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 2020 September Quarterly Update. [Operator Instructions] I would now like to hand the conference over to Nicholas Read. Nicholas, please go ahead.
Thanks very much, Raj. Welcome to everyone. Thanks very much for your time today, on behalf of Sandfire, for joining us for the company's September 2020 quarterly activities presentation. I'd like to refer you to both the September quarterly activities report and the associated quarterly update presentation, both of which were released on the ASX platform earlier this morning, as well as some other market disclosures, including an update on Sandfire's development projects in the U.S. and Botswana, which was also released this morning. A live webcast of this teleconference and a synchronized slide presentation can be accessed using the BRR Media service, using the link provided on the front of the presentation. A recording of this webcast will be available at the same link shortly following the conclusion of today's call. To run you through the quarterly results, I'd like to introduce you to the Sandfire management team here in Perth. Speaking first, we have the company's Managing Director, Karl Simich; and joining him on the call, we also have Sandfire's Chief Operating Officer, Jason Grace; and Chief Financial Officer, Matt Fitzgerald. Also joining us in the room here to take any questions, we have Sandfire's General Manager, Geology, Shannan Bamforth; and Head of Growth and Exploration in Botswana, Julian Hanna. So welcome to everyone. I'd now like to hand over to Karl to kick off today's quarterly presentation. Karl, please go ahead.
Thanks very much, Nicholas, and thanks, everyone, for joining us today for the September quarterly presentation. It follows on the back of a record financial year 2020 results in terms of operations and performance and highlighted again today for this quarter, the results for the September quarter being an excellent production profile quarter. What is more important, particularly from my perspective, is the very solid progress that we are making in our strategic imperatives and with respect to our strategic plan and execution thereof. So if I can just touch on a couple of key elements with respect to our strategic growth plan and in our sense of through opportunity creating value for our stakeholders. It is through our 5 key strategic imperatives, which are identified there. Just touching on those. Strategic imperative #1 for us is to execute delivery. We intend to do that and we are doing that. As you see, through the optimization of the DeGrussa, Monty mines in Meekatharra here in Western Australia. We are continuing to progress and are seeking to develop the T3 operations hub in Botswana, the Motheo hub, and we'll talk a little bit about -- more about that in a moment. But essentially, a very large push there in Botswana to move that project into development in a very quick manner. We continue with the release this morning of information with respect to the Black Butte project in Montana with the feasibility study being delivered, is a project there that we are now able, having set ourselves a position we can look to optimize, develop, grow and build on those resources there, not only through that project particularly, but through neighboring projects and opportunities in that region. So we are delivering on the Black Butte project in Montana. We'll also touch on our movement forward in terms of developing from our copper development in Western Australia and our operations at DeGrussa, transforming that operation into a gold project for a period of time. That enables us to continue with our optionality with respect to copper exploration as well as an expanded gold strategy as well. So we're looking forward to touching on that. And we will continue with other strategies in the region to look at where we can develop resources that potentially can be put through that DeGrussa processing facility. So that is our strategy with respect to executing delivery. With respect to building a sustainable production profile, we are seeking and we are looking at near-term acquisition opportunities and ongoing strategic investments generally. And that will be the focus in that part of our business development aspect of our business, to try to add to those production tonnes in copper over the next few years as well as looking for other potential development opportunities and strategic investments that we can make. Just to touch on that, an announcement yesterday was the arrangements we've achieved with CBH with respect to the Endeavor Mine that has been put on care and maintenance. But that is a push and an opportunity there for us to look at near-development opportunities as well. In strategic imperative #3, we continue to look at accelerating discovery. We want to build and leverage off our exploration capabilities to maximize our chances of success. And in particular, we continue to accelerate our exploration endeavors with much intent in Botswana. We have also increased our footprint in the region by some 40%, and we now assist and control effectively some 26,000 square kilometers in Botswana and Namibia, but essentially in that Kalahari Copper Belt. And so that is a key strategic initiative for us. And we see, as I've mentioned before, an opportunity for a multiple decade and multiple mining hub scenario in that jurisdiction. We will continue with vigor to just explore in the Greater Doolgunna region. And we have a significant footprint there. And we do have an excellent exploration opportunity, we believe, still there. And we will also continue to look at other strategic imperatives and our New South Wales exploration strategy is gathering some momentum, particularly focused in the Cobar region and in the Macquarie Arc region. So we are building a significant strategic footprint in that area and that has much potential as well. Strategic imperative #4. We want to ensure that we are -- enabling us to do all this, we have our people that are aligned and empowered and ensuring we have those strategic capabilities, so that all parts of our business are aligned for the long-term strategic outcomes of this business. We're comfortable with the people we've got, the resource we've got, how we are empowering those people and ensuring they have got the resources and the capabilities to execute the strategic imperatives that we have got in place. And under strategic imperative #5, optimization of our capital structure, it is to ensure that we continue to grow the capital structure to support the Sandfire strategy. And we find and we strike a balance between the appropriate funding mechanisms between debt, equity and -- debt and equity to get the right balance and also balancing that with a fair return to our shareholders. We want to ensure that we have flexibility to enabling support of our future growth plans and that we have that appropriate mix. We believe we're laying the foundations and in the pipeline, putting together for growth for our business as we head into the next chapter for Sandfire going forward. And if I can just highlight on the quarterly results that we've had, record production at 19,400 tonnes of copper in the last quarter and excellent gold at nearly 12,000 ounces for almost a record C1 operating cost of $0.53. Matt will provide further detail on the breakdown of that. Our guidance for this year is now ticking towards the upper end of the previously -- the range of guidance. So heading towards 70,000 tonnes of copper and 40,000 ounces of gold. And we've lowered -- slightly brought down our range of operating costs estimated for this financial year for C1 guidance of between $0.85 and $0.90 a pound for this financial year. We're very excited about the opportunities for Old Highway gold prospect, which will really be the beginnings of the potential to develop into production operations at DeGrussa of a gold operation once the current copper operations cease. It also gives us a great option in that regard to continue to operate the DeGrussa