Sandfire Resources Ltd
ASX:SFR
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Sandfire Resources Ltd
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Thank you for standing by, and welcome to the Sandfire Resources quarterly investor call. [Operator Instructions] I would now like to hand the conference over to Nicholas Read. Please go ahead.
Thank you, Amber. Good afternoon, everyone, and happy new year. Good morning to those in WA. On behalf of Sandfire, thanks for your time today, and welcome to our very first investor conference call and webcast for the year for the December 2017 quarterly report. This follows the release earlier today on the ASX platform of both the quarterly activities report and its associated quarterly update presentation. In line with our normal procedure, a live webcast of this teleconference and a synchronized slide presentation is available through the company's website or through the BRR Media service using the link provided. A recording of the webcast will also be available at the same link shortly following the conclusion of today's call.Joining us here in Perth for today's call, we have the company's Managing Director and CEO, Karl Simich; Chief Financial Officer, Matt Fitzgerald; Chief Operating Officer, Richard Beazley; and General Manager, Geology, Shannan Bamforth. Welcome to all these gentlemen. And I'd now like to hand over to Karl Simich to introduce today's call. Thank you, Karl.
Thank you, Nicholas, and welcome, everyone, to the call, and all the best for 2018. Just getting straight into it. We'd like to certainly report a very pleasing and positive performance for the last quarter and for the first half year to 31 December with production of 16,000 tonnes of copper and about 8,000 ounces of gold for an operating cost of just over C USD 1 per pound. For the half year, 31,000 tonnes of copper and a bit, and almost 20,000 ounces of gold at flat USD 1 C1 cost. We're still maintaining our guidance, where our expectation for the second half of production in this financial year, like the last 5 years, it's the way the mine scheduling rolls out, is we expect slightly greater production in the second half, and comfortably, we're looking to achieve in the middle of our guidance, which remains unchanged for the year ended financial '18 at somewhere in the middle of 63,000 to 66,000 tonnes of copper and close to 36,000, 37,000 ounces of gold for the year and staying within that guidance at a guided operating cost C1 of between $1 and $1.05. So nothing there has changed. Development, a very pleasing story. Under the control of Richard Beazley, that is moving ahead extremely well. The decline's developing well, and Richard will update you on that in -- ahead of schedule.When we turn and reflect on other business development and look at our activities in the U.S., at the Black Butte project, once again, we are in the final stages of permitting. I'll give you a little bit more detail on that in a minute, but essentially, that is progressing to plan as well, and obviously, we're very optimistic towards the end of this year, early next year, we'll be in a clear pathway to completing all the permitting aspects and being able to break ground.And Shannan Bamforth will update you on exploration. Multipronged, it's busy, and we continue over our almost 6,000 square kilometers around the Doolgunna region to be active both on our direct 100% owned ground and also our joint venture in other areas that we're involved in. My expectations are that we'll increase and we'll be -- there'll be intense activity and -- ongoing, and we will continue to look at expanding our footprint there as well to give ourselves the best possible chance for future success in that area where we, as we all know, have got a pristine plant capable of processing more ore. So our quest and our challenge is to continue to find more. We're working as well on the Enterprise farm-in ground immediately adjacent to Doolgunna. Corporately and financially, it has been very much a business and quarter attending to all the various plans, et cetera, et cetera, funding Tintina, our 78% subsidiary that owns the Black Butte project. And pleasingly, we've seen our coffers swell. Corporately, we sit in Sandfire at $150 million after many disbursements being paid away in large tax bills late last year, and the group holds almost $165 million in treasury. And with the production profile for the next 6 months and the foreseeable future, both in terms of commodity pricing and currency, we will continue to see those coffers swell very handsomely. So look forward to another very strong quarter and half year going forward. I'm going to pass over to Richard Beazley, the COO, now to talk about safety and then operating performance. Thank you very much.
