Kenmare Preliminary Results for the year ended 31 December 2006

      Moma Titanium Minerals Mine now in production

      Strong market demand and price growth for minerals

      Expansion to annual production of 1.2 million tonnes of ilmenite plus co-products by end 2009

      Active uranium exploration programme in Mozambique

 

30 April 2007

 

Chairman's Statement

 

Dear Shareholder,

 

I was delighted to announce on 25th April 2007 that Kenmare had commenced mining operations at its Moma Titanium Minerals Mine and had begun to stockpile heavy minerals concentrate for further processing. While we have only been operating for a short while, the plant has been performing well and we are now looking forward to a successful ramp-up of the mine and processing plant to full production over the coming months. Demand for our products is buoyant and the Company is already developing plans for a phased expansion. Following a recent drilling programme, the mineral resources at Moma have increased by over 60%. This confirms Moma's position as one of the premier deposits of titanium minerals and zircon in the world, and provides great opportunity for Kenmare's continued growth.

 

Kenmare expects to ramp-up initially to annual production levels of 800,000 tonnes of ilmenite (the main titanium-bearing mineral), 56,000 tonnes of zircon (a zirconium mineral used in the ceramics industry) and 21,000 tonnes of rutile (a titanium dioxide mineral).

 

We continue to experience strong market demand for Moma minerals and have entered into a number of heads of agreements with new customers. These are presently being converted into full sales agreements, which are expected to be concluded shortly.

 

The titanium feedstock market continues to perform well, driven by strong demand from the end-use markets, the most important of which are titanium dioxide (TiO2) pigment and titanium metal. Pigment demand growth rates of over 3% are predicted to be sustainable into the future.  This growth, combined with the depletion of existing mines which are coming to the end of their resource lives, will give Moma plenty of scope for expansion.  Demand for feedstock from the smaller titanium metal market is also very robust with production growth of over 20% in 2006. This strong demand from end use markets resulted in a tight market for titanium feedstocks in 2006. Despite some new sources of supply entering the market in 2007, the market for our products is expected to remain in tight supply, which will continue to put upward pressure on prices.  The zircon market performed strongly in 2006 and prices increased by around 20% over the previous year.

 

The 170 km overhead power transmission line was successfully energised in January 2007 and cold commissioning of the two mining dredges followed immediately. The commissioning process was subsequently extended to the floating wet concentrator plant and, following the resolution of snags, the plant was successfully tested and a taking-over certificate for the mining component was issued by Kenmare.  This represents the first step of a phased handover of the works under a contract amendment between Kenmare and the contractor in which all changes to the original contract were agreed.  Mining is now taking place using one dredge on a 24 hour basis. The Kenmare operations team are continuing to fine-tune the systems for maximum efficiency. As the mining pond is widened and deepened over the coming months, the second dredge will be brought into production. Once the mineral separation plant is taken over from the contractor, the heavy minerals concentrate will be further separated into the final products prior to export.

 

The accommodation village, roads, product storage warehouse, overland conveyor and export jetty are all substantially complete. Construction of the self-propelled, 4,000 tonne capacity product transportation barge has been completed in Singapore and sea-trials have been carried out.

 

Drilling activities during the past year continued to examine the numerous deposits within our Moma licences. This has yielded excellent results at the Nataka deposit, where the inferred resource has increased from 49 million tonnes to 110 million tonnes of contained ilmenite, with associated increases in co-products.  These results have been independently verified by SRK Consulting. This increases the total resource under licence to Kenmare by more than 60%, from 101 million tonnes to 163 million tonnes of contained ilmenite, with associated increases in co-products to 12.4 million tonnes of zircon and 3.6 million tonnes of rutile. As the Nataka orebody remains open laterally and at depth, further increased tonnage is probable.

 

The Kenmare Moma Development Association (KMAD), a not-for-profit organisation, is continuing its activities in the area surrounding the mine.  The key objective of KMAD is to use the presence of the mine to generate long term sustainable opportunities for people in the local communities. Working with local and international partners, initiatives during the past year included a HIV/AIDS awareness programme, a savings and credit programme, a partnership with Worldwide Wildlife Fund on creating and promoting cooperatives of local food producers and other initiatives, and the construction of a new primary school in Topuito, a local village. The local soccer field has been upgraded and Kenmare's operations staff has pitched in very enthusiastically and have voluntarily organised sporting events.  Their support in this area is most appreciated.

 

Kenmare also has an active uranium exploration programme underway in northern Mozambique. We have been granted licences over 1,400 km2 to explore in both the Tete and Niassa provinces. Further licence applications covering 900 km2 have been submitted.  Initial field work has involved ground surveying using gamma radiation meters followed by trenching and sampling. Uranium mineralisation has already been identified in both Karoo sedimentary and granitic rocks. As a result, we have increased the size of our exploration team and look forward to reporting to shareholders on our progress.

 

During 2006, we report a loss of US$4.3 million, arising primarily from foreign exchange losses on Euro-denominated debt and Kenmare's corporate operating costs, net of interest earned. Construction costs capitalised during the year amounted to US$78 million while deferred project development costs and mineral exploration costs deferred increased by US$36.5 million. Bank loans amounted to US$266.1 million at the year end.

 

Tony Lowrie has joined the Board of Directors and it is my pleasure to recommend him for election at the Annual General Meeting. Tony commands great respect in the equity markets and brings a wealth of experience which will assist Kenmare's continued development.

