TIDMBSE
AIM Release
25 February 2019
BASE RESOURCES LIMITED
Interim Financial Report - period ended 31 December 2018
Base Resources Limited (ASX & AIM: BSE) (Base Resources or the Company) is
pleased to provide the following extracts from the company's Interim Financial
Report for the six months ended 31 December 2018.
1. Review of Operations
2. Market Developments and Outlook
3. Review of Financial Performance
4. Consolidated Condensed Statement of Profit or Loss and Other Comprehensive
Income
5. Consolidated Condensed Statement of Financial Position
6. Consolidated Condensed Statement of Changes in Equity
7. Consolidated Condensed Statement of Cash Flows
These extracts should be read with reference to the notes contained in the full
version of the Interim Financial Report, a copy of which is available from the
Company's website: www.baseresources.com.au . The Company has also released an
Investor Presentation to accompany its Interim Financial Report, a PDF copy of
which is available from the Company's website: www.baseresources.com.au .
Highlights
Highlights from Base Resources' interim financial results for the six-month
period ended 31 December 2018 are as follows:
Operational Highlights for H1 FY191
* 66% increase in mined ore at Kwale Operations offsets lower ore grade;
* Steady production - 49,630 tonnes of rutile, 226,730 tonnes of ilmenite and
17,935 tonnes of zircon;
* Continued strengthening of rutile and zircon prices;
* 136km2 Vanga prospecting licence issued, extending south west from the
Company's existing Kwale Operation;
* Total Recordable Injury Frequency Rate of zero - no lost time due to injury
since 2014; and
* US$2.0m invested in community and environmental programs including
scholarships and livelihood enhancement.
Financial Highlights for H1 FY19
* Revenue increased 13% to US$102.2m;
* EBITDA increased 7% to US$57.5m;
* NPAT increased 4% to US$17.4m;
* Net debt free at 31 December 2018 - a reduction of US$34.2m during the
period; and
* Revenue to cost of sales ratio of 2.7:1.
[Note 1: All figures reported in United States dollars unless otherwise
stated.]
1. Review of Operations
Base Resources operates the Kwale Operation in Kenya, which commenced
production in late 2013. The Kwale Operation is located 50 kilometres south of
Mombasa, the principal port facility for East Africa.
In order to counter declining grades, and to fully exploit the availability of
mineral separation plant (MSP) capacity, the Company completed the Kwale Phase
2 mine optimisation project in second half of the 2018 financial year.
Following its successful implementation, mining volumes ramped up
significantly, resulting in ore tonnes mined in the reporting period increasing
by 66% over the comparative period. Mined ore grade of 4.18% for the reporting
period was lower than the comparative period (7.61%), as expected, as mining
proceeded around the fringes of the Central Dune orebody.
Mining and Wet Concentrator Plant (WCP) Performance Six months to Six months to
Dec 2018 Dec 2017
Ore mined (tonnes) 9,828,180 5,906,079
Heavy mineral (HM) % 4.18% 7.61%
WCP Heavy mineral concentrate produced (tonnes) 348,015 435,305
Despite the increase in mining volume, production of heavy mineral concentrate
(HMC) decreased by 20% to 348,015 tonnes due to the lower ore grade. In order
to maintain steady MSP throughput, an additional 32,203 tonnes of HMC was drawn
from the HMC stockpile (comparative period: 54,008 tonnes added to HMC
stockpile), which closed the reporting period with a balance of 45,709 tonnes.
MSP Performance Six months to Six months to
Dec 2018 Dec 2017
MSP feed (tonnes of heavy mineral concentrate) 385,944 381,297
MSP feed rate (tph) 90 91
MSP recovery % (i)
Ilmenite 102% 100%
Rutile 99% 100%
Zircon 76% 77%
Production (tonnes)
Ilmenite 226,730 238,585
Rutile 49,630 45,587
Zircon 17,935 18,705
Zircon low grade - 1,425
(i) The presence of altered ilmenite species that are not defined as either
"rutile" or "ilmenite" in the Mineral Resource but are recovered in the
production of both, results in calculated recoveries above 100% being
achievable for both products
The MSP has continued to maintain high throughput rates with an average of
90tph achieved for the reporting period (comparative period: 91tph), whilst
achieving availability of 97% (comparative period: 95%), which resulted in
total MSP feed of 385,944 tonnes (comparative period: 381,297 tonnes).
