Sandfire Resources Ltd
ASX:SFR
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
6.12
11.14
|
| Price Target |
|
We'll email you a reminder when the closing price reaches AUD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Sandfire Resources Ltd
You don't have any saved screeners yet
Thank you for standing by, and welcome to the Sandfire Resources 2018 June Quarterly Update. [Operator Instructions] I would now like to hand the conference over to Nicholas Read. Please go ahead.
Thanks very much, Brooke. Good afternoon, everyone. Good morning to those in WA. On behalf of Sandfire, a warm welcome to the company's June 2018 quarterly investor conference call and webcast. I'd like to begin by introducing the team here in Perth. Leading the call for Sandfire, we have the company's Managing Director, Karl Simich; and joining him in the room today, we also have the company's Chief Operating Officer, Richard Beazley; Chief Financial Officer, Matt Fitzgerald; and General Manager, Geology, Shannan Bamforth. Welcome to all you, gentlemen. I'd like to draw your attention to the release on the ASX platform earlier today of Sandfire's June quarterly report, together with an associated quarterly update presentation. A live webcast of this teleconference and a synchronized slide presentation is available through the company's website or through the BRR Media service using the link provided. A recording of this webcast will also be available at the same link shortly following the conclusion of today's call. It gives me great pleasure to hand over to Karl to kick off today's proceedings. Please go ahead, Karl.
Thanks, Nicholas, and welcome, everyone, to our quarterly report for the June quarter and some results obviously for the full financial year 2018. I suppose just to highlight to everyone essentially, we probably had a quarter on balance in the June '18 quarter that has been pretty much the best quarter that this company has ever had when you add everything up together, whether it would be a combination of production in terms of copper, gold costs for that quarter. So it's extraordinarily pleasing to see at the end of our sixth year of operation, we're still hitting our straps. And I think when we look at the prognosis for the next few years going forward, it gets stronger and stronger and better and better. So lovely to be in that position.So nearly 18,000 tonnes of copper for the quarter, good gold and extraordinary low C1 cost of $0.80 per pound as per the detailed message we'll explain in the financial section. For the year, as I said, touching on the high end of guidance, touching on 65,000 tonnes of copper, good gold, and once again, those pleasing costs for the whole year, and very happy with that, slightly under guidance in terms of C1 costs for the full year. As we roll into 2019, our guidance for copper production is in the range of 63,000 to 67,000 tonnes of copper and 37,000 to 40,000 ounces of gold and around a dollar-ish U.S. per pound operating cost. And I would just like to highlight there, in terms of the scheduling, it will be another solid year, of course, another consistent year. But I would like to just highlight that there is some rescheduling of material whilst we commence the feeding of Monty ore and blending that materially into the ore feed at the DeGrussa facilities. The blending of such is some slightly lower grade average Monty ore which means the grade doesn't change dramatically in 2019 and, therefore, the resultant copper production units are as what we've suggested. But we do see, as a consequence of the rescheduling, it's really just a block model underground rescheduling, is roughly a 20% increase in overall grade in financial '20 year onwards. So for any of you sort of -- who have thought in looking at this the guidance a little bit on the light side for financial '19, it really is just a sequencing exercise as the mine presents itself and how that development ore gets fed in. And the number of copper tonnes and grade and absolute copper units in Monty has not changed, it's all the same. It will all come out, and it's a sequencing entirely. So you should be rest assured nothing to evaporate anywhere. So I think whilst the guidance is the guidance, it's the best way to operate and extract maximum value from the combined operations. So it's all on track, and it all makes sense.Moving into development just very quickly, and Richard will give you an update there, that I think, on Monty, but essentially -- it's essentially occurring as it should be occurring, and Richard will give you further details. With regard to our agreement to acquire the 30% of the Springfield joint venture from the Talisman, that is on foot, that is happening. There is just some small, minor matters that needed to be worked through, a little bit more complicated detail, nothing to be concerned about at all. It's just administratively taking a little bit longer, and that we expect those agreements to be settled and signed up in the next short while, as in this week -- or sorry, next week or the week after, and then Talisman will put it to its shareholders. And as far as we're concerned, that will all occur. And we see -- I don't think anything's changed. It's just administratively taking a little bit longer. The Black Butte permit -- Black Butte Project, that's owned by Sandfire Resources America, of which we own 78%, is progressing as planned, going through that process in the U.S. where that's imminent, and we're expecting the EIS to hit very soon, and we go through the back end of this year and into early quarter 1 next calendar year where our expectations to be issued a record of decision, which essentially is the mining permit, and then we need to go through and deal with the consequences of that. But it is on track as it is. One sad point to note and I will highlight it here verbally is I'm very -- is we're obviously shocked and very sad when we had the passing of our American CEO, John Shanahan, while he was on holidays in Italy and had a massive heart attack sadly and passed away. We were very fortunate that Mr. Rob Scargill, who is joining our team, a highly experienced mining engineer, he's been -- he's got a -- has an extraordinarily impressive CV in terms of the things he's