Half-yearly report

KENMARE RESOURCES PLC HALF YEARLY FINANCIAL REPORT FOR THE PERIOD ENDED 30 JUNE 2008 INTERIM MANAGEMENT REPORT Group activities The principal activity of Kenmare Resources plc is the operation and expansion of the Moma Titanium Minerals Mine in Mozambique. The mine contains reserves of valuable heavy minerals, which include the titanium minerals ilmenite and rutile, as well as the high-value zirconium silicate mineral, zircon. Ore containing these minerals is mined using dredges and concentrated in a floating wet concentrator plant (WCP), which pumps a heavy mineral concentrate (HMC) to a mineral separation plant (MSP), where it is separated into final products for export. Sand and clay tailings from the WCP and MSP are permanently disposed in the mined-out dredge path, which will be progressively rehabilitated with the objective of returning the land to conditions capable of supporting uses that are equal to or better than prior land use. Operations Commissioning delays and equipment shortcomings at the Moma Mine have resulted in lower than planned production and income levels. We have now dealt with the reasons for these delays and anticipate significant increases in Mine output. Today we are announcing a successful placing which raised US$30 million. These funds will facilitate the ongoing ramp-up of production to target levels. As previously reported, a number of items of equipment supplied by the turnkey contractor were not fit for purpose and had to be replaced under the defects provision. The contractor has now replaced both the dredge pump motors and the vibrating screens in the MSP. However, waiting for these replacements has considerably delayed our ramp-up programme. Both prior to and following installation of the replacement dredge pump motors, additional technical resources were provided to assist mine management in the key task of increasing dredge production to design levels. Close co-operation among mine management, the contractor, the dredge manufacturer, and other dredging experts is contributing to the increase in the dredge performance. Kenmare senior management will monitor this process closely during the course of the remaining production ramp-up. As production of HMC increased, so has the feed rate to the MSP. Additional technical resources have also been provided to help resolve remaining issues that have been identified in the MSP, in particular with the rutile and zircon circuit, and to accelerate any rectification works that may be required to increase output of final products as the mine production ramps-up. As a consequence of the above, during the 6 months ended 30 June 2008, production was restricted to 111,000 tonnes of ilmenite. Recent ilmenite production was as follows: April 12,000 tonnes, May 20,000 tonnes, June 31,000 tonnes and July 28,000 tonnes. August production was lower due to a 7 day shut down for remedial works and due to a build-up of fine clay particles (slimes) in the mining pond. The remedial works have been successfully completed and the slimes are now being pumped out of the pond on an ongoing basis. Co-products rutile and zircon were also restricted during the period. A monthly production rate of approximately 66,000 tonnes of ilmenite, plus co-products, rutile and zircon, by the end of this year remains our objective. The Board remains determined to take all steps necessary to achieve this target. The contractor, who is responsible for the achievement of specified performance levels in accordance with the construction contract, is also co-operating with Kenmare to enable ramp-up to design levels. The only part of the processing plant that has not been taken over from the construction contractor is a roaster plant, the purpose of which is to upgrade one ilmenite product. The roaster is due to be completed later this year. However, market demand remains strong and we are supplying unroasted ilmenite to customers until roasted ilmenite becomes available. In addition to the ramp-up, operating and expansion activities during the period under review, management at Moma dealt very effectively with the consequences of a cyclone that passed over the mine in early March. Remediation works are largely completed, with the exception of some repairs to the accommodation village that are due to be finished in September. Our insurance policy has responded to this situation and a claim application is being processed. The market for all our products continues to strengthen and demand from our customers has increased. Demand for titanium feedstocks is predicted to continue to grow steadily by at least 3% per annum. Supply disruptions in a number of countries have exacerbated the current supply shortage, resulting in higher prices. These higher prices will more than offset recent operating cost increases. The Moma Titanium Minerals