TIDMKEFI
RNS Number : 0370G
KEFI Minerals plc
24 May 2017
24 May 2017
KEFI Minerals plc
("KEFI" or the "Company")
2017 Definitive Feasibility Study Update for the Tulu Kapi Gold
Project
Study incorporates improvements to 2015 Definitive Feasibility
Study
KEFI Minerals (AIM: KEFI), the gold exploration and development
company with projects in the Kingdom of Saudi Arabia and the
Federal Democratic Republic of Ethiopia, is pleased to announce
completion of the 2017 Definitive Feasibility Study Update ("2017
DFS Update") for the Tulu Kapi Gold Project ("Tulu Kapi"), taking
the Company another key step closer towards finalisation of project
funding.
The 2017 DFS Update incorporates due diligence and refinements
since the 2015 Definitive Feasibility Study ("2015 DFS") published
in August 2015 and provides increased confidence in the Company's
plans to develop Tulu Kapi.
Completed by Lycopodium Minerals Pty Limited ("Lycopodium") and
approved by KEFI, the 2017 DFS Update is now the base case for
overlaying the funding commitments, whilst higher targets will be
set for business planning purposes. The financial analyses have
been prepared by Endeavour Financial.
KEFI's Executive Chairman, Mr Harry Anagnostaras-Adams,
said:
"By today publishing an updated definitive feasibility study
(2017 DFS), we are pleased to have completed another vital step
towards finalising funding arrangements. Total funding requirements
of approximately US$160 million and other key aspects remain
consistent with recent guidance.
"Comparison with KEFI's 2015 DFS two years ago summarises the
myriad of refinements since then, such as detailed operational
plans with project contractors including accelerated ore processing
that increases gold production to 115,000 ounces per annum, thus
improving profitability and cash flows. The update also details the
technical rigour behind the improvements made to the project since
KEFI assumed control in 2014."
Key Points of the 2017 DFS Update (100% of Tulu Kapi Gold
Project - Open Pit only)
2017 DFS Update 2015 DFS
-------------------------------- ---------------- ---------------
Average head grade 2.1g/t gold 2.1g/t gold
-------------------------------- ---------------- ---------------
Total gold production 980,000 oz 961,000 ounces
-------------------------------- ---------------- ---------------
Ore processing rate 1.5-1.7Mtpa 1.2Mtpa
-------------------------------- ---------------- ---------------
Average annual gold production 115,000 oz 95,000 oz
(first 8 years) p.a. p.a.
-------------------------------- ---------------- ---------------
Cash Operating Costs US$684/oz US$661/oz
-------------------------------- ---------------- ---------------
All-in Sustaining Costs US$777/oz US$780/oz
-------------------------------- ---------------- ---------------
All-in Costs (including US$933/oz US$906/oz
initial capex)
-------------------------------- ---------------- ---------------
IRR 22% 28%
-------------------------------- ---------------- ---------------
NPV at start of construction US$97M US$125M
(8% real discount rate)
-------------------------------- ---------------- ---------------
NPV at start of production US$272M US$256M
(8% real discount rate)
-------------------------------- ---------------- ---------------
Payback 3 years 2.5 years
-------------------------------- ---------------- ---------------
Net Operating Cash Flow US$55M p.a. US$50M p.a.
(average for first 8 years)
-------------------------------- ---------------- ---------------
The economic metrics tabulated above are for contract mining of
the open pit only, based on a gold price of US$1,250 flat over
life-of-mine and are on an unleveraged and after-tax basis.
-- Summary: the 2017 DFS Update has similar financial outcomes to the 2015 DFS.
-- Gold production: forecast open-pit gold production increases
slightly to 980,000 oz over ten years due to improved metallurgical
recovery, with an average of c. 115,000 oz pa for the first eight
years of production based on nameplate processing plant throughput
as warranted under the proposed contract with Lycopodium.
-- All-in Sustaining Costs: estimate remains at less than
US$800/oz. This includes all operating costs, royalties, sustaining
capital and closure costs, but excludes financing costs and income
taxes. This ranks Tulu Kapi in the best (lowest) quartile of gold
producers globally.
-- Net operating cash flow: increased slightly to US$55M pa, from US$50M pa in the 2015 DFS.
-- Initial capital expenditure: estimated at US$145M for 1.5-1.7Mtpa ore processing plant on a contract-mining basis and after accounting for contractual deferrals (US$161M before contractual payment deferrals). The lower 2015 DFS estimate was for a 1.2Mtpa ore processing plant.
-- NPV (unleveraged after tax) at start of construction: US$97M
is slightly less than the 2015 DFS as there has been a commensurate
increase of initial capital expenditure in the 2017 DFS Update for
the benefits summarised in this announcement. The NPV at start of
production is US$272M.
