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

And first off, we have Executive Chairman of KEFI Minerals, Harry Anagnostaras-Adams. By way of introduction, over a long professional career, Harry has founded Citicorp Capital Investors Australia; investment company, Pilatus Capital; Australian Gold Council; EMED Mining; KEFI Minerals; and Cyprus-based Semarang Enterprises. He has also overseen a number of start-ups principally through the roles of Chairman, Deputy Chairman or Managing Director. He qualified as a chartered accountant while working with PricewaterhouseCoopers and has a Master of Business Administration from the Australian Graduate School of Management. Peter has been fortunate enough to visit the Tulu Kapi project in Ethiopia, and we look forward to getting an update from Harry. And I'll throw over to you now, Harry?

Good morning in Perth from Addis Ababa. If we could please start with the -- on the first slide, so I'll ask you to flip the slides for me, if that's okay. And also, if I may point out that I've arranged, if it's possible, any questions for me to be at the end of my session. I have to run after some other commitments, unfortunately, I can't stay for the later Q&A. It will be nice and still happy to ask any questions at the end of my brief update. So let's kick off. Tulu Kapi, a very similar proposition, open pit underground and CIO to many, many projects around Kalgoorlie in Western Australia in general, except as you can see on the screen, it's a lot of revenue. Most people don't realize [indiscernible], so green most of it, beautiful, rich chocolate soil, reliable annual rental and parts of the country of what you call variable scenario. 1.7 million ounce geo resource and not yet defined further underground potential, 1 million ounce reserve, 2.1 gram per tonne head grade and a DFS based on 140,000 ounces per annum from the open pit. Discovered about 15 years ago, community and the government basically ready to get going and [indiscernible] to get down there. The project had a fast start in 2013 with previous owners. We sort of rushed quickly to the market with perhaps a bit hindsight over optimistic assumptions. And then when the gold price dropped in 2013, it sort of fell over as a commercial proposition. We picked it up in 2014. We completely overhauled the DFS, we expanded the resource initially and we decided to mine. And we redesigned the overall economic mission, if you like, to provide setup for $1,100 gold, not for $1,500 gold where it had been designed for previously. So we've decided assuming $1,100 gold, and obviously, the gold prices will be double that now, so maybe we've got the timing right this time. I have to say also that we have had a couple of cold starts over the last 5 years. We were lightly up to get going with project finance a few years ago when the country went into a state of emergency. And that start with our plans at the time and then we continued around another financing, and that happened again, frankly. And then here we are for the third time. I believe this is the real one. I'm very confident where we are today. And I'll explain why in the next slides, please, if you could turn to that. So what's the plan? 2 million tonne per annum conventional CRL, 94% recovery, contractor [indiscernible]. Basically, 3 million ore, there's no real contaminants. And they're very similar typically to many projects around us. The 24-month schedule is on the left of the screen and it starts at the end of this quarter [indiscernible]. Importantly, the project consortium by debt and equity are all African specialists and indeed most of them are embedded in Ethiopia. So what we, I suppose you could say, done to redress the cold starts that we suffered with, we think, volatility locally politically was to solidify the consortium around the Ethiopian experienced members of the consortium. And obviously, with the wonderful overwhelming transformation that's taken place in Ethiopia since 2018 with the new government leadership, all is well now for a very continuation of a very progressive and positive atmosphere for us to proceed this now. All consortium members right now preparing their submissions for approvals next month to proceed. As we speak, we're arranging final site inspections for IFC compliance and security checks and so on. Next slide, please. So what's the upside? Well, let's start with Tulu Kapi. We think the resources of Tulu Kapi will grow way beyond 1.7 million ounces, which is an indicated category and teach you to visualize 3 million ounces of Tulu Kapi, but we have to do the work by following the deposit underground. The open pit, 2.6 gram resource grade, the underground exactly double that resource growth. And the last drill hole underground was 90 meters up [ till ground ], so it's still open. I think that's [indiscernible] that we'd go. So the combination of the open pit and the underground, we visualize that it's likely to extend to 200,000 ounces. The Tulu Kapi District around this project. The government has reserved for us 1,100 square kilometers where we'll start our exploration in tandem. We'll restart our exploration in tandem with the construction in the new year. We've already tranched and drilled many prospects there and had to apply a number of bits. We need to do a lot more work before making any new reliable predictions, but there's