Kenmare shares slump to 10-month low on discounted share placement

The group plans to use the funds raised in the heavily discounted placing to fund expansion of production at its Moma mine in Mozambique

LONDON (Reuters) - 

Kenmare Resources (JEV.L: Quote) announced a heavily discounted share placing and open offer on Friday to fund an expansion of production at its Moma titanium mineral mine in Mozambique, dragging the shares to a 10-month low and knocking $100 million off the group's value.

It said it would raise 179.6 million pounds ($270 million) via a placing and open offer at 12 pence a share, a 42 percent discount to the closing price of its London-listed shares on Thursday.

The share price slump meant the fundraising was larger than the company's market capitalisation. At 1225 GMT, the shares were down 32 percent at 14.2 pence, valuing the company at 139 million pounds.

"We had hoped that it (the discount) wouldn't have been as deep but the market meant that it was difficult to raise such a large amount of money in the present environment," Managing Director Michael Carvill told Reuters in an interview.

He said institutional investors had told him that the size of the fundraising was the equivalent to an initial public offering and that a 40-45 percent discount was appropriate.

Kenmare (JEV.I: Quote) will use the financing to increase output of the titanium source mineral ilmenite by 50 percent to 1.2 million tonnes by the end of 2012.

"With this expansion we would produce about 10 percent of the world's supply of titanium," Carvill said, calling the expansion transformational.

At the present rate of mining, the company's resource base would last for about 180 years, he said.

The Dublin-based miner said rising demand and constrained supply are expected to lead to a shortage of titanium minerals production in 2012.

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On Friday, Kenmare also posted a loss after tax of $30.4 million for 2009, reflecting in part a slower than planned ramp-up in production at the mine and a depressed market in the second half.

"Overall it is amazing that a company with a record of late project delivery and cost over-runs, and one that has yet to record any profits, can be given more ammunition in order to produce more material that few people apparently want," said Libertas Capital's Roger Bade.

However, Carvill is positive on the outlook for demand with most of the growth coming from emerging markets such as China, which accounts for less than a fifth of current use, and India.

DuPont Co (DD.N: Quote), the world's largest manufacturer of titanium dioxide, widely used as a white pigment, said last September that growth in emerging markets is expected to account for between 70 and 80 percent of future growth in titanium dioxide.

Kenmare is also a relatively low cost producer compared with South Africa, supplier of 22 percent of the world's titanium, where companies are facing many cost pressures.

"We hope that a supply imbalance should allow producers to put more pressure to raise prices on their customers, additionally Kenmare has a major advantage due to lower power costs," said John Meyer, an analyst at Fairfax. ($1=.6652 pounds) (Additional reporting by Paul Sandle; Editing by Greg Mahlich)

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