Base Resources Limited Annual Report 2017

Delivering

BASE RESOURCES LIMITED ANNUAL REPORT 2017 baseresources.com.au 1 Contents Introduction

02 04 06 Base Resources’ (ASX & AIM: BSE) successful development of the Kwale Mineral Sands Project in southern Kenya and demonstrated track Highlights Chairman’s letter Operation record of delivering operational, safety and community development summary achievements, provides a solid foundation to grow a contemporary mid- tier resources company.

8 14 16 An optimised life of mine production profile, highly efficient operation and strong cash generation has Base Resources well placed to capitalise on an Sustainability in Business Corporate and improving commodity market and renewed investor interest in the sector. practice development finance With tenure secured and a near-mine exploration program underway, mine life extension now presents a significant opportunity for further 18 20 24 value creation. Marketing and Resources and Corporate Demonstrated mine development capability provides the basis to deliver sales reserves directory further shareholder value from acquisition opportunities.

25 95 Consolidated Additional financial shareholder statements information

FORWARD LOOKING STATEMENTS

Certain statements made in or Kwale Project, provisions and ing statements as a result of, any liability arising from fault, in connection with this Annual contingent liabilities and tax and among other factors, changes in negligence or negligent misstate- Report contain or comprise regulatory developments. economic and market conditions, ment) for any direct or indirect forward-looking statements, success of business and oper- loss or damage arising from any including but not limited to Forward-looking statements in- ating initiatives and strategies, use or reliance on this Annual statements regarding capital volve known and unknown risks, changes in the regulatory envi- Report or its contents, including cost, capacity, future production uncertainties, assumptions and ronment and other government any error or omission from, or and grades, sales projections other factors that are beyond actions, fluctuations in product otherwise in connection with, it. and financial performance of the Base Resources’ control. prices and exchange rates and Kwale Operations, estimated business and operational risk Except as required by applicable mineral resources and ore No representation, warranty, management. To the maxi- regulations or by law, Base reserves, trends in commodity assurance or guarantee can be mum extent permitted by law, Resources does not undertake prices and currency exchange given that such forward-look- Base Resources and its related to publicly update, review or rates, demand for commodities ing statements will in fact be bodies corporate and affiliates, release any revisions to these (in particular mineral sands), achieved or prove to be correct. and their respective directors, forward-looking statements plans, strategies and objectives Results or outcomes could differ officers, employees, agents and to reflect new information or of management, operating costs, materially from those expressed advisers, disclaim any liability future events or circumstances. Base Resources Limited anticipated production life of the or implied by the forward-look- (including, without limitation, ABN 88 125 546 910 3 Base Resources Annual Report 2017 Highlights Highlights Net debt reduced by US$255 average sale price A$76m: from A$204m in achieved per tonne, main FY16 to A$128m at the driver being the rise in end of FY17, improving ilmenite prices financial flexibility

A$21 million maiden net profit after tax (A$42 Continued strong cost million improvement from control – average cost 2016) maintained at US$105 per tonne sold

Outstanding safety Record production for all products - record maintained Rutile: 90,625 tonnes Kwale Phase 2 Project with almost 10 million Ilmenite: 467,359 tonnes approved to drive man-hours completed Zircon: 34,228 tonnes enhanced economics over without a lost-time Zircon low grade: 10,210 tonnes the remaining life of Kwale injury since 2014 Operations

Record A$215.5 million Completion of first revenue, an increase of extensional drilling 28%, lifting group EBITDA programme to extend to A$110m mine life 5 Base Resources Annual Report 2017 Chairman’s letter

Chairman’s letter

Dear Shareholders, of its quality ore body, low cost-base the way for its progressive adoption as asset economics. The introduction of Government revenue. Our model of potential, an outstanding team with a and excellent operational track record, the exclusive mining method over the multiple hydro-mining units and a 69% operations is yielding benefits to Kenya recognised and growing reputation for to emerge in the right shape to benefit coming year. increase in the number of spiral starts in the areas of supply chain development, successful mineral development, an During the year from the strong recovery in the ilmenite in the wet concentrator plant lie at the safety and industrial training approaches, improving commodity price outlook and we have achieved price we have experienced over the past Most importantly, these operational and core of the project, making it a low risk environmental and community opportunities for growth emerging. We 12 months. financial results continue to be achieved enhancement project. engagement benchmarks, agricultural are firmly of the view our cash generation profitability, reduced with an uncompromising focus on the sector development and mining sector and longer-term value proposition have net debt significantly, It is against this backdrop that I am very safety of our people and the operation The KP2 enhancements increase the investment promotion, amongst many yet to be appropriately appreciated by pleased to report that for the 2017 itself. There were no lost time injuries importance of, and the value leverage others. It is in recognition of this broad- equity markets. We are working hard to initiated exploration financial year, the Base Resources group during the past year and only two medical from mine life extensions emerging from based impact and leadership role that in see this change in the year ahead. achieved a maiden net profit after tax treatment injuries in the course of 3.1 the exploration program that is underway. July this year the Kwale Operations were in support of mine-life of $21 million and a record EBITDA I’d like to thank the Board, our people, million hours worked by our employees An expanded exploration tenure was formally granted ‘flagship project’ status of $110m. The strong cashflows have suppliers, local communities and host extension and have and contractors. The Kwale Operation secured a little over a year ago and the within Kenya’s Vision 2030 framework. enabled the reduction in net debt by $76 governments for the steadfast support has not had a lost time injury since first drilling campaign was completed In doing so, Kenya is explicitly seeking begun construction million to $128 million (US$98 million) and commitment you consistently display. February 2014 and our employees and around the South Dune during the 2017 to build on the success of the Kwale at year end, the repayment in full of the I’d like to particularly thank Michael of the Kwale Phase contractors have now worked almost 10 financial year. The next phase of drilling, Operation as it goes about realising its Taurus debt facility in August and an which is planned to commence in early Anderson who recently left the Board, million man-hours LTI free. bold aspirations for what has been a having made a considerable contribution 2 project, which improving financial flexibility. 2018, will be focussed to the north-east of nascent mining industry. With the Kwale Operation performing the Central Dune. We are optimistic that since joining in 2011 in guiding the will drive enhanced Our increased revenues and profitability, to a high standard, a significant focus further mine life extension will result. Looking ahead, the 2018 financial year company through a transformational are reflective of not just rising realised economics over the has shifted to adding value to the assets has a positive outlook. Product markets period. prices but also of our continued sharp These operational and developmental for rutile, ilmenite and zircon have through optimisation of the remaining Finally, thank you to you our shareholders remaining life of Kwale focus on maximised production, achievements of the 2017 financial year returned to balance with conditions life of the mine and the extension of that for your confidence and ongoing support operational consistency, innovation and were made possible by a highly capable, conducive to a continuation of the recent Operations. life. In May, the Board were pleased to as we drive into what I am confident cost management. The year saw record settled and engaged team throughout price improvements. Demand is such approve the Kwale Phase 2 project (‘KP2’) is an increasingly bright future for Our Company is in a robust position and production for all products with over our organisation. Building on our early that we are carrying no inventory from following completion of a compelling, Base Resources. is well-placed to take advantage of an 625,000 tonnes of primary products success in establishing a strongly Kenyan shipment to shipment. On the back of definitive feasibility study. The KP2 improving commodity market with sound exported. After three years of relentlessly workforce at the Kwale Operation of these continuing market conditions project, the majority of which will be long-term fundamentals. improving our cost structures, we have around 97%, our structured training and we look forward to further substantial implemented over the course of the locked in these gains and now have a skills development programme is seeing inroads in our net debt position. 2018 financial year at a capital cost of Shareholders will be only too aware that low, tight and predictable operating cost pleasing progression in the quality of jobs, approximately $31m, will facilitate the since commencing production three years base. The successful introduction of the with a further Kenyan appointment to the I believe our Company is soundly maintaining of production volumes at ago, we have been selling our products hydro-mining method, which has proved management team this year. positioned with the ingredients in place into a depressed international pricing to be more efficient and flexible than around the levels currently achieved to drive significant gains in shareholder environment. Fortunately, our Kwale the current dozer trap mining method, over the remaining life of the mine Representing some 60% of the Kenyan value. We have an outstanding operating Operation in Kenya has been able to particularly when mining the lower through faster mining and processing of mining industry, our impact reaches asset in the Kwale Operations with Keith Spence weather this difficult period, on the back grade, peripheral ore blocks, has paved Ore Reserves, significantly enhancing well beyond simple employment and strong cash generation and extensional CHAIRMAN 7

Operation Base Resources Annual Report 2017 summary Operation summary

Base Resources operates the minerals, is then processed in resulted in record production the mineral separation plant levels for all products during 100% owned Kwale Operations (‘MSP’). The MSP cleans the year. and separates the finished in southern Kenya, which rutile, ilmenite and zircon For a more detailed discussion commenced production in late minerals and removes any of operating performance remaining gangue. refer to the review of 2013. The Kwale Operations are operations contained within As a consequence of the the Directors Report in located 10 kilometres inland from mining units being directly the consolidated financial coupled to the WCP with no statements on page 26. the coast and 50 kilometres south intermediary stockpile, as of Mombasa, the principal port mining volumes vary there KWALE PHASE 2 is a corresponding change in facility for East Africa. the ore feed received by the WCP. Historically, tailings To counter declining ore MINING coming year as part of the constraints in the WCP grades expected from mid- Kwale Phase 2 project. limited mining operations’ 2018 onwards, and to fully ability to significantly increase exploit the increase in MSP Since the commencement As a result of the dual mining volume when mining lower throughput now available, the of the project, mining at the unit strategy, the blended grade ore. Following an Board approved, in May 2017, Kwale Operations has been average ore grade dropped to initial optimisation and the implementation of the based on a conventional dozer 7.09% heavy mineral (‘ ’) HM debottlenecking process Kwale Phase 2 Project. trap mining unit (‘DMU’), (8.31% HM in the prior year) after the introduction of the using Caterpillar D11T dozers and mining volumes were HMU, a significant increase The Kwale Phase 2 project to feed the DMU. The DMU consequently increased from in the WCP throughput was aims to maximise HMC feed has proved well suited to the 9.2 million tonnes (‘ ’) last Mt achieved during the year, to the MSP, and therefore Kwale ore, particularly when year to 11.0Mt to compensate allowing mining volumes maintain final production mining the deeper central for the lower ore grade. to push higher without volumes at around current blocks of the deposit. compromising HM recoveries. levels for the remaining However, when mining PROCESSING life of mine, by increasing However, notwithstanding the lower grade, thinner mining rates as ore grade the higher mined ore volumes perimeter blocks of the ore The plants at the Kwale declines. This will be achieved achieved, production of HMC body, the DMU is unable to Operations are designed through increasing the still declined to 708,404 achieve the same efficiencies to process ore to recover hydraulic mining capacity tonnes for the year (2016: partly due to the need for three separate products – to three 800tph HMU’s, 734,431 tonnes) due to the more frequent relocations rutile, ilmenite and zircon. while gradually phasing out overall impact of the lower between blocks, resulting in Ore is received at the wet the existing DMU. This will average ore grade mined with increased downtime. As a concentrator plant (‘WCP’) increase the combined mining the two mining units. solution, during the year in from the mining units via a rate to 2,400 tonnes per hour, review, a 400 tonnes-per- slurry pipeline. The WCP MSP feed was increased representing an uplift of over The successful hour (‘tph’) Hydraulic Mining removes slimes, concentrates during the year to 764,171 60% compared to the 1,476 Unit (‘HMU’) was introduced the valuable heavy minerals tonnes (2016: 709,443 tonnes per hour in the year introduction of hydraulic to compliment the DMU. (rutile, ilmenite and zircon) tonnes) through a combination under review. The WCP and The HMU has proved to be and rejects most of the of WCP production and draw water supply infrastructure mining during the year has more efficient and flexible non-valuable, lighter down on the HMC stockpile. will be upgraded in parallel than the DMU, particularly gangue minerals. The WCP The higher MSP feed was to accommodate the higher provided the platform for when mining the peripheral incorporates a number of made possible by continued mining rates. ore blocks, and this has paved gravity separation steps using optimisation of the MSP, an increase in mining rate the way for its progressive spiral concentrators. The enabling feed rates to increase Refer to the Business adoption as the exclusive heavy mineral concentrate to 91 tonnes per hour (2016: Development section on into the future mining method over the (‘HMC’), containing 90% heavy 85 tonnes per hour), which page 14. 9

Sustainability Base Resources Annual Report 2017 in practice Sustainability in practice

From project conception through to full-scale production, Base Resources has adopted world-class, sustainable business practices seeking to minimise any negative impacts and maximise positive impacts of its operations for its employees, its host community and more broadly, Kenya.

Base Resources is committed In recognition of the benefits to local communities with 65% drawn from Kwale to complying with Kenyan Company’s demonstrated by giving preference to County. We consider the legislation and international commitment to sustainability project-affected applicants early achievement of local best practice, specifically in practice, for the second year and those residing in the workforce participation to the International Finance running, the Kwale Operations immediate environs of the this extent, in concert with Corporation’s Performance was the proud recipient of mine and assign progressively the operational and safety Standards, the Equator an award from the Kenyan lower priorities to those performance demonstrated, in Principles, World Bank National Environmental living further away through a a country with limited mining Group’s Environmental, Management Authority for ‘fencing’ system established precedents, to be a significant Health and Safety Guidelines, the effort and outcomes in in consultation with the success of which we are International Labour environmental management Government of Kenya and particularly proud. Organisation’s core labour and biodiversity conservation. local community leaders. This standards and the United While expatriates represent system has proved highly Nations Voluntary Principles just 3% of the total in LOCAL EMPLOYMENT effective and of the 972 on Security and Human Rights. employment, Base Resources people directly employed in is committed to further With this approach, Base Base Resources is committed Kenya, including 699 by Base reducing its expatriate Resources is helping to to prioritising employment and 273 by Kenyan service workforce over the coming set sound benchmarks for for Kenyans. Our employment providers contracted to Base years, with a succession effective and responsible system is specifically designed in security, transport, catering programme to ensure the development in Kenya’s to maximise employment and analytical laboratory transfer of specialist skills to emerging mining sector. opportunities and project services, 97% are Kenyan, Kenyan nationals.

EMPLOYMENT DISTRIBUTION CHANGAMWE

MOMBASA 1 Dot = 2 Employees MTONGWE LIKONI Special Mining Lease NGOMBENI Fence 1 KWALE Fence 2 Fence 3 Base Resources is TIWI INDIAN UKUNDA committed to prioritising OCEAN MWABUNGU employment for Kenyans, SHIMBA HILLS with a strong focus on GAZI MSAMBWENI MRIMA skills transfer and career RAMISI development 10km KIDIMU 11 Base Resources Annual Report 2017 Sustainability in practice

Lost time injury ( LTIFR1’)’ and total recordable injury ( TRIFR’)’ frequency rates 3

Western Australia all mines LTIFR 2014/15

2

TRIFR 1 Frequency Rate Frequency

LTIFR 0 Jul 16 Jan 17 Jun 16 Jun 17 Sep 16 Feb 17 Feb Apr 17 Oct 16 Dec 16 Aug 16 Nov 16 Nov Mar 17 May 17 May

SKILLS TRANSFER and has partnered with An integral component of still well below the 2016 has since continued to trend exchange for a social license, sub-committees, including encouraging support from the Company to assist in this focus is an independently Australian average of 4.1%. steadily downward. practically manifested in the one representing the host both national and county the design of co-operative resettlement site at Bwiti. Base Resources has structured run annual survey, open to The voluntary staff turnover provision of proud, motivated Kenyan governments. These workplace training and all employees. The objective rate for the year in review was The Kwale Operations’ safety employees, security, support programmes, covering training and skills transfer Through close collaboration development programmes. of the survey is to establish a also very low at 1.4%, down performance continues and a positive reference for cotton, potato and poultry, programmes covering on-the- with the liaison committees, workplace cultural baseline from the prior year’s 1.7%. to be an outstanding future projects. now involve around 900 job training for permanent In the past three years, Base community priorities have represented by current The Kwale Operations have achievement by first-world smallholder farmers and employees, and also extending Resources has committed In accordance with Base been identified as capacity worker behaviours and not recorded any industrial mining operation standards, community groups with the to tailored programmes a considerable budget of building, meeting basic needs perceptions and identify key let alone for an emerging Resources’ Stakeholder for graduates, interns, action since commencement ultimate aim being to establish $2.5 million in workforce mining jurisdiction. Engagement Plan, the such as health and education, areas for improvement and of operations. new agricultural opportunities apprentices and high school training and development. and establishing physical action towards our desired Company has established students, providing a platform that will provide economic This investment reflects the COMMUNITY a number of committees to infrastructure to improve workplace culture, described SAFETY growth well beyond the life of for systematic and rapid Company’s commitment standards of living. as the ‘Base Way’. Regular ENGAGEMENT & act as an interface between transfer of knowledge and mining activities. to skills transfer and DEVELOPMENT the business and affected surveys have been conducted In targeting these priorities, skills to Kenyans. There are development of Kenyan staff, Throughout the construction, since the commencement communities. This is an The Kwale cotton project has 41 Kenyan interns, graduate commissioning and operation Base Resources continues to for the benefit of not only important tool for managing proved particularly successful of operations and have Base Resources understands engage in constructing social trainees and apprentices Base Resources, but also to of Kwale, Base Resources seen response rates of that achieving its long-term expectations, addressing infrastructure, improving to date, with the number of currently in the Company’s help build national capacity has entrenched a first-world, between 70% and 80%, a goals is predicated on building grievances or concerns, and community health, providing participating farmers growing training programmes. to underpin the development best-practice safety culture. In pleasing participation rate beneficial relationships with establishes a mechanism for educational opportunities, exponentially each year since of Kenya’s emerging this regard, Base is very pleased The programmes focus not for voluntary surveys of this the communities in which it achieving more participatory and an increasing emphasis its commencement. After mining sector. to finish another year with no only on employees, but also type and indicative of our operates and establishing and inclusive solutions. These achieving a critical mass serious injuries occurring and on leading livelihood on building skills capacity workforce’s engagement and a balanced flow of committees also play a major this year, a cotton farmers’ EMPLOYEE Kwale Operations’ LTIFR has improvement programmes in the broader community. desire to contribute. mutual benefit. role in identifying community cooperative was established ENGAGEMENT remained once again at zero. through the introduction of To complement classroom development priorities. commercial agriculture. These to assist in the administration In addition to productivity Base Resources employees and As communities affected learning, Base Resources has programmes are aligned of all facets of production and safety performance, contractors have now worked by the Kwale Operations The committees are made partnered with the Technical Base Resources places with, and integrated into, the and sale. During the year, a absenteeism, staff turnover almost 10 million man-hours play an integral role in the up of affected stakeholders, University of Mombasa to significant emphasis on Kwale County Government’s consignment of 30 tonnes and industrial action are LTI free, with the last LTI Company’s overall success, community leaders provide opportunities for establishing and developing a integrated development plan. of Kenyan cotton lint was key indicators of employee recorded in February 2014. Base Resources engages representing women, youth technical trades apprentices highly engaged, satisfied and exported to Bangladesh for motivated workforce, with satisfaction and motivation as with its local communities and the disabled, Members Agricultural livelihood to gain the necessary practical After a concerning rise in further processing on behalf of the operational performance well as sources of competitive in a structured and inclusive of the County Assembly, programmes, run in experience in the workplace. minor medical treatment clothing retailer Cotton On. achieved to date, across cost advantage. An absenteeism manner. In this way, the religious leaders, government conjunction with partners injuries in the early part 2016 Kenya’s National Industrial production, safety and cost rate of 2.4% was recorded community benefits from and county level lead agencies Business for Development, Reflecting the quality, scope financial year, a number of Training Authority has management, reflective of for the year under review, a series of sustainable and administrators. These DEG, FMO, Australia’s and potential of these initiatives were successfully recognised the value of Base our success in developing our marginally higher than development and livelihood forums are further supported DFAT and Kenya Red Cross agricultural programmes to implemented and the TRIFR Resources programmes human capital. the prior year’s 2.3%, but improvement programmes in by several special interest continue to develop with drive regional socio-economic 13 Base Resources Annual Report 2017 Sustainability in practice

ƒƒ Water Supply: for a further 550 students year and rehabilitation and has been successfully 13 boreholes sunk and fully at both secondary and stabilisation of the external restored. equipped. tertiary levels. walls commenced shortly After locating project thereafter. Water retention infrastructure so as to avoid ƒƒ School Sports Programmes: ƒƒ Drought Relief: During layers and top soil deposition encroachment into the In collaboration with an the past year, Kenya has has been completed for a area, drainage from the TSF NGO, Base Resources experienced significant 500 metre stretch and grass was directed to flow into aims to improve pupils’ drought conditions. Base seeding is underway. Seeds the former wetland and performance through Resources has assisted are collected by, and top soil indigenous sedges and other building and enhancing life the local community erosion control materials are aquatic vegetation planted. skills and environmental in this time of need by sourced from, local women’s awareness using the providing 29 tonnes of groups, thereby providing The wetland now provides medium of sport and relief food in collaboration significant incomes for villages an ideal habitat for both enjoyment. The programme with the Kwale County surrounding the mine site. floral and faunal species is currently running in Government, local civil of significant conservation 25 schools and engaging society organisations and Establishment of a importance. Amphibian 16,000 students on a Kenya Red Cross. Biodiversity Corridor and reptile monitoring weekly basis. The Base approach to, and found that the restored Base Resources commitment ƒƒ Community Health: investment in, community wetlands now support to operating in a sustainable Providing training for development is having real and permanent populations of and environmentally community health workers, felt impacts, and consequently, the endangered Shimba responsible manner includes equipping medical facilities we enjoy strong community Hills Reed Frog (Hyperolius improving biodiversity and and supporting vaccination support. rubrovermiculatus) and promoting conservation and general health other fauna and flora of ENVIRONMENT and sustainability in the campaigns. conservation importance. region. During the year, work continued on the Furthermore, monitoring ƒƒ Community Groups Our community development of new institutions and development of a corridor shows that a number of key Training: Base Resources program is being matched refurbishment or upgrading to bridge several remnant insect populations continue to provided maritime training by our high standards of of existing facilities. patches of indigenous forest thrive in various wetland areas for Kibuyuni community environmental management within the mining lease to around the mine site. These ƒƒ Medical Facilities: located near the Likoni port and performance. The the nearby Gongoni Forest insects are a key component Constructed and equipped facility. Together with the Company operates a Reserve. Over 47,000 trees in maintaining healthy aquatic the Bwiti Dispensary and Dzarino Community Based comprehensive environmental propagated in Base Resources’ environments. Magaoni Health Centre, and Training Organisation, management system, and indigenous tree nursery, during the year, work was Base Resources runs has had no environmental Recycling Programme including more than 8,800 completed on a joint project economic empowerment incidents during the year training programmes for classified as being species to build a local hospital- under review. Recycling wood, metal development, additional community groups to equip of conservation significance based blood bank facility. and plastic from various financial support has been them with basic economic Work progressed on several and 1,400 classified as Base Resources also worked applications at the mine site secured with a number of skills to assist in initiating Base Resources programs critically endangered, with the Mombasa County is used by Base Resources organisations, including business start-ups and aimed at rehabilitating have been planted in the Government and other recycling team to construct the Australian Government entrepreneurial activities. impacted areas, improving designated corridor. This organisations to complete furniture, water tanks, bee and FMO. local biodiversity, and program aims to restore in the a maternity wing at the hives and children’s school ƒƒ Scholarships: During promoting conservation and Kwale Operations footprint knapsacks. These have been In addition to the agricultural Likoni Sub-County Hospital, the year, Base Resources sustainability, with some threatened indigenous tree donated to nearby schools, livelihood programmes, to incorporating delivery rooms, continued its own notable examples being: species otherwise lost to community organisations, date, over 130 individual theatres and in-patient wards, scholarship programme the region. Rehabilitation of the orphanages and institutions projects have been completed, addressing a critical need as with 1,050 secondary TSF Walls Wetland Restoration for the disabled. including: expressed by the community. school awards given and In addition, Base Resources 600 tertiary placements ƒƒ Schools: 28 educational provided a four-wheel-drive supported to date. In Sections of the tailings An ephemeral wetland infrastructure projects ambulance to Kwale County addition, partnerships storage facility (‘TSF’) sand that had remained dry for a have been undertaken, health authorities to service with educational NGO’s walls reached full height number of years prior to the including construction hard to reach communities. continue providing support in the second half of the commencement of operations 15 Kwale Operations was three The implementation schedule Operations, was completed TANZANIA HMUs mining at an average will see the second and third during the year. This Base Resources Annual Report 2017

