The rapid rate of progress at KEFI Minerals (LON:KEFI) looks set to continue into autumn, according to executive chairman Harry Anagnostaras-Adams.
He’s in London on a brief stop-over as part of a whistle-stop world tour designed to put the finishing touches on a financing package for the development of KEFI’s flagship Tulu Kapi gold project in Ethiopia.
Along the way he’s also talking to contractors tendering for the work, and aims to get a fair few of those deals signed off too.
“It’s exhilarating at the moment,” he says.
“I’ve literally just started this trip around the world to eyeball the most interested and serious parties in terms of contractors and banks. The aim is to bring it down to two contractors and two lending syndicates and then take a decision from there.”
So, a decision on the financing for Tulu Kapi is pretty close then?
“We expect to have the financing lined up sometime in the next month,” says Anagnostaras-Adams. “The capex has come down a huge amount and there’s still a little bit to go.”
Indeed systematic and serious capital expenditure reductions have been the hallmark of KEFI’s approach to Tulu Kapi ever since it took the project on from the ailing Nyota Minerals (LON:NYO) back in December 2013.
“In a way,” says Anagnostaras-Adams, “It was a textbook acquisition. There were so many ways for us to reposition the project.”
Nyota’s fatal error was to use gold price assumptions that were far too high in a market that was already falling. That threw the economics right off and meant that any efforts to raise finance would be doomed before they even got underway.
The gold price continued to fall as KEFI took the reins, but Anagnostaras-Adams is too much of a seasoned player to have allowed that to put him off his stride.
He knew he had a project of quality on his hands - the trick would be tailoring the project to the new reality in which the gold price wasn’t forever rising.
In that effort he was helped almost immediately by what he freely admits was a large slice of luck.
Under time and financial pressures, Nyota had been in a hurry to release a compliant resource to bolster its value, but that rushed effort had meant that results from drilling that had already been completed were not factored in to the eventual resource.
When KEFI took over, it was as if it had been handed a free pass.
“It was luck – to have 71 drill holes left out of the resource,” says Anagnostaras-Adams.
“It was like being given a year’s drilling, and more particularly, once that data was injected into the calculations the indicated resource went from 1.1mln ounces to 1.6mln ounces.
“And that means that the ounces we plan to mine from our reserve can be of a higher quality. We only have to take out two-thirds of it got take out the best million ounces.”
There are many ways of cutting the same good fortune: “We’re mining 10mln tonnes per year instead of 20mln tonnes per year,” says Anagnostaras-Adams. “And the grade goes up to 2.5 grams per tonne from 1.8 grams per tonne.”
But the effect on capital costs is where good fortune meets hard economics.
“Apples-for-apples it took the cost down from US$300mln to US$170mln,” says Anagnostaras-Adams.
It was a great start, but there was more to come.
“That US$170mln became US$120mln by factoring contract mining instead of owner mining,” continues Anagnostaras-Adams.
Now, with the final tenders coming in, there could be room to squeeze still more out of the potential cost base.
“There’s some pretty aggressive tendering going on,” says Anagnostaras-Adams. “There is active competition between Chinese and Western contractors. It should tease out more savings.”
There’s also a possibility of a further contribution from the Ethiopian government, since the government wants a bigger slice of the equity, and more to the point has access to cheap finance for the construction of infrastructure.
So, will the government construct some of the off-licence expenditure that’s required to make Tulu Kapi a success, such as upgrades to roads and power? It’s a distinct possibility if the quid pro quo was to be more equity.
But we’re getting ahead of ourselves. These are the details Anagnostaras-Adams is currently in the final throes of sorting out.
“Equity’s done most of its job,” says Anagnostaras-Adams. “There’s a little bit to go – maybe at the project level, maybe at the company level.”
He puts the equity figure at between US$5mln and US$30mln, depending on what kind of deal gets done with the contractors, and allowing potentially for some gold streaming too.
“Either way,” he says, “it’s value accretive. Tulu Kapi is a solid project in its home stretch.”