Kefi Gold Regulatory News (KEFI)

6 June 2017

KEFI Minerals plc

("KEFI" or the "Company")

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2016

KEFI Minerals (AIM: KEFI), the gold exploration and development company with projects in the Kingdom of Saudi Arabia and the Federal Democratic Republic of Ethiopia, announces its final results for the year ended 31 December 2016.

2016 HIGHLIGHTS

The robust economics of KEFI's two development projects are demonstrated in the following table:

Notes:

The above parameters are based on a gold price of US$1,250/oz.

AISC is per the World Gold Council Standard. The AISC includes each project's operating costs, Government royalties and sustaining capital but excludes financing costs and income taxes.

Tulu Kapi's gold production and net operating cash flow are for the first eight years of gold production.

Tulu Kapi's initial capital cost of US$160 million is based on the 2017 Definitive Feasibility Study Update ("2017 DFS Update"), reduced for contractually deferred payments and increased for non-Tulu Kapi costs during construction.

"PEA" means the Preliminary Economic Assessment completed by KEFI and announced on 8th March 2016.

The above metrics demonstrate:

· The AISC/oz place both projects in the bottom cost quartile of existing gold producers

· Strong operating margins above AISC provide substantial annual cash flows

· Both projects can comfortably debt-fund the majority of the development capital required

· Both projects rapidly repay the development capital

Tulu Kapi, Ethiopia

During 2016, KEFI concentrated on progressing the Tulu Kapi gold project ("Tulu Kapi"), Ethiopia's first modern mine, and on upgrading its gold and copper exploration portfolio in the highly prospective Arabian-Nubian Shield ("ANS"). KEFI is targeting to commence development of Tulu Kapi in 2017 and open-pit gold production in 2019.

· Government of Ethiopia formally committed to invest US$20 million for equity in Tulu Kapi and, post-period, signed the Shareholder Agreement and other requisite documentation

· Project team refined the development plan and detailed mine plan, resulting in more robust metrics by incorporating feedback made by contractors, financiers, and partners to the 2015 Definitive Feasibility Study ("2015 DFS"), and, post period, all refinements to the 2015 DFS were incorporated into the 2017 Definitive Feasibility Study Update ("2017 DFS Update") in preparation for financing

· Assessing three financing proposals built around contractors experienced in African mining following tightening of mining debt-finance sector and concerns of financiers regarding Ethiopian State of Emergency

· The projected open-pit cash flows indicate that the net cash build-up (after currently indicated financing costs) in the first three production years is US$65 million to US$265 million for the gold price range of US$1,100/oz to US$1,900/oz which prevailed during the past seven years. Significant value also expected from the contemplated underground mine beneath the Tulu Kapi open pit within extensions of the same ore body.

· Completed Preliminary Economic Assessment ("PEA") confirming robust economics for the development of the underground mine - initial potential to increase production to >150,000 p.a. over four years whilst drilling to expand underground resources which are open in several directions.

· Post period, community resettlement programme was triggered paving the way to project development

· Post period, historical court claim pre-dating KEFI's ownership of Tulu Kapi was reduced from US$12 million to c. US$600,000 which KEFI has appealed to the Supreme Court to eliminate altogether.

Gold & Minerals Ltd Joint Venture ("G&M"), Saudi Arabia

· Surface-sampling and geophysical studies identified large precious and base metals targets at Hawiah

· Strategic overhaul of licence applications undertaken by G&M across the whole of Saudi Arabia

· Post period, Mining Licence Application for proposed heap-leach gold mine at Jibal Qutman lodged with Saudi government for continuing discussion and review

· KEFI expects the authorities in Saudi Arabia to deregulate the minerals exploration sector in 2017 from which the Company is well-positioned to benefit

Corporate

· Completed several equity placings, raising a total of £5.6 million (before expenses)

· In preparation for Tulu Kapi development, Mr John Leach Finance Director became a fulltime executive and Mr Mark Wellesley-Wood, an experienced African mining operator, joined the Board as a Non-Executive Director assuming the role of Deputy Chairman

· Post period, completed £5.62 million fundraising (before expenses)

Harry Anagnostaras-Adams, Executive Chairman of KEFI Minerals, said:

"During 2016, we concentrated on progressing Tulu Kapi, Ethiopia's first modern mine, and on upgrading our exploration portfolio in the highly-prospective Arabian-Nubian Shield supported by our strong partners in Ethiopia and Saudi Arabia. With the Ethiopian State of Emergency, conventional finance proposals were stalled in 2016 so we successfully responded by focusing our efforts on alternative financiers familiar with Africa, especially Ethiopia, and particularly on proposals designed around African-experienced gold project contractors. As a result, we are now assessing three proposals. At the same time, operational activities continued uninterrupted and we now have a development-ready mine, once the funding package is finalised. We look forward to commencing development in 2017 and open-pit gold production in 2019.

