TIDMKEFI
RNS Number : 0145V
KEFI Minerals plc
31 October 2017
31 October 2017
KEFI Minerals plc
("KEFI" or the "Company")
Tulu Kapi Gold Project - PROJECTIONS FOR EXPANDED PRODUCTION
Incorporating refinements since the 2017 Update Definitive
Feasibility Study
KEFI Minerals (AIM: KEFI), the gold exploration and development
company with projects in the Kingdom of Saudi Arabia and the
Federal Democratic Republic of Ethiopia, is pleased to announce
updated financial projections reflecting the recently announced
plans to expand production. In the meantime, we continue to prepare
for finance closing with mandated financier Oryx Management Limited
("Oryx") and the other consortium members the Government of
Ethiopia, Ausdrill and Lycopodium.
Production plans have been re-cast and the average annual gold
production in years 1-3 is estimated to expand from c. 115,000
ounces to c. 145,000 ounces per annum. At a flat $1,250/oz gold
price, the payback period is about 3 years. This forecast is
derived by management in consultation with its advisers and will
continue to be refined as we approach start-up, during the 2018
operational readiness phase along with detailed engineering and
procurement.
Set out below are comparisons with the key outputs of the 2015
Definitive Feasibility Study ("DFS") and the 2017 DFS Update which
were on an unleveraged basis. The latest estimates build in the
impact of the planned finance structure and its leverage,
reflecting the specifics of the Oryx detailed Heads of Terms (see
announcement 17 July 2017). The latest estimates also reflect the
strategy agreed with Oryx to install greater processing capacity
from the outset with a view to achieving:
a) quicker cash flow from the open pit and capacity to process
additional ore from targeted satellite deposits, and
b) greater protection against downside risks by facilitating
faster processing of lower grade ore from the open pit.
Key planning assumptions which have been introduced since the
2017 DFS Update include:
-- Plant expanded from 1.5-1.7Mtpa to 1.9-2.1Mtpa, depending
on the hardness of the ore.
-- Refining the Engineering, Procurement and Construction ("EPC")
contract into a hybrid of EPC and an Engineering, Procurement
and Construction Management ("EPCM") contract whereby the
client has the protection of certain performance guarantees,
along with the transparency of open-book access to all costs
along with tighter alignment with owner-management via incentivised
target schedule and cost for the contractor (Lycopodium).
This style is also preferred by Oryx's Finance SPV, which
will own the plant and lease it to KEFI's project company.
-- The additional c. $12 million funding required for plant
and infrastructure expansion has been offset by expected
savings of capital expenditure and by Oryx offering to expand
its facility from US$135 million to US$140 million.
-- Mine plans re-cast to allow faster mining, intensified grade-control
drilling and enhanced flexibility to switch between bulk
mining and selective mining as most appropriate.
KEFI's Executive Chairman, Mr Harry Anagnostaras-Adams,
said:
"The Tulu Kapi Gold Project consortium is implementing its
finance closing procedures and the refined financial projections
announced today reflect recently resolved expansion plans.
"Projected annual gold production has been expanded from
approximately 115,000 ounces to 144,000 ounces per annum for the
first three years. Measures of return have improved accordingly and
indicate significant targeted value up-lift for shareholders under
any modelled scenario."
Key Points of the Tulu Kapi Expansion Plan (100% of Tulu Kapi
Gold Project - Open Pit only)
2017 2Mt 2017 2015 DFS
Expansion DFS Update
Leveraged Unleveraged Unleveraged
------------------------------ ------------ ------------- -------------
Average head grade 2.1g/t 2.1g/t 2.1g/t
gold gold gold
------------------------------ ------------ ------------- -------------
Total gold production 980K oz 980K 961K oz
oz
------------------------------ ------------ ------------- -------------
Ore processing rate 1.9-2.1Mtpa 1.5-1.7Mtpa 1.2Mtpa
------------------------------ ------------ ------------- -------------
Annual gold production (1st 144K oz 115K 98K oz
3 years) pa oz pa pa
------------------------------ ------------ ------------- -------------
Cash Operating Costs US$685/oz US$684/oz US$661/oz
------------------------------ ------------ ------------- -------------
All-in Sustaining Costs US$773/oz US$777/oz US$780/oz
(excluding initial capex
& debt service)
------------------------------ ------------ ------------- -------------
All-in Costs (excluding US$948/oz US$933/oz US$906/oz
debt service)
------------------------------ ------------ ------------- -------------
All-in Costs (including US$1,051/oz N.A N.A
debt service)
------------------------------ ------------ ------------- -------------
IRR 60% 22% 28%
------------------------------ ------------ ------------- -------------
NPV at start of construction US$74M US$97M US$125M
(8% real after tax discount
rate)
------------------------------ ------------ ------------- -------------
NPV at start of production US$131M US$272M US$256M
(8% real after tax discount
rate)
------------------------------ ------------ ------------- -------------
Payback 3 years 3 years 2.5 years
------------------------------ ------------ ------------- -------------
Net Operating Cash Flow US$74M US$62M US$50M
(same as EBITDA) p.a. p.a. p.a.
