Interim Management Statement
Kenmare Resources plc ("Kenmare" or "the Company")
31 August 2009
Kenmare Resources plc 2009 Interim Results
Kenmare Resources plc, which owns and operates the Moma Titanium
Minerals Mine in northern Mozambique, issued its interim results
today.
In the second quarter of 2009, production of Heavy Mineral
Concentrate (HMC) was up 23% from the first quarter, production of
ilmenite was up 12.2%, production of zircon was up 45%, and
production of rutile increased 158%. A Performance Improvement
Project (PIP) is 97% complete at the time of writing, compared to 75%
on 16 April, as noted in Kenmare's Annual Report. This has
contributed to the steady increase in output. Results have continued
to improve with July being a record month for HMC and ilmenite
production.
To date, Kenmare has relied on one trans-shipment vessel, the
'Bronagh J'. While this vessel has performed well, it is prudent to
manage the risk that the mine could have to shut down for a period in
the event of a failure of the 'Bronagh J'. In August, the Group
purchased an additional trans-shipment vessel and tug which will
provide loadout capacity beyond the envisaged production rate as well
as reducing operational risk.
Demand for titanium feedstocks is related to global economic activity
and has declined in 2009 due to the onset of the global recession
though the extent is still uncertain. A strong industry inventory
destocking process which occurred during the first quarter of 2009
has abated in the second quarter, with a subsequent increase in
shipments from the Moma port facility.
In response to the reduction in demand the major mineral feedstock
producers in the industry have reduced output in order to more
closely align production to current market conditions. Industry
commentators anticipate that, the contraction phase of the cycle will
come to an end during the fourth quarter of 2009 with strong growth
restored in 2010.
Since, with the completion of the PIP, Kenmare's management believes
that the plant has the capacity to operate at design levels, the
company will be reporting operating costs and revenue in the income
statement from 1 July 2009. Previously, costs net of revenues had
been capitalised in development expenditure.
Charles Carvill Kenmare's Chairman said:
"We are delighted that the Performance Improvement Project is
virtually finished and has been completed according to schedule. As
a consequence we are on target for full production before the end of
the year.".
For more information:
Kenmare Resources plc
Tony McCluskey, Financial Director
Tel: +353 1 6710411
Mob: + 353 87 674 0346
Murray Consultants
Elizabeth Headon
Tel: +353 1 498 0345
Mob: + 353 87 989 7234
Conduit PR Ltd
Leesa Peters/Charlie Geller
Tel: +44 207 429 6600
Mob: +44 781 215 9885
www.kenmareresources.com
INTERIM MANAGEMENT REPORT
Group activities
The principal activity of Kenmare Resources plc is the operation of
the Moma Titanium Minerals Mine in Mozambique. The mine contains
reserves of valuable heavy minerals including ilmenite, zircon and
rutile.
Mining is by means of dredging in an artificial mining pond, with
concentration of the heavy minerals in a floating wet concentrator
plant (WCP) to produce a heavy mineral concentrate (HMC) which is
pumped to a minerals separation plant (MSP) for further processing.
The MSP separates and upgrades the HMC into the final products,
ilmenite, rutile and zircon. These products are exported directly
from the mine site using a dedicated shipping terminal and a
trans-shipment vessel which loads ocean-going ships.
Operations
In the second quarter of 2009, production of HMC was up 23% from the
first quarter, production of ilmenite was up 12.2%, production of
zircon was up 45%, and production of rutile increased 158%. The
Performance Improvement Project (PIP) is 97% complete at the time of
writing this report, compared to 75% on 16 April, as noted in
Kenmare's Annual Report. This, combined with improved planning and
management at the mine, have contributed to the steady increase in
output. Results have continued to improve with July being a record
month for HMC and ilmenite production.
The focus now is to deliver on our forecast of full production before
the year end. The management team is in place to accomplish this,
and with the completion of the PIP, the necessary physical assets are
also in place.
To date, we have relied on one trans-shipment vessel, the Bronagh J.
While this vessel has performed well, it is prudent to manage the
risk that the mine could have to shut down for a period of time if
the Bronagh J were to fail. In August, the Group purchased an
additional trans-shipment vessel and tug previously employed in the
trans-shipment of lead-zinc concentrate from a mine in Western
Australia. The vessels are located in Australia where some minor
modification works will take place before they are transported to the
mine for operation in 2010. Having two trans-shipment vessels of
similar capacity, as well as reducing risk, will greatly improve
loading rates and consequently should reduce freight rates, to the
benefit of our customers, and ultimately to the benefit of the mine.
Demand for titanium feedstocks is related to global economic activity
and has declined in 2009 due to the onset of the global recession
though the extent of this reduction is still uncertain. A strong
industry inventory destocking process which occurred during the first
quarter of 2009 has abated in the second quarter, with a subsequent
increase in shipments from the Moma port facility.
