Interim Results

| Source: Kenmare Resources Kenmare Resources

Kenmare Interim Results
For the period ended 30 June 2006
 
Chairman's Statement
 
Dear Shareholder,
 
The Moma Titanium Minerals Project is over 90% complete.  Our power line and the accompanying substations are finished and ready to be energised.  The start up mine pond is ready to be filled with water as soon as the power is energised. The mineral separation plant has made good progress.  The Project has recently passed through 2.4 million man hours worked without a lost time accident, which compares favourably to international safety standards.  
 
The latest information from the contractor has indicated some slippage in the programme. However, we continue to expect to be mining with the dredges and producing a heavy mineral concentrate stockpile during the last quarter of 2006.  This is based on an agreement to hand over the Project works in sections which is currently being negotiated with the contractor. When the mineral separation plant is released, we can immediately start processing the stockpiled heavy mineral concentrate.  The contractor in its latest report has indicated that the mineral separation plant will be complete by its due date of 5 January 2007.  However, due to delays in delivering equipment to site, there is no slack in the contractor's programme.  The roaster, which is used for upgrading a portion of the product stream, is behind timetable but this will not affect the operation and will not impact on sales. 
 
We are progressing well with our plans for starting up the mine and ramping up to full production. Our operations management team has grown and now consists of 28 members, the majority of whom have experience in minerals sands mining. The operations team has moved from Johannesburg to Nampula, the closest town to the Project. This allows the team to visit the mine regularly and facilitates their move to site over the coming months as the contractor vacates the camp housing.
 
We have also started to recruit the more junior grades according to a protocol where we seek to hire initially from the local villages, then from the general Moma area, then the province of Nampula, then Mozambique and finally, in the event that the position cannot be satisfied from these sources, we will look internationally.  Recruitment starts with health screening and aptitude testing, with interviews for those who pass these assessments.
 
The Kenmare Moma Development Association, a not-for-profit organisation focused on ensuring that the lives of the local people are uplifted by the Project, has been continuing its work.  It has signed a protocol with the World Wildlife Fund whereby both organisations will work together and jointly fund initiatives aimed at improving food security and improving the economic situation of the local population. 
 
Since the further development of the Moma orebody has been passed to the operations team, Kenmare's exploration department has been freed up.  This has allowed us to look at some exploration projects in Mozambique, as a result of which we have taken out some uranium leases in Tete and Niassa provinces, and an exploration team is on the ground. 
 
During the six months ended 30 June 2006 we report a loss of US$3.5 million. This loss arises primarily from foreign exchange losses on Euro-denominated debt plus Kenmare's corporate operating costs net of interest income earned. During the six months there was capital expenditure of US$42.2 million on the construction of the Project. Mineral exploration and project development costs of US$14.5 million were capitalised in deferred development expenditure. Capital commitments at 30 June 2006 amounted to US$80.4 million and a limited number of scope changes, which are for the account of Kenmare, are also under consideration. The existing financing facilities are sufficient to cover these capital commitments. Additional amounts drawn from lenders plus interest capitalised during the period amounted to US$51.3 million.
 
I am delighted to welcome Tony Lowrie onto the Board of Directors. Tony commands great respect in the equity market of which he has a long and wide experience, especially in Asia.  He brings a wealth of experience which will assist Kenmare to continue to grow.
 
We are delighted with the development of the Project and the way the operations team has grasped the challenges associated with opening a large mine in such a remote location. I look forward to reporting on production numbers as we move into 2007.
 
 
Charles Carvill
Chairman
 
 
 
 
For more information:
 
Kenmare Resources plc
Michael Carvill, Managing Director      
Tel: + 353 1 671 0411
Mob: + 353 87 674 0110
 
Conduit PR Ltd
Leesa Peters                                                                
Tel: +44 (0) 207 429 6600
Mob: + 44 (0) 781 215 9885
 
Murray Consultants Ltd
Elizabeth Headon                                                         
Tel: + 353 1 498 0300
Mob: +353 87 989 7234
 
www.kenmareresources.com
 
 
 
INDEPENDENT AUDITORS' REVIEW REPORT
TO THE DIRECTORS OF KENMARE RESOURCES PLC
 
 
Interim Financial Information - Six months ended 30 June 2006
 
Introduction
 
We have been instructed by the Company to review the financial information for the six months ended 30 June 2006 which comprises the Group Income Statement, the Group Balance Sheet, the Group Cash Flow Statement, Group Statement of Changes in Equity and related notes 1 to 10.  We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information.
 
This report is made solely to the company in accordance with Bulletin 1999/4 'Review of Interim Financial Information' issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company 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 for our review work, for this report or for the conclusions we have reached.
 
Directors' responsibilities
 
The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim report in accordance with the Listing Rules of the Irish Stock Exchange and of the UK Financial Services Authority which require that the accounting policies and presentation applied to the interim figures are consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed.
 
 
Review work performed
 
We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom and Ireland. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information.
 
Review conclusion
 
On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2006.
 
 
Deloitte & Touche
Chartered Accountants
Deloitte & Touche House
Earlsfort Terrace
Dublin 2
27 September 2006
 
 
 
 
 
 
 
KENMARE RESOURCES PLC
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30 JUNE 2006
 
                                                                                                                                         
1. BASIS OF PREPARATION
The interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) by applying the accounting policies set out in the 2005 Annual Report and Accounts.
 
The interim financial statements have also been prepared in accordance with Irish statute comprising the Companies Acts, 1963 to 2005, the European Communities (Companies: Group Accounts) Regulations, 1992 and the Listing Rules of the Irish and London Stock Exchanges.
 
The unaudited interim financial information in this statement has been reviewed by the auditors in respect of the six month ended 30 June 2006 only as set out in their Report to the Directors.     
 
