Kenmare Resources plc : Interim Management Stat...

Kenmare Resources plc ("Kenmare" or "the Company")

11 October, 2012

Interim Management Statement

Kenmare Resources plc. issues this management report covering the period from 1 July, 2012, to date in accordance with the Transparency Regulations 2007.

Operations
Output from mining operations improved in the third quarter with 229,100 tonnes of Heavy Mineral Concentrate (HMC) produced, representing a 16% increase on the second quarter.  The second dry mining operation was successfully commissioned on 9 July, 2012, and was ramping-up during the quarter, contributing to the increased mining rate.  Ilmenite production during the third quarter was 174,100 tonnes, a 21% increase on the second quarter.  

August ilmenite production of 73,400 tonnes was a record for the operation, demonstrating the capacity of the operation to achieve and exceed targets. During September, disruptions to the electricity supply caused by upgrade work by EdM, the national power distribution company, hampered production. This work was successful and has resulted in a considerably less volatile supply. Further supply strengthening work will occur in December. Significant progress was made on optimising the rutile circuit and it is anticipated that the level of rutile recovery will increase during the fourth quarter.

Quarterly production and shipments during 2012 are summarised below:

	Quarter 1	Quarter 2	Movement	Quarter 3	Movement
	tonnes	tonnes	percent	Tonnes	percent
Production
HMC	188,000	198,200	+5%	229,100	+16%
Ilmenite	132,700	143,900	+8%	174,100	+21%
Zircon (primary grades)	5,800	6,700	+16%	8,800	+31%
Zircon (secondary grade)	4,800	6,300	+31%	3,800	-40%
Shipments	169,000	152,500	-10%	155,400	+2%

The Mine remains committed to a safe and healthy work environment for all its personnel.  The health and safety record for the operation remains positive, with the current lost time injury frequency rate at 0.37, compared to an industry average of 0.39.  This is indicative of the continuous collective effort of all employees in the promotion of health and safety at the Mine.

Market
As previously advised, the favourable supply/demand conditions in the industry over the last two years led to significant price increases in both pigment and feedstock. In anticipation of further pigment price increases, feedstock supply tightness and improved pigment demand, the market over-stocked in the latter part of last year. Pigment demand in the US held up relatively well in the first half of 2012 but started to deteriorate in the second half.  Demand in Europe has contracted this year, while Chinese demand growth has been subdued. The expected seasonal improvements in pigment demand in the second and third quarters did not materialise, leading to downward pressure on pigment prices.

In an attempt to more closely align supply to softening demand, pigment producers started to curtail production around mid-year, leading to destocking in the supply chain. Furthermore, to manage the cost pressures of increased feedstock prices, pigment producers have revised their feedstock mixes, moving from higher to lower grade feedstocks where possible. This has placed some downward pressure on rutile prices, but slag and ilmenite prices are holding up reasonably well despite the weaker market conditions.

A delivery schedule for Kenmare's remaining ilmenite volume commitments covered under second half 2012 pricing agreements has been finalised. Kenmare now negotiates ilmenite prices semi-annually and the majority of 2013 first half prices will be negotiated with our customers in the coming months. Kenmare expects the destocking process to complete in early 2013. This is likely to be followed by a period of restocking as the supply chain is replenished, as experienced in previous cycles.

Global zircon demand continues to be weak, particularly in China and southern Europe, which are principal markets for zircon.  The main zircon producers have reduced their supply to the market resulting in a build-up of producer inventories.  This has created some market pricing uncertainty in the short term. Nonetheless, Kenmare with its relatively small production continues to successfully place its volumes in the market at the prevailing market price.

Phase II Expansion
Kenmare is completing a 50% expansion of its facilities at Moma.  Commissioning of the new facilities is due to commence by the end of the year.  There are 1,326 construction workers on site involved in this project, and the various new plants and upgrades which comprise the expansion are nearing completion.  All design and drawing deliverables have been completed, and civil works are 98% complete with only secondary works outstanding. Structural steel and piping fabrication is substantially complete, including pipe rubber lining where applicable. Hence, project activity is now concentrated on the erection of final steel work, the electrical trades and piping installation.  Fabrication of piping was slower than expected but is now substantially complete, with the final portion of it in South Africa ready for transportation to site.  A truck drivers' strike in South Africa is hampering this transport operation at present and may have a knock-on impact on commissioning. A commissioning team is making preparations to mobilise to site and operations staff recruited to date for the expanded plant are undergoing training.

Financial
Revenue for the third quarter was principally generated from ilmenite sales at average prices that were slightly above those achieved during the second quarter. Management remains focused on cost control and achieving cost savings where possible.  As at 30 September, 2012, the net debt position of the Company was US$239 million, with all debt payments made as scheduled.

Outlook
The short term business outlook has been affected by softer markets for titanium minerals feedstock and zircon products.  With regard to titanium minerals, we view this as a temporary situation caused by the general global economic slowdown, and particularly weakness in the housing and construction sectors.  As economic activity recovers and market confidence is restored, we expect to see a recovery in feedstock demand driven by re-stocking and increased consumption. We remain confident that the fundamentals of supply/demand for titanium feedstock remain favourable in the medium to long term. The current zircon market is faced with significant producer inventories that will have to be drawn down before production can be brought back to its previous levels. This inventory overhang will continue to create some pricing uncertainty in the short term until demand returns to more regular levels. Kenmare's Moma expansion will be ramping up during the first half of 2013 and will start producing at full levels in the third quarter, allowing us take advantage of the expected recovery in US and Chinese housing markets.

For further information, please contact:

Kenmare Resources plc.
Michael Carvill, Managing Director
Tel: [phone]               
Mob: + 353 87 674 0110       

Tony McCluskey, Financial Director
Tel: [phone]
Mob: + 353 87 674 0346

Virginia Skroski, Investor Relations Manager
Tel: [phone]
Mob: + 353 87 739 1103
Mob: [phone]

Murray Consultants       
Joe Heron       
Tel: [phone]       
Mob: [phone]

Tavistock Communications
Jos Simson / Mike Bartlett
Tel: [phone]       
Mob: [phone]

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