Kenmare Resources plc (KMR) Earnings Call Transcript & Summary

Good morning, and welcome to the Kenmare Resources 2022 Preliminary Results Call. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. I'd now like to welcome Mr. Michael Carvill, Managing Director, to begin the conference. Michael, over to you.

Thank you very much. Welcome, everyone, to Kenmare Resources 2022 Results Presentation. I'm Michael Carvill, I'm the Managing Director of the company. If I could just turn to page or Slide 3. I'm joined in the room here with Tom Hickey, Ben Baxter, Finance Director and Chief Operations Officer of Kenmare. Tom is going to -- I'm going to make some introductory remarks. Tom is going to give a finance review and Ben on operational review. I will give you an update on the market and some comments on the outlook. Also with us are -- is Jeremy Dibb Corporate Development and IR Manager; and Cillian Murphy Marketing Manager, who can help if we have specific questions on the market after the presentation. So if I could just turn to Slide 4 which is an introductory slide. Kenmare has focused and continues to focus on 3 strategic priorities, operating responsibly with delivering low cost reduction from our long-life resource and allocating capital effectively. As far as operating responsibly, we were delighted in 2022 to have achieved 11.8 million hours without a lost time injury occurring. And that was a huge record for Kenmare, vastly more than any period of working that we had achieved before without a lost-time injury and is a credit to the leadership that our leaders team have shown in terms of safety and a credit to every colleague in the company in terms of the efforts that they've got to ensure the safety of themselves and their colleagues. So we were delighted by that, unfortunately, all great runs end and in September, we had a lost time injury and then a couple of small injuries towards the end of the year. However, we did finish the year with a lost time injury frequency, we had a 0.09 well ahead of our 3-year rolling average. Also, in terms of operating responsibly, we -- during 2022, we relocated a small village called Isoa, which is in the part of the mine as the mine moves to position itself where concentrated plant moves to position itself for its transition to the Nataka or zone. Isoa was a small village and village relocations are tricky things for mining companies. And -- but we're delighted to say that Isoa has been successfully resettled. The people are happy there. And we believe that this resettlement has rather than causing friction with the community has enhanced the communities trust in Kenmare Resources and the esteem that company has held. So it's have been a wholly favorable process. As far as delivering long-life low-cost production, we have felt for some time that we've been in the first quartile of the industry margin curve. But it's very nice in 2022 to get independent confirmation of that from TZMI, which is the leading analyst company in this particular industry. And in addition to that, our production or management of costs and the good revenue per tonne value that we're achieving for our coproducts let us move our net production cost ilmenite down to a low level of $50 a tonne, which again is a record for us. And then in terms of allocating capital efficiently, we are proposing a $51.5 million dividend payout for 2022, which is a significant enhancement on the previous year and again, a record for us. And that was accompanied by $71 million worth of principal debt repayment all the time while we continue to fund value creation study by creating studies on the development of the project. So if I turn to the next slide, 2022 was a record year for revenues, profits and dividends. If you look at those graphs on the right-hand side, we had a record achieved price per tonne of our weighted average basket of products of $463, which translated into a revenue of $498 million and provided a profit of $206 million all of which are records. That allowed us to issue a dividend or proposed dividend of $0.543 per share, which is 66% up from the previous year. And allowed us after having a significant net debt position in the previous year reported a net cash position of $28 million. So again, we're delighted to do that. During 2022, we commissioned our Rotary Uninterruptible Power Supply project. So this is a facility that we have created to provide steady and stable electrical power to Mineral Separation Plant, which is the most sensitive part of our overall facilities. This is a positive NPV project, which is working very well. We believe that's the first deployment of this type of technology in the mining industry. It has improved our recoveries, improved the quality of materials and reduced our costs and also reduced our CO2 emissions. So we believe it's a very, very positive project. And during 2022, we spent a lot of time, a lot of effort, a lot of focus on a pre-feasibility study for the transition of Wet Concentrator Plant A from its present mining zone in the Namalope area to a new mining zone, which we will enter in 2027 called Nataka. And it's very important that we transit -- that this transition is managed safely, effectively, efficiently and that we have the right operating paradigm in Nataka. So the pre-feasibility study has been long, very detailed and has examined and tested all aspects of this transition and the operation in the new zone, we are very pleased with the overall outcome of this pre-feasibility study. So with those few just overall introductory remarks, I would like to pass over to Tom. And Tom, if you could give this presentation with just reviewing the results for the year.

