TIDMKMR
Kenmare Resources plc ("Kenmare" or "the Company")
25th August, 2011
Kenmare Resources plc
2011 Half Yearly Results
Overview
* Average prices for ilmenite increased by 30% and zircon by 38% H1 2011 vs
H2 2010
* Revenues of US$56 million, up from US$40.6 million in H1 2010
* US$20 million revenue moved to H2 2011 due to shipping delays
* Ilmenite production of 323,700 tonnes (H1 2010: 319,800), Zircon production
of 19,800 tonnes (H1 2010: 16,800 tonnes)
* EBITDA for the period US$19.7 million (H1 2010: US$4.4 million)
* Strong product price rise in H2 2011
* Moma 50% expansion project progressing; updated capital costs US$280
million, commissioning scheduled mid 2012.
Statement by Michael Carvill, Managing Director:
"We are in a very positive product market environment and working hard to
increase current levels of production to enable us to take full advantage of the
increasing prices. The scheduled expiry this year of a number of lower priced
legacy ilmenite contracts will also support increased revenue generation given
the favourable pricing environment. We are also implementing the first expansion
of the Moma Mine, which will enable us to capture increased growth in the market
as well as increasing our existing market share, further enhancing Kenmare's
reputation as a major established supplier to the titanium minerals and zircon
industries."
For further information, please contact:
Kenmare Resources plc.
Michael Carvill, Managing Director
Tel: +353 1 671 0411
Mob: + 353 87 674 0110
Tony McCluskey, Financial Director
Tel: +353 1 671 0411
Mob: + 353 87 674 0346
Murray Consultants
Joe Heron/Jim Milton
Tel: +353 1 498 0300
Mob: +353 86 255 8400
Tavistock Communications
Paul Youens / Jos Simson
Tel: +44 207 920 3150
Mob: +44 7843 260 623
INTERIM MANAGEMENT REPORT
Market
Market prices for titanium feedstocks and zircon continued to improve during
2011, with particularly sharp increases experienced since the middle of the
year. The average prices achieved by the Group for ilmenite increased by 30% and
zircon by 38% during the first half of 2011, compared with the second half of
2010. However, it remains the case that it will be the start of 2012 before we
really benefit from the very substantial improvements that have occurred in
ilmenite prices when existing lower priced contracts expire. In future, we
expect that ilmenite prices will be fixed over much shorter periods.
The strong market is driven by increased demand from emerging economies and a
lack of capacity in the feedstock industry to supply this demand. New mines are
being proposed to respond to this situation and will be developed in due course.
However, many of these projects have high capital and operating costs, and will
require long term sustained high prices to provide a reasonable return to their
investors. In addition, the extensive barriers to entry in the titanium
minerals industry will delay delivery of meaningful tonnages from these
projects. In the meantime, demand is forecast to continue to grow, with Kenmare
well positioned to benefit.
Market conditions for zircon were favourable in the first half of 2011, driven
by strong Chinese demand, recovering demand in Europe and continued growth in
developing economies in Asia, Middle East and South America. Constrained supply
led to strong price increases in the first half of 2011 and further price
increases have been implemented for the third quarter. The outlook is for
continued tight market conditions for zircon.
The Asian markets for titanium minerals are growing strongly. As part of
Kenmare's strategy to expand sales in this region, the Company appointed Bruno
Cavalancia as Head of Commercial and Strategic Development for Asia and
established a marketing office in Singapore in May 2011. Working closely with
Kenmare's agent in Asia, Mitsui & Co., Bruno and Kenmare's marketing team will
be responsible for the commercial development of product sales into the Asian
market, which presently accounts for approximately 30% of Kenmare's sales
revenues.
Operations
In the first half of 2011, production of Heavy Mineral Concentrate (HMC) was
421,600 tonnes, ilmenite production was 323,700 tonnes, zircon was 19,800 tonnes
and rutile was 3,100 tonnes. 17 ships were loaded with 349,400 tonnes of final
products sold during the six months. At the start of the year, operation of the
mine tailing ponds was restricted by a decision to not have an operating pond in
the vicinity of Tupuito village, following a pond breach last year. This
hampered mining activities during the early part of the year, but the tailing
ponds were fully operational by the end of the first quarter. Production was
impacted by an unofficial strike for three days in April, and mining conditions
were encountered during the second quarter of the year that proved more
difficult than anticipated. There is a clay-rich band in part of the Moma
deposit known as Unit 81. In general, this unit is avoided by the mine path and
Unit 81 will not be mined by Wet Concentrator Plant A in future. However, in
order to access a pod of high grade ore, it was necessary to mine a section of
Unit 81, resulting in a reduced mining rate during the second and third quarters
of the year, though this enabled the absorption of this ore into the reserve.
During the fourth quarter of 2011, Wet Concentrator Plant A will benefit from an
upgrade to increase the spiral feed capacity from 3,000 tonnes per hour to
3,500 tonnes per hour as part of the expansion project works. This upgrade is
scheduled to be complete by the end of September and will result in increased
HMC production thereafter. In addition, a small dry mining operation will be
commissioned in September in order to increase throughput and improve the
flexibility of the mine. This supplementary mining operation will enable the wet
concentrator plants to run at capacity across a range of mining conditions and
to access areas of high grade mineralisation which otherwise would be
sterilized, including clay-rich pods within the orebody, such as the one mined
earlier this year.
