Good afternoon and welcome to the latest Yellowstone Advisory Webinar with Kenmare Resources , who released their half-year results on the 20th of August. We're delighted to have with us today Tom Hickey, the Managing Director, James McCullough, the Chief Financial Officer, and Ben Baxter, the Chief Operations Officer. While we're waiting for everyone to arrive, please could you respond to the poll on your screen, and I'll just go through a few admin points. The format today is a presentation of the half-year results. It will take approximately 30 minutes, and then we're going to hand over to Q&A. You're all currently on listen-only mode, but if you do want to ask a question, please type it into the chat box at the bottom of your screen.
Following the meeting, you'll be redirected to a short survey, and it would be really appreciated if you could just spend a few moments completing that. I think most people have completed the poll now, so I'm going to share those results. We've got about two-thirds of the attendees are shareholders and one-third are non-holders at the moment, so a mixture in the audience today. I think that's all the admin points catered for, so I'm now going to hand over to Tom Hickey, the Managing Director, to start today's presentation.
Thanks, Alex, and thank you all for joining us today. What I'd like to do is run through the presentation we've been sharing with our institutional investors over the last few days since we issued our first half results. Maybe we go on to the intro slide, Alex. For those of you not familiar with Kenmare , or for whom this is your first time meeting with us, Kenmare is the world's largest ilmenite supplier. We operate the Moma Titanium Minerals Mine in Mozambique. We've been in Mozambique in one form or another for nearly 40 years, but we've been producing at Moma for almost 20 at this point. I think what distinguishes Moma is, apart from the quality of the resource, it's the mine life. We have over 100 years of mineral resources at our current production rate.
I suppose when you are going to be producing for that long, when you are going to be in and around a community and a nation for that long, you do want to make sure that you behave properly and that you make a contribution over and above just what you mine. We do make a lot of a contribution to the local and national economy. We're about 6% of Mozambique GDP, and our social investment programs have transformed the lives of those in and around the mine from an education perspective, health, infrastructure, and economic development. The materials we produce, ilmenite, rutile, and zircon, are key raw materials in the manufacture of paints, paper, plastic, and titanium metal. In this portion of the market, we're about 6% of the global supply.
Titanium is on the critical minerals list for Europe, the U.K., and the U.S., so very much at the forefront of people's minds when they're thinking about security of supply and energy transition. Over the last 20 years, Kenmare has invested just over $1.5 billion in the facilities at Moma. We're in the middle of quite a significant CapEx program that Ben, our COO , will tell you about later. So far, so good on that. We're coming to a critical point, but still operating within the original budget. We move on to the next slide, please, Alex. I think if I think about the half year, it was quite a dynamic period. While the operations themselves were quite stable, we had thankfully very safe operations and no injuries. We're not changing any of our production or cost guidance.
We did, however, have weaker product markets, which drove an impairment charge. James will run through that, and I'll run through a little bit later how we feel about the markets at the moment. We also had a possible offer, an approach from a private equity firm called Oryx, supported by our founding Managing Director, Michael Carvill, who were considering an offer for the business at a price of in or around £5.30. We had about three months of kind of back and forth on that, diligence and engagement, until ultimately the offer discussions terminated in late June. I think it has certainly shone a light on the company and reminded people about the business and the value inherent in the business. Certainly, we're seeing that in this roadshow. We're getting significantly more meetings and more meetings from non-holders. The capital project, WCPA, we can go back, Alex.
WCPA is our largest mining plant, and we're preparing it to move to Nataka, which is an orebody which represents 70% of our reserves, effectively the future of the business. At the end of the half year, we had about 60% of the capital cost incurred. In reality, at the end of this year, assuming all goes to plan, the most significant risks and the biggest portion of this investment will be behind us. Many of you would have seen the videos and images on LinkedIn of the dredges that recently arrived at Moma, and I would urge you to review that part of our website because we regularly update in the detail there. Finally, Mozambique. Mozambique was a tricky enough operating environment for the nation towards the back end of 2024 and early 2025.
There was a general election or a presidential election which prompted quite a bit of social unrest. While it didn't impact directly on our operations or the safety of our people, it did impact on the ability to do business in the normal course, day-to-day in and around Moma, and certainly required us to be more vigilant as regards to security and spend more costs on that. Finally, there's an Implementation Agreement, a significant agreement that regulates how we operate with the government in Mozambique and in particular how our processing and mining operations operate. This agreement was signed 20 years ago and came up for renewal at the end of December 2024. That was right in the middle of the disruption and challenge period that I mentioned for Mozambique. You can imagine that its renewal was not at the forefront of the government's minds at the time.
