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

Good afternoon, and welcome to the KEFI Gold and Copper Plc investor presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Harry Anagnostaras-Adams. Good afternoon to you, sir.

Good afternoon, and thank you for attending the webinar. To my left is Eddy Solbrandt, the Chief Operating Officer of KEFI Gold and Copper. Eddy joined us a couple of years ago to start focusing on systems and organizational building amongst a plethora of other things as we prepare for construction production. And I suppose, in short, we sort of stand back to back: him looking inside; me looking outside. That's sort of a simplistic summary of the role division. I prepared a very short quarterly slide show. I'll just launch into it. I'm only going to take very few minutes to skip through it. It sort of cuts to the chase of where we're at, and where we're heading. Then we'll -- between Eddy and I, we'll answer a bunch of questions we've received ahead of the webinar. And then Alessandro in the time remaining, will ask us any more questions that have popped up during the webinar. Without any further ado, for those of you, perhaps the minority of you, but just for good order, just to say that we focus on a part of the world, which is set geologically, defined geologically as the Arabian-Nubian Shield, more or less the 2 sides of the Red Sea known for millennia for its minerals bequest, but also known within the mining industry as having been sort of off limits, until very recently, for modern exploration and modern development. We got involved 15 years ago, exploring in Saudi and 10 years ago in Ethiopia. We now have 3 projects with development plans around each one, the first one being the Ethiopian one, which we'll talk about extensively today, but the other two coming along behind are in Saudi Arabia. We also have exploration assets around both sets of development assets. So we're in 2 countries, Ethiopia and Saudi Arabia. And if not first mover, we're amongst the first movers in those jurisdictions. Just in the last couple of years, the crowd has arrived by the bus load or plane load to all very excited about Saudi Arabia, which opened its doors open and wide and pronounced all sorts of incentives for the mining sector to be developed in Saudi. But in the last few months, it started to happen in Ethiopia as well. But those of you who are familiar with the mining industry would recognize at least some of the names up on the board there, which are really just a list of names of people who've come into this space recently, including the largest gold producers in the world and perhaps the largest profile, explore developer, Ivanhoe and many other very decent people. This slide, I won't breakdown into nitty gritty, but those of you who are interested in what are the valuation parameters and comparatives within the industry, and how do values change as projects derisk, I recommend you have a look at a report that's on our website, which was published only in the last week by Orior Capital. The guy who runs that used to be the Head of Metals and Mining at Macquarie Bank, probably has one of the larger mining desks in the world of banking and equity stockbroking, Australian group. He now does it for clients, his team for clients that he's interested in, and you can see are interesting and have a lot of potential. And we commissioned him a couple of years ago to start tracking the sector, Africa, comparables, benchmarks. He started off with about 25 companies he could compare us with. In stock market terms, it's now halved because of acquisitions. So consolidation in the industry has picked up a lot in Africa the last couple of years, but the story has remained the same. KEFI has remained very -- 3 of those graphs show KEFI at the bottom of the graph, basically saying it's cheap. And the other graph is about grade compared to others and shows that basically, our grade is quite high. If you are interested in how do companies like KEFI go up that curve as they move forward through different steps in their process, I do recommend you read that report. It's a bit long, but I do think it's a sincere attempt to describe the derisking process and the potential of this company as well as a whole bunch of statistics about other companies, including asset transactions in the industry. We can see what people pay at different stages of the project's maturity. This very busy slide is really essentially saying that here we are capped where we are around GBP 40 million and under 1p share. And if the average of the industry applies, of the shares trading around NPV, usually a little bit over, NPV at 5% is the industry sort of measuring stick, but usually trades a bit over and based on some other measures, which drive the share price, that current market cap, if we just follow the industry trend, it would be around 10p when we're in production, ignoring whatever else we have in the company, which those of you who follow us know, we have Saudi assets as well. Also on that slide, we give some numbers and projections of the cash flows and so based on today's spot. But in our quarterly, we gave a table