TIDMBSE
AIM and Media Release
28 July 2020
BASE RESOURCES LIMITED
Quarterly Activities Report - June 2020
Key Points
* Kwale Operations has maintained operational consistency throughout the
quarter with health and safety protocols in place to minimise the risk of
COVID-19 to personnel and surrounding communities.
* FY20 production achieved at the higher end of guidance ranges.
* Production guidance provided for FY21.
* Ongoing firm demand from customers in the quarter supported further upward
movement in ilmenite prices, while rutile and zircon prices remained
steady.
* Kwale South Dune Mineral Resources and Ore Reserves updated to reflect
depletion due to mining as well as the lower ore density experienced since
commencing mining on the South Dune deposit.
* Toliara Project front-end engineering design, lender due diligence and
discussions with the Government of Madagascar progressed within the
constraints of the country's, and wider, COVID-19 responses.
* Activities to support vulnerable local communities affected by COVID-19 in
Kenya and Madagascar continued including the donation of food, medical and
hygiene supplies.
* With net cash of US$87.6 million at 30 June, the Company is in a robust
financial position.
African mineral sands producer, Base Resources Limited (ASX & AIM: BSE) (Base
Resources or the Company) is pleased to provide a quarterly operational,
development and corporate update.
Supported by firm customer demand, production at the Company's Kwale Mineral
Sands Operations (Kwale Operations) in Kenya has continued uninterrupted.
Discussions with the Government of Madagascar on fiscal terms, and the lifting
of the suspension of on-the-ground activities, for the Toliara Project
continued within the constraints of the Government's response to the ongoing
COVID-19 pandemic. Other activities to progress the project, such as front-end
engineering design and lender due diligence, continued in the quarter.
A PDF version of this announcement is available from the Company's website:
www.baseresources.com.au.
COVID-19 UPDATE
Base Resources continues to closely monitor the COVID-19 pandemic and its
impacts on the Company's business, people and other stakeholders. Kwale
Operations continues to operate under a suite of mitigations aimed at
protecting the health and safety of our employees and neighbouring communities,
including substantially modified workplace practices, with a reduced on-site
workforce and a focus on hygiene and social distancing measures to minimise the
risk of COVID-19 transmission. However, balancing the considerations of
employee and community health, operational safety, community benefits,
government policy, customer demand and financial prudence, a halt to, or
curtailment of, operations at some point in the future remains possible if
circumstances change.
The Company is also working with Kenyan national and local authorities to
ensure compliance with Government COVID-19 reduction measures as well as
assisting governments and communities in both Kenya and Madagascar with several
initiatives, primarily involving the construction of hygiene facilities,
distribution of food and provision of medical supplies and equipment.
KWALE OPERATIONS
Production & Sales June 2019 Sept 2019 Dec 2019 Mar 2020 June 2020
Quarter Quarter Quarter Quarter Quarter
Production (tonnes)
Ilmenite 88,789 73,808 91,406 105,035 84,843
Rutile 22,588 16,390 19,812 23,683 19,035
Zircon 7,063 6,980 7,923 9,163 7,590
Zircon low 347 466 546 780 578
grade
Sales (tonnes)
Ilmenite 99,620 60,109 106,544 87,819 102,364
Rutile 31,889 14,018 13,078 25,280 27,268
Zircon 7,968 6,713 7,090 7,377 9,086
Zircon low 219 839 616 - 1,516
grade1
[Note (1): Reported as tonnes of zircon contained in concentrate, it realises
90% to 100% of the value of the equivalent volume of standard grade zircon, due
to rutile credits.]
Mining operations continued steadily on the South Dune orebody with mined
tonnage of 4.3Mt at a grade of 3.9% heavy mineral (HM), both in line with the
previous quarter.
Subsequent to the quarter end, an update to the Kwale South Dune Mineral
Resources and Ore Reserves was released reflecting a 5% reduction in estimated
material bulk density, a reduction in the size of the prospecting licence
omitting some low grade material, sterilisation of sub-economic material and
depletion due to mining2. The change to estimated material bulk density is a
result of routine reconciliations between the resource model estimates and
run-of-mine operating data gained since mining commenced on the South Dune in
July 2019.
[Note (2): Refer to Base Resources' market announcement "Updated Kwale South
Dune Mineral Resources and Ore Reserves estimate" released on 27 July 2020,
which is available at https://baseresources.com.au/investors/announcements/.]
