Half-yearly report

Kenmare Resources plc ("Kenmare" or "the Company") Kenmare Resources plc 2010 Interim Results 26 August 2010 Highlights *       Ilmenite production up 16% and zircon up 49% from H2 09 *       Shipment levels up on H2 09 -  ilmenite up 33% and zircon up 94% *       Revenues of US$40.6 million, up from US$26.7 million in H2 09 *       EBITDA for the period US$4.4 million *       15% growth in titanium feedstocks expected in 2010 *       Expansion proceeding as planned *       35% increase in JORC classified reserves at Moma mine to 27 million tonnes of contained ilmenite Statement by Michael Carvill, Managing Director: The first half of 2010 has seen considerable improvement in terms of both production and sales at Moma and this has continued in Q3 2010.  Increased demand for titanium feedstocks and reduced supply in the market is putting upward pressure on prices.  Kenmare is in a strong position to take advantage of improved pricing arrangements as our production increases. The expansion of Moma is advancing as planned and, once complete, Kenmare's share of the global titanium feedstock and zircon markets will increase to 10% and 6% respectively. For further information, please contact: Kenmare Resources plc Michael Carvill, Managing Director Tony McCluskey, Finance Director Tel: +353 1 6710411 Tel: +353 1 6710411 Mob: + 353 87 674 0110 Mob: + 353 87 674 0346 Murray Consultants Conduit PR Ltd Joe Heron Leesa Peters/Charlie Geller Tel: +353 1 498 0300 Tel: +44 207 429 6600 Mob: + 353 87 690 9735 Mob: +44 781 215 9885 INTERIM MANAGEMENT REPORT Operations There was a significant increase in production and sales in the first half of 2010 compared to the previous six month period and this improvement has continued in Q3 2010. Production numbers for August month-to-date continue the upward trend with the mine running at nameplate capacity for ilmenite and 90% of capacity for zircon. Rutile is operating at 60%, which is significantly above H1 2010 levels. However, there are still some rutile specification issues to be resolved. This increase in production is meeting a receptive market as economies emerge from the global recession and prices continue to recover. In H1 2010, 319,800 tonnes of ilmenite were produced, up 16% from H2 2009; 16,800 tonnes of zircon were produced, up 49% from H2 2009; and 1,240 tonnes of rutile were produced, up 252% from H2 2009. Plans are being implemented to bring zircon production to full nameplate capacity and to address remaining rutile production and specification issues. Global demand for titanium feedstocks is expected to grow by approximately 15% in 2010, fuelled by a strong recovery in underlying demand and restocking after an acute inventory destocking phase in 2009. The demand increase is driven principally by a strong recovery in the TiO(2) pigment market both in developed and emerging economies. Increased demand, closure of depleted mines and delays in ramping up new projects have led to a generally held view that markets for titanium feedstocks and zircon will become increasingly tight from the second half of 2010 onwards. This is expected to put upward pressure on prices, which is already evident in Q3 2010 sales. Beyond 2010, the pipeline of potential new projects does not satisfy anticipated demand growth and many of these projects require considerably higher product prices than current levels to justify development. Kenmare shipped 367,000 tonnes of ilmenite and zircon in H1 2010; ilmenite up 33% and zircon up 94% from H2 2009. The average cost per tonne of final product declined in H1 2010 relative to H2 2009 and is expected to continue to decline during the second half of 2010 as production volumes increase. Revenues for the period under review include a number of sales at legacy contract prices. As sales volumes increase in line with the increasing production profile, an increasing proportion of sales will be at market prices. In turn this will increase the average revenue per tonne of final product. Aker Solutions (Aker), Kenmare's Engineering Study Contractor, is finalising a detailed capital cost estimate, project implementation schedule and execution plan for a 50% expansion of output from Moma. All of these are within our range of expectations allowing us to progress to a full Engineering, Procurement and Construction Management (EPCM) contract for the execution of the expansion. This contract will be awarded shortly. Kenmare has used the period while Aker has been conducting this study to perform extensive confirmatory testing to ensure that the process plants' flowsheet design is robust and will cater for all areas of the orebody. The results of this testwork have been positive. Additional drilling has been performed on the Moma orebodies. This drilling has allowed the Group to increase the level of proven and probable reserves from 620 million tonnes grading 3.2% ilmenite (20 million tonnes of contained ilmenite) as at 31 December 2009 to 859 million tonnes grading 3.1% ilmenite (27 million tonnes of contained ilmenite) as at 30 June 2010. Rutile and zircon reserves have also increased. This reserve is in addition to the resource base, which at the 30 June 2010 was 5,700 million tonnes grading 2.6% ilmenite (150 million tonnes of contained ilmenite). The reserve and resource estimates have been prepared in accordance with the JORC Code (2004). The conversion of resources to reserves is an ongoing process which will continue throughout the life of the mine. With the objective of becoming eligible for inclusion in FTSE UK indices, on 6 August 2010, Kenmare completed the reclassification of its Ordinary Shares from the Irish main securities market to a secondary listing. Kenmare continues to retain a premium listing on the Main Board of the London Stock Exchange. On 11 August 2010, the FTSE Nationality Committee announced that Kenmare had been allocated a UK nationality classification, which makes the Group eligible for consideration by the FTSE Committee for FTSE UK Index Series inclusion at the next Committee meeting in September. Financial Review for the six months ended 30 June 2010 During the six months ended the 30 June 2010, the Group reported a net profit of US$1.2 million (2009: loss US$0.2 million). Revenues for the period amounted to US$40.6 million, arising from the sale of 367,000 