Thanks, Karl. Safety for the operations over the last quarter has been very, very well received. We got our TRIFR, our total recordable injury frequency rate, down from 6.4 in the previous quarter to 4.6. Quite pleasing operationally to see our safety culture moving in the right direction. In doing so, there's been a large focus over the first half on principal hazard management and continued into the previous quarter we've just come through, and on a number of other fronts, looking at the whole safety leadership and culture and assurance around our critical control. So large load of work going on within that arena, and the success of that is shown in the numbers that we see today.Just moving on, operations-wise, in the physical underground production at DeGrussa, very solid quarter. It's starting to come out of the first quarter, where we had lots of talc in our orebodies there affecting processing. It continued into the second quarter. But to the back end of the quarter, as scheduled, all that issue in C1 has been removed. So we've got a result of 407,000 tonnes. That's 4.3% from the mine, as in mill feed. And as we produce that material from the stopes, we're still continuing to have a balance between that production and the backfill, which is an integral part of managing the logistics around the underground mine. So [ all ] is in control and moving forward and setting ourselves up for the third quarter, which, as Karl mentioned, the fourth quarter or the second half will be stronger than the first half as we moved into the higher-grade stopes and will see us make guidance as stated at the beginning of this financial year.I'll just move on. Starting with the mill side of things, so of that 407,000 produced underground and with stockpiles, we actually crushed 436,500 tonnes at an average grade of around 4.1%, a little lower, which is principally driven by what was on stocks and the lower-grade material coming from those talc stopes. That said, still a strong recovery for the month at 91.7% and includes gold, 40.2%. And the guidance for the whole year is 92% and 44%, respectively. And again, that's all driven by the mineralization in the previous 2 quarters and will see us recover back from that position in the second half to meet guidance.And as we move forward, the plant continues with a number of projects, particularly the additional rougher cell flotation device, and we're seeing that pickup in [indiscernible] in the recovery, particularly as we move into the higher-grade materials, which it is actually designed to do. Concentrate and metal production for the quarter, 67,358 tonnes of concentrate produced, containing 16,263 tonnes of contained copper and 8,130 ounces of gold.Just moving quickly now onto the capital programs, and those capital programs, the underground pumping station has now been commissioned. It's been an important piece of infrastructure, and that is now up and running. It's allowed us to do the hydro geological drilling underground to test that fault system and the dolomite behind it, and that's now completed. And from a production point of view, we've now moved on to the definition drilling for the resource around that barrier zone up to the fault. So that's moving along quite nicely and with pleasing results in the near future coming from that.The rougher column cell, which I just previously mentioned on the processing side, commenced in July 2017, as you would've seen in previous releases. So we're seeing some positive signs there in the copper recovery and concentrate grade. So an expectation there of about 1.4%, 1.5% improvement. We have been challenged with that, with the talc over the last 2 quarters, but that said, the statistics is showing there's marginal improvement and, as we -- as I said, moving to the higher grade, our expectation is we'll realize those benefits.The additional concentrate thickener and filter. This is the capital works program in play now, which is generated from the Monty project, delivering higher-grade ore into the processing plant. So this is allowing us now to manage that higher-grade ore as we blend into the plant with the DeGrussa ore to manage the recoveries and capture that copper in concentrate. So our expectation now, in February, we'll see the contractor [ now decide and ] start construction work. So contracts have been awarded, and design work has been completed. Just moving on now to Monty, the Copper-Gold Project, some 10 kilometers away from the DeGrussa deposit. Sandfire is the manager of that Springfield mining joint venture, 70% ownership from our side and 30% with Talisman. Works progressing are all on schedule. So in terms of our haul road and access roads, they're all in place. So full access and more work remaining on those programs. Excavation of the box cut is complete, which, on all number of previous notices, you would have seen a number of photographs of that work done. The decline work has well and truly commenced. By the end of the year, total underground development was 550.3 meters, actual, against a budget of 440 meters, so it's a difference of about 110.3, so ahead of the budget for total development underground. And to be more specific with the decline, end of year, we're 345.6 meters down, and that was against a budget of 286 meters. So 59.6 ahead of budget. So overall, the underground development is going very, very well. Contractor, Byrnecut, is really well truly supporting us in achieving our goals. Stockpile and laydown areas around -- because of infrastructure, virtually all in place. Some minor works now to finish off, and infrastructure works and drainage, so that's buildings, fuel and the like. They're still on track for completion in February. And none of those works will have any impact on the underground itself in terms of development, are all being placed in time or that will continue as planned.All right, I'll now hand over to Matt Fitzgerald to move on to the sales.
