AIM
and Media Release
31 October 2023
Base
Resources Limited
Quarterly
Activities Report – September
2023
African
mineral sands producer, Base
Resources Limited (ASX &
AIM: BSE) (Base
Resources or
the Company)
is pleased to provide an operational, development and corporate
update for the quarter ended 30 September
2023.
Key Points
-
Prices for
ilmenite and rutile improved, while zircon prices softened on
sluggish demand.
-
Mineral
separation plant transitioned from continuous operation to campaign
processing, as planned, to ensure optimum product recoveries are
maintained as lower ore grades over the remainder of Kwale
Operations’ mine life constrain HMC production.
-
Kwale East
Phase 2 air core drilling program was discontinued after an
evaluation of the drill results to date concluded there is unlikely
to be sufficient volume or heavy mineral grade to support an
economically viable mining development.
-
A new
Mining Code has come into effect in Madagascar with fiscal provisions not
materially out of step with Toliara Project DFS
assumptions.
-
Engagement
with the Government on Toliara Project fiscal terms and lifting of
the project’s on-ground suspension has been limited, principally
due to preparations for the upcoming Presidential
elections.
The
incumbent President has declared his candidacy and officially
resigned on 9 September
2023.
KWALE
OPERATIONS Operational
performance
The Kwale
South and North Dunes continued to be mined concurrently during the
quarter, with two hydraulic mining units operating in each
area.
Mined
tonnage was steady at 4.1 million tonnes (Mt)
(last quarter: 4.1Mt).
Mining
rates in the North Dune improved during the quarter after the water
pressure for one of the hydraulic mining units was boosted from the
standard 25 bar to 32 bar.
A second
higher pressure hydraulic mining unit will be commissioned when
mining commences on the Bumamani deposit in the March quarter of
2024.
Consistent
with mine plan, the heavy mineral (HM)
grade of ore mined in the quarter was lower than last quarter at
2.5% (last quarter: 3.0%), and consequently, heavy mineral
concentrate (HMC)
production was lower at 84.8kt (last quarter: 103.2kt).
As ore
grades and HMC production will be lower for the remainder of Kwale
Operations’ mine life, the mineral separation plant
(MSP)
was transitioned, as planned, from continuous operations to
campaign processing to ensure optimum product recoveries are
maintained, with extended shuts between campaigns to allow HMC
stocks to rebuild.
The
combination of lower HMC production and MSP shuts reduced the HMC
fed to the MSP in the quarter to 71.6kt (last quarter: 106.1kt),
resulting in a corresponding fall in production for all
products.
Deposition
of sand tails into the mined out North Dune pit P199 commenced in
the quarter, with sand tails also continuing to be deposited on the
mined-out Central Dune area.
To aid
water retention and subsequent rehabilitation, the sand tails are
capped with a co-disposed slimes/sand layer.
Rehabilitation
activities on the Central Dune, South Dune and North Dune proceeded
to plan.
SUMMARY BY QUARTER
|
FY23
|
FY24
|
SEP
|
DEC
|
MAR
|
JUN
|
SEP
|
Mining
(million
tonnes)
|
Ore
mined
|
4.4
|
4.5
|
3.3
|
4.1
|
4.1
|
HM
%
|
3.8
|
4.0
|
3.9
|
3.0
|
2.5
|
VHM
%
|
2.9
|
3.1
|
3.1
|
2.3
|
1.9
|
|
|
|
|
|
|
Production
(thousand
tonnes)
|
Ilmenite
|
86.0
|
84.5
|
71.6
|
55.5
|
38.8
|
Rutile
|
18.9
|
19.5
|
16.6
|
13.8
|
9.6
|
Zircon
|
6.6
|
7.4
|
6.4
|
5.5
|
3.8
|
Low grade
products1
|
5.7
|
5.2
|
4.1
|
3.4
|
2.0
|
SUMMARY BY QUARTER
|
FY23
|
FY24
|
SEP
|
DEC
|
MAR
|
JUN
|
SEP
|
US$
per tonne
|
Sales
revenue
|
$714
|
$651
|
$637
|
$695
|
$1,029
|
Operating
costs
|
$154
|
$165
|
$190
|
$240
|
$343
|
Cost of
goods sold
|
$200
|
$191
|
$195
|
$263
|
$442
|
Revenue:
Cost ratio
|
3.6
|
3.4
|
3.3
|
2.6
|
2.3
|
Sales
(thousand
tonnes)
|
Ilmenite
|
62.6
|
74.1
|
86.2
|
74.6
|
11.1
|
Rutile
|
14.2
|
14.7
|
15.2
|
19.6
|
5.5
|
Zircon
|
6.2
|
5.0
|
7.4
|
6.6
|
3.9
|
Low grade
products1
|
4.5
|
4.7
|
5.3
|
3.2
|
2.0
|
[Note
(1): Low
grade products are a combination of low-grade zircon and low-grade
rutile which are sold separately at a discount to standard grade
products.]
