Kenmare Resources plc (KMR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. My name is Bhavesh, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kenmare Resources Interim Results Conference Call. [Operator Instructions] Thank you. I will now hand the call over to Michael Carvill, Managing Director. You may begin your conference.

Good morning, everyone. It's Michael Carvill speaking, and welcome to Kenmare 200 -- 2023 H1 results presentation. I would just flip to Page 3. I'm going to make a short introduction today. The main body of this presentation is a financial review by Tom Hickey. Ben Baxter, our COO, will give an operations review. And Cillian Murphy, our marketing manager will give a market update. And finally, I'll make a few concluding remarks, and then we will be open to questions. Turning to Slide 4. I expect that most of the people who are on this call are pretty aware of Kenmare, but just to -- just a few of the high points of the -- key point. Kenmare is now the world's largest supplier of ilmenite, the key component for manufacture of titanium metal and titanium pigment, titanium pigment being the larger of those markets. We have been in production for 15 years. But despite that, we still over -- have over 100 years of mineral resources left if we continue to produce at our -- at the existing rate. Project [indiscernible] part with electricity, which starts from hydroelectric dam. So we have very low environmental impact and very low carbon dioxide output per tonne of product produced. Ilmenite is, as I mentioned, the key raw material use in manufacturing titanium pigment, which is in turn used [indiscernible] in paints, paper, plastics, fabrics, inks, dyes, cosmetics, feedstock, et cetera, well, any industrially manufactured color which is color [indiscernible] and it's also used in the manufacturing titanium metal, which is a light strong metal, which is very valued in [ aerospace ] and other applications where lightness and durability are important. Kenmare now represents about 7% of the global supply of titanium feedstocks and the capital investment so far in the project of over $1.4 billion. Turning to Slide 5. We operate a project with a management focus on 3 main areas operating budget responsibly, delivering low-cost production, and allocating the capital that's produced from our operations efficiently. In terms of operating responsibly, we believe that safe and highly engaged workforce is very important, the engagement levels of our workforce which we have served are very high, and our lost time injury frequency rate is 0.18 incidents per 200,000 man hours worked. We believe that's not good enough, and it's an area of very high focus for our management of the company to improve that lost time injury frequency rate. We believe that it's important that the communities are in the mine [indiscernible] benefits in their own lives from the [indiscernible] mine -- of the mine in their community. And that will allow them cooperate with us as we continue to move forward and create joint prosperity. And again, we believe that, that has been successfully done during the previous 15 years, and we look forward to working closely with communities in the future. Healthy natural environment is very important. We rehabilitate as we go, and we work with the communities to and encourage further biodiversity. And finally, in this area of focus, we believe it's very important that we're a trusted business, trusted by government, trusted by our employees, trusted our customers, trusted by our suppliers and very importantly, trusted as by the investment community, and we work hard to ensure that that's the case through our activity. In terms of low cost reduction, we're -- our first quartile industry producer, However, during H1, we did have some production issues. And we have -- we spoke to the market about these [indiscernible], but principally, we suffered from a very severe lighting strike that hit the transmission grid in the mine in Q1, another hundreds of lightning strikes that hit the transmission grid every year, but this is a particularly severe strike it was proximate to the mine and that the combination of the proximity and the severity and the fact that the protection systems within the transmission grid failed, caused widespread damage to our electrical infrastructure within the project. Further to that then, global supply chain constraint that too much longer to fully [indiscernible] the capacity of projects that we had originally envisaged. I'm very happy to say that now we're back fully at normal operating levels. All of the equipment has been reinstated, we're operating fully automatically, we're supposed to operate automatically and H2 has started in a very positive fashion. In addition to that, we have a project underway to create additional protection system within the project. So that has similar strike, the one that locked us out in Q1 would cause no damage. Despite that, we were able to sell down an inventory -- finished goods inventory that we built up in 2022 because one of our shipment vessels wasn't write-off for a period that allowed the build up of finished goods inventory, and we drew down on the finished goods inventory during H1, and that's allowed us to produce an EBITDA of $110 million, which is a record for us for H1, all of which has allowed us -- and announced this morning a $30 million share buyback and interim dividend, which is a 59% increase in dividend. Turning to market. Like every supplier of primary products in the world, there is a short-term level -- short-term high-level global unpredictability, downstream demand has softened and central bankers throughout the world have increased interest rates with a specific objective of reducing the economic activities, slowing demand, and stepping up with inflation, and that has affected our customers. But interestingly, the price for mineral sands price were for [indiscernible] feedstock has remained quite resilient, and our order book for H2, we have good visibility of where our material will go in H2. That's not to say that we don't -- there might not be some mass reductions or value reduction, but we do have visibility of our objectives during that period. That being said, the fundamentals for the market remains strong, we remain very positive. And as we do our analysis, we continue to predict our forecast a tightness of supply as we look forward. And that's based on continued economic growth even at slower rate. The depletion of the existing supply. And while there are some new projects underway, the number of slow projects is limited, we still see a tightness of supply going forward to -- So we think the long-term market is still very supportive. Turning to Slide 7. This is -- I suppose the summary of many of the aspects of H1. You can see our shipments are higher than they were in H1 2022. And that was [ differentiated ] by the draw down of that finished goods inventory. And we look at the sale price over and the next graph on the right-hand side of the page, you can see that the average sales price was reduced from $486 to $413 per tonne. That's principally because of the change in sales mix because we were shipping obviously more ilmenite, because we were drawing down on that inventory. And the ilmenite has -- is less valuable in dollars per tonne than zircon or rutile that changed the average price per tonne. All of that -- a lot of it get a net profit of 60 -- or create a net profit of $68 million and allow us to declare a dividend of $0.175 per share. We have finished -- we finished the year with net cash of $42 million. And we have this morning announced a share buyback for $30 million shares or GBP 4.22 per share. So we're very pleased to make that [indiscernible]. There are some capital constraints that are essential to ensure the ongoing success of the company and the project, one of those is the movement of Wet Concentrator Plant A from [indiscernible] mine will go to [indiscernible] at Nataka. the Definitive Feasibility Study for the project is on track. And moving forward, with the transition itself expected to begin in 2025. Additionally, at our Capital Markets Day, we explained to the investment market that we intend to expand capacity equipment on Wet Concentrator Plant B by about 40%. The Definitive Feasibility Study for that is also well on underway and on track. And so with that, I would like to pass it over to Tom Hickey, our Finance Director.

