REG-Base Resources Limited: Quarterly Activities Report – December 2022

Base ResourcesAnnouncement

24/01/2023 07:15

AIM and Media Release 

24 January 2023

BASE RESOURCES LIMITED
Quarterly Activities Report – December 2022

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 31 December 2022.

Key Points
* Contracted sales saw further price gains for rutile, while ilmenite and
zircon prices moderated.
* Bumamani Project implementation remains on schedule - extending Kwale
Operations mine life.
* Phase 1 of exploration drilling in northern Tanzania was completed, with a
total of 149 holes for 3,889m.  Results from this program are expected to be
released in the March 2023 quarter.
* Exploration drilling commenced North-East of Kwale Operations, with 320
holes for 3,260m drilled to date.  
* Discussions with the Government of Madagascar on Toliara Project fiscal
terms continued to progress positively.
* Toliara Project Rare Earths Concept Study is on track for completion in the
March 2023 quarter.
* Inaugural Sustainability Report and Sustainability Databook released.
KWALE OPERATIONS

Operational performance

Mining operations continued on the South Dune with mined tonnage as planned at
4.5 million tonnes (Mt) (last quarter: 4.4Mt).  The heavy mineral (HM) grade
of ore mined in the quarter was higher at 4.02% (last quarter: 3.78%) due to
new, higher-grade blocks being mined.  As a result of the higher ore grade
mined, there was a 3% increase in heavy mineral concentrate (HMC) production
over the prior quarter, with the HMC stockpile increasing from 10kt to 15kt. 
Rutile and zircon production were higher in the quarter due to those products
representing a higher proportion of the mineral assemblage and higher
recoveries, while ilmenite production dropped slightly. 

 SUMMARY BY QUARTER            FY22           FY23     
                          DEC   MAR   JUN   SEP   DEC  
 Mining (million tonnes)                               
 Ore mined                 4.3   3.9   3.9   4.4   4.5 
 HM %                     3.82  3.84  4.06  3.78  4.02 
 VHM %                    2.94  2.92  3.12  2.85  3.12 
                                                       
 Production (thousand tonnes)                          
 Ilmenite                 84.0  84.5  83.8  86.0  84.5 
 Rutile                   18.4  18.9  19.2  18.9  19.5 
 Zircon                    6.4   6.3   6.8   6.6   7.4 
 Low grade products (1)    3.5   4.4   4.9   5.7   5.2 

   

                                FY22           FY23     
                          DEC    MAR   JUN   SEP   DEC  
 US$ per tonne                                          
 Sales revenue             $459  $740  $691  $714  $651 
 Operating costs           $161  $149  $152  $154  $165 
 Cost of goods sold        $156  $227  $196  $200  $191 
 Revenue: Cost ratio        2.9   3.3   3.5   3.6   3.4 
 Sales (thousand tonnes)                                
 Ilmenite                 130.0  75.5  95.7  62.6  74.1 
 Rutile                    11.6  25.3  24.7  14.2  14.7 
 Zircon                     6.2   6.9   7.1   6.2   5.0 
 Low grade products (1)     1.5   4.8   4.7   4.5   4.7 

[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, with a combined 84kt of bulk ilmenite and rutile dispatched
(last quarter: 63kt).  Containerised shipments of rutile and zircon through
the Mombasa Port also proceeded to plan.

Sand tails continued to be deposited into the mined-out Central Dune area and
capped with a 6m thick co-disposed slimes/sand layer to aid water retention
and subsequent rehabilitation.  Rehabilitation activities on the Central Dune
and South Dune proceeded to plan.

Total cash operating costs of US$19.3 million were higher compared to the
prior quarter (last quarter at US$17.9 million), primarily due to higher unit
power costs and increased maintenance costs.  With the higher operating costs
and consistent combined production volume, unit operating costs increased to
US$165 per tonne produced (rutile, ilmenite, zircon, low grade zircon and
low-grade rutile) (last quarter: US$154 per tonne).

Cost of goods sold decreased to US$191 per tonne sold (operating costs,
adjusted for stockpile movements, and royalties) due to sales volume and mix
(last quarter: US$200 per tonne), as did average unit revenue, which was
US$651 per tonne (prior quarter: US$714 per tonne).  Consequently, the
revenue to cost of goods sold ratio for the quarter was 3.4 (last quarter:
3.6).

