Project Status

Feasibility Studies – Complete

The Enhanced Definitive Feasibility Study (EDFS) for the Kwale Project was completed in May 2011. The outcome of the EDFS was a “globally significant” project with robust economics and sound risk profile. The major features of the EDFS were:

• capital cost estimate of US$256 million (including a US$20 million project contingency).
• project payback period of 23 months.
• post-tax project NPV₁₀ (real) of US$395 million and an IRR of 42%.
• life of mine free cash flow (post tax real) of US$930 million.

Development Funding – In place

Base has secured funding necessary to take Kwale through development and to positive cash flow. In July, formal credit approvals were received from a syndicate of banks for US$170 million project finance facility. The finance package comprises a US$150 million senior debt facility and a US$20 million cost overrun facility. The formal loan documentation for the facilities was executed in November. Final drawdown is expected in Q3 2012.

The equity raisings required to complete the Kwale developemnt funding package were completed in September 2011. The capital raisings, which also provide sufficient corporate funding to pursue growth opportunities, comprised the following elements:

• A$140 million equity placement at $0.55/share approved by shareholders on 31 August and completed on 2 September.
• 1:3 Renounceable Rights Issue at $0.55/share completed on 16 September which raised A$22.6 million.

Off-take Arrangements – Progressing

Reflecting the positive market dynamics for mineral sands producers, Base is making good progress in assembling a portfolio of off-take arrangements for the production from Kwale.

A cornerstone off-take agreement was signed in November which will see DuPont Titanium Technologies (“DuPont”) purchase a minimum average of approximately 72% of annual rutile production from Kwale for a period of six years from commencement of production. In addition, Base has the option of selling up to a further 25,000 tonnes per annum of rutile over the six year period. In the last four years of the Off-take Agreement, DuPont has the right to reduce the off-take volume proportional to any reduction in DuPont’s overall high-grade titanium dioxide feedstock requirements. T approximately 35% of the annual revenue for the Kwale Project as forecast in the Enhanced Feasibility Study, or up to 47% of annual revenue if the additional optional volume is supplied. Pricing is to be derived from an agreed quarterly index of market prices. This contract underpins approximately 35% of the annual revenue for the Kwale Project as forecast in the Enhanced Feasibility Study, or up to 47% of annual revenue if the additional optional volume is supplied.

Negotiations are progressing with a number of groups in relation to ilmenite and zircon production, with terms sheets agreed and documentation at an advanced stage for some key contracts. Further announcement in this respect are expect over the March quarter of 2012 as we work towards a position of having the full portfolio in place by the middle of 2012.

Approvals – In place

The Project has in place all material licences and permits required for development, including Special Mining Lease, an Investment Agreement with the Government of Kenya and an Environmental Impact Assessment (“EIA”) licence.

The authorisation to construct the Mukurumudzi Dam, which the Project has held for the past three years, was successfully renewed during the reporting period. This dam will provide the primary water source for the project.

Base is currently awaiting final approval for five boreholes in the Gongoni Forest. All requirements for the issue of these permits have been met and they are expected to be issued in the near future.

Development – Underway

The development approach being adopted for the Kwale Project is to for the project to be separated into six discrete contract packages, as well as a number of smaller owners projects, with an integrated management team overseeing their execution and integration. This approach has been adopted to ensure that “best of breed” expertise is applied to what are technically diverse and effectively separate project elements and risk is more effectively minimized and managed. The six contract packages, each covered by an EPCM contract, are:

• CP1 – Processing Plants
• CP2 – Marine Facilities
• CP3 – Power Line
• CP4 – Mukurumudzi Dam
• CP5 – Tailings Storage Facility
• CP6 – Access Road and temporary facilities.

The EPCM contracts in respect of each of the contract packages are well advanced and are expected to be executed over the December quarter with the exception of CP6 where the EPCM has been executed and the construction contract awarded. Early works in relation to detailed design in respect of CP1, CP2 and CP4 have been commenced under letter of agreement with Ausenco, WSP Group Africa and Wave Engineering respectively. The first physical works on the ground in Kenya started in September with the clearing of the preparation of the dam wall alignment and grouting for CP4.

Mukurumudzi Dam wall alignment