TIDMBSE
AIM and Media Release
25 July 2018
BASE RESOURCES LIMITED
Quarterly Activities Report - June 2018
HIGHLIGHTS
* Further strengthening of rutile and zircon prices.
* Record rutile production for the quarter of 24,451 tonnes.
* Successful ramp up of mining operations following commissioning of Kwale
Phase 2 optimisation project.
* No lost time or medical treatment injuries.
* Production for financial year 2018 consistent with guidance for all
products.
* Near mine exploration drilling continued to the north-east of Kwale
Operations.
* Appointment of a Mineral Technologies and Lycopodium partnership to deliver
the Toliara Project PFS which is now underway.
* Net debt further reduced by US$27.6 million to US$33.2 million.
* Production guidance for financial year 2019:
+ Rutile - 88,000 to 93,000 tonnes
+ Ilmenite - 420,000 to 450,000 tonnes
+ Zircon - 32,000 to 37,000 tonnes
"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.
African mineral sands producer, Base Resources Limited (ASX & AIM: BSE) (Base
Resources or the Company) is pleased to provide a quarterly corporate,
development and operational update. At its Kwale Mineral Sands Operations (
Kwale Operations) in Kenya, the focus has been on ramping up mining rates and
optimising the wet concentrator plant (WCP) recoveries following commissioning
of the Kwale Phase 2 (KP2) upgrade. The Company continued activity on its
Toliara mineral sands project (Toliara Project) in the south-west of Madagascar
with the appointment of a Mineral Technologies and Lycopodium partnership to
deliver the Pre-Feasibility Study (PFS). On the marketing front, pricing for
rutile and zircon continued to strengthen during the quarter.
KWALE OPERATIONS
PRODUCTION June 2017 Sept 2017 Dec 2017 Mar 2018 June 2018
& SALES Quarter Quarter Quarter Quarter Quarter
Production (tonnes)
Ilmenite 119,364 119,376 119,209 111,630 114,773
Rutile 22,762 22,789 22,798 21,634 24,451
Zircon 8,375 9,136 9,569 9,166 9,286
Zircon low grade[1] 3,026 1,425 - - -
Sales (tonnes)
Ilmenite 142,405 106,260 119,554 140,665 107,170
Rutile 27,779 12,594 25,377 25,526 25,635
Zircon 8,540 9,283 8,144 9,884 9,007
Zircon low grade1 3,045 - 3,287 - -
[Note (1): Zircon low grade tonnes contained in concentrate, equivalent to
approximately 70-80% of the value of primary zircon.]
Following the successful commissioning of a second hydraulic mining unit (HMU)
and upgraded WCP as part of the KP2 mine optimisation project, the Company is
pleased to report achieving nameplate mining and WCP throughput rates of
2,400tph.
The second HMU is an upgraded version of the first HMU and operated at an
average mining rate of 865tph in the quarter, compared to a design rate of
800tph. With three mining units operating in the quarter (two HMUs and one
dozer mining unit (DMU)) a record mining volume was achieved, despite reduced
mining in April due to KP2 commissioning. A third and final HMU was
commissioned in July, and consequently the DMU has been removed from current
service but remains on hand and available, if required.
Following the KP2 WCP upgrade, which included a 69% increase in spiral
capacity, recoveries of heavy minerals (HM) to concentrate have been slightly
below design levels but ongoing optimisation at the higher throughput rates and
lower grades continue to yield improvements.
MINING & WCP PERFORMANCE June 2017 Sept 2017 Dec 2017 Mar 2018 June 2018
Quarter Quarter Quarter Quarter Quarter
Ore mined (tonnes) 2,975,694 3,023,550 2,882,529 1,883,159 3,543,430
HM % 8.40 8.01 7.61 6.88 6.36
HMC produced (tonnes) 232,574 238,580 196,725 125,298 192,559
WCP production of heavy mineral concentrate (HMC) for the quarter increased to
193kt (125kt last quarter, low due to the KP2 shutdown) as mining volumes
increased. HMC stockpiles drawn down during the quarter as result of the KP2
commissioning were rebuilt to 78kt by quarter end (77kt at the end of March
quarter) as mining and HMC production increased.
The tailings storage facility (TSF) sand wall stacking, lining and slimes
deposition continued according to plan, with the final wall lift nearing
completion. Sand stacking continued in the mined-out area of the Central
Dune. Rehabilitation of the TSF outer wall continued during the quarter,
albeit at a slower rate due to the heavy rains associated with the main wet
season.
Good rains were received during the quarter, resulting in the Mukurumudzi Dam
reaching its full capacity of 8.6GL and spilling in June.
