Kenmare Resources Plc · LSE:KMR
Kenmare Resources — Investor Day (October 2018)
71 slides from Kenmare Resources's investor day presentation, Oct 16, 2018
Slide 1: Capital Markets Day 2018
Capital Markets Day 2018 16th October 2018
Slide 2: Disclaimer
Disclaimer This Presentation (the “Presentation”) has Company. assurance that any projected results are been prepared and issued by Kenmare attainable or will be realised. In particular, Resources plc (the “Company” or “Kenmare”). This Presentation does not constitute or form certain statements in t
Slide 3: Agenda
Agenda 09:00 Introduction Jeremy Dibb, Corporate Development & Investor Relations 09:05 Strategic overview Michael Carvill, Managing Director 09:15 Delivering consistent production and growth Ben Baxter, Chief Operating Officer Higino Jamisse, Operations Manager Gary Short, Project Director 10:10 Ma
Slide 4: Overview
Overview Michael Carvill, Managing Director
Slide 5: Growing from a position of strength
Growing from a position of strength GROWTH • >20% production growth by 2021 • Driven by increased utilisation of MARGIN installed asset base EXPANSION • Additional monazite product stream • New dividend policy of >20% of Profit SHAREHOLDER After Tax from 2019 • Potential for special dividends or RET
Slide 6: Mineral sands are essential to modern life
Mineral sands are essential to modern life Titanium feedstocks (ilmenite and rutile) 90% of demand for titanium feedstocks is for the manufacture of TiO2 pigment Revenue split (H1 2018) TiO2 pigment imparts whiteness and opacity in the Zircon manufacture of paints, plastics and paper 25% Als
Slide 7: Kenmare is an established producer
Kenmare is an established producer 4th largest producer of TiO2 feedstocks 7% of global TiO2 feedstock supply World’s largest ilmenite supplier Located in Mozambique 10 years of operations, 30 years in Mozambique 100+ years life of mine 5% of Mozambique’s exports (2017) Meaningful co
Slide 8: Moma is a long life mine with sustained grades
Moma is a long life mine with sustained grades 5% Pilivili Total Heavy Mineral Grade 296Mt Mpitini Nataka (20yr) 4% Quinga North 544Mt 287Mt Mualadi Nataka Marrua 71Mt 54Mt 327Mt 6,206Mt (%) 3% Namalope Congolone 516Mt 276Mt 2% More than 100 years life of mine at Moma High grade deposits in Pili
Slide 9: Cash operating costs
Cash operating costs 250 Unit cash operating costs 200 (US$/tonne) 150 100 50 0 2013 2014 2015 2016 2017 All products Ilmenite (after co-product contribution) Strong trend of reducing unit costs since 2013 Easy wins now delivered Significant unit cost leverage at higher production volumes Ta
Slide 10: Why 1.2 million tonnes per annum?
Why 1.2 million tonnes per annum? Fully utilises our existing assets Currently production of Heavy Mineral Concentrate is limited by mining capacity Whereas, the Mineral Separation Plant has a capacity of 1.2 million tonnes per annum of ilmenite Therefore it is cost effective to increase mining
Slide 11: Route to sustaining 1.2 million tonnes per annum
Route to sustaining 1.2 million tonnes per annum GROWTH MARGIN EXPANSION MARGIN EXPANSION INCREASED INCREASED INCREASED MINING GRADES UTILISATION CAPACITY 1,500 Ilmenite production 1,250 (000’s tonnes) 1,000 750 500 250 0 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 203
Slide 12: Well funded to deliver growth and shareholder returns
Well funded to deliver growth and shareholder returns INTERNAL LOW SIGNIFICANT CASH FLOW NET CASH GENERATION DEBT AVAILABLE US$47.5 million US$9.1 million US$84.2 million EBITDA (H1 2018) (30/06/2018) (30/06/2018) Kenmare Resources - Capital Markets Day 2018 12
Slide 13: 2018 guidance
2018 guidance (provided 11 January 2018) 2017 Actuals 2018 Guidance Production Ilmenite tonnes 998,200 900,000-1,000,000 Zircon tonnes 74,000 65,000-72,000 of which primary tonnes 48,600 42,000-46,000 of which secondary tonnes 25,400 23,000-25,000 Rutile tonnes 9,100 7,000-8,000 Costs Total cash ope
Slide 14: Operations Overview
Operations Overview Ben Baxter, Chief Operating Officer
Slide 15: 100+ Year Life of Mine
100+ Year Life of Mine Moma is not one orebody; 8 billion tonnes of resources Differing ore zones: Grades, size, mineral assemblage Increasing orebody knowledge has improved understanding of: Water table, slimes, hardness Optimised long term plan, focussing on: Namalope: Maximising pro
Slide 16: Operations schematic
Operations schematic KEY MOMA FEATURES Dry Mining World class resource base Low cost, bulk mining operation Hydro-generated power Natural off-shore harbour Easy access to market Environmentally sound operations: Mining process without chemicals Progressive rehabilitation processes Ke
