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 2019 March Quarterly Update. [Operator Instructions]I would now like to hand the conference over to Mr. Nicholas Read. Please go ahead.
Thank you, Jen. A very warm welcome to everyone. On behalf of Sandfire, we thank you for your time today on the eve of the Easter long weekend.Earlier today, the company released it's -- on the ASX platform its March 2019 quarterly activity report and an associated quarterly update presentation. So if I could please refer you to those documents. A live webcast of this teleconference and a synchronized slide presentation is available both through the company's website or through the BRR Media service using the link provided as normal on the front cover of the presentation. And a recording of the webcast will be available from the same link shortly following the conclusion of today's call.Just to introduce the team very briefly, here from Sandfire we've got the company's Managing Director, Karl Simich; Chief Operating Officer, Richard Beazley; Chief Financial Officer, Matt Fitzgerald; and General Manager, Geology, Shannan Bamforth. Welcome to all of these gentlemen.And to kick off today's presentation, I'd like to hand over to Karl Simich. Please go ahead, Karl.
Thank you very much, Nicholas. And a happy Easter to everyone, and thanks for listening in deep into -- coming after the Easter break. Once again, delighted to present our third quarter's results for the March quarter for Sandfire. Once again, it's been a very solid performance for that period and also for the 3 quarters year-to-date, having produced some 16,000 tonnes of copper and almost 11,000 ounces of gold during the quarter for a pleasing C1 cost of $0.92 a pound.Year-to-date, for the 3 quarters, we've produced almost 51,000 ounce -- tonnes of copper and about 32,500 ounces of gold. As a consequence of those very solid 3 quarters, we have marginally increased our guidance for production this year to a range of 66,000 to 68,000 tonnes of copper. And if we're fortunate, we'll be at the top end of that. And also lifted our gold guidance for the year, and we've essentially targeted, essentially rather than a range, but a lower C1 cost for the entire year of in the vicinity of USD 0.90 per pound. So very, very pleasing results. And the mine and the operators continue to deliver every single time, so I'm very appreciative of that, and doing a wonderful job for our stakeholders.Also, very pleasing that the team has brought on-board and on-stream now the first, not only development, but now stoping ore from the second mine of Sandfire's VMS mine, the Monty mine. And once again, pleasing to see that, and we are moving into that blending operation of the Monty ore into -- sprinkling into the DeGrussa ore and going through that upgraded DeGrussa concentrator. So once again, as we anticipated and as we planned, we are executing.Very pleasing on the development aspects of our business. And whilst these things do take some time and one must be patient, the Black Butte Copper Project in Central Montana has now moved into another milestone event, which is it has had its draft -- formally draft Environmental Impact Statement released by the regulator, and it is presently in a 60-day public commentary period. As we mentioned before, once that public commentary period is over, the regulator will then need to assess those public comments and determine if anything else is required. If not, the regulator then moves to -- go to the final stages of the bonding with the company and also then formalizing a Record of Decision, which essentially is a -- the issue of a mining license which will enable us to commence physically breaking ground at the operation. So we're looking forward to an interesting second half of calendar '19 at the Black Butte project, and with a bit of luck, we'll be breaking ground there.Further afield and back home predominantly, a very extensive exploration program. We are doubling our efforts, and Shannan will give you an update on where we are on our extensive ground holding and the work that we're doing. And essentially, from my perspective, I think we've said it time and time again that we are very optimistic about the opportunity to find further repeat style of deposits to that of DeGrussa and Monty in that region. And we must just continue to do that work in a very diligent and disciplined fashion whilst every now and then taking a wild card approach as well.As a result of all of the above and particularly the operations and production statistics, the company is in a very strong financial position, and that we sit at about $183 million in the company and almost $200 million in the group. And Matthew will give you some further details on those statistics and how we got to that point.I'll pass over to Richard Beazley now to give you an update of safely and the operations. Over to you, Richard.