MSP PERFORMANCE June 2017 Sept 2017 Dec 2017 Mar 2018 June 2018
Quarter Quarter Quarter Quarter Quarter
MSP Feed (tonnes of HMC) 192,432 190,499 190,798 180,128 192,376
MSP feed rate (tph) 92 91 91 92 90
MSP recovery %
Ilmenite 101 100 100 101 100
Rutile 98 100 100 99 101
Zircon 73 75 77 78 79
Mineral separation plant (MSP) availability was extremely good at 98% (91% last
quarter) with a total of 192.3kt of HMC processed (180.1kt last quarter). All
MSP recoveries were at or above design levels and production of all finished
products was higher than the prior quarter as a result of the higher
throughput.
Bulk loading operations at the Company's Likoni Port facility continued to run
smoothly, dispatching more than 130kt of ilmenite and rutile during the quarter
(162kt last quarter). Containerised shipments of rutile and zircon through the
Mombasa Port proceeded according to plan.
SUMMARY OF UNIT COSTS June 2017 Sept 2017 Dec 2017 Mar 2018 June 2018
& REVENUE PER TONNE (US$) Quarter Quarter Quarter Quarter Quarter
Unit operating costs per tonne $96 $90 $92 $98 $102
produced
Unit cost of goods sold per tonne $103 $107 $120 $114 $143
sold
Unit revenue per tonne of product $297 $285 $344 $314 $376
sold
Revenue:Cost of goods sold ratio 2.9 2.7 2.9 2.8 2.6
Total operating costs were 10% higher than recent quarters due to the increase
in mining and processing volumes and the recognition of typical end of
financial year costs. Unit operating cost of US$102 per tonne produced
(rutile, ilmenite and zircon) higher than both the prior quarter (US$98 per
tonne) and the same quarter in the prior year (US$96 per tonne) due to the
higher overall operating costs associated with the increased mining and
processing volumes. Cost of goods sold of US$143 per tonne sold (operating
costs, adjusted for stockpile movements, and royalties) was higher than last
quarter due to product sales mix (proportionally more high value rutile and
zircon) and the associated cost allocation.
Revenue per tonne of product sold varies significantly each quarter, with the
number of bulk rutile sales during that quarter being the primary factor. In a
normal year, there are usually seven or eight bulk rutile sales of
approximately 10-12kt 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 had two bulk rutile sales taking total rutile sales to 25.6kt,
in line with last quarter's 25.5kt total rutile sales. Higher rutile and
zircon prices together with significantly lower ilmenite sales volume this
quarter has resulted in the average revenue per tonne increasing to US$376 per
tonne (US$314 last quarter).
MINING TRANSITION TO SOUTH DUNE
Engineering work and procurement commenced during the quarter for the planned
transition of mining from the Central Dune to the South Dune in July 2019. The
total cost of works for the mine move are forecast to be US$12.3 million to be
incurred over FY2019. Negligible costs were incurred during the June quarter.
FY2019 PRODUCTION GUIDANCE FY2017 FY2018 FY2019
Actual Actual Guidance Range
Rutile (tonnes) 90,625 91,672 88,000 to 93,000
Ilmenite (tonnes) 467,359 464,988 420,000 to 450,000
Zircon (tonnes) 34,228 37,157 32,000 to 37,000
Zircon contained in zircon low grade 10,210 1,425 Nil2
(tonnes)
[Note (2): No production of zircon low grade is anticipated for FY2019.]
The above production guidance is based on the following assumptions for
financial year 2019 (FY2019):
* Mining of 18.3Mt at an average HM grade of 3.98%, all from Ore Reserves3.
Forecast mining volumes are significantly higher than FY2018 (11.3Mt)
facilitated by the addition of a third mining unit as part of the KP2
upgrade project to offset declining ore grades.
* MSP feed rate at an average of 89tph, consistent with recent performance.
* MSP product recoveries of 100% for ilmenite, 99% for rutile and 77% for
zircon, consistent with recent performance.
[Note (3): 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 remained buoyant, as expected, through the
seasonally strong June quarter. High plant utilisation rates and low inventory
levels among major western pigment producers continue to support a strong
pigment pricing environment. Pigment producers in China, whilst targeting
maximum output levels, have been somewhat hampered in recent months by renewed
environmental inspection shutdowns by local authorities.
