TIDMKMR
Kenmare Resources plc ("Kenmare" or "the Company")
Kenmare Preliminary Results
For the year ended 31 December 2008
(LSE/ISE: KMR)
17 April 2009
Chairman's Statement
Dear Shareholder,
Over the past year we have worked with one main focus: to improve
production. We are now in a much improved position to deliver on our
targets for the Moma Titanium Minerals Mine.
While we have made significant improvements in production levels over
the past year, there have also been significant challenges. These
included Cyclone Jokwe, successive missed deadlines by our
construction contractor and aspects of the plant which were
demonstrated as not being 'fit for purpose' frustrating our ability
to reach full production. However, the Board remains confident that
the mine will reach full production by the end of this year and that
the plan to get there is both achievable and realistic.
Key steps taken by the Board and Kenmare's management team to ensure
that these targets are reached by late 2009 include:
-Development of a detailed plan which addresses production issues and
their solutions;
-Implementation of a detailed Performance Improvement Project ("PIP")
to rectify deficiencies in the plant and equipment, 75% complete; and
-Appointment of a new Chief Operating Officer and a new General
Manager for the mine.
In November 2008, Kenmare required the construction contractor to
participate in a set of performance tests on the facilities at the
mine. These tests were witnessed by a jointly appointed independent
observer and, as we anticipated, failed to achieve the required
performance criteria outlined in the contract in a number of key
areas. This enabled Kenmare to present the contractor with a set of
projects we considered necessary to reach full production, and to
insist that implementation commenced immediately.
This set of projects, known collectively as the PIP, is being
implemented largely by the contractor with close involvement by a
dedicated Kenmare project team to ensure adherence to the agreed
schedule and scope of work. In the three months since it was
initiated, the PIP has been 75% completed across 326 action areas
with all necessary new equipment either delivered, in transit or in
manufacture. While most tasks within the PIP fall under the
contractor's responsibility, Kenmare is itself responsible for a
sub-set of tasks necessary to achieve full production of 800,000
tonnes per annum of ilmenite plus co-products rutile and zircon.
The PIP is addressing key areas that are vital to achieving
production targets, including the upgrade of the dredge hydraulics,
slimes and tailings disposal pumping systems, material handling
systems in the mineral separation plant, and provision of additional
separation equipment in the ilmenite, zircon and rutile circuits,
combined with a new ilmenite reject scavenging system to optimise
recoveries and product quality. Most of the work has to be completed
before achieving significantly higher production levels and
implementation involves some disruption of production as work is
carried out. Nonetheless, production of heavy mineral concentrate,
the limiting parameter, increased by 18% in quarter 1, 2009 compared
with quarter 4, 2008.
Kenmare has recruited a new Chief Operating Officer and General
Manager for the mine. Both have successful track records and
considerable experience in the mineral sands industry in South Africa
and Australia, which will benefit the mine. They have, in turn,
appointed a number of experienced personnel to key mining and
processing positions, further strengthening the capacity of the mine
to deliver on production targets.
Drilling completed during 2008 resulted in an upgrade of an Inferred
Resource at Namalope, the orebody on which the dredges are working,
to a Probable Reserve. As a result, the heavy mineral reserves for
the Namalope orebody increased from 21 million tonnes to 26 million
tonnes of total heavy minerals, despite the consumption of 0.6
million tonnes during 2008. The new reserves have added an estimated
five years of mine life to the Namalope deposit.
At our Board meeting on 16 April 2009, Dr. Alastair Brown retired
both from his executive position as Director of Geology and from the
Board. Alastair was with Kenmare from 1987, providing the resource
definition which has enabled the financing and construction of the
mine. He worked in difficult circumstances with limited resources,
but with rigorous methodology which has withstood examination by
third party experts throughout the financing process. We all wish
Alastair well in his retirement and thank him for his enormous
contribution.
