KEFI Gold and Copper PLC – Loss making entity amid Covid-19 disruption.

Formed in 2009, KEFI Gold and Copper PLC (LON: KEFI) is a FTSE AIM All-Share listed gold exploration and development entity with projects in the Kingdom of Saudi Arabia and the Federal Democratic Republic of Ethiopia.

Investment Rationale – Avoid at GBX 1.66

• From a technical perspective, 20-day SMA (1.96) is indicating a downward trend in the stock price.
• Over the past 1-month, KEFI’s stock has fallen around 24.48%, whereas the FTSE AIM All-Share index has surged nearly 13.75%, which reflects significant underperformance against the benchmark index.
• The Covid-19 related challenges can delay projects and production.
• The Company does not generate any revenue and comprehensive loss for H1 FY20 stood at £1,054 thousand.

Risk Assessment

• The market capitalisation is too small, and the growth trajectory is dependent upon the external funding.
• The Covid-19 pandemic continued to create operational challenges.

Recent News

16 November 2020: KEFI announced an oversubscribed placing for the issue of 186,000,000 new ordinary shares of 0.1p each at a price of 1.60 pence per share, with both existing and new shareholders, to raise £2,976,000 in gross proceeds.

Q3 Operational Update (as on 23 October 2020)

(Source: Company Website)

• The Tulu Kapi funding has been finalised and the overall project is targeting production startup in Q4 FY22.
• The Total funding requirement remained at US$221 million, as compared with US$242 reported in the FY18 Annual Report.

Interim Results for the six months ended 30 June 2020 (as on 22 September 2020)

(Source: Company Website)

• As per interim results, KEFI continued to advance projects in prospective Arabian Nubian Shield.
• During H1 FY20, the Company raised £5.6 million in gross proceeds through two placings.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

KEFI is considering a range of financing options to maintain an appropriate level of working capital and funding for the long-term development of the Tulu Kapi Gold project. However, the Covid-19 pandemic is impacting the project schedule. Moreover, the Company has not generating any revenue yet and reporting losses. Therefore, it can face significant liquidity issues. The Company is exposed to geo-political tensions and fluctuations in gold prices with demand downturn. Stock 52 week High and Low were GBX 2.99 and GBX 0.51, respectively.

Given the heightened level of uncertainties, we recommend an “Avoid” stance on KEFI Gold and Copper PLC at the current price of GBX 1.66 (as on 25 November 2020, before the market close at 8.15 AM GMT), while we look forward to reviewing the support from upcoming catalysts to reinvest. 

Golden Prospect Precious Metals Ltd – Overstretched with gold and silver price rally.

Golden Prospect Precious Metals Ltd (LON: GPM) is an Investment Company, which aims to provide capital growth to investors from portfolio entities involved in the gold and precious metal sector.

Investment Rationale – Avoid at GBX 48.89

• Over the past 1-month, GPM’s stock has fallen around 14.75%, whereas the FTSE All-Share index has surged nearly 11.11%.
• From a technical perspective, 20-day SMA (48.00) is indicating a downward trend in the stock price.
• The exploration, development, and production of metals and mineral deposits involve significant uncertainties and many of these factors are difficult to predict.
• The allocation to gold (and thus the value of portfolio entities) could go down if real interest rates rise dramatically.
• The growth trajectory is dependent upon the performance of the Investee Companies.

Risk Assessment

• The macroeconomic uncertainties and volatile equity markets can adversely impact the value of financial assets and valuation of Portfolio Companies.
• GPM is exposed to a variety of financial risks, including credit risk, liquidity risk, market risk (associated with interest rate risk, and unfavourable currency movement).
• In terms of foreign exchange sensitivities, it is exposed to AUD, CAD, USD and MXN.

Recent News

20 November 2020: As of 19 November 2020, the net asset value (NAV) of Golden Prospect Precious Metals Ltd was 65.67 pence per share.

Half year results for the period ended 30 June 2020 (as on 21 October 2020)

(Source: Company Website)

• GPM’s NAV registered a 54% gain over the past 6 months and continued the strong momentum, with YTD increase of 84% as of 15 October 2020.
• The rise in NAV was supported by 28% and 50% surge in gold and silver prices, respectively.
• Besides the benefit from gold prices, ASX-listed Western African Resources (Portfolio Company) transitioned from a developer into producer, and share price increased by 165% YTD.
• Therefore, net income surged significantly from GBP 4.7 million in H1 FY19 to GBP 12.7 million in H1 FY20.
• Moreover, the decline in the average yield on government debt has reduced the borrowing cost.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

With gold price rally, smaller capitalised precious metal equities started looking attractive; however, the potential market volatility can create several problems. In Q3 FY20, global Gold demand dipped by 19% year-on-year to 892 tonnes, as consumer sentiments remained depressed. This represented the lowest quarterly demand since Q3 2009. The YTD demand was 2,972 tonnes, which was 10% lower against the same period in 2019. The long-term price performance is dependent heavily on retail purchases, which makes demand a critical factor for long-term growth. Furthermore, the gradual resumption of economic activities and receding apprehensions of Eurozone disintegration could dent demand for gold to hedge related risks. Adjacently, the stock is trading close to 52-week high while the 20-day SMA is not supporting the upside potential. Stock 52 week High and Low were GBX 75.00 and GBX 20.00, respectively.

Given the heightened level of uncertainties, we recommend an “Avoid” stance on Golden Prospect Precious Metals Ltd at the current price of GBX 48.89 (as on 25 November 2020, before the market at 8.35 AM GMT), while we look forward to reviewing the support from upcoming catalysts to reinvest.  

*All forecasted figures and Industry/Peer information have been taken from Refinitiv, Thomson Reuters.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.

Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.