The mining company produces titanium minerals and zircon from its operations in Mozambique. And it supplies customers operating from more than 15 countries. The raw materials end up in finished products such as paints, plastics and ceramic tiles.

Strong demand and rising prices

Managing director Michael Carvill said demand for the company’s main product, ilmenite, was “strong” in 2020. He explained that ilmenite is undersupplied across the world. And that’s happened because of depleting ore bodies in Africa, mine closures in Australia, and ongoing restrictions in India.

One consequence is average prices rose by 9% in 2020. And Carvill said that momentum “accelerated” in the past few months. And it’s a similar story with many commodities. Prices have been shooting higher and mining companies have been making more money. Many mining stocks are a lot higher today than they were at the beginning of 2020.

At 403p, Kenmar’s share price has risen by around 70% since the beginning of January last year. However, today’s figures have mostly moved in the ‘wrong’ direction compared to the outcome in 2019. Ilmenite production declined by 15% and total shipments of the finished product fell by 17%. The company said that outcome arose because of poor sea conditions, and works to upgrade transhipment capacity, on top of the lower production volumes.

Revenue declined by 10%. Although higher average selling prices partially offset reduced volumes. But cash operating costs shot up by 19% because of those lower production volumes. The effect overall was a massive squeeze on profits after tax, which plummeted by 63%. Nevertheless, the directors pushed up the total shareholder dividend for the year by 22%. Why? Because it’s all about looking ahead.

Development projects to boost production

City analysts expect earnings to rocket more than 400% higher in 2021. The company has been investing in development projects that look set to improve operations ahead. Better production looks like it could combine with higher commodity prices to produce the elevated earnings outcome.

Forward-looking valuation measures make the stock look cheap against those earnings projections. The earnings multiple for 2012 is around six and the anticipated dividend yield is close to 3.5%. However, I’m being careful never to forget the inherent cyclicality in the business. Only around four years ago, the company was loss-making. And there’s a long history of volatile earnings.

Kenmare and other mining outfits can do all the development projects they like to improve production. But if the prices of the commodities they deal in plunge, the economics of their businesses may fall apart. And that’s why we see such volatile lurches in earnings, dividends and share prices in the mining sector.

It’s a big risk for investors. And with Kenmare having made decent profits for a number of years already, I have to wonder how close the business is to its next cyclical plunge. Nevertheless, I’m tempted to jump into a few of the company’s shares now while keeping one hand on the ejector seat handle.

The post The prospect of rocketing earnings ahead tempts me into this FTSE share today appeared first on The Motley Fool UK.

One company, though, which has struggled in recent years versus the FTSE 100 is Petrofac (LSE: PFC). The support services company’s shares have increased in value recently, but still lag the wider index in the last five years. Here’s why that could be about to change.

Low valuation

While Petrofac has recorded a rise in its share price in recent months, it is still down by over 50% in the last five years. Some of this disappointing performance is down to difficulties in the energy sector during that time, while the SFO investigation has also caused investor sentiment to remain downbeat. However, the company has enjoyed improved performance regarding contract wins, and this could help to stabilise its bottom line over the long run.

Still, the company continues to face a disappointing near-term outlook. In the current year its bottom line is expected to fall by 18%, followed by a further decline of 6% next year. However, investors seem to have factored-in its uncertain outlook, with its shares trading on a forward price-to-earnings (P/E) ratio of around 10 at the present time. As such, and while it has endured a difficult period, the risk/reward ratio for the stock could be appealing from a long-term investment perspective. This could help it to beat the FTSE 100 in the coming years.

Margin of safety

Also offering a wide margin of safety in the resources industry is Kenmare Resources (LSE: KMR). The producer of titanium minerals and zircon released positive half-year results for the six months to 30 June on Monday.

They showed that the company was able to ship 589,200 tonnes of finished products during the period. This was up 10% on the figure from the same period of last year. This helped to push revenue higher by 37% to $140.1m, with higher prices also acting as a catalyst. EBITDA (earnings before interest, tax, depreciation and amortisation) increased by 59% to $47.5m, with net debt falling to $9.3m from $34.1m at the end of 2017.

