Date of Data Capture: 16/11/2017
Name: BASE RESOURCES LIMITED (BSE)
Classification: Integrated Mining
Current Price: $0.32
Market Capitalisation: $239M
Forecast EBITDA Growth: 18.18%
Yield Estimate: 0%
Consensus Price Target: $0.49
# Covering Analysts: 2
Discount at Current Price: 53.13%
Price Target Trend: Increasing
Signal Timeframe: Quarterly-Monthly-Daily
Trend Bias: Up-Flat / Long-Short
Focus: Capital Growth
Set up Notes:
· With an ongoing recovery across the heavy mineral sands industry Base is looking to continue to leverage its high quality/low cost production with excellent forecasts for sales earnings and profits carried through to 2019.
· Fundamentally strong BSE saw earnings growth of 82% last year and while their outlook is moderating going forward, there should be plenty of growth left within an improving sector.
· Technically exciting, they rallied over 1000% from 2009-2011 before pulling back to baseline by 2015 and then rallying 600% to reach current levels with good momentum behind them here.
· Resistance targets are 35, 40, 45 and 55c with support layered down from 35, 30 and 27.5c
Growth Focus: Base Resources Ltd (BSE)
Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.
A strong base normally refers to a sturdy foundation on which to build future growth - and we believe that to be the case here with Base Resources Ltd (BSE) as the Kenyan heavy mineral sands miner looks to rebuild value on resurgent commodity pricing, excellent cash flows and strong forecasts rising up in front of them.
Base was formed out of Perth in 2007 and began production in Kenya in 2014 on their Kwale Heavy Mineral Sands mine in Nigeria. Initially their timing was not great as they emerged from first production into softening prices for Rutile, Zircon and Ilmenite, though the high quality nature of their deposit, along with low costs of production saw them weather the downturn and become a more efficient operator with high margins and good profit performance.
While Kwale was initiated with a 13-year mine life projection, we have seen them optimising their strategy to maximise value from current operations while actively working to increase the quality of their reserves – all the while undergoing further extension testing and exploration to build on their position as Kenya’s flagship miner.
Fundamentally a strong performer, Base has seen steadily increasing operational cash flows, with maiden profit achieved this year and sales forecast to ramp up to 2019 before slightly moderating by 2020. That does allow for short-term earnings strength lying dead ahead and should see profits and prices rising – adding confidence to our recommendation is the fact that the company has reduced their debt by half since going cash flow positive in 2014, showing excellent risk management.
Technically they are capable of big moves within long trends and here we are catching them as they pause under 35c resistance with good momentum behind them. We expect volatility to remain as it works through this ceiling but with well-correlated and positive signalling across the long and short-terms timeframes we expect their recovery to continue.
It is easy to see the limited mine life of Kwale as a current weakness for BSE, and admittedly this does limit the longer-term scope of this recommendation, but as management are now working actively to extend their production into the 2nd phase of Kwale, we expect this to improve and add further upside potential. This foundation should also not be ignored as BSE currently has an enviable ability to utilise their strong and improving cash position to add exploration and development targets, meaning there remains plenty of time for Base to build on strength and this could just be the start of a new beginning.