Thank you, Michael. As Michael outlined 2022 was a very strong year for Kenmare operationally and from a financial performance perspective. We saw revenue increase by 19%. EBIT that drove an increase in EBITDA of almost 40% and profit of almost 60%. And each of those figures represent a new record for the company. I think [indiscernible] to emphasize here. These record results were driven by 2 slightly offsetting factors. Due to the dry-docking of the Bronagh J during the year, our shipments were down, but that was more than offset by average pricing, as Michael mentioned, we very strong in up 42%. We also had a slightly different mix to our revenue with co-products moving from 21% to 32% of the mix. Now there is probably 1 or 2 unusual factors here, which you might notice Rutile is 1% to 4% and zircon from 15% to 20%. That's both a factor of pricing, which was strongly up and also the phasing of some shipments between 2021 and 2022. The lower shipment volumes translate into a slightly lower cost of sales, but that's offset by slightly higher unit cost of production. We, like everybody else, are experiencing some inflationary pressures and I'll touch on those a little later on. The look -- as we go down P&L accounts, our net finance costs are steady. I mean, as Michael mentioned, we're paying down debt, but that's slightly offset by higher finance -- higher interest rates. And as we move down further, looking at the tax expense, clearly, with the significant [indiscernible] so that tax charge has increased. But overall, very strong performance. EBITDA of nearly $300 million and profit after tax by 60% just over $200 million. Moving to next slide. Moving to Slide 8. 2022 pricing was very strong. I mean, it continued to be strong ilmenite of nearly 30%, zircon of 38% and rutile of approximately 40%. And we'll see later on, that's driven by very strong demand. While that pricing has eased slightly towards the end of '22 and '23, we still see good strong fundamentals in the business, and we think the outlook is positive. The shipping, as I mentioned earlier, has shown 2 offsetting this year, a decrease in ilmenite due to the dry-docking and increase in primary zircon mostly due to the phasing of shipments in 2021 and 2022. But I suppose the end point to emphasize here is that posted dry-docking, both our transshipment vessels are operating very effectively and normal services is going to resume in Q4. Moving on Slide 9. So a slightly offsetting factors here also. As I mentioned, and I think you've probably seen elsewhere in the industry. We are experiencing some inflationary pressures. I mean, fuel costs were 64% up on 2021. We're experiencing slightly higher labor costs and our power mods higher, and those things drove an increase in absolute operating costs, but that was significantly offset by continued strength in finished product production and very, very strong co-product revenues, which drove our total operating cost per tonne of ilmenite. Total cash cost of ilmenite down from $95 in 2021 to $60 in 2022. That really is a very strong performance, and I suppose shows the value of the product suite. And while we look into 2023, we are still seeing some degree of inflationary pressures perhaps none of the same there as we saw in 2022, but it is something we're keeping a very close eye on, and we'll update as we move through the year. Moving on to Slide 10. With significant increases in revenue and profitability. Obviously, we get a significant increase in EBITDA -- excuse me, in operating cash flow to over $3 a share. And as we said, that was mostly driven by pricing. But the phasing of our activity during the year and in particular, the fact that dry-docking reduced our shipment capacity in the earlier part of the year meant that our sales and our revenues are very much back-end loaded, 35% of our revenues arose in the last quarter of the year. And obviously, that tracks through into our receivables balance at year-end under normal credit terms. Similarly, the production maintaining the shipment [indiscernible] to its higher inventory levels at year-end. Our CapEx continued consistent with 2021. Michael mentioned the RUPS. We've continued our studies in relation to future growth programs, and then we'll cover all those projects later on. And we had to dry-docking the settlements and our normal level sustaining CapEx, which was under $30 million. Finally, from a dividend and shareholder return perspective, we paid out $35 million in 2022. There we have a significant uplift on that in 2023, based on steady results. And that enabled us to move into a net cash position by year-end. We have, as Michael mentioned, we're making some debt repayments under our existing facilities. We are looking at and considering the options or opportunities to potentially refinance that during 2023 to kind of prepare for the next phase of investment over the next number of years. And we've already had some preliminary discussions there and [indiscernible] to consider that. Moving on to slide 11. From a balance sheet perspective, probably covered most of the consideration here, property plants and equipment additions were very much in line with prior year. We touched on the inventory uplift once at 90%, but driven by increase in mineral stocks entirely ilmenite due to production -- or excuse me, production being greater than shipments in 2022 and a slight increase in spares stocks. The trade and other receivables, all the factor of timing all received since year-end, cash balances continued to be strong, and that enables us last year to make over $70 million of net debt repayments. And we're scheduled to make a further $31 million, $32 million of debt repayment this year. As I mentioned, we might think about amending the term or extending or amending our existing facilities, both reflecting very improved financial performance but also to more accurately match the term of our facility which currently turn out in '24 and '25 to our investment backlog over the next number of years. Finally, one small perk quite a decrease in creditors and provisions. Our mine closure provision is discounted back at a risk-free rate, a significant uplift in risk-free rate, reduces that closure provision in accounting terms but not in absolute terms, there has been no adjustment to that provision. Moving on to Slide 12. All of these strong performance factors enable us to continue to increase our dividend. When dividends were initiated by Kenmare a number of years ago, it was a policy of a minimum 20% of profit after tax. We've increased that on the back of stronger performance in '22 with 25% profit after tax, representing a 66% increase. That will also benefits from the buyback that completed in late 2021 so on a per share basis stronger. And overall returns to shareholders over [ $185 million ] in 2019. So as we look to the future and think about what we're going to do, how we're going to invest, how we're going to run the business over the next number of years on Slide 13. There is the obligation to balance what our returns are and investing in our resources. I think we have 3 core elements to our capital allocation. Our normal capital requirement sustaining capital, nondiscretionary investments which Ben will cover. Our debt repayment and servicing, we've certainly paying that down. It's a policy to maintain a strong balance sheet and low debt. And those 2 things close to strong business performance enables us to continue to implement growth on a strong dividend policy, and we will update on that in the market investment plans, and we have our CMD or our Capital Markets Day in April. And we have discretionary occasional projects that you may undertake based on cash flow market conditions or opportunities that arise. We spent quite a bit, and we will continue to invest for our next year objectives. We have the RUPS, which gives us resilience and decarbonisation. We're looking at opportunities to reduce the production gap around 2025 to be transitioned to Nataka. And as Michael mentioned, we have a very, very long resource -- long-dated resource base, which gives us the opportunity to invest. That will enable us to consider additional capital returns from time to time depending on conditions of the business and only as always [indiscernible] And I'll hand over now to Ben, who'll run through the operations.

