Kenmare Resources plc (KMR) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Kenmare Resources Plc Q3 production update. [Operator Instructions]. Before we begin, I'd like to submit the following poll. And I'd now like to hand you to the Managing Director, Tom Hickey. Good afternoon to you sir.

Thanks very much, Alexander. Thank you all for joining us today and taking the time to get an update on Kenmare Resources. We issued our Q3 production update yesterday, giving the market an update on our performance this year, and I suppose the key elements of our investment case as it is today. And today, I'm joined James McCullough, our Chief Financial Officer; Ben Baxter, our Chief Operating Officer, who hopefully will help me guide you through the story. And together, we can address any questions you have. Just as an introduction to Kenmare, just moving to the next slide. Kenmare operates the Moma Titanium Minerals Mine in Mozambique. This is a pretty unique and world-class resource. We have -- we've been in Mozambique for over 40 years. We have over 100 years of mineral resources at our current production rate. And we've been in production for nearly 18 years. So we're a really important part of the country, about 6% of GDP of the titanium minerals sector, we're about 6%, 7% of that and indeed one of the few significant independent businesses in that market. And a very important part of the locality. We're the biggest industrial employer in and around the Nampula province. We employ over 1,700 people. And we work hard to make sure that we keep all those stakeholders balanced. We work hard to make sure that we're a good contributor to the local and national economy. And I think the investments we've made in the region and our general attitude to sustainability and being a good neighbor and also the fact that we use substantially only renewable energy sources in our activities has allowed us to be included in the FTSE4Good Index, which is, I suppose, a good indication of Kenmare's approach to its business and how we take a long-term view. Within the titanium minerals market, we produce ilmenite and rutile and zircon is also a co-product. Ilmenite and rutile are principally used in the manufacture of paints, plastic and titanium metal. Zircon is used in ceramics. These are all heavy mineral sands, and we extract them via dredge mining, process them and sell them to end markets to third-party customers, all from our own site. Titanium and titanium minerals are on the critical minerals list for Europe, the U.K. and the U.S. So less impacted by tariffs than many other projects you may look at, at the moment. In fact, the only impact of tariffs on our business has been a beneficial one, whereby the EU has imposed tariffs on certain Chinese products, which has protected on some of our European customers. And finally, Moma, having been around for many years, has had a significant capital investment, north of $1.5 billion, although obviously, that's significantly greater than our market cap today. And we're currently in the middle of a very significant capital investment that Ben will talk about. Our Wet Concentrator Plant A, which is our biggest mining plant is moving to Nataka, which is our biggest ore body. Nataka is 70% of our reserves. It's the future of the company, and we'd like to take you through what our plans to operate in it are today. So just moving on to touch on the mineral sands. Mineral sands are, I suppose, what you would call a quality of life product. They're essential to modern life. They're all around you. Every paint, piece of paint, plastic, paper, even in food, clothing, anything that requires whiteness or opacity, you'll find ilmenite in particular, as part of it. It's nonrecyclable. So there's a constant renewed market for products. And it has been historically very correlated with global economic growth. And you can see on the bottom right of that slide, a very stark difference between the consumption per capita in North America and Western Europe, more developed first world economies and the emerging markets of Central Europe, Asia Pacific, China, excluding China and Japan and the Middle East and Africa. And in reality, thus increasing urbanization, progressive prosperity, these are opportunities for us, for our products in that as people become more prosperous, they use more of -- more pigment, they consume more titanium minerals. They paint their houses more often, and that creates that demand that we talk about. Clearly, some of the global conflicts in recent years and indeed perhaps some of the challenges faced by the Chinese real estate industry have impacted demand in recent years, but they've also impacted investment in new projects. And we certainly, after a short interval, foresee a shortage of supply over the coming years, maybe not -- certainly not this year and maybe not next year, but certainly emerging because we're certainly nowhere near incentive prices for new projects to be built at the moment. I've touched earlier on zircon, which is used in ceramics, same factors apply to it. And we also have a small degree of rare earth elements, including the mineral monazite, which is used in a lot of applications relevant to the energy transition, including magnets for wind turbines. So look, I think while you might hear much about titanium minerals or mineral sands, they are ubiquitous. You use them every day, you can't recycle them. And we see a significant and sustained growth opportunity in that market. Next slide, please. I talked earlier about our sustainability. Our strategy has been very much to be a good neighbor. We have 97% Mozambicans in our workforce of 1,700. Our general manager is Mozambican, many of our senior leaders are Mozambican. And that gives us a very authentic presence in the region where we operate around Moma as does the investment that we've made in community initiatives in education, in sanitation, in small business, in infrastructure since 2004. And these are the things that stand us in good stead with the community in the past and hopefully lot many years into the future. But in addition to that, we strive to operate safely. We've had an exceptional, touch wood, lost time injury frequency rate over the last 12 to 18 months, and that's the product of a relentless focus on safety at site and an initiative that we call Trabalho Seguro, which is Work Safe, which is central to what we do every day. We are focused on obviously operating efficiently with a 30% EBITDA margin in the first half of 2025, a 40% EBITDA margin last year. This is a very cash-generative business, and that enables us to meet our reinvestment obligations and has enabled us to make significant shareholder returns in the last couple of years. We've paid out north of $300 million in shareholder distributions between dividends and buybacks since 2019. And I think that's something our shareholders place a high value on. And it helps us to attract and retain investors. Many of our biggest investors have been with us for many, many years. So -- and just finally, for my introduction, I've talked a little bit on the, next slide, please. I've talked a little bit about our sustainability efforts. And these extend to our workforce, to the community, to the environment and to the -- how we operate as the most significant business in and around Moma. And I probably touched on all of these, but maybe one of the central planks of our approach is the Kenmare Moma Development Association, KMAD, that we established long before we earned any money from the project in 2004, which supports livelihoods, health care, education and access to clean water and sanitation. Interestingly enough, some of the children that we would have helped back in 2004 to 2010 with their education and indeed ultimately sponsorship to university are now coming back to us to work as employees. And obviously, what that means is that the value that's generated by the mine stays near the mine and populations can increase, people can have better standards of living, and that supports the environment and supports Kenmare's activities on a day-to-day basis. So with that, I'll hand over to James McCullough, our CFO, who will talk to some of the specifics of our financial performance, shareholder returns, and we'll move on from there to talk about our investments.

