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Edited Transcript of BSE.AX earnings conference call or presentation 26-Aug-19 1:00am GMT

Full Year 2019 Base Resources Ltd Earnings Call

Sep 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Base Resources Ltd earnings conference call or presentation Monday, August 26, 2019 at 1:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Timothy James Carstens

Base Resources Limited - MD & Executive Director

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Conference Call Participants

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* Tim Hoff;Watermark Funds Management;Analyst

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the Base Resources FY '19 Results Investor Call. (Operator Instructions)

I would now like to hand the conference over to Tim Carstens, Managing Director. Please go ahead.

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Timothy James Carstens, Base Resources Limited - MD & Executive Director [2]

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Good morning, everyone, and thanks for joining us for the Base Resources Financial Year 2019 Full Year Results Investor and Shareholder Call. I'll run through a few highlights, and then Kevin Balloch, our CFO, and I will take any questions you might have.

It would be fair to say that the 2019 financial year is another good year for Base Resources with sales price increases and a real focus on extracting the most out of the Central Dune as we finished that up over the course of the year, resulting in record revenue, EBITDA and NPAT for the group.

A pretty pleasing year from a market perspective. We secured average price improvement of around 22% for rutile and 28% for zircon. The average price for ilmenite was down about 6% year-on-year, but it was trending positively as we came out in the second half of the financial year. We're currently seeing ilmenite prices at around $175 a tonne FOB.

The outlook for rutile and ilmenite continues to be really positive, and the supply constraints and strong demand that we're seeing for a while now, particularly for rutile, supporting those increase in pricing gains. Zircon, after a pretty strong run, has stabilized in respective term, and as many of you would be aware, following the workers' commentary a week or so ago. And facing some headwinds in the near term, but we still think long term, supply remains constrained, and we still like the outlook for zircon, for all 3 products.

These price improvements supported a 5% increase in revenue and a 4% increase in EBITDA over the 2018 year, while funding costs also contributed to a 15% increase in NPAT. The gains in sales price was well offset, to some extent, by both production volumes and slightly higher costs as a consequence of the higher volumes we were mining over the course of the financial year.

So with that perspective, it was a real rewarding year for us. Net debt was reduced by $72.5 million in the year, and we actually finished the year with a net cash position of $19.2 million. The watchout of our sort of results were the revenue to sales -- to cost of sales ratio, I should say, with 2.6:1, maintaining the Kwale operation position in the absolute upper quartile of mineral sands producers.

In terms of the operational highlights, there were really 2 major milestones or achievements during the course of the year. The first was successfully increasing the mining rate by -- heading towards 60% to 17.8 million tonnes per annum, following the implementation of our Kwale Phase 2 mine optimization project that we completed in the last quarter of 2018 financial year. One of the real central challenges for the year was optimizing the operation again in this new high-tonnage, low-grade paradigm, (inaudible) exceptional [well bore] and set us up extremely well for the remaining life of the South Dune, which is similar sort of grades to what we experienced.

The other major achievement was completed by the end of June, really, which is the successful transition of mining operations to the South Dune for we fully depleted both the Central Dune. The project, which deliver on time, on budget and safely, and really it was a major credit for all involved and represents a significant milestone for the company in that we've completed our first Dune and moved on to the second and got one of those restricted out of the way. We're now easily learning how to optimize the project on that South Dune and making really good headline.

Overall production at Kwale was in line with the upgraded guidance we issued at the very start of the calendar year. We produced around 92,000 tonnes of rutile, over 400,000 tonnes of ilmenite, 32,000 tonnes of zircon.

Looking outside the fence, we've also continued to invest significantly in a wide range of community environment programs, not just across Kwale but now also at Toliara as we build up that social license to operate with their local community and experiencing some really good wins, particularly over the last few months as we've built up some momentum there. We thought it was about $3.8 million invested in those sorts of programs.

We also progressed a number of business development initiatives, with obviously the biggest one and most significant being the release of the Toliara Project PFS, which pretty clearly confirmed our views that the project is a world-class mineral sands development. And we've moved on that with DFS and pedaling extremely hard on that at the moment and looking to have that completed by the end of this calendar year. So not too far away.

