Interim Financial Report – period ended 31 De...

AIM Release 

28 February 2017

BASE RESOURCES LIMITED
Interim Financial Report – period ended 31 December 2016

Base Resources Limited (ASX & AIM: BSE) (“Base Resources” or the “Company”) is pleased to provide the following extracts from the company’s Interim Financial Report for the six month ended 31 December 2016.

1.  Review of Operations.

2.  Review of Financial Performance.

3.  Consolidated Statement of Profit or Loss and Other Comprehensive Income.

4.  Consolidated Statement of Financial Position.

5.  Consolidated Statement of Changes in Equity.

6.  Consolidated Statement of Cash Flows.

These extracts should be read with reference to the notes contained in the full version of the Interim Financial Report, a copy of which is available from the Company’s website:  www.baseresources.com.au.

Highlights

Highlights from Base Resources’ interim financial results for the six month period ended 31 December 2016 are as follows:

$ million1	Six months to 31 December 2016 (reporting period)	Six months to 31 December 2015 (comparative period)	% Change
Kwale Operation Sales Revenue	90.6	81.7	11%
Kwale Operation EBITDA	46.8	33.8	38%
Group EBITDA	44.0	30.5	44%
Net profit /(loss) for the period	3.8	(11.3)	134%
Operating cash flow	45.1	26.8	68%
Free cash flow2	30.9	9.8	215%
	As at 31 December 2016	As at 30 June 2016	% Change
Net debt (total borrowings less cash less debt service reserve account)	(179.7)	(204.2)	12%

[Note 1: All figures reported in Australian dollars unless otherwise stated.  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/transfers from the debt service reserve account.]

• Sales volumes of 236,488 tonnes of ilmenite, 42,796 tonnes of rutile, 17,957 tonnes of zircon and 3,397 tonnes of zircon low grade, up 5% on comparative period total sales volume.
• Sales revenue of $90.6 million, achieving an average price of product sold (rutile, ilmenite, zircon and zircon low grade) of $302 per tonne, or US$227 per tonne, ($286 per tonne or US$207 per tonne in the comparative period).Higher average sale prices reflecting the strong improvement in ilmenite prices during the reporting period.
• Total cost of goods sold decreased to $39.0 million ($39.6 million in the comparative period), despite the 5% increase in sales volumes over the comparative period, to record an average cost of $130 per tonne (US$98 per tonne) of product sold, down from $138 per tonne (US$100 per tonne) of product sold in the comparative period, demonstrating the Company’s continued focus on cost management.
• Achieved revenue to cost of sales ratio of 2.3:1 (2.1:1 in the comparative period), comfortably positioning Base Resources in the first quartile of mineral sands producers.
• Cash flow from operations of $45.1 million for the reporting period ($26.8 million in the comparative period).
• Free cash flow of $30.9 million ($9.8 million in the comparative period) contributed to the $24.5 million reduction in net debt to $179.7 million (US$129.5 million) compared with $204.2 million (US$151.5 million) at 30 June 2016.

1.            Review of Operations

Base Resources operates the 100% owned Kwale Mineral Sands Mine (“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.

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, concentrates the valuable heavy minerals (rutile, ilmenite and zircon) with a number of gravity separation steps using spiral concentrators and rejects most of the non-valuable, lighter gangue minerals to produce a heavy mineral concentrate (“HMC”).  The HMC, containing approximately 90% heavy minerals, is then processed in the mineral separation plant (“MSP”).  The MSP cleans and separates the rutile, ilmenite and zircon minerals into finished products for sale.

In the six months to 31 December 2016 (“reporting period”), mining volumes were higher than the six months to 30 June 2016 (“prior period”), due to the successful commissioning of a 400 tonnes per hour (“tph”) Hydraulic Mining Unit (“HMU”).  The HMU exceeded its design throughput to achieve an average mining rate of 411tph in the reporting period, for total ore tonnes mined of 816,000 tonnes.  Combined with the existing dozer trap mining unit (“DMU”), which mines higher grade ore while the HMU mines the thinner, lower grade perimeter blocks, a total of 5.4 million tonnes (“Mt”) of ore was mined in the reporting period (4.8Mt in the prior period) which resulted in a lower blended average ore grade of 6.56% heavy mineral (“HM”) in comparison with the prior period’s 9.41%.

