REG-Base Resources Limited: Quarterly Activities Report - June 2024

Base ResourcesAnnouncement

23/07/2024 07:00

 

 

 

AIM and Media Release 

23 July 2024

 

Base Resources Limited 
Quarterly Activities Report – June 2024

 

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 2024.

 

Key Points

Corporate
* Base Resources reached agreement with Energy Fuels, a US-based uranium and
critical minerals producer, for a proposed combination to create a global
critical minerals business. 
* Implementation is well underway, with a Scheme Booklet for the proposed
combination expected to be despatched to shareholders in early August and
completion targeted for early October.
Kwale Operations
* Mining operations were split 50/50 between North Dune and Bumamani with
rehabilitation activities on South Dune nearing completion.
* FY24 production guidance was achieved with 159kt ilmenite, 41kt rutile and
17kt zircon produced.
* Mine closure planning continued with employee, government and community
engagement progressing positively.
Toliara Project
* In-principle agreement on the key fiscal terms that will apply to the whole
Toliara Project (i.e. both mineral sands and monazite) considered to have been
reached with the Government of Madagascar, although these remain subject to
entry of binding documentation.
* Engagement with the Government is now focused on finalising the binding MoU
that will give effect to the in-principle agreement and other key matters to
facilitate timely project progression.
 
PROPOSED COMBINATION WITH ENERGY FUELS
 

Following announcement of the transaction on 22 April 2024, significant
progress was made towards satisfying the conditions precedent and
implementation of the Company’s proposed combination with Energy Fuels Inc.
(NYSE American: UUUU, TSX: EFR) (Energy Fuels) to create a global leader in
the critical minerals sector with a focus on rare earth elements, heavy
mineral sands and uranium production (Proposed Combination).

 

The Competition Authority of Kenya provided its approval of the Proposed
Combination subsequent to the quarter end.  The remaining regulatory approval
conditions precedent to implementation of the Proposed Combination are
applications to Australia’s Foreign Investment Review Board and the Malagasy
Competition Council, each of which remain under review by the relevant
regulatory body.

 

With the Proposed Combination to be effected by scheme of arrangement
(Scheme), a Scheme Booklet is being prepared and is well advanced, targeted
for dispatch in early August following the First Court Hearing.  The Scheme
Booklet will contain key information about the Proposed Combination and the
Scheme, an Independent Expert’s Report and will formally convene the meeting
of shareholders to consider the Scheme.  The current indicative timetable for
the Proposed Combination is below.

 

Base Resources Directors continue to unanimously recommend that shareholders
vote in favour of the Proposed Combination in the absence of a superior
proposal and subject to the Independent Expert concluding, and continuing to
conclude, that the Scheme is in the best interests of Base Resources
shareholders.



 Event                                                                              Indicative timing  
 First Court Hearing and despatch of Scheme Booklet to Base Resources Shareholders  Early August       
 Scheme Meeting                                                                     Early September    
 Effective Date                                                                     Mid-September      
 Record dates for Scheme and Special Dividend                                       Mid-September      
 Special Dividend Payment Date and Implementation Date                              Early October      

 
KWALE OPERATIONS
 

Operational performance

 

 SUMMARY BY QUARTER    FY23   FY24                                                FY23  FY24                      
                       JUN    SEP    DEC    MAR    JUN                            MAR   JUN     SEP   DEC   MAR   
 Mining (million tonnes)                                    US$ per tonne                                         
 Ore mined             4.1    4.1    3.9    3.7    3.5      Sales revenue         $695  $1,029  $589  $685  $655  
 HM %                  3.0    2.5    2.2    2.4    2.4      Operating costs       $240  $343    $317  $373  $257  
 VHM %                 2.3    1.9    1.7    1.9    1.9      Cost of goods sold    $263  $442    $315  $403  $335  
                                                            Revenue: Cost ratio   2.6   2.3     1.9   1.7   2.0   
 Production (thousand tonnes)                               Sales (thousand tonnes)                               
 Ilmenite              55.5   38.8   38.9   33.5   48.2     Ilmenite              74.6  11.1    63.7  20.1  44.2  
 Rutile                13.8   9.6    9.3    9.0    13.4     Rutile                19.6  5.5     15.0  3.9   10.3  
 Zircon                5.5    3.8    3.8    3.7    6.0      Zircon                6.6   3.9     3.3   4.5   5.5   
 Low grade products 1  3.4    2.0    2.2    2.3    3.6      Low grade products 1  3.2   2.0     2.6   1.0   3.5   

