AIM
and Media Release
25 July 2023
Base
Resources Limited
Quarterly
Activities Report – June
2023
African
mineral sands producer, Base
Resources Limited (ASX &
AIM: BSE) (Base
Resources or
the Company)
is pleased to provide an operational, development and corporate
update for the quarter ended 30 June
2023.
KEY POINTS
-
FY23
production guidance achieved and FY24 production guidance
released.
-
Prices
were steady for ilmenite and slightly lower for rutile, while
zircon prices moderately increased.
-
Mining
volumes increased to 4.1Mt following a stoppage in the prior
quarter for the transition of half the mining operations to the
North Dune.
-
Exploration
drill results from Kwale East confirmed the presence of heavy
mineral, with a peak drill hole grade of 6.3% heavy mineral, as
well as a high value mineral assemblage.
Three
areas were identified for further targeted exploration as part of a
second phase air core drilling program.
-
Results
from the first phase of drilling at the Umba South exploration
project in Tanzania confirmed
rutile mineralisation was present but a number of factors were
identified limiting the project’s economic potential, with further
exploration activity paused pending receipt of assay results from a
second phase infill drilling program.
-
Engagement
with the Government of Madagascar
on Toliara Project fiscal terms, and lifting of the project’s
on-ground suspension, has been limited during the quarter due to
the Government focus on an overhaul of the Malagasy Mining Code and
preparations for the upcoming Presidential
elections.
While the
Company remains committed to developing the world class project and
is ready to progress, until the Mining Code reform is finalised,
and the elections scheduled for late 2023 have concluded, the
Company does not expect to achieve material progress in securing
fiscal terms or lifting of the project’s on-ground
suspension.
KWALE
OPERATIONSOperational
performance
The Kwale
South and North Dunes continued to be mined concurrently during the
quarter, with mining operations split equally between the two
deposits.
Mined
tonnage was higher at 4.1 million tonnes (Mt)
(last quarter: 3.3Mt) following the stoppage for the mine move to
North Dune last quarter.
Mining
rates in the high slime lower ore zones of the North Dune also
improved during the quarter, but remain below the mining rates for
the upper ore zone.
Further
enhancements aimed at improving North Dune mining rates will be
trialled in the coming quarter.
The heavy
mineral (HM)
grade of ore mined in the quarter was lower at 3.0% (last quarter:
3.9%) due to the lower grades associated with the North
Dune.
Ilmenite
recoveries were lower than the previous quarter due to a zone of
high chrome ore in the South Dune that required a higher quantity
of low magnetic rejects than normal to achieve requisite product
quality.
As a
result of the lower ore grade mined and limited availability of
heavy mineral concentrate stocks, production of finished products
was lower than the prior quarter.
Sand tails
continued to be deposited into the mined-out Central Dune area and
capped with a 6m co-disposed
slimes/sand layer to aid water retention and subsequent
rehabilitation.
Rehabilitation activities on the Central Dune and the South Dune
proceeded to plan.
Preparations
are underway to commence sand deposition in the mined-out areas of
the North Dune pit with pumping infrastructure established during
the quarter.
