2019 Preliminary Results

Kenmare Resources plc (“Kenmare” or “the Group”)19 March 20202019 Preliminary ResultsKenmare Resources plc (LSE:KMR, ISE:KMR), one of the leading global producers of titanium minerals and zircon, which operates the Moma Titanium Minerals Mine (the “Mine” or “Moma”) in northern Mozambique, today announces its preliminary results for the twelve months to 31 December 2019.Statement from Michael Carvill, Managing Director:“While 2019 was another year of robust financial and operational performance for Kenmare, the recent outbreak of COVID-19 presents global challenges and uncertainties. The safety and wellbeing of our employees and our host communities remain our overriding priorities. To date there has not been a confirmed case of COVID-19 in Mozambique and there have been no material adverse effects on production at Moma, however stringent risk mitigation procedures have been implemented at site. Ilmenite customer demand remains strong and market pricing has continued to advance year to date. It is likely that there will be some adverse effects on the business this year but the extent is difficult to predict. We will continue to monitor the situation closely and adjust our plans as appropriate.During 2019 we continued to advance our growth programme. The second of our three development projects, the construction of Wet Concentrator Plant C, produced its first Heavy Mineral Concentrate in February 2020. The third project, the relocation of WCP B, is currently progressing on track for Q3 2020. Following completion of this growth programme, Kenmare expects to be positioned in the first quartile of the industry revenue to cost curve.Average received prices for our products increased by 8% in 2019 compared to 2018 and tight ilmenite market conditions have continued in Q1 2020. We see a positive long-term outlook for all our products due to the depletion of existing mines and limited supply from new mines in the coming years, coupled with continued demand growth.The Group has a robust financial position, with gross cash of US$81.2 million at year-end 2019, and we were pleased to have secured our new debt facilities in December 2019. Kenmare is pleased to declare its maiden full year dividend of 8.18 US cents per share, in line with our policy to return a minimum of 20% of profit after tax. We look forward to increasing returns to shareholders from next year, once we have completed our growth programme.”OverviewMaiden full year 2019 dividend declared of USc8.18 per share, comprised of a USc2.66 interim dividend (paid in October 2019) and a final USc5.52 per share (to be paid in May 2020)Revenues of US$270.9 million, representing a 3% increase compared to 2018 (US$262.2 million) due to an increased average sales price, partially offset by reduced volumesEBITDA of US$92.6 million in line with 2018 (US$93.3 million), representing a 36% EBITDA margin (2018: 38%)Profit after tax of US$44.8 million, representing a 12% decrease compared to 2018 (US$50.9 million) due primarily to increased net finance costs, foreign exchange losses and increased depreciation chargesNet cash position of US$13.7 million at year-end 2019 in line with 2018 (US$13.5 million)New debt facilities secured, providing the Group with additional financial flexibility as a result of the extended maturity profile and increased liquidity, positioning Kenmare strongly to fund its growth programme in 2020Ilmenite production within 1% of original FY 2019 guidance range and original guidance achieved for all other productsTotal shipments of finished products of 1,029,300 tonnes, representing a 4% decrease compared to 2018 (1,074,400 tonnes), due primarily to poor weather impacting loading rates in the first nine months of the year, partially offset by a record quarter in Q4 2019Cash operating costs per tonne of US$158 per tonne within original guidance range, representing a 9% increase compared to 2018 (US$145 per tonne), due primarily to lower production volumes in 2019Net ilmenite unit costs of US$81 per tonne in line with 2018 (2018: US$79 per tonne) due to increased co-product revenuesPost-period end, first HMC production delivered from WCP C and project expected to be completed within US$45 million budgetProject execution of relocation of WCP B to Pilivili on track, including construction of purpose-built roadResults conference callKenmare will host a conference call and webcast for analysts, investors and media today at 9:00am UK time. Participant dial-in numbers for the conference call are as follows (a pin code is not required to access the call):To access the webcast please visit www.kenmareresources.comFor further information, please contact:Kenmare Resources plc
Jeremy Dibb / Katharine Sutton
Investor Relations
Tel: +353 1 671 0411
Mob: + 353 87 943 0367 / + 353 87 663 0875Murray (PR advisor)
Joe Heron
Tel: +353 1 498 0300