Thanks, Richard. An equally pleasing performance from the sales side. Seven sales completed for the quarter for 73,000 tonnes of concentrate containing 17,500 tonnes of copper, a further 10,000 ounces of gold following that pleasing gold production. That gives us 12 sales in total completed for the half year with that 1 shipment that fell over into early October from the September quarter as we discussed in the last quarterly report. The pleasing operating performance as well as an increase in copper price has given us an extremely pleasing half year revenue number, unaudited at this stage, but $296 million between revenue and QP adjustments. So $281 million of straight-out revenue, and at this stage, looking like around $15 million of upward QP adjustments with that rising copper price. Right around 3 sales' worth of copper subject to QP at quarter-end, and that copper price remains fairly strong, so we're fairly positive about the outcome. The ultimate outcome for those sales as well, we have around that 1 sale worth of concentrate on hand at the end of December as planned. We'd expect that revenue number to deliver, along with the C1 costs that we've just disclosed -- we'd expect to deliver a very strong financial result for the half year, which we will deliver in a couple of weeks' time.Looking at those costs now, not too many surprises there, either. Overall, C1 has been assisted by high gold production and price in the first half, and that has increased that byproduct credit. As a headline to the second quarter, $1.02 and for the first half, $1. That cost performance is looking good, and we're, in fact, ahead a little bit of some of our internal targets. However, that strengthening currency is having an impact on us as well, so we have maintained that guidance of $1 to $1.05 a pound for the full year. DeGrussa mine development, as we know, is tapering off through those years as it shows there. Monty project capital also progressing well, as Richard touched on, ahead of schedule in many areas; not only ahead of schedule but also under budgeted costs in most areas as well. And we continue on those programs -- as Richard also talked about, the sustaining and strategic capital programs over this year, many of them relating to the plant -- the pipe plant and also the [ Cigma ] capacity getting ready for Monty to come in at the back end of calendar year 2018 with first ore. So cost-wise, pleasing. We expect some slight increase in costs in the second half, just based on the schedule, but generally speaking, very pleasing, and we do expect that we'd maintain that guidance -- cost guidance of $1 to $1.05 a pound for full financial year. Karl?
Thanks, Matt. Just quickly, I'd just like to touch on our progress of our -- the development and growth of the Black Butte Copper Project in the U.S.A., which Sandfire owns 78% of Tintina, and in turn, that company owns 100% of the Black Butte project. A project which has order of magnitude of about a 3.3% copper grade, 18 million tonnes for around 600,000 tonnes of contained resource, almost 8 million ounces of silver and about 18,000 tonnes of cobalt in a JORC-compliant resource. It is in the top 10 underdeveloped copper projects in the world by grade. We've harped on about this before, but certainly excellent district-wide potential, which we're enthusiastic about. But clearly, our focus at the moment is to -- subsequent to completing the Mine Operating Permit, which we received last year, is now, we've moved into the Environmental Impact Study being the last key element of the permitting process for this project. That EIS program, we're expecting a draft to be completed by the third-party consultant towards the middle of this calendar year then providing for a public commentary period. And once that's been undertaken, which we don't expect to be any showstoppers, it's not saying that there won't be some good, healthy debate, but we don't expect to have any showstoppers there, is then moving forward whilst we continue to do other works and dealing with ancillary permits, et cetera, and moving forward an expectation towards the end of calendar '18 to have a completed, final EIS, and then seeking from the Department of Environmental Quality in Montana what is called a record of decision. The record of decision is effectively a mining license approval. So our expectations and our hope is that that'll be towards the end of this calendar year. That will then pave the way for us to be able to break ground upon achieving the record of decision. So towards the end of this calendar year is when we would expect, from everything that we can see, that coming to bear. So excited about that. We're really looking forward to providing some value coming out of that. And obviously, in doing all of this, we will ensure that the Smith watershed is fully protected in doing this, and we're looking forward to getting on with achieving all of that.I'm now going to pass over to Shannan Bamforth, who'll give you a brief update on Doolgunna exploration.
