Kefi Minerals — Update 13 February 2017

KEFI Gold and Copper (AIM: KEFI)

Last close As at 04/11/2024

GBP0.01

−0.09 (−13.24%)

Market capitalisation

GBP37m

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Research: Metals & Mining

Kefi Minerals — Update 13 February 2017

Kefi Minerals

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Metals & Mining

KEFI Minerals

Securing Lanstead: Tulu Kapi financing underway

Fund-raising

Metals & mining

13 February 2017

Price

0.40p

Market cap

£16m

US$1.2499/£

Net cash (£m) at 30 June 2016
(pre July £3.8m placing)

0.1

Shares in issue

3,882.9m

Free float

89.5%

Code

KEFI

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.7)

1.3

14.7

Rel (local)

(3.8)

(4.7)

(9.5)

52-week high/low

0.6p

0.2p

Business description

KEFI Minerals is an exploration and development company focused on gold and copper deposits in the highly prospective Arabian-Nubian Shield, principally the 95%-owned Tulu Kapi project in Ethiopia and, to a lesser extent, the 40%-owned Jibal Qutman project in Saudi Arabia.

Next events

General meeting

28 February 2017

Analyst

Charles Gibson

+44 (0)20 3077 5724

KEFI Minerals is a research client of Edison Investment Research Limited

This morning, KEFI announced it is to raise £5.62m (gross) via the issue of 1.7bn shares at a price of 0.33p, including £4.62m from Lanstead. The majority of the funds raised will be expended on the development of Tulu Kapi over the next 12 months, with the next largest segment being directed towards exploration and the balance to corporate costs. Directors and contractors have supported the fund-raising by subscribing for c £0.4m. Afterwards, a 17:1 consolidation of the shares has been proposed (to be voted on, among other things, at a General Meeting of the company’s shareholders on 1 March).

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/14

0.0

(2.6)

(0.4)

0.0

N/A

N/A

12/15

0.0

(2.0)

(0.2)

0.0

N/A

N/A

12/16e

0.0

(2.0)

(0.1)

0.0

N/A

N/A

12/17e

0.0

(5.1)

(0.1)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.

Lanstead agreement provides for higher share price

In common with its working practices, the Lanstead agreement involves the issuance of a fixed number of shares and is governed according to a ‘sharing agreement’ and structured relative to a benchmark price, which has been set at 0.44p/share, such that KEFI may receive more than £4.62m if the share price exceeds this level and vice versa if it does not. To this end, £0.693m will be contributed immediately by Lanstead, with the balance being paid in equal instalments of £0.218m per month (subject to adjustment upwards or downwards) for 18 months from shareholder authorisation of the deal. In its aftermath, Lanstead will be KEFI’s largest single shareholder, with approximately 25% of its issued capital, ahead of Odey with c 20%. Note that all of our forecasts continue to be conducted on a pre-consolidation basis.

Valuation: Up to 1.01p as confidence returning

This financing may be seen within the context of our estimate that KEFI will require c US$18.5m equity funding to develop Tulu Kapi within reasonable gearing constraints (see our 21 November note). Fully diluted on this basis at an assumed share price of 0.40p/share, we estimate that investors in KEFI’s shares may expect EPS in the order of 0.46p/share (vs 0.24p previously) and maximum potential dividends (cash flow after investments and funding) of around 0.44p/share for five years, from FY23 to FY27. These potential dividends have a net present value of 1.01p/share (cf 0.76p previously), rising to 1.76p in 2023, when similarly discounted at 10%. However, if KEFI is able to successfully leverage its cash flow from Tulu Kapi into other development assets in the region, this valuation rises to 2.38p, which would put it on a P/E ratio of 4.8x EPS in FY23e. In the meantime, on a forecast FY16 year-end resource multiple of US$8.58/oz, KEFI is trading at a 15.6% discount to the global average discovery cost of its attributable resource base (estimated at US$10.16/oz). Alternatively stated, we estimate an investment in KEFI shares now at an assumed price of 0.40p per share could generate an IRR to investors of 22.3% in sterling terms over the 12 years from 2017 to 2028.