deposits contains resources which have a life, at current target production levels, of over 100 years. Given the favourable market conditions, there is a very strong case for expansion. A dedicated team is developing a feasibility study for the expansion of our output by approximately 50% to 1.2 million tonnes of ilmenite plus co-products zircon and rutile. This study will be presented to the Board later this year, at which time expansion financing plans can be finalized. Kenmare Moma Development Association The Kenmare Moma Development Association (KMAD) supports and contributes to the development of the communities in the area surrounding the mine through a variety of capacity building, infrastructure and cultural projects. KMAD has successfully completed its third year of work under an initial development plan and is now preparing an updated strategy for the next five years, as well as a detailed implementation plan for the next three years. Kenmare remains committed to supporting KMAD, and appreciates all support given by employees and others who have contributed to it. Results for the six months ended 30 June 2008 The loss for the period of US$8.1 million (2007: US$0.1 million) arises primarily from foreign exchange losses on Euro-denominated loans and corporate operating costs, partially offset by deposit interest earned and gain on sale of investments. The Euro strengthen against the US Dollar during the first six months of 2008, resulting in a foreign exchange loss of US$8.5 million (2007: US$2.1 million) on Euro-denominated long-term senior and subordinated project debt. During 2008, Kenmare continued the process of increasing production towards the target levels planned by management. Senior management will keep under review the impact of the Group's policy of capitalising costs in the coming months. Operating costs associated with ramp-up of production, net of revenues generated from production sales, were capitalised as deferred development expenditure. Loan interest of US$13 million, net of interest earned on deposit of loan disbursements, and construction contract delay damages were also capitalised as deferred development expenditure. In total, deferred development expenditure increased by US$31 million for the period. Additions to property, plant and equipment amounted to US$1.6 million. Expenditure, net of sales receipts, was funded from bank loans and cash on hand. The Group total cash and cash equivalents at 30 June 2008 amounted to US$47.7 million (2007: US$68.4 million), of which US$43.0 million was in restricted banks accounts over which project lenders retain security, including US$15 million that can currently only be used with the consent of project lenders. The Group total debt at 30 June 2008 amounted to US$352.4 million (2007: US$309.3 million). During the period, payments of senior loan interest and principal totalled US$17 million (2007: US$5.5 million), and disbursement of additional standby subordinated loans amounted to US$22 million. Principal risks and uncertainties The Group's business may be affected by risks similar to those faced by many companies in the mining industry. These include geological, political, operational and environmental risks and changes in the macroeconomic environment. The main risks applicable to the Moma mine are set out below: Commercial risks The main use for ilmenite and rutile is as a feedstock for titanium dioxide pigment, primarily used in the manufacture of paint, plastics and fabrics. Zircon is primarily used in the ceramics industry. Consumption of titanium dioxide pigment and ceramics is closely correlated with global economic activity and demand can vary over time. There is a risk that changes in the macroeconomic environment, and changes in the mining industry, may result in increases in operating costs. Senior management monitor closely customer sales contracts and manage the mine's cost base to ensure it remains competitive. Operational risks Achieving target design production levels is dependent upon completion of remaining construction activities and the ability of mine management to continue to increase production levels. Senior management will continue to carefully manage the construction contract and allocate the required resources to enable the mine management to overcome hurdles that may present themselves during the course of the remaining ramp-up period. Financing risks Achieving successful delivery of the remaining project works, production ramp-up and the planned expansion depends on the availability of sufficient finance. The Board carefully monitors senior management's financing activities both with respect to existing loans and prospective sources of funds. Project loan documentation requires the maintenance of a Contingency Reserve Account. The amount of funds required to be on deposit in