Sandfire Resources Ltd
ASX:SFR
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Sandfire Resources Ltd
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Thank you for standing by, and welcome to the Sandfire Resources 2018 September Quarterly Update Conference Call. [Operator Instructions]I would now like to hand the conference over to Mr. Nicholas Read. Please go ahead.
Thanks very much, Lexy. Good afternoon, everyone. Good morning to those in WA. Thanks for your time on what I know is a very busy day. On behalf of Sandfire, welcome to the company's September 2018 quarterly investor conference call and webcast.I'd like to begin by introducing the team here from Sandfire in Perth. Leading today's call, we have the company's Managing Director and CEO, Karl Simich; and joining him in the room, we have Sandfire's Chief Operating Officer, Richard Beazley; Chief Financial Officer, Matt Fitzgerald; and General Manager of Geology, Shannan Bamforth.Please note that today's call follows the release on the ASX platform earlier today on the September 2018 quarterly activities report and an associated quarterly update presentation. A live webcast of this call and a synchronized live presentation are available through the company's website or using the BRR Media service, using the link provided on the front cover of the presentation. A recording of this call will be available at the same length shortly following the conclusion of today's proceedings.I'd now like to hand over to Karl Simich to introduce today's presentation. Over to you, Karl.
Thank you very much, Nicholas, and welcome everyone to the September 2018 quarterly report briefing. The production and operation for the September quarter were extremely pleasing with some just-under 18,000 tonnes of copper production and over 11,000 ounces of gold for the quarter. Obviously, an extraordinarily strong quarter for the company. And as a consequence of that and some solid gold results, we've got some relatively low C1 operating costs at under USD 0.90 per pound. So very pleasing from that perspective.For the moment, we'll maintain guidance for the year as we said previously between 63,000 and 67,000 tonnes of copper and around 40,000 ounces of gold for the year at about a USD 1 per pound. We would like to think as we progress through the year and having had a solid start for this year that hopefully we're going to be towards the top end of all those production guidance numbers and maybe the low end of those cost of guidance numbers. So very pleasing quarter from that operating perspective.In relation to developments at the Monty copper mine, essentially we're looking to be on target in time for our production targets for both development ore and then ultimately, for a proper stope in ore as we head into the new year.In addition to that, we were able to -- we've acquired the balance of the 30% of the Springfield joint venture from Talisman that we didn't own that was essentially approved, and that's been acquired and that was settled in the month of October. So we're very happy to have 100% of DeGrussa and also 100% of the Monty mine. And obviously, we'll continue to work forward and into trying to find other development opportunities.With regard to our investments and the project in the U.S.A., through our 78% interest in Sandfire Resources America, the Black Butte Project, we are continuing with the final stages of permitting, and expectations are for the -- that to continue. And essentially, as we go through the back end of this year, culminating by the March quarter, we're expecting our final mining permits to come through in that March quarter of 2019 after the Environmental Impact Statement is completed towards the end of the December '18 quarter.We have an extensive exploration program on foot, and Shannan will give you an update on that. And essentially, with respect to our almost 16,500 square kilometers, the ground from a prospectivity point of view is getting extensive work undertaken and is as prospective as ever to yield high-grade VMS base metal opportunities. And so it's still very optimistic with respect of the opportunities in the region.We continue with extensive work in the project, the Morck Well Project, which is the -- essentially the -- significant in the sense that it was the 1 area outside of the 2 mines that we've intersected significant chalcopyrite or sulphide copper mineralization. Shannan will touch more on that.And as we rounded out the end of the quarter, the cash and deposits, some -- just under $220 million, extraordinarily strong position. The quarter was adjusted essentially through dividends paid through the quarter and also a delay in some shipping, and Matt will touch on that when he speaks to you.I'm going to hand over to Richard Beazley now, the Chief Operating Officer, to talk about the safety and then also the operations for the quarter. Thank you very much.