mine, to continue to explore in the region and also deferring any costs relating to any form of care and maintenance. So Jason will touch on that a little bit more, but that is looking very positive for our gold operation at DeGrussa and a greater strategy with respect to gold in that region. With regard to Botswana, we continue to optimize the feasibility study. We're on the cusp of the completion of that, for the optimized T3 silver gold -- silver -- copper silver project and also the Motheo hub processing concept, which will be enhanced by the develop -- or the delivery of the A4 resource and then ultimately reserves for that new discovery. Ultimately, in that great region, we're looking for targeting production profiles of somewhere in the order of 1% copper or better and at the scale that we are potentially looking to expand to from 3.2 million tonnes to 5.2 million, you get a sense of the sort of operating capacity. We do believe that, as I said, there is potential for multiple hubs of operations in that vast dominant holding of now stretching up to 26,000 square kilometers in that Kalahari Copper Belt and very exciting for us. With regard to Black Butte, the feasibility study has been issued relating to the Johnny Lee deposit. And we do see that there's great opportunity there over a longer period of time to incorporate potentially the Lowry deposit and other opportunities in and around near the mine. So we will be looking to leverage off that base at the moment to grow to optimize. But what is key about the U.S. and Montana is we have achieved and we have permitted the project, and that is critical, it's the first permit in many decades. And now we can actually build on what we have delivered there. So the important aspect of that project was to actually get it permitted, which we've now done. And now we've built a business case over a period of time. And we do have the time now that we will be focusing our attention in Botswana in the interim to do that. And as we finished the quarter with a very strong financial position of in excess of $300 million cash in the bank, we do have no debt. And just to note on that, as we rolled into September, there was a shipment that rolled into October. We will have, for the first time ever 4 ships in 1 month for the month of October. And that will likely increase our cash at bank in the month of October by net $60 million after an estimated revenue in October of somewhere in the order of $100 million in that month. We also have about $60 million to $70 million in very liquid investments, so the company has a very, very, very strong balance sheet to then go and prosecute the strategy that we have gotten that we are comfortable with as we move, as I said, in terms of next chapter of growth and development for Sandfire. I'll hand over to Jason to continue with the presentation.
Thank you, Karl, and welcome to everyone on the call today. Starting with HSEC, a major focus across the group during the September quarter, was Sandfire's response to the COVID-19 global pandemic. At the DeGrussa operations and Doolgunna exploration being located in Western Australia has meant that we have continued to operate almost as normal, however, with social distancing and continued infection control measures maintained. In Botswana, COVID-19 infection rates have continued to rise throughout the September quarter. And during this time, our Tshukudu exploration team continued to work safely while implementing increased control measures, which have included physical separation of work groups, additional COVID-19 infection prevention training and COVID-19 testing and screening of some employees. COVID-19 infection rates are also increasing significantly across the U.S. and this is also the case for Montana. In response, our Sandfire America team have continued to work from home during this time, and also exercised significant controls and social distancing given the earthworks have started at the Black Butte project. With these controls in place, Sandfire is yet to record a positive COVID-19 case across our entire workforce, and we are also very pleased that our TRIFR across the group has continued to pull in these very trying times. Apart from the COVID-19 response, a highlight for the quarter was the DeGrussa operation team's support for the 2020 R U OK? Day to raise mental health awareness. In line with this year's R U OK? Day theme of There's More to Say After R U OK? Day, the DeGrussa team created the Blue Tree, which is located beside the main access road that links to the DeGrussa Accommodation Village with the main operational areas. Now this serves as a constant reminder of the importance of maintaining mental health awareness to all of our people on every day of the year. From an environmental and community perspective, we are also very proud to work in close collaboration with the Ghanzi Department of Forestry and Range Resources to take the Tshukudu nursery project into a seed collection phase. While this project is in its very early phases, it represents an important opportunity to build local training and local employment opportunities in the Ghanzi area that will also support progressive mine rehabilitation for Sandfire, and hopefully, eventually other mines in the region. If we move on to an update on DeGrussa operations for the September quarter and in particular, starting with mining. Underground mine production at DeGrussa closed out the quarter at just over 243,000 tonnes, at a grade of 4.4% copper and 1.9 grams per tonne gold. This mine production was lower quarter-on-quarter and as a result of the timing of ore development and lower availability of production blasting equipment late in the period. Monty Underground produced just over 90,000 tonnes of ore at a grade of 6.9% copper and 1.6 grams per tonne gold. And when combined, this delivered a total production of 333,000 tonnes, which is over at a grade of 5.1% copper and 1.8 grams per tonne gold. The overall mine production rate for the quarter was below the ore processing rate of 408,810 tonnes at a grade the same as a combined underground production grade. This resulted in a managed drawdown of our surface stockpiles, which have been built to very higher levels during the first half of this calendar year. Concentrate production for the quarter was slightly below 81,900 tonnes at a grade of 23.7% copper and 4.4 grams per tonne gold, with concentrate sales at 63,000 tonnes and -- 63,074 tonnes being slight below the production rate for the quarter. This was simply a result of a slight delay in the timing of shipping. And to put this in further context and further to Karl's comments, we had a total of 6 shipments for the September quarter and we will have 4 shipments go out in the month of October. And last but not least, as a strong result of -- as a result of strong grade and recovery performance for the second quarter in a row, DeGrussa operations have set new quarterly copper production record at 19,400 tonnes and continued strong gold production at just over 11,500 ounces of gold. If we now look ahead to the rest of the year, we are pleased to be able to restate our production guidance of production between 67,000 and 70,000 tonnes of copper and 36,000 to 40,000 ounces of gold. And given the strong grade and recovery performance already just achieved in the September quarter, we are providing further guidance that we expect to be at the upper end of the range for both copper and gold production. It is also worth noting that the copper production rate will not be constant throughout the year. On a quarterly basis, we expect that the copper production rate in the next 2 quarters, that being the December quarter and the March quarter, will be at a lower rate than current levels. In the last quarter for the year, the June quarter, we will see a return to similar copper production rate as just delivered in the September quarter. The fluctuation in copper production throughout the year is driven solely by variation in mine ore grade as we progress through the mine plan.
