Kenmare Resources plc (KMR) Earnings Call Transcript & Summary

Good day, and welcome to the Kenmare Resources Plc 2023 AGM presentation. [Operator Instructions] I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Andrew Webb Chairman of Kenmare Resources plc to begin the conference. Andrew, over to you.

Good afternoon, and welcome to the 2023 Annual General Meeting of Kenmare Resources. My name is Andrew Webb. I'm the Chairman of the company. We're delighted to welcome you all here today. We have 2 directors, Elaine Dorward-King and Issa Al Balushi attending by telephone today as they were unable to travel, but all other directors are here in present and we're also done by our auditors, KPMG and members of our senior management team. This meeting is being broadcast as you just heard, by way of conference call, for those who are unable to join us. And I'd like to just take a moment to introduce the Board to you. Michael Carvill, our Managing Director, based in Dublin, engineer by profession, has been with the company since 1986. Tom Hickey, our Financial Director, also based in Dublin, joined the company in 2022 when Tony McCluskey stepped down as Financial Director; he's a chartered accountant. Graham Martin, our Senior Independent Director, is Chair of the Nomination Committee and the Renumeration Committee and Natural Resource executive, joined the Board in 2016. Deirdre Somers, my left, is a true qualified chartered accountant and the former Chief Executive of the Irish Stock Exchange. She's the Chair of the Audit and Risk Committee; she is also based in Dublin. Elaine Dorward-King, who as you heard, is on the telephone, joined the Board in 2019; Elaine is a scientist and chairs the Sustainability Committee. Clever Fonseca to my far left is based in Florida, a mining engineer and joined the Board in 2018. Mette Dobel, to my far right, is based in Denmark and was previously Regional President with FL Schmidt and engineering equipment and service solutions provider to the mining and cement industries; she joined the Board with effect from January 1 last year 2022. And Issa Al Balushi joined the Board in January, as you heard, he is on the telephone, January this year, a manager in economic diversification investment at the Oman Investment Authority. It's a great honor to be able to address the AGM having succeeded Steven McTiernan and his Chair following the AGM last year. I'm delighted that the company achieved record financial results for 2022, including revenues, profitability and dividends. Two weeks ago, your management stood in front of analysts and investors and set out what I believe to be a compelling investment case for Kenmare, highlighting its world-class asset at the moment, its dedicated and talented workforce, safe, sustainable and well-run operations and a strong balance sheet. A key part of that Capital Markets Day presentation was around the investment required to ensure a smooth transition to mining at Nataka, where the bulk of our mineral resources lie. Whilst the detailed studies are still underway, the initial results are hugely encouraging and indicate that the different mining conditions at Nataka can be tackled while maintaining a first quartile industry cost position for many years to come and continuing to reduce our carbon emissions. I and our whole board look forward to supporting management as they manage this transition to Nataka over the next few years, a period where we'll execute a number of capital projects on the back of the 3 large projects successfully delivered over the -- last 5 years. And we'll balance this investment with payments to shareholders, maintenance of that healthy balance sheet and a continued commitment to supporting and involvement in our communities is Kenmare's engagement with colleagues and communities so that the moment mining and processing operations are seen as a benefit in people's lives that provides the social license that will ensure that value can be recognized from our resources. I'm very proud of this commitment and would highlight the relocation of the Isoa village and the new maternity unit at the Pilivili health center as tangible benefits, which really do deliver an uplift in people's living standards. I'd like to pay tribute to our many hard-working colleagues, whether at the mine at head office here in Dublin, who're involved in marketing and other international activities. All of them are committed to doing their -- their jobs safely and responsibly. Kenmare's involvement in training and its focus recruitment has led to an overwhelmingly Mozambican workforce with increasing numbers benefiting from the technical college and increasing female participation in workforce and management. This year -- this time last year, we announced that Tony McCluskey, the long-serving financial director, would step down and having provided extended transitional support to the new financial director, Tom Hickey. I'd like to say farewell today to Tony and to welcome Tom to his first AGM. Similarly, I'd like to welcome Issa who replaced our former colleague, Sameer, as the representative of the OIA. And a now on Michael Carvill, our Managing Director, to give an update on the company and its performance, following which we'll proceed with the formal business of the meeting.

