KEFI Minerals — Update 27 July 2016

KEFI Gold and Copper (AIM: KEFI)

Last close As at 20/11/2024

GBP0.01

0.03 (5.08%)

Market capitalisation

GBP36m

More on this equity

Research: Metals & Mining

KEFI Minerals — Update 27 July 2016

KEFI Minerals

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Metals & Mining

KEFI Minerals

Steady as she goes

Share placing

Metals & mining

27 July 2016

Price

0.55p

Market cap*

£17m

US$1.3123/£

Net cash (£m) at 31 Dec 2015

0.6m

Shares in issue*

3,121.0m

*Will be 3.9m post raise

Free float

89.5%

Code

KEFI

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.8

26.7

(27.3)

Rel (local)

(5.5)

19.8

(28.3)

52-week high/low

0.83p

0.28p

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 event

Financing completed

H216

Analyst

Charles Gibson

+44 (0)20 3077 5724

KEFI Minerals is a research client of Edison Investment Research Limited

KEFI has raised £3.8m (gross) in equity, via the issue of 761.9m shares yesterday at a price of 0.5p per share. Notably, Odey Asset Management subscribed above its pro rata shareholding to increase its interest in KEFI to 29.5%. Odey is also reported to have offered to underwrite the placing, although this was rendered superfluous by the level of demand from other investors. Ausdrill (a contractor and existing shareholder) subscribed to maintain its shareholding at 7.31%. KEFI’s share price closed at 0.565p on Monday 25 July (the day before the placing was announced), on which basis its theoretical ex-placing price should be 0.552p.

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

(6.6)

(0.2)

0.0

N/A

N/A

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

On target for 2017 commissioning

KEFI anticipates executing syndicated financing documentation at the end of Q316, paving the way for construction later in the year, commissioning towards end-FY17 and commercial production in H118 (Edison forecast). KEFI’s latest thinking on funding is that it will fund the US$175m required to bring Tulu Kapi into production with senior secured debt (US$85m), contractors (US$50m), the Ethiopian government (US$20m) and KEFI (US$20m in either mezzanine or equity form). In the aftermath of yesterday’s US$5m raising, this equity/mezzanine tranche reduces to US$15m (which was the assumption in our last note, dated 7 June).

Valuation: 1.71-2.45p/share depending on financing

At the time of our last note in June, we valued KEFI at 2.64p/share, rising to c 4.35p/share in FY22 (based on our long-term gold price assumptions and a 10% discount rate), assuming no additional equity/mezzanine funding. Assuming additional equity and/or mezzanine finance (in the form of a convertible with a conversion price of 0.6p per share – ie around the equity price at the time), the resulting dilution (assuming full conversion) reduced our valuation from 2.64p to 1.84p/share. In the aftermath of yesterday’s equity raising, our headline valuation moderates from 2.64p per share to 2.45p/sh – a 0.51p/sh decline on account of the associated dilution being substantially offset by a 0.30p/sh rise on account of the decline in the value of sterling, post-Brexit. In the event of an additional US$15m in mezzanine finance at the current share price, this valuation moderates further, to 1.71p/sh (vs 1.84p/sh), albeit attended by proportionally less financial risk in the form of a decreased peak net debt funding requirement of £59.3m (US$77.8m) in FY18, compared to £71.0m (US$93.0m) in the event of no additional mezzanine financing. Note that 2.45p/sh and 1.71p.sh rise to 3.94p/sh and 2.73p/sh in FY21, respectively. If KEFI is successfully able to leverage its cash flow from Tulu Kapi into other development assets in the region, however, this valuation rises further, to 5.85p, which would put it on a contemporary P/E ratio of 9.9x in FY21e.

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)

(1,971)

Gross Profit

(927)

(2,071)

(1,634)

(1,971)

(1,971)

EBITDA

 

 

(927)

(2,071)

(1,634)

(1,971)

(1,971)

Operating Profit (before amort. and except.)

(927)

(2,189)

(1,724)

(2,052)

(6,473)

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)

(2,052)

(6,473)

Net Interest

4

(413)

(319)

8

(80)

Profit Before Tax (norm)

 

 

(923)

(2,602)

(2,043)

(2,044)

(6,554)

Profit Before Tax (FRS 3)

 

 

(1,365)

(2,981)

(2,471)

(2,044)

(6,554)

Tax

0

0

0

0

0

Profit After Tax (norm)

(923)

(2,602)

(2,043)

(2,044)

(6,554)

Profit After Tax (FRS 3)

(1,365)

(2,981)

(2,471)

(2,044)

(6,554)

Average Number of Shares Outstanding (m)

493.4

952.4

1,577.7

3,127.4

3,882.9

EPS - normalised (p)

 

 

(0.4)

(0.4)

(0.2)

(0.1)

(0.2)

EPS - normalised and fully diluted (p)

 

(0.4)

(0.4)

(0.2)

(0.1)

(0.2)

EPS - (IFRS) (p)

 

 

(0.3)

(0.3)

(0.2)

(0.1)

(0.2)

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

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

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

7,152

9,299

11,926

15,612

74,496

Intangible Assets

6,900

9,139

11,845

11,110

10,375

Tangible Assets

252

160

81

4,502

64,121

Investments

0

0

0

0

0

Current Assets

 

 

4,014

1,061

1,012

450

2,309

Stocks

0

0

0

0

0

Debtors

655

335

358

358

2,217

Cash

3,279

640

562

0

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

(730)

(53,221)

Long term borrowings

0

0

0

(730)

(53,221)

Other long term liabilities

0

0

0

0

0

Net Assets

 

 

7,803

7,158

10,943

13,332

21,284

CASH FLOW

Operating Cash Flow

 

 

(1,424)

(2,006)

(2,729)

(1,966)

(3,530)

Net Interest

4

(413)

(319)

8

(80)

Tax

0

0

0

0

0

Capex

(877)

(3,133)

(3,507)

(4,502)

(64,121)

Acquisitions/disposals

(1,083)

(750)

0

0

0

Financing

4,735

3,663

6,480

5,168

15,240

Dividends

0

0

0

0

0

Net Cash Flow

1,355

(2,639)

(75)

(1,292)

(52,491)

Opening net debt/(cash)

 

 

(1,924)

(3,279)

(640)

(562)

730

HP finance leases initiated

0

0

0

0

0

Other

0

0

(3)

0

(0)

Closing net debt/(cash)

 

 

(3,279)

(640)

(562)

730

53,221

Source: Company sources, Edison Investment Research

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DISCLAIMER
Copyright 2016 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.
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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

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Level 25, Aurora Place

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