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

Base ResourcesAnnouncement

21/07/2022 07:15

AIM and Media Release 

21 July 2022

BASE RESOURCES LIMITED
Quarterly Activities Report – June 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 30 June 2022.

Key Points
* FY22 production guidance achieved and FY23 production guidance released.
* Ongoing strong demand supported price increases for rutile and zircon while
ilmenite prices remained steady.
* Record sales revenue of US$91.3 million supported a record revenue to cost
of sales ratio of 3.5:1.
* Bumamani Project investment approved - extending Kwale Operations mine life
to December 2024.
* Tanzanian exploration samples assayed, with a follow-up aircore drilling
program planned for the September quarter.
* Discussions with the Government of Madagascar on Toliara Project fiscal
terms continued.
* Toliara Project monazite and rare earth products concept study underway and
due for completion in the December quarter.
KWALE OPERATIONS

Operational performance

Mining operations continued on the South Dune orebody with mined tonnage lower
than planned due to the previously announced eight-day outage caused by
localised flash flooding in early June.  Mining subsequently returned to
normal levels following successful recovery efforts.  The heavy mineral (HM)
grade of ore mined in the quarter was higher at 4.06% (last quarter: 3.84%).

Production was consistent with the prior quarter across all products, with the
higher ore grade offsetting the lower mined volume.  The heavy mineral
concentrate stockpile was maintained at 10kt, following some depletion during
the prior quarter.  Bulk loading operations at Kwale Operations’ Likoni
export facility continued to run smoothly, dispatching a combined 116kt of
bulk ilmenite and rutile during the quarter (last quarter: 95kt). 
Containerised shipments of rutile and zircon through the Mombasa Port also
proceeded to plan.

 SUMMARY BY QUARTER      FY21           FY22           
                          JUN   SEP   DEC   MAR   JUN  
 Mining (million tonnes)                               
 Ore mined                 4.7   4.4   4.3   3.9   3.9 
 HM %                     3.65  3.26  3.82  3.84  4.06 
 VHM %                    2.78  2.50  2.94  2.92  3.12 
                                                       
 Production (thousand tonnes)                          
 Ilmenite                 88.7  72.9  84.0  84.5  83.8 
 Rutile                   20.1  17.8  18.4  18.9  19.2 
 Zircon                    7.1   6.1   6.4   6.3   6.8 
 Low grade products (1)    0.4   0.5   3.5   4.4   4.9 

   

 SUMMARY BY QUARTER      FY21            FY22           
                          JUN   SEP   DEC    MAR   JUN  
 US$ per tonne                                          
 Sales revenue            $497  $668   $459  $740  $691 
 Operating costs          $148  $174   $161  $149  $152 
 Cost of goods sold       $202  $264   $156  $227  $196 
 Revenue: Cost ratio       2.5   2.5    2.9   3.3   3.5 
 Sales (thousand tonnes)                                
 Ilmenite                 94.0  34.1  130.0  75.5  95.7 
 Rutile                   24.6  13.8   11.6  25.3  24.7 
 Zircon                    7.7   5.6    6.2   6.9   7.1 
 Low grade products (1)    0.7   0.6    1.5   4.8   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.]

Sand tails continued to be deposited into the mined-out Central Dune area and
capped with a co-disposed slimes/sand layer to aid water retention and
subsequent rehabilitation.  Rehabilitation activities on both the Central
Dune and the South Dune were put on hold during the rainy season through May
and June, in line with normal practice.

Total cash operating costs of US$17.4 million increased compared to the prior
quarter (last quarter at US$16.9 million) primarily due to higher unit fuel
costs for mining and processing activities.  With consistent final
production, unit operating costs remained steady at US$152 per tonne produced
(rutile, ilmenite, zircon, low grade zircon and low grade rutile) (last
quarter: US$149 per tonne).

Cost of goods sold decreased to US$196 per tonne sold (operating costs,
adjusted for stockpile movements, and royalties) due to the sales mix (last
quarter: US$227 per tonne), as did average unit revenue, which was US$691 per
tonne (prior quarter: US$740 per tonne).  Due to these factors, the revenue
to cost of goods sold ratio for the quarter increased to 3.5 (last quarter:
3.3), the highest ratio achieved for any quarter at Kwale Operations.

FY22 production and FY23 production guidance

As set out in the table below, total Kwale Operations production for the 2022
financial year (FY22) was within the Company’s previously disclosed guidance
range.  Also set out below is the Company’s production guidance for the
2023 financial year (FY23), which is unchanged from that previously
announced. 

