6 1 0 2 T R O P E R L A U N N A D E T I M I L S E C R U O S E R E S A B Positioned for growth Contents 02 04 Highlights Chairman’s letter 06 Operation summary 10 16 17 Sustainability in practice Business development Corporate and finance 18 19 20 Marketing and sales Mineral sands market outlook Resources and reserves 22 Corporate directory 23 Consolidated financial statements Forward looking statements Certain statements made in or in connection with this Annual Report contain or comprise forward-looking statements, including but not limited to statements regarding capital cost, capacity, future production and grades, sales projections and financial performance of the Kwale Operations, estimated mineral resources and ore reserves, trends in commodity prices and currency exchange rates, demand for commodities (in particular mineral sands), plans, strategies and objectives of management, operating costs, anticipated production life of the Kwale Project, provisions and contingent liabilities and tax and regulatory developments. Forward-looking statements can be identified by the use of terminology such as “intend”, “aim”, “project”, “anticipate”, “estimate”, “plan”, “believe”, “expect”, “may”, “should”, “will”, “continue” or similar words. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that are beyond Base Resources’ control. No assurance or guarantee can be given that such forward-looking statements will prove to be correct. Results or outcomes could differ materially from those expressed or implied by the forward-looking statements as a result of, among other factors, changes in economic and market conditions, success of business and operating initiatives and strategies, changes in the regulatory environment and other government actions, fluctuations in product prices and exchange rates and business and operational risk management. Except as required by applicable regulations or by law, Base Resources does not undertake to publicly update, review or release any revisions to these forward- looking statements to reflect new information or future events or circumstances. Base Resources Limited Annual Report 2016 Base Resources’ (ASX & AIM: BSE) successful development of the Kwale Mineral Sands Project in southern Kenya and growing track record of operational, safety and community development achievements, provides a solid foundation to grow a contemporary mid-tier resources company. With production volumes exceeding design targets and an enviable position in the market secured, Base Resources is well positioned to capitalise on a market showing positive signs and renewed investor interest in the sector. The recent granting of exploration tenure and the imminent commencement of drilling on identified targets presents exciting potential to extend the mine life of the Kwale Operations. Demonstrated development capability provides the basis to drive further shareholder value from acquisition opportunities. 01 Base Resources Limited ABN 88 125 546 910 Positioned for growth 02 Highlights Outstanding safety record maintained with zero lost-time injuries during the period US$105 per tonne sold Average cost of sales (operating costs and royalties) US$205 average sale price achieved per tonne delivering a revenue to cost of sales ratio of 2:1 Locked in substantial price increases Emerging tightness in TiO2 feedstock markets is allowing Base Resources to lock in substantial price increases for ilmenite for sales in the September 2016 quarter Rutile 85,654 tonnes Ilmenite 455,870 tonnes Zircon 31,389 tonnes Production of all products exceeding design and at the top end of guidance Rutile 85,536 tonnes Ilmenite 480,538 tonnes Zircon 33,062 tonnes Record sales volumes achieved for all products Base Resources Limited Annual Report 2016 03 s t h g i l h g i H Exploration tenure granted over significant land area covering previously identified targets surrounding the Kwale Operations Advancing to definitive stage Kwale Phase 2 project pre-feasibility study completed, with its focus being to optimise mining tonnages and methodology $78.6 million net cash generated from operating activities Net debt reduced by $41.0 million (US$36.2 million) to $204.2 million (US$151.5 million) Rescheduling of the Kwale Operations Debt Facility Completed in December 2015, establishing a repayment profile more appropriate to the prevailing commodity price environment $10 million capital raising Completed in March 2016, providing continuity and certainty of corporate funding and allow progression of Base’s strategic plan Positioned for growth 04 Chairman’s letter Dear Shareholders, The 2016 financial year has seen your company weather the storm of a challenging, low commodity price environment and emerge into an improving market in sound shape, well positioned to capitalise on opportunities. The past year, our second full year of operations, has seen production volumes at our Kwale Operations in Kenya exceed original project design across all three products. We have consistently achieved or exceeded plant design availabilities, concentrate production, mineral separation throughput and ilmenite, rutile and zircon recovery. This is testament to the quality of the resource, our plant and equipment and, most importantly, to the experience, quality and dedication of our operations team. With the operation now at steady state, our focus has turned to further enhancing throughputs in the mineral sands separation plant, which has driven a further material lift in our production guidance for the 2017 year. Strong cost discipline is firmly entrenched in the company, as illustrated by our annual cash operating costs per tonne of US$89/tonne, down from US$104/tonne in the prior year. While further improvements are challenging, we are continuing to seek innovative approaches to refine our operations, with the introduction of a hydro mining unit in recent months a good example. Most importantly, these results continue to be achieved with an uncompromising focus on the safety of our people and the operation. There were no lost time injuries during the past year and Total Recordable Injury Frequency was a low 1.42 cases per million hours worked. The Kwale Operation has not had a lost time injury since February 2014 and did not record a medically treated injury during the past two quarters. In a challenging market, Base Resources has exported just short of 600,000 tonnes of products from the Kwale Operation over the year, with shipments made to customers with existing offtake agreements, regular customers buying on a spot basis and some new spot customers buying Base Resources’ products for the first time. While all of our rutile and most zircon production is already contracted, our ilmenite marketing strategy into China has been highly successful with minimal inventory on hand at year end and with Base Resources being the single largest importer of ilmenite into China. Early in 2016, we had to deal with “force majeure” and contractual volume reduction notices from two key customers, indicative of the prevailing market at the time. However, as a consequence of our marketing relationships and reach, as well as the encouraging improvement in market conditions that started to emerge towards the end of the year, we were able to successfully place all of the affected volume. These significant achievements for the year are reflective of a highly capable, settled and engaged team throughout the organisation. We have been highly successful in establishing a Kenyan workforce at the Kwale Operation, with 96% of the team being Kenyan and 63% coming from our local community. Our structured training and skills development programme is also seeing progression in quality of jobs, with a further two Kenyan appointments to the management team this year. Base Resources’ local subsidiary, Base Titanium, has continued to enhance its strong track record of positive community engagement. Base Titanium, increasingly in partnership with various local and international development organisations, supports a wide range of programmes to address community-led priorities. In the past year, our programmes have been Base Resources Limited Annual Report 2016 05 r e t t e l s ’ n a m r i a h C particularly focussed on agricultural development, with a view to sustaining local communities’ economic potential and quality of life beyond the life of the Kwale Operations. The past year has seen additional financial support secured from new organisations, reflecting the quality, scope and potential of these agricultural programmes to drive regional socio- economic development. We continue to work closely, and enjoy positive relationships, with our host governments in Kenya, both at Kwale County and national level, supported by a common objective of establishing a healthy, vibrant mining sector. With the appointment of a new Cabinet Secretary for Mining in December 2015, Kenya has articulated bold aspirations for what has been a nascent mining industry, building on the success of Base Resources’ Kwale Operation. It is implementing a competitive and stable administrative and fiscal regime and is now actively seeking to directly engage with foreign mining companies and attract investment. While the 2016 financial year was a challenging one from a commodity price perspective, our success in driving production and managing costs has meant that Base Resources has still been able to generate an EBITDA of in excess of $60 million, and with a revenue to cash cost ratio of 2:1, placing the Company in the top few of the top quartile of mineral sands producers. This has also enabled us to reduce net debt by US$36 million to US$151 million. After three years of consistently declining prices for our products, we are now seeing strong signs of the ilmenite and rutile markets returning to balance with excess inventories having been substantially worked down. We have now seen prices for our ilmenite improve from the lows in the June quarter by around 80% for deliveries in November. With supply also tightening in the rutile market, we are encouraged by the outlook for 2017. The close of the 2016 financial year sees Base Resources in sound financial shape. We are generating significant cashflow with an improving market outlook. We are rapidly paying down debt with a repayment schedule well suited to the current environment following the successful rescheduling in December 2015. We are on a robust financial footing from which to grow the business. Our plan for growth involves, firstly, adding value to the current asset suite. In this respect, we have recently secured a significantly expanded exploration tenure around the Kwale Operations to take in some previously identified targets. Drilling of these targets in pursuit of mine life extensions is scheduled to commence in the near future. In addition, we are pursuing further ground within an economic radius of current operations. The “Kwale Phase 2” project, which seeks to optimise the Central and South dunes mining tonnage and methodology, and to increase concentrate production rates, is progressing through a Definitive Feasibility Study to be delivered in the June quarter of 2017. Looking beyond Kwale, we see opportunities to capitalise on our capabilities and positioning to create shareholder value through acquisition and discovery. With much work already done, we will continue to assess and progress these opportunities in a disciplined manner in the coming year. We are well positioned for growth. I wish to thank the Board, management and teams of Base Resources and Base Titanium, our suppliers, local communities and host governments for your support and commitment during the year. Finally, thank you to you our shareholders for your confidence and ongoing support. I am confident of a bright future for Base Resources. Keith Spence CHAIRMAN Positioned for growth 06 Operation summary KWALE OPERATIONS Base Resources Limited Annual Report 2016 07 y r a m m u s n o i t a r e p O Base Resources operates the 100% owned Kwale Operations in southern Kenya, which commenced production in late 2013. The Kwale Operations are located 10 kilometres inland from the coast and 50 kilometres south of Mombasa, the principal port facility for East Africa. Mining and Separation Process The current mining at the Kwale Operations are based on a conventional dozer trap mining unit (“DMU”), using Caterpillar D11T dozers to feed the DMU. The DMU is a cost effective method of mining and is particularly well suited to the type of ore at Kwale. During the period under review, mining activity continued in the high-grade regions of the Central Dune, close to the processing plant, except for three months mining lower grade perimeter blocks. The average ore grade mined was 8.3% heavy mineral (“HM”) for the year. Mining activities will remain focused on the Central Dune deposit for the next four years of the operation, before transitioning to the South Dune for the remainder of the mine life. The coming year will see the introduction of a second mining unit, a 400 tonnes per hour (“tph”) hydraulic mining unit (“HMU”). Operating dual mining units will enable concurrent mining of high-grade ore with the existing DMU and allow access to lower grade, thinner perimeter blocks more cost effectively utilising the HMU. The plants at the Kwale Operations are designed to process ore to recover three separate products – rutile, ilmenite and zircon. Ore is received at the wet concentrator plant (“WCP”) from the mining units via a slurry pipeline. The WCP removes slimes, concentrates the valuable heavy minerals (rutile, ilmenite and zircon) and rejects most of the non-valuable, lighter gangue minerals. The WCP incorporates a number of gravity separation steps using spiral concentrators. The heavy mineral concentrate (“HMC”), containing 90% heavy minerals, is then processed in the mineral separation plant (“MSP”). The MSP cleans and separates the rutile, ilmenite and zircon minerals and removes any remaining gangue. OPERATIONAL PERFORMANCE With the consistent achievement of design availabilities and throughputs in the WCP, and the high average grade of ore mined, HMC production of 734,431 tonnes was achieved in the reporting period. HMC production exceeded MSP consumption, allowing the continued building of a HMC stockpile to mitigate risk and optimise future production. At year end, the HMC stockpile was 139,364 tonnes. During the reporting period, 709,443 tonnes of HMC was fed into the MSP to produce 455,870 tonnes of ilmenite, 85,654 tonnes of rutile and 31,389 tonnes of zircon. The successful completion of a number of MSP upgrade projects, together with ongoing process optimisation, has yielded benefits in both throughput and downstream recoveries of rutile and zircon during the reporting period. Having achieved design recovery levels for all products, ongoing MSP optimisation is expected to yield sustained increases in feed rates above 90tph in the 2017 financial year. Ilmenite production continued at above design capacity due to the combination of Positioned for growth 08 Base Resources Limited Annual Report 2016 120% 100% 80% 60% 40% 20% 0% MSP Product Recovery % (LHS) & Feed Rate tph (RHS) Rutile including oversize re-treat ilmenite101% rutile 100% zircon 80% feed rate 89tph 2014 June 2015 June 2016 Design target achieved 09 y r a m m u s n o i t a r e p O 100 95 90 85 80 75 70 increased MSP feed rates and high recoveries. Following the installation of an additional MSP magnet stage in November 2015, ilmenite recovery reduced from a pre-upgrade average of 110% to an average of 102%* for the remainder of the year, still exceeding design. The additional magnet stage had the effect of removing rutile from ilmenite product and creating a high chrome stream, which is now rejected to enhance product quality. Ilmenite production continues to benefit from the proportionally higher ilmenite content (but lower rutile content) of the high grade ore in the Central Dune, a feature of the Kwale deposit. Rutile production exceeded the 80,000 tonnes per annum design target for the first time in the reporting period, thanks to the higher MSP feed rates and ongoing optimisation of recoveries, aided by the MSP upgrade projects. Average rutile recovery for the reporting period was 99%, surpassing design expectations. Zircon production continued its steady improvement throughout the reporting period, in line with the planned ramp-up schedule, and ultimately exceeded the 30,000 tonne design target, driven by the combination of achieving design recovery (77.8%) and the increased MSP feed rate. Zircon recoveries averaged 78% in the last quarter and reached as high as 80% in June. Transport and Infrastructure A key feature of the Kwale Operations is ready access to infrastructure, both pre- existing and Base Resources own developed infrastructure. The Kwale Operations are located eight kilometres from the main coastal highway running between Mombasa and northern Tanzania. Both the bulk and containerised product is hauled 50 kilometres by truck from Kwale along this route to Base Resources own purpose- built Likoni port facility and Mombasa container port respectively. During the reporting period, 455,870 tonnes of ilmenite, 85,654 tonnes of rutile and 31,389 tonnes of zircon was produced The fully owned and operated Likoni port facility includes a storage shed capable of holding in excess of 90,000 tonnes and a ship loader rated at 1,000 tonnes per hour. During the year, more than half a million tonnes of bulk ilmenite and rutile were loaded at this facility and dispatched to customers around the globe. compared with 100% in prior years. The south coast of Kenya enjoys two wet seasons annually and the ‘short rains’ starting in October should provide a further opportunity to replenish water levels. In addition, a borefield accessing a local aquifer provides supplementary supply of up to 30% of current water requirements. Water is a key input for mineral sands projects, and water supply for the Kwale Operations comes from the Company’s dedicated 8.6 gigalitre Mukurumudzi Dam. Following lower than average rainfall in the recent ‘long rains’, the dam was approximately 80% of capacity at year end, Power for Kwale Operations is supplied from the Kenyan grid via a 132kVA power line from the Galu substation just 16 kilometres from the mine. The reliability of supply has proved to be excellent with negligible downtime from outages or voltage dips. * With some altered ilmenite species, that are not defined as either ilmenite or rutile in the resource, being recovered in the production of both, calculated recoveries (or yields) of over 100% are achievable for both ilmenite and rutile. With some altered ilmenite species, that are not defined as either ilmenite or rutile in the resource, being recovered in the production of both, calculated recoveries (or yields) of over 100% are achievable for both ilmenite and rutile. Positioned for growth 10 Sustainability in practice Base Resources Limited Annual Report 2016 11 e c i t c a r p n i y t i l i b a n i a t s u S From project conception through to full-scale production, Base Resources has adopted world-class, sustainable business practices seeking to minimise any negative impacts and maximise positive impacts of its operations for its employees, its host community and more broadly, Kenya. Base Resources is committed to complying with Kenyan legislation and international best practice, specifically the International Finance Corporation’s Performance Standards, the Equator Principles, World Bank Group’s Environmental, Health and Safety Guidelines, International Labour Organisation’s core labour standards and the United Nations Voluntary Principles on Human Rights. With this approach, Base Resources is helping to set sound benchmarks for effective and responsible development in Kenya’s emerging mining sector. Local Employment Base is committed to prioritising employment for Kenyans. Our employment system is specifically designed to maximise employment opportunities and project benefits to local communities by giving preference to project- affected applicants and those residing in the immediate environs of the mine and assign progressively lower priorities to those living further away through a “fencing” system established in consultation with the Government of Kenya and local community leaders. This system has proved highly effective and of the 922 people directly employed in Kenya, including 667 by Base and 255 by Kenyan service providers contracted to Base in security, transport, catering and analytical laboratory services, 96% are Kenyan, with 63% drawn from Kwale County. We consider the early achievement of local workforce participation to this extent, in concert with the operational and safety performance demonstrated, in a country with limited mining precedents, to be a significant success of which we are particularly proud. While expatriates represent just 4% of the total in employment, Base is committed to further reducing its expatriate workforce over the coming years, with a succession programme to ensure the transfer of specialist skills to Kenyan nationals. 56 Number of Kenyan interns, graduate trainees and apprentices currently in the Company’s training programmes Skills Transfer Base Resources has structured training and skills transfer programmes covering on-the- job training for permanent employees, and also extending to tailored programmes for graduates, interns, apprentices and high school students, providing a platform for systematic and rapid transfer of knowledge and skills to Kenyans. There are 56 Kenyan interns, graduate trainees and apprentices currently in the Company’s training programmes. The programmes focus not only on employees, but also on building skills capacity in the broader community. To complement classroom learning, Base Resources has partnered with the Technical University of Mombasa to provide opportunities for technical trades apprentices to gain the necessary practical experience in the workplace. EMPLOYMENT DISTRIBUTION 1 Dot = 2 Employees Special Mining Lease Fence 1 Fence 2 Fence 3 SHIMBA HILLS MRIMA 10km MTONGWE MOMBASA CHANGAMWE LIKONI NGOMBENI KWALE TIWI UKUNDA MWABUNGU GAZI MSAMBWENI RAMISI KIDIMU Positioned for growthINDIAN OCEAN 12 Base Resources Limited Annual Report 2016 13 e c i t c a r p n i y t i l i b a n i a t s u S Kenya’s National Industrial Training Authority has recognised the value of Base Resources programmes and has partnered with the Company to assist in the design of co- operative workplace training and development programmes. In the past two years, Base Resources has committed a considerable budget of $1.8 million in workforce training and development. This investment reflects the Company’s commitment to skills transfer and development of Kenyan staff, for the benefit of not only Base Resources, but also to help build national capacity to underpin the development of Kenya’s emerging mining sector. Employee Engagement Base Resources places significant emphasis on establishing and developing a highly engaged, satisfied and motivated workforce, with the operational performance achieved to date, across production, safety and cost management, reflective of our success in developing our human capital. An integral component of this focus is an independently run annual survey, open to all employees. The objective of the survey is to establish a workplace cultural baseline represented by current worker behaviours and perceptions and identify key areas for improvement and action towards our desired workplace “Base Way” culture described. The two surveys conducted since the commencement of operations have seen response rates of 82% and 72%, a pleasing response rate for voluntary surveys of this type and indicative of our workforce’s engagement and desire to contribute. In addition to productivity and safety performance, absenteeism, staff turnover and industrial action are key indicators of employee satisfaction and motivation as well as sources of competitive cost advantage. An absenteeism rate of 2.3% was recorded for the year under review, up from the prior year’s 1.0%, in part due to some long term illnesses for which Base Resources does not apply a sick leave limit, but still well below the Australian average of 3.3%. The voluntary staff turnover rate for the year in review was also very low at 1.7%, increased slightly from the prior year’s 0.9%. The Kwale Operations have not recorded any industrial action since commencement of operations. Safety Throughout the construction, commissioning and operation of Kwale, Base Resources has entrenched a first-world, best- practice safety culture. With no serious injuries occurring during past 12 months, Kwale Operations’ LTIFR has remained at zero throughout the reporting period. Base Resources employees and contractors have now worked 6.5 million man-hours LTI free, with the last LTI recorded in February 2014. After a rise in minor medical treatment injuries during the first half of the year under review, a number of fresh initiatives were successfully implemented and the TRIFR is now trending downward. The Kwale Operations’ safety performance continues to be an outstanding achievement by first-world mining operation standards, let alone for an emerging mining jurisdiction. Community Engagement & Development Base Resources understands that achieving its long-term goals is predicated on building beneficial relationships with the communities in which it operates and establishing a balanced flow of mutual benefit. As communities affected by the Kwale Operations play an integral role in the Company’s overall success, Base Resources engages with its local communities in a structured and inclusive manner. In this way, the community benefits from a series of sustainable development and livelihood improvement programmes in exchange for a social license, practically manifested in the provision of proud, motivated employees, security, support and a positive reference for future projects. In accordance with Base Resources’ Stakeholder Engagement Plan, the Company has established a number of committees to act as an interface between the business and affected communities. This is an important tool for managing expectations, addressing grievances or concerns, and establishes a mechanism for achieving more participatory and inclusive solutions. These committees also play a major role in identifying community development priorities. The committees are made up of affected stakeholders, community leaders representing women, youth and the disabled, Members of the County Assembly, religious leaders, government and county level lead agencies and administrators. These forums are further supported by several special interest sub-committees, including one representing the host resettlement site at Mrima Bwiti. Through close collaboration with the liaison committees, community priorities have been identified as capacity building, meeting basic needs such as health and education, and establishing physical infrastructure to improve standards of living. In targeting these priorities, Base Resources continues to engage in constructing social infrastructure, improving community health, providing educational opportunities, and an increasing emphasis on leading livelihood improvement programmes through the introduction of commercial agriculture. These programmes are aligned with, and integrated into, the Kwale County Government’s integrated development plan. e t a R y c n e u q e r F 3 2 1 0 Lost time injury (LTIFR) and total recordable injury (TRIFR) frequency rates Western Australia all mines LTIR 2014/15 5 1 n u J 5 1 l u J 5 1 g u A 5 1 p e S 5 1 t c O 5 1 v o N 5 1 c e D 6 1 n a J 6 1 b e F 6 1 r a M 6 1 r p A TRIFR LTIFR 6 1 y a M 6 1 n u J Positioned for growth 14 Base Resources Limited Annual Report 2016 Community Health: Providing training for community health workers, equipping medical facilities and supporting vaccination and general health campaigns. Community Groups Training: Base Resources provided maritime studies training for the Likoni Beach Management Unit. Together with the Dzarino Community Based Training Organisation, Base Resources runs economic empowerment training programmes for community groups to equip them with basic economic skills to assist in initiating business start-ups and entrepreneurial activities. Scholarships: During the year, Base Resources initiated its own scholarship programme with 320 secondary school awards given and 125 tertiary placements supported. In addition, partnerships with educational NGOs continue with support for a further 350 students provided at both secondary and tertiary levels. The Base approach to, and investment in, community development is having real and felt impacts, and a consequence, Base Resources enjoys strong community support. Environment Our community development program is being matched by our high standards of environmental management and performance. The Company operates a comprehensive environmental management system, and has had no environmental incidents during the year under review. Work progressed on a number of Base Resources programs aimed at rehabilitating impacted areas, improving local biodiversity, and promoting conservation and sustainability, with some notable examples being: Agricultural livelihood programmes, run in conjunction with partners Business for Development, DEG and Kenya Red Cross continue to develop with encouraging support from both national and county Kenyan governments. These programmes, covering cotton, potato and poultry, now involve around 400 farmers and community groups with the ultimate aim being to establish new large scale agricultural industries that will provide economic opportunities well beyond the life of mining activities. Additional financial support has been secured with a number of new organisations, including FMO, reflecting the quality, scope and potential of these agricultural programmes to drive regional socio- economic development. In addition to the agricultural livelihood programmes, to date, over 120 individual projects have been completed, including: Schools: 28 educational infrastructure projects have been undertaken, including construction of six new institutions and refurbishment or upgrading of the balance. Medical Facilities: Constructed and equipped the Bwiti Dispensary and Magaoni Health Centre, and work is underway on a joint project to build a local hospital-based blood bank facility, expected to begin operations in the first quarter of 2017. In addition, Base Resources provided a four-wheel-drive ambulance to Kwale County health authorities to service hard to reach communities. Water Supply: 13 boreholes sunk and fully equipped. School Sports Programmes: In collaboration with an NGO, Base Resources aims to improve pupils’ performance through building and enhancing life skills and environmental awareness using the medium of sport and enjoyment. The programme is running in 25 schools and engaging 16,000 students on a weekly basis. 