TIDMBSE
AIM and Media Release
12 April 2017
BASE RESOURCES LIMITED
Quarterly Activities Report - March 2017
HIGHLIGHTS
* Further strong ilmenite price increases achieved and additional price
increase locked in for contracted April sales, resulting in June quarter
prices commencing approximately 200% higher than at the start of the
financial year.
* Record quarterly rutile production of 23,107 tonnes.
* No lost time injuries.
* Positive exploration drilling results clearly demonstrate the potential to
grow Resources and mine life to the north and south of existing Kwale
Operations Ore Reserves.
* Further cash "sweep" from the Kwale Operations.
* Net debt reduced by US$7.0m to US$122.5 million.
Base Resources Limited (ASX & AIM: BSE) ("Base Resources" or the "Company") is
pleased to provide a quarterly corporate and operational update for its Kwale
Mineral Sands Operations ("Kwale Operations") in Kenya, East Africa. The
quarter was again characterised by continuing improvement in ilmenite markets
and a positive outlook for both rutile and zircon. The continued strong
performance of Kwale Operations has reduced net debt by a further US$7.0
million* in the quarter.
[*The net debt reduction of US$7.0 million in the quarter was lower than the
previous quarter (US$18.1 million net debt reduction) due to the timing of bulk
rutile shipments, and particular customer payment terms, which impacted cash
receipts and therefore total net debt reduction.]
KWALE OPERATIONS
SUMMARY PHYSICAL Mar 2016 June 2016 Sept 2016 Dec 2016 Mar 2017
DATA Quarter Quarter Quarter Quarter Quarter
Ore mined (tonnes) 2,410,503 2,363,395 2,325,174 3,049,333 2,664,738
HM % 8.96 9.87 7.51 5.83 6.70
HMC produced 209,787 226,453 164,192 152,259 159,379
(tonnes)
HMC consumed 175,224 187,244 193,349 191,576 186,814
(tonnes)
MSP feed rate (tph) 86 88 92 91 91
Production (tonnes)
Ilmenite 110,760 119,340 121,821 116,982 112,368
Rutile 21,194 21,766 22,458 22,870 23,107
Zircon 7,865 9,471 9,050 8,591 8,212
Zircon low grade1 - - 2,160 2,550 2,474
Sales (tonnes)
Ilmenite 95,984 150,911 139,441 97,047 122,783
Rutile 14,500 32,454 23,023 19,773 21,416
Zircon 9,556 9,590 8,525 9,432 8,069
Zircon low grade1 - - - 3,397 3,059
1 Zircon low grade tonnes contained in concentrate, equivalent to approximately
70-80% of the value of primary zircon.
Mined tonnage reduced to 2.66 million tonnes ("Mt") from 3.05Mt in the previous
quarter, largely as a consequence of a slight curtailment of feed rates whilst
optimising concentrator efficiencies. At the beginning of March, mining
operations relocated to a high grade section of the Central Dune in line with
the current mine plan, resulting in an immediate increase in mined grade to >
10% heavy mineral ("HM") for the month.
Hydraulic mining operations progressed according to plan at the design rate of
400 tonnes per hour ("tph"). Additional equipment has been purchased to
increase hydraulic mining rates to 800tph in July 2017, during the next
scheduled hydraulic mining relocation. This will further decrease the
contribution from the dozer-trap mining unit and should contribute to a
reduction in operating costs.
The lowered mining rate in the quarter resulted in a 5% improvement in HM
recovery in the wet concentrator plant ("WCP") in line with recoveries achieved
prior to pushing mining rates higher in the December 2016 quarter. This is due
to capacity restrictions in the sand tails dewatering section of the
concentrator that mean that, at high WCP feed rates, HM recoveries fall due to
WCP feed densities exceeding design. De-constraining the WCP at higher mining
rates is one of the primary deliverables of the Kwale Phase 2 project,
discussed further below.
Heavy mineral concentrate ("HMC") production from the WCP increased slightly
over the prior quarter due to the higher grade of ore mined and stocks started
to increase again in March when mining high grade ore. HMC stocks at quarter
end were 43,455 tonnes. Concentrator availability during the quarter was high
at 88%, compared to 86% in the prior quarter.
The tailings storage facility ("TSF") sand wall stacking, lining and slimes
deposition continued according to plan, with the final wall lift now underway.
