Kenmare Resources (LSE:KMR) — Q1 2026 Production Update

0:01 Good afternoon, and welcome to the KENMARE RESOURCES PLC Q1 twenty twenty six Production Update. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Just simply type in your questions and press send. Before we begin, I would like to submit the following poll. And I would now like to hand you over to managing director, Tom Hickey. Good afternoon to you. Thanks very much, and thanks everybody for joining us today for our q one twenty twenty six production update. I'm joined by my colleagues, KLM Murphy, who's head of marketing, Ben Baxter, COO, who's coming to us from MoMA, Catherine Sutton, who's head of investor relations. On off camera, I've got James McCullough, CFO as well. And while we may have spoken to you all comparatively recently following our full year results at the end of March, I think we do have some interesting and useful updates today, and we felt that it it'll be it'll be useful to just skim over them and and take any questions people might have. So, you know, we finished q one twenty twenty six a number of weeks ago. We've had some, you know, a a good solid quarter in terms of shipments, and I think shipments is our is our big objective for 2026.

1:15 It's a priority in terms of how we want to run the business. It's a priority in terms of managing our our cash flow through a you know, what is as we hear later, and you may have heard already quite a difficult period in the market. It reflects the fact that we do have or had at the end of twenty twenty six quite high inventory levels. So, you know, 2026 from an operational perspective, very strong in shipments, well on track for our 1,100,000 target. A little bit softer from a production perspective. As we'll hear from Ben, you know, the completion and and debottlenecking of our WCPA upgrade project, which was a huge focus last year. Took up quite a bit of time in q one, but I think we're we're nearly there now. And Ben will will update you on where we are with our dredges, where we are with the, you know, our feed prep units and and the punch list of tasks and and issues that we were addressing during q one and and how that leaves us set for the remainder of the year. But, you know, I think on on on balance, we're very comfortable where we are, you know, while q one was a little slower from a production perspective.

2:18 And, by consequence, a little slower from an ilmenite production perspective, and we're still on track for our annual guidance. Moving on to markets, which, you know, I think have been a an important focus for us over the last while, you know, following highs and highs in pricing of slide four. Sorry. Highs and highs in pricing in '21, '22, '23. We have seen weaker markets, and we did comment over the course of last year on oversupply in in the market for most of the feedstocks that we produce. Certainly, we've seen a, you know, maybe a few interesting evolutions in in that area. The ilmenite market did continue to be weak, and we you know, ilmenite, you may recall, is about 70% of our of our revenue.

3:09 Pricing was softer as we expected, but we're certainly seeing the responses that people put in place to to the current weaker market and oversupply, limiting production, managing production, and indeed some unplanned production disruptions start to take effect, start to tighten the market. Not quite seeing it in price yet, but, you know, there are some interesting emerging themes which Kleen will touch on. You know, the market is not just about price. It's also about transportation and logistics. And and as you could imagine, we are seeing an impact on freight rates in particular from the war from the war in Iran, but limited so far. And and we are seeing some impact on shipping schedules, you know, challenges in in logistics, people without access to their normal ports. Nothing as you can see that impacted our our our trajectory in q one in terms of shipping, but certainly something that we do need to keep an eye on and and and and, you know, we we try need to support specific customers on.

4:10 I mentioned that the feedstock market had had seen some interesting developments in q one. I think towards the back of 2025, we commented that zircon, which is our second biggest revenue contributor at at about 25%. Zircon prices began to stable in q four twenty twenty five. And and, you know, following on from that, we've actually started to book higher prices for zircon products in the second quarter twenty twenty six. And the industry commentators are are are are certainly somewhat more optimistic about about the trajectory for zircon prices over the remainder of '26 and into '27 and beyond. And and finally, on the marketing side, you may have recall us speaking about a customer who was in financial distress in in q three twenty twenty five, couldn't take some volumes and and and and hadn't paid us.