Summary Physical Data	Six months to Dec 2016	Six months to Jun 2016	Six months to Dec 2015
Ore mined (tonnes)	5,374,507	4,773,898	4,428,656
Heavy mineral (HM) %	6.56%	9.41%	7.12%
WCP Heavy mineral concentrate produced (tonnes)	316,451	436,240	298,191
MSP Heavy mineral concentrate consumed (tonnes)	384,925	362,468	346,975
MSP feed rate (tph)	92	85	83
Production (tonnes)
Ilmenite	238,803	230,100	225,770
Rutile	45,328	42,960	42,694
Zircon	17,641	17,336	14,053
Zircon low grade	4,710	-	-
Sales (tonnes)
Ilmenite	236,488	246,896	233,642
Rutile	42,796	46,955	38,581
Zircon	17,957	19,145	13,917
Zircon low grade	3,397	-	-

Historically, tailings pump constraints in the WCP have limited mining operations’ ability to significantly increase throughput when mining low grade ore.  However, recent changes to the tailings pump impellers have delivered a significant increase in their performance and allowed the higher mining volumes and WCP throughput.  The higher throughput rates and lower ore grades have had an impact on the WCP recoveries and the required re-optimisation and de-bottlenecking is underway.

As a result of the lower feed grade and lower WCP recoveries, overall WCP production of HMC was lower than the prior period.  The HMC stockpile, built up in prior periods to accommodate the planned mining sequence and ore grade, was drawn down by 68,474 tonnes as MSP throughput increased to above design levels following completion of a number of upgrade projects. 

MSP optimisation during the reporting period continued to focus on increasing throughput, achieving an average feed rate of 92tph (85tph in the prior period) whilst maintaining a high availability of 95% (96% in the prior period).  The higher throughput rates have had a minor impact on product recoveries and the required re-optimisation and de-bottlenecking continues, aimed at improving recoveries and also to ensure maximum value is achieved by balancing primary final product production and zircon concentrate production (for sale).

Rutile production increased to 44,756 tonnes in the reporting period, compared to 42,960 tonnes in the prior period.  Lower average recoveries of 96% (100% in the prior period) were offset by the higher MSP throughput and the proportionally higher rutile content of low grade ore mined during the reporting period. 

Ilmenite production continued at above design capacity, achieving production of 235,627 tonnes (230,100 tonnes in the prior period), primarily due to the increased MSP feed rate.  The higher feed rates were partially offset by the proportionally lower ilmenite content of low grade ore and lower average ilmenite recoveries of 100% (102% in prior period).

Zircon production for the reporting period of 17,641 tonnes, marginally higher than the prior period’s 17,336 tonnes, with the improved MSP feed rates offset by lower average zircon recoveries of 73% (78% in the prior period).  The lower recoveries were the direct result of circuit optimisation modifications undertaken during the reporting period, necessitated by the higher MSP feed rate, and some electrical voltage instability that resulted in repeated stoppages in the wet zircon circuit, which was resolved at the end of the reporting period.

In addition to primary zircon, during the reporting period, Kwale Operations produced of a lower grade zircon product (“zircon low grade”) from the re-processing of zircon tails into a zircon rich concentrate, which has historically realised 70-80% of the value of each contained tonne of zircon.  Reported zircon low grade represents the volume of zircon contained in the concentrate.  To date, zircon low grade has been produced from the re-processing of run-of-production and stockpiled zircon circuit tails and this is anticipated to continue for the remainder of the financial year.  The production of zircon low grade has more than offset the lower primary zircon recoveries in the reporting period.

Bulk loading operations at the Group’s Likoni Port facility continue to run smoothly, dispatching more than 280,000 tonnes of ilmenite, rutile and zircon low grade during the reporting period.  Containerised shipments of rutile and zircon through the Mombasa Port proceeded according to plan.

With no serious injuries occurring during the period under review, Kwale Operations lost time injury (“LTI”) frequency rate remains at zero.  Base Resources employees and contractors have now worked 8.2 million man-hours LTI free, with the last LTI recorded in February 2014. 

The TiO₂ pigment industry continued to strengthen through the reporting period resulting in price improvement and ongoing strong demand for TiO₂ feedstock.  This is encouraging and a departure from the traditional seasonal slow-down in the lead up to the end of the calendar year.  Global pigment producers announced a series of price increases over the course of calendar 2016, with a number of major producers recently announcing a further price increase effective from 1 January 2017.

TiO₂ feedstock consumption continued to increase throughout the reporting period on the back of firming pigment production and ongoing re-stocking activity within the downstream supply-chain.  This led to a very strong sales period for Base Resources’ ilmenite and rutile.  Prices for Base Resources’ ilmenite have increased by over 100% between May and December 2016.  The Company continues to secure forward sales and has contracted all ilmenite production through to February 2017, securing further price increases for these sales. 

