TIDMKMR
Kenmare Resources plc ("Kenmare" or "the Company")
Kenmare Resources plc 2010 Interim Results
26 August 2010
Highlights
* Ilmenite production up 16% and zircon up 49% from H2 09
* Shipment levels up on H2 09 - ilmenite up 33% and zircon up 94%
* Revenues of US$40.6 million, up from US$26.7 million in H2 09
* EBITDA for the period US$4.4 million
* 15% growth in titanium feedstocks expected in 2010
* Expansion proceeding as planned
* 35% increase in JORC classified reserves at Moma mine to 27 million
tonnes of contained ilmenite
Statement by Michael Carvill, Managing Director:
The first half of 2010 has seen considerable improvement in terms of both
production and sales at Moma and this has continued in Q3 2010. Increased
demand for titanium feedstocks and reduced supply in the market is putting
upward pressure on prices. Kenmare is in a strong position to take advantage of
improved pricing arrangements as our production increases. The expansion of Moma
is advancing as planned and, once complete, Kenmare's share of the global
titanium feedstock and zircon markets will increase to 10% and 6% respectively.
For further information, please contact:
Kenmare Resources plc
Michael Carvill, Managing Director Tony McCluskey, Finance Director
Tel: +353 1 6710411 Tel: +353 1 6710411
Mob: + 353 87 674 0110 Mob: + 353 87 674 0346
Murray Consultants Conduit PR Ltd
Joe Heron Leesa Peters/Charlie Geller
Tel: +353 1 498 0300 Tel: +44 207 429 6600
Mob: + 353 87 690 9735 Mob: +44 781 215 9885
INTERIM MANAGEMENT REPORT
Operations
There was a significant increase in production and sales in the first half of
2010 compared to the previous six month period and this improvement has
continued in Q3 2010. Production numbers for August month-to-date continue the
upward trend with the mine running at nameplate capacity for ilmenite and 90% of
capacity for zircon. Rutile is operating at 60%, which is significantly above H1
2010 levels. However, there are still some rutile specification issues to be
resolved. This increase in production is meeting a receptive market as economies
emerge from the global recession and prices continue to recover.
In H1 2010, 319,800 tonnes of ilmenite were produced, up 16% from H2
2009; 16,800 tonnes of zircon were produced, up 49% from H2 2009; and 1,240
tonnes of rutile were produced, up 252% from H2 2009. Plans are being
implemented to bring zircon production to full nameplate capacity and to address
remaining rutile production and specification issues.
Global demand for titanium feedstocks is expected to grow by approximately 15%
in 2010, fuelled by a strong recovery in underlying demand and restocking after
an acute inventory destocking phase in 2009. The demand increase is driven
principally by a strong recovery in the TiO(2) pigment market both in developed
and emerging economies. Increased demand, closure of depleted mines and delays
in ramping up new projects have led to a generally held view that markets for
titanium feedstocks and zircon will become increasingly tight from the second
half of 2010 onwards. This is expected to put upward pressure on prices, which
is already evident in Q3 2010 sales. Beyond 2010, the pipeline of potential new
projects does not satisfy anticipated demand growth and many of these projects
require considerably higher product prices than current levels to justify
development.
Kenmare shipped 367,000 tonnes of ilmenite and zircon in H1 2010; ilmenite up
33% and zircon up 94% from H2 2009. The average cost per tonne of final product
declined in H1 2010 relative to H2 2009 and is expected to continue to decline
during the second half of 2010 as production volumes increase. Revenues for the
period under review include a number of sales at legacy contract prices. As
sales volumes increase in line with the increasing production profile, an
increasing proportion of sales will be at market prices. In turn this will
increase the average revenue per tonne of final product.
Aker Solutions (Aker), Kenmare's Engineering Study Contractor, is finalising a
detailed capital cost estimate, project implementation schedule and execution
plan for a 50% expansion of output from Moma. All of these are within our range
of expectations allowing us to progress to a full Engineering, Procurement and
Construction Management (EPCM) contract for the execution of the expansion. This
contract will be awarded shortly. Kenmare has used the period while Aker has
been conducting this study to perform extensive confirmatory testing to ensure
that the process plants' flowsheet design is robust and will cater for all areas
of the orebody. The results of this testwork have been positive.
Additional drilling has been performed on the Moma orebodies. This drilling has
allowed the Group to increase the level of proven and probable reserves from
620 million tonnes grading 3.2% ilmenite (20 million tonnes of contained
ilmenite) as at 31 December 2009 to 859 million tonnes grading 3.1% ilmenite (27
million tonnes of contained ilmenite) as at 30 June 2010. Rutile and zircon
reserves have also increased. This reserve is in addition to the resource base,
which at the 30 June 2010 was 5,700 million tonnes grading 2.6% ilmenite (150
million tonnes of contained ilmenite). The reserve and resource estimates have
been prepared in accordance with the JORC Code (2004). The conversion of
resources to reserves is an ongoing process which will continue throughout the
life of the mine.
With the objective of becoming eligible for inclusion in FTSE UK indices, on 6
August 2010, Kenmare completed the reclassification of its Ordinary Shares from
the Irish main securities market to a secondary listing. Kenmare continues to
retain a premium listing on the Main Board of the London Stock Exchange. On 11
August 2010, the FTSE Nationality Committee announced that Kenmare had been
allocated a UK nationality classification, which makes the Group eligible for
consideration by the FTSE Committee for FTSE UK Index Series inclusion at the
next Committee meeting in September.