Demand for ilmenite from the Chinese pigment industry continues to be volatile,
caused by the impact of periodic environmental inspections on both domestic
ilmenite producers and pigment producers. Chinese domestic ilmenite production
was restricted during the second half of the quarter as a result of
environmental inspections and in response to softer demand from pigment
producers affected by environmental shutdowns. Imports of ilmenite to China
from Vietnam and India continue to be restrained due to political factors and
lower market prices. Ilmenite prices decreased slightly during May but have
remained stable through to the start of July. It is expected ilmenite prices
will remain steady through the September quarter with the potential for upside
if Chinese pigment prices increase and/or Chinese pigment output from major
producer's trends back towards maximum capacity.
A supply deficit in the high-grade feedstock sector (which includes rutile),
driven mostly by the strength in the western chloride pigment sector, has seen
market conditions continue to tighten. Most recently, a major producer has
announced that it has applied a 14% price increase for contracted rutile sales
in the second half of 2018.
Zircon demand continued to be strong through the June quarter with volumes
requested by customers remaining well above the Company's capacity to supply.
Indications of ongoing tight supply from major zircon sources through 2018 have
supported further substantial zircon price increases. Base Resources has again
secured significant price gains on zircon contracts for the September quarter.
Concerns from zircon producers in relation to the potential for substitution or
thrifting of zircon by customers may begin to restrain the extent and/or
frequency of price increases going forward.
SAFETY
With no lost time or medical treatment injuries occurring during the quarter or
in the past year, Kwale Operations' lost time injury frequency rate (LTIFR) and
total recordable injury frequency rate (TRIFR) are both now zero, an
exceptional performance reflective of the ongoing focus and importance placed
on safety by management. Base Resources' employees and contractors have now
worked 13.2 million man-hours LTI free, with the last LTI recorded in 2014.
COMMUNITY AND ENVIRONMENT
Agricultural livelihood programs, 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. These programs, covering cotton, potato, sorghum, legumes, bee
keeping and poultry, have expanded to involve around 2,500 smallholder farmers
and community groups with early and persistent rains in the quarter
contributing to good results.
Sorghum harvest and commercial sales continue with a large Kenyan brewing
company and a solid relationship is developing between the farmers' cooperative
and the brewer. Further training has been provided by the brewer to help lift
product quality in their campaign to increase locally sourced produce.
Cotton is also growing well this season with harvest anticipated in the
September quarter. In June, the Kwale Cotton project was shortlisted for the
Unilever Global Development Award out of hundreds of applicants.
A recently announced Kenyan national development initiative, known as the "Big
Four Agenda", has identified the cotton value chain as a major element to
achieving one of its key pillars - jobs growth by increasing local
manufacturing. As a result, the government is directing significant resources
to the growth of cotton farming nationwide, together with assisting the PAVI
farmers' cooperative with construction of cotton processing and storage
facilities to help farmers release additional value from their crops.
Rehabilitation of the TSF wall is underway with over 8 hectares revegetated so
far.
BUSINESS DEVELOPMENT
TOLIARA SANDS DEVELOPMENT - MADAGASCAR
Base Resources' development plan is on track to complete a full study phase
ahead of a decision to proceed to construction in the second half of calendar
year 2019 (H2 CY19). This timetable could be expected to see the Toliara
Project in production in H2 CY21.
During the quarter, the high-level concept study to identify and assess various
enhancement options was completed, with a short list taken forward for
evaluation during the PFS.
A Mineral Technologies and Lycopodium partnership (MTL) was appointed as
engineering consultants to deliver the PFS4. The PFS is progressing to plan
with a range of mining, processing and infrastructure options being evaluated
with the aim of selecting the preferred development option by the end of the
September quarter and the full PFS targeted for completion in Q1 CY19. The
definitive feasibility study (DFS) completion is expected in Q3 CY19.
A number of long lead activities progressed during the quarter which will feed
into the PFS and the DFS, including:
* A 115-tonne bulk sample arrived at Mineral Technologies in Brisbane and a
full program of wet and dry plant testwork, which will inform process flow
sheet design, is progressing to plan.
* The appointment of Wallis Drilling to complete a drilling program to define
the boundaries of the Mineral Resource, upgrade the existing Inferred
Resource to Indicated status, and complete an Ore Reserve
estimation.Drilling commenced in July.
* A site visit by MTL to plan further geotechnical investigations.
The September quarter will focus on completion of the evaluation of mining,
processing and infrastructure options and will see commencement of a number of
activities including:
* Bathymetric survey of the sea bed for the proposed port jetty.
* Further geotechnical investigations for the port, mine site, haul road and
river crossing.
* Infill aerial survey for infrastructure planning.
Total expenditure on the Toliara Project for the June quarter was US$1.5
million.
[Note (4) Refer to Base Resources' market announcement "Appointment of a
Mineral Technologies and Lycopodium partnership to deliver PFS" released on 15
May 2018, which is available at http://www.baseresources.com.au/investor-centre
/asx-releases.]
