Minesite.com - Tulu Kapi Is A Transformational Asset
Tulu Kapi Is A Transformational Asset, Says Kefi’s Harry Anagnostaras-Adams
17 Mar 2014 by Alastair Ford
“To us it’s the first cab off the rank of the task list we’ve got for the year”, says Harry Anagnostaras-Adams, one-time leading light at EMED Mining and now increasingly active as the chairman of Kefi Minerals.
Kefi has just announced a resource upgrade for the Tulu Kapi gold project in Ethiopia, which it acquired after the previous owner ran into trouble.
“We’ve got in Tulu Kapi what I would describe as a transformational asset”, says Harry.
“We’ve got the opportunity over three years to transform the company into a dividend payer and to provide a running yield to shareholders at the same time as chasing the rewards of exploration.”
In a market that’s had it tough over the last year or two, that sort of talk sounds like sweet, sweet music.
But can Kefi deliver?
“To our minds Tulu Kapi is a US$200 million project”, says Harry, “of which US$60 million has already been spent. We happened to buy it for US$6 million, so we by-passed the first US$60 million of spending. It’s also a project which has gone from being worth a lot on the market to being worth nothing. Our agenda for this year is to take it up to where it should be with an economic definitive feasibility study.”
That’s less of an onerous task than it sounds, because much of the work of the former owner still stands on its merits. “Most of the DFS is quite fine”, says Harry.
Drill rig at Tulu Kapi
Drill rig at Tulu Kapi
However, when the previous study was undertaken gold was still on a trajectory towards US$1,900. In the new, leaner world in which we live, a few crucial changes should make all the difference.
Firstly, the plan is to reduce throughput from the previously envisaged two million tonnes per year to something more like 1.2 million tonnes.
Compared to the previous plan, the pit size and the plant size will both be significantly reduced. Net result? Up-front capital expenditure drops by more than US$140 million to US$142 million.
In this market, that is a striking difference.
Secondly, head grade will be increased to 2.4 grams per tonne mined from 1.8 grams.
Combined, those two improvements add up to a whole lot when it comes to the financials even though from the start, Kefi has adopted a more conservative approach.
“We’re running it all on US$1,200 gold”, says Harry, “not US$1,500 as was done with the previous people”. The Kefi numbers also use an after tax discount rate of 10 per cent, as opposed to the five per cent rate used in the previous model.
But even allowing for that caution, the differences are striking. On US$1,200 gold the internal rate of return moves from 11 per cent to 37 per cent and the NPV jumps from US$70 million to US$90 million.
“Net free cash flow after everything amounts to US$500 per ounce”, says Harry. “Our share would be 60,000 ounces, which works out at US$30 million free cash flow.”
It all makes for an intriguing proposition. The crucial thing now is to deliver on that promise.
The new resource is a key first step towards that. After Kefi’s latest work, the JORC numbers now make Tulu Kapi a plus-two million ounce resource, with more than 1.86 million ounces in the indicated category. The grade for the indicated resource is a useful 2.73 grams.
Nice enough, but there should be more to come. The recent numbers were derived from data gathered by the previous owner after the earlier definitive feasibility study had been completed. But Kefi will now get in on the ground and do its own drilling.
On that basis, Harry expects to be putting out a new resource and reserve update in the summer, as well as a capital equipment update regarding the new specs for the smaller plant.
“By the end of the year we hope to have completely updated the DFS”, he says. He also expects to make progress on financing options, and to have re-engaged fully with a local population that got pretty teed off after being told to move, and then not to, as the project got shelved.
As far as financing’s concerned, at this stage he’s keeping his options open. “There’s no shortage of royalty style financing or off-take style financing, and we will look at those and assemble a number of choices”, he says. “The equity component will be somewhere between 10 per cent and 20 per cent.”
And the net effect of all this on Kefi’s share price? At the current 1.95p it’s still roughly where it was at at the start of the year. But with all the up-coming newsflow from Tulu Kapi, as well as a stream of updates from the exploration portfolio in Saudi Arabia, it’s interesting to speculate where the shares will be by the end of the year.
Certainly, if Harry’s enthusiasm is anything to go by, they’ll by higher. “It is flat out”, he says. “It is very exciting. There’s a lot going on. We got a lot of support for this acquisition at Christmas when the sector was weak. I’d like to think that when we get a tailwind we’ll be one of the beneficiaries.”
Time will tell.
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