Thanks, Karl. Safety. This quarter, we have been challenged. We've now risen to 8.6 on a minor injury that we had on site at DeGrussa. But that said, positively looking forward with the work programs we've got in place around safety and culture. We will see that come back in future quarters. So certainly, the challenge is there for us to improve on that particular set.Moving on to the underground operations at DeGrussa. Sitting on a far more positive note, it's just been a very, very strong quarter in terms of the development program. Really, the main key driver here is being the performance in terms of a head grade up from the underground operation. So whilst the tonnages were a little down -- that was deliberately down because we're constrained on the back end of the operations because the head grade was up, so a very positive reconciliation driven by some of the conditions that we found in the stoping sequences while extracting.So moving forward with -- into the plant side of the investment, we've delivered just over 390,000 tonnes to the mill, which I think thereabout 4.95% on average over the quarter. And the recovery is just under 93%. And then the recovery on the gold, just under 48%. So very, very strong performance over all that. That all then converted to tonnes of concentrate produced for the quarter, just over 75,000 tonnes containing just under 18,000 tonnes of contained copper and 11,000 ounces of contained gold. Again, the key note here, it's just been a strong performance in growth in the underground distributable performance. Because of the plant, we've got to tail back the tonnage so we wouldn't compromise on the recoveries. So we visibly had designed constraints around the plant. So that's all very positive news.Moving forward into the second quarter, our guidance nationally we'll be juicing somewhere in the order of 15,000 to 16,000 tonnes of copper is where we're sloping forward.In terms of just the major capital programs, the last of the programs of Monty is the thickener, filter. Setting through the quarter, went through all the commissioning and both of those items: the filter and the thickener, are up and running and producing at this point. So now we're just going through the normal improvement programs and getting ready for the delivery of body ore in the next calendar year for which these 2 assets have been put in place for.In terms of development over Monty, we acquired, as we've just mentioned, the 30% Talisman. So we have about 100% ownership there and essentially, the masses. It was our destiny at this point now going forward in terms of decline progression, we're now at just under 1,350 meters project to date. The decline and total developments, just over 3,200 meters for total development. So we're a little behind, as it's explained in previous quarterly releases, driven principally around some of the ground conditions with men and water. And now we're starting to see some alleviation from those particular issues as we now move into an area with a number of development heading and also local development.A key to that development for this quarter was the establishment of the first Diamond Drill platform for the great control work that's been in place now for just over 2 weeks. That is ahead of schedule. So that now sets us up in a very strong position going forward, the delivery of ore into the end of the second quarter -- I'm sorry, the third quarter of this financial year.Okay. I think I will hand the sails over to Matt now.
Thanks, Richard. So moving to sales. As Richards said, 74,000 tonnes of concentrate production. We're a little behind in terms of sales on that. So we'll produce for the quarter around 7 ships' worth of concentrate. We sold 5 ships out at Port Hedland and Geraldton. No major issues driving that, really just a scheduling matter and one of those falling into early October and a bit of a catch-up plan and certainly scheduled during the December quarter. So that puts us -- we were, generally, hold about 1 to 1.5 ships with the concentrate on hand. And at the end of the September quarter, we had 35,000 tonnes of concentrate on hand, which is around 3.5 ships, with each ship being around 10,000 tonnes each. So we do have those probably 2 ships' worth to catch up and that will also flow through our cash balances, and that's one of the impacts that's been on our closing cash position. So those 2 sales, give or take, are worth about $40 million of cash balance at the end of the quarter.Just a note as well, as we noted in the last call at the end of June, we do know that we had some sales subject to QP. And our QP losses unaudited, of course, but up to the end of September, are running around $6 million for the quarter. We have seen a little bit of a bounce in the copper price though, so we hopefully will see some of the -- some upward movements in that as well of course, but they're around $6 million for that quarter.Looking also at sales. Largely driven by the mining head grade which flows through the obstacles, the plant recoveries and flows through to a lower C1 unit cost, 18,000 tonnes of copper and some solid gold credits gives us a $0.89-per-pound result for the quarter. It's also been impacted by a reducing