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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Kenmare Resources Plc | LSE:KMR | London | Ordinary Share | IE00BDC5DG00 | ORD EUR0.001 (CDI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 3.00 | 0.91% | 333.00 | 332.00 | 334.50 | 337.00 | 331.50 | 337.00 | 83,298 | 16:35:03 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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TIDMKMR
Kenmare Resources plc ("Kenmare" or "the Company")
22 August 2017
Half-Yearly Results for the six months to 30 June 2017
Kenmare Resources plc (LSE:KMR, ISE:KMR), one of the leading global
producers of titanium minerals and zircon, which operates the Moma
Titanium Minerals Mine (the "Mine" or "Moma") in northern Mozambique,
today announces its half year results for the six month period ended 30
June 2017 ("H1 2017").
Statement from Michael Carvill, Managing Director:
"Kenmare has produced a record one million tonnes of ilmenite in the
twelve months to June 2017, whilst improving safety standards, and
remains on target for 2017 production guidance. We have also produced
record levels of zircon and are capturing more of it in higher quality
products. Increased shipments, higher average received prices, and lower
unit costs have resulted in H1 EBITDA increasing to US$29.8 million. We
look forward to building on these achievements.
In relation to our medium-term objective of optimising mining capacity,
several development options are under assessment some of which may
significantly reduce or defer previously guided capex, whilst optimising
production volumes. Capital investment decisions will be made in the
context of market conditions and maintaining balance sheet strength."
Overview
-- Ilmenite production in H1 2017 increased 25% to 504,800 tonnes compared
to H1 2016, zircon production in H1 2017 increased 32% to 37,700 tonnes
-- Total shipments of finished products in H1 2017 increased 21% to 535,700
tonnes
-- Revenues increased 82% to US$102.4 million, as a result of increased
prices and sales volumes
-- Unit cash operating costs declined 14% in H1 2017 to US$131 per tonne (H1
2016: US$153 per tonne), a result of higher production and continued cost
control
-- EBITDA of US$29.8 million, compared with negative US$10.7 million in H1
2016, a US$40.5 million positive change
-- Profits increased to US$9.4 million in H1 2017, from a US$47.1 million
loss in H1 2016, a US$56.5 million positive change
-- The ilmenite price recovery continued in H1 2017 but with some recent
softening in the Chinese market
Results conference call & presentation
A conference call for analysts will be held at 09:00am BST on Tuesday,
22 August 2017. A presentation to accompany the conference call is
available on the Company website, www.kenmareresources.com.
Participant dial-in numbers are as follows:
UK: + 44 (0) 203 139 4830
Ireland: +353 (0) 1 696 8154
Participant ID: 59473987#
The Half Yearly Financial Report for the period ended 30 June 2017 is
available on the Company website, www.kenmareresources.com
For further information, please contact:
Kenmare Resources plc
Michael Carvill, Managing Director
Tel: +353 1 671 0411
Tony McCluskey, Financial Director
Tel: +353 1 671 0411
Jeremy Dibb, Corporate Development and Investor Relations Manager
Tel: +353 1 671 0411
Mob: + 353 87 943 0367
Murray
Joe Heron / Aimee Beale
Tel: +353 1 498 0300
Mob: +353 87 690 9735
Buchanan
Bobby Morse / Chris Judd
Tel: +44 207 466 5000
Forward Looking Statements
This announcement contains some forward-looking statements that
represent Kenmare's expectations for its business, based on current
expectations about future events, which by their nature involve risks
and uncertainties. Kenmare believes that its expectations and
assumptions with respect to these forward-looking statements are
reasonable. However, because they involve risk and uncertainty, which
are in some cases beyond Kenmare's control, actual results or
performance may differ materially from those expressed or implied by
such forward-looking information.
INTERIM MANAGEMENT REPORT
Group Results
Production, revenue, cost and EBITDA results for H1 2017 and H1 2016
were as follows:
H1 2017 H1 2016 % Change
Production (tonnes)
Heavy mineral concentrate (1) 712,700 606,100 18%
Ilmenite (1) 504,800 402,900 25%
Zircon (1, 2) 37,700 28,500 32%
Rutile (1) 4,400 3,000 47%
Total finished products (1) 546,900 434,400 26%
Revenue (US$ million) 102.4 56.2 82%
Finished products shipped (tonnes) (1) 535,700 441,700 21%
Average price per tonne (US$/t) (1) 191 127 50%
Total operating costs (3) (US$ million) 87.4 81.1 8%
Total cash costs (1) (US$ million) 71.4 66.6 7%
Total cash cost per tonne of finished product (1)
(US$/t) 131 153 -14%
EBITDA (US$ million) 29.8 (10.7)
1. Additional information in relation to these Alternative Performance
Measures ("APMs") is disclosed in the Glossary on page 28
2. Zircon production includes a secondary zircon product H1 2017 12,000
tonnes; H1 2016 9,200 tonnes)
3. Included in operating costs are depreciation and amortisation
Operations
Kenmare Resources plc delivered strong production in H1 2017 with all
production metrics up substantially over the prior year. Production of
Heavy Mineral Concentrate ("HMC") and finished products (ilmenite,
zircon and rutile) increased by 18% and 26% respectively compared to H1
2016, primarily due to improved mining reliability, supplementary mining
and improved operating time at the Mineral Separation Plant ("MSP").
In H1 2017 the Group mined 17,383,000 tonnes (H1 2016: 14,447,600
tonnes) of ore at an average grade of 4.66% (H1 2016: 4.62%) and
produced 712,700 tonnes (H1 2016: 606,100 tonnes) of HMC. Finished
product volumes for the period included 504,800 tonnes (H1 2016: 402,900
tonnes) of ilmenite and 37,700 tonnes (H1 2016: 28,500 tonnes) of zircon
(H1 2017 figure includes 12,000 tonnes of a lower grade secondary zircon
product (H1 2016: 9,200 tonnes).
The tonnage of ore excavated was up 20% in comparison to H1 2016, as
dredge mining reliability continued to improve and supplementary mining
helped to boost throughputs. Grades are forecast to be lower in H2 2017,
though HMC production volumes are expected to be broadly maintained as
improvements in operating times and supplementary mining operations are
expected to compensate for the grade decline.
Ilmenite production for the period was 504,800 tonnes, up 25% on H1
2016, reflecting the operating time improvements seen over the past
year. Zircon production for the period increased 32% to 37,700 tonnes,
with primary production increasing 33% and secondary production
increasing 30% in comparison to H1 2016. Increased outputs of higher
grade primary products are a result of improving recoveries, with
further increases expected in H2 2017.
The Lost Time Injury Frequency Rate ("LTIFR") was 0.23 for the twelve
months to 30 June 2017 as compared to 0.37 for the twelve months to 30
June 2016. There were two lost time injuries experienced in H1 2017
compared to one in H1 2016. Kenmare remains committed to providing a
safe and healthy work environment for its employees, contractors and
visitors.
Total cash costs increased 7% in H1 2017 to US$71.4 million, compared to
US$66.6 million H1 2016, as a result of higher production volumes of
finished products while total cash costs per tonne of finished product
declined 14% over the same period to US$131 per tonne (H1 2016: US$153
per tonne).
