Kenmare Resources plc : Interim Management Stat...

Kenmare Resources plc ("Kenmare" or "the Company")

17 October 2014                                                                                                                                                 

Interim Management Statement

Kenmare Resources plc, which operates the Moma Titanium Minerals Mine (the "Mine" or "Moma") in Mozambique, today issues, in accordance with the reporting requirements of the EU Transparency Directive, the following Interim Management Statement with respect to the period from 1 July 2014 to 16 October 2014 and covering production and shipments from 1 July 2014 to 30 September 2014 ("Q3" or "Q3 2014").

Overview

• Ilmenite production in Q3 increased 6% to 220,200 tonnes (Q3 2013: 208,100 tonnes)
• Primary zircon production up 239% to 12,900 tonnes (Q3 2013: 3,800 tonnes)
• Total shipments of finished products in Q3 increased 24% to 183,200 tonnes  (Q3 2013: 147,400 tonnes)
• Debt repayment schedule amended to provide greater financing flexibility
• Ongoing discussions regarding possible offer from Iluka Resources Limited ("Iluka")

Statement from Michael Carvill, Managing Director: 
"During the quarter we have continued to focus on previously stated plans of conserving cash and controlling costs against a background of market conditions that have adversely impacted cash generation. The upgrade of the non-magnetic circuits in Q2 2014 helped contribute in Q3 2014 to a substantial increase in primary zircon, a significant part of our revenues."

Update regarding possible Iluka offer
Following the announcement on 26 June 2014 that Kenmare had received a non-binding conditional proposal from Iluka, Kenmare and Iluka are engaged in discussions regarding a potential offer from Iluka. Discussions remain at an early stage; there can be no certainty that an offer will be made, nor as to the terms on which any offer might be made.

Kenmare shareholders will be kept informed of relevant developments and further announcements will be made as appropriate.

Production

Production from the Moma Mine for Q3 2014, was as follows:

	Q3-2014	Q3-2013	Variance	Q2-2014	Variance
	tonnes	tonnes	%	tonnes	%
Excavated Ore *	9,000,000	6,890,000	31%	8,750,000	3%
Grade*	4.29%	5.89%	-27%	4.40%	-2%
Production
HMC	316,500	346,200	-9%	317,200	0%
Ilmenite	220,200	208,100	6%	234,800	-6%
Zircon	14,600	5,700	156%	12,600	16%
of which primary	12,900	3,800	239%	10,600	22%
of which secondary	1,800	1,900	-5%	2,000	-10%
Rutile	1,600	600	167%	1,700	-6%
Shipments	183,200	147,400	24%	205,200	-11%

* Excavated Ore and grade are prior to any floor losses.

No issues have been identified to date that are expected to impact on the ability of the expanded facilities to operate at nameplate capacity. Throughput rates in all plants have shown their ability to operate at designed levels and our primary focus remains on increasing utilisation rates to achieve steady-state production targets.

In Q3 2014, production of Heavy Mineral Concentrate (HMC) was 316,500 tonnes (2013 Q3: 346,200 tonnes).The decline was primarily as a result of a drop in ore grade (in accordance with the mine plan) and lower than expected mining volumes. Lower mining volumes were a result of work to upgrade and de-bottleneck WCP B (Wet Concentrator Plant B) in order to sustainably increase utilisation rates. WCP B utilisation has improved since these works have been completed and we expect mining volumes to increase further in Q4. WCP A continues to progress well through the Namalope high dunes and operated above forecast throughout Q3 2014.

The non-magnetic circuits have been performing well since previously announced upgrade work was completed in Q2 2014. Total zircon production increased 16%, in comparison to the previous quarter, to 14,600 tonnes (Q2 2014: 12,600 tonnes). Importantly, primary zircon increased by 22% to 12,900 tonnes over the same period (Q2 2014: 10,600 tonnes), while secondary zircon decreased by 10% to 1,800 tonnes (Q2 2014: 2,000 tonnes). Increased production volume and product quality allows us to capture a higher margin.

Rutile production for the quarter was 1,600 tonnes (Q3 2013: 600 tonnes). The quality of rutile production continues to improve and should result in a higher received price for rutile.

Ilmenite production for the quarter was 220,200 tonnes (Q3 2013: 208,100 tonnes). In the case of large contracted customers, shipments have been broadly in line with agreed shipping schedules. However, shipments to one customer for a significant volume of ilmenite have shifted from Q3 into Q4. As a result of this and the curtailment of shipments to China referred to below, closing stock of finished products at 30 September 2014 was 231,900 tonnes (30 June 2014: 177,900 tonnes), including ~25,000 tonnes of ilmenite stored outside. In order to minimise the volume of finished product stored outside we are temporarily modifying our production strategy to maximise the volume of zircon and rutile produced and limit the output of sulphate grade ilmenite by increasing our stockpile of intermediate magnetic concentrate, which is more suitable for outside storage. This will result in some cash savings by reducing the operating time of the ilmenite circuits.

Sales of total finished products were up 24% to 183,200 tonnes in Q3 2014 (Q3 2013: 147,400 tonnes). Sales comprised 166,100 tonnes of ilmenite, 13,800 tonnes of zircon (11,800 primary and 2,000 secondary), and 3,200 tonnes of rutile. 

