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 2020 March Quarterly Update. [Operator Instructions] I would now like to hand the conference over to Nicholas Read to introduce the Sandfire team. Please go ahead.
Thank you, Taylor. Hello and welcome, everyone, and thank you for your time today. On behalf of Sandfire, a warm welcome to the company's March 2020 Quarterly Investor Conference Call and Webcast. I'd like to begin by referring you to a number of disclosures released on the ASX platform this morning, Sandfire's March quarterly activities report and an associated quarterly update presentation, a company resource and reserve update and an exploration update from our Tshukudu project in Botswana. In line with Sandfire's commitment to adhere to the social distancing protocols part of the current COVID-19 restrictions, several members of the Sandfire senior management team have dialed in remotely for today's conference call. So please bear with us as we walk you through the presentation and address your questions in a normal fashion at the end. I'll begin by briefly introducing the Sandfire team. Kicking off this morning's call, we have the company's Managing Director and CEO, Karl Simich. Following Karl, we'll have updates from Sandfire's Chief Operating Officer, Jason Grace; Chief Financial Officer, Matt Fitzgerald; General Manager, Geology, Shannan Bamforth; and Head of Exploration in Botswana, Julian Hanna, before passing back to Karl for a summary. Please note that a live webcast of this call and the synchronized slide presentation are available by using the BRR Media link provided on the front cover of the presentation, and a recording of this webcast will be available at the same link shortly following the conclusion of today's call. I'd now like to hand over to Karl Simich to begin today's presentation. Thanks very much, Karl.
Thank you very much, Nicholas, and welcome, everyone, to Sandfire's March quarterly report update. And don't we live in interesting times. I want to touch on a few aspects with respect to the current pandemic, COVID-19, and the business that we have and how we are faring at this point in time. And I'm very happy in actually making the comment that we have done a lot of hard work in our business over many years to ensure that we do have a very strong foundation and fabric to the business, very strong business protocols and operations. And when an event like this occurs and indeed other events that have occurred during the duration of this business, we have seemed to be in a very solid and strong position with very, very good operations, very good protocols, very good communications and very good understanding between the groups of people that work in our various operations. And so I'm very heartened that we have got these solid foundations to find that we are in the position we are in. Clearly, COVID-19 is extraordinarily dramatic and very serious. It is a very different style of event that might often face a mining company, where there normally are quite short-shaft, event-driven matters. This is ultimately clearly ongoing, and it affects not only the -- well, the entire community and all businesses, and it's extraordinarily far reaching throughout. So it's a different situation, clearly, and we all know that. As a business, we've quickly moved to be very progressive in front -- hopefully, in front of the curve, to be very progressive and bring it -- bring to bear many operating protocols even in advance of what was established as appropriate guidelines. So that's been very good in terms of taking some very strong early initiatives, and we have been vigilant. A couple of key elements I'd like to touch on. And the most important thing for us are our people. Talking about people, facilities management, logistics, contractors and local communities and how we have been dealing with aspects, sort of, the production, sales, development, exploration and where we sit financially. With respect to our people, as I've said, the most important element of our business, and making sure we are looking after them and we are healthy and we are safe. We've developed extensive protocols, obviously, in line with various authorities, state authorities. But we have very much been in advance of many of those initiatives and very pleased that they have been extraordinarily effective. We do not have -- as far as I'm aware, when we're on the phone to the minister recently, there is no COVID-19 sites on any remote mine site in Western Australia, is my understanding. And obviously, we do not have one at DeGrussa. A number of aspects with respect to our activities and protocols regarding social distancing. Nonessential activities being away from the mine site and various elements like that, we have moved on very, very quickly. And I do believe that is working extraordinarily well. And with regard to facilities and management, once again distancing, cleaning, health screening, modified flight schedules, a variety of things, we've worked very quickly to be across those and to make it -- consider as the #1 priority the well-being of our people so that they can continue to operate in a health and safe environment. With regard to contractors and local communities, we are obviously working with those. It's critical to us ensuring that we have access to critical supplies, consumables; ensuring our contract, to the extent we can, we provide them with the support structures; ensuring that they are looked after, that we've been progressive looking at critical payment and other aspects to ensure their businesses continue to operate as well, absolutely critical. In terms of our sales and marketing, just in terms of, I suppose, taking degrees of insurance policies, we've increased our mining stockpiles at the mine site. Clearly, at the end of the day, you're as strong as your weakest link. And in our operations that are relatively remote, there will be probably things like consumables like fuel and other critical spares. So we've addressed many of those things. But also, we've increased our ROM stockpiles to be in a solid position and have greater stockpiles available, increased our ability in the event that there's any shipping constraints, storage capacity at DeGrussa operations and local ports. At this stage, we have not had any issues with respect to our operations or any movement of physical material or shipment thereto or with respect to customers taking a product and paying for it. Matt might give you a little bit of an update and some color on that in due course, but essentially, business is operating as usual. So that is important. In terms of the development aspects of our business, there are some things that are a little bit beyond our control. Botswana is in a 28-day lockdown, and Montana is in a work-from-home scenario, as ordered in both locations. So that does have an impact in terms of some things. But work is continuing very effectively, remotely in many jurisdictions. Physically, things like drilling have been affected, but essentially, work is continuing on many, many aspects of our business. So in development, we continue to optimize the T3 Mateo Copper-Silver Project, and feasibility study is ongoing. We look forward -- whilst it's been delayed somewhat, we look forward to moving to a positive scenario with respect to that optimized feasibility study during the course over the next number of months, but it will be delayed. With regard to Black Butte Copper Project in the U.S., through the last little while, 4 to 6 weeks, we've received, and it's been published by the regulator, the final environmental study. And we had, as of last Thursday in the U.S., received our Record of Decision, which is essentially the mining permit. So we are moving in terms of our planning to complete aspects like the feasibility study and also bonding requirements with respect to that project. But it will be impacted in terms of delays with regard to COVID-19. But once again, we are putting very solid work in place at the moment to make sure that we can come out of this pandemic with a very strong position and many aspects of our business being in a position to move forward and move forward quickly. We continue with our exploration on a very conscious basis in terms of what we're doing. In a COVID sense, we've separated our exploration team from our production team. We've run 2 camps: remote exploration camp, which we have had for some time, by the way, up around the Greater Doolgunna region, which is independent of the DeGrussa mine site operating camp. So that has been ongoing and has been something that we continue to facilitate during COVID and it works well. So our exploration, whilst it was slowed down, will continue in the Greater Doolgunna region. We are having until -- and I'm sure we'll continue to have, but we have suspended our exploration as a consequence of the 28-day shutdown in Botswana at the Kalahari Copper Belt that we were presently drilling