Sandfire Resources Ltd
ASX:SFR
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Sandfire Resources Ltd
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Welcome, everybody, to the Sandfire Resources December 2020 Quarterly Investor Update Call. [Operator Instructions]. Thank you for joining us today. I'll hand over to Nicholas Read to introduce the Sandfire team.
Thank you, Josh. Welcome, everyone. Good morning to those in WA, and good afternoon to everyone in the rest of the country. Happy New Year. Thank you for your time today. On behalf of Sandfire, welcome to our first investor call and webcast for the year for the company's December 2020 quarterly activities update. I'd like to refer you to both the December quarterly report and an associated quarterly presentation, both released on the ASX platform this morning. A live webcast of this teleconference and a synchronized presentation can be viewed through the Redback Connect service using the link provided on the front of the presentation. A recording of this webcast will be available via the conclusion of the call. And as Josh said, you're welcome to submit your questions either online or if you are dialing into this call on the phone. To run you through the quarterly results, I'd like to introduce the Sandfire team here in Perth. Firstly, this morning's presentation, we will kick off with an overview from the Managing Director and CEO, Karl Simich. And then following him, we'll have Sandfire's Chief Operating Officer, Jason Grace; Chief Financial Officer, Matt Fitzgerald; General Manager, Geology, Shannan Bamforth; and Head of Growth and Exploration in Botswana, Julian Hanna. To get us going this morning, please take us through the quarterly results. Please go ahead, Karl.
Thanks very much, Nicholas, and welcome, everyone, to the December quarterly webcast and particularly welcoming to 2021. And we're looking forward to a very rewarding and promising year as we work our way through the pandemic and look forward to growth in the coming period of time. It's been a really busy period for Sandfire over the last 6 months and particularly in the last quarter. And certainly, the December quarter, in our sense, really does mark the beginning of an exciting new time for Sandfire. We articulated this vision for the company for really what is the next decade of growth, the platform that we're setting forward in a present -- a wide-ranging presentation that we presented to the market on the 2nd of December. And the 5 key elements of that strategic plan are: executing delivery, which essentially relates to optimization of DeGrussa and its cash flow; executing the development and operations of the T3 Motheo hub; progressing and ultimately taking to production the Black Butte mine project in Montana; looking at mine life extensions at the DeGrussa operations; and also winding in west region of Western Australia, those regional resources and seeing how we can extract value out of them. Looking at also number two, achieving a sustainable production profile and effectively a very strong focus on business development and inorganic growth and looking for other near-term or operating assets that might sit well within our business. Looking at also delivering on the number of different development opportunities within our business and further afield and potentially new opportunities and also spending some time looking at some of our Sandfire investments under the venture's trade name. So that's another part. The third element of that, really that embarkment for growth is accelerating discovery and where we are at the moment with respect to extensive efforts in Botswana, Western Australia and the Greater Doolgunna region, region Western Australia and continuing to look at developing an exploration pipeline. And we're expecting heavily in exploration with an expanded exploration program that would -- is costed out somewhere in the order of AUD 50 million in this financial year. In addition to that, we want to ensure that the other 2 key elements of our business are able to cope with this strategic plan and this platform for growth and ensure that our people are aligned and empowered and able and have the resources to undertake the programs of work. And in addition to that, from a capital management perspective, ensuring that we understand our business, understand our financial models and that we optimize our capital structure, our debt and equity mix, our returns to shareholders and the like. So that's very much the platform. And if you want further detail, please I would draw your attention to that presentation on 2 December that was very extensive. And just now just highlighting the quarter that's been in place, some key elements. From a production perspective, the DeGrussa and Monty operations performed solidly, again. Performed as expected, with production in excess of 16,000 tonnes of copper, around 10,000 ounces of gold and at an $0.89 a pound C1 cost. But importantly, just to highlight year-to-date production is just shy of 36,000 tonnes of copper and 21,000 -- just over 21,000 ounces of gold and had a very pleasing U.S. C1 cost of $0.72 for the half year to date. So very, very good. Maintaining guidance at the upper end of our previously stated 67,000 to 70,000 tonnes of contained copper, around 40,000 ounces of gold and an estimated C1 for the financial year '21 of $0.85 to $0.90 a pound. Now we continue to do work not only in exploration, but also bringing to bear the Old Highway gold prospect. And it's probably towards somewhere in the middle of the year that we'll have some definitive information on that. Jason will give you an update on that as soon. As