tonnes of ilmenite and zircon, and operating costs amounted to US$46.7 million, including depreciation of US$10.5 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) for the period amounted to US$4.4 million. Net finance costs amounted to US$14.8 million and the Group reported a foreign exchange gain of US$22.1 million, mainly based upon retranslation of Euro denominated loans. The Group raised Stg£179.6 million before fees and expenses (approximately US$270 million) by way of an equity funding in March 2010, which contributed to reducing the net debt position at the period end to US$78.6 million (2009: US$336.3 million). The Group has reported revenue and related costs in the Statement of Comprehensive Income from 1 July 2009, prior to which related costs net of revenues were capitalised as development expenditure in property, plant and equipment. During the six months ended the 30 June 2010, sales of US$40.6 million less cost of sales of US$42.0 million resulted in a gross loss of US$1.4 million. Cost of sales includes depreciation of US$10.5 million. The distribution costs for the period were US$1.7 million and administration costs were US$3.0 million, resulting in an operating loss of US$6.1 million. Loan interest and finance fees amounted to US$15.4 million during the period. The US Dollar strengthened significantly against the Euro during the first six months of the year. There was a foreign exchange gain of US$22.1 million (2009: loss US$0.4 million), mainly as a result of the retranslation of the Euro denominated loans, resulting in a net profit for the period of US$1.2 million (2009: loss US$0.2 million) During the period there were additions to property, plant and equipment of US$9.6 million (2009: US$38.1 million). Expenditure on plant and equipment totaled US$6.8 million (2009: US$5.3 million). Expansion development expenditure during the period was US$2.8 million (2009: US$0.7 million). Inventory at the period end amounted to US$20.5 million (2009: US$12.1 million), consisting of mineral products of US$10.4 million (2009: US$8.3 million) and consumable spares of US$10.2 million (2009: US$3.8 million). Trade and other receivables amounted to US$23.1 million (2009: US$30.3 million), of which US$17.9 million (2009: US$10.2 million) are trade receivables from the sale of mineral products and US$5.2 million (2009: US$20.1 million) is made up of insurance proceeds, prepayments and other miscellaneous debtors. Bank loans at the period end amounted to US$331 million (2009: US$341.9 million). Senior project debt principal of US$13.0 million and interest of US$5.3 million were paid as scheduled in February 2010. The average interest rate on project loans at the period end was 8.6%. In March 2010, Stg£179.6 million (approximately US$270 million), gross of costs, was raised by way of a placing and open offer. The proceeds will be available to fund the expansion of the Moma Mine, with the balance available for general corporate purposes, including meeting any scheduled debt service payments as required. On 5 March 2010, the Group entered into a Deed of Waiver and Amendment (the Expansion Funding Deed) in which project lenders agreed to certain waivers and amendments to the loans documents, including modifications to completion tests and deferral of the date for achieving the technical portion of the tests. The technical portion of the completion tests has commenced. Once these tests are passed, interest margins on the subordinated debt will drop by 2% per annum, approximately US$3 million of interest per annum. The financing amendments also deferred the final completion date by one year to 31 December 2013. The final condition of effectiveness of the Expansion Funding Deed was satisfied on 30 June with the completion of the deposit of US$200 million to the Contingency Reserve Account (CRA), an account over which project lenders hold security. Funds deposited to the CRA are freely available for transfer to the project companies for permitted purposes including funding the expansion of the Moma Mine. Outlook At the mine, our operations team is dedicated to delivering the final increment in zircon and rutile production which will take the mine to full capacity. Separately, the expansion project team, currently based in Johannesburg, is advancing all aspects of the expansion project, to the next stage which is the EPCM contract award. A key focus of management will be the renegotiation of legacy marketing contracts prior to their expiry or the reallocation of that supply to other customers. The Group is looking forward to selling the increased production and realising gains from the improving market outlook for titanium feedstocks and zircon. The expansion will see Kenmare's share of the global titanium feedstock and zircon markets increase to 10% and 6% respectively. Principal risks and uncertainties The Group's business may be affected by risks similar to those faced by many companies in the mining industry. These include geological, political, operational and environmental risks and changes in the macroeconomic environment. The main risks applicable to the Group are set out below:  Commercial risks The mine's revenue and earnings depend upon prevailing prices for ilmenite and, to a lesser extent, rutile and zircon. The mine fixes its prices for ilmenite by bilateral negotiation with its customers with reference to the market price prevailing at the time of the entry into, or renewal, of the contract. Some of the mine's products are sold to customers under contracts of three to five year duration, which provide for the supply of fixed volumes of product at fixed prices with annual escalation based on published inflation indices. The majority of these contracts will expire over the next eighteen months. The balance of the mine's products are sold to its customers under contracts providing for the delivery of fixed volumes with annual price negotiations or under spot contracts for specific shipments. If the market prices were to fall or the mine was unable to negotiate satisfactory pricing terms, this would have an adverse impact on the mine's revenue generation, results of operations or financial condition. Senior management closely monitor customer sales contracts and adjusts the contracting strategy to capitalise on expected market conditions.  