Base Resources Limited Quarterly Activities Report - June 2018

 
TIDMBSE 
 
AIM and Media Release 
 
25 July 2018 
 
BASE RESOURCES LIMITED 
Quarterly Activities Report - June 2018 
 
HIGHLIGHTS 
 
  * Further strengthening of rutile and zircon prices. 
  * Record rutile production for the quarter of 24,451 tonnes. 
  * Successful ramp up of mining operations following commissioning of Kwale 
    Phase 2 optimisation project. 
  * No lost time or medical treatment injuries. 
  * Production for financial year 2018 consistent with guidance for all 
    products. 
  * Near mine exploration drilling continued to the north-east of Kwale 
    Operations. 
  * Appointment of a Mineral Technologies and Lycopodium partnership to deliver 
    the Toliara Project PFS which is now underway. 
  * Net debt further reduced by US$27.6 million to US$33.2 million. 
  * Production guidance for financial year 2019: 
      + Rutile - 88,000 to 93,000 tonnes 
      + Ilmenite - 420,000 to 450,000 tonnes 
      + Zircon - 32,000 to 37,000 tonnes 
 
"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. 
 
African mineral sands producer, Base Resources Limited (ASX & AIM: BSE) (Base 
Resources or the Company) is pleased to provide a quarterly corporate, 
development and operational update. At its Kwale Mineral Sands Operations ( 
Kwale Operations) in Kenya, the focus has been on ramping up mining rates and 
optimising the wet concentrator plant (WCP) recoveries following commissioning 
of the Kwale Phase 2 (KP2) upgrade.  The Company continued activity on its 
Toliara mineral sands project (Toliara Project) in the south-west of Madagascar 
with the appointment of a Mineral Technologies and Lycopodium partnership to 
deliver the Pre-Feasibility Study (PFS).  On the marketing front, pricing for 
rutile and zircon continued to strengthen during the quarter. 
 
KWALE OPERATIONS 
 
 
PRODUCTION             June 2017     Sept 2017     Dec 2017      Mar 2018      June 2018 
& SALES                 Quarter       Quarter       Quarter       Quarter       Quarter 
 
Production (tonnes) 
 
Ilmenite                119,364       119,376       119,209       111,630       114,773 
 
Rutile                  22,762        22,789        22,798        21,634        24,451 
 
Zircon                   8,375         9,136         9,569         9,166         9,286 
 
Zircon low grade[1]      3,026         1,425           -             -             - 
 
Sales (tonnes) 
 
Ilmenite                142,405       106,260       119,554       140,665       107,170 
 
Rutile                  27,779        12,594        25,377        25,526        25,635 
 
Zircon                   8,540         9,283         8,144         9,884         9,007 
 
Zircon low grade1        3,045           -           3,287           -             - 
 
[Note (1):  Zircon low grade tonnes contained in concentrate, equivalent to 
approximately 70-80% of the value of primary zircon.] 
 
Following the successful commissioning of a second hydraulic mining unit (HMU) 
and upgraded WCP as part of the KP2 mine optimisation project, the Company is 
pleased to report achieving nameplate mining and WCP throughput rates of 
2,400tph. 
 
The second HMU is an upgraded version of the first HMU and operated at an 
average mining rate of 865tph in the quarter, compared to a design rate of 
800tph.  With three mining units operating in the quarter (two HMUs and one 
dozer mining unit (DMU)) a record mining volume was achieved, despite reduced 
mining in April due to KP2 commissioning.  A third and final HMU was 
commissioned in July, and consequently the DMU has been removed from current 
service but remains on hand and available, if required. 
 
Following the KP2 WCP upgrade, which included a 69% increase in spiral 
capacity, recoveries of heavy minerals (HM) to concentrate have been slightly 
below design levels but ongoing optimisation at the higher throughput rates and 
lower grades continue to yield improvements. 
 
MINING & WCP PERFORMANCE   June 2017     Sept 2017     Dec 2017      Mar 2018      June 2018 
                            Quarter       Quarter       Quarter       Quarter       Quarter 
 
Ore mined (tonnes)         2,975,694     3,023,550     2,882,529     1,883,159     3,543,430 
 
HM %                         8.40          8.01          7.61          6.88          6.36 
 
HMC produced (tonnes)       232,574       238,580       196,725       125,298       192,559 
 
WCP production of heavy mineral concentrate (HMC) for the quarter increased to 
193kt (125kt last quarter, low due to the KP2 shutdown) as mining volumes 
increased.  HMC stockpiles drawn down during the quarter as result of the KP2 
commissioning were rebuilt to 78kt by quarter end (77kt at the end of March 
quarter) as mining and HMC production increased. 
 
