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2020-06-22

Analys Kopy Goldfields: Transforming the asset base

Detta är en betald analys på uppdrag av Kopy Goldfields utförd av Analysguiden
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Investment case

The transaction creates a company with gold mines in production, generating revenues and cash flow, combined with a promising exploration portfolio. Through exploration and test drilling, funded by inhouse cash, future growth will be secured by continuously adding mineral reserves and resources to the asset base. Synergies are mainly to be found in exploration know-how and geological expertise, rather than in operations, given the vast geographical spread of the assets. 

Share performance
 
Share performance has been hampered as a consequence of Kopy’s limited financial resources in combination with the market’s reluctance to add significant value to exploration properties in areas which are perceived as being high at risk. In itself, pure exploration tends to be binary – at its best, the property goes into cash generating mine production, or drill tests may find no economic value. We believe that the combination of Kopy Goldfields and Amur Zoloto will help to un-lock values in the combined license portfolio, most notably the Krasny project.  

Krasny project
 
One of the issues for Kopy Goldfields has been the ability to commercialize on its exploration flagship, the Krasny project, which is being developed together with joint-venture partner GV Gold. Following good exploration results Krasny has reached a critical stage, where to decide on moving forward through in-house development in cooperation with GV Gold, or to evaluate a potential disposal of the property.  
 
We believe that the transaction with Amur Zoloto opens up for a review of Krasny’s future, with different options ranging from an in-house go-ahead in cooperation with GV Gold to a potential sell-off or buy-out. 
 
Kopy Goldfields’ shareholders get an opportunity to benefit from value creation arising from the combined entity. Market reaction following the announcement was positive, although we believe there is still potential for performance when further details on strategy, financials, operational structure, and assets, will be made public. The ownership structure, where Amur Zoloto’s owners gain 88% of the shares in the new entity and Kopy Goldfields’ shareholder 12%, could put concerns related to the shares’ liquidity. In all, we believe the risk to be continued high, from both an operational and a regulatory point of view, although the overall risk assessment has been significantly reduced. 

Beneficial conditions
 
Market conditions are currently beneficial for investors in gold or gold related instruments. Gold prices are at its highest levels seen for more than seven years, at approx. 1,740 USD/oz, driven by investors’ appetite for ‘a safe haven’ in an uncertain market environment, where the Covid-19 pandemy is only one explanation. The USD shows strength, while the RUB, where most costs are incurred, has weakened considerably. 
 
Through a reverse takeover Kopy Goldfields acquires 100% of the outstanding shares in Amur Zoloto from its current owners, HC Alliance Mining Group Ltd. and Lexor Group SA, in exchange for 782,179,706 shares in Kopy Goldfields. The deal implies a negotiated equity value of Amur Zoloto of SEK 1.1bn (USD 119.6m), or a subscription price of SEK 1.46 per share equaling a transaction premium of 54% to Kopy’s 3 mths VWAP on Nasdaq First North.   

Waiting for approval
The deal is subject to approval on the AGM on June 30, as well as by required authorities. Shareholders representing approx. 30% of Kopy Goldfields’ shares have undertaken to vote in favour of the transaction. Closing is expected in August and the company aims at maintaining its listing on Nasdaq First North Growth Market. 

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