BASE RESOURCES LIMITED
AIM Release
31 August 2016
BASE RESOURCES LIMITED
Annual Financial Report - period ended 30 June 2016
Base Resources Limited (ASX & AIM: BSE) ("Base" or the "Company") is pleased to
provide the following extracts from the company's Annual Financial Report for
the year ended 30 June 2016.
1. Review of Operations.
2. Marketing & Sales
3. Market Outlook
4. Review of Financial Performance.
5. Consolidated Statement of Profit or Loss and Other Comprehensive Income.
6. Consolidated Statement of Financial Position.
7. Consolidated Statement of Changes in Equity.
8. Consolidated Statement of Cash Flows.
These extracts should be read with reference to the notes contained in the full
version of the Annual Financial Report, a copy of which is available from
www.asx.com.au and on the Company's website: www.baseresources.com.au.
Highlights
Highlights from Base Resources' annual financial results for the year ended
30 June 2016 are as follows:
$ million1 2016 2015 % Change
Kwale Operation Sales Revenue 169.0 145.5 16%
Kwale Operation EBITDA 68.0 62.3 9%
Group EBITDA 60.6 55.0 10%
Net loss for the year (20.9) (16.0) -30%
Operating cash flow 78.6 38.2 106%
Free cash flow2 46.7 8.6 445%
Net debt (total borrowings less cash less debt (192.1) (241.0) -20%
service reserve account)
Notes: 1. All references to dollars or $ in this release is to Australian
currency (unless otherwise specified). 2. Free cash flow is determined as cash
flow before net proceeds from issue of shares, debt rescheduling costs,
proceeds/repayments of borrowings and payments to the debt service reserve
account.
* Sales volumes of 480,538 tonnes of ilmenite, 85,536 tonnes of rutile and
33,062 tonnes of zircon, representing the top end of the guidance range.
* Sales revenue was $169.0 million, achieving an average price of product
sold (rutile, ilmenite and zircon) of $282 per tonne, or US$205 per tonne,
(2015: $309 per tonne or US$256 per tonne). Lower average sale prices
reflect the challenging market conditions faced by mineral sands producers
for much of the reporting period.
* Total cost of goods sold increased to $86.6 million (2015: $73.3 million)
driven largely by the 27% increase in sales volume, at an average cost of
$144 per tonne, or US$105 per tonne of product sold, (2015: $155 per tonne
or US$130 per tonne). The reduction in operating costs per tonne produced
to $121 per tonne, or US$88 per tonne, (2015: $124 per tonne or US$103 per
tonne) is reflective of a sharp focus on cost management.
* The Kwale Operation achieved a revenue to cost of sales ratio of 2:1,
comfortably positioning it in the first quartile of mineral sands
producers.
* Cash flow from operations was $78.6 million for 2016 (2015: $38.2 million),
higher than Group EBITDA, predominately driven by a decrease in receivables
of $10.9 million during the reporting period, associated with $10.3 million
of Kenyan operational VAT refunds and timing of sales receipts.
* Free cash flow of $46.7 million contributed to the overall reduction in net
debt of $48.9 million. Repayments of $31.7 million (US$23.5 million) were
made against the Kwale Operation Debt Facility, reducing the outstanding
balance to US$180.5 million.
1. Review of Operations
Base Resources operates the 100% owned Kwale Operation in Kenya, which
commenced production in late 2013. The Kwale Operation is located 10
kilometres inland from the Kenyan coast and 50 kilometres south of Mombasa, the
principal port facility for East Africa.
During the reporting period, mining activity continued in the high grade
regions of the Central Dune, close to the processing plant, except for three
months mining lower grade perimeter blocks. The average ore grade mined was
8.3% heavy mineral ("HM") for the year. Mining activities will remain focused
on the Central Dune deposit for the next four years of the operation, before
transitioning to the South Dune for the remainder of the mine life.
The coming year will see the introduction of a second mining unit, a 400tph
hydraulic mining unit ("HMU"). Operating dual mining units will enable
concurrent mining of high grade ore with the existing dozer-trap mining unit ("
DMU") and allow access to lower grade perimeter blocks more cost effectively
utilising the HMU. This is expected to produce a blended average ore grade
lower than achieved this year and result in a higher mining volume to maintain
heavy mineral concentrate ("HMC") production.
