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

And Harry, there have been a lot of jobs advertised at Tulu Kapi in the last few months. Will they still be filled despite the latest delay?

Yes. I think recruitment takes time. We have a commitment to advertise locally to ensure there's no one locally, you can do the job. And we have an international recruitment campaign to make sure we get the first person for the job. And that recruitment, selection, induction, traveling, COVID compliance, work permits, they take months to do. So if someone sees an ad in the paper for a recruit exercise doesn't mean we expect to put the person on the books next week. It's just part of a program of getting this show set up. That's all. We don't hire people ahead of need, but we also prepare properly so that we can fill positions as we need them.

Now Harry, let's move on to working capital and financing questions that have come in. Firstly, Harry, what is the cash burn rate, given that you're going to close in October 2021? How will you keep the lights on until then?

Well, the standing burn rate, if you like, is about $200,000, what is it, dollars a month in Ethiopia and about $100,000 in -- outside Ethiopia. Most of the senior management don't draw down. Most of the executive salaries don't get drawn until it's convenient for the company. So we work with our pay until it suits the company to pay us. I'll leave it on that. And that's the standing rate. And we have standby facilities as we've used for, I don't know, how many years from supportive shareholders who don't want us to make premature placings in their books. And they're prepared to provide working capital facilities until it's appropriate to tidy up their working capital debt that they're due, and we want to do it. We'd prefer to do the whole thing wrapped up when the best time comes along when we have done all these deals. So the exceptions to that have been in the past vendors, for example, Hawiah. We have already found more metal than there in Tulu Kapi, and the thing has barely started being defined really. It's going to get obviously a lot bigger. And we have a shareholder asking why do you spend money on the camp and yet how the hell do you actually make a discovery if you don't actually send a geologist or 2 in the few drill rigs to do any work. So if it's clear that we really do need to follow our rights in Saudi Arabia, which is clear we do, and if it's clear that it deserves more than just paying for standing rates to actually do some work in Saudi Arabia, for example, then we have sped up the burn rate. So I'm answering the question quite lengthy. I gave you the standing burn rate, and I've said that occasionally, you lift it because you're going to create value by lifting it. But we always do that with the support of standby facilities, and we go to the market when we need to.

So just to follow on, can you confirm that by the 31st of October 2021, if funding has not been received, the company won't go bust?

Yes.

Moving on to KEFI financing. Have any of the Tulu Kapi gold mine stakeholders signed legally binding documents up to now?

I'm not sure what you mean by Tulu Kapi stakeholders. But if you mean the shareholders, we've all signed binding agreements. It's the various government agencies and KEFI. We're fully committed in spending money, both sides.

And Harry, on the 9th of June 2020, the company announced the 2020 Tulu Kapi plan showed total funding needs of $221 million. This week, it announced that the funding needs have increased to $356 million. Please explain why the funding requirement has increased by $135 million, or 61%?

I think you should read the annual reports a bit more precisely. And in the RNS, we just put out, we gave a comparison of exactly where it's changed, but it was -- I don't think you've counted the mining fleet in those numbers. So I think just look properly at the RNS and then you'll see a full comparison and it's gone up about 10% in 12 months for reasons we've explained in the RNS. And I think it's all there.

Now Harry, do you expect the Tulu Kapi project financing looks very complicated. There are so many parts and some still not set in stone. Will you have to get all stakeholders in one room to commit at the same time?

Well, COVID is teaching all of us new tricks, doing so much work without physically meeting so often has challenged all of us, I suppose. But I sort of agree with the inference there that at the end, you actually have to meet certain people physically at critical moments. And I travel if I need to within Africa for those sorts of moments. I'm here because it's critical to be here. The project finance syndicate came to Ethiopia in December as a team because it was critical to meet. And I think I might have said earlier that we'll get together again first week of October as a syndicate because it's a critical moment. So I sort of agree with the reader that every now and then you do have to meet physically and do things face to face. But at the same time, we won't learn new tricks about managing without so many physical meetings as well, right?. So I sort of agree with the reader.

Now Harry, in the operational update on the 21st of June, the company set an expected financial closing of the Tulu Kapi financing around the end of July. Now the update on the 23rd of August confirmed that the full funding package was now assembled. How could you be -- how could closing be expected at the end of July when the full package hadn't been assembled until the end of August?

