Kenmare Resources : Trading Update

Kenmare Resources plc (LSE:KMR, ISE:KMR), one of the leading global producers of titanium minerals, is pleased to provide a trading update on its Moma Mine for the fourth quarter and year ending 31 December 2013, ahead of the publication of the Company's preliminary results on 12 March 2014.

Overview

• Moma expanded plant commissioned and in operation
• Ore mined in 2013 increased 22% to 23,951,200 tonnes (2012: 19,588,800 tonnes)
• Heavy Mineral Concentrate ("HMC") production increased 47% to 1,137,200 tonnes (2012: 772,300 tonnes)
• Ilmenite production increased 25% to 720,100 tonnes (2012: 574,500 tonnes)
• Zircon production decreased 33% to 31,400 tonnes (2012: 46,900 tonnes)
• Total shipments 677,900 tonnes of finished products (2012: 680,800 tonnes)
• Strategic focus in 2014 to increase production and identify and realise operational efficiencies to reduce unit costs

Statement from Michael Carvill, Managing Director: 
"Completion of the expansion is another important milestone in Kenmare's development.  I am delighted to see the positive contribution made by the expanded facilities and anticipate that production will continue to improve as we work with local authorities to manage the power supply issues.  Kenmare will use the leverage of additional production capacity to drive down unit costs.  We will also identify and realise operational efficiencies."

Production & Shipping

Production from the Moma Mine for fourth quarter and full year 2013 was as follows:

	Q4-2013	Q4-2012	Variance	FY-2013	FY-2012	Variance
	tonnes	tonnes	%	tonnes	tonnes	%
Ore mined	7,655,700	3,483,500	120%	23,951,200	19,588,800	22%
Grade	6.30%	5.70%	11%	5.90%	5.50%	7%
HMC	311,000	157,000	98%	1,137,200	772,300	47%
Ilmenite	209,400	123,600	69%	720,100	574,500	25%
Zircon*	6,600	10,600	-38%	31,400	46,900	-33%

• Including secondary grade zircon product in Q4 2013 1,000 tonnes (Q4 2012: 4,500 tonnes) and in FY 2013 10,300 tonnes (FY 2012: 19,400 tonnes)

During 2013, Kenmare mined 23,951,200 tonnes of ore at an average grade of 5.9% and produced 1,137,200 tonnes of HMC.  Finished product volumes for the year were 720,100 tonnes of ilmenite and 31,400 tonnes of zircon (including 10,300 tonnes of a secondary grade zircon product).

During the fourth quarter of 2013, Kenmare mined 7,655,700 tonnes of ore at a grade of 6.3% and produced 311,000 tonnes of HMC, compared with 157,000 tonnes of HMC in the fourth quarter of 2012.  Whilst ore grade was approximately 11% higher and mining conditions improved, the principal driver of the additional 98% HMC production was the completion and ramp-up of the new dredge and concentrator plant in a second mine pond as part of the expansion of the Mine during the second half of 2013.

Expansion of the Mineral Separation Pant ("MSP") enabled Kenmare to increase production of ilmenite by 69% to 209,400 tonnes during the fourth quarter 2013, up from 123,600 tonnes during the equivalent period in 2012.  However, production of zircon during the fourth quarter of 2013 was 6,600 tonnes compared with 10,600 tonnes in the fourth quarter of 2012.  This was due to the downtime associated with integration of the expanded zircon and rutile circuits, which took longer than expected and consequently balancing and ramp up of these circuits were delayed.  The ramp up was also hampered by periods of unstable power supply.  Optimisation of the zircon and rutile circuits is ongoing, initially concentrating on the zircon circuit as this product generates greater revenues than rutile.

Closing stock of HMC at end of 2013 was 72,500 tonnes, compared with 3,600 tonnes at the start of the year.  Closing stock of finished products at end of 2013 was 107,100 tonnes, compared with 29,600 tonnes at the start of the year.

Products shipped and sold by the Moma Mine for fourth quarter and full year 2013 were as follows:

	Q4-2013	Q4-2012	Variance	FY-2013	FY-2012	Variance
	tonnes	tonnes	%	tonnes	tonnes	%
Ilmenite	226,600	184,000	23%	642,700	631,400	2%
Zircon*	9,800	17,500	-44%	32,200	46,800	-31%

• Including secondary grade zircon product in Q4 2013 2,100 tonnes (Q4 2012: 7,500 tonnes) and in FY 2013 10,300 tonnes (FY 2012: 22,400 tonnes)

During 2013, Kenmare shipped 677,800 tonnes of finished products, comprised of 642,700 tonnes of ilmenite, 32,200 tonnes of zircon (including 10,300 tonnes of secondary grade zircon) and 2,900 tonnes of rutile (2012: 2,600 tonnes of rutile).  Shipments of finished products in the fourth quarter 2013 were 236,400 tonnes, up from 204,100 tonnes shipped in the fourth quarter 2012.  December 2013 also saw the 200^th shipment from the Moma Mine, bringing the cumulative product exports to over 3.5 million tonnes since commencement of operations.