Under this agreement, Kenmare has the automatic right to renew at the existing terms, but we recognized that we got good terms back in 2002. We recognized that the terms that were required to get the project going are not necessarily the ones that represent the best return and the fairest balance for Kenmare and the government going forward. We proposed an increased return for government from this project. It went to the Council of Ministers in March, and they approved all aspects of the renewal except the royalty rate, which we increased from 1%- 2.5%. Since then, we've been engaged in a variety of discussions and negotiations with government in Mozambique. This is a complex agreement that requires lots of parties in Mozambique to be aligned, the tax authorities, the environmental authorities, because it's mining, the mining regulator, indeed right up to the President.
Making sure that all those parties understand the agreement, understand our rights, and understand what we're proposing has been very important. Over the last few months, I've met the Minister for Mineral Resources and Energy, the Minister for Economy, and even the President. They've all reassured us that Kenmare is exactly the sort of project and exactly the sort of company that they want to have in Mozambique, that they are focused on renewing this agreement. We haven't quite got there yet. We did improve our proposal to government from 2.5%, ultimately rising to 3.5% over the 20-year period. Those discussions are ongoing. There was some press in Mozambique last week or the week before, which seemed to suggest that an agreement had been reached. That was a government spokesperson getting a little bit ahead of themselves. We are still in negotiations.
We would be hopeful of concluding it before too long, but there is no formalized or required timetable. Naturally, seeing as the agreement has expired in December last year, we're keen to put it behind us, and I'm sure the government are too. That's the main focus of our operations as regards to that agreement right now. I'll hand you over now to James McCullough, our CFO. We'll talk you through the results that we reported last week and I suppose the key moving parts in the numbers.
Thank you, Tom, and good afternoon, everyone. Thank you for joining the call. Just looking at some of the key points across the results. First of all, starting with revenue at the top line, solid revenue, slight uptick. Tom mentioned some price declines.
However, the product mix, slightly higher content or zircon balance relative to ilmenite, supported a slight uptick in average pricing, combined with a slight increase in shipments, which gave us just a small uplift in total revenue, half on half. At the EBITDA level, we saw relatively higher costs this half versus last year. That was a combination of costs at the mine, so direct costs at the mine, along with various one-offs and indirect costs, which I'll go through shortly, that contributed to reduced profitability, but still solid EBITDA at $47 million with a margin of 30%. Looking at the CapEx side, we are now happily through our peak CapEx on the WCPA project. H1 was actually the peak half for CapEx in that project. We spent $95 million over the half. 60% of total project CapEx was spent by the end of the half.
That CapEx profile will now decline over H2 and subsequent halves. We'll spend about $70 million in H2, and that'll tail off into 2026. Importantly, we're still on target for a total capital budget of $341 million for that project. Tom mentioned, and we flagged in July, an impairment. We took an impairment with these results of just over $100 million, primarily driven by a lower pricing outlook, as well as costs associated with the Implementation Agreement renewal that Tom mentioned. The impairment is non-cash, doesn't affect our operations, and it has no dividend impact or impacts to the dividend that we've declared. We've declared a dividend of $0.10 per share, which will bring total shareholder returns from Kenmare since 2019 to over $300 million. Looking forward to H2, we've got a degree of optimism, a stronger outlook we expect.
Ben will talk through bringing on our third transshipment vessel, which will support higher shipping volumes. We typically would see better weather in H2 as well, which contributes to better shipping volumes. We expect to have a stronger zircon to ilmenite mix as well, which supports a stronger average price. Some of those one-off costs that I will talk through, we wouldn't expect to be there in H2 as well, which should give us an extra boost relative to H1. Alex, if you'd just go to the next slide, the summary income statement just briefly. I've mentioned already the flat revenue, the increase in costs, but still solid EBITDA at $47 million. That EBITDA on the next slide, Alex, thanks. That EBITDA has been enabled by good performance in quite challenging conditions. Just looking at the shipping side, shipments were slightly higher. We had a stronger Q1.
Q2, we suffered a little. Weather was worse than we anticipated, and we had some maintenance. Overall, a slight uptick in shipments in H1 this year versus last year. As I said, probably a more positive outlook for H2. In the market itself, we saw probably single-digit percentage declines in ilmenite and zircon, but our average price was up versus H1 2024, just through having a stronger zircon mix in our overall sales. We expect that mix to continue to improve into H2. Looking at the cost side, costs were up 16% in H1 this year versus last year. You can think of that in terms of changes and increases at the mine itself, as well as things that happened away from the mine. If we look at the mine, direct costs were up by 6% or 4% on a unit basis.
A combination there of labor, so slightly higher FTE numbers and slightly higher salaries that contributed to around $4 million of the overall increase. The overall increase at the mine was around $7 million, so $4 million of that was labor. Reduction overheads was about $2 million. Like Tom mentioned, some of the volatility that we saw in-country in Mozambique, we accordingly then had higher security costs and replacement and repair costs due to theft. That was up around $1.5 million in H1 versus H1 2024. Away from the mine then, in terms of indirect and other costs, they were up around $10 million overall versus H1 2024. As Tom mentioned, we have proposed an increased royalty rate under the Implementation Agreement of 2.5%, which is higher than the 1% that we had last year. We've accrued for that difference. That contributes $2.5 million additional cost.
