Base Resources Limited Quarterly Activities Report - September 2017

 
TIDMBSE 
 
AIM and Media Release 
 
12 October 2017 
 
BASE RESOURCES LIMITED 
Quarterly Activities Report - September 2017 
 
HIGHLIGHTS 
 
  * Significant zircon price increases achieved for current quarter sales and 
    further price increase locked in for contracted December quarter sales. 
  * Hydraulic mining operations successfully increased from 400tph to 800tph. 
  * Kwale South Dune Mineral Resources estimate increased following completion 
    of extensional and infill drilling, delivering a 19% or 560kt increase in 
    contained in situ heavy mineral within the Measured and Indicated Resource 
    categories. 
  * Net debt further reduced by US$11.9 million to US$86.6 million. 
  * Increase in FY2018 production guidance for both ilmenite and zircon. 
  * No lost time injuries. 
  * Awarded "Flagship Project" status within Kenya's Vision 2030 economic 
    development framework. 
 
African mineral sands producer, 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.  The quarter was characterised by continuing improvement in zircon 
markets, stabilising ilmenite prices and a positive outlook for rutile.  The 
continued strong performance of Kwale Operations has reduced net debt by a 
further US$11.9 million in the quarter. 
 
"Figures" (graphics) referenced in this release have been omitted.  A full PDF 
version of this release, including all Figures, is available from the Company's 
website:  www.baseresources.com.au. 
 
KWALE OPERATIONS 
 
PRODUCTION             Sept 2016     Dec 2016      Mar 2017      June 2017     Sept 2017 
& SALES                 Quarter       Quarter       Quarter       Quarter       Quarter 
 
Production (tonnes) 
 
Ilmenite                121,821       113,806       112,368       119,364       119,376 
 
Rutile                  21,886        22,870        23,107        22,762        22,789 
 
Zircon                   9,050         8,591         8,212         8,375         9,136 
 
Zircon low grade(1)      2,160         2,550         2,474         3,026         1,425 
 
Sales (tonnes) 
 
Ilmenite                139,441       97,047        122,783       142,405       106,260 
 
Rutile                  23,023        19,773        21,416        27,779        12,594 
 
Zircon                   8,525         9,432         8,069         8,540         9,283 
 
Zircon low grade(1)        -           3,397         3,059         3,045           - 
 
[Note (1):  Zircon low grade tonnes contained in concentrate, equivalent to 
approximately 70-80% of the value of primary zircon.] 
 
Mined tonnage remained steady at 3.0 million tonnes ("Mt") while ore grade 
remained high at 8.0% Heavy Mineral ("HM") (8.4% HM last quarter) as mining 
continued in the same high-grade area of the Central Dune mined during the 
previous quarter. 
 
The staged increase in the throughput of the hydraulic mining unit ("HMU") 
progressed according to plan, with the HMU successfully increasing from 400 
tonnes-per-hour ("tph") to 800tph during the quarter, with a mining rate of 
859tph achieved in September.  The increase in HMU capacity has commensurately 
reduced the demand on dozer mining operations. 
 
MINING & WCP PERFORMANCE   Sept 2016     Dec 2016      Mar 2017      June 2017     Sept 2017 
                            Quarter       Quarter       Quarter       Quarter       Quarter 
 
Ore mined (tonnes)         2,325,174     3,049,333     2,664,738     2,975,694     3,023,550 
 
HM %                         7.51          5.83          6.70          8.40          8.01 
 
HMC produced (tonnes)       164,192       152,259       159,379       232,574       238,580 
 
WCP heavy mineral concentrate ("HMC") production for the quarter increased 
slightly to 238.6kt, lifting HMC stocks from 83.6kt to 131.7kt by quarter end 
as a result of continued high ore grades, mined tonnages and concentrator 
availability (91% versus 90% last quarter).  HMC inventory is being built up to 
enable uninterrupted Mineral Separation Plant ("MSP") feed during the final 
implementation stage of the Kwale Phase 2 Project, where a one month shut of 
the WCP is scheduled to tie in plant modifications and equipment upgrades. 
 
