TIDMKMR
RNS Number : 1334I
Kenmare Resources PLC
05 March 2010
Kenmare Resources Plc.
Chatham House, Chatham St, Dublin 2, Ireland. Tel: +353 1
671 0411 Fax: +353 1 671 0810
Rua de Chuindi No.67, Maputo, Mozambique. Tel: +258 21
499 701 Fax: +258 21 499 731
Website: www.kenmareresources.com Email:
info@kenmareresources.com
Kenmare Resources plc ("Kenmare" or "the Company")
Kenmare Preliminary Results
For the year ended 31 December 2009
(LSE/ISE: KMR)
5 March 2010
Chairman's Statement
Dear Shareholder,
These preliminary results are being issued as Kenmare also announces a fully
underwritten equity issue to raise US$270 million before expenses, the primary
purpose of which is to fund the expansion of production at Moma.
Moma Expansion
Our decision to move swiftly into expansion of the Moma mine is based, in large
part, on our analysis of the market for titanium feedstocks. We believe that
growth in consumption of titanium dioxide feedstocks for the next 5 years will
be above historic trend-line growth rates due to a recovery from depressed
demand during the recession and positive regional developments. Consumption of
titanium dioxide feedstocks is closely correlated to world GDP and is
particularly influenced by growth trends in newly industrialising economies
where increasing intensity of use of pigment has accelerated demand for titanium
feedstocks. The recession has, in the main, impacted these economies less than
fully industrialised countries and they continue to experience strong growth.
In addition to the cyclical recovery in demand for titanium feedstocks as world
GDP grows and increasing intensity of use in the newly industrializing
countries, demand is being given a further boost by a reversal of the inventory
de-stocking which occurred during the recession. As a result, growth in
consumption of titanium feedstocks in 2010 is expected to be above trend-line
growth rates.
Despite the positive end-use market outlook, the titanium feedstock supply
industry is suffering from a long period of under-investment. The industry is
characterised by large older mines which have been open for many years and which
are now dealing with gradually reducing grades; depletion of resources causing
closures; significant cost pressures, such as power costs, particularly in South
Africa; and delays and difficulties in the few start up projects which have been
established. All in all, the feedstock supply industry is not well positioned
to respond to increasing demand. We believe that this will result in an
increasing shortage of titanium feedstocks from 2012 onwards with consequent
upward pressure on prices. This view is shared by many analysts of the
industry. Even with a Moma expansion included in the supply forecast, there
remains a significant projected deficit of supply.
Unlike most of our competitors, Kenmare is well placed to take advantage of this
market opportunity. Our large, long-life, low-cost deposit at Moma provides for
a capital-efficient expansion. The recently completed expansion study
(conducted on the basis of an accuracy of estimate of +/- 25%) estimated that
we can expand our production volumes of ilmenite, rutile and zircon by 50% for
capital expenditure of U$200 million and that this expansion can be implemented
rapidly with little disruption to the existing operation. Kenmare can seize
first-mover advantage ahead of other competitors and capture upside in the
developing market supply deficit with this expansion strategy. We have discussed
the expansion with our lenders, who are supportive and have agreed to amend the
terms of their loans to accommodate the expansion should the fund-raising be
successful. Details of the amended financing arrangements will be contained in
the prospectus, expected to be issued later today (the "Prospectus").
The Prospectus also provides full details of the equity-raising of U$270 million
which is being implemented as a Firm Placing and Placing and Open Offer.
Operations Review
We started 2009 with a plant partially handed over by the EPC Contractor but
which had severe limitations, and was unable to operate at contracted levels.
Following completion of the Performance Improvement Programme (PIP) in December
2009, we now have a plant operating at materially increased production levels,
and delivering increasing amounts of product to market. The operational
improvements which have facilitated this progress were, in the main, paid for by
the EPC Contractor through the strict enforcement of the construction contract.
This contract was then closed out in December 2009 with a Deed of Final
Settlement and Release, pursuant to which a final compensation payment was made
to Kenmare.
While the production improvements delivered by the PIP fell short of
expectations during 2009, Heavy Mineral Concentrate (HMC) production is
currently at design capacity levels, with processing improvements on track. The
significantly improving trend in zircon production since the commissioning of
additional equipment in the zircon circuit, referred to in the announcement of
26 January 2010, has continued and is expected to be followed by improvements in
rutile production. Production at levels approaching design capacity for ilmenite
and zircon is expected by the end of the first half of 2010, with work to
increase rutile production ongoing throughout 2010.
From the beginning of the year to the end of February 2010, eight shipments from
the Mine have been completed totalling 154,000 tonnes of ilmenite and zircon, as
compared to one shipment in the first two months of 2009 for 7,050 tonnes of
ilmenite, and twenty four shipments in all of 2009 totalling 418,000 tonnes of
ilmenite and zircon.
Production for the year ended 31 December 2009 is shown in the table below,
which is adjusted for an end-of-year stock reconciliation that reduced ilmenite
production by 3,900 tonnes from the level announced on 26 January 2010.
+------------------------+-----------+-------------+-------------+
| | H1 2009 | H2 2009 | Total 2009 |
+------------------------+-----------+-------------+-------------+
| | Tonnes | Tonnes | Tonnes |
+------------------------+-----------+-------------+-------------+
| Mining - heavy mineral | 317,000 | 509,200 | 826,200 |
| concentrate | | | |
+------------------------+-----------+-------------+-------------+
| Processing - finished | 210,000 | 284,400 | 494,400 |
| products | | | |
+------------------------+-----------+-------------+-------------+
| Export Sales | 148,000 | 270,000 | 418,000 |
+------------------------+-----------+-------------+-------------+
I am pleased to say that we have worked safely through the year with a lost-time
injury frequency rate of 0.38 per 200,000 hours worked and no serious accidents
on site. This is a tribute to the high importance all management and staff at
Moma place on the safety and care for one another. We continue to see malaria
prevention as an important challenge for our operation and continue our
awareness and prevention programmes with active engagement of staff, community
and governmental authorities.
During the year, KMAD, the not-for-profit development trust founded by Kenmare
with the objective of uplifting the lives of our neighbours, was awarded the
prestigious Nedbank Green Mining Socio-Economic Award for its work in the local
communities. This is an award programme for all mining companies with
activities in Africa. Also, Ireland's Chamber of Commerce recognised Kenmare's
contribution through the granting of the award for International Corporate
Responsibility. We are very pleased to receive these awards, which provide us
with independent confirmation of our social and community successes in
Mozambique, and which encourages us to work even harder in this area.
Financial Review
Until the end of June 2009, because of the delayed ramp-up, Kenmare continued to
operate an accounting policy where costs net of revenues were capitalised into
the overall development expenditure for the project. From July 2009, the Group
has reported revenue and related costs in the income statement.
The reported loss after tax for the year is US$30.4 million. During the first
six months of the year costs of US$13.8 million, net of revenue earned of
US$15.6 million and net of delay damages of US$1.2 million were capitalised in
development expenditure in property, plant and equipment. Loan interest of
US$13.4 million and finance fees of US$5.6 million were also capitalised
resulting in an increase in development expenditure of US$32.8 million to 30
June 2009.