Mining & WCP June 2019 Sept 2019 Dec 2019 Mar 2020 June 2020
Performance Quarter Quarter Quarter Quarter Quarter
Ore mined (tonnes) 3,644,160 4,909,999 4,579,386 4,295,645 4,271,811
HM % 3.52 2.66 4.22 3.86 3.87
HMC produced 131,475 114,149 189,952 153,754 148,699
(tonnes)
Wet concentrator plant (WCP) production of heavy mineral concentrate (HMC) was
marginally lower at 149kt (last quarter: 154kt). HMC stocks increased slightly
to 16kt at quarter end (last quarter: 13kt). Sand tails continued to be
deposited into the mined-out Central Dune area and rehabilitation work on the
Central Dune and the mined-out areas of the South Dune also continued.
MSP Performance June 2019 Sept 2019 Dec 2019 Mar 2020 June 2020
Quarter Quarter Quarter Quarter Quarter
MSP Feed (tonnes of 160,766 121,600 155,217 186,197 145,550
HMC)
MSP feed rate (tph) 76 67 86 90 78
MSP recovery %
Ilmenite 100 103 100 99 99
Rutile 104 103 102 99 100
Zircon 76 86 88 87 85
Total mineral separation plant (MSP) feed tonnage was lower than the prior
quarter, constrained by HMC production and low inventories. Recoveries were
slightly higher than the previous quarter except for zircon.
Bulk loading operations at the Company's Likoni Port facility continued to run
smoothly, dispatching more than 125kt of bulk ilmenite and rutile during the
quarter (last quarter: 110kt). Containerised shipments of rutile and zircon
through the Mombasa Port proceeded according to plan.
Summary of unit costs June 2019 Sept 2019 Dec 2019 Mar 2020 June 2020
& Revenue per tonne (US$) Quarter Quarter Quarter Quarter Quarter
Unit operating costs per $127 $173 $140 $128 $153
tonne produced
Unit cost of goods sold per $180 $213 $141 $175 $189
tonne sold
Unit revenue per tonne of $482 $469 $355 $476 $479
product sold
Revenue: Cost of goods sold 2.7 2.2 2.5 2.7 2.5
ratio
Total operating costs of US$17.2 million were marginally lower (last quarter:
US$17.7 million) due to lower processing costs and rehabilitation provision
charges. Despite the lower total operating costs, the reduced production
levels resulted in higher unit operating costs of US$153 per tonne produced
(rutile, ilmenite, zircon, and low-grade zircon) (last quarter: US$128 per
tonne).
Unit cost of goods sold is influenced by both the underlying operating costs
and product sales mix. Operating costs are allocated to each product based on
revenue contribution, which sees the higher value rutile and zircon products
attracting a higher cost per tonne than the lower value ilmenite. Therefore,
the greater the sales volume of rutile and zircon relative to ilmenite in a
quarter, the higher both unit revenue per tonne and unit cost of goods sold
will be.
Ilmenite, and most of the rutile, is sold in bulk, with typical shipment sizes
of 50-54kt for ilmenite and 10-12kt for rutile, which means any given quarter
will usually contain either one or two bulk rutile and ilmenite sales. Zircon
is sold in smaller parcels and sales generally align with production volume.
Product sales mix will therefore vary depending on the number of bulk shipments
of ilmenite and rutile in each quarter.
Cost of goods sold of US$189 per tonne sold (operating costs, adjusted for
stockpile movements, and royalties) was higher due to increased unit operating
costs (last quarter: US$175 per tonne). The proportion of rutile and zircon
sold in the quarter was in line with the prior quarter, as were product prices,
resulting in the average revenue per tonne of US$479 per tonne remaining steady
(prior quarter: US$476 per tonne). From the combination of these factors, the
revenue to cost of goods sold ratio for the quarter decreased to 2.5 (last
quarter: 2.7).
Production Guidance FY20 FY20 FY21
(tonnes) Guidance Range Actual Guidance Range
Rutile 75,000 to 81,000 78,920 70,000 to 80,000
Ilmenite 335,000 to 355,000 355,093 270,000 to 300,000
Zircon 29,000 to 32,000 31,657 23,000 to 27,000
Total Kwale Operations production for the 2020 financial year (FY20) was within
the provided guidance range. The FY21 production guidance stated above is
based on the following assumptions:
* Mining of 17.2Mtat an average HM grade of 3.24%, with all FY21 volume
coming from Ore Reserves3. The forecast volume mined in FY21 is 5% lower
when compared to the 18.1Mt achieved (at 3.63% HM) in FY20 due to downtime
and reduced production associated with the relocation of the mine
collection hopper (which consolidates individual mining unit feed prior to
pumping to the WCP) in July 2020 and slightly lower forecast average mining
rates.
