Annual Financial Report – period ended 30 Jun...

AIM and Media Release 

24 August 2020

BASE RESOURCES LIMITED
Annual Financial Report – period ended 30 June 2020

African mineral sands producer and developer, Base Resources Limited (ASX & AIM: BSE) (Base Resources or the Company) is pleased to provide the following extracts from the Company’s Annual Report (which includes the Annual Financial Report) for the year ended 30 June 2020.

1. Operations Summary.
2. Operational COVID-19 Response.
3. Business Development.
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 with reference to the notes and graphics contained in the full version of the 2020 Annual Report, a copy of which is available from the Company’s website:  www.baseresources.com.au.  The Company has also released an Investor Presentation to accompany its Annual Report, a PDF copy of which is available from the Company’s website:  www.baseresources.com.au. 

All figures are reported in US dollars unless otherwise stated.

Highlights

Kwale Operations maintained operational continuity, adapting smoothly for the COVID-19 pandemic, and achieved the upper end of production guidance while ongoing firm demand supported price improvement for ilmenite and rutile.  The Toliara Project progressed with completion of the definitive feasibility study (DFS) reinforcing the Company’s view that the Toliara Project is a world class mineral sands development opportunity.

Financial highlights for FY20

• Revenue of US$208.0 million, with product price increases mitigating the impact of lower production.
• EBITDA of US$108.7 million.
• NPAT of US$39.6 million.
• Free cashflow of US$72.2 million (Operating cashflows of US$105.5 million less investing cashflows of US$33.3 million).
• Net cash position of US$87.6 million as at 30 June 2020.

Maiden dividend

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.

Reflecting this policy, the Board has determined a maiden dividend of AUD 3.5 cents per share, unfranked, with a record date of 21 September 2020 and payment date of 7 October 2020.

Operational highlights for FY20

• A COVID-19 response that has been effective in maintaining the health and wellbeing of employees, whilst continuing to deliver operational performance.
• With the production of 78,920 tonnes of rutile, 355,093 tonnes of ilmenite and 31,657 tonnes of zircon, Kwale Operations exceeded expectations in its first full year of mining the South Dune deposit and achieved results at the upper end of FY20 production guidance.
• Firm demand saw continued strengthening of prices with higher average prices achieved for rutile (18% increase) and ilmenite (30% increase) relative to the prior period, while a more subdued market for zircon persisted (9% decrease).
• Kwale Operations mine life extension opportunities progressed with commencement of a pre-feasibility study for mining the North Dune deposit.
• Completion of the Toliara Project DFS, following which front-end engineering design and lender due diligence commenced.
• Toliara Project drill results revealed significant additional high-grade mineralisation extending beyond the current mineral resources estimate but within the existing mining lease, demonstrating the potential for a considerably longer mine life than the 33 years assumed in the DFS.
• Lost Time Injury Frequency Rate of zero across the group, with there being no lost time due to injury since 2014.
• US$3.4m invested in community and environmental programs, with an additional US$1.2m contribution to support vulnerable communities in Kenya and Madagascar in navigating the impacts of the COVID-19 pandemic.

Managing Director of Base Resources, Tim Carstens, said:

“Kwale Operations has continued to perform strongly throughout the year resulting in Base Resources achieving the upper end of our production guidance, a particularly pleasing result in what was our first year of operations on the South Dune and with the adaptations necessitated by the COVID-19 pandemic drawing focus.  As the current engine of our business, extending mine life at Kwale is a priority and commencement of a pre-feasibility study for mining the North Dune, which should be completed in early 2021, was significant in these efforts.”

“The Toliara Project continued to progress with the release of a robust definitive feasibility study in December 2019, a significant milestone and confirming the project’s status as one of the best mineral sands development opportunities in the world.  Assay results completed from the 2018 and 2019 drilling campaign have revealed significant additional high-grade mineralisation¹ beyond the existing mineral resources, demonstrating the potential to extend the Toliara Project well past the current planned 33-year mine life.”