Revenue for the six months from July to December 2009 amounted to US$26.7
million and cost of sales for the corresponding period was US$35.2 million
resulting in a gross loss of US$8.5 million. Distribution and administration
costs for the six month period to December 2009 were US$1.8 million and US$1.9
million respectively. There were loan interest and finance fees of US$15.5
million during the second half of the year and deposit interest earned of US$0.2
million. In addition there was a foreign exchange loss for the year of US$2.9
million, mainly as a result of the retranslation of the Euro denominated loans,
resulting in a loss for the year of US$30.4 million.
For the year, additions to property, plant and equipment amounted to US$47.7
million made up of assets of US$14.1 million and development expenditure of
US$33.6 million. At 31 December 2009 net property, plant and equipment amounted
to US$540.9 million. Depreciation and amortization for the six month period was
US$12.9 million.
In June 2009, the Group completed a share placing resulting in US$16.1 million
being received in August 2009. At 31 December 2009, Group loans totalled
US$356.1 million and cash balances amounted to US$17.4 million. In January 2010,
US$7.7 million was received pursuant to the exercise of warrants.
The loss in the last six months of 2009 is a result of both the slower than
planned ramp-up and the depressed feedstock market situation. As detailed above,
production, and market conditions, current and projected, are now healthier,
providing encouraging indications of a significant improvement in operational
and financial performance for the year ahead.
We are pleased to announce the appointment of J.P. Morgan Cazenove as broker to
the Company, who will be working with Davy, Canaccord Adams and Mirabaud.
We are all looking forward to the successful completion of the fund-raising and
the commencement of the expansion project. Since this will not be debt funded,
we will not be required to utilise a fixed price turnkey contracting method in
the expansion. Hence the Company will have much greater control over the
quality of construction process and ability to use the experience we have gained
over the last few years.
Charles Carvill
Chairman
This document does not constitute or form part of any offer or invitation to
sell or issue, or any solicitation of any offer to purchase or subscribe for,
any securities, nor shall it (or any part of it), or the fact of its
distribution, form the basis of, or be relied on in connection with, any
contract therefor. This document is not a prospectus and investors should not
subscribe for or purchase any securities referred to in this document except on
the basis of the information in the Prospectus. Copies of the Prospectus will,
following publication, be available from the offices of Eversheds O'Donnell
Sweeney, One Earlsfort Centre, Earlsfort Terrace, Dublin 2, Ireland and the
offices of Eversheds LLP, 1 Wood Street, London EC2V 7WS, United Kingdom.
Requests for prospectuses should not be made from the United States, Australia,
Canada, New Zealand or Switzerland
The securities to be offered in the equity issue referred to above have not
been, and will not be, registered under the US Securities Act of 1933, as
amended (the "Securities Act"), or under the securities legislation of any state
or territory or jurisdiction of the United States. Securities may not be
offered, sold, transferred or delivered, directly or indirectly in or into the
United States absent registration under the Securities Act or an exemption from,
or in a transaction not subject to, the registration requirements of the
Securities Act and in compliance with any applicable securities laws of any
states or other jurisdiction of the United States. There will be no public offer
of the securities referred to herein in the United States.
For more information:
Kenmare Resources plc
Michael Carvill, Managing Director
Tel: +353 1 6710411
Mob: + 353 87 674 0110
Tony McCluskey, Financial Director
Tel: +353 1 6710411
Mob: + 353 87 674 0346
J.P. Morgan Cazenove
Laurence Hollingworth
Neil Passmore
Tel: +44 20 7588 2828
Davy
Hugh McCutcheon
Tel: +353 1 679 6363
Murray Consultants
Joe Heron
Tel: +353 1 498 0300
Mob: + 353 87 690 9735
Conduit PR Ltd
Leesa Peters/Charlie Geller
Tel: +44 207 429 6600
Mob: +44 781 215 9885
www.kenmareresources.com
KENMARE RESOURCES PLC
PRELIMINARY RESULTS
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2009
+-----------------+-----------+---------+
| | Unaudited | |
+-----------------+-----------+---------+
| | 2009 | 2008 |
+-----------------+-----------+---------+
| | US$'000 | US$'000 |
+-----------------+-----------+---------+
| Continuing | | |
| Operations | | |
+-----------------+-----------+---------+
| | | |
+-----------------+-----------+---------+
| Revenue | 26,721 | - |
+-----------------+-----------+---------+
| | | |
+-----------------+-----------+---------+
| Cost | (35,170) | - |
| of | | |
| sales | | |
+-----------------+-----------+---------+
| | | |
+-----------------+-----------+---------+
| Gross | (8,449) | - |
| loss | | |
+-----------------+-----------+---------+
| | | |
+-----------------+-----------+---------+
| Distribution | (1,770) | - |
| costs | | |
+-----------------+-----------+---------+
| | | |
| Administration | (1,892) | (1,304) |
| costs | | |
+-----------------+-----------+---------+
| | | |
| Operating | (12,111) | (1,304) |
| loss | | |
+-----------------+-----------+---------+
| | | |
+-----------------+-----------+---------+
| Finance | 202 | 1,302 |
| income | | |
+-----------------+-----------+---------+
| | | |
+-----------------+-----------+---------+
| Finance | (15,533) | - |
| costs | | |
+-----------------+-----------+---------+
| | | |
+-----------------+-----------+---------+
| Foreign | (2,910) | 347 |
| exchange | | |
| (loss)/gain | | |
+-----------------+-----------+---------+
| | | |
+-----------------+-----------+---------+
| (Loss)/profit | (30,352) | 345 |
| before tax | | |
+-----------------+-----------+---------+
| | | |
+-----------------+-----------+---------+
| Income | - | - |
| tax | | |
| expense | | |
+-----------------+-----------+---------+
| | | |
+-----------------+-----------+---------+
| (Loss)/profit | | |
| for the year | | |
+-----------------+-----------+---------+
| and | (30,352) | 345 |
| total | | |
| comprehensive | | |
| (loss)/income | | |
| for the year | | |
+-----------------+-----------+---------+
| | | |
+-----------------+-----------+---------+
| Attributable | (30,352) | 345 |
| to equity | | |
| holders | | |
+-----------------+-----------+---------+
| | | |
+-----------------+-----------+---------+
| | | |
+-----------------+-----------+---------+
| | US$ | US$ |
| | cents | cents |
| | per | per |
| | share | share |
+-----------------+-----------+---------+
| (Loss)/earnings | (3.59c) | 0.045c |
| per share: | | |
| Basic | | |
+-----------------+-----------+---------+
| (Loss)/earnings | (3.59c) | 0.042c |
| per share: | | |
| Diluted | | |
+-----------------+-----------+---------+
KENMARE RESOURCES PLC
PRELIMINARY RESULTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2009
+--------------+-----------+----------+
| | Unaudited | |
+--------------+-----------+----------+
| | 2009 | 2008 |
+--------------+-----------+----------+
| | US$'000 | US$'000 |
+--------------+-----------+----------+
| | | |
+--------------+-----------+----------+
| Assets | | |
+--------------+-----------+----------+
| Non-current | | |
| assets | | |
+--------------+-----------+----------+
| Property, | 540,924 | 539,672 |
| plant and | | |
| equipment | | |
+--------------+-----------+----------+
| | | |
+--------------+-----------+----------+
| | | |
+--------------+-----------+----------+
| Current | | |
| assets | | |
+--------------+-----------+----------+
| Inventories | 21,951 | 6,405 |
