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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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| 3.50 | 1.06% | 335.00 | 332.50 | 335.00 | 335.00 | 332.00 | 335.00 | 15,398 | 13:24:28 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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Kenmare Resources plc ("Kenmare" or "the Company")
13 March 2019
2018 Preliminary Results
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 preliminary results for the twelve months to 31
December 2018.
Statement from Michael Carvill, Managing Director:
"2018 was Kenmare's third consecutive year of achieving our production
guidance and delivering record shipment volumes. We recorded a 54%
increase in EBITDA to US$93.3 million (up US$32.8 million) and a
year-end net cash position of US$13.5 million, compared to US$34.1
million of net debt at the end of 2017 (up US$47.6 million). Importantly,
we also achieved a significant improvement in our safety performance,
with a Lost Time Injury Frequency Rate ("LTIFR") of 0.12 per 200,000 man
hours worked in 2018, the lowest level to date.
In terms of our development programme, we made good progress towards our
core objective of delivering an approximate 20% increase in our
production rate to 1.2 million tonnes per annum of ilmenite by 2021. The
first of our three development projects, the 20% expansion of Wet
Concentrator Plant ("WCP") B, was commissioned during the year, more
than 25% under budget. The second project, WCP C, is well underway and
expected to commission in Q4 2019. The definitive feasibility study
("DFS") for the third project, the move of WCP B to the high grade
Pilivili ore zone, is on track for completion in H1 2019.
Average received prices for our products were higher in 2018 compared to
2017 and we see a positive outlook due to continued demand growth,
depletion of existing mines and limited supply from new mines in the
coming years."
Overview
-- 26% increase in revenues to US$262.2 million (2017: US$208.3 million),
primarily due to increased volumes shipped and higher average received
prices
-- 54% increase in EBITDA to US$93.3 million (2017: US$60.5 million)
-- 162% increase in profit after tax to US$50.9 million (2017: US$19.4
million)
-- Net cash position of US$13.5 million achieved at the end of 2018, up from
US$34.1 million net debt at the end of 2017
-- Mid-point of original 2018 production guidance exceeded for all products
-- 4% increase in Heavy Mineral Concentrate ("HMC") production to 1,370,800
tonnes (2017: 1,323,000 tonnes)
-- Ilmenite production of 958,500 tonnes (2017: 998,200 tonnes) and primary
zircon production of 48,400 tonnes (2017: 48,600 tonnes)
-- 3% increase in total shipments of finished products to 1,074,400 tonnes,
a new annual record (2017: 1,040,400 tonnes)
-- 11% increase in cash operating costs to US$145 per tonne of final product
(2017: US$131 per tonne) due in part to higher utilisation of
diesel-powered electric generators
-- Significant decrease in LTIFR to 0.12 per 200,000 man hours worked in
2018 (2017: 0.39)
-- WCP B upgrade commissioned on time and more than 25% below budget, WCP C
construction underway and DFS for WCP B move on track for completion in
H1 2019
Results conference call
The Company will host a briefing and a conference call for analysts,
investors and media today at 08:30am UK time. The briefing will be held
at the offices of Buchanan (107 Cheapside, London, EC2V 6DN) and
participant dial-in numbers for the conference call are as follows (a
pin code is not required to access the call):
UK: +44 203 194 0544
Ireland: +353 169 681 82
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
Tel: +353 1 498 0300
Mob: +353 87 690 9735
Buchanan
Bobby Morse / Chris Judd
Tel: +44 207 466 5000
CHAIRMAN'S STATEMENT
Dear Shareholders,
Kenmare has become a stronger and more resilient company in recent years
and 2018 was another year of robust performance. Increased sales volumes
and higher commodity prices increased profitability and free cash flow
generation, resulting in year-end net cash of US$13.5 million, compared
to net debt of US$34.1 million a year earlier.
Shareholder return
Your Board is acutely aware of the need to deliver tangible returns to
shareholders who have supported the Company through a number of
difficult years. I am therefore pleased to report that in October 2018,
Kenmare announced a dividend policy to return a minimum of 20% of profit
after tax to shareholders. The Company is working towards paying modest
dividends from 2019, with plans to increase capital returns materially
from 2021 after our current development projects have been delivered. In
December 2018, shareholders voted to eliminate Kenmare's historic losses
and the capital reduction was subsequently confirmed by the High Court
of Ireland. We are currently in process of completing the group
rationalisation and addressing the applicable conditions for the payment
of dividends.
Growth strategy
Kenmare has a market-leading position and a well-established business
model. The Moma Mine in northern Mozambique is a tier-one asset with a
resource life of over 100 years at planned production levels, supporting
increased global demand for titanium feedstocks.
During 2018 we announced plans to expand mining and processing capacity
to deliver an approximate 20% production increase by 2021. Capital
investment of approximately US$145 million will be required during the
next two years to secure this platform for future growth, which will
also reduce unit costs and expand margins.
We have also identified opportunities to generate additional revenues
through the production of Mineral Sands Concentrate, including the rare
earth mineral monazite, with production having commenced in 2018 and the
first sales scheduled for 2019.
Sustainable and responsible operations
Kenmare has been operating in Mozambique for over 30 years and we
continue to enjoy strong support from the Government, and the regulatory
and regional authorities in the country. We are committed to being a
responsible corporate citizen and to leaving a positive and sustainable
legacy in our host communities. In 2018, through the Kenmare Moma
Development Association (KMAD), we supported various community
initiatives focused on sustainable livelihoods, healthcare and
education.
The safety and well-being of our staff and the community near the Moma
Mine are of the highest importance to everyone at Kenmare. In 2018 I am
pleased to report zero fatalities and our lowest ever Lost Time Injury
Frequency Rate of 0.12 per 200,000 man hours worked on site, a credit to
our team in Mozambique. Our people are our greatest asset and we are
dedicated to raising our safety standards further during the coming
years.
While we believe the presence of the Mine has significantly enhanced the
well-being of our host communities, we are very conscious of the risks
associated with mining operations to staff and the surrounding community,
and hence we pro-actively manage these risks. However sadly, in 2018
there were some road traffic and other fatal accidents involving
community members. We are working closely with the community and
re-doubling our efforts to create a safer environment.
Corporate governance
The Board follows corporate governance best practice, including meeting
the recently strengthened and expanded UK Corporate Governance Code for
Premium-listed FTSE companies. We are satisfied that the Group has
fit-for-purpose processes in place for identifying and managing the
risks faced by the Company, and an effective system of internal controls
to safeguard the integrity of the business.
We will be proposing to change our Group audit firm at the 2019 Annual
General Meeting, in accordance with EU legislation. Hence 2018 is
expected to be the last year that Deloitte, with whom we have had a
positive working relationship for many years, will be auditing our
annual report and accounts.
