Annual Financial Report – period ended 30 Jun...

AIM and Media Release 

22 August 2022

BASE RESOURCES LIMITED
Annual Financial Report – period ended 30 June 2022

African mineral sands producer and developer, Base Resources Limited (ASX & AIM: BSE) (Base Resources or the Company) is pleased to present its results for the year ended 30 June 2022 (FY22), with higher prices for all products supporting record results, including EBITDA of US$158.7 million and a revenue to cost of sales ratio (operating margin) of 3.2:1. 

The following extracts from the Company’s 2022 Annual Report (which includes its Annual Financial Report for FY22) are also provided.

1. Operations.
2. Business Development.
3. Sustainability.
4. Markets.
5. Corporate.
6. Consolidated Statement of Profit or Loss and Other Comprehensive Income.
7. Consolidated Statement of Financial Position.
8. Consolidated Statement of Changes in Equity.
9. Consolidated Statement of Cash Flows.

These extracts should be read in conjunction with the notes, graphics and glossary contained in the full version of Base Resources’ 2022 Annual Report.  The Company has also released an Investor Presentation to accompany its Annual Report.  A PDF copy of the 2022 Annual Report and accompanying Investor Presentation are available from the Company’s website:  www.baseresources.com.au. 

All figures are reported in US dollars unless otherwise stated.

HIGHLIGHTS

Kwale Operations achieved production guidance and met customer shipping schedules consistently throughout the year, despite COVID-19 induced challenges and some unplanned stoppages, allowing the Company to capitalise on the high price environment.  Following a decision to proceed with the Bumamani Project, Kwale Operations mine life was also extended to December 2024, and additional initiatives are being progressed to secure further mine life extensions.

The Toliara Project in Madagascar is a significant growth opportunity for the Company and remains a key focus.  Discussions with the Government of Madagascar on the fiscal terms applicable to the project progressed substantially during the year and are now at an advanced stage, with a clear pathway for agreement to be reached, and the suspension of on-ground-activities lifted.

Financial highlights for FY22

• Record revenue of US$279.1 million following a 33% increase in average realised unit sales price compared to the prior year ended 30 June 2021 (FY21).
• Record EBITDA of US$158.7 million and net profit after tax of US$80.7 million.
• Free cashflow of US$59.4 million (operating cashflows of US$78.3 million less investing cashflows of US$18.9 million).
• Net cash position of US$55.4 million at 30 June 2022.

Final dividend of AUD 3.0 cents per share determined

The Company’s capital management policy is that cash not required to meet the Company’s near-term growth and development requirements, or to maintain requisite balance sheet strength in light of prevailing circumstances, could be expected to be returned to shareholders.  While discussions on fiscal terms with the Government of Madagascar are at an advanced stage, agreement has not yet been reached.  Against this backdrop, and with net cash of US$55.4 million at the end of the period and continued strong financial performance, the Board has determined a final dividend of AUD 3.0 cents per share (unfranked), totalling A$35.3 million in aggregate (approximately US$24.4 million) and to be paid wholly from conduit foreign income.  The record date for the final dividend is 5 September 2022 and the payment date is 22 September 2022 – refer to Base Resources’ accompanying announcement “FY22 Final Dividend – Key dates and information” for further information.

Upon payment of the FY22 final dividend, dividends distributed to shareholders since October 2020 will total AUD 16.5 cents per share, equal to A$194.4 million in aggregate (approximately US$141.7 million).

Operational and development highlights for FY22

• Production of 74,349 tonnes of rutile, 325,148 tonnes of ilmenite, 25,569 tonnes of zircon and a combined 13,280 tonnes of low-grade rutile and zircon products from Kwale Operations.
• Continued strengthening of demand for all products, with increases in average achieved prices of 26% for rutile, 42% for ilmenite and 57% for zircon compared to FY21.
• Kwale Operations mine life extended following finalisation of the Kwale South Dune mining lease extension, and then further extended to December 2024 following a decision to implement the Bumamani Project subject to completion of necessary land acquisitions.
• Toliara Project enhanced definitive feasibility study completed, with a significant growth in estimated Ore Reserves underpinning an expansion of mining and processing scale, increasing the project’s post-tax / pre-debt (real) NPV @ 10% discount rate to US$1.0 billion¹.
• Toliara Project monazite and rare earths concept study commenced.
• Tanzanian exploration program commenced, with an air core drill program planned for FY23.

[Note (1): For further information, refer to Base Resources’ announcement on 27 September 2021 “DFS2 enhances scale and economics of the Toliara Project” (DFS2 Announcement).  The DFS2 Announcement contains the material assumptions and underlying methodologies adopted for deriving this forecast financial outcome.  The DFS2 Announcement also discloses key pre and post FID risks in respect of the Toliara Project. Base Resources confirms that all the material assumptions underpinning the production information and forecast financial information in the DFS2 Announcement continue to apply and have not materially changed.]

Managing Director of Base Resources, Tim Carstens, said:

“We have completed another operationally strong year and, with the continued improvement in mineral sands prices throughout the period, we were able to achieve record financial outcomes.  This, and our disciplined management of costs, has enabled continuation of robust returns to shareholders.”

