Good afternoon, welcome to the Kenmare Resources Plc Q2 2026 production update. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged, they can be submitted at any time using the Q&A tab situated on the right-hand corner of your screen. Simply type in your questions and press send. Before we begin, I would like to submit the following poll. I would now like to hand you over to Managing Director, Tom Hickey. Good afternoon.
Thank you. Thank you very much. Thank you all for taking the time to join us after we announced our Q2 and H1 production update this morning. I'm accompanied here by James McCullough, CFO, Cillian Murphy, Head of Marketing, and Ben Baxter, COO, and I'll hand over to them for different segments of the presentation. If we move ahead, please. Just a quick reminder, Kenmare Resources is the owner and operator of the Moma Titanium Minerals Mine in Mozambique. We've been there for nearly 40 years. We've been producing for nearly 20 years.
We've got a very, very long mine life, a very long-term resource base. We've invested for the long term over recent years. I suppose if you're going to be somewhere for a long time, you want to behave yourself. You want to be a good citizen. You want to integrate well with the community. Kenmare and Moma are important to Nampula, the province in which we're set. We're important to Mozambique. We make a meaningful contribution to each, and that's not just from the taxes and royalties that derive from our production, but also from the social investments that we make to increase capability and capacity in and around the mine.
Look, we're pleased that that's been recognized by having us included in the FTSE4Good Index for the second year in a row. Country, you also need a good framework of agreements, and we have been negotiating the renewal of our Implementation Agreement with the Mozambique government for quite some time, and I'll run through that a little later. Just to recap, we produce titanium minerals, ilmenite and rutile.
They're key raw materials in the manufacture of paints, pigments, paper, plastic, titanium metal. We're a good chunk of global supply, about 6%, and pretty much the same of Mozambique and exports. While we're a comparatively small company, we're important within the industry in which we sit and the country within which we sit. Of course, titanium, like many others in recent years, has been put on critical minerals lists for Europe, the U.K., and the U.S. There's lots of attention on the mineral and the metal, and we believe that will stay that way for the foreseeable future.
I touched a little bit on the investment that we have made throughout Moma's life. Our net book value at the end of 2025 was just under $900 million. We've invested not far off $300 million in the last two, three years on an upgrade of our biggest plant, WCP A, to move to our biggest ore body in Nataka. Ben will talk a little bit about that later on. We're substantially through that CapEx at this stage. If we can move on, Katharine. From the general intro to Kenmare to the quarter, and indeed the half year. Those of you who've heard our calls before will remember that while in many other years our priority would be production and tons produced, for 2026, our highest priority is shipments.
We entered the year with a substantial level of finished goods inventory. We want to sell that inventory down along with our existing production. We want to obviously use that to generate cash flow to maintain our financial flexibility at a time when market pricing has progressively weakened over the last number of years. Hopefully, we're at or near the bottom of that, but certainly we have been paying close attention to our liquidity, close attention to our production, in 2026, and we expect that to continue. Certainly, in the first half, we've performed well in that regard.
Our first-half shipments of 556,000 tons just ahead at the run rate of our annual shipments guidance. There were some notable pieces of information in there. Our concentrates production for the full year was materially exceeded in H1, and that arose principally from a new product called ZrTi, which was previously a waste stream. Something where we didn't fully recover all the valuable minerals to our main products, and effectively this would have historically been discarded. It's certainly become clear to us that there's market interest in this material, and it will be part of our sales for many years to come, albeit not at the levels of 2026, because in 2026, we're exploiting a historic stockpile that we had and meeting demand via that.
ZrTi aside, I think our ilmenite production, which is our main product, was impacted by the WCP A investment and in particular the elongated commissioning process of that. We expect our 2026 production to be just at the level of our guidance of 800,000 tons. I think Ben will run through the work we've been doing ourselves to improve performance, and it has improved over recent months, and what we expect to do over the remainder of the year to complete that project.
The other point I'd make is we do expect to see a stronger H2, both in terms of heavy mineral concentrate and the grade. There's certainly some tailwinds or some positive influences on the second half of the year. Looking at our market, I've touched already on the markets in which we operate and the fact that over the last number of years, they've weakened progressively. Quite a few movements in the first half of this year. The ilmenite market, we expect it to be a little weaker in Q2.
The market, as Cillian will perhaps run through, is actually getting quite distinct in different geographies, with the Chinese market differing materially from Western markets and even within China, markets for chloride pigment and the ilmenite inputs to it versus sulfate pigment, very different. Some things driven by what's happening in the U.S.-Iran conflict, which is increased freight costs and also sulfuric acid costs. Also influenced by just the evolution of the market and different pigment technologies. Our other main product is zircon, and zircon's been a much more positive story in the first half of this year.