Board development
Your Board recognised the need to ensure that the highest level of
independent specialist mining industry skills and experience are
available from our Non-Executive Directors, especially given the
significant Mine development programme now underway. I was therefore
pleased to welcome Clever Fonseca as a Non-Executive Director in July
2018. Clever has over 35 years' experience in the titanium minerals
industry and extensive knowledge and management experience of mineral
sands mining, including dredging operations.
Coincident with Clever's appointment, to maintain the same number of
Directors and to increase the ratio of Non-Executive Directors to
Executive Directors, Terry Fitzpatrick retired from the Board. Terry has
served with great distinction for many years as Technical Director, and
has now taken up various Board positions with our subsidiary operating
companies.
We will continue to evaluate Board composition to ensure that we have
the skills and expertise necessary for the Company's success.
2019 outlook
Kenmare has delivered steady improvements in operating metrics and now
has the solid foundation required to fund our growth plans. We will be
assessing additional measures to enhance financial flexibility while we
deliver our outlined projects, in addition to providing stability and
protection against inevitable economic and commodity cycles.
Acknowledgements
I would like to thank all employees and the management team at Kenmare
for their outstanding dedication and teamwork during 2018, when they
delivered material improvements in both safety and profitability, and
compelling progress on our development projects.
Finally, I would like to thank all of our shareholders for their
continued support. My fellow Directors and I are confident that Kenmare
will continue to create real value for our all of our stakeholders in
2019 and beyond.
Steven McTiernan
Chairman
MANAGING DIRECTOR'S STATEMENT
In 2018 Kenmare delivered record total shipments of 1,074,400 tonnes of
finished products and we achieved improved average received pricing for
all products. Our financial performance reflected these strong
operational results, with a 54% increase in EBITDA to US$93.3 million
and a 162% increase in profit after tax to US$50.9 million.
In addition, we commissioned the first of three growth projects, on time
and more than 25% below budget. The growth projects will allow us to
deliver an approximate 20% increase in ilmenite production (plus
associated co-products) from 2021. During 2018 we also continued to work
closely with our partners in Mozambique to maintain a strong social
licence to operate.
Safety
The safety and well-being of our employees and host communities will
always be our first priority. As promised last year, we have
strengthened our safety culture, resulting in a decrease in our lost
time injury frequency rate (LTIFR) to 0.12 per 200,000 man-hours worked
in 2018 (2017: 0.39). We also retained our five-star NOSA safety
accreditation. However, we will continue to target further improvement
and to ensure that safer work practices become embedded in our
workforce.
While we believe that the presence of the Mine has created a huge
improvement in the lives of local people, more traffic and movement of
heavy mobile equipment has increased certain risks. Hence in 2019 there
will be a particular emphasis on community safety through education.
Sustainability
We remain committed to being a responsible corporate citizen and I offer
my thanks to our host communities, local suppliers, the Government of
Mozambique and our other stakeholders for helping us to achieve this
goal. We are proud to contribute to the economic growth of the
communities, region and country in which we work and we value our
partnerships highly. Kenmare also continues to be an engaged participant
in the Extractive Industries Transparency Initiative.
Relations with our stakeholders in Mozambique remain strong, and a key
highlight of our corporate social responsibility programme in 2018 was
the completion of a technical school, funded by KMAD. This school will
provide skills development and training opportunities for local people
and it is the first secondary school in the local area and the first
technical school in the region.
We also progressed our goal to increase the localisation of our
workforce and at the end of 2018, 95% of our employees were Mozambican,
compared to 93% the previous year. We also recognise that diversity is a
key driver of success in modern business and as a result, at the end of
2018, women represented 7% of our workforce, up from 5% in 2017.
Kenmare is focused on advancing the interests of women in Mozambique and
by the end of 2020 we intend that 10% of our employees will be female.
Achieving new operational records
The mid-point of our original 2018 production guidance was exceeded for
all products and volumes of ore mined increased. This was driven by
improvement in mechanical availability, plant utilisation and the
upgrade of WCP B, which facilitated higher mining rates. Enhanced
business systems, better equipment and continued staff training also
played a part in higher throughputs.
In December 2018, the Mineral Separation Plant ("MSP") produced at an
annualised run-rate of 1.2 million tonnes per annum of ilmenite, a new
monthly operational record, highlighting the operational improvement
evident when sufficient HMC is available.
However, costs were marginally above the guided range, due in part to
higher utilisation of the diesel-powered electric generators in 2018.
Power has not been a fundamental constraint on Moma's ability to produce
since 2015, but some instability was experienced in the national grid
during 2018. Generators were used to provide stable power to the MSP,
which is particularly sensitive to voltage fluctuations. We are working
closely with Electricidade de Moçambique ("EdM"), the state
electricity grid operator, and work is underway to increase power
stability.
Expanding production to 1.2 million tonnes per annum
At our Capital Markets Day in October 2018, we announced that Kenmare
intends to expand annual ilmenite production volumes to 1.2 million
tonnes. We outlined three development projects to fully utilise our
installed asset base:
-- WCP B expansion - commissioned and operating (delivered on time and more
than 25% under budget);
-- WCP C - major contracts have been awarded, construction is well underway
and the project is on schedule for commissioning before the end of 2019;
and
-- WCP B move to Pilivili -- the DFS will be completed in H1 2019, with the
Environmental Impact and Social Action Plan under discussion with the
Government of Mozambique and the local community. Commissioning is due
before the end of 2020.
Robust product markets
Kenmare achieved higher average prices for all finished products in 2018
compared to 2017. The outlook remains positive as existing mines reach
the later stages of production and, although current prices are
profitable for Kenmare, they largely remain insufficient to fund the
development of new projects.
Kenmare continues to be the largest global producer of merchant ilmenite
and is the leading supplier to a number of existing ilmenite upgrading
facilities in China. Additional upgrading plants are set to be
commissioned in 2019, requiring high quality ilmenite to be imported to
serve the growing chloride pigment sector in China. We are well
positioned to benefit from this growth.
Zircon prices increased by 46% in 2018, following strong global demand
and limited production growth. Zircon supply from Indonesia and
concentrates from various regions for processing in China increased
during 2018, which, coupled with weaker demand in China, has led to some
modest softening of prices in the Chinese market towards the end of
2018. However, zircon production is consolidated and global production
is forecast to decline due to orebody depletion, supporting long-term
prices.
Outlook
I would like to thank our employees and Board for their continued
commitment to Kenmare's evolution. The outlook for our products remains
positive and in combination with our plans to grow ilmenite production
to 1.2Mtpa, provides a platform for increased cashflows and shareholder
returns.