The present difficulties faced by the world's economies are impacting
on the uptake of titanium mineral products. In particular there has
been strong inventory de-stocking, reducing demand by pigment
producers, our key market. The bulk of the mine's planned production
for 2009 is covered under marketing contracts and the shipment
schedule for the coming months remains busy. We are hopeful that
this inventory de-stocking cycle is nearing completion and that
normal market conditions, even if at reduced levels, will soon
resume.
In September 2008, we initiated a dialogue with our lenders with the
objective of preserving liquidity. As a result, I am pleased to
report that lenders agreed to a deferment of capital repayments
during 2009, to allow us use funds in the Contingency Reserve Account
(US$15 million) for project purposes, and to defer the date by which
we would otherwise have been required to achieve financial
completion. This arrangement, along with existing financial resources
and an invoice discounting facility being arranged with one of the
lenders, will provide the additional liquidity necessary to enable
Kenmare to achieve production ramp-up plans.
The profit after tax for the year is US$0.3 million and arises from
deposit interest earned and foreign exchange gains, less corporate
and exploration costs. During 2008, operating and financial costs net
of revenue earned for the period, totalling US$60.1 million, were
capitalised in property, plant and equipment as construction was not
yet complete and as the mine was not yet capable of operating close
to design capacity. Senior and subordinated loans drawn at the year
end amounted to US$334.8 million, US$121.7 million of which were
Euro-denominated loans.
At full production, we expect the mine's operating cost will be in
the lowest quartile for titanium feedstock producers. The resource
base, one of the largest in the world, will support successive
expansions of capacity. We remain confident that, despite the
disappointing delays in achieving full production, the mine's
potential is enormous and we expect it will provide huge value to our
shareholders.
Charles Carvill
Chairman
This release incorporates Kenmare's Interim Management Statement
relating to the period from 1 January 2009 to 16 April 2009.
For more information:
Kenmare Resources plc
Michael Carvill, Managing Director
Tel: +353 1 6710411
Mob: + 353 87 674 0110
Tony McCluskey, Financial Director
Tel: +353 1 6710411
Mob: + 353 87 674 0346
Murray Consultants
Elizabeth Headon
Tel: +353 1 498 0345
Mob: + 353 87 989 7234
Conduit PR Ltd
Leesa Peters/Fiona Hyland
Tel: +44 207 429 6614
Mob: +44 781 215 9885
www.kenmareresources.com
KENMARE RESOURCES PLC
PRELIMINARY RESULTS
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2008
2008 2007
US$'000 US$'000
Continuing Operations
Revenue - -
Operating expenses (957) (12,557)
Finance income 1,302 2,925
Profit/(loss) before tax 345 (9,632)
Income tax expense - -
Profit(loss) after tax for the financial 345 (9,632)
year
Attributable to Equity holders 345 (9,632)
US$ cent per US$ cent per
share share
Earnings/(loss) per share: Basic 0.045c (1.40c)
Earnings/(loss) per share: Diluted 0.042c (1.40c)
KENMARE RESOURCES PLC
PRELIMINARY RESULTS
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2008
2008 2007
US$'000 US$'000
Assets
Non-Current Assets
Property, plant and equipment 539,672 486,960
Current Assets
Inventories 6,405 5,631
Trade and other receivables 3,033 4,842
Cash and cash equivalents 40,536 56,203
49,974 66,676
Total Assets 589,646 553,636
Equity
Capital and reserves attributable to the
Company's equity holders
Called Up Share Capital 66,178 61,496
Share Premium 145,088 121,501
Retained Losses (30,791) (31,136)
Other Reserves 42,668 41,562
Total Equity 223,143 193,423
Liabilities
Non-Current
Liabilities
Bank loans 299,982 299,570
Obligations under finance lease 2,264 2,292
Provisions 4,179 2,505
306,425 304,367
Current Liabilities
Bank loans 34,842 26,273
Trade and other payables 25,236 29,573
60,078 55,846
Total Liabilities 366,503 360,213
Total Equity and Liabilities 589,646 553,636
KENMARE RESOURCES PLC
PRELIMINARY RESULTS
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2008
2008 2007
US$'000 US$'000
Cashflows from operating activities
Profit/(loss) for the year 345 (9,632)
Adjustment for:
