Kenmare Resources plc (KMR) Earnings Call Transcript & Summary

Good morning, and welcome to the 2024 Annual General Meeting of Kenmare Resources. My name is Andrew Webb. I chair the company. Delighted to welcome you all here today, either in person or on the phone. We have 3 directors: Elaine Dorward-King, Issa Al Balushi and Mette Dobel attending by telephone as they were unable to travel. All of our other directors are present here in person today, and we're also joined by our auditors, KPMG and members of the senior management team. This meeting is being broadcast by way of conference call for those who are unable to join us. I can hear some feedback, but I'm hopeful that those on the call continue to hear it. I'd like to take a moment to introduce the Board to you. Michael Carvill, who's our Managing Director, based here Dublin, engineer by profession. He's been with Kenmare since he founded it in 1986. Tom Hickey is our Financial Director, also based in Dublin, joined the company in 2022, a chartered accountant in training. Graham Martin to my right, is our Senior Independent Director, Chair of Nomination Committee and the Remuneration Committee. He's a natural resources executive and joined the Board in 2016. Deirdre to my left. Deirdre Somers is a qualified chartered accountant, former Chief Executive of this Irish Stock Exchange. She is Chair of the Audit and Risk Committee and is also based in Dublin. Elaine Dorward-King, who's on the telephone, joined the Board in 2019. She's a scientist and chairs of the Sustainability Committee. Clever Fonseca to my right is based in Florida. He's a mining engineer and he joined the Board in 2018. Mette Dobel, who's on the screen is based in Denmark. She was previously regional president with FL Smidth, an engineering equipment and solutions -- service solution provider to the mining industry. She joined the Board with effect from January 2022. And Issa Al Balushi, saw on the screen, joined the Board in January 2023 and is a manager in the Economic Diversification Investments at the Oman Investment Authority. I'm pleased to address you following my second year as Kenmare's Chairman. 2023 presented a number of challenges for the company, both internal and external. And I'm proud that against this backdrop, we continue to deliver another year of strong financial results, including returning $80 million to shareholders. In a moment, I'm going to hand you over to Michael for a review of 2023. But I'd like to take the opportunity to remind you the Board is here to answer your questions, either in this plenary session or over a coffee after the meeting. First, however, I'd like to say a few words about Michael, about what he's achieved and what he's passing into our care. In my mind, without Michael's determination and focus, there would be no Moma Mine. But however, the construction of the infrastructure and the physical assets, whilst impressive, aren't the sum of that achievement. The reason I'm delighted to be associated with Kenmare is because the team that Michael has built truly live their values: integrity, commitment, accountability, respect and excellence, which form the acronym ICARE. We do care that our colleagues return safely to their families at the end of each day. We care that the communities around the mine see the asset as a net benefit in their lives, and we care that we return the land after mining either for more productive use in those communities or to increase the biodiversity in the area. These aren't just the right things to do. They're what's needed to ensure that we create and sustain value for all stakeholders for many more decades to come. And with that, I'd like to express my and the Board's thanks and appreciation to Michael and invite him to say a few words about the last financial year. We'll then proceed with the formal business of the meeting.

