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 world-class 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 a market capitalisation of around $368 million.
What are the key features of the FY21 result?
Base reported revenue of US$198.2 million in FY21 which is 5% lower than in FY20. This outcome reflects lower production due to a fall in grade partly offset by higher mineral sands prices. For FY21, Base also reported a free cash flow of US$40.0 million (operating cash flows of US$64.5 million less investing cash flows of US$24.5 million) and net profit after tax of US$11 million. The base has a net cash position of US$64.9 million as of 30 June 2021.
The base will pay a dividend of AUD4.0 cents per share (unfranked). This brings total dividends in respect of FY21 to US$60.8 million, representing AUD7.0 cents per share (unfranked). This is consistent with Base’s capital management policy of returning cash to shareholders which are not required to meet the Company’s near-term growth and development requirements or to maintain requisite balance sheet strength in light of prevailing circumstances. In essence, returning cash to shareholders reflects the fact that the timing of the Toliara Project final investment decision remains uncertain.
What is the outlook for Base?
The base provided guidance for FY21 production for each of its three products. This guidance suggests that production in FY22 will be around the level recorded in FY21.
Over the medium to long term, growth is dependent on two mineral sands projects. The first is the Kwale Project. The current mine life of the Kwale Project is around mid-2024 which includes obtaining ore from the Bumamani and Kwale North Dune deposits. The base continues to investigate possibilities of extending this mine life by undertaking exploration.
The second is the Toliara Project. The Toliara Project is a major ilmenite project (with zircon as a by-product) that could produce an annual cash flow of over US$100 million over the 33 years plus project life. A final investment decision on this project is currently on hold. The key issue facing the Toliara project in resolving fiscal terms with the Government of Madagascar. The company is confident it is making progress on settling this issue. Other issues relate to restrictions on international travel and finalising funding for the project. The base remains confident in securing a joint venture partner to partially fund the project.
While timing remains highly uncertain, construction of the Toliara project could commence by the end of 2022 and production could commence in early 2025. This timing of the project is expected to coincide with emerging supply shortages in the industry.
What is the market’s reaction?
Base’s share price is trading at around $A0.31 (6 September 2021). Base trades on a P/E ratio of around 20x forward earnings and a dividend yield of 22% (unfranked).
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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