RE: General14 Jan 2020 15:19
Assuming the full drawn down and conversion of KEFI’s new £1.5m convertible
loan facility (as well as the successful financing and execution of the project), we
calculate that Tulu Kapi is capable of generating free cash flow of c £53.9m a year
for seven years, from 2021 to 2027 inclusive (cf £48.0m pa previously). This, in
turn, drives average (maximum potential) dividends of 1.11p/share for the nine
years from 2021 to 2029 (cf 0.95p/share previously), which values KEFI at
5.50p/share (cf 4.70p/share previously) when discounted back to FY19 at a 10%
discount rate. This implies a value for KEFI of £48m, or US$58m, based on the
dividend potential of Tulu Kapi alone. However, this ignores the exploration and
development of the pipeline of targets in the KEFI portfolio. In the event that KEFI is
ultimately successful in leveraging its cash flow from the mine into its other assets
in the region, our valuation increases to 10.03p/share (cf 8.53p/share previously).
Stated alternatively, we estimate an investment in KEFI shares currently at a price
of 0.90p could generate an internal rate of return to investors equivalent to 85.5%
per annum over 11 years to 2029 in sterling terms (cf 36.8% previously). In the
meantime, investors can purchase shares in KEFI at a price that equates to just
US$7.65 per resource ounce (even after its minority partners’ investment into the
asset at project level).