“The extension of mine life at Kwale Operations remains an intense area of focus and meaningful results were achieved in FY22, with the successful expansion of our special mining lease to incorporate the remainder of the South Dune orebody, and commencement of development of the Bumamani Project.  When combined, these will extend mine life at Kwale until December 2024.  We continue to pursue additional mine life extension opportunities in the Kwale East sector and regionally, with exploration to intensify in northern Tanzania in the coming year.  Now that the Kenyan General Election has concluded, we are hopeful that various prospecting licence applications lodged in prior years will progress toward issuance.  Our stakeholders – employees, communities, governments, customers and shareholders – are aligned in a desire to extend our successful presence in East Africa.”

“The Toliara Project in Madagascar continues to represent a significant growth opportunity for Base Resources and the release of an enhanced DFS incorporating an increased scale, supported by a substantial increase in Ore Reserves and an improvement in the long-term supply-demand outlook for mineral sands, has further highlighted the Toliara Project’s high potential.”

“Discussions with the Government of Madagascar on fiscal terms, and the lifting of the on-ground suspension, have advanced significantly and we are encouraged by government’s recent messaging on the need to bring the Toliara Project to development in a timely manner to help stimulate economic growth in the region.”

“This is an exciting time for Base Resources.  We look forward to sharing milestone developments with investors as soon as feasible.”

Investor webcast

An investor webcast will be hosted by Base Resources’ Managing Director, Tim Carstens, Chief Financial Officer, Kevin Balloch, and General Manager - Marketing, Stephen Hay, who will each also be available to answer questions following a presentation of the Company’s results.

Details for the webcast are below. Participants will be able to ask questions via the messaging function on the webcast platform or via the teleconference line.  Participants that propose using the teleconference line will need to pre-register their details using the teleconference registration URL provided below.  Upon registering, participants will receive an email with their unique PIN and dial-in details so that they can join the call without needing to speak to an operator.

Europe webcast

• Date: Monday, 22 August 2022
• Time: 4.00pm AWST / 9.00am BST
• Webcast URL: https://edge.media-server.com/mmc/p/2tiz59hz
• Teleconference registration URL: https://register.vevent.com/register/BI4131d19441d84f51be130c4a3b14254f

1. OPERATIONS

Base Resources operates the 100% owned Kwale Operations in Kenya, which commenced production in late 2013.  Kwale Operations is located 50 kilometres south of Mombasa, the principal port facility for East Africa.

Kwale Operations is designed to process ore to recover three main products: rutile, ilmenite and zircon.  Base Resources employs a hydraulic mining method which has proven cost effective and well suited to the Kwale deposit and involves blasting the mining face directly with high pressure jets of water to create an ore slurry.  The ore slurry is then pumped to the wet concentrator plant where slimes are removed before a number of gravity separation steps reject most of the non-valuable, lighter gangue minerals to produce a heavy mineral concentrate.  The heavy mineral concentrate is then processed in the mineral separation plant which cleans and separates the rutile, ilmenite and zircon minerals into finished products for sale.  The Company also produces low grade zircon and rutile products.

Mining

Mining volume in the reporting period was lower than the prior period, at approximately 16.5 million tonnes, primarily due to two separate outages caused by the failure of a tailings storage facility penstock and a flash flooding event.  The average heavy mineral grade of ore mined increased to 3.73%, from 3.46% in FY21.

HMC production in FY22 of 565,461 tonnes was similar to the prior period (558,084 tonnes) as lower mining volumes were offset by the higher grade of ore mined.  As HMC is the primary constraint on production, all available HMC was fed to the MSP and HMC stocks closed the year at 9,713 tonnes (prior period: 19,841 tonnes).

Mining and Wet Concentrator Plant	2022	2021
Ore mined (tonnes)	16,485,132	17,982,578
Heavy mineral (HM) content of ore mined (%)	3.73	3.46
Valuable heavy mineral (VHM) content of ore mined (%)	2.86	2.65
WCP heavy mineral concentrate production (tonnes)	565,461	558,084

Processing

With a higher volume of HMC fed into the mineral separation plant during the year and recoveries in line with the prior period, production of ilmenite and rutile was higher.  Zircon production of 25,557 tonnes was lower than the prior year (27,123 tonnes) due to lower contained zircon in the HMC mineral assemblage and a marginally lower mineral recovery of 84% (prior period: 85%).

In response to strong customer demand during the year, a new low grade rutile product was marketed from material that would otherwise have reported to tailings.  Together with the low-grade zircon that has been produced for some time, the low-grade rutile is maximising the recovery and sale of the valuable minerals in the orebody.

Mineral Separation Plant	2022	2021
MSP feed (tonnes of heavy mineral concentrate)	575,589	554,693
MSP recovery %
Ilmenite	101	101
Rutile	101	101
Zircon	84	85
Production (tonnes)
Ilmenite	325,148	317,276
Rutile	74,349	73,248
Zircon	25,569	27,123
Zircon low grade	2,555	1,878
Rutile low grade	10,725	-

Sales

The Company maintains a balance of multi-year and quarterly offtake agreements with long term customers as well as a small proportion of ongoing spot sales.

These multi-year and quarterly agreements, in place with some of the world’s largest consumers of titanium dioxide feedstocks and zircon products, provide certainty for Kwale Operations by securing minimum offtake quantities for the applicable period.  Sales prices in these agreements are typically either negotiated or set on a shipment-by-shipment basis or for periods of up to six months, and are derived from prevailing market prices.

The strength of the mineral sands market in the year for all products ensured that sales continued to closely match production, with minimal inventories maintained.