Operational risks The mine is reliant on the continued successful operation of the marine terminal for the export of products. In December 2007, damage was caused to a number of the berthing piles at the jetty and although the damage did not materially affect operations, repair work has been carried out in 2010. If the marine terminal was damaged by extreme weather conditions or accident such that it became unusable for any significant period pending repair, the mine would be unable to export its products or would be limited in the amount which it could export. In this case, the mine would be unable to meet its commitments to customers which could result in ocean freight penalties and a reduced level of cash flow which would have an adverse effect on the mine's results of operations and financial condition. The Group plans to upgrade the jetty later this year which will both strengthen the current structure and increase its operational capacity by allowing the transhipment vessels to load from both sides of the jetty. The Group acquired a second transhipment vessel in 2009 which is due to arrive on site later this year. This second vessel will increase load-out capacity when both transhipment vessels are operational, and will ensure that the mine is able to sustain shipments when one or other of the transhipment vessels is unavailable due to scheduled maintenance.  Financing risks  The development of the mine has been partly financed by the project loans, which consists of Senior Loans and Subordinated Loans. Under the terms of the financing agreements, the lender group, comprising AfDB, Absa, EAIF, EIB, FMO and KfW, has security over substantially all of the mine's assets, the shares in the project companies, and the balance in the CRA. Under the terms of the Deed of Waiver and Amendment dated 5 March 2010 (the Expansion Funding Deed), the lender group will continue to have security over substantially all of the mine's assets, including the facilities constructed and machinery and equipment purchased in connection with the expansion, and cash deposited to the CRA, a bank account held by Congolone Heavy Minerals Limited, a wholly-owned subsidiary of Kenmare Resources plc. Once the net proceeds of the equity fund raising have been applied to the expansion capital expenditures and for other corporate purposes (including meeting scheduled interest and principal) the Group's ability to meet its debt service obligations will depend on the cashflow generated from operations. The mine's cashflow, in turn, depends primarily on the mine's ability to achieve production targets, product pricing and cost efficiencies. Under the Expansion Funding Deed, the concept of Non-Technical Completion was introduced, with a deadline of 31 December 2013. Non-Technical Completion occurs when the marketing, legal and other conditions, financial, and environmental certificates specified in the completion agreement have been delivered. Failure to achieve Non-Technical Completion by 31 December 2013 is an event of default. However, the event of default that previously existed for failing to achieve Completion (which requires both Non-Technical Completion and Technical Completion) to have been achieved by the final completion date has been eliminated. In the event that Technical Completion is not achieved by its due date (31 December 2011), no event of default will occur but Senior Loans and Subordinated Loans will attract an additional interest margin of 1% and 2% respectively from 31 December 2011 until Technical Completion is achieved. Currency risks The project loans are denominated in US Dollars and Euro. At 30 June 2010 the loan balance was US$331 million, comprising US$209 million denominated in US Dollars and US$122 million denominated in Euro. Both US Dollars and Euro loans are due to be repaid in installments between 2010 and 2019. All the Group's sales are denominated in US Dollars. Euro denominated loans expose the Group to currency fluctuations which are realised on payment of Euro denominated loans. On 1 April 2010 the Group issued shares to raise Stg£179.6 million before costs. The purpose of this equity fundraising was to finance the expansion of the mine and for general corporate purposes. These funds will be placed in currency accounts to match the planned expansion expenditure profile over the next eighteen months. Differences which may arise between the planned expansion currency expenditure profile and the currency of deposits held will result in the Group experiencing expansion capital cost changes driven by currency fluctuations. Senior management regularly monitors and reports to the Board on these currency risks. The Board has determined that the Group's current policy of not entering into derivative financial instruments to manage the loan-related currency risks continues to be appropriate in light of the length and payment profile over the loan repayment period. The expansion capital currency exposure will be managed by adjusting the currencies in which the cash used to fund such capital is deposited. Interest rate risk Interest rates on the project loans are both fixed and variable. The variable rate basis is 6 month US Dollar LIBOR. All the Euro loans are fixed. In addition, the Group has a variable mortgage loan which floats off six month US LIBOR that financed the purchase of the production transhipment vessels Peg and Sofia III. The Group is exposed to movements in interest rates which affect the amount of interest paid on borrowings. As at 30 June 2010, 63% of the Group's debt (US$208.5 million) was at fixed interest rates and 37% (approximately US$122.5 million) was at variable interest rates. Any increase in six month US LIBOR would increase finance costs, but would also increase income on the unspent proceeds of the equity issue. Until the balance of the equity issue proceeds drops below the amount of variable rate debt, an increase in short term interest rates should have a net beneficial effect on the Group's profitability. Thereafter, the net effect of an increase in short term interest rates would be negative and therefore have a negative impact on the Group's profitability. Senior management regularly monitors and reports to the Board on these interest rate risks. The Board has determined that the Group's current policy of not entering into derivative financial instruments to manage such risks continues to be appropriate in light of the length of the loan repayment period and the payment profile over the loan period, the mix of fixed and variable rate debt, and for the time being, the relatively large amount of cash invested at variable rates relative to the amount of variable rate debt.  