News: Base Resources' Kwale operation generates strong cash flow

Base Resources' (ASX:BSE) Kwale mineral sands project in Kenya is generating strong operational cash flows on a 400% year-on-year increase in revenue generation.

Total revenue for FY2015 grew to A$145.5 million as Kwale operation delivered a strong operational performance, with a focus on progressive improvement in recovery rates. This dwarfed previous annual revenue of $29.1 million in FY2014.

EBITDA from Kwale operations was $62.6 million, versus $7.1 million in FY2014 while group EBITDA was $54.8 million ($0.5 million loss in FY2014).

Cash flow from operations was an impressive $38.2 million, while Base looks to refinance the Kwale project debt facility better suited to the prevailing product price environment.

Progress is being made on this front as credit approvals have been received from the majority of lenders.

The project’s inventory was recalculated, reflecting a slight increase in the percentage of heavy mineral content and additional tonnage for material within the high-confidence category of proved reserves.

Total resources at the project now stand at 143 million tonnes at 4.4% heavy minerals while proved reserves total 95 million tonnes at 5.3% heavy minerals.

Kwale began production in late 2013 and is expected to ramp up over its first six years to produce an annual average of 80,000 tonnes of rutile, 360,000 tonnes of ilmenite and 30,000 tonnes of zircon, making Base a globally significant producer of mineral sands products.

Base has positioned itself to execute this ramp-up and survive the current mineral sands downturn through a number of strategic initiatives focused on ensuring sound margins through operational efficiencies.

This strategy has recently been supported by achieving throughput rates above design levels, progressing refinancing to suit the current mineral sands price environment and maintaining competitive contracts into China given costs and shipping rates.

The company held $40.9 million in cash at the end of June.


Analysis

Base represents potential to benefit from upside in the mineral sands space as one of the few juniors producing in a heavily logistics-dependent sector dominated by major miners.

While the mineral sands sector continues to struggle with stagnant pricing, Base has posted impressive growth figures and proved small-caps can succeed in this bulk commodity industry.