Great. Thanks, Tom, and good afternoon, good morning, everybody. Thank you very much for joining us. And look, this Q3 update is not a financial update. Our next financial update will be our full year results, which will go out in March next year. So really kind of just looking back and reviewing how we went in the first half of this year. And if we look at the top line, our average price in the first half of this year was just a touch up on where it was last year. As Tom mentioned, we sell a number of different products, ilmenite, titanium dioxide product, as well as zircon are the 2 main ones. Zircon is higher value than ilmenite. What we're seeing is probably a downward trend in individual prices as we're sort of at that part of the market or rather at that stage in the cycle. But actually, our average price received, we had more of that higher value zircon in than we had ilmenite, and that gave us a sort of a favorable product mix, which gave us a higher average price received and that played through into a slightly higher revenue in the first half this year versus first half of 2024. Our costs in the first half this year were a little bit higher than they were in the first half of 2024. A couple of reasons for that. We had some natural cost inflation at the mine itself. And we have -- as I'm sure some of you will be aware, we're in discussions on the implementation agreement, which is one of the foundational agreements that we have with the government of Mozambique, and that is likely to result in a higher royalty payment that we will be making to Mozambique, and we've accrued for that through the first half of the year as well. So that contributed to higher costs there. And finally, one of the other drivers of the cost increases were additional advisory fees associated with a takeover bid for the company earlier in the year. So that all sort of played through into higher costs, which meant that in spite of sort of fairly flat revenue, we had slightly lower profitability. Looking at some of the other highlights financially, we declared a $0.10 per share dividend. So that was -- in fact, that was paid out earlier this week. The major capital project that Tom mentioned, the WCP A upgrade and that Ben will talk through shortly is still on budget of $341 million, and we're progressing through that well. So very, very happy that, that is still on budget, and we still have some contingency within that figure. And as we do progress through that, our net debt number has increased as one might expect. So we've moved from $25 million net debt at the end of 2024, up to about $85 million at the end of the first half. So that's sort of a quick snapshot on the financials. And then if we just move through to the next slide, please. And just looking back historically, as Tom said, it is a very cash-generative business. I mean we had an EBITDA margin of, I think, 28% in the first half. And Kenmare over the years since 2019 has distributed north of $300 million in total through dividends of around $190 million and buybacks of about $113 million. And that corresponds to somewhere in the region of GBP 2.30 or GBP 2.40 per share. So has been very positive from that perspective and the $0.10 per share that we paid out this week supports that. Look, I think that's about it on the financials for now, but happy to pass over to Ben, maybe?

