiah Copper-Gold Project, with an existing JORC resource of 24.9Mt at 0.9% copper, 0.85% zinc, 0.62 g/t gold and 9.81 g/t silver, and Jibal Qutman, where the initially contemplated development project has been enlarged and is now seen as a + 500,000 oz production plan for extraction over 10 years based on a conventional open pit/CIL (Carbon-in-Leach process).
Exploration teams are also mobilising to the recently awarded exploration projects, namely the Jabal Hillit and Qunnah ‘Al Qassim’ exploration licences (straddling the prospective Ad Dawadimi and Afif terranes in the eastern portion of the Arabian Shield in Saudi Arabia), and the Jadib Al Qahtanah exploration licence, 45km east of the Mahad Ad Dahab mine, the principal historic Saudi gold and silver mine.
Going forward the Company’s Saudi assets are expected to have shorter approval, financing and development schedules given there is no need to resettle communities, less restrictive security protocols and established capital markets and funding options.
Hawiah
Hawiah was discovered in September 2019 and now ranks in the:
· top three base metal projects in Saudi Arabia; and
· top 15% VMS projects worldwide.
A three-year 42,000m drilling programme has delineated a Mineral Resource of 24.9 million tonnes at 0.90% copper, 0.85% zinc, 0.62g/t gold and 9.8g/t silver.
Work at the Hawiah Project (including its adjacent recently granted Al Godeyer exploration licences) continued during the first half of 2022, focusing on providing inputs across all required fronts for the updated Mineral Resource Estimate and Hawiah Preliminary Feasibility Study (“PFS”), also scheduled for completion by end of 2022.
The ongoing drilling at Hawiah is expected to yield increased resources and its mineral resources, in gold-equivalent terms, are already approximately those of Tulu Kapi and Jibal Qutman combined before any further resource uplift.
Jibal Qutman
G&M has received formal notification from the Saudi Arabian Ministry of Industry and Mineral Resources (“MIM”) that land access issues which halted the mine development application in 2016 are now resolved, clearing the way for the re-issuance of exploration licences (“ELs”) as a precursor to the granting of the Jibal Qutman mining licence. Two of the three ELs have already been received post period end. The DFS is being prepared on production of c. 500,000 oz over 10 years as compared with the original Preliminary Economic Assessmen based on c. 200,000 oz.
Additional Licences
G&M’s exploration areas are being expanded in Saudi Arabia where the newly overhauled regulatory regime is speeding up progress. Two further exploration licences have now been awarded to G&M on an initial five-year term, bringing the total number of exploration licence issued to nine covering a total area of 634km2.
Summary
The first half of 2022 was one of considerable progress for the Company and its projects, progress that has continued post period end. We are on track to achieve the following milestones in Q4 2022: in Ethiopia for financial close and the launch of construction of our Tulu Kapi Gold Project and in Saudi Arabia our larger Hawiah Copper-Gold Project to deliver its PFS. We are also expecting progress to continue at Jibal Qutman in Saudi Arabia, where the DFS, mining licence and financing work is being fast-tracked ahead of planned launch in 2023. Finally, we have been granted two new promising gold exploration licenses to add to our portfolio.
KEFI is now better positioned than it has ever been with the improvement in the local working environment in both Ethiopia and Saudi Arabia allowing us to focus on our goals. The successful launch of Tulu Kapi and then Jibal Qutman within the following six months or so, should see first gold pour for both at the end of 2024. These two projects, plus the Hawiah project lined up for sequential construction schedules is intended to lead to combined production of c.400,000 oz gold or gold-equivalent per annum by 2026. This ignores upside from exploration results adding to the resource position at the end of 2021. In addition, we have exciting earlier-stage exploration projects which can be addressed concurrently.
We are at the beginning of an exciting chapter for both our joint-venture partnerships.
Executive Chairman
Harry Anagnostaras-Adams
28 September 2022
Finance Director’s Review
During the period under review KEFI has de-risked its balance sheet by raising £8 million in equity funding to repay all outstanding liabilities as at the end of the last financial year and provide additional working capital for its projects.
In June 2022, an umbrella financing agreement and its associated documentation for the Tulu Kapi project was signed by all project participants. This agreement has successfully guided activities since and is now leading to the syndicate commitment of the full project finance package at the end of October 2022, with planned escalation of activities and unconditional financial commitments as the remaining conditions precedent are satisfied over subsequent weeks – which is normal practice for a transaction of this nature. In parallel, the recent grant of two of the three exploration licences for the Jibal Qutman in Saudi Arabia has led us to upscale the DFS-completion and financing sequence in Saudi. We want these two gold projects in production by the end of 2024.
KEFI has funded all its past activities with approximately £72 million equity capital raised at then prevailing share market prices. This avoided the superimposing of debt-repayment risk onto the risks of exploration, permitting and other challenges that always exist during the early phases of project exploration and development in frontier markets. We do, however, avail ourselves of unsecured advances from time to time as arranged by our Corporate Broker to provide working capital pending the achievement of a short-term business milestone.
We also continue our conservative accounting policy of writing off most expenditure – 100% of expenditure in Saudi Arabia and much of Ethiopia. KEFI’s carrying value of the investment in KME, which holds the Company’s share of Tulu Kapi, is only £14.3 million as at 31 December 2021.
Measuring the Company’s underlying assets on an NPV basis, has resulted in the indicative NPV of its three main assets of £306 Million¹. The basis for these estimates is consensus long-term price forecasts and other explanations provided in the footnotes below. KEFI’s planned beneficial interest in the underlying valuation of our Saudi Arabia projects (carried at Nil in our accounts) is now approaching that of the Ethiopian Tulu Kapi Gold Project ($140 million being 73% of $193 million).
¹The NPV calculations are based on Long term analysts’ consensus forecasts is sourced from CIBC Global Mining Group Analyst Consensus Long Term Commodity Price Forecasts 6 September 2022 as applied to our inhouse modelling: The Metal prices are US$1,650/ounce for gold, $7,898/tonne for copper, $2,508/tonne for zinc and $21.4/ounce for silver; and 8% discount rate applied against net cash flow to equity, after debt service and after tax. KEFI NPV is based on a c.70% planned interest in Tulu Kapi open pit and underground and 30% interest in Hawiah and Jibal Qutman open pit and underground where applicable. Significant updates are expected for all projects as resources and feasibility studies are updated.
The balance sheet at full closing of all project funding for the different projects will start to scale-up as we will then capitalise the development expenditures
John Leach
Finance Director
28 September 2022
Quarterly Webinar
The Company will host its next quarterly investor webinar in London in late October 2022, the details of which will be announced in due course.
