Number one in this journal for Sheffield Resources, covering the quarter ending March 2026. With Bruce Griffin, the Executive Chairman, and Bruce Franzen, the Company Secretary. Same format as usual. There will be a Q&A. First over to you, Bruce.
Great. Thanks a lot, Peter. Thanks everyone for dialing in. Basically follow the same format as we have for previous quarters. As Pete said, I'll run through the presentation and then we'll do Q&A at the end. Starting with the corporate overview. As always, look I won't spend too much time on this. Most of the presentation will be about Kimberley Mineral Sands, as it always is. Just a couple of comments on the other assets. In this particular slide, we no longer have the Sri Lankan opportunity, the 10% interest in Capital Metals. We exited that position earlier in.
Well, during the quarter actually, realized AUD 4 million before costs from that, which we've used to top up our corporate balance sheet. We're no longer involved there. Decision was really about prioritization for us. Do like the project, however, it felt like it was better for us to liquidate that and give ourselves a bit more corporate liquidity. On South Atlantic in Brazil, well, it's ticking over. The company's working on approvals and studies. We reached an agreement with partners there to suspend further funding from Sheffield in January. We've retained our option over 20%, presently not funded.
We've effectively focused all of our cash resources on corporate costs and KMS to the extent it's required. Moving on to talk about Kimberley Mineral Sands, the Thunderbird Mine. As I usually do, just a couple of pictures for where things were at. Left-hand side is the mine in late April. This is actually the block we were actively mining there. It's the old, previously mined areas and here's the sort of in-pit tailings wall. This section finished and then working on that section there. Once that last wall is closed in, this will be the first cell of in-pit tailings disposal, which should commence sometime probably in the 3rd quarter of this year, depending on exactly when that cell is ready for use.
Right-hand side, process plant. Looking over the ilmenite stockpiles towards the process plant. Not a lot more to say there. Just to recap on the revised Thunderbird business plan that was put in place in March 2026. I won't go through all of the detail here. I think everyone knows the essence of that plan was to increase the mining rate to ultimately achieve design throughput on the process plant. That would give us, you know, around about the original designed concentrate product suite. That was progressing very well through I think the September quarter last year. We'd moved to drill and blast in January of 2025. The new waste mining contract were in June.
That had given us a significant increase in waste mining productivity to the extent that we actually were able to. We're in an area, we're mining areas where we don't need to blast. The productivity of the waste mining contractor, combined with the current strip ratio, is such that we're only needing to operate 12-hour days. We've achieved the improvements in waste mining. The disappointing piece in the last quarter in particular was having built mine production fairly steadily through to the September quarter. We saw mine production deteriorate both in the December quarter and in the March quarter. I'll talk more about the specifics of that, but that's a key focus of the recovery plan.
Ultimately, to deliver the March 2025 plan, we need to be building on the prior production rates and actually increasing them. There's a lot of work going on in terms of improving that production. Again, I'll talk a bit about that as we go through. Overall, that means we haven't provided guidance because we're in the middle of a turnaround. The original plan was to achieve that higher mining rate by the first quarter of 2027. Given that's less than three months away and we're still in the turnaround, we don't think that's realistic timing. However, there is still a view that sort of production should be achievable certainly within FY 2027.
When we have a clearer line of sight on that, we will seek provide an update. In terms of the specific performance. Mine throughput. You know, dark blue line is ore mined, the actual ore mined. Dotted brown line in the middle is grade and the green line is rougher head feed. It's fairly clear here that, as I said, having reached a peak of ore mined of just over 3 million tons in the first quarter of FY 2026, we saw a decline in the December quarter and then a fairly significant drop-off in the March quarter, driven by a number of factors. Some perhaps expected, some unexpected.
The DMU outages and reliability issues that had been flagged in the previous quarter continued into the current quarter, including at least the one extended shutdown for a piece of equipment failure. The dozer fleet availability and mine contract productivity. Now, we have seen an improvement in that in recent times, but not enough to turn around the March quarter result. We also did have a couple of weather events in the quarter, which did impact production. This is a big focus for the KMS management. We have a new operating model on site with a new operating management model. We have a head of operations based on site, seven days a week, which is increasing.
You know, it provides an increased level of focus and management of the contractors and identification of, you know, some of the root causes and taking steps to address them. We, you know, there is a plan in place. Some elements have been implemented, some are still being implemented. However, we don't believe there is any fundamental reason why the mine cannot, the dozers and DMU can't sustain what it has in the past, the 3 million tons a quarter, and build up towards the original target of up to 4 million tons a quarter, as required to keep the plant full. Well, alongside the lower mine productivity, particularly in the last quarter, we did see some evidence of declining recoveries. The content of the products is very similar quarter- on- quarter.
