TIDMKMR
Kenmare Resources plc ("Kenmare" or "the Company")
Kenmare Resources plc Half-Yearly Results
Six Months Ended 30 June 2013
(LSE/ISE: KMR)
Overview
-- Phase II expansion facilities operational and ramping up production
-- Heavy Mineral Concentrate production up 24% on H1 2012 to 480,000 tonnes
-- Ilmenite production up 9% on H1 2012 to 302,600 tonnes, zircon production
down 19% to 19,100 tonnes
-- Moma Project loan amendment agreed
-- H2 expected to show strong growth over H1 production volumes as expansion
plant ramps up
-- RevenuesUS$79.3 million (H1 2012: US$109.1 million
-- EBITDA US$18.8 million (H1 2012: US$55.5 million)
-- Operating profit US$6.9 million (H1 2012: US$47.0 million)
-- Net loss US$10.2 million (H1 2012: net profit US$38.8 million)
-- Ilmenite market still subdued, zircon market continues to show signs of
recovery
Statement by Michael Carvill, Managing Director:
"With increasing production and the completion of the major investment
phase, management's focus is now on controlling operating costs,
conserving cash and de-risking the business. To this end, a three year
wage agreement has been reached with our unionised workforce, a system
to reduce disruption to electricity supply has been installed and our
capital expenditure programme has been reviewed. Kenmare will be
well-positioned for the global titanium feedstock market's emergence
from this unusually protracted period of subdued demand."
For further information, please contact:
Kenmare Resources plc
Michael Carvill, Managing Director
Tel: +353 1 671 0411
Mob: + 353 87 674 0110
Tony McCluskey, Financial Director
Tel: +353 1 671 0411
Mob: + 353 87 674 0346
Virginia Skroski, Investor Relations Manager
Tel: +353 1 671 0411
Mob: + 353 87 739 1103
Murray Consultants
Joe Heron/Jim Milton
Tel: +353 1 498 0300
Mob: +353 86 255 8400
Tavistock Communications
Mike Bartlett / Jos Simson
Tel: +44 207 920 3150
Mob: +44 7753 949108
INTERIM MANAGEMENT REPORT
Overview
Kenmare recorded an operating profit for the first half of 2013 of
US$6.9 million (2012: US$47.0 million) and EBITDA of US$18.8 million
(2012: US$55.5 million). While production volumes of Heavy Mineral
Concentrate (HMC) and ilmenite increased by 24% and 9% respectively on
the same period last year, revenues decreased to US$79.3 million (2012:
US$109.1 million). This was principally a result of lower average prices,
primarily a reflection of weaker market conditions for the first half of
the year compared with 2012.
Expansion
All main production facilities built as part of the 50% capacity
expansion are substantially complete and operational.
The completed facilities are in ramp-up, with some undergoing debugging
processes and some ancillary systems are still in the last stages of
cold commissioning. No issues have been identified to date which would
have a major effect on the ramp up or the ultimate ability of the
expanded facilities to operate at nameplate capacity.
Operations
Production H1 2013 H1 2012
Heavy Mineral Concentrate (HMC) 480,000 tonnes 386,200 tonnes
Ilmenite 302,600 tonnes 276,600 tonnes
Zircon 19,100 tonnes* 23,600 tonnes*
Shipments H1 2013 H1 2012
Product Shipped 294,100 tonnes 321,500 tonnes
* Includes 7,400 tonnes secondary zircon product (H1 2012: 11,100
tonnes)
Production is consistent with operational updates given in the course of
the year. Production of HMC in H1 2013 was up 24% on H1 2012 despite
January and February being very difficult months for mining operations.
These months were the last part of the transition of Dredge Pond A from
the Namalope Flats area to an elevated dunal plateau where it will
remain for the next 10 years. As a direct consequence of difficult
mining in January and February, ilmenite production was constrained in
these months by a lack of HMC for processing. In addition, there was a
scheduled shutdown of the Mineral Separation Plant (MSP) in June to
facilitate expansion integration works which restricted that month's
ilmenite production to 36,400 tonnes. Nonetheless, ilmenite production
increased 9% in H1 2013 from H1 2012. In July, 80,000 tonnes of
ilmenite were produced, a significant increase compared to previous
months due to the start of contributions from the Auxiliary Ilmenite
Plant constructed as part of the Phase II Expansion. August ilmenite
production was slightly reduced due to planned maintenance. The outlook
for the remainder of the year is that production will increase towards
design capacity as the expansion plants ramp-up.
Zircon production declined by 19% from H1 2012 to H1 2013. This was
mainly due to an expansion-related shutdown of the non-magnetic
production circuits throughout June which resulted in reduced zircon
production of 1,000 tonnes. This shutdown extended through July but is
now over and the expanded non-magnetic circuits are being ramped up.
The Company shipped 294,100 tonnes of products in H1 2013 compared with
321,500 tonnes in H1 2012. In Q1, shipping levels were very low (48,500
tonnes) primarily because stocks had been sold down to a minimum level
at the end of the year, and since production was quite modest in the
first two months of 2013, stocks took some time to replenish. In
contrast, 245,600 tonnes were shipped in Q2.
Now that WCP A is mining in favourable conditions on the dunal plateau,
and disruption of operations to link in expansion facilities has ceased,
output of all final products is expected to increase in H2 2013
reflecting a steadily increasing contribution from the expansion
facilities.
In August, the Company and the union (SINTICIM) which represents the
Mine's unionised workforce reached a long term agreement on remuneration
for the next three years which provides the Company with a stable basis
for cost management of a key component of our operating cost.
Market
Demand for titanium feedstocks to date in 2013 has been subdued due to a
significant destocking cycle by the pigment industry. In 2012, despite
global GDP increasing by 3%, global volumes of traded pigment reduced by
approximately 10%. Given the scale of this contraction and general
expectation of improved economic outlook in 2013, most industry
commentators expected a sustained recovery in demand by mid-year.
However this recovery has not fully taken hold and the destocking cycle
has been longer and deeper than we or most industry participants
expected.
Nonetheless despite a less buoyant spring coating season due to the
extended winter in Europe and North America, pigment demand improved in
the first two quarters compared to the same period in 2012, and steps to
moderate pigment production contributed to a significant drawdown of
pigment inventory. However the process is not complete, and although
some producers have announced a normalisation of their pigment
inventories, others continue to hold some excess volumes and curtail
production. Globally, pigment plant operating rates, although improving,
are still around 80% (and likely lower in China) compared to more
normal levels of around 90%.
This curtailment of pigment production is likely to continue into the
second half of 2013 as pigment producers remain cautious about the pace
of demand recovery in the pigment market. Although US demand continues
to grow due to the improved economic conditions, and in particular the
recovery in the housing market and strong automotive manufacturing,
demand in Europe is sluggish, whilst Asia is more challenging. China in
particular is adjusting to more moderate growth rates as the Government
orients the direction of the economy to a more consumer-driven model and
tries to deflate the property market.
As a consequence of high feedstock inventories at the start of 2013 and
low pigment plant operating rates, demand for feedstocks continues to be
weak in 2013 and downward pricing pressure persists. However, along with
widespread production cuts by major high grade feedstock producers,
there is evidence that ilmenite production is being curtailed in Vietnam
and China as current prices are now below production cost for some
producers. As pigment plant utilisation rates continue to improve during
the second half of 2013, we expect a normalisation of feedstock
purchasing and increased demand.