Ilmenite production in the reporting period was lower at 226,730 tonnes
(comparative period: 238,585 tonnes), due to lower contained ilmenite in the
MSP feed, partly offset by the higher average ilmenite recoveries of 102% (100%
in the comparative period).
Rutile production increased to 49,630 tonnes in the reporting period
(comparative period: 45,587 tonnes) due to higher contained rutile in the MSP
feed, with recoveries reasonably steady at 99%.
Zircon production decreased to 17,935 tonnes for the reporting period
(comparative period: 18,705 tonnes) due to lower contained zircon in the MSP
feed, with average zircon recoveries in line with the comparative periods 76%.
With no serious injuries occurring during the reporting period, Kwale
Operations lost time injury (LTI) frequency rate remains at zero. The
Company's employees and contractors have now worked 14.9 million man-hours LTI
free, with the last LTI recorded in early 2014. Further, 5.3 million man-hours
have been worked without a medical treatment injury.
Marketing and sales Six months to Six months to
Dec 2018 Dec 2017
Sales (tonnes)
Ilmenite 214,420 225,814
Rutile 47,588 37,971
Zircon 17,764 17,427
Zircon low grade - 3,287
Across each of its three products, the Company maintains a balance of
multi-year, annual and quarterly offtake agreements with long term customers as
well as a small proportion of ongoing spot sales. These agreements, in place
with some of the world's largest consumers of titanium dioxide and zircon
products, provide certainty for the Kwale Operation by securing minimum offtake
quantities. Selling prices in these agreements are derived from prevailing
market prices, based on agreed price indices or periodic price negotiations.
The Company continues its strong market presence in China, the world's largest
market for both ilmenite and zircon, with over 210,000 tonnes of ilmenite and
over 13,000 tonnes of zircon products sold into the Chinese market during the
reporting period. The strength of the mineral sands market for all products
has ensured that sales continue to closely match production, with minimal
inventories being maintained.
2. Market Developments and Outlook
Titanium Dioxide
Ilmenite and rutile are primarily used as feedstock for the production of
titanium dioxide (TiO2) pigment, with a small percentage also used in the
production of titanium metal and fluxes for welding rods and wire. TiO2 is the
most widely used white pigment because of its non-toxicity, brightness and very
high refractive index. It is an essential component of consumer products such
as paint, plastics and paper. Pigment demand is therefore the major driver of
ilmenite and rutile pricing.
After more than two years of strong growth, the global TiO2 pigment industry
moderated through the reporting period. Global economic uncertainties appear
to have led to some pigment consumers reducing inventory levels which combined
with the seasonally slow December quarter to dampen demand for pigment.
However, most major pigment producers, who had been holding lower than normal
inventories, continued to operate at high production levels which fuelled solid
demand for feedstocks including rutile and ilmenite. Environmental inspections
that had been restricting pigment production in China for the past two years
dissipated through the reporting period, allowing most Chinese pigment
producers to resume normal production rates.
Significant supply constraints on high grade feedstocks, combined with the
ongoing firm demand, has resulted in continued price improvement for rutile.
Chinese domestic ilmenite production has been stable to slightly down through
the reporting period while production and exports from India and Vietnam have
significantly diminished. Indian government-imposed bans on mineral sands
mining and exports are now in place in the two major ilmenite producing states
- Tamil Nadu and Andhra Pradesh, with no indication of when mining in either
state may resume. Government- issued export quotas in Vietnam expired at the
end of the 2018 calendar year - and new quotas have not yet been forthcoming.
These ilmenite supply constraints are supporting ilmenite prices which have
remained stable throughout the reporting period and into early 2019.
