Q and A
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Following receipt of this confirmation from the Ethiopian Government on 7 November that it had resolved its internal administrative arrangements, the partners of the Project subsidiary, Tulu Kapi Gold Mines Share Company (“TKGM”), were in a position to proceed to:
- review these administrative changes;
- update the shareholder documentation accordingly for TKGM;
- distribute the revised documents to the partners’ compliance teams and boards as the case may be;
- sign final documentation relating to the shareholders’ agreement; and
- trigger subscription procedures for the Project equity capital.
Those processes are in train and in Ethiopia typically take between one and two weeks each, as was stated in the shareholder webinar at the end of October.
This being a public-private partnership and an innovative first-mover project may easily cause delays but we have seen none so far. We are about half way through these steps and certainly KEFI would announce if there is any material change.
We were told it was fixed 3 weeks ago then it resurrected itself last week.
The Tulu Kapi financing plan includes the following elements, notable in the context of the various points and questions made in the question:
- KEFI’s partners inject $58 million into TKGM for a beneficial interest (direct plus indirect) of 55%, which implies a valuation of KEFI’s 45% of
c.$47 million. The NPV’s of TKGM as reported are higher.
- KEFI has control by owning 80% of KME which owns 56% of TKGM
- KEFI has announced that, along with its partners, the government and the contractors, it met last month and confirmed to trigger the project development this month of October.
- KEFI will issue more updates as appropriate and will issue a Quarterly Update this month also.
In regards to all the reports, yes.
And closing is expected by the end of October as reported in KEFI's announcement dated 4 September 2019 and Interim Results released on 23 September 2019.
ANS Mining is not part of the KEFI Group and is a private Ethiopian company formed specifically for the investment into TKGM alongside KEFI and the Government.
The KEFI announcement dated 25 January 2019 sets out the identity of the founding directors and shareholders of ANS Mining such as Ato Zafu (Chairman of United Bank) and Ato Hailemelekot (Chairman of Addis International Bank).
Nothing has changed from the Sources and Application of Funds tabulated on page 9 of KEFI's 2018 Annual Report which was simply summarised in the TKGM summary on page 2 of the 2019 Interim Results (released 23 September 2019).
First full production year 160K oz from open pit and start the underground mine in or about third year of production to lift it towards 200K oz pa.
Q. Does Sanderson still hold security?
A. As set out in the announcement, Sanderson has undertaken to release security.
Q. Will the new working capital lender hold security?
A. The new working capital lender is unsecured.
Q. Will ANS Mining hold security?
A. ANS Mining will hold the security.
Q. Why did you part-replace Sanderson with the new lender?
A. To use the security cover for best effect, to allow greater flexibility with deals in Ethiopia and to spread our funding sources,
Q.One of KEFI’s shareholders and supporters suggested in a public podcast that you could have done a better deal with another particular lender. Can you comment?
A. We did compare alternative offerings and picked the deal that worked best for KEFI. We do not comment publicly beyond that.
Q. Why do you not just make a placing and avoid these working capital lenders?
A. It’s a choice based on the Board’s assessment of likely milestones in the short term and the lowest cost of capital in that light.
Q. How do you feel seeing the share price reaction?
A. Disappointed for the shareholders who sold.
Q: Is it correct that an arrangement fee was paid to a new lender in shares which can be sold by them to effectively fund their loan to KEFI?
A: No. The only fee paid to new lender was cash fee of £37,500. The re-arrangement fee paid in shares was to the existing lender to drop all security held.
Q: Is it correct that you did not compare competitive finance terms?
The political and security situation in Ethiopia has changed since KEFI, Ausdrill and Lycopodium jointly sponsored an independent assessment a few years ago. The changes since then are at national, regional, district and local community levels. The independent assessor addresses all levels and has started at the national level and works through to the local via a one week visit. This is not a desk-top exercise and any company has to apply a safety first policy and, whilst we understand the situation and have in place the requisite plans, the consortium understandably needs an update to the independent assessment. This would not have been required just now except that, as reported in our recent announcements, incidents in June sparked immediate remedial actions. The country is attracting foreign investment and industry is indeed mobilising into Ethiopia but all will follow a safety-first protocol and that is especially important for a first-mover. We highlight that this is a project sited in a remote region of the country and the administrative and security apparatus needs to be installed for us specifically, and up-front, unlike a project sited in a major metropolis.
