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 December 2022 Quarterly Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Ben Crowley, Head of Investor Relations. Please go ahead.
Good morning, good afternoon, everyone. Thank you for joining us today for our call to discuss the December '22 quarter. With us today, we have Jason Grace, our acting CEO. Jason will be taking us through the bulk of the presentation today. We also have Matt Fitzgerald here, CFO; and Dave Wilson, our Head of Technical Services. A fair bit to get through today, so I'll hand straight over to Jason, and we'll get cracking.
Thanks, Ben, and good morning to all, and welcome to the Sandfire Resources December Quarterly Results webcast. As we move to strategy and value, so I draw your attention to the disclaimers. Over the last year, Sandfire's execution of our strategy has delivered an excellent portfolio of high-quality operating mines, development and exploration projects. And we have transitioned from being a single operation WA miner to being a genuine international copper producer. Our values of honesty, respect, collaboration, accountability and performance are key to Sandfire's culture, and they guide our activities across every part of the business.
When we consider that Sandfire is one of the largest copper-focused miners listed on the ASX; that there is an inevitable increase in demand for copper in the future driven by the global energy transition; that we have a dominant presence in 4 mineral provinces that have excellent organic and inorganic growth opportunities; that Sandfire has proven capability as an explorer, developer and operator of copper mines; and importantly, on the back of the MATSA acquisition and development of the Motheo copper mine to a 5.2 million tonne per annum capacity, Sandfire is one of the few copper miners that has a firm production growth pathway over the next 3 years, growing to around about 110,000 tonnes of copper and over 80,000 tonnes of zinc production per annum.
If we look to the December quarter highlights at a company level, consolidated copper production totaled just over 20,000 tonnes with zinc at over 19,700 tonnes for the period. The Motheo Copper Mine development continues to be on track, and construction is now nearing completion. The investment that Sandfire is making in resource extension drilling and improving geological knowledge at MATSA is yielding early success with the identification of the San Pedro ore zone at Aguas Tenidas. I will cover this in more detail later, but in summary, it is a new zone of copper-zinc mineralization that is within 100 meters of existing underground workings, and has been defined over initial 400-meter strike length. More importantly, as part of this work, a prospective horizon, which is hosting the Aguas Tenidas mineralization, has been newly identified and is interpreted to be around 2 kilometers in extent.
Looking now at other key company results for the quarter. Sales revenue totaled $217 million, with operations EBITDA at $87.7 million, a group EBITDA of $71.3 million and an EBITDA margin of 40%. As mentioned in the last slide, consolidated copper production totaled just over 20,000 tonnes with zinc at just over 19,700 tonnes for the period. C1 costs for the group were lower quarter-on-quarter at $1.77 per pound of payable copper. And cash holdings for the company were just under $264 million with a net debt of $378 million after repayment of the corporate debt facility, and $110 million of Motheo debt drawdown.
Looking in more detail at group metal production for Q2. Overall performance was in line with the company's expectations, noting that copper was a balance of lower-than-expected production from MATSA, specifically as a result of mine plan changes at Magdalena. This was offset by higher production from DeGrussa, and I'll cover this in more detail later in the presentation. Zinc production was on plan due to the benefit of continued reduction in stope dilution, partly offset by changes to the mine plan at MATSA; and gold, silver and lead production were generally in line with plan.
As a result of this, Sandfire is maintaining the previously stated group metal production guidance, noting that due to mine plan changes at Magdalena and the deferral of copper tonnes for the second half, we expect MATSA production for financial year 2023 to be at the lower end of the 60,000 to 65,000 tonnes guidance range for copper.
Moving across to the cash flow waterfall for the quarter, and I'll just cover it from left to right. Opening with $190 million of cash at the beginning of the December quarter. We can see some cash flows there from DeGrussa and MATSA, which are largely, of course, EBITDA driven. But just to touch on a couple of points, which are in the notes around DeGrussa, particularly. And we did have some sales on either end of that quarter move into the previous quarter being September 1 sale and 1 fall into the January quarter as well. The reason that the cash flow from DeGrussa operating activities looks low and how it would reconcile back, say, to EBITDA, for example.
Moving to the right. The equity raising was completed during the quarter funding growth, debt reduction and strengthening our balance sheet. As Jason noted, 2 drawdowns during the quarter with the Motheo debt as we continue towards completing construction and towards commissioning of the facility -- production facility in Botswana.
The ANZ corporate facility was repaid from the proceeds of the equity raising. And funding growth, as we know, largely around the Motheo copper mine in terms of capital construction, as I say, getting ready towards production, but also the normal quarterly MATSA mine development, just under $20 million and a small portion around DeGrussa and Black Butte.
Income tax is a little higher in this quarter at just under $39 million, $30 million of that was the clearance of the financial '22 tax numbers, and we've talked about that consistently over the last number of quarters about the really part of the wind-down of DeGrussa, and it's also covered in what's -- in the next bar being other, which has a $16 million impact of also the once-off wind-down of DeGrussa. So it's the transitioning of the balance sheet that we've talked about consistently, as I say, over the last couple of quarters to end the quarter with USD 263 million.
