Kenmare Resources plc (KMR) Earnings Call Transcript & Summary

Good afternoon, and welcome to this Yellowstone Advisory webinar with Kenmare Resources, who released their full year results this morning. Just while we're waiting for everyone to arrive, there was a pull up on the screen, and it would be great if you could just respond to that indicating whether you are a shareholder or not. And while we're waiting for everyone to come into the webinar this afternoon, let me just go through a few app end points. [Operator Instructions] I'm just going to leave that poll up for a little bit longer to give everyone a chance to complete that. But it looks at this point in time that we have a balance of about 80% to shareholders and 20% to non-shareholders are on the webinar this afternoon. I'm now going to hand over to Michael Carvell, who's the Managing Director of Kenmare Resources and ask Michael to turn his camera on and take us through the presentation. Thank you.

Thanks, Alex. Welcome, everybody, to Kenmare's 2020 Results Presentation. I'm Michael Carvill, I'm the Managing Director. With me are Tony McCluskey, Finance Director; Ben Baxter, Chief Operations Officer; and Killian Murphy, Marketing Manager. We will give you a presentation. We'll move through pretty quickly so that we have some opportunity for questions afterwards. And also, on the line is Jeremy Dib, our Investor Relations and corporate development managers. So we're all available to answer questions afterwards. So Alex, if we could perhaps turn to the next page. First is COVID-19, I think it's -- no. Yes, there we are. So 2020 was a year characterized for our pretty well every business in the world by its interrelationship with COVID-19. So for Kenmare, the CFP well-being of our employees in those communities of our Project Aranda project, which is located in Northern Mozambique are our highest priorities, and they informed the way that we dealt with COVID. So obviously, like everyone else, we improved our sanitation and developed strict protocols for physical distancing in the workplace, when we're reading, when we're in transport, et cetera, but one of the most important things that we did right at the outset was we were concerned that the company should not be a vector for the inward transport of the virus into the community and the locality where we believed it was pretty well virus free. So we shut down all transport or all inward movement of people to the mine and that meant that since we are really on a 4 shift basis and 1 shift is always on [indiscernible]. Those people couldn't get back. And so there are 3 remaining shifts and the management staff that were there, which turns out is pretty well. The whole management lock themselves into the mine, and it's through the dedication of those people who continued to run the business for many, many months before we were able to relieve them as testing became available and we were able to test people as COVID to ensure they were negative before they got up to the mine. It was their dedication that ensured that we could continue to produce through 2020. We, as quickly as we possibly could, we developed a laboratory of the mine, brought in more testing and more testing and our operating system at the moment is really is, test and isolate, test and isolate. And so every single person of the 2,000 or so people who are operating at this side are tested every single week. And if you come as a positive, obviously, then we wouldn't -- those people go into an isolation procedure until they come up with 2 negative tests. And that has a life continue to operate. And towards the end of the year, we're going quite well. However, there has been an increase in COVID in Mozambique during the first quarter of 2021 on and we put our press release in early March seeing we had 177 people in isolation. So that's quite a lot of people that aren't available to work. And most of those people were not [indiscernible] or not all at all. And -- but some people were a ill. And in fact, we have, in total, of the people that have ever been decided or ever been working with those are -- have been working with us 3 people have passed away from COVID-related illnesses. By 22nd of March, the peak had reduced, and we're now down to 112 people. So we're hopeful that we're over the worst of it. However, vaccination for ground in Mozambique is embryonic at best. And so we do not see that the COVID issue is going to go away, and we expect to be dealing with COVID for quite a few quarters to come. If we could go to the next slide, please, Alex. Alex, next slide. Yes. Thanks. So 2020 was a year of delivering on our strategic plan, which is built on 3 pillars, gross margin expansion and shareholder returns. We completed 2 of our development projects in 2020, which poise us for a 45% to 60% growth in production volume between 2020 and 2021 and have allowed us issue a guidance of 1.1 million to 1.2 million tons of ilmenite, which is our main product for 2021. That will because while not be completely fixed cost and a large proportion of the costs are fixed, reduces our operating cost per ton very significantly, and we're targeting a first quarter position in the industry revenue to cost curve for 2021 and beyond, which is a long-held strategic ambition of the company, its strategic goal of the company. And that has allowed us recommend a $0.10 per share dividend for 2020 and 25% dividend payout resew and 25% profit after tax in the PR [indiscernible] for 2021. Kindly go to the next slide, please Alex. I'm sure everyone has heard many mentions of sustainability and responsible business practices, et cetera. So basically, the whole world and particularly the extracted industries have focused very strongly in 2020 on sustainable operations. And we believe, though, we have a very sustainable operation. 90% of our par comes from sustainable sources. We use a hydrogenerated electric car from a [indiscernible] and [indiscernible] river and -- but we are ramping up our reporting, and we're putting more structure on our sustainability. So we will issue our inaugural sustainability report in a couple of weeks. We made our first disclosure to the carbon disclosure program, and the Board has just approved us investing in a new project called RUPS, which is a project for CO2 reduction -- reduction of CO2 emissions and electricity supply stabilization. We think it's a great project, and we're very excited and look forward to implementing it. So could I move to the next slide, please, Alex? So 220, it really were of transition positionally now for 2021. We completed a brand-new mining pond in February. We call out where [indiscernible], a start of production and has been producing at targeted volumes throughout the year. And then our major project was a move of what comes to WCP B, which is another mining pond from the area where it been mining to a new higher grade mining zone that was completed in -- at the start of the fourth quarter and through the second half of the fourth quarter, we've been ramping up and that has a confined effect on our output as were money much higher grid, more easily in mined material. The project was substantially financed with debt, which has moved our leverage up somewhat. We've moved from a net cash position of $14 million to a net debt position of $64 million but we feel that, that's still well within the capacity of the company to bear. And the combination of the successful completion of the projects and the robust product market, which we're experiencing at the moment where the market is showing very -- has been very supportive in terms of price and the ability to absorb new production. As along the Board to have confidence to recommend an increase in dividend payout to $0.10 per share, which is a 22% increase from 2019 and forms a very effective bridge to our dividend payout in 2021 and so with that, maybe I could ask Tony to go through the actual results. Thanks Tony.

