165512 KEFI Minerals R&A Cover_165512 KEFI Minerals R&A Cover
KEFI Minerals
E M E R G I N G G O L D M I N E R
ANNUAL REPORT 2014
View of Tulu Kapi Hill, Ethiopia
'KEFI Minerals is now the operator of two advanced gold development projects within the highly
prospective Arabian-Nubian Shield'
CONTENTS
Executive Chairman's Report .................................................................................................................................2
Robust Gold Project - Tulu Kapi (95% owned)....................................................................................................2
Oxide Gold Project - Jibal Qutman (40% owned) ...............................................................................................3
Outlook ...............................................................................................................................................................3
Exploration Director's Report..................................................................................................................................4
Ethiopia - Further Potential at Tulu Kapi ...........................................................................................................4
Saudi Arabia - Adding to Project Pipeline at Jibal Qutman and Hawiah............................................................4
Focus on Arabian-Nubian Shield.........................................................................................................................5
Sustainability Activities for the Tulu Kapi Project....................................................................................................7
Ethiopia ...................................................................................................................................................................8
Background .........................................................................................................................................................8
Tulu Kapi - Permits and Mining Agreement.......................................................................................................8
Tulu Kapi - Geology .............................................................................................................................................9
Tulu Kapi - Resources and Reserves ..................................................................................................................9
Tulu Kapi - Definitive Feasibility Study ............................................................................................................ 10
Tulu Kapi - Outlook .......................................................................................................................................... 12
Saudi Arabia .........................................................................................................................................................13
Saudi Arabia - Progress During 2014 ............................................................................................................... 13
Saudi Arabia - Jibal Qutman ............................................................................................................................ 14
Saudi Arabia - Hawiah...................................................................................................................................... 17
Saudi Arabia - Exploration Licence Applications ............................................................................................. 20
Glossary and Abbreviations ..................................................................................................................................21
Competent Person Statement ..............................................................................................................................22
Strategic Report, Directors' Report and Consolidated Financial Statements.......................................................24
Executive Chairman's Report
The past year has seen KEFI Minerals deliver on key milestones as the Company transitions from an exploration company to an emerging gold producer.
Our assets provide a healthy platform to deliver shareholder value by developing profitable mines in Ethiopia and Saudi Arabia.
Gold production from Tulu Kapi is on track to commence in 2017 and then average 80,000 to 90,000 ounces per annum for at least ten years. The feasibility work by KEFI's team over the past year has resulted in a robust investment proposition for Tulu Kapi's development.
Gold resources at Jibal Qutman were increased during 2014 and included a sizeable oxide gold component. Our team is evaluating the potential to develop a heap leach operation for minimal capital expenditure to treat oxide gold at Jibal Qutman.
Both these development projects are surrounded by exciting potential for further growth through exploration.
KEFI Minerals is now positioned as the operator of two gold development projects as well as the cost-effective explorer of its portfolio in the highly prospective Arabian-Nubian Shield ('ANS').
Robust Gold Project - Tulu Kapi (95% owned)
The 2015 Definitive Feasibility Study ('2015 DFS') for Tulu Kapi is nearing completion and a significant reduction in the previously estimated capital and operating expenditure has been achieved.
A reduction in the processing rate to 1.2 million tonnes per annum ('Mtpa') has significantly reduced the anticipated capital expenditure, increased the head grade of gold-bearing ore and improved estimated project returns.
In February 2015, better delineation of individual ore lodes provided the basis for Tulu Kapi's Indicated Resource increasing by
45% to 18.8 million tonnes at 2.67g/t gold, containing 1.62 million ounces.
In April 2015, an updated Probable Ore Reserve was estimated which included a high-grade portion of 12.0 million tonnes at
2.52g/t gold, containing 0.98 million ounces. This estimate reflects KEFI's envisaged semi-selective mining strategy that will utilise an elevated cut-off grade of 0.90g/t gold to provide the ore for processing over the first ten years of the project production schedule in the 2015 DFS.
Our team has been driving hard to ensure robust and financeable project economics in the context of current gold prices and capital markets. Key preliminary outcomes are:
x Anticipated capital expenditure required for Tulu Kapi reduced by more than 50%, currently standing at $120 million.
x Total gold production increased to approximately 960,000 ounces over 13 years.
x All-in Costs (including operating, capital and closure) have been reduced to $906/ounce including the initial investment and US$783/ounce excluding the initial investment, much lower than industry averages.
x After-tax NPV of $112 million assuming an 8% discount rate and gold price of $1,250/ounce.
Responsible mine development is a high priority for KEFI and the Ethiopian Government. We welcome the Government's constructive attitude which encourages us to bring Tulu Kapi into production as rapidly as we prudently can whilst ensuring compliance with all relevant quality standards.