4:59 Those were shipments to two plants. One of those plants has now been sold, and we've recovered 4,600,000. It's a 9,300,000 that was outstanding. The second plant is very well advanced in a sale process. We're engaged with the potential new acquirers, and we'd be very hopeful for strong recovery there. So, you know, while there has been a delay on on on receipt, we're comfortable that we recover a, you know, significant proportion of of those outstandings. And finally, I think the biggest focus certainly from shareholders over recent months has been on the progress of our implementation agreement renegotiations in Mozambique. The implementation agreement, you may recall, is the agreement that covers our processing and export activities, doesn't impact on our mining at all. We had a really useful meeting in late February with the minister for mineral resources and energy, the minister for economy, the head of the tax department, and some presidential advisers. And I think that really reenergized the process following a period of less activity over over year end on the holiday period in Mozambique.

6:03 At that meeting, we we, you know, vowed to each other to do everything we could to get the agreement renew the renewal agreed by towards the end of March. I you know, while we all recognize that would be a challenge, the objective was really to inject momentum proceedings. I think we succeeded in doing that. Both sides have have been engaged. The engagements are constructive, and and and we are making progress. And and we'd be hopeful that we'll see that progress realized in a near term outcome before too long. Now I should stress, there's no mandated timeline here. We're still operating under our legacy terms while we negotiate. But, certainly, there's there seems to be energy for this, and and and, hopefully, we can capitalize on that to to complete the negotiations before too long.

6:49 So that's just close. They're the highlights. Maybe I'll just hand over to my colleagues now to to dive a little bit deeper on some of the things that I've touched on, and I'll hand over to to Ben Baxter to talk through operations. Hi. Good afternoon, everybody. So maybe I'll just, first of all, start with safety and record that we had a really good quarter. We had no lost time injuries during the quarter, and that was a good response to the end of twenty twenty four 2025 when we'd had two two injuries. So that we've set the year off on the right note on that front. On mining, we were behind on the production of heavy mineral concentrate down by 30%, and this was on the back of the lower volumes from the debottlenecking processes that took place through the quarter at WCPA.

7:43 And I'll talk more about the WCPA project on the next slide. We also saw grades starting to fall, and those grades are expected to fall as we finish the life in Namalope for WCPA and also start we'll be preparing ourselves into the transition to Nataka. The other element of that was that we we we had reduced dry mining in q one this year compared to q one last year. We are expecting to see throughputs sorry, grades improving and also throughputs through the rest of this quarter, and and that's coming as we continue to do the debottlenecking of WCPA.

8:31 The effect of that into finished products was clear. All all of the finished products of ilmenite, zircon, and rutile were down relative to the HMC production as well, though. And and and those additional reductions came as a result of some inefficiencies in the mineral separation plant. We incurred lower recoveries, and that was on the back of the fact that we had up and down feed into the plant as a result of the WCPA debottlenecking, but also we took the decision during the quarter to reprocess a former tailing stockpile. That tailing stockpile contains historical amounts of of valuable heavy minerals and but but but we don't have clear a and full knowledge of the grades that enter the plant on any time. And so hence, the plant setup was quite difficult when grades on the feed were fluctuating from day to day.

9:41 The impact of all of that was more spillage. Thankfully, we were able to retain that spillage. It hasn't gone to tailings, and we will be retreating some of that spillage through the second quarter and catching up on some of those losses. On the concentrate side, you see a significant improvement in concentrates production up 400%, and and that's because of the introduction of our new product called Zirti. This this is a product that's been introduced in the latter half of last year, and we were able to make appreciable amounts during the quarter. The idea of that is that we also can improve our shipping through the rest of this year.

10:32 In a in in addition to the reprocessing of those previous stockpiles, we were also able to dry some of the ilmenite some sorry. Some of the zurtai, and that increases the shipping rates as well so that the material flows easily onto the conveyor and onto the ship load and through the ship loader and onto the customer vessels. That was very useful to help with shipping rates, and that's supporting our main KPI of the year, which is to ship more than 1,100,000 tons. That that and that and that drying process helped with one of the last shipments during the year. It's it's in it's it's important to note that the zurtaic production that we did make was more than in the whole of last year.

