Although developing Tulu Kapi remains KEFI’s immediate priority, there are a number of exploration prospects that provide potential for the incremental and marginal expansion of KEFI’s gold output in the future. To this end, KEFI has applied for two major land positions – one in Ethiopia and the other in Saudi Arabia – and is positioning itself for an aggressive exploration programme as soon as the financing of the Tulu Kapi mine is completed and construction has begun. Partnerships with the Ethiopian government and Saudi Arabia’s ARTAR reinforce this.
Although KEFI’s exploration licence in Ethiopia has expired, management reports that the government has agreed its renewal – albeit timed to coincide with construction mobilisation at Tulu Kapi. KEFI has three major, immediate exploration targets in the country – Tulu Kapi underground, the Guji-Komto belt (a parallel structure to Tulu Kapi) and a gold-copper project to its north.
Parallel to Tulu Kapi: Guji-Komto
The Guji-Komto belt represents a series of old gold workings on a parallel strike to Tulu Kapi extending continuously for over 9km to the west of the Tulu Kapi pit. The most extensive historic workings are located at the Komto 1 prospect and prior exploration drilling by Nyota had already extended the limits of mineralisation by up to 4km. At 1.3–1.5g/t in-situ, the grade of this mineralisation was considered too low to be included in the development plan for the mine. However, impressive widths and the oxide nature potentially qualify it as the basis of an incremental heap leach operation via the exploitation of a series of open pits in the style of a ‘string of pearls’. Exploration results from one prospect – Guji – in particular serve to emphasise the potential:
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23m at a grade of 1.5g/t gold (trench)
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10m at 3.0g/t gold (trench)
■
19m at 4.4g/t gold (trench)
■
44m at 1.7g/t gold (drill hole)
The 24-hour coarse crush (>6mm), cyanide leach bottle roll metallurgical tests (a proxy for column leach tests) have been completed on selected trench samples and demonstrate a recovery of c 94%. Preliminary management estimates indicate that c 250koz of gold could be amenable to exploitation by such methods, with low-grade material being directed to heap leach pads and high-grade material to the existing carbon-in-leach CIL plant at Tulu Kapi. Such an operation, based on preliminary management estimates, could produce c 40koz gold a year over five years for a relatively small incremental capital outlay of US$30.42m, or US$663 per annual oz of production (on account of infrastructure already being in place to service Tulu Kapi) and could have a net present value in the order of US$26–47m at the gold prices shown below (note that these are illustrative numbers and are subject to the results of exploration and development studies:
Exhibit 7: Guji-Komto indicative financials
Gold price (US$/oz) |
1,100 |
1,200 |
1,250 |
1,300 |
NPV10 |
26.9 |
36.8 |
41.8 |
46.8 |
Ditto per existing KEFI share (US cents)* |
7.7 |
10.5 |
11.9 |
13.4 |
IRR (%) |
45 |
57 |
63 |
69 |
Source: KEFI management estimates. Note: *95% basis.
In addition to potential satellite heap leach operations, c 333koz of resources exist at depth at Tulu Kapi in the indicated and inferred categories at grades of approximately 6.3g/t. Mineralisation increases in grade and thickness with depth, and remains open at depth and along strike to the north. In this case, the higher grade could be attributed to either a tighter structure or a hotter environment on formation. In either case, based on the latest interpretation, it is considered that there is exploration potential to triple the current underground mineral resource to c 1Moz. In the meantime, the widths of the structures typically exceed 4m and are therefore amenable to underground mining. The higher grades also contribute to higher metallurgical recoveries – typically 93–94%.
While developments are at a relatively early stage, a preliminary economic assessment (PEA), dating from March 2014, envisages an incremental, high-grade underground mining operation at Tulu Kapi processing 320,000t of ore per year to produce 40–50koz Au per year for an initial four-year life of mine. Access would be via decline from the open pit and mining would be mechanised on stopes designed for vertical thicknesses of 4-25m and larger widths. Capital expenditure is estimated at US$36.5m (c US$811 per annual oz of production), all-in sustaining costs at US$765/oz, on which basis the NPV of the project is estimated to be US$44m at a gold price of US$1,250/oz and a discount rate of 8% – of which, KEFI’s share would be c 55% (see Funding mix on page 18), or US$24.2m. Note that, once again, these are illustrative numbers, subject to the results of exploration and development studies.
