Kenmare Resources plc (KMR) Earnings Call Transcript & Summary

Good afternoon, and welcome to the latest Yellowstone Advisory Webinar with Kenmare Resources, who released their full year results this morning. 2021 was truly a great year for the company, and we're really pleased to have Michael and Jeremy with us here today. While we're waiting for everyone to arrive, please could you respond to the poll on your screen. And just while you're doing that, I'd just like to go through a few admin points. The format today is a presentation of the full year results, which were released this morning. This will take approximately 30 minutes, and then we'll hand over to Q&A. [Operator Instructions] Then following this meeting, you'll be redirected to a short survey. It would be greatly appreciated if you could spend a few moments completing that. I'm going to leave the poll up on the screen just for a couple more moments, just small people come in. But we've probably got a mixed audience here of about 70% shareholders and 30% nonshareholders. So great to have some new people here the story today. But now without further ado, I'm going to hand over to day to Michael Carvill, MD of Kenmare Resources; and Jeremy Dibb, Director of Corporate Development and Investor Relations. Michael, you can now start the presentation.

Thank you, Alex. And good afternoon, everyone, and thank you for joining this webinar of Kenmare 2021 results presentation. Before moving into the body of the presentation, I'd just -- maybe just like to make a short personal reflection in 2021. I thought it was a great year for Kenmare. We achieved on the 6th of January 2022. So really spanning the 2021 year. The first time ever we have achieved 1 year without a single lost time injury. And that's a significant milestone for the company. And I'd like to commend everybody that contributed to that fantastic achievement. Production. Our production was up 46%. That's a very significant advantage, we're delighted. And we were able to sell that extra production into a market -- a product market that was happy to receive the material and give us consistently higher prices quarter-on-quarter, which allowed us to increase our earnings and have much more significant earnings, which, in turn, then provided the board with the opportunity to allocate significant increase in dividends and then finally a share buyback to provide strong shareholder returns during 2021. So we think it was a good year all in all. And thanks for turning the slide, Alex. Moving to 2022, and so we're going to manage the company in the future. In order to continue to add value to our shareholders, we've had to evolve, and we have evolved the strategic pillars that we use to guide how we manage the company, and you can see them there in front of you right now. We've always operated on basis of operating the project on in a responsible and sustainable manner. We'll continue to do so. We have been gifted by a very long-life ore body, which has a resource based that represents more than 100 years of production. And so our objective is to manage that at a low operating cost and to achieve a first quartile in the revenue to cost curve, the margin curve for the industry to achieve that and remain in that quartile of producers. And then we also believe it's slightly important that we allocate capital efficiently. So -- and that means that we have to provide strong shareholder returns, but we have to do that in context of having a strong balance sheet, and we will ensure that we achieve both goals. And just to keep getting there ahead of me, Alex, thank you very much. We have always won the project in a certain sustainable manner. We did that right from the outset, we believe. But we are enhancing our efforts in this regard and probably much more structure and formality around the way that we focus our sustainability efforts. So given engaged workforce is a key factor, I've mentioned safety already, it's important for us that we increase the representation of women in the workforce at the mine. And we're happy to say that's moved from 4% 5 years ago to 12.5% now, and we have targets for moving that to a higher level and believe we will do so in the coming year. Driving communities an essential aspect of having a long-term sustainable successful business in locations such as ours. And how we operate to achieve that is that we focus on ensuring that the communities themselves discern a day-to-day benefit in their lives from the fact that the project is in their vicinity. And so far, we believe that we've achieved that, and we have a very close and cooperative working arrangement with the local communities. But it's still so important to safeguard the natural environment. And in that respect, we have declared an ambition to have zero carbon emissions by 2040, and we have instigated a project on that basis, which will provide us with about a 12% reduction in carbon emissions in 2023. Turning to the next slide. Thanks, Alex. Jeremy is going to go through in much more detail our financial results, but just a few important metrics, just to summarize some of stuff. We have had -- we achieved 1.3 million tons of product shipments to customers in 2021, which is significant improvement on anything that we've ever done before. And that was done at a higher price than we have been previously getting through a combination of high volumes and high price has created a very significant improvement in EBITDA and net profit of $216 million and $129 million each, which has, in turn, allowed us to increase our dividends to USD 0.327 per share, which is an increase of 227%. And we finished the year with a net debt of $83 million. I remember just before the close of 2021, we completed a share buyback, which reduced the outstanding capital by 13.5%. I should share it by 13.5%, the cost of $82 million. So without the share buyback, we would have been effectively a zero net debt. In terms of projects, we are just in the commissioning phase of our RUPS projects. Now RUPS is usual name, and it's a very descriptive. But that is a voltage stabilization system, which allows us to take in volatile voltage from the transmission grid and transfer that into stable voltage supply in mineral separation land. We believe it's rare project because it allows us not have to run our deiseal electric generators, which we run for 4 months during the summer months, where voltage is particularly unstable, which allows to save money by not burning all that diesel and saves emissions by again not burning that D2 and CO2. So we're very excited by that. We think it's going to be a great project and really improved the operation of the business. And we have been focusing very much and will focus for the rest of this year on our Nataka prefeasibility study. So this is a prefeasibility study about the move of Wet Concentrator Plant, a, from the existing mining zone to a new zone at Nataka, and they're focused on ensuring that we have the most capital efficient and operationally effective means to move the platform from one location to the other, and also to mine in the new zone. That feasibility is on track and will be completed during the year. So Jeremy, maybe you could run through some of the financials.

