Kenmare Resources plc

Thanks very much Peter and thank you all for coming. It’s great to see you here today. I'm James McCullough, CFO for Kenmare, and it’s great to see the last couple of sessions, exploration geology. Having grown up with an exploration geologist, I feel a little bit embarrassed to have to talk about an asset that’s actually in production. But if you bear with me, I hope you’ll agree that it’s just as exciting waiting for government decisions and the outcome of customer engagement as it is waiting for the outcome of drill results.

Kenmare owns and operates the Moma Titanium Mineral Sands mine in northern Mozambique. We’ve been mining there for about 20 years. We’ve got over 100 years to go. Moma supplies about 6% of global supply for titanium dioxide. We’ve just completed a major upgrade project, so about $300 million of capital invested to set us up for the coming decades. We’re currently navigating difficult market conditions. So unlike the other commodities that you’ll talk about here this week, we’re at trough conditions. But that said, this is an asset that has been through many cycles and will endure many cycles to come.

Kenmare has been in Mozambique for about 40 years. We developed the asset back in the mid-noughties. It’s been in production since 2007, so almost 20 years of production, and as I said, over 100 years left of mine life still to come. And if you’re gonna be somewhere for a long time, you better behave yourself. You better be a good corporate citizen. And really the most stark thing about being at Moma is how the mine and the community are integrated in a very symbiotic way. Kenmare and Moma are very important to Nampula and to Mozambique. They make a meaningful contribution to both, not just in terms of the taxes and royalties that they generate, but also in the social investment, in capability, in capacity in and around the mine, and we’re very pleased that our efforts in that space have been recognized and that we’re included as a constituent of the FTSE4Good Index for the last two years.

We produce titanium minerals, titanium dioxide, primarily used as an opacifier and pigment. So that goes into paints, plastics, foods, and many other goods used every day. We also produce zircon, which goes into ceramics and refractories. And both of these in certain jurisdictions are recognized as critical minerals. We’ve invested north of $1.5 billion over the years at Moma. We own our own bulk mining, processing, shipping facilities, and our net book value is north of $875 million as of H1.

Our strategy is built around three main priorities. First of all, that notion of operating responsibly, and the partnerships that we rely on really are dependent on our credentials as a responsible operator. We’ve worked very hard through the Kenmare Moma Development Association, or KMAD, to invest over $25 million since 2004 in public infrastructure, education, sanitation, healthcare. We’ve got industry-leading safety performance. We had an AIFR of 0.54 for the first half of the year. And through that work that we do with the community and through the upskilling that we do, we’ve actually now reached 98% of our workforce being Mozambican, including our most senior people in country, our general manager for the site, and many of our senior leaders who’ve actually come up through their careers with Moma.

Central to it, of course, is the asset. It is one of the largest mineral sands assets in the world. Provides very stable, good quality, long-term supply that many of our customers rely on and have relied on for the last 15-plus years. And that’s got us through cycles and will continue to. And finally, the efficient capital allocation. We have invested for the long term, given this is a long-term asset. The program that we’ve just finished, the $300 million project, again, sets us up for the long term. But at the same time, we recognize shareholders are a key part of this, and we’ve given off more than $300 million in dividends and share buybacks over the last five years.

What we do, we’re not a conventional mining operation, we’re a dredge mining operation. We have three main dredge operations that wind their way through the ore body with floating concentrators that follow behind. We also have some smaller capacity that really allows us to target high-grade areas of the deposit. And we have our own on-site mineral separation facility that takes the high-grade product from the mines and processes it into the final products. The tails that we produce get deposited back in the mine void and progressively rehabilitated as the mine goes. And we also have our own dedicated on-site port facilities.

Combined with this, we’ve got a very low environmental impact, so the bulk of our energy is electricity, 90% of which is hydro-generated from the Cahora Bassa Dam in Mozambique. We progressively rehab the mine areas, so we’ve been mining for 20 years. Much of the area that we’ve already mined is already back in agricultural use. We don’t use any toxic chemicals. We recycle our water. We recycle the waste that we generate. And it’s all contained in the footprint of Moma.

We talk about 100 years of mine life, and really that can only happen if we operate sustainably, sustainably economically, sustainably physically, and also socially. And to that end, safety is key and the engaged workforce. Thriving communities, we’ve talked about the importance of that relationship that we have with the community. From when Moma started off, it was around probably 2,000 people in the immediate vicinity. We’re now thirty-five or 40,000 people in the community, so that has really built up around the mine. And it’s very pleasing to see the development of local economy coming out of the efforts that we’ve made through the development association.

