Kefi Minerals – Path to gold KEFI

The Kefi Minerals (LSE:KEFI) story really started to develop when they secured $20m funding from the Ethiopian Government for their Tula Kapi Gold Project last May. Monies invested by the Government were to be used to fund the roads, power and other associated off-site infrastructure required to develop Tula Kapi. Just over a year later and Kefi has announced the much-anticipated news that they have secured the majority of the remaining required funding to finance and operate all the on-site infrastructure at this future gold mine.

Long-awaited finance deal

In the RNS on Monday, Kefi announced they have signed Terms with Orynx management Limited to provide US$135m of funding by the issuing of bonds, which includes all associated funding finance charges during the 30-month construction and early production period.

As it now stands, an anticipated balance of US$32m remains for Kefi to find, with this figure including a US$13m contingency provision and various options are being considered to raise this capital. These include working capital facilities with the Development Bank of Ethiopia, Project-level equity with a mining and engineering group and further equity from Kefi, and it’s anticipated a combination of these strategies will be used.

Kefi’s remaining stake of the Tula Kapi Mine will be around 75% without the issue of further equity and it’s Kefi’s stated preference to retain majority ownership and control of the project.

Fundamental case

The company’s plan is to pay back the debt within 4.5 years approximately whilst continuing to pursue further exploration projects and commencing dividends to shareholders. This estimation is based on projected annual gold production of 120,000oz and assumes an average gold price of $1,250/oz. All-in sustaining operating costs (excluding finance costs) are estimated to be less than $800/oz. That equates to $54m operating cash flow per annum less finance costs generated by the project; 50-75% of which will be due to Kefi.

Even when faced with a final phase of dilution to achieve 100% funding, today’s MCAP of £16.5m appears very low. There’s still considerable work to be done before first gold pours, and we haven’t even discussed Kefi’s other asset plays, but the potential upside for longer term holders now that the bulk of the funding has been sourced for Tula Kapi is becoming ever clearer.

Technical perspective

The market welcomed the funding news on Monday rising 23.3% to close at 5.3p. However, the share price was bouncing off all time lows around 4p which was probably a contributing factor to it failing to smash through recent stubborn resistance at 5.6p. With this week’s news surely not priced in yet, the share price may just be checking back for a potential support level of 4.7p. A close above 5.7p would potentially open up the next level to 7.25p, beyond which a target of 10p to match last summer’s highs may well be achievable.

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