Kenmare Resources plc - Preliminary Results and Interim Management Statement

 
TIDMKMR 
 
Kenmare Resources plc ("Kenmare" or "the Company") 
 
                          Kenmare Preliminary Results 
                      For the year ended 31 December 2011 
                                 (LSE/ISE: KMR) 
                                 28 March 2012 
 
Kenmare  Resources plc.,  which operates  the Moma  Titanium Minerals  Mine (the 
"Mine" or "Moma") in Mozambique, today announces its preliminary results for the 
twelve  months to 31 December 2011. This  release incorporates Kenmare's Interim 
Management  Statement relating to the period  from the 1 January 2012 to the 28 
March 2012. 
 
Highlights 
  * EBITDA of US$71.7 million for 2011 (2010: US$17.4 million) 
  * Profit  after  tax  of  US$23.7  million  for  2011 (2010:  loss  of US$16.3 
    million) 
  * Robust demand increases market prices strongly in 2011 
  * 2011 Revenues of US$167.5 million (2010: US$91.6 million) 
  * Moma's  health  and  safety  record  continues  to improve, with a lost time 
    injury frequency rate per 200,000 hours worked of 0.23 
  * 730,400 tonnes  of  total  products  were  shipped in 2011, up from 712,900 
    tonnes shipped in 2010 
  * Total HMC production for the year was 842,900 tonnes (2010: 956,900 tonnes) 
  * Ilmenite production was 636,800 tonnes (2010: 678,400 tonnes) 
  * Zircon production was 43,600 tonnes (2010: 37,100 tonnes) 
  * Combination of dry mining and operation of the dredges set to return mine to 
    target output levels 
  * Phase  II expansion project  progressing with delivery  of critical items to 
    Moma 
  * Demand  for  output  from  Phase  II  expansion has been strong, majority of 
    output already allocated to customers 
  * Kenmare  achieved lender "Technical Completion", resulting in a reduction in 
    the subordinated debt interest rate by 2% (approximately US$3 million pa.) 
 
 
Justin  Loasby, Chairman of Kenmare  said, " I hope  that, under my stewardship, 
the Board will continue to develop and grow Kenmare's value in a sustainable and 
socially  responsible manner,  whilst retaining  the entrepreneurial spirit that 
has  served the  Company so  well thus  far. With  this in  mind, increasing and 
stabilising  production is a key success factor. The Board continues to identify 
and  implement  actions  to  reduce  risks  and  to  enhance  the robustness and 
resilience of the production system." 
 
 
 
 
Chairman's Statement 
 
 
Dear Shareholder, 
 
I  am delighted  to be  addressing you  for the  first time  as the  Chairman of 
Kenmare  and look forward to working with the Board and management in continuing 
to  build the  value of  the Company  over the  coming years.   Having delivered 
profit,  and large increases  in both revenues  and EBITDA, I  am confident that 
Kenmare  is exceptionally  well placed  to deliver  real long-term value for its 
shareholders, and I would like to set out the reasons why this is so. 
 
First and foremost is our world class resource base, which at around 200 million 
tonnes  of contained ilmenite  (equivalent to more  than 160 years production at 
our projected levels following Phase II expansion), is arguably the best dredge- 
mineable  resource in the world.  The nature  of the deposit with abundant fresh 
water,  no overburden, a good mineral grade and attractive products which do not 
have to be upgraded before being used, gives us the ability to mine, concentrate 
and  separate our products with capital  and operating expenditure which are low 
compared  with our peers.  Operating our own dedicated port facility immediately 
adjacent  to the Mine allows  us to transfer these  products to our customers at 
minimum  cost.  These factors have enabled Kenmare  to move quickly from Phase I 
into   a   50% expansion  (Phase  II)  which,  while  it  has  been  challenging 
operationally  to  execute,  will  greatly  add  to  the  long-term value of the 
Company. When Phase II is ramped up, Kenmare will be supplying around 10% of the 
world's  titanium feedstock  requirement and  will be  well placed  to embark on 
further expansion to meet demand from our customers (Phase III) if appropriate. 
 
The  minerals we  produce and  market -  ilmenite, zircon  and rutile - have all 
recently  experienced significant price increases due to tightness in supply and 
rapidly  expanding  demand.   Titanium  feedstocks  are used to produce titanium 
dioxide  pigment and  titanium metal.   Titanium dioxide  pigment has unrivalled 
properties  of whiteness, brightness,  and opacity.  It  is chemically inert and 
non-toxic  and in general is non-recyclable.  The market for titanium pigment is 
expanding  at above trend-line growth rates due  to a steep increase of usage in 
newly industrialising economies.  Titanium metal is light, strong, non-corrosive 
and has a low coefficient of thermal expansion.  While only representing a small 
portion   of   the  overall  use  of  titanium  feedstocks,  titanium  metal  is 
experiencing a steep increase in usage as the intensity of use in new generation 
airliners  is significantly greater  than in previous  designs.  The fundamental 
usefulness of our products, expanding market and tightness of supply, positioned 
against the size of the Moma resource, all bode well for the Company. 
 
The  Company's  operating  team  is  strong and experienced. Having successfully 
addressed  numerous challenges during  the original construction  and ramp up of 
Phase  I, the  team has  built up  a considerable  bank of knowledge on how this 
orebody  responds to  the mining  and processing  equipment deployed, and is now 
uniquely qualified to implement the completion of Phase II. 
 