with 6 drill rigs on the interesting A4 deposit. And -- but that is in suspension at the moment, but we look forward to recommencing that as soon as we can. From a financial perspective, corporate perspective, the company is in a very strong position. And the cash holding is very solid at -- in excess of $200 million, and our business is debt-free. So we sit in a very strong position there. And just being prudent as we always are, we are ensuring that we're taking appropriate inquiry to assess the various carrying value of our assets to ensure they are appropriate at this stage. So that is in terms of giving you a bit of color behind COVID-19, where we are, what we're doing, the initiatives we're taking, but the very solid foundation that Sandfire has with respect to being able to deal with this matter. And I must say foremost and at the top of that is the quality of the people in the organization and their ability to work within these very trying circumstances to effectively achieve what we have achieved. So I'm very proud of what has happened. If I turn now to our performance in the March quarter and really the year-to-date, the 3 quarters, it's really been a fantastic quarter and a culmination of very 3 solid quarters, so very, very, very positive. And whilst we are operating in an entirely different set of operating protocols, it looks like we will have a very good operating year as well. For the March quarter, we produced just under 18,000 tonnes of copper, good gold at an extraordinarily low C1 cost of $0.74 per pound or USD 0.74 per pound, so very solid. And for the year-to-date, it's almost 53,000 tonnes of copper at a operating cost profile of $0.80 per pound. So that's extraordinarily pleasing. We have withdrawn -- in line with the uncertainty relating to COVID-19 and its impact, we have withdrawn all guidance. But it's fair to say that previously, that guidance was sitting at -- for this year from operations at DeGrussa, Monty, at around 70,000 to 72,000 tonnes of copper, around 40,000 ounces of gold at an all-in C1 cost of around $0.90 a pound. Whilst this is withdrawn, our 3 quarters to date have been very solid, as you can mathematically see. And I'm hopeful that whilst guidance was withdrawn, that we can still achieve excellent operating results for the year. We have also today updated our ore reserves and mineral resources for DeGrussa, Monty in the marketplace. With regard to development, as I said, optimization of T3 Mateo project is ongoing, some very good work being undertaken by Ian Kerr and his team. And we look forward to those results coming to bear as we can work our way through COVID-19. But as you can imagine, we are having some delays with people unable to respond to some of our inquiries on the costing side, mining side, fabrication side because of what might be happening in their jurisdictions, whether that be other parts of the world, South Africa, Europe, et cetera. So it has an impact, but it will not change what is the very key objectives and the milestones we're seeking to achieve, which is for, with respect to T3 Mateo, a positive investment decision in the not-too-distant future. With regard to Black Butte, as I've said, the final environmental impact statement has been received and published by the regulator about a month ago. And Thursday last week before Good Friday, the regulator issued -- the lead regulator issued the mining permit in the form of what's called a Record of Decision. So we have fully permitted the project. We will work with the regulator now to complete the staged bonding protocols, and that's well advanced. And we're also extraordinarily well advanced in our feasibility study, which we will complete in the appropriate time, somewhat impacted by COVID-19, looking forward to that. And we will have a strategy with respect to our intentions on Black Butte over the next little while. Exploration continued at Greater Doolgunna, as I mentioned before. And whilst Julian Hanna will give you some greater detail, really excited about what's opening up, potentially really dramatically opening up in the Kalahari Copper Belt and really the first opportunity that we have had since we've come together and collaborating now and bringing the 2 companies together to get on and do some interesting exploration work. And it's getting some fantastic results at the A4 Dome. And Julian will touch on that. But highlight results in the release out today on that: 18 meters at nearly 5% or just over 5% copper and 124 grams per tonne silver. Uncut grades, they are in one drill hole, but there are a number of holes that have been completed, a number of assays outstanding, 6 holes in progress. There were 6 rigs, and we were both in the middle of extensional drilling for that A4 strike. It's moved from 250 meters to 700, but also infill drilling at the same time. So really exciting active work going on, but the whole belt potentially is opening up with the reinterpretation of AEM, airborne electromagnetics, and also some new survey that we're undertaking. Julian will talk to you about that a little bit more. And once again, as I said, cash at over $240 million, no debt, and the company is in a very strong position. So I look forward to handing over to Jason now, who'll run through the safety in operations and then the rest of the team. I look forward to talking to you and answering any questions in due course. Thank you. Jason?
All right. Thank you very much, Karl. Moving on to safety. So safety performance across the Sandfire group remained solid with the company TRIFR at 6.1 as at the end of the quarter. As Karl covered previously, our response and preparations to the COVID-19 pandemic has dominated our safety activity particularly during the second half of the quarter. However, our key initiatives of principal hazard management, safety leadership, culture and assurance of critical controls continue to drive positive results. If I look at underground production. For the quarter, overall operation and performance for the quarter was very good with DeGrussa underground ore production of 302,791 tonnes at a grade of 4.5% copper. Monty underground significantly exceeded targeted production rates for the second quarter in a row with 133,533 tonne -- ore tonnes mined with grades increasing significantly from 4.9% copper in the December quarter to an average grade of 7.3% copper for the March quarter. This represents a 48% increase in copper grade on a quarter-on-quarter basis. Combined production for the quarter totaled 436,324 tonnes -- ore tonnes at a copper grade of 5.3%. Now this situation has delivered both higher ore production and higher grade than the prior quarter. Further to our ASX release this morning, Sandfire have completed an update of the mineral resources and ore reserves as at the 31st of December 2019 for both the DeGrussa and Monty underground mines. The updated ore reserves for both DeGrussa and Monty is at 4.2 million tonnes, grading at 4.9% copper and 1.6 grams per tonne gold for 203,000 kilotonnes -- or 203,000 tonnes of contained copper and 210,000 ounces of contained gold. The updated mineral resource for both DeGrussa and Monty sits at 3.6 million tonnes at 6.4% copper, 2.1 grams per tonne gold for 230,000 tonnes of contained copper and 241,000 ounces of contained gold. If we look at a brief analysis of the changes in the estimates since the previous update, and I do refer everyone to the release that we put out this morning and in particular Appendix 1. And I'll start with DeGrussa and particularly the mineral resource estimate. So the mineral resource for DeGrussa was updated for mining depletion and minor changes to the geological model. The mineral resource has decreased in tonnes by 27%, contained copper by 30% and contained gold by 31%, with the only material changes being related to mining depletion. The changes in the -- this theme continues into the ore reserve estimate for DeGrussa, with annual mining depletion at 1.4 million tonnes and 60,000 tonnes of contained copper and 83,000 ounces of contained gold. There are very minor adjustments due to cutoff grade and changes to FX and commodity forecasts and also minor adjustments due to mining dilution and recent operating experience. But as mentioned before, the only material changes are -- have been for overall depletion as a result of mine production. If I move on to Monty, so -- and the mineral resource update. Like DeGrussa, the Monty mineral resource has been updated as at 31st December. And that is based on annual mining depletions and, in particular and most importantly, the significant and large grade control drilling program that is completed in calendar year 2019. This grade control drilling is on a 10-by-10 or normally a 10-by-10 meter spacing throughout the lower zone of Monty and covers the full life-of-mine plan and gives us a very high level of confidence in both the ore reserve and our refinements to the mine plan through to the