Sandfire Resources Ltd
ASX:SFR
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Sandfire Resources Ltd
Earnings Call Analysis
Summary
Q1-2025
Sandfire Resources reported a solid start to the year, achieving copper equivalent production of 38,000 tonnes. They aim to meet FY '25 guidance with a capital cost forecast of $35 million for developing the A4 open pit. Revenue reached $282 million with a healthy EBITDA margin of 43%. Notably, processing costs at Motheo were controlled at $40 per tonne, below the $42 guidance. They anticipate by-product production to increase, alongside treatment charges falling in 2025. Management remains confident about long-term sustainability, targeting a net cash position as they focus on extending the life of MATSA and Motheo operations, supported by ongoing exploration efforts.
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Thank you for standing by, and welcome to the Sandfire Resources September 2024 Quarterly Report. [Operator Instructions]
I would now like to hand the conference over to Mr. Brendan Harris, Chief Executive Officer. Please go ahead.
Hello, and good morning. My name is Brendan Harris, and I'm the CEO of Sandfire. Welcome to our September quarterly call. The first quarter in many ways, is like the first session of a test series. While you want to get off to a good start, it's how things end that matters. With that in mind, let's move quickly so we can get to your questions.
First, I'd like to acknowledge the traditional custodians of the land on which we stand, the Whadjuk people of the Noongar Nation as well as the First Nations peoples of the land on which we stand, and Sandfire conducts its broader business. We pay our respects to their elders and leaders, past, present and emerging.
I'd also like to welcome my colleagues to the call, Megan Jansen, Jason Grace, Richard Holmes, Cath Bozanich, Gemma Tually and Scott Browne.
Starting with safety, we closed the quarter with a total recordable injury frequency of 1.8, a marginal increase from the 1.6 reported at 30 June. Nothing is more important than the health and well-being of our people and the communities we are proud to be part of, and we're working hard to enhance our system of risk management and internal control because we have to improve.
Turning to our operating performance and a solid start to the year. We delivered group copper equivalent production of 38,000 tonnes and remain on track to achieve group production costs and capital expenditure guidance in FY '25.
Page 6 of our quarterly report shows this most clearly. As you can see that our run rate across the various metrics is tracking between 21% and 27% of full year guidance with the exception of exploration, which will build momentum across the year.
MATSA maintained its consistent run of form as an annualized processing rate of 4.6 million tonnes, supported a 4% increase in copper equivalent production to 23,700 tonnes. Contained copper production itself was a clear highlight. As recovery kicked in our poly line, noting by-product production is expected to tick up across the remainder of the year as planned.
At Motheo, our team continued to put the runs on the board as they achieved an annualized processing rate of 5.3 million tonnes despite completing a 5-day shut at the start of the quarter. The copper head grade did, however, declined 1% during the period, which contributed to the 6% contraction in copper equivalent production to 14,300 tonnes. I can confirm that Motheo has started the December quarter well, and we are gaining confidence in the facility's ability to sustainably exceed its 5.2 million tonne per annum rated capacity.
We were also pleased to receive pivotal regulatory approvals during the quarter for projects that will underpin our ability to deliver consistent and predictable performance in the longer term. At Motheo, approval of the managed aquifer recharge or MAR project, further derisks the development of the A4 open pit and its delivery of first ore in the December quarter.
Similarly, environmental approval of our new tailings facility at MATSA was another important milestone in the permitting process that will enable the complex to remain a significant contributor to the Andalusian regional economy for decades to come. Construction is scheduled to commence in the June quarter of 2025 with the first phase of development to be completed in early FY '27 at a capital cost of $35 million.
More broadly, our Motheo team once again kept costs under control at $40 per tonne of ore processed, which compares favorably with our annual guidance of $42 per tonne. Similarly, at MATSA, our team did relatively well to mitigate cost inflation as the euro and the U.S. dollar and power prices rallied.
While this did result in an elevated C1 cost for the quarter of $1.88 per pound, I'd again remind you that by-product production is expected to tick higher across the remainder of the year, while treatment and refining charges are also expected to fall, better reflect current market rates from the commencement of CY '25.
