Kefi Gold Regulatory News (KEFI)

22 September 2020

KEFI Gold and Copper plc

("KEFI" or the "Company")

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2020

KEFI Gold and Copper plc (AIM: KEFI), the gold exploration and development company with projects in the Democratic Republic of Ethiopia and the Kingdom of Saudi Arabia, is pleased to announce its unaudited interim results for the six months ended 30 June 2020.

The statement below encompasses the activities of the Company's subsidiary, KEFI Minerals (Ethiopia) Limited ("KME"), in Ethiopia, and KEFI's joint venture, Gold & Minerals Limited ("G&M"), in the Kingdom of Saudi Arabia.

Overview

The current climate of increased gold and copper prices means that the project economics for the Company's Tulu Kapi gold project in Ethiopia ("Tulu Kapi" or the "Project") have become even more attractive, as have the potential values of our discoveries in Saudi Arabia, with maiden resources now reported mainly for copper/gold at Hawiah, as well as for zinc/silver and also for gold at Jibal Qutman.

The Company has continued to advance its projects in the highly prospective Arabian Nubian Shield notwithstanding the logistical restrictions imposed to protect personnel and the wider community due to COVID-19.

As reported post period end in July 2020 Tulu Kapi project company Tulu Kapi Gold Mines Share Company ("TKGM") is in detailed discussions with specialist mining financiers to complete the Project finance consortium alongside the mandated senior bank lenders to the Project. TKGM is working closely with all these parties to refine the detailed terms and to complete their reviews of the recently completed independent technical expert reports. The focus remains on continuing offsite development activities, the closing of the full Project funding package in October 2020, resettlement commencing in Q4 2020, site construction in early 2021 and for gold production to commence in 2022, in line with recent guidance.

It is notable that both Ethiopia and Saudi Arabia have prioritised development of the mining sector and both countries are implementing reforms to further develop and open up their economies.

The company continues to receive the support of its shareholders and welcomes to its investor base RAB Capital who now hold 12% of the issued capital of the Company and have Board representation.

Tulu Kapi Gold Project, Ethiopia

As previously reported, despite COVID-19, the implementation of the Project development activities during the first half has continued as planned:

· Infrastructure for connection of roads & power and security upgrade: This long-lead activity is on schedule, so that it does not hold up on-site construction over the next two years when new roads and electricity will be required;

· A road now has been built into new host lands for Tulu Kapi residents to be resettled;

· Security has been significantly expanded in the Mine License Area and surrounding district; and

· Infrastructure for ore processing: Process plant Front-End-Engineering-and-Design was completed by principal contractors Lycopodium Limited, after updating pricing from the plant fabricators and integrating the results of recent geotechnical drilling into final designs of foundations for plant and dams.

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

As announced post period end on 19 August 2020, a maiden resource at Hawiah has been delineated:

· Maiden Hawiah Inferred Mineral Resource Estimate ("MRE") of 19.3 million tonnes ("Mt") at 0.9% copper, 0.8% zinc, 0.6 g/t gold and 10.3g/t silver;

· Mineralisation remains open at depth; and

· High grade zones outside of current Mineral Resource, expected to be targeted in next drilling phase.

The Hawiah Internal Preliminary Economic Assessment ("PEA") has also been announced today.

KEFI welcomed the approval by the Saudi Arabian Cabinet in June 2020 of a new Mining Investment Law which is aimed at boosting the country's mining industry and is part of Saudi Arabia's plan to diversify its economy away from hydrocarbons. The Company also welcomes the expanded role of the Saudi Investment Development Fund specifically to support mining project finance, which may be pertinent to the Hawiah Project once prepared for development. 

This new regulatory impetus is expected to also help clarify the path forward to unlock value from KEFI's Saudi gold discovery at Jibal Qutman, which has been on hold awaiting Mining Licence tenure confirmation. An Internal Preliminary Economic Assessment in 2015 suggesting estimated operating costs of c. US$600/oz and estimated capital expenditure of US$30 million demonstrates that Jibal Qutman's Mineral Resources, totalling 733,000 ounces of near-surface gold, should be highly profitable in the current gold price environment.

Financial

During the period the Company raised gross proceeds of £5.6 million through two placings. The placing completed on 6 January 2020 raised gross proceeds of £1.9 million to reduce creditors and the placing completed on 28 May 2020 provided additional funding to the Company of £3.7 million (gross) to continue the Tulu Kapi preparations, notwithstanding the challenges created by COVID-19.