Thanks, Karl. This -- the last quarter has been quite pleasing on our safety record and how we're trending. Reporting this quarter now, this is moving down to 7.1 on our TRIFR, which is really a result of a whole body of work through all our operations on-site, including all our contractors, which has been quite specific and focused over this period in response to where we were trending last year in the first 2 quarters as we've talked about previously. So very pleasing results. So moving forward, we'll continue with those program of works and new ones to maintain that trend downwards.Just quickly now moving to the upside. Underground production-wise, again, solid quarter and continuing to improve our results overall. So from a DeGrussa point of view, just under 400,000 tonnes moved at notionally 4.26% copper. And Monty now finally into the stoping phase. As we now open up the mine in terms of production proper. For the quarter we have moved just under 40,000 tonnes at 3.74%. So in the next quarter, in the next year, we'll see those tonnes increase. And certainly, the head grades will increase too. As we now move from the top of the upper zone and get into the next panel underneath where we will see those grades increase to where we are expecting to increase as per forecast going forward.With Monty, we still are continuing the grade control drilling there. So that will be ongoing for -- into the next half, the next year. So as that then occurs, we'll end up having other forecasts as we get more detail coming into the planning system and into the production line as well. Don't anticipate any particular surprises there at this stage and continue to produce quite strongly is the expectation at this point.In terms of processing for the quarter, just put through notionally 414,000 tonnes at average grade about 4.21% copper. Pleasing though is really the recovery through that period. So 92.2% is a lift, and in particularly response to some programs of work there that we've specifically designed to change the cost of our blending regime at the feed and some of the work we're doing around the flow tool has seen an increase in that recovery. So that has had a major impact on our position where we'll be at the end of the year as much as the head grade has been as well. So it's been very, very strong. And similarly gold this quarter has uplifted on recovery at 47.4%.In terms of overall production for the quarter just under 66,000 tonnes of concentrate was produced containing just over 16,000 tonnes of copper and just under 11,000 ounces of gold. So a very, very strong quarter with the whole program, the works around safety and productivity and we're seeing those results falling into our bottom line.So I will now hand to Matt to give you the financials and sales.
Thanks, Richard. Moving to sales. So 7 sales completed for the quarter through Port Hedland and Geraldton, with little work around some of the cyclonic activity up around Port Hedland during the quarter as well. That leaves us for the quarter with around 16,000 tonnes of concentrate. That's come down since the end of the December quarter to hold around 1.5 shipments worth, a little above our running average but sort of about right where we are. And then that contains around 4,000 tonnes of copper. So all going well in a delivery sense, also a cost sense for our sales side of our business.Looking towards operating cost for the DeGrussa operations, this now includes DeGrussa -- the DeGrussa Mine and the Monty mine are both integrated into the DeGrussa operations as we state them here. As Karl said, a pleasing cost result, USD 0.92 per pound, driven up a little as we previously guided by some higher mining costs coming out of Monty, particularly while that initial grade is at the -- is lower around 3% or 4%, that brings in a -- Monty comes in at quite a high cost per pound, so it does drag mining cost up a little bit.We have started to see the initial signs of a reducing mining scale at DeGrussa, just the start of that, so we'll see a little bit more of that as DeGrussa's mine scale reduces to allow room for Monty to come in. Of course, at the same time, Monty's grade will be increasing, so there'll be a large offset of that as well. And the other thing offsetting our cost of mining is our strong gold production numbers and also a strong gold price, and that is impacting and improving our byproduct credits. So for the full year guidance, we have picked around $0.90 a pound. With 3 quarters of the way through the year, we think we will land pretty close to around USD 0.90 a pound.Mine development at DeGrussa, around $7 million for the quarter, heading to around $30 million for the year. At the Monty mine, development around $8 million. Probably land somewhere around $23 million for the year, we think. And sustaining and strategic CapEx across both of them is around -- is $7 million for the quarter. And that we think will be pointing at about $37 million for the year, and $28 million of that is that -- has been in and around the Monty operations. So $11 million interim dividend as well paid in late March. So we -- our cash did bump up above $200 million late in the quarter, and then landed lower than that with the $11 million dividend payment. And just for modeling, another $11 million of tax payments during the quarter as well.I'll hand back to Karl.
