Interim Results

Kenmare Interim Results For the period ended 30 June 2006 Chairman's Statement Dear Shareholder, The Moma Titanium Minerals Project is over 90% complete. Our power line and the accompanying substations are finished and ready to be energised. The start up mine pond is ready to be filled with water as soon as the power is energised. The mineral separation plant has made good progress. The Project has recently passed through 2.4 million man hours worked without a lost time accident, which compares favourably to international safety standards. The latest information from the contractor has indicated some slippage in the programme. However, we continue to expect to be mining with the dredges and producing a heavy mineral concentrate stockpile during the last quarter of 2006. This is based on an agreement to hand over the Project works in sections which is currently being negotiated with the contractor. When the mineral separation plant is released, we can immediately start processing the stockpiled heavy mineral concentrate. The contractor in its latest report has indicated that the mineral separation plant will be complete by its due date of 5 January 2007. However, due to delays in delivering equipment to site, there is no slack in the contractor's programme. The roaster, which is used for upgrading a portion of the product stream, is behind timetable but this will not affect the operation and will not impact on sales. We are progressing well with our plans for starting up the mine and ramping up to full production. Our operations management team has grown and now consists of 28 members, the majority of whom have experience in minerals sands mining. The operations team has moved from Johannesburg to Nampula, the closest town to the Project. This allows the team to visit the mine regularly and facilitates their move to site over the coming months as the contractor vacates the camp housing. We have also started to recruit the more junior grades according to a protocol where we seek to hire initially from the local villages, then from the general Moma area, then the province of Nampula, then Mozambique and finally, in the event that the position cannot be satisfied from these sources, we will look internationally. Recruitment starts with health screening and aptitude testing, with interviews for those who pass these assessments. The Kenmare Moma Development Association, a not-for-profit organisation focused on ensuring that the lives of the local people are uplifted by the Project, has been continuing its work. It has signed a protocol with the World Wildlife Fund whereby both organisations will work together and jointly fund initiatives aimed at improving food security and improving the economic situation of the local population. Since the further development of the Moma orebody has been passed to the operations team, Kenmare's exploration department has been freed up. This has allowed us to look at some exploration projects in Mozambique, as a result of which we have taken out some uranium leases in Tete and Niassa provinces, and an exploration team is on the ground. During the six months ended 30 June 2006 we report a loss of US$3.5 million. This loss arises primarily from foreign exchange losses on Euro-denominated debt plus Kenmare's corporate operating costs net of interest income earned. During the six months there was capital expenditure of US$42.2 million on the construction of the Project. Mineral exploration and project development costs of US$14.5 million were capitalised in deferred development expenditure. Capital commitments at 30 June 2006 amounted to US$80.4 million and a limited number of scope changes, which are for the account of Kenmare, are also under consideration. The existing financing facilities are sufficient to cover these capital commitments. Additional amounts drawn from lenders plus interest capitalised during the period amounted to US$51.3 million. I am delighted to welcome Tony Lowrie onto the Board of Directors. Tony commands great respect in the equity market of which he has a long and wide experience, especially in Asia. He brings a wealth of experience which will assist Kenmare to continue to grow. We are delighted with the development of the Project and the way the operations team has grasped the