In response to the reduction in demand, the major mineral feedstock
producers in the industry have reduced output in order to more
closely align production to current market conditions. These
reductions entail both temporary cut-backs in operations and the
earlier than anticipated closure of near depleted mines. This
industry discipline bodes well for tight market conditions and higher
prices when demand recovers. Industry commentators anticipate that
the contraction phase of the cycle will come to an end during the
fourth quarter of 2009 with strong growth restored in 2010.
Results for the six months ended 30 June 2009
The loss for the period of US$0.2 million arises from Group corporate
and exploration costs, net of foreign exchange gains and deposit
interest earned.
During the period there were additions to property, plant and
equipment of US$38.1 million. Expenditure on plant and equipment
totalled US$5.3 million. Development expenditure during the period
was US$32.8 million of which US$13.4 million was loan interest,
US$5.6 million was finance fees and US$13.8 million was operating
costs net of revenue earned of US$15.6 million and net of
construction contract delay damages of US$1.2 million. These costs
have been capitalised in property, plant and equipment as the mine
continued to ramp-up production during the period. As the mine is now
capable of operating in the manner intended by management, operating
costs and revenues will be reported in the income statement from 1
July 2009.
Inventory at the period end amounted to US$12.0 million, consisting
of mineral products of US$8.3 million and consumable spares of US$3.7
million. Included in plant and machinery are capital spares totalling
US$1.1 million. Trade and other receivables amounted to US$30.3
million, of which US$10.1 million are trade receivables from the sale
of mineral products, US$16 million is money due on the placing
agreements entered into on 30 June 2009 with the Group's brokers with
the balance of US$4.2 million made up of amounts due from the
contractor, prepayments and other miscellaneous debtors.
On 31 July 2009 the Group entered into a trade finance facility with
Absa Corporate and Business Bank to replace the facility it had with
Barclays Bank plc which expired in January 2009.
On 30 January and 31 March, the Group concluded two Deeds of Waiver
and Amendment with the lenders to the mine which, among other things,
deferred two senior debt principal instalments originally scheduled
for 2009. In accordance with the terms of the second of these deeds,
fees of US$1.9 million became payable and 28.2 million ordinary
shares in Kenmare Resources plc were issued to the lenders. An
additional contingent fee of US$0.5 million does not become payable
and issue of a further 28.2 million shares is not required in
accordance with the terms of the deeds. Senior loan interest of
US$6.1 million was paid in February 2009. Senior loan interest
accrued for the six month period was US$5.6 million and subordinated
loan interest accrued during the period was US$7.8 million.
Subordinated loan interest capitalised until 2009 is repayable over
the term of the loans from 2010. Loan interest accrued and a foreign
exchange gain of US$0.2 million on Euro-denominated debt resulted in
an increase in the loan balance to US$341.9 million at the period
end.
On 7 August 2009, the Group entered into a loan agreement with Banco
Comerical e de Investimentos, S.A., a Mozambican bank, for US$2.5
million to fund the purchase of the trans-shipment vessel and tug.
On 30 June 2009 the Group entered into a placing agreement with its
brokers to place 54 million new ordinary shares at Stg19p per share.
This placing resulted in proceeds of Stg£10.3 million (US$16.7
million) being received by the Group on 5 August 2009. The Board of
Kenmare extended the exercise period on the outstanding warrants,
which would have otherwise expired on 23 July 2009, to 31 December
2009. There are a total of 28.5 million warrants outstanding (with an
exercise price of Stg19p) which, if exercised in their entirety,
would raise approximately US$9 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 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 of a material decline in prices for that
portion of the mine's output that is not fixed by contract, and a
risk that planned shipments may be delayed by customers. Senior
management closely monitors production, shipments and prices, and to
the extent possible manages the mine's cost base to ensure it remains
competitive.
Operational risks
The achievement of target design production levels is dependent upon
the ability of mine management to continue to increase production
levels and export final product. Earlier this year, the jetty
required some temporary repairs, which were successfully completed.
Senior management will ensure that final repairs, which are for the
account of the Contractor, are implemented in a manner which will
ensure minimum disruption to export activities. Senior management
will also continue to carefully manage the remaining aspects of the
construction contract and allocate the required resources to enable
the mine management to overcome hurdles that may present themselves
in increasing production levels.
Financing risks
The successful delivery of increased production levels 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 ("CRA") until financial completion, though this requirement
has been waived by project lenders until 31 December 2010.
Senior management is maintaining a close dialogue with lenders and
believes that sufficient funds are currently in place for Group
requirements.
