(ASX:BSE) | A$0.24 | US$195m | Buy | TP : A$0.46
Resources at Toliara Project Increased by 25% ahead of PFS due March 2019
Base Resources has published an updated resource for the Ranobe Deposit at its Toliara Mineral Sands Project in Madagascar. The overall headline resource contained 25% more Heavy Minerals (HM) than in the previous resource of June 2019. Total resources were 1.3Bt grading 5.1% HM, a 51% increase in tonnage and an 18% decrease in HM grade. The HM assemblage (the proportion of the HM content made up by ilmenite, rutile and zircon) remained in line with the previous resource estimate. The PFS remains on track for delivery before the end of March 2019.
The announcement points out that approximately half of the increase in resources was due to additional drilling completed at the project and the remainder due to a lowering of the cut-off grade from 3%HM to 1.5% HM, which was in line with the likely economics of the project.
Drilling will continue over the remainder of 2019, primarily aimed at increasing measured and indicated resources, which will be the basis of the DFS, which is planned to be completed by the end of this year.
COMMENT: The 25% increase in resources obviously bodes well for March’s PFS. Our current TP includes a risked value of US$128m for the company’s interest in Toliara (0.4*NPV10), which is based on our conceptual development parameters for the project, including a 26-year life supported by a mineable resource of 400Mt grading 6.7%HM. The updated measured and indicated resources at the project are now nearly double this level, (794Mt @ 5.8%HM), further underpinning the significance of the project and our view that upcoming PFS will confirm the project’s potential to be a long-life, high-margin operation once in production, which is targeted for 2021.
All of the historical resources at the project and the vast majority of the updated resources are contained within the Upper Sandy Unit (USU), one of three mineralised units identified at the deposit. Ongoing drilling will also further test the two underlying mineralised units which have the potential to add significantly to the overall level of resource at the project. Part of the relatively thin Intermediate Clay Sandy Unit (ICSU)(average of 4%HM and 25% slimes) was included in the resource for the first time, although the thicker Lower Sandy Unit (LSU) (average of 4%HM and 6% slimes) was not included in the resource to date due to lack of data.
With continued strong cashflow generation from Kwale and a supportive mineral sands outlook, we expect that the definition of the Toliara project parameters in the PFS will help to de-risk the company’s valuation. In the meantime, we maintain our BUY rating and our TP of A$0.46/share.
Figure 1: Ranobe Deposit - Stylised Cross Section
Source: Company announcement
+44 (0)20 3440 6834
+44 (0)20 3440 6821
+44 (0)20 3440 6822