SRX.L Regulatory News (SRX)

10 Sep 2008 07:00



Titanium Resources Group Limited

Interim Results and Operational Update Announcement

10 September 2008: Titanium Resources Group ("TRG" or "the Company") announces its interim results for the six months ended 30 June 2008 ("the Period") and an operational update.

Highlights

Following the incident at the Group's Sierra Rutile mine on 25 July 2008 the Company has been advised that dredge D2 is capable of being brought back into production

Sales of US$ 32.5 million during the Period (US$ 34.7 million H1 2007)

Loss after tax of US$ 20.2 million 

Disposal of bauxite operations of Global Aluminium Limited to Vimetco N.V. for a total cash consideration of USD 40 million

Cash at bank and in hand US$ 25 million as at 5 September 2008

Commenting on the results, TRG Chief Executive Len Comerford said:

"This first half of 2008 was a very productive time for the Company.  We negotiated the sale of the Bauxite mine, ramped up D2 production, and pushed on with our capital expenditure programmes.

"Following the incident on 25 July 2008 when the recently commissioned floating dredge D2 capsized in the Gangama freshwater lagoon it was mining, TRG retained LOC Marine and Engineering Consultants to investigate the incident. We have also had recovery specialists confirm that the dredge can be put back into operation.  Our aim in the months ahead is to mitigate the setback of losing production from D2 by lowering costs per tonne, whilst at the same time capturing the value of our high grade deposits through dry mining.

"Whilst it will be some months before the financial impact of the incident is fully established, the long term future of our markets is sound and the quality and scale of our mineral reserves underline our future prospects."

Enquiries: 

Len Comerford, Chief Executive

Walter Kansteiner, Chairman 

Titanium Resources Group 

Telephone: +44 20 7321 0000 

www.titaniumresources.com

Michael Oke /Andy Mills

Aura Financial 

Telephone: +44 20 7321 0000 

 

David Nabarro, Nomad

Nabarro Wells & Co Limited

Telephone: +44 207 634 4859 

John Prior 

Arbuthnot Securities Limited 

+44 207 012 2000

Chief Executive's Review

This first half of 2008 was a very productive time for the Company.  We negotiated the sale of the Bauxite mine, ramped up dredge D2 production, and pushed on with our capital expenditure programmes.

Dredge D1 continued mining in the Lanti West deposit during the first half of 2008. D2 mined in the Gangama deposit and the production ramp up had been completed with steady state running levels of 900 tonnes per hour achieved during the month of July prior to the dredge capsizing.

 

During the first six months, our development projects progressed well. The construction of the Power House and the upgrading work on the Dry Mill, both projects which will cut costs and increase recovery, progressed well.  As a result of the D2 incident the Board has decided not to proceed with the building and commissioning of dredge D3 but instead to divert the D3 capital allocation to the rehabilitation of D2.  However, the D3 pontoon will be floated in October and this project is ready to move forward at any time if the decision is taken to re-activate the project.

Demand remained strong for our products.  The Government continues to support the Sierra Rutile mine with two Government appointees to the board of SRL, Mr. Arthur Harvey and Mr. Mohamed O. Mansaray, taking up their positions in May. 

Turnover of US$ 32.5 million during the Period was lower that the first half of 2007 (US$ 34.7 million H1 2007), primarily reflecting the dredging of a comparatively lower grade of rutile by D1, particularly in the first few months of the Period. As a result of this reduction in turnover, the increased operational costs of running D2, and an increase in finance costs relating in part to foreign exchange losses in relation the EU organised Government loan, the Company reported a loss after tax of US$ 20.2 million.

Following the incident on 25 July 2008 when the recently commissioned floating dredge D2 capsized in the freshwater lagoon it was mining, TRG retained LOC Marine and Engineering Consultants to investigate the incident. We have also had recovery specialists confirm that the dredge can be put back into operation following a procedure to rotate it into an upright position.  Investigations are continuing into the cause of the incident.

