23 Mar 2010 07:00
Titanium Resources Group
Preliminary Results
March 23, 2010: Titanium Resources Group ("TRG" or "the Company") announces preliminary results for the year ended 31 December, 2009.
Highlights
·; Sales of US$36.8 million in the year (2008: US$39.4 million).1
·; EBITDA pre exceptional items of US$6.0 million (2008: loss US$22.6 million).
·; Cash costs reduced by 56% in the year to US$28.7 million (2008: $64.7 million).
·; US$2 million cash generated from operating activities (2008: cash consumed $25 million).
·; Construction of Dredge D3 progressing on budget and expected to be commissioned in Q1 2011.
·; Versi Dredge successfully commissioned and now fully operational.
·; All 2010 rutile production sold with an average 5% price increase achieved over 2009 contracted prices for standard grade rutile.
·; Titanium feedstock market fundamentals suggest pricing will improve significantly in 2011.
1Excluding US$10 million of Bauxite sales in 2008. Total sales for 2008 were US$49.4 million
Commenting on the results, TRG Chief Executive John Sisay said:
"Following a busy year, TRG has made significant progress on a number of fronts in 2009 and is now in a strong position to grow and deliver value to shareholders. The successful capital raise, significant reductions in operating costs, achievement of operating profitability, a positive EBITDA before exceptionals and a robust operating performance should provide the basis for a sustainable improvement in the Company's performance. Furthermore, titanium feedstock market fundamentals suggest pricing will further improve significantly in 2011, at the same time as the Company's sales contracts expire.
"In November 2009 we successfully raised US$25 million from new and existing shareholders to expand production at the Sierra Rutile mine, through the completion of the construction of Dredge D3, the upgrading of Dredge D1's Wet Plant and upgrades at the Company's Land Plant. These projects are expected to be fully commissioned within the next 12 months and Dredge D3 is expected to add rutile production of 30,000 tonnes in its first full year of operation.
"The positive outlook for titanium markets and TRG's ability to significantly increase production means we are well positioned to benefit from future price increases. Our key focus for 2010, therefore, is on ensuring that Dredge D3 and our other growth projects are delivered successfully."
For further information
Titanium Resources Group
John Sisay, Chief Executive
Walter Kansteiner, Non-executive Chairman
Telephone: +44 (0) 207 321 0000
Arbuthnot Securities
Nominated Adviser & Broker
John Prior/Ed Burbidge
Telephone: +44 (0) 20 7012 2000
Aura Financial
Michael Oke / Andy Mills
Telephone: +44 (0) 207 321 0000
Chief Executive's Review
Following a busy year, TRG has made significant progress on a number of fronts in 2009 and is now in a strong position to grow and deliver value to shareholders. The successful capital raise, significant reductions in operating costs, achievement of operating profitability, a positive EBITDA before exceptionals and a robust operating performance should provide the basis for a sustainable improvement in the Company's performance. Furthermore, titanium feedstock market fundamentals suggest pricing will further improve significantly in 2011, at the same time as the Company's sales contracts expire.
The fall in the Company's sales in 2009 compares to the previous year during which significant contributions were recorded from the Sierra Minerals Bauxite mine ("SML") as well as additional rutile production from Dredge D2. Stripping out SML's contribution sales fell by just 6% in the year, a very creditable result.
Following the lifting of the Company's suspension from trading on AIM in January 2009, the Company implemented a wide reaching cost cutting and efficiency optimisation programme which resulted in a reduction in costs of sales for the year of 56%. These significant cost savings helped the Company achieve EBITDA before exceptionals for the year of US$6.0 million compared to a loss of US$22.7 million during the previous year.
In November 2009 we successfully raised US$25 million from new and existing shareholders to expand production at the Sierra Rutile mine, through the completion of the construction of Dredge D3, the upgrading of Dredge D1's Wet Plant and upgrades at the Company's Land Plant. These projects are expected to be fully commissioned within the next 12 months and Dredge D3 is expected to add rutile production of 30,000 tonnes in its first full year of operation.