Moving it across to costs and really to lead off from what Jason was saying, with such high copper production and gold production in the first quarter, we achieved USD 0.53 per pound cash rate unit costs. As guided, mining is a little higher and will be higher on a per unit rate than it has been in previous periods. But it's really that high copper production and also that gold byproduct and silver byproduct credit that is driving that low C1. So for the full year, our guidance at $0.85 to $0.90, if we can hit the top end of our -- particularly on the copper side of the 70,000 tonnes of copper, I'd expect it just to be at the bottom end of that $0.85 to $0.90 range. And also progressing well in terms of our plans in both DeGrussa mine development with $9 million for the quarter. That's around 1/4 of what the full year guidance was. And also at the Monty mine, progressing very, very well in terms of development and mining rates. Monty is around halfway through its expected mine development capital for the year, so $3 million out of guidance for the full year of $6 million. As Jason touched on, those next 3 quarters probably at the lower end of a range of, say, 16,000 to 19,000 tonnes of copper, and we expect that to have an impact on C1 costs in those quarters as well. So we're expecting higher C1 costs for the December and March quarters and then returning again with lower costs in the June quarter. That's based on the current mine plan, that we'll obviously update that as we progress through the year.
All right. In line with the update of the Sandfire strategic plan, as mentioned by Karl earlier, we've continued to actively evaluate potential options to extend the operation at DeGrussa operation beyond the existing ore reserves at DeGrussa and Monty. As reported in the last quarterly update, this work has identified that there is potential to economically extract gold from DeGrussa and Monty tailings through the use of a conventional CIL, or covenant leased circuit. These studies also prompted a review of potential gold mineralization on our existing Doolgunna exploration tenements and the previously known Old Highway gold deposits was identified as the highest priority target. The Old Highway deposit is located approximately 20 kilometers away from the DeGrussa site. And in May this year, the first stage of a resource definition drilling program to define the extent of gold mineralization was commenced. As at the end of August, the second stage of the drilling program, which was designed to support an inferred mineral resource estimate, was completed. And following closely in September, the third phase of the drilling program was commenced. The third phase is designed to support an indicated mineral resource estimate and is expected to be completed in the second half of this financial year. By the end of the September quarter, a total of 27,880 meters of RC drilling was completed, along with a total of 1,753 meters of NQ diamond drilling and 670 meters of PQ diamond drilling to support metallurgical test work had also been completed. As of today, the geological and structural interpretation of the deposit is well advanced. Mineral resource estimation is in progress. And we have formed a full-time study team to complete scoping studies on the project. Our maiden inferred resource estimate for Old Highway will be finalized in the December quarter, and scoping studies will continue in the second half of the financial year. In addition to the resource definition drilling at Old Highway, Sandfire has continued exploration across the Greater Doolgunna region. During the quarter, the key activities were aircore drilling at Morck Well project to delineate favorable VMS host stratigraphy. Aircore drilling at the Cheroona project to test continuity of the Karalundi formation in the southwest of the basin. Reverse circulation drilling at the Springfield project to test the host sediment package in proximity to a weak off-hole downhole EM anomaly. Diamond drilling at the Enterprise project to test a geophysical target within the Homestead-Vulcan West area and diamond drilling of a magnetic and geophysical anomaly at Ruby Well. The exploration work undertaken during the quarter continued to align with the company's strategy to accelerate discovery to extend mine life at the DeGrussa operations. To do this, we'll continue with our existing strategy of identifying favorable host geology across the Bryah Basin, and at the same time, focus on targeting deeper mineralization in close proximity to DeGrussa and Monty. Further work on basin scale geological architecture and, in particular, targeting of new corridors that are favorable to VMS mineralization and utilization of new geophysical techniques and methods to generate new and potentially deeper targets. In addition to Doolgunna exploration, our Eastern Australia regional exploration programs also continued with a strong focus on our tenements in Macquarie Arc and the Cobar areas of New South Wales. And with reference to Sandfire's market release yesterday, we are very pleased to have entered into a farm-in agreement with CBH Resources for the Endeavor-based metals mine in the Cobar area. The Endeavor ore body was discovered in the 1970s. And following further development work, it was commissioned as the Elura Mine in 1982. In 2003, the mine was acquired by CBH Resources and renamed to the Endeavor Mine. CBH Resources continued to operate the mine until 2019 when it was placed on care and maintenance. The mine itself has extensive infrastructure, including underground workings with a shaft haulage system, an ore processing plant with a nameplate capacity of 1.2 million tonnes per annum, surface support infrastructure and existing tailings storage facility. The Endeavor ore body is similar to others in the Cobar region and consists of vertical massive sulfide pillars or pipes. And in the case of the Endeavor ore body, it is dominated by lead, zinc and silver mineralization. Over its mine life, the operation is estimated to have produced approximately 30 million tonnes at a combined lead and zinc grade of approximately 15%. Under the farm-in agreement with CBH, Sandfire can either, following a number of stages, earn up to a 75 interest in the tenements and mine assets by undertaking expenditure activities or acquire 100% interest in the assets by paying CBH $30 million. Stage 1 of the farm-in has an additional minimum expenditure commitment of $3 million over 18 months, and allows Sandfire to undertake exploration works and evaluate the tenements with no obligations to be responsible for care and maintenance or rehabilitation costs. During this stage, Sandfire will focus on exploring for near-mine extensions to base metals mineralization. And the exploration program will commence immediately and Sandfire has already mobilized 2 diamond drill rigs to site. We move on to Tshukudu. During the September quarter, project development, resource definition and exploration activities continued within the Tshukudu area, which covers 19,950 square kilometers in Botswana and now an additional 6,700 square kilometers in Namibia, following the successful acquisition of Kopore Metals Limited exploration licenses in May this year. Currently, the key elements of the Tshukudu project are the T3 optimized feasibility study, the emerging Motheo production hub concept, which is underpinned by the recent A4 discovery, and the identification of highly prospective exploration targets in the local area. Throughout