Good morning, ladies and gentlemen. We've got a short presentation, which -- should eventually review our results from 2023. Maybe I can move it on here on this. [indiscernible]. Have a look. I point at the screen, yes. Sorry about that. But as Andy said, we do care a lot about what happens with the people in the local environment, with our employees. And we believe that we have created a company which has good values as a corporate citizen. And hopefully, that will give benefit to the shareholders to everyone through time. We believe we have created a sustainable competitive advantage based on 3 main plans, operating responsibly, and that involves all of those factors that we've just mentioned. We are now, I think, at 4 million man-hours with our lost time accident, which is -- this is a pretty busy environment with a lot of moving equipment, and it takes a lot of effort from everyone to safeguard the welfare of their colleagues and themselves to achieve that type of number. We have moved this company from operating in the fourth quartile of the revenue to cost curve for the industry to the first quartile. So we deliver low-cost production, and that low-cost production will continue into the future and the investments that we're presently making. And the move of Wet Concentrator Plant A is also an investment to ensure that we will continue to operate in the first quartile of the revenue to cost curve and, therefore, be able to produce profits and distribute those to all of the stakeholders, including our shareholders effectively. And with that in mind, we paid a dividend of $50 million last year, which we thought is reasonable. The sustainability, as we mentioned, we believe the safe and engaged workforce. We worked very, very hard to ensure that the local community support what we do and that they themselves gained a benefit in their own daily lives from the presence of the mine. We are continually working to increase the representation of women in our workforce. It's not an environment where women have traditionally worked. And so it's a focus -- it's an area of great focus to us. And we have gradually moved up the percentage of ladies in the workforce, and we're very pleased with that. And we work very hard to ensure that our customers see us as a trusted supplier, and our suppliers are happy to work with us as we move into the future. Production in 2023 was hampered a little by a very aggressive or very severe lightning strike that impacted the operation of the facilities quite badly for I think 3 weeks, we were very severely encumbered, and then it took significantly longer than that to fully struggle free from the effects of that lightning strike. But nonetheless, we produced 986,000 tonnes of ilmenite, 51,000 tonnes of zircon and 47,000 -- 45,700 tonnes of concentrate. So that -- given the circumstances, we believe that was a good performance. Prices, if you follow the yellow line there, they're not at their peak, but they're still decent prices. And the pricing environment after subsiding a bit in 2023 seems to have stabilized, and we're very happy. The market's happy to take every tonne of material that we make. And at present time, pricing is pretty good. So the consequences of that are that we produced a revenue of $437 million, producing an EBITDA of $220 million and a profit of $131 million, which allowed us to issue that final dividend, which brought the full dividend up to $50 million. We also did a share buyback last year of $30 million. And so consequently, the total giveback to shareholders, including buybacks and dividends since over the last 5 years has been $250 million. And here again, you can see growing shareholder returns. So our guidance for this year is that we will produce between 950,000 tonnes and 1,050,000 tonnes of ilmenite and 45,000 to 50,000 tonnes of zircon and 37,000 to 41,000 tonnes of mineral sands concentrate. So again, we have -- they created in the [ ground ] in Q1 2024, as we had known and predicted was a little bit lower than our average grid. So consequently, that's holding our production for the full year down to these levels. So that was as planned. We're sort of through that area. Now our grids are higher and production is very good. So we're very pleased with how it's going. I think we're in the process of very large project. Capital expenditure for this project, which is the move of Wet Concentrator Plant A is about $340 million. So it's a very large project in our context. It's going very well. We are very happy with its progress so far. It's buying on schedule, and we're comfortable that the project is well-managed, has very good contractors working on it. And we're looking forward to the benefits that we will get when that project is completed. That project is taking Wet Concentrator Plant A, which is our largest production unit and it's taking it to the Nataka area. And you can see on that pie chart graph, Nataka is where most of the resources in this profile of this portfolio of ore zones actually resign. So we're taking our biggest plant into the area where there's most resources. And so it will continue to work there for, really, forever for the foreseeable future. And I think we've got a 40-year mine plan there. So I'm -- as Andy said, I'm retiring this year, so this will be my last AGM, but I believe that the company is well set. As I mentioned, we're operating in the best quartile of the revenue to cost curve. We are now a very significant producer of titanium feedstocks. We're respected in the market as being a trusted supplier, but we are in the areas where demand is growing strongest. The marketing department has done a great job of maneuvering us into areas of the segments of the titanium feedstocks market, which are the most positive and growing strongest. We feel that the market dynamics are strong that there's no -- that we can see in there, there is no new major supplier on the horizon. And so we think that the company can yield good returns for its shareholders and for all its stakeholders in the coming years. And so that's really all we have to say. So thank you very much indeed. Thanks for your attention.

Thank you, Michael. Before proceeding to the formal resolutions, with your permission, ladies and gentlemen, I'd like to take any questions from shareholders on matters relevant to the business of the meeting. And I think we should start in the room. If anybody has a question that you'd like to ask in this open forum, then please feel free to do so. And I'll either answer it or pass it to one of my colleagues on the Board. Ask questions over coffee, as I said before as well. But if we don't have any questions at the moment in the room -- please, sir. Would you mind if I gave you a microphone, sir? And if you'd be kind enough to state your name and...

Would you like to comment on the political risk and any change into 12 months?

We can certainly do that. But Mike, would you feel best to do that or do you want me to...

There is an election in Mozambique that is due to occur in October. It's likely that the present government Frelimo -- their present party of government Frelimo is likely to win this election. There has been some speculation over -- there's been a lot of speculation over the last 9 months, whose Frelimo's nominated candidate for the presidency will be -- that was decided last weekend. It's Mr. Daniel Chapo, who is quite a respected person in Mozambique. So we see that there will be a relatively smooth transfer of power from the existing President, Mr. Nyusi to Mr. Chapo. So that all seems fine. There has been an Islamic insurgency in the very north of the country that has been running for about 4 or 5 years now. It's kept on -- it has been contained by the presence of troops from Rwanda and other principally, Rwanda, but also with South Africa and other South African countries. It hasn't gone away. It's still there. The government has not yet dealt properly, we believe, with the fundamental reasons where they -- which have created the environment where the insurgency continue to exist. And so it will take some time before it goes away. However, we do not see that, that insurgency moving further down the country. It's extremely regional and has an effect there, but really nowhere else. And we are quite far away from it. So we don't really see that the political environment has changed or the risk environment has changed since this time last year. They really improved [indiscernible] just improved.

