Good morning, ladies and gentlemen. Welcome to the Kenmare Resources plc investor presentation. Questions are encouraged. They can be submitted at any time via the Q&A tab that's just situated on the right-hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and will publish our responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, we would just like to submit the following poll, and if you could give that your kind attention, I'm sure the company would be most grateful. I would now like to hand you over to the executive management team from Kenmare Resources plc. Tom, good morning, sir.
Thank you very much, Jake, and thank you all for taking the time to join us today. I'm joined by James McCullough, CFO, Ben Baxter, our COO, Cillian Murphy, our General Manager of Marketing, and Katharine Sutton, our Head of IR. Hopefully, we can cover all your questions and requests today. Look, we put out our final results today. I mean, I think it's clear that from the results and the commentary that, you know, these are uncertain and volatile times in our markets, and geopolitically, we're seeing some of the impacts of that. They're reflected in the numbers and the commentary. I suppose against that background, it is important to control what we can, and we have a very strong focus over the course of this year on our liquidity and our balance sheet.
I suppose that's because we operate in a very long-term project. The Moma Mine is a world-class asset. It's got 100 years of mineral resources. You know, while our business can be cyclical, we need to think about the long term. We think about that in terms of our investments, such as the WCPA investment that took up a lot of our attention and time in 2025, and we continue to work on in 2026. Our partnerships, such as those with our communities and the government in Mozambique, and I'll talk about our agreement with the government in Mozambique shortly. Our customers and, you know, serving our customers as we move through the ups and downs of the market is very important to us.
Many of our customers have been with us for 20 years +. All of those circumstances mean that we're important to Mozambique, we're important to our customers. We try and do business properly. We were happy to join the FTSE4Good Index in June 2025. We believe that we're an important player in the titanium minerals market. While you know, the market for ilmenite has been weak over recent years or falling over recent years, the market for zircon, while it fell in 2025, we are seeing some signs of stabilization and Cillian will talk a little bit about that later.
Indeed, one of the industry commentators, Stephen Zammit, commented last week that because of some of the curtailments and management efforts that companies are putting in, there should be a supply deficit for ilmenite this year, albeit it will be met by inventories. We're 6% of global supply. We're an important player. Just a reminder that titanium is on the critical minerals list for Europe, U.K. and the U.S. Looking back at 2025, you know, we had a very significant investment in our WCPA project, and that's reflected in our CapEx, it's reflected in our elevated net debt. Ben will give us an overview on recent progress on WCPA when we speak shortly. If we can move to the next slide.
You know, I talked about our position in the market, and look, I think our position in the market and our importance to Mozambique is built on a number of foundations. You know, a good relationship with the community, which served us very well in late 2024 and early 2025 when there was significant disturbance in Mozambique, and it really supported our license to operate. We've invested over $25 million into the community, into health, into small business, into education, and into infrastructure. You can see that those of you who've been to Moma can see those signs on the ground. We also aim to operate safely. We had our lowest -ever all-injury frequency rate in 2025.
We conducted a development project over nearly five years without a single lost time injury, and that was a phenomenal achievement by that team, which at one point numbered over 500 people. We're focused, and the investments we're making are to ensure we can operate consistently and at a low cost for the next decades to come. That's why we take such a long-term focus. You know, having said that, you know, in the short term, day- to- day, week -to- week, year -to -year, we need to allocate our capital efficiently. I think, as you've heard us say over the course of the last number of discussions and calls, you know, over 2025, our net debt elevated significantly due to our capital program.
Ilmenite pricing was a shade weaker, and as a consequence, we're very focused on managing our costs, managing our cash, and managing our balance sheet. Regrettably, we undertook a retrenchment of 15% of our colleagues at site. We highlighted in our guidance our efforts to manage our OpEx and reduce our OpEx in 2026. We're deferring, we're safe to do so, non-essential CapEx. Our CapEx in 2026 will be 70% lower than it was in 2025. Unfortunately, it also means that we've had to pause our dividend. You know, we regret this. We appreciate it's important for shareholders, both institutional and retail. It's a key focus for us to restore it as soon as possible.
Our first priority is to the business, to the balance sheet, to stability, and to trying to navigate the current challenging circumstances that our markets and the wider world find itself in. I think that's what caused us to make that call. You know, as we go through the presentation, you'll hear quite a bit about our value over volume strategy. It's already in action. We've already started selling down some of the stocks we held at year-end. We've already shipped more of our ZrTi product in the first three months than we did in all of last year. You know, we're taking the necessary self-help measures that we can to protect our business and ensure we're well-positioned for any recovery. If we move to the next slide. Just to talk a little bit about the implementation agreement.
Many of you will have joined us last week, when we put out an announcement about the status of the implementation agreement and in particular, a move by the tax authorities to impose a 2.5% royalty on us prematurely in our view, because we hadn't completed negotiations around the full agreement. It's worth recalling, however, that that 2.5% is consistent with a proposal that Kenmare made last year. This wasn't an additional cost to us, and it is accrued in our financial statements. It was more the consequences of what additional or further implementation might impose that caused us to put out the announcement. I should say that there's been no other moves towards implementation. Discussions with the government are ongoing.
