Kenmare Resources outlook is very promising for the foreseeable future (LON:KMR)

Kenmare Resources plc (LON:KMR) Finance Director Tony McCluskey caught up with DirectorsTalk for an exclusive interview to discuss operational & financial highlights from their results, increased dividend payout, strong product markets and company goals for 2022.

Q1: It looks like 2021 was a fantastic year for Kenmare Resources’ operations, Tony, can you just talk us through the highlights from your view?

A1: We had a really good safe year with record safety statistics, we recently passed 8 million man hours and particularly with COVID-19 in 2021, we were very pleased to be able to do that.

It was a year of delivery having completed a couple of very large capital projects. Our production was up 46%, shipments up 51% so that was a really good result. That enabled us to drive down our unit costs and so we’re had a very strong earnings performance with EBITDA over $200 million.

With all of that cash flow, we returned $100 million cash to shareholders so those are the key areas that I would look to when I look back over the last 12 months.

Q2: Financially, you delivered some great results too, can you tell us a little bit more about those?

A2: The revenues were up over 80% on the back of that increased production and that was partly driven by volumes so shipments were up by more than half compared to the previous year but prices were actually up 21%. So, increased production – because we’re more of a fixed cost business – drives down unit costs so our cash unit cost dropped by 18% and together those enabled us to have an EBITDA of $216 million which is nearly three times the previous year. So, that’s a 51% EBIDA margin and financially, that’s a solid performance, we were pleased with it.

Q3: Now, we see the company increased its dividend payout target to 25% of profit after tax for 2021, why did you decide on that?

A3: The history here is interesting. In 2018 as we embarked on a rather large capital programme, our capital markets day, we promised to shareholders that we would increase shareholder returns when we’ve delivered these projects which was the building of a new wet concentrator at Plant C and the moving of an enlarged wet concentrator at Plant B, they’re two of our three mining units. So, we set a dividend policy at 20% of profit after tax.

The projects have been delivered, production has been delivered in the last year and the markets are strong so the Board decided to increase the target from 20% to 25% for 2021 and on the back of that, with the strong performance, we embarked on a share buyback which was successfully completed in December.

So, when you combined the dividends and the share buyback, we were in a position to return nearly $100 million to shareholders so that’s all about delivering on commitments.

Q4: You mentioned that your product markets were strong in 2021 but has that strength continued into 2022?

A4: Indeed. In 2021, ilmenite prices were up 28% and zircon was up 18% so they’re our two key minerals. The market, interestingly, absorbed all of this increased production so when you up production by that volume, there’s always something in the back of your mind wondering will that be able to be accepted by customers.

Just stepping back slightly, the market was weak and declining from 2012 to 2016, it’s been improving since. The prices still haven’t come to a point where they’re sufficient to incentivise new supply but for those of us that are in the market were able to make good money for our shareholders.

So, the increased prices reflect a lack of supply now and it takes a long time to develop new mines so in response to you directly, I think the outlook is very promising for the foreseeable future for the product market and inventories and the supply chain are relatively low.

Q5: Looking forward, what are Kenmare Resources’ goals for 2022?

A5: We’re going to continue to work on our safety culture and deliver safe production, target 1.2 million tonnes of ilmenite, and, mindful of an inflationary environment that’s affecting everybody, maintaining our focus on cost control.

Part of our ore body called Nataka is where the company will go in 2025 and that’s part of the future of our mining so we plan to deliver on a prefeasibility study and to move the last of our concentrator plants there in 2025.

We’ll deliver on our ongoing projects all of which, I would expect, will enable us to continue to provide good returns to our shareholders and do that by maintaining a robust balance sheet so that’s where I see us going in 2022.

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