Well, I think the reader -- or so the questioner should be a bit more precise in the way they phrase their question instead of trying to shove words down my throat. I think I said end of July were as new as possible there too, subject to completion of various conditions. I'm happy that we put against the world [ in shock ] if I didn't say that. But I guarantee, that's what we said. And the funding consortium was fully in place at the end of June. It was reported as such to the Central Bank of Ethiopia. And we announced the other day that we've actually done a bit better than what we said to the Central Bank. There's a bit more capital available. And -- but we're not ready to close yet for all the reasons we've laid out in that RNS. So listen, I take full responsibility because the buck has to stop in my position for statements made, but I don't think it's fair in a live Q&A to give me half the statement and ask me to attest to it or explain it without the full statement on the table anyway.

Harry, now that the full funding package has been assembled, what is preventing it from being signed by all parties now? I get that work on the ground may not be able to start until the end of the wet season in October and drawn down of the funds may not be needed until those works commence, but why does signing have to wait until then?

Well, that's what we were talking about earlier. There's -- I suppose, let's say that there's 3 sets of issues. And it's not for me to divulge all the issues for every counterparty because they, in some respects, their business. And the 3 sets of issues are what I would describe as paperwork, for lack of a better term. And that's just a feeding frenzy of I've forgotten how many sets of lawyers for how many parties running around resolving the conditions to the nth degree and it's extremely highly advanced. So that's it. The second category is getting confirmations and authorizations of stuff that really should be procedural. It just takes longer than you expect or should think it does from Ethiopian agencies, we've never done this before. Again, we've got a feisty Ministry of Mines, which is doing its best to get a sector going, canceling more licenses than getting things going and actually never having developed anything for 30 years. So clearly, there's a lot of learning taking place and some headbanging between us. I don't shy from that. That's our job, and we will respect each other after we've done a bit of headbanging to each other. But the point is paperwork, government administrative processes, and we're not moving until everything is signed and sealed and delivered. We're not putting people or capital at risk until everything is signed, sealed and delivered. And the third category is the only one really that hangs over the company, and that is, will the country be ready for us in October. And when the syndicate gets together here and they've got that international security and political analysts report on the table and we meet all the various ministers, and we all look at each other and we all look around us, is it ready for us? Because we simply won't -- we won't put our people or capital at risk. And that's it. And that's my job, to protect people and capital. And if it takes -- we should have been financed and closed and proceeding in March, really, from what I saw in December. And then this [indiscernible] thing really contaminated the atmosphere. And I think it's going away very rapidly, but it has to. My predictions are one thing, but reality is another. Just a little litmus test, CNN noise. I couldn't -- not turn on CNN for 15 minutes and have a story about Ethiopia throwing at me until about 2 weeks ago. It was like a daily dramatic anti-Ethiopian, quite biased reporting. I don't know if you saw that in the U.K., but that's what I saw. And the last 2 weeks, I haven't mentioned it, they've got this new thing to jump on to. The staff up of withdrawal from Afghanistan is today's story. And so it just has to calm down. No noise, calm down the anxiety, everybody, and let's get on with the show. And that's just -- I'm just telling you the facts. I'm not a magician. I'm just telling you as it is.

So is financial closing in October realistic, given the past missed deadlines? And actually, what happens if the October 31 deadline is not met?

Yes, it's realistic. I just answered many questions about it. I think you have to listen to all my answers and not just pinch one word here or there. But yes, it's realistic given all the answers I've given. And what happens if it's not met? It hasn't been met. I mean, what do you want me to say? I believe it's realistic. I believe the -- this transaction is suffering what I would call transaction fatigue with all stakeholders. Nobody is interested in prolonging transaction fatigue. But again, I'll just say that we're all here. All this money that's being spent and time that's being spent on all these companies who don't need to come to Ethiopia, they're not doing it because they get a jolly out of it. They're doing it because they want to get on with it. So I don't know what more evidence one can provide of seriousness of that. I can't invent a more pushy Ministry of Mines giving evidence through the newspapers regularly that they want us to get going. So the setting is there and we just have to make sure that security and confirmations are in hand.

Harry, is the company being pressured into accepting local investors? As you previously said that if they have not signed up by March of this year, the project will start without them. Can you comment on that for us, Harry?

No, there's no pressure and we've welcomed the new local investors.

And Harry, further question. Why do you still refuse the name, the Global Mining Finance Specialist and the international mining groups with Ethiopian subsidiaries?