Good afternoon, everyone. Thanks, Andy. I'll just quickly run through a review of what we have been doing over the last year just to bring everybody up to date. So as we know, Kenmare Resources mines at Titanium Minerals -- Titanium Minerals ore body, which is located in Northern Mozambique. It's a very, very large ore body. At our present rate of mining, we will last for over 100 years. So that's a very significant thing. We manage using both mining methods. We shipped about 400 million tonnes of ore every year. And this year, we produced 1.08 million tonnes of our fine product on that line. We do that principally using hydro-generated electric car. So we have a very, very low carbon footprint. And we produce products, which are well liked in the market, and we market them really all over the world. We run the company on 3 sort of planks of our strategy: one of them is that we operate responsibly. And with regard to that, we achieved a record for us, a record of 11.8 million hours without a lost time injury, and we achieved that level of lost-time injury-free operation until September this year. After that, we've had a couple of injuries, and we're now redoubling our efforts to bring our safety standards back up to the standard that we achieved up to September of last year. We believe in delivering and we operate on the basis of delivering long-life, low-cost production. And this year, we produced our product on the line, had a record net record low net price of $60 a tonne, a net cost of $60 a tonne after co-product revenues. And we seek to allocate the capital that's generated by these activities efficiently and to the benefit of our stakeholders. And consequently, we've been asking you at this meeting to vote on a resolution on our dividend, which is a $51 million dividend to shareholders. I mentioned that we had achieved 11.8 million hours lost-time, injury-free activity. That's, in my opinion, a real testament to the dedication of our operating team at site and the leadership that Ben Baxter has provided and focusing everybody on their own safety and the safety of the colleagues because this is a very large site. There's a lot of equipment. There's a lot of change, and we believe that was a fine achievement. So just what did we do last year? We produced 1.5 million tonnes of heavy mineral concentrate. And from that heavy mineral concentrate, we created 1.08 million tonnes of ilmenite principal products, 58 million tonnes -- 58,000 tonnes of zircon and about 9,000 tonnes of rutile. We also produce concentrates. One of those concentrates includes monazite, which is a precursor of mineral for the production of rare earth oxides, which are used in batteries and electric vehicles. So that was our production, and we market these products pretty well in all continents. And we have been experiencing a gradual steady increase in the value of these products in the world markets. And when that is then combined with increased value of our co-products as well, we have been able to achieve this record low net cost of production of ilmenite. So that all meant that we -- our sales value was $163 million. That's the revenue we got from selling all of our products. And that allowed us to quite an earnings before interest tax and depreciation of $298 million. So that was again a record for us and a net profit of $206 million. During the year, we completed a project to allow us to use hydro-generated electricity during the [ raining ] period. Of course, we had previously had not been able to use because of the volatility, that project is called RUPS project. It's a good project. It provides us with great stability in our mineral separation plant and allows us to increase our production, but also allowed us to have [Audio Gap] meaningful reduction in our carbon output. As Andy mentioned, the future of this company is the mining of new ore zone -- another ore zone that we will be moving Wet Concentrator Plant A to in 2025 and '26. And so we have been developing a very extensive pre-feasibility study, which has come out with very positive completions. And we are now in the Definitive Feasibility Study and then we move into [Technical Difficulty] project. So