- Kenmare announces a further production increase in 2014 vs. 2013, but the ilmenite production in Q4 was a bit disappointing.
- No surprises here although it's good to see that production rate continues to increase.
- The investment thesis remains unchanged; I'm on the sidelines until the company’s debt situation becomes more clear.
Kenmare Resources (OTC:KMRPF) has provided more information on its operations in 2014 at the Moma mine in Mozambique. As could have been expected, Kenmare saw its total output in 2014 increase rather sharply compared to the previous year. It produced almost 1.3 million tonnes of Heavy Mineral Concentrate (hereafter 'HMC'), 855,000 tonnes of ilmenite, in excess of 50,000 tonnes of zircon and 6,100 tonnes of rutile.
There was also some bad news as during the last quarter Kenmare had to switch from grid power to diesel generators as the northern part of Mozambique had to deal with floodings. It will take quite a while before the access to the grid power can be restored, and the company expects to be running on grid power again later this month. As diesel generators are a more expensive way to generate power, I'd expect the production costs to go up in the first quarter of calendar year 2015. As the upgrade work at the mine has been completed in the second half of 2014, Kenmare is expecting further production growth this year, and as the prices for titanium feedstock remain at depressed levels, the company will have to look at the cost side of the production to ensure it remains profitable. The company is quite positive on the outlook of ilmenite, as it expects the Chinese demand for foreign ilmenite to pick up again as the domestically-produced ilmenite is unsuitable for the new chloride slag plants, which are either under construction or ramping up.
I think it's the right time to pick up the titanium feedstock companies (Base Resources (OTC:BSRUF), Sierra Rutile (OTC:TNUMF),…) but I'm still not sure Kenmare belongs in that list due to its heavy debt load. It expects a renegotiated debt deal to be announced within the next few weeks and I'll be looking forward to seeing some more details of the new debt repayment schedule as that will determine the company's future. Kenmare's production process is going well, but the financial issues still need to be solved.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
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