"This year we also strengthened our pipeline of ANS growth projects to complement our Tulu Kapi open-pit gold mine, including the Tulu Kapi underground mine and satellite deposits; our oxide gold mine at Jibal Qutman in Saudi Arabia; a large VHMS base metal target at Hawiah in Saudi Arabia; and further exploration prospects in the Arabian-Nubian Shield. With the robust economics of our key development projects, including the ability to payback initial capital within three years - and strong pipeline, we have a well-positioned foundation, great growth prospects and are confident of delivering shareholder value."

Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

Further information can be viewed on KEFI's website at www.kefi-minerals.com 

NOTES TO EDITOR

KEFI Minerals plc is the operator of two advanced gold development projects within the highly prospective Arabian-Nubian Shield, with attributable Mineral Resources (JORC 2012) of 1.93Moz gold (100% of Tulu Kapi's 1.72Moz gold in Ethiopia and 40% of Jibal Qutman's 0.73Moz gold in Saudi Arabia) plus significant resource growth potential. KEFI targets that production at these projects generates cash flows for further exploration and expansion as warranted, recoupment of development costs and, when appropriate, dividends to shareholders.

Operational Review

The Company's assets provide a healthy platform to deliver shareholder value by developing profitable mines in Ethiopia and Saudi Arabia.

KEFI Minerals made substantial progress during 2016 towards becoming a gold producer in one of the world's great under-developed minerals provinces - the Arabian-Nubian Shield.

The Company's Tulu Kapi Gold Project in Ethiopia remains the primary focus. KEFI has continued to work with the Government of Ethiopia, industry experts and project contractors over the past year in order to ensure that construction can commence as soon as funding is in place.

Initial open-pit gold production from Tulu Kapi is projected at 115,000 ounces per annum at a low All-in Sustaining Cost of less than US$800/oz. Tulu Kapi's Ore Reserves of 1.0 million ounces and Mineral Resources of 1.7 million ounces have significant upside potential. 

At the Company's Jibal Qutman Gold Project in Saudi Arabia, the Mining Licence Application for the planned heap-leach operation has been lodged with the Saudi Government for continuing discussion and review.

Development-Ready Gold Mine - Tulu Kapi

This high-value, low-capex asset is now poised for development when the funding package is finalised. Whilst KEFI's finance team has been preparing the funding package, the project development team has continued to work with the Company's selected contractors in order to further optimise Tulu Kapi's detailed development and operating plans.

Feedback on the 2015 DFS from project contractors, financiers and partners was incorporated into an improved mine plan in early 2016. All refinements to the 2015 DFS were, in May 2017, incorporated into the 2017 DFS Update in preparation for financing. This reflects, among other things, the fixed price, lump-sum processing plant construction contract with Lycopodium and a warranted ore processing rate of 1.5-1.7 million tonnes per annum.

KEFI bases the finance structure on the numbers and schedules in the 2017 DFS Update, which includes only the planned open pit. However, the Company will target a quicker construction schedule and 10% higher annual throughput compared with the contractually warranted estimates used for debt-structuring. KEFI's financial targets for the open-pit project include:

· Gold production of 120,000 ounces per annum for eight of the initially planned ten years;

· At a flat average gold price of US$1,200-1400/oz for all ten years of gold production (2019-2028):

o All-in Sustaining Costs of less than US$800/oz (excluding financing charges);

o After-tax, unleveraged IRR of 25%-36%;

o After-tax, unleveraged NPV (8% discount rate) of US$98-184 million at start of construction;

o After-tax, unleveraged NPV (8% discount rate) of US$272-375 million at start of production in 2019;

o Annual net operating cash flows of US$56-78 million p.a. for the first eight years of production, and

o Payback of 3 years.

As a result of KEFI's overhaul of all aspects of the project due diligence and planning, the project has soundly-based, robust economics and significant growth potential beyond the existing open-pit Ore Reserve estimate of 15.4 million tonnes at 2.12g/t gold, containing 1.05 million ounces.

The projected open-pit cash flows indicate that the net cash build-up (after financing costs) in the first three production years is US$65 million to US$265 million for a gold price range of US$1,100/oz to US$1,900/oz. Significant value is also expected from the contemplated underground mine.

