Interactive Investor

Insider: mining boss bets on even bigger gains

Its shares have been hugely popular this year, and confidence is high after a ground-breaking year.

26th April 2021 17:11

Graeme Evans from interactive investor

Its shares have been hugely popular this year, and confidence is high after a ground-breaking year.

Boardroom buying of shares at Kenmare Resources (LSE:KMR) has continued after a year in which the company completed Africa's heaviest ever relocation of mining equipment.

The 23km move in northern Mozambique to a higher-grade area involved transporting plant weighing the equivalent of 550 double-decker buses and taller than a seven-storey building.

Kenmare, which is one of the world's biggest suppliers of titanium feedstock and zircon used in everyday items such as paints, plastics and ceramic tiles, is now reaping the benefits from the relocation through much higher production levels and lower costs.

Its shares have surged 40% so far this year and have doubled since last summer, with the Dublin-based company also benefiting from favourable market dynamics after the average price for its products rose 9% in 2020. Supply problems elsewhere in the world have also benefited the company at the start of 2021.

Long-time managing director Michael Carvill called 2020 a ground-breaking year for Kenmare, with the move to Pilvili the final part of a multi-year growth programme that should now mean ilmenite production grows by between 45% and 60% in 2021.

His optimism was reflected in a 22% jump in the company's final dividend to $7.69 a share, which Kenmare shareholders are due to receive on 19 May. The company is also targeting an increase in the payment from a minimum of 20% profit after tax to 25% for 2021.

Carvill and four other directors bought shares worth in excess of £200,000 after the company's results were published at the end of March, with non-executive director Elaine Dorward-King the latest director to buy on Wednesday.

The American non-executive, who has over 30 years’ experience in the mining, chemicals and engineering industries, bought £28,000 worth of shares. She did so at a price of around 436p, which compares with 188p last summer.

Carvill has been at the helm since 1986 when, after several years of oil exploration, the company changed its name to Kenmare Resources and acquired an interest in licences containing the Congolone heavy mineral sands deposit in Mozambique. Construction of the current Moma mine began in 2007 with the first production starting two years later.

It's been a roller-coaster ride for shareholders since the company first listed in 1994, with debt fears and the need for dilutive fundraisings following some significant highs for the shares.

Peel Hunt picked Kenmare at the start of this year as one of its 31 value stocks to watch in 2021.

With the investment programme now out the way, the broker said in January's note that strong cash flows should give management “tremendous discretion” for allocation of capital between growth projects and returns to shareholders.

Peel Hunt said: “Over the next four years we see the group generating more than its market capitalisation in free cash flow, even on our conservative-looking price assumptions.”

Share purchases celebrate new deal

Two senior directors at Studio Retail Group (LSE:STU) rounded off a landmark week for the online retailer by purchasing shares in the old Kleeneze company worth a total of £40,000.

Paul Kendrick, who stepped up to the role of CEO last month, and chief financial officer Stuart Caldwell bought a similar number shares on Thursday at a price of 304p.

Their moves were made in the week that Studio ended a formal sale process but struck a long-awaited deal to offload its Findel Education division for £30 million.

Prospects have been boosted by “exceptionally strong” trading in the traditionally quieter fourth quarter, with sales up 88% after total customer numbers grew 36% to 2.5 million.

Studio now expects profits for the year to 26 March to be in the region of £48 million and £50 million, up by as much as 83% on the 2020 level. Its medium-term goal is to achieve revenues of £1 billion, a target the company will elaborate on at a capital markets day in late June.

Shares ended the week at 290p, which compares with 263p in December when it was effectively put up for sale amid pressure from biggest shareholder, Mike Ashley's Frasers Group.

The Sports Direct owner said that its 37% stake was “significantly undervalued” and that the company was “misunderstood” by the market, prompting the call for a strategic review. Frasers built its stake following a failed bid worth £140 million for the company in April 2019.

Studio used to be known as Findel and previously owned sports merchandise retailer Kitbag and home shopping business Kleeneze. Its educational resources arm is being sold to investment funds managed by Endless after a previous attempt to sell the business to a different bidder for £50 million was blocked by the Competition and Markets Authority.

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