15 e c i t c a r p n i y t i l i b a n i a t s u S Our Community development program is being matched by our high standards of environmental management and performance REHABILITATION TRIALS WETLAND RESTORATION The tailings storage facility (“TSF”) sand walls are expected to reach full height in the second half of 2017, and rehabilitation and stabilisation of external walls will commence shortly thereafter. Trials to determine which indigenous soil binding grasses will perform best in different combinations of sand, clay and topsoil commenced during the year. These trials will continue over the coming year, in conjunction with ongoing soil fertility monitoring. ESTABLISHMENT OF A BIODIVERSITY CORRIDOR Base Resources, commitment to operating in a sustainable and environmentally responsible manner includes improving biodiversity and promoting conservation and sustainability in the region. During the year, work continued on the development of a corridor to bridge several remnant patches of indigenous forest within the mining lease to the nearby Gongoni Forest. Over 38,000 of the trees propagated in Base Resources’ indigenous tree nursery, including almost 7,000 of species classified as being of conservation significance, have been planted in the designated corridor. This program aims to restore threatened indigenous tree species otherwise lost to Kwale Operations TSF and mine footprints. A former ephemeral wetland that had remained dry for a number of years prior to the commencement of operations has been successfully restored. After locating project infrastructure so as to avoid encroachment into the area, drainage from the TSF was directed to flow into the former wetland and indigenous sedges and other aquatic vegetation planted. The wetland now provides an ideal habitat for both floral and faunal species of significant conservation importance. Amphibian and reptile monitoring found that the numbers of endangered Shimba Hills Reed Frog (Hyperolius rubrovermiculatus) and Forest Leaf-folding Frog (Afrixalus sylvaticus) are growing. Furthermore, monitoring shows that a number of key insect populations continue to thrive in various wetland areas around the mine site. These insects are a key component in maintaining healthy aquatic environments. RECYCLING PROGRAMME Recycling wood, metal and plastic from various applications at the mine site is used by Base Resources recycling team to construct furniture, water tanks, bee hives and children’s school knapsacks. These have been donated to nearby schools, community organisations, orphanages and institutions for the disabled. Positioned for growth Base Resources Limited Annual Report 2016 16 Business development Two significant initiatives have been commenced with the objective of further enhancing the value of the Kwale Operations. Extensional exploration Kwale Phase 2 Project Base Resources initiated the Kwale Phase 2 project in 2015, with its focus being an optimised combination of the Central and South dune mining tonnage and methodology and increased mining rates in lower grade zones. The Pre- Feasibility Study was completed in July 2016 and a Definitive Feasibility Study commenced in August 2016 and is expected to be completed in the second quarter of 2017. A successful airborne geophysics program, conducted in 2015, covering the south coast region of Kenya from Mombasa to the Tanzanian border, identified a series of exploration targets that were subsequently confirmed through ground reconnaissance. To capitalise on the targets identified, the Company has significantly expanded its exploration land area surrounding the Kwale Operations, through the extension of its Special Prospecting License 173 (“SPL173”), which now covers an area of 177km2. In addition, the Company has also applied for an additional SPL covering an area of 136km2 extending south west from SPL 173 towards the Tanzanian border. This license application has now passed through all the approval stages and now awaits issuance by the Kenyan Ministry of Mining. Up to an 18,000 metre aircore drill program is planned over both these licenses and is expected to be completed over the coming year. Corporate and finance 17 e c n a n i f d n a e t a r o p r o C Kwale Project Debt Facility In December 2015, the Kwale Project Debt Facility (“Debt Facility”) was rescheduled in order to establish a repayment profile more appropriate to the commodity price environment. Under the terms of the reschedule, US$14 million of the Debt Facility was paid down on execution, with a further US$9.5 million scheduled repayment made in June 2016, reducing the outstanding debt to US$180.5 million. Base Resources was also pleased to introduce a new lender, Societe Generale Corporate & Investment Banking, to the Debt Facility as part of the reschedule. Subsequent to year end, in July 2016, and in accordance with the terms of the Debt Facility, US$10.8 million of surplus cash was ‘swept’ from the Kwale Operations. Half of the cash sweep (US$5.4 million) was applied towards mandatory repayment of the Debt Facility, reducing the outstanding debt to US$175.1 million, with the other half distributed up to the Australian parent entity, Base Resources Limited. $10 million Renounceable Entitlement Offer Kenyan VAT Receivable In March 2016, Base Resources completed a pro rata renounceable entitlement offer to existing shareholders, raising gross proceeds of $10 million. The proceeds provided continuity and certainty of corporate funding, to progress execution of Base Resources’ strategic plan and capitalise on achievements to date. Base Resources has refund claims for VAT paid in Kenya, relating to both the construction of the Kwale Project and the period since operations commenced, totalling approximately US$19 million at 30 June 2016. These claims are proceeding through the Kenya Revenue Authority process, with a number of operational period claims, totalling approximately US$9 million, settled during the year under review. Base Resources is continuing to engage with the Kenyan Treasury and the Kenya Revenue Authority, seeking to expedite the remainder of the refund. Positioned for growth 18 Marketing, sales and outlook Marketing and sales Base Resources has a number of off-take agreements across each of its three product streams spanning between one and six years of production of the Kwale Operations. The agreements are with some of the world’s largest consumers of titanium dioxide minerals and zircon products, including a cornerstone agreement with Chemours (formerly DuPont Titanium Technologies). The agreements provide off-take security for the Kwale Operations, and contain firm minimum annual offtake volumes subject to annual Base Resources’ production forecasts. Pricing is derived from prevailing market prices, based on agreed price indices or periodic price negotiations, with some agreements offering downside protection in the form of floor prices. In the year under review, Base Resources sold almost 600,000 tonnes of product from the Kwale Operations, with shipments being made to a combination of customers with existing offtake agreements, regular customers buying on a spot basis and some new spot customers buying Base Resources’ products for the first time. The appointment of a Chinese distributor for ilmenite in early 2015 has assisted Base Resources in continuing to build its market presence in China – the world’s largest ilmenite market – through the 2016 financial year. During the reporting period, Base Resources became the largest importer of ilmenite into China, having sold almost 450,000 tonnes in the 2016 financial year. Solid relationships have been established with major Chinese ilmenite consumers who now comprise a mix of shorter term contracts (one to three-year duration) and regular spot customers. Base Resources maintains a strong focus on servicing the Chinese market and continues to expand its customer base with further trial lots of ilmenite being evaluated by new customers. Despite challenging market conditions for much of the reporting period, sales volumes increased significantly over the comparable period to match production growth. A solid improvement in the global titanium dioxide pigment market through the first half of the 2016 calendar year led to a high level of demand for Base Resources ilmenite and rutile in the June 2016 quarter. This has kept stocks at minimal levels and provided a solid base for price improvement during the 2017 financial year. During the March quarter of 2016, Base Resources received a force majeure notice from an ilmenite customer and a volume reduction notice from a rutile customer. In both cases, the impact was to defer or cancel a significant portion of previously agreed sales volumes for the remainder of calendar 2016. Alternative sales have been secured to fully cover the shortfall arising from these notices, aided by the strengthening demand for titanium dioxide feedstocks experienced towards the end of the reporting period. Unlike the titanium dioxide feedstock markets, conditions for zircon remained subdued through the reporting period. Despite the ongoing over-supplied market, Base Resources has had sustained solid demand for zircon from its small, but loyal, customer base. Base Resources Limited Annual Report 2016 19 s e l a s d n a g n i t e k r a M Mineral sands market outlook ILMENITE AND RUTILE Ilmenite and rutile are primarily used as feed stock for the production of titanium dioxide pigment, with a small percentage also used in the production of titanium metal and fluxes for welding rods and wire. Pigment makes up over 90% of titanium minerals demand and is the main driver of pricing. Titanium dioxide is the most widely used white pigment because of its non-toxicity, brightness and very high refractive index. It is an essential component of consumer products such as paint, plastics and paper. Global consumption of pigment has maintained a long term average growth rate closely correlated to global GDP, or approximately 3% per annum. However, volatility in the global economy in recent years has created significant fluctuations in this growth rate, manifesting in big swings in inventory levels throughout the entire pigment supply chain. A growing supply deficit, compared with demand, over the past year appears to have resulted in global pigment inventories falling below normal levels for the first time in several years. Growth in pigment consumption, together with re-stocking activity, has resulted in pigment demand surging by more than 7% year- on-year, and substantial price improvements being reported in the first half of calendar year 2016. This has percolated through the supply chain and translated into strengthening feedstock demand by the end of the reporting period. As a consequence, feedstock levels have been drawn down at a more rapid pace than expected and tightness has emerged in feedstock markets for the first time since the Kwale Operations commenced production in late 2013. Base Resources has locked in substantial ilmenite price increases for shipments in the September quarter brilliant opacity, whiteness and brightness in their products. Zircon’s unique properties include heat and wear resistance, stability, opacity, hardness and strength. These properties mean it is also sought after for other applications such as refractories, foundries and specialty chemicals. Demand growth for zircon is closely linked to growth in global construction and increasing urbanisation in the developing world. After a sharp downturn in 2012, major zircon suppliers have attempted to match their supply to demand since 2013, keeping prices relatively stable until early 2016. However, with demand remaining sluggish and supply growing from new sources, one major zircon supplier reduced prices by approximately US$100 per tonne in March 2016, forcing others to follow. Despite attempts to subsequently increase pricing, subdued demand and excess inventories are expected to keep prices flat at current levels throughout the 2017 financial year. Any potential uplift in zircon prices remains dependent on firmer than expected economic growth in the major markets of China, USA and Europe, and on a more controlled response from major zircon producers in managing their production and stocks. The ilmenite feedstock market has become particularly constrained owing to the further constrictions in supply and growth in ilmenite-intensive Chinese sulphate pigment production that has occurred over the reporting period. As a result, ilmenite prices are responding positively, allowing Base Resources to lock in substantial price increases for shipments in the September 2016 quarter. Conditions for rutile also tightened by year end, although current supply and stocks appear adequate to meet demand in the immediate future. Current analysis suggests that excess global inventories of titanium dioxide feedstocks, which have weighed heavily on prices over the past couple of years, should return to normal levels by the end of calendar year 2016. In the absence of substantial new feedstock supply coming online, the titanium dioxide feedstock market is expected to begin a period of structural supply deficit, providing an opportunity for price growth in both ilmenite and rutile over the next few years. ZIRCON Zircon has a range of end- uses, the largest of which is ceramic tiles, which accounts for more than 50% of global zircon consumption. Milled zircon enables ceramic tile manufacturers to achieve Positioned for growth 20 Resources and reserves Mineral Resources The 2016 Kwale Mineral Resources as at 30 June 2016, are estimated to be 134.6Mt at an average HM grade of 4.2% and 26% slimes containing 5.62Mt HM, based on a 1% HM cut-off grade. The 2016 Kwale Mineral Resources estimate is the product of revised geological interpretations following the mineralogical assessment of 1,718 individual drill samples, observation of 5 test pits in the South Dune deposit and knowledge gained from mining, resulting in the inclusion of inferred resources not previously reported. The 2016 Kwale Mineral Resources estimate represents a small increase of 1% for total material tonnes and 2% for contained HM tonnes over the previously reported 2015 Kwale Mineral Resources estimate, after allowing for depletion by mining of the Central Dune deposit during the year. The total Kwale Mineral Resources estimate at 30 June 2016 has decreased by 8.4Mt of material containing 0.79Mt of in situ HM, when compared with the Minerals Resources estimate reported at 30 June 2015, due to mining depletion during the year of 10.1Mt of material containing 0.89Mt of in situ HM, with the difference due to the revised geological interpretations discussed above. Table 1: 1% HM cut-off Mineral Resources estimate for the Kwale Operations at 30 June 2016 compared with 2015 Mineral Resources estimate. CATEGORY ORE (MT) IN SITU HM (MT) Measured Indicated Total 35.4 10.7 46.1 2.13 0.42 2.55 Measured Indicated Inferred 42.9 40.8 4.8 1.66 1.25 0.16 Total 88.5 3.07 Measured Indicated Inferred 78.3 51.5 4.8 3.79 1.67 0.16 Total 134.6 5.62 2016 2015 HM (%) SL (%) OS (%) ILM (%) RUT (%) ZIR (%) HM ASSEMBLAGE ORE (MT) IN SITU HM (MT) HM (%) SL (%) OS (%) ILM (%) RUT (%) ZIR (%) HM ASSEMBLAGE 6.0 3.9 5.5 3.9 3.1 3.2 3.5 4.8 3.2 3.2 4.2 24 26 24 27 26 23 26 26 26 23 26 CENTRAL DUNE 13 14 13 6 6 6 54.5 15.0 3.37 0.41 69.4 3.78 SOUTH DUNE 14 13 14 13 6 6 6 6 60.3 13.3 0 2.18 0.45 0 73.6 2.63 59 59 59 59 52 57 56 TOTAL MINERAL RESOURCES 59 54 57 57 13 13 14 13 6 114.8 28.3 6 0 6 5.55 0.86 0 6 143.0 6.41 0 2 1 2 5 2 3 1 4 2 2 6.2 2.7 5.4 3.6 3.4 0 3.6 4.9 3.0 0 4.4 25 29 26 28 26 0 27 26 27 0 26 0 2 1 4 4 0 4 2 3 0 3 55 52 54 46 47 0 46 51 50 0 51 14 13 13 13 13 0 13 13 13 0 13 6 6 6 6 6 0 6 6 6 0 6 Ore Reserves The 2016 Kwale Ore Reserves as at 30 June 2016, are estimated to be 102.5Mt at an average HM grade of 4.6% and 26% slimes containing 4.68Mt of HM. The 2016 Kwale Ore Reserves estimate is based on the updated 2016 Kwale Mineral Resources model and knowledge gained from mining. The 2016 Kwale Ore Reserves estimate represents a small increase of 2% in total ore tonnes and negligible change in contained HM tonnes over the previously reported 2015 Kwale Ore Reserves estimate, after allowing for depletion by mining of the Central Dune deposit during the year. The total Kwale Ore Reserves estimate at 30 June 2016 has decreased by 7.9Mt of ore containing 0.86Mt of in situ HM, when compared with the Ore Reserve estimate reported at 30 June 2015, due to mining depletion of 10.0Mt of ore containing 0.88Mt of in situ HM, offset by gains from the other changes as discussed above. Base Resources Limited Annual Report 2016 21 s e v r e s e r d n a s e c r u o s e R Table 2: Ore Reserves estimate for the Kwale Operations at 30 June 2016 compared with 2015 Ore Reserves estimate. 2016 2015 CATEGORY ORE (MT) IN SITU HM (MT) HM (%) SL (%) OS (%) ILM (%) RUT (%) ZIR (%) HM ASSEMBLAGE ORE (MT) IN SITU HM (MT) HM (%) SL (%) OS (%) ILM (%) RUT (%) ZIR (%) HM ASSEMBLAGE Proved Probable Total Proved Probable Total 32.5 8.4 40.9 38.9 22.7 61.6 2.03 0.35 2.37 1.56 0.75 2.31 6.2 4.1 5.8 4.0 3.3 3.8 Proved Probable 71.4 31.1 3.58 1.10 Total 102.5 4.68 5.0 3.5 4.6 24 26 24 27 26 27 26 26 26 CENTRAL DUNE 13 13 13 6 6 6 48.3 5.8 3.21 0.18 54.2 3.39 SOUTH DUNE 14 13 13 6 6 6 46.7 9.5 1.80 0.35 56.2 2.15 TOTAL ORE RESERVES 13 13 13 6 6 95.0 15.4 5.01 0.54 6 110.4 5.54 59 59 59 59 53 57 59 55 58 0 1 1 1 5 3 1 4 2 6.6 3.2 6.2 3.9 3.7 3.8 5.3 3.4 5.0 24 28 25 28 25 27 26 26 26 0 2 1 3 3 3 2 3 2 56 52 56 49 49 49 54 50 54 13 13 13 14 13 14 13 13 13 6 6 6 6 6 6 6 6 6 Mineral Resources & Ore Reserves Governance A summary of the governance and internal controls applicable to Base Resources Mineral Resources and Ore Reserves processes are as follows: MINERAL RESOURCES Review and validation of drilling and sampling methodology and data spacing, geological logging, data collection and storage, sampling and analytical quality control Geological interpretation – review of known and interpreted structure, lithology and weathering controls Estimation methodology – relevant to mineralisation style and proposed mining methodology Comparison of estimation results with previous Mineral Resources models, and with results using alternate modelling methodologies Visual validation of block model against raw composite data Use of external Competent Persons to assist in the preparation of JORC Mineral Resourcess ORE RESERVES Review of potential mining methodology to suit deposit and mineralisation characteristics Review of potential Modifying Factors, including cost assumptions and commodity prices to be utilised in mining evaluation Ore Reserves updates intimated with material changes in the above assumptions Optimisation using appropriate software packages for open pit evaluation Design based on optimisation results Use of external Competent Persons to assist in the preparation of JORC Ore Reserves updates Competent Persons Statements MINERAL RESOURCES The information in this report that relates to Mineral Resources is based on information compiled by Mr. Scott Carruthers who is a Member of The Australasian Institute of Mining and Metallurgy. Mr. Carruthers is employed by Base Resources, owns 147,171 Base Resources shares and has sufficient experience that is relevant to the style of mineralisation and type of deposits under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code). Mr. Carruthers consents to the inclusion in this report of the matters based on his information in the form and context in which it appears. ORE RESERVES The information in this report that relates to Ore Reserves is based on information compiled by Mr. Per Scrimshaw and Mr. Scott Carruthers. Mr. Scrimshaw and Mr. Carruthers are both Members of The Australasian Institute of Mining and Metallurgy. Mr. Scrimshaw is employed by Entech, a mining consultancy engaged by Base Resources to prepare Ore Reserves estimation for the Kwale Operations. Mr. Carruthers is employed by Base Resources and owns 147,171 Base Resources shares. Mr. Scrimshaw and Mr. Carruthers have sufficient experience that is relevant to the style of mineralisation and type of deposits under consideration and to the activity which they are undertaking to qualify as Competent Persons as defined in the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code). Mr. Scrimshaw and Mr. Carruthers consent to the inclusion in this report of the matters based on their information in the form and context in which it appears. Positioned for growth 22 Corporate directory DIRECTORS Mr Keith Spence NON-EXECUTIVE CHAIRMAN Mr Tim Carstens MANAGING DIRECTOR Mr Colin Bwye EXECUTIVE DIRECTOR Mr Samuel Willis NON-EXECUTIVE DIRECTOR Mr Michael Anderson NON-EXECUTIVE DIRECTOR Mr Malcolm Macpherson Non-Executive Director Mr Mike Stirzaker NON-EXECUTIVE DIRECTOR COMPANY SECRETARY Mr Chadwick Poletti PRINCIPAL PLACE OF BUSINESS AND REGISTERED OFFICE Level 1 50 Kings Park Road West Perth WA 6005 CONTACT DETAILS Website www.baseresources.com.au info@baseresources.com.au Email + 61 (8) 9413 7400 Phone + 61 (8) 9322 8912 Fax SOLICITORS Ashurst Level 32, Exchange Tower 2 The Esplanade Perth WA 6000 AUDITORS KPMG 235 St Georges Terrace Perth WA 6000 SHARE REGISTRY ASX Computershare Investor Services Pty Limited Level 11, 172 St Georges Terrace Perth WA 6000 Enquiries 1300 850 505 (within Australia) +61 (3) 9415 4000 (outside Australia) Website www.investorcentre.com AIM Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ Enquiries +44 (0) 870 702 0003 Website www.computershare.co.uk NOMINATED ADVISOR RFC Ambrian Limited QV1 Building 250 St Georges Terrace Perth WA 6000 BROKER RFC Ambrian Limited Condor House 10 St Paul’s Churchyard London EC4M 8AL Base Resources Limited Annual Report 2016 Consolidated financial statements 23 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C 25 32 47 Directors report Remuneration report Corporate governance 54 55 56 Lead Auditor’s Independence Declaration Consolidated statement of profit or loss Consolidated statement of financial position 57 58 59 Consolidated statement of changes in equity Consolidated statement of cash flows Notes to consolidated financial statements 79 Directors’ Declaration 80 Independent auditor’s report 82 Additional shareholder information Positioned for growth 24 Base Resources Limited Annual Report 2016 Directors report Your directors present their report, together with the financial statements of the Group, being the Company, Base Resources Limited, and its controlled entities for the financial year ended 30 June 2016. OPERATING RESULTS The Group recorded a loss after tax of $20,918,682 for the reporting period (2015: $16,038,746). Dividends paid or recommended There were no dividends paid or declared for payment during the reporting period. Review of operations Base Resources operates the 100% owned Kwale Operation in Kenya, which commenced production in late 2013. The Kwale Operation is located 10 kilometres inland from the Kenyan coast and 50 kilometres south of Mombasa, the principal port facility for East Africa. SUMMARY PHYSICAL DATA Ore mined (tonnes) Heavy mineral (HM) % Directors The names of the directors in office at any time during or since the end of the year are: Mr Keith Spence Mr Tim Carstens Mr Colin Bwye Mr Samuel Willis Mr Michael Anderson Mr Malcolm Macpherson Mr Mike Stirzaker Directors have been in office since the start of the financial year to the date of this report unless otherwise indicated. Company Secretary The following person held the position of company secretary at the end of the financial year: Mr Chadwick Poletti Principal activities and significant changes in nature of activities The principal activity of the Group during the financial year was the operation of the 100% owned Kwale Mineral Sands Operation (“Kwale Operation”) in Kenya. There were no significant changes in the nature of the Group’s principal activities during the reporting period. WCP Heavy mineral concentrate production (tonnes) MSP Heavy mineral concentrate consumption (tonnes) Production (tonnes) Ilmenite Rutile Zircon Sales (tonnes) Ilmenite Rutile Zircon During the reporting period, mining activity continued in the high grade regions of the Central Dune, close to the processing plant, except for three months mining lower grade perimeter blocks. The average ore grade mined was 8.3% heavy mineral (“HM”) for the year. Mining activities will remain focused on the Central Dune deposit for the next four years of the operation, before transitioning to the South Dune for the remainder of the mine life. The coming year will see the introduction of a second mining unit, a 400tph hydraulic mining unit (“HMU”). Operating dual mining units will enable concurrent mining of high grade ore with the existing dozer- trap mining unit (“DMU”) and allow access to lower grade perimeter blocks more cost effectively utilising the HMU. This is expected to produce a blended average ore grade lower than achieved this year and result in a higher mining volume to maintain heavy mineral concentrate (“HMC”) production. 