Sales of total finished products were at record levels, and up 21% to
535,700 tonnes in H1 2017 compared to 441,700 tonnes in H1 2016. Sales
in H1 2017 comprised 495,000 tonnes (H1 2016: 414,800 tonnes) of
ilmenite, 36,700 tonnes (H1 2016: 24,300 tonnes) of zircon and 4,000
tonnes (H1 2016: 2,600 tonnes) of rutile. Shipping capacity will be
reduced in Q3 2017, because one of the Company's two transhipment barges
has been undergoing maintenance required every five years to comply with
marine classification regulations. The vessel is expected to return to
service in Q3. The scheduled maintenance of the barge is not expected
to have a significant impact on shipping volumes for the full year.
Closing stock of HMC at 30 June 2017 was 59,300 tonnes, compared to
66,500 tonnes at 31 December 2016. Closing stock of finished products
was 202,500 tonnes, up from 192,300 tonnes at 31 December 2016. The
closing stock of finished products includes 49,300 tonnes for which the
Group received advance payment from a customer (31 December 2016: 60,000
tonnes).
Market
Global pigment market conditions were favourable in H1 2017 leading to
strong ilmenite offtake for Kenmare. Ilmenite prices have increased
strongly in the past 18 months and Kenmare has agreed further price
increases for contracted volumes in H2 2017, in comparison to H1 2017.
However, there has been a recent drop in Chinese ilmenite spot prices.
Chinese pigment producers accumulated ilmenite inventories in H1 2017 as
demand for pigment grew and ilmenite prices rose. In recent months
stockpiles of low quality ilmenite and concentrates have entered the
market, but some are not expected to be sources of long term supply.
Seasonally weaker Chinese pigment demand and some disruption to pigment
plant operating rates associated with the enforcement of stricter
environmental regulations have resulted in weaker Chinese demand for
ilmenite in Q3 2017. However, this environmental enforcement is also
restricting domestic Chinese ilmenite production.
Demand for Kenmare's chloride ilmenite continues to be strong in 2017.
Market conditions for zircon improved in H1 2017, as inventories declined throughout the value chain. Kenmare has successfully implemented further significant price increases for H2 2017, as demand has continued to recover, and expects the positive momentum in the market to be maintained. Financial Revenues for the period increased to US$102.4 million (H1 2016: US$56.2 million), with a 21% increase in tonnes sold to 535,700 tonnes (H1 2016: 441,700 tonnes) of final products and an increase in the average sales price by 50%. Total operating costs of US$87.4 million increased by US$6.3 million from H1 2016. Total cash costs increased by 7% to US$71.4 million as a result of the increased production in the period, while total cash cost per tonne of finished product decreased from US$153 per tonne in H1 2016 to US$131 per tonne in H1 2017. An increase in cost of sales of US$5.4 million (H1 2016: US$24.0 million decrease) contributed to the increase in total operating costs, reflecting the increase in sales for the period. Depreciation and amortisation increased by US$0.6 million (H1 2016: US$2.4 decrease), due to additional spending on property, plant and equipment and increased production. Other operating costs included freight, demurrage and distribution costs of US$8.3 million (H1 2016: US$8.3 million), administration costs of US$1.6 million (H1 2016: US$0.9 million), arbitration costs of US$3.7 million (H1 2016: US$3.7 million), and a share-based payment cost of US$0.4 million (H1 2016: US$0.2 million). Adjusting total operating costs for depreciation of US$14.8 million (H1 2016: US$14.2 million), total Group share-based payments of US$0.4 million (H1 2016: US$0.1 million), freight reimbursable by customers of US$2.9 million (H1 2016: US$2.4 million) and the increase in mineral product inventory for the period of US$2.1 million (H1 2016: US$2.2 million), the total cash cost for the period amounted to US$71.4 million (H1 2016: US$66.6 million). EBITDA for the period amounted to positive US$29.8 million (H1 2016: negative US$10.7 million). The gross profit for the period was US$29.0 million (H1 2016: US$11.8 million loss) and the operating profit was US$15.0 million (H1 2016: US$24.9 million loss). The increase in EBITDA and operating profit for the period is primarily a result of higher revenue of US$102.4 million (H1 2016: US$56.2 million). Net finance costs of US$3.4 million (H1 2016: US$21.5 million) decreased as a result of the capital restructuring that was completed on 28 July 2016 and reduced debt to US$102.8 million on such date (H1 2016: US$357.7 million). The Group reported a foreign exchange loss of US$1.8 million (H1 2016: US$2.7 million) on non-US Dollar payables, cash and bank balances. A tax expense of US$0.5 million (H1 2016: US$1.9 million credit) was incurred in the period. The resultant net profit after tax is US$9.4 million for the period (H1 2016: US$47.1 million loss). During the period, additions to property, plant and equipment were US$9.5 million (H1 2016: US$3.2 million), reflecting spending on sustaining and development capital expenditure. Depreciation during the period increased to US$14.8 million from US$14.2 million in H1 2016 as a result of additions to property, plant and equipment and increased production. The Group carried out an impairment review of property, plant and equipment at the period end. The key assumptions of this review are set out in Note 5. No impairment provision is required as a result of this review. Inventory at the period end amounted to US$52.5 million (2016: US$47.7 million), consisting of intermediate and final mineral products of US$32.7 million (2016: US$30.6 million) and consumables and spares of US$19.8 million (2016: US$17.1 million). Closing stock of finished products at 30 June 2017 was 202,500 tonnes (2016: 192,300 tonnes). The Group has received advance payment from customers for 49,300 tonnes (2016: 60,000 tonnes) of finished product. The revenue for this stock will be recognised in the statement of comprehensive income when all criteria for recognition as a sale are met, including delivery to the customer's vessel. Trade and other receivables amounted to US$28.5 million (2016: US$23.8 million), of which US$23.1 million (2016: US$19.1 million) were trade receivables from the sale of mineral products and US$5.4 million (2016: US$4.7 million) was comprised of prepayments, mainly insurance premia. During the period, there were sales of US$102.4 million and receipts of US$98.4 million resulting in an increase in trade receivables since the year-end. Included in trade and other payables of US$29.6 million (2016: US$30.3 million) is US$7.5 million (2016: US$9.1 million) relating to advanced payments from a certain customer as noted above. Included in payables at 30 June 2017 is an amount of US$2.9 million arbitration costs due to the Aveng Group notified to the Group on 16 August 2017. Included in the payables at 31 December 2016 was an amount of US$4.9 million due to the Aveng Group that was paid in January 2017 as a result of the tribunal award on the 23 December 2016. Bank loans amounted to US$102.8 million (2016: US$102.6 million) at the end of the period. On 28 July 2016, the Group completed a capital restructuring that provided for a reduction in the interest rates on outstanding debt and a principal repayment holiday until February 2018. Cash and cash equivalents as at 30 June 2017 amounted to US$63.4 million (2016: US$57.8 million). Increases in inventories (US$4.7 million) and trade and other receivables (US$4.7 million) together with a decrease in trade and other payables (US$1.0 million) reduced cash flow from operations for the period by US$10.5 million (H1 2016: US$19.6 million increase). Community The Kenmare Moma Development Association (KMAD) continued to support local communities during the period through its economic, social and infrastructure projects. Board Update Ms. Sofia Bianchi retired from the Board on 25 May 2017 having served for nine years as a Non-Executive Director. Effective as of the same date, Mr. Peter Bacchus was appointed to the Board as a Non-Executive Director and as a member of the Remuneration and Audit Committees, Ms. Elizabeth Headon was appointed the Senior Independent Non-Executive Director and Mr. Graham Martin was appointed to the Nomination Committee. Outlook Production and cost improvements achieved in 2016 have continued in H1 2017 and the Company remains on track to deliver guided production for 2017. In relation to our medium-term objective of optimising mining capacity, several development options are under assessment some of which may significantly reduce or defer previously guided potential capital expenditure, whilst optimising