Kenmare's $340M Mozambique Investment Secures Future Production

• Kenmare operates the Moma titanium dioxide mineral sands mine in Mozambique with nearly 40 years in-country presence, 20 years in production, and reserves extending 80-90 years
• Currently executing a $340 million capital program to relocate primary mining operations to Nataka orebody, which contains 70% of reserves and will eventually increase production
• Third-largest global producer of ilmenite, zircon, and rutile with consistent quality, serving customers for nearly 20 years during current market oversupply conditions
• Ongoing negotiations for implementation agreement renewal with new Mozambican President Chapo, with positive engagement and mutual understanding of project importance
• Maintaining strong EBITDA margins despite lower commodity prices, expecting significant free cash flow generation post-capex completion in 2-3 years

Kenmare Resources represents a long-term investment proposition in the critical minerals sector, operating one of the world's most significant titanium dioxide mineral sands operations. Managing Director Tom Hickey, who transitioned from CFO to MD in August 2024, brings extensive natural resources experience from his previous role as CFO of Tullow Oil during its growth phase from a £200 million to FTSE 100 company.

The company's Moma mine in Mozambique's Nampula province employs approximately 1,700 people, with 97% being Mozambican nationals, demonstrating deep local integration. As Hickey explains, 

"We are probably the third biggest producer of these products worldwide. So we're really meaningful in the context of the industry that we work in." 

This market position provides significant competitive advantages in terms of scale, consistency, and customer relationships.

Infrastructure Investment

Kenmare's current operational focus centers on the largest capital investment in the company's history. The $340 million program involves relocating the primary mining operation to the Nataka orebody, which contains 70% of the company's reserves. This strategic move represents the final major investment required to secure the mine's long-term future.

The investment includes two new dredgers costing $66 million, enhanced processing capacity, and infrastructure upgrades designed to handle the slightly more challenging ore characteristics at Nataka. 

"Our biggest mining plant, WCP A, which is about 50% of our production, needed some upgrade to enable us to deal with a slightly more resilient or trickier ore to mine at Nataka."

The company has also introduced Selective Mining Operations (SMOs), demonstrating operational agility. These smaller, more flexible operations cost only $6 million compared to $45 million for traditional plants while processing 300 tons per hour versus 500 tons for larger facilities. This innovation allows Kenmare to mine smaller ore pockets and maintain production flexibility during the transition period.

Market Dynamics & Competitive Position

The titanium dioxide market currently faces oversupply conditions, primarily driven by new entrants attracted by high prices in 2021-2023 and increased concentrate production flowing to Chinese processing facilities. However, Kenmare's market position remains robust due to product quality and customer loyalty.

Hickey highlighted the market consolidation trend: 

"We spoke to one customer a couple of months ago who said, 'Seven years ago, I had eight suppliers. Now I have two.'" 

This consolidation benefits established producers like Kenmare, which maintains long-term relationships with customers spanning nearly two decades.

Despite current pricing pressures, the company maintains strong margins. 

"Even at these slightly lower prices, we're still making good margins. We made a 40% EBITDA margin last year (2024)." 

It demonstrates the operational efficiency achieved through consistent investment in cost reduction and productivity improvements.

Regulatory Environment

Kenmare's relationship with the Mozambican government represents both a risk and opportunity. The company is currently renegotiating its implementation agreement following the election of President Chapo. These discussions, while extending beyond the original timeline, appear constructive.

Hickey's recent meeting with President Chapo provided reassurance about the government's approach: 

"We think that the president is a good listener. He is quite commercial, quite pragmatic and he understands that foreign direct investment will be vital to Mozambique's expansion and extension over the next number of years."

The renegotiation doesn't affect mining operations or licenses but will impact royalty rates. Kenmare's track record of exceeding original commitments strengthens its negotiating position. 

"We exceeded every promise we made. We invested more, we produce more, we employ more, we've paid more taxes."

