Kenmare cashes in on high prices but has sludge problem

Titanium feedstock miner, Kenmare Resources, has reported rising profits but says it needs to buy new dredging equipment for its main asset, the Moma mine in Mozambique.

Moma produces ilmenite, zircon and rutile; all are ingredients used to make titanium oxide pigment and titanium metal, and the demand for both is booming in emerging economies.

The price for ilmenite was about $100 per tonne at the start of the year; by the end of the year Kenmare was negotiating new contracts at between $300 and $400 per tonne. The company says it is now making contracts "volume based" and renegotiating every six months to ensure they reflect the underlying market more closely.

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Revenues during 2011 increased to $167.5m from US$91.6m in 2010, largely because of rising prices. The company warns though that operating costs also increased in 2011, during a period of mining industry inflation.

Earnings before interest, tax, depreciation and amortisation (EBITDA) were $71.7m in 2011 (2010: US$17.4 million), and profit after tax was $23.7m versus a loss of $16.3m in the prior year. This is the company's first profit attributable to the trading performance of the Moma mine.

It was not all plain sailing, however; total production fell from 956,900 tonnes in 2010 to 842,900 in 2011 because mining was hampered by high clay levels in the "ore body" from which the minerals are extracted.

Kenmare does much of its mining by dredging, which uses water, but with high clay levels this becomes difficult, so the company is to buy new dredging equipment that will be three times more powerful than the current machines. That won't happen until 2013 though and until then the firm warns production could be impeded.

Commenting on the results, the recently installed Chairman, Justin Loasby, emphasised Kenmare needed to "stabilise production" at Moma.

Kenmare shares have risen 13.3% in the last 12 months.

BS