Thanks very much, Michael. Well, as Michael headlined, we had, from a financial perspective, a very strong H1 with record revenue and profits. He touched on the circumstances in '22 versus '23, which effectively meant that we've significantly higher level of shipments in '23 [indiscernible] in dried up in '22. Those shipments were lower and we built the finished product inventory that Michael referred to. Those 2 circumstances together along with stable pricing, albeit in a slightly different mix enabled us to drive mineral product revenue up by 26%. In reality that flowed all the way down to P&L account albeit slightly higher operating costs through profit before tax, which was just under $78 million, about 13% and a profit after tax of just under $68 million. That's with a little later on some of the trends in cost and in particular, in relation to fuel, which impacted in the period. Maybe one other thing to highlight here is you can see that the net finance and foreign exchange costs has pretty much [ halved ] over half year '23 over '22, a combination of a couple of things there. One, again, as Michael mentioned, better cash balances, higher interest rates in terms of our cash deposits and while interest rates and sales are higher, a lower debt burden and those lower interest costs. And our plans for our cash facility in the future are well publicized. We do plan to refinance and I'll talk it bit more about that later on as well. So I think in summary, we had strong customer demand in H1. We were able to satisfy that demand by our production and drawing down on our finished products at [indiscernible]. And we have -- pretty much moving on to Slide 10, stable market conditions, ilmenite prices, plus or minus 1% on H1 '22, a little bit lower than H2 '22. As Michael said, H2 '22, we saw record pricing. And while we're a little bit down on that, prices still remain strong in historical terms. The mineral products revenue mostly relating to volume and the volume of shipments forward in '22 versus -- '23 versus '22 [indiscernible] a very, very modest difference and the mix between co-products and ilmenite as we saw ilmenite 78% of H1 revenue versus 73% last year, meaning that the mix effect was a slight negative resulting in mineral products revenue at $230 million in the first half. [indiscernible] rates were a little more favorable this year as well. So although [indiscernible] in interaction in the P&L account at [indiscernible]. And moving on to Slide 11. We touched on the impact of the lightning strike. Michael touched on how it impacted our production volumes. And clearly, that also impacts on our unit costs. We did see higher up cash operating costs in the first half, labor costs due to just underlying wage inflation. Fuel costs, which, as I highlighted earlier, was a little unusual. Historically, there's been a strong correlation albeit with a slight light between global oil prices and diesel prices in Mozambique. And that correlation has disappeared in the first half of this year. Although we use slightly more diesel because obviously, the Bronagh J was back on. And despite [indiscernible] oil prices price is down, more than 10% on the same period last year. The diesel costs was up 40%. So we have to factor that into our expectations for H2. And we would hope that correlation will return and/or inflation will moderate, but it is something we're keeping an eye on. Aside from that, we were seeing some extra production overheads due to HME rentals. This is offset by other savings in areas such as repairs and maintenance and by rand-based costs with the rand depreciating during the period. Two other thing -- 2 things, I suppose, to drive here. You can see in H1 versus '23 versus '22, a significant change in the product stock movements again, with the stock build in H1 '22 and stock withdrawal H1 '23 and again, we've touched on the reasons for that. Finally, while all of those factors plus the oil production resulted in cash operating cost per tonne to 24% also slightly lower relative to coproduct shipments in the first half of '23 versus '22 means that the cash cost per tonne -- net cash cost per tonne of ilmenite is up 28%. As we said, we would hope to improve those figures as we move into H2. Finally, Michael mentioned the lightning strike. We are -- we do have $1.5 million of cost in operating costs related to the extra unusual costs incurred relating to the strike in the first half, but we have an outstanding and progressing insurance claim which is successful, will result in a credit in H2. That claim is, I think we've said in the past, mid-to-high single-digit millions, so [indiscernible] and essentially at the rate of 80% of that time. So that's going through the process at the moment and we wait to buy those terminations. Moving on to the next slide. We saw in '22, and we've continued to see in 2 very strong cash generation in the business, and enabling us to increase our net cash position from $26 million to $42 million over the first half of the year, as Michael have said, provide the capacity first to announce the $30 million of buyback today. Just moving into 1 or 2 of the components of that. Our CapEx probably a little lighter in the first half than we expected. I think 1 or 2 analysts have commented on that. Our CapEx has probably moved a little bit more towards the second half and then we'll update on the trends and update on the major programs to explain that. And working capital, we had our inventory movement. We had more sales in the second quarter than in the first and on the base [indiscernible]. So probably a little bit less [indiscernible] and better in the first half than we would have expected. And maybe one other factor to touch on here is historically, when we were in a net debt position, we would, on occasion, have factored some of our debt. And we didn't do that this year. So I mean, actually, what you see is just our debts rolling off in the normal time scale and slightly lower accruals, slightly lower trade debtors and accruals at the end of the first half, just timing on [indiscernible] and royalty payments, principally in '23 versus '22. We paid out just over $40 million in dividends in the first half. And our net finance cost as I said, were $3 million, enabling us to increase our net cash to $42 million. And I think as we said, if we saw a net cash build on the balance sheet, we would consider doing a share buyback. And hence, we've updated on that intention today. Just moving on to Slide 13, balance sheet review. To be honest, not a whole lot of unusual movement in the balance sheet. PP&E additions and depreciation pretty much in line, although as I said, the CapEx second half weighted, inventory reduction related to the inventory draw mostly finished products and some consumable spares to address the damage caused by a lightning strike. Receivables up, timing of shipments, as I said, some prepayments related to [indiscernible] compensation increase and VAT receivables will increase our creditors down. The debt refinance process. We currently have $150 million of debt facilities. We have since last year been in the repayment phase of those, which will extend to the end of '25. As we move into that CapEx program over the next couple of years, it makes sense to match our debt facilities against the timing of that program. And we expect to launch that refinance process over the coming weeks with our key relationship banks and certain response year-to-date and preliminary discussions have been encouraging. And overall, we've maintained in the first half balance sheet strength, that has enabled us, -- moving on to Slide 14. That shows the strong profitability has enabled us to increase our interim dividend by 59%. I mean, this is driven by the updated payout ratio that we announced at our Capital Markets Day earlier this year of 20% to 40% in profit after time and by the fact that -- again we said at our Capital Markets Day, we're comfortable based on what we see at the moment, with dividends around the $50 million level that they were for full year '22. So we just slightly trying to address that with our traditional 1/3 H1 and 2/3 of H2 dividend $16.6 million or $0.175 a share. A little bit of interaction with the share buyback here in the stock shares which are bought back pursuant to the tender offer won't qualify for dividend. So the actual -- absolute amounts of that dividend will be determined by the level of take what we share. And finally, the share buyback, Michael has mentioned this at the second time that we proposed a tender offer, and we did at back in 2021. I think we took the view with our strong cash balances before we head into CapEx phase, it might be a little bit of time before we [indiscernible] we were comfortable to supplement our shareholder returns by acknowledging a tender offer today for $30 million. We've launched at 422p, which is yesterday closing price. Obviously, shareholders have a choice whether they want to take part at all take their pro-rata or either apply for more. And we will obviously see that post the EGM and understand the [indiscernible] point of EGM on the -- in early September 2023, and all funds will be admitted 10 days after that. Should we not get full take up already under the tender offer and the unutilized capacity, we will apply in the market to purchase back stock between now and the end of March next year. Combining the 2 tender offers will give us to -- bring us to just under 19% cumulative production share issue since 2021. So a significant investment by the company in its own share over the last 2-year period, obviously reflecting how we feel about the business in future. That's it for me. I just hand over to Ben Baxter who will run through the nuts and bolts of operations.

