6 Mar 2009 16:11
Titanium Resources Group Limited
Preliminary Results
March 6, 2009: Titanium Resources Group ("TRG" or "the Company") announces preliminary results for the year ended 31 December, 2008.
Highlights
Commenting on the results, TRG Chief Executive John Sisay said:
"2008 was a challenging year for the Company, with the capsize of Dredge D2 in July having a significant impact on available production capacity. In spite of these difficulties, the Company has produced a robust performance and achieved 50% of its production targets for the year.
"During the year the Company has successfully implemented significant cost cutting measures and the new low cost heavy fuel oil power plant will increase efficiency by around 25%. Workforce reductions and the suspension of all exploration activities by the Company have also resulted in a considerable reduction in costs.
"The Company is considering a number of options to give us greater flexibility to respond to the uncertain outlook for commodity markets. These include increasing higher margin dry mining and the reduction of production levels for the year ahead in order to more closely align output with anticipated demand."
For further information
Titanium Resources Group
John Sisay, Chief Executive
Walter Kansteiner, Non-executive Chairman
Telephone: +44 (0) 207 321 0000
Nominated Advisor
David Nabarro
Ambrian Partners
Telephone: +44 (0)207 634 4705
Aura Financial
Michael Oke
Andy Mills
Telephone: +44 (0) 207 321 0000
Chief Executive's Review
Overview
2008 was a challenging year for the Company, with the capsize of Dredge D2 ("D2") in July having a significant impact on available production capacity. In spite of these difficulties, the Company has produced a robust performance and achieved 50% of its production targets for the year.
Dredge D1 ("D1") has operated consistently throughout 2008 while the rutile grade at the Lanti South deposit where D1 is operating has improved considerably over the year. The Company produced 78,908 tonnes of rutile in the year, slightly down on 2007 but ilmenite production rose 11% year on year to 17,528 tonnes. In light of the difficult circumstances in which the Company is operating and the capsizing of D2 in July 2008, this is a creditable operating performance. Since the end of the year, D1 has performed ahead of target production rates. This performance underlines the world class potential of the Sierra Rutile mine.
The Company is considering a number of options to give us greater flexibility to respond to the uncertain outlook for commodity markets. These include increasing higher margin dry mining and the reduction of production levels for the year ahead in order to more closely align output with anticipated demand. The Company intends to progress with the rehabilitation of D2 once it has reached an agreement with its insurers. The project to rehabilitate D2 is expected to take at least two years from commencement and we are confident that rutile markets will have recovered sufficiently in that period to support additional production from D2.
The Company continues to negotiate with its insurers over outstanding claims relating to D2. Whilst we remain hopeful of achieving an amicable resolution to our outstanding claims, the Company has now initiated legal action against its insurers in an effort to hasten a solution. As stated previously, the Company continues to assess a range of options for raising the necessary funds to rehabilitate D2 and strengthen its balance sheet.
During the year the Company has successfully implemented significant cost cutting measures and the new low cost heavy fuel oil power will increase efficiency by around 25%. Workforce reductions and the suspension of all exploration activities by the Company have also resulted in a considerable reduction in costs.
In addition, the Company has successfully negotiated a deferral of interest payments to the Government of Sierra Leone in relation to the EUR24m loan from the EU, significantly improving TRG's short term cash flows.
In July 2008, prior to the current weakness in aluminium markets, we successfully sold the non-core Sierra Mineral bauxite mine for US$40.5 million, out of which US$11.1 million was used to repay an intercompany loan and US$500,000 remains receivable as deferred consideration.
In January 2009, Jean Raymond Boulle acquired Ospraie Management LLC's entire 49% holding in the Company. The removal of the uncertainty surrounding Ospraie's holding is a significant positive development for the Company.
Additionally, in January 2009, Len Comerford resigned as Chief Executive of the Company. The Board would like to thank Len for his leadership through some challenging times. We also welcomed Jean Lindberg Charles to the Board as a Non-Executive Director in February 2009.
Production
Total rutile production fell by only 5% in 2008, despite the halving of production capacity following the capsize of D2 in July. This performance was a result of consistent production by D1, which has been carried forward into 2009 with D1 producing 6,316 tonnes of rutile compared to a target of 5,455 tonnes in January 2009, and 5,717 tonnes compared to a target of 5,621 tonnes in February 2009. D1 has completed its transition from Lanti North to the higher grade Lanti South deposit, a process which we initiated immediately following the capsize of D2. This transition, in addition to the increase in operational performance, allowed the Company to meet 50% of its annual production targets for 2008.
