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KEFI Minerals scheduled to start work at Tulu Kapi this year

"During the next two years Tulu Kapi is to be built as a 140,000 oz pa gold producer"
Gold and dollars
Final funding sign off is still required for Tulu Kapi

KEFI Minerals PLC (LON:KEFI) expects to start construction of its Tulu Kapi gold mine in Ethiopia in the second quarter of 2018.

A consortium compromising mining contractor Ausdrill, engineer Lycopodium, and the Ethiopian government is responsible for the infrastructure and building work.

Innovative financing

Lycopodium will build the on-mine infrastructure (including the plant) under a hybrid EPC/EPCM contract, said broker RFC Ambrian.

This is planned to be funded through the issue of US$140mln, 9-year debentures with a gold price-related interest rate, which the broker anticipates will be 10% at a gold price of US$1,250/oz (rising to 15% at US$1,700/oz).

WATCH: KEFI Minerals targeting higher returns through Tulu Kapi production expansion

READ: KEFI Minerals expects to start work at Tulu Kapi next year

Some US$12mln of pre-production mining costs are planned to be deferred for a year and up to US$20mln of off-site infrastructure is set to be funded by the Ethiopian government.

That will leave US$42mln to be funded from other sources including an equity raise and working capital loan.

Production will amount to 980,000oz over a 7.5-year mine life at average sustaining costs of US$773/oz over its life.

Reserves stand at 1.05Moz, grading 2.1 g/t, with operations to be a conventional open pit and CIL-based project.

Expansion potential

A scoping study on a potential underground resource at Tulu Kapi suggests the production rate can rise to 150,000oz pa from Year 4,

In addition, KEFI has identified more satellite targets within trucking distance of the mine site.

January update

"The final Tulu Kapi project models were agreed within the consortium and uploaded into the formal financing data rooms,” said Harry Anagnostaras-Adams, executive chairman, in January 2018.

“They show some improvements for shareholders, as compared with recent company guidance," he added.

“During the next two years Tulu Kapi is to be built as a 140,000 oz pa gold producer and, at the current gold price of $1,300/oz combined with any of the contemplated financing scenarios, KEFI shareholders' beneficial interest in the net free cash flow per annum (after debt service and tax) exceeds the company's current market capitalisation.”

“A project-level transaction on the same terms as with the Government would imply a project valuation of c.US$100 million (100%) and, under that financing scenario, KEFI shareholders would expect to retain a beneficial ownership interest in the order of 55% in the project.”

Jibal Qutman still developing

In Saudi, KEFI has a 40%-stake in the Jibal Qutman project, where new country-wide mining laws are being introduced in a bid to encourage the development of the sector into an important part of the economy. 

Kefi said it is waiting for final clarification of the country's new policy.

Value undemanding says broker

The broker remains a buyer but has lowered its target price to 6.8p due to recent weakness in the shares.

RFC Ambrian assumes the company will raise US$25m in equity at a price of 3p and secure a US$17m working capital facility.

Shares rose 10% to 3.55p valuing the miner at £10.7mln.

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