Ladies and gentlemen, this is the operator. Today's call is scheduled to begin momentarily. Until that time, your lines will be placed on music hold. Thank you for your patience. Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kenmare Resources PLC H1 2025 Results. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question- and- answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Tom Hickey, Managing Director. Please go ahead.
Thank you very much, and welcome everybody. Thanks for taking the time to join us on our interim results conference call. With me here, I have James McCullough, our CFO, and Ben Baxter, our COO, and we'll bring you through today's presentation. Maybe just as an intro, many of you are familiar with Kenmare. I mean, we're one of the largest players in the titanium mineral space. We operate the Moma Mine in Mozambique. We have been there for nearly 40 years and producing for nearly 20. We're very focused on being there for many, many decades to come and being a good citizen while we're there. I think we were particularly pleased in the first half of the year to become a constituent of the FTSE4Good Index for the first time. It's just an interesting mark of how we try to do our work.
Looking at the specifics of the first half of the year, I think from an operational perspective, despite some challenges on the ground in Mozambique that I'll touch on a little later, our operations were stable and consistent and safe. We had no lost time injuries in the first half of the year in our operations or in our development projects. We're on track to achieve our 2025 production and operating cost guidance. We are seeing, and we'll talk about it a little later, maybe slightly weaker markets in the short to medium term. We expected it this year, but the outlook is probably a little bit more moderate than we expected, and we can see that reflected in the results through an impairment loss that James will take you through. One of the big signposts for this year is our capital project.
As I said, we have a multi-decade mine life. We've been investing to move towards our biggest ore body in the Nataka for the last number of years. It's a $340 million investment to upgrade our WCP A plant, which is our largest mining plant, to bring two new, very powerful dredges to Moma and to invest in the infrastructure necessary to mine in the Nataka. I think we've been very pleased with progress on that project in the first half of the year. We've spent just under $100 million. The budget still remains $341 million. We successfully brought the two new dredges from the Netherlands to land at Moma, and they're currently sitting in the staging pond, which is being filled with water even as we speak. As we've said in the past, every day that we successfully deliver elements of this project is being de-risked.
By the end of this year, most of the core elements of the project should be delivered, and I think that will be a big important signpost for us. Ben will take us through project progress on that a little later. I think all of those things, the operations, the progress of the capital program, make us optimistic about the future and help us declare an interim dividend of $0.10 a share. I suppose our evidence of our commitment to keep paying dividends throughout this capital investment cycle. It was a busy half year in other ways as well. We had a possible offer approach from a consortium of Oryx Global Partners and my predecessor, CEO Michael Carvill, people who understand the space very well, and obviously Michael who understands the company like no other.
It was a serious approach, and I think it was while we were in an offer period for just over three months. Ultimately, the company terminated discussions. I think it was an interesting time in that it gave us the ability to engage with our shareholders to understand how we thought about the value of Kenmare now and in the future. It shone a light on the fundamental value of the business. I mean, ultimately, I think investor sentiment was there's an approach at a time when markets are a bit weaker, when one of our key agreements, I'll touch on it in a few moments, remains outstanding. We're in the middle of a capital program, might not be the best way to recognize full value of the business. I think certainly none of us are wedded to Kenmare remaining independent.
We're open to any approaches that might come in the future. I suppose it is part of life as a public company. I think the final element of the first half, which was, as I said, quite a busy period, is Mozambique itself. Mozambique had challenges towards the back end of last year and the first quarter of this year, arising from disruption and civil unrest associated with the presidential election and transition to a new government. That was reflected on the ground with damage to government property, widespread protest, and a disappearance or a reduction in day-to-day administration, governance, and security activities. We do see that reflected a little bit in the first half of the year. It did cause us some extra costs. It did cause us some disruption. Thankfully, that's all quietened down now.