Sure. Thanks, Michael, and thanks for joining us today. As Michael already mentioned, 2021 was a fantastic year for the company. We had record revenues, profits and that's enabled us to recommend a dividend that's also a new record for us. When we think about our revenues, that $455.9 million in 2021 includes freight costs. So sometimes when we ship to our customers, we pay for the freight, which increases our revenue, but that adds on to costs as well. So they met up from an EBITDA perspective. So the real focus for us as a business is looking at the FOB, which is effectively the received revenues to us after those freight. And that was up 82% in 2021, which was a benefit from both increased volumes and increased prices. And when you take into account the additional volumes and the scale that we got the benefit, we got from that results in the uplift in EBITDA from 76.7% in 2020 to that $260 million in 2021, which, following some slightly higher depreciation because of the higher production, resulted in a net sevenfold increase in profits from $16.7 million, up to $128.5 million, which is a new record for us and one that we hope to improve on in the future. So moving to the next slide to give us a bit more breakdown on the commodity prices. You can see that across both ilmenite and zircon, there was positive contribution from rising prices in 2021. And that's been a steady rise now that we've seen for the last few years in our received prices. Ilmenite outperformed slightly zircon, being up 28% versus 18% for zircon, but both of the markets are very tight and are expected to continue to tighten in 2022. You can see from the bottom right-hand side, the revenue bridge where there's a significant contribution from the price, contributing $87 million but volume contributed $117 million. Due to the timing of shipments, we sell our products in bulk and therefore, shipments can move from one half into the other depending on precisely when they are dispatched. And there was zircon shipment moved from the end of the year into the beginning of 2022. And therefore, the product mix is a slight deterioration as a result of that, but that should balance out through 2022. One thing that I would note for '22 is that the Bronagh J, which is one of our transshipment vessels, which we use to transport to customer vessels every 5 years, needs to go into dry dock to maintain its class, and that maintenance is to happen in May. And therefore, production is expected to outstrip shipments this year, but then will normalize. We'll see how that progresses as the year goes up. After revenues, if we look at costs on the next slide, this provides a reconciliation from the P&L. The cost of sales down to the cash operating costs. So from the total cost of $267.6 million in 2021, when you account for the noncash element and depreciation and product stock movements and other adjustments, that total cash operating cost was $189.7 million, which was up 20% year-on-year in 2020, but our production was up 46%, and that was really benefiting from the capital investments that we've made through '18, '19 and '20, culminating in the move of WCP B to Pilivili, which is what drove our production increases. And therefore, cash operating cost per ton actually declined 18%. And when you take into account the revenues that we get from zircon and retail, that nets out to a total cash operating cost of $93 per ton of ilmenite. And when you look at that in comparison with the graph on the prior page for the commodity price of ilmenite at $300 a ton, that's what drives our $216 million of EBITDA for 2021. Moving to the following slide, you can see that, that cash flow from operations in the context of our -- of the production in 2020 has tripled to $1.46 a share, which is a fantastic result for us and something we're very proud of. Moving into Slide 11. This gives you an indication of the movements in cash through the year. So a big uplift in operating cash flow. The sustaining capital and development capital was lower in 2021 with the investment in RUPS projects, as Michael talked about and some closeout of WCP B move. We spent some money on the studies for WCP A move, which is forecasted to happen in 2024, 2025. There was also some working capital changes. That's, as a result of product prices, going up, and therefore, the receivables from customers going up. Historically, we've used factoring, but because of the strong free cash flow generation, we're no longer factoring at the moment, any of our invoices. And therefore, that's also increased our receivables and shareholder returns, the $100 million that's referred to here is the H2 2020 cash payment that was actually made in May of 2021 as well as the H1 2021 dividend payment plus the share buyback results in $100 million of cash being returned to shareholders last year. And then interest payments led us to the net debt of $83 million. And as Michael mentioned earlier, if we hadn't taken that share buyback, then we would have been about neutral in terms of net neutral at the end of the year. So turning to the balance sheet. There's not a significant amount of change in the balance sheet. PPE was down about half of the amount in 2020. 2020 is obviously elevated because of the WCP B move. And therefore, depreciation and PPE additions virtually net out for the year. On the third line down, you can see the trade and receivables, as I referred to on the prior slide, are mainly as a result of that lower levels of the factoring and the increased product sales, which were up 82% and therefore reflected in higher receivable levels. Bank loans were flat year-on-year. We did repay the RCF in the second half of last year, and then we drew it as part of the buyback. The balance sheet remains in a very healthy and strong position. Creditors and provisions dropped slightly because we're spending less on capital programs. And so turning to the last finance slide, this strong results of 2021 enabled us to increase our targeted dividend for 2021 to 25%. We have a policy of a minimum of 20% and that resulted in a tripling of the full year dividend to $0.327 a share, which is on a record exit date, the 28th of April, and payment at the beginning of June and then the share buyback in December as we referred to, which resulted in a 13.5% of the shares being repurchased. In 2022 dividend, we haven't given any guidance on at the moment, but that will be outlined with our H1 2022 results in August. And with that, I'll pass back to Michael to talk through the operations.

