Market optimism, production uplift of 45-60% set to boost Kenmare dividends in 2021

Michael Carvill, MD, Kenmare Resources

KENMARE Resources, the heavy minerals producer, said shareholders could expect improved dividend payments in its 2021 financial year in which production of its key product, ilmenite, would increase between 45% and 60%.

In addition to higher production, the improvement in the global ilmenite market last year looked likely to continue into 2021. China, a driver of ilmenite consumption, continued to show robust economic growth whilst supply constraints remained in place. Ilmenite is used in the manufacture of paint pigments and in the ceramics industry.

Ore bodies of ilmenite were depleting in Africa whilst mine closures in Australia and continued government restrictions in Vietnam and India would supply upward pressure on the price, the firm said in its fourth quarter and full year production review today.

Kenmare also benefited from strong shipments of minerals in the quarter which totalled about 300,000 tons. This was owing to calmer seas. Kenmare mines the Moma heavy minerals resource in northern Mozambique.

“Following our second and third consecutive dividends paid in 2020, these positive operational and market dynamics are expected to support increased cashflow, and in turn our objective to increase shareholder returns,” said Michael Carvill, MD of Kenmare.

In December, Carvill flagged an improvement in the payout rate having paid an interim dividend in August of $2.31 cents per share – its second dividend payment of the financial year. The company’s policy is to pay a minimum of 20% of profit after tax.

The final cost on the relocation of its Wet Concentrator Plant B (WCP) some 23 kilometres from the mined out Namalope section to the new site at Pilivili at Moma, would be about $124m, an escalation following delays.

The Covid-19 pandemic was partly responsible for the delays. Kenmare acknowledged there was heightened risk of infections following the emergence of a variant in the virus in the southern Africa region. Site infections to date were last counted at 25 in December.

Kenmare reported total heavy mineral concentrate for its 2020 financial year of about 1.2 million tons which was roughly in line with 2019. Ilmenite production was 15% lower at some 756,000 tons, partly due to lower recoveries and stock adjustments.

In addition to ilmenite, Kenmare also produces zircon and rutile. Total mineral shipments in 2020 were 17% lower year-on-year at some 853,100 tons owing to poor sea conditions and transhipment capacity upgrades that were undertaken.

For 2021, Kenmare has targeted ilmenite production of between 1.1 million to 1.2 million tons. “We achieved or exceeded the mid-point of our August 2020 guidance ranges for all finished products and we are targeting an uplift of ilmenite production in 2021 of between approximately 45% and 60%,” said Carvill.

“In addition to higher revenues, increased production will deliver lower unit costs, significantly increasing cash flows and bringing us closer to our target of becoming a first quartile producer on the industry revenue to cost curve,” he said.

At December 31, Kenmare had net debt of $64m, compared to net cash at the end of 2019 of $13.7m.