Base Resources
Annual Report 2018

Plain-text annual report

Broadening Base Annual Report 2018 Contents Highlights and Achievements 3 Chairman’s letter Operating & financial review Operation summary Sustainability in practice Business development Directors’ report Remuneration report Corporate governance statement Financial statements and notes Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements 8 11 16 35 51 64 65 66 67 68 Market, sales and outlook Corporate finance Resources and reserves Lead auditor’s independence deceleration Directors’ declaration Independent auditor’s report Additional shareholder information Glossary Corporate directory 4 6 18 20 22 26 63 62 94 95 100 102 103 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 involve 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-looking 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-looking statements as a result of, among other ii / BASE RESOURCES / ANNUAL REPORT 2018 factors, changes in economic and market conditions, success of business and operating initiatives and strategies, changes in the regulatory environment and other government actions, fluctuations in product prices and exchange rates and business and operational risk management. To the maximum 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 misstatement) 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. Base Resources (ASX and AIM: BSE) is an Australian based, African focused mineral sands producer and developer with a track record of project delivery and operational performance. The Company’s Kwale Operation is a consistent, high margin operation, with an optimised life of mine production profile following the recent enhancement project. Near-mine exploration is underway, presenting a significant opportunity for mine life extension and further value creation. The recently acquired Toliara Project, underpinned by the large, long life and high grade Ranobe deposit, is considered by Base Resources to be one of the best mineral sands development projects in the world. The project is currently progressing through accelerated study phases, building on work previously completed, towards an anticipated decision to proceed to construction in late 2019 which would see production in late 2021. Benefiting from improving prices and consistent production and costs at Kwale Operations, the Company has achieved record profits during the reporting period. This enabled a rapid reduction in net debt, providing Base Resources with a strong financial platform from which to grow the business and create a unique “mid cap” mineral sands company. BASE RESOURCES / / 1 2 / BASE RESOURCES / ANNUAL REPORT 2018 Highlights and Achievements 22% Revenue increased 22% to US$198.8m and EBITDA increased 32% to US$109.3m 50% 2.8:1 Net debt reduced by Revenue to cost of sales ratio US$65.3m to US$33.2m of 2.8:1 0 19% 3.8M Total Recordable Injury Frequency Rate of zero - no lost time due to injury since 2014 Kwale South Dune Measured and Indicated resources increased by 19% Invested in community and environment programs Average price improvements Acquisition of the for all products World-Class Toliara Kwale Phase 2 mine optimisation project Project in Madagascar successfully completed BASE RESOURCES / HIGHLIGHTS AND ACHIEVEMENTS / 3 Chairman’s letter Dear Shareholders This was a pivotal year for Base Resources with improving markets driving record financial performance, continued high cash flow, further optimisation of the Kwale operation and the acquisition of the World-Class Toliara Project. Our Company is in excellent shape to capitalise on short, medium and long term opportunities in a sector with sound fundamentals. Demand for our products continued to improve in the year With the Kwale operation running smoothly and with greater and this, along with low inventory levels and restricted supply, flexibility post-KP2, the focus has been squarely on extending supported strong price improvement. Those dynamics have the mine life. As a result of the South Dune drilling program continued for rutile and zircon post year end. completed in 2017, a 19% increase in Measured and Indicated This improved pricing environment, combined with consistent production over the period, saw the Company achieve record revenue of US$198.8m, a 22% increase on the prior period. This result, along with our low operating costs and focus on resource for the Kwale Operation was announced in October 2017. This will be incorporated into an updated Ore Reserve once the requisite extension to the Special Mining Lease is granted, which is expected in the near future. efficiency, led to a 32% increase in EBITDA to US$109.3m The focus of drilling activity has now shifted to the north east and a 114% increase in profit after tax. Strong cashflow sector of the Kwale operations, on the North Dune and Kwale allowed the Company to reduce net debt by US$65.3m East zones with encouraging indications to date. We are over the period. Net debt now stands at US$33.2m and optimistic that further mine life extension will result. is expected to be retired in the coming year. Most importantly the above performances, results and To counter declining ore grades expected from late 2018 progress were achieved with an uncompromising focus on onwards, and to fully exploit the availability of mineral the safety, health and wellbeing of our staff, contractors and separation plant (MSP) capacity, the Board approved, communities. One of Company’s most significant highlights in May 2017, the implementation of the Kwale Phase 2 (KP2) was the Total Recordable Injury Frequency Rate at zero at Project. This significant capital project was executed during the end of the financial year, with no medical treatments the financial year, on schedule and on budget, and is achieving across the year. The Kwale Operation has not had a lost the intended outcomes. The objective of the KP2 Project was time injury since February 2014 and our employees and to maximise feed to the MSP for the remaining life of mine, contractors have now worked 13.2 million man-hours LTI free. by increasing mining rates as ore grade declines. This has been This is a remarkable achievement for any mining operation achieved through increasing the hydraulic mining capacity to anywhere in the world. three 800tph Hydraulic Mining Units, while gradually phasing out the existing Dozer Mining Unit. The Wet Concentrator Plant and water supply infrastructure have also been upgraded in parallel to accommodate the higher mining rates. The seamless execution of the project without impact on the performance of the operations, and its management in-house, is testament to the capability of the Group’s operational and project teams. This year’s outcomes were only made possible by a highly capable, engaged and dedicated team at all levels of our organisation. Our approach of actively prioritising those closest to our operations for employment opportunities has enabled us to build a workforce with 67% of employees being from the local Kwale County and 97% from Kenya. Coupled with extensive and effective training (60,000 hours of training being delivered in the year) and apprenticeship and graduate programs, this workforce is highly effective and delivering 4 / BASE RESOURCES / ANNUAL REPORT 2018 some inspiring personal development stories as individuals are progressing up through the organisation. Beyond employment opportunities, the Company is focused on creating a balanced flow of mutual benefit with our communities via various livelihood, health, social infrastructure and education programs. One such program, the Kwale Cotton Project, was honoured to receive the New Vison for Development award from the World Economic Forum in February this year. Base Resources is committed to undertaking its operations in a way that minimises impacts on the environment and maximises opportunities for positive towards completion in the March quarter of 2019. The aim is environmental outcomes. The Company has a comprehensive to bring the Toliara Project into production in late 2021. environmental management program and recorded no environmental incidents during the year. In Kenya, the Company achieved these good results through partnerships with communities, environmental authorities, local and international conservation groups and expert organisations to realise the objective of sustaining and improving the regions rich biodiversity. In order to fully capitalise on the organisational capability, business model and financial platform honed on the Kwale development, we have been seeking the right growth opportunity from which to drive shareholder value. During the year, we were delighted to have been able to secure the Toliara Project in Madagascar. We have spent considerable effort in recent years evaluating such acquisition opportunities and consider the Toliara Project to be one of the best development opportunities in the world due to the size of the deposit, the consequent long mine life, it’s expansion potential, scope for operational scale up, technical simplicity and expected competitive positioning in the sector. We are confident that this is a project Base Resources can execute well. I believe Base Resources is now very well positioned to create further shareholder value. We have an outstanding operating asset in our Kwale Operation with strong cash generation and extensional potential, an exciting development opportunity with the World-Class Toliara Project and an outstanding team with a recognised reputation for successful mineral development. I’d like to thank the Board, our people, suppliers, local communities and host governments for their steadfast support and commitment. I’d also like to welcome Diane Radley to the Board as a Non-Executive Director, with her extensive leadership experience in Africa she has already added considerable value. Finally, thank you to you, our shareholders, for your confidence and ongoing support as we continue to create a truly unique mineral sands company. Since completing the acquisition earlier in the year, a concept study has been completed and a suite of additional test Keith Spence work, to build on the sound work already completed, is well Chairman advanced. Mineral Technologies and Lycopodium have been engaged to complete the pre-feasibility study which is heading BASE RESOURCES / CHAIRMAN'S LETTER / 5 TOLIARA PROJECT, MADAGASCAR OPERATING & FINANCIAL REVIEW KWALE OPERATIONS, KENYA BASE RESOURCES HEADQUARTERS, PERTH BASE RESOURCES / OPERATING & FINANCIAL REVIEW / 7 Operation summary Base Resources operates the 100% owned Kwale Operation in Kenya, which commenced production in late 2013. The Kwale Operation is located 50 kilometres south of Mombasa, the principal port facility for East Africa. The Kwale Operation is designed to process ore to recover The increase in mining volume resulted in production of heavy three main products: rutile, ilmenite and zircon. Mining mineral concentrate increasing to 748,081 tonnes, higher operations have recently completed the transition from dozer than the comparative period’s 708,404 tonnes. The heavy to hydraulic mining, which has proved to be cost effective and mineral concentrate stockpile decreased to 77,912 tonnes at well suited to the Kwale deposit. Ore is received at the wet 30 June 2018 (comparative period: 83,632 tonnes), following concentrator plant from the mining units via a slurry pipeline. the draw down of stocks during the one-month shut down for The wet concentrator plant removes slimes (sub 45-micron Kwale Phase 2 commissioning. particles), concentrates the valuable heavy minerals with a number of gravity separation steps and rejects most of the non-valuable, lighter gangue minerals to produce a heavy mineral concentrate. The heavy mineral concentrate is then processed in the mineral separation plant. The mineral separation plant cleans and separates the rutile, ilmenite and zircon minerals into finished products for sale. Processing Mineral Separation Plant (MSP) Performance MSP feed (tonnes of heavy mineral concentrate) MSP feed rate (tph) MSP recovery % Ilmenite Rutile Zircon Production (tonnes) Ilmenite Rutile Zircon Zircon low grade Mining Mining volume increased by 3% in the reporting period (the year ended 30 June 2018) compared to the comparative period (the year ended 30 June 2017), despite a month-long mining and wet concentrator plant shutdown in March 2018 to complete final equipment installation for the Kwale Phase 2 mine optimisation project. As part of the Kwale Phase 2 Project, the Company successfully commissioned a second hydraulic mining unit, to complement the existing hydraulic mining unit and dozer trap mining unit. With these three mining units operating for the final quarter of the reporting period, mining and wet concentrator plant volumes increased 37% over the prior three quarters. A third hydraulic mining unit was commissioned in July 2018 and the dozer trap mining unit is now on standby. Mined ore grade remained consistent with the comparative period (7.1%) as mining proceeded around the north-western fringes of the Central Dune orebody. The mineral separation plant has continued to maintain high throughput rates with an average of 91tph achieved for the reporting period (comparative period: 91tph) and total heavy mineral concentrate feed to 753,801 tonnes (comparative period: 764,171 tonnes), lower due to marginally reduced utilisation. Ilmenite production continued at above design capacity, achieving production of 464,988 tonnes (comparative period: 467,359 tonnes), with the reduced volume of mineral separation plant feed accounting for the difference. Mining and Wet Concentrator Plant (WCP) Performance Ore mined (tonnes) Heavy mineral (HM) % WCP heavy mineral concentrate production (tonnes) 2018 2017 11,332,668 11,014,939 Rutile production increased to 91,672 tonnes in the reporting 7.12 7.09 period (comparative period: 90,625 tonnes) due to higher 748,081 708,404 product recoveries, partially offset by slightly lower contained rutile in the mineral separation plant feed. 2018 2017 753,801 764,171 91 100 100 77 91 100 97 73 464,988 467,359 91,672 37,157 1,425 90,625 34,228 10,210 8 / BASE RESOURCES / ANNUAL REPORT 2018 Zircon production increased to 37,157 tonnes for the dioxide and zircon products, provide certainty for the reporting period (comparative period: 34,228 tonnes) due Kwale Operation by securing minimum offtake quantities. to higher average zircon recoveries of 77% (comparative Selling prices in these agreements are derived from period: 73%) and higher contained zircon in the mineral prevailing market prices, based on agreed price indices separation plant feed. or periodic price negotiations. In addition to primary zircon, in July 2016, Kwale Operations The Company continues its strong market presence in China, commenced production of a lower grade zircon product the world’s largest market for both ilmenite and zircon, with from the re-processing of run-of-production and stockpiled over 470,000 tonnes of ilmenite and over 29,000 tonnes of zircon circuit tails into a zircon rich concentrate. Sales of zircon products sold into the Chinese market during this zircon low grade product have realised 70-80% of the the reporting period. 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 The strength of the mineral sands market for all products has ensured that sales continue to closely match production, with minimal inventories being maintained. total zircon recoveries well above the design target of 78%. Product sales 2018 2017 During the reporting period the zircon tails stockpile was fully Sales (tonnes) depleted, and zircon low grade production was limited to 1,425 tonnes (comparative period: 10,210 tonnes). Sales Across each of its three products, the Company maintains a balance of multi-year, annual and quarterly offtake agreements with long term customers as well as a small proportion of ongoing spot sales. These agreements, in place with some of the world’s largest consumers of titanium Ilmenite Rutile Zircon Zircon low grade 473,549 501,676 89,132 36,318 3,287 91,991 34,566 9,501 BASE RESOURCES / OPERATING & FINANCIAL REVIEW / 9 10 / BASE RESOURCES / ANNUAL REPORT 2018 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 outcomes of its operations for its employees, its host community and more broadly, its host nations. Base Resources is committed to complying with national by giving preference to those residing in the immediate legislation and international best practice, specifically the environs of the mine. Through a ‘fencing system’, established International Finance Corporation’s Performance Standards, in consultation with the Kenyan government and local the Equator Principles, World Bank Group’s Environmental, communities, progressively lower priority is given to those Health and Safety Guidelines, International Labour living further away from the mine. This system has proved Organisation’s core labour standards and the United highly effective and, of the 1,072 people directly employed Nations Voluntary Principles on Security and Human Rights. in Kenya (768 by Base Resources and 304 by Kenyan service With this approach, Base Resources is helping to set sound benchmarks for effective and responsible development in Kenya’s emerging mining sector and beyond. In recognition of the Company’s demonstrated commitment to sustainability providers), 97% are Kenyan with 67% drawn from Kwale County. High local workforce participation, in conjunction with operational and safety performance, are considered key success factors for the Company. in practice the World Wildlife Fund Kenya recently While expatriates represent just 3% of employees in partnered with Base Resources to deliver the second annual Kenya, Base Resources is committed to further reducing Understanding Environmental and Social Standards and its expatriate workforce over the coming years, with an International Best Practices in Large-Scale Developments employee succession program in place to ensure the transfer Training. The Kwale Operation was also the proud recipient of specialist skills to Kenyan nationals. of an award from the Kenyan National Environmental Management Authority for outcomes in environmental management and biodiversity conservation. Local Employment Base Resources is committed to prioritising employment for local communities. In Kenya, the Company’s employment system is specifically designed to maximise employment opportunities and project benefits to local communities At the Company’s Toliara Project In Madagascar a labour recruitment system and influx management plan, mirroring that used successfully at Kwale Operations, is being implemented in consultation with the Malagasy government and local communities. BASE RESOURCES / OPERATING & FINANCIAL REVIEW / 11 Skills Transfer Base Resources has structured training and skills transfer for improvement and action towards the Company’s desired workplace culture, described as the ’Base Way’. Regular surveys programs covering on-the-job training for permanent have been conducted since the commencement of operations employees, and also extending to tailored programs for and have seen high response rates. graduates, interns, apprentices and high school students, providing a platform for systematic and rapid transfer of knowledge and skills. In addition to productivity and safety performance, absenteeism, staff turnover and industrial action are key indicators of employee satisfaction and motivation as well as The programs focus not only on employees, but also sources of competitive cost advantage. An absenteeism rate on building skills capacity in the broader community. of 2.3% was recorded in Kenya for the reporting period. To complement classroom learning, Base Resources partners The voluntary staff turnover rate for the year was also very with local universities to provide opportunities for technical low at 1.9%, up from the prior year’s 1.4%. The Kwale trades apprentices to gain the necessary practical experience Operations have not recorded any industrial action since in the workplace. commencement of operations. At Kwale Operations, skills transfer has been supported through sustained graduate, internship and apprentices’ Safety Throughout the construction, commissioning and operation programs where a total of 101 students have benefited from of the Kwale mine, Base Resources has entrenched a first- these programs run by the Company during the reporting world, best-practice safety culture. In this regard, Base period. In the same period, four foreign expatriates who left Resources is very pleased to complete another year with no the company had their positions filled by Kenyan, locally serious injuries occurring and Kwale Operations’ Lost Time promoted, staff, including two at manager level. Injury Frequency Rate has remained at zero. Base Resources Base Resources has committed an annual budget of US$0.6 million for training and development at its Kwale operation. This reflects the Company’s continued employees and contractors have now worked close to 14 million man-hours Lost Time