KMR Kenmare Resources Plc

 
TIDMKMR 
 
Kenmare Resources plc ("Kenmare" or "the Company") 
 
                          Interim Management Statement 
                                 (LSE/ISE: KMR) 
 
 
28 April 2010 
 
Kenmare Resources plc, issues the following Interim Management Statement for the 
period 1 January 2010 to 28 April 2010, in accordance with reporting 
requirements of the EU Transparency Directive. 
 
At  an Extraordinary  General Meeting  on 29 March,  2010 Kenmare's shareholders 
approved  a funding  to raise  US$270 million  of new  equity by  way of  a firm 
placing  for 50% of the shares to be issued and a placing and open offer for the 
rest.   I am delighted at the level of  support for this offer. In particular, I 
am  pleased that the open offer  of new shares was taken  up at a level of 73%, 
indicating  very strong support for the  Company from the existing shareholders, 
to whom I extend a sincere thank you. 
 
The  completion  of  this  fund-raising represents a transformational change for 
Kenmare.  It allows  the rapid implementation  of our  expansion plans for Moma, 
giving  Kenmare first mover advantage, as well as significantly reducing our net 
debt.  The forecast  cashflows resulting from  the expansion  will allow a rapid 
payment of our expensive subordinated debt. The fund-raising has also allowed us 
to   amend   certain  debt covenants  to  the  significant  benefit  of  all the 
stakeholders of Kenmare. 
 
Our  decision  to  move  ahead  with  the  funding now was based on two factors. 
First, the fact that the ramp-up of the existing facilities, while not complete, 
is  progressing well; commencing the expansion now will entail construction work 
at  site beginning in early 2011, giving  our operations team opportunity to bed 
in the improvements that are currently underway. Second, the market for titanium 
feedstocks is showing signs of tightening and is predicted to display a material 
supply deficit by the time the expansion is completed. 
 
The Expansion Study, completed in January 2010, concluded that a 50% increase in 
production  of final  products could be  achieved with  a capital expenditure of 
approximately  US$200 million.  It is expected  that the  expanded facility will 
be at  full design level of 1.2 million tonnes of ilmenite plus 80,000 tonnes of 
zircon   and 22,000   tonnes   of   rutile  by  the  end  of  2012. An important 
characteristic of the design is that the project can be implemented with minimal 
disruption to the existing operation. 
 
On the mining side, the plan involves the construction of a new dredge pond with 
a third  dredge and  Wet Concentrator  Plant (WCP), as  well as  a small upgrade 
to the  existing  dredges  and  WCP.  The  new dredge  pond  will be constructed 
separate from and without interfering with the existing mining operations. 
 
At  the  Mineral  Separation  Plant  (MSP)  we will  construct  a  new  Wet High 
Intensity Magnetic  Separation  (WHIMS)  plant.  This plant  will  be  in  a new 
building  which can be constructed without interfering with existing operations. 
The WHIMS plant will separate non-magnetic minerals (zircon and rutile) from the 
Heavy  Mineral Concentrate (HMC) in  a wet state.  At present, all  the MSP feed 
is dried;  the  non-magnetic  minerals  are  then separated  from  the  magnetic 
minerals  and presented to  the non-magnetic  circuit. As the  front end  of the 
non-magnetic  circuit  is  a wet  circuit,  the  non-magnetic  material  must be 
rewetted  for subsequent processing.  The WHIMS plant will  therefore remove the 
costly initial  drying process and improve the  overall efficiency of the MSP as 
well   as   boosting production.   An  auxiliary  ilmenite  plant  will also  be 
constructed  in  a  separate  building. This  will  take  a  portion of the flow 
from the  WHIMS plant  and produce  an ilmenite product  directly to the storage 
shed. The remainder of the flow from the WHIMS plant will go to the existing MSP 
and will use the existing machinery for processing. 
 
Further  design  and  definition  work  is underway  at  the  expansion  project 
office in Johannesburg. We expect to complete construction of the project by the 
end  of 2011  and  have  allowed  2012 as  a ramp-up period. Unlike the original 
development  of Moma, this project will be  managed using an EPCM Contractor and 
not  be contracted out as  a lump sum  turnkey contract which previously limited 
the  Company's ability to deal directly  with the manufacturers of the equipment 
installed.  Hence our  project team will  have greater  control over the project 
outcomes.  This,  along  with  our  much deeper  understanding of how the mining 
and processing  equipment work in context of  the Moma orebody, will ensure that 
any  misspecification of equipment, which did arise  in the first phase of Moma, 
will not be repeated. 
 
