Kenmare Resources Q2 saw a record quarter of production for ilmenite

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 2021.

Statement from Michael Carvill, Managing Director:

“Kenmare’s capital investment over the last three years continues to deliver as Q2 saw a record quarter of production for ilmenite, improving on the record set in Q1 2021. WCP B continues to perform well in Pilivili, supporting higher volumes of ore mined and final product output. We remain confident in the outlook for annual production and re-iterate our guidance of 1.1-1.2 million tonnes of ilmenite in 2021.

We are concerned by the rise in delta variant COVID-19 cases in Southern Africa. Therefore I’m particularly pleased that we expect to offer COVID-19 vaccinations to all Mine employees and contractors, as well as local communities, later this month.

Market conditions for ilmenite, and titanium feedstocks in general, remained strong in Q2 2021 with pricing strengthening quarter on quarter. The outlook for zircon has also continued to improve, with price increases during the quarter and continuing to date.”

Q2 2021 overview

  • Improved Lost Time Injury Frequency Rate (“LTIFR”) of 0.14 per 200,000 man-hours worked for the 12 months to 30 June 2021 (30 June 2020: 0.32), zero lost time injuries recorded during the quarter
  • COVID-19 vaccinations of the Mine workforce and local communities are expected to start later this month
  • Heavy Mineral Concentrate (“HMC”) production of 436,600 tonnes in Q2 2021, representing a 41% increase compared to Q2 2020 (310,300 tonnes), benefitting from higher grade and excavated ore volumes
  • Record ilmenite production of 283,900 tonnes in Q2 2021, representing a 35% increase compared to Q2 2020 (209,900 tonnes), benefitting from increased HMC production
  • Primary zircon production of 14,900 tonnes, representing a 28% increase compared to Q2 2020 (11,600 tonnes), also benefitting from increased HMC production
  • Total shipments of finished products of 249,600 tonnes, representing a 14% increase compared to Q2 2020 (219,100 tonnes)
  • Kenmare expects production of all products to be within 2021 guidance
  • Strong ilmenite market conditions continued in Q2 2021 and this is expected to continue in Q3 2021, with higher prices agreed and a strong order book in place
  • The positive outlook for the zircon market has continued to strengthen, with received prices rising in Q2 2021
  • At the end of H1 2021, net debt was US$76.1 million (31 December 2020: US$64.0 million net debt), as a result of higher prices and sales being offset by the timing of capital expenditure and a reduction in the use of invoice factoring

Production

Production from the Moma Mine in Q2 and H1 2021 was as follows:

 Q2 2021Q2 2020Q1 2021H1 2021H1 2020
tonnes% variance% variancetonnes% variance
Excavated ore110,938,0006%22%19,893,0008%
Grade14.70%43%1%4.67%40%
Production     
HMC production436,60041%21%798,50043%
HMC consumption423,20036%8%814,40046%
Ilmenite283,90035%3%559,00052%
Primary zircon14,90028%12%28,20033%
Rutile2,20047%16%4,20045%
Concentrates211,80031%33%20,70018%
Shipments249,60014%-28%594,10044%
  1. Excavated ore and grade prior to any floor losses.
  2. Concentrates include secondary zircon and mineral sands concentrate.

In Q2 2021 Kenmare’s rolling 12-month LTIFR was 0.14 per 200,000 man-hours worked (Q2 2020: 0.32), with zero lost time injuries recorded during the quarter.

HMC production was 436,600 tonnes in Q2 2021, representing a 41% increase compared to Q2 2020 (310,300 tonnes). This was a result of a 43% increase in ore grades (to 4.7%) and a 6% increase in excavated ore volumes (to 10.9 million tonnes), setting a new quarterly record of HMC production. Excavated ore volumes also increased by 22% when compared to Q1 2021, benefitting from higher mining rates from all plants. As previously announced, grades are expected to be maintained between 4.5-5.0% Total Heavy Mineral until Q4 2021 (when grades are anticipated to drop to ~3.7%), before normalising at around 4.3% in 2022.

Ilmenite production rose broadly in line with increased HMC production to 283,900 tonnes, representing a 35% increase compared to Q2 2020 (209,900 tonnes). Despite ilmenite recoveries being slightly lower than expected in Q2 2021, production set a new quarterly record and recoveries have now returned to expected levels.