The tailings storage facility (TSF) sand wall stacking, lining and slimes 
deposition continued according to plan, with the final wall lift nearing 
completion.  Sand stacking continued in the mined-out area of the Central 
Dune.  Rehabilitation of the TSF outer wall continued during the quarter, 
albeit at a slower rate due to the heavy rains associated with the main wet 
season. 
 
Good rains were received during the quarter, resulting in the Mukurumudzi Dam 
reaching its full capacity of 8.6GL and spilling in June. 
 
MSP PERFORMANCE            June 2017     Sept 2017     Dec 2017      Mar 2018      June 2018 
                            Quarter       Quarter       Quarter       Quarter       Quarter 
 
MSP Feed (tonnes of HMC)    192,432       190,499       190,798       180,128       192,376 
 
MSP feed rate (tph)           92            91            91            92            90 
 
MSP recovery % 
 
Ilmenite                      101           100           100           101           100 
 
Rutile                        98            100           100           99            101 
 
Zircon                        73            75            77            78            79 
 
Mineral separation plant (MSP) availability was extremely good at 98% (91% last 
quarter) with a total of 192.3kt of HMC processed (180.1kt last quarter).  All 
MSP recoveries were at or above design levels and production of all finished 
products was higher than the prior quarter as a result of the higher 
throughput. 
 
Bulk loading operations at the Company's Likoni Port facility continued to run 
smoothly, dispatching more than 130kt of ilmenite and rutile during the quarter 
(162kt last quarter).  Containerised shipments of rutile and zircon through the 
Mombasa Port proceeded according to plan. 
 
SUMMARY OF UNIT COSTS               June 2017   Sept 2017   Dec 2017    Mar 2018    June 2018 
& REVENUE PER TONNE (US$)            Quarter     Quarter     Quarter     Quarter     Quarter 
 
Unit operating costs per tonne         $96         $90         $92         $98        $102 
produced 
 
Unit cost of goods sold per tonne     $103        $107        $120        $114        $143 
sold 
 
Unit revenue per tonne of product     $297        $285        $344        $314        $376 
sold 
 
Revenue:Cost of goods sold ratio       2.9         2.7         2.9         2.8         2.6 
 
Total operating costs were 10% higher than recent quarters due to the increase 
in mining and processing volumes and the recognition of typical end of 
financial year costs.  Unit operating cost of US$102 per tonne produced 
(rutile, ilmenite and zircon) higher than both the prior quarter (US$98 per 
tonne) and the same quarter in the prior year (US$96 per tonne) due to the 
higher overall operating costs associated with the increased mining and 
processing volumes.  Cost of goods sold of US$143 per tonne sold (operating 
costs, adjusted for stockpile movements, and royalties) was higher than last 
quarter due to product sales mix (proportionally more high value rutile and 
zircon) and the associated cost allocation. 
 
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 10-12kt 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 June quarter had two bulk rutile sales taking total rutile sales to 25.6kt, 
in line with last quarter's 25.5kt total rutile sales.  Higher rutile and 
zircon prices together with significantly lower ilmenite sales volume this 
quarter has resulted in the average revenue per tonne increasing to US$376 per 
tonne (US$314 last quarter). 
 
MINING TRANSITION TO SOUTH DUNE 
 
Engineering work and procurement commenced during the quarter for the planned 
transition of mining from the Central Dune to the South Dune in July 2019.  The 
total cost of works for the mine move are forecast to be US$12.3 million to be 
incurred over FY2019.  Negligible costs were incurred during the June quarter. 
 
FY2019 PRODUCTION GUIDANCE                FY2017           FY2018             FY2019 
                                          Actual           Actual         Guidance Range 
 
Rutile (tonnes)                           90,625           91,672        88,000 to 93,000 
 
Ilmenite (tonnes)                        467,359          464,988       420,000 to 450,000 
 
Zircon (tonnes)                           34,228           37,157        32,000 to 37,000 
 
Zircon contained in zircon low grade      10,210           1,425               Nil2 
(tonnes) 
 
[Note (2):  No production of zircon low grade is anticipated for FY2019.] 
 
The above production guidance is based on the following assumptions for 
financial year 2019 (FY2019): 
 
  * Mining of 18.3Mt at an average HM grade of 3.98%, all from Ore Reserves3. 
    Forecast mining volumes are significantly higher than FY2018 (11.3Mt) 

    facilitated by the addition of a third mining unit as part of the KP2 
    upgrade project to offset declining ore grades. 
 
  * MSP feed rate at an average of 89tph, consistent with recent performance. 
 
  * MSP product recoveries of 100% for ilmenite, 99% for rutile and 77% for 
    zircon, consistent with recent performance. 
 