+--------------+-----------+----------+
| Trade | 13,311 | 3,033 |
| and | | |
| other | | |
| receivables | | |
+--------------+-----------+----------+
| Cash | 17,408 | 40,536 |
| and | | |
| cash | | |
| equivalents | | |
+--------------+-----------+----------+
| | 52,670 | 49,974 |
+--------------+-----------+----------+
| | | |
+--------------+-----------+----------+
| Total | 593,594 | 589,646 |
| assets | | |
+--------------+-----------+----------+
| | | |
+--------------+-----------+----------+
| Equity | | |
| | | |
+--------------+-----------+----------+
| Capital | | |
| and | | |
| reserves | | |
| attributable | | |
| to the | | |
+--------------+-----------+----------+
| Company's | | |
| equity | | |
| holders | | |
+--------------+-----------+----------+
| Called-up | 74,670 | 65,424 |
| share | | |
| capital | | |
+--------------+-----------+----------+
| Share | 163,147 | 145,088 |
| premium | | |
+--------------+-----------+----------+
| Retained | (57,501) | (27,149) |
| losses | | |
+--------------+-----------+----------+
| Other | 41,795 | 39,780 |
| reserves | | |
+--------------+-----------+----------+
| Total | 222,111 | 223,143 |
| equity | | |
+--------------+-----------+----------+
| | | |
+--------------+-----------+----------+
| Liabilities | | |
+--------------+-----------+----------+
| Non-current | | |
| liabilities | | |
+--------------+-----------+----------+
| Bank | 297,326 | 299,982 |
| loans | | |
+--------------+-----------+----------+
| Obligations | 2,172 | 2,264 |
| under | | |
| finance | | |
| lease | | |
+--------------+-----------+----------+
| Provisions | 4,347 | 4,179 |
+--------------+-----------+----------+
| | 303,845 | 306,425 |
+--------------+-----------+----------+
| | | |
+--------------+-----------+----------+
| Current | | |
| liabilities | | |
+--------------+-----------+----------+
| Bank | 58,791 | 34,842 |
| loans | | |
+--------------+-----------+----------+
| Obligations | 92 | 28 |
| under | | |
| finance | | |
| lease | | |
+--------------+-----------+----------+
| Provisions | 650 | - |
+--------------+-----------+----------+
| Trade | 8,105 | 25,208 |
| and | | |
| other | | |
| payables | | |
+--------------+-----------+----------+
| | 67,638 | 60,078 |
+--------------+-----------+----------+
| | | |
+--------------+-----------+----------+
| Total | 371,483 | 366,503 |
| liabilities | | |
+--------------+-----------+----------+
| | | |
+--------------+-----------+----------+
| Total | 593,594 | 589,646 |
| equity | | |
| and | | |
| liabilities | | |
+--------------+-----------+----------+
KENMARE RESOURCES PLC
PRELIMINARY RESULTS
UNAUDITED CONDENSED CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2009
+---------------------+-----------+----------+
| | Unaudited | |
+---------------------+-----------+----------+
| | 2009 | 2008 |
+---------------------+-----------+----------+
| | US$'000 | US$'000 |
+---------------------+-----------+----------+
| | | |
+---------------------+-----------+----------+
| | | |
+---------------------+-----------+----------+
| Cash | | |
| flows | | |
| from | | |
| operating | | |
| activities | | |
+---------------------+-----------+----------+
| (Loss)/profit | (30,352) | 345 |
| for the year | | |
+---------------------+-----------+----------+
| Adjustment | | |
| for: | | |
+---------------------+-----------+----------+
| Foreign | 2,910 | (5,472) |
| exchange | | |
| movement | | |
+---------------------+-----------+----------+
| Share-based | 796 | - |
| payments | | |
+---------------------+-----------+----------+
| Finance | (202) | (1,302) |
| income | | |
+---------------------+-----------+----------+
| Finance | 15,533 | - |
| costs | | |
+---------------------+-----------+----------+
| Depreciation | 12,871 | - |
+---------------------+-----------+----------+
| Increase | 739 | 1,674 |
| in | | |
| provisions | | |
+---------------------+-----------+----------+
| Operating | 2,295 | (4,755) |
| cash flow | | |
+---------------------+-----------+----------+
| | | |
+---------------------+-----------+----------+
| (Increase)/decrease | (13,749) | 408 |
| in inventories | | |
+---------------------+-----------+----------+
| (Increase)/decrease | (700) | 1,809 |
| in trade and other | | |
| receivables | | |
+---------------------+-----------+----------+
| Increase/(decrease) | 5,898 | (4,414) |
| in trade and other | | |
| payables | | |
+---------------------+-----------+----------+
| Cash | (6,256) | (6,952) |
| used | | |
| by | | |
| operations | | |
+---------------------+-----------+----------+
| | | |
+---------------------+-----------+----------+
| Interest | 202 | 1,302 |
| received | | |
+---------------------+-----------+----------+
| Interest | (11,866) | (13,739) |
| paid | | |
+---------------------+-----------+----------+
| | | |
+---------------------+-----------+----------+
| Net | (17,920) | (19,389) |
| cash | | |
| used | | |
| in | | |
| operating | | |
| activities | | |
+---------------------+-----------+----------+
| | | |
+---------------------+-----------+----------+
| Cash | | |
| flows | | |
| from | | |
| investing | | |
| activities | | |
+---------------------+-----------+----------+
| Addition | (40,197) | (39,050) |
| to | | |
| property, | | |
| plant and | | |
| equipment | | |
+---------------------+-----------+----------+
| | | |
+---------------------+-----------+----------+
| Net | (40,197) | (39,050) |
| cash | | |
| used | | |
| in | | |
| investing | | |
| activities | | |
+---------------------+-----------+----------+
| | | |
+---------------------+-----------+----------+
| Cash | | |
| flows | | |
| from | | |
| financing | | |
| activities | | |
+---------------------+-----------+----------+
| Proceeds | 19,582 | 28,269 |
| on the | | |
| issue of | | |
| shares | | |
+---------------------+-----------+----------+
| Repayment | (336) | (20,335) |
| of | | |
| borrowings | | |
+---------------------+-----------+----------+
| Increase | 15,890 | 29,316 |
| in | | |
| borrowings | | |
+---------------------+-----------+----------+
| (Decrease)/increase | (286) | 50 |
| in obligations | | |
| under finance | | |
| leases | | |
+---------------------+-----------+----------+
| | | |
+---------------------+-----------+----------+
| Net | 34,850 | 37,300 |
| cash | | |
| from | | |
| financing | | |
| activities | | |
+---------------------+-----------+----------+
| | | |
+---------------------+-----------+----------+
| Net | (23,267) | (21,139) |
| decrease | | |
| in cash | | |
| and cash | | |
| equivalents | | |
+---------------------+-----------+----------+
| | | |
+---------------------+-----------+----------+
| Cash | 40,536 | 56,203 |
| and | | |
| cash | | |
| equivalents | | |
| at | | |
| beginning | | |
| of the year | | |
+---------------------+-----------+----------+
| Effect | 139 | 5,472 |
| of | | |
| exchange | | |
| rate | | |
| changes | | |
| on cash | | |
| and cash | | |
| equivalents | | |
+---------------------+-----------+----------+
| | | |
+---------------------+-----------+----------+
| Cash | 17,408 | 40,536 |
| and | | |
| cash | | |
| equivalents | | |
| at the end | | |
| of the year | | |
+---------------------+-----------+----------+
NOTES TO THE PRELIMINARY RESULTS
Note 1. Basis of Accounting and Preparation of Financial Information
While the unaudited consolidated financial statements for the year ended 31
December 2009 from which the preliminary results have been extracted are
prepared in accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union, these preliminary results do not contain
sufficient information to comply with IFRSs. The Directors expect to approve and
publish full financial statements that comply with IFRSs as adopted by the
European Union in April 2010. The unaudited consolidated financial statements
are prepared in US Dollars under the historical cost convention.
