Kenmare Resources posts decline in quarterly production

Kenmare Resources, the titanium feedstock miner, said Wednesday that revenue rose 40 per cent in 2012, but disappointed investors with an anticipated decline in quarter-on-quarter production of heavy mineral concentrate (HMC) during the final three months of the year.

Kenmare Resources, the titanium feedstock miner, said Wednesday that revenue rose 40 per cent in 2012, but disappointed investors with an anticipated decline in quarter-on-quarter production of heavy mineral concentrate (HMC) during the final three months of the year.

Mining operations produced 157,000 tonnes of HMC during the fourth quarter, compared with 229,100 tonnes in the third quarter, due to a combination of electricity supply disruptions and geotechnical challenges. Full year HMC production totalled 772,300 tonnes.

Finished product volumes for the year were 574,500 tonnes of ilmenite, which drove the rise in revenue, and 46,900 tonnes of zircon (including 20,000 tonnes of a secondary zircon product).

Compared with the previous year, average ilmenite prices realised were 98% higher in 2012 and were up 17% in the second half of 2012 compared with the first half of the year.

Average prices for primary zircon products increased in 2012 by 9.0% compared with 2011, but dropped by 32% in the second half of 2012 compared with the first half year. Product volumes shipped in 2012 declined by 7.0% compared with 2011, resulting from reduced production levels.

Operating costs edge higherThere was some increase in operating costs, particularly in the second half of 2012 as the mine pond was making the complex transition up to the dunal plateau, and cost control remained a key priority for management, the group said.

Revenue rises 40%680,800 tonnes of finished products were shipped in 2012, compared with 730,400 tonnes in 2011. These shipments generated revenues of $234.5m (unaudited), an increase of 40% from $167.5m during 2011.

The group also said that global titanium feedstock inventories are depleting and demand outlook improving: "2012 was a year of contrasting halves for the titanium feedstock industry. During the first half, demand for titanium feedstocks was very strong and prices grew steadily.

"However, as the painting season in the second quarter was weaker than expected, pigment producers felt the impact of holding excess finished goods inventories.

"Despite overall weaker feedstock demand from pigment producers, demand for ilmenite was more resilient than feedstocks in general, and Kenmare was able to sell more than it produced in 2012 at significantly higher prices than in 2011. Year-end inventories were drawn down to low levels as a result."

Zircon markets provide a challengeGlobal zircon market conditions proved challenging during 2012, and consumption was weak due to significantly reduced demand, primarily from the ceramics sector.

Kenmare explained this was driven by the slowdown in construction activity in China and weak economic conditions in Europe. Additionally, zircon consumers started 2012 with high inventory levels on the expectation of continued supply shortages. However, faced with slower demand for their products, zircon consumers took a cautious approach to buying as 2012 progressed.

"Prices held up well initially but reduced sharply during the fourth quarter," it said, adding that, "whilst this trend has continued into 2013, there are some tentative indications that prices may be close to stabilising".

"Kenmare, with its relatively small production volume, was able to sell all of its zircon during 2012 at the prevailing market price. With a stronger economic outlook expected in China during 2013 and completion of the de-stocking cycle in Europe, zircon demand growth is expected to resume in 2013. The readjustment of market prices that has taken place should help to reverse the downward trend in consumption seen over the past 12 to 15 months."

The share price dropped 2.05% to 33p in opening trading.

NR

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