Financial Review for the six months ended 30 June 2010
During the six months ended the 30 June 2010, the Group reported a net profit of
US$1.2 million (2009: loss US$0.2 million). Revenues for the period amounted to
US$40.6 million, arising from the sale of 367,000 tonnes of ilmenite and zircon,
and operating costs amounted to US$46.7 million, including depreciation of
US$10.5 million. Earnings before interest, tax, depreciation and amortisation
(EBITDA) for the period amounted to US$4.4 million. Net finance costs amounted
to US$14.8 million and the Group reported a foreign exchange gain of US$22.1
million, mainly based upon retranslation of Euro denominated loans. The Group
raised Stg GBP179.6 million before fees and expenses (approximately US$270 million)
by way of an equity funding in March 2010, which contributed to reducing the net
debt position at the period end to US$78.6 million (2009: US$336.3 million).
The Group has reported revenue and related costs in the Statement of
Comprehensive Income from 1 July 2009, prior to which related costs net of
revenues were capitalised as development expenditure in property, plant and
equipment. During the six months ended the 30 June 2010, sales of US$40.6
million less cost of sales of US$42.0 million resulted in a gross loss of US$1.4
million. Cost of sales includes depreciation of US$10.5 million. The
distribution costs for the period were US$1.7 million and administration costs
were US$3.0 million, resulting in an operating loss of US$6.1 million.
Loan interest and finance fees amounted to US$15.4 million during the period.
The US Dollar strengthened significantly against the Euro during the first six
months of the year. There was a foreign exchange gain of US$22.1 million (2009:
loss US$0.4 million), mainly as a result of the retranslation of the Euro
denominated loans, resulting in a net profit for the period of US$1.2 million
(2009: loss US$0.2 million)
During the period there were additions to property, plant and equipment of
US$9.6 million (2009: US$38.1 million). Expenditure on plant and equipment
totaled US$6.8 million (2009: US$5.3 million). Expansion development expenditure
during the period was US$2.8 million (2009: US$0.7 million). Inventory at the
period end amounted to US$20.5 million (2009: US$12.1 million), consisting of
mineral products of US$10.4 million (2009: US$8.3 million) and consumable spares
of US$10.2 million (2009: US$3.8 million). Trade and other receivables amounted
to US$23.1 million (2009: US$30.3 million), of which US$17.9 million (2009:
US$10.2 million) are trade receivables from the sale of mineral products and
US$5.2 million (2009: US$20.1 million) is made up of insurance proceeds,
prepayments and other miscellaneous debtors.
Bank loans at the period end amounted to US$331 million (2009: US$341.9
million). Senior project debt principal of US$13.0 million and interest of
US$5.3 million were paid as scheduled in February 2010. The average interest
rate on project loans at the period end was 8.6%.
In March 2010, Stg GBP179.6 million (approximately US$270 million), gross of costs,
was raised by way of a placing and open offer. The proceeds will be available to
fund the expansion of the Moma Mine, with the balance available for general
corporate purposes, including meeting any scheduled debt service payments as
required.
On 5 March 2010, the Group entered into a Deed of Waiver and Amendment (the
Expansion Funding Deed) in which project lenders agreed to certain waivers and
amendments to the loans documents, including modifications to completion tests
and deferral of the date for achieving the technical portion of the tests. The
technical portion of the completion tests has commenced. Once these tests are
passed, interest margins on the subordinated debt will drop by 2% per annum,
approximately US$3 million of interest per annum. The financing amendments also
deferred the final completion date by one year to 31 December 2013. The final
condition of effectiveness of the Expansion Funding Deed was satisfied on 30
June with the completion of the deposit of US$200 million to the Contingency
Reserve Account (CRA), an account over which project lenders hold security.
Funds deposited to the CRA are freely available for transfer to the project
companies for permitted purposes including funding the expansion of the Moma
Mine.
Outlook
At the mine, our operations team is dedicated to delivering the final increment
in zircon and rutile production which will take the mine to full capacity.
Separately, the expansion project team, currently based in Johannesburg, is
advancing all aspects of the expansion project, to the next stage which is the
EPCM contract award. A key focus of management will be the renegotiation of
legacy marketing contracts prior to their expiry or the reallocation of that
supply to other customers. The Group is looking forward to selling the increased
production and realising gains from the improving market outlook for titanium
feedstocks and zircon. The expansion will see Kenmare's share of the global
titanium feedstock and zircon markets increase to 10% and 6% respectively.
Principal risks and uncertainties
The Group's business may be affected by risks similar to those faced by many
companies in the mining industry. These include geological, political,
operational and environmental risks and changes in the macroeconomic
environment. The main risks applicable to the Group are set out below:
Commercial risks
The mine's revenue and earnings depend upon prevailing prices for ilmenite and,
to a lesser extent, rutile and zircon. The mine fixes its prices for ilmenite by
bilateral negotiation with its customers with reference to the market price
prevailing at the time of the entry into, or renewal, of the contract. Some of
the mine's products are sold to customers under contracts of three to five year
duration, which provide for the supply of fixed volumes of product at fixed
prices with annual escalation based on published inflation indices. The majority
of these contracts will expire over the next eighteen months. The balance of the
mine's products are sold to its customers under contracts providing for the
delivery of fixed volumes with annual price negotiations or under spot contracts
for specific shipments. If the market prices were to fall or the mine was unable
to negotiate satisfactory pricing terms, this would have an adverse impact on
the mine's revenue generation, results of operations or financial condition.
Senior management closely monitor customer sales contracts and adjusts the
contracting strategy to capitalise on expected market conditions.
