Final Results and Interim Management Statement

 | Source: Kenmare Resources Kenmare Resources

Kenmare Resources plc ("Kenmare" or "the Company")
 
Preliminary Results
For the year ended 31 December 2007
 
 
Chairman's Statement
 
Dear Shareholder,
 
Since my last Chairman's statement, Kenmare's wholly owned Moma Titanium Minerals Mine has become a significant exporter from Mozambique. Six customer vessels have been loaded by our transhipment vessel, the Bronagh J, and departed for destinations in Europe, America and Asia. Ilmenite contained in these shipments has already been consumed by our customers to make pigment.
 
This has been achieved despite considerable problems with certain equipment supplied under the construction contract, which has had to be replaced under warranty. In particular, a set of vibrating screens that are an essential component of the Mineral Separation Plant (MSP), started to show signs of deterioration and the feed rate through the plant had to be reduced. Pending supply of new, larger and more robust screens under warranty by the contractor, temporary repairs were required for this equipment and consequently the plant throughput was lower than anticipated. The new screens have now been installed, allowing the mine to get back onto its ramp-up curve.
 
A cyclone, the first in over twenty years in the area, passed over Moma in early March. Due to excellent planning by site management there were no casualties or injuries. We were able to get production going from the MSP within a couple of days. In the mining pond, there was some damage to the Wet Concentrator Plant (WCP) and to the rubber hose connections between the WCP and the mining dredges. As a result, mining was interrupted for four weeks and has now resumed. In the interim, the MSP has continued to operate with feed drawn from stockpiled heavy mineral concentrate.
 
With the installation of the new screens, and various other remedial work which has been carried out under warranty, we believe that the Company is well set to achieve its targeted production rate, albeit somewhat later than was originally envisaged. We now expect that the ramp-up will continue through 2008, with full production rate being achieved in the last quarter.
 
The Company has continued to plan for the expansion to 1.2 million tonnes of ilmenite product plus associated co-products per annum. This new capacity is targeted to be available by the end of 2009.
 
The market for titanium feedstocks is favourable and is in a supply-constrained position. This is putting strong upward pressure on global feedstock prices, particularly for ilmenite, and has pushed up the price of imported ilmenite to China by around 50% since the start of 2008. Despite a 5% reduction in consumption in the United States during 2007, the global demand for TiO2 feedstocks grew by 3.6%, led by strong growth in Europe and Asia, particularly China. A similar growth rate is expected in 2008. In addition, the supply side may be further restricted by energy shortages in South Africa, where a large proportion of the world's titanium feedstocks originate. The zircon market has seen a slight easing of prices over the last year, due principally to artisanal production from Indonesia. This production is viewed as coming from short-term resources which have already started to reduce. End use demand for zircon remains robust. Hence the market outlook for all our production is very positive and the Company stands to benefit from both price upside as well as the expanded production on volumes.
 
Kenmare is committed to reducing the negative impacts associated with the Moma Mine and enhancing those which are positive. The Kenmare Moma Development Association, a not-for-profit organisation, works to implement this objective through the execution of a variety of capacity building, infrastructural and sociocultural projects. These projects include a savings and credit programme, various horticultural projects, egg production initiatives, school construction, a HIV/AIDS awareness programme and support to local sports development. Funding for these programmes continues to grow and Kenmare is grateful to all who have contributed to the development of these projects, including the time and resources provided by mine personnel to assist with the school construction and other initiatives.
 
The financial results for 2007 show a loss of US$9.6 million. This loss arises primarily from foreign exchange losses on Euro-denominated debt and Kenmare's corporate operating costs, net of interest earned. Costs associated with construction and commissioning the mine, net of revenues earned during 2007, have been capitalised. Assets totalling US$266.9 million were transferred from Construction in Progress to Property, Plant and Equipment during the year on the takeover of these assets from the contractor. Senior and subordinated loans drawn at the year end amounted to US$325.8 million, US$119.3 million of which comprised of Euro-denominated loans.
 
The last six months has demonstrated that the Moma Mine will work well. The mine has demonstrated its ability to dredge, concentrate, separate and export product whilst maintaining an excellent safety record. While we have experienced some cost increases caused mainly by salary and fuel costs, we are very confident that Moma will achieve its targeted production rates in 2008 and attain its predicted low cost position in the industry.
 