this bank account is determined by a calculation involving projected capital and operating costs, revenues, interest and principal payments and reserve account contributions required to achieve completion under the project loan documentation. Absent a waiver, failure to timely make a required deposit to the Contingency Reserve Account would give rise to an event of default under the Senior and Subordinated Loan documentation. A continuing failure to make a required deposit to the Contingency Reserve Account would, with notice and the passage of time, result in an event of default which, among other things, would give project lenders the right to exercise their security interests, which encompass substantially all of the assets of the Moma Project as well as the shares in the project companies. Senior management is maintaining a close dialogue with project lenders and, taking account of existing financial resources available to the Group, will ensure that plans are in place to maintain sufficient funding to achieve target production levels. Financial risks The development of the Mine has been financed in part by Euro and US Dollar denominated senior and subordinated loans. The Euro denominated loans expose the Group to currency fluctuations. The borrowings issued at floating rates expose the Group to cash flow interest risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. Senior management regularly monitors and reports to the Board on these currency and interest rate risks. The Board has determined that the Group's current policy of not entering into derivative financial instruments to manage such risks continues to be appropriate in light of the mix of fixed and floating rate exposures. The Group's policy with respect to liquidity and cash flow risk is to aim to ensure continuity of funding mainly through the issue of shares, bank loans and cash generated from operations. Environmental risks Kenmare is committed to managing its operations in accordance with applicable guidelines issued by the World Bank and the African Development Bank, in addition to the environmental laws and standards in force in Mozambique. Kenmare's Environmental Management Plan sets out the monitoring activities, management and training programs, reporting activities, auditing and mitigation measures that are required in order to identify and reduce any negative impacts of its operations and to comply with applicable environmental laws and guidelines. Senior management regularly reports to the Board on the status of compliance with the Group's environmental obligations, and aims to ensure that this plan is properly implemented and maintained. Health and safety risks Kenmare is committed to conduct its business in a manner that minimises the exposure of its employees, contractors and the general public to the health and safety risks of its operations to. Kenmare operations personnel worked 734,443 hours in the six months to 30 June 2008, with three lost-time injuries. The safety performance by the project contractor and sub-contractors was also excellent, with over 7.4 million consecutive lost-time injury-free man-hours worked to the period end. Malaria is a key risk at Moma and Kenmare continues to develop and implement programs to minimise its impact on all personnel at Moma. Kenmare will also continue to ensure that appropriate health and safety standards are maintained in all Group activities. Outlook The key tasks for the Group in the coming months are the successful completion of the remaining project works, increasing production to target levels, delivery of a feasibility study for a mine expansion, and development of plans to fund the expansion. Kenmare will continue to monitor Group funding requirements and obligations under the financing documentation, and will ensure that plans are in place to maintain sufficient funding to achieve target production levels. Related party transactions There were no related party transactions in the half year that materially affected the financial position or performance of the Group in the period. In addition, there were no changes in the related party transactions set forth in the last annual report that have had or could have a material effect on the financial position or performance of the Group in the first six months. Forward-looking statements This report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information. By order of the Board, Charles Carvill Chairman 29 August 2008 RESPONSIBILITY STATEMENT The Directors are responsible for preparation of the Half Yearly Financial Report in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 and with IAS 34, Interim Financial Reporting as adopted by the European Union. The Directors confirm that, to the best of their knowledge: - The condensed consolidated financial statements for the half year ended 30 June 