Kenmare to pay interim dividend despite output slide, expects “subdued” H2 pricing

Michael Carvill, MD, Kenmare Mining

KENMARE Resources, a titanium minerals producer operating in northern Mozambique, announced a $2.31 cents per share interim dividend despite reporting a decline in production and finished product offtake for the six months ended June which resulted in lower taxed profit of $21.7m (2019: $21.9m).

Michael Carvill, MD of Kenmare, said the company’s newly reinstated dividend policy remained intact, the economic impact of the Covid-19 disease notwithstanding. The company had just under $100m in cash although it had moved into net debt again during the six months owing to capital project commitments.

“Although production was weaker in H1 2020 than in the corresponding period last year, our business remained profitable,” Carvill said in notes to the published results. Earnings before interest, tax, depreciation and amortisation came in at $37.2m, a year-on-year decline of 13%.

One of the main features of the six month period was the delay posed by Mozambique’s decision to institute national emergency measures that included border closures. This resulted in the completion of the firm’s last major capital project – the move of its Wet Concentrator Plant B (WCP) facilities to Pilivili – to be timed for the fourth quarter. There was no meaningful increase in capital as a result.

Once the expansion is completed, Kenmare will have an annual run-rate of 1.2 million tons in ilmenite production – the firm’s primary product. This compares to last year’s production of 892,000 tons and expected production of between 700,000 to 800,000 tons which, in turn, compares to previous guidance (suspended following the onset of Covid-19) of 800,000 to 900,000 tons.

Production of finished product – Kenmare also produces zircon and rutile – for the first six months of the year was 19% lower whilst sales were 14% down. The lower volumes were offset by a 28% increase in ilmenite pricing, however. Offtake agreements for most of the firm’s second half production has been secured.

Carvill said that the ilmenite market would be “subdued” in the second half, an outcome that might compress margin considering that new production guidance also included an increase in cash cost per ton of finished product of between $180 to $196/t compared to previous guidance of between $162 and $182/t.

In an interview with Miningmx today, Carvill said there was no immediate evidence of economic slowdown in terms of ilmenite pricing. “The market has been incredibly resilient. We have not yet encountered a softening in prices. Western consumers are operating at lower utilisations, so I expect a reduction in pricing will come through,” he said.

Ilmenite is used in paint pigments that has wide industrial use in car manufacturing and house and building paints; it is also used in ceramics production. As such, ilmenite has a strong correlation to world GDP. Economists expected the major contraction in US April to June GDP – the sharpest since the Second World War – to be ameliorated but the rise in Covid-19 infections in the country has clouded the view. The outlook is similarly occluded in other leading world economies.

Carvill said he expected Mozambique’s state of emergency would be extended when it came up for review mid-September. “The experience of Europe has shown that when you relax lockdown the diseases comes back; it’s very insidious in that way,” he said. “The Mozambicans have reacted very promptly, considering the challenges with medical and infrastructure,” he said.

Kenmare had suffered an increase in lost time injuries in the second half of its 2019 financial year and the first half of the current year. Carvill acknowledged fatigue may have been a contributing factor to five lost time injuries in the interim period. “There has been so much focus on maintaining production,” he said. Kenmare announced it would redouble its mine safety efforts.

Shares in Kenmare eased just under 1.5% in early London trade today. The stock is about 14% weaker year-to-date.