Expansion facilities were ramping up through the second half of 2013.  All major facilities except for the zircon and rutile circuits have operated at or near design capacity levels.  Utilisation levels are still below target levels, in large part due to unstable power supply.  The zircon and rutile circuits have demonstrated their ability to operate at target throughput levels.  However, due to on-going optimisation of these circuits, output was low in the fourth quarter of 2013.

 

Operations

One of the key operational challenges for Moma has been the reliability of power supply.  A number of initiatives have been taken by Kenmare to enhance transmission capacity and address power instability issues, including:

• Upgrade of transmission grid, in collaboration with Electricidade de Moçambique ("EdM"), the state electricity transmission utility.  This upgrade consisted of the installation of capacitor banks at Nampula and Alto Molocue and the upgrading of the Alto Molocue SVC
• Installation of voltage stabilisation equipment at Moma (Dip Doctor)
• Installation of capacitor banks at Moma
• Improvements to operational procedures to reduce recovery time following power outages

Despite these initiatives, electricity supply has been subject to unplanned outages that have disrupted production.  After investigation, it has become apparent that load growth on the northern network had been increasing more rapidly than EdM had anticipated.  Consequently, especially with increased domestic load in the summer months, power demand at times exceeds the stable transmission capacity of the network, resulting in voltage instability.

To address this issue, several projects are being advanced by EdM:

• A load management program amongst EdM customers in order to prevent at peak times line load rising above the stability limit of 118MW at Nampula.
• Installation of series capacitors in the northern network and a Static VAR Compensator in Nampula to significantly increase the transmission capacity of the network. These projects have commenced and  EdM is targeting completion in early 2015.
• Development by EdM of a major project to build an additional 400kV line, as a long term solution to the power supply issue.

Kenmare is working closely with EdM to progress these projects and is providing support to further improve the operation of the network.

Market

Whilst there was some growth in global pigment consumption during 2013 it was largely met from pigment inventories, which reduced significantly over the course of the year as plant operating rates were curtailed.  This led to reduced offtake of feedstock throughout the year, but there is evidence that we are now getting closer to the end of this prolonged destocking cycle.

Despite the general weaker market conditions, offtake of Moma ilmenite in the fourth quarter of 2013 was reasonably robust as shipments increased by 60% to 226,600 tonnes over the previous quarter, by focusing on deliveries to existing core customers and some spot sales to Asia.

Whilst feedstock demand in the first quarter of 2014 is expected to remain subdued, an improving macro-economic outlook in all key regional markets for 2014 should lead to stronger pigment demand conditions.  The peak painting season in the Northern Hemisphere commencing early in the second quarter is also expected to add a much needed boost to pigment demand, which should manifest itself in returning feedstock offtake rates to more normal levels as pigment plant operating rates are gradually ramped up over the course of the next few months.

There was some moderate softening of zircon prices in the final quarter of 2013 due to seasonal demand weakness in China and Europe, and competition amongst suppliers to conclude year-end sales.  Kenmare was able to sell substantially all of its zircon in 2013.  Overall zircon demand is expected to have declined marginally in 2013 compared to 2012, but 2014 is expected to see a return to growth driven by improved economic outlook in the global economy.

Outlook

As the expansion project is now operating, management focus is to ensure the new facilities smoothly integrate with the original plant and to deliver increased production.  Management will optimise efficiencies within operations with a view to achieving unit cost savings.  In respect of Kenmare's capital structure, the Company is in on-going discussion with lenders with a view to optimising the terms of the project financing.  We are also encouraged by improvements in the level of global economic activity, which should ultimately flow through to improved feedstock and zircon demand.

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

Virginia Skroski, Investor Relations Manager
Tel: [phone]
Mob: + 353 87 739 1103

Murray Consultants                                                         
Joe Heron                                                                          
Tel: [phone]  
                                                     
Buchanan
Bobby Morse / Louise Mason / Gordon Poole
Tel: [phone]

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Source: Kenmare Resources via Globenewswire

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