KEFI Minerals concentrated on progressing Tulu Kapi during the year

KEFI Minerals Plc announced its final results for the year ended 31 December 2016.

Tulu Kapi, Ethiopia

During 2016, KEFI concentrated on progressing the Tulu Kapi gold project ("Tulu Kapi"), Ethiopia's first modern mine, and on upgrading its gold and copper exploration portfolio in the highly prospective Arabian-Nubian Shield ("ANS"). KEFI is targeting to commence development of Tulu Kapi in 2017 and open-pit gold production in 2019.
 
•   Government of Ethiopia formally committed to invest US$20 million for equity in Tulu Kapi and, post-period, signed the Shareholder Agreement and other requisite documentation
•   Project team refined the development plan and detailed mine plan, resulting in more robust metrics by incorporating feedback made by contractors, financiers, and partners to the 2015 Definitive Feasibility Study ("2015 DFS"), and, post period, all refinements to the 2015 DFS were incorporated into the 2017 Definitive Feasibility Study Update ("2017 DFS Update") in preparation for financing
•   Assessing three financing proposals built around contractors experienced in African mining following tightening of mining debt-finance sector and concerns of financiers regarding Ethiopian State of Emergency
•   The projected open-pit cash flows indicate that the net cash build-up (after currently indicated financing costs) in the first three production years is US$65 million to US$265 million for the gold price range of US$1,100/oz to US$1,900/oz which prevailed during the past seven years. Significant value also expected from the contemplated underground mine beneath the Tulu Kapi open pit within extensions of the same ore body.
•   Completed Preliminary Economic Assessment ("PEA") confirming robust economics for the development of the underground mine - initial potential to increase production to >150,000 p.a. over four years whilst drilling to expand underground resources which are open in several directions.
•   Post period, community resettlement programme was triggered paving the way to project development
•   Post period, historical court claim pre-dating KEFI's ownership of Tulu Kapi was reduced from US$12 million to c. US$600,000 which KEFI has appealed to the Supreme Court to eliminate altogether.
 
Gold & Minerals Ltd Joint Venture ("G&M"), Saudi Arabia
•   Surface-sampling and geophysical studies identified large precious and base metals targets at Hawiah
•   Strategic overhaul of licence applications undertaken by G&M across the whole of Saudi Arabia
•   Post period, Mining Licence Application for proposed heap-leach gold mine at Jibal Qutman lodged with Saudi government for continuing discussion and review
•   KEFI expects the authorities in Saudi Arabia to deregulate the minerals exploration sector in 2017 from which the Company is well-positioned to benefit
 
Corporate
•   Completed several equity placings, raising a total of £5.6 million (before expenses) 
•   In preparation for Tulu Kapi development, Mr John Leach Finance Director became a fulltime executive and Mr Mark Wellesley-Wood, an experienced African mining operator, joined the Board as a Non-Executive Director assuming the role of Deputy Chairman
•   Post period, completed £5.62 million fundraising (before expenses)
 
 
Harry Anagnostaras-Adams, Executive Chairman of KEFI Minerals, said:
"During 2016, we concentrated on progressing Tulu Kapi, Ethiopia's first modern mine, and on upgrading our exploration portfolio in the highly-prospective Arabian-Nubian Shield supported by our strong partners in Ethiopia and Saudi Arabia. With the Ethiopian State of Emergency, conventional finance proposals were stalled in 2016 so we successfully responded by focusing our efforts on alternative financiers familiar with Africa, especially Ethiopia, and particularly on proposals designed around African-experienced gold project contractors. As a result, we are now assessing three proposals. At the same time, operational activities continued uninterrupted and we now have a development-ready mine, once the funding package is finalised. We look forward to commencing development in 2017 and open-pit gold production in 2019.
 
"This year we also strengthened our pipeline of ANS growth projects to complement our Tulu Kapi open-pit gold mine, including the Tulu Kapi underground mine and satellite deposits; our oxide gold mine at Jibal Qutman in Saudi Arabia; a large VHMS base metal target at Hawiah in Saudi Arabia; and further exploration prospects in the Arabian-Nubian Shield. With the robust economics of our key development projects, including the ability to payback initial capital within three years - and strong pipeline, we have a well-positioned foundation, great growth prospects and are confident of delivering shareholder value."

Operational Review
 
The Company's assets provide a healthy platform to deliver shareholder value by developing profitable mines in Ethiopia and Saudi Arabia.
 