The Kwale Operation is designed to process ore to recover three separate
products - rutile, ilmenite and zircon. Ore is received at the wet
concentrator plant ("WCP") from the mining units via a slurry pipeline. The
WCP removes slimes at a particle size less than 45?m, concentrates the valuable
heavy minerals (rutile, ilmenite and zircon) and rejects most of the
non-valuable, lighter gangue minerals. The WCP incorporates a number of
gravity separation steps using spiral concentrators. The HMC, containing 90%
heavy minerals, is then processed in the mineral separation plant ("MSP"). The
MSP cleans and separates the rutile, ilmenite and zircon minerals and removes
any remaining gangue.
Summary Physical Data 2016 2015
Ore mined (tonnes) 9,202,554 9,146,102
Heavy mineral (HM) % 8.31% 8.61%
WCP Heavy mineral concentrate production 734,431 752,063
(tonnes)
MSP Heavy mineral concentrate consumption 709,443 658,816
(tonnes)
Production (tonnes)
Ilmenite 455,870 427,655
Rutile 85,654 71,537
Zircon 31,389 22,416
Sales (tonnes)
Ilmenite 480,538 373,046
Rutile 85,536 76,801
Zircon 33,062 21,287
With the consistent achievement of design availabilities and throughputs in the
WCP, and the high average grade of ore mined, HMC production of 734,431 tonnes
was achieved in the reporting period. HMC production exceeded MSP consumption,
allowing the continued building of a HMC stockpile to mitigate risk and
optimise future production. At year end, the HMC stockpile was 139,364 tonnes.
During the reporting period, 709,443 tonnes of HMC was fed into the MSP to
produce 455,870 tonnes of ilmenite, 85,654 tonnes of rutile and 31,389 tonnes
of zircon. The successful completion of a number of MSP upgrade projects,
together with ongoing process optimisation, has yielded benefits in both
throughput and downstream recoveries of rutile and zircon during the reporting
period. Having achieved design recovery levels for all products, ongoing MSP
optimisation is expected to yield sustained increases in feed rates above 90tph
in the 2017 financial year.
Ilmenite production continued at above design capacity due to the combination
of increased MSP feed rates and high recoveries. Following the installation of
an additional MSP magnet stage in November 2015, ilmenite recovery reduced from
a pre-upgrade average of 110% to an average of 102% for the remainder of the
year, still exceeding design. The additional magnet stage had the effect of
removing rutile from ilmenite product and creating a high chrome stream, which
is now rejected to enhance product quality. Ilmenite production continues to
benefit from the proportionally higher ilmenite content (but lower rutile
content) of the high grade ore in the Central Dune, a feature of the Kwale
deposit.
Rutile production exceeded the 80,000 tonnes per annum design target for the
first time in the reporting period, thanks to the higher MSP feed rates and
ongoing optimisation of recoveries, aided by the MSP upgrade projects. Average
rutile recovery for the reporting period was 99%, surpassing design
expectations.
With some altered ilmenite species, that are not defined as either ilmenite or
rutile in the resource, being recovered in the production of both, calculated
recoveries (or yields) of over 100% are achievable for both ilmenite and
rutile.
Zircon production continued its steady improvement throughout the reporting
period, in line with the planned ramp-up schedule, and ultimately exceeded the
30,000 tonne design target, driven by the combination of achieving design
recovery (77.8%) and the increased MSP feed rate. Zircon recoveries averaged
78% in the last quarter and reached as high as 80% in June.
2. Marketing & Sales
Base Resources has a number of off-take agreements across each of its three
product streams spanning between one and six years of production of the Kwale
Operation. The agreements are with some of the world's largest consumers of
titanium dioxide minerals and zircon products, including a cornerstone
agreement with Chemours (formerly DuPont Titanium Technologies).
The agreements provide off-take security for the Kwale Operation, and contain
firm minimum annual offtake volumes subject to annual Base Resources'
production forecasts. Pricing is derived from prevailing market prices, based
on agreed price indices or periodic price negotiations, with some agreements
offering downside protection in the form of floor prices.
