2023 Preliminary Results
*Kenmare Resources plc*
(“Kenmare” or “the Company” or “the Group”)
20 March 2024
*2023 PRELIMINARY RESULTS*
Kenmare Resources plc (LSE:KMR, ISE:KMR), one of the leading global producers of titanium minerals and zircon, which operates the Moma Titanium Minerals Mine (the "Mine" or "Moma") in northern Mozambique, today announces its preliminary results for the twelve months to 31 December 2023.
*Statement from Michael Carvill, Managing Director: *
“In 2023, Kenmare delivered $220 million of EBITDA, the second strongest in its history and representing a 50% EBITDA margin. The Board is proposing a full year dividend of USc56.04 per share for 2023, up 3% on 2022, and bringing shareholder returns to over $250 million since 2019.
This sound financial performance was delivered against a backdrop of operational challenges and a weaker product market. With 2024 well underway, Kenmare is on track to achieve its annual production guidance, although production is still expected to be second half weighted. The markets for our products have been stronger than anticipated in 2024 to date, driven by improving demand for titanium pigment.
As previously announced, I will be stepping down as MD later this year. I am very proud of what Kenmare has achieved over the past 38 years and I am confident that the Company will continue to create value for all stakeholders.”
*2023 overview*
Financial
· Recommended 2023 dividend of $50.0 million or USc56.04 per share, a 3% increase compared to 2022 (USc54.31), comprising an interim dividend of USc17.50 per share (paid in October 2023) and a final dividend of USc38.54 per share (payable in May 2024)
· Mineral product revenue of $437.1 million, a 12% decrease compared to 2022 ($498.3 million), driven by a 10% lower average price received for Kenmare’s products, due to weaker markets and a 3% reduction in shipments
· Total cash operating costs of $228.1 million, up 4% on 2022 ($218.7 million), due to increased heavy mobile equipment rental, higher fuel costs, and costs associated with a severe lightning strike in Q1 2023
· Cash operating costs per tonne of $209, a 15% increase compared to 2022 ($182 per tonne), due to higher total cash operating costs and a 9% decrease in production of finished products
· EBITDA of $220.3 million, representing a strong EBITDA margin of 50% (2022: 60%), despite weaker product pricing driving a 26% decrease on 2022 ($298.0 million)
· Profit after tax of $131.0 million, down 36% on 2022 ($206.0 million)
· Diluted earnings per share of $1.37 per share, a 35% decrease on 2022 ($2.12 per share)
· Net cash of $20.7 million at year-end 2023 (2022: $25.7 million), with cash and cash equivalents of $71.0 million (2022: $108.3 million)
· Share buy-back of 5.9% of Kenmare’s issued share capital for £23.6 million ($30.0 million) completed in September 2023
· Post-period end, new debt facilities agreed for a $200 million Revolving Credit Facility to enhance financial flexibility and support Kenmare’s planned capital programmes
Operational and corporate
· As announced on 15 March 2024, Managing Director Michael Carvill will step down from his executive role and Board position later this year – the Nomination Committee has commenced a process to find his successor
· Strong safety performance achieved in Q4 2023 has continued in Q1 2024, with the milestone of three million hours without a Lost Time Injury (“LTI”) passed in late February
· Heavy Mineral Concentrate (“HMC”) production of 1,448,300 tonnes in 2023, a 9% decrease compared to 2022 (1,586,200 tonnes), due to lower ore grades and mining rates impacted by power interruptions and a severe lightning strike in Q1 2023
· Ilmenite production of 986,300 tonnes in 2023, a 9% decrease on 2022 (1,088,300 tonnes), broadly in line with a 9% reduction in HMC processed
· Shipments of finished products of 1,045,200 tonnes in 2023, a 3% decrease on 2022 (1,075,600 tonnes), due to weaker product markets and poor weather conditions in Q4 2023
· Ilmenite production guidance for 2024 is 950,000 to 1,050,000 tonnes
· Production in 2024 will be second half weighted, with Q1 2024 production expected to be in line with Q1 2023 – material uplift in production expected in Q2 2024.
*Dividend timetable*
Kenmare confirms the dates for the proposed 2023 final dividend are as follows:
Ex-dividend date 11 April 2024
Record date 12 April 2024
Currency election date 16 April 2024 at 12:00 noon (IST)
AGM date for shareholder approval 10 May 2024
Payment date 17 May 2024
Irish Dividend Withholding Tax (25%) must be deducted from dividends paid by the Company, unless a shareholder is entitled to an exemption and has submitted a properly completed exemption form to Kenmare’s Registrar.
*Analyst and investor conference call and webcast*
Kenmare will host a conference call and webcast for analysts, institutional investors, lenders and media today at 09:00 UK time. Participant dial-in numbers for the conference call are as follows (a pin code is not required to access the call):
UK: +44 20 3481 4247
Ireland: +353 1 582 2023
US: +1 (646) 307 1963
Conference ID: 9962365
To register for the webcast click here. A playback of the webcast will be available at www.kenmareresources.com.
*Private investor webinar*
There will also be a separate webinar for private investors on 26 March 2024 at 12:30pm UK time. To access the webinar, please register in advance by clicking here.
For further information, please contact:
*Kenmare Resources plc*
Jeremy Dibb / Katharine Sutton / Michael Starke
Investor Relations
ir@kenmareresources.com
Tel: + 353 1 671 0411
Mob: + 353 87 943 0367 / + 353 87 663 0875
*Murray Group (PR advisor)*
Paul O’Kane
pokane@murraygroup.ie
Tel: + 353 1 498 0300
Mob: + 353 86 609 0221
*About Kenmare Resources*
Kenmare Resources plc is one of the world's largest producers of mineral sands products. Listed on the London Stock Exchange and the Euronext Dublin, Kenmare operates the Moma Titanium Minerals Mine in Mozambique. Moma's production accounts for approximately 7% of global titanium feedstocks and the Company supplies to customers operating in more than 15 countries. Kenmare produces raw materials that are ultimately consumed in everyday quality-of-life items such as paints, plastics and ceramic tiles.
All monetary amounts refer to United States dollars unless otherwise indicated.
*Forward-Looking statements*
This announcement contains some forward-looking statements that represent Kenmare's expectations for its business, based on current expectations about future events, which by their nature involve risks and uncertainties. Kenmare believes that its expectations and assumptions with respect to these forward-looking statements are reasonable. However, because they involve risk and uncertainty, which are in some cases beyond Kenmare's control, actual results or performance may differ materially from those expressed or implied by such forward-looking information.
