Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Things are booming in the mineral sands space. Russia’s invasion of Ukraine has added to long-term supply concerns as, along with a lot of other hard and soft commodities, plucky Ukraine is a significant mineral sands producer. But the reality is that mineral sands prices began to take off last year on long-term supply concerns alone. War in the Ukraine has only added fuel to the fire. Talk of the boom should come as no surprise as the share price of Iluka, the local king of the mineral sands space, has soared 60% in the past 12-months, carrying it to a $4.6 billion market cap. And just this week, the London-listed Kenmare (LN:KMR) reported its mainly-ilmenite (a low grade titanium dioxide for paints, plastics, and titanium metal) revenues from its Momo mine in northern Mozambique soared 87% in 2021, driving its earnings 182% higher to $US216 million. And for good measure, PYX Resources, the London and Australian National Stock Exchange (NSX:PYX) producer from Central Kalimantan, reported last week that it had increased its price for zircon (ceramics, zirconium chemicals, casting and foundry applications) by 34% from an already-elevated $US2,305/t to $US3,100/t. Current prices for mineral sands are now well ahead of the long-term pricing forecasts by TZMI, the consultant the industry turns to for outlook pricing. But its forecasts for the next four years (based on a market study report in November) are nevertheless up in a big way on 2020/21 prices. And that was before Ukraine. So it can be said that good times for the mineral sands sector are set to roll well into the foreseeable future. Up until recently, the upside from all that was mainly being priced into the majors like Iluka.
Berenberg just increased its price target from 670p to 750p. I wonder if they received any information from the company to support this valuation. It certainly shows how undervalued the company currently is.
Richorpoor, the company said recentlly that demand was exceeding their ability to supply, so it is possible that any stock still at the docks has in fact already been sold. However, with zircon prices still increasing, FY22 profit will be higher than expected. I would prefer a special dividend to another buyback as its time to get some cash back in the bank. Better still, a takeover offer at £7 or £8 :)
Sorry guys, I just noticed that yesterday I quoted forecast net profit as $250m +. This should, of course, have said EBITDA. It is still a great return :)
The current weak share price performance seems to be a product of being carried down with a generally falling market. Investors seem to be ignoring the fact that this is a great value play. The current PE is around 4 (on current number of shares) and will be falling closer to 3 in FY22. Net profit will be the highest ever in FY2022 (estimates of more than $250m) in a still strong mineral sands market. And net debt should fall to zero by year end. Bearing in mind that all recent takeovers in the sector have been at approximatey P/E = 8, this implies that the sp should be double where it currently is. Hopefully, more people will come to realise when the H1 results are published.
raxfactor, you are right of course. Only, when the sp went past 500p earlier this year, I didn't think it would ever fall below this level again. The H1 results in August should be interesting. The company should achieve EBITDA higher than $250m this year, and dividend yield could approach double figures. And eliminating debt completely would be the cherry on the cake. I really think however that we must be in takeover territory at these levels.
How on earth does 32.7 cents result in a dividend yield of 2.53%, as reported by LSE on this site. I have written to LSE twice about this, but clearly the data supplier is incompetent or has other motives. Answers on a postcard ....
The Kenyan mining operation has benefited from a global supply disruption of mineral sands production which lifted the price of titanium 54.8 percent in the quarter ended March from a year earlier. Base Titanium sold the commodity at an average price per tonne of $740 in the review period, up from $478 the year before.
Kenmare paid a FY21 dividend of US 32.7c per share. The dividend yield is a lot better than the LSE site is showing. Maybe someone can ask them to correct this.
Who is feeling a lot richer today? Kenmare has to be one of the best bets around at the moment for a large and hopefully still growing dividend payout. With some brokers valuing the company at 670p there is plenty of value all around. Roll on H1 results in August.
Unfortunately, most of the last 10 years seemed like a great buying opportunity, and I am still wondering when will be the great delivery. Still hoping that 2022 or 2023 will deliver a 700p share price.
Buck, the current share price is still very attractive to a potential bidder. Tronox bought Exxaro for 8.8 x EBITDA and recently Apollo was looking to acquire Tronox at 8.4 EBITDA. Previously, Iluka offered x6 to purchase Kenmare, when the company was in a distressed state, with high borrowings, and when the market was in slump. Peel Hunt has FY22 EBITDA at about $250m (£190m). Assuming a conservative x7 offer (in this commodities supercycle) would result in a share price offer of £14 !!!
raxfactor, these are not really issues to be concerned about as this is the nature of the business. The comapny has not changed FY22 production guidance, so any slippage in Q1 is not a problem. If shipments were lower in Q1, they will be higher in Q2. All normal. FY22 EBITDA will be considerably higher than FY21, which should see dividends increased again this year. And then more sp increase too :)
Overall, the production and market updates are positive, given that Q1 is usually the most challenging quarter. The low inventories globally will keep market prices rising until at least H2, and probably for the remainder of 2022. FY2022 will be substantially better than FY2021 and Berenberg's price target of 670p must surely be a realistic sp target for this year. If it doesn't materialise, then a takeover looks all the more likely. It is great to be finally above 500p, and I can't see it falling below this level again.
Tep, the market's low valuation is likely a vote that reflects lack of confidence in the current management rather than lack of confidence in the comapny or market. The big holders must move to appoint stronger management. Surely they would like to see the sp at £10 too? This, or follow Contango's advice, and put the company up for sale.
Contango, a fair buyout price is 8 x EBITDA based on other similar takeovers.
Why did the company calculate the eps using pre-buyback number of shares? Surely, this is incorrect? Net profit of $128m = £97m / 95m shares = £1.02. So, why isn't the eps = £1.02 and the P/E = 4.4? P/E of 4.4 is really low for a fast growing company where EBITDA might be approaching $300m this year. Many commentators on Bloomberg etc. have been saying that the best investment strategy in the current climate is to buy growing companies with a low P/E ratio.
What good is a 5% dividend when the share price drops 2.5% in one day?! Something is very seriously wrong at this company. The BOD need to be replaced or we need a decent takover offer now. This is too painful.
The ilmenite and zircon markets have never been better and the company looks as if it has finally delivered on production and costs. Why then is the share price dropping like a lead balloon? Quite simply, the BOD never gives the market what it wants. What a ridiculous strategy using debt to fund the recent buyback. And what rate of interest is being paid on this debt that could have been paid off? I am getting serously annoyed by MC's constant referral to "returning $100m to shareholders". The only shareholder who benefitted from the buyback was SARL in that they could easily offload a portion of their shares. But what was the benefit for the other shareholders? Nothing !!! If even half the money used for the buyback had been used to pay shareholders a special dividend, the share price would now be flying. BOD, give the market what it needs, and what shareholders need, or please resign.
It might be another damp squib day tomorrow, but maybe we may finally break 500p if the news is strong enough.