Product Sales	2022	2021
Sales (tonnes)
Ilmenite	335,203	320,438
Rutile	75,315	74,339
Zircon	25,783	28,037
Zircon low grade	2,497	2,971
Rutile low grade	9,049	-

2. BUSINESS DEVELOPMENT

Business development remained a core focus, with the Toliara Project and opportunities to extend Kwale Operations’ mine life both progressed.

Toliara Project

The Toliara Project is founded on the Ranobe deposit, located approximately 45 kilometres north of the regional town of Toliara in southwest Madagascar.  The Company acquired the Toliara Project in 2018 and is currently progressing the project towards development.

In November 2019, the Government of Madagascar required the Company to suspend on-the-ground activity on the Toliara Project while discussions on fiscal terms applying to the project were progressed.  Local activity remains suspended as Base Resources continues to engage with the Government in relation to the country’s Large Mining Investment Law regime, fiscal terms applicable to the Toliara Project and lifting of the on-the-ground suspension of activity.

In September 2021, the Company completed an enhanced Definitive Feasibility Study for the Toliara Project, based on the updated and increased Ranobe Ore Reserves estimate and incorporating an overall increase to the scale of the project.

The DFS delivered substantially improved outcomes, including:

• a post-tax real NPV of US$1 billion @ 10% discount rate
• average revenue to cost of sales ratio of 3.5
• life of mine free cash flow of $5.9 billion over the initial 38-year mine life.²

Timing for a final investment decision to proceed with construction of the Toliara Project remains subject to lifting of the suspension of on-the-ground activities and agreeing acceptable fiscal terms with the Government of Madagascar.

Once these two key milestones are achieved, there will be approximately 11 months’ work to complete prior to reaching FID, including finalisation of funding, completion of land acquisitions, conclusion of major construction contracts and entering offtake agreements with customers.  The Company maintains readiness to accelerate progress when conditions support.

[Note (2): Refer to the DFS2 Announcement for the material assumptions and underlying methodologies for deriving these forecast financial outcomes.  Base Resources confirms that all the material assumptions underpinning the production information and forecast financial information in the DFS2 Announcement continue to apply and have not materially changed.]

Kwale Operations extensional initiatives

Significant progress was made to extend Kwale Operations mine life in FY22.  Initially, mine life was extended to December 2023 following a variation to the Company’s Special Mining Lease 23 to incorporate additional estimated South Dune Ore Reserves.  Mine life was then further extended with the decision to proceed with the Bumamani Project, which will see the Company mine higher grade subsets of the estimated Kwale North Dune and Bumamani Mineral Resources until December 2024, subject to the completion of necessary land acquisitions.

The drilling program in the Kwale North-East Sector remained on hold, though efforts to re-engage the community to secure access were renewed.  Additional prospecting licences applied for in the Kuranze region of Kwale county, as well as over an area south of Lamu, remained in the granting process.  The Company continues to work with the Government, and other mining sector stakeholders, to see the moratorium lifted and recommencement of the issuance of mineral rights.

Tanzania

The Company has four prospecting licences in Tanzania covering over 263 km², with a fifth application still pending.  On-ground exploration in Tanzania progressed with shallow auger drilling, test pits and rock chip sampling to assess geochemical anomalies and identify air core drilling targets.  Following analysis of samples, a 3,000m air-core drill program is planned to commence in early FY23.

3. SUSTAINABILITY

From project development through to operating mines, Base Resources adopts and enhances world-class, inclusive business practices seeking to minimise any negative impacts and maximise positive outcomes of its operations for its employees, its host communities and, more broadly, its host nations.

At Base Resources, sustainability has always been a key component of our business model – embedded across every stage of our approach to developing mineral sands mines, from exploration through to mining and then post mining land use.  Kwale Operations is our success story so far.

We design and operate mines with the full life cycle of mining in mind and have an absolute commitment to operating in line with global best practice with context-specific social and environmental practices.  At Base Resources, we believe that environmental and social risks and impacts are interconnected, and we manage them as such.

As an African-focused mineral sands company, we take great pride in working with members of our host communities through our preferential system of employment and procurement – ensuring that those nearest to, or most affected by, our mining activities have the greatest opportunity to benefit from our activities.  We consult with local communities and our host nations at every step of the way, and work in partnership with other stakeholders to deliver on the outcomes we are aiming to achieve.  Our operations are designed responsibly to avoid human health and ecosystem impacts wherever possible, and we employ regenerative practices in an effort to leave our environments better than we found them.

The Board has ultimate responsibility for overseeing our approach to sustainability and is responsible for defining our environmental, social and ethics vision and ensuring that our overall strategy and systems are aligned with that vision.  The Board established an Environment, Social and Ethics Committee in 2021 and, during the year, met on four occasions.  Significant progress was made to further improve the Company’s measurement, and communication of its sustainability strategy and performance, with an inaugural Sustainability Report due for release in the coming months.

Sustainability matters are specifically embedded in role descriptions throughout the organisation, ensuring both the requisite focus and effective integration into our “business as usual” practices.

Our People

Health and safety

Base Resources believes that a healthy and safe workforce is an essential contributor to business success and is committed to the health, safety, and wellbeing of employees, contractors, and visitors.  The Company strives for zero harm and effective management of risks through a culture which does not accept unsafe behaviours, where employees hold each other to account, and where continual improvement and honest communication of safety issues is entrenched in the workplace.

