KEFI Gold and Copper is on the cusp of initiating a significant venture with the Tulu Kapi Gold Project in Ethiopia, propelled by pivotal financing achievements and favorable regulatory modifications that have optimized funding arrangements. The project, with a development budget of $320 million, not inclusive of a prior $100 million equity investment, stands fortified at the subsidiary level with commitments secured following the final nod from the principal banking partner. This milestone sets the stage for formal endorsement processes involving a co-lending bank and local equity-capital contributors.
The landscape of equity financing has witnessed a favorable shift thanks to recent regulatory amendments, which have notably diminished finance costs. These improvements include exemptions on foreign exchange, an augmentation in the permissible debt-to-equity ratio from 70:30 to an enticing 80:20, and the provision for the reinvestment of local currency retained earnings into new sectors as foreign direct investment. A distinctive feature within the $320 million capital budget is the introduction of two variants of Equity Risk Notes (ERNs), tailored for multinational corporations (MNCs) with and without operational footprints in Ethiopia, respectively.
KEFI’s strategic focus now lies on the more cost-effective ERN variant, pegged at a 12% annual rate. These financial instruments are designed for cash repayment from operational revenues or, alternatively, through KEFI equity conversion at KEFI’s discretion in the fourth year, aligning with the second year of full production, based on the prevailing share price at that time.
Highlighting a significant stride, KEFI has secured initial board approval from a prominent MNC investor for the ERN, signaling unanimous agreement among syndicate members on the roadmap to complete all preparatory steps for the project’s launch. This concerted effort aims to achieve full financial closure by mid-2024.
Harry Anagnostaras-Adams, KEFI’s Executive Chairman, expressed his satisfaction with the developments, particularly noting the approval from a major local equity-capital entity and the streamlined process for the lower-cost ERN. Anagnostaras-Adams underscored the financial model and production outlook for the high-grade open-pit gold mine. With a conservative gold price estimate of US$1,864/oz, against the current market rate of US$2,170/oz, the project is projected to generate ample cash flow to meet the ERN obligations upon maturity.
Further bolstering the financial framework is the US$95 million debt endorsement from the lead bank, Eastern and Southern Trade and Development Bank (TDB), complemented by a US$20 million commitment from Ethiopian Federal and Regional Governments, potentially expandable to US$40 million. These contributions collectively account for US$215 million to US$235 million of the project funding, with the Africa Finance Corporation (AFC) also in the process of finalizing its intended US$95 million investment to bridge the funding gap.
The collaboration and unified support from all syndicate members are pivotal as KEFI Gold and Copper navigates the final preparatory phase, with comprehensive documentation and funding arrangements targeted for completion by mid-2024. This endeavor marks a significant milestone for KEFI, the Tulu Kapi Gold Project, and the broader mining industry in Ethiopia, showcasing a collaborative model for project financing and development in the sector. Anagnostaras-Adams anticipates providing further updates as the project progresses towards its launch, heralding a new era of mining development and economic growth in the region.
Source: Mining Review
