Q4 & FY 2018 Production Report & FY 2019 Guidance

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

10 January 2019

Q4 & FY 2018 Production Report & FY 2019 Guidance

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 fourth quarter and year ended 31 December 2018 (“Q4 2018” & “FY 2018”) and production guidance for full year 2019 (“FY 2019”).

Overview

• Mid-point of original FY 2018 production guidance exceeded for all products
• Record monthly production of ilmenite in December 2018, achieving a run rate of 1.2 million tonnes per annum
• Heavy Mineral Concentrate ("HMC") production increased 4% to 1,370,800 tonnes (2017: 1,323,000 tonnes)
• Ilmenite production of 958,500 tonnes (2017: 998,200 tonnes) and primary zircon production of 48,400 tonnes (2017: 48,600 tonnes)
• 3% increase in total shipments of finished products to 1,074,400 tonnes (2017: 1,040,400 tonnes), a new annual record
• Higher average received prices for all products achieved in FY 2018, compared to FY 2017
• At the end of 2018 Kenmare had a net cash position of US$13.5 million, up from US$34.1 million net debt at the end of 2017
• Production guidance of between 900,000 and 960,000 tonnes of ilmenite in FY 2019

Michael Carvill, Managing Director of Kenmare, commented: 

"In 2018 Kenmare achieved production guidance for a third consecutive year and total shipments of all products also set new annual record levels. Production in 2019 is expected to decrease slightly, due to an anticipated reduction in grade, although ilmenite shipment volumes are expected to be maintained as finished goods inventory is drawn down.

In terms of our development programme, in 2018 our focus was the 20% expansion of Wet Concentrator Plant B (“WCP B”). WCP B was the first of three development projects with the objective of delivering a sustained increase in ilmenite production to 1.2 million tonnes per annum from 2021. The second of these projects, Wet Concentrator Plant C (“WCP C”), is well underway, with commissioning scheduled for Q4 2019. The definitive feasibility study for the third and final of these projects, the movement of WCP B to the high grade Pilivili orebody, is anticipated to be completed in H1 2019.

Average received prices in H1 2019 are expected to show improvement on 2018."

Production

Production from the Moma Mine in Q4 2018 and FY 2018 was as follows:

	Q4 2018	vs Q4 2017	vs Q3 2018	FY 2018	vs FY 2017
	tonnes	% change	% change	tonnes	% change
Excavated Ore *	9,335,000	11%	11%	33,961,000	1%
Grade*	4.58%	6%	27%	4.35%	-2%
Production
HMC	402,000	19%	44%	1,370,800	4%
Ilmenite	275,000	17%	18%	958,500	-4%
Primary zircon	15,200	39%	49%	48,400	0%
Rutile	2,400	-4%	41%	8,200	-10%
Concentrates**	11,500	58%	92%	28,200	11%
Shipments	286,300	-3%	44%	1,074,400	3%

* Excavated ore and grade prior to any floor losses.
** Concentrates includes 9,600 tonnes of secondary zircon and 1,900 tonnes of Mineral Sands Concentrate in Q4 2018

During FY 2018, Kenmare mined approximately 34 million tonnes of ore, a 1% increase compared to FY 2017, at an average grade of 4.35% and produced 1,370,800 tonnes of HMC, a 4% increase. In Q4 2018, Kenmare mined 9,335,000 tonnes of ore, an 11% increase compared to the prior quarter, at an average grade of 4.58% and produced 402,000 tonnes of HMC. Finished product volumes for the year included 958,500 tonnes of ilmenite, a 4%, decrease compared to FY 2017, and 48,400 tonnes of primary zircon.

Throughout FY 2018, excavated ore volumes benefitted from improved dredge utilisation and a higher dry mining contribution. This was despite scheduled upgrade work to WCP B and more power interruptions than had been experienced in 2017.

Ilmenite production decreased by 4% in FY 2018 to 958,500 tonnes (2017: 998,200 tonnes) and was slightly above the mid-point of guidance. As previously guided, the lower ilmenite production volume was mainly due to lower opening stockpiles of HMC. Q4 2018 represented a strong quarter of ilmenite production (275,000 tonnes), with record production delivered in December 2018 of over 100,000 tonnes.

Primary zircon production was 48,400 tonnes (2017: 48,600 tonnes), maintaining 2017 production levels, as a result of improved recoveries. Secondary zircon volumes increased by 11% to 28,200 (2017: 25,400 tonnes) as a result of additional circuit capacity, which was installed in H2 2018, facilitating the drawdown of intermediate inventories.

Q4 2018 also saw the first production of a Mineral Sands Concentrate product (containing monazite, zircon and rutile), as a result of the successful project commissioning, which was completed on time and below budget. This product is now reported together with secondary zircon as concentrates, contributing 1,900 tonnes in the period.

During FY 2018, Kenmare shipped 1,074,400 tonnes of finished products (2017: 1,040,400 tonnes), a 3% increase, comprising 993,700 tonnes of ilmenite, 46,000 tonnes of primary zircon, 27,000 tonnes of secondary grade zircon and 7,700 tonnes of rutile. In Q4 2018, shipments of total finished products decreased by 3% to 286,300 tonnes (Q4 2017: 296,300 tonnes). Sales comprised 258,500 tonnes of ilmenite, 13,300 tonnes of primary zircon, 12,800 tonnes of secondary zircon and 1,700 tonnes of rutile.