production volumes. Capital investment decisions will be made in the context of market conditions and maintaining balance sheet strength. The ilmenite market improvements seen in the second half of 2016 have continued in the first half of 2017 but with some recent softening of ilmenite prices in China. Kenmare's supply-demand analysis forecasts growing feedstock deficits globally in the coming years, as inventory levels normalise. The zircon market has strengthened in the first half of 2017. This is expected to continue in the second half of the year as demand recovers and inventories reduce. Principal risks and uncertainties There are a number of potential risks and uncertainties which 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 and historical results. Other than in relation to the TiO(2) European Regulatory Risk, a detailed explanation of the risks and uncertainties below, and how the Group seeks to mitigate the risks, can be found on pages 44 to 49 of the Annual Report for the year ended 31 December 2016. Loss of mining licences Risk: The Group's mining activities require licences and approvals to be in place in the relevant mining areas in Northern Mozambique. The Group may lose or not receive the necessary approvals for it to operate in current or future mining licence areas in Northern Mozambique. Potential impact: A loss of or failure to maintain mining licences would significantly impact on the ability to operate, cash generation and valuation of the Group's assets. Country risk Risk: The Group's operations are located entirely in Mozambique. There may be potential adverse financial or operational impacts from changes in the political, economic, fiscal or regulatory circumstances in Mozambique. Potential impact: While Kenmare has successfully operated in Mozambique since 1987, it remains subject to risks similar to those prevailing in many developing nations; economic and social instability, changing regulatory requirements, increased taxes, etc. These events may cause significant disruption to the operation of the Mine or may cause an increase in costs to operate the Mine. Country risk is a factor in determining the economics of the Mine, and a deteriorating country risk may have an effect on the Group's financial results. Geotechnical risk Risk: An external berm failure at the Mine could result in a major slimes/water spill potentially impacting on local communities and production plants. Potential impact: The nature of dredge mining gives rise to the creation of artificial ponds and a potential for failure of the berm system which surrounds the ponds. The failure of a berm could cause loss of life and cessation of the operation of the affected dredge and Wet Concentrator Plant for a prolonged period. There are two independent mining operations at the Mine. The failure of a berm at one mining unit would not necessarily result in the cessation of operations at the other mining unit.
Severe weather events
Risk: The location of the Group's operations on the North Mozambican
coast gives rise to risk from cyclone activity and severe flooding
events. These events give rise to significant risk to the safety of mine
staff, contractors and visitors, as well as to physical damage to the
Mine.
Potential impact: In extreme weather circumstances, there is a risk of
loss of life. There is a risk of physical damage to the Mine plant which
may result in an inability to operate the Mine. The probability of
adverse weather events is considered low. They are also foreseeable so
as to allow engagement of disaster planning. Less severe adverse weather
could impact supply logistics to and from the Mine.
Uncertainty over physical characteristics of the orebody
Risk: Orebody characteristics may not conform to expectations.
Potential impact: An unexpected change in physical characteristics of
an orebody may result in reduced production levels or necessitate
increased production costs to maintain production at the intended level.
Power supply and transmission risk
Risk: The Mine is reliant on the delivery of stable and continuous
electric power from the national grid via Kenmare's dedicated
transmission line to the Mine.
Potential impact: Significant disruption to, or instability in, the
power supply to the Mine could have a material and adverse effect on the
ability to operate the Mine or to operate it in the lowest cost manner,
thereby adversely affecting production volumes and/or operating costs.
Asset damage or loss
Risk: The operation of large mining and processing facility carries an
inherent risk of technical failure of equipment, fires and other
accidents.
Potential impact: An occurrence of these risks could result in damage
to or destruction of key mining, processing or shipping facilities at
the Mine. Loss of key assets could result in disruption to production or
shipping, significant replacement costs and consequential monetary
losses.
Health Safety & Environment
Risk: The operation of large mining and processing facilities carries a
potential risk to the health and safety of Mine staff, visitors and
local community. A potential for environmental damage to the surrounding
areas also exists.
Potential impact: The improper use of machinery, technical failure of
certain equipment or failure to meet and maintain appropriate safety
standards could result in significant injury, loss of life or
significant negative impact on the surrounding environment and/or
communities.
Resource statement risk
Risk: A material misstatement in the Reserves and Resources statement.
Potential impact: A material misstatement in the Reserves and Resources
statement could materially adversely affect Group valuation.
IT security risk
Risk: The Group is dependent on the employment of advanced information
systems and is exposed to the risk of failure in the operation of these
systems. Furthermore, the Group is exposed to security threats through
cyber-crime.
Potential impact: A failure in these systems or a security breach could
lead to a disruption to critical business systems, a loss or theft of
confidential information, competitive advantage or intellectual property
and financial and/or reputational harm.
Industry Cyclicality
Risk: The Group's revenue generation may be significantly and adversely
affected by declines in the demand for and prices of its ilmenite,
zircon and rutile products. During rising commodity markets, there may
be upward pressure on operating and capital costs.
Potential impact: Failure of the Group to respond on a timely basis
and/or adequately to unfavourable product market events beyond its
control and/or pressure on operating or capital costs may adversely
affect financial performance.
Customer concentration
Risk: The customer base for the Mine's ilmenite, zircon and rutile
products is concentrated.
Potential impact: The Mine's revenue generation may be significantly
affected if there ceases to be demand for its products from existing
customers and it is unable to further expand its customer base in
respect of the relevant product.
Foreign currency risk
Risk: The Mine's revenues are entirely denominated in US Dollars,
whereas costs are denominated in a number of currencies including South
African Rand, Mozambican Meticais and US Dollars.
Potential impact: The nature and location of the Mine and the intrinsic
volatility in currency markets gives rise to an ongoing significant
probability of occurrence of an adverse exchange rate movement. The
impact of such fluctuations can be large across calendar years.
Financing risk
Risk: The inability to secure access to funding as required for future
development capital expenditure.
Potential impact: Significant development capital expenditures may need
to be funded in the medium-term horizon. A failure to generate
sufficient operating cash flows or to obtain external funding would lead
to a failure or delay in executing development projects that could lead
to sub-optimal cash generation over the longer term.
TiO(2) European Union Regulatory Risk
Risk: Pursuant to the Regulation (EC) No 1272/2008, the Classification,
Labelling and Packaging Regulation, an EU Member State can propose a
classification for a substance to the European Chemicals Agency ("ECHA"),
which upon review by ECHA's Committee for Risk Assessment ("RAC"), can
be submitted to the European Commission for adoption by regulation. On 9
June 2017, pursuant to a proposal on behalf of France, the RAC concluded
that titanium dioxide be classified as a Category 2 Carcinogen as
suspected of causing cancer (through the inhalation route). The opinion
has been provided to the European Commission, who will evaluate and make
the final decision on the proposed classification. The titanium dioxide
industry intends to enter into dialogue with the European Commission in
connection with that process.