end of mine life. Both -- the grade control drilling was completed during the year, as stated, and has shown this deposit to be more structurally complex and has resulted in changes to the geometry and volumes of the overall massive sulfide. While it is more complex, the underlying resource base and contained copper on -- does not vary materially from the Monty Maiden Resource estimate. So if we look at changes in the Monty resource estimate, the mineral resource has decreased in tonnes by 24%, contained copper by 15% and increased in contained gold by 13%. And all of these -- or the first 2 with copper tonnes and also ore tonnes being primarily due to mining depletion. Moving on to the ore reserve estimate. There are 3 sources of change: the first being the annual depletion, as mentioned before, of 0.3 million tonnes of ore, 15,000 tonnes of contained copper and 9,000 ounces of contained gold. The second source of change is a reduction of the cutoff grade due to updated FX and commodity forecasts and also a reduction in our underlying cost base. The third and probably the most important source of change has been adjustments to mining dilution and recovery based on the updated mineral resource estimate and operating experience. The primary driver of changes in both -- has been in both internal and external stope dilution as a result of the increased geological and structural complexity of the ore body. Given these changes, the net impact has been to increase overall ore tonnes, increase overall contained copper tonnes and overall -- decrease in overall copper grade. Now if we move on to ore processing. Mill throughput for the quarter totaled 382,605 tonnes milled at an average feed grade of 5% copper. The total processed tonnes were slightly down on the prior quarter as a result of the timing of planned shutdowns. However, year-to-date, overall processed tonnes remains slightly above target. Copper and gold recovery for the quarter exceeded target and as -- and are a result of ongoing improvements in ore blending and management of stockpiles. The combination of these factors delivered concentrate and metal production of 75,696 tonnes of concentrate, 17,936 tonnes of contained copper produced and 9,352 ounces of contained gold produced. I'll hand over to Matt for sales
Thanks, Jason. Looking at sales, 7 shipments completed for the quarter, really quite a business-as-usual quarter in many respects in terms of transport and sales at just under 74,000 tonnes -- dry tonnes of concentrate containing 17,500 tonnes of copper, just over 9,000 ounces of gold. So the 2 ports continue to run, Port Hedland and Geraldton. And that gives us an additional advantage in these COVID-19 times as well and certainly puts us in a very strong position in terms of logistics, site and port storage as well as flexibility of our sales markets. Our sales markets remain strong. Many of our customers, we've had for a long period of time now through DeGrussa. And they certainly continue with strong demand for the quality concentrate that DeGrussa produces. And I'm sure, as we all know, with some disturbances around the world, Western Australia is a very good place -- remote Western Australia is a very good place to run a copper mine at the moment. The -- with some closures of mines around the world, there is heightened activity in terms of smelters seeking out quality concentrate. So very pleasing on the sales side and the 3 quarters of revenue put in there, $457 million as well. So to say, very much business as usual. As in the other areas, we are on constant watch for impacts of COVID-19 pandemic. As I say, ports are operating well. The customers are operating well. And some of the banking systems and things around the world appear to be adjusting quite well as well in terms of document flows. So largely pleasing on the sales side. Also pleasing, again, as Karl touched on, on the operating cost side. So a particularly strong C1 result of $0.74 driven by strong -- really strong across-the-board, strong copper production, strong -- that really comes from those Monty grades and higher recovery levels, as Jason spoke about, higher by-product credits coming from our gold production, a very solid gold price and overall, during the quarter, a sharply lower currency. That has, as we all know, I'm sure, bounced back a little bit in the recent times. But during that quarter, it was certainly lower than what we had worked on our -- for our previous guidance numbers. We do continue, of course, with our DeGrussa and Monty mine developments in terms of developing those mines and getting ready for that next period through to the middle of -- just past the middle of 2022, and we're just giving some indicative numbers for what that capital would look like to the back end of the year, to the back end of June. And that is very much in line with what we have talked about before. So that assumes, of course, no material impacts on our mining schedule from COVID. Tshukudu exploration on the cash side, we spent about $6 billion during this quarter on that program; as we've previously announced, a $10 million to $12 million exploration program at Doolgunna; and regional exploration, a further $8 million. And we also completed payment of our December -- our interim dividend during the March quarter for $9 million as well. And I'll pass to Shannan for exploration. Thank you.
Thanks, Matt. Exploration at Doolgunna has progressed well during the quarter with significant air core programs occurring across the projects with a focus on the Morck Well, Cashman and Cheroona projects. We had a pleasing string of results in wide-spaced air core drilling at Morck Well that was reported by our JV partner, Auris, with the best results at 10 meters grading 3.55 grams a tonne and 45 meters downhole. It is early days, but definitely something we will be looking forward to following up in the coming quarters. Extensive inter and collation occurred over the Alchemy earn-in during the quarter. And we also drilled numerous RC holes and -- at moving-loop EM targets with a large number of holes identifying discrete sulfide horizons and opening up additional sediment packages across the Southern Volcanics in the Springfield Project for further exploration. On Slide 14, those with a keen eye will see that we have slightly increased our landholding during the quarter, having signed a further agreement with Auris and Northern Star Resources on the Cheroona project, a long strike from Cashman's. The initial program here includes air core drilling and mapping with moving-loop EM continuing into the coming quarter. Now I'll hand over to Jason.
Thanks. Thanks, Shannan. Moving on to Tshukudu in Botswana and in particular the T3 feasibility study. Now as previously reported, Sandfire is undertaking a detailed review and optimization of the T3 feas study completed by MOD Resources in March of 2019. This work is progressing extremely well. And during the quarter, we made significant progress with process plant engineering at a nameplate capacity or production capacity of 3.2 million tonne per annum rate. We have progressed with draft PDCs. Mass balances, flow sheets have all been compiled. The design of the plant layout has also commenced. Open-pit mine design and pit staging designs were finalized, and the life-of-mine production schedule has been completed. Both of those underpin a tender process which has been commenced or which has commenced for the mining contract selection. High-voltage system studies were also completed, and we continue to move forward with ESIA approvals and also a negotiation for purchase of land for mine support infrastructure. Another package of work that has also been undertaken is with regard to plant scaling studies to assess options to increase plant capacity to accommodate the processing of additional ore that may come from A4 and/or other satellite deposits in the area. This work has turned out very well. And from the base case of a 3.2 million tonne per annum rate, we've identified options to be able to take that up to either a 4.2 million tonne per annum rate or a 5.2 million tonne per annum rate depending on the potential ore sources and production increases that are required. Now for the engineering of the T3 optimized feas study, we will be incorporating this optionality into our overall plant design and construction of the plant to allow us to readily expand operations there depending on future exploration results. While the optimization studies have progressed well to date, the impact of COVID-19 has certainly had an impact on a lot of our suppliers, a lot of our key contractors and also consultants that are located in Southern Africa and other areas. But we will be -- this will result into a slight delay of completion of the project, and revised timing of the full project will undergo a full assessment depending on the situation of COVID-19 as it evolves. I'll hand over to Julian for Tshukudu update.