showing the numbers and projections at a range of prices going from spot, taking $300 an ounce off it and knocking off another $300 an ounce -- or $400 an ounce rather, knocking it back to, I think, $1,550. So we gave a range there. Depending upon whether you feel like a banker, or you feel like an optimistic equity investor, you can pick whichever price bracket you like to measure the company in and apply your numbers accordingly. We've set that all out in the quarterly for you to make your own judgments. Now expected milestones for this year for Ethiopia. We've been -- just to recap very, very briefly, not boring you with history, but basically, we were with this syndicate preparing to finance and launch some years ago, and it faltered in a sense because following the introduction of democratic reform in Ethiopia at a pace which was incredible, really, in hindsight, the country stalled and it went into internal conflicts. And we lost, I would say, 5 years. And perhaps for good reasons in the long term of democratic reform, but for us, it stalled us. Anyhow, a couple of years ago, it was calming down, and we gathered as a syndicate and reactivated the launch process. We laid out a number of conditions precedent, big unusual conditions precedent for us to be able to really crack on. One was exchange control exemptions; two, was safety procedures and apparatus to be installed around us as if we're a permanent high-risk red zone, notwithstanding that our area is not, but treating it as that from the for lease courses; and thirdly, country membership for one of our banks, it's a risk-protective umbrella that the bank required. They were spelt out very clearly a couple of years ago, and we achieved them. Finally, to cut a long story short, the fine print matched the promises in October last year. What was not quite right yet was the policing. Because we hadn't got going yet, the security forces kept being redeployed elsewhere and problems would pop up in our area. Then when they'd come back, it would all be calm again. So we need permanent protection. Anyhow, as of October, the 3 conditions precedent were either locked in, achieved or clearly capable of being achieved by making sure the police forces were permanent, and the lead bank went to credit for final approval, granted it, took a couple of months to issue a piece of paper for formal ratification by its shareholders. But nevertheless, that was achieved in December. And right on the back of formality, the other people cracked on in the syndicate second bank, the equity risk note investors, which we'll discuss shortly and the share investors from the government and the subsidiary. So the other day, we announced that we've triggered the project schedule for production. The first chapter is Early Works. Early Works is, I'll call it, a derisking phase. It's summarized on that slide and Eddy will describe it in a bit more detail. We get lots of questions about how does all this work. And Eddy will describe that in a bit more detail shortly. Our answer will be up -- you don't have to write it down. It will be up in our Q&A, documented in our Q&A in the website as well. It will be recorded on this video. So hopefully, it clarifies to everybody how this process is designed. Basically, say that the Early Works derisk, position everybody to the stage where they can sign formally. They're fully committed and the best part of $1 billion worth of contracts, both CapEx and OpEx, can be formally committed to launch the large numbers of people in the, as I say, nearly $1 billion of CapEx plus OpEx commitments. So Early Works is there to demonstrate to each other, to the community and the community to us that we're ready. And then we trigger into Major Works. I won't dwell on these slides because I've given you the outline already, but Eddy will summarize more expansively in a moment. Over in Saudi Arabia, where we're actually sitting at the moment, we have a couple of discoveries in the pressure cooker or feasibility study mode. They haven't emerged from that pressure cooker yet, but they will. And we've got a large pipeline of exploration around them as well. The first 13 years in Saudi Arabia was frustrating, I suppose, is the simplest word. But now it's really quite the opposite because the government will provide whatever support it can reasonably do. And the workup drill targets are there, particularly for people who know their way around like we do. So it's very unusual. People in this industry crave for this moment, to -- not only to have record metal prices and have assembled a pipeline, a healthy pipeline of projects from the sub already down to grassroots, but also to have 2 countries that we were brave enough to enter into ahead of the pack actually come good at last and very strongly so. So this is an unusual moment and it's a pleasure to be part of this positive atmosphere at last. I will stop there. I know I skipped through that but I just wanted to give you sort of a very brief overview. On that note, we're happy to now take the questions that were inserted to us or sent to us ahead of the webinar and then any others that we have time to address. Alessandro?