2008 have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; - The Interim Management Report includes a fair review of the information required by Regulation 8(2) of the Transparency (Directive 2004/109/EC) Regulations 2007, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and - The Interim Management Report includes a fair review of the information required by Regulation 8(3) of the Transparency (Directive 2004/109/EC) Regulations 2007, being related party transactions that have taken place in the first six months of the current financial year and that materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so. By order of the Board, Charles Carvill Chairman 29 August 2008 INDEPENDENT REVIEW REPORT TO THE MEMBERS OF KENMARE RESOURCES PLC Introduction We have been engaged by the Company to review the group condensed set of financial statements in the Half Yearly Financial Report for the six months ended 30 June 2008, which comprises the Group Condensed Income Statement, Group Condensed Balance Sheet, Group Condensed Cashflow Statement, Group Condensed Statement of Changes in Equity and related notes 1 to 10. We have read the other information contained in the Half Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the group condensed set of financial statements. This report is made solely to the Company in accordance with International Standard on Review Engagements 2410 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed. Directors' Responsibilities The Half Yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half-Yearly Financial Report in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007. As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The group condensed set of financial statements included in this Half Yearly Financial Report has been prepared in accordance with International Accounting Standard 34, ''Interim Financial Reporting,'' as adopted by the European Union. Our Responsibility Our responsibility is to express to the Company a conclusion on the group condensed set of financial statements in the Half Yearly Financial Report based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'' issued by the Auditing Practices Board for use in Ireland. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the group condensed set of financial statements in the Half Yearly Financial Report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 (IAS 34 - Interim Financial Reporting) as adopted by the European Union and the Transparency (Directive 2004/109/EC) Regulations 2007. Property, Plant and Equipment and Deferred Development Expenditure Without modifying our conclusion, we raise your attention to notes 4 and 5 regarding the disclosures made in the interim group condensed financial statements concerning the recoverability of Property, Plant and Equipment, and Deferred Development Expenditure. The realisation of Property, Plant and Equipment of US$306,759,000 and Deferred Development Expenditure of US$207,947,000 included in the Group Condensed Balance Sheet, is dependent on the successful development and operation of the mine, which in turn is dependant on a successful ramp up of operations and the continued availability of adequate funding for the mine. Deloitte & Touche Chartered Accountants Deloitte & Touche House Earlsfort Terrace Dublin 2 29 August 2008 KENMARE RESOURCES PLC GROUP CONDENSED INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2008 Unaudited Unaudited Audited 6 Months 6 Months 12 Months 30-Jun 30-Jun 31-Dec 2008 2007 2007 Notes US$'000 US$'000 US$'000 Revenue 2 - - - Operating expenses (8,809) (1,702) (12,557) Finance income 720 1,606 2,925 Loss before tax (8,089) (96) (9,632) Income tax expense - - - Loss for the (8,089) (96) (9,632) period/year Attributable to (8,089) (96) (9,632) equity holders Cent per Cent per share Cent per share share Loss per share: basic 3 (1.09c) (0.01c) (1.40c) Loss per share: 3 (1.09c) (0.01c) (1.40c) diluted The accompanying notes form part of the condensed financial statements KENMARE RESOURCES PLC GROUP CONDENSED BALANCE SHEET AS AT 30 JUNE 2008 Unaudited Unaudited Audited 30-Jun 30-Jun 31-Dec 2008 2007 2007 Notes US$'000 US$'000 US$'000 Assets Non-current assets Property, plant and equipment 4 306,759 293,657 310,595 Deferred development expenditure 5 207,947 152,396 176,365 514,706 446,053 486,960 Current assets Inventories 6,497 403 5,631 Trade and other receivables 4,755 537 4,842 Cash and cash equivalents 47,727 68,457 56,203 58,979 69,397 66,676 Total assets 573,685 515,450 553,636 Equity Capital and reserves attributable to the Company's equity holders Called up share capital 6 60,951 56,261 60,742 Share premium 6 122,885 109,285 121,501 Capital conversion reserve fund 754 754 754 Retained earnings (39,225) (21,600) (31,136) Other reserves 42,471 41,040 41,562 Total equity 187,836 185,740 193,423 