rate of 800tph each to give a 800tph HMUs commissioned program, which saw a total of During the year under review, Business development combined total of 2,400tph. in the June quarter of 2018. 750 holes for 11,435 metres Base Resources secured The three HMUs will ramp drilled in the lower-grade exploration tenure over At the lower ore feed grades up to full capacity (2,400tph) Kwale South Dune orebody, and higher mining rates a significant land area in through the course of 2018, successfully delineated northern Tanzania with the anticipated from mid-2018, with the DMU gradually mineralised extensions to the approval of five licenses with the WCP must also be being phased out over the south and east of the existing a combined area of 475km2. upgraded to maintain optimal same period. Engineering and resource boundary and has The area was identified heavy mineral recoveries. design work for the transition delivered an overall increase through a prospectivity review A comprehensive pilot of mining from the Central to the Kwale South Dune and subsequent confirmatory plant program and spiral Dune to the South Dune will Mineral Resource estimate of reconnaissance work. The modelling work established commence in mid-2018, with 30% for total material tonnes exploration licenses lie that a 69% increase in the construction completion and 14% for HM tonnes. This approximately 50km south of number of spirals is required scheduled for the second half first area was prioritised the Kenyan border and 100km to accommodate the mining of 2019. on the basis of needing to from Base Resources’ Kwale rates contemplated under the be incorporated into the Operations. KP2 mining plan. In addition, The estimated capital cost to South Dune mine plan ahead modifications and equipment complete the transition from of mining commencing in The necessary consents and upgrades are required to the Central Dune to the South late 2019. clearances ahead of a planned the primary screens, feed Dune and implement KP2 is preliminary stratigraphic de-sliming circuit, tailings US$32.6 million. The next phase of exploration drilling programme across Business drilling, focussed on the cyclones, various pumps and all five licenses are in place The implementation of KP2, piping. Other than increasing north-east sector, adjacent to and field work is scheduled to with the resultant increase the high-grade Kwale Central the capacity of the overflow commence in the coming year. in mining rates and faster Dune orebody, is expected to pipework, tests confirm the consumption of ore reserves commence early in 2018. The location of this tenure development capability of the two existing at the Kwale Operations, presents the opportunity thickeners to manage the places a sharp focus on near- In addition, the Company has for either standalone increased solids loading at mine exploration to extend the also applied for an additional project development or the higher KP2 mining rate. life of the mine. SPL covering an area of satellite development in Changes to the WCP process 2 136km extending south west conjunction with the existing Three significant initiatives are underway with the flow sheet are minimal. No EXTENSIONAL from SPL 173 towards the Kwale Operations, giving a changes are required to EXPLORATION - KENYA objective of further enhancing the already significant Tanzanian border. This license wider range to potentially the MSP. application is advancing economically viable mineral value of the Kwale Operations. through the granting process Existing off-site and on-site Drilling in the first of two discovery. having been approved by the infrastructure is sufficient prospective areas identified on Special Prospecting licensing committee of the to support operations under License 173 (‘ ’), which Kenyan Ministry of Mining. the KP2 mine plan, with the SPL173 CHANGAMWE KWALE PHASE 2 the declining ore grades from the exploration existing DMU to achieve now covers an area of 177km2 exception of the water supply EXTENSIONAL in the current Ore programme that is the targeted mining rate. surrounding the Kwale infrastructure. The water EXPLORATION - Reserve through the de underway. Operating multiple mining Following completion of supply constraints of the constraining of the mine units also has the additional the Definitive Feasibility KP2 mine plan are largely and concentrator plant. Historically, when mining benefit of being able to Study (‘DFS’), the Board has the high-grade areas of the eesthe product of the daily concurrently mine both the MAGAONI approved implementation ƒƒ Faster mining and Special Mining easeextraction limits from the Kwale Central Dune, mining high and low-grade ore, which KWALE SPL173 of the Kwale Phase 2 processing of Ore ence 1 Mukurumudzi Dam imposed rates of up to 1,400tph have assists in smoothing the project (‘KP2’) at the Kwale Reserves over a 24-month ence 2 by licence conditions. To KWALE OPERATIONS been required to ensure grade profile to create a more Operations. The DFS ence 3 MINING LEASE SML23 shorter period, eliminating the WCP is fully utilised. To overcome this constraint, the confirmed the opportunity for consistent feed to the WCP. approximately US$60 offset the declining ore grades existing Gongoni borefield is significant improvement in million in fixed costs, In August 2016, as part of being expanded. expected from mid-2018, the GAZI the financial returns for Kwale with a commensurate the DFS, a 400tph HMU was original mine development Construction is scheduled KWALE SOUTH Operations through further reduction in average RAMISI plan assumed an increase in commissioned to trial the for completion in the June DUNE EXTENSION optimisation of the remaining operating cost per tonne the mining rate to 1,800tph. concept. The HMU has proven quarter of 2018 after a one mine life. produced and significantly INDIAN The KP2 pre-feasibility study to be extremely well suited to month shut of the WCP to enhancing project OCEAN determined that the optimal mining Kwale ore, achieving tie in the plant modifications The key benefits of KP2 are: economics compared with VANGA mining rate to maximise the higher availabilities and at and equipment upgrades. the current mine plan. ƒ Bringing forward of ƒ economic returns of Kwale lower unit operating costs Ahead of the WCP shut, VANGA SPL revenue by maintaining ƒƒ Increases the importance Operations was 2,400tph than the DMU. Following HMC stock levels will be current production levels of, and value leverage and also identified hydraulic the success of the HMU trial, managed to ensure that MSP 10km for the remainder of the from, potential mine life mining as the preferred the DFS concluded that the production continues without SHIMONI mine life, overcoming extensions emerging method to complement the optimal mining setup for interruption during this time. 17 Base Resources Annual Report 2017 Corporate and finance

During the 2017 financial year, the Company saw a significant A$76 million reduction in net debt

Corporate and finance

NET DEBT REDUCTION US$25.4 million were the Taurus Facility, reducing anticipated to occur over the distributed from the Kwale the outstanding balance to next 12 months. During the 2017 financial year, Operation, with half (US$12.7 US$11.8 million at year end. million) going towards KENYAN VAT the Company saw a significant RECEIVABLE mandatory early repayment RETIREMENT OF THE $76.0 million (US$53.0 TAURUS FACILITY million) reduction in net debt of the Kwale Facility and the Base Resources has refund made possible by the strong other half distributed up to Subsequent to year end, claims for VAT paid in operating cash flows of $100.2 Base Resources Limited. The in July 2017, following the Kenya, relating to both the million generated by the combination of scheduled debt approval of Kwale Facility construction of the Kwale Kwale Operations. Net debt repayments and Cash Sweeps lenders to waive their Project and the period since had been reduced to $128.2 resulted in repayment of entitlement to 50% of the July operations commenced, million (US$98.5 million) at US$39.3 million of the Kwale 2017 Cash Sweep, US$14.8 totalling approximately year end. Facility during the period, reducing the outstanding million was distributed to Base US$19.7 million at 30 June The surplus free cash balance to US$141.2 million at Resources. Base Resources 2017. These claims are generated by the Kwale year end. applied US$11.8 million of proceeding through the Kenya Operations, after debt the Cash Sweep to retire Revenue Authority process, servicing, may be distributed Prior to final maturity, under the Taurus Facility, with with a number of operational the terms of the Taurus Debt (a ‘Cash Sweep’), in equal the remainder available for period claims, totalling parts, as early repayment of Facility (‘Taurus Facility’) held corporate funding. approximately US$2.4 million, the Kwale Operations Debt by Base Resources Limited, settled during the year under repayments are only required Under the terms of the waiver Facility (‘Kwale Facility’) and review. Base Resources is granted, the Kwale Facility to the Australian parent entity, to be made from the Cash continuing to engage with lenders proportion of future Base Resources Limited, Sweeps received by Base the Kenyan Treasury and the six-monthly Cash Sweeps on six monthly intervals as Resources Limited. Of the Kenya Revenue Authority, from Kwale Operations permitted by the terms of the US$12.7 million Cash Sweep seeking to expedite the will increase to 75% until Kwale Facility. During the received by Base Resources remainder of the refund. the US$7.4 million waived year, Cash Sweeps totalling Limited, US$8.2 million was applied towards repayment of has been repaid, which is 19 Base Resources Annual Report 2017 Markets, sales and outlook

Markets, sales However, the rapid increase ilmenite imports into China ZIRCON resulting in steady demand in price drove an influx of from Vietnam during the for zircon. A sharp decline in September 2017 quarter. zircon prices in the second ilmenite imports into China Zircon has a range of end- through the second half of the half of the 2016 financial Conditions for rutile also uses, the largest of which is reporting period, which, when year led to a fall in production continued to tighten through in the production of ceramic and outlook combined with increasing and excess stocks being the course of the year under tiles, which accounts for Chinese domestic ilmenite consumed by downstream review, although higher more than 50% of global production, resulted in users in the first half of the inventory levels and some zircon consumption. Milled mounting pressure on prices reporting period. Limited excess production capacity zircon enables ceramic tile ILMENITE AND RUTILE Global consumption of through the year under inspections in the main towards year end. Chinese inventory of zircon, combined resulted in only modest price manufacturers to achieve pigment has maintained a review, resulting in a series of ilmenite producing region domestic ilmenite prices with the strategy of major improvement towards the brilliant opacity, whiteness long-term average growth rate price increases over the year, of China (Panzhihua) during retreated through June 2017 producers to manage supply Ilmenite and rutile are primarily end of the 2017 financial year. and brightness in their closely correlated to global with further pigment price the first half of the reporting to match demand, caused used as feedstock for the and this led to discounting of Since year end, price gains of products. Zircon’s unique GDP growth of approximately increases taking place through period led to temporary, and a rapid tightening of the production of titanium dioxide imported ilmenite prices in the approximately 10% have been properties include heat and 3% per annum. However, the September 2017 quarter. some permanent, closures of market and by the December (‘TiO ’) pigment, with a small early part of the September reported for bulk rutile sales wear resistance, stability, 2 volatility in the global economy several ilmenite operations. 2016 quarter, prices began percentage also used in the 2017 quarter. for delivery in the first half of opacity, hardness and in recent years has created The ilmenite feedstock market In addition, supply of ilmenite to increase for the first time production of titanium metal the 2018 financial year where strength. These properties significant fluctuations in tightened as demand from from a major producing region A further round of since 2012. Firm demand and and fluxes for welding rods and contract renewals allow. mean it is also sought after this growth rate, manifesting the Chinese pigment industry in India (Tamil Nadu) has been environmental compliance restricted supply has resulted wire. TiO is the most widely for other applications such in zircon prices continuing 2 in big swings in inventory increased rapidly. At the suspended since the December inspections through the In the absence of substantial used white pigment because as refractories, foundries and to improve through the levels throughout the entire same time supply of ilmenite 2016 quarter, due to political September 2017 quarter new feedstock supply coming of its non-toxicity, brightness specialty chemicals. remainder of the reporting pigment supply chain. Excess from major sources remained issues. This combination of significantly restricted online, the titanium dioxide period and contracts for and very high refractive index. TiO pigment inventories in constrained, including Chinese factors resulted in ilmenite production of Chinese feedstock market is expected Demand growth for zircon 2 the first two quarters of the It is an essential component the downstream supply chain ilmenite production, which is a prices increasing strongly domestic ilmenite and to remain in a structural is closely linked to growth 2018 financial year have seen of consumer products such were finally exhausted by by-product of iron ore mining throughout the reporting ilmenite prices have since supply deficit, providing an in global construction and, successive gains of more than as paint, plastics and paper. the end of last year, resulting and remained suppressed period. Prices for Base begun to recover strongly. opportunity for continued in particular, the increasing 15% in each quarter. Pigment demand is the in a significant tightening of due to low iron ore prices. Resources’ ilmenite increased The resurgent ilmenite price strength in both urbanisation of the developing main driver of ilmenite and the market. Pigment demand In addition, widespread by over 250% between May price has also been assisted ilmenite and rutile over the world with both accelerating rutile pricing. continued to strengthen environmental compliance 2016 and June 2017. by a significant drop in coming years. over the past year or two, 21 Base Resources Annual Report 2017 Resources and reserves

Table 1: 1% HM cut-off Mineral Resources estimate for the Kwale Operations at 30 June 2017 compared with the 2016 Mineral Resources estimate.

2017 2016

HM ASSEMBLAGE HM ASSEMBLAGE IN SITU IN SITU MATERIAL HM HM SL OS ILM RUT ZIR MATERIAL HM HM SL OS ILM RUT ZIR CATEGORY (Mt) (Mt) (%) (%) (%) (%) (%) (%) (Mt) (Mt) (%) (%) (%) (%) (%) (%) CENTRAL DUNE Measured 24.9 1.36 5.5 24 0 58 13 6 35.4 2.13 6.0 24 0 59 13 6 Indicated 8.3 0.32 3.9 26 2 58 14 6 10.7 0.42 3.9 26 2 59 14 6 Total 33.3 1.68 5.1 25 1 58 14 6 46.1 2.55 5.5 24 1 59 13 6 SOUTH DUNE Measured 81.2 2.63 3.2 25 2 58 13 6 42.9 1.66 3.9 27 2 59 14 6 Indicated 32.7 0.84 2.5 26 5 53 12 6 40.8 1.25 3.1 26 5 52 13 6 Resources and Inferred 0.2 0.003 1.3 27 2 52 15 7 4.8 0.16 3.2 23 2 57 14 6 Total 114.1 3.47 3.0 25 3 57 13 6 88.5 3.07 3.5 26 3 56 13 6 TOTAL MINERAL RESOURCES Measured 106.1 3.99 3.8 25 1 58 13 6 78.3 3.79 4.8 26 1 59 13 6 reserves Indicated 41.0 1.16 2.8 26 4 54 13 6 51.5 1.67 3.2 26 4 54 13 6 Inferred 0.2 0.003 1.3 27 7 52 14 6 4.8 0.16 3.2 23 2 57 14 6 Total 147.3 5.15 3.5 25 2 57 13 6 134.6 5.62 4.2 26 2 57 13 6

Table subject to rounding differences MINERAL RESOURCES material containing 0.87Mt of 5.15Mt HM, based on a 1% Mining has not yet in situ HM and the inclusion of HM cut-off grade. commenced on the South the 2017 Kwale South Dune Dune deposit and its Ore The 2017 Kwale Mineral ORE RESERVES Table 2: Ore Reserves estimate for the Kwale Operations at 30 June 2017 compared with the 2016 Ore Reserves estimate. Mineral Resources update. Resources as at 30 June 2017, Reserve estimate is yet to with the 2016 Ore Reserves estimate. be updated to reflect the are estimated to be 147.3Mt at The 2017 Kwale South Dune The 2017 Kwale Ore 2017 2016 an average HM grade of 3.5% increased 2017 Kwale South Mineral Resources update Reserves as at 30 June 2017, Dune Mineral Resources HM ASSEMBLAGE HM ASSEMBLAGE and 25% slimes containing was completed after 30 June incorporates mining depletion estimate. Work to determine IN SITU IN SITU 5.15Mt HM, based on a 1% 2017, but is included in Table ORE HM HM SL OS ILM RUT ZIR ORE HM HM SL OS ILM RUT ZIR for the year and are estimated an indicative economic pit CATEGORY (Mt) (Mt) (%) (%) (%) (%) (%) (%) (Mt) (Mt) (%) (%) (%) (%) (%) (%) HM cut-off grade. 1 for completeness as mining to be 91.3Mt at an average shell for the updated 2017 of the South Dune deposit has CENTRAL DUNE The 2017 Kwale Mineral HM grade of 4.3% and 26% Kwale South Dune Mineral not yet commenced. The 2017 Proved 22.6 1.30 5.7 24 0 59 13 6 32.5 2.03 6.2 24 0 59 13 6 Resources estimate slimes containing 3.90Mt Resource estimate will be Kwale South Dune Mineral of HM. Probable 7.1 0.29 4.1 26 1 59 13 6 8.4 0.35 4.1 26 1 59 13 6 represents an increase undertaken during the 2018 Resources update reflects the of 12.7Mt or 9% for total financial year, which will Total 29.7 1.59 5.3 24 1 59 13 6 40.9 2.37 5.8 24 1 59 13 6 results from extensional and The 2017 Kwale Ore Reserves material tonnes and a then form the basis for the SOUTH DUNE infill drilling completed during estimate represents a decrease of 0.47Mt or 8% for application to the Kenyan the year and adds 25.6Mt of decrease of 11.2Mt or 11% in Proved 38.9 1.56 4.0 27 1 59 14 6 38.9 1.56 4.0 27 1 59 14 6 contained HM tonnes over Ministry of Mines (‘MoM’) for material containing 0.40Mt of total ore tonnes and 0.78Mt or Probable 22.7 0.75 3.3 26 5 53 13 6 22.7 0.75 3.3 26 5 53 13 6 the previously reported 2016 an extension of mining tenure. in situ HM. 17% in contained HM tonnes Total 61.6 2.31 3.8 27 3 57 13 6 61.6 2.31 3.8 27 3 57 13 6 Kwale Mineral Resources over the previously reported This tenure will, preferably, estimate. The 2017 Kwale The 2017 Kwale Mineral 2016 Kwale Ore Reserves take the form of an extension TOTAL ORE RESERVES Mineral Resources estimate Resources as at 30 June 2017, estimate, after allowing for to the existing Special Mining Proved 61.5 2.86 4.6 26 1 59 14 6 71.4 3.58 5.0 26 1 59 13 6 factors in depletion by mining are estimated to be 147.3Mt at depletion by mining of the License 23 or, alternatively, Probable 29.8 1.04 3.5 26 4 55 13 6 31.1 1.10 3.5 26 4 55 13 6 of the Central Dune deposit an average HM grade of 3.5% Central Dune deposit during could involve the granting Total 91.3 3.90 4.3 26 2 58 13 6 102.5 4.68 4.6 26 2 58 13 6 during the year of 12.8Mt of and 25% slimes containing the year. of a new mining license. Table subject to rounding differences 23 Base Resources Annual Report 2017 Resources and reserves s

Which of these alternatives • Use of an external and supporting documentation eventuates could be expected Competent Person to prepared by Mr. Richard to have an impact on the assist in the preparation Stockwell and Mr. Scott fiscal parameters applying of field and sample Carruthers. Mr. Stockwell is to the extensional resources preparation data collection a member of the Australian and therefore the economic procedures and QA/QC Institute of Geoscientists and parameters applied for protocols Mr. Carruthers is a Member conversion to Ore Reserves. of The Australasian Institute Consequently, completion of • Use of external Competent of Mining and Metallurgy. Mr. an updated Ore Reserve for Persons to assist in Stockwell acts as Consultant the South Dune deposit will the preparation and Geologist for Base Resources be subject to finalisation of peer review of JORC and Mr. Carruthers is employed mining tenure arrangements Mineral Resources updates by Base Resources and owns with the MoM. Ore Reserves 147,171 Base Resources shares. Both Mr. Stockwell MINERAL RESOURCES and Mr. Carruthers have & ORE RESERVES • Review of potential sufficient experience that GOVERNANCE mining methodology to suit is relevant to the style of deposit and mineralisation mineralisation and type of characteristics A summary of the governance deposits under consideration and internal controls • Review of potential and to the activity which they applicable to Base Resources are undertaking to qualify Modifying Factors, is employed by Entech, a Mineral Resources and Ore as Competent Persons as including cost assumptions mining consultancy engaged Reserves processes are as defined in the 2012 Edition and commodity prices to be by Base Resources to prepare follows: of the Australasian Code for utilised in mining evaluation Ore Reserves estimation for Reporting of Exploration Mineral Resources the Kwale Operations. Mr. • Ore Reserves updates Results, Mineral Resources and Carruthers is employed by intimated with material Ore Reserves (JORC Code). Mr. • Review and validation Base Resources and owns changes in the Stockwell and Mr. Carruthers of drilling and sampling 147,171 Base Resources above assumptions consent to the inclusion in this methodology and data shares. Mr. Scrimshaw report of Mineral Resource spacing, geological logging, • Optimisation using and Mr. Carruthers have estimates and supporting data collection and appropriate software sufficient experience that information in the form and storage, sampling and packages for open is relevant to the style of context in which it appears. analytical quality control pit evaluation mineralisation and type of Ore Reserves deposits under consideration • Geological interpretation • Design based on and to the activity which they – review of known and optimisation results are undertaking to qualify The information in this interpreted lithology and as Competent Persons as • Use of external Competent report that relates to weathering controls defined in the 2012 Edition Persons to assist in Ore Reserves is based of the Australasian Code for • Estimation methodology the preparation of JORC on, and fairly represents, Reporting of Exploration – relevant to mineralisation Ore Reserves updates information and supporting Results, Mineral Resources style and proposed mining documentation prepared COMPETENT PERSONS and Ore Reserves (JORC methodology by Mr. Per Scrimshaw (for STATEMENTS Code). Mr. Scrimshaw and South Dune deposit) and • Comparison of estimation Mr. Carruthers consent to Mr. Scott Carruthers (for results with previous the inclusion in this report of Mineral Resources Central and South Dune mineral resource models Ore Reserve estimates and deposits). Mr. Scrimshaw supporting information in the • Validation includes visual The information in this and Mr. Carruthers are both form and context in which comparison of block report that relates to Mineral Members of The Australasian it appears. model against raw and Resources is based on, and Institute of Mining and composite data fairly represents, information Metallurgy. Mr. Scrimshaw Corporate directory Consolidated financial 25 statements

DIRECTORS AUDITORS 26 36 54 Mr Keith Spence, KPMG Non-Executive Chairman 235 St Georges Terrace Perth WA 6000 Director’s Remuneration Corporate Mr Tim Carstens, report report - audited governance Managing Director SHARE REGISTRY Mr Colin Bwye, Executive Director ASX: Mr Samuel Willis, Non-Executive Director Computershare Investor Services Pty Limited 63 64 65 Level 11, 172 St Georges Terrace Mr Malcolm Macpherson, Perth WA 6000 Lead Auditor’s Consolidated statement Consolidated statement Non-Executive Director Enquiries: (within Australia): 1300 850 505 Independence of profit or loss & other of financial position Mr Mike Stirzaker, (outside Australia): +61 (3) 9415 4000 Declaration comprehensive income Non-Executive Director Website: www.computershare.com.au

COMPANY SECRETARY AIM: Computershare Investor Services PLC 66 67 68 Mr Chadwick Poletti The Pavilions Bridgwater Road Consolidated statement Consolidated statement Notes to the Bristol BS99 6ZZ of changes in equity of cash flows consolidated PRINCIPAL PLACE OF BUSINESS AND REGISTERED OFFICE Enquiries: +44 (0) 870 702 0003 financial statements Website: www.computershare.co.uk Level 1 50 Kings Park Road NOMINATED ADVISOR West Perth WA 6005 90 91 95

RFC Ambrian Limited CONTACT DETAILS QV1 Building Director’s Independent Additional shareholder 250 St Georges Terrace declaration auditor’s report information Website: www.baseresources.com.au Perth WA 6000 Email: [email protected] Phone: + 61 (8) 9413 7400 JOINT BROKERS Fax: + 61 (8) 9322 8912

RFC Ambrian Limited SOLICITORS Condor House 10 St Paul’s Churchyard Ashurst Australia London EC4M 8AL Brookfield Place Tower II Numis Securities Limited Level 10 & 11, 123 St Georges Terrace The London Stock Exchange Building Perth WA 6000 10 Paternoster Square London EC4M 7LT Director’s 27 Base Resources Annual Report 2017 report Director’s report

Your directors present their report, together with the financial statements of the Group, being the Company, Base Resources Limited, and its controlled entities for the financial year ended 30 June 2017 (the “reporting period”) compared with the year ended 30 June 2016 (the “comparative period”).

DIRECTORS in the nature of the Group’s Mining Unit (‘HMU’) to more ore grade dropped to 7.09% principal activities during the efficiently mine the thinner, heavy mineral (‘HM’) (8.31% The names of the directors in reporting period. lower grade perimeter blocks, HM in the comparative office at any time during or while the existing dozer period). Mining volumes were trap mining unit (‘DMU’) consequently increased from since the end of the year are: OPERATING RESULTS continued to mine the higher 9.2Mt in the comparative Mr Keith Spence grade central ore blocks. As a period to 11.0 million tonnes Mr Tim Carstens The Group recorded a profit result of the dual mining unit (‘Mt’) in the reporting period Mr Colin Bwye after tax of $21,030,509 for strategy, the volume of low to compensate for the lower Mr Samuel Willis the reporting period grade ore mined increased ore grade. Mr Michael Anderson (2016: $20,918,682 loss). and the blended average Mr Malcolm Macpherson Mr Mike Stirzaker DIVIDENDS PAID Mining and WCP Performance 2017 2016 OR RECOMMENDED Directors have been in office Ore mined (tonnes) 11,014,939 9,202,554 since the start of the financial Heavy mineral (HM) % 7.09% 8.31% year to the date of this report There were no dividends paid or declared for payment WCP Heavy mineral concentrate unless otherwise indicated. production (tonnes) 708,404 734,431 during the reporting period.