Atalaya Mining is a company that he founded and is proud of, having led its clean-up for development over some eight years. He founded the company in 2004 at today’s equivalent of about 8p and stepped down for Spanish management to be appointed when the stock was at about the same price as today - about more than 20 times the foundation price. Harry Anagnostaras-Adams added that he thinks the Atalaya team is excellent.
Economy unless a long-haul flight, in which case business.
KEFI was invited in by Nyota’s shareholders to overhaul a plan that had clearly been fast-tracked to catch a high-gold price market environment, when gold was ran up to US$1,900/oz. With hindsight, the mine design by Nyota based on the assumption of $1,500/oz gold was wrong.
KEFI expanded the resource from 1.1M oz to 1.7M oz with extra drilling and a lot of trenching for the first time which exposed the main ore lodes to be mined. We then lifted the reserve head grade from 1.8g/t to 2.1g/t. This was via a refined mining method to recover reserves of 1M oz at a higher grade per tonne of ore. So the project plan mines and processes less ore tonnes at a higher grade, i.e. providing a higher-margin per tonne. We designed the mine around a gold price of $1,098/oz. All-in-Sustaining Cost is now c.US$800/oz not c.US$1000/oz.
And the numbers are not just DFS-level based on independent experts for the owner (as done for Nyota) but were tweaked a few times to reflect the realities of the tenders from appropriate contractors who actually have to deliver operationally against the numbers and then again also for the independent review completed for lenders, who add their own layer of conservatism.
Yes, but rather than be publicly accountable for the review processes of each consortium member, it is safest to say that as long as that process is behind us by some time in September, the timetable will not suffer. That should give plenty of time given what we see on the ground and we expect quicker.
On 26 May 2019, there was a burglary by six armed men at the Tulu Kapi exploration camp. There was a scuffle but no serious injuries. Armed security response was activated per current procedures and the culprits fleed. The items stolen or damaged had minor value. Whilst armed security forces were discouraged by the community when low-key exploration and planning was the focus, increased security is now welcome and will be maintained and built-up as we move forward.
The start date has moved a few times in the past flowing from various Government actions.
KEFI made representations to the Prime Ministry and some aspects of the development have started based on the positive instructions issued by the Prime Minister at the end of February. We have reasonable grounds for confidence that full development program can be underway shortly.
As we stand, the various work streams target commissioning from late 2020, first gold April 2021 and full production in mid-2021 which has been the case for some time. Preservation of this schedule has required many refinements as well as collaboration between KEFI and the principal project contractors.
A: No, we believe that all Government levels and agencies are indeed fast-tracking as far as they are concerned in a country that has a plethora of transformative initiatives on the go.
The only remaining Government consents we require to start the full development program are:
(a) central bank board approval of project finance terms that have been agreed informally with KEFI; and
(b) regional government to confirm we may proceed to allocate money, new lands and houses to the community in accordance with principles and calculations already set out.
We have access to all the relevant officers and do not detect anyone being deliberately slow, but are not in a position to judge the time efficiency as compared with central banks and regional governments in other places.
A: Since KEFI and ANS first reached agreement six months ago, we have been awaiting Government consents to be finalised as well as other project financiers. In light of all parties' desire to proceed, ANS and KEFI agreed for ANS project investment first Instalment of $11.4M to proceed when central bank approved the core project finance terms and with the protection of ANS referred to in the question. KEFI considers that this a fair quid pro quo for an increased first Instalment from ANS and that KEFI shareholders are well served vis a vis them putting in the $11.4M.
A: No, all we know is that the shootings were in a district where artisanal mining has existed for millenia.
A: The base-case development schedule remains 24 months to production, with incentives for being quicker and penalties for being slower. It remains focused on targets to be commissioning the mine and processing plant H2-2020. This has taken much finessing of schedules for water management, resettlement management and all the other aspects. And the schedule starts when the Regional Government starts the resettlement processes, in respect of which we are encouraged by what we see on the ground and have reported to shareholders.
Phase 1 of resettlement, detailed engineering and ordering of long-lead time items are to be undertaken during the first six months (Q2/Q3-2019) of the development schedule, which is to be funded by an instalment of project-equity from ANS scheduled for end of March 2019.
