Kenmare Resources plc (KMR) Earnings Call Transcript & Summary

Good afternoon, and welcome to the latest Yellowstone Advisory webinar with Kenmare Resources who released their record half year results on the 15th of August. We're delighted to have with us today Michael Carvill, Managing Director; Tom Hickey, Finance Director; and Ben Baxter, Chief Operations Officer. I'm just going to go through a few bits of admin before I hand over to Michael. [Operator Instructions] And then following the meeting, you'll be redirected to a short survey. It will be really appreciated if you could just spend a few moments completing that. Looking at the results of that shareholder poll, which I'm going to keep up for a minute or so, it looks like we've got about 60% of shareholders and 40% non-shareholders. So a good mix today. Right, I'm now going to hand over to Michael Carvill to start today's presentation. Ben, would you mind now sharing your screen with the presentation on it.

Good afternoon, ladies and gentlemen. As Alex said, my name is Michael Carvill, thanks for that introduction, Alex. And I'm just going to kick off with some introductory comments before handing over to Ben Baxter. And so if we could go to Page 4, please, yes. For our existing shareholders, they probably know about Kenmare anyway. But just to reiterate for people who are new to the story, Kenmare is the world's largest supplier of the titanium dioxide mineral, ilmenite, which is the main titanium-bearing mineral that's found in the world. And that is used in industry for the production of titanium pigment and titanium metal. We have been in production from our mine in Northern Mozambique for 15 years. And at the current rate of production, the resources will last for longer than another 100 years. We use hydro-generated electric power for all of our main mining activities and consequently, we have a very, very low carbon footprint per tonne of product compared with any of our peers. And because the nature of our mining is dredge mining, we rehabilitate as we go. So we take land from farmers or we negotiate with farmers, and we compensate them and take the lands into the mining area. We mine the titanium minerals. We fully replace the ore and revegetate the land and hand it back for farming within about a 3-year period. Ilmenite is used principally to make titanium pigment, which is, in turn, used to make paint, paper, plastics, fabrics, anything where there is color or opacity in our world since we tend to like color and opacity as we get rich and we use more of it. And so therefore, consumption of this material is very closely correlated with the world GDP growth. We have spent more than $1.4 billion on the project so far. And it makes a meaningful -- it's a meaningful component of the world supply, representing more than 7% of world supply. Thanks, Ben. Can we move to the next slide? We manage the business with 3 specific areas of focus. One is that -- is to operate responsibly; two is to deliver low-cost production, which we feel is a necessary part of sustainability in the long term; and finally, we like to work very efficiently to allocate the capital that's generated from our activities. Operating responsibly, a safe and engaged workforce is absolutely vital to the success of this business. When we do surveys, we find that our workforce is highly engaged. But our lost time injury frequency rate has cranked up a little from a very, very low level to 0.18 injuries per 200,000 man-hours worked. And while that's still a very low level compared with any of our peers, we are -- it's not low enough for us, and we are -- this is a major area of focus. We believe that it's very important to have thriving communities around us who benefit from the fact that there is a mine in their area and see that as a benefit and a positive in their own lives. We work hard to do that. And we believe that that's the case and allows us to have work in cooperation with these local communities in creating shared prosperity for everyone in the future. We work very hard to ensure a natural -- a healthy and natural environment. As I mentioned, we rehabilitate as we go. We work hard to increase the biodiversity and to improve agricultural practices. And finally, it's very important to us that we are a trusted business, trusted by our staff and employees, trusted by government, trusted by our customers and trusted by our suppliers and very importantly, trusted by the investment community. And so we try very hard to ensure that, that continues to be the case. In terms of low-cost production, we are in the first quartile of the industry cost curve. So that's the big part of the industry cost curve. And we're working hard to ensure that we continue to be there for the foreseeable future. In terms of production, first half of H1 wasn't quite as good as we expected. Unfortunately, we were hit by a very major lightning strike in the early part of the