Base Resources*† has its latest update out, so Jim Taylor was on...

Base Resources*† has its latest update out, so Jim Taylor was on it immediately: Base Resources — March Quarterly Activities Report, 12 April 2017. The report shows that Base is continuing to offer quality exposure to an improving market for mineral sands. Production was largely stable, while revenue was above the prior quarter due to the timing of the company’s bulk sales and higher ilmenite pricing. Guidance for 2017 production remains unchanged.
Production declined slightly over the prior quarter. Lower volume was put through the WCP in order to improve recoveries. To compensate, management drew down stockpiled inventory for January and February, and focused on mining a high-grade (>10%) zone in March. Ultimately, production of ilmenite, rutile and zircon were largely in line with the prior quarter, with total production down only 3%.
Revenue up 24% due to the timing of shipments and a 30% rise in ilmenite prices. Bulk rutile shipments were up 8% at 21,000t, while ilmenite sales increased 27% to 123,000t. Although the higher proportion of ilmenite in the sales mix had a negative impact, a 30% increase in ilmenite prices offset this. Overall, revenue climbed 24% to US$40m.
Net debt down to US$123m. After the repayment of US$13m of debt during the period, total debt at the end of March 2017 was US$164m.
Our Buy rating was maintained, with our target price raised to A$0.43 from A$0.35. We base our target price on the SotP NAV of the company. This assumes long-term mineral sands prices of US$180/t for ilmenite, US$1,050/t for rutile and US$1,150/t for zircon. The NAV comprises: an NPV10 for the Kwale Project of US$377m, US$20m for exploration at Kwale and a G&A adjustment of US$(38)m, giving an operational NAV of US$360m. After adjusting for net debt, this gives a NAV for Base of US$237m (as of end-March 2017). This is equivalent to A$0.43/share. The increase in our target price is driven by recent gains in prices, and a change in our tax assumption resulting in a reduced rate until FY24.
Upside risks to our target price. Pricing continues to surprise on the upside, with the ilmenite price locked in at US$200/t for May deliveries. Higher sales volumes next quarter would provide leverage to further gains. The Kwale Phase 2 DFS due in May 2017 is likely to provide upside to our current modelled NAV, and a maiden resource from the SW Sector (due 1QFY18) may add to mine life. Furthermore, the Kenyan general election in August 2017 is expected to ease community tension and allow exploration to resume on the NE Sector.