Financial risks
The development of the mine has been financed in part by Euro and US
Dollar denominated senior and subordinated loans. At 30 June 2009 the
loan balance was US$341.9 million, comprising US$214.8 million
denominated in US Dollars and US$127.1 million denominated in Euro.
The Euro denominated loans expose the Group to currency fluctuations.
The borrowings issued at variable 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 variable
rate exposures and currencies. The Group's policy with respect to
liquidity and cash flow risk is to ensure continuity of funding
primarily generated from operations.
Environmental risks
The Group is committed to managing its operations in accordance with
applicable guidelines issued by the World Bank, MIGA, the African
Development Bank and FMO, the environmental laws and standards in
force in Mozambique, as well as its own policies. In connection with
the participation of FMO in the June 2009 share placing, the Group
has agreed to apply IFC Performance Standards to the mine. The
Environmental Management Plan (EMP) for the Moma Titanium Minerals
Mine 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
the mine 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 and social
obligations, and aims to ensure that the EMP is properly implemented
and maintained.
Health and safety risks
The Group is committed to conducting its business in a manner that
minimises the exposure of its employees, contractors and the general
public to health and safety risks arising from its operations. The
Group's operations personnel worked 615,840 hours to 30 June 2009,
with 3 lost-time injuries. The Group's operations contractors worked
352,523 hours to 30 June 2009, with 1 lost-time injury. Malaria is a
key risk at the mine and the Group continues to develop and implement
programs to minimise its impact on all personnel at the mine. The
Group will also continue to ensure that appropriate health and safety
standards are maintained in all Group activities.
Outlook
The Group is focused on increasing production and shipments to target
levels in the coming months, and on closing out the construction
contract. The Group will continue to monitor Group funding
requirements and obligations under the financing documentation, and
will continue to ensure that the Group retains sufficient liquidity.
Related party transactions
Material related party transactions affecting the financial
performance of the Group in the period are disclosed in Note 10.
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,
Chairman
Charles Carvill
28 August 2009
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 2009 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,
Chairman
Charles Carvill
28 August 2009
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 2009, which comprise the Group Condensed
Income Statement, Group Condensed Balance Sheet, Group Condensed Cash
Flow Statement, Group Condensed Statement of Changes in Equity and
related notes 1 to 12. 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's members, as a body, in
accordance with International Standard on Review Engagements (UK and
Ireland) 2410 issued by the Auditing Practices Board. Our work has
been undertaken so that we might state to the Company's members 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 and the Company's members as a body, 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
2009 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.
Emphasis of Matter - Property, Plant and Equipment
Without modifying our conclusion, we draw your attention to note 5
regarding the disclosures made in the interim group condensed
financial statements concerning the recoverability of Property, Plant
and Equipment. The realisation of Property, Plant and Equipment of
US$571.7 million included in the Group Condensed Balance Sheet, is
dependent on the successful operation of the Moma Titanium Minerals
Mine and the continued availability of adequate financing for the
mine as referred to in note 7. The Half Yearly Financial Report does
not include any adjustments relating to these uncertainties and the
ultimate outcome cannot at present be determined.
Deloitte & Touche
Chartered Accountants and Registered Auditors
Deloitte & Touche House
Earlsfort Terrace
Dublin 2
28 August 2009
KENMARE RESOURCES PLC
GROUP CONDENSED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2009
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
30-Jun 30-Jun 31-Dec
2009 2008 2008
Notes US$'000 US$'000 US$'000
Continuing Operations
Revenue - - -
Operating expenses 2 (359) (8,809) (957)
Finance income 160 720 1,302
(Loss)/profit before (199) (8,089) 345
tax
Income tax expense - - -
(Loss)/profit for the (199) (8,089) 345
period/year
Attributable to (199) (8,089) 345
equity holders
US$ cent per US$ cent per share US$ cent
share per share
(Loss)/profit per 4 (0.02c) (1.09c) 0.045c
share: basic
(Loss)/profit per 4 (0.02c) (1.09c) 0.042c
share: diluted
The accompanying notes form part of the condensed financial
statements
KENMARE RESOURCES PLC
GROUP CONDENSED BALANCE SHEET
