BASE RESOURCES LIMITED
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 Dec 2015 Mar 2016 June 2016 Sept 2016 Dec 2016
DATA Quarter Quarter Quarter Quarter 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 88,087 209,787 226,453 164,192 152,259
(tonnes)
HMC consumed 176,717 175,224 187,244 193,349 191,576
(tonnes)
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 Dec 2015 Mar 2016 June 2016 Sept 2016 Dec 2016
& REVENUE PER TONNE (US$) Quarter Quarter Quarter Quarter 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
BASE RESOURCES LIMITED : - Quarterly Activities Report – December 2016
January 17, 2017 at 12:31 pm IST
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