Looking ahead, Kenmare is forecast to post a rise in earnings of 26% in the next financial year. Despite its positive recent performance and its upbeat growth outlook, it has a price-to-earnings growth (PEG) ratio of just 0.2, which suggests that it could offer a wide margin of safety. Certainly, its share price may be volatile. But with a low valuation and what seems to be a sound strategy, its long-term share price growth potential seems to be high. As such, now could be a good time to buy it.

The post Here’s why the Petrofac share price could be set to storm back against the FTSE 100 appeared first on The Motley Fool UK.

However, there are still a number of companies which could post impressive share price performance. You just have to look for them. Here are two smaller stocks that could fall into that category. While potentially riskier and more volatile than their large-cap peers, the upside is that they could also offer significant potential rewards over the long run.

Bright future

Reporting on Wednesday was Highland Gold Mining (LSE: HGM). The company announced its operating results for the third quarter of the year today and said production at its MNV, Novo and Belaya Gora projects was 71,767 ounces of gold and gold equivalent, versus 62,601 ounces in the same period of the prior year. This represents an increase of 14.6%, with its production in the first nine months of the year being 6.6% up on the same period of the previous year.

The company recorded an average realised gold price of $1,280 per ounce. It is on track to deliver total production of gold and gold equivalent at the upper end of its guidance range of 255,000-265,000 ounces for the full year.

Looking ahead, Highland Gold is forecast to post a rise in its bottom line of 35% in the current year, followed by further growth of 18% next year. This puts the stock on a price-to-earnings growth (PEG) ratio of just 0.5, which suggests it offers high growth at a very reasonable price.

Furthermore, with a dividend yield of 6.4% from a payout which is covered 1.6 times by profit, its income potential remains exceptionally high. With the potential for a higher gold price should global geopolitical risks increase, Highland Gold Mining could be a star performer in the long run.

Recovery potential

Also reporting on Wednesday was producer of titanium minerals and zircon Kenmare Resources (LSE: KMR). The company’s third quarter was another record three months for its ilmenite production and this keeps it on track for its highest ever annual production. Chinese demand for ilmenite is improving again following a slower period in recent months. And with the zircon market having performed strongly and further price increases anticipated in the second half of the year, the company’s outlook is relatively strong.

Looking ahead, Kenmare Resources is expected to move back into profitability in the current year. In 2018, it is forecast to almost double its earnings, which puts it on a PEG ratio of just 0.1. This suggests that now could be a good time to buy it ahead of what may prove to be a period of improving investor sentiment as the market begins to price in its improved financial performance.

The post 2 small-cap growth stocks that could still make you brilliantly rich appeared first on The Motley Fool UK.

Beyond my Ken

Kenmare’s share price peaked at 11,850p back in February 2012, but the collapse was swift and just over five years on it trades at just 242p. Lately, it has flatlined, and today’s publication of its half-yearly results to 30 June have done little to bring it to life. However, there are plenty of positives in this morning’s report, and markets could be overlooking its bounce-back potential.

FTSE 250 listed Kenmare, which has a market cap of just £278m, is a far cry from the big FTSE 100 mining giants. The titanium and zircon producer has just one main asset, the Moma Titanium Minerals Mine in Mozambique, so you have to expect it to perform differently to the wider market.

Moma dearest

Moma posted an 82% increase in revenues to $102.4m in the six months to 30 June, due to rising prices and sales volumes. Over the year it has produced a record one million tonnes of ilmenite, the most important ore of titanium, and remains on target to hit 2017 production guidance.

Half-year ilmenite production rose 25% year-on-year to 504,800 tonnes and Kenmare also posted a healthy 32% year-on-year increase in zircon production to 37,700 tonnes. Total shipments of finished products increased 21% to 535,700 tonnes over the half.

Accentuate the positives

Kenmare has been keeping a lid on spending, with unit cash operating costs down 14% from $153 per tonne in first-half 2016 to $131, due to higher production and continued cost control this time. In 2016 the group posted negative EBITDA of $10.7m, now happily transformed into a positive $29.8m, a shift upwards of $40.5m.

First-half 2017 profits increased to $9.4m, again handily reversing a loss of $47.1m in 2016, a $56.5m positive change. It was greatly helped by a recovery in the price of ilmenite, despite recent signs of softening in the Chinese market.

