Sandfire Resources Ltd
ASX:SFR
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
6.12
11.14
|
| Price Target |
|
We'll email you a reminder when the closing price reaches AUD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Sandfire Resources Ltd
You don't have any saved screeners yet
Thank you for standing by, and welcome to the Sandfire Resources September 2022 Quarterly Results Call. [Operator Instructions]
I'd now like to hand the conference over to Mr. Ben Crowley, Head of Investor Relations. Please go ahead.
Hi. Good morning, good afternoon, everyone. Thank you for joining us today for our quarterly presentation for the September '22 quarter. With us today in the room we have Jason Grace, our acting CEO; Matt Fitzgerald, our Chief Financial Officer; Richard Holmes, Executive for Growth; and David Wilson, Head of Technical Services. Jason will take us through some of the operational highlights today. Matt will, as usual, cover off on the finance.
So with that, I will hand over to Jason.
Thanks, Ben, and welcome to today's webcast. Over the last year, Sandfire's execution of our strategy has delivered an excellent portfolio of high-quality operating mines, development and exploration projects, and we've transitioned from being a truly single operation WA miner to being a genuine international copper producer. Our values of honesty, respect, collaboration, accountability and performance are key to Sandfire's culture and they guide our activities across every part of the business.
When we consider that Sandfire is one of the largest copper-focused miners listed on the ASX, but there is an inevitable increase in demand for copper in the future driven by the global energy transition that we have a dominant presence in 4 mineral provinces that have excellent organic and inorganic growth opportunities that Sandfire has proven capability as an explorer, developer and operator of copper mines. And on the back of the MATSA acquisition and the recently approved expansion of Motheo to 5.2 million tonne per annum capacity, Sandfire now has a firm production growth pathway over the next 3 years to over 110,000 tonnes of copper and over 80,000 tonnes of zinc production per annum. In my mind, Sandfire represents an excellent investment opportunity and for our people, it will be an exciting company to be part of over the next few years.
If we now move to the September quarter highlights at a company level, consolidated copper production totaled just over 28,000 tonnes with zinc at 19,500 tonnes for the period. The Motheo Copper Mine development continues to be on track and construction is now well advanced. The Motheo 5.2 million tonne per annum expansion feasibility study was also completed during the quarter and the Sandfire Board greenlighted the approval for the development of the project. As mentioned in the last slide, this key step has now positioned Sandfire to become a 10 million tonne per annum operator with firm production growth pathway for both copper and zinc over the next 3 years.
Looking now at key company results for the quarter. Sales revenue totaled $214.7 million with operations EBITDA at $87 million, our Group EBITDA of $64.8 million and an EBITDA margin of 40%. As touched on the last slide, consolidated copper production totaled just over 28,000 tonnes with zinc at 19,500 tonnes for the period. C1 costs for the Group were $1.73 per pound of payable copper and cash holdings for the company were just over $190 million, making -- after making $215.5 million in scheduled payments for the MATSA and corporate debt facilities.
And examining in more detail at Group metal production for Q1, performance was in line or exceeded the company's expectations, noting that copper was the balance of marginally lower-than-expected production from MATSA, offset by higher production from DeGrussa, mostly as a result of higher grades from Monty during the period. Zinc production exceeded plan as a result of continued reduction in stope dilution and minor changes to the mine plan at MATSA and gold, silver and lead production was generally in line with plan. Given this good start to the year and Sandfire now extending all processing operations at DeGrussa to include transitional and low-grade ore stockpiles, which I'll cover in more detail in the DeGrussa section, we have now lifted copper production guidance from 89,000 tonnes to 83,000 to 91,000 tonnes and increase gold production from 10,000 to 12,000 ounces to now 12,000 to 14,000 ounces. Previously stated zinc, lead and silver guidance is maintained for the full year.
Moving to cash flow, and as we flagged in the financials call around a month ago, the balance sheet is transitioning during financial '23 as we build a brand-new operation in Botswana with Motheo to repay debt and deleverage the balance sheet and the DeGrussa operations, albeit with processing extensions. So we started the quarter at the end of the financial year at $463 million just under $100 million of combined cash flows from the 2 operations being DeGrussa and MATSA at this stage. The QP adjustments, as we've talked about previously, with reducing copper price coming off the back-end -- largely coming off the back end of last financial year, the debt repayments, as Jason mentioned, $118 million first debt repayment, successfully completed at MATSA and then we reduced our corporate facility by AUD 150 million or USD 98 million for $215 million in total.
As we said, as the balance sheet transitions, we're also investing in growth and we spent, in cash flow terms, $50 million in the Botswana project as it gets closer and closer to production early in the June quarter of next calendar -- of next year in '23, another $25 million at MATSA predominantly mine development as we work towards accessing new areas, which will also lead into rising copper and zinc production into the next few quarters and also another $10 million in terms of DeGrussa and our project at Black Butte in the U.S. and Montana, so for $85 million in total. So we finished the quarter around USD 190 million in terms of cash flow, as we continue that balance sheet transition.
The Motheo facility was pleasingly executed during the quarter and for $140 million, which is the base of our 3.2 million base case development at Motheo and we've pleasingly also drawn down the first $55 million drawdown under that facility in early -- in the month of October, so just after the end of this quarter. So it's not in those cash balances that I mentioned previously. Also considering as we've flagged previously around the target $180 million to $200 million total debt -- combination of debt facilities including working capital any further development facilities to incorporate A4, and we'll continue to consider those over the coming quarters as we come into first production, as I said, early in the June quarter of 2023 and then move up to that 5.2 million tonne rate after that first commissioning.
