Kenmare Resources' valuation does not reflect its strong performance

The low valuation the market has stuck on Kenmare Resources (KMR) goes beyond simple ratios or putting cash profits next to its minute enterprise value. Often when a company’s assets far outweigh the market capitalisation there is a huge debt load or crash in underlying markets. But not with Kenmare. The titanium oxide miner values its dredging, mining and processing kit in Mozambique at over $900mn (£709mn), compared with a market value of just £269mn. Put this against the 2023 cash profits of $220mn, strong balance sheet and increased dividend, and the share price looks even stranger. 

Granted, Kenmare has seen the average selling price of its ilmenite and other products drop 10 per cent on average in 2023, and this pushed Ebitda down a quarter compared with 2022. But the real valuation drop is probably due to the necessity of once again moving a whole processing plant to the next deposit. A detailed study on this is expected in the coming months, but the company has said the cost of shifting wet concentrator plant (WCP) A is $341mn, to be spent by 2027. 

This is up from the $270mn estimate from a year ago, and Kenmare has already taken on a new $200mn loan to cover initial spending this year.  

Even at that higher cost, broker Peel Hunt says this is an opportunity for investors, not a cliff from which the share price will dive further. “We do not believe the shares price in the sustained ilmenite pricing, nor the unlocking of a decades-long future via the WCP A investment programme that is just getting under way,” said the Peel Hunt analysts. Meanwhile, Kenmare managing director Michael Carvill is stepping down after almost 40 years in the job. His successor will have plenty to do but will be taking on a company in fine fettle. Buy. 

Last IC View: Buy, 430p, 15 Aug 2023