Good morning, everybody. I'll move straight to Slide 15. As you know, sustainability is core to Kenmare and we divide our sustainability components into 4 strategic pillars. And on this slide, I'm just listing a few of the key achievements that we've had during 2022. Regarding safe and engaged workforce, I was delighted with the improvement in health and safety performance, and I'll touch on that on another slide just coming up, but with significant improvement in the lost time injury frequency rate. Gender diversity remains a strong improvement and it improved in 2022 over 2021, but it's now up more than 10% absolute since 2016 to 14.5% female representation. Regarding the natural environment, we were pleased with the 6% reduction in Scope 1 emissions, carbon dioxide emissions relative to 2021, and I will talk a bit more about that in the coming slide. We also delivered more than 191 hectares of land rehabilitation in 2022. And not only that, we went back over previous areas of years of rehabilitation and improving quality to enhance the future land use in areas we've previously mined. On thriving communities, our Development Association KMAD develop -- invested more than $3 million into community projects focusing on education, health, economic livelihoods and sanitation. And we also have started to see quality improvements coming through, not only infrastructure build, but in our education program, a 17% improvement in the literacy rates from the schools that we sponsored. Local procurement increased by 16 -- by 12% during the year compared to 2021. And we spent an absolute $116 million on local procurement in Mozambique and in the province of Nampula. Our governance continues to improve around sustainability. And we've now audited all the on-site suppliers for their compliance with Kenmare sustainability policies. We have gap analysis on all of them, and we're now in an action plan to close any gaps that have been developed. And we've also spent time improving the training of our security department and the public security personnel by completing voluntary principles of human rights training with all of them. On Slide 16, I'd particularly like to focus on what as Michael said, it is a significant milestone for Kenmare in its history. We achieved 11.8 million hours lost time injury free that amounts to 19 months without an injury and is an industry-leading performance. And we came about through the focus that we placed on understanding hazards, eliminating risk and the leadership focus on developing that. Nevertheless, well, we ended up the year with a lost time injury frequency rate of 0.09. And that came about because of 3 injuries that took place in the late -- during Q4 of 2022. So our zero rating rose slightly in the last part of the year. That's caused us to redouble our efforts. We're focusing not only on those items of risk assessment and leadership, but also on improving safety standards. On to Slide 17. We're working hard on decarbonisation, and we have an ambition to reach net-zero by 2040. And in 2022, we made a good step forward with a 6% reduction in Scope 1 emissions. It came from 2 areas from the commissioning and delivery of the RUPS project. We didn't get the full year's benefit of this project, but it contributed well. As Michael said earlier, it's an NPV Positive project but also is delivering good carbon reduction. We no longer need to use diesel generators in the summer months. We have a seamless switching in of the RUPS as power instability comes along. And this is expected to save us about 4 million liters of diesel per annum, about $5 million, and that's about 12,000 tonnes of carbon dioxide over a full year. We also see from this project improvements in productivity with both utilization levels in the Mineral Separation Plant increasing. And also because of that stable run time, we're getting better recoveries and that was came through, particularly in the zircon side of our business. On the MSP, the dryers that we use for drying minerals so that it separates well. They are the largest consumers of diesel in the process. And through a maintenance program and continuous improvement work that we did on our dryers, we were able to improve the diesel consumption by 7% and that has also contributed to the 6% reduction. Moving on to Slide 18 and the production performance. We saw consistent production in 2022. And this was really offset though by the highest slimes levels that we're experiencing at WCP A and WCP C. Slimes is the clay-sized particles that when you start to see larger quantities in the ore body start to present problems with the hardness of mining and also the ability to process and then manage tailings. And we saw that in 2022, we had a record escalation.

