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In the news: Base Resources

Published: 09:55 13 Jul 2017 BST

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FROM THE BROKING DESK

Base Resources (LON:BSE) *† has put out some spectacular full-year numbers. We have some initial comments below. It’s important to note that these are the company’s first full-year figures with the higher ilmenite pricing we began to see in spring 2016, so the revenue increases are very strong, with the corresponding reduction in net debt a pleasure to see. As mineral sands pricing has remained, ahem, ‘strong and stable’ over this year and is forecast to be so for some time, we could well see Base being debt free during 2018. Thus, this is a very important set of results.

The company’s newsflow doesn’t stop here. In September we should have a maiden resource statement on the south-west sector of the Kwale Phase 2 Project. This is expected to add to mine life and, as Jim Taylor pointed out in Base Resources — Enhanced Economics from Phase 2, 23 May 2017, each year of mine extension adds a 13% net increase to our target price. This currently sits at A$0.49/share, or just under 30p for the UK stock, and the shares are trading at A$0.255 (15.75p), so there’s plenty of upside from here.

Base’s 4QFY17 activities report showed a healthy concentration on output at a time of strong pricing. Both grades and volumes improved over the prior quarter as the company remained focused on a high-grade zone, and hydraulic mining progressed according to plan. Revenues were helped by the timing of shipments, with rutile and ilmenite sales both exceeding production. Production itself was in line with guidance.

Total production increased 5% QoQ, with most of this coming from ilmenite. The significantly higher volume of ore mined (+12% QoQ) and improved grades (8.4% HM) have not yet benefited tonnes produced as some 40,000t of HMC had previously been stockpiled. Recoveries from the MSP were in line with the prior quarter, although zircon recoveries of 73% remained below the design target of 78% as circuit optimisation and modifications continued.

Revenue was up 35% due to the timing of shipments, higher volumes and higher prices. Bulk rutile shipments were up 30% QoQ at 28,000t as there were three bulk rutile sales in the quarter vs. the usual 1-2. Zircon sales (+6% QoQ to 8,500t) were largely in line with the slight increase in production in the quarter. Ilmenite sales rose 16% QoQ to 142,000t, well in excess of production of 119,000t.

Net debt was down US$24m to US$99m. After the repayment of US$11m of debt during the period, total debt at the end of June 2017 was US$153m. Our research team will release further comment after a full analysis of the numbers.

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