Annual Report 2013

Notes to the Financial Statements

for the year ended 31 December 2013

11. PROPERTY, PLANT AND EQUIPMENT

GROUP

 

Plant &

Development

Construction

Other

Total

 

Equipment

Expenditure

In Progress

Assets

 

US$’000

US$’000

US$’000

US$’000

US$’000

Cost

 

 

 

 

 

At 1 January 2012

343,451

248,761

181,439

16,500

790,151

Transfer from construction in progress

12,686

-

(26,149)

13,463

-

Additions during the year

170

1,223

190,458

-

191,851

 

 

 

 

 

 

At 1 January 2013

356,307

249,984

345,748

29,963

982,002

Transfer from construction in progress

419,897

-

(422,193)

2,296

-

Additions during the year

13,042

-

90,640

259

103,941

 

 

 

 

 

 

At 31 December 2013

789,246

249,984

14,195

32,518

1,085,943

 

 

 

 

 

 

Accumulated Depreciation

 

 

 

 

 

At 1 January 2012

45,659

19,455

-

10,919

76,033

Charge for the year

10,468

5,910

-

2,078

18,456

 

 

 

 

 

 

At 1 January 2013

56,127

25,365

-

12,997

94,489

Charge for the year

13,156

7,098

-

4,090

24,344

At 31 December 2013

69,283

32,463

-

17,087

118,833

 

 

 

 

 

 

Carrying Amount

 

 

 

 

 

At 31 December 2013

719,963

217,521

14,195

15,431

967,110

 

 

 

 

 

 

At 31 December 2012

300,180

224,619

345,748

16,966

887,513

 

 

 

 

 

 

During the year, 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. 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 10%.

Key assumptions include the following:

  • A mine plan based on the Namalope and Nataka proved and probable reserves.
  • Average annual production of approximately 0.9 million tonnes of ilmenite plus co-products, zircon and rutile over the life of the mine. The Company has a plan, not reflected in such forecast, to increase production of HMC both in the near term and as grades decline during the later years of the mine life in order to keep the MSP operating at full design capacity of 1.2 million tonnes of ilmenite per annum plus co-products, zircon and rutile.
  • 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, taking into account independent titanium mineral sands expertise and management expectations. The average product sales price real terms growth rate assumed over the mine life is 1.5% per annum.
  • Operating and capital replacement costs are based on approved budget costs for 2014 and escalated by 2% per annum thereafter.

As a result of this review no impairment provision is required. 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.

Included in plant and equipment are capital spares of US$3.7 million (2012: US$1.0 million).

Share based payments of US$0.2 million (2012: US$ 0.4 million) relating to staff working on the expansion project have been capitalised in property, plant and equipment. The mine closure asset increased by US$13.3 million (2012: nil). The discount rate used to calculate the mine closure provision was 3% based on a 20-year US treasury yield rate. This is a change in discount rate from 9%, which was used as at 31 December 2012 as the average effective Project borrowing rate. The reason for the change in assumption is to exclude the risk of the Company and only include risk specific to the liability.

Substantially all the property, plant and equipment of the Group is or will be mortgaged, pledged or otherwise secured to provide collateral for the Project senior and subordinated loans as detailed in Note 21.

The carrying amount of the Group’s plant and equipment includes an amount of US$1.2 million (2012: US$1.2 million) in respect of assets held under finance lease, detailed in Note 21.

Additions to development expenditure include costs associated with a third phase of mine development of nil (2012: US$1.2 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 operation of the Moma Titanium Minerals Mine; the realisation of the cash flow forecast assumptions as set out in this note would result in the recovery of such amounts. The Directors are satisfied that at the statement of financial position date the recoverable amount of property, plant and equipment exceeds its carrying amount and based on the planned mine production levels that the Moma Titanium Minerals Mine will achieve positive cash flows.

12. DEFERRED TAX

GROUP

 

US$’000

At 1 January 2012

5,477

Charge to statement of comprehensive income

(3,301)

At 1 January 2013

2,176

Charge to statement of comprehensive income

(2,033)

At 31 December 2013

143

 

 

At the statement of financial position date, Kenmare Moma Mining (Mauritius) Limited had unused tax losses of nil (2012: US$12.2 million) available for offset against future profits. A deferred tax asset of US$0.1 million has been recognised for losses which are available for offset against future profits. For the year ended 31 December 2012, a deferred tax asset of US$2.2 million had been recognised in respect of US$12.2 million of prior year losses. Tax losses of US$6.8 million (2012: US$7.6 million) expired in the year. Tax losses may be carried forward for three years. No deferred tax liability is recognised on temporary differences arising in connection with accelerated tax depreciation as the differences are not significant. Revenues (and hence taxable profits) in Kenmare Moma Mining (Mauritius) Limited are determined by reference to cost incurred in producing heavy mineral concentrate plus a margin which is related to prices earned by Kenmare Moma Processing (Mauritius) Limited.

13. INVENTORIES

GROUP

 

2013

2012

 

US$’000

US$’000

Mineral products

24,619

6,600

Consumable spares

19,577

15,822

 

44,196

22,422

 

 

 

At 31 December 2013, total final product stocks were 107,100 tonnes (2012: 29,600 tonnes).

14. INVESTMENTS IN AND AMOUNTS DUE FROM SUBSIDIARY UNDERTAKINGS

COMPANY

 

2013

2012

 

US$’000

US$’000

Opening balance

534,332

478,289

Funding

115,161

56,043

Closing balance

649,493

534,332

 

 

 

The investments in subsidiary undertakings are US$110.6 million (2012: US$5.4 million). This is made up of the investment during 2013 in Kenmare Resources Jersey Limited as part of the equity placing of US$104.4 million as detailed in Note 17, initial investments of less than US$500 in the other subsidiary undertakings of the group and share-based payments of US$6.2 million (2012: US$5.4 million) relating to staff of the subsidiary undertakings Kenmare Moma Mining (Mauritius) Limited and Kenmare Moma Processing (Mauritius) Limited. During the year there were share-based payments of which US$0.8 million (2012: US$1.1 million) relating to the subsidiary undertakings Kenmare Moma Mining (Mauritius) Limited and Kenmare Moma Processing (Mauritius) Limited.

