FROM THE BROKING DESK
Jim Taylor has put out KEFI Minerals† (LON:KEFI) — Tulu Kapi Financing Package Takes Shape, 17 July 2017. KEFI is continuing to make progress towards the financing and construction of its Tulu Kapi Gold Project in Ethiopia. Having announced the results of an updated DFS in late May, KEFI has agreed innovative, conditional arrangements for the provision of US$155m of its estimated financing requirement of US$193m. On-site infrastructure is to be funded by an SPV that will raise US$135m through debentures, with construction of the project via a fixed-price contract with the experts Lycopodium. Off-site infrastructure to the value of US$20m is to be provided by the Ethiopian Government.
We reiterated our Buy rating and have revised our target price up from 8.8p to 9.0p. We are adjusting our target price after assuming that the company raises US$32m in equity at a price of £0.05/share, resulting in the issuance of 490m shares, equivalent to 147% of the outstanding share capital. We note that, should the company secure a working capital facility for the project, the equity issue could be significantly reduced, leading to a lower level of dilution. The stock is currently trading at a P/NAV of 0.5x, a significant discount to its peer group. We believe it offers a re-rating opportunity once the Ethiopian state of emergency has ended and the finance package has been completed.
COMPANIES
ASX:BSE | A$0.26 | US$152m | Buy | TP : A$0.49
Repays Taurus Debt Facility
Base Resources has repaid the final US$11.8m of the US$20m debt facility provided by Taurus Funds Management, one of its major shareholders. The repayment is ahead of the scheduled repayment date, which was at the end of September.
COMMENT: The repayment exemplifies the significant improvement in the company’s finances over the past year. It also increases financial flexibility, removing the 75% sweep of cash at the corporate level to repay this facility. The 50% cash sweep at the project level, to pay down the project debt, remains in place.
The US$20m Taurus loan was put in place in December 2014 to satisfy the requirement of the rescheduling of the project loan to provide US$15m of additional liquidity to the project, with the remaining US$5m providing corporate liquidity. This satisfying news continues the positive developments in debt reduction, with a decrease in net debt from US$188m at the end of FY15 to US$151m at June 2016, followed by a US$52m decline in FY17 to US$99m (announced last week). With the continuing positive outlook for mineral sands pricing, we expect a similarly strong cashflow performance from Kwale in FY18, with forecast net debt set to fall to US$50m by June 2018.
We maintain our Buy rating and our target price (TP) of A$0.49. Our TP is based on long-term prices of US$180/t for ilmenite, US$1,050/t for rutile and US$1,150/t for zircon. Using a flat price deck based on estimated prices from last quarter (US$175/t, US$750/t and US$890/t respectively), our target price would be A$0.36/share, some 38% above the current share price.
Near-term upsides include ongoing exploration. We anticipate that drilling on the extensions of the South Dune to the south-west and its eastern edge could have added 1.0-1.5 years to the mine life. For reference, we estimate that a one-year mine life extension would add US$50m to the NPV for Kwale, and lead to a 13% increase to our target price (net). Base currently expects to publish a resource update in the coming quarter; this will serve as a basis for extending the mine life. Beyond these near-term targets, the NE Sector has shown high-grade drill results, but remains largely untested. Drilling of the NE Sector was put on hold earlier this year; the company now expects to resume exploration at the start of 2018.