KEFI Gold and Copper Plc (KEFI) Earnings Call Transcript & Summary

Maybe. These sorts of discussions and ideas bounce around the Board table and the management team every month. But we haven't even declared a maiden resource yet in Saudi Arabia -- at Hawiah. So all I can say is that all these ideas need to be bounced around. We have plenty of vibrant and energetic and imaginative stock brokers and financial middlemen running around persistently looking for deals all the time. And we listen hard, and we see what's best for the shareholders. So I don't think -- there are problems of success, to be honest, and a trouble of us if we've made good discoveries and we've got value to be released one way or another, it's a great problem of success. And we'll work out how to best do that, depending on what's in the best interest of shareholders.

Harry, when do you expect to release your H1 2020 financial results?

End of September is the deadline of statutory. So it will be by then.

And the recent annual report said that you need working capital in this quarter and the auditors referred to the risks of insolvency. What do you ought to do if you run out of cash?

Well, those statements in the annual report have been in the annual report since the IPO in 2006. They should be in the statements of a company, any company until it gets into its cash flow. So any exploration and development company in the world would have provisos like that in their annual report. I mean the key for KEFI is to get this financing until it can be closed. That's all we need to do. All the rest is in order. We don't need to do anything else than that, getting that financing in order in October and we're away.

Now Harry, we've got a number of questions come through around sort of funding and ANS. I know you've touched on it already, but I'll just ask a couple more. So with regards to the ANS mining subscription, the previous rejection by the company of at this Fortune article in February 2020, whereby one of the ANS founders stated there would be looking to raise GBP 1 billion by share subscription in September 2020. Is this now in hindsight proven to be legitimate and appears to tie in with the facts arising by RNS regarding ANS not having -- yet having the funds? Also, can we assume that ANS will still be part of the overall funding package? Lots of shareholders are still worried, I think, and concerned that ANS will still be part of the overall funding package going forward.

I won't be distracted by press or media commentary. I'll just stick to the fact that is that ANS is a decent people. They reached out to decent institutions in Ethiopia. We, as a management team, from the company have met most of them, because we're asked actually to present the project to all those underlying investors. However, Ethiopia has been a terribly challenging place for banks and financial institutions, all these investors this year. You only need to Google that phrase liquidity crisis in Ethiopia, and you'll see references to what's been going on there all year. So these guys had all the best rule in the world, but just simply couldn't come up with the dash in the agreed time frame. It's just as simple as that, and you can -- one can bang on about it as long as one likes, that's a simple fact. Now having said all that, I think I've already explained that we left aside from equation, a number of other parties that we knew we would go to in the tail end of this financing. They -- and we've done so. And we've gone to them and they are actually more of them around than we anticipated because the gold market has gone through the roof. So there's a lot of interest. And therefore, we're not reliant on ANS mining. I mean it would be good if they're involved at least for a little bit, but there's not enough room for them to invest what they were going to invest in the first place. It's already taken up as best as I can judge. They have no rights to invest. They have no exclusivity to invest. We have no reliance on them to invest. I don't know how else I'll say it. They're good guys. But we'll do our best with them. We'll collaborate as closely as we can. But we have to pin down the project and get on with the show. And I think I made it clear enough.

So at what stage of the negotiation process can the specialist mining financiers be named and the terms announced?

I think I said earlier, it'll take a month or so to pin down detailed terms with the preferred. And I think there is so much -- how to put it, there's so much reliance here on all the parties fitting explicitly together in detail with banks needing to be satisfied that everything clicks in detail from their point of view, not just for us, from our shareholders' point of view and the government, from its point of view. But I mean I'd like to think that in a month or so, we can name the preferred and sign the terms. But I can't promise that because I really do need to make sure that it is approved by our senior lenders, and they have their own processes. And we're all working towards October [indiscernible], but we have to announce only when we're comfortable that it's not in any way preemptive to being permitted to proceed by the banks.

Yes. I mean, Harry, there's been a number of questions around sort of time lines and what if the full funding is not completed by October 2020. What are KEFI's options? And are shareholders being subliminally prepared for a delay?