With growing consistency at all levels of our business, we were able to deliver group sales revenue of $282 million and underlying group EBITDA of $140 million at a very healthy margin of 43%, which was underpinned by an operating EBITDA margin of 44% at MATSA and 58% at Motheo. Together, this led to a further $51 million reduction in net debt to $345 million at 30 September 2024.
And if you are in any doubt, we intend to remain disciplined as our run rate for capital expenditure builds across the year, and we move further, I should say, towards a net cash position. And that brings me to our 5-year plan to increase the life of our MATSA and Motheo mining hub by leveraging the solid foundation of geological and geophysical field working analysis completed in prior periods.
We're now building solid momentum, having turned back to the drill bit, and our targeted yet aggressive plans will see us invest $19 million in infill and extension exploration and recognized a $24 million expense for regional exploration in FY '25 at MATSA and Motheo. We look forward to sharing the early results of this work when we provide an exploration-focused presentation in early December.
Bringing this together, we finished the quarter in good form, and the outlook for our products continues to improve, but we're not getting carried away as we look to capitalize on our increasingly strong position.
With that, I'd like to go to questions. Thank you.
[Operator Instructions] Your first question comes from Ben Lyons from Jarden Securities.
I might start with MATSA, please, and acknowledging firstly, I guess, that operating costs were higher during the quarter, but CapEx is running well below the annualized guidance. So I get the bigger picture that the total cash out of the [ two ] over the period was a bit of a wash, also taking on board your comments in the intro about some of the granularity in terms of the operating costs.
Just wanted to interrogate it a little bit further, I guess. Again, acknowledging this is less than $10 million that we're actually talking about. But is there anything in particular to call out in there? Like can you put a number around the impact of increased power costs, for example, or I also note the accounting peculiarity where some of the transport costs are deducted off revenue and some come through the operating cost line. So yes, maybe there was an impact of higher transport costs, for example, during the quarter.
Yes. Thanks, Ben. And look, we've noticed people rightly picking up on just that elevation in cost at MATSA in the period relative to -- of this guidance. And as you say, there are some moving parts, many of which are outside of our control, such as the euro, power prices, et cetera.
And as I mentioned in my speech, TC/RCs are expected and implied within our guidance to fall into the new calendar year, noting, of course, that Motheo broadly benefit from commercial rates for TC/RCs because it's effectively uncontracted in nature, whereas MATSA is linked to annual benchmarks.
So again, we need to wait until they reset, and that will lead to some degree of a skew, if you like, in some of the drivers of costs. But look, why don't I pass to Megan because I know she spent a lot of time on this, and perhaps she can dig into a few more of the numbers in a little bit of detail.
Thanks, Brendan. Good morning, Ben. Thanks for the question. Maybe just as an opening remark, we've seen the MATSA continue to maintain strong cost control throughout the quarter. As you touched on, there was an FX impact. The euro did strengthen during the quarter, so it averaged around $1.10. And that's in comparison to the previous quarter in FY '24 when we saw around $1.08. So that's the main impact that's played out in the operating cost over the period.
In terms of power, I would say that's a slight impact for the quarter, and that's a few hundred thousand dollars less than $1 million is how I describe it as we saw a brief step-up in power prices. One thing we would come back to is we have locked in more than 50% of our power requirement under long-term contracts with Endesa. Over and above that, we've recently executed some further contracts, which basically protect our price going into Q2 and Q3 over the European winter.
And so with that, that really helps support us delivering on our budget and, therefore, guidance cost assumptions with regards to electricity. Those impact did flow into C1. And I guess the C1 was then further exacerbated by slightly lower byproduct credits in terms of volume, and we're expecting that to pick up in the remainder of the year together with some slightly softer prices on the byproducts.
The other item Brendan touched on was the TC/RCs and what we're expecting in the second half, we should see some benefit starting to come into the P&L if TC/RCs move in line with market expectations. So for every sort of $0.10 movement there at MATSA circa $4 million impact and $3 million at Motheo.
CapEx, MATSA CapEx was probably a little bit slow in Q1, but the run rate there is a few million behind. The team is comfortable on the capital pipeline and the projects we have, and we're expecting we'll deliver on that in the year to go. Hopefully, that answers the question.
Yes. No, that's great. And thanks to additional sensitivity to the TC/RCs. That's very helpful as well. Sorry, Brendan.