Bulk
shipping operations at the Company’s Likoni export facility
continued to run smoothly, albeit at significantly lower volumes
with 11.0kt of bulk ilmenite dispatched (last quarter:
89.5kt).
Containerised
shipments of rutile and zircon through the Mombasa Port also
proceeded to plan.
Despite
lower production levels for the remainder of Kwale Operations’ mine
life, the Company plans to continue bulk shipments of ilmenite (up
to 54kt lots) and rutile (between 5-10kt lots), which will result
in greater volatility in quarterly sales volumes, as illustrated by
the sales volumes for this quarter.
Unit
operating costs have increased to US$343 per tonne produced (rutile, ilmenite,
zircon and low-grade products) (last quarter: US$240 per tonne) due to the lower
production.
Despite
this, total cash operating costs of US$18.6
million were marginally lower than the prior quarter (last
quarter: US$18.8 million).
Cost of
goods sold increased to US$442 per
tonne sold (operating costs, adjusted for stockpile movements, and
royalties) due to the higher unit operating costs and product sales
mix (last quarter: US$263 per tonne),
which also drove an increase in the average unit revenue
US$1,029 per tonne (prior quarter:
US$695 per tonne).
Consequently,
the revenue to cost of goods sold ratio for the quarter decreased
to 2.3 (last quarter: 2.6).
FY23
production and FY24 production guidance
Kwale
Operations FY24 production guidance is unchanged and remains as
follows2:
-
Rutile –
35,000 to 41,000 tonnes.
-
Ilmenite –
130,000 to 160,000 tonnes.
-
Zircon –
13,000 to 16,000 tonnes.
[Note
(2): Refer
to Base Resources’ announcement on 26 June
2023, “FY24 Production Guidance – Kwale Operations”, for the
assumptions upon which the guidance is based.]
MARKETING
Market
conditions became increasingly challenging through the September
quarter due to growing economic uncertainty and softening property
sectors across all key markets.
However,
firm demand continued for Base Resources’ products through the
quarter and sales were in line with
expectations.
Prices
held up well for ilmenite and rutile, but zircon prices moderated
due to the sluggish conditions that emerged during the latter part
of the June quarter.
Ilmenite
demand and prices in China
remained relatively stable through the quarter as major Chinese
pigment plants maintained high levels of
production.
The
domestic pigment market in China
was subdued through most of the quarter but saw a seasonal
improvement towards the end of the quarter.
Export
opportunities for Chinese pigment producers increased through the
quarter as significant pigment production capacity in Taiwan and Europe was closed.
Chloride
pigment producers in China, which
are reliant on imported ilmenite, continued to build and ramp up
new production capacity which supported demand for Base Resources’
ilmenite.
Major
western pigment producers have continued to sacrifice sales volumes
to support stable prices and, as a result, production rates were
well below capacity levels to avoid a build-up of inventory and
demand for high-grade titanium dioxide feedstocks was consequently
reduced.
While one
major high-grade feedstock producer has suspended production of
synthetic rutile for at least four months, which will assist in
offsetting the drop in demand, downward pressure on rutile prices
is expected to continue building.
Rutile
demand from the smaller welding and titanium metal sectors remained
firm in the quarter.
Sales into
these sectors command a significant price premium over bulk rutile
for the TiO2 pigment market, but this premium is expected to reduce
as some high-grade feedstock supply to the pigment sector is
re-directed to these sectors.