Injury free, with the last Lost Time Injury recorded in February 2014. commitment to skills transfer to its Kenyan workforce After successful implementation of several initiatives to which extends to capacity building for the mining industry reverse a rising trend in minor medical treatment injuries, was a whole. Training plans are underway in Madagascar with systems being established for community training programs to the Company recorded no medical treatment injuries in the reporting period which resulted in a Total Recordable Injury Frequency rate of zero for the year. commence in late 2018, aimed at developing the necessary The Kwale Operations’ safety performance continues to be skills for the construction of the Toliara Project. an outstanding achievement by first-world mining operation 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 the Company’s success in developing human capital. An integral component of this focus is an independently conducted biennial employee survey. The objective of the survey is to measure the workplace culture represented by current worker behaviours and perceptions. It also identifies key areas standards, let alone for an emerging mining jurisdiction. Community Engagement and Development Base Resources understands that achieving its long-term goals is reliant on building beneficial relationships with the communities in which it operates and establishing a balanced flow of mutual benefit. As communities affected by mining 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 12 / BASE RESOURCES / ANNUAL REPORT 2018 from a series of sustainable development and livelihood improvement programs through the introduction improvement programs in exchange for a social license, of commercial agriculture. practically manifested in the provision of proud, motivated employees, security, support and a positive reference for future projects. Agricultural livelihood programs in Kwale, run in conjunction with partners Business for Development, DEG, FMO and Australia’s Department of Foreign Affairs and Trade In accordance with Base Resources’ Stakeholder continue to develop with encouraging support from both Engagement Plan at its Kwale Operation, the Company has national and county Kenyan governments. These programs, established a number of committees to act as an interface covering cotton, sorghum, potato and poultry, now involve between the Company and local communities. This is an around 3,000 smallholder farmers and community groups important tool for managing expectations, addressing with the ultimate aim being to establish new agricultural grievances or concerns, and establishes a mechanism opportunities that will provide economic growth well beyond for achieving more participatory and inclusive solutions. the life of mining activities. These committees also play a major role in identifying community development priorities. A similar Stakeholder Engagement Plan is being developed for the Toliara Project. The Kwale Cotton project has proved particularly successful to date, with the number of participating farmers growing exponentially each year since its commencement and The committees are made up of affected stakeholders, resulted in this year’s production exceeding 75 tonnes community leaders representing women, youth and the of Kenyan cotton lint which was exported to Bangladesh disabled, Members of the County Assembly, religious for further processing. After achieving a critical mass in leaders, government and county level lead agencies and the reporting period , a cotton farmers’ cooperative was administrators. These forums are further supported by established to assist in the administration of all facets of special interest sub-committees where appropriate. production and sale. Through close collaboration with the liaison committees, Reflecting the quality, scope and potential of these community priorities have been identified as capacity agricultural programs to drive regional socio-economic building, meeting basic needs such as health and education, development, additional financial support has been secured and establishing physical infrastructure to improve with a number of organisations, including the Australian standards of living. Government and FMO. 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 BASE RESOURCES / OPERATING & FINANCIAL REVIEW / 13 In addition to the agricultural livelihood programs, to date, other organisations to complete a maternity wing at the over 150 individual projects have been completed, including: Likoni Sub-County Hospital. In addition, Base Resources • Schools: 30 educational infrastructure projects have been undertaken, including construction of new institutions and provided a four-wheel-drive ambulance to Kwale County health authorities to service hard to reach communities. refurbishment or upgrading of existing facilities including • Community Health: Providing training for community two new laboratory facilities for leading boys and girls health workers, equipping medical facilities and supporting secondary schools in Kwale County. vaccination and general health campaigns. Six locations are • Scholarships: During the year, Base Resources continued currently supported in Kwale County and Likoni. its own scholarship program with 1,500 secondary school • Water Supply: 14 boreholes have been sunk and fully awards given and 1,072 tertiary placements supported equipped including the recently completed borehole at to date. In addition, partnerships with educational NGO’s Kilole in Kwale County. continue to provide support for a further 850 students at both secondary and tertiary levels. • Drought Relief: During the past year, Kenya has experienced significant drought conditions. Base • Medical Facilities: Constructed and equipped the Bwiti Resources has assisted the local community by providing Dispensary, Magaoni Health Centre and a local hospital- 29 tonnes of relief food in collaboration with the Kwale based blood bank facility in Kwale County. Base Resources County Government, local civil society organisations and also worked with the Mombasa County Government and Kenya Red Cross. 14 / BASE RESOURCES / ANNUAL REPORT 2018  • Community Groups Training: Together with the Dzarino Establishment of a Biodiversity Corridor Community Based Training Organisation, Base Resources Being located alongside forest reserves that form part of the runs economic empowerment training programs for Coastal Forests of Eastern Africa Biodiversity Hotspot has community groups to equip them with basic economic enabled Base Resources to capitalise on the opportunity to skills to assist in initiating business start-ups and achieve a net positive biodiversity outcome by establishing entrepreneurial activities. a biodiversity corridor that links remnant patches of With the Company’s recent commencement of activity in Madagascar, the primary focus of community programs have been in the continued support of the Australian Doctors For Africa surgical missions in the Toliara region. Wider community development programs are being developed and a Memorandum of Understanding has been executed to indigenous forest to the Gongoni Forest Reserve. During the year, work continued on the development of the biodiversity corridor with over 65,000 trees planted in the corridor to date, including over 11,000 classified as species being of conservation significance and more than 6,500 classified as either Critically Endangered or Endangered. set out the protocols for collaboration between the City of Wetland Restoration Toliara and Base Resources in development initiatives. Environment Base Resources is committed to operating in a sustainable and environmentally responsible manner. The Company operates a comprehensive environmental management system, and had no environmental incidents during the year. At the Kwale Operation, work progressed on several programs aimed at rehabilitating impacted areas, improving local biodiversity, and promoting conservation and sustainability, with some notable examples being: Rehabilitation of the Tailings Storage Facility walls The Tailings Storage Facility sand walls reached their full height towards the end of the reporting period. Rehabilitation and stabilisation of the external walls continued throughout the period with approximately An ephemeral wetland that had remained dry for a number of years prior to the commencement of operations has been successfully restored. After locating project infrastructure so as to avoid encroachment into the area, clean drainage from the tailings storage facility 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 indicator of healthy aquatic environments. 25% now classified as fully rehabilitated. Seeds and top soil Recycling Program erosion control materials are sourced from local women’s groups, thereby providing additional incomes for villages surrounding the mine site. Rare and Endangered Flora Propagation Research Program Targeting species of conservation interest, the program identifies indigenous plant species for propagation in the Kwale Operations nursery. With 276 indigenous species represented, and almost 88,000 trees grown to date, the nursery represents one of the largest of its kind in Africa, Base Resource’s commitment to caring for the environment by preventing pollution, maximising resource efficiency and encouraging responsible behaviour in others, drives the Kwale Operations Waste Recycling Program. Founded on the principal of Reduce-Reuse-Recycle, waste material 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. with a number of propagated rare species considered to be of conservation significance. More than 90 of these appear . in the IUCN Red List of Threatened Species, as either Critically Endangered, Endangered or Vulnerable. The nursery together with the arboretum established alongside it, function as a training and educational facility for local community projects and visitors. BASE RESOURCES / OPERATING & FINANCIAL REVIEW / 15 Business development This was a pivotal year for business development with the acquisition of the World-Class Toliara Project and mine life extension at Kwale Operations. Toliara Project In January 2018, the Company completed the US$75.0 million acquisition of an initial 85% interest in the Toliara Project and together form the foundations of an accelerated feasibility study program that aims to advance the project toward a decision to proceed to construction in the Toliara Project in Madagascar. Base Resources will late 2019. acquire the remaining 15% interest, with a further US$17.0 million payable on achievement of key milestones, as the project advances towards mine development. Kwale Operations Extensional Exploration During the reporting period, an updated Mineral Resource estimate for the Kwale South Dune (the 2017 Kwale The Toliara Project is considered by Base Resources to South Dune Mineral Resource) was completed, resulting be one of the best mineral sands development projects in in a 19% increase in contained heavy mineral tonnes in the world. It is underpinned by the Ranobe deposit which the Measured and Indicated categories. Completion of an has Mineral Resources of 857Mt at 6.2% heavy mineral, updated Ore Reserve based on the 2017 Kwale South Dune including 612Mt at 6.7% heavy mineral in the Measured Mineral Resource is subject to finalisation of mining tenure and Indicated categories. arrangements, which are currently being progressed with During the reporting period, the Company appointed the Kenyan Ministry of Petroleum and Mining. Mineral Technologies and Lycopodium to deliver the Pre- The next phase of extensional exploration drilling at Kwale Feasibility Study for the Toliara Project. The Company Operations commenced in April in the north east of the anticipates Pre-Feasibility Study completion in the March Company’s Kwale Special Prospecting License (SPL) 173 at quarter of 2019. The Pre-Feasibility Study will build on the Kwale East, adjacent to the Kwale Operation’s Central Dune. considerable body of work completed by previous owners of Completion of the remaining drilling program (4,200 metres) 16 / BASE RESOURCES / ANNUAL REPORT 2018 in this area is currently suspended whilst community access and a further 14,000 metres in progress. The North Dune issues are being resolved. Drill assay results from work is currently not included in the Kwale Mineral Resources. completed to date are expected to be available later in 2018. During the reporting period, the Company commenced a re-evaluation, including infill drilling, of the higher-grade Tanzania exploration During the reporting period, the Company completed a stratigraphic drilling program across five licences in Tanzania. areas of the North Dune, motivated by an improved economic The results did not indicate an economically viable deposit environment, refined resource definition methodology and and therefore it is unlikely the Company will pursue further insights from five years of operations on the Central Dune. exploration on these licences. At year end, 36 holes for 2,450 metres had been drilled BASE RESOURCES / OPERATING & FINANCIAL REVIEW / 17 Market, sales and outlook Price improvement for all three products continued throughout the year, supported by strong demand and limited supply. Mineral sands end products are widely used in everyday of production, and ongoing production and export bans from life and historical demand can be tightly tied to growth Tamil Nadu in India. in global GDP. Ilmenite and rutile Rutile and ilmenite are different grades of titanium dioxide (Ti02) minerals and are used predominantly to produce pigments for paint, paper, plastics, textiles and inks. Ti02 pigment is prized for its opacity, brightness and whiteness Following significant ilmenite price appreciation throughout the comparative period, the realised price of Chinese ilmenite sales has followed the volatility seen in Chinese pigment prices through the reporting period. The price of the Company’s ilmenite experienced swings throughout the reporting period, but the average achieved was 28% higher and its ability to absorb and reflect ultraviolet radiation. It is than the comparative period. also non-toxic and inert to most chemical reagents. High grade Ti02 minerals (which includes rutile) can also be used to produce titanium metal, which is corrosion resistant and has the highest strength to weight ratio of any metal. Titanium metal is used across the aerospace and defence industries as well as in medical devices, sporting equipment and jewellery. Ilmenite prices are expected to continue fluctuating around the average levels experienced during the reporting period. A supply deficit in the high-grade feedstock sector, in particular rutile, driven mostly by demand strength from the western chloride pigment sector, has seen market conditions continue to tighten. Most recently, a major producer announced that it has applied a 14% price increase for Overall, the global TiO2 pigment industry remained buoyant throughout the reporting period. Ongoing robust pigment contracted rutile sales in the first half of financial year 2019. This has been exacerbated by supply interruptions resulting demand combined with low inventory levels among the major from incidents at two major chloride slag facilities during the western pigment producers has continued to support a strong second half of the reporting period. The Company’s average pigment pricing environment in most regions. Pigment prices achieved rutile price for the reporting period increased by in China have remained strong but, unlike other regions, have 17% over the comparative period. Further price gains for been subject to some fluctuation on the back of volatility in supply and demand. This volatility is mostly linked to the impact of periodic environmental inspections on production throughout the supply chain and, towards the end of the reporting period, concerns over the potential impact of US trade tariffs on the wider Chinese economy. bulk rutile sales from major suppliers to large mainstream customers are likely to be secured as and when pricing periods in offtake arrangements come up for renewal. 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 Chinese domestic ilmenite production increased through the for continued price strength in both ilmenite and rutile over reporting period but has also been subject to the volatility the coming years. associated with environmental inspections. The increased domestic output has been offset by a decrease in foreign ilmenite supply into China from Vietnam, limited by high cost 18 / BASE RESOURCES / ANNUAL REPORT 2018 Zircon Zircon has a range of end-uses, including 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, making it sought after for other applications such as refractories, foundries and specialty chemicals. Demand for zircon is closely linked to growth in global construction and increasing urbanisation in the developing world. These factors have improved in line with the acceleration of global economic growth over the past few years resulting in steady demand growth for zircon. A significant draw down of inventories of zircon throughout the supply chain, along with constraints on global production, have resulted in a rapidly tightening market and sharp increases in zircon prices since the end of calendar year 2016. Throughout the reporting period, demand from the Company’s core group of long term zircon customers has continued to exceed the Company’s ability to supply. The average achieved price of the Company’s zircon products for the reporting period increased by more than 46% over the comparative period. A further increase of approximately 11% has been secured for the first quarter of financial year 2019. Ongoing firm demand and restricted supply may lead to further price improvement in zircon through financial year 2019. However, concerns from zircon producers in relation to the potential for substitution or thrifting of zircon by customers may begin to restrain the extent and/or frequency of price increases going forward. BASE RESOURCES / OPERATING & FINANCIAL REVIEW / 19 Corporate and Finance Base Resources achieved a record profit after tax of US$34.0 million for the reporting period, compared with US$15.8 million in the comparative period, driven by higher sales revenues. Sales Revenue Cost of goods sold excluding depreciation and amortisation: Operating costs Inventory movement Royalties expense Total cost of goods sold(i) Corporate & external affairs Community development Selling & distribution costs Other income / (expenses) EBITDA(i) Depreciation & amortisation EBIT(i) Net financing expenses Income tax expense NPAT(i) Kwale Operation US$000s 198,810 (56,658) (2,114) (13,678) (72,450) (4,312) (3,000) (4,056) 28 115,020 (47,349) 67,671 (15,929) (9,389) 42,353 2018 Toliara Project US$000s Other US$000s - - - - - - - - - - (87) (4,855) - - (704) (791) - Total US$000s Kwale Operation US$000s 198,810 162,417 (56,658) (51,816) (2,114) (3,794) (13,678) (11,141) (72,450) (66,751) 2017 Other Total US$000s US$000s - - - - - 162,417 (51,816) (3,794) (11,141) (66,751) (8,188) (2,699) (2,030) (92) (9,254) (3,000) (4,056) (765) (3,983) (2,699) (2,030) (4,205) - - 352 (444) - - (89) (4,944) 109,285 87,306 (4,649) 82,657 (84) (47,433) (37,355) (48) (37,403) (791) (5,028) 61,852 49,951 (4,697) 45,254 - - (2,560) (18,489) (19,264) (4,247) (23,511) - (9,389) (5,895) - (5,895) (791) (7,588) 33,974 24,792 (8,944) 15,848 (i) BaseResources’financialresultsarereportedunderInternationalFinancialReportingStandards(IFRS).TheseFinancialStatementsincludecertainnon- IFRSmeasuresincludingEBITDA,EBITandNPAT.ThesemeasuresarepresentedtoenableunderstandingoftheunderlyingperformanceoftheGroup andhavenotbeenaudited. Sales revenue was US$198.8 million for the reporting which increased volumes mined by hydraulic mining unit period (comparative period: US$162.4 million), achieving and installed pumping capacity in the wet concentrator plant. an average price of product sold (rutile, ilmenite, zircon and In addition, higher fuel costs, electricity prices and mobile zircon low grade) of US$330 per tonne (comparative period: equipment maintenance as the fleet ages contributed to the US$255 per tonne), with averaged realised prices higher for increase in operating costs. all products. Total cost of goods sold, excluding depreciation and amortisation, was US$72.5 million for the reporting period (comparative period: US$66.8 million) at an average cost of US$120 per tonne of product sold (comparative period: US$105 per tonne). Operating cost per tonne produced was higher at US$94 per tonne for the reporting period (comparative period: US$86 per tonne), due to higher electricity usage following the Kwale Phase 2 upgrade, With an operating margin of US$210 per tonne produced for the reporting period (comparative period: US$150 per tonne produced) and an achieved revenue to cost of sales ratio of 2.8 (comparative period: 2.4), the Company remains well positioned in the upper quartile of mineral sands producers. Improved commodity prices and a continued focus on cost management has delivered a Kwale Operations 20 / BASE RESOURCES / ANNUAL REPORT 2018 EBITDA for the reporting period of US$115.0 million and utilisation of the Revolving Credit Facility following a (comparative period: US$87.3 million) and a Group EBITDA concurrent facility increase to US$75.0 million. of US$109.3 million (comparative period: US$82.7 million). Early retirement of the Project Debt Facility demonstrates Depreciation and amortisation has increased for the the continued strong performance of Kwale Operations reporting period to US$47.3 million (comparative period: and, together with the increased Revolving Credit Facility, US$37.4 million), due to the KP2 Project implementation, provides the group with additional funding flexibility and which will significantly increase future mining rates and reduced debt servicing costs. thus reduce remaining mine life, on the basis of current ore reserves. The majority of Kwale Operation assets are depreciated on a straight-line basis over the remaining mine life. Should the extensional exploration currently underway at Kwale Operations be successful, there is the potential to further increase ore reserves and extend mine life, thereby reducing future annual depreciation and amortisation charges. A net profit after tax of US$42.4 million was recorded by Kwale Operations (comparative period: US$24.8 million) and US$34.0 million for the Group (comparative period: Toliara Project Acquisition In January 2018, the Company completed the acquisition the Toliara Project from World Titane Holdings Ltd, whereby Base Resources acquired an initial 85% interest in the wholly owned Mauritian subsidiaries of World Titane Holdings Ltd, which between them hold a 100% interest in the Toliara Project in Madagascar (held through wholly owned subsidiaries in Madagascar) for US$75.0 million. Base Resources will acquire the remaining 15% interest, with a further US$17.0 million payable on achievement of key US$15.8 million). Basic earnings per share for the Group was milestones, as the project advances to mine development. 