Michael Carvill
Managing Director
KENMARE RESOURCES PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2018
Notes 2018 2017
US$'000 US$'000
Assets
Non-current assets
Property, plant and
equipment 9 806,011 793,630
Deferred tax asset - 4,160
--------------- ---------------
806,011 797,790
--------------- ---------------
Current assets
Inventories 53,872 52,707
Trade and other receivables 22,445 25,412
Cash and cash equivalents 10 97,030 68,774
--------------- ---------------
173,347 146,893
--------------- ---------------
Total assets 979,358 944,683
--------------- ---------------
Equity
Capital and reserves
attributable to the
Company's equity holders
Called-up share capital 11 215,046 215,046
Share premium 730,897 730,897
Retained losses (133,179) (184,053)
Other reserves 35,671 34,251
--------------- ---------------
Total equity 848,435 796,141
--------------- ---------------
Liabilities
Non-current liabilities
Bank loans 12 61,905 81,174
Provisions 22,359 18,622
--------------- ---------------
84,264 99,796
--------------- ---------------
Current liabilities
Bank loans 12 21,558 21,693
Provisions 1,437 1,720
Other financial liabilities 1 8
Trade and other payables 23,663 25,325
--------------- ---------------
46,659 48,746
--------------- ---------------
Total liabilities 130,923 148,542
--------------- ---------------
Total equity and
liabilities 979,358 944,683
--------------- ---------------
KENMARE RESOURCES PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE FINANCIAL YEARED 31 DECEMBER 2018
Notes 2018 2017
US$'000 US$'000
Revenue 2 262,199 208,299
Cost of sales 4 (168,251) (156,622)
------------- -------------
Gross profit 93,948 51,677
Other operating costs 5 (31,012 (23,212
------------- -------------
Operating profit 62,936 28,465
Finance income 871 136
Finance costs 6 (7,751 (7,680)
Foreign exchange gain/(loss) 48 (2,473)
------------- -------------
Profit before tax 56,104 18,448
Income tax (expense)/credit 7 (5,230) 923
------------- -------------
Profit for the financial year
and total comprehensive income
for the financial year 50,874 19,371
------------- -------------
Attributable to equity holders 50,874 19,371
------------- -------------
US$ per share US$ per share
Profit per share: Basic 8 0.46 0.18
------------- -------------
Profit per share: Diluted 8 0.46 0.18
------------- -------------
KENMARE RESOURCES PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEARED 31 DECEMBER 2018
Capital Conversion
Called-Up Share Share Reserve Capital Redemption Reserve Retained Share-Based Payment
Capital Premium Fund Fund Losses Reserve Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1
January
2017 215,046 730,897 754 10,582 (203,424) 21,911 775,766
Profit for
the
financial
year - - - - 19,371 - 19,371
Share-based
payments - - - - - 1,004 1,004
--------------- ------- ------------------ -------------------------- -------- -------------------- -------
Balance at 1
January
2018 215,046 730,897 754 10,582 (184,053) 22,915 796,141
Profit for
the
financial
year - - - - 50,874 - 50,874
Share-based
payments - - - - - 1,420 1,420
--------------- ------- ------------------ -------------------------- -------- -------------------- -------
Balance at
31 December
2018 215,046 730,897 754 10,582 (133,179) 24,335 848,435
--------------- ------- ------------------ -------------------------- -------- -------------------- -------
Capital Conversion Reserve Fund
The capital conversion reserve fund arose from the renominalisation of
the Company's share capital from Irish Punts to Euros.
Capital Redemption Reserve Fund
The deferred shares of EUR0.25 were created in 1991 by subdividing each
existing ordinary share of IR25 pence into one deferred share of IR20
pence and one new ordinary share of IR5 pence. The deferred shares were
non-voting, carried no dividend rights, and the Company had the right to
purchase any or all of these shares at a price not exceeding EUR0.01 per
share for all the deferred shares so purchased or could execute a
transfer of such shares without making any payment to the holders.
On 12 October 2015, it was resolved that the Company acquire all of the
48,031,467 deferred shares of EUR0.25 each in the capital of the Company
in issue by transfer or surrender to the Company otherwise than for
valuable consideration in accordance with Section 102(1)(a) of the
Companies Act 2014 and Article 3(ii) of the Articles of Association of
the Company and, in accordance with Section 106(1) of the Companies Act
2014, cancel such deferred shares.
Retained Losses
Retained losses comprise the expenses on the issue of equity in July
2016 and accumulated profit and losses in the current and prior
financial years.
Share-Based Payment Reserve
The share-based payment reserve arises on the grant of share options and
shares to certain Directors, employees and consultants under the share
option scheme, the Kenmare Incentive Plan and the Kenmare Restricted
Share Plan.
KENMARE RESOURCES PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEARED 31 DECEMBER 2018
Notes 2018 2017
US$'000 US$'000
Operating activities
Profit for the financial year before tax 56,104 18,448
-----
Adjustment for:
Foreign exchange movement (48) 2,473
Share-based payments 5 1,420 1,004
Finance income (871) (136)
Finance costs 6 7,751 7,680
Depreciation 9 30,442 32,000
(Decrease)/increase in other financial liabilities (7) 4
Increase/(decrease) in provisions 210 (315)
------- -------
Operating cash flow 95,001 61,158
Increase in inventories (1,165) (4,960)
Decrease in trade and other receivables 1,556 (2,458)
Decrease in trade and other payables (3,080) (8,481)
------- -------
Cash from operations 92,314 45,259
Interest received 871 136
Interest paid 12 (6,227) (6,051)
------- -------
Net cash from operating activities 86,958 39,344
----- ------- -------
Investing activities
Additions to property, plant and equipment 9 (39,761) (28,055)
------- -------
Net cash used in investing activities (39,761) (28,055)
------- -------
Financing activities
Repayment of debt 12 (19,048) -
Payment of obligations under finance leases - (280)
------- -------
Net cash used in financing activities (19,048) (280)
------- -------
Net increase in cash and cash equivalents 28,149 11,009
Cash and cash equivalents at the beginning of the
financial year 68,774 57,786
-----
Effect of exchange rate changes on cash and cash
equivalents 106 (21)
----- ------- -------
Cash and cash equivalents at the end of the financial
year 10 97,030 68,774
------- -------
KENMARE RESOURCES PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEARED 31 DECEMBER 2018
1. STATEMENT OF ACCOUNTING POLICIES
On 12 March 2019, the Directors approved the preliminary results for
publication. While the unaudited consolidated financial statements for
the year ended 31 December 2018, from which the preliminary results have
been extracted, are prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union, these
preliminary results do not contain sufficient information to comply with
IFRS. The Directors expect to publish the full financial statements that
comply with IFRS as adopted by the European Union in March 2018.
Based on the Group's cash flow forecast, the Directors believe that the
Group has adequate resources for the foreseeable future and continue to
adopt the going concern basis of accounting in preparing the annual
financial statements.