Slide 17: Maximising the value of Moma
Maximising the value of Moma Goal: Projected Moma grades (%HM) Fully utilise MSP installed capacity 6% Deliver additional HMC 4% Respond to a temporary grade decline 2% Outcomes: 0% Reach 1.2Mt ilmenite production 2019 2020 2021 2022 2023 2024 Produce at lowest possible unit cost GROWT
Slide 18: Operational Update
Operational Update Higino Jamisse, Operations Manager
Slide 19: Sustainable operating practices
Sustainable operating practices Safety Lost Time Injury Frequency Rate Excellent improvement in 2018 performance 0.6 Focus on risk assessment and personal 0.4 accountability 0.2 Increased community safety awareness programmes, particularly around road traffic and mine risks 0.0 2012 2013 201
Slide 20: Optimising current operations
Optimising current operations MARGIN EXPANSION MARGIN EXPANSION MARGIN EXPANSION INCREASING RAISING HIGHER THROUGHPUT UTILISATION RECOVERY • Dry mining • Projecto Oitenta • Zircon projects • Dredge automation • Mine planning • Monazite production Heavy Mineral Concentrate (HMC) production remains
Slide 21: Increasing throughput
Increasing throughput Increased dry mining in 2018 Dry mining (kt) Seeking to keep wet concentrator plants full 800 Also provides flexibility and mitigates harder mining conditions when encountered 600 Enhanced dredge hourly production feedback: 400 Improves supervision and decision making
Slide 22: Raising utilisation
Raising utilisation Strategic aim to increase mine utilisation from 70% to 80% Projecto Oitenta (Project 80%) Training academy Mechanical improvements on dredges Advanced maintenance practices including condition monitoring Reduced standing time during tailings management Further trainin
Slide 23: Higher recovery
Higher recovery Zircon recovery projects Overall zircon product recoveries 90% 81% Increasing recovery 76% 78% 80% 1% 3% Increasing transition of zircon into higher grade 70% 69% 17% products 18% 17% 60% 15% Further projects to come 50% 60% 62% 53% 57% Monazite concentrate product 40% 2016
Slide 24: Project approach
Project approach Gary Short, Project Director
Slide 25: Context & approach
Context & approach Kenmare operates an Owners Team to oversee all projects Strong and diverse team with global experience Presence at Moma and the offices of our Engineering, Procurement and Construction Management (EPCM) contractor Experienced mineral sands and global projects EPCM contract
Slide 26: Phased project development approach
Phased project development approach • Due Diligence exercises Current project Corporate Investigation • Trouble-shooting pipeline • Preliminary project economics • Nataka Concept Scoping Study • Mineralogy • Early metallurgical test-work (complete H1 18) Early Mine Design Pre-Feasibility Study Costi
Slide 27: Project timeline
Project timeline WCP B Upgrade Execution Oct 17 to Dec 18 WCP C DFS WCP C Execution Phase Jan 18 to Aug 18 Aug 18 to Dec 19 WCP B to Pilivili DFS WCP B to Pilivili Execution Phase Mar 18 to Mar 19 Apr 19 to Mid 2020 WCP A to Nataka Scoping, PFS and DFS studies WCPA to Nataka Execution Mid 18 to 2023
Slide 28: Reporting / review / project governance
Reporting / review / project governance Hatch gate review process at end of each stage: Independent peer review Front End Loading Framework Risk assessment (Provides Structured Phased Approach) Regular progress meetings Daily management interaction Steercom meetings Regular reports and
Slide 29: Quantitative approach to project risk analysis
Quantitative approach to project risk analysis Contingency is determined from understanding the uncertainties associated with: Estimate, schedule and project Risk Hatch project risk calculation: Project estimate review in multidisciplinary workshop Compare project to a database of Hatch de
Slide 30: In summary
In summary Kenmare will deliver high quality projects by: Ensuring good value delivery with suitable contract models using a dedicated Owners Team and experienced EPCM contractor Follow a phased project delivery model ensuring capital spend is focussed and efficient Minimise project risk throug
Slide 31: Path to 1.2Mtpa Ilmenite
Path to 1.2Mtpa Ilmenite Ben Baxter, Chief Operating Officer
Slide 32: Progressing development projects
Progressing development projects GROWTH GROWTH MARGIN EXPANSION WCP B WCP C WCP B UPGRADE DEVELOPMENT MOVE TIMELINE TIMELINE TIMELINE • H2 2018 • H2 2019 • H2 2020 STAGE STAGE STAGE • In commissioning • Execution underway • DFS underway CAPITAL CAPITAL CAPITAL • <US$16 million • <US$45 million • c.