The Company successfully reached a Settlement Agreement for US$3.5 million in April 2009 with the second largest of its reinsurers, in relation to the Company's Dredge D2 insurance claims. The Company expects to have concluded court appointed mediation with the rest of its reinsurers by the end of March 2010. Should a settlement not be reached at mediation, a four week trial has been set down to commence on 28 June 2010. Whilst there can be no certainty about the conclusion of our legal action, we believe we are in a strong position based upon the legal and technical merits of our claim.
Rutile production for the year was broadly in line with the Company's estimates with achieved rutile production of 21,514, tonnes in Q4 2009, a 96.8% increase from the levels of Q3. The increased production levels in Q4 2009 were a result of operational improvements on Dredge D1 combined with its mining of the higher grade Lanti South deposit.
In addition to my appointment as CEO and the appointment of Lindberg Charles as CFO, the Company has seen a number of changes to its Board and management team. François Colette has been appointed as a Non-Executive Director, and Raju Jaddoo has become a Non-Executive Director following his resignation as Chief Financial Officer. Further to these Board changes, the Company has also made a number of senior operational appointments.
These include the appointment of Mark Button as Chief Operating Officer, bringing with him a wealth of operational experience that will be of significant value to the Company and the promotion of Sahr Wonday to General Manager of SRL's operations following more than 30 years working across the different plants, latterly as Deputy General Manager.
After the end of the period Neil Gawthorpe was appointed Marketing Director having worked as TRGs Sales & Marketing Manager since January 2008.
TRG supports the Government of Sierra Leone's 2007 manifesto pledge to ensure that Sierra Leone's mineral wealth is developed sustainably and to the benefit of the Sierra Leonean people. The Company has a strong working relationship with the Government and continues to work with the Ministry for Mineral Resources review team to ensure that our mutually beneficial relationship continues.
Production
| 2009 | Rutile Production (tonnes) | Ilmenite Production (tonnes) |
| Quarter 1 | 18,000 | 5,028 |
| Quarter 2 | 13,418 | 3,630 |
| Quarter 3 | 10,932 | 2,575 |
| Quarter 4 | 21,514 | 3,928 |
| Total | 63,864 | 15,161 |
During 2009 the Company produced 63,864 tonnes of rutile, broadly in line with the Company's targeted production for the year of 65,000 tonnes. The Company saw a significant increase in production during the final quarter of 2009 as a result of improved dredge availability and increased digging rates combined with Dredge D1 mining higher grade areas of the Lanti South deposit. Production in Q1 has been in line with expectations and the Company anticipates that production levels will increase as the year progresses. As a result, TRG is targeting rutile production of 90,000 tonnes in 2010, in addition the Company expects to produce a modest amount of ilmenite and zircon concentrate in the year
A build up of slimes in the Lanti South pond where Dredge D1 is mining resulted in a number of mechanical breakdowns to pumps and reduced recoveries in the wet plant, with a knock on effect on dredge availability notably in Q3. As a result the Company purchased a new IMS Versi-Dredge ("the Versi-Dredge") for US$1.1 million, which has been financed from the cash flows generated from operations.
The Versi-Dredge, which was delivered to site in February, has been commissioned and is now fully operational. The Company expects that it will take approximately 6 months to remove the slimes in the Lanti South pond. This should not only assist the Company in meeting its production targets for 2010, but also ensure the full mine life of the Lanti South Pond is preserved.
Once the slimes have been removed, the Company intends to use the Versi-Dredge to increase production by mining deposits such as those in the Mogbwemo tailings area, which contains a mineral resource of approximately 18 million tonnes of ore at an average rutile grade of 0.94%. In anticipation of the Versi-Dredge mining these tailings later in the year, the Company is currently evaluating plans to construct a small wet plant for the dredge.
Dredge D3
The Board approved fund raising for the construction of Dredge D3 last year and, following the placing conducted in November, development work began in December 2009 following the appointment of CEMMATS as pre-project managers. The project, which is expected to add 30,000 tonnes per annum to rutile production in its first full year of operation, is progressing on budget and is expected to be commissioned in Q1 2011.