COMPANY SECRETARY The Kwale Operation is minerals, is then processed in REVIEW OF OPERATIONS designed to process ore the mineral separation plant The following person held the to recover three separate (‘MSP’). The MSP cleans and position of company secretary products – rutile, ilmenite separates the rutile, ilmenite Base Resources operates the at the end of the financial year: and zircon. Ore is received at and zircon minerals into To exploit the increase in grade declines. This will be MSP Performance 2017 2016 100% owned Kwale Operation the wet concentrator plant finished products for sale. MSP throughput achieved achieved through increasing MSP feed (tonnes of heavy Mr Chadwick Poletti in Kenya, which commenced (‘WCP’) from the mining and counter declining ore the hydraulic mining capacity mineral concentrate) 764,171 709,443 production in late 2013. The units via a slurry pipeline. Despite the increase in grades expected from to three 800tph HMU’s, Kwale Operation is located mining volume, production mid-2018 onwards, in May with the existing DMU MSP feed rate (tph) 91 85 PRINCIPAL ACTIVITIES The WCP removes slimes, AND SIGNIFICANT 10 kilometres inland from concentrates the valuable of HMC fell to 708,404 2017, following completion gradually phased out, lifting MSP recovery % CHANGES IN NATURE the Kenyan coast and 50 heavy minerals (rutile, tonnes, lower than the prior of the definitive feasibility the combined mining rate Ilmenite 100% 104% OF ACTIVITIES kilometres south of Mombasa, ilmenite and zircon) with a period’s 734,431 tonnes study, the board approved to 2,400tph (1,476tph in Rutile 97% 101% the principal port facility for due to the lower mined ore number of gravity separation implementation of the Kwale the reporting period). WCP Zircon 73% 69% East Africa. grade. The HMC stockpile The principal activity of the steps and rejects most of Phase 2 (‘KP2’) project. The and tails management will Production (tonnes) was drawn down during objective of the KP2 project be upgraded in parallel to Group is the operation of the During the reporting period, the non-valuable, lighter Ilmenite 467,359 455,870 the year to 83,632 tonnes is to maximise HMC feed accommodate the higher 100% owned Kwale Mineral mining operations successfully gangue minerals to produce Rutile 90,625 85,654 Sands Operation (‘Kwale a heavy mineral concentrate (139,364 tonnes at 30 June to the MSP, and therefore mining rates. commissioned a 400 tonnes Zircon 34,228 31,389 Operation’) in Kenya. There (‘HMC’). The HMC, containing 2016) due to the lower HMC final production volumes, by per hour (“tph”) Hydraulic Zircon low grade 10,210 - were no significant changes approximately 90% heavy production and increased MSP increasing mining rates as ore throughput. Director’s 29 Base Resources Annual Report 2017 Global consumption of from a major producing Zircon report Director’s report pigment has maintained a region in India (Tamil Nadu) long-term average growth rate has been suspended since Zircon has a range of end- closely correlated to global the December 2016 quarter, uses, the largest of which is GDP, or approximately as a result of political issues. in the production of ceramic 3% per annum. However, A combination of these tiles, which accounts for volatility in the global factors resulted in ilmenite more than 50% of global economy in recent years prices increasing strongly zircon consumption. Milled has created significant throughout the reporting zircon enables ceramic tile fluctuations in this growth period. Prices for Base manufacturers to achieve rate, manifesting in big Resources’ ilmenite increased brilliant opacity, whiteness swings in inventory levels by over 250% between On-going optimisation of the recoveries of 73% (69% in the Base Resources has a number 500,000 tonnes of ilmenite and brightness in their throughout the entire pigment May 2016 and June 2017. MSP has continued to yield comparative period). of off-take agreements across sold into the Chinese market products. Zircon’s unique higher throughput rates with each of its three products with during the reporting period. supply chain. Excess pigment The rapidly increasing price properties include heat and an average of 91tph achieved In addition to primary some of the world’s largest Solid relationships with major inventories in the downstream drove an influx of ilmenite wear resistance, stability, for the reporting period zircon, during the reporting consumers of titanium dioxide Chinese ilmenite consumers supply chain were finally imports into China through opacity, hardness and (85tph in the comparative period the Kwale Operation minerals and zircon products, have ensured regular sales exhausted by the end of the the first half of calendar year strength. These properties period), increasing total produced a lower grade zircon including a cornerstone through a mix of shorter term 2016 financial year, resulting 2017, which, when combined mean it is also sought after MSP feed to 764,171 tonnes product (“zircon low grade”) agreement with Chemours contracts (one to three-year in a significant tightening of with increasing Chinese for other applications such (709,443 tonnes in the from the re-processing of run- for the majority of our rutile duration) and spot sales. the market. domestic ilmenite production, as refractories, foundries and comparative period) and of-production and stockpiled production. These agreements The TiO2 pigment industry resulted in mounting pressure specialty chemicals. resulting in record production zircon circuit tails into a zircon provide off-take security MARKET continued to strengthen on prices towards the end levels for all products during rich concentrate. Sales of for the Kwale Operation, Demand growth for zircon this zircon low grade product DEVELOPMENTS through the reporting period of the reporting period. the reporting period. and contain firm minimum AND OUTLOOK is closely linked to growth resulting in price improvement Chinese domestic ilmenite have realised 70-80% of the annual offtake volumes. All in global construction and and strong demand for prices retreated through Ilmenite production continued value of each contained tonne sale values are derived from increasing urbanisation in Titanium Dioxide TiO2 feedstock. Pigment June 2017 and this has led at above design capacity, of zircon. Reported zircon prevailing market prices, the developing world. These inventory levels have fallen to discounting of imported achieving production of low grade represents the based on agreed price indices growth factors have improved below normal levels and ilmenite prices in the early 467,359 tonnes (455,870 volume of zircon contained or periodic price negotiations, Ilmenite and rutile are over the past year or two pigment plants have moved stages of the 2018 financial tonnes in the comparative in the concentrate. When with some agreements primarily used as feedstock resulting in steady demand to maximise their utilisation year. However, a further round period), primarily due to the combined with primary zircon offering downside protection for the production of titanium for zircon. A sharp decline increased MSP feed. The recoveries, the production dioxide (‘TiO ’) pigment, rates. Global pigment of environmental compliance in the form of floor prices. 2 in zircon market prices in producers announced a series inspections again appears to higher feed was partially of zircon low grade has with a small percentage also the second half of the 2016 of price increases over the be restricting production of offset by the proportionally effectively lifted total zircon In the reporting period, used in the production of financial year led to a fall in course of the reporting period, Chinese domestic ilmenite and lower ilmenite content of recoveries well above the Base Resources sold more titanium metal and fluxes production and the excess with further pigment price by the end of July 2017, there low grade ore and lower design target of 78%. than 635,000 tonnes of for welding rods and wire. stocks were consumed by average ilmenite recoveries product from the Kwale TiO is the most widely used increases secured during were signs that the Chinese With no serious injuries 2 downstream users in the of 100% (104% in the Operation, with shipments white pigment because of its the early part of the 2018 domestic ilmenite price occurring during the first half of the reporting comparative period). being made to a combination non-toxicity, brightness and financial year. had stabilised. period under review, Kwale period. Limited inventory of of customers with existing very high refractive index. Rutile production increased to Operations lost time injury The ilmenite feedstock market Conditions for rutile zircon, combined with the offtake agreements, regular It is an essential component 90,625 tonnes in the reporting (“LTI”) frequency rate remains became heavily constrained continued to tighten through strategy of major producers customers buying on a of consumer products such period (85,654 tonnes in the at zero. Base Resources as demand from the Chinese the course of the year. to manage supply to match spot basis and casual spot as paint, plastics and paper. comparative period). Lower employees and contractors pigment industry increased Inventory levels and some demand, resulted in a rapidly customers. Pigment demand is therefore average recoveries of 97% have now worked 9.7 million rapidly and supply of ilmenite excess production capacity tightening market and by the main driver of ilmenite and (101% in the comparative man-hours LTI free, with The Company continues to from various major sources resulted in only modest price the December quarter of the rutile pricing. period) were offset by the the last LTI recorded in build its market presence in was limited. A struggling iron improvement through the reporting period, prices began higher MSP feed and the February 2014. China – the world’s largest ore price has suppressed latter part of the reporting to increase for the first time proportionally higher rutile ilmenite market – with over ilmenite production in China period but conditions look since 2012. Firm demand and content of low grade ore mined as most Chinese ilmenite positive for solid price gains restricted supply has resulted during the reporting period. production is a by-product of in financial year 2018. in zircon prices continuing Marketing and sales 2017 2016 iron ore mining. In addition, to improve through the Zircon production increased Sales (tonnes) widespread environmental In the absence of substantial remainder of the reporting new feedstock supply coming to 34,228 tonnes for the Ilmenite 501,676 480,538 compliance inspections in period and contracts for the reporting period (31,389 online, the titanium dioxide Rutile 91,991 85,536 the main ilmenite producing early part of the 2018 financial tonnes in the comparative feedstock market is expected year have seen further Zircon 34,566 33,062 region of China (Panzhihua) period) due to the higher MSP to remain in structural strong gains. Zircon low grade 9,501 - during the first half of the feed and higher average zircon reporting period led to supply deficit, providing an temporary and permanent opportunity for continued price closures of a number of strength in both ilmenite and operations. Supply of ilmenite rutile over the coming years. Director’s 31 Base Resources Annual Report 2017 Improved sales volumes, and Cash Sweeps, reducing net debt position, once cash pursuing growth from internal report Director’s report commodity prices and a the outstanding Kwale Facility and restricted cash are and external opportunities. continued focus on cost debt to US$141.2 million. incorporated, at 30 June 2017 management has delivered a was $128.2 million (US$98.5 Prior to final maturity, under INFORMATION Kwale Operations EBITDA for million) compared with $204.2 ON DIRECTORS the reporting period of the terms of the Taurus Debt million (US$151.5 million) at $115.9 million ($68.0 million Facility (“Taurus Facility”) 30 June 2016. MR KEITH SPENCE in the comparative period) held by Base Resources, Non-Executive Chairman and a Group EBITDA of repayments are only required to be made from the proceeds SIGNIFICANT CHANGES $109.7 million ($60.6 million Qualifications: BSc of Kwale Operations Cash IN STATE OF AFFAIRS in the comparative period). (Geophysics) (Hons) Sweeps received by Base REVIEW OF FINANCIAL PERFORMANCE A net profit after tax of Resources. Of the There were no other Appointed: 20 February 2015 $33.0 million was recorded by US$5.4 million Cash Sweep significant changes in the state (Appointed as Non-Executive Base Resources recorded its maiden profit after tax of $21.0 million for the reporting period, compared with a loss of $20.9 million in Kwale Operations (loss of received by Base Resources in of affairs of the Group during Chairman on 19 May 2015) the comparative period, primarily due to higher sales revenues. $6.4 million in the comparative July 2016, a mandatory 50% the financial period. period) and $21.0 million (US$2.7 million) was applied Experience: Mr Spence has 2017 2016 for the Group (comparative towards repayment of the over 30 years of experience AFTER BALANCE Kwale Other Kwale Other period: loss of $20.9 million). Taurus Facility. DATE EVENTS in the oil & gas industry with Operation operations Total Operation operations Total Earnings per share for the Shell and Woodside. He $000s $000s $000s $000s $000s $000s Group was 2.85 cents per In October 2016, Base retired from Woodside in Resources extended the Subsequent to year end, on Sales Revenue 215,495 - 215,495 169,039 - 169,039 share (comparative period: 2008 after 14 years in senior maturity date of the Taurus 14 July 2017, following the Cost of goods sold excluding loss per share 3.41 cents). executive roles including Chief Facility from 31 December approval of Kwale Facility depreciation & amortisation: Operating Officer and acting Cash flow from operations 2016 to 30 September lenders to waive their Operating costs (68,735) - (68,735) (69,647) - (69,647) Chief Executive. Mr Spence was $100.2 million for 2017. The extension of the entitlement to 50% of the July is currently a Non-Executive Changes in inventories of concentrate the reporting period Taurus Facility final maturity 2017 Cash Sweep, US$14.8 and finished product (5,033) - (5,033) (5,066) - (5,066) Director of Oil Search Limited, ($78.6 million in the date removed the need to million was distributed up Independence Group NL and Royalties expense (14,782) - (14,782) (11,845) - (11,845) comparative period), slightly secure external funding to Base Resources. Base Murray & Roberts Holdings Total cost of goods sold (i) (88,550) - (88,550) (86,558) - (86,558) lower than Group EBITDA due to repay the balance that Resources applied US$11.8 Ltd (listed on JSX). Mr Spence to working capital movements. would otherwise have been million of the Cash Sweep to was also Chairman of Clough Corporate & external affairs (5,238) (5,617) (10,855) (4,309) (6,840) (11,149) due on 31 December 2016. retire the Taurus Facility, with Limited before its acquisition Surplus cash generated by Community development (3,588) - (3,588) (3,921) - (3,921) As part of the extension, the remainder available for in late 2013. Kwale Operations may be Selling & distribution costs (2,690) - (2,690) (4,114) - (4,114) the mandatory proportion corporate funding. distributed (a “Cash Sweep”), of Kwale Operations Cash Special Responsibilities: Other income / (expenses) 468 (590) (122) (2,151) (580) (2,731) Under the terms of the waiver in equal parts, as early Sweeps to be applied towards Chairman of the Board; EBITDA (i) 115,897 (6,207) 109,690 67,986 (7,420) 60,566 granted, the Kwale Facility repayment of the Kwale progressive repayment of the Chairman of the lenders proportion of future Operations Debt Facility Taurus Facility increased from Remuneration & Nomination six-monthly Cash Sweeps Depreciation & amortisation (49,567) (64) (49,631) (47,062) (127) (47,189) (“Kwale Facility”) and to the 50% to 75%. All other terms of Committee; member of the from Kwale Operations will EBIT (i) 66,330 (6,271) 60,059 20,924 (7,547) 13,377 Australian parent entity, Base the Taurus Facility remained Risk Committee; member of increase to 75% until the Resources Limited, on six- unchanged, including the the Audit Committee; member monthly intervals as permitted US$7.4 million waived has Net financing expenses (25,568) (5,655) (31,223) (27,247) (7,009) (34,256) interest rate of 10% on the of the Taurus Refinancing been repaid. by the terms of the Kwale outstanding balance. Committee. Income tax expense (7,805) - (7,805) (40) - (40) Facility. In July 2016 and (i) Repayment of the Taurus NPAT 32,957 (11,926) 21,031 (6,363) (14,556) (20,919) January 2017, Cash Sweeps In January 2017, Other current public Facility reduces total debt of US$10.8 million and US$7.3 million was received company directorships: (i) Base Resources’ financial results are reported under International Financial Reporting Standards (IFRS). These Financial Statements include certain outstanding to $183.7 million US$14.6 million respectively by Base Resources from Independence Group NL non-IFRS measures including EBITDA, EBIT and NPAT. These measures are presented to enable understanding of the underlying performance of the (US$ 141.2 million). Group and have not been audited. were distributed from the the proceeds of the Kwale (since 2014); Oil Search Kwale Operation. Half of Operations Cash Sweep There have been no other Limited (since 2012); Murray the combined Cash Sweeps and a mandatory 75% significant after balance and Roberts Holdings Ltd Sales revenue was in the comparative period), US$105 per tonne of product With an achieved revenue (US$12.7 million) went (US$5.5 million) was applied date events at the date of (since 2015). $215.5 million for the with the main driver being sold ($144 or US$105 per to cost of sales ratio of 2.4 towards mandatory early towards repayment of the this report. Past public company reporting period (comparative the rising ilmenite price. Total tonne in the comparative (comparative period: 2.0), repayment of the Kwale Taurus Facility, thereby directorships held over period: $169.0 million), cost of goods sold, excluding period). Operating cost per the Company remains well Facility, with the other reducing the outstanding the last three years: achieving an average price of depreciation and amortisation, tonne produced remained positioned in the upper half distributed up to Base debt to US$11.8 million. FUTURE DEVELOPMENTS, Geodynamics Limited (now product sold (rutile, ilmenite, was $88.6 million for the steady at $114 or US$86 per quartile of mineral sands Resources. zircon and zircon low grade) reporting period (comparative tonne for the reporting period producers. Total debt outstanding at PROSPECTS AND ReNu Energy Limited) BUSINESS STRATEGIES of $338 or US$255 per tonne period: $86.6 million) at ($121 or US$88 per tonne in During the reporting period, 30 June 2017 was $199.0 (resigned 2016); Clough ($282 or US$205 per tonne an average cost of $139 or the comparative period). US$39.3 million of the Kwale million (US$153.0 million) Limited (resigned 2013). Facility was paid down compared with $270.3 million Base Resources strategy through a combination of (US$200.5 million) at is to continue to optimise scheduled debt repayments 30 June 2016. The Company’s the Kwale Operation whilst Director’s 33 Base Resources Annual Report 2017 Past public company shareholder and Director of mining industry at executive Corporation Inc. (resigned report Director’s report directorships held over the Tennant Metals Pty. Limited, management and board 2014); Bathurst Resources last three years: Ampella a privately owned physical level. Mr Macpherson (New Zealand) Limited Mining Limited (resigned metal trader and investor, and spent 25 years from 1974 (resigned 2015). 2014); PMI Gold Limited was the Finance Director of at Iluka Resources Limited, (resigned 2014); Heemskirk Finders Resources Limited, an the world’s largest mineral COMPANY SECRETARY Consolidated Limited ASX listed company producing sands company, rising from (resigned 2017). copper in Indonesia. In 2010, mine manager to Managing Mr Stirzaker joined the Director and Chief Executive MR CHADWICK POLETTI MR MICHAEL STIRZAKER private equity mining fund Officer. He has previously Non-Executive Director Qualifications: manager, Pacific Road Capital held the position of Chairman LLB (Hons), BCom MR TIM CARSTENS MR COLIN BWYE Special Responsibilities: MR MICHAEL ANDERSON Qualifications: BCom, ACA Management as a partner. The with Azumah Resources Managing Director Executive Director – Executive Director – Non-Executive Director Pacific Road Resources Fund II Limited and Western Power Appointed: 19 May 2015 Operations & Development Operations & Development. Appointed: 19 November is a major shareholder of Base Corporation and been a Experience: Mr Poletti is a Qualifications: BCom, ACA Qualifications: 2014 (previously acting as Resources, with Mr Stirzaker director of Portman Mining practising lawyer and holds Qualifications: BEng (Hons) Past public company BSc (Hons), PhD an alternate since November appointed as its nominee on Limited and Minara Resources Appointed: 5 May 2008 a Bachelor of Commerce directorships held over the 2011) the Base Resources Board. Limited. Mr Macpherson has Appointed: 12 July 2010 Appointed: majoring in Finance and Experience: Mr Carstens last three years: None. also been the Senior Vice 28 November 2011 Experience: Mr Stirzaker has Special Responsibilities: Accounting. Mr Poletti has brings a diverse and Experience: Mr Bwye has over President of the Minerals MR SAMUEL WILLIS over 30 years’ commercial Member of the Remuneration broad experience in advising substantial skill set to 25 years’ experience in the Experience: Mr Anderson Council of Australia, President Non-Executive Director experience, mainly in & Nomination Committee; directors of listed and unlisted the development of Base mineral sands sector, having has over 20 years’ industry of the Western Australian mining finance and mining member of the Risk public companies in relation Resources, having previously commenced his professional Qualifications: BCom experience, largely in Chamber of Minerals & investment. He began Committee. to directors’ duties, the held senior executive career with RGC Mineral southern Africa and Australia. Energy, and a member of the his career in Sydney as a Corporations Act, the ASX roles with Perilya Limited, Sands (since consolidated Appointed: 23 May 2007 His career commenced Senate at Murdoch University. Chartered Accountant with Past public company Listing Rules, the AIM Rules North Limited, Robe River into Iluka Resources) as a as a geologist with Anglo Experience: Mr Willis is an KPMG, having obtained a directorships held over the Special Responsibilities: for Companies and corporate Iron Associates, Iron Ore plant metallurgist in 1988. American, followed by experienced company director Bachelor of Commerce from last three years: Nil. Chairman of the Risk governance. Company of Canada and He undertook a number of roles in the metallurgical in the resources and energy the University of Cape Town. Committee; member of the St Barbara Mines Limited technical, production and and engineering industries MR MALCOLM Prior to joining Base Resources, sectors and is currently a He moved into investment Remuneration & Nomination in operations, strategy, mining roles within RGC with Mintek, Bateman and MACPHERSON Mr Poletti was a senior director of Checkside (a banking with Wardley James Committee; member of the corporate development and and then, after a period Kellogg Brown & Root. He Non-Executive Director associate at international consulting firm that specialises Capel (part of the HSBC Audit Committee. finance, both in Australia of time consulting to the subsequently held senior in Strategic HR, Recruitment Group) and then Kleinwort Qualifications: law firm, Ashurst, where he and overseas. A chartered industry, joined Doral Mineral management positions and Leadership), as well as Benson Limited in London. B.Sc. FAusIMM, FTSE Other current public specialised in both domestic accountant by profession, Industries, a subsidiary of including Corporate non-executive director of From 1993 to 2007 he was company directorships: Nil. and cross-border regulated he has successfully managed Iwatani Corporation of Japan. oil and gas explorer Elixir Development Manager at Appointed: 25 July 2013 and unregulated mergers part of the natural resource Past public company all aspects of business Here he was a leader in the Petroleum Limited. Mr Willis Gallery Gold Limited, and and acquisitions, including advisory and investment firm, Experience: Mr Macpherson directorships held over strategy development and development and operation of provides Base Resources Managing Director at Exco takeovers and schemes of RFC Group Limited, where is an accomplished business the last three years: Pluton implementation, acquisitions the Dardanup mineral sands with in excess of 15 years’ Resources Limited, where arrangement, capital raisings he became Joint Managing leader, with decades of Resources Limited (Chairman) and divestments, debt mine in Western Australia experience and expertise in he oversaw the successful and corporate advisory and Director. He has also been a experience in the global (resigned 2013); Titanium and equity financing, before taking on the role capital markets, corporate development of the White governance. organisational development of managing director and finance and executive board Dam Gold Project, and the sale MEETINGS OF DIRECTORS and operational performance. becoming accountable for the involvement with emerging of the Company’s Cloncurry Mr Carstens is also the fused materials (zirconia and small and mid-cap companies. Copper Project to Xstrata. Chairman of the Australia- alumina) processing facilities He joined Taurus Funds The number of meetings of Directors (including meetings of committees of Directors) held during the year and the number of Africa Minerals and Energy as well as the mineral sands Special Responsibilities: Management as a Director meetings attended by each Director was as shown in the table below: Group (AAMEG), the peak operation. In 2010 Chairman of the Audit in August 2011. Taurus is a body representing Australian Mr Bwye joined Base Committee; member of the major shareholder of Base Remuneration companies engaged in the Resources as Executive Remuneration & Nomination Resources, with Mr Anderson & Nominations Taurus Refinancing Directors’ Meetings Audit committee Committee Risk Committee Committee development of Africa’s Director – Operations and Committee; member of the appointed as Taurus’ nominee Risk Committee; member Meetings Meetings Meetings Meetings resource industry. Development. Mr Bwye has on the Base Resources Board. Meetings held while a held while a held while a held while a an extensive knowledge of of the Taurus Refinancing held while Meetings committee Meetings committee Meetings committee Meetings committee Meetings a director attended member attended member attended member attended member attended Special Responsibilities: all aspects of the mineral Committee. Special Responsibilities: Managing Director; member sands industry, including Member of the Audit Keith Spence 15 14 4 4 4 4 3 3 4 4 of the Taurus Refinancing Other current public Committee. downstream processing and Tim Carstens 15 15 ------4 4 Committee. company directorships: marketing of mineral sands Colin Bwye 15 15 ------Elixir Petroleum Limited Other current public products. He was born in Past public company (since 2013). company directorships: Samuel Willis 15 14 4 4 4 4 3 3 4 4 Kenya and lived there prior directorships held over the Hot Chili Limited (since 2011); Michael Anderson 15 15 4 4 ------to migrating to Australia in last three years: None. Past public company Finders Resources Limited Malcolm 1987 and so brings a deep directorships held over (alternate, since 2016). Macpherson 15 15 4 4 4 4 1(i) 1 - - understanding of the country the last three years: New Michael Stirzaker 15 14 - - 4 4 3 3 - - and its culture. Standard Energy Limited (retired 2016). (i) Appointed as Risk Committee Chairman from 1 February 2017 Director’s 35 Base Resources Annual Report 2017

report Director’s report

INDEMNIFYING OFFICERS NON-AUDIT SERVICES

During or since the end of the financial year, Base Resources has given an indemnity or entered into an agreement to indemnify, The Board of Directors is satisfied that the provision of non-audit services during the year is compatible with the general standard of or paid or agreed to pay insurance premiums to insure its directors and officers against certain liabilities incurred while acting in that independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the services disclosed below did not capacity. The contracts of insurance prohibit disclosure of details of the policies or the premiums paid. compromise the external auditor’s independence for the following reasons:

The Company’s Constitution provides that, subject to and so far as permitted by applicable law, the Company must indemnify every • The nature of the services provided do not compromise the general principles relating to auditor independence in accordance with officer of the Company and its wholly owned subsidiaries against a liability incurred as such an officer to a person (other than the APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. Company or a related body corporate) including a liability incurred as a result of appointment or nomination by the Company or The following fees were paid or payable to external auditors for non-audit services provided during the year ended 30 June 2017: subsidiary as a trustee or as an officer of another corporation, unless the liability arises out of conduct involving a lack of good faith.

Consistent with the rules of the Company’s Constitution, the Company or its subsidiary companies (as applicable) has also granted 2017 2016 indemnities under the terms of deeds of indemnity with current and former Directors and current officers of the Company and its $ $ subsidiaries. Each deed provides that the relevant Director or officer is to the maximum extent permitted by law, indemnified out KPMG Australia of the property of the Company or the subsidiary, as applicable, against any liability (other than a liability for costs and expenses) the Taxation services 98,656 32,820 Director or officer incurs to another person (other than the Company or a related body corporate of the Company) as a Director or Other services 11,000 10,000 officer of Company or a related body corporate, unless the liability arises out of conduct involving a lack of good faith by the Overseas KPMG firms Director or officer. Taxation services 108,894 234,423 No indemnity has been granted to an auditor of the Group in their capacity as auditors of the Group. AUDITOR’S INDEPENDENCE DECLARATION OPTIONS The lead auditor’s independence declaration for the year ended 30 June 2017 has been received and can be found on page 63 of the At the date of this report, the unissued ordinary shares of Base Resources Limited under option are as follows: Annual Report.

Grant date Date of expiry Exercise price Number under option ROUNDING 23 December 2014 31 December 2018 $0.40 30,712,531

19 June 2015 31 December 2018 $0.40 30,712,530 The Group is of a kind referred to in ASIC Class Instrument 2016/191 and in accordance with that Class Order, amounts in the 61,425,061 financial report and directors’ report have been rounded to the nearest thousand dollars, unless otherwise stated.

In accordance with the terms of the Taurus Facility, 61,425,061 options were issued to Taurus Funds Management, with half issued on execution and half on facility drawdown in June 2015. Refer to note 13 for further details. Option holders do not have any rights to participate in any issues of shares or other interests in the Group or any other entity.

SHARES ISSUED SINCE THE END OF THE FINANCIAL YEAR

No shares in Base Resources Limited have been issued since year end and no amounts are unpaid on any of the issued shares.

