Kenmare cautiously optimistic impact of COVID-19 pandemic on ilmenite demand limited

Michael Carvill, MD, Kenmare Mining

KENMARE Resources was cautiously optimistic exports of ilmenite to China would be relatively undisturbed by the COVID-19 pandemic.

“Industry has restarted again. All the pigments and titanium operations have restarted,” said Michael Carvill, CEO of Kenmare Resources of business activity in China.

Barclays said in a note on March 16 there were signs China had overcome the worst of the COVID-19 outbreak and that conditions were favourable for a “slow recovery” for both its economy and commodity markets. It would be assisted by stimulus efforts and the fact the country is a net importer of oil and therefore benefits from low pricing.

However, Carvill was cautious: “China relies on global trade with America and if the US sneezes the world catches a cold. That plays on everyone’s mind,” he said. Kenmare sells about 40% of its product to China and 30% to the US and Europe.

Carvill was commenting in an interview following the release of the firm’s year-end financial results in which it turned in robust numbers.

They included a maiden full year dividend of 8.18 US cents per share following declaration of a final dividend of 5.52c/share in line with the firm’s 20% of taxed profit payout policy. It had earlier declared a 2.66c/share interim dividend.

The total dividend declaration was on the back of $44.8m in taxed profit, a 12% year-on-year decline owing to net finance costs, foreign exchange losses and increased depreciation charges, the company said in notes to its full-year results announcement. It added it was conscious of the need to increase the payout ratio in subsequent financial years.

Asked about this, Carvill said: “I think for the current payout, we’re saying that’s all we can afford. There is a reasonable argument not to have paid a dividend at all this year because of our capital commitments, but after that … we can return some more to shareholders”.

This year represents completion of the completion of a $160m growth capital programme, the last of which is the relocation of the WCP B (wet concentrator plant) to Pilivili at the firm’s Moma titanium facilities in Mozambique.

This will be followed by several years of low capital spend and improving production volumes to 1.2 million tons of ilmenite by 2021 in which growth capital spend halves to $10m from $19.5m this year.

For this year, the company has guided to ilmenite production of between 800,000 to 900,000 tons which compares to 2019 production of 892,000 tons, a 12% decline on 2018 owing to lower grades.

Total shipments of finished product – which also includes zircon and rutile – was 1.03 million tons. Zircon and rutile production was in line with previous years’ production at some 46,900 tons and 8,200 tons respectively.

The firm’s investment case is also bolstered by its fairly strong balance sheet. It ended December 31 with net cash of $13.7m providing $80m in total headroom, including newly refinanced facilities with longer maturities – itself a good sign Kenmare was stable.

None of this has protected Kenmare’s share price though. As with equities universally, the company’s stock was beaten up over the last three weeks and is currently revisiting its last 12-month low valuing the company at about £200m.

Carvill said there had been no cases of COVID-19 in Mozambique currently, whilst the Moma site was fairly isolated: the nearest town “… is a five- to six-hour drive,” he said. “The focus is on employee safety and health and we have processes in place.”

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