Environmental risks The Group is committed to managing its operations in accordance with applicable guidelines issued by the World Bank, MIGA, the African Development Bank and FMO, the environmental laws and standards in force in Mozambique, as well as its own policies. The Group plans to apply IFC Performance Standards to the mine. The Environmental Management Plan (EMP) for the mine sets out the monitoring activities, management and training programs, reporting activities, auditing and mitigation measures that are required in order to identify and reduce any negative impacts of the mine and to comply with applicable environmental laws and guidelines.  Health and safety risks The Group is committed to conducting its business in a manner that minimises the exposure of its employees, contractors and the general public to health and safety risks arising from its operations. The Group's operations personnel worked 934,816 hours (2009: 615,840 hours) to 30 June 2010, with 1 lost-time injury (2009: 3 lost-time injuries). The Group's operations contractors worked 316,939 hours (2009: 352,523 hours) to 30 June 2010, with 1 lost-time injury (2009: 1 lost-time injury). Malaria is a key risk at the mine and the Group continues to develop and implement programs to minimise its impact on all personnel at the mine. The Group will also continue to ensure that appropriate health and safety standards are maintained in all Group activities. Related party transactions Material related party transactions affecting the financial performance of the Group in the period are disclosed in Note 10. Forward-looking statements This report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information. By order of the Board, Managing Director Financial Director Michael Carvill Tony McCluskey 26 August 2010 26 August 2010 RESPONSIBILITY STATEMENT The Directors are responsible for preparation of the Half Yearly Financial Report in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007, the Transparency Rules of the Republic of Ireland's Financial Regulator, and with IAS 34, Interim Financial Reporting as adopted by the European Union. The Directors confirm that, to the best of their knowledge: *        The Group condensed financial statements for the half year ended 30 June 2010 have been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the European Union; *        The Interim Management Report includes a fair review of the information required by Regulation 8(2) of the Transparency (Directive 2004/109/EC) Regulations 2007, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and *        The Interim Management Report includes a fair review of the information required by Regulation 8(3) of the Transparency (Directive 2004/109/EC) Regulations 2007, being related party transactions that have taken place in the first six months of the current financial year and that materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so. By order of the Board, Managing Director Financial Director Michael Carvill Tony McCluskey 26 August 2010 26 August 2010 INDEPENDENT REVIEW REPORT TO THE MEMBERS OF KENMARE RESOURCES PLC Introduction We have been engaged by the Company to review the group condensed set of financial statements in the Half-Yearly Financial Report for the six months ended 30 June 2010 which comprises the Group Condensed Statement of Comprehensive Income, the Group Condensed Statement of Financial Position, the Group Condensed Cash Flow Statement, the Group Condensed Statement of Changes in Equity and related notes 1 to 12. We have read the other information contained in the Half-Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the group condensed set of financial statements. This report is made solely to the Company's members, as a body, in accordance with International Standard on Review Engagements (UK and Ireland) 2410 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our review work, for this report, or for the conclusions we have formed. Directors' Responsibilities The Half-Yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half-Yearly Financial Report in accordance with the Transparency (Directive 2004/109/EC) Regulations, 2007 and the Transparency Rules of the Republic of Ireland's Financial Regulator. As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The group condensed set of financial statements included in this Half-Yearly Financial Report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting,' as adopted by the European Union. Our Responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Half-Yearly Financial Report based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ‛Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in Ireland. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the group condensed set of financial statements in the Half-Yearly Financial Report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 (IAS 34 -Interim Financial Reporting) as adopted by the European Union, the Transparency (Directive 2004/109/EC) Regulations, 2007, and the Transparency Rules of the Republic of Ireland's Financial Regulator. Emphasis of Matter - Realisation of Assets Without qualifying our conclusion, we draw your attention to the disclosures made in note 5 to the group condensed set of financial statements concerning the recoverability of Property, Plant and Equipment of US$536.9 million which is dependent on the successful development of economic ore reserves and successful operation of the mine. The group condensed set of financial statements do not include any adjustments relating to these uncertainties and the ultimate outcome cannot at present be determined. Deloitte & Touche Chartered Accountants Dublin 26 August 2010   KENMARE RESOURCES PLC   GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME   FOR THE SIX MONTHS ENDED 30 JUNE 2010 Unaudited Unaudited Audited 6 Months 6 Months 12 Months 30 June 30 June 31 Dec 2010 2009 2009 Notes US$'000 US$'000 US$'000 Continuing Operations Revenue 2 40,606 - 26,721 Cost of