Q and A
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The partnership agreement was kicked off with the PM mid-2015 and now we wrap up loose ends (Harry Anagnostaras-Adams).
Disappointing and perhaps also some misunderstanding due to minimalist and formal terminology in relation to the bond. Finalising the documentation is a major milestone. In the world of bond issues, a major hurdle is a negotiated deal being agreed and documented (albeit in our case we now need govt clearance, which is being processed). And after that comes the bond listing process which takes about a quarter. It is not the same process as a bank financing. No-one can guarantee an outcome until drawdown, but we are on track and all target gold production commissioning end-19.
Whilst the next quarter is required for bond listing processes, it is also required for preparing the community and contractors ie as soon as government clearances are received.
No-one would want to actually drawdown $140M until we are at the right stage with community and contractors. All aspects are intertwined and reshuffled to be defend commissioning at end of 2019 and ensure a long production period before debt service commences.
We get full briefings on such occurrences but we are not aware of the particular incident you refer to. One of the reasons for the recent State of Emergency (which was lifted some months ago) was community unrest over mistreatment during resettlement processes by parts of the government administration and by some foreign companies. KEFI has never been criticised or attacked.
It is not really for the company to try and interpret the market. we just report what needs to be reported and open our doors to analysts so they can form their views. Our strategy is to continue to successfully ensure that we bring in nearly all capital (debt and equity) only after closing of the whole deal is approved by all and the government.
I agree that the resettlement processes are important to monitor because of their political sensitivity in the world’s highest growth country which is naturally experiencing a huge wave of industrialisation and urbanisation. It is also important because it will be the first cab off the rank for the project’s physical implementation at Tulu Kapi site as it is at the 100’s of other sites around the country which are dealing with resettlement and lastly it is important because it will set the tone for community relations going forward.
On being asked by the Board to become an executive about 12 months after the Tulu Kapi acquisition, an initial priority was to build and empower what we have since called the social performance team. It has since been our biggest team but the government sets the pace and drives implementation with the community.
With the benefit of hindsight, we can all now see that the Government effectively slowed the whole process down by over 12 months by virtue of the actions around and during the now-expired state of emergency during which it also overhauled its own teams and created an independent agency for this function around the country.
KEFI is working intensely with the community and the relevant government agencies and we go beyond compliance with local laws by also complying with IFC Standards. There is much going on with the resettlement, but as frustrating for shareholders as it may be, it cannot be for KEFI to lead the reporting and publicity as it must respect the Government’s leadership on these matters.
(From Harry Anagnostaras-Adams)
Q. Has the Infrastructure Finance Bond SPV been set up and have you a timetable on the Bond issue?
A. We are all working for closing this year and key individual milestones will be reported formally.
Q. Will the Bond offer be open to public and KEFI shareholders?
A. Any qualified parties can bid in the bond offer and the arranger will manage it.
Q. Do you have any comment on the HotStockRockets article 2nd Sept which was fairly categorical about there being zero dilution (“You will remember that Kefi still has a small $24 million funding gap which it will close via offtake agreements and other deals that do not dilute PLC shareholders.”) as opposed to the ADU Presentation (and previous) that stated “Closing the residual funding requirement of c. $24M is expected to at least partly involve an equity issue by KEFI.” I note there has been no retraction by HSR,but also no comment from the KEFI BOD – strange for something so important to shareholders and to the market as a whole.
A. KEFI cannot issue announcements analysing third-party commentaries. We have made it clear that our priorities are to minimise dilution.
Q. Why choose a Sharing Agreement with Lanstead as part of a placing?
The sharing agreement with Lanstead allows KEFI to further benefit from positive share price performance over the next 18 months and the funding helps support KEFI’s activities for 2017. We see a number of positive catalysts for KEFI over the coming months which should be positive for the share price as these are announced.
The £4,620,000 placing with Lanstead was done at the same price as the placing with other investors. KEFI can immediately deploy £693k of the proceeds and the balance of £3,927k has been invested in the sharing agreement which enables KEFI to further benefit from share price appreciation and to receive funding on a regular basis.