A couple of other aspects. Firstly, still at Toliara, we got out with the mineral resource estimate for the Ranobe deposit on which the project is based. We got that out with an increase up to 1.2 -- 1.3 billion tonnes, representing a 25% increase in HM tonnes in that deposit. The PFS is actually only based on less than half of that volume, so there's plenty of upside in terms of future mining potential where the PFS guide was a 33-year mine life. We're doing some more drilling at the moment, which is predominantly aimed at giving us the reserve to underpin the DFS, but I think it's inevitably going to increase this file of the deposit, and we think we're onto something rather large.

In terms of Kwale mine life extension, we got the North Dune mineral resource estimate out and a feasibility study on that gearing has commenced. We also secured the rather large Vanga license, and over the course of the year, we'll drill a little over 8,000 meters in pursuit of a further mine life extension, and that will be an ongoing play into a -- certainly into the current year or probably years.

So overall, it's been a very busy and successful year for Base Resources and one which rather we chase safely with a frequency rate of 0. But I mean we regard this sort of central to how we operate, and we're looking forward to a pretty interesting financial 2020.

With that, I might turn it out to the questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Tim Hoff from Watermark.

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Tim Hoff;Watermark Funds Management;Analyst, [2]

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Can you talk a little to the current market situation? Seems quite a few bits of commentary around the zircon market. What are you guys seeing in the market today? How does your thought (inaudible)?

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Timothy James Carstens, Base Resources Limited - MD & Executive Director [3]

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Yes. I mean one of the things that we've seen and been talking about publicly over the last year or so has been a shift in market demand away from premium grades and more towards the standard grade. And it's probably driven by 2 things. One is I think more of the customers are working out how to use a standard-grade product effectively. And the second is they're just not going to pay it by premium to premium. So we -- it's fine by us in the sense that a majority of our zircon is standard grade and more people are demanding standard grade and not premium. It means we can, one, [we kept on] recoveries a bit and benefit that way.

So I think a way to coming out and making those statements around that wall over the last couple of months, it certainly wasn't a surprise for us and it's a claim nothing's been emerging in certainly our experience for a while and not one that particularly bothers us. That in part was brought the average price down for zircon is that sense that we don't want to pay for premium.

It's certainly getting softer a bit. But I think it would be fair to say that we're still gaining -- we're still receiving inquiries for more volume than we [can process]. But that doesn't seem to necessarily be the case right across the board. So we -- I think our view would be we'll probably through the process in a bit from here but not significantly. I think we'd be looking at somewhere in high $1,300s, $1,400 as the price turns (inaudible) from here.

Before -- it inevitably will start to come up again simply due to ultimately the structural short supply. The -- it's pretty clear over the last couple of months, in particular, I think the discussion with customers has started to involve more explicitly the concerns about trade tensions and what impact that could have on economic activity in China, certainly those for the tonnage (inaudible).

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Tim Hoff;Watermark Funds Management;Analyst, [4]

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Okay. And in terms of how your customers are talking about their inventory levels, are they happy at the moment about where -- things around that?

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Timothy James Carstens, Base Resources Limited - MD & Executive Director [5]

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Yes. Look, I think certainly for -- I mean, zircon, you got to remember, zircon is a relatively small part of our portfolio. I would say that inventory levels of the customer end up probably neutral. And from a rutile perspective, I would suggest that people probably have considerably less than I would argue we won simply because we're just not (inaudible) around and we're certainly seeing that in the like price of ilmenite, maybe close to $1,200 a tonne now for rutile.

And ilmenite, I don't really have a sense that there's any particular direction one way or the other. I would say it's neutral from an inventory perspective. I think the commentary from our customers in the pigments price looking one step further down the chain has been interesting where there are a lot of commentary over the year about customer destocking. And there seems to be a general consensus that, that has more or less run its course. So I would kind of feel that we're probably about where we should be, a few steps down the channel.

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Operator [6]

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(Operator Instructions) There are no further questions at this time. I will now hand back to Mr. Carstens for closing remarks.

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Timothy James Carstens, Base Resources Limited - MD & Executive Director [7]

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Okay. Well, thank you for joining us. And always, if you do have any questions or want to have a follow-up discussion, please feel free to contact either myself or Kevin Balloch, our CFO, or James Fuller, our Comms and IR Manager. Always happy to have a chat. And look forward to seeing you all soon when I'm (inaudible).