KEFI Gold and Copper — On the cusp

KEFI Gold and Copper is a gold junior that, to date, has specialised in discovery and acquisition on either side of the Arabian-Nubian Shield (ANS), which is the source of some of humankind’s earliest known mining activities, including the Mahd adh Dhahab (‘Cradle of Gold’) mine. Currently, KEFI’s flagship Tulu Kapi project (1.7Moz in resources) is Ethiopia’s only ‘ready-to-start’ industrial mining project, located away from security hotspots and in a country on a continent that has been among the least affected by COVID-19. It also has 34% interests in its discoveries in Saudi Arabia, namely Jibal Qutman and Hawiah (together 2.3Moz AuE).

In this note, we have updated our valuation to reflect higher capex and opex assumptions at Tulu Kapi and a delayed start-up, but with these factors offset by a higher level of project ownership owing to an updated funding structure entailing less project level equity and more convertible debt. In conclusion, we calculate that Tulu Kapi is capable of generating free cash flow of c £66.2m per year for seven years, from 2023 to 2029. With average (maximum potential) dividends of 1.94p/share for the four years from 2026 to 2029 (after deduction of a 25% minority interest), this implies a valuation for KEFI of 4.35p/share (cf 4.05p/share previously) when discounted back to FY21 at a rate of 10% per year. This valuation rises to a maximum of 6.49p/share in FY26 on the cusp of KEFI’s first possible dividend payment once all debt has been repaid. However, it does not include any value for KEFI’s pipeline of other exploration and development targets and, if it is successfully able to leverage its cash flow from Tulu Kapi into other assets in the region, we calculate that its valuation could double to 8.79p/share (note that even this would put KEFI on a P/E ratio of no more than 4.3x peak earnings). Included within this portfolio of other assets are Hawiah, which we estimate may have a standalone value in the range 0.32–5.54p per existing share, Jibal Qutman (0.54–3.33p/share) and Guji-Komto (0.86–3.00p/share).

On average, a ±10% change in the gold price results in a 1.52p/share (34.9%) change in our valuation, while a ±10% change in costs results in a 0.99p/share (22.8%) change. At a flat, real gold price of US$1,778/oz (ie that currently prevailing), our ‘base case’ valuation rises by 38.6%, from 4.35p/share to 6.03p/share, in which case we calculate that an investor buying shares in KEFI on 1 January 2021 at a price of 1.894p could expect an internal rate of return of 29.7% over 10 years in sterling terms. Finally, we calculate that US$59m in charges and loans converted into equity at Edison’s valuation of KEFI’s shares in two to three years’ time would dilute our ‘base case’ valuation by only 9.2%, to 3.95p/share.

KEFI had £1.3m in net cash on its balance sheet as at 31 December 2020 and plans to finance its US$228.2m capex funding requirement principally via debt of US$155m, project-level equity of US$25m (excluding c US$60m in equity already invested), debt convertible into equity of US$59m (see pages 6-7 and 14-15) and parent company level equity of US$11m (see Exhibit 5 for detail). At its peak, we forecast a maximum net debt level of £142.0m, or US$196.8m in FY22.

A map of the location of KEFI’s principal assets on the ANS is as follows:

KEFI was formed in 2006 and rapidly evaluated and relinquished a number of exploration properties before focusing on the potential of the ANS in 2008, when it commenced exploration in Saudi Arabia. It expanded its activities in December 2013, when it acquired 75% of Tulu Kapi in Ethiopia for £4.5m, before buying the remaining 25% for US$0.75m plus 50m shares in September 2014.

KEFI completed an updated definitive feasibility study (DFS) on the Tulu Kapi project in July 2015 in collaboration with Senet, Golders, Epoch and Snowden. The DFS reflected both a complete overhaul and an independent validation of Tulu Kapi’s geological resources and reserves, with KEFI inserting significant additional data and ‘wireframing’ each individual ore lode in the system. Thereafter, the project’s plant construction and mining operation was put out to international tender and was, with the winning tenderers, further refined and optimised via joint value-engineering exercises. In general, while the mine plan remained unchanged, plant throughput increased to align the processing rate with the mining rate to avoid building up a large stockpile for post-mining processing. In May 2017, KEFI completed a 2017 DFS update that incorporated due diligence and all of the refinements since the 2015 DFS. Five months later, in October 2017, it then announced further increases to the planned throughput rate at Tulu Kapi, from 1.5–1.7Mtpa to 1.9–2.1Mtpa, thereby increasing production in the first three full years of operations by c 22%, from 115koz pa to 140koz pa (although total forecast gold production from the open pit over the life of the mine remained unchanged at c 980koz). Following independent expert reviews, it then released the results of the final Tulu Kapi project models, production plans and costings on 7 May 2018.