Foreign exchange movement (5,472) 1,680
Operating cash outflow (5,127) (7,952)
Decrease/(increase) in inventories 408 (5,631)
Decrease/(increase) in trade and other 1,809 (4,032)
receivables
(Decrease) in trade and other payables (4,414) (7,896)
Increase in provisions 1,674 140
Cash used by operations (5,650) (25,371)
Finance costs (13,739) (12,249)
Net cash used in operating activities (19,389) (37,620)
Cashflows from investing activities
Addition to property, plant and equipment (39,050) (67,027)
Net cash used in investing activities (39,050) (67,027)
Cashflows from financing activities
Proceeds on the issue of shares 28,269 3,542
Proceeds on shares to be issued - 14,249
Repayment of borrowings (20,335) (4,424)
Increase in borrowings 29,316 59,691
Increase in obligations under finance leases 50 2,242
Net cash from financing activities 37,300 75,300
Net decrease in cash and cash equivalents (21,139) (29,347)
Cash and cash equivalents at beginning of the 56,203 87,230
year
Effect of exchange rate changes on cash and cash 5,472 (1,680)
equivalents
Cash and cash equivalents at the end of the year 40,536 56,203
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 2008 will be annexed to the Annual Return for 2009. The
auditors have made a report without qualification of their audit of
the financial statements in respect of the year ended 31 December
2008. In forming their opinion they have considered the adequacy of
the disclosures made in the financial statements concerning the
recoverability of property, plant and equipment and amounts due from
subsidiary undertakings, the realisation of which is dependent on the
successful development of economic ore reserves, successful ramp-up
of production which includes the rectification of mining and
processing equipment, and the continued availability of adequate
financing including the waivers and amendments to the financing
documents referred to in note 6 below. Their opinion is not
qualified in this respect.
The Directors approved the financial statements in respect of the
financial year ended 31 December 2008 on 16 April 2009. The statutory
accounts for the year ended 31 December 2007 prepared under IFRS upon
which the auditors have issued an unqualified opinion, have been
filed with the Registrar of Companies.
Note 2. Earnings/(Loss) per share
The calculation of the basic and diluted earnings/(loss) per share
attributable to the ordinary equity holders of the parent is based on
the profit after taxation of US$345,000 (2007: loss US$9,632,000) and
the weighted average number of shares in issue during 2008 for the
purposes of basic earnings/(loss) per share of 760,160,548 (2007:
689,587,755) and for diluted earnings/(loss) per share of 825,386,342
(2007:755,652,168).
In 2007 the basic loss per share and the diluted loss per share are
the same, as the effect of the outstanding share options and warrants
are anti-dilutive.
Note 3. Property Plant and Equipment
Plant Buildings Mobile Fixtures Construction Development Total
&
& & Equipment Equipment In Progress Expenditure
Equipment Airstrip
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Cost
At 1 January - - - - 265,718 140,751 406,469
2007
Transfer from 255,175 3,812 5,919 1,949 (266,855) - -
construction in
progress
Additions during 2,327 - 103 586 47,219 37,069 87,304
the year
Impairment
during the year - - - - - (1,455) (1,455)
At 1 January 257,502 3,812 6,022 2,535 46,082 176,365 492,318
2008
Transfer from
construction in 2,403 - 177 78 (2,658) - -
progress
Reclassification (1,182) - - - - - (1,182)
to inventory
Additions during 793 - 525 135 2,281 60,041 63,775
the year
Impairment
during the year - - (486) - - - (486)
At 31 December 259,516 3,812 6,238 2,748 45,705 236,406 554,425
2008
Accumulated
Depreciation
At 1 January - - - - - - -
2007
Charge for the
year 2,775 74 2,207 302 - - 5,358
At 1 January 2,775 74 2,207 302 - - 5,358
2008
Charge for the 7,445 191 1,252 820 - - 9,708
year
Impairment
during the year - - (313) - - - (313)
At 31 December 10,220 265 3,146 1,122 - - 14,753
2008
Carrying Amount
At 31 December 249,296 3,547 3,092 1,626 45,705 236,406 539,672
2008
At 31 December 254,727 3,738 3,815 2,233 46,082 176,365 486,960
2007
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. Construction in progress shown
in a separate note in 2007 has been included above.