A 250-metre section of TSF wall, which has reached now full height, is being
prepared for rehabilitation with grass and indigenous shrubs, ahead of the
coming wet season rains.
As a consequence of the severe drought conditions experienced throughout the
region in the past year, the Mukurumudzi Dam volume dropped from 4.6 gigalitres
("GL") to 3.1GL, or 37% of capacity, during the quarter. Water conservation
measures implemented at the Kwale Operations in 2016 have ensured sufficient
water volume to continue to operate at full capacity through to, and beyond,
the anticipated 'long rains' wet season between April and June. To help
mitigate future risks with water supply, regulatory approval is being sought to
increase borefield extraction from 5,280 to 9,060 cubic meters per day.
The mineral separation plant ("MSP") maintained an average feed rate of 91tph
for the quarter and availability remained at 95% with a total of 187 thousand
tonnes ("kt") processed. Optimisation and debottlenecking continues, aimed at
improving recoveries and to ensure value is maximised through the balancing of
primary final product production and zircon concentrate production (for sale).
Rutile production set another quarterly record of 23.1kt (22.9kt last quarter)
due to recoveries increasing to 99% (98% last quarter) and the higher rutile
content in the mineral assemblage of lower grade ore.
Ilmenite production dropped to 112.4kt (117.0kt last quarter) due to lower
ilmenite content in the mineral assemblage in lower grade ore. Average
recoveries for the quarter were 101%*, slightly lower than the previous
quarter's 102%.
[*The presence of altered ilmenite species that are not defined as either
"rutile" or "ilmenite" in the Resource but are recovered in the production of
both, results in calculated recoveries above 100% being achievable for both
products.]
Zircon production for the quarter was lower at 8.2kt (8.6kt last quarter) due
to lower zircon content in the feed. Average zircon recovery of 74% was
slightly higher than last quarter's 73%, but lower than the design target of
78%. Circuit optimisation and modifications continue.
In addition to primary zircon, in July 2016 Kwale Operations commenced
production of a lower grade zircon product ("zircon low grade") from
re-processing of zircon tails into a zircon rich concentrate. Zircon low grade
typically realises 70-80% of the value of each contained tonne of zircon.
Reported zircon low grade represents the volume of zircon contained in the
concentrate. To date, zircon low grade has been produced from the
re-processing of run-of-production and stockpiled zircon circuit tails and this
is anticipated to continue for the remainder of the financial year. During the
quarter 2.5kt of zircon low grade was produced (2.6kt last quarter) and a
single shipment containing 3.1kt of zircon low grade was made to China (3.4kt
last quarter). When combined with primary zircon recoveries, the production of
zircon low grade effectively lifts total zircon recoveries well above the
design target of 77.8%.
The MSP product recoveries shown in the graph below reflect the primary product
recoveries only and do not include any uplift for the production of zircon low
grade.
Bulk loading operations at Base Resources' Likoni Port facility continued to
run smoothly, dispatching more than 152kt of ilmenite, rutile and zircon low
grade during the quarter (125kt last quarter). Containerised shipments of
rutile and zircon through the Mombasa Port proceeded according to plan.
SUMMARY OF UNIT COSTS Mar 2016 June 2016 Sept 2016 Dec 2016 Mar 2017
& REVENUE PER TONNE (US$) Quarter Quarter Quarter Quarter Quarter
Unit operating costs per tonne produced $84 $93 $77 $84 $87
Unit cost of goods sold per tonne sold $106 $111 $91 $102 $119
Unit revenue per tonne of product sold $208 $201 $200 $250 $258
Revenue : Cost of goods sold ratio 2.0 1.9 2.2 2.5 2.2
Total operating costs were in line with last quarter, but the slightly lower
production volumes resulted in a marginally higher unit operating cost of US$87
per tonne produced (rutile, ilmenite, zircon and zircon low grade) (US$84 per
tonne last quarter). Cost of goods sold of US$119 per tonne sold (operating
costs, adjusted for stockpile movements, and royalties) were also higher than
last quarter (US$102 per tonne sold) due the impact of product sales mix.