The  host country for our mining operations is Mozambique. Many of you will have 
read  of  the  major  developments  that  have  been  announced in recent months 
concerning  the  broader  resources  sector  of  the  country,  both onshore and 
offshore.   I would like to record here  a note of appreciation of the excellent 
relationship with the Mozambique government and authorities that our Company has 
been  able to establish over many years,  which I am confident will be continued 
and  strengthened  even  further  in  the  future.  A  particular feature of our 
development cooperation in the country is the established not-for profit Kenmare 
Moma  Development  Association  ("KMAD")  initiative,  which  is  making a major 
contribution  to the social  and economic development  of the local region where 
our Mine is located. 
 
Markets 
 
The market for titanium dioxide feedstocks enjoyed a very positive period during 
2011.  Ilmenite  was achieving about US$100 per tonne  at the start of the year; 
by  the end of  the year we  were negotiating new  contracts for delivery in the 
first  half of 2012 at  between US$300 and  US$400 per tonne.   The industry has 
moved  away from multi-year  pricing to a  model of setting  prices on a shorter 
term basis.  The multi-year pricing mechanism previously in place allowed prices 
to  be kept at pre-agreed levels despite the underlying price growth through the 
period  of the contract.  Hence, for new  contracts, Kenmare has moved to volume 
based  agreements with six-monthly price negotiations to ensure that sale prices 
more closely reflect current market conditions.  Despite the downturn in Chinese 
real  estate, the market  for titanium feedstocks  remains strong and we believe 
that it will continue to be strong for the medium-term.  Save a precipitous drop 
in  demand caused  by another  global financial  crisis, it  is hard  to see how 
supply  tightness can  be relieved  for some  time to  come.  This  tightness is 
particularly  acute for rutile which has seen price increases from around US$700 
to well above US$2,000 during the period under review. 
 
Zircon, an important raw material used in the manufacture of ceramics, continued 
to  grow strongly for most of 2011, driven principally by urbanisation trends in 
emerging  economies.   However,  demand  slowed  in  the  fourth quarter and has 
continued  into 2012 with reduced construction related activity in China. Growth 
is  expected to resume  strongly in China  in the second  half of 2012 as fiscal 
tightening  policies are eased and activity  in the large social housing program 
increases.  Zircon  supply  contracts  are  volume  based,  with prices adjusted 
quarterly.  As with titanium feedstocks, there was similar positive zircon price 
increases  during  2011, with  prices  for  standard  grade zircon climbing from 
around  US$1,000 per tonne at end of 2010 to around US$2,400 per tonne by end of 
2011. 
 
Demand  for output from our  Phase II expansion has  been strong and much of the 
volume has already been allocated to customers. 
 
Operations 
 
During  2011, mining operations were hampered as we encountered areas within the 
orebody  with slightly elevated clay levels.  The  ore in these areas, while not 
consolidated,  is harder  to mine  than free  flowing sand  and our two existing 
dredges  supplied  under  the  original  lump  sum turnkey construction contract 
struggled  to  maintain  their  required  dredging  rates  in  these conditions. 
 Consequently,  we  produced  less  Heavy  Mineral  Concentrate ("HMC") from our 
mining  operations  and  in  turn  less  ilmenite,  zircon  and  rutile  than we 
originally anticipated. Planned downtime was experienced on the wet concentrator 
plant  during  2011 and  I  am  pleased  to  report that plant capacity has been 
successfully  upgraded  to  3,500 tonnes  per  hour  in  line with the expansion 
requirements. Total HMC production for the year was 842,900 tonnes compared with 
956,900 tonnes  in 2010.  Ilmenite  production was  636,800 tonnes compared with 
678,400 tonnes  in 2010 and  zircon production  was 43,600 tonnes  compared with 
37,100 tonnes  in  2010.  Zircon  output  was  augmented  by the reprocessing of 
zircon  rich concentrate that was processed  in the early stage commissioning of 
the  plant and which had  been stockpiled for use  as a future feedstock. Whilst 
rutile  output remains below  forecast, we are  continuing to work on optimising 
the  circuit. 730,400 tonnes of total products were shipped in 2011, an increase 
from 712,900 tonnes shipped during the previous year. 
 
Our  operational update of 5 March this  year outlined the continued presence of 
elevated  clay areas and the impact of exceptional adverse weather conditions on 
production  during the early months  of this year.  The  Company has developed a 
dry  mining operation which mines ore  using standard mobile equipment, slurries 
this  ore and pumps  it to the  wet concentrator plant  as a supplementary feed. 
 During March, the capacity of this operation has been increased from 500 tonnes 
per  hour ("tph") to 1,000 tph and is being ramped up to this level. Principally 
to  ensure the  optimal product  mix and  maximise revenues  in a  very positive 
market,  a further supplementary dry-mining operation will be established for an 
additional  1,000 tph later this  year.  We believe  that this is a satisfactory 
short-term  answer to the dredging issues we are facing.  However, dry mining is 
more  expensive than  dredge mining,  resulting in  some of  the benefits of the 
Mine's  inherently low cost  of operations being  reduced.  Hence, the Board has 
decided that one of the existing dredges will be replaced with a more robust and 
capable  dredge which will be able to  mine these zones without the difficulties 
that  we have  encountered.  This  will be  a unit  similar to  the dredge being 
installed  as part of Phase II which has around three times the cutter power and 
three  times the winch  pull of the  existing dredges.  It  is important to note 
that the issue we are addressing is one of insufficient dredge power rather than 
an  orebody  issue.  Production  during  the  early  part  of this year was also 
hampered  by  an  exceptional  number  of  power  dips,  largely  a result of an 
unusually active cyclone season. There were 46 dips which affected production in 
January  and  66 in  February.  The  Board  has approved the purchase of voltage 
stabilisation  equipment which is  designed to reduce  stoppages caused by power 
dips  by  83%. This  equipment  is  expected  to  be in place for the next rainy 
season. 
Whilst  reduced production  during the  early months  of this year has adversely 
impacted  revenues,  we  anticipate  that  the  combination  of  dry  mining and 
operation  of the dredges will allow the  mine to reach target levels during the 
second quarter and onwards for the rest of the year.  We anticipate some limited 
transitional  interruption to operations  as a result  of the linking  in of the 
expansion facilities to the main plant at the end of the year. 
 