The president, indeed, both on the two occasions I met him last year and when he was in Brussels last week with the EU, spoke positively about Kenmare, positively about our contribution to the country, positively about their intention to renew the license, and indeed, while with the EU and while facing quite direct questioning on this issue, commented he expected the issues to be resolved soon without reference to arbitration. That would certainly be our hope too. We've made progress since our meeting in February. We've made progress over recent weeks. We believe both sides are still focused on a negotiated outcome, and obviously as we go through those discussions, there are some adjustments and amendments to proposals that are, as are normal in an ongoing negotiation.
You know, while we have energy and focus on it, we very much would like to conclude it, because obviously, this has been going on for quite some time. That in itself creates concern, creates uncertainty, and creates challenges for all our stakeholders, whether they being shareholders, lenders, or government themselves. Look, we've talked quite a bit about what our remedies are, should we not reach an agreement. Arbitration is still on the table if we can't reach an agreement, but we're very much focused on avoiding that, very much focused on harnessing the energy that we've generated over the last couple of weeks and hopefully getting to an agreement. You know, we're still not there.
With that, I'll hand over to James, who will run through the financial performance of 2025 and some of the wider themes that will have been reflected in the numbers overnight.
Thanks, Tom, and good morning, everyone. Thank you very much for joining. Look, starting off just looking at pricing. You'll see the sort of downward trend in pricing of recent years continued into 2025. Ilmenite pricing was down 6% on average, and zircon pricing down 15% on average, which led to a 6% reduction in our average price received. It was a slight improvement in product mix. We sold a little bit more zircon last year than the year before. As that translates through to revenue, our sales volumes declined by 13%. I'll go through some of the rationale for that shortly. That was mainly in the ilmenite space, so we were down 17% on ilmenite volumes.
Zircon, the higher value product, was roughly flat year-on-year. The combination of those lower ilmenite sales and lower prices contributed to a 20% drop in revenue versus 2024. As that feeds through then to EBITDA, our unit costs increased by 11% during the year, and there was also some other sort of non-cash items provisioned for sales to a customer who was in financial distress last year and some other non-cash items. That contributed to EBITDA of $58 million in the year versus $157 million the year before. Ultimately resulting in a loss after tax of $24 million.
Looking through on CapEx, a big year for Kenmare on CapEx. The $205 million was split between development CapEx of around $156 million and sustaining of $49 million. $156 million was on the WCPA project, and $49 million sustaining was a relatively high year for sustaining capital. That included around $8 million on dry dock of one of our transshipment vessels, as well as costs related to the SMO, the selective mining operation, and some electrical installations. A reasonably big year for sustaining capital. The impairment charge for the year, $301 million, just over the $300 million that we had guided back in January.
This was majorly market- driven and driven by sort of weakening price outlook as we shared at the time. There's also been some adjustments to costs, and Tom referenced some of the sort of anticipated changes in the IA terms that are reflected in that number as well. The vast majority of that number is really related to weakening pricing expectations versus where we were last year. Net debt, look, that CapEx peak and the weak market contributes to net debt of $159 million. There was around $49 million of cash that offsets around $206 million or $205 million of total debt, including accrued interest.
We expect net debt probably to stay around these sorts of levels for the year, given the weak pricing outlook. We did, as disclosed previously, secure a waiver with the lender for our covenant levels, so from 2x to 3x. We're comfortably within that level for 2025. As discussed, or as disclosed in the statement this morning, we're in ongoing discussions with the lender group around appropriate covenant levels for 2026. I'll touch on that again shortly. As Tom mentioned, we've made the tough call to pause the dividend for 2026 or 2025 full year rather. Move to the next slide, please.
Just looking briefly at the income statement, and you can see the drop in revenue, as discussed, and cost of sales, broadly flat. Net finance costs, I suppose, and tax are probably the key things to touch on here. The finance costs are obviously higher given the higher debt that we're carrying. Look, the tax in the income statement relates to tax that we pay at our mining company, KMML, where our profits are based on a cost-plus basis. Notwithstanding the loss at the company level, there's still a tax charge at the sub-level. Just the chart on the right gives some indication there of the product mix change, 2025 versus the prior year.
You can see a slight increase in zircon content, and a decrease in the ilmenite, and that's what's given a little bit of support from a mix perspective. Look, just a little bit deeper dive on some of the individual line items. On the revenue side, shipments were down 13% in 2025 versus 2024. The main contributors to that were the dry dock for one of our transshipment vessels, which took one of those out of action in the middle of the year, that was anticipated. Weather was worse than anticipated, particularly in H1. And then we had a customer who wasn't able to take its volumes in Q4. That all contributed to the 13% drop in shipments.