PROCEEDINGS ON BEHALF OF GROUP

No person has applied for leave of a Court to bring proceedings on behalf of the Group or intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or any part of those proceedings. The Group was not a party to any such proceedings during the year. Remuneration report 37 Base Resources Annual Report 2017

- audited Remuneration report - audited

This remuneration report sets out the remuneration arrangements for Base Resources Limited for year ended 30 June 2017. CHANGES SINCE data to assist the Company is The information provided by • Are simple to understand This remuneration report forms part of the Directors’ Report and has been audited in accordance with the Corporations Act 2001. THE END OF THE assessing the competitiveness both Godfrey and BDO was and implement, openly REPORTING DATE of the Group’s remuneration provided to the Remuneration communicated and are practices for Senior & Nomination Committee as equitable across the DETAILS OF KEY MANAGEMENT PERSONNEL None. Executives. The Committee inputs into decision making Group; also engaged BDO to (i) only. The Committee and • Attract, retain and The remuneration report details the remuneration arrangements for key management personnel (‘KMP’) who are defined as those review the appropriateness of the Board considered the motivate employees of the persons having authority and responsibility for planning, directing and controlling the major activities of the Group, and comprise ROLE OF THE REMUNERATION the Group’s current incentive information, along with other required capabilities; and the Directors (whether executive or otherwise) of the Group and other executive management as detailed in the table below. The & NOMINATION arrangements and to make factors, in making its ultimate • Comply with applicable Executive Directors and executive management listed in the table below are collectively defined as the Senior Executives for the COMMITTEE broad recommendations remuneration decisions. legal requirements and purposes of this report. for the Committee’s appropriate standards of Total fees paid to Godfrey for The Remuneration & consideration; and (ii) provide governance. Name Position services during the year ended Nomination Committee is market data relating to the 30 June 2017 were $3,200. responsible for oversight of remuneration packages of Senior Executives Total fees paid to BDO for KEY PRINCIPLES OF the remuneration system the Group’s Senior Executives SENIOR EXECUTIVE T Carstens Managing Director services during the year ended and policies. It is also to assist the Committee in REMUNERATION C Bwye Executive Director - Operations & Development 30 June 2017 were $20,500. responsible for evaluating the assessing the competitiveness K Balloch Chief Financial Officer of current remuneration performance of the Executive Remuneration comprises fixed C Forbes General Manager - Environment & Community Affairs packages. Directors and monitoring REMUNERATION remuneration, and variable (or A Greyling General Manager - Project Development performance of the executive POLICY Godfrey and BDO were ‘at-risk’) remuneration, which S Hay General Manager - Marketing management team. The Board, engaged by the Remuneration is determined by individual upon recommendation of the Base Resources is committed J Schwarz General Manager - External Affairs & Development & Nomination Committee and Group performance. The Remuneration & Nomination to the close alignment of D Vickers General Manager - Operations Chairman, and reported Group targets total fixed Committee, determines the remuneration to shareholder directly to the Committee remuneration (‘TFR’) at the remuneration of the Executive return, particularly that of the Non-Executive Directors and the Board. Further, 50th market percentile and Directors and approves the Senior Executives. To this end, K Spence Chairman each consultant has total remuneration package remuneration of the executive the Group’s remuneration (‘TRP’), including at-target S Willis Director processes and procedures management team. system is designed to attract, variable remuneration, at M Anderson Director in place to minimise motivate and retain people by the 75th market percentile, The objective of the potential opportunities for M Macpherson Director identifying and rewarding high for Senior Executives. As a Remuneration & Nomination undue influence of Senior M Stirzaker Director performers and recognising consequence, the Group’s Committee is to ensure that Executives. The Board is their contribution to the Senior Executives have the remuneration system and satisfied that the interaction continued growth and success a higher proportion of policies attract and retain between consultants of the Group. remuneration at-risk than executives and directors and Senior Executives industry averages. who will create value for is minimal, principally Key objectives of the Group’s shareholders. relating to provision of remuneration policy are to relevant Group information ensure that remuneration for consideration by the practices: SERVICES FROM respective consultants. The REMUNERATION • Facilitate the achievement CONSULTANTS Board is therefore satisfied that the advice received of the Group’s objectives; from Godfrey and BDO is • Provide strong linkage The Remuneration & free from undue influence between executive Nomination Committee from the Senior Executives incentive rewards and engaged Godfrey to whom the remuneration creation of value for Remuneration Group recommendations apply. shareholders; (‘Godfrey’) to provide market Remuneration report 39 Base Resources Annual Report 2017

- audited Remuneration report - audited

Questions and answers about Senior Executive remuneration:

Remuneration mix Does the STIP take into The size of any STIP payment is linked to the extent of achievement. Levels of performance What is the balance The mix of fixed and at-risk remuneration varies depending on the organisational level of account different levels of required for target levels of STIP are set such that they are challenging but achievable. performance compared to between fixed and at-risk executives, and also depends on the performance of the Group and individual executives. Required performance levels for each performance criteria are set at three levels being: remuneration? More senior positions have a greater proportion of their remuneration at-risk. objectives? Threshold - A performance level that is below optimal but nevertheless acceptable. It is the If overall Group performance fails to meet a minimum standard, no executives will be entitled minimum for which a small STIP award would be payable. The STIP is designed such that there is an to receive any at-risk remuneration. For all executives, it is therefore possible that no at-risk 80% probability the executive will achieve or exceed this level of achievement. remuneration will be earned and that fixed remuneration will represent 100 per cent of total Target - A performance level that represents a challenging but achievable level of performance. remuneration. The STIP is designed such that there is a 50% to 60% probability the executive will achieve or If target at-risk remuneration is earned, the proportion of total remuneration represented by exceed this level of achievement. fixed and at-risk remuneration would be: Stretch - A performance level that is clearly at the upper limit of what may be achievable. The STIP • Executive Directors (includes Managing Director): 36% fixed and 64% at-risk. is designed such that there is a 10% to 20% probability the executive will achieve or exceed this • Other Senior Executives: 53% fixed and 47% at-risk. level of achievement. The probabilities of achievement are set at these levels such that, over time, awards approximately Fixed remuneration equal to the target level would become payable, assuming performance to role. The achievement What is included in fixed TFR includes a base salary, inclusive of superannuation. Allowances and other benefits may be of this target level of award would support the 75th market percentile TRP policy objective remuneration? provided and are as agreed, including leased motor vehicles and additional superannuation, for executives. provided that no extra cost is incurred by the Group. To attract and retain people of the requisite capability to key roles located in Kenya, an additional What are the performance Performance criteria are assigned for both individual and Group performance. Performance market allowance may be paid. The market allowance, while fixed in nature, does not form part of criteria? criteria may change from year to year. TFR for the purposes of calculating at-risk remuneration entitlements. For Executive Directors, 75% of the STIP is attached to individual performance criteria and 25% to corporate performance criteria. For other Senior Executives, 50% of the STIP is attached to When and how is fixed TFR is reviewed annually. Any adjustments to the TFR for the Executive Directors must be individual performance criteria and 50% to corporate performance criteria. remuneration reviewed? approved by the Board after recommendation by the Remuneration & Nomination Committee. Reflecting the importance attached to role clarity within Base Resources, individual performance The Executive Directors determine the TFR of other Senior Executives within specified guidelines criteria are drawn directly from the role accountabilities in the participant’s role description. approved by the Board, subject to final approval by the Remuneration Committee. The Group Each performance criteria is allocated a weighting that reflects the relative importance of that seeks to position fixed remuneration at the 50th market percentile of salaries for comparable performance criteria for the year. companies within the mining industry with which the Group competes for talent and equity investment, utilising datasets and specific advice provided by independent remuneration Corporate performance criteria are set at the commencement of each financial year and are consultants. usually derived from the annual operating plan and may vary from time to time to include other aspects of performance for which there is shared accountability and which the Group wishes Short Term Incentive Plan (‘STIP’) to emphasise. The target corporate performance (50% STIP component) criteria for Senior Executives for the What is the STIP? The STIP is the cash component of at-risk remuneration, payable based on a mix of Group and 2017 financial year was: individual annual performance standards. • 5% above budgeted group EBITDA, assuming fixed AUD:USD exchange rate and the inclusion of only 25% of variances in actual sales prices against budgeted prices, reflecting a limited Why does the Board consider At-risk remuneration strengthens the link between pay and performance. The purpose of measure of management control over product pricing outcomes. the STIP is appropriate? these programs is to reward executives for annual performance relative to expectations of their role accountabilities, required behaviours and KPI’s as well as delivery of annual business Where budgeted group EBITDA is used as the basis for the target corporate performance, the plans. A reward structure that provides at-risk remuneration is also necessary as a competitive Remuneration & Nomination Committee will set the performance criteria for the year (i.e. the remuneration package in the Australian and global marketplace for executives. ‘Threshold’, ‘Target’ and ‘Stretch’ performance ranges) on the basis of an assessment of the degree of challenge represented by the particular year’s budget. Consequently, these ranges may change from year to year. This approach is designed to ensure the appropriate degree of challenge in both budgets committed to and STIP. Remuneration report 41 Base Resources Annual Report 2017

- audited Remuneration report - audited

Is there an overriding For each year, a gate or gates may be determined by the Board. The gate may be a minimum level of Long Term Incentive Plan (‘LTIP’) financial performance or earnings for the Group or a safety performance threshold that must be achieved for any awards to other conditions? become payable under the STIP. What is the LTIP? The LTIP is the equity component of at-risk remuneration and is linked to the Group’s Total Shareholder Return (‘TSR’) performance over a 3 year period. Irrespective of whether a gate is achieved, the Board retains discretion to increase or decrease awards in its absolute discretion. It is intended that the exercise of this discretion is used sparingly The LTIP aims to reward participants for Base Resources’ TSR performance, both relative to its to take account of significant events and/or factors that were not anticipated when the year peer group and in absolute terms. commenced and the performance criteria were set.

The following gates were in place for the 2017 financial year: How often are LTIP The LTIP operates on the basis of a series of cycles. Each cycle commences on 1 October • No workplace fatalities. awards made? and is followed by a 3 year performance period, with a test date on the 3rd anniversary of • No major reputational or environmental events. commencement of the cycle. The first cycle of the LTIP began on 1 October 2011.

What is the value of the Executive Directors have a target STIP opportunity of 60% of TFR, with a minimum opportunity Why does the Board consider The Group believes that a well designed LTIP can: a LTIP is appropriate? STIP award opportunity? (if only threshold level is met) of 20% and a maximum opportunity (if the stretch targets are • Attract executives with the required capability; achieved) of 100% of TFR. • Retain key talent; Other Senior Executives have a target STIP opportunity of 30% of TFR, with a minimum • Maintain a stable leadership team; and opportunity (if only threshold level is met) of 15% and a maximum opportunity (if the stretch • Explicitly align and link the interests of the Base Resources leadership team and shareholders. targets are achieved) of 60% of TFR. What types of equity may Performance rights are granted under the Base Resources LTIP. Performance rights are a right These percentages are set based on external advice to achieve the remuneration policy intent of 75th market percentile TRP market positioning. be granted under the LTIP? granted to acquire one share in Base Resources, subject to satisfying the specified performance criteria (outlined below).

How is the STIP assessed? Individual performance criteria - are assessed using a performance rating scale. In making the A participant is not entitled to participate in or receive any dividends or other shareholder assessment in respect of a particular area of accountability, consideration is given to the extent benefits until the performance right has vested and a share has been allocated and transferred to which the behaviours and performance indicators identified in the role description have been to the participant. modelled and observed. This assessment is undertaken by the participant’s manager and then signed-off by the manager-once-removed. In the case of the Executive Directors, the assessment What is the value of the Executive Directors are awarded performance rights worth 120% of TFR. Other Senior Executives is undertaken by the Remuneration & Nomination Committee and approved by the Board. Specific LTIP award opportunity? are awarded performance rights worth 60% of TFR. The LTIP performance criteria are designed to outcomes during the 2017 financial year relevant to STIP awards have included: target 50% vesting of awarded performance rights over time. • Continued outperformance of Kwale Operations which has seen design (and beyond) throughputs, availabilities and recoveries consistently achieved; These award opportunities and target vesting outcome are set based on external advice to achieve the remuneration policy intent of 75% market percentile TRP market positioning. • Tight control of operating costs, achieving a challenging budget; • Another year without a Lost Time Injury (the last was in February 2014) and further improvement in the Total Recordable Injury Frequency Rate; • Successful introduction of a new mining method in hydraulic mining which will be adopted as the exclusive mining method through implementation of the Kwale Phase 2 project; • Securing of market share and sales for all production, with only working inventory held throughout the year; • Completion of the Kwale South Dune Deposit resource extension drilling campaign with community support; • A significant reset of the relationship with the Kenyan National Government following the change in Cabinet Secretary; • Progressive improvement in Kenyan media coverage of Base Resources and the industry, with improving public sentiment and understanding; • Maintenance of funding continuity as well as options for strategic plan execution, including extension of the Taurus Facility and progression of further options with the current Kwale Facility lender group; and • Delivery of a robust and comprehensive Kwale Phase 2 definitive feasibility study, now approved for implementation. Corporate performance criteria – the Board determines the extent to which each corporate performance criteria has been achieved. Remuneration report 43

What is the comparator The TSR comparator group is comprised of the 26th to 75th ranked companies, from the top Base Resources Annual Report 2017 group? 150 ASX listed resource companies (excluding oil and gas) by market capitalisation, at the time - audited Remuneration report - audited of the offer. The comparator group for each of the performance rights cycles is comprised of the following companies:

LTIP Cycle LTIP Cycle Commencing Commencing What are the LTIP The Group uses two LTIP performance criteria to determine the proportion of performance 1 October 1 October performance criteria? rights which vest, as follows: Companies 2016 2015 2014 Companies 2016 2015 2014 • Half of the performance rights are subject to a relative TSR criteria (the relative TSR ABM Resources NL ✔ Metals X Limited ✔ ✔ performance rights); and Alkane Resources Limited ✔ ✔ Millennium Minerals Limited ✔ • Half of the performance rights are subject to an absolute TSR criteria (the absolute TSR Altona Mining Limited ✔ Mincor Resources NL ✔ performance rights). Altura Mining Limited ✔ Mineral Deposits Limited ✔ ✔ The Board considers that TSR is an appropriate performance hurdle because it ensures that Aquarius Platinum Limited Mirabela Nickel Limited ✔ a proportion of each participant’s remuneration is explicitly linked to shareholder value and Arrium Limited ✔ Mount Gibson Iron Limited ✔ ✔ ensures that participants only receive a benefit where there is a corresponding direct benefit to Atlas Iron Limited ✔ ✔ Neometals Limited ✔ shareholders. Atrum Coal NL ✔ ✔ ✔ Newfield Resources Limited ✔ ✔ Aurelia Metals Limited ✔ Nkwe Platinum Limited ✔ Relative TSR performance rights Austral Gold Limited ✔ Northern Minerals Limited ✔ ✔ The proportion of relative TSR performance rights which vest will be determined on the basis of Avanco Resources Limited ✔ ✔ ✔ Norton Gold Fields Limited ✔ Base Resources’ TSR relative to the TSR of the comparator group over the performance period, Axiom Mining Limited ✔ OM Holdings Limited ✔ ✔ as set out below: BC Iron Limited ✔ Orocobre Limited ✔ ✔ ✔ Base Resources relative 3-year Percentage of relative TSR Beadell Resources Limited ✔ ✔ ✔ Paladin Energy Limited ✔ TSR performance (1) performance rights that vest Berkeley Energia Limited ✔ Panoramic Resources Limited ✔ ✔ Less than 40th percentile Nil Blackham Resources Limited ✔ Pantoro Limited ✔ 40th percentile 25% Bougainville Copper Limited ✔ ✔ Perseus Mining Limited ✔ ✔ ✔ Between 40th and 50th percentile Pro rata between 25% and 50% Brockman Mining Limited ✔ Pilbara Minerals Limited ✔ ✔ Between 50th and 75th percentile Pro rata between 50% and 100% Cardinal Resources Limited ✔ Poseidon Nickel Limited ✔ 75th percentile and above 100% CI Resources Limited ✔ ✔ Ramelius Resources Limited ✔ ✔ CuDeco Limited ✔ ✔ ✔ Rand Mining Limited ✔ ✔ Notwithstanding the above, the Board has the absolute discretion to determine that no relative Dacian Gold Limited ✔ Range International Limited ✔ TSR performance rights vest if Base Resources’ TSR is negative (despite its relative placing within ✔ the TSR comparator group). Dome Gold Mines Limited Resolute Mining Limited ✔ ✔ Doray Minerals Limited ✔ ✔ Reward Minerals Limited ✔ LTIP performance criteria are designed to target 50% vesting over time to achieve policy intent Eastern Goldfields Limited ✔ RTG Mining Inc ✔ for remuneration market positioning, whilst providing incentive for outperformance. A threshold level of performance, being suboptimal but nevertheless acceptable, which results in 25% vesting Elemental Minerals Limited ✔ Sandfire Resources NL ✔ at a relative TSR performance at the 40th percentile of the peer group is part of this design and Endeavour Mining Corporation ✔ ✔ Saracen Mineral Holdings Ltd ✔ considered appropriate in the context of the LTIP as a whole. Energy Resources of ✔ Sheffield Resources Limited ✔ Australia Limited Silver Lake Resources Ltd ✔ ✔ ✔ Absolute TSR performance rights Finders Resources Limited ✔ ✔ ✔ Stanmore Coal Limited ✔ The proportion of absolute TSR performance rights which vest will be determined on the basis Focus Minerals Limited ✔ Stonewall Resources Limited ✔ of Base Resources’ TSR on the following scale: Galaxy Resources Limited ✔ Sundance Resources Limited ✔ Gascoyne Resources Limited ✔ Tanami Gold NL ✔ Base Resources 3-year TSR (1) Percentage of absolute TSR performance Gold Road Resources Limited ✔ ✔ ✔ Teranga Gold Corporation ✔ ✔ ✔ rights that vest Grange Resources Limited ✔ ✔ ✔ Terramin Australia Limited ✔ ✔ ✔ Less than 40.5% Nil Havilah Resources Limited ✔ Tiger Resources Limited ✔ 40.5% 25% Highfield Resources Limited ✔ ✔ Tigers Realm Coal Limited ✔ Between 40.5% and 56% Pro rata between 25% and 50% Highlands Pacific Limited ✔ TNG Limited ✔ Between 56% and 73% Pro rata between 50% and 100% Indophil Resources NL ✔ Tribune Resources Limited ✔ ✔ ✔ 73% or greater 100% Intrepid Mines Limited ✔ Triton Minerals Limited ✔ ✔ The number of performance rights granted for the cycle commencing 1 October 2016 is by Iron Road Limited ✔ Troy Resources Limited ✔ ✔ ✔ reference to the 20-day volume weighted average price (‘VWAP’) of $0.1529 per share, subject Kazakhstan Potash Corp Ltd ✔ Valence Industries Limited ✔ to a scaleback to ensure compliance with applicable ASIC relief ($0.0575 for cycle commencing Kidman Resources Limited ✔ West African ✔ 1 October 2015 and $0.2905 for cycle commencing 1 October 2014). In order to achieve 100% Kingsgate Consolidated Ltd ✔ ✔ Resources Limited vesting a 30-day VWAP of $0.2645 or greater would be required for the cycle commencing Kingsrose Mining Limited ✔ ✔ Western Areas Limited ✔ 1 October 2016 ($0.1150 for cycle commencing 1 October 2015 and $0.5810 for cycle Lucapa Diamond ✔ ✔ Wolf Minerals Limited ✔ ✔ commencing 1 October 2014) at the conclusion of the 3-year performance period. Company Limited Wollongong Coal Limited ✔ Lynas Corporation Limited ✔ ✔ ✔ Yancoal Australia Limited ✔ Magnis Resources Limited ✔ Zimplats Holdings Limited ✔

1 The performance scale was revised for the cycle commencing 1 October 2016. For previous cycles refer to prior annual reports. Remuneration report 45 Base Resources Annual Report 2017

- audited Remuneration report - audited

GROUP PERFORMANCE AND ITS LINK TO SHAREHOLDER RETURN Was a grant made in 2017? Performance rights were granted to eligible participants in the LTIP for the cycle commencing 1 October 2016. The number of performance rights granted for each executive was calculated by reference to the VWAP on the twenty trading days up to the start of the cycle, being The following graph compares the yearly change in the cumulative TSR of Base Resources’ shares during the period 1 July 2012 $0.1529 per share, and the LTIP award opportunity. to 30 June 2017, against the cumulative total return of the ASX 200 Resources Index over the same period. The graph illustrates the cumulative return from Base Resources over the past five years, assuming $100 was invested. No dividends have been declared The number of rights granted to eligible participants for this cycle was subject to a 50% scale back during this period. to ensure compliance with applicable ASIC relief limiting the number of rights that may be on issue under the LTIP on a three year rolling basis. A compensating payment was made to eligible participants for rights foregone of $0.8 million. Cumulative Total Shareholder Return 1 July 2012 through 30 June 2017 What happens to performance Where a participant ceases to be employed by a Group member (and is not immediately rights granted under the LTIP employed by another Group member) for any reason other than a qualifying reason, all unvested $140 when a participant ceases performance rights of that participant are automatically forfeited. employment? $120 Where a participant ceases to be employed by a Group member because of a qualifying reason, then the Board must determine, in its absolute discretion, the number of unvested performance $110 rights of a participant (if any) that will remain on foot and become capable of vesting in accordance $100 $92 $99 with LTIP rules. $83 $80 $81 The Board will generally exercise its discretion in the following manner:

$70 • Performance rights granted in the cycle beginning on the 1 October immediately prior to the $60 participant ceasing to be employed by a Group member are automatically forfeited; and

• All other performance rights will continue to be held by the participant and will be tested for $40 vesting on the test date for the relevant performance right. $34 $34

Qualifying reasons include but are not limited to death, total and permanent disablement, $20 retirement or redundancy. ASX 200 Reources Index Base Resources Limited $0 What happens in the event Subject to the Board determining otherwise, if a change of control event occurs then a test date of a change of control? arises on the date that the change of control event occurs with the Board to test the extent to 30 Jun 12 30 Jun 13 30 Jun 14 30 Jun 15 30 Jun 16 30 Jun 17 30 Sep 12 30 Sep 13 30 Sep 14 30 Sep 15 30 Sep 16 31 Dec 12 31 Dec 13 31 Dec 14 31 Dec 15 31 Dec 16 which the performance criteria have been satisfied: 31 Mar 13 31 Mar 14 31 Mar 15 31 Mar 16 31 Mar 17 • On the basis of the offer price of the relevant transaction; and • In the case of absolute TSR performance rights, reducing the percentage TSR performance hurdle pro rata to the unexpired portion of the performance period as at the date the change in control event occurs.

Do shares granted upon Shares allocated to the participants in the LTIP upon vesting of performance rights may be satisfied vesting of performance rights by the Group issuing shares to the plan trustee or purchases by the plan trustee on market. In the dilute existing shareholders’ event the Group issues shares to the plan trustee to satisfy the vesting of performance rights then equity? shareholders’ pre-existing equity will be diluted.

Does the Group have a policy A participant in the LTIP must not enter into an arrangement if the arrangement would have the in relation to hedging at-risk effect of limiting the exposure of the participant to risk relating to performance rights that have remuneration? not vested.

Did any performance rights None of the 7,518,865 performance rights granted under the LTIP for the cycle commencing vest in 2017? 1 October 2013 vested. These rights completed the three-year performance period on 30 September 2016, with nil vesting as follows: • Relative TSR performance rights Base Resources TSR over the performance period placed it in the 49th percentile, resulting in none of the 3,759,432 relative performance rights vesting. • Absolute TSR performance rights Base Resources TSR over the performance period, by reference to a final VWAP of $0.15, equated to a TSR of -60%, resulting in none of the 3,759,433 absolute performance rights vesting. No shares were issued to LTIP participants in 2017. Remuneration report 47 Base Resources Annual Report 2017

- audited Remuneration report - audited

EXECUTIVE REMUNERATION OUTCOMES FOR 2017 TAKE HOME PAY FOR 2017

Short Term Incentives The remuneration detailed in this table represents the Senior Executives ‘take home pay’ and is aligned to the current reporting period, and therefore is particularly useful in understanding actual remuneration received during the year. The table excludes adjustments At the end of the 2017 financial year, a review of the performance of each Senior Executive was undertaken against each of their 2017 made for accounting purposes and included in Statutory Remuneration (refer page 48), specifically the probability and value of an individual performance measures as explained above. The 2017 financial year corporate performance achieved was between target employee obtaining long service leave and the fair value of performance rights under three outstanding LTIP cycles expensed during and stretch performance levels, and incentives are payable in relation to this component commensurate with the performance level the 2017 financial year. The remuneration packages for all Senior Executives are shown in the following table in their employment achieved. STIP entitlements earned for 2017 performance are paid in the 2018 financial year. currency and remain unchanged from 2016, excluding changes in STIP awards and compensating payment for LTIP scale back.