In the reporting period, Base Resources sold almost 600,000 tonnes of product
from the Kwale Operation, with shipments being made to a combination of
customers with existing offtake agreements, regular customers buying on a spot
basis and some new spot customers buying Base Resources' products for the first
time.
The appointment of a Chinese distributor for ilmenite in early 2015 has
assisted Base Resources in continuing to build its market presence in China -
the world's largest ilmenite market - through the 2016 financial year. During
the reporting period, Base Resources became the largest importer of ilmenite
into China, having sold almost 450,000 tonnes in the 2016 financial year.
Solid relationships have been established with major Chinese ilmenite consumers
who now comprise a mix of shorter term contracts (one to three-year duration)
and regular spot customers. Base Resources maintains a strong focus on
servicing the Chinese market and continues to expand its customer base with
further trial lots of ilmenite being evaluated by new customers.
Despite challenging market conditions for much of the reporting period, sales
volumes increased significantly over the comparable period to match production
growth. A solid improvement in the global titanium dioxide pigment market
through the first half of the 2016 calendar year led to a high level of demand
for Base Resources ilmenite and rutile in the June 2016 quarter. This has kept
stocks at minimal levels and provided a solid base for price improvement during
the 2017 financial year.
During the March quarter of 2016, Base Resources received a force majeure
notice from an ilmenite customer and a volume reduction notice from a rutile
customer. In both cases the impact was to defer or cancel a significant
portion of previously agreed sales volumes for the remainder of calendar 2016.
Alternative sales have been secured to fully cover the shortfall arising from
these notices, aided by the strengthening demand for titanium dioxide
feedstocks experienced towards the end of the reporting period.
Unlike the titanium dioxide feedstock markets, conditions for zircon remained
subdued through the reporting period. Despite the ongoing over-supplied
market, Base Resources has had sustained solid demand for zircon from its
small, but loyal, customer base.
3. Market Outlook
Ilmenite and rutile are primarily used as feed stock for the production of
titanium dioxide pigment, with a small percentage also used in the production
of titanium metal and fluxes for welding rods and wire. Pigment makes up over
90% of titanium minerals demand and is the main driver of pricing. Titanium
dioxide is the most widely used white pigment because of its non-toxicity,
brightness and very high refractive index. It is an essential component of
consumer products such as paint, plastics and paper.
Global consumption of pigment has maintained a long term average growth rate
closely correlated to global GDP, or approximately 3% per annum. However,
volatility in the global economy in recent years has created significant
fluctuations in this growth rate, manifesting in big swings in inventory levels
throughout the entire pigment supply chain. A growing supply deficit, compared
with demand, over the past year appears to have resulted in global pigment
inventories falling below normal levels for the first time in several years.
Growth in pigment consumption, together with re-stocking activity, has resulted
in pigment demand surging by more than 7% year-on-year, and substantial price
improvements being reported in the first half of calendar year 2016. This has
percolated through the supply chain and translated into strengthening feedstock
demand by the end of the reporting period. As a consequence, feedstock levels
have been drawn down at a more rapid pace than expected and tightness has
emerged in feedstock markets for the first time since the Kwale Operation
commenced production.
The ilmenite feedstock market has become particularly constrained owing to the
further constrictions in supply and growth in ilmenite-intensive Chinese
sulphate pigment production that has occurred over the reporting period. As a
result, ilmenite prices are responding positively, allowing Base Resources to
lock in substantial price increases for shipments in the September 2016
quarter.
Conditions for rutile also tightened by year end, although current supply and
stocks appear adequate to meet demand in the immediate future.
Current analysis suggests that excess global inventories of titanium dioxide
feedstocks, which have weighed heavily on prices over the past couple of years,
should return to normal levels by the end of calendar year 2016. In the
absence of substantial new feedstock supply coming online, the titanium dioxide
feedstock market is expected to begin a period of structural supply deficit,
providing an opportunity for price growth in both ilmenite and rutile over the
next few years.
