INTRODUCTION
In the news: Base Resources & Gemfields
It’s all about the Base today, no treble — innit? Jim Taylor and Imogen Whiteside have just published an updated piece on Base Resources*† (LON:BSE) after the release of the company’s FY15 results: Base Resources — FY15 Results and Valuation Update, 23 September 2015.
We have maintained our BUY rating, but lowered our price target from A$0.40 to A$0.25. This is just a realistic reflection of mineral sands price weakness. Still, the execution at Kwale has been exemplary. In 4Q15 production and sales set new records as the ramp-up continues towards targeted recoveries for rutile and zircon, with the June quarter particularly strong. Cash of A$40.9m is impressive, while revenues jumped YoY from A$29m to A$146m, giving the operations at Kwale an EBITDA of A$63m. Margins are very robust at 60%. Are you not entertained?
We all know though that commodity prices could show us a bit of love. We think pigment market growth will remain subdued at around 3% pa through 2015 and 2016. Base expects pricing pressure in both ilmenite and rutile to continue over the next 12 months, while zircon looks more promising due to the tight control of the market by Iluka, Rio and Tronox. There are also some reports of significant ilmenite production cuts over the next couple of weeks; if that does happen it would be very positive for groups like Base.
On the debt front, Base has stated openly that it wants to re-profile the repayment schedule on its US$204m project debt. This would correlate it with projected cashflows. It would mean renegotiating to push the schedule from three to five years and reduce payments over the first two years. Progress is being made here, with credit approvals received from the majority of lenders (subject to agreement of final terms). Please feel free to contact us if you would like a call with the analysts.
There was yet another positive announcement from Gemfields (LON:GEM) . It has come out with a mineral resource statement for the Kagem emerald mine in Zambia. This is the first time a gemstone producer has come up with an actual resource and, typically for the company, this has brought order and clarity to what was once a bit of a rag-tag and bobtail industry. It released a Measured, Indicated and Inferred resource of 1.8Bct of emerald and beryl at an in situ grade of 281ct/t. It sees a post-tax NPV of US$520m and comments that the area offers extensive exploration potential. Ian Harebottle says he has an extensive programme planned for the next few years to explore the rest of the Kagem licence area.
It is usual at this stage to illustrate the Gemfields newsflow with a picture of its ‘brand ambassador’. Since every broker report and newspaper article now does so, we at RFC Ambrian have decided to drop these pictures and would like to focus instead on the rest of the Gemfields team and give them a bit of credit and publicity. Below is a picture of one of the many mining staff at Kagem in Zambia. It is good to see that Ian is an equal opportunities employer and that the view of mining being a male-dominated environment is out of date and needs to be reappraised.