KEFI Gold and Copper — Counting down to launch in H124

KEFI Gold and Copper (AIM: KEFI)

Last close As at 24/04/2024

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Research: Metals & Mining

KEFI Gold and Copper — Counting down to launch in H124

In its post-Indaba release of 13 February, KEFI announced that the multi-party, subsidiary-level financing of its Tulu Kapi gold project in Ethiopia is now advancing on the back of Ethiopian federal government commitments finally received in October 2023. As a result, the lead lender quickly processed its approval in December 2023 and now all other stakeholders are triggering their respective flow-on processes. At the same time, the Federal Government of Ethiopia has confirmed that its equity capital investment has been fully documented, committed and already partly invested, while the contractors to the project have reaffirmed their intention and readiness to enter into the already drafted agreements to enable full project launch in H124 (as previously indicated by KEFI).

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Metals & Mining

KEFI Gold and Copper

Counting down to launch in H124

Project timing update

Metals and mining

13 February 2024

Price

0.678p

Market cap

£34m

US$1.2636/£

Net cash (£m) at end June 2023

0.4

Shares in issue

4,965.1m

Free float

92.3%

Code

KEFI

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(14.7)

(0.4)

(26.1)

Rel (local)

(14.2)

(3.8)

(23.0)

52-week high/low

1.05p

0.53p

Business description

KEFI Gold and Copper is an exploration and development company focused on gold and copper deposits in the highly prospective Arabian-Nubian Shield – namely the Tulu Kapi project in Ethiopia (projected 70% interest) and the Hawiah and Jibal Qutman projects (both 25%) in Saudi Arabia.

Next events

Tulu Kapi project launch

H124

Tulu Kapi commissioning

H225

Analyst

Lord Ashbourne

+44 (0)20 3077 5724

KEFI Gold and Copper is a research client of Edison Investment Research Limited

In its post-Indaba release of 13 February, KEFI announced that the multi-party, subsidiary-level financing of its Tulu Kapi gold project in Ethiopia is now advancing on the back of Ethiopian federal government commitments finally received in October 2023. As a result, the lead lender quickly processed its approval in December 2023 and now all other stakeholders are triggering their respective flow-on processes. At the same time, the Federal Government of Ethiopia has confirmed that its equity capital investment has been fully documented, committed and already partly invested, while the contractors to the project have reaffirmed their intention and readiness to enter into the already drafted agreements to enable full project launch in H124 (as previously indicated by KEFI).

Year end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/21

0.0

(3.4)

(0.2)

0.0

N/A

N/A

12/22

0.0

(3.3)

(0.2)

0.0

N/A

N/A

12/23e

0.0

(3.5)

(0.2)

0.0

N/A

N/A

12/24e

0.0

(11.5)

(0.2)

0.0

N/A

N/A

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

Financial model adjustments

Our last valuation of KEFI was 2.19p/share in December 2022, when we assumed that project launch was imminent. Since then, we have 1) delayed launch by one year to end FY23, 2) adjusted its funding mix to reflect US$40m in share issues by KEFI subsidiaries to Ethiopia’s federal and regional governments (cf US$28.5m previously), 3) allowed for dilution of KEFI’s interest in G&M in Saudi Arabia from 30% to 25%, 4) adjusted to reflect interim equity issuance (albeit mostly already included in our models), 5) updated our financial model to reflect the positive pre-feasibility study at Hawiah in June 2023 and 6) updated our long-term gold price expectations (see Shades of the 1970s, Gold: September 1979 revisited, published in September 2023).

Valuation: Nearly four times current share price

In the wake of our assumption changes, we calculate that KEFI’s trio of projects are capable of generating free cash flow of c £82.6m in FY27–32 (cf £84.0m previously), making average (maximum potential) dividends of 0.66p/share possible (cf 0.63p/share previously) and valuing KEFI today at 2.47p/share (cf 2.19p/share previously) fully diluted to account for a residual £1.9m in equity issuance at the corporate level this year. This suggests an immediate value for KEFI of £122.6m or US$155.0m. This current valuation reduces to 2.18p/share (cf 1.92p/share previously) if all convertible instruments are converted at our valuation of the shares in three to four years’ time. At current metals prices, however, it increases to 4.14p now and 5.50p in FY27 (plus a further c 1.80p/share for Guji-Komto), which implies an internal rate of return for investors of 43.7% in sterling terms over the next 13 years. Note that our timing assumes Tulu Kapi commissioning in late 2025 and we believe that this goal is still achievable as long as project launch is before the end of April. In the event of a six-month delay, our valuation (all other things being equal) reduces by 4.7% to 2.36p/share.

