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By HotStockRockets | Thursday 12 October 2017
Disclosure: Financial Investigative Media Limited, which is not owned by Tom Winnifrith but by a trust for his dependants, owns shares in companies mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
A quarterly operational update from KEFI Minerals (KEFI) sees it emphasised it’s “pulling together our project funding for the Tulu Kapi gold project in Ethiopia for the closing planned for this year”. This and construction catalysts upcoming go together with a current massive discount to potential net present value…
The quarterly operational update includes that development funder “Oryx has agreed to expand its proposed finance facility from US$135 million to US$140 million as part of the set of arrangements to allow for an increase in ore processing capacity” and “Oryx has submitted its draft financing agreement to the Ethiopian authorities for approval”. It is added that thus far “the effect of these arrangements is that KEFI will have reduced the residual capital requirement for development to proceed to approximately US$20 million, as compared with approximately US$289 million (adjusted by KEFI from the then-published US$235 million to include assumed working capital and financing costs) when KEFI assumed project control in 2014”.
The company also sees further opportunity to minimise dilution – noting it “in discussion with several project level investors” and “has deliberately not yet committed to any product offtake arrangements as that aspect may now form a useful part of arranging the residual funding requirement”. Meanwhile, in Saudi Arabia the company “await the announcement of the new regulations intended to overhaul the mining industry with a view to facilitating growth and making it the third pillar of the Saudi economy. In the meantime KEFI has upgraded its portfolio and tenure”.
However, it remains Tulu Kapi of imminent interest – with Chairman, Harry Anagnostaras-Adams emphasising the value potential with that, from this project on which a feasibility study has already derived a more than 8 years mine life, “at a gold price of $1,250/oz, the first three production years' projected net free cash flow per annum (after debt service and tax) exceeds the company's current market capitalisation”.
This follows a May definitive feasibility study update which, at $1,250 gold, derived a net present value at an 8% discount rate of $97 million (and $272 million at the start of production) – comparing to a current market cap here of sub £14 million ($18.5 million). This value potential together with possible catalysts in finalised project financing and breaking ground anticipated by the year-end, see us continue to rate the shares a buy at up to 6p, with what we consider a conservative target of 13p+.
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