that is all moving forward very positively. The combination of, say, of good production, the benefit of the increased production and good production and positive momentum in [Technical Difficulty] market has allowed us [Technical Difficulty] for the last several years, increase our dividends to shareholders. And you can see [Technical Difficulty] I mentioned the Definitive Feasibility Study for Nataka, the Pre-feasibility developed this strategy. And it's a good strategy. We are going to -- we have been hampered over recent years by the presence of very small particles in ore body called slimes. When we move to Nataka, we will be investing in [Technical Difficulty] and take them away, completely away and put them in slime storage facility. So we don't have to be [Technical Difficulty] our separation and a concentration and separation process from that point onwards. It's a big investment, but we believe that it's the way that we will continue that we will be able to continue to operate at the lowest point in the industry curve for this industry. Andy mentioned sustainability. We believe very strongly in sustainability. We have done [indiscernible] in Mozambique, we believe. Safe and engaged workforce is a very important part of that. Our workforce is 97% nationals, 97% Mozambicans. And our [Technical Difficulty] have indicated that they're highly engaged workforce and committed to the activities. We worked very hard with the local communities to ensure that they see the presence of the mine in their area to benefit in their own lives. We believe that they do in the [indiscernible]. And we also are working very hard to increase the biodiversity in the region. And certainly not have any negative effect on biodiversity. And finally, we work with our supplier chain to ensure that all activity that is associated with what we do is done on an ethical basis. So for this year, we expect to produce between 1.05 and 1.15 million tons of ilmenite, about between 51,000 and 57,000 tonnes of [Technical Difficulty] 9,000 tonnes of rutile, and 37,000 to 41,000 tonnes of mineral sands concentrate, which is the monazite-bearing mineral. So we've had a difficult start of the year. Started with a very bad lightning strike [Technical Difficulty] burned a lot of our equipments and [Technical Difficulty] we have or some difficulties recovering from that. So we're coming back a little bit from a bad start. So we have indicated to the market that we're more likely to begin the [Technical Difficulty]. But nonetheless, that has allowed us -- that will allow us continue to operate in the best quartile of the industry [Technical Difficulty] cost curve. And you can see from this graph, the journey that we have taken [Technical Difficulty] fourth quartile [Technical Difficulty] recently been in the best quartile. So as the market -- as life goes on and things change in terms of the product market, we will always be in a situation where our operating costs compared with others is in a better position. So as we look forward to next year and delivering of our strategy, we continue to use the same strategic priorities of operating responsibly, delivering local production and allocating that capital efficiency. So we are going to continue and renew our focus on [Technical Difficulty], the reduction of CO2 emissions and the increase of biodiversity. We are optimizing our mining activities. We are introducing new methods on to our Wet Concentrator Plant [Technical Difficulty] from the revenue-bearing ore, and we have a steady production forecast for this year. In terms of [Technical Difficulty] efficiently, we have -- we are working to deliver the Definitive Feasibility Study on Nataka, and following on from the successful feasibility study. We are also trying to create an option for growth for the company and the development of a Pre-feasibility study for an area called [Technical Difficulty] our production quite significantly if at some point the stakeholders to [indiscernible] decide that, that's the best thing to do. So that's sort of my quick summary of what we've been doing over the last [Technical Difficulty]. And with that Andy, I think I'll hand back to you.