“On-the-ground activity remains suspended as we continue to engage with the Government of Madagascar in relation to the fiscal terms applicable to the Toliara Project.  While progress has been encouraging, discussions have been limited as the Government focuses on managing its response to the COVID-19 pandemic.  With the effective shutdown of Government, international travel restrictions and broader COVID-19 measures and impacts both in Madagascar and globally, the final investment decision (FID) to proceed with development of the Toliara Project has been delayed with FID now unlikely to occur before September 2021.”

“In light of the Company’s strong financial performance and position, and the delay to the Toliara Project FID, and consistent with our determination to deliver concrete returns to shareholders, the Board has determined to implement our maiden dividend.  We believe a AUD 3.5 cent per share dividend strikes the right balance between delivering returns to shareholders, retaining balance sheet strength in uncertain times and allowing for the sensible progression of the Toliara Project as uncertainty resolves.”

[Note (1):  For further information in relation to the drill results, refer to Base Resources’ announcement on 21 January 2020 “Toliara Project drill assays reveal significant high-grade mineralisation” available at https://www.baseresources.com.au/investors/announcements/.  Base Resources confirms that it is not aware of any new information or data that materially affects the information included that announcement.]

Investor and shareholder webcast

Base Resources’ Managing Director, Tim Carstens, CFO, Kevin Balloch and GM Marketing, Stephen Hay, will host an investor and shareholder webcast today to discuss Base Resources’ FY20 results. 

Participants will be able to ask questions via the messaging function on the webcast platform or via the teleconference line, see details below.  Participants 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 number and dial in details so that they can join the call on the day without needing to speak with an operator.

Europe conference call

Date: Monday, 24 August 2020
Time: 4.00pm AWST / 9.00am BST
Webcast URL:https://edge.media-server.com/mmc/p/z6sqt7r2

Teleconference registration URL: https://s1.c-conf.com/diamondpass/10009485-invite.html

1. Operations Summary

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.

Mining

Following the transition of mining operations to the lower grade South Dune in July 2019, mining volume increased by 1% to 18.1 million tonnes in the reporting period (the year ended 30 June 2020) compared to the prior period (the year ended 30 June 2019).  The average heavy mineral grade of ore mined was 3.63%, lower than the prior period (3.90%) due to the lower average ore grade in the South Dune compared with the Central Dune mined in prior years.

Mining and Wet Concentrator Plant (WCP)	2020	2019
Ore mined (tonnes)	18,056,841	17,822,324
Heavy mineral (HM) %	3.63	3.90
WCP heavy mineral concentrate production (tonnes)	606,553	644,180

606,553 tonnes of HMC was produced in the reporting period, lower than the prior period (644,180 tonnes) due to the lower grade of ore mined.  With HMC now the primary constraint on production, all HMC produced was fed to the mineral separation plant (MSP) and HMC stocks closed the year at 16,450 tonnes (prior period: 20,100 tonnes).

Processing

Mineral Separation Plant Performance	2020	2019
MSP feed (tonnes of heavy mineral concentrate)	608,563	702,082
MSP feed rate (tph)	81	84
MSP recovery %
Ilmenite	100	102
Rutile	100	101
Zircon	85	76
Production (tonnes)
Ilmenite	355,093	402,698
Rutile	78,920	92,393
Zircon	31,657	31,941
Zircon low grade	2,370	1,960

As a consequence of MSP operations being constrained by available HMC, plant utilisation and feed rates were lower in this reporting period.  As a result, production of all products was lower than the prior period:

• Ilmenite production was 355,093 tonnes in the reporting period (prior period: 402,698 tonnes).
• Rutile production was 78,920 tonnes in the reporting period (prior period: 92,393 tonnes) with higher contained rutile in the feed partially offsetting the reduced feed rate.
• Zircon production was 31,657 tonnes for the reporting period (prior period: 31,941 tonnes) with a higher proportion of contained zircon in the HMC and improved MSP recoveries offsetting the lower feed tonnes. The higher zircon recovery is a function of the mineral properties encountered in the South Dune, which contributed to improved separation efficiency, as well as lower MSP feed rates enabling further optimisation of the zircon wet circuit.
• Production of a low-grade zircon product continued with a contained 2,370 tonnes produced during the year (prior period: 1,960 tonnes).