Any other questions from those present in the room? If not, perhaps we could proceed to take any questions from those on the conference call. Operator?

[Operator Instructions] As of right now, we don't have any raised answer -- any pending questions.

Okay. Thank you. I've been given a couple of written questions, which I'll just read out for the benefit of those are here and then either answer or again pass on. The first question was how far advanced the process was to find a new CEO? And in answer to that, I'd say that the process is well underway. The Nominations Committee under Graham's Chairmanship has appointed a specialist recruitment agency, and they are helping us to consider both internal and external candidates. And obviously, we'll update people as soon as is practical as we go through that process. The second question relates to the capital investment required for the moves to Nataka that Michael mentioned too. And the question is, are you confident with the estimate that you put on that at the production -- at the time of the production announcement in January? And Michael, I don't know if I could ask you to address the question of the capital cost.

Sure, Andy. Yes, we're very comfortable with it. It was a carefully derived estimate of the capital cost, and we are tracking comfortably within our budget. So we think it's a very good estimate. Things can always happen. These things are never cast in stone. But as I mentioned, when I was standing at the podium, we believe that we have appointed good contractors whom we've worked with before. We have ensured that the design has integrated into it. All the learnings that the company has won at great cost and efforts through the last 15 years. Those have all been integrated into the design and the project is proceeding well. So very happy with it at the moment.

Thank you, Michael. And as I say, please feel free over coffee afterwards to ask more questions should you have any. I'd like to take a few moments to explain the voting process for today's meeting. This year, voting will be conducted by way of a poll, a written vote on each of the resolutions put to the meeting. This allows you, as shareholders, the opportunity to participate in the decision-making of the company and have your votes recorded in proportion to the number of shares you own. We've appointed Computershare, the company's registrars to act as scrutineers. And for convenience, the poll on all of the resolutions will be held at the end of the meeting. If you've already voted for a proxy and do not wish to change your vote, you need to take no action. If you do wish to vote or change your vote you've previously cast by proxy, then you need to wait until the formal voting process be formally opened towards the end of the meeting. And at that point, the procedure will be explained to you and you'll be given the opportunity to cast your vote. So ladies and gentlemen, I'd now like to start the formal proceedings of this Annual General Meeting. I declare that the required quorum is present and that this meeting is open. The notice of the meeting, together with explanatory notes, was posted to shareholders on the 11th of April 2024. Accordingly, the requisite notice of the meeting has been given. I propose, therefore, that with your consent, the notice of meeting should be taken as read. And I will outline each of the 10 resolutions being proposed today before putting each of these resolutions to the vote. The first resolution is that the directors' report and financial statements and the auditor's report for the year ended 31st of December 2023 be and are hereby approved and adopted. The report and financial statements, which include the auditor's report on Pages 147 to 153 have been in your hands for the statutory period. [ Kara Marami ] of the auditors, KPMG, is here today. I now propose the resolution, and the poll on this resolution will be held at the end of this Annual General Meeting. Moving on to resolution #2. As noted in the company -- Chairman's letter to shareholders, the purpose of Resolution 2 is to receive and consider the Remuneration Committee report and the annual report on remuneration as set out on Pages 124 to 139 of the annual report. This is an advisory resolution and this is not binding on the company. It is being put to shareholders in accordance with Section 1110N of the Companies Act 2014. I now propose the resolution with the poll on the resolution to be held at the end of the meeting. Resolution 3 is the declaration of a final dividend of USD 0.3854 per share in respect of the year ended 31st of December 2023. This dividend is being recommended to you by the directors, and it is in addition to the interim dividend of USD 0.175 paid in October 2023. Subject to passing of this resolution, the final dividends will be paid on 17th of May 2024 to shareholders who are registered on the record date of 12th of April 2024. I now propose the resolution, and the poll on this resolution will be held at the end of the meeting. Your directors are resolved. In this year, all of the directors will submit themselves for election or reelection to the Board. Accordingly, there are 9 separate resolutions dealing with the election and reelection of directors. I'll propose all of these resolutions, except that relating to my reelection, which Michael Carvill will propose. Biographical direct details of the directors appear on Pages 92 and 93 of the 2023 annual report. I'll propose separately each of these resolutions with the poll at the end of the resolutions to be held at the end of the meeting. I now propose that Issa Al Balushi, being a retiring director, be and is hereby elected a director of the company. I propose that Michael Carvill, being a retiring director be and is hereby elected a director of the company. I propose that Mette Dobel, being a retiring Director, be and is hereby reelected a director of the company. I now propose Elaine Dorward-King, being a retiring director, be and is hereby reelected a director of the company. And I propose that Clever Fonseca, being a retiring director, be and is hereby reelected a director of the company. I propose that Tom Hickey, being a retiring Director, be and is hereby elected a director of the company. And I propose that Graham Martin, being a retiring director, be and is hereby reelected a director of the company. My proposal Deirdre Somers, being a retiring director, be and is hereby elected a director of the company.

