KEFI Minerals
KEFI Minerals |
One more down |
Equity funding |
Metals & mining |
1 December 2015 |
Share price performance
Business description
Next events
Analyst
KEFI Minerals is a research client of Edison Investment Research Limited |
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KEFI’s announcement that it has conditionally placed 877.2m shares at 0.3p/share to raise US$4.0m (£2.6m) substantially completes the company’s planned equity funding ahead of the development of the Tulu Kapi project. The fund-raising was notable for the commitment shown by directors, management, contractors (Ausdrill) and Odey Asset Management (which has now increased its shareholding in KEFI to 26%).
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/13 |
0.0 |
(0.9) |
(0.4) |
0.0 |
N/A |
N/A |
12/14 |
0.0 |
(2.6) |
(0.4) |
0.0 |
N/A |
N/A |
12/15e |
0.0 |
(1.8) |
(0.1) |
0.0 |
N/A |
N/A |
12/16e |
0.0 |
(6.3) |
(0.3) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding intangible amortisation and exceptional items.
Four out of six partners committed…
The news of KEFI’s equity fund-raising follows that of the government of Ethiopia confirming its plan to invest US$15-20m at the project level in return for an additional 20-25% interest in the project, leaving US$105-110m to be financed from debt and streaming. As such, four of KEFI’s six key partners (equity shareholders, Ausdrill, Sedgman and the government of Ethiopia) are now committed to the project, with a remaining two expected to be named before the year end. On the basis of these assumptions, we estimate that KEFI will have a maximum funding requirement of £41.1m (vs £39.7m previously) in FY17. Streaming will create an additional contingent liability in KEFI’s accounts of c £28.5m at its maximum extent in FY17. However, streaming is not considered as debt by the lending banks as it has neither associated debt-service covenants nor a fixed repayment schedule.
Valuation: Equity IRR 44.1% vs 43.6% previously
In our note of 11 November, we valued KEFI at 2.34p/sh, based on the net present value of (maximum potential) dividends payable to shareholders as a result of an investment into the company at the prevailing share price, discounted at 10% pa. However, this was based on an assumed US$5m raise and with the government of Ethiopia taking an additional 16.67% interest for its additional US$20m investment. Adjusting for the updated parameters above, our valuation moderates to 2.09p/share in FY15. However, the equity IRR rises from 43.6% to 44.1% in sterling terms over 12 years. Moreover, the equity fund-raising self-evidently removes one element of risk from the valuation. Hereafter, the valuation should continue to rise, to an estimated 3.05p/sh in FY19, when the first potentially substantive dividend is payable. This 3.05p valuation equates to a resource multiple of US$58.26 per attributable in-situ resource ounce. However, KEFI estimates that its cost of discovery of resource ounces is less than US$10/oz overall and less than US$5/oz in Ethiopia. As such, its strategy is to selectively leverage its cash flow into exploration. Contingent on its being successful, we estimate that KEFI’s valuation could rise as high as 5.01p in FY19 (which would put it on an undemanding contemporary P/E ratio of 3.0x FY19 EPS and an average of 4.4x FY18-26 EPS).