Power stability remained within expected levels during Q3. The 7.5MW diesel-powered electric generating plant supplied by Aggreko remains on standby following installation and testing. The plant is ready to operate when required during the Southern Hemisphere summer months.

Market

The TiO₂ pigment market is expected to grow by more than the historical 3% trend line growth rate in 2014. However, this global growth is subject to some regional disparities. In the US, pigment demand is in line with improved economic activity, buoyed by strong economic growth and positive housing and construction activity. European markets performed well during July, but have started to show some signs of weakening in the subsequent months. Chinese pigment production continues to grow strongly, supported by robust export volumes.

The feedstock market has seen some offtake stability in the more mature regions, but buying behaviour remains cautious in the spot-dominated Chinese market. We have agreed ilmenite prices for the second half of 2014 for customers in North America, Europe and the Middle East, which represent the bulk of our ilmenite shipments.  

Ilmenite markets continue to remain well supplied in China. New mineral sands producers have focused their sales on the Chinese market, which has further weakened prices there. We have curtailed shipments to China during Q3 in order to contain further price erosion.

Until recently, Chinese domestic production of ilmenite has grown significantly over the past four years. Chinese ilmenite is typically low-grade and produced principally as a by-product of iron ore mining. This growth has been fuelled by high iron ore prices supporting iron ore production increases in China and in turn ilmenite rich iron ore tailings. High ilmenite prices in 2011-12 incentivised the reprocessing of those tailings into final product. Current iron ore prices are unlikely to be supportive for the majority of domestic Chinese iron ore production and consensus expectations are that Chinese domestic iron ore production volumes will reduce, which should result in a reduction of Chinese domestic ilmenite production. Additionally, current ilmenite prices are uneconomic for tailing reprocessing, as evidenced by a large re-processor suspending its operations recently.

China consumes approximately two million tonnes per annum of imported titanium feedstocks. Our ilmenite currently competes with domestically produced ilmenite to provide TiO₂ units to the Chinese sulphate pigment market. However, there are significant new chloride slag plants being commissioned across China and the Middle East that will ramp up production over the next 12 months. Most of the Chinese domestically produced ilmenite cannot be used in these new chloride slag plants due to its low quality (low TiO2 grade and high alkali levels). Kenmare's sulphate ilmenite, in contrast, can be used as a feedstock to produce chloride slag, as a result of its higher quality. This new chloride slag capacity is therefore expected to increase demand for our sulphate ilmenite products as chloride pigment producers aim to capture higher margins by upgrading ilmenite at their own plants rather than purchasing high grade feedstocks. Hence, we believe that the conditions are in place for rapid demand growth of high quality sulphate ilmenite as a chloride grade feedstock.

Zircon market demand conditions remained stable in the quarter. Offtake support from our customers remains strong and we continue to sell all our zircon.

Financing

During the period covered by this Interim Management Statement, and as previously announced on 1 August 2014 and 27 August 2014, Kenmare agreed a project financing amendment which removed the requirement to make scheduled principal payments of Senior Debt and payments of interest and principal of Subordinated Debt falling due in August 2014, February 2015 and August 2015. Simultaneously, Kenmare agreed with Absa an extension to its US$20 million corporate loan, which will now mature on 31 March 2016.

Pursuant to the recent project financing amendment and in advance of the 31 January 2015 budget requirement, Kenmare continues to work closely with lenders and their advisors and to work on optimising the group's capital structure.

Cash and cash equivalents as at 16 October 2014 amounted to US$29.6 million.

For further information, please contact:

Kenmare Resources plc
Michael Carvill, Managing Director                                    
Tel: [phone]                                                             
Mob: + 353 87 674 0110                                                      

Tony McCluskey, Financial Director
Tel: [phone]                                                             
Mob: + 353 87 674 0346

Jeremy Dibb, Corporate Development and Investor Relations Manager
Tel: [phone]
Mob: + 353 87 943 0367

Murray Consultants                                                              
Joe Heron                                                                                 
Tel: [phone]                                                             
Mob: [phone]                                                       

Buchanan
Bobby Morse / Louise Mason / Gordon Poole
Tel: [phone]

This Interim Management Statement contains certain forward looking statements which involve risk and uncertainty because they relate to events and depend on circumstances that occur in the future.  There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements.  
The Directors of Kenmare accept responsibility for the information contained in this announcement. To the best of their knowledge and belief (having taken all reasonable care to ensure that such is the case), the information contained in this announcement is in accordance with the facts and does not omit anything likely to affect the import of such information.

This announcement is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities whether pursuant to this announcement or otherwise. The distribution of this announcement in jurisdictions outside Ireland or the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe, such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities law of any such jurisdiction.

DISCLOSURE REQUIREMENTS UNDER THE IRISH TAKEOVER RULES

A person interested in 1% or more of any class of relevant securities of Kenmare or Iluka may have disclosure obligations under Rule 8.3 of the Irish Takeover Rules, effective from 26 June 2014, the date of the commencement of the offer period for Kenmare under the Irish Takeover Rules.

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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

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