Kenmare Resources(LSE: KMR) is surging higher today after the company issued a deluge of good news.
Firstly, the company announced that it had reached a new agreement with its lenders torestructure existing debt and provide additional financing, including:
- A debt facility ofup to$50m for working capital and other corporate purposes;
- Anextension of the final maturity of existing facilities;
- A reduction in scheduled principal payments on the senior debt;
- Theelimination 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 aninterim 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 theMoma Mine declined by 4% during the first quarter of the year. Still, the cash saved from Kenmares 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 arevised bidfromIluka Resources Ltd.
Therevised proposal would trade 0.016 share of Iluka for every Kenmare share far belowIlukas previous offer of 0.036 per share made during June of last year.
Ilukas 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 Kenmares closing price on Wednesday.
Time to buy?
If Kenmare chooses to remain independent, the companys debt restructuring and cost reductions have given it a strong base to grow from in the future.
Indeed, City analysts currently expect the companys 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 apre-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 Kenmares management decides to turn downIlukas 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.
And with this being the case, Kenmare is a risky pick, this isn’t a stock for widowsand orphans. If you’re looking for a safer pick, The Motley Fool’s top analysts have recentlyidentified a companythat they consider to be one of the market’s “top small caps”.
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