25 t r o p e r s r o t c e r i D The Kwale Operation is designed to process ore to recover three separate products – rutile, ilmenite and zircon. Ore is received at the wet concentrator plant (“WCP”) from the mining units via a slurry pipeline. The WCP removes slimes at a particle size less than 45μm, concentrates the valuable heavy minerals (rutile, ilmenite and zircon) and rejects most of the non-valuable, lighter gangue minerals. The WCP incorporates a number of gravity separation steps using spiral concentrators. The HMC, containing 90% heavy minerals, is then processed in the mineral separation plant (“MSP”). The MSP cleans and separates the rutile, ilmenite and zircon minerals and removes any remaining gangue. With the consistent achievement of design availabilities and throughputs in the WCP, and the high average grade of ore mined, HMC production of 734,431 tonnes was achieved in the reporting period. HMC production exceeded MSP 2016 2015 9,202,554 9,146,102 8.31% 734,431 709,443 455,870 85,654 31,389 480,538 85,536 33,062 8.61% 752,063 658,816 427,655 71,537 22,416 373,046 76,801 21,287 Positioned for growth Directors report 26 consumption, allowing the continued building of a HMC stockpile to mitigate risk and optimise future production. At year end, the HMC stockpile was 139,364 tonnes. During the reporting period, 709,443 tonnes of HMC was fed into the MSP to produce 455,870 tonnes of ilmenite, 85,654 tonnes of rutile and 31,389 tonnes of zircon. The successful completion of a number of MSP upgrade projects, together with ongoing process optimisation, has yielded benefits in both throughput and downstream recoveries of rutile and zircon during the reporting period. Having achieved design recovery levels for all products, ongoing MSP optimisation is expected to yield sustained increases in feed rates above 90tph in the 2017 financial year. Ilmenite production continued at above design capacity due to the combination of increased MSP feed rates and high recoveries. Following the installation of an additional MSP magnet stage in November 2015, ilmenite recovery reduced from a pre-upgrade average of 110% to an average of 102% for the remainder of the year, still exceeding design. The additional magnet stage had the effect of removing rutile from ilmenite product and creating a high chrome stream, which is now rejected to enhance product quality. Ilmenite production continues to benefit from the proportionally higher ilmenite content (but lower rutile content) of the high grade ore in the Central Dune, a feature of the Kwale deposit. Rutile production exceeded the 80,000 tonnes per annum design target for the first time in the reporting period, thanks to the higher MSP feed rates and ongoing optimisation of recoveries, aided by the MSP upgrade projects. Average rutile recovery for the reporting period was 99%, surpassing design expectations. With some altered ilmenite species, that are not defined as either ilmenite or rutile in the resource, being recovered in the production of both, calculated recoveries (or yields) of over 100% are achievable for both ilmenite and rutile. Zircon production continued its steady improvement throughout the reporting period, in line with the planned ramp-up schedule, and ultimately exceeded the 30,000 tonne design target, driven by the combination of achieving design recovery (77.8%) and the increased MSP feed rate. Zircon recoveries averaged 78% in the last quarter and reached as high as 80% in June. Marketing & Sales Base Resources has a number of off-take agreements across each of its three product streams spanning between one and six years of production of the Kwale Operation. The agreements are with some of the world’s largest consumers of titanium dioxide minerals and zircon products, including a cornerstone agreement with Chemours (formerly DuPont Titanium Technologies). The agreements provide off-take security for the Kwale Operation, and contain firm minimum annual offtake volumes subject to annual Base Resources’ production forecasts. Pricing is derived from prevailing market prices, based on agreed price indices or periodic price negotiations, with some agreements offering downside protection in the form of floor prices. provided a solid base for price improvement during the 2017 financial year. In the reporting period, Base Resources sold almost 600,000 tonnes of product from the Kwale Operation, with shipments being made to a combination of customers with existing offtake agreements, regular customers buying on a spot basis and some new spot customers buying Base Resources’ products for the first time. The appointment of a Chinese distributor for ilmenite in early 2015 has assisted Base Resources in continuing to build its market presence in China – the world’s largest ilmenite market – through the 2016 financial year. During the reporting period, Base Resources became the largest importer of ilmenite into China, having sold almost 450,000 tonnes in the 2016 financial year. Solid relationships have been established with major Chinese ilmenite consumers who now comprise a mix of shorter term contracts (one to three-year duration) and regular spot customers. Base Resources maintains a strong focus on servicing the Chinese market and continues to expand its customer base with further trial lots of ilmenite being evaluated by new customers. Despite challenging market conditions for much of the reporting period, sales volumes increased significantly over the comparable period to match production growth. A solid improvement in the global titanium dioxide pigment market through the first half of the 2016 calendar year led to a high level of demand for Base Resources ilmenite and rutile in the June 2016 quarter. This has kept stocks at minimal levels and During the March quarter of 2016, Base Resources received a force majeure notice from an ilmenite customer and a volume reduction notice from a rutile customer. In both cases the impact was to defer or cancel a significant portion of previously agreed sales volumes for the remainder of calendar 2016. Alternative sales have been secured to fully cover the shortfall arising from these notices, aided by the strengthening demand for titanium dioxide feedstocks experienced towards the end of the reporting period. Unlike the titanium dioxide feedstock markets, conditions for zircon remained subdued through the reporting period. Despite the ongoing over-supplied market, Base Resources has had sustained solid demand for zircon from its small, but loyal, customer base. Market Outlook Ilmenite and rutile are primarily used as feed stock for the production of titanium dioxide pigment, with a small percentage also used in the production of titanium metal and fluxes for welding rods and wire. Pigment makes up over 90% of titanium minerals demand and is the main driver of pricing. Titanium dioxide is the most widely used white pigment because of its non-toxicity, brightness and very high refractive index. It is an essential component of consumer products such as paint, plastics and paper. Global consumption of pigment has maintained a long term average growth rate closely Base Resources Limited Annual Report 2016 27 t r o p e r s r o t c e r i D correlated to global GDP, or approximately 3% per annum. However, volatility in the global economy in recent years has created significant fluctuations in this growth rate, manifesting in big swings in inventory levels throughout the entire pigment supply chain. A growing supply deficit, compared with demand, over the past year appears to have resulted in global pigment inventories falling below normal levels for the first time in several years. Growth in pigment consumption, together with re-stocking activity, has resulted in pigment demand surging by more than 7% year- on-year, and substantial price improvements being reported in the first half of calendar year 2016. This has percolated through the supply chain and translated into strengthening feedstock demand by the end of the reporting period. As a consequence, feedstock levels have been drawn down at a more rapid pace than expected and tightness has emerged in feedstock markets for the first time since the Kwale Operation commenced production. The ilmenite feedstock market has become particularly constrained owing to the further constrictions in supply and growth in ilmenite-intensive Chinese sulphate pigment production that has occurred over the reporting period. As a result, ilmenite prices are responding positively, allowing Base Resources to lock in substantial price increases for shipments in the September 2016 quarter. Conditions for rutile also tightened by year end, although current supply and stocks appear adequate to meet demand in the immediate future. Current analysis suggests that excess global inventories of titanium dioxide feedstocks, which have weighed heavily on prices over the past couple of years, should return to normal levels by the end of calendar year 2016. In the absence of substantial new feedstock supply coming online, the titanium dioxide feedstock market is expected to begin a period of structural supply deficit, providing an opportunity for price growth in both ilmenite and rutile over the next few years. Zircon has a range of end- uses, the largest of which is ceramic tiles, which accounts for more than 50% of global zircon consumption. Milled zircon enables ceramic tile manufacturers to achieve brilliant opacity, whiteness and brightness in their products. Zircon’s unique properties include heat and wear resistance, stability, opacity, hardness and strength. These properties mean it is also sought after for other applications such as refractories, foundries and specialty chemicals. Demand growth for zircon is closely linked to growth in global construction and increasing urbanisation in the developing world. After a sharp downturn in 2012, major zircon suppliers have attempted to match their supply to demand since 2013, keeping prices relatively stable until early 2016. However, with demand remaining sluggish and supply growing from new sources, one major zircon supplier reduced prices by approximately US$100 per tonne in March 2016, forcing others to follow. Despite attempts to subsequently increase pricing, subdued demand and excess inventories are expected to keep prices flat at current levels throughout the 2017 financial year. Any potential uplift in zircon prices remains dependent on firmer than expected economic growth in the major markets of China, USA and Europe, and on a more controlled response from major zircon producers in managing their production and stocks. Review of financial performance Base Resources recorded a loss after tax of $20.9 million for the year ended 30 June 2016, compared with $16.0 million in 2015. Sales revenue was $169.0 million for 2016 (2015: $145.5 million), achieving an average price of product sold (rutile, ilmenite and zircon) of $282 per tonne or US$205 per tonne (2015: $309 per tonne or US$256 per tonne). Total cost of goods sold was $86.6 million for 2016 (2015: $73.3 million), at an average cost of $144 per tonne (US$105 per tonne) of product sold (2015: $155 per tonne or US$130 per tonne). Operating costs 2016 2015 KWALE OPERATION OTHER OPERATIONS TOTAL $000s KWALE OPERATION OTHER OPERATIONS $000s $000s 169,039 145,501 Sales Revenue $000s 169,039 Cost of goods sold excluding depreciation & amortisation: Operating costs Changes in inventories of concentrate and finished product Royalties expense Total cost of goods sold (i) Corporate & external affairs Community development Selling & distribution costs Other income / (expenses) EBITDA (i) Depreciation & amortisation EBIT (i) Net financing expenses Income tax expense NPAT (i) (69,647) (5,066) (11,845) (86,558) (4,309) (3,921) (4,114) (2,151) 67,986 (47,062) 20,924 (27,247) (40) (6,363) $000s - - - - - (69,647) (5,066) (11,845) (86,558) (6,840) (11,149) - - (580) (7,420) (127) (7,547) (3,921) (4,114) (2,731) 60,566 (47,189) 13,377 (7,009) (34,256) - (40) (14,556) (20,919) (64,684) 1,903 (10,470) (73,251) (4,052) (3,945) (2,391) 488 62,350 (41,474) 20,876 (26,825) (80) (6,029) TOTAL $000s 145,501 (64,684) 1,903 (10,470) (73,251) - - - - - (6,636) (10,688) - - (750) (7,386) (144) (7,530) (3,945) (2,391) (262) 54,964 (41,618) 13,346 (2,480) (29,305) - (80) (10,010) (16,039) (i) Base Resources’ financial results are reported under International Financial Reporting Standards (IFRS). These Financial Statements include certain non-IFRS measures including EBITDA, EBIT and NPAT. These measures are presented to enable understanding of the underlying performance of the Group and have not been audited. Positioned for growth Directors report 28 per tonne produced for 2016 was $121 per tonne or US$88 per tonne (2015: $124 per tonne or US$103 per tonne). With an achieved revenue to cost of sales ratio of 2:1, the Kwale Operation is well positioned in the upper quarter of mineral sands producers. Having reached design recoveries for rutile and zircon in 2016, it is expected that, when combined with higher MSP throughput rates, production of these high value products will increase in 2017, further improving the revenue to cost ratio. Despite lower commodity prices, increased production and sales volumes and a sharp focus on cost management has delivered a Kwale Operation EBITDA of $68.0 million (2015: $62.4 million) and a Group EBITDA of $60.6 million for 2016 (2015: $55.0 million). A net loss after tax of $6.4 million (2015: $6.0 million) was recorded by the Kwale Operation and $20.9 million (2015: $16.0 million) for the Group. Loss per share for the Group was 3.41 cents (2015: 2.85 cents). Cash flow from operations was $78.6 million for 2016 (2015: $38.2 million), higher than Group EBITDA predominately driven by a decrease in receivables of $10.9 million during the reporting period, associated with $10.3 million of Kenyan operational VAT refunds and timing of sales receipts. In December 2015, the Kwale Project Debt Facility (“Debt Facility”) was rescheduled in order to establish a repayment profile more appropriate to the commodity price environment. Under the terms of the reschedule, US$14 million of the Debt Facility was paid down on execution, with a further US$9.5 million scheduled repayment made in June 2016, reducing the outstanding debt to US$180.5 million. Total debt outstanding, inclusive of the Taurus Debt Facility, at 30 June 2016 was $270.3 million (US$201 million) compared with $292.6 million (US$224 million) at 30 June 2015. SIGNIFICANT CHANGES IN STATE OF AFFAIRS The significant changes in the state of affairs of the Group during the year and to the date of this report were: a. Reschedule of the Debt Facility in December 2015; and b. Completion of a pro rata renounceable entitlement offer to existing shareholders in March 2016, raising gross proceeds of $10 million. The proceeds will be used to provide continuity and certainty of corporate funding, and allow progression of Base Resources’ strategic plan and capitalise on achievements to date. There were no other significant changes in the state of affairs of the Group during the financial period. AFTER BALANCE DATE EVENTS Subsequent to year end, in July 2016, and in accordance with the terms of the Debt Facility, US$10.8 million of surplus cash was ‘swept’ from the Kwale Operation. Half of the cash sweep (US$5.4 million) went towards mandatory repayment of the Debt Facility, with the other half distributed up to the Australian parent entity, Base Resources Limited. From the cash sweep portion received by Base Resources Limited, a mandatory fifty percent (US$2.7 million) was applied to repayment of the Taurus Debt Facility, as required under the facility agreement, with the balance available for general corporate funding. There have been no other significant after balance date events at the date of this report. FUTURE DEVELOPMENTS, PROSPECTS AND BUSINESS STRATEGIES Base Resources strategy is to continue to optimise the Kwale Operation whilst pursuing growth from internal and external opportunities. Information on Directors Mr Keith Spence Non-Executive Chairman Qualifications BSc (Geophysics) (Hons) Appointed 20 February 2015 (Appointed as Non-Executive Chairman on 19 May 2015) Experience Mr Spence has over 30 years of experience in the oil & gas industry with Shell and Woodside. He retired from Woodside in 2008 after 14 years in senior executive roles including Chief Operating Officer and acting Chief Executive. Mr Spence is currently Non-Executive Chairman of Geodynamics Limited as well as a Non- Executive Director of Oil Search Limited, Independence Group NL and Murray & Roberts Holdings Ltd (listed on JSX). Mr Spence was also Chairman of Clough Limited before its acquisition in late 2013. Special Responsibilities Chairman of the Board; Chairman of the Remuneration & Nominations Committee; Chairman of the Risk Committee; member of the Audit Committee; member of Taurus Refinancing Committee. Other current public company directorships Geodynamics Limited (since 2008), Independence Group NL (since 2014), Oil Search Limited (since 2012) and Murray and Roberts Holdings Ltd (since 2015). Past public company directorships held over the last three years Clough Limited (resigned 2013). Mr Tim Carstens Managing Director Qualifications BCom, ACA Appointed 5 May 2008 Experience Mr Carstens brings a diverse and substantial skill set to the development of Base Resources, having previously held senior executive roles with Perilya Limited, North Limited, Robe River Iron Associates, Iron Ore Company of Canada and St Barbara Mines Limited in operations, strategy, corporate development and finance, both in Australia and overseas. A chartered accountant by profession, he has successfully managed all aspects of business strategy development and implementation, acquisitions and divestments, debt and equity financing, organisational development and operational performance. Special Responsibilities Managing Director; member of Taurus Refinancing Committee. Past public company directorships held over the last three years None. Base Resources Limited Annual Report 2016 29 t r o p e r s r o t c e r i D Mr Colin Bwye Executive Director – Operations & Development Qualifications BEng (Hons) Appointed 12 July 2010 Experience Mr Bwye has over 25 years’ experience in the mineral sands sector, having commenced his professional career with RGC Mineral Sands (since consolidated into Iluka Resources) as a plant metallurgist in 1988. He undertook a number of technical, production and mining roles within RGC and then, after a period of time consulting to the industry, joined Doral Mineral Industries, a subsidiary of Iwatani Corporation of Japan. Here he was a leader in the development and operation of the Dardanup mineral sands mine in Western Australia before taking on the role of managing director and becoming accountable for the fused materials (zirconia and alumina) processing facilities as well as the mineral sands operation. In 2010 Mr Bwye joined Base Resources as Executive Director – Operations and Development. Mr Bwye has an extensive knowledge of all aspects of the mineral sands industry, including downstream processing and marketing of mineral sands products. He was born in Kenya and lived there prior to migrating to Australia in 1987 and so brings a deep understanding of the country and its culture. Special Responsibilities Executive Director – Operations & Development. Past public company directorships held over the last three years None. Mr Samuel Willis Non-Executive Director Qualifications BCom Appointed 23 May 2007 Experience Mr Willis is an experienced company director in the resources and energy sectors and is currently a director of Checkside (a consulting firm that specialises in Strategic HR, Recruitment and Leadership), as well as non-executive director of oil and gas explorer Elixir Petroleum Limited. Mr Willis provides Base Resources with in excess of 15 years’ experience and expertise in capital markets, corporate finance and executive board involvement with emerging small and mid-cap companies. Special Responsibilities Chairman of the Audit Committee; member of the Remuneration & Nominations Committee; member of the Risk Committee; member of Taurus Refinancing Committee. Other current public company directorships Elixir Petroleum Limited (since 2013). Past public company directorships held over the last three years New Standard Energy Limited (retired 2016). Mr Michael Anderson Non-Executive Director Qualifications BSc (Hons), PhD Appointed 28 November 2011 Experience Mr Anderson has over 20 years’ industry experience, largely in southern Africa and Australia. His career commenced as a geologist with Anglo American, followed by roles in the metallurgical and engineering industries with Mintek, Bateman and Kellogg Brown & Root. He subsequently held senior management positions including Corporate Development Manager at Gallery Gold Limited, and Managing Director at Exco Resources Limited, where he oversaw the successful development of the White Dam Gold Project, and the sale of the Company’s Cloncurry Copper Project to Xstrata. He joined Taurus Funds Management as a Director in August 2011. Taurus is a major shareholder of Base Resources, with Mr Anderson appointed as Taurus’ nominee on the Base Resources Board. Special Responsibilities Member of the Audit Committee. Other current public company directorships Hot Chili Limited (since 2011). Past public company directorships held over the last three years Ampella Mining Limited (resigned 2014) and PMI Gold Limited (resigned 2014). Mr Michael Stirzaker Non-Executive Director Qualifications BCom, ACA Appointed 19 November 2014 (previously acting as an alternate since November 2011) Experience Mr Stirzaker has over 30 years’ commercial experience, mainly in mining finance and mining investment. He began his career in Sydney as a Chartered Accountant with KPMG, having obtained a Bachelor of Commerce from the University of Cape Town. He moved into investment banking with Wardley James Capel (part of the HSBC Group) and then Kleinwort Benson Limited in London. From 1993 to 2007 he was part of the natural resource advisory and investment firm, RFC Group Limited, where he became Joint Managing Director. He has also been a shareholder and Director of Tennant Metals Pty. Limited, a privately owned physical metal trader and investor, and was the Finance Director of Finders Resources Limited, an ASX listed company with copper & gold projects in Indonesia. In 2010, Mr Stirzaker joined the private equity mining fund manager, Pacific Road Capital Management Pty Limited as an Executive Director. Pacific Road Capital is a major shareholder of Base Resources, with Mr Stirzaker appointed as Pacific Road Capital’s nominee on the Base Resources Board. Special Responsibilities Member of the Remuneration & Nominations Committee; member of the Risk Committee. Past public company directorships held over the last three years Nil. Mr Malcolm Macpherson Non-Executive Director Qualifications B.Sc. FAusIMM, FTSE Appointed 25 July 2013 Experience Mr Macpherson is an accomplished business leader, with decades of experience in the global mining industry at executive management and board level. Mr Macpherson spent 25 years from 1974 at Iluka Resources Limited, the world’s largest mineral sands company, rising from mine manager to Managing Director and Chief Executive Officer. He has previously held the position of Chairman with Azumah Resources Limited and Western Power Corporation and been a director of Portman Mining Limited and Minara Resources Limited. Mr Macpherson has also been the Senior Vice President of the Minerals Council of Australia, President of the Western Australian Chamber of Minerals & Energy, and a member of the Senate at Murdoch University. Special Responsibilities Member of the Remuneration & Nominations Committee; member of the Audit Committee. Other current public company directorships Nil. Past public company directorships held over the last three years Pluton Resources Limited (Chairman) (resigned 2013), Titanium Corporation Inc. (resigned 2014), and Bathurst Resources (New Zealand) Limited (resigned 2015). Company Secretary Mr Chadwick Poletti Qualifications LLB (Hons), BCom Appointed 19 May 2015 Experience Mr Poletti is a practising lawyer and holds a Bachelor of Commerce majoring in Finance and Accounting. Mr Poletti has broad experience in providing advice to directors of listed and unlisted public companies in relation to directors’ duties, the Corporations Act, the ASX Listing Rules, the AIM Rules for Companies and corporate governance. Prior to joining Base Resources, Mr Poletti was a senior associate at the international law firm, Ashurst, where he specialised in both domestic and cross-border regulated and unregulated mergers and acquisitions, including takeovers and schemes of arrangement, capital raisings and corporate advisory and governance. Positioned for growth Directors report 30 MEETINGS OF DIRECTORS The number of meetings of Directors (including meetings of committees of Directors) held during the year and the number of meetings attended by each Director was as shown in the table below: DIRECTORS’ MEETINGS AUDIT COMMITTEE REMUNERATION & NOMINATIONS COMMITTEE RISK COMMITTEE TAURUS REFINANCING COMMITTEE MEETINGS HELD WHILE A DIRECTOR MEETINGS ATTENDED MEETINGS HELD WHILE A COMMITTEE MEMBER MEETINGS ATTENDED MEETINGS HELD WHILE A COMMITTEE MEMBER MEETINGS ATTENDED MEETINGS HELD WHILE A COMMITTEE MEMBER MEETINGS ATTENDED MEETINGS HELD WHILE A COMMITTEE MEMBER MEETINGS ATTENDED Keith Spence Tim Carstens Colin Bwye Samuel Willis Michael Anderson Malcolm Macpherson Michael Stirzaker 16 16 16 16 16 16 16 16 16 16 15 15 16 16 INDEMNIFYING OFFICERS 4 - - 4 4 4 - 4 - - 4 4 3 - 5 - - 5 - 5 5 5 - - 5 - 5 5 3 - - 3 - - 3 3 - - 3 - - 3 1 1 - 1 - - - 1 1 - 1 - - - During or since the end of the financial year, Base Resources has given an indemnity or entered into an agreement to indemnify, or paid or agreed to pay insurance premiums to insure its directors and officers against certain liabilities incurred while acting in that capacity. The contracts of insurance prohibit disclosure of details of the policies or the premiums paid. The Company’s Constitution provides that, subject to and so far as permitted by applicable law, the Company must indemnify every officer of the Company and its wholly owned subsidiaries against a liability incurred as such an officer to a person (other than the Company or a related body corporate) including a liability incurred as a result of appointment or nomination by the Company or subsidiary as a trustee or as an officer of another corporation, unless the liability arises out of conduct involving a lack of good faith. Consistent with the rules of the Company’s Constitution, the Company or its subsidiary companies (as applicable) has also granted indemnities under the terms of deeds of indemnity with current and former Directors and current officers of the Company and its subsidiaries. Each deed provides that the relevant Director or officer is to the maximum extent permitted by law, indemnified out of the property of the Company against any liability (other than a liability for costs and expenses) the Director or officer incurs to another person (other than the Company or a related body corporate of the Company) as a Director or officer of Company or a related body corporate, unless the liability arises out of conduct involving a lack of good faith by the Director or officer. No indemnity has been granted to an auditor of the Group in their capacity as auditors of the Group. OPTIONS At the date of this report, the unissued ordinary shares of Base Resources Limited under option are as follows: GRANT DATE DATE OF EXPIRY EXERCISE PRICE NUMBER UNDER OPTION 23 December 2014 19 June 2015 31 December 2018 31 December 2018 $0.40 $0.40 30,712,531 30,712,530 61,425,061 In accordance with the terms of the Taurus Debt Facility, 61,425,061 options were issued to Taurus Funds Management, with half issued on execution and half on facility drawdown in June 2015. Refer to note 21 for further details. Option holders do not have any rights to participate in any issues of shares or other interests in the Group or any other entity. Base Resources Limited Annual Report 2016 SHARES ISSUED SINCE THE END OF THE FINANCIAL YEAR No shares in Base Resources Limited have been issued since year end and no amounts are unpaid on any of the issued shares. PROCEEDINGS ON BEHALF OF GROUP No person has applied for leave of a Court to bring proceedings on behalf of the Group or intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or any part of those proceedings. The Group was not a party to any such proceedings during the year. NON-AUDIT SERVICES The Board of Directors is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons: The nature of the services provided do not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. The following fees were paid or payable to external auditors for non-audit services provided during the year ended 30 June 2016: 31 t r o p e r s r o t c e r i D Taxation services Other services AUDITOR’S INDEPENDENCE DECLARATION 2016 $ 267,243 10,000 2015 $ 282,030 10,000 The lead auditor’s independence declaration for the year ended 30 June 2016 has been received and can be found on page 54 of the Annual Report. ROUNDING The Group is of a kind referred to in ASIC Class Instrument 2016/191 and in accordance with that Class Order, amounts in the financial report and directors’ report have been rounded to the nearest thousand dollars, unless otherwise stated. Positioned for growth Remuneration report - audited 32 This remuneration report sets out the remuneration arrangements for Base Resources Limited for year ended 30 June 2016. This Remuneration Report forms part of the Directors’ Report and has been audited in accordance with the Corporations Act 2001. DETAILS OF KEY MANAGEMENT PERSONNEL The remuneration report details the remuneration arrangements for key management personnel (“KMP”) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, and comprise the Directors (whether executive or otherwise) of the Group and other executive management as detailed in the table below. The Executive Directors and executive management listed in the table below are collectively defined as the Senior Executives for the purposes of this report. NAME Senior Executives T Carstens C Bwye K Balloch C Forbes A Greyling S Hay J Schwarz D Vickers POSITION CHANGES DURING THE YEAR Managing Director Executive Director - Operations & Development Chief Financial Officer General Manager - Environment & Community Affairs General Manager – Project Development General Manager - Marketing General Manager - External Affairs & Development General Manager - Operations Appointed 1 August 2015 Non-Executive Directors K Spence S Willis M Anderson M Macpherson M Stirzaker Chairman Director Director Director Director CHANGES SINCE THE END OF THE REPORTING DATE None. ROLE OF THE REMUNERATION & NOMINATIONS COMMITTEE The Remuneration & Nominations Committee is responsible for oversight of the remuneration system and policies. It is also responsible for evaluating the performance of the Executive Directors and monitoring performance of the executive management team. The Board, upon recommendation of the Remuneration Committee, determines the remuneration of the Executive Directors and approves the remuneration of the executive management team. The objective of the Remuneration & Nominations Committee is to ensure that remuneration system and policies attract and retain executives and directors who will create value for shareholders. SERVICES FROM REMUNERATION CONSULTANTS The Remuneration Committee engaged Godfrey Remuneration Group (“Godfrey”) to review the market competitiveness of the Group’s remuneration practices for the Senior Executives in 2016. The Committee is satisfied the advice received from Godfrey is free from undue influence from the Senior Executives to whom the remuneration recommendations apply. The Godfrey remuneration review was provided to the Committee as an input into decision making only. The Remuneration Committee considered the review, along with other factors, in making its remuneration decisions. In addition to the Senior Executive remuneration review, Godfrey provided advice on the remuneration of the Group’s non-executive directors, and various other advisory services. Total fees paid to Godfrey for these services were $30,200. REMUNERATION POLICY Base Resources is committed to the close alignment of remuneration to shareholder return, particularly that of the Senior Executives. To this end, the Group’s remuneration system is designed to attract, motivate and retain people by identifying and rewarding high performers and recognising their contribution to the continued growth and success of the Group. Key objectives of the Group’s remuneration policy are to ensure that remuneration practices: Facilitate the achievement of the Group’s objectives; Provide strong linkage between executive incentive rewards and creation of value for shareholders; Are simple to understand and implement, openly communicated and are equitable across the Group; Attract, retain and motivate employees of the required capabilities; and Comply with applicable legal requirements and appropriate standards of governance. Base Resources Limited Annual Report 2016 33 d e t i d u a - t