Kenmare Resources plc (“Kenmare” or “the Company”)
11 July 2019
Q2 and H1 2019 Production Report
Kenmare Resources plc (LSE:KMR, ISE:KMR), one of the leading global producers of titanium minerals and zircon, which operates the Moma Titanium Minerals Mine (the "Mine" or "Moma") in northern Mozambique, is pleased to provide a trading update for the quarter and half year ending 30 June 2019 (“Q2 2019” and “H1 2019”).
Q2 2019 overview
- Continued strong safety performance with lost time injury frequency rate (“LTIFR”) of 0.12 per 200,000 man-hours worked (Q2 2018: 0.30)
- Kenmare on track to achieve 2019 guidance on all stated metrics
- Despite an 18% increase in tonnes of excavated ore, Heavy Mineral Concentrate ("HMC") production decreased by 27% to 274,700 tonnes (Q2 2018: 377,900 tonnes) due to planned mining of lower ore grades, with grades expected to improve in Q3 2019
- 8% decrease in ilmenite production to 220,100 tonnes (Q2 2018: 238,500 tonnes) and a 6% decrease in primary zircon production to 11,000 tonnes (Q2 2018: 11,700 tonnes) due to lower HMC production
- 84% increase in concentrates production to 9,400 tonnes (Q2 2018: 5,100 tonnes), benefitting from the introduction of a mineral sands concentrate product
- 5% decrease in total shipments of finished products to 307,000 tonnes (Q2 2018: 322,000 tonnes) but a 74% increase compared to Q1 2019 (176,500 tonnes) – 2019 total shipment volumes are expected to be in line with 2018
- Project execution has commenced for the relocation of WCP B to Pilivili, following completion of a Definitive Feasibility Study (“DFS”) and Board approval
- At the end of H1 2019 Kenmare had a net cash position of US$3.5 million (31 December 2018: US$13.5 million net cash), with cash and cash equivalents of US$77.0 million (31 December 2018: US$97.0 million) due to reduced shipments in H1 2019 and development capital spend on the Company’s growth projects
- Market conditions for ilmenite continued to improve in Q2 2019, with further price strengthening continuing into H2 2019
- Zircon market remained stable in Q2 2019, with strong long-term fundamentals
Statement from Michael Carvill, Managing Director:
“At the end of the first half, we are on track to achieve our 2019 guidance on all stated metrics. Excavated ore volumes continued to increase during Q2, as the investments we are making to grow our mining capacity are already beginning to deliver. Q2 was the weakest quarter forecasted for 2019 in terms of grade, which resulted in lower HMC production, but consequently higher grades are anticipated for the remainder of the year.
Shipments recovered significantly in the second quarter, following Cyclone Idai in March 2019, despite further adverse weather. We remain confident that full year 2019 sales volumes will not be impacted.
We continued to see stronger market conditions in Q2 2019, with increased demand for ilmenite leading to higher prices and we expect this trend to continue through the second half of 2019.”
Production
Production from the Moma Mine in Q2 and H1 2019 was as follows:
| Q2 2019 | Q2 2018 | Q1 2019 | H1 2019 | H1 2018 | |
| tonnes | % variance | % variance | tonnes | % variance | |
| Excavated ore1 | 9,907,000 | 18% | 7% | 19,198,000 | 18% |
| Grade1 | 3.07% | -34% | -25% | 4.60% | 0% |
| Production | |||||
| HMC | 274,700 | -27% | -23% | 633,400 | -8% |
| Ilmenite | 220,100 | -8% | -8% | 458,200 | 2% |
| Primary zircon | 11,000 | -6% | -9% | 23,100 | 0% |
| Rutile | 2,200 | 10% | 5% | 4,400 | 7% |
| Concentrates2 | 9,400 | 84% | -7% | 19,500 | 82% |
| Shipments | 307,000 | -5% | 74% | 483,500 | -18% |
- Excavated ore and grade prior to any floor losses.
- Concentrates include secondary zircon and mineral sands concentrate.
