Base Resources Limited Quarterly Activities Report - December 2016

 
TIDMBSE 
 
AIM and Media Release 
 
17 January 2017 
 
BASE RESOURCES LIMITED 
Quarterly Activities Report - December 2016 
 
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       Dec 2015      Mar 2016      June 2016     Sept 2016     Dec 2016 
DATA                    Quarter       Quarter       Quarter       Quarter       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            88,087        209,787       226,453       164,192       152,259 
(tonnes) 
 
HMC consumed            176,717       175,224       187,244       193,349       191,576 
(tonnes) 
 
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 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%*, slightly higher than the previous 
quarter's 100%. 
 
[*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 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. 
 
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                      Dec 2015  Mar 2016  June 2016 Sept 2016 Dec 2016 
& REVENUE PER TONNE (US$)                   Quarter   Quarter   Quarter   Quarter   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). 
 
The high average revenue per tonne sold and continued cost discipline in the 
quarter has resulted in a record revenue to cost of sales ratio of 2.5 (2.2 
last quarter). 
 
FY2017 PRODUCTION GUIDANCE- MID-YEAR UPDATE 
 
Kwale Operations production guidance for financial year 2017 ("FY17") has been 
updated to reflect lower than forecast first half production of zircon and 
rutile, whilst factoring in the on-going MSP optimisation and debottlenecking 
at the higher feed rates, aimed at improving zircon and rutile recoveries.  The 
revised production guidance is: 
 
  * Rutile - 88,000 to 93,000 tonnes (previously 88,000 to 95,000 tonnes). 
  * Ilmenite - 450,000 to 480,000 tonnes (no change). 
  * Zircon - 33,000 to 37,000 tonnes (previously 35,000 to 40,000 tonnes). 
  * Zircon contained in zircon low grade - 8,000 to 10,000 tonnes (no previous 
    guidance). 
 
The above updated production targets are based on the following assumptions for 
FY17: 
 
  * Mining of 10.4Mt at an average HM grade of 6.95%, all from Ore Reserves*. 
  * MSP feed rate at an average of 92tph (previously 91tph), consistent with 
    recent performance. 
  * MSP product recoveries of 102% for ilmenite and 98% (previously 100%) for 
    rutile, and 74% (previously 78%) for zircon, consistent with past 
    performance and planned recovery improvements from MSP optimisation. 
 
[*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.] 
 
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 per cent 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 TiO2 pigment industry maintained its strength through the quarter resulting 
in further price improvement and ongoing strong demand for TiO2 feedstock. 
This is encouraging and a departure from the traditional seasonal slow-down in 
the lead up to the end of the calendar year.  Global pigment producers 
announced a series of price increases over the course of 2016, with a number of 
major producers recently announcing a further price increase effective from 1 
January 2017. 
 
TiO2 feedstock consumption continued to increase throughout the quarter on the 
back of firming pigment production and ongoing re-stocking activity within the 
downstream supply-chain.  This led to another very strong sales quarter for 
Base Resources' ilmenite and rutile.  Prices for Base Resources' ilmenite have 
increased by over 100% between May and December 2016.  The Company continues to 
secure forward sales and has now contracted all ilmenite production through to 
late February 2017 and has secured further price increases for these forward 
sales. 
 
There have been recent reports of political disruption to ilmenite exports from 
Tamil Nadu in India and suppressed ilmenite production in China's main ilmenite 
producing region, the Sichuan province, due to increased environmental 
inspections.  These events together with the ongoing strength in pigment demand 
is expected to result in further improvements in ilmenite prices through 2017. 
 
Despite the improvement in demand, an overhang of high grade TiO2 feedstock 
(including rutile) supply from the first half of 2016 restrained rutile price 
growth through the second half of the year.  However, higher than expected 
offtake by major consumers has resulted in supply and demand being more 
balanced by the end of calendar year 2016.  Base Resources' expectation is for 
rutile prices to start trending upwards during 2017. 
 
The December quarter saw another solid zircon sales performance with minimal 
stocks being held throughout the period.  Zircon prices saw a modest 
improvement through the December quarter and further marginal improvements are 
being secured for the March quarter.  Provided supply management continues, 
ongoing gradual upward momentum in zircon prices should occur through 2017. 
 
SAFETY 
 
With no serious injuries occurring during the quarter, Kwale Operations' lost 
time injury frequency rate ("LTIFR") remains at zero.  Base Resources' 
employees and contractors have now worked 8.2 million man-hours LTI free, with 
the last LTI recorded in the March quarter of 2014.  The total recordable 
injury frequency rate ("TRIFR") reduced from 0.70 to 0.35 in this quarter, 
continuing the steady downward trend of 2016. 
 
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, currently involve around 500 
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. 
 
A stated long-term industrialisation goal of the Kenyan government is to see 
the revitalisation of the cotton value chain.  The economic returns associated 
with this sector have enormous potential to deliver benefits to the various 
participants from farmers right through to garment manufacturers.  Reflecting 
this focus, during the quarter, the Cabinet Secretary for Agriculture, Mr Willy 
Bett, toured Base Resources' cotton programme in the course of which he met 
with participating farmers, Kwale County officials, cooperative members and 
ginnery operators.  The Australian government has also now committed to 
contribute to the development of the program with funding through the Business 
Partnerships Platform. 
 