Closing stock of HMC at the end of 2018 was 19,600 tonnes, compared with 16,800 tonnes at the start of the year.  Closing stock of finished products at the end of 2018 was 200,000 tonnes (2017: 231,000 tonnes).

Capital Projects Update

Kenmare has announced three development projects that have the objective of increasing ilmenite production to 1.2 million tonnes (plus co-products) per annum on a sustainable basis.

In 2018, Kenmare’s focus was the 20% expansion of WCP B, the first of three development projects. The project has achieved an operating rate in excess of the design throughput of 2,400 tonnes per hour, with additional robustness being built into the circuit over the coming months to ensure the consistent delivery of this run rate. These additional works have been factored into expectations to complete the project more than 25% below the initial budget guidance of US$16 million.

The construction of WCP C is well underway, with commissioning scheduled for Q4 2019. As previously announced, the capital cost of this project is estimated to be up to US$45 million, with additional annual operating costs estimated to be US$9-10 million.

The definitive feasibility study for the third project, the movement of WCP B to the high grade Pilivili orebody, is anticipated to be completed in H1 2019. As previously announced, the prefeasibility study estimated the capital cost of this project to be US$100 million, with estimated additional annual operating costs of US$2.5-3 million for the first 5 years of operation.

These projects are due to be delivered by the end of 2020, following which the Company expects to generate increased levels of free cash flow and to be positioned to make higher capital returns to shareholders from 2021.

Costs

As previously announced and subject to completion of the FY financial results, total cash operating costs are expected to be marginally above the guided range of US$130-143 per tonne for FY 2018. This was due in part to higher utilisation of the diesel-powered electric generators in 2018. Kenmare continues to work with Electricidade de Moçambique, the state electricity provider, to rectify the issues and the work is expected to be completed by April 2019.

Total cash operating costs include all mine production, transhipment, royalties and corporate costs.

2019 Guidance

The 2019 guidance for production and operating costs is as follows:

		2019 Guidance	2018 Actual
Production
Ilmenite	tonnes	900,000-960,000	958,500
Primary zircon	tonnes	44,500-52,000	48,400
Rutile	tonnes	8,100-9,500	8,200
Concentrates**	tonnes	33,500-43,500	28,200
Costs
Total cash operating costs	US$m	151-167	N/R*
Cash costs per tonne of finished product	US$/t	150-160	N/R*

* to be reported in full year financial statements
** Concentrates includes secondary zircon and Mineral Sands Concentrate

Production in FY 2019 is expected to moderate slightly, mainly due to lower grade, although ilmenite shipment volumes are expected to be maintained as finished goods inventory is drawn down.

Approximately US$70 million has been approved for expenditure on development projects and studies in FY 2019, the main elements of which are represented by the construction of WCP C and early works for the move of WCP B in 2020.

Sustaining capital costs in FY 2019 are expected to be approximately US$23 million.
Total cash operating costs in FY 2019 are anticipated to be higher than in FY 2018, the largest elements of which relate to increases in fuel and labour costs.

Market

The titanium feedstock market was softer in the second half of 2018, mainly due to destocking by the pigment industry. Industry analysts expect pigment destocking to continue into H1 2019 and normalise by mid-year. Off-setting this short-term weaker demand outlook, Indian ilmenite supply has halved from approximately 7% of global feedstock production in the last two years, and towards the end of 2018 a further major producer had its mining license suspended, leaving one operating producer compared with five at the end of 2016. Furthermore, a number of Vietnamese feedstock producers are understood to have suspended production due to uncertainty regarding the granting of additional export quotas from the Vietnamese authorities for 2019.

Ilmenite sales to China improved in Q4 2018, following slower demand during the summer months, and Kenmare is seeing solid demand for sulphate ilmenite from Chinese and European customers in the early part of 2019. Additional ilmenite upgrading plants to serve the growing chloride pigment sector in China are set to start-up in the coming 12-18 months. Kenmare is the leading supplier to a number of existing ilmenite upgrading facilities in China and is well positioned to benefit from this growth.

High grade chloride feedstock supply was tight throughout 2018 due to restricted supply, which is expected to continue in 2019. This is favourably impacting on demand and pricing of chloride ilmenite.

Kenmare’s received zircon prices plateaued in Q4 2018, following the successful implementation of price increases in the prior quarter. However, supply has increased from Indonesia and various regions have been producing concentrates for processing in China. Coupled with weaker demand in China, this has led to some modest softening of prices recently for non-premium zircon products. However, global zircon production is forecast to decline in the coming years with mine closures and orebody depletion at a number of operations. The Company believes a supply response is likely should supply exceed demand, muting price volatility and supporting long term prices.

Finance Update

On 5 December, shareholders approved a resolution to eliminate Kenmare’s historic losses, subject to confirmation by the High Court of Ireland. This is expected to position the Company to be able to pay a dividend (or redeem or repurchase its shares), in line with the policy announced in November 2018.

At 31 December 2018, gross bank loans, including accrued interest, amounted to US$83.5 million (2017: US$102.9 million) and cash and cash equivalents were US$97.0 million (2017: US$68.8 million). Consequently, the Company has moved to a net cash position of US$13.5 million (2017: US$34.1 million net debt).

For further information, please contact:

Kenmare Resources plc
Michael Carvill, Managing Director                                    
Tel: [phone]                                                             

Tony McCluskey, Financial Director
Tel: [phone]                                                             

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

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

Buchanan
Bobby Morse / Chris Judd
Tel: [phone]

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.