AIM and Media Release
25 July 2018
BASE RESOURCES LIMITED
Quarterly Activities Report – June
2018
HIGHLIGHTS
- Further strengthening of rutile and zircon prices.
- Record rutile production for the quarter of 24,451 tonnes.
- Successful ramp up of mining operations following commissioning
of Kwale Phase 2 optimisation project.
- No lost time or medical treatment injuries.
- Production for financial year 2018 consistent with guidance for
all products.
- Near mine exploration drilling continued to the north-east of
Kwale Operations.
- Appointment of a Mineral Technologies and Lycopodium
partnership to deliver the Toliara Project PFS which is now
underway.
- Net debt further reduced by US$27.6
million to US$33.2
million.
- Production guidance for financial year 2019:
- Rutile - 88,000 to 93,000 tonnes
- Ilmenite – 420,000 to 450,000 tonnes
- Zircon – 32,000 to 37,000 tonnes
“Figures” (graphics) referenced in this release have been
omitted. A full PDF version of this release, including all
Figures, is available from the Company’s website:
www.baseresources.com.au.
African mineral sands producer, Base Resources Limited
(ASX & AIM: BSE) (Base Resources or the Company)
is pleased to provide a quarterly corporate, development and
operational update. At its Kwale Mineral Sands Operations (Kwale
Operations) in Kenya, the
focus has been on ramping up mining rates and optimising the wet
concentrator plant (WCP) recoveries following commissioning
of the Kwale Phase 2 (KP2) upgrade. The Company
continued activity on its Toliara mineral sands project (Toliara
Project) in the south-west of Madagascar with the appointment of a Mineral
Technologies and Lycopodium partnership to deliver the
Pre-Feasibility Study (PFS). On the marketing front,
pricing for rutile and zircon continued to strengthen during the
quarter.
KWALE OPERATIONS
PRODUCTION
& SALES |
June 2017
Quarter |
Sept 2017
Quarter |
Dec 2017
Quarter |
Mar 2018
Quarter |
June 2018
Quarter |
Production
(tonnes) |
|
|
|
|
|
Ilmenite |
119,364 |
119,376 |
119,209 |
111,630 |
114,773 |
Rutile |
22,762 |
22,789 |
22,798 |
21,634 |
24,451 |
Zircon |
8,375 |
9,136 |
9,569 |
9,166 |
9,286 |
Zircon low
grade[1] |
3,026 |
1,425 |
- |
- |
- |
Sales (tonnes) |
|
|
|
|
|
Ilmenite |
142,405 |
106,260 |
119,554 |
140,665 |
107,170 |
Rutile |
27,779 |
12,594 |
25,377 |
25,526 |
25,635 |
Zircon |
8,540 |
9,283 |
8,144 |
9,884 |
9,007 |
Zircon low grade1 |
3,045 |
- |
3,287 |
- |
- |
[Note (1): Zircon low grade tonnes
contained in concentrate, equivalent to approximately 70-80% of the
value of primary zircon.]
Following the successful commissioning of a second hydraulic
mining unit (HMU) and upgraded WCP as part of the KP2 mine
optimisation project, the Company is pleased to report achieving
nameplate mining and WCP throughput rates of 2,400tph.
The second HMU is an upgraded version of the first HMU and
operated at an average mining rate of 865tph in the quarter,
compared to a design rate of 800tph. With three mining units
operating in the quarter (two HMUs and one dozer mining unit
(DMU)) a record mining volume was achieved, despite reduced
mining in April due to KP2 commissioning. A third and final
HMU was commissioned in July, and consequently the DMU has been
removed from current service but remains on hand and available, if
required.
Following the KP2 WCP upgrade, which included a 69% increase in
spiral capacity, recoveries of heavy minerals (HM) to
concentrate have been slightly below design levels but ongoing
optimisation at the higher throughput rates and lower grades
continue to yield improvements.
