Final Results and Interim Management Statement
Kenmare Resources plc ("Kenmare" or "the Company")
Preliminary Results
For the year ended 31 December 2007
Chairman's Statement
Dear Shareholder,
Since my last Chairman's statement, Kenmare's wholly owned Moma
Titanium Minerals Mine has become a significant exporter from
Mozambique. Six customer vessels have been loaded by our transhipment
vessel, the Bronagh J, and departed for destinations in Europe,
America and Asia. Ilmenite contained in these shipments has already
been consumed by our customers to make pigment.
This has been achieved despite considerable problems with certain
equipment supplied under the construction contract, which has had to
be replaced under warranty. In particular, a set of vibrating screens
that are an essential component of the Mineral Separation Plant
(MSP), started to show signs of deterioration and the feed rate
through the plant had to be reduced. Pending supply of new, larger
and more robust screens under warranty by the contractor, temporary
repairs were required for this equipment and consequently the plant
throughput was lower than anticipated. The new screens have now been
installed, allowing the mine to get back onto its ramp-up curve.
A cyclone, the first in over twenty years in the area, passed over
Moma in early March. Due to excellent planning by site management
there were no casualties or injuries. We were able to get production
going from the MSP within a couple of days. In the mining pond, there
was some damage to the Wet Concentrator Plant (WCP) and to the rubber
hose connections between the WCP and the mining dredges. As a result,
mining was interrupted for four weeks and has now resumed. In the
interim, the MSP has continued to operate with feed drawn from
stockpiled heavy mineral concentrate.
With the installation of the new screens, and various other remedial
work which has been carried out under warranty, we believe that the
Company is well set to achieve its targeted production rate, albeit
somewhat later than was originally envisaged. We now expect that the
ramp-up will continue through 2008, with full production rate being
achieved in the last quarter.
The Company has continued to plan for the expansion to 1.2 million
tonnes of ilmenite product plus associated co-products per annum.
This new capacity is targeted to be available by the end of 2009.
The market for titanium feedstocks is favourable and is in a
supply-constrained position. This is putting strong upward pressure
on global feedstock prices, particularly for ilmenite, and has pushed
up the price of imported ilmenite to China by around 50% since the
start of 2008. Despite a 5% reduction in consumption in the United
States during 2007, the global demand for TiO2 feedstocks grew by
3.6%, led by strong growth in Europe and Asia, particularly China. A
similar growth rate is expected in 2008. In addition, the supply side
may be further restricted by energy shortages in South Africa, where
a large proportion of the world's titanium feedstocks originate. The
zircon market has seen a slight easing of prices over the last year,
due principally to artisanal production from Indonesia. This
production is viewed as coming from short-term resources which have
already started to reduce. End use demand for zircon remains robust.
Hence the market outlook for all our production is very positive and
the Company stands to benefit from both price upside as well as the
expanded production on volumes.
Kenmare is committed to reducing the negative impacts associated with
the Moma Mine and enhancing those which are positive. The Kenmare
Moma Development Association, a not-for-profit organisation, works to
implement this objective through the execution of a variety of
capacity building, infrastructural and sociocultural projects. These
projects include a savings and credit programme, various
horticultural projects, egg production initiatives, school
construction, a HIV/AIDS awareness programme and support to local
sports development. Funding for these programmes continues to grow
and Kenmare is grateful to all who have contributed to the
development of these projects, including the time and resources
provided by mine personnel to assist with the school construction and
other initiatives.
The financial results for 2007 show a loss of US$9.6 million. This
loss arises primarily from foreign exchange losses on
Euro-denominated debt and Kenmare's corporate operating costs, net of
interest earned. Costs associated with construction and commissioning
the mine, net of revenues earned during 2007, have been capitalised.
Assets totalling US$266.9 million were transferred from Construction
in Progress to Property, Plant and Equipment during the year on the
takeover of these assets from the contractor. Senior and subordinated
loans drawn at the year end amounted to US$325.8 million, US$119.3
million of which comprised of Euro-denominated loans.
The last six months has demonstrated that the Moma Mine will work
well. The mine has demonstrated its ability to dredge, concentrate,
separate and export product whilst maintaining an excellent safety
record. While we have experienced some cost increases caused mainly
by salary and fuel costs, we are very confident that Moma will
achieve its targeted production rates in 2008 and attain its
predicted low cost position in the industry.