The Company suffered its first lost time injury since 2014 in FY22, resulting in a lost time injury frequency rate of 0.24 per million hours.  With three medical treatment injuries recorded during the reporting period, Base Resources’ total recordable injury frequency rate is 0.97 per million hours worked.

Local employment and workforce development

Base Resources prioritises the recruitment of local people via a system that is specifically designed to maximise employment opportunities and project benefits for local communities.  Through a ‘fencing system’, established in consultation with governments and local communities, Base Resources gives preference to those residing in the immediate environs of a mine with progressively lower priority given to those living further away.

Base Resources’ employee fencing system has proved highly effective at Kwale Operations.  Of the 1,281 employees and contractors, 99% are Kenyan, with 72% drawn from Kwale County.  The same approach is being implemented in Madagascar for the Toliara Project.

Base Resources has structured training and skills transfer programs covering on-the-job training for permanent employees, as well as tailored programs for graduates, interns, apprentices and high school students.  Implemented in both Kenya and Madagascar, the programs focus not only on employees, but also on building skills capacity in the broader community.

Reflecting the Company’s continued commitment to skills transfer, Base Resources invested US$450,000 in training and development across its operations during the year, resulting in delivery of over 79,351 hours of training to employees and members of the community.

Employee engagement

Base Resources places significant emphasis on establishing and developing a highly engaged, motivated and satisfied workforce, with the sustained operational performance achieved, across production, safety and cost management, reflective of the Company’s success in developing human capital.

Additional key indicators of employee satisfaction and motivation, as well as sources of competitive cost advantage, are staff turnover and industrial action.  The Group voluntary staff turnover rate for the reporting period was 2.9%.  Base Resources has not recorded any industrial action since being founded.

Diversity

Base Resources values and encourages a diverse workforce and provides a work environment in which everyone is treated fairly, and with respect and can realise their full potential.  The objectives set for achieving gender diversity for FY21 were retained for the reporting period.  These objectives included achieving an increase in the overall percentage of women employed by the Group, maintaining female representation in the intakes for graduate and apprentice programs at or above one third, increasing the number of women in management roles (Manager level and above) and senior management roles (General Manager level and above) and, excluding short term employees, maintaining female turnover that is less than Group turnover.³

Base Resources achieved its objective to increase the overall percentage of women in the workforce, to maintain female representation in the intake for graduate and apprentice programs at or above one third in FY22 and to increase women in management roles.  However, there was a decrease in Board diversity as a consequence of an unplanned resignation, voluntary female turnover was higher than that for the Group, albeit with a reduced margin, and no appointment opportunities were available during the year at senior management level.  Further details about the Company’s diversity objectives and performance are set out on page 76 of Base Resources’ 2022 Annual Report.

[Note (3): Turnover covers all scenarios which may result in an employment relationship being ended, with the exception of termination for cause.]

Community

Base Resources engages with its local communities in a structured and inclusive manner.  Across its operations, the Company has established various committees to act as an interface between the Company, local communities and governments.  This is an important tool for managing expectations and addressing grievances or concerns, and establishes a mechanism for achieving more participatory and inclusive outcomes.

Through close collaboration with committees and communities across Kenya and Madagascar, programs have been developed based around four key pillars:

• Livelihood Improvement
• Community Health
• Education
• Community Infrastructure

During the reporting period, the Company worked with the three Community Development Agreement Committees, each representing a community affected by Kwale Operations, to oversee the delivery of a combined US$2.5 million of development projects, including water infrastructure, educational buildings and sanitary facilities.  In addition, the Company progressed its own community programs including awarding over 670 scholarships to secondary and tertiary students, construction of community infrastructure such as water towers and class rooms and the provision of hygiene stations to manage the spread of COVID-19.

More information on Base Resources’ community programs is available at baseresources.com.au.

Environment

The Company is committed to undertaking its activities in a way that prevents, mitigates or offsets any detrimental impacts on the environment.  The Company’s Environment Policy drives the Company’s commitment to minimising pollution and overall impacts, contributing to protecting and conserving biodiversity and ensuring environmentally responsible behaviour.

The Company operates a comprehensive environmental management system that was effective in ensuring no significant environmental incidents during the year.

Rehabilitation of the Kwale Operations tailings storage facility external walls continued throughout FY22 with approximately 37.6 hectares (81%) classified as rehabilitated, following an audit by the National Environment Management Authority.  Rehabilitation of the mined out Central Dune progressed with 32 hectares rehabilitated in the year.  As mining operations advanced through the South Dune, the mined-out area is being progressively rehabilitated with 124 hectares undergoing planting in FY22, taking the total South Dune area that has either been planted or provisionally rehabilitated to 228 hectares (71% of the disturbed area) by the end of the reporting period.

Seeds and topsoil erosion control materials for this rehabilitation work are sourced from local women’s groups, thereby providing additional incomes for villages surrounding the mine site.

Across the Company’s operations, work continued on several programs to improve local biodiversity, and promote conservation and sustainability, including the rare and endangered flora propagation research program.

Under this program, Base Resources focuses on species of conservation significance, particularly local and threatened indigenous plant species, for propagation in its nurseries.

The Kwale Operations nursery has 303 indigenous species represented, and over 190,540 plants have been grown to date, of which 148,101 have been planted.