Good afternoon, everybody. I'm going to talk you through the operational side of the business. So on to the next slide. Thanks, Katharine. So as Tom mentioned in his intro, we're a globally significant titanium minerals mine. And we use a bulk mining method of dredging largely because it's a low-cost form of mining. The operation has been established since 2007, and it has consistently been making more than 1 million tonnes per annum of ilmenite. This year, it's slightly down. We're guiding between 930 and 960 kilotonnes of ilmenite, and that's largely because of the project, which I'll come to talk to in a few moments. We operate with 3 dredging operations in their own mining ponds. They feed a wet -- each of them feeds a wet concentrator to produce a product called heavy mineral concentrate. We then take that concentrate to a processing facility and separate the valuable heavy minerals from within the concentrate into their constituent parts of ilmenite, rutile, zircon and a monazite containing concentrate called MSC. The -- those products are stored on site and then using our own dedicated port facility, which is about 2 kilometers away from the processing facility, we're able to easily trans-ship that to customer vessels, which is more off the coast of where the mine is in Northern Mozambique. The mine itself is -- has a very low environmental footprint. Our electricity is largely coming from hydrogenerated power, the Cahora Bassa Dam in Mozambique. And after the mining process has taken place, we progressively rehabilitate the land and hand it back to the local communities for subsistence agriculture and for forestry. The other notable part of our mining process is that it is only a physical process. There are no chemicals involved. And so our environmental footprint or potential for contamination of the environment is very, very low. If I move on to the production and outcomes of the past quarter. The quarter was really impacted by 2 main features. Firstly, our production from the mine was down, and this was a knock-on effect of the fact that we are -- during this quarter, we were undertaking the partial closure of operations to allow the shutdown and the upgrade of the plants WCP A. And I'm going to talk a bit more about that on the next slides. This meant that the heavy mineral concentrate production was down 16% year-on-year, and this had a knock-on effect into the final products. The second impact was that we have 2 transshipment vessels, which we use for transporting final product onto those customer vessels. And every 5 years, one of the -- each of those vessels needs to go for a dry dock to maintain its class certification. And during the whole of Q3, 1 of the 2 vessels was out of service in a dry dock, getting that certification. And so that had a knock-on effect on our ability to make sales. And so shipments were down 25%. One of the things that's worth making note of in previous releases, we talked about using a third transshipment vessel, which would be rented in to help offset that loss of vessel, but also to take advantage of destocking some of our working capital. And whilst that decision has been not made to proceed as of yet due to the reduced short-term demand that we've seen for ilmenite products. However, we will maintain that under consideration moving into next year. Maybe I can talk on to the next slide and give a bit more detail about the project that has been taking much of our time. So WCP A is our largest production plant. It delivers about 50% of the mining capacity. And yet it is coming to the end of its life in the current ore zone, which is now depleted. And in order to move into a new area, we needed to upgrade this plant and prepare it for life in its next location. That location is called Nataka. It's a large ore body, representing 71% of the 9 billion tonnes of ore that Kenmare has. Now that 9 billion tonnes at current production rates represents about -- more than 100 years of resource base. And so it's very good for us to be putting our largest plant into the largest ore body and securing the future of production at Moma into the long term. The upgrade is an upgrade of lots of new equipment, particularly focusing on managing the higher rate -- higher amounts of slimes in the ore body. The slimes is essentially clay-sized minerals, which historically have made it harder to recover heavy minerals and therefore -- and then also to get the mining rates that one would require. And so what we have been doing is purchasing new dredges, which are currently going into commissioning, also a new plant for desliming and then methods of managing the slimes, which will be done with the tails storage facility. That -- the outcome of that is higher recoveries, higher feed rates and lower because with the dredges being high-capacity units, they can mine on a lower dollar per tonne rate, and that will also allow us to eliminate the dry mining, which we've been using over the past few years to supplement the capacity at that plant. The project capital is $341 million on that project, and it's more than 80% complete by the end of this year. We are now just going through the process of the commissioning. And on the slide that's now in front of you, we give a sort of a time line of the progress we've made. Back in the end of -- in July, we had the delivery of the dredges arriving at Moma, and they were landed from the sea on to the beach and brought to the new mining plant area, and a staging pond. And in the bottom photograph on the left, you can see those dredges are preparing already in a floated pond with a new desliming facility in place. We since used the old dredges to break through and mine and then connected that new equipment onto the older concentrator plant, which is the only part of that process that remains. We also have completed the tail storage facility in -- by September. And in the first part of October, have started heavy mineral concentrate production again, and we are currently in the ramp-up process as each of the component -- new pieces of component work are being commissioned. And that commissioning process is expected to take place over the coming quarter. And by the end of this year, we expect to have ramped up production to the capacity levels of the new plant. On the next slide, thanks, Katharine. Just to look at the capital spend. By the end of the year, the project will be substantially derisked. We have currently -- or by the end of the year, 80% of the capital of this $341 million project will have been spent. And already, in fact, we are seeing that the capital spend is now -- has peaked in the past and will fall from here on. The higher capacity dredges will also have a positive effect on our operating costs going forward since the dry mining will cease by the end of the year. And in terms of the project funding, it's worth just reminding that we're funding this $341 million project through existing cash resources, our debt facility, which at the half year was -- still had $70 million undrawn. We have operating cash flow in the meantime and good shipments expected in the second half of this year and also operating factoring and trade facilities to manage those receivables as required. With that, I shall pass on to Tom, who's going to give us an update on the market.