Sales

Across each of its products, 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 agreements, in place with some of the world’s largest consumers of titanium dioxide feedstocks and zircon products, provide certainty for the Kwale Operations by securing minimum offtake quantities. Sales prices in these agreements are derived from prevailing market prices, based on agreed price indices or periodic price negotiations.

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

Product Sales	2020	2019
Sales (tonnes)
Ilmenite	356,836	395,378
Rutile	79,644	94,070
Zircon	30,267	32,992
Zircon low grade	2,971	1,173

2. Operational COVID-19 Response

As the COVID-19 pandemic developed in early 2020, its impacts on the Company’s business, people and stakeholders was the subject of close monitoring and response development.

Kwale Operations have continued to be maintained, balancing the considerations of employee and community health, operational safety, community benefits, government regulation, customer demand and financial prudence.  However, it must be acknowledged that a halt to, or curtailment of, operations remains possible if circumstances change and the balance of factors shifts as the pandemic runs its course.

Base Resources implemented a number of changes to operational workplaces in the reporting period to protect the health and safety of employees and neighbouring communities.  These included:

• Substantially modifying workplace practices, such as reducing the number of personnel on site where possible and focusing on hygiene and social distancing measures to minimise the risk of COVID-19 transmission.
• Working with local authorities to adjust practices to ensure compliance with government COVID-19 transmission reduction measures while maintaining operational continuity. These included altering rosters to fit within curfews as well as modifying arrangements to comply with county border travel restrictions.
• Providing the option for fly-in-fly-out employees to return to their home country, as the practicalities of complying with isolation or quarantine restrictions in both Kenya and their home country have rendered roster travel impractical.
• Temporarily closing offices in Madagascar and Perth in alignment with applicable government measures.

The Company continues to monitor and manage the various risks associated with COVID-19, including the following specific to our Kwale Operations:

• Community support – Base Resources’ operations in Kenya enjoy broad community and government support due to recognition of the benefits the mine brings to the region and nation.  However, the Company’s social licence to operate could be compromised by any mishandling of its COVID-19 response.  Base Resources monitors community sentiment closely and, in addition, has instigated a wide-ranging community support program to assist local communities manage the impacts of COVID-19 (see page 19 of the Annual Report for further details).
• Employee health – employee health is monitored closely and there were no recorded infections of COVID-19 in our workforce during the reporting period.  However, subsequent to year end, a handful of cases were detected in the workforce.  Isolation, contact tracing and testing measures have seen this effectively contained.
• Market demand – demand for Kwale Operations products remained firm in the reporting period and in the early months of FY21.  However, signs are emerging of more subdued demand for the balance of the year.  In the longer-term, robust demand for mineral sands products is expected to re-emerge.
• Continued supply of inputs (spares, fuel, etc.) – the Company is closely managing its supply chain which is supported by its close proximity to the port of Mombasa.  No supply issues arose in the reporting period.
• Security - the Company closely monitors the security environment around Kwale Operations and has not registered any indications of concerning civil unrest emerging to date.
• Government policy – Base Resources worked closely with national and county governments to ensure compliance with any measures required and has the support of the government to continue operations.

3. Business Development

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

Toliara Project

The Toliara Project is founded on the Ranobe deposit, located approximately 45 kilometres north of the regional town of Toliara in south west Madagascar.  The Company acquired the Toliara Project in 2018 and is currently progressing the project towards development, with a DFS being completed in December 2019.  The DFS outcomes confirm the Company’s view that the Toliara Project is a world class mineral sands development opportunity, with estimated average annual production of 780 thousand tonnes (kt) of ilmenite, 53kt of zircon and 7kt of rutile over the assumed 33-year mine life².

Following completion of the DFS, work commenced on the front-end engineering design, including the equipment selection, tender evaluation and preferred contractor selection for a number of key packages including export facility marine works, bridge, power and fuel supply.  Completion of the DFS also allowed the prospective lenders due diligence process to commence, with independent technical and environmental and social experts appointed.

In November 2019, the Government of Madagascar required the Company to temporarily suspend on-the-ground activity on the Toliara Project while discussions on fiscal terms applying to the project were progressed.  Activity remains suspended as Base Resources continues to engage with the Government in relation to the fiscal terms applicable to the Toliara Project, with encouraging progress made.