During Q2 2019 Kenmare maintained its strong safety performance, with a LTIFR of 0.12 per 200,000 man-hours worked. One lost time injury was recorded during the quarter and Kenmare is focused on improving its safety performance further, with initiatives including the Golden Rules of Safety, a programme to further strengthen Kenmare’s safety culture.
During Q2 2019, Kenmare mined 9.9 million tonnes of ore at an average grade of 3.07%, producing 274,700 tonnes of HMC. HMC production decreased by 27% compared to Q2 2018 (377,900 tonnes) due to lower grade ore mined. Q2 2019 was expected to be the lowest grade quarter of the year and consequently higher grades are anticipated for the remainder of the year.
Production from WCP B averaged 2,500 tonnes per hour (“tph”) in June 2019, in excess of the targeted nameplate capacity of 2,400 tph, following a 20% capacity upgrade in 2018 and further optimisation work undertaken during the quarter.
Ilmenite production decreased by 8% to 220,100 tonnes during the period (Q2 2018: 238,500 tonnes), primarily as a result of reduced HMC production. Scheduled maintenance work was also undertaken on the ilmenite dryers in the Mineral Separation Plant (“MSP”) during early June 2019.
Primary zircon production was also impacted by reduced HMC availability in Q2 2019, decreasing by 6% to 11,000 tonnes (Q2 2019: 11,700 tonnes). Rutile production increased by 10% to 2,200 tonnes compared to Q2 2018 (2,000 tonnes) and by 5% compared to Q1 2019 (2,100 tonnes). Both primary zircon and rutile production benefitted from the processing of spillage inventories during the quarter.
Concentrates production was 9,400 tonnes during Q2 2019, representing an increase of 84% compared to the corresponding quarter in 2018 (Q2 2018: 5,100 tonnes). This increase was due to the introduction of a mineral sands concentrate product, following the successful commissioning of this product stream in Q4 2018. The first mineral sands concentrate shipment left Moma during Q2 2019.
At the end of the first half of the year, Kenmare remains on track to achieve its 2019 guidance on all stated metrics.
Kenmare shipped 307,000 tonnes of finished products during the period (Q2 2018: 322,000 tonnes), which comprised 275,400 tonnes of ilmenite, 14,900 tonnes of primary zircon, 3,400 tonnes of rutile and 13,300 tonnes of concentrates.
Q1 2019 shipments were significantly impacted by adverse weather conditions, including Cyclone Idai, and unscheduled maintenance work. In Q2 2019, shipments increased by 74% compared to Q1 2019, despite further adverse weather and continued poor sea conditions. The Company expects shipments to increase further in Q3 2019, despite the third quarter typically being seasonally weaker, and management remains confident that total shipping volumes in 2019 will be in line with 2018 volumes.
Closing stock of HMC at the end of Q2 2019 was 25,600 tonnes, compared with 36,600 tonnes at the end of Q1 2019. Closing stock of finished products at the end of Q2 2019 was 222,200 tonnes (Q1 2019: 286,500 tonnes).
Capital projects update
Kenmare previously announced three development projects that together have the objective of increasing ilmenite production to 1.2 million tonnes (plus co-products) per annum on a sustainable basis from 2021.
By the end of 2018 the first development project, a 20% expansion of WCP B, was commissioned, on time and at a cost more than 25% below budget. Further optimisation work was completed on WCP B during Q2 2019, including feed distribution improvements and as a result, in combination with favourable mining conditions, WCP B exceeded targeted nameplate capacity in June 2019. Other factors that contributed to higher throughput were the commissioning of the dredge automation project at WCP B during Q2 2019, as expected, and continued utilisation improvements as a result of Projecto Oitenta, which is focused on increasing mine utilisation from 70% to 80%.
The second development project, the construction of WCP C, continues to progress on time and on budget, with commissioning scheduled for Q4 2019. The dredge was launched at the shipbuilders’ yard in the Netherlands in late May 2019 and it will be dismantled and shipped to Mozambique. The construction of the WCP also remains on track, with the starter pond and construction site also in line with the project delivery timeline.