The market has strengthened materially. We're getting higher prices on all zircon products. We expect that to continue. Look, I think this is very much a function of the measures producers have taken to manage supply. An unfortunate fire at one of our peers, Grande Côte in Senegal, which has taken supply out of the market. It hasn't really been growth in demand, but certainly we could sell all of the zircon we can produce and perhaps more, and we're seeing that reflected in price. More Kenmare specific. I've touched on liquidity, I've talked about its importance.
At a time of elevated net debt, it's always important to have your lenders' support, and we were pleased to get that in the first half. We increased our revolving credit facility by $30 million- $230 million. Although we don't really expect to use that extra capacity, it's always good to have it. We amended the covenants to give us more flexibility and to reflect the fact that while pricing is weak, our balance sheets, our current assets, current liabilities, and our total investment in the asset is positive. We were pleased that all our lenders recognized that.
We were pleased that they supported us. I think that these lenders have been with us for a number of years yet, and they realize this is a cyclical industry. Like us, they're hoping for recovery, but it's always important to have financial flexibility as you travel towards it. We had net debt of $176 million at June 30th, although we got $14 million of receipts in the first week of July, which would have had us pretty much flat since year-end. I think that's quite a creditable performance because we spent $23 million of development CapEx.
Pre-development CapEx, the business was cash flow positive in the first half of the year at pretty much the trough of the market. That CapEx is rolling off quickly. The WCP A project is substantially complete. We've had $7 million in the second half. That investment burden or investment obligation is rapidly receding. Finally, I touched on the Implementation Agreement with the Mozambican government. This has been going on for quite some time. The agreement itself nominally expired at the end of 2024. We've been operating under the legacy terms since then.
Over this six months, we've had good constructive engagement with the authorities in Mozambique, a lot of back and forth on phasing of some of the investments that we commit to. We committed to a $200 million investment in the asset over the 20-year renewal period. What will it be? When will it be? What will it be within the first five years? Similarly, with our social investments, we would be committing to a $50 million investment over the 20-year renewal period. How will it build on what we've done in the past? What will the focus be?
How will it be split between years? I think really what this is, it's a technical team in Mozambique trying to prepare themselves for whatever questions or challenges or queries they may get from the Council of Ministers or President as they move towards the renewal. I should stress there's no formal timetable for the renewal, certainly from our perspective, we've given them all that we've been asked for. They're comfortable with what we've provided. We'd be very hopeful that there will be some move ahead before too long.
As in any government, they have many other priorities in country and hopefully they will get to it before too long. We're very focused on a negotiated agreement here. It's our definite preference, despite the fact this has gone on a long time. We've been flexible. We've made a proposal that's far better than the previous terms, reflecting the government's need to have a better return for Moma, and we think the proposal we've made is fair.
Though we would prefer not to go to arbitration, and that arbitration would be in Washington if necessary, we would be prepared to if the government were to make further demands that were unacceptable to us or that were unaffordable by us. I think we have made progress in the first half. Hopefully, we can maintain it. That's the overview from my perspective of the first half. We'll just do a slightly deeper dive with my colleagues on some of the themes that I pulled out there, then we move to Q&A at the end. Thanks.
Good afternoon, everyone. It's Ben Baxter speaking. First of all, I'm going to walk through the production in the WCP A project. First of all, though, the first half of the year was a safe half with no lost time injuries recorded, that's a significant win for the business. On the production side, I guess these numbers are the one that jumps out and stands out is the ZrTi contribution really increasing our concentrates production. Looking through all of the numbers, heavy mineral concentrate was down 37%, that came off the back of reduced ore grades, which were expected during the relative to year-over-year last year's numbers.
As we enter the end of the Namalope mining for WCP A, the grades are expected to fall, that has happened. We also saw a 6% reduction in the excavated ore, and that comes from the fact that we didn't get the ramp-up as expected from the WCP A upgrade. I'll talk a bit more about that on the next slide. We also saw that in Q2, we stopped the dry mining contribution to the WCP B operation and that brought down the amount of mining that took place. This was done both to manage costs and liquidity, but also to give us a better product mix for products that we're selling during the first half of the year.
We do expect production to strengthen going forwards into the second half. This is coming principally from WCP B, which is expected to have a strong performance in the second half. Also we've restarted the dry mining now to help contribute towards that. We've forecast steady improvements in WCP A through the second half. That will also bring increased excavated ore contribution. We also have the startup of a second selective mining operation taking place in Q4 that will bring some additional capacity to the business.
