A leading shareholders in Kenmare Resources has written to the board of the titanium minerals miner calling on it to assess its “strategic options”, adding that it favours an outright sale of the Dublin-listed company as its stock languishes at a depressed value.
London-based JO Hambro, which owns just over 6 per cent of Kenmare and characterises itself as an active investment manager with £21.4 billion (€25 billion) of assets under management, detailed its engagement with the Irish company in a newsletter issued to investors this month.
The firm, which is among Kenmare’s six largest investors, highlighted that the stock has sold off so far this year in a “delayed reaction” to a disappointing trading update before Christmas that pointed to lower production expectations for 2024 at its Moma mine in Mozambique and higher investment costs on a key project.
Titanium minerals such as ilmenite and rutile are feedstocks for the production of titanium dioxide pigment, which is used in the manufacture of paints and other coatings, plastics and paper as well as cosmetics, food additives, ceramics and textiles. Kenmare currently produces 7 per cent of global titanium feedstocks.
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JO Hambro also noted that Kenmare, led by managing director Michael Carvill for the last 38 years, had tweaked its dividend guidance in December. While the company reiterated a policy of distributing 20-40 per cent of profits to shareholders, it said absolute levels of cash paid out may decline in the coming years, partially depending on commodity prices. It previously said it was “comfortable with the absolute level of dividends for the medium term”.
“This has impaired credibility and likely new interest in the stock,” JO Hambro said.
The fund manager highlighted that Kenmare’s shares are currently trading on a depressed level relative to the high levels of cash it generates.
Davy analyst Colin Grant said in note last month that Kenmare, with market value of about €327 million, is trading on a low enterprise value, including debt, of three times earnings before interest, tax, depreciation and amortisation forecasts for 2024. His share price target for Kenmare is €8.50, which is 127 per cent above the €3.74 level at which it closed on Wednesday in Dublin.
Shares in the company are down 18 per cent so far this year and 33 per cent over the past 12 months.
JO Hambro breached a 3 per cent stake level that required mandatory disclosure to the stock market in early 2021.
“Currently, our preference is an outright sale of the company to a larger group where the cashflows would be valued more appropriately,” it said, adding that the 100-year expected future lifespan of the Moma mine and its high market share of titanium feedstocks production “would attract significant interest”.
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“We believe large elements of the shareholder base would agree with this view and, as a result, we have written to the board calling on them to assess strategic options,” the newsletter concluded.
Kenmare was the subject of a failed takeover attempt between 2014 and 2015 by Australia’s Iluka Resources.
A spokesman for the company said it has been engaging with JO Hambro on points raised in the newsletter and remains in “continuing dialogue” with all big shareholders.
“Our board and management assess a wide range of opportunities to deliver value on an ongoing basis for all shareholders and, since 2019, we have returned more than $230 million (€214.5 million) to shareholders through dividends and share buybacks,” it said.
“Our Moma mine is one of the highest-margin operations in the titanium minerals industry, with a life of mine of more than 100 years. Last week, we announced $200 million of new debt facilities to enhance financial flexibility, and we ended 2023 with net cash of $20.7 million, underlining our strong balance sheet.”
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