the September quarter, work on the T3 optimized feasibility study has continued and it is now in its very final stages. The key areas of focus for the period on the study were the completion of a full review of the T3 geological interpretation and a corresponding update of the mineral resource model, the final revision of final open pit design, including ore staging designs, completion of detailed groundwater studies, definitive feasibility study, level process plant design and estimates, tendering on all long lead time process, plant, equipment and also the tendering of a 750-person accommodation facility. We've also completed a COVID-19 impact assessment. And in the context of this, we are finalizing capital and operating cost estimates and completing land acquisition processes for the mine, the access road and accommodation village areas. I referred to our introduction of the Motheo production hub concept in the last quarterly update. We have also continued to move forward with plans to realize this opportunity. As a quick recap, the context of the expanded Motheo production hub is, firstly, the T3 optimized feasibility study has identified a base case processing capacity of 3.2 million tonnes per annum, with its production rate limited by the rate of ore supply that is able to be provided from the T3 open pit mine to the processing plant. Secondly, as part of the engineering studies, we have identified a low capital cost option to expand processing capacity to approximately 5.2 million tonne per annum. When this is paired with the recent discovery at A4, which is only 7 kilometers away from the T3 deposit, and the identification of multiple highly prospective exploration targets in the area, this presents significant potential to increase the scale of future operations through the development of an expanded capacity processing hub at T3 Motheo. Being the first potential step out on the expanded Motheo production hub, resource definition drilling at the A4 dome was the highest priority for the Tshukudu exploration team during the September quarter. In the middle of September, the first stage of the drilling program which was designed at a nominal 50x50 meter drill hole spacing and to support an inferred mineral resource estimate was completed. As part of this program, a total of 79 NQ diamond drill holes were completed. Since the completion of Stage 1, our full structure on geological interpretation of the A4 deposit has been completed and mineral resource estimation is currently in progress. This work is on track for completion of the mineral resource estimate for A4 in the December quarter and will support further an ongoing scoping study. In addition to this work, the second stage of the A4 resource drilling program followed on immediately after completion of Stage 1. This program is designed at a nominal 25x25 meter drill hole spacing and preferentially targets the areas of mineralization that are potentially minable by open-pit mining methods. It is expected that this drilling program will be completed in the December quarter, with further mineral resource updates and studies expected in the second half of the year. If we look more broadly to Tshukudu exploration, the Botswana team has continued to execute its strategy to target further discoveries to support the expanded Motheo production hub in the Northeast area, also extend mine life and continue to unlock the full regional potential of the belt. During the quarter, work continued on the reprocessing of airborne electromagnetic data and also geochemical data from across the tenement package, but with a strong focus, particularly on the Northeast area. Extensive work has also been continued on geological and structural interpretation of the belt, and this work has identified a number of high priority targets that includes the A1 dome, which has a very similar geological setting and EM signature to the A4 discovery; the A27 dome, which has very favorable EM signatures and also very favorable geological setting; the T1 and T2 areas, which is a surface geochemical anomaly over the interpreted location of the Ngwako Pan Formation contact; the A4 dome, where the team has identified additional targets displaying similar EM signatures to the A4 discovery, plus further drilling is required to assess the MPF contact targets at depth and sitting below the existing A4 discovery. The T3 is done. It's also a location where additional targets have also been identified that are located in structurally favorable locations. Drilling of these targets will commence and -- the drilling of these targets will commence in the A4 and T3 dome areas in the December quarter with drilling of the other locations to follow once land access agreements are finalized. Moving on to Black Butte in Montana. Subsequent to the end of the quarter and the -- a feasibility study for the Black Butte copper project in Montana, was completed by Sandfire's 80% -- 85% owned North American subsidiary, Sandfire Resources America. The feasibility study outlines a maiden ore reserve for the Johnny Lee deposit of 8.8 million tonnes at 2.6% copper for 226,000 tonnes of contained copper. This ore reserve is underpinned by a mineral resource totaling 13.6 million tonnes at 2.9% copper and containing 391,000 tonnes of copper. It is noted that this feasibility study is limited to the Johnny Lee deposit and does not include the Lowry deposit, which is located approximately 3 kilometers southeast of Johnny Lee. Work on completing an update of the Lowry mineral resource has also been completed and has been reported at 8.3 million tonnes at 2.4% copper for 199,000 tonnes of contained copper. If we look more at the results of the Black Butte Johnny Lee feasibility study, the maiden ore reserve of 8.8 million tonnes supports an 8-year mine life at a production rate of 1.2 million tonnes per annum. Operationally, mining will be undertaken by underground mining techniques using a single access decline and drift and fill and cut and fill mining methods. Ore processing will utilize conventional flotational or processing techniques to underpin the forecast life of mine production, totaling 805,000 dry metric tons of copper concentrate and containing 189,500 tonnes of copper metal. The average annual production is expected to be approximately 23,000 tonnes of copper metal at an average C1 unit cost of USD 1.51 per pound. Financially, this generates approximately USD 1.3 billion in gross sales, $518 million in pretax net cash flow during the overall mine life. Pretax NPV at 5% is expected to be just under $125 million, with a post-tax NPV of $77.6 million. And a total construction capital estimate of USD 274.7 million. In addition to the completion of the feasibility study, on the 14th of August this year, the Montana Department of Environmental Quality issued a final approval for the Phase 1 bonding for the Black Butte copper project, which required Sandfire America to post a USD 4.65 million surety bond for the project. Following the posting of the bond, the Montana Department of Environmental Quality issued the final mine operating permit, which allows Sandfire America the right to commence surface construction at the mine site. Immediately following the issuance of the final mine operating permit, Sandfire America began the mobilization of earthmoving equipment to undertake Phase 1 surface construction earthworks for the project. And in September, Phase 1 construction commenced on the decline portal pad and the contact water pond.
