London AIM-listed gold exploration and development company KEFI Minerals has announced that it has 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 (TKGM), which is developing the Tulu Kapi openpit gold project, in the Horn of Africa country.

The Ethiopian investors will make their investments in TKGM through a new company that they are currently incorporating, Arabian Nubian Shield Resources (ANS Resources, for short).

The Ethiopians will invest the birrequivalent of $30-million to $35-million in TKGM. (The birr is the currency of Ethiopia.) The first tranche, equivalent to $9-million, will be paid once the remaining due diligence activities are completed and the binding share subscription agreement has been executed. These should be done during this quarter. The rest of the investment will 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 is expected to produce 140 000 oz of gold a year for seven years. All these figures are Joint Ore Reserves Committee 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,” states KEFI Minerals MD Harry Anagnostaras-Adams. “This approach also ensures clear Tulu Kapi Gold Project control by KEFI, as required by the planned nonequity financiers.”

“Subscription by both the government of Ethiopia and ANS Resources to project company TKGM implies a valuation of about $66-million to a residual KEFI holding of 54%,” he observes. “This compares with investment to date by KEFI shareholders (including shareholders that 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 openpit development, whilst ignoring any potential upside from underground mining, Tulu Kapi district exploration or its portfolio of targets in Saudi Arabia.”

The company reports that a preliminary economic assessment has 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 1 000 km2 adjacent to Tulu Kapi has been kept by KEFI for exploration once development has started.

KEFI Minerals is also active in Saudi Arabia. In that country, it has a joint venture, G&M, with local company Abdul Rahman Saad Al Rashid & Sons. KEFI holds 40% of G&M but is the operating and technical partner.