I mentioned, we still have an extensive exploration program occurring also in the Greater Doolgunna region and looking for repeat VMS deposits. Certainly, one of the highlights during the quarter. A key element was the announcement by the Board and the approval for commercial development of the $259 million T3-Motheo copper-silver project in Botswana. So we're really, really excited about laying those foundations in Botswana with an operation that's initially designed at 3.2 million tonnes per annum. And we see that being at least a 30,000 tonne copper producer over 12.5 years and silver as well. But what we particularly are excited about is the prospectivity of that region with further discoveries, and the Maiden A4 resource was presented also in the December quarter. And that is about 100,000 tonnes of copper at a grade that is some 70% higher than what is at T3. And we're still further -- completing further work on A4, and we see potential still there. Post resource disclosure, we had some extraordinary high results, and maybe Julian will give us some further update on that. But grades of up to 16% being seen in some of those intersections at that A4 project. But importantly, we have a region that spans some 26 -- over 26,000 square kilometers in the region, which is really underexplored by any stretch of modern imagination. And we're really wanting to ensure that we give that an extensive exploration look over and what our expectations are. There will be -- the likelihood of further expansions and also other opportunities for mineral development hubs or processing facilities along that belt. And we expect Sandfire to be present in Botswana for many decades on these projects to come. In the U.S.A., the Black Butte project, we completed and issued the feasibility study for that project, and work is underway to enhance that feasibility study to also bring to bear further mineral resources in a Lowry deposit that was not part of the original feasibility study. And for the first time since we've been involved in that project, we are undertaking a new exploration within the mining permit or the approved mining permit. So we're looking at enhancing the operations and those economics at the Black Butte project in the U.S. So it will continue to be moved along. And from a financial perspective, commercially, we finished the half year and the quarter with a very strong financial position of in excess of $300 million cash. We do have no debt in our business. And as we said post year-end, we had a relatively large buildup of inventory. And we had 4 shipments in the month of January. And where we sit, as we speak at this incident, we are fast approaching probably $500 million in cash and market value of our investments. So the company is well positioned to embark upon from this platform, these very solid foundations, to embark upon the growth, the trajectory and the growth strategy that it has in place. We maintain very strong relationships with our bankers, our equity shareholders and also our customers that would provide further support depending on strategies that we want to go and progress. And just to finish off before I hand over, I would also -- I'm delighted to inform you, and as you may have seen, on the 1st of January, we've also refreshed, to some extent, the Board of Sandfire. I'm delighted to invite on to the Board, Jennifer Morris and also John Richards, both very well-known mining executives and people who have been on resource company boards over a long period of time, and we're really looking forward to their contribution to the Board of Sandfire as we continue through this process of resetting our strategy and creating a foundation for the next pathway and growth for our business. Thanks very much, and I'll hand over to Jason.
Thank you, Karl, and welcome to everybody on the call today. Starting with HSEC, I would like to start by congratulating all of our people working across Australia, Southern Africa and the U.S. for achieving a recordable injury-free quarter. This strong performance has meant that we have reduced the Sandfire Group TRIFR by 44% in only one quarter, which is an outstanding outcome given that all areas are working under COVID-19 controls at varying levels. And across all areas of the business, we've increased work activity levels. During the quarter, our COVID-19 response remained a major focus. And at the DeGrussa operations and Doolgunna exploration, being located in Western Australia, has meant that we have continued to operate almost as normal, however, with social distancing and infection control measures maintained. In Botswana, COVID-19 infection rates continued to rise throughout the December quarter. And during this time, our security exploration team continue to work safely with continued increased levels of control measures, which included physical separation of work groups, additional COVID-19 infection prevention training and COVID-19 testing of some employees. COVID-19 infection rates have also continued to increase in the U.S.A. And in response, our Black Butte team in Montana have been working with increased numbers of contractors and have maintained strict infection control measures across all aspects of the project. From an employee well-being perspective, we're also very pleased to be able to host the Christmas Family Day at DeGrussa operations. This is an important employee initiative held every year that provides the opportunity for family and loved ones of our people that are working over the Christmas period to be able to celebrate the day with their family as well as being able to show them the operations and where they work. Moving on to an update