TIDMBSE
AIM and Media Release
29 April 2021
BASE RESOURCES LIMITED
Quarterly Activities Report - March 2021
Key Points
* Kwale Operations maintained operational consistency through the quarter
with health and safety protocols in place to minimise the risk of COVID-19
to personnel and surrounding communities.
* Kwale Operations FY21 production guidance increased for both ilmenite and
zircon.
* Ilmenite and rutile prices trended upwards in the quarter, with higher
zircon prices secured for the June quarter.
* Kwale North Dune PFS completed, with a focused study on mining higher grade
subsets of the North Dune and Bumamani deposits underway and due in
mid-2021.
* Discussions with the Government of Madagascar on Toliara Project fiscal
terms continue to progress.
* Half-year dividend of AUD3.0 cents per share paid.
* Outstanding US$25 million balance of the revolving credit facility repaid,
and facility retired early.
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.
COVID-19 UPDATE
Base Resources continues to closely monitor the COVID-19 pandemic and its
impacts on the Company's business, people and wider stakeholders. The
Company's Kwale Operations in Kenya continue to operate under a suite of
mitigations aimed at protecting the health and safety of our employees and
neighbouring communities, including modified workplace practices and a focus on
hygiene and social distancing. As the number of COVID-19 cases in Kenya and
Madagascar have increased significantly in recent weeks, the Company has also
re-introduced work-from-home protocols for non-operational staff. The Company
is also assisting governments and communities in both Kenya and Madagascar with
several initiatives, primarily involving the construction of hygiene
facilities, and the donation and distribution of food and medical supplies and
equipment.
KWALE OPERATIONS
Production & Sales Mar 2020 June 2020 Sept 2020 Dec 2020 Mar 2021
Quarter Quarter Quarter Quarter Quarter
Production (tonnes)
Ilmenite 105,035 84,843 65,863 78,500 84,178
Rutile 23,683 19,035 15,513 18,171 19,448
Zircon 9,163 7,590 6,000 6,677 7,388
Zircon low 780 578 426 516 482
grade1
Sales (tonnes)
Ilmenite 87,819 102,364 75,502 53,798 97,179
Rutile 25,280 27,268 11,651 12,017 26,074
Zircon 7,377 9,086 7,336 6,399 6,612
Zircon low - 1,516 505 - 502
grade1
[Note (1): Reported as tonnes of zircon concentrate, it typically realises
between 30% to 50% of the value of the equivalent volume of standard grade
zircon, due to rutile credits.]
Mining operations continued according to plan on the South Dune orebody with
mined tonnage increasing to 4.7Mt (last quarter: 4.6Mt) due to higher mining
faces reducing the downtime associated with relocating mining units and higher
mining water pressures following process water pump reconfiguration. The heavy
mineral (HM) grade of ore mined was also higher at 3.58% (last quarter:
3.43%). This was driven by mine path as well as better grade than predicted by
the resource model in some areas. Previously reported September 2020 and
December 2020 quarter HM and VHM grades have been amended to reflect a revision
of mine feed grade sampling methodology.
Mining & WCP Mar 2020 June 2020 Sept 2020 Dec 2020 Mar 2021
Performance Quarter Quarter Quarter Quarter Quarter
Ore mined (tonnes) 4,295,645 4,271,811 3,938,494 4,600,172 4,695,052
HM % 3.86 3.87 3.12 3.43 3.58
VHM % 2.98 2.95 2.36 2.62 2.80
HMC produced 153,754 148,699 103,730 142,309 149,618
(tonnes)
Wet concentrator plant (WCP) production of heavy mineral concentrate (HMC) was
higher at 150kt (last quarter: 142kt) due to a combination of higher mined
tonnes and HM grades. HMC stocks increased to 18kt at quarter end (last
quarter: 14kt). Sand tails continued to be deposited into the mined-out
Central Dune area and significant progress was made with rehabilitation of the
mined-out areas of the South Dune, with 66 hectares provisionally rehabilitated
in the quarter (last quarter: 49 hectares).
