Shares in Base Resources (BSE) are down since we covered its full-year results last summer. On the surface, this seems mystifying. In the six months to December, the group’s high-margin mineral sands operation at Kwale in Kenya generated A$73.5m (£41.1m) of operating cash flow, which was enough to simultaneously retire A$51.7m of debt and fund an expensive mine optimisation programme. Net assets are 8 per cent to the good. Zircon prices were strong, and are forecast to increase in 2018, while the titanium dioxide feedstock market is expected to remain in a structural supply deficit.
If anything, the situation appears to have improved since the period end. Base successfully raised A$97m to fund the acquisition of the Toliara Sands project in Madagascar, including hefty subscriptions from the board and senior management team. In one fell swoop, Base has created a stepping stone to its next source of high-margin cash generation, with one significant caveat: Toliara is not forecast to enter production until mid-2021.
This might explain any dip in sentiment, if indeed this is what the shares reflect. On its current output trajectory, and assuming nothing from ongoing exploration work, Kwale’s ore reserves will be fully depleted by November 2022, heightening the reliance on free cash flow and a swift deleveraging. Broker Numis thinks Kwale can generate A$298m of the former over the next three calendar years, and forecasts pre-tax profit of A$59.1m and EPS of 6¢ for the year to June 2018.
| BASE RESOURCES (BSE) | ||||
| ORD PRICE: | 14.65p | MARKET VALUE: | £165m | |
| TOUCH: | 14.3-15p | 12-MONTH HIGH: | 21p | LOW: 14p |
| DIVIDEND YIELD: | nil | PE RATIO: | 5 | |
| NET ASSET VALUE: | 22.5¢ | NET DEBT: | 33% | |
| Half-year to 31 Dec | Turnover (A$m) | Pre-tax profit (A$m) | Earnings per share (¢) | Dividend per share (¢) |
| 2016 | 90.6 | 3.8 | 0.52 | nil |
| 2017 | 116 | 27.4 | 2.89 | nil |
| % change | +28 | +614 | +456 | - |
| Ex-div: | na | |||
| Payment: | na | |||
| £1=A$1.79 | ||||