Thanks very much, Ben. And hopefully, he gave you some good insight into what an exciting project we have at Nataka and how successfully we've been navigating our way through it. And what I'd like to do now is just give you an update on our markets. I think Kenmare has had a couple of very good years between 2022 and '24. And I think we recognize that when prices are strong, you get new entrants into the market. I think we also, as I said at the outset, can have periods where demand is slightly weaker. While over the long term, demand will certainly correlate to economic growth. If you have interruptions as perhaps we've had with Chinese economic performance and indeed conflict in certain areas plus tariffs, that can lead to temporarily weaker demand. And we are seeing a little bit of that at the moment. I mean, from Kenmare's perspective, we have very strong partnerships with our customers. Many of our customers have been with us since our first day of production. And indeed, we added new customers in the first half of this year. It's been our experience that we can sell everything we produce. If you think of somebody setting up a slag plant or a pigment plant, any sort of -- or a metal plant, any sort of major industrial facility. It's a complex operation. They want certainty, consistency, availability and quality in the materials and inputs that go into that and Kenmare provides all those things. Having said all that, we can't avoid the ups and downs of a cyclical industry and particularly pricing, which will be weaker when there is an excess of supply, which we temporarily have at the moment. And we're seeing China being a very important part of that market with the significant processing capacity that China has, utilizing a lot of raw materials as opposed to the finished products that Kenmare produces, and that is creating a degree of oversupply. We're seeing, of course, people respond to that, adjust their outputs, adjust their business plans and a couple of plants outside China have curtailed or suspended output in response to those conditions, including one of our customers. And you may have seen in our Q3 update yesterday, one of our customers has indicated it won't be able to take its remaining volume for the remainder of this year. And indeed, at the point, they indicated that owed us just over $9 million. And this is an unusual experience for us. Kenmare has never had a bad debt. And we work well with our customers through challenges that they have had. And I think we are continuing to engage with that customer to understand how and when we can recover the amounts owing and we still retain title to the materials until we're paid those amounts. And again, let's just remember, for a plant that is operating or that hopes to be sold, Kenmare's supply is a vital part of the business -- of the business plan. The wider titanium market, the metal market, it was relatively stable in Q3. This is an area that's grown very fast in recent years. While it represents less than 10% of the global market for titanium minerals, for Kenmare, it's over 20% of our sales, again, for all the reasons that Kenmare's product and behaviors, quality and availability is valued by customers, none more so than in the metal space. So there the titanium minerals. Zircon is kind of similar. A lot of the uses of zircon are similarly driven to those for ilmenite and rutile. The market is a little bit subdued. And we are seeing a little bit of substitution or some lower quality products come in. The demand for our high-grade product is stable, albeit pricing is a bit weaker. And we expect to end 2025 with very low inventories of zircon. We'll sell pretty much everything we produce. And that's important because zircon is a much higher value product than ilmenite circa 4x as valuable on a per tonne basis. So clearly, we're motivated to sell as much of that as possible, and we have the quality customers that enable us to do that. Next slide. I've touched on this point a little bit over the introduction and indeed in the last slide. But we are seeing Chinese domestic production and Chinese domestic participation in the market creating price pressure. That price pressure coming out of the Chinese sulphate ilmenite market, which is not a market we actively target, but it is one we sell to occasionally, does impact wider pricing internationally. And around us in Mozambique, there are a number of Chinese producers who have entered production in the last couple of years. Their operations are far less sophisticated from a capital or operating perspective than Kenmare's. And there's a benefit of that. Of course, it's low cost. The drawback of that