challenges associated with opening a large mine in such a remote location. I look forward to reporting on production numbers as we move into 2007. Charles Carvill Chairman For more information: Kenmare Resources plc Michael Carvill, Managing Director Tel: + 353 1 671 0411 Mob: + 353 87 674 0110 Conduit PR Ltd Leesa Peters Tel: +44 (0) 207 429 6600 Mob: + 44 (0) 781 215 9885 Murray Consultants Ltd Elizabeth Headon Tel: + 353 1 498 0300 Mob: +353 87 989 7234 www.kenmareresources.com INDEPENDENT AUDITORS' REVIEW REPORT TO THE DIRECTORS OF KENMARE RESOURCES PLC Interim Financial Information - Six months ended 30 June 2006 Introduction We have been instructed by the Company to review the financial information for the six months ended 30 June 2006 which comprises the Group Income Statement, the Group Balance Sheet, the Group Cash Flow Statement, Group Statement of Changes in Equity and related notes 1 to 10. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the company in accordance with Bulletin 1999/4 'Review of Interim Financial Information' issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company 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 for our review work, for this report or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim report in accordance with the Listing Rules of the Irish Stock Exchange and of the UK Financial Services Authority which require that the accounting policies and presentation applied to the interim figures are consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom and Ireland. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2006. Deloitte & Touche Chartered Accountants Deloitte & Touche House Earlsfort Terrace Dublin 2 27 September 2006 KENMARE RESOURCES PLC GROUP INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2006 6 Months 6 Months 12 Months 30/06/2006 30/06/2005 31/12/2005 Unaudited Unaudited Audited US$'000 US$'000 US$'000 Revenue - - - Operating (Expenses)/Gains (4,952) 2,853 2,861 Operating (Loss)/Profit (4,952) 2,853 2,861 Finance Income 1,500 897 1,838 (Loss)/Profit before tax (3,452) 3,750 4,699 Income tax expense - - - (Loss)/Profit for the period (3,452) 3,750 4,699 Attributable to Equity holders (3,452) 3,750 4,699 Loss per share: Basic (0.51c) 0.58c 0.72c Loss per share: Diluted (0.51c) 0.48c 0.61c KENMARE RESOURCES PLC GROUP BALANCE SHEET AS AT 30 JUNE 2006 30/06/2006 30/06/2005 31/12/2005 Unaudited Unaudited Audited US$'000 US$'000 US$'000 ASSETS Non-Current Assets Deferred Development Expenditure 118,731 91,730 104,228 Construction in Progress 229,907 128,326 187,721 348,638 220,056 291,949 Current Assets Receivables 3,091 7,770 1,787 Cash and cash equivalents 66,413 80,527 75,520 69,504 88,297 77,307 Total Assets 418,142 308,353 369,256 EQUITY Capital and reserves attributable to the Company's equity holders Share Capital 55,317 53,426 54,847 Share Premium 106,695 100,987 105,713 Retained Earnings (20,626) (18,123) (17,174) Other Reserves 36,493 36,373 36,373 Total Equity 177,879 172,663 179,759 LIABILITIES Non-current Liabilities Bank loans 216,059 119,523 164,725 Accrued liabilities and other loans 10,679 5,781 8,616 226,738 125,304 173,341 Current Liabilities Accruals 13,525 10,386 16,156 Total Liabilities 240,263 135,690 189,497 Total Equity and Liabilities 418,142 308,353 369,256 KENMARE RESOURCES PLC GROUP CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2006 6 Months 6 Months 12 Months 30/06/2006 30/06/2005 31/12/2005 Unaudited Unaudited Audited US$'000 US$'000 US$'000 Operating activities (Loss)/profit for the period (4,952) 2,853 2,861 Adjustment for: Foreign exchange movement 671 2,049 2,095 Share-based payment 12 166 166 expense Operating cashflows (4,269) 5,068 5,122 (Increase) in receivables (1,304) (6,213) (230) Decrease in accrued liabilities and other loans (568) 6,476 15,045 Net cash from operating activities (6,141) 5,331 19,937 Investing activities Interest received 1,500 897 1,838 Addition to Deferred Development (14,503) (30,069) (42,566) Expenditure Addition to Construction in Progress (42,186) (54,343) (113,738) Net cash used in investing activities (55,189) (83,515) (154,466) Financing activities Issue of Share Capital 1,452 1,900 8,047 Share Option Reserve 108 1,495 1,495 Increase in debt 51,334 64,513 109,751 Net cash from financing activities 