Minesite.com - On the Road to Production

Kefi Minerals Executes A Transformative Deal That Puts It Well On The Road To Production
11 Dec 2013 by Alastair Ford

"It’s not just exploration now”, says Kefi Minerals managing director Jeff Rayner. “We’re staring down the barrel of development.”

He’s talking on the day that Kefi announced the acquisition of a 71.25 interest in the Tulu Kapi gold project in Ethiopia, formerly controlled by ailing basket case Nyota Minerals, and which before that was the prized asset of the now long-defunct Minerva Resources.

Given that recent history there can be no doubt that Tulu Kapi has not been an easy project to move forward.

But Jeff has a plan.

It centres around the premise that Nyota went in too big, and that current market conditions warrant a smaller, but also more profitable operation.

“They had US$50 million on a mining fleet alone”, says Jeff. “Which was way too big.”

In all, Nyota planned to spend around US$300 million on developing Tulu Kapi. It outlined its precise plan in a definitive feasibility study released last year.

But the timing couldn’t have been worse.

“Nyota did this in the rising gold price of last year”, says Jeff. “When the gold price fell, their DFS was not bankable. With big equipment, huge capex, and a life of mine of just eight and a half years, it just didn’t make sense.”

What he doesn’t say - but what everybody in the market knows only too well - is that the last of Nyota’s credibility disappeared at the same time - the DFS imploded, the money dried up, the company fell out with one of its major shareholders, Centamin, and the shares plunged still further.

Until this week, Nyota was a company fast running out of options.

So it’s hardly a surprise that some market commentators think it got the raw end of the deal with Kefi.

After all, the ability of the Nyota board to drive a hard bargain must have been severely limited, knowing that it didn’t have the support of a major shareholder and that its ability to otherwise raise funds to stay in business was virtually nil.

This way, Kefi stumps up £1 million in cash and hands over 166.6 million shares priced at 3p, for a total transaction value, according to analysis by Fox Davies, of around £4.5 million. What’s more Nyota chief Richard Chase hangs on, although it will be interesting to see where he goes from here.

It’s pretty clear where Kefi’s going, though – onwards, towards production.

The first step will be a re-working of the resource.

“We walked the ground and we could see the gold is structurally controlled”, says Jeff.

“We need to re-do the resource to reflect that. We have to go back to first principles and do the resource from scratch. The current resource has been done on a mathematical model. We want to do it on a structural model.”

In one sense, this will be a simpler operation than it sounds. “There’s a lot of data there”, says Jeff. So, while there will be some drilling on the reserve, a lot of the requisite information has already been gathered.

And lest anyone wonder what makes Kefi any more likely to come up with a good economic model than Nyota did, two factors mitigate in its favour.

The first is that the days of rising gold prices are clearly over, and unlike Nyota, Kefi will be able to factor this in to any model early. The second is that actually, the mineralisation at Tulu Kapi is extremely similar to one of the company’s Saudi projects. After all, the geological context of both - the Arabian-Nubian Shield - is identical, and the small issue of the Red Sea lying between Ethiopia and Saudi is immaterial to the rocks.

Once the new resource is tabled, the definitive study will also come in for close attention.

“The plan is to refine it to a smaller tonnage operation, with smaller plant, smaller equipment, smaller infrastructure, tailings dam”, says Jeff. “It shouldn’t be too expensive. We can see a scenario mining 85,000 ounces per year at 2.4 grams per tonne. We’ve re-estimated the capex to US$143 million.”

That’s less than half the figure Nyota put on the project, and in today’s market seems a far more realistic prospect when it comes to be time to find the money.

On that score, it’s interesting to note that Harry Anagnostaras-Adams, the former chief of EMED Mining and long-time non-executive at Kefi was very much in evidence at Mines & Money in the company of Jeff and fellow director Ian Plimer.

“Harry’s going to be rolling up his sleeves and helping”, says Jeff. Anyone who’s followed the EMED story will know that in spite of its problems with the Spanish authorities, one way or another it always managed to raise money when it needed to.

Kefi’s most recent raise, done in conjunction with the Nyota deal, “wasn’t easy”, says Jeff. “But it was a very good result. We’ve now got two substantial institutions on board.”

They will be hoping for big things over the coming year or two. It’s now up to Jeff and his team to knuckle down and make sure he doesn’t disappoint them.