currency rate. So that is a very solid start to the year. We have put some comments in here though around -- and they very much reflect the comments we made when we gave guidance that we do expect some higher costs coming through in the early times of Monty, just while it runs in the second half of the year, just while it runs below the life of mine head grade and also some impact of DeGrussa's mining rate dropping to allow that Monty ore to come in. And we've also seen some cost pressures in terms of diesel. So we are still -- we're maintaining our cost guidance. As Karl said, copper is looking pretty strong towards the upper end of our range. Gold's looking strong at the upper end. And you'd expect that to have a very positive impact net-net on our C1 number. So for the half year, we'll certainly give an update on that. But at this stage, our guidance numbers are looking strong. Mine development is on track. Monty capital is certainly on track as well. And in terms of cash movements, Karl touched on them. For the September quarter, they're really impacted by the $30 million final dividend payment made in the September quarter, another $12 million of tax payments into the December quarter. We know that in October, we paid out a total of $78 million for the 30% acquisition of the Springfield JV from Talisman, and that is done in October, post this quarter end. And we also have, just to note, tax payments and our catch-up to our 2018 tax position. So we'll pay -- we estimate we'll pay tax in the December quarter of around $38 million. I just want to reflect that in your expectations as well.I'll hand back to Karl on Black Butte.
Thank you, Matt. Just to give you a brief update on the Sandfire America's Black Butte Copper Project, just to reconfirm and just to summarize, Sandfire Resources own 78% of our -- the American subsidiary, Sandfire Resources America, which, in turn, owns 100% through its American subsidiary, 100% of the Black Butte Copper Project. The resource, give or take, as we've talked about many times, is about 600,000 tonnes of contained copper and about a 3.3% copper grade, high-grade deposit and sits -- well categorized in the world in terms of high grade. Essentially, and as we've talked about many times, a significant district potential where we sit in terms of it, and there's a lot more detail in the quarterly -- the detailed quarterly report. But essentially, we're working through the process of the final stages of permitting. It's just as we work through them in a methodical fashion, as allowed for in the system, and we're still working through the draft EIS program. Expectations are that draft EIS will be completed during the December quarter, and there would be public hearings. We expect it during the December quarter. And then, essentially, during the March quarter, our expectation is through that quarter, we'll have a final EIS, and we will also then move to have the Record of Decision, essentially the mining permit are granted during the March quarter. That, obviously, will be a permit then, a Record of Decision with the terms of conditions upon which we can operate, explore, including aspects of bonding.So we would expect during that March quarter, we'll be in a position to start preliminary site works. We are moving to completion of our definitive feasibility study for the project. Well, Sandfire America is doing that. The expectations of that, for the DFS to be completed by middle of 2019 calendar year. And also, we're appointing key consultants in those roles [ with Mahat ] being appointed as we speak. Graders are being appointed in the feasibility as study consultants. SRK is the resource -- that will be doing the resource work. Tetra Tech will be involved in the initial design of the pads and ponds and that initial civil work. We will be soon arriving over the weekend. And inducted, there will be 2 rigs arriving at site, and their work will be involved in in-fill drilling for the upper and lower zones to [brought] more [back] to define the resource. We'll be doing some geotechnical work as well. And from a corporate perspective, Sandfire Resources America has announced its capital raising to ensure it is well-funded to complete all of these works going through into the middle of the year and up to the start of a large construction work, but essentially, they're involved in a CAD 19 million capital raising at this point in time. Sandfire Resources Australia here will be contributing its 78%, and will be also underwriting to the extent of its -- what it can -- any shortfall thereof to ensure that Sandfire Resources America does raise its full funding and is well-funded to complete all the aspects of permitting, final test work, in-fill drilling and definitive feasibility study by the middle of the year. So it will be well placed to move forward. And essentially, from the commencement of the full construction work, it's about 2 years from that point until we would see first our production from the project. So it is getting a step along and making good progress, so we are just working our way through that system.I'm going to hand over to Shannan who will be giving you an update on general exploration in the Doolgunna region.