The Company had a standard Property Damage and Business Interruption policy in place at the time of the incident but it is too early to speculate on the extent of the likely financial restitution.  The Company has filed a claim and the insurers are investigating the claim.

The Company is reviewing a detailed rehabilitation project to restart D2 and, whilst it is difficult to provide a clear indication of timing with 50% of the dredge still underwater, we believe that D2 could return to production in approximately 14 months.  A clearer picture will emerge in the coming months, dependent upon the extent of damage and how rapidly it could be rectified, and we will update shareholders at that time.

Our workforce and community at Sierra Rutile have been significantly affected by the D2 incident following the fatalities of two colleagues in the accident and a halt in production.  I would like to acknowledge the support of many at the mine site whose determination during the recovery process has been outstanding.

Regrettably, as a direct result of the loss of production at D2, the Company has had to make significant headcount reductions until the dredge is working again and these retrenchments are being made in order to reduce costs so that the our financial resources can be focussed on the rapid rehabilitation of D2.

Our supply contracts are under force majeure and discussions with our clients are continuing.  We have not been subjected to any penalties having declared force majeure. The international market for rutile is currently constricted as a result both of Sierra Rutile's production issues and problems amongst other producers. However, demand from industrial consumers in the pigment industry remains robust.

Dredge D1 is performing well and, following the capsize of D2, we immediately revisited the mine plans to access the highest grade ore as soon as possible without compromising the mine life plan.  This action will aim to partially mitigate the impact of the D2 incident and focus on cash generation.  However, the nature of this type of dredge mining means that changes are slow and before the end of the year we also have a scheduled move from one deposit into the next. 

The Board has decided to defer construction of the D3 Dredge pending the outcome of deliberations on D2.  The D2 dredge was a prime producer (with a nameplate capacity of 1,150 tonnes per hour) and the economics of commissioning D3 (with a 600 tonnes per hour capacity) are only favourable when D2 is in production.

The other projects, namely the Power House and the Dry Mill upgrades are progressing as originally planned and we expect to be able to significantly reduce cost per tonne once these projects are complete. 

We note the support of the Government of Sierra Leone, particularly over recent weeks, and are pleased to confirm that we have negotiated with them to defer interest payments on the EU organised Government loan to the project.  As a result, we believe the Company is assured of the support of the Government of Sierra Leone to find the best solution going forward.

On 25 July 2008, after the end of the Period under review, the Group announced the disposal of Global Aluminium Limited to Vimetco N.V. for a total cash consideration of US$ 40 million. Global Aluminium Limited owns 100% of Sierra Mineral Holdings 1, Ltd ("SML"), the operating company for the Company's bauxite mine in Sierra Leone.

The disposal followed a decision by the Board of TRG to review its options with regard to non-core operations. As part of the review, the Board had considered a number of methods for improving the competitiveness of SML in global markets, including expansion, sale and partial sale. Following the review, the Board had decided that a complete sale of the Company's bauxite operations was in the best interests of its shareholders.

Re-admission to AIM

Following the incident at the Company's Sierra Rutile mine, trading in the Company's shares was suspended on AIM. The investigations into the D2 incident continue. Once we have established the extent of the financial impact of the D2 incident on the Company in the coming months and obtained comfort on the Company's ability to meet its financial commitments for the foreseeable future, we expect to be able to arrange for the suspension of trading in TRG's shares to be lifted.

Outlook

Our aim in the months ahead is to mitigate the setback of losing production from D2 by lowering costs per tonne whilst at the same time capturing the value of our high grade deposits through dry mining.  We continue to evaluate this option with Feed Preparation Plant tailings already being processed and suitable areas and processing plants for dry mining being evaluated.  Whilst it will be some months before the financial impact of the D2 incident is fully established, the long term future of our markets is sound and the quality and scale of our mineral reserves underpin our future prospects.

