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Kenmare Resources plc: Record set of 2021 results

Kenmare Resources plc is one of the world’s largest producer of mineral sands products and operates the Moma Titanium Minerals Mine, located on the north east coast of Mozambique. The Mine has been in commercial production since 2009 and accounts for approximately 8% of global titanium feedstocks. These raw materials ultimately go into everyday “quality of life” items such as paints, plastics and ceramic tiles. The company is listed on the premium segment of the London Stock Exchange and has a market capitalisation of £430million.



Michael Carvill MD and Jeremy Dibb Head of Corporate Development and IR presented record full year results to a packed webinar audience interested in hearing about how this was achieved and the prospects for 2022. A recording of the webinar is available here.


Michael started the presentation by announcing the achievement of an impressive safety record - for the first time on 6 January 2022 the company completed a whole year without a single lost time injury. This was achieved whilst growing production 46%, a record, and the output was sold into a buoyant market enabling record revenues and profits to be generated.

These record results were built around the three strategic pillars used to manage the business: namely to operate responsibly, to manage the long life assets in the lowest cost quartile and to allocate capital efficiently. The business has always operated in a responsible and sustainable manner but more emphasis has been placed on this recently and the company published its first Sustainability report in 2021. Women in the work force have increased from 4% to 12% over the last 5 years and steps are in place to improve this further. The company has always worked with the local community and they strive to ensure that these local communities see real benefits from Kenmare operating the Moma mine and so far they believe they have achieved that. They are also working to improve the natural environment and have a policy to move to zero carbon emissions by 2040.


In terms of headline numbers, shipments were up to a record 1.3m tonnes, achieved prices rose from $272/tonne to $327/tonne, EBITDA increase from $77m to $216m and net profit rose from $17m to $129m. This has enable the company to raise the dividend from 10c to 32.7c per share, an increase of 227%. Net debt now stands at $83m and this was after a 13.5% share buy back which returned $82m to shareholders. In terms of key project the RUPS project, which will provide electrical power in a consistent manner and negates the need for diesel generators is currently in commissioning stage. The Nakata pre feasibility study for the move of WCP A from Namalope to Nakata is progressing well so that the right method, timing and set up can be approved.


Looking at the financials in more detail, revenues rose 87% to $455.9m and EBITDA rose 181% to $216.1m, both new records for the company. There was a higher ilmenite revenue mix due to strong ilmenite pricing. The EBITDA margin increased from 33% to 51%. Despite these being record numbers they commented they hope to improve on them in future.

Ilmenite prices rose 28% and Zircon prices rose 18% and strong market conditions are being seen as the company goes into 2022 as both markets remain very tight. It was also noted that production is likely to outstrip shipments in 2022 as one of the vessels used to move product to larger customer ships is having its 5-yearly maintenance overhaul and will be out of action for a couple of months.


One of the strategic pillars is to operate in the lowest cost quartile of the cost curve and further progress has been made in this regard. Total cost per tonne of declined from $188/tonne to $154/ tonne, a reduction of 18%. This was a result of total production rising 46% but total costs only rising 20%. Stripping out the co-product costs, the ilmenite costs per tonne reduced from $125 to $93 and its this difference with the over $300/tonne sales price that drives the record EBITDA. This in turn drives the tripling of cash flow from operations to 146p per share.


The increased operating cash flow has been used to invest a further $60m in 2021 (lower than in previous years), a $56m investment in working capital and return $100m to shareholders through a dividend and share buyback. All told the balance sheet is in very good shape with net debt of $83m. Just on the dividend the policy of returning a minimum of 20% profit after tax was reiterated and in 2021 the dividend pay out ratio was 25%.

Looking in more detail at the operations the company are clearly very proud of their lost time injury record which improved again over the year. In total the lost time injuries per 200k hours worked reduced to 0.03 and on January 6th they achieved a year without any lost time injuries for the first time. The company has a clear focus on safety and healthy working conditions - the belief being if you can mange the detail of safety well you can manage the detail of production well.


Across a number of metrics Sustainability has been advanced in 2021. Local Mozambiquan suppliers now account for 49% of supplies, water efficiency improved by 28% and Kenmare was voted as the most transparent business in the extractive sector in Mozambique.

HMC production was up 30% to 1,555,900 tonnes driven by higher excavated ore and higher overall ore grades. Ilmenite production was up 48% to a record 1,119,400 tonnes. The mineral separation plant performed well and shipments were a record to at 1.3m tonnes. Looking forward the guidance has been reiterated despite some weather interruptions in Q1. Production of all finished goods is expected to increase in 2022 and shipments are expected to be lower than production due to one of their vessels going into dry dock. Capital expenditures is expected to drop to $28.5m on development projects and rise to $33m on sustaining capex, giving an overall figure similar to 2021. The key projects are the commissioning of the RUPS project to improve power reliability and the pre feasibility study on the move of WCP A to Nataka. The move is expected to take place in 2025 and once complete the WCP A will not have to move again - the resources base in that area is 100 years.


Record volumes of product were sold in 2021 and they were sold at higher prices as the year progressed. The titanium pigment industry is the key market for Kenmare and this market grew strongly in 2021, across all geographies. Kenmare also believe that the market fundamental remain supportive to a positive pricing dynamic as demand continues to exceed supply. The momentum in the market for ilmenite and zircon has continued into 2022 and further price rises are anticipated as they go through the year. Previous high inventory levels have been reduced which is further supportive or rising prices. A word of caution was added on demand with a reference to the conflict in Ukraine which might potentially have a negative impact on zircon demand as Ukrainian white clay is used in the ceramics markets and if the ceramics manufacturers are not able to get hold one of the key raw materials in may impact demand. There has been no sign of this so far.


The presentation concluded by revisiting the 3 key strategic pillars of the company: operating responsibly, delivering low cost production and allocating capital efficiently. In all three areas the company is performing well and expects to make further progress in the current year. One of the key objectives of the company is to be in the lowest cost quartile for the industry. Kenmare has made good progress on this journey and they now believe they are in this lowest cost quartile and intend to stay there. The company reiterated that it expects production to grow this year which will in turn enable costs per tonne to fall further due to the significant fixed cost nature of the operation. A sustainability report will be published shortly which will include a new set of ESG targets enabling investors and stakeholders to monitor progress in this area. Finally in terms of allocating capital efficiently there is a huge focus on getting the capital spend on Nakata right in terms of safety and effectiveness. Net debt is expected to reduce further in 2022 whilst at the same time there will be strong returns to shareholders.


Overall these were an excellent set of results and a very positive presentation. The company has come a long way over the past few years and is well positioned for continued strong performance.


A recording of the webinar is available here. If you would like further information on other webinars organised by Yellowstone Advisory. Please contact info@yellowstoneadvisory.com

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