KENMARE Mining completed its rehabilitation today after avoiding bankruptcy in 2016 announcing plans to resume the dividend – starting with an interim payout in 2019 – and outlining plans for a potential $160m in resource replacement and new production.
The company intends to take mineral sands production from its Mozambique facility at Moma, to some 1.2 million tonnes (Mt) by about 2021 which it said in an investor update it would achieve for $60m, less than the $100m outlined earlier following a re-scope of the project ambit.
In addition, a pre-feasibility study estimated it would cost $100m to move the mining ponds from the Namalope deposit of Moma, extending mining five years to 2025. The cost of the project, however is subject to a bankable feasibility study which Kenmare said would be completed in the first quarter of 2019.
The banner news, though, is the resumption of dividends.
Michael Carvill, MD of Kenmare Mining, described it as “a watershed moment” for the company. “Dividends will be based on a minimum of 20% of profits after tax and are expected to commence with the interim dividend for H1 2019,” he said. Shares in Kenmare were a shade below 2% higher in the first hour of trade in London.
Carvill said the mineral sands industry – especially ilmenite which is the main product Kenmare mines from Moma – were “… supportive of higher prices”.
He added: “Prices of ilmenite … remain at less than 50% of the previous peak and, in our view, are unlikely to be sufficient to incentivise the necessary new supply to replace depleting mines and meet continued demand growth in the medium term.”
Kenmare also announced its third quarter production numbers. In a nutshell, total heavy mineral concentrate output increased 3% to 279,900 tonnes compared to same quarter production last year of 272,600 tonnes. But total shipments was 5% lower at 198,900 tonnes which the company said was down to “… timing of shipments and the weighting of 2018 sales” to the first half of the year.
Heavy minerals are used in the manufacture of white, highly reflective pigments whilst ilmenite is also used in making titanium metal.
There were no financial numbers with the production update, but Kenmare indicated that running costs at Moma would be impacted by having to rely on diesel generation for power following interruptions. A fault on the Mozambique grid had been identified with work to rectify the problems likely to be completed in the fourth quarter.
CAPITAL PROJECTS
Kenmare said that dividend payments were likely to be modest initially, especially whilst the firm’s capital projects were underway. “Following completion of these development projects, the company expects to be in a position to make higher capital returns from 2021,” it said in its announcement.
Commenting on its planned capital project strategy, Kenmare said raising output was key in order to reduce unit costs and lift margins. It also had spare capacity at its processing and export facilities at Moma. Commissioning of the projects had already begun at the upgrade of the WCP B at a final cost of $16m.
Construction of a third dredge mining pond had been approved which is expected to cost $45m and yield an internal rate of return of at least 30%. Commissioning is expected to be before the end of next year. Moving the Namalope pond has been scheduled for the second half of the 2020 financial year, increasing production in 2021 to 1.2Mt of ilmenite a year. Further plans to move the pond of WCP A to Natake in 2025 remain “at an early stage”.
Sustaining capital is expected to be within guidance of $22m for 2018 and expected to be in range of $20m to $25m a year over the next five years, the company said.
