TIDMIRSH
Kenmare Resources plc ("Kenmare" or "the Company")
16 October 2018
Q3 2018 Production Report, Capital Markets Day and Adoption of Dividend
Policy
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 third quarter ending 30
September 2018 ("Q3 2018").
Statement from Michael Carvill, Managing Director:
"Kenmare is hosting a Capital Markets Day today to outline the
comprehensive plans we have developed to increase production, expand
margins and begin capital returns to shareholders. I am pleased to
announce our dividend policy, a watershed moment for the company.
Dividends will be based on a minimum of 20% of Profits After Tax and are
expected to commence with an interim dividend for H1 2019.
We believe that industry fundamentals are supportive of higher prices,
and while global growth concerns and normal seasonal weakness have
driven some buying caution, this appears to be lifting. Prices of
ilmenite, our main product, remain at less than 50% of the previous peak
and, in our view, are unlikely to be sufficient to incentivise the
necessary new supply to replace depleting mines and meet continued
demand growth in the medium term."
Overview
-- Ore mined in Q3 2018 increased 8% to 8,411,000 tonnes (Q3 2017: 7,788,000
tonnes), benefitting from increased supplementary dry mining.
-- Heavy Mineral Concentrate ("HMC") production in Q3 2018 increased 3% to
279,900 tonnes (Q3 2017: 272,600 tonnes), however production was impacted
by planned lower grades when compared to Q2 2018.
-- Ilmenite production in Q3 2018 was 233,900 tonnes, down 9% (Q3 2017:
257,500 tonnes).
-- Zircon production in Q3 2018, decreased 10% to 16,200 tonnes (Q3 2017:
18,100 tonnes).
-- Total shipments of finished products in Q3 2018 decreased 5% to 198,900
tonnes (Q3 2017: 208,400 tonnes), in line with previous guidance, due to
the timing of shipments and the weighting of 2018 sales to H1.
-- Chinese ilmenite spot market conditions are improving, following cautious
buying in recent months, while zircon prices continued to advance.
-- Plans to deliver 1.2 million tonnes per annum of ilmenite, plus
associated co-products, by 2021 have been further refined.
-- Dividend policy paying a minimum of 20% of Profit After Tax adopted.
Capital Markets Day
A presentation for analysts and investors will be held at 09:00am BST on
Tuesday, 16 October 2018. A copy of the presentation is available on the
Company website,
https://www.globenewswire.com/Tracker?data=V9B7Akie-Lfw-P6jwS7FlhC2tSoCJXYFxfFQH4kvI6UXtnz2ka_bdoF2rP_8zdTLSccBSVm_FGEHdoJzMdYFg62lpJhmNlZKbkF6LtLMcAw=
www.kenmareresources.com and a replay of the event will be available
shortly afterwards. No new material information or trading update, other
than that contained in this announcement, will be provided at the event.
Production
Production and shipments from the Moma Mine for Q3 2018 was as follows:
Q3-2018 Q3-2017 Variance Q2-2018 Variance
----------- ------------- ------------- ---------- ------------- ----------
tonnes tonnes % tonnes %
----------- ------------- ------------- ---------- ------------- ----------
Excavated
Ore * 8,411,000 7,788,000 8% 8,409,000 0%
-----------
Grade* 3.62% 4.15% -13% 4.68% -23%
-----------
Production
----------- ------------- ------------- ---------- ------------- ----------
HMC 279,900 272,600 3% 377,900 -26%
-----------
Ilmenite 233,900 257,500 -9% 238,500 -2%
-----------
Zircon 16,200 18,100 -10% 16,800 -4%
-----------
of which
primary 10,200 12,000 -15% 11,700 -13%
-----------
of which
secondary 6,000 6,100 -2% 5,100 18%
-----------
Rutile 1,700 2,200 -23% 2,000 -15%
-----------
Shipments 198,900 208,400 -5% 322,000 -38%
-----------
* Excavated Ore and grade are prior to any floor losses.
