E M E R G I N G G O L D M I N E R
2018 ANNUAL REPORT
KEFI Minerals Plc ANNUAL REPORT 2018
Focused on the Arabian-Nubian Shield
Page 1
Table of Contents
Mission and Approach ............................................................................................................................................ 2
Executive Chairman’s Report ................................................................................................................................. 3
Tulu Kapi - Open Pit Production Targets ............................................................................................................4
KEFI’s Exploration Programs ...............................................................................................................................5
Capital Management ..........................................................................................................................................5
Annual General Meeting ....................................................................................................................................6
Finance Director’s Report ....................................................................................................................................... 7
Equity Funding ....................................................................................................................................................7
Partnering with Local Investors at the Project Level ..........................................................................................7
Tulu Kapi Development Funding ........................................................................................................................8
KEFI Working Capital Funding .......................................................................................................................... 10
Organisational Development ................................................................................................................................11
Social Licence .......................................................................................................................................................13
Ethiopia .................................................................................................................................................................14
Tulu Kapi - Background .................................................................................................................................... 14
Tulu Kapi – Permits and Mining Agreement .................................................................................................... 14
Tulu Kapi - Geology .......................................................................................................................................... 15
Tulu Kapi – Resources and Reserves ............................................................................................................... 15
Tulu Kapi - Definitive Feasibility Study and Subsequent Optimisation ........................................................... 16
Tulu Kapi - Development ................................................................................................................................. 17
Tulu Kapi – Potential for Underground Mine .................................................................................................. 18
Tulu Kapi –Exploration Licence Applications ................................................................................................... 19
Saudi Arabia .........................................................................................................................................................22
Saudi Arabia - Hawiah ...................................................................................................................................... 23
Saudi Arabia - Jibal Qutman ............................................................................................................................ 27
Glossary and Abbreviations ..................................................................................................................................29
Competent Person Statement ..............................................................................................................................30
Directors, Secretary and Advisers ........................................................................................................................31
Consolidated Financial Statements ......................................................................................................................32
Note: All $’s in this report are US$’s.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 1
Mission and Approach
KEFI’s mission is to cost-effectively discover or acquire economic mineralisation and to follow through with responsible
mine development and production in compliance with local laws and international best practice.
The geological region of focus is the Arabian-Nubian Shield, due to its world-class prospectivity combined with our
expertise both locally and internationally.
KEFI partners with appropriate local organisations of standing, such as ARTAR in the Kingdom of Saudi Arabia and, in
Ethiopia, local investment company ANS Mining and the Ethiopian government. Operationally, we align with industry
specialists such as Lycopodium and Ausdrill/African Mining Services - selected as our principal project contractors for KEFI’s
first development project, Tulu Kapi Gold Project in Ethiopia. KEFI was initially led by exploration specialists and now our
organisational development has seen the appointment of management teams with long-standing track records in mine
development and operation in Africa and elsewhere.
Our specific purpose at the Tulu Kapi Gold Project is set out in the Tulu Kapi Mining Agreement between the Ethiopian
Government and KEFI, which incorporates several foundation documents including development and operating plans, an
Environmental and Social Impact Assessment and the Community Resettlement Action Plan and Development Plan which
comply with International Finance Corporation (World Bank) Performance Standards and Equator Principles.
Upon triggering Tulu Kapi’s full development, KEFI intends to launch exploration programs in the district surrounding Tulu
Kapi. We have already mobilised field programs at Hawiah in Saudi Arabia within the Wadi Bidah Mineral District, which
contains large-scale VMS targets for gold and copper.
We are confident in our mission, assets, partners, and team. We look forward with great determination and anticipation
to proceed with our next chapter from KEFI’s pole position in both Ethiopia and Saudi Arabia, after what can only be
described as a long and tough establishment period with challenging geopolitics and markets.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 2
Executive Chairman’s Report
It is with great sorrow that I report the recent passing of our Chairman, Mr Mark Wellesley-Wood. He was a gentleman of
the highest integrity and discipline, a true professional who made a great contribution to the industry internationally over
decades. Mark also made a significant contribution towards the development of KEFI.
Mark joined our Board of Directors in mid-2016, eighteen months after KEFI entered Ethiopia to take control of the Tulu
Kapi Gold Project, which had over US$40 million spent on it by the previous controllers and was in need of an overhaul
both technically and financially. Mark made a significant contribution to guiding that overhaul and was also a great morale-
builder and supporter. What initially appeared to us to be an 80,000 oz per annum gold project is now planned to be
140,000 per annum gold producer. We progressed the project despite the challenges around us such as the Ethiopian
political unrest from late 2015 with States of Emergency introduced in October 2016 and finally lifted in June 2018.
In short, since taking control of Tulu Kapi, we spent a further US$20 million on what is now a robust project. Various
development activities have already started – the Government of Ethiopia has committed US$20 million (Ethiopian Birr
equivalent) to install the offsite infrastructure in exchange for earning project equity and has started the detailed design
and tender preparation process. We expect to shortly see full development programs initiated by the project subsidiary
Tulu Kapi Gold Mines Share Company (“TKGM”) with the support of the three project partners – KEFI, the Ethiopian
Government and our Ethiopian private sector partner, ANS Mining Share Company (“ANS Mining”), which has committed
a total of US$38 million (Ethiopian Birr equivalent) staged in two tranches. The next step is community resettlement and
detailed engineering and procurement for the on-site infrastructure. Then full funding can be closed and major
construction works can commence.
Subject to receiving a confirmatory letter from the Ethiopian central bank as regards already-agreed project finance terms,
we will have received all regulatory consents and financial commitments to trigger the development program (starting
with community resettlement and detailed engineering and procurement). What remains then is for TKGM’s next equity
funding round to close with ANS Mining. The terms for the first tranche of US$11.4 million (Ethiopian Birr equivalent) have
already been agreed and we are assembling the updates to TKGM shareholder agreements on already-agreed terms and
liaising with the regional government to grant permission to start the resettlement of the community. Whilst KEFI remains
reliant on the performance of its counterparties, this intertwined set of steps is now in hand.
KEFI now sits at the forefront of our sector in one of the world’s great under-developed minerals provinces – the Arabian-
Nubian Shield (“ANS”). We have established a solid platform to pursue our ambition to discover and develop profitable
mining opportunities in Ethiopia and Saudi Arabia and thus build shareholder value. This has been done despite a time of
weak geopolitics and market cycle. There have been consequential timetable slippages and increases in the cost of capital
that has resulted in shareholder dilution.
I would like now to look forward and refer to certain aspects of the environment that we work within, as well as the
specifics about our own situation and plans.
Firstly, the wider environment for gold and the companies within the junior gold mining sector: according to the World
Gold Council, central banks lifted their gold purchases by 68% in the first quarter of 2019 and we have concurrently seen
a sharp recovery in investor sentiment in both equity and debt markets. On the other hand, it is obvious to KEFI
shareholders that this recovery has not flowed through to our sector of explorer-developers as indicated by the VanEck
Junior Gold Miners ETF - which is still trading at levels of only circa 20% of when the gold price peaked in 2011. So, whilst
it appears that the current global macro environment is now conducive for an increase in gold sector indices from current
cyclical lows, such an increase has yet to occur.
With regards to the geopolitical environment of the countries within which we operate: - with hindsight we can see that
the political and regulatory environment of Ethiopia and Saudi Arabia severely restricted our progress until recently. Not
only did we have the States of Emergency in Ethiopia, but in Saudi Arabia minerals tenements were effectively frozen
pending an overhaul of many aspects of the Saudi Government. It is a relief that we can can also see that both countries
took major steps forward during 2018, with newly-appointed pro-development Government leadership in both countries
making huge improvements including within our sector.
Fortunately KEFI’s standing in both countries is that of a steadfast and respected operator of joint ventures with strong
local partners and exciting ground positions. Thus we are well positioned to benefit from this new environment. In our
view KEFI has control of the most attractive project in each country : in Ethiopia we control the only ready to develop
project which also comes with a reserved area of 1,900 square kilometres of the surrounding district containing many
advanced drill-out targets for satellite deposits. In Saudi Arabia we control a 120 kilometre long belt containing 24
Volcanogenic Massive Sulphide (“VMS”) systems, any one of which has the potential to be a company maker.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 3
Against this improving backdrop of a great land position, improved markets and geopolitics, KEFI will push forward and
should, we believe, be in a more supportive environment than has been evident for some time. We believe that we have
the opportunity to make rapid progress and to stand-out in what will sooner or later be a cyclical turnaround for the sector.
This targeted success will have resulted from our focus and tenacity over the past years and should be opportune timing
for the start up of our first operating unit and for us to also go onto the front foot with exploration in both Ethiopia and
Saudi Arabia.
Our first production is planned at Tulu Kapi in the Oromia Region of Western Ethiopia. The planned Tulu Kapi open pit gold
mine and processing facility is typical of many such “open-pit-CIL-gold-projects” around the world and uses standard
technology and industry practices long-applied in mature highly-regulated mining jurisdictions such as Scandinavia,
Australia and North America. Tulu Kapi has a 1.0 million ounce gold ore reserve and 1.7 million ounce mineral resource.
Tulu Kapi will also provide an operating base in the heart of Ethiopia’s most prolific gold district where gold has been mined
for millenia.
From a social-licence viewpoint, it is notable that the KEFI-controlled licencee and operating company TKGM is a joint
Ethiopian-KEFI company with long-standing community support and a strong commitment to maximising local
participation in the workforce and supply chain. TKGM, like KEFI, emphasises transparency in all dealings and compliance
with leading international standards for social and environmental aspects including World Bank IFC Principles and the
Equator Principles. Whenever civil unrest has affected our area, the local community and authorities have protected TKGM.
From a price-risk viewpoint, we have designed the development and finance plans to withstand a flat gold price for the
next ten years of US$1,050/oz – which is the lowest gold price experienced in the past five years. The average gold price
during the past five years was approximately US$1,300/oz and that has been adopted as KEFI’s base case flat gold price
assumption for financial projections for the next ten years.
From an upside maximisation viewpoint, it is notable that KEFI has reserved the exploration rights to an area of 1,900
square kilometres of prospective ground with walk-up drill targets within trucking distance of Tulu Kapi. It is also notable
that a 10% increase in either production or gold price above our base case assumption of 140,000 oz p.a. and US$1,300/oz,
increases project NPV by c. 50%. And it is also notable that the upside potential of our ground position in Ethiopia is actually
surpassed by that in Saudi Arabia, albeit earlier days for those projects.
Our current schedule is to commence the full development program in Ethiopia as soon as possible upon closing of the
next project-equity injection and to trigger the first phase of community resettlement when so instructed by the Regional
Authorities, to target commissioning Tulu Kapi towards the end of 2020, with full gold production from mid-2021 at an
average annual rate of 140,000 ounces from the open pit. Because of recent looting and isolated incidents of inter-ethnic
violence, we liaise with the authorities to ensure safe processes at all times commencing with resettlement phase I.
Tulu Kapi - Open Pit Production Targets
KEFI’s financial targets for the Tulu Kapi open-pit include:
• Gold production of 140,000 ounces per annum for seven years;
• At a flat average gold price of US$1,300/oz:
o All-in Sustaining Costs of c. US$800/oz (ignoring financing charges);
o All-in Costs (“AIC”) c. US$1,000/oz;
o After-tax, leveraged IRR of 56%;
o After-tax, leveraged NPV (8% discount rate) of US$117 million at start of construction;
o After-tax, leveraged NPV (8% discount rate) of US$193 million at start of production;
o Payback of 3 years; and
o Average EBITDA of US$80 million per annum and average net cash flow (after debt repayments and all
planned commitments) of US$30 million per annum.
• A circa 50% increase in NPV results from either a 10% increase in gold price or a 10% increase in product output.
Our development plan reflects, among other things, a fixed price, lump-sum processing plant “design and supply contract”
with Lycopodium and a warranted ore processing rate of 1.9-2.1 million tonnes per annum. The plant assembly aspect of
the development is planned as a reimbursable cost-based arrangement. The overall contractual package for the process
plant includes incentives and penalties for performance and ongoing operational support as required. The mining services
agreement is a conventional schedule of rates agreement under which Ausdrill subsidiary African Mining Services provides
the mining equipment, systems and operators and gets paid for performing according to the KEFI/TKGM plans and
directions.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 4
KEFI bases the finance structure on the numbers and schedules in the 2018 Plan, founded on the JORC (2012) based Ore
Reserve Report (Snowden 2015), and the refined Definitive Feasibility Study as optimised with the principal contractors.
We have then run a range of sensitivity analyses to ensure robust coverage of fixed obligations under a range of scenarios.
The plans and sensitivity analyses have then been reviewed by the Independent Technical Expert (Micon 2018).
KEFI’s Exploration Programs
The ANS has been the Company’s primary focus since 2008 when KEFI was invited to be the operator of an exploration
joint venture in the Kingdom of Saudi Arabia. Our experience since then has reinforced our excitement by the opportunity
provided and we have since established our pole position in the region.
KEFI has, through its local-joint venture companies, a nearly 3,000 square kilometre portfolio of exploration properties at
various stages within the highly prospective ANS. We have formulated an ambitious exploration program to advance in
parallel with the development at Tulu Kapi.
In Saudi Arabia exploration of the Wadi Bidah Mineral District (“WMBD”) is our primary focus as this provides the potential
for discovery of world-class gold-copper deposits. The WMBD is a large area with 24 large VMS systems having been
identified. Field work has commenced at the Hawiah Exploration Licence with drilling scheduled for later in 2019. Other
VMS systems have already been developed within the ANS in recent years, with several being of a scale many times that
of our Tulu Kapi Gold Project.
As usual since our entry into Saudi Arabia in 2008, the tenement applications are made by ARTAR on behalf of our joint
venture company Gold & Minerals Limited (“G&M”), which is owned 40% by KEFI and 60% by ARTAR. This has proved
efficient for a number of reasons and KEFI has the right to instruct that the tenements be transferred to G&M.
Early on, we demonstrated the prospectivity of our tenements by discovering gold at Jibal Qutman in Saudi Arabia and
quickly delineated Mineral Resources totalling 733,000 ounces of near-surface gold. That was a good start and further
drilling has a very good chance of increasing oxide gold resources on the granted Exploration Licence (“EL”) and
surrounding pending ELAs. But, in the meantime, that project is on hold awaiting Mining Licence tenure confirmation whilst
we focus on the much bigger play at WBMD.
In Ethiopia, we are also keen to test VMS prospects on our application areas under KEFI subsidiary KEFI Minerals (Ethiopia)
Limited (“KME”) in which high-grade copper and gold has been drilled.
The most advanced exploration target is the continuation of the Tulu Kapi deposit below the planned open pit. There is
significant potential to expand Tulu Kapi’s Mineral Resource as it remains open along strike, down plunge and at depth.
The economic potential is also enhanced by the gold grades increasing with depth as well as the ore lenses thickening,
making underground mining potentially attractive. Average grade of the Mineral Resource below the planned open pit is
5.7 grammes per tonne.
A number of other gold prospects have been identified within trucking distance of Tulu Kapi. Proposed exploration activity
will be significantly expanded with this focus, as these prospects have the scope and potential to add substantial value by
providing additional ore to the Tulu Kapi processing facility.
The potential of the ANS has recently been more widely recognised and the world’s two largest gold companies, Barrick
Gold and Newmont Mining, are now active in Saudi Arabia and Ethiopia respectively.
Capital Management
The business model of the Company has always been to raise equity capital to fund the next stage of exploration and
development. At the same time, KEFI has worked hard to minimise Tulu Kapi’s development funding requirements through
engineering, contracting and project finance, which have been designed to provide an economically robust project and an
appropriate financing plan. Nearly all capital requirements are to be met at the project level by the combination of project
contractors, partners and financiers.
Looking forward, the Company’s projections show significant value generating upside to shareholders from Tulu Kapi alone,
let alone from the pipeline of other value-adding opportunities.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 5
Annual General Meeting
We are extremely grateful for the patience and support of the community in Tulu Kapi, the contractors Ausdrill and
Lycopodium, our hard-working small organisation of highly-experienced personnel and, of course, our extremely patient
shareholders. We run a tight and low-cost operation with all our key people and their families are themselves shareholders.
We would welcome the opportunity to meet shareholders at the Annual General Meeting at 11am on Friday 28 June 2019
at Marlin Hotel, 111 Westminster Bridge Road, Waterloo, London, SE1 7HR. After the formal meeting, we will have an
informal presentation and discussion. Those of you who are unable to attend are encouraged to submit questions to
info@kefi-minerals.com.
Yours faithfully,
Harry Anagnostaras-Adams
Executive Chairman.
4 June 2019
KEFI Minerals Plc ANNUAL REPORT 2018
Page 6
Finance Director’s Report
Before reporting our activities and plans, I would like to set out some of the foundations of our financing philosophy. First,
because of the weak stock market for our sector in recent years, we have arranged nearly all of the capital for the
development of Tulu Kapi at the project level, in TKGM. And because of our tight cost control, we run our corporate office
in Nicosia at a fraction of what the cost would be in London. The management and control and the substance of the
Company is located in Cyprus. Other than our Nicosia-based corporate management and financial control and corporate
governance team, all operational staff are based at the sites for project works. In order to further reduce cash outflows
and align management and shareholders, all senior management and some other service providers agreed to take KEFI
shares in lieu of a significant portion of salary or fees.
The delays over the past few years, during which both Ethiopia and Saudi Arabia have undergone substantive political
changes, cost KEFI dearly in having to raise capital at disappointingly low share prices to fund our activities. And whilst we
cannot underestimate the work ahead to close all our financings and start development, we can certainly say that we have
assembled a first-class platform to complete the task.
Equity Funding
KEFI’s acquisition of the Tulu Kapi Gold Project in 2014 also brought to our Company all the shareholders of the previous
project owner. To strengthen the share register at that time, we introduced two major UK financial institutions as KEFI
shareholders. Those particular institutions have since liquidated their junior mining portfolio including their KEFI holdings.
Today we have a number of smaller institutional shareholders such as African-focused investment funds and the only
shareholders with over 10% of the Company are the combined holdings of management and contractors.
In June 2018, KEFI completed a £5.5 million placing of ordinary shares at 2.5p per share, with existing and new
shareholders, contractors and senior management.
In December 2018, KEFI shareholders approved a £4 million secured working facility convertible at 2p per share, with long-
standing shareholder Sanderson Capital Partners Limited, with fees payable in shares at 2 pence per share, in lieu of
interest.
Partnering with Local Investors at the Project Level
Project level funding arrangements are summarised in the chart below.
Proposed Finance Structure
KEFI Minerals Plc ANNUAL REPORT 2018
Page 7
Partnering in Saudi Arabia
In the Kingdom of Saudi Arabia, KEFI conducts all its activities through Gold and Minerals Co. Limited (“G&M”), our joint
venture company with Abdul Rahman Saad Al Rashid and Sons Limited (“ARTAR”). KEFI is operator with a 40% interest and
ARTAR has 60%. KEFI is fortunate to have such a large and strong Saudi group as a partner.
G&M has assembled a large and prospective portfolio of exploration licences and applications. Having made a gold
discovery at Jibal Qutman and pegged a large prospective portfolio of targets elsewhere, the joint venture looks forward
to development and expansion in the minerals sector which the Saudi Government has made a national strategic priority.
Partnering in Ethiopia
KEFI has signed agreements to establish joint venture companies in Ethiopia, with partners from both the Government
sector and private sector.
KEFI’s wholly-owned subsidiary KEFI Minerals (Ethiopia) (“KME”) and the Government of Ethiopia formed Tulu Kapi Gold
Mines Share Company (“TKGM”) in 2017 as the project company for developing Tulu Kapi. The exploration projects outside
the Tulu Kapi Mining Lease area are not part of TKGM and remain within KME.
In May 2017, the Government of Ethiopia formally committed to a US$20 million equity investment in TKGM.
In February 2018, the Ethiopian Ministry of Mines, Petroleum and Natural Gas formally transferred the Mining Licence
from KME to TKGM in accordance with the agreed plan.
In September 2018, KEFI reached agreement with an Ethiopian investment syndicate named ANS Mining Share Company
(“ANS Mining”) for a proposed equity investment in TKGM for the Ethiopian Birr equivalent of US$30 million. ANS Mining
has subsequently agreed to increase its equity commitment from US$30 million to US$38 million. Two-thirds of the ANS
Mining investment is for a 22% equity interest in TKGM and the remaining one-third is for a 20% equity interest in KME.
Based on current estimates of capital spending and capital contributions, KEFI will be majority owner of KME which in turn
will be majority shareholder of TKGM. Upon closing of project finance, the ownership of the Tulu Kapi Gold Project via
TKGM would be circa:
•
•
•
22% by the Ethiopian Government;
22% by ANS Mining; and
56% by KME.
KME would be owned 80% by KEFI and 20% by ANS, which results in KEFI’s beneficial ownership of TKGM being c. 45% and
ANS Mining’s beneficial ownership of TKGM being c.33%.
The Government has approved its budget allocations for the TKGM investment and has started the associated works it
needs to fund. Project equity investment by ANS Mining is the next step in the plan and will allow project development to
commence with equity funds from the three partners in TKGM (KEFI, Government and ANS Mining) to forestall the
schedule for drawing down (and in due course repaying) the non-equity funding.
Tulu Kapi Development Funding
The Tulu Kapi Gold Project consortium now includes KEFI, the Government of Ethiopia, the project contractors Lycopodium
and Ausdrill, ANS Mining, and the proposed infrastructure financiers.
Excluding the past investment of c. US$55-US$60 million to the end of 2018 and also excluding the c. US$50 million mining
equipment supplied by the mining contractor, the overall US$242 million funding plan for Tulu Kapi is summarised in the
tables in the table below:
KEFI Minerals Plc ANNUAL REPORT 2018
Page 8
Application of Funds
On-site Infrastructure
Mining
Off-site Infrastructure
Owner's Costs (community, working capital, management, spares, contingency,
Interest during grace and other finance effects
Aggregate Funding Requirements
Sources of Funds
TKGM Equity 2019
- Government
- ANS Mining
- KEFI
Sub-Total
Working Capital Facility
Infrastructure Finance
Aggregate Sources
US$
millions
106.3
28.6
20.0
54.5
32.8
GBP
millions
81.8
22.0
15.4
41.9
25.2
242.2
186.3
US$
millions
GBP
millions
20.0
38.0
10.0
68.0
14.2
160.0
242.2
15.4
29.2
7.7
52.3
10.9
123.1
186.3
Note: The KEFI equity 2019 contribution sourced from cash, working capital facility and refunds on closing of full funding.
In May 2018, KEFI announced that it formally mandated ACT Capital the bond arranger for the infrastructure finance, to
be sourced from the placement of US$160 million of Listed Infrastructure Bonds (the “Bonds”). Having completed
independent reviews of the project, this process is currently awaiting TKGM triggering the bond-implementation program
which can proceed upon receipt of the final clearance of the structure from the Ethiopian central bank.
Upon successful completion of all compliance procedures including due diligence, documentation and private placement
of the Bond issue, the planned Luxembourg-listed Bonds will fund ownership by the Luxembourg-regulated Finance SPV of
the gold processing plant and ancillary infrastructure at the Tulu Kapi Gold Project for lease to TKGM.
Subscription of the planned infrastructure finance will be timed to accommodate project construction activities.
Indicative terms for the infrastructure finance Bonds include a 9-year tenor with a 2.5-year grace period. The overall
amount of the funding package includes planned safety buffers to protect the Bond Investors.
The plant and ancillary infrastructure will be built and its performance guaranteed by Lycopodium, which is one of the
leading gold plant specialist engineering groups and has an exemplary track-record in Africa, where it has built many such
plants for over 20 years.
The open pit mine will be built and operated by Ausdrill, through its wholly-owned subsidiary, African Mining Services
Limited, which has been a leading African mining contractor for over 25 years.
The off-site infrastructure will be built and operated by the Ethiopian Roads Authority and the Ethiopian Electric Power
Corporation. Both of these Ethiopian Government entities have received budget approval and are readying sub-contractor
tender documentation.
Subject to receiving a confirmatory letter from the Ethiopian central bank as regards some already-agreed but formally
outstanding matters, the Ethiopian Finance Ministry and Central Bank will have approved the terms of the proposed project
finance package, subject to approving final closing documentation. These terms include the right to use leasing, a
debt/equity capital ratio of up to 70/30, recognition of historical expenditure in the calculation of the capital ratio, the
right to use gold price hedging and the application of market-based long-term fixed interest rates. Whilst these matters
are conventional mining project finance terms, they are new to Ethiopia and it has been considered important to ensure
all stakeholders are in full agreement before commencing activities on the ground.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 9
Once these closing requirements are confirmed by KEFI to ANS Mining, TKGM expects to receive the initial US$11.4 million
(Ethiopian Birr equivalent) subscription. This will place TKGM in the position that all three of its shareholders (KEFI,
Government and ANS Mining) are contributing to the equity funds being used to kick off the two-year development
program. KEFI and the Government have already been contributing.
The local Government has approved the community compensation and TKGM is preparing to trigger the first phase of
community resettlement when cleared to do so by the Regional Government. Likewise, the infrastructure finance program
must comply with its own regulatory compliance requirements. Whilst that process has already completed formal reports
from the Independent Technical Expert (Micon) regarding the project technical aspects and associated risk reports,
implementation is suspended and awaits KEFI/TKGM confirmation that it is ready to trigger full implementation. The
planned sequence is to kick-off development with project equity capital and to close the balance of the full project funding
package before starting major construction works. This sequencing serves a number of important purposes, including that
it extends the production ramp-up period and consequential cash build-up before debt-service commitments commence
at the end of the project-finance grace period.
Whilst the challenges of structuring and implementing project financing in emerging or frontier markets have created the
many reported delays and costs, the finance plan is reasonably conventional for mining project finance internationally and
we are now in the stages of implementation for development start-up.
The balance sheet of TKGM at full closing of all project finding will reflect all equity subscriptions which are currently
estimated to exceed US$120 million (Ethiopian Birr equivalent) along with the all assets and liabilities in accordance with
IFRS.
Accounting Policy
KEFI writes off all exploration expenditure.