In the balance

This is a vast improvement on two years ago, when Kenmare posted a pre-tax second half loss of $27.93m on the back a $32.09m first-half loss as its operations reeled from weather-related power outages, remedial work and unofficial industrial action.

Managing director Michael Carvill said it is producing record levels of zircon and capturing more of it in higher quality products. It is looking to reduce or defer capital expenditure, while optimising production volumes and maintaining balance sheet strength. 

Resourceful stock

Given its narrow focus, Kenmare will always be volatile. However, a shift to profitability after four years of losses is highly encouraging, as are management expectations of rising demand for ilmenite and zircon. The numbers appear to be heading the right way, with a negative valuation of -11.7 times earnings forecast to turn into a positive 12.7 times, and operating margins expected to shift from -17.9% to 14.2%.

City analysts expect earnings per share to leap a massive 133% in 2018, when profits should top £50m. Kenmare will remain risky but the fightback has begun, a fact yet to be reflected in the share price. How brave do you feel?

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Laing time man

John Laing Group (LSE: JLG) is one of the cheapest companies on the FTSE 250, trading at just 5.5 times earnings. I checked its performance charts expecting to see a car crash, but in fact the share price has been rolling along quite nicely, accelerating from 213p to 289p over the last 12 months, a rise of 36%.

The £1.06bn business, launched by James Laing back in 1848, offloaded its building, construction and property businesses 15 years ago to focus on renewable energy and public sector infrastructure projects across the UK, Europe, Asia Pacific and North America. It has performed strongly since relisting on the London Stock Exchange in February 2015. So why that shabby valuation?

Fiscal blitz

It is nothing new. Last August it traded at just 6.7 times earnings, blamed on post-Brexit property and infrastructure uncertainty. Yet Brexit hasn’t been all bad news, driving up the value of the company’s overseas earnings, and boosting the value of its overseas investment portfolio. Management is anticipating a governmental shift from austerity to fiscal stimulus, a process already under way in Australia and Canada, with the UK and US potentially following suit.

Net asset value grew by 14.3% to £1bn last year, up from £889.6bn and the dividend is progressive, rising 7% to a total of 8.15p a share. Yet this year could prove sticky, with last year’s 88% surge in earnings per share (EPS) forecast to reverse with a 20% drop. In 2018, EPS should recover 8%. Its valuation is expected to stay low, with a forecast 6.4 times earnings by the end of 2018, so do not expect a sudden re-basing. By then the yield should have risen from 1.9% to 3.4%, so there are income consolations. Despite its challenges, John Laing looks a promising long-term buy to me.

Kenmare nightmare

Irish incorporated mining company Kenmare Resources (LSE: KMR) has had a stirring year, rising 61% over the past 12 months. This FTSE 250 listed company has a market cap of £306m and its principal activity is the Moma Titanium Minerals Mine in Mozambique. A globally diversified mining giant it is not.

The last year has been an exciting ride as it cashed in on the commodity boom, but this followed years of misery. In the pre-financial crisis summer of 2007 its share price flew to 13,400p. Today it trades at 290p. Its price-to-earnings ratio is a dismal -12.7 and it isn’t hard to see why. However, there is light at the end of the tunnel.

Beyond our Ken

After four straight years of losses, Kenmare is forecast to make a profit of £22.68m in 2017, which could more than double to £48.29m next year. Heavy mineral ilmonite, Zircon and excavated ore production rose sharply in the first quarter, while total shipments of finished products leapt 93% to 256,100 tonnes. EPS are expected to rise a stunning 120% in 2018, lifting its valuation to 8.5 times earnings. 

Zircon has seen improvement in conditions, industry inventories are reducing and prices have increased modestly, my only concern is that China is slowing as stimulus wears off. Kenmare is clearly a risky play, but with plenty of potential upside.

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Improving performance

The rise in production in the final quarter of the year meant that Kenmare’s production of ilmenite, rutile and zircon was at record levels in 2016. Further increases are expected in 2017, alongside a reduction in cash costs. They’re expected to be within the previously guided range of $131-$141/tonne in 2016, with further cost savings set to be achieved in future. In the second half of 2016, costs benefitted from higher production volumes as well as a renewed focus on efficiency. This boosted the company’s cash generation, while higher commodity prices could do likewise over the medium term.

