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Base Resources reports "slightly better than expected" production and sales

The main focus at the Kwale mineral sands operations in Kenya was on maximising mineral recoveries under a high tonnage, low-grade regime, together with preparations for relocating mining operations to the South Dune ore-body in June.

Workers at Kwale
The company continued to advance its exploration programmes in pursuit of mine life extensions

Africa-focused mineral sand miner Base Resources Limited (LON:BSE) became net positive for the first time in the final quarter of 2018.

The miner started the final quarter with US$23.8mln of net debt but revealed in an activities report that it closed out the year with net cash of US$1.0mln.

WATCH: Base Resources' MD updates on quarterly highlights, production, and projects

Mined tonnes in the final quarter increased 5.1% to 5,036,211 from 4,791,969 tonnes in the preceding quarter but lower ore grades meant heavy mineral concentrate (HMC) produced ebbed to 148,937 tonnes from 199,079 tonnes in the third quarter.

Largely as a result of ore characteristics being encountered in the remnants of the Central Dune ore-body at Base’s Kwale operations, management has revised production guidance for 2019. The company now expected to produce 88,000 to 94,000 tonnes of rutile (previous guidance: 88,000 – 93,000 tonnes); 385,000 to 415,000 tonnes of ilmenite (420,000 – 450,000 tonnes) and 31,000 to 34,000 tonnes of zircon (32,000 – 37,000 tonnes).

The planned transition of mining to the South Dune ore-body at Kwale has been brought forward by one month to June 2019 as a result of Base mining the Central Dune ore-body faster than anticipated over the past two quarters and due to an anticipated continuation of the lower than expected ore densities in the Central Dune.

Total operating costs in the fourth quarter were marginally higher than the previous quarter due to higher tonnes mined, which, when combined with a decrease in overall production volumes, resulted in a higher unit operating cost of US$115 per tonne produced (rutile, ilmenite and zircon) (third quarter: US$103 per tonne).

The cost of goods sold was US$146 per tonne (Q3: US$124), higher than the preceding quarter due to the drawdown of HMC stocks, resulting in an increase in cost of goods sold of US$0.4mln (Q3: decrease in cost of goods sold of US$1.8mln as finished goods stocks increased).

At the Toliara project development in Madagascar, Base Resources has revised its development plans and now expects to complete the definitive feasibility study by the final quarter of this year, ahead of a decision to proceed to construction in the first quarter of next year. This timetable is still expected to have the project in production by the end of 2021.

Total expenditure on the Toliara project for the quarter was US$3.8mln, up from US$2.2mln in the preceding quarter.

Peel Hunt said it was a solid quarter for Base.

“Unit revenues of US$376/t along with production and sales in line to slightly better than expected means that Base Resources closed 2018 in a net cash position, with further cash builds to come ahead of the Toliara construction (starting in 2020),” the broker noted.

“Management is reducing MSP [mineral separation plant] throughput to manage inventories through the mining move to the S Dune (now in June), meaning our production estimates look high,” Peel Hunt added.

The broker has a target price of 31p for Base and rates the shares a ‘buy’.

“Longer term, with at least a three-year period with EBITDA averaging over US$200mln pa, the current multiples the shares are trading on seem to be ignoring any value from Toliara,” it observed.

Shares in Base currently trade at 13.5p.

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Quick facts: Base Resources Limited

Price: 13.75 GBX

Market: AIM
Market Cap: £161.1 m

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