Kenmare Resources plc ("Kenmare" or "the Company")
29 May 2013
Annual General Meeting Update Statement
The following update on the status of the Phase II expansion at Moma, and on production, market conditions and outlook is being provided at the Company's Annual General Meeting, which is being held in Dublin this morning.
Expansion
Kenmare is pleased to announce that, whilst cold commissioning is still underway, processing of ore through the new dredge and Wet Concentrator Plant B ("WCP B"), producing Heavy Mineral Concentrate ("HMC"), has commenced. Ore processing rates will gradually increase from now as we move into the ramp-up phase of the Moma Mine Phase II expansion facilities.
Cold commissioning of the Wet High Intensity Magnetic Separation ("WHIMS") Plant is also still underway, while processing of HMC through this facility has also commenced and commissioning of the Auxiliary Ilmenite Plant is at an advanced stage. Integration of the existing and expansion facilities in the Mineral Separation Plant ("MSP") will follow and ramp-up of the expanded facilities is due to be completed during the fourth quarter of this year.
The capital cost estimate for the expansion reported in the Kenmare half-yearly results in August 2012 was US$350 million. Since then, as previously advised in our communications to shareholders, the project schedule has extended with a resultant increase in costs. Demobilisation of contractor personnel is on-going and the negotiations to close out expansion contracts will take some time to conclude. We anticipate that the expansion capital cost has escalated by approximately 10% from that estimate, and we will continue to manage remaining contractor costs in order to bring the expansion to an efficient close as quickly as possible.
Production
As anticipated, production of HMC has been maintained at improved levels since Wet Concentrator Plant A ("WCP A") completed the transition from the Namalope Flats to the top of the dunal plateau, where it will mine for at least the next 10 years. Whilst the transition to the plateau was challenging, WCP A is now operating in an area with mining conditions that are more suitable for the two original dredges. This transition is a once only event in the life of the orebody. Forecast mining conditions for WCP A, based on detailed drilling analysis, are expected to be good for the balance of 2013 and 2014. The area currently being mined has higher faces and low clay levels, which are expected to continue. Consequently, there was a marked step up in HMC production output from February to March, representing a 65% increase in production. This trend has continued through April and a further uplift in output has occurred during May. The increased production of HMC has enabled the MSP to increase production of ilmenite and zircon, as outlined in the following table:
| January tonnes | February tonnes | March tonnes | April tonnes | May (Forecast) tonnes | |
| HMC | 51,400 | 52,300 | 86,100 | 84,200 | 100,000 |
| Ilmenite | 31,800 | 39,300 | 66,400 | 60,700 | 65,000 |
| Zircon | 3,000 | 3,500 | 3,900 | 3,400 | 4,000 |
Note: Secondary zircon product included in this table is as follows: January 2,000 tonnes; February 1,700 tonnes and 1,000 tonnes in each month from March to May.
48,500 tonnes of finished products were shipped during the first quarter, which was an exceptionally low level of shipments for that period. In part, this was due to low stock levels at 31 December, 2012, following a very successful shipping campaign in December, and in part due to subdued market demand. However, shipments have since picked up, with 159,000 tonnes shipped during April and May. This rate of shipments is expected to increase further as the year progresses.
Taking account of the improved production levels from existing facilities and the ramp-up of production arising from expanded facilities, we anticipate that aggregate production of ilmenite, zircon and rutile products will be in the range of 850,000 tonnes to 900,000 tonnes for 2013, all of which will be available for shipping to our customers.
Operating and sustaining capital costs remain a key focus of management. Cash operating costs are tracking to forecast of approximately US$160 million. The average cash cost per tonne of final product, including both operating and sustaining capital costs, is expected to reduce during the course of 2013 on completion and ramp-up of the expansion. Thereafter, post-expansion free cash flow operating margins before financing costs in excess of 50% are targeted.
Market
The markets for titanium feedstocks and zircon have remained subdued since the second half of 2012. This is partly as a result of the effects of an industry destocking cycle that is showing signs of coming to an end and partly the result of subdued demand in the Chinese market. Signs of improvement in demand in Western markets are becoming evident, as demonstrated by increased sales volumes of major pigment producers and by increased shipping activity from the Moma Mine. We anticipate industry supply will struggle to keep pace with market demand during the coming years and that any new supply coming to the market will be at a high cost per tonne relative to existing producers.
Year to date, we have achieved an average of US$236 per tonne FOB for ilmenite, including a lower priced legacy contract and some roll-over volume from the previous year. It is anticipated that there will be some softening of prices in H2 2013, before an expected pick-up later in the year as pigment demand returns to normal patterns.
Kenmare sells two primary zircon products. Standard grade primary zircon accounts for about 70% of primary production. Year to date, we have achieved an average of approximately US$1,000 per tonne FOB for standard grade zircon. Kenmare also produces a lower grade primary product that sells for an approximately 25% discount to the standard grade. Kenmare's production of a secondary zircon product is expected to end in mid-2013. Zircon prices have stabilised in recent months with a positive price outlook as demand continues to recover during 2013.
Corporate
Kenmare is pleased to welcome Steven McTiernan and Gabriel Smith to the Board of directors; both are being proposed to shareholders today at the Annual General Meeting ("AGM"). Ian Egan, Simon Farrell and Peter McAleer all retire at the AGM, though will remain available to the Board in an advisory capacity. On behalf of shareholders, we thank them for their significant contribution and wish them well for the future.
Outlook
As the year progresses, we anticipate increasing production from both existing and expansion operations, reducing cost per tonne, and a recovery in demand that is expected to lead to an increase in prices for our products. Completion and ramp-up of the expansion will release free cash flow from operations, providing opportunity to optimise the debt capital structure and, in due course, enable the Company to consider the payment of dividends.
For further information, please contact:
Kenmare Resources plc.
Michael Carvill, Managing Director
Tel: +353 1 671 0411
Mob: + 353 87 674 0110
Tony McCluskey, Financial Director
Tel: +353 1 671 0411
Mob: + 353 87 674 0346
Jacob Deysel, Operations Director
Tel: +353 1 671 0411
Mob: + 353 87 613 9609
Virginia Skroski, Investor Relations Manager
Tel: +353 1 671 0411
Mob: + 353 87 739 1103
Murray Consultants
Joe Heron
Tel: +353 1 498 0300
Mob: +353 87 690 9735
Tavistock Communications
Jos Simson / Mike Bartlett
Tel: +44 207 920 3150
Mob: +44 7753 949 108