Kenmare to unveil dividend policy in October, despite pressures

Michael Carvill, CEO, Kenmare Resources

KENMARE Resources CEO, Michael Carvill, promised to provide detail in October regarding the firm’s plans to resume dividend payments.

This followed a strong production period in the second quarter which, amid improving prices for ilmenite and zircon – collectively known as heavy minerals, and used in the manufacture of industrial products such as paint pigment – assisted in consolidating the firm’s financial footing.

Kenmare mines the Moma Titanium Minerals deposit which is situated on the north east coast of Mozambique.

Net debt was reduced $25m to a little over $9m from $34m as of December 31. It’s worth recalling that the future of Kenmare was in doubt in 2015/16 as minerals prices slid. So bad was the firm’s prospects that it required a $275m rights issue which reduced net debt to $100m. The current results therefore represent a remarkable two-year turnaround.

What is disappointing, however, is the share price performance. There was an understandable meltdown in value from about 2014 to a nadir during 2016. Since then, however, the share has tended to rattle along in fairly volatile fashion. The stock is approximately a third lower compared to its 12-month high achieved in October.

“The company’s half-yearly results in respect of the six months ended 30 June 2018 will be issued on 20 August 2018. Kenmare will also be holding a Capital Markets Day in London on 16 October 2018, providing further information on the company’s development projects and dividend policy,” said Michael Carvill, CEO of Kenmare Resources.

Total debt now stands at $93.3m against cash and cash equivalents of $84.2m. However given the relatively high level of debt, and set against the historic volatility of the ilmenite and zircon markets, it will be interesting to see the dividend policy Kenmare eventually adopts. Another pressure for the firm to consider is that exerted on free cash flow by its capital programme.

Kenmare has committed to the upgrade capacity of its Wet Concentrator Plant B by up to 20% uplift in capacity. But other projects are in the works as “a slight fade” in production, related to the manner in which Moma’s grade softens, has been forecast.

In terms of second quarter production, the numbers on ilmenite production were up quarter-on-quarter (but down year-on-year). Similarly year-on-year zircon production was lower but higher on quarter one. All in all, total shipments increased 15% to 322,000 tonnes – consisting of 298,300 tonnes of ilmenite and 21,300 tonnes of zircon with the balance made up of rutile – which represents a new quarterly record.

Average pricing was higher for second quarter shipments, especially for zircon. Prices were  “… driven by steady sales to the China spot market as well as some accelerated shipments to contracted customers as western pigment plants maintained high utilisation rates,” the company said in its second quarter production announcement.