Operational risks
The mine is reliant on the continued successful operation of the marine terminal
for the export of products. In December 2007, damage was caused to a number of
the berthing piles at the jetty and although the damage did not materially
affect operations, repair work has been carried out in 2010. If the marine
terminal was damaged by extreme weather conditions or accident such that it
became unusable for any significant period pending repair, the mine would be
unable to export its products or would be limited in the amount which it could
export. In this case, the mine would be unable to meet its commitments to
customers which could result in ocean freight penalties and a reduced level of
cash flow which would have an adverse effect on the mine's results of operations
and financial condition. The Group plans to upgrade the jetty later this year
which will both strengthen the current structure and increase its operational
capacity by allowing the transhipment vessels to load from both sides of the
jetty. The Group acquired a second transhipment vessel in 2009 which is due to
arrive on site later this year. This second vessel will increase load-out
capacity when both transhipment vessels are operational, and will ensure that
the mine is able to sustain shipments when one or other of the transhipment
vessels is unavailable due to scheduled maintenance.
Financing risks
The development of the mine has been partly financed by the project loans,
which consists of Senior Loans and Subordinated Loans. Under the terms of the
financing agreements, the lender group, comprising AfDB, Absa, EAIF, EIB, FMO
and KfW, has security over substantially all of the mine's assets, the shares in
the project companies, and the balance in the CRA. Under the terms of the Deed
of Waiver and Amendment dated 5 March 2010 (the Expansion Funding Deed), the
lender group will continue to have security over substantially all of the mine's
assets, including the facilities constructed and machinery and equipment
purchased in connection with the expansion, and cash deposited to the CRA, a
bank account held by Congolone Heavy Minerals Limited, a wholly-owned subsidiary
of Kenmare Resources plc.
Once the net proceeds of the equity fund raising have been applied to the
expansion capital expenditures and for other corporate purposes (including
meeting scheduled interest and principal) the Group's ability to meet its debt
service obligations will depend on the cashflow generated from operations. The
mine's cashflow, in turn, depends primarily on the mine's ability to achieve
production targets, product pricing and cost efficiencies. Under the Expansion
Funding Deed, the concept of Non-Technical Completion was introduced, with a
deadline of 31 December 2013. Non-Technical Completion occurs when the
marketing, legal and other conditions, financial, and environmental certificates
specified in the completion agreement have been delivered. Failure to achieve
Non-Technical Completion by 31 December 2013 is an event of default. However,
the event of default that previously existed for failing to achieve Completion
(which requires both Non-Technical Completion and Technical Completion) to have
been achieved by the final completion date has been eliminated.
In the event that Technical Completion is not achieved by its due date (31
December 2011), no event of default will occur but Senior Loans and Subordinated
Loans will attract an additional interest margin of 1% and 2% respectively from
31 December 2011 until Technical Completion is achieved.
Currency risks
The project loans are denominated in US Dollars and Euro. At 30 June 2010 the
loan balance was US$331 million, comprising US$209 million denominated in US
Dollars and US$122 million denominated in Euro. Both US Dollars and Euro loans
are due to be repaid in installments between 2010 and 2019. All the Group's
sales are denominated in US Dollars. Euro denominated loans expose the Group to
currency fluctuations which are realised on payment of Euro denominated loans.
On 1 April 2010 the Group issued shares to raise Stg GBP179.6 million before costs.
The purpose of this equity fundraising was to finance the expansion of the mine
and for general corporate purposes. These funds will be placed in currency
accounts to match the planned expansion expenditure profile over the next
eighteen months. Differences which may arise between the planned expansion
currency expenditure profile and the currency of deposits held will result in
the Group experiencing expansion capital cost changes driven by currency
fluctuations.
Senior management regularly monitors and reports to the Board on these currency
risks. The Board has determined that the Group's current policy of not entering
into derivative financial instruments to manage the loan-related currency risks
continues to be appropriate in light of the length and payment profile over the
loan repayment period. The expansion capital currency exposure will be managed
by adjusting the currencies in which the cash used to fund such capital is
deposited.
Interest rate risk
Interest rates on the project loans are both fixed and variable. The variable
rate basis is 6 month US Dollar LIBOR. All the Euro loans are fixed. In
addition, the Group has a variable mortgage loan which floats off six month US
LIBOR that financed the purchase of the production transhipment vessels Peg and
Sofia III. The Group is exposed to movements in interest rates which affect the
amount of interest paid on borrowings. As at 30 June 2010, 63% of the Group's
debt (US$208.5 million) was at fixed interest rates and 37% (approximately
US$122.5 million) was at variable interest rates. Any increase in six month US
LIBOR would increase finance costs, but would also increase income on the
unspent proceeds of the equity issue. Until the balance of the equity issue
proceeds drops below the amount of variable rate debt, an increase in short term
interest rates should have a net beneficial effect on the Group's profitability.
Thereafter, the net effect of an increase in short term interest rates would be
negative and therefore have a negative impact on the Group's profitability.
Senior management regularly monitors and reports to the Board on these interest
rate risks. The Board has determined that the Group's current policy of not
entering into derivative financial instruments to manage such risks continues to
be appropriate in light of the length of the loan repayment period and the
payment profile over the loan period, the mix of fixed and variable rate debt,
and for the time being, the relatively large amount of cash invested at variable
rates relative to the amount of variable rate debt.
Environmental risks
The Group is committed to managing its operations in accordance with applicable
guidelines issued by the World Bank, MIGA, the African Development Bank and FMO,
the environmental laws and standards in force in Mozambique, as well as its own
policies. The Group plans to apply IFC Performance Standards to the mine. The
Environmental Management Plan (EMP) for the mine sets out the monitoring
activities, management and training programs, reporting activities, auditing and
mitigation measures that are required in order to identify and reduce any
negative impacts of the mine and to comply with applicable environmental laws
and guidelines.