The outlook in the zircon market continues to improve since prices
bottomed at the end of Q1 2013 following the sharp correction in the
previous eight months. There is evidence that some of the substitution
and thrifting of zircon by the ceramics industry in the past two years,
motivated by previous significant price increases, is being reversed in
response to lower prices. Demand conditions are also looking more
positive in China and Europe, the two principal ceramics producing
regions which experienced a big slowdown in 2012. The zircon market is
expected to continue its slow recovery, and the expected price
environment for the remainder of 2013 is stable to modest upward
pressure.
Financial Review for the six months ended 30 June 2013
Revenues for the period amounted to US$79.3 million (2012: US$109.1
million), arising from the sale of 294,100 tonnes (2012: 321,500 tonnes)
of ilmenite, zircon and rutile. The decrease in revenue was principally
due to lower market prices received as weak market conditions prevailed
during the first half of the year.
Total operating costs, consisting of cost of sales and other operating
costs, amounted to US$72.4 million (2012: US$62.1 million), included
depreciation and amortisation of US$12.0 million (2012: US$8.5 million).
The increase in operating costs was principally from higher labour and
engineering costs, together with additional costs associated with the
continued transition of Wet Concentrator Plant A from the low lying
Namalope Flats zone onto a raised dunal plateau, which was completed
during the first quarter. Included in other operating costs are freight,
demurrage and distribution costs of US$7.0 million (2012: US$5.4
million), administration costs of US$1.8 million (2012: US$1.9 million)
and a share-based payment expense of US$1.4 million (2012: US$0.9
million). Adjusting total operating costs for depreciation of US$12.0
million (2012: US$8.5 million), total Group share-based payments of
US$1.5 million (2012: US$1.4 million), freight reimbursable by customers
of US$1.6 million (2012: US$1.3 million) and mineral product inventory
movements of US$9.3 million (2012: US$0.9m), the cash production cost
for the period amounted to US$66.6 million (2012: US$51.8 million).
The gross profit for the period was US$17.0 million (2012: US$55.2
million) and the operating profit was US$6.9 million (2012: US$47.0
million). The decreases in gross profit and operating profit resulted
from lower revenues and increases in operating costs as noted above.
Earnings before interest, tax, depreciation and amortisation (EBITDA)
for the period amounted to US$18.8 million (2012: US$55.5 million).
Net finance costs amounted to US$17.5 million (2012: US$13.9 million)
and the Group reported a foreign exchange gain of US$1.4 million (2012:
US$5.7 million), mainly based upon retranslation of Euro-denominated
loans. The Group is reporting a net loss of US$10.2 million for the
period (2012: profit US$38.8 million).
During the period, additions to property, plant and equipment were
US$90.8 million (2012: US$191.9 million). Capital expenditure on
existing plant and equipment was US$7.3 million (2012: US$36.2 million),
expansion capital expenditure was US$64.6 million (2012: US$154.5
million) bringing total expansion additions as at 30 June 2013 to
US$395.6 million (2012: US$331.0 million). Of this US$395.6 million
US$18.5 million relates to a claim by an expansion contractor that is
being disputed by Kenmare. In addition, during the period operating
costs of US$5.6 million (2012: nil) associated with the expansion
facilities were capitalised. Final expansion construction costs,
excluding disputed amounts, are now expected to be approximately US$390
million. The mine closure asset has increased by US$13.3 million as a
result of the change in the discount rate used in the calculation of the
mine closure provision. The discount rate used as at 30 June 2013 was 3%
based on a 20 year US Treasury yield rate. This is a change in the
assumption from 9% used as at 31 December 2012 being the average
effective borrowing rate for the Moma Titanium Minerals Mine. The reason
for the change in assumption is to exclude the risk of the Company and
only include risk specific to the liability.
Inventory at the period end amounted to US$34.2 million (2012: US$22.4
million), consisting of mineral products of US$16.0 million (2012:
US$6.6 million) and consumable spares of US$18.2 million (2012: US$15.8
million). The increase in mineral product inventories from 2012 is due
to higher volumes at the period end. The increase in consumable spares
is due to additional spares required to be held for the expanded plant
and equipment. Trade and other receivables amounted to US$20.2 million
(2012: US$35.7 million), of which US$16.9 million (2012: US$29.9
million) are trade receivables from the sale of mineral products and
US$3.3 million (2012: US$5.8 million) is comprised of prepayments and
other miscellaneous debtors. The decrease in trade receivables at the
period end is due to the reduction in revenue. Included in trade and
other payables of US$69.2 million (2012: US$52.8 million) is US$40.6
million (2012: US$27.9 million) relating to expansion capital additions.
Of this US$40.6 million, US$18.5 million is disputed by Kenmare.
Bank loans, comprising the existing Moma project loans and a new
corporate bank loan, amounted to US$358.5 million (2012: US$324.4
million) at the end of the period. On 28 February 2013, Kenmare and Absa
Bank Limited ("Absa") entered into an agreement establishing a corporate
facility of US$40 million. This facility was fully drawn during the
period and matures on 20 March 2014. It is capable of being renewed on
the written agreement of Absa and Kenmare and it will need to be renewed
or refinanced on or before 20 March 2014. The corporate loan facility
bears interest at 1 month LIBOR plus 8% and loan interest of US$0.8
million accrued on this loan during the period.
In relation to the Moma project loans, during the period senior loan
interest and principal of US$16.0 million (2012: US$32.9 million) was
paid, interest of US$13.6 million (2012: US$26.4 million) accrued, and
the Euro-denominated loans decreased by US$2.6 million (2012 increase:
US$3.8 million) as a result of the US Dollar strengthening against the
Euro. The average interest rate on the Group loans at the period end was
8.7%. On 31 July 2013, the Group entered into an amendment to the Moma
project loan agreements with the project lenders. This amendment was
agreed as part of on-going management of the Group's financial resources,
taking into consideration the current product market conditions and
funding of remaining expansion costs. The amendment includes: the
effective postponement of the date on which deferred subordinated debt
is required to be brought current from 1 August 2014 to 1 August 2015;
the deferment of the 1 August 2013 principal instalment of senior debt
of US$13 million to 1 August 2014; and an extension in time and quantum
of the ability of the Project to fund expansion-related capital
expenditures from Project operating cash flows.
Cash and cash equivalents at 30 June 2013 amounted to US$31.0 million
(2012: US$46.1 million).
Health, Safety and Community
The Mine's health and safety record remains positive with a lost time
injury frequency rate of 0.35 for the twelve months to 30 June 2013.
Kenmare remains committed to providing a safe and healthy work
environment for its employees.
The Kenmare Moma Development Association (KMAD) continued to support
local communities during the period through its economic, social and
infrastructure projects.
Outlook
As the expansion ramp-up progresses, the long period of investment in
the facilities at Moma is now complete. The assets that have been
constructed give the Mine the ability to supply a significant proportion
of the world's titanium feedstock requirement and to do so from a low
point on the production cost curve. Titanium feedstocks are critical to
the functioning and development of the global economy. Whilst demand has
been subdued due to de-stocking and to generally reduced growth in many
major markets, as the de-stocking cycle completes and large economies
such as the USA move towards more normal growth patterns, demand will
improve.
Given the largely fixed cost base, the increase in production from the
expanded plant will drive down the unit operating costs. When the market
strengthens and delivers improvements in price, increasing production
will generate significant free cash flow from operations. During current
market weakness, the company will continue to focus on production
ramp-up and cost control to maintain liquidity.
Principal risks and uncertainties
The Group's business may be affected by risks similar to those faced by
many companies in the mining industry. There are a number of potential
risks and uncertainties that could have a material impact on the Group's
performance over the remaining six months of the financial year and
could cause actual results to differ materially from expected results.
These risks are outlined below.