The Toliara Project DFS anticipated a final investment decision (FID) being made in September 2020.  However, with the effective shutdown of Government, international travel restrictions and broader COVID-19 measures and impacts both in Madagascar and globally, FID will be delayed.  At this time, it is not considered appropriate to provide a revised FID date until there is greater clarity on the trajectory of resumption of global economic activity.

Over the course of 2018 and 2019, the Company completed 29,753m of drilling from 770 holes to test the extent of mineralisation to the west of the existing Ranobe Mineral Resources and at depth.  While assaying is still ongoing, with only 67% of samples completed to date, results received have revealed significant additional high-grade mineralisation, particularly to the west of the current Ranobe Ore Reserves³.  These results demonstrate the potential to extend the Toliara Project well beyond the current planned 33-year mine life.

[Notes:

(2) :  Excludes first and last partial operating years.  For further information about the DFS, refer to Base Resources’ announcement on 12 December 2019 “DFS reinforces Toliara Project’s status as a world class mineral sands development” (DFS Announcement) available at https://baseresources.com.au/investors/announcements. Base Resources confirms that all material assumptions underpinning the production information disclosed in the DFS Announcement continue to apply and have not materially changed.

(3):   For further information in relation to the drill results, refer to Base Resources’ announcement on 21 January 2020 “Toliara Project drill assays reveal significant high-grade mineralisation” available at https://baseresources.com.au/investors/announcements.  Base Resources confirms that it is not aware of any new information or data that materially affects the information included that announcement.]

Kwale Operations extensional exploration

Mining tenure arrangements continued to progress with the Kenyan Ministry of Petroleum and Mining as a precursor to an anticipated updated Ore Reserves estimate based on the expanded 2020 Kwale South Dune Mineral Resources.  However, progress has slowed as the government focuses on combating the COVID-19 pandemic.

Following completion of a concept study for mining the Kwale North Dune deposit in early January 2020, a pre-feasibility study was commenced to assess its potential to offer mine life extension and is on target for completion in early 2021.

Completion of the remaining drilling program in the Kwale North-East Sector and the northern sections of the Vanga prospecting licence remain on hold pending community access being secured.  A number of additional prospecting licences were applied for in the reporting period, including over an area in the Kuranze region of Kwale county about 70 km west of Kwale Operations, as well as over an area south of Lamu.

4. Markets

With ongoing supply constraints, and despite the emergence of COVID-19, Base Resources secured further price gains for rutile and ilmenite in the reporting period.  Sluggish demand meant that zircon experienced a subdued first half of the reporting period before supply discipline, in response to COVID-19 related demand uncertainty, stabilised pricing.

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

Ilmenite and rutile

Ilmenite and rutile are different grades of titanium dioxide (Ti0₂) minerals and are used predominantly to produce pigments for paint, paper, plastics, textiles and inks.  Ti0₂ 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 Ti0₂ 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 aerospace and defence industries as well as in medical devices, sporting equipment and jewellery.

The global pigment industry experienced a steady start to the reporting period following a period of de-stocking between late 2018 through to mid-2019.  Optimism was building through the first half of the reporting period with an expectation that pigment demand, fuelled by improved underlying consumption and some re-stocking, would increase through calendar year 2020.  The pigment market was strong through the January to April 2020 period and production rates among Western producers increased.  However, growing concerns around COVID-19 through March and April 2020 started to weigh on industry sentiment with COVID-19 related shutdowns and economic impacts taking effect from May 2020.  Towards the end of the reporting period, pigment producers reported expectations for a drop in demand and, in response, began to scale back pigment production at some plants.

Conditions within the titanium metal sector strengthened through much of the reporting period.  A significant and growing backlog of orders with the major aircraft manufacturers had led to strong demand for titanium metal from the aerospace industry.  However, COVID-19 related shutdowns of aerospace manufacturing, followed by the emergence of aircraft order cancellations, have resulted in a much more subdued outlook for this sector.