*CHAIRMAN’S STATEMENT*
Dear shareholders,
*Introduction*
Kenmare faced a number of challenges in 2023, both internal and external. For some of these challenges, such as a weaker product market, the resilience we have built into the Company over the past few years has enabled us to continue to operate profitably. For others, such as the severe lightning strike close to the Moma Mine in February, we have since built in additional protective measures to minimise future interruptions to production. I am proud that, against this backdrop, we delivered another year of robust financial results and strong shareholder distributions.
In 2024, we are embarking on a capital programme to unlock the value from the Nataka ore zone, which represents over 70% of Moma’s Mineral Resources. I am confident that we have the skills and experience to navigate the challenges that come with large projects: we have strong relationships with our partners in Mozambique, our customers, and other stakeholders, supported by a team with 17 years of operational experience and more than 30 years in country.
I would like to recognise Michael Carvill’s role in developing the Company to this point and in preparing the way for the Nataka development. The Moma deposit was developed and Kenmare exists only because of Michael’s focus, determination, and ability to build enduring relationships. I am very grateful to him for agreeing to continue to provide the Company with his insights as a senior advisor on the Nataka transition and our relationship with the Government of Mozambique.
*Transition to Nataka*
In 2023, we completed a Definitive Feasibility Study (“DFS”) for the main elements of the upgrade of Wet Concentrator Plant (“WCP”) A and its transition to Nataka. Nataka is the largest ore zone within Moma’s portfolio and WCP A is expected to mine there for the remainder of its economic life. Our detailed studies have confirmed the optimal method to mine Nataka and upgrade the mining plant, with the objective of retaining our first quartile position on the industry revenue to cost curve.
The capital cost for the Nataka transition to the end of 2027 is estimated to be up to $341 million. This includes costs for additional WCP A infrastructure, with the DFS for this work due to be completed in Q2 2024. Your Directors are very conscious that this represents a significant increase to the cost estimates announced following the Pre-Feasibility Study (“PFS”) and the Board and executive team are focused on detailed oversight and effective delivery of the project, supporting successful mining in the new orebody for many years to come.
In order to maintain maximum financial flexibility during this short period of increased capital spend, the Board took the decision in late 2023 to defer the upgrade of WCP B. While we continue to study ways of enhancing production at WCP B, which is likely to represent an attractive investment, in the short-term we are prioritising the WCP A investment.
*Delivering value for our shareholders*
During the year, I was pleased to get the opportunity to meet with a number of Kenmare’s shareholders as it is vital for the Board and management to understand their perspectives, priorities and concerns. In early 2024, we undertook an investor perception study to allow a wider group of existing shareholders, potential investors and sell-side analysts to share their views on all aspects of the Company. One of the key pieces of feedback was the importance of maintaining a sound balance sheet, particularly while undertaking the Nataka transition. My fellow Directors and I will continue to foster open dialogue with our shareholders and we remain focused on maximising shareholder value.
The Board is recommending a final dividend of USc38.54 per share (2022: USc43.33). This amounts to a total dividend in respect of 2023 of USc56.04 per share, up 3% (2022: USc54.31). We also completed a second share buy-back in September 2023, when Kenmare repurchased 5.9% of its issued share capital for a total consideration of $30.0 million. Including the 2023 dividend, over $250 million will have been returned to shareholders through a combination of dividends and share buy-backs since 2019.
The majority of the capital investment to support the Nataka transition will be incurred in 2024 and 2025. We recently announced a new $200 million debt facility with our lenders, which is an important element of our capital structure and financial planning. To the extent possible during this period, we will aim to pay dividends towards the top of our stated payout range of 20-40% of underlying Profit After Tax. However, additional shareholder returns will need to be balanced with a requirement to maintain a strong balance sheet to fund the programme.
*Sustainability*
Sustainability has always been central to Kenmare and from speaking to employees at Moma, I know it is one of the areas of our business that inspires the most passion and pride in our workforce. I am encouraged to see a return to strong safety performance, with no Lost Time Injuries in Q4 and three million hours worked without a Lost Time Injury achieved by late February 2024. The health, safety and wellbeing of our team at the Moma Mine remain our top priorities.
Female representation in Kenmare’s workforce increased again in 2023 – by the end of the year, 16% of Mine employees were women, up from 14.5% in 2022. This represents a fourfold increase over the last eight years, and we are making good progress towards our target of 20% by the end of 2025. Importantly, an even higher proportion of the senior management at the Mine is female (40% compared to 25% in 2022) and we are pleased to see their positive impact being delivered through improved leadership and collaboration.
Turning to the environment, we take seriously our responsibility to maintain biodiversity at the Moma Mine. In June 2023, our Sustainability Committee participated in a strategic discussion centred on the conservation goals of both the Global Biodiversity Framework and the Mozambican Government. Work is underway on our strategies for “No Net Loss” and “15% Net Gain”, which will be delivered through Moma’s Biodiversity Offset Management Plan.
*Executive and Board development*
As Michael Carvill is stepping down later this year, Kenmare’s Nomination Committee has initiated a process to find Michael’s successor and will consider both internal and external candidates. Michael will step down ahead of the Company’s 2024 Interim Results.
As I mentioned in my last statement, we were delighted to welcome Issa Al Balushi to the Board in early 2023. He became a Director in January as the Board nominee of our largest investor, the Oman Investment Authority.
We are committed to increasing female representation on Kenmare’s Board and, following a review by the Nomination Committee, we have initiated a search for an additional female Non-Executive Director. This will be co-ordinated with the search for a new Managing Director in order to ensure that the Board has the appropriate mix of skills. It is also our intention to appoint one of our female Directors as Senior Independent Director when Graham Martin retires next year. This will allow us to benefit from increased diversity, whilst also meeting Listing Rules for female Directors and their roles in senior Board positions. Following this, women will represent at least 40% of Kenmare’s Board.
During the year, I conducted an internal Board performance review. Similarly to 2022, the review indicated a high level of satisfaction and found that there is good communication both within the Board and its Committees, and with management. However, there is always room for improvement, and we have identified a number of focus areas to improve Board effectiveness in 2024. These include strengthening the processes by which the Board oversees budgeting and capital allocation planning, and how we evaluate internal and external investment opportunities.
*Outlook*
2023 was a year of on-going global volatility: the Chinese economy slowed, and major conflicts erupted or continued in several parts of the world. The potential for instability is likely to extend into 2024, with both the USA and Russia holding elections during the year, in addition to approximately 70 other countries, including Mozambique.
However, despite the prospect of on-going macroeconomic uncertainty, Kenmare continues to occupy a market-leading position: we produce products that the world needs, we can operate profitably throughout the commodity price cycle, and the Nataka transition will ensure this continues for future generations.
Nevertheless, we recognise there is a lot of work to be done, including continuing to strengthen our safety culture, improving the consistency of our operational performance, and ensuring we capture strategic opportunities whenever value can be created for all of our stakeholders. We recognise that Kenmare’s share price has experienced significant weakness during the past year, and we are focused on delivery in order to improve our valuation in 2024 and beyond.