No, no, not to say, Ben. I mean as you can see on the Page 6 of our report, as you pointed out, it's sort of about the margin. Maybe just while we're on that, though, Ben, it might help. Jason, a critical element of this, particularly people who focus on C1, which is pretty much an outcome of an aggregation of a lot of numbers is you referred in our last conference call, last quarterly conference call of the slight weighting of byproducts, i.e. zinc and lead, particularly to the future periods beyond Q1. Can you just give people another sense of how that's tracking today?
Yes. So where we stand today for FY '25, we do expect slightly higher production on zinc and byproducts in Q2 and also in Q4 for this year. So it's a bit of a, if you like, a bit of an oscillation as we move through the year. Overall copper is pretty much -- we expect it to be pretty flat throughout.
Yes. So Half 1, Half 2 is not that big a skew, but ironically, in both quarters. The second quarter will be stronger for zinc and lead than the first and then the fourth will be stronger than the third. Yes. Does that help, Ben?
Yes. Yes, that's extremely helpful and thanks, Jason and Megan for your input as well. Maybe just quickly switching across to Motheo. No need to call out the most important election undertaken in October of this year, obviously, over the next couple of days, but just wanted to talk about the material movements and the ore sources, please. Obviously, you've had an outperforming mill. I assume you've probably run down a lot of your high-grade and medium-grade stocks on the ROM.
So as we're sort of looking through the September quarter and maybe into December quarter, I assume that you're on ore in A4 now, which probably should give you a bit of a grade boost if you have sufficient ore availability coming out of A4. So I guess, just holistically, what the ore sources look like over the next few months and whether we can see a little bit of a grade sweetener as A4 starts coming into the mix.
Yes. Look, thanks, Ben. I'll throw it to Jason for the detail. I hope the guidance we provided, I think, here is in Page 15 of our report, which you're right. So we start seeing very first signs of ore out of A4 being delivered to the pile in the coming quarter. Incrementalism, if you like, through the second half where you really start to see the benefit of A4 and grade is most likely coming in the next financial year.
But look, long story short, we're really well pleased at the moment with the way the sequencing of our mine plan is working to deliver the overall average head grade to the mill this year. And I'm sure it's not lost on you, Ben. You followed this very closely. But the mining or the processing rate that we achieved in the period of 5.3 million tonnes.
Once you adjust for the 5-day outage at the start of the quarter again highlights that the processing facility just continues to go from strength to strength, and we're really starting to see that consistency in performance as well. Jason?
Yes, just to really build on Brendan's comments there. Ben, if you look at Appendix A, and particularly with respect to the guidance there for A4 for the year. Brendan is 100% correct. I think about A4 as really being a significant contributor in FY '26. And to that guidance for the full year, really only mining of 235,000 tonnes at 1% copper. So FY '25 in terms of ore feed is all about T3.
So -- and particularly, if I look at how I manage or how we are monitoring risk in terms of that, it's all about the material movement rates. They're out of A4 for this year. And you would have seen there that we've moved 1.6 million BCMs on the forecast or guidance for the full year of 6.8. So pretty much right on 25% and exactly where we expect to be.
Now further to that as well, we have completed, and you would know that we do us in RC grade control in advance of mining. So we have completed our first program of RC grade control at A4. And we've intercepted at the top end of the ore body, and we're starting to build that into our detailed schedule.
And it's pretty much, as Brendan said, we expect our first trickle of ore this quarter, and really cannot really make any real contribution then through Q3 and then kicking in towards the end of Q4 this year for FY '25.
And maybe, Jason, just one element. We've talked before about being wetter than T3 and the MAR is an important risk mitigator and so there's no regret in moving forward with that. But probably between now when we last spoke with the analysts and investors, if anything, A4 is proving to be marginally dry than we might have thought at that stage, which again is a good news story for productivity and the rate at which we can get into the ore body.
Yes. So firstly, I mean, the dewatering infrastructure there for A4 is fully operational and has been for the bulk of this prior quarter. Looking forward, we are getting less water. There's no doubt in our minds, less water than we expected to see so far. And we are starting to update our groundwater models in respect of that at the moment to really understand where we expect to be over the life of mine. But at this stage, it's better than expected and drier than expected.
Your next question comes from Kaan Peker from RBC.
