Jan. 19, 2011 - Royal Bank of Canada s RBC Capital Markets has initiated coverage of Kenmare Resources, operator of the Moma titanium minerals mine on the coast of Mozambique.
Moma contains reserves of heavy minerals which include the economic titanium minerals ilmenite and rutile used as feedstocks to produce titanium dioxide pigment, as well as the relatively high-value zirconium silicate mineral, zircon.
RBC Capital is putting an outperform rating on the stock and a target price of 50 pence, providing strong upside to the current share price of around 32p.
The investment bank said that, due to a tight supply of heavy minerals ilmenite, rutile and zircon, it believes significant price increases in the medium-term are likely. "Kenmare is expanding output to supply ilmenite into this market and should benefit from the higher prices we expect.
Kenmare is in the process of ramping up mining and processing at Moma by 50 percent.
The Moma mine employs low-cost dredging and, being on the coast, the mine is able to convey product to a company-owned ocean-side load dock for shipping to major global customers, RBC Capital said.
"Now that the mine has overcome Phase 1 commissioning problems and is running near nameplate capacity, debt should decrease and unit cost performance should improve. Unit cost performance should be enhanced as the expansion ramps up.
"Sales contracts in the titanium dioxide (ilmenite and rutile) and zircon markets are expiring, which should result in more product sold on spot-based prices. This will benefit producers, including Kenmare, in what appears to be a tight market over the medium-term.
In its note, RBC Capital said the 50p price target does not capture the full benefit of higher prices and changing contracts. It sees the risks in the investment case in prices and on-time/on-budget delivery of the expansion; and the potential upside from above-trend demand growth and Moma s potential for further expansion.