*Acknowledgements*
On behalf of the Board, I would like to thank Michael Carvill for his outstanding commitment and service to Kenmare over almost forty years. Having worked with him personally for 25 years, I have seen first-hand his dedication to the highest personal and corporate values in every facet of our operations, the inspirational quality of his leadership, and the beneficial impact of his commitment to the communities in which we work. We are very grateful for Michael’s tremendous contribution to Kenmare and he has our very best wishes for the future.
We appreciate the support of everyone who has contributed to the Company over the past year, and I’d like to finish by thanking my colleagues on the Board, Kenmare’s employees, our host communities, shareholders, and other valued stakeholders.
Andrew Webb
CHAIRMAN
*MANAGING DIRECTOR’S STATEMENT*
Dear shareholders,
*Introduction*
In March 2024, I announced that I will be stepping down as Managing Director later this year. Subject to my re-election at our Annual General Meeting in May, I will continue in my executive role and on Kenmare’s Board until the Interim Results in mid-August, and in a consultancy capacity until at least the end of 2024. The 38 years I will have served as Managing Director have been both fascinating and rewarding, and each year has brought its own challenges and achievements.
Looking back on 2023 in particular, we advanced a number of major projects, critical for the long-term success of the business. Preparations began for the transition of WCP A to Nataka, which will secure production for decades to come. The refinancing of our debt facilities, which we announced in early 2024, enhanced our financial flexibility and will allow us to maintain shareholder distributions, while funding our capital requirements. The contract was also signed for the construction of a new district hospital by the Kenmare Moma Development Association (“KMAD”), which will substantially improve the healthcare provision for communities living close to the Moma Mine.
However, 2023 also presented a number of operational challenges, principally an unusually severe lightning strike, that led to a downward revision of our ilmenite production guidance for the year. I am proud that, despite these issues and weaker product markets, we delivered a robust financial performance, with the second strongest EBITDA in Kenmare’s history and representing a 50% EBITDA margin. We also maintained a net cash position at year-end. The Board is recommending a dividend per share of USc56.04 in respect of 2023, up 3% on 2022, and benefitting from Kenmare’s reduced issued share capital following our second share buy-back in 2023.
*Safety*
In late February 2024, we passed the milestone of three million hours worked without a LTI, which is a credit to our team at Moma. This built on our strong safety performance in Q4 2023, when we achieved zero LTIs.
While this was encouraging, our Lost Time Injury Frequency Rate for the 12 months to 31 December 2023 increased to 0.15 incidents per 200,000 hours worked, due to the five LTIs earlier in the year, compared to 0.09 in 2022. As part of our focus on reversing this negative trend, we strengthened our safety leadership with the appointment of a new Health & Safety Manager, Babra Mudzanapabwe. She is managing the implementation of additional training and new safety protocols, including “safety-led down times”, to reinforce that safety must always be prioritised above production.
For an eighth consecutive year, Moma retained its maximum five-star rating by the National Occupational Safety Association (NOSA).
*Operational performance*
Operations at the Moma Mine had a difficult start to 2023, due to an unusually severe lightning strike hitting power lines close to the Mine in February. Power infrastructure and electronic devices within our three WCPs were damaged by the strike, impacting HMC production. We continued to experience power reliability issues throughout H1, leading us to revise down our ilmenite production guidance in July. In the months following the lightning strike, our technical team conducted a thorough investigation and additional protective measures have since been put in place, providing an additional line of defence to the grid’s own safeguards.
To improve future regional power reliability, Kenmare part-funded the refurbishment of the Nampula STATCOM on the Electricidade de Moꞔambique (“EdM”) grid and this was commissioned in Q4 2023. In addition, a new regional 400kV power line is due to be commissioned by EdM in the coming months. Both of these projects are expected to enhance power stability at the Mine.
HMC production was also impacted by lower grades in 2023 than expected. Against this backdrop, we were pleased to achieve revised ilmenite production guidance for the year, while meeting or exceeding original production guidance for our other products, and we are focused on improving operational performance in 2024.
Shipments in 2023 were down 3% compared to 2022, due to slightly weaker demand and more cautious buying from our customers. However, we saw our strongest shipments in Q4 and volumes would have been higher still had poor weather not impacted loading time.
In an independent report, TZMI, a mineral sands industry analyst, declared that Kenmare is in the first quartile on the industry revenue to cost curve in respect of 2021. It was pleasing to receive this independent verification of our own analysis and we are focused on maintaining this leading position, which will be facilitated through our programme of capital investment.
In late 2022, Kenmare initiated the renewal process for the Implementation Agreement, which covers elements of the fiscal regime governing Moma’s operation. The original agreement was signed in 2004 with a 20-year term and the Company has materially exceeded all the undertakings agreed at that time. This process is continuing and Kenmare is confident the renewal will be concluded in an orderly manner.
*Sustainability*
Since the Company’s formation, we have had a commitment to being a trusted corporate citizen, particularly with respect to our stakeholders in Mozambique.
In 2004, we established KMAD and I am very proud of the transformational change it has delivered for people living close to the Mine. During the past 20 years, over $20 million has been invested into community development initiatives, including $4.7 million in 2023. In addition to the agreement to construct a new district hospital, some of KMAD’s highlights for the year included the construction of a third community health centre and the first students graduating from the KMAD-constructed Topuito Technical College, including 23 female students sponsored by KMAD.
2023 has been confirmed as the hottest year on record and climate change is no longer a future threat but a current reality for our business. With this in mind, we are working to set 2030 interim targets for operational emissions to demonstrate a clear route to decarbonisation and our 2040 Net Zero target. In 2023, we reduced our Scope 1 emissions by 14%, due primarily to investments in the Rotary Uninterruptible Power Supply and operational efficiencies at the Mineral Separation Plant.
*Product markets*
The Moma Mine is a globally significant titanium minerals deposit, with over 100 years of Mineral Resources at the current production rate. Titanium minerals are listed as critical minerals for a number of regions, including the US and in Europe. They are essential in the production of titanium pigment, which is used in everyday items such as paint, plastic and paper, as well as in the fast-growing titanium metal market, which is primarily consumed by the aerospace industry.
Following a year of record pricing in 2022, markets softened in 2023 due to increasing global economic uncertainty. It was nonetheless pleasing to see that demand from our customers remained relatively robust despite these macroeconomic pressures and demand for ilmenite has been stronger in early 2024 than we expected.
