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

Base ResourcesAnnouncement

25/10/2022 07:15

AIM and Media Release 

25 October 2022

BASE RESOURCES LIMITED
Quarterly Activities Report – September 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 September 2022.

Key Points
* Strong demand for rutile supported further price gains while ilmenite and
zircon prices remained stable.
* Record revenue to cost of sales ratio of 3.6:1.
* Bumamani Project implementation remains on schedule - extending Kwale
Operations mine life to late 2024.
* Drilling program commenced in Tanzania with 74 holes for 1,548m drilled and
an auger drill program has commenced North-East of Kwale Operations.
* 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 early
in the March quarter.
KWALE OPERATIONS

Operational performance

Mining operations continued on the South Dune orebody with mined tonnage as
planned at 4.4 million tonnes (Mt) (last quarter 3.9Mt), with the prior
quarter affected by a couple of unplanned stoppages.  The heavy mineral (HM)
grade of ore mined in the quarter was lower at 3.78% (last quarter: 4.06%) due
to mining of low-grade ore as mining blocks were completed. 

The net result of higher tonnes mined and lower ore grade was a 4% increase in
heavy mineral concentrate (HMC) production over the prior quarter, producing a
corresponding increase to ilmenite production.  However, rutile and zircon
production were slightly lower in the quarter due to a combination of a lower
proportion of rutile and zircon in the mineral assemblage of ore mined and
lower recoveries in the mineral separation plant.  The HMC stockpile remained
steady at 10kt. 

Bulk loading operations at the Likoni export facility continued to run
smoothly, dispatching a combined 63kt of bulk ilmenite and rutile (last
quarter: 116kt).  Containerised shipments of rutile and zircon through the
Mombasa Port also proceeded to plan.

 SUMMARY BY QUARTER               FY22           FY23  
                          SEP   DEC   MAR   JUN   SEP  
 Mining (million tonnes)                               
 Ore mined                 4.4   4.3   3.9   3.9   4.4 
 HM %                     3.26  3.82  3.84  4.06  3.78 
 VHM %                    2.50  2.94  2.92  3.12  2.85 
                                                       
 Production (thousand tonnes)                          
 Ilmenite                 72.9  84.0  84.5  83.8  86.0 
 Rutile                   17.8  18.4  18.9  19.2  18.9 
 Zircon                    6.1   6.4   6.3   6.8   6.6 
 Low grade products (1)    0.5   3.5   4.4   4.9   5.7 

   

 SUMMARY BY QUARTER                FY22           FY23  
                          SEP   DEC    MAR   JUN   SEP  
 US$ per tonne                                          
 Sales revenue            $668   $459  $740  $691  $714 
 Operating costs          $174   $161  $149  $152  $154 
 Cost of goods sold       $264   $156  $227  $196  $200 
 Revenue: Cost ratio       2.5    2.9   3.3   3.5   3.6 
 Sales (thousand tonnes)                                
 Ilmenite                 34.1  130.0  75.5  95.7  62.6 
 Rutile                   13.8   11.6  25.3  24.7  14.2 
 Zircon                    5.6    6.2   6.9   7.1   6.2 
 Low grade products (1)    0.6    1.5   4.8   4.7   4.5 

[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.]

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 the tailings storage
facility wall, Central Dune and South Dune proceeded to plan during the
quarter.

Total cash operating costs of US$17.9 million increased compared to the prior
quarter (last quarter at US$17.4 million) primarily due to the increased ore
volume mined, higher pumping costs as mining continued to move further away
from the plant and the increased unit cost of electricity.  With a marginal
increase in final production offsetting the higher operating costs, unit
operating costs remained steady at US$154 per tonne produced (rutile,
ilmenite, zircon, low-grade zircon and low-grade rutile) (last quarter: US$152
per tonne).

Cost of goods sold increased to US$200 per tonne sold (operating costs,
adjusted for stockpile movements, and royalties) due to higher operating costs
(last quarter: US$196 per tonne), while average unit revenue increased to
US$714 per tonne (prior quarter: US$691 per tonne) due to higher rutile
prices.  Consequently, the revenue to cost of goods sold ratio for the
quarter reached a record high level of 3.6 (last quarter: 3.5).

FY23 production guidance

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.
The 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 16.5Mt at an average HM grade of 3.51%.
* HMC produced by the wet concentrator plant of 571kt.
* HMC fed into the mineral separation plant of 556kt.
* Mineral separation plant recoveries of 101% for rutile, 101.5% for ilmenite
and 84.5% for zircon.
MARKETING

A subdued economic environment in Asia and Europe began to impact conditions
for downstream products in most market segments through the quarter, however,
demand for feedstock held up well.  This allowed further price gains to be
achieved for rutile and stable prices for ilmenite and zircon to be
maintained.  Demand for most mineral sands products is expected to ease
through the December quarter, however this should be partially offset by
ongoing supply constraints.

Demand for imported ilmenite as a feedstock for Chinese TiO(2) pigment
producers remained steady through the quarter. 

