Base Resources Limited Quarterly Activities Report - September 2016

 
TIDMBSE 
 
AIM and Media Release 
 
13 October 2016 
 
BASE RESOURCES LIMITED 
Quarterly Activities Report - September 2016 
 
HIGHLIGHTS 
 
  * 50% increase in Ilmenite prices in the quarter, with further price increase 
    locked in for contracted December quarter sales. 
 
  * Strong production result with record volumes in rutile and ilmenite, driven 
    by a 5% increase in Mineral Separation Plant throughput. 
 
  * Successful commissioning of a 400tph hydraulic mining unit. 
 
  * No lost time injuries. 
 
  * Updated Mineral Resources and Ore Reserves estimate announced. 
 
  * Extensive Tanzanian exploration licenses granted, within 100km of the Kwale 
    Operations. 
 
  * Maiden cash "sweep" from the Kwale Operations. 
 
  * Net debt reduced to US$147.6 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. 
Production for the quarter was characterised by further increases in plant 
throughput and continued cost control discipline.  A strong sales performance 
reflects the continuing improvement in titanium markets. 
 
KWALE OPERATIONS 
 
SUMMARY PHYSICAL       Sept 2015     Dec 2015      Mar 2016      June 2016     Sept 2016 
DATA                    Quarter       Quarter       Quarter       Quarter       Quarter 
 
Ore mined (tonnes)     2,327,361     2,101,295     2,410,503     2,363,395     2,255,139 
 
HM%                      9.66%         4.31%         8.96%         9.87%         7.51% 
 
HMC produced            210,104       88,087        209,787       226,453       164,192 
(tonnes) 
 
HMC consumed            170,258       176,717       175,224       187,244       193,349 
(tonnes) 
 
MSP feed rate (tph)       82            84            86            88            92 
 
Production (tonnes) 
 
Ilmenite                116,121       109,649       110,760       119,340       121,821 
 
Rutile                  20,926        21,768        21,194        21,766        22,458 
 
Zircon                   6,546         7,507         7,865         9,471         9,050 
 
Sales (tonnes) 
 
Ilmenite                130,608       103,035       95,984        150,911       139,441 
 
Rutile                  14,686        23,896        14,500        32,454        23,023 
 
Zircon                   6,193         7,723         9,556         9,590         8,525 
 
Mining operations successfully commissioned and operated a 400 tonnes per hour 
("tph") hydraulic mining unit ("HMU") in the quarter, allowing concurrent 
mining of higher grade ore with the existing dozer trap mining unit ("DMU") 
while the HMU mines the thinner, lower grade perimeter blocks.  As a result, 
the average blended mined ore grade declined to 7.51% heavy mineral ("HM") and 
is expected to remain around these levels in coming quarters. 
 
In addition to cost benefits in the mining of perimeter low grade blocks with 
the HMU, the combination of operating both mining units, and the resultant 
higher mining rates that can be sustained, allows the better utilisation of the 
capacity of the wet concentrator plant ("WCP").  Limits on the volume of heavy 
mineral concentrate ("HMC") production possible from the WCP, has, in the past, 
required mining rates to be constrained when in high grade ore.  The lower 
blended mined ore grade from the dual mining units allows higher mining rates 
to be achieved before reaching the maximum HMC production limit. 
 
As a result of the lower average blended mined ore grade, in concert with 
variability over the quarter which saw WCP throughput constraints reached at 
times, overall WCP production of 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 29kt as mineral separation plant (" 
MSP") consumption increased due to further improvements in plant throughput. 
 
The tailings storage facility ("TSF") wall stacking, lining and slimes 
deposition continued to proceed to plan.  The Mukurumudzi Dam volume dropped 
from 6.8 gigalitres ("GL") to 5.8GL during the quarter with little rain 
experienced.  The 'short rains' in the December quarter should provide a 
further opportunity to replenish water levels. 
 
MSP optimisation during the quarter continued to focus on increasing 
throughput, achieving an average feed rate of 92tph whilst maintaining a high 
availability of 96% (97% last quarter).  The higher throughput rates have had a 
minor impact on product recoveries and the required re-optimisation and 
de-bottlenecking is underway to return all recoveries to their previous levels. 
 
