Kenmare Resources plc (LON:KMR) provided a trading update for the full year and fourth quarter ending 31 December 2021 and production guidance for FY 2022 last week. DirectorsTalk caught up with Davy Research Analyst Colin Grant to discuss the update.
What are the highlights from the latest results?
2021 was a record year for the company. The investments in relocating WCP B to Pilivili came through with a large increase in production volumes and grades. This is despite the impact of Covid and power supply issues in Q4 that have since been resolved. Pricing trends were also very strong. Costs have moved higher, which is to be expected. Net debt is also lower than forecast at only $82.8m after completing the tender offer. Guidance for production in 2022 is higher than that given for 2021 and there is further positive momentum in pricing. There will be additional cost increases in 2022 that will restrain some of the margin expansion.
How do you see the outlook for the company?
Kenmare is in the strongest position it has ever been in and is now bearing the fruits of its investments over the last 10-15 years. We expect the company will have a net cash position at the end of 2022. The share price puts the stock on a low valuation and it implies a major correction in commodity prices back to around $200/tonne for ilmenite. Near term cyclicality is possible as there could be some impacts to whole economy demand for a period from higher inflation and less accommodative monetary policies. However, the long term outlook for commodity prices is extremely strong as there has been very little investment in new supply.
Have you forecasts changed in any way?
We have indicated that we are looking to almost double our 2022 EPS forecast to around $1.70/share. This will have a similar impact on our dividend forecast, which is based on the company’s guidance of a 25% payout ratio. We aim to finalise and publish new forecasts shortly.
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.