The following table outlines the STI that was earned in comparison with the target STI for the 2017 financial year: Key Vesting of Compensating Take home Management performance payment for pay (i) Person Currency Salary STIP award Superannuation rights LTIP scaleback (ii) (before tax) Target STI STI Awarded

Name Individual performance Corporate performance Individual performance Corporate performance 2017 Executive Directors T Carstens 45% 15% 65% 20% T Carstens AUD 406,800 367,299 30,000 - 130,160 934,259 C Bwye 45% 15% 62% 20% C Bwye AUD 401,800 354,195 35,000 - 130,160 921,155 K Balloch 15% 15% 21% 22% C Forbes 15% 15% 21% 22% Other Key Management Personnel A Greyling 15% 15% 20% 22% K Balloch AUD 320,000 150,091 30,000 - 52,148 552,239 S Hay 15% 15% 23% 22% C Forbes GBP 235,320 100,912 - - 35,061 371,293 J Schwarz 15% 15% 19% 22% A Greyling AUD 280,000 132,720 35,000 - 46,933 494,653 D Vickers 15% 15% 20% 22% S Hay AUD 360,000 173,094 30,000 - 58,107 621,201 J Schwarz USD 327,600 133,114 - - 48,810 509,524 LTIP Performance Rights D Vickers USD 430,816 143,400 - - 50,710 624,926 2016 The LTIP, introduced in 2012, operates on the basis of a series of 3-year performance cycles commencing on 1 October each year. Executive Directors Accordingly, LTIP performance rights issued in the year ending 30 June 2017 are subject to a 3-year performance period ending on T Carstens AUD 406,800 326,618 30,000 - - 763,418 30 September 2019. Performance rights issued under the plan in the 2014 financial year, totalling 7,518,865, completed their 3-year performance period on 30 September 2016, with no performance rights vesting. C Bwye AUD 401,800 317,882 35,000 - - 754,682 Other Key Management Personnel The table below outlines the historical performance of performance rights cycles under the LTIP programme: K Balloch AUD 320,000 146,410 30,000 - - 496,410 Relative Performance Rights Absolute Performance Rights C Forbes GBP 235,320 82,554 - - - 317,874 A Greyling (iii) AUD 256,667 106,651 32,082 - - 395,400 Number of performance S Hay AUD 360,000 151,442 30,000 - - 541,442 Grant date Vesting date rights granted Number vested % vested Number vested % vested J Schwarz USD 327,600 122,297 - - - 449,897 30 June 2012 30 September 2014 4,125,484 2,062,742 100% - 0% D Vickers USD 430,816 132,163 - - - 562,979 1 October 2012 30 September 2015 4,870,331 - 0% - 0% 1 October 2013 30 September 2016 7,518,865 - 0% - 0% (i) Base Resources Limited financial results are reported under International Financial Reporting Standards (IFRS). The above table includes certain non-IFRS measures including vested performance rights and take home pay. These measures are presented to enable understanding of the underlying remuneration of KMPs.

(ii) A scale back was applied to performance rights offered under the LTIP cycle commencing 1 October 2016 in order to ensure compliance with applicable ASIC relief. A compensating payment was made during the 2017 financial year to eligible staff in lieu of the scale back in performance rights offered.

(iii) Appointed 1 August 2015. Remuneration report 49 Base Resources Annual Report 2017

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STATUTORY REMUNERATION DISCLOSURES FOR THE YEAR ENDED 30 JUNE 2017 RECONCILIATION OF TAKE HOME PAY TO STATUTORY REMUNERATION

The statutory remuneration disclosures for the year ended 30 June 2017 are detailed below and are prepared in accordance A reconciliation of the Managing Director’s take home pay to statutory remuneration is detailed below as an example: with Australian Accounting Standards and differ from the take home pay summary on page 47. These differences arise due to the accounting treatment of long service leave and share-based payments. The remuneration packages for all Senior Executives remain 2017 2016 unchanged from 2016, in their base currency. Any changes in remuneration in the following table, excluding STIP awards and $ $ compensating payment for LTI scale back, are the result of foreign exchange movements only, as detailed below. Take home pay for the Managing Director 934,259 763,418 Key Post- Treatment of Long Service Leave: Management Short term employment Other long Cash paid Share based Performance Person employment benefits benefits term in lieu payments Total related Add: Movement in the accounting provision for long service leave entitlements 7,683 (19,735) Compensating Treatment of performance rights: Long service payment for LTIP Performance Salary STIP bonus(i) Superannuation leave(ii) scaleback Rights(iii) Add: accounting fair value (non-cash) of performance rights recognised in the period 292,776 271,181

$ $ $ $ $ $ $ % Less: valuation of performance rights vested at date of vesting - - 2017 Statutory pay for the Managing Director 1,234,718 1,014,864 Executive Directors T Carstens 406,800 367,299 30,000 7,683 130,160 292,776 1,234,718 64.0 NON-EXECUTIVE DIRECTOR REMUNERATION C Bwye 401,800 354,195 35,000 14,026 130,160 292,776 1,227,957 63.3 Other Key Management Personnel Shareholders approve the maximum aggregate remuneration for non-executive directors. Fees paid to non-executive directors are recommended by the Remuneration & Nomination Committee and the Board is responsible for approving any recommendations, K Balloch 320,000 150,091 30,000 10,531 52,148 116,595 679,365 46.9 if appropriate. As approved at the Annual General Meeting on 28 November 2011, the aggregate limit of fees payable per annum is C Forbes (iv) 395,562 170,713 - - 58,936 150,987 776,198 49.0 $750,000 in total. Non-executive director remuneration for the 2017 financial year remained unchanged from 2016. A Greyling 280,000 132,720 35,000 679 46,933 67,349 562,681 43.9 S Hay 360,000 173,094 30,000 7,563 58,107 130,704 759,468 47.7 The Group’s policy is that non-executive director remuneration is structured to exclude equity-based remuneration and reviewed J Schwarz (v) 434,483 173,181 - - 64,735 138,838 811,237 46.4 annually. D Vickers (v) 571,374 186,563 - - 67,255 144,241 969,433 41.1 All directors have their indemnity insurance paid by the Group. Total 3,170,019 1,707,856 160,000 40,482 608,434 1,334,266 7,021,057 - Non-executive directors receive a fixed fee remuneration consisting of a cash fee and statutory superannuation contributions made 2016 by the Group and additional fees for committee roles as set out below: Executive Directors T Carstens 406,800 326,618 30,000 (19,735) - 271,181 1,014,864 58.9 2017 2016 C Bwye 401,800 317,882 35,000 6,698 - 271,181 1,032,561 57.0 $ $ Other Key Management Personnel Base fees K Balloch 320,000 146,410 30,000 4,178 - 105,987 606,575 41.6 C Forbes (iv) 479,853 149,093 - - - 136,353 765,299 37.3 Chairman 135,400 110,000 A Greyling (vi) 256,667 106,651 32,082 216 - 30,298 425,914 32.2 Other non-executive directors 70,000 70,000 S Hay 360,000 151,442 30,000 2,138 - 119,800 663,380 40.9 Remuneration & Nomination Committee J Schwarz (v) 449,815 164,869 - - - 119,265 733,949 38.7 Chair - 10,500 D Vickers (v) 591,536 178,169 - - - 123,835 893,540 33.8 Committee member 5,250 5,250 Total 3,266,471 1,541,134 157,082 (6,505) - 1,177,900 6,136,082 - Audit Committee (i) Current year STIP awards are accrued in the financial year to which the performance relates. Chair 14,000 14,000 (ii) Long service leave entitlement represents the movement in the provision. Due to a change in calculation methodology a reduction in the provision occurred during the 2016 financial year, impacting some employees. Committee member 7,000 7,000 (iii) The fair value of performance rights is calculated at the date of grant using a Monte Carlo Simulation model and recognised over the period in Risk Committee which the minimum service conditions are fulfilled (the vesting period). The value disclosed is the portion of the fair value of the performance rights recognised in the reporting period. The amount included as remuneration is not necessarily the benefit (if any) that individual Senior Executive may Chair 7,900 5,925 ultimately receive. Committee member 3,900 2,925 (iv) Total remuneration package denominated in Pounds sterling (GBP) and converted to Australian dollars (A$) for reporting purposes using the average exchange rate for the 2017 financial year of 0.5949 (2016: 0.4904).

(v) Total remuneration package denominated in US dollars (US$) and converted to Australian dollars (A$) for reporting purposes using the average exchange rate for the 2017 financial year of 0.7540 (2016: 0.7283).

(vi) Appointed 1 August 2015. Remuneration report 51 Base Resources Annual Report 2017

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NON-EXECUTIVE REMUNERATION FOR THE YEAR ENDED 30 JUNE 2017 AND The table below outlines movements in performance rights during 2017 and the balance held by each COMPARATIVE 2016 REMUNERATION: Senior Executive at 30 June 2017:

Fair value Remuneration Number of of each Number Number & Nomination performance performance vested lapsed Balance at Base fees Audit committee committee Risk committee Total Name Grant date(i) rights right Vesting date(ii) during year during year end of year $ $ $ $ $ T Carstens 1 October 2013 1,413,914 $0.2300 30 September 2016 - 1,413,914 - 2017 1 October 2014 1,799,394 $0.1400 30 September 2017 - - 1,799,394 1 October 2015 6,964,806 $0.0380 30 September 2018 - - 6,964,806 K Spence(i) 135,400 - - - 135,400 1 October 2016 1,725,567 $0.1625 30 September 2019 - - 1,725,567 S Willis 70,000 14,000 5,250 3,900 93,150 11,903,681 - 1,413,914 10,489,767 M Anderson 70,000 7,000 - - 77,000 C Bwye 1 October 2013 1,413,914 $0.2300 30 September 2016 - 1,413,914 - M Macpherson 70,000 7,000 5,250 3,292 85,542 1 October 2014 1,799,394 $0.1400 30 September 2017 - - 1,799,394 M Stirzaker 70,000 - 5,250 3,900 79,150 1 October 2015 6,964,806 $0.0380 30 September 2018 - - 6,964,806 Total 415,400 28,000 15,750 11,092 470,242 1 October 2016 1,725,567 $0.1625 30 September 2019 - - 1,725,567 2016 11,903,681 - 1,413,914 10,489,767 K Spence 110,000 7,000 10,500 5,925 133,425 K Balloch 1 October 2013 538,958 $0.2300 30 September 2016 - 538,958 - S Willis 70,000 14,000 5,250 2,925 92,175 1 October 2014 720,912 $0.1400 30 September 2017 - - 720,912 M Anderson 70,000 7,000 - - 77,000 1 October 2015 2,790,387 $0.0380 30 September 2018 - - 2,790,387 1 October 2016 691,333 $0.1625 30 September 2019 - - 691,333 M Macpherson 70,000 7,000 5,250 - 82,250 4,741,590 - 538,958 4,202,632 M Stirzaker 70,000 - 5,250 2,925 78,175 C Forbes 1 October 2013 660,763 $0.2300 30 September 2016 - 660,763 - Total 390,000 35,000 26,250 11,775 463,025 1 October 2014 900,761 $0.1400 30 September 2017 - - 900,761 (i) In 2017 Mr Spence was remunerated in his role as Chairman, which encompassed any committee roles he performed. 1 October 2015 4,072,275 $0.0380 30 September 2018 - - 4,072,275 1 October 2016 804,474 $0.1625 30 September 2019 - - 804,474 EQUITY INSTRUMENTS 6,438,273 - 660,763 5,777,510 A Greyling 1 August 2015 108,731 $0.1400 30 September 2017 - - 108,731 Performance Rights 1 October 2015 2,511,348 $0.0380 30 September 2018 - - 2,511,348 1 October 2016 622,200 $0.1625 30 September 2019 - - 622,200 3,242,279 - - 3,242,279 The LTIP was introduced during the 2012 financial year with effect from 1 October 2011. Under the plan, the Board may offer S Hay 1 October 2013 631,212 $0.2300 30 September 2016 - 631,212 - performance rights to eligible employees. During the 2017 financial year, performance rights were granted to Senior Executives as 1 October 2014 803,301 $0.1400 30 September 2017 - - 803,301 part of their 2017 remuneration packages. 1 October 2015 3,109,289 $0.0380 30 September 2018 - - 3,109,289 The LTIP operates on the basis of a series of cycles. Each cycle commences on 1 October and is followed by a 3-year performance 1 October 2016 770,343 $0.1625 30 September 2019 - - 770,343 period, with a test date on the 3rd anniversary of the commencement of the Cycle. The first Cycle of the LTIP began on 1 October 5,314,145 - 631,212 4,682,933 2011, with the award formalised on 30 June 2012. J Schwarz 1 October 2013 569,026 $0.2300 30 September 2016 - 569,026 - 1 October 2014 772,582 $0.1400 30 September 2017 - - 772,582 1 October 2015 3,685,863 $0.0380 30 September 2018 - - 3,685,863 1 October 2016 853,160 $0.1625 30 September 2019 - - 853,160 5,880,631 - 569,026 5,311,605 D Vickers 1 October 2013 591,172 $0.2300 30 September 2016 - 591,172 - 1 October 2014 802,650 $0.1400 30 September 2017 - - 802,650 1 October 2015 3,829,314 $0.0380 30 September 2018 - - 3,829,314 1 October 2016 886,365 $0.1625 30 September 2019 - - 886,365 6,109,501 - 591,172 5,518,329 55,533,781 - 5,818,959 49,714,822

(i) The amount expensed per the remuneration table reflects the period since commencement of services when the Group and the Senior Executive had a shared understanding of the award.

(ii) On the vesting date, performance rights are tested against the performance criteria and only those performance rights that satisfy the performance criteria vest. Remuneration report 53 Base Resources Annual Report 2017

- audited Remuneration report - audited

KEY MANAGEMENT PERSONNEL PERFORMANCE RIGHTS MOVEMENTS EXECUTIVE KEY MANAGEMENT PERSONNEL EMPLOYMENT ARRANGEMENTS

Balance 1 July Granted Vested Lapsed Balance 30 June The employment arrangements of the executive KMPs are formalised in standard employment agreements. Details of the termination provisions contained in the agreements are provided below. 2017 T Carstens 10,178,114 1,725,567 - 1,413,914 10,489,767 Name Term of contract Notice period by either party Termination benefit C Bwye 10,178,114 1,725,567 - 1,413,914 10,489,767 T Carstens Permanent – ongoing 3 months’ notice by the employee 12 months fixed K Balloch 4,050,257 691,333 - 538,958 4,202,632 until notice has been remuneration in the case C Forbes 5,633,799 804,474 - 660,763 5,777,510 given by either party 1 month’s notice for termination by Company if of termination by the A Greyling 2,620,079 622,200 - - 3,242,279 unable to perform duties by reason of illness Company S Hay 4,543,802 770,343 - 631,212 4,682,933 No notice required for termination by Company for J Schwarz 5,027,471 853,160 - 569,026 5,311,605 cause D Vickers 5,223,136 886,365 - 591,172 5,518,329 47,454,772 8,079,009 - 5,818,959 49,714,822 C Bwye Permanent – ongoing 3 months’ notice by the employee 6 months fixed until notice has been remuneration in the case K Balloch given by either party 1 month’s notice for termination by Company of termination by the KEY MANAGEMENT PERSONNEL SHAREHOLDINGS for serious breach of employment agreement, Company C Forbes incompetence, gross misconduct or refusing to comply with lawful direction given by the Company (3 month’s remuneration A Greyling The number of ordinary shares in Base Resources held by each director and KMP of the Group during the financial year is as follows: for C Forbes and A No notice required for termination by Company if S Hay Greyling) Vesting of convicted of any major criminal offence Balance 1 July Performance Rights Purchased Sold Balance 30 June J Schwarz Company may elect to make payment in lieu of notice 2017 D Vickers K Spence - - 500,000 - 500,000 T Carstens 1,228,522 - - - 1,228,522 This Report of Directors, incorporating the Remuneration Report, is signed in accordance with a resolution of the Board of Directors. C Bwye 1,842,739 - - - 1,842,739 S Willis 200,000 - - - 200,000 M Anderson - - - - - M Macpherson - - - - - M Stirzaker - - - - - K Balloch 108,948 - - - 108,948 C Forbes 130,646 - - - 130,646 A Greyling 1,411,154 - - - 1,411,154 S Hay - - - - - Keith Spence, J Schwarz 286,085 - - - 286,085 Chairman D Vickers 190,752 - - - 190,752 Dated: 26 August 2017 5,398,846 - 500,000 - 5,898,846

Corporate governance 55 Base Resources Annual Report 2017 Corporate governance

The Company is committed to implementing the highest standards of corporate governance to create Skills and experience and deliver value for shareholders. The Directors on the Board collectively have a combination of skills and experience in the competencies set out in the table below. The Board has established this set of competencies to assist in assessing the skills and experience of each Director and the combined capabilities of the Board. As an ASX listed entity, Director – Operations & A full list of those matters management that are open, the Company must comply Development) and the reserved to the Board and cordial and conducive to Area Competency with the ASX Listing executive management team. those matters delegated to productive cooperation. Resources industry Experience in the resources industry, including broad knowledge of exploration, operations, Rules and is required to Among other things, the management is set out in experience project development, markets, shipping and competitors. report against the ASX Board reserves responsibility the Board Charter. These A Director’s independence is assessed in accordance Corporate Governance for overseeing the business delegations are further Mineral sands industry Specific experience in the mineral sands industry, including an in depth knowledge of exploration, with the Definition of Council’s Corporate and affairs of the Company, documented by way of the experience operations, project development, markets, shipping, competitors and relevant technology. Governance Principles and including its control and Delegation of Authority Independence set out in the Recommendations accountability systems, Standard which is reviewed Board Charter. The Chairman Strategy Identifying and critically assessing strategic opportunities and threats to an organisation and (ASX Recommendations). setting the strategic direction and approved by the Board is considered independent, developing and implementing successful strategies in context to the organisation’s policies and of the Company, reviewing at least annually. along with fellow non- business objectives. The Board considers that and ratifying systems of risk executive Directors Mr Willis throughout the financial management and internal The Company Secretary is and Mr Macpherson. Two of Mergers & acquisitions Experience managing, directing or advising on mergers, acquisitions, divestments and portfolio year ended 30 June 2017 compliance and control, appointed by the Board and the Board’s non-executive optimisations. the Company complied with codes of conduct and legal is accountable to the Board, Directors, Mr Anderson Finance Senior executive or other relevant experience in financial accounting and reporting, internal the ASX Recommendations, compliance and ensuring a through the Chairman, on all (resigned 31 August 2017) financial and risk controls, corporate finance and, restructuring corporate transactions. except to the limited extent high standard of corporate matters to do with the proper and Mr Stirzaker are not noted in this statement. governance practice and functioning of the Board. The considered independent Risk management Experience working with and applying broad risk management frameworks in various country, regulatory compliance Company Secretary’s role as a consequence of their This statement is current includes providing advice respective relationships regulatory or business environments, identifying key risks to an organisation, monitoring risks and as at 30 June 2017 and has and promoting ethical and compliance and knowledge of legal and regulatory requirements. responsible decision making. to the Board on corporate with two of the Company’s been approved by the Board. governance matters, with all substantial shareholders. Government relations Senior management or equivalent experience working in diverse international political, cultural, Where appropriate, the The Board delegates Directors having access to the Due to the current regulatory and business environments. statement also highlights responsibility for the day-to- advice and services provided composition of the Board, relevant events that have day operations, management by the Company Secretary. the Company does not comply occurred since 30 June Capital projects; financing/ Experience with projects involving contractual negotiations, project management, significant and administration of with ASX Recommendation project management capital outlays and long investment horizons. 2017 with respect to the the Company to EXCO in Composition of 2.4 that a majority of the governance practices of the the Board accordance with the strategy Board should be independent. Sustainable development Senior management or equivalent experience in workplace health and safety, environmental and Company. approved by the Board. While the Board recognises social responsibility, and community. EXCO’s joint responsibilities As at 30 June 2017, the the importance of having BOARD OF DIRECTORS include effective leadership Board consisted of five non- appropriate independence on Previous board experience Serving on boards of varying size and composition, in varying industries and for a range of of the Company, preparation, executive Directors and two the Board, the Board is satisfied organisations. An awareness of global practices and benchmarking and some internal experience. Role of the Board and implementation of, executive Directors (being that its composition does not development and operational the Managing Director and impact the Board’s ability to Governance Implementing the high standards of governance in a major organisation that is subject to rigorous plans, policies and procedures the Executive Director – act in accordance with the best governance standards, and assessing the effectiveness of senior management. The Board Charter sets to achieve the strategic, Operations & Development). interests of the Company and out the Board’s role, operational and financial its shareholders generally. Policy Identifying key issues for an organisation and developing appropriate policy parameters within The Chairman, Mr Spence, powers and duties and objectives of the Company, which the organisation should operate. is responsible for leadership establishes the functions and management of the day to and effective performance Executive leadership Experience in evaluating the performance of senior management, overseeing strategic human responsibilities reserved for day affairs of the Company, of the Board and for the capital planning, industrial relations, organisational change management and sustainable success the Board and those which identifying and managing maintenance of relations in business at a senior level. are delegated to EXCO business risks and managing (comprising the Managing between Directors and the Company’s financial and Remuneration Remuneration and/or nomination committee membership or management experience in relation Director and the Executive other reporting mechanisms. to succession planning, remuneration, talent management (including incentive programmes, superannuation), and the legislative and contractual framework governing remuneration. Corporate governance 57 Base Resources Annual Report 2017 Corporate governance

Details of the skills, induction materials provided independent recruitment the Chairman and each considers appropriate. The The Audit Committee had are non-executive Directors Taurus Refinancing experiences, expertise and to new appointees include firm to undertake a search Committee and its Chairman. Board has established an Audit four members as at 30 June and a majority of whom are Committee period of service of each information on the Company’s for suitable candidates. Committee, Remuneration & 2017, which during the year independent. Members of the The key outcomes of the In June 2016, the Board Director is set out on pages culture, including the “Base The Company undertakes Nomination Committee and were Mr Willis, Mr Spence, Committee were Mr Spence, questionnaire process were established the ad hoc Taurus 31 to 33 of the Annual Report. Way” (the set of core beliefs appropriate background Risk Committee. In addition to Mr Anderson (resigned Mr Willis, Mr Macpherson and analysed and considered Refinancing Committee which The Board considers that and principles that permeate and screening checks prior these standing Committees, 31 August 2017) and Mr Stirzaker. Mr Spence, an at subsequent Board and had the primary purpose collectively the Directors have every aspect of the Company’s to nominating an individual in June 2016 the Board Mr Macpherson all of whom independent non-executive Committee meetings. The of assisting the Board in the range of skills, knowledge, business and describes the for election as a Director by established an ad hoc Taurus are non-executive Directors Director, is Committee Chairman also undertook assessing the available experience and competencies Company’s desired culture). shareholders, and provides Refinancing Committee to and a majority of whom are Chairman. separate review discussions options for repayment or necessary to effectively direct shareholders all material with each individual Director. assist the Board in assessing independent. Mr Willis, an Directors are expected to refinancing of the Company’s the Company. That said, the information in its possession Overall, the results of the the available options for independent non-executive Risk Committee maintain the skills necessary US$20 million facility from Board has identified certain concerning a Director review process were pleasing, repayment or refinancing Director, is Committee to discharge their obligations In July 2015, the Board Taurus Funds Management. areas and competencies in standing for election or re- indicating that the Board, its of the Company’s US$20 Chairman. to the Company and its established a Risk Committee The Taurus Refinancing which continued development election in the explanatory Committees and individual million facility from Taurus shareholders. The Company which has the role of assisting Committee was not a is desirable. These areas will memorandum accompanying Directors are considered to be Funds Management. As this Remuneration & provides the Board with the Board with identification separately remunerated be the focus of continuing the relevant notice of meeting. performing their respective facility was retired in July Nomination Committee regular information on and management of business committee. Members of the Board education during 2017, the Taurus Refinancing roles effectively. The review The role of the Remuneration and operational risks faced by Committee were Mr Willis, the next year and will be industry-related matters Board performance Committee was no longer process also identified a small & Nomination Committee the Company to a standard Mr Spence, Mr Carstens and considered as part of Board and new developments with evaluation required and was formally number of opportunities with respect to remuneration that takes into account the the Company’s Chief Financial succession planning. the potential to affect the dissolved by the Board in for improvement that will matters is to assist the Board reasonable expectations of Officer whom had been Company. When a particular It is the Company’s policy August 2017. be addressed through the in fulfilling its oversight the Company’s shareholders, seconded to the Committee. Director appointment, need is identified (for example, that once a year, the Board coming year. responsibilities in relation employees, customers, Mr Willis, an independent induction, training and arising from a Board function will review and critically The Committees generally to the overall remuneration suppliers, creditors and the non-executive Director, was continuing education review), the Company will evaluate the performance Director retirement operate in a review or advisory strategy of the Company, and broader community in which Committee Chairman. As this organise specific structured of the Board, the Board and re-election capacity, except in limited its specific application to EXCO the Company operates. facility was retired in July All new non-executive professional development Committees and individual circumstances where the and the senior management 2017, the Taurus Refinancing Directors are required opportunities for Directors. Directors. The Board sets Board’s powers are specifically With the exception of the team, and reviewing and The Risk Committee conducts Committee was no longer to execute a letter of the method and scope of the delegated to a Committee. The Board manages Managing Director, directors approving any equity based a full review and update required and was formally appointment which sets out performance evaluation each Each Committee has a charter succession planning with must retire at the third AGM plans and other incentive of the Company’s material dissolved by the Board in the key terms and conditions year, which typically includes detailing its role, duties and the assistance of the following their last election schemes. This role is designed business risk register and August 2017. of their appointment, self-assessments designed membership requirements. Remuneration & Nomination or re-election. At least one to assist in ensuring that risk management framework including duties, rights and to effectively review the These charters are reviewed Committee. No new Director must stand for the executive remuneration regularly, and at least annually. responsibilities, envisioned performance of the Board regularly, and at least annually, SHAREHOLDER appointments were made to election at each AGM. Any policy demonstrates a time commitments and the and each of its Committees and are updated as required. The Risk Committee has COMMUNICATION the Board during the financial director appointed to fill clear relationship between Board’s expectations with against the requirements of four members, all of whom year ended 30 June 2017. a casual vacancy since the Details of the skills, executive performance and respect to committee work. their specific charters and are non-executive Directors General Should a vacancy exist or date of the previous AGM experiences and expertise remuneration. Executive directors and all the individual performance of and a majority of whom are should it otherwise become retires at the next AGM and of each member of the senior executives enter into each Director. In appropriate The role of the Committee independent. Members of the appropriate for Board is eligible for election. Board respective Committees of the The Board recognises the employment agreements circumstances, the Board with respect to nomination Committee are Mr Spence, changes to be implemented, support for a Director’s Board is set out on pages 31 importance of regular and which govern the terms of performance evaluation may matters is to support the Board Mr Willis, Mr Stirzaker and, it is the responsibility of the re-election is not automatic to 33 of the Annual Report. proactive interaction with their employment. involve engagement of a in fulfilling its responsibilities with effect from 1 February Remuneration & Nomination and is subject to satisfactory Details of the Committee the market to ensure the third-party Board advisor. The by maintaining a Board that 2017, Mr Macpherson. An induction plan is tailored Committee (among other Director performance. It is meetings held during the year Company’s investors and key process for this annual review has an appropriate mix of skills Mr Spence, an independent for the specific needs of things) to identify and the role of the Remuneration and attendances of members stakeholders remain informed is set out in further detail in and experience, developing non-executive Director, any new appointee to recommend to the Board & Nomination Committee at those meetings is set out on about the Company’s the Board Charter. the processes for evaluation acted as Committee Chairman the Board. The induction candidates for the Board after to consider and recommend page 33 of the Annual Report. activities. The Company has an of performance of the Board until 31 January 2017. process typically includes a considering the necessary and A performance evaluation of to the Board candidates for investor relations programme and its Committees, ensuring Mr Macpherson joined the comprehensive overview of desirable competencies of the Board, its Committees election or re-election to the Audit Committee designed to facilitate effective the Company’s Diversity Policy Committee with effect from the Company’s governance new Board members to ensure and individual Directors Board. two-way communication with The role of the Audit is implemented in respect of 1 February 2017 and was policies and procedures, the appropriate mix of skills, was undertaken during the shareholders. Committee is to assist the the Board and managing the nominated as Committee discussions with each experience, expertise and reporting period ended Committees of Board to meet its oversight process for identifying and Chairman from that time. The Company’s Continuous member of EXCO and the diversity, and after assessment 30 June 2017. This review the Board responsibilities in relation to the selecting new Directors. The change in Committee Disclosure and Market executive management of how the candidate can comprised of a questionnaire Company’s financial reporting, Chairman during the year Communications Policy team and a site visit to the contribute to the strategic process completed by each Under the Company’s compliance with legal and The Remuneration & was intended to address a sets out the Company’s Company’s key operating direction of the Company. Director designed to assess Constitution the Board may regulatory requirements and Nomination Committee has potential concern about the commitment to: asset in Kwale, Kenya. The The Board may engage an performance of the Board, delegate its powers as it external audit function. four members, all of whom workload of Mr Spence. Corporate governance 59 Base Resources Annual Report 2017 Corporate governance

