Quarterly Activities Report

ASX, AIM and Media Release 17 April 2015 BASE RESOURCES LIMITED Quarterly Activities Report - March 2015 HIGHLIGHTS * Achieved 12 months without a lost-time injury. * Above design heavy mineral concentrate production rate. * 10% lower rutile production principally as a consequence of natural assemblage variability and ore type in the quarter's mining zone. * Availabilities, throughputs and recoveries continued at design or consistent with ramp-up plans. * Testwork and engineering for a suite of key recovery improvement initiatives has been completed for implementation over the next two quarters. * Sales volumes matched production in a challenging sales environment, particularly for sulphate ilmenite. * Project Completion tests for the Kwale Project debt facilities commenced during the quarter and are on track, with some of the shorter duration tests already successfully completed. * The bid for World Titanium Resources Limited closed without fulfilling the Conditions of the Offer. Base Resources Limited (ASX & AIM: BSE) ("Base" or the "Company") is pleased toprovide a quarterly production and ramp-up update at its Kwale Mineral SandsOperations ("Kwale Operations") in Kenya, East Africa. With the consistentachievement of design availabilities and throughputs in both the wetconcentrator plant ("WCP") and mineral separation plant ("MSP") and recoveriesin the WCP, the focus has been firmly on continuing to drive productrecoveries, as well as exploring throughput increase opportunities, in the MSP. KWALE OPERATIONS SUMMARY PHYSICAL Jun 2014 Sept 2014 Dec 2014 Mar 2015DATA Quarter Quarter Quarter Quarter Ore mined (dmt) 1,759,211 2,191,455 2,328,746 2,291,444 HM% 8.08% 8.44% 7.49% 9.33% HMC produced 141,753 172,885 165,953 206,324(dmt) Production (dmt) Ilmenite 91,620 100,533 107,893 105,753 Rutile 15,221 16,612 18,672 16,754 Zircon 4,130 5,210 5,308 5,414 Sales (dmt) Ilmenite 91,529 116,578 53,345* 103,736 Rutile 14,005 12,923 23,328 15,168 Zircon 2,704 2,601 5,883 5,178 *Reported volume includes 22,340t which was reversed after it was determinedthat the terms of the sales agreement did not satisfy revenue recognitioncriteria at the time of shipment. The product will be subject to sale in futureperiods. Average mined ore grades were high at 9.3% heavy mineral ("HM") as miningproceeded through a high grade section of the Central Dune ore body (7.5% HMduring the previous quarter and 7.8% for operations to date) and tonnage minedremained steady at 2.3Mt in the March quarter. A focus on debottlenecking the WCP's capacity to produce Heavy MineralConcentrate ("HMC") has enabled higher throughput to be sustained when mininghigh grade ore, as demonstrated this quarter. This enhancement has facilitatedan increase of 24% in HMC production this quarter over the prior quarter, from166kt to 206kt. HMC production capability now exceeds design. Slime and sand deposition in the Tailings Storage Facility continued to operateaccording to plan. The Mukurumudzi Dam volume dropped from 8.4ML to 6.9ML aheadof the onset of the `long rains', the main wet season of the year, in thecoming weeks. MSP throughput of 160kt was 3% below the previous quarter due to a combinationof marginally lower availability at 93% (94% in the December quarter) and thelower number of days in the quarter. MSP feed rates remained at design levelsof 80tph. Modifications planned over the next two quarters are expected to seethis rate increase during the course of 2015. A feature of the Central Dune orebody is that the higher HM grade sectionscontain proportionally less rutile and more ilmenite than the lower gradesections. As a consequence, with mining activity in the quarter being in ahigher HM grade section of the Central Dune, the contained rutile in the HMCfeed to the MSP was some 5% lower than in the prior quarter. Compounding this,difficult mineralogy associated with a valley feature in the orebody impactedMSP rutile recoveries, which reduced slightly to an average of 91%. Thecombination of these two factors, together with the lower MSP availability andshorter period noted earlier, has resulted in 10% lower rutile production at16,754 tonnes. Rutile recoveries improved late in the quarter, with an averageof 95% achieved over the past four weeks. Testwork and engineering for a numberof recovery improvement initiatives were completed during the quarter, notablyrutile screens and additional magnet stages, with installation to beprogressively completed over the remainder of 2015. Benefits are expected tostart being realised in the June quarter. Ilmenite production was in line with the prior quarter and continued abovedesign capacity. The higher proportion of ilmenite contained in the HMC feed tothe MSP (3% higher than last quarter) offset the reduced throughput. With somealtered ilmenite species that are not defined as "ilmenite" in the Resourcebeing recovered to ilmenite production, ilmenite recoveries (or yields) of over100% are now consistently being achieved. Zircon production improved again during the quarter, albeit slightly, and isconsistent with the planned ramp-up to design capacity. Average recoveriesincreased from last quarter's 50% to 54% this quarter, but the resultantproduction gains were partially offset by the reduced MSP throughput as aconsequence of lower availability and shorter period. The focus for zircon overthe next quarter is on increasing recoveries through