In preparing for contract execution and estimating contracted costs, KEFI has updated detailed mine engineering and planning for the bulk mining (>90%) and also for the selective mining (<10%) of its ore and waste, which has been built into contractually detailed schedules with its newly appointed mining contractor Corica (the largest in Africa). KEFI has focused intensively on this area, not only to reliably measure average grade, but also to manage grade variability during operations, based on tightly defined reserves derived from the wireframing of the entire ore system. Comparison between KEFI’s current plans and those at the time of our last Outlook note (see Rose gold, published on 30 September 2020) show very little difference, other than timings, with commissioning now expected at end-2022 (to minimise election risk and other security issues and guarantee a safe start to construction) with the ramp-up to full production by mid-2023 and the life of processing operations therefore continuing into 2030 (cf 2029 previously) and updated costings.

In the case of costs, we estimate that unit mining costs have risen by an average of 8.4% over the course of the life of the mine relative to our prior assumptions, while oxide milling costs have risen by 13.0%, fresh milling costs have risen by 16.8% and hard, fresh milling costs have risen by 17.1%, largely due to general inflationary pressures in Ethiopia and (insufficient) foreign exchange moves to compensate. While not immaterial however, such cost increases are nevertheless generally less than those that would otherwise be implied by double-digit Ethiopian inflation figures over the past three years (notwithstanding the depreciation of the Ethiopian birr versus the US dollar):

Note that direct comparison should not be made between sustaining capex estimates in the current mining schedule and the previous ones in Exhibit 2. In particular, the current schedule estimates a figure of US$2.5m in years FY25 and FY26 for a pebble crusher. This item was included in our estimates previously, but was designated as ‘capex’ rather than ‘sustaining capex’. Excluding this factor, aggregate life of mine sustaining capex estimates in 2021 are 5.8% higher than they were in 2020.

As per KEFI’s update of 9 November 2017, the proposed mining method and equipment specification are considered straightforward and technically sound by the lenders’ independent technical expert. In this context, it is significant that less than 10% of the total material movement is categorised as ‘selective’ under the draft mining contract specifications, indicating that the mining methods to be used are generally very standardised.

Additional costs include a 7% mining royalty, US$8.7m in life-of-mine offsite costs (cf US$8.6m previously) and an US$11.2m provision for closure costs (cf US$10.0m previously). Onsite general and administrative costs are forecast to be US$8.6m pa during full mining and processing operations (cf US$7.1m previously) and US$4.3m pa while reprocessing stockpiles (cf US$3.6m previously). Head office costs are assumed to amount to £1.0m pa (unchanged). A carried-forward tax loss of US$60m (cf US$55m previously) has also been applied to future pre-tax profits before tax is payable.

A comparison of our updated capex expectations in June 2021 relative to those in May 2019, April 2018 and July 2017 is as follows:

On the basis of these updated estimates, pre-production capex of US$219.4m equates to US$1,640 per annual average ounce of gold production at full capacity (cf US$1,401/oz previously).

One thing that has changed quite materially since our last note are the presumed sources of funding for the project’s capex. KEFI’s approach to its funding requirements has been consistent in seeking to share risk with contractors and to minimise dilution. During 2014 and 2015, it revised its inherited DFS as a precursor to opening project construction and mining to international tender, with the specific intent of reducing upfront capex by introducing contract mining. Since then, it has introduced project-level equity (eg the government of Ethiopia and a consortium of Ethiopian investors) as well as pursuing financing in the form of a US$160m bond. Whereas this bond had previously been assumed to account for the majority of KEFI’s financing requirements however, it has now been replaced by senior secured debt. According to management, the bank loan proposal is more attractive and more straightforward to execute than the previous bond lease alternative. In addition, the proposed bank lenders are reported to be already working in Ethiopia, committed to the country and to be familiar with the local market and many of Tulu Kapi’s stakeholders. Hence, it is considered to be more compatible with the project’s consortium. Material savings are also expected in the cost of debt servicing, administration and other charges, especially during the project development and start-up period.