Strong Support from Ethiopian Government for Tulu Kapi Development

The Tulu Kapi Gold Project ranks high as a national priority within Ethiopia's Growth and Transformation Plan and KEFI is delighted to have the strong support of the community in addition to the support from the Government at all levels.

Responsible mine development is a high priority for KEFI and the Ethiopian Government. KEFI welcomes the Government's constructive attitude that encourages us to bring Tulu Kapi into production as rapidly as prudently possible whilst ensuring compliance with all relevant governance and quality standards.

The restrictions imposed by the State of Emergency declared by the Ethiopian Government in October 2016 have now mostly been lifted. KEFI's operational activities have continued as normal during this time and appropriate security precautions have been built into project planning.

After consultations with KEFI, the Government of Ethiopia has triggered the community resettlement programmes, which began with property surveys and host-land preparations and also incorporate livelihood restoration programmes.

Notably in May 2017, the Government of Ethiopia further demonstrated its strong support by executing the detailed formal documentation for its committed equity capital contribution of approximately US$20 million to Tulu Kapi's development. This investment will increase the Government's share of the project from a 5% free-carried interest to circa 25%, depending on the final financing structure.

Further Potential at Tulu Kapi

In parallel with working towards open-pit gold production, KEFI has already evaluated the potential for developing an underground mine beneath the Tulu Kapi open pit. A Preliminary Economic Assessment completed in early 2016 indicated robust economics for an underground mine. Based on 2014 Mineral Resources, the addition of an underground mine has the potential to increase total (open pit and underground) gold production to more than 150,000 ounces per annum over four years. The orebody remains open and further potential will be added.

The Government has encouraged KEFI to plan an ambitious exploration programme in the district around Tulu Kapi and elsewhere in Ethiopia. Targets have been identified for both satellite gold deposits and stand-alone development projects. Tulu Kapi is intended to become a central ore processing centre for additional deposits to be developed in the district.

Oxide Gold Project - Jibal Qutman

In Saudi Arabia, the first priority for the Company's G&M Joint Venture is to develop an open-pit, heap-leach ("HL") gold operation, using a staged development approach predicated on a low-capex start-up to be expanded in modular stages as additional mineralisation is delineated. The potential cash flow from HL oxide gold production is an opportunity to fund:

· construction of a carbon-in-leach ("CIL") plant to process the deeper sulphide ore profitably; and

· exploration in Saudi Arabia to create a strong Saudi mining company for the long term.

Following on-site meetings with regulators in March 2017, the Mining Licence Application for the Jibal Qutman HL gold development was lodged with the Saudi Government for continuing discussion and review.

At Hawiah, G&M has identified a huge target for precious and base metals based on the surface-sampling of a six-kilometre long gossan (oxidised mineralisation exposed on the surface) and the results of the geophysical surveys of the ground beneath the gossan.

KEFI's Saudi venture is a strategic long-term priority and the Company is confident of having established an early-entrant position in what will emerge as a world-class minerals province. During the past year, G&M overhauled its portfolio of licence applications by discarding some and adding others. The next key step is for G&M to review the new Saudi mining industry regulations and policies that are expected to be published soon. KEFI will then proceed with Jibal Qutman soon after the planned Tulu Kapi development and also expand exploration activities as results warrant.

Financing Review

Equity Funding

KEFI has, to date, financed its activities through periodic capital raisings and contributions by partners.

The Company completed several equity placings during 2016, raising a total of £5.6 million (before expenses).

In March 2017, shareholders approved a £5.62 million fundraising comprised of:

o £0.60 million placing of equity by Brandon Hill Capital;

o £0.40 million subscription by certain of the Directors, employees and Lycopodium; and

o £4.62 million subscription by Lanstead Capital.

Following the completion of the March 2017 fundraising and associated consolidation of the Company's capital on a 17-for-1 basis, KEFI had a total of 332.7 million Ordinary Shares on issue.

A key aspect of the March 2017 fundraising is that £3.93 million of the £4.62 million subscription by Lanstead is subject to a Sharing Agreement that allows KEFI to benefit financially from positive share price performance, whilst limiting the financial downside risk from a negative share price performance.

The number of Ordinary Shares issued to Lanstead under the Sharing Agreement is fixed at 82.4 million Ordinary Shares. However, the amount from Lanstead due to KEFI under the Sharing Agreement is adjustable upwards or downwards at each of the 18 monthly settlements that commenced in May 2017. The Lanstead Sharing Agreement underpins the Company's expenditure for 2017 and is focused on an increasing share price being beneficial to both Lanstead and KEFI shareholders.