Market risks
The Group's revenue and earnings depend upon the demand for and
prevailing prices of ilmenite, zircon and rutile. Such prices are based
on world supply and demand and are subject to large fluctuations in
response to changes in the demand for such products, whether as a result
of uncertainty or a variety of additional factors beyond the Group's
control. Prices for the Group's products are also impacted by the
available supply of ilmenite, rutile, other titanium pigment feedstocks,
and zircon. The Group's revenue generation, results of operations and
financial condition may be significantly and adversely affected by
declines in the demand for and prices of ilmenite, zircon and rutile.
Concentration and counterparty risk
A small number of customers account for a significant proportion of the
Group's revenue. If any of its major customers ceased dealing with the
Group and the Group was unable to sell the product in the market on
comparable or superior terms, this would have an adverse impact on the
Group's financial condition and results of operations.
Further, the Group's contracts are such that some customers receive
title to the product prior to the due date for payment. If any of the
customers were unable to or failed to pay for such products, this would
have an adverse impact on the Group's revenue generation, result of
operations or financial condition.
Competition risk
The mining industry is competitive. The Group faces strong competition
from other mining companies in the production and sale of titanium
minerals and zircon. Many of these companies have substantially greater
financial resources and a longer operating history than the Group. As a
result, such companies may have a greater capacity to respond to
competitive pressures and market dynamics. There can be no assurance
that the Group could be able to successfully respond to such competitive
pressure or the competitive activities of other producers.
Expansion ramp-up risk
A failure to achieve post-Phase II Expansion production targets on a
timely basis could have a material adverse effect on the Group's
production. Successful commissioning and ramp-up of the Phase II
Expansion is subject to various factors, many of which are not within
the Group's control, including the performance of contractors, suppliers
and consultants, and the performance of installed equipment. There is
no guarantee that the expanded operations will achieve and maintain the
anticipated production volumes on a timely basis, or that the final
expansion capital costs or post-expansion operating costs will be in
line with those anticipated. Failure to implement the Phase II
Expansion as planned may have a material adverse effect on the Group's
financial condition and the results of operations, and the Group may be
unable to capitalise to the maximum extent on any increase in demand or
prices of our products.
Operational risks
The Group's financial condition and results of operations are solely
dependent on the success of our operation of the Mine. Any event that
materially interferes with our ability to conduct operations at the Mine
could have a materially adverse effect on the Group's financial
condition and results of operations.
Mining operations are vulnerable to natural events, including drought,
floods, fire, storms and the possible effects of climate change.
Operating difficulties could be experienced such as a result of
unexpected geological variations. Mineral sands dredge mining involves
considerable berm construction and geotechnical management. An accident
or a breach of operating standards could result in a significant
incident which would affect the Group's reputation, and the costs of its
operations for indeterminate periods.
The Mine requires reliable roads, ports, power sources and power
transmission facilities, and water supplies to conduct its business. The
availability and cost of infrastructure affects capital and operating
costs, production and sales. In particular, the Mine is dependent on the
electricity generation and transmission system in northern Mozambique,
and a single 170 km transmission line to the Moma Mine from the Nampula
substation. Although the Group has invested in equipment to minimise
power interruptions and has been working with the state power
transmission utility, Electricidade de Mocambique (EdM) to improve the
stability of the electricity supply to the Moma Mine, there is no
certainty that it will succeed in minimising or eliminating power
fluctuations and interruptions entirely which could adversely affect
production. If either the power station at Cahora Basa or the power
transmission line to the Moma Mine were to experience prolonged
disruptions, production of ilmenite, rutile and zircon would be reduced,
which would reduce cash flow, may impact customer relationships, and
have an adverse impact on the Group's trading and financial position.
Furthermore, the Mine is reliant on the marine terminal for the shipment
of products. Adverse weather conditions can limit the amount of
shipments. Extreme weather conditions or accident could result in
damage to the marine terminal, rendering the Mine unable to ship its
products pending repair. In these situations, the Mine may be unable to
meet its commitments to customers to a lesser or greater degree,
resulting in reduced revenues, ocean freight penalties and reduced
cashflow, with an adverse impact on customer relationships, results of
operations and trading and financial condition.
In addition, the Group's customers depend upon ocean freight to
transport products purchased from the Group. Disruption of ocean freight
as a result of piracy or other events could temporarily impair the
Group's ability to supply its products to its customers and thus could
adversely affect the Group's results of operations and trading and
financial condition. The Group has developed a policy to manage the
threat of piracy near the marine terminal.
The Group's insurance does not cover every potential risk associated
with its operations. Adequate cover at reasonable rates is not always
obtainable. In addition, the Group's insurance may not fully cover its
liability or the consequences of any business interruption such as
weather events, equipment failure or labour dispute. The occurrence of a
significant event not fully covered by insurance could have an adverse
effect on the Group's business, results of operations and financial
condition.
Financing and refinancing risks
On the 28 February 2013, Kenmare and Absa entered into agreement
establishing a corporate facility of US$40 million maturing on 20 March
2014. This facility was fully drawn in the period. It is capable of
being renewed on the written agreement of both Absa and Kenmare and it
will need to be renewed or refinanced on or before 20 March 2014.
Failure to renew or refinance may result in an event of default under
the corporate facility as well as under the Moma Project Loans.
The development of the Mine has been partly financed by the Moma Project
Loans. The Group's ability to meet its debt service obligations depends
on the cashflow generated from operations. The Mine's cashflow, in turn,
depends primarily on the Mine's ability to achieve production, product
sales volumes and pricing and cost targets. Failure to achieve these
targets could result in insufficient funds to meet scheduled interest
and principal repayments which would result in an event of default.
Senior management monitors achievement of targets and cashflow to ensure
sufficient funds are available to meet scheduled repayments.
Currency risks
The Group's corporate and Moma project loans are denominated in US
Dollars and Euro. At 30 June 2013, the loan balance comprised US$188.1
million denominated in US Dollars and US$170.4 million denominated in
Euro. The outstanding loans are due to be repaid in instalments between
2014 and 2019. All the Group's sales are denominated in US Dollars.
Euro-denominated loans expose the Group to currency fluctuations which
are realised on payment of interest and principal on Euro-denominated
loans.
Senior management regularly monitors and reports to the Board on these
currency risks. The Board has determined that the Group's current policy
of not entering into derivative financial instruments to manage the
loan-related currency risks continues to be appropriate in light of the
length of, and payment profile over, the loan repayment period.
Group operating and capital costs are denominated in US Dollars, South
African Rand, Mozambican Metical, Euro, Sterling, Australian Dollars and
Singapore Dollars. Fluctuations in these currencies will impact on the
Group's financial results. The operating and expansion capital currency
exposure is managed by adjusting the currencies in which the cash used
to fund such expenditure is held.
Interest rate risk
Interest rates on the Group's bank loans are both fixed and variable.
The variable rates are based on one month and six month US Dollar LIBOR.
All the Euro loans are fixed rate. The Group is exposed to movements in
interest rates which affect the amount of interest paid on borrowings.
As at 30 June 2013, 59% of the Group's debt (US$211.6 million) was at
fixed interest rates and 41% (US$146.9 million) was at variable interest
rates. Any increase in the one month and six month US Dollar LIBOR would
increase finance costs and therefore have a negative impact on the
Group's profitability. Senior management regularly monitors and reports
to the Board on these interest rate risks. The Board has determined that
the Group's current policy of not entering into derivative financial
instruments to manage such risks continues to be appropriate in light of
the length of the loan repayment period, the payment profile over this
period and the mix of fixed and variable rate debt.