Including all exploration and corporate funding requirements, including pre-production interest, KEFI estimates that its initial financing requirement will be US$250m ±US$10m, which, for the purposes of financial modelling, Edison has assumed will be sourced as follows:

Of particular note is the US$33m reduction in the amount of funding being sourced via equity at the project level (which will leave KEFI owning a higher c 75–80% of the project directly, cf approximately 45% previously) and the US$17.7–27.7m reduction in funding via an ore stockpile/working capital facility compensated for by US$59m in funding via two items convertible into KEFI shares in two and three years’ time. In both cases, conversion into KEFI equity is at KEFI’s discretion at the price of KEFI’s equity at the time of conversion, rather than at a pre-arranged price or a discount (NB the consequences of these changes are considered in the ‘Valuation’ and ‘Sensitivities’ sections of the note, below).

Otherwise, the government’s policy directive requiring a maximum 50% debt gearing (defined as debt/[debt+equity]) for new projects has been waived in the case of Tulu Kapi, which has prior approval to expand the debt portion of its funding requirement to 70% of the total. In addition, clarification received from the regulator (the National Bank of Ethiopia) indicates that historical exploration spend on the project of c US$60m is considered to contribute towards equity for the purposes of this calculation.

The 95km2 Hawiah exploration licence is located in the south-west of the Arabian Shield on the 120km Wadi Bidah Volcanogenic Mineral belt. The Wadi Bidah belt is almost three times as long as the Bisha belt in Eritrea (see Nevsun) and is almost unique among the world’s volcanogenic massive sulphide (VMS) belts in that it remains, to all intents and purposes, unexplored.

KEFI announced a maiden mineral resource at Hawiah on 19 August 2020.

At prevailing metals prices (US$9,180/t Cu, US$2,837/t Zn, US$1,778/oz Au and US$25.86/oz Ag), the resource contains total metal to a value of US$2.8bn, or the equivalent of 302kt of contained copper or 1.6Moz of contained gold.

The entire deposit comprises three separate zones (see Exhibit 8), which may be summarised as follows:

In its most recent (third) phase of exploration, KEFI has confirmed that the Hawiah mineralisation remains open at depth, that the VMS style of mineralisation is continuously present directly beneath 4.5km (cf 4.0km previously) of gossanous ridgeline and that it is the source of an extensive and exceptionally strong geophysical anomaly. The massive sulphides intersected in its drill programme are reported to reflect a dominantly pyritic stratiform body containing a variable polymetallic blend of copper, zinc, gold and silver. Nevertheless, there remains considerable blue-sky potential at Hawiah. To date, the orebody has only been drilled to a vertical limit of 590m, but continues to remain open at depth. The down-dip continuation of the Camp Lode is of particular interest in this respect, where drilling results have reported grade and thickness increasing significantly with depth. Two of the deepest holes drilled (HWD_005 and HWD_059) have registered grades of 1.27% copper over a true width of 9m and 1.55% copper over a true width of 8.7m, respectively, and, if intersected in line with expectations, would extend mineralisation to a depth of c 800m and may indicate that resources are nearing the source (vent) of the VMS, where higher grade and thicker massive sulphides and stockwork-style mineralisation may typically be found. Geochemical analysis and volcaniclastic textures within the lodes have also indicated increasing proximity with depth to a potential primary feeder source.

In the meantime, drilling below the Central Zone (the 1,700m long area between the Crossroads and Camp lodes) has intersected mineralisation down to a depth of 580m (cf 80m previously) and confirmed its resource potential, as indicated by a strong induced polarisation (IP) anomaly. Finally, massive sulphides are reported to have been intersected in a drill hole 150m to the north of the Hawiah ridgeline, confirming that the mineralised horizon continues at depth even beyond the northern surface exposure in the ‘Crossroads extension area’.

Similar potential exists in the upper levels of the deposit, where the gossan portion of the mineralised zone is challenging to drill by virtue of the weathering patterns and the numerous cavity zones encountered. However, the French geological survey, Bureau de Recherches Géologique et Minières (BRGM), drilled these gossans in the 1980s, as a result of which it delineated a resource of 1.2Mt at a grade of 6.4g/t, containing 254koz gold, and management confirms that this oxidised portion of the deposit, which has demonstrated high levels of gold mineralisation, will also be further investigated.