[Note (3):  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 remained buoyant, as expected, through the 
seasonally strong June quarter.  High plant utilisation rates and low inventory 
levels among major western pigment producers continue to support a strong 
pigment pricing environment.  Pigment producers in China, whilst targeting 
maximum output levels, have been somewhat hampered in recent months by renewed 
environmental inspection shutdowns by local authorities. 
 
Demand for ilmenite from the Chinese pigment industry continues to be volatile, 
caused by the impact of periodic environmental inspections on both domestic 
ilmenite producers and pigment producers.  Chinese domestic ilmenite production 
was restricted during the second half of the quarter as a result of 
environmental inspections and in response to softer demand from pigment 
producers affected by environmental shutdowns.  Imports of ilmenite to China 
from Vietnam and India continue to be restrained due to political factors and 
lower market prices.  Ilmenite prices decreased slightly during May but have 
remained stable through to the start of July.  It is expected ilmenite prices 
will remain steady through the September quarter with the potential for upside 
if Chinese pigment prices increase and/or Chinese pigment output from major 
producer's trends back towards maximum capacity. 
 
A supply deficit in the high-grade feedstock sector (which includes rutile), 
driven mostly by the strength in the western chloride pigment sector, has seen 
market conditions continue to tighten.   Most recently, a major producer has 
announced that it has applied a 14% price increase for contracted rutile sales 
in the second half of 2018. 
 
Zircon demand continued to be strong through the June quarter with volumes 
requested by customers remaining well above the Company's capacity to supply. 
Indications of ongoing tight supply from major zircon sources through 2018 have 
supported further substantial zircon price increases.  Base Resources has again 
secured significant price gains on zircon contracts for the September quarter. 
Concerns from zircon producers in relation to the potential for substitution or 
thrifting of zircon by customers may begin to restrain the extent and/or 
frequency of price increases going forward. 
 
SAFETY 
 
With no lost time or medical treatment injuries occurring during the quarter or 
in the past year, Kwale Operations' lost time injury frequency rate (LTIFR) and 
total recordable injury frequency rate (TRIFR) are both now zero, an 
exceptional performance reflective of the ongoing focus and importance placed 
on safety by management.  Base Resources' employees and contractors have now 
worked 13.2 million man-hours LTI free, with the last LTI recorded in 2014. 
 
COMMUNITY AND ENVIRONMENT 
 
Agricultural livelihood programs, 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 programs, covering cotton, potato, sorghum, legumes, bee 
keeping and poultry, have expanded to involve around 2,500 smallholder farmers 
and community groups with early and persistent rains in the quarter 
contributing to good results. 
 
Sorghum harvest and commercial sales continue with a large Kenyan brewing 
company and a solid relationship is developing between the farmers' cooperative 
and the brewer.  Further training has been provided by the brewer to help lift 
product quality in their campaign to increase locally sourced produce. 
 
Cotton is also growing well this season with harvest anticipated in the 
September quarter.  In June, the Kwale Cotton project was shortlisted for the 
Unilever Global Development Award out of hundreds of applicants. 
 
A recently announced Kenyan national development initiative, known as the "Big 
Four Agenda", has identified the cotton value chain as a major element to 
achieving one of its key pillars - jobs growth by increasing local 
manufacturing.  As a result, the government is directing significant resources 
to the growth of cotton farming nationwide, together with assisting the PAVI 
farmers' cooperative with construction of cotton processing and storage 
facilities to help farmers release additional value from their crops. 
 
Rehabilitation of the TSF wall is underway with over 8 hectares revegetated so 
far. 
 
BUSINESS DEVELOPMENT 
 
TOLIARA SANDS DEVELOPMENT - MADAGASCAR 
 
Base Resources' development plan is on track to complete a full study phase 
ahead of a decision to proceed to construction in the second half of calendar 
year 2019 (H2 CY19).  This timetable could be expected to see the Toliara 
Project in production in H2 CY21. 
 
During the quarter, the high-level concept study to identify and assess various 
enhancement options was completed, with a short list taken forward for 
evaluation during the PFS. 
 
A Mineral Technologies and Lycopodium partnership (MTL) was appointed as 
engineering consultants to deliver the PFS4.  The PFS is progressing to plan 
with a range of mining, processing and infrastructure options being evaluated 
with the aim of selecting the preferred development option by the end of the 
September quarter and the full PFS targeted for completion in Q1 CY19.  The 
definitive feasibility study (DFS) completion is expected in Q3 CY19. 
 
A number of long lead activities progressed during the quarter which will feed 
into the PFS and the DFS, including: 
 
  * A 115-tonne bulk sample arrived at Mineral Technologies in Brisbane and a 
    full program of wet and dry plant testwork, which will inform process flow 
    sheet design, is progressing to plan. 
 