on the DeGrussa operations. The team has again delivered strong performance for the December quarter. Underground mine production at DeGrussa underground closed out the quarter at just over 277,000 tonnes at a grade of 4% copper and 1.7 grams per tonne gold. This mine production rate was higher quarter-on-quarter and is expected to increase slightly through the second half of the year. Monty underground produced just over 112,000 tonnes of ore at a grade of 5.9% copper and 1.6 grams per tonne gold. And when combined, it has delivered a total production of 389,446 tonnes at a grade of 4.5% copper and 1.7 grams per tonne gold. Ore processing achieved a mill throughput rate of 383,978 tonnes at a head grade of 4.6% copper and 1.7 grams per tonne gold. All of these production metrics are in line with the mine plan for the year and continue to be delivered on a reliable basis. Concentrate production for the quarter was slightly above 7,200 tonnes at a grade of 23.3% copper and 4.3 grams per tonne gold, with concentrate sales being slightly above the production rate with 74,250 tonnes sold for the quarter. And finally, for the quarter, DeGrussa operations produced 16,390 tonnes of copper and 9,660 ounces of gold. Looking now at year-to-date production from DeGrussa operations. We are also able to report a strong first half to FY '21. DeGrussa underground -- with DeGrussa underground delivering just over 520,000 tonnes of ore at an average grade of 4.2% copper and 1.8 grams per tonne gold. Monty, again, producing above its forecast rate of 202,000 tonnes of ore at a grade of 6.4% copper and 1.6 grams per tonne gold and for a combined total ore production of 722,612 tonnes at a grade of 4.8% copper and 1.7 grams per tonne gold. Mill processing was also very solid for the half with mill throughput rate of 792,788 tonnes and a head grade of 4.8% copper and 1.7 grams per tonne gold. This yielded concentrate production for the half at slightly above 152,000 tonnes of concentrate at 23.5% copper and 4.4 grams per tonne gold. Concentrate sales were slightly below the production rate with 774,250 tonnes sold during the first half. All of this resulted in a total production of 35,789 tonnes of copper and 21,343 ounces of gold for the half. If we now look ahead to the rest of the year, we are pleased to be able to again restate our production guidance of 67,000 to 70,000 tonnes of copper and 36,000 to 40,000 ounces of gold. And given the strong grade and recovery performance already achieved in the first half, we are maintaining guidance that we expect to be in the upper end of the range for both copper and gold production. As guided previously in the quarterly update -- in the last quarterly update, we again note that the copper production rate will not be constant throughout the year. On a quarterly basis, we expect that the copper production rate in the next quarter, being the March quarter, will be very similar to the rate that we've delivered in the recent December quarter. In the last quarter for the year, the June quarter, we expect that, that production rate will increase, and largely be in line with the production rate delivered in the September quarter of this year. This fluctuation in copper production is solely driven by variation in mine ore grade throughout the year.
Looking at operating costs and capital is very much a similar story to the production story. Headline C1 for the quarter at $0.89 reflects just over 16,000 tonnes of copper production in that quarter and also some lower byproduct credits as a result of lower gold production. Year-to-date at $0.72 sets us up very, very well to be looking at the lower end, we would [ peak ] of our $0.85 to $0.90 per pound target. We're very much testing that lower end of that cost guidance. We've provided some full updates to our mine development numbers across DeGrussa and Monty. And as Karl and Jason both touched on, 13 shipments completed for the half year. Revenue for the half year of some $355 million, and significantly including QP gains of approaching $30 million and all subject to audit review with our results coming out in around 4 weeks' time. Those high copper concentrate stocks at 32,000 tonnes, most of that predominantly at the port, was shipped then in January. So 4 shipments in January has brought us back down to low concentrate stocks at the -- will be at the end of January, which is also driving that cash, as Karl talked about. Cash will truly heading above $400 million heading into the start of this March quarter. Other significant notes ahead of our financial results in 4 weeks' time, we expect the P&L impact from our American operations of around $5 million and around $10 million from the exploration evaluation program from Botswana. So expect similar numbers, and as I say, subject to audit review, that's sort of impact coming into our P&L for the first half. But expecting, as you'd expect from those production numbers and even though we have had some sales force moved into that January period, we're still expecting a very, very solid profit number for the first half up to December. We continue to sell into the -- into European, Korean, Japanese and Philippine markets as we continue to adjust to some of the well-known issues with selling products of a concentrate product into China, and we've been very successful. And again, congratulations to our sales team for the work that they have been able to do in delivering into some of those markets and to existing long-term smelter and trader customers around the world into what is a very, very strong copper concentrate market, of which Australia accounts for around 4% to 5% of that global market.