In order to reduce short term expenditure whilst project preparations continued, KEFI initiated a number of changes during the period:

· adjusting parts of the TKGM budget, whilst preserving key business targets;

· ongoing salary reductions by senior management of 25% pending progress reviews; and

· one-time dilution of Saudi joint-venture interest from 40% to 34% by not contributing pro rata share of expenses to G&M in the two years to 30 June 2020. It should be noted that KEFI expects to fund its pro rata share going forward.

The Company continues to consider a range of financing options to provide and maintain appropriate levels of working capital and funding for the long term development of the Tulu Kapi Gold project and the advancement of the Saudi initiatives.(see also "Note 2" to the financial statements)

Corporate - post period end

· Mr Adam Taylor was appointed as a Non-executive Director on 20 July 2020 following the investment by international investment company RAB Capital, a specialist in the mining sector. RAB Capital's welcome involvement is viewed as a long-term participation and they now hold approximately 12% of KEFI's issued share capital.

· On 18 August 2020 the company changed its name to KEFI Gold and Copper plc to better characterise and communicate its objectives and activities, reflecting its now established significant position in gold and copper.

Commenting, Mr Harry Anagnostaras-Adams, Executive Chairman of KEFI said, "During the first half and subsequently, the Company has continued to advance and is now extremely well positioned. The value-enhancing milestones ahead bode well for the Company's prospects and we seem fortunate that this coincides with a rising gold and copper prices in particular and aggressively pro-development Government initiatives in our host countries, Ethiopia and Saudi Arabia. The remainder of 2020 is expected to be a very exciting period for the Company and we look forward to providing regular updates as matters progress."

Condensed interim consolidated statements of comprehensive income

(unaudited) (All amounts in GBP thousands unless otherwise stated)

The notes are an integral part of these unaudited condensed interim consolidated financial statements.

Condensed interim consolidated statements of financial position 

(unaudited) (All amounts in GBP thousands unless otherwise stated)

The notes are an integral part of these unaudited condensed interim consolidated financial statements. 

On 21 September 2020, the Board of Directors of KEFI Gold and Copper Plc authorised these unaudited condensed interim financial statements for issue.

John Leach

Finance Director

Condensed interim consolidated statement of changes in equity 

(unaudited) (All amounts in GBP thousands unless otherwise stated)

Attributable to the equity holders of parent

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

The notes are an integral part of these unaudited condensed interim consolidated financial statements.

Condensed interim consolidated statements of cash flows

(unaudited) (All amounts in GBP thousands unless otherwise stated)

The notes are an integral part of these unaudited condensed interim consolidated financial statements

Notes to the condensed interim consolidated financial statements

For the six months to 30 June 2020(unaudited) and 2019 (All amounts in GBP thousands unless otherwise stated)

1. Incorporation and principal activities

Country of incorporation

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.

Principal activities

The principal activities of the Group for the period are:

· 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, operate mineral deposits and market the metals produced.

2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these condensed interim consolidated financial statements are set out below. These policies have been applied consistently throughout the period presented in these condensed interim consolidated financial statements unless otherwise stated.

Basis of preparation and consolidation

The condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standards (IFRS).

These condensed interim consolidated financial statements ('the statements") are unaudited and include the financial statements of the Company and its subsidiary undertakings. They have been prepared using accounting bases and policies consistent with those used in the preparation of the financial statements of the Company and the Group for the year ended 31 December 2019. These statements do not include all of the disclosures required for annual financial statements, and accordingly, should be read in conjunction with the financial statements and other information set out in the Company's 31 December 2019 Annual Report. The accounting policies are unchanged from those disclosed in the annual consolidated financial statements.

Going concern

The assessment of the Group's ability to continue as a going concern involves judgment regarding future funding available for the development of the Tulu Kapi Gold project, exploration of the Saudi Arabia exploration properties and for working capital requirements. In considering the Group's ability to continue as a Going Concern, management have considered funds on hand at the date of approval of the financial statements, planned expenditures covering a period of at least 12 months from the date of approving these financial statements and the Group's strategic objectives as part of this assessment. The Group has also considered the potential impact of COVID 19 in respect of its forecasts.

The ability of the Company to carry out its planned business objectives is dependent on its ability to continue to raise adequate financing from lenders, shareholders and other investors to meet its working capital and other funding requirements. Financing will also be required to continue the development of the Tulu Kapi Gold Project through to production.