The financial information presented in this preliminary results document does
not constitute consolidated financial statements within the meaning of the
Companies Acts, 1963 to 2009. A copy of the consolidated financial statements
for the year ended 31 December 2009 will be annexed to the Annual Return for
2010.
The auditors have not yet issued their opinion on the consolidated financial
statements for the year ended 31 December 2009. The auditors' opinion when
issued is likely to draw attention to the disclosures in the consolidated
financial statements in relation to the recoverability of property, plant and
equipment (see Note 5 below) and in relation to investments in and amounts due
from subsidiary undertakings on the parent Company's balance sheet.
In the event that the equity funding does not proceed, the auditors' opinion
when issued is also likely to draw attention to the disclosures in the
consolidated financial statements in relation to going concern (see Note 2
below)
The statutory accounts for the year ended 31 December 2008 prepared under IFRS
as adopted by the European Union upon which the auditors have issued an
unqualified opinion, but with an emphasis of matter drawing attention to the
disclosures made in the financial statements concerning the recoverability of
property, plant and equipment and investments in and amounts due from subsidiary
undertakings, and the continued availability of adequate financing, have been
filed with the Registrar of Companies.
The Directors approved this preliminary results document on 4 March 2010.
Note 2. Going Concern
On 5 March 2010 the Group announced plans to raise approximately US$270 million
by means of a fully underwritten equity issue. This funding will enable the
Group to proceed with a proposed expansion of the Moma Titanium Minerals Mine
(the Mine or the Project) on the basis of an expansion study which was completed
in January 2010. In accordance with the capital cost estimates under the
expansion study, approximately US$200 million, in quarter three 2009 US$ terms
and including a contingency of approximately US$18 million, of the net proceeds
from the fund-raising is intended to be used to fund the engineering,
procurement and construction costs of the expansion. This estimated cost is to a
stated accuracy limit of +/- 25 per cent. The balance of the net proceeds of
approximately US$56.7 million will be available to the extent necessary for any
increase in costs of the expansion and general corporate purposes, including
meeting any debt service payments which are not met from operating cash flows.
The senior and subordinated lenders to the Project (the Lender Group) have
agreed to a number of waivers and amendments to the existing Project financing
agreements in connection with the proposed expansion the effectiveness of which
are conditional on US$200 million of the proceeds of the equity raising being
deposited into the Contingency Reserve Account (an account securing certain
obligations of the Group in connection with the financing of the Project) by 30
June 2010. Further detail on these waivers and amendments are set out in Note 8.
The current terms of the Project loan agreements require that "Technical
Completion" be achieved by 31 December 2010. Should the equity raising not be
completed and, as a result, the waivers and amendments to the Project financing
agreements do not become effective, the Group would seek to agree with the
Lender Group a number of amendments to the Technical Completion requirements in
order to accommodate some operational aspects of the mine which are different
than those originally envisaged. Furthermore, in the event that production rates
and other operational aspects from the mine were not expected to be sufficient
to satisfy the Technical Completion requirements as at 31 December 2010, the
Group would also seek to re-negotiate the requirements for Technical Completion
and/or implement a number of operational measures in order to satisfy the
Technical Completion test or to limit the scope of any necessary modifications
to the Technical Completion tests.
The equity-raising is conditional on the approval of authorizing resolutions by
shareholders at an EGM. If the resolutions are not approved, the equity-raising
will not complete, the proposed expansion will not proceed at this time or
possibly at all, and the agreed waivers and amendments to the Project financing
agreements will not become effective. In this situation, the existing provisions
of the Project financing agreements would, absent further renegotiation,
continue to apply. Details of the existing provisions of the Project financing
agreements are set out in Note 8.
In such circumstances, the Group would, to the extent it becomes necessary, take
a number of actions designed to maximise cash flow and increase its cash
balances in order to meet loan repayment obligations as they fall due. These
steps could include disposing of stocks of titanium minerals product built up at
the mine earlier than planned under the Group's shipping schedule, curtailing
discretionary expenditure, seeking to obtain additional debt or equity finance
and/or seeking to agree with the Project lenders amendments to loan repayment
schedules. While the Directors believe they would be able to implement the
necessary courses of action in order to satisfy scheduled payment obligations
under the Project loans, the consequences of such actions may be inconsistent
with the long term strategy of the Group. For example, the accelerated sale of
inventory may affect the pricing the Group achieves for its products more
generally, curtailment of expenditure may delay or prevent the delivery of
benefits from the capital expenditure programme, alternative capital may be
expensive, and the cost of any amendments agreed with the Project lenders may be
punitive and may result in more onerous obligations than those currently
prevailing.
Taking account of the factors detailed above the Directors believe that the
Group has adequate resources for the foreseeable future and continue to adopt
the going concern basis of accounting in preparing the annual financial
statements.
Note 3. Segment Reporting
The Group has adopted IFRS 8 Operating Segments with effect from the 1 January
2009. IFRS 8 requires operating segments to be identified on the basis of
internal reports about components of the Group that are regularly reviewed by
the Board to allocate resources to the segments and to assess their performance.
In prior years management considered the operation of the Mine in Mozambique as
its primary business and 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 IFRS 8. Information regarding the
Group's operating segment is reported below. Amounts reported for the prior year
have been restated to conform to the requirements of IFRS 8.
