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 2021 December Quarterly Update Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Nicholas Read. Please go ahead.
Thanks very much, Harmony. A very warm welcome to everyone. Happy New Year, and thanks for your time. I'm filling in for Sandfire's Head of Investor Relations, Ben Crowley, who is out of the office on jury duty today. On behalf of Sandfire, welcome to our first investor call and webcast for the year for the company's December 2021 quarterly activities update. Sandfire set for a transformational year on a number of fronts. I'm very pleased to introduce the team here in Perth to run you through the December quarter results and the outlook for the year ahead. Firstly, Sandfire's Managing Director, Karl Simich, will provide an introduction and an overview and set the scene for the year ahead. He'll hand over to Sandfire's Chief Operating Officer, Jason Grace; and Chief Financial Officer, Matt Fitzgerald; who will step you through an update on operations, financial performance and exploration across the company's key assets. I'd like to refer you both to the December quarterly activities report and the associated presentation both released on the ASX platform this morning. The live webcast and synchronized presentation can be accessed through the BRR Media service using the link provided. And just a reminder that, as always, a recording of this webcast will be available following the conclusion of the call. I'd now like to hand over to Karl to kick things off. Karl, please go ahead.
Thanks very much, Nicholas, and hello, everyone, and very much a big welcome, and thanks for joining us here today for this quarterly presentation, and a happy new year for 2022 to all of you. Certainly, the start of '22 marks for Sandfire watershed period. I just want to take a few minutes before we hand over to Jason and Matt to get a little bit more detail. It's really just [ a saying ] what I believe will be an incredibly exciting journey for us over the coming year, but more so probably over the coming decade or so. First and foremost, our strategy is to create a diversified international mining company and build a sustainable production profile. It's all about really moving up the gear, and it's about to move up that gear with the imminent completion of the $1.865 billion acquisition of the MATSA mining complex in Spain. In a couple of days' time, we will complete this transformational acquisition and take operational control of the MATSA assets. I will be shortly traveling to Spain with a number of key members of our senior team to oversee that completion and also commence that integration process. In 1 step, the MATSA deal transformed Sandfire into one of the largest copper producers on the ASX, elevating us to an entirely different level in global base metal space and really supercharging our growth strategy. The MATSA operations will become the new backbone of our business. And together with our DeGrussa operations in Western Australia, strong cash flows and our expected business is now capable of generating -- will help us to unlock our global development pipeline and accelerate exploration aimed at making new discoveries and growing our resources, our reserves, our mine life across our key assets. So there's a lot going on in our business right now. In Western Australia, we've just posted another excellent quarter at our DeGrussa operations. The production costs are pretty much in line with guidance, notwithstanding the impact of rising costs and labor shortages and we are seeing -- as we're seeing across the WA mining sector at the moment. But we're also progressing studies at the Old Highway project to try and assess the possibility of creating further value, leveraging off the existing processing infrastructure and potentially looking at collaborating with others in the region. In Botswana, construction activities are really gathering momentum at the new $366 million Motheo copper mine, which is on track to become a new 5.2 million tonne per annum production hub, capable of producing up to 60,000 tonnes of copper a year in the heart of the Kalahari Copper Belt. Production is expected to commence there in 2023. In The U.S.A., we are continuing to progress predevelopment and exploration activities and deal with a legal challenge in a very positive way at our proposed 1.2 million tonne per annum underground mining operation at the Black Butte project. It will be targeting somewhere in the order of 20,000 to 30,000 tonnes of copper production a year. But we're also looking at a number of other opportunities in terms of exploration to grow those resources and potentially reserves, to look at optimizing the feasibility study and to make it into a much more robust project. The work is continuing there. With the addition of MATSA to our global portfolio, we really now have a world-class operating VMS mine in Europe and which will become the backbone of our business. And this really will underpin our aspirations to grow the company from a production profile of what will be about 150,000 tonnes of copper equivalent production into our aspirations over the next few years of summer in the order of 200,000 tonnes of copper per annum of copper equivalent and again, higher again towards the end of this decade. Our global exploration efforts is also stepping up to an entirely new level at the moment. It's in the order of USD 50 million of an annual budget, we have exploration teams based in Western Australia, Eastern Australia, Botswana, Namibia, U.S.A., and at the end of next week, in Huelva Spain, and also in Portugal with the acquisition of MATSA. This gives us an almost unrivaled exposure as a mid-tier mining company to active exploration in Tier 1 VMS and [ Sedex ] mineral provinces around the globe that, we believe, are vastly and hugely prospective. All of this is occurring at particularly an exciting time in the macro environment for metals that we're exploring for and developing and producing. The structural bull market in base metals appears to be rapidly gaining momentum. The deficit's now projected across all refined metals and several major investment banks. And key industry players recently upgrading their price forecast amid tightening supply and recent concerns around -- about the impact of the global energy crisis. Importantly, many analysts are suggesting that the broader inflationary environment means it is unlikely that base metals will be impacted by rising interest rates in The U.S. this year. This is simply a function of the growing realization of the critical nature of these metals to the global economy and the decarbonization push and