The Mine's health and safety record continues to improve with a lost time injury 
frequency  rate  per  200,000 hours  worked  of 0.23, representing a very strong 
achievement by everyone working at the Mine. 
 
Expansion - Completion of Phase II 
 
The expansion is at a very exciting stage, with fabricated steelwork arriving on 
site  through March  and April  ready for  immediate installation.  Now that the 
design of the expansion is effectively complete, the next task is the management 
of site and logistics to ensure that the schedule for a rapid build programme is 
maintained  within  the  current  cost  estimate, which remains at approximately 
US$300  million. Most of the equipment, around which the steel buildings will be 
constructed,  is already on site. The new dredge, manufactured and tested in the 
USA,  has arrived at Moma  and will be reassembled  in the coming months. All of 
the  pontoons that form the floating base of the new wet concentrator plant have 
also  arrived at  Moma; they  have been  positioned in  the starter pond and the 
construction   of  the  superstructure  has  commenced.   Commissioning  of  the 
expansion  plant is scheduled to commence during  the last quarter of this year. 
 This will allow us to ramp-up our operations, enabling full production from our 
expanded facilities during 2013. 
Financial 
 
I  am pleased to report that the Company generated earnings before interest, tax 
and  depreciation ("EBITDA") of US$71.7 million in 2011 (2010: US$17.4 million), 
and  a profit after tax of US$23.7 million (2010: loss US$16.3 million). This is 
the  Company's first profit  that is attributable  to trading performance of the 
Moma Mine and it is an important milestone for Kenmare. 
 
Revenues  during the year increased to  US$167.5 million from US$91.6 million in 
2010, largely  resulting  from  the  continued  strengthening of product prices. 
Operating  costs  also  increased  in  2011, during  a period of mining industry 
inflation, and cost control remains a key priority for management. 
 
Investment  in property,  plant and  equipment at  Moma during  2011 amounted to 
US$180.1  million, primarily in the Phase II  expansion works that are due to be 
completed later this year. This expansion is financed by a combination of equity 
raised  in  2010 and  from  operating  cashflow  in accordance with an agreement 
concluded with lenders in December 2011. 
 
At  31 December 2011, bank  loans amounted  to US$327.1  million (2010: US$338.4 
million)  and cash  balances were  US$77.3 million  (2010: US$238.5 million). As 
anticipated,  the reduction in cash is largely a reflection of the investment in 
the  Phase  II  expansion  works.   Kenmare  passed  a  significant milestone in 
September  2011 when  "Technical  Completion",  which  is  a  requirement of the 
financing documents, was achieved and results in a reduction in the subordinated 
debt interest rate by 2%, equivalent to approximately US$3 million per annum. 
 
Board 
 
On  behalf of your Board, I take this  opportunity to pay tribute to and express 
our  great appreciation for the leadership  that your outgoing Chairman, Charles 
Carvill, has given to the Company since 1986. He has successfully guided Kenmare 
from  initial  exploration  through  many  challenging  phases  of  development, 
construction and finally into production. He has followed his vision to create a 
sustainable  world-class mining  business of  considerable shareholder value and 
has  handed over the reins as the  Company entered profitability during the past 
year.  The  Moma  Mine  is  now  well  established as one of the world's leading 
producers  of titanium minerals with excellent  prospects for the future. He has 
been  an exceptional Chairman. I wish him the  very best for the future and have 
no  doubt that he will continue to take a very close interest in the development 
of Kenmare in the years ahead. 
 
Outlook 
 
The  outlook for  the business  is very  positive.  Given  our plans to increase 
production  and in  an environment  of increasing  prices, Moma  operations will 
generate a strong positive cashflow.  Some of this cashflow will be allocated to 
expansion  funding in the current year, with  the remainder building up to allow 
us  to repay  the deferred  interest and  principal that  has accumulated on the 
subordinated debt. 
 
As  outlined above,  while we  expect to  have continuing dredging issues during 
2012, supplementary  dry mining will compensate for the lack of dredged ore, and 
in  2013 we expect to  take delivery of  a new more  capable dredging unit.  The 
priority  attention of management in 2012 is to complete the Phase II expansion, 
but  the Board is reviewing  the options for further  expansion beyond Phase II. 
 The  proposals for commercialisation of our  monazite stream are still in hand, 
and  our pre-feasibility  study on  Phase III  is progressing, with an intensive 
drilling  and sampling programme planned for the second half of 2012, so that we 
will  be in a position to consider  the post-Phase II possibilities on a better- 
defined  basis in due course. I hope  that, under my stewardship, the Board will 
continue  to  develop  and  grow  Kenmare's  value in a sustainable and socially 
responsible  manner, whilst retaining the entrepreneurial spirit that has served 
the Company so well thus far. 
 