• communicating effectively • it is general practice • a reports section, which provides that the Managing and Standards) adopted • Requiring third parties the verification and full Any dealing in the Company’s with shareholders through for a presentation on contains copies of annual, Director and the Company by the Company that who act on the Company’s publication of payments securities by Directors is releases to the market via the Company’s recent half yearly and quarterly Secretary are primarily apply to the Company and behalf to comply with the by companies and use of notified to ASX, and any ASX and AIM, information activities to be made to reports; and responsible for ensuring that its subsidiaries and their Integrity Policy and the government revenues derived dealing by directors or mailed to shareholders shareholders at each the Company complies with its respective employees which Integrity Standard. from oil, gas and mining. other persons discharging • a market releases (e.g. notices of meetings annual general meeting; disclosure obligations and for underpin the Company’s The Company provides management responsibility is section containing and explanatory material and overseeing and co-ordinating commitment to integrity and • Requiring all employees these publications via the notified to AIM and the United ASX announcements and periodic disclosure, the disclosure of information fair dealing in its business to confront inappropriate governance section of the Kingdom’s Financial Conduct • at annual general meetings, (including full text of such as annual, half yearly to relevant stock exchanges, affairs and to its duty of care behaviour in others. Base Titanium website (www. Authority, without delay. it is both the Company’s notices of meeting and and quarterly reporting of shareholders and applicable to employees, customers basetitanium.com). Directors and employees policy and the policy of the explanatory material) and • Including demonstrating exploration, production and regulatory authorities. To and stakeholders. Breaches participating in equity based Company’s auditor for the a presentations section the “Base Way” as a corporate activities) and assist in this process, it is of the Code of Conduct may Securities ownership incentive plans are also lead engagement partner containing power point specific accountability in the general meetings of the the responsibility of every lead to disciplinary action, as and dealing prohibited from entering into to be present at the annual presentations. every role description. Company; Director and employee outlined in the Company’s any transaction which would general meeting to answer to report to the Company Unacceptable Performance The Integrity Standard further The Company’s Securities have the effect of hedging or • giving shareholders ready any questions regarding the Further information about Secretary any potentially price and Misconduct System. sets out the responsibilities Trading Policy (which was otherwise transferring to any access to balanced and conduct of the audit and the operations at the Kwale Project are made available sensitive information which and limits of discretion of last updated with effect other person the risk of any understandable information preparation and content of The Company’s Integrity from the website of the that person has obtained. To the Company’s personnel from 1 September 2016) fluctuation in the value of any about the Company and the auditor’s report. Policy expands on the Company’s wholly-owned the full extent practical (having in observing and upholding applies to Directors and unvested entitlement in the corporate proposals; and Company’s commitment to The Company’s website operating subsidiary, regard to the requirement the absolute prohibition employees of the Company Company’s securities. conducting its business in • making it easy for (www.baseresources.com.au) Base Titanium for immediate disclosure in on bribery, corruption and and its subsidiaries. This policy a legal, honest and ethical Strict compliance with the shareholders to participate provides information about (www.basetitanium.com). certain circumstances), the related improper conduct provides a brief summary manner by: Securities Trading Policy is in general meetings of the the Company generally for Board is given the opportunity and provides information of the law on insider trading The Company provides mandatory for all Directors Company. the benefit of its shareholders, to review and comment on • Prohibiting bribery and and guidance on how to and sets out the policy the opportunity for and and employees of the market participants and key material announcements prior corruption in all forms. recognise and deal with requirements for the sale, The Board further recognises encourages shareholders to Company and its subsidiaries. stakeholders. The Company’s to their release. Employees must not instances of potential bribery purchase and conversion/ the rights of shareholders receive communications from, Any breach of this policy website is promptly updated commit, or be a party to, or and corruption. A breach of exercise of the Company’s and encourages the effective and send communications to, is taken seriously and is with material released to ASX be involved in bribery or the Integrity Standard by a securities by Directors and exercise of those rights through the Company and its securities PROMOTING subject to disciplinary action, and AIM after confirmation of corruption. member of the Company’s employees. The purpose of the the following means: RESPONSIBLE AND including possible termination release by ASX. All information registry electronically. The ETHICAL BEHAVIOURS personnel will be regarded policy is to: Company makes available • Ensuring that gifts, as serious misconduct, and of a person’s employment or • notices of meeting and available on the Company’s telephone, fax and email entertainment, travel and will lead to disciplinary action • assist Directors and appointment. other meeting materials website is regularly reviewed The ‘Base Way’, Code of contact details on its website per diem reimbursements which may include termination employees to avoid are drafted in concise and and updated to ensure Conduct and Integrity through which shareholders are not given or received as of employment. The Company conduct known as “insider clear language and are that information is current, System RISK MANAGEMENT are welcomed to contact a reward or encouragement also has a Whistleblower trading”; distributed in accordance or appropriately dated AND INTERNAL the Company. for preferential treatment. System to provide a CONTROLS with the provisions of the and archived. Of note, the • explain the type of conduct The ‘Base Way’ sets out the confidential mechanism Corporations Act; Company’s website includes in relation to dealings in Continuous unifying set of beliefs and • The Company not the following sections which for employees to hold their securities of the Company Approach to risk • shareholders are disclosure and market behavioural expectations participating in party contain relevant information leaders and co-workers that is prohibited under the management internal encouraged to use their communications for the Company and politics. The Company does for shareholders: accountable if not behaving Corporations Act and the controls attendance at meetings to its employees, including not make payments to with absolute integrity. European Union’s Market ask questions on relevant • a governance section, which The Company is committed the Company’s absolute political parties or individual Abuse Regulation; and The Company recognises matters, with time being contains the Company’s to ensuring that shareholders commitment to conducting its politicians. The Company is a signatory that risk is an integral and specifically set aside at each current Constitution, and the market are provided business in a legal, honest and to the Extractive Industries • establish a procedure • Not making charitable unavoidable component of its meeting for shareholder relevant governance with full and timely ethical manner. Transparency Initiative (EITI), relating to dealing in the donations or sponsorships business and is characterised questions; policies and practices, Board information about the which was launched in 2002 Company’s securities The Company’s Code of that could be perceived by both risk and opportunity. and Board Committee Company and its activities at the World Summit for that provides best • shareholders are Conduct provides an overview as bribes or payments to The effective management Charters; and that all investors Sustainable Development. practice protection to the encouraged to participate of the framework for decision gain an improper business of risk enables the Company have equal opportunity to The EITI has put in place Company, its Directors in voting on proposed • a Board and management making and actions in advantage. to enhance opportunities, receive externally available a reporting system to and employees against resolutions by either section, which contains relation to ethical conduct in reduce threats and in so information issued by the • Employees ensuring their encourage transparency and the misuse of unpublished attending the meeting or the names and brief employment at the Company doing represent a source of Company. personal activities and accountability in the receipt information which could by way of lodgement of biographical information for and its subsidiaries. The competitive advantage. The interests do not conflict and use by Governments of materially affect the price proxies, if shareholders each of the Directors and The Company’s Continuous Code of Conduct summarises Company is committed to with their responsibilities to revenues from extractive or value of the Company’s are unable to attend the senior executives; Disclosure and Market the key business systems managing risk in a proactive the Company. industries. EITI supports securities. meeting; Communications Policy (including relevant Policies good governance through manner that is integrated Corporate governance 61 Base Resources Annual Report 2017 Corporate governance

throughout the business internal control system to and controls, monitoring Communities Policy is based on Project’s environmental • Employing on the basis of has been establishment of an to consider diversity and informs all decision manage the Company’s the effectiveness of risk working together in a way that function based on an job requirements and merit operational workforce that when reviewing Board making as part of day to day material business risks; controls and reporting on risk allows broad participation of environmental management without discriminating on delivers on commitments succession plans with management. management and performance. affected people through mutual system guided by the the grounds of age, ethnic to maximise employment the aim to have gender • reviewing at least Management also maintains respect and demonstrates Environmental Policy. Refer or social origin, gender, opportunities for local representation and greater Risk management roles annually the Company’s the Material Business Risk the Company’s long-term to pages 9 to 13 of the Annual sexual orientation, politics communities, whilst achieving diversity. and responsibilities risk management and Register, which is considered commitment to delivering Report for more detail on or religion. the highest standards of internal control system The above objectives were by the Risk Committee on a real, tangible and sustainable the Company’s current operational and safety and reporting to the • Ensuring its people are considered appropriate The Company established regular basis – typically at each benefits. The Company’s social sustainability practices. performance. As at 30 Board on its efficiency and trained to work, and then for the Company given its a Risk Committee of the Committee meeting. management systems have June 2017, the Company effectiveness; working, in safe, healthy current state of operations, Board in July 2015. The Risk been prepared to the highest is pleased to report that it The Company is exposed CEO AND CFO and environmentally in particular reflecting Committee’s role is to assist • reviewing the risk reports international standards to ASSURANCE employed 95.4% Kenyan to a number of risks across responsible ways. the relative stability of the Board in monitoring risk, produced by management guide the Company in achieving national employees at Kwale, its business, which it seeks the Company’s workforce with a full review and update and reviewing this objective. • Requiring managers to an increase from the 94.5% to manage in a manner The Board receives which naturally reduces the of the Company’s material the efficiency and be models of the highest employed as at 30 June 2016. consistent with its Risk The Company is also committed monthly reports on the opportunities to increase business risk register and effectiveness of that risk standards of behaviour This increase evidences Management Framework. to undertaking its activities in group’s financial and gender diversity as rapidly risk management framework management and internal and to demonstrate visible the effectiveness of the These risks are categorised a way that minimises impact operational results. Before going forward. occurring regularly, and at control system; leadership. The Company’s Company’s systems which are by the Company as strategic on the environment. The adoption by the Board of the least annually. employees must treat designed to drive a structured The Board is pleased to (e.g. the Company’s ability to Company’s Environmental 31 December 2016 half-year • developing and each other and those transfer of skills over time. report that for the financial The Company does not execute its growth strategy, Policy and the “Base Way” and 30 June 2017 full-year maintaining a risk register they deal with externally year ended 30 June 2017, access to exploration drive the Company’s financial statements, the Audit While the primary focus to have a formal internal audit which identifies the with dignity, fairness and the group maintained the opportunities), financial (e.g. commitment to preventing Committee and the Board date has been on maximising function, however it has material business risks respect. The Company’s overall percentage of women funding continuity), regulatory pollution, minimising impacts, received written declarations Kenyan participation, a well-established Risk to the Company and its employees must guard employed and satisfied its (e.g. political, mining and contributing to protecting from the Managing Director workforce establishment and Management Framework. operations (including against harassment in the set objective of maintaining fiscal policy) or operational and conserving biodiversity and the Chief Financial performance enhancement, The Risk Committee annually economic, environmental workplace. female representation in (e.g. community, safety, and driving environmentally Officer that, in their opinion, in July 2015 the Company’s reviews the need for a formal and social sustainability graduate and apprentice security, human resources and responsible behaviour. the financial records of the • Maintaining codes of Diversity Standard was internal audit function and risks) and assessing programmes at or above production). Company had been properly conduct and performance revised to require that when last considered at the the likelihood of their one third. The Company believes maintained and the financial the Board set measurable March 2017 Committee occurrence; standards that establish The Company has identified that good environmental statements comply with meeting, the Committee sound conditions of objectives for achieving The Company considers • periodically reviewing the that it has a material exposure performance contributes to the appropriate accounting determined that a formal work and disciplinary gender diversity, for those that, given the relatively low scope and adequacy of to certain environmental business success. The Company standards and give a true internal audit process was procedures in compliance objectives to be reviewed turnover of senior employees, the Company’s insurance, and social sustainability empowers its employees to and fair view of the financial annually and for the Board to not required or justifiable at with all applicable laws and the group’s graduate and risks associated with its work in an environmentally having regard to the position and performance of which uphold human rights assess annually progress in apprenticeship programmes this time. It is noted, however, responsible manner and Company’s business and its operation of the Kwale Project. the Company and that their principles. Remuneration achieving those objectives. continue to represent that this could change in the encourages everyone to associated insurable risks; Communities affected by the opinion had been formed on and incentive systems are the greatest opportunity future - particularly depending take responsibility in this The Board set the following Kwale Project play an integral the basis of a sound system of equitable and transparent. to increase female on execution of the Company’s • overseeing the regard. The Company works measurable objectives which role in the Company’s overall risk management and internal representation within the growth strategy. Company’s operational in partnership with its host • Establishing and applied for the financial year success, which the Company control which was operating Company over time. We note and environmental communities, conservation developing integrated ended 30 June 2017: The Risk Committee is seeks to achieve through a effectively. that recruitment timing and risk management and structured and integrated groups and environmental employment management responsible for reviewing and • Increase the overall overall cycles for our graduate occupational health and community engagement experts to realise its systems that seek approving the Company’s Risk DIVERSITY percentage of women and apprentice programmes safety processes; and approach. The Company objectives and regularly to elevate employee Management Framework, employed by the group. do not correspond with the reviews environmental engagement within the Risk Policy and key risk • overseeing procedures for strives to build lasting and financial year. Therefore, the performance to achieve The Company values and Company to a recognised • Maintain female parameters at least annually, whistleblower protection. beneficial relationships with figures reported as at the end continuous improvement. A encourages a diverse competitive advantage. representation in with the Committee having its communities. By supporting of the financial year are not Management is responsible comprehensive understanding workforce and provides a graduate and apprentice reviewed the Company’s Risk equitable development, the • Including demonstrating always representative of the for promoting and applying of the environmental impacts work environment in which programmes at or above Management Framework Company seeks to establish a the ‘Base Way’ as a balance of persons employed the Risk Policy, which involves during design, construction, everyone is treated fairly, with one third. during the year. The Risk model for future development specific accountability during the period. An example establishing a risk-aware opportunities in other parts of operations and ultimately respect and can realise their Committee is responsible for in every employee’s role • Subject to vacancies, of this is that a large number culture, identifying and Kenya and beyond, in a manner closure of the Kwale Project full potential. As set out further (amongst other things): description. increase the percentage of of apprentices finished their assessing business and that emphasises the value of direct the Company’s in the Company’s Employment women in executive roles programme in May 2017 (and • ensuring that management operational risks, developing local community participation environmental programmes. Policy, the Company seeks to A key focus of the Company (Stratum III and above). therefore are not included in A dedicated and professional achieve this by: since before commencement designs and implements and implementing appropriate and recognises their cultural the financial year-end figures), a risk management and risk strategies, systems heritage. The Company’s team manages the Kwale of operations in late 2013 • Subject to vacancies, Corporate governance Lead Auditor’s 63 Base Resources Annual Report 2017

Independence Declaration Lead Audito’s Independence Declaration

under Section 307C of the Corporations Act 2001 with recruitment for the next During the year ended 30 June Shown below is the intake currently underway and 2017, there were no vacancies Company’s performance in expected to be completed in on the Board and therefore achieving its set objectives October 2017. So, while the set no opportunity presented during the year ended 30 June objective to maintain female itself to increase diversity on 2017, as compared to the two participation in this group at the Board. It is not considered prior periods. or above one third was clearly appropriate for the Board achieved, this will be an area to simply increase its size, of continued focus in FY 2018 however increasing diversity

(including in the upcoming is firmly part of the Board’s To the Directors of Base Resources Limited recruitment process). succession planning. I declare that, to the best of my knowledge and belief, in relation to the audit of Base Resources Limited for the financial year ended 30 June 2017 there have been:

(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and

30 June 2015 30 June 2016 30 June 2017 Change during FY 2017 (ii) no contraventions of any applicable code of professional conduct in relation to the audit. Objective (% women) (% women) (% women) (% women)

Increase the overall percentage of women 15 16 16 0

Female representation in graduate and apprentice 10 28 48 20 programmes at or above one third

Women in executive roles (Stratum III and above) 10 16 15 -1

Board gender diversity 0 0 0 0

KPMG R Gambitta In executive roles, it is The Board has determined The Board will report • Constitution Partner acknowledged that there to maintain the existing progress in achieving the • Board Governance was a slight decrease in measurable objectives for revised objectives in next Plan (including Board Perth female representation during the coming financial year, year’s corporate governance Committee Charters) 26 August 2017 the period attributable to except that the objective statement. • Code of Conduct the addition of one new with respect to female male manager position at representation in graduate • Securities Trading Policy AVAILABILITY OF Kwale operations. This new and apprentice programmes KEY CORPORATE • Continuous Disclosure and manager position was an will be measured based on GOVERNANCE Market Communications elevation of an existing role, the intake of graduates and DOCUMENTS Policy filled by an individual that apprentices as distinct from • Risk Management Policy had been on a long-term simply measuring as at 30 The following suite of the • Environment Policy development programme June and will be subject to the Company’s key corporate • Communities Policy for this promotion, and constraint of the operation of governance policies and consequently this did not the Company’s established procedures are available from • Employment Policy present an opportunity to system for prioritising the Company’s website at • Diversity Standard increase gender diversity employment opportunities to http://www.baseresources. • Health and Safety Policy within management. local communities. com.au/company-profile/ governance/. Consolidated statement Consolidated statement 65 Base Resources Annual Report 2017

of profit or loss & other of financial position Consolidated financial statements comprehensive income as at 30 June 2017 for the year ended 30 June 2017

2017 2016 30 June 2017 30 June 2016 Note $000s $000s Note $000s $000s

Sales revenue 1 215,495 169,039 Current assets Cost of sales 1 (138,117) (133,620) Cash and cash equivalents 36,790 36,295 Profit from operations 77,378 35,419 Restricted cash 5 34,042 29,761 Trade and other receivables 6 57,317 43,544 Corporate and external affairs (10,919) (11,276) Inventories 7 24,090 27,962 Community development costs (3,588) (3,921) Other current assets 5,891 5,826 Selling and distribution costs (2,690) (4,114) Total current assets 158,130 143,388 Other expenses (122) (2,731) Profit before financing costs and income tax 60,059 13,377 Non-current assets Financing costs 1 (31,223) (34,256) Capitalised exploration and evaluation 2,652 1,487 Property, plant and equipment 8 334,634 390,304 Profit / (loss) before income tax 28,836 (20,879) Income tax expense 3 (7,805) (40) Total non-current assets 337,286 391,791 Net profit / (loss) for the year 21,031 (20,919) Total assets 495,416 535,179

Other comprehensive income Current liabilities Items that may be reclassified subsequently to profit or loss: Trade and other payables 9 26,926 24,953 Foreign currency translation differences - foreign operations (6,516) 5,336 Borrowings 10 77,034 61,816 Total other comprehensive (loss) / income for the year (6,516) 5,336 Provisions 11 1,696 1,173 Total comprehensive income / (loss) for the year 14,515 (15,583) Deferred revenue 1,084 1,123 Other liabilities 841 887

Net Earnings / (loss) per share Cents Cents Total current liabilities 107,581 89,952 Basic earnings / (loss) per share (cents per share) 2 2.85 (3.41) Non-current liabilities Diluted earnings / (loss) per share (cents per share) 2 2.63 (3.41) Borrowings 10 114,633 196,291 The accompanying notes form part of these consolidated financial statements. Provisions 11 28,907 28,973 Deferred tax liability 3 7,606 - Deferred revenue 1,897 3,089 Total non-current liabilities 153,043 228,353 Total liabilities 260,624 318,305 Net assets 234,792 216,874

Equity Issued capital 12 225,298 223,548 Reserves 48,246 54,780 Accumulated losses (38,752) (61,454) Total equity 234,792 216,874

The accompanying notes form part of these consolidated financial statements.

Consolidated statement Consolidated statement 67 Base Resources Annual Report 2017

of changes in equity of cash flows Consolidated financial statements

for the year ended 30 June 2017 for the year ended 30 June 2017

Foreign 2017 2016 currency Note $000s $000s Issued Accumulated Share based translation capital losses payment reserve reserve Total Cash flows from operating activities $000s $000s $000s $000s $000s Receipts from customers 201,420 170,765 Payments in the course of operations (101,198) (92,061) Balance at 1 July 2015 214,131 (42,319) 7,037 42,669 221,518 Other (42) (96) Loss for the year - (20,919) - - (20,919) Other comprehensive income - - - 5,336 5,336 Net cash from operating activities 17 100,180 78,608 Total comprehensive income for the year - (20,919) - 5,336 (15,583)

Transactions with owners, recognised directly in equity Cash flows from investing activities Shares issued during the year, net of costs 9,417 - - - 9,417 Purchase of property, plant and equipment (8,474) (4,884) Share based payments - 1,784 (262) - 1,522 Payments for exploration and evaluation (1,217) (13) Balance at 30 June 2016 223,548 (61,454) 6,775 48,005 216,874 Other 375 (174) Net cash used in investing activities (9,316) (5,071) Balance at 1 July 2016 223,548 (61,454) 6,775 48,005 216,874

Profit for the year - 21,031 - - 21,031 Other comprehensive income - - - (6,516) (6,516) Cash flows from financing activities Total comprehensive income for the year - 21,031 - (6,516) 14,515 Proceeds from issue of shares - 10,100 Payment of share issue costs - (683) Transactions with owners, recognised directly in equity Repayment of borrowings (61,849) (31,680) Shares issued during the year, net of costs 1,750 - - - 1,750 Net payments to restricted cash (5,320) (23,230) Share based payments - 1,671 (18) - 1,653 Payments for debt service costs and re-scheduling fees (22,018) (34,632) Balance at 30 June 2017 225,298 (38,752) 6,757 41,489 234,792 Net cash used in financing activities (89,187) (80,125)

The accompanying notes form part of these consolidated financial statements. Net increase / (decrease) in cash held 1,677 (6,588)

Cash at beginning of year 36,295 40,906 Effect of exchange fluctuations on cash held (1,182) 1,977 Cash at end of year 36,790 36,295

The accompanying notes form part of these consolidated financial statements.

Notes to the consolidated Notes to the consolidated 69 financial statements Base Resources Annual Report 2017 financial statements Consolidated financial statements Performance for the year

The consolidated financial statements were approved by the Board of Directors on 26th August 2017.

This section analyses the financial performance of the Group for the year ended 30 June 2017. It includes segment performance, earnings per share and taxation.

