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 2019 September quarterly update. [Operator Instructions] I would like to hand -- I would now like to hand the conference over to Mr. Nicholas Read. Please go ahead.
Thank you, Uzi. And thank you to everyone for joining us today. We appreciate your time. On behalf of Sandfire, a very warm welcome to the company's September quarterly investor conference call and webcast.Today's call follows the release on the ASX platform earlier today of the September 2019 quarterly activities report and some associated quarterly update presentation. I'd also like to refer you to the ASX announcement released last night regarding the completion of the acquisition of MOD Resources.Firstly, I'd like to introduce the Sandfire team here in Perth. As normal, leading today's call, we have the company's Managing Director and CEO, Karl Simich. Following Karl, I'm pleased to introduce for the first time on these calls the company's new Chief Operating Officer, Jason Grace. So a warm welcome to Jason. And rounding out the call, we also have the company's Chief Financial Officer, Matt Fitzgerald; and General Manager of Geology, Shannan Bamforth. Karl, Jason, Matt and Shannan will shortly run you through the presentation before opening the floor to questions.Just a reminder that a live webcast of this teleconference and the synchronized slide presentation will be available on the link on the front cover of the presentation shortly following the conclusion of today's call. So thanks again, everyone, for your time. I'd now like to hand over to Karl to begin today's presentation.Please go ahead, Karl.
Thank you very much, Nicholas. And once again, welcome to everyone on the line at this quarterly September presentation.It is the 30th quarter of successful and profitable operations that Sandfire has completed, so I'm delighted to be in that position. And as talked about in the materials and as of late last night, I'm also glad to see that we are expanding our global footprint, and it's together with the strategy we're working on to build a diversified base metals company that will be operating around the globe.In terms of highlights for the quarter, a very solid production at just under 17,000 tonnes of copper, as we foreshadowed earlier our last quarter; a softer half year and it will be building up into a stronger second half of this financial year, so those results, pretty much as expected; gold; and then a very pleasing operating costs in C1 for the quarter at $0.87 a pound. We've sharpened our guidance for 2020 as we see the variety of material presenting itself from the DeGrussa and the Monty and sharpened that guidance to between 70,000 and 72,000 tonnes of copper and -- reasonable goals and also at similar C1 operating costs still for the year as we see it today. Jason will touch on this, and Shannan will a little bit more with respect to a couple of things we're seeing at the moment in terms of having impact on those guidance numbers, as we sharpen those, with a little bit more clarity information.Pleasing from a development perspective, we completed that -- formally as of yesterday the acquisition of 100% of MOD Resources. And we have already embarked upon precompletion and the optimization of the feasibility study of the T3 project. And so that's well and truly on foot. We've taken some risk here earlier on in being a little bit proactive precompletion of acquisition to get on with it on the basis that we expect that acquisition to occur and we're moving forward on that. And we'll just touch on our programs that we're looking at to optimizing that. Clearly, we're pretty excited because it does provide us an exceptional footprint in another well and truly hugely underexplored jurisdiction of the globe. Looking forward to obviously having a positive outcome from that optimization work and a decision to mine during 2020 and hopefully in the first half of 2020.Black Butte project. Indirectly, we have an 85% interest through our Canadian-listed subsidiary, Sandfire Resources America, and it is continuing to progress. And the completion of the final Environmental Impact Statement and the Record of Decision are expected, together with the feasibility study, as we previously said, towards the end of the December quarter of this calendar year. So we're looking forward to that. And progress, whilst it's been -- it is a process there. It's solidly occurring on the ground.Exploration, we'll touch on. We're still very aggressive in terms of our multipronged exploration programs in a variety of areas but particularly at our Sandfire's Greater Doolgunna region and obviously the host of those 2 wonderful mines which we have, DeGrussa and Monty. And obviously, as we know, first prize would be the discovery of another high-grade VMS discovery in that region, which ultimately we will be surprised if it's not forthcoming at some point in time. And as I mentioned earlier, we sit here already assessing together with the