Maybe continuing on with Motheo. I suppose when we look at A4, that should provide a great sweetener. But when should we expect to see those mining volumes get above that 5.2 million tonnes run rate? Is that still FY '26?
So we expect this year that we will largely mine all of the ore that we require at 5.2 million tonnes, and we will continue to stockpile ore throughout FY '25 and into FY '26. I kind of touched on it there with Ben's question. A4 in terms of ore supply is more of a story for FY '26 than it is for FY '25.
I'm just reiterating my comments there before. With respect to Appendix A and the guidance that we've submitted for A4 ore mining. It's 235,000 tonnes for the full year. So less than 5% of our total planned ore milled for the full financial year, and that's sort of grade at 1%. So pretty much on par with what we expect from T3 as well.
I think that's probably the key point for me, Kaan, is that we certainly don't sit here and guess, do anything else than trying to understand our risks, and I sort of think of us critically as important risk managers in our role. But as we sit here today, the overarching Motheo operation is not providing us with a great deal of surprises.
Yes, there are things we've had to deal with, particularly the mobile filter press requirement, given that the OEM supply piece of kit really didn't perform. The initial piece of kit didn't perform, but we've got past that. Pretty well things are going as planned.
And I think as we now start to get that stability, the big driver for us above just consistency and predictability is actually starting to drive recoveries in the processing plant. And that's where that incremental extra dollar is going to be 1.
Sure. And just on MATSA, still seem to be mine constrained. It used to be no real ROM stock build over the quarter. What needs to change for this to occur? And maybe if you can also provide some details on why there's increase on [ longitudinal stope ]?
Yes. Good question. Look, I think we've said before that there's a limit to how much stock we want to build. We pretty much did that last year. And because, again, remember, there is a limit in terms of resonance time at which you can leave these ores on surface there. In many cases, highly pyritic, which creates a different issue there left exposed to oxygen for too long.
I think the other point I'd make is I don't know too many underground mines that aren't mine constrained because that's ultimately one of the things that you're always working through is building your mine development to keep in front and open up degrees of freedom because you're right, you ultimately would like your mills to be where the constraint sits. But that's a balance. It's always moving between the two.
I think we've shown very consistently over the last 18 months. We've managed to get much more predictability. We're hitting and maintaining those record processing rates, mining rates ebbing and flowing around those sorts of similar record levels. And I think we're feeling very, very confident in terms of the ability to execute as we go forward.
Of course, I'd also note that these polymetallic operations as much as we'd like it to be like an [ auto ] manufacturing plant. They're always going to have variability. And so we see that usual volatility in copper versus byproducts reduction and where we are in the mine plan. And obviously, as part of that as well, you will have from time to time different configuration in terms of the ratio and in this period, more longitudinal stopes.
But as you can see, we've maintained the guidance, and we're feeling very well placed to deliver on all of our commitments across the year. Maybe, Jason, just on the longitudinal stope particularly part of the mine plan.
Look, and Kaan, just will make the point that mine production has exceeded overall ore processed tonnes in the last half of FY '24, and we're very close being year-to-date as well. So from that point in time, we did build up our ROM stocks during last year for this exact reason, right, to give us a little bit more flexibility and to be able to cover for these type of situations where we can continue production.
Overall, and if we look at it, Aguas Teñidas, did exactly what we expected it to and Magdalena was really the only impact. Now these longitudinal stopes, they typically sit on the periphery of our ore bodies, so where we have narrower ore zones, and we are moving through that area in terms of the mine sequence on a regular basis throughout FY '25.
Now where we will get variation is that we will bring in and out of the schedule there, our transfer stopes, which are the larger scale and wider parts of the ore body. So we'll see a little bit of fluctuation throughout the year. But overall, we're tracking where we want to be.
Your next question comes from Adam Baker from Macquarie.
Just on silver recovery at Motheo just at FY '25 guidance is 90%. I think the previous feasibility study outlined [ ROM ] recoveries of 86%, but the recent quarters have been around 82% to 84%. Just wondering if you could talk through the potential room for improvements here.
Yes. Look, thanks for that. Look, overall recoveries are probably the area that we see more improvement for right across the board at Motheo. If you look at the delivering on the nameplate tonnes, and we do think there's potential upside there as well. But we have got further improvement works going in to really focus on those recoveries. And as per our guidance, I expect that they will improve incrementally over as we go throughout the year.
