Kenmare Resources “demand continues to be greater than supply”

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 ending 31 March 2022.

Statement from Michael Carvill, Managing Director:

“Strong market conditions for all of our products continued through Q1 2022, supported by low inventories in the global supply chain. Realised ilmenite prices increased for a sixth consecutive quarter and this positive momentum is continuing into Q2 2022.

The Board of Directors visited the Moma Mine and the surrounding area in February. A highlight of the visit was inspection of the Rotary Uninterruptible Power Supply (“RUPS”) project, which is currently commissioning. The RUPS is designed to materially improve power stability for the Mineral Separation Plant, reduce operating costs through lower diesel usage, and drive our short-term target to reduce greenhouse gas emissions by 12% by 2024.

Production in Q1 2022 was lower than we had expected, impacted by poor weather conditions, as previously mentioned in our 2021 Preliminary Results announcement. However, the weather at the Mine typically improves after Q1, and we maintain production guidance for the year.”

Overview

  • Lost Time Injury Frequency Rate (“LTIFR”) of 0.00 per 200,000 man-hours worked on a 12-month rolling basis (Q1 2021: 0.24), reflecting zero Lost Time Injuries since 6 January 2021
  • Heavy Mineral Concentrate (“HMC”) production increased 6% in Q1 2022 to 384,700 tonnes (Q1 2021: 361,900 tonnes), benefitting from a 5% increase in excavated ore tonnes, partially offset by a 3% decrease in ore grades
  • Ilmenite production decreased 7% in Q1 2022 to 256,800 tonnes (Q1 2021: 275,100) and primary zircon production decreased 3% to 12,900 tonnes (Q1 2021: 13,300 tonnes) due primarily to a 5% decrease in HMC processed
  • Rutile production increased 5% to 2,000 tonnes (Q1 2021: 1,900 tonnes), benefitting from higher recoveries, while concentrates production increased 20% to 10,700 tonnes (Q1 2021: 8,900 tonnes) due to the processing of stockpiled spillage material
  • Total shipments of finished products decreased 33% in Q1 2022 to 231,500 tonnes (Q1 2021: 344,400 tonnes), impacted by poor weather conditions and customer-chartered vessel delays due to tight shipping markets
  • The markets for all of Kenmare’s products remain strong, with further price increases received in Q1 2022 for the sixth consecutive quarter
  • Full year guidance is maintained on all stated metrics

Operations update

Operational results from the Moma Mine in Q1 2022 were as follows:

 Q1 2022
tonnes
Q1 2021
tonnes
Variance
%
Q4 2021
tonnes
Variance
%
Excavated ore19,391,0008,955,0005%9,306,0001%
Grade14.49%4.64%-3%4.31%4%
Production     
HMC production384,700361,9006%343,90012%
HMC processed373,300391,200-5%353,4006%
Ilmenite256,800275,100-7%246,0004%
Primary zircon12,90013,300-3%12,4004%
Rutile2,0001,9005%2,100-5%
Concentrates210,7008,90020%11,300-5%
Shipments231,500344,400-33%368,600-37%

1. Excavated ore and grade prior to any floor losses.
2. Concentrates include secondary zircon and mineral sands concentrate.

Kenmare’s strong safety performance was maintained in Q1 2022, with zero Lost Time Injuries during the period. This led to the Company’s lowest ever rolling 12-month LTIFR of 0.00 per 200,000 hours worked (Q1 2021: 0.24) and the achievement of over eight million hours worked without a Lost Time Injury in early March 2022.

HMC production was 384,700 tonnes in Q1 2022, representing a 6% increase compared to Q1 2021 (361,900 tonnes), benefitting from a 5% increase in excavated ore tonnes to 9,391,000 tonnes compared to Q1 2021 (8,995,000 tonnes). Mining operations were impacted by poor weather conditions in Q1 2022, which resulted in lower HMC production than expected. However, in Q1 2021, mining operations were more affected by personnel shortages due to COVID-19, which led to a year-on-year increase in HMC production.

The higher volumes of excavated ore were partially offset by a 3% decrease in ore grades to 4.49% in Q1 2022 (Q1 2021: 4.64%). As stated in the Q4 2021 Production Update, ore grades are expected to normalise at around 4.2% in 2022.