There have been recent reports of political disruption to ilmenite exports from Tamil Nadu in India and suppressed ilmenite production in China’s main ilmenite producing region, the Sichuan province, due to increased environmental inspections.  These events, together with the ongoing strength in pigment demand, are expected to result in further improvements in ilmenite prices through 2017.

Despite the improvement in demand, an overhang of high grade TiO₂ feedstock (including rutile) supply from the first half of 2016 calendar year restrained rutile price growth through the reporting period.  However, higher than expected offtake by major consumers has resulted in supply and demand being more balanced by the end of the reporting period.  Base Resources’ expectation is for rutile prices to start trending upwards during 2017.

Demand for zircon continued to be solid with minimal stocks being held throughout the reporting period.  Zircon prices saw a modest improvement through the latter half of the reporting period and further marginal improvements are being secured for sales in the March 2017 quarter.  Provided supply management continues, ongoing gradual upward momentum in zircon prices is expected to occur through 2017.

2.            Review of Financial Performance

Base Resources recorded its maiden profit after tax of $3.8 million for the six-month reporting period, compared with a loss of $11.3 million in the six-month period ended 31 December 2015 (“comparative period”), primarily due to higher sales revenues.  

	Six months to 31 December 2016			Six months to 31 December 2015
	Kwale Operations	Other operations	Total	Kwale Operations	Other operations	Total
	$000s	$000s	$000s	$000s	$000s	$000s
Sales Revenue	90,646	-	90,646	81,721	-	81,721
Cost of goods sold excluding depreciation & amortisation:
Operating costs	(32,500)	-	(32,500)	(34,481)	-	(34,481)
Changes in inventories of concentrate and finished product	(339)	-	(339)	433	-	433
Royalties expense	(6,165)	-	(6,165)	(5,563)	-	(5,563)
Total cost of goods sold (i)	(39,004)	-	(39,004)	(39,611)	-	(39,611)
Corporate & external affairs	(2,410)	(2,693)	(5,103)	(1,999)	(2,952)	(4,951)
Community development	(1,303)	-	(1,303)	(2,046)	-	(2,046)
Selling & distribution costs	(1,478)	-	(1,478)	(2,476)	-	(2,476)
Other income / (expenses)	325	(108)	217	(1,778)	(325)	(2,103)
EBITDA (i)	46,776	(2,801)	43,975	33,811	(3,277)	30,534
Depreciation & amortisation	(23,467)	(45)	(23,512)	(23,623)	(69)	(23,692)
EBIT (i)	23,309	(2,846)	20,463	10,188	(3,346)	6,842
Net financing expenses	(12,509)	(4,122)	(16,631)	(14,010)	(4,051)	(18,061)
Income tax expense	-	-	-	(47)	-	(47)
NPAT (i)	10,800	(6,968)	3,832	(3,869)	(7,397)	(11,266)

[Note (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/reviewed.]

Sales revenue was $90.6 million for the reporting period (comparative period: $81.7 million), achieving an average price of product sold (rutile, ilmenite, zircon and zircon low grade) of $302 per tonne or US$227 per tonne ($286 per tonne or US$207 per tonne in the comparative period).  Total cost of goods sold, excluding depreciation and amortisation, was $39.0 million for the reporting period (comparative period: $39.6 million) at an average cost of $130 per tonne (US$98 per tonne) of product sold ($138 per tonne or US$100 per tonne in the comparative period).  Operating costs per tonne produced was $107 per tonne or US$81 per tonne for the reporting period ($122 per tonne or US$88 per tonne in the comparative period).

With an achieved revenue to cost of sales ratio of 2.3 (comparative period: 2.1), the Company remains well positioned in the upper quartile of mineral sands producers and with expected demand-driven price improvement in calendar year 2017, the ratio is expected to further improve.

Improved sales volumes, commodity prices and a continued focus on cost management has delivered a Kwale Operations EBITDA for the reporting period of $46.8 million ($33.8 million in the comparative period) and a Group EBITDA of $44.0 million ($30.5 million in the comparative period).

A net profit after tax of $10.8 million was recorded by Kwale Operations (loss of $3.9 million in the comparative period) and $3.8 million for the Group (comparative period: loss of $11.3 million). Earnings per share for the Group was 0.52 cents per share (comparative period: loss per share 2.0 cents).

Cash flow from operations was $45.1 million for the reporting period ($26.8 million in the comparative period), slightly higher than Group EBITDA due to working capital movements.