In  summary, Kenmare has a very  exciting future, with exceptional opportunities 
to  provide long-term growth and  value for shareholders, and  I look forward to 
leading the Board as it guides the Company in this task. 
 
 
Justin Loasby 
Chairman 
 
For more information: 
Kenmare Resources plc. 
Michael Carvill, Managing Director 
Tel: [phone] 
Mob: + 353 87 674 0110 
 
Jacob Deysel, Operations Director 
Tel: [phone] 
Mob: + 353 87 613 9609 
 
Tony McCluskey, Financial Director 
Tel: [phone] 
Mob: + 353 87 674 0346 
 
Murray Consultants 
Joe Heron 
Tel: [phone] 
Mob: [phone] 
 
Tavistock Communications 
Paul Youens / Jos Simson 
Tel: [phone] 
Mob: [phone] 
www.kenmareresources.com 
KENMARE RESOURCES PLC 
PRELIMINARY RESULTS 
CONSOLIDATED INCOME STATEMENT 
FOR THE YEAR ENDED 31 DECEMBER 2011 
 
 
 
 
                                                   Notes      2011      2010 
 
                                                           US$'000   US$'000 
 
 
 
Revenue                                                    167,485    91,587 
 
 
 
Cost of sales                                             (97,498)  (77,741) 
 
 
 
Gross profit                                                69,987    13,846 
 
 
 
Other operating costs                                  3  (17,071)  (17,369) 
 
 
 
Operating profit/(loss)                                     52,916   (3,523) 
 
 
 
Finance income                                               3,332     1,522 
 
 
 
Finance costs                                             (31,748)  (31,024) 
 
 
 
Foreign exchange (loss)/gain                               (6,277)    16,691 
 
 
 
Profit/(loss) before tax                                    18,223  (16,334) 
 
 
 
Income tax credit                                      6     5,477         - 
 
 
 
Profit/(loss) for the year 
 
and total comprehensive profit/(loss) for the year          23,700  (16,334) 
 
 
 
Attributable to equity holders                              23,700  (16,334) 
 
 
 
 
 
 
                                                              Cent      Cent 
                                                         per share per share 
 
Earnings/(loss) per share: Basic                       4      0.99    (0.80) 
 
Earnings/(loss) per share: Diluted                     4      0.98    (0.80) 
 
 
 
 
 
                             KENMARE RESOURCES PLC 
                              PRELIMINARY RESULTS 
                           CONSOLIDATED BALANCE SHEET 
                             AS AT 31 DECEMBER 2011 
 
 
                                            Notes       2011            2010 
 
                                                     US$'000         US$'000 
 
 
 
 Assets 
 
 Non-current assets 
 
 Property, plant and equipment                  5    714,118         552,786 
 
 Deferred tax asset                             6      5,477               - 
 
                                                     719,595         552,786 
 
 
 
 Current assets 
 
 Inventories                                          25,846          24,618 
 
 Trade and other receivables                          38,831          12,974 
 
 Cash and cash equivalents                      7     77,256         238,515 
 
                                                     141,933         276,107 
 
 
 
 Total assets                                        861,528         828,893 
 
 
 
 Equity 
 
 Capital and reserves attributable to the 
 
 Company's equity holders 
 
 Called-up share capital                        8    196,347         195,830 
 
 Share premium                                       301,391         299,860 
 
 Retained losses                                    (19,994)        (43,694) 
 
 Other reserves                                       17,610          14,103 
 
 Total equity                                        495,354         466,099 
 
 
 
 Liabilities 
 
 Non-current liabilities 
 
 Bank loans                                     9    213,523         252,814 
 
 Obligations under finance lease                       1,810           2,015 
 
 Provisions                                            7,407           6,750 
 
                                                     222,740         261,579 
 
 
 
 Current liabilities 
 
 Bank loans                                     9    113,585          85,574 
 
 Obligations under finance lease                         221             157 
 
 Provisions                                              276             279 
 
 Trade and other payables                             29,352          15,205 
 
                                                     143,434         101,215 
 
 
 
 Total liabilities                                   366,174         362,794 
 
 
 
 Total equity and liabilities                        861,528         828,893 
 
 
 
 
                             KENMARE RESOURCES PLC 
                              PRELIMINARY RESULTS 
                        CONSOLIDATED CASH FLOW STATEMENT 
                       FOR THE YEAR ENDED 31 DECEMBER 2011 
 
 
                                                                   2011     2010 
 
                                                        Notes   US$'000  US$'000 
 
 
 
 
 
Cash flows from operating activities 
 
Profit/(loss) for the year                                       18,223 (16,334) 
 
Adjustment for: 
 
Foreign exchange movement                                         6,277 (16,691) 
 
Share-based payments                                              3,368    2,374 
 
Finance income                                                  (3,332)  (1,522) 
 
Finance costs                                                    30,333   29,852 
 
Depreciation                                                     18,801   20,955 
 
Impairment of property, plant and equipment                           -    3,066 
 
Increase in provisions                                              384      845 
 
Operating cash flow                                              74,054   22,545 
 
 
 
Increase in inventories                                         (1,228)  (2,667) 
 
(Increase)/decrease in trade and other receivables             (25,847)      319 
 
Increase in trade and other payables                              3,983    6,851 
 
Cash used by operations                                          50,962   27,048 
 
 
 
Interest received                                                 3,332    1,522 
 
Interest paid                                                   (8,595) (10,191) 
 
 
 
Net cash from operating activities                               45,699   18,379 
 
 
 