Slide 33: WCP B upgrade (2018)
WCP B upgrade (2018) Delivers additional 130kt HMC per annum WCP B upgrade additional HMC contribution Increasing capacity 20% to 2,400tph 2,500kt Lowest capital intensity Utilises existing WCP space and related 2,000kt infrastructure 1,500kt Minimal additional operating costs Unit costs
Slide 34: Construction of WCP C (2019)
Construction of WCP C (2019) Delivers additional 150kt HMC per annum WCP C additional HMC contribution Mines ore previously not accessible 2,500kt High quality bespoke dredge 500tph WCP designed and to be built by 2,000kt industry experts 1,500kt Respected EPCM engineer managed by Kenmare
Slide 35: WCP B move to Pilivili: Achieving 1.2Mt ilmenite
WCP B move to Pilivili: Achieving 1.2Mt ilmenite WCP B scheduled to move to a new orebody in H2 2020 Various orebody locations considered, each with distinct characteristics (size, grade, mineralogy, slimes, location and topography etc) Pilivili has the best grades in Moma portfolio, particula
Slide 36: WCP B move to Pilivili (2020)
WCP B move to Pilivili (2020) Contributes an average additional WCP B to Pilivili additional HMC contribution 130ktpa of HMC per annum 2,500kt 2,500kt Delivers a 1.2 million tonne per 2,000kt 2,000kt annum ilmenite production Current pre-DFS study 1,500kt 1,500kt US$100 million capital project
Slide 37: Maintaining 1.2Mt ilmenite production
Maintaining 1.2Mt ilmenite production WCP A to Nataka (2025): Deposit locations Move necessary as Namalope mining completed Conceptual studies completed High grade 20 year path identified: 24% higher HM grades Higher slimes will require upfront desliming circuit: Uplifts excavated ore
Slide 38: 5 year capital cost guidance
5 year capital cost guidance Sustaining capital $100m 2018: Full-year guidance US$22m maintained Expected US$20-25m to 2025 $75m Development capital 2018: Previous full year guidance of US$19m $50m maintained for: $25m WCP B upgrade, monazite project and mine development feasibility stud
Slide 39: Conclusion: Maintaining 1.2Mt for +20yrs
Conclusion: Maintaining 1.2Mt for +20yrs WCP A HMC - Production WCP B HMC - Production WCP C HMC - Production HMC to Produce 1.2Mt Ilmenite 2,400kt 2,000kt 1,600kt 1,200kt 800kt 400kt 0kt 2032 2038 2021 2031 2033 2034 2040 2019 2020 2023 2024 2030 2026 2027 2029 2036 2037 2039 2025 2035 2022 2028
Slide 40: Market update
Market update Eamonn Keenan, General Manager Marketing
Slide 41: Attractive market dynamics
Attractive market dynamics DEMAND SUPPLY LEADING GROWTH CHALLENGES PRODUCER • Demand is closely • Ilmenite inventories •• Diversified Diversified customer customer linked to global GDP keeping market base base growth balanced •• Ilmenite Ilmenite suitable suitable for for • Driven by urbanisation •
Slide 42: Titanium feedstock markets
Titanium feedstock markets TiO2 pigment is used in a wide range of everyday products such as paints, plastics, paper, inks & fibres Non-recyclable and difficult to substitute, supporting demand growth Two TiO2 pigment production methods (sulphate & chloride) Stronger growth expected for chlo
Slide 43: Emerging market pigment demand growing rapidly
Emerging market pigment demand growing rapidly 2017 regional pigment consumption USA W Europe China Brazil SE Asia India 0.0 0.50 1.00 1.50 2.00 2.50 3.00 kg/capita “Quality of life” product, consumption grows as income levels increase Benefits from late stage economic cycle demand, driven by in
Slide 44: China pigment industry evolution
China pigment industry evolution Chinese pigment production has been growing rapidly ~350kt in 2000 to ~3mt in 2017 (~14% CAGR) Chinese pigment capacity Total production of ~2.2mt in 2017: ~140kt chloride 4 >90% is sulphate route Future growth will be predominantly chloride 3 Chinese gov
