More annual reports from Base Resources:
2020 ReportDelivering
Contents
02
Highlights
04
Chairman’s letter
8
Sustainability in
practice
14
Business
development
06
Operation
summary
16
Corporate and
finance
18
20
Marketing and
sales
Resources and
reserves
24
Corporate
directory
25
Consolidated
financial
statements
95
Additional
shareholder
information
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 in-
volve known and unknown risks,
uncertainties, assumptions and
other factors that are beyond
Base Resources’ control.
No representation, warranty,
assurance or guarantee can be
given that such forward-look-
ing statements will in fact be
achieved or prove to be correct.
Results or outcomes could differ
materially from those expressed
or implied by the forward-look-
ing statements as a result of,
among other factors, changes in
economic and market conditions,
success of business and oper-
ating initiatives and strategies,
changes in the regulatory envi-
ronment and other government
actions, fluctuations in product
prices and exchange rates and
business and operational risk
management. To the maxi-
mum extent permitted by law,
Base Resources and its related
bodies corporate and affiliates,
and their respective directors,
officers, employees, agents and
advisers, disclaim any liability
(including, without limitation,
any liability arising from fault,
negligence or negligent misstate-
ment) for any direct or indirect
loss or damage arising from any
use or reliance on this Annual
Report or its contents, including
any error or omission from, or
otherwise in connection with, it.
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.
1
Introduction
Base Resources’ (ASX & AIM: BSE) successful development of the Kwale
Mineral Sands Project in southern Kenya and demonstrated track
record of delivering operational, safety and community development
achievements, provides a solid foundation to grow a contemporary mid-
tier resources company.
An optimised life of mine production profile, highly efficient operation and
strong cash generation has Base Resources well placed to capitalise on an
improving commodity market and renewed investor interest in the sector.
With tenure secured and a near-mine exploration program underway,
mine life extension now presents a significant opportunity for further
value creation.
Demonstrated mine development capability provides the basis to deliver
further shareholder value from acquisition opportunities.
Base Resources Limited
ABN 88 125 546 910
Highlights
Net debt reduced by
A$76m: from A$204m in
FY16 to A$128m at the
end of FY17, improving
financial flexibility
A$21 million maiden net
profit after tax (A$42
million improvement from
2016)
Outstanding safety
record maintained
with almost 10 million
man-hours completed
without a lost-time
injury since 2014
Record production for all products -
Rutile: 90,625 tonnes
Ilmenite: 467,359 tonnes
Zircon: 34,228 tonnes
Zircon low grade: 10,210 tonnes
Record A$215.5 million
revenue, an increase of
28%, lifting group EBITDA
to A$110m
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US$255 average sale price
achieved per tonne, main
driver being the rise in
ilmenite prices
Kwale Phase 2 Project
approved to drive
enhanced economics over
the remaining life of Kwale
Operations
Continued strong cost
control – average cost
maintained at US$105 per
tonne sold
Completion of first
extensional drilling
programme to extend
mine life
Chairman’s
letter
Dear Shareholders,
During the year
we have achieved
profitability, reduced
net debt significantly,
initiated exploration
in support of mine-life
extension and have
begun construction
of the Kwale Phase
2 project, which
will drive enhanced
economics over the
remaining life of Kwale
Operations.
Our Company is in a robust position and
is well-placed to take advantage of an
improving commodity market with sound
long-term fundamentals.
Shareholders will be only too aware that
since commencing production three years
ago, we have been selling our products
into a depressed international pricing
environment. Fortunately, our Kwale
Operation in Kenya has been able to
weather this difficult period, on the back
of its quality ore body, low cost-base
and excellent operational track record,
to emerge in the right shape to benefit
from the strong recovery in the ilmenite
price we have experienced over the past
12 months.
It is against this backdrop that I am very
pleased to report that for the 2017
financial year, the Base Resources group
achieved a maiden net profit after tax
of $21 million and a record EBITDA
of $110m. The strong cashflows have
enabled the reduction in net debt by $76
million to $128 million (US$98 million)
at year end, the repayment in full of the
Taurus debt facility in August and an
improving financial flexibility.
Our increased revenues and profitability,
are reflective of not just rising realised
prices but also of our continued sharp
focus on maximised production,
operational consistency, innovation and
cost management. The year saw record
production for all products with over
625,000 tonnes of primary products
exported. After three years of relentlessly
improving our cost structures, we have
locked in these gains and now have a
low, tight and predictable operating cost
base. The successful introduction of the
hydro-mining method, which has proved
to be more efficient and flexible than
the current dozer trap mining method,
particularly when mining the lower
grade, peripheral ore blocks, has paved
the way for its progressive adoption as
the exclusive mining method over the
coming year.
Most importantly, these operational and
financial results continue to be achieved
with an uncompromising focus on the
safety of our people and the operation
itself. There were no lost time injuries
during the past year and only two medical
treatment injuries in the course of 3.1
million hours worked by our employees
and contractors. The Kwale Operation
has not had a lost time injury since
February 2014 and our employees and
contractors have now worked almost 10
million man-hours LTI free.
With the Kwale Operation performing
to a high standard, a significant focus
has shifted to adding value to the assets
through optimisation of the remaining
life of the mine and the extension of that
life. In May, the Board were pleased to
approve the Kwale Phase 2 project (‘KP2’)
following completion of a compelling,
definitive feasibility study. The KP2
project, the majority of which will be
implemented over the course of the
2018 financial year at a capital cost of
approximately $31m, will facilitate the
maintaining of production volumes at
around the levels currently achieved
over the remaining life of the mine
through faster mining and processing of
Ore Reserves, significantly enhancing
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asset economics. The introduction of
multiple hydro-mining units and a 69%
increase in the number of spiral starts
in the wet concentrator plant lie at the
core of the project, making it a low risk
enhancement project.
The KP2 enhancements increase the
importance of, and the value leverage
from mine life extensions emerging from
the exploration program that is underway.
An expanded exploration tenure was
secured a little over a year ago and the
first drilling campaign was completed
around the South Dune during the 2017
financial year. The next phase of drilling,
which is planned to commence in early
2018, will be focussed to the north-east of
the Central Dune. We are optimistic that
further mine life extension will result.
These operational and developmental
achievements of the 2017 financial year
were made possible by a highly capable,
settled and engaged team throughout
our organisation. Building on our early
success in establishing a strongly Kenyan
workforce at the Kwale Operation of
around 97%, our structured training and
skills development programme is seeing
pleasing progression in the quality of jobs,
with a further Kenyan appointment to the
management team this year.
Representing some 60% of the Kenyan
mining industry, our impact reaches
well beyond simple employment and
Government revenue. Our model of
operations is yielding benefits to Kenya
in the areas of supply chain development,
safety and industrial training approaches,
environmental and community
engagement benchmarks, agricultural
sector development and mining sector
investment promotion, amongst many
others. It is in recognition of this broad-
based impact and leadership role that in
July this year the Kwale Operations were
formally granted ‘flagship project’ status
within Kenya’s Vision 2030 framework.
In doing so, Kenya is explicitly seeking
to build on the success of the Kwale
Operation as it goes about realising its
bold aspirations for what has been a
nascent mining industry.
Looking ahead, the 2018 financial year
has a positive outlook. Product markets
for rutile, ilmenite and zircon have
returned to balance with conditions
conducive to a continuation of the recent
price improvements. Demand is such
that we are carrying no inventory from
shipment to shipment. On the back of
these continuing market conditions
we look forward to further substantial
inroads in our net debt position.
I believe our Company is soundly
positioned with the ingredients in place
to drive significant gains in shareholder
value. We have an outstanding operating
asset in the Kwale Operations with
strong cash generation and extensional
potential, an outstanding team with a
recognised and growing reputation for
successful mineral development, an
improving commodity price outlook and
opportunities for growth emerging. We
are firmly of the view our cash generation
and longer-term value proposition have
yet to be appropriately appreciated by
equity markets. We are working hard to
see this change in the year ahead.
I’d like to thank the Board, our people,
suppliers, local communities and host
governments for the steadfast support
and commitment you consistently display.
I’d like to particularly thank Michael
Anderson who recently left the Board,
having made a considerable contribution
since joining in 2011 in guiding the
company through a transformational
period.
Finally, thank you to you our shareholders
for your confidence and ongoing support
as we drive into what I am confident
is an increasingly bright future for
Base Resources.
Keith Spence
CHAIRMAN
The successful
introduction of hydraulic
mining during the year has
provided the platform for
an increase in mining rate
into the future
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Operation
summary
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
Since the commencement
of the project, mining at the
Kwale Operations has been
based on a conventional dozer
trap mining unit (‘DMU’),
using Caterpillar D11T dozers
to feed the DMU. The DMU
has proved well suited to the
Kwale ore, particularly when
mining the deeper central
blocks of the deposit.
However, when mining
the lower grade, thinner
perimeter blocks of the ore
body, the DMU is unable to
achieve the same efficiencies
partly due to the need for
more frequent relocations
between blocks, resulting in
increased downtime. As a
solution, during the year in
review, a 400 tonnes-per-
hour (‘tph’) Hydraulic Mining
Unit (‘HMU’) was introduced
to compliment the DMU.
The HMU has proved to be
more efficient and flexible
than the DMU, particularly
when mining the peripheral
ore blocks, and this has paved
the way for its progressive
adoption as the exclusive
mining method over the
coming year as part of the
Kwale Phase 2 project.
As a result of the dual mining
unit strategy, the blended
average ore grade dropped to
7.09% heavy mineral (‘HM’)
(8.31% HM in the prior year)
and mining volumes were
consequently increased from
9.2 million tonnes (‘Mt’) last
year to 11.0Mt to compensate
for the lower ore grade.
PROCESSING
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 finished
rutile, ilmenite and zircon
minerals and removes any
remaining gangue.
As a consequence of the
mining units being directly
coupled to the WCP with no
intermediary stockpile, as
mining volumes vary there
is a corresponding change in
the ore feed received by the
WCP. Historically, tailings
constraints in the WCP
limited mining operations’
ability to significantly increase
volume when mining lower
grade ore. Following an
initial optimisation and
debottlenecking process
after the introduction of the
HMU, a significant increase
in the WCP throughput was
achieved during the year,
allowing mining volumes
to push higher without
compromising HM recoveries.
However, notwithstanding
the higher mined ore volumes
achieved, production of HMC
still declined to 708,404
tonnes for the year (2016:
734,431 tonnes) due to the
overall impact of the lower
average ore grade mined with
the two mining units.
MSP feed was increased
during the year to 764,171
tonnes (2016: 709,443
tonnes) through a combination
of WCP production and draw
down on the HMC stockpile.
The higher MSP feed was
made possible by continued
optimisation of the MSP,
enabling feed rates to increase
to 91 tonnes per hour (2016:
85 tonnes per hour), which
resulted in record production
levels for all products during
the year.
For a more detailed discussion
of operating performance
refer to the review of
operations contained within
the Directors Report in
the consolidated financial
statements on page 26.
KWALE PHASE 2
To counter declining ore
grades expected from mid-
2018 onwards, and to fully
exploit the increase in MSP
throughput now available, the
Board approved, in May 2017,
the implementation of the
Kwale Phase 2 Project.
The Kwale Phase 2 project
aims to maximise HMC feed
to the MSP, and therefore
maintain final production
volumes at around current
levels for the remaining
life of mine, by increasing
mining rates as ore grade
declines. This will be achieved
through increasing the
hydraulic mining capacity
to three 800tph HMU’s,
while gradually phasing out
the existing DMU. This will
increase the combined mining
rate to 2,400 tonnes per hour,
representing an uplift of over
60% compared to the 1,476
tonnes per hour in the year
under review. The WCP and
water supply infrastructure
will be upgraded in parallel
to accommodate the higher
mining rates.
Refer to the Business
Development section on
page 14.
Base Resources is
committed to prioritising
employment for Kenyans,
with a strong focus on
skills transfer and career
development
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Sustainability
in practice
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 Security and Human Rights.
In recognition of the
Company’s demonstrated
commitment to sustainability
in practice, for the second year
running, the Kwale Operations
was the proud recipient of
an award from the Kenyan
National Environmental
Management Authority for
the effort and outcomes in
environmental management
and biodiversity conservation.
LOCAL EMPLOYMENT
With this approach, Base
Resources is helping to
set sound benchmarks for
effective and responsible
development in Kenya’s
emerging mining sector.
Base Resources 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 972
people directly employed in
Kenya, including 699 by Base
and 273 by Kenyan service
providers contracted to Base
in security, transport, catering
and analytical laboratory
services, 97% are Kenyan,
with 65% 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 3% of the total in
employment, Base Resources
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.
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
INDIAN OCEAN
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
41 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.
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 three years, Base
Resources has committed
a considerable budget of
$2.5 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 culture, described
as the ‘Base Way’. Regular
surveys have been conducted
since the commencement
of operations and have
seen response rates of
between 70% and 80%, a
pleasing participation 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 2.4% was recorded
for the year under review,
marginally higher than
the prior year’s 2.3%, but
still well below the 2016
Australian average of 4.1%.
The voluntary staff turnover
rate for the year in review was
also very low at 1.4%, down
from the prior year’s 1.7%.
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. In
this regard, Base is very pleased
to finish another year with no
serious injuries occurring and
Kwale Operations’ LTIFR has
remained once again at zero.
Base Resources employees and
contractors have now worked
almost 10 million man-hours
LTI free, with the last LTI
recorded in February 2014.
After a concerning rise in
minor medical treatment
injuries in the early part 2016
financial year, a number of
initiatives were successfully
implemented and the TRIFR
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Lost time injury ( LTIFR1’) and total recordable injury ( TRIFR’) frequency rates
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Western Australia all mines LTIFR
2014/15
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has since continued to trend
steadily 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 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.
Agricultural livelihood
programmes, run in
conjunction with partners
Business for Development,
DEG, FMO, Australia’s
DFAT 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 900
smallholder farmers and
community groups with the
ultimate aim being to establish
new agricultural opportunities
that will provide economic
growth well beyond the life of
mining activities.
The Kwale cotton project has
proved particularly successful
to date, with the number of
participating farmers growing
exponentially each year since
its commencement. After
achieving a critical mass
this year, a cotton farmers’
cooperative was established
to assist in the administration
of all facets of production
and sale. During the year, a
consignment of 30 tonnes
of Kenyan cotton lint was
exported to Bangladesh for
further processing on behalf of
clothing retailer Cotton On.
Reflecting the quality, scope
and potential of these
agricultural programmes to
drive regional socio-economic
of new institutions and
refurbishment or upgrading
of existing facilities.
Medical Facilities:
Constructed and equipped
the Bwiti Dispensary and
Magaoni Health Centre, and
during the year, work was
completed on a joint project
to build a local hospital-
based blood bank facility.
Base Resources also worked
with the Mombasa County
Government and other
organisations to complete
a maternity wing at the
Likoni Sub-County Hospital,
incorporating delivery rooms,
theatres and in-patient wards,
addressing a critical need as
expressed by the community.
In addition, Base Resources
provided a four-wheel-drive
ambulance to Kwale County
health authorities to service
hard to reach communities.
development, additional
financial support has been
secured with a number of
organisations, including
the Australian Government
and FMO.
In addition to the agricultural
livelihood programmes, to
date, over 130 individual
projects have been completed,
including:
Schools: 28 educational
infrastructure projects
have been undertaken,
including construction
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year and rehabilitation and
stabilisation of the external
walls commenced shortly
thereafter. Water retention
layers and top soil deposition
has been completed for a
500 metre stretch and grass
seeding is underway. Seeds
are collected by, and top soil
erosion control materials are
sourced from, local women’s
groups, thereby providing
significant incomes for villages
surrounding the mine site.
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
Reserve. Over 47,000 trees
propagated in Base Resources’
indigenous tree nursery,
including more than 8,800
classified as being species
of conservation significance
and 1,400 classified as
critically endangered,
have been planted in the
designated corridor. This
program aims to restore in the
Kwale Operations footprint
threatened indigenous tree
species otherwise lost to
the region.
Wetland Restoration
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 restored
wetlands now support
permanent populations of
the endangered Shimba
Hills Reed Frog (Hyperolius
rubrovermiculatus) and
other fauna and flora of
conservation importance.
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.
Water Supply:
13 boreholes sunk and fully
equipped.
for a further 550 students
at both secondary and
tertiary levels.
Drought Relief: During
the past year, Kenya has
experienced significant
drought conditions. Base
Resources has assisted
the local community
in this time of need by
providing 29 tonnes of
relief food in collaboration
with the Kwale County
Government, local civil
society organisations and
Kenya Red Cross.