On the final or finished products, ilmenite production was down 40%, slightly worse off than the HMC side of things. That came about because the ilmenite grade in the HMC was slightly lower. That was offset, I guess, by on the zircon and rutile side, which experienced the opposite of higher grades in the HMC. You can see that their numbers were slightly better off than the HMC production number. We were also able to reprocess some of the intermediate stocks that we had during the quarter and that improved the zircon and the rutile production as well.
As I mentioned at the head, concentrates were significantly up 770% year-on-year. This was due to the new product that Tom was discussing at the head of the meeting. We converted a historical stockpile of tailings into production. Now that we have confidence in the sale of that material with clear routes to sale through the rest of 2026 and into 2027. In fact, that conversion meant that our concentrates guidance for the year is now being met. As Tom said, shipments are our primary goal of the year, and they were up 53% year-on-year.
This was due to with stock drawdown taking place on site, but we also took back into stock some 17,000 tons of ilmenite that have now still to be sold following a previous sale falling through. We remain on track for the main guidance number of more than 1.1 million tons for the year. We did tweak our guidance around ilmenite production rather than. We're saying that we will approximately meet the 800,000 ton level rather than exceed it. This is reflected from the expectations that we have for WCP A for the rest of the year, and the ramp-up being slower than we previously had expected.
Also, the dry mining stoppage, which I referenced, that took place in Q2 and the later startup of the selective mining operation, the second selective mining operation than had previously been expected. On the next slide, please. I'll just walk through the WCP A performance. Nearly all the major construction and installation work is complete. The plant is in operation now, it's not a project. That is reflected in the CapEx, which has really now gone down to a very low level. We guided that we would spend $30 million this year, $23 million of that has already been spent, and there is a remaining $7 million for the rest of the year.
That is associated to the development as we move forward with the mine and moving towards Nataka. The dredge performance is the issue that has been holding us back through Q2. We had expected improvements faster than we have experienced, and this came about because we had further repeated problems with swing winch breaks and getting through the stock of spares that we had. That brought about some downtime while we waited for new spares to be delivered. We also saw with the increasing production that we were getting, that some premature wear was taking place in various parts of the dredge.
That also caused us some downtime and longer waiting times for spares. The downtime, as I mentioned, the swing winch brakes have probably been the largest component, but happily, we have agreed a permanent solution under design warranty with the manufacturer. That part, we will in the second half of this year now, move to an alternative design, and that will take that problem away. The pumping system, there are still some components of that which are under investigation, and we remain in good communication with the manufacturer on how to resolve those issues.
We have, to partly mitigate that, changed some of the operating methods that we use to help improve the production, and we have started to see some benefits from that. Elsewhere in the plant, we said that in Q2 we would debottleneck the downstream feed preparation desliming area, and that was successfully delivered. Moving forward, we expect this sort of continued improvement of production to take place as we further debottleneck areas, resolve the premature wear components, and get ourselves slowly but surely through these teething problems that we have been having. We have built into our forecasts further progressive improvements for the rest of the year. That is how we expect to proceed. I will pass on to the next slide. Cillian.
Good afternoon, everyone. Just to touch on our markets and what we saw in the second quarter, really, we saw solid demand across our product suite in the second quarter of the year. That is what really supported the stronger shipments we saw in the second quarter and really through the first half. Starting on ilmenite, I think we saw that demand was pretty stable on the pigment side and continues to be strong on the metal side. As Tom touched on, there is probably different dynamics in different regions in the pigment side, particularly at the moment.
For us, we have seen the impact of the war in the Middle East affecting what type of pigment is being made in China. The war has caused high sulfuric acid prices, high sulfur and sulfuric acid prices. In China, what we've seen is that is giving a competitive advantage to chloride pigment. We've seen chloride pigment grow to record levels and continue to gain market share in China. That's where most of our ilmenite that goes into China is consumed. It's almost entirely consumed in titanium metal and in the chloride pigment after beneficiation.
That was a real demand pull in terms of volumes for us in the second quarter. However, as Tom said, the second quarter pricing was lower as we expected it to be, and that's on the back of the supply picture where we continue to see strong levels of not Mozambican, but African concentrates going into China, as well as Chinese domestic ilmenite production increasing as well. While we see strong demand for a type of ilmenite, I think overall we saw some pressure on ilmenite pricing as a result of continued growth in supply.
The curtailments in production elsewhere has tightened the market a bit in, I suppose, outside of China. On the zircon side, bit of a better story. There's less zircon contained, particularly in Mozambican concentrates, but also not with the domestic ilmenite. On the supply side, not seeing the same level of growth from those areas, while we are seeing curtailment in and suspensions of production. That has really taken away any overhang and caused some shortages in places. As a result, we've seen really across the board in all regions, prices start to increase in the second quarter and that's continuing into the third quarter.