collaborative groups of MOD and their wonderful technicians and also with our group of expert technicians, collaborating now in terms of aggressively and in a more accelerated fashion, looking at the opportunity in the significant Kalahari Copper Belt, of which we will effectively control 100% of nearly 12,000 square kilometers of ground, over 250 kilometers strike length. And it's to say it's nothing then remarkable to be able to secure what is probably one of the undiscovered significant regional copper belts in the world. So we're really looking forward to an exciting next few years of exploration in that part of the world.Corporately, off the back of a wonderful financial 2019 year, the second best financial results we have achieved and the best operating results up until June '19. We sit with a very solid cash and deposits of some $260 million or thereabouts in the group, so we're in a wonderful position. And we're also delighted, as Nicholas mentioned, we're delighted to have Jason Grace join us, a very experienced and competent individual who brings all of that wealth of knowledge and experience to the table sitting here as our Chief Operating Officer. So thank you very much for joining us, Jason, and welcome to the team. We're really delighted and looking forward to that. As well as that and at the same time, contemporaneous with the acquisition of MOD, a little while ago, we appointed once again another very experienced engineer in Mr. Ian Kerr to the -- to our organization. And Ian will be responsible for leading the development of T3. So a man with significant experience and particularly in Africa, so we're looking forward for his contribution there. I'd like to thank Richard Beazley as the outgoing Chief Operating Officer for his hard work over the last couple years.What I will say is that, where we find ourselves at the moment, we do believe there's wonderful opportunities in this very interesting market that has a number of elements operating, but access to capital is very solid for us. Access to quality people is also very positive. And what we are continuing to be is an explorational organization and building up a platform that DeGrussa and Monty are setting us up for. So we're looking forward to continuing to expand our global footprint and to get on and getting the job done.I look forward now to handing over to Jason, who'll run you through a little bit more detail.
All right. Thank you very much, Karl, and it's absolutely a delight to have joined Sandfire, particularly at this time where it's embarking on a global expansion and a very exciting time for the company.So today, we'll start with safety at our DeGrussa operations, which had continued strong safety performance throughout the September quarter. Our key safety improvement initiatives that include management of principal hazards, safety leadership and culture and a strong focus on assurance have delivered a good, consistent downward trend, both TRIFR and overall safety performance.Moving on to DeGrussa operations. In terms of mining, a good quarter overall for DeGrussa, being slightly above target for ore tonnage and all key metrics in terms of lateral development and capital development on target or above target. Monty development continued well with the decline and capital development at the end of the quarter within just a few cuts of the final design. And overall lateral development positioned extremely well to support a ramp-up in ore stoping and ore mined tonnes throughout the year. If we look at -- so overall very good.In terms of grades. Grades were lower than expected -- or sorry, lower than as -- lower than expected for the year, but that is expected in terms of previously guided as well. So we have seen grades 3.9% from DeGrussa and about 3.7% from Monty. We do expect a decline throughout the year, building up to around about 6% to 7% from Monty and increasing well into the 4s from DeGrussa.In terms of processing performance, a very strong overall throughput performance from the mill, DeGrussa mill, for the quarter. So achieving 423,000 tonnes, which had an annualized rate places at -- places us at 1.7 million tonnes for the year. Recovery, on the other hand, was slightly lower than expected and that is driven mostly or virtually all by the inclusion of transitional ore coming from the crown pillar at DeGrussa. Now the crown pillar sits in the area that sits at the very top of the underground mine and directly below the base of the open pit. And as transitional ore, it includes both sulfide mineralogy as well as oxide mineralogy. Now we have previously processed this material and have expected lower recoveries, but we are seeing a bit of pressure and -- on those recoveries, and as a result, we've revised our full year guidance for recoveries for both copper and gold as down slightly for the year.If we look at concentrate and metal production, overall solid and as guided, slightly down compared to what we expect for the remainder of the year.