certainly some potential. And we don't see that Tulu Kapi is alone, it can't be just by itself. We're going to start up mineralization, and we already have hit that surface of where other Tulu Kapi to go be. At the very least, I think we're going to end up with a few small pits to supplement Tulu Kapi, and we may well end up with 1 or 2 more Tulu Kapis, so let's see. If you assume just a few small pits added to Tulu Kapi, then the combination of Tulu Kapi with some satellite pits would be -- it's not hard to exactly imagine 300,000 ounces throughout and coming out of that area. Now in Ethiopia, our regions are on here. It's about the same size in land as, say, Victoria in Australia. That has been producing gold since the time of the pharaohs, the Egyptian pharaohs, that is from what we now call artisanal mining. There has been no artisanal mining at Tulu Kapi because the gold at surface is microscopic and [indiscernible], which is good. There's no legacy issues of mercury in the area, which would have steered us away from the project, frankly. And secondly, there is that competition for the land. It has to be industrial-scale development. And it's been done as the first mover in the country with the government as our [indiscernible]. And that's been done to equate principles IFC performance standards international side on management code. In other words, it's been designed specifically and erect explicitly in a sort of AAA wrapping to make it an exemplar as the first project of the country to kick off its modern mine, et cetera. 5 years ago, Ethiopian gold production was about 400,000 ounces per annum from one industrial sales mine, which since closed, and the rest was artisanal. And last year was about 0. And my prediction is that in about 5 years' time, there will be over 1 million ounces. That will be from a combination of Tulu Kapi. And I'd go further western on the border with South Sudan or [indiscernible] company from Australia. They're working hard out there, and they've got their -- we got their arms around the big projects as well. There's also a private group in the country, which has a number of projects which are in hibernation, which I'm sure will come out of hibernation in short order. And there are many others who have come into the country recently. It's a bit of a rush in these [indiscernible]. I know there's been a float in WA, an IPO for [ Legado ], with the guys getting active in Ethiopia. Canadian IPO Sun Peak, the former Sun Peak people who discovered the Bisha deposit in Eritrea. They're very active. I think they've got 3 rigs running on VMS target. Up north, Newmont made a discovery, VMS North, so it's getting a bit of energy behind us, you might say. Next slide, please. We got Saudi Arabia. I going to spend a moment on this because I'm going to be talking about Africa. But gently, by the way, [indiscernible] copper and gold as of a couple of months ago with KEFI Minerals to mark that we really do have in our sites some large copper base as well as gold. And our focus are quite sharp around our projects. In Saudi Arabia, we've been there over a decade. We have a large local conglomerate as our partner. We're the operator. We've made 2 significant discoveries, a stream of [indiscernible] oxidized gold deposits, which mining license has been submitted for. We'll keep our equipment. And very recently, we made a [indiscernible] discovery called [indiscernible] could be a monster. Proper gold, we've seen some [ zinc ] and silver as well. We've got [indiscernible] around position, and it's notable that the government there is also pushing hard, and I think that will surprise me how fast it will move in 2021, given what we know is happening in license granting and financial incentives and subsidized development capital on Saudi Arabia. Now next slide, please. So I'd like to stand back from just KEFI gold and copper and talk about the industry in Ethiopia and the industry push into and with and for Ethiopia. Now in all sincerity, I have been spending, obviously, most of my last 6 years in Ethiopia. And it's certainly exciting, challenging, and I believe a country which will be a serious player in the mineral sector because whenever you get serious about something, it usually works very well. And I think, with all respect, Ethiopians are very surprised how long it takes to get a mining development going. The concept of putting all the capital upfront for development. After exploration for 1 or 2 decades, in many cases, is obviously very frustrating for a government that's on a 4-year election cycle. But nevertheless, I think the government is now well and truly coming to grips with the fact that it takes a lot of proactive effort to facilitate exploration so that people will take the risk with their capital and time to hopefully find an economic deposit. And I think the government has now come to grips with the fact that international capital is so mobile, it has to be just right. But like the 3 bears, not too hot, not too cold, but just right for hundreds of millions of dollars to actually choose Ethiopia for investment upfront of risk capital. We're doing our bit as an industry to support, facilitate, encourage that process. Earlier this year, about 20 borrowing companies banded together to form a progress group to really, really [indiscernible] collaborate with government and with local