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
Quarter |
Sept
2019 Quarter |
Dec 2019
Quarter |
Mar 2020
Quarter |
June
2020 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
grade |
347 |
466 |
546 |
780 |
578 |
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
grade1 |
219 |
839 |
616 |
- |
1,516 |
[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 Performance |
June
2019
Quarter |
Sept
2019
Quarter |
Dec
2019
Quarter |
Mar
2020 Quarter |
June
2020 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
(tonnes) |
131,475 |
114,149 |
189,952 |
153,754 |
148,699 |
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 Quarter |
Sept
2019
Quarter |
Dec
2019
Quarter |
Mar
2020 Quarter |
June
2020 Quarter |
MSP Feed
(tonnes of HMC) |
160,766 |
121,600 |
155,217 |
186,197 |
145,550 |
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
& Revenue per tonne (US$) |
June
2019 Quarter |
Sept
2019
Quarter |
Dec 2019
Quarter |
Mar 2020
Quarter |
June
2020 Quarter |
Unit
operating costs per tonne produced |
$127 |
$173 |
$140 |
$128 |
$153 |
Unit cost
of goods sold per tonne sold |
$180 |
$213 |
$141 |
$175 |
$189 |
Unit
revenue per tonne of product sold |
$482 |
$469 |
$355 |
$476 |
$479 |
Revenue:
Cost of goods sold ratio |
2.7 |
2.2 |
2.5 |
2.7 |
2.5 |
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 (tonnes) |
FY20
Guidance Range |
FY20
Actual |
FY21
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 Relations |
UK Media 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