is that they can't mine all the materials that we can mine. They can't mine more complex ore bodies like Nataka, as Ben mentioned. And thus, they're limited in their life. And we expect that as quickly as those producers arrive over a number of years, they may well disappear not immediately, but steadily over the next few years. And indeed, we've seen that sort of pattern play out in previous cycles. So for an established producer like Kenmare, this is obviously a concern. It's something we need to be aware of. It's something we need to be focused on. But the best response is for us to do our own business as efficiently and in a low-cost manner as we can and recognize the fact that this also means that no new mines of any significant scale are being built and that in time will create a supply problem. So look, I think we're seeing all the classic behaviors as you would expect in a market where prices are challenged. We're seeing people continuing to produce, albeit very close to breakeven or indeed perhaps even below. We're seeing some people curtail production, indeed some of our peers are doing that. And Kenmare is -- we have strong relationships. We'll work our way through it, and we do expect to see recovery, if not within the next 6 months or maybe 12, certainly as we enter late next year and into 2027. Next slide, please. So look, in summary, I think Kenmare is a very high-quality business with a world-class asset, but we're operating in a market which is currently slightly challenged, and that's reflected in our short-term performance and in our short-term pricing. We've successfully come most of the way through a very significant development project. And I think it's a credit to the team led by Ben that we've done that safely. We've done it within the budget we indicated at the start of it. And to date, we've achieved substantially all the objectives that we had pretty much on time. And most of the risk of it is behind us, but obviously, commissioning is still something we need to go through between now and the end of the year. We're still operating within our guidance for 2025, albeit towards the lower end of the ilmenite guidance, partly because of some of the slight delays in our -- the shut for the Nataka project, The WCP A upgrade project. But all in all, to date, 2025 has been a pretty good year, a pretty solid year in terms of operational delivery. We have tasks in the fourth quarter, hopefully, to sell the material that will not now be taken by the customer that is in financial distress to maintain our focus on achieving our guidance and executing the commissioning phase of the WCP A project well and to continue to manage our financial position and our financial resources to give it the best outcome. So to finalize -- in summary, look, I think Kenmare's purpose is to transform resources into opportunity for all. We've done that for nearly 20 years in Mozambique. We've done it with a very good partnership with the Mozambican community and the Mozambican government. We have an implementation agreement that we have been renegotiating with the government that hopefully will allow us to do that for many years to come. But that negotiation has been elongated. It is taking time. It is a concern. We now made a proposal to government that we believe is fair and gives the Mozambican state a significantly greater return in the future, which I think they deserve. We got a good deal at the start. And we recognize that we have to make our contribution to the future of the nation because we'll be there for a long time. We've got a long-term production profile, over 100 years of mineral resources. We've got a good position in the industry. We're competitive. We're working our Nataka upgrade project and transition project to remain competitive and to maintain our low-cost profile. And our market-leading position with our customers and as an independent participant, non-vertically integrated makes us pretty much unique. So those combination of circumstances, the quality assets, the good relationships, the low-cost position and our commitment to operating properly in country and investing for the long term in the communities stand us in good stead. We have things to do over the remainder of this year related to the development relating to our own production, relating to our operations in the market and relating to finalizing our implementation agreement, and we're focused on achieving all those things. So listen, thank you very much for taking the time to listen to us. Very happy to take any questions that anybody may have. And I'll hand back to Katharine, who I think has been gathering some of the questions.