WHAT’S NEW IN THIS An introduction at the start To assist in identifying critical Australian Accounting NOTE 1: SEGMENT REPORTING REPORT? of each section to explain accounting judgements, we Standards Board (AASB) its purpose and content has have highlighted them with and the Corporations Act The Group’s 100% owned Kwale Operation is located in Kenya and generates revenue from the sale of rutile, ilmenite and zircon. Over the past year we have been added where relevant. the following formatting: 2001; Other operations include the Group head office (which includes all corporate expenses that cannot be directly attributed to the Kwale reviewed the content and Accounting policies and Operation) and exploration activities not directly related to Kwale Operations. • comply with International structure of the Consolidated critical accounting judgements CRITICAL Financial Reporting Financial Statements looking applied to the preparation ACCOUNTING 2017 2016 Standards (IFRSs) and for opportunities to make of the financial statements ESTIMATES AND interpretations adopted Kwale Other Kwale Other them less complex and have been grouped with the JUDGEMENTS Reportable segment Operation operations Total Operation operations Total by the International more relevant to users. related accounting balance Accounting Standards $000s $000s $000s $000s $000s $000s This included: or financial statement Basis of Preparation matter. Accounting policies Board; Sales revenue 215,495 - 215,495 169,039 - 169,039 • a thorough review of have been documented in Cost of sales: Base Resources Limited • are presented in content to eliminate simple terms to assist the is a company domiciled in Australian dollars, which Operating costs (68,735) - (68,735) (69,647) - (69,647) immaterial disclosures users of the Consolidated Australia. The registered is the Group’s functional Changes in inventories of concentrate that may undermine Financial Statements to better address is located at Level currency and all values are and finished goods (5,033) - (5,033) (5,066) - (5,066) the usefulness of the understand the Group’s 1, 50 Kings Park Road, rounded to the nearest Royalties expense (14,782) - (14,782) (11,845) - (11,845) Consolidated Financial financial position West Perth, WA, 6005. thousand dollars ($000s) Depreciation and amortisation (49,567) - (49,567) (47,062) - (47,062) Statements by obscuring and performance. The consolidated financial unless otherwise stated, important information; and Total Cost of sales (138,117) - (138,117) (133,620) - (133,620) Estimates and judgements statements of the Company in accordance with ASIC Profit from operations 77,378 - 77,378 35,419 - 35,419 • reorganisation of the notes as at and for the year ended instrument 2016/191. used in developing and Corporate and external affairs (5,238) (5,681) (10,919) (4,309) (6,967) (11,276) to the financial statements 30 June 2017 comprises The functional currency for applying the Group’s Community development costs (3,588) - (3,588) (3,921) - (3,921) into four distinct accounting policies are the Company and its wholly the subsidiaries is United Selling and distribution costs (2,690) - (2,690) (4,114) - (4,114) sections to assist users in continually evaluated and are owned subsidiaries (together States dollars. understanding the Group’s referred to as the Group). The Other income / (expenses) 468 (590) (122) (2,151) (580) (2,731) based on experience and other • have been prepared on an performance. Group is a for-profit entity Profit before financing and tax 66,330 (6,271) 60,059 20,924 (7,547) 13,377 factors and are reviewed on accruals basis and is based an ongoing basis. Revisions and primarily involved in Financing costs: The purpose of these changes on historical costs, modified, to accounting estimates are the operation of the Kwale is to provide users with a clear where applicable, by the Interest expense, inclusive of recognised in the period in Mineral Sands Mine in Kenya. understanding of what drives measurement at fair value withholding tax (16,927) (2,247) (19,174) (20,342) (3,094) (23,436) which the estimate is revised. financial performance and The consolidated financial of selected non-current Amortisation of capitalised The critical estimates and financial position of the Group, statements of the Group for assets, financial assets and borrowing costs (3,414) (3,356) (6,770) (3,036) (3,895) (6,931) judgements that have a while still complying with the the year ended 30 June 2017: financial liabilities. Unwinding of discount on provision significant risk of causing a provisions of the Corporations for rehabilitation (1,914) - (1,914) (753) - (753) material adjustment to the • is a general purpose Act 2001. Other (3,313) (52) (3,365) (3,116) (20) (3,136) carrying amounts of assets financial report prepared in and liabilities are discussed accordance with Australian Total financing costs (25,568) (5,655) (31,223) (27,247) (7,009) (34,256) in the respective sections of Accounting Standards Income tax expense (7,805) - (7,805) (40) - (40) the Consolidated Financial (AASBs) adopted by the Reportable profit (loss) 32,957 (11,926) 21,031 (6,363) (14,556) (20,919) Statements. Other disclosures: Capital expenditure 9,342 349 9,691 4,884 13 4,897 Total assets 490,178 5,238 495,416 524,505 10,674 535,179 Total liabilities 244,706 15,918 260,624 292,204 26,101 318,305 71 Base Resources Annual Report 2017 Determination and presentation of operating segments 2017 2016 Consolidated financial statements $000s $000s Operating segments are components of the Group about which separate financial information is available that is evaluated regularly by the Group’s senior executives in deciding how to allocate resources and in assessing performance. b. Weighted average number of ordinary shares on issue used in the calculation of diluted earnings / (loss) per share

The division of the Groups results into segments has been ascertained by identification of revenue / cost centres and where in thousands of shares interrelated segment costs exist, an allocation has been calculated on a pro rata basis. Weighted average number of ordinary shares (basic) 738,889 613,140 Recognition and measurement of revenue Effect of performance rights on issue 62,072 - Weighted average number of ordinary shares (diluted) at 30 June 800,961 613,140 The Group sells mineral sands under a range of International Commercial Terms (Incoterms). Product sales are recognised as revenue when the Group has transferred both the significant risks and rewards of ownership and control of the products sold and the amount of revenue can be measured reliably. The passing of risk to the customer is usually realised at the point that the physical control is NOTE 3: INCOME TAX transferred from the Group to the customer. The Incoterms set out the point at which the transfer of risk to the customer takes place and are the ultimate determinant. 2017 2016 $000s $000s Contract terms for the Group’s rutile sales allow for a retrospective final price adjustment after shipment based on average market prices in the quarter that the product is shipped. Average market prices are derived from an independently published quarterly a. Amounts recognised in profit or loss dataset of all rutile trades, available approximately four months after the end of each quarter. Sales made under these terms that have not yet been subject to a final price adjustment are recognised at the estimated fair value of the total consideration receivable, which Current income tax takes into account the latest available market data at the balance date. As a result, rutile sales revenue of $39.9 million is still subject Income tax expense 64 40 to final market pricing at 30 June 2017 (2016: $39.4 million). Deferred tax expense Finance income and expenses Origination and reversal of temporary differences 7,741 - Income tax expense reported in comprehensive income 7,805 40 Financing income includes interest income on cash held and is recognised as it accrues.

Financing expenses include: a. Amounts recognised in equity

• Interest on borrowings; Deferred income tax related to items charged or credited directly to equity • Amortisation of costs incurred to establish the borrowings; Share issue costs - 173 • Finance lease charges; and Deferred tax asset not recognised - (173) • The unwinding of discount on provisions for mine closure and rehabilitation. - - Financing expenses are calculated using the effective interest rate method. Finance expenses incurred for the development of mining projects are capitalised up to the point at which commercial production is achieved. Other financing expenses are expensed as incurred. b. Reconciliation of income tax expense to prima facie tax payable

The prima facie tax payable on loss from ordinary activities before tax is reconciled to the income tax expense as follows: NOTE 2: EARNINGS / (LOSS) PER SHARE Accounting profit / (loss) before tax 28,836 (20,879) Prima facie tax on operating profit / (loss) at 30% (2016: 30%) 8,651 (6,264) 2017 2016 $000s $000s Add / (less) tax effect of: Non-deductible items 3,710 2,599 Earnings / (loss) used to calculate basic / diluted loss per share 21,031 (20,919) Share based payments 275 260 Tax losses not recognised 1,817 1,236 a. Weighted average number of ordinary shares on issue used in the calculation of basic earnings / (loss) per share Other deferred tax assets not brought to account as realisation not considered probable 1,320 1,206 Effect of tax rates in foreign jurisdictions (7,968) 1,003 in thousands of shares Income tax attributable to operating profit / (loss) 7,805 40 Issued ordinary shares at 1 July 732,232 563,903 Effect of shares issued as consideration for Taurus facility extension 6,657 - c. Deferred tax liability recognised Effect of renounceable entitlement offer - 49,237 Tax losses Kenya 26,517 40,802 Weighted average number of ordinary shares at 30 June 738,889 613,140 Other 1,559 1,265 28,076 42,067 Deferred tax liabilities recognised Property, plant and equipment (35,682) (42,067)

Net deferred tax liability recognised (7,606) - 73 Base Resources Annual Report 2017 NOTE 4: OPERATING CASHFLOWS 2017 2016 Consolidated financial statements $000s $000s The Group’s operating cashflow reconciled to profit after tax is as follows: d. Deferred tax assets unrecognised 2017 2016 Deductible temporary differences 335 747 $000s $000s Tax losses Australia 7,935 6,683 Tax losses other 89 75 Profit / (loss) for the year 21,031 (20,919) Depreciation and amortisation 49,567 47,062 8,359 7,505 Share based payments 1,653 1,522 Financing costs classified as financing activity 31,223 34,256 Potential deferred tax assets attributable to tax losses and exploration expenditure carried forward have not been brought to account Amortisation of deferred revenue (1,105) (1,145) at 30 June 2017 and 2016 because the directors do not believe it is appropriate to regard realisation of the deferred tax assets as Income tax expense 7,805 40 probable at this point in time. These benefits will only be obtained if: Changes in assets and liabilities: i. The Group derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for (Increase) / decrease in receivables and other assets (14,049) 11,310 the loss and exploration expenditure to be realised; Decrease in inventories 3,872 3,622 ii. The Group continues to comply with conditions for deductibility imposed by law; and Increase in trade and other payables 150 2,988 iii. No changes in tax legislation adversely affect the Group in realising the benefit from the deductions for the loss and exploration Increase / (decrease) in provisions 33 (48) expenditure. Cash flow from operations 100,180 78,608

Recoverability of deferred tax assets Balances related to taxation disclosed are based on the best estimates of directors. These estimates take into account both the financial performance and position of the Group as they pertain to current income taxation legislation, and the directors understanding thereof. No adjustment has been made for pending or future taxation legislation. The current income tax position represents the directors’ best estimate, pending an assessment by the tax authorities in Australia and jurisdictions where it has foreign operations.

A deferred tax asset is recognised for unused tax losses only if it is probable that future taxable profits will be available to utilise those losses. Determination of future taxable profits requires estimates and assumptions as to future events and circumstances, in particular, whether successful development and commercial exploitation, or alternatively, sale of the respective areas of interest will be achieved. This includes estimates and judgements about commodity prices, exchange rates, future capital requirements, future operational performance and the timing of estimated cash flows. Changes in these estimates and assumptions could impact on the amount and probability of estimated taxable profits and accordingly the recoverability of deferred tax assets.

Recognition and measurement of income taxes

The income tax expense / benefit for the year comprises current income tax expense / benefit and deferred tax expense / benefit.

Current income tax expense charged to the Statement of Profit or Loss and Other Comprehensive Income is the expected tax payable or recoverable on the taxable income or loss calculated using applicable income tax rates enacted, or substantially enacted, as at reporting date, and any adjustment to tax payable in respect of previous years. Deferred income tax expense reflects movements in deferred tax asset and liability balances during the year as well as unused tax losses.

Current and deferred income tax expense / benefit is charged or credited directly to equity instead of the Statement of Profit or Loss and Other Comprehensive Income when the tax relates to items that are credited or charged directly to equity.

Current tax assets and liabilities are measured at the amounts expected to be paid to / recovered from the relevant taxation authority.

Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements.

Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at reporting date. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability.

Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Notes to the consolidated 75 Base Resources Annual Report 2017

financial statements Recognition and measurement of inventories Consolidated financial statements

Operating assets and liabilities Inventories of heavy mineral concentrate and finished product are valued on a weighted average cost basis and include direct costs and an appropriate portion of fixed and variable overhead expenditure, including depreciation and amortisation.

This section presents information about the Group’s assets and liabilities, including its policies and processes for measuring and Inventories of consumable supplies and spare parts to be used in production are valued at weighted average cost. Obsolete or estimating these balances. damaged inventories are valued at NRV. A regular and ongoing review is undertaken to establish the extent of surplus items, and a provision is made for any potential loss on their disposal. NOTE 5: RESTRICTED CASH NOTE 8: PROPERTY, PLANT AND EQUIPMENT

2017 2016 $000s $000s Plant & Mine property Capital work in equipment and development Buildings progress Total Current 2017 $000s $000s $000s $000s $000s Restricted cash 34,042 29,761 At cost 282,707 196,741 8,320 1,426 489,194 Under the terms of the Kwale Facility, sufficient funds are required to be held on account in order to meet the debt servicing Accumulated depreciation (94,485) (57,663) (2,412) - (154,560) requirements of the next six months. Closing carrying amount 188,222 139,078 5,908 1,426 334,634

NOTE 6: TRADE AND OTHER RECEIVABLES Reconciliation of carrying amounts: Balance at 1 July 2016 221,730 159,677 6,748 2,149 390,304 Additions 1,364 2,646 1 2,869 6,880 2017 2016 $000s $000s Transfers 1,899 1,594 23 (3,516) - Disposals (25) 38 - - 13 Current Reduction in mine rehabilitation asset - (1,641) - - (1,641) Trade receivables 31,672 18,246 Depreciation expense (29,003) (19,132) (628) - (48,763) VAT receivables 25,574 25,198 Effects of movement in foreign Other receivables 71 100 exchange (7,743) (4,104) (236) (76) (12,159) 57,317 43,544 Balance at 30 June 2017 188,222 139,078 5,908 1,426 334,634

Recoverability of construction period VAT receivable 2016 $000s $000s $000s $000s $000s The Group is owed $25.6 million in VAT receivable by the Government of Kenya, of which $21.6 million was incurred during the At cost 289,626 199,259 8,596 2,149 499,630 construction of Kwale Operations and is overdue but not impaired. An estimation has been made as to the timing of the receipt of Accumulated depreciation (67,896) (39,582) (1,848) - (109,326) this amount and forms the basis for its classification as a current asset. Closing carrying amount 221,730 159,677 6,748 2,149 390,304

NOTE 7: INVENTORIES Reconciliation of carrying amounts: Balance at 1 July 2015 239,058 173,832 6,606 1,487 420,983 Additions 1,587 655 526 2,115 4,883 2017 2016 $000s $000s Transfers 1,480 - 21 (1,501) - Disposals (45) - - - (45) Current Reduction in mine rehabilitation asset - (1,100) - - (1,100) Depreciation expense (27,994) (17,781) (616) - (46,391) Heavy mineral concentrate and other intermediate stockpiles – at cost 6,081 9,054 Effects of movement in foreign Finished goods stockpiles – at cost 4,460 6,982 exchange 7,644 4,071 211 48 11,974 Stores and consumables – at cost 13,549 11,926 Balance at 30 June 2016 221,730 159,677 6,748 2,149 390,304 24,090 27,962

Impairment of assets Net realisable value of inventories At each reporting date, the Group reviews the carrying values of its assets to determine whether there is any indication those Inventories are recognised at the lower of cost and net realisable value (‘NRV’). assets have been impaired. When impairment indicators are identified, the Group determines the recoverable value of the cash- generating unit to which the assets are allocated, via an estimation of the fair value of the cash-generating unit. Estimating the NRV is based on the estimated amount expected to be received when the product is sold, less all costs still to be incurred in fair value amount requires management to make an estimate of expected future cash flows from the cash-generating unit over converting the relevant inventory to a saleable product, and delivering it to the customer. The computation of NRV for inventories the forecast period and also to determine a suitable discount rate in order to calculate the present value of those cash flows. Key of heavy mineral concentrate and finished product involves significant judgements and estimates in relation to timing of estimates supporting the expected future cash flows include commodity prices, production output and cost forecasts. processing, processing costs, transport costs, commodity prices and the ultimate timing of sale. A change in any of these critical assumptions will alter the estimated NRV and may therefore impact the carrying value of inventories. 77 Base Resources Annual Report 2017 NOTE 10: BORROWINGS Ore reserves and resources estimates Consolidated financial statements The estimated quantities of economically recoverable reserves and resources are based upon interpretations of geological and 2017 2016 geophysical models and require assumptions to be made regarding factors such as future operating costs, future commodity prices, $000s $000s future capital requirements and future operating performance. Changes in reported reserves and resources estimates can impact the carrying value of PP&E, provisions for mine closure and rehabilitation obligations, the recognition of deferred tax assets, as well Current as the amount of depreciation and amortisation charged to the Statement of Profit or Loss and Other Comprehensive Income. Kwale Facility (a) 61,798 35,859 Taurus Facility (b) 15,351 26,962 Recognition and measurement of property, plant and equipment Capitalised borrowing costs (b) (6,320) (4,570) Amortisation of capitalised borrowing costs (b) 5,721 3,111 Each class of property, plant and equipment (‘PP&E’) is carried at cost less, where applicable, any accumulated depreciation and Finance lease liabilities 484 454 impairment losses. Total current borrowings 77,034 61,816 PP&E is measured on a historical cost basis. Cost includes expenditure that is directly attributable to the acquisition of the asset. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is Non-current probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured Kwale Facility (a) 121,853 207,473 reliably. All other repairs and maintenance are recognised in the Statement of Profit or Loss and Comprehensive Income during the Capitalised borrowing costs (a) (22,738) (23,298) financial period in which they are incurred. Amortisation of capitalised borrowing costs (a) 15,433 11,526 Any gain or loss on disposal of an item of PP&E is determined by comparing the proceeds from disposal with the carrying amount, and Finance lease liabilities 85 590 is recognised net within other income / other expenses in the Statement of Profit or Loss and Other Comprehensive Income. Total non-current borrowings 114,633 196,291 Mine property and development assets include costs transferred from exploration and evaluation assets once technical feasibility and Total borrowings 191,667 258,107 commercial viability of an area of interest are demonstrable, and also includes subsequent development costs required to bring the mine into production. Any ongoing costs associated with mining which are considered to benefit mining operations in future periods Recognition and measurement of capitalised borrowing costs are capitalised.

Depreciation All transaction costs directly attributable to establishing the Debt Facility are capitalised and offset against drawn loan amounts. Capitalised borrowing costs are amortised over the life of the loan using the effective interest rate method. All PP&E, except freehold land, is depreciated on a straight line basis over the asset’s useful life to the Group commencing from the time the asset is held ready for use. The depreciation methods used for each class of depreciable assets are: a. Kwale Facility In November 2011, the Company entered into a debt facility for the development and construction of the Kwale Operation Class of plant and equipment Depreciation method (‘Kwale Facility’). During the year to 30 June 2017, US$39.3 million was paid down, reducing outstanding debt to US$141.2 million Buildings Straight line at 5% per annum (A$183.7 million). Plant and equipment Straight line at 10% to 30% per annum Security for the Kwale Facility is a fixed and floating charge over all the assets of Base Titanium Limited (‘BTL’) and the shares in Mine property and development Straight line over remaining mine life BTL held by Base Titanium (Mauritius) Limited (‘BTML’) and Base Resources Limited (‘BRL’) and the shares held in BTML by BRL. In addition, BRL provides a parent guarantee which will remain in place subject to finalising a long term operating licence for the Kwale The assets’ residual values and useful lives are reviewed, and adjusted prospectively if appropriate, at each reporting date. An asset’s Operations Port Facility. The remaining tenor of all loan tranches is 3 years. carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. All tranches of the Kwale Facility carry interest rates of LIBOR plus 630 basis points, inclusive of political risk insurance. The weighted average effective interest rate on the facilities at 30 June 2017 is 7.72% (30 June 2016: 7.24%), with the difference due to the LIBOR rate. NOTE 9: TRADE AND OTHER PAYABLES b. Taurus Facility 2017 2016 In December 2014, the Company entered into a US$20 million unsecured debt facility with one of its major shareholders, Taurus $000s $000s Funds Management (‘Taurus Facility’), to provide the funds to satisfy additional liquidity requirements from the reschedule of the Kwale Facility in 2014. Trade payables and accruals 12,584 15,531 Provision for increase in Government of Kenya royalty (a) 14,342 9,422 Prior to final maturity, under the terms of the Taurus Facility, repayments are only required to be made from the proceeds of Kwale Operations Cash Sweeps received by BRL. Of the US$5.4 million Cash Sweep received by BRL in July 2016, a mandatory 50% 26,926 24,953 (US$2.7 million) was applied towards repayment of the Taurus Facility. a. Government of Kenya (‘GoK’) Royalty In October 2016, the Company extended the maturity date of the Taurus Facility from 31 December 2016 to 30 September 2017. The extension of the Taurus Facility final maturity date removed the need to secure external funding to repay the balance that would The Group is in ongoing discussions with the GoK with respect to the royalty rate payable for the Kwale Operation in the context otherwise have been due on 31 December 2016. As part of the extension, the mandatory proportion of Kwale Operations Cash of resolution of a number of outstanding issues, including refund of $21.6 million (US$16.6 million) VAT receivables related to the Sweeps to be applied towards progressive repayment of the Taurus Facility increased from 50% to 75%. All other terms of the Taurus construction of Kwale Operations (refer to Note 6). Royalty costs are provided for, and expensed, on the basis of a 5% royalty rate Facility remained unchanged, including the interest rate of 10% on the outstanding balance. As consideration for the extension, the being payable to the GoK, whereas the royalty rate applicable under the terms of the special mining lease, and currently being Company issued Taurus 10 million fully paid ordinary shares. paid, is 2.5%. In January 2017, US$7.3 million was received by BRL from the proceeds of the Kwale Operations Cash Sweep. Following the extension of the Taurus Facility final maturity date, a mandatory 75% (US$5.5 million) was applied towards repayment of the Taurus Facility, thereby reducing the outstanding debt to US$11.8 million (A$15.4 million). 79 Base Resources Annual Report 2017 Subsequent to year end, on 14 July 2017, following the approval of Kwale Facility lenders to waive their entitlement to 50% of the July At each reporting date the mine closure and rehabilitation provision is re-measured in line with changes in discount rates and timing Consolidated financial statements 2017 Cash Sweep, US$14.8 million was distributed up to BRL. BRL applied US$11.8 million of the Cash Sweep to retire the Taurus or amounts of the costs to be incurred. Adjustments to the estimated amount and timing of future closure and rehabilitation cash Facility, with the remainder available for corporate funding. flows are a normal occurrence in light of the significant judgements and estimates involved and are dealt with on a prospective basis as they arise. Under the terms of the waiver granted, the Kwale Facility lenders proportion of future six-monthly Cash Sweeps from Kwale Operations will increase to 75% until the US$7.4 million waived has been repaid. Changes in the liability relating to mine closure and rehabilitation obligations are added to or deducted from the related asset (where it is probable that future economic benefits will flow to the entity), other than the unwinding of the discount which is recognised as a Repayment of the Taurus Facility reduces total debt outstanding to $183.7 million (US$141.2 million), subsequent to year end. financing expense in the Statement of Comprehensive Income. Changes in the asset value have a corresponding adjustment to future amortisation charges. NOTE 11: PROVISIONS The mine closure and rehabilitation provision does not include any amounts related to remediation costs associated with unforeseen circumstances. 2017 2016 $000s $000s

Current Employee benefits 1,206 1,173 Mine closure and rehabilitation 468 - Income tax liability 22 - 1,696 1,173 Non-current Mine closure and rehabilitation 28,851 28,914 Employee benefits 56 59 28,907 28,973

2017 2016 Movement in mine closure and rehabilitation: $000s $000s

Balance at 1 July 28,914 27,270 Effects of movement in foreign exchange (1,010) 872 (Decrease) / increase in rehabilitation estimate (465) 32 Unwinding of discount 1,880 740 Balance at 30 June 29,319 28,914

Mine closure and rehabilitation obligations The calculation of the mine closure and rehabilitation provision requires assumptions such as application of environmental legislation, plant closure dates, available technologies, engineering costs and inflation and discount rates. A change in any of the assumptions used may have a material impact on the carrying value of mine closure and rehabilitation obligations.

The mine closure and rehabilitation provision is recorded as a liability at fair value, assuming a risk-free discount rate equivalent to the 5 year US Government bonds rate of 1.89% as at 30 June 2017 (2016: 2.59%) and an inflation factor of 1.27% (2016: 2.13%). Although the ultimate amount to be incurred is uncertain, management has, at 30 June 2017, estimated the asset retirement cost of work completed to date using an expected remaining mine life of 6 years and a total undiscounted estimated cash flow of US$23,234,044 (2016: US$22,168,415). Management’s estimate of the underlying asset retirement costs are independently reviewed by an external consultant on a regular basis for completeness.

Recognition and measurement of provisions

Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.

A mine closure and rehabilitation provision is recognised at the commencement of a mining project and/or construction based on the estimated costs necessary to meet legislative requirements by estimating future costs and discounting these to a present value. The provision is recognised as a liability, separated into current (estimated costs arising within twelve months) and non- current components based on the expected timing of these cash flows. A corresponding asset is included in mine property and mine development assets, only to the extent that it is probable that future economic benefits associated with the restoration expenditure will flow to the entity, and is amortised over the life of the mine. Notes to the consolidated 81 Base Resources Annual Report 2017 Summary of shares under option are as follows: financial statements Consolidated financial statements

Weighted Capital structure, financial instruments and risk management average Number exercise price

Options outstanding as at 1 July 2015 78,025,061 $0.35 This section presents information about the Group’s financial assets and liabilities, its exposure to financial risks, as well as its Granted - - objectives, policies and processes for measuring and managing risks. Exercised - - Lapsed (16,600,000) $0.18 NOTE 12: ISSUED CAPITAL Options outstanding and exercisable as at 30 June 2016 61,425,061 $0.40

2017 2016 $000s $000s Options outstanding as at 1 July 2016 61,425,061 $0.40 Granted - - Ordinary share capital: Exercised - - Issued and fully paid 225,298 223,548 Lapsed - -

Date Number $000s Options outstanding and exercisable as at 30 June 2017 61,425,061 $0.40

1 July 2015 563,902,771 214,131 Renounceable entitlement offer 168,329,185 10,100 b. Performance rights Share issue costs - (683) Granted performance rights are as follows: 30 June 2016 732,231,956 223,548 Performance cycle date KMP Other employees Total

1 July 2016 732,231,956 223,548 1 October 2014 7,707,725 2,325,748 10,033,473 Shares issued as consideration for Taurus Facility extension (note 10) 10,000,000 1,750 1 October 2015 33,928,088 11,820,343 45,748,431 30 June 2017 742,231,956 225,298 1 October 2016 8,079,009 3,227,508 11,306,517

All issued shares are fully paid. The Group does not have authorised capital or par value in respect of its issued shares. The holders of All performance rights are granted for nil consideration. ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of The fair value of the performance rights granted during the 2017 financial year has been estimated at the date of grant using a the Group. Monte Carlo Simulation model using the following assumptions: risk-free interest rate of 1.86%; no dividend yield; volatility factor of the expected market price of the Company’s shares of 80%; and a remaining life of performance rights of 2.88 years. The fair value Recognition and measurement of issued capital of the performance rights is recognised over the service period, which commenced on the date of grant of 1 October 2016.

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are Recognition and measurement of share based payments recognised as a deduction from equity, net of any tax effects. The Group LTIP is an equity settled employee share scheme. The fair value of the equity to which employees become entitled is NOTE 13: SHARE-BASED PAYMENTS measured at grant date and recognised as an expense over the vesting period, with a corresponding increase to an equity account. The fair value of performance rights is ascertained using a recognised pricing model which incorporates all market vesting conditions. a. Share options NOTE 14: FINANCIAL RISK MANAGEMENT Granted options are as follows:

Grant date Number Issue date The Group’s activities expose it primarily to the following financial risks:

Taurus Funds Management 23 December 2014 30,712,531 23 December 2014 • Market risk consisting of commodity price risk, interest rate risk and currency exchange risk; Taurus Funds Management 19 June 2015 30,712,530 19 June 2015 • Credit risk; and • Liquidity risk.