KEFI’s carrying value of the investment in KME, which hold the Company’s share of the Tulu Kapi Gold Project currently
under development is £ 4.6 million as at 31 December 2018. It is important to note KEFI’s planned 45% beneficial interest
in the underlying valuation of Tulu Kapi Gold Project is £41 million at 31 December 2018 based on project net present
value.
In addition, the balance sheet of TKGM at full closing of all project funding will reflect all equity subscriptions which are
currently estimated to exceed £94 million or US$120 million (Ethiopian Birr equivalent).
KEFI Working Capital Funding
The planned project-level funding is all aimed at allowing TKGM to stand on its own feet when it is reasonably possible,
with its three supportive shareholders along with its project financiers and contractors.
Pending TKGM becoming self-sufficient, KEFI has continued to provide all management and financial support required and
will continue to do so as required as TKGM establishes its structures. The ability of KEFI to maintain its support for TKGM
whilst it establishes itself is based on its own support in the capital markets and an appropriate reference to going concern
risk is provided in the Audit Report, as has been the case since the formation of the Company.
The financial support provided by KEFI for TKGM has been sourced by KEFI from issues of ordinary equity capital and we
recently introduced a convertible, secured working capital facility from a long-standing shareholder. From time to time we
have availed ourselves of short-term bridging advances for working capital from other supportive shareholders.
The KEFI Notice of Annual General Meeting include several proposed resolutions to provide Directors with requested
refreshment and updating of delegated authorities and ensuring adequate flexibility in managing working capital whilst
proceeding with the implementation of full project finance closing for Tulu Kapi Gold Project and other activities planned
for the next twelve months.
John Leach
Finance Director
4 June 2019
KEFI Minerals Plc ANNUAL REPORT 2018
Page 10
Organisational Development
As KEFI Minerals prepares to develop Tulu Kapi, the Company’s senior management team was expanded in early 2018 with
the appointments of the following individuals to the senior team alongside the Executive Chairman and Finance Director:
• David Munro, Operations – mining engineer who previously was Managing Director of Billiton BV and President
Strategy and Development of BHP Billiton;
•
Eddy Solbrandt, Systems – founder of GPR Dehler, an independent, international management consultancy which
specialises productivity improvement for mining companies worldwide;
• Brian Hosking, Exploration and Technical Planning – originally a geologist, he founded Meyer Hosking and has
also focussed on human resources for the mining industry; and
• Norman Green, Head of Projects – founder of Green Team International, a longstanding project management
consultancy to the extractive industries.
The expanded senior executive team supports the subsidiary Boards and operating teams on the ground.
Wayne Nicoletto is Managing Director, Ethiopia – a metallurgical engineer who has led the start-up and operation of mines
in Africa and elsewhere over many years. Appointments have also been made within the team under Wayne including
Project Manager AK Roux and Senior Site Services Manager Pete Smith who work with External Relations Head Dr Kebede
Belete and others in our great social licence and project planning teams.
Jeff Rayner is Exploration Adviser, since stepping down as Managing Director in 2014.
The Boards of Directors of KEFI and the joint venture companies have also evolved over the past year as the Company
prepares for its next chapter.
KEFI
•
•
TKGM
In July 2018, KEFI separated the roles of Chairman and Managing Director. Mark Wellesley-Wood assumed the
role of Non-Executive Chairman and Harry Anagnostaras-Adams the role of Managing Director. Following the
passing of Mark Wellesley-Wood in late April 2019, Harry Anagnostaras-Adams resumed the role of Executive
Chairman, and that role will be adjusted appropriately as we proceed.
In September 2018, Mark Tyler was appointed to the KEFI Board as an additional independent Non-Executive
Director. Mark was previously a mining investment banker in London and South Africa, including as co-head of
Mining and Resources Finance at Nedbank, a South African bank. He is currently also a senior resources advisor
to Exotix Capital and the London representative for Auramet International, a precious metal merchant financier.
He therefore brings considerable mining finance expertise to the Board.
The TKGM Board of Directors comprises four directors from KEFI (including the chairman with casting vote), two directors
from each of the other two shareholders:
•
•
•
The directors from the Ministry of Finance of the Government of Ethiopia are Ato Getachew Negera, Ministerial
Policy Adviser, and Ato Bochu Sentayehu, Director-Legal of Ministry of Finance;
The directors from ANS Mining are Ato Hailemelekot Teklegeorgis (former Federal State Minister of Finance and
current chairman of a major Ethiopian bank) and Ato Wondwossen Zeleke (long-standing natural resources senior
executive in Ethiopia and internationally); and
The directors from KEFI are Harry Anagnostaras-Adams (Chairman), John Leach, Wayne Nicoletto (Managing
Director), Kebede Belete (external relations).
KEFI Minerals Plc ANNUAL REPORT 2018
Page 11
ANS Mining has also nominated two special advisers to the TKGM Board:
• Ato Zafu Eyessuswork Zafu (former chairman of Ethiopian Chamber of Commerce and current chairman of a major
Ethiopian bank and insurance group); and
• Major General Alemshet Degife (former head of the Ethiopian Air Force).
An ANS foundation shareholder and Director, Ato Demissie, is a leading investment banker who has played a key role in
various key business development initiatives in Ethiopia and is doing likewise in the case of the gold sector and TKGM
specifically.
G&M
The G&M Board of Directors comprises three from ARTAR and two from KEFI:
Sheik Abdulrahman al Rashid (Chair), Sulaiman al Rashid and Omran al Rashid; and
•
• Harry Anagnostaras-Adams and Brian Hosking (Chief Executive).
The Boards are confident of our strategy and asset base. We have the appropriate mix of local leaders and industry-
experienced technical and financial expertise to prudently progress our projects into profitable mines and we have an
organisational development plan for each entity which will see requisite human resources added with recruitment as we
progress.
A key feature of the KEFI approach is for the operating companies to become truly local companies with maximum local
employment to be developed as early as responsibly possible. For instance, at TKGM more than 1,000 jobs are being
created through the region around Tulu Kapi during construction.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 12
Social Licence
Corporate social responsibility is an often over-used term but in KEFI’s case it is a core function which today dominates our
daily activities in Ethiopia in particular because of the profound changes we are about to introduce to a farming community
in Western Ethiopia.
Detailed plans have been set out and approved by the authorities and are designed to comply with Ethiopian law and also
international standards, summarised in International Finance Corporation (a division of the World Bank) principles and the
Equator Principles.
The Tulu Kapi project has never been interrupted in the 14 years of its activities, including the recent years of civil unrest.
This record reflects the great care and discipline applied in community engagement and participation. The community not
only supports the project, but the project is integrated into the community very deliberately and consistently.
The following conceptual summary slide captures some of the key aspects of our social licence.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 13
Ethiopia
Following completion of the DFS in 2015, Tulu Kapi continued to progress towards development with the appointment of
contractors and subsequent work to further improve project economics.
Gold production is currently estimated to average 140,000 ounces per annum over the seven years of mining the open pit.
Estimated All-in Sustaining Cost is in the order of US$800/ounce, much lower than the industry average.
All aspects of the Tulu Kapi (open pit) gold project have been reported in compliance with the JORC Code (2012) and
subjected to reviews by appropriate independent experts. These plans now also reflect agreed construction and operating
terms with project contractors.
Ore Reserves of 1.0 million ounces and Mineral Resources of 1.7 million ounces have significant upside potential.
Tulu Kapi - Background
is
Tulu Kapi
located approximately
360km due west of Ethiopia’s capital,
Addis Ababa. A main road to Addis Ababa
has now been sealed to within 12km of
Tulu Kapi.
The altitude of the project area
is
between 1,600m and 1,765m above sea
level. The climate is temperate with
annual rainfall averaging about 150cm.
The surface topography around Tulu Kapi
is hilly with deeply dissected river valleys.
Subsistence
farmers primarily grow
coffee, crops and fruit.
The Tulu Kapi gold deposit was
discovered and mined on a small scale by
an Italian consortium in the 1930s. Nyota
Minerals Limited acquired the project in
2009 and then undertook extensive
exploration
which
culminated in an initial DFS in December
2012.
drilling
and
Location of Tulu Kapi in Ethiopia.
Tulu Kapi – Permits and Mining Agreement
The Tulu Kapi Mining Agreement (“MA”) between the Ethiopian Government and KEFI was also formalised in April 2015.
The terms of the MA include:
• Renewable 20-year Mining Licence covering an area of 7km2, with full permits for the development and operation
of the Tulu Kapi gold project.
Fiscal arrangements:
•
o 5% Government free-carried interest;
o Royalty of 7%;
o
o Historical and future capital expenditure is tax deductible over four years; and
o
Stabilisation of fiscal arrangement to protect KEFI in case of future legislative changes.
Income tax rate for mining of 25%;
• Government undertaking to facilitate international financing arrangements for this new project in this new sector.
Attachments to the MA include the Environmental and Social Impact Assessment, the Development and Production Work
Programme and the Community Resettlement Action Plan.
Some key approvals are now on the critical path for the project financing to close according to schedule.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 14
Tulu Kapi - Geology
The Tulu Kapi region has typical Precambrian geology which is characterised by prominent hills of intrusive rocks and deeply
incised valleys containing metasediments and metavolcanic rocks.
Gold at the Tulu Kapi deposit is hosted in quartz-albite alteration zones as stacked sub-horizontal lenses in a syenite pluton
into which a swarm of dolerite dykes and sills have been intruded. Gold mineralisation extends over a 1,500m by 500m
zone and is open at depth (+550m). The mineralisation is characterised by a simple mineralogy comprising gold, silver,
pyrite and minor sphalerite and galena. The gold is free milling with metallurgical recoveries averaging 93% for oxide and
sulphide ore in the planned open pit.
At depth beneath the main body of mineralised syenite there is a zone adjacent to the Bedele shear that is characterised
by significantly higher gold grades, with occasional coarse visible gold, more base metal sulphides and a shallower dip than
the main body above it. KEFI geologists have steadily increased their understanding of the Tulu Kapi orebody and utilising
this knowledge as part of the systematic search for nearby gold deposits.
Tulu Kapi – Resources and Reserves
The Tulu Kapi Mineral Resources total 20.2 million tonnes at 2.65g/t gold, containing 1.72 million ounces. As summarised
in the table below, c. 94% of the Mineral Resources are in the Indicated category.
Resource
Category
Indicated
Inferred
Sub-Total
Indicated
Inferred
Sub-Total
Indicated
Inferred
Total
Area
Tonnes
(millions)
Above
1,400m RL
Below
1,400m RL
Overall
17.7
1.3
19.0
1.1
0.1
1.2
18.8
1.4
20.2
Gold
(g/t)
2.49
2.05
2.46
5.63
6.25
5.69
2.67
2.40
2.65
Contained Gold
(million ounces)
1.42
0.08
1.50
0.20
0.02
0.22
1.62
0.10
1.72
Note: Resources were estimated using cut-off grades of 0.45g/t gold above 1,400m RL and 2.50g/t gold below
1,400m RL. For further information, see KEFI announcement dated 4 February 2015.
The Mineral Resources were split above and below the 1,400m RL to reasonably reflect the portions of the resource that
may be mined via open pit and underground mining methods, respectively.
The Tulu Kapi Ore Reserves were based on the Indicated Resource above 1,400m RL and total 15.4 million tonnes at 2.12g/t
gold, containing 1.05 million ounces. As detailed in the table below, the high-grade portion of the Ore Reserve contains
nearly all the contained ounces and totals 12.0 million tonnes at 2.52g/t gold, containing 0.98 million ounces. This split
shows that 78% of the ore tonnes and 93% of the contained gold is contained in the higher-grade zones of the Ore Reserve
which are processed preferentially in the eight production years.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 15
Reserve
Category
Cut-off
(g/t gold)
Tonnes
(millions)
Probable - High grade
0.90
Probable - Low grade
0.50 - 0.90
Total
12.0
3.3
15.4
Note: Mineral Resources are inclusive of Ore Reserves.
Gold
(g/t)
2.52
0.73
2.12
Contained Gold
(million ounces)
0.98
0.08
1.05
The above Mineral Resources and Ore Reserves were estimated using the guidelines of the JORC Code (2012).
Tulu Kapi - Definitive Feasibility Study and Subsequent Optimisation
Following KEFI completing the 2015 Definitive Feasibility Study (“2015 DFS”) in June 2015, the cost estimates and mine
plan were refined further and summarised in the 2017 DFS Update of May 2017. These refinements were the product of
collaboration between the KEFI project management team, its specialist advisers and the project contractors -
Ausdrill/African Mining Services and Lycopodium.
The 2015 DFS and 2017 DFS Update planned to preferentially process higher-grade ore (mined above cut-off grade of
0.9g/t gold) and to stockpile ore mined at grade 0.5-0.9g/t gold.
In May 2018, KEFI released the 2018 Plan which incorporated further refinements by the project funding consortium.
Whilst resources and reserves and the mine plan remain essentially unchanged, the planned processing plant has been
expanded to a nameplate of 1.9-2.1Mtpa, in order to expand early cash flows by reducing stockpiles.
The 2018 Plan is supported by the:
•
•
•
•
•
draft mining services agreement with Ausdrill;
draft plant design, supply and construction contracts with Lycopodium;
confirmations of commitment and schedule for roads and power from Ethiopian Roads Authority and Ethiopian
Electricity & Power Corporation;
draft operational arrangements with the explosives, fuel, laboratory services, refiners and other ancillary support
services; and
the draft report by the independent technical experts for the lenders.
The implementation plans have been agreed on a base schedule of 24 months from drawdown of project finance to first
gold pour. Incentivised arrangements are proposed for faster start-up.
This work has delivered even more robust gold project than in KEFI’s 2015 DFS as shown in the table below.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 16
Waste:ore ratio
Processing rate warranted
Total ore processed
Average head grade
Gold recoveries
2015 DFS
13-year LOM
(owner mining)
7.4:1.0
1.2Mtpa
15.4Mt
2.1g/t gold
91.5%
Annual steady-state gold production
95,000 ounces
Total LOM gold production
961,000 ounces
All-in Sustaining Costs
$724/oz
All-in Costs (incl. initial capex)
Average net operating cash flow
Payback
Notes:
$50M p.a.
3.5 years
2017 DFS Update
10-year LOM
(contract mining)
7.4:1.0
1.5-1.7Mtpa
15.4Mt
2.1g/t gold
93.3%
115,000 ounces
980,000 ounces
$801/oz
$937/oz
$60M p.a.
3 years
2018 Plan
8-year LOM
(contract mining)
7.4:1.0
1.9-2.1Mtpa
15.4Mt
2.1g/t gold
93.3%
140,000 ounces
980,000 ounces
$793/oz
$973/oz
$73M p.a.
3 years
• The above metrics assume a gold price of $1,250/oz for the 2015 DFS and $1,300/oz for the 2017 DFS Update and 2018 Plan.
• Life of Mine (“LOM”) is the time to mine the planned open pit only.
• Gold production and net operating cash flow are for the first eight years of gold production.
Tulu Kapi - Development
Tulu Kapi will be a conventional open-pit mining operation with a CIL processing plant. The mine will be connected to
Ethiopia’s electricity grid via a new 47km long, 132 kV dedicated power line relatively close to the country’s major hydro
power-generation source. An emergency diesel power plant will also be installed to provide emergency backup power to
critical process equipment in the event of a grid power failure.
Tulu Kapi is permitted for development and operation. The work currently being undertaken should ensure construction
can proceed quickly and efficiently once funding is in place. Ancillary licences and permits are expected to be dealt with
expeditiously as development progresses. KEFI Minerals works closely with the various ministries and government
organisations involved with the project.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 17
Trenching at Tulu Kapi
Tulu Kapi – Potential for Underground Mine
The Tulu Kapi orebody is amenable to underground mining as ground conditions are good, Ore Reserve gold grades
increase and ore lenses thicken with depth. Gold mineralisation remains open along strike, down plunge and at depth.
Notably, the most northerly hole drilled into the deepest portion of the deposit intersected 90m at 3g/t gold and
demonstrates that the deposit remains open down plunge.
An internal preliminary economic assessment (“PEA”) of Tulu Kapi’s underground mining potential was completed in March
2016. Based on the 2014 Mineral Resources, the current underground mining inventory of 1.3 million tonnes at 5.2g/t gold
potentially adds gold production of c. 50,000 ounces p.a. for four years.
The PEA considered the gold mineralisation below the base of planned open pit at a cut-off grade of greater than 2.5g/t
gold, which is c. 1,450m RL (i.e. 50m higher than the 1400m RL division for the 2015 Mineral Resource Statement). It also
considered economic lenses above 1,450m RL but outside of the planned open pit.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 18
The key outcomes of the PEA were that:
• Underground mine development is economically justified based on the 2014 Mineral Resources;
•
•
Combined gold production from the open pit and underground mine approaches 200,000 ounces p.a.;
The underground mine adds an estimated $28 million to the project’s after-tax NPV (8%) at a gold price of
$1,250/oz; and
Subject to the results of a full DFS, underground mine development is targeted to commence in the first half of
open-pit operations.
•
As the deposit remains open, KEFI has identified as yet untested exploration potential for tripling the current 330,000
ounce underground Mineral Resource to c. 1 million ounces.
Tulu Kapi –Exploration Licence Applications
Regional exploration is at an early stage but significant potential has already been identified for further gold orebodies to
be discovered near Tulu Kapi as well as potential for VMS copper-gold orebodies.
In October 2017, KEFI received confirmation from the Ethiopian Government that the area proposed to be explored by
KEFI has been set aside with the intention of being granted to the KEFI group upon commencement of development of
Tulu Kapi. This ELA covers c. 1,900 km2 covering known prospects within 50km of Tulu Kapi, which is considered an
economic trucking distance to the planned processing plant.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 19
Location of ELA surrounding Tulu Kapi ML
The area covered by this ELA covers a VMS copper-gold prospect named Kata.
United Nations drilled six diamond holes at Kata in the 1970s along a 600m strike. Mineralisation is open along strike and
at depth, and soil geochemistry defines a >2km copper anomaly (gold not assayed). This drilling intercepted high-grade
copper with the best results of 14m at 3.2% copper and 53m of 0.7% copper.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 20
Geochemical and geophysical surveys have identified strong
gold anomalies along three major shear zones parallel to the
shear zone containing the Tulu Kapi gold deposit.
One of these shear zones lies only a few kilometres to the west
of Tulu Kapi where shallow gold mineralisation has been
identified over +9km along the Guji-Komto Belt. Trenching and
drilling results already indicate the potential for oxide gold
mineralisation in a series of shallow open pits (c.40m depth).
If proven up as economic by further drilling, this gold
mineralisation may potentially be treated at the Tulu Kapi
processing plant or, if scale and mineralogy warrant, say as
stand-alone heap-leach operations which is supported by
preliminary metallurgical testwork.
Guji-Komto Belt: best trench and drill hole gold results
KEFI Minerals Plc ANNUAL REPORT 2018
Page 21
Saudi Arabia
Our priorities in cost effectively discovering economic gold and copper in Saudi Arabia remain:
1. Wadi Bidah Mineral District: a 120-kilometre-long VMS Belt. We start at Hawiah – to determine if a copper-gold-
2.
zinc VHMS deposit lies beneath the 6km-long, gold-bearing gossanous ridge;
Jibal Qutman: to increase oxide gold resources on the granted Exploration Licence (“EL”) and surrounding pending
Exploration Licence Applications (“ELAs”);
KEFI has a 40% beneficial interest in a large portfolio of ELAs and ELs in Saudi Arabia via G&M, our joint venture company
with ARTAR, which is the official applicant on behalf of G&M.
Location of G&M ELs and ELAs in Saudi Arabia, including the main gold and VMS copper deposits in the ANS.
KEFI remains well placed to advance and develop our projects with the assistance of our partner ARTAR, a leading local
industrial and international investment group owned by Sheikh Al Rashid and his family.
The Kingdom of Saudi Arabia is a country with a long history of gold and copper mining that dates back over 3,000 years.
As part of a broader strategy to diversify the country’s revenues away from oil, Saudi Arabia is looking to expand and
develop its mineral sector.
During 2016, the Saudi Government created the Energy, Industry and Mineral Resources Ministry. This new ministry has
been preparing new mining policies in consultation with local mining industry participants. G&M has upgraded its portfolio
of licence applications in preparation for the deregulation of the sector which should expedite mining development in the
country. We await clarification of the new regulatory regime which is clear is now coming a head under new Government
leadership and a newly appointed Ministry for our sector.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 22
Key commercial advantages for KEFI in Saudi Arabia are:
•
•
•
•
•
•
The G&M relationship between ARTAR and KEFI;
The KEFI exploration team that was born out of the experience of discoveries in similar geological terrane in
Western Australia;
Saudi Arabia is a country under-explored for minerals with only a few companies exploring for gold and copper;
The Precambrian ANS rocks being very prospective for gold and copper;
Exploration, development and operating costs are low by industry standards, benefitting from low energy and
labour costs;
Saudi Industrial Development Fund provides loans for up to 75% of the capital cost of mine development at
attractive interest rates; and
• Being prepared for the soon-to-be promulgated modern mining code.
Saudi Arabia - Hawiah
Hawiah is the sort of prospect that makes us excited to be exploring the ANS. It has all the hallmarks of a copper-gold-zinc
VMS deposit, which are typically quite valuable. As such we recently overhauled the G&M portfolio of applications in Saudi
Arabia to cover most of the Wadi Bidah Mineral District (“WBMD”).
The Hawiah prospect is located within the WBMD in the southwest of the Arabian Shield. The WBMD is a 120km-long belt
which hosts over 24 VMS known occurrences and historic workings for copper and gold. ARTAR, on behalf of G&M, has
applied for most of the prospective ground in the WBMD.
Following the granting of the 95km2 Hawiah exploration licence (EL) in December 2014, KEFI commenced exploration of
the unusually large 6km-long gossanous ridge for gold at the surface and a volcanogenic massive sulphide (“VMS”) copper-
gold-zinc sulphide orebody at depth. Field activities were suspended during the initial term of the EL for local security and
community relations issues. Once risks had been managed in close collaboration with local authorities and community
leaders, and once community relations were satisfactorily established for long term stable operations, the field work was
re-activated for a short period before the EL came up to its expiry date.
The Hawiah EL (now renewed) remains one of KEFI’s higher priority ELs as the geological setting appears analogous to
other large VMS deposits in the ANS that have well-preserved, mature oxidised zones enriched in gold at surface.
Initial surface exploration has confirmed that the main gossanous ridgeline is enriched in gold and the mineralisation has
good continuity along strike, as well as containing abundant secondary copper showings. Our initial geophysical survey
indicates it is underlain by a large metal-bearing body.
Field work has recommenced with follow-up trenching, geological mapping, geophysical survey (induced polarisation) and
satellite imaging programs all underway. These programs are leading up to the drilling of this exciting target.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 23
Hawiah Geology and Exploration
The planned exploration programme at Hawiah aims to:
• Define a near-surface, economic gold resource in the gossanous ridge via trenching and RC drilling; and
•
Simultaneously search for a major copper-gold-zinc sulphide ore body along strike and/or at depth.
The Hawiah EL covers a predominantly bimodal mafic and felsic volcaniclastic succession in a broad anticline, with an
unusually large expression of surface mineralisation outcropping on the eastern limb. Hawiah’s silicified and gossanous
horizon was mapped and trenched by France’s Bureau De Recherches Geologiques et Minieres (“BRGM”) in the 1980s,
which identified its gold-bearing potential.
In February 2015, KEFI completed a first-pass, wide-spaced trenching programme over the 6km-long gossanous horizon.
KEFI’s trenches repeated all of the BRGM’s trenches, as well as extending the known (4km) exposure to the south and to
the north. Almost all of KEFI’s trenches contained anomalous gold, including 6m at 2.2g/t gold, 2m at 8.7g/t gold, 6m at
1.9g/t gold, 3m at 5.8g/t gold, 2m at 7.5g/t gold and 8m at 3.0g/t gold.
The BRGM and KEFI results both confirm that gold grades occur with good continuity along the strike length of this 6km-
long gossanous horizon.
In order to test the deeper VMS potential, KEFI is using geophysics and geochemistry to define drill targets. Self-potential
(“SP”) geophysical surveys were completed over the 6 km-long gossanous horizon during 2015 and 2016. Two strong
anomalies were identified:
KEFI Minerals Plc ANNUAL REPORT 2018
Page 24
• An intense north-south trending SP anomaly with a continuous maxima of 350 millivolts, located between 125m
and 300m below surface with an 800m strike length. The intensity of this anomaly is consistent with the presence
of a massive sulphide source, or to a high and contiguous concentration of disseminated sulphides at depth; and
• A parallel SP anomaly with a similar but less continuous intensity located 600m to the east.
The targets generated by the SP survey are planned to be followed-up with a more detailed induced polarisation (“IP”)
geophysical survey. The IP survey is designed to test for electrical conductors (i.e. massive sulphides) down to vertical
depth of 600m below surface. The IP anomalies will provide targets with vertical depths that are planned to be tested by
diamond drilling.
G&M continues to ensure that the correct steps are taken with local stakeholders to ensure our licence to operate is robust
both on the Hawiah EL and for other ELAs in the WBMD.
Hawiah and WBMD Regional Prospectivity
The WBMD is a 120km-long, north-south trending belt which hosts 36 prospects of three main types:
• VMS deposits;
• Volcano-sedimentary deposits associated with disseminated to sub-massive sulphides; and
•
Shear zone & quartz vein hosted deposits.
KEFI has several other ELAs pending within the WBMD covering other existing targets and highly prospective ground.
The BRGM assessed the gold potential of gossans in the entire WBMD in the 1980s. The BRGM estimated a total of 400,000
ounces of gold to be contained in the gossans that were assessed in the WBMD, with the average grades of some deposits
ranging from 5g/t gold to 7g/t gold. The BRGM also carried out some geophysical surveys over the gossans and carried out
limited drilling to test the anomalies generated. Some massive copper-zinc sulphides were intersected, but the drill core
was not systematically assayed for base metal content, nor followed up by further drilling.
VMS deposits are major sources of copper-lead-zinc-gold-silver ore bodies. Examples of large VMS deposits in the ANS
include:
•
•
•
Eritrea - Bisha (Nevsun/Zijin) and Asmara (Sichuan Road & Bridge Mining Investment Development) deposits;
Sudan - Hassaii (Ariab) deposits; and
Saudi Arabia - Jabal Sayid (Barrick and Ma’aden) and Al Masane (Al Kobra Mining) deposits.
