8th Mar 2016 08:48
LONDON (Alliance News) - KEFI Minerals PLC shares rose on Tuesday after it said it has the potential to increase annual production from the Tulu Kapi gold project in Ethiopia to over 150,000 ounces a year through an open pit and an underground mining operation.
KEFI shares were up 8.4% to 0.390 pence per share on Tuesday morning.
The forecast came following the completion of the preliminary economic assessment of the underground mining operation at the project, with KEFI intending to develop the project in two stages, starting with an open pit operation.
"As we continue to make excellent progress on financing and preparing for the development of the Tulu Kapi open pit mine, we are pleased with the positive results of our preliminary economic assessment for the underground mine potential," said Exploration Director Jeff Rayner.
The company progressed the assessment on the underground mining aspect of the operation after starting its search for the next "value-adding stages" beyond the construction and start-up of the open pit at the project.
KEFI anticipates commencing development of the underground mine after Tulu Kapi has begun generating positive cash flows from the open pit mine and repaying its development finance, with a view to introducing underground production in year two, three or four of the open pit operation.
The assessment has confirmed that the open pit operation can deliver a "cash build-up" of USD135.0 million over the first three years of production, which KEFI said is sufficient to repay the loans that will be used to construct the project.
That figure is based on a gold price of USD1,250 per ounce, which is lower than the current spot price of USD1,273 per ounce on Tuesday.
That USD135.0 million sum will also fund the development of the underground operation and allow KEFI to book a provision of returns to shareholders, it said.
The open pit and the underground operation combined will be able to produce around 150,000 ounces of gold each year, which if delivered would result in aggregate net operating cash flow of USD100.0 million each year, the company said.
The open pit and underground element of the operation have a combined net present value of USD200.0 million, of which USD150.0 million is attributable to KEFI as it holds a 75% stake in the project. KEFI said that is based on the assumption that it still holds a 75% stake once it secures the project financing. That suggests the company could give up some of the equity in the project in order to finance it.
The underground operation had an inferred and indicated mineral resource containing 330,000 ounces of gold prior to the assessment released Tuesday, but KEFI said the latest interpretation suggests that could rise to 1.0 million ounces through "exploration potential".
The underground operation is expected to recover around 50,000 ounces of gold per year in the first four years, and will cost KEFI around USD37.0 million in capital expenditure to get up and running.
The underground operation would have a cash cost of USD664 an ounce and a all-in sustaining cash cost of USD845 per ounce, providing a healthy margin at current prices.
As the final mine plan for the open pit indicates a core of eight years annual production averaging 115,000 ounces of gold per year, commencing in 2018, adding the contemplated underground mine would potentially increase annual production to over 165,000 ounces of gold a year.
That would generate a combined net operating cash flow to USD96.0 million a year, with USD66.0 million coming from the open pit and USD30.0 million from the underground mine.
Ore from both operations would be processed in the Tulu Kapi processing plant, which would also require a "relatively minor expansion programme," said KEFI.
"At present, the company anticipates development commencing after Tulu Kapi has begun generating positive cash flows from the open pit and repaying its development finance, with a view to introducing underground production between year two and four of the open pit operation," said the company.
By Joshua Warner; [email protected]; @JoshAlliance
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