Q: Is Lanstead entitled to invest monthly at a fixed discount to the prevailing KEFI share price from month to month?
A: No. Lanstead will be issued and will immediately pay for 82.4 million (post consolidation) shares following shareholder approval at the General Meeting on 27 February. The number of shares issued to Lanstead is fixed and does not change. However, the amount from Lanstead due to KEFI under the sharing agreement is adjustable upwards or downwards at each of the 18 monthly sharing agreement settlements that follow. For example; the approximate amount in any particular month will be 10% more than £218k if the share price is 10% higher than 0.44p (7.48p post consolidation) or 10% less than £218k if the share price is 10% lower than 0.44p (7.48p post consolidation).
Q: Can Lanstead benefit by the share price being lower than 0.44p, rather than going higher than 0.44p?
A: No. Lanstead makes more money the higher the share price appreciates. The value-sharing (with KEFI) on the upside by Lanstead is an incentive to KEFI to perform so that Lanstead can make money.
If the share price over 18 months averages double 0.44p (ie 0.88p or 14.96p post consolidation) KEFI will receive double the headline £4.6m (ie £9.2m instead of £4.6m).
If the share price over 18 months averages half 0.44p (ie 0.22p or 3.74p post consolidation) KEFI will receive half of the headline £4.6m (ie £2.3m instead of £4.6m).
The projected outcome for KEFI is contractually clear and the value of Lanstead’s investment is greater if KEFI’s share price is greater.
It is important to note that Lanstead shares the majority, but not all of the upside in future KEFI share price appreciation. The bottom line is that Lanstead makes more money as the share price rises and does not derive any advantage from a decline in the share price.
Q: Can Lanstead trade its KEFI shares?
A: Firstly, Lanstead has a demonstrated track record of being a longer-term supportive shareholder.
Lanstead is free to buy and sell KEFI shares just like any shareholder, except that it is required to disclose movements of >1% as a significant shareholder. Unlike other shareholders, Lanstead has an uncapped commitment through the sharing agreement to remit amounts each month to KEFI based on the prevailing share price. Therefore one might say that whilst Lanstead may have an incentive to take a profit along the way (like any shareholder) and to cover their downside risk on the investment (just like any shareholder), Lanstead also has an incentive (unlike other shareholders) to maintain a significant ongoing shareholding because of its uncapped exposure on the amounts due to Kefi over the 18 months should KEFI shares appreciate.
Q. Have other companies benefited by having Lanstead as a shareholder with a similar sharing agreement?
A. Yes, based on our enquiries Amur Minerals (AIM), AFC Energy (AIM) and Blackham Resources (ASX) are some recent examples of companies that have benefited by having a Lanstead sharing agreement. Immupharma (AIM) is a current beneficiary.
Q. The Beaufort Securities note of 18 January contained figures that differed from those previously released by Kefi.
Beaufort expects a total funding requirement figure of $145m and assumes an increased cost overrun facility of $20m. Are these figures sourced from and endorsed by Kefi?
Beaufort is now suggesting that construction will not commence until this time next year. Is this the current, amended, schedule or are Kefi and its contractors still working to the time schedule previously indicated, which was that construction would be substantially completed by Q1 2018 with production starting in mid-2018? In the news release on 20 December 2016, you stated that you were confident that development would commence this year.
In that news release of 20/12/16, you also state that you are confident “…of being able to announce a co-lender to coincide with the scheduled end of the Ethiopian State of Emergency…”. Can it be inferred that the co-lender is ready to commit subject to the condition precedent that the SoE is lifted, and would be in a position to commit if the SoE is lifted ahead of schedule, or is due diligence expected to take another couple of months?
A. Analysts form their own views after gathering information from a variety of sources. As detailed by Charles in his Beaufort Securities note, he visited Tulu Kapi and met with various people in Ethiopia during November.