Supply constraints on high grade titanium feedstocks (which includes rutile) continued through the reporting period. This was the result of some rutile deposits coming to the end of their life and ongoing production issues at some major rutile operations, further exacerbated by COVID-19 related shutdowns in South Africa impacting chloride slag and rutile output. Despite reduced pigment production at the end of the reporting period, demand for high grade feedstocks from all three end-user segments (pigment, Ti0₂ metal and welding) exceeded supply through most of the reporting period which resulted in steady price gains. The average price for Base Resources’ rutile in the reporting period was 18% higher than in the prior period.

Supply constraints on ilmenite also persisted through the course of the year as bans on all private mining of mineral sands deposits in India have remained in place and Vietnamese ilmenite exports continue to be constrained by the absence of export quota renewals.  Ilmenite supply from Mozambique has been lower than expected during the second half of the reporting period and COVID-19 related shutdowns in India resulted in the suspension of ilmenite production from India’s government-owned mineral sands producer.

Chinese pigment plants operated at high utilisation levels through most of the reporting period, delivering strong production.  While COVID-19 related shutdowns in China resulted in the temporary suspension of some pigment production, overall output was not significantly impacted.  The Chinese domestic market for pigment softened through February and March 2020 but the loss in domestic pigment sales was offset by record exports during this period.  From April 2020 onwards, an improvement in the Chinese domestic market for pigment has been offset by declining export demand.  The overall impact has been a modest net decrease in demand which is expected to result in some production consolidation and an overall reduction of Chinese pigment production. Ilmenite demand remained firm for the reporting period and this, combined with the restrictions on ilmenite supply, resulted in ilmenite prices trending upwards through the year.  The average price for Base Resources’ ilmenite in the reporting period was 30% higher than in the prior period.

Expectations of declining pigment and titanium metal production are likely to see reduced demand for rutile through the initial part of the coming period, which could be expected to result in downward price pressure.

Ilmenite demand is expected to decline modestly at the start of the coming period but supply constraints are expected to offset this and keep pricing stable.

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. Under normal conditions there is a close link between zircon demand growth and global GDP growth.

Global trade tensions and economic uncertainties, combined with increased environmental inspections in some of the major zircon consuming regions in China, led to cautious buying behaviour from consumers and an overall dampening of demand through the first half of the reporting period.  As some major suppliers pushed increased zircon volume into the market, prices experienced downward pressure at the end of 2019 and into the start of 2020.  Sentiment in the zircon sector began to improve through January 2020 as consumers became increasingly optimistic on the back of progress being made on international trade issues and a general improvement in the economic outlook.

However, COVID-19 related manufacturing shutdowns in China during February 2020, followed by shutdowns in Italy and Spain, resulted in a drop in zircon demand and a renewed negative outlook.  The reduced demand was partially offset by the impact of COVID-19 related shutdown of major zircon producers in South Africa, which subsequently led to a number of large zircon consumers becoming concerned over securing supply into the June quarter.  Some major zircon suppliers have indicated an intent to manage supply to the market conditions to support market prices.  As a result, zircon pricing remained very stable through the second half of the reporting period.

While zircon demand is expected to remain subdued into the coming year, zircon prices are likely to remain stable for as long as supply from major producers is managed to suit the conditions.

Demand for zircon from Base Resources’ customers remains firm and continues to match the Company’s production levels.  Given the characteristics of zircon in the South Dune, Base Resources has amended its production profile from two grades of zircon to a single high quality grade zircon product, which has been very well received by the market.  The average price for Base Resources’ standard zircon in the reporting period was 9% lower than the prior period.

5. Corporate

Base Resources achieved a profit after tax of US$39.6 million for the reporting period compared to US$39.2 million in the prior period with lower sales volumes offset by higher product pricing.