Potential impact: If the European Commission were to adopt the proposed
Category 2 Carcinogen classification, it could have an adverse impact on
market demand for and price of our ilmenite and rutile products.
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 to the condensed
consolidated financial statements.
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 Statement of Financial Position Date
Kenmare Moma Mining (Mauritius) Limited Mozambique Branch and Kenmare
Moma Processing (Mauritius) Limited Mozambique Branch (the "Project
Companies") have been engaged in arbitration proceedings with certain
members of the Aveng Group (those members, together, "Aveng") in
relation to the performance and completion of certain engineering,
procurement and construction management contracts entered into in 2010
in connection with the expansion of the mine facilities. A partial award
was notified to the Group on 23 December 2016. A final award was
notified to the Group on 16 August 2017, pursuant to which the Project
Companies' are required to pay a portion of Aveng's costs amounting to
US$2.9 million which is included in trade and other payables at 30 June
2017.
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
21 August 2017 21 August 2017
RESPONSIBILITY STATEMENT
The Directors are responsible for the preparation of the Half Yearly
Financial Report in accordance with the Transparency (Directive
2004/109/EC) Regulations 2007, as amended, the Transparency Rules of the
Central Bank of Ireland, and with IAS 34, Interim Financial Reporting as
adopted by the European Union. The names and functions of the Directors
are as listed in the Group's 2016 Annual Report and Accounts, with the
exception that effective 25 May 2017, Ms. Sofia Bianchi retired as a
Non-Executive Director of the Company and Mr. Peter Bacchus was
appointed as a Non-Executive Director of the Company. A list of the
current Directors is maintained on the Kenmare Resources plc website:
www.kenmareresources.com.
The Directors confirm that, to the best of their knowledge:
-- The Group condensed consolidated financial statements for the half year
ended 30 June 2017 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, as amended being an indication of important events that
have occurred during the first six months of the financial year and their
effect 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, as amended 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
21 August 2017 21 August 2017
INDEPENT REVIEW REPORT TO KENMARE RESOURCES PLC
We have been engaged by the company to review the Group condensed
consolidated Financial Statements in the Half Yearly Financial Report
for the six months ended 30 June 2017 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 Cash Flows and related notes 1 to
14. 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 in accordance with
International Standard on Review Engagements 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the International Auditing and Assurance Standards
Board ("ISRE 2410"). Our work has been undertaken so that we might
state to the company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to
anyone other than the company, for our review work, for this review
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 which includes the Group Condensed
Consolidated Financial Statements, in accordance with the International
Accounting Standard 34, "Interim Financial Reporting," as adopted by
the European Union and the Transparency (Directive 2004/109/EC)
Regulations 2007, as amended and the Transparency Rules of the Central
Bank of Ireland.
As disclosed in note 1, the annual financial statements of the company
are prepared in accordance with IFRSs as adopted by the European Union.
The Group Condensed Consolidated 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 and the Transparency (Directive
2004/109/EC) Regulations 2007, as amended and the Transparency Rules of
the Central Bank of Ireland.
Our responsibility
Our responsibility is to express to the company a conclusion on the
Group Condensed Consolidated Financial Statements in the Half-Yearly
Financial Report based on our review.
Scope of review
We conducted our review in accordance with ISRE 2410. 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 (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 Financial Statements
included in the Half-Yearly Financial Report for the six months ended 30
June 2017 are not prepared, in all material respects, in accordance with
International Accounting Standard 34, "Interim Financial Reporting,"
as adopted by the European Union and the Transparency (Directive
2004/109/EC) Regulations 2007, as amended and the Transparency Rules of
the Central Bank of Ireland.
INDEPENT REVIEW REPORT TO KENMARE RESOURCES PLC (CONTINUED)
Emphasis of Matter - Recoverability of Property, Plant and Equipment
In forming our conclusion on the Group Condensed Consolidated Financial
Statements for the six months ended 30 June 2017, which is not modified,
we have considered the adequacy of the disclosures in note 5 concerning
the recoverability of Property, Plant and Equipment of US$790 million
which is dependent on the continued recovery in market prices for
titanium mineral sands and consequently the realisation of the
underlying cashflow forecast assumptions. The Group Condensed
Consolidated Financial Statements do not include any adjustments
relating to these uncertainties and the ultimate outcome cannot at
present be determined.
Deloitte
Chartered Accountants
Deloitte & Touche House, Earlsfort Terrace, Dublin 2
21 August 2017
KENMARE RESOURCES PLC
GROUP CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHSED 30 JUNE 2017
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
30 June 30 June 31 Dec
2017 2016 2016
Notes US$'000 US$'000 US$'000
Revenue 2 102,379 56,195 141,491
Cost of sales (73,386) (67,961) (144,014)
Gross profit/(loss) 28,993 (11,766) (2,523)
Other operating costs (13,986) (13,116) (22,835)
Operating profit/(loss) 15,007 (24,882) (25,358)
Finance income 100 20 94
Finance costs (3,510) (21,535) (27,960)
Gain on extinguishment of debt - - 38,255
Foreign exchange loss (1,762) (2,664) (2,175)
Profit/(loss) before tax 9,835 (49,061) (17,144)
Income tax (expense)/credit (456) 1,917 1,917
Profit/(loss) for the
period/year 9,379 (47,144) (15,227)
Attributable to equity holders 9,379 (47,144) (15,227)
US$ per
share US$ per share US$ per share
Profit/(loss) per share: basic 4 0.09 (3.39) (0.28)
Profit/(loss) per share:
diluted 4 0.09 (3.39) (0.28)
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 2017
Unaudited Unaudited Audited
30 June 30 June 31 Dec
2017 2016 2016
Notes US$'000 US$'000 US$'000
Assets
Non-current assets
Property, plant and equipment 5 790,003 823,775 793,875
Deferred tax asset 2,780 3,236 3,237
Other receivables 93 464 278
792,876 827,475 797,390
Current assets
Inventories 52,484 47,438 47,747
Trade and other receivables 28,432 12,058 23,558
Cash and cash equivalents 63,408 12,279 57,786
144,324 71,775 129,091
Total assets 937,200 899,250 926,481
Equity
Capital and reserves attributable to the Company's
equity holders
Called-up share capital 6 215,046 214,941 215,046
Share premium 730,897 431,380 730,897
Retained losses (194,045) (226,590) (203,424)
Other reserves 33,663 32,943 33,247
Total equity 785,561 452,674 775,766
Liabilities
Non-current liabilities
Bank loans 7 90,629 - 100,000
Provisions 8 17,471 22,440 15,855
108,100 22,440 115,855
Current liabilities
Bank loans 7 12,184 357,742 2,618
Obligations under finance lease - 512 264
Provisions 8 1,720 1,714 1,720
Other financial liability 15 236 4
Trade and other payables 29,620 63,932 30,254
43,539 424,136 34,860
Total liabilities 151,639 446,576 150,715
Total equity and liabilities 937,200 899,250 926,481
The accompanying notes form part of these condensed consolidated
financial statements.