MINING & WCP PERFORMANCE |
June 2017
Quarter |
Sept 2017
Quarter |
Dec 2017
Quarter |
Mar 2018
Quarter |
June 2018
Quarter |
Ore mined
(tonnes) |
2,975,694 |
3,023,550 |
2,882,529 |
1,883,159 |
3,543,430 |
HM % |
8.40 |
8.01 |
7.61 |
6.88 |
6.36 |
HMC produced
(tonnes) |
232,574 |
238,580 |
196,725 |
125,298 |
192,559 |
WCP production of heavy mineral concentrate (HMC) for the
quarter increased to 193kt (125kt last quarter, low due to the KP2
shutdown) as mining volumes increased. HMC stockpiles drawn
down during the quarter as result of the KP2 commissioning were
rebuilt to 78kt by quarter end (77kt at the end of March quarter)
as mining and HMC production increased.
The tailings storage facility (TSF) sand wall stacking,
lining and slimes deposition continued according to plan, with the
final wall lift nearing completion. Sand stacking continued
in the mined-out area of the Central Dune. Rehabilitation of
the TSF outer wall continued during the quarter, albeit at a slower
rate due to the heavy rains associated with the main wet
season.
Good rains were received during the quarter, resulting in the
Mukurumudzi Dam reaching its full capacity of 8.6GL and spilling in
June.
MSP
PERFORMANCE |
June
2017
Quarter |
Sept
2017
Quarter |
Dec
2017
Quarter |
Mar
2018
Quarter |
June
2018
Quarter |
MSP Feed (tonnes of
HMC) |
192,432 |
190,499 |
190,798 |
180,128 |
192,376 |
MSP feed rate
(tph) |
92 |
91 |
91 |
92 |
90 |
MSP recovery % |
|
|
|
|
|
Ilmenite |
101 |
100 |
100 |
101 |
100 |
Rutile |
98 |
100 |
100 |
99 |
101 |
Zircon |
73 |
75 |
77 |
78 |
79 |
Mineral separation plant (MSP) availability was extremely
good at 98% (91% last quarter) with a total of 192.3kt of HMC
processed (180.1kt last quarter). All MSP recoveries were at
or above design levels and production of all finished products was
higher than the prior quarter as a result of the higher
throughput.
Bulk loading operations at the Company’s Likoni Port facility
continued to run smoothly, dispatching more than 130kt of ilmenite
and rutile during the quarter (162kt last quarter).
Containerised shipments of rutile and zircon through the Mombasa
Port proceeded according to plan.
SUMMARY OF UNIT COSTS
& REVENUE PER TONNE (US$) |
June
2017
Quarter |
Sept
2017
Quarter |
Dec
2017
Quarter |
Mar
2018
Quarter |
June
2018
Quarter |
Unit operating costs
per tonne produced |
$96 |
$90 |
$92 |
$98 |
$102 |
Unit cost of goods
sold per tonne sold |
$103 |
$107 |
$120 |
$114 |
$143 |
Unit revenue per tonne
of product sold |
$297 |
$285 |
$344 |
$314 |
$376 |
Revenue:Cost of goods
sold ratio |
2.9 |
2.7 |
2.9 |
2.8 |
2.6 |
Total operating costs were 10% higher than recent quarters due
to the increase in mining and processing volumes and the
recognition of typical end of financial year costs. Unit
operating cost of US$102 per tonne
produced (rutile, ilmenite and zircon) higher than both the prior
quarter (US$98 per tonne) and the
same quarter in the prior year (US$96
per tonne) due to the higher overall operating costs associated
with the increased mining and processing volumes. Cost of
goods sold of US$143 per tonne sold
(operating costs, adjusted for stockpile movements, and royalties)
was higher than last quarter due to product sales mix
(proportionally more high value rutile and zircon) and the
associated cost allocation.
Revenue per tonne of product sold varies significantly each
quarter, with the number of bulk rutile sales during that quarter
being the primary factor. In a normal year, there are usually
seven or eight bulk rutile sales of approximately 10-12kt each,
which means any given quarter will typically contain either one or
two of these sales. As annual rutile sales account for
approximately 40% 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 June quarter had two bulk
rutile sales taking total rutile sales to 25.6kt, in line with last
quarter’s 25.5kt total rutile sales. Higher rutile and zircon
prices together with significantly lower ilmenite sales volume this
quarter has resulted in the average revenue per tonne increasing to
US$376 per tonne (US$314 last quarter).