The Hawiah EL and surrounding under-explored WBMD are considered to be very prospective for gold and VMS deposits.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 25
Gold and Copper Deposits in the WBMD. G&M has a granted Exploration Licence at Hawiah and has lodged
Exploration Licence Applications over all G&M priority target areas throughout the 120 kilometre-long WBMD
KEFI Minerals Plc ANNUAL REPORT 2018
Page 26
Saudi Arabia - Jibal Qutman
Since the Jibal Qutman EL was granted in July 2012, KEFI Minerals advanced this project from grassroots exploration to
assessing the best way to bring to account the gold mineralisation discovered to date.
The Jibal Qutman EL is located in the central southern region of the Arabian Shield and covers an area of 99km2. The EL
covers an important part of the prospective Nabitah-Tathlith Fault Zone, a 300km-long structure with over 40 gold
occurrences and ancient gold mines.
Drilling undertaken by G&M has identified gold resources in six areas - Main Zone, West Zone, South Zone, 3K Hill, 4K Hill
and Red Hill. Given the established regional prospectivity for shallow oxide gold deposits, ELAs have been prepared for
four additional areas near Jibal Qutman. These applications are pending to the overhaul of mining and exploration
regulations and also the review by the Defence Ministry of activities in that area.
Upon proceeding at Jibal Qutman, G&M will initially focus on testing the feasibility of developing a small heap-leach
operation to self-fund G&M’s exploration activities in Saudi Arabia.
Mineral Resource Estimates for Jibal Qutman
The current Mineral Resource estimate for Jibal Qutman totals 28.4 million tonnes at 0.80g/t gold, containing 733,045
ounces. As summarised in the table below, the majority of the Mineral Resource is in the Indicated category.
Category
Indicated
Inferred
Sub-Total
Indicated
Inferred
Sub-Total
Indicated
Inferred
Grand Total
Tonnes
(millions)
8.3
2.8
11.1
9.7
7.6
17.3
18.0
10.4
28.4
Gold
(g/t)
0.86
0.64
0.80
0.86
0.72
0.80
0.86
0.70
0.80
Contained Gold
('000 ounces)
229
58
287
269
176
446
498
235
733
Oxide
Sulfide
Oxide
+
Sulfide
Note: For further information, see KEFI Minerals announcement dated 6 May 2015.
The oxide gold mineralisation contained in the above Mineral Resource is estimated to total 11.1 million tonnes at 0.80g/t
gold, containing 287,000 ounces.
Internal Preliminary Economic Assessment for Jibal Qutman
Metallurgical test work has confirmed that Jibal Qutman oxide mineralisation is amenable to heap leach (“HL”) processing.
Accordingly, the Company is focusing on initially producing gold via an open cut, HL operation. The HL approach has the
advantages of speeding up the potential development timetable and lowering capital requirements.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 27
Key outcomes from an internal Preliminary Economic Assessment for Jibal Qutman in May 2015 were:
1.5Mtpa HL operation;
•
• Gold production c. 140,000 ounces over an initial mine life of 4-5 years;
• Oxide open-pit optimisation studies show a potential mineable resource of 6.6 million tonnes at 0.95g/t gold, for
c. 200,000 contained ounces;
• Waste:ore ratio of c. 2:1;
• Average gold recovery of c. 70%;
•
•
Cash operating cost of c. US$600/ounce; and
Capital expenditure of c. US$30 million.
Combined with the potential for development loans for up to 75% of capex requirements, it may be possible for KEFI to
fund its share of the equity portion for less than US$5 million in equity.
Following on-site meetings with regulators, the Mining Licence Application for the Jibal Qutman HL gold development was
lodged with the Saudi Government in March 2017.
Jibal Qutman Outlook
Jibal Qutman’s business objectives over the coming year are to:
•
•
•
•
Follow-up the Mining Licence Application with the regulatory authorities;
Commence full feasibility studies upon grant of the ML;
Explore the surrounding ELAs after their processing and grant, which have high prospectivity for additional near-
surface oxide gold resources; and
Prepare applications for construction and operating licences, if warranted.
This strategy aims for Jibal Qutman becoming G&M’s foundation for a self-funding exploration program in Saudi Arabia.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 28
Glossary and Abbreviations
AIC
AISC
All-in Costs
All-in Sustaining Costs
ANS Mining
ANS Mining Share Company S.C
Arabian-Nubian Shield or ANS
The Arabian-Nubian Shield is a large area of Precambrian rocks in various
countries surrounding the Red Sea
ARTAR
BRGM
c.
CIL
DFS
DMMR
EL
ELA
Epithermal
ESIA
G&M
g/t
Gossan
HL
IP
JORC
Abdul Rahman Saad Al Rashid & Sons Company Limited
Bureau de Recherches Géologiques et Minières – the Geological Survey of France
Circa
Carbon in Leach
Definitive Feasibility Study
Deputy Ministry for Mineral Resources – Kingdom of Saudi Arabia
Exploration Licence
Exploration Licence Application
Hydrothermal mineral deposit formed within about 1 km of the Earth's surface
and in the temperature range of 50 to 200 degrees Celsius, occurring mainly as
veins
Environmental and Social Impact Assessment
Gold and Minerals Co. Limited
Grams per tonne
An iron-bearing weathered product overlying a sulphide deposit
Heap leach
Induced polarisation - a ground-based geophysical survey technique measuring
the intensity of an induced electric current, used to identify disseminated
sulphide deposits
Joint Ore Reserves Committee
JORC Code 2012
Australasian Code for Reporting of Exploration Results, Mineral Resources and
Ore Reserves
KME
LOM
KEFI Minerals (Ethiopia) Limited
Life of mine
Massive sulphide
Rock comprised of more than 40% sulphide minerals
MA
ML
Mt
Mining Agreement
Mining Licence
Million tonnes
KEFI Minerals Plc ANNUAL REPORT 2018
Page 29
Mtpa
oz
PEA
PFS
Precambrian
RC drilling
RL
SP
TKGM
VMS deposits
Million tonnes per annum
Troy ounce of gold
Preliminary Economic Assessment
Pre-Feasibility Study
Era of geological time before the Cambrian, from approximately 4,600 to 542
million years ago
Reverse Circulation drilling. Percussion drilling method. Reverse circulation is
achieved by blowing air down the rods, the differential pressure creating air lift
of the water and cuttings up the "inner tube", which is inside each rod.
Relative Level
Self potential - a ground-based geophysical survey technique measuring the
potential difference between any two points on the ground produced by the
small, naturally produced currents that occur beneath the Earth's surface
Tulu Kapi Gold Mines Share Company Limited
Volcanogenic massive sulphides; refers to massive sulphide deposits formed in a
volcanic environment with varying base metals (copper, lead and zinc) often with
significant additional gold and silver
WBMD
Wadi Bidah Mineral District
Competent Person Statement
KEFI Minerals reports in accordance with the 2012 Edition of the Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves (the "JORC Code 2012").
The information in this annual report that relates to exploration results, Mineral Resources and Ore Reserves is based on
information compiled by Mr Jeffrey Rayner. He is exploration adviser to KEFI, the Company’s former Managing Director
and a Member of the Australian Institute of Geoscientists (“AIG”). Mr Rayner is a geologist with sufficient relevant
experience for Group reporting to qualify as a Competent Person as defined in the JORC Code 2012. Mr Rayner consents
to the inclusion in this report of the matters based on this information in the form and context in which it appears.
The Mineral Resources and Ore Reserves in this report have been previously released as follows:
Date of Release
Project
Subject
Competent Persons
22 April 2015
Tulu Kapi
Probable Ore Reserves
4 February 2015
Tulu Kapi
Mineral Resource
Frank Blanchfield
Sergio Di Giovanni
Simon Cleghorn
Lynn Olssen
6 May 2015
Jibal Qutman
Mineral Resource
Jeffrey Rayner
KEFI confirms that it is not aware of any new information or data that materially affects the information in the above
releases and that all material assumptions and technical parameters, underpinning the estimates continue to apply and
have not materially changed. KEFI confirms that the form and context in which the Competent Person’s findings are
presented have not been materially modified from the original market announcements.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 30
Directors, Secretary and Advisers
Directors
Harry Anagnostaras-Adams, Executive Chairman
John Leach, Finance Director
Norman Ling, Non-Executive
Mark Tyler, Non-Executive
Company Secretary
Cargil Management Services Limited
27/28 Eastcastle Street
London W1W 8DH
United Kingdom
Nominated Adviser and Joint Broker
SP Angel Corporate Finance LLP
Prince Frederick House
35-39 Maddox Street
London W1S 2PP
United Kingdom
www.spangel.co.uk
Joint Broker
Brandon Hill Capital Ltd
1 Tudor Street
London EC4Y 0AH
United Kingdom
www.brandonhillcapital.com
Joint Broker
SVS Securities PLC
4th Floor, Princes Court
7 Princes Street
London
EC2R 8AQ
United Kingdom
www.svssecurities.com
Lawyers
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London
EC2A 2EG
www.herbertsmithfreehills.com
Auditors
BDO LLP
55 Baker Street
London W1U 7EU
United Kingdom
www.bdo.co.uk
KEFI Minerals Registered Office
27/28 Eastcastle Street
London W1W 8DH
United Kingdom
Share Registrar
Share Registrars Limited
The Courtyard
17 West Street
Farnham GU9 7DR
United Kingdom
www.shareregistrars.com
Public Relations Adviser
IFC Advisory
24 Cornhill
London EC3V 3ND
United Kingdom
www.investor-focus.co.uk
KEFI Minerals Plc ANNUAL REPORT 2018
Page 31
Consolidated Financial Statements
Year ended 31 December 2018
CONTENTS
Group Strategic report
Report of the board of directors
Statement of directors’ responsibilities
Independent auditor’s report
Consolidated statement of comprehensive income
Statements of financial position
Consolidated statement of changes in equity
Company statement of changes in equity
Consolidated statement of cash flows
Company statement of cash flows
Notes to the consolidated financial statements
PAGE
33-38
39-48
49
50-53
54
55
56
57
58
59
60-97
KEFI Minerals Plc ANNUAL REPORT 2018
Page 32
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Group Strategic Report
For the year ended 31 December 2018
KEFI Minerals PLC Company number: 05976748
The directors present their Group Strategic Report for the year ended 31 December 2018.
Incorporation and principal activity
KEFI Minerals PLC (‘KEFI” or the “Company”) or together with its subsidiaries (“the Group”) was incorporated on 24 October 2006
and was admitted to AIM in December 2006 with an initial market capitalisation of £2.7 million at the placing price.
The principal activities of the Group are:
•
•
•
To explore for mineral deposits of precious and base metals and other minerals that show potential for commercial exploitation;
To evaluate mineral deposits and determine their viability for commercial development; and
To develop those mineral deposits and market the metals produced.
Review of operations
KEFI is focused primarily on the advanced Tulu Kapi Gold Project development project in Ethiopia, along with its pipeline of other
projects within the highly prospective Arabian Nubian Shield. KEFI targets that production at Tulu Kapi will generate cash flows for
capital repayments, further exploration and expansion as warranted and, when appropriate, dividends to shareholders.
KEFI Minerals in Ethiopia
KEFI owns 95% of the Tulu Kapi Gold Project in Ethiopia (TKGM). The Government of Ethiopia is entitled to a 5% free carried-
interest and a 7% royalty on gold production.
In May 2017, the Government of Ethiopia formally committed to a US$20 million equity investment in TKGM Based on current
estimates of capital spending and capital contributions, KEFI will be majority owner of KME which in turn will be majority shareholder
of TKGM. Upon closing of project finance, the ownership of the Tulu Kapi Gold Project via TKGM would be circa:22% by the Ethiopian
Government including its 5% fee carried interest; The Government has approved its budget allocations for the TKGM investment.
Ethiopia is Africa’s highest growth country and has, over the past six months, instituted positive progressive and transformative
reforms on many levels throughout the country. The Federal Ministry of Mines, Petroleum and Natural Gas announced that it has
drafted a new Proclamation for regulation of the mining industry, particularly with an eye to stimulating growth. The Ministry’s
statement referred to the introduction of investment incentives and the removal of obstacles. The security situation for our Project in
Ethiopia is considered better than most mining sites on the continent and KEFI/TKGM has strong government, business and
community support, having earned and maintained strong social licence at Tulu Kapi. The Company has completed the independent
technical reviews of the project as required by its bond arranger and exclusive placing agent, ACT Capital GmbH (“ACT Capital”). In
light of the overall progress with Government clearances, Project due diligence and indicative structuring and pricing, the process is
in suspension awaiting the final formal confirmations from the Ethiopian central bank before proceeding with the next stages which
include the formation of KEFI’s Luxembourg-based company which would issue the planned listed bond. The bond issue will be
subject to the satisfaction of compliance procedures, including those of the various institutions/banks and listing authorities, and then
the successful private placement of the planned listed bond. All these processes are being co-ordinated with other Project matters
by KEFI within the Project consortium which includes the principal contractors, Lycopodium (process plant), Ausdrill/AMS (mining)
and MKS/PAMP (gold refining) and the Ethiopian Project equity partners in the Government and private sector. The finance is
expected to have a 9-year tenor and 2.5-year non repayment grace period.
After year-end ANS Mining Share Company S.C (“ANS Mining”) has confirmed receipt from its investors of its first Project-equity
instalment commitments for US$11.4 million (Ethiopian Birr equivalent). The amount is higher than that previously anticipated US$9
million (Ethiopian Birr equivalent). The remainder of the US$38 million (Ethiopian Birr equivalent) ANS commitment will be subscribed
at close of full development funding. It has also been agreed that, of the total commitment of US$38 million (Ethiopian Birr equivalent),
one third will be invested via KEFI subsidiary KEFI Minerals (Ethiopia) Limited (“KME”) so that ANS Mining will be KEFI’s minority
partner in KME which controls TKGM and the exploration areas in the Tulu Kapi district which are considered prospective for potential
satellite and stand-alone deposits. The other two thirds of the ANS Mining investment will be directly into TKGM. The impact of this
refined approach will mean that KEFI will have a strong partner at the KME table to consider potential new projects. We expect
Ethiopia’s mining sector to become more active on the back of our first-mover initiative. The ownership levels will be that KEFI will
own c. 80% of KME which in turn will hold c. 56% of TKGM and that KEFI’s beneficial ownership of TKGM will be c. 45% (both
ownership levels in TKGM are net, after adjustment for the Government’s 5% free carried interest).
KEFI Minerals Plc ANNUAL REPORT 2018
Page 33
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Group Strategic Report (continued)
For the year ended 31 December 2018
KEFI Minerals in the Kingdom of Saudi Arabia
Saudi Arabia has announced new industry policies and has yet to release the details of the associated regulations. These
changes aim to spur development of its minerals sector. The security situation for our projects in Saudi Arabia, as with our
sites in Ethiopia, is considered manageable with standard procedures and also derives largely from Gold and Minerals Limited
(“G&M”) (the Project company of KEFI and partner ARTAR) ensuring and maintaining strong social licence with its local
communities.The Hawiah Exploration Licence (refer to page 23)is held for KEFI’s local joint venture company Gold and Minerals
Limited (“G&M”) by partner Abdul Rahman Saad Al Rashid & Sons Company Limited (“ARTAR”). Reconnaissance activities will now
be re-activated by KEFI in its role as operator of G&M, with the focus on refining plans for a drilling campaign targeting gold at the
surface and the underlying volcanogenic massive sulphide (“VMS”) copper-gold-zinc sulphide orebody. Whilst the work over the next
six months is expected to be low-cost, it has a high potential impact on the effectiveness of drilling which is planned to commence in
H2 2019 when the Company has also started the planned development activities at the Tulu Kapi Gold Project in Ethiopia (“Tulu
Kapi”). This program follows a hiatus for G&M of over two years whilst the Saudi Government undertook a thorough review of its
mining code to encourage external investment into its potentially prolific mining sector.
Funding
In summary, KEFI raised approximately GBP5.6million (After share issue costs).
• During June and July 2018, the Company raised additional funds and settled a number of debts through the issue of
220,000,000 new ordinary shares of 1.7p each in KEFI (“Shares”) at a price of 2.5 pence as follows:
o
o
o
120,000,000 new Shares to existing and institutional shareholders to raise £3 million cash (before expenses);
47,801,642 new Shares to certain project contractors and other third parties in settlement of outstanding invoices
of approximately £1.2 million; and
52,198,358 new shares to certain directors and management of the Company following the publication of the
Company's annual results to satisfy accrued fees and salaries of approximately £1.3 million.
•
In December 2018 the company issued 19,000,000 KEFI Ordinary shares to pay the convertible note facility fees of GBP380,000.
In November 2018 the Company entered into a secured convertible loan facility for up to £4.0 million to provide the necessary
working capital funds to progress its Tulu Kapi gold project in Ethiopia. The facility was signed with Sanderson Capital Partners Ltd,
a long-term investor in the company. The Company has the right to borrow up to £4 million from the Lender, which is split into the
First Facility (the initial £2 million working capital facility), the Second Facility (the optional additional working capital facility of £1
million) and the Third Facility (the optional additional working capital facility of £1 million). Amounts drawn under the Loan Facility
are not subject to any interest payments.
During the year the Company assembled equity development capital at the project level, based on significant local financial
institutional support for project equity investment. ANS Mining, has an investment commitment subject to certain conditions to
subscribe to new shares in the project company TKGM and KME totalling US$38 million.
The Group considers that, despite extensive delays due to political change in both of its host countries, its primary projects in Ethiopia
and Saudi Arabia continue to progress satisfactorily and careful monitoring and control has been carried out in respect of cash
management. This includes the periodic review of the Group’s cash flow needs through cash flow projection, appraisal of technical
reports monitoring the marketplace and the Group’s physical presence in the Kingdom of Saudi Arabia and the Federal Democratic
Republic of Ethiopia. The Group also holds regular board meetings. Based on the results, the Board concluded that significant local
ownership was appropriate as a risk-mitigant, which has been arranged, and that no changes are required to the current overall
strategy.
Key Performance Indicators
Key Performance Indicators for the Group for the year ended 31 December 2018 are those relevant to the exploration, acquisition,
project evaluation and early-stage finance phases of its activities.
Key Performance finance and non-financial Indicators include:
• Cash Flow Forecasts: Regular cash flow monitoring to ensure project development targets are met and that working capital
is maintained.
• Operational Success: Advancing projects through cost-effective exploration into development and production
•
Environmental, Health & Safety: Ensuring that all efforts are made to reduce adverse personal, corporate and environmental
outcomes, through best practice training and implementation.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 34
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Group Strategic Report (continued)
For the year ended 31 December 2018
The following progress was achieved in FY 2018:
•
•
•
KEFI’s Ethiopia Government sector co-investor in TKGM, Ministry of Finance, commenced its activities for construction of
the infrastructure it is obliged to provide as its US$20 million (Ethiopian Birr equivalent) project equity contribution
Ethiopian private sector investor, ANS Mining became KEFI’s second local partner, committing US$38 million (Ethiopian
Birr equivalent) To KME and TKGM
Board and Management has been strengthened for project implementation, in KEFI and in operating joint venture
companies
•
•
• Mandated ACT Capital the bond arranger for the infrastructure finance (planned to be sourced from the
placement of $160 million of Listed Bonds), completed independent reviews of the project, and now currently sits
awaiting TKGM triggering the bond-implementation program upon receipt of the final clearance of the structure
from the Ethiopian central bank.
The Independent Technical Expert signed the Tulu Kapi Gold Project due technical diligence reports
Financing policy of TKGM permitted as regards capital ratios, hedging of gold produced once in production, banking) and
some residual aspects currently await formalization by Ethiopia central bank
Exploration rights were applied over a large number of large VMS targets in the Saudi Arabian Wadi Bidah Mineral District,
starting at Hawiah where the Exploration Licence was renewed on 30 November 2018
KEFI working capital provided by shareholders via equity placing, secured convertible working capital facility and short term
bridging advances.
•
•
Focus for FY 2019:
• Continuing Government-sponsored engineering works and construction of off-site infrastructure at an estimated total cost
of US$20M, in exchange for equity in TKGM
• Closing the project equity required to fund the small first phase of the development program and then to also trigger
subscription of non-equity capital for the large second phase of the development program;
• Closing the non-equity funding for Tulu Kapi, after obtaining remaining regulatory clearance of project debt finance and
•
contract documentation;
Trigger the development program and proceed with community resettlement, construction and commencement of district
exploration
• Maximise local employment and supply chain participation in TKGM activities
• Management to ensure that the Group’s projects comply with relevant social, environmental, employment and other
legislation in the applicable jurisdiction along with relevant international standards.
Results
Operating Expenses
Exploration expenditure
Administrative expenses, mainly on project development preparations
Investigatory, pre-decisional project finance transaction costs
Warrants issued costs
Share based payments
Share of loss from jointly controlled entity
Loss on revaluation of financial Asset- Receivable from Lanstead Sharing Agreement
Foreign exchange gain/(loss)
Interest cost
Loss for the year
The Group's results for the year are set out on page 54.
Year Ended
31.12.18
£’000
Year Ended
31.12.17
£’000
(93)
(2,440)
(1,599)
(23)
(158)
(161)
2
(24)
(459)
(4,955)
(146)
(2,535)
(865)
-
(93)
(286)
(2,280)
14
(75)
(6,266)
As at 31 December 2018, the Group market capitalisation was £8.86 million (2017: £9.32 million). At the year end the Group had
equity of £15,352,000 (2017: £14,470,000). During 2018, the Group has incurred exploration expenditure of £93,000 (2017:
£146,000) from operations and an operating loss of £4,474,000 (2017: £3,925,000).
KEFI Minerals Plc ANNUAL REPORT 2018
Page 35
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Group Strategic Report (continued)
For the year ended 31 December 2018
The focus during the year has been the preparation of project funding and development of the Tulu Kapi Gold Project in Ethiopia
(“Tulu Kapi” or the “Tulu Kapi project”) with our partner the Government of Ethiopia, contractors Lycopodium and Ausdrill/African
Mining Services and preferred project financiers. The increased activity levels resulted in higher administrative expenditure and
project transaction expenses in comparison to the previous year.
All exploration expenditure incurred in the Group’s projects in the Kingdom of Saudi Arabia is written off when incurred in accordance
with IFRS 6, pending the Directors’ decision to commence project development.
The Company made placements during the year raising £5.6 million in cash for goods and services and is made up of the following
placements:
Issued
Share Equity June 2018 at 2.5p
Share Equity July 2018 at 2.5p
Share Equity December 2018 at 2p
Funds raised before expenses
Less Share Issue Costs
£’000
1,662
3,838
380
5,880
(237)
5,643
In December 2018 the Company entered into a Convertible Loan Facility with Sanderson Capital Partners Limited, the Company
has the right to borrow up to £4,000,000 from the Lender, which is split into the First Facility (the initial £2,000,000 working capital
facility), the Second Facility (the optional additional working capital facility of £1,000,000) and the Third Facility (the optional
additional working capital facility of £1,000,000.
Organisation overview
The Corporate Head Office of the Group is located in Nicosia, Cyprus, and provides corporate and management and support services
to the overseas operations. East African operations are managed out of Addis Ababa, Ethiopia. The Saudi Arabia exploration is
managed out of Riyadh. Field facilities are also maintained as required.
Strategic approach
The Board’s strategic intent is to maximize shareholder value through the development of a focused portfolio of operations and
projects at various stages, while at the same time managing the significant risks faced by companies in the evaluation, exploration
and development stage.
Our risk management approach places a clear focus on discovering and exploiting mineral wealth through multiple ventures within a
focused framework, thus increasing the odds of success. We continuously monitor and review our investment strategies and are
quick to relinquish licences which we believe will be uneconomic. We introduce partners in certain circumstances to minimise risk
and broaden the human and financial resources available.
The Group has to date financed its activities mainly through periodic equity capital raisings.
Business model
The following business model sets out how the Group will deliver on its strategic aims:
Secure funding for each worthwhile project;
• Define additional reserves and resources in Saudi Arabia and Ethiopia;
•
• Develop profitable metals production;
• Maintain strong social licence generally and good local community relationships; and
•
Employ good environmental and other operational and corporate governance practices.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 36
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Group Strategic Report (continued)
For the year ended 31 December 2018
Principal risks and uncertainties
The Group’s operations are exposed to a variety of risks, many of which are outside of the Group’s control. The Group has put in
place controls to minimise these risks where possible.
Exploration industry risks:
Mineral exploration is speculative in nature, involves many risks and is typically unsuccessful in any one target. Following any
discovery, it can take a number of years from the initial phases of drilling and identification of mineralisation until production is
possible, during which time the economic feasibility of production may change.
Substantial expenditure is required to establish ore reserves through drilling, to determine metallurgical processes to extract minerals
from the ore and to construct mining and ore processing facilities.
As a result of these uncertainties, no assurance can be given that the exploration programmes undertaken by the Group will result
in any new commercial mining operations being brought into operation.
Government activity, which could include non-renewal of licences, and may result in any income receivable by the Group being
adversely affected. In particular, changes in the application or interpretation of mining and exploration laws and/or taxation provisions
in the countries in which the Group operates could adversely affect the value of its interests.
Political risks:
All of the Group’s operations are located in foreign jurisdictions. As a result, the Group is subject to political, economic and other
uncertainties, including but not limited to changes in policies or the personnel administering them, terrorism, nationalisation,
appropriation of property without fair compensation, cancellation or modification of contract rights, foreign exchange restrictions,
currency fluctuations, export quotas, royalty and tax increases and other risks arising out of foreign governmental sovereignty over
the areas in which these operations are conducted, as well as risks of loss due to civil strife, acts of war, guerrilla activities and
insurrection.
KEFI’s activities have been unaffected with regards to its daily interface with the various government agencies and with the
community at Tulu Kapi. Everyone that the Group deals with appears to regard the appointment of a new Prime Minister as a positive
step towards the facilitation of broader democratic representation in Government. The Group enjoys a good working relationship with
the relevant authorities in Ethiopia and Kingdom of Saudi Arabia and has a permanent management team in these countries to
monitor developments and manage the situation.
