TIDMBSE
AIM and Media Release
28 January 2021
BASE RESOURCES LIMITED
Quarterly Activities Report - December 2020
Key Points
* Kwale Operations has 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.
* Ongoing firm demand from customers in the quarter supported further
ilmenite price increases, while zircon and rutile prices have stabilised.
* Kwale North Dune PFS progressed and is scheduled for release early in the
June quarter.
* Exploration drilling re-commenced in the North Vanga region near Kwale
Operations.
* Discussions with the Government of Madagascar on Toliara Project fiscal
terms continue to progress.
* Activities to support vulnerable local communities affected by COVID-19 in
Kenya and Madagascar continued.
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 continues 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. The Company is also 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 Dec 2019 Mar 2020 June 2020 Sept 2020 Dec 2020
Quarter Quarter Quarter Quarter Quarter
Production (tonnes)
Ilmenite 91,406 105,035 84,843 65,863 78,500
Rutile 19,812 23,683 19,035 15,513 18,171
Zircon 7,923 9,163 7,590 6,000 6,677
Zircon low 546 780 578 426 516
grade1
Sales (tonnes)
Ilmenite 106,544 87,819 102,364 75,502 53,798
Rutile 13,078 25,280 27,268 11,651 12,017
Zircon 7,090 7,377 9,086 7,336 6,399
Zircon low 616 - 1,516 505 -
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 4.6Mt (last quarter: 3.9Mt) due to higher mining
faces reducing the downtime associated with relocating mining units. The heavy
mineral (HM) grade of ore mined was also higher at 3.68% (last quarter:
3.16%). This was driven by the mine path as well as better grade than
predicted by the resource model in some areas mined.
Mining & WCP Dec 2019 Mar 2020 June 2020 Sept 2020 Dec 2020
Performance Quarter Quarter Quarter Quarter Quarter
Ore mined (tonnes) 4,579,386 4,295,645 4,271,811 3,938,494 4,600,172
HM % 4.22 3.86 3.87 3.16 3.68
VHM % 3.29 2.98 2.95 2.32 2.81
HMC produced 189,952 153,754 148,699 103,730 142,309
(tonnes)
Wet concentrator plant (WCP) production of heavy mineral concentrate (HMC) was
higher at 142kt (last quarter: 104kt) due to a combination of higher mined
tonnes and HM grades. HMC stocks increased to 14kt at quarter end (last
quarter: 5kt). 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 49 hectares provisionally rehabilitated
in the quarter.
MSP Performance Dec 2019 Mar 2020 June 2020 Sept 2020 Dec 2020
Quarter Quarter Quarter Quarter Quarter
MSP Feed (tonnes of 155,217 186,197 145,550 114,873 134,019
HMC)
MSP feed rate (tph) 86 90 78 61 64
MSP recovery %
Ilmenite 100 99 99 100 102
Rutile 102 99 100 102 102
Zircon 88 87 85 86 86
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 64kt of bulk ilmenite and rutile during the
quarter (last quarter: 85kt). Containerised shipments of rutile and zircon
through the Mombasa Port proceeded according to plan.
Summary of unit costs Dec 2019 Mar 2020 June 2020 Sept 2020 Dec 2020
& Revenue per tonne (US$) Quarter Quarter Quarter Quarter Quarter
Unit operating costs per $140 $128 $153 $189 $161
tonne produced
Unit cost of goods sold per $141 $175 $189 $192 $207
tonne sold
Unit revenue per tonne of $355 $476 $479 $413 $464
product sold
Revenue: Cost of goods sold 2.5 2.7 2.5 2.1 2.2
ratio
Total operating costs of US$16.8 million were marginally higher (last quarter:
US$16.6 million) due to higher volumes mined and processed. Increased
production levels resulted in lower unit operating costs of US$161 per tonne
produced (rutile, ilmenite, zircon and low-grade zircon) (last quarter: US$189
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$207 per tonne sold (operating costs, adjusted for
stockpile movements, and royalties) increased due to the higher proportion of
rutile and zircon in the sales mix in the quarter (last quarter: US$192 per
tonne). Average unit revenue increased to US$464 per tonne (prior quarter:
US$413 per tonne) due to sales mix and increased ilmenite prices. From the
combination of these factors, the revenue to cost of goods sold ratio for the
quarter increased to 2.2 (last quarter: 2.1).