Right. In line with Sandfire's strategic plan, as mentioned by Karl earlier, we've also continued to work to assess the potential transition to gold production at DeGrussa. In line with this, during the quarter, our resource definition drilling at the Old Highway deposit, drilling continued with 7 diamond drill holes totaling 2,326 meters and 280 R/C holes or just over 30,500 meters were completed. Scoping study work also continued throughout the quarter with open pit mining, [ ore ] haulage, metallurgical test work and process plant engineering studies now well advanced. Reporting of a maiden mineral resource for the Old Highway deposit and completion of scoping studies for the Old Highway deposit is expected to be completed in the second half of the financial year. In addition to the resource definition drilling at Old Highway, Sandfire has continued exploration across the Greater Doolgunna region. And during the quarter, the key activities were air core drilling to test for structural repeats of the Old Highway gold mineralization; air core drilling at the Morck Well and Peak Hill projects to delineate favorable VMS stratigraphy; and air core drilling at the Springfield project to test geochemical anomalies; reverse circulation drilling at Springfield project to test a host sediment package; and diamond drilling at the enterprise project to test geophysical targets at the Ruby Well prospect. During the quarter, Sandfire also entered into an agreement to acquire an 85% joint venture in the Red Bore copper project, which is located 1 kilometer to the east of DeGrussa and covers an area of approximately 2 square kilometers. Since entering into the agreement, work has commenced on reviewing existing geological and geophysical information. We've commenced moving with AEM surveys and drilling of deeper targets adjacent to the DeGrussa ore body, and in particular, structural offsets to the C4 and C5 deposits will commence in the March quarter. If we now move on to the Tshukudu project in Botswana. During the quarter, project development, resource definition and exploration activities continued within the Tshukudu project area. This project area covers approximately 26,650 square kilometers in Botswana and Namibia and runs approximately 400 kilometers along the Kalahari Copper Belt. The Kalahari Copper Belt is a major zone of strata-bound copper and silver deposits, extending in a northeast-southwest trend through the belts, through Northern Botswana down into Central Namibia. The belt holds approximately 7 million tonnes of contained copper, with resources growing from 0.9% through to 2.2% copper with an average grade of 1.4%. Sandfire's T3 and A4 resources sit towards the northeast of the company's tenements and are surrounded by several high-priority exploration targets, which we collectively call the T3 expansion projects. Given the enormous potential of the T3 expansion projects, and in particular, Sandfire's recent discovery of the A4 deposit, we have not limited our project development work and our thinking to the T3 deposit alone. In addition to the completion of the definitive feasibility study for T3 last quarter, we have also completed the engineering to identify a pathway for rapid and low-cost expansion of processing capacity in the area to a 5.2 million tonne per annum rate, which will support the concept of what we call the Motheo production hub. Motheo production hub has the potential to provide expanded processing capacity to allow the processing of potential new mines at A4 and also any other future discoveries in the areas. To support this, in December last year, Sandfire announced that in addition to approving USD 259 million for the construction of the T3 Motheo mine, a further commitment of USD 20 million was approved to increase the capacity of several key components in the plant and ensure that we're readily able to expand processing capacity and enable future expansion in the area. If we now focus on the T3 definitive feasibility study. In December last year, the company announced an updated T3 mineral resource of 53.3 million tonnes at 0.9% copper and 12.7 grams per tonne silver or 480,000 tonnes of contained copper and 21.8 million ounces of contained silver. The study also identified an updated ore reserve of 39.9 million tonnes at a grade of 0.9% copper and 12.2 grams per tonne silver or 360,000 tonnes of contained copper and 15.6 million ounces of contained silver. The study also identified that the optimum case for development of the T3 Motheo study, or Motheo Mine, is made up of an open pit mine that is scheduled to have total material movement rates of 34 million tonnes per annum of ore and waste over the first 7 years, feeding a 3.2 million tonne per annum sulfide concentrator for a 12.5 year mine life and with forecast annual production totaling at around about approximately 100,000 dry metric tonnes of copper concentrate, containing approximately 30,000 tonnes of copper and 1.2 million ounces of silver. The development capital for the project is estimated to be USD 259 million. The definitive feasibility study also identified the development time line for the project. And as we stand today, the next milestones to be achieved are: the mining license approval, land titles and the camp environmental management plan to be completed by the end of the March quarter -- or sorry, to be commenced by the end of