	2020				2019
	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	208,016	-	-	208,016	209,456	-	-	209,456
Cost of goods sold excluding depreciation & amortisation:
Operating costs	(68,553)	-	-	(68,553)	(63,234)	-	-	(63,234)
Inventory movement	502	-	-	502	(2,075)	-	-	(2,075)
Royalties expense	(14,557)	-	-	(14,557)	(14,597)	-	-	(14,597)
Total cost of goods sold (i)	(82,608)	-	-	(82,608)	(79,906)	-	-	(79,906)
Corporate & external affairs	(3,340)	(85)	(6,581)	(10,006)	(4,024)	(249)	(5,859)	(10,132)
Community development	(3,559)	-	-	(3,559)	(3,607)	-	-	(3,607)
Selling & distribution costs	(2,388)	-	-	(2,388)	(2,501)	-	-	(2,501)
COVID-19 response costs	(1,082)	-	-	(1,082)	-	-	-	-
Other income	641	-	(327)	314	850	-	(649)	201
EBITDA (i)	115,680	(85)	(6,908)	108,687	120,268	(249)	(6,508)	113,511
Depreciation & amortisation	(56,725)	(186)	(273)	(57,184)	(51,885)	-	(183)	(52,068)
EBIT (i)	58,955	(271)	(7,181)	51,503	68,383	(249)	(6,691)	61,443
Net financing expenses	(5,524)	-	(349)	(5,873)	(9,729)	-	(1,826)	(11,555)
Income tax expense	(6,042)	-	-	(6,042)	(10,735)	-	-	(10,735)
NPAT (i)	47,389	(271)	(7,530)	39,588	47,919	(249)	(8,517)	39,153

(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.

Sales revenue decreased 1% to US$208.0 million for the reporting period (prior period: US$209.5 million), achieving an average price of product sold of US$445 per tonne (prior period: US$401 per tonne), with higher average realised prices for rutile and ilmenite, partially offset by lower prices for zircon. In addition, due to lower production as a consequence of lower ore grades, sales volumes decreased by 11% in comparison to the prior period, offsetting the increase in sale prices.

Total operating costs of US$68.6 million for the reporting period were 8% higher than the prior period (US$63.2 million) due to increased pumping costs associated with the mining operations being further from the wet concentrator plant following the transition to the South Dune, and non-cash movements in the rehabilitation and mine closure provision.  Operating cost per tonne produced was 22% higher at US$146 per tonne for the reporting period (prior period: US$120 per tonne), due to the increase in operating costs and a 12% reduction in production as a result of lower ore grades.

Total cost of goods sold, excluding depreciation and amortisation, was US$82.6 million for the reporting period, 3% higher than the prior period (US$79.9 million) due to a combination of higher unit operating costs, lower sales volumes and stockpile inventory movements.  The average unit cost was US$177 per tonne of product sold, 16% higher than the prior period (US$153 per tonne) due to the higher unit operating costs.

With a margin of US$268 per tonne sold for the reporting period (prior period: US$248 per tonne) and an achieved revenue to cost of sales ratio of 2.5 (prior period: 2.6), the Company remains well positioned amongst mineral sands producers.

The Company’s COVID-19 response included providing assistance to the governments and communities in both Kenya and Madagascar through programs that included construction of hygiene facilities, distribution of food and provision of medical supplies and equipment.  The cost of these programs was US$1.1 million in Kenya, which was expensed, and US$0.1 million in Madagascar, which was capitalised to the Toliara Project, consistent with our treatment of all community relations costs.

Higher operating costs together with marginally lower revenue and COVID-19 response costs have delivered a reduced Kwale Operations EBITDA for the reporting period of US$115.7 million (prior period: US$120.3 million) and a Group EBITDA of US$108.7 million (prior period US$113.5 million).

The majority of Kwale Operations assets are depreciated on a straight-line basis over the remaining mine life. Depreciation and amortisation has increased 10% in the reporting period to US$57.2 million (prior period: US$52.1 million) due to capital expenditure incurred on the transition of mining operations to the South Dune being depreciated over the short remaining period during which the existing estimated Ore Reserves will be mined.  Mining tenure arrangements to extend the Kwale Special Mining Lease No.23 are progressing with the Kenyan Ministry of Petroleum and Mining.  Should the extension be successful there is the potential to increase the estimated Ore Reserves and extend mine life, thereby spreading future depreciation and amortisation charges over a longer period.

A net profit after tax of US$47.4 million was recorded by Kwale Operations (prior period: US$47.9 million) and Group net profit after tax of US$39.6 million (prior period: US$39.2 million).  Basic earnings per share for the Group was US3.38 cents per share (prior period: US3.39 cents per share).