The nursery represents one of the largest of its kind in Africa, with 90 of the species represented appearing on the IUCN Red List of Threatened Species, as either critically endangered, endangered or vulnerable.  The nursery, together with the arboretum established alongside it, also function as a training and educational facility for local community projects, schools and other visitors.

For more information on other environmental programs such as biodiversity corridors, wetland restoration and recycling programs visit baseresources.com.au.

4. MARKETS

Robust demand for all Base Resources’ products from all sectors and regions continued throughout FY22.

Mineral sands end products are widely used in everyday life and historical demand has been tightly tied to growth in global GDP.

Structural undersupply has translated into strong customer demand and solid price gains for all products over the reporting period.  Market conditions remained robust at the end of FY22, but emerging economic uncertainty, stemming from Chinese COVID-19 management policies and global inflationary pressures, could see demand and product prices moderate.

Ilmenite and rutile

Ilmenite and rutile are different grades of titanium dioxide minerals and are used predominantly to produce pigments for paint, paper, plastics, textiles and inks.  TiO₂ pigment is prized for its opacity, brightness and whiteness and its ability to absorb and reflect ultraviolet radiation.  It is also non-toxic and inert to most chemical reagents.

High grade TiO₂ minerals (which include rutile) can also be used to produce titanium metal, which is corrosion resistant and has the highest strength to weight ratio of any metal.  Titanium metal is used across the aerospace and defence industries as well as in medical devices, sporting equipment and jewellery.  High grade TiO₂ minerals are also used in the flux in welding consumables such as welding rods and fluxcored wire which is extensively used in ship building.

Chinese pigment producers, the largest consumers of sulphate ilmenite, experienced strong demand during the reporting period which resulted in a series of significant pigment price increases.  Pigment sales growth came from both the export and Chinese domestic markets during most of the year, though uncertainty over the economy saw the domestic market for pigment in China soften towards the end of FY22.  Pigment markets outside of China have been in significant deficit throughout the reporting period and have presented a good opportunity for Chinese pigment exporters to increase their export sales.  Base Resources’ customers in China continued to demand more ilmenite than Base Resources could supply which fuelled ongoing solid price gains for ilmenite.

Supply constraints on ilmenite persisted through FY22 – compounded by the Ukraine conflict which has significantly impacted the production and supply of ilmenite from Ukraine (a major global producer).  Increasing ilmenite output from some African concentrate producers and domestic Chinese producers has not been sufficient to meet demand growth.  However, this increasing supply, combined with the potential for weakness in the Chinese domestic market and uncertainty over the global economy, may slow pricing momentum in the coming financial year.

The average price for Base Resources’ ilmenite in FY22 was 41% higher than the prior period.

The pigment industry outside of China, which is more dependent on high grade TiO₂ feedstock (including rutile) and dominated by western producers, experienced very strong demand and solid price growth throughout the reporting period.  Pigment producers have sought to maximise their production rates to take advantage of the market conditions but have been constrained by the lack of available TiO₂ feedstock and some other raw materials.  Rutile, the highestgrade feedstock, has been particularly sought after as it typically provides pigment producers with the highest pigment yield.  Constrained supply of rutile and other highgrade feedstock has resulted in a growing deficit in the market and prices have continued on an upward trajectory.

Exacerbating the shortage of rutile has been the increased demand from the titanium metal and high-end welding sectors.  Titanium metal is experiencing a significant supply shortfall as demand from aerospace increases on the back of strong aircraft order books and supply is heavily constrained by sanctions on Russia (traditionally the main supplier to the aerospace sector).  Titanium metal producers outside of Russia are working to maximise their production rates and, like western pigment producers, are seeking the highest grade TiO₂ feedstock available.

Flux-cored wire producers in the welding sector, which rely on rutile as a key input, are experiencing solid demand from a rebounding ship-building industry and seeking increased quantities of feedstock.  The interruption to rutile supply from Ukraine, which has traditionally been a major supplier to this market sector, is exacerbating the overall shortage of rutile in the market.

Demand for rutile from Base Resources’ existing customers continues to exceed production capacity.

The average price for Base Resources’ rutile in FY22 was 26% higher than the prior period.  Ongoing strength in all end use sectors is likely to see strong prices being maintained for rutile through the start of FY23.

Zircon

Zircon has a range of end-uses, including in the production of 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, making it sought after for other applications such as refractories, foundries and specialty chemicals.  Demand for zircon is closely linked to growth in global construction and increasing urbanisation in the developing world.  Generally there is a close link between zircon demand growth and global GDP growth.

The zircon market experienced ongoing demand throughout the reporting period with demand from Base Resources’ existing customers continuing to exceed production capacity.

During the early part of the financial year Chinese zircon demand was robust before easing due to mounting concerns around housing demand, power cuts, environmental controls and COVID-19 policy.  However, these concerns subsided following Chinese New Year with demand rebounding, providing the basis for further strong price gains.

Zircon demand in Europe, the next biggest zircon market after China, maintained upward momentum throughout the reporting period with zircon millers unable to secure sufficient supply to meet their production targets.

Softer economic conditions in China stemming from renewed COVID-19 lockdowns has seen some building of zircon stocks in the downstream supply chain at the end of the reporting period.  However, supply chain inventories remain low in other major markets.  Support for high zircon prices has continued into the start of FY23 though the pricing outlook for the remainder of FY23 will depend on broader developments in the Chinese and global economies.

