KEFI signs up new syndicate member for Tulu Kapi project financing, now has $320m committed

KEFI Gold and Copper (KEFI) Follow | KEFIhas signed up BCM Group as a syndicate member for the Tulu Kapi financing. 

BCM has confirmed its intention to contribute US$23 million of pre-production costs to the development of Tulu Kapi, a major gold project in Ethiopia. 

BCM has also been appointed as a ‘Preferred Mining Contractor’ to the Tulu Kapi project, after offering full mining services on the best available terms, undertaken to proceed with procurement of the mining fleet for supply to the project, and confirmed its intention to bid for civil works contracts.

BCM has 50-year track record of providing mining services contracts, especially in projects in which it has an ownership interest.

The finance will take the form of Equity Risk Notes, repayable in cash or convertible post commencement of production. 

This means that the project development budget of US$320 million is now covered by equity and debt conditional commitments, pending final cost updates.

In addition, BCM's inclusion in the project funding syndicate means KEFI is no longer motivated to dispose of its interests in Saudi Arabia, although the company will continue with ongoing discussions and choose the most beneficial outcome. 

These arrangements would fulfil all the development funding requirements of the project against the longstanding budget of US$320 million, which the company is currently reconfirming with all relevant suppliers and service providers, particularly the fixed price lump sum elements. 

Following this intended arrangement with BCM, the company now has sufficient demand within the project financing syndicate, which duly reinforces KEFI's confidence about closing the full financing. Once costings and final participations are finalised, KEFI will likewise finalise the scheduling of drawdown and disbursement by respective currency and party.

Cost updates and certifications are currently being finalised ahead of the signing of detailed definitive agreements this quarter. Once these costs are certified, the company will be able to launch major works within the following month or so, and lock-in the fixed price lump sum components.

 The various government and other formal processes are on track and working towards the same timetable.

"We progress towards launch of Major Works at the Tulu Kapi Gold Project at what is a very propitious moment in time,” said KEFI founder and executive chairman, Harry Anagnostaras-Adams.

“At a US$3,000 per ounce gold price, net operating cash flow after royalties and taxes for the first year of production is estimated at around US$304 million, of which US$240 million would repay all project debt. It is a great time to launch such a high-grade, high-recovery open pit gold mine in rapidly growing Ethiopia, and we will now also push for this development to be followed quickly by the underground mine development at Tulu Kapi. Likewise in Saudi Arabia, under the GMCO joint venture with KEFI's partner, leading Saudi conglomerate ARTAR, we will push the development in the short term of the initial open pit gold mine projects at Jibal Qutman and Hawiah."

View from Vox

This is an encouraging development from KEFI in more than one way. First, completing the proposed financing syndicate for development is a major tick in the box, albeit that various final aspects of due diligence remain to be completed. Perhaps it’s not surprising that the company was able to get this done with the gold price so high. But putting together arrangements like this is not so easy – not many of KEFI’s peers have managed to get themselves this far in recent years. Second, the ability that KEFI now has to hold on to the Saudi assets if it so wishes gives it more room for manouevre – to strike a better deal if it wants to, or to hold on and see them into production.