North of Tulu Kapi: The Kata gold-copper project
The Kata gold-copper prospect is located 50km to the north of Tulu Kapi. It is characterised by 30m of gossan at surface and was explored by the United Nations (UN) in the early 1970s, including one hole of 14.3m at a grade of 3.2% Cu, which was abandoned and never assayed for gold. A subsequent, deeper hole intersected 35.51m at a grade of 0.82% Cu but was, once again, not assayed for gold.
Gossans are intensely oxidized, weathered or decomposed rocks, usually the upper and exposed part of an ore deposit or mineral vein. In the classic gossan, or iron cap, all that remains is iron oxides and quartz often in the form of quartz lined cavities retaining the shape of dissolved ore minerals (boxworks). Since antiquity however, gossans have been used by prospectors as guides to buried metal ore deposits.
To date, some 600m of the structure has been mapped at surface at a width of c 30m and down to a depth of c 120m, leading KEFI management to speculate that Kata could prove to be one of six undrilled VMS deposits in the area and potentially larger than Tulu Kapi itself – a VMS deposit being a type of metal sulphide ore deposit, mainly copper-zinc, which are associated with, and created by, volcanic-associated hydrothermal events in submarine environments (eg Bisha in Eritrea). If so, its current dimensions suggest a potential size of c 10–20Mt which, at a grade of c 1.5% Cu, could contain some 100–200kt of in-situ copper. However, soil geochemistry defines a 2km copper anomaly so, once its licence to explore Kata is granted, KEFI intends to test the prospect via two trenches and a geophysics programme to extend the strike of the known 600m defined by UN drilling before, ultimately, drilling it out. NB Illustrative numbers, subject to the results of exploration and development studies.
The Arabian side of the ANS is the source of some of man’s earliest known mining activities, including the Mahd adh Dhahab (‘Cradle of Gold’) mine, which is the leading gold mining area in the Arabian peninsula, in the Al Madina province of the Hejaz region of Saudi Arabia, between Mecca and Medina. Gold was first mined in the area around 5,000 years ago in the form of swarms of gold-bearing quartz veins. The site has been identified as one of the possible locations of King Solomon’s mines, where archaeologists have found a large abandoned gold mine, c 1Mt of waste rock and thousands of ancient stone hammers and grindstones.
In general, the ANS consists of Precambrian crystalline rocks and hosts various minerals in a diverse range of deposit formations, including gold, copper, zinc, tantalum, silver, and potash, which can be found in mesothermal gold, polymetallic, quartz vein gold and VMS ores.
The Saudi Arabian government has stated that it wishes to grow the mining sector materially in the future. In the past, all activity was conducted by the state-controlled Saudi Arabian Mining Company (Ma’aden). However, it has now been de-regulated and opened up to overseas investors (eg Barrick, among others), although Ma’aden remains the largest operator, with six gold mines in production and a number of exploration prospects.
Unlike many other jurisdictions, no royalties are levied on production in Saudi Arabia. Moreover, a requirement to demonstrate advance funds to underwrite future works on exploration licences (a requirement managed by ARTAR as the applicant on behalf of G&M, see Commercial and technical, below) acts as an effective barrier to entry for the more opportunistic junior explorers. On the other hand, up to 75% of the capital costs of strategic projects are eligible for Saudi Industrial Development Fund debt funding, which would leave KEFI (or any other company) required to fund just 40% of the 25% of the total capital cost of the project to maintain its interest. In the meantime, KEFI states that the cost of exploration in Saudi Arabia is close to US$40 per metre of RC drilling and US$100/m of diamond drilling (cf c US$160/m in Ethiopia).
KEFI’s interest in Saudi Arabia began with the formation of a 40:60 joint venture, called Gold & Minerals (G&M), with the Saudi construction and investment group ARTAR (the vehicle of the Al-Rashid family). Despite its minority interest in the JV, KEFI nevertheless operates all G&M’s assets in Saudi Arabia, while ARTAR provides administrative, logistic and professional services’ advice.
The US Geological Survey and the French BRGM have jointly compiled approximately 60 years’ worth of geological data on Saudi Arabia. In total, they documented over 5,000 historic mining sites in the country. This information has been acquired by KEFI and integrated over a nine-year period into its multi-layered proprietary database. Initially, this resulted in KEFI making 24 licence applications over areas with old workings and instigating early-stage trenching programmes. However, it has recently taken advantage of the period of change in Saudi Arabia (which included the adoption of new mining regulations) to overhaul its portfolio of exploration assets and to build up its land position. As a result, it has one mining licence application, one exploration licence, 17 exploration licence applications and four exploration licences pending, covering over 1,000km2 of land. Within these are three priority projects, summarised below.