Thanks, Matt. Just quickly touching on the Black Butte Copper Project owned by our 86% subsidiary, Sandfire Resources America. Obviously, a project that is very prospective in terms of taking that into production, also exploration opportunities that's almost 600,000 tonnes of copper sitting at 3.3% in that location. As I said earlier, the draft EIS, Environmental Impact Statement, has been released publicly and it is for public comments at the moment. As I mentioned, at the conclusion of that, the regulator will determine what's required to be done based on those public comments, and then we hopefully see ourselves going into -- conclude the finalization of our bonding requirements and then ultimately, the issue of the Record of Decision sometime during the middle to the third quarter -- during the third quarter calendar of this year. So optimistic that we will then be in a position to be able to break ground during calendar '19 and get on with it. So very excited.The feasibility study for that project is expected during the middle of the year, so we should be sliding somewhere in quarter 3 of 2019 to have that feasibility study. And then obviously, depending on circumstances, the Board of Sandfire Resources America and probably working in conjunction with Sandfire Resources here will come through a determination of what it wants to do. But we're really looking forward to moving that along, and very optimistic and very positive that, that project and the prospectivity of that region that hasn't seen any new exploration work done for a long time. So we'll keep you posted.And now I'd like to just hand over to Shannan to discuss our exploration endeavors, particularly at Doolgunna.
Thanks, Karl. It was a busy quarter in exploration up at Doolgunna with 3 aircore rigs and 2 RC rigs commencing early in the quarter and working through for the full quarter. The aircore rigs were focused in the Morck's Well and extensions of Morck's Well to the southwest doing the first pass drilling to identify their prospective stratigraphy and also some geochemical anomalies were derived from that, which were then followed up with the RC rigs moving in lockstep behind the aircore rigs. And also providing down holing platforms from the RC rigs.The southwest well extensions of Morck's continue to look very favorable in terms of the geology. We source entirety of horizons abound as we went up to 30 kilometers south of Morck's Well. So still seeing the right settings for VHMS deposits in this area, which is very encouraging.Moving loop and gravity also continued. At the start of the quarter, we were still working in the Enterprise and Auris JVs. And towards the end of the quarter, we moved up onto the Alchemy JV. The Alchemy JV is a new area for us to step into. And interestingly, it's the first time we've actually drilled and had an open greenfields area, a long strike from DeGrussa on the northern side of the Bryah Basin. So all of the Monty and Morck's Well is all on the southern side. With Alchemy, we're back into the northern side, which we still believe is exceedingly prospective for VHMS mineralization and to date poorly tested.Moving into the next quarter, we'll see the aircore rigs moving into the strike extension to DeGrussa onto the Alchemy JV, and we're looking forward to seeing what we can pull together in terms of the prospective stratigraphy and go out right through that package. And also, we'll be using the data we've been collecting in the Auris and the Enterprise JVs to complete some target generation and follow up with RC and diamond rigs in the coming quarter.Closer to the mining centers, with 22,000 meters drilled underground in the quarter at Monty, we're starting to understand much better the structural setting and location of Monty. And we'll extrapolate that out into the more regional exploration environment. To sum it all, a busy and rewarding quarter for exploration.And hand it back to Karl.
