HomeEast AfricaGold producer reaches agreement with investors

Gold producer reaches agreement with investors

KEFI Minerals has reached agreement with an Ethiopian investment syndicate for the proposed acquisition of a 30% ownership interest in KEFI Minerals’ wholly-owned subsidiary KEFI Minerals (Ethiopia) and holder of the company’s interest in the Tulu Kapi gold mines share company.

Under the proposed terms, which remain subject to final documentation and government approval, the syndicate will invest US$30 million in local currency (Birr) equivalent of which US$9 million will be invested in August 2018 and the balance upon closing of project finance.

This will mean that upon closing of project finance, the ownership of the Tulu Kapi gold project via Tulu Kapi gold mines would be circa 23% by the Ethiopian Government and 77% by KME.

KME would be owned 70% by KEFI Minerals and 30% by the Ethiopian investment syndicate.

At approximately US$1 million per percentage point of ownership, the proposed equity pricing terms for the Ethiopian investment syndicate are broadly consistent with those entered into with the Ethiopian Government for its committed investment of local currency equivalent of US$20 million into TKGM, except that the Ethiopian Government is also entitled to a 5% free-carried interest in TKGM.

These terms are also broadly consistent with actual historical equity investment costs and with project NPV’s (open pit only) at start of construction of US$115 million and at start of production of US$192 million respectively, ignoring the underground deposit and exploration prospects.

Subject to the recent progress being maintained by all parties, it is proposed that 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 and the remaining 70% immediately after full project funding is in place.

The use of proceeds would be to fund project finance closing, community and development costs.

This project equity proposal reflects KEFI Minerals’ commitment to maximum feasible “Ethiopianisation” at every level of its activities in the country.

The Federal Ethiopian and Regional Oromia Governments have publicly declared that mining is a top priority and Tulu Kapi is the most advanced modern mining project in the Oromia region and in Ethiopia generally.

“We are delighted to have agreed terms with the Ethiopian investment syndicate, which further strengthens our alignment with local stakeholders for our Tulu Kapi project,” comments KEFI Minerals chairman Harry Adams.

“Their investment on roughly the same terms as the Ethiopian Government means that c.46% of the project equity will now be held by the Ethiopian Government and local investors to complement the other benefits.

“KEFI Minerals’ remaining c.54% beneficial interest in the project, along the lines previously foreshadowed, gives the company an implied valuation of US$66 million based on these transaction metrics, whilst not including any value for the Tulu Kapi underground deposit or the exploration prospects in Ethiopia and Saudi Arabia.

“KEFI has now assembled the proposed full project funding consortium, including contractors, equity and non-equity capital and is expected to move towards full financial close later this year by closing out the remaining Ethiopian Government processes and approvals, along with completion of due diligence and formal documentation.

“KEFI Minerals looks forward to updating shareholders on its progress over the coming months, he concludes.