Base Resources Considers Mining Expansion in East Africa

Base Resources Ltd. (BSE), the Australian mineral sands mining company, is considering more opportunities around Kenya as it looks to expand in East Africa over the next 18 months, Managing Director Tim Carstens said.

The company, based in West Perth, Australia, has made exploratory visits to several areas around the east African nation and in neighboring Tanzania, Carstens said in an interview on June 27 in Nairobi, the Kenyan capital. Base Titanium Ltd., its Kenyan unit, plans to start production at Kwale, 50 kilometers (30 miles) south of the Kenyan port city of Mombasa, in the second half of 2013.

“Hopefully the Kwale project is the first of many mining operations because there is no question, there is a lot of potential here,” he said. “There are some opportunities right up to the north, on the border with Somalia, but it’s a little dangerous right now.”

Kenya’s army began an incursion into southern Somalia in October to secure its borders after blaming al-Shabaab, an al- Qaeda-linked militia, of murdering a British tourist and abducting at least four foreign holidaymakers and aid workers. The troops, assisting African Union and Somali government forces, have captured key towns in the south and are now targeting the port city of Kismayo, used by al-Shabaab as a source of funding.

Kenya is Africa’s biggest producer of soda ash, which is used to make glass, and has deposits of metals including gold, copper and zinc, according to the U.S. Geological Survey’s website. Mining makes up about 0.8 percent of the country’s $32 billion economy, according to the African Development Bank.

Exploration

Base Titanium has an option to buy three mineral-sands exploration projects in Mambrui, Kilifi and Vipingo on Kenya’s coast and has done some test drilling already, Carstens said.

“We should have the results in the next month or so which will determine whether they are worth pursuing or not because the issue is what quality of product will they produce,” Carstens said.

Mineral sands mining and processing produces ilmenite and rutile, which are predominantly used in paints, plastics and papers, as well as zircon, which is utilized in the manufacture of ceramics.

The three projects may have a combined resource of approximately 1.5 billion metric tons over the life of the project, while the project in Kwale is expected to produce about 146 million tons of mineral sand, he said.

Base Resources estimates average annual sales over the 13 years of the Kwale project will be $200 million, with the East African nation’s government receiving a royalty of 2.5 percent in the first five years with the royalty rate thereafter being determined by the prevailing rate in the Mining Act.

Production Estimates

In the first seven years, Base Resources expects annual output of rutile, its main revenue earner, to be as much as 80,000 tons, ilmenite 330,000 tons and zircon 30,000 tons, he said.

Base Resources’ biggest customer is DuPont (DD) Titanium Technologies, the world’s largest pigment producer by market value, which signed a six-year agreement to buy 75 percent of Base Titanium’s rutile output. Other clients include Saudi Arabian, Japanese and Chinese companies, Carstens said.

Global prices of ilmenite, rutile and zircon are currently about $350, $2,400 and $2,300 per ton respectively, with an average supply deficit of 14 percent for rutile. Kwale will account for approximately 14 percent of world supply once in production, he said.

Base Titanium is currently constructing two processing plants, a jetty and wharf in Mombasa, an 8-kilometer (5-mile) access road, a 16 kilometer power line that will be connected onto the Kenyan power grid and a dam with a capacity of eight million cubic meters, he said.

“We are on target to have all that construction completed by late August next year then our first shipment of products will start somewhere around November of next year,” Carstens said. Production will begin in the second quarter of 2013.

To contact the reporter on this story: Eric Ombok in Nairobi at eombok@bloomberg.net.

To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net

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