3.66 cents per share (comparative period: 2.14 cents). Cash flow from operations was US$117.1 million for the reporting period (US$76.6 million in the comparative The project acquisition was funded by a share placement to institutional investors and a 1 for 3 accelerated pro rata renounceable entitlements offer (Offer). The institutional period), higher than Group EBITDA due to working capital placement and the institutional component of the Offer were movements. The operating cashflows were used to fund capital expenditure at Kwale Operations and on Toliara successfully completed on 5 January 2018, raising gross proceeds of approximately US$67.8 million (A$89.3 million) Project progression, as well as debt servicing and repayment. from the issue of 350,074,625 new fully paid new shares at Total capital expenditure for the Group was US$32.9 million in the reporting period (comparison period: US$6.5 million) comprised of US$31.2 million at Kwale Operations, primarily for the KP2 Project, and US$1.6 million on the progression A$0.255 per share. The retail component of the Offer was completed on 22 January 2018, raising gross proceeds of approximately US$5.8 million (A$7.7 million) from the issue of 30,306,450 new fully paid new shares at A$0.255 per share. 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$21.3 million at 30 June 2018. These claims are proceeding through the Kenya Revenue Authority process, with a number of operational period claims, totalling approximately US$5.9 million, settled during the reporting period. Base Resources is continuing to engage with the Kenyan Treasury and the Kenya Revenue Authority, seeking to expedite the remainder of the refunds. of the Toliara Project. Net Debt Reduction During the reporting period, the remaining US$11.8 million of the Taurus Debt Facility was repaid in full and a further US$61.2 million of the Kwale Operations Debt Facility repaid, reducing its outstanding balance to US$80.0 million. The Group established a US$30.0 million Revolving Credit Facility to provide additional funding flexibility and US$12.5 million was utilised during the reporting period for corporate working capital and the progression of the Toliara Project. Total debt outstanding at 30 June 2018 was US$92.5 million, reduced from US$153.0 million at 30 June 2017. The Company’s net debt position at 30 June 2018 reduced to US$33.2 million, from US$98.5 million at 30 June 2017. Subsequent to the end of the reporting period, the US$80.0 million outstanding balance of the Kwale Project Debt Facility was repaid from a combination of cash reserves BASE RESOURCES / OPERATING & FINANCIAL REVIEW / 21 Resources and Reserves The 2018 Mineral Resources and Ore Reserves for Base Resources are summarised in the table below together with the 2017 Ore Reserves and Mineral Resources for comparison. 2018 as at 30 June 2018 2017 as at 30 June 2017 Project Tonnes HM HM SL OS HM Assemblage Tonnes HM HM SL OS HM Assemblage (Mt) (Mt) (%) (%) (%) (%) (%) ILM RUT ZIR (%) (Mt) (Mt) (%) (%) (%) (%) (%) ILM RUT ZIR (%) Mineral Resources (Measured + Indicated + Inferred, inclusive of Reserves) Kwale 134 4.2 3.1 25 Ranobe 857 53.0 6.2 4 2 0 57 72 13 2 6 6 147 5.2 3.5 n/a n/a n/a 25 n/a 2 n/a 57 n/a 13 n/a 6 n/a Kwale 80 3.1 3.9 26 2 56 13 6 91 3.9 4.3 26 2 57 13 6 Ore Reserves (Proven + Probable) Tablesubjecttoroundingdifferences Mineral Resources and Ore Reserves estimates in this statement are reported in accordance with the JORC Code (2012 edition). Accordingly, this statement should be read in conjunction with the respective explanatory Mineral Resources and Ore Reserves information included in the following announcements1 for the relevant deposits: Deposit Ranobe Announcement Title Estimate date Release date Acquiring the Toliara Project – investor presentation 19 December 2017 19 December 2017 2017 Comparatives 2017 Kwale Mineral Resources and Ore Reserves Statement 30 June 2017 Kwale South Dune Mineral Resources Increase for Kwale South Dune 30 June 2017 Kwale Central Dune 2016 Kwale Mineral Resources and Ore Reserves Statement 30 June 2016 9 October 2017 4 October 2017 9 October 2017 Kwale Deposits The Company’s Kwale Operation contains the Kwale Central Dune and South Dune deposits, located approximately 50 kilometres south of Mombasa and approximately 10 kilometres inland from the Kenyan coast. Mineral Resources The 2018 Kwale Mineral Resources, as at 30 June 2018, are estimated to be 134Mt at an average HM grade of 3.1% for 4.2Mt of contained HM, at a 1% HM cut-off grade. The 2018 Kwale Mineral Resource estimate has decreased by 9% for material tonnes and by 18% for contained HM tonnes when compared with the previous 2017 Kwale Mineral Resource estimate due to mining depletion. The Kwale Central Dune Mineral Resources at 30 June 2018 are estimated to be 20Mt at an average HM grade of 3.9% for 0.8Mt of contained HM, decreased by 13Mt containing 0.9Mt of HM compared to the 2017 estimate due to mining depletion during the year. The South Dune Mineral Resources at 30 June 2018 are unchanged from the 2017 estimate as the increase announced on 4 October 2017, was incorporated into the 2017 estimate and mining has not yet commenced on this deposit. 1. Refer to ASX announcements available at http://www.baseresources.com.au/investor-centre/asx-releases/. 22 / BASE RESOURCES / ANNUAL REPORT 2018 Table 2: 2018 Kwale Mineral Resources estimate compared with the 2017 Kwale Mineral Resources estimate. 2018 as at 30 June 2018 2017 as at 30 June 2017 Project Tonnes HM HM SL OS HM Assemblage Tonnes HM HM SL OS HM Assemblage (Mt) (Mt) (%) (%) (%) (%) (%) ILM RUT ZIR (%) (Mt) (Mt) (%) (%) (%) (%) (%) ILM RUT Measured 13 0.6 Indicated Total Measured Indicated 7 20 81 33 0.2 0.8 2.6 0.8 Inferred 0.2 0.003 Total 114 3.5 Measured Indicated 94 40 3.2 1.1 Inferred 0.2 0.003 Total 134 4.2 4.1 3.4 3.9 3.2 2.5 1.5 3.0 3.4 2.7 1.3 3.1 24 25 24 25 26 27 25 25 26 27 25 Kwale Central Dune 14 14 14 6 6 6 25 8 33 1.4 0.3 1.7 Kwale South Dune 14 12 13 13 6 6 7 6 81 33 2.6 0.8 0.2 0.003 114 3.5 57 57 57 59 52 48 56 Total Kwale Mineral Resources 59 53 54 57 14 13 15 13 6 6 7 6 106 41 4.0 1.2 0.2 0.003 147 5.2 5.5 3.9 5.1 3.2 2.5 1.5 3.0 3.8 2.8 1.3 3.5 24 26 25 25 26 27 25 25 26 27 25 1 2 1 1 7 7 3 1 6 7 2 0 2 1 1 7 7 3 1 6 7 2 58 58 58 59 52 48 56 59 54 54 57 13 14 14 14 12 13 13 13 13 15 13 Tablesubjecttoroundingdifferences,MineralResourcesestimatedata1%HMcut-offgrade. ZIR (%) 6 6 6 6 6 7 6 6 6 7 6 Ore Reserves Contained within the Kwale Mineral Resources are the Kwale Ore Reserves, estimated as at 30 June 2018 to be 80Mt at an average HM grade of 3.9% for 3.1Mt of contained HM. The 2018 Kwale Ore Reserves estimate represents a decrease of 13% in total ore tonnes and 22% in contained HM tonnes over the previously reported 2017 Kwale Ore Reserves estimate. The Kwale Central Dune Ore Reserves at 30 June 2018 are estimated to be 18Mt of ore at an average HM grade of 4.0% for 0.7Mt of contained HM, decreased by 11Mt containing 0.8Mt of HM compared to the 2017 estimate due to mining depletion during the year. Mining has not yet commenced on the South Dune and its Ore Reserves estimate is therefore unchanged from the 2017 estimate. Table 3: The 2018 Kwale Ore Reserves estimate compared with the 2017 Kwale Ore Reserves estimate. 2018 as at 30 June 2018 2017 as at 30 June 2017 Project Tonnes HM HM SL OS HM Assemblage Tonnes HM HM SL OS HM Assemblage (Mt) (Mt) (%) (%) (%) (%) (%) ILM RUT ZIR (%) (Mt) (Mt) (%) (%) (%) (%) (%) ILM RUT Proved Probable Total Proved Probable Total Proved Probable Total 13 5 18 39 23 62 52 28 80 0.6 0.2 0.7 1.6 0.8 2.3 1.8 1.3 3.1 4.3 3.5 4.0 4.0 3.3 3.8 3.5 4.6 3.9 23 25 24 27 26 27 26 26 26 Tablesubjecttoroundingdifferences. Kwale Central Dune 57 57 57 59 53 57 14 14 14 6 6 6 Kwale South Dune 14 13 13 6 6 6 Total Kwale Ore Reserves 68 39 56 16 10 13 7 4 6 23 7 30 39 23 62 62 30 91 0 1 1 1 5 3 1 4 2 1.3 0.3 1.6 1.6 0.8 2.3 2.9 1.0 3.9 5.7 3.4 5.1 4.0 3.3 3.8 4.7 3.3 4.3 24 26 24 27 26 27 26 26 26 0 1 1 1 5 3 1 4 2 59 49 57 59 53 57 58 54 57 13 11 13 14 13 13 13 13 13 ZIR (%) 6 5 6 6 6 6 6 6 6 BASE RESOURCES / OPERATING & FINANCIAL REVIEW / 23 As announced on 4th October 20172, an updated Mineral Resources estimate for the Kwale South Dune (the 2017 Kwale South Dune Mineral Resource) was completed, resulting in a 19% increase in contained HM tonnes in the Measured and Indicated categories. Completion of an updated Kwale South Dune Ore Reserves estimate based on the 2017 Kwale South Dune Mineral Resource is subject to finalisation of mining tenure arrangements, which are currently being progressed with the Kenyan Ministry of Petroleum and Mining. Ranobe Deposit The Company completed the acquisition of the Toliara Project on the 23rd January 2018 and is currently progressing the project through a full study phase. The Toliara Project is founded on the Ranobe deposit, located approximately 40 kilometres north of the town of Toliara in south west Madagascar and approximately 15 kilometres inland from the coast. Mineral Resources The 2018 Ranobe Mineral Resources as at 30 June 2018, are estimated to be 857Mt at an average HM grade of 6.2% and 4% slimes containing 53Mt HM, based on a 3% HM cut-off grade. Table 3: The 2018 Kwale Ore Reserves estimate compared with the 2017 Kwale Ore Reserves estimate. 2018 as at 30 June 2018 2017 as at 30 June 2017 Project Tonnes HM HM SL OS HM Assemblage Tonnes HM HM SL OS HM Assemblage (Mt) (Mt) (%) (%) (%) (%) (%) ILM RUT ZIR (%) (Mt) (Mt) (%) (%) (%) (%) (%) ILM RUT ZIR (%) Toliara Mineral Resources Measured Indicated Inferred Total 282 330 245 857 20 21 12 53 7.2 6.2 5.0 6.2 4 4 5 4 0 0 1 0 72 72 71 72 2 2 1 2 6 6 5 6 Tablesubjecttoroundingdifferences,MineralResourcesestimatedata3%HMcut-offgrade. notapplicable–priortoBaseResources’acquisition Ore Reserves No Ore Reserves estimate has been completed for the Ranobe deposit. The drilling program currently underway on the Ranobe deposit aims to define the boundaries of the Mineral Resources, upgrade the existing Inferred Resource to Indicated status, and complete an Ore Reserves estimation for incorporation into the planned definitive feasibility study. Mineral Resources & Ore Reserves Governance A summary of the governance and internal controls applicable to Base Resources’ Mineral Resources and Ore Reserves estimates are as follows: Mineral Resources • Review and validation of drilling and sampling methodology and data spacing, geological logging, data collection and storage, sampling and analytical quality control; • Geological interpretation – review of known and interpreted structure, lithology and weathering controls; • Estimation methodology – relevant to mineralisation style and proposed mining methodology; • Comparison of estimation results with previous mineral resource models, and with results using alternate modelling methodologies; • Visual validation of block model against raw composite data; and • Use of external Competent Persons to assist in the preparation of JORC Mineral Resources updates. 2. Refer to Base Resources market announcement “Mineral Resource Increase for Kwale South Dune” released on 4 October 2017, which is available at http://www.baseresources.com.au/investor-centre/asx-releases. 24 / BASE RESOURCES / ANNUAL REPORT 2018 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 Reserve updates intimated with material changes in the above assumptions; • Optimisation using appropriate software packages for open pit evaluation; • Design based on optimisation results; and • Use of external Competent Persons to assist in the preparation of JORC Ore Reserves updates. Competent Persons Statements The 2018 Mineral Resources and Ore Reserves Statement has been approved by the following competent persons, as detailed below. Mineral Resources – Kwale Central and South Dune Deposits The information in this report that relates to Kwale Central and South Dune Deposit Mineral Resources is based on, and fairly represents, information and supporting documentation prepared by Mr. Richard Stockwell (for South Dune deposit) and Mr. Scott Carruthers (for Central Dune deposit). 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. Mr. Carruthers is employed by Base Resources, he holds equity securities in Base Resources and is entitled to participate in Base Resources’ equity long term incentive plan, details of which is included in the 2018 Remuneration Report. 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 he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code) and both are considered Qualified Persons for the purposes of the AIM Rules for Companies. Mr. Stockwell consents to the inclusion in this report of Kwale South Dune Deposit Mineral Resource estimates and supporting information in the form and context in which it appears. Mr. Carruthers consents to the inclusion in this report of Kwale Central Dune Deposit Mineral Resource estimates and supporting information in the form and context in which it appears. Ore Reserves – Kwale Central and South Dune Deposits The information in this report that relates to Kwale Central and South Dune Deposit 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, he holds equity securities in Base Resources and is entitled to participate in Base Resources’ equity long term incentive plan, details of which is included in the 2018 Remuneration Report. 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) and both are considered Qualified Persons for the purposes of the AIM Rules for Companies. Mr. Scrimshaw and Mr. Carruthers each consent to the inclusion in this report of Kwale Central and South Dune Deposit Ore Reserve estimates in the form and context in which it appears. Mineral Resources – Ranobe Deposit The information in this report that relates to the Ranobe Deposit Mineral Resources is based on, and fairly represents, information and supporting documentation prepared by Mr. Scott Carruthers. Mr. Carruthers is a Member of The Australasian Institute of Mining and Metallurgy. Mr. Carruthers is employed by Base Resources, he holds equity securities in Base Resources and is entitled to participate in Base Resources’ equity long term incentive plan, details of which is included in the 2018 Remuneration Report. Mr. Carruthers has sufficient experience that is relevant to the style of mineralisation and type of deposits under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code) and both are considered Qualified Persons for the purposes of the AIM Rules for Companies. Mr. Carruthers consents to the inclusion in this report of the Ranobe Deposit Mineral Resource estimates in the form and context in which it appears. BASE RESOURCES / OPERATING & FINANCIAL REVIEW / 25 DIRECTORS’ REPORT 26 / BASE RESOURCES / ANNUAL REPORT 2018 BASE RESOURCES / OPERATING & FINANCIAL REVIEW / 27 Directors’ Report Your directors present their report, together with the financial statements of the Group, being the Company, Base Resources Limited, and its controlled entities for the financial year ended 30 June 2018 (the reporting period) compared with the year ended 30 June 2017 (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 Malcolm Macpherson Mr Mike Stirzaker Mr Michael Anderson – retired 31 August 2017 Ms Diane Radley – appointed 1 February 2018 Directors have been in office since the start of the financial year to the date of this report, with the exception of Mr Michael Anderson who retired on 31 August 2017, and Ms Diane Radley who was appointed 1 February 2018. 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. Further, in January 2018, the Group completed the acquisition of the Toliara Mineral Sands Project (Toliara Project) in Madagascar and is progressing the project through an accelerated feasibility study program, that aims to advance toward a decision to proceed to construction in the second half of 2019. Change in Presentation Currency The Directors have elected to change the Group’s presentation currency from Australian dollars (AUD) to United States dollars (USD) effective from 1 July 2017. The change in presentation currency is accounted for retrospectively and will present more relevant information on the Group. All figures included in this report are in USD, unless otherwise stated. Operating results The Group recorded a profit after tax of US$33,974,000 for the reporting period (2017: US$15,848,000). Dividends paid or recommended There were no dividends paid or declared for payment during the reporting period. Significant changes in state of affairs Other than the acquisition of the Toliara Project, there were no other significant changes in the state of affairs of the Group during the reporting period. After balance date events Subsequent to year end, in July 2018, in accordance with the terms of the Kwale Facility, a cash sweep of US$14.9 million was distributed from Kwale Operations. Half of the cash sweep (US$7.45 million) went towards mandatory repayment of the Kwale Facility, with the other half distributed to the parent entity, Base Resources. The outstanding Kwale Facility debt after this repayment was US$72.6 million. The repayment of debt from the cash sweep has no impact on net debt. 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 pursue mine life extension at the Kwale Operation through exploration and develop the Toliara Project ahead of a decision to proceed with construction in the second half of 2019. 28 / BASE RESOURCES / ANNUAL REPORT 2018 Information on Directors Mr Keith Spence Non-Executive Chairman Qualifications: BSc (Geophysics) (Hons), FAIM Appointed: Experience: 20 February 2015 (Appointed as Non-Executive Chairman on 19 May 2015) Mr Spence has over 40 years’ experience in managing and governing oil and gas operations in Australia, Papua New Guinea, the Netherlands and Africa. A geologist and geophysicist by training, Mr Spence commenced his career as an exploration geologist with Woodside in 1977. He subsequently joined Shell (Development) Australia, where he worked for 18 years. In 1994 he was seconded to Woodside to lead the North West Shelf Exploration team. In 1998, he left Shell to join Woodside. He retired from Woodside in 2008 after a 14-year tenure in top executive positions in the company, including Chief Operating Officer and Acting Chief Executive Officer. Upon his retirement he took up several board positions, including Clough Limited, where he served as Chairman from 2010 to 2013, Geodynamics Limited where he served as a non-executive Director from 2008 to 2016 (including as Chairman from 2010 to 2016) and Oil Search Limited, where he served as a non-executive Director from 2012 to 2017. Special Responsibilities: Chairman of the Board; Chairman of the Remuneration & Nomination Committee; member of the Risk Committee; member of the Audit Committee. Other current public Independence Group NL (since 2014); Murray and Roberts Holdings Ltd (since 2015); company directorships: Santos Limited (Chair, since 2018). Past public company Geodynamics Limited (now ReNu Energy Limited) (resigned 2016); directorships held over Oil Search Limited (resigned 2017). the last three years: Mr Tim Carstens Managing Director Qualifications: Appointed: Experience: BCom, ACA 5 May 2008 Mr Carstens is an experienced mining executive, with a career spanning more than 20 years in senior resources-sector roles, both in Australia and overseas, with Perilya Limited, North Limited, Robe River Iron Associates, Iron Ore Company of Canada and St Barbara Mines Limited. A chartered accountant by profession, he has strong experience in all aspects of business strategy development and implementation, acquisitions and divestments, debt and equity financing, organisational development and operational performance. He has been Managing Director of Base Resources Limited since the Company’s inception in May 2008. 