 

[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.]

 

Mining at both Bumamani and North Dune pit P199 continued during the
quarter.  Due to the nationwide civil unrest and protests against the
Government of Kenya’s 2024 Finance Bill, measures were put in place to
ensure employee safety when travelling to and from work, which resulted in
some interruptions to operations late in the quarter.  These interruptions,
together with mining remnant areas of P199, resulted in lower tonnage mined
for the quarter.  During July, one of the two mining units operating on North
Dune pit P199 will transition to pit P200, which is the final mining block
before the closure of Kwale Operations.

 

The heavy mineral (HM) grade of ore mined in the quarter was in line with last
quarter at 2.4%.  Concentrator recoveries improved due to coarser mineral
from Bumamani, resulting in an increase in heavy mineral concentrate (HMC)
production to 77.2kt (last quarter: 73.3kt).  The mineral separation plant
(MSP) continued to be operated on a campaign basis to ensure optimum product
recoveries were maintained, with extended shuts between campaigns to allow HMC
stocks to rebuild.  HMC fed to the MSP was higher in the quarter at 94.2kt
(last quarter: 63.0kt).

 

Deposition of sand tails into the mined-out Central Dune and P199 pit on North
Dune continued in the quarter.  To aid water retention and subsequent
rehabilitation, the sand tails are capped with a 4m to 6m co-disposed
slimes/sand layer.  Rehabilitation activities on the Central Dune, South Dune
and North Dune proceeded to plan, with rehabilitation activities for the
entire South Dune mining area largely completed by quarter end.

 


 

Bulk shipping operations at the Company’s Likoni export facility continued
to run smoothly with 50kt of bulk ilmenite and rutile dispatched (last
quarter: 20kt).  Included within the 50kt of bulk shipping for the quarter,
was 33kt of a 54kt ilmenite shipment where loading took place over quarter
end, with the remaining 21kt loaded in July.  Containerised shipments of
rutile and zircon were exported through the Mombasa Port.  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 significant sales
volatility between quarters, as illustrated by the sales volumes over recent
quarters. 

 

Total cash operating costs of US$18.3 million were higher compared to the
prior quarter (last quarter: US$18.1 million) primarily attributed to
increased production and associated transport costs.  When coupled with
increased overall production volume, this resulted in a lower unit operating
cost for the quarter of US$257 per tonne produced (rutile, ilmenite, zircon
and low-grade products) (last quarter: US$373 per tonne).

 

Cost of goods sold decreased to US$335 per tonne sold (operating costs,
adjusted for stockpile movements, and royalties) due to the unit operating
costs and product sales mix (last quarter: US$403 per tonne).  While average
unit revenue was lower at US$655 per tonne (prior quarter: US$685 per tonne)
due to the increased proportion of ilmenite and rutile in the sales mix, the
revenue to cost of goods sold ratio for the quarter increased to 2.0 (last
quarter: 1.7).

 

Production guidance

 

Total Kwale Operations production for the 2024 financial year (FY24) was at
the upper end of the Company’s previously disclosed guidance range for
rutile and ilmenite and slightly above the guidance range for zircon.  Total
production for FY24, together with the Company’s production guidance for
FY24 and the 2025 financial year (FY25), is set out in the table below.  The
production guidance for FY25 is unchanged from that previously announced2.