* Average MSP feed rate of 66tph constrained by HMC production and low
inventories.
* Average MSP product recoveries of 100.5% for rutile, 100% for ilmenite and
84% for zircon.
[Note (3): The Ore Reserves estimate underpinning the above production guidance
was prepared by Competent Persons in accordance with the JORC Code (2012
edition). For further information regarding the Ore Reserves estimate refer to
Base Resources' announcement on 27 July 2020 "Updated Kwale South Dune Mineral
Resources and Ore Reserves estimate" available at https://baseresources.com.au/
investors/announcements/. The above production guidance is 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
Despite global uncertainty created by the COVID-19 pandemic, demand for all
products remained firm during the quarter.
Global pigment producers have generally indicated that demand for pigment held
up during the early part of the June quarter, but began to decline through May
and June as the impact from COVID-19 related shutdowns in various regions
started to take effect. However, the decline in pigment demand appears to have
been less than initially anticipated - likely due to some pigment sectors (e.g.
plastics and DIY paint and other coatings) performing better than expected.
This resulted in pigment production levels exceeding expectations for most of
the quarter and sustained firm demand for pigment feedstock through the quarter
and led to continued tight markets for sulphate ilmenite and high-grade
chloride feedstocks (including rutile) supporting ilmenite and rutile prices.
In China, while a number of smaller pigment producers have curtailed
production, the large pigment producers have maintained production which has
sustained demand for our ilmenite through the June quarter. Global pigment
producers have indicated they started to wind back production at the end of the
June quarter and into the beginning of the September quarter.
While rutile supply remains constrained, a decrease in demand from pigment and
other minor end use sectors is expected to put pressure on prices through the
remainder of calendar year 2020. The Company has sales contracts in place for
most of its forecast rutile production for the remainder of calendar year
2020.
Despite the uncertain outlook for pigment demand, Chinese pigment producers
(the Company's main ilmenite customers) have again re-confirmed their demand
for ilmenite and their intention to proceed with planned shipments over the
remainder of calendar year 2020. Chinese domestic pigment demand has been
recovering since shutdowns in February 2020 and has partially off-set a decline
in export demand. The COVID-19 related shutdowns of ilmenite production in
China and India through the March and June quarters further exacerbated the
global ilmenite shortage. The market for ilmenite remains tight in the early
stages of the September quarter.
Subdued demand for zircon continued through the quarter is in line with
expectations. However, COVID-19 related suspensions of mining activity in
South Africa, combined with some major zircon producers reducing supply to meet
market conditions, has led to a relatively balanced market and prices have
remained stable.
The Company was fully sold on zircon production for the quarter at prices
reasonably consistent with March quarter contracts. Sales contracts have now
been secured for all zircon production in the September quarter at prices
consistent with the June quarter. Demand for zircon end products remains
uncertain over the coming months, but it is expected that adjustments to supply
from major zircon producers will continue to provide some stability to market
prices.
SAFETY
There were no lost time injuries during the quarter or in the past year, at
Kwale Operations' or the Toliara Project, resulting in a lost time injury
frequency rate (LTIFR) for the group of zero. Compared to the Western
Australian All Mines 2018/2019 LTIFR of 2.2, this is an exceptional performance
reflective of the ongoing focus and importance placed on safety by management.
Base Resources' employees and contractors have now worked 20.9 million
man-hours lost time injury (LTI) free, with the last LTI recorded in early
2014. One medical treatment injury was recorded during the quarter when an
employee required stitches after cutting their hand. As a result, Base
Resources total recordable injury frequency rate (TRIFR) is 0.24 per million
hours worked.
As reported in the Company's December 2019 quarterly4, in January 2020, an
incident with Kwale Operations haulage contractor tragically resulted in a
fatal injury to another road user on a public road. The safety of Base
Resources' activities for its people and the communities in which it operates
is a fundamental commitment for the Company and the incident was addressed at
the highest level. Consistent with the findings of the internal investigation
into this incident, a number of changes have been implemented to further
improve oversight of maintenance and safety practices across all contractors.
[Note (4): Refer to Base Resources' market announcement "Quarterly Activities
Report - December 2019" released on 23 January 2020, which is available at
https://baseresources.com.au/investors/announcements/.]
