FROM THE BROKING DESK
KEFI Minerals† (LON:KEFI) has published its interim 1H17 financial results. The company has signed a mandate letter and heads of terms for the US$135m financing of its Tulu Kapi Gold Project in Ethiopia, which KEFI is aiming to commence construction of this year. An updated DFS for the project was published in May 2017 that confirmed the project’s attractions, including production of 980,000oz of gold over a ten-year mine life, AISC of US$777/oz and estimated initial capital costs of US$161m.
KEFI remains committed to reducing capex and finalising its financing plan. After announcing a further reduction in planned capex in August 2017, including reducing contingency provisions, we estimate that the total project funding requirement is US$152m, with an additional US$33m required for 30 months of interest charges before project cashflows start covering debt payments. To fund the US$185m, the company plans to receive US$135m from the Oryx financing and US$20m from the Ethiopian Government to cover offsite infrastructure, with the balance of US$30m to come from other sources. The company had previously stated that US$6m had been committed by Lycopodium and Lanstead, although the Sharing Agreement with Lanstead is now expected to provide less cash than expected. As of 30 June 2017, we estimate that a further £3.3m in payments to KEFI had been planned for; however, at the current share price of 4.39p, we estimate that only £1.9m will be received. This shortfall led to a write-down in the period’s financials. The cash balance at 30 June 2017 was £1.6m.
We reiterate our Buy rating and target price of 9.0p. Our target price is based on a risked SoTP NAV for the company and assumes a gold price of US$1,250/oz and a 0.75x P/NAV8 multiple for the Tulu Kapi Project. It also includes allowances for the underground potential at Tulu Kapi, other exploration assets and G&A costs. While the upside to the share price implied by our target price is already substantial, it is worth noting that the current price implies a 0.37x P/NAV to our unrisked NAV8 of 11.9p. With the Ethiopian state of emergency having ended and the financing package in the process of being secured, we believe that there is a near-term re-rating opportunity. It should be noted though that it remains to be seen whether peace will hold in Ethiopia, and there are still details of the financing to finish; the opportunity lies in the uncertainty of these two factors being reduced. To view our most recent report on the company, please click here.