 
Charles Carvill
Chairman
 
 
This release incorporates Kenmare's Interim Management Statement relating to the period from 1 January 2008 to 14 April 2008.
 
 
For more information:
 


 
www.kenmareresources.com

 
 
KENMARE RESOURCES PLC
PRELIMINARY RESULTS
GROUP INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2007
 
 
 


 
 
 
 
 
 
KENMARE RESOURCES PLC
PRELIMINARY RESULTS
GROUP BALANCE SHEET
AS AT 31 DECEMBER 2007
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
KENMARE RESOURCES PLC
PRELIMINARY RESULTS
GROUP CASH FLOW STATEMENT
 FOR THE YEAR ENDED 31 DECEMBER 2007
 
 
 


 
 
 
  
 
KENMARE RESOURCES PLC
PRELIMINARY RESULTS
GROUP STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2007
 
 
        


 
                                                 
 
 
NOTES TO THE PRELIMINARY RESULTS
 
Note 1.  Basis of Accounting and Preparation of Financial Information
 
The preliminary results have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial statements are prepared in US Dollars under the historical cost convention.
 
The financial information presented above does not constitute statutory accounts within the meaning of the Companies Acts, 1963 to 2006. A copy of the accounts in respect of the financial year ended 31 December 2007 will be annexed to the Annual Return for 2008. The auditors have made a report without qualification of their audit of the financial statements in respect of the year ended 31 December 2007. In forming their opinion they have considered the adequacy of the disclosures made in the financial statements concerning the recoverability of Deferred Development Expenditure, Property, Plant & Equipment and Construction in Progress, the realisation of which is dependent on the successful development of economic ore reserves and the continued availability of adequate financing.  Their opinion is not qualified in this respect.
 
The Directors approved the financial statements in respect of the financial year ended 31 December 2007 on 11 April 2008. The statutory accounts for the year ended 31 December 2006 prepared under IFRS upon which the auditors have issued an unqualified opinion, have been filed with the Registrar of Companies.
 
Note 2.  Loss per share
 
The calculation of the basic and diluted earnings per share attributable to the ordinary equity holders of the parent is based on the loss after taxation of US$9,632,000 (2006: loss US$4,330,000) and the weighted average number of shares in issue during 2007 of 689,587,755 (2006: 679,602,594).
            
The basic loss per share and the diluted loss per share are the same, as the effect of the outstanding share options and warrants are anti-dilutive.
 
Note 3.  Deferred Development Expenditure
 
    Analysed by Geographical Area


 
 
Additions include loan interest capitalised of US$25,091,000 (2006:US$17,971,000) net of deposit interest earned on the temporary deposit of loan balances and operating costs of US$11,233,000 (2006:US$17,830,000) net of revenue earned of US$2,897,000 (2006:nil) and net of delay damages of US$15,745,715 (2006:nil).
 
Following an impairment review, the uranium exploration expenditure of US$1,455,000 was written off.
 
The recovery of deferred development expenditure is dependent upon the successful development of the Projects, which in turn is dependent on the continued availability of adequate funding of the Projects.
 
The Directors are satisfied that deferred expenditure is worth not less than cost less any amounts written off and based on the planned mine production levels, that the Moma Titanium Minerals Mine will achieve positive cash flows.

 
 
Note 4.  Property Plant and Equipment
 


A construction contract for the engineering, procurement, building, commissioning and transfer of facilities at the Moma Titanium Minerals Mine in Mozambique was entered into on 7 April 2004. The Contractor is a joint venture formed for this project by subsidiaries of Multiplex Limited and Bateman B.V.
 
The construction contract was amended in December 2006 to provide for among other things, taking-over the Moma Titanium Minerals Mine works in sections. On 25 April 2007, the mining pond, dredges, wet concentrator plant and related infrastructure, were taken over by Kenmare and a taking-over certificate was issued. On 7 August 2007, the mineral separation plant, product warehouse, mineral export facilities and all related infrastructure was taken over by Kenmare and a taking-over certificate was issued. On 29 November 2007, the mineral product transfer barge was taken over by Kenmare, and a taking-over certificate was issued. At 31 December 2007, the only remaining section to be taken over was the roaster.     
 