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 Special Responsibilities: Managing Director. resource industry. Past public company None. directorships held over the last three years: BASE RESOURCES / DIRECTORS' REPORT / 29 Directors’ Report (cont.) Mr Colin Bwye Executive Director – Operations & Development Qualifications: BEng (Hons) Appointed: Experience: 12 July 2010 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 Special Responsibilities: Executive Director. country and its culture. Past public company None. directorships held over the last three years: 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). 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. Mr Willis was previously a non- executive director of oil and gas explorer Elixir Petroleum Limited. Special Responsibilities: Chairman of the Audit Committee; member of the Remuneration & Nomination Committee; member of the Risk Committee. Other current public None. company directorships: Past public company New Standard Energy Limited (retired 2016); directorships held over Elixir Petroleum Limited (resigned 2017). the last three years: 30 / BASE RESOURCES / ANNUAL REPORT 2018 Mr Michael Anderson Non-Executive Director Qualifications: BSc (Hons), PhD Appointed: Experience: 28 November 2011 (retired 31 August 2017) 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. Mr Anderson resigned as non-executive director of Base Resources on 31 August 2017. Special Responsibilities: Member of the Audit Committee. Other current public Hot Chili Limited (since 2011); company directorships: Finders Resources Limited (alternate, since 2016). Mr Michael Stirzaker Non-Executive Director Qualifications: BCom, ACA Appointed: 19 November 2014 (previously acting as an alternate since November 2011) Experience: Mr Stirzaker has over 30 years’ commercial experience, mainly in mining finance and mining investment. He began his career in Sydney as a Chartered Accountant with KPMG, having obtained a Bachelor of Commerce from the University of Cape Town. He moved into investment banking with Wardley James Capel (part of the HSBC Group) and then Kleinwort Benson Limited in London. From 1993 to 2007 he was part of the natural resource advisory and investment firm, RFC Group Limited, where he became Joint Managing Director. He has also been a shareholder and Director of Tennant Metals Pty. Limited, a privately owned physical metal trader and investor, and was the Finance Director of Finders Resources Limited, an ASX listed company 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 None. directorships held over the last three years: Past public company New Standard Energy Limited (retired 2016); directorships held over Elixir Petroleum Limited (resigned 2017). the last three years: BASE RESOURCES / DIRECTORS' REPORT / 31 Directors’ Report (cont.) Mr Malcolm Macpherson Non-Executive Director Qualifications: B.Sc. FAusIMM, FTSE Appointed: Experience: 25 July 2013 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 None. company directorships: Past public company Bathurst Resources (New Zealand) Limited (resigned 2015). directorships held over the last three years: Ms Diane Radley Non-Executive Director Qualifications: BComm BCompt (Hons), CA(SA), MBA, AMP (Harvard) Appointed: 1 February 2018 Experience: Ms Radley has over 25 years’ experience in senior leadership roles across multiple industries, most recently in financial services and investments. She served as CFO at Allied Electronics Corporation (JSE), Group Finance Director at Old Mutual South Africa, and CEO of Old Mutual Investment Group. Prior to this, she advised on a variety of transactions, listings and due diligences for large corporate acquirers and private equity funds in her role as Partner- in-charge of Transaction Services at PricewaterhouseCoopers in South Africa. Ms Radley is currently a non-executive director of Murray & Roberts Holdings Ltd (JSE), Transaction Capital Ltd (JSE) and a trustee of the DG Murray Trust. Special Responsibilities: Member of the Risk Committee; member of the Audit Committee. Other current public Murray & Roberts Holdings Ltd (since 2017); Transaction Capital Ltd (since 2018) company directorships: Past public company None. directorships held over the last three years: 32 / BASE RESOURCES / ANNUAL REPORT 2018 Mr Chadwick Poletti Company Secretary Qualifications: LLB (Hons), BCom Appointed: Experience: 19 May 2015 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 Meetings of Directors The number of meetings of Directors (including meetings of committees of Directors) held during the year and the number of meetings attended by each Director was as shown in the table below: Directors’ Meetings Audit committee Remuneration & Nominations Committee Risk Committee Meetings held while a director Meetings attended Meetings held while a committee member Meetings attended Meetings held while a committee member Meetings held while a committee member Meetings attended Meetings attended 15 15 15 15 3 15 15 5 15 15 14 15 3 15 15 5 4 - - 4 1 4 - 1 4 - - 4 1 4 - 1 4 - - 4 - 4 4 - 4 - - 4 - 4 4 - 3 - - 3 - 3 2 1 3 - - 3 - 3 2 1 Keith Spence Tim Carstens Colin Bwye Samuel Willis Michael Anderson(i) Malcolm Macpherson Michael Stirzaker Diane Radley(ii) (i) Retired31August2017 (ii) Appointed1February2018 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 BASE RESOURCES / DIRECTORS' REPORT / 33 Directors’ Report (cont.) 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 23 December 2014 19 June 2015 Date of expiry 31 December 2018 31 December 2018 Exercise price A$ Number under option 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 17: Share-based payments” 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. 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 CorporationsAct2001. 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 2018: KPMGAustralia Taxation services Other services OverseasKPMGfirms Taxation services 2018 US$ 59,491 8,727 2017 US$ 74,401 8,296 68,728 82,122 Auditor’s independence declaration The lead auditor’s independence declaration for the year ended 30 June 2018 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. 34 / BASE RESOURCES / ANNUAL REPORT 2018 Remuneration Report - audited This remuneration report sets out the remuneration arrangements for Base Resources Limited for year ended 30 June 2018. This Remuneration Report forms part of the Directors’ Report and has been audited in accordance with the CorporationsAct2001. 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. Following the acquisition of the Toliara Project and the resultant diversification of Group activities, the Senior Executives included as KMP’s have been redefined as those who are members of the Group’s strategic planning team. 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 SeniorExecutives T Carstens C Bwye K Balloch A Greyling S Hay C Poletti Position Managing Director Executive Director - Operations & Development Chief Financial Officer General Manager – Project Development General Manager - Marketing General Counsel and Company Secretary Non-ExecutiveDirectors K Spence S Willis M Anderson M Macpherson M Stirzaker D Radley Chairman Director Director Director Director Director Appointed KMP 1 July 2017 following promotion and subsequent appointment to the Group’s strategic planning team Retired 31 August 2017 Appointed 1 February 2018 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 remuneration system and policies attract and retain executives and directors who will create sustained value for shareholders. Services from remuneration consultants The Remuneration & Nomination Committee engaged BDO to (i) review 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. BDO were engaged by the Remuneration & Nomination Committee Chairman, and reported directly to the Committee and the Board. Further, BDO has processes and procedures in place to minimise potential opportunities for undue influence of Senior Executives. The Board is satisfied that the interaction between BDO and Senior Executives is minimal, principally BASE RESOURCES / REMUNERATION REPORT / 35 Remuneration Report - audited (cont.) relating to provision of relevant Group information for consideration by the respective consultants. The Board is therefore satisfied that the advice received from BDO is free from undue influence from the Senior Executives to whom the remuneration recommendations apply. The information provided by 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 BDO for services during the year ended 30 June 2018 were A$21,010. Remuneration policy Base Resources is committed to the close alignment of remuneration to shareholder return, particularly that of the Senior Executives. To this end, the Group’s remuneration system is designed to attract, motivate and retain people by identifying and rewarding high performers and recognising their contribution to the continued growth and success of the Group. Key objectives of the Group’s remuneration policy are to ensure that remuneration practices: • Facilitate the achievement of the Group’s objectives; • Provide strong linkage between executive incentive rewards and creation of value for shareholders; • Are simple to understand and implement, openly communicated and are equitable across the Group; • Attract, retain and motivate employees of the required capabilities; and • Comply with applicable legal requirements and appropriate standards of governance. Key principles of Senior Executive remuneration Remuneration comprises fixed remuneration, and variable (or at-risk) remuneration, which is determined by individual and Group performance. The Group targets total fixed remuneration (TFR) at the 50th market percentile and total remuneration package (TRP), including at-target variable remuneration, at the 75th market percentile, for Senior Executives. As a consequence, the Group’s Senior Executives have a higher proportion of remuneration at-risk than industry averages. Questions and answers about Senior Executive remuneration: Remuneration mix What is the balance between fixed and at-risk remuneration? 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. Fixed remuneration What is included in fixed remuneration? 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. 36 / BASE RESOURCES / ANNUAL REPORT 2018 When and how is fixed remuneration reviewed? 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. 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 and priorities. A reward structure that provides at-risk remuneration is also necessary as a competitive remuneration package in the Australian and global marketplace for executives. 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. BASE RESOURCES / REMUNERATION REPORT / 37 Remuneration Report - audited (cont.) 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 criteria for the 2018 financial year were: • 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; • Budgeted Kwale Phase 2 capital expenditure, assuming a fixed exchange rate as defined in the Definitive Feasibility Study; • Delivery of Kwale Phase 2 on time in accordance with the approved schedule. 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. 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 2018 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. 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. How is the STIP assessed? 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 2018 financial year relevant to STIP awards have included: • The continued consistent performance of 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 no medical treatment injuries; 38 / BASE RESOURCES / ANNUAL REPORT 2018  • Successful completion of the KP2 project ahead of target schedule, within 3% of budget and with no impact on production performance; • Securing of market share and sales for all production, with only working inventory held throughout the year; • Progression of Kwale Operations mine life extension opportunities; • The smooth establishment of strong working relationships with a new mining administration following a fractious and extended election season in Kenya; • Completion of the transformational acquisition of the Toliara Project, a central step in the execution of the Company’s strategic plan; and • The smooth integration and initiation of the Toliara Project PFS. Corporate performance criteria – the Board determines the extent to which each corporate performance criteria has been achieved. Long Term Incentive Plan (LTIP) What is the LTIP? 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. BASE RESOURCES / REMUNERATION REPORT / 39 Remuneration Report - audited (cont.) 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. The blend of absolute and relative performance rights is considered to mitigate the weaknesses of those measures in isolation. 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(i) Percentage of relative TSR performance rights that vest Less than 40th percentile 40th percentile Between 40th and 50th percentile Between 50th and 75th percentile 75th percentile and above Nil 25% Pro rata between 25% and 50% Pro rata between 50% and 100% 100% Notwithstanding the above, the Board has the absolute discretion to determine that no relative TSR performance rights vest if Base Resources’ TSR is negative (despite its relative placing within the TSR comparator group). LTIP performance criteria are designed to target 50% vesting over time to achieve the Company’s policy intent for remuneration market positioning, whilst providing incentive for outperformance. A threshold level of TSR performance at the 40th percentile of the peer group, being a result that is below target, results in only 25% vesting and represents a 25% loss of this component of at-risk remuneration relative to target positioning and is considered appropriate in the context of the LTIP as a whole. TSR performance below the 40th percentile of the peer group results in nil vesting and represents a 50% loss of this component of at-risk remuneration. 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(i) Less than 40th percentile 40th percentile Between 40th and 50th percentile Between 50th and 75th percentile 75th percentile and above Percentage of absolute TSR performance rights that vest Nil 25% Pro rata between 25% and 50% Pro rata between 50% and 100% 100% (i) Theperformancescalewasrevisedforthecyclecommencing1October2016.Forpreviouscyclesrefertopriorannualreports. The number of performance rights granted for the cycle commencing 1 October 2017 is by reference to the 20-day volume weighted average price (“VWAP”) of A$0.2891 per share (A$0.1529 for cycle commencing 1 October 2016 and A$0.0575 for cycle commencing 1 October 2015). In order to achieve 100% vesting for the cycle commencing 1 October 2017, a 30-day VWAP of A$0.5001 or greater would be required (A$0.2645 for cycle commencing 1 October 2016 and A$0.1150 for cycle commencing 1 October 2015) at the conclusion of the 3-year performance period. 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: 40 / BASE RESOURCES / ANNUAL REPORT 2018 Companies ABM Resources NL Alacer Group Corp. Alderan Resources Limited Alkane Resources Limited Altura Mining Limited Aquarius Platinum Limited Argosy Minerals Limited Arrium Limited Artemis Resources Limited Atlas Iron Limited Atrum Coal NL Austral Gold Limited Avanco Resources Limited AVZ Minerals Limited Axiom Mining Limited Bathurst Resources Limited Beadell Resources Limited Berkeley Energia Limited Blackham Resources Limited Blue Energy Limited Bougainville Copper Limited Brockman Mining Limited Cardinal Resources Limited Champion Iron Limited CI Resources Limited CuDeco Limited Dacian Gold Limited Danakali 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 Flinders Mines Limited Galaxy Resources Limited Gascoyne Resources Limited Global Geoscience Limited Gold Road Resources Limited Grange Resources Limited Havilah Resources Limited Heron Resources Limited Highfield Resources Limited Highlands Pacific Limited Kidman Resources Limited Kingsgate Consolidated Ltd LTIP Cycle Commencing 1 October 2017 2016 2015 Companies LTIP Cycle Commencing 1 October 2017 2016 2015 b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b Kingsrose Mining Limited Lucapa Diamond Company Limited Lynas Corporation Limited Magnis Resources Limited Medusa Mining Limited Metals X Limited Metro Mining Limited Millennium Minerals Limited Mineral Deposits Limited Mirabela Nickel Limited Mount Gibson Iron Limited Neometals Limited New Century Resources Limited Newfield Resources Limited Nkwe Platinum Limited Northern Minerals Limited OM Holdings Limited Orocobre Limited Paladin Energy Limited Panoramic Resources Limited Pantoro Limited Perseus Mining Limited Pilbara Minerals Limited Ramelius Resources Limited Rand Mining Limited Range International Limited Realm Resources Limited Resolute Mining Limited Reward Minerals Limited Sandfire Resources NL Silver Lake Resources Ltd Stanmore Coal Limited Tanami Gold NL Teranga Gold Corporation Terramin Australia Limited TNG Limited Tribune Resources Limited Triton Minerals Limited Troy Resources Limited West African Resources Limited West Gold Resources Limited Western Areas Limited Wolf Minerals Limited Wollongong Coal Limited Yancoal Australia Limited Zimplats Holdings Limited b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b b BASE RESOURCES / REMUNERATION REPORT / 41 Remuneration Report - audited (cont.) Was a grant made in 2018? Performance rights were granted to eligible participants in the LTIP for the cycle commencing 1 October 2017. 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 A$0.2891 per share, and the LTIP award opportunity. What happens to performance rights granted under the LTIP when a participant ceases employment? 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 2018? 4,961,983 of the 10,030,672 performance rights granted under the LTIP for the cycle commencing 1 October 2014 vested. These rights completed the three-year performance period on 30 September 2017, with vesting as follows: • Relative TSR performance rights Base Resources TSR over the performance period placed it in the 74th percentile, resulting in 4,961,983 of the 5,015,336 relative performance rights vesting. • Absolute TSR performance rights Base Resources TSR over the performance period, by reference to a final VWAP of A$0.273, equated to a TSR of 6%, resulting in none of the 5,015,336 absolute performance rights vesting. Shares issued to the participants in the LTIP upon the vesting of the above performance rights were satisfied through the Company issuing shares. 