The tailings storage facility ("TSF") sand wall stacking, lining and slimes 
deposition continued according to plan, with the final wall lift now underway. 
Once this lift is complete, sand stacking will move to the mined-out area of 
the Central Dune representing the start of rehabilitation in this section. 
Rehabilitation of the TSF outer wall continued during the quarter with 15,000m2 
vegetated to date. 
 
Moderate rainfall of 252mm was received during the quarter, ensuring the 
Mukurumudzi Dam capacity remained high at 89% or 7.5GL of storage ahead of the 
'short rains' in the December quarter, which should provide a further 
opportunity to replenish water storage levels. 
 
MSP PERFORMANCE            Sept 2016     Dec 2016      Mar 2017      June 2017     Sept 2017 
                            Quarter       Quarter       Quarter       Quarter       Quarter 
 
MSP Feed (tonnes of HMC)    193,349       191,576       186,814       192,432       190,499 
 
MSP feed rate (tph)           92            91            91            92            91 
 
MSP recovery % 
 
Ilmenite                      100           99            101           101           100 
 
Rutile                        94            98            99            98            100 
 
Zircon                        73            73            74            73            75 
 
The MSP availability decreased slightly to 95% (96% last quarter) with a total 
of 190.5kt of HMC processed (192.4kt last quarter). 
 
Rutile production remained steady at 22.8kt (22.8kt last quarter) with an 
increased rutile recovery of 100%2 (98% last quarter) offsetting the lower feed 
tonnage. 
 
Ilmenite production also remained steady at 119.4kt (119.4kt last quarter) with 
higher contained ilmenite in the feed offsetting the reduced recoveries of 100% 
(2) (101% last quarter) and lower feed tonnage. 
 
[Note (2):  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 increased significantly to 9.3kt (8.4kt last quarter) due to 
higher contained zircon in the feed and average recoveries increasing to 75% 
(73% last quarter) with 78% achieved for the month of September following 
process optimisation and circuit changes. 
 
In addition to primary zircon, in July 2016, Kwale Operations commenced 
production of a lower grade zircon product ("zircon low grade") from 
re-processing of zircon tails into a zircon rich concentrate.  Zircon low grade 
typically realises 70-80% of the value of each contained tonne of zircon. 
Reported zircon low grade represents the volume of zircon contained in the 
concentrate.  The current production cycle for zircon low grade ended in 
September 2017, when feed stockpiles were exhausted.  During the quarter, 1.4kt 
of zircon low grade was produced (3.0kt last quarter) with a final shipment 
scheduled in early October.  Zircon tails are again being stockpiled and 
production of zircon low grade will recommence once sufficient stocks have been 
accumulated. 
 
Bulk loading operations at Base Resources' Likoni Port facility continued to 
run smoothly, dispatching more than 116kt of ilmenite and rutile during the 
quarter (178kt last quarter).  Containerised shipments of rutile and zircon 
through the Mombasa Port proceeded according to plan. 
 
SUMMARY OF UNIT COSTS               Sept 2016   Dec 2016    Mar 2017    June 2017   Sept 2017 
& REVENUE PER TONNE (US$)            Quarter     Quarter     Quarter     Quarter     Quarter 
 
Unit operating costs per tonne         $77         $84         $87         $96         $90 
produced 
 
Unit cost of goods sold per tonne      $90        $106        $111        $103        $102 
sold 
 
Unit revenue per tonne of product     $200        $250        $258        $297        $271 
sold 
 
Revenue: Cost of goods sold ratio      2.2         2.4         2.3         2.9         2.7 
 
Total operating costs were lower than last quarter (due to the prior quarter 
including recognition of typical end of financial year costs) which, with 
similar production volumes, resulted in a lower unit operating cost of US$90 
per tonne produced (rutile, ilmenite, zircon and zircon low grade) (US$96 per 
tonne last quarter).  Cost of goods sold of US$102 per tonne sold (operating 
costs, adjusted for stockpile movements, and royalties) were in line with last 
quarter. 
 