Primary zircon production increased by 28% to 14,900 tonnes in Q2 2021 (Q2 2020: 11,600 tonnes) benefitting from increased HMC consumption. Rutile production was 2,200 tonnes, up 47% (Q2 2020: 1,500 tonnes) due to increased feed and improved circuit recoveries. Concentrates production was 11,800 tonnes, up 31% (Q2 2020: 9,000 tonnes) also due to increased HMC consumption.

Full year guidance, as published on the 13th January 2021, is maintained for all products.

Total shipments in Q2 2021 increased by 14% compared to Q2 2020 and H1 2021 shipments were up 44% on H1 2020. Kenmare shipped 249,600 tonnes of finished products during the period (Q2 2020: 219,100 tonnes), which was comprised of 235,400 tonnes of ilmenite, 10,000 tonnes of primary zircon and 4,300 tonnes of concentrates.

Closing stock of HMC at the end of Q2 2021 was 34,300 tonnes, compared with 20,900 tonnes at the end of Q1 2021. Closing stock of finished products at the end of Q2 2021 was 164,100 tonnes, compared to 101,000 tonnes at the end of Q1 2021 (Q2 2020: 156,700 tonnes).

COVID-19 update

COVID-19 cases at Moma steadily decreased through Q2 2021, with 41 people in isolation on 13 April 2021 and continued to fall to zero by late May. However, Southern Africa has recently been experiencing a third wave of cases, which has also led to a small increase at site, with 15 people currently in isolation.

Protecting our people and the communities in which we operate has always been Kenmare’s highest priority. In addition to the various physical distancing and hygiene protocols, and testing procedures, Kenmare has been working with industry partners and the Government of Mozambique to acquire, distribute and administer vaccines. The vaccines are now on the way to site and vaccinations of the mine workforce and local communities are expected to start later this month.

Capital projects update

The capital project to move WCP B to Pilivili, including associated infrastructure, is now substantially complete. The final parts of the HMC pumping pipeline for WCP B operations at Pilivili have been installed and are undergoing ramp up. Heavy mineral product is being transported via the pipeline and a reduced trucking operation. It is expected that the pipeline will be operating at capacity in the coming months. The total capital cost of the WCP B move is estimated at US$127 million, as outlined in the Preliminary Results for 2020.

Market update

Positive market conditions prevailed for mineral sands in Q2 2021 with market prices for ilmenite, zircon and rutile all increasing.

Ilmenite prices continued to rise through the quarter, benefitting from strong demand. Pigment plants are operating at high production rates, whilst the titanium metal and welding sectors are also experiencing a strong recovery. In addition, as a result of increased production, ilmenite sales volumes increased 52% in H1 2021 (vs H1 2020).

Despite some disruptions to major titanium feedstock producers in Q2 2021, overall global supply has increased. This has primarily come from China and Vietnam, in addition to ilmenite in the form of concentrates.

The recovery in demand for zircon accelerated in Q2 2021 and price increases were achieved for Kenmare’s zircon products. The zircon market is tight and further exacerbated by production disruptions from zircon suppliers. Demand for Kenmare’s zircon products is currently exceeding its ability to supply.

Due to strong global demand for commodities, the freight market has been exceptionally tight in Q2, leading to a rapid increase in rates. These conditions are expected to persist in H2 2021.

Positive market conditions for all Kenmare’s products are expected to continue in Q3 2021, despite an expected strong freight market having the potential to dampen received prices. We have a strong order book for our ilmenite products and we expect to a supportive market for rutile and zircon in H2 2021.

Finance update

On 19 May 2021, Kenmare paid its 2020 final dividend of USc7.69 per share. This was the balancing payment of a 2020 full year dividend of USc10.00 per share, up 22% from 2019. As previously stated, Kenmare is targeting a 25% Profit After Tax dividend payment for 2021.

Kenmare drew down in full its US$40.0 million Revolving Credit Facility in early April 2020, as previously announced, to provide maximum liquidity and flexibility in an unprecedented period. The Company repaid US$20.0 million of this facility in June 2021.

Consequently, at 30 June 2021, cash and cash equivalents were US$56.6 million (31 December 2020: US$81.1 million) and gross bank loans, including accrued interest, were US$132.7 million (31 December 2020: US$151.3 million). Accordingly, as at 30 June 2021, Kenmare had net debt of US$76.1 million, compared to US$64.0 million net debt at 31 December 2020, which is mainly due to the timing of capital expenditure payments and a reduction in the use of invoice factoring.

Kenmare Resources will announce its results for the six months ended 30 June 2020 on 18 August 2021.

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