Partnering the Government in Ethiopia and ARTAR in Saudi Arabia

In May 2017, KEFI Minerals (Ethiopia) Limited ("KME") and the Federal Democratic Republic of Ethiopia signed the Shareholders' Agreement and other foundation documentation for the incorporation, ownership and operation of Tulu Kapi Gold Mines Share Company Limited ("TKM"), which will result in TKM owning 100% of Tulu Kapi. The exploration projects outside the Tulu Kapi Mining Lease area are not part of TKM and remain 100% owned by KEFI.

In the Kingdom of Saudi Arabia KEFI conducts all its activities through Gold and Minerals Co. Limited, its joint venture company with Abdul Rahman Saad Al Rashid and Sons Limited ("ARTAR"). KEFI is operator with a 40% interest and ARTAR has 60%. KEFI is fortunate to have such a strong Saudi group as a partner and G&M has assembled a large and prospective portfolio of exploration licences and applications. Having made a discovery at Jibal Qutman, the joint venture looks forward to development and expansion in the minerals sector, which the Saudi Government has made a national strategic priority.

Tulu Kapi Development Funding

The Tulu Kapi funding process is ongoing with several potential financiers who are comfortable investing in Ethiopia.

The foundations of risk management for funding Tulu Kapi include that all short-term (up to five years) debt servicing commitments are met even if the price of gold drops to and stays at c. US$900/oz whilst longer-term (5-10 years) commitments are acceptable as long as they are covered by a flat price of c. US$1,000/oz. It is notable that the lowest gold price in the past seven years is c. US$1,100/oz and the highest c. US$1,900/oz.

Since acquiring the project, KEFI has continually refined and reduced project capital requirements and rendered more reliable production plans. Before adding financing charges and costs of other KEFI activities, the current estimate of total KEFI group requirement for Tulu Kapi development capital is c. US$160 million, which has been approximately halved from the previous owner's estimate.

KEFI's progress on project financing was delayed during 2016 as a result of the tightening of the mining debt-finance sector generally and the declaration of the Ethiopian State of Emergency, which had the effect of depressing the interest of financiers unfamiliar with Ethiopia. The Company responded by elevating its focus onto alternative financiers familiar with Africa and especially Ethiopia and, in particular, to design financing proposals with African-experienced gold project contractors. KEFI now has three financing proposals built around alternative project contracting syndicates, and has prioritised the funding structure designed around the preferred contractors selected in 2016 - Ausdrill for mining and Lycopodium for processing.

As a result of recent progress, along with potential financiers, the Government and contractors, KEFI has intensified preparations for development to commence this year. The syndication brings with it the complexities of multiple jurisdictions and "paving the way" in Ethiopia for which this is the first internationally-financed major mining project finance transaction. Nevertheless, all syndicate members are working to the common objective of starting production in 2019.

Outlook

KEFI's initiatives on both sides of the Red Sea reflect the Company's conviction that the ANS has world-class prospectivity overseen by governments that have made the mining sector a strategic priority. KEFI is very fortunate to have a +1,000 km2 portfolio of exploration properties at various stages within the highly prospective ANS - and this portfolio will grow.

The Company has established a solid platform with world-class partners in each jurisdiction and has, with industry-leading contractors, developed a counter-cyclical opportunity to establish successful mining operations in the region. KEFI's approach has been to place its development strategy into the hands of a team of seasoned operators with a proven record of start-up successes in Africa. This team has transformed Tulu Kapi from an uneconomic project into one that is now being evaluated by financiers as a robust, fully-permitted project with significant upside potential for shareholders.

The Board is confident of the Company's strategy and asset base. KEFI has the appropriate mix of industry-experienced technical and financial expertise to prudently progress its projects into profitable gold mines. In addition, the Company has an organisational development plan that will see requisite human resources added with recruitment as progress warrants. The Company now has two cornerstone shareholders in Odey Asset Management and Lanstead Capital that support rapid growth companies. Project contractors Ausdrill and Lycopodium are also shareholders as is the Board of Directors.

KEFI Minerals is positioned to become the operator of two gold development projects in the highly-prospective ANS. The Company has achieved this progress with a small team around whom the full operating team will be built in conjunction with the project contractors, both of whom have over 20 years of mine building experience in Africa. The Company is well supported by a number of high calibre, quality specialist advisers also selected for their pre-eminence in start-ups of this nature.

As a result, the calm and improving situation in Ethiopia, combined with the range of financing scenarios being considered by the Company, make the Board confident that the Tulu Kapi Gold Project can proceed to development in 2017.

Consolidated statement of comprehensive income

Year ended 31 December

(All amounts in GBP thousands unless otherwise stated)

The accompanying notes are an integral part of these consolidated financial statements.