The expansion of Kenmare's Moma Mine from an annual design capacity of 800,000
tonnes of ilmenite, 50,000 tonnes of zircon and 14,000 tonnes of rutile to 1.2
million tonnes of ilmenite, 75,000 of zircon and 21,000 of rutile is well
underway. Civil engineering works on site are progressing well and beach
landings to import the necessary material have commenced. Factory acceptance
tests on the new dredge are underway and it will be ready for transportation
from the United States to Moma in the coming weeks.
Elevated commodity prices in recent months have continued to contribute to a
higher level of construction activity in the mining industry, stretching the
capabilities of suppliers and contractors. Escalating costs of certain key
inputs, scope changes to improve the final plant design, contractor delays and
exchange rate movements have contributed to increased capital costs of the Moma
expansion project, which are being managed by Kenmare's Owner's Team. The
recently completed peer review of the structural design of the new Wet
Concentrator Plant B has also necessitated amendments to the final layout and
design, which has extended the schedule. The revised schedule and cost increases
have brought expansion costs to approximately US$280 million, which is 12% above
the upper limit of the cost estimate in the Expansion Study completed in early
2010. The current schedule indicates the expanded facilities will be
commissioned by mid-2012 and have ramped-up to full production by the end of
2012. We therefore continue to expect 2013 to be a full year's production at
expanded capacity. Kenmare's Owner's Team are continuing to work closely with
the contractor, Engineering & Projects Management Company, part of the Aveng
Group, to ensure that the expansion is executed as quickly and cost efficiently
as possible.
Upgrade of the jetty is 80% complete and is scheduled to be completed later this
year. Following completion of the works, the transshipment vessels will be able
to berth on the new southern side of the jetty in addition to the currently
operating northern side, further enhancing the export facility's flexibility and
availability. The upgrade of the Peg & Sofia III transshipment unit will take
place in the coming months to supplement the Bronagh J transshipment vessel,
further enhancing the export capacity of the marine facilities at Moma.
Monazite is a mineral rich in rare earth oxides with properties that are
required to manufacture a wide range of modern electronic and other goods. In
the normal course of operation, the mineral separation plant produces several
monazite-rich waste streams which are presently recombined and pumped with other
tailings back to the mine for placement in the mine tailings pond. A study is
underway to evaluate the handling, storage and transportation of these streams
for either direct sales or further upgrading into a higher value monazite
product. In addition, a prefeasibility study on Phase 3, a second expansion of
the Moma Mine, is underway. This study will be completed in 2012.
The Mine's health and safety record continues to improve with a lost time injury
frequency rate per 200,000 hours worked of 0.16, representing a very strong
achievement by everyone working at the Mine. Kenmare continues to invest in the
local communities, both directly and through the Kenmare Moma Development
Association (KMAD). As part of its five year plan, KMAD is building a health
clinic for the communities, which will be handed over to the Ministry of Health
on completion.
Financial Review for the six months ended 30 June 2011
Revenues for the period amounted to US$56.0 million (2010: US$40.6 million),
arising from the sale of 349,400 tonnes (2010: 366,600) of ilmenite and zircon.
Revenues would have been materially greater were it not for unseasonably bad
weather during June, which restricted shipments. Hence, product stock levels
were higher than normal at 30 June and the excess stocks have since been
shipped, with revenues recognized in the third quarter of 2011. Completion of
the enhanced jetty later this year and a move to a 24 hour loading cycle will
increase shipping capacity to a level comfortably above our projected
requirements. Comparing the blended prices during the first half of 2011 with
the second half of 2010, the prices realised for ilmenite increased by 30% and
zircon by 38%. During the period, ilmenite was priced based on a combination of
contracts concluded in late 2010 and lower-priced legacy contracts entered into
during previous years as a condition of financing. Zircon products are sold
under volume-based contracts, with prices agreed on either a quarterly or a
shipment-by-shipment basis, while rutile prices are set on a six month basis.
During 2011, all product prices have increased substantially and we anticipate
these price increases will contribute strongly to revenues from the start of
2012, when most of the existing fixed-price contracts will have come to an end.
Operating costs amounted to US$46.0 million (2010: US$46.8 million), including
depreciation and amortisation of US$9.7 million (2010: US$10.4 million).
Included in other operating costs are freight and distribution costs of US$4.4
million (2010: US$1.7 million), administration costs of US$1.9 million (2010:
US$2.4 million) and a share-based payment expense of US$1.0 million (2010:
US$0.7 million). Adjusting total operating costs for depreciation of US$9.7
million, total group share-based payments of US$1.4 million and freight
reimbursable by customers of US$1.1 million, the cash operating costs for the
period amounted to US$33.8 million (2010: US$35.8 million). Group reported an
operating profit for the period under review of US$10.0 million (2010: loss
US$6.1 million).
Earnings before interest, tax, depreciation and amortisation (EBITDA) for the
six months ended 30 June 2011 amounted to
US$ 19.7 million (2010: US$4.3 million).
Net finance costs amounted to US$14.4 million (2010: US$14.8 million) and the
Group reported a foreign exchange loss of US$9.8 million (2010: gain US$22.1
million), mainly based upon retranslation of Euro-denominated loans. During the
six months ended the 30 June 2011, the Group reported a net loss of US$14.2
million (2010: profit US$1.2 million).