The Base approach to, and
investment in, community
development is having real and
felt impacts, and consequently,
we enjoy 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 several
Base Resources programs
aimed at rehabilitating
impacted areas, improving
local biodiversity, and
promoting conservation and
sustainability, with some
notable examples being:
Rehabilitation of the
TSF Walls
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 currently running in
25 schools and engaging
16,000 students on a
weekly basis.
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 training
for Kibuyuni community
located near the Likoni port
facility. 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
continued its own
scholarship programme
with 1,050 secondary
school awards given and
600 tertiary placements
supported to date. In
addition, partnerships
with educational NGO’s
continue providing support
Sections of the tailings
storage facility (‘TSF’) sand
walls reached full height
in the second half of the
An ephemeral wetland
that had remained dry for a
number of years prior to the
commencement of operations
Business
development
Three significant initiatives are underway with the
objective of further enhancing the already significant
value of the Kwale Operations.
KWALE PHASE 2
Following completion of
the Definitive Feasibility
Study (‘DFS’), the Board has
approved implementation
of the Kwale Phase 2
project (‘KP2’) at the Kwale
Operations. The DFS
confirmed the opportunity for
significant improvement in
the financial returns for Kwale
Operations through further
optimisation of the remaining
mine life.
The key benefits of KP2 are:
Bringing forward of
revenue by maintaining
current production levels
for the remainder of the
mine life, overcoming
the declining ore grades
in the current Ore
Reserve through the de
constraining of the mine
and concentrator plant.
Faster mining and
processing of Ore
Reserves over a 24-month
shorter period, eliminating
approximately US$60
million in fixed costs,
with a commensurate
reduction in average
operating cost per tonne
produced and significantly
enhancing project
economics compared with
the current mine plan.
Increases the importance
of, and value leverage
from, potential mine life
extensions emerging
from the exploration
programme that is
underway.
Historically, when mining
the high-grade areas of the
Kwale Central Dune, mining
rates of up to 1,400tph have
been required to ensure
the WCP is fully utilised. To
offset the declining ore grades
expected from mid-2018, the
original mine development
plan assumed an increase in
the mining rate to 1,800tph.
The KP2 pre-feasibility study
determined that the optimal
mining rate to maximise the
economic returns of Kwale
Operations was 2,400tph
and also identified hydraulic
mining as the preferred
method to complement the
existing DMU to achieve
the targeted mining rate.
Operating multiple mining
units also has the additional
benefit of being able to
concurrently mine both the
high and low-grade ore, which
assists in smoothing the
grade profile to create a more
consistent feed to the WCP.
In August 2016, as part of
the DFS, a 400tph HMU was
commissioned to trial the
concept. The HMU has proven
to be extremely well suited to
mining Kwale ore, achieving
higher availabilities and at
lower unit operating costs
than the DMU. Following
the success of the HMU trial,
the DFS concluded that the
optimal mining setup for
Kwale Operations was three
HMUs mining at an average
rate of 800tph each to give a
combined total of 2,400tph.
At the lower ore feed grades
and higher mining rates
anticipated from mid-2018,
the WCP must also be
upgraded to maintain optimal
heavy mineral recoveries.
A comprehensive pilot
plant program and spiral
modelling work established
that a 69% increase in the
number of spirals is required
to accommodate the mining
rates contemplated under the
KP2 mining plan. In addition,
modifications and equipment
upgrades are required to
the primary screens, feed
de-sliming circuit, tailings
cyclones, various pumps and
piping. Other than increasing
the capacity of the overflow
pipework, tests confirm the
capability of the two existing
thickeners to manage the
increased solids loading at
the higher KP2 mining rate.
Changes to the WCP process
flow sheet are minimal. No
changes are required to
the MSP.
The implementation schedule
will see the second and third
800tph HMUs commissioned
in the June quarter of 2018.
The three HMUs will ramp
up to full capacity (2,400tph)
through the course of 2018,
with the DMU gradually
being phased out over the
same period. Engineering and
design work for the transition
of mining from the Central
Dune to the South Dune will
commence in mid-2018, with
construction completion
scheduled for the second half
of 2019.
The estimated capital cost to
complete the transition from
the Central Dune to the South
Dune and implement KP2 is
US$32.6 million.
The implementation of KP2,
with the resultant increase
in mining rates and faster
consumption of ore reserves
at the Kwale Operations,
places a sharp focus on near-
mine exploration to extend the
life of the mine.
EXTENSIONAL
EXPLORATION - KENYA
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TANZANIA
During the year under review,
Base Resources secured
exploration tenure over
a significant land area in
northern Tanzania with the
approval of five licenses with
a combined area of 475km2.
The area was identified
through a prospectivity review
and subsequent confirmatory
reconnaissance work. The
exploration licenses lie
approximately 50km south of
the Kenyan border and 100km
from Base Resources’ Kwale
Operations.
The necessary consents and
clearances ahead of a planned
preliminary stratigraphic
drilling programme across
all five licenses are in place
and field work is scheduled to
commence in the coming year.
The location of this tenure
presents the opportunity
for either standalone
project development or
satellite development in
conjunction with the existing
Kwale Operations, giving a
wider range to potentially
economically viable mineral
discovery.
Operations, was completed
during the year. This
program, which saw a total of
750 holes for 11,435 metres
drilled in the lower-grade
Kwale South Dune orebody,
successfully delineated
mineralised extensions to the
south and east of the existing
resource boundary and has
delivered an overall increase
to the Kwale South Dune
Mineral Resource estimate of
30% for total material tonnes
and 14% for HM tonnes. This
first area was prioritised
on the basis of needing to
be incorporated into the
South Dune mine plan ahead
of mining commencing in
late 2019.
The next phase of exploration
drilling, focussed on the
north-east sector, adjacent to
the high-grade Kwale Central
Dune orebody, is expected to
commence early in 2018.
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 is advancing
through the granting process
having been approved by the
licensing committee of the
Kenyan Ministry of Mining.
Existing off-site and on-site
infrastructure is sufficient
to support operations under
the KP2 mine plan, with the
exception of the water supply
infrastructure. The water
supply constraints of the
KP2 mine plan are largely
the product of the daily
ees
extraction limits from the
Mukurumudzi Dam imposed
by licence conditions. To
overcome this constraint, the
existing Gongoni borefield is
being expanded.
Special Mining ease
ence 1
ence 2
ence 3
Construction is scheduled
for completion in the June
quarter of 2018 after a one
month shut of the WCP to
tie in the plant modifications
and equipment upgrades.
Ahead of the WCP shut,
HMC stock levels will be
managed to ensure that MSP
production continues without
interruption during this time.
Drilling in the first of two
prospective areas identified
on Special Prospecting
License 173 (‘SPL173’), which
now covers an area of 177km2
surrounding the Kwale
CHANGAMWE
EXTENSIONAL
EXPLORATION -
KWALE SPL173
MAGAONI
KWALE OPERATIONS
MINING LEASE SML23
KWALE SOUTH
DUNE EXTENSION
RAMISI
GAZI
VANGA
VANGA SPL
INDIAN
OCEAN
SHIMONI
10km
During the 2017 financial
year, the Company saw a
significant A$76 million
reduction in net debt
Corporate and
finance
NET DEBT REDUCTION
During the 2017 financial year,
the Company saw a significant
$76.0 million (US$53.0
million) reduction in net debt
made possible by the strong
operating cash flows of $100.2
million generated by the
Kwale Operations. Net debt
had been reduced to $128.2
million (US$98.5 million) at
year end.
The surplus free cash
generated by the Kwale
Operations, after debt
servicing, may be distributed
(a ‘Cash Sweep’), in equal
parts, as early repayment of
the Kwale Operations Debt
Facility (‘Kwale Facility’) and
to the Australian parent entity,
Base Resources Limited,
on six monthly intervals as
permitted by the terms of the
Kwale Facility. During the
year, Cash Sweeps totalling
US$25.4 million were
distributed from the Kwale
Operation, with half (US$12.7
million) going towards
mandatory early repayment
of the Kwale Facility and the
other half distributed up to
Base Resources Limited. The
combination of scheduled debt
repayments and Cash Sweeps
resulted in repayment of
US$39.3 million of the Kwale
Facility during the period,
reducing the outstanding
balance to US$141.2 million at
year end.
Prior to final maturity, under
the terms of the Taurus Debt
Facility (‘Taurus Facility’) held
by Base Resources Limited,
repayments are only required
to be made from the Cash
Sweeps received by Base
Resources Limited. Of the
US$12.7 million Cash Sweep
received by Base Resources
Limited, US$8.2 million was
applied towards repayment of
the Taurus Facility, reducing
the outstanding balance to
US$11.8 million at year end.
RETIREMENT OF THE
TAURUS FACILITY
Subsequent to year end,
in July 2017, following the
approval of Kwale Facility
lenders to waive their
entitlement to 50% of the July
2017 Cash Sweep, US$14.8
million was distributed to Base
Resources. Base Resources
applied US$11.8 million of
the Cash Sweep to retire
the Taurus Facility, with
the remainder available for
corporate funding.
Under the terms of the waiver
granted, the Kwale Facility
lenders proportion of future
six-monthly Cash Sweeps
from Kwale Operations
will increase to 75% until
the US$7.4 million waived
has been repaid, which is
anticipated to occur over the
next 12 months.
KENYAN VAT
RECEIVABLE
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$19.7 million at 30 June
2017. These claims are
proceeding through the Kenya
Revenue Authority process,
with a number of operational
period claims, totalling
approximately US$2.4 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.
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Markets, sales
and outlook
ILMENITE AND RUTILE
Ilmenite and rutile are primarily
used as feedstock for the
production of titanium dioxide
’) pigment, with a small
(‘TiO2
percentage also used in the
production of titanium metal
and fluxes for welding rods and
wire. TiO2 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.
Pigment demand is the
main driver of ilmenite and
rutile pricing.
Global consumption of
pigment has maintained a
long-term average growth rate
closely correlated to global
GDP growth of 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. Excess
TiO2 pigment inventories in
the downstream supply chain
were finally exhausted by
the end of last year, resulting
in a significant tightening of
the market. Pigment demand
continued to strengthen
through the year under
review, resulting in a series of
price increases over the year,
with further pigment price
increases taking place through
the September 2017 quarter.
The ilmenite feedstock market
tightened as demand from
the Chinese pigment industry
increased rapidly. At the
same time supply of ilmenite
from major sources remained
constrained, including Chinese
ilmenite production, which is a
by-product of iron ore mining
and remained suppressed
due to low iron ore prices.
In addition, widespread
environmental compliance
inspections in the main
ilmenite producing region
of China (Panzhihua) during
the first half of the reporting
period led to temporary, and
some permanent, closures of
several ilmenite operations.
In addition, supply of ilmenite
from a major producing region
in India (Tamil Nadu) has been
suspended since the December
2016 quarter, due to political
issues. This combination of
factors resulted in ilmenite
prices increasing strongly
throughout the reporting
period. Prices for Base
Resources’ ilmenite increased
by over 250% between May
2016 and June 2017.
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However, the rapid increase
in price drove an influx of
ilmenite imports into China
through the second half of the
reporting period, which, when
combined with increasing
Chinese domestic ilmenite
production, resulted in
mounting pressure on prices
towards year end. Chinese
domestic ilmenite prices
retreated through June 2017
and this led to discounting of
imported ilmenite prices in the
early part of the September
2017 quarter.
A further round of
environmental compliance
inspections through the
September 2017 quarter
significantly restricted
production of Chinese
domestic ilmenite and
ilmenite prices have since
begun to recover strongly.
The resurgent ilmenite
price has also been assisted
by a significant drop in
ilmenite imports into China
from Vietnam during the
September 2017 quarter.
Conditions for rutile also
continued to tighten through
the course of the year under
review, although higher
inventory levels and some
excess production capacity
resulted in only modest price
improvement towards the
end of the 2017 financial year.
Since year end, price gains of
approximately 10% have been
reported for bulk rutile sales
for delivery in the first half of
the 2018 financial year where
contract renewals allow.
In the absence of substantial
new feedstock supply coming
online, the titanium dioxide
feedstock market is expected
to remain in a structural
supply deficit, providing an
opportunity for continued
price strength in both
ilmenite and rutile over the
coming years.
ZIRCON
Zircon has a range of end-
uses, the largest of which is
in the production of 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,
in particular, the increasing
urbanisation of the developing
world with both accelerating
over the past year or two,
resulting in steady demand
for zircon. A sharp decline in
zircon prices in the second
half of the 2016 financial
year led to a fall in production
and excess stocks being
consumed by downstream
users in the first half of the
reporting period. Limited
inventory of zircon, combined
with the strategy of major
producers to manage supply
to match demand, caused
a rapid tightening of the
market and by the December
2016 quarter, prices began
to increase for the first time
since 2012. Firm demand and
restricted supply has resulted
in zircon prices continuing
to improve through the
remainder of the reporting
period and contracts for
the first two quarters of the
2018 financial year have seen
successive gains of more than
15% in each quarter.
Resources and
reserves
MINERAL RESOURCES
The 2017 Kwale Mineral
Resources as at 30 June 2017,
are estimated to be 147.3Mt at
an average HM grade of 3.5%
and 25% slimes containing
5.15Mt HM, based on a 1%
HM cut-off grade.
The 2017 Kwale Mineral
Resources estimate
represents an increase
of 12.7Mt or 9% for total
material tonnes and a
decrease of 0.47Mt or 8% for
contained HM tonnes over
the previously reported 2016
Kwale Mineral Resources
estimate. The 2017 Kwale
Mineral Resources estimate
factors in depletion by mining
of the Central Dune deposit
during the year of 12.8Mt of
material containing 0.87Mt of
in situ HM and the inclusion of
the 2017 Kwale South Dune
Mineral Resources update.
5.15Mt HM, based on a 1%
HM cut-off grade.
ORE RESERVES
The 2017 Kwale South Dune
Mineral Resources update
was completed after 30 June
2017, but is included in Table
1 for completeness as mining
of the South Dune deposit has
not yet commenced. The 2017
Kwale South Dune Mineral
Resources update reflects the
results from extensional and
infill drilling completed during
the year and adds 25.6Mt of
material containing 0.40Mt of
in situ HM.
The 2017 Kwale Mineral
Resources as at 30 June 2017,
are estimated to be 147.3Mt at
an average HM grade of 3.5%
and 25% slimes containing
The 2017 Kwale Ore
Reserves as at 30 June 2017,
incorporates mining depletion
for the year and are estimated
to be 91.3Mt at an average
HM grade of 4.3% and 26%
slimes containing 3.90Mt
of HM.
The 2017 Kwale Ore Reserves
estimate represents a
decrease of 11.2Mt or 11% in
total ore tonnes and 0.78Mt or
17% in contained HM tonnes
over the previously reported
2016 Kwale Ore Reserves
estimate, after allowing for
depletion by mining of the
Central Dune deposit during
the year.
Mining has not yet
commenced on the South
Dune deposit and its Ore
Reserve estimate is yet to
be updated to reflect the
increased 2017 Kwale South
Dune Mineral Resources
estimate. Work to determine
an indicative economic pit
shell for the updated 2017
Kwale South Dune Mineral
Resource estimate will be
undertaken during the 2018
financial year, which will
then form the basis for the
application to the Kenyan
Ministry of Mines (‘MoM’) for
an extension of mining tenure.
This tenure will, preferably,
take the form of an extension
to the existing Special Mining
License 23 or, alternatively,
could involve the granting
of a new mining license.
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Table 1: 1% HM cut-off Mineral Resources estimate for the Kwale Operations at 30 June 2017 compared with the 2016 Mineral
Resources estimate.
