Kenmare Resources plc ("Kenmare" or "the Company")
11 January 2018
Q4 & FY 2017 Trading Update & FY 2018 Guidance
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 fourth quarter and year ended 31 December 2017 and production guidance for FY 2018.
Overview
- Record annual production of ilmenite, rutile and zircon - achieving production guidance for all products
- Ilmenite production increased 11% to 998,200 tonnes (2016: 903,300 tonnes)
- Zircon production increased 9% to 74,000 tonnes (2016: 68,200 tonnes)
- Heavy Mineral Concentrate ("HMC") production decreased 6% to 1,323,000 tonnes (2016: 1,405,500 tonnes)
- Total shipments of finished products were up 2% to 1,040,400 tonnes (2016: 1,024,200 tonnes)
- Production guidance range mid-point of 950,000 tonnes of ilmenite production in 2018 (2017: 998,200 tonnes)
- Prices increased for all products during 2017
- Favourable demand outlook for ilmenite and zircon markets in 2018
- Net debt declined to US$34.1 million (2016: US$44.8 million)
Statement from Michael Carvill, Managing Director:
"2017 was a further consecutive year of record delivery for Kenmare. Both production and shipments of all products were at record levels. Production in 2018 is expected to moderate slightly, mainly due to lower opening stockpiles, though ilmenite shipment volumes are expected to be maintained as finished goods inventory is drawn down.
In 2018, Kenmare will upgrade capacity of Wet Concentrator Plant B ("WCP B") by up to 20% uplift in capacity. Further options are being examined which will both address grade reduction in future years and facilitate an increase in ilmenite production beyond 1 million tonnes per annum.
Average received prices for H1 2018 are expected to continue to show improvement on H2 2017, benefitting from new contract prices and higher spot prices, particularly for zircon".
Production
Production from the Moma Mine in Q4 2017 and FY-2017 was as follows:
| Q4-2017 | vs Q4-2016 | vs Q3-2017 | FY-2017 | vs FY-2016 | |
| tonnes | % change | % change | tonnes | % change | |
| Excavated Ore * | 8,414,300 | -1% | 8% | 33,585,500 | 12% |
| Grade* | 4.34% | -27% | 5% | 4.46% | -12% |
| Production | |||||
| HMC | 337,800 | -29% | 24% | 1,323,000 | -6% |
| Ilmenite | 235,900 | -8% | -8% | 998,200 | 11% |
| Zircon | 18,100 | -9% | 0% | 74,000 | 9% |
| of which primary | 10,900 | -19% | -9% | 48,600 | 8% |
| of which secondary | 7,300 | 8% | 18% | 25,400 | 9% |
| Rutile | 2,500 | 8% | 13% | 9,100 | 17% |
| Shipments | 296,300 | -2% | 42% | 1,040,400 | 2% |
* Excavated ore and grade prior to any floor losses.
During 2017, Kenmare mined more than 33 million tonnes of ore, up 12% on 2016, at an average grade of 4.46% and produced 1,323,000 tonnes of HMC, a 6% decrease. In Q4 2017, Kenmare mined 8,414,300 tonnes of ore, up 8% over the prior quarter, at an average grade of 4.34% and produced 337,800 tonnes of HMC. Finished product volumes for the year included 998,200 tonnes of ilmenite, up 11%, and 74,000 tonnes of zircon (including 25,400 tonnes of a lower grade secondary zircon product), up 9%.
In 2017, excavated ore volumes benefitted from improved dredge mining operation and a higher dry mining contribution. Increased plant utilisations through enhanced maintenance systems and improvement projects, together with continued power stability, also supported higher excavated ore volumes. However, in addition to grade reduction, as previously reported, HMC production in Q3 2017 was adversely impacted by elevated slimes levels which affected recoveries.
Ilmenite production which increased by 11% to 998,200 tonnes (2016: 903,300 tonnes), in line with guidance, benefited from good recoveries as well as a drawdown of HMC and intermediate product stockpiles.