EXTENSIONAL EXPLORATION - KENYA
As announced on 4th October 20175, an updated Mineral Resource estimate for the
Kwale South Dune (the 2017 Kwale South Dune Mineral Resource) was completed,
resulting in a 19% increase in contained in situ HM in the Measured and
Indicated categories. Completion of an updated Ore Reserve based on the 2017
Kwale South Dune Mineral Resource is subject to finalisation of mining tenure
arrangements, which are currently being progressed with the Kenyan Ministry of
Petroleum and Mining.
The next phase of extensional exploration drilling at Kwale Operations
commenced in April in the North-East Sector of the Company's Kwale Special
Prospecting License (SPL) 173, adjacent to the Kwale Operation's Central Dune.
At quarter end, 274 holes for 3,835 metres have been drilled. Completion of
the remaining drilling program (4,200 metres) in this area is currently
suspended whilst community access issues are being resolved. Drill assay
results from work completed to date are expected to be available in the
September quarter.
During the quarter, the Company commenced a re-evaluation, including infill
drilling, of the higher-grade areas of the North Dune, motivated by an improved
economic environment, refined resource definition methodology and insights from
five years of operations on the Central Dune. At quarter end, 36 holes for
2,450 metres have been drilled and a further 14,000 metres is planned for the
coming quarter. The North Dune is currently not included in the Kwale Mineral
Resources.
The Company's Vanga SPL application has been approved by the Mineral Rights
Board and is awaiting issuance. Once issued, the planned drilling program will
be scheduled to follow on from the North Dune and North-East Sector drilling.
[Note (5) Refer to Base Resources market announcement "Mineral Resource
Increase for Kwale South Dune" released on 4 October 2017, which is available
at http://www.baseresources.com.au/investor-centre/asx-releases, which contains
the JORC competent persons statement for this estimate of Mineral Resource.
The Company confirms that it is not aware of any new information or data that
materially affects the information included in this ASX announcement and that
all material assumptions and technical parameters underpinning the Mineral
Resource estimates in this announcement continue to apply and have not
materially changed.]
EXPLORATION - TANZANIA
The Company holds five prospecting licences in northern Tanzania with a
combined area of 475km2. A stratigraphic drilling program across all five
licences was completed during the prior quarter to enhance understanding of the
area's geology, marine sequences and potential to host heavy mineral. Drill
samples have been analysed at the Kwale Operations laboratory and key findings
are as follows:
* The red sand dunal deposits are very shallow (1-6m) and overlie a limestone
base (Tanga terrace).
* The dunal deposits are weakly mineralised and are high in slime content
(average of about 50%).
* Below the limestone base (approx. 50m) lies a mineralised paleo-strand
deposit.
* Microscopic analysis of the deep mineralised zone indicates that most of
the HM is dominated by garnets and staurolite with low valuable HM content.
Based on these results, it is unlikely the Company will pursue further
exploration on these licences.
Total exploration expenditure for the quarter, across all licences in Kenya and
Tanzania, was US$0.4 million.
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$21.3 million at 30 June
2018. These claims are proceeding through the Kenya Revenue Authority process
and refunds totalling US$1.4 million were received during the quarter (nil last
quarter). Base Resources is continuing to engage with the Kenyan Treasury and
the Kenya Revenue Authority, seeking to expedite the remainder of the refunds.
In summary, at 30 June 2018:
* Net debt of US$33.2 million, consisting of:
+ Cash and cash equivalents were US$29.7 million (unrestricted) and an
additional US$29.6 million (restricted - debt service reserve account).
+ Debt of US$92.5 million (Kwale Project Debt Facility US$80.0 million
and Corporate RCF US$12.5 million).
* 1,127,575,014 shares on issue.
* 61,425,061 options (exercise price of A$0.40, expiring 31 December 2018).
* 71,281,661 performance rights issued pursuant to the terms of the Base
Resources Long Term Incentive Plan.
ENDS.
CORPORATE PROFILE
Directors
Keith Spence (Non-Executive Chairman)
Tim Carstens (Managing Director)
Colin Bwye (Executive Director)
Sam Willis (Non-Executive Director)
Michael Stirzaker (Non-Executive Director)
Malcolm Macpherson (Non-Executive Director)
Diane Radley (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:
Charlie Cryer
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
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BRISTOL BS99 6ZZ
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AUSTRALIAN MEDIA RELATIONS
Cannings Purple
Andrew Rowell
arowell@canningspurple.com.au
Phone: +61 (0)8 6314 6300
UK MEDIA RELATIONS
Tavistock Communications
Jos Simson / Barnaby Hayward
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
END
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