Liabilities Non-current liabilities Bank loans 7 325,677 293,798 299,570 Obligations under finance lease 2,286 - 2,292 Mine closure provision 2,580 2,505 2,505 Mine rehabilitation provision 1,419 - - 331,962 296,303 304,367 Current liabilities Bank loans 7 26,807 15,579 26,273 Trade and other payables 27,080 17,828 29,573 53,887 33,407 55,846 Total liabilities 385,849 329,710 360,213 Total equity and liabilities 573,685 515,450 553,636 The accompanying notes form part of the condensed financial statements KENMARE RESOURCES PLC GROUP CONDENSED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2008 Unaudited Unaudited Audited 6 Months 6 Months 12 Months 30-Jun 30-Jun 31-Dec 2008 2007 2007 US$'000 US$'000 US$'000 Operating activities Loss for the period/year (8,089) (96) (9,632) Adjustment for: Foreign exchange movement (37) 705 1,680 Increase in long term provisions - 140 140 Share-based payment expense 27 69 - Operating cash flow (8,099) 818 (7,812) Increase in inventories (866) (403) (5,631) Decrease/(increase) in trade and 87 273 (4,032) other receivables Decrease in trade and other (2,539) (19,691) (7,896) payables Cash generated by operations (11,417) (19,003) (25,371) Interest paid (7,200) (5,486) (12,249) Net cash from operating activities (18,617) (24,489) (37,620) Investing activities Addition to deferred development (16,817) (5,535) (37,896) expenditure Addition to property, plant and (1,354) (27,939) (29,131) equipment Net cash used in investing (18,171) (33,474) (67,027) activities Financing activities Proceeds from the issue of shares 1,593 1,094 3,542 Proceeds from shares to be issued - - 14,249 Repayment of borrowings (17,312) (4,424) (4,424) Increase in borrowings 43,954 43,225 59,691 Increase in obligations under 40 - 2,242 finance lease Net cash from financing activities 28,275 39,895 75,300 Net decrease in cash and cash (8,513) (18,068) (29,347) equivalents Cash and cash equivalents at 56,203 87,230 87,230 beginning of period/year Effect of exchange rate changes on 37 (705) (1,680) cash and cash equivalents Cash and cash equivalents at end 47,727 68,457 56,203 of period/year The accompanying notes form part of the condensed financial statements KENMARE RESOURCES PLC GROUP CONDENSED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2008 Share Share Capital Retained Other Total Capital Premium Conversion Earnings Reserves Reserve Fund US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Balance at 55,940 108,512 754 (21,504) 40,347 184,049 31 December 2006 Loss for the - - - (96) - (96) period Share-based - - - - 693 693 payment Issue of 321 773 - 1,094 share - - capital Balance at 56,261 109,285 754 (21,600) 41,040 185,740 30 June 2007 Loss for the - - - (9,536) - (9,536) period Share-based - - - - 522 522 payment Issue of 4,481 - 16,697 share 12,216 - - capital Balance at 31 December 60,742 121,501 754 (31,136) 41,562 193,423 2007 Loss for the - - - (8,089) - (8,089) period Share based - - - - 909 909 payment Issue of 209 - 1,593 share 1,384 - - capital Balance at 30 June 2008 60,951 122,885 754 (39,225) 42,471 187,836 The accompanying notes form part of the condensed financial statements KENMARE RESOURCES PLC NOTES TO THE GROUP CONDENSED FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2008 1. BASIS OF PREPARATION The Group Condensed Financial Statements for the six months ended 30 June 2008 have been prepared in accordance with the European Union ('EU') Transparency Directive and IAS 34 Interim Financial Reporting as adopted by the EU. The accounting policies and methods of computation adopted in the preparation of the Group Condensed Financial Statements are consistent with those applied in the Annual Report for the financial year ended 31 December 2007 and are described in those financial statements. The Group did not adopt any new International Financial Reporting Standards (IFRS) or Interpretations in the period that have a material impact on the Group Condensed Financial Statements for the half year. In the current financial year, the Group has adopted a policy for mine reclamation provision. The mine reclamation provision represents the Directors' best estimate of the Group's liability for reclaiming areas disturbed by mining activities. Reclamation costs are estimated based on the area disturbed and are recognised on a progressive basis throughout the life of the mine. Both the figures for the six months ended 30 June 2008 and the comparative amounts for the six months ended 30 June 2007 are unaudited. The Group condensed financial information for the year ended 31 December 2007 represents an abbreviated version of the Group's full year financials statements for that year. Those financial statements contained an unqualified audit report and have been filed with the Registrar of Companies. 