TIDMKMR
Kenmare Resources plc ("Kenmare" or "the Company")
Kenmare Preliminary Results
For the year ended 31 December 2011
(LSE/ISE: KMR)
28 March 2012
Kenmare Resources plc., which operates the Moma Titanium Minerals Mine (the
"Mine" or "Moma") in Mozambique, today announces its preliminary results for the
twelve months to 31 December 2011. This release incorporates Kenmare's Interim
Management Statement relating to the period from the 1 January 2012 to the 28
March 2012.
Highlights
* EBITDA of US$71.7 million for 2011 (2010: US$17.4 million)
* Profit after tax of US$23.7 million for 2011 (2010: loss of US$16.3
million)
* Robust demand increases market prices strongly in 2011
* 2011 Revenues of US$167.5 million (2010: US$91.6 million)
* Moma's health and safety record continues to improve, with a lost time
injury frequency rate per 200,000 hours worked of 0.23
* 730,400 tonnes of total products were shipped in 2011, up from 712,900
tonnes shipped in 2010
* Total HMC production for the year was 842,900 tonnes (2010: 956,900 tonnes)
* Ilmenite production was 636,800 tonnes (2010: 678,400 tonnes)
* Zircon production was 43,600 tonnes (2010: 37,100 tonnes)
* Combination of dry mining and operation of the dredges set to return mine to
target output levels
* Phase II expansion project progressing with delivery of critical items to
Moma
* Demand for output from Phase II expansion has been strong, majority of
output already allocated to customers
* Kenmare achieved lender "Technical Completion", resulting in a reduction in
the subordinated debt interest rate by 2% (approximately US$3 million pa.)
Justin Loasby, Chairman of Kenmare said, " I hope that, under my stewardship,
the Board will continue to develop and grow Kenmare's value in a sustainable and
socially responsible manner, whilst retaining the entrepreneurial spirit that
has served the Company so well thus far. With this in mind, increasing and
stabilising production is a key success factor. The Board continues to identify
and implement actions to reduce risks and to enhance the robustness and
resilience of the production system."
Chairman's Statement
Dear Shareholder,
I am delighted to be addressing you for the first time as the Chairman of
Kenmare and look forward to working with the Board and management in continuing
to build the value of the Company over the coming years. Having delivered
profit, and large increases in both revenues and EBITDA, I am confident that
Kenmare is exceptionally well placed to deliver real long-term value for its
shareholders, and I would like to set out the reasons why this is so.
First and foremost is our world class resource base, which at around 200 million
tonnes of contained ilmenite (equivalent to more than 160 years production at
our projected levels following Phase II expansion), is arguably the best dredge-
mineable resource in the world. The nature of the deposit with abundant fresh
water, no overburden, a good mineral grade and attractive products which do not
have to be upgraded before being used, gives us the ability to mine, concentrate
and separate our products with capital and operating expenditure which are low
compared with our peers. Operating our own dedicated port facility immediately
adjacent to the Mine allows us to transfer these products to our customers at
minimum cost. These factors have enabled Kenmare to move quickly from Phase I
into a 50% expansion (Phase II) which, while it has been challenging
operationally to execute, will greatly add to the long-term value of the
Company. When Phase II is ramped up, Kenmare will be supplying around 10% of the
world's titanium feedstock requirement and will be well placed to embark on
further expansion to meet demand from our customers (Phase III) if appropriate.
The minerals we produce and market - ilmenite, zircon and rutile - have all
recently experienced significant price increases due to tightness in supply and
rapidly expanding demand. Titanium feedstocks are used to produce titanium
dioxide pigment and titanium metal. Titanium dioxide pigment has unrivalled
properties of whiteness, brightness, and opacity. It is chemically inert and
non-toxic and in general is non-recyclable. The market for titanium pigment is
expanding at above trend-line growth rates due to a steep increase of usage in
newly industrialising economies. Titanium metal is light, strong, non-corrosive
and has a low coefficient of thermal expansion. While only representing a small
portion of the overall use of titanium feedstocks, titanium metal is
experiencing a steep increase in usage as the intensity of use in new generation
airliners is significantly greater than in previous designs. The fundamental
usefulness of our products, expanding market and tightness of supply, positioned
against the size of the Moma resource, all bode well for the Company.