11:23 So this has become a meaningful part of the operating routine and will do for the rest of this year. On shipments themselves, we were 10% down year on year. This is due to the balancing effect of demand and also for fin for all of our finished product or for the particularly the ilmenite finished products, but also that the loading of zurtaide certainly at the beginning of the year was slower relative to our other products. Nevertheless, we were successful to debottleneck to draw down the stocks of our finished products by about 99,000 tons, and that's in line with the value over volume approach where we are looking at making the right products. We're looking at converting intermediate stocks and making sure that we operate with maximum efficiency.

12:19 So after all of that, we finished the end of the end of the quarter on track to achieve the production guidance and the sales guidance or shipments guidance, should I call it, for the year. On the next slide, we I'm gonna just talk through the progress that we've been making on WCPA, and and it's it's an encouraging quarter. We have all the major works complete, and the the the project is now essentially complete. It has transitioned to becoming an operation, and it's we don't have large project teams on on the plant anymore. We we are now fully running it with our operating crews.

13:05 The bulk of the spend is done, and we're on track to to reach the nameplate capacity. We have, though, had some some rectifications required along the way. However, thankfully and and usefully, there are no fatal flaws in any of the process that we've been through. So we're comfortable that we're on the the right journey to get to the nameplate capacity. It's just been taking a bit longer to get consistency. Those consistencies though are improving, and we've made some good progress through the quarter. Firstly, improving utilizations through the solutions around dredge winch brakes that we we altered the software, and we implemented cooling beaches to those brakes, and and and that's been successful, and the the winch brakes are no longer impacting on the utilization of of the equipment.

14:07 We also had had had a improved capacity brought to the plant by improving the tailings pump gearboxes that we now get greater throughputs out of the tailings, out of the back of the plant, and that means that that's no longer a bottleneck. Through the you some of you may recall that during q four, we struggled with the outside densification of the slimes that gets produced by the plant, and this is now and we we've had a stable quarter on that front. So we're comfortable around the densification paddock and the tailed storage facility, and so that has had a a a good successful time.

14:53 And then lastly, during the quarter, we had a walkway turnover due to instability from the additional mass of material traveling over that walkway, and that those those that effects of that were rectified, and those walkways are now have a long term stability rectification in place. All of that's good progress, but we've been achieving more through into q two as well, and the dredge feed feed delivery has been improved on one of the dredges, and and and that that is now in the process of being rectified on the second dredge as well. That that shall be completed during this month.

15:41 And then we also have been looking at how to debottleneck the amount of flow that passes from the dredge to the feed preparation part and desliming part of the of the new plant. This has been involves us building some additional equipment on the plant. It's low cost, and and as we've said before, is is covered in the contingency of the project, and that is currently near complete at the moment. And so over the coming weeks, we expect that the debottlenecking of the of the plant will have been completed, and we'll be able to achieve our nameplate capacity. And so I'm gonna pass over now to Killion to talk through the market.

16:32 Thanks, Ben. So I'm gonna start with q one, and q one was a bit softer for titanium feedstock market again, really as the inventory overhang in the market continue to weigh on the overnight pricing. And as Tom mentioned earlier, this was exacerbated a bit for for KMR as some customers were affected by conflict in The Middle East. We saw some cancellations and postponements, and that resulted in us being forced into the spot market at at late notice, which probably harms prices further. Outside of that plus, I suppose, the higher freight, we haven't seen an impact from the conflict in The Middle East on underlying demand yet.