Moving to the update on debt facilities and hedging. The MATSA facility has $532 million outstanding as at the end of December. The next scheduled repayment is $80 million, which we are positioned to repay at the end of January, and that will take the facility from $650 million originally in January 2022 down to $452 million at the end of January 2023. So within the first 12 months of ownership at MATSA. And as we've previously signaled, we will be looking to produce our updated Sandfire picture of a base case model around MATSA and look for a potential resculpting of some of the repayment profile. So we will be updating the market through over the next few months with progress towards looking about and making sure that we match that debt facility to our operating plan.
The corporate facility, as I said, repaid from the equity raising funds, AUD 50 million, USD 33 million. The Motheo facility, the drawdowns, as I noted previously, and also just recapping around a targeted $180 million to $200 million total facility, including the $140 million which will bring us into the A4 development and also into any working capital facilities towards that product -- that commissioning and production time. And that those facilities are very much -- have commenced in terms of discussions that are very much progressing in line with A4 -- expected A4 approvals as well and obviously engineering studies and assessments.
The hedge book we update as we -- each quarter, as we -- as you know, for the rest of the year, 33,000 tonnes of copper and just under 23,000 tonnes of zinc. And that includes some QP hedging towards the back end of the quarter and also into January. As we know, we're also seeing copper increase in recent times, and we plan to QP hedge that as we produce over the next couple of months as well.
Moving on to the operations review and outlook and starting with our health and safety snapshot. The Sandfire Group TRIFR closed out the quarter at 2.1, which is significantly lower than 3.0 as at the end of the September quarter. This was mainly a result of strong safety leadership and a focus on positive safe behaviors at all of our operations during the lead up to the Christmas season.
As a highlight, our Motheo team commemorated World AIDS Day with the Ghanzi community in support of Botswana's approach to ending inequalities against AIDS. Activities and information focused on health advice, counseling sessions, free voluntary confidential screening for members of the community.
Looking now at group sustainability. During the quarter, there was a strong focus on engagement and planning to put substance around our long-term plans for our ESG pillars of communities, our people, water, climate change, biodiversity and business integrity. This included an assessment of critical habitats at Motheo to ensure the protection and conservation of biodiversity, maintaining ecosystem services and managing living natural resources in the region.
As a further highlight for the quarter, Sandfire in conjunction with the Ghanzi District Council, commissioned a Solar Street Light project at the Kuke Village in Botswana. These solar street lights will improve safety for the village community, which is located beside a main highway.
If we now look out to the full year. As mentioned before, at a group level, we are providing group guidance that includes metal production guidance for copper, zinc, gold, lead, silver. Guidance is maintained for the full year. Forecast full year C1 costs are $1.74 per pound of payable copper for the year. For capital, we are refining the mine development forecast of $82 million to $92 million, and maintaining sustaining exploration and studies capital guidance.
Motheo development capital is in line with the previously announced approval of the 5.2 million tonne per annum Motheo expansion project. And MATSA and DeGrussa D&A are forecast to be $250 million and $16 million, respectively.
Looking now at group production throughout the full year. We are also providing a quarter-by-quarter outlook for metal production. You will note from this slide that copper and gold production peaked in the first quarter. This trend is driven predominantly by run-of-mine production at DeGrussa only occurring during the first 4.5 months of the year, followed by processing of lower grade and transitional ore stockpiles through to February 2023. Gold production throughout the year follows the same path and also for the same reasons. Following the completion of processing of lower grade and transitional ore stockpiles at DeGrussa in February, processing of oxide stockpiles will commence, and will be subject to ongoing reviews of technical and economic outcomes. Due to the technical uncertainty of processing of this ore, no further formal production guidance is provided for DeGrussa.
Copper production also shows an increase into the June quarter. This is a result of higher copper grades coming into the mine plan at MATSA as well as first production from Motheo. Zinc production has a different trend to copper with lower production expected from Q1 to Q3 and then stepping up in the June quarter. The main reason for this is the progression of the mine plan at MATSA. And I'll also cover all of these points in more detail later in the presentation.
Moving now to MATSA operations. With the first anniversary of Sandfire's ownership of MATSA now very close, we are firmly committed to getting the best out of MATSA and ultimately establish a solid base for a multi-decade operation. To deliver this, we will continue to improve safety performance through development of the right culture and fit-for-purpose systems. We will continue the recent improvements made in mine productivity and stabilize and reliably deliver a 4.7 million tonne per annum production rate. We will use our technical knowledge and skills to extend mine life through execution of an expanded in and near-mine resource inspection drilling program and undertake technical studies to confirm mineral resources or reserves, and also establish a pipeline of new ore sources through investment in regional exploration.
Looking now at the December quarter. Massive production for the period was challenged by lower mine production from the Magdalena underground mine. This was a result of localized poor ground conditions in the mine production at areas scheduled for this period. The resulting changes to the mine plan restricted the supply of cupriferous ore, delivered an increased supply of poly ore at a lower zinc grade and deferred mining of higher-value cupriferous and poly ore to the second half of the financial year.
This, in turn, restricted processed tonnes for the December quarter due to lower supply of cupriferous ore to the plant. As a result, opportune maintenance was undertaken on Processing Line 1, which is a dedicated cupriferous processing line during December to bring forward planned maintenance scheduled for the June quarter and to ensure plant availability is maximized for the second half of the year.
