Edison Investment Research Limited: Kopy Goldfields (KOPY): Initiation - Organic growth to more than 100koz in Russia

London, UK, 26 January 2021

Kopy Goldfields (KOPY): Initiation - Organic growth to more than 100koz in Russia

Kopy Goldfields produced 53koz of gold equivalent in FY20 following the reverse takeover by Amur Zoloto and plans to grow organically to 100koz within five years. This does not include the substantial potential of the 1.8Moz Krasny project, where Kopy retains 49% ownership. Kopy Goldfields is investigating a possible listing on the Nasdaq Nordic main market, which could enhance its appeal to a broader range of investors.

Our discounted free cash flow to equity (DCFE) valuation of Kopy, at our long-term real gold price forecast of US$1,524/oz and 10% discount rate, is US$295m or US$0.33/share (SEK2.76/share). However, in the current market environment many listed gold companies are pricing in longer-term real gold prices closer to spot (currently US$1,855/oz). Running a sensitivity at a flat real gold price of US$1,700/oz (ie a nominal price of US$1,700/oz rising by inflation) would give us a DCFE valuation of SEK2.98/share and at US$1,900/oz that rises to SEK3.73/share, significantly above the current share price. Looking at EV/EBITDA multiples for comparable Russian gold companies and applying the peer group's FY22e EV/EBITDA multiple of 5.2x to FY22e Kopy EBITDA of US$71.2m would suggest a valuation of US$368m (equivalent to SEK$2.98/share after deducting net debt). Kopy Goldfields is looking to enhance its appeal to investors through a review of its dividend policy, environmental, social and corporate governance (ESG) reporting and a potential listing on the Nasdaq Nordic main market.

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