Our head office costs were up by about $3.5 million, and most of that was attributable to the bid process, the possible offer process earlier in the year. Just to note that actually H1 2024 benefited, the costs benefited from insurance proceeds of around $3.3 million, which effectively lowered the comparator for H1 2025. If we look forward into the second half and beyond, some of those costs will remain. The Implementation Agreement costs and production overheads, we think, will probably be sticky. Others we would expect to reduce or not be there. They're largely event-driven, so the head office costs, the security costs, as Tom mentioned, we're starting to see some improvement on the ground there. We wouldn't expect our security costs to keep going up. Obviously, those insurance proceeds were one-off at the time.
Move to the next slide, please, Alex, and we'll just look at the net debt bridge. Our net debt has increased from $25 million- $85 million. The standout item really there is the CapEx. As I mentioned, H1 is the biggest half for that project at $95 million. H2 will be around $70 million. By H1 next year, we're looking at around $20 million for CapEx spends. You'll start to see that orange bar contracting significantly over the next few reporting periods. The dividend also at $15.3 million, that's the $0.17 final dividend that we declared in the interims in March. That outflow has been funded through working capital, so good conversion of receivables into cash, as well as through increase in our overall debt. Moving on to the WCPA project, Alex, thank you. As you can see, we're through the majority of the CapEx now.
As I said, 60% spent, about $210 million by the end of the half, and the spend rate decreasing rapidly. The next 12 months' spend will be about half of what we spent in the last 12 months. In terms of funding sources for this, at the end of the half, we had $45 million of cash resources and $70 million of undrawn debt capacity, and then operating cash flow that we'll continue to make, supported by that stronger shipping outlook, stronger product mix, and hopefully not seeing those one-off costs reoccurring. Probably worth noting just a slight change to our guidance in CapEx for this project. No change to the overall number of $341 million, but to the phasing. Our previous guidance issued in March was that we would have $150 million spend this year and $52 million spend next year.
We're revising that to $165 million spend, so a bit more this year and $30 million next year, so a bit less next year. That's a function of timing or scheduling of project and of payments. Certainly, we're in the midst of it at the moment. Ben will talk you through what we're doing, and you'll see some great videos and pictures. All of that is lots of labor on site, lots of kit going in. All of that sort of leads to the CapEx that we're seeing at the moment. It went well on the balance sheet, really. Kind of working capital elements, inventory up as production exceeded sales, and a good store of unrealized value there. Receivables down. We typically see a reduction in receivables in the half as strong sales in Q4 convert into receivables and into cash. Probably of note is the creditors' balance.
With so much spend going on on that project, actually, our creditors' number has reduced. That reflects to an extent. We're working with a lot of small contractors on the WCPA project, and we rely heavily on them. In turn, they rely on us paying them promptly. We're working very closely with our suppliers in terms of just keeping them in good shape. Overall, net current assets north of $175 million and undrawn debt capacity at the end of the half of $70 million. Finally, just looking at the dividend, as we've mentioned, we didn't consider the impairment in calculating the dividend that we declared. We looked through the investment cycle, and we have declared $0.10 per share for the dividend, which brings total returns from Kenmare to north of $300 million since 2019, equivalent to around £2.50 per share. With that, I'll hand over to Ben, please.
Hi, good afternoon, everybody. I'll start the operations update with some views around our safety performance in H1. It was really a very satisfying situation that we went the whole of the half year without a lost time injury. In fact, we were able to achieve by July 7 million hours of work without a lost time injury, which is a very strong, in fact, world-class performance. Our lost time injury frequency rate is down at 0.03 at the end of the half, which is really very strong performance. Probably one of the most important parts to pull out of that is the way our project team has been performing. They've actually now been working on projects for more than four and a half years on the site without a lost time injury. That's particularly important when you have contract workforces that come in and come out.
They don't have necessarily the work culture that we promote at Kenmare. That's a very strong result. It all comes from an initiative that we've been running for over the last few years called Trebaio Seguro, meaning safe work, where we focus in very much on the authentic leadership, on standards, on making sure that we plan for safe work, and then how the leadership team interacts with the workforce with coaching at the forefront of that. Next slide, please, Alex, and we'll talk about the production performance. Today, we're maintaining our guidance for the year. That's the first thing to say. That comes on the back of what I'd call a bit of a steady performance in H1. Tom mentioned that we had quite a bit of disruption outside of our control in terms of communities and new government going on.
