Kefi Gold and Copper PLC Conditional Consortium Completion for Tulu Kapi (8451C)

TIDMKEFI

RNS Number : 8451C

Kefi Gold and Copper PLC

22 October 2020

22 October 2020

KEFI Gold and Copper plc

("KEFI" or the "Company")

Conditional Completion of Consortium to fund the Tulu Kapi Gold Project

KEFI expected to increase Project ownership from 45% to c.65%

KEFI Gold and Copper plc (AIM: KEFI), the gold exploration and development company with projects in the Federal Democratic Republic of Ethiopia and the Kingdom of Saudi Arabia, is pleased to announce that it has now assembled the full consortium and set the conditional terms for the independently reviewed development funding package of c.US$221 million for the Company's flagship Tulu Kapi Gold Project (the "Project" or "Tulu Kapi").

Highlights

 
  --   Non-binding term sheets signed to complete the US$221 
        million consortium for Project development funding 
  --   Experienced African investors conditionally agree to 
        contribute a minimum of US$40 million to the Project 
  --   KEFI beneficial Project ownership expected to increase 
        to c.65% from previously envisaged 45%, increasing 
        NPV attributable to KEFI by c.33% 
  --   First production remains on track for Q4 2022, targeting 
        to lift average gold production from original 140,000oz 
        p.a. to 190,000oz p.a. within 3 years of start-up 
  --   In-house estimates indicate an anticipated Project 
        NPV for KEFI of 11p/share (assuming 65% interest and 
        US$1,700/oz gold price). This excludes any other KEFI 
        assets, notably the Hawiah copper-gold-zinc-silver 
        and Jibal Qutman gold deposits discovered in Saudi 
        Arabia. 
 

Financially strong African-experienced Investors have conditionally offered a minimum of US$40 million Project funding

The Company has entered into two non-binding term sheets for a combined minimum of US$40 million of investment with the Ethiopian division of a global industrial company ("Local Investor"), which is listed on the London Stock Exchange with a market capitalisation exceeding GBP1 billion and also with one of the world's leading commodity trading companies ("Mining Financier"). Both organisations have extensive experience in Africa. The terms sheets are complementary to, and consistent with, the plans already approved by the board of Tulu Kapi Gold Mines Share Company ("TKGM") and the Ethiopian regulatory authorities.

The Project finance structure now comprises KEFI's Government Partners (both the Federal Government of Ethiopia and the Regional Government of Oromia), leading African banks as Mandated Senior Project Lenders (Eastern and Southern African Trade and Development Bank and Africa Finance Corporation ), strong African specialist investors into KEFI Group companies (the Local Investor and Mining Financier) and the African-experienced principal contractors.

RAB Capital, KEFI's largest single shareholder holding approximately 12%, has also welcomed the new parties to the consortium, and the proposed appointments of new directors to the boards of the respective KEFI subsidiary companies.

This overall proposed package, further detailed below, is currently being considered by the Senior Project Lenders, before detailed documentation is assembled for approval by consortium member boards and the Ethiopian central bank, the National Bank of Ethiopia .

As KEFI has succeeded in sourcing the Mining Financier to conditionally provide offtake-linked financing, the Company and its Government Partners will be able to retain a higher beneficial ownership of the Project. For KEFI, this is now expected to be c.65%, compared with the previously envisaged 45% ownership. As outlined below, this approach is expected to materially increase the value of the Project to both the Company and its Government Partners.

Whilst the impact of COVID-19 has regularly disrupted a multitude of activities for all existing and new Project stakeholders requiring reshuffling of schedules, the Project remains on track with its key target of commissioning gold production in Q4 2022. This has been made possible by the patient and disciplined support from the community, Government, Senior Lenders and other stakeholders. TKGM directors and management are on the ground in Ethiopia liaising with and supporting wherever possible the dedicated teams of the many Government agencies involved.

Project Funding Structure

Whilst KEFI has now signed agreements and non-binding terms sheets with all consortium members, it should be emphasised that all these individual agreements remain conditional on completion of due diligence, confirmation of regulatory compliance, internal approvals and the execution of full detailed documentation by each consortium member. It is currently scheduled that all these outstanding matters will be completed in the current quarter, to avoid any delay to the Project timetable to commissioning in Q4 2022 .