Thanks, Tom. Good morning, everybody. So as usual, I'll start by discussing health and safety. And following an increase in the number of injuries that we took on site in late 2022 and in January 2023. We've been intensifying our focus on health and safety. And we're looking to improve our safety performance. As Michael said, we don't believe the 0.18 LTIFR is adequate and should be lower. And we're working to change that by getting an improved performance and injury-free status. We've been focusing particularly on risk management. And the idea there being to really take it to another level, make sure that our employees fully understand what's expected of them in hazard identification, making sure they understand the risks put in mitigations, and we've been practicing that with them through role plays, through extra visible leadership of -- leadership team with the teams to try and ensure that the right processes are happening, but also the right behaviors are happening as well. We've updated to support that the permitting to work process that we operate with an upgraded it. The idea there is that leaders -- is to assist leaders to retain the accountability for safety across our site, ensuring that safe work can take place and that they have a system now to audit that and manage it. And then thirdly, focusing on standards. We operate a system called Cobra Hunting. This is metric by which the workforce gets into the workplace and specific safety inspections and standards reviews. And we -- between leaders and the workers themselves raise coach and raise the standards to a higher common level. Moving on to the next slide. I'll talk through the production for H1. And we produced below our expectations in the first half of the year, and we've been working very hard since then to try and address that. But I will just talk through the principal issues of the half. Our performance was driven by -- reduced heavy mineral concentrate performance at the mine, it was down 14%, and it was impacted by 3 particular issues. First, Michael described, which was that we have the severe lightning strike in Q1. And this damaged electrical equipment across the whole mine particularly impacting the mining areas as opposed to the mineral separation plant as the mineral separation plant have been protected by the RUPS. The -- this was brought back into operation again on a phased basis after a couple of weeks, but there were significant shortages of spare equipment and long lead times as well as supply chain difficulties caused us to delay some of that production coming back to full stream. And in addition to that, we had some additional maintenance requirements on the electrical lines through Q2, which we had not expected. And so this meant that the production in Q2 didn't meet our expectations following that lightning strike. In addition, we had lower grades experienced at WCP B. This was related to the mining of a wetland area. And we had not only the lower grades, but lower recoveries since the area of roots that we found within this wetland, were blinding the screens on our web concentrated plant and causing losses of ore [indiscernible] ore into all of the ore into the plant that happen is now behind us. And then the third issue was WCP C was planned in 2023 H1 to transition from 1 part of the ore body across to another and this meant mining across an area of tailings. And this barren area took longer to get through than we had anticipated. So 3 of those things combined meant that we were not confident with our original guidance by the end of the second quarter. And in July, we have revised our ilmenite guidance for 2023. The knock-on effects of that were that to insufficient HMC to treat in the MSP. And so all the final products were down were at similar levels to the HMC production other than concentrates, which were -- they were better than -- they were on plan and similar to 2022 H1 with -- and that came from an increased quantities of monazite in the ore front higher recoveries in the concentrate circuits. And on to shipments, a bright spell there for the shipping fleet. We had grew sales volumes up 31% based on -- versus 2021 -- 2022 H1. And this came with the return of the Bronagh J, the excellent cycle times and high availability of the fleet. And that allowed us to draw down the finished pilot product revenues, the finished product inventories that we had in stock. And so the strong revenues and EBITDA came from that drawdown of those product stockpiles. On to Slide 19. Let me focus now on sort of our response to that for a half and the outlook ahead. We had a strong start to the second half of the year, and we expect that to continue through to the end of the year. The mining operations are working at higher levels at all 3 of the mining operations. We're delivering higher levels of HMC than we did in the first half of the year. And we've seen that when you break that down, the throughput rates are up, the utilizations are up and recoveries are also. So broadly speaking, mining conditions have improved. And focusing on a couple of the particular improvements. At WCP A, we have -- our slimes levels, which have historically in recent years that we've been hampering the operation. We've gone into a period of eased slimes levels based on some good protocols around the [indiscernible] system and also some lower science grades coming from the dry mining areas. This, in combination with the addition of clean water onto the spiral circuits, which we implemented in Q2, has meant that we announced -- we've seen higher throughputs on WCP A, but also higher recovery -- metallurgical recoveries as well. And we expect those to be even above our original plan for the year in the second half of the year. At WCP B., we moved out of the wetlands. And we don't have wetlands in our mine plan for the second half of the year. Nevertheless, we were, by the end of Q2, were able to realize improvements in the management of roots and bringing higher utilization and higher minimum recoveries again. And going forward when we do expect to see wetlands in the future, we've taken -- to have some more confidence on our ore body grades for those periods. We've taken a more conservative great forecasting position for those future years. Then on to WCP C, as I said, we were out of the transition area by the end of Q2. And since July, we've been operating at normal throughputs and making find grades HMC. And so this is actually set up well for the rest of the year. And in fact, we've managed to alter -- adapt our Dredge part slightly to get some high grades in the second half of this year over and above the plan. If we look back at the lightning stride, we do regard that as a one-off event. It was the first -- we have experienced lightning strikes in the past, but never with this level of severity. And when we look at the investigation that we've concluded or completed, the -- we found it the network that we have within our own site was adequate and built-to-design and met the standards of design. However, as Michael said earlier, we had -- that design did revise on the transmission providers for [indiscernible] working should a lightning strike. And in this case that didn't happen. So in the future, we will have a project delivery, which will stop us from relying on their breakers, and we will have our own breakers in hand and to help ensure that doesn't happen again. And then internally, we found that through normal improvements in technology over the years, some breakers are now able to cope with lightning better than others. And we will upgrade to some breakers, which -- where we have some protection within our business during the last lightning, and we'll standardize that across the risk in the business. Just one further point on electricity. The RUPS was reported in Q2 to have been to have gone out of service, and that was the case for Q2 and into the early part of Q3. And we have many design adjustments to the RUPS, and it's not fully operational. And so this brings consistency to the operations for the third half. MSP is performing well and especially with the additional HMC that's coming through now. So in conclusion, I would say that we're on track to achieve the revised guidance levels for [indiscernible] have a good second half of the year. On to the next Slide 20, this slide focuses on our development projects and growth projects. And broadly speaking, they're progressing well and on track. As you know, WCP A is planning to mine in the new ores and called Nataka from the end of 2025. And we -- in order to do this, we need to initiate some fundamental upgrades to the WCP A plant, and so that it can mine and deliver in the forecasted mining conditions on the future. And this means the purchase of 2 new dredges and upfront desliming plants incorporated into a wholly new surge bin, be it preparation plant. And then also the initiation of a tail storage facility. All of those items are planned to be delivered prior to entering the relocation channel into Nataka at the end of 2025. And the aim here is to make sure that we maintain our status as a first quartile revenue to cost producer. And in order to do that, one of the key aspects of that is to increase capacity of the WCP A operation. I'll remind you of the slide on the right -- of the graph on the right should I say, where existing throughput set in high slimes conditions all meet the capacity of the plant at the Wet Concentrator Plant. But in the future, our new 2 dredges will be able to always deliver the required feed to fill a concentrated plant. Current status on those projects is that the dredges are we nearly finalized the contract. So we're imminently placing our order. The that's on track, and we expect those dredges to be available in Q2 2025. The Definitive Feasibility Study for the upfront desliming plant is progressing well. as you see on the picture on the right, we have people, we are replacing the existing surge bins at WCP A with a new module. We'll have a surge bin, screening and desliming facility on board. And then the tail storage facility is also coming towards the completion of its Definitive Feasibility Study design. That's being done to GISTM standards, which is the Global Industry Standard on Tailings Management, which is the world's leading standard for managing tailings facilities. On to the other of our growth projects -- sorry, not growth projects, the other of our sustaining production projects, which is the WCP B upgrade. Our plan is to move WCP B from 2,400 tonnes per hour to 3,400 tonnes an hour. And that will support the consistent delivery of ilmenite of 1.2 million tonnes going forward. The DFS has commenced and is actually advancing quite well. We're expecting that to be completed around the end of this year, maybe slightly into the first half of next year. The PFS costing is $41 million for that project, and we expect that to commission in the first half of 2025. Onto our growth project. So at the Capital Markets Day, you'll recall, we provided an option for growth. And in order to pursue that option, we need -- we've decided to take the Congolone project through a pre-feasibility study. That study is now underway. We're expecting it to last most of this year before it's complete. And its business is progressing well. And we'll obviously give further details on that PFS once it's completed. Moving on to Slide 21. It would be remiss not to talk about some of the items we've been pursuing around sustainability. And we've been making some significant advances in the first half of this year. The pillars that Michael referred to at the beginning of the presentation, safe and engaged workforce, thriving communities, healthy natural environment, and trusted business are the four pillars around which work takes place. And I'll just pick a open of the items for sharing. Gender diversity is increasing and is progressing well. And I was happy that in 2022 and into 2023, our leadership development programs are really moving forward with a good pace. We're now focusing on the program called full role delivery where we are really moving to raise leaders accountability and capabilities to a higher level. And that's been very well received. And around water and sanitation, we've implemented a trial on drinking water throughout a village. It's worked very well, and we're now rolling that out across other villages around the mine. And we've reached an agreement with government to fund the construction of the district hospital, which will help deliver health care for the whole region. And focusing for a moment on agroforestry and our improvements around rehabilitation. Agroforestry is really the bringing together of subsistence farming with an ability to develop biodiversity into our rehabilitation and get a bit of -- again, some of [indiscernible] to satisfy both requirements. What we see in the photograph on the left is the growth of indigenous trees in lines with crop growing in between. And what we find is that the agroforestry, the trees bringing protection, they're bringing organic fertilizer to the soils and that in turn is turning into higher crop yields for farmers and also facilitating not just subsistence farming, but cash cropping as well. And so that's really something that we're very proud of that's peeling well, and we hope that, that continues well into the future. And then just maybe one last point to mention around our trusted business, the GISTM compliance for our new [ DFS ] is 1 component, but we are also transforming the whole business and all of our [ pilot settling ] systems are water bodies around the mine to GISTM standards, and that progress will take place through the rest of this year and into 2024. And so with that, I'll pass over to Michael to continue -- in fact, to Cillian. Sorry, Cillian.