KEFI never endorses the details in analyst research and also respects their right to form views which may differ from the Company. Analysts sometimes take a more conservative view on costs or timing than the Company and they are then happy to upgrade their valuations if the Company meets its targets.
Per our guidance, we still target construction to commence this year fully funded with production by the end of next year.
The shares are woefully undervalued provided only that Kefi secures the additional senior debt and provided that the GoE resolves the civil disorders (there was a positive announcement yesterday) but I would be grateful if you might clarify a couple of points?
Q. In previous calculations of the net cash requirement, the capital raised last July (2016) of $5m has been shown as reducing the cash requirement remaining to be raised and there is also the $3m VAT recovery to be taken into account. Is the $20m “equity requirement” mentioned in today’s RNS IN ADDITION TO the $8m just mentioned or is the additional capital to be raised $12m (subject to the corporate cash requirements of PLC).
A. $20m hopefully project level equity. We’ll see.
Q. The cash requirement figure appears to include costs running out to October 2018, some 5 months after scheduled commencement of full production (even longer after scheduled commencement of commissioning of the mine) but those costs should be covered by income generated by sales of metal. Even if there is a delay getting the metal to market, it can be forward sold once produced and those forward sale contracts can be discounted commercially.
A. We have not played those games yet and have deliberately not committed any offtake yet. KEFI has recently appointed Noah’s Rule as gold sales/hedging adviser as we now turn to those subtleties.
Q. If a worst case scenario is being taken (no production before October 2018), then, surely, the contractual retention (the plant construction contract) will not be payable until there is production and that sum, at least, could be considered to be funded by income (and the cash requirement thereby reduced)?
A. That is all factored in.
Q: I have seen an Ethiopian press release recently with a comment from a member of the DBE providing the below quotes regarding a change of stance on debt levels for international projects:-
"Esayas Bahire, president of DBE, told The Reporter that the gold development project was viable. However, he said the loan process had stuck due to a change in loan policy. “When the company applied for a loan the debt equity ratio was 70-30 percent. But it was changed to 50-50 percent. So KEFI’s loan request is pending,” Esayas said.
Previously, companies were expected to raise 30 percent of the required project financing and would secure 70 percent funding from local banks. But the government now requires foreign investors to come up with 50 percent of the project financing. “Apart from that we do not have doubt on the viability of the project,” the president said."
With the cap ex requirement announced this week at 150 to 160m USD, the above criteria suggests that the debt can only up to 75 or 80m USD where as the presentation on Thursday stated that the debt component will be between 81 and 91m USD.
Are you able to comment any further?
A: The DBE is supportive as its President indicates in his comments and the Ethiopian central bank has advised that the new policy can take into account the equity investment into the project since its inception and that therefore our proposals are compliant.
Q. If the project has the value attributed to it, I argue there are no circumstances where issuing share equity at this crashed share price of say 0.4p is in shareholders interests, if there are alternatives, such as offtake streaming. The issue of say 4bn shares at 0.4p would raise £16m, and streaming 35,555 oz of gold at £450 also raises £16m.
Given the first option gives shareholder dilution of 50% of the future project value and the streaming option involves say 3.6% of forward selling of a 1m+ oz gold project, is streaming clearly and overwhelmingly the best option, and for any pro rated funding to be raised, to preserve current shareholder value, even more so long term shareholders?
A. Gold streaming is certainly one financing avenue we have on the table for Tulu Kapi though its role in the mix (size and terms) is restricted by the senior secured debt.
As Harry said during the webinar, working towards the best outcome for shareholders is always at the forefront of our minds in these volatile markets. And the NPV shows that under all options being worked up, the value-upside for shareholders is a multi-bagger.
Would it be possible to comment on concerns circulating in the PI community that another market placing will be undertaken prior to arrangement of the funding package as detailed in prior RNS releases?
A circular today from Tom Winnifrith (market commentator) suggested that Harry Anagnostaras-Adams had flatly rejected that another placing would be necessary and that the company is fully funded until Tulu Kapi project funding is arranged. Are you able to confirm?