Health and safety risks
The Group is committed to conducting its business in a manner that
minimises the exposure of its employees, contractors and the general
public to health and safety risks arising from its operations. An
accident or a breach of operating standards could result in a
significant incident which would affect the Group's reputation, and the
costs and viability of its operations for an indeterminate period. The
Group's operations worked 4.4 million hours in the six months to 30 June
2013 (2012: 3.3 million hours), with 7 lost-time injuries to employees
and contractors (2012: 2 lost-time injuries). Malaria is a key risk at
the Mine and the Group continues to develop and implement programmes to
minimise its impact on all personnel at the Mine. The Group will also
continue to ensure that appropriate health and safety standards are
maintained across all its activities.
Human Resources risks
The Group's success depends upon the expertise and continued service of
certain key executives and technical personnel, including the Executive
Directors. The loss of the services of certain key employees, including
to competitors, could have a material adverse effect on the results of
operations and financial condition of the Group. In addition, as the
Group's business develops and expands, the Group's future success will
depend on its ability to attract and retain highly skilled and qualified
personnel, which is not guaranteed. Due to the increased mining activity
in Mozambique in recent years, the Group has encountered increasing
competition in attracting experienced mining professionals. Should key
personnel leave or should the Group be unable to attract and retain
qualified personnel, the Group's business, its results of operations and
financial condition may be adversely affected. Certain Mine employees
are represented by a union under a collective agreement. The Mine may
not be able to satisfactorily renegotiate agreements when they expire
and may face higher wage demands. In addition, existing labour
agreements may not prevent a strike or work stoppage, which could have
an adverse effect on the Group's earnings, financial condition and
reputation.
Litigation risks
The Group may from time to time face the risk of litigation in
connection with its business and/or other activities. Recovery may be
sought against the Group for large and/or indeterminate amounts and the
existence and scope of liabilities may remain unknown for substantial
periods of time. A substantial legal liability and/or an adverse ruling
could have a material adverse effect on the Group's business, results of
operation and/or financial condition.
Political and regulatory risks
The Mine is located in Mozambique, which has been politically stable for
almost two decades. The Group has operated in Mozambique since 1987, and
has executed a Mineral Licensing Contract and an Implementation
Agreement which each contain certain protections against adverse changes
in Mozambican law. Mozambique may, however, become subject to risks
similar to those which are prevalent in many developing countries,
including extensive political or economic instability, changes in fiscal
policy (including increased taxes or royalty rates), nationalisation,
inflation, and currency restrictions. In addition, there may be an
increase in, and tightening of, the regulatory requirements (including,
for example, in relation to employee health and safety, permitting and
licensing, planning and development and environmental compliance). The
occurrence of these events could adversely affect the economics of the
Mine and could have a material adverse effect on the results of
operations and financial condition of the Group.
Related party transactions
There have been no material changes in the related party transactions
affecting the financial position or the performance of the Group in the
period other than those disclosed in Note 10.
Going Concern
As stated in Note 1 to the condensed consolidated financial statements,
based on the Group's forecasts and projections the Directors are
satisfied that the Group has sufficient resources to continue in
operation for the foreseeable future, a period of not less than twelve
months from the date of this report. Accordingly, they continue to adopt
the going concern basis in preparing the condensed consolidated
financial statements.
Events after the balance sheet date
On 31 July 2013, the Group entered into an amendment to the Moma project
loan agreements with the project lenders as detailed above and in Note
7.
In August, the Company and the union (SINTICIM) which represents the
Mine's unionised workforce reached a long term agreement on remuneration
for the next three years.
Forward-looking statements
This report contains certain forward-looking statements. These
statements are made by the Directors in good faith based on the
information available to them up to the time of their approval of this
report and such statements should be treated with caution due to the
inherent uncertainties, including both economic and business risk
factors, underlying any such forward-looking information.
On behalf of the Board,
Managing Director Financial Director
Michael Carvill Tony McCluskey
27 August 2013 27 August 2013
RESPONSIBILITY STATEMENT
The Directors are responsible for preparation of the Half Yearly
Financial Report in accordance with the Transparency (Directive
2004/109/EC) Regulations 2007, the Transparency Rules of the Central
Bank of Ireland, and with IAS 34, Interim Financial Reporting as adopted
by the European Union.
The Directors confirm that, to the best of their knowledge:
-- The Group condensed consolidated financial statements for the half year
ended 30 June 2013 have been prepared in accordance with IAS 34 'Interim
Financial Reporting', as adopted by the European Union;
-- The Interim Management Report includes a fair review of the information
required by Regulation 8(2) of the Transparency (Directive 2004/109/EC)
Regulations 2007, being an indication of important events that have
occurred during the first six months of the financial year and their
impact on the condensed consolidated financial statements; and a
description of the principal risks and uncertainties for the remaining
six months of the year; and
-- The Interim Management Report includes a fair review of the information
required by Regulation 8(3) of the Transparency (Directive 2004/109/EC)
Regulations 2007, being related party transactions that have taken place
in the first six months of the current financial year and that materially
affected the financial position or performance of the entity during that
period; and any changes in the related party transactions described in
the last annual report that could do so.
On behalf of the Board,
Managing Director Financial Director
Michael Carvill Tony McCluskey
27 August 2013 27 August 2013
INDEPENDENT REVIEW REPORT TO THE MEMBERS OF KENMARE RESOURCES PLC
Introduction
We have been engaged by the Company to review the group condensed
consolidated set of financial statements in the Half-Yearly Financial
Report for the six months ended 30 June 2013 which comprises the Group
Condensed Consolidated Statement of Comprehensive Income, the Group
Condensed Consolidated Statement of Financial Position, the Group
Condensed Consolidated Statement of Changes in Equity, the Group
Condensed Consolidated Statement of Cashflows and related notes 1 to 13.
We have read the other information contained in the Half-Yearly
Financial Report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the
group condensed consolidated set of financial statements.
This report is made solely to the Company's members, as a body, in
accordance with International Standard on Review Engagements (UK and
Ireland) 2410 "Review of Interim Financial Information performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
Company's members those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company's members as a body, for
our review work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The Half-Yearly Financial Report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for preparing
the Half-Yearly Financial Report in accordance with the Transparency
(Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of
the Central Bank of Ireland.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the European Union. The
group condensed consolidated set of financial statements included in
this Half-Yearly Financial Report has been prepared in accordance with
International Accounting Standard 34 'Interim Financial Reporting,' as
adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the
condensed consolidated set of financial statements in the Half-Yearly
Financial Report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on
Review Engagements (UK and Ireland) 2410, "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity" issued
by the Auditing Practices Board for use in Ireland. A review of interim
financial information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially less
in scope than an audit conducted in accordance with International
Standards on Auditing (UK and Ireland) and consequently does not enable
us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the group condensed consolidated set of financial
statements in the Half-Yearly Financial Report for the six months ended
30 June 2013 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 (IAS 34 -Interim Financial
Reporting) as adopted by the European Union, the Transparency (Directive
2004/109/EC) Regulations 2007, and the Transparency Rules of the Central
Bank of Ireland.
Emphasis of Matter - Going Concern and Recoverability of Property, Plant
and Equipment
In forming our conclusion on the condensed consolidated financial
statements for the six months ended 30 June 2013, which is not modified,
we have considered the adequacy of the disclosures made in note 1 of the
group condensed consolidated financial statements concerning going
concern and in note 5 concerning the recoverability of Property, Plant
and Equipment of US$962.9 million which is dependent on the successful
development of economic ore reserves, successful operation of the Moma
Titanium Minerals Mine ("Mine") including the expansion project and
continued availability of adequate funding for the Mine. The group
condensed financial statements do not include any adjustments relating
to these uncertainties and the ultimate outcome cannot at present be
determined.