Revenue per tonne of product sold varies significantly each quarter, with the 
number of bulk rutile sales during that quarter being the primary factor.  In a 
normal year, there are usually seven or eight bulk rutile sales of 
approximately 10kt each, which means any given quarter will typically contain 
either one or two of these sales.  As annual rutile sales account for 
approximately 40% of revenue but only 15% of volume, the number of bulk rutile 
sales in a quarter has a significant bearing on revenue, but not sales volume. 
The September quarter had only one bulk rutile sale taking total rutile sales 
to 12.6kt, lower than the prior quarter's 27.8kt total rutile sales due to 
shipment timing.  When combined with the reduced ilmenite price and higher 
zircon prices achieved in the quarter, the average revenue per tonne decreased 
to US$271 per tonne (US$297 last quarter). 
 
KWALE PHASE 2 MINE OPTIMISATION PROJECT 
 
To counter declining ore grades expected from mid-2018 onwards, and to fully 
exploit the increase in MSP capacity now available, the Board approved, in May 
2017, the implementation of the Kwale Phase 2 ("KP2") Project (refer to the 
announcement on 23rd May 2017(3)). 
 
[Note (3):   Refer to announcement "Board approves Kwale Phase 2 mine 

optimisation project to deliver enhanced economics" released on 23rd May 2017, 
which is available at http://www.baseresources.com.au/investor-centre/ 
asx-releases/ or through Base Resources' AIM Rule 26 web page.] 
 
The KP2 Project aims to maximise HMC feed to the MSP, and therefore maintain 
final production volumes at around current levels for the remaining life of 
mine, by increasing mining rates as ore grade declines.  This will be achieved 
through increasing the hydraulic mining capacity to three 800tph HMUs, while 
gradually phasing out the existing dozer trap mining unit ("DMU").  The 
combined mining rate will therefore increase to 2,400tph, representing an 
uplift of 60% compared to the 1,501tph achieved in the current quarter.  The 
WCP and water supply infrastructure are being upgraded in parallel to 
accommodate the higher mining rates. 
 
Construction is on track for completion in the June quarter of 2018.  The 
implementation schedule will see the second and third 800tph HMUs commissioned 
in the June quarter of 2018.  The three HMUs will ramp up to full capacity 
through the course of 2018, with the DMU gradually being phased out over the 
same period. 
 
Engineering and design work for the transition of mining from the Central Dune 
to the South Dune will commence in mid-2018, with construction completion 
scheduled for the second half of 2019. 
 
FY2018 PRODUCTION GUIDANCE                           Previous FY2018       New FY2018 
                                                      Guidance Range     Guidance Range 
 
Rutile (tonnes)                                      88,000 to 94,000       no change 
 
Ilmenite (tonnes)                                   400,000 to 430,000 420,000 to 450,000 
 
Zircon (tonnes)                                      32,000 to 37,000   33,000 to 38,000 
 
Zircon contained in zircon low grade (tonnes)         1,500 to 2,500        no change 
 
The above production guidance is based on the following assumptions for FY2018: 
 
  * Mining of 10.6Mt (previously 10.2Mt) at an average HM grade of 7.50% 
    (previously 7.32%), all from Ore Reserves(4). 
  * MSP feed rate at an average of 91tph (previously 89tph), consistent with 
    recent performance. 
  * MSP product recoveries of 100% for ilmenite and 99% for rutile, and 77% for 
    zircon, consistent with past performance and anticipated recovery 
    improvements from ongoing MSP optimisations. 
 
[Note (4):   The Ore Reserves estimates underpinning the above production 
targets were prepared by Competent Persons in accordance with the JORC Code 
(2012 edition).  The above production targets are the result of detailed 
studies based on the actual performance of the Kwale mine and processing 
plant.  These studies include the assessment of mining, metallurgical, ore 
processing, environmental and economic factors.] 
 
