Q3 2020 Production Report

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

15 October 2020

Q3 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 ending 30 September 2020 (“Q3 2020”).

Statement from Michael Carvill, Managing Director:

“Following the safe relocation of Wet Concentrator Plant B to the Pilivili ore zone in late September, project execution continues to progress well. We now expect to begin production at Pilivili in the coming days, ahead of our target of the middle of the quarter. Downtime for the move is estimated at less than eight weeks, which is a significant achievement by our team. Consequently, Q4 2020 is anticipated to be our strongest quarter of the year for production, with WCP B mining high grade ore and taking us an important step closer to our goal of producing 1.2 million tonnes per annum of ilmenite on a sustainable basis.

It is encouraging to see pigment markets improving more quickly than expected from COVID-19-related restrictions and consequently we believe the outlook for the ilmenite market is robust in Q4 and continuing into 2021.”

Q3 2020 overview

• Relocation of Wet Concentrator Plant (“WCP”) B completed safely in September 2020 – mining is expected to commence in the Pilivili ore zone in the coming days
• As previously announced, sadly there was a fatality at the Moma Mine on 31 August 2020
• Lost time injury frequency rate (“LTIFR”) of 0.29 per 200,000 hours worked to 30 September 2020 (30 September 2019: 0.20), excluding the fatality
• Heavy Mineral Concentrate (“HMC”) production of 258,000 tonnes in Q3 2020, a 15% decrease compared to Q3 2019 (304,100 tonnes), in line with expectations and due primarily to WCP B temporarily ceasing production from late August onwards, partially offset by WCP C
• Ilmenite production of 167,900 tonnes in Q3 2020, a 27% decrease compared to Q3 2019 (230,800 tonnes), primarily as a result of reduced HMC consumption and a short-term reduction in ilmenite content in the HMC
• Primary zircon production of 10,900 tonnes, representing a 16% decrease compared to Q3 2019 (12,900 tonnes) due to reduced HMC consumption
• Total shipments of finished products of 118,000 tonnes, a 39% decrease compared to Q3 2019 (192,000 tonnes) due to improvement works on a transhipment vessel and continuing poor sea conditions – Q4 is expected to be the strongest quarter of the year for shipments and has begun well
• Kenmare has the majority of its ilmenite sales contracted for the remainder of 2020 and the outlook for 2021 is robust, supported by strong Chinese demand and a recovering pigment market
• Oversupply in the zircon market continued in Q3 2020, however supply discipline from the major producers is slowing price declines and the medium-term fundamentals for all of Kenmare’s products remain strong
• Further strengthening of Kenmare’s COVID-19 response, with the opening of a testing facility on site

Operations update

Operational results for the Moma Mine in Q3 2020 were as follows:

	Q3 2020	Q3 2019		Q2 2020
	tonnes	tonnes	% variance	tonnes	% variance
Excavated ore 1	8,333,000	9,219,500	-10%	10,317,000	-19%
Grade 1	3.58%	3.63%	-1%	3.29%	9%
Production
HMC production	258,000	304,100	-15%	310,300	-17%
HMC consumption	260,400	318,800	-18%	311,900	-17%
Ilmenite	167,900	230,800	-27%	209,900	-20%
Primary zircon	10,900	12,900	-16%	11,600	-6%
Rutile	1,600	2,100	-24%	1,500	7%
Concentrates2	9,000	10,700	-16%	9,000	0%
Shipments	118,000	192,900	-39%	219,100	-46%

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

Regrettably, and as previously announced, there was a fatality at the Moma Mine on 31 August 2020. The employee, a front-end loader operator, suffered a fatal crush injury during the night shift at WCP A’s dry mining operations. Kenmare’s rolling 12 month LTIFR for the 12 months to 30 September 2020 was 0.29 per 200,000 man-hours worked (30 September 2019: 0.20), with two lost time injuries recorded during the period. These figures exclude the fatality as the primary cause of the incident has been found to be not work-related.

HMC production was 258,000 tonnes in Q3 2020, a 15% decrease compared to Q3 2019 (304,100 tonnes) due primarily to a reduction in excavated ore volumes to 8.3 million tonnes (Q3 2019: 9.2 million tonnes). This was in line with expectations, as a result of no production from WCP B in September as it relocated to Pilivili, partially offset by production from WCP C. WCP B represents approximately 40% of mining capacity and WCP C represents 8%.

Ore grades in Q3 2020 were 3.58%, broadly in line with Q3 2019 (3.63%). They increased by 9% compared to Q2 2020 as WCP A began mining higher grades whilst WCP B ceased mining lower grades at the end of its mine path. WCP C mined grades averaging 5.99% during the quarter, making a robust contribution to production. With the start of production from WCP B in the high grade Pilivili ore zone in Q4, average ore grades are expected to continue to strengthen.

As expected, production of all finished products decreased in Q3 2020 compared to Q3 2019. This was due to an 18% reduction in HMC consumption offset by HMC being produced at a lower heavy mineral grade resulting in higher mine recoveries during a period of lower HMC production. Ilmenite production was 167,900 tonnes, representing a 27% decrease compared to Q3 2019 (230,800 tonnes). Ilmenite production was further impacted by lower Mineral Separation Plant recoveries due to limited HMC availability, and the reduced ilmenite content in HMC, as WCP B completed mining in Namalope. It is expected that ilmenite content in HMC will increase upon WCP B commencing mining in Pilivili.

