Kenmare Resources plc ("Kenmare" or "the Company")
13 October 2016
Q3 2016 Production Report
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 2016.
- Spot prices for domestically produced ilmenite in China have risen 70% year to date and bode well for an increase in Kenmare's average received ilmenite price for 2017.
- Production of total finished products was a quarterly record for Q3 2016 and Moma is on track to achieve record finished product output for the full year.
- Cash operating costs per tonne of finished product have trended downwards in Q3 2016 and are expected to be at the lower end of guidance for the full year.
- Ore mined in Q3 2016 decreased 21% to 7,160,800 tonnes compared to the equivalent period in the prior year (Q3 2015: 9,057,500 tonnes). Ore mined has been lower in 2016 as a result of harder mining conditions, augmented by the higher grades achieved in these areas.
- Production of Heavy Mineral Concentrate ("HMC") in Q3 2016 decreased 4% to 325,100 tonnes (Q3 2015: 339,600 tonnes).
- Ilmenite production in Q3 2016 was 243,500 tonnes, close to the record quarterly production of 244,800 tonnes in Q3 2015 and up 12% when compared with the prior quarter (Q2 2016: 217,900 tonnes).
- Zircon production in Q3 2016 increased 48% to 19,700 tonnes (Q3 2015: 13,300 tonnes) as a result of increased recoveries.
- Total shipments of finished products in Q3 2016 increased 48% to 280,800 tonnes (Q3 2015: 190,000 tonnes).
Statement from Michael Carvill, Managing Director:
"Q3 2016 represented a record quarter for finished product output, demonstrating the benefits of stable power supply, increased supplemental mining and higher grades. 2016 is also expected to be a record year for production of all final products, and for unit costs to be even lower in the second half of the year. Not only is production increasing and costs falling, Chinese spot prices for ilmenite have increased by over 70% as a result of the decline in domestic production and falling port inventories. Kenmare is well positioned to benefit from increasingly favourable operational and market dynamics in 2017."
Production and shipments from the Moma Mine for Q3 2016 was as follows:
|Excavated Ore *||7,160,800||9,057,500||-21%||7,386,200||-3%|
|of which primary||12,300||9,400||31%||10,900||13%|
|of which secondary||7,400||3,900||90%||6,000||23%|
* Excavated Ore and grade are prior to any floor losses.
During Q3 2016, Kenmare mined 7,160,800 tonnes of ore at an average grade of 4.81% and produced 325,100 tonnes of HMC. Finished product volumes for the period included 243,500 tonnes of ilmenite and 19,700 tonnes of zircon (including 7,400 tonnes of lower grade secondary zircon).
The production of total finished products in Q3 2016 was a quarterly record. Ilmenite production for the quarter was the second highest achieved, 1% lower than record production in Q3 2015. Total zircon production was up 17% on the previous record achieved in Q2 2016 and rutile production was 32% higher than the previous record achieved in Q2 2016.
Ore mined in Q3 2016 was broadly in line with the prior quarter, as expected, declining slightly by 3% versus Q2 2016 to 7,160,800 tonnes (Q2 2016: 7,386,200 tonnes). The volume of ore mined has been generally lower in 2016 as a result of a decision to mine in more difficult conditions, augmented by the higher grades available in these areas. This decline was amplified by the particularly favourable mining conditions encountered in Q3 2015 (Q3 2015: 9,057,500 tonnes).
HMC production declined 4% to 325,100 tonnes in Q3 2016 compared with 339,600 tonnes in Q3 2015, principally as a result of volumes of ore mined, offset by higher grades. The expected harder mining prevented the plant from running at maximum capacity and supplemental (dry) mining was unable to completely close this gap. It is expected that more favourable mining conditions will be encountered in Q4 2016, while the higher grades will be maintained, hence HMC production is expected to be higher in the fourth quarter. At WCP B, the commissioning of a supplementary (dry) mining unit is ensuring the plant operates at capacity.
