RFC Ambrian has come out in support of KEFI Minerals plc (LON:KEFI) and suggested there is at least 120% upside in the Ethiopia and Saudi Arabia-based gold junior.
KEFI is trying to put together a finance package for the 115,000oz per annum (pa) Tulu Kapi project in Ethiopia.
Life–of-mine estimates are close to a million ounces but efforts to get the project off the ground have been hampered by a state of emergency declared in the country in October.
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Government support for the project is high said RFC, with US$20mln of direct investment committed for infrastructure requirements and long-term debt from the Development Bank of Ethiopia.
Tweaks to the 2015 definitive feasibility study suggest all-sustaining very competitive costs of US$761/oz, with low grid power costs and capital efficiency (build cost) of US$158/oz.
Gold price helpful
Tulu Kapi should also enter production in a strong gold price environment.
“The gold price has risen 9% YTD and has the potential to move higher as the likelihood of major revisions to US fiscal policy falls.
“On the downside, the US Fed has begun hiking interest rates and may look to accelerate, although this has become less likely. “
Ethiopia too was ranked as the eighth most favourable mining jurisdiction in Africa, but regional tensions have since exploded in to violence and prompted the state of emergency.
On the mining side, a scoping study on a potential underground resource at Tulu Kapi suggests the production rate can rise from 115,000oz pa to 150,000oz pa from Year 4, which RFC Ambrian says would boost net present value (an estimate of future cash flows) by US$28mln at a gold price of US$1,250/oz.
In addition, KEFI has identified more satellite targets within trucking distance of the mine site.
In Saudi, feasibility work at the 40%-owned Jibal Qutman in Saudi Arabia is scheduled to start later this year or in 2018.
Value undemanding says broker
The current share price is a modest 0.2 times net asset value on an unrisked basis says RFC Ambrian.
Adding in risk factors brings the price target down to 10.5p, but that should rise once the state of emergency has ended and financing is secured. Shares today were up 3% to 4.63p.