Everyone, please standby. We're currently experiencing technical issues. Please continue to stand by. [Technical Difficulty]

Okay. Sorry about that, we have experienced some technical problem with the webcast there. We were just moving on to Slide 18, and I'll start again from there. So focusing on the production performance of the year, we had a consistent delivery in 2022. This was despite the fact that we had some quite significant slimes constraints. Slimes is the clay-sized particles that when accumulating to larger percentages start to deliver problems in both the hardness of the mining and the processing and tails and placement. And as the year has gone on, those -- those slimes levels have become more problematic. We still managed to deliver record excavated ore volumes up 2%, and that drove improvements in HMC production, although the HMC was at slightly lower quality because of those slimes levels. Particularly in H1, we were struggling. And therefore, we implemented some near-term improvements throughout the first half, both implementation of flocculation to try and improve settling of slimes and deliver clean water for the process and also more dilution water was delivered to the mining plants. Nevertheless, slimes does remain a challenge for us at this point. And so in our Nataka development studies, we have been spending a lot of time on ensuring that we have proper long-term slimes management as part of that project, and I'll come on to that later. In final products, we focused on efficiency for the year and all the product areas experienced improvements in recoveries. The ilmenite production, however, was down 3% at 1.088 million tonnes. This was because of the slightly lower HMC quality that we received at the Mineral Separation Plant. Recoveries drove record zircon production, though, and that was up 4%, benefiting from flocculation and the RUPS. And rutile was flat and concentrates were up 3% on the basis of higher quantities of monazite in the mineral sand concentrate. The shipments, as Tom mentioned earlier, were down 16% because of the planned refurbishment and dry-docking of one of our transshipment vessels. However, I was particularly pleased with the performance of shipping now that we have record cycle times between -- through loading cycles. And the vessels are once back in operation in the second half of the year, delivering best-ever levels of availability and delivery. Moving to Slide 19 and the guidance. We're reiterating our guidance issued in January. Nevertheless, we've had Q1, which has been a heavy weather quarter. And in 2020 -- in February... I think we're gone on the webcast again?

I have been advised that we are connected. Please go ahead.