That's great. Thanks, Michael. And welcome, everybody, to the presentation. I'll run through the income statement, balance sheet and the proposed dividends this morning or this afternoon. As Michael outlined, 2 of the key achievements in 2020 were the completion of WCP C and the move of our B plant to Pilivili, which is a high-grade zone to the south of our existing operations. These projects were successful despite the COVID-19 headwinds that Michael touched on, but they did require some production interruption, particularly at our B mining plant when it moved in the third quarter, and we'll see this as we go through the presentation. But with these projects behind us, we are now well placed to increase our production from 2021, which builds on our economies of scale, given that Moma is a largely fixed cost operation. So the increased production helps us drive down our unit costs, increasing our margins and on that basis, we'd be expecting to generate strong operating cash flow this year, 2021. And so that's a little bit of brief background. I'll just turn to the income statement, which Alex has up in front of you. Starting with the revenue. It's down 10%, partly due to shipping being lower, I'll come back to that a little bit later, offset by an increase in pricing. The increase in pricing has been in ilmenite with a small reduction by -- in the zircon production. And/or zircon pricing, sorry. And you can see on the pies on the right-hand side that ilmenite accounts for 72%, which is 4% more of the revenue than it did in the preceding year. So that's what that pie reflects. Our costs are marginally down, but basically quite flat. As I said, it's essentially a fixed cost operation at Moma. Net finance costs are up by about $3 million, and this reflects the drawing of our debt facilities in the second quarter. Tax expense is also up slightly, notwithstanding the reduced profit before tax. This is because tax is based on our mining company, cash costs, which influence the value of our heavy mineral concentrate, which is what's produced by the mines. But in 2021, we expect that the effective range will go back to something in the order of 8% or 9% with the extra tax yield from the investment that we've made in the B plant, and I'll talk about that a little bit later. And so with all of that, we generated an EBITDA of $77 million. And I think based on the work that we've done, the projects that we've completed, we expect to build on this strongly in 2021. If I can move on, Alex, to the next slide, which deals with the pricing and shipping. As I said, pricing is something of a mixed story. You can see in the graph on the right-hand side that the average pricing has been increasing for the last number of half years up to $272 per ton. But in 2020, this was made up of ilmenite prices moving ahead strongly. The average ilmenite price in 2020 was $220 a ton, whereas zircon, which is the coal product, had a reduced price because of weaker markets and some lower quality issues, which we expect are being addressed in this current year. But all in all, I think we're looking at a tighter market based on the first couple of months of '21 and when I hand over to our marketing manager, Cillian later, he'll talk more about that. The shipping volumes are down about 17%. This is principally due to some poor weather in the middle months of the year and 1 of our transshipment vessels was in dry dock for some months. Partly for its ongoing in class inspection and works, but also both of the transshipment vessels had worked on them to increase their capacity and reduce their cycle times. And this is building for the increased production that we're expecting in 2021. The chart on the bottom right-hand corner that you see there, sort of takes revenue from 2019 shows the small price increase that I showed you -- that I spoke about, net of the volume reduction and then the zircon mix and so that's how the revenue bridges from last year to this year. The next slide, I don't need to go through it all in detail, but it helps reconcile the income statement to the cash operating costs per ton of products we produced, the cash costs. So you'll see that the total cash operating cost per ton there in the middle of that slide has increased from $158 to $188 a ton. And after you adjust the coal products, the cost per ton of ilmenite actually has gone from 81 to 125. This is really a function of the lower production, as I said, given the fixed cost nature when we have a lower production over that fixed cost, it simply results in a reduced cost per ton. And if you look at the next slide, it shows the unit costs history. And I think for me here, the thing to note is that with the lower production in 2020 and the higher unit costs, that explains why we're still focused on getting our production up in 2021 and beyond. It improves the margins, which we expect will move Kenmare towards the most competitive quartile of our mining peer group margin curve. So it puts us amongst the most competitive in the titanium minerals industry. And as Michael said at the start, that's been 1 of our long-held objectives. If we move on, Alex, to the operating cash flow per share. The operating cash flow here dips in 2020, which reflects the reduced EBITDA that we touched on in the income statement. And as Michael said, 2020 being a year of transition, but with the increased production next year and lower unit costs, and the positive market outlook that we're seeing, we expect that the cash generation will pick up this calendar year 2021. And so I would hope to see that green line tick up when I get to present it again next year. Moving on to the balance sheet then, there's actually quite a lot going on in the balance sheet this year. We've got an increase in our plant property and equipment of $110 million. This is mainly driven by the investment in our development projects. So the completion of C and the move of what concentrator plant B in addition to which we have the usual sustaining CapEx costs. In addition to that, we have a small increase in the mine closure cost and net of depreciation, that takes us back to the 110. The increase in mineral stocks is not a volume thing. It's simply a reflection of a higher cost per ton. The inventory spares increase of $7 million reflects a decision that we've taken to invest in the spares in order to support the increased production that we're seeing in 2021. So in this way, when our production people come to get their spares, they're clear and sure that they're in the warehouse when they need them, and this supports the higher utilizations that we will need to achieve our guidance. Trade and other receivables are down partly because or mainly because we used our invoice discounting facility in the back end of the year. And the other number to comment on on the balance sheet is the increase in creditors and provisions. And this is partly due to the large CapEx that I've been talking about to complete the WCP B move, but also there's been some certain timing of payments that slipped into January. And I would expect to see that unwind in addition to the receivables unwinding to some extent, in the first half of the year and as we go through 2021. We move on there, Alex, to the next slide, please. So this slide shows the change from net cash of $14 million to net debt of $64 million due to the investment again in WCP B and to a lesser extent, in sea. And both of these projects provide the foundation for our increased production in 2021. So it really just graphically shows what we've been talking about for the last while and reconciles back to cash with the smaller working capital changes on dividends and financing charges. Slide 16 -- sorry, the next slide is the debt -- the debt facilities that we put in place in 2019 have served us very well in the last 12 months, especially, given the large CapEx to move wet concentrator plant B to Pilivili. And we were facing a very uncertain world, which was brought about by COVID-19 in the first quarter. As a result of that, we drew the full balance of our debt in the second quarter. So we have a term loan and a revolving credit facility, which can be repaid and drawn during the course of its life, and we have discounting facilities. And I wouldn't be surprised given the strength of the cash flow, if we were in a position to draw down -- sorry, to pay down that road in credit facility, and the gear as we go through the course of 2021. But what I would say is given these facilities and the strong cash balance, $87 million at the end of 2020, at Kenmare's balance sheet is in robustly rule could help. My last slide then deals with dividends. We said at the Capital Markets Day, some of you may remember, which took place in October 2018 that we would set on our dividend policy, which we did. And this said, we would pay a minimum of 20% of profit after tax, subject to a number of conditions, including market and capital requirements and debt. So we followed through on that in 2019, and we paid $0.082 per share. And in 2020, having paid the interim of $0.023 per share last October, we're now recommending -- the Board is recommending a final dividend of $0.0769, which would be subject to shareholders' agreement or approval at the AGM despite the somewhat lower profit after tax for 2020. And again, this is because we see the movement of B as a success. It's operating well, and we're feeling quite positive about the future given the market that we've seen in the last couple of months and the outlook. We're also proposing to increase the 20% profit after tax policy target to -- in 2021 to 25%. And I suppose this is part of a balance of how we use our cash so that will be dividends. We'll have some [indiscernible] that I touched on earlier. And then we have also some capital projects and some flow over from 2020 WCP B. The dividend timetable is in the bottom right-hand corner of the slide. So subject to shareholders' approval at the AGM, we'll be proposing. And if that's carried, we'll be making the payment of dividends on the 19th of May. So thank you very much for your time. And with that, I hand over to Ben.