Following a review of the dredge design, the Company has decided to construct Dredge D3 with a separate floating wet plant rather than with an integral plant as previously planned. Whilst this has caused a short delay to the project it will result in improved recoveries from the wet plant once the dredge is in operation.
We expect to award contracts for the mechanical and electrical contractors in the coming weeks and to have completed orders for all long lead items by April.
D1 Wet Plant and Land Plant upgrades
The upgrade of spirals on the Dredge D1 Wet Plant is progressing ahead of schedule. Proposals from three independent suppliers have been received and are currently being reviewed with the tender expected to be awarded later this month. It is currently anticipated that the new spirals will be commissioned in Q3 2010.
Work to complete the upgrade of the Land Plant is continuing and the Company is confident the work will be completed in the second half of the year as anticipated.
Exploration
The Company commissioned its new EVH 2100 aircore rig during late 2009 and has conducted reconnaissance mapping and sampling in Sierra Rutile owned concessions which have identified well mineralised zones suitable for further investigation. These represent promising extensions to the existing mineral resource and dredgeable operations, with exploration drilling planned over these targets. The drilling will be orientated towards: improving the mineral resource confidence in the Gbeni and Ndendemoia areas; confirming promising extensions to known mineral resources; and identifying potential new mineral resource areas.
Financials
Cash Position
The Company had a cash balance of US$25.9 million as at 31 December 2009. The US$25 million gross proceeds raised during 2009 were largely undrawn as at the Balance Sheet date as the planning phase of the projects which started before year end does not require a substantial amount of cash.
Turnover and Loss Before Tax
Rutile and ilmenite sales from Sierra Rutile in 2009 of US$36.8 million were robust compared with US$39.4 million in 2008 given the reduction in production capacity. The total sales of US$36.8 million in the year, represents a decline of 25% from 2008 as a result of the disposal of the Sierra Minerals bauxite mine in the second half of 2008 and reduced production from Sierra Rutile, resulting in a loss before taxation of US$7.5 million (2008: US$40.4 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 fuel savings by over 50%. Fuel costs have fallen in line with market prices, lower cost of fuel oil as compared to diesel and increased efficiency.
Cash costs have also been significantly reduced through improvements to procurement processes, reduced use of consumables, salary cuts, a reduction in headcount and a fall in the use of contracted services.
In the year these measures produced a combined US$36 million reduction in cash costs, a fall of 56%. The Company anticipates that in the future, costs will rise in line with increased production levels and inflation, however they are expected to remain significantly below 2008 levels.
Exceptional items
The Company recorded a one off US$6.4 million exceptional gain following the writing back of previous provisions relating to share options which were put in place at the IPO. The options, which are priced at 47p, expire on 15 August 2010.
Other exceptional costs relate mainly to costs associated with the private placement to raise US$25 million (gross) completed during November 2009.
The Company recorded an overall exceptional gain of US$3.7 million in 2009.
Finance Costs
The increase in finance costs to US$7.5 million was as a result of a US$3.7 million interest charge on the €35 million loan from the EU, the remaining costs of US$3.8 million occurred following adverse currency movements.
Marketing
The Company fully sold all of its production in 2009 and has already sold all of its production for 2010 under contract, achieving an average price increase of 5% for standard grade rutile compared to 2009 contracted prices.
There has been strong demand for higher margin industrial grade rutile from Asian markets, and this has resulted in a number of positive developments. Sales of industrial grade rutile into the Japanese market for 2010 have doubled, whilst the Company successfully entered the Chinese market for the first time through a contract for bulk rutile. There is potential for further sales to this expanding company and negotiations on future supply contracts are underway.
Industrial grade typically sets a premium of US$100 per tonne to standard grade rutile at little extra cost to the Company and therefore increased sales into this market is an important step for the Company.
Longer term demand for the Company's industrial grade rutile outside of China is likely to be supported by the increasing trend towards the use of flux cored wire technology as opposed to welding rods.
Although the markets for titanium feedstocks were in oversupply during 2009, much of this surplus was of sulphate grade ilmenite. In contrast, the market for high TiO2 chloride feedstock remains tight and we expect this to continue due to long-term supply fundamentals.