17:19 And on the other hand, what we have seen is that higher sulfur and sulfuric acid prices as a result of the war in The Middle East is supporting chloride pigment, and we've seen record chloride pigment production in China in q one, and that alongside record titanium metal production in China in q one, showing a recovery of demand for for our products. And that coupled with the supply curtailments that we saw in the second half of last year and unplanned ones into the first half of this year really means that we're starting to work through the the inventory overhang in the industry and and seeing a a tighter market. That's flowing through to our order book for q two. We're seeing a a strong order book for our own night sales and supported by both demand in in the West and in China. We're seeing that continue into q three at the moment with the the sales that we can see.

18:18 Zircon, similar story, but a bit brighter. I think the supply curtailments have been a bit heavier on the zircon side, so while demand has been relatively steady, the reduction of supply is supporting the market. We saw it stabilize in the second half of last year towards quarter four, and now we're seeing prices start to increase in the second quarter. We have achieved price increases on some products that we expect when we go into the market for all those zircon products that we'll see good traction there. Finally, I think our new product Zurtai was mentioned. We saw a big increase in sales in Zurtai in the first quarter, which was really encouraging to see for a new product. And that's continuing through, really, q two and through the rest of the year where we see that there is a new and a really robust demand for that product.

19:11 And with that, I'll probably pass back to you, Tom. Thanks, Kylene. And, look, I think this is a bit of a quick counter through, what was a very interesting and active quarter for us and and and continues on many of the things you've heard us speak about over recent months. But I suppose as we draw back from that, it's important to to think about why we're doing what we're doing and and and the particular characteristics of MoMA. Like, MoMA is a world class asset. It's gonna be around for decades and decades to come through a number of cycles, and our job is to make sure that we're positioned to navigate through those cycles, you know, with a favorable cost profile, with good operational practices, and and we can adapt to, you know, the ups and downs that come over that sort of period of time. And and certainly, the the investment in WCPA and how it positions us, for for moving to Nataka is something that that we're very excited about and very comfortable with. As Ben said, you know, the CapEx is behind us. The plant is operational.

20:10 You know, the punch list of items that we need to to to work through to get it up to consistently nameplate capacity is is pretty much done. And, you know, I think, you know, that will see the plan well set for for years and years to come, and and that will enable us to, you know, continue to generate operating cash flow, you know, to you know, I suppose on those teams, you know, some of the initiatives we spoke about in terms of reducing CapEx and managing our OpEx, I mean, we're very much on track with those initiatives in in q one twenty twenty six. You know, we we have I see it's coming through in some of the questions. We have a you know, again, while addressing short term issues, we've a we've a decent position in terms of diesel stocks. We have about ninety days, albeit we are exposed to to higher pricing, but we certainly have access.

21:00 And, you know, we're constantly reviewing what needs to change, what could change, and how we can serve our customers better through this this period of of geopolitical uncertainty. But our customers are loyal. Our customers are are continuing to work with us. Many of, you know, the customers we had fifteen years ago are still the same customers. And even when plants change hands as they did with with the customer who went into administration in q three, even when plants change hands, we we we continue to work with the new owners, and we expect we would continue to work with the new owners of of of of both those plants that have recently changed hands. And and and so, look, I think that's a a very important characteristic of KMR, the stability that our contractual relationships give us and the stability that our customer relationships give us because of our long life, because of our quality. And and, look, I suppose, you know, while we're a very good partnership with our customers, we also have had for the last twenty years a good partnership with the Mozambican government and and with the population in and around the mine at MoMA.

21:57 And and, you know, while the the implementation agreement has taken quite some time to get concluded, you know, we've been reassured throughout that process that the partnership that we have is valued by the Mozambiqueans as well. They regard KMR, and the president said this to me directly, KMR as a a case study in how international investors and governments can work together in a beneficial manner. And and and we'd be hopeful that that that sentiment, is which easy to say, but that sentiment will will be followed through on with the continued progress on the implement implementation agreement. You know, I think we, you know, we recognize that the future has to be different to the past for us, and we've we've made what we regard as a very fair and favorable offer. And and, you know, along with that comes significant investment in the asset and in the community, which we we we we really are anxious to to embark on. So, hopefully, we can get to a point where where that's behind us before too long.