Well, I think that if -- let's look back on the delays of the past and the environment of the present. When we first suffered a setback in 2016 in Ethiopia, it was because of civil unrest and political tensions in the country. And we're in uncharted waters, and we lost our banks. That's the simple truth. That wasn't a problem when we entered into the country, but it became a problem 2 years later. Should investors have foreseen that or the management have foreseen that? Spills milk. We went into an emerging market, and we took at it on the chin. Then the political overhaul of the country was overwhelmingly peaceful and incredibly impressive and was implemented in 2018, 2 to 3 years later, I've lost track. And to the point where the government leader won a Nobel Peace Prize for his manner of doing things on a number of fronts. And we brought the banks back in, the more traditional form of lending back in to be conservative on how we did our financing. And that turned out to be very, very good because I think we'd be in trouble now if we had relied on the fallback financing arrangements we've fallen back on during the troubled period in Ethiopia. So we reacted to a problem situation, and we preserved, kept the show on the road. And then -- and now we've got ourselves in a position where we've got 2 very strong African development banks who care about Ethiopia. And we've got a strong management team who've been assembled during the last 2 years, ready to proceed. And then we got struck by COVID. And then COVID threw all sorts of problems at the world. I don't know if shareholders are aware, but there's a plethora of mining projects that have been suspended all around the world. We haven't. We kept the show on the road and we kept the momentum because we kept trying to improve the quality of the consortium on the way through. Now having strong local partners has always been an ambition of ours for obvious reasons, and we worked extremely hard to bring strong local government partners in, which we succeeded with and strong local private partners in, which so far we haven't succeeded in. But we're still working at it, and we expect we will succeed with one or other local private partner. Allow me, an answer to your question, but if anybody thinks that this is a lay down misère, to use a sort of a card-playing analogy, you're not with it. This is an emerging market with political upheavals in the middle of COVID and this company has not only kept the show on the road but has strengthened the consortium on the way through. And today, because of the gold price, we're looking at a significant multiple bagger. If someone is looking for a guarantee and nothing ever goes wrong in Ethiopia or in the world, then they're not looking outside their own window. If someone is looking for sincere expectation of pulling this closing together in October, well, you have it. We've given that and reaffirm that. That's all I can say. I mean, it's -- it is what it is. And if one's going for 10 baggers or whatever, you don't go buy government bonds, you go into emerging markets. And I think we've actually, frankly, we're positioned extremely well. We've got a major discovery also in Saudi Arabia. Our sleep are over there, Jibal Qutman is coming off the shelf. And we think -- so we're actually a company poised for a significant value increase, but it's not for the lighthearted or the fainthearted. And if you can't sort of get your head around the risk involved with this. And really, it's too risky for you. And I say that's sincerely, not in any way aggressively or anything. It really is for the people who know what they're doing in emerging markets, in turbulent environments in the middle of COVID and so on and so forth. But we're there. And all we have to do is pull it together. Touch wood, nothing doesn't hit us from left field in this pretty unchartered world as of COVID that's around us, but I personally think we're in good countries to deal with this and to keep going forward.

So Harry, are there any security issues in the area of Tulu Kapi the company has been made aware of? Or is everything still settled after the events of recent weeks?

There are security issues everyday in Western Ethiopia. And we have very active management, dynamic management of a dynamic situation. Having said that, we -- the people that we have in the management team have worked in many countries in Africa and our contractors likewise and our security experts likewise, and they consider it safer than the average African location for security. The problems we've had really have been us to pose into 2 camps. One has been stand-over merchants trying to get a position over the company, and we dealt with that. And the other one was what I'd call just general civil unrest around political tensions in the country. And Tulu Kapi is a sleepy rural country side. Do you think out of Tulu Kapi to create civil unrest for political gain? So it's a very -- it's not a red zone on security maps or anything like that. It's a quiet area. But you have to be very vigilant and we locked down our people from time to time and locked down our traffic routes and get security in our discords. We do all the things one has to do in a hands-on management environment, but it hasn't stopped us in any way.

So what's the window for reassessment of the locals into their new lands? Have they been updated? And has the date range been agreed?

No. The -- we've, if you like, compartmentalized the resettlement into 2 main phases. One is in the 3 months commencing November for the first phase, which is not many households. I think it's only about 70 households or thereabouts. But it's important that to be done very well, so that it sets a precedent for the way things are done, so to speak, before we move the other 200 households in the second phase next year. So whilst the new lands are being set up now for the first phase move, and the community knows what's coming, and they're all keen to get on with it. It's life-changing for them. The sums of money involved and the opportunities being created are life-changing in a positive sense. And we have to prepare everything to what we call IFC performance standards, which is the World Bank International Finance Corporation standards. We don't just do what's required by law. We go beyond the requirements of the law. And the overriding principle being that people end up not just as well off as they were before, but better off than they were before. And that's what we do, and that's what we're implementing. So it's already happening in terms of preparations for their move, both in the consultative and physical sense, but the actual physical move itself is only in the tail end of this year.

