Kenmare Resources could see enhanced overall returns to shareholders in coming periods (LON:KMR)

Kenmare Resources plc (LON:KMR) Managing Director Michael Carvill caught up with DirectorsTalk for an exclusive interview to discuss strong production and shipments in Q1, ESG and sustainability, commodity pricing, the completion of the WCP B project, expanding production further and the main drivers of the higher half-year dividend.

Q1: Production and shipments, they’ve been particularly strong in H1, how do you see the rest of the year playing out for Kenmare Resources?

A1: We did a significant piece of infrastructure adjustment during 2020 where we moved one of our wet concentrated plants and its associated dredge from a mining zone where we were pretty well finished mining that area, to another ore zone. So, it went from Namalope to Pilivili and the new ore zone at Pilivili is significantly richer in terms of grade than Namalope and consequently, we are now producing at a higher rate than we were previously. We will continue to produce it at a higher rate and in fact, we have the mine plan, which has us producing at this higher rate until 2040.

Q2: Now ESG and sustainability are increasingly important topics for investors, how does the company think about these topics?

A2: We are making an investment right now which is well underway, and which hopefully will be completed in Q1 next year, which will reduce the diesel consumption that we do have by about 15% and therefore associated reduction in our CO2 emissions. We published our first sustainability report this year which was a big milestone for us because it meant we had to do a lot of thinking about what we had done and what we will do in the future.

So, I believe we’re very committed to sustainability, and we are now committed to documenting that much more thoroughly than we have in the past.

Q3: Pricing for your commodities and commodities in general, it’s been very strong. Do you think that they can be sustained at these levels?

A3: Historically, commodities have that cyclical price path, and I don’t believe that the condition of human nature will have changed over the last couple of years so I suspect that they will probably go up further in price and then go down and then go up again and then go down again.

Our objective as a company has been to move ourselves into the first quartile in the revenue to cost curve for that this industry in the world and consequently, as the prices cycle downwards in their long-term trending and then backup word. When the cycle downward, because that that downward movement very, very, very seldom cuts as deep as the first quartile of production, that we will continue, we will always have a positive cashflow.

Q4: Now, the move of WCP B was a huge project for you in 2020, is all of the work completed now?

A4: Well, the concentrator plant and its dredge are moved, all of the associated infrastructure has been built and is working and the result, you can see in our results is that the new facilities are producing well and at the volumes that we’ve required.

There’s one piece of the infrastructure, which we are still commissioning, at this stage while it’s working, we are not getting utilizations that we had originally expected from it which is a positive displacement pumping system, which pumps the heavy mineral concentrate we create at Pilivili back 22 kilometers to our main processing facility where it’s separated in the mineral separation plant into final products.

So, that pumping facility has had maintenance issues where some parts have been wearing out more rapidly than they should and we’re addressing that with the original equipment manufacturer. In the meantime, we have been trucking that additional material back to the plant and can continue to do so.

This is not affecting our production, but it is increasing our costs a little bit during the period when we’re continuing to have to truck. We expect to get on the top of these issues in the coming months.

Q5: And just looking forward, what development projects should investors expect from you in the coming years?

A5: Mainly what we anticipate doing in the coming years is paying back that debt that we raised for this move, and we anticipate providing enhanced returns to our shareholders over the coming period as well. We then intend to prepare for a further move which we have to make for wet concentrate plant A, which has to move from its existing mine zone to a new mine zone, somewhat akin to the move of wet concentrated plan B and that occurs in 2025.

I think that’s always a possibility and we have the capacity to do so. I think we have to be convinced that the market is there and is ready to pay sufficiently to justify that investment on a long-term basis and also, it’s necessary that our stakeholders want us to do that and at the minute, we do not believe that all of those conditions exist.

Q7: Finally, Kenmare Resources’ half year dividend, it’s three times 2020’s, what have been the main drivers and is this expected to be maintained?

A7: The main driver is increased production and increased revenue per tonne for our product and when you put both of those together, and given that our project is quite fixed cost, not totally fixed costs, but quite fixed cost in nature, as you increase volume, you get this very significant profitability.

Do we expect it to sustain itself? Yes, we do, and in fact, we believe that you could see enhanced overall returns to shareholders in coming periods.

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