The construction contract was amended in December 2006 to provide for
among other things, taking-over the Moma Titanium Minerals Project
works in sections. At 31 December 2008, the only remaining section to
be taken over was the roaster.
During the year the mining reserve was increased to represent
approximately a 21 year life at expected production levels. This has
resulted in a change in the unit of production depreciation which is
calculated using the quantity of material extracted from the mine in
the period as a percentage of the total quantity of material to be
extracted in current and future periods based on the mining reserve.
Included in plant and equipment are capital spares of US$0.5 million.
The Company has reclassified consumable spares included in property,
plant and equipment of US$1.2 million into inventory.
Substantially all the property, plant and equipment will be mortgaged
to secure banking facilities granted, as detailed in note 6.
The recovery of property, plant and equipment is dependent upon the
successful operation of the Moma Titanium Minerals Mine, which in
turn is dependent on the successful ramp-up of production, including
rectification of mining and processing equipment and continued
availability of adequate funding for the mine. The Directors are
satisfied that at the balance sheet date the recoverable amount of
property, plant and equipment exceeds its carrying amount and based
on the planned mine production levels that the Moma Titanium Minerals
Mine will achieve positive cash flows. No impairment provision has
been made in respect of property, plant and equipment.
Note 4. Trade and Other Receivables
2008 2007
US$'000 US$'000
Trade receivables 593 2,922
Other receivables 2,343 1,851
Prepayments 97 69
3,033 4,842
During the year an invoice discounting facility was in place with
Barclays Bank plc. The invoice discounting fee was LIBOR plus 1%.
This facility expired in January 2009. The Group is arranging with
Absa Bank, an existing senior lender, a replacement of this facility.
The invoice discounting facility is an important component of the
Group's financing arrangements and the Group expects that a
replacement facility will be available later this year.
Of the US$0.593 million outstanding from trade receivables above,
US$0.52 million is less than 30 days and an amount of US$0.588
million has been received post year end. There has been no
impairment in trade receivables during the year and no allowance for
impairment has been provided for during the year or at the year end.
Included in other receivables is an amount US$1.3 million due from
the contractor, for repair and other costs incurred by the Group on
behalf of the contractor which are refundable under the terms of the
construction contract. The Directors are satisfied that these amounts
can be deducted from amounts due to the contractor.
Included in other receivables is an amount US$0.7 million due from an
insurance claim. The Directors are satisfied this amount is
recoverable.
Note 5. Cash and Cash Equivalents
2008 2007
US$'000 US$'000
Immediately available
without restriction 19,548 26,497
On fixed short-term deposit:
Contingency Reserve Account 15,292 26,048
Shareholder Funding Account 24 25
Other short-term deposit 5,672 3,633
40,536 56,203
Cash and cash equivalents comprise cash balances held for the
purposes of meeting short-term cash commitments and investments which
are readily convertible to a known amount of cash and are subject to
an insignificant risk of change in value. Where investments are
categorised as cash equivalents, the related balances have a maturity
of three months or less from the date of investment.
Cash at bank earns interest at floating rates based on daily deposit
bank rates. Short-term deposits are made for varying periods of
between one day and three months, depending on the cash requirements
of the Group, and earn interest at the respective short-term deposit
rates.
The Contingency Reserve Account and Shareholder Funding Account on
fixed short term deposit are amounts held in support of conditions
required for Senior and Subordinated Loans as detailed in note 6.