Looking at sales now for the quarter September -- of September quarter. Seven shipments completed and -- for just over 74,000 tonnes of concentrate. That's around half a ship greater than the production numbers. So there's drawdown of our concentrate stocks, as I say, by about half a ship. And that contains just under 18,000 tonnes of copper, again, around half a ship above our production numbers for the quarter. Shipment's completing through Port Hedland and Geraldton on plan.Looking across unit operating costs and a pleasing start for the year, headline C1 at $0.87, with production being in line with what we expected for this first part of the year. We have seen some positive results in terms of costs. And it's also been assisted by the U.S. currency and Aussie currency dropping to levels below the assumptions in our guidance. So our guidance was based on $0.70 FX and we've seen actuals through the quarter around $0.68, so that has helped in U.S. cents -- in costs.Mine development across DeGrussa and Monty is continuing. And we remain in and around those original guidance numbers with a solid start to the year at $11 million and $12 million, respectively, and so is our sustaining and strategic CapEx numbers finishing off our [ talent bandwidth ]. And there's not too much really to go, just normal sustaining capital over the next 3 quarters around the operations.Tax payments, as always, we have a lumpy one for us. So tax payments for the quarter of $20 million, for those looking to update their broker models.So I'll pass to Shannan.
Thanks, Matt.Exploration at Doolgunna continued apace over the quarter, really focusing on aircore drilling in the new prospective ground farther from home, now with up to 6 rigs working across the aircore, RC and diamond drilling teams. Most of the operations occurred out of the remote [ camp], some 70 kilometers from DeGrussa. So you can benefit service the rigs farther from home. This work is continuing to generate quality data sets which inform our targeting for follow-up RC and diamond drilling across the tenement package that we hold. The work that we're doing to support the drilling includes lots of moving loop again and downhole EM where we have RC and diamond holes, interpretation of recently completed gravity surveys and detailed geochemistry and evaluation of those geochemical data sets to really sort of tease out the finest detail of geological complexity.During the quarter, we also expanded our footprint with a new JV expansion deal with Auris Minerals. That was down at the Cashman's project in the southern part of the basin. And that really gave us leverage and opportunity to a piece of Western Australia that's got some wonderful geology, some historic mineralization and occurrences of some [ iron cap and gossans ], which we're very keen to follow up in the near future.
All right. In terms of the MOD acquisition, the implementation of the scheme arrangement with MOD was completed yesterday on the 24th of October. And in that time, we have worked a lot on the integration of MOD's people, assets and the systems and that's advancing well. The optimization of the T3 feasibility study is well advanced as well, and I'll touch on that in the next slide. The ESIA approval and mining license is expected to be approved later in the December quarter. And the updated feasibility study and ore reserves on the back of the T3 optimization study is expected to be completed in the June 2020 quarter. At the same time, project funding and the decision to mine will follow immediately after that and be within that quarter as well. The exploration on the belt will continue and ramp up in terms of activity throughout this year and building into the next financial year as well.If we look at the overall overview of the project, now this has previously been published before, so I won't run through all of the key elements on that, but what I will touch on is the T3 optimization study. So recently, there has been an additional 66 drill holes, particularly in the upper section of the ore body or focusing on the upper section of the ore body has been completed. On the back of that information and the additional geological knowledge, we are currently updating the mineral resource model and estimate. And then building from that as well, we are looking at the mine planning aspects. So we will explore pit design optimization, also staging design or pit staging and also look at options around cutoff grades and cutoff grade analysis. So overall mining methods and metallurgy, we don't expect any material changes or a lot of work to be done in that area. But in terms of processing, we will be looking at the scalability of the project in terms of can it support particularly a higher throughput or a higher milling rate there as well. Infrastructure, overall that's -- we don't expect that to vary a great deal. And as touched on before, from a permitting point of view, the ESIA is well advanced and we expect the mining license to be granted before the end of the year. Moving on to Black Butte. Overall, the EIS is progressed but the Record of Decision is expected in the December quarter. The feasibility study is continuing, and we do expect to release a mineral resource in the near future.
Thanks, Jason, Shannan and Matt.And just to summarize, once again, everyone, a very pleasing and solid performance for the first quarter of this financial -- this year of 2020 and very pleasing C1 operating costs of under $0.90 at $0.87. As we talked about, a sharpened guidance of around 70,000 to 72,000 tonnes of copper. So if we achieve those production profiles, we will see our best copper performance year in 2020. So we look forward to getting on top of some of the elements that were seen in the first quarter and now finishing or working through the year and finishing very strongly, which I'm confident that we will do. Excited with the ability to increase our platform now with the MOD acquisition well and truly under the belt and really have the -- our aspirational appetite to [ look in ] both Botswana, into the U.S., obviously with that development and that's obviously close to home.Active exploration, as Shannan has touched on, and you know we will continue to be very active in terms of that aspect of our business and also in that Kalahari Copper Belt. Order of magnitude between where we sit here today and moving into June of next year or thereabout, middle of next year, we would be probably somewhere in the order about $10 million to $12 million budget just on that Kalahari exploration enterprise.So we are looking forward to a very exciting back end of 2019. And certainly, as we move into 2020, that calendar year will be the beginning of a very transformational year for this company moving certainly into the next chapter. And we really are putting the building blocks in place for us to build a long-term, diversified base metals company and we're very excited about that.So thanks once again for your time, and I look forward to opening the floor now to questions.