As I said, that was really in the ilmenite space that we felt. That's contributed to higher inventories. I'll touch on that when we get to the balance sheet. We are actively working those inventories down at the moment. Then pricing, as I mentioned, ilmenite pricing average of $276 per tonne, so that was down 6% year-on-year. Zircon down to $1,173, down 15%. With that slightly higher zircon content, the average price was down 6% to $338 per tonne. Looking at the cost side. Cost of sales are broadly flat, a little bit down at the top of the chart. Administration expenses were up. There's a couple of things just to note in there.
One is that the charge this year or for 2025 includes that provision for sales to the company that went into financial distress, as well as some other non-cash items. The comparator year, the 6.2 there, was reduced by the proceeds of an insurance claim of around $3.3 million. Adjusting for those things, it was broadly flat year- on- year. Looking at the total cash operating cost line, again, pretty flat year- on- year. In terms of direct costs, we saw an increase in labor costs of around $6 million a year, driven by part of that was the retrenchment program that Tom mentioned, but also higher wage rates and some other factors feeding through there.
That was offset largely by lower fuel costs, lower consumption of fuel, and lower fuel prices. There were some minor adjustments in or minor changes year-on-year in the other areas but broadly sort of flat in terms of direct costs. Indirect costs were up slightly. The IFZ royalty that we've been paying, so historically, that's been at 1%, and in 2024 rather, it was at 1%. We've been accruing at 2.5% as we disclosed previously, in light of our expectation that that is the royalty that will be applied when the IA agreement is finalized. That contributed around $4.9 million to indirect costs.
There were some other areas of indirect costs where we managed to make some savings to keep indirect costs up around $3 million. Looking at that at a unit level, obviously the lower production volumes, 10% lower production volumes year-on-year, notwithstanding the flat costs at an absolute level led to an 11% increase at the unit cost level. Adjusting for co-product revenue and looking at it just on an ilmenite unit cost basis, there was a larger increase up 32%, and that's really driven by both the lower co-product pricing, but also the lower ilmenite production. Look at the total level, we have at least addressed the rising trend of costs over recent years.
I think we've started to see some of the actions that we're taking on costs coming through, and we've guided for 2026, an approximate 10% reduction in costs. If we look just at the cash bridge, really sort of seeing capital, CapEx and dividends being funded by operating cash flow plus working capital, and obviously the debt facility that we have. CapEx really is the main feature here. $205 million last year. Our guidance for this year, in total is $60 million. Expect to see that orange bar shrinking very rapidly. That $60 million is split between kind of or rather development CapEx of $30 million and sustaining capital of $30 million. That development CapEx is very much sort of front end weighted.
We've made sort of good inroads in that through Q1. Kind of obviously continuing to focus on sustaining capital and where we can optimize that as well. End of the year, as I said earlier, the net debt position of $159 million. If we move just onto the balance sheet, you'll see the reduction in PP&E, property, plant and equipment. That reflects the impairment, obviously, you know, CapEx spends as well. You know, the CapEx additions, less depreciation, less the impairment ultimately reducing and or resulting in that reduction to $877 million. Inventory is very flat and inventory volumes were actually up about 20% year-on-year in terms of finished product. The value of those tons was down about 20%.
Overall, a flat inventory line. Trade and receivables down considerably from last year. Again, there's a kind of portion of that that's related to price. Volumes in terms of sales included in receivables dropped from around 205,000 tons down to 109,000 tons. Part of that is related just to lower volumes overall. The value of each of those tons have dropped from sort of $455 a ton down to $399. Resulting in that outflow from receivables. In the creditors and provision line, the increase there from 2024 is mainly related to CapEx accruals and payables.
Closing cash balance around $49 million. The net current assets piece in there is, you know, quite important. The net current assets position, when you take account of the receivables and the inventory, we're in a strong position from that perspective, more than $150 million of net current assets. The covenant levels touched on that earlier. We secured with the lender group a covenant reset for net debt to EBITDA from 2x - 3x for 2025. Look, we're in discussions with lenders at the moment on what appropriate levels for 2026 will be. As we've said previously, we are very closely engaged with our lenders.
They've been very constructive and supportive to date, and we have no reason to think that's going to change. With the uncertainties that Tom referenced in terms of what's happening in with the IA as well as what's happening in the market, it does lead to some uncertainties in terms of the financial projections for the business over the course of the next 12 months. We don't know yet to what extent the terms of the internal resolution will be imposed. Depending on whether there is any further imposition of that could have an impact on our financial position during the year. That's reflected in our going concern statement, which is included in the release, the prelims release today.
The going concern statement reflects that through a statement of material uncertainty, which is really recognizing what we as management has disclosed and the auditor understanding that to say that, you know, subject to the outcome of those discussions on the IA, as well as other, you know, general risks around market and geopolitics, et cetera, that we're facing and other companies are facing, subject to successful outcomes on these things. The going concern statement is signed off. Moving on just to the final slide in that pack. Look, Tom has already referenced proposing the dividend. A very sort of tough decision to cut the dividend, not taken lightly.
Obviously, in the context of the levers that we have to manage liquidity, this is one. We pulled many, and we pulled this one reluctantly. We do have confidence in the long-term cash generating capability of the business. As Tom says, we'll look to resume that as and when we can do so. With that, I think I'll pass back over to Ben.
