Base Resources promises much if Toliara plan succeeds (BSE)

By Patricia Miller


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Since hitting a January 2016 low of 1.56p, shares in $282 million, Africa-focused mineral sands producer Base Resources (LSE:BSE) have surged 733% to 13p. Here, we look at whether the ambitious plans in place for the firm’s projects in Kenya and Madagascar could see this positive momentum continue far into the future.


The first of Base’s two major projects is its 100%-owned Kwale Operation. Located 30 miles south of Mombasa, Kwale is Kenya’s largest mine and entered production in late 2013 following Base’s acquisition in 2010.

Across the 2018 financial year, Kwale produced 590,000 tonnes of ilmenite, rutile and zircon. Ilmenite, like rutile, is an ore of titanium, a metal used in high-performance alloys. Zircon is the primary ore of zirconium metal.  When processed, these three minerals are most commonly used commercially as whitening agents in toothpaste, as pigment for paints and ceramic glazing, and as adhesives and polishing abrasives. 

According to its original feasibility study, Base found the Kwale project to have a mine life of approximately 13 years, putting the mine’s close date at around 2026. However, it is worth noting that the company has also said an exploration project to potentially extend Kwale’s useful life is “well underway”. 

Base’s second major project is found in south-west Madagascar. Toliara Sands is slated as the country’s third-largest mining project , and – on the face of it – appears to be a great potential source of ilmenite, zircon and rutile. Crucially, its 33-year potential mine life would extend Base’s profitability well into the future. 

The financials

In terms of a profitable investment, Base has really come into its own throughout the last three years.

From a 2015 revenue of $145.5 million and a 2016 revenue of $169.4 million it produced after tax losses of $15.9 million and $20.8 million respectively. However, since then, the company’s financial health has improved considerably. In 2017, it generated after tax profit of $15.8 million from $162.4 million revenue, while post-tax profits more than doubled the following year to $33.9 million from $198.8 million revenue. Finally, in 2019, the organisation produced £39.1 million in post-tax profits from revenues of $209.4 million. At last count, Base was producing adjusted earnings per share of 3.39c

Alongside these improvements, Base’s share price started to swing upwards in May 2016, closing the year 268% higher at 11.5p. Since then, it has retraced from a March 2017 high of 19.9p to 13p.

One point to note is that over the five years of reports, intangible assets have skyrocketed from $1.4 million in 2015 to $115.8 million in 2019. This is a point on which potential investors may want further clarification.

Toliara Sands controversy

In a 21 January 2020 update, Base said initial assays for Toliara across 2018 and 2019 had shown “material heavy mineral intercepts, particularly in the lower sand unit to the west of the current Ranobe Ore Reserves”. Alongside this, it said the ilmenite, rutile and zircon minerals appeared “to be of saleable quality”. 

Large deposits of mineral sands have been identified in Toliara as far back as 1991, and previous studies have shown a potential high-grade resource of 857 million tonnes at 6.2% heavy minerals. Base, meanwhile, has said that Toliara could produce 600,000 tonnes of ilmenite every year, along with 65,000 tonnes of zircon. Elsewhere, from a regulatory perspective, the Malagasy government issued a mining license to Base in 2012 and an environmental permit to operate in 2016.

The original plan was to put Toliara into operation in H2 2021. However, this deadline has repeatedly been hampered by reports of fierce local opposition to the project stemming from environmental concerns.

Things came to a head here in November 2019 when the local government suspended activities at Base Toliara indefinitely. A local paper said officials: “cited friction between the project and local communities and a ‘lack of clarity’ about its potential benefits for the government and the country as a reason for its decision.” 

Base called the decision “disappointing”, adding that it had considered local opposition to Toliara Sands to be a thing of the past. James Fuller, a spokesperson for the organisation, added:

“While there were some early community protests, these have dissipated with an extensive communication program better explaining the project and the opportunity it represents. The few more localised events have represented illegal actions by a small minority that were dealt with by the Malagasy legal system.”


Despite this local opposition, there remain numerous points that could make Base a fruitful investment. The most notable among these are the firm’s profitability, the Toliara Sands project’s long lifespan, and Base’s recent claim that “market conditions continue to support strengthening rutile and ilmenite prices”.

While bearing these points in mind, the variable operating cost of production and sales of rutile, ilmenite and zircon is something investors will have to look at closely. A 23 January 2020 update showed total costs per tonne falling from $173 in the three months to September 2019, to $140 in the three months to December 2019. Against this, revenue per tonne of product sold fell from $469 to $355 over the same period. 

Base appears to be making headway in communicating the financial benefits that the Toliara Sands project will bring to the local area to both government officials and the local community about. However, at the time of writing, work had not yet restarted on construction and significant delays to the asset’s opening date could impact the firm’s share price. 

With environmental awareness nearing an all-time high worldwide, especially with climate change growing on nations’ political and social agendas, Base’s outreach in Madagascar will have to be exceptionally strong and particularly sensitive to local needs. 

Although Base is ramping up its Kwale mineral sands operation in Kenya, it is clear that Toliara represents the largest opportunity here. As Base says, the Madagascar project has the potential to be a truly “world class” operation. 


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Author: Patricia Miller

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

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