Kenmare Resources, one of the leading global producers of titanium minerals and zircon, which operates the Moma Titanium Minerals Mine in northern Mozambique, has released a trading update for the quarter and half year ending 30 June 2020.
Heavy Mineral Concentrate (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).
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.
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).
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.
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.
Kenmare Resources in nutshell
Kenmare Resources plc is one of the world’s largest producers of mineral sands products. 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.