the March quarter. The processing plant engineering and preconstruction works are currently in progress. Accommodation facility construction is to commence in the coming quarter. Our process plant construction to commence by the middle of 2021. Mining contract and mobilization to occur in early 2022, with mining pre-strip to follow immediately after and commencing in the middle of 2022. Process plant ramp-up and first copper production is scheduled to commence in early 2023. Moving back on to the T3 expansion area. We've also aligned our exploration plans and focused our work to further support the concept of the Motheo production hub. This has included a lot of work on our #1 priority A4 deposit, where resource definition drilling continued throughout the quarter. We've also undertaken the completion of the A4 mineral resource estimation and the reporting of a maiden mineral resource estimate last quarter. Exploration drilling of new targets in the A4 and T3 areas have been undertaken in the last quarter. And in the near future, drilling will focus on high-priority exploration targets at A1, T1, T2, East and West, A27 and A13. As the first potential additional ore source for the expanded Motheo production hub, Sandfire was very pleased to announce a maiden mineral resource for A4 during the December quarter. The A4 inferred resource was reported at a 0.5% copper cutoff grade and totaled 6.5 million tonnes at 1.5% copper and 24 grams per tonne silver, for a total of 100,000 tonnes of contained copper and 4.9 million ounces of contained silver. The resource estimate was based on a total of 79 drill holes. And since this time, the company has continued with the second phase of the drilling, which has a total of 74 diamond drill holes planned. And as at the end of the quarter, a total of 47 of these drill holes have been completed. The A4 inferred resource estimate has formed the basis for scoping studies on the mining of the A4 deposit. And these studies will be completed by the end of the financial year. If we look briefly at the geology of the A4 deposit and how this influences the resource estimate, we have noted that there are several similarities to the T3 deposit, which is only approximately 8 kilometers away from A4. So firstly, it is hosted or mineralization is hosted within veins that sit within the Lower D'Kar Formation, and they sit near the crest of a dermal anticline feature. Mineralization is structurally controlled with shear-hosted or shear zone-hosted copper silver mineralization being common with T3. And the main part of the ore zone, which is shear-hosted, is approximately 30 degrees to the northwest. Where we are seeing that there are some significant differences to the T3 deposit, we are seeing a newer type of mineralization, which is the extensional vein mineralization, which tends to be more sort of horizontal in nature and appears to be hosted predominantly within the sandstone members of the Lower D'Kar formation. It is known that following the first completion or following the completion of the first phase of the A4 resource definition drilling, which forms the basis of the A4 inferred resource, subsequent drilling has intersected localized areas of very high grades. To our knowledge, these grades of these magnitudes have not previously been identified in the Kalahari Copper Belt, and we're very excited about the potential of these intercepts and what this means for our exploration models for the future. At this point in time, we do believe that they are associated with extensional veins, as mentioned in the previous slide. And it's very important to note that these intercepts post date the reported A4 mineral resource and will be included in future updates as we go through and do further work on this deposit. When we look at the next steps for the Motheo production hub. Key things for us are to submit the T3 definitive feasibility to the government of Botswana who will review the study, and they have a right to acquire up to 15% by fully contributing the interest in T3, and that decision will be made on or before the date a mining license is granted to the company. We will also complete the final permitting and secure the grant of the mining license for the T3 project. We are recruiting the in-country team, starting with senior roles, currently. We're finalizing land access. We're progressing with project debt funding, completing the infill drilling of the A4 deposit, and that will form the basis for pre-feasibility studies to be completed in the near future. And we'll move forward to advanced exploration within the T3 expansion area and targeting the new deposits mentioned previously as a priority. The project team or the T3 Motheo project team has also been very active in ordering long-lead items and issuing of all major contracts. That is the last slide on Tshukudu. And while we are very focused on the T3 expansion area, we're also actively working towards the identification of regional exploration targets across our licenses in the Kalahari Copper Belt. The purpose of this is to make sure that we have a sustainable pipeline of exploration targets and projects, which will underpin potential future mine expansions beyond the Motheo production hub and also ensure that we are investing in the long-term future of the area. To date, Airborne-EM on the project and on the belt has proven to be a highly valuable