Base Resources Limited Quarterly Activities Report September 2018

 
TIDMBSE 
 
AIM and Media Release 
 
18 October 2018 
 
BASE RESOURCES LIMITED 
Quarterly Activities Report - September 2018 
 
HIGHLIGHTS 
 
  * Mined ore tonnes increased by 35% in the quarter following the successful 
    implementation of the Kwale Phase 2 mine optimisation project. 
  * Record production of 25,125 tonnes rutile and 9,683 tonnes of zircon for 
    the quarter. 
  * Continued strengthening of rutile and zircon prices. 
  * No lost time or medical treatment injuries. 
  * Exploration drilling at Kwale Operations North Dune completed. 
  * Preferred development options for mining, processing and infrastructure 
    selected for the Toliara Project. 
  * Net debt reduced by US$9.4 million to US$23.8 million. 
  * Kwale Project Debt Facility retired 20 months ahead of schedule 
 
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. 
 
The main focus at the Kwale Mineral Sands Operations (Kwale Operations) in 
Kenya, was ongoing optimisation of the recently upgraded wet concentrator plant 
(WCP) recoveries and preparation for relocating mining operations to the South 
Dune in July 2019, together with exploration drilling programs in pursuit of 
mine life extensions. 
 
The Company progressed its Toliara mineral sands project (Toliara Project) in 
the south-west of Madagascar with a range of mining, processing and 
infrastructure options evaluated and preferred development options selected in 
the quarter.  The project remains on track to complete the Pre-Feasibility 
Study in Q1 2019, ahead of a Definitive Feasibility Study phase and planned 
decision to proceed to construction in Q4 2019. 
 
Graphics referenced in this release have been omitted.  A full PDF version of 
this release, including all graphics, is available from the Company's website: 
www.baseresources.com.au. 
 
KWALE OPERATIONS 
 
PRODUCTION             Sept 2017     Dec 2017      Mar 2018      June 2018     Sept 2018 
& SALES                 Quarter       Quarter       Quarter       Quarter       Quarter 
 
Production (tonnes) 
 
        Ilmenite        119,376       119,209       111,630       114,773       118,265 
 
        Rutile          22,789        22,798        21,634        24,451        25,125 
 
        Zircon           9,136         9,569         9,166         9,286         9,683 
 
Zircon low grade[1]      1,425           -             -             -             - 
 
Sales (tonnes) 
 
        Ilmenite        106,260       119,554       140,665       107,170       107,632 
 
        Rutile          12,594        25,377        25,526        25,635        23,580 
 
        Zircon           9,283         8,144         9,884         9,007         8,507 
 
        Zircon low         -           3,287           -             -             - 
grade[1] 
 
[Note (1):  Zircon low grade tonnes contained in concentrate, equivalent to 
approximately 70-80% of the value of primary zircon.] 
 
Mining continued in the Central Dune with three hydraulic mining units fully 
commissioned and operating above design mining rates by quarter end.  Mined 
grades were lower, as expected, with all mining located on the western and 
northern fringes of the orebody.  Following the Kwale Phase 2 wet concentrator 
plant upgrade completed in March 2018, which included a 69% increase in spiral 
capacity, recoveries of heavy minerals (HM) to concentrate are now achieving 
design levels. 
 
MINING & WCP PERFORMANCE   Sept 2017     Dec 2017      Mar 2018      June 2018     Sept 2018 
                            Quarter       Quarter       Quarter       Quarter       Quarter 
 
Ore mined (tonnes)         3,023,550     2,882,529     1,883,159     3,543,430     4,791,969 
 
HM %                         8.01          7.61          6.88          6.36          4.78 
 
HMC produced (tonnes)       238,580       196,725       125,298       192,559       199,079 
 
Wet concentrator plant production of heavy mineral concentrate (HMC) for the 
quarter increased to 199kt (193kt last quarter) despite lower feed grades as 
mining volumes increased.  Heavy mineral concentrate stockpiles increased from 
78kt to 86kt by quarter end.  Construction of the tailings storage facility 
outer sand wall was completed in the quarter and the facility now has 
sufficient capacity to accommodate slimes impoundment for the remainder of the 
current life of mine.  Following completion of the tailings storage facility 
outer wall, all sand tails are now being deposited into the mined-out area of 
the Central Dune, representing the first stage of rehabilitation in this 
section. 
 