MARKETING 
 
The global TiO2 pigment industry continued its strength through the quarter. 
High plant utilisation rates and low inventory levels among the major western 
pigment producers have led to further price improvement - with the latest round 
of pigment price increases to take effect from the beginning of the December 
quarter.  However, a build-up of Chinese pigment stocks towards the end of the 
June quarter resulted in Chinese domestic pigment prices retreating from the 
very high levels they had reached to that point.  This, in turn, tempered 
demand for ilmenite in China at the same time as domestic and imported ilmenite 
supply was increasing, leading to ilmenite price discounting in China during 
the early part of this quarter. 
 
Chinese domestic ilmenite production dropped sharply through July and August on 
the back of renewed central government environmental inspections.  Ilmenite 
supply from Vietnam into China has also decreased significantly since June, as 
it appears that export quotas from the Vietnamese government have finally been 
exhausted with no new quotas being issued at this time.  These supply 
constraints, when combined with improving ilmenite demand from increased 
pigment production during the seasonally strong northern Autumn, has seen 
ilmenite prices begin to move upwards again through the latter part of the 
September quarter and into the December quarter.  It is expected that prices 
will experience continued modest improvement through the December quarter. 
 
An emerging supply deficit in the high-grade feedstock sector (which includes 
rutile) is resulting in continued upward price momentum.  Contract renewals for 
sales of bulk rutile to large mainstream customers in the second half of 
calendar year 2017 are reported to be at price premiums in the order of 10%. 
However, overall average market prices are constrained by the fact that most of 
the global high-grade feedstock volume was contracted on a 12-month fixed price 
basis for the 2017 calendar year - a common practice for high grade feedstocks 
in recent years. 
 
Zircon demand was again strong through the September quarter with enquiries and 
volumes requested from customers continuing to exceed the Company's capacity to 
supply.  Lower than anticipated global zircon supply, from both inventories and 
ongoing production, for calendar 2017 has led to an increasingly tight market 
and solid price improvement since the start of the year.  Base Resources has 
secured an increase of US$150 per tonne on zircon contracts for the December 
quarter - making a total gain of US$300 per tonne or 34% since the end of 
FY2017.  It is expected that prices will stabilise into the seasonally quieter 
March quarter 2018. 
 
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 10.4 million man-hours LTI free, with 
the last LTI recorded in the March quarter of 2014.  The total recordable 
injury frequency rate ("TRIFR") remained steady at 0.7 per 1 million man-hours 
worked. 
 
COMMUNITY AND ENVIRONMENT 
 
Agricultural livelihood programmes, run in conjunction with partners Business 
for Development, DEG, FMO, Australia's DFAT and Kenya Red Cross, continue to 
develop with encouraging support from both national and county Kenyan 
governments.  These programmes, covering cotton, potato, sorghum and poultry, 
now involve around 900 smallholder farmers and community groups, with the 
ultimate aim being to establish new agricultural opportunities that will 
provide economic growth well beyond the life of mining activities. 
 
Development of the farmers' cooperative to manage these programmes as they 
expand is progressing well with the recent appointment of the CEO and finance 
officer and a range of capacity building training programmes underway. The 
proceeds from the agricultural programmes are now being managed by the 
cooperatives, together with preparations for next planting season. 
 
Rehabilitation of the TSF slopes continues with encouraging success.  Rainfall 
received during the quarter ensured good vegetative growth and erosion control 
measures worked well.  Irrigation will be installed during the next quarter to 
ensure sustainability as the dry season approaches.  Local women's groups have 
continued to provide materials and labour, injecting significant incomes into 
villages surrounding the mine site. 
 
Base Resources participated in the 2017 Mombasa International Show run by the 
Agricultural Society of Kenya and won first prize in the Best Local Stand in 
Strategies of International Trade and Export category.  It was an excellent 
opportunity to showcase Base Resources' agricultural livelihood programmes and 
engage with the public from across the region regarding mining and its links to 
community development. 
 
