AIM and Media Release
17 January 2017
BASE RESOURCES LIMITED
Quarterly Activities Report – December
2016
HIGHLIGHTS
- 40% increase in ilmenite prices in the quarter, with further
price increase locked in for contracted March quarter sales.
- Record revenue to cost of goods sold ratio of 2.5.
- Hydraulic mining unit fully ramped-up and exceeding 400tph
design performance, contributing to record mining volumes.
- No lost time injuries.
- Near mine exploration drilling underway at Kwale
Operations.
- Extension of the Taurus Facility to 30
September 2017.
- Further cash “sweep” from the Kwale Operations.
- Net debt reduced by US$18.1m to
US$129.5 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
characterised by continuing improvement in ilmenite markets and
higher mining volumes following the successful ramp up of hydraulic
mining. The continued strong performance of Kwale Operations
has reduced net debt by a further US$18.1
million in the quarter.
KWALE OPERATIONS
SUMMARY PHYSICAL
DATA |
Dec
2015
Quarter |
Mar
2016
Quarter |
June
2016
Quarter |
Sept
2016
Quarter |
Dec
2016
Quarter |
Ore mined
(tonnes) |
2,101,295 |
2,410,503 |
2,363,395 |
2,325,174 |
3,049,333 |
HM% |
4.31% |
8.96% |
9.87% |
7.51% |
5.83% |
HMC produced
(tonnes) |
88,087 |
209,787 |
226,453 |
164,192 |
152,259 |
HMC consumed
(tonnes) |
176,717 |
175,224 |
187,244 |
193,349 |
191,576 |
MSP feed rate
(tph) |
84 |
86 |
88 |
92 |
91 |
Production
(tonnes) |
|
|
|
|
|
Ilmenite |
109,649 |
110,760 |
119,340 |
121,821 |
116,982 |
Rutile |
21,768 |
21,194 |
21,766 |
22,458 |
22,870 |
Zircon |
7,507 |
7,865 |
9,471 |
9,050 |
8,591 |
Zircon low
grade1 |
- |
- |
- |
2,160 |
2,550 |
Sales (tonnes) |
|
|
|
|
|
Ilmenite |
103,035 |
95,984 |
150,911 |
139,441 |
97,047 |
Rutile |
23,896 |
14,500 |
32,454 |
23,023 |
19,773 |
Zircon |
7,723 |
9,556 |
9,590 |
8,525 |
9,432 |
Zircon low grade |
- |
- |
- |
- |
3,397 |
1. Zircon low grade tonnes contained in concentrate,
equivalent to approximately 70-80% of the value of primary
zircon.
Mining operations have set a new quarterly record of 3.0 million
tonnes (“Mt”) for total ore mined following the successful
commissioning of the 400 tonnes per hour (“tph”) hydraulic
mining unit (“HMU”) in the September quarter. The HMU
has quickly exceeded its design throughput to achieve an average
mining rate for the quarter of 431tph, for total ore tonnes mined
of 746kt. Combined with the existing dozer trap mining unit
(“DMU”), which mines higher grade ore while the HMU mines
the thinner, lower grade perimeter blocks, mining operations have
surpassed the previous best total ore mined (2.4Mt in the
March 2016 quarter) by 26%.
The blended average mined ore grade was lower this quarter due
to the HMU remaining in low grade perimeter blocks while the mining
methodology is being refined. Average mined ore grade is
expected to increase prior to the end of the financial year as both
the HMU and the DMU move to higher grade blocks of the Central
Dune.
Historically, tailings pump constraints in the wet concentrator
plant (“WCP”) have limited mining operations’ ability to
significantly increase throughput when mining low grade ore.
However, recent changes to the tailings pump impellers have
delivered a significant increase in their performance and allowed
the higher mining volumes and WCP thoughput. The higher
throughput rates and lower ore grades have had an impact on the WCP
recoveries and the required re-optimisation and de-bottlenecking is
underway to increase all recoveries again.
As a result of the lower feed grade and lower WCP recoveries,
overall WCP production of heavy mineral concentrate (“HMC”)
was lower than recent quarters. The HMC stockpile, built up
in prior quarters to accommodate the planned mining sequence and
ore grades, was drawn down by 39kt. HMC production will
increase once mining moves into higher grade areas before the end
of the financial year.
The tailings storage facility (“TSF”) wall stacking,
lining and slimes deposition continued to proceed to plan and the
final wall lift will commence during the coming quarter.
The Mukurumudzi Dam volume dropped from 5.8 gigalitres
(“GL”) to 4.7GL or 56% of capacity during the quarter.
The December quarter ‘short rains’ largely failed to eventuate,
further extending the drought conditions being experienced in the
region, with total 2016 rainfall at 54% of the historical average,
the lowest since 1974. Water conservation measures,
implemented at the Kwale Operations earlier 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.