However, we managed to increase our HMC production year- on- year. That came through mining higher grades, although slightly less excavated ore volumes. The HMC production translated into ilmenite, increasing by 1%. Where we look at that moving forwards into the second half of the year is that in order to achieve guidance, we need to strengthen that performance. We expect that to happen by the delivery of the new high-capacity dredges, which I will talk about in a few moments, and also the fact that we have a selective mining operation now fully operating at its full production output. Another key thing to note was the non-magnetic products of zircon and rutile. Both of them exceeded expectations quite significantly. In fact, our standard zircon, which is our highest quality zircon product, was a record output for an H1.
That came about because we were able to draw down intermediate stockpiles, as well as achieve higher recoveries. Both those two products support our margins quite well. In putting more product, more zircon into the better products, that caused us to see a reduction in the concentrates production by 9%. On the shipments, we had a half which was really split. Q1 was very strong. Q2 was weak. Q2 was weak on the basis of weather and maintenance on the two vessels that we have. The one vessel having gone in June to dry dock, and that's due to be returning in September. Next slide, please. Maybe to talk a little bit about the selected mining operation. This is a new capacity improvement project. It brings capital-light, additional capacity to the business, flexibility to the business. We were commissioning that project through Q1.
The project has cost less than $6 million and is now achieving its run rate of 300 tons per hour. In the first half of the year, it was ramping up. There were a lot of learnings associated with this low-capacity option. We were able to produce 12,000 tons of HMC. We're now running at its expected run rate, and we expect to still deliver the expected 50,000 tons of heavy mineral concentrate per annum. Our confidence has been improving with the units. To the extent where we have placed an order for a second unit, that is expected to rise up to about 1,000 tons an hour during 2026. Obviously, we will be moving into a new area with that plant. The cost is expected to be $15 million.
I guess what the combination of those two SMO plants do is they offset a previous project which we had envisaged, which was to upgrade WCPB by 1,000 tons an hour in the future. However, the definitive feasibility study that was done on that project was significantly more capital intensive. We see that the SMOs are very much a low-intensity option that can bring flexibility for around about 10% of our mining capacity. Moving to the next slide, please, Alex. James mentioned the opportunity that we've seen for increasing shipments. You can see in the graph on the bottom right there that our inventory of finished products has been increasing over the last few halves.
With the PEG transshipment vessel in its dry dock and with a future BRONIGE dry dock in two years, we wanted to make sure that we have the capacity to draw down those stocks and increase the sales which are available to us. BRONIGE has started this half extremely well. As I said, the PEG is still in dry dock. We have been investigating how to bring in a rented third vessel to help with that reduction. Weather is usually better in the second half of this year. What we expect to see with a third vessel is increased sales in the second half with the returning PEG in September, hopefully this third vessel coming in in September, and the BRONIGE continuing to operate well. The actual amount that we can draw down those stocks this year is still to be determined.
It rather depends on the ability, on the combination of the weather, and then how three vessels interact. We expect that on the basis that we expect that volumes will come down on our stocks, we will continue to contract that vessel most likely to bring them down to a normalized level of somewhere between 150,000 tons- 200,000 tons. We'll give some more detail on how that's going at our Q3 announcement, which is in the middle of October. Next slide. I'll just hold on this. Maybe you can just hold on that slide a second, please, Alex, because it is very much a status update of where we are today with our capital projects.
What you see on this photograph over the top is the existing mining pond of WCPA , and in the center is what we call the staging pond, which has the two new dredges floating and the new feed preparation unit, which will do the de-sliming of our future ore bodies, sitting at 95% complete, floating in the pond. This photograph is less than a week old and shows that most of the investment in this project is now done to get the project up and running at the new capacity levels and with the new de-sliming equipment in place. The next phase, which starts this week, is to break the berm and join the staging pond to the mining pond. Over the next four weeks or so, we will be swapping out each of the units.
The two new dredges will replace existing dredges, and the feed prep unit will replace the back part of the existing plant. That process will take three to four weeks. By the end of September, we expect to be commissioning the new plant and moving on towards Nataka. On the next slide, it is really good to show you one of the key milestones that has just taken place during July and into early August, and that's the landing and movement of the two new dredges. These two dredges were manufactured in Holland. They were delivered, they were ex-works early June and traveled using a semi-submersible ship to offshore Moma. We then offloaded the dredges on barges onto a dedicated purpose-built beachhead.
That beachhead was, in good weather, used to land the dredges using self-propelled modular transporters and drove those dredges off the barge along a purpose-built road to the staging pond where you see them in the bottom right-hand corner there prior to the flooding. If you would like to look at the, there is video and photographic footage of the process on our website at the link at the bottom there. It is really quite good to see the progress that's been made there, and they're updated frequently. With those new dredges, we expect to be able to deliver a new capacity of 3,500 tons an hour. In the past, we've been limited by the amount of slimes in the orebody. Going forward, the de-sliming plant will remove that slime and allow the spirals to be used to their full capacity.