Primary zircon production was 10,900 tonnes, representing a 16% decrease compared to Q3 2019 (12,900 tonnes), in line with reduced HMC consumption. Rutile production was 1,600 tonnes, a 24% decrease (Q3 2019: 2,100 tonnes), due to similar reasons as for primary zircon. Concentrates production was 9,000 tonnes, a 16% decrease compared to Q3 2019 (10,700 tonnes) and also in line with reduced HMC availability.

Kenmare shipped 118,000 tonnes of finished products during the quarter, which represents a 39% decrease compared to Q3 2019 (192,900 tonnes). This comprised 112,800 tonnes of ilmenite and 5,200 tonnes of concentrates. No primary zircon or rutile was shipped during the quarter. Q3 2020 shipments were impacted by reduced availability of the Peg transhipment vessel, which was undergoing planned five-yearly maintenance procedures and improvement works in dry dock during September, and continuing adverse weather conditions.

Kenmare expects Q4 to be the strongest quarter of the year for shipments and it has begun well.

Closing stock of HMC at the end of Q3 2020 was 4,400 tonnes, compared with 6,800 tonnes at the end of Q2 2020. Closing stock of finished products at the end of Q3 2020 was 227,300 tonnes, compared to 157,000 tonnes at the end of Q2 2020.

COVID-19 update

On 7 September 2020, Mozambique transitioned from a State of Emergency to a State of National Public Calamity. This change in status was as a result of new legislation being passed and restrictions have largely been maintained, such as limitations on public gatherings. However some travel restrictions have been eased, allowing for members of the management team to travel to site and for employees to leave site and return, while still undertaking a mandatory quarantine period.

As previously announced, a limited number of positive test results have been received for employees and contractors. All individuals with confirmed positive tests are required to self-isolate in the Moma camp and are given appropriate care.

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 since March 2020. These include heightened health protocols, social distancing measures and testing procedures. During Q3 2020 Kenmare established an on-site testing facility, which began operation in early October 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 third of these projects is the relocation of WCP B and its dredge. WCP B and its dredge were relocated 23 kilometres from their former mining area at Namalope to a new high grade ore zone called Pilivili. Following the move, WCP B and its dredge were positioned onto plinths. Establishment of associated infrastructure is underway and the plant is being prepared to float in to the starter pond. Following this, the dredge and plant will be connected to walkways and feedlines, and commissioning of critical equipment at the infrastructure terrace will commence. Kenmare expects to produce first HMC from Pilivili and to begin commissioning of WCP B in the coming days.

As previously announced, installation of the positive displacement pumps and the overhead powerline experienced delays due to COVID-19-related fabrication and transport restrictions. As a result, initially Kenmare will truck HMC from Pilivili to the Mineral Separation Plant and power will be provided at the Pilivili site by temporary diesel generators. Although this will increase operating costs on a temporary basis, it ensures that mining can begin at Pilivili as soon as possible, allowing Kenmare to access higher grade ore. The Company expects to commission the overhead powerline before year-end and the ramp-up of the positive displacement pumps is anticipated to begin during Q1 2021.

While the original project scope remains on budget (US$106 million), the additional initiatives required to mitigate the impacts of COVID-19-related delays are anticipated to increase overall project costs. Capital costs are expected to increase by approximately 17%, which are expected to be fully funded by Kenmare’s existing financial resources. This has increased from previous estimates of a 10% increase due to an extension of the project schedule, primarily caused by the delayed delivery of the HMC pipeline. Additional operating costs are also expected to be incurred for the costs of hauling HMC by road until the pipeline is completed and the provision of power by temporary diesel generators, but are included in Kenmare’s 2020 operating cost guidance.

Market update

Ilmenite prices were marginally softer in Q3 2020, as limited supply was offset by lower demand from certain geographic regions as a result of the pandemic. Kenmare has the majority of its ilmenite sales contracted for the remainder of 2020 and is seeing strong demand for remaining spot sales in Q4.

Global pigment demand was negatively impacted by COVID-19-related restrictions in Q2 2020, which continued into Q3. Pigment production was reduced in response to this lower demand, which resulted in lower demand for ilmenite in Q3. However, downstream markets are recovering more quickly than expected, as the return of construction activity adds to the improving demand for architectural coatings and plastics experienced in Q3.

In China, pigment production remained very strong in Q3 as both the domestic and export markets improved throughout the quarter. This higher production supported strong demand for ilmenite. Domestic ilmenite production remains at lower levels compared to 2019, stimulating increased demand for imported ilmenite. Increased imports of low-quality ilmenite products and ilmenite concentrates are somewhat bridging this gap. Kenmare is seeing strong demand from China for its remaining spot sales in Q4 as a result of low inventories of high-quality ilmenite. As a result, Kenmare has a more robust outlook for the ilmenite market in Q4 and continuing into 2021.

The oversupply in the zircon market continued in Q3 2020. Demand for zircon was subdued prior to COVID-19 and it has been exacerbated further by global lockdowns. Prices for Kenmare’s zircon were also impacted by a reduction in zircon product quality during Q3 due to the operational impacts of lower HMC availability and COVID-19-related staff shortages, both affecting product recoveries. Travel restrictions have now begun to ease, allowing employees to travel to and from site, and product quality is expected to return to normal levels during Q4 once WCP B re-commences production and HMC availability improves.

Additionally, the return of construction and real estate activity globally is increasing demand. Inventories in the supply chain sit mostly with the major zircon producers and supply discipline from these producers is slowing price declines.

Kenmare expects the zircon market to remain challenging in the short term, but to strengthen in the medium term as the major zircon mines deplete, leading to constrained supply.

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.