Project execution commenced for the third development project, the relocation of WCP B to the high grade Pilivili ore zone, following completion of a DFS. The DFS confirmed the technical and economic feasibility of the project and it was subsequently approved by the Board. The contract for civil engineering work, including the construction of the purpose-built road and other key contracts, are anticipated to be awarded during Q3 2019. The relocation of WCP B is scheduled to be completed in Q3 2020, with commissioning in Q4 2020.
For more information about relocation of WCP B to Pilivili, an announcement entitled, ‘Results of DFS for Relocation of Wet Concentrator Plant B to Pilivili’, dated 4 June 2019, is available at https://www.kenmareresources.com/investors/regulatory-news and the Investor Presentation June 2019 is available at https://www.kenmareresources.com/investors/reports-and-presentations. An animation outlining the various stages of the move of WCP B from Namalope to Pilivili is available at https://www.kenmareresources.com/media/video-library.
Market
Kenmare continued to see improving market conditions in Q2 2019, with increased demand for ilmenite products leading to higher product prices. Price increases accelerated in June 2019 and this trend continued into the start of Q3 2019.
Following seasonal weakness in Q1, the pigment industry strengthened during Q2 2019 as excess pigment stocks were drawn down. Pigment production increased, particularly in China, as utilisation rates improved and chloride pigment volumes increased.
Ilmenite supply continues to be limited, due to the ongoing suspension of mining in India, the delayed renewal of export quotas in Vietnam and reduced production from depleting mines. Ilmenite concentrate imports to China have also decreased. Chinese domestic ilmenite production has continued to grow due to strong iron ore pricing, but this has been more than offset by the lower imported ilmenite volumes.
The ilmenite market is expected to tighten further in H2 2019 as ilmenite inventories continue to decrease.
The zircon market remained stable in Q2 2019. While demand has been weaker than anticipated, this has been balanced by reduced supply. Kenmare anticipates continued steady market conditions for zircon for the remainder of 2019, with long-term supply deficits emerging as global supply reduces from aging mines in the coming years.
Finance update
At 30 June 2019, cash and cash equivalents were US$77.0 million (31 December 2018: US$97.0 million) and gross bank loans, including accrued interest, amounted to US$73.5 million (31 December 2018: US$83.5 million). Consequently at the end of the first half of the year, the Company had a net cash position of US$3.5 million (31 December 2018: US$13.5 million net cash). The reduction in net cash is due in part to reduced shipments during H1 2019, as a result of adverse weather, and development capital required to fund the Company’s growth projects.
Kenmare will announce its results for the six months ended 30 June 2019 on 20 August 2019.
For further information, please contact:
Kenmare Resources plc
Michael Carvill, Managing Director
Tel: +353 1 671 0411
Tony McCluskey, Financial Director
Tel: +353 1 671 0411
Jeremy Dibb, Corporate Development and Investor Relations Manager
Tel: +353 1 671 0411
Mob: + 353 87 943 0367
Murray
Joe Heron
Tel: +353 1 498 0300
Mob: +353 87 690 9735
Buchanan
Bobby Morse / Chris Judd
Tel: +44 207 466 5000
About Kenmare Resources
Kenmare Resources plc is one of the world’s largest producers of mineral sands products. Listed on the London Stock Exchange and the Euronext Dublin, Kenmare operates the Moma Titanium Minerals Mine in Mozambique. Moma’s production accounts for approximately 7% of global titanium feedstocks and the Company supplies to customers operating in more than 15 countries. Kenmare produces raw materials that are ultimately consumed in everyday “quality-of life” items such as paints, plastics and ceramic tiles.
Forward Looking Statements
This announcement contains some forward-looking statements that represent Kenmare's expectations for its business, based on current expectations about future events, which by their nature involve risks and uncertainties. Kenmare believes that its expectations and assumptions with respect to these forward-looking statements are reasonable. However, because they involve risk and uncertainty, which are in some cases beyond Kenmare's control, actual results or performance may differ materially from those expressed or implied by such forward-looking information.