Statements of financial position

31 December

(All amounts in GBP thousands unless otherwise stated)

The accompanying notes are an integral part of these consolidated financial statements.

The Company has taken advantage of the exemption conferred by section 408 of Companies Act 2006 from presenting its own statement of comprehensive income. Loss after taxation amounting to £3.1 million (2015: £2.5 million) has been included in the financial statements of the parent company.

On the 5 June 2017, the Board of Directors of KEFI Minerals PLC authorised these financial statements for issue.

Harry Anagnostaras-Adams

Executive Director-Chairman

Company Number: 05976748

Consolidated statement of changes in equity

Year ended 31 December 2016

(All amounts in GBP thousands unless otherwise stated)

The following describes the nature and purpose of each reserve within owner's equity:

Reserve Description and purpose

Share capital amount subscribed for ordinary share capital at nominal value

Deferred shares on 16 June 2015, under the restructuring of share capital, ordinary shares of 1p each in the capital of the Company were sub-divided into one new ordinary share of 0.1p and one deferred share of 0.9p

Share premium amount subscribed for share capital in excess of nominal value, net of issue costs

Share options reserve reserve for share options granted but not exercised or lapsed

Foreign exchange reserve cumulative foreign exchange net gains and losses recognized on consolidation

Accumulated losses cumulative net gains and losses recognized in the statement of comprehensive income, excluding foreign exchange gains within other comprehensive income

Non-controlling interest (NCI) the portion of equity ownership in a subsidiary not attributable to the parent company

The accompanying notes are an integral part of these consolidated financial statements.

Company statement of changes in equity

Year ended 31 December 2016

(All amounts in GBP thousands unless otherwise stated)

The following describes the nature and purpose of each reserve within owner's equity:

Reserve Description and purpose

Share capital amount subscribed for ordinary share capital at nominal value

Deferred shares on 16 June 2015, under the restructuring of share capital, ordinary shares of 1p each in the capital of the Company were sub-divided into one new ordinary share of 0.1p and one deferred share of 0.9p

Share premium amount subscribed for share capital in excess of nominal value, net of issue costs

Share options reserve reserve for share options granted but not exercised or lapsed

Accumulated losses cumulative net gains and losses recognized in the statement of comprehensive income

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated statement of cash flows

Year ended 31 December 2016

(All amounts in GBP thousands unless otherwise stated)

The accompanying notes are an integral part of these consolidated financial statements.

Company statement of cash flows

Year ended 31 December 2016

(All amounts in GBP thousands unless otherwise stated)

The accompanying notes are an integral part of these consolidated financial statements.

Notes to the consolidated financial statements

Year ended 31 December 2016

(All amounts in GBP thousands unless otherwise stated)

1. Incorporation and principal activities

Country of incorporation

KEFI Minerals PLC (the "Company") was incorporated in United Kingdom as a public limited company on 24 October 2006. Its registered office is at 27/28, Eastcastle Street, London W1W 8DH.

The Company has taken advantage of the exemption in section 408 of the Companies Act 2006 not to present its individual statement of comprehensive income and related notes that form a part of these financial statements.

Principal activities

The principal activities of the Group for the year were:

· To explore for mineral deposits of precious and base metals and other minerals that appear capable of commercial exploitation, including topographical, geological, geochemical and geophysical studies and exploratory drilling.

· To evaluate mineral deposits determining the technical feasibility and commercial viability of development, including the determination of the volume and grade of the deposit, examination of extraction methods, infrastructure requirements and market and finance studies.

· To develop mineral deposits and market the metals produced.

2. Accounting policies

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied throughout both periods presented in these financial statements unless otherwise stated.

Basis of preparation and consolidation

The Company and the consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. They comprise the accounts of KEFI Minerals PLC and all its subsidiaries made up to 31 December 2016. The Company and the consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial instruments.

Going concern

The Directors have formed a judgment at the time of approving the financial statements that there is a reasonable expectation that the Company and Group will be able to secure adequate resources to continue in operational existence for the foreseeable future.

The financial information has been prepared on the going concern basis, the validity of which depends principally on securing funding to develop the Tulu Kapi mine project as an economically viable mineral deposit, and the availability of subsequent funding to extract the resource, or alternatively the availability of funding to extend the Company's and Group's exploration activities.

These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Company and Group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Company and Group were unable to continue as a going concern.

Functional and presentational currency

Items included in the Group's financial statements are measured using the currency of the primary economic environment in which the entity operates ("the functional currency") which for the Company is British Pounds (GBP). The financial statements are presented in British Pounds (GBP).