2. EARNINGS PER SHARE
The calculation of the loss and fully diluted loss per share is based on the loss after taxation of US$3,452,000 (2005 profit of US$3,750,000) and the weighted average number of shares in issue during 2006 of 673,986,570 (2005 : 649,779,786). The loss per share and the fully diluted loss per share are the same, as the effect of the outstanding share options is anti-dilutive.
 
 
3. DEFERRED DEVELOPMENT EXPENDITURE
 
 
Additions include loan interest capitalised of US$8,524,000 (2005: US$2,699,000). Loan interest is net of deposit interest earned on the temporary deposit of loan balances.
 
The recovery of deferred development expenditure is dependent upon the successful development of the Moma Titanium Minerals Project, which in turn is dependent on the continued availability of adequate funding of the Project. The Directors are satisfied that deferred expenditure is worth not less than cost less any amounts written off and that the Moma Titanium Minerals Project has the potential to achieve mine production and positive cash flows.
 
 
4. CONSTRUCTION IN PROGRESS
 
                                                                                                                                                       
 
Construction in Progress represents expenditure under a construction contract for the engineering, procurement, building, commissioning and transfer of facilities at the Moma Project in Mozambique. This contract was entered into on 7 April 2004. The Contractor is a joint venture formed for this project, between Multiplex Ltd. and Bateman B.V. Multiplex is a large contracting group based in Australia with operations stretching around the globe and specialises in large complex construction projects. Bateman is an international engineering group with specific mineral sands experience and experience of working in Mozambique.
 
The recovery of Construction in Progress is dependent upon the successful development of the Moma Titanium Minerals Project, which in turn is dependent on the continued availability of adequate funding of the project. The Directors are satisfied that Construction in Progress is worth not less than cost less any amounts written off and that the Moma Titanium Minerals Project has the potential to achieve mine production and positive cash flows.
 
5. CAPITAL COMMITMENTS
 
                                                                                                                                                                                                                                                                                                                                                 
 
The construction contract provides for the possibility of potential cost increases within a limited number of defined cost categories where it is not practicable to establish the costs in advance. The maximum amount payable, other than changes in project scope and provisional sum items, in relation to potential cost increases associated with the defined cost category is US$16.75 million with any additional amount being for the account of the Contractor. US$16.75 million is arrived at by converting amounts incurred in Euros, Australian Dollars, and South African Rand (to the extent that the limit of the Exchange Risk Cover Policy is exceeded) to US Dollars at the following exchange rates: US$1 is equal to A$1.50, ZAR8.00 and €0.86. The Moma Titanium Minerals Project debt commitments are sufficient to cover this potential cost increase, if required.
 
 
6. CASH AND CASH EQUIVALENTS
                                                                                                                                                         
 
The Contingency Reserve Account and Shareholder Funding Account on fixed term deposit are amounts held in support of conditions required for Senior and Subordinated Loans as shown in note 7.
 
7. BANK LOANS
                                                                                                                                                        
 
Bank loans are secured by substantially all rights and assets of the Company and the Moma Titanium Minerals Project; security agreements over shares in the Company; and a Contingency Reserve and Shareholder Funding Account as shown in Note 6.
 
There are seven Senior Loan credit facilities available for financing the Moma Titanium Minerals Project.  The aggregate maximum amount of the Senior Loan credit facilities is US$185 million plus €15 million of which $125,350,000 and €7,687,500 had been drawn at the period end, and US$59,650,000 and €7,312,500 was undrawn and available. The facilities incur commitment fees ranging from 0.25% to 0.75% on the undrawn available amounts.
 
Senior Loans are repayable in semi-annual installments commencing, in the case of six of the seven Senior Loan facilities, on the earlier of (a) the first February 1 or August 1 falling at least 6 months after the date of acceptance of the assets being constructed under the construction contract, and (b) 1 February 2008, and in the case of the seventh Senior Loan facility, 12 months thereafter. The maximum Senior Loan tenors range from 11 years to 13 years from 31 December 2005. Two of the Senior Loans bear interest at fixed rates, one bears interest at a rate which is floating for each drawdown but is fixed thereafter, and four bear interest at floating rates.
 
The Subordinated Loan credit facilities of €47.1 million plus US$10 million are fully drawn down. Subordinated Loans are repayable in 21 semi-annual installments commencing on 1 August 2009.    The final installments are due on 1 August 2019. 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 floating rates.
 
Loan facilities arranged at fixed interest rates expose the Group to fair value interest rate risk. Loan facilities arranged at floating rates expose the Group to cashflow interest rate risk.
 
7. BANK LOANS CONTINUED
In addition to the above commitments, two Standby Subordinated Loan credit facilities are available for financing of the Moma Titanium Minerals Project. The aggregate maximum Standby Subordinated Loan credit facilities of €2.8 million and US$4 million are available and incur commitment fees of 1% on the undrawn available amount. Standby Subordinated Loans bear interest at fixed rates in respect of €2.8 million and US$1.5 million and at variable rates in respect of US$2.5 million.  Standby Subordinated Loans are repayable on the same terms as the Subordinated Loans. As at 30 June 2006, no debt was drawn down under the Standby Subordinated Loan facilities.
 
 
8. 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 7 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 cost of US$120,000.
 
 
9. NON-CONSOLIDATION OF SUBSIDIARY UNDERTAKING
As set out in detail in Note 26 of the 2005 Annual Report , Grafites de Ancuabe, S.A.R.L., a subsidiary company , has been excluded from consolidation in accordance with International Accounting Standard 27.
 
 
10.   APPROVAL OF FINANCIAL STATEMENTS
The financial statements were approved by the Board on 27 September 2006.