A number of other producers have shut or mothballed capacity and there is a lack of new projects coming on stream to replace older mines which are approaching the end of their lives. As a result, supply side deficits in the titanium feedstock markets are unavoidable in the medium term. This tightening of supply is likely to be most acute in the high grade feedstock markets in which TRG operates.
The long term drivers for increased rutile consumption in the pigment industry remain intact as stringent environ-mental regulations imposed on pigment producers make higher purity feedstocks more attractive as they require less energy and produce less waste.
Additionally, the Company will shortly commence bulk shipment of zircon concentrate, providing a new revenue stream from a high value material used in the ceramics industry. Demand for the zircon concentrate is very high and contract negotiations are well advanced for further shipments during the year.
Outlook
The positive outlook for titanium markets and TRG's ability to significantly increase production means we are well positioned to benefit from future price increases. Our key focus for 2010, therefore, is on ensuring that Dredge D3 and our other growth projects are delivered successfully.
Despite this focus on growth, I am convinced that the operational improvements achieved in 2009 can be continued in the year ahead. The improved production performance shown in the second half of last year has continued into 2010 and the steps we took to reduce expenditure and improve efficiency have resulted in sustainable cost reductions.
Sierra Leone remains a challenging place to operate, however, I am convinced that the Company is well positioned to deliver a sustained improvement in operating performance and profitability.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - DECEMBER 31, 2009
|
|
|
| Note | 2009 | 2008 |
| ASSETS |
|
| USD'000 | USD'000 | |
| Non-current assets |
|
|
|
| |
| Property, plant and equipment |
| 1 | 123,933 | 125,503 | |
| Intangible assets |
| 2 | 13,243 | 13,311 | |
| Non-current receivables |
|
| 753 | 753 | |
|
|
|
|
| 137,929 | 139,567 |
|
|
|
|
|
|
|
| Current assets |
|
|
|
| |
| Inventories |
|
| 16,088 | 14,482 | |
| Trade and other receivables |
|
| 16,806 | 23,258 | |
| Current tax assets |
|
| - | 70 | |
| Cash in hand and bank balance |
|
| 25,902 | 7,362 | |
|
|
|
|
| 58,796 | 45,172 |
| Total assets |
|
| 196,725 | 184,739 | |
|
|
|
|
|
|
|
| EQUITY AND LIABILITIES |
|
|
|
| |
| Capital and reserves |
|
|
|
| |
| Share capital |
| 4 | 251,963 | 238,026 | |
| Revenue deficit |
|
| (130,995) | (123,128) | |
| Owners' interest |
|
| 120,968 | 114,898 | |
|
|
|
|
|
|
|
| LIABILITIES |
|
|
|
| |
| Non-current liabilities |
|
|
|
| |
| Borrowings |
| 5 | 51,638 | 45,073 | |
| Provision for liabilities and charges |
|
| 3,261 | 3,261 | |
|
|
|
|
| 54,899 | 48,334 |
|
|
|
|
|
|
|
| Current liabilities |
|
|
|
| |
| Trade and other payables |
|
| 20,673 | 21,499 | |
| Current tax liabilities |
|
| 175 | - | |
| Borrowings |
| 5 | 10 | 8 | |
|
|
|
|
| 20,858 | 21,507 |
| Total liabilities |
|
| 75,757 | 69,841 | |
| Total equity and liabilities |
|
| 196,725 | 184,739 | |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
| Note | 2009 | 2008 |
|
|
|
|
| USD'000 | USD'000 |
| Sales |
|
| 36,849 | 49,417 | |
| Cost of sales |
| 6 | (38,443) | (72,315) | |