r o p e r n o i t a r e n u m e R KEY PRINCIPLES OF SENIOR EXECUTIVE REMUNERATION Remuneration comprises fixed remuneration, and variable (or “at-risk”) remuneration, which is determined by individual and Group performance. The Group targets total fixed remuneration (“TFR”) at the 50th market percentile and total remuneration package (“TRP”), including at-target variable remuneration, at the 75th market percentile, for Senior Executives. As a consequence, the Group’s Senior Executives have a higher proportion of remuneration at-risk than industry averages. Questions and answers about Senior Executive remuneration: REMUNERATION MIX What is the balance between fixed and at-risk remuneration? FIXED REMUNERATION What is included in fixed remuneration? When and how is fixed remuneration reviewed? SHORT TERM INCENTIVE PLAN (“STIP”) What is the STIP? Why does the Board consider the STIP is appropriate? Does the STIP take into account different levels of performance compared to objectives? The mix of fixed and at-risk remuneration varies depending on the organisational level of executives, and also depends on the performance of the Group and individual executives. More senior positions have a greater proportion of their remuneration at-risk. If overall Group performance fails to meet a minimum standard, no executives will be entitled to receive any at-risk remuneration. For all executives, it is therefore possible that no at-risk remuneration will be earned and that fixed remuneration will represent 100 per cent of total remuneration. If target at-risk remuneration is earned, the proportion of total remuneration represented by fixed and at-risk remuneration would be: Executive Directors (includes Managing Director): 36% fixed and 64% at-risk. Other Senior Executives: 53% fixed and 47% at-risk. TFR includes a base salary plus superannuation. Allowances and other benefits may be provided and are as agreed, including leased motor vehicles and additional superannuation, provided that no extra cost is incurred by the Group. In order to attract and retain people of the requisite capability to key roles located in Kenya, an additional market allowance may be paid. The market allowance, while fixed in nature, does not form part of TFR for the purposes of calculating at-risk remuneration entitlements. TFR is reviewed annually. Any adjustments to the TFR for the Executive Directors must be approved by the Board after recommendation by the Remuneration Committee. The Executive Directors determine the TFR of other Senior Executives within specified guidelines approved by the Board. The Group seeks to position the fixed remuneration at the 50th market percentile of salaries for comparable companies within the mining industry, utilising datasets and specific advice provided by independent remuneration consultants. The STIP is the cash component of the at-risk remuneration, payable based on a mix of Group and individual annual performance standards. At-risk remuneration strengthens the link between pay and performance. The purpose of these programs is to reward executives for annual performance relative to expectations of their role accountabilities, required behaviours and KPI’s as well as the delivery of annual business plans. A reward structure that provides at-risk remuneration is also necessary as a competitive remuneration package in the Australian and global marketplace for executives. The size of any payment is linked to the extent of achievement. Levels of performance required for target levels of STIP are set such that they are challenging but achievable. Required performance levels for each performance criteria are set at three levels being: Threshold - A performance level that is below optimal but nevertheless acceptable. It is the minimum for which a small STIP award would be payable. The STIP is designed such that there is an 80% probability the executive will achieve or exceed this level of achievement. Target - A performance level that represents a challenging but achievable level of performance. The STIP is designed such that there is a 50% to 60% probability the executive will achieve or exceed this level of achievement. Stretch - A performance level that is clearly at the upper limit of what may be achievable. The STIP is designed such that there is a 10% to 20% probability the executive will achieve or exceed this level of achievement. The probabilities of achievement are set at these levels such that, over time, awards approximately equal to the target level would become payable, assuming performance to role. The achievement of this target level of award would support the 75th market percentile total remuneration package policy objective for executives. Positioned for growth Remuneration report - audited 34 What are the performance criteria? Is there an overriding financial performance or other conditions? What is the value of the STIP award opportunity? How is STIP assessed? Performance criteria are assigned for both individual and Group performance. Performance criteria may change from year to year. For Senior Executives, 50% of the STIP is attached to individual performance criteria and 50% to corporate performance criteria. Reflecting the importance attached to role clarity within Base Resources, individual performance criteria are drawn directly from the role accountabilities in the participant’s role description. Each performance criteria is allocated a weighting that reflects the relative importance of that performance criteria for the year. Corporate performance criteria are set at the commencement of each financial year and are derived from the annual operating plan and may vary from time to time to include other aspects of performance for which there is shared accountability and which the Group wishes to emphasise. The target corporate performance (50% STIP component) criteria for Senior Executives for the 2016 financial year comprised: 5% above budgeted group EBITDA, assuming fixed AUD:USD exchange rate and variances in actual sales prices against budgeted prices limited to +/- 25%. For each year, a gate or gates may be determined by the Board. The gate may be a minimum level of earnings for the Group or a safety performance threshold that must be achieved for any awards to become payable under the STIP. Irrespective of whether a gate is achieved, the Board retains discretion to increase or decrease awards in its absolute discretion. It is intended that the exercise of this discretion is used sparingly to take account of significant events and/or factors that were not anticipated when the year commenced and the performance criteria were set. The following gates were in place for the 2016 financial year: No workplace fatalities. No major reputational or environmental events. Executive Directors have a target STIP opportunity of 60% of TFR, with a minimum opportunity (if only threshold level is met) of 20% and a maximum opportunity (if the stretch targets are achieved) of 100% of TFR. Other Senior Executives have a target STIP opportunity of 30% of TFR, with a minimum opportunity (if only threshold level is met) of 15% and a maximum opportunity (if the stretch targets are achieved) of 60% of TFR. These percentages are set based on external advice to achieve the remuneration policy intent of 75th market percentile total remuneration package market positioning. Individual performance criteria - are assessed using a performance rating scale. In making the assessment in respect of a particular area of accountability, consideration is given to the extent to which the behaviours and performance indicators identified in the role description have been modelled and observed. This assessment is undertaken by the participant’s manager and then signed-off by the manager-once-removed. In the case of the Executive Directors, the assessment is undertaken by the Remuneration Committee and approved by the Board. Corporate performance criteria – the Board determines the extent to which each corporate performance criteria has been achieved. LONG TERM INCENTIVE PLAN (“LTIP”) What is the LTIP? How often are LTIP awards made? The LTIP is the equity component of at-risk remuneration and is linked to the Group’s Total Shareholder Return (“TSR”) performance over a 3 year period. The LTIP aims to reward participants for Base Resources TSR performance, both relative to its peer group and in absolute terms. The LTIP operates on the basis of a series of cycles. Each cycle commences on 1 October and is followed by a 3 year performance period, with a test date on the 3rd anniversary of the commencement of the cycle. The first cycle of the LTIP began on 1 October 2011. Base Resources Limited Annual Report 2016 Why does the Board consider an LTIP is appropriate? What types of equity may be granted under the LTIP? Was a grant made in 2016? What are the LTIP performance conditions? 35 d e t i d u a - t r o p e r n o i t a r e n u m e R The Group believes that a well designed LTIP can: Attract executives with the required capability; Retain key talent; Maintain a stable leadership team; and Explicitly align and link the interests of Base Resources leadership team and shareholders. Performance rights are granted under the Base Resources LTIP. Performance rights are a right granted to acquire one share in Base Resources, subject to satisfying the performance criteria outlined below. A participant is not entitled to participate in or receive any dividends or other shareholder benefits until the performance right has vested and a share has been allocated and transferred to the participant. Performance Rights were granted to eligible participants in the LTIP for the cycle commencing 1 October 2015. The number of performance rights granted for each executive was calculated by reference to the volume weighted average share price (“VWAP”) on the twenty trading days up to the start of the cycle, being $0.0575 per share. The Group uses two LTIP performance criteria to determine the proportion of performance rights which vest, as follows: Half of the performance rights are subject to a relative TSR criteria (the relative TSR performance rights); and Half of the performance rights are subject to an absolute TSR criteria (the absolute TSR performance rights). The Board considers that TSR is an appropriate performance hurdle because it ensures that a proportion of each participant’s remuneration is explicitly linked to shareholder value and ensures that participants only receive a benefit where there is a corresponding direct benefit to shareholders. Relative TSR performance rights The proportion of relative TSR performance rights which vest will be determined on the basis of Base Resources’ TSR relative to the TSR of the comparator group over the performance period, as set out below: BASE RESOURCES RELATIVE TSR PERFORMANCE PERCENTAGE OF RELATIVE TSR PERFORMANCE RIGHTS THAT VEST Less than 50th percentile 50th percentile Between 50th and 75th percentile 75th percentile and above Nil 50% Pro rata between 50% and 100% 100% Notwithstanding the above, the Board has the absolute discretion to determine that no relative TSR performance rights vest if Base Resources TSR is negative (despite its relative placing within the TSR comparator group). Absolute TSR performance rights The proportion of absolute TSR performance rights which vest will be determined on the basis of Base Resources’ TSR on the following scale: BASE RESOURCES 3-YEAR TSR Less than 40.5% 40.5% Between 40.5% and 60% Between 60% and 100% 100% or greater PERCENTAGE OF ABSOLUTE TSR PERFORMANCE RIGHTS THAT VEST Nil 25% Pro rata between 25% and 50% Pro rata between 50% and 100% 100% The number of performance rights granted for the cycle commencing 1 October 2015 is by reference to the 20 day VWAP of $0.0575 per share, subject to a small scaleback to ensure compliance with applicable ASIC relief ($0.2905 for cycle commencing 1 October 2014 and $0.3697 for cycle commencing 1 October 2013). In order to achieve 100% vesting a share price of $0.1150 or greater would be required ($0.5810 for cycle commencing 1 October 2014 and $0.7394 for cycle commencing 1 October 2013) at the conclusion of the 3 year performance period. Positioned for growth Remuneration report - audited 36 What is the comparator group? The TSR comparator group is comprised of the 26th to 75th ranked companies, from the top 150 ASX listed resource companies (excluding oil and gas) by market capitalisation, at the time of the offer. The comparator group for each of the performance rights cycles is comprised of the following companies: COMPANIES ABM Resources NL Aditya Birla Minerals Limited Alkane Resources Limited Altona Mining Limited Aquarius Platinum Limited Arrium Limited Astron Corporation Limited Atlas Iron Limited Atrum Coal NL Aurelia Metals Limited Austral Gold Limited Avanco Resources Limited Axiom Mining Limited Bandanna Energy Limited Bathurst Resources Limited BC Iron Limited Beadell Resources Limited Blackgold International Holdings Ltd Bougainville Copper Limited CI Resources Limited Coalspur Mines Limited CuDeco Limited Dome Gold Mines Limited Doray Minerals Limited Elemental Minerals Limited Endeavour Mining Corporation Finders Resources Limited Focus Minerals Limited Gindalbie Metals Limited Gold One International Limited Gold Road Resources Limited Grange Resources Limited Greenland Minerals and Energy Ltd Gujarat NRE Coking Coal Limited Highfield Resources Limited Highlands Pacific Limited Hot Chili Limited Indophil Resources NL Inova Resources Limited Intrepid Mines Limited Iron Ore Holdings Limited Iron Road Limited Jupiter Mines Limited Kazakhstan Potash Corp. Ltd Kingsgate Consolidated Ltd Kingsrose Mining Limited Lucapa Diamond Company Limited Lynas Corporation Limited LTIP CYCLE COMMENCING 1 OCTOBER 2015 2014 2013 COMPANIES LTIP CYCLE COMMENCING 1 OCTOBER 2015 2014 2013 ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü Medusa Mining Limited Metals X Limited Mincor Resources NL Mineral Deposits Limited Mirabela Nickel Limited Mount Gibson Iron Limited Newfield Resources Limited Nkwe Platinum Limited Northern Minerals Limited Northern Star Resources Ltd Norton Gold Fields Limited OM Holdings Limited Orocobre Limited Paladin Energy Limited Panoramic Resources Limited Papillion Resources Limited Perilya Limited Perseus Mining Limited Pilbara Minerals Limited Poseidon Nickel Limited Ramelius Resources Limited Rand Mining Limited Resolute Mining Limited Reward Minerals Limited ü RTG Mining Inc Saracen Mineral Holdings Ltd Sheffield Resources Limited Silver Lake Resources Ltd St Barbara Limited Stonewall Resources Limited Summit Resources Limited Sundance Resources Limited Syrah Resources Limited Tanami Gold NL Teranga Gold Corporation Terramin Australia Limited Tiger Resources Limited Tigers Realm Coal Limited TNG Limited Tribune Resources Limited Triton Minerals Limited Troy Resources NL Valence Industries Limited Western Areas NL Western Desert Resource Ltd Wolf Minerals Limited Wollongong Coal Limited ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü ü Base Resources Limited Annual Report 2016 37 d e t i d u a - t r o p e r n o i t a r e n u m e R What happens to performance rights granted under the LTIP when a participant ceases employment? What happens in the event of a change of control? Do shares granted upon vesting of performance rights granted under the LTIP dilute existing shareholders’ equity? Does the Group have a policy in relation to hedging at-risk remuneration? Did any performance rights vest in 2016? Where a participant ceases to be employed by a Group member (and is not immediately employed by another Group member) for any reason other than a qualifying reason, all unvested performance rights of that participant are automatically forfeited. Where a participant ceases to be employed by a Group member because of a qualifying reason, then the Board must determine, in its absolute discretion, the number of unvested performance rights of a participant (if any) that will remain on foot and become capable of vesting in accordance with LTIP rules. The Board will generally exercise its discretion in the following manner: Performance rights granted in the cycle beginning on the 1 October immediately prior to the participant ceasing to be employed by a Group member are automatically forfeited; and All other performance rights that are not forfeited on the participant ceasing to be employed by a Group member will continue to be held by the participant and will be tested for vesting on the test date for the relevant performance right. Qualifying reasons include but are not limited to death, total and permanent disablement, retirement or redundancy. Subject to the Board determining otherwise, if a change of control event occurs then a test date arises on the date that the change of control event occurs with the Board to test the extent to which the performance criteria have been satisfied: On the basis of the offer price of the relevant transaction; and In the case of absolute TSR performance rights, reducing the percentage TSR performance hurdle pro rata to the unexpired portion of the performance period as at the date the change in control event occurs. Shares allocated to the participants in the LTIP upon vesting of performance rights may be satisfied by the Group issuing shares to the plan trustee or purchases by the plan trustee on market. In the event the Group issues shares to the plan trustee to satisfy the vesting of performance rights then shareholders’ pre-existing equity will be diluted. A participant in the LTIP must not enter into an arrangement if the arrangement would have the effect of limiting the exposure of the participant to risk relating to performance rights that have not vested. The 4,870,331 performance rights granted under the LTIP for the cycle commencing 1 October 2012, completed the three year performance period on 30 September 2015 and vested as follows: Relative TSR performance rights Base Resources TSR over the performance period placed it in 38th position relative to the TSR of the 50 comparator group companies, a TSR performance in the 26th percentile, resulting in none of the 2,435,166 relative performance rights vesting. Absolute TSR performance rights Base Resources TSR over the performance period, by reference to a final VWAP of $0.06, equated to a TSR of -75%, resulting in none of the 2,435,165 absolute performance rights vesting. No shares were issued to the participants in the LTIP. GROUP PERFORMANCE AND ITS LINK TO SHAREHOLDER RETURN The following graph compares the yearly change in the cumulative TSR of Base Resources Limited shares during the period 1 July 2011 to 30 June 2016, against the cumulative total return of the ASX 200 Resources Index over the same period. The graph illustrates the cumulative return from Base Resources over the past five years, assuming $100 was invested. No dividends have been declared during this period. Cumulative Total Shareholder Return 1 July 2011 through 30 June 2016 $120 $100 $80 $60 $40 $20 $0 $67 $62 $79 $56 $66 $23 $58 $23 ASX 200 Reources Index Base Resources Limited 1 1 n u J 0 3 1 1 p e S 0 3 1 1 c e D 1 3 2 1 r a M 1 3 2 1 n u J 0 3 2 1 p e S 0 3 2 1 c e D 1 3 3 1 r a M 1 3 3 1 n u J 0 3 3 1 p e S 0 3 3 1 c e D 1 3 4 1 r a M 1 3 4 1 n u J 0 3 4 1 p e S 0 3 4 1 c e D 1 3 5 1 r a M 1 3 5 1 n u J 0 3 5 1 p e S 0 3 5 1 c e D 1 3 6 1 r a M 1 3 6 1 n u J 0 3 Positioned for growth Remuneration report - audited 38 EXECUTIVE REMUNERATION OUTCOMES FOR 2016 Short Term Incentives At the end of the 2016 financial year, a review of the performance of each Senior Executive was undertaken against each of their 2016 individual performance measures as explained above. The 2016 financial year corporate performance achieved was between target and stretch performance levels, and incentives are payable in relation to this component commensurate with the performance level achieved. STIP entitlements earned for 2016 performance are paid in the 2017 financial year. The following table outlines the STI that was earned in comparison with the target STI for the 2016 financial year: NAME T Carstens C Bwye K Balloch C Forbes A Greyling S Hay J Schwarz D Vickers TARGET STI STI AWARDED INDIVIDUAL PERFORMANCE CORPORATE PERFORMANCE INDIVIDUAL PERFORMANCE CORPORATE PERFORMANCE 30% 30% 15% 15% 15% 15% 15% 15% 30% 30% 15% 15% 15% 15% 15% 15% 41% 39% 24% 17% 19% 21% 20% 21% 34% 34% 18% 18% 18% 18% 18% 18% LTIP Performance Rights The LTIP, introduced in 2012, operates on the basis of a series of 3 year performance cycles commencing on 1 October each year. Accordingly, LTIP performance rights issued in the year ending 30 June 2016 are subject to a 3 year performance period ending on 30 September 2018. Performance rights issued under the plan in the 2013 financial year, totalling 4,870,331, completed their 3 year performance period on 30 September 2015, with no performance rights vesting. The table below outlines the historical performance of performance rights cycles under the LTIP programme: GRANT DATE VESTING DATE NUMBER OF PERFORMANCE RIGHTS GRANTED RELATIVE PERFORMANCE RIGHTS ABSOLUTE PERFORMANCE RIGHTS NUMBER VESTED % VESTED NUMBER VESTED % VESTED 30 June 2012 1 October 2012 30 September 2014 30 September 2015 4,125,484 4,870,331 2,062,742 - 100% 0% - - 0% 0% Base Resources Limited Annual Report 2016 39 d e t i d u a - t r o p e r n o i t a r e n u m e R TAKE HOME PAY FOR 2016 The remuneration detailed in this table represents the Senior Executives’ “take home pay” and is aligned to the current reporting period, and therefore is particularly useful in understanding actual remuneration received during the year. The table excludes adjustments made for accounting purposes, and included in Statutory Remuneration (refer page 40), specifically the probability and value of an employee obtaining long service leave and the fair value of performance rights under three outstanding LTIP cycles expensed during the 2016 financial year. The remuneration packages for all Senior Executives are shown in the following table in their employment currency and remain unchanged from 2015, excluding changes in STIP bonus and vested performance rights. KEY MANAGEMENT PERSON CURRENCY SALARY STIP BONUS SUPERANNUATION VESTED PERFORMANCE RIGHTS(II) TAKE HOME PAY(I) (BEFORE TAX) 2016 Executive Directors T Carstens C Bwye Other Key Management Personnel K Balloch C Forbes A Greyling (iii) S Hay J Schwarz D Vickers 2015 Executive Directors T Carstens C Bwye Other Key Management Personnel K Balloch C Forbes S Hay J Schwarz D Vickers AUD AUD AUD GBP AUD AUD USD USD AUD AUD AUD GBP AUD USD USD 406,800 401,800 320,000 235,320 256,667 360,000 327,600 430,816 406,800 401,800 320,000 235,320 360,000 327,600 430,816 326,618 317,882 146,410 82,554 106,651 151,442 122,297 132,163 337,796 346,532 168,877 94,130 182,328 150,698 156,564 30,000 35,000 30,000 - 32,082 30,000 - - 30,000 35,000 30,000 - 30,000 - - - - - - - - - - 170,380 170,380 24,332 15,657 - 55,541 48,088 763,418 754,682 496,410 317,874 395,400 541,442 449,897 562,979 944,976 953,712 543,209 345,107 572,328 533,839 635,468 (i) Base Resources’ financial results are reported under International Financial Reporting Standards (IFRS). The above table includes certain non-IFRS measures including vested performance rights and take home pay. These measures are presented to enable understanding of the underlying remuneration of KMPs. (ii) Vested performance rights are valued at the share price upon vesting (2016: nil vested; 2015: $0.29) and converted to employment currency using prevailing FX rate on the day of vesting (2016: nil vested, 2015: USD 0.8693; GBP 0.5366). (iii) Appointed 1 August 2015. Positioned for growth Remuneration report - audited 40 STATUTORY REMUNERATION DISCLOSURES FOR THE YEAR ENDED 30 JUNE 2016 The statutory remuneration disclosures for the year ended 30 June 2016 are detailed below and are prepared in accordance with Australian Accounting Standards and differ from the take home pay summary on page 39. These differences arise due to the accounting treatment of share-based payments (such as the STIP and LTIP). The remuneration packages for all Senior Executive’s remain unchanged from 2015, in their base currency. Any changes in remuneration in the following table, excluding STIP bonus, are the result of foreign exchange movements only, as detailed below. The remuneration for each Senior Executive of the Group for the years ending 30 June 2016 and 2015 was as follows: KEY MANAGEMENT PERSON SHORT TERM EMPLOYMENT BENEFITS POST- EMPLOYMENT BENEFITS OTHER LONG TERM SHARE BASED PAYMENTS TOTAL PROPORTION PERFORMANCE RELATED SALARY STIP BONUS(I) SUPERANNUATION LONG SERVICE LEAVE(II) PERFORMANCE RIGHTS(III) $ $ $ $ $ $ % 406,800 401,800 2016 Executive Directors T Carstens C Bwye Other Key Management Personnel K Balloch C Forbes (v) A Greyling (iv) S Hay J Schwarz (vi) D Vickers (vi) 320,000 479,853 256,667 360,000 449,815 591,536 326,618 317,882 146,410 149,093 106,651 151,442 164,869 178,169 30,000 35,000 30,000 - 32,082 30,000 - - (19,735) 6,698 271,181 271,181 1,014,864 1,032,561 4,178 - 216 2,138 - - 105,987 136,353 30,298 119,800 119,265 123,835 606,575 765,299 425,914 663,380 733,949 893,540 Total 3,266,471 1,541,134 157,082 (6,505) 1,177,900 6,136,082 406,800 401,800 2015 Executive Directors T Carstens C Bwye Other Key Management Personnel K Balloch C Forbes (v) S Hay J Schwarz (vi) D Vickers (vi) 320,000 443,665 360,000 391,445 514,776 337,796 346,532 168,877 193,285 182,328 196,857 204,520 30,000 35,000 30,000 - 30,000 - - 57,165 21,092 221,953 221,953 1,053,714 1,026,377 6,413 - 3,881 - - 84,614 102,076 94,034 88,946 92,123 609,904 739,026 670,243 677,248 811,419 Total 2,838,486 1,630,195 125,000 88,551 905,699 5,587,931 58.9 57.0 41.6 37.3 32.2 40.9 38.7 33.8 - 53.1 55.4 41.6 40.0 41.2 42.2 36.6 - (i) Current year STI bonuses are accrued in the financial year to which the performance relates. (ii) Long service leave entitlement represents the movement in the provision. Due to a change in calculation methodology a reduction in the provision occurred during the year, impacting some employees. (iii) The fair value of performance rights is calculated at the date of grant using a Monte Carlo Simulation model and recognised over the period in which the minimum service conditions are fulfilled (the vesting period). The value disclosed is the portion of the fair value of the performance rights recognised in the reporting period. The amount included as remuneration is not necessarily the benefit (if any) that individual Senior Executive may ultimately receive. (iv) Appointed 1 August 2015 (v) Total remuneration package denominated in Pounds sterling (GBP) and converted to Australian dollars (A$) for reporting purposes using the average exchange rate for the 2016 financial year of 0.4904 (2015: 0.5304). (vi) Total remuneration package denominated in US dollars (US$) and converted to Australian dollars (A$) for reporting purposes using the average exchange rate for the 2016 financial year of 0.7283 (2015: 0.8369). Base Resources Limited Annual Report 2016 RECONCILIATION OF TAKE HOME PAY TO STATUTORY REMUNERATION A reconciliation of the Managing Director’s take home pay to statutory remuneration is detailed below as an example: 2016 $ 2015 $ 41 Take home pay for the Managing Director Treatment of Long Service Leave: Add: accounting provision for long service leave entitlements Treatment of performance rights: Add: accounting fair value (non-cash) of performance rights recognised in the period Less: valuation of performance rights vested at date of vesting Statutory pay for the Managing Director NON-EXECUTIVE DIRECTOR REMUNERATION 763,418 944,976 (19,735) 57,165 271,181 - 221,953 (170,380) 1,014,864 1,053,714 Shareholders approve the maximum aggregate remuneration for non-executive directors. Fees paid to non-executive directors are recommended by the Remuneration Committee and the Board is responsible for ratifying any recommendations, if appropriate. As approved at the Annual General Meeting on 28 November 2011, the aggregate limit of fees payable per annum is $750,000 in total. Non-executive director remuneration has remained unchanged since 2011. The Group’s policy is that non-executive director’s remuneration is structured to exclude equity-based remuneration and reviewed annually. However, historically the Group was small and the full Board, including the non-executive directors, were included in the operations of the Group more closely than may be the case with larger companies and the non-executive directors were entitled to participate in equity based remuneration schemes. All directors have their indemnity insurance paid by the Group. Non-executive directors receive a fixed fee remuneration consisting of a cash fee and statutory superannuation contributions made by the Group and additional fees for committee roles as set out below: d e t i d u a - t r o p e r n o i t a r e n u m e R Base fees Chairman Other non-executive directors Remuneration & Nominations Committee Chair Committee member Audit Committee Chair Committee member Risk Committee Chair Committee member 2016 $ 2015 $ 110,000 70,000 110,000 70,000 10,500 5,250 14,000 7,000 5,925 2,925 10,500 5,250 14,000 7,000 - - Positioned for growth Remuneration report - audited 42 Non-Executive remuneration for the year ended 30 June 2016 and comparative 2015 remuneration: BASE FEES AUDIT COMMITTEE REMUNERATION & NOMINATIONS COMMITTEE RISK COMMITTEE TOTAL $ $ $ $ $ 110,000 70,000 70,000 70,000 70,000 390,000 97,644 21,781 70,000 70,000 70,000 27,425 42,959 399,809 7,000 14,000 7,000 7,000 - 35,000 6,214 384 14,000 7,000 7,000 - - 34,598 10,500 5,250 - 5,250 5,250 26,250 9,320 575 5,250 - 5,250 - 3,222 23,617 5,925 2,925 - - 2,925 11,775 - - - - - - - - 133,425 92,175 77,000 82,250 78,175 463,025 113,178 22,740 89,250 77,000 82,250 27,425 46,181 458,024 2016 K Spence S Willis M Anderson M Macpherson M Stirzaker Total 2015 A King (i) K Spence (ii) S Willis M Anderson M Macpherson T Schultz (iii) M Stirzaker (iv) Total (i) Mr King retired on 19 May 2015 (ii) Mr Spence was appointed on 20 February 2015 and appointed Chairman on 19 May 2015 (iii) Mr Schultz retired on 19 November 2014 (iv) Mr Stirzaker was appointed on 19 November 2014 Base Resources Limited Annual Report 2016 EQUITY INSTRUMENTS Options Historically options have been issued to directors as part of their remuneration to provide a market linked incentive package. Options are exercisable on a one-for-one basis. In July 2015, a General Meeting of the Group extended the expiry date of the vested options granted to directors by 6 months to 9 January 2016. In January 2016, all options granted to directors, lapsed unexercised following their expiry. The table below outlines movements in options during 2016 and the balance held by each director at 30 June 2016: NAME GRANT DATE NUMBER GRANTED FAIR VALUE PER OPTION AT GRANT DATE EXERCISE PRICE PER OPTION EXPIRY DATE BALANCE 1 JULY 2015 NUMBER VESTED DURING YEAR NUMBER EXERCISED DURING YEAR NUMBER LAPSED DURING YEAR BALANCE 30 JUNE 2016 A King 30 June 2010 30 June 2010 T Carstens 30 June 2010 30 June 2010 30 June 2010 30 June 2010 30 June 2010 30 June 2010 C Bwye S Willis Total 400,000 400,000 800,000 2,500,000 2,500,000 5,000,000 5,000,000 5,000,000 10,000,000 300,000 300,000 600,000 16,400,000 $0.07 $0.06 $0.09 9 Jan 2016 $0.25 9 Jan 2016 $0.07 $0.06 $0.09 9 Jan 2016 $0.25 9 Jan 2016 $0.07 $0.06 $0.09 9 Jan 2016 $0.25 9 Jan 2016 $0.07 $0.06 $0.09 9 Jan 2016 $0.25 9 Jan 2016 400,000 400,000 800,000 2,500,000 2,500,000 5,000,000 3,600,000 5,000,000 8,600,000 300,000 300,000 600,000 15,000,000 - - - - - - - - - - - - - - - - - - - - - - - - - 400,000 400,000 800,000 2,500,000 2,500,000 5,000,000 3,600,000 5,000,000 8,600,000 300,000 300,000 600,000 - 15,000,000 - - - - - - - - - - - - - Performance Rights The LTIP was introduced during the 2012 financial year with effect from 1 October 2011. Under the plan, the Board may offer performance rights to eligible employees. During the 2016 financial year, performance rights were granted to Senior Executives as part of their 2016 remuneration packages. The LTIP operates on the basis of a series of cycles. Each cycle commences on 1 October and will be followed by a 3 year performance period, with a test date on the 3rd anniversary of the commencement of the Cycle. The first Cycle of the LTIP began on 1 October 2011, with award formalised on 30 June 2012. 