In 2008, the Company produced 17,528 tonnes of ilmenite, compared to 15,750 tonnes in the previous year.
Financials
The Company generated total sales of US$49.4 million in the year, a decline of 27% from 2007 as a result of the loss of contribution from the Sierra Minerals bauxite mine following its disposal and reduced production from Sierra Rutile, resulting in a loss before taxation of US$40.4 million (2007: US$17 million). However, rutile and ilmenite sales from Sierra Rutile in 2008 of US$39.4 million were robust compared with US$40.8 million in 2007.
The exceptional loss of US$7.7 million relates to an impairment charge in relation to D2 of US$34.3 million, offset against the profit realised on disposal of the Sierra Minerals mine of US$26.6 million.
Cost Reduction
We have successfully completed significant cost cutting measures in the year and the completion of the heavy fuel oil power plant increased efficiency by around 25%. Fuel costs have fallen in line with market prices and increased efficiency. These savings are set to increase during 2009 when the power plant is fully commissioned on heavy fuel oil, which is expected to be completed in the first quarter of 2009. Heavy Fuel Oil is approximately 60% of the cost of diesel. In January 2009, the cost mitigation measures resulted in a 20% reduction in mine site operating costs against budget and we are confident that this trend will continue through the remainder of 2009 provided input prices remain at current levels.
As stated previously, the Company has reduced its workforce by some 25% and all capital programmes have been either suspended or substantially reduced to minimise working capital requirements and improve cash flow. Contractors working on the dry plant at the mine site have also been stood down as the dry plant upgrade will not be required until tonnage has increased following the recommissioning of D2. No further capital expenditure on the planned Dredge D3 is required until D2 has been recommissioned.
Additionally, the Company has also suspended all exploration activities including those at the Sierra Rutile mine and Turners' Peninsular.
Dredge D2
Following further detailed work to assess the damage to Dredge D2, we have now revised our previous estimates for the cost of restoring D2 to full production upwards to US$35 million. Also, whilst we still expect that the repair and recommissioning of D2 will take approximately 14 months, the sourcing and transportation of all the necessary replacement parts to the mine site is likely to require an additional 10 month period. When the Dredge has been recommissioned it will continue to mine the Gangama deposit as initially anticipated by the Company.
A resolution of the Company's insurance claims relating to property damage and business interruption insurance remains an absolute priority. The Company has taken appropriate legal steps to ensure that a resolution to the claim is reached as soon as possible.
Marketing
In response to the cessation of D2's mining operations, the Company declared force majeure on all its rutile and ilmenite contracts, with all customers being placed on an equitable allocation during the second half of 2008 and January 2009.
In February 2009, the Company lifted the force majeure on all sales. As well as providing certainty to customers, this will enable TRG to benefit from contract prices fixed at levels above those currently prevailing in titanium dioxide spot markets.
The Company has made two shipments of 10,500 and 10,000 tonnes of rutile respectively to major customers in 2009.
Outlook
Since the end of the year, the Company has seen some weakness in rutile markets as the ongoing financial crisis has created significant uncertainty. However, as production is sold under fixed price contracts, received prices have not fallen in line with the market. Beyond 2009, pricing will be influenced by prevailing market conditions. The Company has the option of cutting production and protecting margins over the short to medium term and have taken a number of proactive steps to reduce operating costs at Sierra Rutile in 2009.
The world class nature of the Sierra Rutile deposit is beyond doubt and we are confident that long-term industry trends towards the use of higher grade titanium dioxide feedstocks will reinforce our market position.
The continued support of the Government of Sierra Leone gives us further confidence in the prospects for the Company.
TITANIUM RESOURCES GROUP LTD AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - DECEMBER 31, 2008
| Notes | 2008 | 2007 | ||||
| ASSETS | USD'000 | USD'000 | ||||
| Non-current assets | ||||||
| Property, plant and equipment | 3 | 125,503 | 142,348 | |||
| Intangible assets | 13,311 | 13,150 | ||||
| Non-current receivables | 753 | 753 | ||||
| Deferred tax assets | - | 86,879 | ||||
| 139,567 | 243,130 | |||||
| Current assets | ||||||
| Inventories | 4 | 14,482 | 14,890 | |||
| Trade and other receivables | 23,295 | 21,562 | ||||
| Current tax assets | 70 | 211 | ||||
| Cash and cash equivalents | 7,362 | 25,731 | ||||
| 45,209 | 62,394 | |||||
| Total assets | 184,776 | 305,524 | ||||
| EQUITY AND LIABILITIES | ||||||
| Capital and reserves | ||||||
| Share capital | 5(a) | 238,026 | 237,041 | |||
| Revenue reserve | (123,128) | 4,154 | ||||
| Equity holders' interest | 114,898 | 241,195 | ||||
| LIABILITIES | ||||||
| Non-current liabilities | ||||||
| Borrowings | 6 | 45,073 | 44,119 | |||
| Provisions for liabilities and charges | 3,261 | 2,833 | ||||
| 48,334 | 46,952 | |||||
| Current liabilities | ||||||
| Trade and other payables | 21,536 | 17,233 | ||||
| Borrowings | 8 | 144 | ||||
| 21,544 | 17,377 | |||||
| Total liabilities | 69,878 | 64,329 | ||||
| Total equity and liabilities | 184,776 | 305,524 | ||||
The notes form an integral part of these financial statements.