We're back to very much normal operations, and we were able to get through that period safely. I think what that process also did was it kind of interrupted the ongoing negotiations we have had about our implementation agreement. Many of you will know this implementation agreement. It's one of our foundation agreements. It covers how we operate our processing and export activities and the fiscal terms associated with that. It doesn't impact on our day-to-day mining activities. That agreement nominally expired at the end of December last year, 21st of December, albeit we have been continuing to operate in the normal course in accordance with the legacy terms with the government support. I think we've been engaged in this renewal process for not far off three years now.
We've engaged with a wide range of government stakeholders because this is an agreement that cuts across a number of different government departments. It covers fiscal terms. It covers a mining project. Quite a few people are interested. During that time, we've also had a change of governments and a change of Ministers. We've had to, I suppose, resume and reintroduce people to the project. At the outset, I should say that the agreement, as drafted back 20 years ago, contains an automatic right of renewal for Kenmare. We recognize that times are different now. We recognize that the incentives that were necessary to get the project going aren't appropriate for the future, and the government needs a better return from the project. We have voluntarily proposed a significantly improved return for Mozambique from Kenmare.
In March, we proposed that the royalty, which was previously 1%, would go to 2.5% and that we would apply withholding taxes on services from outside the country. Council of Ministers felt that that wasn't sufficient, but we understand that that approved substantially all other parts of the renewal at that point in time. I should stress that during all our discussions with stakeholders in the country, they've stressed that they regard Kenmare as a good corporate citizen. We fulfilled every obligation we made when we launched the project. We employ over 1,700 people. We have excellent social programs. We're in the presence where it's exactly the sort of company that Mozambique wants to have operating in the country. We're very hopeful that we will conclude an agreement. The process has become elongated.
Following that, Council of Ministers, we proposed a phased increase in the royalty rate up to a maximum of 3.5% and the withholding taxes previously. Certainly, we would have been very hopeful when I, myself, and my colleague Gareth Clifton had the good fortune to meet with the President at the end of June. We had a positive meeting there, and I suppose we stressed to the President the importance of this agreement for Kenmare. The fact that this, our objectives for the next 20 years are very much aligned with the country's objectives. We want investment. We want improved prosperity. We want continued social programs for the people in and around our mines. We want a clear platform to make the investments that we're undertaking to do. I think it's important for Kenmare. I think it's important for the country.
We'd like to see that agreement concluded and resolved as soon as possible. We were a little bit concerned last week to see a suggestion by a government spokesperson that the agreement had been concluded. That's certainly not our position. Obviously, we had to dispel that notion. We're very hopeful that we'll be able to conclude everything in the short- term. This, I think we can't be certain that that's the case. Hence the note of caution that we have in the statement today. This is something that there's a lot of attention on in Kenmare. We know in the investment community, and you should be assured that we're giving it the attention it deserves. That's, I suppose, the intro from me. What I'll do now is hand over to James McCullough to take you through the financial results for the first half. Thanks, James.
Thanks, Tom, and good morning, everyone. Just looking at key focus areas across the financial results, I'll start off with revenue on the top line. Tom mentioned slight price declines in the half, but we had a supportive sales mix. We had more zircon in the mix this year versus H1 last year, and a slight increase in shipments. That led to a slight uptick on the revenue side. On costs, we saw some price or cost escalation, rather, at the mine. Costs at the mine were up around 7% or 6%. We had a number of one-offs, which together reduced profitability. We still kind of achieved solid EBITDA of $47 million at a margin of 30%. Looking through on the CapEx side, we're now happily through the peak CapEx on the WCP A program. H1 was the peak half for CapEx in that program. We spent around $95 million.
60% of the project CapEx is now spent, around $210 million. H2 CapEx will be $70 million, which is still quite high, but tailing off. From 2026 on, it'll tail off fairly substantially. As Tom mentioned, still on track with a budget of $341 million. As we flagged in July, we have taken an impairment in these results of just over $100 million. That's primarily relating to a lower pricing outlook, as well as costs associated with the implementation agreement renewal terms that we've proposed that Tom just outlined. The impairment is non-cash. It doesn't affect operations in any way, and it doesn't affect our thinking on the dividend. We have declared a dividend of $0.10 per share, which will bring total shareholder returns from Kenmare since 2019 to north of $300 million. I suppose a reasonably good outlook on H2.
