Kenmare Resources plc sales record reflects strong Ilmenite market says Peel Hunt analyst (LON:KMR)

Kenmare Resources

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

How has Kenmare performed in the period?

Kenmare’s 4Q trading update showed overall production at 272kt vs our 274kt estimate. It has also set a 12-month period without a lost time injury and reported a LTIFR in 2021 of just 0.03. This is a strong achievement given the constraints of operating the site with Covid-19 restrictions for the bulk of the year.

What’s the market like for Kenmare’s core product, Ilmenite?

Sales volumes, at a record 368kt, saw inventories reduced well below normal levels – indicating what a strong market for ilmenite Kenmare is supplying into at present.

What’s the outlook for the company and your current guidance?

Guidance introduced for 2022 sees our ilmenite production estimate of 1.174Mt in the mid-point of the 1.125-1.225Mt range. Given the comments on 2021 cost levels, it is not surprising to see 2022 absolute cost guidance shift up to US$190- 210m, again higher than the US$180m we presently have in our model. We suspect for 2022 most, if not all, of this uplift will likely be offset given the strong ilmenite and zircon prices vs those in our revenue estimates, but it may pressure longer-term estimates.

There is also a series of one-off capex programmes for 2022, meaning that overall capex budgets are fixed at US$61.5m, well ahead of our US$36m estimate. The bulk of the uplift is on studies for the WCP A move and a resettlement spend at Namalope, plus upgrade plans to one of the transhipment vessels during a dry dock maintenance period.

On our present estimates we see the group generating US$221m of EBITDA through 2022E. The cost increase (US$20m to the mid-point of guidance) is likely to be offset given the strength in ilmenite pricing – our present US$265/t average through the year looks low. However, the reduction in net debt will reduce given the higher capex spending, despite the fact that closing net debt of US$83m was notably lower than our US$90m estimate.

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

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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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