As a result of this situation, copper production closed out the quarter below plan with close to 12,700 tonnes of production, and zinc production was in line with expectations at 19,755 tonnes for the period. Payable metal sales were in line with production for the period, and this delivered an operations EBITDA of $55 million with a very good EBITDA margin of 40%.
If we now look forward to the full year and in particular, the impact of changes to the mine plan at Magdalena on guidance, I would like to draw your attention to the graph displayed on this side. As I mentioned previously, one of the key impacts of the localized poor ground conditions at Magdalena is the deferral of higher-grade cupriferous and poly ore for the second half of the financial year. The waterfall chart shown illustrates a comparison between financial year 2023 first half and second half copper production variance by ore source. This clearly shows the impact of changes to the mine plan at Magdalena with copper production from both cupriferous ore and poly ore increasing by 33% and 51%, respectively. This change is driven predominantly by the changes to the mine sequence at Magdalena to mine high value or high grade ore originally planned for the first half to now be mined in the second half of the year.
And looking now at MATSA production on a quarter-by-quarter basis for the year. This again illustrates the deferral of higher copper grade ore at Magdalena from half 1 to half 2 through increased production copper -- sorry, increased copper production for the period, which is again driven predominantly by higher mine grades.
Zinc is a similar story where we started the year at a lower production rate and will step up in the final quarter. This trend in zinc production is driven by mine grade and in particular mine production at Aguas Tenidas transitioning from a high to low tonnage rate from the stockwork ore body early in the year, which is a low zinc grade part of the ore body. This ramp down in stock ore production is now well advanced and is being progressively replaced by increasing production from massive sulfide ore from the down plunge Western extension of the main Aguas Tenidas ore body.
Now looking at the full year production and guidance at MATSA remains unchanged at 60,000 to 65,000 tonnes of copper, 78,000 to 83,000 tonnes of zinc, 6,000 to 10,000 tonnes of lead, and 2 million to 3 million ounces of silver. However, and as mentioned before, in light of the changes to the mine plan at Magdalena and the deferral of high-grade copper ore production to the second half, we expect MATSA production for FY '23 to be at the lower end of the 60,000 to 65,000 tonne guidance range for copper.
Thanks, Jason. On this slide, we're looking at the MATSA operating costs in 6 quarters of actuals and 2 quarters of forecast to see through to the end of FY '23. Just draw your attention to the total columns on the right. You'll see that this quarter, we saw a significant decrease in absolute cost in euro terms. That's, if you look at the processing column, you'll see that's largely in the processing area, hence that has to do with Power Cost, which I'll cover a little more on the next slide.
Just to cover one other area, this offtake agreement, the treatment refining charges and freight rollback reset to benchmark every calendar year. So this month, this quarter, we note that the [indiscernible] at least the TCFD, there's been reports of agreements between miners and smelters. As of today, that benchmark has been reported by Wood Mac. Once it is settled, that will flow through to our cost per agreement. But what we have factored in going forward is our view of what that will be.
On the freight side, what we're seeing at the moment is sea freight market conditions have improved compared to when we last negotiated the freight rollback. So you'll see now transport costs going forward, we see an improvement in that in the coming quarters.
Moving to Power. Once again, we've shown the Spanish Daily power prices. You'll note that there's been a significant moderation of the power price in this last quarter, which has been welcome. And in fact, our -- the average spot price for the 3 months to December was EUR 140 megawatt hour comparing to EUR 270 for the previous quarter, slightly through to milder winter conditions and much higher renewable generation through this period, which is a welcome change.
Current forecast going forward for the next quarter is the EUR 150 to EUR 170 a megawatt hour, including the forecast of the compensation agreement -- compensation charge under the Spanish gas price cap arrangement. What this change in power costs has done -- fair price done for MATSA is, the electricity costs have reduced from being just over 20% of our C1 unit costs to about 12% in this quarter.
In terms of our future plans of power, we have the Sotiel solar farm is in progress by the third party in the study for construction of a second solar facility to be built near our Aguas Tenidas mine in progress and proposals are due earlier this year. We're in the final stages of negotiating the ongoing power supply agreement. While that is concluded, ongoing supply will be at spot.
To give a little more color to that, our aim of this power agreement is obviously to secure long-term power and derisk the business to the type of price spikes we've seen over the last 12 months. So that looks like really from the current peak with at least a proportion of the power locked in under a fixed price, a PPA-style agreement, and making sure we leave capacity for a renewable PV power to get long-term low carbon power into a power mix. And that, as I said, most negotiations are drawing to a close, and we hope to be able to update the market in due course.
Moving to MATSA unit costs for the quarter. So as Dave was mentioning, lower energy costs clearly have brought C1 down. We've also had some pleasingly higher byproduct credits predominantly from the production and value of zinc, that is offset, of course, by a lower production quarter in terms of quarter-on-quarter copper production. So that would ordinarily have dragged the C1 up. Pleasingly, we see margins increasing, particularly in recent times, through December, January with increasing copper prices.