year. And that was -- the severity, the proximity and the fact that some of the grid protection systems didn't work on the utilities, state utilities protection systems didn't work when the light -- the strike hit, its network resulted in widespread damage in our site. And then global supply chain constraints meant that it was -- it's taking a long time to get all of the equipment back in place and working again. So I'm delighted to say that, that is the case. And as we moved in H2, the electrical -- the electric -- the lightning strike effects are now behind us. And we have started to -- in a very positive manner, we're very pleased with the way it's operating. Just to mention also that we have projects underway to create additional protection within our own facilities so that if there is another failure in the utility transmission protection system, that we ourselves will be able to step through and ensure that we're still protected. We like to allocate capital, and we have made it clear that our view is that capital should be returned to our shareholders when there is an opportunity to do so. So we are increasing our interim dividend by 59%. And we announced earlier this week the implementation of a share buyback for $30 million. So if I could turn on, please. Thanks very much, Ben. As far as the market is concerned, I think everybody is aware that central banks around the world have increased interest rates with the objective of squeezing economic growth and reducing inflation. This is automatically going to have a negative effect on demand and that is true. So demand has softened with our -- for the products from our principal consumers, and they are our principal customers. So they are reporting back to us that they -- that they're feeling markets are soft. However, in the face of this, the prices for titanium feedstocks have remained very resilient. And aside from some early correction at the very start of Q1, prices have remained quite static throughout the year. And our order book for Q3 is pretty bold and has been priced, and we don't see any material change from Q2. And for Q4, we see -- we have visibility and pretty well off our optics, but pricing for Q4 is still somewhat -- it still hasn't been resolved. That being said, we believe the -- while we understand that there is near-term unpredictability in the global market, we believe that the long-term outlook for titanium feedstocks remains positive. And in our own analysis, we expect a tightness of supply vis-a-vis demand to continue. And despite the depletion of -- despite the addition of limited new developments, the depletion of existing supply and the increase in demand following economic growth is such that we consider that the tightness in the market is going to remain. So thanks, Ben. Please turn to the next slide, please. So this is really just a summary of the key numbers coming out of H1 in 2023. Our shipments are up from H1 2022 but down from H2 2022. And the reason for that is, as we mentioned, some difficulties in terms of production. We did have an inventory of finished goods that we had built up in 2022 because of one of our trans-shipment vessels, the Bronagh J, was in dry dock for a good portion of the year. And that created perhaps an involuntary development of finished goods inventory, and we were able to reduce that inventory and sell into and satisfy demand from our customers during a period when our own production wasn't just so great. Sales price has dropped from $486 -- average sales price from $486 to $413. A lot of that is because of change in sales mix because we were drawing down from that finished goods inventory of ilmenite. There is more of an ilmenite waiting in the sales mix. And since ilmenite is a less valuable commodity per tonne than zircon, we get constant changing in the average price. All of that has allowed us achieve a net profit of $68 million in H1 and allowed us to declare a dividend per share of USD 0.175. So that's -- sorry, 17.5p. So there we are, that's the key factors. We have net cash of $42 million at the end of the half, and we declared dividend of $30 million, a share buyback of $30 million. We have some major capital projects that we have to undertake in order to sustain the long-term viability and success of the company. One of them is the move of Wet Concentrator Plant A to a new mining area called Nataka. The dependencies that we [ still see ] for that is on track, and we expect to actually begin the movement of Wet Concentrator Plant A to Nataka at the start of 2025. Also, in our Capital Markets Day, we mentioned that we intended to expand the capacity of our Wet Concentrator Plant B. The definitive feasibility study for this Wet Concentrator Plant B expansion is on track. And we are very much looking forward to it, and we see that as a very positive NPV project. And with that, I hand over to Ben Baxter, our COO, to give an update on operations. Thanks, Ben.