Thanks, Jeremy. So just to return quickly to CSP. Our actual safety specifics for 2021 is that we have lost time injury frequency rate of 0.03 accident per 200,000-man hours worked which is a lot lower than we've ever had before. And today, we are -- we have passed through -- not today, but at this moment, we have already passed through the 8-million-man hours worked without a lost time injury, which, again, is a company record for ourselves. And I think a relevant point for shareholders is that as a company can manage the detail, if it's succinctly on top of management right through from the heads of departments done through supervisors, superintendent supervisors from down to specialists and algorithms to manage the detail of safety. Generally, that company is on -- sufficiently on top of things and they're also managing the detail of production well. So it's a good indicator of how well management has a graft on state of operations and obviously, this is a positive indicator. So thanks, Alex. Could we move to the next slide? So as I mentioned previously, our sustainability goals were advanced in 2021. Clearly, it's important to everyone, all of the stakeholders that we have a safe and engaged workforce. And we've talked about CFD. we Did an engagement survey, and the results of that engagement survey was at 97.5% of the people on site were either engaged or highly engaged in their work. So that's a highly motivated workforce. And we're delighted with that, and we continue to work with you guys to ensure that there are paths for their development and their continued progress in the business, and we believe that's working well. As far as communities are concerned, 49% of our supply not comes from Mozambique based businesses. So we're flowing out the benefits into society generally which is positive for ourselves. With regards to the natural environment, I mentioned our climate goals, but we actually improved our usage of water -- our efficiency of usage of water by 28% in 2021. So we're focusing on many different aspects of the sustainability. And in terms of trusted business, Kenmare was awarded again as the most transparent business in the extractive sector in Mozambique. If we could move through to the next one. Production was just good, that's all it was today. We increased our ilmenite production by 48%, our zircon production by 30% and our retail production by 48%. And we had record shipments. With the [ CM ] assets, we -- those assets were used very effectively, and we managed to export 1.3 million tons of product for the year. Go to the next slide. So it's important for us to produce at higher rate as we possibly can because that allows us spread the fixed cost of running the business over more tons of product and consequently have lower cost per ton. And we're continually providing ourselves with strong targets to achieve, and we have been achieving them. So our guidance for the year is 1.125 to 1.225 million tons of ilmenite products. 54,000 to 63,000 tons of zircon, 9,500 to 11,500 of rutile and concentrates, mineral sands concentrates of between 40,000 and 46,000 tons. And we expect to do that with the cash operating total expenditure of between $190 million and $210 million, giving us a cash operating cost per ton of $148 to $171. A particular issue with regard to shipments. We export our material by loading from our warehouse down in conveyor belt onto a Jetty and in the company-owned transshipment vessels. We have 2 of them. And every 5 years, each vessel has to go to on a dry dock company in every 5 years. And this year, it's the turn of the Bronagh J, our larger transshipment vessel. And so it has to go down for recertification and dry-dock work in Dublin and so it will be out of being able to be used for about 10 weeks. And consequently, there's a little bit of a cap on our shipments in 2022. If we could move on to the next slide. I mentioned [ RUPS ], this is a very important project for us. We use hydro-generated electricity that comes along through the transmission grid, the Mozambique transmission grid to the project. And that's a great opportunity for us. It's sustainably, which is par. I think it's 92% of all of the electrical power we use is sustainably produced given it's a low carbon impact per ton of product. However, it tends to be quite volatile, particularly during the summer months, it tends to be highly volatile. And so that gives us problems in being able to predict exactly how much we will be able to produce and to produce at the high level that we want to. So this rotary uninterruptible power supply system will fix that. And the mineral separation plant will be supplied throughout the year with stable par with no interruptions caused by instability in the grid. And so we think it's going to be a very positive project for the company. It's a positive net present value project that also provide significant reductions in carbon emissions. So it's something we value very strongly. Wet Concentrator Plant C has been completed. That project has been closed out. And the relocation of Wet Concentrator Plant B from the Namalope zone to the Pilivili zone was completed. We have ramped that project up, and we have being commissioning -- we commissioned the pipeline to pump HMC back from that selling back to the mineral separation plant. That pipeline and that pumping system have some heating issues. Those have been corrected, and the pipeline is on a ramp-up process. If we move to the next slide. So an important part of the future for Kenmare is the move of Wet Concentrator Plant A, which is our largest Wet Concentrator Plant to a new zone for mine in Nataka. That move occurs in 2025. So it's not imminent, but it's something that we have to do a lot of planning for, and the planning that we're doing at the moment is the pre-feasibility study for that move for the mining at Nataka. When A gets to Nataka, it will then continue to mine in Nataka indefinitely onwards. It will not have to move again. It's a very, very large ore body. It will last longer than -- mostly belong this call, I think we have our resource base of 100 years in that area. So it will be a long-term issue there. So it's very important that, a, that we get the most capital efficient way of moving and safest way of moving Wet Concentrator Plant A is there, but also that we pick and select mining system and the correct mining configuration to set the company up for success in the future, which means low-cost operation, and we are working towards that at the moment. The pre-feasibility is going very well, and we expect completion of that during 2022. Jeremy?