Morning, everybody. I'm going to take us through the operations update. I'll start off with explaining some of the meaningful achievements that we had during the year around sustainability. Firstly, on health and safety, it was a very good year. Overall, we've reduced our lost time injury frequency rate by 30% over the past three years. In fact, in 2025, this was our best ever year around all injury frequency rates.
As Tom referenced, that is remarkable, particularly in light of the fact that we had a development project with more than 500 contractor workers on site at one point, and that whole project was delivered without any lost time injuries. On communities, we have now 80% completed the development of a regional hospital to support the clinics, which we have three clinics in and around the mining areas. We're also now seeing the benefits of the Topuito Technical College, which is now delivering graduates that are available for recruitment into the business.
On the environment side, a major initiative for the year was to focus on recycling and composting, and more than 60% of the waste that we generate at the mine was recycled. This is expected to continue to improve through 2026, and that's giving us a lot of advantages, not only from an environmental perspective, but also, the capital profile means that we will not need to extend our landfills in the years to come. Organic waste is being successfully taken through to the rehabilitation process as well. We remain a trusted business in Mozambique. We have again remained the most transparent extractive industry in Mozambique, and also, we entered the FTSE4Good index in June of last year. Moving on to the production side.
2025 was largely impacted by the WCPA upgrade, and that meant that HMC production was 15% down year-on-year due to the lower mining rates. The good side of the mining side was that we introduced the selective mining operation and that was commissioned through the first half of the year and delivered very well in the second half of the year and met its 50,000-ton heavy mineral concentrate call. We see that positively and developing SMOs this year for the future as well. Onto finished products. The ilmenite and rutile were impacted particularly by the heavy mineral concentrate production being down, and we achieved a revised guidance level on those products.
However, on zircon, we were able to maintain our original guidance level, and this came because of very good recoveries in the mineral separation plant, as well as the drawdown of some intermediate stocks. Particularly good news around guidance was that we materially exceeded the guidance on concentrates after we successfully introduced a new product called ZrTi into our sales mix. This material has been well received by the market, And I'll talk some more about that in a few moments. The ability to draw more from the HMC that we had and the stockpiles meant that while the HMC process was 16% down, the actual finished products was only 10% down year-on-year.
If we look at shipments, as James mentioned, we were 13% down year-on-year due to poor weather conditions in the first half of the year, and then our peg transshipment vessel was required to go for its five-yearly class certification, recertification process in a dry dock, and that took place between June and September. This meant that we had finished product stocks rising in the second half of the year and that means that we start this year with a guidance level of exceeding more than 1.1 million tons of shipping, which was a 15% increase expected this year compared to last. Maybe to discuss a little bit of the year- to- date 2026 performance and our value over volume strategy is being prioritized.
The first area of that is the destocking of the finished products that we have. Year- to- date, our shipping is consistent with that run rate of 1.1 million tons, and so we are unlocking the value of those finished product stockpiles. Some customers though are struggling to coordinate both their shipments due to the market or to the geopolitical volatility that we're experiencing, and this is where the flexibility of ZrTi is helping us. We're able to sell more of that material and offset the effect of that volatility. In fact, as Tom mentioned, with our ZrTi sales so far this year are in excess of all of what we did last year in 2025.
The other aspect of value over volume is around focusing on the product mix to extract the higher value products. You know, with production being lower due to the WCPA commissioning process and at a time when ilmenite markets are weak, we've been focusing on getting the most zircon products out that we can. This is helping us to offset that weaker ilmenite pricing environment. During the year so far this year, we've been reprocessing former tailings and intermediate stocks to increase the high value high margin zircon products. On the ilmenite side of the business, we have spare capacity and so we've been using that time in the ilmenite circuits to dry ZrTi.
This means this allows us to ship more of it, because the loading rates traditionally, so far with ZrTi have been slower than on other products, because the material is stored outside and is moist. By drying it, we can get the efficiencies up and get more ZrTi transshipped, and that means that overall, we're on track to achieve our 2026 guidance on all of the metrics. I'll move now on to the capital projects update, and that's on slide 20. Really the year has been about WCPA upgrade, and right now we're focused on consistent delivery at WCPA.
You'll recall that the majority of the plant at WCPA has been replaced and so we have new high- capacity dredges, a new feed preparation unit, including desliming and a tail storage facility that's fully in place. All the major construction and installation work is now complete and is fully handed over to the operations team. This means that now what's happened since that commissioning started in Q4 last year, we have experienced some commissioning challenges, and that took place last year, and we've had some that rolled off into the Q1 of this year. However, what we can say now is that WCPA is regularly operating at the nameplate of 3,500 tons an hour.
There have been a set of low-cost rectifications completed using the budget, the existing budget, for the project, and the contingencies therein. We now expect to see consistency in the short term. Things that have been taking place are around winch breaks. We've had software changes, cooling improvements. We've done pumping improvements both in the desliming circuit, which will be taking effect at the next planned maintenance in April. On the tailing side, pump upgrades of gearboxes, particularly to increase the capacity of removing the tails to the tail storage facilities and coarse tail features. On the outside, the densification challenges that we had previously discussed have been resolved, and we've had a stable outside slimes management situation throughout Q1 with no impacts on production.