Production of ilmenite, Kenmare’s primary product, decreased by 7% to 256,800 tonnes in Q1 2022 (Q1 2021: 275,100 tonnes), due primarily to the 5% reduction in HMC processed. Primary zircon production decreased by 3% to 12,900 tonnes (Q1 2021: 13,300 tonnes), which was also impacted by the reduced HMC processed, but partially offset by the processing of stockpiled spillage material in Q1 2022.

Rutile production was up 5% in Q1 2022 to 2,000 tonnes (Q1 2021: 1,900 tonnes) due to recovery improvements that more than offset the lower HMC processed. Concentrates production increased by 20% to 10,700 tonnes (Q1 2021: 8,900 tonnes), also benefitting from the processing of stockpiled spillage material in Q1 2022.

Shipments decreased by 33% in Q1 2022 to 231,500 tonnes (Q1 2021: 344,400 tonnes), primarily due to poor weather conditions and the arrival of some customer-chartered vessels being delayed. Shipments in Q1 2022 were comprised of 203,000 tonnes of ilmenite, 11,800 tonnes of primary zircon, 12,000 tonnes of concentrates and 4,800 tonnes of rutile.

One of Kenmare’s two transshipment vessels, the Bronagh J, is due to begin its five-yearly dry dock in early May 2022 for a period of 10 weeks. During this time, Kenmare’s shipping capacity will be significantly reduced. However, there is sufficient capacity to catch up this shortfall when both vessels are operating together again, with finished product inventories expecting to be at normal levels by early 2023.

Closing stock of HMC at the end of Q1 2022 was 22,900 tonnes, compared with 11,600 tonnes at year-end 2021. Closing stock of finished products at the end of Q1 2022 was 139,300 tonnes (Q4 2021: 88,700 tonnes), which reflects lower shipments than production in Q1 2022.

COVID-19 update

As reported in the Q4 2021 Production Update in mid-January 2022, Kenmare experienced a sharp rise in COVID-19 cases in the second half of December 2021. The number of employees in isolation on site following a positive test result rose as high as 326 on 6 January 2022, but quickly reduced.

On 12 April 2022 there were no people in isolation in the camp but the high number of employees in isolation during January did affect operations. The business continues to be managed to mitigate the impact and production has continued uninterrupted.

Capital projects update

Commissioning of the RUPS commenced in Q1 2022. It is anticipated to deliver benefits in terms of both power stability and operating costs, through reduced usage of diesel generators. It is the primary contributor to Kenmare’s short-term target to reduce greenhouse gas emissions by 12% by 2024.

A Pre-Feasibility Study in preparation for mining the Nataka ore zone continued to progress in Q1 2022 and is due to be completed later in 2022. Wet Concentrator Plant A is expected to commence mining in Nataka in 2025. The hydromining trial in Nataka has commenced and is progressing well. Ore body characterisation works continue and will be combined with mining, processing and tails management studies. The environmental and social assessment process is also underway. 

Market update

Strong market conditions for all of Kenmare’s products continued throughout Q1 2022. Demand continues to be greater than supply and consequently, ilmenite prices increased for the sixth consecutive quarter, while inventories remain low throughout the value chain for all products.

In China, Q1 2022 was a record quarter for chloride pigment production. This intensified demand for imported feedstocks as domestic ilmenite is unsuitable for the chloride production process. Outside China, pigment demand is robust and a lack of titanium feedstock availability remains a bottleneck to pigment production volumes. Although additional ilmenite supply is entering the market, it is mostly in the form of concentrates from countries including Mozambique, the United States and Indonesia, but remains insufficient to meet demand.

It is uncertain how the war in Ukraine will impact Kenmare’s product markets. Combined with high levels of inflation, the war has the potential to impact global growth, which could dampen demand for Kenmare’s products. However, 4.5% of global titanium feedstocks production is attributable to Ukraine and disruption to this supply has exacerbated tight market conditions. 

The global freight market continues to be challenging and freight rates remain at elevated levels. However, the outlook for ilmenite remains positive, with received prices continuing to increase in Q2 2022.

Demand for Kenmare’s zircon products was robust in Q1 2022, supported by low global zircon inventories. However, in Europe the increase in energy prices is presenting a headwind in the ceramics industry and could lead to lower tile production. Kenmare does not expect this to impact demand for its zircon, with strong zircon market conditions in China following Lunar New Year. Prices for zircon increased in Q1 2022 and the favourable market conditions for zircon are expected to continue in Q2 2022.

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