KENMARE Resources said it expected to produce towards the low end of its production guidance for its 2022 financial year, but added that price improvements for ilmenite would more than compensate for the disappointing volumes.
Second quarter production ilmenite production was 14% lower at some 242,900 tons while primary zircon production fell 9% to 13,600 tons. That takes production in the first half of Kenmare’s financial year to 11% and 6% lower respectively for the two minerals. Rutile production was also lower, down some 6% at the half-year point.
Heavy minerals content – representing overall production of minerals – was 19% lower at some 353,600 tons for the second quarter. Kenmare mines the Moma resource in northern Mozambique. Ilmenite and zircon are used in the manufacture of paint pigments, ceramics and other industrial purposes.
Michael Carvill, MD of Kenmare said that production was weaker than anticipated due to “higher slimes recirculation” which negatively affected excavated ore volumes and grades. “As a result, we now expect production to be at the bottom of 2022 guidance. Increased pricing has more than offset production and supported revenues,” he said.
Earlier this year, Kenmare guided to ilmenite production of between 1.16 million tons (Mt) to 1.2Mt for 2022. This compares to production of 1.13Mt in the 2021 financial year. Zircon production was guided to 54,400 and 63,200 tons compared to 56,300 tons last year.
The impact of higher pricing is reflected in the balance sheet. Kenmare reduced net debt $17.3m in the three months after paying $24.1m in year-end dividends. Overall, net debt stood at $65.5m as of June 30 compared to $82.8m net debt on December 31.
Carvill said the company intended to maintain its targeted dividend payout ratio of 25% profit after tax for this year.
Demand for titanium pigment – which ilmenite supplies – was reduced in China during the quarter as a result of China’s zero-tolerance Covid-19 lockdown regime. Despite this, chloride pigment production continued to increase in the country resulting in an increase in demand for the quality of ilmenite Kenmare produces, the company said.
Overall global demand for ilmenite grew in the quarter owing to “… robust downstream demand for titanium pigment, with pigment producers continuing to operate at high utilisation,” said Kenmare.
Kenmare said it expected global growth to decline in the current quarter, reducing demand for ilmenite pigment. The global economy is gripped by fears of looming recession and continues to be hampered by supply chain bottlenecks and continued Covid-19 infections.
“Despite this, Kenmare continues to experience demand for its ilmenite in excess of its ability to supply, as high-quality ilmenite remains in short supply,” it said.
Shares in Kenmare are about 5.8% lower in the year-to-date.
