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

Base ResourcesAnnouncement

30/04/2024 07:15

 

 

 

AIM and Media Release 

30 April 2024

 

Base Resources Limited 
Quarterly Activities Report – March 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 31 March 2024.


Key Points

Corporate
* Post quarter-end, 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. 
* Subject to satisfaction of several conditions, Energy Fuels will acquire
100% of the issued shares in Base Resources by way of scheme of arrangement in
return for 0.0260 Energy Fuels common shares plus an unfranked special
dividend of A$0.065 per Base Resources shares, representing a premium of 188%
to Base Resources’ last pre-announcement closing price.
Kwale Operations
* Following depletion of South Dune ore reserves, mining operations were
successfully relocated to the Bumamani deposit over a two-week period
resulting in reduced tonnage in the quarter.
* Due to improvements in HMC quality, FY24 production guidance has been
revised upwards.  Production guidance for FY25 (to the end of Kwale
Operations’ mine life) also issued.
* After challenging conditions over the past few quarters, the market
stabilised as demand improved and some downstream re-stocking supported flat
pricing across all products. 
Toliara Project
* Engagement on Toliara Project fiscal terms and lifting of the project’s
on-ground suspension was reinitiated after President Rajoelina formed his new
government in January.
* Substantial progress was made towards agreeing the fiscal terms for the
Toliara Project, with the Government indicating that finalising terms and
launching the project is a priority.
 
PROPOSED COMBINATION WITH ENERGY FUELS
On 22 April 2024, the Company announced that it had entered a binding scheme
implementation deed with Energy Fuels Inc. (NYSE American: UUUU, TSX: EFR)
(Energy Fuels) pursuant to which Energy Fuels agreed to acquire 100% of the
issued shares in Base Resources by way of scheme of arrangement (Transaction
or Scheme).  The Transaction will establish a global leader in the critical
minerals sector with a focus on rare earth elements, uranium and heavy mineral
sands production with a clear strategic development pathway. 

Under the terms of the Transaction, Base Resources shareholders will be
entitled to receive 0.0260 Energy Fuels common shares, plus A$0.065 in cash
via an unfranked special dividend payable by Base Resources1 (together, the
Transaction Consideration), for each Base Resources share held.  The
Transaction Consideration implies an offer price of A$0.302 per share and
represents a premium of 188% to Base Resources’ last closing price prior to
announcement of the Transaction2.

 

Base Resources’ Board has unanimously recommended that shareholders vote in
favour of the Scheme and each Director owning Base Resources shares intends to
vote all those shares in favour of the Scheme3.  Voting intention statements
were also received from each of Base Resources’ two major shareholders
(owning 26.5% and 24.8% respectively of the shares on issue) confirming that
they each intend to vote in favour of the Scheme3.

 

Energy Fuels is the largest producer of uranium in the United States, with its
yellowcake sold to major nuclear utilities.  Energy Fuels’ White Mesa mill
in Utah is the only operating conventional uranium and vanadium mill in the
United States, and the only mill in North America with the capabilities to
extract rare earth elements (REEs) from monazite feed to produce high-purity
advanced REE products.  Since 2021, the White Mesa mill has successfully
produced commercial quantities of REE products from monazite feedstock.

 

Potential benefits of the Transaction to Base Resources shareholders (in
addition to the significant premium offered) include:

 
* A combined group with a strong platform for funding development of the
Toliara Project, through the step-change in market capitalisation, trading
liquidity, market profile and funding capacity, plus an enhanced opportunity
to secure strategic, low-cost United States Government critical minerals
funding support.  
* An opportunity to add significant value to the monazite produced at the
Toliara Project by capturing a greater share of the REE value chain through
processing at the White Mesa mill into separated rare earth oxides4.
* An opportunity to retain exposure to a unique diversified critical minerals
business.
 

The independent expert, PwC, has commenced their work, as has the independent
technical specialist, AMC Consultants.  Base Resources and Energy Fuels are
progressing the key regulatory approvals required in Australia, Kenya and
Madagascar, with preparation of the scheme booklet underway targeting despatch
to shareholders in late June/early July 2024.

