Kenmare Resources plc (LON:KMR) is the topic of conversation when Colin Grant, Analyst at Davy.ie caught up with DirectorsTalk Interviews.
Q. How will the tender offer impact the company?
A. The tender offer will adjust the mix in the company’s capital structure. In will increase debt by £61.8m and reduce equity/the market cap by the same amount. This lowers the weighted average cost of capital in the company given that the cost of debt is much lower than the cost of equity. This increases the net present value of future cashflows expected from its assets. It also reduces the number of shares thereby increasing earnings per share and dividends per share.
Q. What’s been the effect of commodity price movements?
A. Since 2016 the average realised price for all of Kenmare’s products has increased from around $132/tonne in 2016 to over $300/tonne in 2021. As a result EBITDA has increased from around $5m in 2016 to potentially more than $200m in 2021. This has led to strong cash generation enabling significant investments in the business, the repayment of debt, payment of dividends and completing the tender offer.
Q. Has your valuation changed in any way?
A. We will look to revisit our forecasts in conjunction with the expected trading statement on January 13th. At that stage we expect to be upgrading our forecasts to reflect the benefits of the tender offer as well as the strength of underlying operating performance. This will leave valuation metrics at levels that are highly attractive to long term investors.
Kenmare Resources is one of the world’s largest producers of mineral sands products. Listed on the London Stock Exchange and the Euronext Dublin, Kenmare operates the Moma Titanium Minerals Mine in Mozambique. Moma’s production accounts for approximately 5% of global titanium feedstocks and the Company supplies to customers operating in more than 15 countries., Kenmare produces raw materials that are ultimately consumed in everyday “quality-of life” items such as paints, plastics and ceramic tiles.