Cash flows used in investing activities 
 
Addition to property, plant and equipment                   5 (169,823) (34,790) 
 
 
 
Net cash used in investing activities                         (169,823) (34,790) 
 
 
 
Cash flows (used in)/from financing activities 
 
Proceeds on the issue of shares                             8     2,048  257,873 
 
Repayment of borrowings                                        (28,093) (26,374) 
 
Payment of obligations under finance leases                       (564)    (588) 
 
 
 
Net cash from financing activities                             (26,609)  230,911 
 
 
 
Net (decrease)/increase in cash and cash equivalents          (150,733)  214,500 
 
 
 
Cash and cash equivalents at beginning of the year              238,515   17,408 
 
Effect of exchange rate changes on cash and cash               (10,526)    6,607 
equivalents 
 
 
 
Cash and cash equivalents at the end of the year                 77,256  238,515 
 
 
 
                        NOTES TO THE PRELIMINARY RESULTS 
 
 
Note 1. Basis of Accounting and Preparation of Financial Information 
 
On   27 March   2012, the   Directors   approved  the  preliminary  results  for 
publication.  While the unaudited consolidated financial statements for the year 
ended  31 December 2011, from which the preliminary results have been extracted, 
are  prepared  in  accordance  with  International Financial Reporting Standards 
(IFRSs)  as  adopted  by  the  European  Union, these preliminary results do not 
contain  sufficient information  to comply  with IFRSs.  The Directors expect to 
publish  the full financial statements  that comply with IFRS  as adopted by the 
European Union in April 2012. 
 
The auditors have not yet issued their audit opinion on the financial statements 
in respect of the year ended 31 December 2011, but when issued is likely to draw 
attention  to the  disclosures made  in the  financial statements concerning the 
recoverability  of property, plant and equipment (see Note 5) and investments in 
and  amounts  due  from  subsidiary  undertakings,  which  are  dependent on the 
successful  development of  economic ore  reserves, successful  operation of the 
Mine including the Mine expansion project and continued availability of adequate 
funding for the Mine. They are also likely to note that the financial statements 
do  not include  any adjustments  relating to  these uncertainties  and that the 
ultimate outcome cannot at present be determined. 
 
The financial information presented above does not constitute statutory accounts 
within  the meaning of the Companies Acts,  1963 to 2009. A copy of the accounts 
in  respect of the financial year ended  31 December 2011 will be annexed to the 
Annual Return for 2012. 
 
The  statutory accounts for the year  ended 31 December 2010 prepared under IFRS 
upon which the auditors have issued an unqualified opinion, but with an emphasis 
of  matter drawing attention to the disclosures made in the financial statements 
concerning  the recoverability of property,  plant and equipment and investments 
in  and amounts  due from  subsidiary undertakings,  which are  dependent on the 
successful  development of economic ore reserves and successful operation of the 
Mine, have been filed with the Registrar of Companies. 
 
Note 2. Segment Reporting 
 
Information  on the operations  of Moma Titanium  Minerals Mine in Mozambique is 
reported to the Board for the purposes of resources allocation and assessment of 
segment  performance.  Information  regarding  the  Group's operating segment is 
reported below. 
 
 
 Segment revenues and results 
 
                                               2011            2010 
 
 Moma Titanium Minerals Mine                US$'000         US$'000 
 
 Revenue                                    167,485          91,587 
 
 Cost of sales                             (97,498)        (77,741) 
 
 Gross profit                                69,987          13,846 
 
 Other operating costs                     (11,931)        (10,363) 
 
 Segment operating profit                    58,056           3,483 
 
 
 
 Other corporate operating costs            (5,140)         (7,006) 
 
 
 
 Group operating profit/(loss)               52,916         (3,523) 
 
 
 
 Finance income                               3,332           1,522 
 
 Finance expenses                          (31,748)        (31,024) 
 
 Foreign exchange (loss)/gain               (6,277)          16,691 
 
 Profit/(loss) before tax                    18,223        (16,334) 
 
 Income tax credit                            5,477               - 
 
 Profit/(loss) for the year                  23,700        (16,334) 
 
 
 
 
 
 Segment assets 
 
 Moma Titanium Minerals Mine assets         783,791         593,305 
 
 Corporate assets                            77,737         235,588 
 
 Total assets                               861,528         828,893 
 
 
 
 Segment liabilities 
 
 Moma Titanium Minerals Mine liabilities    361,989         356,504 
 
 Corporate liabilities                        4,185           6,290 
 
 Total liabilities                          366,174         362,794 
 
 
 
 Other segment information 
 
 Depreciation and amortisation 
 
 Moma Titanium Minerals Mine                 18,785          20,912 
 
 Corporate                                       16              43 
 
 Total                                       18,801          20,955 
 
 
 
 Additions to non-current assets 
 
 Moma Titanium Minerals Mine                178,496          32,647 
 
 Corporate                                    1,637           3,236 
 
 Total                                      180,133          35,883 
 
 
 
 
 Revenue from major products 
 
                                                     2011      2010 
 
                                                  US$'000   US$'000 
 
 Mineral products (ilmenite, zircon and rutile)   167,485    91,587 
 
 
 
 
 Geographical information 
 
                                      2011      2010 
 
 Revenue from external customers   US$'000   US$'000 
 
 Europe                             77,771    51,169 
 
 Asia                               54,681    25,059 
 
 USA                                15,811    13,153 
 
 Rest of World                      19,222     2,206 
 
 Total                             167,485    91,587 
 
 
The  Group's revenue from  external customers is  generated by the Moma Titanium 
Minerals  Mine,  the  non-current  assets  of  which are US$711.5 million (2010: 
US$546.6 million). 
 
