Kenmare Resources (LON:KMR) used an investor presentation to update shareholders on negotiations with the Government of Mozambique to renew its Implementation Agreement (IA), outlining both the terms the company has offered and recent developments that management said could raise fiscal and working-capital risks if applied more broadly.
Implementation Agreement renewal: background and scope
Managing Director Tom Fitzpatrick said the IA is one of the key governing agreements for Kenmare’s processing and export activities in Mozambique, including royalty arrangements and Industrial Free Zone (IFZ) status that supports import and export efficiency. The agreement was originally signed in 2002 and “expired nominally at the end of 2024,” but Fitzpatrick emphasized that it contains renewal rights for Kenmare “on the same terms” and is governed by English law.
Kenmare’s proposal: higher royalties, withholding tax, and ongoing investment
Fitzpatrick said Kenmare began the renewal process in 2022 and presented a “final proposal” to the government in April 2025 that included concessions “well beyond the contractual entitlements.” He said Kenmare recognized it “got a good deal back in 2002” and that it was reasonable for the government to expect improved returns as the project matured.
Key elements of Kenmare’s proposal described in the presentation included:
- Royalty increase: from the historical 1% level to 2.5% initially, rising to 3.5% over the course of a 20-year renewal period.
- Withholding tax: applying to services provided from outside Mozambique, described as broadly equivalent to another ~0.5% of royalty, or about $3 million to $4 million per year depending on service levels.
- Additional commitments: further capital investment into processing at Moma and ongoing contributions to community development via the Kenmare Moma Development Association, covering areas such as infrastructure, health, sanitation, and education.
Internal resolution and Tax Authority action raise uncertainty
Fitzpatrick said Kenmare learned recently that the Mozambique Tax Authority has sought to impose “updated terms” on processing and export activities through an internal resolution approved by the Mozambican Council of Ministers in July 2025. He said the terms have not been agreed with Kenmare and differ from what the company believes it is contractually entitled to.
Management described the process as unusual, saying the resolution was not referred to in the official record of the July Council of Ministers meeting, has not progressed through remaining approval processes to modify the IA, and had not been disseminated broadly within government for implementation. Fitzpatrick added that senior government stakeholders had indicated—both in person and in writing—that negotiations were ongoing and that no terms would be imposed during the process.
Still, Kenmare said the Tax Authority has begun invoicing the company at a 2.5% royalty rate instead of 1%. Fitzpatrick called that a surprise, while noting the 2.5% rate is consistent with Kenmare’s own proposal and has been accrued in Kenmare’s financial accounts since the start of 2025. He said Kenmare has not paid the higher rate pending a completed renewal on agreed terms.
Potential financial impacts: royalties, VAT exposure, and corporate tax
Chief Financial Officer James McCullough told investors that estimating the “absolute expected cash outflow” under the government’s proposed terms is difficult because Kenmare has not received guidance on how provisions might be applied, and in some areas “we just don’t know what the terms would be.”
On the royalty rate, McCullough said the faster ratchet up to 3.5% would be “straight off our top line,” amounting to “an extra, call it 1% or a fraction of that of our revenue,” or “a few million dollars” versus what Kenmare proposed.
He said a larger uncertainty could come from the potential loss of IFZ benefits and the resulting VAT exposure on domestic purchases. In a “worst case scenario,” he said VAT could be imposed on the transfer of heavy mineral concentrate (HMC) between Kenmare’s mining company and processing company, as well as on key inputs such as power and fuel.
McCullough noted Kenmare already pays a royalty on HMC transfers at a 3% rate, and cited Kenmare’s payments-to-government reporting for 2020 to 2024 showing that HMC transfer royalty payments ranged from $3.6 million to $5.9 million. Using that as an illustrative base, he said a VAT requirement could be “call it between $20 million and $30 million per annum,” while VAT on fuel and power—based on a reported annualized cost of roughly $45 million—could equate to around $7 million. Overall, he said a potential VAT requirement could be “somewhere between, call it $25 million-$40 million,” depending on the year.
McCullough emphasized that because Kenmare exports its products, VAT would be recoverable, but the issue would be working capital timing between payment and recovery. He also flagged uncertainty over whether corporate income tax could be applied to the processing and export company; he said corporation tax has historically applied to the mining company but not the processing company, and that if applied to the processing company it would be at a 32% rate.
Negotiations, lender engagement, and arbitration as a last resort
Fitzpatrick said Kenmare’s preference is to resolve matters through negotiation and that the company has sought urgent engagement with the government both on the Tax Authority actions and on concluding a renewal. He referenced meetings with multiple ministers on 19 February and said the parties aimed to finalize the renewal within a 30-day window leading up to around 20 March, adding that he hoped the recent development would be “more a speed bump than a roadblock.”
McCullough said Kenmare has kept lenders informed throughout the process and that, at present, “there is no event of default,” though the company will monitor the situation and address any need for waivers if required.
Fitzpatrick said that if a negotiated solution cannot be achieved, Kenmare “may have no alternative” but to bring international arbitration proceedings, describing this as a “last resort.” He said that if arbitration were initiated, Kenmare could seek interim measures to suspend application of the internal resolution while proceedings continue, though such measures would be at the arbitral panel’s discretion. Fitzpatrick estimated arbitration would take at least 18 months and potentially two years or more.
Management also said it views export disruption as unlikely. Fitzpatrick noted Kenmare continues to pay the normal 1% royalty and has ongoing shipments, adding that no government stakeholder has suggested exports could be halted. He reiterated that arbitration would relate to the IA and “doesn’t impact on our mining activities at all,” which are covered by a separate license.
About Kenmare Resources (LON:KMR)
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