 Production Guidance (tonnes)  FY22 Guidance Range  FY22  Actual  FY23 Guidance Range  
 Rutile                          73,000 to 83,000      74,349       62,000 to 73,000   
 Ilmenite                       310,000 to 340,000     325,148     260,000 to 310,000  
 Zircon                          24,000 to 28,000      25,557       22,000 to 27,000   

The FY23 production guidance is lower than for FY22 as a consequence of the
planned commencement of mining in the lower HM grade Kwale North Dune orebody
from March 2023 and normal uncertainties associated with mining a new
orebody.  The FY23 production guidance is subject to the following
assumptions:
* Land access arrangements being finalised in time to enable mining at the
Kwale North Dune to commence in March 2023.
* Mining of 16.5 million tonnes (Mt) at an average HM grade of 3.51%.
* HMC produced by the wet concentrator plant of 571kt.
* HMC fed into the Mineral Separation Plant (MSP) of 556kt.
* MSP product recoveries of 101% for rutile, 101.5% for ilmenite and 84.5% for
zircon.
MARKETING

Despite growing economic uncertainties across several regions during the
quarter, markets for all products remained strong with further price gains
achieved for zircon and rutile while net ilmenite prices were steady.  Some
Chinese market segments are under pressure due to the country’s COVID-19
management policies, which will likely result in a stabilisation of delivered
product pricing for sales to China in the September quarter.  The Ukraine
conflict continues to disrupt supply, further tightening the global market for
all mineral sands products.

Firm demand for imported ilmenite as a feedstock for Chinese TiO(2) pigment
producers is being maintained.  Prices for delivered ilmenite to China
increased but higher freight costs resulted in net pricing being in line with
the prior quarter.  Despite the ongoing higher price environment, ilmenite
supply from traditional swing sources still lags demand and markets remain
tight.  Downstream domestic demand for Chinese pigment has eased but this has
been largely offset by export demand strength.  It is expected that the
uncertain global and Chinese economic outlook will result in a stabilisation
of delivered pricing for ilmenite in the short term.

Demand for high grade TiO(2) feedstocks (which includes rutile) increased
further with all rutile end-user sectors continuing to seek more supply than
is available as they aim to maximise output.  Western pigment producers
remain short on feedstock and are unable to meet customer demand.  Similarly,
titanium metal sponge producers outside of Russia are struggling to keep up
with the strong demand from the aerospace industry as orders for new aircraft
increase and supply sanctions on Russia remove a major source of titanium
metal supply from the market.  Flux-cored wire welding consumable producers
are being challenged by strong demand growth from ship-building activity. 
Supply of high-grade feedstock remains constrained with no new major sources
of supply likely to impact the market in the short term.  Rutile prices
increased again through the quarter with further price gains likely in the
September quarter.     

Zircon prices increased significantly during the quarter on the back of strong
demand across all end-use sectors and regions.  While zircon demand continues
to outpace supply in Europe, the Chinese market has become more uncertain on
the back of a slowing ceramics sector.  The Company’s average zircon
prices, which remain at the top end of the market range, are likely to ease
slightly in the September quarter in response to market concerns from Chinese
customers.

SUSTAINABILITY

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 0.24 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 three medical treatment
injuries recorded in the last 12 months, Base Resources’ total recordable
injury frequency rate is 0.97 per million hours worked.

At the end of the quarter, 100% of Kwale Operations employees had received one
dose of COVID-19 vaccine, with 89% double vaccinated.

Community and environment – Kwale Operations

With the emergence of a new wave of COVID-19 infections in Kenya, the Company
further collaborated with county and national health authorities to encourage
the community uptake of vaccines.

Agricultural livelihood programs in Kwale continued through the PAVI
farmers’ cooperative with planting of cotton, soybean, sunflower, pearl
millet, groundnuts and sorghum.  Poultry and beekeeping programs also
remained popular with farmers and community groups.  Disbursement of funds
for secondary school scholarships was completed during the quarter with 320
new beneficiaries selected.

Implementation of identified projects by the Msambweni, Lunga Lunga and Likoni
Community Development Agreement Committees (CDACs) continued with considerable
progress made on several infrastructure projects.  As the CDACs have now been
in place for over a year, a review of their respective activities commenced,
the outcomes of which will guide enhancements in future implementation. 

Community groups continued to source and supply indigenous legumes, grass seed
and manure for 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, with a
total of 41,000 trees planted during FY22. 

Community and environment – Toliara Project

All community training programs and social infrastructure projects remain on
hold following the Government of Madagascar’s suspension of the Company’s
on-ground activities.

BUSINESS DEVELOPMENT

Toliara Project development – Madagascar

Toliara Project on-ground activities remain suspended by the Government of
Madagascar.  Base Resources continues to engage with the Government in
relation to the country’s Large Mining Investment Law (LGIM) regime, fiscal
terms applicable to the Toliara Project and lifting of the suspension.