Good afternoon. Good afternoon, everybody. Hopefully, you can hear me and see me fine. I'm going to start this afternoon with a focus on our -- significant focus on our sustainable business practices that we've had over the past year. We have spent a lot of time focusing on doing better disclosure and being more transparent with what we do around health and safety and around all other aspects of ESG. Our first -- we've made office disclosure to the carbon disclosure program in 2020. We're about to deliver an inaugural sustainability report. And for the first time, we've set public targets around sustainability. Regarding our people, our lost time injury frequency rate dropped during the year, and we continue to make good progress there. Having really focused in on making sure that risk assessment works are done well, and we implemented a number of new processes there to make sure that people can work safe when they're at moment. Our focus around localization continues, and we're now proud to be 97% Mozambican in our workforce. And in addition to that, we're focusing on improving the number of Mozambicans in management roles. This has risen now to 83% of our roles being Mozambican held. Gender diversity is an important area for us, and we made significant strides in 2020 with the number of females in work at Moma are up 37% to 10.6%. And we'll continue to close that gap there. Regarding the environment, we exceeded our plans on rehabilitation in the year, and we rehabilitated 180 hectares of land. And our focus on local communities continues. We -- with the move of WCP B to Pilivili, we successfully incorporated those villages in area into our corporate social responsibility plans. And our development association called KMAD continued to work on its development initiatives around health, education and economic development of those areas. If I could go to the next slide. Thanks. So in 2020, our operational focus was directed towards the completion of WCP C, a new mining plant, but also the move of WCP B, and I'll come on to the B move in a moment. WCP C is delivering HMC to the expectation that we had. And that's really rewarding to see for a new mining plant that's called into operation and has differed from the start. We had a -- it operates a small-scale area of mining that is high grade and because it's got to the mineral separation plant, it minimizes the operation costs of pumping. And so has delivered really very, very well and to our expectations. It started producing at the end of February 2020, and the ramp-up was very strong. However, there are some outstanding matters such as acceptance and performance testing and some defect elimination work that's still required. Those things unfortunately got caught up in the COVID-19 restraints that we experienced, and we could not get contractors to the site to do those fixes yet. Nevertheless, the budget -- the project is expected to come in within its $45 million budget. On the next slide, please, Alex. So the second project of the year was the move of WCP B to Pilivili, and it's really been the highlights of our year from an operations perspective. It's moved to Pilivili, which is the highest grade ore zone in our resource portfolio. And we've really seen the benefits since that move has taken place. I'd like to move on to a video just to share that move and help you see the scale and how significant it's been. And WCP B needed to move as it had depleted its mining path in the Namalope ore body. And it had to be completed on time and minimize the amount of downtime. We mined into a relocation pond, which was then drained, as you see on that shot. And the plant was placed on [indiscernible]. We took a -- we had an enormous amount of support from our contractors and they overcame the fabrication installation and travel delays that COVID brought with them. And they managed to get this move delivered in a 2-month downtime window. Dismantling and erection of the plant was not really a possibility for us because the downtime would have taken just too long even a year. And so it was decided that we would move the plant on self-propelled modular transporters, these long axled vehicles. And we had to build a road that was 66 meters wide and 23 kilometers long. You see on this photograph the plant moving through pass the village, pass the mined-out areas and the mineral separation plant. And this was really a very significant event. The move of the largest and the longest move of a single piece of equipment that's been done in Africa. It's hard to describe the scale on this video, but having been there, and it was truly amazing to see very impressive. As you see there, large crowds developed and watch plant coming on to the plants at the end once it had reached Pilivili. And we've really enjoyed the benefits thereafter having flooded this piece of ground now and refloated that mining pond into position in the new ore body. And maybe we can go back to the presentation. So the operation, as you can see on this photograph, it was refloated in the pond that you see at the top left there, cross -- it was -- we crossed the river and moved into the orebody in what's known as the start-up pond. Mining has since then continued really very well, and we've progressed almost to the end of our first mining part. We then turned around on ourselves, 180 degrees, and we work our way through the Pilivili ore body. There's a few things just to describe there. We started up