Yes. Thanks, Ben. I'm going to talk through the macro results in the first half 2023. So starting with Slide 23, shows a graph we consider quite strong results. And I think Michael and Tom spoke at high level about it. So looking at the ilmenite market in a bit more detail, we want to talk through really what we have seen. And through 2022, we saw increased prices for ilmenite. Until really the very end of the year, we saw the spot market decrease. And this is on the back of slower pigment market in the second half last year and then widely acknowledged trough in Q4 in the pigment market last year, decreasing prices. This led into the first half of 2023 slightly lower prices. Importantly and I think an important one to note is that our prices remain flat through the first half of 2023. So as we exit the first half, prices at the same level as we entered. On zircon, negative -- strong results in the first half. We saw prices increase slightly on the back of robust demand, although in the last few weeks of the half, we did see the market soften a bit, particularly in the spot market and in China. Overall, as Tom mentioned, we did see a drop in the average prices for all products, but this is mostly as a result of increased sales volumes as the return of the Bronagh J allowed us to add -- decrease our inventories and place those customers -- or those volumes with our customers. Turning to Slide 4 (sic) [ Slide 24 ]. I think we're going to focus on the major ilmenite consuming region and look at China for a minute. And you can see the graph on the left-hand side why it's important to our industry with 2 million tonnes or almost 2 million tonnes of pigment produced in the first half of 2023. And this is a record for pigment production. Importantly for us, the chloride pigment production rebounded as well in the first half of 2023 after a drop in the second half of 2022. And again, first half was a record for chloride pigment production in China, which needs and requires imported ilmenite, the high-quality ilmenite to produce chloride pigments. So this, we saw as a benefit for us, and we really felt that benefit in the first half. Coupled with that, we've shown graphs in recent halves of metal production in China as well. And we haven't shown it this time, but again, the first half of 2023 was a record for titanium metal production in China, again, boosting demand. This is a result of increased utilizations on the pigment and the metal side but also increased capacity being built in China. We look at the right-hand side. It's really showing net exports from China, and there's a couple of things to note here. One is the lower imports and we believe lower pigments being imported into China as a result of the improved quality of pigment being produced in China, and they're able to take some of those higher-quality markets. And two is the big increase in exports, which is having an impact in the global market, the global pigment market. But it is something that we think is needed over the longer term with a little new capacity being built outside China. So the pigment capacity in China will need to meet global growth. And then turning to Slide 25. It's a bit of an outlook. As Michael said at the start, our market is not immune to the global economic conditions that we're seeing at the moment. And we are seeing the impact of higher interest rates, weaker Chinese real estate impacting all our markets really. And looking at titanium feedstocks, in particular, ilmenite and rutile, we are seeing more subdued markets in the third quarter as lower utilizations at the major pigment producers are impacting the overall demand for titanium feedstocks. That has mostly been at the high-grade chloride feedstocks at the moment, but we're also seeing it in ilmenite. Thankfully, a strong pigment production in China is supporting ilmenite and partially offsetting that. We do see depletion coming from several mines and disruptions, and therefore, we are confident, as demand recovers, that they're a lot strong long-term fundamentals for titanium feedstocks going forward. On zircon, it's a similar story. Demand is being impacted by the global economy at the moment. And while we did see a strong first half, towards the end, the market weakened, and this has continued into Q3 2023. And in particular, we've seen softer demand and prices in the spot market for zircon. Despite that, there are significant mine depletions coming in the coming years. And as a result, despite the new projects coming online, in the next couple of years, we do think there's strong underlying fundamentals for the zircon market going forward also. And with that, I'll pass back to Michael for closing remarks.

