Interview: How mining boss dug deep to keep Kenmare going
Interview: Michael Carvill, managing director, Kenmare Resources
Michael Carvill is being a bit hard on himself. As he strolled the streets of London the day after Kenmare Resources published annual results, he pondered what has become, probably more by accident rather than design, his life's work.
The mining boss has spent the guts of 30 years on Kenmare's project in Mozambique, the former Portuguese colony where the company has established one of the world's largest ilmenite mines, called Moma.
Ilmenite is the feedstock for making titanium dioxide, which is used in a vast array of products from toothpaste and cosmetics to paint and plastics. Kenmare's main mine in the African country also produces zircon and rutile, used in items such as ceramics and paint respectively.
And reminded, as if he needed to be, that he turns 60 next year, Carvill is momentarily deflated.
"It's a pretty tawdry result of a lifetime's work, isn't it?" he says.
The past few years have been the most challenging for Kenmare. It's a miracle it's still around. It has been the target of two takeover attempts, nearly collapsed under the weight of its debts, and suffered as the world's economies tanked and prices for its minerals followed.
"It was a culmination of the fact that debt had risen to a high level," says Carvill. "There was an issue that went on with electricity supply. That was really causing a difficulty in ramping up the production and stabilising operations. And on top of it all, the commodity decided that it would be a nice time to go for a long bath."
But having invested so much of his life, as well as his money, in Kenmare, Carvill kept at it.
He and his management team eventually engineered a $275m (€222m) recapitalisation in 2016 that saw the company secure $100m (€80.7m) from the sovereign Oman State General Reserve Fund. It took almost a 30pc stake in Kenmare. Three other institutional shareholders also stumped up equity.
But it left thousands of small shareholders hanging in the wind.
Just two years earlier, Australian miner Iluka had been circling Kenmare with a takeover approach that at the time would have valued the Irish company at almost €600m.
For many investors, the recapitalisation destroyed whatever value they had remaining in Kenmare.
"I don't remember any single moment where I was sitting down and saying, 'OK, this is all over'," says Carvill of the marathon efforts to secure funding.
"What else was I going to do anyway? I'm thinking of the lyrics of that song: 'Freedom's just another word for nothing left to lose'. If you don't have an alternative, you keep going, don't you?
"You get through it, but at the end of the day, you have to be a bit lucky, and we were."
But since the recapitalisation, Kenmare's shares and market capitalisation - £2.35 in London and £257m (€375m) respectively - have declined. One of the fingers of blame has been pointed to the fact that the recap left a huge percentage of the shares in the hands of just a small number of investors, making the stock illiquid.
Carvill concedes that's one issue, but insists the share performance has more moving parts to it.
"There's a whole combination of factors that affect the present stock price and market cap," he says. "After you go through a period of significant wealth destruction, which happened in that dark cycle - and I know, because I held shares and my family did, and all the shareholders lost a lot - you don't immediately re-earn people's trust. It comes back gradually."
Carvill's father, Charles, was chairman of Kenmare from 1986 to 2012, and was also a co-founder of Tara Exploration, which got one of Europe's largest lead and zinc mines, at Navan in Co Meath, off the ground.
Michael Carvill, originally from Co Down, adds that whatever "dosh" he personally had left got stuffed into Kenmare as part of the recap.
"There was a significant reduction in what would have been a lifetime's savings. But that's the risk we all take when we own shares," he says.
"What we have to do is demonstrate again and again and again that it's stable, well managed, that costs are under control and that there is a positive market for the products that we make. As time goes on - and that might sound boring and stuff - but nonetheless, that's what people need to see in order to feel confident in getting back into the stock again."
He admits there is a liquidity issue, but that it's not the "panacea" to reinvigorating the share price.
"It's a process of gradually increasing the faith of the investing public, whether they're institutional or private," he says.
That faith may have been at least partly born again by the publication last week of Kenmare's 2017 results.
They showed that revenue at the mining firm rose 47pc to $208.3m (€168m) last year, while earnings before interest, tax, depreciation and amortisation (ebitda) soared to $59.6m (€48.13) from $5.2m. Its net debt declined by $11m to $34.1m. It achieved record production levels. Its cash cost per tonne of production fell 3pc.
This year, there are plans to lift production. A stabilised national grid in Mozambique has all but eliminated one of the major issues that had dogged the Moma mine.
Last year's performance was buoyed by higher prices for all of the minerals produced at Kenmare. It has also given company the financial wherewithal to progress work for expanding the mining operation.
Moma, the fourth-largest ilmenite mine in the world last year, is estimated to have more than a 100-year lifespan. It supplies 8pc of the world's titanium feedstocks. Cleaved into the flat, green landscape of north-east Mozambique, the operation benefits significantly from economies of scale - the more it mines at decent prices, the more profit shows up on the bottom line without the addition of significant costs. Kenmare plans to boost sales volumes from slightly more than a million tonnes last year, to 1.2 million tonnes this year. Of that, a million tonnes will be ilmenite.
"That extra 200,000 tonnes of production has a huge effect on the bottom line. There's only a small component of that gets added to cost. Most of it is just additional margin," says Carvill.
"We're positive about the outlook for the next 18 to 24 months," says Carvill, who did an MBA at the Wharton School of Business in Pennsylvania and got his first taste of Africa when working as a mechanical engineer in Algeria in the early 1980s, for a UK group which was involved in building hospitals there.
After Carvill joined Kenmare, the company had looked at potential resources operations in the Philippines and Sudan before settling on Mozambique in 1987.
But Kenmare's ilmenite play is more than just one mine. There are a number of different ore bodies with varying grades and minerals in a roughly 200-km long string along the coast north of Moma.
The company has earmarked $19m in 2018 for studies and projects designed to further its understanding of its resources, and also to add additional product streams to improve margins.
One of those additional product streams is the mining of monazite, a mineral that contains rare earth elements that are used in high-tech electronics, for instance. Kenmare is investing $6m to develop its monazite resource and the first shipment should happen early next year.
"We have been itching to get at that for several years," says Carvill. "It's not transformational, but another improvement in our operating costs situation."
Carvill says he doesn't spend a huge amount of his time in Mozambique, preferring frequent but short visits, but loves the country. He says it was dealt a "poor hand" after it achieved independence from Portugal in 1975 under communist rule (now a democracy, its flag still bears a national emblem that includes a hoe and AK-47 machine gun).
About 1,350 directly employed people work at the mine, with 93pc Mozambique nationals.
"It's a good thing to go to the mine. It stimulates focus on areas that I've raised. For a couple of days when I'm there, I get presentations and I inform myself, but after two or three days I find that my continued presence at the mine holds people back from getting on dealing with the things that we've all agreed to."
Back home, Carvill likes to spend some time sailing - Mullaghmore in Co Sligo is a favourite haunt.
Doesn't sound at all tawdry.