Deloitte & Touche
Chartered Accountants
Dublin
27 August 2013
KENMARE RESOURCES PLC
GROUP CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30 JUNE 2013
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
30 June 30 June 31 Dec
2013 2012 2012
Notes US$'000 US$'000 US$'000
Revenue 2 79,273 109,127 234,638
Cost of sales (62,245) (53,946) (134,472)
Gross profit 17,028 55,181 100,166
Other operating costs (10,152) (8,181) (19,730)
Operating profit 6,876 47,000 80,436
Finance income 210 1,330 1,706
Finance costs (17,689) (15,200) (28,714)
Foreign exchange
gain/(loss) 1,370 5,663 (641)
(Loss)/profit before
tax (9,233) 38,793 52,787
Income tax charge (993) - (3,301)
(Loss)/profit for the
period/year (10,226) 38,793 49,486
Attributable to equity
holders (10,226) 38,793 49,486
Cent per share Cent per share Cent per share
(Loss)/earnings per
share: basic 4 (0.40c) 1.61c 2.01c
(Loss)/earnings per
share: diluted 4 (0.40c) 1.60c 2.00c
The accompanying notes form part of these condensed consolidated
financial statements.
KENMARE RESOURCES PLC
GROUP CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2013
Unaudited Unaudited Audited
30 June 30 June 31 Dec
2013 2012 2012
Notes US$'000 US$'000 US$'000
Assets
Non-current assets
Property, plant and equipment 5 962,919 775,182 887,513
Deferred tax asset 1,182 5,477 2,176
964,101 780,659 889,689
Current assets
Inventories 34,212 27,989 22,422
Trade and other receivables 20,209 44,374 35,746
Cash and cash equivalents 31,008 35,141 46,067
85,429 107,504 104,235
Total assets 1,049,530 888,163 993,924
Equity
Capital and reserves attributable to the Company's
equity holders
Called-up share capital 6 205,205 196,388 205,168
Share premium 6 349,861 301,510 349,780
Retained earnings 19,652 18,799 29,801
Other reserves 22,357 19,059 20,848
Total equity 597,075 535,756 605,597
Liabilities
Non-current liabilities
Bank loans 7 145,537 192,293 177,380
Obligations under finance lease 1,341 1,675 1,508
Provisions 8 22,840 7,668 9,050
169,718 201,636 187,938
Current liabilities
Bank loans 7 212,982 127,059 147,032
Obligations under finance lease 318 253 286
Provisions 8 276 276 276
Trade and other payables 69,161 23,183 52,795
282,737 150,771 200,389
Total liabilities 452,455 352,407 388,327
Total equity and liabilities 1,049,530 888,163 993,924
The accompanying notes form part of these condensed consolidated
financial statements.
KENMARE RESOURCES PLC
GROUP CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2013
Called-Up Share Capital Retained Share Total
Share Premium Conversion Earnings Option
Capital Reserve /(Losses) Reserve
Fund
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1
January 2012 196,347 301,391 754 (19,994) 16,856 495,354
Profit for the
period - - - 38,793 - 38,793
Share based
payments - - - - 1,449 1,449
Issue of share
capital 41 119 - - - 160
Balance at 30
June 2012 196,388 301,510 754 18,799 18,305 535,756
Profit for the
period - - - 10,693 - 10,693
Share based
payments - - - 309 1,789 2,098
Issue of share
capital 8,780 48,270 - - - 57,050
Balance at 31
December 2012 205,168 349,780 754 29,801 20,094 605,597
Loss for the
period - - - (10,226) - (10,226)
Share based
payments - - - 77 1,509 1,586
Issue of share
capital 37 81 - - - 118
Balance at 30
June 2013 205,205 349,861 754 19,652 21,603 597,075
The accompanying notes form part of these condensed consolidated
financial statements.
KENMARE RESOURCES PLC
GROUP CONDENSED CONSOLIDATED STATEMENT OF CASHFLOWS
FOR THE SIX MONTHS ENDED 30 JUNE 2013
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
30 June 30 June 31 Dec
2013 2012 2012
US$'000 US$'000 US$'000
Cash flows from operating activities
(Loss)/profit for the period/year (9,233) 38,793 52,787
Adjustment for:
Foreign exchange movement (1,370) (5,663) 641
Share-based payments 1,547 1,512 3,165
Finance income (210) (1,330) (1,706)
Finance costs 14,827 13,693 27,157
Depreciation 11,995 8,476 18,456
Increase in provisions 204 59 1,236
Operating cash inflow 17,760 55,540 101,736
(Increase)/decrease in inventories (11,790) (2,143) 3,424
Decrease/(increase) in trade and other
receivables 15,537 (5,543) 3,100
Increase/(decrease) in trade and other
payables 3,605 (4,611) (4,185)
Cash generated by operations 25,112 43,243 104,075
Interest received 210 1,330 1,706
Interest paid (3,482) (3,669) (7,014)
Net cash from operating activities 21,840 40,904 98,767
Cash flows from investing activities
Additions to property, plant and equipment (61,405) (71,176) (164,251)
Net cash used in investing activities (61,405) (71,176) (164,251)
Cash flows from/(used in) financing
activities
Proceeds on the issue of shares 119 160 57,210
Repayment of borrowings (12,985) (12,966) (25,875)
Drawdown of borrowings 40,000 - -
Fees paid on drawdown of borrowings (802) - -
Decrease in obligations under finance lease (280) (280) (560)
Net cash from/(used in) financing activities 26,052 (13,086) 30,775
Net decrease in cash and cash equivalents (13,513) (43,358) (34,709)
Cash and cash equivalents at the beginning
of period/year 46,067 77,256 77,256
Effect of exchange rate changes on cash and
cash equivalents (1,546) 1,243 3,520
Cash and cash equivalents at end of
period/year 31,008 35,141 46,067
The accompanying notes form part of these condensed consolidated
financial statements.
KENMARE RESOURCES PLC
NOTES TO THE GROUP CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30 JUNE 2013
1. BASIS OF PREPARATION AND GOING CONCERN
The annual financial statements of Kenmare Resources plc are prepared in
accordance with IFRSs as adopted by the European Union. The Group
Condensed Consolidated Financial Statements for the six months ended 30
June 2013 have been prepared in accordance with the Transparency
(Directive 2004/109/EC) Regulations 2007, the Transparency Rules of the
Central Bank of Ireland and with IAS 34 'Interim Financial Reporting',
as adopted by the European Union.
The accounting policies and methods of computation adopted in the
preparation of the Group Condensed Consolidated Financial Statements are
the same as those applied in the Annual Report for the financial year
ended 31 December 2012 and are described in the Annual Report.
In the current financial year, the Group has adopted all Standards and
Interpretations which are effective from 1 January 2013. Adoption has
resulted in no material impact on the financial statements.
The financial information presented in this document does not constitute
statutory financial statements. The amounts presented in the Half Yearly
Financial Statements for the six months ended 30 June 2013 and the
corresponding amounts for the six months ended 30 June 2012 have been
reviewed but not audited. The independent auditors' review report is on
pages 11 and 12. The financial information for the year ended 31
December 2012, presented herein, is an abbreviated version of the annual
financial statements for the Group in respect of the year ended 31
December 2012. The Group's financial statements have been filed in the
Companies Registration Office and the independent auditors issued an
unqualified audit report, with an emphasis of matter in the opinion, in
respect of those annual financial statements.
There were no other gains or losses during the six months period ended
30 June 2013 other than those reported in the Condensed Consolidated
Statement of Comprehensive Income.