In April 2015, the Tulu Kapi Mining Agreement ('MA') between the Ethiopian Government and KEFI was formalised. Under the MA, the Company has been granted a Mining Licence valid for a period of 20 years, along with all major permits for the development and operation of the Tulu Kapi mine.
The MA is a landmark achievement that provides the foundation to unlock the value of Tulu Kapi for all stakeholders and particularly the significant economic and social benefits that the project can bring to Ethiopia.
In order to begin development of this high-value and low-capex asset, KEFI has been systematically progressing negotiations with project financiers. The targeted funding mix is for up to approximately $100 million senior-secured finance and the remainder from financing arrangements with project contractors and/or equity from investment institutions at the project or parent level. Contractors and financiers have been short-listed.
We are working towards finalising in Q3-2015 the full funding required for project development. This would enable construction to commence in late 2015, plant commissioning in late 2016 and gold production in 2017.
Oxide Gold Project - Jibal Qutman (40% owned)
At the Jibal Qutman Project in Saudi Arabia, exploration and evaluation of several gold deposits progressed well over the course of
2014.
Mineral Resources totalling more than 730,000 ounces of gold have been rapidly identified at Jibal Qutman.
KEFI completed a Pre-Feasibility Study ('PFS') on the Jibal Qutman Project in 2014, which demonstrated a profitable carbon-in- leach ('CIL') operation. However, drilling has subsequently identified additional oxide gold mineralisation that is amenable to heap leach ('HL') processing. KEFI is continuing to explore Jibal Qutman with the aim of increasing oxide gold Mineral Resources from the current 287,000 ounces.
The development open-pit, heap-leach gold operation is now being evaluated for a low-capex start-up which can be expanded in modular stages as additional mineralisation is delineated.
Outlook
KEFI Minerals is now firmly focused on establishing a profitable mining house with emphasis on gold and copper in the underexplored ANS using modern technology and an experienced team which is being judiciously expanded as our projects progress towards production.
We have been progressively adding people with the appropriate skills to complement the Company's experienced board and management. In particular, I note the appointment of Mr Wayne Nicoletto as Head of Operations for KEFI. Wayne is now based in Ethiopia, and together with Dr Kebede Belete, Country Manager for KEFI, he will continue the process of building our multi-cultural team which integrates local expertise with international experience.
KEFI emphasises strong leadership of tight teams based at project sites. The presence of Board and other monitoring and control activities is also maximised at project sites. We also ensure that objective advice and input from leading specialist advisers such as the world-class consulting firms contributing to KEFI's overhaul of the Tulu Kapi Definitive Feasibility Study.
Tulu Kapi is a simple open-pit mine with a minimum 13-year life and robust economics. There is also potential for an underground mine underneath the open pit and for discovering gold deposits within trucking distance of the processing plant.
A staged development approach is likely for Jibal Qutman. The potential cash flow from HL oxide gold production is an opportunity to fund:
x construction of a CIL plant to process the deeper sulphide ore profitably; and
x exploration in Saudi Arabia to create a strong Saudi mining company for the long term.
Our lower risk, higher return approach to developing Tulu Kapi and Jibal Qutman is very appropriate in the 'new reality' for the gold sector. Capital markets now demand business strategies and performance which emphasise profitability and dividend generation as well as growth through cost-effective exploration. KEFI is focused on both.
We greatly appreciate the strong support of our shareholders, partners, communities and other key stakeholders in supporting KEFI as an early entrant in emerging mining districts. I would also like to highlight the Board's deep appreciation for the dedication and professionalism of our hard-driving teams of personnel, professional advisers and service providers.
The Board is confident of our strategy and asset base and that we have the appropriate mix of technical and financial expertise to prudently progress our projects into profitable gold mines with the aim of maximising and returning value to shareholders via share price appreciation and ultimately dividends.
I look forward to seeing some of you at the Annual General Meeting on 15 June 2015 in London.
Harry Anagnostaras-Adams
Executive Chairman
Exploration Director's Report
Strategically, the Company's focus is clearly placed on opportunities in the
Arabian-Nubian Shield ('ANS').
KEFI is very fortunate with potential exposure to a +1550 km2 portfolio of targets at various stages within the highly prospective ANS. The value-adding potential for shareholders of this portfolio surpasses that of the Tulu Kapi mine development.
In order for KEFI to apply equal priority to exploration as it will now be progressing two projects (Tulu Kapi and Jibal Qutman) into producing gold mines, my role transitioned from Managing Director to Exploration Director in September 2014.
Whilst the budgetary allocation to mine development will necessarily exceed the allocation to exploration, both activities are at the core of KEFI's business plan and require equal commitment and leadership.