So we look forward to those continuing and being able to report on some increasing margins, hopefully, for the March and June quarters and ahead. And then across to the right, as you can see that reduction in unit cost between the first quarter and second quarter and full year guidance has been set at $1.82 per pound of payable copper for MATSA.
Finally, for MATSA. Sandfire was very pleased to announce this morning that a new zone of copper-zinc mineralization called San Pedro has been identified at the Aguas Tenidas mine. We have always held the view that MATSA is a world-class VMS system, and we have always had a high degree of confidence in the potential to find both extensions of existing deposits and to make new discoveries near mine and further afield. This potential was one of the several key drivers for Sandfire's decision to acquire the asset.
Our investment in resource extension drilling and the excellent work being undertaken by the MATSA geology team on the reinterpretation of existing geological models has delivered an early success at San Pedro. Drilling to date has defined copper-zinc mineralization over an initial 400-meter strike length within approximately 100 meters of existing underground workings at the Aguas Tenidas mine.
More importantly, the geological and reinterpretation has identified a prospective horizon, which is hosting the Aguas Tenidas ore body, and this is interpreted to be around 2 kilometers in extent. Step-out drilling at San Pedro is currently underway.
Moving now to DeGrussa operations, and if we start by looking at the December quarter. Following the completion of mining at Monty underground late in the first quarter and underground mining at DeGrussa was completed on schedule early in the December quarter, processing of run-of-mine stockpiles continued until November, after which processing of low-grade sulfide stockpiles and transitional ore stockpiles commenced.
This operating strategy has advanced well and processing of low grade and transitional ore stockpiles is expected to be completed by mid-February. Following this, Sandfire will take a further transition to processing of oxide stockpiles that date back to the original open-pit mining phase at DeGrussa. Laboratory test work and a full plant scale trial completed in the December quarter has confirmed a potential opportunity to process up to approximately 600,000 tonnes of ore at approximately 2% copper. However, due to uncertainty on stockpile homogeneity of mineralogy and grade and metallurgical recovery, processing of oxide stockpiles will be subject to ongoing reviews of technical and economic outcomes. In light of this, no further formal production guidance is provided for DeGrussa.
Before I move on to the next slide, Sandfire also announced to the market on the 9th of December that a formal sale process for the DeGrussa operations, copper operations and related exploration tenure in Western Australia had been initiated. This process is ongoing and is likely to continue throughout the current financial year.
Looking now at DeGrussa production for the December quarter. Copper production was above plan at 7,343 tonnes, and gold production was 4,562 ounces for the period. Metal sales volumes were higher than production as a result of timing of shipments, and this delivered an operations EBITDA of $32.7 million, with a very good EBITDA margin of 41%.
Looking now at the second production -- DeGrussa production for the second half. Copper production was again above plan and exceeded guidance at 21,652 tonnes. Gold production was just under 12,800 tonnes for the period. Metal sales volumes were lower than production as a result of timing of shipments, and this delivered again an operations EBITDA of $80 million with a strong EBITDA margin of 46%. I would like to reiterate that given our transition to processing of oxide stockpiles in the March quarter, no further formal guidance is provided for DeGrussa.
Unit cost for DeGrussa, so Q2, $1.41 per pound of payable production versus $1.34 in the first quarter. Clearly, 2 different operating stories across the 2, as Jason mentioned, around the predominantly sulfide in the first quarter and they're moving into the lower grade in the second quarter. So as much as there's lower copper production, there's, of course, lower costs in terms of not having those upfront mining costs given their existing stockpiles.
So into the second half, as we've mentioned, we're not guiding in terms of oxide stockpiles and any production impacts from those. But fair to say that into the second half, we would expect C1 to be significantly higher than these numbers based on processing oxide as we go. But we'll report those as we deliver costs in those areas.
Moving now to the Motheo copper mine in Botswana. Firstly, as a quick update on development of the Motheo 3.2 million tonne per annum project, construction is nearing completion and continues to proceed on schedule with first production expected early in the June quarter of 2023. In addition to this, Sandfire has also progressed the 5.2 million tonne per annum Motheo expansion project with the environmental and social impact assessment being submitted to the Botswana Department of Environmental Affairs during the quarter. The Ball Mill was delivered to site late in the quarter. The engineering design for the 5.2 million tonne per annum expansion is now 70% complete. The balance of minor additional equipment orders have been placed during the quarter, and the Ball Mill Civil Contract has been awarded with work commencing in January 2023.
And finally, as Matt mentioned earlier, during the quarter, the first 2 tranches of the $140 million Motheo Project Finance Facility have been received with the balance to be drawn in the March quarter of this year. The development of the 5.2 million tonne per annum Motheo expansion project approved by the Sandfire Board in the September quarter will transform the Motheo mine into a significant copper producer. With a full ore production rate of 5.2 million tonnes per annum, supported by mining of both the T3 and the A4 open pits, peak annual copper production will reach approximately 55,000 tonnes, and will be maintained around 50,000 tonnes per annum production rate over a 6-year period.
Subject to the approval of the environmental and social impact assessment and granting of the mining license for A4 by the Botswana government, prestrip mining at A4 is anticipated to commence by the March quarter of financial year 2024.