increasingly supply side challenges and shortages. Overlaying all of this, surging demand for copper from the impending global energy transition looks set to transform the outlook for this cornerstone metal over the next few years. I don't think in my 35 years, I can recall seeing such a uniform consensus on the outlook for metals over the next few years and decade and potentially even longer. And I'd have to say this is a very exciting time to be a base metals company. Against this backdrop, I don't think Sandfire has ever been in a stronger position in its history to move to the next level in terms of our ability to create value and returns for our shareholders and other stakeholders. We have a wonderful team across the global operations. We have a very clear vision and intent of where we want to get to. And we have a world-class asset base that is capable of making us one of the major players in the burgeoning demand for green metals over the next decade and beyond. And just from -- moving on from there, I would just like to touch on the highlights for this quarter, in particular, in a very pleasing quarter overall. DeGrussa operations produced just under 19,000 tonnes of copper and about 8,000 ounces of gold at a reasonably pleasing C1 cost of USD 1.07/lb, and bearing in mind with those cost pressures relating to labor and diesel. The guidance for the financial '22 year, this still remains at 64,000 to 68,000 tonnes of copper and 30,000 to 34,000 ounces of gold. And we have just provided the opportunity to slightly increase cost guidance from USD 1.10/lb to USD 1.20/lb for the financial '22 year, being up from USD 1/lb to USD 1.10/lb previously. But as I said, relating to those diesel and labor cost matters and shipping costs. We've also provided a maiden resource for our Old Highway gold project at just under 3 million tonnes of 2.45 grams per tonne gold for contained 223,000 ounces of gold there. And we will continue to, as I said before, we do further work. In Botswana, the Motheo Production Copper Mine is really making significant progress, and that's very pleasing. We have 750 personnel on site. Substantial concrete has been poured. And when Jason will talk to you today, you'll obviously get a further update on all the activities that are occurring there. And we continue to expand extensively our exploration activities in the region. So we're looking for enhancing both in terms of the opportunity for higher grade ore body mineralization, but also a significant increase in quantities of mineralization and potential ore bodies throughout that entire belt. And as we know, it is substantial landholding in the region. As mentioned earlier, the MATSA acquisition will complete towards the end of this month. And that is transformational for our business. All approvals from all the regulators have been received. And that transaction is now unconditional. And we're moving forward rapidly to completion. And just to close up from a financial point of view and also to clarify, formally, the business closed the end of the half year or the end of the December quarter with AUD 1.6 million in the bank or approximately USD 1.2 billion. And that's -- those numbers disregard or ignore the USD 300 million deposit that had been made to the vendors of the MATSA transaction as at year-end that sits on balance sheet as a -- technically a receivable. So as we rolled into the back end of this year, there was sort of cash and receivables, in a very liquid sense was about AUD 2 billion. Thank you very much, and I'm looking forward now to handing over to Jason to continue with that operations update.
Thank you, Karl, and welcome to everybody on the call today. Starting with HSEC. Across the company, we lost some ground on our total recordable injury frequency rate, which was 6.9% as at the end of the quarter. This was largely driven by a small number of low potential injuries occurring in the Australian operations. On the other hand, as a highlight, the Motheo construction team in Botswana have continued strong safety performance, talking up over 500,000 worked hours, lost time injury free late in the quarter. Our COVID-19 response remained a major HSEC focus during the December quarter. And at the company's head office, DeGrussa Operations and Doolgunna exploration in Western Australia, we continue to operate without interruption due to the absence of community transmission of COVID-19 within Western Australia for the majority of the quarter. Given the likely opening of WA borders on the 5th of February, preparations are underway to deal with the likely escalation of community transition in the state. In Botswana, after several months of low COVID-19 infection rates, the number of positive cases in the region have increased again with the prevalence of the Omicron variant in Southern Africa. Both the Motheo and Kalahari exploration teams have continued to operate successfully throughout this period, and we expect this to continue in the future. In Montana, U.S.A. COVID-19 infection rates have also risen, again with the prevalence of the Omicron strain. The Black Butte team also continued to work successfully with COVID-19 control measures in place and continue to take that project forward. On the community relations front, Sandfire continues to proactively work with all of our community stakeholders across all regions. One of the highlights for the quarter being the ongoing success of the peak -- beekeeping program in Botswana, this program has now advanced to the stage where local adults and school children are able to take beekeeping skills into their communities for the benefit of all. Moving on to an update on DeGrussa operations for the December quarter and starting with mining. Underground mine production at DeGrussa closed out the quarter at 325,922 tonnes at a grade of 4.4% copper and 1.5% -- 1.57 grams per tonne gold. Monty produced just below 123,000 tonnes of ore at a grade of 5.55% copper and 1.35 grams per tonne gold. And when combined, this delivered a total production of 448,828 tonnes at a grade of 4.71% copper and 1.51 grams per tonne gold. All processing achieved a mill throughput of 439,959 tonnes at a head grade of 4.49% copper and 1.35 grams per tonne gold. And concentrate production for the quarter was just above 79,000 tonnes at a grade of 23.6% copper and 3.48 grams per tonne gold. Concentrate sales were also on target with 7 shipments sold for the quarter. Overall, the December quarter was slightly above expectations. And looking out to the full year, we remain on track to deliver our previously stated production guidance of 64,000 to 68,000 tonnes of copper and 30,000 to 34,000 ounces of gold.