The auditors have not yet issued their audit opinion on the financial
statements in respect of the year ended 31 December 2018. The financial
information included within this unaudited preliminary results statement
for the years ended 31 December 2018 and 31 December 2017 does not
constitute the statutory financial statements of the Company within the
meaning of section 293 of the Companies Act 2014. The Group financial
information in this preliminary statement for the year ended 31 December
2018 is unaudited. A copy of the statutory financial statements in
respect of the year ended 31 December 2018 will be annexed to the next
annual return and filed with the Registrar of Companies.
The Group financial information for the year ended 31 December 2017
included in this preliminary statement represents an abbreviated version
of the Company's group financial statements for that year. The statutory
financial statements for the Group for the year ended 31 December 2017,
upon which the auditors have issued an unqualified opinion, but with an
emphasis of matter drawing attention to the recoverability of assets of
the Group, were annexed to the annual return of the company and filed
with the Registrar of Companies.
In the current year the Group has applied IFRS 9 Financial Instruments
and IFRS 15 Revenue from Contracts with Customers. The impact of these
accounting policies, method of computation and presentation applied by
the Group are detailed below.
IFRS 9 Financial Instruments
IFRS 9 introduces new requirements for the classification and
measurement and impairment for financial assets and general hedge
accounting.
Classification of financial assets and liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for the
classification and measurement of financial liabilities. However, it
eliminates the previous IAS 39 categories for financial assets of held
to maturity, loans and receivables and available for sale. The adoption
of IFRS 9 has not had a significant effect on the Group's accounting
policies related to financial liabilities in particular the bank debts.
Under IFRS 9 the classification and measurement of financial assets is
that they are measured at amortised cost if they are not designated as
at fair value through profit and loss, if they are held within a
business model whose objective is to hold assets to collect contractual
cash flows and contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding.
As at 31 December 2018 financial assets except for trade receivables
which can be factored are measured at amortised costs. The Group has
trade finance facilities with Absa Corporate and Business Bank and
Barclays Bank and may elect to receive early payment for certain
customers of their invoice from the banks by factoring the receivable.
These facilities assist the Group in managing its liquidity for funding
of operations. Trade receivables which are always factored are measured
at fair value through profit or loss (FVTPL). Trade receivables where it
is not known at initial recognition if they will be factored are
classified as fair value through other comprehensive income (FVOCI).
This is because their cashflows are generated through a combination of
collection and sales (by factoring). At 31 December 2018 the Group had
trade receivables which it can factor of US$2.0 million. At 1 January
2018 the Group had trade receivables which it can factor of US$8.5
million.
Impairment
In relation to the impairment of financial assets, IFRS 9 requires an
expected credit loss model as opposed to an incurred credit loss model
under IAS 39. The expected credit loss model requires the Group to
account for expected credit losses and changes in those expected credit
losses at each reporting date to reflect changes in credit risk since
initial recognition of the financial assets. It is no longer necessary
for a credit event to have occurred before credit losses are recognised.
The Group measures the loss allowance for all trade receivables (those
which cannot be factored, those that are always factored and those which
can be factored) at an amount equal to lifetime expected credit losses.
The expected credit losses on trade receivables are estimated by
reference to past default experience of the debtor and an analysis of
the debtor's current financial position, adjusted for factors that are
specific to the debtors, general economic conditions of the industry and
an assessment of both the current as well as the forecast direction of
those conditions at the reporting date. Sales to certain customers are
done on a letter of credit basis thereby reducing the credit risk of
these customers.
The Group writes off a trade receivable when there is information
indicating that the debtor is in severe financial difficulty and there
is no realistic prospect of recovery e.g. when the debtor has been
placed in liquidation or has entered into bankruptcy proceedings.
As at 1 January 2018, the Group reviewed and assessed the Group's
existing trade receivables for impairment using reasonable and
supportable information to determine the credit risk of the respective
customers at the date they were initially recognised. Trade receivables
at 1 January 2018 had Moody's credit ratings ranging from Ba2 to A3, had
no history of bad debts, were all current and payable in a period of two
months and had no additional factors which could result in an expected
future credit loss.
Trade receivables at 31 December 2018 had Moody's credit ratings ranging
from Ba2 to A3, had no history of bad debts, were all current and
payable in a period of three months and had no additional factors which
could result in an expected future credit loss. As a result, no loss
allowance was recognised to 31 December 2018.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a single comprehensive model for entities to use in
accounting for revenue arising from contracts with customers. In the
current year the Group has adopted IFRS 15 and has elected to apply the
modified retrospective approach without restatement of comparatives. The
Group has not used any of the practical expedients in adoption of the
standard.
The core principle of IFRS 15 is that an entity should recognise revenue
to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services.
The Group has a mixture of long term and spot contracts with customers
for the sale of mineral products ilmenite, zircon and rutile. The
contracts stipulate price and/or quantity commitments. The long-term
contracts range over periods from one to three years. The spot contracts
deal with one-off sales. The performance obligations in relation to the
sale of mineral products are similar under all the contracts and
stipulate that the Group deliver the specified product to the customer.
Delivery takes place when the product is loaded on the ocean-going
vessel chartered by either the customer or the Group at the port at the
mine. Control of the mineral products passes from the Group to the
customer on delivery. Sale of mineral products are recognised when the
products are delivered. As these performance criteria and sales
recognition have remained unchanged from previous years, the adoption of
IFRS 15 has not resulted in a material impact on the revenue recognised
in the period.
The Group sells its mineral products on the Incoterms Free on Board
(FOB), Cost and Freight (CFR), Cost, Insurance and Freight (CIF). For
mineral products sold on an FOB basis, the customer is responsible for
freight and insurance. For FOB sales where the Group acts solely as an
agent for the customer in respect to the shipping, amounts billed to
customers for shipping are offset against the relevant costs.
For mineral products sold on a CFR and CIF basis, the Group is
responsible for providing shipping services and, in the case of CIF,
insurance after the date at which control of the mineral products passes
to the customer on loading at the port of the mine. Sale of shipping
services are recognised when these performance obligations are met. The
costs of freight and insurance in relation to CFR and CIF shipments are
recognised in other operating costs.
During the period the Group's marketing arrangements changed whereby
ilmenite sales to China previously on an FOB basis were sold on a CFR
basis. This resulted in freight recognised in revenue of US$16.3 million
(2017: US$5.5 million). This change is not as a result of the adoption
of IFRS15.
There is no material variable consideration, significant financing
component or other material rights in the customer contracts which would
require a change in revenue accounting.
2. REVENUE
2018 2017
US$'000 US$'000
Sale of mineral products 262,199 208,299
During the financial year, the Group sold 1,074,400 tonnes (2017:
1,040,400 tonnes) of finished products ilmenite, rutile and zircon to
customers at a sales value of US$262.2 million (2017: US$208.3 million).