sales (41,980) - (35,170) Gross loss (1,374) - (8,449) Distribution costs (1,749) - (1,770) Administration costs (3,026) (713) (1,892) Operating loss (6,149) (713) (12,111) Finance income 576 160 202 Finance costs (15,401) - (15,533) Foreign exchange 22,125 354 (2,910) gain/(loss) Profit/(loss) before 1,151 (199) (30,352) tax Income tax expense - - - Profit/(loss) for the 1,151 (199) (30,352) period/year Attributable to equity 1,151 (199) (30,352) holders US cent per share US cent per share US cent per share Profit/(loss) per 4 0.070c (0.02c) (3.59c) share: basic Profit/(loss) per 4 0.068c (0.02c) (3.59c) share: diluted   The accompanying notes form part of the condensed financial statements   KENMARE RESOURCES PLC   GROUP CONDENSED STATEMENT OF FINANCIAL POSITION   AS AT 30 JUNE 2010 Unaudited Unaudited Audited 30 June 30 June 31 Dec 2010 2009 2009 Notes US$'000 US$'000 US$'000 Assets Non-current assets Property, plant and equipment 5 536,958 571,735 540,924 536,958 571,735 540,924 Current assets Inventories 20,473 12,077 21,951 Trade and other receivables 23,127 30,337 13,311 Cash and cash equivalents 252,386 5,631 17,408 295,986 48,045 52,670 Total assets 832,944 619,780 593,594 Equity Capital and reserves attributable to the Company's equity holders Called-up share capital 6 195,789 72,212 74,670 Share premium 6 300,518 157,553 163,147 Retained losses (56,350) (27,348) (57,501) Other reserves 42,486 40,999 41,795 Total equity 482,443 243,416 222,111 Liabilities Non-current liabilities Bank loans 7 262,354 310,423 297,326 Obligations under finance lease 2,102 2,226 2,172 Provisions 8 3,814 3,992 4,347 268,270 316,641 303,845 Current liabilities Bank loans 7 68,640 31,478 58,791 Obligations under finance lease 437 60 92 Provisions 8 442 610 650 Trade and other payables 12,712 27,575 8,105 82,231 59,723 67,638 Total liabilities 350,501 376,364 371,483 Total equity and liabilities 832,944 619,780 593,594   The accompanying notes form part of the condensed financial statements KENMARE RESOURCES PLC GROUP CONDENSED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2010 Unaudited Unaudited Audited 6 Months 6 Months 12 Months 30 June 30 June 31 Dec 2010 2009 2009 US$'000 US$'000 US$'000 Cash flows from operating activities Profit/(loss) for the period/year 1,151 (199) (30,352) Adjustment for: Foreign exchange movement (22,125) (480) 2,910 Share-based payments 691 83 796 Finance income (576) - (202) Finance costs 14,257 - 15,533 Depreciation 10,545 - 12,871 (Decrease)/increase in provisions (581) 423 739 Operating cash inflow/(outflow) 3,362 (173) 2,295 Decrease/(increase) in inventories 1,478 (5,672) (13,749) Increase in trade and other receivables (6,752) (11,223) (700) Increase in trade and other payables 4,719 2,367 5,898 Cash generated/(used) by operations 2,807 (14,701) (6,256) Interest received 576 160 202 Interest paid (5,390) (6,341) (11,866) Net cash used in operating activities (2,007) (20,882) (17,920) Cash flows from investing activities Additions to property, plant and equipment (9,559) (21,585) (40,197) Net cash used in investing activities (9,559) (21,585) (40,197) Cash flows from financing activities Proceeds on the issue of shares 258,490 11 19,582 Repayment of borrowings (13,169) - (336) Increase in borrowings - 7,077 15,890 Decrease in obligations under finance lease - (6) (286) Net cash from financing activities 245,321 7,082 34,850 Net increase/(decrease) in cash and cash 233,755 (35,385) (23,267) equivalents Cash and cash equivalents at the beginning of 17,408 40,536 40,536 period/year Effect of exchange rate changes on cash and cash 1,223 480 139 equivalents Cash and cash equivalents at end of period/year 252,386 5,631 17,408   The accompanying notes form part of the condensed financial statements   KENMARE RESOURCES PLC GROUP CONDENSED STATEMENT OF CHANGES IN EQUITY   FOR THE SIX MONTHS ENDED 30 JUNE 2010 Called-Up Share Retained Share Revaluation Capital Total Share Premium Losses Option Reserve Conversion Capital Reserve Reserve Fund US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Balance at 1 January 2009 65,424 145,088 (27,149) 8,885 30,141 754 223,143 Loss for the period - - (199) - - - (199) Share based payments - - - 1,219 - - 1,219 Issue of share capital 6,788 12,465 - - - - 19,253 Balance at 30 June 2009 72,212 157,553 (27,348) 10,104 30,141 754 243,416 Loss for the period - - (30,153) - - - (30,153) Share based payments - - - 796 - - 796 Issue of share capital 2,458 5,594 - - - - 8,052 Balance at 31 December 2009 74,670 163,147 (57,501) 10,900 30,141 754 222,111 Profit for the period - - 1,151 - - - 1,151 Share based payments - - - 691 - - 691 Issue of share capital 121,119 137,371 - - - - 258,490 Balance at 30 June 2010 195,789 300,518 (56,350) 11,591 30,141 754 482,443   The accompanying notes form part of the condensed financial statements   KENMARE RESOURCES PLC   NOTES TO THE GROUP CONDENSED FINANCIAL STATEMENTS   FOR THE PERIOD ENDED 30 JUNE 2010 1. BASIS OF PREPARATION AND GOING CONCERN   The Group Condensed Financial Statements for the six months ended 30 June 2010 have been prepared in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007, the Transparency Rules of the Republic of Ireland's Financial Regulator and with IAS 34 'Interim Financial Reporting', as adopted by the European Union.   The accounting policies and methods of computation adopted in the preparation of the Group Condensed Financial Statements are consistent with those applied in the Annual Report for the financial year ended 31 December 2009 and are described in those financial statements.   In the current financial year, the Group has adopted all Standards and Interpretations which are effective from 1 January 2010. Adoption has resulted in no material impact on the financial statements.   The financial information presented in this document does not constitute financial statements. The amounts presented in the Half Yearly Financial Statements for the six months ended 30 June 2010 and the corresponding amounts for the six months ended 30 June 2009 have been reviewed but not audited. The independent auditors' review report is on pages 7 and 8. The financial information for the year ended 31 December 2009, presented herein, is an abbreviated version of the annual financial statements for the Group in respect of the year ended 31 December 2009. The Group's financial statements have been filed in the Companies Registration Office and the independent auditors issued an unqualified audit report, with an emphasis of matter in the opinion, in respect of those annual financial statements.   