Charles Carvill
Chairman
This release incorporates Kenmare's Interim Management Statement
relating to the period from 1 January 2008 to 14 April 2008.
For more information:
Kenmare Resources plc
Tony McCluskey, Financial Director Tel: + 353 1 671 0411
Mob: + 353 87 674 0346
Conduit PR Ltd
Leesa Peters Tel: + 44 (0) 207 429 6600
Mob: + 44 (0) 781 215 9885
Murray Consultants Ltd
James Dunny Tel: + 353 1 498 0300
Mob: + 353 86 388 3903
www.kenmareresources.com
KENMARE RESOURCES PLC
PRELIMINARY RESULTS
GROUP INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2007
2007 2006
US$'000 US$'000
Revenue - -
Operating expenses (12,557) (7,255)
Finance income 2,925 2,925
Loss before tax (9,632) (4,330)
Income tax expense - -
Loss for the year (9,632) (4,330)
Attributable to Equity holders (9,632) (4,330)
Cent Per Share Cent Per Share
Loss per share: Basic (1.40c) (0.63c)
Loss per share: Diluted (1.40.c) (0.63c)
KENMARE RESOURCES PLC
PRELIMINARY RESULTS
GROUP BALANCE SHEET
AS AT 31 DECEMBER 2007
2007 2006
US$'000 US$'000
Assets
Non-Current Assets
Deferred Development Expenditure 176,365 140,751
Property, Plant & Equipment 264,513 -
Construction in Progress 46,082 265,718
486,960 406,469
Current Assets
Inventories 5,631 -
Trade and other receivables 4,842 810
Cash and cash equivalents 56,203 87,230
66,676 88,040
Total Assets 553,636 494,509
Equity
Capital and reserves attributable to the
Company's equity holders
Called Up Share Capital 60,742 55,940
Share Premium 121,501 108,512
Capital Conversion Reserve Fund 754 754
Retained Earnings (31,136) (21,504)
Other Reserves 41,562 40,347
Total Equity 193,423 184,049
Liabilities
Non-Current Liabilities
Bank loans 299,570 266,152
Obligations under finance lease 2,292 -
Mine closure provision 2,505 2,365
304,367 268,517
Current Liabilities
Bank loans 26,273 4,424
Trade and other payables 29,573 37,519
55,846 41,943
Total Liabilities 360,213 310,460
Total Equity and Liabilities 553,636 494,509
KENMARE RESOURCES PLC
PRELIMINARY RESULTS
GROUP CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2007
2007 2006
US$'000 US$'000
Operating Activities
Loss for the year (9,632) (4,330)
Adjustment for:
Foreign exchange movement 1,680 1,972
Increase in mine closure provision 140 2,365
Share-based payment expense - 473
Operating cash flow (7,812) 480
Increase in inventories (5,631) -
(Increase)/decrease in trade and other receivables (4,032) 977
(Decrease)/increase in trade payables and other (7,896) 17,171
payables
Cash generated by operations (25,371) 18,628
Interest paid (12,249) (6,589)
Net cash from operating activities (37,620) 12,039
Investing Activities
Addition to Deferred Development Expenditure (37,896) (25,679)
Addition to Property, Plant & Equipment (29,131) (77,997)
Net cash used in investing activities (67,027) (103,676)
Financing Activities
Proceeds on the issue of shares 3,542 3,892
Proceeds on shares to be issued 14,249 -
Repayment of borrowings (4,424) (1,756)
Increase in borrowings 59,691 103,183
Increase in obligations under finance lease 2,242 -
Net cash from financing activities 75,300 105,319
Net (decrease)/increase in cash and cash (29,347) 13,682
equivalents
Cash and cash equivalents at beginning of the year 87,230 75,520
Effect of exchange rate changes on cash and cash (1,680) (1,972)
equivalents
Cash and cash equivalents at the end of the year 56,203 87,230
KENMARE RESOURCES PLC
PRELIMINARY RESULTS
GROUP STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2007
Share Share Capital Retained Other Total
Capital Premium Conversion Earnings Reserve
Reserve
Fund
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1 54,847 105,713 754 (17,174) 35,619 179,759
January 2006
Loss for the year - - - (4,330) - (4,330)
Share based - - - - 4,728 4,728
payment
Issue of share 1,093 2,799 - - - 3,892
capital
Balance at 1 55,940 108,512 754 (21,504) 40,347 184,049
January 2007
Loss for the year - - - (9,632) - (9,632)
Share based - - - - 1,215 1,215
payment
Issue of share 798 2,744 - - - 3,542
capital
Share capital to 4,004 10,245 - - - 14,249
be issued
Balance at 31 60,742 121,501 754 (31,136) 41,562 193,423
December 2007
NOTES TO THE PRELIMINARY RESULTS
Note 1. Basis of Accounting and Preparation of Financial Information
The preliminary results have been prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the
European Union. The financial statements are prepared in US Dollars
under the historical cost convention.