You're actually handing over to Tom Hickey to -- he's talking about the numbers.

Is he? Sorry, Tom. Sorry.

That's all right. Ben can talk about them if he wants to, but -- so Michael has kind of covered a lot of the key themes that were working H1. I mean it was a record H1 from a revenue and profitability perspective. A significant portion of the uplift in revenue, however, is due to the fact that last year, we had lower shipments because the Bronagh J trans-shipment vessel was in dry dock. And I suppose we had a point to highlight here, and again, Michael has touched on it. We had a slightly different sales mix this year, so our 31% higher sales volume was offset by a slightly lower average sales price due to that mix effect. That strong level of production and the strong level of customer demand, which required us to draw down on inventories that we built up last year, effectively tracks all the way down the P&L accounts to record profit before tax of just under $78 million and profit after tax of just under $68 million. And that provides a strong support for us financially and operationally as we move into the second half and gives us a lot of confidence in the underlying financial fundamentals of the business. Maybe one point to touch on here, and I'll -- may drive a little more later. A lot of our costs on a day-to-day basis are fixed. So operating costs are up. But those operating costs are spread over a lower level of production than we had anticipated. So on a per unit cost, our first half cost per unit of product, our first half looks poorer than last year. We do expect an improvement in the second half, however. Next slide, please, Ben. And again, Michael touched on the fact that pricing in 2022 was very, very strong. It was up at record levels. And we, like many others, pursuant to the wider economic environment, had anticipated a moderation in that pricing in the first half of this year. Probably less of that has come through than we expected. We've been pleasantly surprised by pricing, pleasantly surprised by the demand, and we'll touch on that and the market later. So you'll see that an awful lot of the product revenue uplift is just volume, A, because the demand was there for that volume. Pricing didn't change that much and the mix, again, I'll touch on that, the ilmenite mix versus co-products meant a slightly lower per -- there was a minor reduction to that. As we move into the second half of the year, Ben will talk a little bit about our guidance. Our core expectation is that we'll sell what we produced in the second half of the year. We're not assuming any particular draw down or buildup in inventories. Next slide, please, Ben. And the unit costs were affected by the lower production volumes and sales mix and there was a slightly lower contribution of co-products. Two points to bring out here. Of course, the world has been operating in an inflationary environment for the last couple of years. We've been no exception to that, and we did, we believe, see a peak in 2022. It's moderated a little bit in 2023. Perhaps with one notable exception, and it's a little bit anomalous. Our fuel costs in Mozambique grew up significantly. Historically, for the last many years, Mozambican diesel costs were linked to global oil costs with a couple of months lag. That correlation has completely broken down in the first half of this year and towards the end of last year. So while oil prices are down 15%, our diesel costs were up nearly 40%, 45%. And we would hope in time that, that moderates, but we do -- we have planned for that to continue over the second half. And while we did change our production guidance in respect to the ilmenite towards the end of July after when we released our second quarter production levels, we haven't changed our cost guidance. So we are still tracking within our original cost envelope. And that's because while there are some areas of increase, we're also seeing some areas of efficiency. We're seeing some efficiencies in repairs and maintenance. We're seeing some efficiencies or offsets in a portion of our operating costs, which are denominated in South African rand, which has depreciated. Ben may talk a little later about the RUPS project that we launched last year, and that has enabled us to reduce our diesel consumption or our use cost, generally. So we have a close eye on costs. We're always looking at ways even incrementally to reduce costs, become more efficient on a per unit basis. We would expect improvements on those cash costs per tonne of ilmenite in the second half of the year, but we're trying to make sure the absolute level of cost is closely managed too. And hopefully, the bulk of the inflation is behind us. Thanks very much, Ben, anticipating. All of that strong operating performance tracked through into really strong cash flow performance. We managed to increase our net cash position by $16 million. That's despite paying out over $40 million in dividends and making a portion of our CapEx expenditures for this year. I'll touch later on the buyback. But the combination of slightly enhanced pricing over what we would have budgeted at the start of the year and slightly lower CapEx in the first half meant that we were building cash on the balance sheet. And one of the things we've always said that is in addition to our normal dividend, if we were building cash on the balance sheet, we would consider giving it back to shareholders by means of a buyback. And that's exactly what we've done. We're obviously heading into a major CapEx phase, so we may not have an opportunity for a year or 2 again. Finally, maybe one thing to touch on here. We see working capital movements. We do have inventory reductions in the first half. We did have a slight increase in debtors because our shipments were weighted towards the second quarter. Nothing unusual there. All our debtors are adhering to