Downstream demand for titanium pigment was subdued in 2023, although it improved through the second half of the year. The challenges faced by the pigment market prompted producers to sustain lower-than-normal inventories throughout 2023. We believe the rebuilding of these inventories through increased utilisation rates in 2024 will support demand for ilmenite. Market dynamics continue to favour Kenmare’s ilmenite and we also benefit from our first quartile margin position, allowing us to generate positive cash flow throughout the commodity price cycle.
The zircon market was also softer in 2023 as reduced global economic activity decreased demand for products like ceramics. Prices for zircon in Europe remained weaker in early 2024 but Kenmare has seen a stabilisation in the Chinese spot market in recent months, which we expect will provide some support to the global market.
Despite these short-term pressures, Kenmare believes that the market fundamentals for our products are strong, due primarily to medium- and long-term supply constraints within the titanium feedstocks and zircon industries.
*Capital projects*
During 2023, we completed the DFS for the core elements of WCP A’s upgrade and transition to Nataka in late 2025. Nataka is the largest of Moma’s ore zones and WCP A will mine there for the rest of its economic life.
The upgrade of WCP A will significantly increase the plant’s capacity and allow it to more effectively manage slimes, which are ultra fine particles that negatively impact production. This will ensure consistent future production, while maintaining low operating costs. The DFS for additional infrastructure is continuing and scheduled to be completed in Q2 2024.
Total capital expenditure for the project is estimated to be up to $341 million to the end of 2027, including the costs for additional infrastructure. Most of this capital expenditure is expected to be incurred in 2024 and 2025, with $179 million budgeted for 2024.
The DFS capital cost estimate is higher than the PFS estimate, which was released in April. This was due to changes in scope and design, reflecting opportunities to safeguard Kenmare’s first quartile position on the revenue to cost curve; additional indirect costs to deliver effective schedule risk minimisation; increased contingency costs; and capital cost inflation during the period.
We will be funding this capital investment through operational cash flows and debt facilities, while continuing to make shareholder returns. We announced a new $200 million Revolving Credit Facility with our existing lender group in February 2024, with improved terms that reflect our position as an established mineral sands producer.
*Outlook*
With 2024 well underway, our focus is firmly on delivery. Our team at the Moma Mine are working hard to achieve our guidance for the year, while maintaining the strong safety performance we returned to in Q4 2023. Our projects team is advancing the preparations for the transition to Nataka, while actively looking for ways to optimise the scope, design, and execution of the project.
While product markets were impacted in 2023 by the weaker global economy, ilmenite prices are holding up well in early 2024. Our first quartile position on the industry revenue to cost curve supports our ability to generate strong cash flow, even during periods of weaker pricing, and we are focused on optimising mining at Nataka to ensure we retain this position.
Finally, I would like to thank all my friends and colleagues within the Company, as well as our customers, shareholders, and other partners in Mozambique for their continued support. It has been a privilege to lead Kenmare for almost four decades and I am pleased to leave the Company in a position of strength, with a tier one asset, and as the largest supplier of ilmenite in the world. I am very proud of all that Kenmare has achieved to date and confident in our team's ability to continue to execute on the Company’s strategy to create value for all stakeholders.
Michael Carvill
MANAGING DIRECTOR
*UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME*
*FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2023*
Notes *Unaudited*
*2023*
*$’000* 2022
$’000
Revenue 2 *458,477* 525,988
Cost of sales 4 *(294,927)* (282,694)
Gross profit *163,550* 243,294
Administration expenses 4 *(8,426)* (9,862)
Operating profit *155,124* 233,432
Finance income 5 *5,904* 1,147
Finance costs 5 *(11,118)* (12,472)
Profit before tax *149,910* 222,107
Income tax expense 6 *(18,928)* (16,073)
Profit for the financial year and total comprehensive income for the financial year *130,982* 206,034
Attributable to equity holders *130,982* 206,034 *$ per share* $ per share
Basic earnings per share 7 *1.41* 2.17
Diluted earnings per share 7 *1.37* 2.12
The accompanying notes form part of these financial statements.
*UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME*
*FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2023*
Notes *Unaudited*
*2023*
*$’000* 2022
$’000
Revenue 2 *458,477* 525,988
Cost of sales 4 *(294,927)* (282,694)
Gross profit *163,550* 243,294
Administration expenses 4 *(8,426)* (9,862)
Operating profit *155,124* 233,432
Finance income 5 *5,904* 1,147
Finance costs 5 *(11,118)* (12,472)
Profit before tax *149,910* 222,107
Income tax expense 6 *(18,928)* (16,073)
Profit for the financial year and total comprehensive income for the financial year *130,982* 206,034
Attributable to equity holders *130,982* 206,034 *$ per share* $ per share
Basic earnings per share 7 *1.41* 2.17
Diluted earnings per share 7 *1.37* 2.12
The accompanying notes form part of these financial statements.
*UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION*
*AS AT 31 DECEMBER 2023*
Notes *Unaudited*
*2023*
*$’000* 2022
$’000
*Assets*
*Non-current assets*
Property, plant and equipment 8 *935,848* 930,759
Right-of-use assets 9 *1,368* 1,608 *937,216* 932,367
*Current assets*
Inventories 10 *99,257* 84,171
Trade and other receivables 11 *153,650* 124,018
Cash and cash equivalents 12 *71,048* 108,271 *323,955* 316,460
*Total assets* *1,261,171* 1,248,827
*Equity *
*Capital and reserves attributable to the*
*Company’s equity holders*
Called-up share capital 13 *97* 104
Share premium *545,950* 545,950
Other reserves *229,740* 232,759
Retained earnings *367,504* 324,721
*Total equity* *1,143,291* 1,103,534
*Liabilities*
*Non-current liabilities*
Bank loans 14 *15,502* 46,180
Lease liabilities 9 *1,256* 1,540
Provisions 15 *20,877* 19,746 *37,635* 67,466
*Current liabilities*
Bank loans 14 *32,371* 32,398
Lease liabilities 9 *264* 245
Trade and other payables 16 *38,564* 35,293
Current tax liabilities 17 *6,921* 8,893
Provisions 15 *2,125* 998 *80,245* 77,827
*Total liabilities* *117,880* 145,293
*Total equity and liabilities* *1,261,171* 1,248,827
The accompanying notes form part of these financial statements.
*UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY*
*FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2023*
*Unaudited*
*Called-Up Share*
*Capital*
*$’000* *Unaudited*
*Share *
*Premium*
*$’000* *Unaudited Other Reserves*
*$’000* * Unaudited Retained*
*Earnings*
*$’000* *Unaudited*
*Total*
*$’000*
Balance at 1 January 2022 104 545,950 230,539 154,050 930,643
*Total comprehensive income for the year*
Profit for the financial year - - - 206,034 206,034
Total comprehensive income for the year - - - 206,034 206,034
*Transactions with owners of the Company – contributions and distributions* - - 5,601 - 5,601
Recognition of share-based payment expense
Exercise of share-based payment awards - - (3,363) - (3,363)
Shares acquired by the Kenmare Employee Benefit Trust - -
(1,797) -
(1,797)
Shares distributed by the Kenmare Employee Benefit Trust - -
1,779 -
1,779
Odd lot offer share buy back - - 515 (515) -
Odd lot offer share buy back transaction costs - - - (122) (122)
Cancellation of treasury shares - - (515) - (515)
Dividends paid - - - (34,726) (34,726)
Total contributions and distributions - - 2,220 (35,363) (33,143)
Balance at 1 January 2023 *104* *545,950* *232,759* *324,721* *1,103,534*
*Total comprehensive income for the year*
Profit for the financial year *-* *-* *-* *130,982* *130,982*
Total comprehensive income for the year *-* *-* *-* *130,982* *130,982*
*Transactions with owners of the Company – contributions and distributions*
Recognition of share-based payment expense *-* *-* *3,278* *-* *3,278*
Exercise of share-based payment awards *-* *-* *(3,512)* *(2,197)* *(5,709)*
Shares acquired by the Kenmare Employee Benefit Trust *-* *-* *(6,182)* *-* *(6,182)*
Shares distributed by the Kenmare Employee Benefit Trust *-* *-* *3,390* *-* *3,390*
Tender offer share buy back *(7)* *-* *7* *(29,963)* *(29,963)*
Share buy back transaction costs *-* *-* *-* *572* *572*
Dividends paid *-* *-* *-* *(56,611)* *(56,611)*
Total contributions and distributions *(7)* *-* *(3,019)* *(88,199)* *(91,225)*
*Balance at 31 December 2023* *97* *545,950* *229,740* *367,504* *1,143,291*
*UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS*
*FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2023*
Notes *Unaudited*
*2023*
*$’000* 2022
$’000
*Cash flows from operating activities*
Profit for the financial year after tax *130,982* 206,034
Adjustment for:
Foreign exchange movement included in operating costs *-* 1,123
Expected credit losses 18 *46* 1,110
Share-based payments *3,278* 5,601
Finance income 5 *(5,904)* (1,147)
Finance costs 5 *11,118* 12,472
Income tax expense 6 *18,928* 16,073
Depreciation 8, 9 *65,122* 64,596 *223,570* 305,862
Change in:
Provisions *1,341* (2,141)
Inventories *(15,086)* (23,952)
Trade and other receivables *(29,529)* (47,627)
Trade and other payables *299* (1,680)
Exercise of share-based payment awards *(2,319)* (1,566)
*Cash generated from operating activities* *178,276* 228,896
Income tax paid *(21,119)* (10,461)
Interest received *5,756* 657
Interest paid 9 *(7,323)* (7,068)
Factoring and other trade facility fees 5 *(1,467)* (2,218)
Debt commitment fees paid and other fees 5 *(928)* (534)
*Net cash from operating activities* *153,195* 209,272
*Investing activities*
Additions to property, plant and equipment 8 *(66,540)* (59,867)
*Net cash used in investing activities* *(66,540)* (59,867)
*Financing activities*
Dividends paid *(56,611)* (34,726)
Odd lot offer share buy back *-* (515)
Odd lot offer share buy back transaction costs *-* (122)
Tender offer share buy back *(29,963)* -
Tender offer share buy back transaction costs *572* -
Market purchase of equity under Kenmare Restricted Share Plan *(6,182)* (1,797)
Drawdown of debt 14 *-* 20,000
Repayment of debt 14 *(31,429)* (91,429)
Payment of lease liabilities *(265)* (995)
*Net cash used in financing activities* *(123,878)* (109,584)
*Net (decrease) / increase in cash and cash equivalents* *(37,223)* 39,821
Cash and cash equivalents at the beginning of the financial year *108,271* 69,057
Effect of exchange rate changes on cash and cash equivalents *-* (607)
*Cash and cash equivalents at the end of the financial year* 12 *71,048* 108,271
*UNAUDITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS*
*FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2023*
*1. Statement of accounting policies*
Kenmare Resources plc (the “Company”) is domiciled in the Republic of Ireland. The Company’s registered address is Styne House, Hatch Street Upper, Dublin 2. The Company has a premium listing on the Main Market of the London Stock Exchange and a secondary listing on Euronext Dublin. These consolidated financial statements comprise the Company and its subsidiaries (the “Group”). The principal activity of the Group is the operation and further development of the Moma Titanium Minerals Mine in Mozambique.
On 19 March 2024, the Directors approved the preliminary results for publication. While the consolidated financial statements for the year ended 31 December 2023, from which the preliminary results have been extracted, are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, these preliminary results do not contain sufficient information to comply with IFRS. The Directors expect to publish on 4 April 2024 the full financial statements that comply with IFRS as adopted by the European Union.
The auditor, KPMG, has not yet issued their audit opinion on the financial statements in respect of the year ended 31 December 2023. The financial information included within this unaudited preliminary results statement for the year ended 31 December 2023 does not constitute the statutory financial statements of the Group within the meaning of section 293 of the Companies Act 2014. The Group financial information in this preliminary statement for the year ended 31 December 2023 is unaudited. A copy of the statutory financial statements in respect of the year ended 31 December 2023 will be annexed to the next annual return and filed with the Registrar of Companies.
The Group financial information for the year ended 31 December 2022 included in this preliminary statement represents an abbreviated version of the Group’s financial statements for that year. The statutory financial statements for the Group for the year ended 31 December 2022, upon which the auditor, KPMG, has issued an unqualified opinion, were annexed to the annual return of the Company and filed with the Registrar of Companies.
None of the new and revised standards and interpretations which are effective for accounting periods beginning on or after 1 January 2023, have a material effect on the Group’s financial statements.
*Basis of preparation*
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) and interpretations issued by the IFR Interpretations Committee (IFRIC) as adopted by the EU and those parts of the Companies Act 2014 applicable to companies reporting under IFRS and Article 4 of the IAS Regulation.
*Going concern*
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have or will have adequate resources to continue in operational existence for the foreseeable future. Based on the Group’s cash flow forecast, liquidity, solvency position and available finance facilities, the Directors have a reasonable expectation that the Group has adequate resources for the foreseeable future and, therefore, they continue to adopt the going concern basis of accounting in preparing the financial statements.