COMMUNITY AND ENVIRONMENT
Kwale Operations
Base Resources has continued to assist the Kwale community manage the COVID-19
pandemic, including collaborating with county and national health authorities
to train community health workers on COVID-19 awareness programs and providing
additional community-based handwashing equipment to help improve sanitation.
Food support programs continued, in conjunction with local and national
authorities, to cater for the economic impact on tourism and unemployment in
the Kwale region. On a national level, during the quarter the Company donated
100 high flow oxygen ventilators to the Kenyan Ministry of Health for
deployment within the Kenyan health system. Base Resources was recognised by
President Kenyatta with a Madaraka (Independence) Day national award for the
Company's contribution to the fight against COVID-19.
Agricultural livelihood programs at Kwale made progress despite restrictions on
gatherings and meetings. Work resumed on PAVI's processing facilities to
prepare for the 2020 planting season which has recently commenced with good
rains supporting promising yields for maize, sorghum, cotton, green grams,
various spices and sunflower. Measures have been put in place to continue to
progress these activities in compliance with ongoing government restrictions
implemented as a result of the COVID-19 pandemic.
Land rehabilitation activities increased significantly on the mine site with
the continued support of community groups supplying indigenous legumes and
grass seed. Revegetation is undertaken with the collaboration of youth groups
from neighbouring villages ensuring local communities are fully involved in the
process, achieving the best outcomes.
Toliara Project
All community training programs and social infrastructure construction remained
on hold with the government's suspension of on-the-ground activities on the
Toliara Project. The 24 Malagasy apprentices training in Kenya at Kwale
Operations have remained on site and are subject to restricted movements
consistent with government requirements and Company protocols addressing
COVID-19 risks.
Base Resources continues to work with local authorities to assist in the
response to public health challenges in the Toliara region by providing support
for food distribution in conjunction with local groups through the regional
government's COVID-19 response committee. This has also included the provision
of hygiene facilities and personal protective equipment and, together with a
leading local women's group, establishment of a face-mask manufacturing
facility in Toliara with completed masks being donated to the community.
BUSINESS DEVELOPMENT
Toliara Project development - Madagascar
In November 2019, the Government of Madagascar required the Company to
temporarily suspend on-the-ground activity on the Toliara Project while
discussions on fiscal terms applying to the project were progressed5. Activity
remains suspended as Base Resources continues to engage the Government in
relation to the fiscal terms applicable to the Toliara Project. Discussions
have been limited as the Government focuses on managing the COVID-19 pandemic.
As noted in the March 2020 quarterly, with the effective shutdown of
Government, international travel restrictions and broader COVID-19 measures and
impacts both in Madagascar and globally, a final investment decision (FID) to
proceed with the development of the Toliara Project will be delayed beyond the
September 2020 target date that had been contemplated in the definitive
feasibility study released in December 20196. Further guidance on a revised
FID date for the Toliara Project will be provided when there is greater clarity
on the trajectory of resumption of global economic activity.
Key activities during the quarter included:
* Continued positive engagement with the Government in relation to fiscal
terms and resumption of activity that has now seen encouragement for the
Company to lodge an application under Large Mining Investment Law (LGIM) as
the mechanism that will provide stability of fiscal terms.
* Preparation of the LGIM application.
* Resource, schedule and budget planning in light of the delays caused by the
COVID-19 pandemic.
* Progression of prospective lender due diligence.
* Progression of meaningful front-end engineering design (FEED) activities.
* Continued negotiations with preferred tenderers, ensuring tender validity
extensions for the river bridge, marine, piling and power contract
packages.
Key activities planned for the coming quarter include:
* Translation and submission of the LGIM application to the Government.
* Continuation of discussions with prospective lenders and equity partners.
* Progression of meaningful FEED activities to a logical point so they can be
parked. These activities will recommence six months prior to FID.
* Continued development of the Toliara Project's Environmental and Social
Management System.
* Continuation of implementation readiness systems development.
Total expenditure on the Toliara Project for the quarter was US$4.9 million
(last quarter: US$3.3 million).
[Note (5): Refer to Base Resources' market announcement "Toliara Project -
Government of Madagascar statement" released on 7 November 2019, which is
available at https://baseresources.com.au/investors/announcements/.
Note (6): Refer to Base Resources' market announcement "DFS reinforces Toliara
Project's status as a world class mineral sands development" released on 12
December 2019, which is available at https://baseresources.com.au/investors/
announcements/.]