Total zircon production includes an 8% increase in primary zircon production to 48,600 tonnes (2016: 44,900 tonnes), driven by drawdown from intermediate stockpiles and increased recoveries. Secondary zircon volumes increased by 9% to 25,400 (2016: 23,300 tonnes) as tailings recovery projects were completed and started to contribute.
During 2017, Kenmare shipped 1,040,400 tonnes of finished products (2016: 1,024,200 tonnes) comprising 961,800 tonnes of ilmenite, 70,800 tonnes of zircon (including 24,500 tonnes of secondary grade zircon) and 7,800 tonnes of rutile. In Q4 2017, shipments of total finished products were up 42% to 296,300 tonnes (Q3 2017: 208,400 tonnes), benefitting from both transhipment vessels being in operation for the full quarter following the planned maintenance of Kenmare's main transhipment vessel in Q3 2017. Sales comprised 269,900 tonnes of ilmenite, 24,700 tonnes of zircon (including 8,900 tonnes of secondary grade zircon), and 1,700 tonnes of rutile.
Closing stock of HMC at the end of 2017 was 16,800 tonnes, compared with 66,500 tonnes at the start of the year. Closing stock of finished products at the end of 2017 was 202,000 tonnes (2016: 192,300 tonnes), of which 9,200 tonnes has been paid for and is being held for a customer.
Costs
Subject to completion of the full year financial results and adjusting for arbitration costs of US$3.7 million, total cash operating costs are expected to be within the guided range of US$120-132 per tonne for FY 2017. Total cash operating costs include all mine production, transhipment, royalties and corporate costs.
2018 Guidance
The 2018 guidance on production and operating costs is as follows:
| 2018 Guidance | 2017 Actual | ||
| Production | |||
| Ilmenite | tonnes | 900,000-1,000,000 | 998,200 |
| Zircon | tonnes | 65,000-72,000 | 74,000 |
| of which primary | tonnes | 42,000-46,000 | 48,600 |
| of which secondary | tonnes | 23,000-25,000 | 25,400 |
| Rutile | tonnes | 7,000-8,000 | 9,100 |
| Costs | |||
| Total cash operating costs | US$m | 133-147 | N/R* |
| Cash costs per tonne of finished product | US$/t | 130-143 | N/R* |
* to be reported in full year financial statements
Production in 2018 is expected to moderate slightly, mainly due to lower opening HMC stockpiles, though ilmenite shipment volumes are expected to be maintained as finished goods inventory is drawn down.
Work is on-going to optimise increased mining capacity to offset grade reduction in the Namalope Zone in the coming years. US$19 million has been approved for expenditure on growth projects and studies in 2018, the main elements of which are represented by the WCP B upgrade project, a monazite concentrate project and feasibility studies to increase mining capacity. Approval of further capital expenditure by the Board will be subject to, inter alia, positive outcomes from feasibility studies, attractive financial returns, and supportive market conditions.
Sustaining capital costs in 2018 are expected to be approximately US$22 million.
Market
The ilmenite pricing outlook for 2018 is positive, supported by favourable supply demand fundamentals. Demand for titanium dioxide pigment, the main market for ilmenite, has continued to increase with global GDP which supports demand for our products.
In 2017, Chinese demand for imported ilmenite grew despite domestic ilmenite production, as a by-product of iron ore mining, operating near capacity. Domestic pigment and ilmenite production have both been affected by increased environmental regulations and enforcement. This has caused disruption to the pigment industry, particularly in H2 2017, moderating ilmenite demand and price growth. However, Kenmare has agreed higher prices with customers for H1 2018 and expects that spot prices will improve over the course of the year.
Zircon prices grew strongly through 2017, supported by increased demand, falling global inventories and limited supply growth. These market dynamics are expected to persist in 2018, potentially supporting further price increases.
Finance Update
At 31 December 2017, gross bank loans, including accrued interest, amounted to US$102.9 million (2016: US$102.6 million) and cash and cash equivalents were US$68.8 million (2016: US$57.8 million). Consequently, net debt has declined to US$34.1 million (2016: US$44.8 million).
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.