42 / BASE RESOURCES / ANNUAL REPORT 2018 Group performance and its link to shareholder return The following graph compares the change in the cumulative TSR of Base Resources’ shares during the period 1 July 2013 to 30 June 2018, 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 A$100 was invested. No dividends have been declared during this period. A$150 A$100 A$50 A$0 Culmative Total Shareholder Returns 1 July 2013 through 30 June 2018 A$118 A$89 A$98 A$86 A$106 A$75 A$78 A$141 A$37 A$37 3 1 - n u J - 0 3 3 1 - p e S - 0 3 3 1 - c e D - 1 3 4 1 - r a M - 1 3 4 1 - n u J - 0 3 4 1 - p e S - 0 3 4 1 - c e D - 1 3 5 1 - r a M - 1 3 5 1 - n u J - 0 3 5 1 - p e S - 0 3 5 1 - c e D - 1 3 6 1 - r a M - 1 3 6 1 - n u J - 0 3 6 1 - p e S - 0 3 6 1 - c e D - 1 3 7 1 - r a M - 1 3 7 1 - n u J - 0 3 7 1 - p e S - 0 3 7 1 - c e D - 1 3 8 1 - r a M - 1 3 8 1 - n u J - 0 3 ASX200 Resources Index Base Resources Limited Executive remuneration outcomes for 2018 Short Term Incentives (STI) At the end of the 2018 financial year, a review of the performance of each Senior Executive was undertaken against each of their 2018 individual performance measures as explained above. The 2018 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 2018 performance are paid in the 2019 financial year. The following table outlines the STI that was earned in comparison with the target STI for the 2018 financial year: Name T Carstens C Bwye K Balloch A Greyling S Hay C Poletti Target STI STI Awarded Individual performance % Corporate performance % Individual performance % Corporate performance % 45 45 15 15 15 15 15 15 15 15 15 15 65 60 21 20 21 23 19 19 21 21 21 21 BASE RESOURCES / REMUNERATION REPORT / 43 Remuneration Report - audited (cont.) LTIP Performance Rights The LTIP 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 2018 are subject to a 3-year performance period ending on 30 September 2020. Performance rights issued under the plan in the 2015 financial year, totalling 10,030,672, completed their 3-year performance period on 30 September 2017, with 4,961,983 performance rights vesting. The table below outlines the vesting outcomes of performance rights for the last three LTIP cycles completed: Relative Performance Rights Absolute Performance Rights Grant date Vesting date 1 October 2012 30 September 2015 1 October 2013 30 September 2016 No. performance rights granted 4,870,331 7,518,865 No. vested - - 1 October 2014 30 September 2017 10,030,672 4,961,983 % 0 0 99 No. vested - - - % 0 0 0 Take home pay for 2018 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 45), 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 2018 financial year. The remuneration packages for all Senior Executives are shown in the following table in their employment currency. Currency Salary STIP Superannuation Vesting of performance rights(ii) Compensating payment for LTIP scaleback(iii) Take home pay(i) (before tax) Key Management Person 2018 Executive Directors T Carstens C Bwye AUD AUD Other Key Management Personnel K Balloch A Greyling S Hay C Poletti 2017 Executive Directors T Carstens C Bwye AUD AUD AUD AUD AUD AUD Other Key Management Personnel K Balloch A Greyling S Hay AUD AUD AUD 484,000 484,000 370,000 325,000 390,350 300,000 406,800 401,800 320,000 280,000 360,000 422,579 399,674 163,953 142,650 172,401 139,773 367,299 354,195 150,091 132,720 173,094 25,000 25,000 25,000 25,000 25,000 25,000 30,000 35,000 30,000 35,000 30,000 243,289 243,289 97,472 14,460 108,611 31,124 - - - - - - - - - - - 130,160 130,160 52,148 46,933 58,107 1,174,868 1,151,963 656,425 507,110 696,362 495,897 934,259 921,155 552,239 494,653 621,201 (i) BaseResources’financialresultsarereportedunderInternationalFinancialReportingStandards(IFRS).Theabovetableincludescertainnon-IFRS measuresincludingvestedperformancerightsandtakehomepay.Thesemeasuresarepresentedtoenableunderstandingoftheunderlyingremuneration ofKMPs. (ii) Thevalueofperformancerightsvestedunderthecyclecommencing1October2014hasbeencalculatedbyreferencetothepriceonthevestingdateof A$0.2733. (iii) AscalebackwasappliedtoperformancerightsofferedundertheLTIPcyclecommencing1October2016inordertoensurecompliancewithapplicable ASICrelief.Acompensatingpaymentwasmadeduringthe2017financialyeartoeligiblestaffinlieuofthescalebackinperformancerightsoffered. 44 / BASE RESOURCES / ANNUAL REPORT 2018 Statutory remuneration disclosures for the year ended 30 June 2018 The statutory remuneration disclosures for the year ended 30 June 2018 are detailed below and are prepared in accordance with Australian Accounting Standards, are stated in US dollars and differ from the take home pay summary on page 44. These differences arise due to the accounting treatment of long service leave and share-based payments. Key Management Person 2018 Executive Directors Short term employment benefits Salary US$ STIP bonus(i) US$ T Carstens (iv) C Bwye (iv) 375,245 375,245 327,626 309,867 Other Key Management Personnel K Balloch (iv) A Greyling (iv) S Hay (iv) C Poletti (iv) Total 2017 K Balloch (iv) A Greyling (iv) S Hay (iv) Total Executive Directors T Carstens (iv) C Bwye (iv) 306,727 302,957 276,943 267,063 Other Key Management Personnel 241,280 211,120 271,440 113,169 100,071 130,513 286,861 251,973 302,638 232,590 127,113 110,597 133,662 108,366 1,824,552 1,117,231 116,298 Post- employment benefits Superannuation Other long term Cash paid in lieu Share based payments Long service leave(ii) Compensating payment for LTIP scaleback Performance Rights(iii) Total w US$ US$ US$ US$ US$ % 19,383 19,383 19,383 19,383 19,383 19,383 22,620 26,390 22,620 26,390 22,620 15,962 19,020 11,518 1,710 10,987 2,471 61,668 5,793 10,576 7,940 512 5,703 - - - - - - - 245,196 983,412 245,196 968,711 97,123 541,998 82,428 466,091 106,079 572,749 59,489 422,299 835,511 3,955,260 98,141 98,141 39,320 35,387 43,813 220,753 930,977 220,753 925,880 87,913 512,242 50,781 424,261 98,551 572,640 58.2 57.3 41.4 41.4 41.9 39.7 - 64.0 63.3 46.9 43.9 47.7 - 1,333,524 887,759 120,640 30,524 314,802 678,751 3,366,000 (i) CurrentyearSTIPawardsareaccruedinthefinancialyeartowhichtheperformancerelates. (ii) Longserviceleaveentitlementrepresentsthemovementintheprovision. (iii) ThefairvalueofperformancerightsiscalculatedatthedateofgrantusingaMonteCarloSimulationmodelandrecognisedovertheperiodinwhichthe minimumserviceconditionsarefulfilled(thevestingperiod).Thevaluedisclosedistheportionofthefairvalueoftheperformancerightsrecognisedinthe reportingperiod.Theamountincludedasremunerationisnotnecessarilythebenefit(ifany)thatindividualSeniorExecutivemayultimatelyreceive. (iv)TotalremunerationpackagedenominatedinAustraliandollars(A$)andconvertedtoUSdollars(US$)forreportingpurposesusingtheaverageexchange rateforthe2018financialyearof0.7753(2017:0.7540). 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: Take home pay for the Managing Director (A$) Take home pay converted to US$ using average exchange rates TreatmentofLongServiceLeave: 2018 1,174,868 910,876 2017 934,259 704,431 Add: Movement in the accounting provision for long service leave entitlements 15,962 5,793 Treatmentofperformancerights: Add: accounting fair value (non-cash) of performance rights recognised in the period Less: value of performance rights vested at date of vesting (US$) Statutory pay for the Managing Director (US$) 245,196 (188,622) 983,412 220,753 - 930,977 BASE RESOURCES / REMUNERATION REPORT / 45 Remuneration Report - audited (cont.) 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 A$750,000 in total. The Group’s policy is that non-executive director remuneration is structured to exclude equity-based remuneration and reviewed annually. All directors have their indemnity insurance paid by the Group. Non-executive directors receive a fixed fee remuneration consisting of a cash fee and statutory superannuation contributions made by the Group and additional fees for committee roles as set out below: Base fees Chairman Other non-executive directors Remuneration & Nomination Committee Chair Committee member Audit Committee Chair Committee member Risk Committee Chair Committee member 2018 A$ 148,500 77,000 - 5,250 14,000 7,000 7,900 3,900 2017 A$ 135,400 70,000 - 5,250 14,000 7,000 7,900 3,900 46 / BASE RESOURCES / ANNUAL REPORT 2018 Non-executive remuneration for the year ended 30 June 2018 and comparative 2017 remuneration: Base fees Audit committee US$ US$ 115,132 59,698 9,950 59,698 59,698 24,874 329,050 102,092 52,780 52,780 52,780 52,780 313,212 - 10,854 905 5,427 - 1,809 18,995 - 10,556 5,278 5,278 - 21,112 Remuneration & Nomination committee Risk committee US$ - 4,070 - 4,070 4,070 - US$ - 3,024 - 6,125 3,024 1,008 Total(i) US$ 115,132 77,646 10,855 75,320 66,792 27,691 12,210 13,181 373,436 - 3,959 - 3,959 3,959 11,877 - 2,941 - 2,482 2,941 8,364 102,092 70,236 58,058 64,499 59,680 354,565 2018 K Spence S Willis M Anderson(ii) M Macpherson M Stirzaker D Radley (iii) Total 2017 K Spence S Willis M Anderson M Macpherson M Stirzaker Total (i) TotalremunerationpackagesdenominatedinAustraliandollars(A$)andconvertedtoUSdollars(US$)forreportingpurposesusingtheaverage exchangerateforthe2018financialyearof0.7753(2017:0.7540). (ii) Retired31August2017. (iii) Appointed1February2018. BASE RESOURCES / REMUNERATION REPORT / 47 Remuneration Report - audited (cont.) Equity instruments Performance Rights The table below outlines movements in performance rights during 2018 and the balance held by each Senior Executive at 30 June 2018: Name T Carstens Number of performance rights Fair value of each performance right A$ Grant date(i) Number vested during year Number lapsed during year Balance at end of year Vesting date(ii) 1 October 2014 1,799,394 0.1400 30 September 2017 890,126 909,268 - 1 October 2015 6,964,806 0.0380 30 September 2018 1 October 2016 1,725,567 0.1625 30 September 2019 1 October 2017 2,113,056 0.2150 30 September 2020 - - - - - - 6,964,806 1,725,567 2,113,056 12,602,823 890,126 909,268 10,803,429 C Bwye 1 October 2014 1,799,394 0.1400 30 September 2017 890,126 909,268 - 1 October 2015 6,964,806 0.0380 30 September 2018 1 October 2016 1,725,567 0.1625 30 September 2019 1 October 2017 2,113,056 0.2150 30 September 2020 - - - - - - 6,964,806 1,725,567 2,113,056 12,602,823 890,126 909,268 10,803,429 K Balloch 1 October 2014 720,912 0.1400 30 September 2017 356,621 364,291 - 1 October 2015 2,790,387 0.0380 30 September 2018 1 October 2016 1 October 2017 691,333 819,899 5,022,531 0.1625 30 September 2019 0.2150 30 September 2020 - - - - - - 2,790,387 691,333 819,899 356,621 364,291 4,301,619 A Greyling 1 August 2015 108,731 0.1400 30 September 2017 52,906 55,825 - 1 October 2015 2,511,348 0.0380 30 September 2018 1 October 2016 1 October 2017 622,200 726,493 3,968,772 0.1625 30 September 2019 0.2150 30 September 2020 - - - - - - 2,511,348 622,200 726,493 52,906 55,825 3,860,041 S Hay 1 October 2014 803,301 0.1400 30 September 2017 397,378 405,923 - 1 October 2015 3,109,289 0.0380 30 September 2018 1 October 2016 1 October 2017 770,343 862,139 5,545,072 0.1625 30 September 2019 0.2150 30 September 2020 - - - - - - 3,109,289 770,343 862,139 397,378 405,923 4,741,771 C Poletti 16 February 2015 230,194 0.1400 30 September 2017 113,873 116,321 - 1 October 2015 1,435,056 0.0380 30 September 2018 1 October 2016 1 October 2017 355,543 674,600 2,695,393 42,437,414 0.1625 30 September 2019 0.2150 30 September 2020 - - - - - - 1,435,056 355,543 674,600 113,873 116,321 2,465,199 2,701,030 2,760,896 36,975,488 (i) TheamountexpensedperthestatutoryremunerationtablereflectstheperiodsincecommencementofserviceswhentheGroupandtheSenior Executivehadasharedunderstandingoftheaward. (ii) Onthevestingdate,performancerightsaretestedagainsttheperformancecriteriaandonlythoseperformancerightsthatsatisfytheperformance criteriavest. 48 / BASE RESOURCES / ANNUAL REPORT 2018 Key Management Personnel performance rights movements T Carstens C Bwye K Balloch A Greyling S Hay C Poletti Balance 1 July 2017 10,489,767 10,489,767 4,202,632 3,242,279 4,682,933 2,020,793 Granted 2,113,056 2,113,056 819,899 726,493 862,139 674,600 Vested 890,126 890,126 356,621 52,906 397,378 113,873 Lapsed Balance 30 June 2018 909,268 909,268 364,291 55,825 405,923 116,321 10,803,429 10,803,429 4,301,619 3,860,041 4,741,771 2,465,199 35,128,171 7,309,243 2,701,030 2,760,896 36,975,488 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: K Spence T Carstens C Bwye S Willis M Anderson M Macpherson M Stirzaker D Radley K Balloch A Greyling S Hay C Poletti Balance 1 July 2017 Vesting of Performance Rights 500,000 1,228,522 1,842,739 200,000 - - - - 108,948 1,411,154 - 20,117 5,311,480 - 890,126 890,126 - - - - - 356,621 52,906 397,378 113,873 Purchased 166,667(i) 536,992(i) 431,334(i) 150,000(ii) - - - 500,000 155,190(i) 488,021(i) 132,459(i) 37,957(i) 2,701,030 2,598,620 Sold Balance 30 June 2018 - - - - - - - - - - - - - 666,667 2,655,640 3,164,199 350,000 - - - 500,000 620,759 1,952,081 529,837 171,947 10,611,130 (i) Sharesacquiredpursuanttothe1for3prorataentitlementsofferannouncedon19December2017. (ii) 66,667sharesacquiredpursuanttothe1for3prorataentitlementsofferannouncedon19December2017,withthebalancepurchasedonmarket. BASE RESOURCES / REMUNERATION REPORT / 49 Remuneration Report - audited (cont.) Executive Key Management Personnel employment arrangements The employment arrangements of the executive KMPs are formalised in standard employment agreements. Details of the termination provisions contained in the agreements are provided below. Name Term of contract Notice period by either party Termination benefit T Carstens Permanent – ongoing until notice has been given by either party 3 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 C Bwye K Balloch A Greyling S Hay C Poletti Permanent – ongoing until notice has been given by either party 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 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: 25 August 2018 50 / BASE RESOURCES / ANNUAL REPORT 2018 Corporate governance The Company is committed to implementing high 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 2018 the Company complied with the ASX Recommendations, except to the limited extent noted in this statement. This statement is current as at 30 June 2018 and has been approved by the Board. Where appropriate, the statement also highlights relevant events that have occurred since 30 June 2018 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 broader 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 2018, 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 7of 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, Mr Macpherson and Ms Radley. Mr Stirzaker, a non-executive Director, is not considered independent as a consequence of his relationship with the Company’s major shareholder, Pacific Road Capital. Prior to his resignation as a non-executive Director on 31 August 2017, Mr Anderson was also not considered independent given his relationship with the Company’s then substantial shareholder, Taurus Funds Management (which is no longer a shareholder). With the appointment of Ms Radley on 1 February 2018, the Company complies with ASX Recommendation 2.4 that a majority of the Board should be independent. Skills and experience The Board has established the following set of core competencies to assist in assessing the skills and experience of each Director, and to assist in ensuring that the combined capabilities of the Board provides appropriate coverage across the core BASE RESOURCES / REMUNERATION REPORT / 51 Corporate governance (cont.) competencies. This set of competencies was further refined during the year, including addition of a specific core competency for African business experience. The table below indicates those Directors on which the Board principally relies in ensuring adequacy of coverage across the core competencies, recognising that all Directors bring a far broader and diverse range of skills and experience to the Board. Area Resources industry experience Mineral sands industry experience Strategy Competency Experience in the resources industry, including broad knowledge of exploration, operations, project development, markets, shipping and competitors. Specific experience in the mineral sands industry, including an in depth knowledge of exploration, operations, project development, markets, shipping, competitors and relevant technology. 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. Key Directors C Bwye, T Carstens, M Macpherson, K Spence, M Stirzaker C Bwye, T Carstens, M Macpherson C Bwye, T Carstens, M Macpherson, D Radley, K Spence, M Stirzaker, S Willis M Macpherson, D Radley, K Spence, M Stirzaker, S Willis Finance Senior executive or other relevant experience in financial accounting and reporting, internal financial and risk controls, corporate finance and, restructuring corporate transactions and project financing. T Carstens, D Radley, M Stirzaker, S Willis Risk management 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. African business experience Experience in the successful development and operation of reputable businesses in Africa. Capital projects; management Experience with projects involving contractual negotiations, project management, significant capital outlays and long investment horizons. T Carstens, M Macpherson, D Radley, K Spence T Carstens, K Spence C Bwye, T Carstens, M Macpherson, D Radley, M Stirzaker C Bwye, K Spence Sustainable development Senior management or equivalent experience in workplace health and safety, environmental and social responsibility, and community. T Carstens, K Spence Previous board experience and governance Serving on boards of varying size and composition, in varying industries and for a range of organisations. Implementing the high standards of governance in a major organisation that is subject to rigorous governance standards and identifying key issues for an organisation and developing appropriate policy parameters within which the organisation should operate. Executive leadership 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 Remuneration and/or nomination committee membership or management experience in relation to succession planning, remuneration, talent management (including incentive programs, superannuation), and the legislative and contractual framework governing remuneration. M Macpherson, D Radley, K Spence, M Stirzaker, S Willis C Bwye, T Carstens, M Macpherson, D Radley, K Spence, M Stirzaker, S Willis T Carstens, M Macpherson, D Radley, K Spence, M Stirzaker, S Willis The diagram below further illustrates the Board’s depth of coverage across its core competencies. As shown, 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 will continue its ongoing education program targeting emerging issues identified through the course of the year. Further details of the skills, experiences, expertise and period of service of each Director is set out on pages 29 to 33 of the Annual Report. 52 / BASE RESOURCES / ANNUAL REPORT 2018 Director appointment, induction, training and continuing education Newly appointed 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 employment agreements which govern their terms of employment. An induction plan is tailored for specific needs of new appointees to the Board. The induction process typically includes a comprehensive overview of the Company’s governance policies and procedures, in-depth 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 and development asset in Toliara, Madagascar. The induction materials provided to new appointees include information on the Company’s governance and 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). Ms Radley’s induction, as a new Board appointment during the year, was consistent with the process described in this paragraph. 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 and its business. When a need is identified (for example, arising from a Board function review or through the Remuneration & Nomination Committee’s Board education oversight role), the Company will organise specific structured professional development opportunities for Directors. The Board manages succession planning with the assistance of the Remuneration & Nomination Committee. 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. Following the vacancy on the Board that occurred early in the year, the Board engaged an independent recruitment firm to undertake a search for suitable candidates for Board appointment. This search focused on candidates with strong African business experience, senior leadership experience and prior experience in mergers and acquisitions, which were considered key skills and experiences for any new appointment. Following a short-listing of potential candidates, thorough background and screening checks were undertaken through independent sources, followed by a multi-staged interview process. BASE RESOURCES / REMUNERATION REPORT / 53 Corporate governance (cont.) The outcome of this approximate four-month process resulted in the Board nominated appointment of Ms Radley as a director. In accordance with the Company’s constitution, Ms Radley will automatically retire at the 2018 annual general meeting and will be eligible for election by shareholders. 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 2018. 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 respective 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 few areas for improvement that will be addressed through the coming year. It is proposed that an externally facilitated Board review process will be undertaken in 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, as was the case with Ms Radley, retires at the next AGM and is eligible for election. Board support for a Director’s election or re-election is not automatic and is subject to satisfactory Director performance. It is the role of the Remuneration & Nomination Committee to consider and recommend to the Board candidates for election or re-election to the Board. Committees of the Board The Company’s Constitution provides that the Board may delegate its powers as it considers appropriate. The Board has established an Audit Committee, Remuneration & Nomination Committee and Risk Committee. The previously established ad hoc Taurus Refinancing Committee was dissolved in August 2017 following retirement of the Company’s US$20 million facility from Taurus Funds Management. The Committees generally operate in a review or advisory capacity, except in limited circumstances where the Board’s powers are specifically delegated to a Committee. Each Committee has a charter detailing its role, duties and membership requirements. These charters are reviewed regularly, and at least annually, and are updated as required. Details of the skills, experiences and expertise of each member of the respective Committees of the Board is set out on pages 29 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 members during the year were Mr Willis, Mr Spence, Mr Anderson (resigned 31 August 2017), Mr Macpherson and Ms Radley (appointed 1 February 2018). Following Mr Anderson’s resignation, the Audit Committees consists of only independent non-executive Directors. Mr Willis, an independent non-executive Director, is Committee Chairman. 