-- Total funding requirement: consistent with KEFI's recent
guidance for required funding of c. US$160M (inclusive of non-Tulu
Kapi costs).
KEFI will target to run the plant at slightly higher (c. 10%)
than nameplate processing rate in the 2017 DFS Update. Based on
this strategy:
-- Gold production increases to c. 120,000 oz pa for the first eight years of production.
-- Net operating cash flow increases to US$61M pa.
-- NPV (unleveraged after tax) at start of construction
increases to US$120M. The NPV at start of production is
US$298M.
KEFI also targets annual gold production to increase further
with the addition of an underground mine operating concurrently
with the open pit.
All of the financial metrics reported in this announcement are
based on a gold price of US$1,250/oz and are before taking into
account the effects of any project financing.
ENQUIRIES
KEFI Minerals plc
Harry Anagnostaras-Adams (Executive
Chairman) +357 99457843
John Leach (Finance Director) +357 99208130
SP Angel Corporate Finance
LLP (Nominated Adviser)
Ewan Leggat, Jeff Keating +44 20 3470 0470
Brandon Hill Capital Ltd (Joint
Broker)
Oliver Stansfield, Alex Walker,
Jonathan Evans +44 20 7936 5200
RFC Ambrian Ltd (Joint Broker)
Jonathan Williams
Beaufort Securities Ltd (Joint
Broker) +44 20 3440 6817
Elliot Hance +44 20 7382 8300
Luther Pendragon Ltd (Financial
PR)
Harry Chathli, Claire Norbury,
Ana Ribeiro +44 20 7618 9100
Further information can be viewed on www.kefi-minerals.com
EXPLANATORY COMMENTS ON 2017 DFS UPDATE
The Tulu Kapi development plan is based on a conventional
open-pit mining operation and a 1.5 Mtpa to 1.7 Mtpa
carbon-in-leach ("CIL") processing plant, with gold recoveries
averaging 93%.
Following the positive 2015 DFS and the engagement of Lycopodium
Minerals Pty Ltd ("Lycopodium") as the engineering, procurement and
construction ("EPC") contractor for the construction of the
processing plant, Lycopodium completed in 2016 a Front-End
Engineering Design Study ("FEED Study") for the design and
construction of an integrated ore processing facility for Tulu
Kapi.
Lycopodium prepared the 2017 DFS Update and their report will be
available on www.kefi-minerals.com on the Tulu Kapi DFS page.
The 2017 DFS Update provides revised capital and operating costs
reflecting all refinements since the 2015 DFS:
-- Rationalised pre-mining works to be undertaken by a local
earthmoving contractor during the plant construction period.
-- Mining to be undertaken by an experienced African mining
contractor with mining costs reflecting the results of contractual
tenders and collaborative detailed operational-level mine
planning.
-- The FEED Study for the processing plant design by Lycopodium.
-- Warranted processing plant throughput was increased from 1.2
Mtpa to 1.5 Mtpa for normal operations and to 1.7 Mtpa when
processing softer ores.
-- Processing plant comminution circuit refined and primary SAG
mill and secondary ball mill circuit replaced with larger SAG-only
circuit.
-- DFS-approved grind size for processing plant increased to P80 = 150 um (from 75 um).
-- Revised designs for the tailings storage facility ("TSF") and water storage dams.
-- TSF relocated downstream to reduce capital cost with no
reduction in capacity for a neutral water balance.
-- New access road routes were refined to decrease capital costs.
The 2017 DFS Update development schedule sets gold production
commencing in late 2019, the exact timing of which will flow from
the commencement of major construction, which itself needs to await
resettlement of the community. This assumes the community
resettlement will occur in early 2018, whilst the community and
KEFI are actually preparing for this to occur in late 2017 so that
construction can commence earlier.
For the purposes of the 2017 DFS Update, various components
remain unchanged from the 2015 DFS:
-- geology and mineralisation (Ore Reserves and Mineral Resources);
-- metallurgical testwork data; and
-- permitting, environmental and social.
Mining the underground deposit below the planned open pit has
not yet been fully considered, and will be addressed in due course.
A preliminary economic assessment completed in early 2016
evaluating the current Indicated Resource (1.1 Mt at 5.6 g/t gold,
containing c. 200,000 ounces). This assessment indicated that the
addition of an underground mine has the potential to increase total
(open pit + underground) gold production to more than 150,000
ounces per annum over four years. The orebody remains open and
further potential will be added.
Mill Throughput Increase
The 2015 DFS schedule was based on a 1.2 Mtpa throughput. This
resulted in high-grade stockpiles growing to greater than 1.5 Mt
and low-grade stockpiles building up to more than 3.0 Mt.