Thanks, Karl. We had an active quarter in the exploration in the Doolgunna area, leading really into a very big program of aircore drilling that was completed on the Enterprise farm-in project. That was a significant program with some 55,000-odd meters of Aircore really starting to go through a method strategically through the -- prospective sequence and also starting to pick up some geochem anomalies for further follow-up of RC and diamond. And during the quarter, we focused on the White Well, Ruby Well and Mount Leake areas in that project. Closer to home and back up at Monty, we drilled into Monty Northeast, testing a couple of geochem anomalies and roughly using these holes. It's very good platforms for DHEM holing in. Our work is continuing in this area with big dormant holes currently underway as we speak.RC and [ DDH ] drilling was also focused in at the Vulcan and Homestead Prospects. These prospects are very geochemically anomalous and give us a lot of targets from the geochemistry, and our drilling has continued to show us that they're in an active, exhalative environment, which is where want to be exploring for VMS deposits. We're seeing continuous and really significant zones of chlorite and haematite-altered siltstones with lots of jasper and potentially magnetite coming through there as well, some disseminated pyrite, and in odd occasions, some minor trace chalcopyrite. So it's an area that still needs a lot more work, and we'll be focusing there as well during the coming quarter.We also have a big geophysical survey planned for the district with SPECTREM, a big fixed-wing airborne survey. They'll be covering most of the tenements, including the Great Western, and that's really going to allow us some targeted EM explorations so they can actually look for [ nice ] plates of EM and conductors. And it also allows us to do some really good mapping on a fairly broad scale across the tenement areas where there's very little data, at the current time, of any great detail.So with over 54,000 meters of Aircore in the last quarter, 5,500 of RC and over 2,000 meters of diamond, we're continuing in that vein as we move into this quarter with our 2 Aircore rigs, an RC rig and 1 diamond hole rig working at the current time. And in the quarter, we'll focus our drilling at the Homestead/Vulcan Prospect, which we really think is a very prospective area. In the Enterprise farm-in JV, our Aircore will continue to give us our first pass at exploration, geological modeling. We can actually map out the prospective sequence. Hopefully, continue to generate some geochem anomalies and [ vectors ] seen for RC and diamond hole -- to diamond hole follow-up. At Monty Northeast, we've got deep diamond drilling currently underway, and that will continue. And then at Thaduna, we'll be stepping back over to Thaduna and looking at a couple geophysical anomalies that we have regenerated in that area.Further afield in New South Wales, the team is also continuing with drilling at the Donnington Prospect. Other targets in the Temora [indiscernible] said they tested this [ fill ] season before the team started mobilization to the Queensland projects at the end of the quarter. With that, I'll hand back to Karl for a summary.
Thanks, Shannan. So in summary, we have had a very positive quarter. We look forward to the next quarter and half year being stronger from an operating and financial performance, and guidance maintained for the full year at 63,000 to 66,000 tonnes of copper and about 35,000 to 38,000 ounces of gold and the C1 cost between the $1, $1.05 range. Obviously, looking at Monty development coming to its conclusion with 4 -- first ore scheduled for the second quarter towards the end of this calendar year. Permitting the Black Butte Copper Project in the U.S.A., continue their active exploration in that broad-based area. And if I can just touch on, obviously, from where we sit at the moment, is pursuing an active BD approach at the moment, looking for business opportunities and resource options that we believe have the ability to add significant value from -- to Sandfire. So from a strategic point of view, the 3 key elements in terms of us pursuing our quest for value creation is obviously the operation of DeGrussa, looking for the ability to extend the mine life in the DeGrussa -- around the DeGrussa plants, in that Greater Doolgunna region, and that is Shannan's quest and a large drive at the moment. In the works that we do, we understand that the ability to add significant value to the company will come from that in the shorter term. So mine life extensions in the region, additional ore in that Greater Doolgunna region is paramount on the top of our strategic plan. Number two is the completion of permitting, development and taking into production the Black Butte Project in Montana will add significant value to the company. It will also enable and provide that platform for further growth opportunities in the U.S.A. and North America, potentially also southern or south -- in the South Americas as well as a beachhead. So but we're going full steam ahead in the U.S.A. And finally, just generally, as I touched on before, just in business development, we've put ourselves in a -- had put ourselves in a wonderful position with the market capitalization of the company, with the cash flow with that grow capacity and that ability to undertake a transaction. And so we're active in all aspects of our business development quest, and it's something that hopefully could add a material and significant value to the company, all in the quest of our mission statement, which is to create and add value for all of our stakeholders.So with that, thank you very much for listening. We'll open up the call to questions now, but once again, thanks for being on the line today.