 

[Notes: (1): Payment of the special dividend is conditional on the Scheme
becoming legally effective. (2): Implied offer price and premium based on (as
applicable) Energy Fuels’ and Base Resources’ last closing price, prior to
announcement of the Transaction, on 19 April 2024 of US$5.84 and A$0.105 per
share, respectively, and a AUD:USD exchange rate of 0.6400. (3): In each case,
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 shareholders. (4): Subject to Energy Fuels completing
commissioning of Phase 1 of its REE separation facility at the White Mesa
mill, and then arranging for and making a development decision on Phase 2 of
this facility.]
KWALE OPERATIONSOperational performance  
South Dune ore reserves were fully depleted early in the quarter, following
which, mining operations were successfully relocated to the Bumamani
deposit.  This major logistical exercise was completed over a two-week period
resulting in lower mined tonnage of 3.7 million tonnes (Mt) in the quarter
(last quarter: 3.9Mt).  Mining at the North Dune continued uninterrupted
throughout the quarter.

 

 SUMMARY BY QUARTER    FY23        FY24              
                       MAR   JUN   SEP   DEC   MAR   
 Mining (million tonnes)                             
 Ore mined             3.3   4.1   4.1   3.9   3.7   
 HM %                  3.9   3.0   2.5   2.2   2.4   
 VHM %                 3.1   2.3   1.9   1.7   1.9   
                                                     
 Production (thousand tonnes)                        
 Ilmenite              71.6  55.5  38.8  38.9  33.5  
 Rutile                16.6  13.8  9.6   9.3   9.0   
 Zircon                6.4   5.5   3.8   3.8   3.7   
 Low grade products 5  4.1   3.4   2.0   2.2   2.3   

  

 

 SUMMARY BY QUARTER    FY23        FY24                
                       MAR   JUN   SEP     DEC   MAR   
 US$ per tonne                                         
 Sales revenue         $637  $695  $1,029  $589  $685  
 Operating costs       $190  $240  $343    $317  $373  
 Cost of goods sold    $195  $263  $442    $315  $403  
 Revenue: Cost ratio   3.3   2.6   2.3     1.9   1.7   
 Sales (thousand tonnes)                               
 Ilmenite              86.2  74.6  11.1    63.7  20.1  
 Rutile                15.2  19.6  5.5     15.0  3.9   
 Zircon                7.4   6.6   3.9     3.3   4.5   
 Low grade products 5  5.3   3.2   2.0     2.6   1.0   

 

[Note (5): 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.]

 

The heavy mineral (HM) grade of ore mined in the quarter was higher than last
quarter at 2.4% (last quarter: 2.2% HM), due to the introduction of the
higher-grade feed from the Bumamani deposit and a high-grade strand
encountered in the North Dune.  The grade and volume of ore mined in the
quarter, together with lower slimes content and an increase in concentrator
recoveries, increased heavy mineral concentrate (HMC) production to 73.3kt
(last quarter: 67.5kt).  At these ore grades and HMC production rates, 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 lower in
the quarter at 63.0kt (last quarter: 71.4kt).

 

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 the rehabilitation activities for the
entire South Dune mining area expected to be largely complete by June 2024.

 

Bulk shipping operations at the Company’s Likoni export facility continued
to run smoothly with 20kt of bulk ilmenite dispatched (last quarter:
73.6kt).  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$18.1 million were higher compared to the
prior quarter (last quarter: US$17.2 million) primarily due to increased unit
power costs.  When combined with lower overall production volume, this
resulted in an increase in unit operating costs for the quarter to US$373 per
tonne produced (rutile, ilmenite, zircon and low-grade products) (last
quarter: US$317 per tonne).

 

Cost of goods sold also increased to US$403 per tonne sold (operating costs,
adjusted for stockpile movements, and royalties) due to the increased unit
operating costs and product sales mix (last quarter: US$315 per tonne). 
Average unit revenue was also higher at US$685 per tonne (prior quarter:
US$589 per tonne) due to the increased proportion of rutile and zircon in the
sales mix.  Consequently, the revenue to cost of goods sold ratio for the
quarter decreased to 1.7 (last quarter: 1.9).

 


 
Transition to closure
 

Mining at Kwale Operations is expected to end in December 2024 when ore
reserves are fully depleted, with processing activities concluding shortly
thereafter.  A detailed mine closure plan is well advanced, covering all
aspects of the transition from operations to closure and aims to achieve Base
Resources’ objective of transitioning Kwale Operations to a post-mining
state that cements the Company’s reputation for excellence across the full
life cycle of mining.