We expect that to take place, as I said, over the coming month or so. Hence, the de-risking of this project is really largely complete in four to six weeks' time. Next slide, please. This is really the timeline, as I've explained the left-hand side, but let's maybe talk about the tailing storage facility, which will be commissioned in the middle of September. After that pause of production of three to four weeks for the new equipment, we start the ramp-up in end of Q3, early Q4, and expect to be fully commissioned by the end of the year with WCPA operating at its new higher capacity. With that, I'll pass over to Tom to deliver the market update.
Thanks very much, Ben. I think in my introductory remarks, I talked about the quality of Kenmare Resource , the life we will have in our mine. In addition to that, the ilmenite or the products we produce are low in purity, so we're very attractive to people, to customers who themselves have long-term projects and who need a constant mix of quality materials and who are looking to source us over multiple years. Many of our customers have been with us since we started production, and we expect them to be with us for many years to come. That supports our demand. That's allied to the fact that we focus our efforts, we focus our marketing team's efforts on the segments of the market that are our fastest growing, and they are beneficiation or pigment production and titanium metals.
In the first half, certainly, and over the last number of years, we've consistently seen Chinese pigment production reach new records every year. China has a significant amount of processing capacity. Not all pigment plants are fully utilized, and they consequently have high demand for material. That's driving demand for Kenmare 's material. Similarly, the titanium metal space, a lot of consistent expansion in that space. Rutile, although it only represents 5%- 6% of the overall titanium minerals market, is north of 20% of Kenmare 's markets, Kenmare 's sales. It's something where we feel we have a particular advantage and want to reinforce some very good relationships. We're also seeing on the demand side the fact that the EU in the first half or in last year placed tariffs, there's that word again, on Chinese pigment imports into the EU.
That has certainly supported demand from our EU customers, excuse me. Tariffs more generally have limited impact on us because all of our materials, as I said earlier, are designated as critical minerals and so are tariff-exempt. The tariffs that are supporting the demand are perhaps not the ones you'd expect there in Western Europe. Moving to the next slide. I f the demand side is positive and certainly very positive for Kenmare , the supply side is perhaps the area where we see more challenging conditions. China does produce ilmenite, but it produces ilmenite predominantly as a byproduct of iron ore. That puts pressure on the domestic Chinese market for sulfate ilmenite, which is slightly lower quality than Kenmare 's products. That kind of impacts on the global price and kind of sets a global price.
We're also seeing, because of that excess capacity, a demand for material, concentrate material, rather than the finished products we produce. Chinese concentrate producers in Africa, and quite a few of them around us in Mozambique, have increased significantly their supply in the last 12 months. I think if we step back, we can see this as a response to very high pricing a couple of years ago. We certainly would have seen this in prior cycles in countries like Vietnam and Indonesia, where very artisanal producers using quite rudimentary equipment were able to produce high volumes of heavy minerals concentrate. They can't mine all of the resource that we can. They can only mine the simplest, most free-flowing sands. Typically, as pricing falls, as it has done in the last year or two, those producers start to come under pressure, and others do as well.
You see supply correct itself. Certainly, at the moment, we're not seeing signs of that, or we certainly can't rely on them. We had expected to see an improvement in the supply-demand balance maybe over this year and into next year. That's perhaps pushed out a little bit. The impact of that postponement of price recovery on Kenmare is the impairment that James mentioned because of our moderated estimates for future pricing. If we move to the next slide, please, Alex. For Kenmare , as I mentioned, we sell an awful lot of our products on long-term contracts. We have good visibility on our volumes for the second half of the year. That's the sort of visibility that enables us to consider, as Ben and James said, taking on another transshipment vessel.
Our order book is full of high-quality counterparties who are committed to taking our product. We do expect pricing to continue to be soft, maybe a shade lighter in H2 than H1, but hopefully bottoming out at the moment. It's not just Kenmare that's focused on recovery ahead. Independent commentators like TZMI and TIPMC also see that recovery, but equally like us, they share a caution as to when it will emerge. On our other products, zircon and concentrates, a very similar story. Kenmare products are strong. Our relations with our customers are strong, but the overall market is soft. The concentrates that are being produced globally and sent into China for processing also contain zircon, so that impacts on the market. Maybe to conclude, I think the outlook for Kenmare is a positive one.
We've maintained our guidance for 2025, both in production and costs, albeit, as James said, with that small adjustment to CapEx. We are working hard on a number of fronts to enhance our margin, to increase our production resilience via SMOs, and indeed a new product called ZrTi that we hope to sell our first meaningful cargo of in the second half of this year. If I look at the next slide, please, Alex, I suppose the key characteristics of Kenmare , they're the ones I introduced at the start. One of the biggest deposits in the world, an almost unprecedented mine life, a low-cost industry position, even at these comparatively weaker pricings, still making significant EBITDA margin. We would expect that margin to improve in the second half as it did in the second half of last year. We are well advanced in our capital program.