Good morning. The Tshukudu exploration update that was released today was focused specifically on the A4 Dome, which is an exploration prospect, which has evolved very rapidly, only 8 kilometers from T3. And first results from A4 were announced by Sandfire back in January 24. And firstly, what I'd like to do is just point out that this is still the first target of many that are planned to be drilled in the immediate area of around T3 that Sandfire has drilled. So it's one of those very rare project -- exploration projects which just continue to deliver exciting results from the first drill hole. Definitely, it's one to watch and as part of the objective -- the wider objective to identify high-grade satellite discoveries which have the potential to expand the scale of T3. And we have numerous targets defined in an area of approximately 1,000 square kilometers, which we call the T3 expansion project. This is still the first target to be drilled by Sandfire post the acquisition of MOD back at the end of October last year. This has moved very rapidly from scoping out the potential of mineralization into a resource drill-out on a 50-by-50 drill pattern. And the second slide -- sorry, on the first slide we're on currently, we'll see a couple of sections that have been put together showing the shallow nature of the mineralization, some of the intersections and the apparent openness of this mineralization bounded, but also clearly a long strike as well. So it's moved pretty rapidly from 2 or 3 rigs right at the start up to 7 literally when we had stopped drilling due to the lockdown in Botswana, which occurred on the 2nd of April. So what I'd like to sort of touch on is also that A4 based on the drilling to date is shaping up a little bit differently to T3. There are more vein -- high vein-hosted high-grade intersections and high-grade individual veins, which so far appear reasonably continuous. And what we tried to do to demonstrate that was -- in the release this morning is put in a photograph of the -- just some core from one hole, the hole 35D. But also, we put in the assay results for that interval in the table at the back of the release. And I suggest it's worth having a look at after this meeting, but it just demonstrates that within an interval, an assay at 18 meters at 5.2% copper and 124 grams of silver uncut, if we apply a 15% cut, the 5.2% drops to 3.9%. If you look at the breakdown of the assays that were released this morning, you'll see there's some very high grade numbers here. More veins basically aligns with more -- better grades. So I guess 2 things there. One is it opens up quite a lot of optionality as how this could evolve in the future. And the second thing is that it really demonstrates that the potential does exist in this region for high-grade vein systems. I think that's what this drilling at A4 has demonstrated to date. Beyond that, while we've had to take a break in the drilling, it also has provided an opportunity for our team of geologists here to really start putting some solid work into understanding A4 but also looking elsewhere at other structural -- similar structural positions, which could host similar-style vein-hosted mineralization. And within the release today on Page 5, there's an image of airborne EM just over the western part of A4 Dome, which is really quite a breakthrough, I think. And this work has been put together by Sandfire's chief geologist, where he not only reprocessed the existing airborne EM data, but he has also reinterpreted it. And what that's done is really generate some pretty compelling targets on the A4 Dome and, as we mentioned in the release, also on the T3 Dome 8 kilometers away. So I think airborne EM, one of the -- is going to become the real driver for future discoveries in this region. And to expand on the areas that have already been flown by MOD in the last 18 months, there's a major airborne EM survey planned to cover the majority of Sandfire's licenses as soon as we're able to get things moving back on the ground again. So the takeaway today, I think, hopefully, will be that there's some very clear potential in this region. A4 Dome is still the first target that has really systematically been drilled by Sandfire, and it just keeps delivering the goods. So I'll hand over to the next speaker. Thank you.
Thanks, Julian. If we move on to Black Butte copper in the USA. As Karl mentioned earlier, we are very pleased to be able to report that the project permitting for Black Butte project has been completed with the Montana Department of Environment Quality releasing the final environmental impact statement on the 30th of March and issuing a positive Record of Decision to grant a mine operating permit on the 9th of April. While this has been a very lengthy process, it has also been a very rigorous process that has ultimately delivered a framework for the development of Black Butte at the highest environmental standards. We're very proud of the work that our -- of the work done by the Sandfire America team, and we look forward to continuing with the momentum on this project. In terms of the next steps for Black Butte, we are keen -- or we are moving forward with the completion of the Black Butte feasibility study. And it has now progressed to the stage where all technical studies have been completed and remaining work is ongoing. And like the studies work in Botswana for T3, we are assessing the impact of COVID-19 pandemic on the timing of completion of the study. I'll hand over to Karl.
Thank you, Jason. And just to wrap up in terms of summary and outlook, I'd like to thank all of our team at Sandfire across the globe for the excellent work that they have done over the last many years, culminating in what's been an extraordinary quarter in -- during the difficult times. It's been an excellent performance in terms of operations at DeGrussa and Monty. It's been an excellent performance in terms of the work and development work that we've been able to do at Botswana. Exploration results are really becoming so tantalizing there. I think it's going to be extraordinary to see what evolves over the next many years and potentially decades in Botswana in that almost 12,000 square kilometers of exploration potential ground we have got, which has barely been looked at historically. And obviously, achieving permits in the U.S. has been extraordinary, to achieve that milestone. And as was told to me this morning from our CEO in the USA., Rob Scargill, it is the first time -- it's the first new mining permit -- hard rock mining permit issued in Montana in the last 26 years, and it's the first new hard rock copper permit issued in Montana in the last 40 years. So it's an extraordinary milestone that's been achieved, and I congratulate them on doing that. Obviously, as I mentioned at the outset, operating at a time of this pandemic in the world is extraordinarily challenging for everyone in every industry, obviously everyone in their own lifestyles. I believe we have taken strong initiatives. We are deploying very focused operating protocols to ensure the well-being of our people is paramount. So I just want to focus on that and mention that again. I talked about the operating performance has been exceptionally good, and it continues to be strong. And as long as we continue to be able to operate, I believe the results will be excellent. We're working hard, just doing all the hard work in terms of our optimization work at Botswana and work behind the scenes in Montana to move that project along. And we are in the -- and we're working very, very hard, as I said, on exploration and getting those very good results. We are setting ourselves up strongly in terms of we've reset, refocused -- and we've reset our strategy, we've refocused, and we are getting very focused on our strategic initiatives in this business of optimizing our operations, developing the assets that we have within the portfolio and continuing to look for other operating or other assets that might meet our investment criteria from a business development [Audio Gap] laying some very solid foundations, which are all lining up across 3 jurisdictions to build and then leverage off this global mid-tier base metals mining company. So I look forward to continuing to do that with the excellent team. And we have definitely, from a business strategic perspective, turned a corner, and we are looking to the future. And we will work through this pandemic, and we will come out very strong with much to do at the conclusion of this pandemic. And I'm very excited about the future for this company. So thanks very much for listening, and we open the floor to questions now.
[Operator Instructions] Your first question comes from Nick Herbert from Crédit Suisse.
A few for me, please. I might just start on DeGrussa. The greater structural complexity you mentioned at Monty, just wondering if that has any implications for mining cost. Or is it purely just the grade dilution and aim to pull out more tonnes? That's question one.
Thanks for that. It's Jason here. Look, overall, we are working through that still at the moment. We do expect a slight increase in mining costs. But fundamentally, overall, the mining method hasn't changed. So we don't expect that to be overall material.
Okay. And then Black Butte, when do we expect to get a reserve there that you -- with the updated feasibility study?
That's correct. So we'll issue reserve following the completion of the feasibility study. And as discussed obviously with timing of the finalizing of the feas study, that will be dependent on the overall COVID-19 impact on the completion of that work.
Yes. Understood. I mean a tough one to say in terms of how that COVID delay will play out. But I guess broadly, how are you thinking around the conceptual timing of when development could commence at Black Butte and T3? And then I guess by extension, do you have the human and financial capacity to develop both of those projects concurrently? Or are you thinking it'll be more a staged approach between the two?