worked at historically in Australia, U.S.A. and Canada, being responsible for operations and the DFS studies and development of projects over a 30-odd year career, was joining us as the project director for developing a project, had just joined the board of Sandfire America the week before and had come onto the team, he'd been on an induction in Australia for the last 3 or 4 weeks prior to that, and he was on the ground at the time. So essentially nothing's missed a beat on the ground. As you'd always like your business to have -- knowing ultimately will affect the ongoing operations of the business. So we've been able to continue without missing a beat there, which is fantastic, but obviously very sad with the passing of John and it was a shock to all of us.If I can just push on from there. Exploration, Shannan will give you an update. Once again, we've got our plus 6,000 square kilometers of ground that we're exploring aggressively. And once again, the prospectivity of that ground has not changed. We've had some fantastic results in some of the work we're doing with Auris and in that corridor. The Vulcan project, Homestead and then down through to the Morck's Well area. We're still waiting for the big surprise to come, but essentially, that corridor of area as well as other areas are very exciting and are getting a huge amount of attention at the moment, and we're very -- it's very prospective.Corporate and financial, the business is in a strong position, and I've said this quarter-on-quarter, it's never been in a better position. Consolidated cash is almost $250 million. And just -- can I highlight in this call, at this point in time, and I'll probably touch on it again, there has been some gossip that I've heard, which is totally and utterly erroneous, to say that Sandfire is considering a rights issue. Someone, somewhere ignorantly has misread documents in the quarterly report, and -- which I think it's talking about, was clearly talking about Sandfire America that is looking at raising some money which will obviously fund our proportional position. But it's looking at raising some money pursuant to an -- under our rights issue probably in the next few months to continue its ongoing funding. That will be a fairly modest rights issue of which Sandfire will essentially fund its position just like any other project expenditure. The comments -- I've had some calls this morning that said, "Is Sandfire is considering a rights issue?" It is not considering a rights issue, so to be crystal clear, and the company is extraordinarily well-funded. It's generating substantial cash flows. And I think when you see the financial results for the business for this financial year, when they do come out, they will be the best that we have ever had. So can we just be crystal clear for all of you on the phone that, no, Sandfire is not undertaking any capital raising of any description at all.Thank you very much for that. I'm now about to pass over to Richard who will give you an update of safety and operations of the business.
Thanks, Karl. Just moving straight into safety now. So the last quarter, we've seen an upward trend in our TRIFR which has been unfortunate that, as a consequence of 2 [ RDRs ] that was sustained in our organization. But that said, the challenge is now going forward to correct that trend and bring it back down. As an organization, we have a number of programs internally that are moving and directing that work there to counter that trend. But as always, our principle hazard management is key to our focus in terms of safety culture. And of major note for us internally is a revived leadership program that is coming in with a very strong theme about leadership in the workplace with safety and our [ HS ] as well. And that will go a long way to addressing some of these issues that we've had in the last quarter. But all up, behaviors and the values and attitude of the organization remain very strong and very positive, so we can anticipate a turnaround in the next quarter and beyond.Just moving on to operations, underground production for the quarter. So just over 412,000 tonnes at 4.7% copper, very strong quarter, bringing it home for the year. That places us at 1.67 million tonnes hold at 4.3% copper. So viewing the kind of past year from a mining point of view, it's been a very solid, very strong year considering we had those issues back in September, October with a lot of dilution from paste fill and talc as well. And had all sorts of consequences for the production at that point in time and really did put us under pressure to meet year-end. So really, the last quarter, the whole team here has really got to it and brought the prize home for us, so it's been a very good year.In terms of key parameters for mining, so it's about our production versus our backfill. That remains in a steady state, so that's being managed. The paste fill plant itself was upgraded during the course of the year. That's in play now and in operations and working on that to even optimize it further from where it is at current operations at the moment. That's going to do us a great deal of good moving forward, particularly as we wait for Monty to come on later on this financial year.In terms of the following year from underground mining point of view, very similar kind of schedule, as Karl mentioned earlier. We're now in a situation with the mine where we're locked in on a sequence, as the nature of these things are, and we will see ourselves mining in normally 1.64 million tonnes next year at 4.4% copper from DeGrussa and Monty. The back end of that year, we'll see Monty come in. Monty's contribution to the year will be mostly around 123,000 tonnes. So Monty really takes effect in the following year FY '20, when it really kicks in. Grading at the back end of the year it's just over 7.7% copper from Monty.Just moving on from that, in terms of milling through the quarter, 391 -- or 392,000 tonnes more than average grade at 5% copper. Again, just the success flows on in this quarter at the underground mine as a whole and it's certainly brought us home to target. So all up for the year, 1.64 million tonnes milled, average grade of 4.3% copper.Recovery-wise for the quarter, just under 92% on the copper and 47.5% for