Kenmare Resources, the Irish mineral sands miner hit by the fall in commodity prices, is seeking to finalise a deal with lenders to restructure its debt load by the end of the month. Dublin-based Kenmare has struggled with the size of its debt and a succession of operating problems, including power-supply interruptions. The company, founded in 1986, "has disappointed on many levels over a long time", said one shareholder.
Shares in Kenmare have fallen more than 80 per cent since the company’s board, backed by its largest investor, M&G, rejected a takeover approach by Australian rival Iluka last June. The boost to Kenmare from an all-share approach quickly dissipated, and big investors such as BlackRock and JPMorgan have steadily reduced their stakes over recent weeks.
Mineral sands prices have historically been closely linked to world economic growth. Prices fell last year, hampering Kenmare’s recovery from problems at its Moma mine in Mozambique, which produces ilmenite for use in paint manufacturing.
Kenmare’s market capitalisation in London is now just £70 million, and the company, which reported a $31.8 million loss for the first half of 2014, recorded net debt of $312 million at June 30th. Bank loans came to $349.6 million. Kenmare has about $80 million of debt coming due at the end of 2015 and the miner and its banks are in talks about a restructuring that would follow two similar exercises last year.
People close to the talks say the miner’s lenders – among them a number of development banks – are inclined to be supportive, saying Kenmare’s mine is more important in global markets. “The quality of the asset is such that the lenders are not panicking,” said one person. Part of the future of Moma and the company may be decided this month, when Kenmare is supposed to agree a budget for the year with providers of the project finance used to build the mine.
Iluka may also have a say in Kenmare’s future. The Australian company has continued due diligence, including visits to Moma.
But valuation is a problem. The bid rejected in June as too low was based on a ratio of the two companies’ share prices that implied a value of 16.5p a share for Kenmare investors. Now the same ratio would imply a 12p valuation for Kenmare, compared with its share price of about 2.5p.
With most commodity prices falling, investors will be focused on Kenmare’s release shortly of its production report for last year, in which the miner may also try to point to a brighter sales environment for its ilmenite. “A positive report and price rises would be one thing that would buy them time,” said one analyst. – Copyright The Financial Times Limited 2015