SUMMARY BY QUARTER
|
FY22
|
FY23
|
JUN
|
SEP
|
DEC
|
MAR
|
JUN
|
Mining
(million
tonnes)
|
Ore
mined
|
3.9
|
4.4
|
4.5
|
3.3
|
4.1
|
HM
%
|
4.1
|
3.8
|
4.0
|
3.9
|
3.0
|
VHM
%
|
3.1
|
2.9
|
3.1
|
3.1
|
2.3
|
|
|
|
|
|
|
Production
(thousand
tonnes)
|
Ilmenite
|
83.8
|
86.0
|
84.5
|
71.6
|
55.5
|
Rutile
|
19.2
|
18.9
|
19.5
|
16.6
|
13.8
|
Zircon
|
6.8
|
6.6
|
7.4
|
6.4
|
5.5
|
Low grade
products1
|
4.9
|
5.7
|
5.2
|
4.1
|
3.4
|
SUMMARY BY QUARTER
|
FY22
|
FY23
|
JUN
|
SEP
|
DEC
|
MAR
|
JUN
|
US$
per tonne
|
Sales
revenue
|
$691
|
$714
|
$651
|
$637
|
$695
|
|
Operating
costs
|
$152
|
$154
|
$165
|
$190
|
$240
|
|
Cost of
goods sold
|
$196
|
$200
|
$191
|
$195
|
$263
|
|
Revenue:
Cost ratio
|
3.5
|
3.6
|
3.4
|
3.3
|
2.6
|
|
Sales
(thousand
tonnes)
|
Ilmenite
|
95.7
|
62.6
|
74.1
|
86.2
|
74.6
|
|
Rutile
|
24.7
|
14.2
|
14.7
|
15.2
|
19.6
|
|
Zircon
|
7.1
|
6.2
|
5.0
|
7.4
|
6.6
|
|
Low grade
products1
|
4.7
|
4.5
|
4.7
|
5.3
|
3.2
|
|
[Note
(1): Low
grade products are a combination of low-grade zircon and low-grade
rutile which are sold separately at a discount to standard grade
products.]
Bulk
shipping operations at the Company’s Likoni export facility
continued to run smoothly, with a combined 89.5kt of bulk ilmenite
and rutile dispatched (last quarter: 96kt).
Containerised
shipments of rutile and zircon through the Mombasa Port also
proceeded to plan.
Unit
operating costs have increased to US$240 per tonne produced (rutile, ilmenite,
zircon and low-grade products) (last quarter: US$190 per tonne) due to lower ore grades
resulting in lower production. Despite
this, total cash operating costs of US$18.8
million are in line with the prior quarter (last quarter:
US$18.8 million) due to lower
maintenance, product transport and shipping costs offsetting the
higher mining costs.
Cost of
goods sold increased to US$263 per
tonne sold (operating costs, adjusted for stockpile movements, and
royalties) due to sales volume and mix (last quarter: US$195 per tonne), which also drove an increase
in the average unit revenue US$695
per tonne (prior quarter: US$637 per
tonne).
Consequently,
the revenue to cost of goods sold ratio for the quarter was 2.6
(last quarter: 3.3).
FY23
production and FY24 production guidance
Total
Kwale Operations production for the 2023 financial year
(FY23)
was within the Company’s previously disclosed guidance
range.
Total
production for FY23, together with the Company’s production
guidance for FY23 and the 2024 financial year (FY24),
is set out in the table below.
The FY24
production guidance is unchanged from that previously
announced2.
Production Guidance (tonnes)
|
FY23
Guidance Range
|
FY23
Actual
|
FY24
Guidance Range
|
Rutile
|
62,000 to
73,000
|
68,784
|
35,000 to
41,000
|
Ilmenite
|
260,000 to
310,000
|
297,861
|
130,000 to
160,000
|
Zircon
|
22,000 to
27,000
|
25,954
|
13,000 to
16,000
|
[Note
(2): Refer
to Base Resources’ announcement on 26 June
2023, “FY24 Production Guidance – Kwale Operations”, for the
assumptions upon which the guidance is based and an explanation of
why the guidance is lower than the FY23 guidance.]
MARKETING
Market
conditions were relatively stable in North America and Europe but became challenging in China due to a stalling economic
recovery.
Despite
this, firm demand continued for Base Resources’ products through
the quarter.
Prices
were steady for ilmenite and slightly lower for rutile, while
zircon prices moderately increased on the expectation of improved
domestic conditions after Chinese New Year.
Ilmenite
demand and prices in China
improved at the end of the March quarter and into the start of the
June quarter as Chinese pigment plants ramped up production in
anticipation of a rebound in the domestic pigment
market.
