Kenmare Resources balance sheet strengthened, with a $17.3 million reduction in net debt

Kenmare Resources plc

Kenmare Resources plc (LON:KMR), one of the leading global producers of titanium minerals and zircon, which operates the Moma Titanium Minerals Mine in northern Mozambique, has provided a trading update for the quarter and half year ending 30 June 2022.

Statement from Michael Carvill, Kenmare Managing Director:

“During Q2, we achieved the milestone of 10 million hours worked without a Lost Time Injury. This is a new Company record and testament to the commitment of our team at site to risk management and strong employee engagement on safety.

The market for all of Kenmare’s products continued to improve, with realised ilmenite prices increasing for the seventh consecutive quarter. Although global growth expectations have reduced for H2 2022, inventories remain low throughout the value chain and demand for Kenmare’s ilmenite is anticipated to be robust.

Q2 production was weaker than anticipated due to higher slimes recirculation, impacting excavated ore volumes and grades. As a result, we now expect production to be at the bottom of 2022 guidance. Increased pricing has more than offset production and supported revenues.

Our balance sheet continued to strengthen, with a $17.3 million reduction in net debt at the end of the first half, after paying the $24.1 million 2021 final dividend. We are targeting a dividend payout ratio of 25% profit after tax for 2022.”

Q2 2022 overview

  • Record Lost Time Injury Frequency Rate (“LTIFR”) of 0.00 per 200,000 hours worked for the 12 months to 30 June 2022 (30 June 2021: 0.14), with zero Lost Time Injuries recorded during the quarter
  • Heavy Mineral Concentrate (“HMC”) production of 353,600 tonnes in Q2 2022, a 19% decrease compared to Q2 2021 (436,600 tonnes), due to higher slimes levels, leading to a 10% reduction in ore grades and an 8% reduction in excavated ore tonnes
  • Ilmenite production of 242,900 tonnes in Q2 2022, a 14% decrease compared to Q2 2021 (283,900 tonnes), broadly in line with the reduction in HMC processed
  • Primary zircon production of 13,600 tonnes, a 9% decrease compared to Q2 2021 (14,900 tonnes), also due to reduced HMC processed but partially offset by increased recoveries
  • Total shipments of finished products of 192,800 tonnes, a 23% decrease compared to Q2 2021 (249,700 tonnes) due to reduced transshipment capacity, as one of Kenmare’s two vessels began its five-yearly dry dock in May 2022, exacerbated by poor weather conditions
  • Kenmare expects production of all finished products to be at the bottom of its 2022 guidance ranges
  • Strong ilmenite pricing in Q2 2022 and demand looks to remain robust in Q3, supported by low inventories and continued supply constraints
  • Global zircon market tightened further in Q2 2022, as global inventories were drawn down in 2021, and the market is expected to remain tight in Q3
  • Rotary Uninterruptible Power Supply (“RUPS”) project became fully operational in May 2022 and has proved successful at mitigating a number of electrical supply disruptions
  • At the end of H1 2022, net debt reduced to $65.5 million (31 December 2021: $82.8 million), as a result of continuing strong free-cashflow generation reflecting higher prices, which more than offset lower sales volumes

Operations update

Production from the Moma Mine in Q2 and H1 2022 was as follows:

 Q2 2022
tonnes
Q2 2021
% variance
Q1 2022
% variance
H1 2022
tonnes
H1 2021
% variance
Excavated ore110,070,000 -8%7%19,461,000-2%
Grade14.23%-10%-6%4.35%-7%
Production     
HMC production353,600-19%-8%738,300-8%
HMC processed367,300-13%-2%740,600-9%
Ilmenite242,900-14%-5%499,700-11%
Primary zircon13,600-9%5%26,500-6%
Rutile2,100-5%5%4,000-5%
Concentrates29,800-17%-8%20,500-1%
Shipments192,800-23%-17%424,300-29%
  1. Excavated ore tonnage and grade prior to any floor losses.
  2. Concentrates include secondary zircon and mineral sands concentrate.

Kenmare’s rolling 12-month LTIFR to 30 June 2022 was 0.00 per 200,000 hours worked (Q2 2021: 0.14), with zero Lost Time Injuries recorded during the quarter. In late June 2022, Kenmare achieved the milestone of 10 million hours worked without a Lost Time Injury and the Company remains focused on maintaining its strongest ever safety performance.

HMC production was 353,600 tonnes in Q2 2022, representing a 19% decrease compared to Q2 2021 (436,600 tonnes). This was a result of a 10% decrease in ore grades to 4.23% (Q2 2021: 4.70%) and an 8% decrease in excavated ore volumes to 10.1 million tonnes (Q2 2021: 10.9 million tonnes).

HMC production was impacted by increased slimes levels during the quarter, primarily at Wet Concentrator Plant (“WCP”) A. WCP capacity was limited due to higher levels of slimes recirculation from the mining pond, which necessitated a reduction in supplemental dry mining, lowering the grade mined. Higher slimes also led to poorer recoveries and reduced HMC quality. Kenmare expects slimes in the ore to remain at similar levels in H2 2022, but slimes management controls have been improved during the quarter, reducing recirculation. This should allow for increased excavated ore and improved recoveries, leading to higher levels of production in H2 2022.

Ilmenite production was 242,900 tonnes, a 14% decrease compared to Q2 2021 (283,900 tonnes), falling broadly in line with decreased HMC processed, however also impacted slightly by the lower HMC quality.