Revenue per tonne of product sold varies significantly each quarter depending
on the number of bulk rutile sales during that quarter. In a normal year,
there are usually seven or eight bulk rutile sales of approximately 10kt each,
which means any given quarter will typically contain either one or two of these
sales. As annual rutile sales account for approximately 50% of revenue but
only 15% of volume, the number of bulk rutile sales in a quarter has a
significant bearing on revenue, but not sales volume. The March quarter saw
two bulk rutile sales of 8.8kt and 10.0kt, and total rutile sales of 21.4kt,
slightly higher than the prior quarter's 19.8kt total rutile sales, which, when
combined with the higher ilmenite sales volume, higher ilmenite prices and
zircon low grade sales, contributed to the increase in average revenue per
tonne to US$258 per tonne (US$250 last quarter).
FY2017 PRODUCTION GUIDANCE
Kwale Operations production guidance for financial year 2017 ("FY17") remains
unchanged at:
* Rutile - 88,000 to 93,000 tonnes.
* Ilmenite - 450,000 to 480,000 tonnes.
* Zircon - 33,000 to 37,000 tonnes.
* Zircon contained in zircon low grade - 8,000 to 10,000 tonnes.
The above production targets are based on the following assumptions for FY17:
* Mining of 10.6Mt at an average HM grade of 7.12%, all from Ore Reserves*.
* MSP feed rate at an average of 91tph, consistent with recent performance.
* MSP product recoveries of 101% for ilmenite and 98% for rutile, and 74% for
zircon, consistent with past performance and planned recovery improvements
from MSP optimisation.
[*The Ore Reserves estimates underpinning the above production targets were
prepared by Competent Persons in accordance with the JORC Code (2012 edition).
The above production targets are the result of detailed studies based on the
actual performance of the Kwale mine and processing plant. These studies
include the assessment of mining, metallurgical, ore processing, environmental
and economic factors.]
MARKETING
The TiO2 pigment industry continued to go from strength to strength through the
March quarter and in the lead-up to the traditionally seasonally strong June
quarter. This has resulted in further price improvement and ongoing strong
demand for TiO2 feedstock. Global pigment producers announced price increases
through the early part of 2017, with several major pigment producers recently
announcing a further price increase effective from 1 April 2017.
Prices for Base Resources' ilmenite have now increased by over 130% between May
2016 and March 2017. A Base Resources ilmenite shipment recently contracted
for mid-April 2017 will see prices start the June quarter at approximately 200%
higher than the mid-2016 level.
Political disruption to ilmenite exports from Tamil Nadu in India and
suppressed ilmenite production in China's main ilmenite producing region,
Sichuan province, due to increased environmental inspections has continued
through the March quarter. These events, together with the ongoing strength in
pigment demand, is expected to result in further improvements in ilmenite
prices through the coming quarters.
Despite strong demand, an overhang of high grade TiO2 feedstock capacity
through most of 2016 and early 2017 has resulted in only moderate price
improvement for rutile in recent quarters. However, there are increasing signs
of an emerging supply deficit in this high grade sector and Base Resources now
expects rutile prices to experience increased upward momentum through mid-2017.
Zircon demand remained firm through the March quarter resulting in Base
maintaining only a minimum working stock position throughout the period.
Modest price improvement was achieved through the March quarter, however, lower
than anticipated global zircon production for 2017 has reduced inventories and
created increasing supply tightness resulting in a strong price improvement (of
approximately US$50/t) being secured for the June quarter contracted sales.
With zircon customers concerned about securing future zircon supply, many
buyers are attempting to build some safety stocks. Further solid price
improvements are now expected through the remainder of calendar 2017.
SAFETY
With no serious injuries occurring during the quarter, Kwale Operations' lost
time injury frequency rate ("LTIFR") remains at zero. Base Resources'
employees and contractors have now worked 8.9 million man-hours LTI free, with
the last LTI recorded in the March quarter of 2014. The total recordable
injury frequency rate ("TRIFR") has been maintained at 0.35 in quarter.
COMMUNITY AND ENVIRONMENT
Agricultural livelihood programmes, run in conjunction with partners Business
for Development, DEG, FMO, DFAT and Kenya Red Cross, continue to develop with
encouraging support from both national and county Kenyan governments. These
programmes, covering cotton, potato, sorghum and poultry, are expanding in the
run-up to the long rains planting season, with the intention of reaching
commercial scale and providing increased incomes to local families which can be
sustained beyond the life of the Kwale Operations.