Based on published literature, KEFI management believes that the Hawiah deposit is analogous to (albeit already bigger than) the Al Masane polymetallic VMS mine, which was the first mine in Saudi Arabia to export copper and zinc concentrates and has reported resources of 10.0Mt at grades of 1.1% copper, 4.8% zinc, 1.1g/t gold and 36g/t silver, and a similar metal composition and structural and geological settings. Note that the discovery of the stockwork zone that fed the structure now being drilled could also represent a potentially much larger bulk-mineable target analogous to the Jabal Sayid mine operated by Barrick to the north of Hawiah.

The resource reported by KEFI in Exhibit 7 is the equivalent of 19.3Mt at a grade of 1.57% copper equivalent or 2.51g/t gold equivalent, such that each tonne of ore contains US$144 (cf US$119 previously) worth of combined metals at spot prices (see Exhibit 9).

On 22 September 2020, KEFI announced the results of a preliminary economic assessment (PEA) at Hawiah. The PEA was conducted by the KEFI planning team, supported by internationally recognised specialists, including SRK, and included technical analysis, high-level assessments and trade-off studies to establish the likely key components of the mine’s potential development. Among other things, these included:

The full details of KEFI’s PEA announcement may be found here. It was also the subject of Edison’s report entitled Rose gold, published on 30 September 2020, and readers are directed towards this report for more details on Edison’s approach to calculating a value for Hawiah and its assumptions in doing so. A brief comparison of the major differences between KEFI’s and Edison’s assumptions is as follows:

Readers should note that Edison has revised its long-term prices of gold and silver very fractionally higher relative to our last note, to reflect the passage of time and inflation – that is to say, our real gold price assumption is now US$1,524/oz in 2021 money terms (cf US$1,494/oz in 2020 money terms previously), while our silver price is US$24.99/oz (cf US$24.53/oz previously).

In its PEA, KEFI considers a ‘base case’ scenario in which the mine operates at a throughput rate of 2.0Mtpa for seven years and an ‘extended’ scenario in which it operates for a further 10 years ‘at the average grade of the Camp Lode below the 1070m RL elevation’. On the basis of these assumptions, the updated financial outcomes generated by Edison from its model compare with those generated by KEFI as shown in Exhibit 10. In addition, we have also shown equivalent outcomes in the event that the current spot prices of metals (see Exhibit 9) prevail over the entire course of Hawiah’s mine life in real terms:

Several features of these outcomes are noteworthy:

In consequence and owing to the tabular and continuous nature of the mineralisation, KEFI anticipates that Hawiah can be advanced to a development decision quickly and at relatively low cost. In particular, if the resource can be expanded to make the ‘extended mine life scenario’ a reality, then KEFI expects that 75% of the project funding could be eligible for debt finance, thereby increasing the project’s (leveraged) post-tax internal rate of return (IRR) to in excess of 50%.

Following completion of the PEA and successful subsequent drilling, KEFI has commenced work on a pre-feasibility study (PFS), which is scheduled completion in Q222 followed by a mining licence application in mid-2022 and a potential start to development in 2023. With this in mind, its immediate priorities towards Hawiah are now as follows:

To these ends, the directors of KEFI’s joint venture company in Saudi Arabia, G&M, have resolved to trigger the next stage of the project, comprising:

Since our last Outlook note (Rose gold, published on 30 September 2020), KEFI has raised equity via one placing in November to raise £3m plus a number of smaller warrant issues such that the number of shares currently in issue is 2,152.9m, representing a 15.3% increase relative to the 1,867.1m that were in issue at the time of our earlier note.

As discussed previously, for the purposes of our valuation of the company, we have assumed that KEFI will raise an additional US$11m (£7.9m) in equity at the prevailing share price of 1.894p in late FY21/early FY22 in order to complete the funding of Tulu Kapi (see Exhibit 5 on page 7).

At a long-term gold price of US$1,400/oz , KEFI calculates an updated project value for Tulu Kapi (on a 100% basis) of US$184m (see slide 7 of the company’s 27 April 2021 presentation) – a 22.0% decline relative to the US$236m that it calculated in May 2020, reflecting, in particular, the increased costs discussed previously. Whereas KEFI’s financing arrangements in May last year indicated an ultimate beneficial interest in the Tulu Kapi project of 45% however, its current financing arrangements indicate a materially larger 75% interest (given that much less of the overall funding is now being financed via equity at the project level). Significantly however, the larger interest in the smaller NPV translates into a higher value per share for each of the three gold prices shown in the table below notwithstanding the increase in the number of shares in issue in the intervening timeframe:

Observing the almost perfect, straight-line relationship between the gold price and the NPV calculated by KEFI, Edison calculates that a long-term gold price of US$1,524/oz implies an NPV8 of the Tulu Kapi project of US$191m or £138m (75% interest), or 8.87 US cents or 6.43p per share.