 
Production guidance
 

Improvements in the quality of HMC produced through the rejection of more
‘trash’ minerals has increased the proportion of rutile, ilmenite and
zircon in the MSP feed.  With the expectation that this trend will continue,
and in conjunction with the higher than planned mining volumes and ore grades
achieved year to date, the production guidance for all products has been
revised upwards for the 2024 financial year (FY24) as set out in the table
below.  Production guidance for the 2025 financial year (FY25) is also set
out in the table.  With mining at Kwale Operations expected to end in
December 2024 when ore reserves are fully depleted, the production guidance
for FY25 is considerably lower than FY24.

 

                               FY24 Guidance Range                     FY25                 
 PRODUCTION GUIDANCE (tonnes)  Original            Updated             To end of mine life  
 Rutile                        35,000 to 41,000    38,000 to 42,000    17,000 to 19,000     
 Ilmenite                      130,000 to 160,000  145,000 to 160,000  55,000 to 63,000     
 Zircon                        13,000 to 16,000    15,000 to 17,000    5,500 to 7,000       

 

The production guidance for FY25, is based on the following assumptions:
* Mining of 6.3Mt at an average HM grade of 1.90%, with the volume coming
predominately from Ore Reserves. 
* HMC produced by the wet concentrator plant of 118kt.
* HMC fed into the MSP feed of 123kt.
* MSP product recoveries of 101% for rutile, 101.5% for ilmenite and 84.5% for
zircon.
MARKETING
After challenging conditions over the past few quarters, the market stabilised
through the March quarter as demand improved and some downstream re-stocking
supported flat pricing across all products.

 

Chinese pigment plants continue to operate at high levels of production,
driven by ongoing strong pigment exports – maintaining firm demand for
ilmenite.  An improved global pigment outlook and speculation over the
potential for new import tariffs to be applied to Chinese pigment in the
European Union by mid-2024 supported increased Chinese pigment imports into
Europe through the quarter, which has so far continued through the June
quarter.  This improved export demand for Chinese pigment has balanced the
ilmenite market, which had been experiencing an over-supply of Chinese
domestic ilmenite in the previous few quarters.

 

Chloride pigment producers in China remain reliant on good quality imported
ilmenite and are expected to continue increasing output over time –
providing strong ongoing market support for Base Resources’ ilmenite.

 

Western pigment producers have mostly reported improved sales volumes for the
quarter with a positive order book outlook for the June quarter.  This has
resulted in increased pigment production rates and consumption of high-grade
feedstock including rutile.  Despite the improved demand, prices for bulk
rutile have remained under pressure in the quarter due to the elevated
inventories.  However, the recent suspension of rutile mining in Sierra Leone
and reduced 2024 production guidance from some major high grade feedstock
producers is likely to result in inventories being run down and tighter market
conditions in the coming quarters.

 

Rutile demand from the smaller welding and titanium metal sectors remains
firm.  The expected tightening of the rutile market is likely to see prices
improve in these sectors at some point in the next few months.  Base
Resources benefits from having a premium grade rutile product that is suitable
for niche high-end welding applications and will continue to target a high
proportion of rutile sales to this market.

 

Re-stocking of zircon by major users in Europe and China through the quarter
has supported stable zircon pricing.  When combined with a reduction in
production guidance from a major zircon producer, this has resulted in slight
price gains for June quarter contracts.  Zircon demand and prices beyond the
June quarter will depend upon economic developments in major markets and
whether the current optimism and re-stocking of zircon continues.
SUSTAINABILITYHealth 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 also 0.0 per million
hours worked.

 
Community and environment – Kwale Operations
 

Engagements with communities on the impact of mine closure continued
throughout the quarter with the focus of these engagements shifting to
discussions on post-mining land use options.  A further impact of mine
closure is the conclusion of the Company’s scholarship and bursary support
program, with the final disbursements commencing during the quarter for
existing beneficiaries.  Mentoring sessions for current students were
conducted to reinforce the importance of staying in school and working hard.

 

Support for agricultural livelihood programs continued through the PAVI
Farmers’ Cooperative which undertook a farmer recruitment exercise ahead of
the “long-rains” wet season.  Over 750 small-scale farmers signed up to
grow cotton and maize.  Construction of the Government of Kenya funded cotton
ginnery at PAVI’s business park also progressed.