Management plans assume that all agreements, licences, concessions and approvals relating to the Group’s mining and processing activities are in place or will be renewed over the 12 month period, including the Implementation Agreement, from the date of authorisation of these financial statements. The Group forecast has been prepared by management with best estimates of production, pricing and cost assumptions over the period. Key assumptions upon which the Group forecast is based include a mine plan covering production using the Namalope, Nataka, Pilivili and Mualadi reserves and resources as will be set out in the Annual Report’s unaudited mineral reserves and resources table. Specific resource material is included only where there is a high degree of confidence in its economic extraction. Production levels for the purpose of the forecast are approximately 1.1 million tonnes per annum of ilmenite plus co-products, zircon, concentrates and rutile, over the next twelve months. Assumptions for product sales prices are based on contract prices as stipulated in marketing agreements with customers or, where contract prices are based on market prices or production is not presently contracted, prices are forecast taking into account independent titanium mineral sands expertise and management expectations. Operating costs are based on approved budget costs for 2024, taking into account the current running costs of the Mine and escalated by 2% per annum thereafter. Capital costs are based on the capital plans and include escalation at 2% per annum. The 2024 operating costs and forecast capital costs take into account the current inflationary environment. The 2% inflation rate used from 2025 to escalate these costs over the life of mine is an estimated long-term inflation rate.
Sensitivity analysis is applied to the assumptions above to test the robustness of the cash flow forecasts for changes in market prices, shipments and operating and capital cost assumptions. Changes in these assumptions affect the level of sales and profitability of the Group and the amount of capital required to deliver the projected production levels. As a result of this assessment, the Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the 12 month period from the date of authorisation of these financial statements.
*2. Revenue*
*Unaudited*
*2023*
*$’000* 2022
$’000
Revenue from contracts with customers
Revenue derived from the sale of mineral products *437,091* 498,339
Revenue derived from freight services *21,386* 27,649
Total Revenue *458,477* 525,988
*Revenue by mineral product*
The principal categories for disaggregating mineral products revenue are by product type and by country of the customer’s location. The mineral product types are ilmenite, zircon, rutile and concentrates. Concentrates includes secondary zircon and mineral sands concentrates.
During the financial year, the Group sold 1,045,200 tonnes (2022: 1,075,600 tonnes) of finished products to customers at a sales value of $437.1 million (2022: $498.3 million). The Group earned revenue derived from freight services of $21.4 million (2022: $27.6 million).
*Unaudited*
*2023*
*$’000* 2022
$’000
Revenue derived from sales of mineral products by primary product
Ilmenite *315,138* 347,446
Primary zircon *79,628* 99,152
Concentrates *31,046* 33,057
Rutile *11,279* 18,684
Total revenue from mineral products *437,091* 498,339
Revenue derived from freight services *21,386* 27,649
Total Revenue *458,477* 525,988
*Revenue by destination*
In the following table, revenue is disaggregated by primary geographical market. The Group allocates revenue from external customers to individual countries and discloses revenues in each country where revenues represent 10% or more of the Group’s total revenue. Where total disclosed revenue disaggregated by country constitutes less than 75% of total Group revenue, additional disclosures are made on a regional basis until at least 75% of the Group’s disaggregated revenue is disclosed. There were no individual countries within Europe, Asia (excluding China) or the Rest of the World with revenues representing 10% or more of the Group’s total revenue during the year.
*Unaudited*
*2023*
*$’000* 2022
$’000
Revenue derived from sales of mineral product by destination
China *177,511* 154,704
Europe *86,238* 130,440
Asia (excluding China) *76,535* 108,487
USA *52,826* 51,600
Rest of the World *43,981* 53,108
Total revenue from mineral products *437,091* 498,339
Revenue derived from freight services *21,386* 27,649
Total Revenue *458,477* 525,988
*Revenue by major customers*
The Group evaluates the concentration of mineral product revenue by major customer. The following table disaggregates mineral product revenue from the Group’s four largest customers.
*Unaudited*
*2023*
*$’000* 2022
$’000
*Revenue from external customers*
Largest customer *69,023* 74,671
Second largest customer *41,616* 62,791
Third largest customer *32,999* 58,413
Fourth largest customer *31,844* 41,015
Total *175,482* 236,890
All Group revenues from external customers are generated by the Moma Titanium Minerals Mine in Mozambique. Further details on this operating segment can be found in Note 3. Sales to and from Ireland were $nil (2022: $nil) in the year.
*3. Segment reporting*
Information on the operations of the Moma Titanium Minerals Mine in Mozambique is reported to the Group’s Board for the purposes of resource allocation and assessment of segment performance. Information regarding the Group’s operating segment is reported below:
*Unaudited*
*2023*
2022 *Corporate* *Mozambique* *Total* Corporate Mozambique Total *$’000* *$’000* *$’000* $’000 $’000 $’000
*Revenue & Results*
Revenue* *-* *458,477* *458,477* - 525,988 525,988
Cost of sales *-* *(294,927)* *(294,927)* - (282,694) (282,694)
Gross profit *-* *163,550* *163,550* - 243,294 243,294
Administrative expenses *(6,867)* *(1,559)* *(8,426)* (7,848) (2,014) (9,862)
Segment operating profit *(6,867)* *161,991* *155,124* (7,848) 241,280 233,432
Finance income *2,585* *3,319* *5,904* 23 1,124 1,147
Finance expenses *(40)* *(11,078)* *(11,118)* (83) (12,389) (12,472)
Profit before tax *(4,322)* *154,232* *149,910* (7,908) 230,015 222,107
Income tax expense *(7,156)* *(11,772)* *(18,928)* (1,601) (14,472) (16,073)
Profit for the financial year *(11,478)* *142,460* *130,982* (9,509) 215,543 206,034
*Segment assets & Liabilities *
Segment Assets *40,918* *1,220,253* *1,261,171* 12,583 1,236,244 1,248,827
Segment Liabilities *10,392* *107,488* *117,880* 4,722 140,571 145,293
*Additions to non-current assets*
Segment Additions to non-current assets *-* *69,730* *69,730* - 59,867 59,867
*Revenue excludes inter-segment revenue of $22.7 million (2022: $24.2 million) earned by the corporate segment relating to marketing and management services fee income. Inter-segment revenue is not regularly reviewed by the Chief Operating Decision Maker.
Corporate assets consist of the Company’s property, plant and equipment including right-of-use assets, cash and cash equivalents and prepayments at the reporting date. Corporate liabilities consist of trade and other payables at the reporting date.
*4. Cost and income analysis *
*Unaudited*
*2023*
*$’000* 2022
$’000
*Expenses by function*
Cost of sales *294,927* 282,694
Administrative expenses *8,426* 9,862
Total *303,353* 292,556
Expenses by nature can be analysed as follows:
*Unaudited*
*2023*
*$’000* 2022
$’000
*Expenses by nature*
Staff costs *58,252* 55,907
Repairs and maintenance *42,278* 43,151
Power and fuel *47,791* 43,960
Freight *21,386* 27,649
Other production and operating costs *83,274* 78,921
Movement of mineral products inventory *(14,750)* (21,628)
Depreciation of property, plant and equipment and right-of-use assets *65,122* 64,596
Total *303,353* 292,556
Mineral products consist of finished products and heavy mineral concentrate as detailed in Note 10. Mineral stock movement in the year was an increase of $14.7 million (2022: $21.6 million increase). Freight costs of $21.4 million (2022: $27.7 million) arise from sales to customers on a CIF or CFR basis. There were no exceptional items within operating profit in 2023 (2022: $nil).