FY21 PRODUCTION GUIDANCE
Base Resources' production guidance for financial year ended 30 June 2021 (FY21
) remains unchanged, albeit with ilmenite currently forecast to be towards the
upper end of the guidance range. However, due to the ongoing inherent
uncertainties associated with the COVID-19 pandemic, a halt to, or curtailment
of, operations at some point in the future remains possible. In such an event,
the Company may update or withdraw its FY21 production guidance, as appropriate
in the circumstances.
Kwale Operations FY21 production guidance remains at:
* Rutile - 70,000 to 80,000 tonnes.
* Ilmenite - 270,000 to 300,000 tonnes.
* Zircon - 23,000 to 27,000 tonnes.
The above FY21 production guidance is based on the following assumptions:
* Mining of 17.2Mt at an average HM grade of 3.44%, with all remaining FY21
volume coming from Ore Reserves2.
* Average MSP feed rate of 67tph.
* Average MSP product recoveries of 100.5% for rutile, 100% for ilmenite and
84% for zircon.
[Note (2): 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 seen
in the prior quarter continued through the December quarter and it is now
estimated that global pigment production and titanium feedstock demand in 2020
exceeded that of 2019.
In response to the improved demand, western pigment producers have been ramping
up production rates from late in the prior quarter and through this quarter.
Chinese pigment producers have continued to operate at high output rates as
the domestic market improves and high volumes of pigment exports are
sustained. Globally, pigment prices have been trending up through the quarter.
Demand for ilmenite as a feedstock for Chinese pigment producers exceeded
supply through the quarter resulting in further price gains for
ilmenite. Ongoing strong demand and constrained supply will maintain a tight
ilmenite market through the March quarter and is likely to result in further
price increases.
Rutile prices softened in the quarter due to a build-up of high-grade feedstock
inventory during the early part of 2020 when western pigment producers were
operating at low rates. The ramp up of western pigment production through the
quarter has released pressure on feedstock inventory levels. Pigment customers
are indicating that pigment demand has recovered faster than expected. This is
expected to increase rutile demand and, as a minimum, stabilise rutile prices
in the coming quarter and improves the outlook past this. In addition, an
uplift in demand for rutile in the welding sectors throughout Asia, and the
Chinese titanium metal sector, is expected to further support stabilisation of
rutile market conditions and prices in early 2021.
Demand for zircon improved through the quarter mainly due to an increase in
zircon consumption in the European ceramics sector as economies emerged from
lockdowns. Major tile producers and zircon millers in Europe, who had been
holding minimal raw material inventories during lockdown, have sought to
expedite new orders to enable a ramp up of production to capacity levels. The
Chinese zircon market is gradually improving and there is optimism building for
2021. The management of zircon supply by some major producers to suit market
conditions has been maintained and is enabling the zircon market to stabilise
and recover. Sales contracts are in place for all Kwale Operations zircon
production in the March quarter with prices flat compared to the December
quarter.
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 group employees and contractors have now worked 22.9 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 awareness through community health workers on COVID-19 programs and
providing additional community-based handwashing equipment to help improve
sanitation. Food support programs were extended to cater for the economic
impact on tourism and unemployment in the Kwale region. A school support
program was implemented to assist with social distancing requirements with
2,900 school desks distributed to 25 schools across Kwale County and Likoni.