54 / BASE RESOURCES / ANNUAL REPORT 2018 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 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 The role of the Risk Committee is to assist the Board with identification and management of business and operational risks faced by the Company to a standard that considers the reasonable expectations of the Company’s shareholders, employees, customers, suppliers, creditors and the broader community in which the Company operates. The Risk Committee typically conducts a full review and update of the Company’s material business risk register and risk management framework at each Committee meeting, 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 during the period were Mr Macpherson, Mr Spence, Mr Willis, Mr Stirzaker and Ms Radley. Mr Stirzaker stepped down from the Committee and was replaced by Ms Radley with effect from 1 March 2018. Mr Macpherson, an independent non-executive Director, is Committee Chairman. 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 program designed to facilitate effective two-way communication with shareholders. The Company’s Continuous Disclosure and Market Communications Policy sets out the Company’s commitment to: • communicating effectively with shareholders through releases to the market via ASX and AIM, information mailed to shareholders (e.g. notices of meetings and explanatory material and periodic disclosure, such as annual, half yearly and quarterly reporting of exploration, production and corporate activities) and the general meetings of the Company; • giving shareholders ready access to balanced and understandable information about the Company and corporate proposals; and • making it easy for shareholders to participate in general meetings of the Company. BASE RESOURCES / REMUNERATION REPORT / 55 Corporate governance (cont.) 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 e ngagement 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 (basetitanium.com). Further information about the Toliara Project are available from the Company’s main website at baseresources.com.au. 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 56 / BASE RESOURCES / ANNUAL REPORT 2018 (having regard to the requirement for immediate disclosure in certain circumstances), the Board is given the opportunity to review and comment on material announcements prior to their release. Promoting responsible and ethical behaviours The “Base Way”, Code of Conduct and Integrity System The “Base Way” sets out the unifying set of beliefs and behavioural expectations for the Company and its employees, including the Company’s absolute commitment to conducting its business in a legal, honest and ethical manner. The Company’s Code of Conduct provides an overview of the framework for decision making and actions in relation to ethical conduct in employment at the Company and its subsidiaries. The Code of Conduct summarises the key business systems (including relevant Policies and Standards) adopted by the Company that apply to the Company and its subsidiaries and their respective employees which underpin the Company’s commitment to integrity and fair dealing in its business affairs and to its duty of care to employees, customers and stakeholders. Breaches of the Code of Conduct may lead to disciplinary action, as outlined in the Company’s Unacceptable Performance and Misconduct System. The Company’s Integrity Policy expands on the Company’s commitment to conducting its business in a legal, honest and ethical manner by: • Prohibiting bribery and corruption in all forms. Employees must not commit, or be a party to, or be involved in bribery or corruption. • Ensuring that gifts, entertainment, travel and per diem reimbursements are not given or received as a reward or encouragement for preferential treatment. • The Company not participating in party politics. The Company does not make payments to political parties or individual politicians. • Not making charitable donations or sponsorships that could be perceived as bribes or payments to gain an improper business advantage. • Employees ensuring their personal activities and interests do not conflict with their responsibilities to the Company. • Requiring third parties who act on the Company’s behalf to comply with the Integrity Policy and the Integrity Standard. • Requiring all employees to confront inappropriate behaviour in others. • Including demonstrating the “Base Way” as a specific accountability in every role description. The Integrity Standard further sets out the responsibilities and limits of discretion of the Company’s personnel in observing and upholding the absolute prohibition on bribery, corruption and related improper conduct and provides information and guidance on how to recognise and deal with instances of potential bribery and corruption. A breach of the Integrity Standard by a member of the Company’s personnel will be regarded as serious misconduct, and will lead to disciplinary action which may include termination of employment. The Company also has a Whistleblower System providing 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). BASE RESOURCES / REMUNERATION REPORT / 57 Corporate governance (cont.) 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 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 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 typically occurring for each Committee meeting, 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 from a risk management perspective, which is also considered by the Audit Committee from an assurance perspective. When last considered at the June 2018 Audit Committee meeting and subsequently considered by the Board, it was determined that a formal internal audit process was not required or justifiable at this time. However, it was noted that current business practice includes significant external review and assurance of the Company’s key risk areas. It was therefore determined to undertake a review of existing external assurances to understand the coverage and highlight any areas where further assurance may be warranted. This work will be conducted over the coming year. 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; 58 / BASE RESOURCES / ANNUAL REPORT 2018  • 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. The Company is exposed to several 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 and its development of the Toliara Project. Communities affected by the Kwale Project and the Toliara 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 the communities in which is operates. By supporting equitable development, the Company seeks to establish a model for future development opportunities in Kenya, Madagascar and beyond, in a manner that emphasises the value of local community participation and recognises their respective and diverse 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 and the Toliara Project direct the Company’s environmental programs. Management of the Company’s environmental function is based on an environmental management system as guided by the Environmental Policy. Refer to pages 11 to 15 of the Annual Report for more detail on the Company’s current sustainability practices. BASE RESOURCES / REMUNERATION REPORT / 59 Corporate governance (cont.) 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 2017 half-year and 30 June 2018 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 Kwale Project 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 2018, the Company is pleased to report that it employed 97% Kenyan national employees at Kwale. This ratio evidences the effectiveness of the Company’s systems which are designed to drive a structured transfer of skills over time. While the Company is in the early stages of the proposed development of the Toliara Project, there will be a similar focus on maximising employment opportunities for local communities against the backdrop of achieving the necessarily high standards of operational and safety performance. While the primary focus to date has been on maximising local 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 2018: • Increase the overall percentage of women employed by the group. • Maintain female representation in the intake for graduate and apprentice programs at or above one third, subject to the constraint of the operation of the Company’s established system for prioritising employment opportunities to local communities. 60 / BASE RESOURCES / ANNUAL REPORT 2018  • 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 further balance gender representation and achieve 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. However, this is something that will be considered further as the Company progresses development of its Toliara Project. For the financial year ended 30 June 2018, the group met its objectives, achieving a slight increase in the overall percentage of women employed, maintained female representation in the intake for graduate and apprentice programmes at or above one third, increased the percentage of women in executive roles and increased Board gender diversity following the appointment of Ms Radley in February 2018. 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 – particularly at executive level. Shown below is the Company’s performance in achieving its set objectives during the year ended 30 June 2018, as compared to the two prior periods. Objective Increase the overall percentage of women Female representation in graduate and apprentice programs at or above one third Women in executive roles (Stratum III and above) Board gender diversity FY2016 (%) 112/684 16.4% 11/39 28.2% 3/21 14.3% 0% FY2017 (%) 117/717 16.3% 10/21 47.6% 3/22 13.6% 0% FY2018 (%) 139/829 16.8% 11/33 33.3% 4/28 14.3% 14% Change FY17 to FY18 (%) 0.5% (14.3)% 0.7% 14% The Board has determined to maintain the existing measurable objectives for the coming financial year. The Board will report progress in achieving the revised objectives in next year’s corporate governance statement. Availability of key corporate governance documents The following suite of the Company’s key corporate governance policies and procedures are available from the Company’s website at http://www.baseresources.com.au/company-profile/governance/. • Constitution • Board Governance Plan (including Board Committee Charters) • Code of Conduct • Securities Trading Policy • Continuous Disclosure and Market Communications Policy • Risk Management Policy • Environment Policy • Communities Policy • Employment Policy • Diversity Standard • Health and Safety Policy BASE RESOURCES / REMUNERATION REPORT / 61 FINANCIAL STATEMENTS AND NOTES 62 / BASE RESOURCES / ANNUAL REPORT 2018 Lead Auditor’s Independence Declaration 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 2018 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG R Gambitta Partner Perth 25 August 2018 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. BASE RESOURCES / LEAD AUDITOR'S INDEPEDENCE DECLARATION / 63 Consolidated statement of profit or loss and other comprehensive income FOR THE YEAR ENDED 30 JUNE 2018 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 before income tax Income tax expense Net profit 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 for the year Net Earnings per share Basic earnings per share (US cents per share) Diluted earnings per share (US cents per share) Notes 2 2 2 4 3 3 2018 US$000s 198,810 (119,799) 79,011 (9,338) (3,000) (4,056) (765) 61,852 (18,489) 43,363 (9,389) 33,974 (1,197) (1,197) 32,777 Cents 3.66 3.44 2017(i) US$000s 162,417 (104,106) 58,311 (8,236) (2,699) (2,030) (92) 45,254 (23,511) 21,743 (5,895) 15,848 1,169 1,169 17,017 Cents 2.14 1.98 (i) RestatedfromAUDinpreviousfinancialstatementsinaccordancewithchangeinpresentationcurrency.Referto“Note1:Basisofpreparation”. Theaccompanyingnotesformpartoftheseconsolidatedfinancialstatements. 64 / BASE RESOURCES / ANNUAL REPORT 2018 Consolidated statement of financial position AS AT 30 JUNE 2018 Notes 2018 US$000s 2017(i) US$000s 2016(ii) US$000s 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 Other liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity 6 7 8 9 10 11 12 13 14 12 13 4 14 15 29,686 29,591 38,726 19,789 5,993 28,278 26,166 44,056 18,517 4,528 26,923 22,077 32,300 20,742 4,322 123,785 121,545 106,364 97,115 240,509 337,624 461,409 27,865 53,266 1,581 833 7,058 90,603 35,532 22,458 15,106 625 10,000 83,721 174,324 287,085 305,277 (16,384) (1,808) 287,085 2,038 257,213 259,251 380,796 20,696 59,211 1,304 833 646 82,690 88,112 22,219 5,846 1,458 - 117,635 200,325 180,471 231,079 (14,267) (36,341) 180,471 1,103 289,521 290,624 396,988 18,510 45,854 870 833 658 66,725 145,605 21,492 - 2,292 - 169,389 236,114 160,874 229,747 (15,324) (53,549) 160,874 (i) RestatedfromAUDinpreviousfinancialstatementsinaccordancewithchangeinpresentationcurrency.Referto“Note1:Basisofpreparation”. (ii) Openingbalancesasat1July2016arereportedduetochangeinpresentationcurrency.Referto“Note1:Basisofpreparation”. Theaccompanyingnotesformpartoftheseconsolidatedfinancialstatements. BASE RESOURCES / CONSOLIDATED FINANCIAL STATEMENTS / 65 Consolidated statement of changes in equity FOR THE YEAR ENDED 30 JUNE 2018 Issued Capital US$000s Accumulated Losses US$000s Share based payment reserve US$000s Foreign currency translation reserve US$000s Treasury shares reserve US$000s Balance at 1 July 2016(i) Profit for the year Other comprehensive income Total comprehensive income for the year 229,747 - - - (53,549) 15,848 - 15,848 Transactionswithowners,recogniseddirectlyinequity Shares issued during the year, net of costs Share based payments 1,332 - - 1,360 Balance at 30 June 2017(i) 231,079 (36,341) 5,362 (20,686) - - - - (112) 5,250 - 1,169 1,169 - - (19,517) 231,079 (36,341) 5,250 (19,517) Balance at 1 July 2017 Profit for the year Other comprehensive income Total comprehensive income for the year - - - Transactionswithowners,recogniseddirectlyinequity Shares issued during the year, net of costs 73,669 Own shares acquired Share based payments Balance at 30 June 2018 - 529 305,277 33,974 - 33,974 - - 559 (1,808) - - - - - 556 5,806 - (1,197) (1,197) - - - Total US$000s 160,874 15,848 1,169 17,017 1,332 1,248 180,471 180,471 33,974 (1,197) 32,777 73,669 (1,476) 1,644 - - - - - - - - - - - - (1,476) - (20,714) (1,476) 287,085 (i) RestatedfromAUDinpreviousfinancialstatementsinaccordancewithchangeinpresentationcurrency.Referto“Note1:Basisofpreparation”. Theaccompanyingnotesformpartoftheseconsolidatedfinancialstatements. 66 / BASE RESOURCES / ANNUAL REPORT 2018 Consolidated statement of cash flows FOR THE YEAR ENDED 30 JUNE 2018 Notes 2018 US$000s 2017(i) US$000s Cash flows from operating activities Receipts from customers Payments in the course of operations Other Net cash from operating activities 5 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 Purchase of treasury shares Proceeds from borrowings Repayment of borrowings Transfers to restricted cash Payments for debt service costs and re-scheduling fees Net cash used in financing activities Net increase in cash held Cash at beginning of year Effect of exchange fluctuations on cash held Cash at end of year 16 6 205,807 (88,623) (42) 117,142 (32,862) (78,077) 621 (110,318) 76,133 (2,464) (1,476) 12,500 (72,553) (3,425) (13,611) (4,896) 1,928 28,278 (520) 29,686 151,632 (75,008) (32) 76,592 (6,513) (935) 284 (7,164) - - - - (47,539) (4,089) (16,512) (68,140) 1,288 26,923 67 28,278 (i) RestatedfromAUDinpreviousfinancialstatementsinaccordancewithchangeinpresentationcurrency.Referto“Note1:Basisofpreparation”. Theaccompanyingnotesformpartoftheseconsolidatedfinancialstatements. BASE RESOURCES / CONSOLIDATED FINANCIAL STATEMENTS / 67 Notes to the consolidated financial statements Note 1: 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 2018, 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 and development of the Toliara Project in Madagascar. The consolidated financial statements of the Group for the year ended 30 June 2018: • is a general purpose financial report prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the CorporationsAct2001; • comply with International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board; • are presented in United States dollars and all values are rounded to the nearest thousand dollars (US$000s) unless otherwise stated, in accordance with ASIC instrument 2016/191. The functional currency of the Parent is Australian dollars, whilst all other subsidiaries are 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. The consolidated financial statements were approved by the Board of Directors on 25th August 2018. Foreign currency Functional and presentation currency The Directors have elected to change the Group’s presentation currency from Australian dollars (AUD) to United States dollars (USD) effective from 1 July 2017. The change in presentation currency will present more relevant and reliable information on the Group. Prior period comparatives used in this financial report have been restated to USD using the procedures outlined below: • Statement of Profit or Loss and Other Comprehensive Income and Statement of Cash Flows have been translated into USD using average exchange rates prevailing for the relevant period. • Assets and liabilities in the Statement of Financial Position have been translated into USD at the closing exchange rates on the relevant balance sheet dates. • The equity section of the Statement of Financial Position, including foreign currency translation reserve, retained earnings, share capital and the other reserves, have been translated into USD using historical exchange rates. • Earnings per share disclosures have also been restated to USD to reflect the change in presentation currency. • The functional currency of the Parent is AUD, whilst the presentation currency of the Group is now in USD. All subsidiaries have a functional currency of USD. Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are re-translated to the functional currency at the exchange rate at that date. Non-monetary items in a foreign currency that are measured at historical cost are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on re-translation are recognised in the Statement of Profit or Loss and Comprehensive Income. 68 / BASE RESOURCES / ANNUAL REPORT 2018 Critical accounting estimates and judgements 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: 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. Note:thisisanexamplepresentation. BASE RESOURCES / CONSOLIDATED FINANCIAL STATEMENTS / 69 Notes to the consolidated financial statements PERFORMANCE FOR THE YEAR This section analyses the financial performance of the Group for the year ended 30 June 2018. It includes segment performance, earnings per share and taxation. Note 2: Segment reporting Segment Principal activities Kwale Operation Toliara Project Other The Group’s 100% owned Kwale Operation is located in Kenya and generates revenue from the sale of rutile, ilmenite and zircon. The Toliara Project in Madagascar was acquired in January 2018. The Project is progressing through an accelerated feasibility study program that aims to advance toward a decision to proceed to construction in the second half of 2019. Includes Group head office, all corporate expenditure not directly attributable to the Kwale Operation or Toliara Project and exploration activities not directly related to Kwale Operations or the Toliara Project. 