Exhibit 1: Financial summary
£000s |
2013 |
2014 |
2015e |
2016e |
2017e |
|
Year-end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
|
PROFIT & LOSS |
||||||
Revenue |
|
0 |
0 |
0 |
0 |
41,464 |
Cost of Sales |
(927) |
(2,071) |
(1,697) |
(1,971) |
(32,292) |
|
Gross Profit |
(927) |
(2,071) |
(1,697) |
(1,971) |
9,172 |
|
EBITDA |
|
(927) |
(2,071) |
(1,697) |
(1,971) |
9,172 |
Operating Profit (before amort. and except.) |
(927) |
(2,189) |
(1,857) |
(5,908) |
2,652 |
|
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
|
Exceptionals |
(442) |
(379) |
(200) |
0 |
0 |
|
Other |
0 |
0 |
0 |
0 |
0 |
|
Operating Profit |
(1,369) |
(2,568) |
(2,057) |
(5,908) |
2,652 |
|
Net Interest |
4 |
(413) |
10 |
(367) |
(3,489) |
|
Profit Before Tax (norm) |
|
(923) |
(2,602) |
(1,847) |
(6,275) |
(838) |
Profit Before Tax (FRS 3) |
|
(1,365) |
(2,981) |
(2,047) |
(6,275) |
(838) |
Tax |
0 |
0 |
0 |
0 |
0 |
|
Profit After Tax (norm) |
(923) |
(2,602) |
(1,847) |
(6,275) |
(838) |
|
Profit After Tax (FRS 3) |
(1,365) |
(2,981) |
(2,047) |
(6,275) |
(838) |
|
Average Number of Shares Outstanding (m) |
493.4 |
952.4 |
1,928.5 |
2,621.6 |
2,621.6 |
|
EPS - normalised (p) |
|
(0.4) |
(0.4) |
(0.1) |
(0.3) |
(0.0) |
EPS - normalised and fully diluted (p) |
(0.4) |
(0.4) |
(0.1) |
(0.3) |
(0.0) |
|
EPS - (IFRS) (p) |
|
(0.3) |
(0.3) |
(0.1) |
(0.2) |
(0.0) |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|
Gross Margin (%) |
- |
- |
- |
- |
22.1 |
|
EBITDA Margin (%) |
- |
- |
- |
- |
22.1 |
|
Operating Margin (before GW and except.) (%) |
- |
- |
- |
- |
6.4 |
|
BALANCE SHEET |
||||||
Fixed Assets |
|
7,152 |
9,299 |
15,849 |
62,057 |
80,485 |
Intangible Assets |
6,900 |
9,139 |
10,688 |
9,800 |
8,912 |
|
Tangible Assets |
252 |
160 |
3,937 |
51,033 |
70,349 |
|
Investments |
0 |
0 |
1,224 |
1,224 |
1,224 |
|
Current Assets |
|
4,014 |
1,061 |
508 |
3,729 |
6,949 |
Stocks |
0 |
0 |
0 |
1,728 |
3,455 |
|
Debtors |
655 |
335 |
422 |
1,915 |
3,408 |
|
Cash |
3,279 |
640 |
0 |
0 |
0 |
|
Other |
80 |
86 |
86 |
86 |
86 |
|
Current Liabilities |
|
(3,363) |
(3,202) |
(2,296) |
(2,300) |
(2,492) |
Creditors |
(3,363) |
(3,202) |
(2,296) |
(2,300) |
(2,492) |
|
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
|
Long Term Liabilities |
|
0 |
0 |
(3,339) |
(46,602) |
(69,784) |
Long term borrowings |
0 |
0 |
(3,339) |
(16,620) |
(41,293) |
|
Other long term liabilities |
0 |
0 |
0 |
(29,982) |
(28,491) |
|
Net Assets |
|
7,803 |
7,158 |
10,721 |
16,884 |
15,158 |
CASH FLOW |
||||||
Operating Cash Flow |
|
(1,424) |
(2,006) |
(2,690) |
(5,188) |
6,143 |
Net Interest |
4 |
(413) |
10 |
(367) |
(3,489) |
|
Tax |
0 |
0 |
0 |
0 |
0 |
|
Capex |
(877) |
(3,133) |
(7,598) |
(51,033) |
(25,836) |
|
Acquisitions/disposals |
(1,083) |
(750) |
0 |
0 |
0 |
|
Financing |
4,735 |
3,663 |
6,299 |
13,325 |
0 |
|
Dividends |
0 |
0 |
0 |
0 |
0 |
|
Net Cash Flow |
1,355 |
(2,639) |
(3,979) |
(43,263) |
(23,182) |
|
Opening net debt/(cash) |
|
(1,924) |
(3,279) |
(640) |
3,339 |
46,602 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
|
Other |
0 |
0 |
0 |
0 |
(0) |
|
Closing net debt/(cash) |
|
(3,279) |
(640) |
3,339 |
46,602 |
69,784 |
Source: Company sources, Edison Investment Research
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