Base
Resources is maintaining its approach of increasing the proportion
of its rutile sales to the welding sector.
The
weakening conditions in the Chinese and European zircon markets
towards the end of the June quarter led to a reduction in
contracted zircon prices for September quarter.
Global
demand for zircon has continued to soften through the quarter and
prices will moderate further for December quarter
contracts.
SUSTAINABILITY
Health
and safety
There were
no lost time injuries during the quarter and, with no lost time
injuries in the past 12 months, Base Resources has a lost time
injury frequency rate (LTIFR)
of 0.0 per million hours worked.
Compared
to the Western Australian All Mines 2020/2021 LTIFR of 2.0, this is
an exceptional performance and reflects the ongoing focus and
importance placed on safety.
With no
medical treatment injuries recorded in the last 12 months, Base
Resources’ total recordable injury frequency rate is
0.0 per
million hours worked.
Community
and environment – Kwale Operations
Farmers
participating in the Company’s agricultural livelihood programs in
Kwale County, implemented through the PAVI farmers’ cooperative,
commenced harvesting of cotton and maize crops towards the end of
the quarter and are also commencing preparations for what is
expected to be a successful growing season, with above average
rainfall forecast for the December quarter’s ‘small rains’ as an El
Nino weather pattern develops.
Training
on business, entrepreneurship and leadership was delivered to 21
women’s groups during the quarter, with the approximately 350
participants also receiving support from the Company for various
income generating initiatives.
The ‘long
rains’, which normally run April to June, extended well into the
September quarter allowing a further 30,000 trees to be planted as
part of the Company’s rehabilitation efforts, bringing the total
planted for the rainy season to 80,000 trees.
No
instances of environmental non-compliance, major environmental
incidents or environment-related community complaints were
identified or recorded during the quarter.
Community
and environment – Toliara Project
All
community training programs and social infrastructure projects
remain on hold while the Toliara Project’s on-ground activities are
suspended.
BUSINESS
DEVELOPMENT
Toliara Project
development – Madagascar
Engagement with the
Government of Madagascar on
Toliara Project fiscal terms and lifting of the project’s on-ground
suspension has been limited during the quarter, principally due to
the Government focus on preparations for the upcoming Presidential
elections.
The new Mining Code was
recently passed into law and now applies to the Company’s Toliara
Project. Key financial elements of the new Mining Code
relevant to the Toliara Project
are:
-
Increase
in royalty rate from 2% to 5%.
A
reduction of 30% is applied to the 5% royalty in the event the
products are locally “transformed”, the definition and application
of which are unclear.
The
Toliara Project Updated Definitive Feasibility Study
(DFS2)
completed on 27 September 2021
assumed a 4% royalty rate.
-
A
contribution to the “Mining Fund for Community and Social
Investment” equal to 3% of the direct investment
amount.
The term
“direct investment” is not defined and the applicability of this
contribution requirement to the Toliara Project is
unclear.
If this
requirement were to apply to the Toliara Project, based on the DFS2
Stage 1
CAPEX of US$520 million,
this would require a contribution of US$15.6 million.3
DFS2
assumed an upfront community development spend of US$10 million.
The
application of the above elements, and several other key provisions
of the new Mining Code, lack sufficient detail to fully assess
their potential impact on the Toliara Project.
Other
provisions that may impact the project include any prescribed
specifications (conditions) attaching to the project’s exploitation
permit 37242, minimum requirements for the project’s corporate
social responsibility plan (which will include social investment,
infrastructure spending and local content requirements), prescribed
annual mining fees and requirements for an environmental and
rehabilitation provision.
The
Government is preparing the Implementing Decree for the new Mining
Code, a draft of which should shortly be available for industry
consultation.
Greater
clarity on the new Mining Code and its application to the Toliara
Project is expected once the Implementing Decree is finalised
together with any further supporting regulations, orders and
decrees.
Separately,
the first round of the Presidential elections have been deferred by
a week to 16 November 2023, with the
second round (if needed) scheduled for 20 December
2023.
The
incumbent President has declared his candidacy and officially
resigned on 9 September 2023 to
commence campaigning.