3. SEGMENT REPORTING
Information on the operations of the Moma Titanium Minerals Mine in
Mozambique is reported to the Board for the purposes of resource
allocation and assessment of segment performance. Information regarding
the Group's operating segment is reported below.
Segment revenues and results
2018 2017
Moma Titanium Minerals Mine US$'000 US$'000
Revenue 262,199 208,299
Cost of sales (168,251) (156,622)
-------- --------
Gross profit 93,948 51,677
Other operating costs (26,960) (20,572)
-------- --------
Segment operating profit 66,988 31,105
Other corporate operating costs (4,052) (2,640)
-------- --------
Group operating profit 62 936 28,465
Finance income 871 136
Finance expenses (7,751) (7,680)
Foreign exchange gain/(loss) 48 (2,473)
-------- --------
Profit before tax 56,104 18,448
Income tax (expense)/credit (5,230) 923
-------- --------
Profit for the financial year 50,874 19,371
-------- --------
Segment assets
Moma Titanium Minerals Mine assets 922,652 885,892
Corporate assets 56,706 58,791
-------- --------
Total assets 979,358 944,683
-------- --------
Segment liabilities
Moma Titanium Minerals Mine liabilities 125,656 143,575
Corporate liabilities 5,267 4,967
-------- --------
Total liabilities 130,923 148,542
-------- --------
Other segment information
--------- -----------
Depreciation and amortisation
Moma Titanium Minerals Mine 30,307 31,997
Corporate 135 3
-------- --------
Total 30,442 32,000
-------- --------
Additions to non-current assets
--------- -----------
Moma Titanium Minerals Mine 39,606 28,550
Corporate 445 601
-------- --------
Total 40,051 29,151
-------- --------
Revenue from major products
2018 2017
US$'000 US$'000
Ilmenite 181,776 152,614
Zircon 75,385 51,703
Rutile 5,038 3,982
------- -------
Total 262,199 208,299
------- -------
Geographical information 2018 2017
Revenue from external customers US$'000 US$'000
China 103,196 95,462
USA 27,760 31,957
Italy 22,871 22,249
Rest of the world 108,372 58,631
------- -------
Total 262,199 208,299
------- -------
The Group's revenue from external customers is generated by the Moma
Titanium Minerals Mine, the non-current assets of which are US$802.2
million (2017: US$797.2 million).
Cost of sales for the financial year amounted to US$168.3 million (2017:
US$156.6 million), including depreciation and amortisation of US$26.4
million (2017: US$27.1 million).
Information about major customers
Included in revenues are US$37.6 million (2017: US$72.5 million) from
sales to the Group's largest customer, US$29.8 million (2017: US$37.0
million) from sales to the Group's second largest customer and US$28.5
million (2017: US$23.9 million) from sales to the Group's third largest
customer. All revenues are generated by the Moma Titanium Minerals Mine.
4. COST OF SALES
2018 2017
US$'000 US$'000
Opening stock of mineral products 30,882 30,631
Production costs 141,997 129,816
Depreciation 26,409 27,057
Closing stock of mineral products (31,037) (30,882)
------- -------
Total 168,251 156,622
------- -------
Mineral products consist of finished products, intermediate magnetic
concentrate and heavy mineral concentrate. Mineral stock value increased
by US$0.1 million (2017: US$0.3 million increase).
5. OTHER OPERATING COSTS
2018 2017
US$'000 US$'000
Distribution costs 9,458 10,587
Freight and demurrage costs 16,873 5,538
Administration costs 4,681 3,321
Arbitration costs - 3,766
------- -------
Total 31,012 23,212
------- -------
Included in administration costs are:
------- -------
Share-based payments 1,420 1,004
------- -------
Distribution costs of US$9.5 million (2017: US$10.6 million) represent
the cost of running the Mine's finished product storage, jetty and
marine fleet. Included in distribution costs is depreciation of US$3.9
million (2017: US$4.9 million). Freight costs of US$16.3 million (2017:
US$5.5 million) arise from sales to customers on a CIF or CFR basis.
Demurrage costs were US$0.6 million (2017: US$0.05 million) during the
financial year. Administration costs of US$4.7 million (2017: US$3.3
million) are the Group administration costs and include depreciation of
US$0.1 million (2017: nil) and share-based payments of US$1.4 million
(2017: US$1.0 million). There were arbitration costs incurred in 2017 of
US$3.8 million.
6. FINANCE COSTS
2018 2017
US$'000 US$'000
Interest on bank borrowings 5,871 6,300
Finance lease interest - 16
Change in fair value of warrants - 4
Factoring fees 1,409 882
Mine closure provision unwinding of the discount 471 478
------- -------
Total 7,751 7,680
------- -------
The interest on all Group borrowings has been expensed in the financial
year.
7. INCOME TAX EXPENSE
2018 2017
US$'000 US$'000
Corporation tax 1,070 -
Deferred tax 4,160 (923)
------- ------
Total 5,230 (923)
------- ------
Reconciliation of effective tax rate
Profit before tax 56,104 18,448
------- --------
Profit before tax multiplied by the applicable tax
rate (12.5%) 7,013 (2,306 )
Differences in effective tax rates on overseas
earnings (7,013) 2,306
Taxes on overseas earnings 1,070 -
Applied losses 4,160 1,157
Recognition of deferred tax asset - (2,080)
------- --------
Total 5,230 (923)
------- --------
GROUP
An income tax expense of US$5.2 million (2017: credit US$0.9 million)
has been recognised during the year ended 31 December 2018. During the
year the Group had taxable profits of US$14.6 million (2017: US$6.6
million). US$11.9 million (2017: US$6.6 million) of tax losses were
offset against the taxable profit resulting in a tax charge of US$4.2
million being recognised. The income tax payable on the balance of the
taxable profits was US$1.1 million.
The income tax rate applicable to taxable profits of Kenmare Moma Mining
(Mauritius) Limited is 35%.
Kenmare Moma Mining (Mauritius) limited is charged a royalty of 3% based
on heavy mineral concentrate sold to Kenmare Moma Processing (Mauritius)
Limited. The royalty charge payable to the Government of Mozambique for
the financial year ended 31 December 2018 was US$3.0 million (2017:
US$2.9 million) and is recognised in cost of sales for the financial
year or inventory at 31 December 2018. Under the fiscal regime
applicable to mining activities, Kenmare Moma Mining (Mauritius) Limited
is exempted from import and export taxes and VAT on imports. The
Company has elected and the fiscal regime applicable to mining allows
for the option to deduct as an allowable deduction depreciation of
exploration and development expense and capital expenditure over the
life of mine. Whilst withholding tax is levied on certain payments to
non-residents, mining companies are exempt from withholding tax on
dividends for the first ten years or until their investment is recovered,
whichever is earlier. The withholding tax charge payable to the
Government of Mozambique for the financial year ended 31 December 2018
was US$1.1 million (2017: US$0.9 million).