So moving over to costs and capital. The December quarter, as is noted USD 1.07. Just to add a little bit more details on that. We are talking -- as the other guys have mentioned around diesel prices, higher energy costs, shipping and demurrage, probably no surprises there in that way. We did guide at the end of the last quarter that we thought costs were moving up towards the top end of the band of the previous band of $1 to $1.10 and we're now looking at being in the band of $1.10 to $1.20. This quarter at $1.07 has in some -- and very much been protected by those high copper production rates during the December quarter, but that's what's really keeping it in that band. In the future quarters, as Jason noted, it's been between 34,600 tonnes of copper in the first half implies a second half of, say, somewhere between 30,000 and 33,000 tonnes of copper. As -- if we hit those sort of copper production rates as we're expecting into the March and June quarters, we will see that C1 costs go up above $1.10, and hence, our overall yearly guidance of being $1.10 to $1.20. In terms of mine development, the growth at DeGrussa and Monty proceed on schedule at 26,000 tonnes of copper concentrate at the end of the quarter. We should note there was a prepaid shipment in December. So a shipment that went in January, prepaid in December, $33 million, that sits within our cash balances. Matt just added a couple of other details. I know that we're coming up, of course, in a few weeks' time with our half year financial results. And these are certainly the unaudited numbers, but what you sort of flavor you'll get kind of some of the cash flow reconciliations and costs and shipping numbers. Revenue approaching $430 million. In terms of cash flow, we did make a $56 million tax payment in December 2021 relating to the 2021 financial year as we had flagged in previous quarterly and also in previous financial results announcements. D&A pushing just over $100 million for the half. We're expecting an exploration and studies across -- particularly across Australia and into Botswana, around $30 million for the half. Importantly, also in C1, just a reminder, in terms of byproduct credits, we are hedged at DeGrussa at USD 1,800 per ounce for around 21,000 ounces of future production between January and the end of the currently known scheduled mine life at DeGrussa.
As Karl touched on before, during the December quarter, we've continued to assess the potential to transition to gold production at DeGrussa. And as a result, on the 15th of December, Sandfire released a maiden mineral resource estimate for the Old Highway deposits. This indicated mineral resource totals 2.8 million tonnes at a grade of 2.5 grams per tonne gold and contains 223,000 ounces. To support the reporting of the mineral resource estimate, Sandfire has also completed a number of study elements to assess potential development options for Old Highway. This includes open pit and underground mine design work, including geotechnical and hydrology studies, metallurgical test work, including variability work on different for host lithologies, preliminary design and costing for the addition of a gold recovery plant to the existing DeGrussa concentrator. And this would include the addition of a gravity, CIL and gold recovery circuit. Baseline environmental work at Old Highway has also been undertaken, and documentation for various approvals is in progress. All haulage options for the transport of ore from Old Highway to DeGrussa have also been investigated. And finally, tailings options, including reuse of the existing DeGrussa's tailing storage facility and the potential for in-pit deposition into the old DeGrussa open pit, have also been investigated. Completion of these studies is on track for late in the March quarter. Following the delivery of the Old Highway mineral resource estimate, drilling has continued on the project with a 24-hole 9,100 meter diamond drilling program commenced during the December quarter. This program is focused on extending the high-grade mineralization in the central section of the Old Highway deposit, which is an area known as Central Deeps. This mineralization remains open along strike and down-dip with the deepest holes from this program to test approximately 200 meters below the currently defined extent of mineralization. To date, 8 holes totaling approximately 3,200 meters have been completed, the majority of which have intersected quartz veins in the expected position down-dip of known mineralization. Assay results for these holes are pending. Expanding out from the Old Highway area, the Doolgunna exploration team continued to execute the dual-track copper and gold exploration program throughout the quarter. Key exploration activities carried out during this period included air core drilling at the Peak Hill, Morck Well and Bryah projects. Reverse circulation drilling at the enterprise project to test the potential extension of the Karalundi formation in the area; and swell and lag sampling was conducted at the Yerrida project as follow-up to the previously identified 10-kilometer long copper gold anomaly in the area. Our Eastern Australia exploration team have also continued to operate, albeit at a lower level of activity due to COVID-19 restrictions in regional New South Wales. During this quarter, diamond drilling and ground magnetic surveys were carried out as part of the Endeavour joint venture in the Cobar region. We now move on to the Kalahari region and starting with the development of the Motheo copper mine. Work throughout the December quarter has proceeded according to the project plan. Another important milestone was achieved during the quarter with 750 rooms now available for use in the construction accommodation village. This increased accommodation capacity is actively supporting the ramp-up of activity required for this stage of the project. On this basis, we are able to confirm that we remain on track for first copper production in the second half of financial year 2023. Leading into this state, the remaining key milestones to be achieved for the remainder of the financial year are: Construction of the permanent accommodation village; mining contractor mobilization and establishment; and also commencement of mining prestrip in the June quarter. If we now look at key progress for the December quarter, this included our mining contractor, AMS, which is a subsidiary of Perenti, has mobilized to site with mining equipment delivered during the quarter and also now being assembled. This equipment included components of a Hitachi 2600 excavator, 4 CAT 785 trucks and fully assembled CAT D10 bulldozers, a 992 wheel loader and a CAT 18M rider. Bulk earthworks are now well advanced with the mine site access road now in use. The civil contractor, as Karl touched on before, mobilized successfully the site early in the quarter and has poured over 1,000 cubic meters of concrete for the SAG mill, primary crusher and reclaim tunnel foundations. Work on the permanent accommodation facility, which totals -- which has a total of 750 rooms of capacity commenced during the quarter, and Stage 1 of the facility occupation is planned for late in the March quarter. Mechanical and electrical equipment