gold. From a year-to-date point of view, for FY '18, ended up at 91.4% for copper recovery and the gold was at just under 45%. For next year, we see a slight increase for copper for FY '19, so we're going to shift up to just over 92% and gold at 45%. We see that as we see the tail end come in at Monty with the higher grades which has an impact on those recoveries. So FY '20, we'll see a stronger shift upwards in both those recovery figures.In terms of the concentrate and metal production for the quarter, 74,000 tonnes of concentrate produced, another -- in terms of contained copper there, just over 17,800 or nearly 17,900 tonnes of contained copper and equivalent 9,500 ounces of gold along with it. So at the year-end we had met our guidance targets that we set out with, so we produced 65,000 tonnes of contained copper and 39,000 ounces of gold. So very -- as I said earlier, a very solid, very successful year's production.In terms of capital programs, the last remaining large one now is the Sipa filter project, which is the tail end of the processing plant to cater for the uplift in grade from Monty coming into the front end of the plant. That is nearing completion as we speak. PC date was set for the 26th of July. At the moment, that's still holding, so -- we just, sorry 26, I guess, July 26. So now we're just tidying up and just moving into final bits of commissioning on those plants.For those that don't recall, the plant has been expanded to handle an increase in concentrate capacity, so it's normally up to 400,000 tonnes as a consequence of the increase in grade from Monty coming through, being blended at marginally 25%.And then in terms of Monty itself, just infrastructure, the decline works are continue to progress, and certainly the infrastructure across the business up there is all being completed and we're just trading for commercials now. But essentially, it's fully operational, and we move towards setting up our first fuel chamber as we finish the first turn in the decline and then start getting into the grade control drilling and then beyond that, operations.I'll hand you over to...
Thanks, Richard. Moving on to sales and wrapping up the financial year, we had another pleasing quarter in June with 7 shipments completed. 3 of those were in June, so we managed to get a lot of that stock out for the end of the financial year, 72,000 -- 72,500 tonnes of concentrate, and the numbers are presented there in terms of tonnes of copper and gold, both contained and payable. For the full year, that gets us to 25 shipments with just over 260,000 tonnes of concentrate, containing around 63,000 tonnes of copper. So there will be a little bit coming into the next financial year as well from some of those closing stock holdings. That gets us for the year to very pleasing results. And we have -- as we had previously, we're releasing a preliminary number in terms of revenue and QP gains of a record $605 million for the financial year '18, and that compares to a $533 million equivalent in the previous year, driven by -- largely by some improved copper production, but also by an improved copper price. Those sales are continuing well, the trucking operations, the shipping and selling operations of Sandfire continue to be run well and that's through Port Hedland and Geraldton through our number of customers.Moving on to unit operating costs to also close out the year, a very pleasing result, as Karl touched on, USD 0.80 per pound in the June quarter, driven largely by higher copper production in that quarter. Around 18,000 tonnes of copper will significantly reduce our C1 costs. As we've mentioned before, they generally rely on costs driven largely by ore tonnage as opposed to copper tonnage of contained copper. And we were a little above the midpoint of our guidance range for the year which brought us in at around $0.93 for the full year, and that was particularly pleasing results as well. Looking forward though, importantly, into the next year, guidance is set at $1 to $1.05, a little above what we've just closed out the financial year '18 with. That is driven by mining costs at Monty coming in. Now Monty comes in at around 2% -- a headline 2% lower grade than its life of mine average as those tonnes come in in the second half, mainly in the second half of the '19 financial year. So we get some costs in there. We don't get that good dilutive effect on costs, though, of that higher grade at Monty. We will see that, though, in the latter years of Monty. And in those latter years, the Monty grade as it comes in lifts the overall DeGrussa grade through the plant by about 20%. So we'll see that into the 2020 financial year and beyond.There's also an impact on cost in terms of DeGrussa's mining scale, reducing from 1.6 to make room for Monty ore coming in. And as we said, that will also continue into the future years as Monty comes in at higher grade, but we will have that positive impact as we -- as I spoke about earlier. Mine development, $8 million for the quarter, wraps us up with $31 million for the year, and guidance, a very similar number into next year also with some additional developments in terms of the additional mine plant and additional tonnage as we've previously released. The Monty JV, $9 million for the quarter, $43 million for the year and $42 million heading into next year. That is not only development in terms of underground development, but that's also a capitalized Monty cost up to the point of first commercial production. So roughly speaking, it's about the first 6 months of all costs at Monty will sit on balance sheet within that $42 million.Sustaining is reducing, as Richard mentioned, so wrapping up the year at $21 million for sustaining and strategic CapEx, was largely around the pump station and plant centrifuge projects. Into next year some roadwork, some area [ drain ] work as well as spares for some of the new plant equipment that we're installing for Monty to come in around the filter in [ Cigna ] and there is also the back end, as Richard mentioned, of the -- some rougher column work and the back end of that filter [ Cigna ] project as well, particularly in the first part of 2019. So capital really does tail away after those projects have been completed.I'll pass to Karl.
