The company has emerged from a tough year of titanium minerals and zircon oversupply and low product pricing with profits growing and debt reduction continuing apace on the back of sector-leading margins, an aggressive 2017 exploration programme starting, and corporate growth options on the table.

With its 100%-owned Kwale asset in Kenya on target to produce up to 480,000 tonnes of ilmenite (circa 30% of revenue), 93,000t of rutile (50% revenue), and 37,000t of zircon (20%), Base continues to optimise its operations as it prepares to deliver a final phase two mine plan in the next quarter. After successfully introducing hydraulic mining to more efficiently handle thinner, lower grade perimeter ore blocks over the past six months, the company is determining the best future tonnage split between the dozer trap mining units (DMU) extracting higher grade zones, and hydraulic mining units (HMU), as it shifts from Kwale’s Central Dune reserves to the lower (average) grade South Dune area. The aim is to continue to increase mining rates as grades decline to maintain high concentrate production levels.

“The Kwale Phase 2 project is our plan for optimised mining of South Dune, which is aimed at enabling us to maintain our current high production levels for longer,” Base managing director Tim Carstens says.

“And implications of that will be probably shortening the mine life by 12-18 months, which means still mine everything [in reserves], but stripping out fixed costs by doing it faster.

“The way the mine is currently configured mining and concentrating were going to become constraints as grades declined and we had to ramp up mining rates to produce the same level of concentrate. But we can deconstrain the mine by adding another couple of HMUs rather than buying a whole new DMU. The HMUs have been shown to be the most efficient way to mine the ore we’re going to be moving into.”

Base has also been ramping up exploration over the past few months to extend the remaining eight-year mine life at Kwale with a three-pronged strategy to add value to the existing asset base playing out.

Drilling to the north and south of existing resources is continuing after an extensive airborne geophysics survey identified new areas of interest and all approvals were secured. Base is also moving through the government permitting process to put its foot on a prospective 136sq.km area extending south-west from Kwale to the Tanzanian border. And it now has prospecting licences covering 456sq.km in the north-east corner of Tanzania and expects to begin a maiden drilling programme by June.

“It’s all [including Tanzania ground] within about 100km of Kwale,” Carstens (pictured left) said. On the Tanzania licences, he says: “We think there is some pretty good potential and it’s within the economic footprint of our current operation.

“In terms of value drivers exploration success will have a big impact for us. If we can add another five years to that [current life-of-mine], it changes the picture.”

Drilling results should start to flow this quarter.

Other key value drivers for Base are HMS prices and its strengthening balance sheet.

Carstens says ilmenite pricing around US$140/t (latest shipment) marks a return to something like “normal relativity” with rutile, though the higher-grade product is still stuck in a low range around $750/t. Zircon prices remain constrained by the global supply glut. But with significant new supply a long way off for both minerals, it’s generally felt prices can only go one way from here.

“Demand remains nice and consistent and what we’ve seen, particularly for rutile and ilmenite, is that all of the inventory built up in the system is gone,” Carstens says.

“So now there is a more primary relationship between supply and demand. And particularly for ilmenite we’re now seeing that in order to meet current demand a lot of the sidelined supply that fell out on the way down has to come back in because there is just not enough material.

“We expect to see that tightness in supply continuing over 2017 and until significant new supply is brought online through development of a new asset, which is not going to happen for another 3-4 years. And we’re expecting to see that tightness in rutile supply translate into price improvement, probably from this quarter.”

The market and pricing scenario improves Base’s hand in two ways.

First, its search for new development assets in favoured Africa, which has seen it review more than 40 opportunities, has been narrowed to a handful of standouts where the value-add from Base’s market position and project delivery credentials can be properly recognised in any transaction. That track record of delivery – including bringing Kwale on line moreorless on schedule and within budget, and moving to cash-flow positive status within three months – has continued with Base’s operational optimisation and a safety record that stacks up next to any mine in the world.

Owners of undeveloped assets generally face unresponsive financial markets given the early stage of market recovery and the fact that most of them are ilmenite-rich (needing prices above $200/t of ilmenite to clear return hurdles), with available assets tending to be priced accordingly.

“Africa is where we have a model that we’ve demonstrated works very well and where our centre of gravity is,” Carstens says.

“And it’s where a number of the interesting mineral sands assets are in the world right now.

“If the right opportunity comes together in a way that makes sense for our shareholders, we’re absolutely ready to take on another asset and expand our business. Certainly the board and shareholders are supportive [of the right acquisition], and the team is ready for the next challenge.”

Base’s strong operational cash flows have also enabled it to rapidly pay down debt while maintaining an enviable earnings profile (FY16 EBITDA of A$60 million at lower ilmenite prices). It eliminated a further US$18.1 million in the December quarter to take net debt to $129.5 million (down from $225 million two years ago) and now has the $100 million mark in clear view.

“The $100 million I think is psychologically, more for the market than anyone here, kind of a magic number. It is seen as … kind of what you’re going to be producing next year in EBITDA, the debt is covered, sort of scenario. So it ceases to be an issue.

“But it has been a big issue for Base. No one doubted we made plenty of money but did we make enough to service what was US$225 million in debt? So we’ve been trading at a massive discount and at one stage last year we were effectively priced to fail.

“Now we’ve come out of the downturn in better shape than most of our peers and the picture has changed. We have always been one of the top couple of mineral sands operations in the world for cash generation. Even in the darkest days of the market our revenue to cash cost ratio was about 2:1. It is now 2.5.

“With what we think will be continuing price improvement over the next couple of quarters, when we will see further significant roll-down in our debt, Base is positioned to lead the way and show investors the sector is back, is a good profitable sector to be in, and one with emerging opportunities

“I don’t think the market has yet got hold of the magnitude, or the implications, of all that.”