Exhibit 1: Financial summary

£000s

2020

2021

2022

2023e

2024e

December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

0

0

0

0

Cost of Sales

(2,663)

(2,257)

(2,744)

(2,994)

(1,000)

Gross Profit

(2,663)

(2,257)

(2,744)

(2,994)

(1,000)

EBITDA

 

 

(2,663)

(2,257)

(2,744)

(2,994)

(1,000)

Operating profit (before amort. and excepts.)

 

(2,706)

(2,274)

(2,768)

(3,024)

(1,030)

Intangible Amortisation

0

0

0

0

0

Exceptionals

174

(47)

(268)

916

0

Other

0

0

0

0

0

Operating Profit

(2,532)

(2,321)

(3,036)

(2,108)

(1,030)

Net Interest

(100)

(1,121)

(527)

(495)

(10,473)

Profit Before Tax (norm)

 

 

(2,806)

(3,395)

(3,295)

(3,519)

(11,503)

Profit Before Tax (FRS 3)

 

 

(2,632)

(3,442)

(3,563)

(2,603)

(11,503)

Tax

0

0

0

0

0

Profit After Tax (norm)

(2,806)

(3,395)

(3,295)

(3,519)

(11,503)

Profit After Tax (FRS 3)

(2,632)

(3,442)

(3,563)

(2,603)

(11,503)

Minority interests

0

0

0

0

3,451

Net income (normalised)

(3,894)

(4,877)

(6,087)

(8,255)

(8,052)

Net income (FRS3)

(2,632)

(3,442)

(3,563)

(2,603)

(8,052)

Average Number of Shares Outstanding (m)

1,663.2

2,178.9

3,537.3

4,452.1

5,105.8

EPS - normalised (p)

 

 

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

EPS - normalised and fully diluted (p)

 

 

(0.2)

(0.2)

(0.1)

(0.1)

(0.1)

EPS - (IFRS) (p)

 

 

(0.2)

(0.2)

(0.1)

(0.1)

(0.2)

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

-

-

-

-

-

EBITDA Margin (%)

-

-

-

-

-

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

-

-

-

-

-

BALANCE SHEET

Fixed Assets

 

 

24,545

28,424

31,481

30,644

124,447

Intangible Assets

24,510

28,361

31,356

34,490

38,490

Tangible Assets

35

63

125

95

89,898

Investments

0

0

0

(3,941)

(3,941)

Current Assets

 

 

1,817

685

683

1,327

1,147

Stocks

0

0

0

0

0

Debtors

448

291

463

361

181

Cash

1,315

394

220

0

0

Other

54

0

0

966

966

Current Liabilities

 

 

(3,125)

(6,791)

(5,182)

(5,182)

(3,181)

Creditors

(3,125)

(5,556)

(4,002)

(4,002)

(2,001)

Short term borrowings

0

(1,235)

(1,180)

(1,180)

(1,180)

Long Term Liabilities

 

 

0

0

0

(344)

(74,028)

Long term borrowings

0

0

0

(344)

(74,028)

Other long term liabilities

0

0

0

0

0

Net Assets

 

 

23,237

22,318

26,982

26,445

48,385

CASH FLOW

Operating Cash Flow

 

 

(2,092)

(329)

(2,634)

(2,880)

(2,821)

Net Interest

(100)

(1,121)

(527)

(495)

(10,473)

Tax

0

0

0

0

0

Capex

(4,389)

(3,064)

(5,245)

(3,929)

(93,833)

Acquisitions/disposals

0

54

0

0

0

Financing

6,996

826

6,405

6,741

33,443

Dividends

0

0

0

0

0

Net Cash Flow

415

(3,634)

(2,001)

(564)

(73,685)

Opening net debt/(cash)

 

 

814

(1,315)

841

960

1,524

HP finance leases initiated

0

0

0

0

0

Other

1,714

1,478

1,882

0

0

Closing net debt/(cash)

 

 

(1,315)

841

960

1,524

75,208

Source: Company accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by KEFI Gold and Copper and prepared and issued by Edison, in consideration of a fee payable by KEFI Gold and Copper. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by KEFI Gold and Copper and prepared and issued by Edison, in consideration of a fee payable by KEFI Gold and Copper. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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