KEFI Gold and Copper (AIM:KEFI), in a statement on Tuesday, said its Saudi Arabian joint venture, Gold and Minerals Company (GMCO), has approved development of Stage 1 of the Jibal Qutman Gold Project.
Progress remains subject to outstanding procedural requirements, including the grant of a mining licence by Saudi Arabia's newly appointed Minister of Industry and Mineral Resources.
KEFI, the AIM-listed gold and copper developer focused on the Arabian-Nubian Shield, holds a 13% interest in GMCO, with the remaining 87% held by its long-standing Saudi partner, industrial conglomerate ARTAR.
GMCO has approved the approximately $87 million capital development programme for the project, known as JQ1, with development expected to begin in the fourth quarter.
JQ1 marks GMCO's first development across its Saudi Arabian portfolio, which holds aggregate mineral resources of approximately 4.0 million ounces of gold equivalent spanning the Jibal Qutman and Hawiah projects, both earmarked for staged development.
"The conditional approval of the development of Jibal Qutman Stage 1 is an important milestone for GMCO and for KEFI's interests in Saudi Arabia," said Harry Anagnostaras-Adams, KEFI's executive chairman.
JQ1 is an oxide-ore gold operation using conventional carbon-in-leach processing, with an estimated seven-year operating period expected to recover approximately 258,000 ounces of gold.
At gold prices of $3,000 to $5,000 per ounce, the project is estimated to generate a post-tax net present value at a 5% discount rate of $141 million to $275 million, with an internal rate of return of 23% to 60%.
KEFI's 13% share of the development cost is expected at approximately $10 million to $12 million over 24 months if contributed entirely as equity, with roughly half the total capital requirement expected on commencement and the remaining $5 million to $6 million balance to be optimised over the following 12 months.
Anagnostaras-Adams said the project's wider significance lies in establishing the first producing operation within GMCO's broader portfolio, with cash flows from JQ1 expected to help fund exploration and the progressive development of further projects at Jibal Qutman and Hawiah.
GMCO's longer-term strategy targets aggregate production across its Saudi portfolio in the order of 350,000 gold and gold-equivalent ounces annually, which at KEFI's current 13% interest would equate to approximately 45,000 attributable ounces a year.
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That attributable figure would represent approximately 28% of KEFI's anticipated production from its Tulu Kapi gold project in Ethiopia, where construction resumed in phases following last month's suspension after a fatal security incident.
"KEFI's Ethiopian and Saudi development pipeline presents us with a pathway to a beneficial interest in a combined 205,000 oz gold and gold equivalent production," Anagnostaras-Adams said.
KEFI retains flexibility to participate in future GMCO equity funding rounds or to accept proportionate dilution of its shareholding, with the joint venture operating under its own management structure and KEFI represented through Anagnostaras-Adams's seat on the GMCO board and its Operations Steering Committee.
The next anticipated development within the portfolio is Stage 2 of Jibal Qutman, targeting the project's sulphide gold resources, to be followed by oxide and then underground sulphide development at the Hawiah copper-gold project.