Chairman's Statement
Dear Shareholder,
Over the past year we have worked with one main focus: to improve production. We are now in a much improved position to deliver on our targets for the Moma Titanium Minerals Mine.
While we have made significant improvements in production levels over the past year, there have also been significant challenges. These included Cyclone Jokwe, successive missed deadlines by our construction contractor and aspects of the plant which were demonstrated as not being ‘fit for purpose’ frustrating our ability to reach full production. However, the Board remains confident that the mine will reach full production by the end of this year and that the plan to get there is both achievable and realistic.
Key steps taken by the Board and Kenmare’s management team to ensure that these targets are reached by late 2009 include:
-Development of a detailed plan which addresses production issues and their solutions;
-Implementation of a detailed Performance Improvement Project (“PIP”) to rectify deficiencies in the plant and equipment, 75% complete; and
-Appointment of a new Chief Operating Officer and a new General Manager for the mine.
In November 2008, Kenmare required the construction contractor to participate in a set of performance tests on the facilities at the mine. These tests were witnessed by a jointly appointed independent observer and, as we anticipated, failed to achieve the required performance criteria outlined in the contract in a number of key areas. This enabled Kenmare to present the contractor with a set of projects we considered necessary to reach full production, and to insist that implementation commenced immediately.
This set of projects, known collectively as the PIP, is being implemented largely by the contractor with close involvement by a dedicated Kenmare project team to ensure adherence to the agreed schedule and scope of work. In the three months since it was initiated, the PIP has been 75% completed across 326 action areas with all necessary new equipment either delivered, in transit or in manufacture. While most tasks within the PIP fall under the contractor’s responsibility, Kenmare is itself responsible for a sub-set of tasks necessary to achieve full production of 800,000 tonnes per annum of ilmenite plus co-products rutile and zircon.
The PIP is addressing key areas that are vital to achieving production targets, including the upgrade of the dredge hydraulics, slimes and tailings disposal pumping systems, material handling systems in the mineral separation plant, and provision of additional separation equipment in the ilmenite, zircon and rutile circuits, combined with a new ilmenite reject scavenging system to optimise recoveries and product quality. Most of the work has to be completed before achieving significantly higher production levels and implementation involves some disruption of production as work is carried out. Nonetheless, production of heavy mineral concentrate, the limiting parameter, increased by 18% in quarter 1, 2009 compared with quarter 4, 2008.
Kenmare has recruited a new Chief Operating Officer and General Manager for the mine. Both have successful track records and considerable experience in the mineral sands industry in South Africa and Australia, which will benefit the mine. They have, in turn, appointed a number of experienced personnel to key mining and processing positions, further strengthening the capacity of the mine to deliver on production targets.
Drilling completed during 2008 resulted in an upgrade of an Inferred Resource at Namalope, the orebody on which the dredges are working, to a Probable Reserve. As a result, the heavy mineral reserves for the Namalope orebody increased from 21 million tonnes to 26 million tonnes of total heavy minerals, despite the consumption of 0.6 million tonnes during 2008. The new reserves have added an estimated five years of mine life to the Namalope deposit.
At our Board meeting on 16 April 2009, Dr. Alastair Brown retired both from his executive position as Director of Geology and from the Board. Alastair was with Kenmare from 1987, providing the resource definition which has enabled the financing and construction of the mine. He worked in difficult circumstances with limited resources, but with rigorous methodology which has withstood examination by third party experts throughout the financing process. We all wish Alastair well in his retirement and thank him for his enormous contribution.
The present difficulties faced by the world’s economies are impacting on the uptake of titanium mineral products. In particular there has been strong inventory de-stocking, reducing demand by pigment producers, our key market. The bulk of the mine’s planned production for 2009 is covered under marketing contracts and the shipment schedule for the coming months remains busy. We are hopeful that this inventory de-stocking cycle is nearing completion and that normal market conditions, even if at reduced levels, will soon resume.
In September 2008, we initiated a dialogue with our lenders with the objective of preserving liquidity. As a result, I am pleased to report that lenders agreed to a deferment of capital repayments during 2009, to allow us use funds in the Contingency Reserve Account (US$15 million) for project purposes, and to defer the date by which we would otherwise have been required to achieve financial completion. This arrangement, along with existing financial resources and an invoice discounting facility being arranged with one of the lenders, will provide the additional liquidity necessary to enable Kenmare to achieve production ramp-up plans.
The profit after tax for the year is US$0.3 million and arises from deposit interest earned and foreign exchange gains, less corporate and exploration costs. During 2008, operating and financial costs net of revenue earned for the period, totalling US$60.1 million, were capitalised in property, plant and equipment as construction was not yet complete and as the mine was not yet capable of operating close to design capacity. Senior and subordinated loans drawn at the year end amounted to US$334.8 million, US$121.7 million of which were Euro-denominated loans.
At full production, we expect the mine’s operating cost will be in the lowest quartile for titanium feedstock producers. The resource base, one of the largest in the world, will support successive expansions of capacity. We remain confident that, despite the disappointing delays in achieving full production, the mine’s potential is enormous and we expect it will provide huge value to our shareholders.
Charles Carvill
Chairman
This release incorporates Kenmare’s Interim Management Statement relating to the period from 1 January 2009 to 16 April 2009.
Download a PDF Version of 2008 Annual Report 
For further information:
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Michael Carvill
Managing Director
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