Interim Management Statement
Kenmare Resources plc ("Kenmare" or "the Company")
Kenmare Interim Results
For the period ended 30 June 2007
Chairman's Statement
Dear Shareholder,
In my last statement I mentioned that we had taken over mining
operations at the Moma Titanium Minerals Mine from the contractor. I
can now report that we have taken over the Mineral Separation Plant
(MSP). Control of this plant allows us to process Heavy Mineral
Concentrate (HMC) into final products which are being stockpiled for
shipment.
The MSP is performing well and is already operating at a feed rate of
90 tonnes of HMC per hour. This is three quarters of the design
capacity. It is very pleasing to have achieved this feed rate so
quickly. The ilmenite products are within specifications and are
eagerly awaited by our customers. The contractor still has some
further work to do on the rutile and zircon circuits. Hence, we are
storing the feed for these circuits until they come on stream. The
product transfer barge is due to arrive at Moma in early November.
It was necessary to go through an initial period of mining with one
dredge while the dredge pond was expanded to the size required to
operate two dredges simultaneously. This has been done and two
dredges have now been deployed to mine the Moma orebody
simultaneously with the commensurate increase in output from the
mine. The second dredge has been deployed earlier than originally
planned. This will accelerate the ramp up to full production and
reduce the effect of the late delivery of the facilities by the
contractor. We intend to be operating at the rate of 800,000 tonnes
of ilmenite product per annum before the end of 2007.
Pilot plant operation and process design for an expansion to 1.2
million tonnes per annum of ilmenite is underway in Australia. A
specific project team has been hired to implement the expansion and
mine planning for the higher extraction rate is well underway.
The TiO2 feedstock market remains tight and demand for Kenmare's
products remains strong. Prices for ilmenite are rising and almost
all of our output has now been allocated. In addition to the output
from the present facility, most of the proposed output from our
expansion to 1.2 million tonnes per annum of ilmenite production can
now be earmarked to specific customers.
While Kenmare does not have to pay the ongoing costs of the
contractor on site, and in addition has already levied very
substantial delay damages on the contractor, the delay in revenues
has nonetheless had an effect on our finances. Kenmare has therefore
established an additional US$22.0 million line of standby
subordinated loan facility with two members of our lender group. We
believe that our funding arrangements more than cover the
requirements of the project for existing production capacity.
For the six months ended 30 June 2007 we report a loss of US$0.1
million. This comprises an operating loss of US$1.7 million,
resulting primarily from foreign exchange losses, net of finance
income of US$1.6 million earned on deposits held. Non-current assets
increased by US$40 million during the six months under review. US$12
million of this related to mineral exploration and project
development work capitalised in deferred development expenditure, net
of delay damages levied on the Moma Project contractor. US$28 million
was capital expenditure on the construction of the project. The
taking over of the mining operations in April resulted in the
transfer of US$78 million from Construction In Progress to Property,
Plant and Equipment. Capital commitments at 30 June 2007 amounted to
US$41.2 million. The Company has access to sufficient sources of
funding to cover these capital commitments. Additional amounts drawn
plus interest capitalised during the period amounted to US$37.7
million.
Our staff on site have done a tremendous job in the short time since
taking over the project from the contractor and I wish them well as
they continue to ramp up production at Moma. It is a very exciting
time with both our initial production and that coming from our
expansion being eagerly sought by the market.
Very regrettably, one of our site employees, a vibrant young man
called Nelson Mutombene, died in a swimming accident in July. I
offer, on behalf of the Board, our deepest condolences to his family,
friends and colleagues.
Charles Carvill
Chairman
27 September 2007
For more information:
Kenmare Resources plc
Michael Carvill,
Managing Director
Tel: + 353 1 671 0411
Mob: + 353 87 674 0110
Conduit PR Ltd
Leesa Peters
Tel: +44 (0) 207 429 6600
Mob: + 44 (0) 781 215 9885
Murray Consultants Ltd
Jim Milton
Tel: + 353 1 498 0300
Mob: + 353 86 2558400
www.kenmareresources.com
INDEPENDENT AUDITORS' REVIEW REPORT
TO THE DIRECTORS OF KENMARE RESOURCES PLC
Interim Financial Information - Six months ended 30 June 2007
Introduction
We have been instructed by the Company to review the financial
information for the six months ended 30 June 2007 which comprises the
Group Income Statement, the Group Balance Sheet, the Group Cash Flow
Statement, Group Statement of Changes in Equity and related notes 1
to 11. We have read the other information contained in the interim
report and considered whether it contains any apparent misstatements
or material inconsistencies with the financial information.
This report is made solely to the Company in accordance with Bulletin
1999/4 'Review of Interim Financial Information' 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 reached.