Shipment volumes we expect to tick up through better weather, but also the bringing on board, or we're looking to bring on board, a third transshipment vessel for the remainder of the year. Product mix in the second half should be more zircon-weighted, and some of the exceptional costs that I'll go through shortly, we hope not to see again in H2. Moving on to the summary income statements, we can see some of these factors playing out. Flat revenue, cost, the cost increase, but still solid EBITDA at the bottom line in there of $47 million. That EBITDA has been enabled by good performance in challenging conditions. Looking at shipments firstly, shipments were up by 2% versus H1 last year. A stronger Q1, a good solid Q1. Q2 was a little weaker as weather was worse than expectations, and we had some maintenance activity.
The outlook for shipping with that third vessel is strong, and weather typically is better in this second half. Looking at the market itself, the prices for the individual products were down slightly, and we would expect a continued sort of modest decrease as we go into the second half. As I said, we'll look at probably a product mix, so higher zircon and retail content to support the average prices that we receive. On the cost side, the costs were up 16%. That's $17 million in total. I can think about that in terms of changes and increases at the mine itself, as well as things that happened away from the mine. At the mine, direct costs were up 6% or 4% on a unit cost basis. Main drivers there were labor, where we had slightly higher FTE numbers and salaries and bonuses payable on 2024 performance.
Labor was up around $4 million. Overheads, we had increased production overhead costs of around $2 million. Some of the issues that Tom mentioned earlier around security, we had around an additional $1.5 million this year versus last year in terms of security costs and the costs of replacement and repairs associated with the test. Moving away from the mine and to indirect and other costs, which were up $10 million year on year, the implementation agreement royalty, which we have accrued from the beginning of January, at 2.5% versus 1% previously, that's an accrual of around $2.5 million. Head office costs were up by about $3 million, the bulk of which was related to legal and advisory fees associated with that possible offer earlier in the year.
We had $3.3 million in insurance proceeds that came in in 2024, which makes the year-on-year comparison more difficult from a 25% perspective. Some of these costs will remain as we go through H2 and beyond. The implementation agreement, for example, that'll stay at 2.5%, and some of those production overheads will be sticky. Others will reduce. The costs associated with the possible offer were obviously very event-related. As Tom said, the security conditions are ameliorating at the mine, so we would hope to see some reduction in the cost there. The insurance proceeds, obviously, were a one-off. You kind of have a positive outlook on costs coming into the second half. Looking at net debt, net debt has increased from $25 million to $85 million over the half. The standard item really is the CapEx. H1, as I said, is the biggest half for CapEx in the WCP A project.
H2 will be around $70 million, $25 million lower. Into H1 2026, it'll probably be around $20 million. You'll start to see that orange bar shrinking fairly dramatically over the next few releases. Also on the outflows, we had the $0.17 final dividend payout. All of this funded through operating cash flow, a good contribution from working capital as we converted receivables from sales at the end of last year into cash, offset slightly by lower creditors and higher inventory. If we take a look at the profile for CapEx and WCP A, substantially de-risked at this stage. The majority of CapEx is now spent. We're up at around 60%, or around $210 million was spent by the end of the first half. The spend rate will decrease rapidly.
In the next 12 months from the end of the first half, we will have about half as much to spend as we had in the previous 12 months. Funding sources for this, we had $45 million cash at hand and $70 million of undrawn debt capacity at the end of the half. Operating cash flow into the second half is supported by the higher shipping performance that we're anticipating, a stronger product mix, and a leveling off of some of those higher standard costs that I've just spoken about. Worth noting here maybe that we are updating guidance for the development project capital phasing. The total budget remains at $341 million, but we're moving from $150 million anticipated spend in 2025 up to $165 million, with a reduction in 2026 spend from $52 million down to $30 million.