Cash flow from operations was US$105.5 million for the reporting period (prior period: US$96.6 million), lower than Group EBITDA due to the payment of US$27.5 million in corporate income tax to the Kenya Revenue Authority during the reporting period, offset by a US$10.3 million reduction in trade receivables and other working capital movements.  The operating cashflows were partially applied to the funding of capital expenditure at Kwale Operations, Toliara Project progression, as well as debt servicing.

Total capital expenditure for the Group was US$33.6 million in the reporting period (prior period: US$36.1 million), with US$10.6 million at Kwale Operations (prior period: US$18.5 million), primarily for pumping, piping and associated infrastructure required to progress mining operations further along the South Dune.  US$22.8 million was spent on the progression of the Toliara Project (prior period: US$17.3 million), including the definitive feasibility study which was released in December 2019.  A further US$0.2 million was spent on Corporate capital works (prior period: US$0.3 million).

Net cash

Having repaid the US$20.0 million outstanding balance of the Revolving Credit Facility (RCF) earlier in the reporting period, in March 2020, the Company drew down the full US$75.0 million available under the RCF to secure enhanced liquidity and provide flexibility as part of a prudent risk management strategy for navigating the rapidly evolving uncertainty associated with the COVID-19 pandemic.  With a net cash position at 30 June 2020 of US$87.6 million (prior period: US$19.2 million), consisting of cash reserves of US$162.6 million and the fully drawn RCF balance of US$75.0 million, the Company is in a robust financial position.

Capital management

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.

Reflecting this approach, the Board determined a maiden dividend of A$0.035 per share, unfranked, with a record date of 21 September 2020 and payment date of 7 October 2020.

Kenyan VAT receivable

Base Resources has refund claims for VAT paid in Kenya, relating to both the construction of the Kwale Project and the period since operations commenced, totalling approximately US$17.9 million at 30 June 2020.  These claims are proceeding through the Kenya Revenue Authority process, with a number of operational period claims, totalling approximately US$11.0 million, settled during the reporting period.  Base Resources is continuing to engage with the Kenyan Treasury and the Kenya Revenue Authority to seek to expedite the remainder of the refunds.

Significant changes in the 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

Since the end of the reporting period, on 21 August 2020, the Board has determined a maiden dividend of AUD 3.5 cents per share, unfranked, with a record date of 21 September 2020 and payment date of 7 October 2020.  The financial impact of the dividend amounting to US$28.2 million has not been recognised in the Consolidated Financial Statements for the year-ended 30 June 2020.

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

Future developments, prospects and business strategies

Base Resources’ strategy is to continue to pursue mine life extension at Kwale Operations through exploration, and progress the Toliara Project towards development.

6. Consolidated Statement of Profit or Loss and Other Comprehensive Income for the Year Ended 30 June 2020

	Note	2020 US$000s	2019 US$000s
Sales revenue	3	208,016	209,456
Cost of sales	4	(139,333)	(131,791)
Profit from operations		68,683	77,665
Corporate and external affairs		(10,465)	(10,315)
Community development costs		(3,559)	(3,607)
Selling and distribution costs		(2,388)	(2,501)
COVID-19 response costs		(1,082)	-
Other income		314	201
Profit before financing costs and income tax		51,503	61,443
Financing costs	5	(5,873)	(11,555)
Profit before income tax		45,630	49,888
Income tax expense	7	(6,042)	(10,735)
Net profit for the year		39,588	39,153
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences - foreign operations		364	(1,915)
Total other comprehensive loss for the year		364	(1,915)
Total comprehensive income for the year		39,952	37,238
Earnings per share		Cents	Cents
Basic earnings per share (US cents per share)	6	3.38	3.39
Diluted earnings per share (US cents per share)	6	3.34	3.34

The notes contained in the full version of the Annual Financial Report (contained within the 2020 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 as at 30 June 2020