A. Please note that Harry is in the midst of an international non-deal roadshow which is interspersed with his normal work schedule. This is KEFI's first ever institutional roadshow. Of course that is the first since inviting Odey and Standard Life to fund the acquisition of Tulu Kapi some three years ago, which was not really a roadshow at that time, as they both knew the Chairman from EMED Mining where they were large shareholders. I am aware that in this non-deal roadshow we have had over 60 requests for meetings, which illustrates increased interest in the gold sector and in KEFI.
Harry mentioned to me some weeks ago that Tom Winnifrith had passed on the query as to whether we were doing a placing and Harry answered, which I repeat, that this is a non-deal roadshow and that cash and receivables should take KEFI to Q2-17, before which full development funding should be done and dusted.
Q: The placing the other day has allotted $600k towards exploration in Saudi Arabia and Ethiopia according to a Beaufort Securities note.
Although the press release mentioned exploration in Ethiopia and Saudi Arabia, It would have been useful if it had been more specific about what form the exploration was going to take and on what EL's.
Are you able to expand on this, specifically in relation to what's being planned for each EL in Ethiopia & Saudi Arabia?
A: We have budgeted to remobilise into the field in both countries after the June to September seasons (the wet in Ethiopia and holy periods in Saudi Arabia).
Most of the emphasis will be on targets proximal to our development assets, Tulu Kapi and Jibal Qutman. The exception is Hawiah which is stand-alone company-maker-scale, multi-metal target where we will also start with some geophysics closing in on some recent interpretative results.
We do not publicly breakdown exploration budgets any further, as they compete for every dollar allocated and continual reviews can swing the focus based on results from month to month.
We decided not provide a quarterly report for the April to June 2016 period as the AGM statement by KEFI's Chairman was released on 30 June. This statement provided a good update on KEFI's progress during Q2 2016
Please note that KEFI's quarterly report is not a regulatory requirement but voluntary disclosure to generally keep shareholders up to date with the Company's progress.
(posted 26 July 2016)
Q: Clearly it is still too difficult to agree good enough terms with gold streamers to complete the syndicate given the better gold prices of late. Consequently, has management considered allowing the sale of KME - perhaps even to Odey and Ausdrill as they are the experts in that area - and using the funds raised to really progress the jewels in Saudi Arabia? It would add cash, mitigate future need for dilution and potentially bring about a significant stock re-rating.
(posted April 2016)
A: Thanks for the question but the syndicate formation continues on track.
Q: Odey could raise the funding far easier on the private market and perhaps buy in Kefi's expertise as needed, providing another revenue stream. Haiwah is crying out to be developed and TK is simply stalled in the Market's eyes so the logjam needs unblocking somehow as more dilution here will hand TK to Odey anyway at the present rate!
A: Hawiah is a good exploration target raher than an asset ready for development. And it’s rate of progress has been unaffected by the activities in Ethiopia.
Our current priority is obviously to finance Tulu Kapi and to trigger development of Tulu Kapi. Once this Plan A is implemented, we would naturally consider alternative strategic options from a position of strength. The creation of two public-listed entities out of KEFI has not been seriously considered at this stage of development and at this stage of the cycle.
KEFI's acitivities in Ethiopia and Saudi Arabia are currently conducted swiftly and very cost-effectively by the same exploration and development teams.
Should the Board come to consider it value-adding to decouple our activities within the Arabian Nubian Shield, we would naturally consult our 60% Saudi partners, bankers, brokers and of course shareholders.
Q. Oxide upgrade at Jibal Qutman – is this on back burner or due to be officially confirmed soonish?
A. Updating Jibal Qutman's Mineral Resource is not on the backburner, we are currently weaving through local issues.
Q. Will there be any more updates/upgrades to TK potential total resource/reserve before funding is confirmed?
A. Our team has been active on evaluating growth options for Tulu Kapi's gold production rather than working towards releasing updated resources/reserves changes soon.