As Ben said, over the next six to eight weeks, we'll have most of the heavy lifting done, and then we'll be into commissioning. By the end of the year, substantially all of the risk will be behind us. We put the balance sheets and the funding sources in place to achieve that. We're a preferred supplier into the markets that are the strongest. We have a good long-term partnership with Mozambique. Mozambique has been good for Kenmare , and I think Kenmare has been a case study of how countries and companies can work together. I'm hoping that recollection of the positive impact of the past and assessment of what we can contribute to the country in the future, because it's very significant. Certainly, these are the points I made to the President in June when I met him.
We're hoping that they will lead us to a resolution of the Implementation Agreement, but we're not quite there yet. With that, I'll hand over to questions if that's okay. Thank you all for joining.
Thank you, Tom, James, and Ben. Yes, we are now going to take questions. Just as a reminder, if you do want to ask a question, please type it into the Q&A box at the bottom of your screen. Let me start off with the first question today. I appreciate that we are in a period of heightened CapEx investment. When that ends, can you give a sense of management priorities for surplus cash flow across deleveraging, shareholder distributions, and M&A, if any?
Sure. Okay, maybe I'll take that one to start with. Actually, it has been one of the elements of the discussions we've had with shareholders in the last week or so. Maybe the first thing to say is that we would expect to kind of reach peak net debt towards the end of this year and probably for the first half of next year. That deleveraging, as you mentioned, probably starts to become really recognizable in the second half of 2026, all other things being equal. We've maintained our commitment to paying dividends through the capital cycle. I think shareholders were pleased with the interim dividend last week and pleased with the reassurance that there'll be a final dividend.
I think that we recognize that maybe when we come out with results next year, we'll need to give some insight into capital allocation, how we'll feel about core dividends, special dividends, buybacks in the future. M&A is not on the horizon in the short term. I think it's certainly something that shareholders have mixed views about. Some of them would prefer to see us focus on Mozambique and on Moma and extract as much value from it as we can. Equally, others recognize, as do we, that we kind of suffer a discount for being a single asset, single project company. There could be value to diversifying away from that. I think certainly nothing immediate, nothing significantly immediately. I think it would probably be 2027 before this becomes a realistic proposition to engage with shareholders on. Of course, it has to be balanced against share buybacks as well.
A little bit of watch this space, certainly more insight into the long-term answers to those questions over the course of 2026, but something we are actively thinking about.
Okay and thank you. Next question brings us back to the Implementation Agreement. When do you hope for the Implementation Agreement to be signed, and what are the issues that you need to agree on?
As perhaps I covered earlier, the biggest issue that we've had to agree on is the royalty rate that we pay on our sales. Kenmare not just pays royalty rates on our sales, but we also pay royalty rates on some of our processing of heavy mineral concentrate. By the end of the renewal period of the Implementation Agreement, which would be 20 years, we'd be paying not far off 5% of our revenue as a royalty, which isn't far away from the current level of 6% in Mozambique if we were bound by the current laws. It's mostly been royalty. Most other elements of the renewal are agreed. While there's no firm timetable for it, I think we are eight months beyond the expiry of the agreement. I think both ourselves and government recognize we need to get it resolved.
Certainly, that was the message I gave to the President two months ago. Hopefully, we can turn our attention to that before too long and get it resolved. There's no obligatory timetable.
Okay and thank you. I think you covered this in the presentation, but we'll ask it again just for clarification. Can you quantify the impact, if any, of the U.S. tariffs on Kenmare?
I mean, on a day-to-day basis, in terms of tariffs on the materials we produce, export, and export, nothing. On a kind of a less tangible basis, I mean, of course, tariffs are impacting on investment certainty and people's willingness to make investment decisions. That, I would say, allied to the ongoing softness in the Chinese property market and clearly conflicts that are ongoing in the world, probably is making people a little cautious and sitting on demand a bit. I think if the tariff situation were stable, at least, and we would see some degree of reconstruction in conflict regions, we would have a significant uptick in demand and, by consequence, likely a significant price response to that. We're not quite seeing that right now.
Thank you. Back on distributions, on future distributions post-Nataka, how should we think about the mix between buybacks and dividends? I would prefer to see more of a skew towards buybacks when the stock is trading on a single-digit P.E. multiple.
Yeah, a very good point. Look, because we'd say to shareholders, the biggest buyer of Kenmare in the last five years is Kenmare. We've bought back 15% of the stock. Buybacks are certainly always going to be part of the equation and part of how we try and mix shareholder returns. Plus, we also see that you don't get credit for infinitely increasing dividends, and they become a challenge as well. I think as we try to guide on capital allocation, it'll be a maintainable dividend policy and then occasional special dividends stroke buybacks to supplement that. We give clarity on each individual year on what our plans are.
Thank you. Can you talk about the return on investment from the third transshipment vessel? Could it be material if you're stepping up capacity by, say, 50%?