companies. One of our first initiatives was to focus on the Ethiopian Mining Association and encourage and enjoin to make it all encompassing to represent everybody, and that's happening. The constitution of this association is being overhauled. And we're all being invited to join, all of our companies being invited to join, and it's empowering itself. We'll set up an executive body and engage with the [ AMIGs ] of the world and the mineral councils of the world and really give it a push to the sectors. They're closing the view who want to participate in Ethiopia or learn about Ethiopia either as an explorer or as a miner or as a service provider like a podium or an AMS. Please reach out to the next slide, [indiscernible], it's yours truly there. We'll introduce you to whoever who want to be introduced to. And it's a serious, serious push, and we'd like to encourage you to band together with us to make the local mining association and the capacity building efforts locally across the board as effective as possible, please, for all our benefits. The last slide, please, just shows you some of the companies that are involved in this push. I'd like to close with a brief summary. Tulu Kapi is going into full development in the new year. Tulu Kapi has a potential to grow from 140,000 ounces per annum to something like 300,000 ounces per annum based on what we can visualize today, from what we've already got or can see. The Ethiopian gold sector has the capacity to grow exports from nil last year to over 1 million ounces per annum over the next 5 years, which would be about $2 billion per annum. And that's about the same as Ethiopia's total exports today on everything. So that's a significant contribution to exports, let alone all the regional development that would spur. Perhaps the resources sector itself has a lot bigger capacity. And if one includes the largest hydro steam in Africa that's in the process of being built in Ethiopia, the country will also be an exporter of electricity from renewable energy sources in short order. The country is being in the top 10 growth countries in the world for 15 years running, so that's proof, more than any, that it's serious about development. And I have to say that the further development overall of the democratic processes with the new government leadership from 2018 onwards makes this a particularly opportune and exciting time to be part of it all. And I can only speak from experience that there may be some bumps along the way, which we're going to deal with. But if you prepare to plan [indiscernible], I believe that it's worthwhile and certainly true that when the Ethiopian government moves, it moves hard and fast when the timing is right. And I believe that's the cash for our sector. Thank you very much. So I hope you could hear me from Addis, and well, I'm happy to answer any quick questions that the organizers would like to arrange here.

Thank you, Harry. Thank you for your presentation. Yes, I'll throw the floor open to any questions for Harry. Can I start by asking one, Harry. And you've got an interesting funding pathway to production. What were some of the major challenges of pulling that consortium together?

Well, I suppose the [ false ] starts we had over the last 5 years are the sort of evidence of those challenges. We brought in what I'd call a classic major development bank to financing initially and ran all our tenders for the contracting side and started engaging with the regulatory authorities to get going during '16, '17. And the country went into its state of emergency, the buildup towards the democratic changes that took place in '18. So that's part of it, the [indiscernible] to the hill as you might say. Then we've got a bit innovative. We probably moved on from those financing because of how the [ advanced ] people in the world are -- have been savvier about emerging market risk and perhaps the few development mining experience development banks focused in Africa. So let's bring in the bump [indiscernible]. And we've got them in and that was certainly [indiscernible] going, but they drove us a bit back because they didn't understand mining. So we were tenaciously pushing hard to pull together financing of a $300 million package. And the international world of finance was just being scared away because state of emergency and lack of experience in mining, which they weren't mining specialists. So I suppose that it was the change in 2018, the leadership coming into Ethiopia, Prime Minister Abiy, who some people might realize [indiscernible] for all his quick action for democracy and for [indiscernible] initiatives. It was that, that transformed the scene in the sense that there are some people in Africa, some banks in Africa, some investors in Africa who care about Ethiopia, who were not scared of Ethiopia and want to be part of Ethiopia with this new push. And I think there's no substitute depending on the ground and they're pushing hard and very pleased and on the part of the team that is here doing the work through all those years, tenaciously making this happen. But as it turns out, through attrition, with pure tenacity, we're now having the Ethiopian experience finances wrapping around this project. And that's the story and I suppose there's no shortcuts on these things, but I think that the change of government in Ethiopia is what really made it possible.