  * The appointment of Wallis Drilling to complete a drilling program to define 
    the boundaries of the Mineral Resource, upgrade the existing Inferred 
    Resource to Indicated status, and complete an Ore Reserve 
    estimation.Drilling commenced in July. 
 
  * A site visit by MTL to plan further geotechnical investigations. 
 
The September quarter will focus on completion of the evaluation of mining, 
processing and infrastructure options and will see commencement of a number of 
activities including: 
 
  * Bathymetric survey of the sea bed for the proposed port jetty. 
 
  * Further geotechnical investigations for the port, mine site, haul road and 
    river crossing. 
 
  * Infill aerial survey for infrastructure planning. 
 
Total expenditure on the Toliara Project for the June quarter was US$1.5 
million. 
 
[Note (4) Refer to Base Resources' market announcement "Appointment of a 
Mineral Technologies and Lycopodium partnership to deliver PFS" released on 15 
May 2018, which is available at http://www.baseresources.com.au/investor-centre 
/asx-releases.] 
 
EXTENSIONAL EXPLORATION - KENYA 
 
As announced on 4th October 20175, an updated Mineral Resource estimate for the 
Kwale South Dune (the 2017 Kwale South Dune Mineral Resource) was completed, 
resulting in a 19% increase in contained in situ HM in the Measured and 
Indicated categories.  Completion of an updated Ore Reserve based on the 2017 
Kwale South Dune Mineral Resource is subject to finalisation of mining tenure 
arrangements, which are currently being progressed with the Kenyan Ministry of 
Petroleum and Mining. 
 
The next phase of extensional exploration drilling at Kwale Operations 
commenced in April in the North-East Sector of the Company's Kwale Special 
Prospecting License (SPL) 173, adjacent to the Kwale Operation's Central Dune. 
At quarter end, 274 holes for 3,835 metres have been drilled.  Completion of 
the remaining drilling program (4,200 metres) in this area is currently 
suspended whilst community access issues are being resolved.  Drill assay 
results from work completed to date are expected to be available in the 
September quarter. 
 
During the quarter, the Company commenced a re-evaluation, including infill 
drilling, of the higher-grade areas of the North Dune, motivated by an improved 
economic environment, refined resource definition methodology and insights from 
five years of operations on the Central Dune.  At quarter end, 36 holes for 
2,450 metres have been drilled and a further 14,000 metres is planned for the 
coming quarter.  The North Dune is currently not included in the Kwale Mineral 
Resources. 
 
The Company's Vanga SPL application has been approved by the Mineral Rights 
Board and is awaiting issuance.  Once issued, the planned drilling program will 
be scheduled to follow on from the North Dune and North-East Sector drilling. 
 
[Note (5) Refer to Base Resources market 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, which contains 
the JORC competent persons statement for this estimate of Mineral Resource. 
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.  A stratigraphic drilling program across all five 
licences was completed during the prior quarter to enhance understanding of the 
area's geology, marine sequences and potential to host heavy mineral.  Drill 
samples have been analysed at the Kwale Operations laboratory and key findings 
are as follows: 
 
  * The red sand dunal deposits are very shallow (1-6m) and overlie a limestone 
    base (Tanga terrace). 
  * The dunal deposits are weakly mineralised and are high in slime content 
    (average of about 50%). 
  * Below the limestone base (approx. 50m) lies a mineralised paleo-strand 
    deposit. 
  * Microscopic analysis of the deep mineralised zone indicates that most of 
    the HM is dominated by garnets and staurolite with low valuable HM content. 
 
Based on these results, it is unlikely the Company will pursue further 
exploration on these licences. 
 
Total exploration expenditure for the quarter, across all licences in Kenya and 
Tanzania, was US$0.4 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$21.3 million at 30 June 
2018.  These claims are proceeding through the Kenya Revenue Authority process 
and refunds totalling US$1.4 million were received during the quarter (nil 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 June 2018: 
 
  * Net debt of US$33.2 million, consisting of: 
      + Cash and cash equivalents were US$29.7 million (unrestricted) and an 
        additional US$29.6 million (restricted - debt service reserve account). 
      + Debt of US$92.5 million (Kwale Project Debt Facility US$80.0 million 
        and Corporate RCF US$12.5 million). 
  * 1,127,575,014 shares on issue. 
  * 61,425,061 options (exercise price of A$0.40, expiring 31 December 2018). 
  * 71,281,661 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) 
Diane Radley (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: 
Charlie Cryer 
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 
Andrew Rowell 
[e-mail] 
Phone: [phone] 
 
UK MEDIA RELATIONS 
Tavistock Communications 
Jos Simson / Barnaby Hayward 
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

July 25, 2018 02:00 ET (06:00 GMT)