Good rains continued throughout the quarter with the Mukurumudzi Dam remaining 
full. 
 
MSP PERFORMANCE            Sept 2017     Dec 2017      Mar 2018      June 2018     Sept 2018 
                            Quarter       Quarter       Quarter       Quarter       Quarter 
 
MSP Feed (tonnes of HMC)    190,499       190,798       180,128       192,376       194,311 
 
MSP feed rate (tph)           91            91            92            90            91 
 
MSP recovery % 
 
        Ilmenite              100           100           101           100           101 
 
        Rutile                100           100           99            101           99 
 
        Zircon                75            77            78            79            79 
 
Mineral separation plant (MSP) availability was good at 97% (98% last quarter) 
with a total of 194.3kt of heavy mineral concentrate processed (192.3kt last 
quarter).  All 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 and higher contained valuable heavy minerals in the feed.  A 
five day shutdown of the MSP planned in November for maintenance to the HMC 
dryer will impact production in the coming quarter. 
 
Bulk loading operations at the Company's Likoni Port facility continued to run 
smoothly, dispatching more than 128kt of ilmenite and rutile during the quarter 
(130kt last quarter).  Containerised shipments of rutile and zircon through the 
Mombasa Port proceeded according to plan. 
 
SUMMARY OF UNIT COSTS               Sept 2017   Dec 2017    Mar 2018    June 2018   Sept 2018 
& REVENUE PER TONNE (US$)            Quarter     Quarter     Quarter     Quarter     Quarter 
 
Unit operating costs per tonne         $90         $92         $98        $102        $103 
produced 
 
Unit cost of goods sold per tonne     $107        $120        $114        $143        $124 
sold 
 
Unit revenue per tonne of product     $285        $344        $314        $376        $354 
sold 
 
Revenue:Cost of goods sold ratio       2.7         2.9         2.8         2.6         2.8 
 
Total operating costs were marginally higher than last quarter with higher 
tonnes mined, but due to a similar increase in overall production volumes the 
unit operating cost of US$103 per tonne produced (rutile, ilmenite and zircon) 
remains in line with the prior quarter (US$102 per tonne).  Unit operating 
costs are higher than the same period last year (September 2017: US$90 per 
tonne) due to higher operating costs associated with a 60% increase in mining 
volume following implementation of the Kwale Phase 2 mine optimisation 
project.  Cost of goods sold of US$124 per tonne sold (operating costs, 
adjusted for stockpile movements, and royalties) was lower than last quarter 
due to an increase in finished product stocks, resulting in a re-allocation of 
US$1.8 million of operating costs (increase of US$1.5 million last quarter as 
stocks were reduced) from cost of goods sold to the finished product inventory 
asset. 
 
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 September quarter had two bulk rutile sales taking total rutile sales to 
23.6kt, lower than last quarter's 25.6kt total rutile sales.  Despite higher 
zircon prices in the quarter, lower rutile sales volume and weaker ilmenite 
prices have resulted in the average revenue per tonne decreasing to US$354 per 
tonne (US$376 per tonne last quarter). 
 
MINING TRANSITION TO SOUTH DUNE 
 
Engineering work, procurement, clearing and earthworks for the planned 
transition of mining from the Central Dune to the South Dune in July 2019 
continued with orders placed for all major items of equipment.  The total cost 
of works for the mine move are forecast to be US$12.3 million and will be 
incurred over financial year 2019 (FY19).  The project primarily involves the 
supply and installation of 7,400m of slurry and water piping, an 8,500m 11kV 
power line, a bridge across the Mukurumudzi Dam spillway, a 1.25MW slurry 
booster pump and a 1MW process water booster pump. 
 