The mineral separation plant (“MSP”) maintained
throughput rates for the quarter (91tph versus 92tph last quarter)
with an availability of 95% (96% last quarter). Optimisation
and debottlenecking continues, aimed at improving recoveries and
also to ensure maximum value outputs are achieved by balancing
primary final product production and zircon concentrate production
(for sale).
Rutile production set another quarterly record of 22.9kt (22.5kt
last quarter) as recoveries increased to 98% (97% last
quarter). In addition to the increased recoveries, the
proportionally higher rutile content of low grade ore has
contributed to the increased production.
Ilmenite production dropped to 117.0kt (121.8kt last quarter),
mainly because of the proportionally lower ilmenite content of low
grade ore. Average recoveries for the quarter were 102%*,
slightly higher than the previous quarter’s 100%.
[*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 8.6kt (9.1kt last
quarter), reflecting the lower zircon content of the feed.
Average zircon recovery of 73% was consistent with last quarter but
lower than design target. This was partly caused by some
electrical supply instability that resulted in repeated stoppages
in the wet zircon circuit, which was resolved in the last week of
the quarter.
In addition to primary zircon, over the past two quarters, Kwale
Operations has been producing a lower grade zircon product
(“zircon low grade”) from re-processing of zircon tails into
a zircon rich concentrate, which has historically realised 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 2.6kt of zircon low
grade was produced (2.2kt last quarter) and a single shipment
containing 3.5kt of zircon low grade was made to China (nothing shipped last quarter). A
further shipment containing an estimated 3.0kt of zircon low grade
is planned for the March quarter. The production of zircon
low grade has more than offset the lower primary zircon recoveries
of the past two quarters.
Bulk loading operations at Base Resources’ Likoni Port facility
continued to run smoothly, dispatching more than 125kt of ilmenite,
rutile and concentrate during the quarter (155kt last
quarter). Containerised shipments of rutile and zircon
through the Mombasa Port proceeded according to plan.
SUMMARY OF UNIT COSTS
& REVENUE PER TONNE (US$) |
Dec
2015
Quarter |
Mar
2016
Quarter |
June
2016
Quarter |
Sept
2016
Quarter |
Dec
2016
Quarter |
Unit operating costs
per tonne produced |
$90 |
$84 |
$93 |
$77 |
$84 |
Unit cost of goods
sold per tonne sold |
$123 |
$106 |
$111 |
$91 |
$102 |
Unit revenue per tonne
of product sold |
$245 |
$208 |
$201 |
$200 |
$250 |
Revenue : Cost of
goods sold ratio |
2.0 |
2.0 |
1.9 |
2.2 |
2.5 |
Total operating costs were marginally higher than last quarter,
but remain low overall. This, when combined with lower production
volumes, resulted in a higher unit operating cost of US$84 per tonne produced (rutile, ilmenite,
zircon and zircon low grade) (US$77
per tonne last quarter). Cost of goods sold of US$102 per tonne sold (operating costs, adjusted
for stockpile movements, and royalties) were also higher than last
quarter (US$91 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 10-12kt each, which means any
given quarter will contain either one or two of these sales (or
even three in exceptional circumstances, as was the case in the
June quarter). 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 December quarter saw two
bulk rutile sales of 10.1kt and 6.9kt, and total rutile sales of
19.8kt, similar to the prior quarter’s 23.0kt total rutile sales,
which, when combined with the lower ilmenite sales volume, higher
ilmenite prices and zircon low grade sales, contributed to the rise
in average revenue per tonne to US$250 per tonne (US$200 last quarter).
The high average revenue per tonne sold and continued cost
discipline in the quarter has resulted in a record revenue to cost
of sales ratio of 2.5 (2.2 last quarter).
FY2017 PRODUCTION GUIDANCE- MID-YEAR
UPDATE
Kwale Operations production guidance for financial year 2017
(“FY17”) has been updated to reflect lower than forecast
first half production of zircon and rutile, whilst factoring in the
on-going MSP optimisation and debottlenecking at the higher feed
rates, aimed at improving zircon and rutile recoveries. The
revised production guidance is:
- Rutile – 88,000 to 93,000 tonnes (previously 88,000 to 95,000
tonnes).
- Ilmenite – 450,000 to 480,000 tonnes (no change).
- Zircon – 33,000 to 37,000 tonnes (previously 35,000 to 40,000
tonnes).
- Zircon contained in zircon low grade – 8,000 to 10,000 tonnes
(no previous guidance).
The above updated production targets are based on the following
assumptions for FY17:
- Mining of 10.4Mt at an average HM grade of 6.95%, all from Ore
Reserves*.
- MSP feed rate at an average of 92tph (previously 91tph),
consistent with recent performance.