Zircon
Zircon has a range of end-uses, the predominant of which is in the production
of ceramic tiles, accounting for more than 50% of global zircon consumption.
Milled zircon enables ceramic tile manufacturers to achieve brilliant opacity,
whiteness and brightness in their products. Zircon's unique properties include
heat and wear resistance, stability, opacity, hardness and strength, making it
sought after for other applications such as refractories, foundries and
specialty chemicals.
Demand growth for zircon is closely linked to growth in global construction and
increasing urbanisation in the developing world. Following a two-year period
of strong growth, the economic uncertainties that have emerged in most key
markets have tempered demand for zircon resulting in prices stabilising during
the latter stages of the reporting period and into 2019. However, ongoing
constraints on global production are expected to support continued stable
pricing for zircon.
Kwale Operations Extensional Exploration
During the reporting period, the Company progressed the re-evaluation,
including infill drilling, of the higher-grade areas of the North Dune,
adjacent to the Kwale Operation's Central Dune, motivated by an improved
economic environment, refined resource definition methodology and insights from
five years of operations on the Central Dune. The drill program is now
complete, with 573 holes for 20,598 metres drilled and a Mineral Resource
estimate for the North Dune is expected during the June quarter of 2019.
The Company's 136km2 Vanga Prospecting Licence (PL/2015/0042), extending south
west from the company's Kwale Operation towards the Tanzanian border, was
granted late in the reporting period. Community engagement in the area is
currently underway, with a drill program planned to commence in the March 2019
quarter, access and drill rig availability permitting.
Extensional exploration drilling in the North-East Sector (now called Kwale
East) of the Kwale Operations remains suspended pending resolution of community
access issues.
Toliara Project
During the reporting period, the Company continued to progress the
pre-feasibility study for the Toliara Project in Madagascar, which is due for
completion in March 2019. The pre-feasibility study (PFS) will build on the
considerable body of work completed by previous owners of the Toliara Project
and together form the foundations of an accelerated feasibility study program
that aims to advance the project toward a decision to proceed to construction
in early 2020.
During the reporting period, an update to the Ranobe deposit Mineral Resources
estimate was completed to advance detailed mine planning and to refine the
processing design criteria for the Toliara Project PFS. The update is the
result of additional drilling completed to date and revised geological
interpretations following a comprehensive mineralogical re-definition of drill
samples, which, together with a revision of cut-off grade from 3.0% to 1.5% HM,
has increased the Ranobe Mineral Resources estimate to 1.3 billion tonnes at
5.1% HM2.
[Note 2: For further detailed information on the Ranobe Deposit Mineral
Resources, refer to Base Resources' market announcements of 23 January 2019
"Updated Ranobe Deposit Mineral Resources (corrected)" available at https://
www.baseresources.com.au/investor-centre/asx-releases/. Base Resources
confirms that it is not aware of any new information or data that materially
affects the information included in that market announcement and all material
assumptions and technical parameters underpinning the estimates in that market
announcement continue to apply and have not materially changed.]
3. Review of Financial Performance
Base Resources achieved a profit after tax of US$17.4 million for the six-month
reporting period, a 4% increase compared with US$16.8 million in the
comparative period, primarily due to higher sales revenues.