Slide 45: TiO2 feedstock supply challenges
TiO2 feedstock supply challenges Continued demand growth Inventories to be drawn by 2020 Feedstock demand is estimated to grow at 2 2.3% CAGR from 2017 – 2023 Sulphate ilmenite 1 2018 surplus of sulphate ilmenite has led to (millions of tonnes) some softening of prices Sulphate ilmenite ma
Slide 46: Zircon market
Zircon market Growing demand Similar demand drivers as pigment with strong emerging market Zircon usage exposure 2017 ~1.2mt Ceramics consumption in large population economies is growing Other 2% strongly Digital printing & large format tiles are positive for demand Zirconia & zirconium ch
Slide 47: Strong market position
Strong market position Leading producer Total TiO2 feedstock market share 4th largest TiO2 feedstock producer, 6th largest zircon producer 2017 ~7.3mt TiO2 Units Largest ilmenite supplier Base Other Diverse customer base in all regional markets 4% 16% China 29% Favoured products Cristal 7%
Slide 48: Community Engagement & Development
Community Engagement & Development Gareth Clifton, Country Manager, Mozambique
Slide 49: Mozambique overview
Mozambique overview Location map Quick facts (2017) Capital Maputo Government type Presidential Democratic Republic Nominal GDP US$34.9 billion Moma Mine Net FDIs / GDP 10.0% GDP Growth 6.6% Population 29 million International natural resources companies operating in Mozambique There are currently o
Slide 50: Kenmare's contribution to Mozambique
Kenmare’s contribution to Mozambique US$63 million in taxes paid in the last 5 years US$12.3 million in taxes paid in 2017 Corporation tax payments will begin shortly as accumulated losses are utilised US$72 million spent with local suppliers in 2017 Local procurement policy to maximise local
Slide 51: Socio-economic impact of Moma
Socio-economic impact of Moma Infrastructure Development Access to power & clean water Improved transportation & telecommunications Improved housing conditions Economic Development Increased income levels More diverse products available in local markets New business opportunities S
Slide 52: Localisation
Localisation Targeted 92% of workforce Mozambican by Localisation at Kenmare 2016 achieved 100% % Mozambican 2nd voluntary target now aiming for 95% 90% Operator levels completely Mozambican Artisan levels successful transition 80% 2012 2013 2014 2015 2016 2017 2018 YTD Apprenticeships & T
Slide 53: Kenmare training programmes
Kenmare training programmes Programme # (2013 – 2018) Supervisor Development Programme 296 Internships 163 Graduate Development Programme 91 Technical Development Programme 57 HME Operator Development Programme 45 Maintainer Development Programme 44 New Manager Development Programme 33 Apprenticeshi
Slide 54: Our Community Engagement Strategy
Our Community Engagement Strategy Kenmare’s aims: Kenmare Stakeholder Engagement Plan Maximize benefits to the local (updated annually) community from the Moma Mine Generate long-term sustainable economic Community KMAD opportunities & facilitate Relations socio-cultural activities Mitigate pos
Slide 55: Kenmare Community Relations
Kenmare Community Relations Formal meetings Every 2 months Forum for parties to share information, discuss concerns/issues and solutions Attended by representatives of government and different social structures of community Informal meetings Day to day meetings and interactions to address up
Slide 56: Kenmare Moma Development Association - KMAD
Kenmare Moma Development Association - KMAD Three year strategic development plans Detailed annual action plan agreed and signed with the community, local government and NGOs Three main focus areas: Economic Development and Livelihood Income Generating Activities, food security/agriculture