payment terms. Effectively, our debtor position is a store of value. We haven't had bad debt, and we're getting paid promptly by everybody. In terms of -- what you see there is the net cash. In terms of absolute cash levels, we had over $108 million at the end of the first half. It hurts me a little bit that we're paying out interest on our existing bank facilities and repaying it at a time when interest rates are, plus margin, are north of 10%, and that's one of the reasons we're thinking about -- or more than thinking about actively starting a refinance process to match against our CapEx plans over the next couple of years and to reduce our absolute level of interest that we pay. Next slide, please, Ben. I've probably touched on most of this. I mean the balance sheet -- Kenmare's balance sheet has been in strong condition over the last number of years and continues to be so. We're in a strong cash position. Our CapEx is -- and depreciation broadly in line or shaped behind what we would have expected. We're drawing down our inventories, but still have what we regard as a normal inventory level. I've talked about the receivables, which are absorbed cash, but it's not actually an active concern for us. And our debt finance process is not quite underway, but it will launch over the next couple of weeks, and we've got very strong support and interest from our existing lenders in participating in that. And obviously, Kenmare's credit position and operating characteristics have improved very significantly since we last refinanced in 2019. So I would be very hopeful that, that will be a successful process later this year or early next. Next slide, please, Ben. One of the character -- one of the key markers of Kenmare over the last couple of years has been our commitment to paying out shareholder returns to shareholders as operating performance has improved. We reached close to $50 million of dividend in 2022. And we said earlier in the year at our Capital Markets Day that despite the level of CapEx coming, based on what we can see today, that's a kind of an absolute level that we're comfortable at. And we've kept our historic 1/3-2/3 split between interim and final. So while the interim dividend per share is up 59%, it's more an artifact of the fact that we should anticipate paying out approximately $50 million and the half -- the first half dividend is 1/3 of that. I should say that the overall guide of our dividend level will be our dividend policy, 20% to 40% of profit after tax. If the $50 million level is outside that, obviously, conditions have changed, and we may need to think differently. Once it's within that, that will be our target. And maybe one small quirk here is the interaction of the dividend and the share buyback shares that we buy back pursuant to the tender offer won't qualify for interim dividend. So that's $16.6 million, maybe slightly less, depending on the take-up of the buyback. Look, the dividend plus the buyback we did in 2021 means that since 2019, since resuming shareholder returns, we've returned over $200 million to shareholders, and that's before the tender offer we announced this week. Thanks, Ben. Next slide. Michael touched on the tender offer. I kind of explained the basis to it. Kenmare is -- we've traded well over the last spot operationally. As I said, we built some cash. We returned over $80 million to shareholders back in 2021. And a buyback is always something that we want to have access to in our back pocket effectively to enable extra shareholder return above and beyond the dividend. And we took the opportunity to launch a $30 million tender offer this week. The tender price was just the closing price on the 14th of August. I mean if we wanted to buy back $30 million of stock in the market, which given the company's liquidity, it would take us north of a year. Now obviously, the tender offer might create liquidity, but we can't plan on that. And we effectively wanted to give shareholders the opportunity to not participate if they want us to hold on to their stock and benefit from the reduction in share count to take up their pro rata and maintain the same effective shareholding or to over-apply if they wish to do that. And we've had no particular indications from any shareholder that they plan to over-apply. One or 2 have suggested they may not participate, they're quite happy with the company's position as it is. But clearly, all of that will become apparent over the next couple of weeks. Look, in the event that the tender offer isn't fully taken up, we may consider using that capacity to buy in the market over the following -- the subsequent months. I did see a question saying, why did we price the tender offers for Q2, when directors are buying -- have been buying at higher prices since then? Maybe it's because we're not so clever. But in reality, if it's a good -- if the company believes it's an opportune time to buy its stock before '22, I think directors are happy to buy in around a couple of percent of that. The issue here really is for larger shareholders who may want the opportunity to participate, they won't find the liquidity otherwise. So that was what drove the pricing. And we have an AGM on the 8th of September to approve that, and it will be completed shortly thereafter. And then obviously, we'll understand the level we've taken. So look, in summary, business performing well, strong first half, ahead of analyst forecasts, strong cash position, cautiously preparing for a significant CapEx investment over the next number of years that Ben will talk about, but one that we're well placed to undertake safely and without taking on undue financial risk, and trying to give clarity on shareholder returns throughout that period with the option of occasional buybacks should circumstances permit. That's it for me. Thank you. And I think Ben is going to follow up with the next page now.

