Edison Investment Research Limited
After a period of uncertainty, the peaceable conclusion of the recent general election in Ethiopia should provide KEFI with the opportunity to fund Tulu Kapi in an environment in which the Ethiopian government is keen to both encourage investment and generate tax and export earnings.
Since our last note on the company, we have updated our project timings, costings and funding assumptions to come up with a valuation for KEFI of 4.35p/share (cf 4.05p/share previously), based largely upon its greater equity interest in the project (75% cf 45% previously) and notwithstanding its delayed start up.
We calculate that Tulu Kapi is capable of generating free cash flow of c £66.2m a year for seven years, from 2023 to 2029 (inclusive). This, in turn, drives average (maximum potential) dividends of 1.94p/share for the four years from 2026 to 2029 and values KEFI at 4.35p/share (cf 4.05p/share previously) fully diluted to account for an assumed US$11m parent company equity issue within the next nine months. This confirms a current value for KEFI of £93.7m or US$129.8m, based on Tulu Kapi alone. It reduces to 3.95p/share in the event that all convertible instruments are converted at our valuation of the shares in two to three years’ time (see ‘Sensitivities’ on pages 14-15), once the mine has started production. However, it excludes any value for KEFI’s portfolio of exploration assets, which we estimate could double its valuation to 8.79p/share. Click here to view the full report or here to sign up to receive research as it is published.
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