2017
2016
MATERIAL
(Mt)
IN SITU
HM
(Mt)
CATEGORY
HM
(%)
SL
(%)
OS
(%)
ILM
(%)
RUT
(%)
ZIR
(%)
MATERIAL
(Mt)
IN SITU
HM
(Mt)
HM
(%)
SL
(%)
OS
(%)
ILM
(%)
RUT
(%)
ZIR
(%)
HM ASSEMBLAGE
HM ASSEMBLAGE
Measured
Indicated
Total
24.9
8.3
33.3
1.36
0.32
1.68
Measured
81.2
2.63
Indicated
32.7
0.84
Inferred
0.2 0.003
Total
114.1
3.47
Measured
106.1
3.99
Indicated
41.0
1.16
Inferred
Total
0.2 0.003
147.3
5.15
Table subject to rounding differences
5.5
3.9
5.1
3.2
2.5
1.3
3.0
3.8
2.8
1.3
3.5
24
26
25
25
26
27
25
25
26
27
25
0
2
1
2
5
2
3
1
4
7
2
CENTRAL DUNE
58
58
58
58
53
52
57
13
14
14
6
6
6
35.4
10.7
46.1
2.13
0.42
2.55
SOUTH DUNE
13
12
15
13
6
6
7
6
42.9
40.8
4.8
1.66
1.25
0.16
88.5
3.07
TOTAL MINERAL RESOURCES
58
54
52
57
13
13
14
13
6
6
6
6
78.3
51.5
4.8
134.6
3.79
1.67
0.16
5.62
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
0
2
1
2
5
2
3
1
4
2
2
59
59
59
59
52
57
56
59
54
57
57
13
14
13
14
13
14
13
13
13
14
13
6
6
6
6
6
6
6
6
6
6
6
Table 2: Ore Reserves estimate for the Kwale Operations at 30 June 2017 compared with the 2016 Ore Reserves estimate.
with the 2016 Ore Reserves estimate.
2017
2016
CATEGORY
ORE
(Mt)
IN SITU
HM
(Mt)
HM
(%)
SL
(%)
OS
(%)
ILM
(%)
RUT
(%)
ZIR
(%)
ORE
(Mt)
IN SITU
HM
(Mt)
HM
(%)
SL
(%)
OS
(%)
ILM
(%)
RUT
(%)
ZIR
(%)
HM ASSEMBLAGE
HM ASSEMBLAGE
Proved
Probable
Total
Proved
Probable
Total
22.6
7.1
29.7
38.9
22.7
61.6
1.30
0.29
1.59
1.56
0.75
2.31
5.7
4.1
5.3
4.0
3.3
3.8
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26
24
27
26
27
Proved
61.5
2.86
Probable
29.8
1.04
Total
91.3
3.90
4.6
3.5
4.3
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26
26
Table subject to rounding differences
CENTRAL DUNE
59
59
59
59
53
57
13
13
13
6
6
6
32.5
8.4
2.03
0.35
40.9
2.37
SOUTH DUNE
14
13
13
6
6
6
38.9
22.7
1.56
0.75
61.6
2.31
TOTAL ORE RESERVES
59
55
58
14
13
13
6 71.4
3.58
6 31.1
1.10
6 102.5
4.68
0
1
1
1
5
3
1
4
2
6.2
4.1
5.8
4.0
3.3
3.8
5.0
3.5
4.6
24
26
24
27
26
27
26
26
26
0
1
1
1
5
3
1
4
2
59
59
59
59
53
57
59
55
58
13
13
13
14
13
13
13
13
13
6
6
6
6
6
6
6
6
6
Which of these alternatives
eventuates could be expected
to have an impact on the
fiscal parameters applying
to the extensional resources
and therefore the economic
parameters applied for
conversion to Ore Reserves.
Consequently, completion of
an updated Ore Reserve for
the South Dune deposit will
be subject to finalisation of
mining tenure arrangements
with the MoM.
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 lithology and
weathering controls
• Estimation methodology
– relevant to mineralisation
style and proposed mining
methodology
• Comparison of estimation
results with previous
mineral resource models
• Use of an external
Competent Person to
assist in the preparation
of field and sample
preparation data collection
procedures and QA/QC
protocols
• Use of external Competent
Persons to assist in
the preparation and
peer review of JORC
Mineral Resources updates
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
• Validation includes visual
comparison of block
model against raw and
composite data
The information in this
report that relates to Mineral
Resources is based on, and
fairly represents, information
and supporting documentation
prepared by Mr. Richard
Stockwell and Mr. Scott
Carruthers. Mr. Stockwell is
a member of the Australian
Institute of Geoscientists and
Mr. Carruthers is a Member
of The Australasian Institute
of Mining and Metallurgy. Mr.
Stockwell acts as Consultant
Geologist for Base Resources
and Mr. Carruthers is employed
by Base Resources and owns
147,171 Base Resources
shares. Both Mr. Stockwell
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.
Stockwell and Mr. Carruthers
consent to the inclusion in this
report of Mineral Resource
estimates and supporting
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, and fairly represents,
information and supporting
documentation prepared
by Mr. Per Scrimshaw (for
South Dune deposit) and
Mr. Scott Carruthers (for
Central and South Dune
deposits). 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
Ore Reserve estimates and
supporting information in the
form and context in which
it appears.
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Corporate directory
DIRECTORS
AUDITORS
Mr Keith Spence,
Non-Executive Chairman
Mr Tim Carstens,
Managing Director
Mr Colin Bwye,
Executive Director
Mr Samuel Willis,
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
Email:
info@baseresources.com.au
Phone: + 61 (8) 9413 7400
Fax:
+ 61 (8) 9322 8912
SOLICITORS
Ashurst Australia
Brookfield Place Tower II
Level 10 & 11, 123 St Georges Terrace
Perth WA 6000
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: (within Australia): 1300 850 505
(outside Australia): +61 (3) 9415 4000
Website: www.computershare.com.au
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
JOINT BROKERS
RFC Ambrian Limited
Condor House
10 St Paul’s Churchyard
London EC4M 8AL
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
Consolidated financial
statements
25
26
Director’s
report
63
Lead Auditor’s
Independence
Declaration
36
Remuneration
report - audited
54
Corporate
governance
64
65
Consolidated statement
of profit or loss & other
comprehensive income
Consolidated statement
of financial position
66
67
68
Consolidated statement
of changes in equity
Consolidated statement
of cash flows
Notes to the
consolidated
financial statements
90
Director’s
declaration
91
95
Independent
auditor’s report
Additional shareholder
information
Director’s
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 2017
(the “reporting period”) compared with the year
ended 30 June 2016 (the “comparative period”).
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 is 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.
OPERATING RESULTS
The Group recorded a profit
after tax of $21,030,509 for
the reporting period
(2016: $20,918,682 loss).
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.
During the reporting period,
mining operations successfully
commissioned a 400 tonnes
per hour (“tph”) Hydraulic
Mining Unit (‘HMU’) to more
efficiently mine the thinner,
lower grade perimeter blocks,
while the existing dozer
trap mining unit (‘DMU’)
continued to mine the higher
grade central ore blocks. As a
result of the dual mining unit
strategy, the volume of low
grade ore mined increased
and the blended average
ore grade dropped to 7.09%
heavy mineral (‘HM’) (8.31%
HM in the comparative
period). Mining volumes were
consequently increased from
9.2Mt in the comparative
period to 11.0 million tonnes
(‘Mt’) in the reporting period
to compensate for the lower
ore grade.
Mining and WCP Performance
2017
2016
Ore mined (tonnes)
Heavy mineral (HM) %
11,014,939
9,202,554
7.09%
8.31%
WCP Heavy mineral concentrate
production (tonnes)
708,404
734,431
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,
concentrates the valuable
heavy minerals (rutile,
ilmenite and zircon) with a
number of gravity separation
steps and rejects most of
the non-valuable, lighter
gangue minerals to produce
a heavy mineral concentrate
(‘HMC’). The HMC, containing
approximately 90% heavy
minerals, is then processed in
the mineral separation plant
(‘MSP’). The MSP cleans and
separates the rutile, ilmenite
and zircon minerals into
finished products for sale.
Despite the increase in
mining volume, production
of HMC fell to 708,404
tonnes, lower than the prior
period’s 734,431 tonnes
due to the lower mined ore
grade. The HMC stockpile
was drawn down during
the year to 83,632 tonnes
(139,364 tonnes at 30 June
2016) due to the lower HMC
production and increased MSP
throughput.
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To exploit the increase in
MSP throughput achieved
and counter declining ore
grades expected from
mid-2018 onwards, in May
2017, following completion
of the definitive feasibility
study, the board approved
implementation of the Kwale
Phase 2 (‘KP2’) project. The
objective of the KP2 project
is to maximise HMC feed
to the MSP, and therefore
final production volumes, by
increasing mining rates as ore
grade declines. This will be
achieved through increasing
the hydraulic mining capacity
to three 800tph HMU’s,
with the existing DMU
gradually phased out, lifting
the combined mining rate
to 2,400tph (1,476tph in
the reporting period). WCP
and tails management will
be upgraded in parallel to
accommodate the higher
mining rates.
MSP Performance
2017
2016
MSP feed (tonnes of heavy
mineral concentrate)
MSP feed rate (tph)
MSP recovery %
Ilmenite
Rutile
Zircon
Production (tonnes)
Ilmenite
Rutile
Zircon
Zircon low grade
764,171
709,443
91
85
100%
97%
73%
104%
101%
69%
467,359
455,870
90,625
34,228
10,210
85,654
31,389
-
Director’s
report
500,000 tonnes of ilmenite
sold into the Chinese market
during the reporting period.
Solid relationships with major
Chinese ilmenite consumers
have ensured regular sales
through a mix of shorter term
contracts (one to three-year
duration) and spot sales.
MARKET
DEVELOPMENTS
AND OUTLOOK
Titanium Dioxide
Ilmenite and rutile are
primarily used as feedstock
for the production of titanium
dioxide (‘TiO2’) pigment,
with a small percentage also
used in the production of
titanium metal and fluxes
for welding rods and wire.
TiO2 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.
Pigment demand is therefore
the main driver of ilmenite and
rutile pricing.
On-going optimisation of the
MSP has continued to yield
higher throughput rates with
an average of 91tph achieved
for the reporting period
(85tph in the comparative
period), increasing total
MSP feed to 764,171 tonnes
(709,443 tonnes in the
comparative period) and
resulting in record production
levels for all products during
the reporting period.
Ilmenite production continued
at above design capacity,
achieving production of
467,359 tonnes (455,870
tonnes in the comparative
period), primarily due to the
increased MSP feed. The
higher feed was partially
offset by the proportionally
lower ilmenite content of
low grade ore and lower
average ilmenite recoveries
of 100% (104% in the
comparative period).
Rutile production increased to
90,625 tonnes in the reporting
period (85,654 tonnes in the
comparative period). Lower
average recoveries of 97%
(101% in the comparative
period) were offset by the
higher MSP feed and the
proportionally higher rutile
content of low grade ore mined
during the reporting period.
Zircon production increased
to 34,228 tonnes for the
reporting period (31,389
tonnes in the comparative
period) due to the higher MSP
feed and higher average zircon
recoveries of 73% (69% in the
comparative period).
In addition to primary
zircon, during the reporting
period the Kwale Operation
produced a lower grade zircon
product (“zircon low grade”)
from the re-processing of run-
of-production and stockpiled
zircon circuit tails into a zircon
rich concentrate. Sales of
this zircon low grade product
have realised 70-80% of the
value of each contained tonne
of zircon. Reported zircon
low grade represents the
volume of zircon contained
in the concentrate. When
combined with primary zircon
recoveries, the production
of zircon low grade has
effectively lifted total zircon
recoveries well above the
design target of 78%.
With no serious injuries
occurring during the
period under review, Kwale
Operations lost time injury
(“LTI”) frequency rate remains
at zero. Base Resources
employees and contractors
have now worked 9.7 million
man-hours LTI free, with
the last LTI recorded in
February 2014.
Base Resources has a number
of off-take agreements across
each of its three products with
some of the world’s largest
consumers of titanium dioxide
minerals and zircon products,
including a cornerstone
agreement with Chemours
for the majority of our rutile
production. These agreements
provide off-take security
for the Kwale Operation,
and contain firm minimum
annual offtake volumes. All
sale values are 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 reporting period,
Base Resources sold more
than 635,000 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 casual spot
customers.
The Company continues to
build its market presence in
China – the world’s largest
ilmenite market – with over
Marketing and sales
2017
2016
Sales (tonnes)
Ilmenite
Rutile
Zircon
Zircon low grade
501,676
480,538
91,991
34,566
9,501
85,536
33,062
-
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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. Excess pigment
inventories in the downstream
supply chain were finally
exhausted by the end of the
2016 financial year, resulting
in a significant tightening of
the market.
The TiO2 pigment industry
continued to strengthen
through the reporting period
resulting in price improvement
and strong demand for
TiO2 feedstock. Pigment
inventory levels have fallen
below normal levels and
pigment plants have moved
to maximise their utilisation
rates. Global pigment
producers announced a series
of price increases over the
course of the reporting period,
with further pigment price
increases secured during
the early part of the 2018
financial year.
The ilmenite feedstock market
became heavily constrained
as demand from the Chinese
pigment industry increased
rapidly and supply of ilmenite
from various major sources
was limited. A struggling iron
ore price has suppressed
ilmenite production in China
as most Chinese ilmenite
production is a by-product of
iron ore mining. In addition,
widespread environmental
compliance inspections in
the main ilmenite producing
region of China (Panzhihua)
during the first half of the
reporting period led to
temporary and permanent
closures of a number of
operations. Supply of ilmenite
from a major producing
region in India (Tamil Nadu)
has been suspended since
the December 2016 quarter,
as a result of political issues.
A combination of these
factors resulted in ilmenite
prices increasing strongly
throughout the reporting
period. Prices for Base
Resources’ ilmenite increased
by over 250% between
May 2016 and June 2017.
The rapidly increasing price
drove an influx of ilmenite
imports into China through
the first half of calendar year
2017, which, when combined
with increasing Chinese
domestic ilmenite production,
resulted in mounting pressure
on prices towards the end
of the reporting period.
Chinese domestic ilmenite
prices retreated through
June 2017 and this has led
to discounting of imported
ilmenite prices in the early
stages of the 2018 financial
year. However, a further round
of environmental compliance
inspections again appears to
be restricting production of
Chinese domestic ilmenite and
by the end of July 2017, there
were signs that the Chinese
domestic ilmenite price
had stabilised.
Conditions for rutile
continued to tighten through
the course of the year.
Inventory levels and some
excess production capacity
resulted in only modest price
improvement through the
latter part of the reporting
period but conditions look
positive for solid price gains
in financial year 2018.
In the absence of substantial
new feedstock supply coming
online, the titanium dioxide
feedstock market is expected
to remain in structural
supply deficit, providing an
opportunity for continued price
strength in both ilmenite and
rutile over the coming years.
Zircon
Zircon has a range of end-
uses, the largest of which is
in the production of 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. These
growth factors have improved
over the past year or two
resulting in steady demand
for zircon. A sharp decline
in zircon market prices in
the second half of the 2016
financial year led to a fall in
production and the excess
stocks were consumed by
downstream users in the
first half of the reporting
period. Limited inventory of
zircon, combined with the
strategy of major producers
to manage supply to match
demand, resulted in a rapidly
tightening market and by
the December quarter of the
reporting period, prices began
to increase for the first time
since 2012. Firm demand and
restricted supply has resulted
in zircon prices continuing
to improve through the
remainder of the reporting
period and contracts for the
early part of the 2018 financial
year have seen further
strong gains.
Director’s
report
REVIEW OF FINANCIAL PERFORMANCE
Base Resources recorded its maiden profit after tax of $21.0 million for the reporting period, compared with a loss of $20.9 million in
the comparative period, primarily due to higher sales revenues.
Sales Revenue
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)
Kwale
Operation
$000s
215,495
(68,735)
(5,033)
(14,782)
(88,550)
(5,238)
(3,588)
(2,690)
468
2017
Other
operations
$000s
-
-
-
-
-
Total
$000s
Kwale
Operation
$000s
215,495
169,039
(68,735)
(69,647)
(5,033)
(14,782)
(88,550)
(5,617)
(10,855)
-
-
(590)
(3,588)
(2,690)
(122)
(5,066)
(11,845)
(86,558)
(4,309)
(3,921)
(4,114)
(2,151)
EBITDA (i)
115,897
(6,207)
109,690
67,986
2016
Other
operations
$000s
-
-
-
-
-
Total
$000s
169,039
(69,647)
(5,066)
(11,845)
(86,558)
(6,840)
(11,149)
-
-
(580)
(7,420)
(3,921)
(4,114)
(2,731)
60,566
Depreciation & amortisation
EBIT (i)
(49,567)
66,330
(64)
(49,631)
(6,271)
60,059
(47,062)
20,924
(127)
(47,189)
(7,547)
13,377
Net financing expenses
Income tax expense
NPAT (i)
(25,568)
(5,655)
(31,223)
(27,247)
(7,009)
(34,256)
(7,805)
32,957
-
(11,926)
(7,805)
21,031
(40)
-
(40)
(6,363)
(14,556)
(20,919)
(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.