It's Karl here. I think it's still to be determined. But what I would say is, clearly, there are still a number of thresholds. For example, if we just go back to Botswana, an environment -- if we look at post-COVID and where people can start to actively do things and get on and do stuff, it's an environment that is really solidly behind the development of new projects. So there's a huge amount of support from every single aspect of the communities, from the government, and so it lends itself to being something that, once we can get the momentum, is run hard there. What -- if we -- and look at that. If we then come back to the U.S., we've just achieved this extraordinary milestone, which is fantastic. But we still need to complete that stage permitting, bonding program. We still need to complete that DFS, which come -- is it over the next month or 2 or 3, depending on COVID and people being able to do some things. And we still need to go through that process. There's an ability there to also stage that development and get on to do some work on the ground. But there is talk about that being maybe sequenced some time not long thereafter but potentially go to Botswana and then U.S. The other important thing for us, though, is working with some vigor and keeping the momentum in both jurisdictions but also acknowledging that the U.S. company, Sandfire Resources America is its own listed company. It has its own Chief Executive Officer and has got a complement of people and access to people in its environment. And it will very much be something that is worked from the U.S. and from that perspective. So it will have its own complement of very capable executives and also technicians to be able to progress that project and its own listed vehicle that will look for its own balance between debt and equity funding. We are the 85% shareholder. But we don't want to just sit back here and say, well, you can't continue progressing if it makes sense because we do believe throughout the group, we have the capacity to continue to move these things along. So I don't think there's going to be, "Oh, let's do one or the other," concept, but there might be some subtle scheduling, but we want to move things along. And we will enable them to come forward with their programs and initiatives, and we look forward to supporting them. So it might be somewhat staggered, but I wouldn't be saying that we are looking at holding back on anything.
Your next question comes from Daniel Morgan from UBS.
Karl and team, just a question on -- in your COVID response you said that guidance can no longer be relied upon, but obviously the results year to date look good. You don't have any COVID cases at your mine sites. I mean guidance looks achievable to me. Just wondering, is it one of 2 things? Is that the productivity impacts from COVID measures going forward that you're concerned about? Or is it just you're very conservative and that, if there is a COVID case at one of your mine sites, then obviously guidance would not be achieved? I just want to hear about that.
Thank you very much, Daniel. I'm passing that across to Matt Fitzgerald, the CFO, and to give you some very substantial explanation to that.
Thanks, Karl. Daniel, really it's a case of being a heightened sense of awareness as a number of companies are looking at. And as the ASX has guided a little bit as well, it's hard to predict the unpredictable. We feel that we're in a pretty stable position in our operating assets, remembering our guidance is twofolds, one around production, one around our development assets. I think we're being pretty clear around our development asset time frames and delays to those. In terms of guidance, we think we're pretty well set, but like the rest of the world, we don't exactly know what's coming around the corner and where that impact might be. So like a number of companies we're -- it's really a cautionary notice to pull guidance. As Karl said, we're in line with our production numbers. We're in line with where we thought we'd be. We're actually a little bit stronger in terms of we built extra ROM capacity. We've got additional site capacity of concentrate. So we're in a very solid position, and we're operating very well. It's just hard to exactly know what is around the corner because that guidance relies on so many individual assumptions, and each of those in some ways could be tested. So yes, I guess it is conservative in some way. We're also making sure that we pass the hindsight test should something pop up. And we have been open and transparent to the market in saying we're operating well. And we'll certainly tell you if something changes, but like everyone else, we're just on a heightened sense of awareness.
Okay. That makes sense. Just moving to the reserve, resource updates that you put out today, predominantly Monty. I know the reserve grade that you published is below the resource grade. I just want to know why that's the case. I mean, is it the shape of the ore body where it's very tricky to mine some of that higher-grade material? Or perhaps is it dilution where the resource isn't diluted but the reserve is? Just want to understand that.
Yes. It's Jason here. Short answer on that is yes. So as we discussed earlier -- and we made reference to it in the release as well, but the detailed grade control drilling that we've completed has given us a really good handle on the overall shape and structure of the ore body at Monty. And it's proved to be significantly more complex in some areas than originally interpreted. So the primary reason for the reserve grade being less than the resource grade is simply applying mining factors to that ore body and resulting in increased dilution.
Okay. And on the Black Butte feasibility study and first production, I understand, obviously, you can't necessarily predict where COVID-19 is going to go and those impacts and not -- we can't expect you to. But once things are back to normal in that you could -- can progress things and you -- all right, let's say you publish the feasibility study. What is the time line from that point forward? Because we're going to have to make our own assumptions about when COVID is done, but once you've got the feasibility study out, what's the time line to first production?
I think, Daniel, Karl and Jason can add, but essentially, I suppose, if I look back a little bit, in a perfect world, I think, if you pull the trigger, for example, on Botswana on a decision to mine, it's probably 22 to 24 months to a production profile without any extraordinary extraneous circumstances occurring. So you can sort of sit there and go, okay, it's about this scale. It's about these numbers. If I pulled the trigger in June, it would be this. If I pulled it in September, it would be that. If I pulled it in December, it would be about that. We can see a clear pathway of pulling the trigger on a decision to mine and then 22 to 24 months later. If you looked at the U.S., it's a slightly more complicated little situation for a number of different reasons, but essentially, whether it's a bit of NGO stuff, whether it's a bit of stage permitting, whether it's a little bit of this, a little bit of that, there's a -- we've got to deal with some -- we've dealt with, say, a preliminary change of a water permit, which we need to get a final one over the next -- before we get into production. So a couple of little nuances there. And when you look at that and you look at working your way through that sort of navigating our way, let's say, there's more subtle navigation required in the U.S. Really good, solid long-term foundations and great exploration potential also in that region, so worthwhile making the effort, but it's a little bit more trickier pathway, let's say. So we would say that being cautious and careful about it and putting the NGOs to one side, whatever may or may not happen because you don't know about U.S., is that we would make sure we're good to go. We can stage the development. And it would be fair to say off the back of a, let's say, DFS and coming out with that, that we're probably looking at a slightly longer time frame. It's an underground mine, as opposed to an open pit, a longer time frame but not -- it's maybe 2.5 years or 3 from a DFS and maybe it's 2.5 years from a decision to mine. And that decision to mine will be sculpted off after the DFS. And you might find that you could have one of these operations starting off in a particular year and the other one starting off a year later. That's sort of global post pandemic in a normal world. So maybe second half of this year, you're making decisions around Bots, and maybe early in the following year, you're making key decisions around Montana possibly, something like that, but once again bearing in mind, as I said before, the U.S. team will be strongly independent of Botswana. It's not as if we'll be taking people from Botswana that need to do things necessarily in Montana. They will be capable of independently doing what they need to do.
And then just a last question, if I may. Is there anything in the EIS that would materially add to costs or impair the economics of the project? I guess that's part 1. And part 2 is has -- sorry. I just lost my train of thought. Any changes to the cost or scope?
It's Jason here. So no, there's no big issues with the EIS. It's largely as expected. And we've taken into account all of that into the feasibility study and particularly the technical work that's been done.
Your next question comes from Sophie Spartalis from BofA.
Team, Just following on from Dan's question in regards to the guidance. It looks like you were tracking well below the year-to-date cost guidance. Can you maybe just provide some color for what you expect in the 4Q, obviously, given you mentioned currency has bounced back, but any other pressures that we need to be aware of?
Sophie, Matt. Nothing that we're particularly aware of into the fourth quarter. Oil prices obviously remained subdued. Yes, the currency has bounced, but into the mid-60s is not going to upset us. So you would -- I think, as an observer, looking at 3 quarters of -- where we've landed after 3 quarters, you'd expect us all things going well production-wise. You'd expect us to deliver a pretty good C1 result for the year. And you would think that we'd be under that original guidance number if we continue on our current trend.
Okay, okay. No, that's fine. And just going further to the rationale for withdrawing guidance, I understand and the -- what you sort of mentioned around that's a cautionary notice, but given that the operations keep running at full capacity, you haven't had any issues to date. I guess, what was the trigger for you to withdraw given that you're tracking ahead of -- you could have -- if you had kept to that guidance, you obviously would have -- and everything went okay for the fourth quarter, you would have obviously been in a pretty good position in the 4Q results. So I guess for me it's a bit perplexing as to why you withdrew guidance when there isn't a situation that has unfolded yet. I guess, can you just maybe talk through what was the trigger for it? Because not everyone has withdrawn guidance, right, like not every mining company has, given that you're all facing the same situation.