Until the
full suite of Mining Code reform is completed and elections
finalised, the Company does not expect to achieve material progress
in securing fiscal terms or lifting of the project’s on-ground
suspension.
The
Company remains ready and committed to progressing the world class
Toliara Project to a final investment decision once fiscal terms
are secured and the on-ground suspension is lifted.
The
Toliara Rare Earths Pre-Feasibility Study of the economic potential
of the monazite contained in the Toliara Project’s Ranobe Mineral
Resources estimate continued in the quarter and remains on track
for completion in the March quarter of 2024.
Total
expenditure on the Toliara Project and Toliara Rare Earths
Pre-Feasibility Study for the quarter was US$2.4 million (last quarter: US$2.0 million).
[Note
(3):
For
further information about DFS2, refer to Base Resources’
announcement on 27 September 2021
“DFS2 enhances scale and economics of the Toliara Project”
available at
https://baseresources.com.au/investors/announcements/.
Base
Resources confirms that all the material assumptions underpinning
the production information and forecast financial information
disclosed in that announcement continue to apply and have not
materially changed.]
Extensional
exploration – Kenya
The
Company released progress results from the first phase auger
drilling program (Phase
1) at the
Kwale East exploration project4
(within
Prospecting Licence 2018/0119) at the start of the
quarter.
A total of
1,019 holes for 11,536.5 metres was completed, with the results
confirming the presence of HM, as well as a high value mineral
assemblage.
A second
phase air core drilling program (Phase
2)
targeting the three areas of mineralisation identified during Phase
1 – Magaoni, Masindeni and Zigira – was also undertaken during the
quarter.
In total
for Phase 2,
65 holes for 1,054.5 metres were completed in the Magaoni and
Zigira target area, resulting in 703 samples.
The Phase
2 drilling assay results were released subsequent to the quarter
end.
Exploration
activities at Kwale East have been discontinued following an
evaluation of the likely mineralisation for the three targets using
the results from both Phase 1
and Phase 2
drill programs and applying optimistic assumptions on the
continuity of mineralisation in the Magaoni and Zigira target areas
that were not able to be drilled.
Even on
these optimistic assumptions, the evaluation concluded that there
is unlikely to be sufficient volume or heavy mineral grade to
support an economically viable mining
development.5
Subsequent
to the quarter end, Kenya’s Department of Mining announced the
partial lifting of the moratorium on issuance of mining rights for
all construction and industrial minerals, including heavy mineral
sands.
All other
minerals have been classified as strategic minerals and mining
rights shall be processed on a case-by-case basis in accordance
with Kenyan Mining Regulations.
Base
Resources is now engaging with the Kenya Department of Mining to
understand the process for progressing its eight prospecting
licence applications in Kwale, Kuranze and Lamu regions, most of
which were lodged prior to the decision to implement the moratorium
in 2019.
Expenditure
on exploration activities during the quarter in Kenya was US$303k (last quarter: US$389k).
[Note
(4):
For
further information, refer to Base Resources’ announcement on
3 July 2023 “Kwale East exploration
drilling update” available at
https://baseresources.com.au/investors/announcements/.
Base
Resources confirms that it is not aware of any new information that
materially affects the information included in that
announcement.]
[Note
(5): For
further
information, refer to Base Resources’ announcement on 30 October 2023 “Kwale East - Exploration update”
available at
https://baseresources.com.au/investors/announcements/.
Base
Resources confirms that it is not aware of any new information that
materially affects the information included in that
announcement.]
Extensional
exploration – Tanzania
The Umba
South Project in northern Tanzania
is located approximately 75km west-south-west of the Company’s
Kwale Operations in Kenya.
Exploration
at Umba South was designed to test the southern extremity of a
prominent north-south trending ridge of quartzite and gneiss that
extends 35km north to the Kuranze region of Kenya, where initial rock chip and soil
sampling indicated the presence of rutile.
Exploration
activity in this area has so far been confined to areas south of
the Umba River, while the Company seeks to obtain the necessary
approvals from various government departments to explore in the
Mkomazi Game Controlled Area to the north which hosts the target
ridge feature extending north to the Kenyan border.