Sales revenue was
$215.5 million for the
reporting period (comparative
period: $169.0 million),
achieving an average price of
product sold (rutile, ilmenite,
zircon and zircon low grade)
of $338 or US$255 per tonne
($282 or US$205 per tonne
in the comparative period),
with the main driver being
the rising ilmenite price. Total
cost of goods sold, excluding
depreciation and amortisation,
was $88.6 million for the
reporting period (comparative
period: $86.6 million) at
an average cost of $139 or
US$105 per tonne of product
sold ($144 or US$105 per
tonne in the comparative
period). Operating cost per
tonne produced remained
steady at $114 or US$86 per
tonne for the reporting period
($121 or US$88 per tonne in
the comparative period).
With an achieved revenue
to cost of sales ratio of 2.4
(comparative period: 2.0),
the Company remains well
positioned in the upper
quartile of mineral sands
producers.
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Improved sales volumes,
commodity prices and a
continued focus on cost
management has delivered a
Kwale Operations EBITDA for
the reporting period of
$115.9 million ($68.0 million
in the comparative period)
and a Group EBITDA of
$109.7 million ($60.6 million
in the comparative period).
A net profit after tax of
$33.0 million was recorded by
Kwale Operations (loss of
$6.4 million in the comparative
period) and $21.0 million
for the Group (comparative
period: loss of $20.9 million).
Earnings per share for the
Group was 2.85 cents per
share (comparative period:
loss per share 3.41 cents).
Cash flow from operations
was $100.2 million for
the reporting period
($78.6 million in the
comparative period), slightly
lower than Group EBITDA due
to working capital movements.
Surplus cash generated by
Kwale Operations may be
distributed (a “Cash Sweep”),
in equal parts, as early
repayment of the Kwale
Operations Debt Facility
(“Kwale Facility”) and to the
Australian parent entity, Base
Resources Limited, on six-
monthly intervals as permitted
by the terms of the Kwale
Facility. In July 2016 and
January 2017, Cash Sweeps
of US$10.8 million and
US$14.6 million respectively
were distributed from the
Kwale Operation. Half of
the combined Cash Sweeps
(US$12.7 million) went
towards mandatory early
repayment of the Kwale
Facility, with the other
half distributed up to Base
Resources.
During the reporting period,
US$39.3 million of the Kwale
Facility was paid down
through a combination of
scheduled debt repayments
and Cash Sweeps, reducing
the outstanding Kwale Facility
debt to US$141.2 million.
Prior to final maturity, under
the terms of the Taurus Debt
Facility (“Taurus Facility”)
held by Base Resources,
repayments are only required
to be made from the proceeds
of Kwale Operations Cash
Sweeps received by Base
Resources. Of the
US$5.4 million Cash Sweep
received by Base Resources in
July 2016, a mandatory 50%
(US$2.7 million) was applied
towards repayment of the
Taurus Facility.
In October 2016, Base
Resources extended the
maturity date of the Taurus
Facility from 31 December
2016 to 30 September
2017. The extension of the
Taurus Facility final maturity
date removed the need to
secure external funding
to repay the balance that
would otherwise have been
due on 31 December 2016.
As part of the extension,
the mandatory proportion
of Kwale Operations Cash
Sweeps to be applied towards
progressive repayment of the
Taurus Facility increased from
50% to 75%. All other terms of
the Taurus Facility remained
unchanged, including the
interest rate of 10% on the
outstanding balance.
In January 2017,
US$7.3 million was received
by Base Resources from
the proceeds of the Kwale
Operations Cash Sweep
and a mandatory 75%
(US$5.5 million) was applied
towards repayment of the
Taurus Facility, thereby
reducing the outstanding
debt to US$11.8 million.
Total debt outstanding at
30 June 2017 was $199.0
million (US$153.0 million)
compared with $270.3 million
(US$200.5 million) at
30 June 2016. The Company’s
net debt position, once cash
and restricted cash are
incorporated, at 30 June 2017
was $128.2 million (US$98.5
million) compared with $204.2
million (US$151.5 million) at
30 June 2016.
SIGNIFICANT CHANGES
IN STATE OF AFFAIRS
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, on
14 July 2017, following the
approval of Kwale Facility
lenders to waive their
entitlement to 50% of the July
2017 Cash Sweep, US$14.8
million was distributed up
to Base Resources. Base
Resources applied US$11.8
million of the Cash Sweep to
retire the Taurus Facility, with
the remainder available for
corporate funding.
Under the terms of the waiver
granted, the Kwale Facility
lenders proportion of future
six-monthly Cash Sweeps
from Kwale Operations will
increase to 75% until the
US$7.4 million waived has
been repaid.
Repayment of the Taurus
Facility reduces total debt
outstanding to $183.7 million
(US$ 141.2 million).
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 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 & Nomination
Committee; member of the
Risk Committee; member of
the Audit Committee; member
of the Taurus Refinancing
Committee.
Other current public
company directorships:
Independence Group NL
(since 2014); Oil Search
Limited (since 2012); Murray
and Roberts Holdings Ltd
(since 2015).
Past public company
directorships held over
the last three years:
Geodynamics Limited (now
ReNu Energy Limited)
(resigned 2016); Clough
Limited (resigned 2013).
Director’s
report
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.
Mr Carstens is also the
Chairman of the Australia-
Africa Minerals and Energy
Group (AAMEG), the peak
body representing Australian
companies engaged in the
development of Africa’s
resource industry.
Special Responsibilities:
Managing Director; member
of the Taurus Refinancing
Committee.
Past public company
directorships held over the
last three years: None.
MR COLIN BWYE
Executive Director –
Operations & Development
Special Responsibilities:
Executive Director –
Operations & Development.
Qualifications: BEng (Hons)
Appointed: 12 July 2010
Past public company
directorships held over the
last three years: None.
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.
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 & Nomination
Committee; member of the
Risk Committee; member
of the 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);
Finders Resources Limited
(alternate, since 2016).
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Past public company
directorships held over the
last three years: Ampella
Mining Limited (resigned
2014); PMI Gold Limited
(resigned 2014); Heemskirk
Consolidated Limited
(resigned 2017).
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
MEETINGS OF DIRECTORS
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 producing
copper in Indonesia. In 2010,
Mr Stirzaker joined the
private equity mining fund
manager, Pacific Road Capital
Management as a partner. The
Pacific Road Resources Fund II
is a major shareholder of Base
Resources, with Mr Stirzaker
appointed as its nominee on
the Base Resources Board.
Special Responsibilities:
Member of the Remuneration
& Nomination 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:
Chairman of the Risk
Committee; member of the
Remuneration & Nomination
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); 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 advising
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 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.
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
held while a
committee
member
Meetings
attended
Meetings
held while a
committee
member
Meetings
attended
Meetings
held while a
committee
member
Meetings
attended
Meetings
attended
Keith Spence
Tim Carstens
Colin Bwye
Samuel Willis
Michael Anderson
Malcolm
Macpherson
Michael Stirzaker
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15
15
15
15
15
15
14
15
15
14
15
15
14
4
-
-
4
4
4
-
4
-
-
4
4
4
-
4
-
-
4
-
4
4
4
-
-
4
-
4
4
3
-
-
3
-
1(i)
3
3
-
-
3
-
1
3
4
4
-
4
-
-
-
4
4
-
4
-
-
-
(i) Appointed as Risk Committee Chairman from 1 February 2017
Director’s
report
INDEMNIFYING OFFICERS
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 or the subsidiary, as applicable, 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 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 13 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.
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.
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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 2017:
KPMG Australia
Taxation services
Other services
Overseas KPMG firms
Taxation services
2017
$
98,656
11,000
2016
$
32,820
10,000
108,894
234,423
AUDITOR’S INDEPENDENCE DECLARATION
The lead auditor’s independence declaration for the year ended 30 June 2017 has been received and can be found on page 63 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.
Remuneration report
- audited
This remuneration report sets out the remuneration arrangements for Base Resources Limited for year ended 30 June 2017.
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
Position
Senior Executives
T Carstens
C Bwye
K Balloch
C Forbes
A Greyling
S Hay
J Schwarz
D Vickers
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
Non-Executive Directors
K Spence
S Willis
M Anderson
M Macpherson
M Stirzaker
Chairman
Director
Director
Director
Director
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• 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.
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.
CHANGES SINCE
THE END OF THE
REPORTING DATE
None.
ROLE OF THE
REMUNERATION
& NOMINATION
COMMITTEE
The Remuneration &
Nomination 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 & Nomination
Committee, determines the
remuneration of the Executive
Directors and approves the
remuneration of the executive
management team.
The objective of the
Remuneration & Nomination
Committee is to ensure that
the remuneration system and
policies attract and retain
executives and directors
who will create value for
shareholders.
SERVICES FROM
REMUNERATION
CONSULTANTS
The Remuneration &
Nomination Committee
engaged Godfrey
Remuneration Group
(‘Godfrey’) to provide market
data to assist the Company is
assessing the competitiveness
of the Group’s remuneration
practices for Senior
Executives. The Committee
also engaged BDO to (i)
review the appropriateness of
the Group’s current incentive
arrangements and to make
broad recommendations
for the Committee’s
consideration; and (ii) provide
market data relating to the
remuneration packages of
the Group’s Senior Executives
to assist the Committee in
assessing the competitiveness
of current remuneration
packages.
Godfrey and BDO were
engaged by the Remuneration
& Nomination Committee
Chairman, and reported
directly to the Committee
and the Board. Further,
each consultant has
processes and procedures
in place to minimise
potential opportunities for
undue influence of Senior
Executives. The Board is
satisfied that the interaction
between consultants
and Senior Executives
is minimal, principally
relating to provision of
relevant Group information
for consideration by the
respective consultants. The
Board is therefore satisfied
that the advice received
from Godfrey and BDO is
free from undue influence
from the Senior Executives
to whom the remuneration
recommendations apply.
The information provided by
both Godfrey and BDO was
provided to the Remuneration
& Nomination Committee as
inputs into decision making
only. The Committee and
the Board considered the
information, along with other
factors, in making its ultimate
remuneration decisions.
Total fees paid to Godfrey for
services during the year ended
30 June 2017 were $3,200.
Total fees paid to BDO for
services during the year ended
30 June 2017 were $20,500.
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;
Remuneration report
- audited
Questions and answers about Senior Executive remuneration:
Remuneration mix
What is the balance
between fixed and at-risk
remuneration?
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, inclusive of 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.
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 & Nomination Committee.
The Executive Directors determine the TFR of other Senior Executives within specified guidelines
approved by the Board, subject to final approval by the Remuneration Committee. The Group
seeks to position fixed remuneration at the 50th market percentile of salaries for comparable
companies within the mining industry with which the Group competes for talent and equity
investment, utilising datasets and specific advice provided by independent remuneration
consultants.
Fixed remuneration
What is included in fixed
remuneration?
When and how is fixed
remuneration reviewed?
Short Term Incentive Plan (‘STIP’)
What is the STIP?
The STIP is the cash component of at-risk remuneration, payable based on a mix of Group and
individual annual performance standards.
Why does the Board consider
the STIP is appropriate?
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 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.
39
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Does the STIP take into
account different levels of
performance compared to
objectives?
The size of any STIP 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 TRP policy objective
for executives.
What are the performance
criteria?
Performance criteria are assigned for both individual and Group performance. Performance
criteria may change from year to year.
For Executive Directors, 75% of the STIP is attached to individual performance criteria and 25%
to corporate performance criteria. For other 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
usually 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
2017 financial year was:
• 5% above budgeted group EBITDA, assuming fixed AUD:USD exchange rate and the inclusion
of only 25% of variances in actual sales prices against budgeted prices, reflecting a limited
measure of management control over product pricing outcomes.
Where budgeted group EBITDA is used as the basis for the target corporate performance, the
Remuneration & Nomination Committee will set the performance criteria for the year (i.e. the
‘Threshold’, ‘Target’ and ‘Stretch’ performance ranges) on the basis of an assessment of the degree
of challenge represented by the particular year’s budget. Consequently, these ranges may change
from year to year. This approach is designed to ensure the appropriate degree of challenge in both
budgets committed to and STIP.
Remuneration report
- audited
Is there an overriding
financial performance or
other conditions?
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 2017 financial year:
• No workplace fatalities.
• No major reputational or environmental events.
What is the value of the
STIP award opportunity?
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.
How is the STIP assessed?
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 TRP 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 & Nomination Committee and approved by the Board. Specific
outcomes during the 2017 financial year relevant to STIP awards have included:
• Continued outperformance of Kwale Operations which has seen design (and beyond)
throughputs, availabilities and recoveries consistently achieved;
• Tight control of operating costs, achieving a challenging budget;
• Another year without a Lost Time Injury (the last was in February 2014) and further
improvement in the Total Recordable Injury Frequency Rate;
• Successful introduction of a new mining method in hydraulic mining which will be adopted as
the exclusive mining method through implementation of the Kwale Phase 2 project;
• Securing of market share and sales for all production, with only working inventory held
throughout the year;
• Completion of the Kwale South Dune Deposit resource extension drilling campaign with
community support;
• A significant reset of the relationship with the Kenyan National Government following the
change in Cabinet Secretary;
• Progressive improvement in Kenyan media coverage of Base Resources and the industry, with
improving public sentiment and understanding;
• Maintenance of funding continuity as well as options for strategic plan execution, including
extension of the Taurus Facility and progression of further options with the current Kwale
Facility lender group; and
• Delivery of a robust and comprehensive Kwale Phase 2 definitive feasibility study, now
approved for implementation.
Corporate performance criteria – the Board determines the extent to which each corporate
performance criteria has been achieved.
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Long Term Incentive Plan (‘LTIP’)
What is the LTIP?
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.
How often are LTIP
awards made?
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
commencement of the cycle. The first cycle of the LTIP began on 1 October 2011.
Why does the Board consider
a LTIP is appropriate?
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 the Base Resources leadership team and shareholders.
What types of equity may
be granted under the LTIP?
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 specified 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.
What is the value of the
LTIP award opportunity?
Executive Directors are awarded performance rights worth 120% of TFR. Other Senior Executives
are awarded performance rights worth 60% of TFR. The LTIP performance criteria are designed to
target 50% vesting of awarded performance rights over time.
These award opportunities and target vesting outcome are set based on external advice to achieve
the remuneration policy intent of 75% market percentile TRP market positioning.
Remuneration report
- audited
What are the LTIP
performance criteria?
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 3-year
TSR performance (1)
Less than 40th percentile
40th percentile
Percentage of relative TSR
performance rights that vest
Nil
25%
Between 40th and 50th percentile
Pro rata between 25% and 50%
Between 50th and 75th percentile
Pro rata between 50% and 100%
75th percentile and above
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).
LTIP performance criteria are designed to target 50% vesting over time to achieve policy intent
for remuneration market positioning, whilst providing incentive for outperformance. A threshold
level of performance, being suboptimal but nevertheless acceptable, which results in 25% vesting
at a relative TSR performance at the 40th percentile of the peer group is part of this design and
considered appropriate in the context of the LTIP as a whole.
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 (1)
Percentage of absolute TSR performance
rights that vest
Less than 40.5%
40.5%
Between 40.5% and 56%
Between 56% and 73%
73% or greater
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 2016 is by
reference to the 20-day volume weighted average price (‘VWAP’) of $0.1529 per share, subject
to a scaleback to ensure compliance with applicable ASIC relief ($0.0575 for cycle commencing
1 October 2015 and $0.2905 for cycle commencing 1 October 2014). In order to achieve 100%
vesting a 30-day VWAP of $0.2645 or greater would be required for the cycle commencing
1 October 2016 ($0.1150 for cycle commencing 1 October 2015 and $0.5810 for cycle
commencing 1 October 2014) at the conclusion of the 3-year performance period.
1 The performance scale was revised for the cycle commencing 1 October 2016. For previous cycles refer to prior annual reports.