MINING TRANSITION TO SOUTH DUNE
Engineering work and procurement commenced during the quarter
for the planned transition of mining from the Central Dune to the
South Dune in July 2019. The total cost of works for the mine
move are forecast to be US$12.3
million to be incurred over FY2019. Negligible costs
were incurred during the June quarter.
FY2019 PRODUCTION
GUIDANCE |
FY2017
Actual |
FY2018
Actual |
FY2019
Guidance Range |
Rutile (tonnes) |
90,625 |
91,672 |
88,000
to 93,000 |
Ilmenite (tonnes) |
467,359 |
464,988 |
420,000
to 450,000 |
Zircon (tonnes) |
34,228 |
37,157 |
32,000
to 37,000 |
Zircon contained in
zircon low grade (tonnes) |
10,210 |
1,425 |
Nil2 |
[Note (2): No production of zircon low
grade is anticipated for FY2019.]
The above production guidance is based on the following
assumptions for financial year 2019 (FY2019):
-
Mining of 18.3Mt at an average HM grade of 3.98%, all from Ore
Reserves3. Forecast mining volumes are significantly
higher than FY2018 (11.3Mt) facilitated by the addition of a third
mining unit as part of the KP2 upgrade project to offset declining
ore grades.
-
MSP feed rate at an average of 89tph, consistent with recent
performance.
-
MSP product recoveries of 100% for ilmenite, 99% for rutile and
77% for zircon, consistent with recent performance.
[Note (3): 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.]
MARKETING
The global TiO2 pigment industry remained buoyant, as
expected, through the seasonally strong June quarter. High
plant utilisation rates and low inventory levels among major
western pigment producers continue to support a strong pigment
pricing environment. Pigment producers in China, whilst targeting maximum output levels,
have been somewhat hampered in recent months by renewed
environmental inspection shutdowns by local authorities.
Demand for ilmenite from the Chinese pigment industry continues
to be volatile, caused by the impact of periodic environmental
inspections on both domestic ilmenite producers and pigment
producers. Chinese domestic ilmenite production was
restricted during the second half of the quarter as a result of
environmental inspections and in response to softer demand from
pigment producers affected by environmental shutdowns.
Imports of ilmenite to China from
Vietnam and India continue to be restrained due to
political factors and lower market prices. Ilmenite prices
decreased slightly during May but have remained stable through to
the start of July. It is expected ilmenite prices will remain
steady through the September quarter with the potential for upside
if Chinese pigment prices increase and/or Chinese pigment output
from major producer’s trends back towards maximum capacity.
A supply deficit in the high-grade feedstock sector (which
includes rutile), driven mostly by the strength in the western
chloride pigment sector, has seen market conditions continue to
tighten. Most recently, a major producer has announced
that it has applied a 14% price increase for contracted rutile
sales in the second half of 2018.
Zircon demand continued to be strong through the June quarter
with volumes requested by customers remaining well above the
Company’s capacity to supply. Indications of ongoing tight
supply from major zircon sources through 2018 have supported
further substantial zircon price increases. Base Resources
has again secured significant price gains on zircon contracts for
the September quarter. Concerns from zircon producers in
relation to the potential for substitution or thrifting of zircon
by customers may begin to restrain the extent and/or frequency of
price increases going forward.
SAFETY
With no lost time or medical treatment injuries occurring during
the quarter or in the past year, Kwale Operations’ lost time injury
frequency rate (LTIFR) and total recordable injury frequency
rate (TRIFR) are both now zero, an exceptional performance
reflective of the ongoing focus and importance placed on safety by
management. Base Resources’ employees and contractors have
now worked 13.2 million man-hours LTI free, with the last LTI
recorded in 2014.
COMMUNITY AND ENVIRONMENT
Agricultural livelihood programs, run in conjunction with
partners Business for Development, DEG, FMO, Australia’s DFAT and
Kenya Red Cross, continue to develop with encouraging support from
both national and county Kenyan governments. These programs,
covering cotton, potato, sorghum, legumes, bee keeping and poultry,
have expanded to involve around 2,500 smallholder farmers and
community groups with early and persistent rains in the quarter
contributing to good results.