During the period, there were additions to property, plant and equipment of
US$70.3 million (2010: US$9.6 million). Capital expenditure on existing plant
and equipment amounted to US$10.3 million (2010: US$6.8 million). Expansion
capital expenditure during the period was US$60.0 million (2010: US$2.8
million). Inventory at the period end amounted to US$29.6 million (2010: US$20.5
million), consisting of mineral products of US$17.9 million (2010: US$10.4
million) and consumables and spares of US$11.7 million (2010: US$10.1 million).
Trade and other receivables amounted to US$12.8 million (2010: US$23.1 million),
of which US$7.3 million (2010: US$17.9 million) are trade receivables from the
sale of mineral products and US$5.5 million (2010: US$5.2 million) is comprised
of insurance proceeds, prepayments and other miscellaneous debtors. Included in
trade and other payables are US$8.3 million (2010: nil) relating to expansion
capital expenditure.
Bank loans at the period end amounted to US$346.2 million (2010: US$331.0
million). There were loan interest and principal repayments during the period of
US$19.6 million (2010: US$18.6 million), interest accrued of US$15.3 million
(2010: US$14.2 million) and an increase in the Euro-denominated loans of US$12.2
million (2010: decrease US$20.8 million) as a result of the US Dollar weakening
against the Euro during the period. The average interest rate on loans at the
period end was 9%.
Cash and cash equivalents at 30 June amounted to US$178.4 million (2010:
US$238.5 million); the reduction largely reflecting the investment in the
expansion during the period. There is a significant projected build-up of cash
in the Kenmare Moma subsidiary companies that, together with funds available
from Kenmare Resources plc, is sufficient to meet the projected expansion
funding requirements. The project financing documents ring-fence cash generated
by the Moma subsidiary companies, not presently permitting it to be applied to
expansion costs, which must be separately funded by Kenmare Resources plc.
Thus, Kenmare have proposed an amendment to the project financing documents
which, subject to lender agreement, would allow the requisite funds in the Moma
subsidiary companies to be applied to expansion costs.
Under the Moma project financing documentation, Technical Completion is required
to be achieved by 31 December 2011. In order to achieve Technical Completion,
the physical facilities must have been constructed and made operational, certain
production and efficiency tests must be passed, and compliance with a set of
environmental standards must be achieved. Only the environmental certificate
remains outstanding and this is expected to be issued in the coming weeks,
following which the interest rate on Subordinated Loans will reduce by 2%.
Board Update
The Nomination Committee of the Board has continued to search for a new
Chairman. This active search for a new Chairman who combines key competencies
with strategic vision continues to be a top priority of the Board. To date, we
have not managed to contract with a person with the right mix of key
competencies to perform this vital role for the Company. We are in discussions
with some very promising candidates and are hopeful of achieving a near-term
resolution to this search. In the context of Kenmare's entry to the FTSE 250
Index last year, we continue to review our corporate governance procedures and
plan to implement appropriate changes throughout the remainder of this year.
Outlook
We are in a very positive product market environment and working hard to
increase current levels of production to enable us to take full advantage of the
increasing prices. The scheduled expiry this year of a number of lower priced
legacy ilmenite contracts will also support increased revenue generation given
the favourable pricing environment. We are also implementing the first expansion
of the Moma Mine, which will enable us to capture increased growth in the market
as well as increasing our existing market share, further enhancing Kenmare's
reputation as a major established supplier to the titanium minerals and zircon
industries.
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. There are a number of potential risks and uncertainties which could
have a material impact on the Group's performance over the remaining six months
of the financial year and could cause actual results to differ materially from
expected results. These risks are outlined below.
Commercial risks
The Mine's revenue and earnings depend upon prevailing prices for ilmenite and
zircon and to a lesser extent rutile. If 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, 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 shipment of products. Limitations caused by weather conditions or if the
marine terminal was damaged by extreme weather conditions or accident such that
it became unusable for any significant period pending repair would result in the
Mine being unable to ship its products or would limit the amount which it could
ship. 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, operations
and financial condition.
In addition, the Group's customers depend upon ocean freight to transport
products purchased from the Group. Disruption of ocean freight as a result of
piracy or other events could temporarily impair the Group's ability to supply
its products to its customers and thus could adversely affect the Group's
results, operations or financial condition. The Group has developed a policy to
manage the threat of piracy near the marine terminal.
Financing risks
The development of the Mine has been partly financed by the project loans. 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. Failure to achieve these targets
could result in insufficient funds to meet scheduled interest and principal
repayments which would result in an event of default. Senior management
monitors achievement of targets and cashflow to ensure sufficient funds are
available to meet scheduled repayments.
Currency risks
The Group loans are denominated in US Dollars and Euro. At 30 June 2011 the loan
balance was US$346.2 million, comprising US$187.7 million denominated in US
Dollars and US$158.5 million denominated in Euro. The loans are due to be repaid
in installments between 2011 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 interest and principal on Euro-denominated
loans.
In 2010 the Group raised funds to finance the expansion of the Mine and for
general corporate purposes. A portion of the funds raised has been placed in
currency accounts to match the planned expansion expenditure currency profile
over the next twelve months. Differences between the planned expansion
expenditure currency profile and the currency of deposits held will result in a
currency mismatch.