Zircon has a range of end-uses, the largest of which is ceramic tiles, which
accounts for more than 50% of global zircon consumption. Milled zircon enables
ceramic tile manufacturers to achieve brilliant opacity, whiteness and
brightness in their products. Zircon's unique properties include heat and wear
resistance, stability, opacity, hardness and strength. These properties mean it
is also sought after for other applications such as refractories, foundries and
specialty chemicals.
Demand growth for zircon is closely linked to growth in global construction and
increasing urbanisation in the developing world. After a sharp downturn in
2012, major zircon suppliers have attempted to match their supply to demand
since 2013, keeping prices relatively stable until early 2016. However, with
demand remaining sluggish and supply growing from new sources, one major zircon
supplier reduced prices by approximately US$100 per tonne in March 2016,
forcing others to follow. Despite attempts to subsequently increase pricing,
subdued demand and excess inventories are expected to keep prices flat at
current levels throughout the 2017 financial year.
Any potential uplift in zircon prices remains dependent on firmer than expected
economic growth in the major markets of China, USA and Europe, and on a more
controlled response from major zircon producers in managing their production
and stocks.
4. Review of Financial Performance
2016 2015
Kwale Other Total Kwale Other Total
Operation operations Operation operations
$000s $000s $000s $000s $000s $000s
Sales Revenue 169,039 - 169,039 145,501 - 145,501
Cost of goods sold excluding depreciation &
amortisation:
Operating costs (69,647) - (69,647) (64,684) - (64,684)
Changes in inventories of (5,066) - (5,066) 1,903 - 1,903
concentrate and finished
product
Royalties expense (11,845) - (11,845) (10,470) - (10,470)
Total cost of goods sold (86,558) - (86,558) (73,251) - (73,251)
(i)
Corporate & external (4,309) (6,840) (11,149) (4,052) (6,636) (10,688)
affairs
Community development (3,921) - (3,921) (3,945) - (3,945)
Selling & distribution (4,114) - (4,114) (2,391) - (2,391)
costs
Other income / (expenses) (2,151) (580) (2,731) 488 (750) (262)
EBITDA (i) 67,986 (7,420) 60,566 62,350 (7,386) 54,964
Depreciation & amortisation (47,062) (127) (47,189) (41,474) (144) (41,618)
EBIT (i) 20,924 (7,547) 13,377 20,876 (7,530) 13,346
Net financing expenses (27,247) (7,009) (34,256) (26,825) (2,480) (29,305)
Income tax expense (40) - (40) (80) - (80)
NPAT (i) (6,363) (14,556) (20,919) (6,029) (10,010) (16,039)
(i) Base Resources' financial results are reported under International
Financial Reporting Standards (IFRS). These Financial Statements include
certain non-IFRS measures including EBITDA, EBIT and NPAT. These measures are
presented to enable understanding of the underlying performance of the Group
and have not been audited.
Base Resources recorded a loss after tax of $20.9 million for the year ended 30
June 2016, compared with $16.0 million in 2015. Sales revenue was $169.0
million for 2016 (2015: $145.5 million), achieving an average price of product
sold (rutile, ilmenite and zircon) of $282 per tonne or US$205 per tonne (2015:
$309 per tonne or US$256 per tonne). Total cost of goods sold was $86.6
million for 2016 (2015: $73.3 million), at an average cost of $144 per tonne
(US$105 per tonne) of product sold (2015: $155 per tonne or US$130 per tonne).
Operating costs per tonne produced for 2016 was $121 per tonne or US$88 per
tonne (2015: $124 per tonne or US$103 per tonne).
With an achieved revenue to cost of sales ratio of 2:1, the Kwale Operation is
well positioned in the upper quarter of mineral sands producers. Having reached
design recoveries for rutile and zircon in 2016, it is expected that, when
combined with higher MSP throughput rates, production of these high value
products will increase in 2017, further improving the revenue to cost ratio.
Despite lower commodity prices, increased production and sales volumes and a
sharp focus on cost management has delivered a Kwale Operation EBITDA of $68.0
million (2015: $62.4 million) and a Group EBITDA of $60.6 million for 2016
(2015: $55.0 million).
A net loss after tax of $6.4 million (2015: $6.0 million) was recorded by the
Kwale Operation and $20.9 million (2015: $16.0 million) for the Group. Loss
per share for the Group was 3.41 cents (2015: 2.85 cents).