Thank you very much. And just to sum up, and once again, thanks very much for listening to us. An excellent production and operating performance, cost guidance and guidance for the -- or performance for this quarter, and obviously looking for the full year. Making progress in the U.S.A., which is very pleasing to see. As Shannan's just mentioned, we are seeing some wonderful geological targets and opportunity and the right geological setting that will give us the opportunity to make further discoveries, hopefully, similar to that of DeGrussa/Monty as we continue to work diligently on our exploration and significant ground holing.And I think the company is in a wonderful position, a very strong position. It bolsters very much the share price that we see today in terms of what we know is coming through our operating performance and what we expect to see in terms of those net and free cash flows based on the estimated sort of economic parameters around. So we're essentially underwritten at a market capitalization by the performance that we know is likely to occur.We're in a wonderful position to push and drive our production, to look at opportunities where we may from some mineralogy situations possibly extend that mine life, and there are a number of work programs that are on foot. Explore and continue to aggressively explore in that region where we have a commanding position of almost 7,000 square kilometers but also to be in a very, very strong position between our balance sheet and our relationships with our financiers, our bankers, our investment bankers, also our customers to look at pursuing the business development opportunities that we believe, if they make sense, could be value accretive to our business. So I do believe the company's in an excellent position and it is poised for a potential success going forward.So with that, I would like to thank you once again for listening. Happy Easter. And if you have any questions, the floor is open.
[Operator Instructions] Your first question comes from Michael Slifirski from Crédit Suisse.
I've got 3 quickies, please. First of all, U.S. bonding, I don't know how that works. Can you sort of describe what's required there when you get the Record of Decision, what you have planned? Is there any recourse to your balance sheet? Or is all that within Sandfire North America? And does that sort of progressively increase as you spend money? I just want to understand what that -- what the implication of that is, please?
Michael, Matt here. It really works as a process in line with the approvals. So you do start early in terms of understanding what the impacts will be. But there's a bit of a negotiation process to be done with bonding over there. We're obviously committed to full bonding, whatever is really required. As how we will, in fact, fund it or create the bond will be part of that negotiation as well. So it's something we'll solve in parallel between now and the middle of the year. But I -- yes, I couldn't say now exactly how we'll structure. We'll structure it the best way and cheapest way that we can.
Okay, so wait and see. Secondly, with respect to the incremental guidance upgrade. So is that based on performance to date or sort of expectation around Monty? I'm just trying to understand what's actually -- I know it's only modest, but what's actually -- what's driven it?
Michael, Richard here. The principal drivers behind the guidance now is simply performance on our head grade coming up. It's been higher than we anticipated on the original plan and also, the recoveries in the plain are significantly up. So they're the primary drivers why we've changed the guidance to match that lift.
Okay. And then I guess the follow-up from that then is that if I look at the range for the year, the implications for June quarter, looks sort of -- or the low end certainly looks conservative because it's a lower number than what you've delivered in any prior quarter this year. So how should we think about that June quarter guidance?
June quarter guidance, I'm just having a quick look at my notes here of the report. All up. We will see -- we'll probably -- our view is that we're going to be probably targeting the top end of our guidance. So I think we still have -- end up -- or you may say it's conservative, is still going to be a strong quarter going forward. And I think most of that will be driven by the production out of DeGrussa. It's going to be the principal driver. This is where we're seeing the lift in the head grade. At this stage, we don't see any shift downwards from what we're seeing in the areas that we're actually mining at this point. And in terms of recovery, the work we've been doing there is continuing, so we will continue with the uplift in the recovery by all expectations and possibly even improve that position. I think the guidance is fairly reasonable, and I think it's going to a pretty solid performance for the year-end.
Yes. Terrific. And then finally, the first sort of stoping ore from Monty, have you learned anything different to what you expected? Is there any sort of initial perceptions from some testing that whole infrastructure from mine to mill?
Look, I think at the end of the day, the learnings really just come from the grade control drilling, Michael, given that the original drilling from surface is far more granular than the grade control drilling you can do underground. So yes, what we anticipate and have found, we get more knowledge of the structural controls underground and what that does. So the interpretations have changed. We think at this stage, it's virtually, in terms of copper tonnes, fairly neutral. Neither up or down particularly. There's a shift obviously in local areas around those copper tonnes. But as we get into this mine, it's looking like overall, we'll deliver what we said we would be able to deliver is what it's demonstrating at this stage. So we're learning stuff at a structural level. In terms of just pure operations, nothing particularly surprising. It's -- the ground there is typical ground conditions from an operational point of view and ground control and the likes, and no surprises there. The water issues we had previously earlier on as we were developing the decline dam have largely removed themselves now. So we're boring tighter ground in the sulphide zones, or fresh ground. So water problems are nonexistent. Yes, we do get water but nothing untoward as I predicted earlier when we put down at the tighter country and also the model developments and headings to take the pressure off the 1-phase operation we had initially.