Look, the third transshipment vessel is kind of an experiment. On the assumption and expectation that we're successful with the move to Nataka and increasing production above current levels, we remove mining as a bottleneck to the operation, and maybe we transfer bottlenecks to processing or export. Trying to understand what our max export capacity or sales capacity could be is part of it. Secondly, we have comparatively high stocks at the moment, as James and Ben mentioned. We would like to draw down those stocks between now and the end of 2026, and maybe by 100,000 tons or so. This supplementary capacity enables us to do that. We have three ilmenite products plus zircon plus rutile plus concentrates. We do need to hold a level of stocks that enables us to respond to customer demand. We wouldn't be drawing down stocks likely below that 150,000 tons- 200,000 tons level.
It's about giving us flexibility, helping us understand what's possible, and of course, supplementing cash flow and business performance over the next while. The return on investment, because these are rented vessels, is very, very, very significant and very quick. Otherwise, we wouldn't be doing it.
Thank you, Tom. Next question here, going back to the takeover. What went wrong with the takeover bid?
What went wrong? That's not a question for me. That's a question for somebody else. Look, I think the approach that we got was one at £5.30, which was at a level that certainly our shareholders felt was worth progressing discussions on. Progressing discussions on would have you to that level increasing. I would say, in Alex and Michael's defense, they were a little bit unlucky with the way the dollar-sterling exchange rate moved during that time. The dollar depreciated against sterling, and a sterling-based deal became significantly more expensive in dollars. Of course, the mine produces dollars, so I think that impacted their ability to pay a larger sterling number. Certainly, when they came back to us and said, look, we're going to struggle to stay at £5.30, in fact, we could well be below that, substantially below it.
Based on the discussions we'd had with shareholders, we were of the view that that wouldn't be acceptable. Certainly, when we went back to shareholders and said, we've terminated the discussions because we don't feel we'll reach a deal that you as shareholders would want to accept, they were all very much aligned with that thinking. M&A deal-making is a tricky business. I think one thing it did do is shine a light on the quality of the assets and maybe the upside potential over the coming years in the price. Of course, there's nobody better than Michael to know that potential and that value. It just didn't work on this occasion.
Okay and thank you. Got another question here on the Implementation Agreement. I think you might have covered it, but let me just ask it again for clarity. Is it reasonable to assume that the new IA will be signed before the year end, or is it still a case of wait and see?
It's reasonable to assume it, but it could be wrong. I'd very much hope that we will get it done before then. I think I would suspect government is of the same view. As I said, there's no firm timetable.
Thank you. Just as a reminder, if you do want to ask a question, please type it into the Q&A box at the bottom of your screen. We've got one outstanding question, but we've certainly got time for a couple more. If you do want to ask one, please fire away. Let me ask the question that we have outstanding. That is, can you give me a sense of the cost base between fixed and variable, and also how much of the cost base is denominated in hard currency versus Mozambique currency?
That sounds like one for a CFO.
It does, yeah. Thanks for that, Alex. On the fixed variable, there are very few costs that are truly variable in terms of on a dollars per ton or that change with each incremental ton added or taken away. The ones that would come to mind would be your consumables, electricity for pumping, fuel for driving around trucks, that sort of thing. There's an element of, obviously, the taxes as well. Your Implementation Agreement is obviously sort of variable-driven. In the longer term, everything can flex. If you're talking about over the course of a year or more, you can start to sort of think about flexing labor costs or your other costs. I think you would be looking at at least 60% fixed. I think the other question was around currency. Labor would be the biggest driver of our local currency spend.
Labor is around 30% of our total cost base. Then you've got other sort of local spend across some of the repairs and maintenance production overheads, particularly. You get to sort of around 30%- 40% would be in local currency versus the balance being in USD predominantly. We do obviously work closely with South African and Australian partners or contractors as well, which brings in some of those currencies. I think if you're looking over the course of around 12 months, you're probably talking about 60% fixed with 30%- 40% in local currency.
It's probably worth saying, Alex, that local currency has in effect been pegged against the dollar for the last number of years. That may or may not be sustainable into the long term, but effectively, local costs have been dollar costs because of that.
Okay, thank you. We have had a couple more questions in, and I think we've got time to ask them. I'll ask them both. Well about three now. Any leakage in the new plant, and what contingencies do you have regarding this?
Ben, do you want to cover that?
Yeah, yeah. By leakage, I'll talk about leakage maybe in terms of time and also in dollars. The project has been expected to be commissioned by the end of Q3, and certainly, it has been expected to be constructed by the end of Q3. We go into the ramp-up in Q4. That's fairly much on track. We see that as being on time and no major changes there. On the cost side of things, I think James explained that we're going to spend a little bit more money this year based on timings of payments. It's important when you've got contractors who are not massive contractors, but doing a lot of work over a long period of time, that you pay them very much frequently and keep their cash flows alive because their ability to deliver the project is our success at the end.