Cash flow from operations was $78.6 million for 2016 (2015: $38.2 million),
higher than Group EBITDA predominately driven by a decrease in receivables of
$10.9 million during the reporting period, associated with $10.3 million of
Kenyan operational VAT refunds and timing of sales receipts.
In December 2015, the Kwale Project Debt Facility ("Debt Facility") was
rescheduled in order to establish a repayment profile more appropriate to the
commodity price environment. Under the terms of the reschedule,
US$14 million of the Debt Facility was paid down on execution, with a further
US$9.5 million scheduled repayment made in June 2016, reducing the outstanding
debt to US$180.5 million. Total debt outstanding, inclusive of the Taurus Debt
Facility, at 30 June 2016 was $270.3 million (US$201 million) compared with
$292.6 million (US$224 million) at 30 June 2015.
5. Consolidated Statement of Profit or Loss and Other Comprehensive
Income for the Year Ended 30 June 2016
2016 2015
Note $000s $000s
Sales revenue 169,039 145,501
Cost of sales 2 (133,620) (114,725)
Profit from operations 35,419 30,776
Corporate and external affairs (11,276) (10,832)
Community development costs (3,921) (3,945)
Selling and distribution costs (4,114) (2,391)
Other expenses (2,731) (262)
Profit before financing income and income tax 13,377 13,346
Financing costs 3 (34,256) (29,305)
Loss before income tax (20,879) (15,959)
Income tax expense 6 (40) (80)
Net loss for the year (20,919) (16,039)
Other comprehensive income
Items that may be reclassified subsequently to profit
or loss:
Foreign currency translation differences - 5,336 29,336
foreign operations
Total other comprehensive income / (loss) for 5,336 29,336
the year
Total comprehensive (loss) / income for the (15,583) 13,297
year
Net (Loss) / earnings per share Cents Cents
Basic (loss) / earnings per share (cents per 5 (3.41) (2.85)
share)
Diluted (loss) / earnings per share (cents per 5 (3.41) (2.85)
share)
The notes contained in the full version of the Annual Financial Report form
part of these consolidated financial statements, a copy of which is available
from www.asx.com.au and on the company's website: www.baseresources.com.au .
6. Consolidated Statement of Financial Position as at 30 June 2016
30 June 2016 30 June 2015
Note $000s $000s
Current assets
Cash and cash equivalents 7 36,295 40,906
Restricted cash 8 29,761 -
Trade and other receivables 9 43,544 54,481
Inventories 10 27,962 31,584
Other current assets 5,826 5,853
Total current assets 143,388 132,824
Non-current assets
Capitalised exploration and 1,487 1,432
evaluation
Property, plant and equipment 11 390,304 420,983
Restricted cash 8 - 6,532
Total non-current assets 391,791 428,947
Total assets 535,179 561,771
Current liabilities
Trade and other payables 12 24,953 21,866
Borrowings 13 61,816 70,057
Provisions 14 1,173 1,239
Deferred revenue 15 1,123 3,248
Other liabilities 887 636
Total current liabilities 89,952 97,046
Non-current liabilities
Borrowings 13 196,291 211,812
Provisions 14 28,973 27,313
Deferred revenue 15 3,089 4,082
Total non-current liabilities 228,353 243,207
Total liabilities 318,305 340,253
Net assets 216,874 221,518
Equity
Issued capital 16 223,548 214,131
Reserves 54,780 49,706
Accumulated losses (61,454) (42,319)
Total equity 216,874 221,518
The notes contained in the full version of the Annual Financial Report form
part of these consolidated financial statements, a copy of which is available
from www.asx.com.au and on the company's website: www.baseresources.com.au .
