Cash cow requires marketing

We will be marketing Tim Carstens of Base Resources (LON:BSE) *† in London on Thursday 31 August and Friday 1 September. This will be on the back of the company’s next full quarterly results release, which is due on 28 August, and shortly before the expected resource update for Kwale Phase 2 (KP2). This is the exploration area on the South Dune extension that should increase mine life at the Kwale Project. Our estimates are that a one-year mine life extension could add as much as US$50m to the NPV of Kwale, with a corresponding 13% increase to our A$0.49 price target.
Cash generation is front and centre of the Base story. This was shown in its 4QFY17 update in July, where net debt fell US$24m to US$99m. This compares with net debt of US$188m and US$151m at the ends of 4QFY15 and 4QFY16 respectively. We project that the company will have a net cash position by the end of FY19. For full details on this, please see Base Resources — June Quarterly Activities Report, 13 July 2017.
Stronger mineral sands pricing through 2016 and 2017 has plateaued somewhat. Ilmenite is now trading around the US$160/t level after peaking at US$200/t in April 2017. Tim Carstens has commented that this is a good level as it discourages incremental production from countries like Vietnam and China coming onto the market. Also, this is being offset to a degree by higher rutile prices; these have been as much as US$100/t this quarter, and western pigment producers are pushing through price rises to their customers. Tim described pricing to me now as “balanced and sustainable”.
The Kenyan elections have overshadowed the stock price over the summer. On the face of it, the elections progressed well, with an increased majority for the government of Uhuru Kenyatta. However, the opposition, led by presidential candidate Raila Odinga, is claiming that the electronic voting IT system was hacked, a claim that has led to sporadic violence in some of the major towns and cities, as well as a call for strikes. These claims have been vehemently denied by the head of the Kenyan electoral commission and international observers; former US Secretary of State John Kerry publicly stated that he was happy with the voting process. The situation is tense as the widespread rioting and loss of life that marred the elections ten years ago are fresh in people’s minds, although the election of four years ago passed without any major incident. Odinga has now contested four presidential elections unsuccessfully and a number of his coalition partners were not standing with him when he called for a general strike, so it could be that support for him is draining.
Another Kenyatta government is good news for Base, and the hope is that Mining Minister Dan Kazungu stays in his position. Tim has an excellent relationship with Kazungu and Kenya has been increasingly vocal in wanting to attract more mining investment into the country.