Based on the Group's forecast, the Directors are satisfied that the
Group has sufficient resources to continue in operation for the
foreseeable future, a period of not less than twelve months from the
date of this report. Accordingly, they continue to adopt the going
concern basis in preparing the condensed consolidated financial
statements.
Key assumptions upon which the forecast is based include a mine plan
covering production using the Namalope and Nataka proved and probable
reserves, forecast sales and the renewal or refinancing of the Absa
corporate loan. The forecast also reflects a revised debt repayment
profile for the Moma Project Loans.
Annual production levels at full capacity pre-expansion are
approximately 800,000 tonnes of ilmenite per annum plus co-products,
rutile and zircon and post-expansion are approximately 1.2 million
tonnes of ilmenite per annum plus co-products, rutile and zircon.
Product sales prices are based on contract prices as stipulated in
marketing agreements with customers, or where contracts are based on
market prices or production is not presently contracted, prices as
forecast. The forecast is developed using Kenmare's industry knowledge
and assumes that the product markets recover from the subdued levels
experienced during the first half of 2013 and that Kenmare will sell
increasing volumes of all products as the expansion production volumes
ramp-up. Operating and capital replacement costs are based on approved
budget costs for 2013 and escalated by 2% per annum thereafter and
reflecting post-expansion costs from 2013 onwards.
On 28 February 2013, Kenmare and Absa Bank Limited ("Absa") entered into
an agreement establishing a corporate facility of US$40 million. This
facility was fully drawn during the period, and matures on 20 March
2014. It is capable of being renewed on the written agreement of Absa
and Kenmare and the forecast assumes it will be renewed or refinanced on
or before 20 March 2014. Absa, a member of Barclays plc, is an existing
lender to the Project Companies.
On 31 July 2013, the Group entered into an amendment to the Moma Project
Loan agreements with the project lenders. This amendment was agreed as
part of on-going management of the Group's financial resources, taking
into consideration the current product market conditions and funding of
remaining expansion costs. The amendment includes: the effective
postponement of the date on which deferred subordinated debt is required
to be brought current from 1 August 2014 to 1 August 2015; the deferment
of the 1 August 2013 principal instalment of senior debt of US$13
million to 1 August 2014; and an extension in time and quantum of the
ability of the Project to fund expansion-related capital expenditures
from Project operating cash flows.
2. SEGMENTAL INFORMATION
Information on the operations of the Moma Titanium Minerals Mine in
Mozambique is reported to the Group's Board for the purposes of resource
allocation and assessment of segment performance. Information regarding
the Group's operating segment is reported below.
Unaudited Unaudited Audited
30 June 13 30 June 12 31 Dec 12
US$'000 US$'000 US$'000
Segment revenues and results
Moma Titanium Minerals Mine
Revenue 79,273 109,127 234,638
Cost of sales (62,245) (53,946) (134,472)
Gross profit 17,028 55,181 100,166
Other operating costs (7,502) (5,855) (14,032)
Segment operating profit 9,526 49,326 86,134
Central operating costs (2,650) (2,326) (5,698)
Group operating profit 6,876 47,000 80,436
Finance income 210 1,330 1,706
Finance expense (17,689) (15,200) (28,714)
Foreign exchange gain/(loss) 1,370 5,663 (641)
(Loss)/profit before tax (9,233) 38,793 52,787
Income tax charge (993) - (3,301)
(Loss)/profit for the period/year (10,226) 38,793 49,486
Segment assets
Moma Titanium Minerals Mine assets 1,024,224 867,750 957,805
Corporate assets 25,306 20,413 36,119
Total assets 1,049,530 888,163 993,924
3. SEASONALITY OF SALE OF MINERAL PRODUCTS
Sales of mineral products are not seasonal in nature.
4. (LOSS)/EARNINGS PER SHARE
The calculation of the basic and diluted (loss)/earnings per share
attributable to the ordinary equity holders of the parent company is
based on the following data:
Unaudited Unaudited Audited
30 June 13 30 June 12 31 Dec 12
US$'000 US$'000 US$'000
(Loss)/profit for the period/year attributable to
equity
holders of the parent (10,226) 38,793 49,486
Unaudited Unaudited Audited
30 June 13 30 June 12 31 Dec 12
Number of Number of Number of
Shares Shares Shares
Weighted average number of issued ordinary shares
for the
purposes of basic (loss)/earnings per share 2,531,367,056 2,410,081,709 2,462,602,902
Effect of dilutive potential ordinary shares
Share options - 16,773,446 9,977,123
Weighted average number of ordinary shares for the
purpose
of diluted (loss)/earnings per share 2,531,367,056 2,426,855,155 2,472,580,025
Cent per Cent per Cent per
share share share
(Loss)/earnings per share: basic (0.40c) 1.61c 2.01c
(Loss)/earnings per share: diluted (0.40c) 1.60c 2.00c
For the six months ended 30 June 2013, the basic loss per share and the
diluted loss per share are the same, as the effect of the outstanding
share options is anti-dilutive.
5. PROPERTY, PLANT AND EQUIPMENT
Plant Other Construction Development Total
& Equipment Assets In Progress Expenditure
US$'000 US$'000 US$'000 US$'000 US$'000
Cost
Balance at 1
January 2012 343,451 16,500 181,439 248,761 790,151
Transfer from
construction in
progress 1,134 2,047 (3,181) - -
Additions during
the period - - 68,551 989 69,540
Balance at 30 June
2012 344,585 18,547 246,809 249,750 859,691
Transfer from
construction in
progress 11,552 11,416 (22,968) - -
Additions during
the period 170 - 121,907 234 122,311
Balance at 31
December 2012 356,307 29,963 345,748 249,984 982,002
Transfer to
consumable spare
inventory - - (3,471) - (3,471)
Transfer from
construction in
progress 15,573 2,118 (17,691) - -
Additions during
the period 14,833 - 76,039 - 90,872
Balance at 30 June
2013 386,713 32,081 400,625 249,984 1,069,403
Accumulated
Depreciation
Balance at 1
January 2012 45,659 10,919 - 19,455 76,033
Charge for the
period 4,940 807 - 2,729 8,476
Balance at 30 June
2012 50,599 11,726 - 22,184 84,509
Charge for the
period 5,528 1,271 - 3,181 9,980
Balance at 31
December 2012 56,127 12,997 - 25,365 94,489
Charge for the
period 6,399 2,081 - 3,515 11,995
Balance at 30 June
2013 62,526 15,078 - 28,880 106,484
Carrying Amount
Balance at 30 June
2013 324,187 17,003 400,625 221,104 962,919
Balance at 30 June
2012 293,986 6,821 246,809 227,566 775,182
Balance at 31
December 2012 300,180 16,966 345,748 224,619 887,513
During the period the Group carried out an impairment review of property,
plant and equipment. The cash generating unit for the purpose of
impairment testing is the Moma Titanium Minerals Mine as this is the
operating segment of the Group. The basis on which the recoverable
amount of the Moma Titanium Minerals Mine is assessed is its
value-in-use. The cash flow forecast employed for the value-in-use
computation is a life-of-mine financial model. The recoverable amount
obtained from the financial model represents the present value of the
future pre-tax and pre-finance cash flows discounted at 10%.
Key assumptions include the following:
-- A mine plan based on the Namalope and Nataka proved and probable
reserves.
-- The cash flows assume ramp-up to expanded production levels during 2013.
Expected annual production levels at full capacity pre-expansion are
approximately 800,000 tonnes of ilmenite per annum plus co-products,
zircon and rutile. Expected annual production levels at full capacity
post-expansion are approximately 1.2 million tonnes of ilmenite per annum
plus co-products, zircon and rutile.