2018 Toliara Project US$000s Other US$000s Total US$000s Kwale Operation US$000s 2017 Other US$000s - - - - - - - - - - - - - - (87) (4,939) - - (89) 198,810 162,417 (56,658) (51,816) (2,114) (3,794) (13,678) (11,141) (47,349) (37,355) (119,799) (104,106) 79,011 58,311 (9,338) (3,000) (4,056) (765) (3,983) (2,699) (2,030) 352 - - - - - - - (4,253) - - (444) Total US$000s 162,417 (51,816) (3,794) (11,141) (37,355) (104,106) 58,311 (8,236) (2,699) (2,030) (92) (5,028) 61,852 49,951 (4,697) 45,254 (608) (10,884) (12,756) (1,693) (14,449) (1,208) (3,488) (2,572) (2,530) (5,102) - (481) (1,445) - (1,445) (744) (3,636) (2,491) (24) (2,515) (2,560) (18,489) (19,264) (4,247) (23,511) - (9,389) (791) (7,588) 33,974 (5,895) 24,792 - (5,895) (8,944) 15,848 - - (704) (791) - - - - - - Reportable segment Sales revenue Cost of sales: Operating costs Inventory movement 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 Kwale Operation US$000s 198,810 (56,658) (2,114) (13,678) (47,349) (119,799) 79,011 (4,312) (3,000) (4,056) 28 67,671 (10,276) (2,280) (481) (2,892) (15,929) (9,389) 42,353 70 / BASE RESOURCES / ANNUAL REPORT 2018 Reportable segment Other disclosures: Capital expenditure Total assets Total liabilities 2018 2017 Kwale Operation US$000s Toliara Project US$000s Other US$000s Total US$000s Kwale Operation US$000s Other US$000s Total US$000s 31,189 361,955 144,223 79,060 94,433 17,157 691 5,021 110,940 7,181 268 7,449 461,409 376,770 4,026 380,796 12,944 174,324 188,090 12,235 200,325 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 US$20.5 million is still subject to final market pricing at 30 June 2018 (2017: US$30.7 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. BASE RESOURCES / CONSOLIDATED FINANCIAL STATEMENTS / 71 Notes to the consolidated financial statements - performance for the year (cont.) Note 3: Earnings per share Earnings used to calculate basic / diluted earnings per share 2018 US$000s 33,974 2017 US$000s 15,848 a) Weighted average number of ordinary shares on issue used in the calculation of basic earnings per share inthousandsofshares Issued ordinary shares at 1 July Effect of performance rights vested under the Group’s LTIP Effect of share placement Effect of renounceable entitlement offer Effect of shares issued as consideration for Taurus facility extension Weighted average number of ordinary shares at 30 June 2018 742,232 3,643 69,390 113,657 - 928,922 b) Weighted average number of ordinary shares on issue used in the calculation of diluted earnings per share inthousandsofshares Weighted average number of ordinary shares (basic) Effect of performance rights on issue Weighted average number of ordinary shares (diluted) at 30 June 2018 928,922 58,057 986,979 2017 732,232 - - - 6,657 738,889 2017 738,889 62,072 800,961 Note 4: Income tax a) Amounts recognised in profit or loss Currentincometax Income tax expense Deferredtaxexpense Origination and reversal of temporary differences Income tax expense reported in comprehensive income b) Reconciliation of income tax expense to prima facie tax payable Theprimafacietaxpayableonlossfromordinaryactivitiesbeforetaxisreconciledtothe incometaxexpenseasfollows: Accounting profit before tax Prima facie tax on operating profit at 30% (2017: 30%) 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(i) Income tax attributable to operating profit (i) TheKenyantaxrateapplicabletoBaseTitaniumLimitedis15%(2017:15%) 72 / BASE RESOURCES / ANNUAL REPORT 2018 2018 US$000s 2017 US$000s 129 48 9,260 9,389 5,847 5,895 43,363 13,009 2,256 253 1,649 1,767 (9,545) 9,389 21,743 6,523 2,797 208 1,371 990 (5,994) 5,895 c) Deferred tax recognised Tax losses Kenya Other Deferred tax recognised Property, plant and equipment Net deferred tax liability recognised d) Deferred tax assets unrecognised Deductible temporary differences Tax losses Australia Tax losses other 2018 US$000s 2017 US$000s 5,638 1,543 7,181 (22,287) (15,106) 313 6,819 231 7,363 20,382 1,198 21,580 (27,426) (5,846) 257 6,099 68 6,424 Potential deferred tax assets attributable to tax losses and exploration expenditure carried forward, excluding those recognised for Kwale Operations, have not been brought to account at 30 June 2018 and 2017 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: 1. 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; 2. The Group continues to comply with conditions for deductibility imposed by law; and 3. 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. BASE RESOURCES / CONSOLIDATED FINANCIAL STATEMENTS / 73 Notes to the consolidated financial statements - performance for the year (cont.) 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 5: Operating cashflows The Group’s operating cashflow reconciled to profit after tax is as follows: 2018 US$000s 33,974 47,349 1,835 18,489 (833) 9,389 3,924 (1,271) 4,427 (141) 117,142 2017 US$000s 15,848 37,355 1,248 23,511 (833) 5,895 (12,047) 2,225 3,333 57 76,592 Profit 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: Decrease / (increase) in receivables and other assets (Increase) / decrease in inventories Increase in trade and other payables (Decrease) / increase in provisions Cash flow from operations 74 / BASE RESOURCES / ANNUAL REPORT 2018 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 6: Restricted cash Current Restricted cash 2018 US$000s 2017 US$000s 2016 US$000s 29,591 26,166 22,077 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 7: Trade and other receivables Current Trade receivables VAT receivables Other receivables 2018 US$000s 2017 US$000s 2016 US$000s 16,912 21,321 493 38,726 24,344 19,657 55 44,056 13,534 18,692 74 32,300 Recoverability of construction period VAT receivable The Group is owed US$21.3 million in VAT receivable by the Government of Kenya, of which US$17.1 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 8: Inventories Current Heavy mineral concentrate and other intermediate stockpiles (at cost) Finished goods stockpiles – at cost Stores and consumables – at cost 2018 US$000s 2017 US$000s 2016 US$000s 4,717 4,720 10,352 19,789 4,674 3,428 10,415 18,517 6,717 5,179 8,846 20,742 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. BASE RESOURCES / CONSOLIDATED FINANCIAL STATEMENTS / 75 Notes to the consolidated financial statements - operating assets and liabilities (cont.) 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 9: Capitalised exploration and evaluation Toliara Project – Madagascar (a) Kenya Tanzania Closing carrying amount Movement in carrying amount Opening balance Toliara Project acquisition: up-front consideration Toliara Project deferred consideration recognised Other exploration and evaluation expenditure during the period 2018 US$000s 94,250 2,399 466 97,115 2017 US$000s - 1,910 128 2,038 2018 US$000s 2,038 75,000 17,000 3,077 97,115 2016 US$000s - 1,103 - 1,103 2017 US$000s 1,103 - - 935 2,038 (a) Toliara Project - Madagascar In January 2018, the Company completed the acquisition of the Toliara Project in Madagascar, with payment of US$75.0 million in up-front consideration, for an initial 85% interest. The Company will acquire the remaining 15% interest, with a further US$17.0 million (deferred consideration) payable on achievement of key milestones, as the project advances to mine development. If the key milestones have not been achieved within two years, the remaining 15% interest automatically transfers to the Company, however payment of deferred consideration remains payable on achievement of key milestones. Despite retaining a 15% interest for up to two years, the seller will not contribute any development funding and will not have access to the returns associated with their ownership stake. The Company has applied the anticipated acquisition method, which treats the 15% non-controlling interest as already owned and the US$17.0 million is included as a component of the Toliara Project asset value. This consequently requires that the financial liability associated with the 15% non-controlling interest is recognised at the acquisition date. An estimation has been made as to the timing of payment of the future consideration, which has resulted in a current and non-current liability being recognised (see note 14). The acquisition is accounted for as an asset acquisition. Recognition and measurement of exploration and evaluation expenditure Exploration for and evaluation of mineral resources is the search for mineral resources after the entity has obtained legal rights to explore in a specific area, as well as the determination of the technical feasibility and commercial viability of extracting the mineral resource. Accordingly, exploration and evaluation expenditure are those expenditures incurred by the Group in connection with the exploration for and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. 76 / BASE RESOURCES / ANNUAL REPORT 2018 Accounting for exploration and evaluation expenditure is assessed separately for each ‘area of interest’. An ‘area of interest’ is an individual geological area which is considered to constitute a favourable environment for the presence of a mineral deposit or has been proved to contain such a deposit. For each area of interest, the expenditure is recognised as an exploration and evaluation asset when the rights of tenure to that area of interest are current and the expenditure is expected to be recouped through successful development and exploitation of an area of interest, or alternatively by its sale, and where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves. General and administrative costs are allocated to, and included in, the cost of exploration and evaluation assets only to the extent that those costs can be related directly to operational activities in the area of interest to which the exploration and evaluation assets relate. In all other instances, these costs are expensed as incurred. Accumulated costs in relation to an abandoned area are written off in full to the Statement of Profit or Loss and Other Comprehensive Income in the year in which the decision to abandon the area is made. Impairment testing of exploration and evaluation assets Exploration and evaluation assets are assessed for impairment if sufficient data exists to determine technical feasibility and commercial viability or facts and circumstances suggest that the carrying amount exceeds the recoverable amount. Note 10: Property, plant and equipment 2018 At cost Accumulated depreciation Closing carrying amount Reconciliation of carrying amounts: Balance at 1 July 2017 Additions Transfers Disposals Reduction in mine rehabilitation asset Depreciation expense Effects of movement in foreign exchange Balance at 30 June 2018 2017 At cost Accumulated depreciation Closing carrying amount Reconciliation of carrying amounts: Plant & equipment US$000s Mine property and development US$000s 220,156 (100,292) 119,864 144,675 1,870 1,004 (9) - (27,676) - 119,864 217,300 (72,625) 144,675 178,642 (62,790) 115,852 106,901 29,871 - - (972) (18,914) (1,034) 115,852 151,223 (44,322) 106,901 Buildings US$000s 6,274 (2,401) 3,873 4,541 105 49 (214) - (608) - 3,873 6,395 (1,854) 4,541 Balance at 1 July 2016 164,476 118,446 5,005 Additions Transfers Disposals Reduction in mine rehabilitation asset Depreciation expense Effects of movement in foreign exchange Balance at 30 June 2017 1,048 1,460 (19) - (22,293) 3 144,675 2,033 1,225 29 (1,261) (14,706) 1,135 106,901 1 18 - - (483) - 4,541 Capital work in progress US$000s 920 - 920 1,096 890 (1,053) - - - (13) 920 1,096 - 1,096 1,594 2,205 (2,703) - - - - 1,096 Total US$000s 405,992 (165,483) 240,509 257,213 32,736 - (223) (972) (47,198) (1,047) 240,509 376,014 (118,801) 257,213 289,521 5,287 - 10 (1,261) (37,482) 1,138 257,213 BASE RESOURCES / CONSOLIDATED FINANCIAL STATEMENTS / 77 Notes to the consolidated financial statements - operating assets and liabilities (cont.) Impairment of assets 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 Buildings Plant and equipment Mine property and development Depreciation method Straight line at 5% per annum Straight line at 10% to 30% per annum Straight line over remaining mine life The assets’ residual values and useful lives are reviewed, and adjusted prospectively if appropriate, at each reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. 78 / BASE RESOURCES / ANNUAL REPORT 2018 Note 11: Trade and other payables Trade payables and accruals Provision for increase in Government of Kenya royalty (a) 2018 US$000s 11,889 15,976 27,865 2017 US$000s 9,672 11,024 20,696 2016 US$000s 11,521 6,989 18,510 (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 US$17.1 million VAT receivables related to the construction of Kwale Operations (refer to “Note 7: Trade and other receivables”). 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 12: 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) Revolving Credit Facility (c) Capitalised borrowing costs (a) Amortisation of capitalised borrowing costs (a) Finance lease liabilities Total non-current borrowings Total borrowings 2018 US$000s 53,200 - - - 66 53,266 26,773 12,500 (18,395) 14,654 - 35,532 88,798 2017 US$000s 2016 US$000s 47,500 11,799 (4,858) 4,398 372 59,211 93,661 - (17,477) 11,862 66 88,112 147,323 26,600 20,000 (3,390) 2,307 337 45,854 153,900 - (17,282) 8,549 438 145,605 191,459 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 2018, US$61.2 million was paid down, reducing outstanding debt to US$80.0 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 to BTL. The Kwale Facility carries an interest rate of LIBOR plus 630 basis points, inclusive of political risk insurance. The weighted average effective interest rate on the Kwale Facility at 30 June 2018 is 8.80% (30 June 2017: 7.72%), with the difference due movement in the LIBOR rate. The remaining tenor of the loan is two years. BASE RESOURCES / CONSOLIDATED FINANCIAL STATEMENTS / 79 Notes to the consolidated financial statements - operating assets and liabilities (cont.) Subsequent to year end, in July 2018, in accordance with the terms of the Kwale Facility, surplus cash of US$14.9 million was distributed from Kwale Operations (a ‘cash sweep’). Half of the cash sweep (US$7.45 million) went towards mandatory repayment of the Kwale Facility, with the other half distributed to the parent entity, Base Resources. The outstanding debt after this repayment was US$72.6 million. (b) Taurus Facility In July 2017, Base Resources applied US$11.8 million from Kwale Operations to retire the Taurus Debt Facility. (c) Revolving Credit Facility (RCF) In October 2017, the Group established a US$25.0 million Revolving Credit Facility (RCF) to provide the Group with additional funding flexibility. Both Base Resources and Base Titanium are eligible borrowers under the RCF and the RCF benefits from the same security package as the Kwale Facility. In January 2018, the RCF was extended to US$30.0 million, as permitted by the facility terms, to provide Base Resources with additional funding flexibility. All other RCF terms remain unchanged. The RCF carries an interest rate of LIBOR plus 620 basis points, inclusive of political risk insurance. The weighted average effective interest rate on the RCF at 30 June 2018 is 8.70%. The remaining tenor of the loan is two years. The outstanding debt at 30 June 2018 was US$12.5 million. Note 13: 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 Increase / (decrease) in rehabilitation estimate Rehabilitation activities Unwinding of discount Balance at 30 June 2018 US$000s 2017 US$000s 2016 US$000s 1,146 360 75 1,581 22,413 45 22,458 927 360 17 1,304 22,176 43 22,219 2018 US$000s 22,536 7 (251) 481 22,773 870 - - 870 21,448 44 21,492 2017 US$000s 21,448 (357) - 1,445 22,536 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 2.73% as at 30 June 2018 (2017: 1.89%) and an inflation factor of 1.32% (2017: 1.27%). Although the ultimate amount to be incurred is uncertain, management has, at 30 June 2018, estimated the asset retirement cost of work completed to date using an expected remaining mine life of 5 years and a total undiscounted estimated cash flow of US$24,159,245 (2017: US$23,234,044). Management’s estimate of the underlying asset retirement costs are independently reviewed by an external consultant on a regular basis for completeness. 80 / BASE RESOURCES / ANNUAL REPORT 2018 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. 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 Profit and Loss and Other 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. Note 14: Other liabilities Current Deferred consideration – Toliara acquisition Other Non-current Deferred consideration – Toliara acquisition 2018 US$000s 2017 US$000s 2016 US$000s 7,000 58 7,058 10,000 10,000 - 646 646 - - - 658 658 - - In January 2018, the Company completed the acquisition of the Toliara Project in Madagascar, with payment of US$75.0 million in up-front consideration, for an initial 85% interest. The Company will acquire the remaining 15% interest, with a further US$17.0 million (deferred consideration) payable on achievement of key milestones, as the project advances to mine development. If the key milestones have not been achieved within two years, the remaining 15% interest automatically transfers to the Company, however payment of deferred consideration remains payable on achievement of key milestones. Despite retaining a 15% interest for up to two years, the seller will not contribute any development funding and will not have access to the returns associated with their ownership stake. The Company has therefore elected to apply the anticipated acquisition method, which treats the 15% non-controlling interest as already owned and the US$17.0 million is included as a component of the Toliara Project asset value. This requires that the financial liability associated with the 15% non-controlling interest is recognised at the acquisition date. An estimation has been made as to the timing of payment of the future consideration, which has resulted in a current and non-current liability being recognised. BASE RESOURCES / CONSOLIDATED FINANCIAL STATEMENTS / 81 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 15: Issued capital Ordinary share capital: Issued and fully paid Date 1 July 2016 Shares issued as consideration for Taurus Facility extension 30 June 2017 1 July 2017 Partial vesting of 2014 performance rights under LTIP scheme Institutional and retail entitlement offer and placement Share issue costs 30 June 2018 2018 US$000s 2017 US$000s 2016 US$000s 305,277 231,079 229,747 Number 732,231,956 10,000,000 742,231,956 742,231,956 4,961,983 380,381,075 - 1,127,575,014 229,747 231,079 231,079 231,079 529 76,313 (2,644) 305,277 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 16: Treasury shares reserve During the reporting period, the Company directed the Base Resources Long Term Incentive Trust to purchase shares in the Company on market, for the purpose of meeting the expected vesting of performance rights under the Company’s LTIP for the cycle vesting on 30 September 2018. The reserve for the Company’s own shares comprises the cost of the Company’s shares held by the Group. At 30 June 2018, the Group held 6.7 million of the Company’s shares (2017: nil). Repurchase and reissue of share capital (treasury shares) When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the reserve for own shares. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity and the resulting surplus or deficit on the transaction is presented in retained earnings. Note 17: Share-based payments (a) Share options Granted options are as follows: Taurus Funds Management Taurus Funds Management 82 / BASE RESOURCES / ANNUAL REPORT 2018 Grant date Number Issue date 23 December 2014 30,712,531 23 December 2014 19 June 2015 30,712,530 19 June 2015 Terms of granted options: 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 A$0.40, with half being issued at execution and half pro-rata on facility drawdown above US$5 million, which occurred in June 2015. All Taurus options expire on 31 December 2018. The fair value of the 61,425,061 options granted during the 2015 financial year were estimated at the date of grant using a Black & Scholes model using the following assumptions: risk-free interest rate of 3%; no dividend yield; volatility factor of the expected market price of the Company’s shares of 67% and 91% for each issue respectively; and a contractual life of 4 years. Summary of shares under option are as follows: Options outstanding as at 1 July 2016 Granted Exercised Lapsed Options outstanding and exercisable as at 30 June 2017 Options outstanding as at 1 July 2017 Granted Exercised Lapsed Weighted average exercise price A$ 0.40 - - - 0.40 0.40 - - - Number 61,425,061 - - - 61,425,061 61,425,061 - - - Options outstanding and exercisable as at 30 June 2018 61,425,061 0.40 (b) Performance rights Total expenses arising from share based payment transactions during the year as part of employee benefit expenses was US$1.6 million (comparative period: US$1.9 million). Granted performance rights are as follows: Performance cycle date 1 October 2015 1 October 2016 1 October 2017 KMP Other employees 23,775,692 21,972,739 5,890,553 7,309,243 5,623,788 7,380,330 Total 45,748,431 11,514,341 14,689,573 Fair value at grant date A$ 0.0380 0.1625 0.2150 All performance rights are granted for nil consideration. The fair value of the performance rights granted during the 2018 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 1.9%; no dividend yield; volatility factor of the expected market price of the Company’s shares of 75%; and a remaining life of performance rights of 2.86 years at valuation date. The fair value of the performance rights is recognised over the service period, which commenced on the date of grant of 1 October 2017. The movement in the number of performance rights during the year is set out below: Opening balance Granted Vested Lapsed Closing balance 2018 57,369,478 14,689,573 4,961,983 (5,068,689) 71,952,345 2017 53,374,002 11,514,341 - (7,518,865) 57,369,478 BASE RESOURCES / CONSOLIDATED FINANCIAL STATEMENTS / 83 Notes to the consolidated financial statements - capital structure, financial instruments and risk management (cont.) 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 18: 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. 