Six months to 31 December 2018 Six months to 31 December
2017
Kwale Toliara Other Total Kwale Other Total
Operations Project Operations
US$000s US$000s US$000s US$000s US$000s US$000s US$000s
Sales Revenue 102,166 - - 102,166 90,292 - 90,292
Cost of goods sold excluding depreciation & amortisation:
Operating costs (31,968) - - (31,968) (27,647) - (27,647)
Inventory movement 2,557 - - 2,557 4,923 - 4,923
Royalties expense (7,119) - - (7,119) (6,229) - (6,229)
Total cost of goods sold (36,530) - - (36,530) (28,953) - (28,953)
(i)
Corporate & external (2,188) (197) (2,782) (5,167) (1,864) (1,945) (3,809)
affairs
Community development (1,534) - - (1,534) (1,027) - (1,027)
Selling & distribution (1,316) - - (1,316) (1,970) - (1,970)
costs
Other income / 443 - (528) (85) (132) (452) (584)
(expenses)
EBITDA (i) 61,041 (197) (3,310) 57,534 56,346 (2,397) 53,949
Depreciation & (26,025) - (62) (26,087) (23,481) (21) (23,502)
amortisation
EBIT (i) 35,016 (197) (3,372) 31,447 32,865 (2,418) 30,447
Net financing expenses (7,131) - (1,690) (8,821) (7,733) (1,417) (9,150)
Income tax expense (5,209) - - (5,209) (4,497) - (4,497)
NPAT (i) 22,676 (197) (5,062) 17,417 20,635 (3,835) 16,800
(i) Base Resources' financial results are reported under International
Financial Reporting Standards (IFRS). These Financial Statements include
certain non-IFRS measures including EBITDA, EBIT and NPAT. These measures are
presented to enable understanding of the underlying performance of the Group
and have not been audited/reviewed.
Sales revenue increased 13% to US$102.2 million for the reporting period
(comparative period: US$90.3 million), achieving an average price of product
sold (rutile, ilmenite, zircon and zircon low grade) of US$365 per tonne
(comparative period: US$317 per tonne), with averaged realised prices higher
for rutile and zircon, offset by lower prices for ilmenite. Operating cost per
tonne produced was 20% higher at US$109 per tonne for the reporting period
(comparative period: US$91 per tonne), due to increased volumes mined following
the implementation of the Kwale Phase 2 mine optimisation project. In addition,
higher fuel costs and an increase in flocculant use on the lower grade ore have
contributed to the increase in operating costs. Total cost of goods sold,
excluding depreciation and amortisation, was US$36.5 million for the reporting
period, 26% higher than the comparative period (US$29.0 million), at an average
cost of US$131 per tonne of product sold (comparative period: US$102 per
tonne), due to higher operating costs and higher royalties associated with
increased sales revenue.
With a margin of US$234 per tonne sold for the reporting period, 9% higher than
the comparative period (US$215 per tonne) and an achieved revenue to cash cost
of sales ratio of 2.7 in the reporting period (comparative period: 2.8), the
Company remains well positioned high in the upper quartile of mineral sands
producers.
Improved commodity prices and a continued focus on cost management has
delivered a Kwale Operations EBITDA for the reporting period of US$61.0
million, an 8% increase over the comparative period (US$56.3 million) and a
Group EBITDA of US$57.5 million, a 7% increase over the comparative period
(US$53.9 million).
The majority of Kwale Operation assets are depreciated on a straight-line basis
over the remaining mine life. Since the implementation of the Kwale Phase 2
mine optimisation project in March 2018, mining rates have significantly
increased to offset declining ore grades and thus the remaining mine life is
correspondingly shorter. As a result, depreciation and amortisation has
increased 11% in the reporting period to US$26.1 million (comparative period:
US$23.5 million). Should the extensional exploration currently underway at
Kwale Operations be successful, there is the potential to increase ore reserves
and extend mine life, thereby reducing future annual depreciation and
amortisation charges.
A 10% increase in net profit after tax of US$22.7 million was recorded by Kwale
Operations (comparative period: US$20.6 million) and Group net profit after tax
increased by 4% to US$17.4 million for (comparative period $16.8 million).
Basic earnings per share for the Group was US1.52 cents per share (comparative
period: US2.26 cents per share), lower as a result of additional shares issued
in January 2018 to fund the acquisition of the Toliara Project.
Cash flow from operations was US$53.8 million for the reporting period
(comparative period: US$57.3 million), slightly lower than Group EBITDA due to
working capital movements. The operating cash flows were used to fund capital
expenditure at Kwale Operations, Toliara Project progression, as well as debt
servicing and repayment.
Total capital expenditure for the Group was US$14.0 million in the reporting
period (comparative period: US$17.0 million) comprised of US$7.3 million at
Kwale Operations (comparative period: US$17.0 million), primarily for the
preparatory work for the transition of mining operations to the South Dune
deposit, US$6.3 million on the progression of the Toliara Project and US$0.3
million for Corporate capital works.