Total expenditure on the mining transition to the South Dune for the September 
quarter was US$0.3 million. 
 
FY19 PRODUCTION GUIDANCE 
 
Kwale Operations production guidance for FY19 remains unchanged at: 
 
  * Rutile - 88,000 to 93,000 tonnes. 
  * Ilmenite - 420,000 to 450,000 tonnes. 
  * Zircon - 32,000 to 37,000 tonnes. 
 
The above production guidance is based on the following assumptions for FY19: 
 
  * Mining of 18.3Mt at an average heavy mineral grade of 3.98%, all from Ore 
    Reserves[2].Forecast mining volumes are significantly higher than FY18 
    (11.3Mt) facilitated by the addition of a third hydraulic mining unit as 
    part of the Kwale Phase 2 upgrade project to offset declining ore grades. 
  * Mineral separation plant feed rate at an average of 89tph, consistent with 
    recent performance. 

  * Mineral separation plant product recoveries of 100% for ilmenite, 99% for 
    rutile and 77% for zircon, consistent with recent performance. 
 
[Note (2):  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 titanium dioxide pigment industry remained firm through the quarter 
with most western pigment producers continuing to operate at, or near, 
capacity.  Following more than two years of continued quarterly growth, some 
major pigment producers indicated that prices were stabilising as consumption 
eased after the seasonally strong June quarter.  Pigment producers in China 
continue to target maximum output levels but remain hampered by periodic 
environmental inspection shutdowns. 
 
Demand for ilmenite from the Chinese pigment industry was steady through the 
quarter with growth being constrained by the impact of periodic environmental 
inspections on both domestic ilmenite suppliers and pigment producers, as well 
as the general economic uncertainties relating to trade tensions with the USA. 
Domestic ilmenite prices in China remained stable while a weakening RMB:USD 
exchange rate resulted in a slight erosion of the USD prices achieved for 
imported ilmenite  through the quarter.  The relative stability of both pigment 
and ilmenite pricing in China is expected to continue through Q4 2018. 
 
Supply constraints in the high-grade feedstock sector (which includes rutile), 
together with demand strength from all end use sectors, continued to support 
upward pricing momentum for rutile.  Improvement in rutile pricing was 
experienced through the quarter and further gains are expected to be achieved 
through the upcoming quarters. 
 
Zircon demand continued to be strong through the quarter with volumes requested 
by customers exceeding the Company's capacity to supply.  Ongoing tight supply 
from major zircon producers through 2018 have supported a series of substantial 
price increases, however, the economic uncertainties currently being 
experienced in China are leading to more modest price increases for Q4 2018. 
While zircon demand in China is softening on economic concerns, overall global 
demand remains very strong. 
 
SAFETY 
 
With no lost time or medical treatment injuries occurring during the quarter or 
in the past year, the Group's lost time injury frequency rate (LTIFR) and total 
recordable injury frequency rate (TRIFR) remain at zero, an exceptional 
performance reflective of the ongoing focus and importance placed on safety by 
management.  Base Resources' employees and contractors have now worked 14.1 
million man-hours LTI free, with the last LTI recorded in early 2014. 
 
COMMUNITY AND ENVIRONMENT 
 
Agricultural livelihood programs at Kwale, 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 have expanded to involve over 3,000 
smallholder farmers and community groups. 
 
Sorghum and cotton harvesting have both been affected by wet conditions, 
although the potato crop has benefitted from the rain with better yields than 
last year.  Beekeeping, pulses and poultry continue to add value to communities 
with poultry focused primarily on women in the household. 
 
Construction continues on the PAVI Business Park in Kwale, allocated to the 
cotton farmers' cooperative for the purposes of building processing and storage 
facilities that will enable farmers to realise additional value from their 
crop.  Discussions are underway with donor agencies to assist with associated 
activities. 
 
