Exploration Tenure22 Jun 2016 14:05
Base Resources has announced it has been granted exploration tenure over a significantly expanded land area surrounding the Kwale Mineral Sands Project in Kenya, and that it expects to commence an aircore drilling programme of up to 18,000m over the acreage in the September 2016 quarter. The company’s expanded licence EPL 173 now covers an area of 177km2 (from 56km2), and the company has applied for an additional EPL covering a 136km2 area extending south-west from EPL 173 towards the Tanzanian border. This application is currently advancing through the granting process, having been approved by the Ministry of Mines’ licensing committee, and would increase the company’s footprint in the south-eastern tip of Kenya to over 300km2.
The proposed exploration drilling comes on the back of a 2015 airborne geophysics programme covering the south coast of Kenya between Mombasa and the Tanzanian border. The multiple exploration targets identified by the programme were subsequently confirmed through ground reconnaissance.
COMMENT: As highlighted by the company, the Kwale Project is now at steady-state following production start-up in December 2013, with 22.2Mt of material having been mined to date. We expect mining of the high-grade Central Dune to continue for an estimated 4.5 years, aligning with the project debt repayment schedule, before operations transfer to the South Dune post-2020. (We expect annual nameplate production from the South Dune to be in the region of 250,000t of ilmenite, 55,000t of rutile and 20,000t of zircon vs. 440,000t ilmenite, 80,000t rutile and 30,000t zircon from the Central Dune).
The bolt-on of the new acreage and the planned resumption of exploration drilling indicate that, with Kwale ramp-up completed and operational targets being achieved, the company is now looking to refocus on value accretion through life-of-mine extension.
Base’s strong performance over recent months should be underlined (the share price has risen by 260% in the last six months), and comes with a backdrop of improving sentiment in the mineral sands space. On the demand-side, we understand this is being driven by improving prices for titanium dioxide pigment end-products. TiO2 prices have already risen six times in China this year, precipitated by low inventory levels and a healthier construction market. International pigment producers such as Huntsman have also heralded price increases to more sustainable levels, anticipated in 2H16. Due to the tendency for feedstock pricing movements to lag their end markets, the expected resulting improvement in heavy mineral markets is likely to be predominantly manifested in CY17.
On the supply side, the suspension of operations at Iluka’s Jacinth Ambrosa mine, the largest single source of zircon, for a planned 18-24-month period from mid-April, as well as the cessation of the company’s ilmenite-rutile Virginia operations, has helped to rebalance market dynamics. Further
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