Kenmare Resources plc Jumps On Refinancing And Takover Offer

Kenmare Resources plc (LON: KMR) surges higher but should you buy, sell or hold?

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Kenmare Resources (LSE: KMR) is surging higher today after the company issued a deluge of good news. 

Good news

Firstly, the company announced that it had reached a new agreement with its lenders to restructure existing debt and provide additional financing, including:

  • A debt facility of up to $50m for working capital and other corporate purposes;
  • An extension of the final maturity of existing facilities;
  • A reduction in scheduled principal payments on the senior debt;
  • The elimination of scheduled interest and principal on subordinated debt. 

These agreements should provide Kenmare with additional flexibility going forward. 

The second piece of good news from Kenmare came in the form of an interim management statement. This revealed that the company had successfully completed a restructuring program, to yield an annualised $12.5m in cost savings.

Unfortunately, while the company has managed to reduce its cost base, the shipment of ore from the Moma Mine declined by 4% during the first quarter of the year. Still, the cash saved from Kenmare’s lower cost base, and restructured debt pile, should offset some of the decline in volumes.  

And the last piece of good news from Kenmare today was the announcement that the company had received a revised bid from Iluka Resources Ltd

The revised proposal would trade 0.016 share of Iluka for every Kenmare share — far below Iluka’s previous offer of 0.036 per share made during June of last year.

Iluka’s shares currently trade at 8.16 Australian dollars. So, the offer values each Kenmare share at 0.131 Australian dollars, roughly 7p. A premium of 125% to Kenmare’s closing price on Wednesday.

Time to buy? 

If Kenmare chooses to remain independent, the company’s debt restructuring and cost reductions have given it a strong base to grow from in the future.

Indeed, City analysts currently expect the company’s losses to decline by as much as 75% this year as restructuring savings flow through. Further, according to current forecasts Kenmare is set to report a pre-tax profit of £7.1m during 2016. This translates into earnings per share of 0.4p for 2016 and on that basis, Kenmare is trading at a 2016 P/E of 9.5. 

So, if Kenmare’s management decides to turn down Iluka’s offer, based on current figures, the company still has a bright future. 

However, due to the unpredictable nature of the mining industry, these forecasts could change significantly over the next 12 to 24 months.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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