INTRODUCTION
In the news: Base Resources (LON:BSE) & Plateau Uranium (CVE:PLU)
We had a quarterly operational update from Base Resources*† (ASX:BSE / LON:BSE) this morning. This showed that everything is moving in the right direction. Improved throughput and recoveries have delivered an overall 9% QoQ increase in production, including a 16% QoQ gain in rutile production. Base has also seen record sales volumes across all products. Operational components of the Kwale Project Debt facility completion test have been successfully passed, while the first repayment of US$11m of the debt facility has been completed. More good news came from the receipt of the first Kenyan VAT refund, which commenced earlier this month. There was also an announcement that Keith Spence has been appointed as Chairman. You can read more detail from Jim Taylor and Imogen Whiteside below.
The team also comments below on Plateau Uranium. Plateau is fronted by CEO Ted O’Connor, ex Cameco, and Chairman Ian Stalker. The company has begun updated PEA work on the Macusani Plateau Uranium Project in the Puno region of southern Peru. This work is being done by GBM Engineering and Wardell Armstrong. The mineral resource estimate to be used is 51.9Mlb at 248ppm U3O8 (Indicated) and 72.1Mlb at 251ppm U3O8 (Inferred) using a 75ppm uranium cut-off. There is also a higher-grade resource of 32.8Mlb at 445ppm U3O8 (Indicated) and 45.9Mlb at 501ppm U3O8 (Inferred) using a 200ppm cut-off. The updated PEA is expected in 3Q15 and we will be looking to roadshow Ted and Ian in London in September.
METALS & MINING EQUITIES
Base Resources*† — Quarterly Operational Update — The ASX- and AIM-listed mineral sands producer that is focused on its Kwale operations in Kenya, has released a quarterly operational update for the period ending in June 2015. With tonnage mined stable at 2.3Mt for the quarter and heavy mineral grade remaining elevated at 9.2% as mining proceeded through a high-grade area of the Central Dune, record production levels were achieved for ilmenite (113,500t), rutile (19,500t) and zircon (6,500t). Ilmenite production rose 7% QoQ, while respective gains for higher-value rutile and zircon were more than double this at 16% and 20%.
In parallel with record production figures, Base achieved record quarterly sales figures across all three product lines. Ilmenite sales rose 17% QoQ to 121,700t, rutile 67% to 25,400t and zircon 47% to 7,600t. Over 100,000t of product was bulk loaded from Base’s Likoni port facility for direct shipment to customers. The company has also continued to make sales for immediate delivery into the Chinese market from its in-country warehouse.
The company has now passed all operational requirements for achieving ‘project completion’, as assessed by a combination of continuous 90-day physical and economic tests. The achievement of project completion will both allow the distribution of cash from the project to corporate level and prevent default under the project debt facility.
RFC Ambrian Comment: Both production and sales figures were clearly highly encouraging, leaving the company with a strong cash position of A$40.9m (unrestricted) and A$6.5m (restricted). Revenue for the quarter stood at A$47.6m, up 45% from the March quarter’s A$32.8m. Achievement of the project completion tests should also improve financial flexibility for the company, enabling cash to be drawn from the project to the corporate level.
Re-profiling of the debt facilities would free up project cashflow for business growth, with near-term commitments including the US$32m required to be deposited into a debt service reserve account by the end of September this year. This is intended to cover the second scheduled repayment of US$25m and an interest payment of US$7m in December 2015. Currently, some 55% of the outstanding debt is repayable over three years and the remainder over five years, and we estimate initial debt repayments would run at approximately US$56m pa until maturity of the first facility, with interest being payable at Libor +5.5% after project completion. We consider a rescheduling of the entire project debt over a five-year timeframe would prove less restrictive to project cashflow.
We reiterate our Buy recommendation, with a target price of A$0.40. We will provide an update upon further review.
Plateau Uranium — Commencement of Updated PEA — Plateau Uranium (formerly Macusani Yellowcake), the Peru-focused uranium explorer, has announced that it has commenced work on updating the PEA for its uranium properties, located on the Macusani Plateau of south-eastern Peru. This follows an increase in the resource estimate on the back of the acquisition of the Minergia projects from Azincourt Uranium in September 2014, and the integration of the updated mineral resource estimates into a consistent platform following the removal of prior property boundaries.
The company has contracted consultants GBM and Wardell Armstrong to produce the updated PEA for the open-pittable acid leach project, and has engaged with both parties to initiate mining scenario planning and production and processing modelling work. The financial model will be updated accordingly over the coming months.
Alongside this, the company has been making ongoing progress with permitting discussions, holding monthly meetings with a committee formed with the Peruvian mining and nuclear authorities. Despite the lack of project precedents, we understand the government has expressed support thus far, as has the local community, and the company hopes for IEA involvement in drawing up regulation.
RFC Ambrian Comment: We consider that the acquisition of the Minergia portfolio, over which Cameco previously held a joint venture, has been a positive move for Plateau, and the increase in the resource base should enable a significant improvement to project economics.
The January 2014 PEA already demonstrated operating costs on a highly competitive position within the cost curve of US$20.57/lb, generating an opex margin of over 40%, even at the current uranium price of US$36/lb. The company expects operating and capital costs will be further improved within the updated PEA through the combined use of contract mining, lower fuel costs and higher cut-off grades. Improved leach cycle time, process recoveries and acid consumption are also expected. The company anticipates operating costs as per the updated PEA of well below US$20/lb, and a reduction in upfront capex from US$331m to under US$250m. An additional reduction in the sustaining capital figure of US$228m is also expected from the prior 2014 PEA.
We understand the company is aiming for a similar ten-year mine life and 5Mlbpa U3O8 production rate from the enlarged resource and will seek to demonstrate robust project economics at a conservative US$50/lb contract uranium price (as per the current environment).