13th Oct 2015 09:23
LONDON (Alliance News) - Kefi Minerals PLC on Tuesday said it has chosen Australian-based mineral processing and associated infrastructure company Sedgman Ltd as its preferred contractor to build the plant for the Tulu Kapi gold project in Ethiopia.
Through the "intense competition" of the tendering process, Kefi said it will produce more gold for the same amount of funding compared to previous estimates and said it has also hired Sedgman on a fixed-price basis which could bring down costs and minimise potential cost over-runs in certain areas.
Kefi said Sedgman will provide equipment specification and procurement service, with the front-end engineering and design stage to commence in the current quarter. The engineering, procurement and construction work will be under a fixed-price lump-sum contract.
"The intense competition during the contract tendering process, culminating in today's appointment of Sedgman as preferred contractor for the plant, demonstrates the industry's recognition of the potential of Tulu Kapi," said Chief Operating Officer Wayne Nicoletto.
The estimated cost to build an operation capable of processing 1.5 to 1.7 million tonnes of ore per year is USD63.0 million to Sedgman. However the amount of ore the operation will be able to handle will not be known until the FEED work is completed.
That is good news for the miner as its previous estimates showed it would have to spend USD61.0 million for a project capable of processing only 1.2 million tonnes of ore per year. The previous estimates also did not envisage the contractor work being carried out under a fixed-price deal, meaning the chances of cost over-runs has now been alleviated.
In the first five years of production at Tulu Kapi, Sedgman believes Kefi will produce 105,000 ounces of gold per year, up from previous estimates of only 80,000 ounces per year.
Although the economics of the plant have improved, the peak funding requirement for the entire project remains at USD120.0 million, which will still be funded by a combination of debt and equity, with USD100.0 million of debt and gold streaming finance and USD20.0 million of project-level equity from the government of Ethiopia.
Moving forward, Sedgman will begin the FEED work on Tulu Kapi, and Kefi said procurement planning will allow potential involvement of the government export credit agencies of Australia and South Africa, to help minimise financing costs and risks, it said.
Kefi also will look to appoint a contractor to establish the mine for the project and to operate the mine.
In 2016, Kefi will initiate drill-out of potential satellite deposits to identify any opportunities to further expand production.
"The project has robust economics and the support of major industry players. Our finance team can now move on to finalising the financing package and syndicate for Government approval, and progress towards the construction phase," said Chairman Harry Anagnostaras-Adams.
Still, Kefi shares were down 4.7% to 0.405 pence per share on Tuesday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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