Surplus cash generated by Kwale Operations may be distributed (a “Cash Sweep”), in equal parts, as early repayment of the Kwale Operations Debt Facility (“Kwale Facility”) and to the Australian parent entity, Base Resources, on six-monthly intervals as permitted by the terms of the Kwale Facility.  In July 2016, a Cash Sweep of US$10.8 million was distributed from the Kwale Operation.  Half of the Cash Sweep (US$5.4 million) went towards mandatory repayment of the Kwale Facility, with the other half distributed up to Base Resources. 

During the reporting period, US$20.6 million of the Kwale Facility was paid down through a combination of scheduled debt repayments and Cash Sweeps, reducing the outstanding Kwale Facility debt to US$159.9 million.

Prior to final maturity, under the terms of the Taurus Debt Facility (“Taurus Facility”) held by Base Resources, repayments are only required to be made from the proceeds of Kwale Operations Cash Sweeps received by Base Resources.  Of the US$5.4 million Cash Sweep received by Base Resources in July 2016, a mandatory 50% (US$2.7 million) was applied towards repayment of the Taurus Facility, thereby reducing the outstanding debt to US$17.3 million. 

In October 2016, Base Resources extended the maturity date of the Taurus Facility from 31 December 2016 to 30 September 2017.  The extension of the Taurus Facility final maturity date removed the need to secure external funding to repay the balance that would otherwise have been due on 31 December 2016.  As part of the extension, the mandatory proportion of Kwale Operations Cash Sweeps to be applied towards progressive repayment of the Taurus Facility increased from 50% to 75%.  All other terms of the Taurus Facility remained unchanged, including the interest rate of 10% on the outstanding balance.

Total debt outstanding at 31 December 2016 was $246.0 million (US$177.2 million) compared with $270.3 million (US$200.5 million) at 30 June 2016.  Aside from the movements discussed above, the increase in the Australian dollar value of debt has been driven by the fluctuations in the US dollar exchange rates.

The Company’s net debt position at 31 December 2016 was $179.7 million (US$129.5 million) compared with $204.2 million (US$151.5 million) at 30 June 2016.

After Balance Date Events

Subsequent to period end, in January 2017, in accordance with the terms of the Kwale Facility, a further Cash Sweep of US$14.6 million was distributed from Kwale Operations.  Half of the Cash Sweep (US$7.3 million) went towards mandatory repayment of the Kwale Facility, with the other half distributed up to BRL.  The outstanding balance of the Kwale Facility debt after this repayment was $211.9 million (US$152.6 million).

In accordance with the terms of the Taurus Facility extension, a mandatory 75% of the US$7.3 million Cash Sweep received by Base Resources went towards progressive repayment of the Taurus Facility, reducing outstanding debt to $16.4 million (US$11.8 million), with the balance available to Base Resources for general corporate funding.

Total outstanding debt following the above repayments was $228.3 million (US$164.4 million).

3.            Consolidated Statement of Profit or Loss and Other Comprehensive Income for the Six Months Ended 31 December 2016

		6 months to 31 December 2016	6 months to  31 December 2015
	Note	$000s	$000s
Sales revenue		90,646	81,721
Cost of sales	2	(62,471)	(63,234)
Profit from operations		28,175	18,487
Corporate and external affairs		(5,148)	(5,020)
Community development costs		(1,303)	(2,046)
Selling and distribution costs		(1,478)	(2,476)
Other income / (expenses)		217	(2,103)
Profit before financing income and income tax		20,643	6,842
Financing costs	3	(16,631)	(18,061)
Profit / (loss) before income tax		3,832	(11,219)
Income tax expense		-	(47)
Net profit / (loss) after tax for the period		3,832	(11,266)
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences - foreign operations		6,239	8,833
Total other comprehensive income for the period		6,239	8,833
Total comprehensive income / (loss) for the period		10,071	(2,433)
Net Earnings / (loss) per share		Cents	Cents
Basic earnings / (loss) per share (cents per share)		0.52	(2.00)
Diluted earnings / (loss) per share (cents per share)		0.48	(2.00)