In  the first  quarter 2010, we  produced 150,965 tonnes  of ilmenite and 8,001 
tonnes of  zircon.  Zircon  production  is  particularly encouraging with a 48% 
increase from the fourth quarter 2009 while ilmenite production has increased by 
5%. Very  little rutile has been produced to date as we have concentrated on the 
ilmenite  and zircon circuits. However, even at full capacity rutile is expected 
to  contribute  only  5% of total  revenues.  Kenmare is continuing to implement 
performance  improvement projects to improve recoveries and quality of the final 
products.   The   remaining   projects are   the  installation  of  an  ilmenite 
scavenger circuit   and   the  replacement  of  electrodes with  more  effective 
electrodes  on high tension roll separators in the zircon circuit. Both of these 
projects will be completed during the second quarter of this year. 
 
The  market for our  products ilmenite, zircon and  rutile fell precipitously in 
both  volume and price  during the  global recession  of 2009. The first half of 
2009 particularly  was characterised by  a reduction  in end  use demand coupled 
with a steep inventory destocking cycle. Volumes started to recover in the third 
quarter, but it was early 2010 before we saw significant strengthening in price. 
This strengthening has continued and most industry commentators are predicting a 
deficit of supply compared with forecast demand. 
 
The  Company  reported  a  loss  of  US$30.4 million  for  2009. This  loss  was 
anticipated by the Group and reflects the current ramp-up curve in which Moma is 
operating, leading to lower production than design capacity. This was compounded 
by low revenue per tonne being realised due to market conditions. Production and 
market conditions have improved in 2010. 
 
The period from 2009 to date has been transformational for Kenmare. At the start 
of  2009, production at Moma was at less  than half design capacity, most of the 
world's   economies   were   in   recession, we   were  about  to  embark  on  a 
significant re-engineering  of Moma through  the Performance Improvement Project 
(PIP), we were negotiating a deferral of senior debt capital repayments with our 
lenders,  and we had just made significant operational management changes at the 
Mine  and at the corporate level. In early 2010, the world's major economies are 
coming  out of recession and supply constraints  in the market for our products, 
which  were apparent in  late 2008, are  re-emerging; the original  PIP has been 
implemented  with very positive results and  a few remaining projects identified 
during  the course of the  year are in train for  completion in the near future; 
a difficult negotiation with the EPC Contractor, which could have ended in years 
of  litigation, has  been  successfully  concluded  on favourable  terms for the 
Company;  a  set  of lender  technical  completion  tests,  which held extremely 
negative  consequences had they not been  passed, have been deferred, completion 
performance conditions under the loan agreements have been greatly eased and the 
consequences  of  failing  have been  changed  from  default of our Project loan 
agreements   to   simply  a  temporary increase  in  interest  rate  until  they 
are passed;  and  finally  Kenmare  has  raised US$270  million  to  fund a 50% 
expansion. This  funding  addresses  any  market  concern about  Kenmare's  high 
gearing  level generated through the financing of the project. Kenmare is a very 
different Company than a year ago. 
 
Given  the  huge  progress  that  has  been made,  I  feel this Company, which I 
became Chairman  of  in  1986 when  it  had  no employees,  no  bank account, no 
projects, and no money, is now an established player in the mining industry with 
excellent prospects  for  the  future.  I  have  now  arrived at the age where a 
quieter life beckons, so I have decided to retire from the position of Chairman. 
I am passing on the baton of a Company that has adequate funds, good management, 
an  excellent world class long life deposit, and a rapidly improving market. The 
Board has asked me to remain involved through a non-voting emeritus position and 
I  am  glad  to  do  so.  I  have  asked  the nomination committee to initiate a 
search for  a new Chairman and anticipate that the Company will be in a position 
to  make an appointment later  this year. I  have greatly enjoyed my involvement 
with  Kenmare. I have a great  feeling of pride in  what we have achieved so far 
and  look forward to the next chapters  with anticipation. I would like to thank 
my  fellow Directors,  who have questioned  deeply, made astute suggestions, and 
always  supported collective decisions. I would also  like to thank the staff at 
the Mine and in the offices in Dublin and Maputo; they have all shouldered heavy 
loads to build a magnificent mine and a very fine business. 
 
 
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 
 
Murray Consultants 
Jim Milton/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 <http://www.kenmareresources.com/> 
 
 
[HUG#1409197] 
 

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