The Company is in discussions with a number of fund providers to the mining industry who have an interest in the full range of financing instruments from conventional equity to debt to quasi equity. In addition, the company enlists the help of external professionals such as stock brokers and specialist financial advisors to assist in identifying and successfully concluding investment arrangements with third parties.

The Group is currently evaluating a number of proposed sources of financing for the Tulu Kapi Gold Project, the main focus of which is securing and optimising the full project funding package of c. US221 million comprising senior debt and a combination of pure equity and offtake-linked subordinated debt. The Ethiopian Government is in the process of contributing project equity of no less than US$20 million (Ethiopian Birr equivalent) and KEFI wholly-owned subsidiary KEFI Minerals (Ethiopia) Limited (formerly Nyota Minerals (Ethiopia) Limited up until its acquisition in 2013) has invested over US$60 million to date. 

Furthermore, the Group has mandated two African based banks to provide long term project financing to the project subject to the completion of the bank's due diligence processes.

It should be noted that there are currently no unconditional, binding agreements in place in respect of any additional funding and there is no guarantee that any course of funding will proceed. Also, COVID-19 has had a significant negative impact on the global economy which may mean it is harder to secure additional funding than has historically been the case. Notwithstanding this as a result of historical and ongoing proactive discussions with stakeholders, the Board has a reasonable expectation that the Group will be able to raise further funds in order to meet its obligations. Subject to the above, the Directors have concluded that it is appropriate to prepare the financial statements on a going concern basis.

Prior year adjustment

In 2017 and 2018 amounts of £1,340,000 and £938,000 relating to the issue of shares were, respectively, transferred from share premium to accumulated losses. In accordance with the UK Companies Act 2006, the share premium should not have included these adjustments and accordingly they have been restated in the opening balance sheet and the prior year comparatives. The impact of the adjustment is to increase share premium by £1,340,000 and decrease accumulated losses by the same amount at 1 January 2018, and to increase share premium by a further £938,000 and decrease accumulated losses by the same amount in the prior year. The adjustment has no impact on losses or assets or liabilities in any year

New and amended standards adopted by the Company

The same accounting policies, presentation and methods of computation are followed in the interim consolidated financial information as were applied in the Group's latest annual audited financial statements except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2020, and will be adopted in the 2020 annual financial statements. The following new standards and interpretations became effective on 1 January 2020 and have been adopted by the Group. None of these amendments are considered to have had a material effect in the Period.

 · IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment - Definition of Material)

 · IFRS 3 Business Combinations (Amendment - Definition of Business)

 · IBOR Reform and its Effects on Financial Reporting - Phase 1

 · Revised Conceptual Framework for Financial Reporting

3. Operating segments

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

4. 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 the loss per share is anti-dilutive.

5. Trade and other receivables

6. Intangible assets

7. Share capital

Issued capital

During January 2020, the Company completed a £1,862,500 placing by issuing 149,000,000 new ordinary shares of 0.1p each in the capital of the Company at a price of 1.25p per share.

During May 2020, the Company raised a further £3.7 million via a placing of 569,230,761 new Ordinary Shares of 0.1p each in two tranches at an issue price of 0.65 pence per share. Brandon Hill Capital Ltd acted as broker for the placing. The first 113,845,837 share tranche was conditional only upon admission of the shares to AIM, while the second tranche of 455,384,924 shares required shareholder approval at a General Meeting held on the 28 May 2020. The Company finalised this placing of £3,700,000 and issued 569,230,761 new ordinary shares of 0.1p each in the capital of the Company. All Shares rank pari passu in all respects with the existing ordinary shares of the Company.

8. Share Based Payments

8.1. Warrants

Details of warrants outstanding as at 30 June 2020:

These warrants were issued to advisers and shareholders of the Group.

¹&² The Company issued 149,000,000 short term warrants to subscribe for new ordinary shares of 0.1p each at 2p per share in accordance with the December 2019 and January 2020 share placement and as approved by shareholders on 6 January 2020. The warrants expired on 30 April 2020. The Company performed a fair value split by fair valuing the warrants using Black Scholes and assumed that this value is the residual share amount.

¹On 16 December 2019, the Company issued 7,450,000 warrants to subscribe for new ordinary shares of 0.1p each at 2p per share. to Brandon Hill pursuant to the Placing Agreement. The warrants expire 2 years from the date of issue (10 January 2020).