Looking now at the Motheo development time line. Work throughout the December quarter has continued to proceed according to the project plan with some of the key development areas being: Process plant structural, mechanical and piping works are now approximately 90% complete. The Process Plant Electrical and Instrumentation Contractor is now approximately 75% complete. The tailings storage facility lining work has progressed well during the quarter with 90% of the lining completed, and the tailings pipeline installation is now underway. The high-voltage switching station has been commissioned and connected to the Botswana Power Corporation grid in late December 2022. The primary crusher structure has been fully completed, and all crusher mechanicals are now nearing completion. The SAG mill has been fully assembled, alignments completed and mill lining to be completed in January 2023. And finally, the commissioning team has now mobilized and commenced commissioning activities in early January.
Looking now at construction development and capital. The total development capital for Motheo is estimated at $397.4 million. This includes $47.9 million for the future development costs for the A4 infrastructure and the 5.2 million tonne per annum plant expansion. Please note that the $71.9 million shown here includes $24 million of preapproved capital. Life-of-mine capital is estimated at $499 million. And as at the 31st of December 2022, the company had invested approximately $280 million of the total on development capital.
And finally, looking at Kalahari Copper Belt exploration, drilling continued to focus on the Motheo hub with several prospects tested. At A1 drilling has outlined copper mineralization over a strike length of almost 2 kilometers, and the team has now moved on from drilling to data interpretation and geological modeling. At the T1 prospect, where [ MOD ] Resources previously published a small resource estimate, 2 holes were completed and assays are yet to be received.
Preparations also continued during the quarter for large-scale airborne gravity survey. And collaboration with neighboring exploration and mining companies will result in almost complete geophysical coverage of the Kalahari Copper Belt and enabling our team to build a comprehensive structural and basin model to aid exploration targeting.
Finally, in closing, I won't go through all of these points, but I would like to reinforce my points again from the start, which is to again remind everyone that on the back of the MATSA acquisition and the development of Motheo to a 5.2 million tonne per annum capacity, Sandfire is one of the few copper miners that has a firm production growth pathway over the next 3 years, growing to over 110,000 tonnes of copper and over 80,000 tonnes of zinc production per annum.
I will now hand back to the moderator for questions.
Your first question comes from Kaan Peker with Roayal Bank of Canada.
Just a quick couple of questions. The first one on MATSA. I think last quarter, you flagged lower backfill rates at Magdalena and just called out ground condition issues. Just wondering if they are related?
Look, partly related. If you look at particularly stope availability, around that, this has been the impact of ground conditions on it. Now it does not only slows down our production rate, it's also meant that we've had to alter our mine sequence to bring in additional ore, and it also impacts on our ability to actually backfill stopes in a logical manner to support ongoing production there as well.
So some of the ground conditions that we've seen have particularly come to a head there, probably early December, but we were starting to see the impact of those late in Q1 as well.
So in that backfilling rate, that's back to what is expected?
Yes. So the team has done a lot of work about basically implementing a new mine sequence and stabilizing that sequence. There is an adjustment period as we go through that because obviously, we needed to change, particularly development priorities and where we deploy resources throughout the mine. The team has done a lot of that work, particularly during the last quarter. And we have developed to the levels below the areas that were impacted by poor ground conditions, and we've seen a significant improvement in those ground conditions in those areas.
Sure. Maybe a second one. You've talked about the trial processing of stockpile oxide ore at DeGrussa. Can you share some of the recoveries that you achieved during that trial process?
Yes. So look, recoveries are significantly lower than what we've seen previously with sulfide ores. So obviously, our plan is geared towards processing sulfide ore in particular. The new reagent regime that we've got and based on the plant scale trials, we're seeing recoveries around and just above that 50% mark. So generally, we work on around about 50% to 60%. The one issues with us is, given the age of these stockpiles, and not so much from an oxidation point of view because it's already oxide mineralogy, it's more to the tune that these stockpiles were mined right back at the beginning of mine life at DeGrussa. And there is some uncertainty around particularly on grade distribution through the stockpiles, and particularly potential variations in metallurgy that may impact on recoveries. So given that uncertainty, that's largely why we've decided not to provide any further guidance for DeGrussa. So we'll process this material opportunely. We'll monitor it very closely and make sure that it's making money. And we'll react either way given the results that we start to see coming out of the plant.
I'll just squeeze one last one in. I mean Sandfire has owned MATSA for here some time now. Has there been any improvements or learnings that you can share with us with processing polymetallic ore specifically around recoveries?
Yes. Look -- thanks, Kaan. And look, I'll start and then I'll throw it to Dave. Look, Dave's team and particularly with the MATSA team have been doing a lot of work, particularly on recovery improvement. So there's 2 key projects that are currently underway at the moment, which is firstly around control of the blend and getting a more stable blend going to the plant. And the second one is we've been doing a lot of work, particularly on optimizing our reagent regime and control of metallurgical parameters like pH, which we now expect will deliver a significant recovery improvement with copper, but certainly to a higher extent there for zinc.
Now we've got plant trials, particularly on those new reagent regimes starting later this month and going out throughout this quarter. So we expect -- we expect to get some positive results of that in the near future. Dave, did you want to add anything?