| Gross loss |
|
| (1,594) | (22,898) | |
| Other income |
|
| 2,187 | 518 | |
| Administrative and marketing expenses |
|
| (4,342) | (7,932) | |
|
|
|
|
| (3,749) | (30,312) |
| Exceptional item |
| 7 | 3,698 | (7,707) | |
| Finance costs |
| 8 | (7,514) | (2,338) | |
| Loss before taxation |
|
| (7,565) | (40,357) | |
| Taxation |
|
| (302) | (86,925) | |
| Loss for the year |
|
| (7,867) | (127,282) | |
| Other comprehensive income |
|
| - | - | |
| Total comprehensive income for the year |
|
| (7,867) | (127,282) | |
| Loss attributable to: |
|
|
|
| |
| Owners of the parent |
|
| (7,867) | (127,282) | |
| Minority interest |
|
| - | - | |
|
|
|
|
| (7,867) | (127,282) |
| Total comprehensive income attributable to: |
|
|
|
| |
| Owners of the parent |
|
| (7,867) | (127,282) | |
| Minority interest |
|
| - | - | |
|
|
|
|
| (7,867) | (127,282) |
| Loss per share (USD) |
|
|
|
| |
| - basic |
|
| (0.03) | (0.52) | |
| - diluted |
|
| (0.03) | (0.52) | |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2009
|
|
|
| Share |
| Revenue |
|
|
|
|
|
| capital |
| deficit |
| Total |
|
|
|
| USD'000 |
| USD'000 |
| USD'000 |
|
|
|
|
|
|
|
|
|
| Balance at January 1, 2009 |
| 238,026 |
| (123,128) |
| 114,898 | |
| Total comprehensive income for the year |
| - |
| (7,867) |
| (7,867) | |
| Adjustment for employee share options |
| (11,282) |
| - |
| (11,282) | |
| Issue of share capital |
| 25,219 |
| - |
| 25,219 | |
| Balance at December 31, 2009 |
| 251,963 |
| (130,995) |
| 120,968 | |
|
|
|
|
|
|
|
|
|
| Balance at January 1, 2008 |
| 237,041 |
| 4,154 |
| 241,195 | |
| Employee share options: |
|
|
|
|
|
| |
| - Options vested |
| 985 |
| - |
| 985 | |
| Loss for the year |
| - |
| (127,282) |
| (127,282) | |
| Balance at December 31, 2008 |
| 238,026 |
| (123,128) |
| 114,898 | |
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2009
|
|
|
|
|
| 2009 |
| 2008 |
|
|
|
|
|
| USD'000 |
| USD'000 |
| Operating activities |
|
|
|
|
|
| |
| Cash generated from/(absorbed in) operations |
|
|
| 2,000 |
| (23,986) | |
| Interest received |
|
|
| 16 |
| 436 | |
| Interest paid |
|
|
| (12) |
| (1,241) | |
| Tax paid |
|
|
| (57) |
| (351) | |
| Net cash from/(used in) operating activities |
|
|
| 1,947 |
| (25,142) | |
|
|
|
|
|
|
|
|
|
| Investing activities |
|
|
|
|
|
| |
| Purchase of property, plant and equipment |
|
|
| (8,658) |
| (32,803) | |
| Purchase of intangible assets |
|
|
| - |
| (210) | |
| Proceeds from disposal of plants |
|
|
| 30 |
| 99 | |
| Proceeds from disposal of subsidiaries |
|
|
| - |
| 28,676 | |
| Net cash used in investing activities |
|
|
| (8,628) |
| (4,238) | |
|
|
|
|
|
|
|
|
|
| Financing activities |
|
|
|
|
|
| |
| Proceeds from repayment of loan |
|
|
| - |
| 11,147 | |
| Proceeds from issue of shares |
|
|
| 25,219 |
| - | |
| Net cash from financing activities |
|
|
| 25,219 |
| 11,147 | |
|
|
|
|
|
|
|
|
|
| Net increase/(decrease) in cash and cash equivalents |
|
|
| 18,538 |
| (18,233) | |
|
|
|
|
|
|
|
|
|
| Movement in cash and cash equivalents |
|
|
|
|
|
| |
| At January 1, |
|
|
| 7,354 |
| 25,587 | |
| Increase/(Decrease) |
|
|
| 18,538 |
| (18,233) | |
| At December 31, |
|
|
| 25,892 |
| 7,354 | |
|
|
|
|
|
|
|
|
|
The notes to these accounts, which form an integral part of these financial statements, can be viewed at this link:
http://www.rns-pdf.londonstockexchange.com/rns/9866I_-2010-3-22.pdf