AIM and Media Release
13 July 2017
BASE RESOURCES LIMITED
Quarterly Activities Report – June
2017
HIGHLIGHTS
- Record quarterly revenue with continued improvement in ilmenite
and zircon prices.
- Record revenue to cost of sales ratio of 2.9.
- Net debt reduced by US$24.0
million to US$98.5
million.
- No lost time injuries.
- Production for financial year 2017 consistent with guidance for
all products.
- Board approval of Kwale Phase 2 mine optimisation project to
deliver enhanced economics.
- Production guidance for financial year 2018:
- Rutile – 88,000 to 94,000 tonnes.
- Ilmenite – 400,000 to 430,000 tonnes.
- Zircon – 32,000 to 37,000 tonnes.
- Zircon contained in zircon low grade – 1,500 to 2,500
tonnes.
African mineral sands producer, 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. The quarter was characterised by
continuing improvement in zircon markets, stabilising ilmenite
prices and a positive outlook for rutile. The continued
strong performance of Kwale Operations has reduced net debt by a
further US$24.0 million in the
quarter.
“Figures” (graphics) referenced in this release have been
omitted. A full PDF version of this release, including all
Figures, is available from the Company’s website:
www.baseresources.com.au.
KWALE OPERATIONS
PRODUCTION
& SALES |
June 2016
Quarter |
Sept 2016
Quarter |
Dec 2016
Quarter |
Mar 2017
Quarter |
June 2017
Quarter |
Production
(tonnes) |
|
|
|
|
|
Ilmenite |
119,340 |
121,821 |
113,806 |
112,368 |
119,364 |
Rutile |
21,766 |
21,886 |
22,870 |
23,107 |
22,762 |
Zircon |
9,471 |
9,050 |
8,591 |
8,212 |
8,375 |
Zircon low
grade(1) |
- |
2,160 |
2,550 |
2,474 |
3,026 |
Sales (tonnes) |
|
|
|
|
|
Ilmenite |
150,911 |
139,441 |
97,047 |
122,783 |
142,405 |
Rutile |
32,454 |
23,023 |
19,773 |
21,416 |
27,779 |
Zircon |
9,590 |
8,525 |
9,432 |
8,069 |
8,540 |
Zircon low
grade(1) |
- |
- |
3,397 |
3,059 |
3,045 |
(1) Zircon low grade tonnes contained in
concentrate, equivalent to approximately 70-80% of the value of
primary zircon.
Mined tonnage increased slightly to 3.0 million tonnes
(“Mt”) from 2.7Mt in the previous quarter at an average
mining rate of 1,516 tonnes per hour (“tph”). Mined
grade increased from 6.7% Heavy Mineral (“HM”) to 8.4% as
mining continued in the same high-grade area of the Central Dune
mined towards the end of the March quarter.
Hydraulic mining operations progressed according to plan,
consistently achieving production rates above the design rate of
400tph. This operation will be upgraded to 800tph during the
September quarter thereby further reducing reliance on dozer mining
operations with consequent savings in operating costs.
MINING & WCP
PERFORMANCE |
June 2016
Quarter |
Sept 2016
Quarter |
Dec 2016
Quarter |
Mar 2017
Quarter |
June 2017
Quarter |
Ore mined
(tonnes) |
2,363,395 |
2,325,174 |
3,049,333 |
2,664,738 |
2,975,694 |
HM % |
9.87 |
7.51 |
5.83 |
6.70 |
8.40 |
HMC produced
(tonnes) |
226,453 |
164,192 |
152,259 |
159,379 |
232,574 |
With the benefit of circuit modifications implemented during the
March quarter, HM recovery in the wet concentrator plant
(“WCP”) remained above target, notwithstanding the increase
in mining rates in the June quarter.
Heavy mineral concentrate (“HMC”) production from the WCP
increased from 159.4 thousand tonnes (“kt”) to 232.6kt due
to higher mined tonnage and grade. HMC stocks at quarter end
increased from 43.5kt to 83.6kt. Concentrator availability
during the quarter was high at 90%, compared to 88% in the prior
quarter. HMC inventory is being built up to enable
uninterrupted Mineral Separation Plant (“MSP”) feed during
implementation of the Kwale Phase 2 Project.