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

2. Accounting policies (continued)

Foreign currency translation

(1) Foreign currency translation

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss in the statement of comprehensive income.

(2) Foreign operations

On consolidation, the assets and liabilities of the consolidated entity's foreign operations are translated at exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly in which case they are recorded at the actual rate. Exchange differences arising, if any, are recognized in the foreign currency translation reserve and as a component of other comprehensive income, and recognized in profit or loss on disposal of the foreign operation.

Revenue recognition

The Group had no sales or revenue during the year ended 31 December 2016 (2015: £Nil).

Property plant and equipment

Property plant and equipment are stated at their cost of acquisition at the date of acquisition, being the fair value of the consideration provided plus incidental costs directly attributable to the acquisition less depreciation.

Depreciation is calculated using the straight-line method to write off the cost of each asset to their residual values over their estimated useful life. The annual depreciation rates used are as follows:

Acquisitions and goodwill

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Any costs directly attributable to the business combination are written off to the statement of comprehensive income. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognized at their fair values at the acquisition date. Where the Group acquires a subsidiary for less than the fair value of its assets and liabilities, this results in negative goodwill which is recognized in profit and loss.

Purchased goodwill is capitalized and classified as an asset on the statement of financial position. Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized.

Goodwill is reviewed for impairment on an annual basis. When the directors consider the initial value of the acquisition to be negligible, the goodwill is written off to the statement of comprehensive income immediately. Trading results of acquired subsidiary undertakings are included from the date of acquisition.

Goodwill is deemed to be impaired when the present value of the future cash flows expected to be derived is lower than the carrying value. Any impairment is charged to the statement of comprehensive income immediately.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

2. Accounting policies (continued)

Interest in jointly controlled entities

Joint venture arrangements that involve the establishment of a separate entity in which each venturer has joint control are referred to as jointly controlled entities. The results and assets and liabilities of jointly controlled entities are included in these financial statements for the period using the equity method of accounting.

Finance costs

Interest expense and other borrowing costs are charged to the statement of comprehensive income as incurred.

Tax

The tax payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Tax is payable in the relevant jurisdiction at the rates described in note 9.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognized for all taxable differences and deferred tax assets are recognized to the extent that taxable profits will be available against which deductible temporary differences can be utilized. The amount of deferred tax is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates that have been enacted or substantively enacted at the reporting date.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off deferred tax assets against deferred tax liabilities and when the deferred taxes relate to the same fiscal authority.

Investments

Investments in subsidiary companies are stated at cost less provision for impairment in value, which is recognized as an expense in the period in which the impairment is identified, in the Company accounts. These investments are consolidated in the Group accounts.

Exploration costs

The Group has adopted the provisions of IFRS 6 "Exploration for and Evaluation of Mineral Resources".

Exploration, evaluation and development expenditure, including acquisition costs of licences, in respect of each identifiable area of interest is expensed to the statement of comprehensive income as incurred, until the point at which development of a mineral deposit is considered economically viable.

Once the Board decides on the development of a project, development expenditure will be capitalized as incurred and amortized over the estimated useful life of the area according to the rate of depletion of the economically recoverable reserves or over the estimated useful life of the mine, if shorter.

The directors consider that the stage of development of its Licence areas in Saudi Arabia has not yet met its criteria for capitalization. Capitalized development costs for the Group's project in Ethiopia have been recognized on acquisition, and will continue to be capitalised since this date, in accordance with IFRS 6.

A regular review will be undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Accumulated capitalized costs in relation to an abandoned area of interest will be written off in full against profit in the year in which the decision to abandon the area is made. Capitalized development expenditure will be amortized from the date at which production commences on a unit of production basis over the lifetime of the ore reserves for the area to which the costs relate.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

Share‑based compensation benefits

IFRS 2 "Share‑based Payment" requires the recognition of equity‑settled share‑based payments at fair value at the date of grant and the recognition of liabilities for cash‑settled share‑based payments at the current fair value at each statement of financial position date. The total amount expensed is recognized over the vesting period, which is the period over which performance conditions are to be satisfied.

The fair value is measured using the Black Scholes pricing model. The inputs used in the model are based on management's best estimate, including consideration of the effects of non-transferability, exercise restrictions and behavioural considerations.

Financial instruments

Financial assets at amortized cost

Loans and receivables are recognized when the Group becomes party to the contractual provisions of the financial instrument. Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Financial assets at fair value through profit or loss

Subsequent to initial recognition, when a financial asset is designated as such on initial recognition, it is classified as held at fair value through profit or loss. Assets other than held for trading are designated at fair value through profit and loss when the Group manages the holdings and makes purchase and sale decisions based on fair value assessments and documented risk management and investment strategies. Attributable transaction costs and changes in fair value are recognized in profit or loss.