Results
from the first phase reconnaissance exploration program were
released in the June quarter6.
Three
primary geological domains were observed - a soil/colluvial cover
sequence, underlying saprolite material and
bedrock.
While
rutile mineralisation was present in each domain, factors unique to
each domain were identified which would be expected to limit any
significant economic potential.
A second
phase infill program to assess the continuity of rutile
mineralisation in the saprolite layer was completed in the March
quarter with 86 holes
for 2,128 metres drilled.
Assaying
of these drill samples has commenced at the Kwale Operations
laboratory and is approximately 50% complete as assay priority was
given to Kwale East exploration drill samples.
The
results, which are expected in the December quarter, will assist in
planning future exploration activity at Umba South and elsewhere
along the prospective geological zone, including the Kuranze region
of Kenya once necessary land
access approvals are obtained.
Expenditure
on exploration activities during the quarter in Tanzania was US$32k (last quarter: US$101k).
[Note
(6):
For
further
information, refer to Base Resources’ announcement on 8 May 2023 “Tanzanian exploration – Umba South
Phase 1 drill results” available at
https://baseresources.com.au/investors/announcements/.
Base
Resources confirms that it is not aware of any new information that
materially affects the information included in that
announcement.]
CORPORATE
Following
release of the Company’s full-year results for the 2023 financial
year (FY23)
and disciplined application of the Company’s capital management
policy, a final dividend of AUD 4.0
cents per share (unfranked) was paid to shareholders on
28 September 2023, representing a
cash payment of US$29.9 million (in
aggregate).
Total
dividends in respect of FY23 were AUD 6.0
cents per share (unfranked), equal to US$45.5 million (in aggregate).
As at
30 September 2023, the Company had
cash of US$77.2 million and no
debt.
The
Company currently has the following securities on issue:
-
1,178,011,850
fully paid ordinary shares.
-
43,327,165
performance rights issued pursuant to the terms of the Base
Resources Long Term Incentive Plan, comprising:
-
8,727,959
vested performance rights, which remain subject to
exercise7;
and
-
34,599,206
unvested performance rights subject to performance testing in
accordance with their terms of issue.
[Note
(7):
Vested
performance rights have a nil cash exercise
price.
Unless
exercised beforehand, these rights expire five years after
vesting.]
Forward
looking statements
Certain
statements in or in connection with this announcement contain or
comprise forward looking statements.
Such
statements may include, but are not limited to, statements with
regard to future production and grades, capital cost, capacity,
sales projections and financial performance and may be (but are not
necessarily) identified by the use of phrases such as “will”,
“expect”, “anticipate”, “believe” and
“envisage”.
By their
nature, forward looking statements involve risk and uncertainty
because they relate to events and depend on circumstances that will
occur in the future and may be outside Base Resources’
control.
Accordingly,
results could differ materially from those set out in the
forward-looking statements as a result of, among other factors,
changes in economic and market conditions, success of business and
operating initiatives, changes in the regulatory environment and
other government actions, fluctuations in product prices and
exchange rates and business and operational risk
management.
Subject to
any continuing obligations under applicable law or relevant stock
exchange listing rules, Base Resources undertakes no obligation to
update publicly or release any revisions to these forward-looking
statements to reflect events or circumstances after today's date or
to reflect the occurrence of unanticipated events.
ENDS.
For
further information contact:
Australian
Media Relations
|
UK Media
Relations
|
Citadel
Magnus
|
Tavistock
Communications
|
Cameron
Gilenko and Michael Weir
|
Jos Simson
and Gareth Tredway
|
Tel: +61 8
6160 4900
|
Tel: +44
207 920 3150
|
This
release has been authorised by the Board of Base
Resources.
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 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
Level 3,
46 Colin Street
West Perth, Western
Australia, 6005
Email:
info@baseresources.com.au
Phone: +61
8 9413 7400
Fax: +61 8
9322 8912
NOMINATED
ADVISER & JOINT BROKER
Canaccord
Genuity Limited
James Asensio / Raj Khatri / George
Grainger
Phone: +44
20 7523 8000
JOINT
BROKER
Berenberg
Matthew Armitt / Detlir Elezi
Phone: +44
20 3207 7800