The tailings storage facility (“TSF”) sand wall stacking,
lining and slimes deposition continued according to plan, with the
final wall lift now underway. Once this lift is complete,
sand stacking will move to the mined-out area of the Central Dune
representing the start of rehabilitation in this section.
Rehabilitation of the TSF outer wall commenced during the
quarter, with promising vegetation growth achieved.
Good rains were received during the quarter, resulting in the
Mukurumudzi Dam reaching its full capacity of 8.6GL and spilling in
May. Regulatory approval was received to increase borefield
abstraction from 5,280 to 9,060 cubic meters per day by increasing
production from existing bores and drilling two additional bores,
with this additional water supply being required to satisfy the
increased demands of the Kwale Phase 2 Project.
MSP
PERFORMANCE |
June
2016
Quarter |
Sept
2016
Quarter |
Dec
2016
Quarter |
Mar
2017
Quarter |
June
2017
Quarter |
MSP Feed (tonnes of
HMC) |
187,244 |
193,349 |
191,576 |
186,814 |
192,432 |
MSP feed rate
(tph) |
88 |
92 |
91 |
91 |
92 |
MSP recovery % |
|
|
|
|
|
Ilmenite |
101 |
100 |
99 |
101 |
101 |
Rutile |
99 |
94 |
98 |
99 |
98 |
Zircon |
78 |
73 |
73 |
74 |
73 |
The MSP achieved an average feed rate of 92tph for the quarter
and availability increased slightly to 96% (with a total of 192.4kt
of HMC processed (186.8kt last quarter).
Rutile production was slightly lower at 22.8kt (23.1kt last
quarter), despite the increased MSP feed, due to lower rutile
content in the mineral assemblage. Rutile recovery remained
steady at 98%.
Ilmenite production increased to 119.4kt (112.4kt last quarter)
due to higher ilmenite content in the mineral assemblage.
Average ilmenite recoveries for the quarter remained at 101% (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 increased to 8.4kt (8.2kt last quarter) due to
the increased MSP feed. Average zircon recovery of 73% was in
line with last quarter, 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
conclude in the September quarter. During the June quarter,
3.0kt of zircon low grade was produced (2.5kt last quarter) and a
single shipment containing 3.0kt of zircon low grade was made to
China (3.1kt 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 78%.
Bulk loading operations at Base Resources’ Likoni Port facility
continued to run smoothly, dispatching more than 178kt of ilmenite,
rutile and zircon low grade during the quarter (152kt last
quarter). Containerised shipments of rutile and zircon
through the Mombasa Port proceeded according to plan.
SUMMARY OF UNIT COSTS
& REVENUE PER TONNE (US$) |
June
2016
Quarter |
Sept
2016
Quarter |
Dec
2016
Quarter |
Mar
2017
Quarter |
June
2017
Quarter |
Unit operating costs
per tonne produced |
$93 |
$77 |
$84 |
$87 |
$96 |
Unit cost of goods
sold per tonne sold |
$99 |
$90 |
$106 |
$111 |
$103 |
Unit revenue per tonne
of product sold |
$201 |
$200 |
$250 |
$258 |
$297 |
Revenue:Cost of goods
sold ratio |
2.0 |
2.2 |
2.4 |
2.3 |
2.9 |
Total operating costs were slightly higher than recent quarters
due to the recognition of typical end of financial year costs,
however the unit operating cost of US$96 per tonne produced (rutile, ilmenite,
zircon and zircon low grade) is consistent with the same quarter in
the prior year. Cost of goods sold of US$103 per tonne sold (operating costs, adjusted
for stockpile movements, and royalties) were lower than last
quarter (US$111 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 40%
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 June quarter saw three bulk rutile sales taking
total rutile sales to 27.8kt, higher than the prior quarter’s
21.4kt total rutile sales. When combined with the higher
ilmenite sales volume, higher ilmenite and zircon prices and zircon
low grade sales, this contributed to the increase in average
revenue per tonne to US$297 per tonne
(US$258 last quarter).