We did have a walkway event during the Q1 of this year where we lost some production time due to the turning of one of the walkways. This work we decided to do some long-term fixes on that rather than a temporary fix, and so we did lose some production time. The stability of those walkways has now been rectified, and that sets us up well for the future. Onto slide 21 and to look at the project costings. The project is materially de-risked now. Yeah, we spent more than 80% of the project capital during 2025. The budget remains at $341 million, and we're inside of that with unallocated contingency.
As I said, all of the rectification measures that have been undertaken through this commissioning process have been captured within that capital cost estimate. By the end of the year 2025, we'd spent $270 million cash, with $12 million incurred, and that $12 million is included in the $30 million that we expect to spend in 2026. The tail of the project is that in total $70 million. Thirty of that this year, forty of it thereafter. It's quite a tail because it reflects the fact that we will only purchase the infrastructure requirements for Nataka ore body at the time when we need them down the track. This tail is quite long.
As I said before though, the project team is fully demobilized. All the further works will be handled internally by our in-house projects team. The main project is essentially now being closed, and it's being closed on budget. The effect overall on CapEx, as you see, is as we come off that large spend of last year, it was $205 million all in, including sustaining CapEx last year. $205 million is being reduced to $60 million this year. You'll see that the intensity of our capital spend is significantly rolling off. With that, I'm going to pass over to Cillian, who's going to give us the market update.
Thanks, Ben. Morning, everyone. Start on slide 23. Look what you can see clearly is that 2025 was a challenging year in our product markets. While demand for Kenmare's products and our volumes remain relatively robust, the overall market did weaken really for a combination of reasons. On the demand side, we saw slow markets, slow housing markets in really major economies, and no recovery there. On the supply side, we saw the continued growth of concentrates and supply in China's domestic material, which led to an oversupply, particularly on ilmenite, but across all the markets. This flowed through to a 6% decrease in our average price received that you can see in the graph at the top left.
Through 2025 and really in the second half of 2025, we started to see a supply response, and this has had an initial impact on zircon. Towards the end of the year, we did see zircon prices stabilizing, and I'll talk more towards what we're seeing in early 2026 on that one. I think James touched on one of our customers entering financial distress. I think on a positive note, we have seen good progress towards recovering, I suppose some of the value. We had two shipments outstanding, but the shipments hadn't been touched, and we retained title. We've now, I think, received payment for one of those shipments, which were a value of $4.6 million, and we're in the process of arranging to retake control of the second stockpile, which again has not been touched.
To move to slide 24, please. Just going a bit more into the detail of what we saw in 2025, particularly in the ilmenite market, and it was a continuation of the shift we see towards China in our markets, both on the supply and on the demand side. On the supply side, we're seeing it in two places. We're seeing concentrates produced in Africa, Australia, shipped into China to produce finished products there. We're also seeing ilmenite produced out of I suppose iron ore mines in China, both growing and remaining mostly captive in China, but impacting the global market. We're seeing sort of strong growth there.
I think on a positive sign, we have seen a response from the Western producers I mentioned on the zircon, but all of those mines carry with it ilmenite as well. You know, Kenmare has, I suppose, doing similar too. We've seen unplanned curtailments too as a result of, I think a couple of disruptions to operations, and that is having an impact on the market. On the demand side, I suppose the structural shifts really you can see it in the graph in the bottom right. Pigment production growth in China is the green columns, and it's growing significantly faster or it's growing and the orange is depleting. We're seeing that shift towards China.
You know, when we look at where the new capacity is still being built, it's still in China at the moment, so we expect that to continue. That's not necessarily a negative thing because chloride is taking larger market share there and that domestic ilmenite can't be used there. It's a big market for Kenmare, and chloride is taking a bigger market share, which is a positive for Kenmare. Finally, if we look to 2025 and an outlook for the year 2026. I think the market has started the year on a soft footing, and we expect, I think, prices in 2026 to be lower than 2025, particularly on the ilmenite side. We've seen that in Q1, a significant decrease compared to what we saw in the second half of last year.
That's partially a result of cancellations or postponements to shipments that we saw in the Q1 , which resulted in us having to go, I suppose, to the spot market with late notice, and therefore didn't, I suppose, achieve the same prices we were expecting. Despite that, you know, we did find markets for that. We continue to see strong demand for our products, and I think the two graphs show why. Chloride pigment continues to grow. Last year was a record, and we've seen more capacity being added already this year. Titanium metal continues to be a strong part where we actually grew our sales there on a percentage basis despite slight pullback in overall demand there last year, and we see that continuing this year, too.
On the zircon, I think we are starting to see the impact of, I think, controlled responses from producers and outages as a result of production issues. We have seen the prices stabilize since the second half of last year, particularly Q4, and now we are seeing price increases announced in Q2 for our zircon products. We've already agreed a price increase on one of our products for Q2, so that's a more positive outlook there. Finally, to touch on ZrTi, I think Ben mentioned it. We are seeing a strong market for that. Q1, we sold more than we sold for full year last year, and we are seeing strong inquiries for Q2 already.