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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
Alkane Resources Limited
Altona Mining Limited
Altura Mining Limited
Aquarius Platinum Limited
Arrium Limited
Atlas Iron Limited
Atrum Coal NL
Aurelia Metals Limited
Austral Gold Limited
Avanco Resources Limited
Axiom Mining Limited
BC Iron Limited
Beadell Resources Limited
Berkeley Energia Limited
Blackham Resources Limited
Bougainville Copper Limited
Brockman Mining Limited
Cardinal Resources Limited
CI Resources Limited
CuDeco Limited
Dacian Gold Limited
Dome Gold Mines Limited
Doray Minerals Limited
Eastern Goldfields Limited
Elemental Minerals Limited
Endeavour Mining Corporation
Energy Resources of
Australia Limited
Finders Resources Limited
Focus Minerals Limited
Galaxy Resources Limited
Gascoyne Resources Limited
Gold Road Resources Limited
Grange Resources Limited
Havilah Resources Limited
Highfield Resources Limited
Highlands Pacific Limited
Indophil Resources NL
Intrepid Mines Limited
Iron Road Limited
Kazakhstan Potash Corp Ltd
Kidman Resources Limited
Kingsgate Consolidated Ltd
Kingsrose Mining Limited
Lucapa Diamond
Company Limited
Lynas Corporation Limited
Magnis Resources Limited
LTIP Cycle
Commencing
1 October
LTIP Cycle
Commencing
1 October
2016 2015 2014
Companies
2016 2015 2014
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
Metals X Limited
Millennium Minerals Limited
✔
Mincor Resources NL
Mineral Deposits Limited
Mirabela Nickel Limited
Mount Gibson Iron Limited
Neometals Limited
Newfield Resources Limited
Nkwe Platinum Limited
Northern Minerals Limited
Norton Gold Fields Limited
OM Holdings Limited
Orocobre Limited
Paladin Energy Limited
Panoramic Resources Limited
Pantoro Limited
✔
✔
✔
✔
✔
✔
✔
✔
Perseus Mining Limited
Pilbara Minerals Limited
Poseidon Nickel Limited
Ramelius Resources Limited
✔
Rand Mining Limited
Range International Limited
Resolute Mining Limited
Reward Minerals Limited
RTG Mining Inc
Sandfire Resources NL
Saracen Mineral Holdings Ltd
Sheffield Resources Limited
Silver Lake Resources Ltd
Stanmore Coal Limited
Stonewall Resources Limited
Sundance 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 Limited
Valence Industries Limited
West African
Resources Limited
Western Areas Limited
Wolf Minerals Limited
Wollongong Coal Limited
Yancoal Australia Limited
Zimplats Holdings Limited
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
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✔
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✔
✔
Remuneration report
- audited
Was a grant made in 2017?
What happens to performance
rights granted under the LTIP
when a participant ceases
employment?
Performance rights were granted to eligible participants in the LTIP for the cycle commencing
1 October 2016. The number of performance rights granted for each executive was calculated
by reference to the VWAP on the twenty trading days up to the start of the cycle, being
$0.1529 per share, and the LTIP award opportunity.
The number of rights granted to eligible participants for this cycle was subject to a 50% scale back
to ensure compliance with applicable ASIC relief limiting the number of rights that may be on
issue under the LTIP on a three year rolling basis. A compensating payment was made to eligible
participants for rights foregone of $0.8 million.
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 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.
What happens in the event
of a change of control?
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.
Do shares granted upon
vesting of performance rights
dilute existing shareholders’
equity?
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.
Does the Group have a policy
in relation to hedging at-risk
remuneration?
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.
Did any performance rights
vest in 2017?
None of the 7,518,865 performance rights granted under the LTIP for the cycle commencing
1 October 2013 vested. These rights completed the three-year performance period on 30
September 2016, with nil vesting as follows:
• Relative TSR performance rights
Base Resources TSR over the performance period placed it in the 49th percentile, resulting in none
of the 3,759,432 relative performance rights vesting.
• Absolute TSR performance rights
Base Resources TSR over the performance period, by reference to a final VWAP of $0.15, equated
to a TSR of -60%, resulting in none of the 3,759,433 absolute performance rights vesting.
No shares were issued to LTIP participants in 2017.
45
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GROUP PERFORMANCE AND ITS LINK TO SHAREHOLDER RETURN
The following graph compares the yearly change in the cumulative TSR of Base Resources’ shares during the period 1 July 2012
to 30 June 2017, 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.
Remuneration report
- audited
EXECUTIVE REMUNERATION OUTCOMES FOR 2017
Short Term Incentives
At the end of the 2017 financial year, a review of the performance of each Senior Executive was undertaken against each of their 2017
individual performance measures as explained above. The 2017 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 2017 performance are paid in the 2018 financial year.
The following table outlines the STI that was earned in comparison with the target STI for the 2017 financial year:
Target STI
STI Awarded
Individual performance
Corporate performance
Individual performance
Corporate performance
45%
45%
15%
15%
15%
15%
15%
15%
15%
15%
15%
15%
15%
15%
15%
15%
65%
62%
21%
21%
20%
23%
19%
20%
20%
20%
22%
22%
22%
22%
22%
22%
Name
T Carstens
C Bwye
K Balloch
C Forbes
A Greyling
S Hay
J Schwarz
D Vickers
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 2017 are subject to a 3-year performance period ending on
30 September 2019. Performance rights issued under the plan in the 2014 financial year, totalling 7,518,865, completed their 3-year
performance period on 30 September 2016, with no performance rights vesting.
The table below outlines the historical performance of performance rights cycles under the LTIP programme:
Relative Performance Rights
Absolute Performance Rights
Grant date
Vesting date
30 June 2012
30 September 2014
1 October 2012
30 September 2015
1 October 2013
30 September 2016
Number of
performance
rights granted
4,125,484
4,870,331
7,518,865
Number vested
% vested
Number vested
% vested
2,062,742
-
-
100%
0%
0%
-
-
-
0%
0%
0%
47
TAKE HOME PAY FOR 2017
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 48), 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 2017 financial year. The remuneration packages for all Senior Executives are shown in the following table in their employment
currency and remain unchanged from 2016, excluding changes in STIP awards and compensating payment for LTIP scale back.
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Currency
Salary
STIP award Superannuation
Vesting of
performance
rights
Compensating
payment for
LTIP scaleback (ii)
Take home
pay (i)
(before tax)
Key
Management
Person
2017
Executive Directors
T Carstens
C Bwye
AUD
AUD
406,800
401,800
367,299
354,195
Other Key Management Personnel
K Balloch
C Forbes
A Greyling
S Hay
J Schwarz
D Vickers
2016
AUD
GBP
AUD
AUD
USD
USD
320,000
235,320
280,000
360,000
327,600
430,816
150,091
100,912
132,720
173,094
133,114
143,400
Executive Directors
T Carstens
C Bwye
AUD
AUD
406,800
401,800
326,618
317,882
Other Key Management Personnel
K Balloch
C Forbes
A Greyling (iii)
S Hay
J Schwarz
D Vickers
AUD
GBP
AUD
AUD
USD
USD
320,000
235,320
256,667
360,000
327,600
430,816
146,410
82,554
106,651
151,442
122,297
132,163
30,000
35,000
30,000
-
35,000
30,000
-
-
30,000
35,000
30,000
-
32,082
30,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
130,160
130,160
934,259
921,155
52,148
35,061
46,933
58,107
48,810
50,710
-
-
-
-
-
-
-
-
552,239
371,293
494,653
621,201
509,524
624,926
763,418
754,682
496,410
317,874
395,400
541,442
449,897
562,979
(i) Base Resources Limited 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) A scale back was applied to performance rights offered under the LTIP cycle commencing 1 October 2016 in order to ensure compliance with
applicable ASIC relief. A compensating payment was made during the 2017 financial year to eligible staff in lieu of the scale back in performance
rights offered.
(iii) Appointed 1 August 2015.
Remuneration report
- audited
STATUTORY REMUNERATION DISCLOSURES FOR THE YEAR ENDED 30 JUNE 2017
The statutory remuneration disclosures for the year ended 30 June 2017 are detailed below and are prepared in accordance
with Australian Accounting Standards and differ from the take home pay summary on page 47. These differences arise due to the
accounting treatment of long service leave and share-based payments. The remuneration packages for all Senior Executives remain
unchanged from 2016, in their base currency. Any changes in remuneration in the following table, excluding STIP awards and
compensating payment for LTI scale back, are the result of foreign exchange movements only, as detailed below.
Key
Management
Person
Short term
employment benefits
Post-
employment
benefits
Other long
term
Cash paid
in lieu
Share based
payments
Total
Performance
related
Salary
STIP bonus(i)
Superannuation
Long service
leave(ii)
Compensating
payment for LTIP
scaleback
Performance
Rights(iii)
$
$
$
$
$
$
$
%
2017
Executive Directors
T Carstens
C Bwye
406,800
401,800
367,299
354,195
30,000
35,000
7,683
14,026
130,160
130,160
292,776
292,776
1,234,718
1,227,957
Other Key Management Personnel
K Balloch
C Forbes (iv)
A Greyling
S Hay
J Schwarz (v)
D Vickers (v)
Total
2016
320,000
395,562
280,000
360,000
434,483
571,374
150,091
170,713
132,720
173,094
173,181
186,563
30,000
10,531
-
35,000
30,000
-
-
-
679
7,563
-
-
52,148
58,936
46,933
58,107
64,735
67,255
116,595
150,987
67,349
130,704
138,838
144,241
679,365
776,198
562,681
759,468
811,237
969,433
3,170,019
1,707,856
160,000
40,482
608,434
1,334,266
7,021,057
Executive Directors
T Carstens
C Bwye
406,800
401,800
326,618
317,882
30,000
35,000
(19,735)
6,698
Other Key Management Personnel
K Balloch
C Forbes (iv)
A Greyling (vi)
S Hay
J Schwarz (v)
D Vickers (v)
320,000
479,853
256,667
360,000
449,815
591,536
146,410
149,093
106,651
151,442
164,869
178,169
30,000
-
32,082
30,000
-
-
4,178
-
216
2,138
-
-
Total
3,266,471
1,541,134
157,082
(6,505)
-
-
-
-
-
-
-
-
-
271,181
271,181
1,014,864
1,032,561
105,987
136,353
30,298
119,800
119,265
123,835
606,575
765,299
425,914
663,380
733,949
893,540
1,177,900
6,136,082
64.0
63.3
46.9
49.0
43.9
47.7
46.4
41.1
-
58.9
57.0
41.6
37.3
32.2
40.9
38.7
33.8
-
(i) Current year STIP awards 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 2016 financial 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) Total remuneration package denominated in Pounds sterling (GBP) and converted to Australian dollars (A$) for reporting purposes using the average
exchange rate for the 2017 financial year of 0.5949 (2016: 0.4904).
(v) Total remuneration package denominated in US dollars (US$) and converted to Australian dollars (A$) for reporting purposes using the average
exchange rate for the 2017 financial year of 0.7540 (2016: 0.7283).
(vi) Appointed 1 August 2015.
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:
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Take home pay for the Managing Director
Treatment of Long Service Leave:
2017
$
2016
$
934,259
763,418
Add: Movement in the accounting provision for long service leave entitlements
7,683
(19,735)
Treatment of performance rights:
Add: accounting fair value (non-cash) of performance rights recognised in the period
292,776
271,181
Less: valuation of performance rights vested at date of vesting
Statutory pay for the Managing Director
-
-
1,234,718
1,014,864
NON-EXECUTIVE DIRECTOR REMUNERATION
Shareholders approve the maximum aggregate remuneration for non-executive directors. Fees paid to non-executive directors are
recommended by the Remuneration & Nomination Committee and the Board is responsible for approving 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 for the 2017 financial year remained unchanged from 2016.
The Group’s policy is that non-executive director remuneration is structured to exclude equity-based remuneration and reviewed
annually.
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:
Base fees
Chairman
Other non-executive directors
Remuneration & Nomination Committee
Chair
Committee member
Audit Committee
Chair
Committee member
Risk Committee
Chair
Committee member
2017
$
2016
$
135,400
70,000
110,000
70,000
-
5,250
14,000
7,000
7,900
3,900
10,500
5,250
14,000
7,000
5,925
2,925
Remuneration report
- audited
NON-EXECUTIVE REMUNERATION FOR THE YEAR ENDED 30 JUNE 2017 AND
COMPARATIVE 2016 REMUNERATION:
Base fees
Audit committee
Remuneration
& Nomination
committee
Risk committee
$
135,400
70,000
70,000
70,000
70,000
415,400
110,000
70,000
70,000
70,000
70,000
390,000
$
-
14,000
7,000
7,000
-
28,000
7,000
14,000
7,000
7,000
-
35,000
$
-
5,250
-
5,250
5,250
15,750
10,500
5,250
-
5,250
5,250
26,250
$
-
3,900
-
3,292
3,900
11,092
5,925
2,925
-
-
2,925
11,775
Total
$
135,400
93,150
77,000
85,542
79,150
470,242
133,425
92,175
77,000
82,250
78,175
463,025
2017
K Spence(i)
S Willis
M Anderson
M Macpherson
M Stirzaker
Total
2016
K Spence
S Willis
M Anderson
M Macpherson
M Stirzaker
Total
(i) In 2017 Mr Spence was remunerated in his role as Chairman, which encompassed any committee roles he performed.
EQUITY INSTRUMENTS
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 2017 financial year, performance rights were granted to Senior Executives as
part of their 2017 remuneration packages.
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, with the award formalised on 30 June 2012.
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The table below outlines movements in performance rights during 2017 and the balance held by each
Senior Executive at 30 June 2017:
Name
T Carstens
C Bwye
K Balloch
C Forbes
A Greyling
S Hay
J Schwarz
D Vickers
Grant date(i)
1 October 2013
1 October 2014
1 October 2015
1 October 2016
1 October 2013
1 October 2014
1 October 2015
1 October 2016
1 October 2013
1 October 2014
1 October 2015
1 October 2016
1 October 2013
1 October 2014
1 October 2015
1 October 2016
1 August 2015
1 October 2015
1 October 2016
1 October 2013
1 October 2014
1 October 2015
1 October 2016
1 October 2013
1 October 2014
1 October 2015
1 October 2016
1 October 2013
1 October 2014
1 October 2015
1 October 2016
Number of
performance
rights
Fair value
of each
performance
right
$0.2300
$0.1400
$0.0380
$0.1625
$0.2300
$0.1400
$0.0380
$0.1625
$0.2300
$0.1400
$0.0380
$0.1625
$0.2300
$0.1400
$0.0380
$0.1625
$0.1400
$0.0380
$0.1625
$0.2300
$0.1400
$0.0380
$0.1625
$0.2300
$0.1400
$0.0380
$0.1625
$0.2300
$0.1400
$0.0380
$0.1625
1,413,914
1,799,394
6,964,806
1,725,567
11,903,681
1,413,914
1,799,394
6,964,806
1,725,567
11,903,681
538,958
720,912
2,790,387
691,333
4,741,590
660,763
900,761
4,072,275
804,474
6,438,273
108,731
2,511,348
622,200
3,242,279
631,212
803,301
3,109,289
770,343
5,314,145
569,026
772,582
3,685,863
853,160
5,880,631
591,172
802,650
3,829,314
886,365
6,109,501
55,533,781
Vesting date(ii)
30 September 2016
30 September 2017
30 September 2018
30 September 2019
30 September 2016
30 September 2017
30 September 2018
30 September 2019
30 September 2016
30 September 2017
30 September 2018
30 September 2019
30 September 2016
30 September 2017
30 September 2018
30 September 2019
30 September 2017
30 September 2018
30 September 2019
30 September 2016
30 September 2017
30 September 2018
30 September 2019
30 September 2016
30 September 2017
30 September 2018
30 September 2019
30 September 2016
30 September 2017
30 September 2018
30 September 2019
Number
vested
during year
Number
lapsed
during year
Balance at
end of year
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,413,914
-
-
-
-
1,799,394
6,964,806
1,725,567
1,413,914 10,489,767
-
1,413,914
1,799,394
-
6,964,806
-
1,725,567
-
1,413,914 10,489,767
-
720,912
2,790,387
691,333
4,202,632
-
900,761
4,072,275
804,474
5,777,510
108,731
2,511,348
622,200
3,242,279
-
803,301
3,109,289
770,343
4,682,933
-
772,582
3,685,863
853,160
5,311,605
-
802,650
3,829,314
886,365
5,518,329
5,818,959 49,714,822
538,958
-
-
-
538,958
660,763
-
-
-
660,763
-
-
-
-
631,212
-
-
-
631,212
569,026
-
-
-
569,026
591,172
-
-
-
591,172
(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 and only those performance rights that satisfy the performance
criteria vest.