Financial liabilities - equity

Financial liabilities are recognized when the Group becomes party to the loan. Financial liabilities represent trade payables and are initially measured at fair value and subsequently at amortized cost.

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognized at the proceeds received, net of direct issue costs. The Group derecognizes financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.

3. Financial risk management

Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise cash at bank and in hand with an original maturity date of less than three months.

Financial risk factors

The Group is exposed to market risk (interest rate risk and currency risk), liquidity risk and capital risk management arising from the financial instruments it holds. The risk management policies employed by the Group to manage these risks are discussed below:

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group does not consider this risk to be significant.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

3. Financial risk management (continued) 

Market risk - Interest rate risk

Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The Group's operating cash flows are substantially independent of changes in market interest rates as the Group has no significant interest-bearing assets. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group's management monitors the interest rate fluctuations on a continuous basis and acts accordingly.

At the reporting date the interest rate profile of interest-bearing financial instruments was:

Sensitivity analysis

An increase of 100 basis points in interest rates at 31 December 2016 would have increased equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. Given current interest rate levels, a decrease of 25 basis points has been considered, with the impact on profit and equity shown below.

Currency risk

Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognized assets and liabilities are denominated in a currency that is not the functional currency of the entity.

The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the Euro, Turkish Lira, US Dollar, Ethiopia ETB and Saudi Arabian Riyal. Since 1986 the Saudi Arabian Riyal is pegged to the US Dollar, it is fixed at USD/SAR 3.75. The Group's management monitors the exchange rate fluctuations on a continuous basis and acts accordingly.

The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows: The Saudi Arabian Riyal exposure is included in the USD amounts.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

3. Financial risk management (continued) 

Sensitivity analysis

A 10% strengthening of the British Pound against the following currencies at 31 December 2016 would have increased/(decreased) equity and profit or loss by the amounts shown in the table below. This analysis assumes that all other variables, in particular interest rates, remain constant. For a 10% weakening of the British Pound against the relevant currency, there would be an equal and opposite impact on the loss and equity.

Liquidity risk

Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The Group has procedures with the object of minimising such losses such as maintaining sufficient cash and other highly liquid current assets and by having available an adequate amount of committed credit facilities.

The Group's contractual cash flows for its financial liabilities are all due within 3 months or less. In January 2014 agreement was made with the Ethiopian tax authorities to pay the reverse VAT over a period of three years (principal and interest). The VAT amount was settled during 2016 and has given rise to a VAT refund.

Capital risk management

The Group manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to shareholders through the optimization of the debt and equity balance. This is done through the close monitoring of cash flows.

The capital structure of the Group consists of cash and cash equivalents of £410,000 (2015: £562,000) and equity attributable to equity of the parent, comprising issued capital and deferred shares of £16,319,000 (2015: £15,059,000), other reserves of £17,923,000, (2015: £13,529,000) and accumulated losses of £18,695,000 (2015: £17,645,000). The Group does not use derivative financial instruments and has no long-term debt facilities.

Fair value estimation

The fair values of the Group's financial assets and liabilities approximate their carrying amounts at the reporting date.

Available for sale financial assets are classified as Level 1 within the fair value hierarchy, except for Ethiopian Government bonds, which are classified as Level 2. Level 1 items are derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 items are derived from inputs other than quoted prices included within Level 1 that are observable for the assets either directly or indirectly.

Other financial assets and liabilities are short term and their carrying value is considered to approximate to their fair value.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

4. Use and revision of accounting estimates and judgements

The preparation of the financial report requires the making of estimations and assumptions that affect the recognized amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Significant judgements include:

Going concern

The going concern presumption depends principally on securing funding to develop the Tulu Kapi mine project as an economically viable mineral deposit, and the availability of subsequent funding to extract the resource, or alternatively the availability of funding to extend the Company's and Group's exploration activities.

Significant estimates include:

Fair value of acquisitions

The 'acquisition method', which generally requires assets acquired and liabilities assumed to be measured at their fair values at the acquisition date. Fair value estimates are required. In calculating the fair value estimates of net identifiable net assets on acquisition significant judgements and estimates are required.

Share based payments

In calculating the fair value at the grant date, the Black Scholes model requires us to estimate the inputs to this model, in particular in respect of volatility. This assessment is based on historical share price movements assuming these will continue into the future.