On our guidance, we're expecting -- on Slide 19, we're expecting production to be broadly in line with 2022. We do expect to experience lower average grades and the slimes challenges. But this is partially offset by the additional excavated ore that we are planning to mine and slimes mitigation measures that have been put in place. Nevertheless, in Q1, we've experienced quite a lot of difficult weather conditions. And this also including in early February, a lightning strike, which was in particular close proximity to the mine. And this resulted in quite significant damage in the electrical componentry of our mining and processing areas. The impact of that is that our ilmenite and rutile expectations for the year are now in the bottom half of the guidance range. The recovery is fully in place now. And when we made an announcement earlier this month, that was the case. However, we do -- and we believe that we have the proper protection in place, but was the material, the lightning was of such severity that our protections were overwhelmed. As we move forward, we have a risk, which is that we are short on spares at this point in time for those electrical componentries, and that will remain in the coming months as we restock on those spares. Q1, as I said, is usually a difficult weather month -- weather quarter, and that has been the case. So we will be watching our guidance carefully as we move out of Q1 and we'll keep you updated on that. On cash operating costs, we expect them to go slightly up, that's inflationary based. And on capital expenditure, we're focusing on completing the studies for our development projects, including WCP A move to Nataka. And also, we have relatively normal sustaining CapEx levels. Moving to the next slide, Slide 20, on to development projects. We're delighted we have a strategy for Nataka, the mining and processing, it's developed, and it's been tested. And we'll be giving you a full update on that as part of our Capital Markets Day coming up in April. The definitive feasibility studies processes all underway now, and we expect to complete that this year. It's going into phases and the parts will keep being completed as the year goes on. You'll recall Nataka is our largest ore zone, and it represents 75% of our future mining in the Moma project. And that means that we've been putting a lot of effort into making sure we get it right, not just in the capital aspects, but our long-term operating costs as well. And we know in this development work, we've come to realize that Nataka has a highest slimes level than Namalope area that we are currently mining. And this means that one of the key components of this process has been to develop a comprehensive slimes management plan, focusing on mining, processing and sales management. And on the mining side, during 2022, we completed a trial that showed that we can successfully dredge mine in Nataka. We've done hydromining as a supplementary method. A trial seen that it's successful in the mining process, it's cost effective. But when we -- and then we hybridized the hydromining with our dredging and done successful tests in our current operations so that we can get really the leverage of low operating costs that Dredge mounted brings. Processing, we will need to implement desliming circuit at and WCP A and that will be so that we can get the separation of efficiencies that we need. That's relatively easy as it's very similar to WCP B circuitry already in place. And then on tailings management, as I mentioned before, the settling challenges of more slimes means that we will no longer use our current [indiscernible] slimes deposition method for tailings, and we will move to a tail storage facility. So as we move forward, the next steps, we're in the tradeoff phase at the moment, balancing operating and CapEx -- operating costs and CapEx, and we will present further on this at the Capital Markets Day, the aim being to make sure that we stay as a first quartile producer. With that, I'd like to pass on to Michael to do the marketing update. Thank you.