KEFI Minerals made substantial progress during 2016 towards becoming a gold producer in one of the world's great under-developed minerals provinces - the Arabian-Nubian Shield.
 
The Company's Tulu Kapi Gold Project in Ethiopia remains the primary focus. KEFI has continued to work with the Government of Ethiopia, industry experts and project contractors over the past year in order to ensure that construction can commence as soon as funding is in place.
 
Initial open-pit gold production from Tulu Kapi is projected at 115,000 ounces per annum at a low All-in Sustaining Cost of less than US$800/oz. Tulu Kapi's Ore Reserves of 1.0 million ounces and Mineral Resources of 1.7 million ounces have significant upside potential. 
 
At the Company's Jibal Qutman Gold Project in Saudi Arabia, the Mining Licence Application for the planned heap-leach operation has been lodged with the Saudi Government for continuing discussion and review.
 
Development-Ready Gold Mine - Tulu Kapi
This high-value, low-capex asset is now poised for development when the funding package is finalised. Whilst KEFI's finance team has been preparing the funding package, the project development team has continued to work with the Company's selected contractors in order to further optimise Tulu Kapi's detailed development and operating plans.
 
Feedback on the 2015 DFS from project contractors, financiers and partners was incorporated into an improved mine plan in early 2016. All refinements to the 2015 DFS were, in May 2017, incorporated into the 2017 DFS Update in preparation for financing. This reflects, among other things, the fixed price, lump-sum processing plant construction contract with Lycopodium and a warranted ore processing rate of 1.5-1.7 million tonnes per annum.
 
KEFI bases the finance structure on the numbers and schedules in the 2017 DFS Update, which includes only the planned open pit. However, the Company will target a quicker construction schedule and 10% higher annual throughput compared with the contractually warranted estimates used for debt-structuring. KEFI's financial targets for the open-pit project include:
 
•     Gold production of 120,000 ounces per annum for eight of the initially planned ten years;
•     At a flat average gold price of US$1,200-1400/oz for all ten years of gold production (2019-2028):
o  All-in Sustaining Costs of less than US$800/oz (excluding financing charges);
o  After-tax, unleveraged IRR of 25%-36%;
o  After-tax, unleveraged NPV (8% discount rate) of US$98-184 million at start of construction;
o  After-tax, unleveraged NPV (8% discount rate) of US$272-375 million at start of production in 2019;
o  Annual net operating cash flows of US$56-78 million p.a. for the first eight years of production, and
o  Payback of 3 years.
 
As a result of KEFI's overhaul of all aspects of the project due diligence and planning, the project has soundly-based, robust economics and significant growth potential beyond the existing open-pit Ore Reserve estimate of 15.4 million tonnes at 2.12g/t gold, containing 1.05 million ounces.
 
The projected open-pit cash flows indicate that the net cash build-up (after financing costs) in the first three production years is US$65 million to US$265 million for a gold price range of US$1,100/oz to US$1,900/oz. Significant value is also expected from the contemplated underground mine.
 
Strong Support from Ethiopian Government for Tulu Kapi Development
The Tulu Kapi Gold Project ranks high as a national priority within Ethiopia's Growth and Transformation Plan and KEFI is delighted to have the strong support of the community in addition to the support from the Government at all levels.
 
Responsible mine development is a high priority for KEFI and the Ethiopian Government. KEFI welcomes the Government's constructive attitude that encourages us to bring Tulu Kapi into production as rapidly as prudently possible whilst ensuring compliance with all relevant governance and quality standards.
 
The restrictions imposed by the State of Emergency declared by the Ethiopian Government in October 2016 have now mostly been lifted. KEFI's operational activities have continued as normal during this time and appropriate security precautions have been built into project planning.
 
After consultations with KEFI, the Government of Ethiopia has triggered the community resettlement programmes, which began with property surveys and host-land preparations and also incorporate livelihood restoration programmes.
 
Notably in May 2017, the Government of Ethiopia further demonstrated its strong support by executing the detailed formal documentation for its committed equity capital contribution of approximately US$20 million to Tulu Kapi's development. This investment will increase the Government's share of the project from a 5% free-carried interest to circa 25%, depending on the final financing structure.

KEFI is an AIM listed the gold exploration and development company with projects in the Kingdom of Saudi Arabia and the Federal Democratic Republic of Ethiopia.