Q2 and H1 2020 Production Report

Kenmare Resources plc (“Kenmare” or “the Company”)

14 July 2020

Q2 and H1 2020 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 quarter and half year ending 30 June 2020 (“Q2 2020” and “H1 2020”).

Statement from Michael Carvill, Managing Director:

“I would like to thank our team at the Moma Mine for how they have risen to meet the challenges posed by the COVID-19 pandemic. It is through their exemplary organisation, hard work and commitment that Kenmare has continued to produce and ship our products.

We have been working hard to mitigate COVID-19 related delays to the relocation of Wet Concentrator Plant B and we expect mining at Pilivili to begin in Q4. In recent days the Government of Mozambique has authorised the issuance of business visas to allow specialist contractors to mobilise to site. Taking into account the project timeline and the current risk profile, we now expect to produce 700,000 to 800,000 tonnes of ilmenite in 2020. We remain financially well-resourced to complete the WCP B move and maintain a strong balance sheet, with close to US$100 million of cash at the end of June.

All production metrics improved strongly in Q2 2020 compared to Q1 2020, in particular excavated ore volumes, which increased by 27%. This represents a quarterly record for excavated ore, benefitting from contribution from the new WCP C.

Prices for ilmenite, our main product, increased for the fifth consecutive quarter in Q2 2020. We expect the market to be more subdued in the second half of the year, as the pandemic impacts both demand and supply of titanium feedstocks, but the long-term fundamentals for all of our products remain strong.”

Q2 2020 overview

• Strict access controls, hygiene protocols and social distancing measures have been in place at the Mine for several months, with production and shipments continuing
• Lost time injury frequency rate (“LTIFR”) of 0.32 per 200,000 man-hours worked for the 12 months to 30 June 2020 (30 June 2019: 0.12) – safety review underway to strengthen safety culture
• Heavy Mineral Concentrate (“HMC”) production of 310,300 tonnes in Q2 2020, representing a 13% increase compared to Q2 2019 (274,700 tonnes)
• Ilmenite production of 209,900 tonnes in Q2 2020, representing a 5% decrease compared to Q2 2019 (220,100 tonnes) primarily as a result of the contribution of a significant spillage retreatment campaign in the prior period
• Primary zircon production of 11,600 tonnes, representing a 5% increase compared to Q2 2019 (11,000 tonnes) due to increased HMC consumption
• Total shipments of finished products of 219,100 tonnes, representing a 29% decrease compared to Q2 2019 (307,000 tonnes) but a 13% increase compared to Q1 2020
• Wet Concentrator Plant (“WCP”) C delivered throughput of 500 tonnes per hour (“tph”) on a consistent basis in Q2 2020
• Kenmare expects to produce 700,000 to 800,000 tonnes of ilmenite in 2020 taking into account the WCP B move timeline and the current risk profile – full guidance is anticipated to be updated with the H1 2020 Results
• Strong ilmenite market conditions continued in Q2 2020 and Kenmare has secured offtake agreements for the majority of its ilmenite production in H2 2020
• Oversupply in the zircon market continued in Q2 2020, however the medium term outlook continues to be positive due to reducing production from major zircon producers
• At the end of H1 2020, cash and cash equivalents were US$98.6 million and gross debt was US$151.3 million, resulting in net debt of US$52.7 million (31 December 2019: US$13.7 million net cash) due primarily to scheduled capital expenditure

Production

Production from the Moma Mine in Q2 and H1 2020 was as follows:

	Q2 2020	Q2 2019	Q1 2020	H1 2020	H1 2019
	tonnes	% variance	% variance	tonnes	% variance
Excavated ore 1	10,317,000	4%	27%	18,471,000	-4%
Grade 1	3.29%	7%	-3%	3.33%	-28%
Production
HMC production	310,300	13%	25%	558,400	-12%
HMC consumption	311,900	9%	26%	558,600	-11%
Ilmenite	209,900	-5%	32%	368,900	-19%
Primary zircon	11,600	5%	21%	21,200	-8%
Rutile	1,500	-32%	7%	2,900	-34%
Concentrates2	9,000	-4%	5%	17,600	-10%
Shipments	219,100	-29%	13%	413,700	-14%

1. Excavated ore and grade prior to any floor losses.
2. Concentrates include secondary zircon and mineral sands concentrate.