Pricing for 2017 remains positive according to the company’s update. Ilmenite prices are expected to be supported by low product inventories throughout the value chain. During the fourth quarter, demand for titanium feedstock outstripped supply, resulting in higher ilmenite prices. The company was unable to benefit from this since it had agreed contracted prices previously. However, it believes that those higher prices will be realised in 2017, which bodes well for its outlook.

Profit potential

Clearly, Kenmare is a relatively risky business to own at the present time. It’s expected to post a loss in 2016, which would be its fourth consecutive year of being in the red. However, its performance is set to change this year, with a pre-tax profit of £16m forecast for 2017. This is expected to grow by 196% in 2018, which puts the company’s shares on a price-to-earnings growth (PEG) ratio of 0.1. This compares favourably to many of its mining sector peers such as BHP Billiton (LSE: BLT). It has a PEG ratio of 0.2 which, while higher than that of Kenmare, may prove to be more appealing.

A key reason for this is BHP Billiton’s lower risk profile. It produces a range of commodities, including an oil and gas division that has the potential to benefit from a rapidly rising oil price. This means that should the price of one or more commodities fall, the company’s other divisions could help to offset this. In addition, BHP Billiton has a stronger balance sheet than Kenmare and may be better able to survive a downturn than its smaller sector peer.

While Kenmare is an attractive buy right now, it’s still some way off being a successful business. However, for investors who can live with what may prove to be an uncertain near-term future, the rewards on offer in the coming years could be high. For most investors though, the more enticing risk/reward ratio of BHP Billiton makes it the better buy.

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Metals play still on shaky ground

Titanium producer Kenmare Resources (LSE: KMR) continues to defy the washout being endured across the commodities sector in Tuesday trade, the business adding an extra 3.5% to yesterday’s 33% share price advance.

Trader appetite has received a shot in the arm following news on Monday that SGRF — a sovereign wealth fund of the Sultanate of Oman — would pump $100m into the fossil fuel play provided it can raise an additional $75m through a fresh share placing. On top of this, Kenmare Resources is also talking with lenders over swapping some of its existing debt for equity, it advised.

The financing deal follows news that Kenmare Resources — whose flagship asset is the Moma mine in Mozambique — had rebuffed yet another advance from Iluka Resources. The Australian resources play was left disappointed for a third time after Prudential, which holds a 20% stake in Kenmare Resources, refused to endorse November’s takeover bid.

With titanium mineral prices still tanking as oversupply bites, it comes as little surprise that the City expects Kenmare Resources to remain in the red in 2015. Losses of 2 US cents per share are currently forecasts, a projection which, if realised, will represent a third consecutive negative result.

And as economic data from China continues to disappoint — exports slumped 3.7% in November, the fifth successive monthly slip — and Kenmare Resources’ plans to repair its battered balance sheet is yet to be signed off, I believe that the business remains a gamble too far.

Well past its sell-by date

While the commodities sector has taken the brunt of losses in Tuesday trading, Britain’s biggest grocer Tesco (LSE: TSCO) has quietly gone about its business and shares were last 2% higher from Monday’s close.

But I for one still wouldn’t consider investing my hard-earned cash into the firm given the terrible top-line outlook, and I believe the firm has further ground to concede. Indeed, insipid investor appetite pushed shares in the business to fresh decade-and-a-half troughs earlier this week.

Broker Morgan Stanley was the latest to take its red pen to the stock on Monday, citing strong competition in the UK supermarket sector and a stalling restructuring strategy.

And news that transformation director Jill Easterbook is leaving the company has added an additional level of intrigue, the company veteran departing as Tesco’s battle against the country’s discount and premium chains continues to flounder.

Tesco currently deals on an ultra-high P/E multiple of 34.4 times for the year to February 2016, prompted by an anticipated 40% earnings decline. Given the retailer’s persistent failure to pull itself out of the doldrums, I believe the risks continue to far outweigh potential rewards.

The post Should You Buy Tesco PLC & Kenmare Resources plc On Tuesday? appeared first on The Motley Fool UK.