Mob: +353 87 690 9735About Kenmare ResourcesKenmare Resources plc is one of the world’s largest producers of mineral sands products. Listed on the London Stock Exchange and the Euronext Dublin, Kenmare operates the Moma Titanium Minerals Mine in Mozambique. Moma’s production accounts for approximately 7% of global titanium feedstocks and the Group supplies to customers operating in more than 15 countries. Kenmare produces raw materials that are ultimately consumed in everyday “quality-of life” items such as paints, plastics and ceramic tiles.CHAIRMAN’S STATEMENTDear shareholders,Building on the momentum of 2018, I’m pleased to report that in 2019 and early 2020 we have continued to make strong progress towards increasing production of ilmenite to 1.2 million tonnes per annum from 2021, plus co-products. Our average received commodity price also increased by 8% in 2019, supported by robust demand for ilmenite and continuing supply constraints.Moma is one of the largest titanium minerals deposits in the world and our outlined growth projects are expected both to increase top line revenues and materially improve our margins from 2021, providing stronger cash flow stability. However, I am mindful that the implications of the global COVID-19 outbreak are developing rapidly and whilst we are taking all pragmatic steps to respond to this unprecedented situation the effect on our business is uncertain.Shareholder returns and increased financial flexibilityFollowing the announcement of our dividend policy in 2018, I am pleased to report that in October 2019 we paid our maiden interim dividend of USc2.66 per share, in line with our policy to return a minimum of 20% of profit after tax to shareholders. The Board is recommending a final dividend of USc5.52 per share, resulting in a 2019 full year dividend of USc8.18 per share, based on 2019 profit after tax of US$44.8 million and earnings per share (basic) of US$0.41 (2018: US$0.46).From 2021, following the completion of our growth projects, we expect to generate stronger free cash flow, providing an opportunity to deliver increased shareholder returns.In 2019 we also enhanced our financial flexibility through the signing of new debt facilities to refinance our former project loans. These new facilities are more suited to our position as an established producer and provide additional headroom during this period of increased capital expenditure.Growth strategyBetween 2018 and 2020 we are investing approximately US$160 million in three development projects to achieve our targeted production rate of 1.2 million tonnes per annum, supported by strong market conditions for titanium feedstocks.In 2019 we also successfully introduced a new concentrate product to the market, providing us with an avenue to generate revenue from monazite, a mineral containing Rare Earth Oxides (REOs) used in a range of applications including renewable energy, thus expanding our margins.Sustainable and responsible operationsIn addition to operational delivery and progressing our growth programme, we have maintained focus on being a responsible corporate citizen to ensure shared prosperity for all stakeholders. In 2019, through the Kenmare Moma Development Association (KMAD), we invested US$1.4 million into community initiatives. We appreciate the continued support of the government of Mozambique and the regulatory and regional authorities in country, as well as our host communities.We were delighted that our efforts to be a responsible corporate citizen were recognised at the Chartered Accountants Ireland Published Accounts Awards, with Kenmare winning the Best Social Responsibility Reporting Award.Corporate governanceContinuing the theme of responsibility, and as part of our focus on corporate governance best practice, in October 2019 the Board approved the establishment of a Sustainability Committee. Chaired by Elizabeth Headon, the Committee will ensure that Kenmare has the appropriate strategies, policies and operational controls in place to maintain a socially responsible business.We are committed to professional and ethically sound standards in all that we do.Board developmentWe continue to refresh the composition of the Board to ensure that it is has the skills, experience and diversity required to operate effectively. We recognise the need for a broad range of views to support and challenge management in the execution of Kenmare’s strategy.Consequently, we were delighted to announce the appointment of Dr. Elaine Dorward-King as a Non-Executive Director in November 2019. Elaine’s 30 years of experience in the mining, chemicals and engineering industries, including in mineral sands, combined with her sustainability expertise, will enable her to make a strong contribution to the Group and will complement the existing experience of the Board.OutlookOur current mine plan extends beyond 2040 based on the expanded production rate of 1.2 million tonnes per annum of ilmenite, following the expected completion of our growth programme in Q4 2020. Cash operating costs per tonne are anticipated to reduce as a result of this higher production and we expect to deliver significantly stronger free cash flow. We currently expect this to position us to deliver increased capital returns to shareholders, not withstanding the global impact of COVID-19.We will continue to work closely with all our partners, including our host government, local communities and customers, to ensure that we create value for all of our stakeholders.AcknowledgementsAs we acknowledge another robust, dynamic and profitable year for Kenmare, I would like to offer my sincere thanks to all employees and the management team. As a Board, we set the ambitious task of delivering a substantial growth programme, while continuing to achieve operational targets and paying a maiden dividend, and through our team’s hard work and dedication these targets have been achieved.Finally, I would like to express my gratitude to our shareholders for their continued support and trust in the Group. We are well-positioned to deliver long-term, sustainable growth.STEVEN MCTIERNAN
