Kenmare Resources brings Massive titanium project to fruition

Pretty darn hard to pick holes in Kenmare's game plan. The company has managed to maintain 100% ownership of the Moma Titanium Sands project in Mozambique despite its remote location and large size - a combination which normally sends a independent mining company into the arms of a much larger partner in return for a much reduced stake.

The size of Moma is quite amazing. To date, total reserves and resources total 101 million tonnes of ilmentie, 7.8 million tonnes of zircon and 2.7 million tonnes of rutile. On the current mine plan there is enough material to keep Kenmare busy for 120 years based on the initial plan of producing approximately 700,000 tonnes of titanium oxide, 60,000 tonnes of zirconium oxide and 17,000 tonnes of rutile. Of course, Kenmare have no intention of staying at this level of output.

The original mine plan was designed with the intention of increasing total production to 1.1 million tonnes per annum by increasing the size of the separator plant, for a cost of around US $40 million. Most of the world's really large titanium sands projects have already been exploited. Some of these projects have already reached peak production levels or are on the downward slope towards depletion. On the flip side all three products from Moma are in high demand.

Titanium Oxide has many uses, including making Titanium which is used in aircraft because it is 4 times lighter than steel yet just as strong. But the big consumer is the pigment industry. From paint to clothing to ink to cosmetics to plastics. So wide spread is the use of titanium oxide, that it's growth in consumption is very closely linked to the GDP of industrialised nations and the recent surge in demand has been fuelled by Asia's economic emergence. Zirconium oxide on the other hand is used primarily in ceramics - yet again a product linked closely to per capital wealth.

So how do you get minerals out of the sand? The simple answer is with water. Kenmare have dug up a big pond, 700m x 400m in which two specially equipped dredges are sitting in. Soon the pond will be filled with water, helping to create a sandy slurry that can be sucked up by the dredges and pumped to a giant floating concentrator plant. The concentrator separates the minerals from the sands. The minerals are pumped onshore and stockpiled.

These stockpiles are then sent to the separator plant where the different minerals are split using magnetic and centrifugal techniques. As for the sand, well it is returned to the back of the pond feeling a little worse for wear from the experience. As the deposit stretches for miles over a flat terrain, the 'pond' simply moves along as wet sand is sucked up and spit back out filling in behind the operation. Dredge mining may sound a bit odd, but it is actually a well established technique for these types of operations, and it is typically 1/6th of the cost to operate. A

dd in a few other goodies including:

Nearby fresh water lake

Very close to the sea for export

Connected to a hydro electric power source at 2.5 cents per kilowatt hour

It is any wonder that Moma should be the lowest cost producer on the planet when it moves into full gear next year?

As of this week, the mine is approximately 90% complete and should begin commissioning in the fourth quarter of this year. Assuming a 6 month work up to full production, Kenmare will start seeing good cash flow mid 2007. At full production, Moma will be producing as much as 6% of the worlds supply and should be throwing off US $80 million in operating profits. With interest fees in the area of US $20 million per annum, Kenmare should easily be able to self finance the anticipated capex to expand production.

So what happens after Moma?

Kenmare are strongly positioned to build further projects in Mozambique from the cashflow from Moma. Moma is considered to be a 'pathfinder' project that will help the country open up a whole new region to development - something the government is keen to see more of and Kenmare have already picked up a number of uranium licences.

Plenty to chew over on this one.