ASX/AIM-listed junior Base Resources is looking to build a long and prosperous future through the development and operation of its US$595 million Madagascar-based mineral sands Toliara Project.
With a substantial resource, and quality grades, it has the potential to far exceed the successes the company has achieved at its Kwale mine in Kenya, MD TIM CARSTENS tells LAURA CORNISH.
Base Resources’ ability to secure a quality asset, develop and operate it while assisting local government to better understand how best to regulate its mining sector has been proven countless times over at its Kwale mineral sands operation.
Since operational start-up in 2014, Kwale has delivered on its operational commitments, in spite of commodity price movements and typical day-to-day challenges.
“Having secured Toliara in January 2018, a project which took two attempts to successfully acquire, we will take the lessons learnt and success parameters achieved at Kwale and apply them to the development of our new project – an enormous benefit considering both deposits share many technical parallels,” Carstens starts.
Impressively, the 100% owned Toliara has a confirmed high-grade mineral resource of 1.3 Bt at a 5.1% heavy mineral (HM) grade, including 790 Mt at 5.8% HM (mineral sands) in the measured and indicated categories, sufficient to support a 33-year mine life. Already, the company intends to expand the mine in its fourth year of operation.
“Not only is Base Resources looking to build prosperous future through the development and operation of its US$595 million Toliara mineral sands project resource nearly ten times the amount contained at Kwale (180 Mt) when we started mining, ongoing drilling on site is already showing that there is substantially more mineralisation in the ground.
“Our confidence in growing our resource moving forward is high and increasing our mine lifespan upwards of 50 years a very possible reality,” Carstens outlines.
The figures Carstens quotes is according to the Toliara definitive feasibility study (DFS), completed in December 2019, which further highlights:
- DFS outcomes consistent with PFS, with no material changes to any metrics;
- Post-tax / pre-debt (real) NPV at 10% discount rate of $652 million, measured at final investment decision;
- Average revenue to cost of sales ratio of 3.15;
- Stage 1 capex cost of $442 million – to establish a 13 Mtpa mining processing operation;
- Stage 2 capex cost of $69 million – to increase the operation to 19 Mtpa;
- Mineral separation plant recoveries of 94.6% ilmenite, 79.4% zircon and 58.4% rutile;
- Annual averages (excluding first and last partial operating years):
- Production of 780 000 t ilmenite (sulphate, slag and chloride), 53 000 t zircon and7 000 t rutile;
- Revenue of $248.2 million – 65% ilmenite, 32% zircon and 3% rutile;
- Operating costs of $71.9 million or $76.9 million including 2% government royalty;
- Non-operating costs of $7.1 million (community, external affairs, marketing etc.);
- EBITDA of $164.3 million; and
- Free cash flow of $132.4 million.
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“It’s clear to see just how central the Toliara Base Resources is looking to build prosperous future through the development and operation of its US$595 million Toliara mineral sands project is for the company.
“Considering mining at Kwale could wind down at the end of 2022 unless extensions are granted, we view this project as our future and the start of building a bigger portfolio thereafter,” he continues.
Strategically, Base Resources is already working to ensure it does not convert back to a single asset, single jurisdiction company – meaning another acquisition is probable in the next few years.
Jumping hurdles but commitment unchanged
As is generally the case with any mining project development in a territory that does not have a well-developed or more mature mining industry, Madagascar is undergoing some teething problems in allowing Toliara to advance.
“Despite a few encountered speed bumps, Base Resources remains 100% committed to this project,” Carstens confirms.
In November 2019, the government required the company to temporarily suspend on-the-ground activity at Toliara while discussions on fiscal terms applying to the project were undertaken.
Discussions to date have been positive but unfortunately have been temporarily halted due to the government’s focus on and implementation of COVID-19 measures, including closing all ministries and public departments except for justice, security and health.
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Coupled with community unrest and vandalism attacks at both the Toliara camp and nearby local villages – all of which has been resolved – a final investment decision (FID) on developing the project will be delayed beyond the original 30 September 2020 target.
“With the effective shutdown of government, international travel restrictions and broader COVID-19 measures and impacts both in Madagascar and globally, we can at this time only commit to providing a formal guidance on a revised FID date when we have greater clarity on the trajectory of resumption of global economic activity,” Carstens notes.
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The government needs to fundamentally understand the economics of the project. “Our DFS however, has clarified Toliara’s economic stimulus and how the country will benefit from its production onset.
“There is also an exercise underway looking at potential broad changes to the mining code with sound advice and input being provided by the World Bank. Considering the low 2% royalty rate in the country, we are comfortable should government consider increasing this.”
The way forward
While certain key activities off site will continue moving forward, the MD outlines three critical factors that need to take place in order to move the project to FID status.
This includes government lifting its suspension of activities on site, the ability to travel to and from site and understanding how the banking sector will emerge from the COVID-19 crisis and what its lending appetite will be. “When we have clarity on these areas we’ll have a more definitive time line to present to the market,” Carstens confirms.
The company will also require about nine months of preparation from this point to provide an FID. “I can at this stage confirm that our construction period has a two-year timeframe. Commissioning should start in month 21 and first product should leave the port about six months later.”
Key activities planned for the coming months for Toliara include:
- Resource planning, schedule and budget reviews in relation to the delays caused by the COVID-19 pandemic;
- Continuation of FEED activities including:
- Completion of work on tails pumping and metallurgical changes;
- Completion of design criteria documents, basis of design, equipment lists and specifications.
- Continued development of the Toliara project’s environmental and social management system;
- Subject to the lifting of the government suspension and COVID-19 travel bans, re-establishing on-site activities, including:
- Environmental baseline studies and monitoring programs;
- Land acquisition and resettlement programs;
- Training programmes for local people ahead of planned construction;
- Borehole drilling and additional geotechnical investigations (on and offshore) at the export facility, bridge and road to optimise designs;
- Quarry material investigations;
- Submission of outstanding drill samples for assay; and
- Community programmes including relocation of tombs, resuming construction of schools and medical facilities; installation of solar pumping equipment into community boreholes, social economic baseline studies, human rights and health impact assessments.
Engaging with the community vital
Because the communities within the Toliara region are uneducated in their expectations regarding the potential new mine, Base Resources has made significant effort with educating, assisting and informing them to ensure the security of a social licence to operate.
Consultation programmes have commenced to improve information sharing, and bring communities and other stakeholders closer to the Toliara project.
“We also want to give back to the community, especially during this COVID-19 period – and are looking to deliver on a smaller scale what we have given to our Kwale communities – donating PPE and financing the implementation of 100 ventilators as part of a government initiative to bring in 200 into the country.
“It is important that through our efforts our communities see us as a respected contributor towards their long-term livelihood,” Carstens concludes.