You may have seen Kenmare Resources PLC on our 'Top 10 Stocks of the Month' a few times. This month, we have decide d the opportunity is just too good to miss out on.
Just look at the fundamentals above...
How do Kenmare PLC make money?
Kenmare has established itself as a prominent player in the global industrial minerals market. Its core business revolves around the extraction and sale of titanium minerals, particularly ilmenite and rutile. Here's a closer look at how Kenmare Resources generates revenue and profits.
1. Mining Expertise:
Kenmare Resources' primary source of income is its flagship operation, the Moma Titanium Minerals Mine, located in Mozambique. The company's mining prowess allows it to extract valuable mineral sands efficiently. This expertise is vital to the company's bottom line, as it ensures a steady supply of raw materials for processing.
2. Mineral Processing:
Once the mineral sands are extracted, Kenmare Resources employs advanced processing techniques to separate ilmenite and rutile from the ore. Ilmenite is used in the production of titanium dioxide, which finds application in paints, plastics, and cosmetics, among other industries. Rutile is crucial for manufacturing titanium metal and welding electrodes.
3. Global Distribution:
Kenmare Resources has established a robust global distribution network, ensuring that its products reach customers around the world. This broad reach allows the company to capitalize on the strong demand for titanium minerals in various sectors, including construction, aerospace, and automotive.
4. Diversified Product Portfolio:
In addition to ilmenite and rutile, the company also mines and sells zircon, another valuable industrial mineral. Zircon is used in ceramics, refractories, and the production of high-performance materials. This diversified product portfolio helps Kenmare Resources weather market fluctuations and enhances its revenue streams.
5. Sustainable Practices:
Kenmare Resources places a strong emphasis on environmental responsibility and sustainability in its operations. This commitment not only aligns with global environmental standards but also appeals to socially conscious investors and customers.
What are Kenmare's recent results?
Kenmare released
results for the first half of 2023 in August. This announcement came amidst challenging times for the mineral extraction industry, marked by a dip in production and weakening prices during the first half of the year.
Despite facing a 14% decline in the volume of heavy mineral concentrate (HMC) mined at its Mozambique operation due to a "severe lightning strike" that disrupted automated production at a wet concentrator plant, Kenmare managed to boost its Ebitda by 6% for the half-year, reaching a total of $110 million. However, it's worth noting that the profit margin did see a decrease, slipping from 57 percent to 48 percent. This increase in Ebitda was largely attributable to stockpiles, as the cash costs per tonne of finished product surged by 28 percent compared to the previous year, reaching $230.
They also unveiled plans for a $30 million share buyback program, in addition to an increased interim dividend payout.
Kenmare's CEO, Michael Carvill, remains optimistic about the second half of the year, assuring investors that production is on track for recovery. Carvill stated, "Production in early H2 2023 has been strong, supported by higher grades, better HMC recoveries, and increased tonnes mined."
The mining industry has faced considerable challenges this year, with many struggling to maintain sales and profits. However, Kenmare Resources has managed not only to maintain its standing but also to grow both sales and profits - leading them to increase their dividend payouts.
Despite the headwinds faced by the industry, Kenmare's Ebitda showed positive growth. Peel Hunt analyst Peter Mallin-Jones acknowledged the positive signals for the rest of the year, stating, "With increased output and shipments to match, we assume higher Ebitda in H2, despite the assumption of softer pricing."
The outlook for Kenmare Resources appears favorable for the second half of the year, potentially leading to another robust dividend payout, fueled by the anticipation of higher margins and increased shareholder rewards.
So is KMR undervauled?
The market reaction to the announcement of these results was underwhelming, and the share price has drifted lower ever since - 13% down in the last 6 months. With these fundamentals, we were looking for a serious reason not to invest, and we couldn't find one. It may take some time for mineral prices to go in our favour, but time will also give us an annual dividend of 13% (at current levels).
Conclusion
Kenmare Resources PLC's strategic focus on titanium minerals, bolstered by its mining expertise and diversified product portfolio, underscores its resilience in the dynamic industrial minerals market. Despite industry headwinds, the company's financial performance, as evidenced by its recent interim results, showcases its ability to adapt and grow. While external factors like mineral prices and global economic conditions can influence its profitability, Kenmare Resources remains committed to delivering value to its shareholders, as exemplified by its share buyback program and increased dividend payouts. As investors weigh the potential, Kenmare Resources' solid fundamentals and forward-looking approach suggest a promising future for those who recognize the long-term potential in this resource-rich endeavor.
Conclusion