FY2018 PRODUCTION
GUIDANCE |
FY2016
Actual |
FY2017
Actual |
FY2018
Guidance Range |
Rutile (tonnes) |
85,654 |
90,625 |
88,000
to 94,000 |
Ilmenite (tonnes) |
455,870 |
467,359 |
400,000
to 430,000(1) |
Zircon (tonnes) |
31,389 |
34,228 |
32,000
to 37,000 |
Zircon contained in
zircon low grade (tonnes) |
nil |
10,210 |
1,500
to 2,500 |
(1) Ilmenite production is expected to be
lower than financial year 2017, predominantly due to lower ilmenite
content in the ore scheduled to be mined.
The above production guidance is based on the following
assumptions for FY2018:
- Mining of 10.2Mt at an average HM grade of 7.32%, all from Ore
Reserves*.
- MSP feed rate at an average of 89tph, consistent with recent
performance.
- MSP product recoveries of 100% for ilmenite and 99% for rutile,
and 77% for zircon, consistent with past performance and
anticipated recovery improvements from ongoing MSP
optimisations.
[* 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 global TiO2 pigment industry continued to firm
through the June quarter. The ongoing strong demand for
TiO2 feedstock from pigment plants, now operating at
high utilisation rates, resulted in further feedstock price
increases through the quarter. Several of the leading global
pigment producers announced a further round of significant pigment
price increases taking effect through June and July 2017.
Prices for Base Resources’ ilmenite levelled out late in the
June quarter after experiencing further solid gains early in the
quarter. Market prices for some sources of ilmenite in
China (mostly Chinese domestic
ilmenite) surged to very high levels by April 2017 and have recently come under some
pressure from pigment producers concerned about the pace of growth
in their input costs. Ongoing political disruptions to
ilmenite exports from Tamil Nadu in India are now being off-set to some extent by
an increase in ilmenite supply from various sources of low quality,
high cost concentrates – stimulated by the high market
prices. Chinese domestic ilmenite production has increased
slightly following the disruptions of widespread environmental
inspections in late 2016. However, Chinese ilmenite
production, which is mostly produced as a by-product of vanadium
titanomagnetite mining, remains suppressed by the fall in the iron
ore price.
The ongoing strength in pigment demand and pricing is expected
to help stabilise prices for ilmenite at the current healthy levels
through the coming quarters.
Despite strong demand, the overhang of high grade
TiO2 feedstock capacity 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 there is an expectation that mainstream
contracted rutile prices will experience increased upward momentum
through the second half of 2017. Spot prices for rutile
increased sharply through the quarter – with prices in China increasing by over 30%. While spot
sales for rutile are a relatively minor part of the total market,
they are seen as an indicator of the overall supply/demand balance
and will influence the pricing outcome for bulk rutile contracts in
the second half of 2017.
Zircon demand was strong through the June quarter with enquiries
and volumes requested from customers far exceeding the Company’s
capacity to supply. Lower than anticipated global zircon
production for 2017 has reduced inventories and led to an
increasingly tight market and solid price improvement since the
December quarter of 2016. Base Resources has secured an
increase of US$150/t on all zircon
contracts for the September quarter. Potential remains for
further price improvement in the December quarter.
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 9.7 million man-hours LTI free, with the last LTI
recorded in the March quarter of 2014. The total recordable
injury frequency rate (“TRIFR”) has ticked up slightly with
one minor medically treated injury late in the quarter.
COMMUNITY AND ENVIRONMENT
Agricultural livelihood programmes, run in conjunction with
partners Business for Development, DEG, FMO, Australia’s DFAT and
Kenya Red Cross, continue to develop with encouraging support from
both national and county Kenyan governments. Our aim is to
reach commercial scale to provide increased incomes to local
families that can be sustained beyond the life of the Kwale
Operations.