Recovery of both Zircon and titanium dioxide to the products were lower than previous. Again, a lot of focus here on identifying root causes. Perhaps variable production may not have helped, but fundamentally, we believe we've identified some operating practices that had perhaps drifted in recent times that were impacting the recoveries in the plant. Again, here, I think there is certainly our current view is there's no fundamental reason why the plant can't operate the way it has previously achieved those recoveries. Certainly don't believe there's anything in the ore body or anything like that is driving this reduction in recovery.
We would expect these recoveries to recover as KMS implements the changes to address the underlying root causes that are being identified. Overall ore production, as I said, is, you know, variation on the same thing, but you know, that September was a record production September quarter, a decline in the December quarter and then that significant drop-off in March. Clearly, need to get back at, to start with, back to where we were in the September quarter and build from there and that is definitely the plan that is being implemented. In terms of specific products, so concentrates, starting with zircon. March quarter was primarily impacted by lower ore mined, but also by the lower recoveries as well.
You know, a fairly weak production quarter for zircon concentrate. We were able to sell all the concentrate that was produced, all of those sales were to third parties. Generally, we've seen an ability to sell the product in the market to third parties. I believe that had we produced at similar levels to prior quarters, we would have been able to sell all of that product to third parties. In terms of ilmenite production, again, production impacted by lower ore mined and lower recoveries. The sort of higher shipments than production in the quarter were really primarily due to at the very end of the December quarter, there was a shipment deferred over the year-end due to Cyclone Hayley.
That impacted a small amount of Zircon, but effectively impacted an entire shipment of Ilmenite. That shipment basically moved from December quarter into the March quarter. In terms of costs, we've seen a, you know, an increase over the three quarters of FY 2026 on a unit cost basis, but predominantly driven by lower production volumes. You know, we believe that on a like-for-like basis, we have reduced the cost base of where it was previously and continue to identify options for cost savings across contracts and within KMS' operations itself. Believe that as the production returns to target levels, that we will see these unit costs trend down again, and that the absolute cost is definitely coming down on where it was previously.
Overall, in terms of cash flow for the quarter, what we see first of all is the positive operating cash flow with OpEx about AUD 20 million less in revenue is really inflated by timing related to payments from customers, but more importantly, outgoing payments. To put it in context, we, you know, we've got roughly, you know, AUD 50 million-AUD 60 million a quarter of total cash outgoings. If you have, you know, even if one month's payments are paid one day late, you can have a swing of this order of magnitude.
Certainly, there's no suggestion that the asset was actually operating cash flow positive on a normalized basis, and was running a marginally operating cash flow negative given the poor production rate. There were no interest payments. We announced that the lenders had agreed to deferral and waiver again for the March payments. There were no interest payments and there were no debt payments due at the end of March. The lease payments are as expected, predominantly relating to power plant and the dry mining unit. We did continue to carry inventory, not necessarily excess inventory in some cases, but we do have inventory on hand at the end of the quarter. Those were the prepared remarks I had. Happy to take questions now. Thanks, Peter.
Brilliant. Thanks, Bruce. Just a reminder for everyone, in the audience, we are having a Q&A session now, so feel free to submit your questions and we'll get round to them. Just to start with, Bruce, as you know, every quarter, I do quite like asking an update on the Zircon market, especially the concentrate side. Any updates there?
Look, we talked a little bit about this in the quarterly itself. I think, overall, the March quarter, ourselves and other industry participants have reported sort of similar view that there's been planned and unplanned curtailment of Zircon supply globally over the past two quarters. Iluka, Tronox in particular have had planned reductions. We've had some unplanned reductions in other locations, for example, Senegal, which have reduced Zircon supply, you know, reasonably material if they were sustained over a full- year. That's, you know, feels like it's probably taken the market from what on a global basis was probably looking at a small surplus in 2026 into a small deficit.
Now there is historical stock inventory, so it's not, the market's not tight yet, but it is definitely tighter than it was. When you look at concentrates in particular in China, there has been a fairly rapid decline in Ilmenite prices, at least partly driven by rising cost of sulfur and sulfuric acid as a result of, you know, the Straits of Hormuz being closed and a significant portion of Chinese pigment capacity being sulfate-based, which means it uses sulfuric acid. What that means is, the demand for Ilmenite has come off.
Why that's relevant is that a large portion of concentrates, particularly HMC concentrates into China, do contain Ilmenite and the processes to make money out of that have to find a home for the Ilmenite, not just the, and as well as any Zircon or Rutile or Monazite that's contained in those concentrates. I think that has probably tempered appetite for concentrates a little bit. Overall, what we've seen is that the market is a bit firmer. It was firmer through the first quarter on a like-for-like basis. We were selling each shipment at a marginally higher price, or KMS was selling each Zircon concentrate shipment at a marginally higher price than the previous shipment. That sort of momentum has seems to have been carrying on into Q2.