Our priorities in cost effectively discovering economic gold and copper in
Ethiopia and Saudi Arabia are to:
1. Tulu Kapi - increase our understanding of the ore body and systematically search for nearby ore bodies;
2. Jibal Qutman - increase oxide gold resources on the granted Exploration Licence ('EL') and surrounding Exploration Licence Applications ('ELAs');
3. Hawiah - determine if a copper-gold-zinc VHMS deposit lies directly beneath the 6km-long, gold-bearing surface gossan; and
4. Evaluate further opportunities in the ANS.
Our ability to achieve these objectives flows from having experienced teams which are based in the region and, to the maximum extent possible, are based on-site at our projects.
Ethiopia - Further Potential at Tulu Kapi
The Tulu Kapi gold deposit and nearby area has multi-million ounce potential with our prospects near Tulu Kapi at an early stage of exploration.
Following a review of previous work, the underground resource at Tulu Kapi and a number of prospects within a 25km radius of
Tulu Kapi are considered to provide the scope and potential to provide additional ore to the proposed processing facility.
Assessments of underground potential have begun and positive results were returned from drilling of the Chalte and Guji prospects during 2014. Exploration of these and other prospects on nearby ELs are planned to be systematically progressed during 2015.
Saudi Arabia - Adding to Project Pipeline at Jibal Qutman and Hawiah
Since the Jibal Qutman EL was granted in July 2012, KEFI Minerals rapidly advanced this project from grassroots exploration to assessing the best way to bring to account the gold mineralisation discovered to date.
Jibal Qutman's focus during 2015 is to increase near-surface oxide gold resources sufficiently to provide the critical mass to trigger gold production via a low-capex, heap-leach operation. Jibal Qutman's current oxide resource tonnes and grade, combined with the metallurgical results to date and low local cost-levels, indicate that we can shortly consider triggering a Pre-Feasibility Study for development planning and permitting. Discussions are in process with our joint venture partners Abdul Rahman Saad Al Rashid and Sons Limited ('ARTAR').
Our recently granted Hawiah EL is the sort of prospect that makes us excited to be exploring the ANS. Initial exploration indicates Hawiah has all the hallmarks of a copper-gold-zinc VHMS deposit. There is a large gold-bearing gossan at surface and our initial geophysical survey indicates it is underlain by a large metal-bearing body. Drilling is planned for 2015 to test for both near-surface gold mineralisation and deeper sulphide mineralisation potentially containing copper and zinc.
Focus on Arabian-Nubian Shield
While our focus and majority of expenditure is on adding resources for our two development projects, KEFI continues to work towards creating shareholder value by assessing other prospects in the under- explored ANS.
Precambrian rocks host many of the major gold and base metal deposits globally, for example in Australia, Canada and South Africa. It is notable that the ANS is much larger than these other Precambrian terranes.
Even though a number of significant gold and base metal deposits are being mined in the ANS, very little modern exploration has been carried out over much of the area.
KEFI has a 40% beneficial interest in 24 ELAs and 2
ELs in Saudi Arabia via Gold and Minerals Co. Limited (our joint venture company with ARTAR, or 'G&M') which KEFI operates. These ELAs contain very prospective targets that were quickly identified by surface sampling and reconnaissance by KEFI, as well as historical mine workings in all the application areas.
KEFI has developed a large proprietary geological database for the ANS and its internationally experienced team is able to quickly assess the economic potential of licences. Three granted ELs in Saudi Arabia have already been evaluated for G&M
and then relinquished in a short period of time.
Even though KEFI has a sizeable portfolio of exploration licences and applications, we will continue to look for opportunities to put our foot on other prospects in the ANS which would upgrade our portfolio.
We are continually adding to our knowledge of the ANS
and systematically building our database for project generation and optimisation.
Location of KEFI's projects in ANS
Our aim has always been to deliver shareholder value by developing into profitable mines the gold and base metal deposits that the Company discovers or acquires in a cost-effective manner.
Since being incorporated in December 2006, KEFI Minerals has evaluated scores of acquisition opportunities and exploration targets in various countries around the Mediterranean, Middle East and Africa. The highly prospective Arabian-Nubian Shield is one of the largest under-explored mineral provinces in the world. The ANS has been the Company's primary focus since 2008 when it commenced exploration activities in the Kingdom of Saudi Arabia.
The recent spurt of rapid progress demonstrates the benefit of the patient and dedicated efforts of our enthusiastic and skilled geological teams, led in Saudi Arabia by Exploration Manager Fabio Granitzio.
I am excited by the opportunity before us and look forward to updating shareholders and our communities on our progress towards these goals.
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