Health and safety risks
The Group is committed to conducting its business in a manner that minimises the
exposure of its employees, contractors and the general public to health and
safety risks arising from its operations. The Group's operations personnel
worked 934,816 hours (2009: 615,840 hours) to 30 June 2010, with 1 lost-time
injury (2009: 3 lost-time injuries). The Group's operations contractors worked
316,939 hours (2009: 352,523 hours) to 30 June 2010, with 1 lost-time injury
(2009: 1 lost-time injury). Malaria is a key risk at the mine and the Group
continues to develop and implement programs to minimise its impact on all
personnel at the mine. The Group will also continue to ensure that appropriate
health and safety standards are maintained in all Group activities.
Related party transactions
Material related party transactions affecting the financial performance of the
Group in the period are disclosed in Note 10.
Forward-looking statements
This report contains certain forward-looking statements. These statements are
made by the Directors in good faith based on the information available to them
up to the time of their approval of this report and such statements should be
treated with caution due to the inherent uncertainties, including both economic
and business risk factors, underlying any such forward-looking information.
By order of the Board,
Managing Director Financial Director
Michael Carvill Tony McCluskey
26 August 2010 26 August 2010
RESPONSIBILITY STATEMENT
The Directors are responsible for preparation of the Half Yearly Financial
Report in accordance with the Transparency (Directive 2004/109/EC) Regulations
2007, the Transparency Rules of the Republic of Ireland's Financial Regulator,
and with IAS 34, Interim Financial Reporting as adopted by the European Union.
The Directors confirm that, to the best of their knowledge:
* The Group condensed financial statements for the half year ended 30
June 2010 have been prepared in accordance with IAS 34 'Interim Financial
Reporting', as adopted by the European Union;
* The Interim Management Report includes a fair review of the
information required by Regulation 8(2) of the Transparency (Directive
2004/109/EC) Regulations 2007, being an indication of important events that
have occurred during the first six months of the financial year and their
impact on the condensed financial statements; and a description of the
principal risks and uncertainties for the remaining six months of the year;
and
* The Interim Management Report includes a fair review of the
information required by Regulation 8(3) of the Transparency (Directive
2004/109/EC) Regulations 2007, being related party transactions that have
taken place in the first six months of the current financial year and that
materially affected the financial position or performance of the entity
during that period; and any changes in the related party transactions
described in the last annual report that could do so.
By order of the Board,
Managing Director Financial Director
Michael Carvill Tony McCluskey
26 August 2010 26 August 2010
INDEPENDENT REVIEW REPORT TO THE MEMBERS OF KENMARE RESOURCES PLC
Introduction
We have been engaged by the Company to review the group condensed set of
financial statements in the Half-Yearly Financial Report for the six months
ended 30 June 2010 which comprises the Group Condensed Statement of
Comprehensive Income, the Group Condensed Statement of Financial Position, the
Group Condensed Cash Flow Statement, the Group Condensed Statement of Changes in
Equity and related notes 1 to 12. We have read the other information contained
in the Half-Yearly Financial Report and considered whether it contains any
apparent misstatements or material inconsistencies with the information in the
group condensed set of financial statements.
This report is made solely to the Company's members, as a body, in accordance
with International Standard on Review Engagements (UK and Ireland) 2410 issued
by the Auditing Practices Board. Our work has been undertaken so that we might
state to the Company's members those matters we are required to state to them in
an independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the Company and the Company's members as a body, for our review work, for this
report, or for the conclusions we have formed.
Directors' Responsibilities
The Half-Yearly Financial Report is the responsibility of, and has been approved
by, the Directors. The Directors are responsible for preparing the Half-Yearly
Financial Report in accordance with the Transparency (Directive 2004/109/EC)
Regulations, 2007 and the Transparency Rules of the Republic of Ireland's
Financial Regulator.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the European Union. The group
condensed set of financial statements included in this Half-Yearly Financial
Report has been prepared in accordance with International Accounting Standard
34 'Interim Financial Reporting,' as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the Half-Yearly Financial Report based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, ?Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in Ireland. A review of interim financial information
consists of making inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK and Ireland) and consequently does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the group condensed set of financial statements in the Half-Yearly
Financial Report for the six months ended 30 June 2010 is not prepared, in all
material respects, in accordance with International Accounting Standard 34 (IAS
34 -Interim Financial Reporting) as adopted by the European Union, the
Transparency (Directive 2004/109/EC) Regulations, 2007, and the Transparency
Rules of the Republic of Ireland's Financial Regulator.
Emphasis of Matter - Realisation of Assets
Without qualifying our conclusion, we draw your attention to the disclosures
made in note 5 to the group condensed set of financial statements concerning the
recoverability of Property, Plant and Equipment of US$536.9 million which is
dependent on the successful development of economic ore reserves and successful
operation of the mine. The group condensed set of financial statements do not
include any adjustments relating to these uncertainties and the ultimate outcome
cannot at present be determined.