Yes. Thanks, Cillian. Thank you very much. I think we might have been overrunning here a little bit, but if I just turn quickly to slide 27. Maintaining our first quartile position in the industry. The first half of 2023 wasn't our best ever production year -- or our production half. However, the electrical problems are behind us. Recoveries, as Ben has mentioned, have improved. Our grades are higher. And so we expect to have a much better H2. And looking forward, we believe that all of the studies and the investment in a very detailed pre-feasibility study for mining -- the optimal mining solution for Nataka has [ been up ] very well and the dredge and hydromining combination that we have ended up with. It really is an optimal mining solution and will give us the opportunity for a long-life, low-cost operation at Nataka and allow us to maintain our first quartile industry position. We see the projects that are underway has been quite transformative. The new high-capacity dredges and Wet Concentrator Plant A will allow us to not require a high cost of the metal mining. And again, that will lead towards our low-cost position and desliming circuit will mean that we no longer have this continual difficulty of slime causing reductions in throughout and recovery, and that will be a great relief to our operational people and make our output much more predictable in the future. In addition to that, 40% increase in capacity of Wet Concentrator Plant B, which will be facilitated by moving one of the dredges that are currently in operation at A to B whenever the new dredge come in from A. All of that together will remove mining, which has been the bottleneck of this project, which has been the main constraint on production ever since this project was first booked. That will be, we believe, removed with the new projects that are underway. Cillian mentioned that we believe that the overall situation in the market is supportive and that, as we look forward, we look at the demand and expected expand and expected new projects, then we still see a [ 10 ] market. Even further to that, we believe that Kenmare is well sufficient in the growth areas of that market in chloride, ilmenite -- sorry, chloride pigment in China and titanium metal, where we have strong positions at both those markets, all of those getting towards being able to provide big returns to our investors. And we target about $50 million annual dividend, and as we said -- we mentioned already this morning that we are launching a tender offer for a $30 million share buyback. And finally, we are working hard to develop the pre-feasibility study for Congolone as a growth option for the company, and it's looking very exciting. It's a very good project, improvement in mineralization, free-flowing sand, interesting suite of products, which will complement our existing product range very well. And so that's how we see the situation, which we actually look forward. And so with that, I'd like to hand back to the operator and take any questions that you guys have. Thank you very much.

