Operations Update

Record rutile and zircon production was achieved this quarter and further strengthening of rutile and zircon prices were seen. Following commissioning of the Kwale Phase 2 Project, design mining and concentrator throughputs are now being consistently achieved. Another good safety performance with no lost time injuries (“LTI”) brings the consecutive LTI free months to 55.

September 2018 Quarter Highlights
Key Indicator Unit Q2 2018 Q3 2018 Variance
Mining:
Ore Mined tonnes 3,543,430 4,791,919 35%
Ore Grade % HMC 6.36 4.78
Processing:
HMC Produced tonnes 192,559 199,079 3%
HMC Treated tonnes 192,375 194,311 1%
Ilmenite Recovery % 100 101
Rutile Recovery % 100 99
Zircon Recovery % 78 79
Ilmenite Produced tonnes 114,850 118,265 3%
Rutile Produced tonnes 24,453 25,125 3%
Zircon Produced tonnes 9,287 9,683 4%
Zircon Low Grade Produced* tonnes - - -
Shipments:
Ilmenite Shipped tonnes 107,170 107,632
Rutile Shipped tonnes 25,653 23,580
Zircon Shipped tonnes 9,007 8,973
Zircon Low Grade Shipped* tonnes - -

*Zircon low grade tonnes contained in concentrate equivalent to 70-80% of the value of primary zircon.

Mining continued in the Central Dune with three hydraulic mining units now fully commissioned. Consequently, mined tonnage and concentrator throughput rose by 35%. However, with the ore grade dropping as expected as mining progressed through blocks located on the fringes of the dune, heavy mineral concentrate production increased by only 3% over the previous quarter.

Construction of the tailings storage facility outer sand wall was completed this quarter and the facility now has sufficient capacity to accommodate slimes impoundment for the remainder of the current life of mine. All sand tails are now being deposited in the mined-out Central Dune area representing the first stage of rehabilitation in this section.

Good rains continued throughout the quarter resulting in the Mukurumudzi Dam remaining full.

At an availability of 97% the minerals separation plant (“MSP”) treated 194,311 tonnes of heavy mineral concentrate resulting in record rutile production of 25,125 tonnes, 3% up on the previous record achieved in the prior quarter, while the recovery fell by 1% to 99%.

Ilmenite production, at a recovery of 101%, was 118,265 tonnes, 3% higher that of the prior quarter.

Zircon production peaked at 9,683 tonnes at an improved recovery of 79%, also a record.

The global titanium dioxide pigment industry remained firm. Ilmenite prices were stable and are expected to continue at current levels through Q4 2018.

Supply constraints in the rutile sector, together with demand strength, again supported upward pricing momentum and further gains are expected through the upcoming quarters.

Zircon demand continued to be strong and exceeding the Company’s capacity to supply. While ongoing tight supply from major zircon producers has supported a series of substantial price increases, the current economic uncertainties are leading to more modest price increments for Q4 2018.

Bulk loading operations at the Likoni Port facility ran smoothly, dispatching 128,000 tonnes of ilmenite and rutile during the quarter. Containerised shipments of rutile and zircon through the Port of Mombasa continued according to plan.

Mining Transition to the South Dune

Engineering work, procurement, vegetation clearing and earthworks for the planned transition of mining from the Central Dune to the South Dune in July 2019 are in progress with orders placed for all major items of equipment. The total cost of works for the mine move is estimated at US$12.3 million. The project primarily involves the supply and installation of additional slurry and water piping, an 11kV power line, a bridge across the Mukurumudzi Dam spillway and slurry and process water booster pumps.

Exploration Update

Mining tenure is being progressed with the Ministry of Petroleum and Mining ahead of an updated Ore Reserve based on the expanded 2017 Kwale South Dune Mineral Resource as announced on 4th October 2017.

Extensional exploration drilling in the North-East Sector (Kwale East) of the Special Prospecting License (“SPL”) 173, adjacent to the Central Dune, commenced in Q2 2018 with 274 holes for 3,835 metres of drilling completed. Completion of the remaining drilling programme in this area (4,200 metres) is suspended pending resolution of community access issues. Drill assay results to date have shown potential for some limited extensional economic resource close to the Central Dune (Bumamani), but remains subject to a more detailed evaluation.

Motivated by an improved economic environment and operational experience, re-evaluation of the higher-grade areas of the North Dune is being undertaken. This includes infill drilling, which is now complete, with 573 holes for 20,598 metres drilled. Drill assay results are expected in Q4 2018 and an updated Mineral Resource estimate for the North Dune during Q1 2019.

The Company’s Vanga SPL application has been recommended for grant by the Mineral Rights Board and is awaiting issuance. Once received, the planned drilling programme is scheduled to commence in Q1 2019.

Following expiry of Kwale SPL 173 in May 2018, a new Prospecting Licence (PL 2018/0119) has been approved under the Mining Act 2016 for the area surrounding the Kwale operations.

Extensional exploration drilling at Kwale Operations

 Extensional exploration drilling at Kwale Operations

Download the full quarterly activities report: Base Resources Quarterly Activities Report - September 2018