Information about major customers 
 
Included  in revenues are US$33.0 million  (2010: US$17.5 million) from sales to 
the Group's largest customer, US$29.4 million (2010: US$15.1 million) from sales 
to  the  Group's  second  largest  customer  and  US$19.5 million (2010: US$13.2 
million)  from sales  to the  Group's third  largest customer.  All revenues are 
generated by the Moma Titanium Minerals Mine. 
Note 3.  Other Operating Costs 
 
                                                                    2011    2010 
 
                                                                 US$'000 US$'000 
 
 
 
Distribution costs                                                 5,717   3,777 
 
Freight costs                                                      3,561   4,098 
 
Demurrage costs                                                    2,450       - 
 
Administration costs                                               5,343   7,660 
 
Cost of the settling pond breach incident net of insurance             -   1,834 
claim 
 
                                                                  17,071  17,369 
 
 
 
Included in administration costs are: 
 
Share-based payments                                               2,249   2,063 
 
Litigation costs                                                     118   1,839 
 
 
Freight costs of US$3.6 million (2010: US$4.1 million) are reimbursable by 
customers or factored into the sales price for product delivered to customers on 
a CIF (cost, insurance and freight) basis. There were demurrage costs incurred 
during the year of US$2.5 million (2010: nil) as a result of unseasonably bad 
weather in the middle of the year which restricted shipments. 
 
Total share-based payments for 2011 amounted to US$3.5 million (2010: US$2.5 
million) of which US$1.1 million (2010: US$0.3 million) relate to staff at the 
Mine and are included as a production cost of inventories. US$0.1 million (2010: 
US$0.1 million) relate to staff working on the expansion project and have been 
capitalised in property, plant and equipment and the balance of US$2.3 million 
(2010: US$2.1 million) included in administration costs in the income statement. 
 
 
 
Note 4.  Earnings/(Loss) per share 
 
The  calculation of the basic and diluted earnings/(loss) per share attributable 
to  the ordinary  equity holders  of the  Parent Company  is based on the profit 
after  taxation of US$23.7 million (2010: loss US$16.3 million) and the weighted 
average  number  of  shares  in  issue  during  2011 for  the  purposes of basic 
earnings/(loss) per share of 2,404,281,590 (2010: 2,029,895,059) and for diluted 
earnings/(loss) per share of 2,424,073,254 (2010: 2,093,498,317). 
 
In 2010 the basic loss per share and the diluted loss per share are the same, as 
the effect of the outstanding share options was anti-dilutive. 
Note 5. Property, plant and equipment 
 
                               Plant &  Development Construction  Other   Total 
 
                              Equipment Expenditure In Progress  Assets 
 
                               US$'000    US$'000     US$'000    US$'000 US$'000 
 
Cost 
 
At 1 January 2010               311,433     244,174        4,313  14,215 574,135 
 
Transfer from construction in     4,224           -      (6,118)   1,894       - 
progress 
 
Additions during the year         4,510       4,169       27,180      24  35,883 
 
 
 
At 1 January 2011               320,167     248,343       25,375  16,133 610,018 
 
Transfer from construction in    22,616           -     (22,963)     347       - 
progress 
 
Additions during the year           668         418      179,027      20 180,133 
 
 
 
At 31 December 2011             343,451     248,761      181,439  16,500 790,151 
 
 
 
Accumulated Depreciation 
 
At 1 January 2010                21,262       5,188            -   6,761  33,211 
 
Charge for the year              10,949       7,518            -   2,488  20,955 
 
Impairment during the year        3,066           -            -       -   3,066 
 
 
 
At 1 January 2011                35,277      12,706            -   9,249  57,232 
 
Charge for the year              10,382       6,749            -   1,670  18,801 
 
At 31 December 2011              45,659      19,455            -  10,919  76,033 
 
 
 
Carrying Amount 
 
At 31 December 2011             297,792     229,306      181,439   5,581 714,118 
 
 
 
At 31 December 2010             284,890     235,637       25,375   6,884 552,786 
 
 
 
At  30 June  2010, the  Group  finalised  drilling  work  on  the Nataka deposit 
resulting  in an increase in the total  reserves from 25 million tonnes of total 
heavy  mineral to 33 million tonnes  of total heavy mineral.  This resulted in a 
change  in  the  depreciation  rate  for  plant  and  equipment  and development 
expenditure which are depreciated on a unit of production basis. 
 
The jetty was initially damaged in December 2007 when the Bronagh J collided 
with it while berthing. While the jetty remained operational using a modified 
mooring and loading procedure, there was some further deterioration to the 
structure over time. During 2010, an assessment of the permanent repair work 
required was carried out. Based on this assessment, an impairment of US$3.0 
million was recognised in the income statement and property plant and equipment. 
In addition, during the year repair costs of US$0.5 million were incurred.  The 
Group completed repair and upgrade work on the jetty in October 2011 which both 
strengthened the current structure and increased its operational capacity by 
allowing the transhipment vessels to load from both sides of the jetty. An 
insurance claim relating to the damage to the jetty structure was settled in 
June 2010 for US$3.5 million which was recognised in the income statement in 
that year. 
 
Included  in plant  and equipment  are capital  spares of  US$0.8 million (2010: 
US$1.4 million). 
 
Substantially  all the property, plant and equipment  of the Group is or will be 
mortgaged,  pledged or otherwise  secured to provide  collateral for the Project 
senior and subordinated loans. 
 