on the 25th of October. We had a strong ramp up and by the end of Q4 2020, we built up an overall stockpile at the Moma of 50,000 tonnes of heavy mineral concentrate, really highlighting the good grades and the solid ramp up. There were some delays. We had to establish grid power only in December and use generators for the first month or so. This was because of COVID-related delays. And also, we continue to haul HMC by road at this point, pending the imminent completion of the commissioning of the positive displacement agency pumping line. Overall, the project is currently expected to cost of $127 million. Moving to the next slide, please, Alex. You can see the infrastructure terrace in operation. This is the heavy mineral concentrate being delivered to an area where we stack a heap of concentrate and then feed that concentrate into the positive displacement pumps through a reclaim system. That the comps are currently being commissioned on-site right now. The -- that process is taking place, and we expect that will be -- that commissioning will be complete in the coming week or 2. On to the next slide, please. So 2020 were presented by us transitioning to Hyatt production area and the HMC production, the concentrate, that is from our mining areas was impacted by the lost time whilst we moved WCP B to the new area. But also because of coded limitations, we were prevented from getting there slightly earlier. And therefore, we didn't get the benefit of so many months of the high grades that Pilivili had to offer. Consequently, we saw final products recoveries and tonnages down, and we made 756,000 tonnes of ilmenite and 43,000 tons of primary zircon. Our shipments were largely in line with production. However, we saw a significant uptick in shipping in the quarter as Michael -- as Tony had said earlier, we had had our transshipment vessels going through some refurbishments and some additional capacity projects being implemented, which means that now moving forward, we have a more reliable fleet, and our cycle times are coming down, and we've seen that continue into 2021. On to the next slide, our guidance for 2021 reflects the additional grades from Pilivili and the HMC that follows and option is expected to be between 45% and 60% increase compared to 2020. Our ilmenite production rises to 1.1 million to 1.2 million tonnes, and we see similar increases compared to 2020 in our other co products. Whilst there is some moderate increase in absolute costs -- operating costs. This is because of the additional pumping and some additional volumes. We see that the economies of scale really kick in, and we see a material drop in the mining costs from $188 per tonne in 2020 to a range of $132 to $146 per ton. Whilst COVID remains an issue, we have seen this reduction in the number of cases that we have, and that has to be narrowed against the fact that Mozambique likely to be fully vaccinated in 2021. From a capital perspective, we expect to continue to spend around $25 million on our sustaining CapEx. This is a number that we've spent a few years now, and that's expected to continue. And around development costs, we expect to spend $58 million. This is made up from the fact that we have some additional costs coming in from WCP B as they roll all over into 2021 from 2020. And we also have some additional improvement projects around existing operations, and we're also introducing a project that will focus on power stability, which has been lumpy, an issue of some reliability concerns at the moment. And this is a project called the RUPS project, and I'd like to just walk you through a little bit more of that now. As I said, it's about power stability and carbon reduction project. It comes following an extensive research program where we've recognized that driving maximum utilization of our hydroelectric power source will allow us to make use of low-cost power, sustainable power and reduce consumption of diesel. As currently in the summer months, we use diesel generators to mitigate poor power reliability. This jet is the introduction of a rotary interruptible power supply. It is a flywheel energy store which delivered immediate and instant electricity into the grid as soon as the grid fails for whatever reason. The machines that we're employing are used around the world, but they've not previously been used in the mining industry. And where we see -- we've completed some significant feasibility work on the system and see some excellent benefits for us, both in improving the utilization and the product recoveries that we get from our mineral separation plant. So as we split the zircon from the route, from the ilmenite, but also through cost reductions as we will reduce our diesel consumption through those 4 summer months. This has a knock-on effect of reducing our overall carbon dioxide emissions, and we expect to see them drop by 15% across the business. There's an added benefit, a strategic benefit in that we will see some partial independence of [indiscernible] from the grid should there be any long-term outages in the future and use this system -- the RUP system in combination with our existing generator system to run the mine and the mineral separation plant on a partial basis. Costs of $16 million and it's an NPV positive project, and we expect to get this project implemented by the end of this year. With that, I'd like to pass on to Cillian Murphy, who's going to take us through the market update. Thank you.

