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Edited Transcript of BSE.AX earnings conference call or presentation 26-Aug-19 9:30am GMT

Full Year 2019 Base Resources Ltd Earnings Call

Dec 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Base Resources Ltd earnings conference call or presentation Monday, August 26, 2019 at 9:30:00am 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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* Mark Simpson;Productivity Partners;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 Full Year Results Call. (Operator Instructions) I would now like to hand the conference over to Mr. 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 one of the Base Resources' Financial Year 2019 full year results calls.

I'll run through a few highlights, and then Kevin and I will take any questions you have. It'd be fair to say that 2019 financial year was another -- is a really good year for Base Resources with sales price increases and a focus on extracting the most out of the Central Dune and benefiting from the throughput upgrades that the KP2 project gave us, resulting in record revenue, EBITDA and NPAT.

We've been operating in a pretty encouraging price environment for our products with price improvement of 22% for rutile year-on-year and 28% for zircon. The average price for ilmenite was down 6% year-on-year, but it was trending positively in the second half of the financial year.

We're currently seeing ilmenite prices at around $175 a tonne at the moment, and we're seeing a pretty healthy demand picture with the sort of contract time for our next vessel and yes, we were certainly [overdid for volume, what was going on that, but -- to China]. So we're pretty happy with the outlook for rutile and ilmenite.

We've got the supply constraints and strong demand. Zircon, after a very strong run, has stabilized and, indeed, as many of you who have been following the Iluka commentary recently, there's likely some headwinds over the near term, but we still have a pretty bullish long-term view on zircon, largely driven by supply constraint.

These price improvements supported a 5% increase in revenue for the year and a 4% increase in EBITDA. Lower funding costs also, they contributed to a 15% increase in NPAT. The gains in sales price were offset to some extent by the lower production volumes and higher operating costs associated with the increased volumes post KP2 and with us operating in the lower-grade fringes of the Central Dune for the year.

We took a big bite out of the debt and, indeed, reduced it by $72.5 million over the year and crossed a major milestone, finishing the year with a net cash position of $19.2 million. Obviously, all the figures I'm mentioning here are in US dollars.

But the overall washup of the result was a revenue-to-cost of sales ratio of 2.6:1, little lower than what we've had over the past couple of years while maintaining Kwale operations' position in the upper quartile of mineral sands producers.

In terms of the key operational highlights, there really were 2 significant milestones for the year. The first of those was the successful increase in mining rate by almost 60%, up to just shy of 18 million tonnes per annum, following the implementation of the Kwale Phase 2 project in the last quarter of 2018. That project was really aimed at deconstraining the mine and the concentrator to set us up for the future of the operation, firstly, in the fringes of the Central Dune but also in the South Dune where we're going to be operating in a high-tonnage, lower-grade paradigm. We've now got the operation optimized in that environment, and that's a task that the ops team have done an exceptional job on.

The second major milestone was completing the successful transition of mining operations to the South Dune of Kwale after fully depleting the Central Dune during the financial year. We made that transition during essentially the last 2 weeks of June. That project is delivered on time, on budget and safely and a major achievement and a credit to all of the guys involved. And it's also a major moment for the company in that we've now finished that dune at Kwale and, indeed, Base Resources was founded on and moved on to the second dune of Kwale.

Production was in line with our updated guidance. That update was made in January of this year. And we've produced around 92,000 tonnes of rutile, a little over 400,000 tonnes of ilmenite and 32,000 tonnes of zircon.

We've also continued with our investment in a wide range of community and environmental programs across not just Mtwapa and Kwale but now also I mean Toliara. We do -- did quite a lot of work in this area, developing our social license to operate and also establishing our communities as a reference for us in terms of where we want to go next, the benefits of which we've seen pretty significantly in Toliara, where we're now making some real headway in getting strong, broad-based community support.

Total investment across our community, environment programs for the year was $3.8 million. So it's not a small investment, but the benefits from that work are significant.

We also progressed a number of major business development initiatives. Obviously, the sort of biggest one and most visible was the -- relates to the Toliara Project PFS back in March which really confirmed the view with that, and which informed the acquisition in the first place, that Toliara is a world-class mineral sands development. We've now kicked off the DFS. We now are progressing well on -- towards our objective of having that completed by the end of this calendar year of sort of the next major milestone there.

Also during the year, we completed an update to the mineral resource estimate to the Ranobe deposit on which Toliara is based. That resource is now 1.3 billion tonnes, and that update represented a 25% increase in contained HM tonnes. We're busily drilling there at the moment, not so much to expand our resource. It's not the objective of that drilling. It's more aimed at underpinning the reserve that will form the basis of the DFS when it comes out in December. But it'd be fair to say that the results of that drilling is going to show that Ranobe is considerably bigger than the 1.3 billion tonnes that we currently are pointing to. We'll be mining at Toliara for quite a number of decades.

In terms of Kwale mine life extension, just that the real sort of milestone was getting the North Dune mineral resource estimate out. We've now kicked off the feasibility study for that in terms of what that can generate as far as mine life extension goes. We also secured the Vanga exploration license which is quite a large area and have drilled over 8,000 meters on that to date and have quite a bit more drilling planned in that area or on that license as well as in the [Majoreni] area over the coming year.

