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Emerging Companies: Base Resources Ltd (ASX: BSE)


Published 24-JAN-2014 00:00 A.M.


2 minute read

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Overview: Base Resources Limited ("BSE", the Company") is a mining Company focused on mineral sands in Kenya. Its primary asset is the Kwale Project, located 50km SW of Mombasa, Kenya’s principal port facility. Following its acquisition by BSE in August 2010, Proved and Probable reserves totalling 140.6million tonnes (mt) have been delineated for an 18-year mine life, and the Company has invested US$292m developing mine and processing infrastructure.

Catalysts: After mining and processing commenced in late 2013, maiden cash flow looms pending first bulk shipments. A $25million extension of BSE’s existing debt facilities has reduced working capital risks as production scales up. Leading market participants are suggesting a demand recovery in 2014.

Hurdles: Whilst mining has commenced, BSE still needs to overcome commissioning risks. The Company is fully geared and yet to demonstrate a cash flow profile. Income is subject to titanium feedstock and zircon prices which have contracted ~ 50 percent yoy. Whilst Kwale is presently exempt from Local Equity Participation Regulations introduced in 2012, BSE remains subject to sovereign risks as the Kenyan Government seeks to increase its mining industry interests.

Investment View: We are attracted to Kwale’s imminent cash flow profile, long reserve life, and BSE’s institutionally dominated share register. With recent falls in mineral sand prices offering a countercyclical entry point, the commissioning process and regulatory regime are primary risks. We expect elections completed during 2013 to offer a platform for BSE to strategically address its sovereign risk profile. Whilst rapidly advancing Kwale, the Company has demonstrated strong local foundations to date, With pending shipments to illustrate its operating credentials, we initiate coverage with a ‘speculative buy’ recommendation.


General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

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The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.

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