+----------------+-----------+---------+
| Segment | | |
| revenues | | |
| and | | |
| results | | |
+----------------+-----------+---------+
| | Unaudited | |
+----------------+-----------+---------+
| | 2009 | 2008 |
+----------------+-----------+---------+
| Moma | US$'000 | US$'000 |
| Titanium | | |
| Minerals | | |
| Mine | | |
+----------------+-----------+---------+
| Revenue | 26,721 | - |
+----------------+-----------+---------+
| Cost | (35,170) | - |
| of | | |
| sales | | |
+----------------+-----------+---------+
| Gross | (8,449) | - |
| loss | | |
+----------------+-----------+---------+
| Distribution | (1,770) | - |
| costs | | |
+----------------+-----------+---------+
| Segment | (10,219) | - |
| operating | | |
| loss | | |
+----------------+-----------+---------+
| | | |
+----------------+-----------+---------+
| Central | (1,892) | (1,304) |
| administration | | |
| costs | | |
+----------------+-----------+---------+
| | | |
+----------------+-----------+---------+
| Group | (12,111) | (1,304) |
| operating | | |
| loss | | |
+----------------+-----------+---------+
| | | |
+----------------+-----------+---------+
| Finance | 202 | 1,302 |
| income | | |
+----------------+-----------+---------+
| Finance | (15,533) | - |
| expenses | | |
+----------------+-----------+---------+
| Foreign | (2,910) | 347 |
| exchange | | |
| loss/gain | | |
+----------------+-----------+---------+
| (Loss)/profit | (30,352) | 345 |
| before tax | | |
+----------------+-----------+---------+
| Income | - | - |
| tax | | |
| expense | | |
+----------------+-----------+---------+
| (Loss)/profit | (30,352) | 345 |
| for the year | | |
+----------------+-----------+---------+
| | | |
| | | |
| | | |
| | | |
| Segment | | |
| assets | Unaudited | |
| | | |
+----------------+-----------+---------+
| | 2009 | 2008 |
+----------------+-----------+---------+
| | US$'000 | US$'000 |
+----------------+-----------+---------+
| Moma | 571,266 | 554,562 |
| Titanium | | |
| Minerals | | |
| Mine | | |
| assets | | |
+----------------+-----------+---------+
| Corporate | 22,328 | 35,084 |
| assets | | |
+----------------+-----------+---------+
| Total | 593,594 | 589,646 |
| assets | | |
+----------------+-----------+---------+
| | | |
+----------------+-----------+---------+
| Segment | | |
| liabilities | | |
+----------------+-----------+---------+
| | Unaudited | |
+----------------+-----------+---------+
| | 2009 | 2008 |
+----------------+-----------+---------+
| | US$'000 | US$'000 |
+----------------+-----------+---------+
| Moma | 366,352 | 364,401 |
| Titanium | | |
| Minerals | | |
| Mine | | |
| liabilities | | |
+----------------+-----------+---------+
| Corporate | 5,131 | 2,102 |
| liabilities | | |
+----------------+-----------+---------+
| Total | 371,483 | 366,503 |
| liabilities | | |
+----------------+-----------+---------+
| | | |
| | | |
| | | |
| Other | | |
| segment | | |
| information | Unaudited | |
| | | |
+----------------+-----------+---------+
| | 2009 | 2008 |
+----------------+-----------+---------+
| Depreciation | US$'000 | US$'000 |
| and | | |
| amortisation | | |
+----------------+-----------+---------+
| Moma | 12,830 | 9,682 |
| Titanium | | |
| Minerals | | |
| Mine | | |
+----------------+-----------+---------+
| Corporate | 41 | 26 |
| | | |
+----------------+-----------+---------+
| Total | 12,871 | 9,708 |
+----------------+-----------+---------+
| | | |
+----------------+-----------+---------+
| Additions | | |
| to | | |
| non-current | | |
| assets | | |
+----------------+-----------+---------+
| Moma | 43,651 | 63,651 |
| Titanium | | |
| Minerals | | |
| Mine | | |
+----------------+-----------+---------+
| Corporate | 4,024 | 124 |
| | | |
+----------------+-----------+---------+
| Total | 47,675 | 63,775 |
+----------------+-----------+---------+
Depreciation for the first six months to the 30 June 2009 of US$5.8 million and
the 2008 depreciation charge of US$9.7 million have been capitalised in
development expenditure in property, plant and equipment. During the year mobile
equipment at the Moma Titanium Minerals Mine with net book value of US$0.2
million (2008: US$0.2 million) were deemed impaired and therefore written off.
Development expenditure at Corporate level with a cost of US$0.05 million was
deemed impaired and therefore written off.
+----------+-----------+
| | |
| Revenue | |
| from | Unaudited |
| major | |
| products | |
| | |
+----------+-----------+
| | 2009 |
+----------+-----------+
| | US$'000 |
+----------+-----------+
| Ilmenite | 18,855 |
+----------+-----------+
| Zircon | 7,866 |
| | |
+----------+-----------+
| Total | 26,721 |
+----------+-----------+
Revenue for the first six months to the 30 June 2009 of US$15.6 million has not
been included in the above amount as this has been capitalised in development
expenditure in property, plant and equipment. Revenue earned in 2008 of US$25.3
million has been capitalised in development expenditure in property, plant and
equipment.
+--------------+-----------+
| | |
| Geographical | |
| information | Unaudited |
| | |
+--------------+-----------+
| | 2009 |
+--------------+-----------+
| Revenue | US$'000 |
| from | |
| external | |
| customers | |
+--------------+-----------+
| Europe | 13,700 |
| | |
+--------------+-----------+
| USA | 8,458 |
+--------------+-----------+
| Asia | 4,563 |
+--------------+-----------+
| Total | 26,721 |
+--------------+-----------+
The Group's revenue from external customers is generated by the Moma Titanium
Minerals Mine, the non-current assets of which are US$536.8 million (2008:
US$539.5 million).
Information about major customers
Included in revenues are US$8.5 million from the sale of ilmenite to the
Group's largest customer, US$7.7 million from the sale of zircon to the Group's
second largest customer and US$4.6 million from the sale of ilmenite to the
Group's third largest customer during the six month period ended 31 December
2009. All revenues are generated by the Mine.
Note 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 loss after taxation
of US$30.4 million (2008: profit US$0.3 million) and the weighted average number
of shares in issue during 2009 for the purposes of basic earnings/(loss) per
share of 844,314,758 (2008: 760,160,548) and for diluted earnings/(loss) per
share of 891,343,016 (2008:825,386,342).
In 2009 the basic loss per share and the diluted loss per share are the same, as
the effect of the outstanding share options and warrants are anti-dilutive.