- MSP product recoveries of 102% for ilmenite and 98% (previously
100%) for rutile, and 74% (previously 78%) 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.]
2016 MINERAL RESOURCES & ORE
RESERVES UPDATE
On 11 October 2016, updated Kwale
Mineral Resources and Ore Reserves estimates were announced.*
The 2016 Kwale Mineral Resources estimate is the product of revised
geological interpretations following the mineralogical assessment
of 1,718 individual drill samples (compared to the 71 composite
samples previously used), observation of 5 test pits in the South
Dune deposit and knowledge gained from mining.
The 2016 Kwale Mineral Resources as at 30
June 2016, are estimated to be 134.6Mt at an average HM
grade of 4.2% and 26% slimes containing 5.62Mt HM, based on a 1% HM
cut-off grade. The 2016 Kwale Mineral Resources estimate
represents a small increase of 1% for total material tonnes and 2%
for contained HM tonnes over the previously reported 2015 Kwale
Mineral Resources estimate, after allowing for depletion by mining
during the year.
Contained within the Mineral Resources, the Ore Reserves are
estimated to be 102.5Mt at an average HM grade of 4.6 per cent as
at 30 June 2016. The 2016 Kwale Ore Reserves estimate
represents a small increase of 2% in total ore tonnes and
negligible change in contained HM tonnes over the previously
reported 2015 Kwale Ore Reserves estimate, after allowing for
depletion by mining during the year.
[*Ore Reserves and Mineral Resources
are reported in accordance with the JORC Code (2012 edition).
Refer to the “2016 Mineral Resources and Ore Reserves Update for
Kwale” released on 11 October 2016,
which is available at
http://www.baseresources.com.au/investor-centre/asx-releases/. Base
Resources confirms that it is not aware of any new information or
data that materially affects the information included in the
original market announcement and, in the case of Mineral Resources
and Ore Reserves, that all material assumptions and technical
parameters underpinning the estimates in the original market
announcement continue to apply and have not materially
changed. Base Resources further confirms that the form and
context in which the findings of the Competent Persons are
presented have not been materially modified from the original
market announcement.]
MARKETING
The TiO2 pigment industry maintained its strength
through the quarter resulting in further price improvement and
ongoing strong demand for TiO2 feedstock. This is
encouraging and a departure from the traditional seasonal slow-down
in the lead up to the end of the calendar year. Global
pigment producers announced a series of price increases over the
course of 2016, with a number of major producers recently
announcing a further price increase effective from 1 January 2017.
TiO2 feedstock consumption continued to increase
throughout the quarter on the back of firming pigment production
and ongoing re-stocking activity within the downstream
supply-chain. This led to another very strong sales quarter
for Base Resources’ ilmenite and rutile. Prices for Base
Resources’ ilmenite have increased by over 100% between May and
December 2016. The Company continues to secure forward sales
and has now contracted all ilmenite production through to late
February 2017 and has secured further
price increases for these forward sales.
There have been recent reports of political disruption to
ilmenite exports from Tamil Nadu in India and suppressed ilmenite production in
China’s main ilmenite producing region, the Sichuan province, due to increased
environmental inspections. These events together with the
ongoing strength in pigment demand is expected to result in further
improvements in ilmenite prices through 2017.
Despite the improvement in demand, an overhang of high grade
TiO2 feedstock (including rutile) supply from the first
half of 2016 restrained rutile price growth through the second half
of the year. However, higher than expected offtake by major
consumers has resulted in supply and demand being more balanced by
the end of calendar year 2016. Base Resources’ expectation is
for rutile prices to start trending upwards during 2017.
The December quarter saw another solid zircon sales performance
with minimal stocks being held throughout the period. Zircon
prices saw a modest improvement through the December quarter and
further marginal improvements are being secured for the March
quarter. Provided supply management continues, ongoing
gradual upward momentum in zircon prices should occur through
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 8.2 million man-hours LTI free, with the last LTI
recorded in the March quarter of 2014. The total recordable
injury frequency rate (“TRIFR”) reduced from 0.70 to 0.35 in
this quarter, continuing the steady downward trend of 2016.
COMMUNITY AND ENVIRONMENT
Agricultural livelihood programmes, run in conjunction with
partners Business for Development, DEG, FMO and Kenya Red Cross,
continue to develop with encouraging support from both national and
county Kenyan governments. These programmes, covering cotton,
potato and poultry, currently involve around 500 farmers and
community groups with the ultimate aim being to establish new large
scale agricultural industries that will provide economic
opportunities well beyond the life of mining activities.
A stated long-term industrialisation goal of the Kenyan
government is to see the revitalisation of the cotton value
chain. The economic returns associated with this sector have
enormous potential to deliver benefits to the various participants
from farmers right through to garment manufacturers.