We have brought forward some of those payments and made sure that they are being paid promptly, and hence that readjustment on our guidance for 2025 CapEx. The overall guidance of $341 million for the project is intact, and no leakage, so to speak, on that front.
Thank you. Next question here. What is management shareholding in the company currently, and have you seen any material changes to your shareholder base?
I'll touch on the shareholder base one. The shareholder base actually hasn't changed that much and certainly didn't change much during the offer, maybe 1% or so. The shareholder base has been generally quite concentrated. The top 10 shareholders are about 70% of the register. While we have had some movement in and around within those categories, that concentration stays broadly the same. Our big shareholders, the Oman Investment Authority, M&G, JO Hambro, who increased their shareholding last week, Aegis, who are a U.S. fund, increased their shareholding the week before last, Premier Miton and Aberforth are probably 50% between them. We have actually managed to diversify the shareholder list a little bit with kind of family offices and funds who like dividends, have a long-term investment horizon, but aren't necessarily pegged against benchmarks. They can take a long-term view on the project and a long-term view.
That long-term view, I think, supported how they thought about the approach this year. Management shareholding, I think I forget the number of shares I own. I think it's 52,000 shares, although I have some long-term incentive plan shares vesting over the next couple of years. Both James and myself, and James in particular, are comparatively new to the company over the last number of years and certainly haven't had the opportunity to build up huge shareholdings, although that 52,000 shares I have bought in the market. We're all very well aligned with shareholders' interests through long-term incentive plans. Stock vests after three years, and you have to hold it for another two. I think that the alignment of our interests with shareholders is definitely there. It is something we discuss with shareholders, management ownership and management motivation. They don't seem to have any particular concerns in that regard.
Okay, thank you. Next question here. As we move the dredge to new areas, is the material composition exactly identical, or does it require customers' approval?
Maybe I'll take that one. The orebodies, all of the orebodies that we mine are varying all of the time. Part of our marketing capability is to be able to blend the ilmenites, which come from the different areas of the orebody. If you think about this, we have currently, we have two dry mines, three dry mines. We have three wet mining processes as well, with dredges feeding them. Now we have an SMO already. It's our job to try and blend those products to get consistent product qualities. Even those different, the grades of the different products, the ratios of those change all of the time. That's the job that our marketing department does, to manage customers' expectations and to make sure that products can be delivered on spec. Going forward, that situation continues, and the ratios of the different products also changes.
That's something that we understand and we expect, and we will manage accordingly over time.
Thank you, Ben. Got the last question. At what ilmenite price roughly would debt servicing become an issue?
I don't think that, to be honest, debt servicing is something that causes us particular anxiety. The debt covenants are set. We haven't been anywhere near testing them. You know the ratios at which they kick in and the levels of those covenants are set out in the annual report. I think that the other point to think about here is that the facility we have is a revolving credit facility. There's no maturities on that until 2029. There's a lot of flexibility to draw down, pay back, draw down, pay back, and certainly based on our current forecasts and how we expect the net debt to evolve over the next number of months. Of course, the risks that are behind us, a lot of the risks are behind us. That's not something that exercises us on duty.
I don't know, James, sorry, I probably took that question on you, but maybe you want to answer it or not.
Similar thoughts, Tom. Nothing really to add. I think we had $47 million of EBITDA in the first half and interest costs of around $4 million planning to cover. As you say, no repayments until 2029. Plus, I think it's worth noting the banks that we have that RCF with, Absa, Standard, RMB, are very sort of familiar with the industry. We've got very close relationships with them. We're in constant communication with them and work with them well.
Great. That is, as I said, all the questions. That brings us to the end of today's webinar. As you leave in a minute, you'll be asked to complete a short survey. We really appreciate it if you could spend a couple of minutes completing that. Before you leave, I'm just going to hand back to Tom just to say a few concluding remarks.
Thanks very much, Alex. Thanks everybody for joining us and taking the time to spend an hour with us. Hopefully, you found the story interesting and useful. I would urge you to keep an eye on the website, keep an eye on our updates. There's a lot happening over the next six to eight weeks within the development project that Ben spoke about. Every single event that happens is reducing risk and bringing us a day closer to that commissioning and getting going into the next phase of Kenmare 's life. Nataka is 70% of our reserves. All our mining plants will end up there. We've worked really hard to prepare ourselves to mine there, to understand how it might be different from what we have, and to invest to make sure that we can achieve that effectively and at the right cost level.
I think that we'll start to see the fruits of all those investments and all that effort over the next short while. Hopefully, we will also see finalization of the Implementation Agreement. I think those two factors bring us into a very interesting period in the company's life. Thanks for joining us, and look forward to speaking to you again maybe in March next year on the other side of all this.
Wonderful. Thank you, Tom. Thank you, James. Thank you, Ben. Thank you to everyone for attending. Hope to see you all soon.
Thanks, Alex. Thanks, Tom.
Thanks, Alex. Thanks, everyone.