Good afternoon, everybody. So I'll start with health and safety. And as Michael said at the beginning, we have seen a slight increase in our lost time injury frequency rate at the end, particularly at the end of 2022 and early 2023. And having come from a position of 0 incidents, we're not satisfied with that 0.18 level of injury rate. So we've been focusing very much on how to make sure that our risk management processes are fully ingrained into the business. Series of standdowns around the business, things like role plays, changing our permitting processes to be more rigorous, and health leaders ensure safe work areas. And then also, a focus on standards. So using what we call a cobra hunt process to go out into the business, looking for things which might not be right and then making sure that they get put right fast and helping our leaders build a common standard and a higher standard for the business. On production, our production was not as we expected in the first half of the year. And we've spent a lot of time in that interim period now to get it back on the right footing. But it's worthwhile just for a moment to explain a bit more about what didn't go according to plan. The principal issue of the half was a severe lightning strike, and this had lingering effects from Q1 and into Q2 and eventually got us to the place where by the announcement of our Q2 results, we felt it necessary to revise our ilmenite guidance. We also had issues at WCP B. That's the mine that operates in the Pilivili area. This was -- we had some issues with the wetland in that there were a lot of buried roots which caused us to lose recovery of mineral and also a lot of cleaning time because of -- on the screens where we had blockages. So thankfully, those areas are behind us now for the year. And we'll see -- we are seeing better conditions this year -- this second half. WCP C also had a planned transition across an area of tailings. And whilst this was in the mine plan for the first half of the year, the transition took longer than we expected. And so WCP C didn't contribute heavy mineral concentrate in the Q2. The effect of those 3 issues were that we were not making sufficient heavy mineral concentrate to meet our ilmenite expectations. And so the mineral separation plant, all final products were impacted, although there were some improvements in recoveries and higher monazite content in the concentrates, which led to a slightly better result on the concentrates front. Nevertheless, as Michael said, we were -- we had stocks of finished products from 2022. And with -- in 2023, we had full usage of our trans-shipment fleet. It's performing at -- its really at its best ever levels, excellent availabilities, very strong cycle times. And so that meant that with a market that was -- wanted to take our ilmenite, we were able to draw down that finished product inventory. And that supported the strong revenues and the EBITDA that we saw in the first half. In terms of the outlook and where we -- how we are recovering from that poorer half, I'm happy to say that we're seeing much stronger production in the early part of the second half. The mining operations are all operating at higher levels. We've seen greater throughput rates, higher operating times or utilizations, and the recoveries are also up on the first half of the year. A little bit of detail around that is that as you've heard maybe in the past, our slimes levels have been increasing. We've made some mitigating actions at WCP A with -- by putting clean water into the spiral process. That's giving us higher separation rates. As I said, we're out of the wetlands at WCP B. We do expect to see them again in late 2024. But now we have a screening solution for those routes in place. It's been tested. And we've placed a more conservative forecasting around the grades that we can recover when we're in those mining -- wetland mining areas in the future. And WCP C was a bit of a once-off. We don't expect to be crossing the tailings again any time in our current mine plan. Regarding the lightning strike, Michael explained those issues at the head of the meeting. But we will, in the future, not rely on the transmission grid breaker system. We will duplicate those breakers as they enter, as power enters the Moma site. And therefore, we will have a double protection in place, and that will hopefully mitigate any severe lightning strikes that might come in the future. Moving on to development projects. We have 2 projects, main projects on the go at the moment. That is the need to move WCP A from the Namalope ore body to the Nataka ore body. And as to the ore body -- the current ore body is expected to be completed by the end of 2025. The future ore body is different, and so it has higher levels of slimes. And so we've been focusing through a PFS and now into a definitive feasibility study to make sure that we can remain a first quartile industry producer. And that means that we will be able -- we need to increase the mining capacity but also make sure that, that mining is cost effective. And so we've embarked on the purchase of 2 new dredges. They will ensure that in the future mining conditions, we always have sufficient ore to fill the concentrator at WCP A. And whilst moving back to dredges as our core mining process, we will be able to drop the supplementary dry mining, which is more costly, in the future. And so hence, that's how we will keep our cost position in the first quartile. The dredges are -- the contracts are being finalized right now. So I expect those to be imminently, and we'll start that construction process. The rest of the definitive feasibility studies are focused on 2 things: the upfront desliming plant, which will remove the slimes ahead of processing, ensuring that we can have good recoveries of mineral; and that process -- that DFS is on track. It will be completed during the second half of this year. The other component is to then what to do with that slimes, and we will be moving to a fixed tail storage facility, which is being designed to the highest tailings dam standards. The cost of the project is $247 million. That's the pre-feasibility cost. And we'll see, as this definitive feasibility concludes, how we get greater resolution on that costing towards the end of the year. The second project is to upgrade the WCP B mining plant from 2,400 tonnes an hour to 3,400 tonnes an hour. And the idea of this is it's a discretionary project, but it has an extremely good business case. And the idea here is to support the increase in ilmenite production to the 1.2 million tonne level. We always knew that in our mine plan, we had a dip in ilmenite production in 2025 into 2026. And we see that the cost of this project around $41 million will deliver enough ilmenite in that period to have it -- to ensure payback also in that period. And therefore, thereafter brings a lot of resilience to our mine plan to give us more confidence on being able to achieve the 1.2 million tonnes level of ilmenite per annum. We expect to commission in the first half of 2025. And then you may have recall from our Capital Markets Day back in April, we introduced an option to grow, and this -- we don't see this as an imminent activity. But in order to be prepared for when shareholders see that it's a good time for us to be growing the business further, we want to be in a position to have that growth project more ready to go and that we can respond more promptly. And so we have an ore body, which sits about 80 kilometers to the north of Moma. It's a high-grade orebody. It looks like it's a very appetizing for mining. It will be a productive ore body, and that pre-feasibility study is now underway. We expect to work through that over the next 6 or 8 months. And that will then inform us about the applicability of when that might -- that operation might be able to come into production. Obviously, depending on market conditions, depending on the capital cost that, that project will be. Just lastly, I'll just touch on a couple of areas of sustainability where we are advancing in 2023. This is an area of significant focus for us. It always has been for Kenmare, but we're spending a lot more efforts now on improving our transparency, our reporting and developing the business further for sustainability. So I've discussed the safety aspect, but you'll see from these numbers, gender diversity is significantly improving in the business. We're spending a lot more time on leadership coaching and development so as to develop the business in a more sustainable manner. We're still in the communities looking at infrastructure projects but also the quality of things like education and improving the quality of water for drinking purposes. And then maybe just a point to talk about around the balance that we're creating between the need for subsistence farming as well as the need to bring back biodiversity to the rehabilitation process. And we've been successfully trialing a focus called agroforestry where you plant indigenous trees. And amongst those, you then also have agriculture taking place. And we've seen some significant crop improvements there just because you get essentially protection of those crops and organic fertilization of those crops as well. And then lastly, just to mention, whilst the GISTM is being used for our future tailings storage facility, we're also converting the whole operation to be GISTM compliant around the water bodies that we have. And so on to that, I'll pass back to Michael, who's going to talk through the market update.