Thanks, Matt. And just quickly touching on Sandfire Resources America and the development and the growth aspirations of the Black Butte project, the copper project in the U.S.A. Just to recollect or remember, we own 78% of this listed company, rebadged Sandfire Resources America. It's got 600,000 tonnes of contained copper in that orebody that we've obviously -- it's part of that mine operating planned permit. It's being launched and we're going through the final stages of permitting. The key point is to highlight that the Environmental Impact Statement, the EIS, is progressing well. It's in its final stages, and we're expecting the draft EIS imminently. Once the draft EIS is received, it will be out for public comment, go through a process, and that we expect to occur during that public -- [put in ] your draft and the public commentary through the back end of this year, calendar year, and our expectations are towards the back end of this calendar year to then have a final EIS, Environmental Impact Statement, completed. Once that is done, our expectations, the early -- in the next calendar year, 2019, are to receive, Sandfire Resources America to receive a record of decision which essentially is the same as the mining permit. The record of decision will be a document, a legal document that says this is how you can operate and these are the terms and conditions upon which you can operate. So that's our expectation for this project. It is progressing as we've expected. It is what it is in terms of the -- going through the process there in the system, and we're going through that. So that is the update on Sandfire Resources America. I mentioned about John Shanahan and once again just to clarify again, it is that company which essentially we are the major shareholder of at 78% that we'll look at its funding alternatives. It always, ever since we have been a shareholder, undertakes entitlements issues to fund its budgetary expenditure indirectly it's like us funding another project, and that company is, as always, looking at probably undertaking another entitlements issue in due course to fund its project expenditure. So just to be crystal clear, once again, Sandfire Resources Australia, the ASX-listed company, SFR is not undertaking any capital raising or rights issues that some people seem to have got confused about. So I just wanted to clarify that once again. Thank you, and I'll pass over to Shannan to give you an update on exploration.
Thanks, Karl. During the quarter, we saw a continued strong commitment to our exploration efforts. And we're pleased in the fairly early success of the Morck's Well Project in the newly formed Auris joint venture. The mineralization, whilst narrow and not economic at this stage, was a fantastic proof of concept. Within the basin, we have a very long-lived, robust VMS [ corners ]. It's going to continue to show more -- showing the VMS mineralization that we have seen.The mineralization reserve was copper-rich with chalcopyrite, chalcocite and some native copper up into the transitional zone. And it sat neatly in a package of exhalative rocks, perfectly suitable to hosting VMS mineralization. These packages can be seen along strike to the Northeast going up into the Vulcan West and Homestead prospects where we can see probably 5 kilometers of strike as the prospective sequence that we're continuing to work on.The area that we see at Morck's Well is now 25 kilometers along strike to the Southwest of Monty. And from Morck's Well heading down to the Southwest and our tenure in joint ventures in 100%, we've got at least another 50 kilometers of prospective strike horizon to explore. [ At Doolgunna ] we've actually expanded our landholding over the recent times. We now really have a basin wide approach to our exploration, and that's evolved where we're now looking at doing some high-quality basin wide data sets, the first of which has been a very detailed airborne EM survey that covered down into the Western part of the Bryah Basin and also included some of the area up into the Yerrida, including the Great Western joint venture.The first drilling at the large [indiscernible] geophysical targets at Ned's Creek has commenced and is continuing into the coming quarter. And then looking forward, we can say we have multiple workflows on foot at the current time, including detailed grounding in the 50-kilometer strike horizon that we talked about to the Southwest of Homestead, Vulcan West and Morck's, an area never previously actively explored for copper. Continued first pass aircore drilling in the same similar area. Infill and targeting from the airborne EM that we have just completed farming it and the completion of drilling at the Ned's Creek geophysical targets. Further field and air exploration efforts are continuing in Queensland. We have diamond drilling underway on the Breena North project targeting the current site in gravity in [indiscernible] [ alloy ]. Afterwards a rig is arriving imminently to commence strip testing some targets at [indiscernible] and Cannington West and continue to do some ground exploration with mapping and ground [ magneting ] occurring in Black Rock, Cannington West and back up at Breena Plains as well. So a very active quarter in exploration, and we'll be continuing as such into the coming quarter as well. Back to Karl for summary.