*5. Net finance costs*
*Unaudited*
*2023*
*$’000* 2022
$’000
Finance costs
Interest on bank borrowings *(7,935)* (8,829)
Interest on lease liabilities *(112)* (147)
Factoring and other trade facility fees *(1,467)* (2,218)
Commitment and other fees *(928)* (534)
Unwinding of discount on mine closure provision *(676)* (744)
Total finance costs *(11,118)* (12,472)
Interest earned on bank deposits *5,904* 657
Foreign exchange gain *-* 490
Total finance income *5,904* 1,147
Net finance costs recognised in profit or loss *(5,214)* (11,325)
All interest has been expensed in the financial year. The Group has classified factoring and other trade facility fees in net cash from operating activities in the Consolidated Statement of Cashflows.
*6. Income tax expense*
*Unaudited*
*2023*
*$’000* 2022
$’000
Corporation tax *18,928* 16,073
Deferred tax *-* -
Total *18,928* 16,073
Reconciliation of effective tax rate
Profit before tax *149,910* 222,107
Profit before tax multiplied by the applicable tax rate (12.5%) *18,739* 27,763
(Over)/under provision in respect of prior years *(219)* 546
Non-taxable income *(9,434)* (18,120)
Non-deductible expenses *1,204* 483
Differences in effective tax rates on overseas earnings *8,638* 5,401
Total *18,928* 16,073
During the year, Kenmare Moma Mining Limited Mozambique Branch had taxable profits of $34.1 million (2022: $39.9 million), resulting in an income tax expense of $11.7 million (2022: $14.5 million) being recognised. The income tax rate applicable to taxable profits of KMML Mozambique Branch is 35% (2022: 35%).
Kenmare Moma Mining Limited Mozambique Branch has elected, and the fiscal regime applicable to mining allows for, the option to deduct, as an allowable deduction, depreciation of exploration and development expense and capital expenditure over the life of mine. Tax losses may be carried forward for three years. There are no tax losses carried forward at 31 December 2023.
Kenmare Moma Processing (Mauritius) Limited Mozambique Branch has Industrial Free Zone (IFZ) status. As an IFZ Branch, it is exempted from corporation taxes and hence its income is non-taxable.
During the year, Kenmare Resources plc had taxable profits of $89.2 million (2022: $13.3 million) as a result of management and marketing service fee income earned on services provided to subsidiary undertakings and dividend income earned from subsidiary undertakings, resulting in a corporate tax expense of $7.2 million (2022: $1.6 million).
*7. Earnings per share*
The calculation of the basic and diluted earnings per share attributable to the ordinary equity holders of the Company is based on the following data:
*Unaudited*
*2023*
*$’000* 2022
$’000
Profit for the financial year attributable to equity holders of the Company *130,982* 206,034
*Unaudited*
*2023 *
*Number of shares* 2022
Number of shares
Weighted average number of issued ordinary shares for
the purpose of basic earnings per share *93,126,115* 94,919,944
Effect of dilutive potential ordinary shares:
Share awards *2,437,495* 2,361,819
Weighted average number of ordinary shares for
the purposes of diluted earnings per share *95,563,610* 97,281,763
*$ per share* $ per share
Basic earnings per share *1.41* 2.17
Diluted earnings per share *1.37* 2.12
The denominator for the purposes of calculating both basic and diluted earnings per share has been adjusted to reflect shares acquired during the year.
*8. Property, plant and equipment*
*Plant and*
*Equipment*
*$’000* *Development*
*Expenditure*
*$’000* *Construction*
*In Progress*
*$’000* *Other *
*Assets*
*$’000* *Total*
*$’000*
*Cost*
At 1 January 2022 1,017,429 258,172 61,430 64,431 1,401,462
Additions during the financial year 252 112 59,261 242 59,867
Transfer from construction in progress 48,233 1,767 (69,918) 19,918 -
Disposals (10,230) - - (7,201) (17,431)
Adjustment to mine closure cost (20,080) - - - (20,080)
At 31 December 2022 1,035,604 260,051 50,773 77,390 1,423,818
Additions during the financial year *-* *-* *69,703* *27* *69,730*
Transfer from construction in progress *20,144* *13,095* *(40,391)* *7,152* *-*
Disposals *(415)* *-* *-* *(9,429)* *(9,844)*
Adjustment to mine closure cost *241* *-* *-* *-* *241*
At 31 December 2023 *1,055,574* *273,146* *80,085* *75,140* *1,483,945*
*Accumulated depreciation *
At 1 January 2022 270,113 141,489 - 35,302 446,904
Charge for the financial year 44,435 6,379 - 12,772 63,586
Disposals (10,230) - - (7,201) (17,431)
At 31 December 2022 304,318 147,868 - 40,873 493,059
*Charge for the financial year* *44,928* *8,952* *-* *11,002* *64,882*
*Disposals* *(415)* *-* *-* *(9,429)* *(9,844)*
*At 31 December 2023* *348,831* *156,820* *-* *42,446* *548,097*
*Carrying amount*
*At 31 December 2023* *706,743* *116,326* *80,085* *32,694* *935,848*
At 31 December 2022 731,286 112,183 50,773 36,517 930,759
An adjustment to the mine closure cost of $0.2 million (2022: $20.1 million) was made during the year as a result of an update in the mine closure cost estimate as detailed in Note 15.
At each reporting date, the Group assesses whether there is any indication that property, plant and equipment may be impaired. The Group considers the relationship between its market capitalisation and its book value, among other factors, when reviewing for indicators for impairment. As at 31 December 2023, the market capitalisation of the Group was below the book value of net assets, which is considered an indicator of impairment. The Group carried out an impairment review of property, plant and equipment as at 31 December 2023. As a result of the review, and given the performance and outlook of the Group, no impairment provision was recognised in the current financial year. No impairment was recognised in the prior financial year. Given the historic volatility in mineral product pricing and sensitivity of the forecast to mineral product pricing, the discount rate and to a lesser extent operating costs, the impairment loss of $64.8 million, which was recognised in the consolidated statement of comprehensive income in 2014, was not reversed.
The cash-generating unit for the purpose of impairment testing is the Moma Titanium Minerals Mine. The basis on which the Mine is assessed is its value in use. The cash flow forecast employed for the value in use computation is from a life of mine financial model. The recoverable amount obtained from the financial model represents the present value of the future discounted pre-tax, pre-finance cash flows discounted at 12% (2022: 14%).