That's really reflecting the phasing of the project and phasing of payments. We are making good progress. You'll see a lot of pictures from Ben. There's an awful lot of work going on Ben there at the moment. Of course, this all translates to costs going out the door. All of that has to be paid for. That went well on the balance sheet. I've just gone through the working capital elements. Inventory up as production exceeded sales. It's a good store of unrealized value there. Cash contribution from receivable reduction as we saw those strong sales in Q4 converting to cash. Just to mention on the creditors' side, the creditors' number is down versus December. If you think about that in the context of the project that we're doing and the amount that we're spending there, really, we've got a lot of contractors working on that project.
Some of them are small contractors who are, well, we are depending on them for the delivery of the project, and they in turn are depending on us for prompt payments. We're paying them promptly to keep the project de-risked. Overall, on the balance sheet, we've got net current assets of $175 million and $70 million of undrawn debt capacity, as I said, at the end of the first half. Finally, on the dividend, we've already mentioned that we are committed to sort of keep paying dividends through the investment cycle. We haven't considered the impairment in estimating the dividend, and we have declared $0.10 per share, which brings total returns since 2019 to over $300 million, or around $2.50 per share. With that, I think I will hand over to Ben.
Thanks, James. Good morning, everybody. I'll start, as usual, with a discussion of our safety performance on slide 17. I'm delighted to say that we were injury-free during the first half of the year, and that was extending the continuation from 2024. That brought down our lost time injury frequency rate to 0.03 injuries per 200,000 man-hours worked. The milestone of 7 million hours without an injury was reached in July. Unfortunately, we had an injury just from the beginning of the second half. Perhaps the most impressive part of our safety record at the moment is with the development projects. The WCP A project is now exceeding 2 million hours without an accident. The last one, in fact, was in January 2021.
If you think about it, contractor workforces, transient workers coming in and coming out to deliver services to the project, it's very difficult to get the safety culture going there. It's really a very strong performance. The (Inaudible) program that we're operating for safety is really the main driver of our improved performance over the last few years, where we're focusing on leadership, focusing on standards and planning for safety, and making sure that leaders spend a lot of time in the field coaching. A really good performance on that side of things. Onto the next slide, 18 and the production outcomes. We're maintaining our guidance today after what I would call a steady first half of the year. Heavy mineral concentrate production was up 2%, and that knocked on into a 1% increase in the ilmenite production.
The increase came with additional grades, but partially offsetting a reduction in the ore volumes. That was largely due to the fact that WCP B was mining harder material, or at least we took the opportunity to mine harder material knowing that the grades of that material were higher. The outlook looking forwards is that we expect those excavated ore volumes to increase in the second half of this year. That's once the two new high-capacity dredges are commissioned at the end of Q3, and also with the improved performance of the selective mining operation, which is now up and running and producing to expectation. That will offset the three to four-week delay or downtime for WCP A expected in September whilst we complete the project. As I said, ilmenite production was at 1%, slightly down because of some lower recoveries in Q2.
The main thing I'd draw your attention to was the co-product production, which was 28%. Primary zircon was up 28% and actually was a record H1 performance for zircon production. Rutile was also very strong at 20% above the previous year. This came about because we were able to draw down some intermediate stockpiles, but also the circuits were operating at high recoveries, and we were translating zircon feed into more valuable primary products. The net effect of that was that the concentrates production, which are obviously lower value products, were down 9%. That was also due to some maintenance in the circuits there. Shipments were up 2%. It was a half of two halves, if you like. We had a very good Q1 and then a poor Q2. Q2 was impacted by not only worse weather than expected, but also some maintenance on both vessels.
In fact, the Peg transshipment vessel went to dry dock in early June. Moving on to slide 19 and to update you on our selective mining operation, this is a capital-light project that we've implemented to get additional production capacity. The project has been progressively commissioned through the first half of the year and is now running at 300 tons an hour and delivering to expectation in terms of its heavy mineral concentrate production. It was ramped up through the first half and produced 12,000 tons of heavy mineral concentrate, but that was back weighted. Looking forwards, we still expect to produce 50,000 tons of heavy mineral concentrate in the full year. Our confidence, I guess, is shown in the SMO because we've engaged to build a second SMO, SMO 2, and that will incorporate some of the design upgrades and learnings from the first unit, which is now running.