Clearly, all investors are aware that the financial performance of resources stocks is highly correlated to the price level of commodities. However, few investors believed that the oil price would slump to below $50 (and show little sign of making a sustained rally), gold would decline to a 5-year low and iron ore, the steel-making ingredient, would plummet to a 10-year low. As such, the share price falls of resources stocks have been huge, simply because the market is pricing in further falls in future.

For example, the share prices of oil stocks such as Premier Oil (LSE: PMO) and Xcite Energy (LSE: XEL) have collapsed by 49% and 21% respectively since the turn of the year. In addition, Mozambique-focused mining company, Kenmare Resources (LSE: KMR), has seen its share price drop by 21% year-to-date.

Looking ahead, the performance of all three companies is clearly highly dependent upon the prices of commodities which, in turn, affects investor sentiment. However, Premier Oil appears to be relatively well-placed to post much improved share price growth, simply because it is so cheap and has a relatively appealing asset base. For example, it trades on a price to book (P/B) ratio of just 0.4 despite being forecast to post a pre-tax profit of almost £100m next year. This puts it on a forward price to earnings (P/E) ratio of just 7.6, which indicates that its shares have a sufficient margin of safety to merit purchase.

In addition, Premier Oil is better diversified than many of its resources peers. Certainly, its North Sea operations may be struggling, but the drilling programme at its joint venture operation in the Falkland Islands is progressing well and sizeable reserves have already been uncovered despite the programme not yet being complete. As such, with the potential for positive news flow as well as a dirt cheap share price, Premier Oil seems to be a very appealing buy at the present time.

Xcite Energy, meanwhile, also has a very strong asset base. Its 100% owned Bentley field in the North Sea would, with a higher oil price, be hugely appealing. However, the problem is that operating costs in the North Sea have historically been somewhat higher than in other parts of the globe, making margins tighter and, with a low oil price seemingly likely to remain over the medium term, this could cause investor sentiment in Xcite Energy to come under a degree of pressure. Certainly, it could prove to be a sound long term investment, but there appear to be more favourable options in the oil space at the present time.

As with Premier Oil, Kenmare Resources is expected to move from being a loss-making business to a profitable one in 2016. Certainly, its forecast pretax profit for next year is just £12m which, when you consider that Kenmare made a loss of £100m last year, is not particularly high on a relative basis. However, investor sentiment in the stock could pick up strongly in the months ahead – especially since Kenmare trades on a P/B ratio of just 0.2. And, while the company has a substantial debt pile, it was refinanced earlier this year. Therefore, while it is a relatively risky investment, Kenmare’s margin of safety appears to be sufficient for less risk averse investors to buy a slice of it.

The post After A Disastrous 2015, Will Premier Oil PLC, Xcite Energy Limited And Kenmare Resources plc Soar In 2016? appeared first on The Motley Fool UK.

So, should you ever consider an investment in any of these four companies? 

Lancashire Looks Overvalued

The shares of Lancashire are surging 6% today, as the valuation of the insurer benefits from the £3.4bn cash offer that has been put forward by Japan’s Mitsui Sumitomo Insurance Company for reinsurer Amlin of the UK.

While there is talk that Lancashire , whose stock is up 23% year to date, could also attract interest from suitors, I am more focussed on fundamentals and trading multiples — neither of which suggest that its share are a compelling buy right now. 

Serco is not cheap enough

I’d also be very cautious with Serco, whose valuation was up 4% at the time of writing, if for very different reasons.  Serco has gone through torrid times in the last couple of years, with its shares down over 50% in the last 12 months.

This is an outsourcing business that breached covenants on its debts and had to seek help from its shareholders to stay afloat — its trading multiples now suggest that Serco could be overvalued by at least 40%, unless management proves that it can preserve margins and deliver a higher level profitability, in my view.

Its shares are rising today along with the market, but they still trade at their one-year lows. Frankly, I’d look elsewhere for value. 

Kenmare Resources: who’s right? 

Kenmare isn’t particularly enticing, either, the bears argue — yet this is not an easy call. Its stock was up over 6% in early trade, but has given up some of its gains since. 

On the one hand, its valuation has fallen over 70% in the last 12 months, and you’d be buying the shares of a miner that is highly unlikely to be profitable for at least a year and whose balance sheet arguably carries too much debt (net debt stands at about $300m).

