KEFI has announced that it has made “considerable progress” in finalising the US$140m infrastructure lease facility for the development of Tulu Kapi in Ethiopia. The announcement follows the release of KEFI’s updated financial projections for Tulu Kapi in late October, based (for the first time) on a c 25% increase in ore processing capacity to 1.9-2.1Mtpa. It has also reconfirmed the project’s timeline, with construction anticipated in FY18-19 and commissioning at the end of 2019, and a residual equity/mezzanine requirement of US$20m (in line with our expectations).
KEFI Minerals |
Up to 90% of the way there |
Funding update |
Metals & mining |
28 November 2017 |
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KEFI has announced that it has made “considerable progress” in finalising the US$140m infrastructure lease facility for the development of Tulu Kapi in Ethiopia. The announcement follows the release of KEFI’s updated financial projections for Tulu Kapi in late October, based (for the first time) on a c 25% increase in ore processing capacity to 1.9-2.1Mtpa. It has also reconfirmed the project’s timeline, with construction anticipated in FY18-19 and commissioning at the end of 2019, and a residual equity/mezzanine requirement of US$20m (in line with our expectations).
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
0.0 |
(2.0) |
(3.0) |
0.0 |
N/A |
N/A |
12/16 |
0.0 |
(2.5) |
(1.6) |
0.0 |
N/A |
N/A |
12/17e |
0.0 |
(2.9) |
(0.8) |
0.0 |
N/A |
N/A |
12/18e |
0.0 |
(10.7) |
(1.5) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.
Advancing methodically
KEFI will now be in a position in which it is permanently analysing and finessing the application and source of funds required to develop Tulu Kapi, but will not necessarily be at liberty to comment on its findings publicly. However, draft finance documentation has been lodged with the Ethiopian government for approval so that issuance of the listed bonds can proceed. Reading between the lines, the placing of the listed bonds to finance Oryx (and thereby Tulu Kapi) will commence once documentation has been approved by Ethiopia’s central bank, with drawdown expected about three months later, around the end of Q118. The drawdown timetable is timed to coincide with community and contractor preparations, but cannot start until the central bank approves it. Significantly, stimulation of mining activity was made a specific aim of the government’s 2015-20 Growth & Transformation Plan II and the minister of finance and economic development is understood to have recently formalised budget approval for the government to proceed with its construction and investment role in the project – beginning with infrastructure development and community resettlement.
Valuation: Current resource multiple just US$6.48/oz
All other things being equal and once in production, we estimate that Tulu Kapi should be capable of generating average cash flows from operations of c £45.4m pa (cf £45.7m estimate in our note of 2 November – the difference being solely occasioned by the £/US$ rate). We value these at £208.3m (cf £209.6.9m) or 24.4p per fully diluted share, attributable (cf 28.0p) at the start of production in 2020, or £70.2m, 15.8p per existing share, attributable currently (vs £70.7m and 15.9p on 2 November) using a 10% discount rate. Fully diluted on this basis at an assumed share price of 3.50p (vs 4.375p earlier in the month), our valuation of KEFI is 7.68p/share (cf 8.79p on 2 November), based on the net present value of expected future dividends, discounted at 10% per annum. This valuation then increases to 13.50p in 2024 and further, to 16.77p, in the event that KEFI is successfully able to leverage its cash flow from Tulu Kapi into other development assets in the region.