And maybe one on Central America. Given your interest in the project sort of 87% equity interest. Brendan, would you like to optimize its structure before you reach a potential investment decision in this in 18 to 24 months' time?
Look, I'm actually very comfortable with the structure as we sit here today. That doesn't mean we won't look at alternatives in the future, but I can see advantages -- distinct advantages for Sandfire America retaining its current structure. And ultimately, that will be something for its shareholders, of which, as you've said rightly, we're an 87% holder.
More broadly, our focus there is continuing to build out that lower copper zone. And I think we're showing real success of that program, and we look forward to talking more about that in December.
And then beyond that, Ian Kerr, has pretty much rolled off from the Motheo project and the success that he delivered there to focus very much on the Black Butte project and then supporting the Motheo's team as well with some of their various opportunities. And a big part of that is we build out our understanding of that resource.
And again, that higher grade, lower copper zone at the same time, upgrading and updating our capital cost assumptions for the development, remembering it's a relatively small footprint, very, very focused operation, relatively small underground, but they're very high sustainability standards, particularly around water.
We're updating all of those numbers, and we look forward to bringing that together somewhere in the next circa 18 months, and that will really help us chart the course forward. I think from my perspective, plus or minus 30,000 tonnes of contained copper at peak, it doesn't sound like a large mine, but if it has a high IRR, that just really opens up a whole lot of alternatives in terms of options we have to release value from that investment.
And while 30,000 tonnes, again, isn't large in the scheme of the global copper supply dynamics, it's circa 20% of our current production, which again is not the [ best needed. ] So we're still excited about the project and the team is very focused. Just a lot of work to do over the next 12 to 18 months to ready ourselves the next key decision.
Your next question comes from Levi Spry from UBS.
Can I just take you back to the TC/RCs sensitivity. So you gave me a $0.10 movement. Can you just give me those numbers again and tell me what your current cost guidance is based on?
Can I take that one?
Yes. Go ahead, Megan.
Thanks for the question, Levi. So we are talking through a sort of $10 impact broadly at MATSA with about $3.9 million, $4 million impact on net revenue, let's say. And similarly, a $10 impact on TC/RCs was about a $2.5 million impact at Motheo. Our guidance build for the year is sort of there are some differences between MATSA and Motheo, as Brendan touched on earlier.
So at Motheo, we're selling our concentrate under spot and combination of term contracts. And so that sort of plays out and you see the market price playing out there throughout the year. And then at Motheo where under the 2024 calendar bench. Motheo under the 2024 benchmark terms. And then there'll be a reset in calendar year 2025.
Yes. And I think -- so I think, Levi, circa [ 88 ] is what Motheo's is exposed to today at least on the copper side. And that will, as example, feed through to the end of this year. Then you actually have to do the negotiations. And then depending on where it cuts, it's how it's rolled into the financials.
It hasn't been uncommon for us not to realize the full benefit until the fourth quarter. But ultimately, it is rolled back. And obviously, at Motheo, if you think about commercial rates, remembering, we're still building a brand, and we're still -- we're beyond commissioning con, but it's still in that early phase.
We're achieving substantially lower average TC/RCs [ than 88 ] but not all of them at the levels that you might have seen, which have merged ongoing negative. So -- but nonetheless, I think a very, very good outcome for us.
Yes. Great. I think I can triangulate some numbers there. And just zinc, I mean, what's the update on, I guess, the zinc market and also potential halving of TC/RCs here?
Yes. Look, I probably don't want to go too far on zinc. And the reason I say that is, clearly, we're not going to set the price. I reflected a lot on LME Week and the main takeaway for LME Week was a very distinct dialogue around the risk that current rates, commercial rates represent for European, Japanese, Korean smelters.
And obviously, we've seen periodically over recent months that the TC rate for zinc has actually gone negative, I think, first time in history. So I think it's going to be a very interesting negotiation because I think there's going the need to be some balance in terms of thinking about the short-term benefit versus the long-term structure of the industry.
But nonetheless, relative to the rates we're currently exposed to at MATSA, I think, of around $165 a tonne instead of -- I think it was in January, March 2025. We are, I guess, fair to say optimistic that we're going to see a benefit. I just don't want to put too many projections out there.
