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Market capitalisation
GBP166m
Research: Metals & Mining
KEFI Minerals
KEFI Minerals |
Going underground |
Underground PEA |
Metals & mining |
10 March 2016 |
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 of the results of a preliminary economic assessment (PEA) of an underground operation at Tulu Kapi indicates a project with an estimated NPV8 of US$44m, based on a gold price of US$1,250/oz and 100% ownership (cf US$156m for the open-pit project on the same basis). The project envisages producing 50koz of gold pa (in addition to that from the open pit) over four years, at a cash operating cost of US$664/oz and all-in sustaining costs (AISC) of US$845/oz.
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 amortisation of acquired intangibles and exceptional items.
Operating estimates
The PEA is based on a June 2014 (JORC-compliant) resource estimate of 1.65Mt at an average grade of 6.26g/t, containing 330,000oz, which converted into a ‘reserve’ (albeit subject to additional drilling) of 1.3Mt at 5.17g/t, containing 216,000oz. Processed at a rate of 325kt a year, this will support production of 50,000oz a year at a recovered grade of 4.79g/t, implying a 92.6% metallurgical recovery rate (vs 91.5% for the open pit). Mineralisation increases in grade and thickness at depth. In addition, it remains open at depth (as well as along strike to the north). A capex estimate of US$37m equates to a capital intensity of US$740 per annual ounce of production, which is relatively cheap compared to the usual US$1,000/oz benchmark. In the meantime, cash operating costs of US$664/oz equate to US$102.15/t milled (Edison calculation).
Valuation: From 2.39p/share to 2.99p/share
KEFI anticipates commencing development of the underground mine only after the open-pit mine has begun to generate positive cash flows and is repaying development finance. As such, it does not anticipate introducing production from this source until around the third year of the open-pit operation, ie around 2020 after a two-year construction period in 2019-20. In our note of 11 February, we valued KEFI at 2.39p/share, rising to c 3.18p/share in FY19 (equating to a depleted resource multiple of US$69.83/oz). A US$44m NPV8 based on 100% ownership equates to US$30.8m assuming 70% ownership, or 1.2 US cents (0.83p) per share. By contrast, our updated valuation of KEFI, based on the assumptions considered above, is 2.99p/share, reflecting a 0.60p/share uplift, roughly equivalent to 0.83p discounted at 10% a year for four years (as expected). This valuation rises to 4.36p in FY20, when the first substantive dividend is payable (equivalent to US$99.35 per depleted resource oz). In the event that KEFI is successfully able to leverage its cash flow from Tulu Kapi into the development of other assets in Ethiopia and Saudi Arabia, our valuation then rises further, to 6.58p (vs 5.22p previously), putting it on a contemporary P/E ratio of 5.5x FY20e EPS.
Financial summary
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 |
43,829 |
Cost of Sales |
(927) |
(2,071) |
(1,697) |
(1,971) |
(34,021) |
|
Gross Profit |
(927) |
(2,071) |
(1,697) |
(1,971) |
9,808 |
|
EBITDA |
|
(927) |
(2,071) |
(1,697) |
(1,971) |
9,808 |
Operating Profit (before amort. and except.) |
(927) |
(2,189) |
(1,857) |
(5,908) |
3,140 |
|
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) |
3,140 |
|
Net Interest |
4 |
(413) |
10 |
(367) |
(3,654) |
|
Profit Before Tax (norm) |
|
(923) |
(2,602) |
(1,847) |
(6,275) |
(514) |
Profit Before Tax (FRS 3) |
|
(1,365) |
(2,981) |
(2,047) |
(6,275) |
(514) |
Tax |
0 |
0 |
0 |
0 |
0 |
|
Profit After Tax (norm) |
(923) |
(2,602) |
(1,847) |
(6,275) |
(514) |
|
Profit After Tax (FRS 3) |
(1,365) |
(2,981) |
(2,047) |
(6,275) |
(514) |
|
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 (%) |
- |
- |
- |
- |
22.4 |
|
EBITDA Margin (%) |
- |
- |
- |
- |
22.4 |
|
Operating Margin (before GW and except.) (%) |
- |
- |
- |
- |
7.2 |
|
BALANCE SHEET |
||||||
Fixed Assets |
|
7,152 |
9,299 |
15,849 |
64,968 |
84,723 |
Intangible Assets |
6,900 |
9,139 |
10,688 |
9,800 |
8,912 |
|
Tangible Assets |
252 |
160 |
3,937 |
53,944 |
74,587 |
|
Investments |
0 |
0 |
1,224 |
1,224 |
1,224 |
|
Current Assets |
|
4,014 |
1,061 |
508 |
3,924 |
7,341 |
Stocks |
0 |
0 |
0 |
1,826 |
3,652 |
|
Debtors |
655 |
335 |
422 |
2,012 |
3,602 |
|
Cash |
3,279 |
640 |
0 |
0 |
0 |
|
Other |
80 |
86 |
86 |
86 |
86 |
|
Current Liabilities |
|
(3,363) |
(3,202) |
(2,296) |
(2,300) |
(2,634) |
Creditors |
(3,363) |
(3,202) |
(2,296) |
(2,300) |
(2,634) |
|
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
|
Long Term Liabilities |
|
0 |
0 |
(3,339) |
(48,949) |
(73,188) |
Long term borrowings |
0 |
0 |
(3,339) |
(17,257) |
(43,071) |
|
Other long term liabilities |
0 |
0 |
0 |
(31,692) |
(30,116) |
|
Net Assets |
|
7,803 |
7,158 |
10,721 |
17,644 |
16,242 |
CASH FLOW |
||||||
Operating Cash Flow |
|
(1,424) |
(2,006) |
(2,690) |
(5,383) |
6,725 |
Net Interest |
4 |
(413) |
10 |
(367) |
(3,654) |
|
Tax |
0 |
0 |
0 |
0 |
0 |
|
Capex |
(877) |
(3,133) |
(7,598) |
(53,944) |
(27,310) |
|
Acquisitions/disposals |
(1,083) |
(750) |
0 |
0 |
0 |
|
Financing |
4,735 |
3,663 |
6,299 |
14,085 |
0 |
|
Dividends |
0 |
0 |
0 |
0 |
0 |
|
Net Cash Flow |
1,355 |
(2,639) |
(3,979) |
(45,610) |
(24,239) |
|
Opening net debt/(cash) |
|
(1,924) |
(3,279) |
(640) |
3,339 |
48,949 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
|
Other |
0 |
0 |
0 |
0 |
0 |
|
Closing net debt/(cash) |
|
(3,279) |
(640) |
3,339 |
48,949 |
73,188 |
Source: KEFI Minerals sources, Edison Investment Research
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