43 d e t i d u a - t r o p e r n o i t a r e n u m e R Positioned for growth Remuneration report - audited 44 The table below outlines movements in performance rights during 2016 and the balance held by each Senior Executive at 30 June 2016: NAME GRANT DATE(I) NUMBER OF PERFORMANCE RIGHTS FAIR VALUE OF EACH PERFORMANCE RIGHT VESTING DATE(II) NUMBER VESTED DURING YEAR NUMBER LAPSED DURING YEAR BALANCE AT END OF YEAR T Carstens C Bwye K Balloch C Forbes A Greyling S Hay J Schwarz D Vickers 1 October 2012 1 October 2013 1 October 2014 1 October 2015 1 October 2012 1 October 2013 1 October 2014 1 October 2015 1 October 2012 1 October 2013 1 October 2014 1 October 2015 1 October 2012 1 October 2013 1 October 2014 1 October 2015 1 August 2015 1 October 2015 14 January 2013 1 October 2013 1 October 2014 1 October 2015 1 October 2012 1 October 2013 1 October 2014 1 October 2015 1 October 2012 1 October 2013 1 October 2014 1 October 2015 1,018,273 1,413,914 1,799,394 6,964,806 11,196,387 1,018,273 1,413,914 1,799,394 6,964,806 11,196,387 363,669 538,958 720,912 2,790,387 4,413,926 400,488 660,763 900,761 4,072,275 6,034,287 108,731 2,511,348 2,620,079 323,456 631,212 803,301 3,109,289 4,867,258 368,051 569,026 772,582 3,685,863 5,395,522 376,648 591,172 802,650 3,829,314 5,599,784 51,323,630 $0.1490 $0.2300 $0.1400 $0.0380 30 September 2015 30 September 2016 30 September 2017 30 September 2018 $0.1490 $0.2300 $0.1400 $0.0380 30 September 2015 30 September 2016 30 September 2017 30 September 2018 $0.1490 $0.2300 $0.1400 $0.0380 30 September 2015 30 September 2016 30 September 2017 30 September 2018 $0.1490 $0.2300 $0.1400 $0.0380 30 September 2015 30 September 2016 30 September 2017 30 September 2018 $0.1400 $0.0380 30 September 2017 30 September 2018 $0.1490 $0.2300 $0.1400 $0.0380 30 September 2015 30 September 2016 30 September 2017 30 September 2018 $0.1490 $0.2300 $0.1400 $0.0380 30 September 2015 30 September 2016 30 September 2017 30 September 2018 $0.1490 $0.2300 $0.1400 $0.0380 30 September 2015 30 September 2016 30 September 2017 30 September 2018 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,018,273 - - - 1,018,273 1,018,273 - - - 1,018,273 363,669 - - - 363,669 400,488 - - - 400,488 - - - 323,456 - - - 323,456 368,051 - - - 368,051 376,648 - - - - 1,413,914 1,799,394 6,964,806 10,178,114 - 1,413,914 1,799,394 6,964,806 10,178,114 - 538,958 720,912 2,790,387 4,050,257 - 660,763 900,761 4,072,275 5,633,799 108,731 2,511,348 2,620,079 - 631,212 803,301 3,109,289 4,543,802 - 569,026 772,582 3,685,863 5,027,471 - 591,172 802,650 3,829,314 376,648 5,223,136 3,868,858 47,454,772 (i) The amount expensed per the remuneration table reflects the period since commencement of services when the Group and the Senior Executive had a shared understanding of the award. (ii) On the vesting date, performance rights are tested against the performance criteria, only those performance rights that satisfy the performance criteria vest. Base Resources Limited Annual Report 2016 KEY MANAGEMENT PERSONNEL PERFORMANCE RIGHTS MOVEMENTS 2016 T Carstens C Bwye K Balloch C Forbes A Greyling (i) S Hay J Schwarz D Vickers BALANCE 1 JULY 4,231,581 4,231,581 1,623,539 1,962,012 - 1,757,969 1,709,659 1,770,470 6,964,806 6,964,806 2,790,387 4,072,275 2,620,079 3,109,289 3,685,863 3,829,314 GRANTED VESTED LAPSED BALANCE 30 JUNE 10,178,114 10,178,114 4,050,257 5,633,799 2,620,079 4,543,802 5,027,471 5,223,136 1,018,273 1,018,273 363,669 400,488 - 323,456 368,051 376,648 - - - - - - - - - 45 d e t i d u a - t r o p e r n o i t a r e n u m e R (i) Mr Greyling was appointed on 1 August 2015 17,286,811 34,036,819 3,868,858 47,454,772 KEY MANAGEMENT PERSONNEL SHAREHOLDINGS The number of ordinary shares in Base Resources Limited held by each KMP of the Group during the financial year is as follows: BALANCE 1 JULY OPTIONS EXERCISED VESTING OF PERFORMANCE RIGHTS PURCHASED SOLD 2016 K Spence T Carstens C Bwye S Willis M Anderson M Macpherson M Stirzaker K Balloch C Forbes A Greyling (i) S Hay J Schwarz D Vickers - 1,228,522 1,838,739 200,000 - - - 83,903 100,613 - - 220,319 190,752 3,862,848 (i) Mr Greyling was appointed on 1 August 2015 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 25,045 30,033 1,411,154 - 65,766 - 1,531,998 - - - - - - - - - - - - - - BALANCE 30 JUNE - 1,228,522 1,838,739 200,000 - - - 108,948 130,646 1,411,154 - 286,085 190,752 5,394,846 Positioned for growth Remuneration report - audited 46 EXECUTIVE KEY MANAGEMENT PERSONNEL EMPLOYMENT ARRANGEMENTS The employment arrangements of the executive KMPs are formalised in standard employment agreements. Details of the termination provisions contained in the agreements are provided below. NAME TERM OF CONTRACT NOTICE PERIOD BY EITHER PARTY TERMINATION BENEFIT T Carstens Permanent – ongoing until notice has been given by either party 3 month’s notice by the employee 1 month’s notice for termination by 12 months fixed remuneration in the case of termination by the Company Permanent – ongoing until notice has been given by either party C Bwye K Balloch C Forbes A Greyling S Hay J Schwarz D Vickers Company if unable to perform duties by reason of illness No notice required for termination by Company for cause 3 month’s notice by the employee 1 month’s notice for termination by Company for serious breach of employment agreement, incompetence, gross misconduct or refusing to comply with lawful direction given by the Company No notice required for termination by Company if convicted of any major criminal offence Company may elect to make payment in lieu of notice 6 months fixed remuneration in the case of termination by the Company (3 month’s remuneration for C Forbes and A Greyling) This Report of Directors, incorporating the Remuneration Report is signed in accordance with a resolution of the Board of Directors. Keith Spence, Chairman Dated: 30 August 2016 Base Resources Limited Annual Report 2016 Corporate governance The Company is committed to implementing the highest standards of corporate governance to create and deliver value for shareholders. As an ASX listed entity, the Company must comply with the ASX Listing Rules and is required to report against the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (ASX Recommendations). The Board considers that throughout the financial year ended 30 June 2016 the Company complied with the ASX Recommendations, except in the limited circumstances noted in this statement. This statement is current as at 30 June 2016 and has been approved by the Board. Where appropriate, the statement also highlights relevant events that have occurred since 30 June 2016 with respect to the governance practices of the Company. Board of directors ROLE OF THE BOARD The Board Charter sets out the Board’s role, powers and duties and establishes the functions and responsibilities reserved for the Board and those which are delegated to EXCO (comprising the Managing Director and the Executive Director – Operations & Development) and the executive management team. Among other things, the Board reserves responsibility for overseeing the business and affairs of the Company, including its control and accountability systems, setting the strategic direction of the Company, reviewing and ratifying systems of risk management and internal compliance and control, codes of conduct and legal compliance and ensuring a high standard of corporate governance practice and regulatory compliance and promoting ethical and responsible decision making. The Board delegates responsibility for the day-to-day operations, management and administration of the Company to EXCO in accordance with the strategy approved by the Board. EXCO’s joint responsibilities include effective leadership of the Company, preparation, and implementation of, development and operational plans, policies and procedures to achieve the strategic, operational and financial objectives of 47 e c n a n r e v o g e t a r o p r o C A Director’s independence is assessed in accordance with the Definition of Independence set out in the Board Charter. The Chairman is considered independent, along with fellow non-executive Directors Mr Willis and Mr Macpherson. Two of the Board’s non- executive Directors, Mr Anderson and Mr Stirzaker are not considered independent as a consequence of their respective relationships with two of the Company’s substantial shareholders. Due to the current composition of the Board, the Company does not comply with ASX Recommendation 2.4 that a majority of the Board should be independent. While the Board recognises the importance of having appropriate independence on the Board, the Board is satisfied that its current composition does not impact the Board’s ability to act in accordance with the best interests of the Company and its shareholders generally. the Company, management of the day to day affairs of the Company, identifying and managing business risks and managing the Company’s financial and other reporting mechanisms. A full list of those matters reserved to the Board and those matters delegated to management is set out in the Board Charter. These delegations are further documented by way of the Delegation of Authority Standard which is reviewed and approved by the Board annually. The Company Secretary is appointed by the Board and is accountable to the Board, through the Chairman, on all matters to do with the proper functioning of the Board. The Company Secretary’s role includes providing advice to the Board on corporate governance matters, with all Directors having access to the advice and services provided by the Company Secretary. COMPOSITION OF THE BOARD The Board consists of five non-executive Directors and two executive Directors (being the Managing Director and the Executive Director – Operations & Development). The Chairman, Mr Spence, is responsible for leadership and effective performance of the Board and for the maintenance of relations between Directors and management that are open, cordial and conducive to productive cooperation. Positioned for growth Corporate governance 48 SKILLS AND EXPERIENCE The Directors on the Board collectively have a combination of skills and experience in the competencies set out in the table below. The Board has established this set of competencies to assist in assessing the skills and experience of each Director and the combined capabilities of the Board. AREA COMPETENCY Resources industry experience Experi ence in the resources industry, including broad knowledge of exploration, operations, project development, markets, shipping and competitors. Mineral sands industry experience Specific experience in the mineral sands industry, including an in depth knowledge of exploration, operations, project development, markets, shipping, competitors and relevant technology. Strategy Identifying and critically assessing strategic opportunities and threats to an organisation and developing and implementing successful strategies in context to the organisation’s policies and business objectives. Mergers & acquisitions Experience managing, directing or advising on mergers, acquisitions, divestments and portfolio optimisations. Finance Risk management Senior executive or other relevant experience in financial accounting and reporting, internal financial and risk controls, corporate finance and, restructuring corporate transactions. Experience working with and applying broad risk management frameworks in various country, regulatory or business environments, identifying key risks to an organisation, monitoring risks and compliance and knowledge of legal and regulatory requirements. Government relations Senior management or equivalent experience working in diverse international political, cultural, regulatory and business environments. Capital projects; financing/ project management Experience with projects involving contractual negotiations, project management, significant capital outlays and long investment horizons. Sustainable development Senior management or equivalent experience in workplace health and safety, environmental and social responsibility, and community. Previous board experience Serving on boards of varying size and composition, in varying industries and for a range of organisations. An awareness of global practices and benchmarking and some internal experience. Governance Policy Executive leadership Remuneration Implementing the high standards of governance in a major organisation that is subject to rigorous governance standards, and assessing the effectiveness of senior management. Identifying key issues for an organisation and developing appropriate policy parameters within which the organisation should operate. Experience in evaluating the performance of senior management, overseeing strategic human capital planning, industrial relations, organisational change management and sustainable success in business at a senior level. Remuneration and/or nomination committee membership or management experience in relation to succession planning, remuneration, talent management (including incentive programmes, superannuation), and the legislative and contractual framework governing remuneration. Base Resources Limited Annual Report 2016 49 e c n a n r e v o g e t a r o p r o C Details of the skills, experiences, expertise and period of service of each Director is set out on pages 25 to 31 of the Annual Report. The Board considers that collectively the Directors have the range of skills, knowledge, experience and competencies necessary to effectively direct the Company. DIRECTOR APPOINTMENT, INDUCTION, TRAINING AND CONTINUING EDUCATION All new non-executive Directors are required to execute a letter of appointment which sets out the key terms and conditions of their appointment, including duties, rights and responsibilities, envisioned time commitments and the Board’s expectations with respect to committee work. Executive directors and all senior executives enter into employment agreements which govern the terms of their employment. An induction plan is tailored for the specific needs of any new appointee to the Board. The induction process typically includes a comprehensive overview of the Company’s governance policies and procedures, discussions with each member of EXCO and the executive management team and a site visit to the Company’s key operating asset in Kwale, Kenya. The induction materials provided to new appointees include information on the Company’s culture, including the “Base Way” (the set of core beliefs and principles that permeate every aspect of the Company’s business and describes the Company’s desired culture). Directors are expected to maintain the skills necessary to discharge their obligations to the Company and its shareholders. The Company provides the Board with regular information on industry-related matters and new developments with the potential to affect the Company. When a particular need is identified (for example, arising from a Board function review), the Company will organise specific structured professional development opportunities for Directors. The Board manages succession planning with the assistance of the Remuneration & Nomination Committee. No new appointments were made to the Board during the financial year ended 30 June 2016. Should a vacancy exist or should it otherwise become appropriate for Board changes to be implemented, it is the responsibility of the Remuneration & Nomination Committee (among other things) to identify and recommend to the Board candidates for the Board after considering the necessary and desirable competencies of new Board members to ensure the appropriate mix of skills, experience, expertise and diversity, and after assessment of how the candidate can contribute to the strategic direction of the Company. The Board may engage an independent recruitment firm to undertake a search for suitable candidates. The Company undertakes appropriate background and screening checks prior to nominating an individual for election as a Director by shareholders, and provides shareholders all material information in its possession concerning a Director standing for election or re-election in the explanatory memorandum accompanying the relevant notice of meeting. BOARD PERFORMANCE EVALUATION It is the Company’s policy that once a year, the Board will review and critically evaluate the performance of the Board, the Board Committees and individual Directors. The method and scope of this performance evaluation will be set by the Board each year, but typically would include self-assessments designed to effectively review the performance of the Board and each of its Committees against the requirements of their specific charters and the individual performance of each Director. In appropriate circumstances, the Board performance evaluation may involve engagement of a third party Board advisor. The process for this annual review is set out in further detail in the Board Charter. A performance evaluation of the Board, its Committees and individual Directors was undertaken during the reporting period ending 30 June 2016. This review comprised of a questionnaire process completed by each Director designed to assess performance of the Board, the Chairman, each Committee and its Chairman and each individual Director. The key outcomes of the questionnaire process were analysed and considered at the subsequent Board or Committee meeting, with the Chairman undertaking separate review discussions with each individual Director. Overall, the results of the review process were pleasing, demonstrating that the Board, its Committees and individual Directors were considered to be performing their respective roles effectively. The review process also identified a small number of opportunities for improvement that will be addressed. DIRECTOR RETIREMENT AND RE-ELECTION With the exception of the Managing Director, directors must retire at the third AGM following their last election or re-election. At least one Director must stand for election at each AGM. Any director appointed to fill a casual vacancy since the date of the previous AGM retires at the next AGM and is eligible for election. Board support for a Director’s re-election is not automatic and is subject to satisfactory Director performance. It is the role of the Remuneration & Nomination Committee to consider and recommend to the Board candidates for election or re-election to the Board. COMMITTEES OF THE BOARD The Board has the power under the Company’s Constitution to delegate its powers as it considers appropriate. The Board has established an Audit Committee, Remuneration & Nomination Committee and Risk Committee. In addition to these standing Committees, in June 2016 the Board established an ad hoc Taurus Refinancing Committee to assist the Board in assessing the available options for repayment or refinancing of the Company’s US$20 million facility from Taurus Funds Management. The Committees generally operate in a review or advisory capacity, except in limited circumstances where the Board’s powers are specifically delegated to a Committee. Each Committee has a charter detailing its role, duties and membership requirements. These charters are reviewed regularly, and at least annually, and are updated as required. Details of the skills, experiences and expertise of each member of the respective Committees of the Board is set out on pages 28 to 29 of the Annual Report. Details of the Committee meetings held during the year and attendances of members at those meetings is set out on page 30 of the Annual Report. Audit Committee The role of the Audit Committee is to assist the Board to meet its oversight responsibilities in relation to the Company’s financial reporting, compliance with legal and regulatory requirements and external audit function. The Audit Committee has four members, which during the year were Mr Willis, Mr Spence, Mr Anderson and Mr Macpherson all of whom are non-executive Directors and a majority of whom are independent. Mr Willis, an independent non-executive Director, is Committee Chairman. Remuneration & Nomination Committee The role of the Remuneration & Nomination Committee with respect to remuneration matters is to assist the Board in fulfilling its oversight responsibilities in relation to the overall remuneration strategy of the Company, and its specific application to EXCO and the senior management team, and reviewing and approving any equity based plans and other incentive schemes. This role is designed to assist in ensuring that the executive remuneration policy demonstrates a clear relationship between executive performance and remuneration. The role of the Committee with respect to nomination matters is to support the Board in fulfilling its responsibilities by maintaining a Board that has an appropriate mix of skills and experience, developing the processes for evaluation of performance of the Board and its Committees, ensuring the Company’s Diversity Policy is implemented in respect of the Board and managing the Positioned for growth Corporate governance 50 process for identifying and selecting new Directors. The Remuneration & Nomination Committee has four members, all of whom are non-executive Directors and a majority of whom are independent. Members of the Committee were Mr Spence, Mr Willis, Mr Macpherson and Mr Stirzaker. Mr Spence, an independent non-executive Director, is Committee Chairman. Risk Committee In July 2015, the Board established a Risk Committee which has the role of assisting the Board with the identification and management of business and operational risks faced by the Company to a standard that takes into account the reasonable expectations of the Company’s shareholders, employees, customers, suppliers, creditors and the broader community in which the Company operates. The Risk Committee conducts a full review and update of the Company’s material business risk register and risk management framework every four months, or as required (and at least annually). The Risk Committee has three members, all of whom are non-executive Directors and a majority of whom are independent. Members of the Committee are Mr Spence, Mr Willis and Mr Stirzaker. Mr Spence, an independent non-executive Director, is Committee Chairman. Taurus Refinancing Committee In June 2016, the Board established the ad hoc Taurus Refinancing Committee which has the primary purpose of assisting the Board in assessing the available options for repayment or refinancing of the Company’s US$20 million facility from Taurus Funds Management. The Taurus Refinancing Committee is not a separately remunerated committee. Members of the Committee are Mr Willis, Mr Spence, Mr Carstens and the Company’s Chief Financial Officer whom has been seconded to the Committee. Mr Willis, an independent non-executive Director, is Committee Chairman. Subject to being dissolved earlier by the Board, the Committee is intended to operate until the Taurus facility is repaid or refinanced. Shareholder communication GENERAL The Board recognises the importance of regular and proactive interaction with the market to ensure the Company’s investors and key stakeholders remain informed about the Company’s activities. The Company has an investor relations program designed to facilitate effective two- way communication with shareholders. The Company’s Continuous Disclosure and Market Communications Policy sets out the Company’s commitment to: communicating effectively with shareholders through releases to the market via ASX and AIM, information mailed to shareholders (e.g. notices of meetings and explanatory material and periodic disclosure, such as annual, half yearly and quarterly reporting of exploration, production and corporate activities) and the general meetings of the Company; giving shareholders ready access to balanced and understandable information about the Company and corporate proposals; and making it easy for shareholders to participate in general meetings of the Company. The Board further recognises the rights of shareholders and encourages the effective exercise of those rights through the following means: notices of meeting and other meeting materials are drafted in concise and clear language and are distributed in accordance with the provisions of the Corporations Act; shareholders are encouraged to use their attendance at meetings to ask questions on relevant matters, with time being specifically set aside at each meeting for shareholder questions; shareholders are encouraged to participate in voting on proposed resolutions by either attending the meeting or by way of lodgement of proxies, if shareholders are unable to attend the meeting; it is general practice for a presentation on the Company’s recent activities to be made to shareholders at each annual general meeting; and at annual general meetings, it is both the Company’s policy and the policy of the Company’s auditor for the lead engagement partner to be present at the annual general meeting and to answer any questions regarding the conduct of the audit and the preparation and content of the auditor’s report. The Company’s website (www.baseresources.com.au) provides information about the Company generally for the benefit of its shareholders, market participants and key stakeholders. The Company’s website is promptly updated with material released to ASX and AIM after confirmation of release by ASX. All information available on the Company’s website is regularly reviewed and updated to ensure that information is current, or appropriately dated and archived. Of note, the Company’s website includes the following sections which contain relevant information for shareholders: a governance section, which contains the Company’s Constitution, relevant governance policies and practices, Board and Board Committee Charters; a Board and management section, which contains the names and brief biographical information for each of the Directors and senior executives; a reports section, which contains copies of annual, half yearly and quarterly reports; and a market releases section containing ASX announcements (including full text of notices of meeting and explanatory material) and a presentations section containing power point presentations. Further information about operations at the Kwale Project are made available from the website of the Company’s wholly-owned operating subsidiary, Base Titanium (www.basetitanium.com). The Company provides the opportunity for shareholders to receive communications from, Base Resources Limited Annual Report 2016 51 e c n a n r e v o g e t a r o p r o C and send communications to, the Company and its securities registry electronically. The Company makes available telephone, fax and email contact details on its website through which shareholders are welcomed to contact the Company. Further, shareholders are provided the option and are encouraged to receive communications from the Company’s securities registry electronically. CONTINUOUS DISCLOSURE AND MARKET COMMUNICATIONS The Company is committed to ensuring that shareholders and the market are provided with full and timely information about the Company and its activities and that all investors have equal opportunity to receive externally available information issued by the Company. The Company’s Continuous Disclosure and Market Communications Policy provides that