[Operator Instructions] Your first question today comes from Hayden Bairstow with Macquarie.
Karl, just a quick one on Monty. I just want to get a feel because grades have obviously been pretty variable as you said [ it was initially ] going. Is that largely around percentage of the developments, development ore versus stoped ore? And how do we think about that changing from here? And just also the reserve was 8.5%, 9%, whatever it was. Is that going to reflect the mine grade? Or should we factor in some sort of dilution over and above what's in the reserve to what you'll actually report through production?
Shannan here. I think one of the key messages in terms of Monty is that it's a highly variable ore body. It's a very high-grade ore body but on short scales. We can go from very high grade down to a still by industry standards a very healthy grade of about 4%. Or we can go from 40%, 50% copper to 4% over very short-scale variabilities. So short-term planning on grade is a difficult outcome for Monty. Overall, we believe the kind of metal contained in the reserve will be mined out of Monty. We're not seeing variability in it. And I think just on that short scale, we will see ups and downs, so I wouldn't be leading down the path of trying to discount Monty too much at the current time.
Great. And the drop in recoveries, is that more around gold and just on the transition zone? And is that a couple of quarters? Or should we assume that -- I mean I don't imagine mining that crown pillar the whole time. [ There is still losses around that too. ]
Yes. It's Jason here, Hayden. Look, there is a significant tonnage at the crown pillar and that is currently scheduled to be about 10% of our blend for the rest of this year. So that's why we are adjusting guidance of recoveries down slightly for the remainder.
Your next question comes from Michael Slifirski with Credit Suisse.
I think I've got 3 or it might be 4. First of all, sticking with Monty, look, I'll come back to that. Sorry. I've lost my train of thought. The crown pillar thing at DeGrussa, you said you previously mined and processed that but getting lower recovery than what you experienced in last campaign. Is that reflecting some change in the plant? Or is it just your difference of zone of that transition mineralization?
Michael, it's Jason here. If you look at it, we have mined that previously before. And we do have some experience at the base but from the base of the pit. What we are seeing at the moment is that it is quite a variable zone in terms of the variable nature of the oxide copper mineralogy. So look, we do believe that we are seeing some higher levels of oxide mineralogy in the areas that we've mined locally. We have seen very recently, even during this quarter, where recoveries have improved. So in terms of that, we do have a good -- to answer your question, we have a good knowledge of it. We have implemented a change in the reagent scheme or the [ regime ] there as well. So we're adding [ dextrin ] and monosulfide as well. So the [ dextrin ] actually helps suppress a lot of the talc that we're seeing in the gangue mineralogy. And the monosulfide helps with reducing the activation of pyrite during the flotation process. So I think we'll get a better handle on it as we go. But we will see some of that variable nature to this ore body as we mine through it.
Great. As said, what I wanted to ask on Monty I had to find the comment in your quarterly and that was about the grade control drilling occurring now that will inform production in the December quarter. So I just wanted to understand. So how -- hand to mouth you are there and what the implications of those comments are, specifically around the December quarter and longer term. Is it that the sort of definition is not quite what you need it to be to accurately define just one quarter ahead?
We're actually really advanced in the grade control with Monty and getting ourselves in a situation whereby at the end of this year we'll have actually completed grade control on most parts of the entire ore body. What we're updating is the geological understanding in a holistic sense and making sure that we reflect that back in for the best planning we can on the short term.
Okay. Great. So there shouldn't be any significant surprise around the December quarter.
We wouldn't anticipate that, no.
Okay. The comment about the 66 additional holes in the upper section of the ore body for MOD and updating reserves and resources. Perhaps I haven't followed closely enough, but what did those holes tell you that was different to the prior knowledge? And what's the sort of directional change that might come from that?
