Kenmare interim report shows big increase in zircon output

Nov. 17, 2010 - Kenmare Resources issues the following Interim Management Statement in accordance with reporting requirements of the EU Transparency Directive.
Mining production of heavy mineral concentrate increased in the third quarter by 31% to 297,000 tons.
Over the same period, the mineral separation plant produced 206,000 tons of ilmenite, a 22% increase on the second quarter's production. Zircon output was 11,000 tons, a 25% increase and 2,000 tons of rutile was produced, a 158% increase. Although some rutile specification issues are still being addressed, the Company is pleased to report that the first bulk shipment of 3,800 tons of rutile was made in October.
The Company shipped 199,000 tons of finished products in the third quarter, bringing total year to date shipments to the end of September 2010 to 566,000 tons, an increase of 106% compared with the first three quarters of 2009.
The second transshipment vessel acquired by the Group is currently en route to Mozambique and is expected to arrive in early 2011. Following planned modifications, this vessel will increase the operation's load-out capacity and flexibility covering future expansion requirements.
Following the sharp contraction during 2009, zircon demand has also rebounded very strongly in 2010, particularly in China, and the market remains in tight supply with both producers and end-users holding minimal inventories. Zircon prices have increased by circa 30% during 2010 over year end 2009 levels and further price increases are expected in 2011 as the gap between increasing global demand and limited supply widens.
During the third quarter, a project implementation schedule and execution plan for a 50% expansion of output were completed. The Engineering, Procurement and Construction Management (EPCM) contract for the execution of the expansion was awarded to Engineering and Projects Company Limited (E+PC). E+PC is a wholly owned subsidiary of Aveng (Africa) Ltd. The Kenmare owner's team is fully established and based in the offices of E+PC in Centurion, Pretoria. Kenmare has entered into contracts for critical long lead time items, including the third dredge and equipment for the existing wet concentrator plant. Mechanical completion is scheduled for the end of 2011. Kenmare will continue to monitor the capital costs of the expansion project as the remaining contracts are tendered.
The average revenue per ton of ilmenite and zircon increased in the third quarter, and is expected to continue on this trend for the remainder of the year as zircon prices continue to strengthen and the level of lower priced legacy ilmenite contract sales volumes reduces as a percentage of overall ilmenite sales volumes. Likewise the average production cost per ton of final products declined in the third quarter as production volumes increased. The Company has progressed with technical completion tests as set out in the loan agreements. The production target tests were passed at the start of October. Further work is required to pass the remaining environmental tests. The Company expects all technical completion tests will be passed in early 2011, following which interest margins on the subordinated loans will decrease by 2%/annum, reducing future financing charges by approximately US$3 million/annum. The net debt position as at the 30 September 2010 was US$80.5million.