Extensional exploration - Kenya
Mining tenure arrangements continued to progress with the Kenyan Ministry of
Petroleum and Mining as a precursor to an anticipated updated Ore Reserves
estimate to incorporate additional Mineral Resources defined within the Kwale
Prospecting Licence (PL 2018/0119) but outside the current mining lease SML23.
However, progress has slowed as the government focuses on combating the
COVID-19 pandemic.
The pre-feasibility study for mining the North Dune Resource was progressed and
remains on schedule for completion in early 2021.
Completion of the remaining drilling program (4,200 metres) in the North-East
Sector (Kwale East) of PL 2018/0119 remains on hold pending community access
being secured. Further drilling of the northern sections of the Vanga
Prospecting License (PL/2015/0042) remains on hold pending resolution of
community access issues. A north eastern extension of the Vanga Prospecting
Licence is under application (App No/1753) to cover further prospective ground
which has since become available.
The additional prospecting licence applications lodged for an area south of
Lamu (Apps No/2136, 2146 and 2153) together with an area in the Kuranze region
of Kwale county about 70 km west of Kwale Operations (App No/2123) remain in
progress through the granting process. Expenditure on exploration activities
in Kenya during the quarter was US$0.2 million (last quarter: US$0.1 million).
CORPORATE
Kenyan VAT receivable
As previously announced, Base Resources has refund claims for VAT paid in
Kenya, relating to both construction of the Kwale Project and the period since
operations commenced, which totalled approximately US$17.9 million at 30 June
2020. These claims are proceeding through the Kenya Revenue Authority process
with refunds totalling US$2.6 million received during the quarter (last
quarter: US$3.1 million). Base Resources is continuing to engage with the
Kenyan Treasury and the Kenya Revenue Authority, seeking to expedite the refund
claims.
FY20 full year financial results
The Company is targeting release of its FY20 audited consolidated financial
statements in the week commencing 24 August 2020. Timing confirmation and
shareholder and investor call details will be advised closer to the planned
release.
In summary, at 30 June 2020:
* Net cash of US$87.6 million, consisting of:
+ Cash and cash equivalents of US$162.6 million.
+ Revolving Credit Facility debt of US$75.0 million.
* 1,171,609,774 fully paid ordinary shares on issue.
* 69,167,541 performance rights issued pursuant to the terms of the Base
Resources Long Term Incentive Plan, comprising:
+ 6,527,607 vested performance rights, which remain subject to exercise7.
+ 62,639,934 unvested performance rights, which are subject to
performance testing in accordance with their terms of issue.
[Note (7): Vested performance rights have a nil cash exercise price and,
unless exercised beforehand, these rights expire on 30 September 2024.]
Forward looking statements
Certain statements in or in connection with this announcement contain or
comprise forward looking statements. Such statements may include, but are not
limited to, statements with regard to capital cost, capacity, future production
and grades, sales projections and financial performance and may be (but are not
necessarily) identified by the use of phrases such as "will", "expect",
"anticipate", "believe" and "envisage". By their nature, forward looking
statements involve risk and uncertainty because they relate to events and
depend on circumstances that will occur in the future and may be outside Base
Resources' control. Accordingly, results could differ materially from those
set out in the forward-looking statements as a result of, among other factors,
changes in economic and market conditions, success of business and operating
initiatives, changes in the regulatory environment and other government
actions, fluctuations in product prices and exchange rates and business and
operational risk management. Subject to any continuing obligations under
applicable law or relevant stock exchange listing rules, Base Resources
undertakes no obligation to update publicly or release any revisions to these
forward-looking statements to reflect events or circumstances after today's
date or to reflect the occurrence of unanticipated events.
ENDS.
For further information contact:
James Fuller, Manager Communications and Investor UK Media Relations
Relations
Base Resources Tavistock Communications
Tel: +61 (8) 9413 7426 Jos Simson and Barnaby Hayward
Mobile: +61 (0) 488 093 763 Tel: +44 (0) 207 920 3150
Email: jfuller@baseresources.com.au
This release has been authorised by the Board of Base Resources.
About Base Resources
Base Resources is an Australian based, African focused, mineral sands producer
and developer with a track record of project delivery and operational
performance. The Company operates the established Kwale Operations in Kenya
and is developing the Toliara Project in Madagascar. Base Resources is an ASX
and AIM listed company. Further details about Base Resources are available at
www.baseresources.com.au
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
NOMINATED ADVISOR
RFC Ambrian Limited
Stephen Allen
Phone: +61 (0)8 9480 2500
BROKER
Berenberg
Matthew Armitt / Detlir Elezi
Phone: +44 20 3207 7800
END
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