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 is deposited to match the currency
of forecast expenditures.
Interest rate risk
Interest rates on the project loans are both fixed and variable. The variable
rate basis is six month US Dollar LIBOR. All the Euro loans are fixed rate. The
Group is exposed to movements in interest rates which affect the amount of
interest paid on borrowings. As at 30 June 2011, 66% of the Group's debt (US$230
million) was at fixed interest rates and 34% (US$116.2 million) was at variable
interest rates. Any increase in six month US Dollar LIBOR would increase finance
costs, but would also increase interest income on the unspent proceeds of the
equity issue held in US Dollar.
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 is applying 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. An accident or a breach of operating
standards could result in a significant incident which would affect the Group's
reputation, and the costs and viability of its operations for indeterminate
periods. The Group's operations worked 2.5 million hours (2010: 1.2 million
hours) in the six months to 30 June 2011, with 1 lost-time injury to operations
employees and contractors (2010: 2 lost-time injuries). Malaria is a key risk at
the Mine and the Group continues to develop and implement programmes 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.
Human Resources risks
The Group's success depends upon the expertise and continued service of certain
key executives and technical personnel, including the Executive Directors. The
loss of the services of certain key employees, including to competitors, could
have a material adverse effect on the results of operations or financial
condition of the Group. The Mine employees are represented by a union under
various collective agreements. The Mine may not be able to satisfactorily
renegotiate agreements when they expire and may face tougher negotiations or
higher wage demands. In addition, existing labour agreements may not prevent a
strike or work stoppage, which could have an adverse effect on the Group's
earnings, financial condition and reputation.
Litigation risks
The Group may from time to time face the risk of litigation in connection with
its business and/or other activities. Recovery may be sought against the Group
for large and/or indeterminate amounts and the existence and scope of
liabilities may remain unknown for substantial periods of time. A substantial
legal liability and/or an adverse ruling could have a material adverse affect on
the Group's business, results, operation and/or financial condition.
Political risks
The Mine is located in Mozambique, which has been politically stable for over a
decade. The Group has operated in Mozambique since 1987, and has executed a
Mineral Licensing Contract and an Implementation Agreement which each contain
provisions that provide certain protections to the Group against adverse changes
in Mozambican law. Mozambique may, however, become subject to similar risks
which are prevalent in many developing countries, including extensive political
or economical instability, changes in fiscal policy (including increased taxes
or royalty rates), nationalisation, inflation, currency restrictions and
increased governmental regulation and approval requirements. The occurrence of
these events could adversely affect the economics of the Mine and could have a
material adverse effect on the results, operations or financial condition of the
Group. Political uncertainty or government changes to fiscal terms covering the
Mine's operations may discourage future investments which may impact the Group's
ability to access new assets, potentially reducing future growth opportunities.
Delay or failure by the Group in implementing the expansion
Delay by the Group in implementing, or failure to complete the expansion or an
inability by the Group to achieve post expansion production could have a
material adverse effect on the Group's growth prospects. Successful
implementation of the expansion is subject to various factors, many of which are
not within the Group's control including the availability, terms, conditions and
timing of the delivery of plant, equipment and other materials necessary for the
construction and/or operation of the relevant facility, the availability of
acceptable arrangements for transportation and construction, the performance of
the EPCM Contractor, suppliers and consultants, adverse weather conditions
affecting access to the Mine, the development site and/or the development
process, and the ultimate cost of the expansion facilities relative to available
funds. As noted above, a combination of factors, have brought expansion costs
to approximately US$280 million, which is 12% above the upper limit of the cost
estimate of the Expansion Study completed in early 2010. In order to address
this increase, Kenmare has proposed an amendment to the project financing
documents which, subject to lender agreement, would allow a proportion of funds
in the Moma subsidiary companies to be applied to expansion costs. Any failure
by the Group to implement the expansion as planned may have a material adverse
effect on the results of operations and financial condition of the Group and the
Group may be unable to capitalise on the increase in demand and the increase in
prices anticipated by the Directors and may be unable to meet its commitments
under the Project loan financing documents.
Related party transactions
There have been no material changes in the related party transactions affecting
the financial position or the performance of the Group in the period other than
those disclosed in Note 10.
Going Concern
As stated in Note 1 to the condensed financial statements, 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 condensed financial statements.
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.
On behalf of the Board,
Managing DirectorFinancial Director
Michael CarvillTony McCluskey
24 August 2011 24 August 2011
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 Central Bank of Ireland, 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
2011 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.
On behalf of the Board,
Managing DirectorFinancial Director
Michael CarvillTony McCluskey
24 August 2011 24 August 2011
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 2011 which comprises the Group Condensed Statement of
Comprehensive Income, the Group Condensed Statement of Financial Position, the
Group Condensed Statement of Changes in Equity, the Group Condensed Cash Flow
Statement 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 "Review
of Interim Financial Information performed by the Independent Auditor of the
Entity" 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 Central Bank of Ireland.
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 2011 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 Central Bank of Ireland.
Continued on next page
Continued from previous page
INDEPENDENT REVIEW REPORT TO THE MEMBERS OF KENMARE RESOURCES PLC
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$613.4 million which is
dependent on the successful development of economic ore reserves and the
successful operation of the mine including the mine expansion project and
continued availability of adequate funding for the mine. The group condensed set
of financial statements do not include any adjustments relating to these
uncertainties and the ultimate outcome cannot at present be determined.