We expect this second unit will have some boosted reliability. We learned how to increase some of the throughputs as well. SMO 2 will be commissioned through the first half of 2026, and we'll see a rising capacity through that period to get up to 1,000 tons an hour. We expect the cost of that to be in the order of $15 million. What we see from this combination of the two units is that we have a capital-efficient alternative to the previously planned WCP A upgrade. Hence, we see the opportunity to improve margins in that regard. To highlight James's comments around the increased shipments, we see the opportunity to increase shipments. You can see from the graph at the bottom on slide 20 that inventories have been accumulating. Whilst H2 has started well, Bronagh J is running well at the moment and delivering to incur capacity.
The Peg vessel is out at the moment, undergoing a dry docking for class certification. She is due back on site in early September, and that project is on track. Weather is normally better through the second half of the year than in the first half. Despite those three things, we see the opportunity is there to further draw down stocks with the securing of a third transshipment vessel. We intend to rent this and hopefully through the second half of this year accelerate the drawdown of those stocks. We're currently progressing that contract discussions. We've got a contractor, a vessel that has been identified. We're going through the licensing and insurance processes and making some minor modifications to our jetty to facilitate the loading.
We'll be able to add that or progress this over the coming month or so, and we will hope to give you some more updates on the expected production or, sorry, the expected shipments that will increase because of that project at our Q3 production update. Moving to the next slide, I'll just hold on the title slide a second because it's a photograph that shows very much where we are at the moment in the project. The dredges, as you can see there, have been landed and are secure in the staging pond. You can see to the top of that photograph that an active mining pond is currently progressing adjacent to the staging pond. The next step of this project will be the linking of those two things. The feed preparation unit is there in the center of the photograph and is essentially complete.
At the moment, you can see that the staging pond is filling with water. This is over the last couple of days. In fact, this morning, the dredges are free-floating, and we expect this afternoon that the concentrator will be free-floating. It is a very dynamic situation, but you can see there that the project is active and is progressing along quite well. Onto slide 22, it's good to share with you the journey that we've just been through with the new dredges. They are now, as you see there, safely landed and in position at Moma. This was one of the key aspects of the project, a key milestone, and a key de-risking milestone for our delivery of the project overall. The dredges were manufactured in Holland and left Holland on a semi-submersible ship in early June, traveled by sea to offshore Moma.
We have a video which I'd like to share with you to show how that offloading process took place. Maybe the webcast could just play that video. Thanks. The two new dredges are high-capacity dredges. Their purpose is to fill the WCP A concentrator in the future to a capacity of 3,500 tons an hour. They are oversized, so as to ensure that that capacity is able to be achieved all or near all of the time. You can see from that video how large they are. They were landed onto a purpose-built beachhead onto a roadway, and then using self-propelled modular transporters, we brought them into the mining pond and parked them, as per the photograph at the bottom right there. As you saw earlier, that is now a completed worksite and flooded, ready for the linking into the main plant.
Just to remind you, you can view photographs on the website at the link at the bottom of the page there. We are actively updating that almost on a daily basis with new photographs showing the progress. Onto slide 23. I was onto slide 23. The timeline is shown here. I guess the headline here is we expect to be at full capacity with this operation by the year-end. We've landed the dredges, as you see on the left. We're now in the flooding process to prepare those plants to be swapped out. The next phase is really to link the wet plants, the active wet plant, which is currently mining, into the staging pond. We'll commence a shutdown, which will, for three to four weeks, be a process of changing out the pieces of equipment. Thereafter, at the end of September, we expect to start the commissioning process.
That process will be phased through the early parts of Q4 and onto. We expect the production, as I said, to be running at full capacity by the end of the quarter. In the meantime, I'm happy to say that the tailings storage facility has been proceeding ahead of schedule and is, in fact, going to be available for receiving signs from the middle of September. That will be now in time for the startup of the new operation. Overall, what I sort of say is that the project is progressing well. I hope you can see that it's well- advanced now and that the de-risking of the spend is really well underway. We hope the bulk of this work will be complete in Q4. With that, I would like to pass on to Tom, who's going to do the marketing update.