Thanks very much, Ben. So if I could turn immediately to Slide 22, please. If we look at the graph on Slide 22, the yellow trace is the average price we have been achieving for our products. And you can see that from H1 2018 to H1 2021, there was a gradual increase in price steady for a gradual increase in price. Our perception and our analysis suggests that during this period that there was a very -- there was a small deficit of supply compared with demand on a global basis. And what was happening during that period was that there was an excess global inventory of feedstocks, which was gradually being drawn down through that period. And in H1 2021, it got being drawn down to the point where customers started to sense scarcity. And consequently, we had a point of inflection from that point and increased rate of price increases from that point on [indiscernible] 2022 when we achieved record prices. So during 2022, we experienced tight market conditions for all of our products and that led to increased products. Shipment volumes in '22 were low, and that was because our leading transshipment vessels that Bronagh J had to go to dry dock for a class mandated inspection and reset, which happens every 5 years, and the nearest dry dock to us is in Durban, which is quite a distance away. And by the time we go down, go through the reset and get packet. It means that the transshipment vessel is out of operation for quite a while. It's not back. It's systems that have been enhanced, and it's operating very well. But during the year, we built up some inventory of final product, which we roll into 2022 with. So turning to Slide 23. Kenmare is a leading supplier into the global feedstock market. And in fact, we are the largest supplier into the traded -- global traded merchant market for ilmenite. We are working hard and continue to work with our customers to enforce our position as a reliable and trusted supplier to our broad customer base. And we have been broadening that customer base over the last couple of years as an active marketing strategy. The fastest growing elements of the market are for the beneficiation of ilmenite into titanium slag and synthetic rutile and Kenmare's products are suitable for that fast-growing section of the market. In addition to that, some producers have experienced constraints that have in supply, which have resulted in customers valuing security and stability of supply more than they previously have done. And that has consequently led us to be able to achieve higher value for similar products than some of our competitors. If I could focus for a moment just on the Chinese market, which is quite an important market for us. There has been significant development of new chloride process pigment capacity in China. So today pigments have been made by 2 methods, a sulfide process and a chloride process. Chloride process has a lower environmental impact, environmental footprint, produces a more consistent and arguably a higher quality pigment. And consequently, there was a recent expansion of this capacity in China. Also, the Chinese market for titanium, rather, the capacity in titanium metal has grown very strongly in recent years. And while China is a significant ilmenite producer in its own right, its domestic ilmenite supply is unsuitable for these new growing markets. And consequently, more imported ilmenite is required. Kenmare is a preferred supplier into this market and is well positioned to service growing markets. If I could turn to Slide 24, just to review our position in the market at the moment. Our main market is the pigment industry. And the pigment industry, growth in demand for pigment is closely correlated with where GDP growth. There has been a global increase of interest rates by sector bankers throughout the world with the objective of subduing GDP growth. And therefore, subduing inflation, curtailing inflation in the world. And this consequently has had exactly the desired effect. It has produced weaker demand for pigment in H2 '22 and has put pressure on our pigment -- constant pressure on our feedstock prices or ilmenite retail prices. In early '23, we've seen some improvement in pigment demand in Western Europe. And in China, we have seen actually some price increases. However, our view for 2023 is that we will continue to see prices that are lower than they were at the peak levels in 2022. But we do anticipate that we will be able to sell our production. And in fact, we expect a reduction of our inventory, inventory jobs through the year. Zircon certainly had a similar trajectory. Demand weakened in H2 '22, but has stabled in early '23. We expect that stabilization to continue. And while we don't expect significant price increases in 2023, we do note that inventories are, at all parts of the zircon industry, at quite low levels. So moving on, just -- if I could just make a few remarks on the outlook, and I'd like to turn to Slide 26. And Slide 26 is a chart of the inventory revenue to cost curve and you can see Kenmare's journey from 2013 where we are in the fourth quartile, 2018 in the second quartile and 2021. According to TZMI, we're in the first quartile, and I believe that in 2022, we were also in the first quartile. This was the result of a focused strategy and policy to achieve this goal. And we believe that it's important for Kenmare, it's important for all our stakeholders. And an important focus of the efforts and the test work and the analysis that was done with regard to the pre-feasibility study on Nataka was to ensure that we maintain this very positive position in the industry cost curve or the industry margins curve. So turning to Slide 27. I mentioned our strategic priorities at the outset, just to return to them. In terms of operating responsibly, we have commissioned a RUPS project, which reduces CO2. We have achieved a broad range of ESG targets. We have had a record rehabilitation in the year. We have performed a relocation and that, we believe, with the enhancement of trust and esteem by the local community. And that's a function of both the way they moved was communicated and performed and the quality of the uplift in people's livelihoods that occurred with their move. For next -- for 2023, we have to refocus on CSP. We are already climbing back up that hill towards that 11.8 million hours of lost time injury-free activity, and we hope to surpass that and there is a huge emphasis on CSP at the moment to ensure that everybody is focused on making sure that everybody is safe at work and returns home safely at night. We anticipate further reductions in CO2 emissions, and we're working hard to increase biodiversity. In terms of our low cost production, the maintenance of cost controls and the increase in ilmenite product revenues gave us a 37% reduction in net cost of ilmenite production for 2022. In '23, we're focusing on stable, steady production and optimizing our mine and slimes management. So that's very important to us to get the slimes management right. It improves our recoveries, improves our costs. And in terms of allocating capital efficiently, our dividends in March 2022 are up 56% from the previous year. We reduced net debt and moved to a net cash position. And in 2023, we will -- we have effectively completed the pre-feasibility study. We've delivered a pre-feasibility study, complete the definitive feasibility study. And as Tom mentioned earlier, we are looking at what the optimal configuration of debt, balance sheet robustness, et cetera, for the years ahead. And so guys, that's really, well, our presentation, and thank you very much for listening. And our apologies for the difficulties with the transmission of the webcast, and I know it must have been very frustrating for you all. But thanks for sticking with us, and we'd be delighted to answer any questions that you might have.

[Operator Instructions] Our first question comes from the line of Peter Mallin-Jones from Peel Hunt.