Rutile production set a new quarterly record of 22.5kt (21.8kt last quarter), 
due to the higher MSP throughput, despite lower average recoveries of 97% (99% 
last quarter).  Re-optimisation of the rutile circuit at the higher MSP feed 
rates is expected to improve recoveries over the December quarter. 
 
Ilmenite production also achieved a new quarterly record, rising to 122kt 
(119kt last quarter) as a consequence of the higher MSP throughput achieved. 
Average recoveries for the quarter were 100%, slightly lower than the previous 
quarter's 101%*. 
 
[*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 slightly lower at 9,050t (9,471t last 
quarter), reflecting a lower average zircon recovery of 73% (78% last 
quarter).  The lower recoveries were the direct result of circuit optimisation 
modifications undertaken during the period, necessitated by the higher MSP feed 
rate, and some electrical voltage instability that resulted in repeated 
stoppages in the wet zircon circuit.  With modifications largely complete, 
re-optimisation of the zircon circuit at the higher MSP feed rates is expected 
to improve recoveries over the December quarter. 
 
Bulk loading operations at Base Resources' Likoni Port facility continued to 
run smoothly, dispatching more than 155kt of ilmenite and rutile during the 
quarter (175kt last quarter).  Containerised shipments of rutile and zircon 
through the Mombasa Port proceeded according to plan. 
 
SUMMARY OF UNIT COSTS               Sept 2015   Dec 2015    Mar 2016    June 2016   Sept 2016 
& REVENUE PER TONNE (US$)            Quarter     Quarter     Quarter     Quarter     Quarter 
 
Unit operating costs per tonne         $86         $90         $84         $93         $78 
produced 
 
Unit cost of goods sold per tonne      $80        $123        $106        $111         $91 
 
Unit revenue per tonne of product     $172        $245        $208        $208        $200 
sold 
 
Revenue : Cost of goods sold ratio     2.2         2.0         2.0         1.9         2.2 
 
Continued tight cost control and increased production volumes combined to 
record the lowest unit operating cost yet achieved of US$78 per tonne produced 
(rutile, ilmenite and zircon) (US$93 per tonne last quarter).  Cost of goods 
sold of US$91 per tonne sold (operating costs, adjusted for stockpile 
movements, and royalties) were lower than last quarter (US$111 per tonne sold) 
due to operating cost savings and 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 September quarter 
saw a single 20kt bulk rutile sale and total rutile sales of 23kt, lower than 
the prior quarters 32kt total rutile sales, which, when combined with high 
volume of ilmenite sales in the quarter, contributed to the fall in average 
revenue per tonne to US$200 per tonne (US$208 last quarter).  However, achieved 
increases in ilmenite sales prices during the quarter ensured the average 
revenue per tonne sold remained relatively high and resulted in the revenue to 
cost of sales ratio increasing to 2.2 (1.9 last quarter). 
 
FY2017 PRODUCTION GUIDANCE 
 
Kwale Operations production guidance for financial year 2017 ("FY17") remains 
unchanged at: 
 
  * Rutile - 88,000 to 95,000 tonnes. 
  * Ilmenite - 450,000 to 480,000 tonnes. 
  * Zircon -35,000 to 40,000 tonnes. 
 
The above production targets are based on the following assumptions for FY17: 
 
  * Mining of 10.2 million tonnes ("Mt") at an average HM grade of 6.95%, all 
    from Ore Reserves*. 
  * MSP feed rate at an average of 91tph, consistent with recent performance. 
  * MSP product recoveries of 102% for ilmenite and 100% for rutile, and 78% 
    for zircon, consistent with past performance. 
 
[*The Ore Reserves estimates underpinning the above production targets were 
prepared by competent persons in accordance with the JORC Code 2012.  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% 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 ongoing strength of the Northern Hemisphere summer 'painting season' has 
driven continued, firm improvement in the TiO2 pigment market throughout the 
September quarter.  TiO2 pigment prices continued their upward trend through 
the quarter with expectations that further price improvement would occur 
through, or at least into the early stages of, the December quarter.  Most of 
the major Chinese pigment producers have thus far announced ten consecutive 
price increases throughout the course of calendar year 2016. 
 