Thank you very much, Jason. And thank you, everyone, for listening in. And just to summarize, we are happy and confident with where we have positioned our business to move it forward. We are focused on delivering on the projects that we do have within the company in terms of those operating assets at the moment, in DeGrussa and the Monty mine through that production profile, and generating those very robust cash flows to enable us to reinvest -- a balancing between reinvesting in our growth pipeline projects, our development projects, committing to our organic growth opportunities in a number of key strategic areas where we really have got ourselves strategic ground holdings with significant opportunity. And we do have a balance sheet, and we do have access to other financial support structures to enable us to execute that strategy. So we're looking forward to gearing up for the future. We are entering to the next phase. We do have a number of assets that we are pursuing to develop in a methodical and a sequenced approach. We do have a clear plan. And we are executing that plan. So very excited about the future and as we lay the foundations for that, the next chapter of growth for this business. We're going to close the call now, but look forward to -- the presentation. But look forward to your -- opening the floor to your questions.
[Operator Instructions] The first question today comes from Nick Herbert from Crédit Suisse.
Well done on the strong quarter. A few questions for me, please, on Black Butte. Just interested firstly to understand the difference between the resource that you put out last year and the reserve, and particularly, that change in grade profile. So just wondering if you could sort of step through that. What sort of the change in understanding there is or key assumptions? And how much of that is metal price? And then what's the potential for an enhanced reserve from here based on sort of how far through that drilling and work you are? That's number one.
Nick, it's Jason Grace here. So firstly, starting between the difference between the ore reserve and the mineral resource. So if we look back to October last year, we reported the Johnny Lee mineral resource estimate. There's been no further update on that. So no additional drilling. There's been no new interpretations on that. And the ore reserve that we've reported as part of the feasibility study is based on that mineral resource estimate. Now if we look at the difference in tonnage and grade, there are 2 key areas. If you look at the nature of the ore body, in particular, they relate to particularly recovery of ore, are not all areas within the mineral resource are recoverable, I'm speaking from our mining methods. And secondly, we are incurring dilution in some areas of that deposit, which does reduce the overall grade. Now with respect to copper price, that hasn't really impacted, if you like, the majority of difference between those 2 things, particularly on the work that we've done. It is more around the logistics and the ability for us to mine the farm-out of the mineral resource.
Okay. And then just you mentioned the Lowry deposit, how much does that feature in your decision to proceed? And that if you look at the Johnny Lee on a stand-alone basis, that I think the NPV is probably pretty modest. Is it a big factor in your thinking? And how are you thinking about what that might contribute in an economic sense to that overall project?
And Nick, just to start off, this is Karl, and then I can hand to Jason as well. But I think the critical thing is to step back a little bit. When we invested in this project some 6 years ago, the key threshold for us was to determine whether we could permit the project. So since that time, our focus has been on doing work to demonstrate that project could be permitted, which it has been permitted. Notwithstanding the fact that there is a legal challenge. It's not unexpected to have received that. But from my perspective, from a strategic perspective, before we get into the technical aspects, it was we have done no work essentially outside of the original Johnny Lee resource or the Lowry resource. And then when we went through the permitting process, we focused on the Johnny Lee upper and lower resource and then turning that into a reserve. And everything that goes with that to permit that. Clearly, from where we sit today and the modest results that have been achieved, it is what it is. It is focused on essentially Johnny Lee upper and lower only. And what it does determine is there is a project there that, yes, whilst modest, a project that works and it creates a platform. So what it's given us now is the confidence to go and do some work, near-mine work, in and around Johnny Lee, potentially extensions thereof, around Lowry and to understand that better. We've done no work on that in the last 6 years, nothing at all, other than like metallurgical infill drilling and those sorts of things to try and understand what we've got. But now we've got a platform to create value. And I suppose that is the key thing for us. We're in an environment where, one, first you permit 26 years for a hard rock mine. So that is a critical tick in terms of being able to create a value proposition. Yes, it's an ore body that -- there's global resource, many moons ago was around that 3%. It's coming in at reserve roughly around 2.5% for various reasons, or the rest of it. And what the key for us now is to work out how we can extract a more valuable proposition for a situation where, one, we have essentially control of the region or the area. There is significant exploration potential, we think, in a near-mine sense. There's the ability to potentially reoptimize and reprioritize potentially depending on some further work, grade profiles, et cetera. And we've got a sense of what the capital might be to develop something like that. So we've at least underlined the fundamentals of what we would need to do to take something in production. And now we've got to work on those resources and reserves in a near-mine sense to make it a more valuable proposition to give one the confidence to press the button on the big capital expenditure. And we are also committed to moving along and showing our very genuine intent, while we're doing some of those Stage 1 works, which are not extensive -- that extensive or that expensive, but to really show intent on moving that thing forward. And we have a little bit of time because we do need to deal with the legal challenge. And that is probably somewhat of a strategy of just trying to slow us down, which, in a sense, is a situation today that works for the business strategy, given our imperative in Western Australia and our imperatives in Botswana, and it works in with the strategy more comfortably at the moment. So we know we've got a project that can come to bear. We need to enhance it, and we've got time to do it. So that's from a strategic perspective. We have created a platform to create value of at that project and also in the northern American scenario, whether it be U.S. and Canada. Jason, if you want to add anything else to that, I'll pass over to you.
