Ethiopia – AIM-listed gold exploration and development company Kefi Minerals has received formal confirmation from the Government of Ethiopia of its intent to invest between US$15 and US$20 million in the Tulu Kapi gold project.
This investment will provide the government of Ethiopia with an equity interest in Kefi Minerals Ethiopia (KME), a wholly-owned subsidiary of Kefi Minerals that owns and operates the project, of approximately 20-25% based on the projected enlarged paid-up share capital of KME, including the Government’s pre-existing 5% free carried-interest.
The intended investment by the government implies a project value of approximately $75 million at its current stage of development and reflects the aggregate of equity capital invested into KME.
At a typical consensus gold price of $1,250/oz, Project NPV is $168 million, once fully funded and based on the unleveraged after tax cash flows discounted at 8%.
Monies invested by the government will be used to fund the roads, power and certain other associated infrastructure required by the project.
This formal investment decision follows last month’s appointment of African Mining Services as the preferred project contractor and supports the company’s timetable to assemble the full financing syndicate in the fourth quarter of 2015.
“Kefi Minerals is honoured to have received from the government of Ethiopia the formal confirmation of its intended equity investment into the Tulu Kapi gold project. This demonstrates their commitment to the project and confidence in our ability to deliver it,” says Kefi Minerals executive chairman Harry Anagnostaras-Adams.
“We look forward to exploring other growth opportunities within Ethiopia in full compliance with the government’s policies and regulations, and to supporting the expansion of their minerals sector,” he added.
The government’s project equity investment, within the context of the full funding plan
The next stage of the financing process is to finalise selection of the remaining members of the preferred syndicate and agreed terms,and to move into full syndicate documentation for approval by all participants and the National Bank of Ethiopia.
Updated information has been submitted to the relevant parties for formal consideration.
The latest financial projections provided by Kefi’s preferred contractors have further improved the project’s economic outlook.
Annual gold production during the first eight years has been increased from the average estimate contained with the 2015 definitive feasibility study (DFS) of 95 000 oz to 115 000 oz.
Combined with the terms being discussed with potential syndicate members, the latest projections indicate that, at a gold price range of $1 100 to $1, 400/oz, all-in sustaining costs would be reduced to $731-752/oz and all debts could be repaid by the end of the third or second year of production respectively.
The tenor of proposed loan facilities will be four to eight years and debt-service obligations designed around appropriately conservative gold prices below the current spot price.
Kefi is considering a range of alternative finance structures comprising senior debt facilities of $70 million with the balance sourced from a combination of streaming of $40 million and project equity of $20 million (in addition to historical equity invested into KME of $50 million).
The finalisation of the equity component will take place in early 2016 after procurement has been completed to ensure adequate cost-overrun facilities.
The 2015 DFS and independent technical reviews thereof have been completed, and contractors have commenced the FEED (front end engineering design) stage of the construction contract and associated in-country preparatory activities.
Pending finalisation of procurement and drawdown of project finance, development activities in the meantime are to be funded largely by contractors under their respective arrangements and potentially by initial gold stream drawdowns.
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