# Kenmare Resources: share price buoyed by favourable product markets and shareholder returns (LON:KMR)

- Link: https://www.directorstalkinterviews.com/kenmare-resources-share-price-buoyed-by-favourable-product-markets-and-shareholder-returns-lonkmr/4121040020
- Published: 2021-12-23T09:17:38+00:00
- Author: Amilia Stone

**Kenmare Resources plc ([LON:KMR](https://www.directorstalkinterviews.com/company/kenmare-resources-plc/kmr.l))**
Managing Director Michael Carvill caught up with DirectorsTalk for an exclusive 
interview to discuss the three drivers of their strong share price performance.

**Q1: ****The first driver of Kenmare Resources’ strong share price performance 
over the past 12 months is product markets. In your quarterly production announcements
during the year, you’ve spoken about tight product markets underpinning your operation
performance. Michael, can you tell me a bit more about the market conditions that
you’ve seen during the year for your main product ilmenite?**

**A1**: We’ve seen tight market conditions, as you mentioned, and we don’t perceive
that there is significant inventory anywhere in the value chain, right from our 
sales as primary producers up to the final product market. That’s a good thing as
it’s keeping demand for our products strong. We have been able to increase our production
and place those higher volumes into the market at increasing prices throughout the
year and again, that’s a good indication of a very tight product market.

We’re seeing strong economic growth in many economies post the first wave of the
COVID-19 pandemic and that strong economic growth consumes more products that require
titanium minerals, such as paint, paper and plastic. This is matched with a lack
of investment in new mining production.

So, when all of those things are put together, we’re seeing a strong market environment,
which we perceive will continue for some time to come.

**Q2: What have the markets been like for zircon, one of your other products?**

**A2**: Zircon is a key raw material in the ceramics industry. We saw a little bit
of softness in the market towards the end of 2020, and then early in 2021 we have
seen that market tightening. We have delivered quarter-on-quarter increase in prices
as we’ve moved through Q2 and Q3 and we expect that Q4 will also produce a similar
improvement in product prices.

**Q3: Now, the second driver is operational growth. In Q3, you reported that your
operations have now reached a run rate of 1.2 million tonnes of ilmenite per annum,
which is their nameplate capacity. Why is this important?**

**A3**: For the past 3 years we’ve been increasing our mining capacity to align 
with our processing capacity as this allows us to operate at maximum efficiency 
and reduce unit costs. Our mine is a relatively fixed cost entity and consequently,
as we increase our production, the cost profile does not increase at the same rate.
Therefore, as we produce more material, the cost per tonne is significantly reduced.
We achieved our Mine’s nameplate capacity of 1.2 million tonnes per annum of ilmenite
production in Q3 and we are now responsible for 10 percent of the world’s ilmenite
supply.

**Q4: Now, the third driver is shareholder returns. You’ve increased your target
dividend payout to 25% of profit after tax, from 20% previously and last week you
completed a tender offer. Michael, can you tell us what the tender offer entailed
and how it benefits shareholders?

**A4**: The tender offer is best thought of as simply an accelerated market buyback
of the company stock. We bought back 13.5% of the company stock in the tender offer
and it was fully subscribed so we returned the full £61.8 million to shareholders.
We got a very positive vote in the AGM, with over 99% of votes cast in favour of
authorising the tender offer, so it was strongly backed by our shareholders.

We believe the tender offer was an effective way of providing a value enhancement
for our shareholders in a cost effective manner for the company, especially when
the share price and the market capitalisation of the company are below the levels
that we believe are fair market value. It was also the right time to do it as Kenmare
is generating strong cash flow after the successful completion of our major capital
projects.

**Q5: In addition to these three key share price drivers, Kenmare Resources has 
also taken big steps forward in terms of ESG this year. Michael, can you tell us
some of the highlights?**

**A5**: Our business has an inherent advantage in terms of [sustainability](https://www.directorstalkinterviews.com/sustainability-green-stocks-news)
as our primary power source at the mine is hydro power, which is a renewable energy
source. We believe therefore that in terms of carbon units per tonne, our product
is a factor better than any of our competitors’ products.

To pick out a few highlights from the year, we issued our inaugural sustainability
report in April and we’re all very proud of this report. It represents a step forward
in the sophistication of the company and demonstrates our commitment to sustainability
in the past, present and future.

We’ve just passed through 6 million hours worked at the mine without a lost time
injury, which is a new record for Kenmare and a major achievement.

We have also vaccinated over 95% of our workforce against COVID-19 and have distributed
vaccines to the local health authorities for our host communities.

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