Okay. Great. And maybe one for Megan. Just on the debt repayment schedule. Can you just sort of remind us on what that looks like now. I think you paid a bit more back than I was expecting?
Yes, no problem. So we have been making payments fairly steadily on the corporate revolver. So there's good progress that you can see coming through the cash flow waterfall in that regard. In Motheo, we have our quarterly repayment throughout the year. That profile will sort of continue throughout the remainder of FY '25, Levi.
At MATSA, following the takeout of MATSA facility earlier this year, we don't resume repayments on MATSA facility be until December 2025. So you'll see that profile change at that time in the subsequent financial year.
And probably just to remind everyone, we do have those cash sweep mechanisms that are at play across the facilities that matter in Motheo. So to the extent we have cash over and above certain levels at the end of the period, a portion of that is tweaked to the facilities. And so that will see the repayment levels move around a little bit as the available cash builds throughout the period. Does that help, Levi?
That's good. Yes.
Your next question comes from Rahul Anand from Morgan Stanley.
Look, just had a couple on MATSA. Brendan, I guess, this one is perhaps for you and then a second one for Megan. In terms of sort of -- you've talked about your stockpiles and you that you're nearly there in terms of what you need in terms of stockpiles and obviously, oxidation, et cetera, is a key concern. But if I look into perhaps FY '26 and perhaps the intention to run the mill a bit harder. Do you think this level of stockpiles is enough, and I assume you're sitting at just under 200,000 tonnes at the moment? Or would you think to build them a bit further from here to be able to get to that higher throughput rate? That's the first one.
Yes. So we -- as was mentioned, those stocks are going to ebb and flow, but we're not looking for major shifts, right? So they'll ebb and flow around this level, consistent with what we've said in the past.
And just to be really clear, I've never put out there a message that we're going to look to run the mill harder, all the mine harder than it is today because we're going to look to run it to maximize value. And in fact, if we determine that we should lower throughput rates because it's going to give us a better NSR and a better outcome for shareholders, I have no hesitation with Jason in doing that.
So I think the industry has had a great propensity to chase tonnes, but not always for the right reasons. So again, we think our plans are robust. When we look into next year, we see similar levels of copper equivalent production, which shouldn't -- I've actually surprised people on this call, and it's really about with MATSA. It's about being consistent and predictable. It's about opening up those new mining areas we've talked of San Pedro and Olivo.
And with that, that will help again with that consistency and predictability and for me, that's the critical thing here. It's being in the game because like a lot of you on the call, I share the view that the outlook for our markets is good. So if we can manage our costs and deliver the tonnes, we should ultimately have a very strong period of cash generation.
So that's really our focus. And at the moment, we're not seeing a major shift in, if you like, the operating mode at MATSA compared to what we've been talking to you about over the last 12 to 18 months. But again, as we are always scrubbing our plans, if indeed we were to conclude that we should run incrementally higher or incrementally slower, rates of performance, I can guarantee that will be driven by a value equation and nothing else.
Jason, anything that you'd like to add to that?
No, I think you've covered it really well. I'd just highlight the difference between MATSA and Motheo. MATSA being an underground mine. So we don't incrementally mine low-grade material like you do in an open pit. And that's why we'll see it Motheo in particular, those low-grade stockpiles will grow or lower depending on where we are in our mine plan, whereas MATSA we maintain what we -- the goal is to maintain a mine production rate that will meet the requirements in the mill. And we keep a smaller amount of tonnes on the ROM to make sure that we've got enough room to be able to predict and see what's going to present to the mill and be able to blend ore as it comes out of the mine as well.
And that's really the critical thing isn't it? It's having enough stock that our teams in the processing plant working with our mine geologists can walk that stockpile and have a very strong view of the mineralization that's going to be presented to the mill and then to the float circuits and then they can adjust their reagents. It's much more about that.
The volumes we're going to have there are never going to be sufficient enough if we have a major operational outage, which actually ties back to the real point I wanted to make. And that is, again, opening up a different additional phases such that we have degrees of freedom. We have challenges with the stope, we can move our equipment and stay productive. That's actually the critical aspect for us there. And hopefully, that helps, Rahul.