[Operator Instructions] Our first question comes from the line of Colin Grant from Davy.

I have a couple of questions. Just start with the first one in terms of maybe visibility on pricing in H2. Could you maybe give some color on what proportion of your revenues or production where you may be contracted on pricing for H2? Just give us a flavor there, please. Start with that.

Maybe, Cillian, you could answer that.

Yes. Again, I can't give too much visibility on pricing, but I think, normally, we have around 60% to even above 60% of our volumes on contracts. So the price of them are normally fairly steady. And then the spot market, I think we've already agreed prices on that in third quarter already, and they have not been materially different at all from what we've seen already this year. Probably the best visibility I can give at this stage.

Great. That's helpful. And then just in terms of the second point, you had, I think, a pretty good performance in terms of drawing down finished goods inventory in the first half of the year. And I'm just trying to look through the second half and what to expect in terms of any further movements in inventory. Maybe there's certain level or a minimum level of inventory you want to keep. But I'm trying to get a sense of whether or not we should be expecting shipments to exceed production in H2 or what movements we should be modeling in there.

Tom, do you want to? Go ahead.

No, you go ahead, Michael.

I don't believe that we need to model. It shouldn't have been greater than production in H2 since our production will be -- we anticipate our production back up to normal production levels [indiscernible]. So, Colin, I think it should be mostly equivalent.

[Operator Instructions] Our next question comes from the line of Richard Hatch from Berenberg.

Two questions. First one to Tom just on the debt refi. Tom, correct me if I'm wrong, the term loan at the moment is LIBOR plus 5.4%. So what kind of sort of cost of debt are you thinking that you might be able to sort of average in for the debt refi? Because at the moment, I guess that's probably, what, 11% cost of debt for you at the moment for you around term loan.

Yes. I suppose there's a couple of considerations there, Richard. Firstly, clearly, when we're sitting in that cash, we prefer not to be paying 11% for debt we don't particularly need or need all the time. So we hope to be utilizing any revised facility or a new facility slightly more selectively and occasionally, so the constant debt burden wouldn't be there. Secondly, there is -- we had 2 elements to our facility. We have a term loan, which is plus 5.4% and a revolver, which is 4.25%. And there's another year of availability, indeed, on the revolver if our proposed refi is delayed. And I think we're orienting more towards, again, in line with what I said earlier, a structure with a bit more flexibility in it. So probably while we happen to have definitive guidance and no banks have been formally fully through credit on it yet because we're only launching next week, I think thinking about a margin that's more in that kind of 4.25%, 4.5% range on the bulk of it, which will likely be an [ OCF ] is probably a better way to think about it. So some advantages there, but I would say more related to the flexibility to draw down and repay and redraw rather than having a full-term facility.

Yes. Understood. All right. Fine. And then, Ben, just on the ops, are you -- have you now got all of the stocks you need in terms of spares in case you do have another kind of significant lightning event or operational sort of challenge in terms of the weather?

That's correct, Richard. Yes, we did a review of the stock holdings after this event, and we had placed some additional orders as well as the orders to recover from the event itself, so yes.

I would emphasize that the severity of that lightning strike is -- was so great that we would never hold such a comprehensive stock to repeat every single variable [ to be derived ] in the mine. And likewise, accounting there for pumps, and it's impossible to hold the level of stock that will completely insulate you from an extremely severe event, Richard. That would require a very significant further investment in working capital. So whether our stock levels are back up to well above the levels they previously were at, I don't think you can say, okay, we got hit by another major event tomorrow that we're just clicking a unit and it will be all right. That was an extremely severe unusual event, and what we are doing is we are going to install new protection [ fleet ] within the system to ensure that a similar event would not happen twice. But it will take a little mind before that is in place.

Okay. Understood. And then just on the operations. Just can you perhaps just give us a little bit more help with how Q3 and Q4 look? Because if I kind of look at it, the mining rates have dropped sort of down to 9.3 million Q1, 9 million tonnes or 9.1 million tonnes Q2 and Q4 '22 was 10.1 million tonnes. So -- and then grade-wise, we've previously -- second half of last year, we're averaging about 4.8%, 4.9%. That's dropped down to sort of 4.14%. And I appreciate there's been some sort of factors with the ore body that's been -- sort of being more of a challenge. So then what kind of mining rates do we need to think about in Q3, Q4? What kind of grade should we be thinking about Q3, Q4? You sort of mentioned that the mine plan has been adjusted slightly so that you can access some higher-grade portions of the ore body. What are the moving parts there that help you get to that kind of, I guess, would be, what, like a 280,000, 290,000 tonne per quarter run rate of ilmenite to hit the bottom end of guidance?

