11th Apr 2016 10:18
LONDON (Alliance News) - KEFI Minerals PLC on Monday said the Tulu Kapi gold project in Ethiopia remains on track to begin producing in the second half of 2017, and said it will generate enough free cashflow in the first three years of production to allow the company to begin paying a dividend.
KEFI recently has released a string of updates concerning its main Tulu Kapi project, and said Monday that the syndicate set to provide the bulk of financing required for the project should provide their formal approval shortly, followed by financial settlement in the third quarter of 2016.
The total capital expenditure for the project amounts to USD145.0 million, including the financing costs and cost-overrun facilities.
Two banks within the syndicate are providing USD65.0 million of senior unsecured debt and an export credit agency with an average tenor of six years. Cost-overrun facilities and the company's 100,000 ounce hedging facility secured from a specialist metals financier will contribute USD15.0 million of the total expenditure, and USD40.0 million is product-linked gold finance from another specialist gold financier.
The other USD25.0 million of expenditure will be funded from equity, and KEFI said that component will be invested into the project before the syndicate reaches financial settlement for the rest of the finance in the third quarter of the year.
Of that equity component, USD5.0 million is coming from funds that have already been raised by KEFI and the other USD20.0 million is coming from the government of Ethiopia. KEFI said that equity component is in addition to the USD50.0 million invested before 2016.
"The directors of KEFI aim to present the syndicate-approved financing plan to shareholders for their approval at the company's annual general meeting, which is expected to be held in June 2016," said the company.
"The board of directors will seek the delegated authority to refine final details of the syndicated financing in light of finalised project procurement and the gold price prevailing at financial settlement," it added.
KEFI said construction of the process plant is set to start in the fourth quarter of 2016, but the contractors that will carry out mining operations will not be mobilised until 2017 as production commissioning is not expected until the second half of that year.
The company already delivered the front-end engineering and design work for the project back in February, but that continues to be refined. KEFI said "detailed engineering and procurement" has now started.
KEFI is aiming to produce around 115,000 ounces of gold per year by focusing on an open pit operation for around eight years, but has also identified an opportunity to increase that production up to 150,000 ounces per year by introducing an underground mining operation later down the line.
Importantly, underground development would only happen once KEFI has started repaying the debt accumulated through the construction of the open pit operation, but it hopes to kick-start development of the underground operation within the first three years of production from the open pit.
KEFI said it can build its cash up to USD135.0 million in the first three years of production from Tulu Kapi, which is enough to repay all of the debt acquired.
Notably, KEFI added that this also would be enough to "commence the payment of dividends" and to begin developing the underground operation.
Meanwhile, at its joint venture in Saudi Arabia with Gold & Minerals Ltd, KEFI said it is focusing on updating the mineral resource at the project following the infill drilling programme in late 2015. The mining licence application also is being discussed with regulators, which will allow KEFI as operator to start a heap leach operation.
That heap leach operation can be expanded in the future should Metal Tiger experience success with its exploration. KEFI, with a 40% stake, would need to contribute less than USD5.0 million in equity funding to get that heap leach operation up and running.
That figure is based on total capital expenditure of USD40.0 million, of which 75% will be funded by project financing.
KEFI shares were trading up 2.3% to 0.368 pence per share on Monday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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