KENMARE RESOURCES PLC
UNAUDITED GROUP CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHSED 30 JUNE 2017
Called-Up Share Capital Capital Retained Share Total
Share Premium Conversion Redemption Losses Based
Capital Reserve Reserve Payment
Fund Fund Reserve
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1 January 2016 214,941 431,380 754 10,582 (175,651) 21,468 503,474
Loss for the period - - - - (47,144) - (47,144)
Share-based payments - - - - - 139 139
Transaction costs of an equity transaction - - - - (3,795) - (3,795)
Balance at 30 June 2016 214,941 431,380 754 10,582 (226,590) 21,607 452,674
Profit for the period - - - - 31,917 - 31,917
Share-based payments - - - - - 304 304
Equitisation of loans and loan fees 16 44,244 44,260
Equity issued 89 255,273 - - (8,751) - 246,611
Balance at 31 December 2016 215,046 730,897 754 10,582 (203,424) 21,911 775,766
Profit for the period - - - - 9,379 - 9,379
Share-based payments - - - - - 416 416
Balance at 30 June 2017
215,046 730,897 754 10,582 (194,045) 22,327 785,561
The accompanying notes form part of these condensed consolidated
financial statements.
KENMARE RESOURCES PLC
GROUP CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHSED 30 JUNE 2017
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
30 June 30 June 31 Dec
2017 2016 2016
US$'000 US$'000 US$'000
Cash flows from operating activities
Profit/(loss) for the financial period/year before
tax 9,835 (49,061) (17,144)
Adjustment for:
Foreign exchange movement 1,762 2,664 2,175
Share-based payments 416 139 443
Finance income (100) (20) (76)
Finance costs 3,510 21,535 27,960
Gain on extinguishment of debt - - (38,255)
Depreciation 14,801 14,155 30,613
Disposals of property, plant and equipment - - 224
Increase/(decrease) in other financial liability 11 214 (18)
(Decrease)/increase in provisions (101) 112 113
Operating cash inflow/(outflow) 30,134 (10,262) 6,035
Increase in inventories (4,737) (1,210) (1,519)
(Increase)/decrease in trade and other receivables (4,688) 8,395 (2,919)
(Decrease)/increase in trade and other payables (1,049) 12,377 (4,573)
Cash generated by operations 19,660 9,300 (2,976)
Interest received 100 20 76
Interest paid (2,980) (2,703) (2,775)
Net cash from/(used in) operating activities 16,780 6,617 (5,675)
Cash flows from investing activities
Additions to property, plant and equipment (9,457) (2,969) (6,697)
Net cash used in investing activities (9,457) (2,969) (6,697)
Cash flows used in financing activities
Proceeds from the issue of shares - - 254,762
Cost of the issue of shares - - (12,546)
Repayment of borrowings - - (179,555)
Loan fees and expenses - (5,730) (6,699)
Equity transaction costs - (460) -
Payment of obligations under finance leases (280) (280) (560)
Net cash (used in)/from financing activities (280) (6,470) 55,402
Net increase/(decrease) in cash and cash
equivalents 7,043 (2,822) 43,030
Cash and cash equivalents at the beginning of
period/year 57,786 14,352 14,352
Effect of exchange rate changes on cash and cash
equivalents (1,421) 749 404
Cash and cash equivalents at end of period/year 63,408 12,279 57,786
The accompanying notes form part of these condensed consolidated
financial statements.
KENMARE RESOURCES PLC
UNAUDITED NOTES TO THE GROUP CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODED 30 JUNE 2017
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 2017 have been prepared in accordance with the Transparency
(Directive 2004/109/EC) Regulations 2007, as amended 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 2016 and are described in the Annual Report.
In the current financial year, the Group has adopted IAS 7 (amendments)
Statement of cash flows and IAS 12 (amendments) Income taxes which are
effective in the EU from 1 January 2017. Adoption has resulted in no
effect on the financial statements.
IFRS 15 Revenue from Contracts with Customers will replace IAS 18
Revenue, IAS 11 Construction Contracts and related interpretations. The
new standard is applicable from 1 January 2018. The new standard will be
adopted by the Group on the effective date of 1 January 2018. IFRS 15
provides a new five step model to be applied to revenue arising from
contracts with customers. The principles in IFRS 15 provide a more
structured approach to measuring and recognising revenue. However, it is
not expected that the application of IFRS 15 will impact accounting for
our customer contracts. The new standard will result in additional
disclosures in future years.
IFRS 9 Financial Instruments reflects the final phase of the IASB's work
on the replacement of IAS 39 Financial Instruments: Recognition and
Measurement and applies to the classification and measurement of
financial assets and liabilities as defined in IAS 39, impairment, and
the application of hedge accounting. IFRS 9 is effective from 1 January
2018. The new standard will be adopted by the Group on the effective
date of 1 January 2018. The Group is currently performing an assessment
of the impact of IFRS 9 but it is not expected that the application of
IFRS 9 will impact the accounting for our current financial instruments.
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 2017 and the
corresponding amounts for the six months ended 30 June 2016 have been
reviewed but not audited. The independent review report is on pages 11
and 12. The financial information for the year ended 31 December 2016,
presented herein, is an abbreviated version of the annual financial
statements for the Group in respect of the year ended 31 December 2016.
The Group's annual financial statements in respect of the year ended 31
December 2016 have been filed in the Companies Registration Office and
the independent auditors issued an unqualified audit report thereon,
with emphasis of matter in relation to realisation of assets in the
opinion in respect of those annual financial statements.
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 consolidation statements.
Key assumptions upon which the Group forecast is based over the next
twelve months include a mine plan based on the Namalope reserves as set
out in the Reserve and Resources table in the 2016 Annual Report.
Production levels for the purpose of the forecast are approximately 1.2
million tonnes of ilmenite, zircon and rutile. Assumptions of 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 are forecast taking
into account independent titanium mineral sands expertise and management
expectations. Operating costs are based on budget costs for 2017 taking
into account current running costs of the Mine and escalated by 2% per
annum thereafter. Capital costs are based on the capital plans and
include escalation at 2% per annum.
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 17 30 June 16 31 Dec 16
US$'000 US$'000 US$'000
Segment revenues and results
Moma Titanium Minerals Mine
Revenue 102,379 56,195 141,491
Cost of sales (73,386) (67,961) (144,014)
Gross profit/(loss) 28,993 (11,766) (2,523)
Other operating costs (12,010) (12,047) (20,051)
Segment operating profit/(loss) 16,983 (23,813) (22,574)
Other corporate operating costs (1,976) (1,069) (2,784)
Group operating profit/(loss) 15,007 (24,882) (25,358)
Finance income 100 20 94
Finance expense (3,510) (21,535) (27,960)
Gain on extinguishment of debt - - 38,255
Foreign exchange loss (1,762) (2,664) (2,175)
Profit/(loss) before tax 9,835 (49,061) (17,144)
Income tax (expense)/credit (456) 1,917 1,917
Profit/(loss) for the period/year 9,379 (47,144) (15,227)
Segment assets
Moma Titanium Minerals Mine assets 882,312 890,091 868,400
Corporate assets 54,888 9,159 58,081
Total assets 937,200 899,250 926,481
3. SEASONALITY OF SALE OF MINERAL PRODUCTS
Sales of the Group's mineral products are not seasonal in nature.