Directors' responsibilities
The interim report, including the financial information contained
therein, is the responsibility of, and has been approved by, the
Directors. The Directors are responsible for preparing the interim
report in accordance with the Listing Rules of the Irish Stock
Exchange and of the UK Financial Services Authority which require
that the accounting policies and presentation applied to the interim
figures are consistent with those applied in preparing the preceding
annual accounts except where any changes, and the reasons for them,
are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in
Bulletin 1999/4 issued by the Auditing Practices Board for use in the
United Kingdom and Ireland. A review consists principally of making
enquiries of management and applying analytical procedures to the
financial information and underlying financial data and based
thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review
excludes audit procedures such as tests of controls and verification
of assets, liabilities and transactions. It is substantially less in
scope than an audit performed in accordance with International
Standards on Auditing (UK and Ireland) and therefore provides a lower
level of assurance than an audit. Accordingly, we do not express an
audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material
modifications that should be made to the financial information as
presented for the six months ended 30 June 2007.
Deloitte & Touche
Chartered Accountants
Deloitte & Touche House
Earlsfort Terrace
Dublin 2
27 September 2007
KENMARE RESOURCES PLC
GROUP INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2007
6 Months 6 Months 12 Months
30-06-07 30-06-06 31-12-06
Unaudited Unaudited Audited
US$'000 US$'000 US$'000
Revenue - - -
Operating Expenses (1,702) (4,952) (7,255)
Operating Loss (1,702) (4,952) (7,255)
Finance Income 1,606 1,500 2,925
Loss before tax (96) (3,452) (4,330)
Income tax expense
- - -
Loss for the (96) (3,452) (4,330)
period
Attributable to (96) (3,452) (4,330)
Equity holders
Loss per share: (0.01c) (0.51c) (0.63c)
Basic
Loss per share: (0.01c) (0.51c) (0.63c)
Diluted
KENMARE RESOURCES PLC
GROUP BALANCE SHEET
AS AT 30 JUNE 2007
6 Months 6 Months 12 Months
30-06-07 30-06-06 31-12-06
Unaudited Unaudited Audited
US$'000 US$'000 US$'000
ASSETS
Non-Current Assets
Deferred Development Expenditure 152,396 118,731 140,751
Property, Plant & Equipment 77,480 - -
Construction in Progress 216,177 229,907 265,718
446,053 348,638 406,469
Current Assets
Inventory 403 - -
Receivables 537 3,091 810
Cash and cash equivalents 68,457 66,413 87,230
69,397 69,504 88,040
Total Assets 515,450 418,142 494,509
EQUITY
Capital and reserves attributable
to the Company's equity holders
Share Capital 56,261 55,317 55,940
Share Premium 109,285 106,695 108,512
Retained Earnings (21,600) (20,626) (21,504)
Other Reserves 41,794 36,493 41,101
Total Equity 185,740 177,879 184,049
LIABILITIES
Non-Current Liabilities
Bank loans 303,855 216,059 266,152
Accrued liabilities and other loans - 10,679 -
Long term provisions 2,505 - 2,365
306,360 226,738 268,517
Current Liabilities
Accrued liabilities and other loans 23,350 13,525 41,943
Total Liabilities 329,710 240,263 310,460
Total Equity and Liabilities 515,450 418,142 494,509
KENMARE RESOURCES PLC
GROUP CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2007
6 Months 6 Months 12 Months
30-06-07 30-06-06 31-12-06
Unaudited Unaudited Audited
US$'000 US$'000 US$'000
Operating activities
Loss for the period (1,702) (4,952) (7,255)
Adjustment for:
Foreign exchange movement 705 671 1,972
Share-based payment 69 12 473
expense
Operating cashflows (928) (4,269) (4,810)
Increase in inventories (403) - -
Decrease/(increase)in 273 (1,304) 977
receivables
(Decrease)/increase in
accrued liabilities (18,593) (568) 17,171
and other loans
Increase in provisions - 2,365
140
Net cash from operating (19,511) (6,141) 15,703
activities
Investing activities
Interest received 1,606 1,500 2,925
Addition to Deferred (11,021) (14,395) (32,268)
Development Expenditure
Addition to Construction (27,787) (42,186) (77,997)
in Progress
Addition to Property,
Plant and Equipment (152) - -
Net cash used in investing (37,354) (55,081) (107,340)
activities
Financing activities
Issue of Share Capital 1,094 1,452 3,892
Increase in debt 37,703 51,334 101,427
Net cash from financing 38,797 52,786 105,319
activities
Net (decrease)/increase
in cash and cash (18,068) (8,436) 13,682
equivalents
Cash and cash equivalents 87,230 75,520 75,520
at beginning of period
Effect of exchange rate
changes on cash and
cash equivalents (705) (671) (1,972)
Cash and cash equivalents 68,457 66,413 87,230
at end of period
KENMARE RESOURCES PLC
GROUP STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2007
Share Share Retained Other Total
Capital Premium Earnings Reserves
US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1 January 55,940 108,512 (21,504) 41,101 184,049
2007
Loss for the period - - (96) - (96)
Share based payment - - - 693 693
Issue of share capital 321 773 - - 1,094
Balance at 30 June 56,261 109,285 (21,600) 41,794 185,740
2007
KENMARE RESOURCES PLC
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2007
1. BASIS OF PREPARATION
The unaudited interim financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS) by
applying the accounting policies set out in the 2006 Annual Report
and Accounts. These financial statements are not full financial
statements and except where indicated are unaudited. Full
consolidated financial statements to 31 December 2006, which received
an unqualified audit report, have been filed with the Registrar of
Companies.