Remuneration report
- audited
KEY MANAGEMENT PERSONNEL PERFORMANCE RIGHTS MOVEMENTS
2017
T Carstens
C Bwye
K Balloch
C Forbes
A Greyling
S Hay
J Schwarz
D Vickers
Balance 1 July
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
1,725,567
1,725,567
691,333
804,474
622,200
770,343
853,160
886,365
47,454,772
8,079,009
-
-
-
-
-
-
-
-
-
1,413,914
1,413,914
538,958
660,763
-
631,212
569,026
591,172
10,489,767
10,489,767
4,202,632
5,777,510
3,242,279
4,682,933
5,311,605
5,518,329
5,818,959
49,714,822
KEY MANAGEMENT PERSONNEL SHAREHOLDINGS
The number of ordinary shares in Base Resources held by each director and KMP of the Group during the financial year is as follows:
Balance 1 July
Vesting of
Performance Rights
Purchased
Sold
Balance 30 June
2017
K Spence
T Carstens
C Bwye
S Willis
M Anderson
M Macpherson
M Stirzaker
K Balloch
C Forbes
A Greyling
S Hay
J Schwarz
D Vickers
-
1,228,522
1,842,739
200,000
-
-
-
108,948
130,646
1,411,154
-
286,085
190,752
5,398,846
-
-
-
-
-
-
-
-
-
-
-
-
-
-
500,000
-
-
-
-
-
-
-
-
-
-
-
-
500,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
500,000
1,228,522
1,842,739
200,000
-
-
-
108,948
130,646
1,411,154
-
286,085
190,752
5,898,846
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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
Permanent – ongoing
until notice has been
given by either party
C Bwye
K Balloch
C Forbes
A Greyling
S Hay
J Schwarz
D Vickers
3 months’ notice by the employee
1 month’s notice for termination by Company if
unable to perform duties by reason of illness
No notice required for termination by Company for
cause
3 months’ 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
12 months fixed
remuneration in the case
of termination by the
Company
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: 26 August 2017
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 2017
the Company complied with
the ASX Recommendations,
except to the limited extent
noted in this statement.
This statement is current
as at 30 June 2017 and has
been approved by the Board.
Where appropriate, the
statement also highlights
relevant events that have
occurred since 30 June
2017 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 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
at least 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
As at 30 June 2017, the
Board consisted 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.
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
(resigned 31 August 2017)
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 composition does not
impact the Board’s ability to
act in accordance with the best
interests of the Company and
its shareholders generally.
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.
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Area
Competency
Resources industry
experience
Experience 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.
Corporate governance
Details of the skills,
experiences, expertise and
period of service of each
Director is set out on pages
31 to 33 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. That said, the
Board has identified certain
areas and competencies in
which continued development
is desirable. These areas will
be the focus of continuing
Board education during
the next year and will be
considered as part of Board
succession planning.
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 2017.
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 Board sets
the method and scope of the
performance evaluation each
year, which typically includes
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 ended
30 June 2017. This review
comprised of a questionnaire
process completed by each
Director designed to assess
performance of the Board,
the Chairman and each
Committee and its Chairman.
The key outcomes of the
questionnaire process were
analysed and considered
at subsequent Board and
Committee meetings. The
Chairman also undertook
separate review discussions
with each individual Director.
Overall, the results of the
review process were pleasing,
indicating that the Board, its
Committees and individual
Directors are considered to be
performing their respective
roles effectively. The review
process also identified a small
number of opportunities
for improvement that will
be addressed through the
coming year.
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
Under the Company’s
Constitution the Board may
delegate its powers as it
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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. As this
facility was retired in July
2017, the Taurus Refinancing
Committee was no longer
required and was formally
dissolved by the Board in
August 2017.
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 31
to 33 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 33 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 had
four members as at 30 June
2017, which during the year
were Mr Willis, Mr Spence,
Mr Anderson (resigned
31 August 2017) 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
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 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
regularly, and at least annually.
The Risk Committee has
four members, all of whom
are non-executive Directors
and a majority of whom are
independent. Members of the
Committee are Mr Spence,
Mr Willis, Mr Stirzaker and,
with effect from 1 February
2017, Mr Macpherson.
Mr Spence, an independent
non-executive Director,
acted as Committee Chairman
until 31 January 2017.
Mr Macpherson joined the
Committee with effect from
1 February 2017 and was
nominated as Committee
Chairman from that time.
The change in Committee
Chairman during the year
was intended to address a
potential concern about the
workload of Mr Spence.
Taurus Refinancing
Committee
In June 2016, the Board
established the ad hoc Taurus
Refinancing Committee which
had 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 was not a
separately remunerated
committee. Members of the
Committee were Mr Willis,
Mr Spence, Mr Carstens and
the Company’s Chief Financial
Officer whom had been
seconded to the Committee.
Mr Willis, an independent
non-executive Director, was
Committee Chairman. As this
facility was retired in July
2017, the Taurus Refinancing
Committee was no longer
required and was formally
dissolved by the Board in
August 2017.
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 programme
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:
Corporate governance
• 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 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
current 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 and
encourages shareholders to
receive communications from,
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.
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 potentially 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
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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 Whistleblower
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
last 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 procedure
relating to dealing in the
Company’s securities
that provides best
practice 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
Corporate governance
throughout the business
and informs all decision
making as part of day to day
management.
Risk management roles
and responsibilities
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
occurring regularly, and at
least annually.
The Company does not
have a formal internal audit
function, however it has
a well-established Risk
Management Framework.
The Risk Committee annually
reviews the need for a formal
internal audit function and
when last considered at the
March 2017 Committee
meeting, the Committee
determined that a formal
internal audit process was
not required or justifiable at
this time. It is noted, however,
that this could change in the
future - particularly depending
on execution of the Company’s
growth strategy.
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
whistleblower 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 – typically at each
Committee meeting.
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,
access to exploration
opportunities), 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 delivering
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
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Project’s environmental
function based on an
environmental management
system guided by the
Environmental Policy. Refer
to pages 9 to 13 of the Annual
Report for more detail on
the Company’s current
sustainability practices.
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 2016 half-year
and 30 June 2017 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.
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
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 employee’s role
description.
A key focus of the Company
since before commencement
of operations in late 2013
has been 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 2017, the Company
is pleased to report that it
employed 95.4% Kenyan
national employees at Kwale,
an increase from the 94.5%
employed as at 30 June 2016.
This increase evidences
the effectiveness of the
Company’s systems which are
designed to drive a structured
transfer of skills 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
ended 30 June 2017:
•
Increase the overall
percentage of women
employed by the 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.
The above objectives were
considered appropriate
for the Company given its
current state of operations,
in particular reflecting
the relative stability of
the Company’s workforce
which naturally reduces the
opportunities to increase
gender diversity as rapidly
going forward.
The Board is pleased to
report that for the financial
year ended 30 June 2017,
the group maintained the
overall percentage of women
employed and satisfied its
set objective of maintaining
female representation in
graduate and apprentice
programmes at or above
one third.
The Company considers
that, given the relatively low
turnover of senior employees,
the group’s graduate and
apprenticeship programmes
continue to represent
the greatest opportunity
to increase female
representation within the
Company over time. We note
that recruitment timing and
overall cycles for our graduate
and apprentice programmes
do not correspond with the
financial year. Therefore, the
figures reported as at the end
of the financial year are not
always representative of the
balance of persons employed
during the period. An example
of this is that a large number
of apprentices finished their
programme in May 2017 (and
therefore are not included in
the financial year-end figures),
Corporate governance
with recruitment for the next
intake currently underway and
expected to be completed in
October 2017. So, while the set
objective to maintain female
participation in this group at
or above one third was clearly
achieved, this will be an area
of continued focus in FY 2018
(including in the upcoming
recruitment process).
During the year ended 30 June
2017, there were no vacancies
on the Board and therefore
no opportunity presented
itself to increase diversity on
the Board. It is not considered
appropriate for the Board
to simply increase its size,
however increasing diversity
is firmly part of the Board’s
succession planning.
Shown below is the
Company’s performance in
achieving its set objectives
during the year ended 30 June
2017, as compared to the two
prior periods.
Objective
Increase the overall percentage of women
Female representation in graduate and apprentice
programmes at or above one third
Women in executive roles (Stratum III and above)
Board gender diversity
30 June 2015
(% women)
30 June 2016
(% women)
30 June 2017
(% women)
Change during FY 2017
(% women)
15
10
10
0
16
28
16
0
16
48
15
0
0
20
-1
0
In executive roles, it is
acknowledged that there
was a slight decrease in
female representation during
the period attributable to
the addition of one new
male manager position at
Kwale operations. This new
manager position was an
elevation of an existing role,
filled by an individual that
had been on a long-term
development programme
for this promotion, and
consequently this did not
present an opportunity to
increase gender diversity
within management.
The Board has determined
to maintain the existing
measurable objectives for
the coming financial year,
except that the objective
with respect to female
representation in graduate
and apprentice programmes
will be measured based on
the intake of graduates and
apprentices as distinct from
simply measuring as at 30
June and will be subject to the
constraint of the operation of
the Company’s established
system for prioritising
employment opportunities to
local communities.
The Board will report
progress in achieving the
revised objectives in next
year’s corporate governance
statement.
• Constitution
• Board Governance
Plan (including Board
Committee Charters)
• Code of Conduct
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/.
• Securities Trading Policy
• Continuous Disclosure and
Market Communications
Policy
• Risk Management Policy
• Environment Policy
• Communities Policy
• Employment Policy
• Diversity Standard
• Health and Safety Policy
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 of Base Resources Limited for the financial year ended 30
June 2017 there have been:
(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
(ii) no contraventions of any applicable code of professional conduct in relation to the audit.
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KPMG
R Gambitta
Partner
Perth
26 August 2017
Consolidated statement
of profit or loss & other
comprehensive income
for the year ended 30 June 2017
Sales revenue
Cost of sales
Profit from operations
Corporate and external affairs
Community development costs
Selling and distribution costs
Other expenses
Profit before financing costs and income tax
Financing costs
Profit / (loss) before income tax
Income tax expense
Net profit / (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 (loss) / income for the year
Total comprehensive income / (loss) for the year
Net Earnings / (loss) per share
Basic earnings / (loss) per share (cents per share)
Diluted earnings / (loss) per share (cents per share)
The accompanying notes form part of these consolidated financial statements.
Note
1
1
1
3
2
2
2017
$000s
2016
$000s
215,495
(138,117)
169,039
(133,620)
77,378
35,419
(10,919)
(11,276)
(3,588)
(2,690)
(122)
60,059
(31,223)
28,836
(7,805)
21,031
(3,921)
(4,114)
(2,731)
13,377
(34,256)
(20,879)
(40)
(20,919)
(6,516)
(6,516)
5,336
5,336
14,515
(15,583)
Cents
2.85
2.63
Cents
(3.41)
(3.41)
Consolidated statement
of financial position
as at 30 June 2017
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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
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 tax liability
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.
Note
30 June 2017
$000s
30 June 2016
$000s
5
6
7
8
9
10
11
10
11
3
12
36,790
34,042
57,317
24,090
5,891
36,295
29,761
43,544
27,962
5,826
158,130
143,388
2,652
334,634
337,286
495,416
26,926
77,034
1,696
1,084
841
107,581
114,633
28,907
7,606
1,897
153,043
260,624
234,792
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
225,298
48,246
(38,752)
223,548
54,780
(61,454)
234,792
216,874
Consolidated statement
of changes in equity
for the year ended 30 June 2017
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
Balance at 1 July 2016
Profit 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 2017
Accumulated
losses
Share based
payment reserve
Foreign
currency
translation
reserve
$000s
$000s
$000s
Issued
capital
$000s
214,131
-
-
-
(42,319)
(20,919)
-
(20,919)
9,417
-
-
1,784
223,548
(61,454)
223,548
-
-
-
(61,454)
21,031
-
21,031
1,750
-
-
1,671
225,298
(38,752)
Total
$000s
221,518
(20,919)
5,336
(15,583)
42,669
-
5,336
5,336
-
-
9,417
1,522
48,005
216,874
7,037
-
-
-
-
(262)
6,775
6,775
48,005
216,874
-
-
-
-
(18)
6,757
-
(6,516)
(6,516)
21,031
(6,516)
14,515
-
-
1,750
1,653
41,489
234,792
The accompanying notes form part of these consolidated financial statements.
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Consolidated statement
of cash flows
for the year ended 30 June 2017
Cash flows from operating activities
Receipts from customers
Payments in the course of operations
Other
Note
2017
$000s
2016
$000s
201,420
(101,198)
(42)
170,765
(92,061)
(96)
Net cash from operating activities
17
100,180
78,608
Cash flows from investing activities
Purchase of property, plant and equipment
Payments for exploration and evaluation
Other
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Payment of share issue costs
Repayment of borrowings
Net payments to restricted cash
Payments for debt service costs and re-scheduling fees
Net cash used in financing activities
Net increase / (decrease) 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.
(8,474)
(1,217)
375
(9,316)
-
-
(61,849)
(5,320)
(22,018)
(89,187)
1,677
36,295
(1,182)
36,790
(4,884)
(13)
(174)
(5,071)
10,100
(683)
(31,680)
(23,230)
(34,632)
(80,125)
(6,588)
40,906
1,977
36,295
Notes to the consolidated
financial statements
WHAT’S NEW IN THIS
REPORT?
Over the past year we have
reviewed the content and
structure of the Consolidated
Financial Statements looking
for opportunities to make
them less complex and
more relevant to users.
This included:
• a thorough review of
content to eliminate
immaterial disclosures
that may undermine
the usefulness of the
Consolidated Financial
Statements by obscuring
important information; and
• reorganisation of the notes
to the financial statements
into four distinct
sections to assist users in
understanding the Group’s
performance.
The purpose of these changes
is to provide users with a clear
understanding of what drives
financial performance and
financial position of the Group,
while still complying with the
provisions of the Corporations
Act 2001.
An introduction at the start
of each section to explain
its purpose and content has
been added where relevant.
Accounting policies and
critical accounting judgements
applied to the preparation
of the financial statements
have been grouped with the
related accounting balance
or financial statement
matter. Accounting policies
have been documented in
simple terms to assist the
users of the Consolidated
Financial Statements to better
understand the Group’s
financial position
and performance.
Estimates and judgements
used in developing and
applying the Group’s
accounting policies are
continually evaluated and are
based on experience and other
factors and are reviewed on
an ongoing basis. Revisions
to accounting estimates are
recognised in the period in
which the estimate is revised.
The critical estimates and
judgements that have a
significant risk of causing a
material adjustment to the
carrying amounts of assets
and liabilities are discussed
in the respective sections of
the Consolidated Financial
Statements.
To assist in identifying critical
accounting judgements, we
have highlighted them with
the following formatting:
Australian Accounting
Standards Board (AASB)
and the Corporations Act
2001;
• comply with International
Financial Reporting
Standards (IFRSs) and
interpretations adopted
by the International
Accounting Standards
Board;
• 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,
in accordance with ASIC
instrument 2016/191.
The functional currency for
the subsidiaries is United
States dollars.
• have 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.
CRITICAL
ACCOUNTING
ESTIMATES AND
JUDGEMENTS
Basis of Preparation
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 2017 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.
The consolidated financial
statements of the Group for
the year ended 30 June 2017:
•
is a general purpose
financial report prepared in
accordance with Australian
Accounting Standards
(AASBs) adopted by the
Notes to the consolidated
financial statements
Performance for the year
The consolidated financial statements were approved by the Board of Directors on 26th August 2017.
This section analyses the financial performance of the Group for the year ended 30 June 2017. It includes segment performance,
earnings per share and taxation.
NOTE 1: SEGMENT REPORTING
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The Group’s 100% owned Kwale Operation is located in Kenya and 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
Sales revenue
Cost of sales:
Operating costs
Changes in inventories of concentrate
and finished goods
Royalties expense
Depreciation and amortisation
Total Cost of sales
Profit from operations
Corporate and external affairs
Community development costs
Selling and distribution costs
Other income / (expenses)
Profit before financing and tax
Financing costs:
Interest expense, inclusive of
withholding tax
Amortisation of capitalised
borrowing costs
Unwinding of discount on provision
for rehabilitation
Other
Total financing costs
Income tax expense
Reportable profit (loss)
Other disclosures:
Capital expenditure
Total assets
Total liabilities
2017
2016
Kwale
Operation
Other
operations
$000s
$000s
Total
$000s
Kwale
Operation
Other
operations
$000s
$000s
215,495
169,039
(68,735)
(69,647)
(5,033)
(14,782)
(49,567)
(5,066)
(11,845)
(47,062)
(138,117)
(133,620)
-
-
-
-
-
-
-
Total
$000s
169,039
(69,647)
(5,066)
(11,845)
(47,062)
(133,620)
35,419
-
-
-
-
-
-
-
77,378
(5,681)
(10,919)
-
-
(590)
(6,271)
(3,588)
(2,690)
(122)
60,059
35,419
(4,309)
(3,921)
(4,114)
(2,151)
20,924
(6,967)
(11,276)
-
-
(580)
(7,547)
(3,921)
(4,114)
(2,731)
13,377
215,495
(68,735)
(5,033)
(14,782)
(49,567)
(138,117)
77,378
(5,238)
(3,588)
(2,690)
468
66,330
(16,927)
(2,247)
(19,174)
(20,342)
(3,094)
(23,436)
(3,414)
(3,356)
(6,770)
(3,036)
(3,895)
(6,931)
(1,914)
(3,313)
-
(52)
(1,914)
(3,365)
(753)
(3,116)
-
(20)
(753)
(3,136)
(25,568)
(5,655)
(31,223)
(27,247)
(7,009)
(34,256)
(7,805)
32,957
-
(11,926)
(7,805)
21,031
(40)
-
(40)
(6,363)
(14,556)
(20,919)
9,342
490,178
244,706
349
5,238
15,918
9,691
495,416
260,624
4,884
524,505
292,204
13
10,674
26,101
4,897
535,179
318,305
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.