The average price for Base Resources’ zircon in FY22 was 57% higher than the prior period.

5. CORPORATE

Base Resources achieved record revenue of US$279.1 million and profit after tax of US$80.7 million for the reporting period, a significant increase compared with the prior period, driven by higher product prices.

	2022				2021
	Kwale Operations US$000s	Toliara Project US$000s	Other US$000s	Total US$000s	Kwale Operations US$000s	Toliara Project US$000s	Other US$000s	Total US$000s
Sales revenue	279,117	-	-	279,117	198,235	-	-	198,235
Cost of goods sold excluding depreciation & amortisation
Operating costs	(70,113)	-	-	(70,113)	(64,963)	-	-	(64,963)
Inventory movement	(3,434)	-	-	(3,434)	(1,576)	-	-	(1,576)
Royalties expense	(18,019)	-	-	(18,019)	(13,823)	-	-	(13,823)
Total cost of goods sold 4	(91,566)	-	-	(91,566)	(80,362)	-	-	(80,362)
Corporate & external affairs	(3,787)	(101)	(7,976)	(11,864)	(3,759)	(69)	(7,683)	(11,512)
Community development	(6,178)	-	-	(6,178)	(4,618)	-	-	(4,618)
Selling & distribution costs	(2,954)	-	-	(2,954)	(1,712)	-	-	(1,712)
Net write-off of Kenyan VAT receivable and royalty payable	(3,012)	-	-	(3,012)	-	-	-	-
Business development	-	-	(1,753)	(1,753)	-	-	(526)	(526)
Other expenses	(2,821)	(170)	(140)	(3,131)	(2,927)	-	(11)	(2,938)
EBITDA4	168,799	(271)	(9,869)	158,659	104,857	(69)	(8,220)	96,568
Depreciation & amortisation	(40,090)	(184)	(398)	(40,672)	(58,948)	(203)	(287)	(59,438)
EBIT 4	128,709	(455)	(10,267)	117,987	45,909	(272)	(8,507)	37,130
Net financing expenses	(4,064)	(52)	(22)	(4,138)	(7,794)	-	(78)	(7,872)
Income tax expense:
Corporate income tax	(19,608)	-	-	(19,608)	(9,277)	-	-	(9,277)
Dividend withholding tax	-	-	(13,500)	(13,500)	-	-	(9,000)	(9,000)
NPAT	105,037	(507)	(23,789)	80,741	28,838	(272)	(17,585)	10,981

[ Note (4): Base Resources’ financial results are reported under International Financial Reporting Standards (IFRS).  These Financial Statements include certain non-IFRS measures including EBITDA and EBIT.  These measures are presented to enable understanding of the underlying performance of the Group and have not been audited.]

Sales revenue increased 40% to US$279.1 million for FY22 (prior period: US$198.2 million), due to higher sales volumes and a 33% increase in the average price of product sold to US$621 per tonne (prior period: US$467 per tonne), with higher prices achieved across all products.

Total operating costs of US$70.1 million represented an increase of 8% compared to the prior period (US$65.0 million), due to higher unit fuel costs and a 4% increase in production volume, with operating costs per tonne produced steady at US$155 per tonne (prior period: US$156 per tonne).

Cost of goods sold (operating costs, adjusted for stockpile movements and royalties) was US$196 per tonne of product sold, 4% higher than the prior period (US$188 per tonne) due to higher royalties as a consequence of the increased sales revenue.

With an operating margin of US$425 per tonne sold (prior period: US$279 per tonne) and an achieved revenue to cost of sales ratio of 3.2 (prior period: 2.5), Base Resources remains well positioned amongst mineral sands producers.

FY22 was the first full year during which the Community Development Agreements in Kenya were in place.  These each stipulate that a fixed percentage of Base Titanium's annual sales revenue be allocated to community development projects.  This, along with long-standing expenditure commitments, such as the scholarship programs, resulted in a US$1.6 million increase in community development expenditure compared to the prior period.

Higher product prices and disciplined cost control delivered record Kwale Operations EBITDA for FY22 of US$168.8 million (prior period: US$104.9 million) and Group EBITDA of US$158.7 million (prior period: US$94.6 million).

The majority of Kwale Operations assets are depreciated on a straight-line basis over the remaining mine life.  Shortly after the start of the 2022 financial year, the Kwale South Dune Ore Reserves estimate increased, allowing depreciation and amortisation charges to be prospectively spread over a longer remaining mine life.  Accordingly, depreciation and amortisation in the reporting period decreased 32% to US$40.7 million (prior period: US$59.4 million).  The release of the maiden Kwale North Dune and Bumamani Ore Reserves estimates, in June 2022, further extended mine life by 13 months to December 2024, but this will only impact depreciation charges in future years, as such changes are applied prospectively.

Due to increased EBITDA and reduced depreciation and amortisation, Kwale Operations recorded net profits after tax of US$105.0 million (prior period: US$28.8 million).

During the reporting period, the Group’s Kenyan subsidiary and owner and operator of Kwale Operations, Base Titanium, distributed US$90.0 million of surplus cash, via dividend, to the Group’s ultimate parent entity, Base Resources.