Thanks, Karl. It's been an exciting quarter in exploration in the Doolgunna region, as we continue to work into areas that have had little to no exploration in the past. And we continue to develop our understanding of the stratigraphy and the distribution of the prospective sequence as it relates to DeGrussa and Monty. At Morck Well, a part of the Auris JV, deep RC drilling was completed to trace the prospective sequence along the strike from the visible copper mineralization we intersected earlier in the year. Encouragingly, the drilling intersected entirely with these sediments with the alteration in trace element geochemistry that indicates a fertile environment for VHMS exploration. More work with deep diamond drilling is planned in the coming quarter supported by down-hole EM.During the period, we completed in excess of 50,000 meters of aircore drilling with the majority of this drilling occurring to the southwest of Morck well. This continues to inform the geological interpretation at a detailed scale and provides geochemical information. In this region, we are also continuing with the systematic ground moving loop EM program, which, when combined with the Aircore geochemistry, is key to targeting deeper sources of potential mineralization. Work also occurred on the Ned's Creek Project, where we were testing for structurally hosted copper mineralization and targets generated by Airborne EM inversion and historic shallow RAB in the Aircore drilling.During the period, we completed a transaction whereby we acquired Independence Group's Farm-In interests in Alchemy's Bryah Basin Project, giving us rights to explore the base metal prospective tenements covering some further 60 kilometers of additional strike of interpretive prospective sequence between DeGrussa and the historic Horseshoe Lights copper project. Work programs are being finalized, and we intend to be on the ground and exploring in the next quarter.We commenced this quarter with 2 Aircore rigs, 1 RC rig and 1 Diamond rig, supported by ground gravity and moving looping inquiries, actively working to generate and test the best targets for VHMS mineralization in the district. With that, I'll hand back to Karl.
Thanks, Shannan. So just to recap, it's been a strong quarter, production almost 18,000 tonnes of copper and 11,000 ounces of gold, and very low operating costs of C1 of under $0.90. Guidance. Hopefully, we'll achieve that upper end of our guidance that we set to the year, but we've maintained our guidance. As we talked about Monty is well and truly in the thick of it. We're expecting essentially first ores coming out from development in December and full production ore in the March quarter. So that's going well, and that [mature] will be blended to -- or lift that [ C-grade ] into the DeGrussa mill, ending -- and lift our production profile.Permitting in the U.S. is going as essentially as planned, and we are well and truly in the thick of the back end of that. We're excited about moving into the next phase of that project. Obviously, to put a bow around the permitting to get that Record of Decision in the March quarter of 2019 and then start to move into the construction aspects of that project. So very exciting from that perspective. It's a long journey, but we well and truly put our shoulder behind the wheel there. And as Shannan's just mentioned, we've got a vast area of -- in the Greater Doolgunna region. It's extraordinarily prospective. It remains as prospective as always for new, similar types of deposits. And with the work that we're doing on the ground with 4 rigs running, on average, we're probably drilling somewhere between 20,000 to 25,000 meters in any particular month and reutilizing the state-of-the-art geological and geophysical tools that are available in these new areas that has -- have exhalative and all the right sort of stratigraphy and geological sort of signals. So I think it really is -- we must hold the line and stay the course, and we're looking forward to hopefully further exploration success to bolster into these operating facilities that are well prepared for -- to receive further ore for a long period of time.So with that, I'd like to thank you for your patience in listening to us today, and we'll open the floor to questions for anyone who may have them.
[Operator Instructions] Your first question comes from Michael Slifirski with Credit Suisse.
