mining giant Rio Tinto's project to construct an ilmenite (iron titanium oxide) mine
IN PHOTO: A Malagasy worker walks along an access track at mining giant Rio Tinto's project to construct an ilmenite (iron titanium oxide) mine in Fort Dauphin on Madagascar's south-eastern coast in this April 26, 2007 file photo. Blackouts and delays to big new projects across Africa are hampering aluminium makers keen to cash in on rising metal prices driven by surging Asian demand. REUTERS/Ed Harris/Files

Various ratings firms have issued a "hold" recommendation to Dublin-based ilmenite miner Kenmare Resources PLC as it traded down 0.0654 percent during mid-day trading on Thursday. Analysts at Goodbody Stockbrokers Ltd and Panmure Gordon reiterated the rating, setting a GBX 13 and GBX 23 price target on Kenmare Resources' shares. Similarly, Canaccord Genuity analysts gave the company a "restricted" rating.

These recommendations were given after production during the first quarter turned out to be lower than expected. Its Moma Titanium Minerals Mine in Mozambique suffered from power outages brought about by severe flooding in the country, hence severely limiting production. The amount of mined tonnes dropped as much as 57 percent, with ilmenite production 39 percent lower than the previous quarter. The decreasing price of ilmenite also did not help.

With the future of ilmenite filled with uncertainty, Kenmare Resources is already considering the revised takeover bid from Iluka Resources Ltd, which the former refused last year. The revised proposal was far lower than last year's, though, as it would trade 0.016 share of Iluka for every Kenmare share. This would give Kenmare shareholders a stake of approximately 10 percent in the consolidated company. However, Kenmare knows that its debt load is quite high and Iluka's balance sheet looks much better. Though the company's board of directors has not directly accepted the offer yet, they announced that it is in Kenmare's best interest to continue negotiations with Iluka.

Despite the takeover, Kenmare also has its share of good news. Its total production of rutile and zircon increased by 27 and 18 percent respectively. The future of rutile looks good as well, since the paints and coatings industry, which is rutile's primary application, is set to reach around 60.8 million tonnes by volume in 2020. No shortage of rutile supply is in sight as more potential sources crop up, like Chile-based White Mountain Titanium Corporation (OTCQB: WMTM), which operates the Cerro Blanco project in Chile's Atacama region. Its estimated output of 112 million tonnes of rutile will be used primarily for paints and pigments.

Kenmare has also reached a new agreement with its lenders to restructure existing debt and provide additional financing, providing the company with additional flexibility in the future. As of 2014, the company had US$330 million [$411 million] in bank debt, of which US$70 million was due within a year. Under the new agreement, the lenders will provide a debt facility of up to US$50 million for capital expenditures, extend the final maturity of existing facilities, reduce the scheduled principal payments on senior debt and eliminate scheduled interest and principal on subordinated debt. The company has also completed a restructuring program that will yield US$12.5 million per year in cost savings.

Together with cost reductions, Kenmare's debt restructuring gives it a strong base to grow from in the future. This can further be cemented once the ilmenite miner teams up with Iluka, as its all-share exchange offer could greatly reduce the operational risk of Kenmare as a standalone company while also keeping the upside potential from the Moma mine.

Contact the writer: a.lu@ibtimes.com.au

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