Terms of granted options: The overall risk management strategy seeks to assist the Group in meeting its financial targets, whilst minimising potential adverse In December 2014, the Group executed the Taurus Facility, which entitled Taurus to 61,425,061 unlisted share options over unissued effects on financial performance. The senior executives of the Group meet on a regular basis to analyse treasury risks and evaluate fully paid shares, for nil consideration and exercisable at $0.40, with half being issued at execution and half pro-rata on facility treasury management strategies in the context of the prevailing economic conditions and forecasts. Risk management policies are drawdown above US$5 million, which occurred in June 2015. approved and reviewed by the Risk Committee and the Board on a regular basis. Financial assets and liabilities of the Group are carried at amortised cost, which approximates fair value. The fair value of the 61,425,061 options granted during the 2015 financial year were estimated at the date of grant using a Black & Scholes model using the following assumptions: risk-free interest rate of 3%; no dividend yield; volatility factor of the expected market price of the Company’s shares of 67% and 91% for each issue respectively; and a contractual life of 4 years.

In July 2015, 1,000,000 options, granted to RFC Corporate Limited, with an exercise price of $0.25 lapsed unexercised following their expiry. In January 2016, 8,500,000 options with an exercise price of $0.25 and 7,100,000 options with an exercise price of $0.09, granted to Key Management Personnel, lapsed unexercised following their expiry. 83 Base Resources Annual Report 2017 Recognition and measurement of financial instruments Rutile sales revenue of $39.9 million is still subject to final market pricing at 30 June 2017 (2016: $39.3 million). An interim adjustment Consolidated financial statements to sales revenue has been recorded at the reporting date to align the estimated fair value of these sales with the latest available market data. If commodity prices increased / decreased by 10%, with all other variables held constant, the Group’s after tax profit / Non-derivative financial assets loss would have increased / decreased by $4.0 million (2016: $3.9 million). The Group initially recognises loans, receivables and deposits on the date that they are originated. All other financial assets are Interest rate risk recognised initially on the date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the All tranches of the Kwale Facility carry interest rates of LIBOR plus 630 basis points, inclusive of political risk insurance. The Group rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of does not mitigate its interest rate risk exposure to LIBOR through hedging or other means. The weighted average effective interest ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is rate on the Kwale Facility at 30 June 2017 is 7.72% (30 June 2016: 7.24%). recognised as a separate asset or liability. The Taurus Facility has a fixed interest rate of 10% and a loan maturity date of 30 September 2017. The Taurus Facility was fully repaid Financial assets and liabilities are offset and the net amount presented in the Statement of Financial Position when, and only when, subsequent to year end, in July 2017 (refer to Note 10). the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The majority of the Group’s cash deposits and restricted cash are held in accounts with Nedbank Limited at variable interest rates, as required by the terms of the Kwale Facility. Loans and receivables Carrying amount Realisable / payable within six months Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets 2017 2016 2017 2016 are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and $000s $000s $000s $000s receivables are measured at amortised cost using the effective interest method, less any impairment losses.

Fixed rate instruments Cash and cash equivalents Financial assets - - - - Cash and cash equivalents include cash on hand and deposits held at call with banks. Financial liabilities (15,920) (28,006) (15,920) - Non-derivative financial liabilities (15,920) (28,006) (15,920) - The Group initially recognises financial liabilities on the date at which the Group becomes a party to the contractual provisions of the Variable rate instruments instrument. Such liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition they are measured at amortised cost using the effective interest rate method. Financial assets 70,832 66,056 31,149 39,895 Financial liabilities (183,651) (243,332) (27,191) (20,491) The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. (112,819) (177,276) 3,958 19,404 The Group’s financial instruments consist of deposits with banks, accounts receivable and payables. The totals for each category of financial instruments are as follows: Cash flow sensitivity analysis for variable rate instruments

2017 2016 A change of 100 basis points in interest rates would have increased or decreased equity and profit or loss by the amounts shown Note $000s $000s below. This analysis assumes that all other variables remain constant.

2017 2017 2016 2016 Financial assets $000s $000s $000s $000s Cash and cash equivalents 36,790 36,295 Variable rate instruments ($000s) 100bp increase 100bp decrease 100bp increase 100bp decrease Restricted cash 5 34,042 29,761 Trade and other receivables 6 57,317 43,544 Profit or loss (1,128) 1,128 (1,773) 1,773 128,149 109,600 Equity 1,128 (1,128) 1,773 (1,773)

Financial liabilities Trade and other payables 9 26,926 24,953 Kwale Facility 10 183,651 243,332 Taurus Facility 10 15,351 26,962 Finance lease liabilities 10 569 1,044 226,497 296,291

Commodity price risk

The Group is exposed to commodity price volatility on rutile sales made under contract terms which allow for a retrospective final price adjustment based on average market prices in the quarter the product is sold. Average market prices are derived from an independently published quarterly dataset of all rutile trades, available approximately four months after the end of each quarter. Sales made under these terms that have not yet been subject to a final price adjustment are recognised at the estimated fair value of the total consideration receivable, which takes into account the latest available market data at the balance date. 85 Base Resources Annual Report 2017 Currency risk Credit risk Consolidated financial statements

The Group is exposed to currency risk from bank balances, payables and receivables that are denominated in a currency other than Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. the respective functional currencies of Group entities, being Australian dollar (AUD) and United States dollar (USD). Credit risk arises from cash and deposits with financial institutions as well as credit exposures to outstanding receivables.

The Australian dollar carrying amount of the Group’s financial assets and liabilities by its currency risk exposure at the reporting date The Group is exposed to counterparty credit risk through sales of mineral sands products under normal terms of trade. Total sales is disclosed below: revenue for the year ended 30 June 2017 was $215.5 million (2016: $169.0 million). Major customers who individually accounted for more than 10% of sales revenue contributed approximately 61% (2016: 37%) of sales revenue. These customers represent 42% 30 June 2017 (2016: Nil) of the trade receivables balance at 30 June 2017.

In $000s: AUD USD KES Other Total A$ Credit risk arising from sales to customers is managed by the Group’s policy to only trade with reputable companies, with whom a long term offtake agreement is held, or where such an agreement is not in place, sales are backed by Letters of Credit held with Cash and cash equivalents 3 1,332 843 4 2,182 internationally recognised banks. Trade and other receivables - - 25,574 - 25,574 The Group is owed $25.6 million in VAT receivable by the Government of Kenya (Note 6), of which $21.6 million relates to the Other current assets - - 233 - 233 construction of Kwale Operations and is overdue but not impaired. An estimation has been made as to the timing of the receipt of this Trade and other payables (51) - (1,253) (49) (1,353) amount and forms the basis for its classification as a current asset. Borrowings - (15,351) - - (15,351) At the reporting date the carrying amounts of financial assets are adjusted for any impairment and represent the Group’s maximum Net exposure (48) (14,019) 25,397 (45) 11,285 exposure to credit risk, excluding the value of any collateral or other security, which was as follows: 30 June 2016 2017 2016 $000s $000s In $000s: AUD USD KES Other Total A$

Cash and cash equivalents 3 177 318 6 504 Financial assets – cash flow realisable Trade and other receivables - - 25,198 - 25,198 Cash and cash equivalents 36,790 36,295 Other current assets - - 218 - 218 Restricted cash 34,042 29,761 Trade and other payables (977) (33) (1,278) (149) (2,437) Trade and other receivables 57,317 43,544 Borrowings - (26,962) - - (26,962) Total anticipated inflows 128,149 109,600 Net exposure (974) (26,818) 24,456 (143) (3,479) At 30 June 2017, the ageing of trade and other receivables that were not impaired was as follows:

The following significant exchange rates applied during the year: 2017 2016 $000s $000s Average rate 30 June spot rate 2017 2016 2017 2016 Neither past due nor impaired 54,265 43,170 Past due 1 - 30 days 3,052 374 AUD:USD 0.7540 0.7283 0.7686 0.7418 57,317 43,544 AUD:KES 77.3030 74.3449 80.0000 75.1880

Sensitivity analysis There were no impairment losses in relation to financial assets during the current or the comparative financial year. The maximum exposure to credit risk for financial assets at the reporting date by geographic region of the customer was: Based on the financial instruments held at reporting date, had the functional currencies weakened / strengthened by 10% and all other variables held constant, the Group’s after-tax profit / (loss) for the year to date would have been $1.1 million lower / higher (2016: $0.3 2017 2016 million higher / lower). $000s $000s

United Kingdom 65,005 55,142 Kenya 27,068 27,434 China 19,982 7,558 USA 9,976 7,679 Australia 4,404 8,776 Other 1,714 3,011 Total 128,149 109,600 Notes to the consolidated 87

Base Resources Annual Report 2017

Liquidity risk financial statements Consolidated financial statements

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with financial liabilities. Group structure and other information The Group manages liquidity risk by conducting regular reviews of the timing of cash outflows and the maturity profiles of term deposits in order to ensure sufficient funds are available to meet its obligations. NOTE 15: PARENT ENTITY DISCLOSURES Financial liability maturity analysis As at, and throughout the financial year ended 30 June 2017, the parent entity of the consolidated group was Base Resources Limited. Contractual cash flows Carrying 2 months 2 – 12 1 – 2 2 – 5 More than 2017 2016 amount Total or less months years years 5 years Financial performance of the parent entity $000s $000s $000s $000s $000s $000s $000s $000s $000s Loss for the year (11,155) (9,182) 30 June 2017 Total comprehensive loss for the year (11,155) (9,182) Trade and other payables 26,926 26,926 12,584 14,342 - - - Kwale Facility 183,651 205,441 - 73,864 76,541 55,036 - Taurus Facility 15,351 15,744 - 15,744 - - - 2017 2016 Financial position of the parent entity $000s $000s Finance lease liabilities 569 606 87 433 86 - - 226,497 248,717 12,671 104,383 76,627 55,036 - Current assets 4,353 9,530 Non-current assets 215,425 217,225 30 June 2016 Total assets 219,778 226,755 Trade and other payables 24,953 24,953 15,531 9,422 - - -

Kwale Facility 243,332 283,316 - 50,827 77,010 155,479 - Current liabilities 17,790 28,760 Taurus Facility 26,962 28,340 - 28,340 - - - Non-current liabilities 11,804 59 Finance lease liabilities 1,044 1,166 90 448 538 90 - Total liabilities 29,594 28,819 296,291 337,775 15,621 89,037 77,548 155,569 - Net assets 190,184 197,936

Capital Management Issued capital 225,298 223,548

Management controls the capital of the Group in order to maintain an appropriate working capital position to ensure that the Group Share-based payment reserve 6,757 6,775 can fund its operations and continue as a going concern. Capital is managed by assessing the Group’s financial risks and adjusting its Accumulated losses (41,871) (32,387) capital structure in response to changes in these risks and in the market. Total equity 190,184 197,936

2017 2016 Parent entity guarantee in respect of Kwale Operation Debt Facility $000s $000s Base Resources Limited has entered into a shareholder support agreement in relation to the Kwale Facility. Refer to note 10 for Cash and cash equivalents 36,790 36,295 further details. Restricted cash 34,042 29,761 Trade and other receivables 57,317 43,544 Principles of consolidation Inventories 24,090 27,962 Other current assets 5,891 5,826 The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by Base Resources Limited Trade and other payables (26,926) (24,953) at the end of the reporting period. The Group controls an entity when it is exposed to, or has rights to, variable returns from its Borrowings (77,034) (61,816) involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which Provisions (1,696) (1,173) control ceases. Deferred revenue (1,084) (1,123) Other liabilities (841) (887) Where controlled entities have entered or left the Group during the year, the financial performance of those entities are included only for the period of the year that they were controlled. Working capital position 50,549 53,436 In preparing these financial statements, all inter-group balances and transactions between entities in the Group have been eliminated

on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with those adopted by the parent entity.

Controlled entity Country of Incorporation Date of Incorporation

Base Titanium (Mauritius) Limited Mauritius 15 April 2010 Base Titanium Limited Kenya 23 April 2010 Base Exploration Tanzania Limited Tanzania 29 April 2016 89 Base Resources Annual Report 2017 NOTE 16: RELATED PARTIES NOTE 18: NEW ACCOUNTING STANDARDS ADOPTED IN THE CURRENT PERIOD Consolidated financial statements

2017 2016 A number of new standards and amendments to standards are effective for annual periods beginning after 1 July 2017, however, KMP compensation: $ $ the Group has not applied the new or amended standards in preparing these consolidated financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early. Short-term employment benefits 5,328,948 5,251,918 establishes a comprehensive framework for determining whether, how much, and when Post-employment benefits 179,168 175,794 AASB 15 Revenue from Contracts with Customers revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction contracts, Share-based payments 1,334,266 1,177,900 and IFRIC 13 Customer Loyalty Programmes. AASB 15 is effective for annual reporting periods beginning on or after 1 January 2018, Compensating payment for LTIP scale back 608,434 - with early adoption permitted. Base Resources has not yet determined the extent of the impact of this standard. Other long term 40,482 (6,505) AASB 16 Leases removes the classification of leases as either operating or finance leases – for the lessee – effectively treating all 7,491,298 6,599,107 leases as finance leases. Short term leases (less than 12 months) and leases of low value assets are exempt from the lease accounting requirements. Furthermore, there are changes in accounting over the life of the lease as a front-loaded pattern of expense will be The 2017 remuneration packages, excluding Short Term Incentive Plan (“STIP”) bonus, for all KMP’s remain unchanged from 2016, recognised for most leases, even when a constant annual rental is paid. Lessor accounting remains similar to current practice. Base in their base currency. Refer to the Remuneration Report for further details. Resources does not expect the implementation of this standard to have a material impact on the financial statements.

AASB 9 Financial Instruments, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Recognition and measurement of short term employee benefits Measurement. AASB 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries STIP obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised forward the guidance on recognition and derecognition of financial instruments from IAS 39. AASB 9 is effective for annual reporting for the amount expected to be paid under the STIP where the Group has a present legal or constructive obligation as a result of past periods beginning on or after 1 January 2018, with early adoption permitted. Base Resources does not expect the implementation of services by the employee, and the obligation can be estimated reliably. this standard to have a material impact on the financial statements.

Recognition and measurement of defined contribution plans NOTE 19: EVENTS AFTER THE REPORTING DATE

Contributions are made by the Group to individual defined contribution superannuation plans for Australian directors and employees Other than the July 2017 repayment of the Taurus Facility from the proceeds of the US$14.8 million Cash Sweep from the Kwale and are charged as an expense in the Statement of Profit and Loss and Comprehensive Income when incurred. Operations (refer Note 10), there have been no significant events since the reporting date.

Other related party transactions NOTE 20: COMPANY DETAILS

In January 2017, one of the Company’s major shareholders, Pacific Road Capital Management Pty Limited (“Pacific Road”), acquired The principal place of business and registered office of the Company is: 50% of a Kwale Operation royalty stream from Pangea Goldfields Inc. In the period to 30 June 2017, $300,000 was paid or is payable to Pacific Road under this royalty arrangement. Mr Stirzaker, non-executive director of the Group, is a director of Pacific Road. Base Resources Limited (ASX & AIM: BSE) Level 1 50 Kings Park Road NOTE 17: AUDITORS’ REMUNERATION West Perth Western Australia 2017 2016

$ $

Audit services KPMG Australia Audit of financial report 135,000 160,000 Overseas KPMG firms Audit services 108,651 133,578 243,651 293,578

Other services KPMG Australia Tax compliance and advisory services 98,656 32,820 Other services 11,000 10,000 Overseas KPMG firms Tax compliance and advisory services 108,894 234,423 218,550 277,243 Director’s declaration Independent 91 Base Resources Annual Report 2017

auditor’s report Independent auditor’s report

Independent Auditor’s report to the shareholders of Base Resources Limited

1 In the opinion of the directors of Base Resources: Report on the audit of the Financial Report

(a) the consolidated financial statements and notes that are set out on pages 64 to 89 and the Remuneration Report in pages 36 to 53 in the Directors’ report, are in accordance with the Corporations Act 2001, including: OPINION

(i) giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its performance, for the financial year ended on that date; and We have audited the Financial Report of Base The Financial Report comprises: Resources Limited (the Company). (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and • Consolidated statement of financial position as In our opinion, the accompanying Financial Report of at 30 June 2017 (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they the Company is in accordance with the Corporations Act become due and payable. • Consolidated statement of profit or loss and 2001, including: other comprehensive income, Consolidated 2 The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the • giving a true and fair view of the Group’s financial statement of changes in equity, and Consolidated chief executive officer and chief financial officer for the financial year ended 30 June 2017. position as at 30 June 2017 and of its financial statement of cash flows for the year then ended performance for the year ended on that date; and 3 The directors draw attention to note 1 to the consolidated financial statements, which includes a statement of • Notes including a summary of significant compliance with International Financial Reporting Standards. • complying with Australian Accounting Standards accounting policies and the Corporations Regulations 2001. Signed in accordance with a resolution of the directors: • Directors’ Declaration.

The Group consists of the Company and the entities it controlled at the year end or from time to time during the financial year.

BASIS FOR OPINION

We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is Keith Spence sufficient and appropriate to provide a basis for our opinion.

Chairman Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. DATED at PERTH this 26th day of August 2017 We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.

KEY AUDIT MATTERS

Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period.

This matter was addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter.

KPMG, an Australian partnership and a member firm of the KPMG Liability limited by a scheme approved under network of independent member firms affiliated with KPMG Professional Standards Legislation. International Cooperative (“KPMG International”), a Swiss entity. Independent Independent 93 Base Resources Annual Report 2017

auditor’s report auditor’s report Independent auditor’s report

OTHER INFORMATION Value of property, plant and equipment (A$334,634,000)

Other Information is financial and non-financial information in Base Resources Limited’s annual reporting which is provided in addition Refer to Note 8 to the Financial Report to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information.

The Other Information we obtained prior to the date of this Auditor’s Report was the Director’s Report. The Chairman’s Letter, and the THE KEY AUDIT MATTER HOW THE MATTER WAS ADDRESSED IN OUR AUDIT Operations and Finance Report which includes the Operation Summary, Sustainability in Practice, Business Development, Corporate and Finance, Marketing and Sales, Mineral Sands Outlook and Resources and Reserves, are expected to be made available to us after the date of the Auditor’s Report. The value of property, plant and equipment was considered a Our procedures included: key audit matter due to: Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not express an audit We considered the appropriateness of adopting fair value less opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance • The size of the Kwale mine property, plant and equipment costs of disposal methodology by assessing the discounted cash opinion. balance (being 68% of total assets) flow forecast model to acceptable valuation techniques In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider • The mineral sands sector, within which the Group • We assessed the integrity of the fair value less costs of whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or operates, has experienced volatile commodity prices, disposal model used otherwise appears to be materially misstated. uncertainty in the global demand for products, and cost reduction mandates, putting pressure on asset values • We assessed the accuracy of previous forecasts by the Group to We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we inform our evaluation of forecasts incorporated in the fair value have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. • The level of judgment required by us in evaluating the less costs of disposal model Group’s assessment of impairment, and • We evaluated the sensitivity of the value of property, plant RESPONSIBILITIES OF THE DIRECTORS FOR THE FINANCIAL REPORT • The Group’s market capitalisation at 30 June 2017 was and equipment by considering downside scenarios against less than the net assets, bringing into question the value reasonably possible changes to the key judgments, such ascribed to property, plant and equipment. as forecast commodity prices and the discount rate, to The Directors are responsible for: determine the assumptions that we focused our testing on The assessment of impairment of the Group’s property, plant • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the and equipment, applies significant judgments through the use • We assessed key judgments underlying the discounted Corporations Act 2001 of assumptions in a fair value less costs of disposal model. These cash flows (including forecast sales, production levels and judgments include: production costs) based on the historical performance of • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free Kwale from material misstatement, whether due to fraud or error • Forecast sales, production levels, production costs and capital expenditure • We compared the forecast cash flows and capital • assessing the Group and Company’s ability to continue as a going concern. This includes disclosing, as applicable, matters related expenditure contained in the fair value less costs of to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company • Expected commodity prices for mineral sands disposal model to Board approved forecasts or to cease operations, or have no realistic alternative but to do so. • Discount rate including the assessment of Kenya country • We compared expected commodity prices to published risk, and views of the market commentator on future trends AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL REPORT • Life of mineral reserves. • We analysed the life of mineral reserves based on the views of an Our objective is: • In assessing this key audit matter, we involved senior team external expert engaged by the Group members and valuation specialists. • Working with our valuation specialists, we independently • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due developed a discount rate range considered comparable to fraud or error; and using publicly available market data for comparable entities, adjusted for Kenya country risk • to issue an Auditor’s Report that includes our opinion.

• We assessed the Group’s analysis of the market Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing capitalisation shortfall versus the total recoverable amount Standards will always detect a material misstatement when it exists. of the CGU. This included consideration of the market Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be capitalisation range implied by recent share price trading expected to influence the economic decisions of users taken on the basis of this Financial Report. ranges and broker target valuation ranges, to the Group’s latest internal enterprise valuation model. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_files/ar2.pdf. This description forms part of our Auditor’s Report. Independent Additional shareholder 95 Base Resources Annual Report 2017

auditor’s report information Additional shareholder information

The following additional information required by the ASX Listing Rules is current as at 25 September 2017.

ORDINARY SHARES

REPORT ON THE REMUNERATION REPORT Distribution of shares Holders Units % 1 – 1,000 128 17,947 0.00 1,001 – 5,000 166 517,088 0.07 5,001 – 10,000 143 1,186,186 0.16 Opinion Directors’ responsibilities 10,001 – 100,000 455 17,823,322 2.40 In our opinion, the Remuneration Report of Base Resources • The Directors of the Company are responsible for the Limited for the year ended 30 June 2017, complies with Section preparation and presentation of the Remuneration Report 100,001 and over 179 722,687,413 97.37 300A of the Corporations Act 2001. in accordance with Section 300A of the Corporations Act 2001. 1,071 742,231,956 100.00

Our responsibilities There were 149 holders of unmarketable parcels of shares (<$500) based on the closing share price of $0.285 as at 25 September 2017 comprising a total of 47,095 shares. • We have audited the Remuneration Report included on pages 36 to 53 of the Directors’ report for the year ended The voting rights attached to the ordinary shares are: 30 June 2017.

• Our responsibility is to express an opinion on the a) at a meeting of members or classes of members each member entitled to vote may vote in person or by proxy or by attorney; and Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. b) on a show of hands every person present who is a member has one vote, and on a poll every person present in person or by proxy or attorney has one vote for each ordinary share held.

20 largest registered holders of shares Number of Shares % 1. J P Morgan Nominees Australia Limited 183,405,156 24.71 2. Pacific Road Capital Management GP II Limited 159,842,472 21.54 KPMG R Gambitta 3. HSBC Custody Nominees Limited 135,476,668 18.25 Partner 4. UBS Nominees Pty Ltd 34,183,541 4.61 Perth 5. Citicorp Nominees Pty Limited 33,102,287 4.46 26 August 2017 6. Computershare Clearing Pty Ltd 24,383,177 3.29 7. Sandhurst Trustees Ltd 22,827,676 3.08 8. Pacific Road Capital II Pty Limited 22,372,358 3.01 9. Brispot Nominees Pty Ltd 8,923,706 1.20 10. Watsons Bay Investments Pty Ltd 6,220,000 0.84 11. CS Fourth Nominees Pty Limited 5,818,813 0.78 12. W K Super Pty Ltd 5,300,000 0.71 13 CS Third Nominees Pty Limited 5,206,047 0.70 14. Dr Janet Dawn Kencian 4,410,000 0.59 15. Hampshire Assets and Services Pty Ltd 4,000,000 0.54 16. National Nominees Limited 3,476,049 0.47 17. BNP Paribas Noms Pty Ltd 3,272,044 0.44 18. HSBC Custody Nominees Limited-GSCO ECA 2,904,243 0.39 19. TW Investments Pty Ltd 2,581,000 0.35 20. Mr Oliver Winchester 2,154,321 0.29 669,859,558 90.25 Additional shareholder 97 Base Resources Annual Report 2017

information Add itional shareholder information

SUBSTANTIAL SHAREHOLDINGS

The substantial shareholders of the Company, and the number of securities in which those shareholders and their associates have a relevant interest, as disclosed in the substantial holding notices received by the Company are:

Name No. of Shares Pacific Road Capital II Pty Ltd and Pacific Road Capital Management GP II Limited 182,214,830 Sustainable Capital Ltd 112,050,380 Taurus SM Holdings Pty Limited 72,693,547 Regal Funds Management Pty Limited 58,824,936 Aterra Capital 43,140,420

OPTIONS

The following unlisted options are on issue. Options do not carry a right to vote. Voting rights will attach to any shares issued upon valid exercise of options.

Stream Date of Expiry Exercise Price Number of Options Number of Holders 1 31 December 2018 $0.40 61,425,061 1 61,425,061

Holders of greater than 20% of any stream of options:

Stream 1: Taurus Funds Management Pty Ltd – 61,425,061 options.

PERFORMANCE RIGHTS

The following unlisted performance rights are on issue. Performance rights do not carry a right to vote. Voting rights will attach to any shares issued upon vesting of performance rights in accordance with their terms of issue pursuant to the Base Resources Long Term Incentive Plan.

Cycle Date of Vesting/Expiry Number of performance rights Number of Holders

2014 30 September 2017 10,030,672 17 2015 30 September 2018 45,233,105 17 2016 30 September 2019 11,306,517 19

OTHER INFORMATION

There is no current on-market buy back taking place. During the reporting period, no shares were purchased on-market for the purposes of an employee incentive scheme.