The Company's operating team is strong and experienced. Having successfully
addressed numerous challenges during the original construction and ramp up of
Phase I, the team has built up a considerable bank of knowledge on how this
orebody responds to the mining and processing equipment deployed, and is now
uniquely qualified to implement the completion of Phase II.
The host country for our mining operations is Mozambique. Many of you will have
read of the major developments that have been announced in recent months
concerning the broader resources sector of the country, both onshore and
offshore. I would like to record here a note of appreciation of the excellent
relationship with the Mozambique government and authorities that our Company has
been able to establish over many years, which I am confident will be continued
and strengthened even further in the future. A particular feature of our
development cooperation in the country is the established not-for profit Kenmare
Moma Development Association ("KMAD") initiative, which is making a major
contribution to the social and economic development of the local region where
our Mine is located.
Markets
The market for titanium dioxide feedstocks enjoyed a very positive period during
2011. Ilmenite was achieving about US$100 per tonne at the start of the year;
by the end of the year we were negotiating new contracts for delivery in the
first half of 2012 at between US$300 and US$400 per tonne. The industry has
moved away from multi-year pricing to a model of setting prices on a shorter
term basis. The multi-year pricing mechanism previously in place allowed prices
to be kept at pre-agreed levels despite the underlying price growth through the
period of the contract. Hence, for new contracts, Kenmare has moved to volume
based agreements with six-monthly price negotiations to ensure that sale prices
more closely reflect current market conditions. Despite the downturn in Chinese
real estate, the market for titanium feedstocks remains strong and we believe
that it will continue to be strong for the medium-term. Save a precipitous drop
in demand caused by another global financial crisis, it is hard to see how
supply tightness can be relieved for some time to come. This tightness is
particularly acute for rutile which has seen price increases from around US$700
to well above US$2,000 during the period under review.
Zircon, an important raw material used in the manufacture of ceramics, continued
to grow strongly for most of 2011, driven principally by urbanisation trends in
emerging economies. However, demand slowed in the fourth quarter and has
continued into 2012 with reduced construction related activity in China. Growth
is expected to resume strongly in China in the second half of 2012 as fiscal
tightening policies are eased and activity in the large social housing program
increases. Zircon supply contracts are volume based, with prices adjusted
quarterly. As with titanium feedstocks, there was similar positive zircon price
increases during 2011, with prices for standard grade zircon climbing from
around US$1,000 per tonne at end of 2010 to around US$2,400 per tonne by end of
2011.
Demand for output from our Phase II expansion has been strong and much of the
volume has already been allocated to customers.
Operations
During 2011, mining operations were hampered as we encountered areas within the
orebody with slightly elevated clay levels. The ore in these areas, while not
consolidated, is harder to mine than free flowing sand and our two existing
dredges supplied under the original lump sum turnkey construction contract
struggled to maintain their required dredging rates in these conditions.
Consequently, we produced less Heavy Mineral Concentrate ("HMC") from our
mining operations and in turn less ilmenite, zircon and rutile than we
originally anticipated. Planned downtime was experienced on the wet concentrator
plant during 2011 and I am pleased to report that plant capacity has been
successfully upgraded to 3,500 tonnes per hour in line with the expansion
requirements. Total HMC production for the year was 842,900 tonnes compared with
956,900 tonnes in 2010. Ilmenite production was 636,800 tonnes compared with
678,400 tonnes in 2010 and zircon production was 43,600 tonnes compared with
37,100 tonnes in 2010. Zircon output was augmented by the reprocessing of
zircon rich concentrate that was processed in the early stage commissioning of
the plant and which had been stockpiled for use as a future feedstock. Whilst
rutile output remains below forecast, we are continuing to work on optimising
the circuit. 730,400 tonnes of total products were shipped in 2011, an increase
from 712,900 tonnes shipped during the previous year.
Our operational update of 5 March this year outlined the continued presence of
elevated clay areas and the impact of exceptional adverse weather conditions on
production during the early months of this year. The Company has developed a
dry mining operation which mines ore using standard mobile equipment, slurries
this ore and pumps it to the wet concentrator plant as a supplementary feed.
