REG-Base Resources Limited: Quarterly Activities Report - September 2023

Base ResourcesAnnouncement

31/10/2023 07:15

 

 

 

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 products 1  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 products 1  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



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