TiO2 feedstock consumption increased throughout the quarter on the back of 
firming pigment production and ongoing re-stocking activity within the 
downstream supply-chain.  This improved demand resulted in another very strong 
sales quarter for Base Resources' ilmenite and rutile.  Prices for Base 
Resources' ilmenite have increased by approximately 50% between May and 
September 2016.  The Company has now contracted all ilmenite production through 
to November 2016 and has secured further step price increases for these forward 
sales. 
 
Despite the improvement in demand, the surplus of high grade TiO2 feedstock 
(including rutile) evident through the first half of 2016, has restrained price 
growth in the year to date.  However, higher than expected offtake by major 
consumers during calendar year 2016 has resulted in a balancing of supply and 
demand.  Base Resources' expectation is for rutile prices to begin moving 
upwards late in the December quarter or early in the March quarter 2017. 
 
Demand for zircon remained solid for the quarter, resulting in strong sales for 
Base Resources and stocks being maintained at minimum levels.  Although overall 
conditions for zircon consumption remain sluggish, one major zircon producer 
appears to have reached low inventory levels and another major producer 
continues to manage supply in an effort to support market price improvement. 
Zircon prices are, therefore, considered likely to see some marginal 
improvement in the transition into the December quarter. If realised, this 
would represent the first upward movement in zircon pricing since Kwale 
Operations commenced production in 2014.  Any sustained material improvement in 
zircon prices is unlikely to occur until surplus production and inventories are 
fully absorbed throughout the supply chain. 
 
SAFETY & TRAINING 
 
With no serious injuries occurring during the quarter, Kwale Operations' LTIFR 
remains at zero.  Base Resources employees and contractors have now worked 7.3 
million man-hours LTI free, with the last LTI recorded in the March quarter of 
2014.  A constant focus on lead safety indicators and positive safety 
behaviours resulted in zero medical treatment injuries during the quarter, 
representing the third consecutive quarter of such performance. 
 
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, now involve around 400 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. 
 
Both national and county Kenyan governments continue to increase their 
involvement in the cotton programme as part of a long term revitalisation 
initiative aimed at increasing the economic returns from the cotton value 
chain.  A workshop held in Kwale to chart the way forward for reinvigorating 
the industry, brought together various stakeholders including Cotton On, an 
Australian garment retailer, the Kenyan Fibre Crop Directorate, farmers' 
representatives from Kwale and Lamu counties, certification agencies and 
representatives from Kenya's leading ginnery. 
 
The current cotton crop is growing well with good results anticipated from the 
harvest expected in the next quarter. 
 
Potato harvesting in the quarter delivered good results together with important 
learnings about the marketing process derived by the farmers' co-operative. 
 
The poultry program continues to be rolled out with the second batch of 
dual-purpose hatchlings received, with distribution to participating farmers 
expected before the end of 2016, to enhance protein requirements and income 
generation.  This programme is showing potential to be an important contributor 
to women's livelihoods in the area.  Over 1,000 broilers are being reared by a 
local youth organisation which will be processed in the next quarter and 
marketed to local restaurants and hotels. 
 
Construction of the blood bank at Msambweni Referral Hospital is nearing 
completion with some ancillary components and equipment to be provided by other 
donors and the Kwale County Government.  This facility was identified as one of 
the most critical components for delivering improved health services in both 
the Kwale County health development plan and Base Resources' Health Impact 
Assessment. 
 
During the quarter, Base Resources was pleased to receive recognition from the 
Kenya Red Cross for special contributions and exemplary service in alleviating 
human suffering in Kenya and, for the second year running, was the recipient of 
the Total EcoChallenge Award for spearheading environmental conservation. 
 
BUSINESS DEVELOPMENT 
 
EXTENSIONAL EXPLORATION - KENYA 
 
A successful airborne geophysics program, conducted in 2015, covering the south 
coast region of Kenya from Mombasa to the Tanzanian border, identified a series 
of exploration targets that were subsequently confirmed through ground 
reconnaissance. 
 