The full package of funding would ideally close on the last day of the 2019 wet season. This package provides the funding for the remaining items in the development schedule and enable major works to commence at the beginning of the 2019 dry season. An advantage of waiting to put the bonds in place until major works are able to commence is that more gold should be produced prior to debt repayments commencing than hitherto contemplated.
Regarding questions about the wet season, one planning challenge was the collection of sufficient water in dams to feed the process plant. That aspect has now been refined with water bores now planned to provide processing water when necessary. Another planning challenge has best to undertake activities in and around the wet season so that physical activities are not overly impeded - those schedules have also been refined for all concerned. Western Ethiopia is not monsoonal or cyclone-prone. Construction can keep going, but best to be set up and running before the wet season hits.
Q: When are ANS institutional shareholders due to subscribe their first instalment into ANS and when does that go into TKGM?
A: The first institutional subscription into ANS by the end of March and then the funds go into TKGM.
Q: When is the deadline to move the Tulu Kapi community?
A: The plan is to prepare land and houses between April and June, when the wet season starts. Then the Phase 1 move can happen by the end of the wet season. Many things still continue during the wet season in Ethiopia which is not as restrictive elsewhere in the tropics.
Q: Why did KEFI announce your meeting with Ethiopia's Prime Minister and the next steps by ACT Capital?
A: To keep the market informed because both parties informed us that they planned to make public statements involving KEFI for their own compliance reasons.
Q: What is happening with the project now and what is likely to happen for the rest of this year if everything proceeds as you expect?
A: Q1: Mainly Government consents and consortium (KEFI, ANS, MOFEC , Lyco and Ausdrill) meetings to confirm commitment to schedule. Q2: Start of development: mainly Phase 1 of resettlement and detailed engineering, Q3: Mainly sub-contracting and long-lead orders. Q4: Commence major works.
A: Further information is available on ACT Capital's website at www.act-capital.ch
A: It means that the State Minister of Mines for Ethiopia and KEFI’s Managing Director announced in Toronto what the Prime Minister had instructed last Thursday, what has happened since and that all consortium parties remain on track as previously outlined.
Q. Late last year you arranged a loan facility, part of which you stated was to be used for working capital in 2019 (RNS 30 Oct 18). Shareholders were shocked yesterday to discover you have placed again, which you also state is to be used for working capital. Please explain if the placing has any bearing on the loan facility ie do you still intend to use it etc etc?
A. In November 2018 the Board sought and the shareholders approved limited authorities to make a placing, use a working capital facility and pay service providers in shares. The timing and sizing of these choices needs to be managed to fit best to the arrangements between consortium members. Some of the factors taken into account are commercial in confidence and would not be in shareholders’ interests to discuss publicly. For the sake of illustration, even if all these facilities were assumed to be fully implemented, the diluted NPV/share is clearly many times current share prices.
Q. Would you please explain this in more detail, most people I have spoken to do not understand it:
“Amongst the advantages of these funding arrangements are that they will allow the scheduled activities in the first six months of the Project development schedule to target the reduction in the period between debt-drawdown and first gold production and, consequently, to increase the period between first gold production and first debt-repayment.”
A, By completing certain jobs with equity funds, we drag forward the start of the 24-month development schedule. By drawing debt after equity funds, we push back the end of the grace period before debt-repayment begins.
Q. What was the broad breakdown of groups taking up the placing? Mainly retail, Directors, II’s?
A. Participation by officers would have been disclosed. SVS took the majority of the placing for its retail client funds as part of a plan to deepen our retail penetration over time as the sector and the project improves its prospects. The rest was existing institutional.
Q. On the same day as the placing announcement a large trade of 17m at 1.77p appeared (just under 3%), is this linked in anyway? Do you know anything about the trade?
A. It has not been reported to us.
- The cost of arranging the Facility is £380k or 9.5% of the Facility amount of £4 million (or 8.3% excluding legal costs). Good insurance to underpin our working capital. This is 19 million shares @ 2p or 3.4% of the current issued share capital.
- If we draw down the £2 million Facility A, the cost increases to £480k or 12.0% (10.8% excluding legal costs). Still good insurance. This is 24 million shares @ 2p or 4.3% of the current issued share capital.