MSP Performance Mar 2020 June 2020 Sept 2020 Dec 2020 Mar 2021
Quarter Quarter Quarter Quarter Quarter
MSP Feed (tonnes of 186,197 145,550 114,873 134,019 145,110
HMC)
MSP feed rate (tph) 90 78 61 64 69
MSP recovery %
Ilmenite 99 99 100 102 102
Rutile 99 100 102 102 100
Zircon 87 85 86 87 85
Total mineral separation plant (MSP) feed tonnage was higher than the prior
quarter, due to improved HMC availability, while recoveries were generally
steady. Consequently, production of all final products increased compared to
the prior quarter.
Bulk loading operations at the Company's Likoni Port facility continued to run
smoothly, dispatching a combined 117kt of bulk ilmenite and rutile during the
quarter (last quarter: 64kt). Containerised shipments of rutile and zircon
through the Mombasa Port proceeded according to plan.
Summary of unit costs Mar 2020 June 2020 Sept 2020 Dec 2020 Mar 2021
& Revenue per tonne (US$) Quarter Quarter Quarter Quarter Quarter
Unit operating costs per $128 $153 $189 $161 $176
tonne produced
Unit cost of goods sold per $175 $189 $192 $207 $198
tonne sold
Unit revenue per tonne of $476 $479 $413 $464 $478
product sold
Revenue: Cost of goods sold 2.7 2.5 2.1 2.2 2.4
ratio
Total operating costs of US$19.6 million were significantly higher this quarter
(last quarter: US$16.8 million) due to a revision of the underlying assumptions
for the rehabilitation and mine closure provision, resulting in a once off
non-cash adjustment of US$3.3 million. Excluding this adjustment, operating
costs were $0.5 million lower than the prior quarter. This adjustment is
reflected in the increased unit operating costs to US$176 per tonne produced
(rutile, ilmenite, zircon and low-grade zircon) (last quarter: US$161 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$198 per tonne sold (operating costs, adjusted for
stockpile movements, and royalties) decreased, despite the higher operating
costs, due to the sales mix in the quarter (last quarter: US$207 per tonne).
Average unit revenue increased to US$478 per tonne (prior quarter: US$464 per
tonne) due to increased ilmenite and rutile prices. From the combination of
these factors, the revenue to cost of goods sold ratio for the quarter
increased to 2.4 (last quarter: 2.2).
PRODUCTION GUIDANCE (tonnes) Original Updated
FY21 Guidance Range FY21 Guidance Range
Rutile 70,000 to 80,000 70,000 to 80,000 (no change)
Ilmenite 270,000 to 300,000 300,000 to 320,000
Zircon 23,000 to 27,000 26,000 to 28,000
The Company provided its 2021 financial year (FY21) production guidance on 28
July 20202. Base Resources' production guidance range for FY21 has been
increased for ilmenite and zircon due to higher than forecast ilmenite and
zircon content in the MSP feed. Production guidance for rutile has not
changed. There remains, however, the possibility of a halt to, or curtailment
of, operations at some point in the future due to a severe COVID-19 outbreak on
site or change in government health directives that could impact on the
achievement of this guidance.
The above updated FY21 production guidance is based on the following
assumptions:
* Mining of 17.6Mt at an average HM grade of 3.39%, with all remaining FY21
volume coming from Ore Reserves3.
* Average MSP feed rate of 68tph.
* Average MSP product recoveries of 101% for rutile, 101% for ilmenite and
84% for zircon.
[Note (2): For further information refer to Base Resources' market announcement
on 28 July 2020 "Quarterly Activities Report - June 2020" available at https://
baseresources.com.au/investors/announcements/.
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
Global pigment producers have indicated that the strong recovery in demand over
the past two quarters has continued through the March quarter, more than
offsetting the usual seasonal weakness experienced by the pigment industry at
this time of year.
Western pigment producers continued to ramp up production rates towards full
capacity through the quarter. Chinese pigment producers maintained high output
rates as their domestic market improves and high volumes of pigment exports are
sustained. Globally, pigment prices have stepped up at regular intervals
throughout the quarter as conditions have tightened and the price gap between
the historically cheaper Chinese pigment exports and western pigment has now
narrowed substantially.
Demand for ilmenite as a feedstock for Chinese pigment producers again exceeded
supply resulting in further solid price gains for ilmenite in the
quarter. Ongoing strong demand will maintain a tight ilmenite market through
the June quarter and further price increases are expected.