This is linked to the, I suppose, high TiO2 ilmenite that's contained in it, but also the rare earths that are contained in that product as well. That's leading to, I think, an encouraging outlook for that product. With that, I'll pass back to you, Tom.
Thanks very much, Cillian. Maybe just to summarize quickly, I mean, obviously, we've gone through quite a lot of detail today, and kind of highlighted the actions we're taking to address where the market is now and position ourselves for the future. Our guidance reflects that, too. As James and Cillian said, we're on track for our shipments in the Q1 to achieve the guidance level. We're working hard to control our operating costs and manage our day-to-day exposures and optimize our balance sheet. We're seeing, you know, some positive developments around ZrTi demand, which I think we kind of anticipated last year, and we're already seeing it in Q1 this year.
Cillian's just touched on where the zircon market is, early days, but certainly some green shoots there too. If we move to the next slide. I mean, I probably talked to this at the outset, but it bears repeating. You know. Like many in the industry, Kenmare is taking all the self-help measures that it can to ensure that it retains financial flexibility, that it retains a strong balance sheet, that it achieves its objectives to sell down inventory, that it keeps positive customer demand, and relationships, and that it can adjust to, you know, whatever the recent volatility throws at us. For example, we have one customer in the Middle East who, you know, has challenges accessing their port at the moment.
You know, we'd like to make sure we can supply them, and we'll try and be flexible to ensure we do that. You know, there probably will be one or two surprises arising from the current geopolitical uncertainty, and we're trying to position ourselves to adapt to that. You know, we're reducing operating costs. We're managing our CapEx. You know, we regrettably undertook a retrenchment and equally regrettably have had to suspend the dividend, albeit hopefully not for too long. You know, we're working very hard to make sure that we can operate, you know, that we're operating in a stable manner, in an orderly fashion, and making the best use of the resources that we have. And I suppose, why are we doing that? If we go to the next slide. Because we've got a world-class asset.
We've got something that's going be here producing into the global TiO2 market for decades to come. Our investments are intended to support Kenmare to do that. Our investments are intended to support Kenmare to do it in a cost-effective manner. One of the best cure for low prices is low prices. We are starting to see some producer stress. We are seeing some curtailments, some voluntary, some unfortunately involuntary. Hopefully we'll start to see the effects of all that pain reflected in a more stable market before too long. Gratifyingly, our customer base has stayed stable. The demand for our product is strong because of the quality and diversity of them.
Cillian and his team are working hard to make sure that we're taking advantage of all the shipping opportunities that are available to sell down our stocks. We're working hard with our local community to maintain our license to operate, and I think that's been one of the things that distinguishes Kenmare. You know, as we have been for quite some time, we're working with the government to try and ensure a positive and negotiated outcome to the implementation agreement. You know, just to stress that, you know, while we have had some announcements on that in recent weeks and we are making some progress, there is no firm timeline for that.
You know, we can't give a specific timeline on it, but we do hope, like the president, that we can do it quite soon. With that, we will turn over to Q&A. Catherine will run us through the Q&A, and thanks for your time and attention.
Perfect. Guys, if I may just jump back in there. Thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab that's situated on the right-hand corner of your screen. But just while the team take a few moments to review those questions that have been submitted already, just like to remind you that a recording of this presentation, along with a copy of the slides and a published Q&A, can all be accessed via your investor dashboards. As you can see, guys, we have received a number of questions throughout your presentation. Thank you to all of those on the call for taking the time to submit their questions.
Catherine, at this stage, if I may just hand over to you to chair the Q&A with the team, and if I pick up from you at the end, that'd be great. Thank you.
Thanks, Jake. The first question comes from Colin Grant of Davy: What percentage of global ilmenite production has now come off stream following production cuts and other issues experienced by producers, and how do you expect this to evolve in 2026?
I think maybe, Cillian, if you want to talk about what you're seeing in the market in terms of reactions or behaviors to manage production, and we can take it from there.
Yeah. Thanks, Colin. Look, I think probably at the moment it's somewhere in the 5%-10% range that has come off, and we're towards the upper end of that. Look, I don't think we see any of that supply coming back on in the short term. You know, we don't think the full impact has come through yet. We don't think the market has fully accepted all of the recent issues either. We do think that is going to really firm up the market, because there's a lot of supply coming out, and we'll see that develop through 2026. That's, I suppose, aligned with what we're seeing in zircon.
Okay. Next question also from Colin Grant of Davy: What do you believe is the cash flow breakeven ilmenite price for the market in aggregate today, and how has this grown over the last several years, given inflation?
James, you want to chat through that? I mean, it's obviously a movable feast, and it depends on the actions of others as much as ours. It's probably worth just talking through what we've done.