Thanks, Shannan. Just that in conclusion and thank you for your patience, we'll be open for questions shortly. It's been a very solid, and, in fact, it's probably on balance in my view the best quarter this company has ever had. So we're very pleased about that. And the financial performance and the operating performance in the year has been excellent. So thank you to Richard and his team for the wonderful work that they've done. Monty, as we said, it's essentially, give or take, on budget in terms of timing. It's probably under budget in terms of overall full capital costs and the pre-development cost to get to where we are, so that's good. We're obviously -- we're very enthusiastic about being able to wrap up 100% of this critical joint venture and just operate it essentially [indiscernible], it just gives us a bit more flexibility and ease. So we're looking forward to completing that, and that is imminent. As I mentioned, progressing and looking to develop 600,000 tonne copper project in the U.S.A in Black Butte, and essentially which we control 78% of, is a wonderful opportunity to be able to not only develop that project for its economic benefit. The prospectivity of the region is fantastic, and we have great potential there in due course, but also it gives us a great opportunity in being on the ground in that part of the world and securing a brand-new permit in a very prospective region, being in the U.S.A. and into North America and potentially Canada off the back of that. So leveraging to that, it's part of our strategy of the things we're looking at doing. Shannan's mentioned about this extraordinary 6,000 square kilometers plus with highly prospective VMS area that we've got in the Doolgunna region and what is an extraordinary 75 kilometers of hugely prospective ground that has not had a significant exploration undertaken. So I think the fruits of the work that we are doing and the potential from there is still not to be underestimated. It's always a long time between discoveries but the opportunity is -- the prospectivity is significant, the opportunity is great. So we're excited about that. Business development -- while not a point here, but business development for Sandfire given the extraordinarily strong financial position that we are in, given the wonderful relationships we have with our customers and given the wonderful relationship we have with our multiple financiers, we are in a fantastic position to continue to look for, I suppose, a twofold in our business development activities. One is obviously looking for something that is significant and strategic and will make a difference and move the dial for Sandfire and will be accretive and add value. And we are in the -- as I've said before many times, the value-adding business, value generation, but we've also embarked upon a bit of a portfolio, [ a few ] have taken a minor investments, strategic investments in some other organizations to give us a little bit of an opportunity to see if we can leverage up in some situations, and that includes into Adriatic, which we are very excited for Adriatic and their wonderful results in their project in Bosnia-Herzegovina and some extraordinary results if you went to have a look at their announcements. Also recently into White Rock which we got a really exciting project up in Alaska and some other things that strategically are long-term in our pipeline. And just to conclude, the business is financially in a very strong position and enables us to undertake and continue to pursue our strategic objectives, which is to continue to build this company to operate, to be a significant mid-tier mining company operating in the highest quartile of industry performance benchmarks. So we're pretty excited about the future and what things look like in the medium to long term. And we continue to work very diligently to add value to our -- for our shareholders and create value. Thanks very much for listening and we'll go straight to questions and look forward to taking them.
[Operator Instructions] Your first question comes from Hayden Bairstow from Macquarie.
Just a couple of things on Monty. Just want to understand. I assume this is all just getting incorporated into the one project there won't be sort of separate cost center -- and just with that in mind, is there a slightly higher cost other than the trucking of the ore in terms of actually mining Monty? I assume it's a bit narrower than DeGrussa and hence has a higher mining cost. And just on the grade profile, and is there any sort of clarity on -- I mean obviously Monty gives you a kick second half so with this guidance for this year, is it pretty heavily second half weighted? Or is there actually a tail off in grade out of DeGrussa in the second half that offsets that?