And Harry, one shareholder has stated that he would like to see the company raise more money to fund further drilling in Saudi Arabia. However, he's concerned about further dilution before suitable valuation for KEFI is achieved. Does management have the flexibility to defer drill spending until post the Saudi JORC pa and ideally confirmation of funding to Tulu Kapi?

Yes, we suspended the drilling there a month or 2 ago pending the tabling of all these reports. So we are sort of a bit like what the shareholders alluding to, you want to know what you found before you keep spending money on the next bit, so to speak. And that's what we've done. We stopped drilling a little while ago. And we're all waiting to get all the sign-offs so we can release to our shareholders the maiden resource properly interpreted in an official JORC standard compliance sense, and then we'll take it from there. So we'll optimize it for shareholders with everything on the table, all information on the table. It's up to shareholders whether they want to support or not support and it's up to us to optimize the deals for them with -- whilst we have the right to dilute, I think the discoveries of equality, I think it already is bigger than what we've got at Tulu Kapi albeit a couple of years out from construction. I think it's important that KEFI stays in there to the fullest extent possible one way or another, and that's what we have our eyes set on.

And turning back to Saudi Arabia, which mine is the priority for opening first in Saudi Arabia, Jibal Qutman or Hawiah?

Well, let's say, again, this is a problem of success. Let's assume that all our dreams come true and Hawiah is as good as we wish, with every drill hole we put in and Jibal Qutman is put back on the table by the regulatory authorities for us to proceed. The amount of money at Jibal Qutman is relatively small to get going. So it'll be madly tempting to get a gold show going, particularly at this gold price to lock in some of these high gold prices to get cash flow rolling and use that cash to do other things like Hawiah. As to whether -- what the time lines are, I don't know. What I can say to you is that we have a very strong development team, and we're already -- we've already allocated some of them from Ethiopia to Saudi Arabia. Whilst Ethiopia -- in Ethiopia, we've done all our technical work required for banking for closing. And it's in the hands of independent technical experts now and the deals with the financiers. There's no more technical work required. So our development team have flipped over to Saudi Arabia. So we're quick off the mark, if you like, in terms of having internal skills to move these projects quite quickly and to reallocate them wherever the biggest bang for the buck is of a professional person's time. And I think that -- If there's a problem of success that Hawiah and Jibal Qutman are rearing up asking to be developed at that same moment, I love that problem. I'd love to have that problem. And I'd love to -- as I'd love to have the teams lay out the pros and cons and have an active competition internally, and we'll decide what's best for shareholders. It's -- there's no legal obligation to develop everything in one go. There's only a fiduciary duty to optimize where the time and money goes for the betterment of return for shareholders. So that would be a great problem to have, and I'm not going to predict the outcome until the teams lay out the choices, and we go through it properly and objectively.

Now if Jibal Qutman was given the go ahead, how quickly would it be possible to get the mine up and running, producing gold and what would it cost KEFI?

It's certainly like a 30-odd, I mean, these aren't final numbers, but 30-odd million CapEx will be eminently financeable from project debt as to 70%, 75%. I've got a small b for us, and it may well be that -- if we only have to put in $5 million or $6 million of equity capital to get a heap leach going that generates a lot of cash flow fairly quickly, it would be a very compelling case to do that. And frankly, if it can be compartmentalized efficiently, it's certainly a distant location from Hawiah. It just depends on what shareholders want. If shareholders feel excited and want to us to pursue maximum growth once we lay out all these opportunities to everybody properly, then we can go -- we can do both Hawiah and Jibal Qutman concurrently over the 6 months, one behind the other or whatever. But Jibal Qutman can be developed very quickly. It's no where near as complex as Hawiah.

And Harry, is anything required from the Saudi government to get Jibal Qutman back on course?

Mining license. That's it. They need to grant the money.

And one shareholder asks, can you give an approximate date in August as to when the Hawiah results will be released?