 

 

Now that we have commenced mining we are pushing for a rapid start up of the minerals separation plant and the first shipments to customers.  We are in the fortunate position that the market for our products is strong with positive price trends throughout.  This, together with the strong indications of support we have received from our customers, gives us the necessary comfort to push rapidly into a major capacity expansion which we hope will bring us to production of 1.2 million tonnes of ilmenite plus co-products by the end of 2009.

 

We in Kenmare are extremely proud of what has been achieved so far.  I would like to take this opportunity to thank everyone who has worked so hard to reach this point.  I would also like to thank you, our shareholders, for your support and the Government of Mozambique for its support of Kenmare.

 

Chairman

 

 

 

 

Michael Carvill, Managing Director

Tel: + 353 1 671 0411

Mob: + 353 87 674 0110

 

Tony McCluskey, Financial Director

Tel:  + 353 1 671 0411

Mob: + 353 87 674 0346

 

Leesa Peters

Tel: + 44 (0) 207 429 6600

Mob: + 44 (0) 781 215 9885

 

Elizabeth Headon 

Tel: + 353 1 498 0300

Mob: + 353 87 989 7234

 

 

 

 

 

	2006	2005
	US$'000	US$'000
Revenue	-	-
Operating (expenses)/gains	(7,255)	2,861
Operating (loss)/profit	(7,255)	2,861
Finance income	2,925	1,838
(Loss)/profit before tax	(4,330)	4,699
Income tax expense	-	-
(Loss)/profit for the year	(4,330)	4,699
Attributable to Equity holders	(4,330)	4,699
(Loss)/earnings per share: Basic	(0.63c)	0.72c
(Loss)/earnings per share: Diluted	(0.63c)	0.61c

 

 

 

 

	2006	2005
	US$'000	US$'000
Assets
Non-Current Assets
Deferred Development Expenditure	140,751	104,228
Construction in Progress	265,718	187,721
	406,469	291,949
Current Assets
Receivables	810	1,787
Cash and cash equivalents	87,230	75,520
	88,040	77,307
Total Assets	494,509	369,256
Equity
Capital and reserves attributable to the
Company's equity holders
Called Up Share Capital	55,940	54,847
Share Premium	108,512	105,713
Retained Earnings	(21,504)	(17,174)
Other Reserves	41,101	36,373
Total Equity	184,049	179,759
Liabilities
Non-Current Liabilities
Bank loans	266,152	164,725
Accrued liabilities and other loans	-	8,616
Long-term provision	2,365	-
	268,517	173,341
Current Liabilities
Accrued liabilities and other loans	41,943	16,156
Total Liabilities	310,460	189,497
Total Equity and Liabilities	494,509	369,256

 

 

Additions to Deferred Development Expenditure include loan interest capitalised of US$17,971,000 (2005: US$8,118,000).

 

 

 

 

Note 1.  Basis of Accounting and Preparation of Financial Information

 

The preliminary results have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial statements are prepared in US Dollars under the historical cost convention.

 

The financial information presented above does not constitute statutory accounts within the meaning of the Companies Acts, 1963 to 2006. An audit report has not yet been issued on the accounts for the year ended 31 December 2006, nor have they been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2005 prepared under IFRS upon which the auditors have issued an unqualified opinion, have been filed with the Registrar of Companies.

 

 

Note 2.  Loss per share

 

The calculation of the loss and fully diluted loss per share is based on the loss after taxation of US$4,330,000 (2005: profit US$4,699,000) and the weighted average number of shares in issue during 2006 of 679,602,594 (2005: 656,428,548 shares).

 

The loss per share and the fully diluted loss per share are the same in 2006, as the effect of the outstanding share options is anti-dilutive.

 

 

 

Analysed by Geographical Area

 

Additions include loan interest capitalised of US$17,971,000 (2005:US$8,118,000). Loan interest is net of deposit interest earned on the temporary deposit of loan balances.

 

The recovery of deferred development expenditure is dependent upon the successful development of the Projects, which in turn is dependent on the continued availability of adequate funding for the Projects.

 

The Directors are satisfied that deferred expenditure is worth not less than cost less any amounts written off and that the Moma Titanium Minerals Project has the potential to achieve planned mine production and positive cash flows.

 

 

	2006	2005
	US$'000	US$'000
Opening Balance	187,721	73,983
Additions	77,997	113,738
Closing Balance	265,718	187,721

Construction in Progress represents expenditure under a construction contract for the engineering, procurement, building, commissioning and transfer of facilities at the Moma Project in Mozambique. This contract was entered into on 7 April 2004. The Contractor is a joint venture formed for this project, between subsidiaries of Multiplex Limited and Bateman B.V.. Multiplex is a large contracting group based in Australia with operations stretching around the globe and specialises in large complex construction projects. Bateman is an international engineering group with specific mineral sands experience and experience of working in Mozambique.

 

The recovery of Construction in Progress is dependent upon the successful development of the Moma Titanium Minerals Project, which in turn is dependent on the continued availability of adequate funding for the Project. The Directors are satisfied that Construction in Progress is worth not less than cost less any amounts written off and that the Moma Titanium Minerals Project has the potential to achieve planned mine production and positive cash flows.

 

 

 

Group
	2006	2005
	US$'000	US$'000
Construction contract	67,440	107,428

 

The construction contract with the Multiplex-Bateman Joint Venture was amended whereby the handover of the Moma Titanium Minerals Project works will take place in sections and all changes to the original contract price were agreed.  Based on this contract amendment, the total amount payable to the Contractor is estimated to be US$265 million, net of projected applicable delay penalties, of which US$67.4 million was outstanding at the year end.  The Company has access to sufficient sources of funding and cash in hand to cover these capital commitments.

 

 

 

The Annual Report and Accounts will be posted to shareholders in due course.