The  carrying amount of  the Group's plant  and equipment includes  an amount of 
US$1.3  million (2010: US$1.3  million) in respect  of assets held under finance 
lease. 
 
Additions to development expenditure include costs associated with a third phase 
of mine expansion of US$0.4 million. Expansion development costs incurred during 
the  period before the  expansion assets are  capable of operating at production 
levels in a manner intended by management are deferred and included in property, 
plant and equipment. 
 
Note 6. Deferred Tax 
 
                                       US$'000 
 
 
 
 At 1 January 2010                           - 
 
 Credit/(charge) to income statement         - 
 
 At 1 January 2011                           - 
 
 Credit to income statement              5,477 
 
 At 31 December 2011                     5,477 
 
 
 
 
At  the balance sheet date Kenmare  Moma Mining (Mauritius) Limited ("KMML") had 
unused  tax  losses  of  US$42.2  million  (2010: US$36.4 million) available for 
offset  against  future  profits.  A  deferred  tax asset has been recognised of 
US$5.5  million in  respect of  US$31.2 million  (2010: nil)  of such losses. No 
deferred  tax  asset  has  been  recognised  in respect of the remaining US$11.0 
million  as it  is not  considered probable  that there  will be  future taxable 
profits  available before such losses expire.  Included in tax losses are losses 
of  US$7.6 million  that will  expire in  2012. The other  losses may be carried 
forward  for three years.  No deferred tax  liability is recognised on temporary 
differences  arising  in  connection  with  accelerated  tax depreciation as the 
differences  are not significant. A deferred tax  asset on assessed losses as at 
31 December  2010 was not  recognised because  it was  not probable at such date 
that  future taxable profits would be  available against which the Company could 
utilise  the tax losses before they  expired. The significant increases in final 
product  prices achieved by KMML  in 2011 and forecast to  be achieved in future 
has  increased taxable profits  earned and to  be earned by  KMML. Revenues (and 
hence  taxable profits) in KMML are determined by reference to costs incurred in 
producing  heavy mineral  concentrate plus  a margin  which is related to prices 
earned  by  Kenmare  Moma  Processing  (Mauritius)  Limited  ("KMPL")  for final 
products. 
 
Note 7. Cash and cash equivalents 
 
 
                                                2011      2010 
 
                                             US$'000   US$'000 
 
 
 
 Immediately available without restriction     7,695    55,892 
 
 
 
 Contingency Reserve Account                  63,222   172,753 
 
 Project Companies' Accounts                   6,339     9,870 
 
                                              77,256   238,515 
 
 
The  Contingency Reserve Account  (the "CRA") is  an account established under a 
cash  collateral and shareholder funding deed to provide for shareholder funding 
to  the  Project  Companies  and  to  secure  the obligations of the Company and 
Congolone  Heavy Minerals Limited (a  wholly-owned subsidiary undertaking) under 
the Completion Agreement. 
 
On  21 December  2011, the  Company,  Congolone  Heavy  Minerals Limited and the 
Project  Companies entered into a deed of  amendment with the Project lenders in 
relation  to the funding of the expansion. Further details of this amendment are 
set out in Note 9.  Under this amendment the Company deposited the equivalent of 
US$45  million in various currencies valued at June 2011 exchange rates into the 
CRA before 31 December 2011 to fund expansion capital. 
 
 
Note 8. Called up share capital 
 
6,094,962 new  ordinary  shares  were  issued  during  2011 as a result of share 
options  exercised,  resulting in US$0.5 million being credited to share capital 
and US$1.5 million credited to share premium. 
 
On  1 April 2010, 1,497,030,066 new ordinary shares were issued by way of a firm 
placing  and  placing  and  open  offer  which  raised  US$257.8  million net of 
expenses. The primary purpose of this equity raising was to fund an expansion of 
the existing Mine operations to increase production capacity from 800,000 tonnes 
per  annum  of  ilmenite  plus  co-products  to  1.2 million tonnes per annum of 
ilmenite  plus co-products. US$121.12 million of this issue has been credited to 
share  capital.  US$136.68  million  of  this  issue  has been credited to share 
premium. 
 
Note 9. Bank loans 
 
                                                         2011       2010 
 
                                                      US$'000    US$'000 
 
 
 
 Project Loans 
 
 Senior Loans                                         133,054    159,968 
 
 Subordinated Loans                                   194,054    176,372 
 
 Total Project Loans                                  327,108    336,340 
 
 Mortgage Loan                                              -      2,048 
 
                                                      327,108    338,388 
 
 
 
 The borrowings are repayable as follows: 
 
 Within one year                                      113,585     85,574 
 
 In the second year                                    39,750     40,578 
 
 In the third to fifth years inclusive                103,850    120,656 
 
 After five years                                      69,923     91,580 
 
                                                      327,108    338,388 
 
 Less: amount due for settlement within 12 months   (113,585)   (85,574) 
 
 Amount due for settlement after 12 months            213,523    252,814 
 
 
 
 Project Loans 
 
 Balance at 1 January 2011                            336,340    353,604 
 
 Loan interest accrued                                 29,561     29,024 
 
 Loan interest paid                                   (8,560)   (10,026) 
 
 Loan repayment                                      (26,053)   (25,911) 
 
 Foreign exchange movement                            (4,180)   (10,351) 
 
 Balance at 31 December 2011                          327,108    336,340 
 
 
 
 Mortgage Loan 
 
 Balance at 1 January 2011                              2,048      2,513 
 
 Drawdown                                                   -          - 
 
 Loan interest accrued                                     27        163 
 
 Loan interest paid                                      (35)      (165) 
 
 Loan repayment                                       (2,040)      (463) 
 
 Balance at 31 December 2011                                -      2,048 
 
 
 
Project loans 
Project loans have been made to the Mozambique branches of KMML and KMPL (the 
"Project Companies"). The Project loans are secured by substantially all rights 
and assets of the Project Companies, and, amongst other things, the shares in 
and intercompany loans to the Project Companies. 
 
