Base Resources (ASX: BSE) has launched a A$40 million underwritten capital raising program with funds to be applied to the development of company's world-class Kwale Mineral Sands Project in Kenya.
The capital raising will be priced at A$0.40 a share and comprise a placement to institutional and sophisticated investors of 61.6 million shares to raise $24.6 million, and an accelerated pro-rata non-renounceable entitlement offer.
The non-renounceable offer is to existing shareholders for 38.4 million shares to raise $15.4 million. The offer allows shareholder to subscribe for 1 new share for every 12 already held.
The capital raising is underwritten by RFC Ambrian.
The world-class Kwale Project
Two pilot plant operations at Kwale have already provided confidence in processing behaviour and indicate a suite of readily marketable products, which is why Base has a portfolio of well advanced off-take arrangements covering the first five years of production.
This includes ilmenite, rutile and zircon which are essentially “lifestyle products” by virtue of their dominant end-uses, with consumption intensifying with income levels.
China is the new driver of world demand growth.
Base has driven the rapid development of the project with a plan for first production in the second half of 2013. The funding required to progress the development of Kwale through to positive cashflow (on EDFS projections) was secured in 2011.
This comprised a A$140 million equity placement to Australian, US and UK institutional investors, and a US$170 million syndicated debt facility (US$150 million primary facility and US$20 million cost overrun).
To date around US$70 million has been spent on development with A$80 million in cash, and the syndicated debt facility is undrawn.
Well placed and well supported
Kwale enjoys a high level of support from the Government of Kenya as well as the local community and is strategically located just 50 kilometres from Mombasa, Kenya’s principal port facility, and is well serviced by existing physical infrastructure.
Analysis
Based on the August 2012 TZMI price outlook, the EDFS shows Kwale to be extremely robust, producing an estimated LOM cash surplus of over US$1 billion.
The economics of the project remain impressive with an estimated NPV of US$550 million (post tax real), an IRR of 50%, and an expected capital payback period of 20 months. The capital cost (inc.contingencies) is US$298 million.
Base is extensively covered by brokers, which includes; RFC Ambrian, Euroz, Credit Suisse, GMP, RBC and Goldman Sachs.
RFC Ambrian, the underwriters of the current capital raising, placed a buy recommendation on Base in July this year with a $1.40 price target.
Highlighting the potential upside of Base, this target is almost three-and-and-half times the last traded price of $0.42.
Base was also added to the S&P/ASX 300 Index after the September 2012 quarterly re-balance.
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