Yes, maybe just to add. Look, it's really on the back of, as Jason said, we're coming up on the anniversary on MATSA. What we've done through that period is really back to basics, and really that's understanding the liberation characteristics in the feed, which is very important in flotation and how the mineral -- what's the efficiency being within that flotation circuit in terms of misreporting of [indiscernible] minerals into concentrate and loss of valuable minerals. We've got -- we're starting to get a lot of that data back now, which is really indicating some opportunities to improve. And as Jason said, next month, we will be kicking off on some trials, and we're quite hopeful we'll see some improvement.
Your next question comes from David Radclyffe with Global Mining Research.
First question is on MATSA. So you still look to be targeting [indiscernible] tonnes. I know that you've only [indiscernible] in the first half. So that looks like a bit of a stretch. So maybe could you give us some more color on how you can make back these tonnes? It does look to be a reasonable step-up of volumes you've achieved since you've undermined.
Yes. Look, that's -- you make a valid point there, David, you're 100% correct. So we've taken 2 opportunities during the first half of the year to take planned maintenance shutdowns as well for items that were planned originally for the second half. But personally, that does give us a higher availability and by default, a high utilization of that plant going into the second half.
The other area there as well is that I've mentioned before, we are looking at some blended stockpiles going into the plant, which we believe, once we control that blend and get more of a consistent feed, there's benefits there in recovery, but potential benefits in throughput.
Okay. And then maybe just following up on the new discoveries, San Pedro. Obviously, it looks really prospective and now highlights that prospective horizon, which I think you said is sort of a kilometer long. How do you think about testing that horizon now going forward? Have you seen enough here to push out some development? And, I guess, within that, is this geophysically a blind discovery? Or are you now seeing things that could help you target further success?
Yes. So firstly, we are currently undertaking step-out drilling on this at the moment. So we're able to do that from existing underground workings. So we are pushing this out and seeing how far we believe it extends. We are at this stage as well where we are starting to look at planning of drilling to test further that prospective horizon. The thing you need to understand, this is literally hot off the press and particularly the geological reinterpretation work that the team has been doing has really given some really important insights to controls on mineralization particularly at Aguas Tenidas, but also that give us some insights there at Magdalena and also beyond further along the belt. So we are particularly excited about this initial success. We're very excited about potential on that prospective horizon. And yes, we'll be moving very quickly to try and test as much of that as we can.
Now on the geophysics. So we are doing some geophysics from underground drilling. And the team has already identified some off-hole EM conductors that require further follow-up drilling as well.
Your next question comes from Paul Young with Goldman Sachs.
First question is on MATSA again, and sorry to harp on about, I guess, digging into the performance of Magdalena in particular. But if you look at the last 4 quarters in production from Magdalena has been coming down each quarter, now grades improved and the expected improvement in the June half. But from a multiyear perspective at Magdalena, how do you -- and you alluded to a little bit on the development of the lower parts of the mine, but how do you actually lift the volumes at Magdalena sustainably in a multiyear view? Just keen to understand the turnaround, I guess, strategy for Magdalena on a multiyear view?
Yes. So there's 2 key areas of focus, particularly at Magdalena, but also for Aguas Tenidas. So our mine development rates are still not what we would expect to achieve here in Western Australia or in Australia in general. So that is a constraint given the overall morphology of the ore body. So we've got quite a flatly dipping -- slightly plunging ore body that does particularly opening up new areas does require significant amounts of development rates. And we are seeing that, that is an overall constraint there, both at Magdalena and Aguas Tenidas. So we're doing a lot of work at the moment to lift our, basically, development rates that we're able to achieve and particularly working with our Spanish contractors, to get some insights in terms of how, say, Australian contractors approach and get much higher rates in there as well. So that will unlock further tonnes and unlock better production potential.
The other area that we've been working around is particularly around stope turnaround times. So the stope turnaround, and we've got some valuable insights from the work that we've done at DeGrussa historically to basically minimize that without incurring additional dilution and without delivering on ore body or loss during the period as well. So we've done a lot of work on that sequence. Now that delivered improvements that we reported back in Q4 of FY '22. So if you remember back to that rate, we're actually mining, I think, for over a month there. So it was almost 2 months of that quarter on a combined basis of around about -- I think it was about 4.8 million, 4.9 million tonnes per annum.
So that's what we believe we can achieve out of Magdalena and Aguas Tenidas longer term. Once we get beyond some of these localized poor ground conditions and start to see some more inroads into some of these improvements, we do expect that those production rates will sort of sustain the plant at 4.7 million tonnes per annum rate.
Yes. And then just on the CapEx year-to-date at MATSA of around $50 million versus the full year guidance of $120 million to $140 million. Is that under spend? Or I guess, on an annualized basis versus guidance, just a reflection of the lower development rates we've seen in the first half?
Look, partly, it's more around, if you like, sustaining CapEx around equipment, things like that as well, so lead times on that. And obviously, we don't have to pay for some of those equipment and services until that's incurred. So a lot of it is simply timing.
Okay. Great. And then moving south to Botswana, really good outcome, guys, on executing this project on time and on budget and actually appears to be a little bit early. So congratulations. That's a huge effort considering the challenge in the last couple of years.
