London Aim-listed gold exploration and development company KEFI Minerals announced on Friday that it had signed a detailed heads of agreement with investors in Ethiopia, for the latter to take a significant (but minority) stake in KEFI subsidiary Tulu Kapi Gold Mines Share Company Limited (TKGM), which is developing the Tulu Kapi openpit gold project in the African country. The Ethiopian investors would make their investments in TKGM through a new company that they were currently incorporating, Arabian Nubian Shield Resources Limited (ANS Resources, for short).

The Ethiopians will invest the Birr-equivalent of $30-million to $35-million in TKGM. (The Birr is the currency of Ethiopia.) The first tranche, equivalent to $9-million, would be paid once the remaining due diligence activities are completed and the binding share subscription agreement is executed. These should be done during this quarter. The rest of the investment would follow, once the full project finance closing goes ahead, with the approval of the Ethiopian government.

TKGM was granted a mining licence in April 2015. The project has an ore reserve estimated at 15.4-million tons, at a gold grade of 2.1 g/t, with a total gold content of 1.1-million ounces. Once operational, the mine was expected to produce 140 000 oz of gold a year for seven years. All these figures are Joint Ore Reserves Committee code-compliant.

“Project equity investor ANS Resources is being carefully structured to provide diversified local equity participation in Ethiopia’s first modern mine development for its exciting new gold sector,” stated KEFI Minerals MD Harry Anagnostaras-Adams. “This approach also ensures clear Tulu Kapi Gold Project control by KEFI, as required by the planned non-equity financiers.”

“Subscription by both the Government of Ethiopia and ANS Resources to project company TKGM implies a valuation of c. $66-million to a residual KEFI holding of 54%,” he observed. “This compares with investment to date by KEFI shareholders (including shareholders which KEFI inherited from the previous project owner) of $60-million. It also compares with the previously reported NPV [net present value] of $57 [to $]97-million (NPV at start of construction versus NPV at start of production) for KEFI’s proposed final interest in the Tulu Kapi open pit development, whilst ignoring any potential upside from underground mining, Tulu Kapi district exploration or its portfolio of targets in Saudi Arabia.”

The company reported that a preliminary economic assessment had suggested that it would be attractive to mine an underground deposit next to the openpit at Tulu Kapi, once the latter was operational, generating cash, and allowing the repayment of debts. In addition, more than a thousand square kilometres adjacent to Tulu Kapi had been kept by KEFI, for exploration, once development has started.