Deloitte & Touche
Chartered Accountants
Dublin
24 August 2011
KENMARE RESOURCES PLC
GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30 JUNE 2011
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
30 June 30 June 31 Dec
2011 2010 2010
Notes US$'000 US$'000 US$'000
Continuing Operations
Revenue 2 56,042 40,606 91,587
Cost of sales (38,724) (41,980) (77,741)
Gross profit/(loss) 17,318 (1,374) 13,846
Other operating costs (7,277) (4,775) (17,369)
Operating 10,041 (6,149) (3,523)
profit/(loss)
Finance income 1,232 576 1,522
Finance costs (15,651) (15,401) (31,024)
Foreign exchange (9,789) 22,125 16,691
(loss)/gain
(Loss)/profit before (14,167) 1,151 (16,334)
tax
Income tax expense - - -
(Loss)/profit for the (14,167) 1,151 (16,334)
period/year
Attributable to (14,167) 1,151 (16,334)
equity holders
US cent per share US cent per share US cent per
share
(Loss)/profit per 4 (0.59c) 0.07c (0.80c)
share: basic
(Loss)/profit per 4 (0.59c) 0.07c (0.80c)
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 2011
Unaudited Unaudited Audited
30 June 30 June 31 Dec
2011 2010 2010
Notes US$'000 US$'000 US$'000
Assets
Non-current assets
Property, plant and equipment 5 613,414 536,958 552,786
Current assets
Inventories 29,647 20,473 24,618
Trade and other receivables 12,778 23,127 12,974
Cash and cash equivalents 178,435 252,386 238,515
220,860 295,986 276,107
Total assets 834,274 832,944 828,893
Equity
Capital and reserves attributable to the
Company's equity holders
Called-up share capital 6 195,988 195,789 195,830
Share premium 6 300,175 300,518 299,860
Retained losses (57,861) (56,350) (43,694)
Other reserves 15,639 42,486 14,103
Total equity 453,941 482,443 466,099
Liabilities
Non-current liabilities
Bank loans 7 241,982 262,354 252,814
Obligations under finance lease 1,913 2,102 2,015
Provisions 8 6,770 3,814 6,750
250,665 268,270 261,579
Current liabilities
Bank loans 7 104,224 68,640 85,574
Obligations under finance lease 189 437 157
Provisions 8 276 442 279
Trade and other payables 24,979 12,712 15,205
129,668 82,231 101,215
Total liabilities 380,333 350,501 362,794
Total equity and liabilities 834,274 832,944 828,893
The accompanying notes form part of the condensed financial statements
KENMARE RESOURCES PLC
GROUP CONDENSED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2011
Called-Up Share Capital Retained Share Revaluation Total
Share Premium Conversion Losses Option Reserve
Capital Reserve Reserve
Fund
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1 74,670 163,147 754 (57,501) 10,900 30,141 222,111
January 2010
Profit for - - - 1,151 - - 1,151
the period
Share based - - - - 691 - 691
payments
Issue of 121,119 137,371 - - - - 258,490
share capital
Balance at 195,789 300,518 754 (56,350) 11,591 30,141 482,443
30 June 2010
Transfer - - - 30,141 - (30,141) -
Loss for the - - - (17,485) - - (17,485)
period
Share based - - - - 1,758 - 1,758
payments
Issue of 41 (658) - - - - (617)
share capital
Balance at
31 December 195,830 299,860 754 (43,694) 13,349 - 466,099
2010
Loss for the - - - (14,167) - - (14,167)
period
Share based - - - - 1,536 - 1,536
payments
Issue of 158 315 - - - - 473
share capital
Balance at 195,988 300,175 754 (57,861) 14,885 - 453,941
30 June 2011
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 2011
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
30 June 30 June 31 Dec
2011 2010 2010
US$'000 US$'000 US$'000
Cash flows from operating activities
(Loss)/profit for the period/year (14,167) 1,151 (16,334)
Adjustment for:
Foreign exchange movement 9,789 (22,125) (16,691)
Share-based payments 1,451 691 2,374
Finance income (1,232) (576) (1,522)
Finance costs 15,651 14,257 29,852
Depreciation 9,662 10,545 20,955
Impairment of property, plant and equipment - - 3,066
(Decrease)/increase in provisions (164) (581) 845
Operating cash inflow 20,990 3,362 22,545
(Increase)/decrease in inventories (5,029) 1,478 (2,667)
Decrease/(increase) in trade and other 211 (6,752) 319
receivables
Increase in trade and other payables 9,438 4,719 6,851
Cash generated by operations 25,610 2,807 27,048
Interest received 1,232 576 1,522
Interest paid (4,545) (5,390) (10,191)
Net cash from/(used in) operating 22,297 (2,007) 18,379
activities
Cash flows from investing activities
Additions to property, plant and equipment (70,184) (9,559) (34,790)
Net cash used in investing activities (70,184) (9,559) (34,790)
Cash flows from financing activities
Proceeds on the issue of shares 474 258,490 257,873
Repayment of borrowings (15,069) (13,169) (26,374)
Decrease in obligations under finance lease (280) - (588)
Net cash (used in)/from financing (14,875) 245,321 230,911
activities
Net (decrease)/increase in cash and cash (62,762) 233,755 214,500
equivalents
Cash and cash equivalents at the beginning 238,515 17,408 17,408
of period/year
Effect of exchange rate changes on cash and 2,682 1,223 6,607
cash equivalents
Cash and cash equivalents at end of 178,435 252,386 238,515
period/year
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 2011
1. BASIS OF PREPARATION AND GOING CONCERN
The annual financial statements of Kenmare Resources plc are prepared in
accordance with IFRSs as adopted by the European Union. The Group Condensed
Financial Statements for the six months ended 30 June 2011 have been prepared in
accordance with the Transparency (Directive 2004/109/EC) Regulations 2007, the
Transparency Rules of the Central Bank of Ireland 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 with the same as those applied in
the Annual Report for the financial year ended 31 December 2010 and are
described in the Annual Report.
