RE: Orior Capital Report4 Jan 2021 19:58
Introduction
BHC is initiating coverage of KEFI Gold and Copper (“KEFI”), a company that has several gold and copper projects within the highly prospective Arabian – Nubian Shield. Its assets include the Tulu Kapi gold development project in Ethiopia (total JORC-compliant reserve of 15.4Mt grading 2.12g/t Au for 1.05Moz of contained gold), the Hawiah volcanic massive
sulphide (“VMS”) project (maiden JORC-compliant inferred resource of 19.3Mt grading 1.9% Cu eq.) and Jibal Qutman gold deposit (JORC resource of 733koz Au), both located in Saudi Arabia. At Tulu Kapi, KEFI has assembled a full consortium of partners with signed agreements and non-binding term sheets in place for the construction and operation of a targeted 190koz pa open pit operation and underground within three years of initial production.
Although the agreements remain conditional on completion of due diligence, confirmation of regulatory compliance, internal approvals and the execution of full documentation by each consortium member. Despite COVID disruptions, KEFI expects these principal outstanding matters to be completed in Q4 2020, with funding drawdowns to flow with development from early 2021. Initial gold commissioning is expected during Q4 2022.
Financing Tulu Kapi: Ethiopia’s next gold mine
As previously announced (see RNS 19 June 2020), all capital expenditure, operating and financing requirements have been updated and incorporated into the final 2020 Tulu Kapi Mine Plan, which shows total project funding requirements of US$221m, a 9% reduction from the US$242m reported in the 2018 Annual Report. Planned funding sources will be
approximately half as senior debt (US$110m) and half as project level equity, including subordinated debt and offtake financing facilities (US$111m). Recently, KEFI raised gross proceeds of £2.98m for the provision of general working capital and to fund further resource and exploration drilling at the Company’s Hawiah copper-gold project.
Hawiah and Jibal Qutman: copper and gold in Saudi Arabia
In addition to the developments at Tulu Kapi, KEFI has, as foreshadowed, delivered a maiden inferred resource comprising 19.3Mt for its Hawiah gold and copper project. Since then, management has completed an internal PEA outlining the key components of the mine’s potential development. Full details of KEFI’s PEA announcement may be found here. Jibal Qutman has been on hold awaiting Mining Licence tenure confirmation; an internal PEA was completed in 2015 with suggested operating costs of c US$600/oz and estimated capital costs of US$30m for a 1.5Mt heap leach operation producing some 139koz over a 4.5 year mine life with an average recovery rate of 69%. As such, the PEA demonstrates that Jibal Qutman’s near-surface gold mineralisation could be highly profitable at the current gold price.
Valuation: DCF-derived base case of £103.7m for Tulu Kapi
We value KEFI’s projected 65% interest in Tulu Kapi at £103.7m or 5.03p per share assuming a US
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