The current cotton crop is currently being harvested, with good results from 
fibre testing carried out in both Nairobi and Bangladesh.  Processing at the 
local ginnery will take place once the harvest is complete in the coming 
quarter. 
 
During the quarter, Base Resources also provided 29 tonnes of relief food in 
collaboration with the Kwale County Government, local civil society 
organisations and Kenya Red Cross to alleviate hunger in the region resulting 
from drought conditions. 
 
BUSINESS DEVELOPMENT 
 
EXTENSIONAL EXPLORATION - KENYA 
 
The Company commenced an aircore drilling programme in the latter half of the 
quarter within its Special Prospecting License 173 ("SPL 173").  At quarter 
end, 169 holes for 2,544 metres had been drilled in the area targeting a 
potential south-western extension of the existing Kwale resource.  This will be 
followed in the coming quarter by an infill drilling programme that will be 
informed by a preliminary assessment of mineralised zones intersected. 
Preliminary exploration results for the drilling completed to date are expected 
to be available in the March quarter. 
 
Extensive community engagement has continued in the north-eastern sector of SPL 
173 to obtain informed consent and access to the target drill sites located in 
this area.  Planned drilling is expected to commence during the March quarter. 
 
In addition, the Company has also applied for a further Special Prospecting 
License covering an area of 136km2 extending south west from SPL 173 towards 
the Tanzanian border.  This application has been approved, but the license 
remains subject to final grant pursuant to applicable regulations. 
 
EXPLORATION - TANZANIA 
 
Following the grant of three prospecting licenses in early October 2016, the 
Company has secured tenure over a fourth license in northern Tanzania for a 
combined area of 456km2.  The areas of interest in Tanzania were identified as 

part of a prospectivity review and subsequent reconnaissance work on the ground 
to confirm these findings. 
 
The Company has commenced the process of obtaining the necessary consents and 
clearances ahead of a planned preliminary drilling programme across all four 
licenses.  The programme, comprising approximately 3,000 metres of drilling, is 
planned for the first half of 2017. 
 
Total exploration expenditure for the quarter, across all licenses in Kenya and 
Tanzania, was US$0.35 million. 
 
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 ("DFS") is underway.  The HMU, 
currently being used successfully in mining operations, has delivered 
encouraging results and work is underway to determine the optimum tonnage split 
between HMU and DMU mining rates.  The DFS is scheduled for completion in the 
June quarter of 2017. 
 
CORPORATE 
 
EXTENSION OF THE TAURUS FACILITY 
 
As announced on 31 October 2016, Base Resources extended the maturity date of 
the fully drawn US$20 million unsecured debt facility provided by one of its 
major shareholders, Taurus Funds Management ("Taurus") ("Taurus Facility"), 
from 31 December 2016 to 30 September 2017. 
 
The Taurus Facility was established in December 2014, and is held by Base 
Resources.  Prior to final maturity, under the terms of the Taurus Facility, 
repayments are only required to be made from the surplus cash distributions (" 
Cash Sweeps") of the Kwale Operations to Base Resources, as permitted by the 
Kwale Operations Debt Facility.  These Cash Sweeps, if permitted, occur 
six-monthly with the first having taken place in July 2016 for US$5.4 million. 
Following the Cash Sweep, a mandatory 50% of which was applied towards 
progressive repayment of the Taurus facility, the amount outstanding under the 
Taurus Facility at 31 December 2016 was US$17.3 million. 
 
The extension of the Taurus Facility final maturity date allows additional 
repayments to be made from the now confirmed US$7.3 million Cash Sweep in 
January and a further potential Cash Sweep in July 2017, and removed the need 
to secure external funding to repay the balance that would otherwise have been 
due on 31 December 2016. 
 
As part of the extension, the mandatory proportion of Cash Sweeps to be applied 
toward progressive repayment of the Taurus Facility increased from 50% to 75%. 
All other terms of the Taurus Facility remained unchanged, including the 
interest rate of 10% on the outstanding balance.  As consideration for the 
extension, Base Resources issued Taurus 10 million fully paid ordinary shares. 
 
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$18.2 million at 31 
December 2016.  These claims are proceeding through the Kenya Revenue Authority 
process, with a number of operational period claims, totalling approximately 
US$1.5 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 16 January 2017, and in accordance with the terms of the Kwale Operation 
Debt Facility, US$14.6 million of surplus cash was 'swept' from the Kwale 
Operation.  Half of the Cash Sweep (US$7.3 million) went towards mandatory 
repayment of the Kwale Operations Debt Facility, with the other half 
distributed up to the group's Australian parent entity, Base Resources.  From 
the Cash Sweep portion received by Base Resources, a mandatory 75% (US$5.5 
million) was applied to repayment of the Taurus Facility with the balance 
available to the Company for general corporate funding. 
 
In summary, at 31 December 2016: 
 
  * Net debt of US$129.5 million, consisting of: 
      + Cash and cash equivalents were US$29.1 million (unrestricted) and an 
        additional US$18.6 million (restricted - debt service reserve account). 
      + Debt of US$177.2 million, following a US$15.2 million scheduled 
        repayment on 15th December 2016. 
  * 742,231,956 shares on issue. 
  * 61,425,061 options (exercise price of A$0.40, expiring 31 December 2018). 
  * 67,085,620 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

January 17, 2017 02:00 ET (07:00 GMT)