Thanks, Ben. Hi, everybody. I'm just going to give a quick update on our product markets and how we are seeing them at the moment. I want to start with titanium pigment, which is the largest market for our ilmenite products. So in 2020, despite all the disruption caused by the COVID-19 in pandemic, we actually saw growth in the pigment market demand over the year. That was due to a strong first quarter before the western world was impacted by COVID and then a strong recovery in the second half, following a very weak second quarter. Whatever, what we saw was that in the second half, the growth in demand was concentrated to certain segments such as DIY coatings and people as people under [indiscernible] improvement projects and then certain plastics, which could be used in PBE, for example. Whereas in 2021, we also see a strong demand growth coming, but we see it on a much more widespread basis. The industries have performed well in 2020 are expected to perform well again in 2021. But with the added stimulus being injected into economies, we also see the recovery of infrastructure spend, which will boost downstream demand for industrial coatings and selective paper. So it's much more broad in terms of the segment. And also, we're seeing that it's much broader in 2021 in terms of the regions as well. It's not focused on certain regions. It's really on a global basis. Then if we look at the graph on the bottom right, I want to just talk to pigment inventories for a minute. And what we saw in the second half of last year is as demand recovered quite quickly for pigment, the producers were unable to react in time. We saw a big decrease in pigment inventories, both at the consumer level and at the producer level. What that means for Kenmare for feedstock reduces that as demand improves in 2021, we are seeing that flow through to feedstock quite quickly as there is no inventory buffer to meet that demand. So we're seeing that demand come through. If I move to my next slide, it focuses more on the feedstock supply demand. And if we look at 2020 to start with, you can see that we believe that feedstock demand increased largely due to the pigment increase in terms of demand and supply was unable to keep up. That gap, we understand is mostly in the sulfate ilmenite side, which is why we saw price increases throughout the year. Looking forward, we expect strong demand in 2021 and 2022 but we do expect supply to increase as well, and that's coming from areas such as China and Vietnam, producing more ilmenite and then more concentrates being brought into China for further processing as well. So we do expect supply to increase, but not to keep up at the same rate as demand. And longer term, provided that some of the more advanced projects coming to operation. We do expect to see a more balanced market. But I think what's important to us about this graph is throughout the next years, we do see a market that can absorb Kenmare increased production. Then if I just move to the final slide, I want to give an outlook on this year and what we're seeing at the moment and expect to see for the rest of this year. In terms of titanium feedstock, which is our ilmenite and our rutile products. On ilmenite, we've seen very strong market in the first quarter, and the order book looks good for quarter 2 as well. And what's encouraging to us is similar to pigments, we're seeing that demand really on a global basis for customers in all areas in the world are looking for increased volumes for us. And we believe that's being consumed rather than going to stockpile as well. So the market is showing that it really can't absorb by fine production in the first quarter. And the same preset of rutile, we are seeing excess demand for that product at the moment, and that's outside the pigment market. So conditions for both those products really are favorable as we look to quarter 2 and through the rest of this year. Zircon has been a bit of a different story over the last couple of years. We've seen prices on a downward trend, but that started to turn in the first quarter where we've seen an uptick in demand and we now believe that demand is more aligned with supply and that global inventories are at very low levels. And I think really at the consumer and the producer level. Price increases for zircon have been announced for the second quarter, and we have already achieved some price increases for quarter 2, and we expect that to continue through the second half as well. So as we look to our product markets and the rest of this year, we do see positive outlook for all of them. And with that, I will pass back to Michael for some finishing remarks.

