In the news: Base Resources & KEFI Minerals
FROM THE BROKING DESK
Base Resources (LON:BSE) *† has published an updated Resources and Reserves Statement for its 100%-owned Kwale Project in Kenya. This reflects depletion from mining that occurred over FY17 as well as the previously-announced resource update for Kwale South Dune: the effect of depletion was in line with our projections, while the resource update is pending the extension of the company’s mining licence. Currently all the South Dune area is covered by the prospecting licence SPL 173, while only a portion is covered by the mining licence SML 23. In the coming months Base will be performing economic analysis on the updated South Dune Resource, which will then form the basis of the application to the Kenyan Ministry of Mines for an extension of SML 23.
We reiterate our Buy rating and target price of A$0.49. It should be noted that the coming update to reserves may provide a 5-10% uplift to our target price from an extended mine life. To view our most recent report on the company, please see Base Resources — FY17 Financial Report, 29 August 2017.
COMPANIES
KEFI MINERALS†
LON:KEFI | 4.1p | US$18m | Buy | TP : 9.0p
Quarterly Update — More Details on Intended Project Funding
KEFI Minerals has announced a quarterly update that provides more detail on its proposed funding package for the development of its Tulu Kapi Gold Project in Ethiopia.
Oryx Management is continuing to work towards closing the funding package this year and has submitted a draft financing agreement to the Ethiopian authorities for approval. Oryx expects to raise US$140m towards the project’s financing requirement and the government has agreed to fund offsite infrastructure to a maximum of US$20m, for a total of US$160m.
COMMENT: With respect to the residual capital requirement, the company is considering offering third parties a stake in the project. It stated that it is in discussions with a number of potential project-level investors and that it will now bring these discussions to a head.
The company stated that Oryx has increased the amount of funding that it intends to secure from US$135m to US$140m and that this is part of the arrangements to allow a 25% increase in the processing plant throughput (from 1.5-1.7Mtpa to 1.9-2.1Mtpa) to be considered. The additional cost of this increase is to be offset by the move from a fixed price lump sum project construction to an open book, cost-based arrangement with incentivisation based on target costs and schedule.
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. To view our most recent report on the company, please click here.