The independently reviewed Project development and disbursement schedules show project equity funding continuing in the current quarter and over the ensuing six months ("Equity Closings"), with senior debt funds drawn down in mid-2021 ("Debt Closing").

The Project development funding requirement and expected sources now comprise the following:

 
 Total Development Funding                            US$300M 
 Less, already spent                                  US$79M (1) 
 
 Additional funding required as notified on 19        US$221M 
  June 2020 
 Senior debt at up to c. 60% of additional funding    US$132M (2) 
  required (under 50% of Total Development Funding) 
 
 Project Equity at c. 40% of additional funding       US$168M 
  required (over 50% of Total Development Funding) 
 Less, already spent                                  US$79M 
 Additional equity and shareholder loans required     US$89M 
 

which are currently intended to be provided as follows:

 
  --     Conditionally agreed minimum investments by 
          each of the following: 
    o      Investment into TKGM by KEFI's Government            US$20M 
            Partners 
    o      Local Investor to fund KEFI's further subscription   US$10M (3) 
            for TKGM shares 
    o      Mining Financier to fund KEFI shareholder            US$30M (4) 
            loans to TKGM 
  --     Residual (based on minimum commitments indicated) 
    o      to be refined and allocated within consortium        US$29M (5) 
 
 

Notes to the above table:

 
 1)         Pre-2014 spending of US$49M has already been registered 
             in accordance with local regulatory procedures. The total 
             of US$79M includes other relevant amounts incurred. These 
             amounts are important as they form the bases for: 
             a) equity allocations inside TKGM between Government and 
             KEFI, and 
             b) the regulatory compliance with permitted capital ratios 
             for this foreign direct investment. 
 2)    Senior Lenders signed off original term sheets in September 
        2019 indicating provision of up to c.60% of additional 
        funding required pending due diligence. They will advise 
        the final amount after completion of all due diligence; 
 3)    Local Investor share subscription into wholly-owned KEFI 
        subsidiary KEFI Minerals (Ethiopia) Limited ("KME") for 
        an expected 6.7% interest. This approach has already been 
        authorised by the Ethiopian regulatory authorities; 
 4)    It is intended that the subordinated offtake-linked development 
        capital of a minimum US$30M from the Mining Financier 
        will be structured as a shareholder loan to TKGM via a 
        KEFI Group company. Detailed terms include the following: 
  a.   The full amount borrowed from the Mining Financier 
        will be on-lent to TKGM as KEFI shareholder loans. 
  b.   The shareholder loans to TKGM will be fully subordinated 
        to the Senior Lenders. 
  c.   The loan facilities provided by the Mining Financier 
        will comprise a term loan and a working capital facility 
        which is a revolving credit line with a tenor to match 
        that of the Mining Financer's offtake rights over 800,000 
        ounces of gold production at market-based gold pricing. 
  d.   An interest rate which has already been approved by 
        the central bank. 
 5)    The partners in TKGM (the Government and KEFI) will finalise 
        their respective Project-level equity-capital contributions 
        and the sourcing thereof (for KEFI it is intended to be 
        from the providers of equity or subordinated loans to 
        KEFI subsidiary companies rather than from any parent 
        company share issues) when the Senior Lenders have completed 
        their due diligence and regulators confirm compliance. 
        There are no unresolved policy matters. 
 

Community Programmes

Having pulled together this refined Project development funding package, TKGM has triggered low-cost but important next steps for the community resettlement programmes so as to ensure on-site construction can start in early 2021. These include starter homes for the first phase of resettled persons.

All social and environmental programmes are planned to World Bank IFC Standards and exceed the requirements of local regulations. TKGM integrates ESG (Environmental, Social and Governance) considerations into its development and production programme.

Expansion of Planned Project Production and of KEFI's Beneficial Ownership

Over the recent months, KEFI has successfully focused on:

 
      a)   minimising the COVID-19 impacts on the Project schedule; 
      b)   responding to the higher gold price by bringing forward 
            the planning for underground mining; and 
      c)   sourcing development capital at the subsidiary level, 
            substantially increasing the beneficial ownership in 
            the Project for both KEFI and our Government Partners. 
 