Jibal Qutman comprises four licences covering c 100km2 in the central southern region of Saudi Arabia, on the Nabitah-Tathlith fault zone of the Arabian-Nubian Shield (a 300km-long structure with multiple outcrops at surface) and along which BRGM mapped over 40 mineral occurrences and/or ancient mines. KEFI’s management likens the area to Western Australia and, in particular, Kalgoorlie, before it was pegged, but without the attendant problems of a settled population and private land ownership. G&M was granted the Jibal Qutman exploration licence in June 2013 and it has subsequently lodged a mining licence application.
Gold mineralisation at Jibal Qutman itself is hosted in a series of quartz veins in six separate ore bodies, denoted the Main Zone, the South Zone, the West Zone, 3K Hill, 5K Hill and Pyrite Hill. The main vein dips to the east at an angle of c 45, surrounded by parallel veins that form stringer zones around it. Jibal Qutman has now been drilled out and, during this process, the sulphide portion of its resource was found to be refractory on account of the presence of carbon. As a result, KEFI focused its exploration activities on the oxide portion of the resource and delineated a potential mineable resource of 6.6Mt at a grade of 0.95g/t, containing c 200koz gold, at a stripping ratio of 2.2 (cf grades of c 0.8g/t at comparable, proximate assets). Column leach metallurgical tests conducted by ALS indicated gold recoveries of c 73%, as a result of which KEFI envisaged developing the area via a string of pits mining oxidised material for heap leach processing. In May 2015, a preliminary economic assessment on the deposit was completed on the basis of a 1.5Mtpa heap leach operation, producing 139koz gold over an initial 4.5-year mine life (average 30.9koz pa) at an average metallurgical recovery of 69% and capex and opex of US$30m and US$597/oz, respectively. In due course, the addition of adjoining licences could support a proportionally larger production base using a modular development model (eg 2–4x that currently assessed) as well as reducing operational risk:
Exhibit 8: Jibal Qutman May 2015 preliminary economic assessment outcomes
|
Existing resource |
Trebled resource |
Gold price (US$/oz) |
1,150 |
1,300 |
1,250 |
1,300 |
NPV5 (US$m) |
47.7 |
64.3 |
145.0 |
159.0 |
Ditto per existing KEFI share (US cents)* |
5.7 |
7.7 |
17.4 |
19.1 |
IRR (%) |
41 |
52 |
25 |
30 |
Source: KEFI Minerals. Note: *40% basis.
Note that the above analysis on the basis of a trebled resource also assumed a similar factor applied to capex whereas, in reality, there would probably be scope for capex savings as well as higher grades from alternative ore sources. In the immediate future, KEFI’s objectives at Jibal Qutman include completing a pre-feasibility study as well as investigating the potential to develop heap leach operations to fund construction of a CIL processing plant for the deeper (albeit refractory) sulphide ore.
Jibal Qutman and environs
In addition to the Jibal Qutman mining licence application, G&M has four other exploration licence applications in the immediate area, named Jibal Qutman North and South and Abal Ajibawal North and South.
Jibal Qutman North and South
Jibal Qutman North hosts quartz vein style mineralisation in granites. Exploration is constrained by extensive sand cover and an absence of outcropping material, but rock chip sampling has yielded 25 samples from old workings at an average grade of 7.8g/t (range 1.0–66.5g/t) and KEFI estimates that it has the potential to host >0.5Moz, of which approximately half would be in oxide form (and therefore easily processed). Mineralisation within Jibal Qutman South is interpreted to be of a similar style (ie quartz vein within granites), although the entire 6.1x1.0km mineralised trend is also interpreted to be within a dilation zone. Old workings have yielded 67 rock chip samples to date with an average grade of 11.7g/t (within the range 1.0–58.2g/t), as a result of which KEFI estimates a mineralised potential of >1.0Moz Au, of which approximately half would again be in oxide form suitable for either heap leach or CIL processing.
Abal Ajibawal North and South
Abal Ajibawal comprises two contiguous tenements, denoted North and South, and hosts a 6km trend – interpreted to be a tensional zone within a shear zone – containing dozens of old workings, up to 1,200 years old. Importantly, the gold itself is reported to be in the granite and hence there is no potentially preg-robbing carbon associated with it. As a result, the sulphide portion of the mineralisation is also potentially amenable to processing, leading KEFI to estimate a mineralised potential of >1Moz within the two tenements.