The ramp up of western pigment production through the past two quarters has
absorbed the slight surplus in high grade feedstock inventory that was created
in the second half of 2020 and has resulted in an increasingly tight market for
rutile. This has been compounded by a significant recovery in demand for
rutile in the welding sectors throughout Asia, and the Chinese titanium metal
sector, since late in 2020. As a consequence, rutile prices have increased
through the quarter and are expected to continue an upward trend through the
coming quarters.
The demand recovery for zircon gathered pace through the quarter as ceramic
plants in Europe operated at full capacity and Chinese consumption of zircon
accelerated on the back of strong economic conditions. Minimal inventory being
held through most parts of the supply chain has resulted in a rapid pull
through in demand for zircon. Zircon prices for March quarter contracts were
consistent with the December quarter but the tightening conditions have
resulted in significant price improvement for June quarter contracts.
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 2019/2020 LTIFR of 2.1, this is an exceptional performance
reflective of the ongoing focus and importance placed on safety by management.
Base Resources group employees and contractors have now worked 23.9 million
hours lost time injury (LTI) free, with the last LTI recorded in early 2014.
No medical treatment injuries were recorded during the quarter. With one
medical treatment injury recorded in the last 12 months, the Base Resources
group's total recordable injury frequency rate (TRIFR) is 0.25 per million
hours worked.
COMMUNITY AND ENVIRONMENT
Kwale Operations
Base Resources has continued to assist the Kwale community through the COVID-19
pandemic, including collaborating with county and national health authorities
to provide public education through community health workers and by providing
additional schools-based handwashing equipment to help improve sanitation. To
support social distancing requirements, 2,000 school desks were donated and
distributed to 20 schools across Kwale County and Likoni.
Agricultural livelihood programs in Kwale continued through the PAVI
Cooperative as farmers prepare for the upcoming rains. Poultry and beekeeping
have been particularly productive alternatives during the current dry season.
Kenyan cotton spinners are attracting international interest for their yarn
made from Kenyan lint which has improved the outlook for the cotton value chain
and the potential contribution to the government's economic development agenda.
Considerable work was undertaken in the quarter to implement the Community
Development Agreement with nearby communities as required under new Kenyan
regulations. The beneficiary communities have been defined and committees
established, with capacity building and community consultation undertaken
during the quarter to identify and prioritise development projects.
Rehabilitation activities on the mined-out areas of the South Dune increased
significantly in the quarter with community groups supplying indigenous
legumes, grass seed and manure. Youth groups from local villages were employed
to assist with slope stabilisation, planting and road clearing. A community
trial plot has also been established on a mined-out section of the Kwale South
Dune to demonstrate to local farmers and stakeholders that crops and trees can
be successfully grown in rehabilitated mine soils.
Toliara Project
All community training programs and social infrastructure construction remained
on hold with the Government of Madagascar's suspension of the Toliara Project's
on-the-ground activities. The 24 Malagasy apprentices training in Kenya at
Kwale Operations have completed their studies, achieving very good results.
They remain on site and continue to progress through further practical training
programs and competency assessments prior to certification through the
registered training authority.
Base Resources continued to work with local authorities to assist in the
COVID-19 response in the Toliara region by supporting face mask production in
conjunction with a leading local women's group, with 48,000 re-usable masks now
produced for distribution to local communities.
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 progressed4. Activity
remains suspended as Base Resources continues to engage the Government in
relation to the country's Large Mining Investment Law (LGIM) regime, fiscal
terms applicable to the Toliara Project and the lifting of the on-the-ground
suspension.
As previously noted5, with the suspension of activity, international travel
restrictions and broader COVID-19 measures and impacts both in Madagascar and
globally, the final investment decision (FID) to proceed with development of
the Toliara Project has been delayed. Once fiscal terms are agreed and the
suspension is lifted, there will be approximately 11 months' work to complete
prior to FID. This work includes finalising financing, completing the land
acquisition process and concluding major construction contracts. The
resumption of international travel will also be required to complete a
significant portion of this work.
Key activities during the quarter included:
* Engagement with the Government, focused on agreeing fiscal terms and
resumption of on-the-ground activities.
* Negotiations with the preferred tenderers for the marine contract packages.
* Selection of the preferred piling contractor for the export storage shed.