Sorghum harvest and commercial sales continue with a large
Kenyan brewing company and a solid relationship is developing
between the farmers’ cooperative and the brewer. Further
training has been provided by the brewer to help lift product
quality in their campaign to increase locally sourced produce.
Cotton is also growing well this season with harvest anticipated
in the September quarter. In June, the Kwale Cotton project
was shortlisted for the Unilever Global Development Award out of
hundreds of applicants.
A recently announced Kenyan national development initiative,
known as the “Big Four Agenda”, has identified the cotton value
chain as a major element to achieving one of its key pillars – jobs
growth by increasing local manufacturing. As a result, the
government is directing significant resources to the growth of
cotton farming nationwide, together with assisting the PAVI
farmers’ cooperative with construction of cotton processing and
storage facilities to help farmers release additional value from
their crops.
Rehabilitation of the TSF wall is underway with over 8 hectares
revegetated so far.
BUSINESS DEVELOPMENT
TOLIARA SANDS DEVELOPMENT -
MADAGASCAR
Base Resources’ development plan is on track to complete a full
study phase ahead of a decision to proceed to construction in the
second half of calendar year 2019 (H2 CY19). This
timetable could be expected to see the Toliara Project in
production in H2 CY21.
During the quarter, the high-level concept study to identify and
assess various enhancement options was completed, with a short list
taken forward for evaluation during the PFS.
A Mineral Technologies and Lycopodium partnership (MTL)
was appointed as engineering consultants to deliver the
PFS4. The PFS is progressing to plan with a range
of mining, processing and infrastructure options being evaluated
with the aim of selecting the preferred development option by the
end of the September quarter and the full PFS targeted for
completion in Q1 CY19. The definitive feasibility study
(DFS) completion is expected in Q3 CY19.
A number of long lead activities progressed during the quarter
which will feed into the PFS and the DFS, including:
-
A 115-tonne bulk sample arrived at Mineral Technologies in
Brisbane and a full program of wet
and dry plant testwork, which will inform process flow sheet
design, is progressing to plan.
-
The appointment of Wallis
Drilling to complete a drilling program to define the
boundaries of the Mineral Resource, upgrade the existing Inferred
Resource to Indicated status, and complete an Ore Reserve
estimation.Drilling commenced in July.
-
A site visit by MTL to plan further geotechnical
investigations.
The September quarter will focus on completion of the evaluation
of mining, processing and infrastructure options and will see
commencement of a number of activities including:
-
Bathymetric survey of the sea bed for the proposed port
jetty.
-
Further geotechnical investigations for the port, mine site,
haul road and river crossing.
-
Infill aerial survey for infrastructure planning.
Total expenditure on the Toliara Project for the June quarter
was US$1.5 million.
[Note (4) Refer to Base Resources’ market
announcement “Appointment of a Mineral Technologies and Lycopodium
partnership to deliver PFS” released on 15
May 2018, which is available at
http://www.baseresources.com.au/investor-centre/asx-releases.]
EXTENSIONAL EXPLORATION – KENYA
As announced on 4th October
20175, an updated Mineral Resource estimate for
the Kwale South Dune (the 2017 Kwale South Dune Mineral
Resource) was completed, resulting in a 19% increase in
contained in situ HM in the Measured and Indicated
categories. Completion of an updated Ore Reserve based on the
2017 Kwale South Dune Mineral Resource is subject to finalisation
of mining tenure arrangements, which are currently being progressed
with the Kenyan Ministry of Petroleum and Mining.
The next phase of extensional exploration drilling at Kwale
Operations commenced in April in the North-East Sector of the
Company’s Kwale Special Prospecting License (SPL) 173,
adjacent to the Kwale Operation’s Central Dune. At quarter
end, 274 holes for 3,835 metres have been drilled. Completion
of the remaining drilling program (4,200 metres) in this area is
currently suspended whilst community access issues are being
resolved. Drill assay results from work completed to date are
expected to be available in the September quarter.