fabrication is also well advanced with all forecast equipment delivery dates on track for being well ahead of the required date according to the schedule. Following the completion of the 5.2 million tonne per annum expansion pre-feasibility study in September last year, the team is also continuing to move forward with the feasibility study, and this is on track for completion in the June quarter of this year. And lastly, project debt funding for the project continues to progress well. The credit committee approved offers for debt financing now received from the company's short list of potential international lenders. The selection of the syndicate banks and finalization of terms will be completed in the coming quarter. Moving now to Kalahari exploration. Following Sandfire's acquisition of an additional 11 highly prospective licenses along the Kalahari copper belt in the September quarter, the company has now expanded the exploration program in the region with 10 diamond drill rigs now active. This expanded exploration program is focused on 2 key areas: Firstly, looking for high-grade satellite discoveries within the Motheo expansion project area, and with the potential to increase the scale of Motheo production even further. Secondly, we're focused on delineating additional mineral resources with the potential to extend mine life and also target regional discoveries to unlock the copper belt's wider potential. During the quarter, work on the Motheo expansion project focused on drilling a large A4 dome to follow up a high-grade vein-hosted copper silver intersection in hole MO-A4-207D which was announced by the company on the 7th of September. This area is located 1.2 kilometers southwest of the A4 mineral resource. And throughout the quarter, 2 diamond drill rigs were testing potential extensions of this structure. Exploration on the A1, T1 and T2 East targets, located approximately 30 kilometers east along strike from the A4 dome, also remains a priority. Work to gain access to these areas continued throughout the quarter. Regional exploration along the belt focused on 3 exploration target areas during the quarter as well. The T4, T23 structural zone, which is about 80 kilometers southwest of Motheo. During the time, we had 4 drill rigs operating in the area, following up widespread disseminated and local vein-hosted copper mineralization along a major structural design. We're also active at the T5, T14 and T45 targets, which are approximately 60 kilometers north of Motheo. We had up the 2 drill rigs being utilized to test the interpreted northern margin of the copper belt and testing potential extensions of mineralization up into these areas. And lastly, the T7 target, which is approximately 50 kilometers south of the town of Ghanzi, we had 3 drill rigs testing regional scale structural zones that have been interpreted from magnetic and airborne EM data along the southern margin of the belts. Finally, moving 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've been undertaking additional work to add value to the project. In line with this, the Sandfire America team continued work on enhancing the Johnny Lee feasibility study outcomes throughout the quarter. And in addition to that, during the quarter, a 14,000-meter resource definition diamond drilling program commenced at the Lowry deposit, which is located 1.5 kilometers east of the fully permitted Johnny Lee deposit. This drilling program will support a pre-feasibility study on the Lowry deposit and is expected to be completed by the end of the calendar year. The Lowry deposit currently has a reported inferred mineral resource of 8.3 million tonnes at 2.4% copper. As at the end of the December quarter, 3 diamond drill rigs had completed just over 4,000 meters of diamond drilling. And no assay results from the program have been received to date.
Thanks very much, Jason. And really just to conclude the presentation, and thank you very much all for listening. We'll certainly open up the floor for questions in a minute. But once again, thank you very much for your -- listening in today. We're very pleased here that we've been working quite diligently over the last 12 to 24 months in terms of us executing our strategy and effectively now moving into a new phase of Strategy 2.0 for Sandfire. But that strategy effectively is to create value through opportunity, to execute delivery on the assets we do have, to build a sustainable production pipeline through -- singularly through acquisition, and we're in the process of completing a substantial and transformational acquisition, but we'll also continue to look for other opportunities that fit within our continued-to-be-revised strategy. We will continue to focus on accelerating our discovery efforts, and ultimately, looking for those organic successes. And we believe with obviously the footprint we've got in the -- focus in the regions we've got, we've got excellent opportunity. And at the same time, ensuring that we work hard, invest in our people, have our people aligned and empower those people and ensure that also the business has that culture and we operate, and very importantly, our 5 key values transcend through the whole organization. At the same time, ensuring our balance sheet is solid and capable. We have a good capital allocation strategy. I do believe in terms of the activities that have been occurring, the balance sheet has been strong. It has been sculpted in a way with the debt funding and the utilization of the available resources that we have got has been well organized and well put together to execute the programs in front of us and to complete both the acquisition, the development in Botswana and still gives us the flexibility for further opportunities going forward. And clearly, through this whole process, we want to make sure that we are engaged with all of our stakeholders under our license to operate. So it's been a very pleasing quarter, half year in the last 12 or 18 months in challenging and interesting times. And we really look forward and we really do believe, as we're arriving at a different platform for this business, we've built it on very strong and solid foundations. And we're really excited I'm about taking it forward from here. And I think the next decades to come for this organization are well established off the back of these foundations, and we're really looking forward and excited, as I said, to deliver to all of our stakeholders over the next number of years. So thanks very much, everyone, for listening, and the floor is now open for questions.
[Operator Instructions] Your first question comes from Mitch Ryan from Jefferies.
Thanks for the [ detailed run ] on the quarterly. Just a quick question on a strategic sense. How -- I guess, what integration activities have occurred to date with regards to MATSA? And how are they progressing? And then, I guess, if you look forward, what's the first 100 days plan post getting the key asset? What does that look like?
Thanks very much, Mitch, I'm going to pass that to Jason in the first instance. He's very close to all the extensive efforts that are ongoing in terms of integration, and then also, as you said, what we -- our expectations and plans are for the first 100 days.