targeting tool, which is very effective in defining subsurface geology and the prospective mine sequence. And this is why we have commenced a major airborne-EM study covering approximately 13,450 square kilometers of our tenements. As at the end of the December quarter, we were approximately 60% complete for this survey and it will continue during the March quarter. If we now move on to the Black Butte project in Montana. Our key areas of focus have been to firstly continue to deal with the legal challenges associated with regulatory approvals, but more importantly, we have been undertaking additional work to add value to the project. In line with this, we have completed surface earthworks to establish the site and use as a springboard for any future construction. We've commenced work on enhancing the Johnny Lee feasibility study. And as Karl mentioned before, for the first time since Sandfire has been involved with the project, we have commenced exploration for potential extensions to cover mineralization outside or -- and closely adjacent to the Johnny Lee and Lowry deposits. This has involved the completion of 2-dimensional seismic surveys in the December quarter to identify key faults and structures associated with copper mineralization and also enhance the geological interpretation of the area. Early in the March quarter, drilling -- diamond drilling targeting these prospective targets commenced, and we'll be doing this work on an ongoing basis over the coming months. As we progress through this work over the year and throughout the near future, we will continue to make further key decisions on the project. On the 28th of October, the company announced the results of the Johnny Lee feasibility study, and this included a maiden ore reserve of 8.8 million tonnes at 2.6% copper or 226,100 tonnes of contained copper within the deposit. This underpins an 8-year mine life and a 1.2 million tonnes per annum processing rate and for a total life of mine production of 805,000 dry metric tonnes of copper concentrate, containing just under 190,000 tonnes of copper metal. The average annual production rate is estimated to be around 23,000 tonnes of copper metal at a C1 unit cost of $1.51 per pound. And this will generate over the mine life around about $1.9 billion in gross sales, $740 million in pretax net cash flow and deliver a pretax NPV of $178 million and a post-tax NPV of $111 million. The construction capital cost for the project is estimated to be just under USD 275 million. Now separate from the Johnny Lee feasibility study, the company has also completed an update of the Lowry inferred mineral resource, which sits at 8.3 million tonnes at a grade of 2.4% copper and containing 199,000 tonnes of contained metal. The Lowry deposit is approximately 3 kilometers from the Johnny Lee deposit and is potentially accessible off the Johnny Lee decline. Lowry represents another value-add opportunity for the project, and it is planned that mining studies will commence later this year.
Thank you, Jason, and thanks, everyone, for listening. And just to round up before we go to questions, we're very pleased with the solid quarter but also a very solid half year performance for the company. Clearly, as mentioned earlier on in the call at the beginning, December quarter, a busy quarter, strategy reset and really very pleased with now the foundations that we align for the next decade and beyond for this company. So strong foundations for growth, strong cash flow. Looking forward to progressing with vigor what we believe to be a very long life, a new production hub in Botswana and expediting that. And just to mention that the current spot copper price compared to when the numbers were run for that feasibility study on the Motheo T3 project, at spot the NPV would -- the pretax would be somewhat 60% higher than what was stated in those numbers that being disclosed to you. So obviously, with a positive commodity price, it makes everything work better and look better. So we see the development of that as well as ultimately the development of Montana and looking at enhancing those, economics being a positive thing in a very positive minerals and commodities market going forward and laying these very key foundations now doing the hard work now during this transformational time for us is critical. So the value is something that will be forthcoming as we continue to put rubber on the road and deliver on key milestones. I have also a very extensive prospective global exploration strategy at the moment as we're expending some $50 million this year and there will be continuation of strong organic push in our business to extend in and around the areas where we have got great prospectivity around what will be known operating centers, and that's important. We do have a very capable and very focused team that will be able to operate with strategic business units around the globe. So we're comfortable and confident that we'll be able to operate in these various jurisdictions. And we believe with the foundation that we've got, with the resources that we've got, the facilities and the access to other key players, we've got some very strong foundations for growth commercially in our business to move forward and to execute the strategy that we have set forth. So thanks very much for listening to us today. And we look forward right now to open the floor to questions.