I'll take that. It's Richard Beazley. Yes, the costs are normally higher at Monty which is driven, one, by the whole distance across the surface that you just alluded to, some 14 kilometers by road. But in terms of direct underground costs, they're slightly higher because we're dealing with far more smaller stopes than what we have traditionally over at DeGrussa and just by the very nature of the logistics and turnaround the corridor on each stope, just drives those costs up. So with that aspect, I've got the other question was the kick up. The kick up is notably about 20% in 2020 from 2019. And you just got to remember, in 2019, it's only a small quantum, it's only just over 100,000 tonnes, that's about 7.7%. And we will see a 20% kick in the following year, and then that's when we'll see the benefit really coming into the mix through the processing plant and into the product, final product. I think I've got all of your questions there? If not, just repeat.
Your next question comes from Michael Slifirski from Crédit Suisse.
I've got 2 questions. First of all, the capital guidance for DeGrussa, flat on the '18 year. Just interested how we should think of that in the context of these prior guidance you used to give where you used to talk about the meters of developed and the dollars per meter. At a profile, you've provided a year or so ago that showed a very significant reduction year-on-year. And why that's not coming through in that capital number which is flat compared to the meters you've previously described, particularly given that, I think, Richard talked about the add on to mine life being very capital efficient because it was going to leverage existing development, not require significant new development. So is there some sort of reprofiling of that capital expenditure? Or is there something new that we're not really understanding?
Yes, Mark, well, there is a little bit of that, so there is a little bit of that in the new mine scheduled, but it's also a year-on-year concept. So we've come in under our original mine development guidance for the '18 year. So some of that times into '19. So you do get a bit of a -- because they're under our '19, some of that -- sorry, one under in '18, some of that falls into '19, you end up with a comparable number. It is reducing. We do know that. But as I say, if you're $7 million or $8 million down on 1 year, and you add it to the other year, you get -- you'll come to an equivalent sort of year-on-year figure. So we'll give more guidance as we go through the year as well about how that develops and how Monty comes in, and Hayden touched on it as well, about how Monty's costs and how DeGrussa's cost and capitalization come together. We'll give some more guidance on that probably later in the year as well, a little bit more clarity.
Okay. Secondly, with respect to Black Butte and the met test work that's being done or the holes have been drilled, I guess it's too early to know what the outcome of that met test work is. But in terms of those holes going through the orebody, are they, sort of, confirming what was understood about grades and distribution? Or is there any new information that's been learned from that?
Michael, Shannan here. The drilling at Black Butte in the first half of the year has really been that focus on metallurgical. It's had fairly confirmatory results in terms of groups and grades of mineralization that have been observed. But essentially, a lot of this has been 100% submitted for metallurgical test work that's underway. Kamloops up in British Columbia and referring to the DFS as we move forward towards the back end of this year and into next year, but there's no real surprises in that drilling.
[Operator Instructions] Your next question comes from David Coates from Bell Potter Securities.
Just harken back to Hayden's question on the grade profile in DeGrussa and Monty and how we should expect production costs FY '19. You've been mining above reserve grade at DeGrussa over the last -- well, for the course of this year. Should we be seeing -- with production just reliance on DeGrussa in the first half, in particular, should we assume grade and production coming off in the first half and then with Monty sort of supplementing and that said, lifting the balance of production and lower cost in the second half of the year?
Yes, David, Matt here. So in the first half, we continue in that sort of low 4 in terms of percent head grade at DeGrussa. That continues into the third quarter. That's really when we get any sort of material ore coming out of Monty. And we start to feed that in. That does bump the grade up over the course of the year. But as Richard mentioned, you're at a sort of 120,000-odd tonnes at about 7%. So it's obviously important that it's coming onstream, but it's really just the start of a much longer 3-year process. So it will bump it up. Cost-wise, I'd expect it in the first half of the year to probably be more towards that bottom end of our guidance range, more around $1 as we're just running that DeGrussa site. Those Monty costs will come in as I've touched on before, and I think costs in the second half will probably come up as Monty comes in because we do get that cost sort of inefficiency, if you like, as Richard mentioned, because of the style of the orebody, and it doesn't bring that high-grade ore in those first few stopes. So I'd expect the second half costs to be higher than the first half.
Your next question comes from Peter O'Connor from Shaw and Partners.
Karl, just thinking about your last comment you made in your prepared remarks where you aim to be a mid-tier company, I think if I got this right, operating at the highest quartile of benchmark indicators. How do you shape that thought around your profile over the next few years? And in thinking about the recut profile of Monty you've talked about today, which has pushed that a little bit to the back end, and then with Black Butte starting, I just want to get a feel for when would be the earliest start of Black Butte? So how does that profile sit with DeGrussa, Monty versus Black Butte? Do you have a dip? If you have a dip, do you worry about that? Do you need to have growth in copper units? Do you need to have copper units? Or can you have a period of no copper units? Does that worry you? And where does M&A fit in that? Do you need to use M&A to fill that hole or...