Yes. Look, I think Karl's largely covered it all. I mean, really, the key thing for us is we do believe there's more value to be had out of this project, and we're going to be actively working over the next couple of years to try and realize that.
Okay. Yes. Maybe just a quick one to round up Black Butte to you, Matt, have you been able to clarify just what the total project spend to date has been there?
Our investment to date has been about $60 million into the project....
The next question comes from Hayden Bairstow at Macquarie.
Just a couple for me. Karl, just firstly, just on T3, and I know the update is coming shortly. But just getting an understanding of the barriers to actually getting on the ground there and assuming you do approve this project as it stands, I mean, what's the time frame to mobilizing the site to actually start building it? And the other one, just on sort of beyond DeGrussa plan, I mean you're now looking at this gold option. I mean is that -- is that a small sort of CIL plant you'll stick on the back end of DeGrussa? What -- where are you thinking about -- or what are you thinking about some of the other sort of resources around DeGrussa to sort of extend the life out a bit more, given where it's fastly approaching ramp-down phase?
It's Jason here. So firstly, on T3. So given the COVID-19 situation globally, it has been historically or over the last probably 9 months, very difficult to get in and out of Botswana for expat workers. What we are seeing at the moment, that will probably be an impediment in the short term. But we've received a lot of assurances from the government at the moment that they will actually assist us in every way to making sure that we've got all the access to people and resources that we need to come in and out of the country. Having said that, as part of this, so we are about to finalize the feasibility study. We expect, subject to a decision to mine from the Board, that we'll be able to start in the new year. And we've actually got early works programs currently in progress at the moment around camp construction, road access ways, venting, that type of thing. And this will all allow us to ramp up very quickly in the new year.
I think the other thing, Jason, in terms of barriers, what the advice has been from the government is once we submit and have the mining license approved, then we become an essential industry in country. And then different doorways and -- barriers are removed and different doorways are opened up. We cannot submit the mining permit, which is a formality more so in Botswana compared to other parts of the world, a little bit of formality. We cannot submit that until we've submitted our final optimized feasibility study. So that needs to be completed, which is it is imminent. And then once the -- we've got a decision from the Board, then we'll lodge that clearly with the government, and then we can expedite that through the system. And so I think during the first quarter of next year, the March quarter, we're expecting the issue of the mining permit. And at that point in time, we become an essential industry -- when we become an essential industry, the barriers, whilst they needed to be controlled in a very discrete manner, especially under COVID, et cetera, but we have some ideas as to how we'll execute as an essential industry with particular barriers that are put in place, but to enable things still to be constructed and to be operated in that -- a different environment. So it's different procedures. But once you become essential, the barriers do open up. So we're operative.
And Jason here again. And just on the DeGrussa gold project. Today, all of our work has really focused on gold processing of 2 potential ore sources. So firstly, Old Highway, which we covered in a bit more detail today. The other one is the tailings dam and the materials, the tailings from DeGrussa and Monty. That work, we believe, will underpin the studies that, that should give us a strong case to move forward with the project. And at the moment, we are currently doing some target generation work for potential gold targets on our existing tenements. And we may look further afield as this project starts to eventuate as well.
Okay. Great. And just -- one final one just on Endeavor. Obviously, you only just acquired it, but just interesting to understand, is there a real focus on copper targets in Cobar? Or is this a broader base metal strategy and we might see lead/zinc as part of the medium-term plan?
Yes. Short answer on that business is part of a broader base metals strategy. If you look at the targets, particularly near-mine at Endeavor, they will be targeting lead, zinc, silver style mineralization.
The next question comes from Peter O'Connor of Shaw and Partners.
Karl, Matt, Jason, a couple from me. Firstly, on costs, Matt. Just the C1 cost change or redirection of guidance in the range, is that related primarily to gold price to date and the gold assumption from here? And based on that, what is the gold price assumed for FY '21 in that C1 cost?
Yes. We've kept the end of September gold price flat for the rest of the year.
Okay. Got it. And Karl, 3 one-liners, if you -- just to tease you around M&A, copper, Mount Lyell. You've been noted as a potential buyer, number one. Number two, Adriatic, thoughts on the latest raising. And number three, Sams Creek, escrow period in that? And how do you see that in the portfolio?
