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Base Resources Ltd Definitive Feasibility Study

Jordan Baird

Jordan Baird is the head ASR Wealth Advisers client services desk and has been with the organisation since 2017. He first started investing in his early years. While he believes that investors should leave no stone unturned he has a particular interest in trading based on broad macroeconomic trends along with specific analysis of innovative up-and-coming companies.

Base Resources Ltd (ASX: BSE) is an Australian based, African focused, mineral sands producer and developer with a track record of project delivery and operational performance. It operates the Kwale Project in Kenya and is developing the Toliara Project in Madagascar. Mineral sands are used to manufacture everyday “quality-of life” items such as paints (ilmenite and rutile) and ceramic tiles (zircon). Base Resources has as a market capitalisation of around $257 million.

Base Resources - Feasability Study

What is Base Resources Toliara project?

The Toliara Project is a major ilmenite project (with zircon as a by-product) which could produce annual cashflow of over $US110 million over the 33 years plus project life.

Today (12 December 2019) Base Resourced released a Definitive Feasibility Study for the Toliara Project. The key findings are as follows:

  • Post-tax / pre-debt (real) NPV @ 10% discount rate of US$652 million.
  • Average revenue to cost of sales ratio of 3.15.
  • Stage 1 capex cost of US$442 million – to establish a 13Mtpa mining processing operation. Stage 2 capex cost of US$69 million – to increase the operation to 19Mtpa.
  • Ore Reserves estimate of 586Mt @ 6.50% HM for an initial LOM of 33 years.
  • Mineral Separation Plant recoveries of 94.6% ilmenite, 79.4% zircon and 58.4% rutile.
  • Annual averages (excluding first and last partial operating years):
    • Production of 780kt ilmenite (sulphate, slag and chloride), 53kt zircon and 7kt rutile per year.
    • Revenue of US$248.2 million per year – 65% ilmenite, 32% zircon and 3% rutile.
    • Operating costs of US$76.9 million per year including 2% Government royalty.
    • EBITDA of US$164.3 million, NPAT US$110.2 million per year. Free cash flow of US$132.4 million per year.

Base Resources expects to make the final investment decision in September 2020. The key uncertainty is funding the project. Base Resources indicates the following:

  • 40% Base Resources equity contribution: $238 million is to be sourced from cash generated from Kwale Operations, equity contributions from a joint venture participant (in conjunction with substantial offtake arrangements) and/or a capital raising of up to $110 million. Additionally, successful negotiation of a targeted VAT exemption could reduce the overall funding requirement by $46 million and an increase in the debt funding level achieved would both contribute to reducing the required equity funding.
  • 60% Debt: $357 million is to be sourced from traditional banks. On the above basis, financial modelling confirms the project’s ability to comfortably support this debt load.

Overtime, the project is estimated to generate cash flow of US$3.7 billion over 31 years. The project’s cash flow is illustrated in the graph below:



What was the market’s reaction to these announcements?

The market reaction to Base Resources announcement is neutral. Base Resources share price is currently trading at A$0.22. The Toliara project is world class mineral sands project that has not been priced into Base Resources share price. This could change over time as the project approaches production. Base Resources is trading at a forward P/E ratio of 5x earnings.  




This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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