It was a seminal moment for the company, as it paid down the final US$25mln tranche of a US$200mln-plus package that allowed it to put the Kwale mineral sands operation in Kenya into production a few years ago.
After a few initial delays, Kwale very quickly came into its own and has been a significant earner both for Base and for Kenya ever since. Indeed, for Kenya, a country with a very limited mining industry, Kwale has been something of a trailblazer and, in the same context, Base has therefore been something of an ambassador for the mining industry at large.
In more recent months, the economics of the Kwale project have been helped by favourable mineral sands prices. Increased demand has boosted the prices of rutile and zircon, while the ilmenite price has remained stable.
And while grades have dipped a little at Kwale, Base has been able to boost production, so the overall effect comes out roughly even.
Thus, while unit costs per tonne of goods sold rose to US$146 in the quarter to December 2018 from US$124 in the prior quarter, revenue per tonne of goods was also up, from US$354 in the prior quarter to US$377 in the quarter to December.
That nets out at a slight decrease in the ratio of revenue to costs from 2.8 to 2.6 over the most recent quarter, although the overall figure for the first half of the financial year, the six months to December 2018, is 2.7.
Any further increase in mineral sands prices is likely to send that ratio higher though.
And even allowing for those cost pressures, Base is doing pretty well. In the six months to December, Base managed to boost revenues by 13% to US$102.2mln, earnings by 7% to US$57.5mln, and net profits by 4% to US$17.4mln.
With that sort of operational strength behind it, it’s hardly surprising that debt was wiped out and the net cash position netted out at US$1mln, although actually there’s more than US$40mln cash inside the company, balanced against a similar-sized revolving facility.
The ongoing strengthening of the rutile and zircon price is one thing to consider, but Peel Hunt was particularly interested in the company’s expansion plans. Exploration at Kwale, the broker reckons, is likely to add significantly to the mine life, while work on the new project at Toliara is likely to add in a second long-life asset.
How much of the value of Toliara will get priced into the shares short-term is an open question.
The market was initially cautious when Base announced the results of a pre-feasibility study for the project that demonstrated both its long-term viability and its sensitivity both to market pricing and to discount rates, marking the shares up by a modest 1.75% to 14.5p.
But as broker SP Angel noted in early commentary: “The devil is in the detail.”
What Base has done with Toliara is lay out a workable base-case scenario which, as with so many of these kinds of projects, it can now refine as it brings it on into the bankable feasibility stage.
Expect the IRR and the NPV to go up as work continues on refining the economics, and costs to come down.
Although the costs already look pretty good, broker Shore Capital Toliara pointed out, calling the revenue to cost ratio of 3.06 “attractive”. Shore also referred to the internal rate of return on a base case price deck as “decent, although it’s somewhat open to interpretation what a decent internal rate of return is on a project like this.
Still, Tim Carstens, the chief executive of Base, was in no doubt that the potential addition of a further 18.3mln tonnes of annual production to Base’s total is likely to be game-changing.
“We are delighted to be able to share these pre-feasibility study findings,” he said.
“They confirm our long-held view, which informed the project’s acquisition by Base Resources in early 2018, that the Toliara project is one of the best mineral sands development opportunities in the world.”
Among other things outlined in the very detailed report on Toliara that Base has made public are several opportunities for the expansion of what’s already a sizeable project.
So, it seems pretty clear that Toliara has got plenty going for it, and that news on that could provide significant catalysts for Base’s share price in the coming months.
It’s worth remembering too, that the development of Toliara will be supported by an ever-growing cash pile inside Base itself, so this is not one of those projects that require the continual dilution of shareholders at each round of funding.
Quite the contrary in fact. Base has set out its stall for future growth. And at this stage, there isn’t a dilutionary fundraising in sight.