	Note	2020 US$000s	2019 US$000s
Current assets
Cash and cash equivalents		162,559	39,242
Trade and other receivables	9	46,620	62,397
Inventories	10	19,492	19,574
Other current assets		7,313	6,313
Total current assets		235,984	127,526
Non-current assets
Capitalised exploration and evaluation	11	139,633	115,891
Property, plant and equipment	12	158,751	205,586
Total non-current assets		298,384	321,477
Total assets		534,368	449,003
Current liabilities
Trade and other payables	13	39,617	33,138
Borrowings	14	25,195	19
Provisions	15	5,908	3,398
Income tax payable	16	539	14,463
Deferred consideration	17	17,000	17,000
Other liabilities		-	625
Total current liabilities		88,259	68,643
Non-current liabilities
Borrowings	14	48,940	18,913
Provisions	15	25,408	24,355
Deferred tax liability	7	9,027	16,500
Total non-current liabilities		83,375	59,768
Total liabilities		171,634	128,411
Net assets		362,734	320,592
Equity
Issued capital	18	307,063	306,512
Reserves		(17,227)	(19,230)
Retained earnings		72,898	33,310
Total equity		362,734	320,592

The notes contained in the full version of the Annual Financial Report (contained within the 2020 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 for the Year Ended 30 June 2020

	Issued capital US$000s	Retained earnings/ (Accumulated losses) US$000s	Share based payment reserve US$000s	Foreign currency translation reserve US$000s	Treasury shares reserve US$000s	Total US$000s
Balance as at 1 July 2018	305,277	(7,671)	5,806	(20,714)	(1,476)	281,222
Profit for the year	-	39,153	-	-	-	39,153
Other comprehensive income/(loss)	-	-	-	(1,915)	-	(1,915)
Total comprehensive income for the year	-	39,153	-	(1,915)	-	37,238
Transactions with owners, recognised directly in equity
Share based payments	1,235	1,828	(2,407)	-	1,476	2,132
Balance at 30 June 2019	306,512	33,310	3,399	(22,629)	-	320,592
Balance at 1 July 2019	306,512	33,310	3,399	(22,629)	-	320,592
Profit for the year	-	39,588	-	-	-	39,588
Other comprehensive income/(loss)	-	-	-	364	-	364
Total comprehensive income for the year	-	39,588	-	364	-	39,952
Transactions with owners, recognised directly in equity
Share based payments	551	-	1,639	-	-	2,190
Balance at 30 June 2020	307,063	72,898	5,038	(22,265)	-	362,734

The notes contained in the full version of the Annual Financial Report (contained within the 2020 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 Cashflows for the Year ended 30 June 2020

	Note	2020 US$000s	2019 US$000s
Cash flows from operating activities
Receipts from customers		216,818	188,493
Payments in the course of operations		(83,750)	(91,146)
Income taxes paid		(27,543)	(704)
Net cash from operating activities	8	105,525	96,643
Cash flows from investing activities
Purchase of property, plant and equipment		(10,377)	(17,493)
Payments for exploration and evaluation		(23,212)	(18,557)
Other		299	661
Net cash used in investing activities		(33,290)	(35,389)
Cash flows from financing activities
Proceeds from borrowings		75,000	48,180
Repayment of borrowings		(20,000)	(120,653)
Receipts from restricted cash		-	29,591
Payments for debt service costs and re-scheduling fees		(2,512)	(8,060)
Net cash from/(used in) financing activities		52,488	(50,942)
Net increase in cash held		124,723	10,312
Cash at beginning of year		39,242	29,686
Effect of exchange fluctuations on cash held		(1,406)	(756)
Cash at end of year		162,559	39,242

The notes contained in the full version of the Annual Financial Report (contained within the 2020 Annual Report) form part of these consolidated financial statements , a copy of which is available from the Company’s website:  www.baseresources.com.au .

ENDS.

For further information contact:

James Fuller, Manager Communications and Investor Relations	UK Media Relations
Base Resources	Tavistock Communications
Tel: [phone]	Jos Simson and Barnaby Hayward
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

PRINCIPAL & REGISTERED OFFICE
Level 1, 50 Kings Park Road
West Perth, Western Australia, 6005
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NOMINATED ADVISOR
RFC Ambrian Limited
Stephen Allen
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BROKER
Berenberg
Matthew Armitt / Detlir Elezi
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