52,894 67,908 119,293 Net decrease in cash and cash (8,436) (10,276) (15,236) equivalents Cash and cash equivalents at beginning 75,520 92,851 92,851 of period Effect of exchange rate changes on cash and cash equivalents (671) (2,049) (2,095) Cash and cash equivalents at end of 66,413 80,526 75,520 period KENMARE RESOURCES PLC GROUP STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED 30 JUNE 2006 Share Share Retained Other Total Capital Premium Earnings Reserves US$'000 US$'000 US$'000 US$'000 US$'000 Balance at 1 January 2006 54,847 105,713 (17,174) 36,373 179,759 Loss for the period - - (3,452) - (3,452) Share based payment - - - 120 120 Issue of share capital 470 982 1,452 - - Balance at 30 June 2006 55,317 106,695 (20,626) 36,493 177,879 KENMARE RESOURCES PLC NOTES TO THE INTERIM FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2006 1. BASIS OF PREPARATION The interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) by applying the accounting policies set out in the 2005 Annual Report and Accounts. The interim financial statements have also been prepared in accordance with Irish statute comprising the Companies Acts, 1963 to 2005, the European Communities (Companies: Group Accounts) Regulations, 1992 and the Listing Rules of the Irish and London Stock Exchanges. The unaudited interim financial information in this statement has been reviewed by the auditors in respect of the six month ended 30 June 2006 only as set out in their Report to the Directors. 2. EARNINGS PER SHARE The calculation of the loss and fully diluted loss per share is based on the loss after taxation of US$3,452,000 (2005 profit of US$3,750,000) and the weighted average number of shares in issue during 2006 of 673,986,570 (2005 : 649,779,786). The loss per share and the fully diluted loss per share are the same, as the effect of the outstanding share options is anti-dilutive. 3. DEFERRED DEVELOPMENT EXPENDITURE Analysed by Geographical Area Mozambique Ireland Mozambique Total Moma Tete/Niassa Titanium Uranium Project US$'000 US$'000 US$'000 US$'000 Cost Opening 104,192 36 - 104,228 Balance Additions 14,454 - 49 14,503 Balance at 118,646 36 49 118,731 30 June 2006 Additions include loan interest capitalised of US$8,524,000 (2005: US$2,699,000). Loan interest is net of deposit interest earned on the temporary deposit of loan balances. The recovery of deferred development expenditure is dependent upon the successful development of the Moma Titanium Minerals Project, which in turn is dependent on the continued availability of adequate funding of the Project. The Directors are satisfied that deferred expenditure is worth not less than cost less any amounts written off and that the Moma Titanium Minerals Project has the potential to achieve mine production and positive cash flows. 4. CONSTRUCTION IN PROGRESS 2006 2005 US$'000 US$'000 Cost Opening Balance 187,721 128,326 Additions 42,186 59,395 Closing Balance 229,907 187,721 Construction in Progress represents expenditure under a construction contract for the engineering, procurement, building, commissioning and transfer of facilities at the Moma Project in Mozambique. This contract was entered into on 7 April 2004. The Contractor is a joint venture formed for this project, between Multiplex Ltd. and Bateman B.V. Multiplex is a large contracting group based in Australia with operations stretching around the globe and specialises in large complex construction projects. Bateman is an international engineering group with specific mineral sands experience and experience of working in Mozambique. The recovery of Construction in Progress is dependent upon the successful development of the Moma Titanium Minerals Project, which in turn is dependent on the continued availability of adequate funding of the project. The Directors are satisfied that Construction in Progress is worth not less than cost less any amounts written off and that the Moma Titanium Minerals Project has the potential to achieve mine production and positive cash flows. 