ASX:BSE | A$0.15 | US$83m | Buy | TP : A$0.30
Full Year Results to 30 June 2016
Base Resources has announced its full year results to 30 June 2016, for which sales revenues stood at A$169m (up 16% YoY), and Group EBITDA rose 10% to A$61m. This was based on sales volumes of 480,538 tonnes for ilmenite, 85,536 tonnes for rutile and 33,062 tonnes for zircon, sitting at the upper end of the guidance range, and a basket price of US$205/t. This fell from a basket price of US$256/t in 2015, reflecting an overall more challenging mineral sands pricing environment during the reporting period, despite recent ilmenite-led improvements. Conversely, unit COGS fell YoY, from US$130/t to US$105, reflecting effective implementation of cost management initiatives.
Both operating cash flow and FCF (before debt/equity issuance and payments) showed impressive improvement, rising 106% and 445% from 2015 respectively, to A$79m and A$47m. Operating cash flow was boosted by a decrease in receivables of A$11m, associated with A$10m of Kenyan operational VAT refunds. Net debt fell during the period from A$241m to A$192m, with the outstanding debt balance now standing at US$180.5m following repayments of US$23.5m.
Operationally, HMC production of 734,431t exceeded production of 709,443t, allowing continued accumulation of a HMC stockpile to hedge against future production risk and smooth the production profile. As of year-end, the HMC stockpile stood at 139,364t. Successful fruition of a number of MSP upgrade projects, in addition to process optimisation, has driven improvements in terms of both throughput rate and recoveries, with design recoveries having been reached across all product lines. Both rutile and zircon production exceeded their respective 80,000t and 30,000t design targets for the first time in 2016, with zircon having met its 78% target recovery in 4Q16, and reached as high as 80% in June.
In terms of sales, Base’s customer base for its ~600,000t of product sold during the period comprised: regular offtakers with contracts providing price and volume security; regular spot customers; and new customers buying on the spot market. Base’s initiative to grow its presence in China (the world’s largest ilmenite market) has been assisted by the appointment of an in-country distributor in early 2015, enabling the company to become China’s single largest ilmenite importer. The company sold nearly 450,000t of ilmenite to Chinese consumers in 2016, selling into a mixture of 1-3 year term contracts and the spot market, with the customer base continuing to grow based on ongoing product trials.
COMMENT: Strong operating performance at Kwale despite challenging mineral sands markets, notwithstanding some improvement in the ilmenite price through the June quarter, has enabled Base to achieve improvement across the headline numbers. With revenue up materially 16% YoY, and cost per tonne down 19% to just US$105/t, giving a robust operating margin of 48%, the company was able to realise strong free cash flow generation, and continue to pay down its debt according to the revised repayment profile, agreed as of December 2015.
The company reports that a solid improvement in pigment end-markets over H1 CY16, with titanium dioxide price rises reported in China, have led to an upsurge in demand for the company’s ilmenite and rutile in the June quarter, driving down inventories, and providing a platform for further price rises in 2017. Improvement in the pigment markets, which act as a leading indicator for Ti-feedstock pricing, has driven erosion of inventory levels counterbalanced with demand growth, leading to the commencement of a re-stocking cycle.
With feedstock market tightness being observed for the first time in the Kwale Project’s operating life, the company has already crystallised a US$15/t price increase for its ilmenite shipments for the September quarter (to US$75-US$80/t) at which point it will look to realise a further price uplift towards US$100/t. Whilst the zircon market remains subdued, with major producers such as Rio Tinto and Iluka pivotal to exerting control over supply levels, the company has maintained demand for its zircon product from a sustained customer base.
HUMMINGBIRD RESOURCES*†
LON:HUM | 24p | US$107m | Buy | TP : 38p
PFS Results for Hydro-Electric Power Plant in Liberia
Hummingbird Resources has announced the results of a 14-month hydro-electric power PFS on the Dugbe Gold project in Liberia. The PFS, funded by IFC InfraVentures and carried out by Knight Piésold, confirms the potential viability of multiple (five) hydro-electric plant options, which could supply sustainable power to Dugbe and the south eastern Liberian region. The five options require capex ranging from US$51.5-143.5m for installed capacity of 10MW to 30MW. Spreading the capital and operating cost for each option over 20 years, the cost of a unit of power is estimated between US$0.05-0.06c/kWh (not including the debt and equity required to finance plant construction). This compares to the current power plan, which is based on a rented diesel power estimate of approximately US$0.28/kW, calculated when world oil prices were significantly higher than they are currently. Of the US$903/oz AISC in the Company's 2013 Scoping Study, in excess of 30 per cent is the cost of rented diesel power.
COMMENT: Based on initial estimates it would appear that use of hydro-electric power would have the potential to be materially accretive to Dugbe project economics. However, we understand that whilst significant work has been done towards a feasibility study at Dugbe, a re-scoping exercise is ongoing at the project, which should give a clearer understanding of its value proposition in the current market.
WEATHERLY INTERNATIONAL*†
LON:WTI | 0.4p | US$5.6m | Speculative Buy | TP : 1.2p
Rescheduling of Debt Repayment
Further to the announcement of 2 June, Weatherly has formally concluded an amended agreement with Orion to defer the repayment of facility C (US$4.3m) from August 2016 to February 2017, with the interest accruing on the loan to be capitalised. The repayment dates of facilities B (US$80m plus rolled up interest) and D remain unchanged, with facility D (US$4.3m) to be repaid in December 2016 and facility B due in 13 equal instalment commencing in February 2017 and maturing in February 2020. As of December 2015 total debt stood at US$101m, split between Tranches B, C & D, with Tranche A having been repaid in 2014. Accounting for the value of rolled-up interest on the facility, we anticipate Tranche B repayments should run at approximately US$7m per quarter.
COMMENT: whilst this latest arrangement with Orion should alleviate some cashflow pressure in the short term, we reiterate that the company may look to extend the maturity date of the Tranche B facility, notwithstanding a material near-term increase in copper prices.