Thank you very much, Tom. Yes, we've had a number of questions submitted, and I'll now read through them. So the first question is, with prices still soft, what is your view on ilmenite and zircon pricing into 2026? And how are margins being protected?

So maybe I've touched on that a little bit already. I mean I think that we have seen pricing trend down a little bit in 2025. We expect the remainder of the year to be no different. And however, prices have to a large degree, stabilized. So we hope and certainly from what we can see in our discussions with our customers, we may be close to the bottom of the cycle of pricing. And we believe that there will be some recovery, but it may not be in the very, very short term, I suspect towards the back end of next year. Kenmare is doing lots of things. I mean, operating efficiently, managing our costs, making sure that our investments are value for money, but also improving our margins. One of the things that we've done this year that actually has been greeted enthusiastically in the market is to sell a product that we call ZrTi, which was previously a tailings or waste product. There are a number of customers who are highly motivated to take that product because it still contains ilmenite, zircon and rutile and our concentrates. They have the cost base and the processing capacity to process it many times to recover those. And that enables us to turn what was previously a cost into hopefully a sustainable future revenue stream. So there's no single big answer to that, but there's lots of things that we're doing to make sure that we're competitive and that we're making the best margin.

Okay. The next question is, the implementation agreement is a key overhang on the stock. Can you speak about whether this issue is unique to Kenmare? Or is there a wider intervention displayed by the government of Mozambique to assert more control or raise taxes on the entire resources sector in Mozambique?

Look, that's a good question. And while I touched on Park a bit earlier, I don't think I covered all of those points. Look, I think we -- not just in Mozambique, but I think if you look across Africa in general, governments are focused on a number of things. They're focused on the maximum local content. And I think Kenmare achieves that both with our 97% Mozambican workforce, but also with the north of $100 million that we spend with Mozambican suppliers. They're focused on the best value-added or beneficiation. And again, Kenmare achieves that. We're the only mineral sands miner in Mozambique, refining or processing our materials to finished products status and selling to third parties on world markets directly from Mozambique. And they're focused on increasing the return they get from projects through taxes, royalties and other means. And look, I think as I said at the outset, we had a good deal at start when we -- to get the project moving. We do believe that Mozambique deserves a better share in the proceeds from Moma, and we've offered them a proposal that would bring them up to in time up to 4x on a percentage basis, what they've had for the last 20 years. So we believe that we're in a good position to satisfy -- help Mozambique satisfy all those objectives. But I think we are only one company, and I know that Mozambique has been -- is certainly considering how it deals with new entrants to the mining industry. They're upgrading their mining code. We wouldn't be subject to it because of our own regulations, which were put in place many years ago. And they're very focused on securing investment in natural resources projects in the hydrocarbon space with ENI and with Total. And look, these investments and the international companies that make them will be central to Mozambique's recovery and increasing prosperity. So of course, they're a high priority.

Can you speak to the security situation in Cabo Delgado and whether there are any associated concerns for Kenmare's operations in the country?

Sure. Maybe I'll let Ben speak to that a little bit if he doesn't mind. It is -- we've been in Mozambique for nearly 40 years. So I think we're well placed to give a balanced view.