 

                               FY24 Guidance Range             FY25                 
 PRODUCTION GUIDANCE (tonnes)  Updated Q3 2024     Achieved    To end of mine life  
 Rutile                        38,000 to 42,000    41,317      17,000 to 19,000     
 Ilmenite                      145,000 to 160,000  159,395     55,000 to 63,000     
 Zircon                        15,000 to 17,000    17,354      5,500 to 7,000       

[Note (2): Refer to Base Resources’ announcement on 30 April 2024,
“Quarterly Activities Report – March 2024”, for the assumptions upon
which the FY25 guidance is based.]

 

Transition to closure

 

Mining at Kwale Operations is planned to end in December 2024 when ore
reserves are expected to be fully depleted, with processing activities
concluding shortly thereafter.  Decommissioning and final rehabilitation of
the mine and associated infrastructure will commence immediately thereafter.

 

During the quarter, the Government inaugurated and convened a Post-Mining Land
Use Committee, mandated to provide oversight of mine closure and undertake
broad stakeholder engagement to canvass views on post-mining land use options.
 MARKETING
 

Following a solid March quarter, demand for all products remained firm through
the June quarter but sentiment became more cautious as the quarter progressed
due to economic conditions remaining more subdued than anticipated.  Base
Resources’ sales volumes for the quarter were in line with its sales plan
while pricing outcomes tracked slightly better than expected.

 

Demand for ilmenite in the June quarter continued to be strong as Chinese
pigment plants operated at high levels of production, absorbing increasing
domestic ilmenite supply and maintaining ilmenite price stability.  Chinese
pigment exports were elevated throughout the June quarter as customers stocked
up ahead of new European Union import duties, ranging from 35% to 42%, being
applied from 1 July 2024.  The import duties are likely to result in a
significant decrease in Chinese pigment exports to that market from the start
of the September quarter.  If alternative export markets are not secured,
Chinese pigment production rates could decrease, resulting in falling ilmenite
demand and pressure on ilmenite prices in the coming quarters.

 

Western pigment producers have reported improved demand for the March and June
quarters.  However, much of the demand recovery is thought to be from
re-stocking by pigment consumers who had been operating with minimal inventory
in the lead up to the end of the 2023 calendar year.  It is uncertain how
much of the demand recovery has been attributed to underlying pigment
consumption but the ongoing subdued economic conditions – particularly
sluggish housing markets – suggest that underlying pigment demand may
currently remain constrained.  While rising western pigment production rates
have increased consumption of high-grade feedstock (including rutile) through
the March and June quarters, the overhang of high-grade feedstock inventory
from the back end of 2023 has not been fully absorbed and the rutile market
has remained under pressure.  A renewed cautious buying approach by pigment
producers, combined with the recent recommencement of rutile mining in Sierra
Leone, is likely to result in the high-grade feedstock supply overhang being
maintained in the coming months and some further pressure on rutile prices. 
Conversely, the new European Union import duties on Chinese pigment are
expected to increase demand for western pigment, and in turn drive demand for
high-grade feedstock such as rutile.

 

Re-stocking of zircon by major users through the March quarter supported firm
demand for zircon for June quarter contracts.  This resulted in a slight
up-lift in prices for the quarter, however, the ongoing subdued economic
conditions, particularly in China, saw declining sentiment.  While zircon
buyers have become more cautious, the reduction in supply from some major
producers, has maintained price stability for the September quarter contracts.

 
SUSTAINABILITY
 

Health and safety

 

There were no lost time injuries during the quarter.  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 also 0.0 per million
hours worked.

 

Community and environment – Kwale Operations

 

Engagement with communities on the impact of mine closure continued throughout
the quarter with increasing focus on post-mining land use options. 

 

The Company also continued to invest in community programs albeit on a reduced
scale.  Construction of the Government funded ginnery progressed at the
farmers cooperative established by the Company (the PAVI Cooperative), with
700kgs of cotton seed also distributed to member farmers for planting. 
Poultry and bee keeping programs continue to generate positive cashflows for
participants.