4. PROFIT/LOSS PER SHARE
The calculation of the basic and diluted profit/(loss) per share
attributable to the ordinary equity holders of the Company is based on
the following data:
Unaudited Unaudited Audited
30 June 17 30 June 16 31 Dec 16
US$'000 US$'000 US$'000
Profit/(loss) for the period/year attributable to
equity holders of the Company 9,379 (47,144) (15,227)
Unaudited Unaudited Audited
30 June 17 30 June 16 31 Dec 16
Number of Number of Number of
Shares Shares Shares
Weighted average number of issued ordinary shares
for the purposes of basic loss per share 109,601,551 13,909,527 55,253,893
Effect of dilutive potential ordinary shares:
Shares, share options and warrants 513,852 - -
Weighted average number of ordinary shares for
the purpose of diluted loss per share 110,115,403 13,909,527 55,253,893
US$ per US$ per US$ per
share share share
Profit/(loss) per share: basic 0.09 (3.39) (0.28)
Profit/(loss) per share: diluted 0.09 (3.39) (0.28)
For the six months ended 30 June 2016 and year ended 31 December 2016,
the basic profit per share and the diluted profit per share are the same,
as the effect of the outstanding share awards, share options and
warrants 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 2016 786,057 53,688 5,497 249,984 1,095,226
Transfer to/(from) construction in progress 3,081 681 (3,762) - -
Additions during the period - - 3,248 - 3,248
Disposals during the period (279) - - - (279)
Balance at 30 June 2016 788,859 54,369 4,983 249,984 1,098,195
Transfer to/(from) construction in progress 2,816 198 (3,014) - -
Additions during the period - - 3,449 - 3,449
Disposals during the period 16 (731) - - (715)
Adjustments during the period (16,946) - - - (16,946)
Balance at 31 December 2016 774,745 53,836 5,418 249,984 1,083,983
Transfer to/(from) construction in progress 1,522 (312) (1,210) - -
Additions during the period 164 - 9,293 - 9,457
Disposals during the period - (375) - - (375)
Adjustments during the period* 1,472 - - - 1,472
Balance at 30 June 2017 777,903 53,149 13,501 249,984 1,094,537
Accumulated Depreciation
Balance at 1 January 2016 122,354 27,836 - 110,075 260,265
Charge for the period 9,613 2,176 - 2,366 14,155
Balance at 30 June 2016 131,967 30,012 - 112,441 274,420
Charge for the period 11,759 2,160 - 2,539 16,458
Disposals during the period (91) (679) - - (770)
Balance at 31 December 2016 143,635 31,493 - 114,980 290,108
Charge for the period 10,148 1,978 - 2,675 14,801
Disposals during the period - (375) - - (375)
Balance at 30 June 2017 153,783 33,096 - 117,655 304,534
Carrying Amount
Balance at 30 June 2017 624,120 20,053 13,501 132,329 790,003
Balance at 30 June 2016 656,892 24,357 4,983 137,543 823,775
Balance at 31 December 2016 631,110 22,343 5,418 135,004 793,875
*There was an adjustment to the mine closure cost of US$1.5 million
during the period as result of a change in the mine closure provision
due to the estimated 40-year discount rate decreasing from 3.3% to 3.1%,
details of which are set out in Note 8.
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. 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 from a life-of-mine financial model. The
recoverable amount obtained from the financial model represents the
present value of the future pre-tax, pre-finance cash flows discounted
at 11%.
Key assumptions include the following:
-- The discount rate is based on the Group's weighted average cost of
capital. This rate is a best estimate of the current market assessment of
the time value of money and the risks specific to the Mine, taking into
consideration country risk, currency risk and price risk. The discount
rate calculated at the period end using these factors is 11%. The country
risk premium increased during 2016 as a result of a downgrading of the
Mozambique Government's credit rating. Based on the Group's experience of
operating in Mozambique the Board believe that it is inappropriate to
apply the country risk premium in its entirety due to specific
characteristics of the mining operations. As a result, a reduced country
risk premium is used in the calculation of the weighted average cost of
capital.
Using a discount rate of 11% the recoverable amount is greater than the
carrying amount by US$140.8 million. The discount rate is a significant
factor in determining the recoverable amount. A 1% increase in the
discount rate to 12%, which management believe could be a reasonably
possible change in this assumption, would result in the recoverable
amount being greater than the carrying amount by US$64.4 million. A 1%
increase in the discount rate at the year-end review to 12% would have
resulted in the recoverable amount being greater than the carrying
amount by US$47.5 million.
-- A mine plan based on the Namalope and Nataka proved and probable reserves
which runs to 2056. The mine life assumption has not changed from the
year-end review.
-- Average annual production is approximately 0.9 million tonnes (2016: 0.9
million tonnes) of ilmenite plus co-products, zircon and rutile over the
life of the mine. This mine plan does not include investment in
additional mining capacity. Minimum stock quantities are forecast to be
maintained at period ends. The average annual production assumption has
not changed from the year-end review.
-- 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 are
forecast by the Group taking into account independent titanium mineral
sands expertise and management expectations including general inflation
of 2% per annum. Average forecast product sales prices have decreased
slightly from the year-end review as a result of revised forecast
pricing. Forecast sales prices may decrease in the short term. Management
do not believe that reducing forecast sales prices in the long term/over
the life of mine would be a reasonable change and therefore a sensitivity
to this assumption (which would give rise to a reduction in the
recoverable amount) has not been applied. Supply and demand analyses of
the ilmenite industry forecast that without supply from new projects, or
from re-incentivised higher cost capacity that has been idled, there will
be a deficit of supply. The fundamentals of continued growth in pigment
demand, based on increased economic activity driven by urbanisation
trends in emerging markets and resumption of growth in the more
traditional markets, such as North America and Europe, still apply and
should support solid demand for ilmenite production in the future.
-- Operating costs are based on approved budget costs for 2017 taking into
account the current running costs of the Mine and escalated by 2% per
annum thereafter. Average forecast operating costs have remained
relatively unchanged from the year-end review. The forecast takes into
account reasonable cost increases and therefore a sensitivity to this
assumption (which would give rise to a reduction in the recoverable
amount) has not been applied.
-- Sustaining capital costs are based on a life-of-mine capital plan
considering inflation at 2% per annum from 2017. Forecast capital costs
have remained relatively unchanged from the year-end review. The forecast
takes into account reasonable cost increases and therefore a sensitivity
to this assumption (which would give rise to a reduction in the
recoverable amount) has not been applied.
As a result of the review no impairment provision is required.
Substantially all the property, plant and equipment of the Group is or
will be mortgaged, pledged or otherwise secured to provide collateral
for the Group's Senior and Subordinated Loans as detailed in Note 7.
The recovery of property, plant and equipment is dependent upon the
successful operation of the Moma Titanium Minerals Mine; the realisation
of the cash flow forecast assumptions as set out in this note would
result in the recovery of such amounts. The Directors are satisfied
that at the statement of financial position date the recoverable amount
of property, plant and equipment exceeds its carrying amount and, based
on the planned mine production levels, that the Mine will achieve
positive cash flows.
6. SHARE CAPITAL
Share capital as at 30 June 2017 amounted to US$215.0 million (2016:
US$215.0 million). During the period, no ordinary shares in the Company
were issued.