The  Company and  Congolone Heavy  Minerals Limited  have guaranteed the Project 
loans   during  the  period  prior  to  Completion  (achievement  of  "Technical 
Completion" and "Non-Technical Completion"). The Expansion Funding Deed dated 5 
March  2010 extended  the  final  date  for  achieving Completion to 31 December 
2013. On  5 September  2011 Technical  Completion  was  achieved.  Non-Technical 
Completion  occurs  upon  meeting  certain  legal  and  permitting requirements, 
including  filling of  specified reserve  accounts to  the required levels. Upon 
Completion,  the Kenmare Resources  plc's and Congolone  Heavy Mineral Limited's 
guarantee  of  the  loans  will  terminate.  Failure  to  achieve  Non-Technical 
Completion by 31 December 2013 is an event of default. 
 
Amendments to Project loan agreements 
On  18 April 2011, Kenmare Resources  plc, Congolone Heavy  Minerals Limited and 
the  Project Companies  entered into  a Deed  of Amendment  with the lenders and 
lenders'  agents.  The  main  provisions  of  this Deed of Amendment include the 
following: 
  * The  marketing covenant is to be tested semi-annually as at 1 January and 1 
    July,  the calculation to be set out  in a periodic marketing certificate to 
    be  delivered no later than 1 March (45  days after the effectiveness of the 
    Deed of Amendment in the case of 2011) and 1 September of each year; 
  * In  determining projected revenues  for the marketing  covenant, all offtake 
    agreements  with eligible buyers entered  into on or before  the date of the 
    marketing certificate are considered regardless of term; 
  * The  marketing covenant requires sales contracts with eligible buyers with a 
    term  of at least  1 year for a  specified tonnage of  final products, to be 
    tested annually as at 1 January. 
  * The  Project Companies agreed  to pay fees  to the lenders totalling US$0.03 
    million. 
 
Failure to comply with the marketing covenant no longer results in an event of 
default; rather, such a failure results, pre-Completion, in majority lenders 
being able to convene a meeting at which the Project Companies would present 
their marketing plan, and post-Completion in the inability of the Project 
Companies to make restricted payments (dividends and payments on intercompany 
loans) on the next semi-annual restricted payment date. 
 
On 21 December 2011, the Project Companies entered into an Deed of Amendment 
with the lenders in relation to funding of the expansion as a result of 
projected capital cost increases.  Under this amendment: 
 
  * Kenmare Resources plc deposited the equivalent of a further US$45 million in 
    various  currencies valued at June 2011 exchange rates, into the Contingency 
    Reserve  Account ("CRA"),  an account  held in  the parent company Congolone 
    Heavy Minerals Ltd.,  by 31 December 2011 to fund expansion capital costs. 
  * The  Project Companies  capitalised US$15.5  million due  to Congolone Heavy 
    Minerals  Ltd as at 30 June 2011 under the Management Services Agreement and 
    the  lenders  agreed  that  internally  generated  cash  flow  equal to such 
    capitalised amount may be applied to meet expansion capital costs. 
  * The lenders agreed that the Project Companies may apply internally generated 
    cash  flow to meet  up to an  additional US$65 million  of expansion capital 
    costs. 
  * The  lenders agreed  that prior  to Completion,  funds may be withdrawn from 
    Senior  Debt  Reserve  Account  ("SDRA")  to  meet  senior debt obligations, 
    operating  costs and expansion capital costs  without triggering a breach of 
    covenant provided the account is replenished prior to Completion. 
  * The  Project Companies agreed  to pay fees  to the lenders totalling US$1.61 
    million. 
 
Other Group bank borrowings 
On   7 August  2009, Mozambique  Minerals  Limited  (a  wholly-owned  subsidiary 
undertaking)   entered   into  a  loan  agreement  with  Banco  Comercial  e  de 
Investimentos,  S.A. for  US$2.5 million  to fund  the purchase of an additional 
product  transhipment  barge,  Peg,  and  a  tug/work  boat, Sofia III. Interest 
accrued at a 6 month LIBOR plus 6%, and was payable monthly commencing September 
2009 with  principal scheduled to be repaid in 54 monthly instalments commencing 
March 2010. This loan was fully drawn on 10 August 2009. The loan was secured by 
a  mortgage on the Peg  and Sofia III and  by a guarantee from Kenmare Resources 
plc. This loan was repaid in full on 5 March 2011. 
 
 
Note 10.  2011 Annual Report and Accounts 
 
The  Annual Report and  Accounts will be  posted to shareholders before 30 April 
2012. 
 
 
 
 
 
 
 
This announcement is distributed by Thomson Reuters on behalf of 
Thomson Reuters clients. The owner of this announcement warrants that: 
(i) the releases contained herein are protected by copyright and 
    other applicable laws; and 
(ii) they are solely responsible for the content, accuracy and 
     originality of the information contained therein. 
 
Source: Kenmare Resources via Thomson Reuters ONE 
[HUG#1597682]