 

An emergency response drill and associated information sessions relating to
the Mukurumudzi Dam and tailings storage facility were held, with close to 700
local residents participating and ensuring there is clear understanding of how
to respond in the unlikely event of an incident.

 

Consistent rainfall for the quarter allowed rehabilitation and restoration
work across the mine site to continue at pace.  Over 40,000 trees were
planted during the quarter, bringing the FY24 total to 110,000.   Seasonal
ecological monitoring was completed in partnership with the National Museums
of Kenya during the quarter with 32 new plant species and a new butterfly
species observed, indicating positive biodiversity outcomes in rehabilitated
areas. 

 

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

 

As was anticipated, following the passing of the legislative assembly
elections on 29 May 2024, further progress on agreeing the fiscal terms that
would apply to the Toliara Project and lifting of the on-ground suspension was
made.  As was confirmed during recent discussions, Base Resources considers
that in-principle agreement has been reached on the key fiscal terms that will
apply to the whole Toliara Project (i.e. both mineral sands and monazite),
although these remain subject to entry of binding documentation and therefore
the terms remain subject to change and timing is uncertain.  These key terms
include applicable royalties and Base Resources’ required contributions to
national and regional development projects, on achieving set milestones (such
as achieving the requisite legal and fiscal stability for the project) pre and
post a final investment decision.  With the Government’s expressed support
for production of monazite from the Toliara Project, the key terms also
include cooperation and facilitation in satisfying the requirements under the
new Mining Code for monazite to be added to the Toliara Project’s
Exploitation Permit.

 

Engagement with the Government is now focused on agreeing the terms of a
binding memorandum of understanding (MoU) that records the terms agreed
in-principle, a draft of which is well advanced.  Lifting of the Toliara
Project’s on-ground suspension is expected to occur upon entry into the MoU,
which Base Resources believes to be achievable in the near term.  Discussions
are also underway on the terms of the definitive investment agreement to be
entered with the Government that will replace the MoU and will establish the
necessary legal foundation for development of the Toliara Project.  The
intent is for the investment agreement to be approved and ratified by the
Malagasy Parliament and have the force of law, following which the Company
would seek eligibility certification under the Large Mining Investment Law
(LGIM) in order for (among other things) the agreed fiscal regime and then
current Malagasy law, as supplemented and clarified by the investment
agreement, to be stabilised for the duration of the certification.

 

Once fiscal terms have been recorded in binding arrangements and the
suspension has been lifted, Base Resources believes it would take
approximately 14 months to complete the necessary work to reach a final
investment decision, including:

 
* completion of the necessary land acquisitions;
* finalisation of funding arrangements;
* ratification of the investment agreement and LGIM eligibility certification;
and
* entry into offtake agreements and major construction contracts.
 

Total expenditure on the Toliara Project for the quarter was US$2.0 million
(last quarter: US$2.5 million).

 

Extensional exploration – Kenya

 

Following the Government of Kenya’s lifting of the moratorium on issuance of
mineral rights in October 2023, four of the Company’s outstanding
prospecting license applications have since been gazetted and are going
through a public notice period.  The Company continues to engage with
Kenya’s Department of Mining with a view to having these licenses issued and
the remaining applications progressed.

 

Expenditure on exploration activities during the quarter in Kenya was US$166k
(last quarter: US$246k).

 
CORPORATE
 

As at 30 June 2024, the Company had cash of US$88.1 million and no debt.

 

The Company currently has the following securities on issue:

* 1,178,011,850 fully paid ordinary shares.
* 70,275,931 performance rights issued pursuant to the terms of the Base
Resources Long Term Incentive Plan, comprising:
* 6,599,881 vested performance rights, which remain subject to exercise3; and
* 63,676,050 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:

 Australian Media Relations        UK Media Relations             
 Sodali & Co                       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



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