There were no other gains or losses during the six months period ended 30 June 2010 other than those reported in the Condensed Statement of Comprehensive Income.   The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than twelve months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.   2. SEGMENTAL INFORMATION   The Moma Titanium Minerals Mine in Mozambique is the Group's reporting segment. This is also the means by which information is reported to the Group's Board for the purposes of resource allocation and assessment of segment performance. Unaudited Unaudited Audited 30 June 10 30 June 09 31 Dec 09 US$'000 US$'000 US$'000 Segment revenues and results Moma Titanium Minerals Mine Revenue 40,606 - 26,721 Cost of sales (41,986) - (35,170) Gross loss (1,380) - (8,449) Distribution costs (1,749) - (1,770) Administration costs (300) - - Segment operating loss (3,429) - (10,219) Central administration costs (2,720) (713) (1,892) Group operating loss (6,149) (713) (12,111) Finance income 576 160 202 Finance expense (15,401) - (15,533) Foreign exchange gain/(loss) 22,125 354 (2,910) Profit/(loss) before tax 1,151 (199) (30,352) Income tax expense - - - Profit/(loss) for the period/year 1,151 (199) (30,352) Segment assets Moma Titanium Minerals Mine assets 569,370 598,430 571,266 Corporate assets 263,574 21,350 22,328 Total assets 832,944 619,780 593,594 During the six months ended 30 June 2009, the Group continued to build up production to target levels. From 1 July 2009 the mine was considered to be capable of operating at target levels of production and as a result the Group reported revenue and related costs in the statement of comprehensive income from July 2009. Prior to that date, related operating and finance costs net of revenues and finance income, were capitalised as development expenditure in property, plant and equipment. 3. SEASONALITY OF SALE OF MINERAL PRODUCTS   Sales of mineral products are not seasonal in nature. 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 is based on the following data: Unaudited Unaudited Audited 30 June 10 30 June 09 31 Dec 09 US$'000 US$'000 US$'000 Profit/(loss) for the period/year attributable to equity holders of the 1,151 (199) (30,352) parent Unaudited Unaudited Audited 30 June 10 30 June 09 31 Dec 09 Number of Number of Number of Shares Shares Shares Weighted average number of issued ordinary shares for the purposes of basic earning/(loss) per share 1,644,358,548 798,839,952 844,314,758 Effect of dilutive potential ordinary shares Share options 46,503,258 47,578,258 47,028,258 Warrants - 28,572,536 - Weighted average number of ordinary shares for the purpose of diluted earning/(loss) per share 1,690,861,806 874,990,746 891,343,016 In 2009 the basic loss per share and the diluted loss per share are the same, as the effect of the outstanding share options and warrants is anti-dilutive.   5. PROPERTY, PLANT AND EQUIPMENT Plant Other Construction Development Total & Equipment Assets In Progress Expenditure US$'000 US$'000 US$'000 US$'000 US$'000 Cost Balance at 1 January 2009 259,516 12,798 45,705 236,406 554,425 Transfer from construction in progress 1,437 534 (1,971) - - Impairment during the - (363) - (48) (411) period Additions during the 1,257 177 3,843 32,815 38,092 period Balance at 30 June 2009 262,210 13,146 47,577 269,173 592,106 Transfer from construction in progress 45,917 977 (46,894) - - Reclassification to (1,797) - - - (1,797) inventory Additions during the 5,103 92 3,630 759 9,584 period Adjustment as a result of the DOS&R - - - (25,758) (25,758) Balance at 31 December 311,433 14,215 4,313 244,174 574,135 2009 Transfer from construction in progress 575 1,530 (2,105) - - Additions during the 914 25 5,876 2,830 9,645 period Impairment during the (3,066) - - - (3,066) period Balance at 30 June 2010 309,856 15,770 8,084 247,004 580,714 Accumulated Depreciation Balance at 1 January 2009 10,220 4,533 - - 14,753 Charge for the period 4,636 1,194 - - 5,830 Impairment during the - (212) - - (212) period Balance at 30 June 2009 14,856 5,515 - - 20,371 Charge for the period 6,406 1,246 - 5,188 12,840 Balance at 31 December 21,262 6,761 33,211 2009 - 5,188 Charge for the period 5,428 1,368 - 3,749 10,545 Balance at 30 June 2010 26,690 8,129 - 8,937 43,756 Carrying Amount Balance at 30 June 2010 283,166 7,641 8,084 238,067 536,958 Balance at 30 June 2009 247,354 7,631 47,577 269,173 571,735 Balance at 31 December 290,171 7,454 4,313 238,986 540,924 2009   5. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)   During the period 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 machinery which is depreciated on a unit of production basis.   The jetty was damaged in December 2007 when the Bronagh J collided with it during loading. An insurance claim for US$3.5 million was settled in June 2010. Repairs to the jetty of US$0.5 million were incurred during the period and an impairment of US$3 million was recognised for the damage incurred in 2007. The jetty has not been fully impaired as it has remained operational since 2007, loading 367,000 tonnes during the first six months of 2010, loading 418,000 tonnes in 2009 and 250,000 tonnes in 2008. The repairs, impairment and insurance recovery have been recognised in distribution costs in the statement of comprehensive income during the period.   During the period the Group carried out an impairment review of property, plant and equipment. The cash generating unit for the purpose of impairment testing is the Moma Titanium Minerals Mine as this is the business and geographic segment of the Group. The basis on which the recoverable amount of the Moma Titanium Minerals Mine is assessed is its value-in-use. The cash flow forecast employed for the value-in-use computation is a life of mine financial model. The recoverable amount obtained from the financial model represents the present value of the future pre tax and finance cash flows discounted at the average effective borrowing rate of the Moma Titanium Mineral Mine of 8.6%.   