I think whereas previously there was probably a bit of a view that maybe FY 2026 was gonna be a, you know, might have even seen continued price weakness. At least thus far, it's actually seen a certain amount of, you know, small increases in price, which has been reasonably favorable. How long that lasts and so on, time will tell. At this stage, you know, certainly felt more positive about the Zircon market in Q1 than we had expected.
Yeah. Interesting. Just on that, it sounds like we've sort of hit the floor then, and it's pushing upwards at the moment. Any signs of where other sort of production could come from in the near term to I guess?
Yeah.
swing the balance back the other way, or is this looking structurally quite good?
Yeah. I mean, look, in the short- term, some of the supply that I know at least in the case of, the asset in Senegal, I believe that they're now talking about restarting there, following the fire. The, you know, some of the idled capacity in theory could be turned back on if the market supported it. Use an example like Cataby for Iluka. You know, the primary product there is ilmenite, and so it'll be driven more by, the view on, synthetic rutile sales, I think, than the zircon market itself. I think it certainly, you know, the market will flex some of that supply is available.
The midterm view about closure of major assets, including Jacinth-Ambrosia for Iluka, which, as Simon said, sound like a broken record on, it was always forecast for FY 2027, we're not quite there yet. I think, you know, that certainly consensus forecast is that we will see declining production out of Jacinth-Ambrosia, you know, starting in 2027. At this stage there is no like for like replacement, you know, arguably Iluka would be expecting to replace some of that supply with supply from Balranald rather than the other deposits in the Eucla Basin, which haven't been sanctioned yet.
The approval for Richards Bay Minerals at Richards Bay Minerals' of Zulti South is, you know, does extend the life of Richards Bay if it assuming it's implemented as planned, although it doesn't result in incremental Zircon supply. I think broadly speaking, yeah, of course there can be some supply response in the short term. The medium term still looks like the question is how do we replace some of that major supply that is closing.
Okay, great. Yeah, as a reminder, please do feel free to submit questions. Just on another one from my side, Bruce, is in terms of the strategy moving forward, obviously a lot of the strategy that we were talking about in the past was to do with the new waste mining method and whatnot. Is that still the main plan? Obviously, you've got some shorter term things that you need to fix, other than that, is that still the main goal is to get up to that 4 million tons?
Yeah. I think as we've said previously, you know, the idea is to be able to mine at 4 million tons, so you can flex mine production or 4 million tons a quarter, so up to 16 million tons a year. Not because you need to mine at that rate all day, every day, but there will be times when you need to mine at a higher rate to manage grade variability and so on. The essential point being that the mine should be, or the process plant should be running flat out. There's no reason why we shouldn't be able to have the process plant full and the mine being varied to keep that full. That's still the basic plan.
I guess in the short- term there's a bit more of a focus on recovery first, back to where we were in the September quarter. Still the aim to build on that and build towards that ability to mine at the equivalent of 16 million tons per annum. Certainly waste mining clearly can support that. We continue to see that the mine can operate at that rate. It's a question of doing it regularly and reliably. It's as much an availability maintenance type question rather than a fundamental capacity question.
Okay. Interesting. Question here, Bruce. To what extent can shareholders feel assured that Yansteel will continue to support the JV until a more formal debt restructure agreement can be reached?
I think, you know, with the best evidences of what they've done to date, I mean, Yansteel have been a fantastic partner. They've really stepped in and supported when the businesses needed that support. I think, you know, people need to be realistic. You know, they're commercial. Ultimately, they, like anyone who has, you know, whether you're a lender or a shareholder in the joint venture, what you're all looking for is those operations improvements, 'cause that's what fundamentally underpins the business. You know, Yansteel have been very supportive, very patient, and long may that last. You know, they're not a blank check. They're not just gonna put money in forever.
They, like anyone else, will be looking for the operations to improve. You know, we, you know, their past behavior and certainly, you know, we see them as a very supportive shareholder, but there can be no guarantee that they will continue to provide support, you know, every time it's asked for.
Yeah. No, of course. Bruce, that's it on the question side of things. Any final thoughts from you before we wrap up?
No, I mean, look, probably just one. You know, I think, I can imagine, you know, shareholders, like myself, I mean, you know, found the March quarter very frustrating. It's disappointing to see declining performance, particularly when you've got a model that says you need to improve. That frustration is shared by myself, by the, you know, the management and the Board of the joint venture. You know, while it's not always easy to see from the outside, there is a lot happening to improve operations. Certainly, you know, we're not there yet. There's a lot of effort and a lot of focus. I think a reasonable understanding of what's causing some of these problems and plans in place to fix them.
As disappointing as it is, it will, you know, will continue to require a bit of patience, but, continue to believe in the future of the asset.
Awesome. Bruce, thank you very much for your time, and thank you everyone for attending. As always, the contact details are there on the screen. We have recorded this as well. It will be on the Sheffield Resources YouTube channel. I'm sure it'll be shared on their socials. Feel free to reach out if anyone has any other questions. Bruce, thank you very much.
Great. Thanks, everyone.