Base Resources : 17 Jan 2017 Quarterly Activities Report - December 2016 (1.5 MiB) View Document

Quarterly Activities Report - December 2016 17 January 2017

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 HMU in operation at the Central Dune

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%2, slightly higher than the previous quarter's 100%.

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.

The MSP product recoveries shown in the graph below reflect the primary product recoveries only and do not include any uplift for the production of zircon low grade.

2 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.

120%

MSP PRODUCT RECOVERY % (LHS) & FEED RATE tph (RHS)

100 100%

ilmenite 101%

95

rutile 97%

80% feed rate 92tph 90 60%

zircon 73%

85 40% 80 20% 75 0% 70 2014 June 2015 June 2016 June

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).