Well done on a pretty impressive dividend this year. If I could ask a couple of questions about 2023, really. One is can you give us a handle on which sort of cost buckets you're seeing the worst inflation in or the highest rates of inflation year-on-year as we look into 2023? And slightly jumping the gun a bit, and I know the Capital Markets Day is coming, but are you able to give us an indication yet of any WCP A move spend that would be coming in this year on top of the studies as you perhaps start to work on the slimes mitigation for 2024 and '25, ahead of that move?

Sure. Maybe -- thanks, Pete. I'll take the first one, and I think Ben will take the second and we do see quite a bit of inflation in '22. And '23, we're still seeing it on the labor side. We're seeing it less so on the fuel side, obviously oil prices moderated a little bit although there is a lag between -- you see it in the market and we see it in Mozambique and more dealer prices, and we're certainly seeing it on pumps. But overall, we expect it to be running at a lower level than it did in 2022, and hopefully will be lower overall. So far, so cautious push certainly not [ as high ] in 2022.

Pete, so on the project side of things, I would not want to steal the thunder of the Capital Markets Day too much. But at this point in time, we are packaging an optimized strategy on how the CapEx will play out versus OpEx. And so we're not quite ready to give exact numbers at this point in time. Nevertheless, you can sort of split the way this project is going to work out into 3 areas going into the mining side of things, making sure we've got an optimal mining solution. Historically, Kenmare has been mining-constrained. We want to get past that with WCP A for the future. On the processing side, as I said, it's a fairly simple, what is well understood way of implementing desliming. And then once we've got the slimes removed from the process, it's about putting into a repository where the rest of the process can work efficiently. And there is quite a lot of trade-off required between what you want to spend on capital upfront versus making sure that we are first quartile into the long term because essentially, this Nataka ore body is our long-term ore body. And we could -- we want to make sure that the operating costs are well controlled long term.

Our next question comes from the line of Gary Martin from Davy.

Congrats on a really strong set of results. Just a couple of quick ones on my side. Firstly, just a quick one on China. Michael, you mentioned that in early 2023, you see initial signs of stronger pricing in the region. But say, based on your current order book, just what you're hearing on the ground over there. Are you expecting demand to pick up overall throughout 2023? And then just maybe one for Ben, just on the production range just in terms of guidance. You'd mentioned ilmenite and rutile is expected to be at the bottom range of the guidance that you provided. Am I right in assuming that the weather issues earlier in the month have no impact on zircon on concentrate production in 2023?

Gary, so with regard to China, my personal feeling is that we have not yet seen the full benefit of the lifting of COVID restrictions in China. But Cillian is on the line, and he is much more informed. So why don't we ask Cillian to get his views on that.

Good morning, Gary. I think on China, we're seeing improvements, and we've really been seeing monthly improvements in the part of the market we set our product into since probably early Q3. And you can see that in the graph, we put in 20 -- or on page 23. So chloride pigment production has recovered quite quickly and titanium metal production is recovering as well. So we've been seeing a steady increase. What we're hearing from the market at the moment, it's kind of corroborating that in that we're seeing strong orders there. Probably getting more visibilities on our orders there at the moment as well. So we're quite confident on the market there at the moment. As we move further through '23, difficult to say, but we expected to see a similar trend to what we saw in the rest of the world when old restrictions were lifted and government seems intent on stimulating that economy as well. We should see that flow through to demand for pigment and our products, too.

Gary, Ben here. I'll take the question on the weather. So Q1 has been a high rate for a quarter for us. It's the normal way it is, but it has been more rainy than previous recent years. And you will have recalled maybe that you saw Cyclone Freddy was in the news a few weeks ago as well. Your question on zircon and concentrate guidance did not move down with ilmenite and rutile largely because the -- we're seeing good recoveries in the MSP, which is offsetting that view. And our expectation is those recoveries will continue into the rest of the year. So that's why there's a difference. The weather, the conditions that we had since the lightning strike, didn't actually end up hit -- the weather Cyclone Freddy didn't actually hit Moma. It was on track for Moma, and we took some time to get some cyclone preparedness in place. So we did lose a little bit of time in preparedness work, but not significant. And the cyclones in the way prior -- so it did not actually hit us. And we have continued to work in March reasonably well. So I don't -- I think that sort of answers that question.