In October 2018, the US$80.0 million outstanding balance of the Kwale Project
Debt Facility was repaid from a combination of cash reserves and utilisation of
the Revolving Credit Facility (RCF) following a concurrent increase in the RCF
to US$75.0 million. Early retirement of the Kwale Project Debt Facility
demonstrates the continued strong performance of Kwale Operations and, together
with the increased RCF, provides the Group with additional funding flexibility
and reduced debt servicing costs.
During the reporting period, the Group became net cash positive for the first
time following a US$34.2 million reduction in net debt from US$33.2 million at
30 June 2018, to a net cash position of US$1.0 million at 31 December 2018. The
Group's cash positive position is comprised of cash reserves of US$49.1
million, with the RCF drawn to US$48.2 million. Future cash generation will now
be available to contribute to the progression of the Toliara Project.
After Balance Date Events
Subsequent to period end, in January 2019, US$18.2 million of the RCF debt was
repaid from existing cash reserves. The outstanding balance of the facility
following this repayment was US$30.0 million.
4. Consolidated Condensed Statement of Profit or Loss and Other Comprehensive
Income
6 months to 6 months to
31 December 2018 31 December
2017(i)
Note US$000s US$000s
Sales revenue 102,166 90,292
Cost of sales 2 (62,555) (52,434)
Profit from operations 39,611 37,858
Corporate and external affairs (5,229) (3,830)
Community development costs (1,534) (1,027)
Selling and distribution costs (1,316) (1,970)
Other (expenses) / income (85) (584)
Profit before financing costs and income 31,447 30,447
tax
Financing costs 3 (8,821) (9,150)
Profit before income tax 22,626 21,297
Income tax expense (5,209) (4,497)
Net profit after tax for the period 17,417 16,800
Other comprehensive income
Items that may be reclassified subsequently
to profit or loss:
Foreign currency translation differences (1,644) 262
- foreign operations
Total other comprehensive (loss) / (1,644) 262
income for the period
Total comprehensive income for the 15,773 17,062
period
Net Earnings per share Cents Cents
Basic earnings per share (US cents per 1.52 2.26
share)
Diluted earnings per share (US cents per 1.50 2.10
share)
(i) Restated from AUD to USD in accordance with change in presentation
currency. Refer to "Note 1: Basis of preparation".
The notes contained in the full version of the Interim Financial Report form
part of these consolidated financial statements, a copy of which is available
from the Company's website: www.baseresources.com.au .
5. Consolidated Condensed Statement of Financial Position
31 December 2018 30 June 2018 (i)
Note US$000s US$000s
Current assets
Cash and cash equivalents 49,126 29,686
Restricted cash - 29,591
Trade and other receivables 4 40,484 38,726
Inventories 5 23,782 19,789
Other current assets 7,841 5,993
Total current assets 121,233 123,785
Non-current assets
Capitalised exploration and evaluation 6 103,962 97,115
Property, plant and equipment 7 219,666 240,509
Total non-current assets 323,628 337,624
Total assets 444,861 461,409
Current liabilities
Trade and other payables 29,965 27,865
Borrowings 8 32 53,266
Income tax payable 7,191 75
Deferred revenue 833 833
Other liabilities 8,653 8,564
Total current liabilities 46,674 90,603
Non-current liabilities
Borrowings 8 47,059 35,532
Provisions 24,479 22,458
Deferred tax liability 12 18,474 20,969
Deferred revenue 208 625
Other liabilities 10,000 10,000
Total non-current liabilities 100,220 89,584
Total liabilities 146,894 180,187
Net assets 297,967 281,222
Equity
Issued capital 10 306,512 305,277
Reserves (19,990) (16,384)
Retained earnings / (Accumulated 11,445 (7,671)
losses)
Total equity 297,967 281,222
(i) Restated, refer to Note 12.