-- Product sales prices are based on contract prices as stipulated in
marketing agreements with customers, or where contracts are based on
market prices or production is not presently contracted, prices as
forecast.
-- Operating and capital replacement costs are based on approved budget
costs for 2013 and escalated by 2% per annum thereafter and reflecting
post-expansion costs from 2013 onwards.
As a result of this review no impairment provision is required. The
discount rate is the significant factor in determining the recoverable
amount and a 1% change in the discount rate results in an 8% change in
the recoverable amount.
Substantially all the property, plant and equipment is or will be
mortgaged, pledged or otherwise encumbered to secure project loans as
detailed in Note 7.
The carrying amount of the Group's plant and equipment includes an
amount of US$1.2 million (2012: US$1.2 million) in respect of assets
held under finance leases.
Included in construction and progress is US$17.4 million (2012: US$29.3
million) relating to capital projects for existing operations and
US$383.2 million (2012: US$316.4 million) relating to expansion capital.
The amount included in payables relating to expansion costs at 30 June
2013 is US$40.6 million (2012: US$27.9 million). Of this US$40.6 million,
US$18.5 million is disputed by Kenmare.
Expansion development costs incurred during the period before the
expansion assets are capable of operating at production levels in a
manner intended by management are deferred and included in property,
plant and equipment.
The recovery of property, plant and equipment is dependent upon the
successful development of economic ore reserves and the successful
operation of the mine including the mine expansion project and continued
availability of adequate funding for the mine. The Directors are
satisfied that at the balance sheet date the recoverable amount of
property, plant and equipment is not less than its carrying amount and
based on the planned mine production levels that the Moma Titanium
Minerals Mine will continue to achieve positive cash flows from
operations.
6. SHARE CAPITAL
Share capital as at 30 June 2013 amounted to US$205.2 million (2012:
US$205.1 million). During the period, 0.5 million ordinary shares in the
Company were issued as a result of the exercise of share options.
US$0.04 million of these issues have been credited to share capital and
US$0.08 million to share premium.
7. BANK LOANS
Unaudited Unaudited Audited
30 June 13 30 June 12 31 Dec 12
US$'000 US$'000 US$'000
Moma Project Loans
Senior Loans 93,357 119,490 106,891
Subordinated Loans 226,028 199,862 217,521
Total Moma Project Loans 319,385 319,352 324,412
Corporate Loan 39,134 - -
Total Bank Loans 358,519 319,352 324,412
Within one year 212,982 127,059 147,032
In the second year 37,606 39,425 39,993
In the third to fifth years 70,871 93,945 86,725
After five years 37,060 58,923 50,662
358,519 319,352 324,412
Less amounts due for settlement within 12
months (212,982) (127,059) (147,032)
Amount due for settlement after 12 months 145,537 192,293 177,380
Bank loans at the period end amounted to US$358.5 million (2012:
US$324.4 million). During the period loan interest and principal
repayments of US$16.2 million (2012: US$32.9 million) were made,
interest of US$14.1 million (2012: US$26.4 million) accrued and
Euro-denominated loans decreased by US$2.6 million (2012: increase of
US$3.8 million) as a result of the US Dollar strengthening against the
Euro during the period. During the period the corporate loan facility of
US$40 million was drawn down in full. Fees incurred in relation to the
corporate loan amounted to US$1.2 million.
Moma Project Loans
Moma Project Loans have been made to the Mozambique branches of Kenmare
Moma Mining (Mauritius) Limited and Kenmare Moma Processing (Mauritius)
Limited (the Project Companies). The Moma 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.
Seven Senior Loan credit facilities were made available for financing
the Moma Titanium Minerals Mine. The aggregate maximum available amount
of the Senior Loan credit facilities was US$185 million plus EUR15
million which were fully drawn in 2008. As at 30 June 2013 the remaining
tenors of the Senior Loans range from 2 years to 5 years. Three of the
Senior Loans bear interest at fixed rates and four bear interest at
variable rates.
The Subordinated Loans comprise the original Subordinated Loans, the
Standby Subordinated Loans and the Additional Standby Subordinated
Loans.
The original Subordinated Loan credit facilities (made available under
documentation entered into in June 2004) with original principal amounts
of EUR47.1 million plus US$10 million (excluding capitalised interest)
were fully drawn in 2005. The original Subordinated Loans denominated in
Euro bear interest at a fixed rate of 10% per annum, while the original
Subordinated Loans denominated in US Dollars bear interest at six month
LIBOR plus 8% per annum.
The Standby Subordinated Loan credit facilities (made available under
documentation entered into in June 2005) with original principal amounts
of EUR2.8 million and US$4 million were fully drawn in 2007. Standby
Subordinated Loans bear interest at fixed rates of 10% per annum in
respect of EUR2.8 million and US$1.5 million and at six month LIBOR plus
8% per annum in respect of US$2.5 million.
The Additional Standby Subordinated Loan credit facilities of US$12
million and US$10 million (made available under documentation entered
into in August 2007) were fully drawn in 2008. The Additional Standby
Subordinated Loans bear interest at 6 month LIBOR plus 5%.
Interest and principal on the Subordinated Loans is due to be paid each
year in February and August but if cash is insufficient in the Project
Companies on any scheduled payment date, interest is capitalised and
both interest and principal become payable on the next semi-annual
payment date thereafter, in whole or in part, to the extent of available
cash. Included in loan amounts due within one year is US$145.6 million
(2012: US$118.6 million) in relation to such Subordinated Loans. The
final instalments are due on 1 August 2019.
Standby Subordinated lenders have an option to require that Kenmare
purchase the Standby Subordinated Loans on agreed terms.
Under a Deed of Waiver and Amendment entered into in 2009, interest
margins on Subordinated Loans were increased by 3% per annum until
Technical Completion and by 1% per annum until Completion. This
additional margin is scheduled to be paid after senior loans have been
repaid in full but may be prepaid without penalty.
Moma Project Loan Completion
The Company and Congolone Heavy Minerals Limited have guaranteed the
Moma Project Loans during the period prior to Completion (achievement of
both "Technical Completion" and "Non-Technical Completion"). Upon
Completion, the Company's and Congolone Heavy Mineral Limited's
guarantee of the Moma Project Loans will terminate. Failure to achieve
Completion by the Final Completion Date (subject to extension for force
majeure) would constitute an Event of Default under the Moma Project
Financing.
On 5 September 2011, Technical Completion was achieved. Non-Technical
Completion occurs upon the meeting certain financial, legal and
permitting requirements, including filling of specified reserve accounts
to the required levels as well as certification in respect of the
Project Companies having sufficient funds available to repay deferred
Subordinated Loan amounts on the next scheduled payment date.
