July 18, 2017 - KEFI Minerals, London-listed gold and copper deposits exploration and Development Company, has agreed a finance package for the construction of its gold mine project in Ethiopia. The new agreement is expected to augment Ethiopia’s gold production. Gold is Ethiopia's main mineral export and has been mined since ancient times, primarily as alluvial or free gold. At present, Ethiopia has a single large-scale gold mine, Lega Dembi, in the southern area of the country, owned by Midroc (98%) and the Ethiopian government (2%).
KEFI’s Tulu Kapi project in the South western part of Ethiopia has a probable Ore Reserve of 1.0 million ounces and Mineral Resources totaling 1.7 million ounces. Planned gold production at Tulu Kapi is forecast to be circa 115,000 ounces per annum at an AISC of US$777/ounce over the initial eight years of mining the open pit.
The new KEFI’s finance package deal with Oryx, an infrastructure specialist company, is to put up US$135mln in new debt through a lease and payback arrangement that will also see it become the processing plant operator.
Mining will be carried out by contractor Ausdrill. The package will see a new special purpose vehicle set-up for the mine that initially will be 75% owned by KEFI.
Harry Adams, KEFI’s executive chairman, said a development funding approach was more appropriate for start-up purposes than bank debt due to its longer 9-year tenor and as repayments started 30 months after drawdown.
“At a gold price of US$1,250/oz, Tulu Kapi's robust project cash flow projections, combined with the innovative financing proposal from Oryx, looks to well serve KEFI's objective to rapidly repay debts whilst implementing our targeted exploration programs and commencing dividends during the early production years.”
Due diligence still has to be carried out and KEFI said the door is still open for other finance offers but added the Oryx proposal had significant advantages.
These include low start-up capital, minimal equity dilution and the nine year term.
Coupon on the debt is 8% and KEFI believes that on cash flow projections already published it can repay US$135mln within four and half years at a gold price of US$1,250.
If the deal with Oryx is concluded, it will leave KEFI needing to find a further US$30mln to fund the project completely.
Methods to fund this potentially include a loan from the Ethiopian Development Bank, new equity or a project level investment into the special purpose vehicle. Work is expected to start on the mine before the end of 2017.
Source: Proactive Investor UK