Base Resources Ltd (ASX: BSE) is an Australian based, African focused, mineral sands producer and developer with a track record of project delivery and operational performance. It operates the Kwale Project in Kenya and is developing the Toliara Project in Madagascar. Mineral sands are used to manufacture everyday “quality-of life” items such as paints (ilmenite and rutile) and ceramic tiles (zircon). Base Resources has as a market capitalisation of around $264 million.
What is the increase in production guidance for FY20?
In respect of the Kwale Project, mining operations commenced at the South Dune orebody in the September quarter 2019, following the transition from the fully depleted Central Dune orebody at the end of June 2019.
Since commencing mining on the South Dune orebody in July 2019, Base Resources has encountered higher rutile and marginally lower ilmenite than expected, with zircon largely as forecast. In addition, due to the mineral characteristics of the South Dune ore, separation efficiency has improved, when compared with the Central Dune ore, and recoveries for all products in the mineral separation plant are higher, particularly for rutile and zircon.
With the expectation that these trends will continue, in conjunction with higher mining volumes achieved year to date, the production guidance for all products has been revised upwards for FY20 as shown below:
|Production Guidance||Original FY20 Guidance Range Tonnes||Updated FY20 Guidance range Tonnes||Percentage Increase (based on the mid-point of guidance)|
|Rutile||64,000 to 70,000||75,000 to 81,000||16.4%|
|Ilmenite||315,000 to 350,000||335,000 to 355,000||3.7%|
|Zircon||25,000 to 28,000||29,000 to 32,000||15.1%|
The increase in production guidance for the high-valued products rutile and zircon, combined with strengthening rutile and ilmenite prices, materially improves the expected cash flow from operating the Kwale Project. This is particularly important for Base Resources as it is seeking to commence construction of the world class Toliara Project, with capital expenditure of around $US442 million, in September 2020. This is because the improved cash flow from the Kwale Project eases the funding task to construct the Toliara Project.
The Toliara Project is a major ilmenite project (with zircon as a by-product) which could produce annual cashflow of over $US110 million over the 33 years plus project life. Overtime, the project is estimated to generate cash flow of US$3.7 billion over 31 years. The project’s cash flow is illustrated in the graph below:
What is the market’s reaction?
Today, Base Resources’ share price increased 9% to $A0.245. Over the past 2 years, Base Resources share price has been trading in the range of $0.21 to $0.33. The Toliara project is world class mineral sands project that has not been priced into Base Resources share price. This could change over time as the project approaches production.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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