During Q3 2018, Kenmare mined 8,411,000 tonnes of ore at an average
grade of 3.62% and produced 279,900 tonnes of HMC. Finished product
volumes for the period included 233,900 tonnes of ilmenite and 16,200
tonnes of zircon (including 6,000 tonnes of lower grade secondary
zircon).
Ore mined was in line with the prior quarter but an improvement of 8%
versus Q3 2017 (Q3 2017: 7,788,000 tonnes) as a result of increased
supplementary dry mining capacity installed successfully in H1 2018.
Mining conditions are expected to improve through Q4 2018, enabling
higher tonnages of ore to be processed.
HMC production increased 3% to 279,900 tonnes in Q3 2018 compared with
272,600 tonnes in Q3 2017, principally as a result of the increase in
ore mined, despite lower grades. It is expected that grades will
increase in Q4 2018, and this has been evidenced in the quarter to date,
increasing HMC production for the final quarter.
Production of ilmenite was 233,900 tonnes in Q3 2018, down 9% over the
prior year period (Q3 2017: 257,500 tonnes). Production of ilmenite for
2018 is expected to be within the guidance, though at the mid-low end of
the range.
Zircon production was in line with ilmenite, down 10% to 16,200 tonnes
in Q3 2018, compared with 18,100 tonnes in Q3 2017. Of this, primary
zircon production declined 15% to 10,200 tonnes (Q3 2017: 12,000
tonnes). Secondary zircon volumes were 6,000 tonnes, down 2% (Q3 2017:
6,100 tonnes). Production of zircon for 2018 is expected to be within
the guidance, close to the middle of the guided range.
Power reliability has been greatly improved since the end of 2015 but
through 2018 this stability has been impacted by faulty equipment on the
national grid, which has affected production. Consequently, higher
utilisation of the diesel-powered electric generators has contributed to
higher absolute and unit costs, which are expected to be marginally
beyond the upper end of guidance. The fault has now been identified and
Kenmare has been working with Electricidade de Moçambique, the
state electricity provider, to rectify the issues. This work is expected
to be completed in Q4 2018.
Following very strong H1 2018 sales volumes, as previously outlined,
ilmenite shipments slowed in Q3 2018 due to a seasonal variation and
cautious purchasing behaviour in China. Shipping volumes are still
expected to be lower in aggregate in H2 2018 than H1 2018. Shipment
volumes in Q3 2018 were 198,900 tonnes, 5% lower than Q3 2017 but 38%
lower when compared with Q2 2018 (Q3 2017: 208,400 tonnes, Q2 2018:
322,000 tonnes), primarily reflecting seasonal variation. Sales in Q3
2018 comprised 184,300 tonnes of ilmenite, 12,100 tonnes of zircon and
2,500 of rutile.
Closing stock of HMC at the end of Q3 2018 was 19,100 tonnes, compared
with 52,300 tonnes at the beginning of the quarter. Closing stock of
finished products at 30 September 2018 was 182,500 tonnes (30 June 2018:
129,600 tonnes).
Capital Projects
Raising ilmenite production, by 2021, to 1.2 million tonnes per annum,
plus associated co-products, is a core strategy of the company to help
reduce unit costs and increase margins by fully utilising existing
processing and export facilities at Moma. Preliminary studies in 2016
estimated that the necessary capital expenditure to increase the
capacity of the mining fleet would be up to US$100 million, but
following the completion of Definitive Feasibility Studies, this has
reduced and is now estimated to be approximately US$60 million. Some
further mining capacity increases will be required post 2028.
The first significant capital project to increase capacity was the
upgrade of WCP B, from 2,000 tonnes per hour to 2,400 tonnes per hour.
Kenmare has taken a phased approach to the project to maximise capital
efficiency. Commissioning began in Q3 2018, ahead of schedule, and the
plant has successfully operated at capacity. It is expected that the
final phase of works will be completed in the coming months to ensure
consistent operations at the targeted capacity. Final costs are expected
to be approximately 25% below the guidance of US$16 million.
