Forecast Project Economics

The overall Capital Cost Estimate is presented in US dollars (“US$”), as the functional currency of the Project, and has a base date of the first quarter 2011 (”1Q 2011”). The EDFS estimate has an accuracy range of ±15% for the scope indicated.

The estimate of the total pre-production capital costs is summarised below. The estimate covers the design and construction of the Kwale Mineral Sands Project DMU facility, WCP and MSP, supporting site infrastructure and off-site infrastructure such as port facilities at Likoni, access road and power supply.

Area	Preproduction
	(US$M)
Mining	8.3
Process Plant	64.6
Tailings Storage Facility	17.2
Onsite Infrastructure	20.1
Off Site Infrastructure	16.4
Marine Loading Facilities	17.8
Temporary Construction Facilities	12.7
EPCM and Fee	37.2
Process Plant and Infrastructure	194.2
Mobile Equipment/Spares/First Fills	18
Owners Costs	24.1
Total Below the Line Costs	42.1
Capital Cost Estimate	236.3
Project Contingency	20
	256.3

The capital costs shown in the table above include an 8.7% estimating provision. This is in addition to the separate US$20 million project contingency.

In addition, sustaining capital expenditure totalling US$32.5 million (equivalent to US$250,000/month) as well future capex associated with increases in throughput and the move of the DMU to the South pit have also been factored into the Project financial evaluation.

Given the current exchange rate volatility, it is important to note that, while the base currency of expenditure is the USD, a number of currencies were involved in the build-up of the capital cost estimate. The most significant of these is the AUD, due to the significant proportion of AUD-denominated costs in the capital estimate – totalling approximately A$80 million. The AUD:USD exchange rate used in calculating the base case capital cost estimate is 0.9906. At the currently prevailing exchange rate of around 1.03, the capital cost estimate would be approximately US$4 million higher.

However, as the equity proportion of the project development funding is being funded in AUD, and the AUD spend is less than the equity proportion of the funding, a natural hedge is effectively in place against the falling USD.

Operating Costs

Total life-of-mine estimated operating costs for the Project are summarised in the following table. The estimate has a base date of first quarter 2011 (“Q1 2011”) and is reported in US$. No escalation has been included in the estimate.

Activity	Total Cost (US$M)	Average unit rate ($/t ore)
Mining	157.799	1.12
Tailings and Rehabilitation	42.569	0.3
Wet Plant	90.407	0.64
Dry Plant	105.054	0.75
Product Handling	42.531	0.3
Royalties	118.005	0.84
Kenyan Overheads	100.552	0.72
Total	656.918	4.67

Production Profile

Ore mining and production are scheduled to commence in August 2013 with annual volumes over the 13-year LOM shown below. Over the first 7 years of operations, production volumes average 330kt for ilmenite, 79kt for rutile and 30kt for zircon respectively. Over the final 6 years, production volumes average 200kt for ilmenite, 55kt for rutile and 19kt for zircon. Production totals over the LOM are shown in the following table.

Ore Mined	Mt	140.6
Ilmenite Produced	kt	3,490.20
Rutile Produced	kt	884.8
Zircon Produced	kt	319.7

Production Prices

The long term price forecasts published by TZMI in April 2011 have been adopted as the basis for pricing assumptions used in the financial analysis in the EDFS. All prices are expressed in 2010 terms and on an FOB basis. A summary of the pricing assumptions utilised is presented in the figure below.

Financial Evaluation

A discounted cash flow (“DCF”) analysis has been undertaken on the Kwale Project incorporating the estimated capital costs (including the US$20 million contingency), operating costs and revenue assumptions outlined above. The key financial statistics for the project are set out below.

	Unit	Total
NPV (at a discount rate of 10%)	US$ M	395
NPV (at a discount rate of 15%)	US$ M	261
IRR	%	41.8
Capital Payback Period	Months	23
Initial Capex	US$ M	256.3
LOM Operating Costs	US$/t ore	4.67
LOM Cash Margin	US$/t ore	10.1
LOM Free Cash Flow (post-tax)	US$ M	930

The net annual project cash flow (pre-funding) is illustrated in the following figure. While the maximum negative position is around US$275 million during construction (on the assumption that the full US$20 million project contingency is spent), the figure below clearly shows the strength of the operating cash flows after production begins, with payback expected to occur during the second half of the financial year ending 30 June 2015.

 

 

A sensitivity analysis was completed to understand the influence of key variables on NPV valuations. Each of the key variables analysed was flexed by ±25% from that used in the base case analysis.

The degree of sensitivity to a ±25% change in each key project parameter is represented in the Tornado diagram below.

 

 

FORWARD LOOKING STATEMENTS
Certain statements made on this website contain or comprise certain forward-looking statements regarding the capital cost and production and financial performance of the Kwale Project. Although Base believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of, among other factors, changes in economic and market conditions, success of business and operating initiatives, changes in the regulatory environment and other government actions, fluctuations in metals prices and exchanges rates and business and operational risk management. Base undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after today’s date or to reflect the occurrence of unanticipated events.