AS AT 30 JUNE 2009
Unaudited Unaudited Audited
30-Jun 30-Jun 31-Dec
2009 2008 2008
Notes US$'000 US$'000 US$'000
Assets
Non-current assets
Property, plant and equipment 5 571,735 514,706 539,672
571,735 514,706 539,672
Current assets
Inventories 12,077 6,497 6,405
Trade and other receivables 30,337 4,755 3,033
Cash and cash equivalents 5,631 47,727 40,536
48,045 58,979 49,974
Total assets 619,780 573,685 589,646
Equity
Capital and reserves attributable
to the Company's equity holders
Called-up share capital 6 72,966 61,705 66,178
Share premium 6 157,553 122,885 145,088
Retained losses (30,990) (39,225) (30,791)
Other reserves 43,887 42,471 42,668
Total equity 243,416 187,836 223,143
Liabilities
Non-current liabilities
Bank loans 7 310,423 325,677 299,982
Obligations under finance lease 2,226 2,286 2,264
Provisions 8 3,992 3,999 4,179
316,641 331,962 306,425
Current liabilities
Bank loans 7 31,478 26,807 34,842
Provisions 8 610 - -
Trade and other payables 27,635 27,080 25,236
59,723 53,887 60,078
Total liabilities 376,364 385,849 366,503
Total equity and liabilities 619,780 573,685 589,646
The accompanying notes form part of the condensed financial
statements
KENMARE RESOURCES PLC
GROUP CONDENSED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2009
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
30-Jun 30-Jun 31-Dec
2009 2008 2008
US$'000 US$'000 US$'000
Cash flows from operating
activities
(Loss)/profit for the period/year (199) (8,089) 345
Adjustment for:
Foreign exchange movement (480) (37) (5,472)
Share-based payment expense 83 27 -
Operating cash outflow (596) (8,099) (5,127)
(Increase)/decrease in (5,672) (866) 408
inventories
(Increase)/decrease in trade and (11,223) 87 1,809
other receivables
Increase/(decrease) in trade and 2,367 (2,539) (4,414)
other payables
Increase in provisions 423 - 1,674
Cash used by operations (14,701) (11,417) (5,650)
Finance costs (6,181) (7,200) (13,739)
Net cash used in operating (20,882) (18,617) (19,389)
activities
Cash flows from investing
activities
Additions to property, plant and (21,585) (18,171) (39,050)
equipment
Net cash used in investing (21,585) (18,171) (39,050)
activities
Cash flows from financing
activities
Proceeds on the issue of shares - 1,593 28,269
Proceeds on shares to be issued 11 - -
Repayment of borrowings - (17,312) (20,335)
Increase in borrowings 7,077 43,954 29,316
(Decrease)/increase in (6) 40 50
obligations under finance lease
Net cash from financing 7,082 28,275 37,300
activities
Net decrease in cash and cash (35,385) (8,513) (21,139)
equivalents
Cash and cash equivalents at the 40,536 56,203 56,203
beginning of period/year
Effect of exchange rate changes 480 37 5,472
on cash and cash equivalents
Cash and cash equivalents at end 5,631 47,727 40,536
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 2009
Called-Up Share Retained Other Total
Share Premium Losses Reserves
Capital
US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1
January 2008 61,496 121,501 (31,136) 41,562 193,423
Loss for the - - (8,089) - (8,089)
period
Share-based - - - 909 909
payment
Issue of share 209 1,384 - - 1,593
capital
Balance at 30 June 61,705 122,885 (39,225) 42,471 187,836
2008
Profit for the - - 8,434 - 8,434
period
Share-based - - - 197 197
payment
Issue of share 4,473 22,203 - - 26,676
capital
Balance at 31
December 2008 66,178 145,088 (30,791) 42,668 223,143
Loss for the - - (199) - (199)
period
Share based - - - 1,219 1,219
payment
Issue of share 2,234 927 - - 3,161
capital
Share capital to 4,554 11,538 - - 16,092
be issued
Balance at 30 June 72,966 157,553 (30,990) 43,887 243,416
2009
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 2009
1. BASIS OF PREPARATION
The Group Condensed Financial Statements for the six months ended 30
June 2009 have been prepared in accordance with the Transparency
(Directive 2004/109/EC) Regulations 2007 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 2008 and are described in those financial
statements.
In the current financial year, the Group has adopted all Standards
and Interpretations which are effective from 1 January 2009. Adoption
has resulted in no material impact on the financial statements.
Both the figures for the six months ended 30 June 2009 and the
comparative amounts for the six months ended 30 June 2008 are
unaudited. The Group condensed financial information for the year
ended 31 December 2008 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.
There were no other gains or losses during the six months period
ended 30 June 2009 other than those reported in the Condensed Income
Statement. As a result no Statement of Comprehensive Income has been
provided.
2. SEGMENTAL INFORMATION
In prior years management considered the operation of the Moma
Titanium Minerals Mine in Mozambique as its primary business segment
and its geographical segment. This is also the means by which
information is reported to the Group's Board for the purposes of
resource allocation and assessment of segment performance. Therefore
there is no change to the Group's reportable segments under IFRS8.