Q. Is final piece of funding jigsaw still likely to be via a streamer or is it now more likely to be via third party debt for equity in KME (or a combination of the two)?
A. We are still focused on streaming as it fits well structurally within the funding package.
Q. Is funding situation ‘all fine’ as before?
A. Yes. Just a daily management process to speed up whatever aspect is slowest and weave through local issues. Focused on the final selection and structure of syndicate for the best fit to maximise solidity behind the company - through the inevitable opportunities and challenges that come with starting a new mine.
Q. Sum up your company for us in a sentence or two.
A. KEFI Minerals is an AIM-listed mining exploration and development company operating in the Arabian-Nubian Shield – principally focused on gold and copper deposits in Ethiopia and Saudi Arabia, with an attributable 1.93Moz Au and significant resource growth potential based on our extensive exploration portfolio. At our key asset, Tulu Kapi in Ethiopia, we’re on track to commence production in 2017.
Q. Tell us a little about you and your team’s background and any career highlights so far.
A. KEFI has a strong team with complementary skillsets. Executive Chairman Harry Anagnostaras-Adams has a background is in business management and finance, with a primary focus on start-ups in resources sector. Since moving from Australia to Europe in 2005 with a team, he launched EMED Mining (now Atalaya), KEFI Minerals and some private ventures which now includes the Cyprus copper venture in which Atalaya retains a 10% free-carried interest. EMED/Atalaya is focused on restarting the old Rio Tinto Copper Mine in Spain and has overhauled plans to international standards, completed an arduous clean-up of inherited litigation and other disputes, re-assembled full project ownership and agreeing the basis for permitting by the Andalucian authorities. Production has just started. In 2014, Harry switched from Non-Executive to Executive Chairman at KEFI, to support the acquisition, and complete overhaul of, Tulu Kapi Gold Project– transforming the project from an unviable venture to one which now has robust economics and is fully permitted, with the development financing syndicate taking shape. KEFI recently announced the securing of first class project contractors African Mining Services and Sedgman, and the Government of Ethiopia as project partner. Preferred banks and product-linked financiers have been selected and formalities commenced.
Jeff Rayner, our Exploration Director, is a geologist with over 27 years’ experience and he’s supported by a team with significant regional experience. Our group operations are headed up by Wayne Nicoletto, who’s also MD for KEFI Minerals Ethiopia, who brings 30 years’ experience as a metallurgist, general manager and country head, primarily heading up the building and operating gold mines in Africa and Mongolia. . John Leach has just stepped down as Finance Director of Atalaya and will now manage the completion of finance syndication process at KEFI. Four of the seven group company directors having been with the business since its foundation. The more recent additions include Ethiopian expert Dr Kebede Belete and His Excellency Mr Norman Ling, former British Ambassador to Ethiopia, Djibouti and the African Union.
It’s also important to note our Saudi partner, ARTAR of the internationally renowned Al Rashid family, with whom we have a joint venture company through which we operate in the country. ARTAR is a significant local entity with strong government connections, which brings tremendous strength to our activities in the country.
Q. What is the focus of your management team in 2016/17? What are the key milestones you are looking to reach over the next year that you think will add value to the business?
A. Our primary goal is progressing our Tulu Kapi gold project on schedule to commence production at the open pit at the end of 2017. In the immediate future, we’re focusing on formalization of the finance syndicate and receiving regulatory approval thereof, which we expect to achieve in Q2 2016. Other key milestones for Tulu Kapi in 2016 include completing the preliminary economic assessment of the underground mine as well as the commencement of mine district exploration for satellite deposits.
In parallel, at our most advanced project in Saudi Arabia, at Jibal Qutman, we’re currently translating the Mining Licence Application in Arabic for submission and processing. This year we expect to expand the Mineral Resources estimate at Jibal Qutman and progress feasibility studies for construction and operating licence applications. We’ll also be exploring the district around Jibal Qutman for satellite deposits. At our other key project in Saudi, our more recently-granted Exploration Licence at Hawiah, we’ll commence drill-testing of gold and base metals targets. We also hope to be awarded additional exploration licences in the country.
