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Summary

  • Kenmare Resources posted a net loss, as the increased production couldn't compensate for lower ilmenite prices.
  • This is relatively expected, although the ilmenite price has dipped more than I expected.
  • The investment thesis remains unchanged. Kenmare offers a great leverage to the ilmenite price, but renegotiating the bank debt should be priority number one right now.

Kenmare Resources (OTC:KMRPF), an ilmenite producer in Africa, has released its semi-annual financial results. The company's ilmenite production increased by 47% which compensated for the drop in the ilmenite price as the total revenue increased slightly to $81.2M. Unfortunately, the production cost increased even faster, and the company reported a net loss of $31.8M, which could be seen as a blow for the company's shareholders. Even the free cash flow in the first six months of the year was negative, so Kenmare isn't exactly in a great shape.

I was expecting the increase in the ilmenite production (445,000 tonnes compared to 303,000 tonnes in the same period last year), but unfortunately the decreasing ilmenite price isn't really cooperating. The CEO of Kenmare thinks the current low ilmenite price won't be sustainable for an extended period of time as most of the producers are selling at a loss. Additionally, according to the company, the normalization of pigment inventories is a precursor to pigment plans operating at higher levels, thus needing more feedstock and thus increasing the demand for - amongst others - ilmenite, which should increase the received price per tonne.

The company's Moma mine is a large operation which supplies 8% of the world's titanium feedstock demand, so its importance cannot be underestimated. That being said, Kenmare needs to make a debt renegotiation work as its working capital deficit has increased to an alarming level of minus $180M. Kenmare has a very strong position on the global ilmenite market, but renegotiating the debt repayment schedule should be priority number one right now.

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Source: Update: Kenmare Resources Earnings