KENMARE Resources suspended production guidance for its 2020 financial year following disruptions caused by the COVID-19 pandemic and warned that the commissioning date of its latest capital project might be delayed.
The company had earlier guided to ilmenite production of between 800,000 to 900,000 tons which compares to 2019 production of 892,000 tons, a 12% decline on 2018 owing to lower grades.
Commenting in a trading update, Kenmare CEO, Michael Carvill, also said the company would draw down on the entirety of its debt facilities. The firm had crept back into a net debt position by the end of March.
The company has drawn on $42.7m available under its $110m term loan facility and a few days ago submitted a request to draw down the $40m of its revolving credit facility. This was to “… provide us with the maximum liquidity and flexibility,” said Carvill.
In addition to the cost of its capital project, Kenmare undertook to pay a final dividend of 5.52 US cents per share. This was in line with the firm’s 20% of taxed profit payout policy. It had earlier declared a 2.66c/share interim dividend bringing the total dividend to 8.18c/share.
As of March 31, Kennmare had cash and cash equivalents of $102.4m, an increase of about $20m over the year-end and gross bank loans of $111.4m. Net debt was $9m as of March 31 compared to $13.7m net cash at December 31. The move into net debt was put down to capital expenditure, shipment timing and other working capital movements.
Kenmare had pencilled in the completion of the relocation of the WCP B (wet concentrator plant) to Pilivili at the firm’s Moma titanium facilities in Mozambique for the third quarter of this year, but that target may be disrupted.
This was owing to getting equipment imported from South Africa, which is currently in a 21-day lockdown intended to mitigate the spread of COVID-19, and to similar restrictions in Mozambique that would prevent mobilising skills on-site.
“At the end of Q1 we had over $100m of cash and we remain well-resourced to complete the move of Wet Concentrator Plant B,” said Carvill. Completing the move of the concentrator brings to an end the completion of a $160m growth capital programme undertaken by Kenmare.
Notwithstanding the unprecedented nature of the COVID-19 disruptions – the full consequence of which is by no means understood in the global financial system – demand for the heavy mineral concentrate Kenmare produces is improving.
Shocks imparted by COVID-19 virus to both the demand and supply side of the commodity market have worked out net positive for Kenmare.
Prices for ilmenite increased for the fourth consecutive quarter in the first quarter of 2020 as demand continued to outstrip supply, the company said.
“Whilst there is evidence of near-term disruption to both the supply and demand of titanium feedstocks, inventories in the supply chain remain low and the market is expected to require additional production to meet future demand,” said Carvill.