During March, the capacity of this operation has been increased from 500 tonnes
per hour ("tph") to 1,000 tph and is being ramped up to this level. Principally
to ensure the optimal product mix and maximise revenues in a very positive
market, a further supplementary dry-mining operation will be established for an
additional 1,000 tph later this year. We believe that this is a satisfactory
short-term answer to the dredging issues we are facing. However, dry mining is
more expensive than dredge mining, resulting in some of the benefits of the
Mine's inherently low cost of operations being reduced. Hence, the Board has
decided that one of the existing dredges will be replaced with a more robust and
capable dredge which will be able to mine these zones without the difficulties
that we have encountered. This will be a unit similar to the dredge being
installed as part of Phase II which has around three times the cutter power and
three times the winch pull of the existing dredges. It is important to note
that the issue we are addressing is one of insufficient dredge power rather than
an orebody issue. Production during the early part of this year was also
hampered by an exceptional number of power dips, largely a result of an
unusually active cyclone season. There were 46 dips which affected production in
January and 66 in February. The Board has approved the purchase of voltage
stabilisation equipment which is designed to reduce stoppages caused by power
dips by 83%. This equipment is expected to be in place for the next rainy
season.
Whilst reduced production during the early months of this year has adversely
impacted revenues, we anticipate that the combination of dry mining and
operation of the dredges will allow the mine to reach target levels during the
second quarter and onwards for the rest of the year. We anticipate some limited
transitional interruption to operations as a result of the linking in of the
expansion facilities to the main plant at the end of the year.
The Mine's health and safety record continues to improve with a lost time injury
frequency rate per 200,000 hours worked of 0.23, representing a very strong
achievement by everyone working at the Mine.
Expansion - Completion of Phase II
The expansion is at a very exciting stage, with fabricated steelwork arriving on
site through March and April ready for immediate installation. Now that the
design of the expansion is effectively complete, the next task is the management
of site and logistics to ensure that the schedule for a rapid build programme is
maintained within the current cost estimate, which remains at approximately
US$300 million. Most of the equipment, around which the steel buildings will be
constructed, is already on site. The new dredge, manufactured and tested in the
USA, has arrived at Moma and will be reassembled in the coming months. All of
the pontoons that form the floating base of the new wet concentrator plant have
also arrived at Moma; they have been positioned in the starter pond and the
construction of the superstructure has commenced. Commissioning of the
expansion plant is scheduled to commence during the last quarter of this year.
This will allow us to ramp-up our operations, enabling full production from our
expanded facilities during 2013.
Financial
I am pleased to report that the Company generated earnings before interest, tax
and depreciation ("EBITDA") of US$71.7 million in 2011 (2010: US$17.4 million),
and a profit after tax of US$23.7 million (2010: loss US$16.3 million). This is
the Company's first profit that is attributable to trading performance of the
Moma Mine and it is an important milestone for Kenmare.
Revenues during the year increased to US$167.5 million from US$91.6 million in
2010, largely resulting from the continued strengthening of product prices.
Operating costs also increased in 2011, during a period of mining industry
inflation, and cost control remains a key priority for management.
Investment in property, plant and equipment at Moma during 2011 amounted to
US$180.1 million, primarily in the Phase II expansion works that are due to be
completed later this year. This expansion is financed by a combination of equity
raised in 2010 and from operating cashflow in accordance with an agreement
concluded with lenders in December 2011.
At 31 December 2011, bank loans amounted to US$327.1 million (2010: US$338.4
million) and cash balances were US$77.3 million (2010: US$238.5 million). As
anticipated, the reduction in cash is largely a reflection of the investment in
the Phase II expansion works. Kenmare passed a significant milestone in
September 2011 when "Technical Completion", which is a requirement of the
financing documents, was achieved and results in a reduction in the subordinated
debt interest rate by 2%, equivalent to approximately US$3 million per annum.
Board
On behalf of your Board, I take this opportunity to pay tribute to and express
our great appreciation for the leadership that your outgoing Chairman, Charles
Carvill, has given to the Company since 1986. He has successfully guided Kenmare
from initial exploration through many challenging phases of development,
construction and finally into production. He has followed his vision to create a
sustainable world-class mining business of considerable shareholder value and
has handed over the reins as the Company entered profitability during the past
year. The Moma Mine is now well established as one of the world's leading
producers of titanium minerals with excellent prospects for the future. He has
been an exceptional Chairman. I wish him the very best for the future and have
no doubt that he will continue to take a very close interest in the development
of Kenmare in the years ahead.