Your next question comes from Daniel Morgan from UBS.
Just recoveries. I just wouldn't mind touching on that a little bit more. With the Monty coming on with higher grade and what you've been talking about with favorable recoveries year-to-date, is there any update that you can give us or loose conceptual guidance on where recoveries you think you might be able to get on to? Is there any material lift or is it just a small lift that you're thinking about?
Yes. Richard here. Look, it's going to have a significant impact, because, overall, we're going to lift the head grade notionally, say, 5% to 7%. So we would expect a recovery increase just on the head grade alone considering all things else equal. The work done in the last few months where we've seen a shift in the recovery is driven by not the mineralization for Monty, but really, in essence, next to nothing in that sense of hitting the mill at this point, that's driven by the actual philosophy of feeding a constant copper sulphide ratio as long as we can to get stability in the plants. When you get the stability or longer periods of stability, then you can maximize and optimize on your opportunity to do what we do through the float circuits and the grinding circuits to get the recovery up as high as we can. So the body of work there is ongoing and then similarly how we handle the concentrates through the float circuits and so it's an ongoing body of work there. So notionally next year, yes, we'll see another lift driven by Monty. And again, yes, that's already represented in the forward-looking forecast and budgets internally. But yes, currently, we're sitting at notionally 92%, quite a significant impact on that lifting up to 93s and 94s as a minimum.
Sure. And maybe a follow-up question just on costs. We've got guidance on through to the end of this year. But in the following year, we're going to have much greater contribution from Monty, which will be higher grade, which should assist cost but obviously offset by higher mining costs at Monty. Just wondering if, conceptually, you think cost will be -- which will win? Is cost pressure going to be up or down? Is grade going to win? Or is higher mining cost going to win? Just looking for concept not necessarily numerical guidance.
Yes, you're right. In the coming contest, they will offset each other, of course. I think if you were to stretch out our previous guidance talking about the second half of this year with cost going up, you'll see Monty's grade drag the cost down at Monty. Monty's scale and boutique size and having to deliver and hold to the DeGrussa ROM will obviously increase cost. DeGrussa's scale reducing will increase cost. Net-net, I think that we'll probably see them slightly creep up a little bit.
Okay. And then just one last question from me. Any update on different mining life extensions at DeGrussa? I know we've talked on previous conference calls about some stockpiles or material around that might be able to be processed. Can you provide an update on that? Is there any update on that?
I can sort through that there. Richard here. Yes, our kind of stockpile, again, has been a large body of work that's been ongoing. We have now got to a point at the back end of all the met test work. So whilst we've been doing a lot of work over the previous years on acid leaching, we've got another technique in there of looking at leaching the copper species out of those oxide heaps. We have got to a point now that with the ore sorting casework we did in the third quarter, that the view going forward is we basically bring this back to a PFS stage will be all sort those stockpiles into 2 heaps, 1 for acid leach and another 1 for this new technique. The acid leach will take and leach our normal oxide type copper species, where the new technique will address our native copper and sulphide copper species in the heap. And the reason we're doing this is there's actually quite a large component of [ bad ] copper in the heaps that's worth actually chasing. So that work is still in study so there's no formal release to the market that gives you a sense of where we're heading with it. In terms of stuff we mentioned previously in terms of tailings dams, re-treating, that's again very early stage, we've done initial test work, and that's ongoing for different regimes to extract the copper and gold that's remaining in that tailings dam. And there is potentially a link between the tailings dam and the oxide through using the same facilities or part of the facilities in terms of processing. So not necessarily straightforward, but tailings dam, obviously, one would logically think we're not going to really get into that as a project if it actually works economically until we finish this underground mining the sulphide concentration. It's a bit hard to processing tails while you're still producing tails from a sulphide concentrator at the same time. So that's still a few years away, so we've got a bit of time at this stage to do the work on the studies for the tail. In terms of oxide, our view is we're not too far away concluding that and coming up with an answer whether it's going to be economic to do or not economic. And then if it is, what that really will look like. So that's best we could do at this stage in terms of an update.