In Q2 2020 Kenmare’s rolling 12 month LTIFR was 0.32 per 200,000 man-hours worked (Q2 2019: 0.12) and four lost time injuries were recorded during the period. As a result, the Company is conducting a safety review and re-evaluating its strategies to reinforce its strong safety culture.

HMC production was 310,300 tonnes in Q2 2020, representing a 13% increase compared to Q2 2019 (274,700 tonnes). This is as a result of a 7% increase in ore grades to 3.29% and a 4% increase in excavated ore volumes to 10.3 million tonnes, setting a new quarterly record. This increase in excavated ore volumes was due primarily to WCP C’s contribution to production in Q2 2020. Excavated ore volumes also increased by 27% when compared to Q1 2020. Ore grades decreased by 3% compared to Q1 2020, and will continue to be impacted until WCP B begins mining the high grade Pilivili ore zone, following relocation.

However despite increased HMC production and the draw down of magnetic stockpiles in Q2 2020, ilmenite production was 209,900 tonnes, representing a 5% decrease compared to Q2 2019 (220,100 tonnes). This was primarily due to a significant spillage retreatment campaign in Q2 2019. Ilmenite recoveries in Q2 2020 were to plan.

Primary zircon production increased by 5% to 11,600 tonnes in Q2 2020 (Q2 2019: 11,000 tonnes) as a result of increased HMC consumption. Rutile production was 1,500 tonnes, down 32% (Q2 2019: 2,200 tonnes) due to weaker recoveries, and concentrates production was 9,000 tonnes, down 4% (Q2 2019: 9,400 tonnes) due to changing the feed mix to the Mineral Separation Plant, as zircon rich retreatment stocks have been drawn down.

Kenmare shipped 219,100 tonnes of finished products during the period (Q2 2019: 307,000 tonnes), which was comprised of 192,400 tonnes of ilmenite, 13,400 tonnes of primary zircon, 3,100 tonnes of rutile and 10,200 tonnes of concentrates. While total shipments in Q2 2020 increased by 13% compared to Q1 2020, they represented a 29% decrease compared to Q2 2019 primarily as a result of poor sea conditions. Kenmare expects shipping volumes to increase in H2 2020 due to seasonally calmer sea conditions and scheduled improvement works for both transhipment vessels to increase their loading capacity.

Closing stock of HMC at the end of Q2 2020 was 6,800 tonnes, compared with 8,400 tonnes at the end of Q1 2020. Closing stock of finished products at the end of Q2 2020 was 157,000 tonnes, compared to 144,200 at the end of Q1 2020 (Q2 2019: 222,200 tonnes).

COVID-19 update

The safety and wellbeing of Kenmare’s employees and the Moma Mine’s host communities in Mozambique are the Company’s highest priorities. Management continues to be focused on minimising the potential for COVID-19 to spread to the operations, with stringent mitigation measures having been in place for several months. These include heightened health protocols, social distancing measures and testing procedures.

On 28 June 2020, an employee of a Kenmare contractor returned to the Moma Mine and began a 14 day self-isolation period, in line with Company policy. Kenmare’s clinical team suspected that the individual may have contracted COVID-19 and the Ministry of Health were contacted to undertake testing. Five people were tested and one returned a positive result, with the affected individual remaining in quarantine.

Kenmare is committed to supporting the Mine’s host communities in the fight against COVID-19. During the quarter the Company donated hand sanitation kits and over 23,000 masks to local villages. Kenmare Moma Development Association (KMAD) volunteers also conducted door-to-door campaigns to raise awareness about how to prevent the spread of the virus.