To close that out, Rahul. And in terms of that sort of fit-for-purpose stockpile that Brendan and Jason talked about at MATSA. You'd recall last year, we talked about our plan to maintain a few hundred thousand tonnes on the ROM. And we have done that. So there is a few hundred thousand tonnes remaining at the end of the quarter, and that's broadly unchanged from June. So we haven't seen any material change in that stockpile. We've, in fact, broadly maintained it over the quarter.
No, I absolutely understand it. Completely, by that view, Brendan, it was just more around the lines of potentially you have -- you also get economies of scale from maximizing sort of good rates in mills and also get benefits of fixed costs, et cetera. So that kind of does play into the total cash flow equation, but I'm sure you've done those numbers better than I have.
And certainly, Rahul, you think it's a good question. I'm just trying to give you a sense how we think about it in the context of MATSA and what we've presented with there. And I do think for us, it is that real challenge of working through that equation that you're describing in effect, which is what benefit do you get through driving throughput, i.e., vis-a-vis economies of scale versus focusing on NSR.
And my suspicion when you look at MATSA and the polymetallic ore body that it is that over time, a focus on NSR is probably going to give us a better value equation. So -- but we're doing a lot of work around that, as we speak.
Sure. Okay. And look, the second one is perhaps way simpler. One for Megan. Megan, you talked about the cost a bit, and you've talked about them in detail already. I just wanted to check if you can help us understand perhaps the split of U.S. dollar denominated in euro costs. Obviously, there are linkages and majority is probably euros, but just to help with the bit of modeling going forward?
Yes, sure. Rahul, can do. So MATSA in the range of 90% to 95% euro cost base. And so we see that, therefore, play out in both the operating expenditure and the capital expenditure. And I think as I touched on earlier in the call, we saw a $1.10 average over the quarter. We're using a function of $1.08 for our guidance purposes, and that was broadly the rate that we saw play out on average throughout financial year '24.
So hopefully, that helps with giving you a bit of a sense of the impact of FX at MATSA. And on that note, spot has retracted. So we have come back to around $1.08 and our team is closely monitoring whether that's something we maintain a spot or whether we sort of look beyond managing in future.
Your next question comes from Anthony Barich from S&P Global Commodity Insights.
Just talking about that 5-year plan from MATSA and Motheo. I mean you talked about in June quarterly when you announced that kind of 5-year strategy that meaningful reserve growth at Motheo was really dependent on belt-scale exploration success. I mean just wondering, how confident -- I know it's only early stage. But I mean how important is that, that 5-year strategy in your overall company growth, given the other projects you've got going on and whatever else? And where is your confidence level at the moment in terms of that ability to really get that exploration success?
Yes. Look, I don't want to sound [ facetious ] but as an old geologist until you drill things, you're always incredibly confident. Look, in truth, you're absolutely right to focus on this because I still believe the most value-accretive thing you can do as a mining company when you have installed infrastructure, which, in a way, is simply a significant investment of shareholder funds, the most capital efficient growth in value comes from extending life. And that is why it is a core pillar of our strategy. We have that sort of 8- to 10-year life typically in our mining hubs.
I've said before that MATSA's a much more quantifiable pathway. We've put that diagram out there previously, which shows every drill hole that we're planning to complete in both infill and extension drilling across the next 5 years, and that's really just chasing known mineralization, which again, whilst there's no certainty in life, I have a high degree of confidence in that plan.
Motheo is more about, as you've described, doing that initial work around the T3 footwall, the A4 extensions and the A1 resource to reserve conversion, which we're really hopeful is going to add important years of life. But then it's around the belt-scale exploration and discovery requirements.
Noting that our focus will very much in the early periods, be focused around the Motheo hub itself within the trucking distance of the processing facility, and we are drilling and ramping up our drilling activity there as we speak.
I'll pass it to Richard quickly to give you a sense for how he thinks about the step change in our understanding of the controls of mineralization in the Kalahari Copper Belt and how important that is in our targeting approach and obviously, why we are confident enough to significantly accelerate and increase our rate of expenditure in that Motheo hub and then over time in the -- across the belt more broadly, noting that prior to any sort of relinquishments, I think we often say that we have close to 2/3 of the tenure in the Kalahari Copper Belt, which ensures that we're very well positioned in what we think is going to be an increasingly important emerging copper-producing region. Richard?