Deloitte & Touche
Chartered Accountants
Dublin
26 August 2010
KENMARE RESOURCES PLC
GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30 JUNE 2010
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
30 June 30 June 31 Dec
2010 2009 2009
Notes US$'000 US$'000 US$'000
Continuing Operations
Revenue 2 40,606 - 26,721
Cost of sales (41,980) - (35,170)
Gross loss (1,374) - (8,449)
Distribution costs (1,749) - (1,770)
Administration costs (3,026) (713) (1,892)
Operating loss (6,149) (713) (12,111)
Finance income 576 160 202
Finance costs (15,401) - (15,533)
Foreign exchange 22,125 354 (2,910)
gain/(loss)
Profit/(loss) before 1,151 (199) (30,352)
tax
Income tax expense - - -
Profit/(loss) for the 1,151 (199) (30,352)
period/year
Attributable to equity 1,151 (199) (30,352)
holders
US cent per share US cent per share US cent per
share
Profit/(loss) per 4 0.070c (0.02c) (3.59c)
share: basic
Profit/(loss) per 4 0.068c (0.02c) (3.59c)
share: diluted
The accompanying notes form part of the condensed financial statements
KENMARE RESOURCES PLC
GROUP CONDENSED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2010
Unaudited Unaudited Audited
30 June 30 June 31 Dec
2010 2009 2009
Notes US$'000 US$'000 US$'000
Assets
Non-current assets
Property, plant and equipment 5 536,958 571,735 540,924
536,958 571,735 540,924
Current assets
Inventories 20,473 12,077 21,951
Trade and other receivables 23,127 30,337 13,311
Cash and cash equivalents 252,386 5,631 17,408
295,986 48,045 52,670
Total assets 832,944 619,780 593,594
Equity
Capital and reserves attributable to the
Company's equity holders
Called-up share capital 6 195,789 72,212 74,670
Share premium 6 300,518 157,553 163,147
Retained losses (56,350) (27,348) (57,501)
Other reserves 42,486 40,999 41,795
Total equity 482,443 243,416 222,111
Liabilities
Non-current liabilities
Bank loans 7 262,354 310,423 297,326
Obligations under finance lease 2,102 2,226 2,172
Provisions 8 3,814 3,992 4,347
268,270 316,641 303,845
Current liabilities
Bank loans 7 68,640 31,478 58,791
Obligations under finance lease 437 60 92
Provisions 8 442 610 650
Trade and other payables 12,712 27,575 8,105
82,231 59,723 67,638
Total liabilities 350,501 376,364 371,483
Total equity and liabilities 832,944 619,780 593,594
The accompanying notes form part of the condensed financial statements
KENMARE RESOURCES PLC
GROUP CONDENSED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2010
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
30 June 30 June 31 Dec
2010 2009 2009
US$'000 US$'000 US$'000
Cash flows from operating activities
Profit/(loss) for the period/year 1,151 (199) (30,352)
Adjustment for:
Foreign exchange movement (22,125) (480) 2,910
Share-based payments 691 83 796
Finance income (576) - (202)
Finance costs 14,257 - 15,533
Depreciation 10,545 - 12,871
(Decrease)/increase in provisions (581) 423 739
Operating cash inflow/(outflow) 3,362 (173) 2,295
Decrease/(increase) in inventories 1,478 (5,672) (13,749)
Increase in trade and other receivables (6,752) (11,223) (700)
Increase in trade and other payables 4,719 2,367 5,898
Cash generated/(used) by operations 2,807 (14,701) (6,256)
Interest received 576 160 202
Interest paid (5,390) (6,341) (11,866)
Net cash used in operating activities (2,007) (20,882) (17,920)
Cash flows from investing activities
Additions to property, plant and equipment (9,559) (21,585) (40,197)
Net cash used in investing activities (9,559) (21,585) (40,197)
Cash flows from financing activities
Proceeds on the issue of shares 258,490 11 19,582
Repayment of borrowings (13,169) - (336)
Increase in borrowings - 7,077 15,890
Decrease in obligations under finance lease - (6) (286)
Net cash from financing activities 245,321 7,082 34,850
Net increase/(decrease) in cash and cash 233,755 (35,385) (23,267)
equivalents
Cash and cash equivalents at the beginning of 17,408 40,536 40,536
period/year
Effect of exchange rate changes on cash and cash 1,223 480 139
equivalents
Cash and cash equivalents at end of period/year 252,386 5,631 17,408
The accompanying notes form part of the condensed financial statements
KENMARE RESOURCES PLC
GROUP CONDENSED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2010
Called-Up Share Retained Share Revaluation Capital Total
Share Premium Losses Option Reserve Conversion
Capital Reserve Reserve
Fund
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1
January 2009 65,424 145,088 (27,149) 8,885 30,141 754 223,143
Loss for the
period - - (199) - - - (199)
Share based
payments - - - 1,219 - - 1,219
Issue of
share capital 6,788 12,465 - - - - 19,253
Balance at
30 June 2009 72,212 157,553 (27,348) 10,104 30,141 754 243,416
Loss for the
period - - (30,153) - - - (30,153)
Share based
payments - - - 796 - - 796
Issue of
share capital 2,458 5,594 - - - - 8,052
Balance at
31 December
2009 74,670 163,147 (57,501) 10,900 30,141 754 222,111
Profit for
the period - - 1,151 - - - 1,151
Share based
payments - - - 691 - - 691
Issue of
share capital 121,119 137,371 - - - - 258,490
Balance at
30 June 2010 195,789 300,518 (56,350) 11,591 30,141 754 482,443
The accompanying notes form part of the condensed financial statements
KENMARE RESOURCES PLC
NOTES TO THE GROUP CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30 JUNE 2010
1. BASIS OF PREPARATION AND GOING CONCERN
The Group Condensed Financial Statements for the six months ended 30 June
2010 have been prepared in accordance with the Transparency (Directive
2004/109/EC) Regulations 2007, the Transparency Rules of the Republic of
Ireland's Financial Regulator and with IAS 34 'Interim Financial Reporting', as
adopted by the European Union.