Thanks, Michael. So again, here, just highlighting the uplift that we got in volumes through 2021 as well as the increases that we've seen in -- this is average price, so this includes ilmenite, zircon, all blended together. But the additional supply that we've got because the market has been in deficit has been very well received, and the market continues to be tight with global inventory, which I think is particularly important at low levels. Freight rates didn't rise through the year and have eased off slightly. But that -- whilst it dampens the receive prices to us slightly, as you can see, there was still a significant uplift in those prices. And those conditions have continued into H1 2022. So if we turn to the next slide, the drivers for this on the pigment side of things, are really related to higher levels of demand for pigments. So when we think about titanium feedstocks, about 90%, 9-0 goes into pigment. So that's useful production of paint, papers, plastics, anything that has a widener capacity. About 5% goes into metal and about 5% is used in welding applications. So pigment demand is the main driver. And as we can see, pigment production in China has been growing strongly over the last 10 years or so. But importantly, the percentage of chloride pigments being produced is rising. And the reason that that's important is there are 2 main methods to producing pigment, one of which is the chloride method. But the chloride method has historically been a production method that only we used by Western companies. But as that knowledge has begun to proliferate through China, it's seen an expansion. And the reason that that's important for us is that when you look at the chart below, you can see for pigment needs high-grade feedstocks. And the ilmenite that's required for that -- as we can see, the nonintegrated supply, so the supply that will be bought from us rather than from pigment companies that have the ability to produce feedstocks themselves. The nonintegrated element has been growing significantly since 2015 and is forecast to grow significantly further. And that's a great benefit to Kenmare, who provides the raw material of ilmenite to those customers. And therefore, as that demand continues to grow in the coming years, we believe that we're well positioned to meet that growing need. Moving to the next slide. This looks at overall supply/demand for titanium feedstocks. You can see here that demand has been in excessive supply. And the only reason that that's been possible is that in prior years, there were inventories that built up when supply was higher than demand. And as those have been brought down in the prior years, that's resulted in prices rising. But going forward, we've now said that inventories are at very low levels as far as we can see. And therefore, as demand is still outstripping supply, we've seen this acceleration in the uplift of prices for titanium feedstocks. There is a potential for new supply to be developed. And that might mean that looking at next year, there's more of a balance. There's obviously some uncertainties about global growth right now, but there's also some uncertainty about how those projects will be financed and developed. But even moving past 2023, and then establishes a deficit again. So ultimately, the market fundamentals, we believe, are very supportive of this positive pricing environment that we've seen in the last couple of years as we look forward. And so to summarize on that, the momentum for ilmenite and rutile, which is the titanium feedstocks have continued. The demand is in excess of our ability to supply, although as Mike and I mentioned previously, shipments may be slightly curtailed this year as the Bronagh J, dry-dock is completed. We hope to catch up quickly thereafter. And titanium feedstocks remain low, and therefore, we expect the price traction to continue. On the zircon, zircon represents about 25% to 30% of the revenues for the company depending on the year. And the conditions there have been very positive. Zircon is mainly used in ceramics. It's what makes high-quality rutile and also helps giving their strength. Demand has remained robust. Inventories are low, which has led to the strong price increase we saw towards the end of last year. And the speed of price rise has actually accelerated into the beginning of 2022. It is worth noting that there's some potential implications from the war in Ukraine, and that results from other supply check impacts of raw materials that are needed to make high-quality rutile that are exported from the Ukraine that may be interrupted, but we'll have to see how that plays out. In terms of titanium feedstocks, Kenmare does not have any exposure to Ukrainian or Russian contracts for supply. But it is worth noting from a titanium perspective that the Ukraine would supply in a normal year, 4.5% of global titanium feedstocks, which is -- has the potential to be interrupted at the moment. And with that, I'll turn it back to Michael.