FY23 production guidance

With the concurrent mining of the South Dune with the lower grade North Dune
remaining on track to commence in March 2023, Kwale Operations production
guidance for the 2023 financial year (FY23) remains at:
* Rutile - 62,000 to 73,000 tonnes.
* Ilmenite - 260,000 to 310,000 tonnes.
* Zircon - 22,000 to 27,000 tonnes(2).
[Note (2): Refer to Base Resources’ announcement on 25 October 2022
“Quarterly Activities Report – September 2022” for the assumptions upon
which the FY23 production guidance is based.]

MARKETING

Demand for Base Resources’ products remained firm through the quarter,
however pricing outcomes were mixed given the challenging economic conditions
across some regions and market sectors.  Rutile prices experienced further
gains while ilmenite and zircon prices declined.  Subdued conditions in most
downstream markets are applying downward price pressure across all products
for the March quarter, however demand for most products is expected to
stabilise and provide a steady footing for future prices.

Despite weakness in the Chinese economy and the Chinese domestic pigment
market, demand for imported ilmenite as a feedstock for Chinese TiO(2) pigment
producers continued to hold up.  Chinese domestic pigment demand stabilised
towards the end of the quarter after a prolonged period of weakening
conditions and most Chinese pigment plants are moving back towards normal
production levels.  Major pigment producers with exposure to export markets,
which typically have a high dependence on imported ilmenite as a feedstock,
have generally maintained high production levels as increased offshore sales
have offset a decline in domestic sales.  Export demand for these producers
is likely to be maintained, particularly as high-cost sulphate pigment
production in Europe has been curtailed.  This, combined with a potential
recovery in the Chinese domestic market following the lifting of the
government’s COVID-19 restrictions, is expected to provide ongoing demand
strength for ilmenite imported into China. 

Softening pigment market conditions in Europe since the latter part of the
September quarter added to subdued domestic conditions in Asia and growing
uncertainty in North America, resulting in some western pigment producers
curtailing production rates.  This has weighed on rutile demand through the
quarter and into the start of 2023.  However, contracted rutile prices to the
pigment sector, mostly established in mid-2022 during tighter conditions, saw
further price gains through the quarter.  Major western pigment producers
plan to ramp up production from early 2023 with an expectation that the
pigment market will improve through early 2023 and return to normal levels by
mid-2023.  This should result in improving demand for rutile and provide
support for prices.

Rutile demand from the smaller welding and titanium metal sectors remains
strong but increased rutile inventories in Asia has placed pressure on the
price premium that has been achieved in these sectors relative to the pigment
sector.  Overall, rutile prices are expected to decline moderately in the
March quarter.     

Softer zircon conditions in Europe added to the weak environment in the
Chinese zircon market through the quarter which resulted in a decline in
zircon prices.  Subdued zircon demand going into the March quarter is being
partially offset by reduced supply from some major producers experiencing
production challenges and/or re-building their own zircon inventory in order
to stabilise prices.  Building optimism from the lifting of the
government’s COVID-19 restrictions in China may result in improved demand
and pricing conditions for zircon in coming quarters. 

SUSTAINABILITY

Sustainability reporting

The Company released its inaugural Sustainability Report and Sustainability
Databook in the quarter with both documents available on the Base Resources
website.

Health and safety

There were no lost time injuries during the quarter resulting in a lost time
injury frequency rate (LTIFR) for Base Resources of 0.23 per million hours
worked.  Compared to the Western Australian All Mines 2020/2021 LTIFR of 2.0,
this remains an exceptional performance and reflects the ongoing focus and
importance placed on safety by management.  With two medical treatment
injuries recorded in the last 12 months, Base Resources’ total recordable
injury frequency rate is 0.69 per million hours worked.

Community and environment – Kwale Operations

Farmers participating in the Company’s agricultural livelihood programs in
Kwale, implemented through the PAVI farmers’ cooperative, continued
harvesting of cotton, soybean, sunflower, pearl millet, groundnuts and
sorghum.  A strong yield has been harvested with over 30 tonnes of cotton
delivered to a local ginnery and plans underway to increase the PAVI feed mill
capacity from two to five tonnes per month following identification of new
markets.  100 youths from local villages were selected and enrolled in
vocational training courses as part of the Company’s ongoing commitment to
education and skills development.

Indigenous legumes, grass seed and manure continued to be sourced from local
community groups for use in rehabilitation activities on the mined-out
sections of the South Dune and the Central Dune.  Propagation of indigenous
trees in the Kwale Operations nursery to use in rehabilitation areas is
ongoing. 

Community and environment – Toliara Project

All community training programs and social infrastructure projects remain on
hold while the Company’s on-ground activities are suspended.

BUSINESS DEVELOPMENT

Toliara Project development – Madagascar

Discussions with the Government of Madagascar on fiscal terms, and lifting of
its on-ground suspension, have made encouraging progress in the quarter.