Healthy natural environment, obviously, for all the reasons around carbon intensity and low emissions, but also to make sure that the land that we use gets back into agricultural use, gets back into having an economic benefit for the community, gets back into being able to supply crops and foodstuffs into the local communities and into the mine itself. And all of these contributes to Kenmare being widely regarded as a very trusted business and named as one of the most, in fact, the most transparent company in the extractive industry in Mozambique for five consecutive years.

In terms of our capital structure and share reg, we’re listed in London and on the Euronext in Dublin. We have a market cap of around $215 million, net debt of around 175 for enterprise value of just shy of 400 million. We’re covered by five analysts, mostly UK-based. And we’ve got a good share reg where the top seven shareholders own about just over 60% of the register. Many of those have been with us for ten-plus years, very solid supporters and a very high quality set of shareholders.

If we look just at the market for our products, so titanium dioxide, as I said, it’s got a very high refractive index. That means that it’s used primarily as an opacifier. It’s used to impart whiteness on whatever it’s put on, and that allows further layering of colors, whether that’s in paints or plastics or paper or ink or the clothes. It’s really everywhere around us, and used every day. We consider it to be a quality-of-life product, so demand tends to track very closely with GDP. And typically, consumption per capita is highest in developing economies, so we do see significant latent demand in developing economies to reach the same sort of consumption per capita as we see in the developed economies.

And zircon similarly, similar set of demand patterns. It’s used as an opacifier in the ceramics industry as well as in other refractory and chemical industries. And look, plays to similar demand drivers as TiO2. Broadly speaking, this is a pretty boring demand story. It’s not like your copper or your lithium where we’re seeing great leverage to the energy transition, but it’s just a slow grind, a very dependable grind up and to the right in terms of consumption. Tends not to fluctuate too much year on year.

The action on pricing really comes from the supply side of this industry. And a few years ago, we had ilmenite. Ilmenite’s our major product or the primary product that we produce. Ilmenite prices were up around $400 a ton. This was coming out of the COVID pandemic. Everybody was painting their houses. It was a good time to be in the business. That incentivized a lot of new supply, and some of that supply has been relatively low CapEx, low cost, pretty rudimentary mining operations in places like Mozambique, Sierra Leone, Nigeria. And that wave of new supply has depressed prices, and pricing for ilmenite now is down probably to around $200, in some cases even lower.

And while we can see now the preconditions, if you will, for a pricing recovery, we’re seeing supply come out of the market. We’re seeing a rising cost base in terms of diesel prices and the exposure that many producers have to that for their electricity generation. We’re seeing downstream players with much better financial results in terms of their volumes and prices. But we’re not yet seeing that recovery in ilmenite pricing, and that’s meaning that we have to tailor our business to a relatively low price environment.

In zircon, we’re actually seeing a much stronger market coming through now as we come into H2. We’re seeing price increases start to take hold. There’s slightly less zircon content in the supply that’s come on stream, and so that’s been a bit of a bright spot for us through H1 and certainly continuing into H2.

If we look at where this leaves us for our own performance and our own outlook, I mentioned earlier that we’ve just completed this $300 million expansion project or upgrade project on our main mining plant. You can see a picture of it here. There’s two new dredges which are mining the sand face. These sand dunes are higher than what we’ve looked at before. They’re a little bit harder, so we’ve had to invest in more powerful dredgers. And then the concentrator plant as well has had to be expanded and enhanced to deal with slightly higher slimes content.

Now, that project started to ramp up early this year really. The ramp-up of that project has gone a little bit slower than we would have anticipated, and that’s led to slightly lower production this year than we had expected and certainly than we had last year. And when we look at that year on year, we can see that our heavy mineral concentrate, ilmenite production are down. But actually our shipments are up this year, and we’ve done that very deliberately. We’ve sold down finished product stockpiles that we had at the end of last year. And we’ve been, we think, quite creative and inventive in taking products that had previously been considered as waste, concentrates that had effectively no perceived market value, and we’ve gone and we’ve created a market for that, particularly with customers in the Chinese market. And that has enabled us to maintain high levels of shipments against those lower production volumes that we’ve seen.

