Member Info for Caposoka

Think you need to refer your questions to Hannan and not KMR. The issue with KMR is always that sales dominate financial performance. For example, the report you are referring to estimated ZR reference prices would increase y-o-y (18-19) by USD 170/t and realised prices by USD 200/t. KMR's Q4 updated stated that ZR prices actually fell y-o-y, so there's USD 20M in lost revenue/profit straight off the bat.

Despite the hurricanes, falling grades et al, KMR have hit their guidance (albeit at the low end), have progressed their capex on budget / time and managed the things under their control. They will report a decent net profit, EBITIDA, have a maiden dividend, re-jigged their finance to ensure the payouts will continue and if all goes well with 2020 projects, a rosy future. What more do you want?

Closed periods typ. 2 months min.
Results in last 3 years relased on 13, 14 and 22 March so already there.

Also, close period - y/e Dec, results eta mid March.

More or less. They indicated a 2:1 ratio before with a small adjusting balance for the full year. Shipments were 62kt higher in H2 so maybe the payment will be slightly higher still.

Suspect they will book costs in 2019 as it incurred and this is only a cash flow issue. (Better this way as they will avoid paying out 'excessively' this year and less next).

Also, if capex in 2019 came in at USD 50M (instead of projected USD 75M) and next year is USD 120M, difference y-o-y will be approx USD 70M. From start / end 2019, net cash was unchanged (USD 13.5M).

In 2020, ilmenite ASP may be higher vs lower zircon ASP - but shipment volumes will be down, so expect revenue will be lower. All other things being equal, clear why they deferred debt repayments. End of 2020, net debt will be USD 70M plus.

Once again I have found IR to be kind, prompt and helpful. I'm sure they will be happy for me to share their response to my enquiry:

"The capital expenditure budgets for the WCP C development and the WCP B move remain the same, at US$45m and US$106m respectively. The increase in development capital guidance for 2020 to US$119.5m is driven by some expenditure carried over from 2019, as you rightly suggested, and the upgrade work on the MSP. The work on the MSP was not included in previous budgets as it is the result of studies we have conducted into our ability to operate at 1.2Mtpa of ilmenite production on a consistent basis. We achieved this production rate in December 2018, however some upgrades will be required to deliver it on a consistent basis. We expect there to be other benefits from this work, such as stronger rutile recoveries".

Reading between the lines, if MSP involves USD 15M, then best part of USD 25M has been carried forward from 2019 to 2020, no doubt due to slightly delayed delivered of WCP C.

Well I took Buck's advice and asked the question.
They have always been very good with me.
If they are in a position to respond and clarify, I shall pass it on.

Last part of this week's update refers to USD 119.5M being approved for development projects in Y2020, this being in addition to USD 22M of sustaining capital in Y2020.

Recent presentations (June, Oct...) referred to USD 106M total capital cost for WCP B move, with a total of USD 81M capital costs in Y2020. Anyone understand reasons for the increase of just under USD 40M in Y2020 ??

This week's report mentions USD 14.5M to upgrade MSP to facilitate future 1.2MTpa target. Is this a new upgrade project outside of the USD 106M quoted for WCP B move ?? Why was it not referred to previously ?? Not clear to me but goes a long way to explaining why they deferred debt repayments at time of new debt facilities.... not a problem of cash generation but one of increased capex...

Net cash position increased by circa 10M from low point of H1 off back of stonking record level of shipments in Q4. All as clearly flagged, despite some here having doubts. Guidance for 2020 IL (800-900kt) is less than 2019 (which itself was less than 2018), so not all is great in this report. Let's see if ASP rises faster than production drops in 2020. Perhaps not. At least all looks set for 2021 being a very good year in terms of combined ASPs and production rates. At what stage will people look beyond 2020 to 2021 instead.... 12 months ahead, 18 months ahead or at time of Y19 results? Let's see. Remaining very confident.

Yup. 200:1 after a USD 275M capital raise that resulted in the share capital rising by ~8 fold. At the time, 2.78B shares became 109.8M shares.

Not good missing production targets (however understandable) but at least it looks like Q4 shipments are on track, which will produce a positive Y19 net cash balance higher than H1/19.

Think the slide was ok and my eyesight is the problem. The 900kt was referring to HMC not final product. After getting myAs and Bs mixed as well, it must be too much post election euphoria.

(Just realised in my recent posts I made a type betwen WCP A and B regarding the one that is moving - apologies for any mis-comm. on my part).

BF - if you take your 150kt and last year's ave FOB of 229/t you get to 35M contribution to revenue. Would hope FOB is a bit higher this year. June presentation refers to WCP B producing 900kt p.a. (~225kt p.q.), albeit this if after benefitting from higher grades after the move. All in all we are chewing over similar numbers. Not overly concerned by any of it. It is all planned and plus WCP C will start to contribute.

Yes, it is a 106M capex cost, some of which is in 2019. I'm also considering that WCP B's production will be suspended for upto 12 weeks (ref June Presentation, pg 8). KMR's monthly revenue is 20-25M/month, mostly generated by WCP A, so I have taken an arbitrary 50M disruptive cost in addition to the capex, to reach '150M' in round terms. Yes - they build up stockpiles to manage revenue. Yes - it will all be mined eventually but in my experience lost production time is lost production time and ultimately has a cost.

The point is valid that by Feb 2022 the debts would have been paid off and under the new scenario the USD 110M term will only start to be repaid. So indeed, what has changed and why?

KMR set out their plan to do 3 projects - WCP B upgrade, WCP C and WCP A - ambitious plans but with excecution risk and uncertainty. Were KMR in a position to request deferring debt repayments but a few years with all this going on and their past history being poor.

Roll forward to now. Timing of new facility is instructive, coinciding with completion of WCP C. KMR now have 2 of 3 under their belt and have been 'rewarded' with a new debt arrangement. 'Rewarded' as they can start a 150M project knowing funds are guaranteed to be available and allowing them to up their return to shareholders, paying a marginally better interest rate. It is all part of the progression and shareholders are probably better off with the new debt arrangement then without it due to the de-risking and returns.

Wonder how they are going to launch her. These types of dredgers are pontoons bolted together so not lifted once assembled. Assume they have to dig out an access channel to float her... Can't be long now until she is put to work.

Also, do they have a choice? Mining area is depleted so continue with very low grades or invest in the move to a more productive area. Think there is no real choice.

My first reaction was the same but after a few minutes, I formed the view I have. This time around, production is on a different level (1M MT rising to 1.3M MT), fixed costs are more widely spread giving lower unit costs, KMR is much more recession proof and the supply/demand charatetistics look very favourable (as they did last time), but starting with sales prices not in bubble territory and at a level that is not encouraging new entrants as yet. So think the situations are different.

Valid points and we shall see. At least from a shareholder's perspective there should be much greater certainty that the 20% payout will indeed step up as promised to either 60% or share buy backs which will support the SP. This ultimately is what matters to us PIs. and is why I am positive on this financing.

Nosir,

I still believe it will be financed through cash flow - no change on my part.

Anyone with experience with these things (as I am sure is the case with your goodself) will realise that upgrading an existing bit of kit (WCP B) or buying a new bit of kit (WCP C) is very different to moving a very large piece of kit down a new 20km road and reassembling. Not only is there execution risk of cost overruns but more importantly the disruptive cost / risk of not having the main item of kit not producing for a prolonged period, especially is something goes wrong in the process.

This financing package is more than is needed but is effectively an insurance policy costing USD 5M a year to ensure finances are in place during this high risk phase. I am not keen on paying for a facility that is not needed but if you regard it as insurance, your view may be a little different.