TITANIUM RESOURCES GROUP LTD AND ITS SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2008
| Notes | 2008 | 2007 | ||||
| USD'000 | USD'000 | |||||
| Sales | 49,417 | 67,849 | ||||
| Cost of sales | (70,388) | (72,261) | ||||
| Gross loss | (20,971) | (4,412) | ||||
| Other income | 518 | 2,618 | ||||
| Administrative and marketing expenses | (9,859) | (6,281) | ||||
| (30,312) | (8,075) | |||||
| Exceptional item | 7 | (7,707) | (2,445) | |||
| Finance costs | (2,338) | (6,497) | ||||
| Loss before taxation | (40,357) | (17,017) | ||||
| Taxation | 8 | (86,925) | 302 | |||
| Loss for the year attributable to equity holders | ||||||
| of the group | (127,282) | (16,715) | ||||
| Loss per share (USD) | ||||||
| - basic | (0.52) | (0.07) | ||||
| - diluted | (0.52) | (0.07) | ||||
| The notes form an integral part of these financial statements. | ||||||
TITANIUM RESOURCES GROUP LTD AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2008
| Revenue | ||||||
| Share | reserve/ | |||||
| capital | (deficit) | Total | ||||
| USD'000 | USD'000 | USD'000 | ||||
| Balance at January 1, 2008 | 237,041 | 4,154 | 241,195 | |||
| Employee share options | 985 | - | 985 | |||
| Loss for the year | - | (127,282) | (127,282) | |||
| At December 31, 2008 | 238,026 | (123,128) | 114,898 | |||
| Balance at January 1, 2007 | 198,160 | 20,869 | 219,029 | |||
| Issue of share capital | 34,658 | - | 34,658 | |||
| Employee share options: | ||||||
| - value of employee services | 3,984 | - | 3,984 | |||
| - shares issued on exercise of options | 239 | - | 239 | |||
| Loss for the year | - | (16,715) | (16,715) | |||
| At December 31, 2007 | 237,041 | 4,154 | 241,195 | |||
| The notes form an integral part of these financial statements. | ||||||
TITANIUM RESOURCES GROUP LTD AND ITS SUBSIDIARIES
CONSOLIDATED CASHFLOW STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2008
| Notes | 2008 | 2007 | ||||
| USD'000 | USD'000 | |||||
| Cash flows from operating activities | ||||||
| Cash absorbed in operations | (24,068) | (5,913) | ||||
| Interest received | 518 | 2,182 | ||||
| Interest paid | (1,241) | (81) | ||||
| Tax paid | (351) | (500) | ||||
| Net cash used in operating activities | (25,142) | (4,312) | ||||
| Cash flows from investing activities | ||||||
| Purchase of property, plant and equipment | (32,803) | (57,399) | ||||
| Purchase of intangible assets | (210) | (78) | ||||
| Proceeds from disposal of plant | 99 | 14 | ||||
| Proceeds from disposal of subsidiaries | 9(a) | 28,676 | - | |||
| Net cash generated from/(used in) investing activities | (4,238) | (57,463) | ||||
| Cash flows from financing activities | ||||||
| Issue of ordinary shares | - | 34,658 | ||||
| Proceeds from exercise of options | - | 355 | ||||
| Proceeds from repayment of loan | 11,147 | - | ||||
| Net cash from financing activities | 11,147 | 35,013 | ||||
| Net decrease in cash and cash equivalents | (18,233) | (26,762) | ||||
| Movement in cash and cash equivalents | ||||||
| At January 1, | 25,587 | 52,349 | ||||
| Decrease | (18,233) | (26,762) | ||||
| At December 31, | 7,354 | 25,587 | ||||
| The notes form an integral part of these financial statements. | ||||||
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