In the current financial year, the Group has adopted all Standards and
Interpretations which are effective from 1 January 2011. Adoption has resulted
in no material impact on the financial statements.
The financial information presented in this document does not constitute
statutory financial statements. The amounts presented in the Half Yearly
Financial Statements for the six months ended 30 June 2011 and the corresponding
amounts for the six months ended 30 June 2010 have been reviewed but not
audited. The independent auditors' review report is on pages 8 and 9. The
financial information for the year ended 31 December 2010, presented herein, is
an abbreviated version of the annual financial statements for the Group in
respect of the year ended 31 December 2010. 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
2011 other than those reported in the Condensed Statement of Comprehensive
Income.
Based on the Group's forecasts and projections, 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
condensed financial statements.
2. SEGMENTAL INFORMATION
Information on the operations of the Moma Titanium Minerals Mine in Mozambique
is reported to the Group's Board for the purposes of resource allocation and
assessment of segment performance. Information regarding the Group's operating
segment is reported below.
Unaudited Unaudited Audited
30 June 11 30 June 10 31 Dec 10
US$'000 US$'000 US$'000
Segment revenues and results
Moma Titanium Minerals Mine
Revenue 56,042 40,606 91,587
Cost of sales (38,724) (41,986) (77,741)
Gross profit/(loss) 17,318 (1,380) 13,846
Other operating costs (4,585) (2,049) (10,363)
Segment operating profit/(loss) 12,733 (3,429) 3,483
Central operating costs (2,692) (2,720) (7,006)
Group operating profit/(loss) 10,041 (6,149) (3,523)
Finance income 1,232 576 1,522
Finance expense (15,651) (15,401) (31,024)
Foreign exchange (loss)/gain (9,789) 22,125 16,691
(Loss)/profit before tax (14,167) 1,151 (16,334)
Income tax expense - - -
(Loss)/profit for the period/year (14,167) 1,151 (16,334)
Segment assets
Moma Titanium Minerals Mine assets 657,483 569,370 593,305
Corporate assets 176,791 263,574 235,588
Total assets 834,274 832,944 828,893
3. SEASONALITY OF SALE OF MINERAL PRODUCTS
Sales of mineral products are not seasonal in nature.
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 company is based on the following
data:
Unaudited Unaudited Audited
30 June 11 30 June 10 31 Dec 10
US$'000 US$'000 US$'000
(Loss)/profit for the
period/year
attributable to equity
holders of the parent (14,167) 1,151 (16,334)
Unaudited Unaudited Audited
30 June 11 30 June 10 31 Dec 10
Number of Number of Number of
Shares Shares Shares
Weighted average number
of issued ordinary
shares for the
purposes of basic
(loss)/earnings per
share 2,403,945,720 1,644,358,548 2,029,895,059
Effect of dilutive
potential ordinary
shares
Share options - 46,503,258 -
Weighted average number of ordinary shares
for the purpose
of diluted
(loss)/earnings per
share - 1,690,861,806 -
US$ cent per share US$ cent per share US$ cent per share
(Loss)/profit per
share: basic (0.59c) 0.07c (0.80c)
(Loss)/profit per
share: diluted (0.59c) 0.07c (0.80c)
In the 2010 Annual Report and Accounts the basic and diluted loss per share were
incorrectly stated on the face of the Consolidated Income Statement as US$0.01c.
The correct basic and diluted loss per share for 2010 was US$0.80c as noted
above.
In 2011 the basic loss per share and the diluted loss per share are the same, as
the effect of the outstanding share options is anti-dilutive.
