Kenmare Resources: healthy future dividends driven by strong prices and cash flows says Peel Hunt

Kenmare Resources plc

Kenmare Resources plc (LON:KMR) is the topic of conversation when we caught up with Peel Hunt Mining Research Analyst Peter Mallin-Jones.

Q. How will the tender offer impact the company? 

A. We think that the now completed Tender Offer has signalled to the market that management are serious about returning excess cash back to investors. It provides an additional means for management to return cash back to investors quickly, while also proving accretive for shareholders who choose not to participate.

Q. What’s your view on the 2022-23E dividend now? 

A. The Tender Offer has reduced the shares outstanding for Kenmare to 94.9m from 109.7m previously.  This has the effect of increasing the DPS estimates relative to our prior forecasts simply due to the reduced numbers of shares outstanding. With a payout policy of 25% of earnings we do therefore expect dividend payouts to ebb and flow with the price cycle. Given the present strong prices for its products, Kenmare looks well set to generate strong cash flows in 2022E.

Q. How do you see the overall outlook for the company?

A. The mineral sands industry has seen a multi year destocking of its supply chain, something that culminated in a sharp destock in 2020 as various mineral sands mines had production problems. The completion of the move of Wet Concentrator Plant B has unlocked Kenmare’s ability to fully benefit from its processing capacity. The strong price rises through 2021 mean that Kenmare Resources looks in a very strong position to capitalise on its historic investments as it can maximise output while earning very strong prices for its products. This should allow the group to rapidly reduce its net debt balances while maintaining healthy dividends for the next few years.

Kenmare Resources (LON: KMR) is an established mining company, which operates the Moma Titanium Minerals Mine, located on the north east coast of Mozambique.

The Mine has been in commercial production since 2009 and is recognised as a major supplier of mineral sand products to a global customer base operating in over 15 countries. Kenmare’s products are key raw materials processed into intermediate products and ultimately consumed in everyday “quality-of-life” products such as paints, plastics and ceramic tiles.

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Kenmare Resources plc

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Kenmare Resources plc

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