However,
sentiment became increasingly negative through the quarter as the
expected improvement in conditions was not
realised.
Increasing
competition for pigment sales in both the domestic and export
markets led to reduced production from some operations in
China, which led to a
corresponding decline in overall demand for ilmenite over the
quarter.
Chloride
pigment producers in China, which
are reliant on better quality imported ilmenite than the
domestically produced ilmenite, continue to ramp up new production
lines which is supporting demand for Base Resources’
ilmenite.
The
planned ramp up in pigment production from major western producers
in the first half of 2023 has been slower than expected, with
demand not returning to normal levels by the end of the quarter due
to ongoing economic uncertainties in the major
markets.
Pigment
producers are therefore maintaining a cautious approach to
production to manage inventory levels.
Rutile
remains a preferred feedstock for western pigment producers as it
enables plants to minimise the use of other costly raw materials
such as chlorine.
This
supported rutile demand through the quarter with prices only
declining moderately despite the challenging
environment.
This
situation is expected to continue in the coming quarter.
Rutile
demand from the smaller welding and titanium metal sectors remained
firm in the quarter and is expected to increase for the coming
quarter.
Rutile
prices into these sectors command a significant price premium over
bulk rutile for the TiO2
pigment
market.
Base
Resources continues to increase its proportion of rutile sales to
the welding sector.
As zircon
sale contracts are typically agreed on a quarterly basis in advance
of the relevant quarter, better than expected market sentiment
across Europe and China in the March quarter resulted in an
increase in the contracted price of zircon deliveries for the June
quarter.
However,
stagnant conditions in Europe
through the June quarter, combined with negative sentiment in
China, has dented the outlook for
zircon in coming quarters and zircon prices have decreased
moderately for the September quarter contracts.
SUSTAINABILITYHealth
and safety
There were
no lost time injuries during the quarter and, with no lost time
injuries in the past 12 months, Base Resources has a lost time
injury frequency rate (LTIFR)
of 0.0 per million hours worked.
Compared
to the Western Australian All Mines 2020/2021 LTIFR of 2.0, this is
an exceptional performance and reflects the ongoing focus and
importance placed on safety.
With one
medical treatment injury recorded in the last 12 months, Base
Resources’ total recordable injury frequency rate is
0.20 per
million hours worked.
Community
and environment – Kwale Operations
Farmers
participating in the Company’s agricultural livelihood programs in
Kwale County, implemented through the PAVI farmers’ cooperative,
planted 95 acres of cotton and 190 acres of maize in preparation
for the new season, with recent rainfall providing an encouraging
sign for farmers.
Poultry
feed production continued to supplement farmer incomes, and the
Company’s poultry and beekeeping programs continued to grow in
popularity.
Over
52,000 trees have been planted during the current rainy
season.
Established
environmental controls have ensured that the onset of the wet
season were well managed with no significant erosion events or
runoff into surrounding communities.
Further,
no instances of environmental non-compliance, major environmental
incidents or environment-related community complaints were
identified or recorded during the quarter.
Community
and environment – Toliara Project
All
community training programs and social infrastructure projects
remain on hold while the Toliara Project’s on-ground activities are
suspended.
BUSINESS
DEVELOPMENT Toliara
Project development – Madagascar
Engagement
with the Government of Madagascar
on Toliara Project fiscal terms, and lifting of the project’s
on-ground suspension, has been limited during the quarter due to
the Government focus on an overhaul of the Malagasy Mining Code and
preparations for the upcoming Presidential elections.
A
replacement Mining Code has been approved by Parliament and is now
under review by the High Constitutional Court for consistency with
Madagascar’s constitution.
Following
this review and assuming no changes are required, the replacement
Mining Code will be sent to the President for promulgation and will
pass into law when published in the Official
Gazette.
Key
financial elements of the replacement Mining Code relevant to the
Toliara Project are:
-
Increase
in royalty rate from 2% to 5%.