Infrastructure programs continue to be implemented by the three Community
Development Agreement Committees established for the communities affected by
Kwale Operations, with the programs focusing on improving infrastructure in
local schools and access to clean water.

 

Average rainfall for the quarter allowed rehabilitation and restoration work
across the mine site to continue at pace.  Over 30,000 trees were planted
during the quarter, including within the tailings storage facility where
eucalypt species are being trialled as part of its dewatering plan following
mine closure.  Seasonal ecological monitoring was completed in partnership
with the National Museums of Kenya during the quarter with 13 new plant
species and three new microinvertebrate 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 DEVELOPMENTToliara Project development – Madagascar
 

Following the presidential elections late last year, President Rajoelina
formed his new government and appointed his cabinet in January, with the
incumbent Minister of Mines re-appointed.  Re-engagement with the Government
of Madagascar, including the Minister of Mines, recommenced shortly following
formation of cabinet and continued through the quarter.  The Minister has
expressed that concluding negotiations on Toliara Project fiscal terms and
lifting of the project’s on-ground suspension is a priority for the
Government.  Leveraging the in-principle agreement reached last year on the
fiscal terms that would apply for the mineral sands aspect of the project,
substantial progress was made on fiscal terms discussions during the
quarter.  These discussions focused on the new Mining Code’s fiscal regime
and how this would apply to the whole of the Toliara Project (i.e. both
mineral sands and monazite), with the Government expressing support for the
production of a monazite product from the project.  While progress slowed
towards the end of the quarter as the Government’s attention shifted to the
upcoming legislative assembly elections on 29 May 2024, the Company expects
good progress once these elections have concluded.

 

Following its passing into law late last year, the Government is preparing the
Implementing Decree for the new Mining Code.  Initial high-level industry
consultation on key aspects of the Implementing Decree was recently held
(subsequent to quarter end), with a draft decree expected to be available for
review and industry consultation in the near term.  As previously disclosed,
while key financial elements of the new Mining Code appear to not be
materially different from those assumed for the Toliara Project Mineral Sands
DFS2, the application of these elements and other key provisions lack
sufficient detail to fully assess their potential impact on the project.  The
Implementing Decree (and any further supporting regulations, orders and
decrees) once finalised will provide greater clarity on the new Mining Code
regime and its application to the Toliara Project.

 

The Company remains 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.

 

Total expenditure on the Toliara Project for the quarter was US$2.5 million
(last quarter: US$2.3 million).

 
Extensional exploration – Kenya
 

Despite last quarter’s announcement that the moratorium on issuance of
mining rights for all construction and industrial minerals was lifted,
including for heavy mineral sands, no prospecting licences have been issued.
 The Company continues to engage with Kenya’s Department of Mining with a
view to progressing its eight prospecting licence applications in the 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$246k
(last quarter: US$430k).
CORPORATE 
As at 31 March 2024, the Company had cash of US$83.0 million and no debt.

 

The Company currently has the following securities on issue:
* 1,178,011,850 fully paid ordinary shares.
* 72,041,626 performance rights issued pursuant to the terms of the Base
Resources Long Term Incentive Plan, comprising:
* 8,295,847 vested performance rights, which remain subject to exercise6; and
* 63,745,779 unvested performance rights subject to performance testing in
accordance with their terms of issue.
 

[Note (6): Vested performance rights have a nil cash exercise price.  Unless
exercised beforehand, these rights expire five years after vesting.]

 
INVESTOR CONFERENCE CALL
 

Base Resources will host an investor conference call to discuss the quarterly
activities update.  The briefing will be hosted by Base Resources’ Managing
Director, Tim Carstens, Chief Financial Officer, Kevin Balloch, and General
Manager - Marketing, Stephen Hay, who will each also be available to answer
questions at the end of the call.

 

All participants will need to pre-register their details using the
teleconference registration URL provided below. Upon registering, participants
will receive a calendar invite with their unique PIN and dial-in details so
that they can join the call without speaking to an operator.

 
Investor conference call details* Date: Tuesday, 30 April 2024
* Time: 4:30pm AWST / 9.30am (London time)
* Teleconference pre-registration URL:
https://registrations.events/direct/OCP488275
 

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:

 Australian Media Relations        UK Media Relations             
 Morrow Sodali                     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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