I think -- look, if we look at the sort of strategic imperatives of the business, that sort of -- I suppose there's a bit of a waterfall through that in terms of what may make a difference for us. Look, we are -- we know what we've got in our portfolio. We feel confident in terms of the balance sheet we've got, the resources that we have in terms of people and capabilities and deliverabilities and experiences to actually cope with what we have inside the business quite well. So DeGrussa, Monty execution with the team that we're building for Botswana whilst, yes, it is Botswana, it's in another jurisdiction, but with the machinery and the people and the support structures that are in place there, as we set strategy here, we feel confident about that being executed, and that's a key thing. We feel confident about the U.S. and what they need to do. And yes, it's a very different execution process. We get it, right? We've all been doing this for a long time. With respect to them, it opens up ourselves in terms of our business. And I suppose, having kept a very transparent business, a very open business, that we still feel for where we are at the moment and the resources we've got and access to resources and capital, et cetera, and people and systems is that we could look at other opportunities, whether they be mine operating situations that might potentially work better within a structure like Sandfire, to fund the operations that could be rejuvenated or near-mine or near-term possibilities that in isolation don't go so well. So it's something like Morck Well, yes, we've been noted, and yes, we would like to have a good long hard look at it to see if there is an opportunity for that strategically, to fit within our business. So it's as simple as that. It's obvious. Adriatic, we've got a very robust investment. We are today the largest shareholder in that company. We hope that they are very successful in completing. They're now moving into their definitive feasibility study and their progress forward. And clearly, they have added value in terms of market proposition and market value. I think their latest transaction, obviously, to underwrite some further cash so that they can complete whatever works they need to do for their definitive feasibility study, or DFS, which is absolutely fine. And from our point of view, it is an investment. And we're looking forward to maximizing the value and realizing the greater value of that investment. And hopefully, closer to a value that is the suggested NPV for the project which came out of their pre-feasibility study a couple -- a week or so ago. So there's potentially greater value there. It is an investment for us, and we're looking forward to making a handsome profit. We have -- the value of our investment is many times greater than what it cost us. So we are sitting there as a large shareholder who is looking forward to creating further value there. With regard to Sams Creek, interestingly enough, it's an asset that about 30 years ago, I owned when we had the Macraes Mining Company that was essentially spun out of Union Gold and we picked up Sams Creek when we bought CRA out of New Zealand after having bought BHP out of New Zealand. And then we've gone off into many different other things and then MOP picked that up as a project a long time ago. Then they earned an interest from Oceana. And then their focus obviously was Botswana and certainly, they lost a little bit of attention. We inherited it when we acquired Motheo, it's the second time around now to essentially have owned that. And I think when we look at Sandfire and where it is at the moment, there was no question that we were getting 0 value for that asset. It is clear for us, it is not a strategic focus for us, not to say there's not value there and potentially good value there. But it is not a strategic focus for us that we would be applying our attention to in the shorter term, towards the medium term. We've got too many other things to do that are more aligned with our strategic imperatives. But to then sit there and find that we are not executing a work program to optimize that value would be not appropriate in our view. So we thought if we were to actually transition that asset essentially and put it somewhere, someone might be enthusiastic to go and do some work and to move that thing along. And that we could basically sit behind that and provide a great support structure, becoming the company's largest shareholder and supporting them from afar and giving them something that could be well and truly a company maker for that company. It's a good strategy to optimize the value proposition. At the end of the day, we need to at least have some filtering to work out where do we think we're going to create maximum value for our shareholders and where we got the resources and I think where we're positioned. So from that point of view, we're looking at extracting some value being supportive for Sams Creek as that transaction will complete over the next little while. We're doing some work to get those permits extended in New Zealand. So that Auris then has a chance to go and do some works on the ground to -- off the back of that. So it really is about creating some value out of some other assets that are in our business that we're getting 0 value attached to them.
This one I have asked you before as well, the production gap will hold in 2023 or thereabouts? I mean I'll lose sleep over to you. And it doesn't feel like that gap is going to be filled. So I take the point about accelerating Botswana, U.S. things are definitely being pushed out essentially a long way. So Old Highway can't fill that gap. Do we have a big gap, '23, '24?
Well, look, I think we've seen from -- we will come out with our Botswana feasibility study in probably late November, early December, it will be by Christmas. I think we are hoping a positive decision from the Board, and we will be hopefully moving to develop that project through the course of '21 and '22 and start to see some production crystal balling out in '23. And it will be what it will be. So -- and we'll be running as hard as we can, subject to all the other bits and pieces. We can't invent things. Obviously, if we continue to find any opportunities to extend DeGrussa from what we are, we will. The goal will be a great opportunity to hone our skills in terms of continuation with the extension of operations. And once again, and we see that dovetailing off the back of the current known copper operation, it's great optionality, gives us the chance to continue to explore in the DeGrussa or the Greater Doolgunna region, but it is what it is. U.S. will be something that we'll be managing our way through, navigating our way through the system, and that coming to bear in due course. And that is why also we continue to look for opportunities, whether they be sensible operating scenarios or near-term development opportunities that could be rolled into the business for a fair value that makes a lot of sense. So that -- it will be what it will be, Peter. We can't -- we can't -- we're going to go as hard as we can at things, but if things turn out to have a gap or not a gap or a little overlap, it will be what it will be. We can't just invent numbers, they will be what they are.
The next question comes from Daniel Morgan at UBS.
Karl and team, just a question on the upcoming feasibility study at T3. I know you can't release the data now on the conference call, but just wondering what is the scope? Like what is in the feasibility study that we'll hear about? And what is still something to be determined? What is the scope of the study?
Daniel, it's Jason here again. The scope of the study, there will be an open-pit operation on the T3 deposit. That we'll be looking at a dedicated ore processing facility at a 3.2 million tonne per annum rate and all service and related infrastructure to support those operations. The work on A4 will follow. But at this stage, as we still haven't even released our first maiden resource estimate on that, it's got a way to go yet before we can actually start to report on studies and outcomes for that.
Can we expect resource reserve mine plan, all of that to be released for T3?
Correct, yes. So we'll have a mineral resource and ore reserve from T3, and we'll have all the associated information that's required for that.
The next question is from Paul Young at Goldman Sachs.
Karl and team, a few questions. First of all, on Black Butte. Karl, what is the FY '21 budget on drilling studies, earthworks, et cetera?
Black Butte, the drilling alone is about 7 -- sorry, earthwork studies and drilling is about USD 7 million.
Okay. All right. Second question is, I mean, well done getting the feasibility study out and also getting the permit, so that's a great achievement. I guess I'm looking at the economics around this project and one metric out there that a few use is NPV to CapEx ratio and it's below 0.5 for this project, which is usually what you see for big, large-scale copper projects that have a long life and actually have some scalability or optionality attached. So I'm just looking at that $80 million NPV, and I'm sort of comparing that, Karl, to Sandfire's America market cap of $200 million. And I'm trying to bridge the gap there between what the market -- how the market is valuing the stock versus the outcome of the study. And the question, I guess I'm getting to is you've done a lot of work here, but is one option actually monetizing this project and actually divesting this project?