On the other, problems with production and industrial action have gone hand-in-hand in recent times, but these issues won’t affect its performance to the end of 2015 and beyond, the bulls could argue. Moreover, Kenmare managed to refinance its debts earlier this year and it has been targeted for months by Australian mineral sands producer Iluka Resources. 

Still, I am looking for less risky options in the sector. How about Xtract Energy, for instance? 

Xtract: a defensive play? 

If you are eager to take an opportunistic bet on gold, Xtract could well be the name for you. 

It’s possible that the group — whose shares trade at 0.27p, having surged 12.5% so far today — will ask shareholders to back its funding plans, but then I think that dilution risk could have a minimal impact on its share price at these levels. 

The obvious warning is that we have little visibility on financials and trading multiples, while its pipeline of projects has yet to deliver. You’d add volatility to your portfolio with XTR, but consider that anybody who had bought it in early January would have recorded an 84% paper gain. 

The post Why Are Lancashire Holdings Limited, Xtract Resources PLC, Kenmare Resources plc & Serco Group plc Rising Today? appeared first on The Motley Fool UK.

Revenue woes continue to swirl

Battered minerals play Kenmare Resources (LSE: KMR) announced in Friday business that a combination of lower commodity prices and production problems pushed revenues 9% lower during January-June, to $73.9m, a result that caused operating losses to widen to $27.2m, from $17.9m a year earlier.

The miner, which produces titanium minerals and zircon, has introduced a massive cost-cutting scheme to offset the effects of a sickly top-line, and total cash operating costs obligingly fell 17% in the first half to $69.1m. But Kenmare faces the prospect of further weakness in the ilmenite price — Melior Resources mothballed its Goondicum mine in Queensland earlier this month thanks to a weak market — a situation which threatens to smash its earnings outlook.

Indeed, the City does not expect Kenmare to flip into the black any time soon. Losses of 3.62 US cents per share last year are expected to narrow to 1.72 cents in 2015 and to 1.14 cents next year, but today’s results could result in downgrades to these sickly results, not to mention a subsequent collapse in Iluka Resources’ takeover attempt.

Swedish digger under pressure

The story was somewhat better for Beowulf Mining (LSE: BEM) in Friday trading, with the business announcing that it booked a £330,276 pre-tax loss in the first six months of 2015, a vast improvement from the £1.32m loss recorded in the same period last year. The Sweden-focussed miner had falling corporate overheads and zero derivative losses to thank for the result.

Beowulf said that it is “looking forward to a busy second half of the year” as it hunts an exploitation concession for the Kallak North iron ore asset. But although the explorer received a boost last month as authorities in Norrbotten County decreed that the project would create vast “economic benefits,” plenty of uncertainty still faces the company.

The necessary paperwork is still to be signed off for work to commence, of course, while Beowulf’s fragile capital position is also casting concerns — cash and equivalents of £172,955 have dived from £554,436 at the same point in 2014. And should the iron ore price continue to crash, the economic viability of Beowulf’s operations could come under fresh scrutiny.

Jubilee losing its lustre

So should the problems facing Kenmare and Beowulf prompt investors to park their cash in Jubilee Platinum (LSE: JLP)? In my opinion the answer is a resounding ‘no’, even though a 12.5% share price advance in Friday trade suggests the wider market is far more optimistic over the firm’s investment potential.

Shares in Jubilee also rocketed in July following news it had hived off its Middleburg non-platinum businesses to raise £5.8m, a critical step in financing the company’s two surface tailings projects. And the company has since secured debt funding to create what its two “transformational” platinum-processing assets.

But naturally Jubilee remains at the mercy of a volatile platinum price, and this week’s dive towards $970 per ounce took it to levels not visited since 2009. With Chinese demand on the wane and usage in the critical auto sector gradually eroding — automakers are opting increasingly for cheap palladium in exhaust systems — I fully expect platinum prices to continue falling, a terrifying prospect for Jubilee’s earnings outlook.

The post Is Jubilee Platinum PLC A Better Stock Selection Than Kenmare Resources plc Or Beowulf Mining plc? appeared first on The Motley Fool UK.