The basic plan is to initial production from an open pit at Tulu Kapi early next year and then to supplement that production with an underground contribution that will come on stream in about three years’ time.
At that point total production from Tulu Kapi could spike at around 150,000 ounces of gold per year, which begins to put KEFI into the ranks of the mid-tier gold producers.
From microcap status a few years ago, that’s not bad going.
But there’s work to be done yet.
The combined net present value of the underground and open pit operation comes in at US$200 mln on the latest numbers, after tax, assuming a US$1,250 gold price and an eight per cent discount.
Those are workable numbers in the current gold price environment, with gold now tracking up towards US$1,300 an ounce.
But the addition of the underground production stream would come at a cost of around US$37 mln, money which would need to be found over and above the development cost for the open pit.
KEFI is currently finalising a US$120 mln financing plan for the open pit, and has already lined up a syndicate of lenders to provide the bulk of the monies.
The remainder is to be supplied by a sizeable streaming deal, and possibly by a further contribution from the Ethiopian government, which has shown interest in upping its stake.
At this stage it’s not clear what the source would be for the money for the underground operation, although KEFI makes it quite clear that the underground operation would not be begun until cash flow from the open pit operation was well established and repayment of the open pit financing costs had begun.
According to the latest financial modelling, KEFI ought to be able to build up around US$135 mln in cash over the first three years of production from the open pit, and that provides some real options.
At 2.30pm, the shares, up 38% in the last two months, were changing hands for 0.429p.