Segmental information is presented as follows:
SEGMENT Unaudited Unaudited Audited
30-Jun-09 30-Jun-08 31-Dec-08
US$'000 US$'000 US$'000
Segment results
Operating (expenses)/gains
Moma Titanium Minerals Mine
Expenses net of revenue (13,793) (17,386) (31,725)
Loan interest (13,409) (13,295) (26,861)
Finance fees (5,615) (901) (1,455)
Total capitalised in development
expenditure (32,817) (31,582) (60,041)
Foreign exchange (loss)/gain
(expensed)/credited in the income
statement (56) (8,955) 5,792
Mozambique Uranium Project exploration
expenditure (113) (332) (503)
Unallocated corporate (expenses)/gains (600) 422 (801)
Corporate foreign exchange gain/(loss) 410 56 (5,445)
Total operating expenses (359) (8,809) (957)
Finance income 160 720 1,302
(Loss)/profit before tax (199) (8,089) 345
Income tax expense - - -
(Loss)/profit for the period/year (199) (8,089) 345
Other information
Capital additions 38,092 33,161 63,775
Balance Sheet
Moma Titanium Minerals Mine assets 598,430 540,648 554,562
Corporate assets 21,350 33,037 35,084
Total assets 619,780 573,685 589,646
Moma Titanium Minerals Mine liabilities 374,129 383,700 364,401
Corporate liabilities 2,235 2,149 2,102
Total liabilities 376,364 385,849 366,503
3. SEASONALITY OF SALE OF MINERAL PRODUCTS
Sales of mineral products are not seasonal in nature.
4. (LOSS)/ EARNINGS PER SHARE
The calculation of the basic and diluted (loss)/earnings per share
attributable to the ordinary equity holders of the parent is based on
the following data:
Unaudited Unaudited Audited
30-Jun-09 30-Jun-08 31-Dec-08
US$'000 US$'000 US$'000
(Loss)/profit
(Loss)/profit for the period/year
attributable to equity holders of
the parent (199) (8,089) 345
Unaudited Unaudited Audited
30-Jun -09 30-Jun -08 31-Dec-08
Number of Number of Number of
Shares Shares Shares
Weighted average number of issued
ordinary shares for the
purposes of basic loss/earning
per share 798,839,952 743,225,455 760,160,548
Effect of dilutive potential
ordinary shares
Share options 47,578,258 37,378,258 36,653,258
Warrants 28,572,536 28,777,367 28,572,536
Weighted average number of ordinary shares
for the purpose
of diluted loss/earning per share 874,990,746 809,381,080 825,386,342
The basic loss per share and the diluted loss per share are the same,
as the effect of the outstanding share options and warrants is
anti-dilutive.
5. PROPERTY, PLANT AND EQUIPMENT
Plant Buildings Mobile Fixtures Construction Development Total
&
& & Equipment Equipment In Progress Expenditure
Equipment Airstrip
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Cost
Balance at 1
January 2008 257,502 3,812 6,022 2,535 46,082 176,365 492,318
Transfer from
construction in
progress 1,271 - - 1 (1,272) - -
Reclassification
to inventory (897) - - - - - (897)
Additions during
the period 206 - - 19 1,354 31,582 33,161
Balance at 30 524,582
June 2008 258,082 3,812 6,022 2,555 46,164 207,947
Transfer from
construction in
progress 1,132 - 177 77 (1,386) - -
Reclassification
to inventory (285) - - - - - (285)
Additions during
the period 587 - 525 116 927 28,459 30,614
Impairment
during the - - (486) - - - (486)
period
Balance at 31 554,425
December 2008 259,516 3,812 6,238 2,748 45,705 236,406
Transfer from 1,437
construction in
progress - 473 61 (1,971) - -
Additions during
the period 1,257 - 129 48 3,843 32,815 38,092
Impairment
during the - - (362) (1) - (48) (411)
period
Balance at 30
June 2009 262,210 3,812 6,478 2,856 47,577 269,173 592,106
Accumulated
Depreciation
Balance at 1
January 2008 2,775 74 2,207 302 - - 5,358
Charge for the 3,412 95 604 407 - - 4,518
period
Balance at 30
June 2008 6,187 169 2,811 709 - - 9,876
Charge for the 4,033 96 648 413 - - 5,190
period
Impairment
during the - - (313) - - - (313)
period
Balance at 31
December 2008 10,220 265 3,146 1,122 - - 14,753
Charge for the 4,636 95 651 448 - - 5,830
period
Impairment
during the - - (212) - - - (212)
period
Balance at 30
June 2009 14,856 360 3,585 1,570 - - 20,371
Carrying Amount
Balance at 30
June 2009 247,354 3,452 2,893 1,286 47,577 269,173 571,735
Balance at 30
June 2008 251,895 3,643 3,211 1,846 46,164 207,947 514,706
Balance at 31
December 2008 249,296 3,547 3,092 1,626 45,705 236,406 539,672
5. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
A construction contract for the engineering, procurement, building,
commissioning and transfer of facilities at 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.