Community relations
Mutual support between the Group’s operations and the communities around them is vital to the success of our activities and for
maintaining our social licence to operate. KEFI regards its host communities as one of the most important of its primary stakeholders
and contributing to these groups in a meaningful, sustainable and long-term manner is therefore central to its strategy. Our community
development will be focused on: sustainable job creation; skills transfer (education and training); and infrastructure development.
Retention of key personnel
The successful achievement of the strategies, business plans and objectives depend upon its ability to attract and retain certain key
personnel. Achievement of its objectives help to propagate a positive Company culture, in which employees feel they can directly
contribute to the Company’s success. The Group’s employment policies and terms are designed to attract, incentivise and retain
individuals of the right caliber.
Partner risk
Any joint venture arrangement contains an element of counterparty risk. The Company maintains good working relationships with its
Joint Venture partners in Ethiopia and Saudi Arabia and monitors performance on a regular basis.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 37
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Group Strategic Report (continued)
For the year ended 31 December 2018
Principal risks and uncertainties(continued)
Tulu Kapi gold project
During the year the Group carried out and an independent technical due diligence risk review of Tulu Kapi gold project in Ethiopia.
The purpose of the review was to identify any fatal flaws or critical technical issues that would result in a significant negative effect
on the Project economics, significant environmental damage, or serious danger to health and safety. Overall, the identified risks are
manageable and capable of mitigation.
Financial risks:
Commodity risk: A potential fall in commodity prices which could lead to it becoming uneconomic for the Group to mine its assets.
The Group’s principal interest is in gold. The Group will consider the use of appropriate hedging products to mitigate this risk as it
approaches production.
Foreign currency risk: The Group’s results are sensitive to foreign currency movements and in particular with its exposure to the
Ethiopian Birr, arising from the Group’s primary operations being in Ethiopia. The Group finances its overseas operations
by transferring Pounds Sterling from the UK to meet local operating costs which are generally either denominated in Ethiopian Birr
or US Dollars. The Group maintains the majority of its cash in Pounds Sterling and monitors relevant currency movements and takes
action where needed.
Funding risk: To date the Group has relied upon shareholder funding of its activities. Future exploration and development activities
may be dependent upon the Group’s ability to obtain further financing through equity financing or other means. Although the Group
has been successful in the past in obtaining equity finance there can be no assurance that the Group will be able to obtain adequate
financing in the future or that the terms of the financing will be favourable.
The Group’s other financial risks and use of financial instruments are described in Note 3 to the consolidated financial
statements. Other risks are described in the Chairman’s and Finance Director’s Reports.
Future developments
The Group will continue to focus efforts in Ethiopia and Kingdom of Saudi Arabia with the objective of identifying mineral prospects
for further exploration and development.
By Order of the Board
John Edward Leach
Finance Director
Cargil Management Services Limited
27/28 Eastcastle Street
London
United Kingdom
Company Secretary
4 June 2019
KEFI Minerals Plc ANNUAL REPORT 2018
Page 38
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Report of the Board of Directors
For the year ended 31 December 2018
The Board of Directors presents its report for KEFI Minerals PLC and its subsidiaries together with the financial statements of the
Group for the year ended 31 December 2018.
General information
The following information is set out in the Group Strategic Report due to its strategic importance; Incorporation and Principal Activity,
Review of Operations, Funding, Key Performance Indicators, Results, Issued, Organisation Overview, Strategic Approach, Business
Model, Principal risks and uncertainties and Future Developments.
Board of Directors- Current
The members of the Board of Directors of the Company as at 31 December 2018 and at the date of this report are shown on page
31. In accordance with the Company's Articles of Association, one third of the board of directors must resign each year. The remaining
directors, presently members of the Board, will continue in office.
The Board comprises five Directors:
Harry Anagnostaras-Adams
Managing Director, and Executive Chairman since 29 April 2019
Mr Anagnostaras-Adams (B.Comm, MBA) has been Executive Chairman since 2014 and was previously Non- Executive Chairman.
Mr Anagnostaras-Adams is the Chairman of the Physical Risks Committee. He holds a Bachelor of Commerce (Finance and
Systems) from the University of New South Wales, Australia and a Master of Business Administration from the Australian Graduate
School of Management where he was awarded the John Story Memorial Prize as outstanding graduate. He qualified as a Chartered
Accountant while working with PricewaterhouseCoopers .
Mr Anagnostaras-Adams founded AIM and TSX - listed Atalaya Mining PLC (previously EMED Mining Public Ltd). Mr Anagnostaras-
Adams has previously served as the Managing Director of Atalaya Mining PLC, ASX and AIM-listed, Devex Limited (later Gympie
Gold Limited), Executive Director of investment company Pilatus Capital Ltd., General Manager of the resources investment group
Clayton Robard Limited Group, Senior Investment Manager of Citicorp Capital Investors Australia Ltd. and serves (or has served)
as a non-executive Director of many other public and private companies across a range of industries. He has overseen many
successful start-ups.
Mark Wellesley-Wood
Non-Executive Chairman, until his passing 29 April 2019
Mr Mark Wellesley-Wood is a mining engineer, with over 40 years’ experience in both the mining industry and investment banking.
He has been closely involved in mining activities in Africa, having started his career on the Zambian copper-belt passed away in April
2019. Mark was a former Executive Chairman and CEO of South African gold miner, DRDGold Limited, and a former director of
Investec Investment Banking and Securities in London and Chairman of AIM-quoted Tri-Star Resources plc.
John Edward Leach
Finance Director
Mr Leach was appointed Non-Executive Director and part-time Finance Director in December 2006 with responsibility for oversight
of the Company’s finance and accounting functions. In August 2016, he assumed a full-time role as Finance Director as part of the
Company’s transition towards gold production.
Mr Leach holds a Bachelor of Arts (Economics) and a Masters of Business Administration. Mr Leach is a member of the Institute of
Chartered Accountants (Australia), the Canadian Institute of Chartered Accountants and a Fellow of the Australian Institute of
Directors. He has over 30 years’ experience in senior financial and executive director positions within the mining industry
internationally. Mr Leach has served on the Board of AIM and TSX listed Atalaya Mining PLC (2007 to 2014), and is a former member
of the boards of Pan Continental Oil & Gas NL (2017) Resource Mining Corporation Limited (2006 to 2007) and Gympie Gold Limited
(1995 to 2003).
KEFI Minerals Plc ANNUAL REPORT 2018
Page 39
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Report of the Board of Directors (continued)
For the year ended 31 December 2018
Norman Ling
Non-Executive Independent Director
Mr Norman Ling holds a BA (Hons) German and Economic History and has previously served as a non-executive director of Nyota
Minerals Limited. He has held a series of appointments at the UK Foreign and Commonwealth Office in a career spanning more than
30 years. Mr Ling's last post was as the British Ambassador to Ethiopia, Djibouti and the African Union from 2008 to 2011, when he
retired from government service.
Mark Tyler
Non-Executive Independent Director.
Appointed to Board on 5 September 2018.
Mark Tyler was previously a mining investment banker in London and South Africa, including as co-head of Mining and Resources
Finance at Nedbank, a South African bank. He is currently a senior resources advisor to Exotix Capital and the London representative
for Auramet International, a precious metal merchant financier.
Directors’ indemnities
The Group maintains directors’ and officers’ liability insurance providing appropriate cover for any legal action brought against its
Directors.
Remuneration report
This remuneration report for the year ended 31 December 2018 outlines the remuneration arrangements of the Company and the
Group. The remuneration report details the remuneration arrangements for key management personnel (KMP) who are defined as
those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the
Group, directly or indirectly, including any director (whether executive or otherwise) of the parent company.
Details of key management personnel of the Parent and Group are set out below.
Remuneration philosophy
The objective of the Company’s remuneration framework is to ensure reward for performance is competitive and appropriate for
the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value
for shareholders.
The Board believes that executive remuneration satisfies the following key criteria:
Competitiveness and reasonableness
Acceptability to shareholders
Performance linkage/alignment of executive compensation
Transparency
These criteria result in a framework which can be used to provide a mix of fixed and variable remuneration, and a blend of short
and long-term incentives in line with the Company’s limited financial resources. Fees and payments to the Company’s Non-
Executive Directors and Senior Executives reflect the demands which are made on, and the responsibilities of, the Directors
and the senior management. Such fees and payments are reviewed annually by the Board. The Company’s Executive and Non-
Executive Directors, Senior Executives and Officers are entitled to receive options under the Company’s Employee Share Option
Scheme.
While the Group’s operations have been in the project development stage, the objective of the Board has been to minimise the
number of senior executives it employs to maintain the total remuneration of such executives at a level that is commensurate
with the resources of the Group and the level of activity undertaken.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 40
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Report of the Board of Directors (continued)
For the year ended 31 December 2018
Non-executive director remuneration arrangements
The Board seeks to set remuneration of non-executive Directors at a level which provides the Company with the ability to attract
and retain Directors of the highest calibre, whilst incurring a cost which is appropriate at this stage of the Company’s
development. The Chairman’s fee is set at £50,000 p.a. and Non-Executive Director fees at £25,000 p.a. The Company has
assumed responsibility for any potential liability to National Insurance Contributions (NICs) for Non-Executive director Mr.
Norman Ling, both employer and employee contributions in respect of, or by any reason of, the payment of fees. At present, no
Committee fees are paid to Directors.
Non-Executive Directors are entitled to be paid reasonable travelling, accommodation and other expenses incurred as a
consequence of their attendance at meetings of Directors and otherwise in the execution of their duties as Directors. Non-
executive Directors are also entitled to additional remuneration for extra services or special exertions.
Executive director and key management personnel (“KMP”) remuneration arrangements
Service agreements Remuneration and other terms for KMP are formalised in contractor agreements. Details of these
agreements are set out below:
Executive directors and other key management personnel Executive remuneration packages comprise a mix of the following
components: Fixed remuneration and other benefits and long-term incentives provided by the issuing of options under the
Employees and Contractors Option Plan.
Fixed remuneration and other benefits
The level of fixed remuneration is set so as to provide a base level of remuneration, which is both appropriate to the position
and competitive in the market. Fixed remuneration for most executives is comprised of base salary, and in some cases includes
other benefits such as housing, medical care and vehicles. The Company does not have a retirement benefit scheme for
executive directors.
Long term share incentives
The Employees and Contractors Option Plan of the Group was established in 2014. The Company's full Share Option Plan 2014
is available on the Company website. The objective of the Plan is to provide an opportunity for senior executives and contractors
to participate as equity owners in the Company and to reward key executives and contractors in a manner which aligns this
element of remuneration with the creation of shareholder wealth. At the discretion of the Board and subject to the Rules of the
Plan, executives may be granted options under the Plan.
Directors and Key
Management Personnel
Managing Director and
Finance Director
Consulting
Services
Rolling forward
arrangement
12
Months’
Agreement type Term
Notice Period Other Benefits
General Manager
Ethiopia
Consulting
Services
Rolling forward
arrangement
International Mining
Performance: Head of
Operations, Head of
Systems, Head of Human
Resources and Technical
Planning
Consulting
Services
Rolling forward
arrangement
until 30
December 2020
12
Months’
6
Months’
Medical/Air tickets home;
and Share Options. The
Managing Directors life
insurance and accident
insurance premiums are
paid.
Medical/Air tickets home. In
country accommodation; and
Share Options.
50% of the Fees paid in
Shares and 50% in cash;
and Share Options.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 41
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Report of the Board of Directors (continued)
For the year ended 31 December 2018
Directors’ interests
The interests of the Directors and their immediate families (all of which are beneficial unless otherwise stated) and of persons
connected with them in the existing ordinary shares as at date of this report are as follows:
Director
H Anagnostaras-Adams
J Leach
N Ling
Grant
Date
Expiration
Date
01-Feb-18
31-Jan-24
22-Mar-17
21-Mar-23
05-Aug-16
04-Aug-22
19-Jan-16
18-Jan-22
20-Mar-15
19-Mar-21
12-Sep-14
11-Sep-20
27-Mar-14
26-Mar-20
Number of existing
ordinary shares
12,737,848
5,602,223
295,486
% of issued
share capital
1.98%
0.87%
0.05%
Exercise Price
Pence
H. Anagnostaras-
Adams
J. Leach
N. Ling
M. Wellesley -
Wood
4.5
7.5
10.2
7.14
22.44
29.92
39.1
1,200,000
1,200,000
1,200,000
3,442,184
674,083
-
882,353
-
-
-
882,353
588,235
943,412
314,471
314,471
-
382,353
58,824
117,647
-
-
132,353
-
-
382,353
132,353
-
-
6,350,302
3,262,084
1,764,471
1,470,588
Directors’ emoluments
In compliance with the disclosure requirements of the listing requirements of AIM, the aggregate remuneration paid to the Directors
of KEFI for the year ended 31 December 2018 is set out below:
31 December 2018
Executive
H. Anagnostaras-Adams
J. Leach
Non-Executive
N. Ling
M Wellesley-Wood¹
M Tyler¹
Salary
and fees
£’000
Other
compensation
£’000
Bonus Paid in Shares
£’000
Share based benefit
incentive options²
£’000
2018
Total
£’000
223
155
55
44
10
487
19
16
-
-
-
35
97
63
-
-
-
160
32
24
7
14
-
77
371
258
62
58
10
759
KEFI Minerals Plc ANNUAL REPORT 2018
Page 42
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Report of the Board of Directors (continued)
For the year ended 31 December 2018
Directors’ emoluments (continued)
31 December 2017
Executive
H. Anagnostaras-Adams
J. Leach
Non-Executive
I. Plimer-Retired¹
N. Ling
M Wellesley-Wood¹
Salary
and fees
£’000
Other
compensation
£’000
Bonus Paid in Shares
Share based benefit
incentive options²
£’000
£’000
240
176
23
67
41
547
³80
14
-
-
-
94
-
-
-
-
-
-
32
19
-
3
13
67
2017
Total
£’000
352
209
23
70
54
708
¹Appointments and Retirement as Director: During 2017 Mr. Plimer resigned as director in November 2017. In July 2018 the board roles were changed
and Mr. Wellesley-Wood was appointed as Non-Executive Chairman. Mr. Mark Tyler was appointed In September 2018 as Non-Executive director.
² Share based benefit incentive options: The figure is based on the valuation at the date of grant. The figure recorded relates to the amount relating to the current
year as a proportion of the vesting period. Vesting is subject to a number of vesting conditions which may or may not be achieved. This figure is not a cash
payment.
³Other compensation includes, life insurance and accident insurance premiums for 2014,2016 and 2017.
Corporate governance statement
The Directors of the Company have elected to follow the main principles of the QCA Corporate Governance Code. The QCA
Corporate Governance Code identifies ten principles that focus on the pursuit of medium to long-term value for shareholders without
stifling the entrepreneurial spirit in which the company was created. In addition to the details provided below, governance disclosures
can be found on the Company’s website https://www.kefi-minerals.com/about/corporate-governance
Board of Directors
The Group supports the concept of an effective Board leading and controlling the Group. The Board is responsible for approving
Group policies and strategies. It meets at least every three months and is supplied with appropriate and timely information and the
Directors are free to seek any further information they consider necessary. All Directors have access to advice from the Group
Secretary and independent professionals at the Group's expense. Training is available for new Directors and other Directors as
necessary. The Managing Director, in conjunction with the executive team, ensures that the Directors’ knowledge is kept up to date
on key issues and developments pertaining to financial and governance matters, its operational environment and to the Directors’
responsibilities as members of the Board. During the course of the year, the Chairman received updates and advice from the
Company Secretary and the NOMAD to ensure the Company’s compliance to the Rule 26 disclosures which became effective from
the 28 September 2018. The Group's key strategic and operational decisions are reserved exclusively for the decision of the Board.
The Board consists of two full time Executive Directors who hold key operational positions in the Company (the Managing Director
and Finance Director), and three Non-Executive Directors. The Non-Executive Directors, Mark Wellesley-Wood, Norman Ling and
Mark Tyler bring a breadth of experience and knowledge to the Company. They are considered to be independent of management
and any other business relationships do not interfere with the exercise of their independent judgment. Mark Wellesley-Wood was
appointed as Non-Executive Chairman in July 2018. The Board regularly reviews key business risks, including the financial risks
facing the Group in the operations of its business. The Directors are of the opinion that the Board composition contains a suitable
balance. The Board maintains regular contact with its advisers and public relations consultants in order to ensure that the Board
develops an understanding of the views of shareholders about the Company.
Mr. Mark Wellesley-Wood
On the 29 April 2019 Mr. Mark Wellesley-Wood passed away and Mr. Harry Anagnostaras-Adams resumed the role of Executive
Chairman, which has been held until July 2018.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 43
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Report of the Board of Directors (continued)
For the year ended 31 December 2018
Board meetings
The Board meets regularly throughout the year. The Board is responsible for formulating, reviewing and approving the Company's
strategy, financial activities and operating performance. Day to day management is devolved to the Executive Directors who are
charged with consulting the Board on all significant financial and operational matters. All Directors have access to the advice of the
Company’s solicitors. Necessary information is supplied to the Directors on a timely basis to enable them to discharge their duties
effectively, and all Directors have access to independent professional advice, at the Company’s expense, as and when required.
Board Committees
The Board has established the following committees, each of which has its own terms of reference:
Audit Committee
The Audit and Financial Risk Committee considers the Group’s financial reporting (including accounting policies) and internal financial
controls. The Audit and Financial Risk Committee comprised two Non-Executive Directors: Mark Wellesley-Wood (Chairman) and
Mark Tyler, and is responsible for ensuring that the financial performance of the Company is properly monitored and reported on and
in this capacity interacts as needed with the Company’s External Auditors. The Finance Director is invited and attends the committee
meetings to provide his skills and knowledge in committee matters.
Remuneration Committee
The Remuneration Committee is responsible for making recommendations to the Board on the remuneration of the Directors and
senior executives. It comprised two Non-Executive Directors: Mark Wellesley-Wood (Chairman), and Mark Tyler. Directors’
remuneration and conditions are considered and agreed by the Board.
Financial packages for Executive Directors are established by reference to those prevailing in the employment market for executives
of equivalent status both in terms of level of responsibility of the position and their achievement of recognized job qualifications and
skills. The Committee also takes into consideration the terms that may be required to attract equivalent experienced executives to
join the Board from other companies.
Attendance Meetings of Directors and Committees
The following table sets out the number of Directors’ meetings held during the financial year and the number of meetings
attended by each director:
Board of Directors Meetings
H. Anagnostaras- Adams
J. Leach
N. Ling
M Wellesley-Wood
M Tyler¹*
Audit Committee
N. Ling*
M Wellesley-Wood
M Tyler¹*
Remuneration Committee
N. Ling*
M Wellesley-Wood
M Tyler¹*
Held
11
11
11
11
3
Attended
11
11
11
11
3
Held
Attended
2
3
1
2
3
1
Held
Attended
1
1
-
1
1
-
¹Mr. Mark Tyler was appointed in September 2018 as Non-Executive director
* Mr. M Tyler replaced Mr. N Ling as a member of the Audit Committee and Remuneration committee in September 2018.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 44
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Report of the Board of Directors (continued)
For the year ended 31 December 2018
Board Evaluation and Succession Planning
The QCA Code states that the Board should regularly review the effectiveness of its performance as a unit, as well as that of its
committees and individual director. During 2018 the process was facilitated internally by the Board and in order to prepare for the
mine build and operational phases of the Company’s development, the Board has implemented a number of management and Board
changes during the year.
•
The Board reviewed the talent and succession policy of the Company. On 1 February 2018, the Company expanded
its senior executive team, from comprising only the two executive directors, by adding the heads of operations, systems
and planning and since then the head of project construction.
• On 20 July 2018, Mark Wellesley-Wood, assumed the role of the Non-Executive Chairman and Harry Anagnostaras-Adams,
the role of the Managing Director.
• On 5 September 2018 the Company appointed Mr. Mark Tyler to the KEFI Board as an additional independent Non-
Executive Director and, therefore, independent Non-Executive Directors now comprise the majority of the Board.
Internal controls
The Directors acknowledge their responsibility for the Group’s systems of internal controls and for reviewing their effectiveness.
These internal controls are designed to safeguard the assets of the Company and to ensure the reliability of financial information for
both internal use and external publication. Whilst the Directors are aware that no system can provide absolute assurance against
material misstatement or loss, regular reviews of internal controls are undertaken to ensure that they are adequate and effective.
Risk management
The Board considers risk assessment important in achieving its strategic objectives. There is a process of evaluation of performance
targets through regular reviews by senior management who compare actual progress to forecasts. Project milestones and timelines
are regularly reviewed.
Risks and uncertainties
Risk assessment and evaluation is an essential part of the Group’s planning and an important aspect of the Group’s internal control
system. The principal risks facing the Company are set out in the Group Strategic Report.
Risk management and treasury policy
The Board considers risk assessment as an integral activity in achieving its strategic objectives, with the Board regularly reviewing
its projects and activities in this regard. The Group finances its operations through equity and holds its cash as a liquid resource to
fund its obligations of the Group’. Decisions regarding the management of these assets are approved by the Board. Please refer to
page 63 of the financial statements.
Securities trading
The Directors comply with Rules 21 and 31 of the AIM Rules relating to Directors’ dealings and will take all reasonable steps to
ensure compliance by the Group’s applicable employees as well. The Board has adopted a Share Dealing Code that is appropriate
for an AIM quoted company and this applies to Directors, senior management and any employees who are in possession of
“unpublished price sensitive information”. All such persons are prohibited from trading in the Company’s securities if they are in
possession of “unpublished price sensitive information”. Subject to this condition and trading prohibitions applying to certain periods,
trading can occur provided the relevant individual has received the appropriate prescribed clearance.
Ethical values and behaviours
The Board has the means to determine that ethical values and behaviours are recognised and respected via the senior management
team (“Exco”) to whom local country management reports. The board of KEFI also adheres to KEFI’s Corporate Governance policies
that cover, for example, ethical behaviour, anticorruption and anti-bribery as well as a whistle-blowing policy. The Board is also aware
that the tone and culture set by the Board will greatly impact all aspects of the Company as a whole and the way that employees
behave. A large part of the Company’s activities is centred upon what needs to be an open and respectful dialogue with employees,
clients and other stakeholders. Therefore, the importance of sound ethical values and behaviours is crucial to the ability of the
Company to successfully achieve its corporate objectives.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 45
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Report of the Board of Directors (continued)
For the year ended 31 December 2018
Wider stakeholder needs and social responsibilities
The Group’s long-term success relies upon good relations with all its stakeholders, both internal and external. The Board affords
highest priority to ensuring that it maintains a strong understanding of the needs and expectations of all stakeholders. Feedback is
sought regularly across several platforms. The Group’s stakeholders include shareholders, employees, suppliers, customers,
regulators, industry bodies and creditors. The principal ways in which their feedback on the Group is gathered are via meetings and
conversations.
Understanding and meeting shareholder needs and expectations
The Board is aware of the needs and expectations of shareholders. The Company engages with its shareholders through quarterly
conference calls and at its Annual General Meeting. The board supports the use of the AGM to communicate with both institutional
and private investors. All shareholders are given the opportunity to ask questions and raise issues; this can be done formally during
the meeting or informally with the directors afterwards.
Experience, skills and capabilities of the Board Directors
Experience, skills and capabilities of the Board Directors who have been appointed to the Company have been chosen because of
the skills and experience they offer. The Board of Directors has strong, relevant experience across the areas of mining, accounting
and banking. The Board is satisfied that, between the Directors, it has an effective and appropriate balance of skills and experience,
including in the areas of gold mining and exploration. All Directors receive regular and timely information on the Group’s operational
and financial performance. Relevant information is circulated to the Directors in advance of meetings. Skills and knowledge have
been gained through aggregated experience in gold mining and the wider sector and these are maintained through ongoing
involvement and participation within the industry. All Directors retire by rotation at regular intervals in accordance with the Company’s
Articles of Association.
Governance structures and processes that support good decision-making
Details of the Company's corporate governance arrangements are provided its governance statement on the website
https://www.kefi-minerals.com/about/corporate-governance. There are no matters expressly reserved for the Board. The Board
considers the Group’s governance framework is appropriate and in line with its plans.
Website publication
The Directors are responsible for ensuring that the annual report and the financial statements are made available on a website.
Financial statements are published on the Company's website in accordance with applicable legislation governing the preparation
and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of
the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the
financial statements contained therein.
Relations with shareholders
The Board attaches great importance to providing shareholders with clear and transparent information on the Company's activities,
strategy and financial position. The Board typically meets with large shareholders following the release of financial results and regards
the Annual General Meeting (AGM) as a good opportunity to communicate directly with shareholders via an open question and
answer session. The Company regularly holds public question and answer calls in support of announcements, providing smaller and
private investors with direct access to management. The Board receives regular updates on the views of shareholders through
briefings and reports from the Managing Director, Financial Director and the Company’s brokers. In addition, analysts’ notes and
brokers’ briefings are reviewed to achieve a wide understanding of investors’ views.
The Company discloses contact details on its website and on all announcements released via RNS, should shareholders wish to
communicate with the Board. Details of all shareholder communications are provided on the Group's website. Historical Annual
Reports, notices of all general meetings from the last five years and the resolutions put to a vote at AGMs can be found on the
Company’s website. Over the last five years all resolutions put to a vote at AGMs have been duly passed. Whilst this has not occurred,
should a significant proportion of votes get cast against a resolution at any general meeting the Board would naturally seek to
understand the rationale for this through its engagement with shareholders.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 46
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Report of the Board of Directors (continued)
For the year ended 31 December 2018
Shareholders holding more than 3% of share capital
The Shareholders holding more than 3% of the share capital of the Company as at the date of this report and as far as the
Directors’ are aware:
Name
Percentage
Number of Shares
Hargreaves Lansdown (Nominees) Limited Total
Interactive Investor Services Nominees Limited Total
HSDL Nominees Limited Total
BNY (Ocs) Nominees Limited Total
SVS (Nominees) Limited Total
Vidacos Nominees Limited Total
Jim Nominees Limited Total
Barclays Direct Investing Nominees Limited Total
Winchcombe Ventures Limited Total
Share Nominees Ltd Total
Events after the reporting date
14.7%
9.7%
5.8%
5.6%
5.5%
5.4%
5.3%
3.8%
3.5%
2.9%
94,120,536
62,053,419
36,949,763
36,032,717
35,605,250
34,846,479
34,290,381
24,238,861
22,241,272
18,944,572
During February 2019, the Company completed a £969,000 placing by issuing 57,000,000 new ordinary shares of 1.7p each in the
capital of the Company at a price of 1.7 pence per share.