Production of ilmenite was 243,500 tonnes in Q3 2016, the second highest quarterly production after the 244,800 tonnes achieved in Q3 2015. Production continued the trend of increasing through 2016, rising 12% in Q3 2016 when compared with the prior quarter (Q2 2016: 217,900 tonnes). In turn, production in Q2 2016 showed a 18% increase on production in the first quarter (Q1 2016: 185,000 tonnes). These gains have been achieved through improved Mineral Separation Plant operating times and a higher average HMC production through 2016.
Zircon production increased 48% to 19,700 tonnes in Q3 2016, compared with 13,300 tonnes in Q3 2015. Of this, primary zircon production rose 31% due to improved recoveries. Higher volumes of secondary zircon production, up 90%, were the result of a successful project to recover zircon from previously rejected streams. Kenmare is now assessing the most efficient way to upgrade more secondary zircon into primary zircon, a higher value product.
Kenmare has reached agreement with the local community for the mining of Monte Filipe in the coming months. Monte Filipe is an area of special significance to the local community in the dredge path and the community expects to hold a traditional ceremony shortly to ratify the signed agreement.
The Moma Mine has benefitted from the increased stability and reliability of grid power supplied by Electricidade de Moçambique ("EdM") throughout 2016. While supplementary diesel-powered generators would typically be used towards the end of the fourth quarter, these generators will not be turned on as a matter of course but will remain on standby should the need arise.
Sales of total finished products were up 48% to 280,800 tonnes in Q3 2016 compared to 190,000 tonnes in Q3 2015. Sales demand remains strong, however, sales were 9% lower than the prior quarter (Q2 2016: 309,000 tonnes) due to an ilmenite shipment being loaded over the period end which was therefore not reflected in the shipment figures for the quarter. Sales in Q3 2016 comprised 259,400 tonnes of ilmenite, 19,800 tonnes of zircon and 1,600 of rutile. Closing stock of finished products at 30 September 2016 was 214,900 tonnes (30 June 2016: 230,100 tonnes), of which 60,000 tonnes were being held for a customer and which has been subject to an advanced payment.
Production of each final product is expected to be within the range of guidance provided at the beginning of the year. Primary zircon production has shown a strong increase in the second half of this year but the rate of improvement is tracking slightly behind expectations. As such, there is a potential for primary zircon to be lower than previously thought, however, total zircon production is expected to be well within the guided range due to higher secondary zircon volumes.
Cost control remains a key focus for the Company and it is expected that unit costs per tonne of final product produced will reduce considerably in the second half of the year due to plant efficiencies, increased production and further cost reductions, resulting in full year average costs towards the lower end of guidance.
An update of the 2016 guidance on production and operating costs is as follows:
|of which primary||kt||45-55||43-46|
|of which secondary||kt||18-22||22-24|
|Cash operating costs per tonne of finished product||US$/t||127-155||131-141|
Sulphate ilmenite demand continued to see good improvement in Q3 2016 with increased activity in China as a result of strong pigment production and the ongoing curtailment of Chinese domestic ilmenite production. A combination of increased demand, declining supply and reduced inventories has seen ilmenite prices recover from the very low levels seen at the start of 2016, and this tightening supply outlook is forecast to continue.
Sulphate ilmenite prices globally have also increased and Kenmare has agreed higher prices for the second half of 2016 with contracted customers (where pricing is set on a six monthly basis) and expects that the sustained improvement in market conditions should continue into 2017.
Zircon prices were stable through the quarter following some weakness in Q2 2016. Some positive trends were evidenced at recent ceramics trade shows in Italy that augur well for zircon demand.
As previously announced on 28 July 2016, the Group completed a capital restructuring to reduce debt to US$100 million (from US$392.4 million using agreed exchange rates) and to provide an additional US$75 million of cash for working capital and to meet fees and expenses of the capital restructuring.
For further information, please contact:
Kenmare Resources plc
Michael Carvill, Managing Director
Tel: +353 1 671 0411
Mob: + 353 87 674 0110
Tony McCluskey, Financial Director
Tel: +353 1 671 0411
Mob: + 353 87 674 0346
Jeremy Dibb, Corporate Development and Investor Relations Manager
Tel: +353 1 671 0411
Mob: + 353 87 943 0367
Joe Heron / Aimee Beale
Tel: +353 1 498 0300
Mob: +353 87 690 9735
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.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Kenmare Resources via Globenewswire