During the quarter, planting in the latest rotation of the
cotton, potato, sorghum and maize programmes was completed in
preparation for the “long rains” season. Unfortunately, the
extremely heavy rains subsequently experienced caused extensive
flooding in the region, necessitating the replanting of around 20%
of crops.
A consignment of 30 tonnes of Kenyan cotton lint was exported to
Bangladesh for further processing
into garments for Cotton On. Five tonnes of this shipment
were produced through the Kwale Cotton project, a positive outcome
despite challenging drought conditions last year. The
proceeds of the sale of this crop have been returned to the
farmers’ cooperative to prepare them to manage crop inputs for the
current planting season. Training programmes are already
underway to build capacity for the cooperative’s
administrators.
Rehabilitation of TSF slopes continues on schedule despite the
very heavy rainfall experienced. Erosion control measures
worked well and vegetation growth on stabilised slopes is
outstanding. Local women’s groups have continued to provide
materials and labour, injecting significant incomes into villages
surrounding the mine site. This also featured in discussions
held with local stakeholders, including Kwale County Government, on
ways to increase local content in the supply of goods and
services.
In June, the Kwale Operations received an award from the Kenyan
National Environmental Management Authority in recognition of the
considerable effort and outcomes in environmental management and
biodiversity conservation.
BUSINESS DEVELOPMENT
EXTENSIONAL EXPLORATION – KENYA
Having completed the previously reported extensional and infill
drilling of the South Dune orebody in the March quarter,
exploration work during this quarter comprised drill sample
analysis, detailed mineralogy and geological interpretation with a
view to completing an updated JORC compliant Mineral Resource
Estimate during the September quarter.
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*. These discoveries are marked in the SW
Sector of Figure 1 [Figure omitted].
[* 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.]
As previously reported on 10 May
2017, substantial edge definition drilling was completed in
the quarter, along the eastern margins of the South Dune Deposit,
which indicates the potential for a significant extension of this
deposit, marked as Potential Eastern Extension in Figure 1
[Figure omitted]*.
[*Refer to Base Resources’ market
announcement on 10 May 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 10 May 2017.]
The next phase of exploration drilling is anticipated to
commence early in 2018 in the North-East Sector, adjacent to the
Central Dune.
EXPLORATION - TANZANIA
The Company holds five prospecting licenses in northern
Tanzania with a combined area of
475km2.
The necessary consents and clearances ahead of a planned
preliminary drilling programme across all five licenses are in
place. However, field work, previously scheduled to commence
during the September quarter, has been postponed to later in
FY2018.
Total exploration expenditure for the quarter, across all
licenses in Kenya and Tanzania, was US$0.1
million.
KWALE PHASE 2 PROJECT
On 23 May 2017, following
completion of the Definitive Feasibility Study (“DFS”), the
Board approved implementation of the Kwale Phase 2 Project
(“KP2”) at the Kwale Operations. The DFS confirmed the
opportunity for significant improvement in the financial returns
for Kwale Operations through further optimisation of the remaining
mine life.
The key benefits of KP2 are:
- Bringing forward of revenue by maintaining current production
levels for the remainder of the mine life, overcoming the declining
ore grades in the current Ore Reserve through the de?constraining
of the mine and concentrator plant.
- Faster mining and processing of Ore Reserves over a 24-month
shorter period, eliminating approximately US$60 million in fixed costs, with a commensurate
reduction in average operating cost per tonne produced and
significantly enhancing project economics compared with the current
mine plan.
- Increases the importance of, and value leverage from, potential
mine life extensions emerging from the exploration programme that
is underway.
The features, impacts and implementation plan for KP2 are
further explained in the Company’s market announcement on
23 May 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$19.7 million at 30 June 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.
In summary, at 30 June 2017:
- Net debt of US$98.5 million,
consisting of:
- Cash and cash equivalents were US$28.3
million (unrestricted) and an additional US$26.2 million (restricted – debt service
reserve account).
- Debt of US$153.0 million.
- 742,231,956 shares on issue.
- 61,425,061 options (exercise price of A$0.40, expiring 31 December 2018).
- 67,088,421 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
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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 / 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