Yes. Thanks, Jeremy. And I know we've started to run a little bit over time, so I'll be pretty quick on this. It is a long-held strategic objective of Kenmare to operate the best -- in the best quartile of the margin curve for this industry, the revenue, the cost curve. And in this slide, we can see our journey from 2013 where we were in the fourth quartile through 2018 where we were in the second quartile to our present position, where we believe that we are in the first quartile. The curve is actually produced by an independent company called TZMI and to really to see how they view it when they released their progress at the end of the year. But that's our objective is -- strategic objective is to get into that first quartile and stay there. And that we believe that will provide cash flow stability through the full commodity cycle. And referring back to those pillars that we use to guide how we operate business and the specific targets, but then slow from them in 2022 was regarding to operating responsibly, whereas we mentioned, commissioning the RUPS system. And we are publishing a new sustainability report the second ever sustainability report in a few weeks, and that will continue with a broad set of ESG targets that will allow investors and the media and civil society at large to monitor our progress with regard to our ESG targets and to ensure that we are delivering on our statements. In terms of low -- cost reduction, we believe that our production will be higher this year than last year. That allows a lower cost per ton because of the significant fixed cost basis of the operation. And we are very aware that we are not in an inflationary environment and that inflation affects many aspects of what we do. And so we are very focused on maintaining as close as we possibly can on our operating costs. In terms of allocating capital efficiency, there is increasing focus right through the total management of this company on ensuring that the Nataka PFS comes out with an optimum solution in terms of this mandatory move that we have to implement for Wet Concentrate Plant A to Nataka, both in terms of minimum capital maximum safety and maximum operating effectiveness, and we expect a good result from that. The PFS is going smoothly and well. We expect to reduce our net debt and also provide strong shareholder returns during 2022. And we've run 5 minutes over Alex, but that's the end of our presentation. So we'd be very happy to take questions from investors.

