KEFI took over exploration rights for the Tulu Kapi project in the Oromia region from Australia's Nyota Minerals Ltd (NYO.AX).
Under the 20-year agreement, KEFI plans to mine for both gold and silver over an area of 7 square kilometres. The company said it aimed to produce 28.6 tonnes of gold over 11 years.
"Production will be in 2017, and 2016 will be the year of construction," KEFI Chairman Harry Anagnostaras-Adams said at the signing ceremony in the Ethiopian capital.
Gold is Ethiopia's second-largest export revenue generator after coffee and earned an average of $450 million (306 million pounds) to $500 million a year for the past five years.
"We hope this mining of gold and silver will contribute to our national economy, especially in foreign currency," Mines Minister Tolesa Shagi said, adding he expected the firm to deliver revenues of $1.6 billion to the state over 11 years.
Tulu Kapi will be Ethiopia's second mine after Lege Dembi, which is in the Adola gold belt about 300 km (186 miles) southeast of Addis Ababa. The mine is run by Midroc, a firm owned by Saudi-Ethiopia businessman Mohammed al-Amoudi.