Slide 57: KMAD – Economic Development and Livelihood
KMAD – Economic Development and Livelihood Grocery shop Vegetable production Bakery Broiler farm Sewing Kenmare Resources - Capital Markets Day 2018 57
Slide 58: KMAD – Healthcare Development
KMAD – Healthcare Development Health centre Distribution of mosquito nets Child vacination facility health centre Kenmare Resources - Capital Markets Day 2018 58
Slide 59: KMAD – Education Development
KMAD – Education Development Distribution of school material kits at Technical School Mechanial Workshop Mtiticoma school Nathaca school block Class at Technical school Kenmare Resources - Capital Markets Day 2018 59
Slide 60: Finance
Finance Tony McCluskey, Finance Director
Slide 61: Capital allocation & shareholder returns
Capital allocation & shareholder returns SUSTAINING & DEBT SHAREHOLDER DEVELOPMENT SERVICING RETURNS CAPITAL • Low sustaining capital • Prudent gross debt • Minimum 20% of profit costs • Significant cash after tax • High returning available • Objective to pay development projects • Low net debt high
Slide 62: Sustaining & development capital
Sustaining & development capital $120m $90m $60m $30m $0m 2018 2019 2020 2021 2022 2023 Sustaining Capital Development Capital Graph shows sustaining and development capital1 required to produce 1.2mtpa ilmenite (plus co- products) from 2021 Development capital mainly comprises mining investment
Slide 63: Debt objectives
Debt objectives Key debt objective to maintain robust balance sheet Low absolute debt US$81 million of principal currently outstanding H1 2018 EBITDA US$47.5 million - i.e. 0.85x gross debt/EBITDA annualised Aim to maintain a prudent cash balance Cash resources of US$84 million at 30 Jun
Slide 64: Existing debt facilities
Existing debt facilities Debt principal outstanding Effectively one tranche of debt with tenor to February 2022 Lender US$ million % KfW 1.5 2 Semi-annual repayments of US$9.5 million AfDB 2.3 3 started on 1 February 2018 Absa 9.8 12 All debt USD denominated FMO 12.6 16 Interest currently: E
Slide 65: Shareholder returns - dividend policy
Shareholder returns - dividend policy Dividend policy commitment to pay a minimum 20% of profit after tax Subject to: Market conditions, debt and capital requirements Minimum safe level of cash - likely higher during periods of capital expenditure Maiden dividend Payable following H1 2019
Slide 66: Key steps to shareholder returns
Key steps to shareholder returns Capital reduction Purpose to extinguish PLC1 retained losses Expected timeline: Circular to be sent to Shareholders in Nov. EGM in Dec. to propose extinguishment of retained losses High Court hearing early in 2019 Group reorganisation Purpose to optim
Slide 67: Summary
Summary Michael Carvill, Managing Director
Slide 68: Building on our strategy
Building on our strategy GROWTH • >20% production growth by 2021 • Driven by increased utilisation of MARGIN installed asset base EXPANSION • Additional monazite product stream • New dividend policy of >20% of Profit SHAREHOLDER After Tax from 2019 • Potential for special dividends or RETURNS shareh
Slide 69: Appendices
} KENMARE Appendices
Slide 70: Depreciation
Depreciation Cost H1 2018 Asset categories 31/12/17 Depreciation US$ million US$ million Unit of production 1,060 14.71 Straight line - average 15 years 55 1.3 Total 1,115 16 Depreciation charge split based on asset values: 35% mining and 65% processing Basis for straight line depreciation varie
Slide 71: Taxation
Taxation Two separate tax regimes: mining company (KMML1) and processing company (KMPL2) KMML1 - mining company, sells HMC3 to processing company (KMPL2) HMC3 is sold to KMPL2 at transfer price in the Mining Licence Contract – i.e. mining cash costs plus 15% adjusted for movement in finished p