The Company donated 50 CPAP (non-invasive ventilation with oxygen) machines to the health authorities in Nampula, which is the nearest major town to the Moma Mine. Kenmare has also purchased 10 ventilators, eight of which are being donated to the Nampula health authorities and two will be retained by the camp health clinic. Additionally, Kenmare donated personal protective equipment and digital thermometers to local health facilities.

The Government of Mozambique declared a state of emergency on 30 March 2020, which included a 14-day quarantine for anyone entering the country. The next review is scheduled for 29 July 2020.

Capital projects update

Kenmare has been progressing three development projects that together have the objective of increasing ilmenite production to 1.2 million tonnes (plus co-products) per annum on a sustainable basis. The first development project, a 20% expansion of WCP B, was commissioned successfully in late 2018.

The second development project, the construction of WCP C, delivered throughput of 500 tph on a consistent basis during Q2 2020. Although the project is operating and expected to be completed within its US$45 million budget, project completion has been delayed due to travel restrictions.

The relocation of WCP B, the third development project, has been impacted by global restrictions relating to COVID-19. The Company has been in active dialogue with its employees and contractors, and has implemented a series of initiatives to ensure that WCP B is moved safely, while minimising effects to the project schedule and capital costs.

On 10 July 2020 Kenmare was informed that the Government of Mozambique had authorised the issuance of business visas required for specialist contractors. As a result of this development and with other mitigation plans underway, the Company continues to target the move of WCP B to Pilivili in Q3, with mining commencing in Q4 2020.

Importantly, construction of the 23km, purpose-built road and infrastructure has continued uninterrupted and is progressing well. The relocation pond at Namalope is now complete and work is commencing on the starter pits at Pilivili. The first self-propelled modular transporters (SPMTs), which will transport the WCP and dredge, have now arrived at the Moma Mine.

The statcom, which forms part of the electrical infrastructure, has also arrived and is in storage in Nampula, and the electricity pylons for the overhead powerline are arriving on site. However, due to manufacturing delays and restrictions in South Africa relating to COVID-19, it is not expected that the overhead powerline will be installed on schedule, so initially power is anticipated to be provided at Pilivili by diesel generators.

The positive displacement pumps are due to be shipped from Germany shortly. As delays were experienced with the fabrication of the HMC pipeline, Kenmare took the decision to move fabrications to Italy, Germany and Bahrain. Similarly to the overhead powerline, the installation of the positive displacement pumping system is expected to be delayed and therefore Kenmare will truck HMC from Pilivili to the Mineral Separation Plant initially. Although this will increase operating costs on a temporary basis, it reduces the commissioning risk of the project and ensures that mining can begin at Pilivili as soon as possible, allowing Kenmare to access higher grade ore. The water pipelines have now arrived at Moma and are being installed on schedule.

The community-related elements of the project are also progressing well, with plans for new school blocks, an extension to the Pilivili health centre and new water systems submitted to the provincial government.

While the original project scope remains within the expected budget of US$106 million, the additional initiatives required to mitigate the impacts of COVID-19-related delays are currently anticipated to increase overall project costs by approximately 10%. Some of these costs are likely to be categorised as operating costs (for example, the fuel to power the temporary diesel generators and the costs of hauling HMC by road until the pipeline is completed).

Guidance update

Kenmare expected Q4 2020 to be the strongest quarter of the year, following the relocation of WCP B to the high grade Pilivili ore zone. Consequently, in early April 2020 the Company suspended its 2020 guidance.

As a result of more clarity regarding the timing of the WCP B move, following the approval of issuance of business visas for specialist contractors to enter Mozambique, Kenmare expects ilmenite production to be 700,000 to 800,000 tonnes in 2020, with full guidance to be provided with the H1 2020 Results.

Once WCP B begins mining at Pilivili, it will be accessing significantly higher grade ore than it has been mining during H1 2020 at Namalope. WCP A is also expected to mine higher grade ore in H2 2020 than in the previous half. Additionally, following its ramp up in H1, WCP C is also anticipated to make a high grade contribution to production for the full second half.