The financial information presented above does not constitute
statutory accounts within the meaning of the Companies Acts, 1963 to
2006. A copy of the accounts in respect of the financial year ended
31 December 2007 will be annexed to the Annual Return for 2008. The
auditors have made a report without qualification of their audit of
the financial statements in respect of the year ended 31 December
2007. In forming their opinion they have considered the adequacy of
the disclosures made in the financial statements concerning the
recoverability of Deferred Development Expenditure, Property, Plant &
Equipment and Construction in Progress, the realisation of which is
dependent on the successful development of economic ore reserves and
the continued availability of adequate financing. Their opinion is
not qualified in this respect.
The Directors approved the financial statements in respect of the
financial year ended 31 December 2007 on 11 April 2008. The statutory
accounts for the year ended 31 December 2006 prepared under IFRS upon
which the auditors have issued an unqualified opinion, have been
filed with the Registrar of Companies.
Note 2. 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 loss after taxation of US$9,632,000 (2006: loss US$4,330,000) and
the weighted average number of shares in issue during 2007 of
689,587,755 (2006: 679,602,594).
The basic loss per share and the diluted loss per share are the same,
as the effect of the outstanding share options and warrants are
anti-dilutive.
Note 3. Deferred Development Expenditure
Analysed by Geographical Area
Mozambique Ireland Mozambique Total
Moma Titanium Uranium
Minerals Mine Project
US$'000 US$'000 US$'000 US$'000
Cost
Opening Balance 139,993 48 710 140,751
Additions 36,324 - 745 37,069
Amounts written off - - (1,455) (1,455)
Closing Balance 176,317 48 - 176,365
Additions include loan interest capitalised of US$25,091,000
(2006:US$17,971,000) net of deposit interest earned on the temporary
deposit of loan balances and operating costs of US$11,233,000
(2006:US$17,830,000) net of revenue earned of US$2,897,000 (2006:nil)
and net of delay damages of US$15,745,715 (2006:nil).
Following an impairment review, the uranium exploration expenditure
of US$1,455,000 was written off.
The recovery of deferred development expenditure is dependent upon
the successful development of the Projects, which in turn is
dependent on the continued availability of adequate funding of the
Projects.
The Directors are satisfied that deferred expenditure is worth not
less than cost less any amounts written off and based on the planned
mine production levels, that the Moma Titanium Minerals Mine will
achieve positive cash flows.
Note 4. Property Plant and Equipment
Plant Buildings Mobile Fixtures Total
&
& & Airstrip Equipment Equipment
Equipment
US$'000 US$'000 US$'000 US$'000 US$'000
Cost
Opening Balance - - - - -
Reclassification
from Construction 255,175 3,812 5,919 1,949 266,855
in Progress
Additions during 2,327 103 586
the year - 3,016
Closing Balance 257,502 3,812 6,022 2,535 269,871
Accumulated
Depreciation
Opening Balance - - - - -
Charge for the 2,775 74 2,207 302 5,358
year
Closing Balance 2,775 74 2,207 302 5,358
Carrying Amount
Closing Balance 254,727 3,738 3,815 2,233 264,513
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. On 25 April 2007, the mining pond, dredges, wet
concentrator plant and related infrastructure, were taken over by
Kenmare and a taking-over certificate was issued. On 7 August 2007,
the mineral separation plant, product warehouse, mineral export
facilities and all related infrastructure was taken over by Kenmare
and a taking-over certificate was issued. On 29 November 2007, the
mineral product transfer barge was taken over by Kenmare, and a
taking-over certificate was issued. At 31 December 2007, the only
remaining section to be taken over was the roaster.
