Base Resources started at ‘buy’ by Canaccord on underappreciated heavy metals exposure


Base Resources Limited (AIM:BSE, ASX:BSE, FRA:B4Z) has been started on a ‘buy’ recommendation by Canaccord Genuity (TSX:CF, LSE:CF) as the broker views it as “well-run, high-quality company, with exposure to a suite of underappreciated (but highly attractive) commodities”.

Noting the miner is focussed on the extraction of minerals sands including ilmenite, rutile and zircon that are typically are used in pigment and ceramic production, analyst Sam Catalano said he expects the highly cash-generative Kwale minerals sands operation has around three years of life remaining, with the key development focus being the world-class Toliara project in Madagascar.

With valuable heavy mineral reserves suggesting a 33-year life producing 800-900k tonnes per year, the analyst estimates the low unit costs driven by Toliara’s scale and 6.5% grade will underpin it “as one of the most competitive (and profitable) mineral sands operations in the world”.

Catalano said he believes Toliara should drive the company’s revenue to cost ratio to 3-3.5x from current levels nearer 2.5x, “placing the operation at the very top of the first quartile on an R/C basis”.

Canaccord believes minerals sand products will be positively exposed to the post-pandemic recovery — with pigment and ceramic demand both being linked to property improvement, as well as construction.

“As the recovery continues, we believe it is likely that supply will fail to keep up with demand growth across both TiO2 and zircon markets and is likely to lead to continued price growth over the coming years,” the analyst wrote in the note.

Assuming the resolution of the fiscal terms for Toliara comes in the next six months, after the final dividend is paid with respect to the 2021 financial year, the analyst said dividends are likely to be suspended at that point as near-term cash flow is directed towards the development of Toliara.


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