Market update

The ilmenite market remained strong in Q2 2020, continuing the momentum of 2019 and early 2020. This led to a fifth consecutive quarter of higher average prices received and global inventories remained low at the start of April. Demand for Kenmare’s ilmenite products continues to be stable and Kenmare has secured offtake agreements for the majority of its ilmenite production in H2 2020.

The effects of COVID-19 are uncertain for the ilmenite market. Downstream demand for titanium pigment has been negatively impacted by lower global economic activity as a result of the pandemic. Some pigment producers reduced production in Q2 2020, which was driven by lower sales, and although downstream market conditions improved as the quarter progressed, pigment production is expected to remain below 2019 levels in H2 2020.

The domestic pigment market in China strengthened in Q2 as the country emerged from its lockdown, but pigment exports towards the end of the quarter were limited by restrictions relating to COVID-19 in other countries around the world.

Global ilmenite supply remained constrained in Q2 2020. This was exacerbated by reduced feedstock supply from India and South Africa, as a result of lockdowns, although this was more than offset by reduced demand. Therefore ilmenite market conditions are expected to become more subdued in H2 2020.

While the pricing outlook for 2021 is uncertain, Kenmare expects to be able to secure contracts for all of its increased production. The medium-term outlook for Kenmare’s ilmenite products remains solid, with demand expected to outstrip supply and additional sources of production required to balance the market in the coming years.

The oversupply in the zircon market continued into Q2 2020. This resulted in lower achieved zircon prices compared to Q1 2020, although prices began to stabilise in June. As with the ilmenite market, downstream demand for zircon has been impacted by the COVID-19 outbreak, although this has been partly offset by the disruption to supply, particularly in South Africa.

Kenmare expects challenging zircon market conditions to persist in the short term but to improve in the medium term, with global supply deficits emerging due to depleting production from the major mines.

Finance update

In line with our commitment to return a minimum of 20% of profit after tax to shareholders, on 19 May 2020 Kenmare paid its 2019 final dividend of USc5.52 per share. This was the balancing payment of a 2019 full year dividend of USc8.18 per share. As previously stated, following completion of the WCP B move, the Company expects to be able to make higher capital returns.

In order to provide maximum liquidity and flexibility during this unprecedented period, Kenmare drew in full its US$40.0 million Revolving Credit Facility in early April 2020, as previously announced. This follows the drawing of the remaining US$42.7 million available under its US$110 million Term Loan Facility in March.

Consequently, at 30 June 2020, cash and cash equivalents were US$98.6 million (31 December 2019: US$81.1 million) and gross bank loans, including accrued interest, were US$151.3 million (31 December 2019: US$67.4 million). Accordingly, as at 30 June 2020, Kenmare had net debt of US$52.7 million, compared to US$13.7 million net cash at 31 December 2019, which is mainly due to scheduled capital expenditure. Notwithstanding this increase in net debt, Kenmare is financially well-resourced to complete the WCP B move, while maintaining its healthy financial position.

Kenmare will announce its results for the six months ended 30 June 2020 on 19 August 2020.

For further information, please contact:

Kenmare Resources plc
Jeremy Dibb / Katharine Sutton
Investor Relations
[e-mail]
Tel: [phone]
Mob: + 353 87 943 0367 / + 353 87 663 0875

Murray (PR advisor)
Joe Heron
Tel: [phone]
Mob: [phone]

About Kenmare Resources

Kenmare Resources plc is one of the world’s largest producers of mineral sands products. Listed on the London Stock Exchange and the Euronext Dublin, Kenmare operates the Moma Titanium Minerals Mine in Mozambique. Moma’s production accounts for approximately 7% of global titanium feedstocks and the Company supplies to customers operating in more than 15 countries. Kenmare produces raw materials that are ultimately consumed in everyday “quality-of life” items such as paints, plastics and ceramic tiles.

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.