I'm researching this one currently - anyone on the board
got any views on it? Looks possibly a longer term prospect than
a short term one but there appears to be several big institutional
investers already in there, so presumably they 'think' it will
prove a good investment.

Much thanks to the archive section on the site of past Shares mags.
This article has been taken from the mag. edition on 12th June 2003
and may be of interest to anyone not familiar with the company.

Kenmares high risk high reward venture
Ilemnite is used in pigments and offers colourful returns on investment. The mineral is the reason for the resources companys Mozambique project

At the age of 27, Michael Carvill first visited Mozambique for the first time. Now, 16 years on, he is close to securing the finance to fund the Moma ilemnite exploration project, the very reason he visited the southern African state in the first place.

For Carvill, chief executive of Irish resources minnow Kenmare Resources (KMR), the work of the last decade appears to be finally coming to fruition, as lending and construction contracts dovetail to allow the construction at the Moma site on the north-east Mozambique coast actually to get underway.

Carvill, a native Irishman, has an inherent knowledge of the Moma project, given the length of time spent working on it, and appears relieved that things now appear to be coming together.

In funding terms, a banking group of five development banks including the European Investment Bank and the Development Bank of South Africa are close to agreeing to Kenmares $240 million debt package. It is made up of $55 million of subordinated loans, with the remaining $185 million in senior debt. The whole package, which should be in place by the late summer at the outside, is being underwritten by the World Bank through its MIGA risk arm, with German insurer Hermes providing political risk insurance.

But why go to development rather than commercial banks? Because its Mozambique, and people still think there is a risk here, and because with the development banks we have been able to agree 14-year loans that will increase shareholder returns in the near-term, says Carvill. He dismisses the belief that the development banks will want more for their money in the long run, with borrowing costs being the cost of funding plus between 350 and 400 basis points.

The other significant hurdle to overcome is the negotiation of the construction contract, likely to value $200 million over the life of the two-year project, which involves the construction of the excavative dredger, given the ilemnite lies in the sand; conveyor belts to two processing plants, and then further conveyors to a shore-side barge that will transport the material to large container ships to be taken away. The company has bought two processing plants from a failed BHP Billiton project in Western Australia. BHP paid $56 million to build the plants, with Kenmare snapping them up for a price of $2.5 million, all of which has now been paid. Both plants will be deconstructed and shipped to the Moma site when the time is right, probably some time next year.

The whole rationale behind the Moma project is based on the 63 million tonnes of ilemnite which lie within the deposit. Current projections suggest only 14 million tonnes will be excavated over the 20 years of production, although Carvill appears hopeful that the amount excavated will increase as the project gets into full swing.

Ilemnite is used largely in pigments, for paint, ceramics, fabric and paper, with the worlds biggest consumer being DuPont. Kenmare has already signed up a number of end-user contracts, the most significant at $82 a tonne, believed to be with DuPont.

The deposit also contains rutile and zircon, and end-user contracts for both have already been announced. The prospects for Kenmare look to be fairly good, although Carvill is quick to admit private investors have tended not to understand the company. I think it is partly because we havent always explained what we are doing as well as we could, he says, but that is now changing as we are able to say more as the project comes on line.

Kenmares institutional shareholders include Gartmore, Fidelity, Merrill Lynch and Royal London, all of whom have a considerable reputation in the resource investment field. Part of the reasoning behind their investment lies in the knowledge that ilemnite ore mines produce higher returns on investment than the majority of other deposits. Research from Salomon Smith Barney shows that after iron ore, ilemnite produces the highest return on equity of any mineral.

That said, Kenmares financials to date obviously show nothing of this, although the company did have $8 million in the bank at the end of December.

Its share price, currently at 10.75p, has staged a small recovery in recent weeks after falling from highs of just below 20p this time last year, with investors beginning to gain confidence in the actuality of the Moma project.

Potential investors should realise a lot could still go wrong with Moma for Kenmare, but then a lot could go right. Highly speculative buy.

Company website for anyone interested
http://www.kenmareresources.com