In our report Gold stars and black holes, published in January 2019, we calculated a mean enterprise value for companies with projects at the DFS stage of development of 30.9% of project NPV, ranging up to 133.5%. At Edison’s long-term gold price of US$1,524/oz, this alone would imply a pre-funding valuation for KEFI of 1.99p/share (excluding cash) and a maximum pre-funding valuation of 8.58p/share.

On the basis of long-term price assumptions, we calculate that Tulu Kapi is capable of generating free cash flow of c £66.2m per year (cf £65.2m previously) for seven years, from 2023 to 2029 (inclusive). With average (maximum potential) dividends of 1.94p/share (cf 1.62p/share previously) for the four years from 2026 to 2029 inclusive (after deduction of a 25% minority interest), this implies a valuation for KEFI of 4.35p/share (cf 4.05p/share previously) when discounted back to FY21 at a rate of 10% per year. This valuation then rises to a maximum of 6.49p/share (5.62p/share previously) in FY26 on the cusp of KEFI’s first possible dividend payment once all debt has been repaid:

Note, however, that this valuation does not ascribe any value to KEFI’s pipeline of exploration and development targets (see below). If KEFI is successfully able to leverage its cash flow from Tulu Kapi into other assets in the region, then our updated valuation of 4.35p/share rises to 8.79p/share (note that even this would put KEFI on a peak P/E ratio of no more than 4.3x, which hardly appears excessive).

On this basis alone, we estimate that an investment in KEFI shares on 1 January 2021 at a price of 1.894p could generate an internal rate of return for investors of 23.5% over the 10 years to 2030 (fully diluted) in sterling terms.

To this may then be added 0.32–5.54p/share in value for Hawiah (see Exhibit 10) plus the value of a range of other ‘next level’ assets, discussed briefly in the section entitled ‘Exploration potential’, below.

Our base case discounted dividend flow valuation of 4.35p is inherently dependent on our gold price assumptions, cash costs, the discount rate, the price at which a future, assumed US$11.0m equity raise is conducted and the prices at which up to US$59m in charges and loans (see Exhibit 5) are converted into equity in two to three years’ time. Each of these ‘sensitivities’ is considered in turn, below.

On average it can be seen that a ±10% change in the gold price results in a 1.52p/share change in our valuation, while a ±10% change in costs results in a 0.99p/share change. At a flat, real gold price of US$1,778/oz (ie that currently prevailing – see Exhibit 9), our ‘base case’ valuation rises by 38.6%, from 4.35p/share to 6.03p/share and the IRR that an investor could expect to earn by 6.2 percentage points from 23.5% to 29.7%.

Note that these results are consistent with our calculation of an internal rate of return of 23.5% over 10 years in sterling terms for investors buying KEFI shares at a price of 1.894p on 1 January 2021 (under Exhibit 12, above).

Finally, we calculate that US$59m in charges and loans converted into equity at Edison’s valuation of KEFI’s shares in two to three years’ time (see Exhibit 5) would result in a valuation of 3.95p/share.

In addition to Hawiah and Tulu Kapi, KEFI has a number of other assets that we estimate could add a further c 1.94–8.78c (1.40–6.33p) in value to its shares, which are summarised below.

An area of over 1,000km2 adjacent to Tulu Kapi has been reserved for exploration by KEFI upon commencement of development, with a view to adding satellite deposits to development and production plans. Within this, KEFI has one immediate, major exploration target, being the Guji-Komto belt, which is a parallel structure to Tulu Kapi.