84 / BASE RESOURCES / ANNUAL REPORT 2018 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: Notes 2018 US$000s 2017 US$000s Financial assets Cash and cash equivalents Restricted cash Trade and other receivables Financial liabilities Trade and other payables Kwale Facility Revolving Credit Facility Taurus Facility Finance lease liabilities Commodity price risk 6 7 11 12 12 12 12 29,686 29,591 38,726 98,003 27,865 79,973 12,500 - 66 120,404 28,278 26,166 44,056 98,500 20,696 141,161 - 11,799 438 174,094 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. Rutile sales revenue of US$20.5 million is still subject to final market pricing at 30 June 2018 (2017: US$30.7 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 US$2.1 million (2017: US$3.1 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 2018 is 8.80% (30 June 2017: 7.72%). The RCF carries an interest rate of LIBOR plus 620 basis points, inclusive of political risk insurance. The weighted average effective interest rate on the RCF at 30 June 2018 is 8.70%. 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. BASE RESOURCES / CONSOLIDATED FINANCIAL STATEMENTS / 85 Notes to the consolidated financial statements - capital structure, financial instruments and risk management (cont.) Fixed rate instruments Financial assets Financial liabilities Variable rate instruments Financial assets Financial liabilities Carrying amount Realisable / payable within six months 2018 US$000s - (66) (66) 59,277 (92,473) (33,196) 2017 US$000s - (12,237) (12,237) 54,444 (141,161) (86,717) 2018 US$000s 2017 US$000s - - - 29,686 (26,600) 3,086 - - - 23,942 (20,900) 3,042 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 100bp increase 100bp decrease 100bp increase 100bp decrease 2018 US$000s 2017 US$000s 2018 US$000s 2017 US$000s Profit or loss Equity Currency risk (332) 332 332 (332) (867) 867 867 (867) 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 USD and AUD. The USD carrying amount of the Group’s financial assets and liabilities by its currency risk exposure at the reporting date is disclosed below: 30 June 2018 in US$000s: Cash and cash equivalents Trade and other receivables Other current assets Trade and other payables Borrowings Net exposure 30 June 2017 in US$000s: Cash and cash equivalents Trade and other receivables Other current assets Trade and other payables Borrowings Net exposure 86 / BASE RESOURCES / ANNUAL REPORT 2018 AUD 2 - - (191) - (189) AUD 2 - - (39) - (37) USD 225 - - (124) (12,500) (12,399) USD 1,024 - - - (11,799) (10,775) KES 597 21,321 371 (2,075) - 20,214 KES 648 19,657 179 (963) - 19,521 Other Total USD 4 - - (88) - (84) 828 21,321 371 (2,478) (12,500) 7,542 Other Total USD 5 - - (38) - (33) 1,679 19,657 179 (1,040) (11,799) 8,676 The following significant exchange rates applied during the year: USD : AUD USD : KES Sensitivity analysis Average rate 30 June spot rate 2018 1.290 102.37 2017 1.326 102.46 2018 1.351 101.05 2017 1.301 103.71 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 US$0.8 million lower/higher (2017: US$0.9 million lower/higher). 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 2018 was US$198.8 million (2017: US$162.4 million). Major customers who individually accounted for more than 10% of sales revenue contributed approximately 61% (2017: 61%) of sales revenue. These customers represent 13% (2017: 42%) of the trade receivables balance at 30 June 2018. Credit risk arising from sales to customers is managed by the Group’s policy to only trade with reputable companies, with whom a long term offtake agreement is held, or where such an agreement is not in place, sales are backed by Letters of Credit held with internationally recognised banks. The Group is owed US$21.3 million in VAT receivable by the Government of Kenya (Note 7), of which US$17.1 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: 2018 US$000s 2017 US$000s Financial assets – cash flow realisable Cash and cash equivalents Restricted cash Trade and other receivables Total anticipated inflows 29,686 29,591 38,726 98,003 At 30 June 2018, the ageing of trade and other receivables that were not impaired was as follows: Neither past due nor impaired Past due 1 - 30 days 2018 US$000s 36,525 2,201 38,726 28,278 26,166 44,056 98,500 2017 US$000s 41,710 2,346 44,056 BASE RESOURCES / CONSOLIDATED FINANCIAL STATEMENTS / 87 Notes to the consolidated financial statements - capital structure, financial instruments and risk management (cont.) 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 Liquidity risk 2018 US$000s 2017 US$000s 53,364 22,522 10,418 2,176 3,814 5,709 98,003 49,965 20,806 15,359 7,668 3,385 1,317 98,500 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 US$000s Total US$000s 2 months or less US$000s 2-12 months US$000s 1-2years US$000s 2-5 years US$000s More than 5 years US$000s Contractual cash flows - - - - - - - - - - - - - - - - 30 June 2018 Trade and other payables Kwale Facility RCF Finance lease liabilities 30 June 2017 27,865 79,973 12,500 66 27,865 86,355 14,591 66 11,889 - 177 66 15,976 58,553 867 - - 27,802 13,547 - 120,404 128,877 12,132 75,396 41,349 Trade and other payables 20,696 20,696 9,672 Kwale Facility Taurus Facility 141,161 157,911 11,799 12,101 Finance lease liabilities 438 465 - - 66 11,024 56,775 12,101 333 - 58,833 42,303 - 66 - - 174,094 191,173 9,738 80,233 58,899 42,303 88 / BASE RESOURCES / ANNUAL REPORT 2018 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 2018 US$000s 29,686 29,591 38,726 19,789 5,993 (27,865) (53,266) (1,581) (833) (7,058) 33,182 2017 US$000s 28,278 26,166 44,056 18,517 4,528 (20,696) (59,211) (1,304) (833) (646) 38,855 BASE RESOURCES / CONSOLIDATED FINANCIAL STATEMENTS / 89 Notes to the consolidated financial statements GROUP STRUCTURE AND OTHER INFORMATION Note 19: Parent entity disclosures As at, and throughout the financial year ended 30 June 2018, 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 Reserves Accumulated losses Total equity 2018 US$000s (9,157) (9,157) 2018 US$000s 3,867 211,804 215,671 2,804 11,624 14,428 201,243 236,646 4,036 (39,439) 201,243 2017 US$000s (8,413) (8,413) 2017 US$000s 3,346 165,584 168,930 13,674 9,073 22,747 146,183 173,173 5,194 (32,184) 146,183 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 12: Borrowings” 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. 90 / BASE RESOURCES / ANNUAL REPORT 2018 Controlled entity Country of Incorporation Base Titanium (Mauritius) Limited Base Titanium Limited Base Exploration Tanzania Limited BTS Holdings (Mauritius) Limited(i) Madagascar Mineral Fields Limited(ii) Malagasy Sands No. 2 Limited(ii) Toliara SARL(ii) Madagascar Resources SARL(ii) Mauritius Kenya Tanzania Mauritius Mauritius Mauritius Madagascar Madagascar (i) Incorporatedon28November2017. (ii) BecameacontrolledentityuponcompletionoftheacquisitionoftheToliaraProjecton22January2018. Note 20: Related parties KMP compensation: Short-term employment benefits Post-employment benefits Share-based payments Compensating payment for LTIP scale back Other long term Ownership % 2018 100 100 100 100 85 85 85 85 2017 100 100 100 - - - - - 2018 US$000s 3,298,696 132,821 835,511 - 61,668 4,328,696 2017 US$000s 2,543,733 152,755 678,751 314,802 30,524 3,720,565 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 year to 30 June 2018, US$477,000 was paid or is payable to Pacific Road under this royalty arrangement. Mr Stirzaker, non-executive director of the Group, is a partner of Pacific Road. BASE RESOURCES / CONSOLIDATED FINANCIAL STATEMENTS / 91 Notes to the consolidated financial statements - group structure and other information (cont.) Note 21: Auditors’ remuneration Audit services KPMGAustralia Audit of financial report OverseasKPMGfirms Audit services Other services KPMGAustralia Tax compliance and advisory services Other services OverseasKPMGfirms Tax compliance and advisory services 2018 US$000s 2017 US$000s 132,407 101,810 117,362 249,769 81,939 183,749 59,491 8,727 68,728 136,946 74,401 8,296 82,122 164,819 Note 22: 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. AASB15RevenuefromContractswithCustomers 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 does not expect the implementation of this standard to have a material impact on its existing revenue contracts. AASB16Leasesremoves 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. AASB 16 is effective for annual reporting periods beginning on or after 1 January 2019, with early adoption permitted. Base Resources does not expect the implementation of this standard to have a material impact on the financial statements. AASB9FinancialInstruments, 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. 92 / BASE RESOURCES / ANNUAL REPORT 2018 Note 23: Events after the reporting date Other than the July 2018 US$14.9 million Cash Sweep from the Kwale Operations (refer “Note 12: Borrowings”), there have been no significant events since the reporting date. Note 24: Company details The principal place of business and registered office of the Company is: BaseResourcesLimited(ASX&AIM:BSE) Level1,50KingsParkRoad WestPerth,6005 WesternAustralia BASE RESOURCES / CONSOLIDATED FINANCIAL STATEMENTS / 93 Directors’ declaration 1. In the opinion of the directors of Base Resources: (a) the consolidated financial statements and notes that are set out on pages 64 to 93 and the Remuneration Report on pages 35 to 50 in the Directors’ Report, are in accordance with the CorporationsAct2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance, for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the CorporationsRegulations2001; 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 CorporationsAct2001 from the chief executive officer and chief financial officer for the financial year ended 30 June 2018. 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 25th day of August 2018 94 / BASE RESOURCES / ANNUAL REPORT 2018 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). In our opinion, the accompanying Financial Report of 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 2018 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: • Consolidated statement of financial position as at 30 June 2018 • 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 The Key Audit Matters we identified are: • Value of property, plant and equipment • The acquisition of the Toliara Sands Project 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. These matters were 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 these matters. 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. BASE RESOURCES / INDEPENDENT AUDITOR'S REPORT / 95     Independent auditor’s report (cont.) Value of property, plant and equipment (US$240,509,000) Refer to Note 10 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:     The size of the Kwale mine property, plant and equipment balance (being 52% of total assets) The mineral sands sector, within which the Group operates, has experienced volatile commodity prices and uncertainty in the global demand for products, putting pressure on the recoverability of 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 2018 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 Our procedures included:  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 historical accuracy of 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  Life of mineral reserves. In assessing this key audit matter, we involved senior team members and valuation specialists.  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 net assets. This included consideration of the market capitalisation range implied by broker target valuation ranges, to the Group’s internal valuation model. EBITDA multiples were also assessed against comparable companies. 96 / BASE RESOURCES / ANNUAL REPORT 2018     The acquisition of the Toliara Sands project (US$92,000,000) Refer to Note 9 and 14 to the Financial Report  The key audit matter  How the matter was addressed in our audit  Our procedures included:  Reading the Share Sale Agreement related to the acquisition to understand the structure, key terms and the nature of consideration. Using this information, we evaluated the accounting treatment of the acquisition. This included assessing the accounting treatment of the non-controlling interest against the criteria in the accounting standards.  We involved senior audit team members to assess the accounting treatment for the transaction. We researched and analysed the conclusions reached by the Group and compared those conclusions to accounting interpretations, industry practice and accounting literature.  Assessing the Group’s recognition and determination of fair value measurement of deferred consideration by checking the Group’s calculation to the Share Sale Agreement and to the Board approved investment proposal for the acquisition  We considered the adequacy of the Group’s disclosures in respect of this acquisition against the criteria in the accounting standards. The Group’s acquisition of the Toliara Sands Project represents a significant transaction for the Group. This was a key audit matter due to the:  Size of the acquisition having a pervasive impact on the Group’s financial statements  Complexity of the terms of the Share Sale Agreement. We focussed on accounting for non-controlling interest (NCI) against the criteria of the accounting standards   Level of judgement required in determining the accounting approach as either a business (in accordance with IFRS 3 Business Combinations), or an asset acquisition. The difference in the accounting for the acquisition as a business or an asset is significant and could impact the recognition and measurement of amounts reported in the consolidated financial statements The judgement applied by the Group to recognise and measure the fair value of deferred consideration. Consideration is payable by the Group upon reaching specific milestones as disclosed in Note 14 to the financial report. These conditions and associated complex acquisition accounting required significant audit effort and greater involvement of senior team members. 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. BASE RESOURCES / INDEPENDENT AUDITOR'S REPORT / 97   Independent auditor’s report (cont.) 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_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report. 98 / BASE RESOURCES / ANNUAL REPORT 2018   Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Base Resources Limited for the year ended 30 June 2018, 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 16 to 33 of the Directors’ report for the year ended 30 June 2018. 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 25 August 2018 BASE RESOURCES / INDEPENDENT AUDITOR'S REPORT / 99     Additional shareholder information Base Resources is listed on the ASX and AIM under the code: BSE. The following additional information required by the ASX Listing Rules is current as at 28 September 2018. 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 134 192 172 508 210 1,216 Units 12,065 582,543 1,404,415 19,509,065 1,106,066,926 1,127,575,014 % 0.05 0.12 1.73 98.09 100.00 There were 163 holders of unmarketable parcels of shares ( LIMITED PACIFIC ROAD CAPITAL MANAGEMENT GP II LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED CITICORP NOMINEES PTY LIMITED UBS NOMINEES PTY LTD PACIFIC ROAD CAPITAL II PTY LIMITED SANDHURST TRUSTEES LTD TWYNAM AGRICULTURAL GROUP PTY LTD COMPUTERSHARE CLEARING PTY LTD HSBC CUSTODY NOMINEES LIMITED - A/C 2 CS FOURTH NOMINEES PTY LIMITED BRISPOT NOMINEES PTY LTD BNP PARIBAS NOMS PTY LTD CS THIRD NOMINEES PTY LIMITED NGE CAPITAL LIMITED CPU SHARE PLANS PTY LTD WARBONT NOMINEES PTY LTD HARMANIS HOLDINGS PTY LTD NATIONAL NOMINEES LIMITED AET CT PTY LIMITED Number of Shares 317,672,215 213,122,088 124,792,555 111,168,471 70,311,685 29,831,018 20,127,140 18,350,020 16,676,299 14,401,828 13,979,183 13,662,520 11,841,207 10,088,123 7,400,000 6,700,405 6,581,570 5,850,000 4,996,372 4,500,000 % 28.17 18.90 11.07 9.86 6.24 2.65 1.78 1.63 1.48 1.28 1.24 1.21 1.05 0.89 0.66 0.59 0.58 0.52 0.44 0.40 1,022,052,699 90.64 100 / BASE RESOURCES / ANNUAL REPORT 2018 Substantial shareholdings The substantial shareholders of the Company, and the number of securities in which those shareholders and their associates have a relevant interest, as disclosed in the substantial holding notices received by the Company are: Name Pacific Road Capital II Pty Ltd and Pacific Road Capital Management GP II Limited Sustainable Capital Ltd Regal Funds Management Pty Limited Wellington Management Group LLP Bank of America Corporation UBS Group AG Number of shares 242,953,106 112,050,380 85,134,838 69,515,366 59,323,736 60,523,212 Options The following unlisted options are on issue. Options do not carry a right to vote. Voting rights will attach to any ordinary shares issued upon valid exercise of options. Stream 1 Date of Expiry Exercise Price Number of Options Number of Holders 31 December 2018 $0.40 61,425,061 61,425,061 1 Holders of greater than 20% of any stream of options: Stream 1: Taurus Funds Management Pty Ltd – 61,425,061 options. Performance rights The following unlisted performance rights are on issue. Performance rights do not carry a right to vote. Voting rights will attach to any ordinary shares issued upon vesting of performance rights in accordance with their terms of issue pursuant to the Base Resources Long Term Incentive Plan. Cycle 2015 2016 2017 Date of Vesting/Expiry Number of performance rights Number of Holders 30 September 2018 30 September 2019 30 September 2020 45,748,431 11,514,341 14,018,889 19 21 21 During the reporting period, the trustee of the Base Resources Long Term Incentive Plan trust acquired 6,700,405 ordinary shares on-market at an average price of A$0.297 per share. These shares will be allocated by the Trustee to participants upon vesting of performance rights pursuant to the Base Resources Long Term Incentive Plan. Other information There is no current on-market buy back taking place. There are no restricted securities or securities the subject of voluntary escrow on issue. BASE RESOURCES / ADDITIONAL SHAREHOLDER INFORMATION / 101 Glossary AASB AIM APES ASIC ASX AUD CTA DMU EBITDA EITI FY GoK HM HMC HMU ILM IUCN JORC KMP KP2 Australian Accounting Standards Board Alternative Investment Market Accounting Professional and Ethical Standards Australia Securities and Investments Commission Australian Securities Exchange Australian dollar Common terms agreement for the Kwale Project Debt Facility Dozer-trap mining unit Earnings Before interest, taxes, depreciation, interest and amortisation Extractive Industries Transparency Initiative Financial year Government of Kenya Heavy mineral Heavy mineral concentrate Hydraulic mining unit Ilmenite Mt NGOs NPAT NRV OS PFS PPE RCF RUT SL SML SPL STIP TFR Ti02 tph TRI Million tonnes Non-governmental organisations Net profit after tax Net realisable value Oversize material Project feasibility study Property, plant and equipment Revolving credit facility Rutile Slimes Special mining lease Special prospecting license Short term incentive plan Total fixed remuneration Titanium dioxide Tonnes per hour Total recordable injury International Union for Conservation of Nature TRIFR Total recordable injury frequency rate Joint Ore Reserves Committee Key management personnel Kwale Phase 2 mine optimisation project TRP TSF TSR USD VWAP WCP ZIR Total remuneration package Tailings storage facility Total shareholder return United States dollar Volume weighted average price Wet concentrator plant Zircon LIBOR London Inter-bank Offered Rate LTI LTIFR LTIP MSP Lost time injury Lost time injury frequency rate Long term incentive plan Mineral separation plant 102 / BASE RESOURCES / ANNUAL REPORT 2018 Corporate directory Directors Mr Keith Spence Non-Executive Chairman Mr Tim Carstens Managing Director Mr Colin Bwye Executive Director Mr Samuel Willis Non-Executive Director Mr Malcolm Macpherson Non-Executive Director Mr Mike Stirzaker Non-Executive Director Mr Michael Anderson Non-Executive Director – retired 31 August 2017 Mrs Diane Radley Non-Executive Director – appointed 1 February 2018 Solicitors Herbert Smith Freehills Level 36, QV1 250 St Georges Terrace Perth WA 6000 Share registry ASX 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 baseresources.com.au Email Phone Fax info@baseresources.com.au + 61 (8) 9413 7400 + 61 (8) 9322 8912 Nominated advisor RFC Ambrian Limited QV1 Building 250 St Georges Terrace Perth WA 6000 AIM Computershare Investor Services Pty Limited Computershare Investor Services PLC Level 11, 172 St Georges Terrace Perth WA 6000 Enquiries (within Australia): 1300 850 505 The Pavilions Bridgwater Road Bristol BS99 6ZZ (outside Australia): +61 (3) 9415 4000 Enquiries +44 (0) 870 702 0003 Website computershare.com.au Website computershare.co.uk 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 Auditors KPMG 235 St Georges Terrace Perth WA 6000 BASE RESOURCES / GLOSSARY / 103 104 / BASE RESOURCES / ANNUAL REPORT 2018 BASE RESOURCES / / cv Base Resources Annual Report 2018 50 Kings Park Rd 50 Kings Park Rd West Perth WA 6005 West Perth WA 6005 +61 8 9413 7400 +61 8 9413 7400 baseresources.com.au baseresources.com.au ABN 88 125 546 910 cvi / BASE RESOURCES / ANNUAL REPORT 2018 

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