ChairmanMANAGING DIRECTOR’S STATEMENT2019 marked another significant step in the development of Kenmare, including the payment of our maiden dividend. We achieved record excavated ore tonnes during the year, following the successful 20% capacity upgrade of WCP B during 2018, and we maintained our strong focus on safety.Our plans to increase production progressed well, with the development of WCP C bringing us closer to our target of 1.2 million tonnes per annum of ilmenite by 2021. Through this 35% production increase on 2019 volumes, we will also achieve significant margin expansion, elevating us to the first quartile of the industry revenue to cost curve.Looking ahead to the remainder of 2020, it’s difficult to predict the full impact of COVID-19. However, with our market-leading position, supported by a long-life tier one asset, and a compelling growth strategy, we are in good shape.SafetyAs always at Kenmare, the health, safety and wellbeing of our people and our host communities are our highest priorities. In 2019 we achieved a LTIFR of 0.27 per 200,000 man-hours worked and we retained our five-star NOSA safety accreditation for the fourth consecutive year. We introduced a number of new safety initiatives, including theatre workshops and the Golden Rules of Safety, and we will continue to target further improvement.As promised last year, we also redoubled our efforts towards community safety through education, hosting workshops on road safety in schools within our host communities.SustainabilityAt Kenmare, our actions are informed by our guiding principles: We Care, We Grow, We Excel. Environmental stewardship and being a responsible corporate citizen are at the heart of all we do. I would like to express my thanks to our stakeholders in Mozambique for their support during the past year, including our employees, host communities, local suppliers and the Government. We continue to be an engaged participant in the Extractive Industries Transparency Initiative (EITI), with Kenmare representatives having been on Mozambique’s EITI co-ordinating committee since its inception in 2009.Our people are central to the delivery of our strategy. At the end of 2019 we had over 1,420 employees and 96% of our employees at the Moma Mine were Mozambican. The Moma workforce received over 13,800 hours of training during 2019 as we believe that development opportunities are central to attracting and retaining the best people. In 2019, through the Kenmare Moma Development Association (KMAD), US$1.4 million was invested in community initiatives.Operational performance2019 was a record year for excavated ore (36.8 million tonnes), driven by the 20% upgrade of WCP B, a dredge automation project and utilisation improvements. Ilmenite production was within 1% of its original guidance range (892,900 tonnes) and guidance was achieved for all other products.Q4 2019 was a record quarter for shipments (352,900 tonnes), improving on the previous quarterly record by 10%. Despite poor weather conditions impacting loading rates in the first three quarters, 2019 shipments totalled over one million tonnes of finished products for the fourth consecutive year.Total cash operating costs and unit costs were within the respective original guidance ranges. From 2021 we expect unit costs to decrease, driving stronger margins and providing resilience against commodity price volatility.1.2 Mtpa ilmenite production from 2021Following the successful commissioning of the WCP B upgrade in 2018, in 2019 we built our third mining plant: WCP C. WCP C is mining a high grade area of the Namalope ore zone and adds 500 tonnes per hour of additional mining capacity. The project is expected to be delivered within its budget of US$45 million and is an important step in sustaining our targeted production rate of 1.2 million tonnes per annum of ilmenite. WCP C is now operating well and providing a meaningful contribution to Moma’s production.Project execution for the relocation of WCP B to the high grade Pilivili ore zone is well underway and currently currently currently on schedule. The project includes the construction of a 23km road, the installation of an electrical substation and the establishment of a 17km positive displacement pumping system. The move is on track to take place in Q3 2020, with commissioning anticipated in Q4 2020.From 2021 we expect our production to account for approximately 10% of global supply of titanium feedstocks, supported by growing global demand.Eamonn KeenanI want to take this opportunity to remember our colleague Eamonn Keenan. He was one of the first members of the Kenmare team, and as Sales and Marketing manager he was responsible for developing the market for our products. Following a short illness, Eamonn sadly passed away on 9 October 2019.Like all of our team, I am deeply saddened by Eamonn’s death. We worked together for over 25 years and he was a highly valued colleague and friend. Eamonn played a key role in helping Kenmare to grow into the Company it is today, and he was well respected throughout the mineral sands industry. His memory will be honoured by all who knew and worked with him.Product marketsThe ilmenite and rutile we produce are used to make titanium dioxide pigment, which imparts whiteness and opacity in the production of paper, paint and plastic. Kenmare continues to be the largest global supplier of merchant ilmenite and the fourth largest producer of