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amount of assets and liabilities in the
financial statements and the corresponding tax bases used in the
computation of taxable profit, and is accounted for using the Statement
of Financial Position liability method. The fiscal regime applicable to
mining allows for the option to use accumulation of exploration and
development expense and optional depreciation at 25% per annum with tax
losses allowed to be carried forward for three years.
Kenmare Moma Processing (Mauritius) Limited has Industrial Free Zone
(IFZ) status. As an IFZ company, it is exempted from import and export
taxes, VAT and other corporation taxes. Kenmare Moma Processing
(Mauritius) Limited is charged a revenue tax of 1%. The revenue tax
payable to the Government of Mozambique for the financial year ended 31
December 2018 was US$2.6 million (2017: US$2.1 million) and is
recognised in cost of sales for the financial year. There is no dividend
withholding tax under the IFZ regime.
8. EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share attributable
to the ordinary equity holders of the parent is based on the following
data:
2018 2017
US$'000 US$'000
Profit for the financial year attributable to equity
holders of the parent 50,874 19,371
----------- -----------
2018 2017
Number of Number of
shares shares
Weighted average number of issued ordinary shares
for
the purpose of basic earnings per share 109,601,551 109,601,551
Effect of dilutive potential ordinary shares:
Share awards 1,061,983 412,101
----------- -----------
Weighted average number of ordinary shares for
the purposes of diluted earnings per share 110,663,534 110,013,652
----------- -----------
US$ per US$ per
share share
Earnings per share: basic 0.46 0.18
----------- -----------
Earnings per share: diluted 0.46 0.18
----------- -----------
9. PROPERTY, PLANT AND EQUIPMENT
Plant & Development Construction Other Total
Equipment Expenditure In Progress Assets
US$'000 US$'000 US$'000 US$'000 US$'000
Cost
At 1 January 2017 774,745 249,984 5,418 53,836 1,083,983
Transfer from
construction in
progress 1,786 342 (3,166 ) 1,038 -
Additions during
the financial
year 557 - 27,993 601 29,151
Disposals - - - (375) (375)
Adjustment to
mine closure
cost 2,604 - - - 2,604
Reclassification
of assets 479 - - (479) -
-------- ----------- -------- ------ ---------
At 1 January 2018 780,171 250,326 30,245 54,621 1,115,363
Transfer from
construction in
progress 13,690 - (28,034) 14,344 -
Additions during
the financial
year 179 - 39,427 445 40,051
Disposals (941) - - (5,959) (6,900)
Adjustment to
mine closure
cost 2,772 - - - 2,772
-------- ----------- -------- ------ ---------
At 31 December
2018 795,871 250,326 41,638 63,451 1,151,286
-------- ----------- -------- ------ ---------
Accumulated
Depreciation
At 1 January 2017 143,635 114,980 - 31,493 290,108
Charge for the
financial year 22,264 6,043 - 3,693 32,000
Disposals - - - (375) (375)
-------- ----------- -------- ------ ---------
At 1 January 2017 165,899 121,023 - 34,811 321,733
Charge for the
financial year 22,041 5,500 - 2,901 30,442
Disposals (941) - - (5,959) (6,900)
-------- ----------- -------- ------ ---------
At 31 December
2018 186,999 126,523 - 31,753 345,275
-------- ----------- -------- ------ ---------
Carrying Amount
At 31 December
2018 608,872 123,803 41,638 31,698 806,011
-------- ----------- -------- ------ ---------
At 31 December
2017 614,272 129,303 30,245 19,810 793,630
-------- ----------- -------- ------ ---------
During the financial year 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 12%.
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 factors
making up the cost of equity, cost of debt and capital structure have
changed from the prior year review resulting in a discount rate of 12%.
The Group does not consider it appropriate to apply the full current
country risk premium to the calculation of the Group's weighted average
cost of capital as it believes the specific circumstances which have
resulted in the county risk increase over the past number of years are
not appropriate to the specific circumstances of the Moma Mine. Hence,
the calculation of country risk applicable to the calculation of the cost
of equity has been adjusted accordingly.
Using a discount rate of 12%, the recoverable amount is greater than the
carrying amount by US$201.3 million. The discount rate is a significant
factor in determining the recoverable amount. A 1% increase in the
discount rate to 13% which management believes could be a reasonably
possible change in this assumption, would result in the recoverable
amount being greater than the carrying amount by US$114.7 million. A 1%
increase in the discount rate in the prior year to 12.5% would have
resulted in the recoverable amount being greater than the carrying
amount by US$81.3 million. The improvement in the recoverable amount
from the prior year is a result of increased production in the near term
as a result of the change in mine plan assumptions detailed below.
-- A mine plan based on the Namalope, Nataka and Pilivili proved and
probable reserves which runs to 2058. The Mine life assumption of 40
years has not changed from the prior year review.
-- Average annual production is approximately 1.1 million tonnes (2017: 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. Certain minimum stocks of final and
intermediate products are assumed to be maintained at period ends. The
average annual production of final products has increased from the prior
year due to the mine optimisation of WCP A in the Nataka orebody and an
update of the production forecast for WCP B mining in the Pilivili
orebody.
-- 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 over the life of mine from the prior year end review as a result
of revised forecast pricing. An 8% reduction in average sales prices over
the life of mine reduces the recoverable amount by US$201.3 million.
-- Operating costs are based on approved budget costs for 2019 taking into
account the current running costs of the mine and escalated by 2% per
annum thereafter. Average forecast operating costs have increased from
the prior year end review as a result of increased operating costs in
2018, which formed the basis for the 2019 budget and life of mine
forecast thereafter. A 16% increase in operating costs over the life of
mine reduces the recoverable amount by US$201.3 million.
-- Sustaining capital costs are based on a life of mine capital plan
considering inflation at 2% per annum from 2019. Average forecast
sustaining capital costs have increased from the prior year end review as
based on updated sustaining capital plans required to maintain the
existing plant over the life of mine. The forecast takes into account
reasonable cost increases and therefore a sensitivity to this assumption
has not been applied which would give rise to a reduction in the
recoverable amount.
As a result of the review no impairment provision was recognised in the
current financial year. No impairment was recognised in the prior
financial year. Given the sensitivities of the forecast to the discount
rate, pricing and to a lesser extent operating costs the impairment loss
of US$64.8 million which was recognised in the Consolidated Statement of
Comprehensive Income in 2014 is not reversed.
Depreciation during the year was US$30.4 million (2017: US$32.0
million).