Thank you, Michael. With your permission, ladies and gentlemen, I'd like to receive [Technical Difficulty] business before we move on to the resolutions [Technical Difficulty] But if anybody has questions in the room, if you could direct your questions to me, and I'll let either answer more or pass them to my colleagues. If you do have a question, I'd ask that you state your name and if you are a proxy, the name of the shareholder you are representing. And if you have more -- more than 1 question, please ask all the questions upfront. So if you have a question, please raise your hand, and we'll get a microphone to you. [Technical Difficulty] I mean, Michael, you were down most recently. Do you want to comment on how you see that?

Yes. So in terms of normal politics in Mozambique [Technical Difficulty] election next October, in 15 months, in October 2024. It's very likely that the ruling party, Frelimo, will be successful in that election and return to power. So we see normal stable operation of government as the likely outcome of that election. In terms of the difficulties in Cabo Delgado province over the last period that it's been extremely quiet [Technical Difficulty]. So it will be interesting to see what happens in the coming months. That's a local insurgency, which has been effectively contained by the presence of [Technical Difficulty] in the area, and that has allowed people to go back into their villages and into their towns and start to rebuild their towns. And we also understand that Total is preparing for the restart of its operations in Cabo Delgado and the progression of the large gas projects that are up there. So all in all, we'd say that [Technical Difficulty] politics is stable in terms of [Technical Difficulty]. And as far as our operations [Technical Difficulty]

[Technical Difficulty]

I believe so. Interestingly, we were just preparing our payments to government report yesterday, we make a public declaration of our payments to government. And in fact, the government has -- we pay more to the government than we have to our shareholders. And we are significant [Technical Difficulty] revenue generator for the government. I think [Technical Difficulty] of our 2 purchases are locally generated. So it is significant economic stimulus to Mozambique.

[Technical Difficulty]

So the $60 a ton is net of co-product revenue.

Thank you for that. I think if there are no other questions on the floor, we can move to any shareholders on the conference call with questions.

[Operator Instructions] And Chairman, there are no questions on the phone.

Thank you. We have received a few questions by e-mail. If I read them out, [Technical Difficulty] all 3 of them are to do with production plans and challenges. The first one is what is causing slimes to become an increasingly problematic issue? And what is Kenmare doing about it? So I'd mention that the next 2 to you -- and the other 2 are about specific bits of the move.

So slimes are fine particles that are present in the ore body. They're defined as sub 45 microns in diameter. The difficulty with slimes is that as we mine those slimes go into [indiscernible] and then brought into our separation process as that water is stepped up by the dredge. The reason that they have become more of an issue as time has gone on, is that the present day -- the amount of slimes in the ore body has increased as our mining path has progressed. And consequently, we have to spend more money and more effort in managing those slimes.

The second question was what is the difference between the WCP B move and the WCP A transition?

The WCP B move -- for the WCB B move, we built a road. We put the Wet Concentrator Plant and the dredge on to mobile transport units and [Technical Difficulty] and then repositioned it in the new area called Pilivili. [Technical Difficulty] significant portion of the investment was to create the road and to actually transport the Wet Concentrator Plant down to the area. With the move of the transition of a concentrated plant, it's quite different. The area between where A finishes in Namalope and where it starts to mine in Nataka is mineralized. It's just not mineralized to the grid that we would normally mine. And consequently, Wet Concentrated Plant will mine its way on a direct path from Namalope to Nataka in a relatively narrow channel and that will take 2 years. During that period, we'll reduced production from like [Technical Difficulty]. Most of the money that has been spend on this project is not for the move, but to acquire and build new equipment that will allow us to mine at a faster rate and deal with slimes in a more effective and better way. So we believe that having done so, we will be able to mine Nataka at a rate and a level that will allow us comfortably accomplish [Technical Difficulty].

[Technical Difficulty] the last question [Technical Difficulty] how will you address the ilmenite gap in 2025, 2026. And I think this refers to that period that you referred to [Technical Difficulty] when there would otherwise be a reduction in products.

We've been looking at this for quite some time. When we have our Capital Markets Day in 2018, we alerted the market to, in fact, [Technical Difficulty] a couple of years as Wet Concentrated Plant [Technical Difficulty] A moves to Nataka. And we've been looking at different ways to [Technical Difficulty] in the meantime. And we've looked at various ways and the one that has come out as a very, very clear leader is the increase in the capacity of Wet Concentrator Plant B buy 1,000 tons per hour -- so prior to the start of the move, so that additional production from the -- during that period will fully compensate for the dip. And [Technical Difficulty] project. It has extremely good financial [Technical Difficulty]