Outlook
The outlook for the business is very positive. Given our plans to increase
production and in an environment of increasing prices, Moma operations will
generate a strong positive cashflow. Some of this cashflow will be allocated to
expansion funding in the current year, with the remainder building up to allow
us to repay the deferred interest and principal that has accumulated on the
subordinated debt.
As outlined above, while we expect to have continuing dredging issues during
2012, supplementary dry mining will compensate for the lack of dredged ore, and
in 2013 we expect to take delivery of a new more capable dredging unit. The
priority attention of management in 2012 is to complete the Phase II expansion,
but the Board is reviewing the options for further expansion beyond Phase II.
The proposals for commercialisation of our monazite stream are still in hand,
and our pre-feasibility study on Phase III is progressing, with an intensive
drilling and sampling programme planned for the second half of 2012, so that we
will be in a position to consider the post-Phase II possibilities on a better-
defined basis in due course. I hope that, under my stewardship, the Board will
continue to develop and grow Kenmare's value in a sustainable and socially
responsible manner, whilst retaining the entrepreneurial spirit that has served
the Company so well thus far.
In summary, Kenmare has a very exciting future, with exceptional opportunities
to provide long-term growth and value for shareholders, and I look forward to
leading the Board as it guides the Company in this task.
Justin Loasby
Chairman
For more information:
Kenmare Resources plc.
Michael Carvill, Managing Director
Tel: +353 1 671 0411
Mob: + 353 87 674 0110
Jacob Deysel, Operations Director
Tel: +353 1 671 0411
Mob: + 353 87 613 9609
Tony McCluskey, Financial Director
Tel: +353 1 671 0411
Mob: + 353 87 674 0346
Murray Consultants
Joe Heron
Tel: +353 1 498 0300
Mob: +353 87 690 9735
Tavistock Communications
Paul Youens / Jos Simson
Tel: +44 207 920 3150
Mob: +44 7843 260 623
www.kenmareresources.com
KENMARE RESOURCES PLC
PRELIMINARY RESULTS
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2011
Notes 2011 2010
US$'000 US$'000
Revenue 167,485 91,587
Cost of sales (97,498) (77,741)
Gross profit 69,987 13,846
Other operating costs 3 (17,071) (17,369)
Operating profit/(loss) 52,916 (3,523)
Finance income 3,332 1,522
Finance costs (31,748) (31,024)
Foreign exchange (loss)/gain (6,277) 16,691
Profit/(loss) before tax 18,223 (16,334)
Income tax credit 6 5,477 -
Profit/(loss) for the year
and total comprehensive profit/(loss) for the year 23,700 (16,334)
Attributable to equity holders 23,700 (16,334)
Cent Cent
per share per share
Earnings/(loss) per share: Basic 4 0.99 (0.80)
Earnings/(loss) per share: Diluted 4 0.98 (0.80)
KENMARE RESOURCES PLC
PRELIMINARY RESULTS
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2011
Notes 2011 2010
US$'000 US$'000
Assets
Non-current assets
Property, plant and equipment 5 714,118 552,786
Deferred tax asset 6 5,477 -
719,595 552,786
Current assets
Inventories 25,846 24,618
Trade and other receivables 38,831 12,974
Cash and cash equivalents 7 77,256 238,515
141,933 276,107
Total assets 861,528 828,893
Equity
Capital and reserves attributable to the
Company's equity holders
Called-up share capital 8 196,347 195,830
Share premium 301,391 299,860
Retained losses (19,994) (43,694)
Other reserves 17,610 14,103
Total equity 495,354 466,099
Liabilities
Non-current liabilities
Bank loans 9 213,523 252,814
Obligations under finance lease 1,810 2,015
Provisions 7,407 6,750
222,740 261,579
Current liabilities
Bank loans 9 113,585 85,574
Obligations under finance lease 221 157
Provisions 276 279
Trade and other payables 29,352 15,205
143,434 101,215
Total liabilities 366,174 362,794
Total equity and liabilities 861,528 828,893
KENMARE RESOURCES PLC
PRELIMINARY RESULTS