Following discussions with several of the engineering
contractors shortlisted at the time, not only did it became
apparent that an increase in processing plant capacity from 1.2
Mtpa to 1.5 Mtpa could be achieved with negligible increases in
capital costs, but capital and operating cost reductions could also
be achieved by increasing grind size from the previously chosen P80
= 75 um to 150 um for the fresh ore and 125 um for the oxide ore,
with only minor loss in gold recovery.
Ores will be mined so that predominantly oxide / shallow / soft
fresh ore will be processed for the first three years, and
thereafter a mixture of shallow and hard fresh ore will be
processed. It is proposed that Lycopodium warrant nameplate
capacity for fresh ore of 1.5 Mtpa (oxide ore 1.7 Mtpa) using a
single-stage crushing and single-stage SAG mill circuit.
These refinements allow ore that was previously intended to be
stockpiled to be processed earlier in the mine life.
The table below provides the 2017 DFS Update processing schedule
for the Tulu Kapi Ore Reserves.
Processing Total Period (year)
------------- ------- ------------------------------------------------------------------------------
1 2 3 4 5 6 7 8 9 10
------------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Saprolite
(kt) 948 350 140 79 44 6 2 3 90 122 113
- Grade
- Au (g/t) 1.56 2.14 1.99 1.62 1.07 1.68 1.09 1.11 1.19 0.75 0.60
Fresh (kt) 10,081 1,080 1,560 1,621 1,512 1,219 458 232 436 1,026 936
- Grade
- Au (g/t) 1.99 2.60 2.46 2.39 1.99 2.87 2.34 1.07 0.94 0.75 0.60
Hard (kt) 4,366 144 279 1,040 1,266 974 356 307
- Grade
- Au (g/t) 2.54 3.34 3.03 3.03 2.29 3.19 1.18 0.60
Total (kt) 15,394 1,430 1,700 1,700 1,700 1,504 1,500 1,500 1,500 1,504 1,356
- Grade
- Au (g/t) 2.12 2.49 2.43 2.36 2.08 2.89 2.82 2.10 2.42 0.86 0.60
------------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Metal
Contained
Au (koz) 1,050 114 133 129 114 140 136 101 117 41 26
Recovered
Au (koz) 980 108 124 119 105 134 128 93 111 36 22
------------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
The above table only refers to open-pit production plans.
It is planned to preferentially process higher-grade ore (mined
above cut-off grade of 0.9g/t gold) and to stockpile ore mined at
grade 0.5-0.9g/t gold.
KEFI will target to run the plant at slightly higher (c. 10%)
than nameplate processing rate from year 2 and further reduce the
build-up of ore stockpiles. The table below provides an indicative
processing schedule based on this approach ("2017 KEFI Plan") which
brings forward the production of ounces that are stockpiled in the
2017 DFS Update processing schedule.
Processing Total Period (year)
------------- ------- ---------------------------------------------------------------------
1 2 3 4 5 6 7 8 9-10
------------- ------- ------ ------ ------ ------ ------ ----- ------ ------ ------
1,
Total (kt) 15,394 1,430 1,870 1,870 1,870 1,655 650 1,650 1,650 1,750
- Grade
- Au (g/t) 2.12 2.49 2.43 2.36 2.06 2.89 2.56 1.96 2.24 .16
------------- ------- ------ ------ ------ ------ ------ ----- ------ ------ ------
Metal
Contained
Au (koz) 1,050 114 146 142 124 154 136 104 119 11
Recovered
Au (koz) 980 105 137 132 114 147 127 94 114 10
------------- ------- ------ ------ ------ ------ ------ ----- ------ ------ ------
Physicals and Unit Costs
Based on the 2017 DFS Update processing approach, the following
key mining and financial parameters for Tulu Kapi were updated and
compared with those of the 2015 DFS, which assumed a slightly
different mining sequence and a slower processing rate per
annum:
2017 DFS Update 2015 DFS
---------------------- ---------------- ---------------
Waste:ore ratio 7.4:1.0 7.4:1.0
---------------------- ---------------- ---------------
Total ore processed 15.4Mt 15.4Mt
---------------------- ---------------- ---------------
Average head 2.1g/t gold 2.1g/t gold
grade
---------------------- ---------------- ---------------
Total gold production 980,000 oz 961,000 ounces
---------------------- ---------------- ---------------
Cash Operating US$684/oz US$661/oz
Costs
---------------------- ---------------- ---------------
All-in Sustaining US$777/oz US$780/oz
Costs
---------------------- ---------------- ---------------
All-in Costs US$933/oz US$906/oz
(including
initial capex)
---------------------- ---------------- ---------------
The 2015 DFS numbers have been restated to a contract mining
basis so as to make the comparison more meaningful.