22:55 Happy to take any questions that people might have, and thanks for taking the time to listen to us today. Fantastic. Thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions using the q and a tab situated on the top right corner of your screen. While the company take a few moments to view those questions submitted today, I would like to remind you that recording of this presentation, along with a copy of the slides and the published Q and A can be accessed by our investor dashboard. Catherine, at this point, if I may now hand over to you to chair the Q and A, and I'll pick up from Tom at the end. Thank you. Thanks. So first question. The ongoing war is putting pressure on sulfate pigment producers' margins. How is this impacting KENMARE's pricing and volumes? And there's actually a second part to the same question, which is chloride pigment producers seem to be relatively less affected.

23:45 How is KMR adjusting the sales strategy in response? KLM, do you wanna take that? Yep. I can take that. So maybe I I brushed over that in the presentation, but it's it's correct in the question. The high sulfur sulfuric acid prices are really harming sulfur pigment producers, particularly in China, but all over. And we are seeing reaction to that at the moment. That reaction is increasing pigment prices in China and for export. So rather than they can still get the volumes of sulfur, sulfuric acid, but they are increasing price. How does that affect how does that affect KMR? KMR for years has been targeting the the chloride pigment market more so. Our kMR ilmenite is very good for beneficiation.

24:36 So chloride slag and synthetic rutile, which is key feedstock into the chloride pigment market. So that is a positive for us. I think that's one of the reasons we saw record for pigment production in China in quarter one. We expect that to continue. So it is boosting the demand for our products. But I think while there still is an inventory overhang, we haven't seen it come through in pricing yet. Next question. How are you managing diesel reserves in the current environment? And there's three sub questions to that. One, do you have any long term fuel supply agreements in place? Would it be feasible to directly import diesel in collaboration with the Omani government? And is there room for further increase in electricity usage in the MSP?

25:25 Ben, do wanna take that? You're on mute, Ben. Yeah. Thanks. So on the supply agreements, what we we do have a long term agreement with the state fuel provider, PetroMoc, and and and it's the situation that in Mozambique, all fuel imports come through PetroMoc. On-site, we operate with two large vessels in our fuel farm, and that's got about three they have about three months of supply currently at at this time. We also operate with another three months of supply reserved for us in Karla Port. So that that's the main way in which we are managing the the the fuel and and and how that how that will go forward.

26:18 I'm I'm not really aware that we have the opportunity to collaborate with the Omani government to take fuel or do an an agreement with them. So I think that's something that we would take away and and have a think about unless my colleagues have got a a view on that. But then maybe to answer the third part around the electricity usage in the mineral separation plant. So we have done feasibility studies for the the preheating of air into our dryers, which are diesel driven, but the preheating of air to be done using electricity. So that is a project that has a decarbonization benefit for the business and would reduce diesel consumption.

27:06 However, at this point in time, it has been non economic to deliver that project at this point. So our hasn't hasn't been pursued and is not likely to be pursued in the current quarter based on conservation of liquidity. But if the price of diesel was to increase, that business case would obviously change. So it's certainly something that is on our radar and something that we are are closely watching. Next question. Chinese artisanal miners appear to be more exposed under the current conditions.

27:51 Is there any evidence of accelerated supply rationalization so far? Maybe I'll start that and and, Kylene, you can jump in. Look. I suppose the challenge with the the artisanal miners that are around us in Mozambique and other territories is they're not, you know, under single ownership. They're independent entities with their own licenses and their own operating plans. I think it is fair to say, though, as the question implies, that, you know, they they typically don't use mains electricity in the way that we do, which is high is renewable. They typically use diesel as their principal energy energy source, and by consequence, will be exposed to, you know, all the movements in the diesel price over the the next short while. And I I think, I suppose, point emphasizes that while we export finished materials to world markets, they typically export heavy mineral concentrate that has, you know, lower levels of of valuable materials plus waste matter. So, in fact, to be you know, the per ton of of material transported, they have less value. So, certainly, there are challenges here. We we haven't immediately seen any impacts, but equally, you know, these challenges from a geopolitical perspective and diesel perspective in particular are are are are very recent vintage. So I think it would take a while to work through. I mean, I think in a wider sense, it's our view that this at current prices, you know, 25%