titanium feedstocks. Zircon’s principal use is in the manufacture of ceramics. Based on analysis of historic trends, we expect that demand for all of our products will increase in line with global growth in gross domestic product and emerging market urbanisation.In 2019 Kenmare achieved higher average prices for titanium feedstocks (ilmenite and rutile) than in 2018, but lower average prices for zircon. Ilmenite prices increased by 7% during 2019 and prices in H2 2019 increased by more than 10% compared to H1 2019. Prices have increased further in the early months of 2020 due to strong global demand and continuing supply constraints. While Kenmare is profitable at current price levels, prices remain largely insufficient to incentivise new greenfield production, supporting tight ilmenite market conditions in the longer term.It is difficult to predict the adverse impact on the market this year due to the global COVID-19 outbreak. However, we have yet to see any negative impact on customer demand or market pricing for titanium minerals. To the extent that there is a general decline in global economic activity, this is likely to affect our end product markets.Zircon prices decreased by 5% in 2019 as a result of slower global growth leading to lower demand, coincident with increased supply. This resulted in softer pricing, particularly in the Chinese market. We believe that 2020 is likely to be a challenging year for the zircon industry as the market remains in oversupply and producer inventories are high. Following the outbreak of COVID-19 we have seen further pressure on zircon prices. However, global zircon production is forecast to decline in the coming years, with mine closures and ore body depletion at a number of operations, supporting higher long-term prices.OutlookFollowing the recent global outbreak of COVID-19, Kenmare has been taking actions to mitigate the potential impact of the virus. Our highest priority is to protect all our employees and the local communities in Mozambique. To minimise the potential for COVID-19 to spread to the operations, the Group has instigated strict procedures for access to the Mine and we have implemented heightened health protocols. We have also imposed restrictions on travel for all employees. The Group is working closely with its on-site contractors and evaluating the potential impacts on its operations and supply chain, on the execution of its development projects and on its customers, which may be adversely affected.We believe that the fundamentals for all of our products remain positive. At Kenmare, we will continue to focus on the three pillars of our strategy: growth, margin expansion and shareholder returns. Partnership and sustainability will also remain key priorities.With a globally significant asset, a robust balance sheet and a strong team, we are well positioned to meet any challenges that might arise and to create new opportunities. We will aim to deliver superior value as we responsibly meet global demand for our ‘quality-of-life’ minerals.MICHAEL CARVILL
Managing DirectorUnaudited consolidated statement of financial position
As at 31 December 2019Unaudited consolidated statement of comprehensive income
For the financial year ended 31 December 2019Unaudited consolidated statement of changes in equity
For the financial year ended 31 December 2019Retained EarningsRetained earnings comprise the expenses on the issue of equity in July 2016 and accumulated profit and losses in the current and prior financial years.On 5 December 2018, shareholders approved a resolution to reduce the capital of the Company in order to eliminate historic losses. On 1 February 2019, the High Court of Ireland confirmed this resolution. The reduction of capital and elimination of losses took effect on 5 February 2019 which resulted in share premium being reduced by US$185.3 million and retained earnings being increased by US$185.3 million.Share-Based Payment ReserveThe share-based payment reserve arises on the grant of share options and shares to employees and consultants under the share option schemes.Unaudited consolidated statement of cash flows
For the financial year ended 31 December 2019Unaudited notes to the consolidated financial statements
For the financial year ended 31 December 20191. Statement of Accounting PoliciesOn 19 March 2020, the Directors approved the preliminary results for publication. While the unaudited consolidated financial statements for the year ended 31 December 2019, from which the preliminary results have been extracted, are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, these preliminary results do not contain sufficient information to comply with IFRS. The Directors expect to publish the full financial statements that comply with IFRS as adopted by the European Union in March 2020.Based on the Group’s cash flow forecast, the Directors believe that the Group has adequate resources for the foreseeable future and continue to adopt the going concern basis of accounting in preparing the annual financial statements.The auditors, KPMG have not yet issued their audit opinion on the financial statements in respect of the year ended 31 December 2019. The financial information included within this unaudited preliminary results statement for the years ended 31 December 2019 and 31 December 2018 does not constitute the statutory financial statements of the Group within the meaning of section 293 of the Companies Act 2014. The Group financial