The balance of US$538.9 million (2012: US$528.9 million) represents funds transferred to subsidiary undertakings. During 2013 there was a net movement of US$10.0 million (2011: US$0.4 million) relating to funding of subsidiary undertakings.

Credit Risk

The carrying amount of investments in and amounts due to subsidiary undertakings represents the maximum credit exposure. Amounts due from subsidiary undertakings are current (i.e. not overdue). No impairment provision has been recognised in the statement of comprehensive income. The amounts due from subsidiary undertakings are unsecured and interest free.

The subsidiary undertakings of the Company as at 31 December 2013 are as follows:-

 

Place of

Place of

Percentage

 

Incorporation

Operation

Ownership

Kenmare UK Company Limited

Northern Ireland

Northern Ireland

100%

Kenmare Minerals Company Limited

Republic of Ireland

Republic of Ireland

100%

Kenmare C.I. Limited

Jersey

Jersey

100%

Congolone Heavy Minerals Limited

Jersey

Mozambique

100%

Kenmare Graphite Company Limited

Jersey

Jersey

100%

Kenmare Resources Jersey Limited

Jersey

Jersey

100%

Kenmare Moma Mining (Mauritius) Limited

Mauritius

Mozambique

100%

Kenmare Moma Processing (Mauritius) Limited

Mauritius

Mozambique

100%

Mozambique Minerals Limited

Jersey

Mozambique

100%

 

Each of the subsidiary undertakings with the exception of Kenmare Resources Jersey Limited has issued ordinary shares only. Kenmare Resources Jersey Limited has both ordinary and preference shares. A number of the subsidiary undertakings are indirectly owned by Kenmare Resources plc. The activities of the above undertakings are mining, mineral exploration, management and development.

The principal activity of Grafites de Ancuabe, S.A.R.L (GDAS) was the development and operation of the Ancuabe Graphite Mine. The mine has been on care and maintenance since 1999. Certain restrictions, arising out of agreements undertaken by GDAS, on the Group’s influence over the financial and operating activities of GDAS became effective in 1999 and remain in place. The Group therefore does not control the Ancuabe Graphite Mine. In accordance with International Accounting Standard 27, GDAS is excluded from consolidation. Full provision has been made in the Group Financial Statements for the investment in and debt due by GDAS to other Group Companies.

The registered office of the Northern Ireland company is Terence McCourt Solicitors, 19 Bachelors Walk, Lisburn BT28 1XJ. The registered office of the Republic of Ireland company is Chatham House, Chatham Street, Dublin 2. The registered office of the Jersey companies is Barclays Wealth, 39 - 41 Broad Street, St. Helier, Jersey except for Kenmare Resources Jersey Limited whose registered office is Ogier House, The Esplanade, St. Helier, Jersey. The registered office of GDAS is Rua de Chuindi No. 67, Maputo, Mozambique. The registered office of the Mauritius companies is 10th Floor Raffles Tower, 19 Cybercity, Ebene, Mauritius.

The recovery of amounts due from subsidiary undertakings is dependent on the successful operation of the Moma Titanium Minerals Mine; the realisation of cash flow forecast assumptions as set out in Note 11 would result in the recovery of such amounts.

15. TRADE AND OTHER RECEIVABLES

 

GROUP

COMPANY

 

2013

2012

2013

2012

 

US$’000

US$’000

US’000

US$’000

Trade receivables

18,073

29,863

-

-

Other receivables

262

1,752

180

586

Prepayments

906

4,131

114

70

 

19,241

35,746

294

656

 

 

 

 

 

Credit risk

The carrying amount of the trade and other receivables represents the maximum credit exposure. Before entering into sales contracts with new customers, the Group uses an external credit scoring system to assess the potential customer’s credit quality and defines credit limits by customer. Limits attributed to customers are reviewed regularly during the year. Of the trade receivables balance at the end of the year US$11.2 million (2012: US$12.7 million) is due from the Group’s three largest customers. The external credit scoring system used by the Group gives each of these three customers the highest score in their financial strength credit index and their risk indictor represents a minimum risk of business failure.

The Group has a trade finance facility with Absa Corporate and Business Bank.

All trade receivables are current (i.e. not overdue). There has been no impairment in trade receivables during the year and no allowance for impairment has been provided for during the year or at the year end.

During 2012 the Group entered into forward South African Rand exchange contracts totalling US$35 million to cover expansion capital payments. The maturity of the contracts ranged from August 2012 to January 2013. At each month ends these contracts were measured at fair value using forward South African Rand versus US Dollar exchange rates. At 31 December 2012 the aggregate amount of losses under these contracts of US$0.7 million was recognised in foreign exchange losses in the statement of comprehensive income. As at 31 December 2012 there was one contract for US$5 million outstanding which matured on 15 January 2013. The fair value of this contract was US$0.01 million at 31 December 2012 and was included in other receivables at that date.

Currency risk

The currency profile of trade and other receivables at the year-end is as follows:

GROUP

2013

2012

 

US$’000

US$’000

US Dollars

18,894

35,081

Euro

294

626

Mozambican Metical

53

5

Sterling

-

34

 

19,241

35,746

 

 

 

COMPANY

2013

2012

 

US$’000

US$’000

Euro

294

626

Sterling

-

30

 

294

656