Q. What do you see as the key risks and challenges facing your company at the moment and how are you overcoming these?
A. For any gold miner, the perils of the gold price is a cause for constant vigilance and risk-mitigation. We’ve taken important steps to refine the finance plan to protect the Tulu Kapi project and all its undertakings against fluctuations in gold price. Similarly, in difficult capital markets for junior markets, we’ve been extremely prudent in our approach to financing, assessing multiple options very carefully from the viewpoint of the project syndicate as a whole before announcing and locking in any one party. We’re now finalizing the remaining details of the financing plan to include cost overrun facilities, limited hedging and pre-production finance charges with a view to striking an appropriate balance between risk-mitigation and equity dilution.
Q. Investors like to see that management have “skin in the game”. Tell us briefly about your management team’s investment in the business.
A. The key members of the management team and all of the board hold shares in KEFI, which was recently increased with additional investment made during our recent fundraising. Harry’s family’s holding is about 5%. Significantly, our key shareholder, Odey Asset Management, increased their holding at the end of 2015 from 14% to 26%, which is a tremendous vote of confidence.
Q. In a sentence, what do you think makes your company such a compelling investment?
A. Our stock is extremely good value: the Development & Finance Plan for Tulu Kapi that has been adopted by our preferred syndicate of financiers and contractors gives the asset an NPV at the start of production in 2017 of £123m compared with a current market capitalization for the entire company of less than £10m. This doesn’t take into consideration our pipeline of other significant projects, which makes the stock yet more compelling.
Thank you for answering my questions on the Webinar this week.
Q. My first question regarding detailed timing of the finance steps was to try and understand whether Kefi will be announcing interim steps prior to the full drawdown in mid 2017, so my question may have not been clear. Are you able to comment on whether you'll be issuing stage by stage updates?
A.Yes, as commitments made.
Q. Secondly, I forgot to ask a question in relation to the "Preliminary economic assessment of Tulu Kapi underground mine" comment that your latest PR stated as being one of the milestones for this year. So my question is, when do you expect this PEA to be completed?
A. Next two months, as the planning team can be allowed to take a temporary breather from TK and JQ.
The table at this link outlines how KEFI has improved the key Tulu Kapi economic parameters since acquisition in December 2013.
Q. In the RNS of yesterday, the peak funding requirement is stated to be estimated at $120m, reduced back down from $129m, but the table headed “Capital Expenditure” reveals a figure of $139.6m after “cost Overrun”. Please reconcile the figures with explanations.
A. Circa $120M is shown in table as $122.9 and then we show amounts for a cost overrun facility and facility for finance charges during construction, both under negotiation with the syndicate. These numbers will keep refining before drawdown as will gold price hedging and its pricing/structure.
Q. Does the figure of $120m include a provision for exploration at TK? If so, under what heading is the provision included and how much is provided?
A. Yes, in other.
Q. There has been considerable uncertainty, confusion and disappointment over the level of funding required of PLC for the TK project, including the historic VAT liability. Are you now able to give a clear and categorical assurance that NO further funding will have to be raised by PLC to feed the insatiable thirst of that project for cash?
A. VAT part of deal from day 1. And saying TK has an insatiable thirst? Really! In all sincerity, I challenge anyone to complete permitting, full DFS, contracting, and finance syndication for as little as spent by KEFI. Never seen it. I consider this an unfair question on several scores.
Q. In Edison’s note of 11 November 2015, there is mention of a “golden ribbon” of low-grade oxide extending 4km to the west of TK and estimated to contain up to 200k ozs. It is also mentioned that metallurgic tests have been conducted and that a high level of recovery can be expected from rough crushing and heap-leaching. That source of oxide could, I calculate, increase NPV for the project by up to 30%.
A. Our bankers’ NPV’s post-DFS on Ore Reserves in TK open pit would be bigger if we add hypothetical NPV’s on underground resources and satellite deposit targets.