Thanks, Brendan. So if you look at the work we've done in the past couple of years, we spent a lot of time building that basic geological foundation. And I think the one big differentiator for the Kalahari Copper Belt is we're all under cover. So we're building 3-dimensional models from geophysics, and we'll make it inferences.
With the opening of the T3 open pit, we've now got fabulous outcrop, which enables us to really refine that mine scale geological model, then we can take those ideas and then build them into the regional model. So we're really confident. And as Brendan said, it's an exciting time. We've got a high degree of confidence that we'll find more satellite deposits. But I think the thing about exploration is using Brendan's quick analogy.
This is test cricket, not Twenty20. It's going to take time, but we're confident we'll hit a 6 and we'll get there.
Yes. I think, Richard, it's a really important point. So particularly when you look at MATSA, as I said earlier, we've got this quantifiable program but it's underground. You need to get development headings to get drill platforms, particularly as you go down [ plug ] these ore bodies.
And so as much as it frustrates me to say because I'd like to see early results and a big sequential increase in reserves quickly. The reality is that's always going to back-end load and I've talked about that before because it's just going to take time to build up that body of information.
At Motheo, we're hopeful we've got some important early news that we should have as we complete the work around T3 footwall for extension in A1. And then it really is around that critical discovery. And what we do look forward to talking about in December is that when we have a presentation in Sydney, is actually going through the detailed understanding we now have of these structural controls of mineralization.
And I can tell you it has changed completely for the Kalahari Copper Belt in the last 12 months. And that is exciting for us. It clearly builds confidence. But I go back to my earlier point as an old exploration geologist. You've got to be mindful. The worst thing you can do is sometimes to drill targets. So it's going to take time. It's going to require a lot of very hard work and diligence.
Yes. I guess I just meant in the context as well as your overall growth in terms of -- obviously, you've got some stock in Australia, but that's obviously the feature of your company you're talking about, right, with that 5-year strategy?
Yes, absolutely. It's pivotal. It's one of the critical pillars in our strategy. Now we've intentionally got a very simple strategy, and it's one of the key pillars. So 100%, we're very focused on it. And as Richard said, we're very excited about what it can bring.
[Operator Instructions] Your next question comes from Kaan Peker from RBC.
Just wanted to ask, it seems like from the wording of the quarterly you're continuing or you're planning to continue with spot TC from Motheo. Are you paying higher freight rates as a trade-off?
No, no. We're achieving commercial rates. It's just -- remember that Motheo because it's a new brand, we don't yet have long-term contracts in place intentionally. We do look to increase our contracted position on the book and ideally longer term of at least 50%. But at the moment, we're in a very good position given that the market is tight, and everyone wants concentrate to have that, call it, open book is working in our favor.
And truthfully, we're not just pushing TC rates, TC/RCs rates. We're also thinking about the longevity of what we're trying to achieve in terms of how we structure those contracts. So there's a lot to it, as you'd imagine, but I can assure you we're not trading off freight rates.
And I think my prior question, Jason mentioned or talked about Aguas Teñidas, Magdalena, but just noticing that Sotiel volumes were a little bit lower than expected. Could I just ask why?
Well, it's really around the mine schedule at the moment and where we currently sit. We are trying to make sure that we are providing the best quality ore to the processing plant. And Sotiel, overall, we tend to use that as a bit of a gap fill to top up and make sure that we've got adequate ore processing fees there as well. But there's no concerns at Sotiel.
So Sotiel, let's be really honest, gets back to the heart of the discussion we were having and that is what throughput rate do you want to run versus what's delivering the most attractive value outcome. And that's going to be an ongoing question for us unless -- and until we discover a different way to unlock that large Sotiel ore body. So again, as I mentioned earlier, we're looking, and we'll continue to look at that very hard.
There are no further questions at this time. I'll now hand back to Mr. Harris for closing remarks.
Well, thank you, and thanks, everyone, for dialing in. I know it's sort of the back end of a busy reporting season. We do appreciate your interest. As I mentioned, we think we've started the year well. It is just the first quarter, but we're well placed to deliver on all of our commitments. And for us, that's what that is.
Take care and look forward to speaking again soon. And hopefully, we can see a number of people in Sydney in December, and I guess, talk a lot more about our exploration plans. Thanks again. Have a good day.
That does conclude our conference for today. Thank you for participating. You may now disconnect.