In terms of hedge book, just starting the numbers there, 20,000 tonnes at $9,300 in terms of copper, 25% above current spot. And in total, our hedge book is -- remaining hedge book 55,000 tonnes around $9,100 per tonne of copper. On the zinc side, 22,000 tonnes remaining for the financial year at around $3,000 around current spot within 5% of current spot. And in terms of the total hedge book, 64,000 tonnes of zinc at around USD 2,800 per ton and that hedging is -- extends out until January 2025.
Okay. If we now move on to operations review and outlook, and starting with our HSEC snapshot. The Sandfire Group TRIFR closed out the quarter at 4, which is slightly up from 3.8 as at the end of the June quarter. This was mainly a result of a slight increase in the number of low potential injuries at MATSA and I know the team there continue to work very hard on elimination of all injuries. Given the background of the ramp down of production at DeGrussa, the team there have continued to operate safely and managed to improve overall safety performance throughout the quarter. And finally, as a highlight, Sandfire was very proud to release the 2022 Sustainability Report on the 14th of October to provide an update on the progress we have made on our ESG goals in the areas of our people, water, climate change, biodiversity and business integrity.
If we now look out to the full-year, as mentioned before, at a Group level, we are providing updated guidance that includes an increase in copper and gold production with guidance -- sorry, an increase in copper and gold production guidance with zinc, lead and silver guidance being maintained for the full year. Group C1 guidance has increased to USD 1.72 per pound for the year, which is predominantly due to the impact of higher energy prices in Spain. For capital, we are maintaining mine development, sustaining exploration and studies capital guidance, and Motheo development capital has increased in line with the previously announced approval of the 5.2 million tonne per annum Motheo expansion project. Finally, MATSA and DeGrussa's D&A are forecasted to be USD 250 million and USD 16 million, respectively.
Looking now at Group production throughout the year, we are also providing our quarter-by-quarter outlook for metal production. You will note from this slide that copper production peaks in the first quarter. This trend is driven by the run-of-mine production at DeGrussa only occurring over the first 4 months of the year, followed by processing of lower grade stockpiles through to January 2023. Gold production throughout the year follows the same path and also for the same reasons. Zinc production has a different trend with lower production expected in Q1 and Q2, then stepping up over the following 2 quarters. The main reason for this is the progression of the mine plan at MATSA and in particular, the mine plan at Aguas Tenidas.
Drilling down into the production guidance at an asset level and I won't go through all of the numbers here as it will be covered in more detail later in the presentation. You will note that for copper, zinc, lead and silver, MATSA is either the mine or sole contributor with FY '23 being the first full year of production under Sandfire's ownership. DeGrussa continues to be a significant contributor to copper and gold production, despite only having 4 months of run-of-mine production followed by 3 months of stockpile processing and Motheo is also forecast to commence copper and silver production late in the financial year.
And now, moving on to MATSA operations. With the formal integration of MATSA into Sandfire now completed, we're moving into the next stage, which is to get the best out of MATSA and ultimately establish a solid base for a multi-decade operation. To deliver this, we will continue to improve safety performance through development of the right culture and fit-for-purpose systems. We will continue recent improvements made in mine productivity to stabilize and reliably deliver a 4.7 million tonne per annum production rate. We'll also use our technical knowledge and skills to extend mine life through execution of an expanded in- and near-mine resource extension drilling program and undertake technical studies to convert mineral resources to ore reserves. And finally, we will establish a pipeline of new ore sources through our investment in regional exploration.
Looking now at the September quarter, on balance MATSA production for the period was good, with copper production closing out the quarter marginally below plan with close to 13,750 tonnes of copper production and zinc production at 19,500 tonnes for the period. Metal sales was slightly lower than production due simply to the timing of sales and this delivered an operations EBITDA of USD 39.7 million with a good EBITDA margin of 33%. Since acquisition, MATSA has continued to deliver reliable mine production with performance in the September quarter achieving an annualized rate of approximately 4.5 million tonnes across all 3 mines. This performance is primarily due to improved short-term planning approaches and optimization of stope designs and stope turnaround. And during the quarter, this improvement was partially offset by lower backfilling rates at Magdalena.
Overall mined copper grades were in line with expectations with zinc and lead grades slightly above plan. Increased zinc grades are a result of continued reduction in stope dilution and slight changing -- changes to the timing of production sequence at Magdalena, providing a focus on polymetallic ores and delaying the extraction of copper stopes until later in the year.
Ore processing for the June quarter was below mine production rates and achieved an annualized processing rate of 4.3 million tonnes per annum. This rate was impacted by an unplanned maintenance event on Line 3, which was to repair leaks in the deep cone thickener during July. It is noted that this work was planned later in the year and particularly Q4, and we do expect increased mill availability during that period.
Looking now at the full-year, production guidance for MATSA remains unchanged at 60,000 to 65,000 tonnes of copper, 78,000 to 83,000 tonnes of zinc, 6,000 to 10,000 tonnes of lead, and 2 million to 3 million ounces of silver. Noting the complexity associated with the production of both copper ore and polymetallic ore across the mining operation, we have included a breakdown of production tonnes and grades for each of the 3 underground mines.
Looking at production through the year, it is expected that overall copper production will have an increasing trend quarter-on-quarter. Zinc is a similar story where we will start the year at a lower production rate and then step up in the December quarter to maintain an annualized zinc production rate of approximately 85,000 tonnes per annum. This trend in zinc production is again driven by mined grade and in particular, mine production at Aguas Tenidas, transitioning from a high- to low-tonnage rate from the [ sulphuric ] ore body early in the year and this ramp down in sulphuric ore production is progressively replaced by increasing production from massive sulfide ore from the down-plunge Western extension of the main Aguas Tenidas ore body.