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2011
2011 2010
Notes US$'000 US$'000
Cash flows from operating activities
Profit/(loss) for the year 18,223 (16,334)
Adjustment for:
Foreign exchange movement 6,277 (16,691)
Share-based payments 3,368 2,374
Finance income (3,332) (1,522)
Finance costs 30,333 29,852
Depreciation 18,801 20,955
Impairment of property, plant and equipment - 3,066
Increase in provisions 384 845
Operating cash flow 74,054 22,545
Increase in inventories (1,228) (2,667)
(Increase)/decrease in trade and other receivables (25,847) 319
Increase in trade and other payables 3,983 6,851
Cash used by operations 50,962 27,048
Interest received 3,332 1,522
Interest paid (8,595) (10,191)
Net cash from operating activities 45,699 18,379
Cash flows used in investing activities
Addition to property, plant and equipment 5 (169,823) (34,790)
Net cash used in investing activities (169,823) (34,790)
Cash flows (used in)/from financing activities
Proceeds on the issue of shares 8 2,048 257,873
Repayment of borrowings (28,093) (26,374)
Payment of obligations under finance leases (564) (588)
Net cash from financing activities (26,609) 230,911
Net (decrease)/increase in cash and cash equivalents (150,733) 214,500
Cash and cash equivalents at beginning of the year 238,515 17,408
Effect of exchange rate changes on cash and cash (10,526) 6,607
equivalents
Cash and cash equivalents at the end of the year 77,256 238,515
NOTES TO THE PRELIMINARY RESULTS
Note 1. Basis of Accounting and Preparation of Financial Information
On 27 March 2012, the Directors approved the preliminary results for
publication. While the unaudited consolidated financial statements for the year
ended 31 December 2011, from which the preliminary results have been extracted,
are prepared in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union, these preliminary results do not
contain sufficient information to comply with IFRSs. The Directors expect to
publish the full financial statements that comply with IFRS as adopted by the
European Union in April 2012.
The auditors have not yet issued their audit opinion on the financial statements
in respect of the year ended 31 December 2011, but when issued is likely to draw
attention to the disclosures made in the financial statements concerning the
recoverability of property, plant and equipment (see Note 5) and investments in
and amounts due from subsidiary undertakings, which are dependent on the
successful development of economic ore reserves, successful operation of the
Mine including the Mine expansion project and continued availability of adequate
funding for the Mine. They are also likely to note that the financial statements
do not include any adjustments relating to these uncertainties and that the
ultimate outcome cannot at present be determined.
The financial information presented above does not constitute statutory accounts
within the meaning of the Companies Acts, 1963 to 2009. A copy of the accounts
in respect of the financial year ended 31 December 2011 will be annexed to the
Annual Return for 2012.
The statutory accounts for the year ended 31 December 2010 prepared under IFRS
upon which the auditors have issued an unqualified opinion, but with an emphasis
of matter drawing attention to the disclosures made in the financial statements
concerning the recoverability of property, plant and equipment and investments
in and amounts due from subsidiary undertakings, which are dependent on the
successful development of economic ore reserves and successful operation of the
Mine, have been filed with the Registrar of Companies.
Note 2. Segment Reporting
Information on the operations of Moma Titanium Minerals Mine in Mozambique is
reported to the Board for the purposes of resources allocation and assessment of
segment performance. Information regarding the Group's operating segment is
reported below.
