KEFI Minerals plc (LON:KEFI) Executive Chairman Harry Anagnostaras-Adams caught up with DirectorsTalk for an exclusive interview to discuss the strategy underlying their latest announcement, the major new shareholder, the deal with Lanstead, the main milestones and the share consolidation
Q1: Harry, there’s been a lot of news out this morning for investors to digest, what is the essence of the strategy underlying today’s announcement from KEFI Minerals?
A1: Well, it’s putting together the platform for getting this company into development and production, it’s not a complete platform but it’s the start of putting it together. What I mean by that is we’ve raised a significant amount of capital which not quite completes any equity requirement of the project but sets in place everything we need to complete the equity. What I mean by that is we’re targeting to put the full development funding together during the year, as early as possible, and most of these funds will go towards that large development funding commitment for the Tulu Kapi project.
In addition, it brings to the table another financial institution who has a record of following its winners and they’ve picked out this company, this moment if you like in time, for the company being ‘pregnant’ with a lot of milestones. They have a record of following their winners and what that means is putting in more money, if required, but more particularly having to pay more for their investment and assumed upfront because if our share price doubles they’ll not have to put in the amount of money in the headline number of £4.6 million, that was announced today, but double that amount of money. So, it’s a part of the platform for the funding but was done very carefully in a way which is both ticking out the person to put in the money, the institution to put in the money and the device they use so we can get more money out of them, and also to have enough people at the table to finish the job when the final number is finessed, if you like, in a few months’ time if all goes well.
Q2: You say “if all goes well”, Harry, can you explain what that means?
A2: We took a bit of a setback some months ago, Ethiopia announced a state of emergency and from a distance it sounds very bad, on the ground you wouldn’t know there was anything happening in the sense that life is quite normal and things happen daily as they did before, without any evidence of unrest. Nevertheless, the government has seized more executive powers and implemented a whole range of changes which will, I think, be for the better, for the longer term, to keep the development show on the road but be that as it may, me saying it’s all for the better to keep Ethiopia in the top 10 growth countries of the world at the same time it’s fair to say that we took a setback. With that announcement some months ago, we were on the road at advanced stages of discussion, our funding package and some of the people we were talking with pulled back because they didn’t understand what this state of emergency meant, they needed to see it to understand it and let it pass.
So, we’ve regrouped and we’ve reactivated the process, we’re going into execution mode to close the financing so we’ve recovered ourselves but we did take a setback some months ago.
Q3: So, why introduce a major new institutional shareholder?
A3: KEFI Minerals lost one of the two we had, we’ve got some smaller institutional shareholders on the register but two very big ones that we had a year or so ago were Odey and Standard Life and Standard Life we lost when they sold out of the sector and us along with it. So, we’ve needed to replace them and we’ve always had an eye out for how’s the best way and who’s the best one and Lanstead has come to the fore, they are an alternative style of financer in a way but one which I think is very suitable for where the company’s at at the moment, that’s why we brought them in.
Q4: The Lanstead deal, it is a little unusual, can you explain how this works for us?
A4: Like any normal placing, or simple placing, they get a set number of shares upfront for their investment but unlike a normal placing, some of the money comes in upfront and the rest of the money comes in over an 18-month period in monthly instalments that are all set out in all the formal documentation.
However, if your share price climbs, let’s say the share price over the course of the next 18 months doubles the levels set out in the agreement, in recent valuations analysts have been published saying the shares are worth about a penny as it stands today, the company based on Tulu Kapi as it stands today, if the shares were that or a bit less average for the next 12 months then we’d wouldn’t get £4.6 million but double that. I think the more precise number is if the shares average 0.88 over the next 18 months we’d get £9.2 million, not £4.6 million out of Lanstead. So, there’s an inducement, if you like, or a reward for a company that’s succeeding and hitting its milestones with a share price that’s appreciating you get more money out of Lanstead than the headline number agreed upfront. Conversely, the same applies, if the share price is halved, if the share price is 0.22 not 0.88 so if it’s half of a 0.44 as a benchmark price not double that, then you end up getting £2.3 million not £4.6 million.