Moving into MATSA operating costs, you see on this slide, 5 quarters of actual operating costs in 3 forecast quarters. Just pointing out some of the impacts there, you'll see in the treatment and refining charges increasing in the back half of the year, which is in line with increased production that Jason just spoke through.
In terms of mining and processing, the main driver is power. So moving on to the next slide and talk about that in a little more detail. Actual power prices in the quarter were EUR 270 per megawatt hour, which is very much the upper end of the range we guided in the previous quarter. Electricity is running at 21% of our C1 cost before byproduct credits for that quarter. In Spain, the gas price cap mechanism remains in place and that is keeping some downward pressure on prices, that's still scheduled to run through until May next year. What we have included this quarter is some indication of the forward curve. The latest forward curve indicating an electricity price for the coming quarter of between EUR 260 to EUR 270 per megawatt hour, that's inclusive of the gas cap mechanism compensation payment.
In terms of addressing these cost challenges, the solar farm at the Sotiel and Aguas are progressing. Our main focus is, obviously, on the new supply contract. Our spot contract expires in December this year. We continue to engage with the market. We're now incorporated to propose second solar farm in that scope and in the future potentially other generation sources. Proposals will come in this quarter ahead of the expiry of that contract, so that we can lock onto a new arrangement in the new year.
So bringing all that together in terms of MATSA unit costs. As you can see here, we are around 10% above our operating budget cost levels in the first quarter as much as we guide for a full year number, individual quarters can range in our internal numbers between USD 1.50 and USD 2 of each individual quarter. So $2.20 this quarter, we're around 10% above what our internal numbers were telling us in terms of our projections. Obviously, moves around with copper production, zinc production and grade and also baseline costs and development impacts, as well as those energy prices as Dave talked about.
So Q1 headline [indiscernible] as we said, impacted certainly by power moving into the guidance numbers as we know, as we're seeing we have based on the mine schedule increasing production of copper and that will positively impact the headline C1, as well as our look -- forward look in terms of energy prices. So we see for the full-year, gross C1 of around $3.20 per pound and net C1 after byproduct credits around $1.78. We produced 20,000 tonnes of zinc in the quarter, midpoint of guidance for zinc is around 80,000. So we expect the -- at this stage, expect that byproduct credit to be similar as you can see between Q1 and full year guidance for 2023 similar number in terms of the byproduct credit.
Thanks, Matt. The 100,000-meter underground drilling program commenced in the quarter with a combination of infill drilling, so trying to increase our confidence in the resource classifications and ultimately move those into reserves. The exploration focused really on the down-plunge and the extensions of known deposits. We've seen some great collaboration from the technical teams on site. So, the exploration team working hand-in-hand with mine geology and it's all supported by the Perth technical team. This is a real fresh approach for the asset and has resulted in a series of new ideas and new targets to be tested. I expect we'll be in a position to update the market later this year with the results from some of these programs.
Moving on to regional exploration. We're pretty active. We got 4 drill rigs working on exploration targets. We're focused on the northern portion of our tenement holding and these are all within trucking distance of our central processing plant. Technically, in the last quarter, we've had a focus on analyzing historical geophysical data, both seismic and EM. We've been applying some new processing techniques to the seismic data and we've been able to produce a much clearer and cleaner dataset. So this reprocessed 2D seismic data has already advanced our understanding of the structure, which is going to feed back into our targeted model. We've been working with the EM data and we're applying our experience in technology that's been developed at DeGrussa over many years to the historical airborne and the ground EM datasets. So this is still a work in progress, but we're getting a much better handle on the quality of the data collection, the subsequent interpretations and obviously, the targets that fall out of this.
Moving now to DeGrussa operations, and if we start by looking at the September quarter. Against the backdrop of mining industry labor shortages in Western Australia and the rapidly approaching end of mine life, DeGrussa operations continued to deliver safe and reliable production throughout the period. On the other hand, operating cost pressures related to global inflation have continued to impact DeGrussa C1 costs in the quarter. Mining at the Monty Underground Mine was completed on schedule in September and for the DeGrussa Underground Mine, mining operations were completed earlier this month. As we have approached the end of mine life, expense mining operating costs increased as capitalized development activity reduced in the last year of operations.
And also following the completion of a positive feasibility study that included a full-scale plant trial, Sandfire will commence the DeGrussa Processing Extension Project, which is based on processing transitional ore stockpiles and low-grade mineralized waste stockpiles remaining on-site at the end of the current operations. This process will utilize the existing DeGrussa floatation plant with minimal circuit changes and adopting a simplistic approach to treat whole stockpiles with oxide-specific reagents. The processing plant is expected to continue operating now until January 2023, treating approximately 310,000 tonnes of ore at an average grade of around 1%.
Due to the transitional mineralogy and grade of this ore, recovery is targeted to be around 70% for copper and 40% for gold. And this is expected to deliver approximately 2,000 tonnes of copper and 2,000 ounces of gold contained within around 10,000 tonnes of concentrate at an average grade of 22% copper and 5 grams per tonne. Plant scale trials on processing of additional oxide copper stockpiles have also commenced and are scheduled to be completed in October. The results of these trials may support further extension of processing at DeGrussa beyond January 2023.
Looking now at DeGrussa production for the September quarter. As mentioned before, the site team has again delivered strong results in line with the mine plan and exceeding expectations. Copper production was above plan at 14,309 tonnes and gold production was 8,215 ounces for the period. Metal sales volumes were lower than production as a result of timing of shipments, and this delivered an operations EBITDA of $47.3 million with a strong EBITDA margin of 50%.