Harvesting has been completed and logistics are underway for a consignment of
30 tonnes of Kenyan cotton lint to be exported to Bangladesh for further
processing into garments for Cotton On. Five tonnes of this shipment have been
produced through the Kwale Cotton project, a positive outcome in challenging
drought conditions. Land preparation and seed procurement are underway for the
planting season in the next quarter.
As mentioned earlier, work has commenced on the rehabilitation of TSF slopes,
with water retention layers and top soil deposition complete for a 250 metre
stretch. Grass seeding will start in the coming quarter during the "long
rains" wet season. Seed collected by, and top soil erosion control materials
sourced from, local women's groups are providing significant incomes for
villages surrounding the mine site.
During the quarter, Base Resources also provided an additional 12 tonnes of
relief food in collaboration with the Kwale County Government, local civil
society organisations and Kenya Red Cross to alleviate hunger in the region
resulting from the drought conditions.
BUSINESS DEVELOPMENT
EXTENSIONAL EXPLORATION - KENYA
The Company completed its planned aircore drilling programme within its Special
Prospecting License 173 ("SPL 173") in the SW Sector during this quarter. A
total of 773 holes for 11,738 metres were drilled made up as follows:
Location Holes Metres
SW Sector (Kwale South Dune Extension & 368 5,801
Mafisini)
NE Sector 43 1,119
Kwale Central Dune Deposit edge 23 303
definition
Kwale South Dune Deposit edge 199 2,456
definition
Kwale South Dune Deposit infill 140 2,059
drilling
Totals 773 11,738
As previously reported on 2 March 2017, drilling results show a substantial
increase in the dimensions of the South Dune Deposit (950m at an average of
700m across strike) and the discovery of the Mafisini Deposit (1,240m and up to
480m in width), separated from the South Dune by a narrow alluvial lowland.*
[*Refer to Base Resources' market announcement on 2 March 2017. Base Resources
confirms that it is not aware of any new information or data that materially
affects the information included in its announcement on 2 March 2017.]
Substantial edge definition drilling, along the eastern margins of the South
Dune Deposit, has also indicated the potential for a significant extension of
this deposit.
An infill drilling programme on the Kwale South Dune Deposit was also
completed, bringing it up to a 100m X 100m drill pattern, to facilitate the
upgrade of Inferred and part of the Indicated Resource areas to a Measured
status.
Detailed mineralogy and Resource estimation are targeted for completion in the
September quarter.
As previously reported, drilling in the NE sector was suspended due to
increasing political positioning ahead of Kenya's general elections, currently
scheduled for August 2017, which has produced community tensions not conducive
to exploration. Resumption of drilling in this area is likely to be after the
elections.
In addition, the Company has also applied for a further Special Prospecting
License covering an area of 136km2 extending south west from SPL 173 towards
the Tanzanian border. While this application has been approved by the Ministry
of Mines, issuance of the license remains subject to the final recommendation
of the Mineral Rights Board which has only recently been constituted and is
expected to become functional in May 2017.
EXPLORATION - TANZANIA
The Company now holds five prospecting licenses in northern Tanzania with a
combined area of 475km2. The areas of interest were identified through a
prospectivity review and subsequent confirmatory ground reconnaissance.
The Company has progressed the necessary consents and clearances ahead of a
planned preliminary drilling programme across all five licenses, which is
scheduled to commence during the September quarter, after the completion of
mineralogical analysis and Resource estimation from the recent drill program at
Kwale.
Total exploration expenditure for the quarter, across all licenses in Kenya and
Tanzania, was US$0.49 million.
KWALE PHASE 2 PROJECT
Base Resources initiated the Kwale Phase 2 project in 2015 with its focus being
an optimised mining methodology, increased mining rates in lower grade zones
and increased concentrate production. Following a positive Pre-Feasibility
Study completed in July 2016, a Definitive Feasibility Study ("DFS") is
underway. The hydraulic mining units currently being used successfully in
mining operations have delivered encouraging results and work is underway to
increase hydraulic mining rates from 400tph to 800tph. The DFS is scheduled
for completion in the June quarter of 2017.