Follow-on Q. Why has there been no mention of it in company reports? If the figures are realisable, could this source of additional production be brought on stream before or simultaneously with production for the mine, now scheduled for the end of 2017?
A. Exploration will determine how/when we tackle.
Follow-on Q. If so, is the cost of drilling of the resource and of providing whatever additional facilities that might be necessary to exploit it covered by the current estimate of peak funding requirement?
A. Exploration included. No hypothetical development yet capable of estimation.
Q. Well done on the placing earlier in the week at the level you got it away at. Can you confirm now when the drilling for Hawiah will commence and whether we will have an announcement of the bank debt and streaming deals prior to Xmas for Tulu Kapi?
A. Field teams now being released from Jibal Qutman for the time being. Up to Exploration Manager to schedule Hawiah logistics, community protocols and so on. Having selected contractors in September and confirmed govt recently, we now focus on the banks and streamer. Front runners are clear and selections will be made when best suits KEFI.
Q. It was mentioned in the announcement that drawdown would be in the new year but do you expect terms to be agreed this side of Xmas?
A. Terms already agreed in principle.
Q. Finally, can you confirm if any of the monies raised this week is to begin the community resettlement for Tulu Kapi?
A. Community preparations are in full swing but move will be triggered on first drawdown.
...of terms with the contractors (and, possibly, the Ethiopian government) be released to the market before the company seeks to raise further equity to bridge the funding gap (if any)?
A. The peak funding requirement will be refined over the coming weeks as negotiations with various parties are progressed. The team is assessing the competitive bids from mining contractors and construction contractors, as well as financiers. KEFI will provide updates on the general status of these negotiations and the estimated impact on peak funding. Given how this ties in with the amount to be raised via equity, it is likely that such an update will be provided prior to an equity raising.
Q: Are you happy with the Edison Research note published 20 August 2015?
A: Edison did not try and value the resources or reserves in the ground or the exploration scenarios and probabilities. They merely project a dividend stream and value that. This is as if to say (my words) “if the dividend stream is worth multiples of today’s share price, then you get all the upside as further cream”.
Q: I guess its saying kefi is valued at 3.9p after issuing an additional 860m shares($10m @0.75p/share), excluding any streamer deal. Or 2.82p worth of dividends?
A: We understand it values the assumed dividend stream only and ignores other values or upsides.
Q: I appreciate any management involvement in this note would have to be cautious/prudent, but 860m shares at 0.75p ?!!! Surely,it’s a reasonable assumption that we can do better than $10m and 0.75p after the finance is finalised?
A: The valuer appears to be assuming a quantum of shares to be issued at a small discount to today’s share price. He is, I suppose, not inclined to speculate on what the share price may or may not be when the financings are done.
Q: Also,they have slaughtered Jibal Qutman by valuing it based on resource and peers in the sector, who've all been trashed and probably have no hope of ever making it to production, with their low valuation per resource oz. They could've at least used Kefi's scoping study numbers?
A: Edison did not try and value the resources in the ground or the exploration scenarios. They merely project a dividend stream and value that. This is as if to say (my words) “if the dividend stream is worth multiples of today’s share price , then you get all the upside as further cream”.
Q. Table 13-6 in the DFS shows cost of the process plant including EPCM & Insurance ($10.8m) as $77.5m. In the RNS of 17 August (page 3) you show the cost of the processing at $72.3m excluding EPCM of $10.8m, which is separately itemised. Please clarify the increase of $5.6m.
A. Table 13-6 Total ($77.5m) - EPCM and insurances ($10.8m) + raw water dam and delivery system ($3.8m) + TSF slurry delivery and return system ($1.2m) + environmental management ($0.5m) = processing plant in RNS ($72.3m)
Q. I do not understand the wording immediately below the table of initial capital costs in the RNS of 17/8: “The above the mining pre-strip costs and infrastructure construction costs are inclusive of a targeted US$10 million contribution from the mining contractor”. The mining pre-strip costs are $10.6m and the Infrastructure costs are $17.8m making a total of $28.4m if those are the infrastructure costs to which you refer. Are you saying that you are expecting the mining contractor to contribute $10m to reduce those costs to $18.4m in aggregate or are you saying that the $28.4m is AFTER deducting a $10m contribution from the mining contractor?