improvements to the wetzircon pumping systems to provide greater control and flexibility. Test workand engineering for improvements to primary magnet separation capacity andefficiencies are now complete and orders have been placed for the requiredequipment. Installation is planned over the next two quarters, which, alongwith further optimisation work, is expected to further improve zircon recoveryover the course of 2015 towards design levels of 78%. With the aim of maximising overall zircon recoveries and revenue, Base isprogressing with plans to upgrade non-magnetic tailings streams to produce asaleable zircon low grade product on an ongoing basis. This is expected to beimplemented in the June quarter. Sales contracts have been executed for anexisting stockpile of zircon concentrate, produced in the early stages of rampup, for sale and delivery next quarter. Bulk loading at Base's Likoni Port facility continued to perform well,dispatching more than 169,000 tonnes during the quarter. Of this, approximately48,000 tonnes of ilmenite was shipped to Base's China warehouse. Holding stockof ilmenite in China is part of Base's strategy for securing market share inChina by offering product for immediate delivery and in smaller volumes thancould be justified for a shipment from Kenya. By adopting this approach, Baseexpects to tap into smaller scale customers not able to commit to largeshipment volumes and also offer potential large new customers sample sizevolumes for testing. A three year long term bulk shipping contract was entered during the quarter totake advantage of the current low rates associated with low fuel and timecharter costs. Containerised shipments of rutile and zircon proceeded according to plan. Cash operating costs for the quarter (inclusive of royalties) were US$14.2million or US$111 per tonne of product produced (rutile, ilmenite and zircon),consistent with the US$14.4 million or $109 per tonne of the prior quarter. MARKETING The global TiO2 pigment industry remained weak through much of the Marchquarter as the northern hemisphere continued its usual seasonal slowdown.Activity picked up in the latter part of March and there are reports that someof the leading pigment producers in China have secured price increases forsales since the end of the Chinese New Year holidays. Pricing of high grade titanium dioxide feedstock (including rutile) continuesto remain relatively stable and may see some improvement through the seasonallystrong June and September quarters - particularly as the major global pigmentproducers continue their recovery and return to normal operating stock levelsand utilisation rates. Pricing pressure has been maintained on ilmenite through the quarter but theanticipated seasonal upswing in activity through the June quarter andassociated reduction of ilmenite stock levels should see the return of pricestability. This is supported by output from some of the principal ilmenitesources for the Chinese market being further curtailed through the Marchquarter, and expected to continue into the June quarter. Zircon trade activity remained firm through the quarter with strong levels ofsales being maintained with established customers. Prices were again stablethroughout the quarter and are expected to remain stable through the Junequarter. There is potential for some zircon price improvement in the secondhalf of 2015 if demand maintains its upward trend and major producers continueto manage their production output in line with market demand. SAFETY AND TRAINING This quarter the operation achieved a milestone of one year without a Lost TimeInjury ("LTI"), the last occurring in February 2014. There were two injuriesrequiring medical treatment recorded this quarter, both employees returned tonormal duties immediately following off-site medical treatment. A series ofproactive safety training programmes were implemented during the quarter torefresh previous learnings. COMMUNITY AND ENVIRONMENT Agricultural trials, run in conjunction with partners Business for MillenniumDevelopment and DEG, have produced successful results for both potato andcotton crops. Leveraging the existing significant agricultural activity andexperience in Kwale County, these projects have the potential to deliversignificant improvement in livelihoods in the area through increased cropdiversity, enhanced agricultural practices, output aggregation and access tostable markets. Utilising the knowledge gained from the trial programmes, the number of localfarmers involved in the potato program has grown from 7 to 75 for the nextphase aimed at producing commercial quantities. Further training of localfarmers for a poultry trial programme is underway with the intention ofincreasing productivity and quality through modern chicken rearing techniquesfocussed on bio-controls and sustainability. Other community programmes are gaining momentum with 8 women's groupsundertaking specialised training in small enterprise development and communityhealth projects. In consultation with the local community and the Kenya MedicalTraining College, support for 36 students was provided. Tuition fees were paidfor nursing, community health and health administration courses. This bringsBase's scholarship programme support to over 300 students at secondary andtertiary institutions. Environmental training at local schools commenced this quarter with Base'spartner, Little Sports Organisation, who provide after-school