On Friday Kennedy Ventures (LSE:KENV) bombarded the market with a hat trick of announcements; its overdue final results, an operational update and news the company’s suspension is due to be lifted. The suspension certainly hasn’t gone down well with shareholders, after the company cited “technical complexities”, which caused a delay in its audit. This really looked like an unnecessary own goal. However, the operational update looks highly positive, confirming the narrative CEO Larry Johnson relayed to us last November. We caught up with Johnson to find out about the latest developments.
To recap, Kennedy is an AIM-listed resource investment company, whose first investment is in African Tantalum, a Namibian-based tantalum producer. When the company went into suspension its shares were priced at 4p, valuing the business at £10m. The company has had something of a chequered history, with the former management team failing to deliver on expectations. Larry Johnson took over as CEO of Kennedy in January 2017 and in the second half of last year secured African Tantalum’s (“Aftan”) first major customer, a North American end user of tantalum.
Before diving into the operational update, I was curious to find out what on earth happened with the audit. It was hardly as though the timing would have been a shock to the company!
Johnson replied, “Look, Africa can be a challenging place to operate in, especially when you get into holiday season. This issue was based on the African auditing side. As reported, we experienced some technical issues relating to the implementation of IFRS, which caused a delay in production of some of our subsidiaries accounts. This wasn’t resolved before the holiday season began and we have only recently begun to see business return to normal.
There is nothing more to the suspension than this. It doesn’t look good and we certainly will do everything we can to ensure this doesn’t happen again. We have taken the step of appointing a new Interim Chief Financial Officer, John Fahy, to Aftan. John has 40 years experience and I am really happy to welcome him to the team. Now this little episode is behind us, we will move forward as a much stronger team.”
While Johnson is right that his certainly doesn’t look good for Kennedy, the company has clearly taken steps to resolve the issue so nothing like this happens again. So, what of the figures?
“As I said when we last spoke, the significant progress we made with the business was much more loaded into the second half. The full year figures to 30 June 2017 don’t reflect the progress we have made with the business. As we noted in the post-balance sheet events, the major milestones occurred in the second half. My expectation is that the interim figures (due at the end of March) will much better illustrate how well the new strategy is performing.”
This point echoes very much what Johnson had to say about the company, when we last spoke in late November. However, as I pointed out in that piece, an investment in Kennedy at the time required a leap of faith that he would be good to his word. This muddle over the audit hasn’t helped his cause, but the operational update certainly has a lot of positives. Johnson is certainly confident and bullish.
“The pace at which we are developing the company is extremely exciting. Each passing week feels better than the last. By having an end user for a customer this makes a world of difference to our model. While we benefit greatly from not being exposed to the supply fluctuations of the commoditised market, end users bring with them very high expectations. Processes have to be rigorously planned and constantly evaluated. Targets are demanding and there is little room for error. Quality control is paramount.
I’ve dedicated my professional life to managing large international supply chains. I thrive on the challenge of getting it right and what I feel with this company is that all my skills and experience have coalesced at the perfect moment.
Since I took over Kennedy the business model has undergone a quantum change. We’ve strengthened our team and are now making regular shipments, improving our procedures each time. The truth is I cannot move quickly enough, but the reality is that fine-tuning operational protocols takes time and involves constant customer feedback.
The discipline that this is instilling in the company should prove to be the deciding factor in determining our ultimate success.”
So, what of future growth then?
“Our first priority is our current customer. The ramp plan I just described is required for this sort of scale of opportunity. A large number of successful shipments is needed to build trust and confidence. I am happy with our performance so far, but we cannot rest on our laurels. There is still much we need to do to make our model robust enough to service the growth plan we have.
We have identified other high calibre, international potential customers and continue to be in discussions. It is a little early to report anything yet, but I am very positive in how we are positioned.
Much longer-term and it is important also to remember that our business does not have tunnel vision about lithium. As important as it is to our company now, we do have a huge property and are surrounded by mountains, each of which differs in its geological constituency. Our exploration drilling continues to go well and I’m in regular contact with the drill contractor. Short term we must maintain our commercial focus, but longer term and there is a great deal of unrecognised potential. My ultimate goal is to build a company here that lasts for generations after I’m gone.”
The operational update certainly seems to back up Johnson’s point of view. It confirms that the company has now shipped four shipments of high-grade tantalum to the end-user customer, with the purity of the last shipment being over 51%. Kennedy continues in discussions with a second potential customer and has now initiated further discussions with a third.
Kennedy came back to market this morning. The shares are off slightly, trading at 4p on the offer, last seen. With markets the way they are at the moment, this isn’t too bad and might present investors with a decent entry opportunity. Under Johnson, Kennedy appears to have transformed itself into a serious business with a clearly defined value proposition. The operational update appears to confirm the progress the company has made. If that continues, and we see an encouraging interim set of numbers, then 2018 could hold a great deal of promise for this business.