I'll just take a few moments to explain the voting process for today's meeting. This year, voting will be done by way of a poll [Technical Difficulty] vote on each resolution put to the meeting. This obviously allows you, the shareholders, to participate in the decision-making of the company and have your votes recorded in proportion to the number of shares you hold. With a [Technical Difficulty] of all the resolutions will be held at the end of the meeting. If you've already voted by proxy and do not wish to change your vote, you take no action. If you do wish to vote or change the vote you've previously cast by proxy, you'll need to wait until the voting is formally opened at the end -- towards the end of the meeting. And at that point, the voting procedure will be explained and you'll be given time to cast your vote. So ladies and gentlemen, I'd like to start the formal proceedings of this Annual General Meeting. I declare that the required quorum is present, and the meeting is open. The notice of the meeting, together with the explanatory notes, was posted to shareholders on the 18th of April this year. Accordingly, the requisite notice of the meeting has been given. I propose, therefore, to with your consent, take the notice of the meeting out read, out each of the 11 resolutions being proposed today before putting each of them to the poll vote. The first resolution is that the directors' report and financial statement and the auditor's report for the year ended 31st of December 2022, and are hereby approved and adopted. The report and financial statements, which include the [Technical Difficulty] report on Pages 153 to 158 have been in your -- the shareholders' hands for the statutory period. Julieann Finlay of our auditors at KPMG, is here with us today. I now propose the resolution. [Technical Difficulty] resolution will be held towards the end of the Annual General Meeting. AGM resolution #2 is the consideration of the report on directors' remuneration. As noted in the company's Chairman's letter to shareholders, the purpose of Resolution 2 is to receive and consider the Remuneration Committee report and the annual report on remuneration as set out on Pages 118 to 134 of the annual report. This is an advisory resolution not binding on the company. It's being put to shareholders in accordance with Section 1,110 end of the Companies Act 2014. A and I propose the resolution with the poll on the resolution [Technical Difficulty] in respect to the year ended 31st of December 2022. This [Technical Difficulty] by the directors and in addition to the interim dividend of [ USD 10.98 ] paid in October 2022. Subject to passing this resolution, the final dividend will be paid on 19th of May 2023 to shareholders who [Technical Difficulty] record date of 14th of April 2023. I now propose the resolution and a poll on this resolution will be held at the end of the meeting. Resolution #4. The directors have resolved this year that all of the directors will submit themselves for election or reelection to the Board. Accordingly, there are 9 separate resolutions dealing with the election and reelection of directors. I will propose all of these resolutions, except that relating to my reelection, which Michael Carvill will propose. Biographical details of each of the directors appear on Pages 86 and 87 of the 2022 annual report. We propose [Technical Difficulty] each of these resolutions for the reelection and election of directors with a poll on each of the resolutions to be held at the end of the meeting. So I propose that Michael Carvill, being a retiring director, be and is hereby reelected a director of the company. I propose that Mette Dobel, being a retiring director, be and is hereby reelected a director of the company. I now propose that Elaine Dorward-King, being a retiring director, be and is hereby reelected a director of the company. Now I propose that Clever Fonseca, being a retiring director, be and is hereby reelected a director of the company. And now I propose that Graham Martin, being a retiring director, be and is hereby reelected a director of the company. I propose that Deirdre Somers, being a retiring director, be and is hereby reelected a director of the company.

I now propose that Andrew Webb, retires in accordance with the Articles of Association, be and is hereby elected a director of the company.