During the quarter, the Company commenced a re-evaluation,
including infill drilling, of the higher-grade areas of the North
Dune, motivated by an improved economic environment, refined
resource definition methodology and insights from five years of
operations on the Central Dune. At quarter end, 36 holes for
2,450 metres have been drilled and a further 14,000 metres is
planned for the coming quarter. The North Dune is currently
not included in the Kwale Mineral Resources.
The Company’s Vanga SPL application has been approved by the
Mineral Rights Board and is awaiting issuance. Once issued,
the planned drilling program will be scheduled to follow on from
the North Dune and North-East Sector drilling.
[Note (5) Refer to Base Resources market
announcement “Mineral Resource Increase for Kwale South Dune”
released on 4 October 2017, which is
available at
http://www.baseresources.com.au/investor-centre/asx-releases, which
contains the JORC competent persons statement for this estimate of
Mineral Resource. The Company confirms that it is not aware
of any new information or data that materially affects the
information included in this ASX announcement and that all material
assumptions and technical parameters underpinning the Mineral
Resource estimates in this announcement continue to apply and have
not materially changed.]
EXPLORATION - TANZANIA
The Company holds five prospecting licences in northern
Tanzania with a combined area of
475km2. A stratigraphic drilling program across
all five licences was completed during the prior quarter to enhance
understanding of the area’s geology, marine sequences and potential
to host heavy mineral. Drill samples have been analysed at
the Kwale Operations laboratory and key findings are as
follows:
- The red sand dunal deposits are very shallow (1-6m) and overlie a limestone base (Tanga
terrace).
- The dunal deposits are weakly mineralised and are high in slime
content (average of about 50%).
- Below the limestone base (approx. 50m) lies a mineralised paleo-strand
deposit.
- Microscopic analysis of the deep mineralised zone indicates
that most of the HM is dominated by garnets and staurolite with low
valuable HM content.
Based on these results, it is unlikely the Company will pursue
further exploration on these licences.
Total exploration expenditure for the quarter, across all
licences in Kenya and Tanzania, was US$0.4
million.
CORPORATE
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$21.3 million at 30 June 2018. These
claims are proceeding through the Kenya Revenue Authority process
and refunds totalling US$1.4 million
were received during the quarter (nil last quarter). Base
Resources is continuing to engage with the Kenyan Treasury and the
Kenya Revenue Authority, seeking to expedite the remainder of the
refunds.
In summary, at 30 June 2018:
- Net debt of US$33.2 million,
consisting of:
- Cash and cash equivalents were US$29.7
million (unrestricted) and an additional US$29.6 million (restricted – debt service
reserve account).
- Debt of US$92.5 million (Kwale
Project Debt Facility US$80.0 million
and Corporate RCF US$12.5
million).
- 1,127,575,014 shares on issue.
- 61,425,061 options (exercise price of A$0.40, expiring 31 December 2018).
- 71,281,661 performance rights issued pursuant to the terms of
the Base Resources Long Term Incentive Plan.
ENDS.
CORPORATE PROFILE
Directors
Keith Spence (Non-Executive
Chairman)
Tim Carstens (Managing Director)
Colin Bwye (Executive Director)
Sam Willis (Non-Executive
Director)
Michael Stirzaker (Non-Executive
Director)
Malcolm Macpherson (Non-Executive
Director)
Diane Radley (Non-Executive
Director)
Company Secretary
Chadwick Poletti
NOMINATED ADVISOR & BROKERS
RFC Ambrian Limited
As Nominated Adviser:
Andrew Thomson / Stephen Allen
Phone: +61 (0)8 9480 2500
As Joint Broker:
Charlie Cryer
Phone: +44 20 3440 6800
Numis Securities Limited
As Joint Broker:
John Prior / James Black / Paul
Gillam
Phone: +44 20 7260 1000
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AUSTRALIAN MEDIA RELATIONS
Cannings Purple
Andrew Rowell
arowell@canningspurple.com.au
Phone: +61 (0)8 6314 6300
UK MEDIA RELATIONS
Tavistock Communications
Jos Simson / Barnaby Hayward
Phone: +44 (0) 207 920 3150
KENYA MEDIA RELATIONS
Africapractice (East
Africa)
Evelyn Njoroge / 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