In September 2021, the Company completed an enhanced Definitive Feasibility
Study (DFS2) for the Toliara Project to incorporate an update to the estimated
Ranobe Ore Reserves and an increase in project scale.(2)  The outcomes of
DFS2, compared to the earlier 2019 DFS, included substantially improved
forecast financial returns for the Toliara Project, including a
post-tax/pre-debt (real) NPV(10) of US$1.0 billion and an average revenue to
cost of sales ratio of 3.5, over an initial 38-year mine life(3).  Timing of
the Final Investment Decision (FID) to proceed with construction of the
Toliara Project remains subject to lifting of the suspension of on-the-ground
activities and agreeing acceptable fiscal terms 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 acquisition, conclusion of major
construction contracts and entry of offtake agreements with customers.  The
Company maintains readiness to accelerate progress when conditions support.  

Assessment of potential funding options for the Toliara Project also
progressed during the quarter.

Base Resources’ concept study to assess the commercial potential of the
monazite identified in the Toliara Project’s Ranobe Mineral Resources
estimate was also progressed in the quarter with industry specialists engaged
to consider options for further processing monazite into value-added rare
earth products.  The study is scheduled for completion in the December 2022
quarter.

Total expenditure on the Toliara Project for the quarter was US$1.0 million
(last quarter: US$1.0 million).

[Note (2):  For further information, refer to Base Resources’ announcement
on 27 September 2021 “DFS2 enhances scale and economics of the Toliara
Project” (DFS2 Announcement).]

[Note (3): Refer to the DFS2 Announcement for the material assumptions and
underlying methodologies for deriving these financial outcomes.  The DFS2
Announcement also discloses key pre and post FID risks in respect of the
Toliara Project.  Base Resources confirms that all the material assumptions
underpinning the production information and forecast financial information in
the DFS2 Announcement continue to apply and have not materially changed.]

Kwale mine life extension

The Company decided to proceed with the Bumamani Project during the quarter,
extending Kwale Operations mine life by 13 months to December 2024 – refer
to Figure 1 for a map of Kwale Operations as included in the PDF version of
this release, available from the Company’s website: 
www.baseresources.com.au.  The Bumamani Project will be mined concurrently
with the Kwale South Dune deposit to maximise mining rates and better manage
tailings.  Procurement and construction commenced during the quarter with
mining on the North Dune scheduled for March 2023.

Extensional exploration – Kenya and Tanzania

No further work was conducted on the Vanga Prospecting Licence (PL/2015/0042)
in the quarter.  The remaining drill program (4,200 metres) in the North-East
Sector (Kwale East) of PL 2018/0119 remains on hold pending land access being
obtained, with renewed efforts to engage the community to secure access
continuing to make encouraging progress.

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 pending.  A Government of Kenya moratorium
on the issuance of prospecting licences, in place since November 2019, has
affected the progress of all licence applications.  The Company is working
with the Government, and other mining sector stakeholders, to see the
moratorium lifted to enable the recommencement of the issuance of mineral
rights.

The Company continued on-ground exploration in Tanzania.  Following analysis
of samples from the shallow auger drilling, test pits and rock chip sampling,
a follow-up 3,000m air-core drilling program is planned to commence during the
September quarter.  Subject to the successful outcome of this program, a
further 10,000m infill drill program is planned.

Expenditure on exploration activities in Kenya during the quarter was US$0.2
million (last quarter: US$0.1 million) and in Tanzania was US$0.2 million
(last quarter: US$0.1 million).

CORPORATE

FY22 full year financial results

The Company is targeting release of its FY22 audited consolidated financial
statements in the week commencing 22 August 2022.  Timing confirmation and
investor webcast details will be advised closer to the planned release.  

The Company achieved record sales revenue of US$91.3 million in the quarter,
with US$51.8 million occurring in June, leading to an increase in receivables
of US$26.2 million over the quarter.

As at 30 June 2022, the Company had net cash of US$55.4 million consisting of:
* cash and cash equivalents of US$55.4 million; and 
* no debt.
As at 30 June 2022, the Company had the following securities on issue:
* 1,178,011,850 fully paid ordinary shares.
* 62,041,429 performance rights pursuant to the terms of the Base Resources
Long Term Incentive Plan, comprising: * 949,004 vested performance rights,
which remain subject to exercise(4); and
* 61,092,425 unvested performance rights subject to performance testing in
accordance with their terms of issue.
[Note (4): Vested performance rights have a nil cash exercise price.  Unless
exercised beforehand, these rights expire five years after vesting.]

ENDS.

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.

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 (0) 488 093 763                                  Tel: +44 (0) 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 (0)8 9413 7400
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Phone: +44 20 7523 8000
 



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