Substantially all the property, plant and equipment will be mortgaged to secure banking facilities granted, as detailed in Note 8.
 
The recovery of Property, Plant and Equipment is dependent upon the successful development of the Moma Titanium Minerals Mine, which in turn is dependent on the continued availability of adequate funding of the Mine. The Directors are satisfied that Property, Plant and Equipment is worth not less than the carrying value, and based on the planned mine production levels that the Moma Titanium Minerals Mine will achieve positive cash flows.
 
Note 5.  Construction in Progress
 


 
 
Construction in Progress represents expenditure under a construction contract referred to in Note 4.
 
During the year assets with a value of US$266,855,000 were transferred from Construction in Progress to Property, Plant and Equipment.
 
Substantially all the construction in progress will be mortgaged to secure banking facilities granted as detailed in Note 8.
 
The recovery of Construction in Progress is dependent upon the successful development of the Moma Titanium Minerals Mine, which in turn is dependent on the continued availability of adequate funding of the Mine. The Directors are satisfied that Construction in Progress is worth not less than cost less any amounts written off and based on the planned mine production levels that the Moma Titanium Minerals Mine will achieve positive cash flows.
 
 
Note 6.  Capital Commitments
 


                                                                                                                                                                             
US$2.9 million represents the total amount payable under the contract for construction services work to the contractor at the year end.  
 
Note 7. Cash and Cash Equivalents


 
In accordance with IAS 7, cash and cash equivalents comprise cash balances held for the purposes of meeting short-term cash commitments and investments which are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value. Where investments are categorised as cash equivalents, the related balances have a maturity of three months or less from the date of investment.   
 
Cash at bank earns interest at floating rates based on daily deposit bank rates. Short-term deposits are made for varying periods of between one day and three months, depending on the cash requirements of the Group, and earn interest at the respective short-term deposit rates.
 
The Contingency Reserve Account and Shareholder Funding Account on fixed short term deposit are amounts held in support of conditions required for Senior and Subordinated Loans as shown in Note 8.
 
The amount required by the Senior and Subordinated Loan documentation to be maintained in the Contingency Reserve Account from time to time depends on a calculation involving capital and operating costs, interest and  principal payments, and reserve account contributions required to achieve completion under the Project Loans as referred to in Note 8. As at 31 December 2007, estimates of the additional amounts required to be deposited to the Contingency Reserve Account were within the cash and cash equivalent resources available to the Company. Failure to make a required deposit to the Contingency Reserve Account when required would give rise to an Event of Default under the Senior and Subordinated Loan documentation, as detailed in Note 8.    

 
 
 
Note 8. Bank Loans


 
The Bank Loans have been made to the Mozambique branches of Kenmare Moma Mining (Mauritius) Limited and
Kenmare Moma Processing (Mauritius) Limited (the Project Companies).  Bank loans are secured by substantially all rights and assets of the Company (other than cash and cash equivalents listed in Note 7 as "Immediately available without restriction" of $26,497,000 at 31 December 2007 (2006, $12,809,000)) and the Moma Titanium Minerals Mine; security agreements over shares in the Project Companies; and a Contingency Reserve and Shareholder Funding Account as shown in Note 7.
 
The Company has guaranteed the Bank Loans during the period prior to completion which must be achieved by 30 June 2009.  Completion occurs upon meeting certain tests, including installation of all required facilities, meeting certain cost and production benchmarks, meeting legal, environmental, social and permitting requirements, and filling of specified reserve accounts. Upon completion, the Company's guarantee of the Bank Loans will terminate.  Subject to extension for force majeure not to exceed 365 days, failure to achieve completion by 30 June 2009 would result in an event of default under the Senior and Subordinated Loan documentation which, following notice, would give Lenders the right to accelerate the loans against the Project Companies, and to commence a two-stage process allowing the Lenders to exercise their security interests in the shares and assets (including accounts) of the Project Companies and in the Contingency Reserve Account and the Shareholder Funding Account.
 
 
Note 9.  2007 Annual Report and Accounts
 
The Annual Report and Accounts will be posted to shareholders in due course.