Now, looking forward to the full-year and as touched on previously, on the back of the processing extension project, we have increased production guidance at DeGrussa to 19,000 to 21,000 tonnes of copper, 12,000 to 14,000 ounces of gold and approximately 100,000 ounces of silver.
So looking at DeGrussa unit costs for the first quarter at $1.34, moving to an estimated $1.54 for the full year guidance in terms of running through to those January date that Jason was talking about in terms of the extension of low-grade processing stockpiles and our guidance in terms of OpEx guidance, both here and in Appendix 4 includes that processing extension.
Australia is certainly in the transition year from an exploration perspective. The DeGrussa Deeps program is almost complete, and while a number of targets returned indications of the right geological environment for the MS deposits, unfortunately, no significant mineralization has been identified. In light of this, we're slowly unwinding our large tenement position through a combination of withdrawal from JVs and divestment of 100% own the ground. Also during the quarter, we made the decision to exit our New South Wales tenure as we consider it more prospective for gold than for copper and the divestment process is currently underway. Finally, we have a new large exploration project under application in the Northern Territory. We consider this prospective for sediment-hosted copper and we'll be applying the experience that we generated out of the Kalahari Copper Belt to this exciting project.
We now move on to the development of the Motheo copper mine in Botswana. Firstly, as a quick update on the development of the 3.2 million tonne per annum project, construction continues to proceed on schedule with first production expected early in the June quarter of 2023. Construction activities are now well advanced with first ore mined from the T3 open pit to stockpiles. And the SAG mill and primary crusher installation is now in progress. In addition to this, Sandfire has now achieved another important milestone in the company's plan to establish a major new long-term copper mining hub in the Kalahari Copper Belt through the completion of the definitive feasibility study for the 5.2 million tonne per annum Motheo expansion project.
This project includes the development of the A4 open pit mine and delivers outstanding project economics, including a pretax NPV of $548 million and an IRR of 29%. And finally, as mentioned earlier, Sandfire was also very pleased to announce during the quarter that the USD 140 million Motheo project finance facility has been financed -- finalized and the funds required to take us through to the production are now fully secured.
We look in more detail at the 5.2 million tonne per annum DFS. Completion of this work has confirmed a very strong business case for the development of the A4 deposit as part of an expanded 5.2 million tonne per annum Motheo production hub. And this is underpinned by a combined ore reserves for both the A4 deposit and T3 deposits of 49.6 million tonnes at 1% copper and 14 grams per tonne silver, for close to 500,000 tonnes of contained copper and over 21 million ounces of contained silver.
As mentioned before, the project delivered very robust economics over a 10-year mine life, which is scheduled to produce a total of 440,000 tonnes of copper and 18.4 million ounces of silver and an average all-in sustaining cost of USD 1.79 per pound. The total development capital for the expansion project is estimated to be $397 million, and this includes development costs for the A4 mine infrastructure and the 5.2 million tonne per annum plant expansion of USD 47.9 million. And subject to the award -- the contract award timing, site construction activities for the process plant expansion are scheduled to commence in the March quarter of this financial year with increased plant throughput at a 5.2 million tonne per annum rate expected to commence in the March quarter of financial year 2024.
As part of the DFS, the life of mine plans for both the T3 open pit and the A4 open pit have been integrated and optimized for a combined ore production rate of 5.2 million tonnes per annum. This yields a peak annual copper production of approximately 55,000 tonnes and maintains around 50,000 tonnes per annum production rate over a 6-year period. Subject to the approval of the environmental and social impact assessment and granting of the mining license to A4 by the Botswanan government, pre-strip mining at A4 is anticipated to commence by the March quarter of FY '24.
Looking now at the DFS key outcomes. As mentioned before, the project economics are very robust and have withstood the significant increases currently seen in input pricing for mining costs, diesel, supply, reagents, grinding media and labor. As some of these numbers have been covered before, I won't go through all of them, but I will touch on the estimated operating costs with C1 cash costs over the life of mine and on a payable basis is estimated to be USD 1.47 per pound of copper and restating the estimated all-in sustaining cost of USD 1.79 per pound over the life of mine.
If we now look at the expanded mine layout. In completing the DFS, Sandfire has been able to leverage off the work currently underway for the development and construction of the 3.2 million tonne per annum project, as well as the prior work completed on the 3.2 million tonne per annum feasibility study. Mine facilities for the expanded project includes surface mining operations, infrastructure at the A4 deposit, expansion of the processing plant and supporting infrastructure, which we'll cover a bit in a bit more detail in a moment. New infrastructure for A4 includes a light vehicle access road linking the open pit mine to the already constructed access road for Motheo, a dual lane heavy vehicle haul road to be constructed directly from A4 to the Motheo processing plant, workshops, fuel facilities, crib and office facilities, along with electrical and water supplies.
If we now drill down on the processing plant. As you can see, the expansion to 5.2 million tonnes per annum will be a very simple process with the addition of a 4.5 megawatt Ball mill being the only major piece of infrastructure required. The reason for this simplicity and overall efficiency is due to Sandfire's discovery and drill out of the A4 deposit during the period when the Motheo definitive feasibility study was being completed. This allowed us to design the processing plant exactly for this outcome, which was to be readily scalable to 5.2 million tonnes per annum.
Looking now at the Motheo development time line. Work throughout the September quarter has continued to proceed according to the project plan with some of the key development areas, including all of the structural concrete works and ROM pad earthworks are now fully completed. The 132kV transmission line is now effectively completed. Placement of the bulk mine waste for the tailing storage fertility walls is now completed and the HDPE lining of the TSF Zone 1 is now progressing well. HV substation and switching stations are now almost complete with commissioning planning well advanced.