The construction 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 2009, the only remaining section to be taken
over was the roaster.
During the period the Group carried out an impairment review of
property, plant and equipment. The cash generating unit for the
purpose of impairment testing is the Moma Titanium Minerals Mine as
this is the primary business and geographic segment of the Group. The
basis on which the recoverable amount of the Moma Titanium Minerals
Mine is assessed is its value in use. The cash flow forecast
employed for the value in use computation is a life of mine financial
model. The recoverable amount obtained from the financial model
represents the present value of the future pre tax and finance cash
flows discounted at the average effective borrowing rate of the Moma
Titanium Mineral Mine of 8.9%. Due to the specific nature of the
project financing, there is no basis to assume that current market
rates differ from those in the loan documents.
Key assumptions include the following:
- A mine plan covering 21 years of production based on only 75% of
Namalope proved and probable reserves. The additional reserves will
be incorporated in subsequent life of mine plans.
- The cash flows assume ramp-up to expected production levels during
2009. Expected production levels are annual production levels of
approximately 800,000 tonnes of ilmenite per annum plus co-products,
rutile and zircon.
- Product sales prices are based on contract prices as stipulated in
marketing agreements with customers, or where contracts are based on
market prices or production is not presently contracted, prices as
forecast by the lenders' independent marketing consultant.
- Operating and capital replacement costs are based on approved
budget costs for 2009 and escalated by 2% per annum there after.
The discount rate is the significant factor in determining the
recoverable amount and a 1% change in the discount rate results in an
8% change in the recoverable amount.
Substantially all the property, plant and equipment will be mortgaged
to secure project loans as detailed in Note 7.
The carrying amount of the Group's plant and equipment includes an
amount of US$1.6 million (2008: US$1.8
million) in respect of assets held under a finance lease.
Additions to development expenditure include loan interest
capitalised of US$13.4 million (2008:US$13.3 million), finance fees
of US$5.6 million (2008: US$0.9 million), costs of US$13.8 million
(2008:US$17.3 million) net of revenue earned of US$15.6 million
(2008:US$9.0 million) and net of delay damages of US$1.2 million
(2008:US$1.2 million). Included in development expenditure are
amounts of US$1.1 million (2008: US$0.6 million) relating to share
based payments as detailed in Note 9.
The recovery of property, plant and equipment is dependent upon the
successful operation of the Moma Titanium Minerals Mine and continued
availability of adequate funding for the mine. The Directors are
satisfied that at the balance sheet date the recoverable amount of
property, plant and equipment exceeds its carrying amount and based
on the planned mine production levels that the Moma Titanium Minerals
Mine will achieve positive cash flows. There was an impairment charge
for the period of US$0.4 million (2008: nil),
6. SHARE CAPITAL
Share capital as at 30 June 2009 amounted to US$73.0 million (2008:
US$61.7 million). During the period, 28.2 million ordinary shares in
Kenmare Resources plc were issued to the lender group as fees under
the terms of the Deed of Waiver and Amendment. The issue of these
shares resulted in finance fees of US$3.2 million which have been
capitalised in development expenditure as detailed in Note 5. US$2.2
million of this issue has been credited to share capital and US$1.0
million to share premium.
On 30 June 2009 the Group entered into arrangements with its brokers
to place 54 million new ordinary shares at Stg19p per share. This
placing resulted in proceeds of Stg£10.3 million (US$16.1 million)
being received by the Group on 5 August 2009. The placing has
resulted in US$4.6 million been credited to share capital as ordinary
shares to be issued and US$11.5 million to share premium.
7. BANK LOANS
Unaudited Unaudited Audited
30-Jun-09 30-Jun-08 31-Dec-08
US$'000 US$'000 US$'000
Senior loans 188,198 201,723 188,844
Subordinated loans 153,703 150,761 145,980
341,901 352,484 334,824
The borrowings are repayable as
follows:
Within one year 31,478 26,807 34,842
In the second year 40,646 37,043 36,633
In the third to fifth year 121,938 111,128 109,899
After five years 147,839 177,506 153,450
341,901 352,484 334,824
Less amounts due for settlement within
12 months (31,478) (26,807) (34,842)
Amount due for settlement after 12
months 310,423 325,677 299,982
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 Company (other than
cash held at the corporate level) and the Moma Titanium Minerals
Mine; security agreements over shares in the Project Companies; and
the Contingency Reserve Account. Loan balances set out in these
financial statements include accrued interest.