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

4.            Consolidated Statement of Financial Position as at 31 December 2016

		31 December 2016	30 June 2016
	Note	$000s	$000s
Current assets
Cash and cash equivalents		40,433	36,295
Restricted cash		25,823	29,761
Trade and other receivables	4	43,463	43,544
Inventories	5	28,575	27,962
Other current assets		6,638	5,826
Total current assets		144,932	143,388
Non-current assets
Capitalised exploration and evaluation		1,947	1,487
Property, plant and equipment	6	379,170	390,304
Total non-current assets		381,117	391,791
Total assets		526,049	535,179
Current liabilities
Trade and other payables		25,295	24,953
Borrowings	7	67,503	61,816
Provisions		1,208	1,173
Deferred revenue		1,157	1,123
Other liabilities		993	887
Total current liabilities		96,156	89,952
Non-current liabilities
Borrowings	7	167,742	196,291
Provisions		30,033	28,973
Deferred revenue		2,603	3,089
Total non-current liabilities		200,378	228,353
Total liabilities		296,534	318,305
Net assets		229,515	216,874
Equity
Issued capital	8	225,298	223,548
Reserves		60,168	54,780
Accumulated losses		(55,951)	(61,454)
Total equity		229,515	216,874

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

5.            Consolidated Statement of Changes in Equity for the Six Months Ended 31 December 2016

	Issued capital	Accumulated losses	Share  based payment reserve	Foreign currency translation reserve	Total
	$000s	$000s	$000s	$000s	$000s
Balance at 1 July 2015	214,131	(42,319)	7,037	42,669	221,518
Loss for the period	-	(11,266)	-	-	(11,266)
Other comprehensive income	-	-	-	8,833	8,833
Total comprehensive income / (loss) for the period	-	(11,266)	-	8,833	(2,433)
Transactions with owners, recognised directly in equity
Share based payments	-	728	(7)	-	721
Balance at 31 December 2015	214,131	(52,857)	7,030	51,502	219,806
Balance at 1 July 2016	223,548	(61,454)	6,775	48,005	216,874
Profit for the period	-	3,832	-	-	3,832
Other comprehensive income	-	-	-	6,239	6,239
Total comprehensive income for the period	-	3,832	-	6,239	10,071
Transactions with owners, recognised directly in equity
Shares issued during the period, net of costs	1,750	-	-	-	1,750
Share based payments	-	1,671	(851)	-	820
Balance at 31 December 2016	225,298	(55,951)	5,924	54,244	229,515

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

6.            Consolidated Statement of Cash Flows for the Six Months Ended 31 December 2016

		6 months to 31 December 2016	6 months to 31 December 2015
	Note	$000s	$000s
Cash flows from operating activities
Receipts from customers		91,447	76,217
Payments in the course of operations		(46,340)	(49,365)
Other		(28)	(95)
Net cash from operating activities		45,079	26,757
Cash flows from investing activities
Purchase of property, plant and equipment		(2,849)	(3,117)
Other		(135)	(323)
Net cash used in investing activities		(2,984)	(3,440)
Cash flows from financing activities
Repayment of borrowings		(32,383)	(19,209)
Transfers from / (to) restricted cash		4,830	(17,379)
Payments for debt service costs and re-scheduling fees		(11,205)	(17,533)
Net cash used in financing activities		(38,758)	(54,121)
Net increase / (decrease) in cash held		3,337	(30,804)
Cash at beginning of period		36,295	40,906
Effect of exchange fluctuations on cash held		801	2,344
Cash at end of period		40,433	12,446

The notes contained in the full version of the Interim Financial Report form part of these consolidated financial statements, a copy of which is available from 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 & BROKERS
RFC Ambrian Limited
As Nominated Adviser:
Andrew Thomson / Stephen Allen
Phone: [phone]
As Joint Broker:
Jonathan Williams
Phone: [phone]

Numis Securities Limited
As Joint Broker:
John Prior / James Black / Paul Gillam
Phone:  [phone]

SHARE REGISTRY:  ASX
Computershare Investor Services Pty Limited
Level 11, 172 St Georges Terrace
PERTH WA 6000
Enquiries: 1300 850 505 / [phone]
www.computershare.com.au

SHARE REGISTRY:  AIM
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
BRISTOL BS99 6ZZ
Enquiries: [phone]
www.computershare.co.uk

AUSTRALIAN MEDIA RELATIONS
Cannings Purple
Annette Ellis / Andrew Rowell
Email:[e-mail] /
[e-mail]
Phone: [phone]

UK MEDIA RELATIONS
Tavistock Communications
Jos Simson / Emily Fenton
Phone: [phone]

KENYA MEDIA RELATIONS
Africapractice (East Africa)
Evelyn Njoroge / James Njuguna/Joan Kimani
Phone: [phone]
Email:[e-mail]

PRINCIPAL & REGISTERED OFFICE
Level 1, 50 Kings Park Road
West Perth, Western Australia, 6005
Email:  [e-mail]
Phone: [phone]
Fax: [phone]