Thanks, Cillian. So as Alex has put up Slide 33 there, you can see that we have been moving along a continuum towards the first quartile position in a revenue to cost curve for this industry. And that is a strategic ambition the company has long had. We have been investing to achieve this. We have been implementing the projects with this specifically in mind, and we now believe that we are at a position where in 2021, we will be in the first quartile on the industry cost curve. This obviously provides higher margins and because our volumes are higher, higher volumes and the higher cash flow. But for us, the very important part of it is that we believe that it will provide long-term stability as at all points on a commodity price cycle, we should be in positive cash flow because very [indiscernible] does a commodity price cycle bike so far down as to render people in the first quartile of the cost curve as being not positive cash flow. So if we can move to the next slide. So we've been building on our strategy, which has been really to make low capital intensity investments, which utilize gaps that existed in our existing -- in our facilities. So it means that with the investments that we've been making, we've been filling it so that all of the facilities that we have already installed and invested in are used tiller maximum. And while the monies involved are quite large compared with investing in a complete project, they are considerably lower and therefore, the returns are much higher. That is the lowest issue guidance of 1.1 million to 1.2 million tonnes of ilmenite this year which will, in turn, provide the margin expansion and provide the ultimate ilmenite, which is to provide strong returns for our shareholders. And with that, I'd like to hand back to you, Alex, and I suppose if we have some questions, we'd be delighted to respond.

