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Kenmare hits a sweet spot but management remains cautious on global developments

3 min read

Titanium feedstock producer Kenmare Resources is churning record profits and is far better placed financially to cope with any future setbacks – such as another  global economic downturn – than it was back in 2014 when  commodity markets last imploded.

That’s the view of finance director Tony McCluskey  who will retire later this year after some 31 years with the London-listed company which,  on his watch,  has developed the successful Moma titanium minerals mine in Northern Mozambique .

For the six months to end-June,  Kenmare reported record revenues of US$197m (previous comparable period – $178m)  and a taxed profit of $62,5m ($48m)  from a record average received price of $429/t .  An interim dividend of 10,98 USc has been declared which is 51% up on the 7.29USc paid for the first half of 2021.

McCluskey expects second half results for the 2022 financial year to be even better with forecast higher production and higher shipping volumes .  Most importantly, a   huge  financial milestone will be reached by year-end when Kenmare is expected to become  debt-free and in a net cash position.

That puts the group in a powerful position for future growth both organically at Moma – which has an estimated 100 year life-of-mine – and through M&A elsewhere but McCluskey indicates that management’s approach is cautious given the lessons learnt from the way the titanium minerals market collapsed from 2014.

He comments, “the biggest challenge in Moma’s history was the period 2014 to 2016 when titanium feedstock prices collapsed.    Our main product is ilmenite and the low point in pricing for ilmenite came in Q1 2016 when the ilmenite price hit $65 to $70/t  and that just went on and on.  We were heavily geared and it was truly challenging just to keep the lights on. “

McCluskey adds, “ so we are now in a much stronger position than before but we have a lot to protect.  There are risks. We are looking at organic options and keeping an eye on the market watching our peers.  If something came up that made sense in a different jurisdiction I think we would take a look at it but, after what happened last time, we don’t want to leave ourselves in an exposed position.”

More than 40% of Moma’s output goes to China with the rest mainly to the United States and Europe and McCluskey says management is wary of the possible indirect impact on Kenmare’s business from geo-political developments such as Ukraine and Taiwan as well as the current bout of high inflation world-wide.

McCluskey praised the way the Mozambique government had dealt with Kenmare commenting, “We got into Mozambique initially  because we were too small to compete with the majors and decided to go into countries like Mozambique and do the hard yards to see if we could create viable resources.

“We were in a JV with BHP over Moma but, in the late 1990’s, BHP decided to get out of the titanium minerals business completely and Moma got handed back to Kenmare.

“We decided this was a company-making opportunity but there were very few major businesses in Mozambique at the time and it was a challenge negotiating commercial terms that worked for us and our investors given the risk profile.

“We worked closely with the Ministry of Mines to agree a set of foundation agreements and the government has respected and honoured them ever since. They updated the mining legislation some six years ago but there was a grandfather clause for those companies that had come in under the earlier legislation with legal and fiscal stability clauses.

“I think that was a very mature thing for the government to do. It means as a country Mozambique is looking for inward investment  and this relationship has worked both ways.

“Initially we were talking about 600 employees but we now have 1500 employees because of our expansion. We have been a good customer to many local suppliers as well as a good tax payer and a good corporate citizen.”

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