Weakening Chinese domestic pigment demand is placing pressure on Chinese
producers and there are reports of some plants curtailing production. 
However, pigment producers with exposure to export markets have been able to
continue operating at high production levels as they have increased their
offshore sales, particularly to Europe where several pigment producers have
announced production cuts due to increasing cost pressures.  While it is
expected that the economic situation in Europe will reduce overall pigment
demand, it is expected to continue to support Chinese pigment exports, which
will, in turn, support demand for ilmenite imported into China.  Most Chinese
pigment exporters are dependent on imported ilmenite, as opposed to domestic
ilmenite, for quality and/or logistics reasons.

A shortage of high grade TiO(2) feedstocks (which includes rutile) persisted
through the first part of the September quarter resulting in further price
gains being secured in sales contracts for the second half of calendar year
2022.  However, easing pigment market conditions in Europe during the latter
part of the quarter prompted some western pigment producers to issue guidance
downgrades.  This is expected to weigh on rutile demand as we move into
2023.  Demand from the smaller welding and titanium metal sectors remains
strong.  Rutile prices are generally fixed on a half yearly basis and are
therefore expected to remain flat through the December quarter.

Strong market conditions for zircon in Europe largely off-set weaker
conditions in China during the quarter.  However, a softening European
ceramics sector is likely to see a drop in overall zircon demand during the
December quarter.  While zircon sales quantities remain in line with
production levels, the weakening market outlook has resulted in a reduction in
zircon prices for December quarter sales contracts.  

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 two medical treatment
injuries recorded in the last 12 months, Base Resources’ total recordable
injury frequency rate is 0.72 per million hours worked.

Community and environment – Kwale Operations

Following the late arrival of the rainy season, farmers participating in the
Company’s agricultural livelihood programs in Kwale, implemented through the
PAVI farmers’ cooperative, commenced harvesting of cotton, soybean,
sunflower, pearl millet, groundnuts and sorghum, with a strong yield
expected.  Disbursement of funds for tertiary scholarships also commenced
during the quarter.

Implementation of identified projects by the Msambweni, 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 operation is underway,
the outcomes of which will guide enhancements for future implementation. 

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, continued to advance in the quarter with positive
progress made.

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
acquisition, 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 will assess the commercial
potential of the monazite contained in the Toliara Project’s Ranobe Mineral
Resources estimate, continued to progress and is now scheduled for completion
in the March 2023 quarter.

Total expenditure on the Toliara Project for the quarter increased to US$2.0
million (last quarter: US$1.0 million), with increased spend on the Rare
Earths Concept Study and government relations activities.

Kwale mine life extension

Implementation of the Bumamani Project continued during the quarter and mining
activities on the Kwale North Dune remain on schedule to commence in March
2023.  The Bumamani Project deposits, which include the Kwale North Dune,
will be mined concurrently with the Kwale South Dune deposit to maximise
mining rates and better manage tailings, and are expected to extend Kwale
Operations mine life by 13 months to late 2024.  Expenditure on the Bumamani
Project during the quarter was US$9.2 million (last quarter: US$0.1 million)
with land acquisition, earthworks and procurement activities taking place.

Extensional exploration – Kenya and Tanzania

On-ground exploration in Tanzania continued, with a 3,000m reverse circulation
drilling program commencing during the quarter - refer to the PDF version of
this release (Figure 1) for a photograph of the drill rig, available from the
Company’s website:  www.baseresources.com.au.  At the end of the quarter,
74 holes had been drilled for a total of 1,548m.  The drill samples are being
exported to Kenya for analysis at the Kwale Operations laboratory.  Results
from the drill program are expected to be released in the March 2023 quarter.
 If justified by the results, a further 10,000m infill drill program is
planned.

The drill program to the North-East of Kwale Operations within Prospecting
Licence 2018/0119 was on hold during the quarter pending land access being
obtained.  Subsequent to the end of the quarter, following community support
and consent, an auger drilling program commenced in the northern sector of the
area.  No exploration activities were conducted on the Prospecting Licence in
the Vanga region in the 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$0.2 million (last quarter: US$0.2 million) and in Kenya was US$0.1 million
(last quarter: US$0.2 million).

CORPORATE

Following release of the Company’s full-year results for the 2022 financial
year (FY22) and disciplined application of the Company’s capital management
policy, a final dividend of AUD 3.0 cents per share (unfranked) was paid to
shareholders on 22 September 2022, representing a cash payment of US$22.7
million (in aggregate).  This brought total dividends in respect of FY22 to
AUD 6.0 cents per share (unfranked), equal to US$48.8 million (in aggregate).

As at 30 September 2022, the Company had net cash of US$73.1 million
consisting of:
* cash and cash equivalents of US$73.1 million; and 
* no debt.
As at 12 October 2022, the Company had the following securities on issue:
* 1,178,011,850 fully paid ordinary shares.
* 56,850,643 performance rights pursuant to the terms of the Base Resources
Long Term Incentive Plan, comprising: * 19,782,733 vested performance rights,
which remain subject to exercise(2); and
* 37,067,910 unvested performance rights subject to performance testing in
accordance with their terms of issue.
[Note (2): 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 release 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 (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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West Perth, Western Australia, 6005
Email:  info@baseresources.com.au
Phone: +61 (0)8 9413 7400
Fax: +61 (0)8 9322 8912

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Stephen Allen
Phone: +61 (0)8 9480 2500

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Matthew Armitt / Detlir Elezi
Phone: +44 20 3207 7800

JOINT BROKER
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Phone: +44 20 7523 8000



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