I think the question specifically is around what's the breakeven price for the market. North of here, I think Colin would be clear based on the demand capacity that we're seeing coming out of the market. Look, I know TZMI is the sort of author of record in this space. I think their latest cost curve, which is based on 2024, would show you know the sort of last 20% of that being up north of $250 per ton certainly. If I look at that cost curve, and again, this is based on old prices or old costs rather, which have probably gone up, certainly a good chunk of the market would be underwater at the moment.
How has that gone over recent years? I think the cost curve has steepened a bit, and if I look back over historical versions of that, you know, the right-hand 20% of the cost curve probably still in that range of, you know, high $200s into low $300s. But more of the middle of the cost curve probably, you know, increasing as well to give an overall steeper cost curve and reflecting, I suppose, just cost escalations.
Now a few questions from Richard Hatch of Berenberg. First question, you could have paid a very modest dividend rather than fully halting dividends. Are you restricted by paying dividends under your debt covenants or other covenants?
Maybe I'll say that it's a big step to pause the dividend. I think, you know, we do have distributable reserves, so technically it would be possible for us to pay a dividend. But I think we're very conscious that with the level of uncertainty out there at the moment, around market pricing, around the implementation agreement, albeit we're making progress, and around, you know, what the impacts of, you know, the current geopolitical environment are and for how long we might be feeling them, we felt that it was necessary for us to be pulling every lever to preserve cash and to manage our liquidity. You know, and look, to be frank, we're also, as James will run through, we're talking very regularly to our lenders about what the best path forward is.
We got a covenant waiver for 2025, and certainly their opinions are important for us, to us for 2026 as well. You know, what I'll say on, before handing over to James, is we do want to resume dividends as soon as possible. It has been something that we've been, you know, very committed to and very proud of in the last five or six years. This is, you know, while we recognize it's a big decision, it is one we took with reluctance.
Yeah. Thanks, Tom, and hi, Richard. Yeah, I think Tom has covered most of it. Look, the very specific answer to your specific question is yes, there are distribution covenants within the RCF that we have. Like all parts of an agreement, they're subject to discussion and subject to waivers, and consents and that sort of thing. You know, it's not as black and white as just it's written down, so it can't happen. I think in the context of where we are, with you know, with already having had covenant relaxation into the year-end and all the other levers that Tom has talked about, I think you know, it was prudent to take this approach.
Next question from Richard Hatch. A back out of concentrates price of around $230 a ton, is that a fair assumption to use for 2026?
Cillian, do you wanna touch on that?
Not sure I fully understand the question. If that's a question toward what price you think the concentrate producers are shipping to China?
Yes.
Our concentrate revenues as a whole, I think is the question.
Okay. When we talk about concentrates, there are a few different things in there. Zircon will become dominant, just purely because of the volumes of it. I think that would be in the right ballpark for zircon, but the other, I suppose two concentrate products we produce would be higher than that.
Next question from Richard Hatch. Can you comment on the scale of artisanal mining by Moma and how this is impacting the broader market?
Maybe I'll start that and, Cillian you can jump in because it's, you know, the impact of concentrates mining in Mozambique and elsewhere is something that we spent a lot of time looking at. Those of you who visited the site in recent years or indeed in recent weeks will have just seen with your own eyes the many plants that are there. We know that the aggregate concentrate production in Mozambique is equal to or potentially marginally even ahead of what Kenmare are doing. I think the point is more, you know, the trends of that production, and you know what type of ore they can mine and how, and by consequence, how long that production will stay on for. Cillian, anything else you want to add?
No, I think you're exactly right on scale. I think when we look at last year, Mozambique as a whole, in terms of finished ilmenite product, it was probably very similar to Kenmare. How it's impacting on the market, you know, it's because there's no MSPs with their operations, it's all in China, it's all in the spot market, and it's sitting there. That's what I suppose is weighing particularly on price at the moment. They do have an outweighed impact on the pricing in the market at the moment.
Next question from Richard Hatch. Slide 13 says $10 million of PP&E accruals for 2025. Is cash CapEx for 2026 $70 million, $60 million plus $10 million?
Hi again, Richard. No. The guidance on net CapEx of $30 million includes the rollover of actually $12 million from 2025. The new spend to be incurred is closer to $20 million on the CapEx side. Sustaining capital of $30 million, so total cash capital guidance of $60 million for the year.
Can you guide us on the cost of your covenant amendments, i.e. the fee you have to pay to your lenders?
Look, we've had one covenant amendment so far and there's been no fee. The lenders, while we do get on, you know, well with them and are very constructive, they do take their pound of flesh. We pay them a not insignificant amount in terms of interest and other fees. Look, it remains to be seen as we continue the discussions over the course of this year, what that might come out at. But to date, it's been immaterial.
Next question from Richard Hatch. Can you give a steer on year- to- date moves down in ilmenite prices and what kind of price increase you're expecting in zircon in Q2?
I don't think we can fully guide on the ilmenite price, but I think it's linked to the last question I answered on concentrates, and the fact that we've had those cancellations and postponements of shipments has led us more into that spot market. That spot market is at a lower price than I suppose that spot market in China is at lower prices than the Western market. It's kind of the double effect there. But I suppose it would be a bigger move than we would've seen from H2 to H1 last year for some context. Then, on zircon, you know, there's price increase announcements being put out in the range of 5%-10%. Probably see it differently in different markets, but closer to the 5% range.