5. PROPERTY, PLANT AND EQUIPMENT
Plant Other Construction Development Total
& Equipment Assets In Progress Expenditure
US$'000 US$'000 US$'000 US$'000 US$'000
Cost
Balance at 1 January 311,433 14,215 4,313 244,174 574,135
2010
Transfer from
construction in 575 1,530 (2,105) - -
progress
Additions during the 914 25 5,876 2,830 9,645
period
Balance at 30 June 312,922 15,770 8,084 247,004 583,780
2010
Transfer from
construction in 3,649 363 (4,012) - -
progress
Additions during the 3,596 - 21,303 1,339 26,238
period
Balance at 31 December 320,167 16,133 25,375 248,343 610,018
2010
Transfer from
construction in 4,741 230 (4,971) - -
progress
Additions during the - - 70,290 - 70,290
period
Balance at 30 June 324,908 16,363 90,694 248,343 680,308
2011
Accumulated
Depreciation
Balance at 1 January 21,262 6,761 - 5,188 33,211
2010
Charge for the period 5,428 1,368 - 3,749 10,545
Impairment during the 3,066 - - - 3,066
period
Balance at 30 June 29,756 8,129 - 8,937 46,822
2010
Charge for the period 5,521 1,120 - 3,769 10,410
Balance at 31 December 35,277 9,249 - 12,706 57,232
2010
Charge for the period 5,267 905 - 3,490 9,662
Balance at 30 June 40,544 10,154 - 16,196 66,894
2011
Carrying Amount
Balance at 30 June 284,364 6,209 90,694 232,147 613,414
2011
Balance at 30 June 286,166 7,641 8,084 238,067 536,958
2010
Balance at 31 284,890 6,884 25,375 235,637 552,786
December 2010
5. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
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 operating 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 9%. Due to the specific nature of project
borrowings the borrowing rate is used as a proxy for the market rate.
Key assumptions include the following:
* A mine plan 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 2011 and escalated by 2% per annum thereafter 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 a 7% 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$1.4 million (2010: US$2.7 million) in respect of assets held under finance
leases.
The amount committed for expansion capital at the 30 June 2011 is US$183.5
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 the successful operation of the mine
including the mine expansion project 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 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
Share capital as at the 30 June 2011 amounted to US$196.0 million (2010:
US$195.8 million). During the period, 1.89 million ordinary shares in Kenmare
Resources plc were issued as a result of the exercise of share options. US$0.2
million of these issues have been credited to share capital and US$0.2 million
to share premium.
On 1 April 2010, 1,497,030,066 new ordinary shares were issued by way of a firm
placing and placing and open offer which raised Stg GBP179.6 million before
expenses. The primary purpose of this equity raising is to fund an expansion of
the existing mine operations to increase production capacity from 800,000 tonnes
per annum of ilmenite plus co-products to 1.2 million tonnes per annum of
ilmenite plus co-products.
7. BANK LOANS
Unaudited Unaudited Audited
30 June 11 30 June 10 31 Dec 10
US$'000 US$'000 US$'000
Project loans
Senior loans 147,952 171,714 159,968
Subordinated loans 198,254 156,953 176,372
Total Project loans 346,206 328,667 336,340
Mortgage loan - 2,327 2,048
Total loans 346,206 330,994 338,388
The borrowings are repayable as follows:
Within one year 104,224 68,640 85,574
In the second year 41,028 39,646 40,578
In the third to fifth year 115,214 118,277 120,656
After five years 85,740 104,431 91,580
346,206 330,994 338,388
Less amounts due for settlement within 12 months (104,224) (68,640) (85,574)
Amount due for settlement after 12 months 241,982 262,354 252,814
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 and
intercompany loans to the Project Companies.
The Company and Congolone Heavy Minerals Limited have guaranteed the Project
loans during the period prior to Completion (achievement of "Technical
Completion" and "Non-Technical Completion").
The Expansion Funding Deed dated 5 March 2010 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 requirements, including filling of specified reserve accounts to
the required levels ("Non-Technical Completion"). Upon Completion, the Company's
and Congolone Heavy Minerals Limited's guarantee of the Project loans will
terminate. Under the Expansion Funding Deed failure to achieve Technical
Completion by 31 December 2011 ceases to be an event of default but Senior Loans
and Subordinated Loans will attract an additional interest margin of 1% and 2 %
respectively from 31 December 2011 unless and until Technical Completion is
achieved. Failure to achieve Non-Technical Completion by 31 December 2013 is an
event of default. Three of the four certificates required for Technical
Completion (Physical Facilities, Production, and Efficiency) were submitted to
lenders on 20 February 2011. A small number of items are being addressed prior
to submitting the fourth certificate (Environmental).
There is a significant projected build-up of cash in the Kenmare Moma subsidiary
companies that, together with funds available from Kenmare Resources plc, is
sufficient to meet the projected expansion funding requirements. The project
financing documents ring-fence cash generated by the Moma subsidiary companies,
not presently permitting it to be applied to expansion costs, which must be
separately funded by Kenmare Resources plc. Thus, Kenmare have proposed an
amendment to the project financing documents which, subject to lender agreement,
would allow the requisite funds in the Moma subsidiary companies to be applied
to expansion costs.
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 which were fully
drawn in 2008. The Senior Loan tenors range from 4 years to 7 years from
30 June 2011. 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 in 2005. 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 in 2007. 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 in 2008. The Additional Standby Subordinated Loans bear
interest at 6 month LIBOR plus 5%.
Interest and principal on the subordinated loans is due to be paid each year in
February and August but if cash is insufficient in the Project Companies on the
scheduled payment dates, interest is capitalised and both interest and principal
becomes payable on the next semi-annual payment date thereafter on which
sufficient cash is available, in whole or in part, to the extent of available
cash. Included in loan amounts due within one year is US$74.8 million in
relation to subordinated loans. 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 18 April 2011, Kenmare Resources plc, Congolone Heavy Minerals Limited and
the Project Companies entered into a Deed of Amendment with the lenders and
lenders' agents. The main provisions of this Deed of Amendment include the
following:
* The marketing covenant is to be tested semi-annually as at 1 January and 1
July, the calculation to be set out in a periodic marketing certificate to
be delivered no later than 1 March (45 days after the effectiveness of the
Deed of Amendment in the case of 2011) and 1 September of each year;
* In determining projected revenues for the marketing covenant, all offtake
agreements with eligible buyers entered into on or before the date of the
marketing certificate are considered regardless of term;
* The marketing covenant requires sales contracts with eligible buyers with a
term of at least 1 year for a specified tonnage of final products, to be
tested annually as at 1 January.