And the primary crusher structure is well advanced and crusher install has commenced. And finally, the contract for concentrate transport logistics has also been awarded. You will note that we've included the time line for the 5.2 million tonne per annum expansion project with work on approval of the environmental and social impact assessment progressing to the stage. The Botswana's Department of Environmental Affairs has recently approved the environmental scoping document and the terms of reference, now allowing the full ESIA to be submitted in the coming weeks.
And finally, looking at construction and development capital. The total development capital for Motheo is now estimated at USD 397.4 million. This includes $47.9 million for the future development costs for the A4 infrastructure and the 5.2 million tonne per annum plant expansion. And please note that the $71.9 million shown here includes $24 million of preapproved capital. Life of mine capital is estimated to be USD 499 million as at the 31st of July 2022, the company had invested a total of $185.4 million of the total $397.4 million of development capital. You will also note that FY '23 Q1 expenditure has now shown lower than previous estimates. This is due to the timing of some non-critical infrastructure and earthworks, which are forecast to be undertaken in Q2, and this will not have an impact on the overall project time line.
This is a great result from our exploration program around the Motheo hub, having an exploration success within the site of the [indiscernible] is always very pleasing. So copper mineralization at the A1 prospect has been identified over 1.8 kilometers of strike, drilling on approximately 200 meter spaced lines. So we've got a really good handle on geological continuity. We've completed 35 holes so far and have results for 25. So we still think there's some good news to come. The A1 prospect is open along strike to the Northeast and up and down dip. So we believe there are a number of ways we can expand this mineralization. Geologically, the A1 prospect has a very similar setting to T3 and A4. We're seeing the whole suite of copper minerals, including bornite, chalcocite and chalcopyrite hosted within quartz-carbonate veins, as well as copper sulfides along the betting plans.
If we step back a little bit and look at the larger picture, we think there's probably another [ 4Ks of the dome ] to explore, and we've heard that has a very similar geological setting. So we're pretty excited about pursuing that exploration program to the Northeast.
So the next steps of the prospect will include stepping out along strike and drill testing that structure, testing the deeper NPF contact, that was the original [ mod ] resources target and it's known to host large lower-grade deposits. And then finally, we'll run the A1 prospect as we know it now through our gating process, which is a bunch of internal technical studies really to determine the next steps and make sure that we can get maximum value from this.
Okay. Thanks, Richard. Look, in closing, and with reference to the slide here, I'm not going to go through all of these points, but I would like to reinforce some of my points from the start, which is to remind everyone that on the back of the MATSA acquisition and the recent approval by the Board for the development of Motheo to a 5.2 million tonne per annum capacity, Sandfire now has a firm production growth pathway over the next 3 years to over 110,000 tonnes of copper and 80,000 tonnes of zinc production per annum. And in my mind, Sandfire represents an excellent investment opportunity for all.
Thanks. Open for questions.
[Operator Instructions] Your first question comes from Matt Greene from Credit Suisse.
First one is on MATSA. You mentioned you're focusing on polymetallic over the next few quarters with copper coming in later in the year. This has changed a fair bit, and I guess, you can see that with the quarterly profile you've provided. I'm just keen to know what drove this decision.
Yes. Thanks, Matt. Look, from our point of view, one of the things that we do in terms of mine planning for all of our mine designs and our schedule, we actually -- we do all of our work to optimize on value, which is a net smelter return basis. So that's a combined value of all of the elements there that we can sell to gain basically revenue from MATSA production. So if you look at it at the moment, we continue to optimize those mine plans as we go through and react to, not only doing that as well as trying to maximize or manage costs, and in doing so, we have resulted in, particularly in Magdalena, where we are pushing through in some of the more polymetallic stopes at the moment and which has meant that it's slightly deferred some of our more copper dominant stopes, and that shifted around some of our copper production within the year.
Okay. So that's -- so this is more a case of focusing on the low-cost polymetallic just to keep the mill full. Are you -- are those copper stopes developed just a case of bringing in later in the year? Or are you behind schedule developments on the copper areas?
No, we're not behind in development on those areas. It really is just a point of optimizing and reacting to conditions and also making sure that we're getting the best outcome for the company. And particularly, if you look at it -- when you compare our production for Q1 on value, the zinc -- the value of the additional zinc production that we've got actually more than offset what we had planned in terms of copper production for the quarter.
Okay. That makes sense. And then just on the guidance, the cost guidance at MATSA, if I look at your previous presentation versus the one today, back in the appendix, costs have changed both on an absolute and unit basis. I see you've changed your Q1 metal price assumptions, but also mining processing. So is this just driven by power? And I guess, on a go-forward basis, should we now be expecting cost guidance to change with every quarter?
We do run a quarterly reforecasting as Jason talked about, if mine schedules and things can change as well, we also look at the cost impact of those. So we are conscious of having a look at our full-year guidance and just making sure that those -- not only those actuals are reflected as we go through, but also what we consider in some of those underground cost areas and also our assumptions on things like power and as you said, byproduct pricing. So as a general rule, yes, if they move, we expect it to update them. If they're materially consistent with what we've had before, we'll probably leave them alone.
Okay. And then last on MATSA. What's the split currently of euro versus U.S. dollar cost?
It is a tricky one to put together in terms of how we look at it. We look at it at this stage, about 70% euro and about 30% U.S.
Okay. And just lastly, on Motheo, the CapEx spend profile has changed as you've highlighted the non-critical work there. Was this a decision largely just due to the timing around the project finance facility? Or are you seeing any other challenges there we should be aware of? And, I guess, we're now heading into a peak spend quarter. Are there any other areas you may look to defer?