The division of the Groups results into segments has been ascertained by identification of revenue / cost centres and where
interrelated segment costs exist, an allocation has been calculated on a pro rata basis.
Recognition and measurement of 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 from the Group to the customer. 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 the Group’s rutile sales allow for a retrospective final price adjustment after shipment based on average market
prices in the quarter that the product is shipped. Average market prices are derived from an independently published quarterly
dataset of all rutile trades, available approximately four months after the end of each quarter. 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 receivable, which
takes into account the latest available market data at the balance date. As a result, rutile sales revenue of $39.9 million is still subject
to final market pricing at 30 June 2017 (2016: $39.4 million).
Finance income and expenses
Financing income includes interest income on cash held and is recognised as it accrues.
Financing expenses include:
Interest on borrowings;
•
• Amortisation of costs incurred to establish the borrowings;
• Finance lease charges; and
• 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 development of mining
projects are capitalised up to the point at which commercial production is achieved. Other financing expenses are expensed as incurred.
NOTE 2: EARNINGS / (LOSS) PER SHARE
Earnings / (loss) used to calculate basic / diluted loss per share
2017
$000s
2016
$000s
21,031
(20,919)
a. Weighted average number of ordinary shares on issue used in the calculation of basic earnings / (loss) per share
in thousands of shares
Issued ordinary shares at 1 July
Effect of shares issued as consideration for Taurus facility extension
Effect of renounceable entitlement offer
Weighted average number of ordinary shares at 30 June
732,232
6,657
563,903
-
-
49,237
738,889
613,140
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b. Weighted average number of ordinary shares on issue used in the calculation of diluted earnings / (loss) per share
2017
$000s
2016
$000s
in thousands of shares
Weighted average number of ordinary shares (basic)
Effect of performance rights on issue
Weighted average number of ordinary shares (diluted) at 30 June
NOTE 3: INCOME TAX
a. Amounts recognised in profit or loss
Current income tax
Income tax expense
Deferred tax expense
Origination and reversal of temporary differences
Income tax expense reported in comprehensive income
a. Amounts recognised in equity
Deferred income tax related to items charged or credited directly to equity
Share issue costs
Deferred tax asset not recognised
738,889
62,072
613,140
-
800,961
613,140
2017
$000s
2016
$000s
64
7,741
7,805
-
-
-
40
-
40
173
(173)
-
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:
Accounting profit / (loss) before tax
Prima facie tax on operating profit / (loss) at 30% (2016: 30%)
28,836
8,651
(20,879)
(6,264)
Add / (less) tax effect of:
Non-deductible items
Share based payments
Tax losses not recognised
Other deferred tax assets not brought to account as realisation not considered probable
Effect of tax rates in foreign jurisdictions
Income tax attributable to operating profit / (loss)
c. Deferred tax liability recognised
Tax losses Kenya
Other
Deferred tax liabilities recognised
Property, plant and equipment
Net deferred tax liability recognised
3,710
275
1,817
1,320
(7,968)
7,805
26,517
1,559
28,076
2,599
260
1,236
1,206
1,003
40
40,802
1,265
42,067
(35,682)
(42,067)
(7,606)
-
d. Deferred tax assets unrecognised
Deductible temporary differences
Tax losses Australia
Tax losses other
2017
$000s
335
7,935
89
8,359
2016
$000s
747
6,683
75
7,505
Potential deferred tax assets attributable to tax losses and exploration expenditure carried forward have not been brought to account
at 30 June 2017 and 2016 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.
Recoverability of deferred tax assets
Balances related to taxation disclosed 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.
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.
Recognition and measurement of income taxes
The income tax expense / benefit for the year comprises current income tax expense / benefit and deferred tax expense / benefit.
Current income tax expense charged to the Statement of Profit or Loss and Other 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. Deferred income tax expense reflects movements in
deferred tax asset and 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.
Current tax assets and liabilities are measured at the amounts expected to be paid to / recovered from the relevant taxation authority.
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 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.
NOTE 4: OPERATING CASHFLOWS
The Group’s operating cashflow reconciled to profit after tax is as follows:
Profit / (loss) for the year
Depreciation and amortisation
Share based payments
Financing costs classified as financing activity
Amortisation of deferred revenue
Income tax expense
Changes in assets and liabilities:
(Increase) / decrease in receivables and other assets
Decrease in inventories
Increase in trade and other payables
Increase / (decrease) in provisions
Cash flow from operations
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s
2017
$000s
21,031
49,567
1,653
31,223
(1,105)
7,805
(14,049)
3,872
150
33
2016
$000s
(20,919)
47,062
1,522
34,256
(1,145)
40
11,310
3,622
2,988
(48)
100,180
78,608
Notes to the consolidated
financial statements
Operating assets and liabilities
This section presents information about the Group’s assets and liabilities, including its policies and processes for measuring and
estimating these balances.
NOTE 5: RESTRICTED CASH
Current
Restricted cash
2017
$000s
2016
$000s
34,042
29,761
Under the terms of the Kwale Facility, sufficient funds are required to be held on account in order to meet the debt servicing
requirements of the next six months.
NOTE 6: TRADE AND OTHER RECEIVABLES
Current
Trade receivables
VAT receivables
Other receivables
2017
$000s
31,672
25,574
71
57,317
2016
$000s
18,246
25,198
100
43,544
Recoverability of construction period VAT receivable
The Group is owed $25.6 million in VAT receivable by the Government of Kenya, of which $21.6 million was incurred during the
construction of Kwale Operations 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.
NOTE 7: INVENTORIES
Current
Heavy mineral concentrate and other intermediate stockpiles – at cost
Finished goods stockpiles – at cost
Stores and consumables – at cost
2017
$000s
2016
$000s
6,081
4,460
13,549
24,090
9,054
6,982
11,926
27,962
Net realisable value of inventories
Inventories are recognised at the lower of cost and net realisable value (‘NRV’).
NRV is based on the estimated amount expected to be received when the product is sold, less all costs still to be incurred in
converting the relevant inventory to a saleable product, and delivering it to the customer. The computation of NRV for inventories
of heavy mineral concentrate and finished product involves significant judgements and estimates in relation to timing of
processing, processing costs, transport costs, commodity prices and the ultimate timing of sale. A change in any of these critical
assumptions will alter the estimated NRV and may therefore impact the carrying value of inventories.
75
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Recognition and measurement of inventories
Inventories of heavy mineral concentrate and finished product are valued on a weighted average cost basis and include 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 NRV. 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.
NOTE 8: PROPERTY, PLANT AND EQUIPMENT
2017
At cost
Accumulated depreciation
Closing carrying amount
Plant &
equipment
Mine property
and development
$000s
$000s
282,707
(94,485)
188,222
196,741
(57,663)
139,078
Buildings
$000s
8,320
(2,412)
5,908
Reconciliation of carrying amounts:
Balance at 1 July 2016
221,730
159,677
6,748
Additions
Transfers
Disposals
Reduction in mine rehabilitation asset
Depreciation expense
Effects of movement in foreign
exchange
1,364
1,899
(25)
-
(29,003)
2,646
1,594
38
(1,641)
(19,132)
(7,743)
(4,104)
Balance at 30 June 2017
188,222
139,078
2016
At cost
Accumulated depreciation
Closing carrying amount
Reconciliation of carrying amounts:
Balance at 1 July 2015
Additions
Transfers
Disposals
Reduction in mine rehabilitation asset
Depreciation expense
Effects of movement in foreign
exchange
$000s
$000s
289,626
(67,896)
221,730
239,058
1,587
1,480
(45)
-
(27,994)
199,259
(39,582)
159,677
173,832
655
-
-
(1,100)
(17,781)
7,644
4,071
Balance at 30 June 2016
221,730
159,677
Impairment of assets
1
23
-
-
(628)
(236)
5,908
$000s
8,596
(1,848)
6,748
6,606
526
21
-
-
(616)
211
6,748
Capital work in
progress
$000s
1,426
-
1,426
2,149
2,869
(3,516)
-
-
-
(76)
1,426
$000s
2,149
-
2,149
1,487
2,115
(1,501)
-
-
-
48
2,149
Total
$000s
489,194
(154,560)
334,634
390,304
6,880
-
13
(1,641)
(48,763)
(12,159)
334,634
$000s
499,630
(109,326)
390,304
420,983
4,883
-
(45)
(1,100)
(46,391)
11,974
390,304
At each reporting date, the Group reviews the carrying values of its assets to determine whether there is any indication those
assets have been impaired. When impairment indicators are identified, the Group determines the recoverable value of the cash-
generating unit to which the assets are allocated, via an estimation of the fair value of the cash-generating unit. Estimating the
fair value amount requires management to make an estimate of 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 commodity prices, production output and cost forecasts.
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 future operating costs, future commodity prices,
future capital requirements and future operating performance. Changes in reported reserves and resources estimates can impact
the carrying value of PP&E, 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.
Recognition and measurement of property, plant and equipment
Each class of property, plant and equipment (‘PP&E’) is carried at cost less, where applicable, any accumulated depreciation and
impairment losses.
PP&E is measured on a historical cost basis. Cost includes 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 Profit or Loss and Comprehensive Income during the
financial period in which they are incurred.
Any gain or loss on disposal of an item of PP&E is determined by comparing the proceeds from disposal with the carrying amount, 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 development costs required to bring the
mine into production. Any ongoing costs associated with mining which are considered to benefit mining operations in future periods
are capitalised.
Depreciation
All PP&E, except 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
Depreciation method
Buildings
Plant and equipment
Straight line at 5% per annum
Straight line at 10% to 30% per annum
Mine property and development
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.
NOTE 9: TRADE AND OTHER PAYABLES
Trade payables and accruals
Provision for increase in Government of Kenya royalty (a)
2017
$000s
12,584
14,342
26,926
2016
$000s
15,531
9,422
24,953
a. Government of Kenya (‘GoK’) Royalty
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 refund of $21.6 million (US$16.6 million) VAT receivables related to the
construction of Kwale Operations (refer to Note 6). 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, and currently being
paid, is 2.5%.
NOTE 10: BORROWINGS
Current
Kwale Facility (a)
Taurus Facility (b)
Capitalised borrowing costs (b)
Amortisation of capitalised borrowing costs (b)
Finance lease liabilities
Total current borrowings
Non-current
Kwale Facility (a)
Capitalised borrowing costs (a)
Amortisation of capitalised borrowing costs (a)
Finance lease liabilities
Total non-current borrowings
Total borrowings
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2017
$000s
2016
$000s
61,798
15,351
(6,320)
5,721
484
77,034
121,853
(22,738)
15,433
85
114,633
191,667
35,859
26,962
(4,570)
3,111
454
61,816
207,473
(23,298)
11,526
590
196,291
258,107
Recognition and measurement of capitalised borrowing costs
All transaction costs directly attributable to establishing the Debt Facility 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.
a. Kwale Facility
In November 2011, the Company entered into a debt facility for the development and construction of the Kwale Operation
(‘Kwale Facility’). During the year to 30 June 2017, US$39.3 million was paid down, reducing outstanding debt to US$141.2 million
(A$183.7 million).
Security for the Kwale 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 subject to finalising a long term operating licence for the Kwale
Operations Port Facility. The remaining tenor of all loan tranches is 3 years.
All tranches of the Kwale Facility carry interest rates of LIBOR plus 630 basis points, inclusive of political risk insurance. The
weighted average effective interest rate on the facilities at 30 June 2017 is 7.72% (30 June 2016: 7.24%), with the difference due to
the LIBOR rate.
b. Taurus Facility
In December 2014, the Company entered into 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 reschedule of the
Kwale Facility in 2014.
Prior to final maturity, under the terms of the Taurus Facility, repayments are only required to be made from the proceeds of Kwale
Operations Cash Sweeps received by BRL. Of the US$5.4 million Cash Sweep received by BRL in July 2016, a mandatory 50%
(US$2.7 million) was applied towards repayment of the Taurus Facility.
In October 2016, the Company extended the maturity date of the Taurus Facility from 31 December 2016 to 30 September 2017.
The extension of the Taurus Facility final maturity date removed the need to secure external funding to repay the balance that would
otherwise have been due on 31 December 2016. As part of the extension, the mandatory proportion of Kwale Operations Cash
Sweeps to be applied towards progressive repayment of the Taurus Facility increased from 50% to 75%. All other terms of the Taurus
Facility remained unchanged, including the interest rate of 10% on the outstanding balance. As consideration for the extension, the
Company issued Taurus 10 million fully paid ordinary shares.
In January 2017, US$7.3 million was received by BRL from the proceeds of the Kwale Operations Cash Sweep. Following the
extension of the Taurus Facility final maturity date, a mandatory 75% (US$5.5 million) was applied towards repayment of the Taurus
Facility, thereby reducing the outstanding debt to US$11.8 million (A$15.4 million).
Subsequent to year end, on 14 July 2017, following the approval of Kwale Facility lenders to waive their entitlement to 50% of the July
2017 Cash Sweep, US$14.8 million was distributed up to BRL. BRL applied US$11.8 million of the Cash Sweep to retire the Taurus
Facility, with the remainder available for corporate funding.
Under the terms of the waiver granted, the Kwale Facility lenders proportion of future six-monthly Cash Sweeps from Kwale
Operations will increase to 75% until the US$7.4 million waived has been repaid.
Repayment of the Taurus Facility reduces total debt outstanding to $183.7 million (US$141.2 million), subsequent to year end.
NOTE 11: PROVISIONS
Current
Employee benefits
Mine closure and rehabilitation
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
(Decrease) / increase in rehabilitation estimate
Unwinding of discount
Balance at 30 June
2017
$000s
1,206
468
22
1,696
28,851
56
28,907
2017
$000s
28,914
(1,010)
(465)
1,880
29,319
2016
$000s
1,173
-
-
1,173
28,914
59
28,973
2016
$000s
27,270
872
32
740
28,914
Mine closure and rehabilitation obligations
The calculation of the mine closure and rehabilitation provision requires assumptions such as application of environmental
legislation, plant closure dates, available technologies, engineering costs and inflation 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.
The mine closure and rehabilitation provision is recorded as a liability at fair value, assuming a risk-free discount rate equivalent to
the 5 year US Government bonds rate of 1.89% as at 30 June 2017 (2016: 2.59%) and an inflation factor of 1.27% (2016: 2.13%).
Although the ultimate amount to be incurred is uncertain, management has, at 30 June 2017, estimated the asset retirement
cost of work completed to date using an expected remaining mine life of 6 years and a total undiscounted estimated cash flow
of US$23,234,044 (2016: US$22,168,415). Management’s estimate of the underlying asset retirement costs are independently
reviewed by an external consultant on a regular basis for completeness.
Recognition and measurement of 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.
A mine closure and rehabilitation provision is recognised at the commencement of a mining project and/or construction based
on the estimated costs necessary to meet legislative requirements by estimating future costs and discounting these to a present
value. 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, and is amortised over the life of the mine.
79
At each reporting date the mine closure and rehabilitation provision is re-measured in line with changes in discount rates and timing
or amounts of the costs to be incurred. 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 and are dealt with on a prospective basis
as they arise.
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 a
financing expense in the Statement of Comprehensive Income. Changes in the asset value have a corresponding adjustment to future
amortisation charges.
The mine closure and rehabilitation provision does not include any amounts related to remediation costs associated with
unforeseen circumstances.
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Notes to the consolidated
financial statements
Capital structure, financial instruments and risk management
This section presents information about the Group’s financial assets and liabilities, its exposure to financial risks, as well as its
objectives, policies and processes for measuring and managing risks.
