Base sinks into Sh1.6bn loss on rising operating costs

Kwale-based miner Base Resources sunk deeper into losses in the financial year ended June despite a leap in sales.

The mining firm reported an after-tax loss of Sh1.6 billion for its second year of exports, higher than the Sh1.25 billion loss posted last year following a spike in operating and financing costs.

In the past year, Base exported more than 471,000 tonnes of products from Kwale resulting in revenues of Sh14.5 billion compared to Sh2.9 billion in the year ended June 2014.

The company spent Sh6.4 billion in operations up from Sh1.5 billion the previous year. The management noted the mines were efficient compared to peers and were set to improve in future.

“With an achieved revenue to cost of sales ratio of 2:1, Base is well positioned in the upper quarter of mineral sands industry producers,” said the mining company in its annual report. It expects production efficiency to improve in 2016 as the proportion of high value products – rutile and zircon—rise in the sales mix.

The company produces ilmenite, rutile and zircon from the Kwale mines. Ilmenite production in the year rose to 427,655 tonnes from 165,352 tonnes, while rutile production increased to 71,537 tonnes from 24,216 tonnes. Zircon production rose to 22,416 tonnes from only 4,486 tonnes a year earlier.

Accumulated losses for the mining company which started operations in 2011 now stand at Sh42.3 billion.

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Base disclosed it had appointed Wogen Pacific Ltd as its exclusive distributor for ilmenite in China at the start of 2015, which is expected to drive up its sales.

“This has provided Base with options to store ilmenite in China for internal distribution and has further assisted service levels, communication and relationships with Chinese customers,” said Base Resources.

The company spent Sh2.9 billion in financing costs up from Sh440 million last year after taking more debt from one of its shareholders.

Base Resources lenders agreed to reschedule the debt facility with the company from end of September to year end saving the company from being declared insolvent.

“Failure to achieve project completion by this date (September 30) would, unless waived or extended further by the lenders, trigger an event of default under the facility,” reads the annual report.

Base Resources paid royalties of Sh1 billion during the year up from Sh180 million in 2014. Base Resource management said Rutile prices had gradually reduced during the 2015 financial year and the pricing pressure was expected to remain until at least mid-2016. The company expects the price of Zircon to remain stable.

Zircon has a range of end-uses, the largest of which is in ceramic tiles, which accounts for more than 50 per cent of global zircon consumption.

The project is expected to produce 330,000 tonnes of ilmenite a year, 80,000 tonnes of rutile and 30,000 tonnes of zircon between the next 11 to 14 years.