Yes. As Jason went through, they're not really deferrals in that sense. They're quarter-on-quarter, so they can literally be month-on-month and almost week-on-week some of these timing. It was high if you look back into the fourth quarter. So in hindsight, some of it is probably a little bit forward over the first quarter of 2023 and came into the back end of last year and a certain portion has also got into -- has been -- of those non-critical areas has gone into Q2 of the year, but we can categorically say not in reaction to anything in terms of financing or anything else, purely project schedule driven.
Okay. That's great. And sorry, I'm going to squeeze one more in. The corporate facilities, you said in the past [indiscernible] you've only partially paid it down. What's changed there? And, I guess, when is that balance due?
Yes. We paid down some AUD 200 million down to AUD 50 million on our corporate facility. Its current headline repayable date is 30 December 2022.
Your next question comes from Rahul Anand from Morgan Stanley.
Look, I just wanted to carry on the balance sheet, perhaps where Matt left. Can we get a revisit of the facilities that are available to you? Do they add up to that $220 million? Or is there any other potential financing that you can have? I mean, I'm just focused on sort of how commodity prices are currently, you're building a couple of projects and the cash draw is significant. What are the flexibility do you have available to you in terms of protecting that balance sheet through this period?
Yes. Thanks, Rahul. Really, we're going through that balance sheet transition. So we're more concentrating mainly on -- particularly around the MATSA and the corporate facility in terms of the scheduled repayments and deleveraging in that sense. As you also know, of course, we are leveraging in terms of Motheo effectively at the same time. So as we repay down existing operating assets or facilities connected to those, we're leveraging up on the new asset in terms of Botswana.
In terms of Botswana's strategy, we're at USD 140 million now with Societe Generale and Nedbank. And we look at around something like a $40 million to $60 million facility into the back end of next year. There's no material other facilities that we have in mind, but that is sort of the next step for us in terms of the Motheo leveraging, it would certainly be around Motheo and that would -- we would see be around mid-calendar year of next year, particularly as that A4 expenditure starts to kick off. And as we start to do prestrip at A4 and those sorts of activities and early construction and planning while we're commissioning at the 3.2 million tonne rate.
Okay. So is there any other corporate facilities that you might have available to subsequently help in case of cash draw perhaps?
We're concentrating on the facilities that we have against the existing assets and also our new construction at Motheo.
Okay. Perfect. All right. And coming back to perhaps MATSA costs very quickly. You provided a fair bit of detail in terms of changing the profiling, the polymetallic ore, et cetera. You're obviously running significantly higher than what your full year updated guidance is at this point in time. Is it purely production that's going to get you to within that range? Or are there other levers you're looking to pull over the next 3 quarters to sort of get you back and within the guidance range that you provided today?
So production will certainly have an impact. So in terms of headline C1, copper will have an impact, of course, as it rises, the zinc being high. Zinc production in the second half of the year will have a higher byproduct credit. In terms of probably what we concentrate more on is the growth side of gross OpEx and as Dave touched on, that is largely driven, and some of the reductions that is driven by our view on energy prices coming into the second half of next year. Having said that, we've also got TC/RCs, which we expect to go up with -- in terms of headline operating costs in terms of -- with zinc production going up. So it's a good story in terms of OpEx increases.
Okay. Final one for me. DeGrussa, you're doing some work looking into that oxide stockpiles there going into June 2023. I guess, you provided when we're going to hear about it. But is there any sort of understanding you can provide in terms of the cost differentials doing the sulfide and the oxide in terms of treatments and the challenges that might come through with that?
Well, look, from an operating point of view, the costs are largely the same. Obviously, we don't incur underground mining costs, and that's just replaced by simply just stockpile reclaim, which is very low cost. So the bulk of the costs are really in the processing plant. And overall, it's pretty much the same. Reagents are slightly up. But overall, I think it's not material.
Okay. So what are the critical items, I guess, that will help you determine whether the oxides can be processed? I mean, what test work do you have left over? Any sort of color you can provide on that?
Yes. So there's a number of things that we are testing, the performance of an oxide reagent, but specifically for this style of mineralogy, we haven't used that before we've done lab-scale trials and that showed success. We're also -- given that there's a high amount of clays in this type of ore as well, just look at basically our materials handling around conveyors, crushers, right, the grinding circuit and particularly the concentrate filtration. And we're looking at proof-of-concept of that at a lab-scale. And then also just confirming those recoveries and then concentrate characteristics there as well. But from our point of view, it's -- we're well advanced on that. And yes, we're quite optimistic.
Your next question comes from Ben Lyons from Jarden.
First question on the MATSA PPA, if I may, please. Great detail on that slide in the deck. We're also aware that one of the other larger power consumers in the regions actually signed a reasonably attractive long-term PPA recently, well below spot prices and indeed, well below -- well, well less than half of those forward curve projections that you've put on that chart there. So just wondering if there's any further color you can give in terms of any other large consumers in the region that are signing up these long-term PPAs? Any indicative pricing around those agreements?
Yes. Look, we're also staying pretty connected to what's happening in the region. So I think we're aware of the similar deals that you're talking of. Look, as you can see, some of the participants that are signing PPAs are getting reasonably attractive terms, at least in regards to what's happened in the last sort of 12 months to 18 months in prices. I guess, we're keeping an eye on that, plus what the historical trends have been and just trying to make sure we balance that out.
Look, given where we're at with the proposals coming in from the various parties, we're probably too early to start giving concrete numbers as to where the prices will go. But hopefully, we're certainly very optimistic and hopeful that we see a trend similar to what you've experienced at that other operator.