Looking through some of the financials, as I said, pricing has come down, so our average price has come down from in the mid-$300 per ton down to 240 during H1. Notwithstanding the higher shipments that we had in the first half, that’s been reflected in revenue, with a relatively low revenue number in the first half. We focus a lot on costs. So far this year, we’ve done a retrenchment of around 15% of our workforce. We’ve taken costs out of every category, and that’s somewhat offset the reduction in revenue, but we’re still down at around $4 million of EBITDA, our lowest outcome for some time. And look, that all reflects the challenging market conditions that we’re in.

Our net debt is up at around $175 million. We have a $230 million revolving credit facility with four South African banks. So that gives us some headroom on that to manage our way through this. And further to that, we’ve got waivers on our EBITDA-based covenants associated with that debt package through 2026, reflecting really that ramp-up and the relatively weak market that we’re operating in and a set of supportive banks who are prepared to stand behind us.

The other major focus for us this year was our implementation agreement with the Mozambican government. So that’s an agreement between Kenmare and the government of Mozambique stemming back to 2002. 2004 is when it was implemented. That governs the terms, the fiscal terms, for our processing and export activities. That agreement expired in December 2024, and we’ve been operating since then with permission from the Mozambican government on our legacy terms as we negotiate its renewal. We’ve had some very constructive engagement with the government over the last six months. I think we’re circling around an agreement that we would all be comfortable with.

Part of that involves an increase to royalty rates that we’re paying, so we’ll move from 1% royalty rate up to probably 2.5% is what we’ve been accruing for over the last year and a half. And look, we’re very, very hopeful that that arrangement and agreement will be concluded in short order, and we think that that will be a big de-risking for the stock. Certainly something that we contend with in all of our shareholder discussions and indeed lender discussions.

So look, our 2026 outlook, we think we’ll sell somewhere or produce rather somewhere between 900 and 950,000 tons of product. We’ll sell about 1,100, sorry, 1.1 million tons of product. That’s enabling us to unwind some of our inventory and convert that inventory into cash. We are managing our costs very, very carefully to navigate through this downturn and to effectively set the business up to be able to operate under these conditions for as long as it takes to get through, and ultimately get to the other side of this trough.

Maybe just to summarize again, this is a world-class asset. It’s got more than 100 years left to go. It’ll be going long after those of us here in the room are gone and certainly well past our professional careers. And the investment that we’ve made is really to enable us to move into the next war zone that’ll keep production going probably for the next 30 years or more. We have a very strong position in the market. We’re one of very few remaining independent producers. We’re relied upon by our customers for the continuity of our supply as well as the quality of the product.

And over the course of cycles, this asset is very cash flow generative. We generated north of $300 billion of EBITDA back in 2021. We’ve returned north of $300 million to shareholders over the course of the last five or six years. And over the course of the numerous cycles left to go in this asset’s life cycle, we expect it to be very, very cash flow generative. As I said, at the moment, we’re focused really on ensuring that we are able to, as custodians, get it through the current challenges and build and strengthen the legacy that’s been created at Moma for years to come. So with that, happy to take any questions. Thanks, Peter.

Thanks for the presentation, James. James, what’s your revenue split between zircon and ilmenite? And the reason I ask is just given the differing price— Yeah. …charts, is there much flex in your operation between either— Yeah. …production?

So look, traditionally, ilmenite would generate about 70% and zircon 20 to 25%, and we’ve got a suite of concentrates that make up the balance. We are, of course, trying to really target areas that either have higher zircon or indeed we have three different grades of ilmenite— Mm-hmm. …some of which are being hurt more… the current climate than others. So we’re really trying to tailor where we’re mining to higher zircon and better quality ilmenite at the moment with some of those smaller and more nimble mining assets that we have.

Okay. Excellent. Are there any questions from the floor?

I am from Australia, and our focus on mineral sands at the moment particularly is on the rare earths. Yeah. Are you able to spend one minute on your rare earth asset suite and any plans to monetize those assets?

Yeah. It’s one of the more interesting things that people are interested in. So we already produce a product called mineral sands concentrate, which is rich in rare earths through a monazite constituent. At the moment, we’re selling that out, and we sell it under the right sort of licensing and agreements and handling and all of that. But we’re looking at ways to monetize that ourselves. We’re working through a PFS on a processing facility that could be built at Moma on site that would actually lead to an upgraded monazite product that could be sold off to various counterparties.

And there’s a lot of interest. There’s a lot of people scrambling for secure supply of the feedstock to the plants that they want to build. So I think at the moment it’s really trying to understand the opportunity that we have there, trying to do a bit of price discovery in terms of what the right pricing for this is. It’s a very opaque market. And then to align on and decide on the best way to monetize that beyond what we’re already doing.

Thank you very much.