A couple quickies. First of all, the grade surprise, the positive reconciliation, is that an area that you had in mind before? What's the potential for that to continue? Be interested in what -- where it specifically occurred and why? Was it an under-drilled area? Was it -- just any sort of infill information would be useful, please.
Michael, it's Shannan here. The grade surprise was generally located in 1 stope. There was -- it's a very high-grade drilling. You've essentially 1 stope, accompanied with a couple of lower-grade intercepts in that stope. So essentially you get down to the estimation parameters. And if we probably erred to the side of safety on that one, and therefore, we saw a bit of upside as it did present more high-grade mineralization out of that stope and [clean]. Looking forward, generally, on an annual basis, we'll see 1, maybe 2 of these stopes occur on the upside. In general, we also see the odd 1 or 2 occur on the downside. So it's a net-neutral situation moving forward. We're just trying to manage it and maximize the value that we can generate on a daily basis.
Secondly, with respect to the development at Monty, development maybe's about 1,000 a quarter, saying about 560 behind, so about half a quarter behind, but the project's still on schedule. How does that work?
What works, Michael, is just our targeting has been specifically milestones. So the drill chamber was key to work our [focus] with grade control program. So we made sure we had the leaders there to get that work underway. So we've got some additional fleet involved and people involved to get that work underway, plus the time required for the grade control analysis and then beyond that, obviously, all the design work completing for the stope production and sequencing beyond that. So that was the focus to make sure we achieved that milestone on time. And yes, overall, we're normally about 18% behind at this point, but we're actually seeing an uplift now in meters. As I said, now we've got multiple phases as before, up to this point effectively and had 2 phases at the best of times. And the ground conditions that were at times in the past and also the water that -- at a higher rate than we anticipated on the original planning just delight us. So we don't see that as a serious issue going forward, but [granted], the SAG mill is tightening up and their grade control regime has been relaxed, and also the water is not as -- such an issue as it was before. We're down about 10 liters a second, and we got multiple headings and also got leveled development now. So we should see those meters pick up. And at this point, scheduling going forward says we will meet our targets as we deliver the main targets, being stoping ore and delivering that ore to the plant in the back end of the third quarter this financial year.
Superb. And about ground conditions, is that just an isolated area? How remote is it from any stoping area? And is there any implication in terms of ground conditions in the stoping area or in the dilution assumptions, please?
No, the decline work that they had the ground condition problems are remote from where we're going to go into the Lower Zone. The reasons we had those issues is simply driven by the structures up there in the weathered zone was far more oxidized and weathered than originally anticipated. Some of the structures were intersecting mobile structures at that point in the decline. So we had those issues around ground conditions because of that. The ore body itself is deeper, so it's in fresh rock. So all of the jolting in those kind of structures are far tighter, and that issue of oxidation in those joint systems is not there. So we don't see that problem -- or don't anticipate that problem in the stoping areas, and we're seeing that change as we get deeper in the decline there.
Okay. And final one on Black Butte. If permitting is in place in the March quarter and the DFS isn't due until June, how much work are you willing to do? How much capital are you willing to commit between the permitting and the DFS?
Look, I think it's a little bit of a ramp-up from those early stages in terms of what we would be prepared to do. In terms of dollar values, it's probably somewhere in the order of those first stages of pads and ponds, cutting the commencement of declines. It's probably in the order of tens of millions of dollars before we go to the large-scale construction side of things and also extensive decline work. But essentially, we'll be in a position, I think, at the time that ROD is issued to commence those commencement of preliminary civil works on the ground even though we're still looking to complete the back end of the DFS study. I'm not sure if there's anything else Shannan would be -- or wants to add, but...
I think the big difference at Black Butte is they're not starting from a 0 base. They've actually got a lot of the studies for the DFS advanced to a fairly significant level, and a lot of the work we're doing is really supplementary to the existing information. Really, they're just dovetailing into a tight DFS at the end of the process.