2. SEGMENTAL INFORMATION Management considers the operation of the Moma Titanium Minerals Mine in Mozambique as its primary business segment and its geographical segment. Segmental information is presented as follows: SEGMENT Unaudited Unaudited Audited 30-Jun-08 30-Jun-07 31-Dec-07 US$'000 US$'000 US$'000 Results Revenue - - - Operating expenses Moma Titanium Minerals Mine (8,955) (2,124) (11,887) Mozambique Uranium Project (332) 0 (1,455) Unallocated corporate gains 478 422 785 Total operating expenses (8,809) (1,702) (12,557) Finance income 720 1,606 2,925 Loss before tax (8,089) (96) (9,632) Income tax expense - - - Loss for the period (8,089) (96) (9,632) Other information Capital additions 1,579 28,041 50,235 Balance Sheet Moma Titanium Minerals Mine assets 540,648 449,017 501,027 Corporate assets 33,037 66,433 52,609 Total assets 573,685 515,450 553,636 Moma Titanium Minerals Mine Liabilities 383,700 327,706 357,348 Corporate liabilities 2,149 2,004 2,865 Total Liabilities 385,849 329,710 360,213 3. LOSS PER SHARE The calculation of the basic and diluted earnings per share attributable to the ordinary equity holders of the parent is based on the following data: Unaudited Unaudited Audited 30-Jun-08 30-Jun-07 31-Dec-07 US$'000 US$'000 US$'000 Loss for the purpose of basic loss per share: Loss for the period attributable to equity holders of the parent 8,089 96 9,632 Unaudited Unaudited Audited 30-Jun -08 30-Jun -07 31-Dec-07 Number of Number of Number of shares shares Shares Weighted average number of issued ordinary shares for the purposes of basic loss per share 743,225,455 687,557,987 689,587,755 Effect of dilutive potential ordinary shares Share options 37,378,258 80,246,728 36,803,258 Warrants 28,777,367 39,388,258 29,261,155 Weighted average number of ordinary shares for the purpose of diluted loss per share 809,381,080 807,192,973 755,652,168 The basic loss per share and the diluted loss per share are the same, as the effect of the outstanding share options and warrants is anti-dilutive. 4. PROPERTY, PLANT AND EQUIPMENT Plant Buildings Mobile Fixtures Construction Total & & & Equipment Equipment In Progress Equipment Airstrip US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Cost Balance at 31 257,502 3,812 6,022 2,535 46,082 315,953 December 2007 Reclassification from 1,271 - - 1 (1,272) - Construction in Progress Reclassification (897) - - - - (897) to inventory Additions during 206 - - 19 1,354 1,579 the period Balance at 30 258,082 3,812 6,022 2,555 46,164 316,635 June 2008 Accumulated Depreciation Balance at 31 2,775 74 2,207 302 - 5,358 December 2007 Charge for the 3,412 95 604 407 - 4,518 period Balance at 30 6,187 169 2,811 709 - 9,876 June 2008 Carrying Amount Balance at 31 254,727 3,738 3,815 2,233 46,082 310,595 December 2007 Balance at 30 251,895 3,643 3,211 1,846 46,164 306,759 June 2008 A contract for the engineering, procurement, construction, commissioning and transfer of facilities for the Moma Titanium Minerals Mine in Mozambique was entered into on 7 April 2004. The Contractor is a joint venture formed for this project by subsidiaries of Multiplex Limited and Bateman B.V. Construction in progress shown in a separate note in the 2007 Annual Report has been included above. The contract was amended in December 2006 to provide for among other things, taking-over the Moma Titanium Minerals Mine works in sections. At 30 June 2008, the only remaining section to be taken over was the roaster. The Group has reclassified consumable spares included in property, plant and equipment at 31 December 2007 in the amount of US$897,000 into inventory. Substantially all the property, plant and equipment will be or has been mortgaged, pledged or otherwise encumbered to secure bank loan facilities granted, as detailed in Note 7. The carrying amount of the Group's plant and equipment includes an amount of US$1,791,000 in respect of assets held under a finance lease. The recovery of property, plant and equipment is dependent upon the successful operation of the Moma Titanium Minerals Mine, which in turn is dependent on the successful ramp-up of production and continued availability of adequate funding for the mine. The Directors are satisfied that property, plant and equipment is worth not less than the carrying value, and that based on the planned mine production levels the Moma Titanium Minerals Mine will achieve positive cash flows. 