NOTE 12: ISSUED CAPITAL
Ordinary share capital:
Issued and fully paid
Date
1 July 2015
Renounceable entitlement offer
Share issue costs
30 June 2016
1 July 2016
Shares issued as consideration for Taurus Facility extension (note 10)
30 June 2017
2017
$000s
2016
$000s
225,298
223,548
Number
$000s
563,902,771
168,329,185
-
214,131
10,100
(683)
732,231,956
223,548
732,231,956
10,000,000
742,231,956
223,548
1,750
225,298
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.
Recognition and measurement of issued 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.
NOTE 13: SHARE-BASED PAYMENTS
a. Share options
Granted options are as follows:
Taurus Funds Management
Taurus Funds Management
Terms of granted options:
Grant date
23 December 2014
19 June 2015
Number
30,712,531
30,712,530
Issue date
23 December 2014
19 June 2015
In December 2014, the Group executed the Taurus 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 2015
Granted
Exercised
Lapsed
Options outstanding and exercisable as at 30 June 2016
81
Weighted
average
exercise price
Number
78,025,061
$0.35
-
-
(16,600,000)
61,425,061
-
-
$0.18
$0.40
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Options outstanding as at 1 July 2016
61,425,061
$0.40
Granted
Exercised
Lapsed
-
-
-
-
-
-
Options outstanding and exercisable as at 30 June 2017
61,425,061
$0.40
b. Performance rights
Granted performance rights are as follows:
Performance cycle date
KMP
Other employees
1 October 2014
1 October 2015
1 October 2016
7,707,725
33,928,088
8,079,009
2,325,748
11,820,343
3,227,508
Total
10,033,473
45,748,431
11,306,517
All performance rights are granted for nil consideration.
The fair value of the performance rights granted during the 2017 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 1.86%; no dividend yield; volatility factor
of the expected market price of the Company’s shares of 80%; 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 2016.
Recognition and measurement of share based payments
The Group LTIP is an equity settled employee share scheme. 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.
NOTE 14: FINANCIAL RISK MANAGEMENT
The Group’s activities expose it primarily to the following financial risks:
• Market risk consisting of commodity price risk, interest rate risk and currency exchange risk;
• Credit risk; and
• Liquidity risk.
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 Risk Committee and the Board on a regular basis. Financial assets and liabilities of the Group are
carried at amortised cost, which approximates fair value.
Recognition and measurement of 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.
The Group’s financial instruments consist of deposits with banks, accounts receivable and payables. The totals for each category of
financial instruments are as follows:
Financial assets
Cash and cash equivalents
Restricted cash
Trade and other receivables
Financial liabilities
Trade and other payables
Kwale Facility
Taurus Facility
Finance lease liabilities
Commodity price risk
Note
2017
$000s
2016
$000s
5
6
9
10
10
10
36,790
34,042
57,317
36,295
29,761
43,544
128,149
109,600
26,926
183,651
15,351
569
226,497
24,953
243,332
26,962
1,044
296,291
The Group is exposed to commodity price volatility on rutile sales made under contract terms which allow for a retrospective
final 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 approximately four months after the end of each quarter.
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 receivable, which takes into account the latest available market data at the balance date.
83
Rutile sales revenue of $39.9 million is still subject to final market pricing at 30 June 2017 (2016: $39.3 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. If commodity prices increased / decreased by 10%, with all other variables held constant, the Group’s after tax profit /
loss would have increased / decreased by $4.0 million (2016: $3.9 million).
Interest rate risk
All tranches of the Kwale 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 Kwale Facility at 30 June 2017 is 7.72% (30 June 2016: 7.24%).
The Taurus Facility has a fixed interest rate of 10% and a loan maturity date of 30 September 2017. The Taurus Facility was fully repaid
subsequent to year end, in July 2017 (refer to Note 10).
The majority of the Group’s cash deposits and restricted cash are held in accounts with Nedbank Limited at variable interest rates,
as required by the terms of the Kwale Facility.
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Fixed rate instruments
Financial assets
Financial liabilities
Variable rate instruments
Financial assets
Financial liabilities
Carrying amount
Realisable / payable within six months
2017
$000s
2016
$000s
2017
$000s
2016
$000s
-
(15,920)
(15,920)
-
(28,006)
(28,006)
70,832
66,056
(183,651)
(243,332)
(112,819)
(177,276)
-
(15,920)
(15,920)
31,149
(27,191)
3,958
-
-
-
39,895
(20,491)
19,404
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)
100bp increase
100bp decrease
100bp increase
100bp decrease
Profit or loss
Equity
(1,128)
1,128
1,128
(1,128)
(1,773)
1,773
1,773
(1,773)
2017
$000s
2017
$000s
2016
$000s
2016
$000s
Currency risk
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 2017
In $000s:
Cash and cash equivalents
Trade and other receivables
Other current assets
Trade and other payables
Borrowings
Net exposure
30 June 2016
In $000s:
Cash and cash equivalents
Trade and other receivables
Other current assets
Trade and other payables
Borrowings
Net exposure
AUD
3
-
-
(51)
-
(48)
AUD
3
-
-
(977)
-
(974)
USD
1,332
-
-
-
(15,351)
(14,019)
USD
177
-
-
(33)
(26,962)
(26,818)
KES
843
25,574
233
(1,253)
-
25,397
KES
318
25,198
218
(1,278)
-
24,456
Other
Total A$
4
-
-
(49)
-
(45)
2,182
25,574
233
(1,353)
(15,351)
11,285
Other
Total A$
6
-
-
(149)
-
(143)
504
25,198
218
(2,437)
(26,962)
(3,479)
The following significant exchange rates applied during the year:
AUD:USD
AUD:KES
Sensitivity analysis
Average rate
30 June spot rate
2017
2016
2017
2016
0.7540
77.3030
0.7283
74.3449
0.7686
80.0000
0.7418
75.1880
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 $1.1 million lower / higher (2016: $0.3
million higher / lower).
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 2017 was $215.5 million (2016: $169.0 million). Major customers who individually accounted
for more than 10% of sales revenue contributed approximately 61% (2016: 37%) of sales revenue. These customers represent 42%
(2016: Nil) of the trade receivables balance at 30 June 2017.
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.
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The Group is owed $25.6 million in VAT receivable by the Government of Kenya (Note 6), of which $21.6 million relates to the
construction of Kwale Operations 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
At 30 June 2017, the ageing of trade and other receivables that were not impaired was as follows:
Neither past due nor impaired
Past due 1 - 30 days
2017
$000s
2016
$000s
36,790
34,042
57,317
36,295
29,761
43,544
128,149
109,600
2017
$000s
54,265
3,052
57,317
2016
$000s
43,170
374
43,544
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:
United Kingdom
Kenya
China
USA
Australia
Other
Total
2017
$000s
65,005
27,068
19,982
9,976
4,404
1,714
2016
$000s
55,142
27,434
7,558
7,679
8,776
3,011
128,149
109,600
Liquidity risk
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
Carrying
amount
$000s
26,926
183,651
15,351
569
Contractual cash flows
Total
$000s
2 months
or less
2 – 12
months
$000s
$000s
1 – 2
years
$000s
2 – 5
years
$000s
More than
5 years
$000s
26,926
205,441
15,744
606
12,584
-
-
87
14,342
73,864
15,744
433
-
-
76,541
55,036
-
86
-
-
226,497
248,717
12,671
104,383
76,627
55,036
24,953
243,332
26,962
1,044
24,953
283,316
28,340
1,166
15,531
-
-
90
296,291
337,775
15,621
9,422
50,827
28,340
448
89,037
-
-
77,010
155,479
-
538
-
90
77,548
155,569
-
-
-
-
-
-
-
-
-
-
30 June 2017
Trade and other payables
Kwale Facility
Taurus Facility
Finance lease liabilities
30 June 2016
Trade and other payables
Kwale Facility
Taurus Facility
Finance lease liabilities
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
2017
$000s
36,790
34,042
57,317
24,090
5,891
(26,926)
(77,034)
(1,696)
(1,084)
(841)
2016
$000s
36,295
29,761
43,544
27,962
5,826
(24,953)
(61,816)
(1,173)
(1,123)
(887)
50,549
53,436
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Notes to the consolidated
financial statements
Group structure and other information
NOTE 15: PARENT ENTITY DISCLOSURES
As at, and throughout the financial year ended 30 June 2017, 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 position 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
2017
$000s
(11,155)
(11,155)
2017
$000s
4,353
215,425
219,778
17,790
11,804
29,594
2016
$000s
(9,182)
(9,182)
2016
$000s
9,530
217,225
226,755
28,760
59
28,819
190,184
197,936
225,298
6,757
(41,871)
223,548
6,775
(32,387)
190,184
197,936
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 Facility. Refer to note 10 for
further details.
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.
In preparing these financial statements, all inter-group balances and transactions between entities in the 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.
Controlled entity
Country of Incorporation
Date of Incorporation
Base Titanium (Mauritius) Limited
Base Titanium Limited
Base Exploration Tanzania Limited
Mauritius
Kenya
Tanzania
15 April 2010
23 April 2010
29 April 2016
NOTE 16: RELATED PARTIES
KMP compensation:
Short-term employment benefits
Post-employment benefits
Share-based payments
Compensating payment for LTIP scale back
Other long term
2017
$
2016
$
5,328,948
5,251,918
179,168
175,794
1,334,266
1,177,900
608,434
40,482
-
(6,505)
7,491,298
6,599,107
The 2017 remuneration packages, excluding Short Term Incentive Plan (“STIP”) bonus, for all KMP’s remain unchanged from 2016,
in their base currency. Refer to the Remuneration Report for further details.
Recognition and measurement of short term employee benefits
STIP 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 STIP where the Group has a present legal or constructive obligation as a result of past
services by the employee, and the obligation can be estimated reliably.
Recognition and measurement of 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 Profit and Loss and Comprehensive Income when incurred.
Other related party transactions
In January 2017, one of the Company’s major shareholders, Pacific Road Capital Management Pty Limited (“Pacific Road”), acquired
50% of a Kwale Operation royalty stream from Pangea Goldfields Inc. In the period to 30 June 2017, $300,000 was paid or is payable
to Pacific Road under this royalty arrangement. Mr Stirzaker, non-executive director of the Group, is a director of Pacific Road.
NOTE 17: 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
2017
$
2016
$
135,000
160,000
108,651
243,651
133,578
293,578
98,656
11,000
108,894
218,550
32,820
10,000
234,423
277,243
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NOTE 18: 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 2017, 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. Base Resources has not yet determined the extent of the impact of this standard.
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 does not expect the implementation of this standard to have a material impact on the financial statements.
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. Base Resources does not expect the implementation of
this standard to have a material impact on the financial statements.
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NOTE 19: EVENTS AFTER THE REPORTING DATE
Other than the July 2017 repayment of the Taurus Facility from the proceeds of the US$14.8 million Cash Sweep from the Kwale
Operations (refer Note 10), there have been no significant events since the reporting date.
NOTE 20: 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
Director’s declaration
1
In the opinion of the directors of Base Resources:
(a) the consolidated financial statements and notes that are set out on pages 64 to 89 and the Remuneration
Report in pages 36 to 53 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 2017 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 2017.
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 26th day of August 2017
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Independent
auditor’s report
Independent Auditor’s report to the shareholders of Base Resources Limited
Report on the audit of the Financial Report
OPINION
We have audited the Financial Report of Base
Resources Limited (the Company).
The Financial Report comprises:
•
Consolidated statement of financial position as
In our opinion, the accompanying Financial Report of
at 30 June 2017
the Company is in accordance with the Corporations Act
2001, including:
•
•
giving a true and fair view of the Group’s financial
position as at 30 June 2017 and of its financial
performance for the year ended on that date; and
complying with Australian Accounting Standards
and the Corporations Regulations 2001.
•
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 then ended
•
Notes including a summary of significant
accounting policies
•
Directors’ Declaration.
The Group consists of the Company and the entities it
controlled at the year end or from time to time during
the financial year.
BASIS FOR OPINION
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report
section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit
of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.
KEY AUDIT MATTERS
Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report
of the current period.
This matter was addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on this matter.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
Independent
auditor’s report
Value of property, plant and equipment (A$334,634,000)
Refer to Note 8 to the Financial Report
THE KEY AUDIT MATTER
HOW THE MATTER WAS ADDRESSED IN OUR AUDIT
The value of property, plant and equipment was considered a
key audit matter due to:
Our procedures included:
•
•
•
•
The size of the Kwale mine property, plant and equipment
balance (being 68% of total assets)
The mineral sands sector, within which the Group
operates, has experienced volatile commodity prices,
uncertainty in the global demand for products, and cost
reduction mandates, putting pressure on asset values
The level of judgment required by us in evaluating the
Group’s assessment of impairment, and
The Group’s market capitalisation at 30 June 2017 was
less than the net assets, bringing into question the value
ascribed to property, plant and equipment.
The assessment of impairment of the Group’s property, plant
and equipment, applies significant judgments through the use
of assumptions in a fair value less costs of disposal model. These
judgments include:
•
•
•
•
•
Forecast sales, production levels, production costs and
capital expenditure
Expected commodity prices for mineral sands
Discount rate including the assessment of Kenya country
risk, and
Life of mineral reserves.
In assessing this key audit matter, we involved senior team
members and valuation specialists.
We considered the appropriateness of adopting fair value less
costs of disposal methodology by assessing the discounted cash
flow forecast model to acceptable valuation techniques
• We assessed the integrity of the fair value less costs of
disposal model used
• We assessed the accuracy of previous forecasts by the Group to
inform our evaluation of forecasts incorporated in the fair value
less costs of disposal model
• We evaluated the sensitivity of the value of property, plant
and equipment by considering downside scenarios against
reasonably possible changes to the key judgments, such
as forecast commodity prices and the discount rate, to
determine the assumptions that we focused our testing on
• We assessed key judgments underlying the discounted
cash flows (including forecast sales, production levels and
production costs) based on the historical performance of
Kwale
• We compared the forecast cash flows and capital
expenditure contained in the fair value less costs of
disposal model to Board approved forecasts
• We compared expected commodity prices to published
views of the market commentator on future trends
• We analysed the life of mineral reserves based on the views of an
external expert engaged by the Group
• Working with our valuation specialists, we independently
developed a discount rate range considered comparable
using publicly available market data for comparable
entities, adjusted for Kenya country risk
• We assessed the Group’s analysis of the market
capitalisation shortfall versus the total recoverable amount
of the CGU. This included consideration of the market
capitalisation range implied by recent share price trading
ranges and broker target valuation ranges, to the Group’s
latest internal enterprise valuation model.
Independent
auditor’s report
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OTHER INFORMATION
Other Information is financial and non-financial information in Base Resources Limited’s annual reporting which is provided in addition
to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information.
The Other Information we obtained prior to the date of this Auditor’s Report was the Director’s Report. The Chairman’s Letter, and the
Operations and Finance Report which includes the Operation Summary, Sustainability in Practice, Business Development, Corporate
and Finance, Marketing and Sales, Mineral Sands Outlook and Resources and Reserves, are expected to be made available to us after
the date of the Auditor’s Report.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not express an audit
opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance
opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider
whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we
have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report.
RESPONSIBILITIES OF THE DIRECTORS FOR THE FINANCIAL REPORT
The Directors are responsible for:
•
•
•
preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the
Corporations Act 2001
implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free
from material misstatement, whether due to fraud or error
assessing the Group and Company’s ability to continue as a going concern. This includes disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company
or to cease operations, or have no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL REPORT
Our objective is:
•
to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due
to fraud or error; and
•
to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing
Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of this Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards
Board website at: http://www.auasb.gov.au/auditors_files/ar2.pdf. This description forms part of our Auditor’s Report.
Independent
auditor’s report
REPORT ON THE REMUNERATION REPORT
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of Base Resources
Limited for the year ended 30 June 2017, complies with Section
300A of the Corporations Act 2001.
•
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 responsibilities
• We have audited the Remuneration Report included on
pages 36 to 53 of the Directors’ report for the year ended
30 June 2017.
•
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
KPMG
R Gambitta
Partner
Perth
26 August 2017
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Additional shareholder
information
The following additional information required by the ASX Listing Rules is current as at 25 September 2017.
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
128
166
143
455
179
1,071
Units
17,947
517,088
1,186,186
17,823,322
722,687,413
742,231,956
%
0.00
0.07
0.16
2.40
97.37
100.00
There were 149 holders of unmarketable parcels of shares (<$500) based on the closing share price of $0.285 as at 25 September
2017 comprising a total of 47,095 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
1. J P Morgan Nominees Australia Limited
2. Pacific Road Capital Management GP II Limited
3. HSBC Custody Nominees
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