The accounting policies and methods of computation adopted in the preparation
of the Group Condensed Financial Statements are consistent with those applied in
the Annual Report for the financial year ended 31 December 2009 and are
described in those financial statements.
In the current financial year, the Group has adopted all Standards and
Interpretations which are effective from 1 January 2010. Adoption has resulted
in no material impact on the financial statements.
The financial information presented in this document does not constitute
financial statements. The amounts presented in the Half Yearly Financial
Statements for the six months ended 30 June 2010 and the corresponding amounts
for the six months ended 30 June 2009 have been reviewed but not audited. The
independent auditors' review report is on pages 7 and 8. The financial
information for the year ended 31 December 2009, presented herein, is an
abbreviated version of the annual financial statements for the Group in respect
of the year ended 31 December 2009. The Group's financial statements have been
filed in the Companies Registration Office and the independent auditors issued
an unqualified audit report, with an emphasis of matter in the opinion, in
respect of those annual financial statements.
There were no other gains or losses during the six months period ended 30 June
2010 other than those reported in the Condensed Statement of Comprehensive
Income.
The Directors are satisfied that the Group has sufficient resources to
continue in operation for the foreseeable future, a period of not less than
twelve months from the date of this report. Accordingly, they continue to adopt
the going concern basis in preparing the financial statements.
2. SEGMENTAL INFORMATION
The Moma Titanium Minerals Mine in Mozambique is the Group's reporting
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.
Unaudited Unaudited Audited
30 June 10 30 June 09 31 Dec 09
US$'000 US$'000 US$'000
Segment revenues and results
Moma Titanium Minerals Mine
Revenue 40,606 - 26,721
Cost of sales (41,986) - (35,170)
Gross loss (1,380) - (8,449)
Distribution costs (1,749) - (1,770)
Administration costs (300) - -
Segment operating loss (3,429) - (10,219)
Central administration costs (2,720) (713) (1,892)
Group operating loss (6,149) (713) (12,111)
Finance income 576 160 202
Finance expense (15,401) - (15,533)
Foreign exchange gain/(loss) 22,125 354 (2,910)
Profit/(loss) before tax 1,151 (199) (30,352)
Income tax expense - - -
Profit/(loss) for the period/year 1,151 (199) (30,352)
Segment assets
Moma Titanium Minerals Mine assets 569,370 598,430 571,266
Corporate assets 263,574 21,350 22,328
Total assets 832,944 619,780 593,594
During the six months ended 30 June 2009, the Group continued to build up
production to target levels. From 1 July 2009 the mine was considered to be
capable of operating at target levels of production and as a result the Group
reported revenue and related costs in the statement of comprehensive income from
July 2009. Prior to that date, related operating and finance costs net of
revenues and finance income, were capitalised as development expenditure in
property, plant and equipment.
3. SEASONALITY OF SALE OF MINERAL PRODUCTS
Sales of mineral products are not seasonal in nature.
4. EARNINGS/(LOSS) PER SHARE
The calculation of the basic and diluted earnings/(loss) per share
attributable to the ordinary equity holders of the parent is based on the
following data:
Unaudited Unaudited Audited
30 June 10 30 June 09 31 Dec 09
US$'000 US$'000 US$'000
Profit/(loss) for the period/year
attributable to equity holders of the 1,151 (199) (30,352)
parent
Unaudited Unaudited Audited
30 June 10 30 June 09 31 Dec 09
Number of Number of Number of
Shares Shares Shares
Weighted average number of issued ordinary
shares for the
purposes of basic earning/(loss) per share 1,644,358,548 798,839,952 844,314,758
Effect of dilutive potential ordinary
shares
Share options 46,503,258 47,578,258 47,028,258
Warrants - 28,572,536 -
Weighted average number of ordinary shares for the
purpose
of diluted earning/(loss) per share 1,690,861,806 874,990,746 891,343,016
In 2009 the basic loss per share and the diluted loss per share are the same, as
the effect of the outstanding share options and warrants is anti-dilutive.
5. PROPERTY, PLANT AND EQUIPMENT
Plant Other Construction Development Total
& Equipment Assets In Progress Expenditure
US$'000 US$'000 US$'000 US$'000 US$'000
Cost
Balance at 1 January 2009 259,516 12,798 45,705 236,406 554,425
Transfer from construction
in progress 1,437 534 (1,971) - -
Impairment during the - (363) - (48) (411)
period
Additions during the 1,257 177 3,843 32,815 38,092
period
Balance at 30 June 2009 262,210 13,146 47,577 269,173 592,106
Transfer from construction
in progress 45,917 977 (46,894) - -
Reclassification to (1,797) - - - (1,797)
inventory
Additions during the 5,103 92 3,630 759 9,584
period
Adjustment as a result of
the DOS&R - - - (25,758) (25,758)
Balance at 31 December 311,433 14,215 4,313 244,174 574,135
2009
Transfer from construction
in progress 575 1,530 (2,105) - -
Additions during the 914 25 5,876 2,830 9,645
period
Impairment during the (3,066) - - - (3,066)
period
Balance at 30 June 2010 309,856 15,770 8,084 247,004 580,714
Accumulated Depreciation
Balance at 1 January 2009 10,220 4,533 - - 14,753
Charge for the period 4,636 1,194 - - 5,830
Impairment during the - (212) - - (212)
period
Balance at 30 June 2009 14,856 5,515 - - 20,371
Charge for the period 6,406 1,246 - 5,188 12,840
Balance at 31 December 21,262 6,761 33,211
2009 - 5,188
Charge for the period 5,428 1,368 - 3,749 10,545
Balance at 30 June 2010 26,690 8,129 - 8,937 43,756
Carrying Amount
Balance at 30 June 2010 283,166 7,641 8,084 238,067 536,958
Balance at 30 June 2009 247,354 7,631 47,577 269,173 571,735
Balance at 31 December 290,171 7,454 4,313 238,986 540,924
2009
5. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
During the period the Group finalised drilling work on the Nataka deposit
resulting in an increase in the total reserves from 25 million tonnes of total
heavy mineral to 33 million tonnes of total heavy mineral. This resulted in a
change in the depreciation rate for plant and machinery which is depreciated on
a unit of production basis.
