In The News - KEFI Minerals plc, White Rock Minerals



In the news: KEFI Minerals & White Rock Minerals



LON:KEFI | 0.350p | US$17m | Buy | TP : 1.5p

Conditional Fundraising Brings New Cornerstone Shareholder

KEFI Minerals has announced an estimated £5.6m financing, with upfront capital of £1.7m and the remainder to be paid throughout 2017 and 2018. This was primarily backed by Lanstead Capital. Proceeds will be used to cover costs associated with financing Tulu Kapi, development preparations in Ethiopia, the mining licence application for Jibal Qutman in Saudi Arabia, exploration activities and general expenses.

COMMENT: This transaction provides the company with support to cover ongoing expenses as the project funding of Tulu Kapi is resolved. With US$155m needed, the key focus is on the company securing a financing package to proceed with construction. The company previously announced that discussions with lenders were ongoing, with the Board believing that closing a deal will be tied to the scheduled end of the Ethiopian State of Emergency around the end of 1Q17.

While the company is now working on the implementation of a financing proposal, it remains non-exclusive and subject to conditions precedent while discussions with alternative financiers continue. The details of the proposal have not been disclosed, but the company is expected to update the market further this quarter.

We continue to rate the shares as a Buy and have a target price of 1.5p.


Tulu Kapi is an attractive gold development project with planned production of 980,000oz over a ten-year mine life at LoM average AISC of US$779/oz — Reserves at Tulu Kapi stand at 1.05Moz, grading 2.1 g/t. This conventional open-pit and CIL-based project is expected to have a competitive operating cost structure, with estimated average life-of-mine AISC at US$779/oz. Including contingencies and overheads, the total funding requirement is US$155m, equivalent to an attractive capital intensity of US$158/oz of life-of-mine production. The project is planned to produce 115,000oz pa on average over the first eight years of operation. Assuming a gold price of US$1,200/oz, the open-pit project has an NPV8 of US$77m and an IRR of 47%.

The company is working towards commencing construction of the project in 2017 — Key items remaining to complete the process include:

• Shareholders’ agreement relating to the government’s investment in the project. The agreement has now been passed to the relevant ministry for final review and execution.

• Resettlement plan and associated compensation. The company has re-confirmed with the government the methodology for determining the compensation for resettlement in order to ensure the compliance of all parties with Ethiopian law and World Bank guidelines. The company and community are now awaiting verification of the compensation calculations. The finalisation of compensation would pave the way for resettlement and is a key timeline item for the project. The company aims to commence resettlement in 1H17.

• Project funding, currently estimated at US$155m, is a focus for KEFI. The company has been working with potential co-lenders to satisfy their due diligence requirements, and the Board believes that it will be able to announce a co-lender to coincide with the scheduled end of the Ethiopian State of Emergency around the end of 1Q17. Although the final make-up of project financing will not be known until the package has been finalised, recent indications are that the company has been seeking finance from a number of sources along the following lines:

o The government will invest US$20m into the project in return for increasing its direct interest from 5% to up to approximately 25%, with the final level dependent on KEFI’s equity contribution — The government is expected to make its contribution in the form of funding some of the project’s infrastructure requirements, including road and power lines.

o Senior secured debt of ~US$100m — Negotiations with the Development Bank of Ethiopia were recently reported to be at an advanced stage. The company is engaging with other potential lenders to the project, many of whom are already active in the region.

o Mezzanine or equity finance of ~US$20m — To be provided through some combination of mezzanine debt, off-take finance and equity at the project or parent level.

o Cost overrun facility of ~US$15m.

The recent financing will provide an estimated £5.6m — The announced financing provides £1.7m of upfront capital and an estimated £3.9m spread over 18 months. The company is also effecting a 17:1 share consolidation, subsequent to which this financing round will add 104m shares for a total of 333m shares outstanding. This issuance was done at a pre-consolidation price of 0.33p/share, representing a 15% discount to the closing price the day prior to the announcement. The majority of this financing was completed by Lanstead Capital, who will receive shares representing 24.75% of the company. The estimated £3.9m spread over 18 months will be solely financed by Lanstead and will feature a price adjustment mechanism whereby the proceeds received by the company will adjust by the amount to which the volume-weighted average share price differs from 0.44p/share (post-consolidation price of 7.48p/share), but the number of shares issued will remain constant. The company’s share price was previously above 0.44p/share in October 2016. The first payment will occur two months after the shares are admitted to the exchange (the expected date of admission is 2 March 2017), with subsequent payments to occur monthly. As part of the financing, the company agreed to pay for Lanstead’s legal costs for the transaction and also to issue 4m shares to Lanstead as value payment shares. After including shares received from the financing and value in payment shares, Lanstead will own 25.9% of KEFI’s share capital.