Okay. And maybe just back to the bigger overall picture, the new slide in the deck was the 3-year guidance showing the overall metal production increase, I think, is really helpful, really highlights the organic growth profile within the business. Just sort of stripping out a couple of those numbers. Just looking at fiscal '24 and the copper production number there and assuming that about 60,000 tonnes of that comes from MATSA, it really implies 40,000 tonnes coming out of Bots. And going through the numbers, it looks like you're assuming a pretty rapid ramp-up of that 3.2 million tonne processing rate. I'm aware that there's the time of the 5.2 at some point during the fiscal year, but obviously, you don't have access to the second ore body until later in the mine plan. So maybe you can just elaborate on the material movements ahead of the mill expansion just to ensure that greater comfort around that 40,000 tonnes issue of copper that should come out over fiscal '24.
Yes, Ben, look, you've picked it up quite well. If you look at it, we expect to be commissioning in the next quarter and in production, certainly in Q4 this year. So we are forecasting almost going pretty much to full production rate at the 3.2 million tonne per annum capacity in the new financial year. If you look at it, when we transition to the 5.2, we've almost designed this mine to make it as simple as possible to cut over to the 5.2 million tonne per annum rate. So we actually had these designs in play going back to when it was at that was late '19, early '20 after the discovery of A4. So we actually incorporated all of these expansion designs in the initial feasibility study. So it's been well thought through and well executed. And we've actually upsized pretty much all the flotation circuit on sheds. There's only minor additions there around filtration that needs to be done. So there really is minimal impact in terms of overall production rate when we do that cutover.
If we look at the A4 pre-strip, and I kind of touched on it in there as well. The ESIA is a critical path and approval of that, that is mainly to make sure that we are able to commence mine production as quickly as possible. Now, in that as well, we've allowed ourselves a bit of extra time. So if you talk to the Botswana government, once the ESIA final document has been submitted, their target time line for approval of 6 weeks. Now, we're not counting on that. And if you look particularly at that time line slide, we've got roughly about 9 to 12 months before we need to start mining and the ability to do that. So we think we've given ourselves ample opportunity to get through that approval process, commence mining and get the pre-strip under control.
And then the other controlling factor in there as well is, if we look at the T3 mine plan over the next 2 to 3 years, we do build up lower-grade stock levels quite quickly, and we have the capacity to actually bring that in during that period straight after the 5.2 million tonne per annum upgrade. And in fact, that integrated schedule actually does already draw down some of those stockpiles until we can get into continuous ore feed out of A4, which is more so around FY '25.
Your next question comes from Kaan Peker from Royal Bank of Canada.
2 questions for me, if that's okay. Just on the DeGrussa closure costs of $7 million. Can you please provide timing given the plant processing of stockpiles? Also, it's quite a large amount, maybe -- I mean, previously you talked about it, including working cap tax, and a few other costs in there. Maybe if you could give a breakdown of that? And if there's any contingencies incorporated in this? I'll circle back with a second question.
Yes, sure. Thanks, Kaan. So in terms of the DeGrussa, it's a relatively spread out process and certainly more spread even now with the processing extension. We have already commenced during September and October, and even possibly some of it back into August in terms of some of those closure payments in terms of staffing levels, as you'd expect. We've also got -- as you've noted, we have tax payments of about USD 30 million coming up over the next couple of months. The working capital unwind at DeGrussa, as I said is slowed somewhat by the processing extension and also assisted by the additional 2,000 tons of copper, 2,000 ounces of gold into that guidance. So it's really a process that sort of -- if you start in August, and in January, February, there's a significant portion of that across September, October and into November. But we've already started in terms of the quarter we just reported, and having a few more of those payments come out during certainly October this month, and then also into next month as well.
Just on that, how much of the $70 million has already been spent? And does that -- in that waterfall chart, does that get allocated to the operating cash flow?
Yes, it is an operating cash flow, correct. So it does all sort of net out of the back-end of the DeGrussa. DeGrussa is a tricky one to follow in terms of operating cash flow at the back end of the operation, because it does get the delay in terms of creditor clear out. So we're about $20 million to $25 million into our closure obligations.
Very helpful. And then the second question is on MATSA. Mining production guidance is maintained at 4.7 per year. I think 4.5 was the run rate this quarter. Magdalena throughput appears to be soft. I mean, the confidence around it's been resolved in sort of increasing "mine production". And where would it come from?
Yes, you're absolutely right. So if you look at it, one of our key constraints, particularly at Magdalena is, basically the line that carries paste underground. So it is constrained for us at the moment that's designed at the moment that will do our maximum capacity around about that 2 million to 2.2 million tonnes per annum rate. And as you can imagine, that line is not 100% utilized. So what we need to do is lift that instantaneous capacity up to above our target run rate. We have capital built into the plan for that. And that work is underway at the moment, and that will backstop the second half of the year as well.
The other thing that we're doing at the moment, as you can understand with mining operations, typically we have a number of stoping areas in play or available for mining. And what we are doing at the moment is just increased our development rates into this budget that will give us more options around stoping at Magdalena, in particular to make sure that we've got better opportunity to maintain production rates. So short answer, we've got some shorter term things that we need to manage, but the outlook is that, we're very confident we'll get up to that 4.7 rate.
Just to add, there's also some room built in there in terms of guidance is based on processing at 4.6.
So that would sort of suggest the exit run rate for the year of about 5 million tonnes, is that fair?
Not quite that high. No, it wouldn't go that high. Overall, like Matt said, we're at 4.6 at this stage. We are working towards and we are actively working to make sure that we get the 4.7 total for the year. But we've got a bit more work to do, particularly at -- not just Magdalena but some potential benefits there at Sotiel and also Aguas Tenidas.
[Operator Instructions] Your next question comes from Lyndon Fagan of JPMorgan.
I'm wondering if you can talk to zinc recoveries. Just appear to be coming in a bit lower than what was originally guided to.