The jetty was damaged in December 2007 when the Bronagh J collided with it
during loading. An insurance claim for US$3.5 million was settled in June 2010.
Repairs to the jetty of US$0.5 million were incurred during the period and an
impairment of US$3 million was recognised for the damage incurred in 2007. The
jetty has not been fully impaired as it has remained operational since 2007,
loading 367,000 tonnes during the first six months of 2010, loading 418,000
tonnes in 2009 and 250,000 tonnes in 2008. The repairs, impairment and insurance
recovery have been recognised in distribution costs in the statement of
comprehensive income during the period.
During the period the Group carried out an impairment review of property,
plant and equipment. The cash generating unit for the purpose of impairment
testing is the Moma Titanium Minerals Mine as this is the business and
geographic segment of the Group. The basis on which the recoverable amount of
the Moma Titanium Minerals Mine is assessed is its value-in-use. The cash flow
forecast employed for the value-in-use computation is a life of mine financial
model. The recoverable amount obtained from the financial model represents the
present value of the future pre tax and finance cash flows discounted at the
average effective borrowing rate of the Moma Titanium Mineral Mine of 8.6%.
Key assumptions include the following:
* A mine plan covering 20 years of production based on the Namalope
and Nataka proved and probable reserves.
* The cash flows assume ramp-up to expanded production levels during
2012. Expected annual production levels at full capacity pre-expansion are
approximately 800,000 tonnes of ilmenite per annum plus co-products, rutile
and zircon. Expected annual production levels at full capacity
post-expansion are approximately 1.2 million tonnes of ilmenite per annum
plus co-products, rutile and zircon.
* Product sales prices are based on contract prices as stipulated in
marketing agreements with customers, or where contracts are based on market
prices or production is not presently contracted, prices as forecast by the
lenders' independent marketing consultant.
* Operating and capital replacement costs are based on approved
budget costs for 2010 and escalated by 2% per annum there after and
reflecting post expansion costs from 2012 onwards.
The discount rate is the significant factor in determining the recoverable
amount and a 1% change in the discount rate results in an 8% change in the
recoverable amount.
Substantially all the property, plant and equipment is or will be mortgaged,
pledged or otherwise encumbered to secure project loans as detailed in Note 7.
The carrying amount of the Group's plant and equipment includes an amount of
US$2.7 million (2009: US$1.6
million) in respect of assets held under finance leases.
Additions to development expenditure include mine expansion development costs
of US$2.8 million. Expansion development costs incurred during the period before
the expansion assets are capable of operating at production levels in a manner
intended by management are deferred and included in property, plant and
equipment.
The recovery of property, plant and equipment is dependent upon the successful
development of economic ore reserves and successful operation of the mine. The
Directors are satisfied that at the balance sheet date the recoverable amount of
property, plant and equipment is not less than its carrying amount and based on
the planned mine production levels that the Moma Titanium Minerals Mine will
achieve positive cash flows.
6. SHARE CAPITAL
On 1 April 2010, 1,497,030,066 new ordinary shares were issued by way of a
firm placing and placing and open offer which raised Stg GBP179.6 million before
expenses. The primary purpose of this equity raising is to fund an expansion of
the existing mine operations to increase production capacity from 800,000 tonnes
per annum of ilmenite plus co-products to 1.2 million tonnes per annum of
ilmenite plus co-products. US$121 million of this issue has been credited to
share capital resulting in share capital as at 30 June of US$195.8 million
(2009: US$74.8 million). US$137.4 million of this issue has been credited to
share premium resulting in share premium as at 30 June of US$300.5 million
(2009: US$163.1 million).
7. BANK LOANS
Unaudited Unaudited Audited
30 June 10 30 June 09 31 Dec 09
US$'000 US$'000 US$'000
Project loans
Senior loans 171,714 188,198 188,079
Subordinated loans 156,953 153,703 165,525
Total Project loans 328,667 341,901 353,604
Mortgage loan 2,327 - 2,513
Total loans 330,994 341,901 356,117
The borrowings are repayable as follows:
Within one year 68,640 31,478 58,791
In the second year 39,646 40,646 41,722
In the third to fifth year 118,277 121,938 124,979
After five years 104,431 147,839 130,625
330,994 341,901 356,117
Less amounts due for settlement within 12 months (68,640) (31,478) (58,791)
Amount due for settlement after 12 months 262,354 310,423 297,326
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 and the CRA.
On 30 June 2010, the deposit of US$200 million to the CRA was completed
thereby satisfying all the conditions as set out in the Deed of Waiver and
Amendment dated 5 March 2010 ("Expansion Funding Deed").
Kenmare Resources plc and Congolone Heavy Minerals Limited have guaranteed the
loans during the period prior to Completion. The Expansion Funding Deed extended
the final date for achieving Completion to 31 December 2013. Completion occurs
upon meeting certain tests and satisfying certain conditions, all as verified by
the lenders' independent engineer, including installation of all required
facilities, meeting certain cost, efficiency, and production benchmarks and
social and environmental requirements ("Technical Completion"), meeting
marketing, legal and permitting, and certain financial requirements including
filling of specified reserve accounts to the required levels. Upon Completion,
Kenmare Resource plc and Congolone Heavy Minerals Limited's guarantee of the
loans will terminate. Under the Expansion Funding Deed, 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 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 to the lenders.