Perfect. Harry, thank you very much for your presentation. We received some 46 questions. And in order to get through all of them today, we've removed any duplication and perhaps we'll start with the ones around Tulu Kapi. The first one here. Congratulations on Tulu Kapi project launch. When will funds arrive on KEFI accounts? And what needs to happen to make this happen? Plus, you mentioned in every RNS that conditions need to be met before approval. What conditions are still waiting to be met? And how does the overall closing and project launch sequence flow so that we can achieve mid-2026 production?

Yes, I'll answer that question. It's a very good question, and we got this question in various forms over and over and over again. It's so important, I've actually made some notes, and I'll read from those to explain it, and I'll try to unpack this in form of a process that is easily understood. I think the first thing to understand is, very simply, the Early Works, plus Major Works result in production commencing mid-2026. With that in mind, our Early Works are designed to demonstrate that we're ready for financial close, but also to commence Major Works. So in this Early Works phase, we have to demonstrate that we can trigger Major Works within 60 days. So what does it mean? A, we have to deliver final independently certified quantums for compensation and resettlement of the community. And this has to be done clearly before Major Works are triggered because the process is prescribed under Ethiopian law and regulation, but we have 90 days once the quantum is agreed to commentate, that'll help us. B, we also have to have final independently certified fixed-price engineering and procurement agreed. Now this can only be done before and just before Major Works are triggered because contractually, we have to place these orders within 60 days. So as you're starting to see, there's a time sequence here. Now once these 2 major conditions have been satisfied, we also need a final plan from our logistics and customs clearance brokers for deliveries to site and the resulting logistics. We also need a final independently certified master cash flow statement and project, detailed project schedule. We need independent verification of safety performance and political security, that is, can we operate safely, in a safe environment; evidence that our mining contractor has placed the orders for their equipment; and also several certificates, including tax compliance certificates that are issued by the government. We then proceed to sign all of the transaction documents, and these are set out in a form and substantially acceptable to our senior financiers. Once the signing is complete, we have to pay the financing fees within 60 days. Then we draw down the equity capital portion followed by debt. Now this sequence is quite logical insofar as it protects all stakeholders, including KEFI shareholders, from spending money too earlier without having guarantees that we can actually move on to the next phase. Now I know that this seems a bit frustrating to shareholders, that we shouldn't just sign all at once. But I think it's reasonable -- this process is reasonable, and as I said, designed to protect all shareholders. Harry, or Alessandro?

Yes, I -- Let me just say that all the documents, all the plans, all the schedules, all the budgets have already been drafted. They've all been through due diligence. They have all been tabled by the syndicate members to their boards and committees to get their approvals. So it doesn't mean to say all this work is being done for the first time. What it means is that all the work that has been done to get the approvals needs actually to be refreshed at the last minute, so you can go live. Going live means you're paying within 60 days or 90 days, depending upon the topic, and there's no room for ifs, buts or maybes. So near $1 billion. So this company, we're capped at GBP 40 million or $50 million or thereabouts has amassed project which is going into its sort of, how would I put it, a verification chapter to trigger the Major Works and it all adds up to production in '26. Okay. Alessandro?

Perfect. The next question: has the second bank signed a deal off?

Yes. And again, well, to recap and be precise and be pedantic, you use the word signed off. You just had an explanation of nobody signs off binding contracts until everybody signs off within 60 days of placing orders and paying the community. Well, that's getting a bit pedantic because I get questions every other day, has everyone signed off yet? And I think we've just gone through some detailed explanation, which will be in the Q&A on our website and obviously, we caught on the video, just to -- we all want to now start getting a bit more pedantic with each other and tracking more carefully. Going back to the approvals, I think I said earlier, the lead bank had approved it last December, although we didn't get a piece of paper for 2 months and the major shareholder or the direct shareholder in the TKGM is already spending their money. It's way beyond approval and the equity risk note leader already had board approval, so that moment in December, formalized in February, triggered the other guys to go to their committees. And yes, we've had confirmation from all of them, including the second bank that there are no substantial issues ahead of them. They do want to have their monitoring with site visits over the coming months during the Early Works. There will be no final signing or commitment until Early Works are just about finished. So there's no point fretting over whether this someone has approved it next week or next month. We've all agreed to proceed with Early Works. We've all agreed we will give the final sign-offs within 60 days of disbursing funds. That's the gist of it. So we're away. We're up and away is the good news. And I think obviously, one cannot guarantee the project design until the project is on from the point of dispersing all those hundreds of millions of dollars. But from the point of view of all the syndicate agreeing to get cracking so that we can draw down the funds, that's all been done. Next question, please.

Perfect. The next question here: in your presentation, you laid out works that need to be done before financial closure. Will this happen in wet season 2024? What items can be achieved in July, August and September realistically?