Thank you very much, Michael. Thank you very much to the team for that presentation. It's clearly been quite a year of change in 2020, not least with the move of WCP B, which was a great achievement. And of course, announcements on dividends and future dividend to payout ratios.

[Operator Instructions] And I'll just start here with the first 1 that's coming, which is can you tell us something of the sort of the terrorist political situation in the country and how this is affecting Kenmare?

Yes, sure, sure, Alex. There is an insurgency in operation in the CAVALCADE province in the very northern country. This -- there's very little known about it. It's not very clear what the objectives of the insurgents actually are. It seems to be a highly Islamic influenced group, and they are causing quite a lot of disruption, there's a lot of violence and a lot of misery caused in Tapado Cato commons. However, that's a very, very long way from us. We are 700 kilometers by road from the epi center of that area, and it's extremely regional. It's the north of the country, which is predominantly Muslim, and it is associated with both the locality where this group grew up and also the fact that there is a view that the development of large gas projects in capital GARO is not being reflected in investment in the people and the civilian life in the country by the -- in that province by government. It has no effect on us in our day-to-day operations, and we don't really expect it to have any real effect in our day to day operations. But it remains a patched for those people who are experiencing.

Okay. I'm going to move on to questions about capital expenditure, and this is from a very observant investor who's referencing back to 2018 full year results. And they say, when you publish these results in March 2019, the company indicated total development capital would be $1 million per annum in '21, '22 and '23. The figure for 2021 now stands at $58 million. Please, could you explain that? And what are the revised total development capital costs for '21, '22 and '23?

So with regard to '21, there's a couple of factors that are influencing that. One is that $22 million of wet concentrator plant Bs move costs have flown into 2021. And that's because the project was delayed by COVID related restrictions in various countries. As a consequently, $22 million of that CapEx is from where concentrator can B. Also, completely separately, and not even conceived in 2018 is the Board has made a decision to make an investment in carbon reduction and electricity, supply stabilization, equipment call RUPS, which then Ben has been talking about. That's a very positive investment. It stands alone. It was -- it had a rigorous feasibility study and has a robust business case. So a separate investment decision was made with regard to RUPS. So that's $22 million and $16 million. So it's sort of building up a little bit. We've had to -- were concentrated plant A has -- is moving into a slightly different area for its mining. And consequently, we've had to spend quite a bit of money on relocation of a small village called Asia in that area. And just the way of country works, we're making that investment a couple of years before it will be used and therefore, it's required -- it's called capital investment as opposed to operating a normal operating cost of the operations. And finally, we're spending more money on doing a very careful, very comprehensive prefeasibility study and feasibility study for the movement of Wet Concentrator Plant A in 2021 and then we had conceived that we would back in 2018. So again, we're making a specific decision to put more engineering, more experimentation, more development into ensuring that, that move is a successful move that the project is executed smoothly and that when we construct gets to NATA that it mines effectively and in the cost-effective and safe manner. And so there is more investment in feasibility studies and feasibility assessment than we had anticipated that we wouldn't otherwise have been doing. So I think those are the main reasons why CapEx is more than we had in business back then. Looking in the next couple of years, I think we're going to continue to spend more on those feasibility studies than we had originally been anticipating. So I think you can expect to see some additional expenditure in the coming years on feasibility. And who knows, we might find another ups. We might find another very positive NPV project that we might make an investment in cost a couple of tens of millions of dollars, not quite sure.

Michael, just 1 other element in there, which is $9 million, which is for the resilient of existing operations, like the expansion of the warehousing facilities to help us with the expanded shipping capacity. So that's the final piece.

Yes. Thanks, Tony.

And then just in terms of quantifying sort of development CapEx for '22 and '23, are we sort of talking at the moment, $5 million to $10 million? Are you talking a figure similar to the $58 million that is being spent in 2021?

More like the former than the latter of your 2 numbers.

Okay. A follow-up question on the development CapEx is that you spent now $170 million on development costs relating to WCP B and WCP C. In terms of net profit, what is the expected payback period in months to recoup this investment?

The move-up were concentrated plant B, sorry, all the move of -- what's the pay-back time in months I'm going to move where concentrated on B. Is the question, Alex?

Yes. Well, it's just saying you spent $170 million on the [indiscernible].

That's a very interesting thing. I mean, how do you really make that assessment because if we didn't move Wet Concentrator Plant B, it wouldn't sit there and not be used at all. So I suppose the recoupon investment is in ORX because our old project would have a significant weakness if we hadn't moved it. So the move of Wet Concentrator Plant B was a [indiscernible] on for the successful continuation of our overall project.

Okay. There's a nondiscretionary capital, the WCB C project is obviously a discretionary additional project, which, at the time when it was conceived at a $45 million cost, which is what it's been delivered against. We stated other capital return of between 30% and 40%, but that was at lower prices than we're currently experiencing. So at 30% to 40%, it would be somewhere in the region of 24 to 30 months of payback, but it's likely to be less than that now. It's a very high-returning project.

On the balance sheet, do you have a leverage target now?