* Selection of the preferred power supply contractor and commencement of
power purchase agreement negotiations.
* Design of the haul road bridge over the Fiherenana River.
* Discussions with prospective lenders and joint venture partners.
* Ground water modelling work to allow drilling and borehole testing to
commence shortly after lifting of the suspension.
Key activities planned for the coming quarter include:
* Further engagement with the Government, focused on agreeing fiscal terms,
lifting of the suspension and resumption of on-the-ground activity.
* Commencing piling design at the export storage shed to allow construction
to commence soon after FID.
* Continuing power purchase agreement negotiations.
* Progressing design of the revetment and bulk earthworks at the export
facility.
* Concluding ground water modelling work.
* Ongoing engagement with prospective lenders and joint venture partners.
Total expenditure on the Toliara Project for the quarter was US$3.3 million
(last quarter: US$4.0 million).
[Note (4): 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 (5): Refer to Base Resources' market announcement "Base delivers strong
financial results and maiden dividend" released on 24 August 2020, 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 footprint of
mining lease SML 23.
The pre-feasibility study for mining the North Dune Mineral Resources was
completed6 with the conclusion that it is not currently viable to mine the
entirety of these deposits, primarily due to the combined low heavy mineral
grade, high land acquisition costs and elevated slimes content and associated
tailings disposal costs. The Company has commenced an assessment of the
potential feasibility for mining a higher-grade sub-set of the North Dune and
Bumamani deposits, with the results expected by mid-2021.
Auger drilling of a section of the northern Vanga Prospecting License (PL/2015/
0042) continued during the quarter but no significant mineralisation was found.
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.
Prospecting licence applications lodged for an area south of Lamu (applications
2019 0263, 0265, 0266), together with an area in the Kuranze region of Kwale
county, about 70 km west of Kwale Operations (applications 2019 0260, 2510 and
2512), remain in progress through the granting process. A Government
moratorium on the issuance of Prospecting Licenses in November 2019 has
affected the progress of all licence applications. However, technical
assessment of applications has now recommenced.
Expenditure on exploration activities in Kenya during the quarter was US$0.1
million (last quarter: US$0.1 million).
[Note (6): Refer to Base Resources' market announcement "Kwale North Dune PFS
outcomes" released on 1 April 2021, which is available at https://
baseresources.com.au/investors/announcements/.]
CORPORATE
FY21 half-year dividend payment
Following release of the Company's FY21 half-year financial results, the
disciplined application of the Company's capital management policy saw a
half-year dividend of AUD 3.0 cents per share, unfranked, paid to shareholders
on 31 March 2021, representing a cash payment of US$26.6 million (in
aggregate).
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$16.6 million at 31 March
2021. Refunds totalling US$1.9 million were received during the quarter (last
quarter: US$2.0 million). Base Resources continues to actively engage with the
Kenyan National Treasury and the Kenya Revenue Authority in relation to the
outstanding VAT refund claims and has taken steps under the investment
agreement to secure its claim with respect to the VAT paid during construction
of the Kwale Project.
Revolving Credit Facility retired
Following strong quarterly financial performance, which generated US$39.3
million of operating cashflows (excluding taxes), and with growing confidence
in the trajectory of the mineral sands markets and greater clarity on the risks
and impacts of the COVID-19 pandemic, the Company repaid the outstanding
US$25.0 million of the US$75.0 million revolving credit facility during the
quarter. Concurrently with this repayment, the Company retired the facility,
nine months ahead of the final maturity date, saving on holding costs. The
Company is now debt free.
In summary, as at 31 March 2021:
* Net cash of US$71.6 million, after payment of US$26.6 million half-year
dividend, consisting of:
+ Cash and cash equivalents of US$71.6 million.
+ No debt.
* 1,178,011,850 fully paid ordinary shares on issue.
* 71,078,976 performance rights on issue pursuant to the terms of the Base
Resources Long Term Incentive Plan, comprising:
+ 266,893 vested performance rights, which remain subject to exercise7.
+ 70,812,083 unvested performance rights subject to performance testing
in accordance with their terms of issue.
[Note (7): Vested performance rights have a nil cash exercise price. Unless
exercised beforehand, these rights expire five years after vesting.]
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 Gareth Tredway
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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