With the benefit of hindsight, Kenmare Resources (KMR) is a classic example of a company that overleveraged and bet it all on the assumption that high commodity prices were here to stay. The company has spent hundreds of millions of dollars over the past few years expanding production capacity at its Moma titanium minerals mine in Mozambique. But before its new processing plants became operational, the prices of Kenmare’s key products – ilmenite, rutile and zircon, which are important inputs in paints and plastics manufacturing – slumped more than 50 per cent. Inconsistent power supply in Mozambique also affected operations.
The problem is that so much new supply has come on-stream and looks likely to stay. Global inventories remain elevated, although they’ve been falling a bit of late. For Kenmare, lower prices meant operating profits fell to just $4.7m (£2.8m) in 2013, from $80m the year before, even though its production of heavy mineral concentrate was up 47 per cent year on year. Around $41m in finance costs and $7m in foreign-exchange losses resulted in a heavy $44m net loss.
On a more positive note, the company managed to raise $106m in equity late last year and deferred half of its debt to the latter part of the decade. Its ability to repay the rest of the loans is still very much reliant on a recovery in prices, though.
KENMARE RESOURCES (KMR) | ||||
|---|---|---|---|---|
| ORD PRICE: | 14p | MARKET VALUE: | £381m | |
| TOUCH: | 13.5-14p | 12-MONTH HIGH: | 35p | LOW: 14p |
| DIVIDEND YIELD: | NIL | PE RATIO: | NA | |
| NET ASSET VALUE: | 24¢ | NET DEBT: | 44% | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2009 | 27 | -30 | -3.6 | nil |
| 2010 | 92 | -16 | -0.8 | nil |
| 2011 | 167 | 18 | 1.0 | nil |
| 2012 | 235 | 53 | 2.0 | nil |
| 2013 | 138 | -42 | -1.7 | nil |
| % change | -41 | - | - | - |
£1=$1.67 | ||||