Brilliant. Michael and Jeremy, thank you very much for that. It's obviously been a great year 2021 and set the bar high for 2022. Yes, we are now going to take questions. [Operator Instructions] So let's start with the questions here. Can you talk about your approach to distributions and the likely future mix of buybacks and dividends, please?

Sure. So we've got a policy of a minimum 20% of dividends. So that sets a baseline for 2021. We paid out 25%. The -- looking forward, we need to get some visibility on what the PFS is going to cost and take into account that our net debt is probably $80 million at the end of 2021. When we -- the move of WCP A in 2024 and 2025, the capital spend. And so when we approach the move of WCP B, we approach that from a net cash position with financing facilities in place. And I think a similar structure is what we're looking at. And therefore, the dividends will be -- sorry, shareholder returns will be of any capital that's not required by the business as we generate them. And the interplay between dividends and share buyback will depend upon the valuation of the company. So if we think it is accretive, values to be able to buy back shares, then I think we probably favor a buyback. But if we think that it makes more sense to a dividend, then we will do a dividend. So I wouldn't add be drawn on exactly what that split is going to be, but that's the way that we approach things is to look at the equivalent rate of return of a buyback versus dividend. Is there anything else?

Yes. No, we have to allocate capital efficiently. That's really the key.

The linked question to this. I think you probably answered most of it, but I'm going to ask the question anyway, which is, given the financial strength of the company, the rationale behind paying only 25% in profits in dividends. Could you explain that? Just -- you covered some of that, but could that payout ratio be higher?

Yes. Look, absolutely, there's a case that could be higher, and we haven't established what our plan will be for 2022. So I wouldn't want to jump ahead of any forward decision there, but we absolutely hear that. At the same time, dividends have tripled year-on-year. And I think that whilst we believe there are lots of good reasons why commodity prices could stay at these levels. They are very strong currently. And therefore, we need to balance that and make sure that we have the ability to maintain some level of consistency in the levels of dividends that we're able to distribute.

And I think it is worthwhile bearing in mind that there is a capital project out there that has to be -- we have to ensure that we get through that without causing stress of the business.

Okay. A couple of questions on M&A, both incoming and outgoing. I'm going to group 2 of these questions together, which is on the incoming M&A, which is does the Board of Kenmare have an exit strategy for the business now that it has proved itself so well. And the other question is linked to this here. Have you had any approaches for the business?

Well, firstly, we don't comment on M&A. You're required not to comment on M&A approaches. That's not what anybody does. So we don't comment on that. With regard to our board strategy for exiting the business, I don't believe that the board has such a strategy. Our objective is to run this business as well as we can under, they're growing, getting strategy and principles that we have just outlined to you and to add value to our stakeholders by doing so. And so that's what we and the board are focused on.