I now propose that Tom Hickey, who retires in accordance with the Articles of Association, be and is hereby elected a director of the company. I now propose that Issa Al Balushi, who retires in accordance with the Articles of Association, be and is hereby elected a director of the company. A poll on each of these resolutions will be held at the end of the meeting. The fifth resolution is to authorize the directors to fix the remuneration of the auditor for the year ending 31st December 2023. I now propose the resolution. The poll on this resolution will be held at the end of the meeting. Resolution 6 is proposed to allow our company to continue to call a general meeting through a considerable ordinary resolution of not less than 14 clear days' notice. For the past few years, the company has sought this annual authority to preserve its ability to utilize where appropriate, a shorter notice period. The directors consider that it is in the interest of the company to retain this flexibility. The approval will remain effective until the company's next Annual General Meeting, when it is intended for a similar resolution will be proposed. As a matter of policy, the 14-day notice period will be utilized only when the directors believe that it is merited by the business of the meeting and the circumstances surrounding the business. I now propose the resolution as a special resolution, and the poll on this resolution will be held at the end of the meeting. Resolution 7 is proposed to approve the Directors' remuneration policy as handout in detail of Pages 135 to 145 of the 2022 annual report. The current directors remuneration policy was approved by shareholders at the [Audio Gap] in accordance with the provisions of the Companies Act of 2014 [Technical Difficulty] It is being put to shareholders in accordance with Section [ 1110N ] of the Companies Act 2014. I now propose the resolution and a poll on the resolution will be held at the end of the meeting. Resolution 8 proposed the Board be authorized to allot and reissue relevant securities, essentially the shares in the company. This authority extends to relevant securities up to an amount equal to approximately 1/3 of the issued ordinary capital to the company. The full tax of the resolution is set out [ as ] Resolution 8 in the Notice of Annual General Meeting. This authorization, if granted, will expire on the earlier of the date of the 2024 AGM and 11th of August 2024 unless previously renewed or revoked. I now propose the resolution and poll on this resolution will also be held at the end of the meeting. Resolution 9 is proposed to authorize the Board to allot shares for cash, otherwise than in accordance with statutory preemption rights. It's a special resolution and empowers the Directors to allot shares for the company for cash without first offering them to existing shareholders in proportion to their holdings. This power is limited to shares having an aggregate nominal value equal to the nominal value of 5% of the issued ordinary share capital. The full text of this resolution is set out as Item 9 in the Notice of Annual General Meeting. This authorization, if granted, will expire on the earlier of the date of the 2024 AGM and 11th of August 2024 unless previously renewed or revoked. I now propose the resolution as a special resolution, and a poll on this resolution will be held at the end of the meeting. Resolution 10 is also a special resolution and proposes to grant the company an authority to make market purchases of up to 10% of its own shares. The authority would only be exercised if market conditions make it advantageous to do so, and if the Directors were to consider such purchases would be in the best interest of shareholders. The authority, if given, will not oblige any shareholders to sell his or her shares in the company. The full text of the resolution is set out as Item 10 in the Notice of Annual General Meeting. Now propose the resolution as a special resolution and that a poll on this resolution will be held at the end of the meeting. Resolution 11 is a special resolution and proposes to sanction the price range at which any treasury share may be reissued other than on Euronext Dublin. The treasury share is a share in the company, purchased and held by the company rather than being canceled. The maximum and minimum prices at which share may be reissued are generally 120% and 95%, respectively. But the average market price of a share calculated over the 5 business days immediately preceding the date of such reissue. The full text of the resolution is set out as Item 11 in the Notice of Annual General Meeting. This authorization, if granted, will expire on the earlier of the date of the 2024 AGM and the 11th of November 2024 and unless previously renewed or revoked. I now propose the resolution as a special resolution and the poll on this resolution will be held at the end of the meeting. Now let me turn to the voting procedures. A poll will be taken on each of the resolutions which has been put to the meeting. Let me explain the procedure for conducting a poll. Votes may be given by the registered holders of ordinary shares present here in person or in proxy and entitled to vote. Each of such holder has 1 vote for each ordinary share held. I'll also vote on behalf of those holders who have sent a proxy instruction to the company, appointing the chairperson of the meeting to vote on their behalf. After the poll has been conducted, the votes cast will be verified under the scrutiny of Computershare by reference to the register of members and the list of authenticated proxies received by the company. Computershare will report the total votes cast for and against the resolutions and a number of withheld votes. The whole will take some time to be conducted. Therefore, I'm closing the [indiscernible].