Agricultural livelihood programs at Kwale saw good harvests for cotton, maize,
sorghum and green grams. A temporary storage facility was built at the PAVI
Business Park ahead of the completion of development of Business Park
facilities with support from the national government. This will allow farmers
to store cotton lint and other products in a secure and convenient location.
Construction of social infrastructure continued with Mwalewa Girls Secondary
School in Lunga Lunga nearing completion in time for commencement of the new
academic year in January 2021. The Mwaembe water supply project, providing
clean water to communities in Msambweni, also commenced with completion
anticipated in the March quarter.
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, and youth groups from local villages employed
to assist with slope stabilisation, planting and road clearing.
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 remained on site and continue to progress through their
two-year apprenticeship programs.
Base Resources continued to work with local authorities to assist in the
response to the pandemic in the Toliara region by supporting face mask
production in conjunction with a leading local women's group, with over 80,000
re-usable masks now produced and 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 progressed3. 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 noted in the Company's FY20 Full Year Results announcement4, 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:
* Lenders' community and environmental due diligence progressing.
* Commencement of the construction insurance risk survey.
* Undertaking design works for the dedicated haul road bridge over the
Fiherenana River.
* Continued negotiations with the preferred tenderers for the marine, piling
and power contract packages.
* Ground water modelling work to allow drilling and borehole testing to
commence shortly after lifting of the suspension of activities.
Key activities planned for the coming quarter include:
* Further engagement with the Government, focused on agreeing fiscal terms
and resumption of on-the-ground activities.
* Selecting the preferred piling contractor and commencing piling design at
the export storage shed.
* Selecting the preferred power supply contractor, allowing power purchase
agreement negotiations to commence.
* Progressing design of the haul road bridge over the Fiherenana River.
* Ongoing engagement with prospective lenders and joint venture partners.
Total expenditure on the Toliara Project for the quarter was US$4.0 million
(last quarter: US$3.5 million).
[Note:
(3) 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/.
(4) 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 SML23.
The pre-feasibility study for mining the North Dune Mineral Resources is
scheduled for completion early in the June quarter.
Following resolution of community access issues, auger drilling of a section of
the northern Vanga Prospecting License (PL/2015/0042) commenced and will
continue during the March quarter. 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, assessment of
applications has recently recommenced which is seen as a precursor to the
lifting of the moratorium.
Expenditure on exploration activities in Kenya during the quarter was US$0.1
million (last quarter: US$0.2 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$16.6 million at 31
December 2020. Refunds totalling US$2.0 million were received during the
quarter (last quarter: US$1.8 million). Base Resources is continuing to
actively engage with the Kenyan National Treasury and the Kenya Revenue
Authority in relation to the outstanding VAT refund claims and is also taking
steps under the investment agreement to secure its position with respect to the
VAT paid during construction of the Kwale Project.
Maiden dividend payment
Following the Company's strong FY20 financial performance and reflecting our
determination to deliver concrete returns to shareholders, the Board determined
a maiden dividend of AUD 3.5 cent per share, unfranked, in August 2020. The
maiden dividend was paid to shareholders on 7 October 2020, resulting in a cash
payment of US$29.8 million (in aggregate) in the quarter.
FY21 interim financial results
The Company is targeting release of its FY21 interim consolidated financial
statements in the week commencing 22 February 2021. Confirmation of timing and
shareholder and investor call details will be advised closer to the planned
release.
In summary, as at 31 December 2020:
* Net cash of US$74.6 million, consisting of:
+ Cash and cash equivalents of US$99.6 million.
+ Revolving Credit Facility debt of US$25.0 million.
* 1,178,011,850 fully paid ordinary shares on issue.
* 74,997,738 performance rights on issue pursuant to the terms of the Base
Resources Long Term Incentive Plan, comprising:
+ 4,009,286 vested performance rights, which remain subject to exercise5.
+ 70,988,452 unvested performance rights subject to performance testing
in accordance with their terms of issue.
[Note (5): 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 UK Media Relations
and Investor 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
END
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