A
reduction of 30% is applied to the 5% royalty in the event the
products are locally “transformed”, the definition and application
of which are unclear.
The
Toliara Project Updated Definitive Feasibility Study
(DFS2)
completed on 27 September 2021
assumed a 4% royalty rate.
-
A
contribution to the “Mining Fund for Community and Social
Investment” equal to 3% of the direct investment
amount.
The term
“direct investment” is not defined and the applicability of this
contribution requirement to the Toliara Project is
unclear.
If this
requirement were to apply to the Toliara Project, based on the DFS2
Stage 1
CAPEX of US$520 million,
this would require a contribution of US$15.6 million.3
DFS2
assumed upfront community development spend of US$10 million.
The
application of the above elements, and several other key provisions
of the replacement Mining Code, lack sufficient detail to properly
assess their potential impact on the project.
Greater
clarity is expected once the Government has finalised and published
the supporting regulations, orders and decrees.
The first
round of the Presidential elections are scheduled for 9 November 2023, with the second round (if
needed) scheduled for 20 December
2023.
If the
President intends to contest the election as expected, he will have
to declare his candidacy by 23 August
2023 and resign by 9 September
2023.
Until the
Mining Code reform is completed and the elections finalised, the
Company does not expect to achieve material progress in securing
fiscal terms or lifting of the project’s on-ground
suspension.
The
Company remains ready and committed to progressing the world class
Toliara Project to a final investment decision once fiscal terms
are secured and the on-ground suspension is lifted.
Contact
with major EPCM consultants, construction contractors and equipment
suppliers continued to be maintained in readiness once the
suspension is lifted.
Assessment
of potential funding options for the Toliara Project also
progressed during the quarter.
The
Toliara Rare Earths Pre-Feasibility Study of the economic potential
of the monazite contained in the Toliara Project’s Ranobe Mineral
Resources estimate continued in the quarter and remains on track
for completion in the March quarter of 2024.
Total
expenditure on the Toliara Project and Toliara Rare Earths
Pre-Feasibility Study for the quarter was US$2.0 million (last quarter: US$1.7 million).
[Note
(3): For
further information about DFS2, refer to Base Resources’
announcement on 27 September 2021
“DFS2 enhances scale and economics of the Toliara Project”
available at
https://baseresources.com.au/investors/announcements/.
Base
Resources confirms that all the material assumptions underpinning
the production information and forecast financial information
disclosed in that announcement continue to apply and have not
materially changed.]
Extensional
exploration – Kenya
The
Company released results from the first phase auger drilling
program (Phase
1) at the
Kwale East exploration project4
(within
Prospecting Licence 2018/0119) shortly after the end of the quarter
on 3 July 2023.
The
results confirmed the presence of HM, with a peak drill hole grade
of 6.3% HM, as well as a high value mineral
assemblage.
Three
areas of mineralisation were identified for further targeted
exploration in the second phase air core drilling program –
Magaoni, Masindeni and Zigira.
The second
phase program is now underway and will focus on drilling the
remaining ~35% of the highly prospective areas in Magaoni and
Zigira as landholder consents are obtained. All
auger holes from Phase 1 with an average HM grade greater than 1%
will be twinned to enable better sample quality and allow drilling
through to basement.
It is
expected that Phase 2 will be completed in the December
quarter.
Aircore drill rig in Kwale
East
Prospecting
licence applications lodged for an area totalling 722
km2
in the
Kuranze region of Kwale County, about 70 km west of Kwale
Operations, together with applications for an area south of Lamu,
totalling 888 km2,
remain on hold pending lifting of a Government of Kenya moratorium on issuance of new mineral
rights, in place since November
2019.
The
Company is working with the Government, and other mining sector
stakeholders, to see the moratorium lifted.
Expenditure
on exploration activities during the quarter in Kenya was US$389k (last quarter: US$312k).