Your next question comes from Connor O'Brien from JP Morgan.
Just grades out of Monty, obviously, lower as you guided to in the March quarter. What can we expect into the June quarter for grades out of Monty? And also, the quantity now that you'll have a full quarter heading into June 30?
Sorry, I missed that question. Can you just repeat that?
Yes. So just looking to get an idea for the grades out of Monty for the June quarter as well as the quantity of ore.
No, we'll expect to see that lift up to around 8% to 9%, and that's driven principally as we move into the next series of stopes where we are currently today.
Okay. Great. And then in terms of ore that will actually been mined, what sort of quantity now that you have a full quarter of production?
Yes, now we're talking notionally in the order of 50,000 to 60,000 tonnes.
Great. Great. And then in terms of development spend ongoing, is there much development sort of left? And what can we expect heading into next year?
Oh, geez. I haven't got that number at hand. But in terms of just in a descriptive sense, we have by no means finished the development, we're only really just started the top end of the mine. That will see us go through, well and truly, into the next financial year. So the spend level at top end, I can't give you that, but we can also...
Yes, and we'll give some more guidance probably around midyear with our results and year-end numbers around next year's Monty development numbers.
[Operator Instructions] Your next question comes from Larry Hill from Canaccord.
Just to maybe pick up with Matt around mining cost at Monty. So basically, you're reporting a unit cost from here on in, no costs are capitalized. And just to that point, could I get a bit of a gut feel on what the unit mining cost will be at Monty. Would it be double what is it at DeGrussa?
Just strictly mining sense as we sit now per pound, I'd say that'd be about double, if not a bit more, bringing out 3%, 3.5% dirt. But it's not really an indicator of anything as we announced. We're talking very early stoping ores, some development ores or stuff. So we'll give some more guidance of that later on, but our initial guidance that we gave with the Monty DFS was to say like-for-like, we think Monty's probably around $1 a pound all-in once you factor in that higher grade but also the smaller scale of Monty sort of more complex the haulage distance and all those sort of factors that come into it as well. Yes, around $1 we thought at that time. So we'll update that as we get in the middle of this year.
Yes. Great. And just maybe one for Richard just around where you actually are in the sulphide in terms of the ore. And are you in the halo sort of zone or are you into the sort of main zone? When do you sort to start to think you'll start to hit that sweet reserve grade? Is that towards the back end of this year?
Shannan here Larry. With the development that we've got into Monty at the current time, we're at the very upper levels of the lower zone. So we're really sitting on fringe mineralization, very small amount of halo. But again, the halo isn't really the driver of Monty, it's the massive sulphide. And as we move forward into the coming quarter and more so into the back end of this year, we'll see it develop into the mid- to lower levels where we'll start to see some much meatier massive sulphide mineralization come onto the menu.
There are no further questions at this time. I'll now hand back to Mr. Simich for closing remarks.
Thank you very much, everyone, for dialing into this quarterly update. As I've said before, it's been a fantastic quarter. Once again, very pleasing. And we're looking forward to June also being another very solid quarter and for the financial year-end to 30 June '19 being very strong. We work diligently hard in terms of bringing the operations to bear both at Monty and DeGrussa. We'll continue to perform. Obviously, in the next few years coming into production that will be very, very strong. Exploration is doubling its efforts into the Greater Doolgunna region, obviously, looking for a similar type of look-alike deposits. And finally, we are working and making progress in the U.S. and looking, hopefully, to be breaking ground as that comes together during this calendar year '19. And we are in an excellent position in terms of strength of balance sheet and access to capital to look for value-accretive opportunities. And we are busy in a business development sense at the moment. So once again, thanks very much and have a great Easter.