ANS Mining Share Company S.C (“ANS Mining”) has confirmed receipt from its investors of its first Project-equity instalment
commitments for US$11.4 million (Ethiopian Birr equivalent). The amount is higher than that previously anticipated US$9 million
(Ethiopian Birr equivalent). The remainder of the US$38 million (Ethiopian Birr equivalent) ANS Mining commitment will be subscribed
at close of full development funding. It has also been agreed that, of the total commitment of US$38 million (Ethiopian Birr equivalent),
one third will be invested via KEFI subsidiary KEFI Minerals (Ethiopia) Limited (“KME”) so that ANS Mining will be KEFI’s minority
partner in KME which controls TKGM and the exploration areas in the Tulu Kapi district which are considered prospective for potential
satellite and stand-alone deposits. The other two thirds of the ANS Mining investment will be directly into TKGM. We expect Ethiopia’s
mining sector to become more active on the back of our first-mover initiative. The ownership levels will be that KEFI will own c. 80%
of KME which in turn will hold c. 56% of TKGM and that KEFI’s beneficial ownership of TKGM will be c. 45% (both ownership levels
in TKGM are net, after adjustment for the Government’s 5% free carried interest).
During April 2019 the Company issued 14,864,533 new Ordinary Shares of nominal value 1.7p each in the capital of the Company
at a price of 2p per share.
Nominated advisor
The Company’s nominated advisor is SP Angel Corporate Finance LLP.
Auditors
On 1 February 2019 Moore Stephens LLP merged its business with BDO LLP. As a result, Moore Stephens LLP has resigned as
auditor and the directors have appointed BDO LLP as auditor in their place. A resolution will be proposed at the annual general
meeting to reappoint BDO LLP as auditor for the next financial year.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 47
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Report of the Board of Directors (continued)
For the year ended 31 December 2018
Directors’ confirmation
Each of the persons who are a director at the date of approval of this annual report confirms that:
there is no relevant audit information of which the Company’s auditors are unaware; and
•
• each Director has taken all the steps that ought to have been taken as a Director, in order to be aware of any relevant audit
information and to establish that the Company’s auditors are aware of that information.
By Order of the Board
John Edward Leach
Finance Director
Company Secretary
Cargil Management Services Limited
27/28 Eastcastle Street
London
United Kingdom
4 June 2019
KEFI Minerals Plc ANNUAL REPORT 2018
Page 48
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Strategic Report, the Directors’ Report and the financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected
to prepare the financial statements in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the
European Union. The financial statements are required by law to give a true and fair view of the state of affairs of the Company and
the Group and of the Group’s results for that year. Under company law Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view. The Directors are also required to prepare the financial statements in accordance
with the rules of the London Stock Exchange for companies trading on AIM.
In preparing these financial statements, the Directors are required to:
•
•
•
•
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
state whether the financial statements comply with IFRS as adopted by the European Union; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and
Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company to enable them to ensure that
the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group
and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from
legislation in other jurisdictions.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 49
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Independent Auditor’s Report to the Members of KEFI Minerals PLC
Our opinion
We have audited the financial statements of KEFI Minerals PLC (the Parent Company) and its subsidiaries (the Group) for the year
ended 31 December 2018 which comprise:
•
•
•
•
•
the consolidated statement of comprehensive income;
the consolidated and company statements of financial position;
the consolidated and company statements of changes in equity;
the consolidated and company cash flow statements; and
the notes to the financial statements, which include a summary of significant accounting policies and other explanatory
information.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the Parent Company
financial statements, as applied in accordance with the provisions of the Companies Act 2006.
In our opinion:
•
the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31
December 2018 and of the Group’s loss for the year then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
•
•
•
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements
section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty relating to going concern
We draw attention to note 2 in the financial statements, which indicates that the Group is dependent on raising additional financing
from a number of sources to enable it to carry out its planned business objectives and enable it to continue as a going concern.
As stated in note 2, these ,conditions, along with the other matters referred to in note 2, indicate that a material uncertainty exists
that may cast significant doubt on the Company’s and Group’s ability to continue as a going concern. Our opinion is not modified in
respect of this matter.
As described in note 4 to the financial statements the going concern assessment require management to make highly subjective
judgements and as such this has been identified as a Key Audit Matter. Our audit procedures included the following: We reviewed
the detailed forecasts and business plans to understand the funding requirement of the group and the key judgements being made.
We also reviewed the current funds on hand, funding agreements in place and the group’s ability to reduce expenditure over the next
year if required to support the key assumptions being made.
Our assessment of key risks of material misstatement
In addition to the matter described in the material uncertainty related to going concern section, key audit matters are those matters
that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include
the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had
the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 50
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Independent Auditor’s Report to the Members of KEFI Minerals PLC (continued)
Matter
How we addressed the matter in our audit
Carrying value of Intangible assets
The group has capitalised certain pre-production mining
expenditure in accordance with the provisions of the
accounting standards (see accounting policy note 2). This
is an area that requires management to make a number
of assumptions and judgements, and as such there is a
risk that the carrying value could be materially overstated
and potentially require impairment
We have reviewed
the JORC compliant resource
statement, prepared by an independent valuer, and
agreed this to the Definitive Feasibility Study, prepared by
another independent party, to support the carrying value
of the intangible asset.
This has been agreed to the valuation of the mining asset
prepared by management to support non impairment of
the capitalised costs. We have reviewed other key
assumptions made in this valuation which have been
agreed to supporting evidence as required.
We have also tested a sample of costs capitalised to
check they are allowed under accounting standards and
vouched
third party supporting
to
documentation.
these costs
The above procedures have been completed with no
issues being identified in respect to the carrying value of
the intangible asset as set out in the key judgements
section in note 4.
Our application of materiality
We set certain thresholds for materiality. These help us to establish transactions and misstatements that are significant to the financial
statements as a whole, to determine the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements,
both individually on balances and on the financial statements as a whole.
We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions
of reasonable users that are taken on the basis of the financial statements. Importantly, misstatements below these levels will not
necessarily be evaluated as immaterial as we also take into account of the nature of identified misstatements, and the particular
circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
We set materiality for the financial statements as a whole at £384,000 (2017: £347,000) which represents 2% of gross assets which
is the figure that we considered be of most interest to the users of the financial statements given the nature of the Group’s operations.
The parent company was audited to a materiality of £235,000 (2017: £211,000) based on 2% of the gross assets.
Performance materiality is the application of materiality at the individual account or balance level set at an amount to reduce to an
appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the
financial statements as a whole. Performance materiality was set at a range of £289,000 to £154,000 (2017: £255,000 to £136,000).
We agreed to report to the Audit and Risk Committee all potential adjustments in excess of £19,000 (2017:£17,250)being 5% of the
consolidated financial statements materiality as a whole, in addition to other identified misstatements that warranted reporting on
qualitative grounds.
We calculated a component materiality for the Ethiopian entity to ensure it was audited at an appropriate percentage of the overall
materiality and applied this in our risk assessments and determining relevant audit procedures. Our materiality for the significant
component was £200,000 (2017:£147,000) and was based on 1.5% of gross assets.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 51
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Independent Auditor’s Report to the Members of KEFI Minerals PLC (continued)
An overview of the scope of our audit
The group operates through one main trading subsidiary undertaking based in Ethiopia which was considered to be a significant
component for the purposes of the group financial statements, as well as one joint venture company. The financial statements
consolidate these entities together with a number of non-trading subsidiary undertakings, , as set out in note 13.1. In establishing our
overall approach to the group audit, we determined the type of work that needed to be performed in respect of each subsidiary. This
consisted of us carrying out a full review of the component auditors’ working papers of the significant component within the group,
which were subject to a full scope audit. This included meetings with the component auditor, which is a non BDO firm, throughout
the audit process as well as an onsite visit to Ethiopia to meet with the component auditor and local management. We also performed
analytical procedures in respect of the joint venture company and the non-trading subsidiaries.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the annual report,
other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we
are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information,
we are required to report that fact. We have nothing to report in this regard.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to
you if, in our opinion
•
•
•
•
adequate accounting records have not been kept, or returns adequate for our audit have not been received from
branches not visited by us; or
the financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, set out on page 47, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to
fraud or error.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 52
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Independent Auditor’s Report to the Members of KEFI Minerals PLC (continued)
In preparing the financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs(UK) will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state
to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the
opinions we have formed.
Stephen Corrall, Senior Statutory Auditor
For and on behalf of BDO LLP, Statutory Auditor
London, UK
5 June 2019
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
KEFI Minerals Plc ANNUAL REPORT 2018
Page 53
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Consolidated statement of comprehensive income
Year ended 31 December 2018
Notes
Year Ended
31.12.18
£’000
Year Ended
31.12.17
£’000
Revenue
Exploration costs
Gross loss
Administrative expenses
Finance transaction costs
Share-based payments-equity settled
Share of loss from jointly controlled entity
Operating loss
Change in value of financial assets at fair value through profit and loss
Foreign exchange(loss)/gain
Finance costs
Finance income
Loss before tax
Tax
Loss for the year
8
19
21
6
15
8
9
Loss attributable to:
-Owners of the parent
-Non-controlling interest
Loss for the period
Other comprehensive expense:
Exchange differences on translating foreign operations
Total comprehensive expense for the year
Total Comprehensive Income to:
-Owners of the parent
-Non-controlling interest
-
(93)
(93)
(2,463)
(1,599)
(158)
(161)
(4,474)
2
(24)
(459)
-
(4,955)
-
(4,955)
(4,955)
-
(4,955)
(13)
(4,968)
-
(146)
(146)
(2,535)
(865)
(93)
(286)
(3,925)
(2,280)
14
(85)
10
(6,266)
-
(6,266)
(6,266)
-
(6,266)
(398)
(6,664)
(4,968)
-
(6,664)
-
Basic and fully diluted loss per share (pence)
10
(1.041)
(1.987)
The notes on pages 60 to 97 are an integral part of these consolidated financial statements.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 54
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Statements of financial position
31 December 2018
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Investment in subsidiaries
Investments in jointly controlled entities
Current assets
Financial assets at fair value through OCI
Derivative financial asset at fair value through profit or loss
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Equity attributable to owners of the Company
Share capital
Deferred Shares
Share premium
Share options reserve
Foreign exchange reserve
Accumulated losses
Attributable to Owners of parent
Non-Controlling Interest
Total equity
Current liabilities
Trade and other payables
Loan and borrowings
Total liabilities
Total equity and liabilities
Company Number: 05976748
The
Group
Notes
2018
£’000
The
Company
2018
£’000
11
12
13.1
13.2
38
18,757
-
-
7
6,726
4,598
181
The
Group
2017
£’000
43
16,232
-
-
18,795
11,512
16,275
14
15
16
17
18
18
18
19
20
22
24
81
-
115
88
284
-
-
5,876
33
5,909
19,079
17,421
9,719
12,436
19,303
1,032
(215)
(27,998)
14,277
1,075
15,352
3,112
615
3,727
19,079
9,719
12,436
19,303
1,032
-
(28,418)
14,072
-
14,072
2,734
615
3,349
17,421
The
Company
2017
£’000
6
5,191
4,598
181
9,976
-
408
5,079
121
5,608
15,584
5,656
12,436
18,661
1,325
-
79
408
94
466
1,047
17,322
5,656
12,436
18,661
1,325
(228)
(23,380)
(25,072)
14,470
-
14,470
2,852
-
2,852
17,322
13,006
-
13,006
2,578
-
2,578
15,584
The notes on pages 60 to 97 are an integral part of these consolidated financial statements.
The Company has taken advantage of the exemption conferred by section 408 of Companies Act 2006 from presenting its own
statement of comprehensive income. Loss after taxation amounting to £4.6 million (2017: £8.2 million) has been included in the
financial statements of the parent company.
On the 4 June 2019, the Board of Directors of KEFI Minerals PLC authorised these financial statements for issue.
Harry Anagnostaras-Adams
Executive Director- Chairman
John Edward Leach
Finance Director
KEFI Minerals Plc ANNUAL REPORT 2018
Page 55
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Consolidated statement of changes in equity
Year ended 31 December 2018
Attributable to the owners of the Company
Share
Deferred
capital
shares
Share
premium
Share
options
reserve
Foreign
exchan
ge
reserve
Accumul
ated
losses
Owners
Equity
NCI
Total
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
3,883
12,436
16,279
1,474
170
(18,695)
15,547
-
-
(6,266)
(6,266)
-
(398)
-
(398)
-
(398)
(398)
(6,266)
(6,664)
-
(6,664)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,340)
-
-
-
1,773
-
5,656
-
-
12,436
4,078
(356)
18,661
-
-
-
-
-
-
-
4,063
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(938)
-
-
-
1,817
(237)
-
-
-
122
(30)
(241)
-
-
1,325
-
-
-
-
181
(67)
(407)
-
-
-
-
-
-
-
1,340
-
-
241
-
122
(30)
-
-
-
(228)
-
-
(23,380)
5,851
(356)
14,470
-
(4,955)
(4,955)
13
13
-
13
(4,955)
(4,942)
938
-
-
67
407
-
-
181
-
-
5,880
(237)
-
-
-
-
-
-
-
-
-
15,547
(6,266)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
122
(30)
-
5,851
(356)
14,470
(4,955)
13
(4,942)
-
181
-
-
5,880
(237)
At 1 January 2017
Loss for the year
Other comprehensive
income
Total Comprehensive
Income
Transfer realised loss
of derivative financial
asset (Note 15)
Recognition of share-
based payments
Forfeited options
Cancellation of
options
Issue of share capital
Share issue costs
At 31 December 2017
Loss for the year
Other comprehensive
income
Total Comprehensive
Income
Transfer realised loss
of derivative financial
asset (Note 15)
Recognition of share-
based payments
Forfeited options
Expired options
Issue of share capital
Share issue costs
Non-controlling
interest
At 31 December 2018
9,719
12,436
19,303
1,032
(215)
(27,998)
14,277
1,075
15,352
(1,075)
(1,075)
1,075
-
The following describes the nature and purpose of each reserve within owner’s equity:
Reserve
Share capital
Deferred shares
Description and purpose
amount subscribed for ordinary share capital at nominal value
on 16 June 2015, under the restructuring of share capital, ordinary shares of 1p each in the
capital of the Company were sub-divided into one new ordinary share of 0.1p and one deferred share
of 0.9p
Share premium
amount subscribed for share capital in excess of nominal value, net of issue costs
Share options reserve
reserve for share options granted but not exercised or lapsed
Foreign exchange reserve
cumulative foreign exchange net gains and losses recognized on consolidation
Accumulated losses
Cumulative net gains and losses recognized in the statement of comprehensive income,
excluding foreign exchange gains within other comprehensive income
NCI (Non-controlling interest) the portion of equity ownership in a subsidiary not attributable to the parent company
The notes on pages 60 to 97 are an integral part of these consolidated financial statements.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 56
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Company statement of changes in equity
Year ended 31 December 2018
Share
Deferred
shares
capital
£’000
£’000
Share
premium
£’000
At 1 January 2017
Comprehensive loss for the year
Transfer realised loss of derivative
financial asset (Note 15)
Recognition of share-based
payments
Forfeited options
Cancellation of options
Issue of share capital
Share issue costs
At 31 December 2017
Loss for the year
Transfer realised loss of derivative
financial asset (Note 15)
Recognition of share-based
payments
Forfeited options
Expired options
Issue of share capital
Share issue costs
At 31 December 2018
3,883
-
-
-
-
-
1,773
-
5,656
-
-
-
-
4,063
9,719
Share
options
reserve
£’000
1,474
-
-
Accumulated
losses
£’000
Total
£’000
(18,496)
(8,157)
1,340
15,576
(8,157)
-
12,436
-
-
16,279
-
(1,340)
-
-
122
-
122
-
-
-
-
12,436
-
-
-
-
-
-
12,436
-
-
4,078
(356)
18,661
(938)
-
-
-
1,817
(237)
19,303
(30)
(241)
-
-
1,325
-
181
(67)
(407)
-
-
1,032
-
241
-
-
(25,072)
(4,758)
938
(30)
-
5,851
(356)
13,006
(4,758)
-
-
181
67
407
-
-
(28,418)
-
-
5,880
(237)
14,072
The following describes the nature and purpose of each reserve within owner’s equity:
Reserve
Description and purpose
Share capital
amount subscribed for ordinary share capital at nominal value
Deferred shares
on 16 June 2015, under the restructuring of share capital, ordinary shares of 1p each in the capital of the
Company were sub-divided into one new ordinary share of 0.1p and one deferred share of 0.9p
Share premium
amount subscribed for share capital in excess of nominal value, net of issue costs
Share options reserve
reserve for share options granted but not exercised or lapsed
Accumulated losses
cumulative net gains and losses recognized in the statement of comprehensive income
The notes on pages 60 to 97 are an integral part of these consolidated financial statements.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 57
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Consolidated statement of cash flows
Year ended 31 December 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Loss before tax
Adjustments for:
Depreciation of property, plant and equipment
Share based payments
Issue of warrants
Fair value loss to derivative financial asset
Fair value loss to available for sale
Share of loss from jointly controlled entity
Exchange difference
Finance costs
Changes in working capital:
Trade and other receivables
Trade and other payables
Cash generated from operations
Interest paid
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Deferred exploration costs
Project evaluation costs
Acquisition of property plant and equipment
Advances to jointly controlled entity
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital
Issue costs
Derivative Financial Asset
Proceeds from bridge loan
Net cash from financing activities
Net (decrease)/increase in cash and cash equivalents
Effect of cash held in foreign currencies
Cash and cash equivalents:
At beginning of the year
Effect of exchange rate fluctuations on cash held
At end of the year
Notes
Year Ended
31.12.18
£’000
Year Ended
31.12.17
£’000
11
19
19
15
21
12
12
18
18
24.1.2
24.1.1
(4,955)
10
158
23
2
-
161
460
459
(3,682)
(21)
871
(2,832)
(344)
(3,176)
(990)
(1,535)
(6)
(304)
(2,835)
4,942
(224)
410
500
5,628
(383)
17
17
466
5
88
(6,266)
24
93
-
2,280
26
286
13
85
(3459)
2,569
291
(41)
(85)
(126)
(988)
(1,252)
(6)
(379)
(2,625)
1,923
(356)
1,240
-
2,807
121
-
410
(65)
466
Cash and cash equivalents in the Consolidated Statement of Financial Position includes restricted cash of £20,000 (2017: £20,000)
The notes on pages 60 to 97 are an integral part of these consolidated financial statements.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 58
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Company statement of cash flows
Year ended 31 December 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Loss before tax
Adjustments for:
Share based payments
Issue of warrants
Fair value loss to derivative financial asset
Impairment of loan to subsidiary
Impairment of amount receivable from jointly controlled entity
Exchange difference
Finance costs
Changes in working capital:
Trade and other receivables
Trade and other payables
Cash generated from operations
Interest Paid
Net cash used in operating activities
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of property plant and equipment
Project evaluation costs
Advances to jointly controlled entity
Loan to subsidiary
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital
Issue costs
Derivative Financial Asset
Proceeds from bridge loan
Net cash from financing activities
Net (decrease) in cash and cash equivalents
Cash and cash equivalents:
At beginning of the year
At end of the year
Notes
Year Ended
Year Ended
31.12.18
£’000
31.12.17
£’000
(4,758)
(8,157)
19
19
15
12
18
18
24.1.2
24.1.1
17
17
158
23
2
-
496
342
459
(3,278)
(21)
138
(3,161)
(344)
(3,505)
(4)
(1,535)
(304)
(368)
(2,211)
4,942
(224)
410
500
5,628
(88)
121
33
93
-
2,280
39
379
3
85
(5,278)
2,990
961
(1,327)
(85)
(1,412)
(4)
(1,252)
(379)
(39)
(1,674)
1,923
(356)
1,240
-
2,807
(279)
400
121
Cash and cash equivalents in the Company Statement of Financial Position includes restricted cash of £20,000 (2017: £20,000)
The notes on pages 60 to 97 are an integral part of these consolidated financial statements.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 59
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements
Year ended 31 December 2018
1. Incorporation and principal activities
Country of incorporation
KEFI Minerals PLC (the “Company”) was incorporated in United Kingdom as a public limited company on 24 October 2006. Its
registered office is at 27/28, Eastcastle Street, London W1W 8DH.The principal place of business is Cyprus.
Principal activities
The principal activities of the Group for the year were:
•
•
•
Exploration for mineral deposits of precious and base metals and other minerals that appear capable of commercial
exploitation, including topographical, geological, geochemical and geophysical studies and exploratory drilling.
Evaluation of mineral deposits determining the technical feasibility and commercial viability of development, including the
determination of the volume and grade of the deposit, examination of extraction methods, infrastructure requirements and
market and finance studies.
Development of mineral deposits and marketing of the metals produced.
2. Accounting policies
The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have
been consistently applied throughout both periods presented in these financial statements unless otherwise stated.
Basis of preparation and consolidation
The Company and the consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union. They comprise the accounts of KEFI Minerals PLC and all its subsidiaries
made up to 31 December 2018. The Company and the consolidated financial statements have been prepared under the historical
cost convention, except for the revaluation of certain financial instruments.
Business combinations
Business combinations are accounted for using the acquisition method as at the acquisition date – i.e. when control is transferred to
the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
When the excess is positive, goodwill is recognised in the statement of financial position, if the excess is negative, a bargain purchase
price is recognised in profit or loss.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a
business combination are expensed as incurred.
Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified
as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value
of the contingent consideration are recognised in profit or loss.
Subsidiaries
Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries have been included in the consolidated
financial statements from the date that control commences until the date that control ceases.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any income and expenses arising from intra-group transactions, are eliminated in
preparing the consolidated financial statements.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 60
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
2. Accounting policies (continued)
Going concern
The assessment of the Group’s ability to continue as a going concern involves judgment regarding future funding available for the
development of the Tulu Kapi Gold project, exploration of the Saudi Arabia exploration properties and for working capital
requirements. In considering the Group’s ability to continue as a Going Concern, management have considered funds on hand at
year end, planned expenditures covering a period of at least 12 months from the date of approving these financial statements and
the Group’s strategic objectives as part of this assessment. Due to the nature of its business, management increases or decreases
administrative and exploration expenditures based on available working capital. Judgments must also be made with regard to events
or conditions which might give rise to significant uncertainty.
In December 2018, the Group entered into a financing agreement with Sanderson Capital Partners for a convertible project loan
facility of up to GBP4,000,000 million (Note 24.2). The ability of the Company to carry out its planned business objectives is dependent
on its ability to continue to raise adequate financing from lenders, shareholders and other investors to meet its funding requirements.
Additional financing will be required to continue the development of the Tulu Kapi Gold Project through to production.
The Group is currently evaluating and seeking a number of additional sources of financing the main focus of which is securing initial
equity funding of US $58 million. The future equity funding of US $58 million will be invested by two shareholders the first being the
Ethiopian Government with proposed project equity of US$20 million; and Ethiopian private sector partner ANS Mining Share
Company Limited (“ANS Mining”) with an equity injection of US$38 million (Note 28).
In addition, the Group has mandated advisors to prepare for a US$160 million long term financing which the Group is currently
finalising. There is no assurance that such financing will be available on a timely basis or on acceptable terms. If the Group is unable
to obtain adequate additional financing, will be required to consider alternative courses of action which could include disposing of all
or part of the KEFI share of the Tulu Kapi Gold Project. The Group continually evaluates such potential outcomes and additional
potential sources of finance. These conditions indicate the existence of material uncertainties which could cast significant doubt over
the Group’s ability to continue as a going concern.
These audited consolidated financial statements do not give effect to any adjustments, which could be material, and which would be
necessary should the Group be unable to continue as a going concern and, therefore, be required to realize its assets and discharge
its liabilities in other than the normal course of business and at amounts different than those reflected in the audited consolidated
financial statements
Functional and presentation currency
Items included in the Group’s financial statements are measured using the currency of the primary economic environment in which
the entity operates (“the functional currency”) which for the Company is British Pounds (GBP). The financial statements are presented
in British Pounds (“GBP”).
Foreign currency translation
(1) Foreign currency translation
Foreign currency transactions are translated into the presentational currency using the exchange rates prevailing at the date of the
transactions. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and
liabilities denominated in foreign currencies are recognized in profit or loss in the statement of comprehensive income.
(2) Foreign operations
On consolidation, the assets and liabilities of the consolidated entity’s foreign operations are translated at exchange rates prevailing
at the reporting date. Income and expense items are translated at the average exchange rates for the period unless exchange rates
fluctuate significantly in which case they are recorded at the actual rate. Exchange differences arising, if any, are recognized in the
foreign currency translation reserve and as a component of other comprehensive income, and recognized in profit or loss on disposal
of the foreign operation.
Revenue recognition
The Group had no sales or revenue during the year ended 31 December 2018 (2017: £Nil).
KEFI Minerals Plc ANNUAL REPORT 2018
Page 61
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
2. Accounting policies (continued)
Property plant and equipment
Property plant and equipment are stated at their cost of acquisition at the date of acquisition, being the fair value of the consideration
provided plus incidental costs directly attributable to the acquisition less depreciation.
Depreciation is calculated using the straight-line method to write off the cost of each asset to their residual values over their estimated
useful life. The annual depreciation rates used are as follows:
Furniture, fixtures and office equipment
Motor vehicles
Plant and equipment
Intangible Assets
25%
25%
25%
Cost of licenses to mines are capitalised as intangible assets which relate to projects that are at the pre-development stage. No
amortisation charge is recognised in respect of these intangible assets. Once the Group starts production these intangible assets
relating to license to mine will be depreciated over life of mine.
Acquisitions and goodwill
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate
of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the
Group in exchange for control of the acquiree. Any costs directly attributable to the business combination are written off to the
statement of comprehensive income. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions
for recognition under IFRS 3 are recognized at their fair values at the acquisition date. Where the Group acquires a subsidiary for
less than the fair value of its assets and liabilities, this results in negative goodwill which is recognized in profit and loss.
Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost of the business
combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized.
Goodwill is reviewed for impairment on an annual basis. When the directors consider the initial value of the acquisition to be
negligible, the goodwill is written off to the statement of comprehensive income immediately. Trading results of acquired subsidiary
undertakings are included from the date of acquisition.
Goodwill is deemed to be impaired when the present value of the future cash flows expected to be derived is lower than the carrying
value. Any impairment is charged to the statement of comprehensive income immediately.
Interest in jointly controlled entities
The group is a party to a joint arrangement when there is a contractual arrangement that confers joint control over the relevant
activities of the arrangement to the group and at least one other party. Joint control is assessed under the same principles as control
over subsidiaries.
The group classifies its interests in joint arrangements as either:
- Joint ventures: where the group has rights to only the net assets of the joint arrangement
- Joint operations: where the group has both the rights to assets and obligations for the liabilities of the joint arrangement.
In assessing the classification of interests in joint arrangements, the Group considers:
- The structure of the joint arrangement
- The legal form of joint arrangements structured through a separate vehicle
- The contractual terms of the joint arrangement agreement
- Any other facts and circumstances (including any other contractual arrangements).
The Group accounts for its interests in joint ventures in the same manner as investments in Associates using the equity method
The Group accounts for its interests in joint operations by recognising its share of assets, liabilities, and expenses in accordance with
its contractually conferred rights and obligations
KEFI Minerals Plc ANNUAL REPORT 2018
Page 62
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
2. Accounting policies (continued)
Finance costs
Interest expense and other borrowing costs are charged to the statement of comprehensive income as incurred and is recognised
using the effective interest method.
Tax
The tax payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the statement of
comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. Tax is payable in the relevant jurisdiction at the rates described in note 9.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the
statement of financial position liability method. Deferred tax liabilities are generally recognized for all taxable differences and deferred
tax assets are recognized to the extent that taxable profits will be available against which deductible temporary differences can be
utilized. The amount of deferred tax is based on the expected manner of realisation or settlement of the carrying amounts of assets
and liabilities, using tax rates that have been enacted or substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off deferred tax assets against deferred
tax liabilities and when the deferred taxes relate to the same fiscal authority.
Investments
Investments in subsidiary companies are stated at cost less provision for impairment in value, which is recognized as an expense in
the period in which the impairment is identified, in the Company accounts.
Exploration costs
The Group has adopted the provisions of IFRS 6 “Exploration for and Evaluation of Mineral Resources”. The company still applies
IFRS6 until the project financing is secured. Once financing is secured the project moves to the development stage.
Exploration, evaluation and development expenditure, including acquisition costs of licences, in respect of each identifiable area of
interest is expensed to the statement of comprehensive income as incurred, until the point at which development of a mineral deposit
is considered economically viable. Once the technical feasibility and commercial viability of extracting the mineral resource are
demonstrable, further costs are no longer capitalised as such and existing asset is reclassified accordingly, after being tested for
impairment.
Once the Board decides on the development of a project, development expenditure will be capitalized as incurred only where it meets
criteria for recognition as an intangible under IAS 38 or a tangible asset under IAS 16 and amortized over the estimated useful life of
the area according to the rate of depletion of the economically recoverable reserves or over the estimated useful life of the mine, if
shorter.
The directors consider that of the project in its Licence areas in Saudi Arabia has not yet met its criteria for capitalization. Capitalized
E&E costs for the Group’s project in Ethiopia have been recognized on acquisition, and have continued to be capitalised since this
date, in accordance with IFRS 6. The technical feasibility of the project has been confirmed, and once the financing is secure the
related assets will be reclassified as development costs in line with above.
A regular review will be undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in
relation to that area of interest. Accumulated capitalized costs in relation to an abandoned area of interest will be written off in full
against profit in the year in which the decision to abandon the area is made. Capitalized development expenditure will be amortized
from the date at which production commences on a unit of production basis over the estimated lifetime of the commercial ore reserves
for the area to which the costs relate.
Share-based compensation benefits
IFRS 2 “Share-based Payment” requires the recognition of equity-settled share-based payments at fair value at the date of grant and
the recognition of liabilities for cash-settled share-based payments at the current fair value at each statement of financial position
date. The total amount expensed is recognized over the vesting period, which is the period over which performance conditions are
to be satisfied.
The fair value is measured using the Black Scholes pricing model. The inputs used in the model are based on management’s best
estimate, including consideration of the effects of non-transferability, exercise restrictions and behavioural considerations.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 63
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
2. Accounting policies (continued)
Financial instruments
Non-derivative financial assets
The Group initially recognises loans and receivables on the date that they are originated. All other financial assets are recognised
initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights
to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial
asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognised as a
separate asset or liability.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when,
the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the
liability simultaneously.
The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset
was acquired.
Amortised cost: These are Financial assets where the objective is to hold these assets in order to collect contractual cash flows and
the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction
costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective
interest rate method, less provision for impairment. Loans and receivables, as well as cash are classified as amortised cost
Financial asset at fair value through other comprehensive income: Financial assets (debt) which are held with the objective as above
but which maybe intended to be sold before maturity. And also includes strategic equity investments (that are not subsidiaries, joint
ventures or associates) which would be normally held at fair value through profit or loss, could on irrevocable election be measured
with fair value changes flow through OCI. On disposal, the gain or loss will not be recycled to P&L
Financial asset at fair value through profit and loss: Financial assets not meeting the criteria above and derivatives.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, overdrafts and call deposits with maturities of three months or less from the
acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management
of its short-term commitments.
Non-derivative financial liabilities
The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other
financial liabilities are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual
provisions of the instrument.
The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.
The Group classifies non-derivative financial liabilities as other financial liabilities. Such financial liabilities are recognised initially at
fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at
amortised cost using the effective interest method.
Other financial liabilities comprise trade and other payables and borrowings.
Financial assets and liabilities at fair value through the profit or loss
Financial assets and liabilities at fair value through the profit or loss comprise derivative financial instruments. Subsequent to initial
recognition, financial assets at fair value through the profit or loss are stated at fair value. Movements in fair values are recognised
in profit or loss unless they relate to derivatives designated and effective as hedging instrument, in which event the timing of the
recognition in the profit or loss depends on the nature of the hedging relationship. The Group does not currently have any such
hedging instruments.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 64
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
2. Accounting policies (continued)
New standards and interpretations
During the current year the Group and the Company adopted all the new and revised International Financial Reporting Standards
(IFRS) that are relevant to its operations and are effective for accounting periods beginning on 1 January 2018.
The Group and the Company applied IFRS 9 and IFRS 15 for the first time from 1 January 2018. The nature and effect of the changes
as a result of adoption of these new accounting standards are described below.
Several other amendments and interpretations apply for the first time in 2018, but do not have a significant impact on the consolidated
financial statements of the Group. The Group has not early adopted any standards, interpretations or amendments that have been
issued but are not yet effective.
IFRS 9 Financial Instruments:
IFRS 9 Financial Instruments addresses the classification, measurement, and derecognition of financial assets and financial liabilities,
introduces new rules for hedge accounting and a new impairment model for financial assets.
Based on the assessment performed, the new guidance has the following impacts on the classification and measurement of its
financial instruments
•
Financial assets at fair value through Other Comprehensive Income (“OCI”): The equity instruments that were classified as
available-for-sale financial assets satisfy the conditions for classification as at fair value through other comprehensive income
(FVOCI) and therefore there is no impact in classification. Gains and losses accumulated in other comprehensive income are
not recycled to the income statement.
Furthermore, under IFRS 9 there is no exception to carry investments in entities at costs less any recognised impairment and
therefore, fair value will need to be calculated. There are no other significant changes to the accounting treatment of these assets.
•
Impairment: The new impairment model requires the recognition of impairment provisions based on expected credit losses
(ECL) rather than only incurred credit losses as is the case under IAS 39. The Group applies the simplified approach and records
lifetime expected losses on all trade receivables. However, given the short term nature of the Group’s receivables, there is not
a significant impact in the financial statements. For the Parent Company, current and non-current receivables (except for non-
current assets at fair value through profit and loss) are stated at amortised cost. A provision for impairment of receivables is
established using the expected credit loss impairment model according IFRS 9.
The amount of the provision is the difference between the carrying amount and the recoverable amount and this difference is
recognised in the income statement.
• Disclosures: The standard introduces expanded disclosure requirements and changes in presentation included in this report.
The Group also assessed other changes introduced by IFRS 9 that have no impact - on the financial statements as explained
below: - There is no impact on the accounting for financial liabilities, as the new requirements of IFRS 9 only affect the accounting
for financial liabilities that are designated at fair value through profit or loss and the Group does not have any such liabilities.
• No impacts in relation to derecognition of financial instruments as the same rules have been transferred from IAS39 Financial
Instruments: Recognition and Measurement.
IFRS 15 – Revenue with Contracts with Customers, deals with revenue recognition and establishes principles for reporting useful
information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from
an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the
ability to direct the use and obtain the benefits from the good or service. The standard is effective for annual periods beginning on or
after 1 January 2018, with early adoption permitted. The adoption of this standard has had no effect on the Group, as the Group
does not currently have any revenue.
IFRS 2: Classification and Measurement of Share based Payment Transactions (Amendments) The Amendments are effective for
annual periods beginning on or after 1 January 2018 with earlier application permitted. The Amendments provide requirements on
the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments, for
share-based payment transactions with a net settlement feature for withholding tax obligations and for modifications to the terms and
conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. As the
Company does not have cash settled awards, the amendments to IFRS 2 do not impact the Consolidated and Company’s financial
statements
KEFI Minerals Plc ANNUAL REPORT 2018
Page 65
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
2. Accounting policies (continued)
Standards issued but not yet effective
New standards, amendments and interpretations that are not yet effective and have not been early adopted There are a number of
standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting
periods and which have not been adopted early. None of these are expected to have a significant effect on the Group, in particular:
IFRS “16 Leases” (effective for periods beginning on or after 1 January 2019) requires lessees to use single on-balance sheet model
and recognise all lease assets and liabilities on the balance sheet. Management have completed an assessment of existing operating
contracts and do not anticipate the adoption of IFRS 16 to have a significant impact on the Group’s financial statements as the
operating leases held by the Group are of low value and the majority of the existing contracts either relate to service agreements or
contain performance obligations based on variable terms and thus do not result in right of use assets or lease liabilities.
3. Financial risk management
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise cash at bank and in hand with an original maturity
date of less than three months. To mitigate our inherent exposure to credit risk we maintain policies to limit the concentration of credit
risk, and ensure liquidity of available funds. We also invest our cash and equivalents in rated financial institutions, primarily within
the United Kingdom and other investment grade countries, which are countries rated BBB- or higher by S&P the Group does not
have a significant concentration of credit risk arising from its bank holdings of cash and cash equivalents.
Financial risk factors
The Group is exposed to market risk (interest rate risk and currency risk), liquidity risk and capital risk management arising from the
financial instruments it holds. The risk management policies employed by the Group to manage these risks are discussed below:
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations. The Group does not consider this risk to be significant.
The Company has borrowings outstanding from its subsidiaries, the ultimate realisation of which depends on the successful
exploration and realization of the Group’s intangible exploration assets. This in turn is subject to the availability of financing to maintain
the ongoing operations of the business. The Group manages its financial risk to ensure sufficient liquidity is available to meet
foreseeable needs and to invest cash assets safely and profitably.
Market risk - Interest rate risk
Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The Group’s
operating cash flows are substantially independent of changes in market interest rates as the Group has no significant interest-
bearing assets. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates
expose the Group to fair value interest rate risk. The Group’s management monitors the interest rate fluctuations on a continuous
basis and acts accordingly.
At the reporting date the interest rate profile of interest-bearing financial instruments was:
Variable rate instruments
Financial assets
2018
£’000
88
2017
£’000
466
Sensitivity analysis
An increase of 100 basis points in interest rates at 31 December 2018 would have increased equity and profit or loss by the amounts
shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. Given current
interest rate levels, a decrease of 25 basis points has been considered, with the impact on profit and equity shown below.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 66
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
3. Financial risk management (continued)
Variable rate instruments
Financial assets – increase of 100 basis points
Financial assets – decrease of 25 basis points
Equity
Profit or Loss
Equity
Profit or Loss
2018
£’000
1
(0.2)
2018
£’000
1
(0.2)
2017
£’000
5
(1)
2017
£’000
5
(1)
Currency risk
Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk
arises when future commercial transactions and recognized assets and liabilities are denominated in a currency that is not the
functional currency of the entity.
The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the Australian Dollar,
Euro, Turkish Lira, US Dollar, CHF, Ethiopian Birr and Saudi Arabian Riyal. Since 1986 the Saudi Arabian Riyal has been pegged to
the US Dollar, it is fixed at USD/SAR 3.75. The Group’s management monitors the exchange rate fluctuations on a continuous basis
and acts accordingly.
The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date
are as follows; with the Saudi Arabian Riyal exposure being included in the USD amounts.
Australian Dollar
Euro
Turkish Lira
US Dollar
Ethiopian Birr
CHF Swiss Franc
Liabilities
2018
£’000
Assets
2018
£’000
Liabilities
2017
£’000
Assets
2017
£’000
57
333
2
1377
169
27
-
2
28
51
273
-
103
180
2
1,251
70
-
-
2
40
45
549
-
Sensitivity analysis
A 10% strengthening of the British Pound against the following currencies at 31 December 2018 would have increased/(decreased)
equity and profit or loss by the amounts shown in the table below. This analysis assumes that all other variables, in particular interest
rates, remain constant. For a 10% weakening of the British Pound against the relevant currency, there would be an equal and
opposite impact on the loss and equity.
AUD Dollar
Euro
Turkish Lira
US Dollar
Ethiopia ETB
CHF Swiss Franc
Equity
2018
£’000
6
33
(3)
133
(10)
3
Profit or Loss
2018
£’000
6
33
(3)
133
(10
3
Equity
2017
£’000
10
18
(4)
120
(48)
-
Profit or Loss
2017
£’000
10
18
(4)
120
(48)
-
KEFI Minerals Plc ANNUAL REPORT 2018
Page 67
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
3. Financial risk management (continued)
Liquidity risk
Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially
enhances profitability but can also increase the risk of losses. The Group has procedures with the object of minimising such losses
such as maintaining sufficient cash and other highly liquid current assets and by having available an adequate amount of committed
credit facilities.
Carrying
Amount
Contractual
Cash flows
Less than 1
year
Between
1-5 year
More than 5
years
The Group
31 December 2018
Trade and other payables
Loans and Borrowings
31 December 2017
Trade and other payables
The Company
31 December 2018
Trade and other payables
Loans and Borrowings
31 December 2017
Trade and other payables
3,112
3,112
3,112
615
615
615
3,727
3,727
3,727
2,852
2852
2852
2,734
2,734
2,734
615
615
615
3,349
3,349
3,349
2,578
2,578
2,578
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Capital risk management
The Group manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to shareholders
through the optimization of the debt and equity balance. This is done through the close monitoring of cash flows.
The capital structure of the Group consists of cash and cash equivalents of £88,000 (2017: £466,000) and equity attributable to
equity of the parent, comprising issued capital and deferred shares of £22,155,000 (2017: £18,092,000), other reserves of
£20,120,000, (2017: £19,759,000) and accumulated losses of £27,998,000 (2017: £23,380,000). The Group has no long-term debt
facilities.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 68
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
3. Financial risk management (continued)
Fair value estimation
The Group has certain financial assets and liabilities that are held at fair value. The fair value hierarchy establishes three levels to
classify the inputs to valuation techniques to measure fair value:
Classification of financial assets and liabilities
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is,
as prices) or indirectly (that is, derived from prices); and
Level 3 – inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
The fair value of trade and other receivables is estimated as the present value of future cash flows discounted at the market rate of
interest at the reporting date. For receivables and payables with a remaining life of less than one year, the notional amount is deemed
to reflect fair value. All other receivables and payables are, where material, discounted to determine the fair value.
Differences arising between the carrying and fair value are considered not significant to adjust for in these accounts. The carrying
and fair values of intercompany balances are the same as if they are repayable on demand.
As at each of December 31, 2018 and December 31, 2017, the levels in the fair value hierarchy into which the Group’s financial
assets and liabilities measured and recognized in the statement of financial position at fair value are categorized are as follows:
Financial assets
Cash and cash equivalents (Note 17) – Level 1
Financial assets at fair value through OCI (Note 14) - Level 2
Derivative financial asset (Note 15) - Level 2
Trade and other receivables (Note 16)
Financial liabilities
Trade and other payables (Note 22)
Loans and borrowings (Note 24)
Carrying Amounts
Fair Values
2018
£’000
88
81
-
115
2017
£’000
466
79
408
94
3,112
615
2,734
615
2018
£’000
88
81
-
115
3,112
615
2017
£’000
466
79
408
94
2,734
615
KEFI Minerals Plc ANNUAL REPORT 2018
Page 69
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
4. Use and revision of accounting estimates and judgements
The preparation of the financial report requires the making of estimations and assumptions that affect the recognized amounts of
assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. The estimates and associated assumptions are
based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of
which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
Accounting Judgement:
Going concern
The going concern presumption depends principally on securing funding to develop the Tulu Kapi mine project as an economically
viable mineral deposit, and the availability of subsequent funding to extract the resource, or alternatively the availability of funding to
extend the Company’s and Group’s exploration activities.
Contingent liabilities
A contingent liability arises where a past event has taken place for which the outcome will be confirmed only by the occurrence or non-
occurrence of one or more uncertain events outside of the control of the Group, or a present obligation exists but is not recognised because
it is not probable that an outflow of resources will be required to settle the obligation. A provision is made when a loss to the Group is likely
to crystallise. The assessment of the existence of a contingency and its likely outcome, particularly if it is considered that a provision might
be necessary, involves significant judgment taking all relevant factors into account
Finance transaction Costs
The company has expensed all costs incurred in preparatory work to secure funding to develop the Tulu Kapi mine project. The
moment project funding is secured the direct transaction costs will be included as part of the initial carrying amount of the financial
instrument, the recognition of these costs in profit or loss is spread over the term of the instrument through the application of the
effective interest method.
Estimates:
Fair value of acquisitions
The 'acquisition method', which generally requires assets acquired and liabilities assumed to be measured at their fair values at the
acquisition date. Fair value estimates are required. In calculating the fair value estimates of net identifiable net assets on acquisition
significant judgements and estimates are required.
Share based payments
In calculating the fair value at the grant date, the Black Scholes model requires us to estimate the inputs to this model, in particular
in respect of volatility. This assessment is based on historical share price movements assuming these will continue into the future.
Impairment review of asset carrying values
Events or changes in circumstances can give rise to significant impairment charges or reversals of impairment in a particular year.
Where the recoverable amounts of Group cash generating units are assessed by analyses of discounted cash flows, the resulting
valuations are particularly sensitive to changes in estimates of long-term commodity prices, exchange rates, operating costs, the
grouping of assets within cash-generating units and discount rates.
Capitalisation of exploration and evaluation costs
Under the Group’s accounting policy, exploration and evaluation expenditure is not capitalised until the point is reached at which there is a
high degree of confidence in the project’s viability and it is considered probable that future economic benefits will flow to the Group.
Subsequent recovery of the resulting carrying value depends on successful development or sale of the undeveloped project. If a project
KEFI Minerals Plc ANNUAL REPORT 2018
Page 70
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
5. Operating segments
The Group has only one distinct operating segment, being that of mineral exploration. The Group’s exploration activities are located
in the Kingdom of Saudi Arabia (through the jointly controlled entity), Ethiopia and its administration and management are based in
Cyprus. Turkey and Bulgaria are as a result f previous interest in Turkey.
2018
Operating (loss)
Material non-recurring item
Foreign exchange profit/(loss)
Net Finance costs
Share of loss from jointly controlled entity
Loss before tax
Tax
Loss for the year
Total assets
Total liabilities
Depreciation of property, plant and equipment
2017
Operating (loss)
Material non-recurring item
Foreign exchange profit/(loss)
Net Finance costs
Share of loss from jointly controlled entity
Loss before tax
Tax
Loss for the year
Total assets
Total liabilities
Depreciation of property, plant and equipment
Cyprus
Turkey
Bulgaria
Ethiopia
Consolidated
£’000
£’000
£’000
£’000
£’000
(4,279)
(20)
(2)
(10)
(4,311)
-
(33)
(459)
-
9
-
-
-
-
-
-
-
(4,771)
(11)
(2)
(10)
6,713
3,351
5
29
1
-
2
4
-
12,013
371
5
-
(24)
(459)
(4,794)
(161)
(4,955)
-
(4,955)
18,757
3,727
10
Cyprus
Turkey
Bulgaria
Ethiopia
Consolidated
£’000
£’000
£’000
(3,600)
(23)
(3)
(2,280)
-
(75)
(5,955)
5,652
2,578
3
-
14
-
(9)
41
3
-
£’000
(13)
-
-
-
-
-
-
(3)
(13)
4
5
-
11,625
266
21
£’000
(3,639)
(2,280)
14
(75)
(5,980)
(286)
(6,266)
-
(6,266)
17,322
2,852
24
KEFI Minerals Plc ANNUAL REPORT 2018
Page 71
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
6. Expenses by nature
Exploration costs
Depreciation of property, plant and equipment (Note 11)
Investigatory, pre-decisional -decisional project finance transaction costs (Note 8)
Warrants issue costs (Note 19)
Share based benefits to employees (Note 19)
Share based benefits to key management (Note 19)
Share of losses from jointly controlled entity (Note 5 and Note 21)
Directors’ fees and other benefits (Note 23.1)
Consultants’ costs
Auditors’ remuneration - audit current year
Auditors’ remuneration -secondary firm
Legal Costs
Ongoing Listing Costs
Other expenses
Operating loss
Year Ended
31.12.18
£’000
Year Ended
31.12.17
£’000
93
10
1,599
23
26
55
161
759
441
45
28
387
193
654
4,474
146
24
865
-
23
20
286
708
356
47
23
516
217
694
3,925
The Group’s stages of operations in Saudi Arabia as at the year-end and as at the date of approval of these financial statements
have not yet met the criteria for capitalization of exploration costs. The Company only capitalises direct development costs for the
Tulu Kapi gold project in Ethiopia.
7. Staff costs
Salaries
Accumulated Leave Provision
Termination Package
Social insurance costs and other funds
Average number of employees
Year Ended
31.12.18
£’000
Year Ended
31.12.17
£’000
627
-
-
38
665
50
408
10
2
27
447
44
Excludes Directors’ remuneration and fees which are disclosed in note 23.1. These staff costs are capitalised in development
exploration costs. All these employees are involved in Tulu Kapi Project in Ethiopia.
8. Finance transaction costs
Interest on short term loan
Interest on short term loan related party (note 23.2)
Total finance costs
Transaction costs for secured convertible loan facility (note 24.2)
On-going arrangement investigation cost for long term finance
Total finance transaction costs
2018
£’000
409
50
459
380
1,219
1,599
2017
£’000
85
-
85
-
865
865
The above on-going arrangement cost relate to pre-investigation activities required to fund TK Gold project
KEFI Minerals Plc ANNUAL REPORT 2018
Page 72
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
9. Tax
Loss before tax
Tax calculated at the applicable tax rates
Tax effect of non-deductible expenses
Tax effect of tax losses
Tax effect of items not subject to tax
Charge for the year
2018
£’000
(4,955)
(621)
329
308
(16)
-
2017
£’000
(6,266)
(786)
731
55
-
-
The Company is resident in Cyprus for tax purposes. A deferred tax asset of £1,239,636 (2017: £1,271,982) has not been
accounted for due to the uncertainty over future recoverability
Cyprus
The corporation tax rate is 12.5%. Under certain conditions interest income may be subject to defence contribution at the rate of
30%. In such cases this interest will be exempt from corporation tax. In certain cases, dividends received from abroad may be subject
to defence contribution at the rate of 20% for the tax year 2013 and 17% for 2014 and thereafter. Due to tax losses sustained in the
year, no tax liability arises on the Company. Under current legislation, tax losses may be carried forward and be set off against
taxable income of the five succeeding years. As at 31 December 2018, the balance of tax losses which is available for offset against
future taxable profits amounts to £ 9,917,086 (2017: £ 10,175,859).
Bulgaria
Mediterranean Minerals (Bulgaria) EOOD, the 100% subsidiary of the Company, is resident in Bulgaria for tax purposes. The
corporation tax rate is 10%. Due to tax losses sustained in the period, no tax liability arises on the Mediterranean Minerals (Bulgaria)
EOOD. Under current legislation, tax losses may be carried forward and be set off against taxable income of the following five years.
As at 31 December 2018, the balance of tax losses which is available for offset against future taxable profits amounts to £29,971
(2017: £29,867). The reduction in tax losses from the prior year is due to losses passing the five-year threshold for their utilization.
Turkey
Doğu Akdeniz Mineralleri Sanayi ve Ticaret Limited Şirket (Doğu Akdeniz Mineralleri), the 100% subsidiary of Mediterranean Minerals
(Bulgaria) EOOD, and ultimately 100% subsidiary of the Company, is resident in Turkey for tax purposes. The corporation tax rate
is 20%. Under local tax legislation, exploration costs can only be set off against income from mining operations. Tax losses may be
carried forward and be set off against taxable income of the five succeeding years. As at 31 December 2018, the balance of
exploration costs that is available for offset against future income from mining operations amount to £ 107,286 (2017: £143,375).
Ethiopia
KEFI Minerals (Ethiopia) Limited is subject to other direct and indirect taxes in Ethiopia through its foreign operations. The mining
industry in Ethiopia is relatively undeveloped. As a result, tax regulations relating to mining enterprises are evolving. There are
transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain.
The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where
the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the
current and deferred tax provisions in the period in which such determination is made.
During 2013, the House of People's Representatives passed an amendment to the Mining Income Tax Proclamation, reducing
income tax from 35% to 25% and had received an initial draft of proposed amendments to the Mining Proclamation, which includes
a reduction in royalty on gold production from 8% to 7%. According to the Proclamation holders of a mining licence are required to
pay royalty on the sales price of the commercial transaction of the minerals produced.