Kenmare gets value from zircon across five of its products now. We've seen price increases for the zircon contained in all those products in Q2 and moving into Q3. That's one of the things that's supporting the strong ZrTi demand that we're seeing and the strong shipments we've seen. Zircon is one of the key components along with monazite and ilmenite.
The contained zircon is getting more value in the ZrTi. As well as that, I think the type of ilmenite that is in the ZrTi, I suppose, there is a limited amount of in the world and we're seeing strong demand for that type of ilmenite, which is why we're seeing, I suppose, the level of demand which gives us confidence to say we're expecting the strong sales into the second half and really, really good demand going into the first half of next year as well. With that, I think I'll pass back to Tom.
Thanks very much, Cillian. Look to maybe just to recap. Kenmare operates Moma. Moma's been around for a long time. It's going to be around for a very long time, decades and decades to come. The WCP A investment and the move to Nataka are WCP A's first. All our other plants will follow, and they will all end up in Nataka. That's the key to the future of the business, and we're investing and ready for that move. We obviously have a little bit still to do on WCP A, but as Ben said, working well with the contractor and hopefully have a clear path to getting that done before too long. Moma, as Cillian outlined, is a preferred supplier to lots of our customers.
Many of our customers have been with us for 10, 15 years plus. We've got good quality products, consistent availability, and our products are suitable for a wide range of applications. That helps us get the best customers and stay with them for a long, long time. That gives us good visibility, particularly on our sales into the next quarter and towards the end of the year. We're investing so we can live through cycles like the one that we're in at the moment. Before development CapEx, we generated operating cash flow in the first six months of this year, that's at what we hope is pretty much the bottom of the cycle.
We've done a lot of work with our team at site on operating cost improvements, I think one of the things we highlighted in our earlier calls with shareholders today is that we're on track to achieve our operating cost guidance despite the fact that obviously we are seeing slightly higher diesel prices. In reality, the diesel price impact of the U.S.-Iran conflict has principally been around freight costs and vessel availability and timing.
Aside from that, it's been comparatively limited. We have seen an increase in cost of domestic diesel within Mozambique, but only since the start of May, let's see how things go over the next few months. Look, as I mentioned when I talked about our negotiations with the government, we've had a good partnership with the government. We hope to extend that for many years to come. We've invested already $25 million in the community around Moma, we've committed to making further significant investments to increase the capacity to improve livelihoods, to diversify the economy, to create infrastructure.
This is an important part of the fact that we'll be there for decades to come. We believe the government recognizes that, and hopefully that will be reflected in a renewal of our Implementation Agreement before too long. With that, I'd like to thank you for joining. Happy to hand over for any questions people may have.
That's great. Thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions using the Q&A tab situated on the top right corner of your screen. While the company take a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via investor dashboard. Katharine, at this point, if I may now hand over to you to chair the Q&A, and I'll pick up from Tom at the end. Thank you.
Thank you. The first question is: When will the deal be done with the government? It's going on too long.
I agree with that. Look, there's no firm timeline, and as I said, we continue to operate under the legacy terms. After we had a little bit of challenge to the government earlier this year when they started to try to impose, or the tax authority started to try and impose some of the new terms and we had to remind them that nothing was agreed until everything was agreed. In all our engagements over the years, and I've met a number of different ministers and the President, each on multiple occasions, plus the technical team with whom we operate.
They're all sensible, commercial people who really value the contribution that Kenmare has made to the country, and who consistently say that they intend to renew this agreement. The principal issue under discussion is the royalty that we pay. Historically, it was 1%, and we've proposed that it would increase progressively from 2.5% at the start of the renewal period to 3.5% over the 20-year period. We would pay withholding tax, and that's kind of a 4x , 4x improved return for the government on this agreement.
Our rights to renewal are clear. We have the right to renew on legacy terms. It's our choice, and I suppose a recognition of the need that we invest on better terms for government. If government doesn't reach or propose an agreement that we can live with, we do have the right to go to arbitration, which we don't want to do. In our engagement with shareholders consistently over the last year and a half, their counsel to us has been to keep seeking a negotiated solution.
That's what we're doing. We won't do that at any cost. I am hopeful, as you can probably tell, that we're certainly nearer the end than the beginning of this. I am hopeful that we've given them everything that they need to make a considered assessment of it, and that before too long, we'll understand what the path forward is.