More than 150 tertiary scholarships were awarded to students from Kwale County 
in the quarter. 
 
Rehabilitation of the tailings storage facility outer sand wall is underway 
with approximately 25% revegetated so far.  Several different rehabilitation 
techniques have been trialled and are being implemented in the ongoing slope 
stabilisation process. 
 
At the Toliara Project, an integrated community development plan is being 
prepared in partnership with local authorities and communities. 
 
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 Q4 2019.  This timetable is 
expected to see the Toliara Project in production in Q4 2021. 
 
During the quarter, the Pre-Feasibility Study progressed with a range of 
mining, processing and infrastructure options evaluated and the preferred 
development options selected.  The full Pre-Feasibility Study is on target for 
completion in Q1 2019.  The Definitive Feasibility Study completion is expected 
in H2 2019. 
 
A number of long lead activities which feed into the Pre-Feasibility Study and 
the Definitive Feasibility Study were progressed during the quarter, including: 
 
  * Processing of the 100 tonne bulk sample excavated in Q1 2018 was undertaken 
    by Mineral Technologies in Australia, completing the wet concentrator plant 
    test work required for flowsheet design. 
  * Completion of the first 3,541 metres of the infill and resource definition 
    drill program. 
  * Development of environmental and social management plans have 
    commenced.Discussions with the University of Toliara commenced to conduct 
    environmental baseline studies in accordance with environmental approvals. 
  * The land acquisition program has progressed with land identification 
    completed, consultation on resettlement underway and establishment of the 
    land compensation committee in process. 
 
Progression of the Pre-Feasibility Study will be the primary focus in Q4 2018, 
including: 
 
  * Completion of the mineral separation plant test work and flowsheet design, 
    using the heavy mineral concentrate produced by the wet concentrator plant 
    testwork. 
  * Generation of marketing samples for each product from the mineral 
    separation plant test work. 
  * Update of the Ranobe deposit mineralogy. 
  * As land access allows, continue the drilling program, targeting an increase 
    in measured and indicated ore resources. 
  * Progress camp design and develop environmental management plan for early 
    camp construction. 
  * Finalising the learning and development strategy for training local staff 
    ahead of planned construction. 
 
Total expenditure on the Toliara Project for the September quarter was US$2.2 
million. 
 
It is noted that national elections will take place in Madagascar in the coming 
quarter, with the first round of voting on 7 November followed by an expected 
second round on 19 December. 
 
EXTENSIONAL EXPLORATION - KENYA 
 
Mining tenure arrangements are being progressed with the Kenyan Ministry of 
Petroleum and Mining as a precursor to an updated Ore Reserve based on the 
expanded 2017 Kwale South Dune Mineral Resource as announced on 4th October 
2017[3]. 
 
Extensional exploration drilling in the North-East Sector (now called Kwale 
East) of the Company's Kwale Special Prospecting License (SPL) 173, adjacent to 
the Kwale Operation's Central Dune, commenced in Q2 2018 with 274 holes for 
3,835 metres of drilling having been completed.  Completion of the remaining 
drilling program (4,200 metres) in this area remains suspended pending 
resolution of community access issues.  Drill assay results to date have shown 
potential for some limited extensional economic resource close to the Central 
Dune (Bumamani), but remains subject to more detailed evaluation. 
 
During the prior 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.  The drill program 
is now complete, with 573 holes for 20,598 metres drilled.  Drill assay results 
are expected to be available over the course of Q4 2018 and a Mineral Resource 
estimate for the North Dune is expected during Q1 2019. 
 
The Company's Vanga SPL application has been approved by the Mineral Rights 
Board and is awaiting issuance.  Once issued, the planned drilling program is 
scheduled to commence in Q1 2019. 
 
Expenditure on exploration activities in Kenya during the quarter were 
US$0.6 million. 
 