CORPORATE
KENYAN VAT RECEIVABLE
As previously announced, Base Resources has refund claims for VAT paid in
Kenya, relating to both the construction of the Kwale Project and the period
since operations commenced, totalling approximately US$19.0 million at 31 March
2017. These claims are proceeding through the Kenya Revenue Authority process,
with operational period claims, totalling approximately US$0.3 million, settled
during the quarter. Base Resources is continuing to engage with the Kenyan
Treasury and the Kenya Revenue Authority, seeking to expedite the remainder of
the refund.
ACCELERATED DEBT REPAYMENT FROM SURPLUS CASH
On 16 January 2017, and in accordance with the terms of the Kwale Operations
Debt Facility, US$14.6 million of surplus cash was 'swept' from Kwale
Operations. Half of the cash sweep (US$7.3 million) went towards mandatory
repayment of the Kwale Operations Debt Facility, with the other half
distributed up to the group's Australian parent entity, Base Resources. From
the cash sweep portion received by Base Resources, a mandatory 75% (US$5.5
million) was applied to repayment of the Taurus Facility, with the balance
available to the Company for general corporate funding.
EXPANDED BASE TITANIUM LIMITED BOARD OF DIRECTORS
During the quarter, Base Titanium, the Company's wholly-owned Kenyan operating
subsidiary, appointed three additional members to its Board of Directors.
These new members, in investment banker John Ngumi, prominent Kenyan lawyer
Desterio Oyatsi and financial market analyst, advisor and commentator Aly-Khan
Satchu, bring vast experience from the private and public sectors and detailed
knowledge of the East African business environment. They join existing
Chairman Professor Joseph Maitha and Base Resources Executive Directors Tim
Carstens and Colin Bwye on the expanded Board.
In summary, at 31 March 2017:
* Net debt of US$122.5 million, consisting of:
+ Cash and cash equivalents were US$23.3 million (unrestricted) and an
additional US$18.6 million (restricted - debt service reserve account).
+ Debt of US$164.4 million.
* 742,231,956 shares on issue.
* 61,425,061 options (exercise price of A$0.40, expiring 31 December 2018).
* 67,085,620 performance rights issued pursuant to the terms of the Base
Resources Long Term Incentive Plan.
A full PDF version of this release is available from the Company's website:
www.baseresources.com.au.
ENDS.
CORPORATE PROFILE
Directors
Keith Spence (Non-Executive Chairman)
Tim Carstens (Managing Director)
Colin Bwye (Executive Director)
Sam Willis (Non-Executive Director)
Michael Anderson (Non-Executive Director)
Michael Stirzaker (Non-Executive Director)
Malcolm Macpherson (Non-Executive Director)
Company Secretary
Chadwick Poletti
NOMINATED ADVISOR & BROKERS
RFC Ambrian Limited
As Nominated Adviser:
Andrew Thomson / Stephen Allen
Phone: +61 (0)8 9480 2500
As Joint Broker:
Jonathan Williams
Phone: +44 20 3440 6800
Numis Securities Limited
As Joint Broker:
John Prior / James Black / Paul Gillam
Phone: +44 20 7260 1000
SHARE REGISTRY: ASX
Computershare Investor Services Pty Limited
Level 11, 172 St Georges Terrace
PERTH WA 6000
Enquiries: 1300 850 505 / +61 (3) 9415 4000
www.computershare.com.au
SHARE REGISTRY: AIM
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
BRISTOL BS99 6ZZ
Enquiries: +44 (0) 870 702 0003
www.computershare.co.uk
AUSTRALIAN MEDIA RELATIONS
Cannings Purple
Annette Ellis / Andrew Rowell
Email: aellis@canningspurple.com.au /
arowell@canningspurple.com.au
Phone: +61 (0)8 6314 6300
UK MEDIA RELATIONS
Tavistock Communications
Jos Simson / Emily Fenton
Phone: +44 (0) 207 920 3150
KENYA MEDIA RELATIONS
Africapractice (East Africa)
Evelyn Njoroge / James Njuguna/Joan Kimani
Phone: +254 (0)20 239 6899
Email: jkimani@africapractice.com
PRINCIPAL & REGISTERED OFFICE
Level 1, 50 Kings Park Road
West Perth, Western Australia, 6005
Email: info@baseresources.com.au
Phone: +61 (0)8 9413 7400
Fax: +61 (0)8 9322 8912
END
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