And one question I did have is around the commentary around the expansion of 5.2 million tonnes per annum. And I know construction crews on like commissioning crews and vice versa, but you've obviously got a few times involved in that expansion. But is there any possibility of actually bringing the 5.2 million tonne expansion forward a little bit?
Look, critical path. Look, we could actually have the Ball Mill and the plant done earlier than we've guided. The critical path here for development or for that expansion is really around mining and prestrip at A4. So particularly, if you look at it, we've got first production there forecast from the A4 open pit in FY '25. So -- and even during that period of time, it doesn't fully meet the expanded plant requirements. So we actually make up, if you like, that shortfall from T3 ore and changes to that schedule as well as drawdown of T3 stockpiles.
So if we work back from that, that critical path in terms of that pre-strip on A4 is the time limiting factor, which is almost in sequence with the permitting of the ESIA and the granting of the mining license. So if that can be brought forward, there is an opportunity to potentially bring forward some of that expansion and some of that production earlier. But at this stage, what we have seen with Botswana is permitting time lines can be quite variable, and we're certainly not counting on that at this point in time.
Your next question comes from Daniel Morgan with Barrenjoey.
And I just wanted to follow up on the last question from Paul. When is a date at which you could get the permit that could unlock this potential benefit that you were talking about? Like when is the drop-dead date when a permit becomes a problem and -- or when could it happen -- forward benefits?
Yes. If we look at this, and I'll just refer you to the time line slide in the pack there as well. So particularly, we are looking to commence mining around the middle of -- Yes.
So this is Page 35 of the pack?
Yes. So commencement of mining there around about the end of Q3 FY '24. So if you look at that and particularly there as well, we've got the A4 environmental approvals and mining license. At this stage, we've assumed that, that continues for 3 quarters and is available early in FY '24. And if that can be compressed, there is potential opportunity, but we've also given ourselves around about a 1/4 [indiscernible] for overruns on that permitting process before it hurts the overall project time line.
Okay. And just could you expand a little bit on your strategy -- this is MATSA, sorry, this question is MATSA. Can you explain your strategy with regards to power purchase agreement at MATSA? How long a contract are you targeting? And for how much of your needs and then also the pricing outcome longer term versus what's in your existing guidance?
Yes. Thanks, Daniel. Look, obviously, this is still under negotiation. So that's very limited to what we can say. But, I guess, just reiterating the comments we have, what we're aiming to do is to get some relief from this current period of high power price. So to do that, we expect to have a proportion of our power at a fixed price. And as we work through that, we'll disclose the market what we can. But at the same time, we -- the cost for the risk of locking in too much for too long. So all the points you raised are what's in the balance through this negotiation in this process. But right now, I guess, we're not in position to say much more.
In terms of your comment on longer-term power prices. I guess, if you look at the -- I think this year, we've truncated that chart a bit of few of historical power prices in Spain. They've historically been in the EUR 50 to EUR 80 a megawatt hour. That's certainly one of the key markets we're looking at going forward that we don't preclude us from being able to achieve that [indiscernible] where power prices revert to over time. So all those things are in the mix.
And in your guidance, I think, on Page 24 is EUR 150 to EUR 170 a megawatt hour?
So that will -- that's from the market operator we find on the Internet, the OMI or OMIP page. But added to what you'll find on the Internet is our current provider given an estimate of the gas cap compensation price, which is part of the Spanish arrangement at the moment, which is not something we found. We've put that into [indiscernible].
[Operator Instructions] Your next question comes from Lyndon Fagan with JPMorgan.
Just wanted to touch on the MATSA costs. It looks like your unit mining cost has hovered around that $40 a tonne mark for the last 4 quarters, which is a great outcome. Just wondering if you're able to talk to that? There doesn't seem to be any inflation coming through.
Yes. Thanks, Lyndon. Look, I'm not sure what -- they're the actuals. Obviously, one of the things we found in MATSA and probably in Europe, more generally, that we experienced quite inflation very early on in our period of ownership. And things have settled down, particularly with power starting to revert. There is a proportion of our power costs, I think it's something in the order of 30%, 40% goes into mining as well. So, I guess -- yes, I guess the data speaks for itself, our costs have trended pretty flat.
And I think in rate-wise, Lyndon, it's probably affected also by programs that Jason and his team are working on with things like dilution and that sort of stuff, you'll get an impact through in unit costs. But you'll also get an impact in terms of contractor efficiency and some of the improvements we're making there. So a bit to factor. But, yes, you're right, it's actually fairly stable after that initial kick. You'll notice that in a number of areas, some of our costs have really stabilized over the last 2 or 3 quarters.
Great. Yes, no good outcome. And then the other question I had was, I'm wondering if you can touch on all-in sustaining costs at all, whether you've got any thoughts on reporting that? And what they would be, whether it's around that $3 type mark?
It's not something we report on, and we tend to separate it out between C1 and CapEx. So we do see one on a unit basis and then we refer to CapEx on a -- on a dollar -- whole dollar basis, something that can, of course, be back calculated and put together, not as we report at the moment, so I won't quote a number, but certainly a consideration we can have into the future about how we wish to put those 2 together. But the story is complete in any event in the way we do it in whole dollars in terms of CapEx.
