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Base Resources profits surge in latest half year as it ramps up output at Kwale operation

Published: 02:46 23 Feb 2018 EST

1519372189_Kwale---workers
Workers at the Kwale operation

Mineral sands producer Base Resources Ltd (LON:BSE, ASX:BSE) posted a 466% increase in net profit in the latest half year as it increased mining volumes and grades at its key Kwale operation in Kenya.

The group produces rutile, ilmenite and zircon, and apart from rutile, where output remained steady, the other two saw increases, with ilmentite output continuing to be above design capacity.

READ: Base Resources advances Toliara acquisition, completion expected next week

Sales revenue from Kwale was up 28% in the period to A$115.9mln compared to A$90.6mln in the same period in 2016,  with the main drivers being the higher ilmenite and zircon prices.

Underlying costs remained steady at an average cost of A$131, or US$102, per tonne of product sold against A$130, or US$98 per tonne in the prior year period.

Group underlying earnings (EBITDA) for the six months to end December were A$69.3mln - a  58% increase on 2016, while the net profit surged 466% to A$21.5mln versus A$3.8mln in 2016.

The period saw an increase to the Hydraulic Mining Unit (HMU) capacity, which was successfully lifted from 400 tonnes per hour (tph) to 800tph and resulting in increased mining volume of 2.4mln tonnes compared with 1.4 million tonnes in the preceding half.

ThIs all resulted in production of HMC increasing to 435,305 tonnes, higher than the prior period’s 391,953 tonnes and the comparative period’s 316,451 tonnes.

Outlook

In terms of outlook, ilmenite and rutile are mainly used as feedstock for the production of titanium dioxide (TiO2) pigment, used in paint, plastics and paper, and demand remained buoyant throughout the period, the firm said.

In the absence of substantial new supply coming online, the titanium dioxide market is expected to remain in supply deficit, providing an opportunity for continued price strength in both ilmenite and rutile over the coming years, said Base.

Zircon, which is used in ceramic tiles and speciality chemicals, due to constraints on global production, has seen a rapidly tightening market and sharp increases in zircon prices since 2016.

Ongoing firm demand and restricted supply is expected to lead to further  increases in price through the remainder of financial year 2018, said Base.

The firm, reduced its net debt outstanding by 53% in the period, and had cash of A$30.5mln at the end of 2017 versus A$40.4mln at the end of 2016.

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