Titanium profit adds sheen to Kenmare's share price

SHARES IN Kenmare Resources surged by almost 8 per cent yesterday after the company reported the first profit from its titanium mine in Africa.

Kenmare yesterday said that it made a profit after tax from its titanium mine at Moma in Mozambique of $23.7 million last year, compared with a loss of $16.3 million in 2010.

Revenue for the year rose to $167.5 million from $91.6 million a year earlier, with “robust” demand driving prices higher.

Earnings before interest, taxation, depreciation and amortisation – a measure of the cash flow generated by the company – were $71.7 million for 2011, up from $17.4 million in 2010.

The company’s stock gained 7.6 per cent in Dublin yesterday to close at 62 cent on the back of the news. About 150,000 of its shares changed hands.

Kenmare said that it had shipped 730,400 tonnes of titanium ores in 2011, an increase on the 712,900 tonnes that it sold in the previous year.

Basic earnings per share were 99 cent in 2011, compared with a loss per unit of 80 cent the previous year.

Prices were strong during 2011. Kenmare said yesterday that ilmenite, the main titanium feedstock that is produced at the mine, was commanding prices of $100 a tonne at the start of the year, but that by the end of 2011 it was negotiating new contracts which were valued at between $300 and $400 a tonne.

“Despite the downturn in Chinese real estate, the market for titanium feedstocks remains strong and we believe that it will continue to be strong for the medium term,” the company said in a statement.

Much of the demand for titanium is driven by rapidly growing economies such as China, where one of its primary uses is in paints, which partly ties demand to construction.

Kenmare is planning to spend $300 million on an expansion of the mine, dubbed “phase two”.

The initial work has proceeded on schedule and the Irish company believes that the second phase will begin production next year.

It is financing the expansion using cash generated by its existing operations and the proceeds of a rights issue made in 2010.

It will expand capacity there by 50 per cent.

Chairman Justin Loasby said that the outlook for the business was very positive.

“Given our plans to increase production, and in an environment of increasing prices, Moma operations will generate a strong positive cashflow,” he said.

“Some of this cashflow will be allocated to expansion funding in the current year, with the remainder building up to allow us to repay the deferred interest and principal that has accumulated on the subordinated debt.”

Des Kilalea and Richard Hatch, analysts with RBC Europe, described the company’s results as “solid” yesterday and said that its stock remained one of its top-pick recommendations.