United Kingdom
KEFI Minerals (Ethiopia) Limited is resident in United Kingdom for tax purposes. The corporation tax rate is 20%. In December 2016,
KEFI Minerals (Ethiopia) Limited elect under CTA 2009 section 18A to make exemption adjustments in respect of the company’s
foreign permanent establishment’s amounts in arriving at the company’s taxable total profits for each relevant accounting period.
This is an exemption for UK corporation tax in respect of the profits of the Ethiopian branch.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 73
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
10. Loss per share
The calculation of the basic and fully diluted loss per share attributable to the ordinary equity holders of the parent is based on the
following data:
Net loss attributable to equity shareholders
Average number of ordinary shares for the purposes of basic loss per share (000’s)
Loss per share:
Basic and fully diluted loss per share (pence)
The effect of share options and warrants on losses per share is anti-dilutive.
11. Property, plant and equipment
Year Ended
31.12.18
£’000
(4,955)
476,051
Year Ended
31.12.17
£’000
(6,266))
315,273
(1.041)
(1.987)
The Group
Cost
At 1 January 2017
Additions
Disposals
At 31 December 2017
Additions
At 31 December 2018
Accumulated Depreciation
At 1 January 2017
Charge for the year
Disposals
At 31 December 2017
Charge for the year
At 31 December 2018
Net Book Value at 31 December 2018
Net Book Value at 31 December 2017
Motor
Vehicles
Plant and
equipment
£’000
£’000
Furniture,
fixtures and
office
equipment
£’000
75
-
(4)
71
-
71
33
1
(4)
30
4
34
37
41
135
2
(71)
66
-
66
116
19
(71)
64
2
66
-
2
62
4
-
66
6
72
62
4
-
66
5
71
1
-
Total
£’000
272
6
(75)
203
6
209
211
24
(75)
160
10
170
38
43
The above property, plant and equipment is located in Turkey and Ethiopia.
The Company has no significant property, plant and equipment.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 74
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
12. Intangible assets
The Group
Cost
At 1 January 2017
Additions
At 31 December 2017
Additions
At 31 December 2018
Accumulated Amortization and Impairment
At 1 January 2017
At 31 December 2017
Impairment Charge for the year
At 31 December 2018
Net Book Value at 31 December 2018
Net Book Value at 31 December 2017
The Company
Cost
At 1 January 2017
Additions
At 31 December 2017
Additions
At 31 December 2018
Accumulated Amortization and Impairment
At 1 January 2017
Impairment Charge for the year
At 31 December 2017
Impairment Charge for the year
At 31 December 2018
Net Book Value at 31 December 2018
Net Book Value at 31 December 2017
Deferred
exploration
costs
£’000
Project
evaluation
costs
£’00
10,319
988
11,307
990
12,297
266
266
-
266
3,939
1,252
5,191
1,535
6,726
-
-
-
-
Total
£’000
14,258
2,240
16,498
2,525
19,023
266
266
266
12,031
11,041
6,726
5,191
18,757
16,232
Project
evaluation
costs
£’000
3,939
1,252
5,191
1,535
6,726
-
-
-
-
-
Total
£’000
3,939
1,252
5,191
1,535
6,726
-
-
-
-
-
6,726
5,191
6,726
5,191
KEFI Minerals Plc ANNUAL REPORT 2018
Page 75
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
12. Intangible assets (continued)
Deferred exploration costs are associated with the Tulu Kapi mine in Ethiopia. The group recognized deferred exploration costs with
a fair value of £ 6,900,000 on acquisition of the project in December 2013. Further costs incurred by the Group since the acquisition
have been capitalised. The Company had incurred historical exploration costs of £30,293,000 on the Tulu Kapi Gold Project asset.
However, at the date of acquisition, actual Deferred Exploration Costs incurred on the Tuli Kapi Gold Project was impaired by
£23,052,000 by the previous owners to a net book value of £6,900,000. Attached below a table reconciling the book value to the
actual deferred exploration costs.
Deferred exploration costs
31.12.2013 31.12.2014 31.12.2015 31.12.2016 31.12.2017 31.12.2018
TOTAL
£’000
£’000
£’000
£’000
£’000
£’000
£’000
The Group
Cost
Additions
Total Cost
Impairment
Exchange
differences
Date of
Acquisition
30,293
-
-
-
-
-
30,293
-
1,263
967
1,189
988
990
5,397
30,293
1,263
967
1,189
988
990
35,690
(23,052)
(341)
-
-
-
-
(266)
-
-
-
-
(23,318)
-
(341)
Net Book Value
6,900
1,263
967
923
988
990
12,031
Upon closing of full project funding for the development of Tuli Kapi Gold Project development expenditure will be capitalized as
incurred and amortised over the estimated useful life of the area according to the rate of depletion of the economically recoverable
reserves or over the estimated useful life of the mine, if shorter. The Board will also review the fair value of its investments in
accordance with IFRS 9.
Management performs an impairment review for deferred exploration costs regularly, which relate to the Tulu Kapi licence area. The
Net Present Value of the Tulu Kapi asset significantly exceeded the net book value as do the project equity commitments made by
investors.
The impairment review compared the recoverable amount of assets to the carrying value. The recoverable amount of an asset is
assessed by reference to the higher of value in use (“VIU”), being the net present value (“NPV”) of future cash flows expected to be
generated by the assets, and fair value less costs to dispose (“FVLCD”). The FVLCD is based on an estimate of the amount that the
Company may obtain in a sale transaction on an arm’s length basis. Management considers that both the VIU and FVLCD significantly
exceed current carrying value, which is intended to be reviewed upon closing of full project funding.
Project evaluation costs relating to work performed in assessing the economic feasibility and the independent technical review of the
Tulu Kapi project have been capitalised by the Company. In August 2015, the Company published the Tulu Kapi Definitive Feasibility
Study (“DFS”) evaluating a conventional open-pit mining operation and carbon-in leach (“CIL”) processing plant.
In May 2017, KEFI announced an update to its 2015 definitive feasibility study (DFS) in order to account for all of the initiatives
undertaken by the company in the intervening two years. According to the 2017 DFS update, the NPV at the start of construction is
US$97,000,000 at a US$1,250/oz gold price and an 8% discount rate.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 76
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
12. Intangible assets (continued)
Based only on extracting its one million ounces of ore reserves within the planned open pit section of the Project, remain in
accordance with previous guidance and as supported by the project feasibility studies and updates. The 8% discount rate is based
on the expected future cost of the capital of the project.
NPV after debt and after tax, at 8% discount rate and at an average gold price of US$1300/oz:
• US$117,000,000(£90,000,000) for 100% and US$53,000,000(£41,000,000) for KEFI beneficial interest 45% at start of
construction;
• US$193,000,000 (£148,000,000) for 100% and US$87,000,000(£67,000,000) for KEFI beneficial interest 45% at start
•
of production two years later; and
Average EBITDA $80 million per annum and average net cash flow (after debt repayments and all planned
commitments) of $30 million per annum.
As is typically the case for mining projects, the project is most sensitive to commodity price. A 13.5% reduction in the gold price
assumed to be flat for the next 10 years from $1,300/oz to $1,122/oz results in a reduction of NPV 8% to near zero and the converse
has the opposite impact. The project has an after-tax leveraged IRR of 56% based on the base case of US$1,300/oz flat gold price
for 10 years. The base case gold price was chosen because it approximates the average gold price for the past 5 years.
Another important driver is operating costs, for which an adverse change of more than 23% is required to reduce project NPV8% to
zero when the gold price is $1,300/oz. The project is least sensitive to capital costs, with an adverse change of over 50% required to
reduce project NPV8% to zero at $1,300/oz
The Tulu Kapi Mining Agreement between the Ethiopian Government and the Company was formalised in April 2015. The terms
include a 20-year Mining License, full permits for the development and operation of the Tulu Kapi gold project and a 5% Government
free-carried interest. The Company is working towards funding the development of the Tulu Kapi project.
KEFI Minerals (Ethiopia) Limited also has no other mining exploration licences in Ethiopia. All development costs relating to Yubdo
and Billa Guilisso exploration licenses capitalised in previous years were impaired in previous years.
13. Investments
13.1 Investment in subsidiaries
The Company
Cost
At 1 January
Acquisitions
At 31 December
Year Ended
31.12.18
£’000
Year Ended
31.12.17
£’000
4,598
-
4,598
4,598
-
4,598
The Company carrying value of KEFI Minerals Ethiopia which holds the investment in the Tulu Kapi Gold project currently under
development is £ 4,594,354 as at the 31 December 2018.
During the year management reviewed the value of its investments in the Company accounts to the project estimated NPV value.
The result of the review shows that the NPV value is higher than the cost recorded in the company accounts.
As a guidance to shareholders, the after-tax, leveraged NPV of Tulu Kapi Gold Project at base case gold price of US$1,300/oz is
£92,000,000 (US$117,000,000) at start of construction. Based on KEFI’s planned 45% beneficial interest in the underlying valuation
of Tulu Kapi Gold Project value is £41,000,000. The NPV value is substantially higher than the cost of £4,598,000 recorded in the
accounts as at 31 December 2018. Although a non IFRS measure this Net Present Valuation has been previously reported by the
Company and is based on the independently prepared financial models which are independently verified underlying project feasibility
studies and plans.
In addition, the balance sheet of TKGM at full development funding will reflect all equity subscriptions which are currently estimated
to exceed c. £94 million or US$120 million (Ethiopian Birr equivalent).
KEFI Minerals Plc ANNUAL REPORT 2018
Page 77
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
13. Investments (continued)
13.1 Investment in subsidiaries (continued)
Subsidiary companies
Mediterranean Minerals (Bulgaria) EOOD
Doğu Akdeniz Mineralleri Sanayi ve Ticaret Limited Şirket
KEFI Minerals (Ethiopia) Limited
KEFI Minerals Marketing and Sales Cyprus Limited
Tulu Kapi Gold Mine Share Company
Date of
acquisition/
incorporation
08/11/2006
08/11/2006
30/12/2013
30/12/2014
31/04/2017
Country of
incorporation
Bulgaria
Turkey
United Kingdom
Cyprus
Ethiopia
Effective
proportion of
shares held
100%-Direct
100%-Indirect
100%-Direct
100%-Direct
95%-Indirect
Subsidiary companies
The following companies have the address of:
Mediterranean Minerals (Bulgaria) EOOD
Doğu Akdeniz Mineralleri Sanayi ve Ticaret Limited
Şirket
KEFI Minerals (Ethiopia) Limited
10 Tsar Osvoboditel Blvd., 3rd floor, Sredets Region, 1000 Sofia, the Republic
of Bulgaria.
Zeytinalani Mah. 4183 SK. Kapı No:6 Daire:2 UrlaA Izmir
27/28 Eastcastle Street, London, United Kingdom W1W 8DH
KEFI Minerals Marketing and Sales Cyprus Limited
Tulu Kapi Gold Mine Share Company
23 Esekia Papaioannou Floor 2, Flat 21 1075, Nicosia Cyprus
1st Floor, DAMINAROF Building,Bole Sub-City, Kebele 12/13, H.No, New.
On 8 November 2006, the company entered into an agreement to acquire from Atalaya Mining PLC (previously EMED) the whole of
the issued share capital of Mediterranean Minerals (Bulgaria) EOOD, a company incorporated in Bulgaria, in consideration for the
issue of 29,999,998 ordinary shares in the Company.
Mediterranean Minerals (Bulgaria) EOOD owns 100% of the share capital of Doğu Akdeniz Mineralleri (“Dogu”), a private limited
liability company incorporated in Turkey, engaging in activities for exploration and developing of natural resources.
The Company owns 100% of Kefi Minerals (Ethiopia) Limited (“KME”), which operates the Tulu Kapi project in Ethiopia. The secured
convertible loan facility is secured by the Company's shareholding in Kefi Minerals (Ethiopia) Limited.
KME owns 95% of Tulu Kapi Gold Mine Share Company (“TKGM’), a company incorporated in Ethiopia. The Tulu Kapi Gold Project
mining license has been transferred to TKGM. The Government of Ethiopia was entitled to a 5% free-carried interest (“FCI”) in TKGM.
This entitlement is enshrined in the Ethiopian Mining Law and the Ethiopian Mining Agreement between the Ethiopian Government
and KME, as well as the constitution of the project company. The 5% FCI refers to the equity interest granted by the company holding
the mining license. The Ethiopian government is not required to pay for the 5% equity interest. The Ethiopian government can acquire
additional interest in the share capital of the project at market price. The Ethiopian Government has also undertaken to invest a
further 20 million dollars in the project in return for the issue of additional equity ranking pari passu with the shareholding of
KME. Such additional equity will not be entitled to a free carry.
The company owns 100% of KEFI Minerals Marketing and Sales Cyprus, a company incorporated in Cyprus. The company was
dormant for the year ended 31 December 2017 and 2016. KEFI Minerals Marketing and Sales Cyprus had no assets, other than the
right to market gold produced from the Tulu Kapi Gold Project, or liabilities at the date of acquisition. It is planned that this company
will act as agent and off-taker for the onward sale of gold and other products in international markets.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 78
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
13. Investments (continued)
13.2 Investment in jointly controlled entity
The Company
At 1 January/31 December
Jointly controlled entity
Year Ended
31.12.18
£’000
Year Ended
31.12.17
£’000
181
181
Date of acquisition/
incorporation
Country of
incorporation
Effective proportion of
shares held
Gold and Minerals Co. Limited (G&M)
04/08/2010
Saudi Arabia
40%-Direct
The company owns 40% of G&M. More information is given in note 21.1.
14. Financial assets at fair value through OCI
The Group
At 1 January
Foreign currency movement
Interest Received
On 31 December
The Company
At 1 January
Disposal of Investment
Profit on Sale
At 31 December
Year Ended
31.12.18
£’000
Year Ended
31.12.17
£’000
79
2
-
81
95
(26)
10
79
Year Ended
31.12.18
£’000
Year Ended
31.12.17
£’000
-
-
-
-
-
-
-
-
KEFI Minerals Plc ANNUAL REPORT 2018
Page 79
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
15. Derivative financial asset
In March 2017, as part of subscription to raise, in aggregate, £5.6m (before expenses) from certain new shareholders, the Company
initially issued 82,352,941 new ordinary shares of 1p each in the capital of the Company (“Ordinary Shares”) at a price of 5.61p per
share to Lanstead Capital L.P. (“Lanstead”) for £4,620,000 (before expenses). The Company simultaneously pledged to Lanstead
85 per cent. of these shares with a reference price of 7.48p per share (the “Reference Price”) under the conditions of an equity
sharing agreement with an 18-month term. All 82,352,941 Ordinary Shares were allotted with full rights on the date of the transaction.
Accordingly, pursuant to the above arrangements, of the aggregate subscription proceeds of £4.6m received from Lanstead, £3.927m
(85 per cent.) was pledged by the Company in the equity sharing agreement with the remaining £0.69m (15 per cent.) available for
general working capital purposes.
To the extent that the Company’s volume weighted average share price was greater or lower than the Reference Price at each
sharing settlement, the Company received greater or lower consideration calculated on a pro-rata basis i.e. volume weighted average
share price / Reference Price multiplied by the monthly transfer amount. As the amount of the effective consideration receivable by
the Company from Lanstead under the sharing agreement varied subject to the movement in the Company’s share price and to be
settled in the future, the receivable was treated for accounting purposes as a derivative financial asset and has been designated at
fair value through profit or loss.
The difference between the cash consideration received and the share placement price of 5.61p per share is transferred from fair
value through profit or loss to share premium account. During the current period an amount of £937,561 was recorded in share
premium.
The Company also issued, in aggregate, a further 4,117,647 Ordinary Shares to Lanstead as a value payment of £231,000 in
connection with the equity sharing agreement.
The fair value of the derivative financial assets as at 31 December 2017 was been determined by reference to the Company’s then
prevailing share price and has been estimated as follows:
Fair value of the derivative financial asset
Balance Brought Forward
Value recognised on inception (notional)
Transaction Cost “Value Payment Shares”
Gross proceeds of the Lanstead Subscription, (being 15%)
Equity sharing agreement
Consideration received
Audited
31.12.18
£
Audited
31.12.17
£
407,853
-
-
-
-
-
4,851,000
(231,000)
(693,000)
3,927,000
(409,934)
(1,239,196)
Change in value of financial assets at fair value through profit and loss
2,081
2,687,804
Realised (loss): Difference between placement price of 5.61p and actual consideration is
processed via share premium
(937,561)
(1,340,304)
Unrealised Loss on derivative financial asset during the year
939,642
(939,642)
Financial asset at fair value as at 31st December
-
407,858
KEFI Minerals Plc ANNUAL REPORT 2018
Page 80
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
15. Derivative financial asset (continued)
Notional number of shares and Share price outstanding
The value of the notional number of shares issued below is provided in the above table “Fair value of the derivative financial asset”.
Balance brought forward
Value recognised on inception (notional)
Transaction Cost “Value Payment Shares”
Gross proceeds of the Lanstead Subscription, (being 15%)
Equity sharing agreement
Consideration received
16. Trade and other receivables
The Group
Other receivables
VAT Refund
The Company
Deposits
KEFI Minerals Marketing and Sales Cyprus Limited (Note 23.3)
Advance to KEFI Minerals (Ethiopia) Limited (Note 23.3)
Advance to Tulu Kaki Gold Mine Share Company (Note 23.3)
31.12.18
No of Shares
Share
Price
£
31.12.18
No of Shares
24,019,614
-
-
-
-
86,470,588
(4,117,647)
(20,588,235)
24,019,614
(24,019,614)
-
0.017
61,764,706
(37,745,092)
24,019,614
Share
Price
£
0.056
0.056
0.033
Year Ended
31.12.18
£’000
Year Ended
31.12.17
£’000
24
91
115
3
91
94
Year Ended
31.12.18
£’000
Year Ended
31.12.17
£’000
22
-
5,555
299
5,876
-
3
5,076
5,079
Amounts owed by group companies total £13,488,000 (2017: £12,136,000). A provision of £7,634,000 (2017: £7,057,000) has been
made against the amount due from the subsidiaries because these amounts are considered irrecoverable. The Company has
borrowings outstanding from its Ethiopian subsidiaries, the ultimate realisation of which depends on the successful exploration and
realisation of the Group’s intangible exploration assets. Management is of the view if the company disposed of the Tuli Kapi asset
the consideration received would exceed the borrowings outstanding. Management has made an assessment of the borrowings as
at 31 December 2018 and determined that any expected credit losses would be immaterial. The advance issued to KEFI Minerals
(Ethiopia) Limited and TKGM is unsecured, interest free and repayable on demand. At the reporting date, no receivables were past
their due date.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 81
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
17. Cash and cash equivalents
The Group
Cash at bank and in hand unrestricted
Cash at bank restricted (note 24.2)
The Company
Cash at bank and in hand unrestricted
Cash at bank restricted (note 24.2)
18. Share capital
Authorized Capital
Year Ended
Year Ended
31.12.18
£’000
31.12.17
£’000
68
20
88
13
20
33
446
20
466
101
20
121
Total
The articles of association of the Company were amended in 2010 and the liability of the members of the Company is limited.
Issued and fully paid
Number of
shares ’000
£’000
At 1 January 2017*
32,598
3,882,921
*On the 1 March 2017 Shareholders received one new ordinary share for every 17 existing ordinary shares. Post share consolidation
figures
£’000
12,436
Deferred
Shares
Share
Capital
£’000
3,883
Share
premium
£’000
16,279
At 1 January 2017*
Issued 2 March 2017 at GBP 0.17
Share Equity Placement
Lanstead Share Equity
Lanstead Value Placement Fee
Share issue costs
Transfer realised loss of derivative financial asset
At 31 December 2017
At 1 January 2018
Share Equity Placement 20 June 2018
Share Equity Placement 03 July 2018
Share Equity Placement 17 December2018
Share issue costs
Transfer realised loss of derivative financial asset
228,407
3,883
12,436
16,279
32,598
17,825
82,353
4,118
-
-
332,703
332,703
66,500
153,500
19,000
-
-
303
1,400
70
-
-
5,656
5,656
1,130
2,610
323
-
-
-
-
-
-
-
12,436
12,436
-
-
-
-
-
697
3,220
161
(356)
(1,340)
18,661
18,661
532
1,228
57
(237)
(938)
1,000
4,620
231
(356)
(1,340)
36,753
36,753
1,662
3,838
380
(237)
(938)
At 31 December 2018
571,703
9,719
12,436
19,303
41,458
Issued capital
2018
On 20 June 2018, 66,500,000 shares of 1.7p were issued at a price of 2.5p per share. On issue of the shares, an amount of £532,000
was credited to the Company’s share premium reserve.
On 3 July 2018, 153,500,000 shares of 1.7p were issued at a price of 2.5p per share. On issue of the shares, an amount of £1,228,000
was credited to the Company’s share premium reserve.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 82
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
18. Share capital (continued)
On 17 December 2018, 19,000,000 shares of 1.7p were issued at a price of 2p per share. On issue of the shares, an amount of
£57,000 was credited to the Company’s share premium reserve.
2017
On 2 March 2017, 104,295,888 shares of 1.7p were issued at a price of 5.61p per share. On issue of the shares, an amount of
£4,077,969 was credited to the Company’s share premium reserve. The 104,295,888 shares issued were split into the following three
share issues.
The Company issued a total of 17,825,300 shares to investors for a total consideration of £1,000,000.
Company issued 82,352,941 Shares to Lanstead Capital L.P. (‘Lanstead’), for an aggregate consideration of £4.620,000. In addition,
the Company entered into Equity Sharing Agreements with Lanstead which allowed the Company to retain an economic interest in
the Lanstead Subscription Shares. Further details available in note 15.
The Company also agreed to make a placement fee to Lanstead of 4,117,647 Ordinary Shares for an aggregate consideration of
£231,000.
Consolidation of ordinary shares
Following the Company’s General Meeting on 1 March 2017, at the close of business on 1 March 2017 shareholders received one
Ordinary Share of nominal value 1.7 pence each for every 17 Existing ordinary Shares of nominal value 0.1 pence each.
Restructuring of share capital into deferred shares
On 16 June 2015 the Company’s issued ordinary shares of 1p each in the capital of the Company were sub-divided into one new
ordinary share of 0.1p and one deferred share of 0.9p. The deferred shares have no value or voting rights. After the share capital
reorganization there were the same number of New Ordinary Shares in issue as there are existing Ordinary Shares. The New
Ordinary Shares have the same rights as those currently accruing to the existing Ordinary Shares in issue under the Company’s
articles of association, including those relating to voting and entitlement to dividends.
19. Share Based payments
19.1 Warrants
2018
On 19 September 2018, the Company issued 2,000,000 warrants to subscribe for new ordinary shares of 1.7p each at 2.5p per
share. These were issued to a service provider to provide ongoing services for 12 months.
During the period 1 January 2018 to 31 December 2018, 3,909,456 warrants were expired.
2017
During the period 1 January 2017 to 31 December 2017, 730,392 warrants were cancelled or expired.
Details of warrants outstanding as at 31 December 2018:
Grant date
22-Mar-16
29-Jul-16
19-Sep-18
Expiry date
21-Mar-19
28-Jul-19
20-Sep-23
*Exercise price
5.95p
Expected Life Years
3 years
8.50p
2.50p
3 years
5 years
000's*
1,469
2,241
2,000
5,710
KEFI Minerals Plc ANNUAL REPORT 2018
Page 83
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
19. Share Based payments (continued)
19.1 Warrants (continued)
The Company has issued warrants to advisers to the Group. All warrants, as noted above expire between two to five years after
grant date and are exercisable at the exercise price.
Outstanding warrants at 1 January 2018
- granted
- cancelled/forfeited/expired
Outstanding warrants at 31 December 2018
*Post share17/1 consolidation figures
Number of warrants*
000’s
7,619
2,000
(3,909)
5,710
The estimated fair values of the warrants were calculated using the Black Scholes option pricing model.
The inputs into the model and the results for warrants granted during the year are as follows:
Closing share price
at issue date
Exercise price
Expected volatility
Expected life
Risk free rate
Expected dividend
yield
Estimated fair value
19 Sep
2018
29 Jul
2016
22 Mar
2016
2.12p
2.5p
70%
5yrs
1.2%
Nil
1.15p
9.52p
8.5p
87.3%
3yrs
0.31%
6.12p
5.95p
80.3%
3yrs
0.31%
Nil
5.44p
Nil
2.89p
Expected volatility was estimated based on the historical underlying volatility in the price of the Company’s shares.
For 2018, the impact of issuing warrants is a net charge to income of £23,000 (2017: Nil). At 31 December 2018, the equity reserve
recognized for share based payments, including warrants, amounted to £1,032,000 (2017: £1,325,000).
Opening amount
Warrants issued costs (Note 6)
Share options issued to employees (Note 6)
Share options issued to directors and key management
Forfeited Options
Expired options
Expired Warrants
Closing amount
Year Ended
31.12.18
£’000
Year Ended
31.12.17
£’000
1,325
23
26
132
(67)
(206)
(201)
1,032
1,474
-
23
99
(30)
(144)
(97)
1,325
KEFI Minerals Plc ANNUAL REPORT 2018
Page 84
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
19. Share Based payments (continued)
19.2 Share options reserve
Details of share options outstanding as at 31 December 2018:
Grant date
Expiry date
*Exercise price
16-Jan-14
27-Mar-14
12-Sep-14
20-Mar-15
16-Jun-15
19-Jan-16
23-Feb-16
05-Aug-16
22-Mar-17
01-Feb-18
15-Jan-20
26-Mar-20
11-Sep-20
19-Mar-21
15-Jun-21
18-Jan-22
22-Feb-22
05-Aug-22
21-Mar-23
31-Jan-24
33.83p
39.10p
29.92p
22.44p
22.44p
7.14p
12.58p
10.20p
7.50p
4.50p
*Number of
shares 000’s
6
1,274
132
1,529
382
4,088
176
1,471
7,907
11,400
28,365
*On 1 March 2017 17/1 share consolidation
Outstanding options at 1 January 2018
- granted
- expired
- forfeited
Outstanding options at 31 December 2018
Weighted average ex.
Price*
13.87p
4.50p
67.00p
8.71p
8.95p
Number of shares*
000’s
18,418
12,600
(603)
(2,050)
28,365
The Company has issued share options to directors, employees and advisers to the Group.