Note 5. Property Plant and Equipment
+-------------------------------------------------------------------------------------------------------------+--------+--------+--------+--------+--------+--------+
| Plant Buildings Mobile Fixtures Construction Development Total | | | | | | |
| & | | | | | | |
| & & Equipment Equipment In Expenditure | | | | | | |
| Equipment Airstrip Progress | | | | | | |
| US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 | | | | | | |
| Cost | | | | | | |
| At 1 257,502 3,812 6,022 2,535 46,082 176,365 492,318 | | | | | | |
| January | | | | | | |
| 2008 | | | | | | |
| Transfer 2,403 - 177 78 (2,658) - - | | | | | | |
| from | | | | | | |
| construction | | | | | | |
| in progress | | | | | | |
| Reclassification (1,182) - - - - - (1,182) | | | | | | |
| to inventory | | | | | | |
| Additions 793 - 525 135 2,281 60,041 63,775 | | | | | | |
| during | | | | | | |
| the year | | | | | | |
| Impairment - - (486) - - - (486) | | | | | | |
| during the | | | | | | |
| year | | | | | | |
| At 1 259,516 3,812 6,238 2,748 45,705 236,406 554,425 | | | | | | |
| January | | | | | | |
| 2009 | | | | | | |
| Transfer (48,865) - | | | | | | |
| from 47,354 289 1,107 115 - | | | | | | |
| construction | | | | | | |
| in progress | | | | | | |
| Reclassification (1,797) - - - - - (1,797) | | | | | | |
| to inventory | | | | | | |
| Additions 6,360 - 263 5 7,473 33,574 47,675 | | | | | | |
| during | | | | | | |
| the year | | | | | | |
| Adjustment - - - - - (25,758) (25,758) | | | | | | |
| as a | | | | | | |
| result of | | | | | | |
| the DOFS&R | | | | | | |
| Impairment - - (362) - - (48) (410) | | | | | | |
| during the | | | | | | |
| year | | | | | | |
| At 31 311,433 4,101 7,246 2,868 4,313 244,174 574,135 | | | | | | |
| December | | | | | | |
| 2009 | | | | | | |
| Accumulated | | | | | | |
| Depreciation | | | | | | |
| At 1 2,775 74 2,207 302 - - 5,358 | | | | | | |
| January | | | | | | |
| 2008 | | | | | | |
| Charge 7,445 191 1,252 820 - - 9,708 | | | | | | |
| for | | | | | | |
| the | | | | | | |
| year | | | | | | |
| Impairment - - (313) - - - (313) | | | | | | |
| during the | | | | | | |
| year | | | | | | |
| At 1 10,220 265 3,146 1,122 - - 14,753 | | | | | | |
| January | | | | | | |
| 2009 | | | | | | |
| Charge 11,042 195 1,351 894 - 5,188 18,670 | | | | | | |
| for | | | | | | |
| the | | | | | | |
| year | | | | | | |
| Impairment - - (212) - - - (212) | | | | | | |
| during the | | | | | | |
| year | | | | | | |
| At 31 21,262 460 4,285 2,016 - 5,188 33,211 | | | | | | |
| December | | | | | | |
| 2009 | | | | | | |
| Carrying | | | | | | |
| Amount | | | | | | |
| At 31 290,171 3,641 2,961 852 4,313 238,986 540,924 | | | | | | |
| December | | | | | | |
| 2009 | | | | | | |
| At 31 249,296 3,547 3,092 1,626 45,705 236,406 539,672 | | | | | | |
| December | | | | | | |
| 2008 | | | | | | |
| | | | | | | |
+-------------------------------------------------------------------------------------------------------------+--------+--------+--------+--------+--------+--------+
An EPC 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 EPC Contractor was a joint venture formed for
this project by subsidiaries of Multiplex Limited and Bateman B.V. The
facilities, excluding the roaster, were taken over from the EPC Contractor in
2007. At 1 September 2009, the roaster was taken over. On 12 December 2009, a
Deed of Final Settlement and Release (DOFS&R) was signed by the Project
Companies and the EPC Contractor. Under the terms of the DOFS&R, substantially
all outstanding rights, obligations and liabilities of all parties under the EPC
contract and related agreements have been mutually settled and released.
Included in property, plant and equipment is the acquired valuation of US$41.6
million for the mining and processing plant. Under the transition to IFRS, the
Group has elected to use this valuation as the deemed cost as and from the 1
January 2005.
During the year 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 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 pre-finance cash flows discounted at the average
effective borrowing rate of the Moma Titanium Mineral Mine of 8.8%. Key
assumptions include the following:
*Life of mine, which is currently estimated at 28 years, is based on the
Namalope proved and probable reserves.
*The cash flows assume ramp-up to expected production levels during 2010 for
ilmenite and zircon, and 2011 for rutile. 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 not exceeding those forecast by
the lenders independent marketing consultant.
*Operating and capital replacement costs are based on approved budget costs for
2010 and escalated by 2% per
annum thereafter.
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.
A detailed asset review during the year resulted in a mobile equipment with net
book value of US$0.2 million deemed to be impaired and therefore written off.
During the year the mining reserve was increased and represents approximately a
28 year life at expected production levels. This has resulted in a change in the
unit of production depreciation which is calculated using the quantity of Heavy
Mineral Concentrate produced in the period as a percentage of the total quantity
of Heavy Mineral Concentrate material to be produced in current and future
periods based on the mining reserve.
Included in plant and equipment are capital spares of US$1.0 million (2008:
US$0.5 million). The Company has reclassified consumable spares included in
property, plant and equipment of US$1.8 million (2008: US$1.2 million) into
inventory.
Substantially all the property, plant and equipment of the Group is or will be
mortgaged, pledged or otherwise secured to provide collateral for the senior
loans (the Senior Loans) and the subordinated loans (the Subordinated Loans)
provided to the Project, or in the case of the trans-shipment barge Peg, and tug
workboat, Sofia III, a loan provided to the Group, as detailed in Note 8.
The carrying amount of the Group's plant and equipment includes an amount of
US$1.5 million (2008: US$1.7 million) in respect of assets held under a finance
lease.
During the first six months ended 30 June 2009, the Group continued to build up
production to target levels. From the 1 July 2009 the mine was considered to be
capable of operating at target levels of production and as a result the Group
has reported revenue and costs in the income statement from July 2009 onwards.
During the first six months of the year additions to development expenditure
include loan interest capitalised of US$13.4 million (2008: US$26.9. million),
finance fees of US$5.6 million (2008: US$1.5 million), costs of US$13.8 million
(2008: US$31.7 million) net of revenue earned of US$15.6 million (2008: US$25.3
million) and net of delay damages of US$1.2 million (2008: US$3.1 million).
As a result of the DOFS&R noted above US$25.8 million of EPC Contract accruals
net of receipt of US$10 million, were credited to development expenditure in
December 2009. Included in development expenditure are costs of US$1.0 million
in relation to the expansion of the current mining operation. Deferred
exploration expenditure of US$0.05 million was deemed to be impaired and
therefore written off. This has resulted in development expenditure increasing
by US$7.8 million during the year.
Included in plant and equipment is US$2.9 million relating to the product
trans-shipment barge, Peg, and tug workboat, Sofia III. These vessels were
purchased in August 2009 and are currently located in Western Australia. The
vessels will be brought to the mine during 2010. The vessels require
modifications to bring them into use for mineral product shipments.