So it's been a very busy but successful year for Base. And certainly, one of the really pleasing aspects of it is that we've been able to achieve an awful lot over the year safely and with our frequency rates, from a safety perspective, remaining at 0, which is a rather remarkable result for a company that's now got the best part of 1,200 people across [2] African jurisdictions. So -- and that's something we regard rather zealously. And I think it's probably a pretty fair indicator of the performance culture we've been able to build at Base.

So with those few comments on the highlights, we might turn it over to 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 Mark Simpson from Productivity Partners.

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Mark Simpson;Productivity Partners;Analyst, [2]

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Yes. And my question just relates really to kind of what you see in the future pricing market? I think (inaudible) resources call recently, and they were suggesting that the market would be in deficit kind of going forward and that would support prices. And they felt that the current pricing, I mean, supports brownfield development rather than future greenfield development. So I'd be interested in your thoughts on -- and the impact of Toliara versus, for example, expanding the existing licenses for Vanga and exploration of the brownfield development rather than new greenfield developments.

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

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Yes. Okay. Well, I mean, in terms of the current pricing, I mean if we saw current pricing continue on into the future, I'd be reasonably comfortable with Toliara beginning developed. I mean you're talking about a project that's got a 3:1 revenue-to-cash cost ratio. So I don't subscribe to the theory that the current pricing wouldn't support any greenfield development. I think it takes a pretty special greenfield development. And we're fortunate in having our foot on that. I mean as far as brownfields go, from our perspective, I mean the reality is, having an operation that's fully depreciated, we don't have to build any infrastructure. And when you're talking about logistics businesses in the sort of 10 to 20-kilometer range, pretty much any sensible grade would be economically viable to the mine, which is why we think that there is some mine life extension in the North Dune, notwithstanding that the average grade of that deposit is 1.5%. So I think we will see some more supply come in.

And coming back to your earlier comment about the market being in deficit, I mean that is absolutely the case in terms of rutile. And it is a pretty tight market from the point of view of ilmenite, particularly, with the cessation of mining of mineral sands in India. And the fact that the Vietnamese government still hasn't granted any export permits for their operations and at the sort of price we're seeing at the moment, those operations would probably be marginal in any event. So you're not going to see a material amount coming in even if price would improve. So I think we will see ilmenite price push a bit higher. We'll certainly see rutile move a bit higher. And it's almost inevitable that prices are going to be at a level that will motivate new supply into the market. I mean even with a -- with sort of brownfields' potential, what we see around the [price], there is absolutely no question that new deposits are going to be required to be developed over the next 4, 5 years.

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Mark Simpson;Productivity Partners;Analyst, [4]

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And can you speak a bit about -- like obviously the Toliara, the CapEx requirements of stage 1 are quite high. And is there intention to raise equity? Or are you hoping to do that from internal cash flow and debt?

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

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We're looking at a range of funding options. We've obviously got a fair bit of experience with doing large project financings. And we're progressing that at the moment along with a couple of other variations on that from a debt perspective. We're pursuing a couple of joint venture possibilities and a couple of other initiatives that are currently we talk about too much. But it'd be fair to say that an equity raise is the absolute last pathway we would be looking to take. I don't think, certainly, with our share price anywhere near where it is at the moment, I don't think I'd be winning too many friends with my major shareholders if we [move that down than up].

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Mark Simpson;Productivity Partners;Analyst, [6]

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Yes. Because I think in the past, you've made statements that you may be considering an equity raise. And I wonder whether that has been why maybe your share price hasn't tracked to positive results of the business. Can...

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

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I certainly haven't made any statement that are -- was kind of plotting an equity raise. The only time that's come up was simply at -- in the PFS. As part of the requirements for the release of the PFS in the Australian Stock Exchange, you need to point to a funding plan. And for the purposes of the PFS, we pointed to a debt assumption and then left it open in terms of how the balance would be made up of around $100 million. Now we -- you might recall we made a reasonable period of time that we were pursuing a whole raft of options that -- where which equity was one but we've certainly never said that we're kind of plotting an equity raise.

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Mark Simpson;Productivity Partners;Analyst, [8]

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Okay. Good to hear. Any (inaudible) Here on Vanga and the drilling results there? And obviously, it's close to any recent grades which potentially would be commercial?

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Timothy James Carstens, Base Resources Limited - MD & Executive Director [9]

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Yes. Now look, at this stage, no. What the majors have done thus far they're just trying to understand what the airborne geophysics anomalies are telling us. To be honest, we haven't been able to get in yet to the areas that interest us the most. And we're just working our way through a lot of land access issues. There are quite a few complexities around that, not least of which was a large sugar company that has a reasonable area that planted on the sugar that we're just trying to finalize terms for access and we hope to get -- we're already moving there shortly. It's sitting there parked up at the moment. But it'd be fair to say the work we have done thus far on the southern end of the Vanga license hasn't really revealed anything terribly exciting and we posted about that in the quarterly. The areas we really think get into, I think, we'll get into over the course of this financial year.

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Operator [10]

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(Operator Instructions) We are showing 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 [11]

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All right. Well, thanks everyone for joining us on the call. If you do have any questions that come to you or want to discuss any aspects of Base further, please feel free to contact me or Kevin Balloch, our CFO; or James Fuller, our Manager of Communications and Investor Relations. And otherwise, we look seeing -- forward to seeing you in the -- back over in Europe. Thank you very much.