Yes, good question. Look, we've been operating in this environment for many, many, many years. We're well aware of the seasonality and what impacts they have on schedule. We have a very detailed project schedule combining a lot of the elements that I've just outlined. And yes, we've certainly taken into consideration what can realistically be achieved during the wet season. Next question?

The next question asks if you can kind of explain how the drawdown of funds will work. Is it bound to achievement of development milestones?

I think -- Well, we've sort of answered the question. But in terms of drawdown sequencing, just to explain the sequencing, $100 million spent to date has all been equity funded by KEFI's shareholders. And that includes the Nyota shareholders who became KEFI shareholders over the last 20 years. That's been spent between those -- that body of investors and the KEFI body investors, now altogether in 1 company. The government has spent about half of its $20 million equity investment already. So that's already flowing. They procured what they have to procure to do their job on the ground. Going forward, the package of Major Works is around $20 million package, excluding the mining fleet funded by the mining contractor, is sequenced in the following way, and that is that the equity risk note, the equity capital, is drawn down first and covers around about the first 9 months. And then the mezzanine component of the secured debt is drawn and then the senior secured [ capital ], the senior debt is drawn. Everybody signs off right at the beginning, but the sequencing of drawdown is in that sequencing. The banks want to see the equities in and spent before they put their money in. That's the deal, so to speak. Yes. Early Works isn't so much about money, all the big spending's in the Major Works. The Early Works is really about aligning everybody with the final certified prerequisites and sign-offs to trigger the drawdown of the funds. Alessandro?

Perfect. Will KEFI need funds for any Tulu Kapi development from equity raises before the drawdown of financing can start to fund the project?

Well, the budget is -- the answer per the budget is no. The risk is that no matter how skilled we've been in -- I don't know how many other companies have assembled the financing of this nature covered down in the region and in the subsidiaries as we have, but what we have to check is in that home stretch that Eddy declared or defined very carefully of checking the final fixed price lump sum engineering and procurement numbers, there's no change, no extra money required. The indicators are that we've perhaps covered it all or maybe even slightly over covered it in our budget because the supply chains globally have come off the boil since we did that number. So it's much better, but we'll see. But on the community side, the -- it's a bit less sort of tightly predictable. We have calculated those numbers umpteen times, but it's distinctly possible a little bit of extra is required. Now where does that extra come from above the $320 million, maybe a bit more equity risk notes, maybe a bit of juggling between all of us, but the quantums will be a small fraction of the total. And I think we've already demonstrated that the syndicate is effectively carrying the load from here on compared to the load carried by KEFI shareholders for the previous 20 years. So long-winded answer, I'm just trying to make sure I convey it carefully, again, because we get questions every week, will you need any more money for Tulu Kapi? Well, I've given you a straight answer and the final numbers will tell us the final number and within the syndicate, we'll probably manage it as the way we've manage the rest. Thank you.

Next question. If Tuli Kapi financing is done in the current half year, will there be a fixed timetable for the preparation and construction of the mine that the company can be measured against?

I want to answer that? The answer is yes. I alluded to the timetable in the earlier question. Clearly, we have a timetable, and that timetable is rigorously monitored because we spend money against it. Next question?

Perfect. Next question is: you mentioned an additional layer of due diligence concerning security being set up by some individual syndicate parties. Will this process delay drawdown? Or will it happen alongside the approval process independently?

No, the extra layer is for the banks to get their own independent advice on security, which is not unreasonable. But this happens in parallel with our own independent security advisers and our own security people. And we've already been collaborating on how that process will work. It will not be a sequential, but it's a parallel process. Next question?

Perfect. The next question here is as follows. Who will pay for the security forces, which will allow for safe development and mining operations?

Security forces, let me just unpack that a bit. We have 2 security forces, if you want to call them that. The first security force are the Ethiopian Federal Police that are responsible for perimeter security. That is everything up until the gate. We then have our own private security contractors that are responsible for security from the gate inside the mine license area. There is a third security contractor who controls our control rooms. That is our communication hubs and centers from us, right through to the mine license area. Clearly, we pay for our own contractors. That's a part of budgets and costs. There may be some small incidental costs required for policing, but nothing that hasn't been accounted for in our budgets. Next question?