The Company has guaranteed the bank loans during the period prior to
completion. The final date for achieving completion was formerly 30
June 2009. The Deed of Waiver and Amendment dated 31 March 2009
extended this date to 31 December 2012. Completion occurs upon
meeting certain tests on a phased basis, including installation of
all required facilities, meeting certain cost and production
benchmarks and social and environmental requirements (technical
completion, which must take place by 31 December 2010), meeting
marketing requirements (which must take place by 30 June 2011), and
meeting legal and permitting requirements, and filling of specified
reserve accounts to the required levels. Upon completion, the
Company's guarantee of the bank loans will terminate. Failure to
meet any of the phased tests or, subject to extension for force
majeure not to exceed 365 days, failure to achieve completion by 31
December 2012, would result in an event of default under the Senior
and Subordinated 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.
Seven Senior Loan credit facilities were made available for financing
the Moma Titanium Minerals Mine. The aggregate maximum amount of the
Senior Loan credit facilities is US$185 million plus ¤15 million of
which $182.8 million and ¤15 million had been drawn at 30 June 2009,
and US$2.2 million was undrawn and prior to June 2009 was available
under one of the facilities. The availability period for the undrawn
US$2.2 million expired on 30 June 2009 without the amount being drawn
because of the failure of the Contractor to provide the necessary
tied content. The Group will seek appropriate damages under the
contract for this failure. Loan interest repayments during the
period totalled US$6.1 million, interest accrued of US$5.6 million
and a foreign exchange gain on the Euro-denominated senior loan of
US$0.1 million, resulting in an overall decrease in the balance
outstanding to US$188.2 million.
Senior Loans were originally scheduled to be repaid in equal
semi-annual instalments commencing on 1 February 2008 in the case of
six of the seven Senior Loan facilities, and on 2 February 2009 in
the case of the seventh. Principal instalments originally scheduled
to be paid in 2008 were paid when due. On 30 January 2009, a Deed of
Waiver and Amendment was entered into by the Project Companies
whereby the Senior principal instalments due on 2 February 2009 were
deferred, to be repaid over the remaining life of the respective loan
facility commencing on 4 August 2009, and pursuant to which Kenmare
contributed US$15 million to the Contingency Reserve Account between
12 December 2008 and 31 January 2009. On 31 March 2009 a second Deed
of Waiver and Amendment was entered into by the Project Companies
whereby the Senior principal instalments due on 4 August 2009 were
also deferred, to be repaid over the remaining life of the loan
facilities commencing on 1 February 2010.
7. BANK LOANS (CONTINUED)
The Senior Loan tenors have therefore remained unchanged and range
from 6 to 9 years from 30 June 2009. Three of the Senior Loans bear
interest at fixed rates and four bear interest at variable rates.
The Subordinated Loan credit facilities of ¤47.1 million plus US$10
million (excluding capitalised interest) were fully drawn down at the
period end. Under the loan documents Subordinated Loans were
repayable in 21 semi-annual instalments commencing on 1 August 2009.
Under the second Deed of Waiver and Amendment referred to above, the
first scheduled Subordinated Loan principal instalment, which would
have otherwise been due on 4 August 2009 has been deferred and is
scheduled for repayment on 1 February 2010, and if cash is
insufficient on such payment date, on the first semi-annual payment
date thereafter on which sufficient cash is available, in accordance
with the terms of the financing documentation. The final instalments
are due on 1 August 2019. The Subordinated Loans denominated in Euro
bear interest at a fixed rate of 10% per annum, while the
Subordinated Loans denominated in US Dollars bear interest at
variable rates. Pursuant to the original terms of the financing
documentation, Subordinated Loan interest is being capitalised up to
and including 4 August 2009. Subordinated Loan interest is due to be
paid in cash for the first time on 1 February 2010, but if cash is
insufficient on such payment date to make the schedule interest
payment, interest will be capitalised and become payable on the first
semi-annual payment date on which sufficient cash is available, in
whole or in part, to the extent of available cash.
The Standby Subordinated Loan credit facilities of ¤2.8 million and
US$4 million were fully drawn down at period end. Standby
Subordinated Loans bear interest at fixed rates in respect of ¤2.8
million and US$1.5 million and at variable rates in respect of US$2.5
million. Standby Subordinated Loans are repayable on the same terms
as the Subordinated Loans and have an option to require that Kenmare
Resources plc purchase the loans on agreed terms.
The Additional Standby Subordinated Loan credit facilities of US$12
million and US$10 million were fully drawn down at period end. The
Additional Standby Subordinated Loans bear interest at variable
rates. The Additional Standby Subordinated Loans are repayable on the
same terms as the Subordinated Loans.
In accordance with the terms of a Deed of Waiver and Amendment dated
31 March 2009, fees of US$1.9 million became payable and 28.2 million
ordinary shares in Kenmare Resources plc were issued to the lenders.