(average for first 3 years)
------------------------------ ------------ ------------- -------------
The economic metrics tabulated above are for contract mining of
the open pit only, based on a gold price of US$1,250/ounce flat
over life-of-mine and are on an after-tax basis.
-- Summary: since assuming control of the Project
in 2014, KEFI has continually improved its
outlook based on plans developed with leading
industry specialists. The improvements announced
today have the effect of reducing operational
and financial risks as well as increasing
potential returns.
-- All-in Sustaining Costs: estimates remain
relatively unchanged at c. US$800/oz despite
the faster-track mining and processing,
because of an assumption (pending more detailed
work during the operational readiness phase
in 2018) of higher unit costs for mining
(increased grade-control drilling). All-in
sustaining costs includes all operating
costs, royalties, sustaining capital and
closure costs, but excludes initial capital,
financing costs and income taxes. This ranks
Tulu Kapi in the best (lowest) quartile
of gold producers globally.
-- All-in costs (excluding debt service): estimates
remain relatively unchanged at c. US$930/oz
for the reasons set out above as regards
All-in Sustaining Costs. All-in costs also
includes all initial capital expenditure.
This measure also ranks Tulu Kapi in the
best (lowest) quartile of gold producers
globally.
-- Net operating cash flow for first 3 years:
increased to US$74M p.a., from US$62M p.a.
in the 2017 DFS Update.
-- Project IRR: IRR has increased materially
from 22% (unleveraged) to 60% (leveraged).
-- Project NPV (leveraged after tax): the Open
Pit NPV estimates c. $74 million at start
of construction and of c. US$131 million
at start of production indicate material
value up-lift for current and new equity
investors. If one adds a risk-adjusted 50%
of the NPV for the underground project (based
on Preliminary Economic Assessment), it
adds in the order of US$20 million to the
NPV i.e. US$94 million at start of construction
and US$151 million at start of production.
-- Project funding requirements: KEFI's planned
project structure involves the following
funding components for all but a residual
amount which remains in the order of US$20
million:
o funding of mining equipment by Ausdrill
as part of the proposed mine services
agreement whereby they receive payment
per tonne of material mined.
o off-site infrastructure funded by the
Government of Ethiopia, for project
level equity
o funding of on-site infrastructure by
Oryx (for debt-style returns along with
a potential gold-linked extra interest
that has the potential to elevate its
returns from the coupon of c. 8% to
a potential 15% at a gold price of US$1,700/oz
throughout the repayment term). Yield
to maturity would be c. 10% if gold
does not exceed US$1,100/oz and it rises
proportionately up to c. 15% at a gold
price of US$1,700/oz.
-- Residual funding requirement: consistent
with KEFI's recent guidance, the residual
requirement is c. US$20M to be raised preferably
at project level (Tulu Kapi Gold Mines Share
Company Limited, "TKGM") or intermediate
company level (KEFI Minerals (Ethiopia)
Limited, "KME"). The financial forecasts
reported herein also reaffirm that the transaction
is expected to be materially value-enhancing
for current and new equity investors regardless
of how the equity investment is structured.
-- Financial sensitivity testing: has been
conducted, the principal conclusions being
that:
o On the upside, as a small indicator
of the leverage being targeted by KEFI:
-- A gold price of US1,400/oz or a throughput
lift of 10% pa lift Project IRR rises
to c. 80% and the potential value-lift
for existing and new equity investors
is lifted commensurately.
o On the downside, as a stress test:
-- all financial commitments are well
covered even:
-- at a flat gold price of US$1,100/oz
for the next 10 years, or
-- if bulk mining is utilised exclusively
without any reliance on the planned
application of targeted limited
selective mining. This would result
in the head grade being only 1.7g/t
instead of 2.1g/t gold
-- NPV and other valuation measures
show value-lift for current and new
equity investors even under these
downside cases.
Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have
been deemed inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 until the release of this
announcement.
ENQUIRIES
KEFI Minerals plc
Harry Anagnostaras-Adams (Executive
Chairman) +357 99457843
John Leach (Finance Director) +357 99208130
SP Angel Corporate Finance
LLP (Nominated Adviser)
Ewan Leggat, Jeff Keating +44 20 3470 0470
Brandon Hill Capital Ltd (Joint
Broker)
Oliver Stansfield, Alex Walker,
Jonathan Evans +44 20 7936 5200
RFC Ambrian Ltd (Joint Broker)
Jonathan Williams +44 20 3440 6817
Beaufort Securities Ltd (Joint
Broker)
Elliot Hance +44 20 7382 8300
IFC Advisory Ltd (Financial
PR and IR)
Tim Metcalfe, Heather Armstrong +44 20 3053 8671
NOTES TO EDITORS
KEFI Minerals plc
KEFI is the operator of two advanced gold development projects
within the highly prospective Arabian-Nubian Shield, with an
attributable 1.93Moz (100% of Tulu Kapi's 1.72Moz and 40% of Jibal
Qutman's 0.73Moz) gold Mineral Resources (JORC 2012) plus
significant resource growth potential. KEFI targets that production
at these projects generates cash flows for further exploration and
expansion as warranted, recoupment of development costs and, when
appropriate, dividends to shareholders.
KEFI Minerals in Ethiopia
The Tulu Kapi gold project in western Ethiopia is being
progressed towards development, following a grant of a Mining
Licence in April 2015.
Following completion of KEFI's Definitive Feasibility Study for
Tulu Kapi, the Company is now refining contractual terms for
project construction and operation. Latest estimates are that gold
production may be brought forward by increasing processing
capacity, as compared with the DFS estimates of c. 100,000oz pa for
a 10-year period. All-in Sustaining Cost estimates (including
operating, sustaining capital and closure but not including leasing
and other financing charges) remain <US$800/oz. Tulu Kapi's Ore
Reserve estimate totals 15.4Mt at 2.1g/t gold, containing 1.1Moz.
Ongoing refinements will be reported as they get finalised.
All aspects of the Tulu Kapi (open pit) gold project have been
reported in compliance with the JORC Code (2012) and subjected to
reviews by appropriate independent experts. These plans now also
reflect the agreed construction and operating terms with project
contractors, and have been independently reviewed by experts
appointed for the project finance syndicate.
A Preliminary Economic Assessment has been published that
indicates the economic attractiveness of mining the underground
deposit adjacent to the Tulu Kapi open pit, after the start-up of
the open pit and after positive cash flows have begun to repay
project debts.
KEFI Minerals in the Kingdom of Saudi Arabia
In 2009, KEFI formed G&M in Saudi Arabia with local Saudi
partner, Abdul Rahman Saad Al Rashid & Sons Company Limited
("ARTAR"), to explore for gold and associated metals in the
Arabian-Nubian Shield. KEFI has a 40% interest in G&M and is
the operating partner. To date, G&M has conducted preliminary
regional reconnaissance and has had five exploration licences
("ELs") granted, including Jibal Qutman and the more recently
granted Hawiah EL that contains over 6km strike length of
outcropping gossans developed on altered and mineralised rocks with
all the hallmarks of a copper-gold-zinc VHMS deposit.
At Jibal Qutman, G&M's flagship project, Mineral Resources
are estimated to total 28.4Mt at 0.80g/t gold for 733,045 contained
ounces. The shallow oxide portion of this resource is being
evaluated as a low capital expenditure heap-leach mine
development.
ARTAR, on behalf of G&M, holds over 20 EL applications. ELs
are renewable for up to three years and bestow the exclusive right
to explore and to obtain a 30-year exploitation (mining) lease
within the area. The Kingdom of Saudi Arabia has instituted, and is
further overhauling, policies to encourage minerals exploration and
development, and KEFI Minerals supports this priority by serving as
the technical partner within G&M. ARTAR also serves this
government policy as the major partner in G&M, which is one of
the early movers in the modern resurgence of the Kingdom's minerals
sector.
-end-
This information is provided by RNS
The company news service from the London Stock Exchange
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