 

CONSOLIDATED BALANCE SHEET - JUNE 30, 2008
							June 30, 2008		December 31, 2007			June 30, 2007
ASSETS							USD'000		USD'000			USD'000
Non-current assets
Property, plant and equipment							155,953		142,348			125,029
Intangible assets							13,139		13,150			13,099
Non-current receivables							753		753			753
Deferred tax assets							86,879		86,879			86,373
							256,724		243,130			225,254
Current assets
Inventories							19,065		14,890			14,642
Trade and other receivables							22,384		21,562			20,862
Current tax assets							135		211			-
Cash and cash equivalents							4,360		25,731			47,341
							45,944		62,394			82,845
Total assets							302,668		305,524			308,099
EQUITY AND LIABILITIES
Capital and reserves
Share capital							237,041		237,041			232,818
Revenue (deficit)/reserve							(16,065)		4,154			15,263
Equity holders' interest							220,976		241,195			248,081
LIABILITIES
Non-current liabilities
Borrowings							48,504		44,119			39,382
Provision for liabilities and charges							2,940		2,833			2,150
							51,444		46,952			41,532
Current liabilities
Trade and other payables							29,078		17,233			18,264
Current tax liabilities							-		-			215
Borrowings							1,170		144			7
							30,248		17,377			18,486
Total liabilities							81,692		64,329			60,018
Total equity and liabilities							302,668		305,524			308,099
CONSOLIDATED INCOME STATEMENT
FOR THE PERIOD ENDED JUNE 30, 2008
							6 months to June 30, 2008		Year ended December 31, 2007			6 months to June 30, 2007
							USD'000		USD'000			USD'000
Sales							32,488		67,849			34,740
Cost of sales							(43,588)		(72,261)			(35,274)
Gross loss							(11,100)		(4,412)			(534)
Other income							279		2,618			1,208
Administrative and marketing expenses							(3,205)		(6,281)			(3,714)
							(14,027)		(8,075)			(3,040)
Exceptional item							-		(2,445)			-
Finance costs							(5,866)		(6,497)			(2,227)
Loss before taxation							(19,892)		(17,017)			(5,267)
Taxation							(327)		302			(339)
Loss for the period/year attributable to equity holders of the group							(20,219)		(16,715)			(5,606)
Loss per share (USD)
- basic							(0.08)		(0.07)			(0.03)
- diluted							(0.08)		(0.07)			(0.03)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD ENDED JUNE 30, 2008
							Share		Revenue reserve/
							capital		(deficit)			Total
							USD'000		USD'000			USD'000
Balance at January 1, 2008							237,041		4,154			241,195
Loss for the period							-		(20,219)			(20,219)
Balance at June 30, 2008							237,041		(16,065)			220,976
Balance at July 1, 2007							232,818		15,263			248,081
Employee share options:
- value of employee services							3,984		-			3,984
- shares issued on exercise of options							239		-			239
Loss for the year							-		(11,109)			(11,109)
At December 31, 2007							237,041		4,154			241,195
Balance at January 1, 2007							198,160		20,869			219,029
Issue of share capital							34,658		-			34,658
Loss for the period							-		(5,606)			(5,606)
Balance at June 30, 2007							232,818		15,263			248,081
CONSOLIDATED CASH FLOW STATEMENT
FOR THE PERIOD ENDED JUNE 30, 2008
							6 months to June 30, 2008		Year ended December 31, 2007			6 months to June 30, 2007
							USD'000		USD'000			USD'000
Operating activities
Cash absorbed in operations							(2,912)		(5,913)			(4,881)
Interest received							279		2,182			1,192
Interest paid							(22)		(81)			(35)
Tax paid							(251)		(500)			(209)
Net cash used in operating activities							(2,906)		(4,312)			(3,933)
Investing activities
Purchase of property, plant and equipment							(18,351)		(57,399)			(35,736)
Purchase of intangible assets							(12)		(78)			(4)
Proceeds from disposal of plants							-		14			-
Net cash used in investing activities							(18,363)		(57,463)			(35,740)
Financing activities
Issue of ordinary shares							-		34,658			34,658
Proceeds from exercise of options							-		355			-
Net cash from financing activities							-		35,013			34,658
Net decrease in cash and cash equivalents							(21,269)		(26,762)			(5,015)
Movement in cash and cash equivalents
At January 1,							25,587		52,349			52,349
Decrease							(21,269)		(26,762)			(5,015)
At June 30/ December 31,							4,318		25,587			47,334