information in this preliminary statement for the year ended 31 December 2019 is unaudited. A copy of the statutory financial statements in respect of the year ended 31 December 2019 will be annexed to the next annual return and filed with the Registrar of Companies.The Group financial information for the year ended 31 December 2018 included in this preliminary statement represents an abbreviated version of the Group’s financial statements for that year. The statutory financial statements for the Group for the year ended 31 December 2018, upon which the auditors, Deloitte, have issued an unqualified opinion, were annexed to the annual return of the Company and filed with the Registrar of Companies.Changes in accounting policiesThe most significant change in accounting policy arises from the adoption of IFRS 16 Leases, and this is described in detail below.The Group has adopted IFRIC 23 Uncertainty over Income Tax Treatments which is effective for accounting periods beginning on or after 1 January 2019. The interpretation is applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. The adoption of this interpretation has not had a material impact on the financial statements of the Group.IFRS 16 LeasesIFRS 16 Leases introduced a single accounting model for lessees. As a result, the Group, as a lessee, has recognised right-of-use assets representing its rights to use the underlying assets and lease liabilities representing its obligation to make lease payments on the Statement of Financial Position.The Group has applied IFRS 16 using the modified retrospective approach, under which the liability is recognised as the present value of the outstanding rentals at 1 January 2019. Accordingly, the comparative information presented for 2018 has not been restated i.e. it is presented, as previously reported, under IAS 17 and related interpretations. The details of the changes in accounting policies are disclosed below.Definition of a leasePreviously, the Group determined at contract inception whether an arrangement was, or contained, a lease under IAS 17 Leases and IFRIC 4 Determining whether an arrangement contains a lease. The Group now assesses whether a contract is, or contains, a lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed. Therefore, the definition of a lease under IFRS 16 has been applied only to contracts entered into or changed on or after 1 January 2019.At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease and non-lease component on the basis of their relative stand-alone prices.As a lessee – transitionThe Group leases its head office at Styne House, Dublin, its Mozambique country office in Maputo and electricity generators at the Mine. As a lessee, the Group previously classified each of their leases as operating leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under IFRS 16, the Group recognises right-of-use assets and lease liabilities for these leases – i.e. these leases are on-balance sheet.On transition, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group’s incremental borrowing rate as at 1 January 2019. Right-of-use assets were measured at amounts equal to the lease liability.When measuring lease liabilities for leases that were classified as operating leases, the Group discounted lease payments using an appropriate discount rate based on the Group’s incremental borrowing rate at 1 January 2019. The weighted average rate applied was 7%. This rate has been determined by taking into account the Group borrowing rate, term of the lease, currency, security and other factors. The Group presents right-of-use assets in ‘property, plant and equipment’, which is the same line item as it presents underlying assets of the same nature that it owns. The carrying amount of right-of-use assets as at 31 December 2019 is US$4.3 million.The Groups presents lease liabilities on the face of the Statement of Financial Position.Impacts on transition and for the periodThe Maputo office lease was entered into in February 2019 and the Group recognised an additional right-of-use asset presented in property, plant and equipment and a lease liability of US$0.4 million. Also, in relation to those leases under IFRS 16, the Group has recognised depreciation and interest costs, instead of an operating lease expense. During the year ended 31 December 2019, the Group recognised US$1.1 million of depreciation charges and US$0.4 million of interest costs in respect of these leases. During the year the Group paid lease principal of US$1.0 million and lease interest of US$0.4 million.2. RevenueDuring the financial year, the Group sold 1,029,300 tonnes (2018: 1,074,300 tonnes) of finished products ilmenite, rutile, zircon and concentrates to customers at a sales value of US$270.9 million (2018: US$262.2 million).Revenue from major productsGeographical informationThe Group’s revenue from external customers is generated by the Moma Titanium Minerals Mine, the non-current assets of which are US$847.5 million (2018: US$802.2 million).Information about major customersAll revenues are generated by the Moma Titanium Minerals Mine.3. Segment reportingInformation on the operations of the Moma Titanium Minerals Mine in Mozambique is reported to the Group’s Board for the purposes of resource allocation and assessment of segment performance. The principal categories for disaggregating revenue are by product type and by country of the customer’s location. The product types are ilmenite, zircon, rutile and