Kenmare Resources founder Michael Carvill, whose perceived resistance to a sale of the miner resulted in his exit last year, is back. Company founder owns about 0.6% but could reap attractive equity-based incentive plan under deal with Oryx.
It may not be a great time to sell with Kenmare’s Moma mine in Mozambique grappling with declining titanium mineral prices, political unrest in the African country and delays in nailing down a new royalties deal with authorities – just as it is in the middle of a large investment programme.
But Carvill (65), who turned developing Moma into his life’s work, seems to think it’s a good time to buy.
Following an Irish Times report on Thursday that the engineer had been seeking backing for a bid for Kenmare, the company confirmed he had joined Abu Dhabi-based private equity firm Oryx Global Partners to offer £473 million (€565 million) – some 92 per cent over its market value on Wednesday. The £5.30-a-share proposal has been rejected as “undervaluing” the company but the partners have been invited to peek at Kenmare’s books with a view to putting in a revised offer.
Sources say that British-Australian mining giant Rio Tinto and another Abu Dhabi outfit, International Resources Holding, ran the rule over Kenmare last year as 6 per cent shareholder Jo Hambro mounted an activist campaign to get the company to sell itself. It came to nought.
Carvill, who has believed like no other in Moma and managed the group’s crucial relationships with authorities in Mozambique over almost four decades, is seen by analysts as highly likely to win out, if he and Oryx raise their bid.
“Beauty is in the eye of the beholder and, as the previous chief executive, it appears that Mr Carvill can see better value in Kenmare than the market is currently attributing to it,” said Richard Hatch, an analyst with Berenberg on Friday. “We think an upped bid at £5.80 per share would be fair and a good result for shareholders.”
Carvill owns about 0.6 per cent of the company, but would be in line for an attractive equity-based incentive plan under a transaction involving Oryx.
A top-10 shareholder said: “I think there is a general view that the company will be sold. It’s a matter of price.”
It’s been some rollercoaster ride.
Carvill founded the company in 1986 by taking over a dormant quoted oil and gas company left over from the 1970s boom in exploration off Ireland’s coast.
He initially applied a scattergun approach to opportunities. Early efforts to use the company to get coal out of the Irish Sea and find gold in the Philippines failed. Kenmare, meanwhile, was politely asked to leave a gold project in Sudan after a military coup in 1989.
Having acquired an initial stake in a heavy mineral sands deposit in Mozambique in 1987, Carvill would ultimately turn it into Kenmare’s main focus.
The company started producing titanium minerals and zircon in 2007. Its main product is ilmenite, a white substance ground into a fine powder and used as a base in everything from paints and plastics to ceramics and textiles. It is the world’s largest supplier of ilmenite, accounting for 7 per cent of the global market.
Kenmare’s market valuation peaked at about £1.2 billion (€1.43 billion) 13 years ago amid voracious appetite for iluminite and zircon, widely used in the foundry industry, from China and other emerging economies. US group Dow Chemical was rumoured at the time to be interested in bidding about £1.6 billion for the business. Rio Tinto was whispered to be willing to offer closer to £2.4 billion.
Neither materialised. By the time Australia’s Iluka Resources turned up with a stock-based proposal in 2014, Kenmare’s shares were already in freefall. Demand had slumped as construction in China slowed and customers ran down stocks – just as the group came to an end of a period of heavy debt-fuelled investment.
Iluka would water down its offer as the market deteriorated, before ultimately walking away in late 2015. Carvill was forced within months to raise $275 million (€255 million) of rescue cash, mainly to pay down debt. As a consequence the investment arm of the Sultanate of Oman took a 29.2 per cent interest and pre-existing investors’ stakes were diluted by almost 90 per cent.
The company delivered record earnings before interest, tax, depreciation and amortisation (Ebitda) of $214 million and $298 million in 2021 and 2022 respectively. The average price achieved for Kenmare’s products had soared by 42 per cent in 2022 amid tight global supplies in the wake of the peak of the Covid-19 pandemic and Russia’s invasion of Ukraine.
Earnings dipped to $220 million in 2023 as titanium mineral prices started to fall again – just as Kenmare embarked on a project, costing hundreds of millions of dollars, to upgrade its main mining plant and move it to a different location at Moma.
Kenmare has also returned $280 million to investors since 2019 through dividends and share buy-backs with Oman the main seller into this, reducing its holding to about 17 per cent.
Davy analysts see Ebitda bottoming out at $150 million this year, following a three-year downturn in titanium mineral pricing.
As managing director, Carvill was known to moan about how the market failed to appreciate the value of Moma with its estimated remaining lifespan of more than 100 years based on current production rates. That would take in many price cycles.
Is he ready to pay up?
The Irish Times