[Operator Instructions] Your first question comes from Dylan Kelly from CLSA.
Just 2 questions from me. First of all, can you just walk us through the key cash flow items for the quarter? And secondly, I just wanted to get your thoughts on the resource drilling at the base of DeGrussa on the ground, just when you're trying to target this below-water table level or below -- or where you've just dewatered [indiscernible] infrastructure. And can you just walk us through the time line or expectations around when we might be -- when we might start seeing some results or get some first indication of exactly how much more ore may be at the peripherals of the orebody just towards that fault?
So I'll take the first question on cash flow. So we've released the 6-month revenue number in QPs as you know, and C1 cost in capital numbers really picked out anything that would be sort of a little unusual. In terms of quarter 1, those being that tax payment. So pretty much business as usual on most fronts through that sort of revenue cost and capital numbers. If you have any issues sort of reconciling your model back, let me know, and we can tidy those up. Otherwise, more information will come after the half year financial results in terms of cash flow.
Dylan, Shannan here. Just to answer the question on the C4, C5 drilling. Geologically, the aquifer sits in a dolomite unit, which is to the north of the mineralization. Directly south of the aquifer, we've got a fault that comes through that area. The actual detailed spacing and distance between that fault and the aquifer was what we weren't aware of, which is why we let the barrier [ pillar ]. We've now done some additional drilling, like we had the pump station in play to go try and actually determine those distances. And we're now in the process of coming in and actually doing great controlled drilling into the areas that were included in our existing resource. So in terms of results from us, there's probably not going to be a lot in the way of results until we get to our next resource and, we think, at this stage will be very much a net-neutral position, just getting further detailed information to allow some mine planning and design.
Your next question comes from David Coates from Bell Potter.
Just quickly, probably one for Shannan. Sort of diamond rigs are back into Monty and you're targeting Monty Northeast. Are you able to give us a bit of background on the -- on some of the diamond drilling targets that you're focusing on now and through the balance of the current quarter?
Yes, I think Monty Northeast is a program of 3 diamond holes to start up with. So we've got 2 target zones up there. One target will get 2 holes and the other target's got one hole planned for the current time, and that's essentially chasing up some anomalous geochemistry in favorable sequence of sediments. So we're just coming in and drilling underneath that and using those as downhole platforms for our downholing in. And really, on all -- each of these areas, when we start come in and see some of those geochem anomalism, we want to make sure that we test it fully because we know that the targets that we're tracing in the terms of a Monty or a DeGrussa, these things are very discrete and have very formed footprints. So a little bit of noise Monty, just enough to actually get them into the money.
Okay. And is that the main focus for diamond drilling at the moment? Or you've got -- are -- there are other targets that you're following up this quarter?
Homestead and Vulcan will receive fairly heavy testing in the coming quarter. We're very encouraged by the anomalism that we see down there at the moment. The continued presence of rocks that are proximal to a very strong, exhalative environment with the magnetite, jasper, chlorite and haematite alteration in the siltstones. That's all things we see in DeGrussa, the things we see around Monty. And they're fairly discrete zones. We don't see them between Vulcan and Monty too much at the current time, but we really avoiding that there'll be a lot of work going into Homestead. And then for the -- down that prospective sequence, heading down towards Mount Leake and Ruby Well, we've got a couple of RC targets. We will commence with RC there but hopefully be able to convert those into diamond targets during the quarter.
Sorry, [indiscernible], just what about the Homestead and Vulcan relative to Monty or...
You're looking at Slide 16?
Yes.
And if you look at the E in Enterprise?
Yes.
That's right on that corner. So as that prospective sequence comes down through back [indiscernible] and back into the Sandfire 100% tenements, that's the Vulcan, Homestead area.
Thank you. There are no further questions at this time. I'll now hand it back for closing remarks.
Thank you very much. Once again, thank you, everyone, for dialing in this morning, and we look forward to continuing with the very solid performance over the next quarter and 6 months, bringing the U.S. project into the stage where we can get into development, and obviously, looking for other business development opportunities. But we look forward to reporting again in the next quarter. And certainly, in the next few weeks, we'll have half yearly results to be disclosed, and we look forward to presenting those as well. So once again, thanks very much for dialing in today.