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In The News - Kefi Minerals

Published: 09:37 09 Nov 2016 GMT

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KEFI MINERALS†
LON:KEFI :| 0.38p | US$18m | Buy | TP : 1.5p
Update on Tulu Kapi
KEFI Minerals has announced a further update on its progress advancing its Tulu Kapi Gold Project in Ethiopia, at which it aims to commence construction during 1H17.
COMMENT: Partially in response to last month’s unrest in the country, a major cabinet reshuffle was enacted last week. Changes to the administration included the Minister of Mines and KEFI’s announcement provides reassurance that the government and the company are continuing to work together to move the project forward. We continue to rate the shares as a Buy and have a target price (TP) of 1.5p.


Tulu Kapi is an attractive gold development project with planned production of 980,000oz over a ten-year mine life at LoM average AISC of US$773/oz — Reserves at Tulu Kapi stand at 1.05Moz, grading 2.1 g/t. This conventional open-pit and CIL-based project is expected to have a competitive operating cost structure, with average life-of-mine AISC estimated at US$773/oz. The initial capital and working capital costs of US$132m are equivalent to an attractive capital intensity of US$135/oz of life-of-mine production. The project is planned to produce 115,000oz pa on average over the first eight years of operation.
The company is continuing work towards commencing full-scale construction of the project in 1Q17 — Key items remaining to complete the process include:
• Shareholders’ agreement relating to the government’s investment in the project. The agreement has now been passed to the relevant ministry for final review and execution.
• Resettlement plan and associated compensation. The company has re-confirmed with the government the methodology for determining the compensation for resettlement in order to ensure the compliance of all parties with Ethiopian law and World Bank guidelines. The company and community are now awaiting verification of the compensation calculations. The finalisation of compensation would pave the way for resettlement and is a key timeline item for the project. The company has indicated that it aims to commence resettlement in December 2016.
• Project funding completion of the package, currently estimated at US$155m, including financing, G&A and exploration expenditures, is now expected to occur in 1Q17 with draw-down continuing to be targeted for 1H17.
o The government has formally confirmed that it will invest US$20m in return for increasing its direct interest in the project from 5% to up to 25%, with the final level dependent on KEFI’s equity contribution. The government is expected to make its contribution in the form of funding some of the project’s infrastructure requirements, including road and power lines.
o Senior secured debt of ~US$86m — Negotiations with the Development Bank of Ethiopia were recently reported to be at an advanced stage. Mining specialist providers of debt and other non-specialist banks were reported to be interested in co-investing.
o Mezzanine or equity finance of ~US$37m — To be provided through a combination of mezzanine debt, off-take finance and equity at the project or parent level.
o Cost overrun facility of ~US$13m.
We continue to rate the shares as a Buy and have a target price (TP) of 1.5p — Our TP is based on a risked sum-of-the-parts valuation, assuming a long-term gold price of US$1,350/oz. It includes the Tulu Kapi Project on the basis of an NPV8 to which we have applied a risk multiple of 0.9x. We have added values for potential for the underground development of Tulu Kapi and for the company’s Jibal Qutman Gold Exploration Project in Saudi Arabia, and have adjusted for corporate G&A and net cash. For more detail on the project and valuation, please see our initiation report: KEFI Minerals — Emerging Gold in Ethiopia, 12 September 2016.
 

Burey Gold††
ASX:BYR| A$0.076 | US$76m | Speculative Buy
Test-work on Material from Kebigada Returns 90-91% Recovery from CIL
Burey Gold has announced the results of metallurgical test-work on samples from its Kebigada Shear Zone at its 55% owned Giro Gold Project, located in the north-eastern DRC. The results included 91% recovery from oxide material and 90% for the sulphide samples from straightforward CIL. Further test-work is planned.
COMMENT: This provides another ‘tick in the box’ for the Kebigada Shear Zone, where an infill drilling programme is underway, with the aim of completing a maiden resource estimate during 1Q17, for which we have previously suggested that a resource of 2.0Moz of gold at a grade of 1.5-2.0 g/t may have been outlined. A drill programme is also underway at the Douze Match zone in the north of the project area. We continue to recommend the company as a Speculative Buy.
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Test-work was undertaken on three composite RC samples of 25kg each, one oxide and two fresh rock samples — Grades were 1.5 g/t, 1.8 g/t and 1.7 g/t respectively. Silver arsenic and organic carbon were reported to be low in each sample, with pyrite the dominant sulphide in the bulk samples of fresh rock. Samples were prepared by grinding to 75 microns. The results showed that:
• Cyanidation in the CIL circuit returned 91% recovery for the oxide sample and 90% for the sulphide samples.
• The remaining material was not liberated at the 75 micron grind size and the company reported that:
o 5-7% of the gold was refractory (likely to be associated with sulphides); and
o 1-2% of the gold was encapsulated in silicates.
Fine grinding may improve recoveries — Gold grains in the oxide material were reported to be very fine (generally <20 microns, with gold grains in sulphide material generally larger than 20 microns). Given that the samples were ground to less than 75 microns (typical for many operations), this indicates that fine grinding could result in improved recoveries, especially in oxide material.
Gold recoveries to a gravity concentrate varied from 25% in the oxide sample to 47-53% in the fresh rock samples — The concentrates from each sample were very amenable to intense cyanidation (98-99% recoveries).

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