Impairment review of asset carrying values

Events or changes in circumstances can give rise to significant impairment charges or reversals of impairment in a particular year. Where the recoverable amounts of Group cash generating units are assessed by analyses of discounted cash flows, the resulting valuations are particularly sensitive to changes in estimates of long term commodity prices, exchange rates, operating costs, the grouping of assets within cash-generating units and discount rates.

Capitalisation of exploration and evaluation costs

Under the Group's accounting policy, exploration and evaluation expenditure is not capitalised until the point is reached at which there is a high degree of confidence in the project's viability and it is considered probable that future economic benefits will flow to the Group. Subsequent recovery of the resulting carrying value depends on successful development or sale of the undeveloped project. If a project does not prove viable, all irrecoverable costs associated with the project net of any related impairment provisions are written off.

Contingent liabilities

A contingent liability arises where a past event has taken place for which the outcome will be confirmed only by the occurrence or non-occurrence of one or more uncertain events outside of the control of the Group, or a present obligation exists but is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A provision is made when a loss to the Group is likely to crystallise. The assessment of the existence of a contingency and its likely outcome, particularly if it is considered that a provision might be necessary, involves significant judgment taking all relevant factors into account.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

5. Operating segments

The Group has only one distinct operating segment, being that of mineral exploration. The Group's exploration activities are located in the Kingdom of Saudi Arabia (through the jointly controlled entity), Ethiopia and its administration and management is based in Cyprus.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

6. Expenses by nature

The Group's stages of operations in Saudi Arabia as at the year-end and as at the date of approval of these financial statements have not yet met the criteria for capitalization of exploration costs. The Company only capitalises direct development costs for the Tulu Kapi gold project in Ethiopia.

Excludes Directors' remuneration and fees which are disclosed in note 21.1. These staff costs are capitalised in development exploration costs.

The Company is resident in Cyprus for tax purposes. A deferred tax asset of £1,242,770 (2015: £1,336,989) has not been accounted for due to the uncertainty over future recoverability.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

9. Tax (continued)

Cyprus

The corporation tax rate is 12.5%. Under certain conditions interest income may be subject to defence contribution at the rate of 15%. In such cases this interest will be exempt from corporation tax. In certain cases, dividends received from abroad may be subject to defence contribution at the rate of 20% for the tax year 2013 and 17% for 2014 and thereafter. Due to tax losses sustained in the year, no tax liability arises on the Company. Under current legislation, tax losses may be carried forward and be set off against taxable income of the five succeeding years. As at 31 December 2016, the balance of tax losses which is available for offset against future taxable profits amounts to £ 9,942,163 (2015: £ 7,795,644).

Bulgaria

Mediterranean Minerals (Bulgaria) EOOD, the 100% subsidiary of the Company, is resident in Bulgaria for tax purposes. The corporation tax rate is 10%. Due to tax losses sustained in the period, no tax liability arises on the Mediterranean Minerals (Bulgaria) EOOD. Under current legislation, tax losses may be carried forward and be set off against taxable income of the following five years. As at 31 December 2016, the balance of tax losses which is available for offset against future taxable profits amounts to £25,476 (2015: £34,035). The reduction in tax losses from the prior year is due to losses passing the five year threshold for their utilization.

Turkey

Doğu Akdeniz Mineralleri Sanayi ve Ticaret Limited Şirket (Doğu Akdeniz Mineralleri), the 100% subsidiary of Mediterranean Minerals (Bulgaria) EOOD, and ultimately 100% subsidiary of the Company, is resident in Turkey for tax purposes. The corporation tax rate is 20%. Under local tax legislation, exploration costs are can only be set off against income from mining operations. Tax losses may be carried forward and be set off against taxable income of the five succeeding years. As at 31 December 2016, the balance of exploration costs that is available for offset against future income from mining operations amount to £ 811,471 (2015: £948,764).

Ethiopia

KEFI Minerals Ethiopia Limited is subject to other direct and indirect taxes in Ethiopia through its foreign operations. The mining industry in Ethiopia is relatively undeveloped. As a result, tax regulations relating to mining enterprises are evolving. There are transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made.

During 2013, the House of People's Representatives passed an amendment to the Mining Income Tax Proclamation, reducing income tax from 35% to 25% and had received an initial draft of proposed amendments to the Mining Proclamation, which includes a reduction in royalty on gold production from 8% to 7%.

10. Loss per share

The calculation of the basic and fully diluted loss per share attributable to the ordinary equity holders of the parent is based on the following data:

The effect of share options and warrants on losses per share is anti-dilutive.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

11. Property, plant and equipment

The above property, plant and equipment is located in Turkey and Ethiopia.

The Company has no significant property, plant and equipment.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

12. Intangible assets