Look, I think, in a perfect world, if you sat down -- Peter, thanks for the question. In a perfect world, if you can sit down and get a nice clean piece of paper and you'd like to see a nice, even, steady trajectory in copper units and growth and cost efficiencies and keep on building on it. And you sort of design these things in strategic plans. And our plans got a sort of 5-year profile to it. We have Horizon 1, Horizon 2. Horizon 3, I think, it's 1 to 2 years. You have 3 to 5 years and 5 to 15 years type of strategic planning objectives, and this is the way you sort of throw spaghetti at the wall and try and say what would you like to be and where would you like to be. We see ourselves, I suppose, aspirationally as being somewhere between from where we are, the base we are today, there's elements of our business where we say, look, we've done quite well to be where we are and optimize this discovery and extract value out of this discovery and operate it diligently and methodically and efficiently. But where we sit today in the base we've got, we're, I suppose -- feel happy that we've at least got to this point and we worked hard to get here. Off the back of where we are today, we're seeing the businesses potentially having the ability in the next 5 to 10 years to be a $1 billion to $10 billion mid-tier company operating internationally, in the northern and southern hemisphere. You get a feel of that a little bit with the effort we're making in the U.S. and the persistence we're putting there. It's not, once again, it's -- many of these projects and looking at projects and I often say, they looked at -- they're looking at -- in the last few years, we've probably looked at hundreds of things, and where do they sort of sit in the curve of things -- interesting and could they make a difference, it becomes challenging. It's very subjective in the things you look at. When you look at sort of adding in something like Black Butte, Black Butte is important. It's not a DeGrussa, of course. It's just -- it's not the same thing. It's probably as complicated, if not more, to bring in-stream because its permitting is more complicated than probably what you might find in Western Australia, but it's worth going through the effort. It's not going to have the financial impact or results of something like DeGrussa. It's not going to have the production profile, it’s got a different grade, its margins won't be as strong, but nonetheless, it's a very good strategic exercise to complete for this business and to establish a foothold and a beachhead in North America, both into the U.S., which we think has got a significant prospectivity with a little bit of a resurgence and an appetite for -- forgetting about all the hysterics about politics and the short-term things that might be occurring. But the medium to long term, the opportunity for organic opportunities and prospective opportunities in U.S., in South America, in Canada is strong. You know what I mean? Is strong. There's a lot of opportunities there, and it's places that whilst it might be -- takes some time to permit and get things in place, once you've received these things, you have them. Maybe in other parts of the world, you potentially get permits and you think you've got things and all of a sudden if it's that good, someone will take it off your hands. So we like Australia, we like Canada, we like the U.S.A. aspects of -- parts of South America. When you look at sort of trying to do things that might perfectly fit into a production profile of when does one stop and when does one start and will you try and blend things to make a continuity? Yes, we would like to try and do that. We'd love to bring Black Butte. What's the earliest it could start? We could start breaking ground in the U.S., assuming we hit no impediments early next year with a record of decision. Now you know it's the U.S. and you know, as they said, it's the land of litigation and everyone wants to have his two bob's worth. So we don't quite know what might come out when the record of decision is received. But we are planning to be in a position that we can break ground. And once we break ground and we get on with it, we have 2 years to get into -- essentially, activities to get into production. Will it be 2 years? Well, if we're in control of it entirely and we can do the things right, then it will be 2 years. And then we'll bring that production in, and it will obviously add onto the production as we currently see the back end of the blended DeGrussa and Monty production profile over the next 4 years type of thing which, by the way, are going to produce some phenomenal cash flows and essentially underwrite our market capitalization in terms of pre-discretionary expend the market capitalization we've got today. So in a roundabout way, to answer your question. And look, I could go on like lyrical forever, but essentially yes, we would like to blend things to make it smooth and even and go up in a nice, steady fashion in terms of production profile, we can't do that, necessarily. We will not chase opportunities or business development opportunities that we don't believe are value accretive. So we're not going to buy things for the sake of buying things. We are in the business to create and add value, not to employ ourselves and keep jobs. So it's not what we do. What we do, as we have a duty to our owners, to our stakeholders, to try and be value creators. And so I think it's important to ensure that, that is the Holy Grail for us is value accretion. And along with that, then tons of opportunity to create employment, to pay taxes, to do positive things for many stakeholders. So in a business development sense, some of the strategic objectives that we've got in this portfolio are very small. But they're looking at putting bets on some things