To capitalise on the targets identified, the Company has significantly expanded 
its exploration land area surrounding the Kwale Operations, through the 
extension of its Special Prospecting License 173 ("SPL173"), which now covers 
an area of 177km2.  In addition, the Company has also applied for an additional 
SPL covering an area of 136km2 extending south west from SPL 173 towards the 
Tanzanian border.  This license application is advancing through the granting 
process having been approved by the licensing committee of the Kenyan Ministry 
of Mining.  Up to an 18,000 metre aircore drill program is planned over both 
these licenses and is expected to be completed over the coming year. 
 
Extensive and systematic stakeholder engagement has been carried out to 
sensitise all interested parties to future exploration activities and obtain 
informed consent and access to the target drill sites with broad, albeit not 
universal, community and land owner support achieved to date.  Significant 
engagement activity is ongoing with a view to commencing drilling during the 
December quarter. 
 
EXPLORATION - TANZANIA 
 
In early October 2016, the Company secured exploration tenure over a 
significant land area in northern Tanzania with the approval of three licenses 
with a combined area of 364km2.  The area was identified through a 
prospectivity review and subsequent reconnaissance work on the ground to 
confirm these findings.  A fourth exploration license is also under 
application.  The exploration licenses lie approximately 50km south of the 
Kenyan border and 100km from Base Resources' Kwale Operations. 
 
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 has commenced, scheduled for 
completion in the June quarter of 2017. 
 
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$19 million at 30 
September 2016.  These claims are proceeding through the Kenya Revenue 
Authority process, with a number of operational period claims, totalling 
approximately US$0.3 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 14 July 2016, and in accordance with the terms of the Kwale Operation Debt 
Facility, US$10.8 million of surplus cash was 'swept' from the Kwale 
Operation.  Half of the cash sweep (US$5.4 million) went towards mandatory 
repayment of the Kwale Operation Debt Facility, with the other half distributed 
up to the group's Australian parent entity, Base Resources Limited.  From the 
cash sweep portion received by Base Resources, a mandatory 50% (US$2.7 million) 
was applied to repayment of the Taurus Debt Facility with the balance available 
for general corporate funding. 
 
In summary, at 30 September 2016: 
 
  * Net debt of US$147.6 million, consisting of 
      + Cash and cash equivalents were US$22.7 million (unrestricted) and an 
        additional US$22.1 million (restricted - debt service reserve account). 
      + Debt of US$192.4 million, following a US$8.1 million accelerated debt 
        repayment from surplus cash 'swept' from the Kwale Operation on 14 July 
        2016. 
  * 732,231,956 shares on issue. 
  * 61,425,061 options (exercise price of A$0.40, expiring 31 December 2018). 
  * 62,527,889 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: [phone] 
As Broker: 
Jonathan Williams 
Phone: [phone] 
 
SHARE REGISTRY:  ASX 
Computershare Investor Services Pty Limited 
Level 11, 172 St Georges Terrace 
PERTH WA 6000 
Enquiries: 1300 850 505 / [phone] 
www.computershare.com.au 
 
SHARE REGISTRY:  AIM 
Computershare Investor Services PLC 
The Pavilions 
Bridgwater Road 
BRISTOL BS99 6ZZ 
Enquiries: [phone] 
www.computershare.co.uk 
 
AUSTRALIAN MEDIA RELATIONS 
Cannings Purple 
Annette Ellis / Andrew Rowell 
Email: [e-mail] / 
[e-mail] 
Phone: [phone] 
 
UK MEDIA RELATIONS 
Tavistock Communications 
Jos Simson / Emily Fenton 
Phone: [phone] 
 
KENYA MEDIA RELATIONS 
Africapractice (East Africa) 
Evelyn Njoroge / James Njuguna/Joan Kimani 
Phone: [phone] 
Email: [e-mail] 
 
PRINCIPAL & REGISTERED OFFICE 
Level 1, 50 Kings Park Road 
West Perth, Western Australia, 6005 
Email:  [e-mail] 
Phone: [phone] 
Fax: [phone] 
 
 
 
END 
 

(END) Dow Jones Newswires

October 13, 2016 02:00 ET (06:00 GMT)