Yes, sure. Each company has obviously made their own call. So it's relatively early on. You'd have to argue that some of those impacts were not as well known as they are now. Guidance is one thing. Our guidance band is quite tight. So to maintain guidance on a very tight band would assume that there was effectively no issue at all. It's a very difficult thing to say when the COVID crisis, an unprecedented crisis like this, first kicked off. So that's the -- I guess, the view in terms of why the guidance was withdrawn. Just to be clear, when we withdraw guidance, we're not saying that we're not going to achieve it. It just means that we're not as certain as we previously were on -- in a normal operating environment of where we're going to land. I think we've been pretty good over the years in terms of being able to work out where we think DeGrussa's production profile and cost profile is going to land. And that's why we have tight bands. We didn't see any point in, let's say, expanding guidance and having a 10,000 tonne band or now you'd have a 50,000 to 70,000 tonne band. It wouldn't make a lot of sense to any of us, but -- and the other view about guidance is, calls like this really become guidance. So we've completed a quarter. We're talking about the stockpile grades we have and the plans we have over the next quarter, so really same. And the preparation that we're doing towards shoring up our belief in what our production numbers look like. And really from our comments here, this sort of at this stage almost becomes guidance, business as usual at this time. And if we continue to go with an unimpeded production profile, then we would appear to be on track, if not a bit better, particularly on the cost side, with what that original guidance was. As soon as we're comfortable that we think that, that guidance is -- as we're sure around that guidance panning as we have been before, then we're more than happy to bring it back up. And we may also look, of course, at shortening some of the reporting time frames. I think some other companies have talked about that as well. Maybe it's not a quarterly process at this stage. We'll consider that sort of news flow as well. So I hope that answers your question, Sophie.
Yes. No, that's fantastic. And then just in terms of the WA government, what's sort of the most up-to-date status there? Do you see any relaxation of any measures that they're starting to talk about coming out of the COVID-19 restrictions like they are here on the east coast of Australia?
All right, Sophie. It's Jason here. Look, there is some discussion about that at this point in time, but we haven't seen any, if you like, direct moves to do that. We've been gearing up and particularly in our controls that we have related to all of our business units. We're shoring them up to be in place for the long term.
Yes.
Western Australia is very well positioned, I think, as a state, probably ahead of where the -- unfortunately, it's -- for the Eastern states -- ahead of where the Eastern state has probably been able to control. We have the natural remoteness. We have a smaller population. We're more spread out. We look at the DeGrussa as being a little bit like an island within the island of Western Australia and within the island of Australia to follow that analogy. So the separation of our operations from everywhere is certainly a positive for us at the moment.
Your next question comes from Larry Hill from Canaccord.
Great quarter on a lot of your aspects of your business. Just 2 quick questions just around the Black Butte progression there and the next steps. Bond calculation within 40 days, can you just maybe run through what that would potentially calculate? What items would go into that? And what sort of funding you may need to think about towards that. And I've just got one quick one on Botswana as well.
So I'll have a crack at that one, Larry. So the bonding is quite complex and is very detailed. It's an SRK-led process that's generally accepted in the U.S. It is a staged bonding process, so it works on different work programs. So you have surface works, then underground works. And we'll differentiate between when you are sort of only close to surface and when you are deep in your underground mine, impacting water and those sorts of things. So it's a 3-or 4-staged concept. We don't know what those numbers are at this stage. But we probably do -- we do understand that, that detailed process is being followed. There has been significant work done to date. So it's not something that just takes 30 or 40 days. This is the back end of that process to determine exactly what those stages are and what the bonding requirements will be from the state. And we're obviously very, very supportive of having bonding in place because it just adds that additional layer of protection around our permitting.
Okay. And just a quick one on the EIS in Botswana. Did that have to sort of have a -- do you have to have a funding -- demonstrating ability to fund the project to get that actually progressed? Is that one of the aspects of getting that finalized?
Larry, it's Jason here. No, we don't. We don't have to have any demonstrated funding or -- to get the EIS approved and to receive our mining license.
Your next question comes from Kate McCutcheon from Citi.
Karl and Jason, just on the reserve update specifically at Monty, it's great to have that drilled out. So the reduction in reserve grade to 7% from the high 8%, do you have a feel for how much of that reduction is due to the cut-off grade dropping versus the increased dilution? And then finally, you mentioned that the life-of-mine plan was now drilled out. Can you just remind me how the upper zone fits into that given drilling is ongoing there now?
Thanks, Kate. It's Jason here again. So on your first question there, the overall cut-off grade has had a minimal impact. Rough estimate there, I'd say it's less than 10%. The vast majority of the grade reduction there has been a result of the increased complexity in the geometry of the ore body and when we overprint mining methods on that increased dilution.
And then how does the -- sorry. You were talking about still drilling at the upper zone for the rest of this year. How does that fit into the commentary about having drilled out the life-of-mine plan? How does the upper zone fit into it?
So currently at the moment, we don't have any tonnes coming in from the upper zone, but it's yet to be drilled out. So we are doing some additional drilling out there. So we have included the upper zone in the ore reserve, but in our current life-of-mine plan that currently sits outside of it at the moment. So we are -- it's a very small component of the ore body, and we're treating that as upside.
Right. Okay. And are you still looking to provide an update on a PFS for the bauxite stockpiles and the tailings projects at DeGrussa?
Yes. We are progressing with that work at the moment. So that is evolving into particularly a strong focus on processing of the tailings material. The work that we've done to date has shown that a vast majority of the value associated with that project comes out of the gold recovery and the tailings stat. So we are progressing with that at the moment. We've done some additional test work that we're finalizing at the moment, and we are rolling that through into more of a gold focus and potentially looking at some of the satellite gold deposits that sit around DeGrussa at the moment as well.
Okay. Great. And then moving to T3. How does the timing work there with the mill optimization study? So at what point do you make the decision on what size do you want to do the mill? Or do you think about it as a modular expansion, I guess, given what stage in the project pipeline some of those satellite deposits that you're talking about feeding in terms of that?
Okay. Jason here again. It's certainly a modular expansion. So at this stage, we don't have any mineral resources that we've identified outside of T3 in the Botswana -- in our Botswana tenements, but as Karl and also Julian said, we are very, very enthusiastic about A4. And we believe that there's real potential there for us to do something fairly soon going forward. So what we are doing is making sure that in the T3 feasibility study we've thought about our options to expand overall plant capacity and turn that plant into a bit of a processing hub that's able to be able to treat ore from multiple zones or multiple loadings that may or may not sit in the area around it. So the work that we will do is we'll actually design that T3 plant with the view that we can add on this additional capacity when and if it's actually justified.
Right, okay. That makes sense. And then just a final question on Black Butte, is -- what's the next step with the Lowry deposits there or the next update we can -- we'll be looking at.
Yes.
With Lowry at the moment, it's really been not part of our overall thinking. Our main focus is all about the Johnny Lee deposits and establishing that as a world-class environmental and solid operation for Sandfire.
Your next question comes from Hayden Bairstow from Macquarie.