- If we draw down the full £4 million, the cost increases to £830k or 20.8% (19.5% excluding legal costs) of the Facility. Or equal to 41.5 million shares @ 2p or 7.5% of the current issued share capital. The working capital “insurance” gets more expensive but we only use it if it suits.
- Thus, the issued share capital can increase by between 3.4% and 7.5% to cover the Facility fees. While there is certainly a dilutive effect to this, the shares are being issued at a share price above the market price when the Facility was arranged. Also, the actual number of shares will be dependent on usage of the Facility by KEFI. This flexibility to the Facility is important and a key feature that helps to contain costs and dilution.
- If one calculates the aforementioned fee costs according to the market price of shares at the time of the Facility being negotiated, these fees are commensurately less. For instance, at 1.4p instead of 2p the aforementioned full drawdown scenario cost of 20.8% might be deemed to be 14.56%.
Q: Can you confirm if the current situation in Saudi Arabia is likely to have any impact on the relationship with Artar.
A: KEFI’s relationship with ARTAR is solid and the joint venture plans are reflected in today’s RNS. KEFI was in Riyadh on 28 October and the Government appears to be determined to progress development and the extractive industries in particular.
Q: if Hawiah is the key licence we have been so keen on, why did you not spend more money on it faster and why suspend field work in 2016?
A: Hawiah is a world-class prospect and we indeed went fast until we had to deal with some issues as regards security and community relations. These issues were dealt with in close collaboration with the regulatory authorities.
Q: Reference the Loan RNS issued yesterday, $9M was supposedly due to be paid to us in August 2018, as previously announced.
A: The $9M (birr-equivalent) was not for release to KEFI in August. And the commitment to ANS from its shareholders has been made by its institutional investors, for $30-38M. Of that total, $9M (birr-equivalent) is to be released to project company TKGM in December in accordance with terms as published.
Q: In the recent BRR webcast, you also gave some guidance in terms of not requiring cash until the $9M is received, or that was certainly how I interpreted it. Yesterday’s loan facility suggests different, which is what I am trying to understand. In the webcast you said, ‘the cash and working capital arrangements we have will see us past Xmas, the next cab off the rank is the ANS injection…’. The events of yesterday suggest this was completely inaccurate.
A: The Loan Facility announced this week is for working capital in 2019, so as to put KEFI (parent company) on a solid footing as it triggers development and other planned activities, also with required flexibility regardless of the timing of project company equity and its conversion from Birr into hard currency, which has recently caused delays in Ethiopia. The Loan Facility is there as a facility to be used as and when required.
Q: From yesterday’s RNS, you mention ‘decisions taken by TKGM’ being the reason for starting ‘certain high impact tasks for community resettlement’, therefore does this not mean that access to the $9M is now valid, as it is no longer money sitting in the bank? T
A: The Loan Facility is to provide flexibility as from January 2019 at the parent company (after shareholder approval and drawdown as required) as well the ANS investment release of equity to TKGM in December per the published plans.
Q: You also mention additional expenditure on further exploration. Is it prudent to start this when clearly the company has no cash and is having to finance it when in such desperate state? Why not wait until after closure, when in theory a much better deal could be had, the company hopefully being a much higher market cap? I was also under the impression that this exploration was already covered/financed anyway?
A: There will be no material spending on exploration until after closing the TK development funding. Only low-cost planning in the meantime. The Loan Facility provides flexibility to manage working capital during 2019. The TK funding package is a c. $300M funding package. The parent company needs some working capital flexibility before and after the various interconnected drawdowns.
Q. It is a disappointment that we will suffer yet more dilution despite your recent assurances.
A. We need solid underpinning of working capital at the parent company level to finish the c.$300M financing. The announced Facility as from year-end need not be drawn if cheaper funds are available and any shares issued are at floor price which is premium to market now. We certainly try to minimise dilution, the biggest aspect of that effort is the raising of development equity and debt at project level.
Q. You state that the need for further funds principally arises as a result of “decisions taken recently” by the TKGM consortium:
- You make no mention of any contribution by the minority interest in the consortium: is Kefi’s cash need a reflection of its proportionate contribution to the total funds needed for the acceleration of aspects of the TK project?
- In the same sentence, you refer to the exploration of “the now-enlarged area…”. Why does the TKGM consortium take decisions over operations on land not included in the licence granted to the project company and which will be a cost wholly borne by Kefi/KME?