The Board approved the development of a third dredge mining pond in
August 2018. A 500 tonnes per hour dredge and wet concentrator plant,
WCP C, will be developed in a high-grade area of the Namalope zone,
inaccessible to the existing dredge operations. Resources to support a
20-year life of mine for WCP C have been identified. The project is
expected to cost up to US$45 million (including contingencies) and yield
an IRR of at least 30%. Commissioning is expected before the end of
2019.
Separately, and as previously announced, the Namalope deposit will be
mined until 2020 by WCP B and until 2025 by WCP A. The capital costs
associated with the movement of the mining ponds from Namalope are in
addition to the capital outlined to increase the capacity of the mining
fleet. WCP B will move in H2 2020, increasing production in 2021 to 1.2
million tonnes of ilmenite per annum, plus associated co-products,
through the mining of the higher grade Pilivili deposit. Following the
completion of a PFS (Pre-Feasibility Study), capital costs are estimated
to be approximately US$100 million. A full DFS (Definitive Feasibility
Study) will be completed in Q1 2019. Plans for the movement of WCP A to
Nataka in 2025 remain at an early stage.
Sustaining capital is expected to be within guidance of US$22 million
for 2018 and expected to be in the range of US$20 - 25 million per annum
over the next five years.
Market
Chinese ilmenite purchasing activity slowed over the summer months, as
in previous years, as pigment output reduced due to seasonal demand
factors and some disruptions related to environmental regulation
enforcement in China. Recent announcements of pigment price increases by
Chinese pigment producers points to an improved industry outlook.
Chinese domestic ilmenite prices were stable in Q3 2018, though imported
ilmenite prices were marginally softer, reflecting a weaker Chinese
Renminbi. As we enter Q4 2018, Chinese domestic ilmenite pricing remains
firm, with some upward pressure associated with the improving pigment
market outlook likely in the coming weeks as some large domestic
ilmenite producers have just announced price increases.
Outside of China, ilmenite shipments in Q3 2018 were broadly in line
with expectations, as western pigment plants continued to operate at
high utilisation rates. The high-grade feedstock market continues to be
tight and should afford opportunities for higher consumption of ilmenite
at pigment plants and for upgrading.
Zircon industry fundamentals continued to be favourable in Q3 2018, with
Kenmare agreeing further prices increases in line with general market
levels. Given the strong price recovery since early 2017 to the more
sustainable levels of today, the potential for further significant price
increases appears less likely.
Dividend policy
As part of Kenmare's objective to create and deliver shareholder value,
the Company is pleased to announce its dividend policy. The dividend
policy is to return a minimum of 20% of Profit After Tax. This policy is
subject to prevailing product market conditions and ensuring that the
Company retains a prudent level of cash to fund debt and capital
requirements.
In light of the capital required for development projects as outlined
above, the Company expects to pay modest dividends during the next two
years, starting with an interim dividend based on H1 2019 results,
payable in H2 2019. Following completion of these development projects,
the Company expects to be in a position to make higher capital returns
from 2021.
In order to prepare for payment of the maiden dividend, the Company
intends to eliminate historic losses and undertake a group
rationalisation. Kenmare's Lender Group has agreed to provide the
necessary approvals to enable the Company proceed with these steps.
Elimination of historic losses will also require shareholder approval
and the sanction of the Irish High Court, and the Company intends to
convene an extraordinary general meeting for the approval of the capital
reduction to eliminate historic losses to be held later this year. It
is expected that the various steps to allow the commencement of dividend
payments by the Company will be completed early next year.
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 / Aimee Beale
Tel: +353 1 498 0300
Mob: +353 87 690 9735
Buchanan
Bobby Morse / Chris Judd
Tel: +44 207 466 5000
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.
(END) Dow Jones Newswires
October 16, 2018 02:00 ET (06:00 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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