No. Because I've been bitten before. They would have been ready already if it wasn't for COVID restricting the independent experts running around. And I can't -- I just can't control that. And I'll have shareholders ring me up and saying, why wasn't it done yesterday and all this sort of stuff. But it should have been done at the end of June, but COVID placed some unpredicted restrictions on us. The lab -- the labs that -- the independent lab where the assays were going through, I think, only had 4 noncontaminated people left to run the assays through. Remarkable level of contamination in one laboratory in one location in the world that was doing our assays. So it's pretty unprofessional, I think, to pin down days of when a report can come out in the context of these unpredictable things happening in terms of day-to-day logistical movement of physical goods and people. So I think August is a safe bet, and I think it would be a bit misleading to be more specific than that until we see the results come out properly sound.

One shareholder asks, are Spreadex illegally manipulating the stock?

I can't comment on things that I've got no idea who does work with their shares. We have no visibility, and I don't pretend to be a stock trader. I never have been. So I honestly can't comment.

Now Hawiah was always thought to be a large mineral deposit, now thought to be valued at least $2.5 billion plus Jibal Qutman and many other potential exploration sites. How was the economic sense to reduce KEFI's share of G&M by 6% to carry out drilling rather than pay up?

Well, I think that whoever is asking that question is using the benefit of hindsight to take a cheap shot really. If the company -- on the one hand, we have to avoid dilution and raising capital too quickly. On the other hand, we don't want to dilute out of a value-accretive investment. And that's what the board does to sort of weave its way through those 2 challenges. And we haven't even declared a maiden resource yet. We only started getting drilling results at the beginning of this year. And to suggest that the -- and the dilution in Hawiah from 40% to, what do you call it, 34% was because we didn't fund last year and the first half of this year. Well, now that it's looking sexy and bigger than Ben Hur, everybody says, why didn't you raise more money and not dilute. Well, we can't have it both ways. We don't have a counterfeit printing machine in my back room, and we are a company that is explicitly relying on shareholder funding to develop its first production asset. So I think it's a bit of a cheap shot to say we should have been funding Hawiah and G&M for the last 2 years because now, we're getting results that show that it would have been a good bet. I mean, it's spilled milk now.

Well, Harry, we're nearing the hour mark, and we've actually got no further questions come through. So I'm going to hand back to you. A Number of shareholders have e-mailed in saying thank you very much for doing these sessions. So I'll hand back to you for any final remarks.

I think rightly or wrongly, our company has always issued quarterly reports. We're only listed on AIM and it's not a regulatory requirement. And we often get asked, why do you issue a quarterly report, it doesn't say anything new. Well, it's not meant to say anything new. If there's anything material that should have been said, it should have already been released in an RNS. And a quarterly is just to wrap up. And often, other shareholders also asked, why do you have these quarterly webinars. Some people say it's great, and we really appreciate. Other people say it's boring and we're sick of listening to you or whatever. Well, we're just a company that's trying to be transparent. We -- this is a turbulent patch. It's not for the fainthearted, as I said earlier, to be an investor in emerging markets in baby companies like KEFI. And therefore, we like to give the opportunity for people to get a feel for it and to sort of not just read the written word, but also just to get a sense of some of the sort of the color, so to speak, of reasoning. And I hope that what we do here is -- presents that. I mean we can only do our best, but that's what I hope we achieve. We have an AGM coming up on the 13th, I think, of August. And if there are -- if there's material news in the meantime, then we might get some other management people involved to explain their material news. But I think let's leave them be and let them focus on finishing their jobs before they're seeing next to me doing this. So I appreciate the opportunity. I get enough feedback in these sessions to know that a lot of people appreciate it. There is a very silent body of shareholders out there. We have over 5,000 shareholders. And we'll very much appreciate the support the company has received through very challenging times. And I think that where we are today, frankly, is the most proficient moment we've ever had. The gold market is going through the roof. The copper has taken off. And we have 3 projects bucking to go forward. I mean, this is an incredibly well-positioned company. And at last, we have the opportunity to get the show on the road. So short of some left field calamity that we haven't foreseen. We're like the Duracell battery. We just keep bouncing and keep going. And I think finally, the market has turned with us. So I'm really -- I can't wait, frankly, to close our deals and get this show on the road because it's been a long time coming for all of us, particularly for the people on the front line, albeit today a COVID-restricted front line. But thank you for the shareholders for your patience and for your support, and I can assure you that now that we're so close, we won't let this opportunity go past us. Thank you.