Reflecting this focus, during the quarter, the Cabinet Secretary
for Agriculture, Mr Willy Bett,
toured Base Resources’ cotton programme in the course of which he
met with participating farmers, Kwale County officials, cooperative
members and ginnery operators. The Australian government has
also now committed to contribute to the development of the program
with funding through the Business Partnerships Platform.
The current cotton crop is currently being harvested, with good
results from fibre testing carried out in both Nairobi and Bangladesh. Processing at
the local ginnery will take place once the harvest is complete in
the coming quarter.
During the quarter, Base Resources also provided 29 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 drought conditions.
BUSINESS DEVELOPMENT
EXTENSIONAL EXPLORATION – KENYA
The Company commenced an aircore drilling programme in the
latter half of the quarter within its Special Prospecting
License 173 (“SPL 173”). At quarter end, 169
holes for 2,544 metres had been drilled in the area targeting a
potential south-western extension of the existing Kwale
resource. This will be followed in the coming quarter by an
infill drilling programme that will be informed by a preliminary
assessment of mineralised zones intersected. Preliminary
exploration results for the drilling completed to date are expected
to be available in the March quarter.
Extensive community engagement has continued in the
north-eastern sector of SPL 173 to obtain informed consent and
access to the target drill sites located in this area.
Planned drilling is expected to commence during the March
quarter.
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. This application
has been approved, but the license remains subject to final grant
pursuant to applicable regulations.
EXPLORATION – TANZANIA
Following the grant of three prospecting licenses in early
October 2016, the Company has secured
tenure over a fourth license in northern Tanzania for a combined area of 456km2.
The areas of interest in Tanzania
were identified as part of a prospectivity review and subsequent
reconnaissance work on the ground to confirm these findings.
The Company has commenced the process of obtaining the necessary
consents and clearances ahead of a planned preliminary drilling
programme across all four licenses. The programme, comprising
approximately 3,000 metres of drilling, is planned for the first
half of 2017.
Total exploration expenditure for the quarter, across all
licenses in Kenya and Tanzania, was US$0.35
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. The Pre-Feasibility Study was completed in
July 2016 and, based on the potential
value Kwale Phase 2 can add to the Kwale Operations, a Definitive
Feasibility Study (“DFS”) is underway. The HMU,
currently being used successfully in mining operations, has
delivered encouraging results and work is underway to determine the
optimum tonnage split between HMU and DMU mining rates. The
DFS is scheduled for completion in the June quarter of 2017.
CORPORATE
EXTENSION OF THE TAURUS FACILITY
As announced on 31 October 2016,
Base Resources extended the maturity date of the fully drawn
US$20 million unsecured debt facility
provided by one of its major shareholders, Taurus Funds Management
(“Taurus”) (“Taurus Facility”), from 31 December
2016 to 30 September 2017.
The Taurus Facility was established in December 2014, and is held by Base
Resources. Prior to final maturity, under the terms of the
Taurus Facility, repayments are only required to be made from the
surplus cash distributions (“Cash Sweeps”) of the Kwale
Operations to Base Resources, as permitted by the Kwale Operations
Debt Facility. These Cash Sweeps, if permitted, occur
six-monthly with the first having taken place in July 2016 for US$5.4
million. Following the Cash Sweep, a mandatory 50% of
which was applied towards progressive repayment of the Taurus
facility, the amount outstanding under the Taurus Facility at
31 December 2016 was US$17.3 million.
The extension of the Taurus Facility final maturity date allows
additional repayments to be made from the now confirmed
US$7.3 million Cash Sweep in January
and a further potential Cash Sweep in July
2017, and removed the need to secure external funding to
repay the balance that would otherwise have been due on 31 December
2016.
As part of the extension, the mandatory proportion of Cash
Sweeps to be applied toward progressive repayment of the Taurus
Facility increased from 50% to 75%. All other terms of the
Taurus Facility remained unchanged, including the interest rate of
10% on the outstanding balance. As consideration for the
extension, Base Resources issued Taurus 10 million fully paid
ordinary shares.
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$18.2 million at 31 December 2016. These
claims are proceeding through the Kenya Revenue Authority process,
with a number of operational period claims, totalling approximately
US$1.5 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 Operation Debt Facility,
US$14.6 million of surplus cash was
‘swept’ from the Kwale Operation. 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.
In summary, at 31 December 2016:
- Net debt of US$129.5 million,
consisting of:
- Cash and cash equivalents were US$29.1
million (unrestricted) and an additional US$18.6 million (restricted – debt service
reserve account).
- Debt of US$177.2 million,
following a US$15.2 million scheduled
repayment on 15th December 2016.
- 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 & BROKER
RFC Ambrian Limited
As Nominated Adviser:
Andrew Thomson / Stephen Allen
Phone: +61 (0)8 9480 2500
As Broker:
Jonathan Williams
Phone: +44 20 3440 6800
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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 / 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