The recovery of property, plant and equipment is dependent upon the successful
operation of the Moma Titanium Minerals Mine and continued availability of
adequate funding for the mine. The Directors are satisfied that at the balance
sheet date the recoverable amount of property, plant and equipment exceeds its
carrying amount and based on the planned mine production levels that the Moma
Titanium Minerals Mine will achieve positive cash flows.
Note 6. Trade and Other Receivables
+---------------------------------+---------------+------------+
| | Unaudited | |
+---------------------------------+---------------+------------+
| | 2009 | 2008 |
+---------------------------------+---------------+------------+
| | US$'000 | US$'000 |
+---------------------------------+---------------+------------+
| Trade receivables | 4,557 | 593 |
+---------------------------------+---------------+------------+
| Other receivables | 8,178 | 2,343 |
+---------------------------------+---------------+------------+
| Prepayments | 576 | 97 |
+---------------------------------+---------------+------------+
| | 13,311 | 3,033 |
+---------------------------------+---------------+------------+
The carrying amount of the trade and other receivables represents the maximum
credit exposure. Before entering into sales contracts with new customers, the
Group uses an external credit scoring system to assess the potential customer's
credit quality and defines credit limits by customer. Limits attributed to
customers are reviewed regularly during the year. In addition the Project
lenders, in certain circumstances, must approve new customers as detailed in the
financing documentation.
On 31 July 2009 the Group entered into a trade finance facility with Absa
Corporate and Business Bank.
Of the US$4.6 million outstanding from trade receivables above, US$4.55 million
was current (i.e. not past due).There has been no impairment in trade
receivables during the year and no allowance for impairment has been provided
for during the year or at the year end.
US$7.7 million of other receivables relates to shares to be issued at the year
end of which all was received post year end. Warrants were due to expire on 31
December 2009. On 20 November 2009, the Company entered into an agreement with a
transferee to take up unexercised warrants at 31 December 2009. On 30 November
2009, at an extraordinary general meeting of warrant-holders, an amendment to
the terms of the warrants was approved, permitting the Company to transfer those
warrants which had not been exercised by 31 December 2009 to a transferee
(nominated by the Company) who would be permitted to exercise the transferred
warrants.
At 31 December 2009 there were 16.2 million shares to be issued as a result of
warrant-holders exercising their warrants on or before 31 December 2009 and 10.1
million of shares to be issued to the transferee pursuant to the agreement noted
above.
Note 7. Cash and Cash Equivalents
+---------------------------------+---------------+------------+
| | Unaudited | |
+---------------------------------+---------------+------------+
| | 2009 | 2008 |
+---------------------------------+---------------+------------+
| | US$'000 | US$'000 |
+---------------------------------+---------------+------------+
| Immediately available without | 10,255 | 19,548 |
| restriction | | |
+---------------------------------+---------------+------------+
| | | |
+---------------------------------+---------------+------------+
| Contingency Reserve Account | 1 | 15,292 |
+---------------------------------+---------------+------------+
| Shareholder Funding Account | 25 | 24 |
+---------------------------------+---------------+------------+
| Project Companies Account | 7,127 | 5,672 |
+---------------------------------+---------------+------------+
| | 17,408 | 40,536 |
+---------------------------------+---------------+------------+
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 variable rates based on daily bank deposit 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 are accounts
established under a cash collateral and shareholder funding deed to secure the
obligations of the Company and Congolone Heavy Minerals Limited (a wholly-owned
subsidiary) under the Completion Agreement as detailed in Note 8.
The amount required by the Project financing agreements 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. Upon the effectiveness of the waivers and amendments to
the financing agreements set out in Note 8, there will no longer be a
requirement to maintain a specific amount on the CRA.
Note 8. Bank Loans
+--------------+-----------+----------+
| | Unaudited | |
+--------------+-----------+----------+
| | 2009 | 2008 |
+--------------+-----------+----------+
| | US$'000 | US$'000 |
+--------------+-----------+----------+
| | | |
+--------------+-----------+----------+
| Senior | 190,592 | 188,844 |
| Loans | | |
+--------------+-----------+----------+
| Subordinated | 165,525 | 145,980 |
| Loans | | |
+--------------+-----------+----------+
| | 356,117 | 334,824 |
+--------------+-----------+----------+
| | | |
+--------------+-----------+----------+
| | | |
+--------------+-----------+----------+
| The | | |
| borrowings | | |
| are | | |
| repayable | | |
| as | | |
| follows: | | |
+--------------+-----------+----------+
| Within | 58,791 | 34,842 |
| one | | |
| year | | |
+--------------+-----------+----------+
| In the | 41,722 | 36,633 |
| second | | |
| year | | |
+--------------+-----------+----------+
| In the | 124,979 | 109,899 |
| third | | |
| to | | |
| fifth | | |
| years | | |
| inclusive | | |
+--------------+-----------+----------+
| After | 130,625 | 153,450 |
| five | | |
| years | | |
+--------------+-----------+----------+
| | 356,117 | 334,824 |
+--------------+-----------+----------+
| Less: | (58,791) | (34,842) |
| amount | | |
| due | | |
| for | | |
| settlement | | |
| within 12 | | |
| months | | |
+--------------+-----------+----------+
| Amount | 297,326 | 299,982 |
| due | | |
| for | | |
| settlement | | |
| after 12 | | |
| months | | |
+--------------+-----------+----------+
| | | |
+--------------+-----------+----------+
Project loans
Project loans have been made to the Mozambique branches of Kenmare Moma Mining
(Mauritius) Limited and Kenmare Moma Processing (Mauritius) Limited (the Project
Companies). The Project loans are secured by substantially all rights and assets
of the Project Companies, and, amongst other things, the shares in the Project
Companies.
Under the Completion Agreement, the Company and Congolone Heavy Minerals Limited
have guaranteed the Project 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 and satisfying certain conditions,
including installation of all required facilities, meeting certain cost,
efficiency, 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), meeting legal
and permitting requirements, and meeting certain financial requirements
including filling of specified reserve accounts to the required levels. Upon
Completion, the Company's and Congolone Heavy Minerals Limited's guarantee of
the Project loans will terminate. Failure to achieve Technical Completion by 31
December 2010 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 Project financing agreements which, following notice,
would give Project lenders the right to accelerate the loans against the Project
Companies, and exercise their security interests in the shares and assets
(including accounts) of the Project Companies, and require payment under the
guarantee provided under the Completion Agreement. If payment is not made under
the guarantee or if there is any other "Completion Default" under the Completion
Agreement, the Project lenders may exercise security interests in the
Contingency Reserve Account and the Shareholder Funding Account.
Seven Senior Loan credit facilities were made available for financing the Moma
Titanium Minerals Mine. The aggregate maximum available amount of the Senior
Loan credit facilities was US$185 million plus EUR15 million of which US$182.8
million and EUR15 million had been drawn at 31 December 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 down because of the failure of the EPC Contractor
to provide the necessary tied content. Settlement of any claim in respect of
such failure was included as part of the Deed of Final Settlement and Release
detailed in note 5.
Senior Loans were originally scheduled to be repaid in equal semi-annual
installments 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 installments 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 Resources
plc 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 Loan
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 in equal
semi-annual installments.