Key assumptions include the following: *          A mine plan covering 20 years of production based on the Namalope and Nataka proved and probable reserves. *          The cash flows assume ramp-up to expanded production levels during 2012. Expected annual production levels at full capacity pre-expansion are approximately 800,000 tonnes of ilmenite per annum plus co-products, rutile and zircon. Expected annual production levels at full capacity post-expansion are approximately 1.2 million tonnes of ilmenite per annum plus co-products, rutile and zircon. *          Product sales prices are based on contract prices as stipulated in marketing agreements with customers, or where contracts are based on market prices or production is not presently contracted, prices as forecast by the lenders' independent marketing consultant. *          Operating and capital replacement costs are based on approved budget costs for 2010 and escalated by 2% per annum there after and reflecting post expansion costs from 2012 onwards.   The discount rate is the significant factor in determining the recoverable amount and a 1% change in the discount rate results in an 8% change in the recoverable amount.   Substantially all the property, plant and equipment is or will be mortgaged, pledged or otherwise encumbered to secure project loans as detailed in Note 7.   The carrying amount of the Group's plant and equipment includes an amount of US$2.7 million (2009: US$1.6   million) in respect of assets held under finance leases.   Additions to development expenditure include mine expansion development costs of US$2.8 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.   The recovery of property, plant and equipment is dependent upon the successful development of economic ore reserves and successful operation of the mine. The Directors are satisfied that at the balance sheet date the recoverable amount of property, plant and equipment is not less than its carrying amount and based on the planned mine production levels that the Moma Titanium Minerals Mine will achieve positive cash flows.   6. SHARE CAPITAL   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 Stg£179.6 million before expenses. The primary purpose of this equity raising is 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 million of this issue has been credited to share capital resulting in share capital as at 30 June of US$195.8 million (2009: US$74.8 million). US$137.4 million of this issue has been credited to share premium resulting in share premium as at 30 June of US$300.5 million (2009: US$163.1 million).   7. BANK LOANS Unaudited Unaudited Audited 30 June 10 30 June 09 31 Dec 09 US$'000 US$'000 US$'000 Project loans Senior loans 171,714 188,198 188,079 Subordinated loans 156,953 153,703 165,525 Total Project loans 328,667 341,901 353,604 Mortgage loan 2,327 - 2,513 Total loans 330,994 341,901 356,117 The borrowings are repayable as follows: Within one year 68,640 31,478 58,791 In the second year 39,646 40,646 41,722 In the third to fifth year 118,277 121,938 124,979 After five years 104,431 147,839 130,625 330,994 341,901 356,117 Less amounts due for settlement within 12 months (68,640) (31,478) (58,791) Amount due for settlement after 12 months 262,354 310,423 297,326   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 shares in the Project Companies and the CRA.   On 30 June 2010, the deposit of US$200 million to the CRA was completed thereby satisfying all the conditions as set out in the Deed of Waiver and Amendment dated 5 March 2010 ("Expansion Funding Deed").   Kenmare Resources plc and Congolone Heavy Minerals Limited have guaranteed the loans during the period prior to Completion. The Expansion Funding Deed extended the final date for achieving Completion to 31 December 2013. Completion occurs upon meeting certain tests and satisfying certain conditions, all as verified by the lenders' independent engineer, including installation of all required facilities, meeting certain cost, efficiency, and production benchmarks and social and environmental requirements ("Technical Completion"), meeting marketing, legal and permitting, and certain financial requirements including filling of specified reserve accounts to the required levels. Upon Completion, Kenmare Resource plc and Congolone Heavy Minerals Limited's guarantee of the loans will terminate. Under the Expansion Funding Deed, failure to achieve Completion by the final completion date ceases to be an event of default. Instead, failure to achieve Non-Technical Completion by the final completion date is an event of default. Non-Technical Completion occurs when the marketing, legal and other conditions, financial, and environmental certificates specified in the completion agreement (in the case of the environmental certificate, as verified by the independent engineer) have been delivered to the lenders. Seven Senior Loan credit facilities were made available for financing the Moma Titanium Minerals Mine.  The aggregate maximum available amount of the Senior Loan credit facilities was US$182.8 million plus €15 million which were fully drawn down at the period end. The Senior Loan tenors range from 5 years to 8 years from 30 June 2010. Three of the Senior Loans bear interest at fixed rates and four bear interest at variable rates. The original Subordinated Loan credit facilities (made available under documentation entered into in June 2004) with original principal amounts of €47.1 million plus US$10 million (excluding capitalised interest) were fully drawn down at period end. The Subordinated Loans denominated in Euro bear interest at a fixed rate of 10% per annum, while the Subordinated Loans denominated in US Dollars bear interest at six month LIBOR plus 8% per annum.   The Standby Subordinated Loan credit facilities (made available under documentation entered into in June 2005) with original principal amounts of €2.8 million and US$4 million were fully drawn down at period end. Standby Subordinated Loans bear interest at fixed rates of 10% per annum in respect of €2.8 million and US$1.5 million and at six month LIBOR plus 8% per annum in respect of US$2.5 million.   7. BANK LOANS (CONTINUED)   The Additional Standby Subordinated Loan credit facilities of US$12 million and US$10 million (made available under documentation entered into in August 2007) were fully drawn down at period end. The Additional Standby Subordinated Loans bear interest at 6 month LIBOR plus 5%.   