The notes contained in the full version of the Interim Financial Report form
part of these consolidated financial statements, a copy of which is available
from the Company's website: www.baseresources.com.au .
6. Consolidated Condensed Statement of Changes in Equity
Retained Share Foreign Treasury
Issued earnings / based currency shares Total
capital (Accumulated payment translation reserve
losses) reserve reserve
US$000s US$000s US$000s US$000s US$000s US$000s
Balance at 1 July 2017 as 231,079 (36,341) 5,250 (19,517) - 180,471
previously reported(i)
Impact of prior year error (ii) - (5,863) - - - (5,863)
Restated balance at 1 July 2017 231,079 (42,204) 5,250 (19,517) - 174,608
Profit for the period - 16,800 - - - 16,800
Other comprehensive income - - - 262 - 262
Total comprehensive income for - 16,800 - 262 - 17,062
the period
Transactions with owners, recognised directly in equity
Share based payments 529 559 (316) - - 772
Balance at 31 December 2017 (i) 231,608 (24,845) 4,934 (19,255) - 192,442
Balance at 1 July 2018 as 305,277 (1,808) 5,806 (20,714) (1,476) 287,085
previously reported
Impact of prior year error (ii) - (5,863) - - - (5,863)
Restated balance at 1 July 2018 305,277 (7,671) 5,806 (20,714) (1,476) 281,222
Profit for the period - 17,417 - - - 17,417
Other comprehensive loss - - - (1,644) - (1,644)
Total comprehensive income for - 17,417 - (1,644) - 15,773
the period
Transactions with owners, recognised directly in equity
Share based payments 1,235 1,699 (3,438) - 1,476 972
Balance at 31 December 2018 306,512 11,445 2,368 (22,358) - 297,967
(i) Restated from AUD to USD in accordance with change in presentation
currency. Refer to "Note 1: Basis of preparation".
(ii) Restated, refer to Note 12.
The notes contained in the full version of the Interim Financial Report form
part of these consolidated financial statements, a copy of which is available
from the Company's website: www.baseresources.com.au .
7. Consolidated Condensed Statement of Cash Flows
6 months to 6 months to
31 December 2018 31 December 2017
(i)
Note US$000s US$000s
Cash flows from operating activities
Receipts from customers 103,379 99,954
Payments in the course of operations (48,997) (42,657)
Other (588) (42)
Net cash from operating activities 53,794 57,255
Cash flows from investing activities
Purchase of property, plant and (6,661) (16,965)
equipment
Payments for exploration and evaluation (7,321) (132)
Other 406 390
Net cash used in investing activities (13,576) (16,707)
Cash flows from financing activities
Proceeds from borrowings 48,180 7,500
Repayment of borrowings (92,473) (40,324)
Transfers (to) / from restricted cash 29,591 (4,694)
Payment of debt service costs (5,832) (7,324)
Net cash used in financing activities (20,534) (44,842)
Net increase / (decrease) in cash held 19,684 (4,294)
Cash at beginning of period 29,686 28,278
Effect of exchange fluctuations on cash (244) (158)
held
Cash at end of period 49,126 23,826
(i) Restated from AUD to USDs in accordance with change in presentation
currency. Refer to Note 1: Basis of preparation".
The notes contained in the full version of the Interim Financial Report form
part of these consolidated financial statements, a copy of which is available
from the Company's website: www.baseresources.com.au .
ENDS.
For further information contact:
James Fuller, Manager - Communications and UK Media Relations
Investor Relations
Base Resources Tavistock Communications
Tel: +61 (8) 9413 7426 Jos Simson and Barnaby Hayward
Mobile: +61 (0) 488 093 763 Tel: +44 (0) 207 920 3150
Email: jfuller@baseresources.com.au
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 1, 50 Kings Park Road
West Perth, Western Australia, 6005
Email: info@baseresources.com.au
Phone: +61 (0)8 9413 7400
Fax: +61 (0)8 9322 8912
NOMINATED ADVISOR
RFC Ambrian Limited
Andrew Thomson / Stephen Allen
Phone: +61 (0)8 9480 2500
END
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