Yes. So the situation in Cabo Delgado is something that we obviously watch very closely and carefully. But I'm happy to say that it has not impacted Kenmare in any way. The distances of where the activities in Cabo Delgado take place are at least 500 to 800 kilometers away and that's a long way in the north of Mozambique, where roads are very poor and accesses takes a long time to get to. So I'm happy to say that that's not -- we have not incurred issues around that. But probably more holistically, it's something that we watch very carefully. And also, we spend a lot of time talking to shareholders about it because it's got that macroeconomic concern.

Okay. Next question. How should we think about annual CapEx following the completion of the WCP A project?

Sounds like one for the CFO, James.

Happy to take it. Yes. So look, at the end of this year, we'll have probably in the region of $60 million left on the WCP A project. So look, substantially all behind us, but still quite a significant investment over the next few years. That actually spreads out all the way through to sort of 2031, 2032, though, as we move into Nataka and we build the sort of associated infrastructure that's required to sustain mining there. There's no major development CapEx on the horizon. There will be some project CapEx. It will be bits and pieces here and there. If you think about sustaining and improvement CapEx, I think this year, we've guided at around $50 million. The improvement CapEx in that is what we call the SMOs, the Selective Mining Operations, which are kind of small modular plants that are a little bit more nimble than the large dredge mining operations that we have and can go into pockets of high-grade resources. And we're looking to expand that capacity over time. Probably this year, at $50 million, there's probably $30 million to $35 million of -- maybe a little bit more of sustaining and then some spend on the SMOs. And I think most years, if you think about sustaining capital and improving capital, it's going to be in that sort of range. It could be as low as $30 million if we don't have kind of improvement capital to spend. If we have opportunities or if there are lumpy elements of sustaining capital, it could get up into the mid-40s or even a little higher again. So I think that's probably the right range to think about, highly opportunity dependent as we see opportunities for deploying more capacity like the SMOs, we'll take them. Equally, some of the sustaining capital work that we do is a little bit lumpy. And so some years will be lower, some years will be higher.

And a related question, post the completion of the WCP A project and the resulting step change in free cash flow, should shareholders expect a stepup in distributions? Or would Kenmare consider using its financial strength to support M&A activity?

Look, happy to take that, Tom, unless...

I'll finish it, James, you can start it.

I think it will probably be a little bit of -- well, look, I don't know if it will be a bit of both. Certainly, in the first instance, obviously, after WCP A project, and we will have taken on quite a lot of debt. There'll be some emphasis on bringing the balance sheet back to a more neutral position. So that will be a priority. The shareholder returns, as I said earlier, we've got a history of paying out good shareholder returns, and that will certainly still be on the agenda. M&A will be largely opportunistic. Where we see opportunities that are value enhancing, we're certainly not averse to them. I think the Moma asset is a really unique asset in this industry and to be able to match that is quite challenging. But equally, there's appeals around building out a more diverse portfolio as well. So we'll sort of balance our activity in that space based on the opportunities that are presented.

Yes, I think that's fair. I mean, I think we recognize that as the question suggests, the future is different from the past in terms of obligatory CapEx and big multi-hundred million dollar investments. And so we have a lot more discretion as to how we manage our cash flow, and we need to give our shareholders and the investors some insight into how we think about that. I think we'll continue to pay normal dividends based on profitability. We may occasionally do special dividends if pricing is strong, which hopefully will be in due course. And I suppose we always have to balance the opportunistic M&A that James spoke about there with the fact that our own shares represent a pretty good investment, too. And the biggest buyer of Kenmare shares in the last 5 years has been Kenmare. We bought back 15% of the register because we believe in the long-term value of the business. And I think our shareholders are -- want to understand that we think about the business the way they do as well. So -- and look, I think James is absolutely right. Our first priority will be stabilization, de-gearing and proving that we can operate well and attack it. Then we lift our head, think about the what next.

Next question. It looks as if monazite concentrate production capacity has increased. Are there plans to increase it further?

Ben?