Segment revenues and results
2011 2010
Moma Titanium Minerals Mine US$'000 US$'000
Revenue 167,485 91,587
Cost of sales (97,498) (77,741)
Gross profit 69,987 13,846
Other operating costs (11,931) (10,363)
Segment operating profit 58,056 3,483
Other corporate operating costs (5,140) (7,006)
Group operating profit/(loss) 52,916 (3,523)
Finance income 3,332 1,522
Finance expenses (31,748) (31,024)
Foreign exchange (loss)/gain (6,277) 16,691
Profit/(loss) before tax 18,223 (16,334)
Income tax credit 5,477 -
Profit/(loss) for the year 23,700 (16,334)
Segment assets
Moma Titanium Minerals Mine assets 783,791 593,305
Corporate assets 77,737 235,588
Total assets 861,528 828,893
Segment liabilities
Moma Titanium Minerals Mine liabilities 361,989 356,504
Corporate liabilities 4,185 6,290
Total liabilities 366,174 362,794
Other segment information
Depreciation and amortisation
Moma Titanium Minerals Mine 18,785 20,912
Corporate 16 43
Total 18,801 20,955
Additions to non-current assets
Moma Titanium Minerals Mine 178,496 32,647
Corporate 1,637 3,236
Total 180,133 35,883
Revenue from major products
2011 2010
US$'000 US$'000
Mineral products (ilmenite, zircon and rutile) 167,485 91,587
Geographical information
2011 2010
Revenue from external customers US$'000 US$'000
Europe 77,771 51,169
Asia 54,681 25,059
USA 15,811 13,153
Rest of World 19,222 2,206
Total 167,485 91,587
The Group's revenue from external customers is generated by the Moma Titanium
Minerals Mine, the non-current assets of which are US$711.5 million (2010:
US$546.6 million).
Information about major customers
Included in revenues are US$33.0 million (2010: US$17.5 million) from sales to
the Group's largest customer, US$29.4 million (2010: US$15.1 million) from sales
to the Group's second largest customer and US$19.5 million (2010: US$13.2
million) from sales to the Group's third largest customer. All revenues are
generated by the Moma Titanium Minerals Mine.
Note 3. Other Operating Costs
2011 2010
US$'000 US$'000
Distribution costs 5,717 3,777
Freight costs 3,561 4,098
Demurrage costs 2,450 -
Administration costs 5,343 7,660
Cost of the settling pond breach incident net of insurance - 1,834
claim
17,071 17,369
Included in administration costs are:
Share-based payments 2,249 2,063
Litigation costs 118 1,839
Freight costs of US$3.6 million (2010: US$4.1 million) are reimbursable by
customers or factored into the sales price for product delivered to customers on
a CIF (cost, insurance and freight) basis. There were demurrage costs incurred
during the year of US$2.5 million (2010: nil) as a result of unseasonably bad
weather in the middle of the year which restricted shipments.
Total share-based payments for 2011 amounted to US$3.5 million (2010: US$2.5
million) of which US$1.1 million (2010: US$0.3 million) relate to staff at the
Mine and are included as a production cost of inventories. US$0.1 million (2010:
US$0.1 million) relate to staff working on the expansion project and have been
capitalised in property, plant and equipment and the balance of US$2.3 million
(2010: US$2.1 million) included in administration costs in the income statement.
Note 4. Earnings/(Loss) per share
The calculation of the basic and diluted earnings/(loss) per share attributable
to the ordinary equity holders of the Parent Company is based on the profit
after taxation of US$23.7 million (2010: loss US$16.3 million) and the weighted
average number of shares in issue during 2011 for the purposes of basic
earnings/(loss) per share of 2,404,281,590 (2010: 2,029,895,059) and for diluted
earnings/(loss) per share of 2,424,073,254 (2010: 2,093,498,317).
In 2010 the basic loss per share and the diluted loss per share are the same, as
the effect of the outstanding share options was anti-dilutive.
Note 5. Property, plant and equipment
Plant & Development Construction Other Total
Equipment Expenditure In Progress Assets
US$'000 US$'000 US$'000 US$'000 US$'000
Cost
At 1 January 2010 311,433 244,174 4,313 14,215 574,135
Transfer from construction in 4,224 - (6,118) 1,894 -
progress
Additions during the year 4,510 4,169 27,180 24 35,883
At 1 January 2011 320,167 248,343 25,375 16,133 610,018
Transfer from construction in 22,616 - (22,963) 347 -
progress
Additions during the year 668 418 179,027 20 180,133
At 31 December 2011 343,451 248,761 181,439 16,500 790,151
Accumulated Depreciation
At 1 January 2010 21,262 5,188 - 6,761 33,211
Charge for the year 10,949 7,518 - 2,488 20,955
Impairment during the year 3,066 - - - 3,066
At 1 January 2011 35,277 12,706 - 9,249 57,232
Charge for the year 10,382 6,749 - 1,670 18,801
At 31 December 2011 45,659 19,455 - 10,919 76,033
Carrying Amount
At 31 December 2011 297,792 229,306 181,439 5,581 714,118
At 31 December 2010 284,890 235,637 25,375 6,884 552,786
At 30 June 2010, the Group finalised drilling work on the Nataka deposit
resulting in an increase in the total reserves from 25 million tonnes of total
heavy mineral to 33 million tonnes of total heavy mineral. This resulted in a
change in the depreciation rate for plant and equipment and development
expenditure which are depreciated on a unit of production basis.