The Senior Loan tenors have therefore remained unchanged and range from 5.5
years to 8.5 years from 31 December 2009. Three of the Senior Loans bear
interest at fixed rates and four bear interest at variable rates.
The original Subordinated Loan credit facilities (made available under
documentation entered into in June 2004) with original principal amounts of
EUR47.1 million plus US$10 million (excluding capitalised interest) were fully
drawn down at year end. Under the loan documents Subordinated Loans were
repayable in 21 semi-annual installments commencing on 1 August 2009. 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
six month LIBOR plus 8% per annum. .
The Standby Subordinated Loan credit facilities (made available under
documentation entered into in June 2005) with original principal amounts of EUR2.8
million and US$4 million were fully drawn down at year end. Standby Subordinated
Loans bear interest at fixed rates of 10% per annum in respect of EUR2.8 million
and US$1.5 million and at six month LIBOR plus 8% per annum in respect of US$2.5
million.
The Additional Standby Subordinated Loan credit facilities of US$12 million and
US$10 million (made available under documentation entered into in August 2007)
were fully drawn down at year end. The Additional Standby Subordinated Loans
bear interest at 6 month LIBOR plus 5%.
Pursuant to the original terms of the financing documentation, interest on the
Subordinated Loan, Standby Subordinated Loans and the Additional Standby
Subordinated Loans (the Subordinated Loans) was capitalised up to and including
4 August 2009. Interest on the Subordinated Loans was due to be paid in cash
for the first time on 1 February 2010, but as cash was insufficient on such date
to make the schedule interest payment, interest was capitalised and becomes
payable on the first semi-annual payment date on which sufficient cash is
available in the Project Companies, in whole or in part, to the extent of
available cash.
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, but since cash was insufficient on such date, is scheduled for
repayment on the first semi-annual payment date thereafter on which sufficient
cash is available in the Project Companies, in accordance with the terms of the
financing documentation. The final installments are due on 1 August 2019.
Standby Subordinated lenders have an option to require that Kenmare Resources
plc purchase the Standby Subordinated Loans on agreed terms.
Under the second deed of waiver and amendment referred to above, interest
margins on subordinated loans were increased by 3% per annum until Technical
Completion and by 1% per annum until Completion. This additional margin is
scheduled to be paid after senior loans have been repaid in full but may be
prepaid without penalty.
Amendments to Project loans
On 5 March 2010 the Company, Congolone Heavy Minerals Limited and the Project
Companies entered into a deed of waiver and amendment (the "Expansion Funding
Deed of Waiver and Amendment" or the "Expansion Deed") with the Project lenders
and the lenders' agents. The effectiveness of the waivers and amendments set out
in this deed is conditional on (a) the certification by SRK, the lender's
independent engineer, of its reasonable satisfaction with the expansion study
and that the operations of the Project Companies will not be adversely affected
in any material respect by the construction and operation of the expansion
contemplated by the expansion study, and (b) the deposit of US$200 million into
the Contingency Reserve Account by 30 June 2010.
The certification by SRK was obtained on 19 February 2010 and hence the only
condition that remains to be satisfied is the deposit of US$200 million into the
Contingency Reserve Account, which the Group expects to make immediately upon
completion of the equity raising. Upon satisfaction of this condition, the
Expansion Deed provides, amongst other things, for the following, which apply
notwithstanding any provision of the financing agreements, including those
described under the heading "Project loans" above:
a. The funds deposited into the Contingency Reserve Account may be transferred
by Congolone Heavy Minerals Limited, at its sole discretion, to the secured
Project bank accounts controlled by the Project Companies. Once deposited in
those accounts, the funds are required to be applied in accordance with the
provisions of the financing agreements (as amended, including pursuant to the
Expansion Deed) pursuant to which such funds may in the absence of an event of
default, be spent on, amongst other things, the expansion;
b. Funds deposited into the Contingency Reserve Account may not be transferred
other than to the Project Accounts, until and unless the Completion Agreement is
terminated in accordance with its terms (an event of default under the financing
documents);
c. All continuing funding requirements in relation to the Contingency Reserve
Account cease to have effect. As a result, there will be no minimum balance
required to be maintained in the Contingency Reserve Account;
d. Failure to achieve Completion by the final completion date ceases to be an
event of default. Instead, failure to achieve Non-Technical Completion by the
final completion date, which has been extended to 31 December 2013, is an event
of default. "Non-Technical Completion" occurs when the marketing, legal and
other conditions, financial, and environmental certificates specified in the
Completion Agreement (in the case of the environmental certificate, as verified
by the independent engineer) have been delivered;
e. The target date to achieve Technical Completion is extended to 31 December
2011, and failure to achieve Technical Completion by the target date ceases to
constitute an event of default. Instead, the consequence of failure to achieve
Technical Completion by the target date is that the interest rates applicable to
the Senior Loans and Subordinated Loans increase by 1 per cent per annum and 2
per cent per annum respectively until Technical Completion is achieved;
f. The requirement to fund the Price Drop Reserve Account and the Operating
Cost Reserve Account (reserve accounts of the Project Companies) as a continuing
obligation or as conditions to completion cease to apply. Instead, the funding
of these accounts to a reduced level will be a condition to making distributions
from the Project Companies to the Company: in the case of the Price Drop Reserve
Account, from a minimum of US$10 million to US$2.5 million; and in the case of
the Operating Cost Reserve Account, from an amount equal to six months'
operating costs to two months' operating costs;
g. The terms of all certificates under the Completion Agreement, other than
the marketing certificate, were amended; in particular:
i. the physical facilities certificate was amended to better reflect the
current physical facilities at the
mine;
ii. the production certificate was amended to reflect less onerous operational
and production levels
and to reflect more accurately the products currently
produced at the mine;
iii. the efficiency certificate was made less onerous, simplified and updated to
reflect current costs;
iv. the financial certificate was amended to remove the funding requirements
relating to the Operating
Cost Reserve Account and the Price Drop Reserve
Account and to require the transfer to the Project
Accounts of any amounts
then remaining in the Contingency Reserve;
h. certain waivers and accommodations were granted in connection with the
expansion and the expansion study; and
i. certain additional undertakings were provided by the Project Companies,
including in relation to the expansion, although it should be noted that it is
not a condition of the Expansion Deed or of any completion test or any financing
agreement that the expansion is implemented or completed.
Other Group bank borrowings
On the 7 August 2009, Mozambique Minerals Limited (a wholly-owned Group
subsidiary) 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, Peg, and a tug work boat, Sofia III. Interest
accrues based on 6 month LIBOR plus 6%, payable monthly in arrears commencing
September 2009, and principal is scheduled to be repaid in 54 equal monthly
installments commencing March 2010. This loan was drawn down on the 10 August
2009. The loan is secured by a mortgage on the Peg and Sofia III and by a
guarantee from Kenmare Resources plc.
Note 9. 2009 Annual Report and Accounts
The Annual Report and Accounts will be posted to shareholders before 30 April
2010.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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