A Final Investment Decision (FID) to proceed with construction of the Toliara
Project remains subject to lifting of the suspension and fiscal terms being
agreed with the Government of Madagascar.  Once these two key milestones are
achieved, there will be approximately 11 months’ work to complete prior to
reaching FID, including finalisation of funding, completion of land access
arrangements, conclusion of major construction contracts and entry of offtake
agreements with customers.  Contact with major EPCM consultants, construction
contractors and equipment suppliers has been maintained in readiness to
accelerate progress when conditions support.  Assessment of potential funding
options for the Toliara Project also progressed during the quarter.

The Toliara Rare Earths Concept Study, which is assessing the commercial
potential of the monazite contained in the Toliara Project’s Ranobe Mineral
Resources estimate, is progressing towards completion in the March 2023
quarter. This study will provide the basis for a decision to proceed to a
pre-feasibility study.

Total expenditure on the Toliara Project for the quarter increased to US$2.6
million (last quarter: US$2.0 million), with increased spend on the Toliara
Rare Earths Concept Study and intensified government engagement activities.

Kwale mine life extension

Implementation of the Bumamani Project, which will extend Kwale Operations
mine life, continued during the quarter, and mining activities on the Kwale
North Dune remain on schedule to commence in March 2023.  The subsets of the
Kwale North Dune forming part of the Bumamani Project will be mined
concurrently with the South Dune to maximise mining rates and better manage
tailings.

Expenditure on the Bumamani Project during the quarter was US$9.9 million
(last quarter: US$9.2 million) with construction, earthworks and final land
access activities taking place.

Extensional exploration – Kenya and Tanzania

Landowner consent for access for exploration activities to the area
immediately North-East of Kwale Operations (and within Prospecting Licence
2018/0119) was secured during the quarter, with 320 holes for a total of
3,260m having been drilled by the end of the quarter- refer to Figure 1 in the
PDF version of this release, available from the Company’s website: 
www.baseresources.com.au, for a photograph of the exploration drilling. 
Exploration in this area will continue in the March quarter as further land
access is secured.

On-ground exploration in northern Tanzania progressed, with the initial 400m x
200m spaced reverse circulation drilling program being completed during the
quarter.  In total, 149 holes for 3,889m were drilled.  The drill samples
were exported to Kenya for analysis at the Kwale Operations laboratory with
this work currently ongoing.  Analysis for graphite is also being
concurrently undertaken by an external laboratory.  Results from this program
are expected to be released in the March 2023 quarter.  

Prospecting licence applications lodged for an area in the Kuranze region of
Kwale County, about 70 km west of Kwale Operations, together with applications
for an area south of Lamu, remain on hold pending lifting of a Government of
Kenya moratorium on issuance of new mineral rights, in place since November
2019.  The Company is working with the Government of Kenya, and other mining
sector stakeholders, to see the moratorium lifted.

Expenditure on exploration activities during the quarter in Tanzania was
US$232k (last quarter: US$223k) and in Kenya was US$158k (last quarter:
US$53k).

CORPORATE

FY23 half-year financial results

The Company plans to release of its FY23 half-year consolidated financial
statements on 27 February 2023.  The timing for release will be confirmed,
and investor call details will be advised, closer to the targeted release
date. 

In summary, as at 31 December 2022, the Company had net cash of US$60.2
million consisting of cash and cash equivalents of US$60.2 million and no
debt.

Despite recording strong sales in the quarter, the Company’s net cash
position decreased, primarily due to Bumamani Project implementation
expenditure, corporate tax instalment payments, dividend withholding tax
payments and the majority of the sales occurring late in the quarter, leading
to an increase in receivables of US$17.2 million.

As at 31 December 2022, the Company had the following securities on issue:
* 1,178,011,850 fully paid ordinary shares.
* 58,020,619 performance rights pursuant to the terms of the Base Resources
Long Term Incentive Plan, comprising: * 4,630,289 vested performance rights,
which remain subject to exercise(3); and
* 53,390,330 unvested performance rights subject to performance testing in
accordance with their terms of issue.
[Note (3): 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:

 James Fuller, Manager Communications and Investor Relations  UK Media Relations             
 Base Resources                                               Tavistock Communications       
 Tel: +61 8 9413 7426                                         Jos Simson and Gareth Tredway  
 Mobile: +61 488 093 763                                      Tel: +44 207 920 3150          
 Email: jfuller@baseresources.com.au                                                         

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

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Phone: +61 8 9413 7400
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Phone: +44 20 7523 8000
 



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