Thanks, Mitch. Look, integration is well advanced for the project. So one of the things that has been an advantage there with Spanish government's approvals and has given us a good period of time to make sure that we're ready. Obviously, there's a 2-pronged approach to this. We've got the corporate integration, so integration with the parent company with our systems -- got all of our financial systems, a whole lot there, and that's well advanced and ready to go for day 1 on 1 February. The operations' integration will happen predominantly after day 1 on 1 February. Obviously, to this date, we haven't had the opportunity to have our hands on the steering wheel at this point in time. And we do currently have a small team of Sandfire people at our on-site and just gathering information and have been doing so for a period of time. So first 100 days is all about us learning. So we are going to learn how that mine operates, how it operates in Spain and really get into the detail that you can -- will take it to the next level of detail that you can't do as part of due diligence. We'll have a very strong team going over there, and we'll work with the existing MATSA team. And one of the things or one of the key guiding principles for our integration is that it is a true 2-way integration. The site management team that we saw over there and the broader team, we thought, we have very good quality and operating at a quality asset. And we want to work with them and continue working with that team into the future to not only continue what they're doing but take that operation to the next level.
Okay. Second and last question is just interested if you could provide some commentary with regards to any inflationary cost pressures you're seeing with regards to Motheo? Obviously, supply chain tightness globally and all of the broader thematics that we're seeing, are you seeing any cost pressure coming through on that project?
Yes, Mitch, Jason here again. If you remember going back to the September quarter, we actually recast -- we recast basically the capital forecast for the project. And at this stage, we see the project coming in on time, on budget. There is pressures right across the board around diesel and power, things like that. But overall, I think it's manageable and most of which we forecast in our current assumptions going forward.
Your next question comes from Paul Young from Goldman Sachs.
First question I have is on Botswana. And I saw a comment about the permitting for the 5.2 million tonne case being required before you can push the button on that. Can you just talk around the timing of the permitting? And when do you actually need to start mining at A4 to sort of fit in with the plan?
Yes. So thanks for that, Paul. It's Jason here again. You're absolutely right. So that ESIA approval time line is critical for that project development. We've actually -- we've made a very good start on that. We've been working on that for approximately 6 months. So we've done all of the baseline environmental monitoring, all of the work that we need to do, and we're actually currently in a write-up phase at the moment for the final ESIA document. We expect to submit that around about the middle of this year, this calendar year, and we expect a time line of around about 12 months for that from the current point we're at the moment. If we look at the project itself, one of the key points around that ESIA approval will be mining of the A4 open pit. That is the key, if you like, it's the only real addition to our disturbance footprint that we will be including in the project. So mining of that, we have assumed, will occur first pre-strip in the first half of next -- sorry, in the first half of 2023.
Okay. And then a further question on the mining side. I mean you've done a great job clearly mobilizing workforce and considering the Omicron constraints in Africa as well as you mentioned, and great that you can absorb the inflation of the $36 million increase we saw within the PFS. But on the mining side, can you just run through the timing on the ramp-up of the mining? And what sort of stockpile and material merits you need to achieve before you push all through the plant?
Yes. So if you look at it, we will commence our pre-strip mining in Q4 of this current financial year. We've got enough of the start-up fleet there almost on site or partially on site to commence mining. So that will happen. We'll actually continue mining all of the way through the current calendar year. And over time, we start commissioning the mill in the first half of 2023. We'll actually be ramping up to a full mining rate of around about just under 30 million tonnes per annum total material movements. Stockpiles. Stockpiles will be variable, depending on -- it's a bit fluid where we're at, at the moment in terms of start-up because one of the things that we are doing at the moment, Paul, is integrating the A4 and the T3 mine plans. So we're just trying to make sure that we're optimizing both of those projects and able to get up to that 5.2 million tonne per annum rate as quickly as possible.
Got it. That's great. And then maybe a question to the [indiscernible] hedging, just around the timing of the hedging on both the Motheo and MATSA. When are you thinking exactly which quarter, which month you put that hedging in place? And can you just remind me just what the percentage of metal that you'll be hedging for both projects?
Yes. Sure, Paul, Matt here. Really, Motheo was a bit of a longer-term decision in terms of hedging at this stage. There's not currently any contemplated in terms of our financing. That will be more of an internal decision discussion over the next 6, 12 months looking forward to, obviously, first production. MATSA, as you know, it's a different story given it's an operating mine and under some of that financing -- acquisition financing that we completed. We have entered into a hedging program at MATSA. I can give some probably further detail when we do the financials. But roughly over the 3 years, we're about 75,000 tonnes of copper at around $4.20, and around 84,000 tonnes of zinc over those 3 years at an overall $1.32, but it sort of starts more like $1.50 and ends more like at $1 and $1.15. So those programs are very much live at the moment, and then we'll obviously compare that to the future mine plans and future guidance as we go along in terms of percentages.
Yes, that's [ exactly it ]. Thanks for those numbers. Appreciate it.
Your next question comes from Matt Greene from Credit Suisse.
Just a follow-up on Young's question there on the MATSA hedging, if I may. Matt, thanks for the color on that. But is that delivery schedule quite linear over the next 3 years? Or is it front-loaded?
Slightly front-loaded. So without going through the individual, obviously, quarters and months, in the first year, in copper, it's about 7; second year, about 6.5; third year, about 5 in terms of thousands of tonnes. Zinc, over the 3 years, is more 7.5, 7.5 and 6 in rough numbers, but we can put some more details to that, as I say, maybe going to the financials.
That's great. And just sticking on MATSA. I saw on the Spanish press that, I presume you're involved with this, that the union there has signed a new multi-year agreement there. Are you able to comment on what sort of wage increases you saw with that?