Again, Shannan again. The drilling was completed by MOD post the close of -- for their resource model and [ went ] into their reserves and feasibility. So we've just been going through and digesting that and understanding what that means in terms of an updated mineral resource, which the guys are working on at the current time, which will underpin the feasibility work that's going on at the current time.
You mean to be specific is that sort of drilling that was outside the existing resource? Or is it -- do you have any new better definition of the resource or sort of refining it?
I think, clearly, we're refining. [indiscernible] more articulate in terms of staging in the first year or 2.
Your next question comes from David Coates with Bell Potter Securities.
I've had a couple questions on Monty that have been answered. The other thing was on the -- with the -- heading to Montana, the upcoming process there. The public commentary period ended early this year and I'm wondering if -- with the ongoing feasibility study, if any changes have had to have been made on the back of that and if you've had any feedback from the Department of Environmental Quality on when you may get that Record of Decision.
All right. It's Jason here. So answer to your first part of your question, no, there's no material changes as a result of the public comment period. And then secondly as well with EIS and the ROD, we do expect that later this quarter. And everything is well advancing.
Your next question comes from Daniel Morgan with UBS.
Just on the change to the guidance, so it's now 70,000 to 72,000 tonnes. Just wondering your thoughts on how you came up with that given we've had some variability in the ore. And Monty, as you say, difficult to define in very short terms, but it just seems like a very narrow guidance range. Just wondering if you could comment on that.
It's Jason here. I just want to comment that the [indiscernible], if you like, the requirement of the guidance is largely driven by recoveries of the crown pillar ore. As Shannan said before, we expect overall the metal contribution coming from Monty for this year to be intact, so with some timing variations in short scale. So that overall the only material impact that we do see at the moment is that risk around recovery, and we've just taken that into account. So if you like, trying to guide in the lower half of the original guidance.
Okay. And just wondering about the funding of -- I mean you've got potentially T3 in Africa. You've potentially got Black Butte in the United States. How are you thinking about funding these projects? I know you've got a lot of cash and you've got operating cash flow, but is that part of the thinking as well?
Yes. It's very much part of our current thinking. So as the business is expanding, we're looking at what -- firstly, cash resources we have. So we have our existing cash resources. We have the highly profitable DeGrussa mine continuing to operate. So we have the cash flow from that and potentially some debt capacity as well. And then we'll look at these 2 projects, the Black Butte and T3, in many ways individually as projects as they go through their feasibility studies and look at their economics. And we'll assess from that in a project-specific basis what sort of debt capacity they have. And then of course, over the top of all of that, we'll have a more global view across the business. So certainly a work in progress and some of that will be informed certainly by the 2 -- or by the feasibility study at Black Butte and also by the optimization of the feasibility study at T3. So over the next probably quarter or 2, we'll start to put a bit more color around how we're going to fund the group and fund the development, but I would say is that, we've certainly got access to at least those sort of 3 or 4 direct sources of capital across the group. And we'll balance those accordingly, depending on how those projects sort of shape up economically.
And last question, more on Black Butte. So just wondering with the updated feasibility study, is that just sharpening the pencil on all of the items involved in the project? Or is there scope changes at all that might occur? Or is it -- yes...
Shannan here. Just in terms of the feasibility, it's all underpinned by an update on the resource. And that resource is incorporating additional drilling, some very detailed structural modeling of the deposit and also some increased metallurgical and mineralogical test work that have increased our understanding there. So [indiscernible] through to the end to the feasibility study [ time ] which are underway at the current time.
And the outcome of that, I presume, has -- doesn't have an impact on the environmental process, i.e., any changes that were to come out of the project there should not impact the approvals, and you wouldn't have to reset the approvals at all, I presume.
There's no need for any reset on the approval process given [ anything ] that's coming out of the resource as we see it at the current time. And that's feeding to the feasibility study.
[Operator Instructions] Your next question comes from Lawrence (sic) [Larry] Hill with Canaccord.
Thanks guys for the good rundown of the quarterly. Just following on Daniel's question with Black Butte. Should we expect maybe more reserve to come out with the feasibility study? And secondly just on T3, you're obviously going through getting a mine license approved. Will that allow scope for an underground potential scenario at T3 or also T1 underground?