¹During May 2020, the Company issued 28,461,538 broker warrants to subscribe for new ordinary shares of 0.1p each at 0.65p per share to Brandon Hill pursuant to the Placing Agreement. The warrants expire within three years of the date of First Admission.

8.2 Share options reserve

Details of share options outstanding as at 30 June 2020:

8.3. Share Payments for services rendered.

January 2020 placement of 149,000,000 shares

On 6 January 2020, following approval by shareholders, the Company issued 49,419,600 new ordinary shares ("Remuneration Shares") and 99,580,400 new ordinary shares ("Settlement Shares") of 0.1p each in the capital of the Company at an issue price of 1.25p. The Remuneration Shares representing an aggregate value of £617,750 were granted to certain directors and management of the Company to satisfy accrued fees and salaries. The Settlement Shares were issued to Project contractors and other third parties in settlement of outstanding invoices and debt and represented an aggregate value of £1,244,750. During January 2020, the Company completed finalised this placing of £1,862,500 by issuing 149,000,000 new ordinary shares of 0.1p each in the capital of the Company. All Shares rank pari passu in all respects with the existing ordinary shares of the Company.

The Remuneration Shares, Settlement Shares and Placing Shares approved on the 6 January 2020 carried a short-term warrant entitlement of one warrant for every two such shares (the "Warrants"). The Warrants had an exercise price of 2p per Ordinary Share and expired on 30 April 2020.

The January 2020 placement provided working capital to the Company, allowed repayment and cancellation of existing debt and reduced other current obligations thus strengthening the financial position and capability of the Company.

All Remuneration Shares, Settlement Shares and Placing Shares were issued at a value of 1.25 pence per share. The net raise amounted to £1,862,500, with liabilities and other obligations listed below settled in shares.

Amount in settlement of outstanding obligations:

The total shares issued during period for services rendered was as follows:

9 Trade and other payables

10 Loans and Borrowings

10.1.1 Short Term Working Capital Bridging Finance 

The Group has the option to access working capital from certain existing stakeholders for up to GBP £1.5 million. This unsecured working capital bridging finance is short‐term debt which is unsecured and ranked below other loans. In the event the Group was unable to pay this finance it would be repaid after other debt securities have been paid, if any. Management expects that the company would meets its contractual obligation on any such bridging finance on a timely basis going forward.

10.1.2 Reconciliation of liabilities arising from financing activities

11 Joint venture agreements

KEFI is the operating partner with a 34% shareholding in G&M with ARTAR holding the other 66%. KEFI provides G&M with technical advice and assistance, including personnel to manage and supervise all exploration and technical studies. ARTAR provides administrative advice and assistance to ensure that G&M remains in compliance with all governmental and other procedures. G&M has five Directors, of whom two are nominated by KEFI However, decisions about the relevant activities of G&M require the unanimous consent of the five directors. G&M is treated as a jointly controlled entity and has been equity accounted and has reconciled its share in G&M's losses.

During the period, the Company has diluted its interest in the Saudi joint-venture company Gold and Minerals from 40% to 34% by not contributing its pro rata share of expenses to G&M. Given that the carrying value of the G&M assets in the Company accounts at the date of dilution was nil because the Company's has a policy of expensing all the costs related to G&M to date. By diluting its interest to G&M to 34% the Company was released from this liability. This resulted in a gain of £1,037,000. In accordance with the group's accounting policy gain of £1,037,000 was reported in the profit or loss during the period.

A loss of £587,000 was recognized by the Group for the period ended 30 June 2020 (2019: £186,000) representing the Group's share of losses for the period. As at 30 June 2020, KEFI owed ARTAR an amount of £247,000 (2019: £456,000). Shortly after 30 June 2020 KEFI transferred cash advance to Gold and Minerals of £204,000.

12 Related party transactions

The following transactions were carried out with related parties:

12.1  Compensation of key management personnel

The total remuneration of the Directors and other key management personnel was as follows:

Share-based benefits

The Company has issued share options to directors and key management. On 27 March 2014, the Board approved a new share option scheme ("the Scheme") for directors, senior managers and employees. The Scheme formalised the existing policy that options may be granted over ordinary shares representing up to a maximum of 10 per cent of the Group's issued share capital..

12.2 Transactions with shareholders and related parties

13 Capital commitments

14 Events after the reporting date

Change of Name

With effect from 18 August 2020, the name of the Company was changed from KEFI Minerals plc to KEFI Gold and Copper plc.