Our next question comes from the line of Richard Hatch from Berenberg.

I wonder if we can just dig a bit more into Q1, given the fact that it's nearly over. And you've reiterated your guidance, but I'm just trying to work out how difficult Q1 really was. So if, for example, we look at Q4, you produced just a shade over 400,000 tonnes of HMC; 284,000-odd tonnes of ilmenite, how -- if we're looking at Q1, quarter-on-quarter, like how bad should we be thinking versus what you did in Q4? How much of an operational impact, was it? Is it a 20% impact, a 30% impact quarter-on-quarter. What's the sort of order of magnitude that we should be thinking about, just so the market sort of prep for it?

Richard, yes, thanks for that question. I think really the drop of the severity of the weather in Q1 is really reflected in our in our guidance statement on ilmenite coming from -- if you assume the middle of guidance was our target for the year, and we've said that we're going to come into the bottom area of it. That's our expectation at this point in time. We do have some time to bring some catch-up things into place, and that's what we'll be looking at that as well. But yes, production has been lower in Q1. But I think that's sort of really the -- the line you should look at this is the ilmenite reduction from middle of guidance to lower quarter guidance.

Okay. And then I mean just trying to think of ways you can catch it up just from an earnings standpoint, you've got inventory. Should we expect shipments to be higher than production, given that you've got a fairly robust inventories? Or not?

Exactly. So Q1 has been a good quarter on shipping. And we did -- as you say, we have the inventories at the end of last year to take into this year, and we have been drawing down some of those inventories. So I think from an earnings perspective, that will help.

Okay. And then just on freight costs. I see the accountants have made just split out freight and slightly changed the way you're reporting. So can you just give us a bit of color on what you're seeing in freight costs at the moment and how we should think about that? As we sort of go through the year, what are you seeing versus, say, H2 versus what you're seeing now?

Maybe I can jump in on that, Richard. So I think we saw, obviously, freight costs go up quite drastically in the first half of last year. And frankly, they came down almost as fast they went up in the second half. So we're really back to pre-pandemic levels towards the end of last year. We have seen a small uptick early this year, but nothing near what we saw in the first half of last year. So really they're back to what we would have thought where are normal levels before the pandemic.

Okay. Order of magnitude on a dollar per tonne basis?

It's somewhere probably in the -- it depends on the shipment side, but $30 to $40 range, probably.

Okay. All right. Much appreciated. And then a couple more. One just on receivables, quite a chunky receivables build second half of the year. What is the -- make sure I'm right on that, but just can you just give us a bit of color on what you're expecting to see in terms of receivables flow second half just on working cap? Should we expect any comeback on that?

Yes. I mean we'd hope to have a more normal and smooth shipment pattern in 2023 over '22, as I said, 35% of our revenue came in Q4 with our typical credit terms that all ends up in better sequels at year-end. So you'd hope in a slightly more normal note that will tail off a little bit over the course of 2023. I don't know if we update on our shipment profile as we go through the year.

Okay. All right. Cool. And then the last one, I mean you kind of talked about the dividend 25%. You started off, kicked it off at 20%, now at 25%. Net cash balance sheet, you're about to go into a period of pretty significant capital spend on a moving, but still, you've got plenty of flexibility in mineral sands markets in pretty good order. Do you envisage much of a material change to the dividend policy? Is it a policy where you move it to a percentage of free cash flow, pre-development CapEx? Or do you think that earnings payout ratio is still fair? But would you increase it? I mean where is the Board's head out on that at the moment?

Look, I think, as you say, we're heading to a Capital Markets Day next month. We're looking at the amount of CapEx, the same thing about CapEx, how that interacts with our cash balances, the opportunity we have potentially to refinance our debt and where that will leave us. I think at this point, we're continuing to -- as well the dividend policy will evolve, but I think we'll give you more updates when we meet next month.

Okay. But do we -- do you expect to see a revision of the policy? Or should we expect it to stand pat?

I think we can expect an evolution of the product.

There are no further questions at this time. I would like to turn the call back over to our presenters.

Thank you very much. Ladies and gentlemen, thank you very much indeed for listening to our presentation this morning, and thank you for all those interesting questions. And I thank everyone for staying on and persisting through some breakdowns in the communications. So that's the end of our 2022 results presentation. And thanks very much, everyone. Goodbye.

This concludes today's conference call. You may now disconnect.