The jetty was initially damaged in December 2007 when the Bronagh J collided
with it while berthing. While the jetty remained operational using a modified
mooring and loading procedure, there was some further deterioration to the
structure over time. During 2010, an assessment of the permanent repair work
required was carried out. Based on this assessment, an impairment of US$3.0
million was recognised in the income statement and property plant and equipment.
In addition, during the year repair costs of US$0.5 million were incurred. The
Group completed repair and upgrade work on the jetty in October 2011 which both
strengthened the current structure and increased its operational capacity by
allowing the transhipment vessels to load from both sides of the jetty. An
insurance claim relating to the damage to the jetty structure was settled in
June 2010 for US$3.5 million which was recognised in the income statement in
that year.
Included in plant and equipment are capital spares of US$0.8 million (2010:
US$1.4 million).
Substantially all the property, plant and equipment of the Group is or will be
mortgaged, pledged or otherwise secured to provide collateral for the Project
senior and subordinated loans.
The carrying amount of the Group's plant and equipment includes an amount of
US$1.3 million (2010: US$1.3 million) in respect of assets held under finance
lease.
Additions to development expenditure include costs associated with a third phase
of mine expansion of US$0.4 million. Expansion development costs incurred during
the period before the expansion assets are capable of operating at production
levels in a manner intended by management are deferred and included in property,
plant and equipment.
Note 6. Deferred Tax
US$'000
At 1 January 2010 -
Credit/(charge) to income statement -
At 1 January 2011 -
Credit to income statement 5,477
At 31 December 2011 5,477
At the balance sheet date Kenmare Moma Mining (Mauritius) Limited ("KMML") had
unused tax losses of US$42.2 million (2010: US$36.4 million) available for
offset against future profits. A deferred tax asset has been recognised of
US$5.5 million in respect of US$31.2 million (2010: nil) of such losses. No
deferred tax asset has been recognised in respect of the remaining US$11.0
million as it is not considered probable that there will be future taxable
profits available before such losses expire. Included in tax losses are losses
of US$7.6 million that will expire in 2012. The other losses may be carried
forward for three years. No deferred tax liability is recognised on temporary
differences arising in connection with accelerated tax depreciation as the
differences are not significant. A deferred tax asset on assessed losses as at
31 December 2010 was not recognised because it was not probable at such date
that future taxable profits would be available against which the Company could
utilise the tax losses before they expired. The significant increases in final
product prices achieved by KMML in 2011 and forecast to be achieved in future
has increased taxable profits earned and to be earned by KMML. Revenues (and
hence taxable profits) in KMML are determined by reference to costs incurred in
producing heavy mineral concentrate plus a margin which is related to prices
earned by Kenmare Moma Processing (Mauritius) Limited ("KMPL") for final
products.
Note 7. Cash and cash equivalents
2011 2010
US$'000 US$'000
Immediately available without restriction 7,695 55,892
Contingency Reserve Account 63,222 172,753
Project Companies' Accounts 6,339 9,870
77,256 238,515
The Contingency Reserve Account (the "CRA") is an account established under a
cash collateral and shareholder funding deed to provide for shareholder funding
to the Project Companies and to secure the obligations of the Company and
Congolone Heavy Minerals Limited (a wholly-owned subsidiary undertaking) under
the Completion Agreement.
On 21 December 2011, the Company, Congolone Heavy Minerals Limited and the
Project Companies entered into a deed of amendment with the Project lenders in
relation to the funding of the expansion. Further details of this amendment are
set out in Note 9. Under this amendment the Company deposited the equivalent of
US$45 million in various currencies valued at June 2011 exchange rates into the
CRA before 31 December 2011 to fund expansion capital.