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$182.8 million plus EUR15 million which were fully
drawn down at the period end. The Senior Loan tenors range from 5 years to 8
years from 30 June 2010. 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 period end. 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 period 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.
7. BANK LOANS (CONTINUED)
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 period end. The Additional Standby Subordinated
Loans bear interest at 6 month LIBOR plus 5%.
Interest and principal on the Subordinated Loans was due to be paid on 1
February 2010, but as cash was insufficient on such date to make the schedule
interest payment, interest was capitalised and both interest and principal
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. The final instalments 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 Deed of Waiver and Amendment dated 31 March 2009, 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.
Other Group bank borrowings
On the 7 August 2009 Mozambique Minerals Limited (a wholly-owned subsidiary
undertaking) entered into a loan agreement with Banco Comerical e de
Investimentos, S.A. for US$2.5 million to fund the purchase of an additional
product transshipment barge, Peg, and a tug/work boat, Sofia III. Interest
accrues at a 6 month LIBOR plus 6%, and is payable monthly commencing September
2009 and principal is scheduled to be repaid in 54 monthly installments
commencing March 2010. This loan was drawn down on 10 August 2009. The loan is
secured by a mortgage on the Peg and Sofia III and by a guarantee from Kenmare
Resources plc.
Group borrowings interest and currency risk
Loan facilities arranged at fixed interest rates expose the Group to fair
value interest rate risk. Loan facilities arranged at variable rates expose the
Group to cash flow interest rate risk. Variable rates are based on six month
LIBOR. The average effective borrowing rate at the period end was 8.6%. The
interest rate profile of the Group's loan balances at the period end was as
follows:
Unaudited Unaudited Audited
30 June 10 30 June 09 31 Dec 09
US$'000 US$'000 US$'000
Fixed rate debt 208,491 221,536 231,062
Variable rate debt 122,503 120,365 125,055
Total debt 330,994 341,901 356,117
Due to the specific nature of the project financing and the current market
conditions, the basis to determine the fair value of the bank borrowings is
unavailable.
Under the assumption that all other variables remain constant and using the
most relevant 6 month LIBOR, a 1% change in LIBOR would result in a US$1.2
million (2009: US$1.2 million) change in finance costs for the year.
The currency profile of the bank loans is as follows:
Unaudited Unaudited Audited
30 June 10 30 June 09 31 Dec 09
US$'000 US$'000 US$'000
Euro 121,879 127,131 136,863
US Dollars 209,115 214,770 219,254
Total debt 330,994 341,901 356,117
7. BANK LOANS (CONTINUED)
The Euro-denominated loans expose the Group to currency fluctuations. These
currency fluctuations are realised on payment of Euro-denominated debt principal
and interest. Under that assumption that all other variables remain constant a
10% strengthening or weakening of Euro against the US Dollar, would result in a
US$1.4 million (2009: US$1.5 million) change in finance costs and a US$12
million change in foreign exchange gain or loss for the year.
The above sensitivity analyses are estimates of the impact of market risks
assuming the specified change occurs. Actual results in the future may differ
materially from these results due to developments in the global financial
markets which may cause fluctuations in interest and exchange rates to vary from
the assumptions made above and therefore should not be considered a projection
of likely future events.
8. PROVISIONS
Provisions at the period end are made up of a mine closure provision of US$2.6
million (2009: US$2.8 million) and a mine rehabilitation provision of US$1.6
million (2009: US$1.8 million). The mine rehabilitation provision was reduced by
US$0.6 million during the period to take account of changes in the actual costs
of rehabilitation being incurred. US$0.4 million (2009: US$0.6 million) of the
mine rehabilitation provision has been included in current liabilities to
reflect the estimated cost of rehabilitation work to be carried out over the
next year.
9. SHARE BASED PAYMENTS
The Company has a share option scheme for certain Directors, employees and
consultants. Options are exercisable at a price equal to the quoted market price
of the Company's shares on the date of grant. The options generally vest over a
three to five year period, in equal annual amounts. If options remain
unexercised after a period of seven years from the date of grant, the options
expire. The option expiry period may be extended at the decision of the Board of
Directors.
During the period the Group recognised a share-based payment expense of US$0.7
million (2009: US$0.1 million).
10. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note.
During the six months ended 30 June 2010 there were no material transactions
or balances between Kenmare Resources plc and its key management personnel or
members of their close family, other than in respect of remuneration and the
purchase of ordinary share capital as disclosed in Directors' Shareholdings in
the 2009 Annual Report.
11. EVENTS AFTER THE BALANCE SHEET DATE
Since 30 June 2010 the US Dollar has weakened against the Euro. If by the year
end the US Dollar/Euro exchange rate has not recovered to the 30 June 2010 level
it will reduce the reported foreign exchange gain in the statement of
comprehensive income.
12. INFORMATION
The Half Yearly Financial report was authorised by the Board on 26 August
2010.
The Half Yearly Financial Report is being sent to registered shareholders by
post or electronically to those who have elected for electronic shareholder
communication.
Copies are also available from the Company's registered office at Chatham
House, Chatham Street, Dublin 2, Ireland. The statement is also available on the
Company's website at www.kenmareresources.com.
[HUG#1440576]
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
All reproduction for further distribution is prohibited.
Source: Kenmare Resources via Thomson Reuters ONE
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