Only the 2017 DFS Update numbers are shown in the above
comparison as the 2017 KEFI Plan yields identical or almost
identical numbers for the metrics over the life-of-mine.
Capital Expenditure
The capital cost estimate is based on an implementation strategy
using a combination of fixed-price, lump-sum EPC contract to
construct the processing plant and Lycopodium also providing
engineering, procurement and construction management ("EPCM")
services for the ancillary bulk earthworks. The EPCM contract on
other items has contingency provisions of 10-20% depending on the
item.
2017 Update 2015 DFS
US$M US$M
----------------------------------- ------------------- -----------------
Processing Plant and Spares 75.2 (EPC) 65.6 (EPCM)
----------------------------------- ------------------- -----------------
Offsite Infrastructure 15.5 19.7
----------------------------------- ------------------- -----------------
Onsite Infrastructure 18.8 7.5
----------------------------------- ------------------- -----------------
Mining 15.8 23.1
----------------------------------- ------------------- -----------------
Owners Costs, working capital 18.1 14.5
----------------------------------- ------------------- -----------------
Community, other 17.8 13.5
----------------------------------- ------------------- -----------------
Subtotal 161.1 143.9
----------------------------------- ------------------- -----------------
Contractual Deferrals (15.7) (22.3)
----------------------------------- ------------------- -----------------
Subtotal after Contractual
Deferrals 145.4 121.6
----------------------------------- ------------------- -----------------
Additions via Disclosures
since 2015 DFS:
----------------------------------- ------------------- -----------------
Non Tulu Kapi Costs + Contingency 14.6 28.4-38.4
----------------------------------- ------------------- -----------------
Total 160.0 150-160
----------------------------------- ------------------- -----------------
The 2015 DFS numbers have been restated to a contract mining
basis so as to make the above comparison meaningful.
The 2015 DFS was based on processing 1.2Mtpa of ore and the 2017
DFS Update on 1.5-1.7Mtpa.
The previous owner's capex estimate was US$289M (2.0Mtpa plant)
and KEFI's 2015 DFS figure was US$176M (1.2Mtpa plant), both being
on an owner-mining basis.
The 2017 Update DFS tabulates taxes that would potentially be
applicable on construction costs but which KEFI believes are
exempted under the terms of the agreements executed with the
Government of Ethiopia. Accordingly, the foregoing capital
expenditure estimates are subject to formal confirmations in due
course as part of structuring the project finance.
Base Case Financial Metrics
The metrics tabulated below are stated on an unleveraged and
after-tax basis at a gold price of US$1,250 flat over
life-of-mine:
2017 KEFI 2017 DFS
Plan Update
---------------------------------------- ------------ ------------
IRR 28% 22%
---------------------------------------- ------------ ------------
NPV at start of construction US$120M US$97M
(8% real discount rate on unleveraged
after tax cash flows)
---------------------------------------- ------------ ------------
NPV at start of production US$298M US$272M
(8% real discount rate on unleveraged
after tax cash flows)
---------------------------------------- ------------ ------------
Payback 3.0 years 3.0 years
---------------------------------------- ------------ ------------
Net operating cash flow US$61M p.a. US$55M p.a.
(average for first 8 years)
---------------------------------------- ------------ ------------
The net operating cash flow is gold revenue less site operating
costs, off-site costs, royalties and sustaining capital
expenditure.
Mining and Processing
The mining method planned for Tulu Kapi is conventional open-pit
drill and blast, load and haul, reflecting a semi-selective mining
approach (per the draft mine services contract with Ausdrill, a
bulk mining approach is applied to 79% of ore, or 95% of all
material, and a selective mining approach to 21% of ore, or 5% of
all material).
The Tulu Kapi deposit contains three ore types with the fresh
ore becoming harder with increasing depth:
% of Total
Ore
---------------- -----------
Oxide ore 6%
---------------- -----------
Fresh ore 66%
---------------- -----------
Fresh hard ore 28%
---------------- -----------
The gold is free milling and all the processes included in the
CIL plant design are standard and common to many current gold
operations.
NOTES TO EDITOR
KEFI Minerals plc is the operator of two advanced gold
development projects within the highly prospective Arabian-Nubian
Shield, with attributable Mineral Resources (JORC 2012) of 1.93Moz
gold (100% of Tulu Kapi's 1.72Moz gold in Ethiopia and 40% of Jibal
Qutman's 0.73Moz gold in Saudi Arabia) plus significant resource
growth potential. KEFI targets that production at these projects
generates cash flows for further exploration and expansion as
warranted, recoupment of development costs and, when appropriate,
dividends to shareholders.
This information is provided by RNS
The company news service from the London Stock Exchange
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