The interim financial statements have also been prepared in
accordance with Irish statute comprising the Companies Acts, 1963 to
2006, the European Communities (Companies: Group Accounts)
Regulations, 1992 and the Listing Rules of the Irish and London Stock
Exchanges.
The unaudited interim financial information in this statement has
been reviewed by the auditors in respect of the six months ended 30
June 2007 only and their Report to the Directors is set out on page
3.
2. LOSS PER SHARE
The calculation of the loss and fully diluted loss per share is based
on the loss after taxation of US$96,000 (2006 loss of US$3,452,000)
and the weighted average number of shares in issue during 2007 of
687,557,987 (2006 : 673,986,570). The loss per share and the fully
diluted loss per share are the same, as the effect of the outstanding
share options is anti-dilutive.
3. DEFERRED DEVELOPMENT EXPENDITURE
Analysed by Geographical Area
Mozambique Ireland Mozambique Total
Moma Titanium Uranium
Mineral Project Project
US$'000 US$'000 US$'000 US$'000
Cost
Opening Balance 139,993 48 710 140,751
Additions 11,312 - 333 11,645
Balance at 30 June 2007 151,305 48 1,043 152,396
Additions, net of delay damages accrued under the construction
contract, include loan interest capitalised of US$11,564,000 (2006:
US$8,524,000). Loan interest is net of deposit interest earned on the
temporary deposit of loan balances.
The recovery of deferred development expenditure is dependent upon
the successful development of the Moma Titanium Minerals Project,
which in turn is dependent on the continued availability of adequate
funding for the Project. The Directors are satisfied that deferred
expenditure is worth not less than cost less any amounts written off,
and based on the planned mine production levels, that the Moma
Titanium Minerals Project will achieve positive cash flows.
4. PROPERTY, PLANT AND EQUIPMENT
Plant Mobile Fixtures & Total
& Equipment Equipment Equipment
US$'000 US$'000 US$'000 US$'000
Cost
Balance at 1 January 2007 - - - -
Reclassification from 77,328 - - 77,328
Construction in Progress
Additions during the period - 103 151 254
Balance at 30 June 2007 77,328 103 151 77,582
Accumulated Depreciation
Balance at 1 January 2007 - - - -
Charge for the period 102 - - 102
Balance at 30 June 2007 102 - - 102
Carrying Amount
Balance at 30 June 2007 77,226 103 151 77,480
The construction contract with the contractor, a joint venture formed
for this project, between the subsidiaries of Multiplex Ltd and
Bateman B.V. was amended in December 2006 whereby provision was made
for the handover of the Moma Titanium Project works in sections. On
the 25 April 2007 section one of the construction contract, which
includes the mining pond, dredges, Wet Concentrator Plant and related
infrastructure, was taken over by Kenmare, and a taking-over
certificate was issued.
Depreciation for the period from take over of section one to the 30
June 2007 of US$102,000 has been capitalised as part of Deferred
Development Expenditure. Plant & Equipment is depreciated from
commencement of production on a unit of production basis.
Depreciation on the other assets is provided at rates calculated to
write off the costs less estimated residual value of each asset on a
straight line basis over its expected useful economic life of between
three and twenty years.
5. CONSTRUCTION IN PROGRESS
6 Months 12 Months
30-06-07 31-12-06
Unaudited Audited
US$'000 US$'000
Opening Balance 265,718 229,907
Reclassification to Property, Plant & Equipment (77,328) -
Additions 27,787 35,811
Closing Balance 216,177 265,718
Construction in Progress represents expenditure under a construction
contract for the engineering, procurement, building, commissioning
and transfer of facilities at the Moma Project in Mozambique. This
contract was entered into on 7 April 2004. The Contractor is a joint
venture formed for this project, between the subsidiaries of
Multiplex Ltd. and Bateman B.V. Multiplex is a large contracting
group based in Australia with operations stretching around the globe
and specialises in large complex construction projects. Bateman is an
international engineering group with specific mineral sands
experience and experience of working in Mozambique.
