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
Quarter |
Mar 2020
Quarter |
June
2020 Quarter |
Sept
2020 Quarter |
Dec 2020 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
grade1 |
546 |
780 |
578 |
426 |
516 |
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
grade1 |
616 |
- |
1,516 |
505 |
- |
[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
Performance |
Dec
2019
Quarter |
Mar 2020
Quarter |
June
2020 Quarter |
Sept
2020 Quarter |
Dec
2020 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
(tonnes) |
189,952 |
153,754 |
148,699 |
103,730 |
142,309 |
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
Quarter |
Mar
2020 Quarter |
June
2020 Quarter |
Sept
2020 Quarter |
Dec
2020 Quarter |
MSP Feed (tonnes of
HMC) |
155,217 |
186,197 |
145,550 |
114,873 |
134,019 |
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
& Revenue per tonne
(US$) |
Dec 2019
Quarter |
Mar 2020
Quarter |
June
2020 Quarter |
Sept
2020 Quarter |
Dec
2020 Quarter |
Unit operating costs
per tonne produced |
$140 |
$128 |
$153 |
$189 |
$161 |
Unit cost of goods
sold per tonne sold |
$141 |
$175 |
$189 |
$192 |
$207 |
Unit revenue per tonne
of product sold |
$355 |
$476 |
$479 |
$413 |
$464 |
Revenue: Cost of goods
sold ratio |
2.5 |
2.7 |
2.5 |
2.1 |
2.2 |
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
and Investor Relations |
UK Media 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