Just more on sort of strategy, I guess. I mean you're clearly going to get held up on development timing of all these projects. I mean, is cutting the dividend and looking at some M&A or some of the companies that are really struggling on refinancing, battling with copper -- current copper prices something that you can become more aggressive on? And sort of given the CapEx spend is probably not, as I said, not going to be there for a bit, you've got plenty of cash and reasonable -- a reasonable share price compared to some of the smaller peers that are struggling on financing. How are you thinking about that at the moment?
Well, thanks, Hayden. Karl. I'll try and give you a little bit of a sense of it as best we can. And I think I alluded it to the -- through the commentary earlier on. As you said, it's reasonable share prices. It's nearly half priced as, obviously, some of senior leads, we look at things and we think about the underlying inherent value going forward. So we're nearly back to half price. But look, I think you are correct in that commentary. We continue to make it. As we read through the back end of last year, 6 months, in December, we were looking at a big internal SWOT analysis of the company; and dropped on to what we thought were our strengths, weaknesses, opportunities, threats and strengths, where we have some opportunities, looked at our portfolio, looked at DeGrussa, tried to understand it as best we could, Monty, the other opportunities, the regional exploration play, the processing facilities there, what we're able to assemble in Botswana and the double deal there with not only Monty picking up the balance on the ground of metal targets. We have 100% of those 11,700 square kilometers of underexplored ground, obviously the long, slow burn with Montana and the permitting process there but now showing through from all that hard work and bearing in mind that investment decision into Montana. We've invested $60 million to own 85% of a company that has got a market capitalization of over CAD 200 million. So on the face of it, we're up over -- with exchange rate as well, more than 3x, if not 4x, our money on that investment today. So very good, but it takes time. It's a marathon. This business is a marathon, as we know, but where we sit at the moment, we've -- also, I think it's been very important for us to establish some operating parameters and relationships.So we've worked very hard over the last number of years and certainly in the last decade to develop very strong relationships with our investment bankers, our bankers, our customers, our other partners, our joint venture partners, our people and suppliers. And if we can leverage off the back of that with cash in the -- cash on the balance sheet, no debt but access to capital, reasonable share price, I think it very much opens us up also, in addition to optimization of and delivery at DeGrussa and Monty, progressing and taking the projects in Botswana for both in-development and aggressive exploration which we will do and also developing in a very sensible, logically, process developing the U.S. project to ensure that we are well and truly across it and compliant but also look at some opportunity there as well to leverage off that opportunity. We still find that there is a capacity to look at other opportunities, both operating -- other operating mining opportunities and near-term development opportunities that have real prospects going to production and using the resources we've got, using the people, the systems, the fact that we are established in 3 different jurisdictions, and it is working. We're not getting tripped up. We're not falling down holes. We're not getting it wrong. Things are getting done solidly, and we're building on those very solid transactions. So yes, I would like to think that we are also at the forefront of being able to move in terms of a business development perspective, whether it be an acquisition of an operating asset, a combination with another organization that had interesting assets or looking at other near-term development assets and sequencing into a longer-term pipeline and looking at establishing Sandfire and using these foundations to develop a global mid-tier base metals company. And that is our objective over the next 5 to 10 years, to build on that platform, to put things in front of us to then have a legacy that is of many decades in front of us. So the answer, short answer, is yes to your point. We are looking at those things and very active.
And do you need to keep the dividend? Or I mean there's obviously given it's happening everywhere.
Well, I don't [indiscernible]. We're extraordinarily cautious and prudent people. I think we're also disciplined in the sense that we have -- disciplined as well. So I think there's -- we are going to be sensible about things. I think having a degree of dividend is a good discipline. We're capable of doing it. We have operations that are accreting good cash flow. Do we need to ratchet up or ratchet down the dividend is something else strategically the Board will determine, but I think we'll be prudent and sensible. But I think the discipline of maintaining a degree of a dividend is good. The discipline of actually looking at how you can best invest and reinvest the cash flow is also something that we will need to balance through. So I would be -- knowing that we will have a requirement for our global business for the investment into at least 2 development projects that we're aware of today: T3, potentially a T3 hub that expands over a period of time; Montana, at some point in time, being a shareholder in that company, bearing in mind, Hayden, it's a listed company. We own 85% of it. And it might be a very sensible thing, from that, to look at funding mechanisms, debt equity in its own environment, its own capital structure. We can -- have 85%. We potentially could have more. We could have less and determine more from a strategic point of view what is in the best option and interest of Sandfire Resources Limited parent company, we'll determine that. So I think we'll assess it. And -- but I don't think we'll either cut the dividend entirely, nor necessarily change it dramatically. I think we'll put that in the mix of debt equity and other sources of capital funding and looking at the sequencing of that cash flow.I think, if you look at DeGrussa as well and DeGrussa and Monty in terms of the margin, you look at the C1 costs and the cash flow generation at the moment, it is significant for what it is. And so that's -- that will enable us to utilize those funds as well to deploy for other sensible parts of the business. So it will be a balancing act.
Your next question comes from Paul Young from Goldman Sachs.
Yes. Karl, I got a few questions on Botswana, please. First of all, just with the increase or recent increase in market volatility, have you seen any change in appetite from traditional project finance banks? And also, with the banking syndicate, are you looking at more traditional sort of African finance banks like Nedbank, the RMBs, your Standard Chartered, et cetera?
Yes. Paul, Matt here. Yes, we are looking at -- some of the local banks clearly have interest, particularly from the South African and into Botswana. They know it well. And they know the area well, and they know the concept well clearly, but there are also -- we've also got in the mix some of the larger international banks, which looks across more broadly across the Sandfire groups, whether that's corporately in Australia or more our development projects across Botswana and Montana as well and, of course, other plans that we may have from time to time. So a bit of a mix in that. We've had -- those banks have been very, very well managed through the MOD Resources ownership through -- particularly through T3 and that development. So they're being kept well up to date through this process. And that is one of our considerations for the -- impacts of COVID-19, of course. It's the impact of the financing area in those banks. And that's still to be settled, I think, exactly what their positions will be.
Okay. And then on -- again back on the project scope and the scale of the plant. And thanks for giving a few more specific number. Just on the 4.2 million versus the 5.2 million, I mean engineers typically build a lot of spare capacity into their designs and usually get sometimes 15% to 20% upside in plant throughput as it is. So I presume that the expansion from 4.2 million to 5.2 million if you decide to run the 4.2 million as a base case and then creep to 5.2 million would be rather small. i.e., some additional float cells and maybe an inserted crusher and a mill. Are we talking about just a very modest, small expansion and capital if you did decide to go 4.2 million then expand to 5.2 million?
It's -- Paul, it's Jason here. Yes, it's relatively simple. It's really just the size. So at the moment, we're actually looking at a SAG mill configuration with recycle crushers for the 3.2 million tonne per annum option. To go to 4.2 million, we would look at putting a 2-megawatt bore mill in as addition. To go to a 5.2 million tonne per annum rate, it will be just a slightly larger bore mill.
Okay. That's great, good context. I had a question on A4. I don't know of Julian is on the line but just curious about the mineralization characteristics of A4 versus T3 by copper minerals, the particle size. And also, have you done any flight work, with the bench scale work, so you can give us an indication of sort of early indications on recoveries?
