JOHANNESBURG (miningweekly.com) – Amid difficult operating conditions associated with power outages and floods during the quarter ended March 31, Mozambique-based mineral sand miner Kenmare Resources mined 3.21-million tonnes of ore at a grade of 5.85% and produced 144 500 t of heavy minerals concentrate (HMC) at its Moma mine.
This was significantly lower than the 7.54-million tonnes of ore mined in the comparative period of 2014. HMC output was also 50% lower than the 287 000 t produced in the first quarter of the year before.
"Operations were impacted by power outages brought about by severe flood damage. In the face of these challenges, the dip doctor and diesel gensets operated flawlessly through the quarter, helping to maintain shipment volumes without grid power,” MD Michael Carvill said.
He added that cost efficiency work continued with the implementation of a retrenchment programme and review of employee allowances, which would yield a yearly benefit of $12.5-million.
To overcome these challenges, Kenmare worked closely with the Mozambique State electrical utility Electricidade de Moçambique (EdM) to restore a stable power supply on March 29.
The key operating parameters at the mine, including throughput and recoveries, were at or above budgeted levels, excluding operating time lost to the power outages. As the quarter progressed, the Moma mine also saw a decline in the volume of finished product produced, owing to the severe power issues, following the consumption of HMC stockpiles.
Production of ilmenite was down 39% year-on-year to 129 000 t, while primary zircon output rose 19% year-on-year to 9 200 t in the quarter under review. Rutile production increased by 27% year-on-year to 1 400 t.
The increase in zircon and rutile production was the result of increased recoveries and utilisation levels of these circuits in the mineral separation plant.
Sales of total finished products were up 8% to 209 600 t in the first quarter, compared with 193 900 t in 2014. Sales comprised 205 600 t of ilmenite and 4 000 t of zircon. Closing stock of finished products at March 31, was 150 800 t.
Although softer pigment market conditions persisted into the first quarter, positive macroeconomic trends indicated that demand could improve over the course of this year, Kenmare pointed out on Thursday.
“Leading economists forecast improved global gross domestic product growth this year, driven by stronger growth in developed economies. The big drop in oil prices in recent months also provided a boost to import-dependent developed economies and should assist to boost consumer spending and improve industry competitiveness.
“On the titanium oxide feedstock supply side, the current ilmenite oversupply situation is fragile with the likelihood of further reduction in Chinese and other production this year, which should lead to tighter market conditions emerging in the coming months,” the company said.
Since early February, in response to downward pressure on iron-ore prices, there had been evidence that a number of Chinese mines had either reduced or suspended production, which was expected to materially impact on ilmenite supply in 2015.
“This has yet to impact on the supply/demand pricing dynamics, as pigment plant operating rates have remained low over the winter months and Lunar New Year period, and inventories need to be worked down, but this reduction in supply is expected to become evident in the coming months. Meanwhile, supply of ilmenite and concentrates for reprocessing from other regions, notably Vietnam, continues to further decline owing to poor mining economics,” Kenmare highlighted.
On the demand side, higher pigment plant operating rates and materially increased demand for ilmenite from new slag producers in China and the Middle East would also have a major impact on the ilmenite supply/demand balance. Additionally, some existing slag producers outside of China have also entered the market to buy ilmenite, which would absorb additional significant volumes of merchant ilmenite.
There was renewed confidence in the major European markets of a stronger year for zircon markets, supported by a reduction in energy costs and the weakening euro, which was boosting exports of ceramic tiles and sanitaryware. Expectations were for continued moderate demand growth of around 3% in the year ahead.
As a consequence of the low ilmenite prices, the company had engaged with its lenders to further restructure its debt obligations.
“Despite good intent on all parts, the complicated nature of the present debt structure has made progress slow. Nonetheless, I am pleased to say that we have agreed a debt restructuring,” Carvill noted.
The key terms of the debt restructuring included the provision by the lenders of $50-million in additional standby funding; extension of debt maturities; removal of most fixed amortisation requirements to be replaced with a cash sweep leaving a minimum balance of $30-million in the group; a requirement for deleveraging in the medium term; and a lender-approved nonexecutive director appointed to Kenmare's board.