7. Consolidated Statement of Changes in Equity for the Year Ended
30 June 2016
Share Foreign
Issued Accumulated based currency Total
capital losses payment translation
reserve reserve
$000s $000s $000s $000s $000s
Balance at 1 July 2014 213,669 (26,742) 2,752 13,333 203,012
Loss for the year - (16,039) - - (16,039)
Other comprehensive income - - - 29,336 29,336
Total comprehensive income for - (16,039) - 29,336 13,297
the year
Transactions with owners, recognised directly in equity
Share based payments 462 462 4,285 - 5,209
Balance at 30 June 2015 214,131 (42,319) 7,037 42,669 221,518
Balance at 1 July 2015 214,131 (42,319) 7,037 42,669 221,518
Loss for the year - (20,919) - - (20,919)
Other comprehensive income - - - 5,336 5,336
Total comprehensive income for - (20,919) - 5,336 (15,583)
the year
Transactions with owners, recognised directly in equity
Shares issued during the year, 9,417 - - - 9,417
net of costs
Share based payments - 1,784 (262) - 1,522
Balance at 30 June 2016 223,548 (61,454) 6,775 48,005 216,874
The notes contained in the full version of the Annual Financial Report form
part of these consolidated financial statements, a copy of which is available
from www.asx.com.au and on the company's website: www.baseresources.com.au .
8. Consolidated Statement of Cash Flows for the Year Ended 30 June
2016
2016 2015
Note $000s $000s
Cash flows from operating activities
Receipts from customers 170,765 132,443
Payments in the course of operations (92,061) (94,131)
Other (96) (98)
Net cash from operating activities 17 78,608 38,214
Cash flows from investing activities
Purchase of property, plant and equipment (4,884) (9,129)
Other (187) 64
Net cash used in investing activities (5,071) (9,065)
Cash flows from financing activities
Proceeds from issue of shares 10,100 -
Payment of share issue costs (683) -
Proceeds from debt financing - 26,126
Repayment of borrowings (31,680) (14,369)
Net payments to restricted cash (debt service (23,230) -
reserve account)
Payments for debt service costs and (34,632) (25,210)
re-scheduling fees
Net cash used in financing activities (80,125) (13,453)
Net (decrease) / increase in cash held (6,588) 15,696
Cash at beginning of year 40,906 20,945
Effect of exchange fluctuations on cash held 1,977 4,265
Cash at end of year 7 36,295 40,906
The notes contained in the full version of the Annual Financial Report form
part of these consolidated financial statements, a copy of which is available
from www.asx.com.au and on the company's website: www.baseresources.com.au .
ENDS.
CORPORATE PROFILE
Directors
Keith Spence (Non-Executive Chairman)
Tim Carstens (Managing Director)
Colin Bwye (Executive Director)
Sam Willis (Non-Executive Director)
Michael Anderson (Non-Executive Director)
Michael Stirzaker (Non-Executive Director)
Malcolm Macpherson (Non-Executive Director)
Company Secretary
Chadwick Poletti
NOMINATED ADVISOR & BROKER
RFC Ambrian Limited
As Nominated Adviser:
Andrew Thomson / Stephen Allen
Phone: +61 (0)8 9480 2500
As Broker:
Jonathan Williams
Phone: +44 20 3440 6800
SHARE REGISTRY: ASX
Computershare Investor Services Pty Limited
Level 11, 172 St Georges Terrace
PERTH WA 6000
Enquiries: 1300 850 505 / +61 (3) 9415 4000
www.computershare.com.au
SHARE REGISTRY: AIM
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
BRISTOL BS99 6ZZ
Enquiries: +44 (0) 870 702 0003
www.computershare.co.uk
AUSTRALIAN MEDIA RELATIONS
Cannings Purple
Annette Ellis / Andrew Rowell
Email: aellis@canningspurple.com.au /
arowell@canningspurple.com.au
Phone: +61 (0)8 6314 6300
UK MEDIA RELATIONS
Tavistock Communications
Jos Simson / Emily Fenton
Phone: +44 (0) 207 920 3150
KENYA MEDIA RELATIONS
Africapractice (East Africa)
Evelyn Njoroge / James Njuguna/Joan Kimani
Phone: +254 (0)20 239 6899
Email: jkimani@africapractice.com
PRINCIPAL & REGISTERED OFFICE
Level 1, 50 Kings Park Road
West Perth, Western Australia, 6005
Email: info@baseresources.com.au
Phone: +61 (0)8 9413 7400
Fax: +61 (0)8 9322 8912
BASE RESOURCES LIMITED : - Annual Financial Report – period ended 30 June 2016
August 31, 2016 at 02:01 am EDT
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