Following expiry of Kwale SPL 173 in May 2018, a new Prospecting Licence (PL 
2018/0119) for the area surrounding Kwale Operations has been offered by the 
Ministry of Mines for re-grant, following approval by the Mineral Rights Board, 
and is now awaiting issuance.  The new licence will be issued under the recent 
Mining Act 2016, which mandates that the size of the area in a prospecting 
licence be reduced by not less than half at each renewal date.  As such, the 
prospecting licence area will be reduced by 50% to 88km2 (refer to the below 
map).  The new prospecting licence will be valid for three years with the 
option to extend. 
 
[Note (3) 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.] 
 
CORPORATE 
 
EARLY RETIREMENT OF THE KWALE DEBT FACILITY 
 
On 9 October 2018, the Company repaid the outstanding balance of the US$215.0 
million Kwale Project Debt Facility (Project Debt Facility), 20 months ahead of 
schedule.  The Project Debt Facility was repaid from a combination of cash 
reserves and utilisation of the existing Revolving Credit Facility following a 
concurrent increase in the Revolving Credit Facility from US$30.0 million to 
US$75.0 million. 
 

Early retirement of the Project Debt Facility demonstrates the continued strong 
performance of Kwale Operations and, together with the increased Revolving 
Credit Facility, provides the group with additional funding flexibility, longer 
tenor and reduced debt servicing costs. 
 
At 30 June 2018, the Company had total debt outstanding of US$92.5 million, 
consisting of the Project Debt Facility of US$80.0 million and the Revolving 
Credit Facility of US$12.5 million.  Following repayment of the Project Debt 
Facility, the outstanding balance of the Revolving Credit Facility is US$48.1 
million. 
 
NET DEBT REDUCTION 
 
During the quarter, the Company's net debt reduced by US$9.4 million to US$23.8 
million.  The net debt reduction was lower than the prior quarter's US$27.6 
million, primarily due to lower sales revenue (US$3.7 million lower) and an 
increase in working capital (principally debtors due to timing of sales) of 
US$13.7 million (US$9.5 million reduction last quarter). 
 
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$22.9 million at 30 
September 2018.  These claims are proceeding through the Kenya Revenue 
Authority process, although no refunds were received during the quarter (US$1.4 
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 2018: 
 
  * Net debt of US$23.8 million, consisting of: 
      + Cash and cash equivalents were US$31.6 million (unrestricted) and an 
        additional US$29.7 million (restricted - debt service reserve account). 
      + Debt of US$85.0 million (Kwale Project Debt Facility US$72.5 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. 
 
Following vesting of performance rights on 4 October 2018, issued pursuant to 
the 2015 cycle of the Base Resources Long Term Incentive Plan, 1,166,623,040 
shares and 25,533,230 performance rights were on issue. 
 
ENDS. 
 
For further information contact: 
 
James Fuller, Manager - Communications and         UK Media Relations 
Investor Relations 
 
Base Resources                                     Tavistock Communications 
 
Tel: [phone]                             Jos Simson and Barnaby Hayward 
 
Mobile: [phone]                        Tel: [phone] 
 
Email: [e-mail] 
 
About Base Resources 
 
Base Resources is an Australian based, African focused, mineral sands producer 
and developer with a track record of project delivery and operational 
performance.  The Company operates the established Kwale Operations in Kenya 
and is developing the Toliara Sands Project in Madagascar.  Base Resources is 
an ASX and AIM listed company.  Further details about Base Resources are 
available at www.baseresources.com.au . 
 
PRINCIPAL & REGISTERED OFFICE            NOMINATED ADVISOR 
Level 1, 50 Kings Park Road              RFC Ambrian Limited 
West Perth, Western Australia, 6005      Andrew Thomson / Stephen Allen 
Email:  [e-mail]        Phone: [phone] 
Phone: [phone] 
Fax: [phone] 
 
 
 
END 
 

(END) Dow Jones Newswires

October 18, 2018 02:00 ET (06:00 GMT)