Thanks very much, Ben. As you can hear, there's a lot going on at Moma right up to today. Looking outside of Moma, the market is very much a tale of two elements. The under-demand side, and particularly on the Kenmare demand side, we're seeing beneficiation markets, titanium metal markets being very strong. They're supporting demand, and they're supporting demand, particularly for our type of ilmenite, good quality, low impurities, available on long-term contract, available predictably over the next number of years. That's encouraging for us. We're also seeing that many of our customers in Europe are starting to see some benefits from the anti-dumping duties imposed on Chinese pigment producers. All our customers in the Western world are taking their contracted volumes, albeit, as we said, as James emphasized, slightly lower pricing than we saw last year.
The titanium metal market we've talked about a lot in the last number of years as being an area which is growing rapidly and which Kenmare is growing rapidly within. Indeed, we signed two new supply agreements within that market segment just last month. This is still something where we're seeing growth and opportunities working there. If we turn over, however, to the supply side, we are, as we've said in the statement and as James alluded to, probably seeing a little bit of oversupply. There's a lot of Chinese processing capacity that's not fully utilized. It's demanding supply. We're seeing Chinese domestic ilmenite production increasing at a steady rate, not directly competitive with us, but it does kind of set prices or influence price setting within the market. It does have an influence. We're also seeing HMC produced by Chinese producers in Africa, Mozambique, very widespread, Nigeria, Sierra Leone.
It has increased significantly in the last 12 months. It's an important part of the market servicing those processing plants in China. It's a little bit more opaque in that these are not public companies. They don't tend to report externally. We're working hard to understand the elements and players in that market and what that means for the trajectory of future supply. I think what it is certainly doing is putting pressure into the ilmenite, zircon, and rutile markets into China. I suppose perversely further depressing the conditions for feedstock suppliers. We think that people are, some people are starting to suffer. Certainly, if prior cycles are anything to go by, that would be a characteristic pattern. It's hard to call a recovery. It's hard to call an improvement.
As James said, we've moderated our expectations for pricing recovery or improvement in the short- term, less so in the long- term. I think our estimates, and indeed those of independent consultants in the long- term, are down less than 5%. Those factors have certainly influenced and driven the impairment that we recognized in the first half. Going back to Kenmare, we've said throughout this year, we have a strong order book, and that hasn't changed. Long-term customers value our mine life. They value our supply. They value increasingly some of the environmental and other elements of our projects. I suppose the reasons why perhaps we're in the FTSE4Good Index. The metal market, as I touched on, is supporting demand. We do expect pricing a little lower in the second half than the first half, small single-digit percent, as oversupply persists.
We do see recovery ahead, but it's probably a little bit further out than we might previously have estimated and maybe a little slower. On the zircon side, very similar. Our sales, as James said, of zircon and rutile typically increase significantly in the second half and change the product mix value. Global demand generally is a little bit subdued. Were we to see reconstruction of some elements or some parts of the world where there's conflict, where we could see a recovery in the Chinese real estate market, where the tariff situation has settled down and become more predictable, perhaps we'll see that sort of recovery. We can't call it just yet. Our European customers are stable. Chinese demand is a little bit soft. Obviously, the HMC, the concentrates that are going into China don't just produce ilmenite.
They produce zircon and rutile as well, and that is sitting on the market. Overall, a more muted price environment from a Kenmare perspective, a good environment for demand and for our products. Ben talked about our efforts to service that demand through the third transshipment vessel. A bit early to call a price recovery. We're not seeing it yet. Maybe lifting the head and looking further out. As we've said, we're keeping our guidance in terms of production and cost. We moderated and adjusted it slightly in terms of CapEx for this year, but not the overall CapEx cost of the WCP A upgrade project. It's more of a tough thing this year because, as James said, our contractors' ability to support us is driven by our ability and our consistency in paying them.