The recovery of Construction in Progress is dependent upon the
successful development of the Moma Titanium Minerals Project, which
in turn is dependent on the continued availability of adequate
funding of the project. The Directors are satisfied that Construction
in Progress is worth not less than cost less any amounts written off
and based on the planned mine production levels, that the Moma
Titanium Minerals Project will achieve positive cash flows.
6. CAPITAL COMMITMENTS
6 Months 12 Months
30-06-07 31-12-06
Unaudited Audited
US$'000 US$'000
Construction contract 41,219 67,440
The construction contract with the Multiplex-Bateman Joint Venture
was amended in December 2006 whereby provision was made for the
handover of the Moma Titanium Minerals Project works in sections and
all changes to the original contract price were agreed. Based on
this contract amendment, the total amount payable to the contractor
will be US$265 million, net of projected applicable delay penalties,
of which US$41.2 million was outstanding at the period end. The
Company has access to sufficient sources of funding to cover these
capital commitments.
7. CASH AND CASH EQUIVALENTS
6 Months 12 Months
30-06-07 31-12-06
Unaudited Audited
US$'000 US$'000
Immediately available without restriction 13,424 12,809
On Fixed Term Deposit:
Contingency Reserve Account 30,042 30,000
Shareholder Funding Account 21,915 25,863
Other Term Deposit 3,076 18,558
68,457 87,230
The Contingency Reserve Account and Shareholder Funding Account on
fixed term deposit are amounts held in support of conditions required
for Senior and Subordinated Loans as shown in note 8. In connection
with the additional Standby Subordinated Loans referred to in note 8,
the Company deposited an additional US$3.4 million to the Contingency
Reserve Account in August 2007.
8. BANK LOANS
6 Months 12 Months
30-06-07 31-12-06
Unaudited Audited
US$'000 US$'000
Senior Loans 202,286 178,722
Subordinated Loans 101,569 87,430
303,855 266,152
Bank loans are secured by substantially all rights and assets of the
Company and the Moma Titanium Minerals Project; security agreements
over shares in the Company; and a Contingency Reserve and Shareholder
Funding Account as shown in Note 7.
There are seven Senior Loan credit facilities available for financing
the Moma Titanium Minerals Project. The aggregate maximum amount of
the Senior Loan credit facilities is US$185 million plus �15 million
of which US$181,578,000 and �15,000,000 had been drawn at the period
end, and US$3,422,000 was undrawn and available. The facilities incur
commitment fees ranging from 0.25% to 0.75% on the undrawn available
amounts.
Senior Loans are repayable in semi-annual installments commencing, in
the case of six of the seven Senior Loan facilities, on the earlier
of (a) the first February 1 or August 1 falling at least 6 months
after the date of acceptance of the assets being constructed under
the construction contract, and (b) 1 February 2008, and in the case
of the seventh Senior Loan facility, 12 months thereafter. The
maximum Senior Loan tenors range from 10 years to 12 years from 31
December 2006. Two of the Senior Loans bear interest at fixed rates,
one bears interest at a rate which is floating for each drawdown but
is fixed thereafter, and four bear interest at floating rates.
The Subordinated Loan credit facilities of �47.1 million plus US$10
million are fully drawn down. Subordinated Loans are repayable in 21
semi-annual installments commencing on 1 August 2009. The final
installments 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 floating rates.
The two Standby Subordinated Loan credit facilities of �2.8 million
and US$4 million are fully drawn down. 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.
In August 2007, an Additional Standby Subordinated Loan credit
facility of US$22 million was put in place. Additional Standby
Subordinated Loans are repayable on the same terms as the
Subordinated Loans and bear interest at variable rates.
Loan facilities arranged at fixed interest rates expose the Group to
fair value interest rate risk. Loan facilities arranged at floating
rates expose the Group to cashflow interest rate risk.
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 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$69,000.
10. NON-CONSOLIDATION OF SUBSIDIARY UNDERTAKING
As set out in detail in Note 27 of the 2006 Annual Report , Grafites
de Ancuabe, S.A.R.L., a subsidiary company , has been excluded from
consolidation in accordance with International Accounting Standard
27.
11. APPROVAL OF FINANCIAL STATEMENTS
The financial statements were approved by the Board on 27 September
2007.
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