Kenmare Resources plc is an established mining company, which operates the Moma Titanium Minerals Mine, located on the north east coast of Mozambique. The Mine has been in commercial production since 2009 and is recognised as a major supplier of mineral sand products to a global customer base operating in over 15 countries. The company is listed on the London Stock Exchange and has a market capitalisation of £440 million.
2022 Full Year Results were published on 22 March and we were delighted to have Ben Baxter, Chief Operating Officer and Jeremy Dibb, Director of Corporate Development and Investor Relations, report on the strong year delivered. A recording of the webinar is available here.
In 2022 Kenmare delivered record product revenues, profits and dividends. It did this by delivering on its three strategic priorities of: operate responsibility; deliver long life, low cost production; allocate capital efficiently. Almost 12 million hours were worked in 2022 with no lost time injuries and the LTI frequency rate was down at 0.09. The company also delivered a 6% reduction in scope 1 and 2 emissions. The target to be 1st quartile on the cost curve was independently confirmed for the first time and the cost of ilmenite production has now fallen to $60/tonne. With a 100 year mine life Kenmare will be generating strong cash flows for decades. Strong cash flows were used to pay a dividend which was up 66% and the dividend pay out ratio was maintained at 25%. Net cash is now at $28m.
During 2022 the Rotary Uninterruptable Power project was commissioned to help the smooth flow of electricity to the Mineral Separation Plant. It has improved recoveries, reduced costs and reduced CO2 emissions so this project has gone well. Also a pre feasibility study has been conducted into the move of WCPA from its current ore zone in Namalope to its new site in Nakata. Further details on the plans and cost of this move will be explained at the CMD on 26 April.
Record results were driven by strong prices across all product categories with Rutile rising 42% and Ilmenite rose almost 30%. The overall mix of sales changed slightly with ilmenite as a percentage of overall sales falling to 68%, Zircon rising to 20% and Rutile rising to 4%. This is seen as a more normal product split. Shipments were down due to one of the transhipment vessels undergoing its 5 year service and margins of 60% were delivered. The 37% reduction in the Ilmenite cost of production to $60/tonne was highlighted.
Kenmare’s $290m operating cash flow enabled a significant improvement to the balance sheet with net debt of $83m at the start of the year improving to a net cash position of £27m at the year end. Capex of $60m and an inventory rise of $73m,due to the timing of shipments and higher receivables, were comfortably absorbed.
Dividends were only started in 2019 and the policy was to pay out a minimum of 20% of after tax profits. There has been strong growth in the dividend over the last 4 years and the total dividend for 2022 was USc54.3/share an increase of 66%. In total $185m has been returned to shareholders over the last 4 years including the buy back in 2021.
Depending on the state of the business, balancing the ongoing capital requirements and the stated dividend policy, there may be opportunities for additional capital returns from time to time given the strong cash generative nature of the business.
Kenmare has always had sustainability at its core and made further progress on this front in 2022. A couple of points were highlighted. There was a 50% reduction in the long term injury frequency rate and the company performed for 11.8m hours with zero lost time injuries, water reuse rose to 90% and female representation increased to 14.5%, There was a 6% reduction in Scope 1 emissions, local procurement increased 12% to $116m and $3m has been invested in community projects including local schools.
The company is working hard on decarbonisation and has a target of reaching net zero by 2040. Progress in 2022 included a 6% reduction in Scope 1 emissions, the RUPS project has been delivered which has eliminated the regular need for diesel generators and also improved recoveries from the Mineral Separation Plant. More efficient dryers in the MSP also contributed to a 7% reduction in diesel consumption.
There was good consistent production in 2022 but higher slimes (clay particles) in the ore body added some complications. A number of projects were initiated to mitigate these higher slimes and good progress was made over the year. Ilmenite production fell 3%, zircon production rose 4% to a record and rutile production was flat. The Brona J transhipment vessel was out of action for 4 months undergoing its 5 year service but since returning utilisation rates have gone up and both vessels are now operating at their best efficiency levels.
The guidance for 2023 was reiterated and is as follow: Ilmenite 1,050,000 – 1,150,000 tonnes; Primary Zircon 51,000-57,000 tonnes; Rutile 8,000-9,000 tonnes and Concentrates 37,000 – 41,000 tonnes. In Q1 there were difficult weather conditions including a lightning strike which impacted production in the first quarter and Kenmare is now inline with the bottom of the guidance range. Work is progressing to build back up the spares levels which were called upon as a result of the lightning strike. Cash operating costs are expected to rise slightly due to inflation while capital expenditure is expected to be $28.5m for development projects and $33m on sustaining capital.
In addition the company has indicated that they expect capital expenditure for the move of WCPA from Namalope to Nataka will cost at least $225m. A comprehensive feasibility study is ongoing and results will be shared at the Capital Markets Day in April. Early indications though are that the site in Nataka which has a life of 75 years and contains 6 billion tonnes of ilmenite, has a higher proportion of slimes and this will require significant additional work and cost to mitigate against this.
Moving back to the pricing side of the equation, Kenmare has seen increased demand for its products and this has resulted in higher prices over the last 5 years. The market is tight and this has seen surplus inventories drawn down. Kenmare is one of the leading suppliers of ilmenite and is benefitting from the growth in demand from China. The Chinese market has seen significant investment in the chloride pigment capacity and Kenmare’s products are particularly suitable for this process. Overall global demand for Titanium feedstocks are influenced by global GDP growth and so 2023 could be subdued.
Looking at the outlook Kenmare is particularly pleased that they are now in the first quartile of the industry cost curve and priority is to remain there. This is a result of a clear focus to achieve this goal over a number of years and was the rationale behind the investment in increased production.
In conclusion, excellent progress has been made in 2022 against the strategic priorities. RUPS was commissioned, ilmenite unit costs fell 37%, the balance sheet moved to a net cash position and dividends rose 66%. As regards 2023, the key is maintaining steady production in the forecast ranges and finalising the plan for the move of WCPA from Namalope to Nataka.
A recording of the webinar is available here.