I think that's caused maybe slightly faster cash outflows than we might have expected at the start of the year, but similarly reduces our CapEx burden going forward and certainly for next year. Good progress in the first half on SMO, as Ben said, well on track to deliver on objectives, and good progress on finalizing a new transshipment vessel for a temporary period, but not quite there yet. If I look at Kenmare's purpose in life, we did adopt a new purpose last year, transforming resources into opportunity for all. It is lived on a daily basis at Moma. We have a long-term production profile. We're investing to exploit our reserves and resources into the future. Nothing's changed in that regard. We still, despite weaker pricing, have a good EBITDA margin.
We're well through our WCP A upgrade, and that upgrade is designed to maintain our strong position on the cost curve. Despite a significant capital investment, we still have material resources to fund that program and to make shareholder returns. As I said on the market side, despite the challenges that many are seeing, our customers keep coming back to us. Many of the customers, all the customers we would have had 70 million years ago are still with us. We're signing new ones. We've signed at least three new supply agreements in the first half of this year, and we've good visibility into the future on that. Looking at Moma's place in the market and the world, we've been not far off 40 years in Mozambique, not far off 20 years producing.
We're very proud of what we've achieved, and we're very excited about what we hope to achieve in the future. Clearly, we need our implementation agreement to be resolved to achieve that, and that's the message we consistently give to government. We know government appreciates what we've done, but I suppose the government is trying to protect its interests and do the best deal for Mozambique. Hopefully, we can conclude it soon. Thanks for your time. Very happy to hand over to questions now. I look forward to meeting many of you over the coming days and weeks.
At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Colin Grant with Davy Capital Markets. Your line is open.
Great. Thanks very much, and good morning, everybody. My question really is just to do with the implementation agreement discussions. You've noted in the press release that you gave a revised offer to the government of 3.5% on a phased basis. Firstly, I just want to confirm that the government rejected that offer. I also just want to get a sense as to whether or not there's any indication from the government as to what they're kind of holding out for. Maybe it's 3.5%, but not on a phased basis, for example, just to give us some sense as to what you know, what I suppose the maximum outturn of this whole process might end up being. Finally, just on a related note, there are some withholding tax payments associated with the implementation agreement.
If you could just give us a sense as to what the, I suppose, what the quantity of those would be if it was 3.5% royalty payment each year going forward. That's great. Thanks very much.
All right. The easy one's calling, why don't you? Just on the royalty proposal that we made, you're correct. We did adjust our proposal at the Council of Ministers in March to go to a max of 3.5% over the 20-year renewal period. That hasn't been rejected by the government. We've had some exchanges in relation to the renewal, but it hasn't been rejected, and that remains our position. Indeed, although we're not sure of the veracity of it, the press speculation in Mozambique last week was not inconsistent with those figures. That's as much as we know right now. As I said, the meetings we've had with all the Ministers and the President have always been cordial, constructive, and professional, and we hope they remain so. There's no real interaction between the royalty rates and the withholding tax elements of the renewal.
The withholding tax is just basically a tax charged on services provided into Mozambique from outside the country. Some of those are services we provide ourselves, like marketing. Our estimate of what those costs will be, and James can correct me if I'm wrong here, is of the order of $3 million or $4 million a year. That's before we think about kind of optimizing them or whether we change our behaviors to try and mitigate it. That's our, based on our run rate, if we did nothing, that's the kind of level we'd be talking about.
That's great, Tom. That's very helpful. Thanks very much.
Your next question comes from the line of Richard Hatch with Berenberg. Your line is open.
Thanks. Yeah, morning, team. Just sort of more of a follow-on question. If I look at the taxes and reporting payments to governments from 2024, you paid $20 million to the government of Mozambique . I'm just sort of looking at the future cash flow projections of this business when the CapEx drops away and companies have the ability to generate free cash flow yields of over 20%. Do you think that the government is aware of this and is therefore pushing for a more meaningful share of the free cash flow of this business?