Interview with MD, Tom Hickey

Financial Strength

Kenmare maintains a conservative financial profile with net debt of approximately $80-85 million, expected to peak during the current capital program before declining significantly. The company's banking covenants are not challenging, and recent bid interest revealed additional debt capacity recognized by lenders.

The dividend policy remains intact despite the capital investment cycle. The company announced an interim dividend of 8-12 cents per share, with flexibility for the final dividend based on year-end conditions. This approach balances shareholder returns with reinvestment needs while demonstrating capital discipline.

Post-capex completion, Kenmare expects to generate substantial free cash flow, providing options for increased dividends, share buybacks, or additional growth investments. The company's long-term approach to capital allocation reflects the multi-decade nature of the resource.

Strategic Innovations

Kenmare has developed innovative approaches to maximize resource value, including the introduction of a product derived from waste streams that Chinese customers can further process. This represents pure margin enhancement from previously unmonetized materials.

The company's ESG credentials provide competitive advantages in an increasingly environmentally conscious market. 

"95% of our energy comes from renewable sources in Mozambique means that our products have very low carbon footprint."

This positioning becomes increasingly valuable as customers focus on Scope 2 and 3 emissions.

Market Recovery Outlook

While current market conditions remain challenging, several factors support medium-term recovery prospects. Independent analysts including TZMI and TiPMC continue forecasting price recovery, albeit with extended timelines. The EU's 38-39% tariffs on Chinese pigment imports have already improved Western customer utilization and margins.

Recovery drivers include Chinese economic stabilization, potential reconstruction activities in conflict zones, underlying GDP growth correlation with titanium dioxide demand, and natural supply-demand rebalancing as marginal producers exit the market.

The Investment Thesis for Kenmare Resources

• Irreplaceable Asset Base: 80-90 year mine life with 70% of reserves in high-grade Nataka orebody, providing multi-generational cash flow visibility in critical minerals sector
• Market Leadership Position: Third-largest global producer with established 20-year customer relationships, benefiting from industry consolidation and supply chain security premiums
• Operational Leverage: $340 million investment program nearing completion will increase production 20% and eliminate capacity constraints, generating substantial free cash flow from 2027
• Defensive Characteristics: 40% EBITDA margins maintained during market downturn, demonstrating cost structure resilience and operational efficiency
• ESG Competitive Advantage: 95% renewable energy usage and low carbon footprint products positioned for increasing customer ESG requirements
• Jurisdictional Stability: Nearly 40-year presence in Mozambique with strong government relationships and mutual economic interdependence supporting long-term operations
• Valuation Opportunity: Trading below replacement cost and recent bid interest at significant premium to current levels during cyclical market trough
• Capital Discipline: Conservative balance sheet with clear post-capex free cash flow generation supporting sustainable dividend policy and potential shareholder returns

The titanium dioxide sector represents a critical but often overlooked component of global industrial and infrastructure development. Unlike battery metals that dominate critical minerals discussions, titanium dioxide serves as an essential input across construction, automotive, coatings, and manufacturing sectors with limited substitution possibilities.

Kenmare's position becomes increasingly strategic as supply chain security gains prominence. The company's geographic diversification away from Chinese-dominated supply chains, combined with its ESG credentials including 95% renewable energy usage, positions it favorably for Western customers seeking supply chain resilience. As Hickey noted, the market has seen dramatic consolidation with customers reporting supplier bases shrinking from eight to two over seven years.

The current oversupply situation, driven primarily by Chinese concentrate producers and processing overcapacity, mirrors previous cycles that resolved as marginal producers exited during price downturns. However, the lack of major new conventional projects in development suggests a tightening supply outlook medium-term, particularly as global infrastructure investment accelerates.

Mozambique's broader natural resources development, including massive offshore gas projects with Total, ExxonMobil, and ENI, creates a supportive environment for established operators like Kenmare. The government's recognition that "getting the most out of the country's natural resources on a sustainable long-term basis is absolutely critical" supports continued foreign investment.