I propose that Andrew Webb, being a retiring director, is hereby reelected as a director of the company.

A poll on each of these resolutions will be held at the end of the meeting. The fifth resolution is to authorize the directors to fix the remuneration of the auditor for the year ending 31st December 2024. And I now propose the resolution. The poll on the resolution will be held at the end of the meeting. Resolution 6 is proposed to allow the company to continue to call a general meeting to consider an ordinary resolution on not less than 14 days clear days' notice. For the past few years, the company has sought this annual authority to preserve its ability to utilize, where appropriate, this shorter notice period. The directors consider that it is in the interest of the company to retain this flexibility. The approval will be effective until the company's next Annual General Meeting where it is intended that a similar resolution will be proposed. As a matter of policy, the 14-day notice period will be utilized only when the directors believe that it is merited by the business of the meeting and the circumstances surrounding that business. I now propose the resolution as a special resolution, and the poll on this resolution will be held at the end of the meeting. Resolution 7 proposes that the Board be authorized to allot and issue relevant securities, essentially shares in the company. This authority extends to relevant securities up to an amount equal to approximately 1/3 of the issued ordinary share capital of the company. The full text of the resolution is set out as resolution 7 in the notice of the Annual General Meeting. This authorization, if granted, will expire on the earlier of the date of the 2025 AGM and 10th of August 2025 unless previously revoked or renewed. I now propose this resolution and the poll on the resolution will be held at the end of the meeting. Resolution #8, is proposed to authorize the Board to allot shares for cash otherwise than in accordance with statutory preemption rights. It is a special resolution and empowers the directors to allot shares in the company for cash without first offering them to existing shareholders in proportion to their holdings. This power is limited to shares having an aggregate nominal value equal to the nominal value of 5% of the issued share capital. The full text of the resolution is set out as item 8 in the notice of the Annual General Meeting. This authorization, if granted, will expire on the earlier of the date of the 2025 AGM and 10th of August 2025 unless previously renewed or revoked. And I propose that the resolution as a special resolution and the poll in this resolution will be held at the end of the meeting. Resolution 9 is a special resolution and proposes to grant the company an authority to make market purchases of up to 10% of its own shares. The authority would only be exercised if market conditions make it advantageous to do so and if the directors were to consider that such purchases would be in the best interest of shareholders. The authority, if given, will not oblige any shareholder to sell her or his shares in the company. The full text of the resolution is set out as item 9 in the notice of the AGM. I propose the resolution as a special resolution and the poll on this resolution will be held at the end of the meeting. Resolution 10 is a special resolution and proposes to sanction the price range at which any treasury share may be reissued other than on Euronext Dublin. A treasury share is a share of the company purchased and held by the company rather than being canceled. The maximum minimum prices at which such a share may be reissued are generally 120% and 95%, respectively, of the average market price of a share calculated over the 5 business days immediately preceding the date of any such reissue. The full text of the resolution is set out as numbered item 10 in the notice of the Annual General Meeting. This authorization, if granted, will expire on the earlier of the date of the 2025 AGM and 10th of November 2025 unless previously renewed or revoked. I now propose this resolution as a special resolution, and the poll on this resolution will be held at the end of the meeting. Now let me turn to the voting procedures. A poll will be taken on each of the resolutions which has been put to the meeting. Votes may be given by the registered holders ordinary shares present here in person or by proxy and entitled to vote. Every such shareholder has 1 vote for every ordinary share held will also vote on behalf of those holders who have sent proxy instruction to the company appointing the Chairperson of the meeting to vote on their behalf. After the poll has been conducted, the votes cast will be verified under the scrutineer of Computershare by reference to the register of members and the list of authenticated proxies received by the company. Computershare will report the totals of the votes cast for and against the resolutions and the number of withheld votes. The poll will take some time to be conducted. Therefore, I'm closing the meeting. Following which, the results of the poll on all resolutions will be announced via the usual channels and on the company's website. So ladies and gentlemen, subject to the poll results, that concludes the business of this meeting. And as there is no other business, I should bring the formal business of the AGM to a close. Again, I would like to thank you for joining us today and look forward to meeting and discussing with you over a coffee. Thank you very much.