Yes. Thanks. It's Jason here again. Yes, we're aware that there's a new agreement in place. There is a slight increase in salaries. We don't have the numbers here with us today. But overall, it's in line with expectations at the moment. And it's a great outcome from the team over there as well. So to get that done, given the current environment and particularly with the sale process happening in the background as well. So we're very pleased with the outcome from the local team there.
Okay. That's great. And look, just lastly, on Motheo. I think it was around mid last year, you mentioned that Botswana government was conducting its own studies into expanded Motheo case there. And if I remember, you expected a possible decision by the end of last year. So are you able to give us a bit of an update on how that's progressing? And are you assuming you fund 100% of the project with your current discussions with your project finance providers?
Yes. So look, we're able to confirm that the Botswanan government has confirmed with us that they won't take up a stake -- or their option to take up a stake in the mining operation and ownership. So we will take forward the project on a 100% ownership basis, and we will fund the project at 100%.
Your next question comes from Kaan Peker from Royal Bank of Canada.
Just a few questions from me. Just the first one, I think there was around 26,000 tonnes of concentrate stockpile. Just wanted to get an idea of, I suppose, will that be cleared next quarter. And I think I'll move over to Jason and Matt mentioned that there may be some prepayments made this half. And is that included in that roughly $430 million revenue that was mentioned before?
Yes. Thanks, Kaan. Kaan, Matt here. So just to step through those, the 26,000 tonnes of concentrate is not unusual for us. That's about 2.5 shipments. We make between 2 and 3 shipments a month. So roughly call it about a month's of concentrate holding. And we did have a ship go in early January, which will have, of course, drop that down by around 10,000 tonnes back to more like [ 16 ]. That further cash flow was received as a prepayment in December. But no, it doesn't count into the revenue number. The revenue number will come in, in January. So cash in December revenue [ generally ].
Yes. And just on second question, more around the cost guidance. I think -- I mean, I understand the increase, but I think the freight rates that were indicated, I think, they've been declining since '20, last year. Does the diesel really relate to site cost power? And lastly, on cost of space, in terms of labor, are you seeing increased cost in terms of retention payments?
Kaan, Matt again. So really, diesel, as you'd expect with the higher diesel assumptions affect a number of areas from mining through the transport, through to sorts of areas that are in sometimes quite almost difficult to analyze to a great deal of detail, but we do understand the diesel cost pressures are obviously pushing this up. I think as I noted, we're already seeing these cost pressures in the back end of the first half. It's just have been a little bit guess described by the higher copper production. So that's really why that C1 rate is still in that $1 to $1.10 rate during that quarter. But certainly, energy costs, we have already seen and are seeing those move. The shipping side is also about energy costs, but also a market that, for a number of years, effectively lost money for a number of years, and in this period of time is making money. So that's the sort of swings and roundabouts that we get in global shipping. In terms of labor, yes, there are labor pressures in Western Australia, partly because of the border restrictions. We do have a number of retention schemes and things with our existing workforce at DeGrussa to ensure that we continue to optimize the operations there and complete them to the currently known mine life. But yes, there's some cost pressures. I wouldn't have said they were extreme at this stage, but there is certainly some pressure for people, certainly a labor shortage, if you like, which makes it difficult. But Sandfire is a very attractive business sort of on the up. So we're seeing some very positive signs when we do go out for key recruits. So a labor shortage at this stage, I wouldn't have said it's impacting as much and neither is really labor rates at this stage in Western Australia at least.
Your next question comes from Tim Hoff from Canaccord.
I was looking at the last 12 months and it appears like you've got a bit of a stockpile build in terms of ore stockpiled. Is that just a differential? Or is that something you guys are just like building?
Look, Tim, it's Jason here. It's a bit of both. We actually had really strong performance, particularly out of DeGrussa in the last 2 months of the last quarter. Monty has been consistently overperforming in terms of mine production rates above plan, pretty much now for probably close on 12 months. The team is doing an excellent job. They just go from strength to strength. But the other one is in the back of our minds as well, we're conscious that WA borders are opening up on the 5th of February. So we are trying to consciously trying to build some buffer up on the surface there depending on what happens with the community transition of COVID-19 once we've reopened.
Yes. And then in terms of the end date in this note and DeGrussa has been mining really well. Have you guys got a date set in the calendar where you're expecting to turn it off? Or is it still a little bit in the [indiscernible]?
Yes. Sorry, Tim. Look, at this stage, we expect -- we are forecasting finishing mining -- underground mining in September this year and with processing to extend partway through October this year.
And just to go back to Mitch's or just a follow-up on Mitch's earlier question. Are you in a position to give a, I guess, a percentage on what the power cost is to the cost base at MATSA?
Matt here, I don't have a number in front of me in terms of percentages, but safe to say that it is a -- it's a base metals mine with a processing facility with 3 mines. So clearly, energy costs, it is sensitive to energy costs, and we know that. And globally, energy costs are clearly rising. So when we are certainly there on the ground and we can work on what we understand from due diligence and then what we can also learn on the ground, we'll be in a position then to talk forward in terms of, obviously, production and costs. Hopefully, relatively quickly after that.
The next question comes from Lyndon Fagan from JPMorgan.
Just with MATSA about the close. I wanted to revisit the grade profile, if possible. I'm wondering if you were able to articulate that, particularly for copper and zinc over the next few years.
Yes, Lyndon, thanks for that question. Look, we -- at the moment, we are still waiting to see, if you like, production forecast or updated production forecast going out into the future. We'll be able to get into that information in detail after day 1. And we'll be providing updates to the market there as soon as possible after that.