A. They do not.
Q. If the decision in relation to commencement of exploration operations was not taken by the TKGM board, why is the exploration being commenced before the licences have been granted and, more importantly, before the arranged funding is in place?
A. No real money spent on exploration anywhere until after full funding of TK, just some that we mostly get covered by JV recharges. The reference to some preparatory work for exploration relates to time and tiny-cost/high-impact tasks that allow drilling to start ASAP after TK construction starts.
Q. There may be sound commercial reasons why shareholders should be hit yet again but, if they are not explained, shareholders see only a never-ending sequence of broken pledges over dilution and these broken pledges make it impossible to calculate any form of fair value for the company’s shares.
A. I am sure you realise that I never say there will be no dilution because I cannot do that. Diluted share value is consistently multiples of current share market no matter which analysts uses which measure by just looking at TK NPV.
Q: When can the Loan Facility announced this week to provide cash?
A: From January onwards, if required and drawndown. In the meantime, we need to obtain shareholder approval and then give 30 notice of drawdown.
Q: Why have such a Loan Facility?
A: KEFI is a company which is developing its first cash producing project. It never has had a cash flow from operations, like exploration and development companies generally. We use cash and working capital facilities pending the project level funding coming in and the start of operating cash flow. And this Loan Facility expands the working capital facilities available to the company.
Q: Does this mean that the company is not confident of ANS releasing its $9 million to the company in December?
A: All remains on track for the ANS releasing its Ethiopian Birr-equivalent of $9 million into TKGM in December. KEFI working capital management also requires flexibility as to access to different currencies in each month. The Loan Facility provides flexibility as and when required.
Q: Can the Loan Facility lead to conversion into shares below 2p per share?
A: No, the floor price is 2p.
We received the Mining Licence in 2015 which included federal approval of resettlement plans overall. It was then over to the regional government and its zonal and local agencies to set the compensation, detailed plans and to implement. They/we sorted out these details during the past two years despite country-wide protests over, in particular, mishandling of displaced communities (not Tulu Kapi but other sites across the country). We suffered very slow progress during that period, on several levels. In 2018 there has been an improvement in the country-wide political atmosphere and Tulu Kapi has been annointed as "ready to trigger" the community move.
We always highlight that the government calls the shots and the company merely facilitates and supports. But today's meetings on the ground are all about resettlement preparations now and the actual first wave of moves being January-March.
Q: In the Q3 Quarterly Update you refer to a working capital facility. When can you draw on it?
A: The development funding plan has always included provision for a stockpile finance facility which can be drawn as and when build a stockpile. It is intended to assist with taking some of the fluctuations out of working capital.
Q: The timetable shows drawdown of equity and debt at different times. Why?
A: This is intended to get the ball rolling and keep to commissioning of production in 2020, and give more time for some Government and debt formalities. It also allows us to start the debt-service schedule later, incur less debt-service cost and provide longer for production ramp-up before first debt-service payments are due.
Q: Quarterly Reports are not typical on AIM. Nor are webinars for Q and A’s. Why do them?
A: Quarterly Reports are mandatory on ASX and TSX but not on AIM. They are merely a wrap-up of already published information, for good order.
Also, please note that Q and A’s on the website and via Webinars are also not mandatory. We have consistently received thanks for the openness and prefer to provide widest reach with communications to all shareholders at the same time.
Q. The community resettlement announcement released this morning says local, zonal and regional authorities approve the resettlement commencement date. What about federal approval?
A. As previously reported, the Federal Government approved the resettlement plan already. Also as previously reported, the setting of dates and implementation of plans are the responsibility of the regional government plus the zonal and local administrations that report to them.
Q: More than 100% of the company’s shares on issue have turned over in the past 4 months. Are you sure that all significant share purchases have been properly reported?
A: We do not think that most individual shares have turned over, but that certain shares have turned over a few times. Reporting shareholdings over 3% is a regulatory requirement and is the responsibility of the buyer, i.e. KEFI has no way of policing compliance when these individual transactions occur. Having said that, we are not aware of any non-reporting.
Q: Are you worried about someone buying a position that should be disclosed but not doing so? Could this even extend to a build-up of a control position without disclosure and them not complying with the need to make an offer for all shares, as set out in the takeovers code?