concentrates. Concentrates includes secondary zircon and mineral sands concentrates. Information regarding the Group’s operating segment is reported below.Segment revenues and resultsCorporate assets consist of the Company’s and other subsidiary undertakings property, plant and equipment including right-of-use assets, cash and cash equivalents and prepayments at the reporting date. Corporate liabilities consist of trade and other payables at the reporting date.The additions to non-currents assets included US$5.4 million (2018: US$ nil) relating to right of use assets.4. Cost of salesMineral products consist of finished products and heavy mineral concentrate. Mineral stock drawdown in the year was US$4.5 million (2018: US$0.1 million increase).5. Other operating costsDistribution costs of US$9.4 million (2018: US$9.5 million) represent the cost of running the Mine’s finished product storage, jetty and marine fleet. Included in distribution costs is depreciation of US$4.1 million (2018: US$3.9 million). Freight costs of US$15.3 million (2018: US$16.3 million) arise from sales to customers on a CIF or CFR basis. Demurrage costs were US$2.3 million (2018: US$0.6 million) during the financial year. Administration costs of US$6.3 million (2018: US$4.7 million) are the Group administration costs and include depreciation of US$0.3 million (2018: US$0.1 million) and a share-based payment expense of US$1.8 million (2018: US$1.4 million).6. Finance costsAll interest has been expensed in the financial year.7. Income tax expenseDuring the year the KMML Mozambique Branch had taxable profits of US$15.9 million (2018: US$14.6 million) resulting in an income tax expense of US$5.6 million (2018: US$5.2 million) being recognised. The income tax rate applicable to taxable profits of KMML Mozambique Branch is 35% (2018: 35%).KMML Mozambique Branch has elected, and the fiscal regime applicable to mining allows for, the option to deduct, as an allowable deduction, depreciation of exploration and development expense and capital expenditure over the life of mine. Tax losses may be carried forward for three years.During the year the Kenmare Resources plc had taxable profits of US$20.2 million (2018: US$ nil) which were offset against tax losses. At the reporting date, the Company has unused tax losses of US$3.8 million (2018: US$24.0) resulting in the recognition of a deferred tax asset of US$0.5 million (2018: US$ nil) at 31 December 2019.8. Earnings per shareThe calculation of the basic and diluted earnings per share attributable to the ordinary equity holders of the Company is based on the following data:

9. Property, plant and equipmentGroupAt each reporting date, the Group assesses whether there is any indication that property, plant and equipment may be impaired. The Group considers the relationship between its market capitalisation and its book value, among other factors, when reviewing for indicators for impairment. As at 31 December 2019, the market capitalisation of the Group was below the book value of net assets which is considered an indicator of impairment of assets.The Group carried out an impairment review of property, plant and equipment as at 31 December 2019. The cash-generating unit for the purpose of impairment testing is the Moma Titanium Minerals Mine. The basis on which the Mine is assessed is its value-in-use. The cash flow forecast employed for the value-in-use computation is from a life of mine financial model. The recoverable amount obtained from the financial model represents the present value of the future pre-tax, pre-finance cash flows discounted at 11.5%.Key assumptions include the following:•     The discount rate is based on the Group’s weighted average cost of capital. This rate is a best estimate of the current market assessment of the time value of money and the risks specific to the Mine, taking into consideration country risk, currency risk and price risk. The factors making up the cost of equity, cost of debt and capital structure have changed from the prior year review resulting in a discount rate of 11.5% (2018: 12%). The Group does not consider it appropriate to apply the full current country risk premium for Mozambique to the calculation of the Group’s weighted average cost of capital as it believes the specific circumstances which have resulted in the risk premium increase over the past number of years are not appropriate to the specific circumstances of the Moma Mine. Hence, country risk premium applicable to the calculation of the cost of equity has been adjusted accordingly. Using a discount rate of 11.5%, the recoverable amount is greater than the carrying amount by US$139.0 million (2018: US$201.3 million). The discount rate is a significant factor in determining the recoverable amount. A 2.0% increase in the discount rate to 13.5% reduces the recoverable amount by US$139.0 million. The reduction in the recoverable amount from the prior year is a result of reduced cash flows due to the factors detailed below net of the reduction in the discount rate from 12% to 11.5%.•     A mine plan based on the Namalope, Nataka, Pilivili and Mualadi proved and probable reserves and resources. Specific resource material is included only where there is a high degree of confidence in its economic extraction. The Mine life assumption of 40 years has not changed from the prior year review.