Key assumptions include the following:
• The discount rate is based on the Group’s weighted average cost of capital. This rate is a best estimate of the current market assessment of the time value of money, and the risks specific to the Mine, taking into consideration country risk, currency risk and price risk. The factors making up the cost of equity and cost of debt have changed from the prior year review, resulting in a discount rate of 12% (2022: 14%). The Group’s estimation of the country risk premium included in the discount rate has remained unchanged from the prior year. The Group does not consider it appropriate to apply the full current country risk premium for Mozambique to the calculation of the Group’s weighted average cost of capital as it believes the specific circumstances which have resulted in the risk premium increase over the past number of years are not relevant to the specific circumstances of the Moma Mine. Hence, country risk premium applicable to the calculation of the cost of equity has been adjusted accordingly. Forecast income tax on intercompany dividends from subsidiary undertakings is assumed to be exempt from 2025, by way of change to tax legislation or alternatively group restructuring. Using a discount rate of 12.0%, the recoverable amount is greater than the carrying amount by $374.0 million (2022: $86.9 million). The discount rate is a significant factor in determining the recoverable amount. A 3.5% increase in the discount rate to 15.5% reduces the recoverable amount by $374.0 million to $nil, assuming all other inputs
remain unchanged. The increase in the recoverable amount from the prior year is a result of increased cash flows over the life of mine as a result of increased forecast revenue net of increased capital costs and a decrease in the discount rate from 14% to 12%.
• The forecast assumes that all agreements, licences, concessions and approvals relating to the Group’s mining and processing activities including the Implementation Agreement are in place or will be renewed. The mine plan is based on the Namalope, Nataka, Pilivili and Mualadi proved and probable reserves and resources. Specific resource material is included only where there is a high degree of confidence in its economic extraction. The Mine life assumption of 40 years has not changed from the prior year review. Average annual production is approximately 1.3 million tonnes (2022: 1.2 million tonnes) of ilmenite and co-products zircon, rutile and concentrates over the life of the Mine. Medium term production over the next three years is approximately 1.1 million tonnes. This mine plan does not include investment in additional mining capacity. Certain minimum stocks of final and intermediate products are assumed to be maintained at period ends.
• Product sales prices are based on contract prices as stipulated in marketing agreements with customers, or where contracts are based on market prices or production is not currently contracted, prices are forecast by the Group taking into account independent titanium mineral sands expertise provided by TiPMC Solutions and management expectations including general inflation of 2% per annum. Forecast prices provided by TiPMC Solutions have been reviewed and found to be consistent with other external sources of information. Average forecast product sales prices have increased over the life of mine from the prior year-end review as a result of revised forecast pricing. A 9.0% reduction in average sales prices over the life of mine reduces the recoverable amount by $374.0 million to $nil, assuming all other inputs remain unchanged.
• Operating costs are based on approved budget costs for 2024 taking into account the current running costs of the Mine and estimated forecast inflation for 2024. From 2025 onwards, operating costs are escalated by 2% per annum as management expects inflation to normalise and average 2% over the life of mine period. Average forecast operating costs has decreased from the prior year-end review as a result of a reduction in the estimated future power costs and further optimisation of unit price for mining in Nataka. A 6.5% increase in operating costs over the life of mine reduces the recoverable amount by $374.0 million to $nil, assuming all other inputs remain unchanged.
Whilst the Group has set ambitions to be net zero by 2040, the full financial impact of the transition plan is still being assessed as the Group considers how it will work towards meeting this target. The mine financial model includes the cost of using bio-diesel in its forecast operating costs. The cost of studies on plant electrification and other sustainable methods of operating are also included in forecast operating and capital cost. No savings associated with the Company’s ambition to become net zero have been factored into the forecast.
• Capital costs are based on a life of mine capital plan including inflation at 2% per annum from 2025. Average forecast capital costs have increased and their scheduling has changed from the prior year-end review based on updated sustaining and development capital plans required to maintain the existing plant over the life of mine. A 47% increase in capital costs over the life of mine reduces the recoverable amount by $374.0 million to $nil, assuming all other inputs remain unchanged.
*9. Right-of-use assets and lease liabilities *
*Plant and Equipment*
*$’000* *Land and Buildings*
*$’000* *Total*
*$’000**Cost*
At 1 January 2023 3,319 2,590 5,909
Additions *-* *-* *-*
Disposals *(3,319)* - (3,319)
*At 31 December 2023* *-* *2,590* *2,590*
*Accumulated Depreciation*
At 1 January 2023 3,319 982 4,301
Depreciation expense - 240 240
Disposals *(3,319)* - (3,319)
*At 31 December 2023* *-* *1,222* *1,222*
*Carrying amount*
*At 31 December 2023* *-* *1,368* *1,368*
At 31 December 2022 - 1,608 1,608
On 1 January 2019, the Group recognised a lease liability of $3.3 million in relation to electricity generators at the Mine. The lease for the electricity generators was renewed in November 2017 for a five-year period and rental payments were fixed for the five years. The lease agreement expired in November 2022 and following negotiations the Group completed the acquisition process of the electricity generators in February 2023.
On 1 January 2019, the Group recognised a lease liability of $1.7 million in respect of the rental of its Irish head office. The lease has a term of 10 years commencing August 2017 and rental payments are fixed to the end of the lease term. This lease obligation is denominated in Euros.
In February 2019, the Group recognised a lease liability of $0.4 million in respect of its Mozambican country office in Maputo. The lease has a seven-year term commencing February 2019 and rental payments are fixed for seven years. This lease obligation is denominated in US Dollars. The Branch has discounted lease payments using its incremental borrowing rates. The weighted average rate applied is 7%.
In December 2022, the Maputo Office lease was modified and remeasured. The lease term was extended to 10 years commencing 1 December 2022. In addition, additional floor space of 250 square meters was leased as an addendum to the existing lease. The Group has determined that the lease modification should not be accounted for as a separate lease because the lease payments for the new office space are not considered commensurate with market rentals for office space of that size and characteristic. The incremental borrowing rate applied to the remeasured lease is 10.2%.
At each reporting date, the Company assesses whether there is any indication that right-of-use assets may be impaired. No impairment indicators were identified as at 31 December 2023 or 31 December 2022.
The Group has recognised a rental expense of $12.4 million (2022: $3.9 million) in relation to short term leases of machinery and vehicles which have not been recognised as a right-of-use asset.
Set out below are the carrying amounts of lease liabilities at each reporting date:
*Unaudited*
*2023*
*$’000* 2022
$’000
Current *264* 245
Non-current *1,256* 1,54