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KEFI Minerals – legal success outweighed by financing disappointment. BUT...

By HotStockRockets | Friday 1 December 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.

Good news from KEFI Minerals (KEFI) with an announcement that the Federal Supreme Court of Ethiopia has dismissed its potential liability regarding an inherited claim for damages. However, the shares currently remain depressed following a project finance update...

On the legal claim, despite it having been based on the impact of exploration field activities which pre-dated KEFI's Tulu Kapi gold project involvement, the company was still liable for $0.6 million. It adds “if another appeal is raised, which remains a possibility, KEFI would defend its position on the basis that it remains firmly of the belief, on legal advice and as previously reported, that it has no contingent or actual liability”.

The shares are though currently down despite also that the project finance update announcement commenced; “KEFI Minerals confirms that it has made considerable progress towards finalising the US$140 million infrastructure finance lease facility for the development of the Tulu Kapi gold project. Major milestones achieved included the documentation having been lodged with the Ethiopian Government for approval and the Ethiopian Minister of Finance and Economic Development has formalised budget approval for the Government to proceed with their construction and investment roles for the project”. The issue looks to though be in the following paragraph;

“The proposed financing structure has been refined in response to soundings with potential investors in the listed bonds and the placing of the bonds is now expected to commence during Q1 2018, with drawdown expected soon thereafter conditional on equity capital subscription. The c. US$20 million residual equity requirement will then be triggered and may comprise, in order of preference, equity issues at one or more of the intermediate, project, or parent company levels.”

This compares to it previously stated, for example, “the rest of 2017 is expected to be equally busy as we work to close the project financing and move towards development”. The slight delay here and explicit mention of equity requirement has seemingly spooked investors. However, the latter looked already discounted and the company continues to expect project construction to lead to production commissioning towards the end of 2019.

We recently noted an estimated NPV (8%) at the start of construction of $74 million. With the shares now at 3.5p to buy, that compares to a market cap of £11.6 million (currently $15.4 million). We continue to consider that discount far too large and that it will close. As such, we retain faith and the stance remains buy.

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