Kenmare to raise £179.6m to expand Moma titanium operation

Kenmare Resources (AIM: KMR) plans to raise approximately £179.6m through the issue of 1.4bn new Shares at 12p each. Kenmare intends to significantly increase production, at a relatively low cost per incremental tonne, at the Moma titanium minerals mine in northern Mozambique to generate a substantially expanded revenue base and subsequently pay down debt.

At 12p the issue price represents a 41.8% discount to the mid-market closing price of 20.625p yesterday, 4 March 2010.

"End markets in the titanium minerals industry are now anticipated to be favourable in the upcoming years”. Kenmare MD Michael Carvill commented.

According to Kenmare, the market outlook is improving with demand growth at rates above the historic trends, driven by cyclical recovery and increased demand from China. Furthermore, the company also noted that rising demand from developing countries, coupled with constrained supply, are expected to result in a shortage of titanium minerals production developing during 2012.

"The expansion of our Moma mine, due to be completed in 2012 under our Expansion Plan, will allow Kenmare to capitalise on these favourable conditions.  We have a world class asset in Moma, boasting a large, long life resource in a favourable location”, Carvill added. "We are excited about the opportunity to expand our capacity at Moma and to take advantage of the market supply deficit expected to develop by 2012, seize first mover advantage and deliver increased financial returns while maximising the utilisation of existing facilities, infrastructure and technology".

In January 2009, the company revealed that heavy mineral concentrate production at Moma had reached full design levels, after achieving a 22% quarter-on-quarter increase in production in Q4 2009.

The mine expansion is expected to be completed during 2012, with full production at the expanded design capacity achieved by the end of 2012. The planned expansion provides for a 50% increase in design capacity, taking ilmenite production to 1.2m tonnes per annum. Under the expansion work, Kenmare will upgrade the existing dredges, the wet concentrator plant and the mineral separation plant. In addition to the upgrades, the company will add a new third dredge and a second wet concentrator plant.

The project has an estimated cost of US$200m, including a US$18m contingency. The project is based on an expansion study, which was completed in January 2010. Of the placing proceeds, £133.1m (US$200m) is intended to fund the engineering, procurement and construction costs of the expansion project.

The remaining proceeds, approximately £37.7m, will be available for any increase in costs of the expansion and general corporate purposes, including any debt service payments which cannot be met from operating cash flows. Kenmare has also agreed certain amendments to its financing facilities, which will take effect upon completion of the placing and the deposit of US$200m into the contingency reserve account. The company said these funds may then immediately be contributed to the project accounts, where they may be spent on the expansion, amongst other things.

JP Morgan Cazenove, Davy, Cannacord Adams and Mirabaud are acting as bookrunners and joint brokers for the placing.

Also today, Kenmare released their preliminary results for the year ended 31 December 2009.  In the results, the company noted that it had completed its Performance Improvement Program in December. Kenmare said it now has a plant operating at materially increased production levels.

During 2009, Kenmare produced 826,200 tonnes of heavy metal concentrate, 494,400 tonnes of finished product as a result of processing and achieved 418,000 in export sales tonnes. The company reported a net loss of US$30.35m for the year on revenues of US$26.7m. The group had no revenues in 2008.