Primary zircon production was 13,600 tonnes in Q2 2022, a 9% decrease compared to Q2 2021 (Q2 2021: 14,900 tonnes), and rutile production was 2,100 tonnes, down 5% (Q2 2021: 2,200 tonnes), reflecting lower HMC processed (and lower HMC quality) but partially offset by increased recoveries. Concentrates production was 9,800 tonnes, down 17% (Q2 2021: 11,800 tonnes) due to reduced HMC processed and quality, and stronger primary zircon recoveries reducing zircon available for concentrates.

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As a result of the reduced production in H1 2022, Kenmare expects production of all finished products to be at the bottom of its 2022 guidance ranges, as published on 13 January 2022.  

As previously announced, one of Kenmare’s two transshipment vessels, the Bronagh J, left site in early May 2022 for its five-yearly dry dock maintenance work, reducing Kenmare’s shipping capacity significantly for the quarter. This reduction will continue during Q3 until the Bronagh J returns to site, which is expected in mid-August. However, there will be sufficient capacity to catch up when both vessels are operating, with finished product inventories expected to return to normal levels during H1 2023.

Total shipments in Q2 2022 were 192,800 tonnes, a 23% decrease compared to Q2 2021 (249,600 tonnes), due to reduced shipping capacity and compounded by poor weather conditions and the arrival of some customer-chartered vessels being delayed. Shipments comprised 179,300 tonnes of ilmenite, 8,700 tonnes of primary zircon, and 4,800 tonnes of concentrates. No rutile was shipped during the period.

Closing stock of HMC at the end of Q2 2022 was 9,200 tonnes, compared to 22,900 tonnes at the end of Q1 2022, due to a drawdown of HMC stockpiles during the period to compensate for reduced HMC production. Closing stock of finished products at the end of Q2 2022 was 214,900 tonnes, compared to 139,300 tonnes at the end of Q1 2022, reflecting the lower shipping capacity.

Capital projects update

In May 2022, the Rotary Uninterruptible Power Supply project became fully operational. The objective of the RUPS is to improve power stability at the Mineral Separation Plant and make a significant contribution to Kenmare’s goal of further reducing its greenhouse gas emissions. Since becoming operational, the RUPS has proved successful at mitigating a number of electrical supply disruptions in accordance with this objective.

Work is continuing on the Pre-Feasibility Study (“PFS”) for Nataka, where WCP A is expected to commence mining in 2025. Kenmare intends to provide an update on the progress of the PFS with its results for the six months ended 30 June 2022. As part of the PFS, WCP A is expected to have a desliming circuit installed to more efficiently mine the Nataka ore zone. A cost-benefit analysis is being conducted to investigate the acceleration of the installation of the desliming circuit ahead of the move. This has the potential to increase the effective WCP capacity and better mitigate against the slimes levels at the end of the Namalope mine path.

Market update

Kenmare achieved higher prices for its ilmenite and zircon products in Q2 2022 and this represented the seventh consecutive quarter of ilmenite price increases.

Global demand for ilmenite grew further during the quarter due to robust downstream demand for titanium pigment, with pigment producers continuing to operate at high utilisation rates, particularly outside of China. Economic activity in China has been impacted by several city-wide COVID-19 related lockdowns, which reduced demand for titanium pigment and therefore ilmenite. Despite this, chloride pigment production continues to increase in China, resulting in growing demand for ilmenite of Kenmare’s quality.

Production of ilmenite concentrates from Chinese companies in Mozambique continued to expand in Q2, while ilmenite production also increased from the United States, Malaysia, and Indonesia. However, global supply of titanium feedstocks remained insufficient to meet demand and pigment production was therefore constrained by feedstock availability and low inventories.

Moving into Q3 2022, lower anticipated global growth is expected to reduce demand for titanium pigment. Despite this, Kenmare continues to experience demand for its ilmenite in excess of its ability to supply, as high-quality ilmenite remains in short supply.

The zircon market tightened further in Q2 2022 as inventories in the global supply chain were largely drawn down in 2021. Demand has been strong in all major regions except China, which was also impacted by severe COVID-19-related lockdowns. With no significant new supply entering the market, zircon remains in short supply and prices increased throughout H1 2022. The positive fundamentals for zircon are expected to continue into Q3 2022.

Finance update

On 1 June 2022, Kenmare paid its 2021 final dividend of USc25.42 per share. This was the balancing payment of a 2021 full year dividend of USc32.71 per share, representing a dividend payout ratio of 25% of profit after tax and up 227% from 2020. For 2022, Kenmare is targeting the same dividend payout ratio.

Following the 2021 final dividend distribution of $24.1 million and debt principal repayments of $55.7 million, cash and cash equivalents were $30.7 million as at 30 June 2022 (31 December 2021: $69.1 million), while gross bank loans, including accrued interest, were $96.2 million (31 December 2021: $151.9 million). Gross debt has reduced following the commencement of semi-annual repayments of the Term Loan in March 2022 and the repayment in full of the $40 million Revolving Credit Facility (“RCF”). The RCF continues to be available for redraw.

Accordingly, as at 30 June 2022, Kenmare’s net debt had reduced by $17.3 million to $65.5 million, compared to $82.8 million net debt at 31 December 2021.

Kenmare Resources will announce its results for the six months ended 30 June 2022 on 17 August 2022.

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