Thanks, Ben. I wanted to read -- yes, that's fine. That's good. Turn to that page 23. The graph that you can see in front of you folks is the trend in terms of achieved prices in the market. And we feel a particularly strong performance for ilmenite, the darker color given the subdued economic performance of most of the major economies in the world. And why is that so strong compared with generally lackluster economic growth and economic activity? Basically, we believe that the industry has not been investing sufficiently in new ilmenite sources over the last 10 years. And that there is something, not a huge shortage, but something of a tightness in the market caused by lack of supply. And while there has been difficult for some of our customers in terms of their optics, the demand for our ilmenite has remained strong, and we were able to sell down finished goods inventory during H1. So could I just turn to the next slide, please, Ben. One of the reasons for this continued tightness in the industry is the investment in China in new chloride pigment capacity. As you can see, the yellow line represents the proportion of the industry in China, which is represented by the chloride process, which is more advanced, more developed process than the older sulphate process, producing a more consistent and better product. And you can see that it's growing faster than the overall market. And the key factor about this is that the older sulphate pigment process can be fed by domestic ilmenite, which is mined in China. However, the chloride process is not -- however, domestic Chinese ilmenite is not suitable for the chloride process. It cannot use it. And consequently, as more and more Chinese capacity moves to chloride, there is a larger and larger demand for ilmenite such as the ones that Kenmare produce in the international market. It's an interesting point as well is that, in general, that there is a movement towards China. And most new capacity that's being developed in the world is being developed in China, and their quality of the product that they're producing is much higher. So it's turning around now and being exported from China and competing with Western customers. Now for us, that's sort of a wash because we could sell to our Chinese customers and we can sell to the Western customers. But the increase in chloride capacity is a significant benefit to Kenmare. Also, just to note that there has been a significant increase in the amount of titanium metal that is produced in China. And again, this titanium metal needs imported ilmenite. And again, that increase in titanium metal production is an ongoing and continuing process. And again, our -- it's a very positive aspect for our big demand for our material. Could I turn please to the next slide. So we feel that the market has performed well in the face of Western and Chinese economies doing pretty -- in a pretty soft condition. And as we look into Q3, we have settled on prices for most of our deliveries in Q3 and don't note any material difference to what we experienced in Q2. We also have visibility of our volume deliveries in Q4, and those look sensible. We don't have price knowledge for Q4 as yet. That will develop during Q3. So we feel that the market is continuing to hold up pretty well, and we believe that the long-term fundamentals remain extremely positive. And that as the economies recover after this present interest rate cycle, it will become even more apparent the tightness of supply and the necessity for a significant investment in new supply to provide the world with the titanium feedstocks that it needs. We have a very significant co-product, zircon. Zircon demand was robust in H1 2023. There's been some recent softening, but we again believe that the zircon market is structurally in a supply deficit. And as we look forward, we see one of the largest producing mines in the world due to come out of production in a few years. And the zircon demand will not drop, so real production facilities will have to be developed somewhere. So if I could just turn on just a few quick words on outlook. If I could go to the next slide, please. Then in terms of H2, we had a lot of electrical problems because of the lightning strike in H1. Those are over us. But we have improved recoveries, and we are anticipating higher grades in H2. So all in all, we expect from a production point of view H2 to be significantly better than H1. As I mentioned, Q3 looks good thus far as prices are concerned. Q4, well, look, we'll see as time goes on. But we'll just -- we'll see. Ben went through the projects that we are working on to ensure the long-term success of the company. We see the project for the move of Wet Concentrator Plant A to be both a move to a very large new ore zone where it will not have to move again for the next -- for the foreseeable future. I think we've got 40 years in the mine path already drawn out for with Concentrator Plant there, A on that location. But very significantly, it's a significant enhancement of the capacity of the effectiveness of Wet Concentrator Plant A, in that it will have a desliming circuit, which it doesn't have at the moment and which will allow it have consistent good recovery. And it will have very high capacity for hedges and which will allow us not have to have expensive supplementary mining. Again, with the 40% increase in Wet Concentrator Plant B capacity, it's facilitated by one of the existing dredges from Wet Concentrator Plant A being moved on to Wet Concentrator Plant B. So all in all, as we have upgraded this mine for the last 15 years, mining has always been the bottleneck on mining and recovery. And with these changes, we believe that we will have effectively eliminated those -- that as a bottleneck. And we will have an operation, which is more predictable, where we will be able to more -- to have a better understanding of exactly what we will produce for our guidance. And all in all, a better predictable, low -- continued low-cost, high-volume operation. In terms of the overall market situation, we believe the long-term market is supportive. It will -- it's in a situation where it should be supportive for our prices, and we believe that Kenmare is positioned in an area where it is -- it has access to the high-growth areas of Chinese chloride pigment and titanium metal. And we see that this is a good place to be, and we believe that it will continue to be so and growing at higher rates than the overall market. All of which is our largest target, $50 million of annual dividends. And as Tom mentioned, we have announced a $30 million buyback this week. Finally, we don't see the business has topped out. We have a lot of stuff to do in the near future. And a lot of focus will be on delivering on time and on budget these projects that we have been talking about. But afterwards and subject to our investors wanting us to do so, there is a potential to grow. And we are doing preliminary work so that at the point where our stakeholders want us to move forward into growth, we have the preparatory work done to do so. So thanks very much, everyone, and we're now happy to go to questions. Alex, I hand back to you.