There was an adjustment to the mine closure cost of US$2.8 million
(2017: US$2.6 million) during 2018 as a result of a change in the
estimated closure cost.
Included in other assets is an amount of US$0.9 million (2017: US$0.6
million) in respect of leasehold property and motor vehicles of the
Company. There was depreciation of US$0.1 million (2017: nil) during the
year on these assets .
Included in plant and equipment are capital spares of US$2.9 million
(2017: US$2.6 million).
During the year there were disposals of property, plant and equipment of
US$6.9 million (2017: US$0.4 million).
Substantially, all the property, plant and equipment of the Group is or
will be mortgaged, pledged or otherwise secured to provide collateral
for the Group's Senior and Subordinated Loans as detailed in Note 12.
The recovery of property, plant and equipment is dependent upon the
successful operation of the Moma Titanium Minerals Mine; the realisation
of the cash flow forecast assumptions as set out in this note would
result in the recovery of such amounts. The Directors are satisfied
that at the Statement of Financial Position date, the recoverable amount
of property, plant and equipment exceeds its carrying amount and, based
on the planned mine production levels that, the Moma Titanium Minerals
Mine will continue to achieve positive cash flows.
10. CASH AND CASH EQUIVALENTS
GROUP COMPANY
2018 2017 2018 2017
US$'000 US$'000 US$'000 US$'000
Immediately available
without restriction 55,099 57,866 32,671 43,208
Contingency Reserve Account 2 2 - -
Project Companies' Account 41,929 10,906 - -
------- ------- ------- -------
97,030 68,774 32,671 43,208
------- ------- ------- -------
Cash and cash equivalents comprise cash balances held for the purposes
of meeting short-term cash commitments and investments which are readily
convertible to a known amount of cash and are subject to an
insignificant risk of change in value. Where investments are categorised
as cash equivalents, the related balances have a maturity of three
months or less from the date of investment.
The Contingency Reserve Account ("CRA") is an account established under
a cash collateral and shareholder funding deed to provide for
shareholder funding to the Project Companies and to secure the
obligations of the Company and Congolone Heavy Minerals Limited (a
wholly-owned subsidiary undertaking) under the Completion Agreement.
Interest rate risk
Cash at bank earns interest at variable rates based on daily bank
deposit rates, which may be zero. Short-term deposits are made for
varying periods of between one day and three months, depending on the
cash requirements of the Group, and earn interest at the respective
short-term deposit rates. The interest rate profile of the Group's cash
balances at the financial year end was as follows:
2018 2017
US$'000 US$'000
Cash and cash equivalents at variable interest rate 70,789 52,205
Cash at bank on which no interest is received 26,241 16,569
---------- ----------
97,030 68,774
---------- ----------
Currency risk
The currency profile of cash and cash equivalents at the financial year
end is as follows:
GROUP 2018 2017
US$'000 US$'000
US Dollar 94,556 66,721
South African Rand 1,956 10
Mozambican Metical 307 460
Euro 109 583
Sterling 51 957
Renminbi 33 24
Australian Dollars 18 19
------------- -------------
97,030 68,774
------------- -------------
Fluctuations in the currencies noted above will impact on the Group's
financial results.
Credit risk
The credit risk on cash and cash equivalents is limited because funds
available to the Group are deposited with banks with high credit ratings
assigned by international credit rating agencies. For deposits in excess
of US$50 million the Group requires that the institution has an A
(S&P)/A2 (Moody's) long-term rating. For deposits in excess of US$20
million or South African Rand-denominated deposits, the Group requires
that the institution has a BBB+ (S&P)/Baa1 (Moody's) long-term rating.
US$74.4 million of the bank deposits are with Barclays Bank plc, which
has a long-term credit rating of A Stable (S&P)/A2 Stable (Moody's).
US$22.4 million of the bank deposits are with HSBC plc which has a
long-term credit rating of AA- Stable (S&P)/Aa3 Stable (Moody's).
11. CALLED-UP SHARE CAPITAL
2018 2017
EUR'000 EUR'000
Authorised share capital
181,000,000 ordinary shares of EUR0.001 each 181 181
4,000,000,000 deferred shares of EUR0.059995 each 239,980 239,980
---------- ----------
240,161 240,161
---------- ----------
2018 2017
US$'000 US$'000
Allotted, called up and fully paid
---------- ----------
Ordinary shares
---------- ----------
Opening and closing balance
---------- ----------
109,601,551 ordinary shares of EUR0.001 each 120 120
2,781,905,503 deferred shares of EUR0.059995 each 214,926 214,926
---------- ----------
Total called-up share capital 215,046 215,046
---------- ----------
12. BANK LOANS
2018 2017
US$'000 US$'000
Project Loans
Senior Loans 16,055 25,902
Subordinated Loans 67,408 76,965
------------- -------------
Total Project Loans 83,463 102,867
------------- -------------
The borrowings are repayable as follows:
Within one year 21,558 21,693
In the second year 19,048 19,048
In the third to fifth years inclusive 42,857 62,126
------------- -------------
83,463 102,867
Less: amount due for settlement within
twelve months (21,558) (21,693)
------------- -------------
Amount due for settlement after twelve
months 61,905 81,174
------------- -------------
Project Loans
Balance at 1 January 102,867 102,618
Loan interest accrued 5,871 6,300
Loan interest paid (6,227) (6,051)
Principal paid (19,048) -
------------- -------------
Balance at 31 December 83,463 102,867
------------- -------------
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.
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).
In October 2018 the Company announced a dividend policy to return a
minimum of 20% of profit after tax to shareholders and noted that the
payment of a dividend would require the completion of a capital
reduction to capitalise historic losses for Kenmare Resources plc as
well as a group restructuring to put in place the internal mechanics to
permit profits generated by the Project Companies to be paid as
dividends to shareholders. The Group and the Lenders entered into a
Conditional Consent Agreement on 15 October 2018 which, amongst other
things, provided for the capital reduction of Kenmare Resources plc and
restructuring of the Group. In relation to the capital reduction, on 5
December 2018 the shareholders approved the capital reduction, the High
Court of Ireland confirmed the capital reduction at the start of
February and the reduction became effective as of 5 February 2019. In
relation to the group restructuring, many of these steps have been
successfully completed. Kenmare is addressing with Lenders the remaining
aspects of the group restructuring and conditions applicable to the
making of "restricted payments" in relation to dividends.
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$10 million, Absa ceases to participate in the
senior debt prepayments and thereafter participates in the subordinated
debt prepayments) with the balance applied to prepayments of
subordinated debt. Senior debt prepayments are applied in inverse order
of maturity.
Subordinated debt
The final maturity date of the subordinated debt is 1 February 2022.