The dividend distribution by Base Titanium incurred Kenyan dividend withholding tax at a rate of 15%, totalling US$13.5 million, which has been recorded as an income tax expense, thus contributing to Group Net Profit After Tax of US$80.7 million (prior period: US$11.0 million).  Basic earnings per share for the Group was USD 6.92 cents per share (prior period: USD 0.93 cents per share).

Cash flow from operations was US$78.3 million for FY22 (prior period: US$64.5 million), with higher sales revenue contributing to US$80.4 million increase in receipts from customers.  Offsetting the increase in sales receipts were the following:

• US$5.2 million in increased operating costs;
• a US$23.0 million increase in royalty payments (including as a result of an agreed increase to the royalty rate payable to the Government of Kenya and the previously provided for catch-up payments of US$18.8 million being made as a result of the royalty rate increase having retrospective effect);
• a US$6.1 million net build-up of Kenyan VAT;
• increased Base Titanium corporate tax payments of US$23.8 million (prior period: US$13.7 million); and
• US$18.0 million of Kenyan dividend withholding tax (prior period: US$4.5 million) on the distribution of surplus cash to Base Resources.

Operating cashflows were used to fund capital expenditure at Kwale Operations, Toliara Project progression and dividend payments.

Total capital expenditure for the Group was US$19.0 million in the reporting period (prior period: US$24.5 million), and comprised US$12.2 million at Kwale Operations (prior period: US$11.5 million), primarily for extending mining further south, land acquisitions for the South Dune extension and completion of the Bumamani Project definitive feasibility study, and US$6.3 million for the progression of the Toliara Project (prior period: US$12.0 million).

Consistent with Base Resources’ growth strategy, the Company seeks to provide returns to shareholders through both long-term growth in the Company’s share price and appropriate cash distributions.  Cash not required to meet the Company’s near-term growth and development requirements, or to maintain requisite balance sheet strength in light of prevailing circumstances, could be expected to be returned to shareholders.

Applying this approach, the Board determined a final dividend of AUD 3.0 cents per share, unfranked, with a record date of 5 September 2022 and payment date of 22 September 2022.  This follows the AUD 3.0 cent per share, unfranked half-year dividend paid to shareholders in March 2022, and brings total dividends in respect of the reporting period to AUD 6.0 cents per share, unfranked.

Dividends paid or recommended

During the reporting period, Base Resources paid a final dividend of AUD 4.0 cents per share, unfranked, in September 2021, and paid an interim dividend of AUD 3.0 cents per share, unfranked, in March 2022.  The total value of dividends paid during the reporting period amounted to US$60.9m.

Since the end of the reporting period the Board determined a final dividend of AUD 3.0 cents per share, unfranked, with a record date of 5 September 2022 and payment date of 22 September 2022.  The financial impact of the dividend amounting to an estimated US$24.4 million has not been recognised in the Consolidated Financial Statements for the year-ended 30 June 2022.

Significant changes in state of affairs

There were no other significant changes in the state of affairs of the Group during the reporting period.

After balance date events

There have been no other significant events since the reporting date.

6. CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

	Note	2022 US$000s	2021 US$000s
Sales revenue	3	279,117	198,235
Cost of sales	4	(131,656)	(139,310)
Profit from operations		147,461	58,925
Corporate and external affairs		(12,446)	(12,001)
Community development costs		(6,178)	(4,618)
Selling and distribution costs		(2,954)	(1,712)
Net write-off of Kenyan VAT receivable and royalty payable	5	(3,012)	-
Business development		(1,753)	(526)
Other expenses		(3,131)	(2,938)
Profit before financing costs and income tax		117,987	37,130
Financing costs	6	(4,138)	(7,872)
Profit before income tax		113,849	29,258
Income tax expense	7	(33,108)	(18,277)
Net profit for the year		80,741	10,981
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences - foreign operations		(2,795)	3,599
Total other comprehensive income for the year		(2,795)	3,599
Total comprehensive income for the year		77,946	14,580
Earnings per share		Cents	Cents
Basic earnings per share (US cents per share)	8	6.92	0.93
Diluted earnings per share (US cents per share)	8	6.80	0.92

The notes contained in the full version of the Annual Financial Report (contained within the 2022 Annual Report) form part of these consolidated financial statements , a copy of which is available from the Company’s website:  www.baseresources.com.au .

7. CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	Note	30 June 2022 US$000s	30 June 2021 US$000s
Current assets
Cash and cash equivalents		55,447	64,925
Trade and other receivables	10	68,961	62,635
Inventories	11	15,098	18,355
Other current assets		9,099	8,208
Total current assets		148,605	154,123
Non-current assets
Capitalised exploration and evaluation	12	156,069	157,909
Property, plant and equipment	13	89,012	104,917
Total non-current assets		245,081	262,826
Total assets		393,686	416,949
Current liabilities
Trade and other payables	14	17,652	21,618
Provisions	15	7,500	38,687
Deferred consideration	16	7,000	7,000
Other current liabilities		493	41
Total current liabilities		32,645	67,346
Non-current liabilities
Provisions	15	16,534	15,088
Deferred tax liability	7	162	4,615
Deferred consideration	16	10,000	10,000
Other non-current liabilities		645	-
Total non-current liabilities		27,341	29,703
Total liabilities		59,986	97,049
Net assets		333,700	319,900
Equity
Issued capital	17	307,811	307,811
Treasury shares	18	(4,957)	(2,273)
Reserves		(17,811)	(14,201)
Retained earnings		48,657	28,563
Total equity		333,700	319,900

The notes contained in the full version of the Annual Financial Report (contained within the 2022 Annual Report) form part of these consolidated financial statements , a copy of which is available from the Company’s website:  www.baseresources.com.au .

8. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Issued capital	Retained earnings	Share based payment reserve	Foreign currency translation reserve	Treasury shares reserve	Total
	US$000s	US$000s	US$000s	US$000s	US$000s	US$000s
Balance at 1 July 2020	307,063	72,898	5,038	(22,265)	-	362,734
Profit for the year	-	10,981	-	-	-	10,981
Other comprehensive income	-	-	-	3,599	-	3,599
Total comprehensive income for the year	-	10,981	-	3,599	-	14,580
Transactions with owners, recognised directly in equity
Dividends paid	-	(56,383)	-	-	-	(56,383)
Purchase of treasury shares	-	-	-	-	(3,458)	(3,458)
Share based payments	748	1,067	(573)	-	1,185	2,427
Balance at 30 June 2021	307,811	28,563	4,465	(18,666)	(2,273)	319,900

Balance at 1 July 2021	307,811	28,563	4,465	(18,666)	(2,273)	319,900
Profit for the year	-	80,741	-	-	-	80,741
Other comprehensive income	-	-	-	(2,795)	-	(2,795)
Total comprehensive income for the year	-	80,741	-	(2,795)	-	77,946
Transactions with owners, recognised directly in equity
Dividends paid	-	(60,912)	-	-	-	(60,912)
Purchase of treasury shares	-	-	-	-	(5,331)	(5,331)
Share based payments	-	265	(815)	-	2,647	2,097
Balance at 30 June 2022	307,811	48,657	3,650	(21,461)	(4,957)	333,700

The notes contained in the full version of the Annual Financial Report (contained within the 2022 Annual Report) form part of these consolidated financial statements , a copy of which is available from the Company’s website:  www.baseresources.com.au .

9. CONSOLIDATED STATEMENT OF CASH FLOWS

	Note	2022 US$000s	2021 US$000s
Cash flows from operating activities
Receipts from customers		263,491	183,107
Payments in the course of operations		(143,437)	(99,524)
Income taxes paid		(41,770)	(19,115)
Net cash from operating activities	9	78,284	64,468
Cash flows from investing activities
Purchase of property, plant and equipment		(10,947)	(9,310)
Payments for exploration and evaluation		(8,101)	(15,222)
Other		140	(13)
Net cash used in investing activities		(18,908)	(24,545)
Cash flows from financing activities
Dividends paid	20	(60,912)	(56,383)
Purchase of treasury shares		(5,331)	(3,458)
Repayment of borrowings		-	(75,000)
Payments for debt service costs		(680)	(2,977)
Net cash used in financing activities		(66,923)	(137,818)
Net decrease in cash held		(7,547)	(97,895)
Cash at beginning of year		64,925	162,559
Effect of exchange fluctuations on cash held		(1,931)	261
Cash at end of year		55,447	64,925

The notes contained in the full version of the Annual Financial Report (contained within the 2022 Annual Report) form part of these consolidated financial statements , a copy of which is available from the Company’s website:  www.baseresources.com.au .

FORWARD LOOKING STATEMENTS

Certain statements made in or in connection with this Annual Report contain or comprise forward-looking statements, including statements regarding capital cost, capacity, future production, grades, sales projections, financial performance, estimated mineral resources and ore reserves, trends in commodity prices, demand for commodities (in particular mineral sands), plans, strategies and objectives of management, operating costs, anticipated production life, provisions and contingent liabilities, and tax and regulatory developments. Such statements may be (but are not necessarily) identified by the use of phrases such as “will”, “expect”, “anticipate”, “believe” and “envisage”.

Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that are beyond Base Resources’ control.

No representation, warranty, assurance or guarantee can be given that such forward-looking statements will in fact be achieved or prove to be correct.  Results or outcomes could differ materially from those expressed or implied by the forward-looking statements as a result of, among other factors, changes in economic and market conditions, success of business and operating initiatives and strategies, changes in the regulatory environment and other government actions, fluctuations in product prices and exchange rates and business and operational risk management.

To the maximum extent permitted by law, Base Resources and its related bodies corporate and affiliates, and their respective directors, officers, employees, agents and advisers, disclaim any liability (including, without limitation, any liability arising from negligence or negligent misstatement) for any direct or indirect loss or damage arising from any use or reliance on this Annual Report or its contents, including any error or omission or otherwise in connection with it.

Subject to any continuing obligations under applicable law or relevant stock exchange listing rules, Base Resources does not undertake to publicly update, review or release any revisions to these forward-looking statements to reflect new information or future events or circumstances.

ENDS.

For further information contact:

James Fuller, Manager Communications and Investor Relations	UK Media Relations
Base Resources	Tavistock Communications
Tel: [phone]	Jos Simson and Gareth Tredway
Mobile: [phone]	Tel: [phone]
Email: [e-mail]

About Base Resources

Base Resources is an Australian based, African focused, mineral sands producer and developer with a track record of project delivery and operational performance.  The company operates the established Kwale Operations in Kenya and is developing the Toliara Project in Madagascar.  Base Resources is an ASX and AIM listed company.  Further details about Base Resources are available at www.baseresources.com.au

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Stephen Allen
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