Bit of a follow-up question. Has the Mozambican government's attempt to impose new tax rules on Kenmare earlier this year been rescinded?
I mean, that was one arm of government, the tax authority. To be fair, they have been charged with increasing collections on behalf of government. When we highlighted that they had provided assurances to us that we would continue to operate under the old terms That was remedied pretty quickly, and they've confirmed that continues to be the case. We're operating as we always have, and it certainly isn't overhanging the negotiations in any way.
Are the tax and regulatory conditions in Mozambique currently stable enough to invest with confidence for the long term?
Look, Mozambique has been a great partner for us for 20 years plus. We're one of the first renewal processes for agreements of this nature that has come up. I think the government is trying to get to grips with social expectations. The evolving natural resources environment, the fact that they have abundant natural resources, most notably LNG offshore, trying to make sure that the nation gets a fair return from them. For us, we certainly had good conditions in the past. Hopefully, we can reach an agreement that's fair on this occasion.
Look, I think obviously we've invested heavily in our assets over the last number of years for the long term. We can't move the ore bodies, so we are going to be in Mozambique for a long time. Certainly, how we allocate capital in the future, because this is hopefully the last big capital investment we have to do. How we allocate capital in the future, whether we diversify the business, whether we change the kind of mix of debt that we have versus what return to shareholders in the way of dividends and buybacks. All of these are questions that we will need to address, but for 2026, our objective is to keep balance sheet flexibility to, as Ben said, to progressively increase our tonnes and to get through this more difficult period in the market.
Is there a risk that ZrTi could become subject to the new mining law that imposes a raw ore export ban?
Well, when Cillian spoke about other operators in Mozambique, the other operators in Mozambique are exporting heavy mineral concentrate, which is effectively an unprocessed raw material. Kenmare is the only operator that is separating the heavy mineral concentrate into ilmenite, zircon, rutile concentrates. ZrTi is just another element of that. It does attract a special tax because of elements of radioactivity in it. It attracts a tax of $30 per tonne. I don't believe that it would be subject to a ban any more than any other product, and certainly there's been no suggestion that it would be.
Demand for your new ZrTi product has exceeded expectations. How large could this product become within the overall portfolio over the next few years?
Well, look, ZrTi has historically been a waste stream. We'd prefer not to have it at all, and we'd prefer to recover more ilmenite, zircon and rutile. You don't recover 100% of everything through your processing activities. Although we do have a stockpile that we're working our way through, I think, and Ben can correct me here, but I think we're thinking it would be 30,000 tonnes-40,000 tonnes per annum going forward. Obviously, if we can recover more of our primary products, less than that, but that's certainly our planning assumption.
When is the transition to Nataka, and are the grades of the product better in this new location?
Ben, do you want to take that?
Yeah, I can take that. Clearly we've been mining at WCP A a bit slower than we'd originally expected. But we do still expect to enter the transition channel that moves us towards what we call Nataka proper. That will still happen this year. The transition channel, it takes about 18 months or so to get through, and then when we get into Nataka proper, we see that the grades move up to on and around 3% heavy mineral grade. You'll start to see the benefits of those higher grades end of 2027, into 2028. That's what we currently expect.
Can you give us any indication of when you expect WCP A to hit design throughput rates at the target asset uptime levels? Should we expect Q3 and Q4 ilmenite output to be equal or higher output in Q4 from higher volumes of ore mined by A?
One for you again, Ben, I think. Yeah.
Yeah. We've planned for progressive improvements, which is sort of what we're seeing. We have not planned that we would now get up to full nameplate at operating rates before the end of the year. That doesn't mean that we're not trying to do that. Our goal is certainly to do that. From a planning perspective, we've taken a slightly more conservative approach. The reason why we're not able to put a specific date on that is that not all of the remedies are directly in Kenmare's control.
Some things have taken longer than we had expected, and hence why we gave up what turned out to be an untrue capability to get to nameplate by the end of the first half of this year. We're working very closely with the manufacturers. We've got consultants as well involved in this to try and help us move forwards as fast as possible. The actual achievement of those levels is still a little way off at the moment.
That's the final question. Handing back to you, Tom.
Okay. Thank you very much, all of you, for taking the time to join us today. Our next scheduled communication will be our half-year results on, I think, Katharine, August 19th.
Yes.
We'll have a further call on those results at that time. With that, I'd like to close the call, and thanks for your time.
Fantastic. Thank you all for updating investors today. Could I please ask investors not to close this session, as you'll now be automatically redirected to provide your feedback which will help the company better understand your views and expectations. On behalf of the management team, we'd like to thank you for attending today's presentation, and good afternoon.