Absolutely, I'll just add to that, Mike. I think we focus on the things that we can control -- whilst we benefit from higher commodity prices, ultimately, we can't control that. And so our strategy is to run this business as effectively as we can do and with the lowest operating cost that we can do. And simply on M&A, if somebody wants to buy it, that's not something that's within our control. And so what we focus on is how we can bring and add value to shareholders and then we respond to anything as and when it arises.

Okay. And then on the external M&A, the question here is you previously ruled out M&A. Is that still the case, please?

I think we look very deeply and widely at all opportunities because it's important because when we're allocating the capital that's generated between internal growth projects. We need to benchmark them against external possibilities and benchmarking against potential value to shareholders of returning capital. So we always look at everything. I don't think that right now, there's a lot of compelling opportunities because we are still trading on very low multiples relative to the life of mine of the company. But we always look at all things and way up the opportunities, the pros and cons, and we'll continue to do in the future.

Okay. We've got a couple of questions here on cost. One is what sort of cost inflation are you experiencing at the mine? And the other one sort of says how much pricing power do you think you have in relation to the current inflationary situation? And do you anticipate increases in input costs to be offset by increases in your selling prices?

So in terms of what levels of inflation, we are saying, well, look, it completely depends on the specific area and the specific group of products that we are purchasing, but it can range from nothing to quite high. And what I would also like to mention at this moment is when we're talking about supply, is that we are, like every other industrial company in the world, facing significant supply chain bottlenecks that are running throughout all industry. And so for instance, if you're trying to buy a gearbox, you might find the gearbox manufacturers saying, "Look, I come to buy that for another 3 months because I can't get the ball bearings necessary for the ball race. So there are supply chain issues that are, I suppose, consequence of COVID and the disruption to the world growth trend caused by COVID and manufacturing caused by COVID, and there is inflation. So do we think that we will -- that data will be perfectly balanced by the increase in price in our product market. We believe that the product market is in a positive position at the moment and the momentum is for -- that it's more likely that there will be risk on the upside that we will move upwards and downwards. But is -- are those correlated? Not really. They're just -- they are both curves moving independently of each other.

Yes. And one thing I'd add is, I think if you look at, as we said, 90% -- 70-plus percent of our revenues come from ilmenite, and the majority of ilmenite entertaining feedstocks go into an pigment plastics, et cetera. When you look at page if you're considering painting your house or home, the majority of that cost will be in the cost of the labor rather than the tinted paint. And within that tinted paint, there's probably 5% to 7% is the cost of the titanium pigment that goes into it. So we don't think that people either paint the houses or not based on whether there is an increase in the price of ilmenite. But equally, our customers will do the best to acquire ilmenite to the lowest price they can do. And if there is a supply -- oversupply in that market, even if paint line is very strong, they'll always be liking to say the least that they can be. And so whilst demand for downstream elements remain strong, then -- and there is a supply shortage we have currently and inventories are low, we think that's a very positive pricing environment for us.

[Operator Instructions] Question here again on revenues. What revenues do you expect to generate from the 40 to 45 tons of concentrate? And what is the commercial use of mineral sands concentrate and secondary zircon?

So the commercial use of mineral sands concentrate is that it is an amalgam of zircon, rutile and monocyte, and our customers separate the zircon, separate rutile and separate the monocyte element, and settle those on to various customers who use them for their normal purpose. With secondary zircon, the use is for zirconia chemicals with the monocyte is a precursor to rare earth oxide, and it's used to manufacture rare oxides. And they were used in the manufacture of companion pigment and in metal fabrication. So those are the usages. And so what was concentrate, concentrate represents about 5% of our revenues, which is about $20 million in total. The majority of that would be zircon and probably 1% to 2% monazite.

Okay. We have a last question here about your production targets. Can you talk about the main factors that influence your hitting the production targets? And how confident you are you that you'll hit the targets this year?

We are confident that we will achieve production outcomes within our guidance range. We haven't changed our guidance. So therefore, we're confident that we will achieve that. What are the issues affecting us? Well, weather held as a spec somewhat in quarter 1, and our run rate in quarter 1 is a little bit less than we need for the whole year. So we have a little bit of catch up. There were 2 -- there was 1 tropical storm and cyclone that impacted our operations 200%. And these issues with supply chain could have an effect. There are many things that could have an effect. But we believe that we will achieve production levels within our guidance. And that's where the focus of our activities is to achieve.