5. CAPITAL COMMITMENTS 2006 2005 US$'000 US$'000 Construction contract 80,392 107,428 The construction contract provides for the possibility of potential cost increases within a limited number of defined cost categories where it is not practicable to establish the costs in advance. The maximum amount payable, other than changes in project scope and provisional sum items, in relation to potential cost increases associated with the defined cost category is US$16.75 million with any additional amount being for the account of the Contractor. US$16.75 million is arrived at by converting amounts incurred in Euros, Australian Dollars, and South African Rand (to the extent that the limit of the Exchange Risk Cover Policy is exceeded) to US Dollars at the following exchange rates: US$1 is equal to A$1.50, ZAR8.00 and ¤0.86. The Moma Titanium Minerals Project debt commitments are sufficient to cover this potential cost increase, if required. 6. CASH AND CASH EQUIVALENTS 2006 2005 US$'000 US$'000 Immediately available without restriction 9,201 8,151 On Fixed Term Deposit: Contingency Reserve Account 30,125 30,000 Shareholder Funding Account 24,581 23,535 Other Term Deposit 2,506 13,834 66,413 75,520 The Contingency Reserve Account and Shareholder Funding Account on fixed term deposit are amounts held in support of conditions required for Senior and Subordinated Loans as shown in note 7. 7. BANK LOANS 2006 2005 US$'000 US$'000 Senior Loans 135,487 92,857 Subordinated Loans 80,572 71,868 216,059 164,725 Bank loans are secured by substantially all rights and assets of the Company and the Moma Titanium Minerals Project; security agreements over shares in the Company; and a Contingency Reserve and Shareholder Funding Account as shown in Note 6. There are seven Senior Loan credit facilities available for financing the Moma Titanium Minerals Project. The aggregate maximum amount of the Senior Loan credit facilities is US$185 million plus ¤15 million of which $125,350,000 and ¤7,687,500 had been drawn at the period end, and US$59,650,000 and ¤7,312,500 was undrawn and available. The facilities incur commitment fees ranging from 0.25% to 0.75% on the undrawn available amounts. Senior Loans are repayable in semi-annual installments commencing, in the case of six of the seven Senior Loan facilities, on the earlier of (a) the first February 1 or August 1 falling at least 6 months after the date of acceptance of the assets being constructed under the construction contract, and (b) 1 February 2008, and in the case of the seventh Senior Loan facility, 12 months thereafter. The maximum Senior Loan tenors range from 11 years to 13 years from 31 December 2005. Two of the Senior Loans bear interest at fixed rates, one bears interest at a rate which is floating for each drawdown but is fixed thereafter, and four bear interest at floating rates. The Subordinated Loan credit facilities of ¤47.1 million plus US$10 million are fully drawn down. Subordinated Loans are repayable in 21 semi-annual installments commencing on 1 August 2009. The final installments are due on 1 August 2019. 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 floating rates. Loan facilities arranged at fixed interest rates expose the Group to fair value interest rate risk. Loan facilities arranged at floating rates expose the Group to cashflow interest rate risk. 7. BANK LOANS CONTINUED In addition to the above commitments, two Standby Subordinated Loan credit facilities are available for financing of the Moma Titanium Minerals Project. The aggregate maximum Standby Subordinated Loan credit facilities of ¤2.8 million and US$4 million are available and incur commitment fees of 1% on the undrawn available amount. Standby Subordinated Loans bear interest at fixed rates in respect of ¤2.8 million and US$1.5 million and at variable rates in respect of US$2.5 million. Standby Subordinated Loans are repayable on the same terms as the Subordinated Loans. As at 30 June 2006, no debt was drawn down under the Standby Subordinated Loan facilities. 8. 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 7 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 cost of US$120,000. 9. NON-CONSOLIDATION OF SUBSIDIARY UNDERTAKING As set out in detail in Note 26 of the 2005 Annual Report , Grafites de Ancuabe, S.A.R.L., a subsidiary company , has been excluded from consolidation in accordance with International Accounting Standard 27. 10. APPROVAL OF FINANCIAL STATEMENTS The financial statements were approved by the Board on 27 September 2006. ---END OF MESSAGE---
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