Interest on the subordinated debt is payable in cash on 1 February and 1
August. The interest rate on subordinated debt is LIBOR plus a margin of
4.75% from and including 28 July 2016 to and including 31 January 2020,
and 5.50% thereafter. Subordinated Lenders will receive additional
interest allocated pro rata to principal amounts outstanding equal to
the difference between (i) interest on the senior loans calculated on
the basis of subordinated loan margins and (ii) actual interest on the
senior loans. Taken together, the margin on the senior and subordinated
loans is thus 4.75% from and including 28 July 2016 to and including 31
January 2020, and 5.50% thereafter.
As mentioned above, scheduled principal instalments on subordinated
loans will equal the total principal instalment due on a payment date
less the principal instalment on senior loans. In addition to the
scheduled instalments, prepayments based on 25% cash available for
restricted payments less senior debt prepayments are required under a
cash sweep mechanism, commencing 1 February 2018. Subordinated debt
prepayments are applied in inverse order of maturity.
Group borrowings interest, currency and liquidity risk
The loan facilities are arranged at variable rates and expose the Group
to cash flow interest rate risk. Variable rates are based on six-month
LIBOR. The average effective borrowing rate at financial year end was
7.3% (2017: 5.7%). The interest rate profile of the Group's loan
balances at the financial year end was as follows:
2018 2017
US$'000 US$'000
Variable rate debt 83,463 102,867
------- -------
The fair value of the Group borrowings of US$83.2 million (2017:
US$102.5 million) has been calculated by discounting the expected future
cash flows at a market rate of 6%. The 6% market rate was estimated by
reviewing borrowing rates of the mining sector and other relevant market
yields. For B+ to B- rated debt the borrowing rates are in the range of
5 to 6%.
Under the assumption that all other variables remain constant, a 1%
change in the 6-month LIBOR rate results in a US$0.8 million (2017:
US$1.0 million) change in finance costs for the financial year.
The currency profile of loans at the financial year end is as follows:
2018 2017
US$'000 US$'000
US Dollars 83,463 102,867
------------- -------------
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 rates
to vary from the assumptions made above and therefore should not be
considered a projection of likely future events.
13. 2018 ANNUAL REPORT AND ACCOUNTS
The Annual Report and Accounts will be posted to shareholders before 30
April 2019.
Glossary - Alternative Performance Measures
Certain financial measures set out in the Annual Report to 31 December
2018 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 IFRS financial information,
allows for a more meaningful understanding of the underlying financial
and operating performance of the Group.
These non-IFRS measures should not be considered as an alternative to
financial measures as defined under IFRS.
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, tax and depreciation
amortisation to allow assessment of the earnings 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 cash/debt Bank loans before loan amendment fees and expenses Measures the amount the Group would have to raise
net of cash and cash equivalents through refinancing, asset sale or equity issue if
its debt 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 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 causing lost time
per 200,000 man hours worked on site
------------------------------------------------- -------------------------------------------------------- ---------------------------------------------------------
AI All injuries Provides the number of injuries at the Mine in the
year
------------------------------------------------- -------------------------------------------------------- ---------------------------------------------------------
EBITDA
2013 2014 2015 2016 2017 2018
------------------------------ ---- ----- ----- ----- ---- ----
US$m US$m US$m US$m US$m US$m
------------------------------ ---- ------ ------ ------ ---- ----
Operating profit/(loss) 4.7 (31.5) (47.3) (25.4) 28.5 62.9
------------------------------ ---- ----- ----- ----- ---- ----
Depreciation and amortisation 24.3 40.9 35.8 30.6 32.0 30.4
------------------------------ ---- ----- ----- ----- ---- ----
EBITDA 29.0 9.4 (11.5) 5.2 60.5 93.3
------------------------------ ---- ----- ----- ----- ---- ----
Cash operating cost per tonne of finished product
2013 2014 2015 2016 2017 2018
------------- ------- ------- ------- ------- --------- ---------
US$m US$m US$m US$m US$m US$m
------------- -------- -------- -------- -------- ---------- ------------
Cost of sales 113.7 173.4 168.1 144.0 156.6 168.3
------------- ------- ------- ------- ------- --------- ---------
Other
operating
costs 19.5 32.4 21.8 22.8 23.2 31.0
------------- ------- ------- ------- ------- --------- ---------
Total
operating
costs 133.2 205.8 189.9 166.8 179.8 199.3
------------- ------- ------- ------- ------- --------- ---------
Freight
charges (3.4) (8.2) (3.7) (5.4) (5.5) (16.3)
------------- ------- ------- ------- ------- --------- ---------
Total
operating
costs less
freight 129.8 197.6 186.2 161.4 174.3 183.0
------------- ------- ------- ------- ------- --------- ---------
Non-cash
costs
------------- -------- -------- -------- -------- ---------- ------------
Depreciation
and
amortisation (24.3) (40.9) (35.8) (30.6) (32.0) (30.4)
------------- ------- ------- ------- ------- --------- ---------
Share-based
payments (0.6) (1.4) 0.7 (0.4) (1.0) (1.4)
------------- ------- ------- ------- ------- --------- ---------
Costs
capitalised 27.2 - - -
------------- ------- ------- ------- ------- ---------- ------------
Mineral
product
movements 18.3 17.7 (14.7) 3.0 0.3 0.1
------------- ------- ------- ------- ------- --------- ---------
Adjusted cash
operating
costs 150.4 173.0 136.4 133.4 141.6 151.3
------------- ------- ------- ------- ------- --------- ---------
Final product
production
tonnes 755,500 911,500 821,300 979,300 1,081,300 1,043,300
------------- ------- ------- ------- ------- --------- ---------
Cash US$199 US$190 US$166 US$136 US$131 US$145
operating
cost per
tonne of
finished
product
------------- -------- -------- -------- -------- ---------- ------------
Net cash/debt
2013 2014 2015 2016 2017 2018
------------- ------ ------ ------ ------ ------ -----
US$m US$m US$m US$m US$m US$m
------------- ------- ------- ------- ------- ------- --------
Bank loans (355.2) (337.7) (341.9) (102.6) (102.9) (83.5)
------------- ------ ------ ------ ------ ------ -----
Loan
amendment
fees and
expenses (6.7) (12.4) (25.9) - - -
------------- ------ ------ ------ ------ ------ -----
Gross debt (361.9) (350.1) (367.8) (102.6) (102.9) (83.5)
------------- ------ ------ ------ ------ ------ -----
Cash and cash
equivalents 67.5 21.8 14.4 57.8 68.8 97.0
------------- ------ ------ ------ ------ ------ -----
Net
cash/(debt) (294.4) (328.3) (353.4) (44.8) (34.1) 13.5
------------- ------ ------ ------ ------ ------ -----
(END) Dow Jones Newswires
March 13, 2019 03:00 ET (07:00 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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