•     Average annual production is approximately 1.1 million tonnes (2018: 1.1 million tonnes) of ilmenite and co-products zircon, rutile and concentrates over the life of the mine. This mine plan does not include investment in additional mining capacity. Certain minimum stocks of final and intermediate products are assumed to be maintained at period ends. The average annual production of final products has increased slightly from the prior year due to an update of the production forecast.•     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 currently contracted, prices are forecast by the Group taking into account independent titanium mineral sands expertise provided by TiPMC Solutions and management expectations including general inflation of 2% per annum. Forecast prices provided by TiPMC Solutions have been reviewed and found to be consistent by the Group with other external sources of information. Average forecast product sales prices have decreased slightly from the prior year end review as a result of revised forecast pricing. A 5% reduction in average sales prices over the life of mine reduces the recoverable amount by US$139.0 million.•     Operating costs are based on approved budget costs for 2020 taking into account the current running costs of the Mine and escalated by 2% per annum thereafter. Average forecast operating costs have increased from the prior year end review as a result of increased operating costs in 2019, which formed the basis for the 2020 budget and life of mine forecast thereafter. A 9% increase in operating costs over the life of mine reduces the recoverable amount by US$139.0 million.•     Capital costs are based on a life of mine capital plan including inflation at 2% per annum from 2020. Average forecast capital costs have increased from the prior year end review based on updated sustaining and development capital plans required to maintain the existing plant over the life of mine. The forecast takes into account reasonable cost increases and therefore a sensitivity to this assumption which would give rise to a reduction in the recoverable amount has not been applied.As a result of the review no impairment provision was recognised in the current financial year. No impairment was recognised in the prior financial year. Given the recent past volatility and sensitivities of the forecast to the discount rate, pricing and to a lesser extent operating costs the impairment loss of US$64.8 million which was recognised in the Consolidated Statement of Comprehensive Income in 2014 is not reversed.An adjustment to the mine closure cost of US$5.5 million (2018: US$2.8 million) was made during the year as a result of a change in the estimated closure cost to take into account the construction of WCP C and a reduction in the related discount rate.10. Cash and cash equivalentsCash and cash equivalents comprise cash balances held for the purposes of meeting short-term cash commitments and investments which are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value. Where investments are categorised as cash equivalents, the related balances have a maturity of three months or less from the date of investment.Interest rate riskCash at bank earns interest at variable rates based on daily bank deposit rates, which may be zero. Short-term deposits are made for varying periods of between one day and three months, depending on the cash requirements of the Group, and earn interest at the respective short-term deposit rates. The interest rate profile of the Group’s cash balances at the financial year end was as follows:Currency riskThe currency profile of cash and cash equivalents at the financial year end is as follows:Fluctuations in the currencies noted above will impact on the Group’s financial results.Credit riskThe credit risk on cash and cash equivalents is limited because funds available to the Group are deposited with banks with high credit ratings assigned by international credit rating agencies. For deposits in excess of US$50 million the Group requires that the institution has an A (S&P)/A2 (Moody’s) long-term rating. For deposits in excess of US$20 million or South African Rand-denominated deposits, the Group requires that the institution has a BBB+ (S&P)/Baa1 (Moody’s) long-term rating. US$50.9 million of the bank deposits are with Barclays Bank PLC, which has a long-term credit rating of A Stable (S&P)/A-1 Stable (Moody’s). US$26.8 million of the bank deposits are with HSBC Bank plc which has a long-term credit rating of AA- Negative (S&P)/Aa3 Negative (Moody’s).11. Called-up share capital
55,929 ordinary shares were issued during the year as a result of the exercise of share awards.12. Bank loansBorrowingsOn 11 December 2019 the Group entered into debt facilities with Absa Bank Limited (acting through its Corporate and Investment Banking Division) (“Absa”), The Emerging Africa Infrastructure Fund (part of the Private Infrastructure Development Group) (“EAIF”), Nedbank Limited (acting through its Nedbank Corporate and Investment Banking division) (“Nedbank”), Rand Merchant Bank and Standard Bank Group (“Standard Bank”). Rothschild & Co. acted as financial adviser to the Group on the transaction.The debt facilities comprise a US$110 million Term Loan Facility and a US$40 million Revolving Credit Facility. The debt facilities accommodate a future Mine Closure Guarantee Facility of up to US$40 million. The total debt facility over which security is in place is up to US$190 million. The transaction costs for arrangement of the new debt facilities amounted to US$6.5 million.