Interest and principal on the Subordinated Loans was due to be paid on 1 February 2010, but as cash was insufficient on such date to make the schedule interest payment, interest was capitalised and both interest and principal becomes payable on the first semi-annual payment date on which sufficient cash is available in the Project Companies, in whole or in part, to the extent of available cash. The final instalments are due on 1 August 2019.   Standby Subordinated lenders have an option to require that Kenmare Resources plc purchase the Standby Subordinated Loans on agreed terms.   Under the Deed of Waiver and Amendment dated 31 March 2009, interest margins on Subordinated Loans were increased by 3% per annum until Technical Completion and by 1% per annum until Completion. This additional margin is scheduled to be paid after senior loans have been repaid in full but may be prepaid without penalty.   Other Group bank borrowings   On the 7 August 2009 Mozambique Minerals Limited (a wholly-owned subsidiary undertaking) entered into a loan agreement with Banco Comerical e de Investimentos, S.A. for US$2.5 million to fund the purchase of an additional product transshipment barge, Peg, and a tug/work boat, Sofia III. Interest accrues at a 6 month LIBOR plus 6%, and is payable monthly commencing September 2009 and principal is scheduled to be repaid in 54 monthly installments commencing March 2010. This loan was drawn down on 10 August 2009. The loan is secured by a mortgage on the Peg and Sofia III and by a guarantee from Kenmare Resources plc.   Group borrowings interest and currency risk   Loan facilities arranged at fixed interest rates expose the Group to fair value interest rate risk. Loan facilities arranged at variable rates expose the Group to cash flow interest rate risk. Variable rates are based on six month LIBOR. The average effective borrowing rate at the period end was 8.6%. The interest rate profile of the Group's loan balances at the period end was as follows: Unaudited Unaudited Audited 30 June 10 30 June 09 31 Dec 09 US$'000 US$'000 US$'000 Fixed rate debt 208,491 221,536 231,062 Variable rate debt 122,503 120,365 125,055 Total debt 330,994 341,901 356,117   Due to the specific nature of the project financing and the current market conditions, the basis to determine the fair value of the bank borrowings is unavailable.   Under the assumption that all other variables remain constant and using the most relevant 6 month LIBOR, a 1% change in LIBOR would result in a US$1.2 million (2009: US$1.2 million) change in finance costs for the year.   The currency profile of the bank loans is as follows: Unaudited Unaudited Audited 30 June 10 30 June 09 31 Dec 09 US$'000 US$'000 US$'000 Euro 121,879 127,131 136,863 US Dollars 209,115 214,770 219,254 Total debt 330,994 341,901 356,117   7. BANK LOANS (CONTINUED)   The Euro-denominated loans expose the Group to currency fluctuations. These currency fluctuations are realised on payment of Euro-denominated debt principal and interest. Under that assumption that all other variables remain constant a 10% strengthening or weakening of Euro against the US Dollar, would result in a US$1.4 million (2009: US$1.5 million) change in finance costs and a US$12 million change in foreign exchange gain or loss for the year.   The above sensitivity analyses are estimates of the impact of market risks assuming the specified change occurs. Actual results in the future may differ materially from these results due to developments in the global financial markets which may cause fluctuations in interest and exchange rates to vary from the assumptions made above and therefore should not be considered a projection of likely future events.   8. PROVISIONS   Provisions at the period end are made up of a mine closure provision of US$2.6 million (2009: US$2.8 million) and a mine rehabilitation provision of US$1.6 million (2009: US$1.8 million). The mine rehabilitation provision was reduced by US$0.6 million during the period to take account of changes in the actual costs of rehabilitation being incurred. US$0.4 million (2009: US$0.6 million) of the mine rehabilitation provision has been included in current liabilities to reflect the estimated cost of rehabilitation work to be carried out over the next year.   9. SHARE BASED PAYMENTS   The Company has a share option scheme for certain Directors, employees and consultants. Options are exercisable at a price equal to the quoted market price of the Company's shares on the date of grant. The options generally vest over a three to five year period, in equal annual amounts. If options remain unexercised after a period of seven years from the date of grant, the options expire. The option expiry period may be extended at the decision of the Board of Directors.   During the period the Group recognised a share-based payment expense of US$0.7 million (2009: US$0.1 million).   10. RELATED PARTY TRANSACTIONS   Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.   During the six months ended 30 June 2010 there were no material transactions or balances between Kenmare Resources plc and its key management personnel or members of their close family, other than in respect of remuneration and the purchase of ordinary share capital as disclosed in Directors' Shareholdings in the 2009 Annual Report.   11. EVENTS AFTER THE BALANCE SHEET DATE   Since 30 June 2010 the US Dollar has weakened against the Euro. If by the year end the US Dollar/Euro exchange rate has not recovered to the 30 June 2010 level it will reduce the reported foreign exchange gain in the statement of comprehensive income.   12. INFORMATION   The Half Yearly Financial report was authorised by the Board on 26 August 2010.   The Half Yearly Financial Report is being sent to registered shareholders by post or electronically to those who have elected for electronic shareholder communication.   Copies are also available from the Company's registered office at Chatham House, Chatham Street, Dublin 2, Ireland. The statement is also available on the Company's website at www.kenmareresources.com. [HUG#1440576] 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. All reproduction for further distribution is prohibited. Source: Kenmare Resources via Thomson Reuters ONE

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