Your next question comes from Ben Lyons with Jarden.
Maybe just bringing together a couple of those prior questions on MATSA. As you approach the close of this PPA-negotiating period, is it fair to say that you'd expect a material step down on that C1 operating cost? The current guidance is fiscal '23, $1.82 per pound of copper payable, I think it is.
So Ben, do you mean into the future in terms of forward guidance on C1? Is that your question?
Yes. So I mean -- my understanding is that you currently have guidance in the market for fiscal '23, which includes the March and June quarters. And if you get this PPA dealt in the next days, weeks, whatever, but it should have an impact on the remainder of fiscal '23. So can we expect a step down in that USD 1.82 per pound of copper payable?
Sure. Without giving any future guidance, we'll give that midyear, of course, but you're right. So any impacts on power, of course, any -- particularly any long-term locked-in impacts on power will assist long-term C1 versus this year, assuming other things equal, of course, around say copper production. There will also be an impact, as Jason talked about, the mine plan looks at increasing zinc production over the 3 years. So that all things being equal in terms of zinc price, if we've got high zinc production, we'll clearly have a larger byproduct credit as well. So I'd say on balance, there's pressure downward in terms of C1, all things being equal over the next couple of years.
Your next question comes from Hayden Bairstow with Macquarie.
Just -- a couple of things just on approvals, I guess, just about noticing that mine approval in Botswana. I mean is that taking longer than the original approval? Are they starting to stretch out a bit like they are in every other part of the world?
No. Look, thanks, Hayden. Look, from our point of view, we went through this process with T3 and the 3.2 million tonne per annum project. If you look at publicly stated time lines for approvals from the Botswana government, they state 7 weeks. Now if you look at it, the T3 approvals took pretty much 7 months. So as I've said before, we've basically allowed about 9 months for approval, and we put about another 3 months or a quarter in their float before it starts to improve impact on the mine plan.
Okay. And there's, I guess, a similar sort of question at MATSA. I mean, how -- there is some reasonable targets and some other stuff. I mean how long do you think that process would be from -- if you could drill this thing out into some sort of resource in the next 6 months, do you actually get approval [indiscernible] and San Pedro and then obviously more regionally?
Yes. If we look at Magdalena, from discovery through to resource and reserve, it was around about 2 to 3 years. So it was actually a 2-year period. So there's a real recent, if you like, a case study where we can actually move these things through the process and get them into production quite quickly in Southern Spain.
Okay. And just one final one, just on the power of -- the forward power hedging sort of potential. I mean, how much of your power would you think you'd look to lock in? And how much would you be on spot? And how much sort of variability in that thought process have you had?
The last part of your question here being quite a lot of variability in that thought process. I guess, at this stage, we're probably not in a position to say too much given where we're at negotiations. But that's all the things we're [indiscernible] tempting during a really high price sort of environment, like the spot that we've had to lock in a large chunk of power at a price that's perhaps a saving on the current price spike, but still above the sort of historical long-term average, and I guess we're reticent to get ourselves into that position, perhaps that gives you a little more color.
Your next question comes from Matt Greene with Credit Suisse.
Matt, I've got a question for you on the hedge book, if I may. First of all, I presume all the copper hedge is in relation to MATSA. So can you just walk me through some of the movements in the hedge book from the September quarter to where it sits today?
Well, I don't have the exact details in front of me. It turns with the start of the quarter and the end of the quarter. But there is actually some DeGrussa QP hedging in there as well. So that has propped up some of the copper book. I'd have to go back to a comparison quarter-on-quarter for you, unfortunately.
Okay. So just looking at your MATSA realized pricing, it sounds like in the December quarter, most of your sales were directly into the hedge at the higher price? Is that obviously some QP adjustment?
It turns out about 40% goes into longer-term hedging that we did on acquisition. Any other hedging comes through the rolling QP. So I wouldn't have expected that sort of percentage in the December quarter. I expect it to be higher moving into the March and potentially June quarters because of that hedging at the back end of the year, which has, call it, 4-, 5-month QP. So I'd expect the percentage to be high, but not that high in the December quarter. But I can come back to you on some more specifics if we need to.
Okay. That would be -- that's great. And just lastly, at Magdalena, when do you intend -- what's the time line on moving away from the stock work to the MATSA sulfide? Is that next 2 years or more near term?
Look, we're largely through it now. So we've really got some remnants coming through pretty much this quarter. So beyond that, we're moving more into the MATSA sulfide there basically from now.
And is it your expectations that ground conditions will improve with the MATSA sulfide?
Yes. Look, Magdalena can be challenging in places in terms of ground conditions. We do have a heightened ground support regime in there, and we're constantly reviewing that as well. But what we are seeing, particularly the issues that we saw in late Q1 and Q2, we are moving through that, and we are seeing a significant improvement.
Overall, it will be something that needs to be managed at Magdalena in the longer term. And some of the work that I mentioned there about higher developed stopes to support basically production, that's one of our key focus areas there to make sure that we can maintain the target production rate at Magdalena.
There are no further questions at this time. And that does conclude our conference for today. Thank you for participating. You may now disconnect.