[Note
(4): For
further information, refer to Base Resources’ announcement on
3 July 2023 “Kwale East exploration
drilling update” available at
https://baseresources.com.au/investors/announcements/. Base
Resources confirms that it is not aware of any new information that
materially affects the information included in that
announcement.]
Extensional
exploration – Tanzania
The Umba
South Project in northern Tanzania
is located approximately 75km west-south-west of the Company’s
Kwale Operations in Kenya.
Exploration
at Umba South was designed to test the southern extremity of a
prominent north-south trending ridge of quartzite and gneiss that
extends 35km north to the Kuranze region of Kenya, where initial rock chip and soil
sampling indicated the presence of rutile.
Exploration
activity in this area has so far been confined to areas south of
the Umba River, while the Company seeks to obtain the necessary
approvals from various government departments to explore in the
Mkomazi Game Controlled Area to the north which hosts the target
ridge feature extending north to the Kenyan border.
Results
from 122 holes drilled for 3,015m in
the first phase reconnaissance exploration program were released in
the quarter5.
Three
primary geological domains were identified.
While
rutile mineralisation was present in each domain, factors unique to
each domain were identified which would be expected to limit any
significant economic potential.
They
included a lack of mineralisation thickness, a lack of continuity
of mineralisation, or the presence of known deleterious elements
for mineral sands processing.
A second
phase infill drilling program to assess the continuity of rutile
mineralisation in the saprolite layer completed 86 holes for
2,128m.
Assaying
of these drill samples has commenced at the Kwale Operations
laboratory but assay priority is currently being given to Kwale
East exploration drill samples and therefore results are not
expected until late in the September quarter.
These
results will assist in planning future exploration activity at Umba
South and elsewhere along the prospective geological zone once
necessary land access approvals are obtained.
Expenditure
on exploration activities during the quarter in Tanzania was US$101k (last quarter: US$431k).
[Note
(5): For
further information, refer to Base Resources’ announcement on
8 May 2023 “Tanzanian exploration –
Umba South Phase 1 drill results” available at
https://baseresources.com.au/investors/announcements/. Base
Resources confirms that it is not aware of any new information that
materially affects the information included in that
announcement.]
CORPORATE
The
Company is targeting release of its FY23 audited consolidated
financial statements in the week commencing 28 August
2023. Confirmation
of timing and investor webcast details will be advised closer to
the planned release.
As at
30 June 2023, the Company had cash of
US$92.9 million and no
debt.
The
Company has the following securities on issue:
-
1,178,011,850
fully paid ordinary shares.
-
53,598,359
performance rights issued pursuant to the terms of the Base
Resources Long Term Incentive Plan, comprising:
-
1,872,852
vested performance rights, which remain subject to
exercise6;
and
-
51,725,507
unvested performance rights subject to performance testing in
accordance with their terms of issue.
[Note
(6): Vested
performance rights have a nil cash exercise
price.
Unless
exercised beforehand, these rights expire five years after
vesting.]
ENDS.
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 future production and grades, capital cost, capacity,
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.
For
further information contact:
Australian
Media Relations
|
UK Media
Relations
|
Citadel
Magnus
|
Tavistock
Communications
|
Cameron
Gilenko and Michael Weir
|
Jos Simson
and Gareth Tredway
|
Tel: +61 8
6160 4900
|
Tel: +44
207 920 3150
|
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, is developing the Toliara Project in
Madagascar and is conducting
exploration in Tanzania.
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 3,
46 Colin Street
West Perth, Western
Australia, 6005
Email:
info@baseresources.com.au
Phone: +61
8 9413 7400
Fax: +61 8
9322 8912
NOMINATED
ADVISER & JOINT BROKER
Canaccord
Genuity Limited
James Asensio / Raj Khatri / Patrick
Dolaghan
Phone: +44
20 7523 8000
JOINT
BROKER
Berenberg
Matthew Armitt / Detlir Elezi
Phone: +44
20 3207 7800