I think -- at the moment, Paul, I think it -- this is -- I suppose, the resources sector, what it is, it's something that you need to roll your sleeves up and sometimes, it's -- it can't be a sprint, but often, it's a marathon. If we put it in some sort of perspective where we are at the moment, we have gone in this 6 years ago to try and understand it. We've focused our attention, and we've spent $60 million in our investment to date to be where we are, and we own 85% of that listed vehicle. Look, we always have options to look at the value creation for our business. Our view at this point in time with respect to that asset is, we haven't really started to have a great understanding for the opportunity and the potential of that region. All we have done is confined, constrained and minimalized really the situation. If you made that investment probably anywhere else in the world 6 years ago, you probably would have spent a lot of time trying to understand the geology, the regional potential, exploring it, like we're doing in Botswana, like we would do in Western Australia. So I think it would be almost -- to think about -- and you look at the market value of Sandfire America, it's an interesting situation. If you look at the Toronto Venture Exchange, we own 85% of the paper in the company. So you think about the possibility of liquidity in the market. And whilst I'm not casting any dispersions about that, that I just sort of think we are comfortable with the underlying scenario of our investments, the money we spent and what our strategy is over the medium and longer term as we sit today. If you look at the resources. You sit down, if you look at the global resources, there is close to 600,000 tonnes of copper resources contained within the Johnny Lee upper and lower and the Lowry, and we have not spent $1 drilling a drill hole outside the original discovery envelope in the time we've had it. That is an exceptionally unusual situation. So I think from our point of view, we've done all the hard work to get to here. We'll be crazy to do anything other than now looking -- now that we've got a platform and achieving it. As we said a long time, we were not spending $1 on any exploration to find out that we had a bigger project that we couldn't permit. Our objective has been to permit the project, we've done that. So we're going to grow it and develop it and build on the platform that we have got. I think that's where we are at the moment, strategically, and we're very excited about doing that. But we appreciate it is a different strategy, very different strategy to what we might do in Western Australia or New South Wales or Botswana for that matter. But they're all -- they're all different kids in the same family.
Sure, Karl. So is it safe to say that -- Karl, can I infer that this project probably goes back with the exploration team, away from the project team so to speak while you're focusing your efforts and you're deploying capital in Botswana in the next couple of years?
We will. For a modest amount of money, we will continue with developing the project for its Stage 1 development scale because it's important for us to continue to move it along. We want to have that momentum, and we want to put ourselves in the best possible position for success as we are able to enhance the key economics of that project. So our expectations clearly are over a period of time, we've almost put -- we've got a sense of what is the criteria to develop the CapEx for a project given the robustness of the work that's been done for a project with that sort of profile, for that scale, for those -- the key imperatives with respect to it, it's a very environmentally robust project. We know sort of the CapEx so -- what it would be. Now it's important for us to try and work out how we can get those reserves or/resources or other proximal resources that we maybe know of today or we don't to make it work over a period of time. So that is the job for us at hand. But at least we've got a foundation to create value. The project is permitted. So we know we can achieve a permit. The project has between resources of 3% copper, reserve grade of 2%, 2.5% copper. And if we just get the right tonnes and the right profile over a period of time, then we've got a project that will work. And it's really getting the thing started. And the belt there has got other potential as well. So I think we've just got to be careful that we don't knee jerk and let's realize that all the children in the family are different. They need different attention at different times, and some have positives and some have other things that you need to address. So I think it's not going to -- it will be a combination of moving it forward at the appropriate rate from a momentum in development as well as really looking at how we can enhance it from a geological perspective. We're not going to stop in the start. We're going to continue to gradually move it along.
Yes. Okay. Last one for me. It's really about some of the assumptions on Black Butte and then transferring that over to Botswana. I see you've used a 5% discount rate in a long-run copper price of $3.20 a pound at Black Butte. I presume their real number is not nominal. And listen, we'll all use our own assumptions for those factors, but are they the same numbers or factors that were used for -- assumptions that were used for T3?
No, not necessarily. We'll assess T3 separately. I think the copper price would be probably quite similar, though.
The last question for today comes from Lyndon Fagan of JPMorgan.
So I was just hoping to ask about the buy-in costs at DeGrussa. It stepped up to about $30 million this quarter from mid- to low $20 million and I guess if we keep on at this rate, it looks like mining costs will be up $25 million year-on-year. I'm just wondering, are you able to sort of talk through whether we should be holding flat in that dollar million sense given mining volumes were actually lower than the last quarter? Or are you able to sort of speak about some of that, please?
Sure. I hold them pretty similar. We've guided previously. As development numbers come down, then naturally, your OpEx takes a bit more of a mining overhead. So I'd keep it fairly flat in terms of the sort of cash numbers that we're seeing during this quarter. As you say, though, we have been a little bit down in terms of DeGrussa's mining rate for this quarter. So that may well affect a little bit, but otherwise, we keep it relatively flat for the rest of this year, at least.
As there are no further questions at this time, I'd like to pass the mic back to Karl, just to wrap up for today. Thanks, Karl.
Thank you very much, everyone, for listening to the September quarterly report. It has been a fantastic quarter for the company in terms of operations. And I think the other key elements that we've touched on today is really starting to see the production of those development pathways and the next phase of growth of this business. Clearly, there's been a lot of information that's come out and some -- the beginnings of some new foundations in terms of our strategy going forward. There is a lot of information that is still to come to bear during the December quarter, so prior to Christmas. And we look forward to updating you then on that as well. But it's an exciting time for the business. We're in a strong position to take our strategy forward, and we're looking for other exciting opportunities to pursue as well. Thanks very much for listening in today.
Thank you, Karl. That does conclude our conference for today. Thank you, everyone, for participating. You may now disconnect.