Substantially all the property, plant and equipment will be mortgaged
to secure banking facilities granted, as detailed in Note 8.
The recovery of Property, Plant and Equipment is dependent upon the
successful development of the Moma Titanium Minerals Mine, which in
turn is dependent on the continued availability of adequate funding
of the Mine. The Directors are satisfied that Property, Plant and
Equipment is worth not less than the carrying value, and based on the
planned mine production levels that the Moma Titanium Minerals Mine
will achieve positive cash flows.
Note 5. Construction in Progress
2007 2006
US$'000 US$'000
Opening Balance 265,718 187,721
Additions 47,219 77,997
Transferred to Property, Plant & Equipment (266,855) -
Closing Balance 46,082 265,718
Construction in Progress represents expenditure under a construction
contract referred to in Note 4.
During the year assets with a value of US$266,855,000 were
transferred from Construction in Progress to Property, Plant and
Equipment.
Substantially all the construction in progress will be mortgaged to
secure banking facilities granted as detailed in Note 8.
The recovery of Construction in Progress is dependent upon the
successful development of the Moma Titanium Minerals Mine, which in
turn is dependent on the continued availability of adequate funding
of the Mine. The Directors are satisfied that Construction in
Progress is worth not less than cost less any amounts written off and
based on the planned mine production levels that the Moma Titanium
Minerals Mine will achieve positive cash flows.
Note 6. Capital Commitments
2007 2006
US$'000 US$'000
Construction contract 2,900 67,440
US$2.9 million represents the total amount payable under the contract
for construction services work to the contractor at the year end.
Note 7. Cash and Cash Equivalents
2007 2006
US$'000 US$'000
Immediately available without restriction 26,497 12,809
On Fixed Short-Term Deposit:
Contingency Reserve Account 26,048 30,000
Shareholder Funding Account 25 25,863
Other Short-Term Deposit 3,633 18,558
56,203 87,230
In accordance with IAS 7, cash and cash equivalents comprise cash
balances held for the purposes of meeting short-term cash commitments
and investments which are readily convertible to a known amount of
cash and are subject to an insignificant risk of change in value.
Where investments are categorised as cash equivalents, the related
balances have a maturity of three months or less from the date of
investment.
Cash at bank earns interest at floating rates based on daily deposit
bank rates. Short-term deposits are made for varying periods of
between one day and three months, depending on the cash requirements
of the Group, and earn interest at the respective short-term deposit
rates.
The Contingency Reserve Account and Shareholder Funding Account on
fixed short term deposit are amounts held in support of conditions
required for Senior and Subordinated Loans as shown in Note 8.
The amount required by the Senior and Subordinated Loan documentation
to be maintained in the Contingency Reserve Account from time to time
depends on a calculation involving capital and operating costs,
interest and principal payments, and reserve account contributions
required to achieve completion under the Project Loans as referred to
in Note 8. As at 31 December 2007, estimates of the additional
amounts required to be deposited to the Contingency Reserve Account
were within the cash and cash equivalent resources available to the
Company. Failure to make a required deposit to the Contingency
Reserve Account when required would give rise to an Event of Default
under the Senior and Subordinated Loan documentation, as detailed in
Note 8.
Note 8. Bank Loans
2007 2006
US$'000 US$'000
Senior Loans 210,694 183,146
Subordinated Loans 115,149 87,430
325,843 270,576
The borrowings are repayable as follows:
Within one year 26,273 4,424
In the second year 28,283 20,136
In the third to fifth years inclusive 101,299 81,225
After five years 169,988 164,791
325,843 270,576
Less: amount due for settlement with 12 months (26,273) (4,424)
Amount due for settlement after 12 months 299,570 266,152
Analysis of borrowings by currency
Euro 119,253 91,271
US Dollars 206,590 179,305
325,843 270,576
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 and cash equivalents listed in Note 7 as
"Immediately available without restriction" of $26,497,000 at 31
December 2007 (2006, $12,809,000)) and the Moma Titanium Minerals
Mine; security agreements over shares in the Project Companies; and a
Contingency Reserve and Shareholder Funding Account as shown in Note
7.
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, meeting certain cost and production benchmarks, meeting
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 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 and the Shareholder Funding Account.
Note 9. 2007 Annual Report and Accounts
The Annual Report and Accounts will be posted to shareholders in due
course.
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