7. BANK LOANS
Unaudited Unaudited Audited
30 June 17 30 June 16 31 Dec 16
US$'000 US$'000 US$'000
Project Super Senior Loans - 10,456 -
Project Senior Loans 25,893 79,511 25,857
Project Subordinated Loans 76,920 297,021 76,761
Total Loans 102,813 386,988 102,618
Project Loan fees and expenses - (29,246) -
Total Bank Loans 102,813 357,742 102,618
Within one year 12,184 357,742 2,618
In the second year 19,048 - 19,048
In the third to fifth years 71,581 - 58,730
After five years - - 22,222
102,813 357,742 102,618
Less amounts due for settlement within 12
months (12,184) (357,742) (2,618)
Amount due for settlement after 12 months 90,629 - 100,000
Project Loans
Balance at 1 January 102,618 367,811 367,811
Loan interest accrued 3,175 18,607 23,888
Loan interest paid (2,980) (2,703) (2,775)
Project loans novated to Kenmare Resources
plc - - (292,449)
Foreign exchange movement - 3,273 6,186
Other finance fees - - (43)
Balance at 30 June/31 December 102,813 386,988 102,618
Project Loans
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 Project Loans are secured by
substantially all rights and assets of the Project Companies, and,
amongst other things, the Group's shares in the Project Companies,
substantially all of the Group's cash balances and substantially all of
the Group's intercompany loans.
On 22 June 2016, the Group and the Lenders entered into an Amendment,
Repayment and Equitisation Agreement (the "AREA") for purposes of a
group capital restructuring and debt equitisation. The Group also
entered into Amended Financing Agreements setting out the terms and
conditions applicable to the US$100 million residual debt following the
debt restructuring. Details of these agreements are set out below.
Amended Financing Agreements
On 28 July 2016, the debt restructuring was implemented pursuant to
which the terms of the residual debt of US$100 million became effective.
The residual debt is in two tranches: US$25.4 million is senior debt and
US$74.6 million is subordinated debt.
Senior debt ranks in priority to subordinated debt in repayment, subject
to the waterfall provision summarised below, on insolvency of the Group
and on enforcement of security.
Voting thresholds are calculated on the basis of aggregate outstanding
debt, being the aggregate of outstanding senior debt and outstanding
subordinated debt. Decisions are taken by majority Lenders (Lenders
whose principal amount of outstanding debt aggregate more than 50.1% of
all outstanding debt) or supermajority Lenders (Lenders whose principal
amount of outstanding debt aggregate more than 66.7% of all outstanding
debt).
Senior Debt
The final maturity date of the senior debt is 1 February 2022. Interest
on the senior debt is payable in cash on each semi-annual payment date
(1 February and 1 August). The interest rate on each tranche of senior
debt is LIBOR plus a margin of 3.00% from and including 28 July 2016 to
and including 31 January 2020, and 3.75% thereafter.
Scheduled repayment of the senior debt and subordinated debt is based on
the following repayment schedule, the percentage being applied to total
senior and subordinated debt outstanding on 28 July 2016 of US$100
million, in each case subject to the waterfall provisions summarised
below:
Payment Date Principal amount to be repaid (%)
1 Feb 2018 9.52381
1 Aug 2018 9.52381
1 Feb 2019 9.52381
1 Aug 2019 9.52381
1 Feb 2020 9.52381
1 Aug 2020 9.52381
1 Feb 2021 9.52381
1 Aug 2021 11.11111
1 Feb 2022 22.22222
Each principal instalment is allocated 50% to senior debt until senior
debt is fully repaid (provided that once the amount of Absa senior debt
is reduced to US$10 million, Absa ceases to participate in the senior
debt instalment and thereafter participates in the subordinated
instalment) with the balance being applied to subordinated debt. The
effect of the sharing provision is that senior debt, other than Absa's
senior debt, will be repaid by 1 August 2019 under the agreed
amortisation schedule.
In addition to the scheduled instalments of senior debt, prepayments
based on 25% of cash available for restricted payments are required
under a cash sweep mechanism, commencing 1 February 2018. Until the
senior debt has been repaid in full, 50% of the prepayments will be
allocated to senior debt (provided that once the amount of Absa senior
debt is reduced to US$10 million, Absa ceases to participate in the
senior debt prepayments and thereafter participates in the subordinated
debt prepayments) with the balance applied to prepayments of
subordinated debt. Senior debt prepayments are applied in inverse order
of maturity.
Subordinated Debt
The final maturity date of the subordinated debt is 1 February 2022.
Interest on the subordinated debt is payable in cash on 1 February and 1
August. The interest rate on subordinated debt is LIBOR plus a margin of
4.75% from and including 28 July 2016 to and including 31 January 2020
and 5.50% thereafter. Subordinated Lenders will receive additional
interest allocated pro rata to principal amounts outstanding equal to
the difference between (i) interest on the senior loans calculated on
the basis of subordinated loan margins, and (ii) actual interest on the
senior loans. Taken together, the margin on the senior and subordinated
loans is thus 4.75% from and including 28 July 2016 to and including 31
January 2020, and 5.50% thereafter.
As mentioned above, scheduled principal instalments on subordinated
loans will equal the total principal instalment due on a payment date
less the principal instalment on senior loans. In addition to the
scheduled instalments, prepayments based on 25% cash available for
restricted payments less senior debt prepayments are required under a
cash sweep mechanism, commencing 1 February 2018. Subordinated debt
prepayments are applied in inverse order of maturity.
Group borrowings interest, currency and liquidity 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-month LIBOR. The average effective borrowing rate at
the period end was 6.1% (2016: 5.2%).
The interest rate profile of the Group's loan balances at the period end
was as follows:
Unaudited Unaudited Audited
30 June 17 30 June 16 31 Dec 16
US$'000 US$'000 US$'000
Fixed rate debt - 310,800 -
Variable rate debt 102,813 46,942 102,618
Total debt 102,813 357,742 102,618
Under the assumption that all other variables remain constant, a 1%
increase/decrease in the 6-month LIBOR rate would result in a US$0.5
million (2016: US$0.5 million) increase/decrease in finance costs for
the period.
The currency profile of the bank loans at the period end was as follows:
Unaudited Unaudited Audited
30 June 17 30 June 16 31 Dec 16
US$'000 US$'000 US$'000
Euro - 181,545 -
US Dollars 102,813 176,197 102,618
Total debt 102,813 357,742 102,618
On 28 July 2016, the debt restructuring was implemented pursuant to
which all debt is now denominated in US Dollars.
The above sensitivity analyses are estimates of the effect of market
risks assuming the specified change occurs. Actual results in the future
may differ materially from these results due to the developments in the
global financial markets which may cause fluctuations in interest 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 17 30 June 16 31 Dec 16
US$'000 US$'000 US$'000
Mine closure provision 15,255 20,117 13,538
Mine rehabilitation provision 2,492 2,593 2,593
Legal provision 1,444 1,444 1,444
Total provisions 19,191 24,154 17,575
Current 1,720 1,714 1,720
Non-current 17,471 22,440 15,855
19,191 24,154 17,575
The mine closure provision represents the Directors' best estimate of
the present value of the Group's liability for close-down, dismantling
and restoration of the mining and processing site. On initial
recognition and adjustment, 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 costs. 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 (2016: US$0.2 million) has been recognised in the condensed
consolidated statement of comprehensive income for the period. During
the period, the mine closure provision was increased by US$1.5 million
during the period as a result of the reduction in the estimated 40-year
discount rate from 3.3% to 3.1%.