Amendments to Moma Project Loans
On 31 July 2013, the Company, Kenmare Moma Mining (Mauritius) Limited
(Mozambique Branch) and Kenmare Moma Processing (Mauritius) Limited
(Mozambique Branch) entered into an Amendment Agreement with Project
Lenders. Among other things, the Amendment Agreement provided as
follows:
-- A deferral by Senior Lenders of senior principal (US$13 million) due on 1
August 2013 until 1 August 2014; and an agreement that no Subordinated
Loans would be paid prior to such date;
-- An extension of the final date for achieving Completion to 28 February
2015 (subject to further extension for any subsequent force majeure
events). As a result, the effective date on which deferred Subordinated
Loan obligations need to be repaid is extended from the 1 August 2014
payment date to the 1 August 2015 payment date;
-- An extension of the ability to apply Project operating cashflows to fund
remaining expansion costs with the effect that up to US$58 million of
available cash flows accruing after 30 June 2013 can be reserved in
specified bank accounts until the earlier of the date on which the
outstanding completion certificates are delivered and 31 December 2014;
and such reserved cash together with the US$5.4 million balance in such
accounts as at 30 June 2013 can be applied to expansion capital costs
until the later of 31 December 2014 and the date on which the outstanding
completion certificates are delivered; this is subject to certain limits
on the amounts that may be so applied on or after 1 July 2013, including,
other than in respect of certain specified costs, the amount that may be
applied in respect of expansion costs shall not exceed US$40.4 million
(including US$5.4 million already reserved as at 30 June 2013); and
-- In consideration of such amendments, payment to Lenders of a
risk/deferral fee in quarterly instalments, in the case of Senior Lenders,
to a total of 1.25%, and in the case of Subordinated Lenders, to a total
of 2.25%, in each case of the principal amount outstanding as at 31 July
2013; as well as work fees totalling US$180,000, legal fees and
out-of-pocket costs incurred by the Project Lenders in negotiating the
amendment, and fees payable in connection with certain political risk and
other guarantees and insurance policies applicable to the Senior Loans.
Other Group bank borrowings
On 28 February 2013, Kenmare and Absa entered into agreement
establishing a corporate facility of US$40 million maturing on 20 March
2014. This facility was fully drawn in the period. It is capable of
being renewed on the written agreement of both Absa and Kenmare and it
will need to be renewed or refinanced on or before 20 March 2014. The
corporate loan facility bears interest at 1 month LIBOR plus 8%. Absa, a
member of Barclays plc, is an existing lender to the Project Companies.
Group borrowings interest and currency risk
Loan facilities arranged at fixed interest rates expose the Group to
fair value interest rate risk. Loan facilities arranged at variable
rates expose the Group to cash flow interest rate risk. Variable rates
are based on six or one month LIBOR. The average effective borrowing
rate at the period end was 8.7%. The interest rate profile of the
Group's loan balances at the period end was as follows:
Unaudited Unaudited Audited
30 June 13 30 June 12 31 Dec 12
US$'000 US$'000 US$'000
Fixed rate debt 211,591 207,392 214,513
Variable rate debt 146,928 111,960 109,899
Total debt 358,519 319,352 324,412
Under the assumption that all other variables remain constant and using
the 6 month LIBOR, a 1% change in LIBOR would result in a US$1.1 million
(2012: US$1.1 million) change in finance costs for the year.
The currency profile of the bank loans is as follows:
Unaudited Unaudited Audited
30 June 13 30 June 12 31 Dec 12
US$'000 US$'000 US$'000
Euro 170,388 151,038 165,709
US Dollars 188,131 168,314 158,703
Total debt 358,519 319,352 324,412
The Euro-denominated loans expose the Group to currency fluctuations.
These currency fluctuations are realised on payment of Euro-denominated
debt principal and interest. Under the assumption that all other
variables remain constant, a 10% strengthening or weakening of Euro
against the US Dollar, would result in a US$1.8 million (2012: US$1.7
million) change in finance costs and a US$17 million (2012: US$16.6
million) change in foreign exchange gain or loss for the year.
The above sensitivity analyses are estimates of the impact of market
risks assuming the specified change occurs. Actual results in the future
may differ materially from these results due to developments in the
global financial markets which may cause fluctuations in interest and
exchange rates to vary from the assumptions made above and therefore
should not be considered a projection of likely future events.
8. PROVISIONS
Unaudited Unaudited Audited
30 June 13 30 June 12 31 Dec 12
US$'000 US$'000 US$'000
Mine closure provision 18,478 4,704 4,907
Mine rehabilitation provision 2,140 1,800 1,973
Legal provision 1,440 1,440 1,444
Executive Directors' bonus
provision 1,058 - 1,002
Total provision 23,116 7,944 9,326
The mine closure provision represents the Directors' best estimate of
the Group's liability for close-down, dismantling and restoration of the
mining and processing site. A corresponding amount equal to the
provision is recognised as part of property, plant and equipment. The
costs are estimated on the basis of a formal closure plan and are
subject to regular review. The costs are estimated based on the net
present value of estimated future cost. Mine closure costs are a normal
consequence of mining, and the majority of close-down and restoration
expenditure is incurred at the end of the life of the mine. The
unwinding of the discount is recognised as a finance cost and US$0.2
million (2012: US$0.2 million) has been recognised in the statement of
comprehensive income.
The main assumptions used in the calculation of the estimated future
costs include:
-- a discount rate of 3% (2012: 9%) based on a 20 year US Treasury yield
rate. This is a change in the assumption from 9% used in the prior year
being the average effective borrowing rate for the Moma Titanium Minerals
Mine. The reason for the change in assumption is to exclude the risk of
the Company and only include risk specific to the liability. The change
in the assumption increases the provision as at 30 June 2013 by US$13.3
million and the mine closure asset was increased by the same amount;
-- an inflation rate of 2% (2012: 2%);
-- an estimated life of mine; and
-- an estimated closure cost of US$20.4 million (2012: US$20.4 million) and
an estimated post-closure monitoring provision of US$1.9 million (US$1.9
million).
The mine rehabilitation provision was increased by US$0.2 million as a
result of additional provision of US$0.4 million for areas disturbed net
of US$0.2 million released for areas rehabilitated during the period.
US$0.3 million (2012: US$0.3 million) of the mine rehabilitation
provision has been included in current liabilities to reflect the
estimated cost of rehabilitation work to be carried out over the next
year.
9. SHARE-BASED PAYMENTS
The Company has a share option scheme for certain Directors, employees
and consultants. Options are exercisable at a price equal to the quoted
market price of the Company's shares on the date of grant. The options
generally vest over a three to five year period, in equal annual
amounts. If options remain unexercised after a period of seven years
from the date of grant, the options expire. The option expiry period may
be extended at the discretion of the Board of Directors.
During the period the Group recognised a share-based payment expense of
US$1.5 million (2012: US$1.5 million). US$0.05 million (2012: US$0.4
million) of the share based payment was capitalised in property, plant
and equipment during the period.
10. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in
this note.
Apart from existing remuneration arrangements there were no material
transactions or balances between Kenmare and its key management
personnel or members of their close families.
11. FAIR VALUE
The fair value of the Group borrowings of US$332.8 million (2012: US$291
million) has been calculated by discounting the expected future cash
flows at prevailing interest rates and by applying period end exchange
rates.
The fair value of trade and other receivables, trade and other payables
and the finance lease are equal to their carrying amounts.
12. EVENTS AFTER THE BALANCE SHEET DATE
On 31 July 2013, Kenmare, Congolone Heavy Minerals Limited, Kenmare Moma
Mining (Mauritius) Limited (Mozambique Branch) and Kenmare Moma
Processing (Mauritius) Limited (Mozambique Branch) entered into an
amendment with Project Lenders details of which are set out in Note 7.
In August, the Company and the union (SINTICIM) which represents the
Mine's unionised workforce reached a long term agreement on remuneration
for the next three years.
13. INFORMATION
The Half Yearly Financial report was approved by the Board on 27 August
2013.
Copies are available from the Company's registered office at Chatham
House, Chatham Street, Dublin 2, Ireland. The statement is also
available on the Company's website at www.kenmareresources.com.
This announcement is distributed by Thomson Reuters on behalf of Thomson
Reuters clients.
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other
applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the
information contained therein.
Source: Kenmare Resources via Thomson Reuters ONE
HUG#1725154
http://www.kenmareresources.com/
Kenmare Resources (LSE:KMR)
Historical Stock Chart
From Jun 2024 to Jul 2024
Kenmare Resources (LSE:KMR)
Historical Stock Chart
From Jul 2023 to Jul 2024