Brilliant. Thank you, Michael. Yes. So thank you, Michael, Ben and Tom, for that presentation, and congratulations on the strong performance in the first half. It sounds like there's more to come in the second half.

[Operator Instructions] Tom, would you just mind turning on your camera? And Ben, just ready to come up here with any questions on after yourself.

Sorry. Just -- I can't turn on my camera. It needs the host to turn it on apparently.

Okay. Let's see if I can turn it on for you.

It should be fine now. Thank you.

Yes. You're great now. Brilliant. Okay. So we're going to start on -- we've had a few questions on the tender offer, and so I'm going to group these together and ask them all together. So the first one is in the view of management, how many shareholders will avail to the tender offer as the market price has always been higher than the tender price since the tender price was announced?

Tom, perhaps you could take that?

Yes. I mean I saw that -- maybe I'll touch on some of the other questions as well, Alex, because -- so we wanted to give shareholders the opportunity to avail of the tender offer. We didn't have any pre-discussions with any of them. You can't. We had good take-up the last time we did one, and we think that -- we believe that there will be some shareholders who will avail of it. And indeed, of course, there are specific semi-preferential options for smaller shareholders with less than 1,000 shares enable them to sell shares without incurring dealing costs, so that may be attractive to some as well. There was a question there about why didn't we use a special dividend instead. We returned a lot of cash in the form of income to shareholders over the last couple of years. Some people have preference to take capital gains. The stock has performed well over the last 3, 4, 5 years. Others prefer income. We think there's a good combination there. We wouldn't rule out a special dividend in the future. We just didn't feel it was the best route on this occasion.

Okay. And on the tender offer, I think there was a question about why not spend the amount of the tender offer that's not taken up as a special dividend. This would immediately benefit all shareholders. Maybe you just could comment on what option we considered.

Yes. Sure. I mean look, it -- well, let's wait and see what the take-up is. I mean I should point out that every shareholder who remains benefits in the tender offer anyway in the lower share count and the higher dividend per share, et cetera, et cetera. So look, there's value in lots of routes. And as I said, we like to have access to all of them. This is the one we felt was right on this occasion.

Okay. And then finally, on the tender, it says directors have, within the past few days, bought shares at a higher price than the tender offer price. Why did they set the tender offer price so low?

So I mean I don't think -- I think I've covered that. It was just the closing price the day before our interim results. I think the buying shares at a higher price, we can all speak for ourselves. But obviously, our poor understanding of the market drove our purchases.

Okay. Thank you. Here, we've got a comment and then a question. So great performance and strong strategic execution as ever. Thank you. Can you please comment on the security environment in Mozambique, mindful of the ongoing headlines regarding a Cabo Delgado insurgency?