We continue to rate the shares as a Buy and have a target price (TP) of 1.5p — Our TP is based on a risked sum-of-the-parts valuation and the pre-consolidation share count, and assumes a long-term gold price of US$1,350/oz. It includes the Tulu Kapi Project on the basis of an NPV8 to which we have applied a risk multiple of 0.9x. We have added values for potential from the underground development of Tulu Kapi and from the company’s Jibal Qutman Gold Exploration Project in Saudi Arabia, and have adjusted for corporate G&A and net cash.



TSX:WRM | A¢1.6 | US$10.2m

Closes Rights Issue

White Rock Minerals has announced that it has received commitments to place 55.3m shares at a price of A$0.015/share, raising A$0.8m. This represents the remaining shortfall from the entitlement offer.

COMMENT: This rights issue completes the financing announced in September 2016 for a placement and entitlement offer. The previously announced shortfall from the entitlement offer has now been fully placed, which brings the total raised from both offers to A$5.7m. These funds will be used to advance the DFS, EIS and associated approvals.


The placement and entitlement offer raised a total of A$5.7m (gross) — In late September the company announced that it was to raise up to A$5.7m at a price of A$0.015/share through a placement and entitlement offer. The proceeds were to be used to fund a DFS and Environmental Impact Statement (EIS) at the company’s Mount Carrington Project, exploration at its Red Mountain Project and for general capital purposes:

• On 6 October the company announced that it had completed the placement of 110m shares to raise A$1.7m, before costs.

• The entitlement offer was launched on 10 October, and closed in multiple rounds from November to February. The total raised from the entitlement offer was A$4.1m before costs, with A$0.8m representing the final round (closed on 10 February).

DFS for the Mount Carrington Au-Ag Project now funded — The company owns 100% of the Mount Carrington Project in New South Wales, for which the results of an updated scoping study were announced at the end of March 2016. This is a relatively small, but high-return, project, comprising two gold-rich open pits and three silver-rich pits together with a flotation/CIL processing route. Capex was low at A$24m, with a capital payback of <1 year. A total of 111,000oz of gold and 6.7Moz of silver were planned to be produced over a mine life of seven years. Project C1 cash costs were estimated to be A$754/oz (~US$550/oz). At a gold price of A$1,600/oz and a silver price of A$22/oz, the project had a pre-tax NPV10 of A$61m and an IRR of 103%. The company believes that a feasibility study and EIS can be completed by late 2017. Allowing 12 months for construction suggests that the project could potentially be in production by the beginning of 2019.

Proposed construction funding from Cartesian Royalty Holdings — In late July 2016 the company entered a binding, conditional Term Sheet under which Cartesian Royalty Holdings was to provide A$1.0m under a two-tranche placement and a gold and silver streaming-based financing to provide A$19m for the development of the project, in return for 40,000oz of gold equivalent production over a seven-year period. Conditions for the A$19m streaming deal include completing the Mt Carrington DFS, EIS and full permitting, acceptance of the mine plan and capex included in the DFS, and access to grid power for 100% of the project’s needs. Once these conditions have been met, the deal will still be subject to due diligence and negotiation with Cartesian.

Red Mountain Project polymetallic exploration project has historical resources of 5.7Mt at 5% Zn, 2% Pb and 120 g/t Ag — Historical estimates are sourced from prior-owner Grayd Resource Corp, based on drilling completed between 1996 and 1998. Drilling highlights to date include grades of 26% Zn and 12% Pb over 5.5m at Dry Creek, and 7% Zn and 4% Pb over 3m at West Tundra Flats. Preliminary metallurgical test-work has indicated recoveries of over 90% Zn, >80% Au and >70% Pb & Ag. Statistical analysis of VMS clustering patterns indicates that, further to Dry Creek and West Tundra Flats, the Red Mountain camp has the potential to host a sizeable 10-15Mt deposit with similar Zn, Ag and Pb grades. The company is undertaking a programme of data compilation, geochemistry and geophysics that it expects to lead to target identification and drilling during 2H17.

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