BUSINESS DEVELOPMENT 
 
EXTENSIONAL EXPLORATION - KENYA 
 
As announced on 4th October 2017(5) an updated Mineral Resource estimate for 
the Kwale South Dune (the "2017 Kwale South Dune Mineral Resource") has been 
completed, incorporating the results of an extensional and infill drill 
programme completed earlier this year.  The updated Kwale South Dune Mineral 
Resource delivered a: 
 
  * 19% or 560kt increase in contained in situ HM within the Measured and 
    Indicated categories. 
  * 29% increase in overall Mineral Resource tonnes to 114.1Mt. 
  * 13% increase in contained in situ HM to 3.47Mt. 
  * Significant increase in confidence with 76% of the heavy mineral tonnes now 
    within the Measured category. 
 
The next phase of extensional exploration drilling at Kwale Operations is 
anticipated to commence early in 2018 in the North-East Sector, adjacent to the 
Kwale Central Dune. 
 
[Note (5):  Refer to announcement "Mineral Resource Increase for Kwale South 
Dune" released on 4 October 2017, which is available at http:// 
www.baseresources.com.au/investor-centre/asx-releases/ and Base Resources' AIM 
Rule 26 web page.  The Company confirms that it is not aware of any new 
information or data that materially affects the information included in this 
ASX announcement and that all material assumptions and technical parameters 
underpinning the Mineral Resource estimates in this announcement continue to 
apply and have not materially changed.] 
 
EXPLORATION - TANZANIA 
 
The Company holds five prospecting licences in northern Tanzania with a 
combined area of 475km2. 
 
The necessary consents and clearances ahead of a planned preliminary drilling 
programme across all five licences are in place.  Field work is planned to 
start in the December quarter subject to drilling rig availability. 
 
Total exploration expenditure for the quarter, across all licences in Kenya and 
Tanzania, was US$0.1 million. 
 
CORPORATE 
 
KENYAN VAT RECEIVABLE 
 
As previously announced, Base Resources has refund claims for VAT paid in 
Kenya, relating to both the construction of the Kwale Project and the period 
since operations commenced, totalling approximately US$21.1 million at 30 
September 2017.  These claims are proceeding through the Kenya Revenue 
Authority process, although no refunds were received during the quarter (US$0.3 

million last quarter).  Base Resources is continuing to engage with the Kenyan 
Treasury and the Kenya Revenue Authority, seeking to expedite the remainder of 
the refunds. 
 
In summary, at 30 September 2017: 
 
  * Net debt of US$86.6 million, consisting of: 
      + Cash and cash equivalents were US$28.3 million (unrestricted) and an 
        additional US$26.2 million (restricted - debt service reserve account). 
      + Debt of US$141.2 million. 
  * 742,231,956 shares on issue. 
  * 61,425,061 options (exercise price of A$0.40, expiring 31 December 2018). 
  * 67,088,421 performance rights issued pursuant to the terms of the Base 
    Resources Long Term Incentive Plan. 
 
ENDS. 
 
CORPORATE PROFILE 
 
Directors 
Keith Spence (Non-Executive Chairman) 
Tim Carstens (Managing Director) 
Colin Bwye (Executive Director) 
Sam Willis (Non-Executive Director) 
Michael Stirzaker (Non-Executive Director) 
Malcolm Macpherson (Non-Executive Director) 
 
Company Secretary 
Chadwick Poletti 
 
NOMINATED ADVISOR & BROKERS 
RFC Ambrian Limited 
As Nominated Adviser: 
Andrew Thomson / Stephen Allen 
Phone: [phone] 
As Joint Broker: 
Jonathan Williams 
Phone: [phone] 
 
Numis Securities Limited 
As Joint Broker: 
John Prior / James Black / Paul Gillam 
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 / 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 12, 2017 01:14 ET (05:14 GMT)