sports programmesin 22 primary schools in the region. Team coaches are now teachingenvironmental awareness as well as life skills education to approximately15,000 children. CORPORATE TAKEOVER OFFER FOR WORLD TITANIUM RESOURCES LIMITED On 23rd December 2014, Base launched an off-market takeover offer (the "Offer")for World Titanium Resources Limited ("World Titanium") with the Bidder'sStatement being dispatched to World Titanium shareholders, and the Offerformally opening, on 6th January 2015. On 5th January 2015, World Titanium announced that it had secured bindingundertakings to not accept the Offer from World Titanium shareholders withcombined holdings exceeding 60%. Following discussions with key World Titaniumshareholders, Base concluded that the Offer was unlikely to succeed unlessthere was a significant change in circumstances. The Offer closed at 7.00pm (WST) on 6th February 2015, with the Conditions ofthe Offer not fulfilled. DRAWDOWN ON TAURUS FACILITY In December 2014, Base executed a US$20 million unsecured debt facility withone of its major shareholders, Taurus Funds Management ("Taurus Facility"). TheTaurus Facility provides a source of additional funding for the Kwale Projectshould it be needed, the means to satisfy the US$15 million liquidity injectionrequired under the terms of the Kwale Project Debt Facility restructure, andUS$5 million in corporate funding. On 27th January 2015, the first drawdown of US$3 million was completed toprovide funds for parent corporate working capital. KWALE COUNTY MINERAL LEVY Base is continuing to work with both the Kwale County Government and the KenyanNational Government to have the export levy purported to be imposed by theKwale County withdrawn or rescinded (see ASX and AIM Release dated 5 June 2014)on the basis that it is unconstitutional. There have been no invoices issuedbeyond the one in June 2014. Base remains comfortable with its legal positionand expects to have the matter resolved in the near future. KENYAN VAT RECEIVABLE Base has a refund claim of approximately US$25 million for VAT paid in Kenya,most of which relates to the construction of the Kwale Project. This claim iscurrently proceeding through the Kenya Revenue Authority process. The KenyanCabinet Secretary to the National Treasury has previously announced theGovernment of Kenya's intention to settle all outstanding VAT claims by the endof April 2015. Base is engaging with Treasury, seeking to expedite the refund. KWALE PROJECT DEBT FACILITY - PROJECT COMPLETION TESTS Under the terms of the Kwale Project Debt Facility, Base is required to achieve"Project Completion" in order for surplus cash from the Kwale Project to bedistributed from the Kenya project company up to Base Resources Limited as theparent. The requirements for achieving Project Completion includes a number ofphysical and economic tests over a continuous 90 day test period. The firstattempt at satisfaction of these physical and economic tests commenced duringthe quarter, with performance currently on track. In summary, at 31 March 2015: • Cash and cash equivalents (unrestricted) were A$23.4 million. • Debt drawn of US$218.0 million, undrawn debt of US$17.0 million. • 563,902,771 shares on issue. • 47,312,531 unlisted options. A full PDF version of this announcement is available at the Company's website:www.baseresources.com.au. ENDS For further enquiries contact: Base Resources LimitedTim CarstensManaging DirectorPhone: +61 (0)8 9413 7400 RFC Ambrian Limited (Nominated Adviser and Broker)As Nominated Adviser As BrokerAndrew Thomson Jonathan Williams and John van EeghenPhone: +61 (0)8 9480 2500 Phone: +44 20 3440 6800 Africapractice (East Africa) (Kenyan Media Relations)David Maingi/ James Njuguna/Joan KimaniPhone: +254 (0)20 239 6899Email: [email protected] Tavistock Communications (UK Media Relations)Jos Simson / Emily Fenton / Nuala GallagherPhone: +44 (0) 207 920 3150 Cannings Purple (Australian Media Relations)Michael Vaughan / Warrick HazeldineEmail: [email protected]@canningspurple.com.auPhone: +61 (0)8 6314 6300 Corporate Details: Board of Directors:Andrew King Non-Executive ChairmanTim Carstens Managing DirectorColin Bwye Executive DirectorSam Willis Non-Executive DirectorMichael Anderson Non-Executive DirectorMike Stirzaker Non-Executive DirectorMalcolm Macpherson Non-Executive DirectorKeith Spence Non-Executive DirectorWinton Willesee Company Secretary Principal & Registered Office: Contacts:Level 1 Email: [email protected] Kings Park Road Phone: +61 (0)8 9413 7400West Perth Fax: +61 (0)8 9322 8912WA 6005 Share Details: As at 31 March 2015, there were 563,902,771 ordinary shares on issue. Substantial Shareholders: Pacific Road Capital 20.4%Taurus Funds Management 14.9%Sustainable Capital 12.5%L1 Capital 7.8%Aterra Investments 7.7%Acorn Capital 7.6%Genesis Asset Managers 5.0% Unlisted Share Options: 7,100,000 Options expiring July 2015 ex A$0.099,500,000 Options expiring July 2015 ex A$0.2530,712,531 Options expiring December 2018 ex A$0.40 Share Registry: ASXComputershare Investor Services Pty LtdLevel 2, 45 St Georges TerracePERTH WA 6000 Enquiries: 1300 850 505 / +61 (3) 9415 4000www.computershare.com.au AIMComputershare Investor Services PL CThe PavilionsBridgwater RoadBRISTOL BS99 6ZZ Enquiries: +44 (0) 870 702 0003www.computershare.co.uk Tenement Schedule: Special Mining Licence 23, 100% interest, Kwale, KenyaExploration Licence 173, 100% interest, Kwale, Kenya