Hawiah (copper and base metals)
The 95km2 Hawiah exploration licence was granted in December 2014 and is now in renewal. It is located in the southwest of the Arabian Shield on the 120km Mamilah-Wadi Bidah Volcanogenic Mineral belt (which is three times as long as the Bisha belt in Eritrea), on which BRGM and the USGS documented c 24 VMS deposits and historic workings, of which at least one was subsequently drilled and found to contain copper at a grade in excess of 2%. In this respect, the Wadi-Bidah Mineral District is almost unique in that not many VMS belts in the world remain undrilled and, as a result, KEFI has applied for an additional eight exploration licences in the area encompassing the majority of the belt and covering a cumulative >12km of gold gossans. Note that BRGM drilling on these gossans in the 1980s resulted in a resource of 1.2Mt at a grade of 6.4g/t, containing 254koz gold.
The Hawiah deposit itself is on a 6km gold mineralised gossan, 5–40m wide, and is interpreted to overlie a copper-gold-zinc massive sulphide target. An initial 53-trench surface sampling programme over a 6km horizon demonstrated early evidence of the presence of metals in the form of visible staining and included the following results:
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6m at a grade of 2.2g/t
Secondary copper was reported to have leached at the surface forming an enriched zone at the surface base. As a result, KEFI implemented a major geophysical survey over the southern half of the gossanous horizon, which identified a large, intense north-south trending self-potential geophysical anomaly (approximately 2,000m long, 300m high and 10-50m wide) potentially indicating the presence of massive sulphides plus a parallel anomaly with a similar, but less continually intense signature located 600m to the east. On account of its nature and potential scale, Hawiah is therefore a commercial priority for KEFI and it intends to simultaneously explore the prospect for a) a near-surface gold resource in the gossan via further trenching and RC drilling and b) a major copper-gold-zinc sulphide orebody along strike and/or at depth via a more detailed induced polarisation geophysical survey, with copper as the main target.
Applications registered and licences pending
One additional tenement, yet to be awarded, has been applied for by ARTAR on behalf of G&M (as with all applications in Saudi Arabia, application to date has been by ARTAR on account of the up-front need for financial capacity to complete the programmes and KEFI retains the right for all tenements to be transferred into G&M as and when appropriate). This particular tenement was explored by BRGM during the 1980s and lies immediately to the north of a prospect where a French operation subsequently intersected massive sulphides. Exploration results dating from 1989 include:
■
8.9m at 8.8g/t (drill hole)
■
5.1m at 8.7g/t (drill hole)
■
9.1m at 8.6g/t (trench)
Subsequent notable exploration results included 28.3m at 8.7g/t (trench) and one further drill hole intercept of 18m at a grade of 8g/t. The mineralised rock is described as a large, resistant gossan with evidence of supergene enrichment (and grades as high as 16g/t at the base of the weathering profile). While the tenement was drill tested, however, the process was not thorough and samples were, initially, assayed for gold alone, which resulted in a non-JORC resource estimate of 400koz. This was rectified by the USGS, which assayed for copper and thereby estimated a copper content of 2.0–2.5%, but not for zinc (which KEFI management speculates could be in the order of 2%). Because the area was located in a wadi in which there was a degree of agricultural development however, exploration rights over the area were allowed to lapse. Nevertheless, such gossans are typical of other areas of the Arabian-Nubian Shield, such as Sudan, where government-incentivised artisanal mining has increased gold output from such large gossan systems, from 12.1t in 2010 to 39.9t in 2017, and propelled the country to being the second largest exporter of gold in Africa.
KEFI estimates that it would cost US$40–50m to drill the tenement appropriately, but also that it has received a farm-in approach by one of the majors to this end. It also proposes an ionic potential geophysical survey to develop a model of the mineralisation at depth. Note, however that, in the event of any farm-in, KEFI intends to retain the gold cap for its sole benefit.
Hitherto, a significant constraint to the developing mining industry in Saudi Arabia has been a lack of access to water. However, Ma’aden has now commissioned a 450km, 18-inch pipeline to carry treated waste water to its region of operations. Management believes that a similar approach will apply to Jibal Qutman, near a major township. Water is also potentially available via artesian sources or trucking (note, there is a precedent for trucking water in Saudi Arabia, where fuel costs as low as US$0.10 per litre make this almost uniquely feasible).
In addition to cheap trucking costs, the low cost of fuel also results in a low power cost of c 2–3c per kWh for generated electricity. This means that the development of KEFI’s Saudi Arabian assets will result in its operating in very low-cost jurisdictions with respect to power and labour, in particular, on both sides of the Red Sea, and thereby allow it to maintain total cash costs in the lower half of the global cost curve.