So, in a way, from Lanstead’s point of view they’re mitigating against their downside by saving that couple of million pounds, say over 18 months, but they’re more than happy in exchange for mitigating their downside to reward the upside by handing over £4.6 million on the upside. I’m very comfortable with that debt, and the Board is very comfortable with that debt, because we’re very confident of where we’re heading and we think that it’s the cheapest equity capital that we could secure at this moment. Therefore, all things going well we’ll be well rewarded for the arrangement we have with Lanstead.
Q5: Now, what are the main milestones that are looming that would see KEFI Minerals plc deliver results and gain a lot of extra cash from the Lanstead deal?
A5: First thing is that the Lanstead deal, as I say, rewards success in reflecting and appreciating share price, the simply can’t make money if the share price doesn’t go up. So, they’re very much aligned with us and therefore in that alignment the sort of milestones that any shareholder would expect, there’s milestones that they would be looking to and they’re all on the public record. They are the various formal sign-offs and commitments to be made in the process of executing closure, the things we’ve done today in some senses are clearing the pathway for some of those steps.
Specifically, the government finally refunding the VAT which they have been slow to do due to their own circumstances but it’s not with the refund section so is expected to come through. The lifting of the Ethiopian state of emergency, particularly the signing of the detailed shareholders’ agreement, we do have a commitment from the government for their share investment in Tulu Kapi project but now that we’re designing the actual financing structure we can actually sign off the detailed shareholders’ agreement. We can sign off the resettlement compensation specifics for logistical implementation now that we have an execution timetable, the full credit approvals from the preferred financiers, there’s a whole range really, formal intercreditor agreements, national bank approval. So, there’s a string of sign off procedures that KEFI Minerals will have to complete and report against as we proceed through over the next 3/4/5 months.
Q6: So, what did you mean by unleashed in the past month or two?
A6: Well, these milestones were unleashed really because we sat down around Christmas time, just before, with the government firstly and compared notes with them on what they were trying to achieve and what timetable they were comfortable with. One has to remember that some of the timetable for projects like this is actually dictated by governments and dictated by community, no matter at times how much we’d like to proceed quicker if we could, at times the government does slow us down deliberately or sometimes inadvertently. That’s happened for political sensitivity reasons at a community level over the last couple of years, there’s been times where they government have asked us to slow down and we did, so we sat down with them first and asked them what timetable do they want and they laid that out quite clearly and we agreed, we thought given the financing proposals floating around we could achieve that.
So, then we sat down with our contractors in Perth and went through it all with them and with our favourite financing proposal and asked them to opine on what they could deliver against and how fast they could close and them mobilise, we all agreed at the time that we should now all align and give it a big shove and that’s what we did.
Just before Christmas we all, the government and our contractors, agreed to give it a big shove to a particular timetable, a particular financing, to give it our best shot. We were a little bit stung, if you like, by the difficulty of the markets over the last couple of years, a little bit stung by the declaration of a state of emergency in October. By the same token, we’re all big boys, these contractors have been around the industry for decades, the government is super keen for this to get going and we all decided, with open eyes, to now push hard all together and that’s what we’re doing, that’s really what I meant by ‘unleashing’ the effort.
Q7: KEFI Minerals plc also announced a share consolidation, can you explain that for me?
A7: I think as a company matures it needs a higher share price and obviously, we’d love the share price just to climb without a consolidation of its own volition but the fact of the matter is, we’re now going institutional into an institutional capital market for this company. It’s started, a little step was made when we bought Tulu Kapi, institutions came on the register for the very first time and now that we’re, as I said a moment ago, lining up to close the project funding up for Tulu Kapi another institution has joined the register. These guys hate sub-1p shares, the spread’s too big, there’s too much suspicion about manipulation of the spread between the offer and bid and so they want this on a transparent trading platform sets and they want the shares consolidated up to 5/6p equivalent.
So, we’ve bitten the bullet and we’re implementing it at the same time as implementing this placing and they understand that they’ve been priced pre-consolidation for their participation and the consolidation makes no real change to the value of the company, it just adjusts the denominator in the calculation of value per share. Nevertheless, it’s been an important move to make now as part of the institutionalisation of the share market for the company.