Kenmare Resources - From Construction to Production

UK-Analyst's latest e-mail (today, via T1ps - didn't they suggest sell earlier??) includes:

The day when the Moma mine in Mozambique starts producing and shipping ilmenite is now less than eight weeks away and as it draws nearer Kenmare's share price is, finally, starting to reflect the fundamental value of this project. The company confirmed in October that extraction will start around Christmas and that shipments will start six weeks later. We believe that it is still on track to meet those targets.

By the second half of 2007 Kenmare will expand output from 700,000 tonnes per annum to 800,000 tonnes. We believe that Kenmare has signed, or is close to signing, additional offtake deals for Moma. We still expect Kenmare to commit itself, at some stage over the next year, to expand output to 1 million tonnes per annum from 2008 onwards. It has sufficient cash to fund this additional increase in capacity. In the two years since we initiated our coverage of Kenmare, the market price of ilmenite, rutile and zircon have risen sharply, largely in response to increased demand for China and other rapidly industrialising nations. A number of the offtake agreements historically negotiated by Kenmare for Moma were on a fixed price, or part-fixed price, basis so not all of this increase will flow through to the bottom line. However offtake agreements being negotiated at present and concluded in recent months are at pricing levels some 25% higher than the earliest offtake agreements.

We value the base case Moma mine (output 703,000 tonnes per annum) at 59.1p per share using a cautious DCF model and a 1 million tonne mine would be worth 70.6p per share to Kenmare. We will be working on new forecasts and a new valuation over the next month as we prepare a new detailed note but we see no reason why those forecasts and valuation will not be significantly higher than our current numbers.

Our forecasts and recommendation are suspended pending the publication of a detailed note next month