More specifically:

 
      a)   COVID-19 impacts have required continual refinement of 
            operational policies, procedures, schedules and activities; 
      b)   because of the improved gold price outlook, we are revising 
            the planning assumption of US$1,098/oz gold for determination 
            of Project Ore Reserves and also looking to bring forward 
            the timing of underground development once open pit production 
            has settled down. In this context, it is now reasonable 
            to assume the addition of underground ore during the 
            third year of mining the open pit, lifting combined production 
            to an average of 190,000 oz pa; and 
      c)   the Project NPV's are presented below, highlighting the 
            impact of increased ownership to c. 65%. 
 
 
            Tulu Kapi Gold Project            Assumed Long-Term Gold Price 
--------------------------------------  ---------------------------------------- 
                                         US$1,400/oz   US$1,700/oz   US$2,000/oz 
--------------------------------------  ------------  ------------  ------------ 
 NPVs for 100% of Project reported at 
  KEFI 2020 AGM 
                                        ------------  ------------  ------------ 
  US$ Millions                               236           422           607 
                                        ------------  ------------  ------------ 
  GBP Millions                               189           337           485 
                                        ------------  ------------  ------------ 
 NPVs for 45% of Project reported at 
  KEFI 2020 AGM 
                                        ------------  ------------  ------------ 
  US$ Millions                               105           190           273 
                                        ------------  ------------  ------------ 
  GBP Millions                               85            152           218 
                                        ------------  ------------  ------------ 
 NPVs for 100% of Project updated for 
  Funding Structure 
                                        ------------  ------------  ------------ 
  US$ Millions                               238           406           573 
                                        ------------  ------------  ------------ 
  GBP Millions                               181           310           438 
                                        ------------  ------------  ------------ 
 NPVs for 65% of Project updated for 
  Funding Structure 
                                        ------------  ------------  ------------ 
  US$ Millions                               154           264           373 
                                        ------------  ------------  ------------ 
  GBP Millions                               118           201           284 
                                        ------------  ------------  ------------ 
 

Note: The Project NPV's include production from the open pit and undergound mines and are derived using an 8% discount rate. The NPVs are internally derived using independently created financial models of net cash flows after tax and debt service, based on the Definative Feasibility Study (DFS) for open pit and Preliminary Economic Assessment (PEA)for underground mining.

The above table indicates an NPV equating to a KEFI share price of 11p at a 65% interest and a US$1,700/oz gold price, excluding any other KEFI assets, notably the deposits discovered Saudi Arabia, the Hawiah copper-gold-zinc-silver and Jibal Qutma gold deposits.

Commenting, Harry Anagnostaras-Adams, Executive Chairman of KEFI, said: "I am delighted that we continue to attract strong African experienced participants in our Tulu Kapi funding structure in a manner that enables KEFI and its Government Partners to increase their beneficial ownership, for KEFI to c.65% of the Tula Kapi Project. The refined structure set out today is in accordance with the overall plan already approved by TKGM and the regulatory authorities and now includes investment from a well-capitalised and internationally prominent local investor and a global mining finance specialist.

"The pandemic has meant that the TKGM team have worked even more closely with the Government agencies at all levels and other stakeholders, enabling us to adhere to the overall Project timetable targeting production start-up in Q4 2022.

"The improved gold price outlook and our negotiations over the past few months have switched KEFI's focus from owning 45% of a 140,000 oz p.a. operation to owning 65% of 190,000 oz p.a. operation, essentially doubling KEFI's beneficial interest in terms of net production per annum. The Ministry has reserved for KEFI its exploration rights to over 1,000 square kilometres of the surrounding land for exploration and we are confident that in due course we will significantly boost reserves from satellite deposits and further expand the mine life beyond the term of the current economic model. We see Tulu Kapi as a mining district and not just one or two mines.

"Our progress and the Project economics are ever more compelling for KEFI and its shareholders and I look forward to reporting further progress in due course."

Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

Enquiries

 
 KEFI Gold and Copper plc 
 Harry Anagnostaras-Adams (Executive 
  Chairman)                                   [phone] 
 John Leach (Finance Director)                [phone] 
 
 SP Angel Corporate Finance LLP (Nominated 
  Adviser and Joint Broker)                   [phone] 
 Jeff Keating, Soltan Tagiev, Adam 
  Cowl 
 
 Brandon Hill Capital Ltd (Joint Broker)      [phone] 
 Oliver Stansfield, Jonathan Evans 
 
 IFC Advisory Ltd (Financial PR and 
  IR)                                         [phone] 
 Tim Metcalfe, Florence Chandler 
 

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October 22, 2020 02:00 ET (06:00 GMT)