So I'll just check. I didn't quite hear you there Lawrence.
Ores with the feasibility. So yes, Lawrence. The ore reserve and feasibility study is very much intertwined at the same time, so we would expect that a resource update probably prior to that but then, leading into the ore reserve, very much linked in with the feasibility announcement, yes. Yes.
Now in terms of T3, look, we do believe at these initial stages that there is potential future for an underground at T3, but the work that we're doing at the moment is solely focusing on an open pit. In terms of potential with T1, we think there's potential right across the belt. And that's why we'll be spending and investing a great deal of money and effort into an accelerated or, if you like, an increased exploration program over the coming period.
Yes. Great. And just following up on that, you mentioned $10 million to $12 million maybe over the last -- next 12 months at -- over in Botswana. Is that in addition to the group's exploration budget spend of around $30 million?
That will be in addition to that group, the opportunity that we embarked upon with -- to move the transaction was more -- was predicated on the fact that there is fantastic exploration upside.
Your next question comes from Adam Baker with Global Mining Research.
It's actually Dave Radcliffe here. So I just had a question coming back to Monty which hopefully you can help us all with because I guess we're all struggling a little bit. So if I do the math, you had 3 quarters which is 165,000 tonnes. So that's nearly 20% of the reserves, and that's an average grade of 5.6 versus reserve of 8.7. So maybe so we can all understand a bit better, can you talk to what the reconciliations actually are for that 20% you've mined in terms of tonnage and grade? And then as a follow-up, I mean obviously then we should have periods where we're running above reserve guidance. There are high-grade zones such as the bornite zone. So when do you actually reach those?
Adam (sic) [ Dave ], Shannan here. What we've found in Monty is the upper parts of the lower zone were skinnier and more sporadic than anticipated in the resource drilling. So from a reconciliation perspective, once we come through and do the grade-controlled drilling, we're actually reconciling very well out of Monty. And again we do see that we will come into some of these higher-grade zones, including the bornite. The bornite zone does seem to be a little smaller than originally modeled, but this doesn't have an impact on overall copper. So I think what we're looking at is where we've had a potential decrease in bornite, we've actually replaced with fairly high-grade chalcopyrite. So it's a fairly [ neat ] situation in terms of total copper, so -- albeit at a slightly anticipated lower grade.
Okay. So you're also confident that what was on the wrapper is what you'll actually get.
Yes. We're pretty happy that the ore reserve we'll deliver.
Your next question comes from Paul Howard with Hartleys Limited.
Just trying to look at the annual capacity, the 1.6 million tonnes per annum through the [ plant ]. Does the crown pillar oxide transitional ore change the amount of material you can get through? Just looking at the last few quarters, you're sort of tracking above that 1.6 million tonne rate, so yes, can you sort of give me a bit of color as to what you think going forward?
Yes. This is Jason here again. Look, short answer on that one is we have seen strong performance. Processing of the crown pillar isn't going to slow us down. What it does do is just put some pressure on the metallurgy, which we're working through at the moment. Overall, I would expect that we'll maintain that 1.6 million. And we have seen some stronger performance recently, which is a potential upside.
Yes, cool. I'm just, I suppose, trying to get my numbers to be within your guidance range. And I suppose I'm -- if I'm not adjusting -- I've adjusted, obviously, recoveries, but I'm not adjusting grades up, and I suppose throughput perhaps is going to do it for me. So okay, cool. That's probably a decision for me, but thanks for the clarity.
Thank you. There are no further questions at this time. I now hand back to Mr. Simich for closing remarks.
Thank you very much, everyone, for listening to the September quarterly update and the results therein. And as I said earlier on, a very pleasing performance, very good operating costs. We work to continue to achieve our guidance for this year, which will be a very solid year. And we're very excited about the footprint with -- this organization now has in Botswana, Australia and also the U.S.A. in Montana. And we look forward to an exciting 2020 and building on what we've achieved and delivering on our aspirations, which I think will be extraordinarily value-accretive to the shareholders and stakeholders of Sandfire Resources.So once again, thanks very much for listening, and we look forward to updating you again in the next quarterly update.
That does conclude our conference for today. Thanks for participating. You may now disconnect.