BSE : AU | A$0.25 | US$207m | Buy | TP : A$0.51
September Quarterly Activities Report — Record Rutile and Zircon Production
Base Resources has released its September quarterly Activities Report. This reflected another quarter of good performance at the Kwale mineral sands operations in Kenya, with ilmenite production up 3% to 118,000t and record production of rutile and zircon (25,125t and 9,683t respectively). Production guidance for FY19 to June 2019 was maintained.
Net debt was reduced by US$9m over the period to US$24m. In a move that increased its funding flexibility and reduced its finance costs, in October the company repaid the outstanding project finance facility with a combination of existing cash and an increase in the revolving credit facility, which stood at US$48m after the repayment.
COMMENT: Operationally this was (yet) another good performance from the company. This follows the completion of the KP2 expansion of the Wet Concentrator Plant in March 2018, and the move to hydraulic mining, which was completed during the quarter. The move of mining operations to the South Dune remains on track for completion in July 2019.
A drilling programme at the North Dune at Kwale was completed during the period and a resource update is planned to be completed in 1Q19. Drilling at Kwale East remained suspended pending the resolution of the community access issues there.
Work at Toliara in Madagascar also remains on track to deliver a pre-feasibility study in 1Q19 and a DFS ahead of a Final Investment Decision in 4Q19. We expect that the upcoming PFS will confirm our view that Toliara has the potential to be a long-life, high-margin operation once in production, which is targeted for 2021.
With continued strong production and an ongoing supportive mineral sands environment, we expect that the results of the exploration programmes at Kwale and the definition of parameters at the Toliara Project have the potential to add further value. In the meantime, we maintain our Buy rating and our target price of A$0.51.