Yes. Thanks, Paul. I guess the difference in -- T3 is; dominated by chalcopyrite, and then you get the bornite chalcocite deep in the deposit. This one is far more veining and more intensive mineralization with the vein. It tends to be bornite chalcocite. We have some met test work samples sitting in Botswana now and, of course, which we're trying to get out into Australia so we can get some test work underway, but all indications are there's nothing really visually complex about it. It's coarse grained, as you saw possibly in that part of the call and the release today, exceptionally coarse grained actually; and sort of almost reaches semi massive within these veins. I can't say we're not going to have any issues metallurgically, but there's no signs of that. There's no arsenic. There's no other deadly elements that we're aware of here. And if you look at the rest of the region: test work done on T1, which is Sandfire's; on T3, Sandfire's and the chemical deposits, which is Cupric, all high-spec, high-quality concentrate products in all cases, good recoveries...
Okay. if you had not told, they are coarse-grained bornite. I'll take that as fine grained chalcopyrite [indiscernible] . That is unique...
it's a wonderful problem to not have. It's fantastic.
Yes. No, it sounds like it's shaping up some good grades. Last question is on CapEx trends just where you're going through the feasibility study at T3. And listen, I'll wrap Black Butte into this as well. Just on CapEx trends, are you seeing any sort of upside pressure or, the other way, downside pressure in any CapEx on any of the just broadly just high level and then also the specific sort of components of these projects?
It's Jason here again. Look, overall, we're not seeing any real trends there at the moment. I think, particularly a lot of our suppliers and OEM manufacturers, they're a little bit nervous about the COVID-19 situation, and well, I think it's really just a watch and see.
Your next question comes from David Radclyffe from GMR.
Just my question is really about with the new reserves and just wondering if there's any change to the DeGrussa mine plan at all. Should we still assume that you kind of run the mill at full capacity around that 1.6 million tonnes, with 1/3 from Monty, which sort of I think you said before takes you to that sort of mid-2020, maybe now second half mark? And then following on from some of the other questions, when do you think we can get a clearer picture about whether the other regional resource or some of the oxide material can extend this, which then goes into that whole sort of stope that we're thinking now about? When the other 2 new projects could arise. And is there a production gap or not?
David, it's Jason here again. Look, overall, our strategy around processing and particularly of ore feed going into the DeGrussa mill between DeGrussa and Monty, we're still maintaining that assumption that DeGrussa will go ahead at about 1.2 million tonne per annum rate and then with Monty coming in at about 0.3 million to 0.4 million. We do see that going through all the way virtually to the end of mine life. Now in terms of the oxide and the reprocessing of tails, we're still at concept stage in those studies work at the moment. We've got test work on alternative processing options there, particularly around the tailings material for recovery of the gold. We expect that to be completed within the next 2 months. And then going into that, we -- depending on the outcome of that test work, we've probably got about another 6 months worth of studies to do there as well. Now we've touched on before that we are looking at some potential for oxide gold resources that sit on our tenements out there as well, and it's likely that we'll commence some exploration drilling in that regard fairly soon.
Okay. And then a follow-up on Black Butte. And look, it may be a hard one to answer, but I mean, obviously ROD is a key hurdle. And it's good news to get that. And you kind of did mention the NGOs; and NGOs have obviously challenged other copper projects in the last couple of years, albeit in other states. We're all sort of holding our breath here then. What is a reasonable time do you think to sort of think, well, there couldn't be any opposition? I mean, do you have sort of an internal mark? Or -- and is there any process in Montana to put sort of any objection to the ROD?
Thanks very much, David. Karl. To some extent; and if Jason and Matt want to add. I mean certainly the -- what I can say is the -- and we've been going through this process for a long time. As you've heard, it is the first new mining permit, hard rock mining permit, issued in the state in 26 years; and first new copper one for 40 years. There's been a variety of variations to permits along the way, but there hasn't been a new one. And what I can say is the Department of Environmental Quality and other regulators have been exceptionally detailed, and they have done an extraordinary job for studies in terms of making sure that this is being done properly. In terms of the expertise and the quality of professionals that have worked both for us in the original mine operating permit application and also for the regulator in the environmental impact statement that was their responsibility and their experts, it's been -- it really has been an extraordinarily thorough process. And using the old cliché, there's been -- no stone has been left unturned. So I think, when we look at the quality of the work that has been done, it stands out. And the results of that work and the conclusions that have been reached is not to be underestimated. So I'm not saying that there are not people in the globe that might find -- there are different jurisdictions around the world -- where there's probably a little bit more emphasis on certain things and people have the ability to make statements and be more public about things, but what we would say is we would not be in this position. The regulator would not have made the decisions they have made if they have not done the work thoroughly and weren't of the view that they should have concluded as they have. And we would be in total agreement with them.So we don't know what the answers will be. And we don't know -- we don't have a crystal ball. What we do know is that we are extraordinarily confident that the work is exceptional. It is thorough and that is -- the conclusions reached are the appropriate ones. And therefore, there will be a mine that goes into production as designed, as we've put forward, as endorsed by the regulator in the future. The timing precisely is not something that we can control. However, what I would say is that, if there are no -- if there is publicity and if there is noise, one, you've got to consider what is just pure propaganda and noise or whether there's robust processes formally taken. And they are very different whether people just make a lot of noise on, well, the websites, as opposed to taking formal actions. And we can't control that. And we don't know where can happen, and it can be anywhere in the world, take any sort of formal action. What I do think is that, if it is not with -- if it's without substance, without merit, I do not think it would be around for long. And what all I can say is I know the work we have done. I know the work that Sandfire America has done and I know the work that the regulators have done, and it is exceptional. That's all I can say.
Your next question comes from Paul Howard from Hartleys Limited.
I'll just be very quick given the time. And so last year, when the resource and reserve came out, we had this stockpiles, the open-cut stockpiles. And Jason sort of was touching on it in the last question there. And obviously, this year, the open-cut stockpiles aren't in the reserves, and it says that they're under review. I mean, how are we to treat that, presumably the existing reserve is still current? And then I mean the material that's there, well, presumably, in some way, shape or form will be processed at the end of the life of mine -- of underground mining. So I suppose, how do we treat that? Obviously, will it be a sit tight so do you guys have to hear the news.
Yes. Paul, Matt. So probably just to make sure that's in context: That is an underground ore reserve and mineral resource for DeGrussa and Monty. So specifically. During this June quarter, we would hope that we can piece together the global group resource, reserve update. This is clearly the most important of those given the production impact, but we should be able to wrap all of those up. And yes, that will have that reassessment or an assessment in it for the other stockpiles that sit in DeGrussa above ground.
Okay. So I suppose, at this point in time, to calculate life of mine based on what you've got, really got to go on DeGrussa and Monty, I suppose, and factor in more your other business...
The processing operations where we're still doing the mine planning work, but we're working on the basis that 4.2 million tonnes at our processing grade takes us into the September '22 quarter. That's our sort of guideline at least to how we think the mine play will go, yes.
Thank you. There are no further questions at this time. I'll now hand back to Karl for closing remarks.
Well, thank you very much for listening to what has been a fairly long quarterly update. But thank you very much for your interest.It really is a bit of a time of a reset, drapes -- COVID draped all across this, but certainly from our business perspective, we are consolidating our business. We've reset our strategy. Many things are coming together as we've been working on for a long time, and we look forward to the future in front of us. So thanks once again very much for your time, and we look forward to updating you again with further progress in due course.Thank you.