Exhibit 1: Financial summary
£000s |
2013 |
2014 |
2015 |
2016 |
2017e |
2018e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
Cost of Sales |
(927) |
(2,071) |
(1,634) |
(2,260) |
(2,692) |
(2,538) |
||
Gross Profit |
(927) |
(2,071) |
(1,634) |
(2,260) |
(2,692) |
(2,538) |
||
EBITDA |
|
|
(927) |
(2,071) |
(1,634) |
(2,260) |
(2,692) |
(2,538) |
Operating Profit (before amort. and except.) |
(927) |
(2,189) |
(1,724) |
(2,315) |
(2,747) |
(2,593) |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
(442) |
(379) |
(428) |
1,944 |
(1,900) |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
(1,369) |
(2,568) |
(2,152) |
(371) |
(4,647) |
(2,593) |
||
Net Interest |
4 |
(413) |
(319) |
(136) |
(189) |
(8,151) |
||
Profit Before Tax (norm) |
|
|
(923) |
(2,602) |
(2,043) |
(2,451) |
(2,936) |
(10,744) |
Profit Before Tax (FRS 3) |
|
|
(1,365) |
(2,981) |
(2,471) |
(507) |
(4,836) |
(10,744) |
Tax |
0 |
0 |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(923) |
(2,602) |
(2,043) |
(2,451) |
(2,936) |
(10,743) |
||
Profit After Tax (FRS 3) |
(1,365) |
(2,981) |
(2,471) |
(507) |
(4,836) |
(10,744) |
||
Average Number of Shares Outstanding (m) |
29.0 |
56.0 |
92.8 |
194.9 |
387.8 |
563.4 |
||
EPS - normalised (p) |
|
|
(7.4) |
(6.2) |
(3.0) |
(1.6) |
(0.8) |
(1.5) |
EPS - normalised and fully diluted (p) |
|
(7.4) |
(6.2) |
(3.0) |
(1.5) |
(0.8) |
(1.4) |
|
EPS - (IFRS) (p) |
|
|
(4.7) |
(5.1) |
(2.7) |
(0.3) |
(1.2) |
(1.4) |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
- |
- |
- |
- |
N/A |
N/A |
||
EBITDA Margin (%) |
- |
- |
- |
- |
N/A |
N/A |
||
Operating Margin (before GW and except.) (%) |
- |
- |
- |
- |
N/A |
N/A |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
7,152 |
9,299 |
11,926 |
14,053 |
17,809 |
75,346 |
Intangible Assets |
6,900 |
9,139 |
11,845 |
13,992 |
15,856 |
15,642 |
||
Tangible Assets |
252 |
160 |
81 |
61 |
1,707 |
59,458 |
||
Investments |
0 |
0 |
0 |
0 |
246 |
246 |
||
Current Assets |
|
|
4,014 |
1,061 |
1,012 |
3,561 |
141,048 |
59,054 |
Stocks |
0 |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
655 |
335 |
358 |
3,056 |
247 |
247 |
||
Cash |
3,279 |
640 |
562 |
410 |
140,706 |
58,712 |
||
Other |
80 |
86 |
92 |
95 |
95 |
95 |
||
Current Liabilities |
|
|
(3,363) |
(3,202) |
(1,995) |
(2,067) |
(2,067) |
(2,067) |
Creditors |
(3,363) |
(3,202) |
(1,995) |
(2,067) |
(2,067) |
(2,067) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
0 |
0 |
0 |
0 |
(119,101) |
(104,606) |
Long term borrowings |
0 |
0 |
0 |
0 |
(104,869) |
(90,374) |
||
Other long term liabilities |
0 |
0 |
0 |
0 |
(14,232) |
(14,232) |
||
Net Assets |
|
|
7,803 |
7,158 |
10,943 |
15,547 |
37,689 |
27,727 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
(1,424) |
(2,006) |
(2,729) |
(2,211) |
(1,670) |
(2,538) |
Net Interest |
4 |
(413) |
(319) |
(136) |
(189) |
(8,151) |
||
Tax |
0 |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(877) |
(3,133) |
(3,507) |
(3,014) |
(4,025) |
(57,806) |
||
Acquisitions/disposals |
(1,083) |
(750) |
0 |
16 |
0 |
0 |
||
Financing |
4,735 |
3,663 |
6,480 |
5,192 |
27,079 |
996 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
1,355 |
(2,639) |
(75) |
(153) |
21,194 |
(67,499) |
||
Opening net debt/(cash) |
|
|
(1,924) |
(3,279) |
(640) |
(562) |
(410) |
(21,604) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
(3) |
1 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(3,279) |
(640) |
(562) |
(410) |
(21,604) |
45,894 |
Source: KEFI Minerals sources, Edison Investment Research
|
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