  

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2008
1.	GENERAL INFORMATION
	Titanium Resources Group Ltd (TRG) is a limited liability company incorporated and domiciled in the British Virgin Islands. The address of its registered office is at P.O. Box 4301, Trinity Chambers, Road Town, Tortola, British Virgin Islands.
2.	BASIS OF PREPARATION
	The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements are prepared under the historical cost convention.
	The interim financial statements for the half-year ended June 30, 2008 are unaudited. The accounting policies used in the preparation of the interim unaudited financial statements are consistent with those used in the annual financial statements for the year ended December 31, 2007. The interim financial statements comply with IAS 34.
3.	LOSS PER SHARE
						6 months to June 30, 2008		Year ended December 31, 2007		6 months to June 30, 2007
						USD		USD		USD
(a)	Basic loss per share
	Loss attributable to equity holders of the group (thousand)					(20,219)		(16,715)		(5,606)
	Weighted average number of ordinary shares in issue					245,342,848		234,119,944		220,480,961
	Basic loss per share					(0.08)		(0.07)		(0.03)
(b)	Diluted loss per share
	Loss attributable to equity holders of the group
	used to determine diluted loss per share (thousand)					(20,219)		(16,715)		(5,606)
	Number of shares
	Weighted average number of ordinary shares in issue					245,342,848		234,119,944		220,480,961
	Adjustments for share options					1,216,667		1,216,667		3,264,985
	Weighted average number of ordinary shares for diluted loss per share					246,559,515		235,336,611		223,745,946
	Diluted loss per share					(0.08)		(0.07)		(0.03)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2008
4.	CAPITAL COMMITMENTS
						6 months to June 30, 2008		Year ended December 31, 2007		6 months to June 30, 2007
						USD'000		USD'000		USD'000
	Property, plant and equipment acquisition contracted
	for at the balance sheet date but not yet incurred:					8,400		18,011		15,800
(a)	Sierra Rutile Limited, a subsidiary of Titanium Resources Group Ltd, entered into the above capital commitments.
5.	EVENTS AFTER BALANCE SHEET DATE
	Events after balance sheet date are disclosed only to the extent that they relate directly to the interim financial statements and are material in effect. As at the date of issuing this set of interim financial statements, there were the following post balance sheet events:
	On 25 July 2008, Dredge 2, with a book value of US$ 40 million, capsized in the Gangama fresh water lagoon being mined. In accordance with IFRS, because this incident occurred after the period end, the carrying value of the Dredge 2 has not been written down to reflect any impairment in this period. Dredge 2, which started operation in January 2008 with an expected contribution of 15% towards the group's production, was covered by the group's insurance policy against material damage and business interruption. As at the date of issuing these financial statements, the cause of the accident had not yet been established and the loss suffered had not yet been quantified.
	As a result of the above, the directors requested that trading in the Company's shares on the AIM market of the London Stock Exchange be suspended until a further announcement can be made to clarify the extent of the impact that the incident will have on the group.
	On 25 July 2008, the group disposed of Global Aluminium Limited (GAL) for a total cash consideration of US$ 40 million. GAL, a wholly owned subsidiary, owns 100% of Bauxite Marketing Ltd and Sierra Mineral Holdings 1 Limited (SML), the operating company for the group's SML bauxite mine in Sierra Leone. The consideration of US$ 40 million includes repayment of an intra-group loan of approximately US$ 11 million and is subject to adjustments for working capital and a contingency payment of US$ 500,000.

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