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KEFI Minerals plc: THE INVESTMENT CASE

KEFI Minerals has start of Tulu Kapi construction in sight

Broadly speaking, the new consortium is coming in on the same terms as the Ethiopian government
Gold and dollars
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KEFI Minerals PLC’s (LON:KEFI) US$30mln from the sale of a stake in its local Ethiopian subsidiary completes the funding requirements for the construction of the Tulu Kapi gold mine.

“KEFI has now assembled the proposed full project funding consortium, including contractors, equity and non-equity capital and is expected to move towards full financial close later this year by closing out the remaining Ethiopian government processes and approvals, along with completion of due diligence and formal documentation,” said KEFI’s chairman Harry Anagnostaras-Adams.

WATCH: KEFI Minerals busy on three fronts in 2018 across Ethiopia and Saudi Arabia

Broadly speaking, the new consortium is coming in on the same terms as the Ethiopian government and gives a combined 46% of the project equity to a combination of the Ethiopian government and local investors.

A group compromising mining contractor Ausdrill, engineer Lycopodium, and the Ethiopian government is responsible for the infrastructure and building work.

Innovative financing

Lycopodium will build the on-mine infrastructure (including the plant) under a hybrid EPC/EPCM contract, said broker RFC Ambrian.

This is planned to be funded through the issue of US$160mln and US$50mln of equity including the US$30mln and US$20mln from the Ethiopian government.

Production will amount to 980,000oz over a 7.5-year mine life at average sustaining costs of US$773/oz over its life.

Reserves stand at 1.05Moz, grading 2.1 g/t, with operations to be a conventional open pit and CIL-based project.

Better finance terms

Anagnostaras-Adams added that the net present value (NPV) indicated in last year’s definitive feasibility study had risen to US$192mln from US$159mln due to higher throughput via the processing plant in the early years than assumed in 2017.

Forecast production rises to 135,000oz from 115,000oz, while all-in-costs increase to US$973 per oz from US$937 per oz.

NPV also gets a boost from the expected better finance terms, said Anagnostaras-Adams.

Expansion potential

A scoping study on a potential underground resource at Tulu Kapi suggests the production rate can rise to 150,000oz pa from Year 4.

In addition, KEFI has identified more satellite targets within trucking distance of the mine site.

"Independent reviews of the project plans and associated economics have been completed and re-affirm their robustness and attractiveness."

"KEFI's remaining 54% beneficial interest in the project, along the lines previously foreshadowed, gives the company an implied valuation of US$66 million based on these transaction metrics, whilst not including any value for the Tulu Kapi underground deposit or the exploration prospects in Ethiopia and Saudi Arabia, the largest countries within the highly prospective Arabian Nubian Shield where KEFI is focused,” added Anagnostaras-Adams.

Jibal Qutman still developing

In Saudi, KEFI has a 40%-stake in the Jibal Qutman project, where new country-wide mining laws are being introduced in a bid to encourage the development of the sector into an important part of the economy. 

Equity finance a significant step, says broker

Broker RFC Ambrian said: “The share price has reacted very positively to the [equity finance] news.

"We reiterate our ‘buy’ rating and target price of 5.6p. We expect that progress towards construction — planned for September — will be reflected in a reduction of the current deep discount to its estimated NAV.

“We note the company’s estimated unrisked NAV of 14p/share We anticipate that the next major uplift in the value of the company will be on the completion of the bond financing.

“The valuation is also highly leveraged to the gold price, with our risked TP increasing to 8.5p at a gold price of US$1,400/oz.“

At 3.4p, KEFI is valued at £11.7mln.

Financing of Tulu Kapi takes shape

KEFI is looking to raise a total of £5.5mln through a share placing and subscription, to fund Tulu Kapi project.

It has conditionally raised £3mln through a placing of 120mln new ordinary shares at a price of 2.5p each for additional working capital.

KEFI has also agreed on terms with local investors for a US$30mln equity investment in its Ethiopian subsidiary which is leading the development of Tulu Kapi, analysts at Cantor Fitzgerald said.

“Assuming the US$160mln proposed project debt finance is also secured over the summer as anticipated, this equity investment should complete the financing for the mine,” the analysts said.

Cantor Fitzgerald revised its ‘buy’ rating for KEFI and decreased its price target to 15p from 22p to ‘reflect the increased shares in issue.”

 

 

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