Base Resources moves Kwale Mineral Sands Project towards enhanced DFS

Oct. 26, 2010 - Base Resources has completed both the capital cost update on the original Definitive Feasibility Study (DFS) and the Process Design Review study evaluating improvement opportunities at the Kwale Project in Kenya, considered the first key milestone in its progression towards development.
This first phase of work towards an enhanced DFS (EDFS) concluded on schedule, resulting in a more refined view of the project.
There is now an improved long term price outlook with TZ Minerals International (TZMI) increasing their price forecasts for ilmenite, rutile and zircon.
The scope of works for the EDFS were established with the definition of improvement initiatives and are due for delivery in Q2 2011.
The Kwale Project now projected to be larger and more robust with a capital cost of between US$225 million and $255 million and a NPV10 of between US$160 million and US$210 million.
The completion of the acquisition of the world-class Kwale Mineral Sands Project on August 2nd from Vaaldiam Mining Inc., followed an extensive due diligence exercise, the securing of Government of Kenya consent and completion of an $8 million capital raising.
Tim Carstens, managing director, said "we now have a considerably clearer view of the shape of the project as it is likely to emerge from the enhanced DFS process which, together with a predicted increase in long term price forecasts published by respected industry experts TZMI, reinforces our belief that we are in the right sector with the right project at the right time."
"The acquisition of the Kwale Project was motivated by the view that it represents a "world class" advanced project that is well positioned to take advantage of a sustained opportunity in the mineral sands market."
"This view has been reinforced by the latest long term price forecasts published by TZMI. Following a review of projected industry supply/demand balances, TZMI are now forecasting long term real prices for sulphate ilmenite, rutile and zircon of US$130/tonne, US$715/tonne and US$1,300/tonne respectively from 2015," Carstens said.
In May, Base advised an initial estimate of capital development cost for the Kwale Project of US$180 million, generating a post tax operating surplus of US$570 million, representing an NPV10 of US$136 million and an IRR of 28%.
This initial estimate was based on the due diligence review of the 2006 DFS completed by the project's prior owners, Vaaldiam Mining.
On completion of the acquisition in July, Base initiated a comprehensive re-estimate of the capital cost for the original DFS and a Process Design Review study.
The purpose of these exercises was to provide the basis, scope and a refined estimate of the outcome of the EDFS.
The capital cost re-estimate has been undertaken by Ausenco, the authors of the original DFS, and incorporates several changes in approach from the original DFS, including a decision to owner operate the mobile fleet and the adoption of more conservative approaches to procurement and costing.
The Process Design Review study has identified and evaluated to scoping study level a suite of design and concept changes that will improve the project in terms of enhanced returns and risk profile.
On the basis of the current TZMI price forecasts, the capital cost update and the Process Design Review, the capital development cost and economic returns from the Kwale Project have been updated and are now projected to be within the following ranges:
"We now regard Kwale as an even more attractive project in terms of potential returns, albeit with a greater capital investment required to unlock those returns," Carstens said.
"It is also a more robust project. Considerably more work has now been completed in relation to key components such as the raw water supply, grid power supply and process simplification in the mineral separation plant, including significant confirmatory metallurgical test work."
"It is important to point out that the above capital cost estimate range also includes an additional US$20 million in project contingency and a more conservative approach to input pricing than adopted in the original DFS."
With the results of the Process Design review having established the scope, work has commenced on the EDFS with completion targeted in the 2nd quarter of 2011.
The drilling program to better define lithology, grade and assemblage within the dunes for detailed mine planning and process design confirmation is underway.
This will also form the basis of an updated mineral resource estimate due in the 1st quarter of 2011. The project economics set out above are based on the JORC-compliant mineral resource estimate as previously reported by Vaaldiam.
Carstens said that on the financing front, encouraging progress has been made in securing both off-take commitments and the required development funding.
"Discussions are underway with potential off-take and joint venture partners. RFC Corporate Finance has been mandated to arrange the development financing package and discussions are advancing with a number of interested parties."
"Our objective is to have studies completed, offtake arrangements concluded and development funding in place by the 3rd quarter of 2011. On this basis we reasonably expect the Kwale Project to be in production in mid-2013," Carstens said.
The Project enjoys a high level of support from the Government of Kenya as well as the local community and, located just 50km from Mombasa, Kenya's principal port facility, is well serviced by existing physical infrastructure.
Importantly, two pilot plant operations at Kwale provide confidence in processing behavior and indicate a suite of readily marketable products. The Project's high value mineral assemblage and low stripping ratio result in a projected revenue to cash cost ratio that would place Kwale in the top quartile of world producers.
An updated and enhanced DFS is underway and will be completed in the June quarter of 2011 with a view to completing off-take and financing arrangements in the 3rd quarter of 2011. A realistic development time line should see the Kwale Project in production in 2013.