Note 8. Called up share capital
6,094,962 new ordinary shares were issued during 2011 as a result of share
options exercised, resulting in US$0.5 million being credited to share capital
and US$1.5 million credited 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 US$257.8 million net of
expenses. The primary purpose of this equity raising was to fund an expansion of
the existing Mine operations to increase production capacity from 800,000 tonnes
per annum of ilmenite plus co-products to 1.2 million tonnes per annum of
ilmenite plus co-products. US$121.12 million of this issue has been credited to
share capital. US$136.68 million of this issue has been credited to share
premium.
Note 9. Bank loans
2011 2010
US$'000 US$'000
Project Loans
Senior Loans 133,054 159,968
Subordinated Loans 194,054 176,372
Total Project Loans 327,108 336,340
Mortgage Loan - 2,048
327,108 338,388
The borrowings are repayable as follows:
Within one year 113,585 85,574
In the second year 39,750 40,578
In the third to fifth years inclusive 103,850 120,656
After five years 69,923 91,580
327,108 338,388
Less: amount due for settlement within 12 months (113,585) (85,574)
Amount due for settlement after 12 months 213,523 252,814
Project Loans
Balance at 1 January 2011 336,340 353,604
Loan interest accrued 29,561 29,024
Loan interest paid (8,560) (10,026)
Loan repayment (26,053) (25,911)
Foreign exchange movement (4,180) (10,351)
Balance at 31 December 2011 327,108 336,340
Mortgage Loan
Balance at 1 January 2011 2,048 2,513
Drawdown - -
Loan interest accrued 27 163
Loan interest paid (35) (165)
Loan repayment (2,040) (463)
Balance at 31 December 2011 - 2,048
Project loans
Project loans have been made to the Mozambique branches of KMML and KMPL (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. On 5 September 2011 Technical Completion was achieved. Non-Technical
Completion occurs upon meeting certain legal and permitting requirements,
including filling of specified reserve accounts to the required levels. Upon
Completion, the Kenmare Resources plc's and Congolone Heavy Mineral Limited's
guarantee of the loans will terminate. Failure to achieve Non-Technical
Completion by 31 December 2013 is an event of default.
Amendments to Project loan agreements
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.
* The Project Companies agreed to pay fees to the lenders totalling US$0.03
million.
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.
On 21 December 2011, the Project Companies entered into an Deed of Amendment
with the lenders in relation to funding of the expansion as a result of
projected capital cost increases. Under this amendment:
* Kenmare Resources plc deposited the equivalent of a further US$45 million in
various currencies valued at June 2011 exchange rates, into the Contingency
Reserve Account ("CRA"), an account held in the parent company Congolone
Heavy Minerals Ltd., by 31 December 2011 to fund expansion capital costs.
* The Project Companies capitalised US$15.5 million due to Congolone Heavy
Minerals Ltd as at 30 June 2011 under the Management Services Agreement and
the lenders agreed that internally generated cash flow equal to such
capitalised amount may be applied to meet expansion capital costs.
* The lenders agreed that the Project Companies may apply internally generated
cash flow to meet up to an additional US$65 million of expansion capital
costs.
* The lenders agreed that prior to Completion, funds may be withdrawn from
Senior Debt Reserve Account ("SDRA") to meet senior debt obligations,
operating costs and expansion capital costs without triggering a breach of
covenant provided the account is replenished prior to Completion.
* The Project Companies agreed to pay fees to the lenders totalling US$1.61
million.
Other Group bank borrowings
On 7 August 2009, Mozambique Minerals Limited (a wholly-owned subsidiary
undertaking) entered into a loan agreement with Banco Comercial e de
Investimentos, S.A. for US$2.5 million to fund the purchase of an additional
product transhipment barge, Peg, and a tug/work boat, Sofia III. Interest
accrued at a 6 month LIBOR plus 6%, and was payable monthly commencing September
2009 with principal scheduled to be repaid in 54 monthly instalments commencing
March 2010. This loan was fully drawn 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 5 March 2011.
Note 10. 2011 Annual Report and Accounts
The Annual Report and Accounts will be posted to shareholders before 30 April
2012.
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
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