All right. And then just at Black Butte, I'm wondering if you can maybe give us a bit of a rundown of what's going on? And is there any line of sight to actually bringing it into production at some point?
Yes. Jason here again, Lyndon. So where we're at, at the moment, is we are looking to add value to that project, but at the same time, working our way through some of the legal challenges or the legal challenges that are currently in play. So as we mentioned earlier on this call, we do want to add value to the project, and we see particularly the Lowry deposit, which is about 1.5 kilometers away from Johnny Lee, has real potential there to increase ore reserves and also bring in some higher grades into the mine plan there a bit earlier. And we'll have -- and that, we expect, will have a really positive impact on the financials for that project. So we expect to complete that pre-feasibility study on Lowry by the end of this calendar year. And then depending on those results, we would assume that we would take that into feasibility, and that would inform any future decisions. But personally, I still remain very optimistic about that project. And I'm very -- I believe at some stage, that project will be developed.
And just a final one. Is there any rehabilitation expenses that will be incurred at DeGrussa over the next year or 2 that we need to think about?
Yes. Look, at this stage, Lyndon, as we're working through the options and the studies on Old Highway, we are hopeful that there will be an ongoing operating footprint at DeGrussa. Once we complete those studies, we'll be able to make some decisions on what that looks like. So at this stage, we are just assuming that the -- we're either going into operations or we may have a period of care and maintenance before something happens with Old Highway. Obviously, if something doesn't, we would then have to start to basically work through the rehabilitation for DeGrussa. But at this stage, our thinking is that we would not incur large costs associated with rehab in the next 12 months.
Your next question comes from Peter O'Connor from Shaw and Partners.
And I hope you're triple dosed because Omicron is coming to get you. A couple of clarifications first, timing, Jason, going back to the comment about the 5.2 million tonne approval process. You mentioned you'll be submitting the documentation for the ESIA around midyear with a 12-month time line for approval with the new ended by saying to assume a prestrip start in the first half calendar year '23. So can you start the prestrip before the approval?
No, we won't be able to do that. We'll need the ESIA approvals prior to that. The one thing that is -- it is in our favor for this ESIA, if you like, it's not a greenfield project, this -- it is pretty much a brownfield project and the environmentals associated with that. The other complexity as well in Botswana is land ownership, which was quite an item for us, particularly in the T3 project. And we own all of the land currently that the project footprint requires as part of that. We own that on a freehold basis. So we expect from a government point of view and all of our interactions with the government is that it seems to be quite as simple and it should be quite an expeditious process through that.
Okay. So potentially it's sure within 12-month time frame you mentioned. Got it. Matt, I didn't -- I wasn't quick enough to get all the numbers you mentioned [ earlier on ] tax payment [indiscernible] for the period as well as that revenue number. Do you mind [indiscernible] again?
Yes, sure. So revenue for the half are expecting obviously unaudited approaching AUD 430 million. Note, for cash reconciliation, $56 million tax payment was paid in December, which we had flagged from the financial '21 year. And [indiscernible], at this stage, around $105 million, just as an indication based on the 2 quarterly C1 operation.
Got it. And Jason, back to you, looking at MATSA and thinking about the first 100 days and beyond and going back to when you first announced a deal and a lot of the feedback in the market was about the short resource/reserve life. What's the priority? Is it integrating and running the Sandfire way? Or is it getting drills turning as quickly as possible to add resource/reserve?
That's a very good question. And the short answer is both. We are conscious, we want to increase the resource-to-reserve conversion rates. We've actually got some real geological strength going in there for day 1, and that will be a key focus for them and also for the company in the short term.
More to say that. And on The U.S. and like you made an interesting comment about your attractiveness of the project, and it will be developed, which you didn't say you'd be developing it. Will you be developing it?
That's probably a question for Karl. But look, I didn't like the project. Personally, I think it just needs a little bit more high grade to come in, in the first 5 years, and I think we've got a good mine to develop there.
I agree with Jason. Peter, sorry. You go.
Do you say did The U.S. strategic minerals trust of last year, does that make it more attractive and make it more developable? Or therefore, maybe...
I think, about 2 years ago, you had a strategic minerals footprint or paper, white paper. I think the most recent paper, [ copper ] is being elevated in terms of its critical nature for The U.S. in terms of their sustainability. And so it is getting more time in the sunlight, so to speak. And so yes. And I also think that, as Jason has said, is that clearly, that feasibility study, which we wanted to draw a line in the sand for joining lead deposit, which was about a year or so ago, it was important for us to reach that milestone. It was important. In terms -- if you think about the strategic development and path by forward, we had to reach some milestones strategically, that was critical. We had to be able to prove to ourselves and to the stakeholders that a permit could be issued, which it has been. And under the system there, it is a government-approved system. The legal challenges, in fact, against the regulator, not against the company, for issuing the permit. So the regulator is very confident in the work they've done. We've done all of our work. We are joined in the action with the regulator, but it is a process. And so we just need to go through that process. It's a bit drawn out. It is what it is in that part of the world. But it also -- and with other activities occurring in our business, basically it actually is working relatively well for us in giving us the opportunity, which is the critical component now strategically of adding value. So we know we can get a permit. Yes, we appreciate there's a challenge. We believe, from the work that we've done, that, that challenge will ultimately be dealt with in a positive manner with respect to the development -- in favor of development of the project. What's more important as we roll forward is that it makes economic sense. So the process at the moment of enhancing those -- that economic opportunity is looking at things that are close that will allow that Black Butte project to have better economic enhancements. So that's really the work we're doing, and I think we'll be working really diligently with the team there over this forthcoming 12 months to get it to that point. And hopefully, everything is going to coincide with kind of where [indiscernible] challenge, we have a better economic situation, we've got better underlying commodity prices. We can recut models to possibly better long-term consensus. We get some more tonnes, we get a better grade, we reschedule. And all of a sudden, the economics of that project work really well in terms of return on investment and internal rates of return. And then we go right, we move to stage. And yes, from our perspective, our intention where we sit here at the moment is for Sandfire, which owns 85% of Sandfire America, so in turn, is it Sandfire that is developing that project. And it clearly won't be in 2022. But moving forward, we'd love to be in a positive position [ to ] press the button on that in '23 or '24. It would be wonderful for our -- and fit within our strategic plan. And we think geologically that environment, there is opportunity. There is other opportunities. But we've got to get the sequencing of delivering of those key milestones in the right order.