Exhibit 1: Financial summary

£'000s

2013

2014

2015

2016e

2017e

December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

0

0

0

0

Cost of Sales

(927)

(2,071)

(1,634)

(1,971)

(3,751)

Gross Profit

(927)

(2,071)

(1,634)

(1,971)

(3,751)

EBITDA

 

 

(927)

(2,071)

(1,634)

(1,971)

(3,751)

Operating Profit (before amort. and except.)

(927)

(2,189)

(1,724)

(2,021)

(3,801)

Intangible Amortisation

0

0

0

0

0

Exceptionals

(442)

(379)

(428)

0

0

Other

0

0

0

0

0

Operating Profit

(1,369)

(2,568)

(2,152)

(2,021)

(3,801)

Net Interest

4

(413)

(319)

8

(1,302)

Profit Before Tax (norm)

 

 

(923)

(2,602)

(2,043)

(2,013)

(5,103)

Profit Before Tax (FRS 3)

 

 

(1,365)

(2,981)

(2,471)

(2,013)

(5,103)

Tax

0

0

0

0

0

Profit After Tax (norm)

(923)

(2,602)

(2,043)

(2,013)

(5,103)

Profit After Tax (FRS 3)

(1,365)

(2,981)

(2,471)

(2,013)

(5,103)

Average Number of Shares Outstanding (m)

493.4

952.4

1,577.7

3,127.4

5,509.9

EPS - normalised (p)

 

 

(0.4)

(0.4)

(0.2)

(0.1)

(0.1)

EPS - normalised and fully diluted (p)

 

(0.4)

(0.4)

(0.2)

(0.1)

(0.1)

EPS - (IFRS) (p)

 

 

(0.3)

(0.3)

(0.2)

(0.1)

(0.1)

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

-

-

-

-

#DIV/0!

EBITDA Margin (%)

-

-

-

-

#DIV/0!

Operating Margin (before GW and except.) (%)

-

-

-

-

#DIV/0!

BALANCE SHEET

Fixed Assets

 

 

7,152

9,299

11,926

13,541

55,210

Intangible Assets

6,900

9,139

11,845

12,944

12,209

Tangible Assets

252

160

81

87

42,491

Investments

0

0

0

510

510

Current Assets

 

 

4,014

1,061

1,012

1,822

271

Stocks

0

0

0

0

0

Debtors

655

335

358

358

179

Cash

3,279

640

562

1,372

0

Other

80

86

92

92

92

Current Liabilities

 

 

(3,363)

(3,202)

(1,995)

(2,000)

(2,300)

Creditors

(3,363)

(3,202)

(1,995)

(2,000)

(2,300)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

0

0

0

0

(17,680)

Long term borrowings

0

0

0

0

(17,680)

Other long term liabilities

0

0

0

0

0

Net Assets

 

 

7,803

7,158

10,943

13,363

35,502

CASH FLOW

Operating Cash Flow

 

 

(1,424)

(2,006)

(2,729)

(1,966)

(3,272)

Net Interest

4

(413)

(319)

8

(1,302)

Tax

0

0

0

0

0

Capex

(877)

(3,133)

(3,507)

(2,400)

(42,454)

Acquisitions/disposals

(1,083)

(750)

0

0

0

Financing

4,735

3,663

6,480

5,168

27,976

Dividends

0

0

0

0

0

Net Cash Flow

1,355

(2,639)

(75)

810

(19,052)

Opening net debt/(cash)

 

 

(1,924)

(3,279)

(640)

(562)

(1,372)

HP finance leases initiated

0

0

0

0

0

Other

0

0

(3)

0

0

Closing net debt/(cash)

 

 

(3,279)

(640)

(562)

(1,372)

17,680

Source: Company sources, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by KEFI Minerals and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by KEFI Minerals and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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