Absolutely delighted to. We don't experience any security issues in Mozambique. We travel around the country. We spend time in Maputo at the mine. Our security force is an unarmed security force. It's -- and the objective of the security force is to ensure that people don't steal equipment and fuel and things like that. So we have no experience of any security issues whatsoever, apart from the occasional attempt to pilfer equipment or fuel. In the north of Mozambican Cabo Delgado, which is about 700 kilometers north of where we are and 700 kilometers of very difficult road conditions, there is an insurgency. There was a large gas find in Cabo -- in the Rovuma basin just offshore Cabo Delgado, and that is shaping up to be one of the world's major gas producers over time. And -- but Cabo Delgado itself is a very poor province of Mozambique. It's very far from the capital and has been somewhat neglected over many years. And I think this is sort of a response to that disenfranchisement and neglect over years. And the fact that the local people feel that there are riches being [ built ] off through the gas, and they're not getting their fair share of them. So it was, in our view, the root cause of this insurgency. It's not very big. And there is a presence of soldiers from the Rwandan Army in Cabo Delgado, and they have managed to put a very effective cap on the insurgency. So it's not very active. There's occasionally an incident but it's not very active. And we believe that the major gas producers or gas -- hopefully, gas producers, they are -- the only one that's producing so far is Eni. But Total, ExxonMobil, et cetera, are moving towards reinstating their activities in Cabo Delgado because they believe the security situation has improved to the level that they're happy to start work again.

Thank you, Michael. Next question here, I'm very happy to see Kenmare in a net cash position to provide further reassurance on your balance sheet and mindful of the CapEx projects envisaged. Have your self-imposed net debt-to-EBITDA seeing that you won't go above?

Well, nobody else is imposing on us. That's probably the first thing to say. Obviously, we have bank covenants. But we're way, way, way -- obviously, the net cash position way, way, way ahead of those. Nothing hard and fast. I mean we look 6 months forward all the time at what our anticipated expenditures will be. As we move into the CapEx phase, we'll continue to do that and to ensure that we have good coverage and maintain minimum liquidity levels of $30 million, $40 million, maybe even more. We're generating strong EBITDA. We are, as I said, planning to renew our bank facilities. We don't believe that we will always draw or we will draw all of that or draw all of it all the time. It's more to smooth out the occasional peaks and troughs that you have during projects like this in, obviously, the rest of our business. So no, but I mean, I think we've said to all shareholders, it's our plan to run a relatively conservatively geared organization to rely on our cash flows and to be careful about the obligations we take on. We're heading into a period of CapEx over the next 3, 4 years of $350 million plus. We believe we're well prepared for that. We're heading into it in the best financial health, probably, we've ever been in. And we'll make sure that we're well funded throughout.

Right. Thank you, Tom. A couple of questions came in ahead of time. Just on ilmenite pricing. One is ilmenite pricing seems to have stayed stronger for longer. How long do you think this will continue for? And the other question is, what level of ilmenite pricing is required to encourage new capacity to be brought on to the market?

So look, we don't like to make predictions on where prices are going to go, and I think we've given you as much information as we really know about pricing. We anticipated that prices would be lower this year than they are. So we're somewhat confounded by the strength of the ongoing ilmenite price. And we mentioned that in Q3, we're experiencing pretty positive pricing as well and don't see a material change. Do we know exactly where it's going to go to? Not really, not really. And all we can do is try to make as good an evaluation of the macroeconomic situation as possible and the demand from our customers as possible. And from that, we don't know where it could go to in this present downturn. But we think in the long term that the pricing environment is supportive because of the lack of investment in new mining operations over the last 10 years.

Okay. Thank you, Michael. I'm conscious of time. I know we probably can just fit in a couple of last questions. So these are, hopefully, a couple of quick ones. Can you break down which geographies that you sell into?

Well, we don't sell to Russia. But otherwise -- and we don't sell anything that I'm aware of at the moment to South America. But everywhere else, yes.

Okay. And then last question, when do you expect the refinancing to be completed?

Well, we're going to kick it off over the next couple of weeks. We -- based on the responses we've had, we don't believe it will be a challenging process, and the structural changes to our facilities shouldn't be huge. So around the back end of the year, maybe early next year. These things take a couple of months. There's a lot of mechanical stuff that needs to be changed, but a short number of months.

Brilliant. Well, that brings us to the end of today's presentation from Kenmare Resources. Thank you to the presenters for presenting so clearly and answering those questions. Thank you, everyone, for attending. And just as a reminder, as you leave today's presentation, you'll be asked to complete a short feedback form. It will be really appreciated if you could do that. And from the Yellowstone team, I'd just like to remind people there is our next webinar, which is coming up on the 24th of August, which is next week, with Mirriad Advertising plc. So thank you again for attending today, and we hope to see you all soon. Thank you.

Thanks, Alex.

Thank you.