that got long term, they might become significant assets that we get involved in down the track if those portfolio assets become something more meaningful and we've lined ourselves up to be in the best strategic position to get more of those things potentially or be involved much greater, assuming those managements and those respective entities are receptive to us to be in the box seat on some of those portfolio investments. And we don't quite know what becomes of them. We're not spending a king's ransom on them, but they give us strategic objectives in many places and they're really exciting and really interesting. Adriatic, many, many, many drilled holes but the most recent one I announced was something like 60-odd meters and the equivalent -- I think equivalent is 30-odd percent. An extraordinary result. What's going to come out of all that? Who knows, but it's really interesting. But more specifically on these things that make a difference, and looking for something that's meaningful and significant that would move the dial for Sandfire, yes, we're active looking at prospective projects that could have a significant impact, essentially to fill that production profile. There are not that many around the world that you can fit in. Where we think we have some sort of skill sets, we love rolling our sleeves up, we love getting our fingernails dirty and getting in the middle of things. We like being in the middle of permitting projects and developing projects and building projects. So we look for projects that probably need assistance in terms of technical capabilities. A willingness or wanting this, a desire, a determination to get things done, possibly have major complications in the project, but nonetheless, a pathway that if you work hard and you can solve the issues and problems and that you need some financial resources and [indiscernible] our cash flow, our balance sheet and also access to capital which we've got significant access to capital that we can make a difference. So in sum of this, it's a sales pitch also for anyone else out there. If they've got interesting projects, we'd like to talk to them because we are looking out for the next things to develop. So I can't give you an absolute ironclad guarantee that the production profile is going to be fantastic. But we're setting ourselves up, even with what's challenging in our exploration. If we were to discover another Monty, DeGrussa, a king of -- a father of DeGrussa, we are good and ready to go. You know what I mean? We are in a position, we are poised for success. We've got -- the guns are loaded and we're ready to go in any degree. Portfolio investment, major acquisition, new discovery, organic discovery, permitting of Black Butte, we are ready on all fronts. We're ready, willing and available to go forward. So look, I'm happy to sit down one day. We can share our strategic plan in greater detail if you want to come and spend -- probably get trapped in the office with me for the next few hours. But essentially, I haven't got the [ axe driven ] but we're working very hard to try continue to grow the business and create and add value.
The Bryah Basin and Greater Doolgunna area, and it seems like that it's the prize that fits that hole most easily. Can you just remind me about -- with the VMS structures and the area, the trucking distances versus grade versus size of deposit trade-off that you would need to look at. So I know Monty obviously stands out, but looking at Morck's River what's that pod size that you need to warrant the capital spend and where does trucking [indiscernible] .
I'll give you a quick sentence and then I'll pass over to Shannan really. But order of magnitude, in some of those arrangements you might have picked up in those deals, we've said in some of them we essentially -- for example, in the case of Auris, we essentially have a minimum spend and then spent some money and that's an unlimited up spend, essentially, after we hit the minimum target of spend. And we've sort of notionally said, 50,000 tonnes of copper or copper equivalent because we think order of magnitude, whilst we can't predict growth in tonnes, it needs to be at that sort of scale at sort of relevant grades that would be something that will be worthwhile getting in the middle of. But I'll pass to Shannan to maybe articulate that a bit clearer.
Yes, thanks, Karl. As you stated, there's a range between grade, tonnes and distance and then there's another element that comes in on how close you are to the Great Northern Highway. So if you had defined mineralized bodies at Morck's that were to say in the order of 50,000 tonnes of copper or greater, then I think you'd easily be able to develop those at a grade plus 2.5% that fit very close proximity to the Great Northern Highway so you'd be basically non-hauling trucking through to [indiscernible] into DeGrussa. We look at it from a range, a radius of sort of a 50 and 100K radius, and it's almost in our head a notional double from 50 to 100K mineralization size and scale that we would require.
Thank you. There are no further questions at this time. I will now hand back to Mr. Simich for closing remarks.
Thank you, everyone, for being so patient and listening to us. It's almost been the longest quarterly update that we've had. So thank you very much for that. And look, once again, it's just been a wonderful last quarter, as I said, probably the best we've had and a wonderful year. The prognosis going forward for Sandfire looks fantastic. And just for those who have picked it up wrong, the company is not raising any capital of any way, shape or form or any description, so please ensure you erase that from your brain, you obviously read things incorrectly. And we look forward to a very bright and strong future for the company. Thanks once again for your time.