Yes. So you're in the right ballpark there, Richard, in terms of quarterly performance for the rest of the year. And it comes really from 3 areas. Our mining rates are up, so you can expect mining rates -- we are aiming at above -- certainly above 10 million tonnes. So that's per quarter, I mean. And those rates are coming through nicely already. And so that throughput and utilization's being up and above plan of the -- sorry, above H1 levels but also above plant actually as well. So I think we're performing quite well at the moment. And so -- and then on the grades, you're right, the -- that there have been some adjustments. We have dry mining fleet that gave us some flexibility for WCP A and the mentioned improvements in grade at WCP C as well. So we're coming in around -- taking about 4.4, 4.5, can't quite recall exactly the number, but it's in that sort of area. And then the third area of improvement has been around recoveries. And we see some meaningful recoveries and improvements when we introduced this clean water onto the spirals of the WCP A. Recoveries for that plant, metallurgical recovery is moving from high 70s, 78%, 79%, up to mid to high 80s to 85%, 86%, 87% there. So that's a significant improvement level of recoveries at that particular plant.

Okay. And I guess not a huge significant cost to pump fresh water there, Ben?

No. I mean that was a project that we implement -- we brought through from the profit -- come up with that view back in 2022. So that money was spent through the last half of last year and into the beginning of this year, literally pump and parking, so nothing extensive, Richard.

Yes. Okay. Cool. And then my last question is just on the market. Cillian, it's a bit of sort of wide ranging one. The first one is are you seeing -- what's the view on inventory levels and the pigment producers in the West and in China? And are you sort of concerned that -- and are inventory levels high enough that China can take this off the gas second half in terms of production? I just would note that kind of increase in exports. I just wonder if the export market isn't necessarily there. Do they take the sort of the gas in terms of pigment production? Or do you not see that? And then you kind of talked a bit about your Q3 pricing. But what about Q4? Are you seeing any early sort of discussions on Q4 contract pricing? Yes. And then sorry, last one, just are you seeing a shift of any of your volumes away from the Western into China? If you were to say like a -- take a pie chart of how your sales mix sort of spreads and you sort of spread that over the last sort of 4, 5 quarters or 4 halves, are you seeing an increase of volumes going to China? Or is it fairly consistent?

Cillian, I think that's about [ 7 or 8 questions for today ].

You might have to remind me of a couple, but I'll do my best. Start off with inventories. So looking at the pigment market in general. I think when we look at what happened, both in China and particularly in the West when the market weakened and demand softened in the second half of last year, pigment producers kind of took off production, and that's continued really through to [indiscernible] and you can still see that in the results. The pigment producers speak about how Q4 was the trough. And you can see their volumes -- their sales volumes particularly are growing quarter-on-quarter in Q1 and in Q2. So we don't think they're sitting on a huge amount of inventories because they've adjusted their production in China. I think they've been opportunistic, and they have gained market share through the first half of this year really with lower pigment prices compared to their competitors outside China. But anecdotally, when we talk to our customers in China, the majority of them, we don't think are sitting on significant inventories or really significantly above normal at all. So we don't see that as a huge risk right now. Q4 pricing, look, I think we're too early to talk about it really. We don't have contract pricing that sets quarterly really for our products. So we have half yearly. We have yearly. And we have some spot and the spot agreements for Q4. Then those discussions aren't happening at this stage. I think it's a bit early, but look, I think go back to the comments we made on the outlook that we are seeing more subdued demand, and we'll have to see how that plays out. Market share is a more difficult question for us at the moment just because of what happened with the Bronagh J being in dry dock last year. We have our contracted volumes, and we have to deliver to our customers based on those. So when we have reduced shipping capacity in Q2, Q3 last year, we had to make sure we were meeting our contracts and our obligations. That meant less to the spot market, and the spot market largely is in China. So you would have seen reduced sales to China last year. And as we've been able to increase our sales volumes this year, large part of that uptake has been to China, so that's been more back to normal levels. When we look at our customers, for the most part, every -- is still taking volume to the plants that they normally do. I don't think we've been affected by any plant suspensions or shutdowns really materially on volume there. I think I answered them all.

Yes, you did. Yes, that was much appreciated.

There are no further questions at this time. Michael Carvill, I turn the call back over to you.

Thank you very much. And so folks, thank you all for listening and being present for Kenmare's H1 2023 results presentation. And I hope we've managed to answer your questions. And with that, I will close out the call. So thanks, everyone, and bye.

Thank you. This does conclude today's conference call. Thank you for participating. You may now disconnect.