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Base Resources Ltd Quarterly Activities Report

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

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 $175 million.



What are the key points of Base Resources quarterly report?

Base Resources production levels has remained strong in Q3FY20. Ilmenite Q3FY20 production (in tonnes) is 105,035 (Q2FY20 production level 91,406), rutile Q3FY20 production (in tonnes) is 23,683 (Q2FY20 production level 19,812), zircon production (in tonnes) is 9,163 (Q2FY20 production level 7,923) and zircon low grade Q3FY20 production (in tonnes) is 780 (Q2FY20 production level 546).

In addition to strong production levels, unit revenue per tonne of product sold for Q3FY20 is US$476 million, while unit operating costs per tonne produced for Q3FY20 is US$128 million. This represents a revenue: cost of goods sold ratio of 2.7.

Base Resources Kwale Operations continue uninterrupted with health and safety procedures implemented to minimise the risk of COVID-19 to personnel and surrounding communities. However, the Toliara Project FID, expected in September 202, has delayed due to COVID-19 impacts. No guidance is provided when this might occur.

What is the outlook for Base Resources?

Base Resources has announced that FY20 production guidance remains unchanged. FY20 production is as follows: Rutile - 75,000 to 81,000 tonnes, ilmenite - 335,000 to 355,000 tonnes, zircon - 29,000 to 32,000 tonnes.

In Q3FY20, Base Resources spent around $US3.3 million on the Toliara Project in Madagascar (Q2FY20 US$6.8 million). Base Resources have made 2 important announcements regarding this project: Firstly, completion of the French translation of the DFS, required to support the Company’s Large Mining Investment Law (LGIM) application. Secondly, commencement of front-end engineering design (FEED) activities. The Toliara Project is a major ilmenite project (with zircon as a by-product) which could produce annual cashflow of over $US100 million over the 33 years plus project life. Production was due to commence in late 2022 but now this has been delayed to possibly sometime in 2023. The timing of the project is expected to coincide with emerging supply shortages in the industry.

The continued success of the Kwale Project should provide Base Resources with enough cash flow to help fund the Toliara Project.

Regarding the Extensional exploration at the Kwale Project in Kenya, progress this quarter has slowed due to the Kenyan Government focusing on combating COVID-19. However, a concept study for mining the 171Mt North Dune Mineral Resources estimate (136Mt Indicated and 34Mt Inferred) was completed in early January 2020, with a pre-feasibility study commencing in the quarter.

What is the market reaction?

The market reaction to Base Resources announcement is neutral. Base Resources share price remains unchanged at 15 cents.



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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