[Operator Instructions] The first question comes from Hayden Bairstow from Macquarie.
Just a couple from me. Just firstly, on T3, I just want to get an understanding of when sort of real physical activity is likely to commence in Botswana. And sort of you -- is there any sort of hurdles to getting that underway? And once you do, sort of just to confirm that sort of construction period and you've got any tighter time frames on first production out of there. And then just back to WA. When you sort of talk a little bit about Old Highway being a sort of something to fill the mill after DeGrussa is sort of done, but is there anything else that's looking a bit more attractive at a $3.50 copper price, some of the old to-do stuff or anything like that, that could come back in or even the oxides? Or have you done so much work on those, they're just noneconomic and not going to be part of the considerations?
All right. It's Jason here. Hayden, thanks for your questions. So I'll start with T3. Certainly, the real physical activity will start in earnest in the second half of this calendar year. As we stand today at the moment, we are starting early works on civil works, road construction. We're fitting out some temporary camps and construction camps as well. And that will enable us to have a fairly rapid ramp-up in terms of activity levels. But as I said here before, it's really the second half of the year. And then once we get into calendar year 2022, in particular, we'll start to see mining pre-strip happening. And we'll start to be in earnest there really in the full-blown construction of the plant and the site infrastructure then. We do expect peak activity or peak manning levels there during construction at around about just over 1,000 people during that period. In terms of hurdles, look, overall, the key thing for us is to just finalize all of our permitting and get our mining license. They're the only things that are really stopping us from getting full activity and making full commitments on the project at the moment. So that is our #1 priority. And other than that, we are seeing the COVID-19 situation in South Africa starting to escalate. And we are seeing stricter border controls, particularly coming in and out of South Africa at the moment. So we're monitoring that situation, and we're just making sure that, that's not going to be an impediment for us to get skilled people into the country over the near coming future. In terms of -- coming back to DeGrussa. Old Highway is our #1 priority at the moment. We've done a lot of work on the oxide stockpiles, Thaduna/Green Dragon. They are very, very small options and really do have limited potential. So at this stage, all of our focus is on Old Highway and looking at that as an option.
The next question comes from David Radclyffe from Global Mining Research.
So 2 questions for me. Firstly, in terms of the concentrate build that was in reverse in January. Was this more reflective of your efforts to change the customer base? And in terms of the new customers, do you see these as more a permanent feature now going forward? And do you sort of see any changes in any of the terms you receive? And do you sort of -- what level of sales do you sort of expect into China this year, if at all?
David, it's Matt. Yes. Our customer base is certainly moved through more non-China Asian markets, certainly greater than it has been before, and also into the European market for the first time. It's also important to know that we do have a number of contracts with our trading partners. So it largely becomes up to the trading partner where they wish to concentrate to if there's disruptions in any markets. Clearly, there's been a disruption in the Chinese market. In terms of opportunities in commercial terms, we don't see a material difference. Some of those sales will go out at slightly lower value, some can go at slightly higher value because some of those contracts could have been set a year or 2 ago and can be, for example, higher TC/RCs. Anyway, so on balance. Nothing really in the commercial area. It does take a little bit of work, of course, to move different products to different places around the world. So some of that shipping work is critical to us. And as I've said before, has been done very well by our sales team. In terms of when we'll sell into China next, we don't really know at this stage. I guess we only know as much as anyone else. But as I've said, we've got significant flexibility. And at the time -- at the right time that we're able to sell back into China, we'll certainly be keen to. But as you touched on, we certainly will have a higher non-Chinese percentage through this financial year. Last financial year was something like 90% into China. It certainly won't be that in this financial year, given disruptions in the last couple of months. But let's see how the next -- the second half this financial year goes, and see whether that Chinese market opens again. And as I say, we'll be keen to sell into that market on a balanced setting, when possible.
Okay. And then maybe as a follow-up. Could you maybe remind us of some of the key items in terms of cash outflows for the half with the cash build in the order of sort of $45 million for the half, I reckon. So I mean, obviously, there was a dividend paid and there was some working capital within that, but any other key items would be good.