Failure to comply with the marketing covenant no longer results in an event of
default; rather, such a failure results, pre-Completion, in majority lenders
being able to convene a meeting at which the Project Companies would present
their marketing plan, and post-Completion in the inability of the Project
Companies to make restricted payments (dividends and payments on intercompany
loans) on the next semi-annual restricted payment date.
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
accrued at a 6 month LIBOR plus 6%, payable monthly commencing September 2009
and principal was scheduled to be repaid in 54 monthly installments commencing
March 2010. This loan was drawn down on 10 August 2009. The loan was secured by
a mortgage on the Peg and Sofia III and by a guarantee from Kenmare Resources
plc. This loan was repaid in full on the 5 March 2011. During the period
interest relating to this loan of US$0.03 million (2010: US$0.09 million) at the
rate of interest of this loan of 7% (2010:7%) was capitalised in property, plant
and equipment.
7. BANK LOANS (CONTINUED)
Group borrowings interest and currency risk
Loan facilities arranged at fixed interest rates expose the Group to fair value
interest rate risk. Loan facilities arranged at variable rates expose the Group
to cash flow interest rate risk. Variable rates are based on six month LIBOR.
The average effective borrowing rate at the period end was 9%. The interest
rate profile of the Group's loan balances at the period end was as follows:
Unaudited Unaudited Audited
30 June 11 30 June 10 31 Dec 10
US$'000 US$'000 US$'000
Fixed rate debt 229,966 208,491 218,079
Variable rate debt 116,240 122,503 120,309
Total debt 346,206 330,994 338,388
The fair value of the group borrowing of US$312.6 million have been calculated
by discounting the expected future cashflows at prevailing interest rates and by
applying period end exchange rates.
Under the assumption that all other variables remain constant and using the 6
month LIBOR, a 1% change in LIBOR would result in a US$1.1 million (2010: US$1.2
million) change in finance costs for the year.
The currency profile of the bank loans is as follows:
Unaudited Unaudited Audited
30 June 11 30 June 10 31 Dec 110
US$'000 US$'000 US$'000
Euro 158,496 121,879 139,029
US Dollars 187,710 209,115 199,359
Total debt 346,206 330,994 338,388
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 the assumption that all other variables remain constant a
10% strengthening or weakening of Euro against the US Dollar, would result in a
US$1.9 million (2010: US$1.4 million) change in finance costs and a US$16
million (2010: US$12 million) change in foreign exchange gain or loss for the
year.
The above sensitivity analyses are estimates of the impact of market risks
assuming the specified change occurs. Actual results in the future may differ
materially from these results due to developments in the global financial
markets which may cause fluctuations in interest and exchange rates to vary from
the assumptions made above and therefore should not be considered a projection
of likely future events.
8. PROVISIONS
Unaudited Unaudited Audited
30 June 11 30 June 10 31 Dec 10
US$'000 US$'000 US$'000
Mine closure provision 4,209 1,555 4,028
Mine rehabilitation 1,726 2,701 1,675
Legal provision 1,111 - 1,326
Total provision 7,046 4,256 7,029
The mine closure provision was increased by US$0.2 million as a result of the
unwinding of the discount and this is recognised as a finance cost in the income
statement for the period. The mine rehabilitation provision was increased by
US$0.05 million as a result of additional provision of US$0.2 million for areas
disturbed net of US$0.15 million released for areas rehabilitated during the
period. US$0.2 million of the legal provision was released during the period.
US$0.3 million (2010: US$0.3 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$1.5
million (2010: US$0.7 million). US$0.08 million (2010: nil) of the share based
payment was capitalised in property, plant and equipment during the period.
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 2011, 4 million share options at a grant
date fair value of US$2.0 million were granted to Executive Directors, the key
management personnel of the Group. The share options are exercisable at a price
equal to the quoted market price of the Company's share on the date of grant.
The options vest over a three year period. US$0.07 million of the costs have
been recognised in the period. Bonuses totalling US$1.1 million were granted to
Executive Directors during the period. US$0.5 million of the bonuses are
deferred until June 2014 subject to the Director remaining in employment with
the Company until this time. Non-Executive Directors were granted annual
Directors' fees of US$0.5 million in total for remuneration of their services to
the Company, Kenmare Resources plc.
Apart from existing remuneration arrangements and the matters noted above there
were no material transactions or balances between Kenmare Resources plc and its
key management personnel or members of their close families.
11. EVENTS AFTER THE BALANCE SHEET DATE
There have been no events since the period end which would have a material
effect on the financial statements.
12. INFORMATION
The Half Yearly Financial report was approved by the Board on 24 August 2011.
Copies are 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.
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.
Source: Kenmare Resources via Thomson Reuters ONE
[HUG#1540973]
Kenmare Resources (LSE:KMR)
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Kenmare Resources (LSE:KMR)
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