Now the Ethiopian government have made the legislative changes needed for the financing to proceed, I was wondering when the company became aware that these changes were needed as they were not mentioned in early financing plans. Is there any chance that these are other hidden obstacle -- there are other hidden obstacles to overcome?

The assertion of the question is actually not accurate. First of all, there have been no legislative changes. There have been many regulatory approvals that we've sought. And I'm not aware that they haven't been well flagged publicly, all the, what do you call it, the central bank approvals of interest rates and the right to use hedging and the exchange controls and offshore banking. We've been reporting these in our RNSs for years. So I don't know that we haven't been reporting them. Maybe the reader has only been following recent RNSs. I honestly don't know. But there are no -- there are no big -- the big issues really were that this country became unstable for a few years and then the stability returned. That was the huge issue. And the issue of regulatory reform is required to allow this sector to proceed around our first mover sort of proposals. I think we've reported them extensively. Now we're in the -- we're really in the Early Works program, which we've outlined is, I suppose, the simplest expression might be administrative to make absolutely sure we've covered everything, and there's formal bits of paper to satisfy boards and governance protocols that protect everybody, including ourselves. But I'm not aware of any -- there were no substantive arm wrestling negotiations to be done with anybody.

The next question: are there licenses which have unrightfully been given to Chinese entities being returned? And why has the company resorted to the legal action against the Ethiopian government to recover the lost exploration areas in Ethiopia?

They haven't been returned. We didn't expect that already. We haven't taken legal action against the government. We have formally reserved our rights to take normal administrative actions. And this is normal tenure defense posture. It's not that -- not symptomatic of any weird behavior. In fact, we did the same in Saudi Arabia, where we had to stand our ground over Jibal Qutman. We have made a discovery. We lodged a mining license application in 2015-ish, I've forgotten, and we had to go through the administrative procedures and into court before we proved our tenure and it was returned to us. So we're in the business of defending the rights of the company on behalf of shareholders when we believe there's been an incorrect procedure or an injustice. But there's no antipathy with the government if that's what's being alluded. It's quite the opposite, to be honest. So I don't anticipate a problem on getting those licenses reaffirmed in our name once we trigger Major Works.

Perfect. The next question here: The most recent RNS talks a further exploration being pegged in Ethiopia. Is that on the disputed exploration areas?

No, no. We're doing some other pegging as well, which is premature to discuss publicly. But we have -- we've said publicly that we're getting an expansionary sort of attitude where the team formed around that because when I said earlier, we were on the defense for so long. The country was sort of shut down or suspended for these industrial initiatives for so long, that a lot of the world turned its back on it. Now we hung in there. And if you're going to go to the trouble of hanging in there and your shareholders are giving you the opportunity to hang in there for the benefit of the long term, which is what has happened, I think it's in our duty to take advantage of when the country turns for the better, which it has. And part of that is not just getting Tulu Kapi up and running, but it's also having a good look around and positioning ourselves to seize any other opportunities that are synergistic, can add value to what we do. And that's what this team is doing. So I think that answers the question, Alessandro.

That's great. The RNS that was released on the 13th of May stated that Tulu Kapi project has a mineral resource estimate of 1.7 million ounces at average grade of 2.7 grams per tonne. The tabulated data use 2.1 grams per tonne. Should 2.1 or 2.7 be used to calculate cash flow?

Well, the distinction is -- just to explain it is that the mineral resource is 2.65 on 1.7 million ounces resource. Now that 1.7 million ounces resource is partly -- mainly in the open pitable section and partly in the underground mining section. And then when one converts it into a reserve or reserve as compared to mineral resource, one has to take into account the dilution and other effects of the mining process. So yes, the ore reserve and the mine plan for the open pit is 2.1 grams a tonne. And yes, that's the short of it. It's correct. And there are a few other complexities, but what I said is the essential answer, I think.

Perfect. Just turning to a question on Saudi. Is Saudi potential cash flow based on 80%, 25% ownership? Is it roughly similar, better or worse in Tulu Kapi?

Good question. But I think, Harry, that's far too early to tell. It could be a little bit less. It could be more. We're still drilling. We're still in study mode. And we're all pressing for that answer, but far too early to make a definitive statement. Next question?