The main assumptions used in the calculation of the estimated future
costs include:
-- a discount rate of 3.1% (2016: 3.3%);
-- an inflation rate of 2% (2016: 2%);
-- an estimated life of mine of 40 years (2016: 41 years); and
-- an estimated closure cost of US$21.7 million (2016: US$21.7 million) and
an estimated post-closure monitoring provision of US$1.7 million (2016:
US$1.7 million).
The discount rate is a significant factor in determining the mine
closure provision. The Group uses rates as provided by the US Treasury.
30-year US Treasury yields are the longest period for which yields are
quoted. A 40-year rate to align with the estimated life of mine has been
calculated by taking the average increase in yield from 10 to 20 years
and from 20 to 30 years and adding this to the 30-year treasury rate to
arrive at an estimated extrapolated rate for 40 years. This discount
rate is deemed to provide the best estimate to reflect current market
assessment of the time value of the money and the risks specific to the
liability. Risks specific to the liability are included in the cost
estimate. A 1% increase in the estimated discount rate results in the
mine closure provision decreasing to US$10.3 million. A 1% decrease in
the estimated discount rate results in the mine closure provision
increasing to US$22.7 million.
The mine rehabilitation provision was decreased by US$0.1 million as a
result of additional provision of US$0.5 million for areas disturbed net
of US$0.6 million released for areas rehabilitated during the period.
US$0.3 million (2016: 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.
The legal provision relates to the costs associated with the defamation
case appeal and retrial and further actions taken by a former Director
against the Company detailed in Note 12.
9. SHARE-BASED PAYMENTS
During the period, the Group recognised share-based payment expenses of
US$0.4 million (H1 2016: US$0.1 million) under the Kenmare Incentive
Plan and Kenmare Restricted Share Plan which was approved by
shareholders on 25 May 2017.
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 the Group and its key management
personnel or members of their close families during the period under
review.
11. FAIR VALUE
The fair value of the Group borrowings of US$102.9 million (2016:
US$103.1 million) has been calculated by discounting the expected future
cash flows at a rate of 6% (2016: 6%). The 6% discount rate was
estimated by analysing current interest rates on mining sector
borrowings for comparable credits. For B+ to B- rated debt, mining
sector borrowing rates are in the range of 5 to 6%. The Group would be
deemed to be in this range of credit rating.
The fair value of trade and other receivables, trade and other payables,
and other financial liabilities are short term and non-interest bearing
and accordingly the Directors deem that the carrying amounts are a good
approximate of their fair value.
12. CONTINGENT LIABILITIES
On 17 November 2010, a High Court jury delivered a verdict of damages of
EUR10 million in a defamation case taken by a former Company Director.
The Company submitted an appeal to the Supreme Court with a view to
setting aside both the verdict and the amount, with the intention of
securing a retrial. The High Court granted a stay on the award subject
to the payment of EUR0.5 million until the hearing of the appeal. The
Company's legal team strongly advise that the award will be set aside on
appeal, the outcome of which is uncertain, and therefore no provision
has been made in these financial statements for the award as the Company
do not consider that there is any future probable loss. The Company has
provided US$1.4 million for the costs associated with the defamation
case appeal and retrial and further actions taken by the former Director,
as detailed in Note 8.
13. EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE
The Project Companies have been engaged in arbitration proceedings with
certain members of the Aveng Group (those members, together, "Aveng") in
relation to the performance and completion of certain engineering,
procurement and construction management contracts entered into in 2010
in connection with the expansion of the mine facilities. A partial award
was notified to the Group on 23 December 2016. A final award was
notified to the Group on 16 August 2017, pursuant to which the Project
Companies' are required to pay a portion of Aveng's costs amounting to
US$2.9 million which is included in trade and other payables at 30 June
2017.
14. INFORMATION
The Half Yearly Financial Report was approved by the Board on 21 August
2017.
Copies are available from the Company's registered office at Chatham
House, Chatham Street, Dublin 2, Ireland. The report is also available
on the Company's website at www.kenmareresources.com.
Glossary - Alternative Performance Measures
Certain financial measures set out in our Half Yearly Financial Report
to 30 June 2017 are not defined under International Financial Reporting
Standards ("IFRSs"), but represent additional measures used by the Board
to assess performance and for reporting both internally and to
shareholders and other external users. Presentation of these Alternative
Performance Measures ("APMs") provides useful supplemental information
which, when viewed in conjunction with the Company's IFRSs financial
information, allows for a more meaningful understanding of the
underlying financial and operating performance of the Group.
These non-IFRSs measures should not be considered as an alternative to
financial measures as defined under IFRSs.
Descriptions of the APMs included in this report, as well as their
relevance for the Group, are disclosed below.
APM Description Relevance
EBITDA Operating profit/loss before depreciation and Eliminates the effects of financing and accounting
amortisation decisions to allow assessment of the profitability
and performance of the Group
Capital costs Additions to property, plant and equipment in the Provides the amount spent by the Company on additions
period to property, plant and equipment in the period
Cash operating cost per tonne of finished product Total costs less freight and other non-cash costs, Eliminates the non-cash impact on costs to identify
produced including inventory movements, divided by final product the actual cash outlay for production and, as production
production (tonnes) levels increase or decrease, highlights operational
performance by providing a comparable cash cost per
tonne of product produced over time
Net Debt Bank loans before loan amendment fees and expenses Measures the Group's ability to repay its debts if
net of cash and cash equivalents they were to fall due immediately, and aids in developing
an understanding of the leveraging of the Group.
Mining - HMC produced Heavy mineral concentrate extracted from mineral sands Provides a measure of heavy mineral concentrate extracted
deposits and which include ilmenite, zircon, rutile from the Mine
and other non-valuable heavy minerals and silica
Processing - finished products produced Finished products produced by the mineral separation Provides a measure of finished products produced from
process the processing plants
Marketing - finished products shipped Finished products shipped to customers during the Provides a measure of finished products shipped to
period customers
LTIFR Lost time injury frequency rate Measures the number of injuries per 200,000-man hours
worked on site
EBITDA
H1 2017 H1 2016 2016
US$m US$m US$m
Operating profit/(loss) 15.0 (24.9) (25.4)
Depreciation and amortisation 14.8 14.2 30.6
EBITDA 29.8 (10.7) 5.2
Cash operating cost per tonne of finished product
H1 2017 H1 2016 2016
US$m US$m US$m
Cost of sales 73.4 68.0 144.0
Other operating costs 14.0 13.1 22.8
Total operating costs 87.4 81.1 166.8
Freight charges (2.9) (2.4) (5.4)
Total operating costs less freight 84.5 78.7 161.4
Non-cash costs
Depreciation and amortisation (14.8) (14.2) (30.6)
Share-based payments (0.4) (0.1) (0.4)
Mineral product movements 2.1 2.2 3.0
Adjusted cash operating costs 71.4 66.6 133.4
Final product production tonnes 546,900 434,400 979,300
Cash operating cost per tonne of finished product US$131 US$153 US$136
Net Debt
H1 2017 H1 2016 2016
US$m US$m US$m
Bank loans 102.8 387.0 102.6
Cash and cash equivalents (63.4) (12.3) (57.8)
Net Debt 39.4 374.7 44.8
This announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: Kenmare Resources via Globenewswire
http://www.kenmareresources.com/
(END) Dow Jones Newswires
August 22, 2017 02:01 ET (06:01 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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