the Managing Director and the Company Secretary are primarily responsible for ensuring that the Company complies with its disclosure obligations and for overseeing and co-ordinating the disclosure of information to relevant stock exchanges, shareholders and applicable regulatory authorities. To assist in this process, it is the responsibility of every Director and employee to report to the Company Secretary any price sensitive information which that person has obtained. To the full extent practical (having regard to the requirement for immediate disclosure in certain circumstances), the Board is given the opportunity to review and comment on material announcements prior to their release. Promoting responsible and ethical behaviours THE “BASE WAY”, CODE OF CONDUCT AND INTEGRITY SYSTEM The “Base Way” sets out the unifying set of beliefs and behavioural expectations for the Company and its employees, including the Company’s absolute commitment to conducting its business in a legal, honest and ethical manner. The Company’s Code of Conduct provides an overview of the framework for decision making and actions in relation to ethical conduct in employment at the Company and its subsidiaries. The Code of Conduct summarises the key business systems (including relevant Policies and Standards) adopted by the Company that apply to the Company and its subsidiaries and their respective employees which underpin the Company’s commitment to integrity and fair dealing in its business affairs and to its duty of care to employees, customers and stakeholders. Breaches of the Code of Conduct may lead to disciplinary action, as outlined in the Company’s Unacceptable Performance and Misconduct System. The Company’s Integrity Policy expands on the Company’s commitment to conducting its business in a legal, honest and ethical manner by: Prohibiting bribery and corruption in all forms. Employees must not commit, or be a party to, or be involved in bribery or corruption. Ensuring that gifts, entertainment, travel and per diem reimbursements are not given or received as a reward or encouragement for preferential treatment. The Company not participating in party politics. The Company does not make payments to political parties or individual politicians. Not making charitable donations or sponsorships that could be perceived as bribes or payments to gain an improper business advantage. Employees ensuring their personal activities and interests do not conflict with their responsibilities to the Company. Requiring third parties who act on the Company’s behalf to comply with the Integrity Policy and the Integrity Standard. Requiring all employees to confront inappropriate behaviour in others. Including demonstrating the “Base Way” as a specific accountability in every role description. The Integrity Standard further sets out the responsibilities and limits of discretion of the Company’s personnel in observing and upholding the absolute prohibition on bribery, corruption and related improper conduct and provides information and guidance on how to recognise and deal with instances of potential bribery and corruption. A breach of the Integrity Standard by a member of the Company’s personnel will be regarded as serious misconduct, and will lead to disciplinary action which may include termination of employment. The Company also has a Whistle-blower System to provide a confidential mechanism for employees to hold their leaders and co-workers accountable if not behaving with absolute integrity. The Company is a signatory to the Extractive Industries Transparency Initiative (EITI), which was launched in 2002 at the World Summit for Sustainable Development. The EITI has put in place a reporting system to encourage transparency and accountability in the receipt and use by Governments of revenues from extractive industries. EITI supports good governance through the verification and full publication of payments by companies and use of government revenues derived from oil, gas and mining. The Company provides these publications via the governance section of the Base Titanium website (www.basetitanium.com). SECURITIES OWNERSHIP AND DEALING The Company’s Securities Trading Policy (which was updated with effect from 1 September 2016) applies to Directors and employees of the Company and its subsidiaries. This policy provides a brief summary of the law on insider trading and sets out the policy requirements for the sale, purchase and conversion/ exercise of the Company’s securities by Directors and employees. The purpose of the policy is to: assist Directors and employees to avoid conduct known as “insider trading”; explain the type of conduct in relation to dealings in securities of the Company that is prohibited under the Corporations Act and the European Union’s Market Abuse Regulation; and establish a best practice procedure relating to dealing in the Company’s securities that provides protection to the Company, its Directors and employees against the misuse of unpublished information which could materially affect the price or value of the Company’s securities. Any dealing in the Company’s securities by Directors is notified to ASX, and any dealing by directors or other persons discharging management responsibility is notified to AIM and the United Kingdom’s Financial Conduct Authority, without delay. Directors and employees participating in equity based incentive plans are also prohibited from entering into any transaction which would have the effect of hedging or otherwise transferring to any other person the risk of any fluctuation in the value of any unvested entitlement in the Company’s securities. Strict compliance with the Securities Trading Policy is mandatory for all Directors and employees of the Company and its subsidiaries. Any breach of this policy is taken seriously and is subject to disciplinary action, including possible termination of a person’s employment or appointment. Risk management and internal controls APPROACH TO RISK MANAGEMENT INTERNAL CONTROLS The Company recognises that risk is an integral and unavoidable component of its business and is characterised by both risk and opportunity. The effective management of risk enables the Company to enhance opportunities, reduce threats and in so doing represent a source of competitive advantage. The Company is committed to managing risk in a proactive manner that is integrated throughout the business and informs all decision making as part of day to day management. Positioned for growth Corporate governance 52 RISK MANAGEMENT ROLES AND RESPONSIBILITIES As discussed above, the Company established a Risk Committee of the Board in July 2015. The Risk Committee’s role is to assist the Board in monitoring risk, with a full review and update of the Company’s material business risk register and risk management framework every four months, or as required (and at least annually). While the Company does not have a formal internal audit function, it has a well- established Risk Management Framework and the Audit Committee annually reviews the need for a formal internal audit function. The Risk Committee is responsible for reviewing and approving the Company’s Risk Management Framework, Risk Policy and key risk parameters at least annually, with the Committee having reviewed the Company’s Risk Management Framework during the year. The Risk Committee is responsible for (amongst other things): ensuring that management designs and implements a risk management and internal control system to manage the Company’s material business risks; reviewing at least annually the Company’s risk management and internal control system and reporting to the Board on its efficiency and effectiveness; reviewing the risk reports produced by management and reviewing the efficiency and effectiveness of that risk management and internal control system; developing and maintaining a risk register which identifies the material business risks to the Company and its operations (including economic, environmental and social sustainability risks) and assessing the likelihood of their occurrence; periodically reviewing the scope and adequacy of the Company’s insurance, having regard to the Company’s business and its associated insurable risks; overseeing the Company’s operational and environmental risk management and occupational health and safety processes; and overseeing procedures for whistle-blower protection. Management is responsible for promoting and applying the Risk Policy, which involves establishing a risk-aware culture, identifying and assessing business and operational risks, developing and implementing appropriate risk strategies, systems and controls, monitoring the effectiveness of risk controls and reporting on risk management and performance. Management also maintains the Material Business Risk Register, which is considered by the Risk Committee on a regular basis. The Company is exposed to a number of risks across its business, which it seeks to manage in a manner consistent with its Risk Management Framework. These risks are categorised by the Company as strategic (e.g. the Company’s ability to execute its growth strategy), financial (e.g. funding continuity), regulatory (e.g. political, mining and fiscal policy) or operational (e.g. community, safety, security, human resources and production). The Company has identified that it has a material exposure to certain environmental and social sustainability risks associated with its operation of the Kwale Project. Communities affected by the Kwale Project play an integral role in the Company’s overall success, which the Company seeks to achieve through a structured and integrated community engagement approach. The Company strives to build lasting and beneficial relationships with its communities. By supporting equitable development, the Company seeks to establish a model for future development opportunities in other parts of Kenya and beyond, in a manner that emphasises the value of local community participation and recognises their cultural heritage. The Company’s Communities Policy is based on working together in a way that allows broad participation of affected people through mutual respect and demonstrates the Company’s long-term commitment to deliver real, tangible and sustainable benefits. The Company’s social management systems have been prepared to the highest international standards to guide the Company in achieving this objective. The Company is also committed to undertaking its activities in a way that minimises impact on the environment. The Company’s Environmental Policy and the “Base Way” drive the Company’s commitment to preventing pollution, minimising impacts, contributing to protecting and conserving biodiversity and driving environmentally responsible behaviour. The Company believes that good environmental performance contributes to business success. The Company empowers its employees to work in an environmentally responsible manner and encourages everyone to take responsibility in this regard. The Company works in partnership with its host communities, conservation groups and environmental experts to realise its objectives and regularly reviews environmental performance to achieve continuous improvement. A comprehensive understanding of the environmental impacts during design, construction, operations and ultimately closure of the Kwale Project direct the Company’s environmental programmes. A dedicated and professional team manages the Kwale Project’s environmental function based on an environmental management system guided by the Environmental Policy. CEO AND CFO ASSURANCE The Board receives monthly reports on the group’s financial and operational results. Before adoption by the Board of the 31 December 2015 half-year and 30 June 2016 full-year financial statements, the Audit Committee and the Board received written declarations from the Managing Director and the Chief Financial Officer that, in their opinion, the financial records of the Company had been properly maintained and the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the Company and that their opinion had been formed on the basis of a sound system of risk management and internal control which was operating effectively. Base Resources Limited Annual Report 2016 Diversity The Company values and encourages a diverse workforce and provides a work environment in which everyone is treated fairly, with respect and can realise their full potential. As set out further in the Company’s Employment Policy, the Company seeks to achieve this by: Employing on the basis of job requirements and merit without discriminating on the grounds of age, ethnic or social origin, gender, sexual orientation, politics or religion. Ensuring its people are trained to work, and then working, in safe, healthy and environmentally responsible ways. Requiring managers to be models of the highest standards of behaviour and to demonstrate visible leadership. The Company’s OBJECTIVE employees must treat each other and those they deal with externally with dignity, fairness and respect. The Company’s employees must guard against harassment in the workplace. Maintaining codes of conduct and performance standards that establish sound conditions of work and disciplinary procedures in compliance with all applicable laws and which uphold human rights principles. Remuneration and incentive systems are equitable and transparent. Establishing and developing integrated employment management systems that seek to elevate employee engagement within the Company to a recognised competitive advantage. Including demonstrating the “Base Way” as a specific accountability in every role description. A key focus of the Company since before the commencement of operations in late 2013, has been the establishment of an operational workforce that delivers on commitments to maximise employment opportunities for local communities, whilst achieving the highest standards of operational and safety performance. As at 30 June 2016, the Company is pleased to report that it employed 94.5% Kenyan national employees at Kwale, which represents 92% for the group. The Company has systems in place to drive a structured transfer of skills that will see this proportion increase over time. While the primary focus to date has been on maximising Kenyan participation, workforce establishment and performance enhancement, in July 2015 the Company’s Diversity Standard was revised to require that the Board set measurable objectives for achieving gender diversity, for those objectives to be reviewed annually and for the Board to assess annually progress in achieving those objectives. The Board set the following measurable objectives which applied for the financial year ending 30 June 2016: Increase the overall percentage of women employed by the group. Increase female representation in graduate and apprentice programmes. Increase the percentage of women in executive roles (Stratum III and above). Subject to vacancies, to consider diversity when reviewing Board succession plans with the aim to have gender representation and greater diversity. The Board is pleased to report positive progress in achieving the objectives set for the financial year ending 30 June 2016, as shown below. 53 e c n a n r e v o g e t a r o p r o C 30 JUNE 2015 (% WOMEN) 30 JUNE 2016 (%WOMEN) CHANGE (% WOMEN) Increase the overall percentage of women Increase female representation in graduate and apprentice programmes Increase the percentage of women in executive roles (Stratum III and above) Board gender diversity 15.5 18 15 0 16.5 50 18 0 1 32 3 0 Continuous Disclosure and Market Communications Policy Risk Management Policy Environment Policy Communities Policy Employment Policy Diversity Standard Health and Safety Policy The modified objectives are considered appropriate for the Company given positive progress made during the year ended 30 June 2016 and its current state of operations, in particular reflecting the relative stability of the Company’s workforce which will naturally reduce the opportunities to increase gender diversity as rapidly going forward. The Board will report the Company’s progress in achieving the above modified objectives in next year’s corporate governance statement. Availability of key corporate governance documents The following suite of the Company’s key corporate governance policies and procedures are available from the Company’s website at http://www.baseresources. com.au/company-profile/ governance/. Constitution Board Governance Plan (including all Board Committee Charters) Code of Conduct Securities Trading Policy Following review after the 2016 financial year end, the Board has modified the measurable objectives and has set the following objectives for the financial year ending 30 June 2017: Increase the overall percentage of women employed by the Base group. Maintain female representation in graduate and apprentice programmes at or above one third. Subject to vacancies, increase the percentage of women in executive roles (Stratum III and above). Subject to vacancies, to consider diversity when reviewing Board succession plans with the aim to have gender representation and greater diversity. Positioned for growth Lead Auditor’s Independence Declaration 54 under Section 307C of the Corporations Act 2001 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To: the directors of Base Resources Limited I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2016 there have been: (i) (ii) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Rob Gambitta Partner Perth 30 August 2016 34 Base Resources Limited Annual Report 2016 Consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2016 Sales revenue Cost of sales Profit from operations Corporate and external affairs Community development costs Selling and distribution costs Other expenses Profit before financing income and income tax Financing costs Loss before income tax Income tax expense Net loss for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss: Foreign currency translation differences - foreign operations Total other comprehensive income / (loss) for the year Total comprehensive (loss) / income for the year Net (Loss) / earnings per share Basic (loss) / earnings per share (cents per share) Diluted (loss) / earnings per share (cents per share) The accompanying notes form part of these consolidated financial statements. NOTE 2016 $000s 2015 $000s 169,039 (133,620) 35,419 145,501 (114,725) 30,776 (11,276) (3,921) (4,114) (2,731) 13,377 (34,256) (20,879) (40) (20,919) 5,336 5,336 (15,583) Cents (3.41) (3.41) (10,832) (3,945) (2,391) (262) 13,346 (29,305) (15,959) (80) (16,039) 29,336 29,336 13,297 Cents (2.85) (2.85) 2 3 6 5 5 55 e m o c n i e v i s n e h e r p m o c r e h t o d n a s s o l r o t i f o r p f o t n e m e t a t s d e t a d i l o s n o C Positioned for growth Consolidated statement of financial position 56 For the year ended 30 June 2016 Current assets Cash and cash equivalents Restricted cash Trade and other receivables Inventories Other current assets Total current assets Non-current assets Capitalised exploration and evaluation Property, plant and equipment Restricted cash Total non-current assets Total assets Current liabilities Trade and other payables Borrowings Provisions Deferred revenue Other liabilities Total current liabilities Non-current liabilities Borrowings Provisions Deferred revenue Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity The accompanying notes form part of these consolidated financial statements. 30 JUNE 2016 30 JUNE 2015 NOTE $000s $000s 7 8 9 10 11 8 12 13 14 15 13 14 15 16 36,295 29,761 43,544 27,962 5,826 40,906 - 54,481 31,584 5,853 143,388 132,824 1,487 390,304 - 391,791 535,179 24,953 61,816 1,173 1,123 887 89,952 196,291 28,973 3,089 228,353 318,305 216,874 223,548 54,780 (61,454) 216,874 1,432 420,983 6,532 428,947 561,771 21,866 70,057 1,239 3,248 636 97,046 211,812 27,313 4,082 243,207 340,253 221,518 214,131 49,706 (42,319) 221,518 Base Resources Limited Annual Report 2016 Consolidated statement of changes in equity For the year ended 30 June 2016 ISSUED CAPITAL ACCUMULATED LOSSES SHARE BASED PAYMENT RESERVE FOREIGN CURRENCY TRANSLATION RESERVE TOTAL $000s $000s $000s $000s $000s Balance at 1 July 2014 Loss for the year Other comprehensive income Total comprehensive income for the year Transactions with owners, recognised directly in equity Share based payments Balance at 30 June 2015 Balance at 1 July 2015 Loss for the year Other comprehensive income Total comprehensive income for the year Transactions with owners, recognised directly in equity Shares issued during the year, net of costs Share based payments Balance at 30 June 2016 The accompanying notes form part of these consolidated financial statements. 213,669 - - - (26,742) (16,039) - (16,039) 462 462 214,131 (42,319) 214,131 - - - (42,319) (20,919) - (20,919) 9,417 - - 1,784 223,548 (61,454) 2,752 - - - 4,285 7,037 7,037 - - - - (262) 6,775 13,333 - 29,336 29,336 203,012 (16,039) 29,336 13,297 - 5,209 42,669 221,518 42,669 - 5,336 5,336 221,518 (20,919) 5,336 (15,583) - - 9,417 1,522 48,005 216,874 57 y t i u q e n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o C Positioned for growth Consolidated statement of cash flows 58 For the year ended 30 June 2016 Cash flows from operating activities Receipts from customers Payments in the course of operations Other Net cash from operating activities Cash flows from investing activities Purchase of property, plant and equipment Other Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Payment of share issue costs Proceeds from debt financing Repayment of borrowings Net payments to restricted cash (debt service reserve account) Payments for debt service costs and re-scheduling fees Net cash used in financing activities Net (decrease) / increase in cash held Cash at beginning of year Effect of exchange fluctuations on cash held Cash at end of year The accompanying notes form part of these consolidated financial statements. NOTE 2016 $000s 2015 $000s 170,765 (92,061) (96) 78,608 (4,884) (187) (5,071) 10,100 (683) - (31,680) (23,230) (34,632) (80,125) (6,588) 40,906 1,977 36,295 132,443 (94,131) (98) 38,214 (9,129) 64 (9,065) - - 26,126 (14,369) - (25,210) (13,453) 15,696 20,945 4,265 40,906 17 7 Base Resources Limited Annual Report 2016 59 s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e h t o t s e t o N Notes to the consolidated financial statements Note 1: Statement of Significant Accounting Policies REPORTING ENTITY Base Resources Limited is a company domiciled in Australia. The registered address is located at Level 1, 50 Kings Park Road, West Perth, WA, 6005. The consolidated financial statements of the Company as at and for the year ended 30 June 2016 comprises the Company and its wholly owned subsidiaries (together referred to as the Group). The Group is a for-profit entity and primarily involved in the operation of the Kwale Mineral Sands Mine in Kenya. BASIS OF PREPARATION Statement of compliance The consolidated financial statements is a general purpose financial report prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board. The consolidated financial statements were approved by the Board of Directors on 30th August 2016. Basis of measurement The financial report has been prepared on an accruals basis and is based on historical costs, modified, where applicable, by the measurement at fair value of selected non- current assets, financial assets and financial liabilities. Financial position The consolidated financial report has been prepared on a going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business. The Group held cash on hand and restricted cash (debt service reserve account) as at 30 June 2016 of $66.1 million, net assets of $216.9 million and had a net working capital surplus of $53.4 million, inclusive of $62.8 million of scheduled debt repayments for the Kwale Project Debt Facility and Taurus Debt Facility due in the 2017 financial year. Net cash inflows from operating and investing activities for the year ended 30 June 2016 was $73.5 million. The parent entity has a working capital deficit of approximately $19.3 million largely due to the Taurus Debt Facility which is due at 31 December 2016, totalling $27.0 million (US$20 million), reduced to $22.7 million (US$17.3 million) subsequent year end, refer to note 13. The positive working capital position at the subsidiary level is not freely transferable to the parent entity due to restrictions under the Kwale Project Debt Facility and as a result, the Group will require additional funding by 31 December 2016. The Directors consider the going concern basis of preparation to be appropriate based on forecast cash flows. The achievement of the cash flow forecast is dependent upon mineral sands prices, meeting production output and cost forecasts, the receipt of VAT refunds as expected and the successful refinancing or replacement of the Taurus Debt Facility at the parent entity level. The Group is currently assessing its options to address the outstanding balance of the Taurus Facility at maturity, which include seeking an extension of the facility maturity date, refinancing the facility with another party, raising equity or a combination of these options. However, the Directors have a reasonable expectation that a suitable funding solution can be secured in the required timeframe in light of current market conditions for mineral sands, current operating performance of the project and the past capacity of the Group to obtain funding as required. Should the Group not secure a suitable funding solution for the Taurus Debt Facility in the required timeframe, there is material uncertainty as to whether the Group will be able to continue as a going concern and realise its assets and extinguish its liabilities in the normal course of business at the amounts stated in the financial report. The financial report does not include adjustments relating to the recoverability and classification of recorded asset amounts nor to the amount and classification of liabilities that might be necessary should the Group not continue as a going concern. Functional and presentation currency These consolidated financial statements are presented in Australian dollars, which is the Group’s functional currency and all values are rounded to the nearest thousand dollars ($000s) unless otherwise stated. The functional currency for the subsidiaries is United States dollars. Critical accounting estimates and judgements The directors make estimates and judgements in the preparation of the financial report that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Impairment of assets At each reporting date, the Group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. This requires an estimation of the fair value of the cash-generating unit to which the assets are allocated. Estimating the fair value amount requires management to make an estimate of the expected future cash flows from the cash-generating unit over the forecast period and also to determine a suitable discount rate in order to calculate the present value of those cash flows. Key estimates supporting the expected future cash flows include mineral sands prices, production output and cost forecasts. Positioned for growth Notes to the consolidated financial statements 60 Mine closure and rehabilitation obligations Provision is made for the anticipated costs of future closure and rehabilitation of mining areas. These future cost estimates are discounted to their present value. The calculation of these provision estimates requires assumptions such as application of environmental legislation, plant closure dates, available technologies, engineering cost estimates and discount rates. A change in any of the assumptions used may have a material impact on the carrying value of mine closure and rehabilitation obligations. Ore reserves and resources estimates The estimated quantities of economically recoverable reserves and resources are based upon interpretations of geological and geophysical models and require assumptions to be made regarding factors such as estimates of short and long-term exchange rates, estimates of short and long-term commodity prices, future capital requirements and future operating performance. Changes in reported reserves and resources estimates can impact the carrying value of property, plant and equipment, intangible assets, provisions for mine closure and rehabilitation obligations, the recognition of deferred tax assets, as well as the amount of depreciation and amortisation charged to the Statement of Profit or Loss and Other Comprehensive Income. Share based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by a recognised valuation model, using the assumptions detailed in note 20. Taxation Balances related to taxation disclosed in the financial statements and the notes thereto are based on the best estimates of directors. These estimates take into account both the financial performance and position of the Group as they pertain to current income taxation legislation, and the directors understanding thereof. No adjustment has been made for pending or future taxation legislation. The current income tax position represents the directors’ best estimate, pending an assessment by the tax authorities in Australia and jurisdictions where it has foreign operations. In accordance with the Group’s accounting policies for deferred taxes (refer note 1c), a deferred tax asset is recognised for unused tax losses only if it is probable that future taxable profits will be available to utilise those losses. Determination of future taxable profits requires estimates and assumptions as to future events and circumstances, in particular, whether successful development and commercial exploitation, or alternatively, sale of the respective areas of interest will be achieved. This includes estimates and judgements about commodity prices, exchange rates, future capital requirements, future operational performance and the timing of estimated cash flows. Changes in these estimates and assumptions could impact on the amount and probability of estimated taxable profits and accordingly the recoverability of deferred tax assets. The carrying amount of deferred tax assets are set out in note 6. Construction period VAT receivable Refer to note 22 for discussion on judgements surrounding recovery of construction period VAT receivable. SIGNIFICANT ACCOUNTING POLICIES (a) Principles of consolidation The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by Base Resources Limited at the end of the reporting period. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. Where controlled entities have entered or left the Group during the year, the financial performance of those entities are included only for the period of the year that they were controlled. A list of controlled entities is contained in note 19 to the financial statements. In preparing the consolidated financial statements, all inter- group balances and transactions between entities in the consolidated Group have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with those adopted by the parent entity. (b) Foreign currency Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are re-translated to the functional currency at the exchange rate at that date. Non- monetary items in a foreign currency that are measured at historical cost are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on re-translation are recognised in Profit or Loss. Foreign operations The assets and liabilities of foreign operations are translated to the functional currency at exchange rates at the reporting date. The income and expenses of foreign operations, are translated to Australian dollars at exchange rates at the dates of the transactions. Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve (translation reserve) in equity. When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income, and are presented in the translation reserve in equity. (c) Income tax The income tax expense / benefit for the year comprise current income tax expense / benefit and deferred tax expense / benefit. Current income tax expense charged to the Statement of Profit or Loss and Other Base Resources Limited Annual Report 2016 61 s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e h t o t s e t o N Comprehensive Income is the expected tax payable or recoverable on the taxable income or loss calculated using applicable income tax rates enacted, or substantially enacted, as at reporting date, and any adjustment to tax payable in respect of previous years. Current tax liabilities / assets are therefore measured at the amounts expected to be paid to / recovered from the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses. Current and deferred income tax expense / benefit is charged or credited directly to equity instead of the Statement of Profit or Loss and Other Comprehensive Income when the tax relates to items that are credited or charged directly to equity. Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at reporting date. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists, the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. (d) Property, plant and equipment Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and impairment losses. Plant and equipment is measured on the historical cost basis. Costs include expenditure that is directly attributable to the acquisition of the asset. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are recognised in the Statement of Comprehensive Income during the financial period in which they are incurred. The gain or loss on disposal of an item of plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment, and is recognised net within other income / other expenses in the Statement of Profit or Loss and Other Comprehensive Income. Mine property and development assets include costs transferred from exploration and evaluation assets once technical feasibility and commercial viability of an area of interest are demonstrable, and also includes subsequent costs to develop the mine to the production phase. Any ongoing costs associated with mining which are considered to benefit mining operations in future periods are capitalised. Depreciation The depreciable amount of all buildings, plant and equipment, but excluding freehold land, is depreciated on a straight line basis over the asset’s useful life to the Group commencing from the time the asset is held ready for use. The depreciation methods used for each class of depreciable assets are: CLASS OF PLANT AND EQUIPMENT Buildings Plant and equipment Mine property and development DEPRECIATION METHOD Straight line at 5% per annum Straight line at 10% to 30% per annum Straight line over remaining mine life The assets’ residual values and useful lives are reviewed, and adjusted prospectively if appropriate, at each reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. (e) Exploration and evaluation expenditure Exploration for and evaluation of mineral resources is the search for mineral resources after the entity has obtained legal rights to explore in a specific area, as well as the determination of the technical feasibility and commercial viability of extracting the mineral resource. Accordingly, exploration and evaluation expenditure are those expenditures incurred by the Group in connection with the exploration for and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. Accounting for exploration and evaluation expenditure is assessed separately for each ‘area of interest’. An ‘area of interest’ is an individual geological area which is considered to constitute a favourable environment for the presence of a mineral deposit or has been proved to contain such a deposit. For each area of interest, the expenditure is recognised as an exploration and evaluation asset when the rights of tenure to that area of interest are current and the expenditure is expected to be recouped through successful development and exploitation of an area of interest, or alternatively by its sale, and where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves. General and administrative costs are allocated to, and included in, the cost of exploration and evaluation assets only to the extent that those costs can be related directly to operational activities in the area of interest to which the exploration and evaluation assets relate. In all other instances, these costs are expensed as incurred. Accumulated costs in relation to an abandoned area are written off in full to the Statement of Profit or Loss and Other Comprehensive Income in the year in which the decision to abandon the area is made. Impairment testing of exploration and evaluation assets Exploration and evaluation assets are assessed for impairment if sufficient data exists to determine technical feasibility and commercial viability or facts and circumstances suggest that the carrying amount exceeds the recoverable amount. (f) Mine development assets Mine development expenditure relates to costs incurred to access a mineral resource. It represents those costs incurred after the technical feasibility and commercial viability of extracting the mineral resource has been demonstrated and an identified mineral reserve is being prepared for production (but is not yet in production). Exploration and evaluation assets are assessed for impairment prior to their transfer to mine development assets. Significant factors considered in determining the technical feasibility and commercial viability of the project are the completion of a feasibility study, the existence of sufficient Positioned for growth Notes to the consolidated financial statements 62 proven and probable reserves to proceed with development and approval by the board of directors to proceed with development of the project. Mine development expenditure includes: Reclassified exploration and evaluation assets; Direct costs of construction; and An appropriate allocation of overhead and borrowing costs incurred in the construction phase. Capitalisation of mine development expenditure ceases once the mining property is capable of commercial production, at which point it is transferred to property, plant and equipment, and depreciated (refer note 1(d)). Any mine development expenditure incurred once a mine property is in production is immediately expensed to the Statement of Comprehensive Income except where it is probable that future economic benefits will flow to the entity, in which case it is capitalised as property, plant and equipment. (g) Inventories Inventories of heavy mineral concentrate and finished product are physically measured or estimated and valued at the lower of cost and net realisable value. Cost represents weighted average cost and includes direct costs and an appropriate portion of fixed and variable overhead expenditure, including depreciation and amortisation. Inventories of consumable supplies and spare parts to be used in production are valued at weighted average cost. Obsolete or damaged inventories are valued at net realisable value. A regular and ongoing review is undertaken to establish the extent of surplus items, and a provision is made for any potential loss on their disposal. Net realisable value is the net selling price less all costs still to be incurred in converting the relevant inventory to saleable product. (h) Mine closure and rehabilitation obligations Provisions are made for the estimated cost of mine closure and rehabilitation relating to areas disturbed during the mine’s operations up to the reporting date but not yet rehabilitated. Provision has been made in full for all the disturbed areas at the reporting date based on current estimates of costs to rehabilitate such areas, discounted to their present value based on expected future cash flows. The estimated costs include the current cost of rehabilitation necessary to meet legislative requirements. Changes in estimates are dealt with on a prospective basis as they arise. Uncertainty exists as to the amount of rehabilitation obligations which will be incurred due to the impact of changes in environmental legislation, and many other factors, including future developments, changes in technology, price increases and changes in interest rates. The amount of the provision relating to mine closure and rehabilitation obligations is recognised at the commencement of the mining project and/or construction of the assets where a legal or constructive obligation exists at that time. The provision is recognised as a liability, separated into current (estimated costs arising within twelve months) and non-current components based on the expected timing of these cash flows. A corresponding asset is included in mine property and mine development assets, only to the extent that it is probable that future economic benefits associated with the restoration expenditure will flow to the entity. The capitalised cost of this asset is recognised in property, plant and equipment and is amortised over the life of the mine. At each reporting date the rehabilitation liability is re- measured in line with changes in discount rates, and timing or amounts of the costs to be incurred. Mine closure and rehabilitation provisions are adjusted for changes in estimates. Adjustments to the estimated amount and timing of future closure and rehabilitation cash flows are a normal occurrence in light of the significant judgements and estimates involved. Changes in the liability relating to mine closure and rehabilitation obligations are added to or deducted from the related asset (where it is probable that future economic benefits will flow to the entity), other than the unwinding of the discount which is recognised as financing expenses in the Statement of Comprehensive Income. Changes to capitalised cost result in an adjustment to future amortisation charges. The provisions referred to above do not include any amounts related to remediation costs associated with unforeseen circumstances. (i) Finance income and expenses Financing income includes: Interest income on cash and cash equivalents. Interest income is recognised as it accrues using the effective interest rate method. Financing expenses include: Interest on short-term and long-term borrowings; Amortisation of ancillary costs incurred in connection with the arrangement of borrowings; Finance lease charges; and The impact of the unwinding of discount on provisions for mine closure and rehabilitation. Financing expenses are calculated using the effective interest rate method. Finance expenses incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other financing expenses are expensed as incurred. (j) Leases Operating Leases Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred. Leased assets Assets held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as finance leases. On initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period Base Resources Limited Annual Report 2016 63 s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e h t o t s e t o N during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Determining whether an arrangement contains a lease At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease. This will be the case if the following two criteria are met: the fulfilment of the arrangement is dependent on the use of a specific asset or assets; and the arrangement contains a right to use the assets. At inception or upon reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently, the liability is reduced as payments are made and an imputed finance cost on the liability is recognised using the Group’s incremental borrowing rate. (k) Impairment of assets At each reporting date, the Group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to Profit or Loss. (l) Revenue The Group sells mineral sands under a range of International Commercial Terms (Incoterms). Product sales are recognised as revenue when the Group has transferred both the significant risks and rewards of ownership and control of the products sold and the amount of revenue can be measured reliably. The passing of risk to the customer is usually realised at the point that the physical control is transferred and is no longer under the physical control of the Group. The Incoterms set out the point at which the transfer of risk to the customer takes place and are the ultimate determinant. Contract terms for some of the Group’s sales allow for a price adjustment based on average market prices in the quarter that the product is shipped. Sales revenue for these products is recognised at the estimated fair value of the total consideration received or receivable, which takes into account the latest available market data at the balance date and excludes taxes or duty. (m) Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured (refer to note 1h for provision for rehabilitation). (n) Financial instruments Non-derivative financial assets The Group initially recognises loans, receivables and deposits on the date that they are originated. All other financial assets are recognised initially on the date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the Statement of Financial Position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and deposits held at call with banks. Non derivative financial liabilities The Group initially recognises financial liabilities on the date at which the Group becomes a party to the contractual provisions of the instrument. Such liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition they are measured at amortised cost using the effective interest rate method. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Other financial liabilities comprise trade and other payables. (o) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. (p) Earnings per share The Group presents basic and diluted earnings per share for its ordinary shares. Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders of the Group by the weighted average number of shares outstanding during the year. Diluted earnings per share is determined by adjusting the earnings attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares which comprise of vested and exercisable share options. (q) Employee benefits Short-term benefits payable Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under the short-term incentive plan if the Group has a present legal or constructive obligation to pay this amount as a result of past services by the employee, and the obligation can be estimated reliably. Defined contribution plans Contributions are made by the Group to individual defined contribution superannuation plans for Australian directors and employees and are charged as an expense in the Statement of Comprehensive Income when incurred. Equity-settled Compensation The Group operates equity- settled, share-based payment, employee share schemes. The fair value of the equity to which employees become entitled is measured at grant date and recognised as an expense over the vesting period, with a corresponding increase to an equity account. The fair value of performance rights is ascertained using a recognised pricing model which incorporates all market vesting conditions. (r) Goods and services tax (GST), Value added tax (VAT) and other indirect taxes Revenues, expenses and assets are recognised net of the amount of indirect taxes, except where the amount of indirect tax incurred is not recoverable from the tax authorities in the relevant jurisdiction. In these circumstances the indirect tax is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the Statement of Financial Position are shown inclusive of indirect taxes. Cash flows are presented in the statement of cash flows on a gross basis. (s) Segment reporting Determination and presentation of operating segments Operating segments are components of the Group about which separate financial information is available that is evaluated regularly by the Group’s senior executives in deciding how to allocate resources and in assessing performance. Positioned for growth Notes to the consolidated financial statements 64 Segment information that is evaluated by the Group’s senior executives is prepared in conformity with the accounting policies adopted for preparing the consolidated financial statements of the Group. Segment results that are reported to the Group’s senior executives include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. The division of the Groups results into segments has been ascertained by reference to direct identification of revenue / cost centres and where interrelated segment costs exist, an allocation has been calculated on a pro rata basis of the identifiable costs. Note 2: Cost Of Sales (t) New accounting standards adopted in the current period A number of new standards and amendments to standards are effective for annual periods beginning after 1 July 2016, however, the Group has not applied the new or amended standards in preparing these consolidated financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early. AASB 15 Revenue from Contracts with Customers establishes a comprehensive framework for determining whether, how much, and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction contracts, and IFRIC 13 Customer Loyalty Programmes. AASB 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The Group is assessing the potential impact on its consolidated financial statements resulting from the application of AASB 15. AASB 16 Leases removes the classification of leases as either operating or finance leases – for the lessee – effectively treating all leases as finance leases. Short term leases (less than 12 months) and leases of low value assets are exempt from the lease accounting requirements. Furthermore, there are changes in accounting over the life of the lease as a front-loaded pattern of expense will be recognised for most leases, even when a constant annual rental is paid. Lessor accounting remains similar to current practice. Base Resources has not yet determined the extent of the impact of this standard. AASB 9 Financial Instruments, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. AASB 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. AASB 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The Group is assessing the potential impact on its consolidated financial statements resulting from the application of AASB 9. Operating costs Changes in inventories of concentrate and finished goods Royalties expense Depreciation and amortisation Note 3: Financing Costs Loss on foreign exchange transactions Interest income Interest expense, inclusive of withholding tax Unwinding of discount on provision for rehabilitation Amortisation of capitalised borrowing costs Financing expenses 2016 $000s 69,647 5,066 11,845 47,062 2015 $000s 64,684 (1,903) 10,470 41,474 133,620 114,725 2016 $000s 333 (136) 23,436 753 6,931 2,939 34,256 2015 $000s 2,366 (270) 18,926 2,117 3,306 2,860 29,305 Base Resources Limited Annual Report 2016 Note 4: Auditors’ Remuneration Audit services KPMG Australia Audit of financial report Overseas KPMG firms Audit services Other services KPMG Australia Tax compliance and advisory services Other services Overseas KPMG firms Tax compliance and advisory services Note 5: Earnings / (Loss) Per Share Loss used to calculate basic / diluted loss per share Weighted average number of ordinary shares on issue used in the calculation of basic earnings / (loss) per share Weighted average number of ordinary shares on issue used in the calculation of diluted earnings / (loss) per share 2016 $ 2015 $ 65 s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e h t o t s e t o N 160,000 165,000 133,578 293,578 102,506 267,506 32,820 10,000 43,650 10,000 234,423 277,243 238,380 292,030 2016 $000s 2015 $000s (20,926) (16,039) 613,140,483 563,224,609 613,140,483 563,224,609 In 2016, 61,425,061 (2015: 78,025,062) additional weighted average shares were not included in the calculation of diluted earnings per share as they are anti-dilutive. Note 6: Income Tax a. Major components of income tax / (benefit) for the year Current income tax Income tax (benefit) / expense Income tax expense reported in comprehensive income Items related to equity Deferred income tax related to items charged or credited directly to equity Share issue costs Deferred tax asset not recognised 2016 $000s 40 40 173 (173) - 2015 $000s 80 80 109 (109) - Positioned for growth Notes to the consolidated financial statements 66 b. Reconciliation of income tax expense to prima facie tax payable The prima facie tax payable on loss from ordinary activities before tax is reconciled to the income tax expense as follows: 2016 $000s 2015 $000s Accounting loss before tax Prima facie tax on operating loss at 30% (2015: 30%) Add / (less) tax effect of: Non deductible items Unders and overs from prior year Share based payments Tax losses not recognised Other deferred tax assets not brought to account as realisation not considered probable Tax losses utilised Other changes in recognised deductible temporary differences Recognition of tax effect of previously unrecognised losses Effect of tax rates in foreign jurisdictions Income tax attributable to operating loss c. Deferred tax assets recognised Tax losses Kenya Other Deferred tax liabilities recognised Property, plant and equipment Net deferred tax asset recognised d. Deferred tax assets unrecognised Deductible temporary differences Tax losses Australia Tax losses other (20,879) (6,264) (15,959) (4,788) 2,599 - 260 1,236 1,206 (4,308) 4,319 - 992 40 40,802 1,265 42,067 2,439 - 212 1,150 1,646 (5,267) 4,540 - 148 80 43,646 1,611 45,257 (42,067) - (45,257) - 747 6,683 75 7,505 483 4,782 67 5,332 Potential deferred tax assets attributable to tax losses and exploration expenditure carried forward have not been brought to account at 30 June 2016 and 2015 because the directors do not believe it is appropriate to regard realisation of the deferred tax assets as probable at this point in time. These benefits will only be obtained if: i. The Group derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the loss and exploration expenditure to be realised; ii. The Group continues to comply with conditions for deductibility imposed by law; and iii. No changes in tax legislation adversely affect the Group in realising the benefit from the deductions for the loss and exploration expenditure. Base Resources Limited Annual Report 2016 2016 $000s 2015 $000s 36,295 40,906 67 2016 $000s 29,761 2015 $000s - - 6,532 s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e h t o t s e t o N Note 7: Cash and Cash Equivalents Cash at bank and in hand Note 8: Restricted Cash Current Restricted cash (a) Non-current Restricted cash (b) A. CURRENT RESTRICTED CASH Under the terms of the Kwale Project Debt Facility, sufficient funds are required to be held on account in order to meet the debt servicing requirements of the next six months. B. NON-CURRENT RESTRICTED CASH Following the rescheduling of the Kwale Project Debt Facility (refer to note 13) the funds placed on deposit, representing a customer performance guarantee, have been released. Note 9: Trade and Other Receivables Current Trade receivables VAT receivables Other receivables Note 10: Inventories Current Heavy mineral concentrate and other intermediate stockpiles – at cost Finished goods stockpiles – at cost Stores and consumables – at cost 2016 $000s 18,246 25,198 100 43,544 2016 $000s 9,054 6,982 11,926 27,962 2015 $000s 21,573 32,892 16 54,481 2015 $000s 8,359 11,860 11,365 31,584 Positioned for growth Notes to the consolidated financial statements 68 Note 11: Property, Plant and Equipment Plant and equipment At cost Accumulated depreciation Mine property and development At cost Accumulated depreciation Buildings At cost Accumulated depreciation Capital work in progress At cost Total Property, Plant and Equipment Balance at 1 July 2014 Additions Transfers Disposals Reduction in mine rehabilitation asset Depreciation expense Effects of movement in foreign exchange Balance at 30 June 2015 Balance at 1 July 2015 Additions Transfers Disposals Reduction in mine rehabilitation asset Depreciation expense Effects of movement in foreign exchange Balance at 30 June 2016 2016 $000s 2015 $000s 289,626 (67,896) 221,730 199,259 (39,582) 159,677 8,596 (1,848) 6,748 277,745 (38,687) 239,058 195,139 (21,307) 173,832 7,800 (1,194) 6,606 2,149 1,487 390,304 420,983 PLANT & EQUIPMENT MINE PROPERTY AND DEVELOPMENT BUILDINGS CAPITAL WORK IN PROGRESS $000s 215,375 3,441 2,306 (14) - (26,812) 44,762 239,058 239,058 1,587 1,480 (45) - (27,994) 7,644 221,730 $000s 162,427 6,644 707 - (1,854) (17,341) 23,249 173,832 173,832 655 - - (1,100) (17,781) 4,071 159,677 $000s 5,856 122 - - - (591) 1,219 6,606 6,606 526 21 - - (616) 211 6,748 $000s 2,495 1,486 (3,013) - - - 519 1,487 1,487 2,115 (1,501) - - - 48 2,149 TOTAL $000s 386,153 11,693 - (14) (1,854) (44,744) 69,749 420,983 420,983 4,883 - (45) (1,100) (46,391) 11,974 390,304 Base Resources Limited Annual Report 2016 69 s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e h t o t s e t o N Note 12: Trade And Other Payables Trade payables and accruals Provision for increase in Government of Kenya royalty (a) A. GOVERNMENT OF KENYA (“GOK”) ROYALTY 2016 $000s 15,531 9,422 24,953 2015 $000s 16,625 4,964 21,866 The Group is in ongoing discussions with the GoK with respect to the royalty rate payable for the Kwale Operation in the context of resolution of a number of outstanding issues, including receipt of $23.0 million (US$17.1 million) VAT receivables related to the construction of the project. Royalty costs are provided for, and expensed, on the basis of a 5% royalty rate being payable to the GoK, whereas the royalty rate applicable under the terms of the special mining lease is 2.5%. Note 13: Borrowings Current Kwale Operation Debt Facility (a) Taurus Debt Facility (b) Capitalised borrowing costs (b) Amortisation of capitalised borrowing costs (b) Finance lease liabilities Total current borrowings Non-current Kwale Operation Debt Facility (a) Taurus Debt Facility (b) Capitalised borrowing costs (a) Amortisation of capitalised borrowing costs (a) Finance lease liabilities Total non-current borrowings Total borrowings A. KWALE OPERATION DEBT FACILITY 2016 $000s 35,859 26,962 (4,570) 3,111 454 61,816 207,473 - (23,298) 11,526 590 196,291 258,107 2015 $000s 69,659 - - - 398 70,057 196,826 26,126 (19,838) 7,686 1,012 211,812 281,869 In November 2011, the Group entered into Kwale Operation Debt Facility (“Debt Facility”) for the development and construction of the Kwale Operation. In December 2015, the Debt Facility was rescheduled in order to establish a repayment profile more appropriate to the commodity price environment. Under the terms of the reschedule, US$14 million of the Debt Facility was paid down on execution, with a further US$9.5 million paid down in June 2016, reducing the outstanding debt to US$180.5 million. All tranches of the Debt Facility carry interest rates of LIBOR plus 630 basis points, inclusive of political risk insurance. Security for the Debt Facility is a fixed and floating charge over all the assets of Base Titanium Limited (“BTL”) and the shares in BTL held by Base Titanium (Mauritius) Limited (“BTML”) and Base Resources Limited (“BRL”) and the shares held in BTML by BRL. In addition, BRL provides a parent guarantee which will remain in place until June 2017, subject to finalising a long term operating licence for the Group’s port operations. An additional margin of 25 basis points was applicable until the completion of documentation to perfect the lender security package, which was finalised in June 2016. The remaining tenor of all loan tranches is 4 years. The weighted average effective interest rate on the facilities at 30 June 2016 is 6.78% (30 June 2015: 6.65%). All transaction costs directly attributable to securing the project debt facility funding are capitalised and offset against drawn loan amounts. Capitalised borrowing costs are amortised over the life of the loan using the effective interest rate method. Subsequent to year end, in July 2016, in accordance with the terms of the Debt Facility, US$10.8 million of surplus cash was ‘swept’ from BTL. Half of the cash sweep (US$5.4 million) went towards mandatory repayment of the Debt Facility, with the other half distributed up to the Australian parent entity, BRL. The outstanding debt after this repayment was US$175.1 million. Positioned for growth Notes to the consolidated financial statements 70 B. TAURUS DEBT FACILITY In December 2014, the Company executed a US$20 million unsecured debt facility with one of its major shareholders, Taurus Funds Management (“Taurus Facility”), to provide the funds to satisfy additional liquidity requirements from the Kwale Project Debt Facility reschedule in 2014, and US$5 million in corporate funding. The Taurus Facility has been reclassified from non-current to current borrowings due to the final repayment date of 31 December 2016. All transaction costs directly attributable to securing the project debt facility funding are capitalised and offset against drawn loan amounts. Capitalised borrowing costs are amortised over the life of the loan using the effective interest rate method. Subsequent to year end, in July 2016, US$2.7 million of the Taurus Facility was repaid from permitted distributions from the Kwale Project, reducing the outstanding debt to US$17.3 million. Note 14: Provisions Current Employee benefits Income tax liability Non-current Mine closure and rehabilitation Employee benefits MOVEMENT IN MINE CLOSURE AND REHABILITATION Balance at 1 July Effects of movement in foreign exchange Increase / (decrease) in rehabilitation estimate Unwinding of discount Balance at 30 June 2016 $000s 1,173 - 1,173 28,914 59 28,973 2016 $000s 27,270 872 32 740 28,914 2015 $000s 1,212 27 1,239 27,270 43 27,313 2015 $000s 21,663 4,510 (1,132) 2,229 27,270 The mine closure and rehabilitation obligations have been recorded initially as a liability at fair value, assuming a risk-free discount rate equivalent to the average of 10 year US Government bonds of 2.59% as at 30 June 2016 (2015: 2.81%) and an inflation factor of 2.13% (2015: 2.35%). Although the ultimate amount to be incurred is uncertain, management has, at 30 June 2016, estimated the asset retirement cost of work completed to date using an expected remaining mine life of 9 years and a total undiscounted estimated cash flow of US$22,168,415 (2015: US$21,389,489). Management’s estimate of the underlying asset retirement costs are independently reviewed by an external consultant on a regular basis for completeness. Base Resources Limited Annual Report 2016 Note 15: Deferred Revenue Current Deferred revenue Fee paid on execution of product sales agreement Non-current Fee paid on execution of product sales agreement Amortisation of deferred revenue Note 16: Issued Capital Ordinary share capital: Issued and fully paid DATE 1 July 2014 Performance rights vested under the Group’s LTIP 30 June 2015 1 July 2015 Renounceable entitlement offer Share issue costs 30 June 2016 71 s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e h t o t s e t o N 2016 $000s - 1,123 1,123 5,617 (2,528) 3,089 2015 $000s 2,159 1,089 3,248 5,443 (1,361) 4,082 2016 $000s 2015 $000s 223,548 214,131 NUMBER $000S 561,840,029 2,062,742 563,902,771 563,902,771 168,329,185 - 732,231,956 213,669 462 214,131 214,131 10,100 (683) 223,548 All issued shares are fully paid. The Group does not have authorised capital or par value in respect of its issued shares. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Group. In March 2016, the Group completed a partially underwritten accelerated pro rata renounceable entitlement offer to existing shareholders, which raised gross proceeds of $10.1 million and resulted in the issue of 168,329,185 shares. A. PERFORMANCE RIGHTS For information relating to performance rights issued to key management personnel during the financial year, refer to note 21 share-based payments. Note 17: Reconciliation Of Loss After Income Tax To Cash Flow From Operations Loss for the year Depreciation and amortisation Share based payments Financing costs classified as financing activity Amortisation of deferred revenue Changes in assets and liabilities: Decrease / (increase) in receivables and other assets Decrease / (increase) in inventories Increase in trade and other payables (Decrease) / increase in provisions Cash flow from operations 2016 $000s (20,919) 47,062 1,520 34,256 (1,145) 11,310 3,622 2,990 (88) 78,608 2015 $000s (16,039) 41,474 1,209 29,305 (1,002) (23,769) (10,428) 17,412 52 38,214 Positioned for growth Notes to the consolidated financial statements 72 Note 18: Segment Reporting IDENTIFICATION OF REPORTABLE SEGMENTS The Groups 100% owned Kwale Operation is located in Kenya, approximately 50 kilometres south from the port of Mombasa. The Kwale Operation generates revenue from the sale of rutile, ilmenite and zircon. Other operations include the Group head office (which includes all corporate expenses that cannot be directly attributed to the Kwale Operation) and exploration activities not directly related to Kwale Operations. REPORTABLE SEGMENT KWALE OPERATION OTHER OPERATIONS TOTAL KWALE OPERATION OTHER OPERATIONS TOTAL 2016 2015 Sales revenue Depreciation and amortisation Financing costs Reportable loss Capital Expenditure Total assets Total liabilities Note 19: Related Parties CONTROLLED ENTITY Base Titanium (Mauritius) Limited Base Titanium Limited Base Exploration Tanzania Limited KMP COMPENSATION: Short-term employment benefits Post-employment benefits Share-based payments Other long term $000s $000s $000s $000s $000s $000s 169,039 (47,062) (27,247) (6,363) 4,884 - (127) (7,009) (14,556) 13 As at 30 June 2016 524,505 292,204 10,674 26,101 169,039 (47,189) (34,256) (20,919) 4,897 535,179 318,305 145,501 (41,474) (26,825) (6,029) 9,129 - (144) (2,480) (10,010) 96 As at 30 June 2015 538,362 311,995 23,409 28,258 145,501 (41,618) (29,305) (16,039) 9,225 561,771 340,253 COUNTRY OF INCORPORATION DATE OF INCORPORATION Mauritius Kenya Tanzania 15 April 2010 23 April 2010 29 April 2016 2016 $ 4,807,605 157,082 1,177,900 (6,505) 2015 $ 4,468,681 125,000 905,699 88,551 6,136,082 5,587,931 The 2016 remuneration packages, excluding STIP bonus, for all KMP’s remain unchanged from 2015, in their base currency. In December 2014, the Group executed a US$20 million unsecured debt facility with one of its major shareholders, Taurus Funds Management (refer to note 13). Mr Anderson, non-executive director of the Group, is a director of Taurus Funds Management. In March 2016, the Company completed a renounceable entitlement offer underwritten by RFC Ambrian Limited. One the Company’s major shareholders, Pacific Road Capital Management Pty Limited (“Pacific Road”), was a sub-underwriter to RFC Ambrian Limited, and received a fee of $245,000 for such services. Mr Stirzaker, non-executive director of the Group, is a director of Pacific Road. Base Resources Limited Annual Report 2016 73 s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e h t o t s e t o N Note 20: Share-Based Payments A. SHARE OPTIONS Granted options are as follows: Taurus Funds Management Taurus Funds Management GRANT DATE 23 December 2014 19 June 2015 NUMBER 30,712,531 30,712,530 ISSUE DATE 23 December 2014 19 June 2015 Terms of granted options: In December 2014, the Group executed the Taurus Debt Facility, which entitled Taurus to 61,425,061 unlisted share options over unissued fully paid shares, for nil consideration and exercisable at $0.40, with half being issued at execution and half pro-rata on facility drawdown above US$5 million, which occurred in June 2015. The fair value of the 61,425,061 options granted during the 2015 financial year were estimated at the date of grant using a Black & Scholes model using the following assumptions: risk-free interest rate of 3%; no dividend yield; volatility factor of the expected market price of the Company’s shares of 67% and 91% for each issue respectively; and a contractual life of 4 years. In July 2015, 1,000,000 options, granted to RFC Corporate Limited, with an exercise price of $0.25 lapsed unexercised following their expiry. In January 2016, 8,500,000 options with an exercise price of $0.25 and 7,100,000 options with an exercise price of $0.09, granted to Key Management Personnel, lapsed unexercised following their expiry. Summary of shares under option are as follows: Options outstanding as at 1 July 2014 Granted Exercised Options outstanding and exercisable as at 30 June 2015 Options outstanding as at 1 July 2015 Granted Exercised Lapsed Options outstanding and exercisable as at 30 June 2016 B. PERFORMANCE RIGHTS Granted performance rights are as follows: PERFORMANCE CYCLE DATE 1 October 2013 1 October 2014 1 October 2015 Terms of granted performance rights NUMBER WEIGHTED AVERAGE EXERCISE PRICE 16,600,000 61,425,061 - 78,025,061 78,025,061 - - (16,600,000) 61,425,061 $0.18 $0.40 - $0.35 $0.35 - - $0.18 $0.40 KMP 5,818,959 7,707,725 33,928,088 OTHER EMPLOYEES 1,699,906 2,325,748 11,305,017 TOTAL 7,518,865 10,033,473 45,233,105 Performance rights were granted to Senior Executives and other eligible employees under the terms of the LTIP. The LTIP operates on the basis of a series of cycles. Each cycle commences on 1 October and will be followed by a 3 year performance period, with a test date on the 3rd anniversary of the commencement of the Cycle. The LTIP contains performance criteria related to total shareholder return (TSR) to determine the proportion of performance rights which vest, as follows: Half of the performance rights are subject to a relative TSR criteria (relative TSR performance rights); and Half of the performance rights are subject to an absolute TSR criteria (absolute TSR performance rights). For any relative TSR performance rights to vest, Base Resources TSR over the three year performance period must rank above the 50th percentile of the TSR achieved by a defined comparator group of companies. If Base Resources TSR ranks at the 50th percentile of the comparator group, 50% of the relative TSR performance rights vest. If Base Resources TSR is above the 75th percentile of the comparator group, 100% of the relative TSR performance rights vest. For achievement between the 50th and 75th percentile, vesting is prorated between 50% and 100%. For any absolute TSR performance rights to vest, the absolute TSR of Base Resources over the three year performance period must be greater than or equal to 40.5%. If the TSR reaches 40.5%, 25% of the performance rights vest. TSR performance between 40.5% and 60% will result in pro rata vesting between 25% and 50%. If the TSR performance is 100% or more over the period, 100% of the absolute TSR performance rights vest. For TSR performance between 60% and 100%, vesting is prorated between 50% and 100%. Positioned for growth Notes to the consolidated financial statements 74 All performance rights are granted for nil consideration. The fair value of the performance rights granted during the 2016 financial year has been estimated at the date of grant using a Monte Carlo Simulation model using the following assumptions: risk-free interest rate of 2.15%; no dividend yield; volatility factor of the expected market price of the Company’s shares of 70%; and a remaining life of performance rights of 2.88 years. The fair value of the performance rights is recognised over the service period, which commenced on the date of grant of 1 October 2015. Note 21: Parent Entity Disclosures As at, and throughout the financial year ended 30 June 2016, the parent entity of the consolidated group was Base Resources Limited. FINANCIAL PERFORMANCE OF THE PARENT ENTITY Loss for the year Total comprehensive loss for the year FINANCIAL PERFORMANCE OF THE PARENT ENTITY Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Issued capital Share-based payment reserve Accumulated losses Total equity 2016 $000s (9,182) (9,182) 2016 $000s 9,530 217,225 226,755 28,760 59 28,819 2015 $000s (9,372) (9,372) 2015 $000s 23,074 197,001 220,075 2,075 21,820 23,895 197,936 196,180 223,548 6,775 (32,387) 197,936 214,131 7,037 (24,988) 196,180 PARENT ENTITY GUARANTEE IN RESPECT OF KWALE OPERATION DEBT FACILITY Base Resources Limited has entered into a shareholder support agreement in relation to the Kwale Operation Debt Facility. Refer to note 13 for further details. Base Resources Limited Annual Report 2016 75 s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e h t o t s e t o N Note 22: Financial Risk Management The Group’s activities expose it to a variety of financial risks such as: Market risk consisting of commodity price risk, interest rate risk and currency exchange risk; Credit risk; and Liquidity risk. This note presents information about the Group’s exposure to each of the above risks. The Group’s financial instruments consist of deposits with banks, accounts receivable and payables. The totals for each category of financial instruments, measured in accordance with AASB 139 as detailed in the accounting policies to these financial statements, are as follows: Financial assets Cash and cash equivalents Restricted cash Trade and other receivables Financial liabilities Trade and other payables Kwale Operation debt facility Taurus debt facility Finance lease liabilities NOTE 7 8 9 12 13 13 13 2016 $000s 36,295 29,761 43,544 109,600 24,953 243,332 26,962 1,044 296,291 2015 $000s 40,906 - 54,481 95,387 21,866 266,485 26,126 1,410 315,887 FINANCIAL RISK MANAGEMENT POLICIES The overall risk management strategy seeks to assist the Group in meeting its financial targets, whilst minimising potential adverse effects on financial performance. The senior executives of the Group meet on a regular basis to analyse treasury risks and evaluate treasury management strategies in the context of the prevailing economic conditions and forecasts. Risk management policies are approved and reviewed by the Board on a regular basis. Financial assets and liabilities of the Group are carried at amortised cost, which approximates fair value. COMMODITY PRICE RISK The Group is exposed to commodity price volatility on rutile sales made under contract terms which allow for a retrospective price adjustment based on average market prices in the quarter the product is sold. Average market prices are derived from an independently published quarterly dataset of all rutile trades, available 4 to 5 months after the end of each quarter. In accordance with the Group’s accounting policy, sales made under these terms that have not yet been subject to a final price adjustment are recognised at the estimated fair value of the total consideration received or receivable, which takes into account the latest available market data at the balance date. Rutile sales revenue of $39.3 million is still subject to final market pricing at 30 June 2016 (2015: $35.4 million). An interim adjustment to sales revenue has been recorded at the reporting date to align the estimated fair value of these sales with the latest available market data, in accordance with the accounting policy. If commodity prices increased / decreased by 10%, with all other variables held constant, the Group’s after tax loss would have decreased / increased by $3.6 million (2015: $3.3 million). INTEREST RATE RISK All tranches of the Debt Facility carry interest rates of LIBOR plus 630 basis points, inclusive of political risk insurance. The Group does not mitigate its interest rate risk exposure to LIBOR through hedging or other means. The weighted average effective interest rate on the facilities at 30 June 2016 is 6.78% (30 June 2015: 6.65%). The Taurus Facility has a fixed interest rate of 10% and a loan maturity date of 31 December 2016. The majority of the Group’s cash deposits and restricted cash are held in project accounts with Nedbank Limited at variable interest rates. Fixed rate instruments Financial assets Financial liabilities Variable rate instruments Financial assets Financial liabilities CARRYING AMOUNT REALISABLE / PAYABLE WITHIN SIX MONTHS 2016 $000s 2015 $000s 2016 $000s 2015 $000s - (28,006) (28,006) - (27,536) (27,536) - - - - - - 66,056 (243,332) 40,906 (266,485) (177,276) (225,579) 39,895 (20,491) 19,404 40,906 (32,788) 8,118 Positioned for growth Notes to the consolidated financial statements 76 CASH FLOW SENSITIVITY ANALYSIS FOR VARIABLE RATE INSTRUMENTS A change of 100 basis points in interest rates would have increased or decreased equity and profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant. VARIABLE RATE INSTRUMENTS ($000S) Profit or loss Equity CURRENCY RISK 2016 $000s 2016 $000s 2015 $000s 2015 $000s 100BP INCREASE 100BP INCREASE 100BP INCREASE 100BP INCREASE (1,773) 1,773 1,773 (1,773) (2,256) 2,256 2,256 (2,256) The Group is exposed to currency risk from bank balances, payables and receivables that are denominated in a currency other than the respective functional currencies of Group entities, being Australian dollar (AUD) and United States dollar (USD). The Australian dollar carrying amount of the Group’s financial assets and liabilities by its currency risk exposure at the reporting date is disclosed below: 30 June 2016 IN $000S: Cash and cash equivalents Trade and other receivables Other current assets Trade and other payables Borrowings Net exposure 30 June 2015 IN $000S: Cash and cash equivalents Trade and other receivables Other current assets Trade and other payables Borrowings Net exposure The following significant exchange rates applied during the year: AUD:USD AUD:KES SENSITIVITY ANALYSIS AUD 3 - - (977) - (974) AUD 3 - - (1,719) - (1,716) USD KES OTHER TOTAL A$ 177 - - (33) (26,962) (26,818) 318 25,198 218 (1,278) - 24,456 6 - - (149) - (143) 504 25,198 218 (2,437) (26,962) (3,479) USD KES OTHER TOTAL A$ 21,805 - - (33) (26,126) (4,354) 449 32,872 407 (3,768) - 29,960 4 - - (201) - (197) 22,261 32,872 407 (5,721) (26,126) 23,693 AVERAGE RATE 30 JUNE SPOT RATE 2016 2015 2016 2015 0.7283 74.3449 0.8369 75.0812 0.7418 75.1880 0.7655 74.4678 Based on the financial instruments held at reporting date, had the functional currencies weakened / strengthened by 10% and all other variables held constant, the Group’s after-tax profit / (loss) for the year to date would have been $0.3 million lower / higher (2015: $2.4 million higher / lower). Base Resources Limited Annual Report 2016 CREDIT RISK Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk arises from cash and deposits with financial institutions as well as credit exposures to outstanding receivables. The Group is exposed to counterparty credit risk through sales of mineral sands products under normal terms of trade. Total sales revenue for the year ended 30 June 2016 was $169.0 million (2015: $145.5 million). Major customers who individually accounted for more than 10% of sales revenue contributed approximately 37% (2015: 51%) of sales revenue. These customers represent 0% (2015: 48%) of the trade receivables balance at 30 June 2016. 77 s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e h t o t s e t o N Credit risk arising from sales to customers is managed by the Group’s policy to only trade with reputable companies, with whom a long term offtake agreement is held, or where such an agreement is not in place, sales are backed by Letters of Credit held with internationally recognised banks. The Group is owed $25.2 million in VAT receivable by the Government of Kenya (Note 9). $23.0 million relates to the period of construction of the Kwale Mineral Sands Project by the Government of Kenya and is overdue but not impaired. An estimation has been made as to the timing of the receipt of this amount and forms the basis for its classification as a current asset. At the reporting date the carrying amounts of financial assets are adjusted for any impairment and represent the Group’s maximum exposure to credit risk, excluding the value of any collateral or other security, which was as follows: Financial assets – cash flow realisable Cash and cash equivalents Restricted cash Trade and other receivables Total anticipated inflows 2016 $000s 36,295 29,761 43,544 109,600 There were no impairment losses in relation to financial assets during the current or the comparative financial year. The maximum exposure to credit risk for financial assets at the reporting date by geographic region of the customer was: Australia Kenya Mauritius Total LIQUIDITY RISK 2016 $000s 8,776 100,822 2 109,600 2015 $000s 40,906 6,532 54,481 95,387 2015 $000s 22,420 72,965 2 95,387 Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with financial liabilities. The Group manages liquidity risk by conducting regular reviews of the timing of cash outflows and the maturity profiles of term deposits in order to ensure sufficient funds are available to meet its obligations. Financial liability maturity analysis 30 June 2016 Trade and other payables Kwale Operations Debt Facility Taurus Debt Facility Finance lease liabilities 30 June 2015 Trade and other payables Kwale Operations Debt Facility Taurus Debt Facility Finance lease liabilities CARRYING AMOUNT TOTAL 2 MONTHS OR LESS 2 – 12 MONTHS 1 – 2 YEARS 2 – 5 YEARS MORE THAN 5 YEARS $000s $000s $000s $000s $000s $000s $000s CONTRACTUAL CASH FLOWS 24,953 243,332 26,962 1,044 296,291 21,866 266,485 26,126 1,410 315,887 24,953 283,316 28,340 1,166 337,775 21,866 306,889 30,117 1,650 360,522 15,531 - - 90 15,621 16,902 - - 87 16,989 9,422 50,827 28,340 448 89,037 4,964 86,857 2,656 434 - 77,010 - 538 77,548 - 80,531 27,461 521 101,972 108,513 - 155,479 - 90 155,569 - 139,501 - 608 140,109 - - - - - - - - - - Positioned for growth Notes to the consolidated financial statements 78 CAPITAL MANAGEMENT Management controls the capital of the Group in order to maintain an appropriate working capital position to ensure that the Group can fund its operations and continue as a going concern. Capital is managed by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. Cash and cash equivalents Restricted cash Trade and other receivables Inventories Other current assets Trade and other payables Borrowings Provisions Deferred revenue Other liabilities Working capital position 2016 $000s 36,295 29,761 43,544 27,962 5,826 (24,953) (61,816) (1,173) (1,123) (887) 53,436 2015 $000s 40,906 - 54,481 31,584 5,853 (21,866) (70,057) (1,239) (3,248) (636) 35,778 Note 23: Events After The Reporting Date Other than the July 2016 accelerated debt repayments made to the Debt Facility and Taurus Facility from surplus cash (refer Note 13), there have been no significant after balance date events at the date of this report. Note 24: Company Details The principal place of business and registered office of the Company is: Base Resources Limited (ASX & AIM: BSE) Level 1 50 Kings Park Road West Perth Western Australia Base Resources Limited Annual Report 2016 79 n o i t a r a l c e d ’ s r o t c e r i D Directors’ declaration 1 In the opinion of the directors of Base Resources: (a) the consolidated financial statements and notes that are set out on pages 55 to 78 and the Remuneration Report in pages 32 to 46 in the Directors’ report, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2016 and of its performance, for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2 The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief executive officer and chief financial officer for the financial year ended 30 June 2016. 3 The directors draw attention to note 1 to the consolidated financial statements, which includes a statement of compliance with International Financial Reporting Standards. Signed in accordance with a resolution of the directors: Keith Spence Chairman DATED at PERTH this 30th day of August 2016 Positioned for growth 80 Independent auditor’s report to the members of Base Resources Limited Independent auditor’s report to the members of Base Resources Limited Report on the financial report We have audited the accompanying financial report of Base Resources Limited (the company), which comprises the consolidated statement of financial position as at 30 June 2016, and consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 24 comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the Group comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement whether due to fraud or error. In note 1, the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements of the Group comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the Group’s financial position and of its performance. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. 68 Base Resources Limited Annual Report 2016 81 d e t i m L i s e c r u o s e R e s a B f o s r e b m e m e h t o t t r o p e r s ’ r o t i d u a t n e d n e p e d n I Auditor’s opinion In our opinion: (a) the financial report of the Group is in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the Group’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) the financial report also complies with International Financial Reporting Standards as disclosed in note 1. Material uncertainty regarding continuation as a going concern Without modification to our opinion expressed above, we draw attention to the following matter. As a result of the matters set out in the Financial Position note in Note 1, there is a material uncertainty which may cast significant doubt about the company’s ability to continue as a going concern and therefore, the company may be unable to realise its assets and discharge its liabilities in the normal course of business and at the amounts stated in the financial report. Report on the remuneration report We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2016. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with auditing standards. Auditor’s opinion In our opinion, the remuneration report of Base Resources Limited for the year ended 30 June 2016, complies with Section 300A of the Corporations Act 2001. KPMG Rob Gambitta Partner Perth 30 August 2016 69 Positioned for growth Additional shareholder information 82 The following additional information required by the ASX Listing Rules is current as at 30 September 2016. Ordinary shares DISTRIBUTION OF SHARES 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over HOLDERS UNITS 116 148 133 460 179 1,036 17,004 466,032 1,132,489 17,919,421 712,697,010 732,231,956 % 0.00 0.06 0.15 2.45 97.33 100.00 There were 184 holders of unmarketable parcels of shares (<$500) based on the closing share price of $0.17 as at 30 September 2016 comprising a total of 153,123 shares. The voting rights attached to the ordinary shares are: a) at a meeting of members or classes of members each member entitled to vote may vote in person or by proxy or by attorney; and b) on a show of hands every person present who is a member has one vote, and on a poll every person present in person or by proxy or attorney has one vote for each ordinary share held. 20 LARGEST REGISTERED HOLDERS OF SHARES NUMBER OF SHARES J P Morgan Nominees Australia Limited 1. HSBC Custody Nominees2. Pacific Road Capital Management GP II Limited 3. Pacific Road Capital II Pty Ltd 4. Sandhurst Trustees Ltd 5. Citicorp Nominees Pty Limited 6. Computershare Clearing Pty Ltd 7. Watsons Bay Investments Pty Ltd 8. 9. National Nominees Limited 10. Watsons Bay Investments Pty Ltd 11. Mr Michael Charles Bowden 12. 13 14. Dr Janet Dawn Kencian 15. 16. 17. Miss Sin Man Cheung 18. W K Super Pty Ltd 19. Mr Oliver Winchester 20. Mr Colin Neil Stewart Bwye + Mrs Annette Margaret Bwye Pacific Road Capital Mgmnt GP II Ltd BNP Paribas Noms Pty Ltd Raptor Securities Pty Ltd Pacific Road Capital II Pty Limited 304,490,496 139,865,533 137,933,707 17,997,873 16,308,877 9,127,138 5,081,283 4,300,000 3,770,757 3,200,000 3,000,000 2,433,861 2,394,546 2,050,000 1,780,000 1,648,165 1,637,016 1,530,000 1,500,000 1,476,325 661,525,577 % 41.58 19.10 18.84 2.46 2.23 1.25 0.69 0.59 0.51 0.44 0.41 0.33 0.33 0.28 0.24 0.23 0.22 0.21 0.20 0.20 90.34 Base Resources Limited Annual Report 2016 83 n o i t a m r o f n i r e d l o h e r a h s l a n o i t i d d A Substantial shareholdings The substantial shareholders of the Company, and the number of securities in which those shareholders and their associates have a relevant interest, as disclosed in the substantial holding notices received by the Company are: NAME Pacific Road Capital II Pty Limited and Pacific Road Capital Management GP II Limited Hunter Hall Investment Management Ltd Sustainable Capital Ltd Taurus SM Holdings Pty Limited Aterra Capital NO. OF SHARES 148,938,658 131,796,500 112,050,380 104,827,162 43,140,420 Options The following unlisted options are on issue. Options do not carry a right to vote. Voting rights will attach to any shares issued upon valid exercise of options. STREAM DATE OF EXPIRY EXERCISE PRICE NUMBER OF OPTIONS NUMBER OF HOLDERS 1 31 December 2018 $0.40 61,425,061 61,425,061 1 Holders of greater than 20% of any stream of options: Stream 1: Taurus Funds Management Pty Ltd – 61,425,061 options. Performance rights The following unlisted performance rights are on issue. Performance rights do not carry a right to vote. Voting rights will attach to any shares issued upon vesting of performance rights in accordance with their terms of issue pursuant to the Base Resources Long Term Incentive Plan. CYCLE 2013 2014 2015 DATE OF VESTING/EXPIRY NUMBER OF PERFORMANCE RIGHTS NUMBER OF HOLDERS 30 September 2016 30 September 2017 30 September 2018 7,264,112 10,030,672 45,233,105 62,527,889 15 17 17 Other information There is no current on-market buy back taking place. Positioned for growth 84 Base Resources Limited Annual Report 2016 Positioned for growth PLATFORMCOMMS04070BASERESOURCES.COM.AU