A. The latter statement is correct. The in the RNS for mining pre-strip ($10.6m) and infrastructure ($17.8m) on page 3 of the RNS total to $28.4m, which equate to Table 13-2 of the DFS as follows:
• Mining pre-strip ($15.6m) less $5.0m = $10.6m
• Overhead power lines, mine camp and access roads (total to $22.8m) less $5.0m = $17.8m
Q. The site infrastructure costs are included in the cost of the process plant (DFS Table 13-6 $11.2m). The infrastructure costs referred to in the RNS appear to refer to off-site costs. Is that correct?
A. The infrastructure costs in the RNS are the off-site infrastructure costs in Table 13-6 less the raw water and TSF delivery systems detailed in the first answer above and less the $5.0m funding provided by the mining contractor.
I sympathise with your difficulty in reconciling these numbers. The RNS capex table aimed to distil these numbers down to a few line items that could give a broad split of the capex for a wide audience. The tables in the DFS were provided by various consultants who each have their own way of summarising the costs. This can be confusing when rolled up. For example the “site infrastructure” costs in the processing plant capex may be better labelled as “Earthworks and plant indirect costs” per the detailed breakdown in Table 13-7 of the DFS.
Finally, if you want to reconcile the owner mining capex in Table 13-2 of the DFS to the contractor mining capex in the RNS, then have a look at Section 16-5 of the DFS
Q. Will you be announcing the start of the Hawiah drilling and the results of the SP survey of the northern part of Hawiah?
Q. Is Hawiah 1 still the target?
Q. And will you release the results of the initial programme of about 18 holes before proceeding with the next phase of exploration?
Q. Are you able to give an indication of how long that initial programme will take through to receipt of lab results?
A. Some months, depends largely on ground conditions and lab turnaround.
Q. Are you able to confirm that Kefi has funding to carry all KSA operations through till after release of the initial drilling programme results?
A. Drilling will take some months and will follow some scheduled drilling at Jibal Qutman, pursuant to priorities.
Gold is serving its age-old function, the reliable last-resort saleable asset when there is a need for liquidity. We note the credit crunch in China in particular.
- Once gold has provided liquidity for the cash-starved, its price will return to the “norm” , whatever that is for that moment in time
- In the meantime, it is our opinion that gold stocks and other secondary market prices related to gold supply/demand get the ripple effects
- We believe that Gold stocks are currently at cyclical lows, and juniors more so than majors
- Like everyone else, project financiers get caught up cyclical pressures of capital markets
- KEFI has received nothing but praise from the Government, short-listed contractors and financiers for the manner in which we have overhauled Tulu Kapi. This initiative has been accretive for KEFI’s intrinsic fundamental value.
As we have stated previously:
- The debt numbers stack up and have always been stress-tested at current gold price levels and lower
- The project is robust and has a quick payback because it ranks in the best quartile globally for all-in sustaining costs
- The key task is now not to get more debt offers but to get the best financing mix for our shareholders
- We need to work through the various choices properly, per the published timetable or targeted milestones. That is happening.
Our business model is quite clear: equity funding is what takes us through to triggering development and , at that stage, maximise within reason the use of contractors’ funding, debt-style finance and project-level equity to get us through to production cash flows. We work very hard to always be transparent. It is mandatory to be transparent as to how the board strives to act in the best interests of shareholders as a whole. That allows every individual shareholder to decide what suits his own different circumstances and different appetite for risk/return. Some investors like to get involved early during grassroots exploration, others during production only, and others at stages in between.
Under the Mining Agreement between the Government and KEFI Minerals Ethiopia, the Govt has a 5% free-carry and the right to acquire more on commercial terms but only by mutual agreement.