Yes, thanks, Lyndon, Dave Wilson here. Yes, we have seen the first quarter that zinc recoveries down a little. We're working through with the site team on exactly that. As you could imagine the -- particularly in the polymetallic where the zinc comes from, the ratio of zinc to copper and other metals can have an impact on the overall performance. So we're seeing that improve so far at the start of this quarter, which is encouraging. And we're also doing a program with some really going back to basics and understanding the full potential of recovery upside across Motheo as well so we think that over time that will deliver. That's certainly something that we've also keeping a close eye on and making sure that we understand how to get that back to where it needs to be.
And have you got a range for us to sort of think about using over the next few years?
In terms of improvement or from the base?
Just what we should be putting in our models?
Yes, look, I think it's what we've got and guidance is our number at the moment and we're continuing to look at. If we can improve that and if we can, we'll adjust that guidance accordingly, 75.
Sorry, what was the number in guidance, if I missed that?
FY '23 guidance is 75% covered.
Okay. And, I guess, I just wanted to revisit the balance sheet. So I'm wondering if you can talk to where you -- some really detailed guidance, which is appreciated in the pack. Assuming everything played out, where would you expect net debt to peak out for Sandfire? And I suppose the follow on is, can you please remind us of any covenants that sit around those facilities?
Yes. Thanks, Lyndon. We don't really look at it in terms of net debt timing. What makes it tricky is, of course, is we're deleveraging and repaying debt quite aggressively. At MATSA, as you know, taking the corporate facility down while drawing the Motheo facility up and then also looking at the timing of an additional working capital/A4 facility in terms of Motheo. So our net debt in terms of peak and at a point in time is quite tricky during this 12 months, when you -- as you understand I'm sure, having those different facilities moving around. Our financing structure is project debt-related. So they're ring-fenced projects. Largely, Motheo is the new one and also at MATSA, they have standard cash flow tests, backward looking, forward-looking project life-type tests, as you'd expect.
And are there any of those in the public domain or are they unavailable in terms of what those tests are?
The traditional projects, cash flow, as I say, quarterly backward looking, rolling backward looking and forward-looking project ratios, DSCR, LLCR. So the sort of standard project finance related covenants, but no, they're not particularly in a public sense. No.
The next question comes from Peter O'Connor from Shaw and Partners.
So just back on DeGrussa. Small question, but what's the price? Is it delaying rehab? Is it getting cash for the rehab, 2,000 tonnes? Why? Or is there something bigger out there that you're maintaining optionality for?
No, look, it is about cash, it generates cash, and particularly some of the work we're doing on some of the higher grade oxide stockpiles that we haven't built in yet, that's definitely about cash. Now there is a benefit that it does defer care and maintenance costs, but that is truly secondary.
Okay. And second question to maybe Jason yourself or Matt, just power costs in Spain, which is more of a bit of a one-on-one question. So I just got off a call with another company, which has got an asset in Spain, and asking the same sort of questions about energy costs going forward. And the forward curve, they talked about wrestling with one you've got in your pact. But they indicated the level of gas price, which is obviously fairly instantaneous on a daily basis. And that's come down a little bit EUR 30 per megawatt. And I'm just wondering the correlation between gas price into Spain and electricity price, because the numbers I've heard on the 2 different calls, they just had a very different.
Look, I'm not sure the other data you're looking at clearly. The numbers we've put in our packet from the market operator that are in my group, and then from our incumbent supplier, their estimate of what the gas compensation -- the gas cap compensation charges to all users on top of that for that period. To be honest, to answer your question from what we understand a bit closer than what the other data is you're looking at?
Let me put you, the last 2 quarters the price of gas into Spain has been pretty much the same as the Spanish daily power price you've got in your chart. Yet the spot price today for gas is about EUR 30. And I'm just wondering as the Spanish daily power price come down to meet that, does it take days, does it take weeks, does it take months, does to take quarters? Or is -- what leads, what lags [indiscernible] correlation between gas and electricity? When you're going to get benefit of much lower gas price? How quickly?
Yes, we understand it moves quite quickly. And obviously we're looking at number, they're actually the backward-looking numbers. We are seeing that particularly those high spikes in August, we're not seeing that at the moment. We are seeing some -- the current spot has reduced probably below what the forward curve numbers are right now. So yes, we think it's fairly quick.
So this forward curve, circle data point, when did you run that? Is that a week ago or...
About a week ago, yes.
Precipitously for the last week. So if you updated this sort of overnight, we should expect a fairly sharp decline in power prices?
It depends a bit on what the forecast is for that gas compensation chart, which is less transparent than the forward curve that you can get online. That's the way the mechanism works is that, the Spanish government are capping gas prices, but then they're charging consumers a fee to help fund that program. So that's been probably since the gas cap program came into place in April, May of this year it has worked as expected, but probably Spain not quite as expected as they originally forecast a gas cap price of somewhere between EUR 50 and EUR 70 and that's probably hit peak of EUR 150 and trending close to EUR 100, so that's where we've been -- where the difference is, I'm guessing.
So we should expect you to get lower energy costs this quarter, but may not be quite as low as the current gas price has suggested?
Yes, that's right. We'll put on that compensation charge.
As there are no further questions at this time, I'd now like to hand the conference back over to Mr. Jason Grace, Acting CEO for any closing remarks.
All right. Look, thank you, to everyone on the call today. It's been very good. And certainly from a Sandfire point of view, as I touched on before, we're very much looking to the future and looking towards certainly a great 3 years ahead, where we do transition and become a much larger metal producer during that time. Thanks again.
That does conclude our conference for today. Thank you for participating. You may now disconnect.