That's not my review. So they're, frankly, giant corporations with operations all over the world really couldn't be bothered with noise and distraction until they're ready to deal, ready to close. They've signed their term sheets, they've got lawyers running all over the place. It's all in hand as far as they're concerned. They couldn't care less what happens to the KEFI share price from day to day. That's not their problem. And they're not interested in getting their PR, media teams and all that stuff distracted by noise around a transaction in Ethiopia until the thing is ready to close. And I have to respect that. That's their business and I have to respect that. And we should treasure and protect their capital and their reputation.

Now, Harry, as you've talked about, the funding package has been assembled, but there's still $131 million expected from identified parties. What if some of these parties can't actually proceed? What happens then?

The old chicken little question. I don't know what you want me to say. The way I'm going with my wife lady, she might leave me tomorrow, you know? She won't. But the fact of the matter is that we're working hard as a syndicate. And the people who have given their commitments or advanced commitments had to go first and the other guys are waiting for that. And now they can go through their processes. So that's all. And you can -- honestly, if you need to jump at every shadow, I know it's been tiresome, deal fatigue, let's say, but if you want to jump at every shadow, I get out of the kitchen sort of thing. It's -- it really is -- we're in a frontier market putting together critically important transaction with 10 to 20x upside that I can see at least and the numbers we've presented, I think, demonstrated that. And that's it. And I don't stare at the share price every day, and I don't recommend others do either.

Now, Harry, we've got time for just a couple more questions. I've had many come in live. One more question. Regarding Tulu Kapi, what is the biggest risk that you've identified to date? And what are you doing to mitigate that?

I think we spent half the Q&A actually talking about it. It's to do with extraneous factors and how we can wrap risk mitigants around those extraneous factors. The rest of it is all very straightforward. I mean, if this was in Australia, we would have been closing the mine by now. And if Ethiopia hasn't started to change so dramatically after we came here, we've been production by now. So the issues had nothing to do with the project or the structure. In fact, the syndicate is extremely complementary on the structure. We put together the risk mitigation strategy of the team, the robust economics -- extremely complementary, which is why they're all here. But it's managing extraneous factors in a country that's doing it for the first time in decades and building strong relationships. I'm very proud of the relationships we've built, even though we have friction at times. And I think, frankly, if we hadn't built strong relationships, we'd have no hope, frankly. But I think because of those relationships, this will be assuring that we just have to be a bit more driven, a bit more patient.

One more question on local investors. Have any of the local investors, which are part of the $10 million signed, i.e., are they part of the 63%? And how much of the $10 million is outstanding?

They're not part of the 63%. I think I understand the question. And how much of the $10 million is outstanding? We haven't closed yet. So a little bit outstanding, but they're not part of the 63%.

And a question -- a couple of questions on Hawiah. Will you hit the Q4 deadline for the bankable deposit for Hawiah?

Sorry, what was that?

Will you hit the Q4 deadline for the bankable deposit for Hawiah?

The Q4 debt after the bankable deposit. Yes, I mean, it's an economic deposit already. And given that -- I'm not sure the question, but publishing the resources update, yes. And if the question, is it big enough to already be bankable? The only question now in our minds is economic as a maiden resource last year and have we put enough more metal into it through the drilling to date, with tonnes and grade combined, to take it up to the sort of gearing -- bankable gearing type ratios that we want. And we need to see the results, to be honest, to see that because when you say bankable, it's not -- doesn't make money at today's prices. It means half today's prices, does it still make money and can it still repay 75% debt? It's that sort of logic. So you're stressing the deposit to see whether it's that good. But we're away. I mean, it's a deposit. It's going to get developed. And if it's not fully bankable this quarter, I bet you we'll be the following quarter or 2 because it's growing. It's not -- it hasn't been closed out. So we're either there or thereabout its bankability, but it's already incoming.

Well, Harry, thank you very much for answering all of these questions today. We've got through a huge amount. Can I now just hand it back to you for any closing remarks?

No, I think they're all good questions. Sorry if I get annoyed occasionally, but I don't like selective questioning. I don't know others to do this live and I've been criticized by some for exposing the company and myself by taking questions live, but I hope it's appreciated. But no, I've learned a lot about Ethiopia and Saudi Arabia that I didn't know a decade ago, and I'm sure there's a lot more to learn. But they're great countries and it's going to be a serious mineral sector and we're at the forefront of it. And we're taking the brunt of the frustrations of being the first cab off the rank in Ethiopia. That's all I can say. But here we are, and well, don't worry about it, we'll finish it.

Well, Harry, thank you very much, and look forward to speaking with you again soon.

Thank you.