During February 2014 5,882 options were issued which expire six years after the grant date and are exercisable in part no more than
one half after one year from the grant date and one half two years from the grant date.
On 27 March 2014, 1,294,118 options were issued to the Directors and a further 317,647 options have been granted to other non-
board members of the senior management team. Of the options issued, previously granted options over 1,300,000 Ordinary shares
which were due to expire during 2014 have all been cancelled and the new grants of options have been made, in accordance with
the terms of the Scheme the options vest in equal annual instalments over a period of 2 years and expire after 6 years.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 85
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
19. Share Based payments (continued)
19.2 Share options reserve
On 12 September 2014, 132,353 options were issued which expire six years after grant date and vest in equal annual instalments
over a period of two years.
On 20 March 2015,1,588,235 options were issued which expire six years after grant date and vest in equal annual instalments over
a period of two years.
On 16 June 2015, 382,353 options were issued which expire six years after grant date and vest in equal annual instalments over a
period of two years.
On 19 January 2016, 4,717,059 options were issued which expire six years after grant date and vest in normal circumstances, vest
in two equal annual instalments, the first upon the achievement of practical completion of the planned processing plant at the Tulu
Kapi Gold Project and the second upon the achievement of nameplate capacity for a twelve-month period.
On 23 February 2016,176,471 options were issued which expire six years after grant date and vest immediately.
On 5 August 2016, 2,058,824 options were issued which expire six years after grant date and vest in normal circumstances, vest in
two equal annual instalments, the first upon the achievement of practical completion of the planned processing plant at the Tulu Kapi
Gold Project and the second upon the achievement of nameplate capacity for a twelve-month period.
On 22 March 2017, 9,535,122 options were issued which, expire after six years, and vest in two equal annual instalments, the first
upon the achievement of practical completion of the planned processing plant at the Tulu Kapi Gold Project and the second upon the
achievement of nameplate capacity for a twelve-month period.
On 1 February 2018, 9,600,000 options were issued to persons who discharge director and managerial responsibilities ("PDMRs")
and a further 3,000,000 options have been granted to other non-board members of the senior management team. The options have
an exercise price of 4.5p, expire after 6 years, and vest in two equal annual instalments, the first upon the achievement of practical
completion of the planned processing plant at the Tulu Kapi Gold Project and the second upon the achievement of nameplate capacity
for a twelve-month period.
The option agreements contain provisions adjusting the exercise price in certain circumstances including the allotment of fully paid
Ordinary shares by way of a capitalisation of the Company's reserves, a sub division or consolidation of the Ordinary shares, a
reduction of share capital and offers or invitations (whether by way of rights issue or otherwise) to the holders of Ordinary shares.
The estimated fair values of the options were calculated using the Black Scholes option pricing model. The inputs into the model and
the results are as follows:
Date
01-Feb-18
22-Mar-17
05-Aug-16
23-Feb-16
19-Jan-16
16-Jun-15
20-Mar-15
12-Sep-14
27-Mar-14
16-Jan-14
Closing
share price
at issue date
Exercise
price
Expected
volatility
Expected
life
Risk free
rate
Expected
dividend
yield
Discount
factor
Estimated
fair value
3.69p
4.50p
4.50p
68.30%
7.50p
72.20%
9.52p
10.20p
87.20%
5.61p
12.58p
82.65%
5.78p
7.14p
83.18%
14.11p
22.44p
61.11%
20.40p
22.44p
59.04%
24.31p
29.92p
43.40%
31.45p
39.10p
59.60%
31.11p
33.83p
59.60%
6yrs
6yrs
6yrs
6yrs
6yrs
6yrs
6yrs
6yrs
6yrs
6yrs
1.09%
0.75%
0.75%
0.90%
0.90%
1.53%
1.53%
1.09%
2.17%
2.17%
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
2.11p
2.42p
6.80p
1.87p
3.74p
6.46p
10.88p
8.84p
15.98p
15.98p
Expected volatility was estimated based on the historical underlying volatility in the price of the Company’s shares.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 86
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
19. Share Based payments (continued)
19.2 Share options reserve (continued)
For 2018, the impact of share option-based payments is a net charge to income of £158,000 (2017: £122,000). At 31 December
2018, the equity reserve recognized for share option-based payments, including warrants, amounted to £1,032,000 (2017:
£1,325,000).
19.3 Share Payments for services rendered.
In 20 June 2018 and 3 July 2018, the company issued 100,000,000 Ordinary Shares, at an issue price of 2.5 pence per share to
certain directors, key management and employees project contractors of the company and other third parties in settlement of
outstanding invoices of £2,500,000.
The total shares issued during 2018 for services rendered was as follows:
Directors
Person related to a director
Key management
Other Employees
Payments to Project contractors and third parties’ advances received
20. Non-Controlling Interest
As at 1 January 2018
Number
of shares
Fair value
31.12.18
granted
per share
Value of
services
rendered
‘000
issued
£’000
2.50p
2.50p
2.50p
2.50p
2.50p
10,830
1,068
37,226
3,075
47,801
100,000
271
27
931
77
1,194
2,500
Year Ended
Year Ended
31.12.18
Birr'000
-
31.12.18
£’000
-
Acquisitions of non-controlling interest (“NCI”)
34,250
962
Estimated non-controlling interest on future period claims on assets
4,037
113
Result for the year
(4)
(0)
38,283
1,075
As at the 31 December 2018 the Government of Ethiopia had a 5% shareholding in the Tulu Kapi Gold Project. The NCI of
£1,075,000 reflects value of the assets owned by the Government of Ethiopia in the Tulu Kapi Gold Project as at the 31 December
2018. The 5% figure will be reviewed on a continual basis as the project is developed.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 87
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
20. Non-Controlling Interest (continued)
The Mining Proclamation entitles the Government of Ethiopia (GOE) to 5% free carried interest in TKGM. The 5% Non-Controlling
interest reflects the government interest in the TKGM gold project. The GOE is not required to pay for the 5% free carry interest. This
is a non-dilutive shareholding. The GOE can acquire additional interest in the share capital of the project at market price. The GOE
has committed US $20,000,000 to install the off-site infrastructure in exchange for earning equity in Tuli Kapi Gold Mine Share
Company.
The accumulated non-controlling interest is made up of the following of two amounts.
The amount of £962,000 is the 5% of the net assets of the Tulu Kapi Gold Mine Share Company as at 31 December 2018. The cash
balance in the of the Tulu Kapi Gold Mine Share Company as at 31 December 2018 is £17,186.
The Ministry of Mines is in the process of reviewing development costs incurred after the 31 December 2014. The Company estimates
that an amount of £113,000 will be recorded after this review is completed.
Most of the expenditure in TKGM has been capitalized so the result of the year is negligible.
The non-controlling interest of £1,075,000 reflects the 5% GOE portion of the anticipated value of the assets to be registered by the
Ministry of Mines.
The financial information for Tulu Kapi Gold Mine Share Company as at 31 December 2018:
Summarized Balance Sheet:
Non-current assets
Current assets
Cash and Cash equivalents
Equity
Loss Current Year
Current liabilities
Year Ended
Year Ended
31.12.18
31.12.17
Birr'000
£’000
697,648
19,595
1,002
614
699,264
685,000
(75)
14,339
28
17
19,640
19,242
(2)
400
699,264
19,640
KEFI Minerals Plc ANNUAL REPORT 2018
Page 88
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
21. Jointly controlled entities
21.1 Joint controlled entity with Artar
Company name
Date of incorporation
Country of
incorporation
Effective proportion of shares
held at 31 December
Gold & Minerals Co. Limited
3 August 2010
Saudi Arabia
40%
Gold & Minerals Co. Limited has the following registered address: Olaya District. 659, King Fahad Road, Riyadh, Kingdom of Saudi
Arabia.
SAR’000
GBP’000
Amounts relating to the Jointly Controlled Entity Year Ended
31.12.18
100%
Year Ended
31.12.17
100%
¹Non-current assets (Exploration costs)
Non-current assets
Cash and Cash Equivalents
Current assets
Current liabilities
Net Assets
64,190
27
159
64
64,440
(374)
(374)
65,260
84
81
150
65,575
(956)
(956)
Year Ended
31.12.18
100%
13,442
6
33
13
13,494
Year Ended
31.12.17
100%
12,901
17
16
30
12,964
(78)
(78)
(189)
(189)
64.066
64,619
13,416
12,775
2,500
64,890
(3,324)
64,066
2,500
62,320
(201)
64,619
524
13,588
(696)
13,416
494
12,321
(40)
12,775
Share capital
Non-current financial liabilities (Shareholder loans)
Accumulated losses
Exchange rates SAR to GBP
Closing rate
The Company
SAR’000
SAR’000
(3,123)
58
3,086
(22)
158
-
Loss from continuing operations
Included in the amount above
Depreciation and Amortisation
Impairment exploration costs
Group
Group Share 40% of loss from continuing
operations
¹Groups policy is to expense these exploration
costs
0.2094
£’000
(656)
12
646
0.1977
£’000
(4)
31
-
(161)
(286)
KEFI Minerals Plc ANNUAL REPORT 2018
Page 89
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
21. Jointly controlled entities (continued)
21.1 Jointly controlled entity with Artar
In May 2009, KEFI announced the formation of a new minerals’ exploration jointly controlled entity, Gold & Minerals Co. Limited
(“G&M”), a limited liability company in Saudi Arabia, with leading Saudi construction and investment group Abdul Rahman Saad Al-
Rashid & Sons Company Limited (“ARTAR”). KEFI is the operating partner with a 40% shareholding in G&M with ARTAR holding
the other 60%. KEFI provides G&M with technical advice and assistance, including personnel to manage and supervise all exploration
and technical studies. ARTAR provides administrative advice and assistance to ensure that G&M remains in compliance with all
governmental and other procedures. G&M has five Directors, of whom two are nominated by KEFI.G&M is treated as a jointly
controlled entity and has been equity accounted and has reconciled its share in G&M’s losses.
The above figures reported represent cumulative exploration activity incurred by G&M since its incorporation in 2009. The accounting
policy for exploration costs recorded in the G&M audited financial statements is to capitalise qualifying expenditure and review for
impairment, if applicable. This is in contrast to the Group’s accounting policy relating to exploration costs which is to expense costs
through profit and loss until the project reaches development stage (note2). Consequently, exploration costs of G&M at 31 December
2018 amounting to SAR64.2 million (2017: SAR65.3 million) have been adjusted to bring the figures in line with the Group’s
accounting policy which is to expense all exploration costs.
A loss of £161,000 was recognized by the Group for the year ended 31 December 2018 (2017: £ 286,000) representing the Group’s
share of losses in the year. G&M impaired exploration costs during 2018. Because the group expenses all exploration costs in the
year this impairment had no impact on the group accounts.
As at 31 December 2018 KEFI owed ARTAR an amount of £152,000 (2017: £228,000) - Note 23.4.
22. Trade and other payables
22.1 Trade and other payables
The Group
Accruals and other payables
Other loans
Payable to jointly controlled entity partner (Note 23.4)
Payable to Key Management and Shareholder (Note 23.4)
Other loans are unsecured, interest free and repayable on demand.
The Company
Accruals and other payables
Payable to jointly controlled entity partner (Note 23.4)
Payable to Key Management and Shareholder (Note 23.4)
Year Ended
31.12.18
£’000
Year Ended
31.12.17
£’000
2,061
203
152
696
3,112
1,829
193
228
602
2,852
Year Ended
31.12.18
£’000
Year Ended
31.12.17
£’000
1,886
152
696
2,734
1,748
228
602
2,578
The fair values of trade and other payables due within one year approximate to their carrying amounts as presented above.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 90
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
23. Related party transactions
The following transactions were carried out with related parties:
23.1 Compensation of key management personnel
The total remuneration of key management personnel was as follows:
¹Directors' consultancy fees
¹Share based payment: Directors' consultancy fees
Directors’ other consultancy benefits
Share option-based benefits to directors (Note 19)
Share based payment: Directors bonus
²Short term employee benefits: Key management fees
²Share based payments short term employee benefits: Key management fees
Short term employee benefits: Key management other benefits
Share option-based benefits other key management personnel (Note 19)
Share Based Payment: Key management bonus
Year Ended
31.12.18
£’000
Year Ended
31.12.17
£’000
438
49
35
77
160
570
284
20
55
77
547
-
94
67
-
420
53
20
-
¹Directors’ fees paid to the Executive Director Chairman and Finance Director are paid to consultancy companies of which they are
beneficiaries.
²Key Management comprised the Managing Director Ethiopia, Head of Operations, Head of Systems and Head of Planning.
1,765
1,201
Share-based benefits
The Company has issued share options to directors and key management. All options, except those noted in Note 19, expire six
years after grant date and vest in normal circumstances, vest in two equal annual instalments, the first upon the achievement of
practical completion of the planned processing plant at the Tulu Kapi Gold Project and the second upon the achievement of nameplate
capacity for a twelve-month period.
23.2 Transactions with shareholders and related parties
Name
Nature of transactions
Relationship
2018
2017
Atalaya Mining PLC (previously EMED) Provision of management and other
Shareholder
Lanstead Capital
Sanderson Capital Partners
Brandon Hill Capital Limited
Brandon Hill Capital Limited
Brandon Hill Capital Limited
Winchombe Venture Limited
International Mining
of
Members
Performance
Nanancito Limited
professional services
Equity swap agreement: Subscription
cash proceeds received-Refer to Note
15
Loan facility, option, legal and due
diligence fees- Refer to Note 22.2
Broker fees
Loan arrangement fee
Share placement fee
Shareholder
Shareholder
Shareholder¹
Shareholder¹
Shareholder¹
Receiving of management and other
professional services
Interest paid on loans advanced
Receiving of management and other
professional services
Key Management and
Shareholder
Key Management and
Shareholder
Key Management and
Shareholder
-
409
380
60
38
143
566
50
440
5
2,163
-
45
-
65
163
-
330
¹ Brandon Hill Capital Limited became a 3.1% shareholder in the group on the 10 April 2019
KEFI Minerals Plc ANNUAL REPORT 2018
Page 91
2,086
2,771
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
23. Related party transactions (continued)
23.3 Receivable from related parties
The Company
Name
Nature of transactions
Relationship
KEFI Minerals Marketing and Sales
Cyprus Limited
Tulu Kaki Gold Mine Share Company¹ Advance
Advance
Kefi Minerals (Ethiopia) Limited²
Finance
Subsidiary
Subsidiary
Subsidiary
2018
2017
-
299
5.555
5,854
3
-
5,076
5,079
¹The Company advanced £299,000 to the subsidiary Tulu Kapi gold Mine Share Company during 2018.
²Kefi Minerals (Ethiopia) Limited during 2017 repaid an amount of £1,200,000, the Company advanced £420,000(2017
£430,000) to the subsidiary. The Company had a foreign exchange translation profit of £58,000 (During 2017 the loss of
£1,969,000 was because of the devaluation of the Ethiopian Birr in October 2017).
The above balances bear no interest and are repayable on demand.
23.4 Payable to related parties
The Group
Name
Abdul Rahman Saad Al-Rashid & Sons
Company Limited (“ARTAR”)
Winchombe Ventures Limited
Nature of transactions
Finance
Fees for services
Nanancito Limited
Fees for services
Relationship
Jointly controlled entity
partner
Key Management
Shareholder
Key Management
Shareholder
and
and
Lanstead Capital
Finance -Refer to Note15
Shareholder
The Company
Name
Abdul Rahman Saad Al-Rashid & Sons
Company Limited (“ARTAR”)
Winchombe Ventures Limited
Nature of transactions
Finance
Fees for services
Nanancito Limited
Fees for services
Relationship
Jointly controlled entity
partner
Key Management
Shareholder
Key Management
Shareholder
and
and
Lanstead Capital
Finance -Refer to Note15
Shareholder
2018
2017
152
148
548
-
848
228
162
440
408
1,238
2018
2017
152
148
548
-
848
228
162
440
408
1,238
KEFI Minerals Plc ANNUAL REPORT 2018
Page 92
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
24. Loans and Borrowings
24.1.1 Short Term Working Capital Bridging Finance
Unsecured working capital bridging finance
GBP
Variable.
Rate see
below
On
Demand
In KEFI Ordinary
Shares or Cash at
market parice
Currency
Interest
Maturity
Repayment
Unsecured working capital bridging finance
Repayable in cash in less than a year
Repayable in Kefi Ordinary Shares at the option of
the lender in less than a year
Balance
01.01.18
£’000
Principal
Amount
£’000
Transaction
Costs
Interest
£’000
Year Ended
31.12.18
£’000
-
-
-
100
400
500
10
5
15
20
80
100
130
485
615
The Group has the option to access working capital from certain existing stakeholders for up to GBP £1.5 million. This unsecured
working capital bridging finance is short
term debt which is unsecured and ranks below other loans. In the event the Group is unable
to pay this finance it will be repaid after other debt securities have been paid. Management expects that the company will meets its
‐
contractual obligation on the bridging finance on a timely basis going forward.
24.1.2 Reconciliation of liabilities arising from financing activities
Cash
Flows
Non-Cash Flows
Finance
Costs
Fair
Value
changes
Shares
Balance
01.01.18
£’000
Year
Ended
31.12.18
£’000
Unsecured working capital bridging finance
Derivative financial asset
-
500
(408)
410
115
-
-
(2)
-
-
615
-
Derivative financial asset
-
1240
-
2280
(3,928)
408
Balance
01.01.17
£’000
Year
Ended
31.12.17
£’000
KEFI Minerals Plc ANNUAL REPORT 2018
Page 93
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
24. Loans and Borrowings (continued)
24.2 Secured convertible loan facility
On the 28 November 2018 the Company had entered into an up to £4,000,000 secured convertible loan facility with Sanderson
Capital Partners a long-standing Company shareholder that will underpin parent company working capital as it triggers the
development of the project Loan Facility will include the following provisions, which are set out in the Term Sheet:
• Company may draw down the Loan Facility in monthly increments of £450,000 (the last instalment will be for whatever is
the remaining undrawn balance available under the Loan Facility) at the Company's absolute discretion;
• Drawdowns will be at least 30 days apart and subject to no fundamental change in the business plan.
•
There is no early repayment penalty and it is intended that the Company will repay any drawn amounts outstanding under
the Loan Facility upon closure of the full debt and equity funding of the Project;
The loan facility is secured by the Company's shareholding in Kefi Minerals (Ethiopia) Limited. The security provided to the
Lenders would be cancelled at repayment, to make way for financing the Project;
The Lenders will have an option to convert half of any repayment by the Company into new ordinary shares of
par value 1.7p each in the capital of the Company("Shares") at a fixed price of 2p per Share. (if no repayment
made the Lender may convert any or all of any outstanding balance at a price not below 2p);
The backstop date for final repayment is 12 months from the date of entering into definitive documentation;
To enter into the Loan Facility and to reflect that there is no interest coupon attached to it, the Company will issue 19,000,000
Shares to the Lender;
•
•
•
• A fee of 5% of any amounts drawn will be payable in Shares at the higher of 2p per Share or the preceding 5-day VWAP
•
•
at the time of drawdown;
The Company will pay an Option Fee of 5% for the right to trigger a £2 million Optional Second Facility after having used
the First Facility. This fee will be paid by issuing new Shares at a price of 2p per Share; and
The Optional Second Facility provides additional flexibility for a further £2 million with similar fees, but the Company is
under no obligation to exercise this option.
In December 2018 the company issued 19,000,000 KEFI Ordinary shares at an issue price of 2p. The fees of £380,000 paid in shares
was made up of the following First Facility fees: a) a commitment fee of 7.5% of the First Facility (being £150,000); b) a voluntary
prepayment option fee of 2% of the Loan Facility (being £80,000); and c) an option fee of 5% of the Second Facility and the Third
Facility (being £100,000) for the right to utilise the Second Facility d) Legal fees and due diligence costs (being £50,000). In addition,
the Company agreed a drawdown fee equal to 5% of each drawdown amount under the First Facility which will be paid by the issue
of New Ordinary Shares at the higher of the Issue Price or the preceding 5-day VWAP.
The Lender is a long-standing institutional shareholder who held Kefi Ordinary Shares amounting to approximately 1.11 % of the
issued share capital of the Company on the date the convertible note agreement was executed.
On the 18 December 2018 the Company issued a drawdown notice of £450,000 to Sanderson. The funds relating to the
drawdown are receivable after the 31 December 2018 therefore no amount has been recorded in the current year accounts.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 94
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
25. Contingent liabilities
25.1 Geological database
In 2006, Atalaya Mining PLC (previously EMED) acquired a proprietary geological database that covers extensive parts of Turkey
and Greece and transferred to the Company that part of the geological database that relates to areas in Turkey.
Under the agreement, the Company had undertaken to make a payment of approximately £61,400 (AUD 105,000) for each tenement
it is subsequently awarded in Turkey and which was identified from the database. The maximum number of such payments required
under the agreement is four, resulting in a contingent liability of up to £246,000. These payments are to be settled by issuing shares
in the Company. To date, only one tranche of shares has been issued under this agreement in June 2007 for £43,750 (AUD 105,000).
25.2 Charge issued
On 13 August 2015, the Company created a fixed charge in favour of AIB Group (UK) Plc over amounts held in the Company’s
deposit accounts with the bank. The charge is in regard to time credit banking facilities provided by AIB Group (UK) Plc. at 31
December 2018; the balance in the deposit accounts was £20,000.
25.3 Legal Allegations
The original claim for damages of USD9,000,000 (approximately ETB240 million) had been lodged against KEFI in 2014. The claim
was based on the impact of exploration field activities conducted between 1998 and 2006, a period which pre-dated KEFI’s
involvement in the Tulu Kapi Gold Project. These exploration activities comprised the construction of drill pads and access tracks. No
objections had been made until 2014 when certain parties from outside the Tulu Kapi district raised the matter and initiated court
action against KEFI. The Oromia Regional Supreme Court in 2018 rejected 95% of these claims as having no legal basis and reduced
KEFI’s potential liability to £435,000. KEFI’s appeal to the Court with regards to the remaining £435,000 has now succeeded and the
Company is no longer liable for any damages. If another appeal is raised, which remains a possibility, KEFI would defend its position
on the basis that it remains firmly of the belief, on legal advice and as previously reported, that it has no contingent or actual liability
26. Contingent asset
In 2011, KEFI Minerals completed the sale the Company's Artvin Project in north-eastern Turkey to a Turkish mining company. The
Artvin Project comprised 15 Exploration Licences located in the Eastern Pontide Belt in north-eastern Turkey. Kackar Madencilik
San. Tic. Ltd, KEFI Mineral's subsidiary holding these licences, was sold in return for a cash payment of US$100,000 and a 1% Net
Smelter Royalty on all future mineral production from the Artvin licences.
The Company successfully divested four Licences in Turkey in July 2011 to AIM listed Ariana Resources (AIM:AAU) for a nominal
cash payment of 10,000 Turkish Lira, 910,747 new ordinary shares in Ariana and a Net Smelter Royalty (“NSR”) of 2%. The NSR
is payable by Ariana’s wholly owned Turkish subsidiary Galata Madencilik San. ve Tic. Ltd. (“Galata”) to KEFI Mineral’s Turkish
Subsidiary, Dogu, on commercial production of any mineral from the licences. No value has been attributed in these financial
statements for the NSRs, due to uncertainty regarding when income from the NSRs will commence.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 95
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
27. Capital commitments
The Group has the following capital or other commitments as at 31 December 2018 £525,000 (2017 £353,000),
Tulu Kapi Project costs
Saudi Arabia Exploration costs committed to field work that has recommenced
Year Ended
31.12.18
£’000
Year Ended
31.12.17
£’000
115
410
353
-
28. Events after the reporting date
During February 2019, the Company completed a £969,000 placing by issuing 57,000,000 new ordinary shares of 1.7p each in the
capital of the Company at a price of 1.7 pence per share.
ANS Mining Share Company S.C (“ANS Mining”) has confirmed receipt from its investors of its first Project-equity instalment
commitments for US$11.4 million (Ethiopian Birr equivalent which upon completion of certain conditions precedent will be invested
in equity in TKGM. The total commitment by ANS is US$38 million (in Birr equivalent). The remainder of the US$38 million (Ethiopian
Birr equivalent) commitment will be subscribed at close of full development funding.
It has also been agreed that, of the total commitment of US$38 million (Ethiopian Birr equivalent), one third will be invested via KEFI
subsidiary KEFI Minerals (Ethiopia) Limited (“KME”) so that ANS Mining will be KEFI’s minority partner in KME which controls TKGM
and the exploration areas in the Tulu Kapi district which are considered prospective for potential satellite and stand-alone deposits.
The other two thirds of the ANS investment will be directly into TKGM. The impact of this refined approach will include that KEFI will
have a strong partner at the KME table to consider potential new projects alongside KEFI.
It is anticipated that after ANS invests US$38 million (in Birr equivalent if the transaction and the transaction is completed then the
ownership levels will be:
•
KEFI will own c. 81% of KME which in turn will hold c. 56% of TKGM and that KEFI’s beneficial ownership of TKGM will
be c. 45% (both ownership levels in TKGM are net, after adjustment for the Government’s 5% free carried interest).
On the 9th April 2019 the conditions precedent for the release of funds from the ANS subscription into TKGM are:
• Normal operational and documentary confirmations and undertakings requested by ANS,
• National Bank of Ethiopia approval of terms of the full project finance package, and
•
KEFI’s guarantee to ANS that if the project fails to proceed for whatever reason and is restructured in whichever manner
decided by KEFI, KEFI will ensure that ANS recovers its 1st Instalment investment before KEFI recovers its own
investment.
During April 2019 the Company issued 14,864,533 new Ordinary Shares of nominal value 1.7p each in the capital of the Company
at a price of 1.7p to 2p per share. This shares issued were used to pay certain contracted managers and third party service providers
and the 5% Sanderson fee on drawdown.
KEFI Minerals Plc ANNUAL REPORT 2018
Page 96
KEFI MINERALS PLC
(All amounts in GBP thousands unless otherwise stated)
Notes to the consolidated financial statements (continued)
Year ended 31 December 2018
KEFI Minerals is listed on AIM (Code: KEFI)
www.kefi-minerals.com
KEFI Minerals Plc ANNUAL REPORT 2018
Page 97