[Operator Instructions] Your next question comes from Paul Howard with Hartleys.
I think on my numbers that's the highest recovery grade you've had in a quarter since starting out in -- at DeGrussa, so well done. Similar to Michael's question, I suppose, on that grade, you previously guided like a 4.4% average grade for the financial year. Given we're at sort of 4.9% now and we expect to get higher at the end of the year with Monty coming through, and bearing in mind you're maintaining guidance, are we expecting sort of lower grades in the middle half of the year?
Yes, so the guidance numbers really stay the same. The second quarter will probably be in the low 4s, we would expect, sort of 4 to 4.5, so we'll see it come down in the second quarter. But for the year, very much the same sort of result. I think we said 4.3, 4.4, those type numbers, as it averages out.
And just to add to that, whilst we do get into Monty in this financial year, it is only 129,000 tonnes. We don't really seen Monty hit the grade equation until next financial year when we see them -- a real impact coming.
But that Monty grade drags the total combined grade up into the mid 4s.
Your next question comes from David Radclyffe with Global Mining Research.
So I have more of an exploration question. You're obviously spending a lot of effort on the district scale exploration. But now you've got 100% of Monty. How does that actually change your view there? I mean, do you go back and actually do some more testing to try and really understand that depth potential? Or is the view that Monty is actually closed off?
David, Shannan here. Look, I think the focus of our exploration has always been we drill the best targets that we have in front of us regardless of landholding joint venture commitments or joint venture responsibilities. We are there for a very binary outcome of exploration success. When we look at Monty, I think Monty itself is an orebody. We believe that to be relatively well closed off. But once we actually get much further down into the orebody with development, we were able to learn a lot of lessons from the geology underground mining. It can be down there in the orebody mapping. That may change our understanding as it did at DeGrussa. And with the deeper workings in development, it'll give us drill platforms to test theories, working out from there as we move forward.
Your next question comes from Peter Milne from The West Australian.
Just a question on your operating costs for FY '19. You note increased diesel prices are going to be impacting all aspects of operations. I'm pretty interested in this one because that affects the whole mining sector. Can you talk a bit about the level of diesel price increase you've experienced or expecting and what impact it's having on your OpEx?
Yes, we've seen the pressure, I suppose, like everyone else does. It doesn't have a -- probably a major impact on us. Has some impact on us in terms of our operating costs, but our margin's clearly covered for a fair bit of that. So we're really just noting it as a point. It is one of our key assumptions. It does impact all of our costs, all the way from the mining side all the way through, obviously, the operations, the power generation through to trucking and then ultimately through shipping. Our solar project, as you'll be aware of, has been particularly positive for us. And that very much gives us a sort of a natural hedge against some of those things as well. So our solar project's contributing something like 25% of our power needs at the moment. So that is clearly helping. That -- where the diesel price is going or the oil price is going from now is, of course, anyone's guess. But we are seeing it creep up, and that is having some impact for us and our margins, and with some of those offsetting impacts on higher production. It's not a major impact, but it is one of the impacts that we've listed. So if that helps.
There are no further questions at this time. I'll now hand back to Mr. Simich for closing remarks.
Thank you very much, and thank you once again, everyone, for paying attention today and listening to the quarterly call. It's been a great quarter, and we look forward to continuing through the next 3 quarters of this financial year and to delivering, hopefully, at least our guidance or the top end of our guidance. And obviously, our expectations are we'll continue with extensive and aggressive exploration in the Greater Doolgunna region, where we are extraordinarily positive in [help], positively minded towards further discoveries being made there. And on the development side, we continue to pursue in getting to that final stage of the permitting, and look forward to commencing the works on the ground at the Black Butte project and moving that towards a production profile that we can start to confirm is going to happen. So looking forward to a very positive year for financial '19 for the company. And then as we go into '20 and '21, we'll even have higher production profile numbers there. So once again, it's looking very solid from where we sit. Thanks very much for listening.