KEFI Shares Plunged 33.3% on an £8M Capital Raise. Should You Buy It?

Key points:
KEFI Gold and Copper shares plunged 33.3% on an £8 mln capital raise.
Investors were unhappy with the significant dilution and discounted pricing.
However, KEFI’s long term prospects are promising, so I would buy its shares.

The KEFI Gold and Copper Plc (LON: KEFI) share price plunged by 33.3% after announcing plans to raise £8.0 million via a firm and conditional placing. The firm placing is expected to raise £4.4 million, while the conditional placing will raise £3.6 million.

Also read: The Five Best Gold And Gold Mining Stocks To Buy Now.

Investors were unhappy with the significant dilution of existing shareholders and the lower price offered to the new investors. As a result, KEFI priced the new shares at 0.8p each, representing a significant discount from yesterday’s closing price.

The mining and mineral exploration company will issue 550 million new shares as part of the firm placing. The conditional placing leads to 450 million new shares if shareholders approve the move at a general meeting.

While investors have a right to be concerned bout the dilution of existing shareholders, we should not forget that KEFI Minerals has the humongous task of raising $356 million in funding for its promising Tulu Kapi project in Ethiopia.

The funds raised from the latest share placement will ensure that the security arrangements at Tulu Kapi are adequate for the project's full launch now that KEFI Gold has secured the needed funds for the project.

KEFI gold has invested $70 million in the Tulu Kapi project and now wants to increase the development and exploration work at the project. The company has lined up the funding needed from a financing syndicate in debt and equity.

The financing syndicate wants to work with the Ethiopian government to ensure that the project has been issued with the necessary permits and clearances and adequate security to proceed.

KEFI gold also operates the Hawiah Gold and Copper Project and the Jibal Qutman Gold projects in Saudi Arabia. So, It has to contribute the necessary capital to maintain its 30% stake in the project. Therefore, some of the funds raised will be used for this purpose.

Harry Anagnostaras Adams, KEFI Gold and Copper Plc’s Chairman, commented: “ The Placing is to reinforce the rapid advancement of our three advanced projects in Ethiopia and Saudi Arabia. The Placing Shares, combined with the exercise of the Warrants and those from the placing announced on 21 December 2021, are intended to provide an additional c. £22.3 million (c. US$29 million) of share capital, designed not only to complete the last piece of the planned Tulu Kapi project financing package of c. US$356 million, but also build on the ongoing success we are seeing in our exploration programmes in Saudi Arabia.”

Investors who have been diluted today should expect further dilution in the future other shareholders will convert their warrants into ordinary shares in future. However, all investors stand to benefit immensely in future once the Tulu Kapi project reaches the production stages.

Therefore, I would hold on to my shares if I was a KEFI Minerals shareholder since the potential upside is significant if the company’s Ethiopian and Saudi Arabin projects reach commercial stages.

*This is not investment advice. Always do your due diligence before making investment decisions.

KEFI Gold share price.