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Base Resources: THE INVESTMENT CASE

Mineral sands recovery underlines Base Resources' quality

Base Resources has a top quality mineral sands asset at Kwale and is benefiting from a recovery in the market
Mineral sands recovery underlines Base Resources' quality
INVESTMENT OVERVIEW: BSE The Big Picture
Workers at the Kwale mine site

“We’ve built an absolutely first rate operation,” says Tim Carstens of Base Resources Limited (LON:BSE)(ASX:BSE). “We’ve got the place absolutely humming.”

As a flagship asset, the Kwale mineral sands mine in Kenya has plenty going for it.

It’s low cost, it has a balanced range of products across the mineral sands suite, and it has customers that want to buy.

Against that backdrop Base has been able to put ilmenite prices up recently, and is likely to be able to do so again before too long.

But if that all sounds too good to be true, it hasn’t come easy.

When Base first put its development plans for Kwale in place mineral sands prices were forecast to rise and keep on rising.

Instead, they dropped into a death spiral about a year before Kwale came into production, from which they’re only just beginning to recover.

What kept Base alive was the quality of Kwale itself and with prices rising that is becoming very evident.

“The thing that underpins us,” continues Carstens, “is that we have one of the best mineral sands deposits in the world.”

It has taken investors some time to cotton on, however, as the wider storms in the mining equities markets and in mineral sands in particular, have rather taken the shine off the Kwale operation.

 

Shares up six-fold

Since February 2016 Base’s shares have risen nearly sixfold as mining markets in general have recovered and as the read-across into the mineral sands space has become obvious.

Carstens, “It all started to bite in 2015. We saw the price falls starting to compromise viability across the sector. We saw significant volume reductions coming out of China and Russia.”

That meant there was less supply to go round. But demand was still in place, albeit that it’s seasonal across the northern hemisphere summer.

“With the end use of our products being ubiquitous in everyday life, demand can’t just fall off a cliff,” continues Carstens.

Instead, he argues that what has mattered has been the amount of time it’s taken previously built up inventories to work their way through the system.”

And, after a long period of pain, it seems the inventories are now largely gone in the titanium (TiO2) supply chain.

The primary market for ilmenite is in paint pigment, and demand for paint pigment is fairly correlated to global GDP.

That’s currently in growth mode - in spite of the Brexit chaos - and with the US in reasonable shape and China still on the march, is likely to continue to that way.

That bodes well for Kwale, which as it stands boasts a nine year mine life, but which may yet turn out to have capacity to produce for much longer than that.

Indeed, recent drilling has indicated mineral zone extensions to the north and south at two prospective areas adjoining or near Kwale: the south-west sector and north east sector.

 

Results boosted by rising prices

In the first half of the 2016/17 trading year, Base sold 236,488 tonnes of ilmenite, 42,796 tonnes of rutile, 17,957 tonnes of zircon and 3,397 tonnes of zircon low grade all of which came from its minerals sands operation.

On revenues of A$90.6mln (£56mln), up from A$81.7mln, interim profits rebounded to A$3.82mln from a loss of US$11.3mln.

Net debt reduced to A$180mln (US$129.5mln) compared with A$204mln six months earlier.

 

-- updates for 2016 half year results --

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