The amount required by the Senior and Subordinated Loan documentation
to be maintained in the Contingency Reserve Account from time to time
depends on a calculation involving capital and operating costs,
interest and principal payments, and reserve account contributions
required to achieve completion under the Project Loans as referred to
in note 6.
Note 6. Bank Loans
2008 2007
US$'000 US$'000
Senior Loans 188,844 210,694
Subordinated Loans 145,980 115,149
334,824 325,843
The borrowings are repayable as follows:
Within one year 34,842 26,273
In the second year 36,633 28,283
In the third to fifth years inclusive 109,899 101,299
After five years 153,450 169,988
334,824 325,843
Less: amount due for settlement within 12 months (34,842) (26,273)
Amount due for settlement after 12 months 299,982 299,570
2008 2007
US$'000 US$'000
Analysis of borrowings by currency
Euro 121,666 119,253
US Dollars 213,158 206,590
334,824 325,843
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 5 as "Immediately available
without restriction" of US$19.5 million at 31 December 2008 (31
December 2007: $26.5 million)) and the Moma Titanium Minerals Mine;
security agreements over shares in the Project Companies; and a
Contingency Reserve and Shareholder Funding Account as detailed in
note 5.
The Company has guaranteed the Bank Loans during the period prior to
completion. The final date for achieving completion was formerly 30
June 2009. The Deed of Waiver and Amendment dated 31 March 2009
extended this date to 31 December 2012. Completion occurs upon
meeting certain tests on a phased basis, including installation of
all required facilities, meeting certain cost and production
benchmarks and social and environmental requirements (which must take
place by 31 December 2010), meeting marketing requirements (which
must take place by 30 June 2011), and meeting legal and permitting
requirements, and filling of specified reserve accounts to the
required levels. Upon completion, the Company's guarantee of the Bank
Loans will terminate. Failure to meet any of the phased tests or,
subject to extension for force majeure not to exceed 365 days,
failure to achieve completion by 31 December 2012, 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.
On 30 January 2009 a Deed of Waiver and Amendment was entered into by
the Project Companies whereby the principal repayment due on the 2
February 2009 was deferred and spread over the remaining life of the
loan facilities commencing on 1 February 2010. On 31 March 2009 a
second Deed of Waiver and Amendment was entered into by the Project
Companies whereby the senior principal repayment due on the 4 August
2009 was also deferred and spread over the remaining life of the loan
facilities commencing on the 1 February 2010. The Subordinated
principal repayment due on the 4 August 2009 was deferred and rolled
up for repayment from future available project cash flow in
accordance with the terms of the initial loan agreements.
The revised repayment schedule based upon the Deeds of Waiver set out
above is as follows:
2008 2007
US$'000 US$'000
The borrowings are repayable as follows:
Within one year 5,160 26,273
In the second year 40,649 28,283
In the third to fifth years inclusive 121,946 101,299
After five years 167,069 169,988
334,824 325,843
Less: amount due for settlement within 12 months (5,160) (26,273)
Amount due for settlement after 12 months 329,664 299,570
The Directors have prepared cash flow projections for the estimated
life of the Moma Titanium Minerals Mine. These forecasts are based on
the planned mine production levels which are dependent on the
successful ramp-up of production through the project improvement
plans and continued adequate funding for the mine. The cash flow
projections based on planned mine production levels, arrangement of
an invoice discounting facility referred to in note 4 and revised
financing arrangements detailed above show that the mine operations
will result in positive cash flows, and that the mine will have
adequate funding for a period of not less than twelve months from the
date of this report. Accordingly the Directors have prepared the
financial statements on the basis that the Group is a going concern.
Note 7. 2008 Annual Report and Accounts
The Annual Report and Accounts will be posted to shareholders in due
course.
=--END OF MESSAGE---
This announcement was originally distributed by Hugin. The issuer is
solely responsible for the content of this announcement.
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