Probably most of it comes out through that revenue and cost disclosure. It's probably not a lot other than the dividends in terms of balancing up models. If we've got some specific ones, I can certainly follow up with you after this call, but nothing really jumps to mind. We're probably -- in the ordinary course, would have had a higher cash balance at the end of the quarter, if maybe 1 or 2 of those January sales had crept into late December, but nothing jumps to mind though.
The next question comes from David Coates from Bell Potter Securities.
Just a quick one to make a couple of things. But just on Red Bore, because it's been there for a while, but it would, given the proximity, would seem to be one of the nearest opportunities for your upcoming -- remaining production profile at DeGrussa. Can you just sort of characterize that for us, run us through how you see that potentially fitting into the picture? And maybe when?
David, it's Shannan here. The Red Bore, in its proximity to DeGrussa, is obviously a very, very highly prospective area. I think the opportunity to really transpose our geological understanding on what we've been able to do to DeGrussa on to that land package is a very exciting prospect. In the last quarter, it was really depending on the ground, similarly more of the data that had been generated on that project and then doing the targeting. And we'll start drilling on that -- this quarter very shortly, in fact. And we really think that the opportunity is there for additional resources. We've got some good structural models that we haven't been tested. So we're really looking forward to getting on the ground. And this proximity to C4 and C5 would mean that if we are on that western end of Red Bore that -- and we do have the very fortunate circumstance where we find some mineralization, and development is sure to get out there.
Likely access from the C4, C5 mining areas, that would sort of likely shape up.
Hopefully, if we get the mineralization down there, and I'd say that western end, the eastern end, then we would have to be doing the study in order to make sure which was the most cost-effective opportunity.
[Operator Instructions] The next question comes from Matt Greene from Goldman Sachs.
I just had a couple on costs. Just on your processing and freight, I just -- I see on an absolute basis, it's -- cost is taking a bit of a step-up quarter-on-quarter. Just wondering if you could provide some sort of color as to what you're seeing across the industry on the cost front. You mentioned contractor manning is proving a bit difficult. So just interested in hearing your views as to whether you're seeing a bit of industry inflation come back in. And then just on your cost guidance, can you just remind me what FX you're assuming for that?
Yes. Thanks, Matt. Really most of our cost numbers stay fairly similar in a gross sense. They move around a bit with copper production in terms of the unit per pound -- in the dollar per pound sense. Quarter-on-quarter is a little bit challenging as well. So in processing, for example, if you have a shut in the quarter, your costs will be up. And then in the next quarter when you don't have a shut, they'll be down. With -- in transport, which are specifically on, we're still seeing some very competitive transport costs, and they are coming in under what we had originally envisaged for the year. So really, again, that's probably more -- certainly more units production-driven rather than gross cost-driven. Our cost guidance, as I mentioned, will be very much challenging. I think the bottom end of that $0.85 to $0.90 per pound. Partly, that is driven by changes in the currency. So clearly, with the stronger Australian dollar, our U.S. guidance will change. But we're still seeing around that $0.85. As we project forward, we've taken the sort of spot for the 6 months into our actuals. And we've projected forward at about $0.75 as best we can for the second half of the year. And that's still -- that puts us around that bottom end of the range, around $0.85. If those sort of production numbers that Jason was talking about are coming through, of course, it's heavily contingent on, as Jason mentioned, that's probably a similar March quarter as what we had in December, and then a strong -- setting up for a strong June quarter just based on the mine plan. So that was similar, for example, in September quarter. We'll continue to see this variability in terms of unit costs and particularly by department into that second half.
We have no further questions at this time, Karl. So I'll hand it back over to you for any closing remarks.
Thanks very much, everyone. Thanks, Josh. And thanks, everyone, for listening today. I thank the team for presenting and for the remarkable and fabulous job they've done over the last 12 months, 6 months and a quarter to have the company in the position that it is in, and looking forward to having laid the foundations now to getting on a trajectory and creating some value for our shares of the very -- the base that we've got at the moment, and a very moderate base. And I think there's a lot of potential positive news flow and also value to be gained from the very low base that we can springboard off of at the moment. So thanks once again for listening to us. And we look forward to updating with our half year results in about 4 weeks' time and for further news flow on the number of key elements of our strategy that we're progressing at the moment. So once again, have a great day. Thanks very much for listening.
That concludes the Sandfire Resources December 2020 Quarterly Investor Update Call. Thank you all for joining us today and for your interest in Sandfire. You may all disconnect.