Annual Report 2013

Independent Auditor’s Report

to the Members of Kenmare Resources plc

Opinion on Consolidated Financial Statements of Kenmare Resources plc +-

In our opinion:

  • the Group Financial Statements give a true and fair view in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, of the state of the Group’s affairs as at 31 December 2013 and of its loss for the year then ended;
  • the Parent Company Statement of Financial Position gives a true and fair view in accordance with IFRSs, as adopted by the European Union, as applied in accordance with the provisions of the Companies Acts 1963 to 2013 and of the state of the Parent Company’s affairs as at 31 December 2013; and
  • the financial statements have been prepared in accordance with the requirements of the Companies Acts 1963 to 2013 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation.

The financial statements comprise the Group Financial Statements: Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Cash Flows, Consolidated Statement of Changes in Equity and the Parent Company Financial Statements: Company Statement of Financial Position, Company Statement of Cash Flows, Company Statement of Changes in Equity and the related notes 1 to 35. The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Acts 1963 to 2013.

Emphasis of matter – Realisation of Assets +-

In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosures made in notes 11 and 14 of the financial statements concerning the recoverability of property, plant and equipment of US$967.1m included in the Group’s Statement of Financial Position and investments in and amounts due from subsidiary undertakings of US$649.4m in the Parent Company’s Statement of Financial Position all of which are dependent on the successful operation of the Mine and the realisation of the cash flow forecast assumptions as set out in note 11. The financial statements do not include any adjustments relating to these uncertainties and the ultimate outcome cannot at present be determined.

Going concern +-

We have reviewed the Directors’ statement contained within the Directors’ Report on this page that the Group is a going concern. We confirm that:

  • we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate; and
  • we have not identified material uncertainties related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue as a going concern.

Our assessment of risks of material misstatement +-

The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team:

Risk of material misstatement

How the scope of our audit responded to the risk

Impairment of property, plant and equipment

Management undertake an annual impairment review to support the carrying value of property, plant and equipment. The recoverable amount of the Moma Mine is assessed on its value-in-use. Key assumptions in the review relate to the useful life of the mine and the property, plant and equipment , the cash flows as set out in the life of mine financial model and the discount rate applied to arrive at net present value.

We carried out testing of controls over reviewing and approving the assumptions used in the life of mine model prepared by management. We considered the appropriateness of the Group’s impairment review for property, plant and equipment and challenged the validity of assumptions used therein including the cash flow forecast. We reviewed the note disclosures relating to the mine and assessed for completeness and appropriateness.

Financing

Due to the continued weakness in sales prices and completion of the mine expansion, the availability of long term financing was an area of focus.

We reviewed board minutes, post year end results, cash flow forecasts and budgets. We focused on the key assumptions in the cash flow forecasts and budgets in relation to sales quantities and pricing together with management forecasts regarding scheduled debt repayments. Our consideration included the project loan amendment concluded on 14 February 2014.

 

Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and not to express an opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified with respect to any of the risks described above, and we do not express an opinion on these individual matters.

Our application of materiality +-

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.

We determined planning materiality for the group to be US$10 million, which is under 2% of equity.

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of US$500,000, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

An overview of the scope of our audit +-

Our Group audit scope focused on Head Office and two principal subsidiary undertakings operating the mining and processing facilities in Mozambique. The subsidiary undertakings were subject to a full scope audit. We determined the materiality level for each component calculated with reference to the size of the entity involved.

The Group audit team issues detailed instructions to the component auditor for the Group audit, with specific audit requirements and confirmation requests across key areas. As substantially all of the audit procedures involve performance by the component auditor, the Group audit team are actively involved in the performance of, and direction of, all stages of the audit process from planning, execution and wrap-up to enable the Group audit team to conclude whether sufficient appropriate audit evidence has been obtained as a basis for our opinion on the Group financial statements as a whole.

Matters on which we are required to report by the Companies Acts 1963 to 2013 +-

  • We have obtained all the information and explanations which we consider necessary for the purposes of our audit;
  • In our opinion proper books of account have been kept by the Parent Company;
  • The Parent Company statement of financial position is in agreement with the books of account;
  • In our opinion the information given in the Directors’ Report is consistent with the financial statements and the description in the Corporate Governance Statement of the main features of the internal control and risk management systems in relation to the process for preparing the Group Financial Statements is consistent with the Group financial statements; and
  • The net assets of the Parent Company, as stated in the Parent Company Statement of Financial Position are more than half of the amount of its called up share capital and, in our opinion, on that basis there did not exist at 31 December 2013 a financial situation which under Section 40 (1) of the Companies (Amendment) Act, 1983 would require the convening of an extraordinary general meeting of the parent company.

 

Matters on which we are required to report by exception +-

Directors’ remuneration and transactions

Under the United Kingdom Listing Authority (the Listing Rules) we are required to review the six specified elements of disclosures in the report to shareholders by the Board of Directors’ remuneration. Under the Companies Acts, 1963 to 2013 we are required to report to you if, in our opinion the disclosures of Directors’ remuneration and transactions specified by law are not made. We have nothing to report arising from these matters or our review.

Corporate Governance Statement

Under the Listing Rules, we are also required to review the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the UK Corporate Governance Code. We have nothing to report arising from our review.

Our duty to read other information in the Annual Report

Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the Annual Report is:

  • materially inconsistent with the information in the audited financial statements; or
  • apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or
  • otherwise misleading.

In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the Directors’ statement that they consider the Annual Report is fair, balanced and understandable and whether the Annual Report appropriately discloses those matters that we communicated to the Audit Committee which we consider should have been disclosed. We confirm that we have not identified any such inconsistencies or misleading statements.

 

Respective responsibilities of Directors and Auditor +-

As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report is made solely to the Company’s members, as a body, in accordance with section 193 of the Companies Act 1990. Our audit 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 auditor’s 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 audit work, for this report, or for the opinions we have formed.

Scope of the audit of the financial statements +-

 

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

 

Mary Fulton
For and on behalf of Deloitte & Touche
Chartered Accountants and Statutory Audit Firm
Dublin
11 April 2014