Final question from Richard Hatch for now. What is your understanding of global stock inventories of ilmenite? He says, "Thank you for taking my questions.
Yeah.
Do you want to touch on that? 'Cause I think TZMI and I talked exactly about that last week.
I think we don't think ilmenite inventories are high throughout the world as a whole, but there are stocks of either HMC or ilmenite in China. I think that would be where we could see some stocks. When you look at the impact of the reductions in supply, whether intentional or not, we think that would, like, I suppose TZMI might talk to it, and we would agree that it would take down the majority of those stocks through the year. We don't see it with a lot of our customers, but where we do see it, we think it'll come down significantly as a result of these stoppages this year.
Next question. What is the outlook for the pricing of ilmenite over the next one to five years?
Jesus, if we knew that.
Yeah. I can start that and maybe Tom jump in when you want. Like I think we said 2026 we expect to be lower. I think maybe to the question James answered earlier about costs, we think a large portion, you know, 25%-30% of the market, of the supply in the market is at or below cost at the moment, which, you know, we don't think is sustainable, so we don't see the current prices as sustainable. As a result, we are seeing a supplier's response at the moment. I think that points really to that. We would expect to see improvement in prices as a result of that. On the demand side, I think we do expect to see a demand pull.
You know, we haven't seen growth from the major economies, major housing markets in maybe four or five years at this stage. We don't think that can continue for the next one to five years, you know, in that period. India continues to be a strong growth market. Metal continues to be a really good market for Kenmare, but also for the market as a whole. It's growing very strongly. We do see reasons for demand pull. We don't think supply can continue at these levels, so we would expect to see prices increase following, I think, a weaker 2026.
Maybe the only thing I'd add to that, thank you Cillian, is if prices are too low for existing producers, then they're certainly too low for new projects as well. I mean, we're nowhere near incentive pricing for new projects, so you know, the prospect of material incremental supply from non-Chinese projects is certainly likely lessened. I looked at one point we perhaps didn't make earlier on the artisanal mining in response to Richard's question. You know, it's very clear from the nature of the equipment and the nature of the processes that they use that they can only mine the simplest, least complicated, free-flowing sands, which is not every ore body.
At some point, you know, I don't think it'll fall off a cliff, but I think at some point that production will top out, start to stabilize, and fall, as those simpler ore bodies are exhausted.
Next question. In the event that there is a need to go to arbitration, how long will that process take? And is the arbitration immediately binding, or is there an appeal process? In essence, in a worst-case scenario, over what period of time could the uncertainty over the implementation agreement continue until a final resolution is reached?
Thanks. I'll take that. Look, if there is a need to go to arbitration, as we've said, we hope there isn't, but, you know, we have to be open to the possibility. The arbitration process itself could take, you know, up to two years. It would take a couple of months to constitute the arbitral panel. At that point in time, we could apply for what's called interim measures, which effectively, if granted, would bring us back to the status quo of operating under the old terms, and that would be our application. You would go through the arbitral process in the normal course. Look, we think this would be a conventional commercial dispute.
We, you know, we certainly at no point in any of our discussions with the Mozambican authorities would have we discussed anything other than, you know, continuing to operate in the normal course. When we get to the arbitral outcome, the parties have agreed that arbitration is the route that they will use for dispute settlement, that arbitration will be in Washington under ICSID rules and the outcomes will be binding. Obviously, we believe, because what our agreement says, that we have a very strong right to renewal on the same terms. We voluntarily offered significantly better terms. We believe the government's aware of that position, and we're hopeful that arbitration is a consideration, but no more than that. That's likely what would happen if we do have to go that route.
Next question. You say ZrTi is higher value, and you imply those concentrates contain REEs, rare earth elements. Is that true? And is that rare earth element monazite?
Cillian, do you want to touch on that?
On the monazite, like yes, it is true. This product contains small amounts of monazite. It's a low concentration, but we get value for it, and monazite is about 60% rare earth elements contained within the monazite. You separate out that monazite, you leach it, and then you get your rare earth concentrates effectively. ZrTi is sold, gaining value from those rare earths. Just to say it's not a higher value. You know, it's not a higher- priced product, just to correct that.
Yeah. Maybe the thing to say is it is. It's margin enhancement that we haven't previously pursued.
Thank you. That was the final question, so handing back to you, Tom.
Thanks very much, everybody. Thanks for your time. We appreciate it's been quite a long call. If you have any follow-up questions, please feel free to contact the team. We will be doing our Q1 production update mid to late April. Look forward to seeing many of you over the coming days as part of our roadshow. If anybody would like a meeting, please reach out. Thank you and good day to everyone.
Perfect, guys. That's great, and thank you for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback. On behalf of the management team of Kenmare Resources plc, we would like to thank you for attending today's presentation. That now concludes today's session, so good morning to you all.