The Term Loan Facility has a final maturity date of 11 March 2025. Interest is at LIBOR plus 5.40% per annum. Repayment is in seven equal semi-annual instalments, beginning 11 March 2022.The Revolving Credit Facility has a final maturity date of 11 December 2022 extendable by up to 24 months at the lenders’ discretion. Interest is at LIBOR plus 5.00% per annum.In addition, the facilities accommodate the later inclusion of a Mine Closure Guarantee Facility of up to US$40 million (increasing from US$3 million to a maximum of US$40 million over five years), which will share the security package with the Term Loan Facility and Revolving Credit Facility on a pro rata and pari passu basis. The security package consists of a pledge of the shares of Kenmare Moma Processing (Mauritius) Limited and Kenmare Moma Mining (Mauritius) Limited, a pledge of intercompany loans, a security interest in Group bank accounts located outside of Mozambique and China, and conditional assignments of certain contractual rights of the borrowers.At 31 December 2019 total debt of US$60.9 million was recognised by the Group being the drawdown of US$67.3 million before transaction costs of US$6.5 million plus interest amortised of US$0.1 million.US$63.5 million of the drawdown was used to repay previous debt principal and interest as at 18 December 2019.CovenantsThe key financial covenants as at 31 December 2019 are detailed below:Net Debt is defined as total financial indebtedness excluding leases less consolidated cash and cash equivalents.
Liquidity is defined as consolidated cash and cash equivalents plus undrawn amounts of the Revolving Credit Facility.Reserve Tail CovenantAs at 31 December and 30 June or any other date as at which the Group updates its Reserves Report, the Reserve Tail Ratio must exceed 30%.Borrowings interest, currency and liquidity riskThe loan facilities are arranged at variable rates and expose the Group to cash flow interest rate risk. Variable rates are based on six-month LIBOR. The borrowing rate at financial year end was 7.3% (2018: 7.3%). The interest rate profile of the Group’s loan balances at the financial year end was as follows:The fair value of the Group’s borrowings of US$60.9 million (2018: US$83.2 million) has been calculated by discounting the expected future cash flows at a market rate of 7.3% (2018: 6.0%).Under the assumption that all other variables remain constant, a 1% change in the six-month LIBOR rate results in a US$0.7 million (2018: US$0.9 million) change in finance costs for the financial year.The currency profile of loans at the financial year end is as follows:The above sensitivity analyses are estimates of the impact of market risks assuming the specified change occurs. Actual results in the future may differ materially from these results due to developments in the global financial markets which may cause fluctuations in interest rates to vary from the assumptions made above and therefore should not be considered a projection of likely future events.Glossary – Alternative Performance MeasuresCertain financial measures set out in the Annual Report to 31 December 2019 are not defined under International Financial Reporting Standards (IFRSs), but represent additional measures used by the Board to assess performance and for reporting both internally and to shareholders and other external users. Presentation of these Alternative Performance Measures (APMs) provides useful supplemental information which, when viewed in conjunction with the Group’s IFRS financial information, allows for a more meaningful understanding of the underlying financial and operating performance of the Group.These non-IFRS measures should not be considered as an alternative to financial measures as defined under IFRSs.Descriptions of the APMs included in this report, as well as their relevance for the Group, are disclosed below.RevenueEBITDAEBITDA marginCash operating cost per tonne of finished productCash operating cost per tonne of ilmeniteNet cash/debt