And obviously, weather is very much seasonal. And so it's really Q1 where these cyclones are most likely to affect us as a business rather than sort of throughout the year. So...

Yes, we've had that. We have dealt with that already.

Yes. And the reason that, that affects is not just because the direct impact of the cyclone. But if we can see a cyclone is approaching and it is one of those natural events that you can see approaching, then we take steps in order to make sure that our people and our machinery is safe. But that means that you have to shut down ahead of a cyclone approaching, which may not end up being a cyclone, maybe a tropical storm or a lower level. And so it's not just a direct impact of that. It's also the time that you lose when that happens, but obviously something that we need to as a reasonable precaution to take.

Okay. Looking again at production. Production has increased impressively. But how long do you anticipate this trend continuing? And at what point will you be operating at maximum capacity?

So we believe we have a mine path that provides us with 1.2 million tons of ilmenite production or associates coproducts for 20 years, except for 2025. So when we're moving Wet Concentrate Plant A in 2025, we get a dip in production. Otherwise, it should run at somewhere around 1.2 million tons per annum. And when will we achieve that, the maximum, we think that is pretty well the maximum that we can get from the existing set of assets. And we're pretty nearly there. It's getting all of these not into the lineup in perfect synchronicity, we will get or 1.2 million or slightly above 1.2 million, and that is the maximum reduction. We can get from this set of assets on the project at the moment.

And just -- and we have done it. We've done it over individual months, and we also did it in Q3 last year. So at the moment, it's just about those -- as Michael says, those final tweaks to make sure that we're doing it every single month to string together a full year of 1.2 million tons.

Okay. And then after production is obviously the shipping levels, you've got a boat out of action later this year. What sort of impact should that have on overall shipment levels?

When we have boat transient vessels operating, we have more capacity in transshipment than we have in production so we can catch up. So it will have some level of capping of our shipments in [ 2022 ]. But nothing very significant, we don't see a major drop.

It's more about the timing. It's probably lower in H1 than H2 potentially.

Okay. And then last, actually, we've got 2 more questions. I think we -- time to fit them both in. First one here is on the CapEx. Do you have a rough sense of what the move to Nataka might cost in 2025?

Look, I really prefer not to prejudge what comes out of the pre-feasibility study that's underway. And that will be completed this year and then we'll know. So really, I don't know what exactly the configuration that we're going to end up with, and that configuration will define the capital cost. So I think it's better to wait.

Okay. And then final question is, what's your time adjusted rate of return, which would be needed to justify expansion?

And I think there's a couple of ways to add that. But it depends what cost of capital you want to say that Kenmare has. Obviously, when we're trading at 3 to 4x -- 2 to 3x really EBITDA, it means that the market isn't really valuing the 100-year life mine, which means that the growth turns very high is required in order to make a future adjustment. But obviously, the share price can move much more quickly than our ability to develop options for future growth. And therefore, that's why we continue to look at what the options are within the tweet of different ore zones that we have at [indiscernible] that 100-year plus life of mine in terms of resources that Michael talked about. So I can't give you an exact number because there's different factors that changed the influencer.

What I would say is that any project that the board has approved for us to implement has been based on very high IRRs. We have implemented projects only, which have had very significant returns.

Yes. I guess something I'd add to that is that the project -- the upgrade is the move would be and the building of C, all to utilize fully that 1.2 million tons of capacity. And so those projects had a 30% or 40% plus IRR at long-term pricing. But if we were to look at future expansions beyond 1.2 million, we wouldn't have an ability to leverage the installed infrastructure in quite the same way as we did.

Brilliant. Michael and Jeremy, thank you very much for that presentation today, and many congratulations on a very strong year. [Operator Instructions]. So thank you, everyone, for attending today. Thank you again, Jeremy and Michael, and we hope to see you soon. Thank you.

Thanks, Alex.