Certainly, the production of our monazite-rich product has improved. A lot of it is down to the way we've been processing elsewhere. So as we do better at making better zircon products and we're better able to separate away the monazite content. So we've done better over the last few years at improving that. To make a more concentrated product is quite a costly affair. And as of now, we haven't got an export facility that's capable of taking it in a more concentrated form. So at this point, we're quite happy with the -- that we're sort of in the sweet spot for that product. But if markets change, we may down the line, improve that product further.

Kenmare was subject to a takeover bid earlier this year, but you terminated offer discussions. Can you tell us how the Board reached that decision?

Sure. Look, I think -- and James mentioned the cost and so on. I think the takeover approach is a very interesting period. I think it's certainly shown a value for the market and for shareholders on the fundamental value of Kenmare and it certainly piqued the interest of nonholders in meeting us to understand what our plans are and to form their own view on that. The approach we had from my predecessor, Michael Carvill and Oryx Global Investors was a very credible one. These are people who know mining, and Michael knows Moma like nobody else. So we had to take it seriously. And when they came at a price that was a significant premium to the price on the day before and indeed a significant premium to where we are today, our Board felt the obligation to grant them due diligence to give them the chance to get that price up a little bit and to get a price that we could recommend to shareholders based on our engagement with shareholders about what they expected. And that diligence and indeed, their financing and other arrangements took a number of months, as you'd expect, because to be honest, the announcement was premature. It came pursuant to a media leak. And to be honest, they were a little bit unfortunate. During that time, you had Liberation Day. And during that time, the U.S. dollar depreciated significantly against sterling. Let's remember that Moma and Kenmare is a dollar business. Our shares are quoted in sterling and any deal price would have to have been in sterling. And basically, the GBP 5.30 that they proposed got significantly more expensive during that time. And on a constant dollar basis, it was only worth GBP 4.90. So they weren't going to be in a position to sustain and they advised us of this, and we mentioned this to the market to sustain the initial price they'd approached us with. And they still had some diligence to do. And I think the Board was of the view that even if they did come with a valuation that was significantly below GBP 5, so that wouldn't be attractive to shareholders. And on that basis, we terminated the discussions. It doesn't mean that they can't come back. It doesn't mean that the long-term value at moment is in any way diminished. It doesn't mean that we don't -- we and the shareholders don't believe that in a couple of years' time when the CapEx has passed and hopefully, our implementation agreement is concluded and pricing is better, that an approach might not be made at a substantially better price. But it was a seemingly logical decision to make at the time. And I think we spoke to probably 70% of our share register in the days afterwards, and they all supported that decision without much debate.

And just a follow-up question. Do you think the consortium might come back with another offer or that any other players might make a bid?

Look, the consortium are welcome to come back. And while nominally, they have to walk away for 6 months, I think our Board is very clear, and we said to shareholders, if somebody knocks on the door and they've got a proposition for the company that we think shareholders would like to hear, we're very open to that. So I can't speak for Oryx or Michael, but I know that they recognize the value in the business. As to other parties, you can never discount an opportunistic bid. But equally, I think there is some flux in the titanium minerals market at the moment with probably the biggest player, Rio Tinto, contemplating a strategic review of their own presence in the space. And I suspect that's something that people will be looking at. You are anybody who is interested in the sector will be looking at. So never say never, but I think it's probably not as obvious a time as people might expect for a further approach.

Thanks, Tom. That's all the questions we have for now. So if you'd like to make some closing remarks.

Cool. Thank you very much, everybody. Hopefully, this has given you a good insight into the company. You see our contact details, Katharine's contact details and the Investor Relations functions contact details there. We're always happy to hear from current or prospective investors to answer any questions and to engage on anything you want to know about the company. And we obviously make regular announcements. I would also advise you or suggest you keep an eye on our website where we have really outstanding updates on the WCP A project development progress, which shows you not quite on a daily, but certainly on a weekly basis, what's happening and it makes -- gives you a good perspective on the amount of work that we've done this year, how much less risky the future is than the past of that project and what our plans for the future are. So thank you very much, and I really appreciate you all spending the time with us today.

That's great. Well, thank you all for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This is going to take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of Kenmare Resources Plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.