Alex, we haven't formally set a leverage target, but I suppose there's been a theme in the mining industry of deleveraging over the last 2 years. And I think that it's entirely sensible given that we're in a business where commodity prices go up and down. And if you're over geared, we have seen in 2016, the disruptive impact of debt. So I think in principle, thinking about 0 net debt is a sensible way to think about the company and having facilities in place that we're able to call on. So the examples that I gave when I gave the presentation, as we put in place our facilities in 2019, we used them for this relatively short-term high CapEx requirement, and I would see us using the cash flow generated in 2021 to at least partly deleverage and pay back some of that. Now we'll see how we go through the course of the year. But I think a target of having some debt on your balance sheet but enough cash to cover us leaving us in a neutral situation is a good way to think about it.

Okay. Looking now at product markets. Do you sell your output at spot prices or do you forward sell? And if the latter, how much visibility do you have on future revenues?

Cillian, do you want to respond to that question.

Yes. I think the simple answer is we do both. We've got a range of different contracts, whether it be 3 months, 6 months, 12 months. And we like to get security over some of our volumes. So we do have contracts that we lock in on a bit of a longer-term basis. But at the same time, in situations and markets like we see today, we also like to be exposed to the spot market. When prices are increasing rapidly. So it's really a mix of both spot sales and contracted volumes. But I think in terms of pricing, it will be mostly obviously short-term when we agree that lactose prices in, we wouldn't tend to have very long-term pricing agreements.

Okay. Question, again, going back to the CapEx this year, power supply has been a continuous problem for many years. How confident are you that the RUPS will once and for all address this issue?

So the RUPS project is to address par supply for the mineral separation plant. It doesn't cover the overall project. It addresses part stability for the mineral separation plant. So the rest of the project is still subject to the vagaries of par supply from EDM, the state par supplier. I have to emphasize, though, that there is a lot of good in our par supply from EDM. Firstly, it's a sustainable par. It's -- there is 0 carbon in the generation of the part that we use. And also, it's extremely cheap. Our par purchase cost from the hydrogenerated par is very low. So our par situation is, overall, we believe, a good situation. The rest of the project is not as sensitive to bullish dips and surges as mineral separation plant. So we've -- we have protected the most vulnerable part of the project and the rest of the project has been -- has shown itself as capable of operating quite satisfactorily with the existing power supply.

Michael, if I could just add to that, I think that if someone was talking about years ago, if you go back to 2015 at the end of 2015, before that time, there was a structural issue with the power supply and that the transmission capacity on the grid was insufficient for the amount of demand and in the end of 2015, that was increased by 50%. So those issues that really, we struggled with in the past are no longer issues today. Now there are interruptions to power, but more on the fringes, and it's about increasing our utilization overall opportunity to increase those operating hours, and that's what RUPS fixes. So we've had some slightly different issues with power, but the ones today are not the ones that we've had many years ago.

In the just to add 1 more piece there is that RUPS is a prudent technology used elsewhere, particularly in things like data centers and hospitals, where it reliably prevents dips in infrastructure. It hasn't been used in the mining industry yet, but we see -- but when we did our feasibility study, we tested against the -- the power parameters that we have at the moment and that it worked to the same fact.

But just to go back to your original question and an original question, Alex. We're not saying that power is an issue that is completely and totally resolved by the installation of RUPS. The management of the power situation in Moma will be an ongoing management situation for years in the future. But it will always be the case that it's an important part of our management tasks.

We're drawing towards the end of our time, but we have a question from 2 or 3 different people actually on a sort of similar topic. So I think we'll just try and squeeze this in before going. And it's really saying, given the sort of the strength of the balance sheet and the fact that you trade at quite a big discount to your NAV and you've got such positive outlook for cash for generation, would you consider share buybacks? And if not share buybacks, how likely is a special dividend for later this year?

Well, later this year, I'm not sure about later this year because, as people have pointed out, there is a significant capital expenditure this year, we've already targeted a significant increase in our dividend payout ratio. And as Tony has suggested, we would prefer to have lower leverage. And so therefore, it's likely that some money will be spent reducing the extent of leverage that we presently have. However, the idea of our share buyback, our additional dividend is something that the Board regularly considers and keeps within its set of potential capacities to use as a means to return funds to shareholders.

That's great, Michael. Big thank you to the whole of the Kenmare team for being with us on this webinar today. Thank you very much for presenting. So clearly and answering those questions. I'm afraid this brings us to the end of today's webinar. I know there've been a lot of questions. So apologies, we weren't able to answer them all. But if anything, outstanding, if you want to send it through to NFO at yellowstonesadvisory.com, we'll endeavor to get back to you if we can. And just to flag up that as you leave the webinar today, you will come to a short survey, if you wouldn't mind spending a couple of minutes. Completing that, that would be really helpful. And then just a reminder that jointly with share [indiscernible], we'll be hosting a webinar for Halma next week on March 31st and all details on the Yellowstone advisory website. So thank you, all again for you today, and we hope to see you all soon.