An additional contingent fee of US$0.5 million does not become
payable and issue of a further 28.2 million shares is not required in
accordance with the terms of the deeds.
Interest margins on subordinated loans will increase by 3% until
technical completion and by 1% until financial completion. This
additional margin will be payable only after senior loans have been
repaid in full. Loan facilities arranged at fixed interest rates
expose the Group to fair value interest rate risk. Loan facilities
arranged at variable rates expose the Group to cash flow interest
rate risk. Variable rates are based on six month LIBOR. The average
effective borrowing rate at the period end was 8.9%. The interest
rate profile of the Group's loan balances at the period end was as
follows:
Unaudited Unaudited Audited
30-Jun-09 30-Jun-08 31-Dec-08
US$'000 US$'000 US$'000
Fixed rate debt 221,536 232,872 196,208
Variable rate debt 120,365 119,612 138,616
Total debt 341,901 352,484 334,824
For bank borrowings which bear fixed and variable rates of interest,
fair value is estimated to be equivalent to book value. Due to the
specific nature of the project financing, there is no basis to assume
that current market rates differ from those in the loans documents.
Consequently the Directors consider them to be the same.
Under that assumption that all other variables remain constant and
using the most relevant 6 month LIBOR, a 1% change in LIBOR would
result in a US$1.2 million (2008: US$1.2 million) change in finance
costs for the year.
7. BANK LOANS (CONTINUED)
The currency profile of the bank loans is as follows:
Unaudited Unaudited Audited
30-Jun-09 30-Jun-08 31-Dec-08
US$'000 US$'000 US$'000
Euro 127,131 131,987 121,666
US Dollars 214,770 220,497 213,158
Total debt 341,901 352,484 334,824
The Euro-denominated loans expose the Group to currency fluctuations.
These currency fluctuations are realised on payment of
Euro-denominated debt principal and interest. Under that assumption
that all other variables remain constant a 10% strengthening or
weakening of Euro against the US Dollar, would result in a US$1.5
million (2008: US$1.2 million) change in finance costs for the year.
The above sensitivity analyses are estimates of the impact of market
risks assuming the specified change occurs. Actual results in the
future may differ materially from these results due to developments
in the global financial markets which may cause fluctuations in
interest and exchange rates to vary from the assumptions made above
and therefore should not be considered a projection of likely future
events.
The Directors have prepared cash flow projections for the estimated
life of the Moma Titanium Minerals Mine. These forecasts are based on
the planned mine production levels, which are dependent on the
continued adequate funding for the mine. The cash flow projections
based on planned mine production levels, arrangement of the trade
finance facility and revised financing arrangements detailed above
show that the mine operations will result in positive cash flows, and
that the mine will have adequate funding for the period of not less
than twelve months from the date of this report. Accordingly the
Directors have prepared the financial statements on the basis that
the Group is a going concern.
8. PROVISIONS
Provisions at the period end are made up of a mine closure provision
of US$2.8 million (2008: US$2.6 million) and a mine rehabilitation
provision of US$1.8 million (2008: US$1.4 million). US$0.6 million of
the mine rehabilitation provision has been included in current
liabilities to reflect the estimated cost of rehabilitation work to
be carried out over the next year.
9. 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 seven 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$0.1 million (2008: US$0.03 million).
10. RELATED PARTY TRANSACTIONS
During the period 9 million share options were granted to Directors
at a cost of US$1.9 million, the key management personnel of the
Group. The share options are exercisable at a price equal to the
quoted market price of the Company's shares on the date of grant. The
options vest over a three year period. US$0.8 million of the costs
has been recognised in the period.
11. EVENTS AFTER THE BALANCE SHEET DATE
On 31 July 2009 the Group entered into a trade finance facility with
Absa Corporate and Business Bank to replace the facility it had in
place with Barclays Bank plc which expired in January 2009.
On 7 August 2009 the Group entered into a loan agreement with Banco
Comerical e de Investimentos, S.A. for US$2.5 million to fund the
purchase of an additional product trans-shipment barge and tug for
the mine. Interest accrues at 6 month LIBOR plus 6%, and is payable
monthly commencing September 2009 and principal is scheduled to be
repaid in 54 monthly instalments commencing March 2010. This loan was
drawn down on 10 August 2009. The loan will be secured by a mortgage
on the purchased trans-shipment barge and tug and by a guarantee from
Kenmare Resources plc.
12. INFORMATION
The Half Yearly Financial report was authorised by the Board on 28
August 2009.
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 is
also available on the Company's website at
www.kenmareresources.com.
---END OF MESSAGE---
This announcement was originally distributed by Hugin. The issuer is
solely responsible for the content of this announcement.
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