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 historical workings are located at the Komto 1 prospect. 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 Tulu Kapi mine. However, impressive widths and their oxide nature potentially qualify it as the basis of an incremental heap leach operation via the exploitation of a series of open pits. Preliminary estimates by management indicate that c 250koz of gold could be amenable to exploitation, with low-grade material being directed to heap leach pads and high-grade material to the 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 c US$30m (on account of infrastructure already being in place to service Tulu Kapi) and could have an NPV in the order of US$26–47m at the gold prices shown below (note that these are illustrative numbers only and are subject to the results of future exploration and development studies):

The gold price range over which valuations were conducted indicates that these calculations were performed in the 2013–18 gold price environment. While the following analysis – comparing the calculated NPV10 with the gold price – is presented with a number of caveats (in particular that cost assumptions remain unchanged), it nevertheless serves to demonstrate that, at a gold price of US$1,524/oz, Guji-Komto could be worth in the order of US$69.1m (or 3.05 US cents per existing KEFI share) or potentially as much as US$94.3m (or 4.16 US cents per existing KEFI share) at a flat, long-term, real gold price of US$1,778/oz.

Jibal Qutman is a mesothermal, or orogenic, quartz vein hosted gold deposit located in the Asir Terrane (see Exhibits 1 and 6). It comprises four licences covering c 100km2 of the Nabitah-Tathlith fault zone, which is a 300km-long structure with multiple outcrops at surface, along which BRGM mapped over 40 mineral occurrences and/or ancient mines. G&M was granted the Jibal Qutman exploration licence in June 2013 and 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, dipping to the east at an angle of c 45°, surrounded by parallel veins that form stringer zones around them. The deposit has now been drilled out and the sulphide portion of the resource found to be refractory on account of the presence of carbon. As a result, KEFI has 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 (cf grades of c 0.8g/t at comparable, nearby assets), containing c 200koz gold (out of a total oxide resource of 287koz – see Exhibit 19, below), at a stripping ratio of 2.2x.

Column leach tests conducted by metallurgical consultants ALS indicated gold recoveries of c 73%, as a result of which KEFI envisages developing the area via a string of pits mining oxidised material for heap leach processing.

In May 2015, a PEA 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. A summary of the results of the PEA is provided in the table below for both the existing resource and a potentially trebled resource. In addition to the formal results, which are shown for gold prices of US$1,150/oz and US$1,300/oz, Edison has also included its estimates of the same results at long-term, flat, real gold prices of US$1,524/oz and US$1,778/oz, using the same methodology – and with the same caveats – as adopted in Exhibit 18:

In due course, it is anticipated that the addition of adjoining licences could support a proportionally larger production base using a modular development model (eg 2–4x that currently assessed).

In the immediate future, KEFI’s objectives at Jibal Qutman include tenure confirmation under the new mining regulations via the grant of a mining licence, completion of a pre-feasibility study and investigating the potential to develop heap leach operations to fund construction of a CIL processing plant for the deeper (refractory) sulphide ore.

KEFI had £1.3m in net cash on its balance sheet as at 31 December 2020 (cf £2.1m as at 30 June 2020 and £0.8m in net debt as at 31 December 2019), after £6.4m in operating and investing cash outflows before working capital (cf £5.3m in FY19, £6.9m in FY18 and £6.2m in FY17) and after having raised £7.3m over the course of the 12-month period.

As stated previously, KEFI now plans to finance its US$228.2m capex funding requirement principally via debt of US$155m, project-level equity of US$25m (excluding c US$60m in equity already invested), debt convertible into equity of US$59m and parent company level equity of US$11m. On this basis, we forecast a maximum net debt funding requirement overall of £142.0m, or US$196.8m in FY22 (see Exhibit 21, below). Obviously, raising funds of this order of magnitude is not without risk for a company with a market capitalisation of £41m. However, we believe that this risk is mitigated by the fact that a preliminary term sheet regarding the terms of KEFI’s bank loan has already been signed and is subject now only to credit approval. The bank loan proposal is said to be more attractive and more straightforward to execute than the previous bond lease alternative. In addition, the proposed bank lenders are reported to be already working in Ethiopia and to be familiar with the local market and many of Tulu Kapi’s stakeholders. Hence, it is considered to be more compatible with the project’s consortium. Full finance close and drawdown is therefore anticipated soon after the end of June’s general election. In addition, material savings are expected in the cost of debt servicing, administration and other charges, especially during the project development and start-up period. Among other things, this change in funding structure reflects the fact that Ethiopia is now back on bankers’ radar screens having lifted its state of emergency and having delivered rapid and positive reforms since then. Overall, KEFI management considers the banking proposal to be more conventional than the bond lease alternative, with the added benefit that it is with parties committed to Ethiopia.