29:21 of the industry cost curve is is underwater, that there's a number of producers of of all types not making money, and and that is what's provoking some of the supply responses that Killion spoke about. So I think, you know, painless to say it, and it's a little bit of a cliche, but the best cure for low prices is low prices. Killion, anything I missed there in relation to the artisanal miners? No. I think that mostly covers it. I think it is an advantage that we are less or use less diesel parts on a product at the moment, and, you know, we do see that anecdotally in China. We've heard of retail truck prices, which mostly comes from Sierra Leone or concentrates containing retail trying to push prices up. We believe that's on the back of the higher diesel costs they're incurring.

30:08 So, you know, we are hearing anecdotally of of that coming through, but nothing meaningful yet on on the pricing. What's roughly the anticipated impact of higher oil prices on the cash cost of production? I can talk to that one. Hi, everyone. Look. So last year, we consumed around 18,000,000 liters of diesel at a price of probably just just short of a dollar per liter. This year with less dry mining, as Ben mentioned, we'll probably consume a bit less, so maybe around 15,000,000 liters thereabouts. And so look. Last year, that would have made up somewhere between 78% of our of our operating cost base or in in cash terms.

30:54 And that we'd you know, we we would expect that diesel prices will rise. It's unclear yet to what extent that will be, but but, hopefully, those numbers give you some something to work with in terms of what the impact might be on our overall cost base. Next question. A few a few fuel distributors in Mozambique have reportedly been unable to secure inventory due to US dollar liquidity constraints. Does KMR have alternative procurement channels to secure fuel without going through the domestic Mozambican market? Like, I think we've we've we've broadly covered that, I suppose, just to say that the US dollar constraints don't impact on us in this particular regard in the same way as they do on others, and that our relationship is directly with the state distributor.

31:45 So, you know, I think we're we're comfortable for now with our positioning. The question of of engaging with, you know, our shareholders or others in Oman. Look. I think that's a we don't buy directly from refineries. We don't have the relevant licensing or permissions to do that, and I I suspect it would take quite some time to put ourselves in a position to do that. So, you know, we we'll continue to work through the channels that we're currently working through and have been for many years. And as James said, try and economize wherever we can on our usage of diesel in any event from a cost perspective. Next question. Where can I follow live or daily prices of ilmenite and rutile? What's the best source and price link to your products?

32:31 Do you wanna touch touch on this one, Kelly? And it's a difficult question to answer. Yeah. I think okay. It's a an issue with the market that it is very opaque. So, you know, no one source is really that accurate in in looking at KMR or any others. You know, they're trying to find averages or picking a particular product at at at any time. But there are sources like Asian metals, we look which look at products into China, ferroalloy again into China less frequently, but more of a global look. People like t z m I. So, you know, we would supposed to be forced to use a combination of all because no one is really focusing on on any singular product. It's trying to take averages or trying to take one product going into a certain region. So it needs to be with an overall look at at those three being the best.

33:22 That was the final question. Back to you, Tom. Okay. Thank you, everybody, for taking the time to listen to us today. Hopefully, we've managed to answer your questions. If not, please feel free to get in touch. You can see the contact details there on the back slide of the presentation. Our next formal update will likely be our AGM in early May, which is normally just an update presentation plus, obviously, the resolutions. And so thank you for taking the time, and have a good afternoon. That's great. Thank you, Tom, and the rest of the team for updating investors today. Could I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback, which will help the company better understand your views and expectations. On behalf of the management team, we'd like to thank you for attending today's presentation, and good afternoon to you all.