I have a quick one for Matt. Matt, given that's effectively free in the world at the moment, when you're thinking about the Motheo project finance facility, how should we think about a coupon and a structure of a facility in the current world of finance?
Thanks, Peter. Certainly, not free. Nothing is free, and debt is certainly never free. But yes, we're getting some attractive rates. Obviously, we're in a process now where we have credit approvals from a number of banks, and we need to work it through into a final list. So -- and some of that selection will be around pricing. But I have to be a little bit obviously careful. But the financing costs at the moment into a project in Africa run by Sandfire, we're quite pleased with the rate. And certainly, the sub sort of 4% margin -- 3.5%, 4% margin. I think that's pretty solid for a project that we're looking at [indiscernible]. And also, just to touch on that, while we're on the subject of Motheo debt, we obviously need to look at -- we've framed our debt around the structuring around the T3 project and the feasibility that exists. We'll form a bank syndicate around that. And then, of course, there's some further -- potentially some further work to do as we bring in A4 and the larger project into that syndicate as well. That will come over the next probably 6, 9 months.
And that sort of thing, given the size of the company now compared to what it was?
Sorry, I missed the start of that.
Given the size of the company and the cash flow and the balance sheet you've got now compared to, say, a year ago, does that give you more wiggle room and you're negotiating things like cash sweeps and access to cash flow?
Yes. I think we've come in a position of strength, no question. In an emerging business with quality assets, quality cash flow and we've attracted the sort of the [ who's who ] bank. So -- and particularly that new -- to us what is that sort of new European banking market as well, also, importantly, into Southern Africa. And we do also certainly support the idea of supporting and having banks support us and us supporting banks that are local to the projects and areas around which we operate as well. So that goes into Southern Africa and also Europe with Motheo and MATSA.
Thank you. There are no further phone questions at this time. I'll now hand the conference over to Nicholas Read.
Thanks, Harmony. Just to wrap up, we did have 1 online question, which I'll just read to the team here. It's from Stephen Tonkin and he asks, can you please explain what the exact or specific topic of the Montana court challenges, for example, does it relate to wastewater purity? If you can explain what the nature of the cases, can you also give us some understanding of what Sandfire's response to that is based on the advice of our technical specialists?
Thanks for the question, Stephen. So look, firstly, just to clarify that there's absolutely no concerns about water clarity coming up in any of the legal cases. There are 2 legal actions that are in progress at the moment. The first of which is legal action about the granting of the record of decision. So record of decision is, in effect, the mining license. So the Montana version of that. So it's a legal action actually against the government of Montana and the regulators there on the validity of the granting of that mining license. The advice that we have -- and that is they had its first hearing. So that an action was started, I think it was close to the start of last calendar year and is quite well advanced at the moment. The first hearing was held, I think, late back in July last year, and we are waiting on the decision from district court [indiscernible], and we expect to have that in the coming months. And to be honest, we actually expect to have that decision prior to the end of the year. The second one is around water rights, which is probably more along the lines of your question there. So -- and it is more of a technicality, and it is a challenge from NGOs at the moment, basically challenging the validity of the regulators granting us a change to the nature of our water licenses to go from basically to what they call beneficial use. So we would use those licenses to make sure that there was no loss of water going down into the river system where the mine is located. Once again, it's more of a technicality, and NGOs are using some of these actions there to try and push agendas and are not so much about the impact of the mine, but also just challenging some of the precedents or potentially setting precedents there in The U.S.
Thanks very much, Jason. I'll just hand back to Karl for closing comments.
Once again, thanks very much, everyone, for listening into the quarterly 31 December 2021 quarterly report. And it's been a wonderful quarter for the company. It's been very transformational as we moved forward with this MATSA transaction, and we're looking forward to completing that soon. And obviously, as well as with all of that, a lot of work on the ground in Botswana in terms of project development and also exploration ramping up. So we're really launching ourselves onto a new platform as we go into 2022. We've got some very solid foundations. We're looking forward to continuing to execute our strategy in a very positive way in the future facing minerals and markets. We are also looking very strong. So of these foundations, we're really looking forward to creating -- further creating value for all of our stakeholders in our business and particularly our shareholders. And once again, thanks very much. And we look forward to updating you as when we complete the MATSA transaction. And really, it's just a bit of a not -- it will be the last quarter that we've got intended and isolated results from the DeGrussa/Monty operations. And the next quarter, we report we'll be starting to dial in the MATSA operations. So there will be 2 main things to talk about. So once again, a nod to DeGrussa, and thanks very much all the team up there. Thanks very much, everyone, today for listening and we look forward to good success off the back of what we're doing at Sandfire. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.