Kenmare to weigh dividends, debt reduction after harrowing 2016

Michael Carvill, CEO, Kenmare Resources

KENMARE Resources, the UK-listed mineral sands operator, is to weigh the resumption of dividend payments in the current financial year following a harrowing 2016 in which it nearly ran aground.

A $275m recapitalisation, however, of which $100m was from its new cornerstone shareholder, State General Reserve Fund, a sovereign wealth fund based in Oman, reduced net debt, padded out cash, and kept the company in business.

Despite these financial problems, partly brought about by a collapse in the prices of mineral sands, the company’s Moma mine in Mozambique produced best ever run rates.

Now with a new lease on life, the firm’s chairman, Steven McTiernan, said the company would consider a payout against the competing pressures of lowering net debt and investing in Moma.

He was commenting in notes to Kenmare’s 2016 financial results in which it produced an attributable loss to shareholders of $15.2m – a vast improvement on the previous year’s loss of $60.6m. On a pretax basis, earnings increased to a positive $5.2m for the year compared to an $11m loss in 2015.

McTiernan recognised more was required. “Kenmare now has a stronger balance sheet, thanks to the commitment of our stakeholders. However, the upswing in commodity prices needs to progress somewhat further to allow Kenmare to generate the high returns commensurate with that commitment,” he said.

“We live in uncertain times, so prudent capital management remains essential,” he said.

“A balance must be struck between further debt retirement, investment to maintain production, and initiative a dividend. These matters will be at the forefront of discussions for the board in 2017,” he added.

For the 2016 financial year, Kenmare reduced net debt 88% as of December 31 to $44.8m, by dint of the recapitalisation. It also cut cash operating costs 18% to $136 per tonne of final product.

The cost improvement was related to increased volumes at Moma. Mining output of ilmenite and zircon was 18% and 32% higher respectively. The total shipment of finished product increased 28% to 1,02 million tonnes – a record for the mine and a level that Michael Carvill, MD of Kenmare, said would be the average over the next three years.

However, he flagged fresh possible capital requirements as the grade of ore mined at the Namalope section of Moma was forecast to decline. As a result, an increase in mining capacity was required to counter the effects of the lower grade.

“Kenmare is exploring the most capital efficient ways to address these issues and work has begun on a series of feasibility studies,” said Carvill. “All assessments will be made in the context of market conditions and the maintenance of a strong balance sheet,” he added.

The market for zircon and ilmenite were improving significantly following a bottoming out in the early months of 2016 with a supply deficit emerging in the second quarter of that year. Prices for ilmenite have shown strong and steady price improvements since this time and will result in a significantly higher average realised price for H1 2017,” said Carvill.

Price increases for zircon had been “modest” in the early months of the current financial year, he added.