A second research note in the space of 24 hours has highlighted the potential of KEFI Minerals (LON:KEFI) and its Tulu Kapi gold project in Ethiopia.
Brandon Hill Capital applauded management’s laser focus on lowering the capex of the mine, which in turn will minimise dilution when it comes to tapping investors for their share of the build cost.
Analyst Peter Rose said the AIM-listed group is “one of the new breed of gold mines that are being developed in the light of lower gold prices”.
He reckons Tulu Kapi on its own is worth 5p a share (current price 0.77p), while KEFI's other project, Jibal Qutman, in Saudi Arabia, adds another 0.3p to the valuation.
On Thursday the research house Edison said KEFI was worth is worth 1.93p a share currently, rising to 2.82p from 2019.
Analyst Charles Gibson in a research note provided a welter of compelling metrics that underline KEFI’s diamond-in-the-rough status (if that’s not mixing metaphors).
He pointed out that, with a resource multiple of US$9.36 an ounce, KEFI is trading at a more than 40% discount to the average of its London peers, based on its attributable resources.
Earlier this week, the company said it remains on schedule with its plans for Tulu Kapi, which should begin commissioning towards the end of next year.
Key among the recent milestones has been short-listing of potential mine contractors and firms interested in constructing Tulu Kapi.
It also said the recently-overhauled definitive feasibility study had been reviewed by independent consultants as well as taking on board the comments of short-listed potential financiers.
The plan is to have the financing in place at some point this quarter, with major works starting in the final three months of 2015.
Tulu Kapi will be an open-pit mine extracting 80-90,000 ounces of gold a year at an all-sustaining cost of US$779 an ounce – making it one of the lowest quartile producers in the world.
It is expected to cost US$128mln to create – though Edison’s Gibson expects investors to have to stump up no more than around US$20mln, minimising dilution.
He reckons the remainder will come from a “combination of streaming deal, debt and infrastructure financing from the Ethiopian government and its development banks”.
It is worth remembering just how much work has transformed what was at the outset a marginal asset at the current gold price and under the blue-print mapped out under Tulu Kapi’s former owners.
Gibson said: “By subsequently reinterpreting the ore body in the light of new data, it has been able to devise a mine plan that extracts essentially the same quantity of metal by mining only half the tonnage of rock.
“As a consequence, upfront capital expenditure has been halved and the economics of the project transformed.”