Look, I think Richard, the government, and let's step away from Kenmare for a moment. You know, natural resources projects are important to Mozambique, and they're an important part of the mandate or the plans of the new government. You know, obviously, we all know about the big oil and gas projects that are in progress or anticipated there, and getting a share of those is a high priority. In parallel, the government is discussing and circulating plans for a new mining law, which, you know, has a regime which includes, you know, import duties, taxes, corporation tax, royalties, etc., etc. I suppose their aspiration is to make sure that mining interests are on as consistent a basis as possible. I think that aspiration is a reasonable one, but it's not consistent with the regime that we have and the protections we have within our implementation agreement.
You know, we spent a lot of time explaining why that's the case and explaining what our agreement means, what it entitles us to, and where we have flexibility to change. I think we've obviously demonstrated the flexibility that gives them 300%+ of the return they've had in the past from our processing activities. We think that's fair, and we think it's a good balance because, for sure, I'm sure they can see, like we do and you can, the cash flow generation in the future, but they'll get a good share in that through the royalty. We do already within our mining company pay corporation tax as well. I think you have to look to the wider domestic contribution, over $100 million spent with suppliers in country and all the jobs that are associated with those suppliers in and around Moma.
You know, we've been at pains to emphasize the broad contribution we make and what we expect to achieve in the future and how we require this agreement, not just to make our investments in Moma, but also to make the social investments that have improved the lives of everybody around the mine.
Great. Thanks. Just one follow-up, just in terms of the production volumes. I appreciate you're looking to try and lift the volumes up to 1.1 million tons , 1.2 million tons. Just in light of a soft market, is there scope for you to take your foot slightly off the gas in terms of that push upwards in terms of volumes to avoid putting more tons into a market that doesn't need them?
At the moment, Richard, I think that the market is there for us to improve production into. At the end of the day, our goal is to try and maximize the efficiency of the Moma asset. The way to do that is to exploit the processing capacity that we have installed. At the moment, the market is not stopping us from producing. It's up to us to try to continue to build the production in an efficient manner. Obviously, costs are important, and we're not going to be just throwing money to make tons for the sake of it. We want to do it in an efficient and high-margin manner.
Okay. Thanks, Ben. Cheers.
Your next question comes from the line of [Pete Mullen with James. James with Peel Hunt], your line is open.
Thank you. Good morning, all. Switching gears a little bit from the market to the third transshipment vessel. I'm just wondering, is this something we could expect to be a bit more of a permanent fixture once you've got an over-attained target and you're firing on all cylinders and at the 1.2 million tons of ilmenite, plus obviously the extra byproducts? Would you be thinking about needing a third transshipment vessel to ship that on a sustained basis?
I certainly think that there's scope for that. We haven't achieved it yet. We haven't delivered on it. There's a little bit of a "let's see how it goes" phase to get through and understand that the costs are as we're going to expect them to be and understand that it is an efficient way of running the business. I think we will see a short-term drawdown. You're right that one of the things that we've seen is with the opportunity to sell a new concentrate product called ZrTi, we can significantly up the volumes that we can sell in a year. That definitely will put pressure on the two existing vessels. I do see the scope further on, but whether we will actually do it, this will be the right vessel to do it with, I think time will tell.
Yeah, I think there's another piece to this, Pete, as well. We've talked in the past about mining being the bottleneck to the business and never being able to fill the MSP. The dredges that we have now, as Ben said, are constructed with the objective of filling that MSP. I suppose the net effect of that is moving the bottleneck within the business, where maybe it's shipping, and we need to understand what our capacity will be in the future and what our maximum capacity is. This is an experiment at this point. It has lots of financial benefits to us, but it's too early to call whether it becomes a permanent fixture.
Okay. Understood. Thank you.
Again, if you would like to ask a question, please press star on your telephone keypad. I will now turn the call back to Tom Hickey for closing remarks.
Great. Thank you very much. Thanks all for your time. Obviously, if anybody has any follow-up queries, we'd be happy to deal with them. With that, we'll close the call. Have a good day, everybody.
Ladies and gentlemen, that concludes today's call. You can disconnect. Thank you and have a great day.