A: There are protective measures in the KEFI Articles of Association for the Board, at its considered discretion, to remove the voting rights of any party that does not comply with the principles of the takeovers code, including that they must comply with the rules of transparency of share dealings.
Q: Has the ANS signed a heads of agreement or a final binding agreement?
A: The heads was signed in August and the final binding agreement on Friday last week.
Q: Can the first instalment of the ANS subscription be used to fund or refund KEFI’s G&A?
A: Generally yes, because KEFI’s costs are mostly for project financing or project preparations.
Q: When do funds flow from the ANS deal?
A: Q4-18 upon the stated conditions being met.
Q: How reliable is ANS’s own investor base?
A: The founders of ANS committed the first $3M of $30M up front. All of the rest has turned out to be with financial institutions which are solid and subject to similar rules of conduct on deals as institutions elsewhere. If ANS had had to go to private groups or to the retail clients of the local institutions, as it had originally assumed, it would have had to ask for deposits in escrow.
A: Lanstead are fully paid up as of August 2018.
Cantor Fitzgerald shut down its mining research team.
We decided to replace RFC Ambrian with SP Angel.
Q. Could you clarify whether Kefi can resume exploration activity in Ethiopia at least once the equity funds start to come through in September or whether it is the case that resumption will have to await issue of the funding bonds?
A. Exploration can resume when construction commences at Tulu Kapi.
Q. With reference to the RNS of 23rd October 2017, is “commencement of development” to be understood as being when the relocation starts or might the government formally grant the licences when the equity contribution from the syndicate is confirmed?
A. The government will formally grant the licences following commencement of Tulu Kapi construction.
Q1. To quote the RNS: 'On the financing front, the planned Project-level equity investment by a local syndicate is the next key milestone and this remains on track' - could you please confirm this ties in with the RNS of June 11th, which stated 'financial settlement from the Ethiopian investment syndicate will take place in two stages, with the first 30% of their investment closing at the end of August 2018' i.e. will the first $9 million USD be received by the end of August?
A1. We expect 1st instalment commitments end-august and settlement to start then and take a few weeks overall, as it is a large number of parties inside this syndicate.
Q2. I have to confess to concerns to statements such as '...now includes the final preparations by the Ethiopian equity investment syndicate' whilst it is of course positive to see 'final preparations', there is no indication as to how long this will take - it would be great if you could allay my concerns by confirming the question above.
A2. This is a syndicate of financial institutions and other investors. they have their own processes to manage and they keep us informed continually. We have met all the main players and all are sincere and working to timetable so far.
Q3. There was no mention in today's RNS of the proposed bond listing which, unless I'm mistaken, needs to happen relatively quickly given the long-proposed draw-down at the end of the wet season. I, perhaps with rose-tinted glasses, saw the absence of any mention of said item as a positive in that news might be imminent on that front. Assuming that I am wrong, could you please state whether or not previous guidance is still valid and the bond listing can (and will) happen before the end of September?
A3.The trigger of first phase of community resettlement can be any time as from October that the Gov't decides. It is the Govt’s responsibility and decision as to best timing. The bond preparations continue with documentation being the focus now. With the project equity now being scheduled first, we can use those funds first to fund community resettlement and similar early works. Debt drawdown can follow when suits us best. The key is to ensure both equity and debt aligning reliably and then drawdown when we need those funds.
Q: Did major shareholders sell shares at above 2.5p during the days leading up to the placing and bought into the placing at 2.5p?
A: Major shareholders were wall-crossed as part of the placing process and could not have traded during that time. Insiders were in a closed period until the annual results were released. And if such restrictions were not applicable, any such trades would have been reported.
Q: Why did the Ethiopian equity deal get announced a few days prior to the placing rather than well before, or even after?
A: It was announced when it is was done regardless of coincidences.
Q: Why did you not suspend the shares during a placing to avoid any risk of trading in an uninformed market?
A: AIM does not allow suspension just because a placing is being done.
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KEFI Minerals has:
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Yes. The funding principals and sums raised have not changed.
The set of advisers and fiduciaries have been simplified after consulting the principals, who remain the same, as does the planned funding.
The net economic picture has improved after all matters reported in Q4 2017 Operational Update have been taken into account.
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.