5. DEFERRED DEVELOPMENT EXPENDITURE Mozambque Ireland Total Moma Titanium Minerals Mine US$'000 US$'000 US$'000 Cost Balance at 31 December 2007 176,317 48 176,365 Additions 31,580 2 31,582 Balance at 30 June 2008 207,897 50 207,947 Additions include loan interest capitalised of US$13,295,000 (2007:US$11,564,000) net of deposit interest earned on the temporary deposit of loan balances and operating costs of US$18,287,000 (2007:US$81,000) net of revenue earned of US$8,954,000 (2007:nil) and net of delay damages of US$1,560,000 (2007: US$10,343,000). The recovery of deferred development expenditure of the Moma Titanium Minerals Mine is dependent upon the successful operation of the mine, which in turn is dependent on the successful ramp-up of production and continued availability of adequate funding for the mine. The Directors are satisfied that deferred expenditure is worth not less than cost less any amounts written off, and that based on the planned mine production levels, the Moma Titanium Minerals Mine will achieve positive cash flows. The recovery of deferred development expenditure in Ireland is dependent upon the successful development of the project. 6. SHARE CAPITAL Share capital as at 30 June 2008 amounted to US$60,951,000 (2007: US$56,261,000). During the period, 2,325,687 ordinary shares were issued following the exercise of warrants and options. The issue of these shares resulted in proceeds of US$1,593,000, of which US$1,384,000 was credited to the share premium account. 7. BANK LOANS Unaudited Unaudited Audited 30-Jun-08 30-Jun-07 31-Dec-07 US$'000 US$'000 US$'000 Senior loans 201,723 207,808 210,694 Subordinated loans 150,761 101,569 115,149 352,484 309,377 325,843 The borrowings are repayable as follows: Within one year 26,807 15,579 26,273 In the second year 37,043 21,333 28,283 In the third to fifth year 111,128 96,674 101,299 After five years 177,506 175,791 169,988 352,484 309,377 325,843 Less amounts due for settlement within 12 months (26,807) (15,579) (26,273) Amount due for settlement after 12 months 325,677 293,798 299,570 Analysis of borrowings by currency Euro 131,987 104,910 119,253 US Dollars 220,497 204,467 206,590 352,484 309,377 325,843 The bank loans have been made to the Mozambique branches of Kenmare Moma Mining (Mauritius) Limited and Kenmare Moma Processing (Mauritius) Limited (the Project Companies). Bank loans are secured by substantially all rights and assets of the Project Companies, shares in and shareholder loans to the Project Companies, the Contingency Reserve Account and the Shareholder Funding Account. Kenmare Resources plc. (the Company) has guaranteed the bank loans during the period prior to completion, which must be achieved by 30 June 2009. Completion occurs upon meeting certain tests, including installation of all required facilities, achieving certain cost and production benchmarks, fulfilling legal, environmental, social and permitting requirements, and filling of specified reserve accounts. Upon completion, the Company's guarantee of the bank loans will terminate. Subject to extension for force majeure not to exceed 365 days, failure to achieve completion by 30 June 2009 would result in an event of default under the bank loan documentation which, following notice, would give lenders the right to accelerate the loans against the Project Companies, and to commence a two-stage process allowing the lenders to exercise their security interests in the shares and assets (including accounts) of the Project Companies and in the Contingency Reserve Account and the Shareholder Funding Account. Loan facilities arranged at fixed interest rates expose the Group to fair value interest rate risk. Loan facilities arranged at variable rates expose the Group to cashflow interest risk. The Group's revenue stream is denominated in US Dollars therefore the Euro-denominated loans expose the Group to currency risk. 8. SHARE BASED PAYMENTS The Company has a share option scheme for certain Directors, employees and consultants. Options are exercisable at a price equal to the quoted market price of the Company's shares on the date of grant. The options generally vest over a three to five year period, in equal annual amounts. If options remain unexercised after a period of 7 years from the date of grant, the options expire. Option expiry period may be extended at the decision of the Board of Directors. During the period the Group recognised a share-based payment expense of US$27,000 (2007:US$69,000). 9. EVENTS AFTER THE BALANCE SHEET DATE There have been no material events subsequent to 30 June 2008 which would be required to be reflected in the Group Condensed Financial Statements. The Company has entered into an arrangement with its brokers to raise US$30 million through the placing of shares. The placing is expected to be completed on 4 September 2008 on admission of the shares. 10. INFORMATION The Half-Yearly Financial Report is being sent to registered shareholders by post or electronically to those who have elected for electronic shareholder communication. Copies are also available from the Company's registered office at Chatham House, Chatham Street, Dublin 2, Ireland. The statement will also be available on the Company's website at www.kenmareresources.com ---END OF MESSAGE---

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