Sandfire Resources Ltd
ASX:SFR
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Sandfire Resources Ltd
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Thank you for standing by, and welcome to the Sandfire Resources 2019 June quarterly update. [Operator Instructions]I would now like to hand the conference over to Nicholas Read. Please go ahead.
Thanks very much, Ashley. Hello, everyone. Thank you for your time today. On behalf of Sandfire, a very warm welcome to the company's June quarterly investor conference call and webcast, following what has been a very successful quarter for the company.I'd like to begin by introducing the Sandfire team here in Perth. Leading today's call, we have the company's Managing Director, Karl Simich. And joining him in the room is Sandfire's Chief Operating Officer, Richard Beazley; Chief Financial Officer, Matt Fitzgerald; and General Manager, Geology, Shannan Bamforth. Karl, Richard, Matt and Shannan will shortly run you through a presentation before opening the floor to questions.Please note that today's call follows the release on the ASX platform earlier today of the June 2019 Quarterly Activities Report plus an associated quarterly update presentation. A live webcast of this teleconference and the synchronized slide presentation can be accessed through the company's website or through the BRR Media service using the link provided on the front cover. A recording will also be available at the same link shortly following the conclusion of today's call.I'd now like to hand over to Karl to begin today's presentation. Thanks very much. Karl?
Thank you, Nicholas. And welcome, everyone, to our quarterly report update and also the 2019 year-end report, certainly from an operating perspective.It's with great pleasure that we can announce obviously a very efficient, productive and highlights the June quarter and operating results for financial '19, which is the best that the company has ever delivered. So with the June quarter of some 18,500 tonnes of copper, excellent gold and extraordinarily low C1 operating costs. Obviously, with the higher gold price, we're getting some credits there, higher recoveries of $0.74 a pound, it is the best quarter that we have delivered pound-on-pound. And for the financial year 2019, coming in at mid-69,000 tonnes of copper, really solid gold and at C1 operating cost for the year of $0.83, really pleasing to see that the operations are running extraordinarily well. The commencement and the blending of bringing in the Monty operations and blending into DeGrussa ore is working properly.So I'd just like to highlight and thank the team for delivering what has been an outstanding operating result year, probably going to highlight in a very good solid financial year, and we'll get those results when we get the year-end results. But essentially, the only elements beyond our control, which is the commodity price and currency, will probably have some impact obviously on that. So there'll be strong financial results but impacted by the last financial year's less -- slightly lower commodity prices even after adjusting for currency.Also turning to our expectation of guidance for certainly the next financial year, where we sit at the moment and looking for a target in between a range for copper production of 70,000, 75,000 tonnes of copper; and around 40,000 ounces of gold; and a C1 operating cost running 2 operations, between USD 0.90 and USD 0.95 a pound. And can I just highlight regarding the guidance, it very much is the case of -- with the release in 21 June, '19 of the updated mineral resources and reserves and the application of the sequencing, of the mine planning between DeGrussa -- mine plan between DeGrussa and Monty, essentially in our guidance, we really are seeing better application of a -- how the operations evolve and smoothing of those operations as opposed to what might have otherwise been a slightly more lumpy operations with the injection of Monty and those high grades coming in.So essentially, all the copper is still there, hasn't gone anywhere and essentially, it has just being smoothed out to operate more efficiently over the life of the mine. So there's nothing to -- whilst I have seen a couple of early comments about slightly lower guidance for next year, but I think overall, it's the same guidance for the life of the mine. So people will need to work their way through that.Further, in terms of development, business development for the business, obviously, during the half year to June or the quarter to June, we announced on 25 June that the company had entered into an agreement with MOD Resources Limited via a scheme of arrangement to essentially acquire 100% of that company through the scheme of arrangement and, at the same time, bringing through the acquisition of their minority joint venture interest for Metal Tiger, 100% of the exploration ground relating to the areas they control in Botswana, so a significant exploration ground holding. I can refer you to the announcement of 25 June, '19 for a significant detail, but to highlight here today, again, it is a transaction that meets all of our criteria for business development proposition. It's value accretive. It has significant belt-sized province and is highly prospective. There's a rapid permitting process on foot at the moment, so near-term production, looking at moving into -- through an optimization of the feasibility study that's being presented by MOD and is -- that's through the process of doing that sometime in the early part of 2020, moving into construction with production occurring in late 2021.Long life mine, low capital costs and low capital intensity, very attractive jurisdiction doing business in Botswana and certainly, a very mining-friendly jurisdiction. And I think between MOD's team that they've developed and done a wonderful job with Julian Hanna running that business and building a team in Botswana together and complementing with the Sandfire team and resources, we do see this being a wonderful win-win situation of both companies that, coming together, delivers for the relevant stakeholders of both organizations under the one umbrella a value accretion across the board for everyone.So -- and I think collectively, we do have the combined resources to deliver on what is required there to maximize and extract the maximum value for all of our various stakeholders. But once again, refer to that announcement for further information. We'd want to continue here.Also, I'd like to just highlight the Black Butte project in the U.S.A. controlled 86% by Sandfire Resources, 86% shareholding in Sandfire Resources America, which, in turn, owns 100% of the Black Butte copper project in Central Montana. We're going through the final stages of a number of key milestones. The draft environmental statement has -- and public comment period has closed. The regulator is processing his way through those comments. And it's our expectation that through the course of the second half of this calendar year of 2019 that the final Environmental Impact Statement will be issued, that consequently, or subsequently, the Record of Decision, the equivalent to a mining license, will be issued and that also, during the course of the last quarter of 2019 calendar, the production of the -- the final feasibility study will be completed, and we're looking forward to then moving forward upon a satisfactory feasibility study and an investment decision to moving forward into development of that project. So we're very excited about that as well.We've had a very busy period in exploration, and Shannan will give you an update on all the workings that are going on there. Once again, very active, and we still continue, I suppose, in a prospective manner, believing that we have got significant potential in the provinces that we are operating. And so we are still pursuing with great vigor our exploration effort there.Further, on a corporate and financial sense, a very strong balance sheet, a very strong -- a very simple balance sheet as well and essentially, sitting on just under $250 million in terms of a sort of group cash position. It's essentially as good as we've ever had. So we're in a very strong financial position, no debt, but access to further capacity if required. So we're in a very strong financial position.I'd also just like to highlight that during the -- early in July, the 11th of July, we announced the appointment of a full-time Chief Operating Officer in -- Mr. Jason Grace and Jason will be joining us in September. Jason certainly has -- he's a certainly very confident and experienced individual. He's a mining engineer with a masters in mining engineering. He's a geologist as well. Significant Australian and global experience and both in leadership roles and also in a variety of different operations for the various organizations that he has worked for over many, many years, including Mineral Resources, Cliffs, Iron Ore and 13 years with Newcrest Mining; prior to that, BHP. So I'm looking forward to have Jason joining the team in September.And I would also like to just extend my great thanks to Richard Beazley for being the Interim Chief Operating Officer for Sandfire over the last couple of years where we've had our best and our second-best operating performance and probably best and second-best financial performance in those last 24 months. So thank you, Richard.At this point, I would just like to hand over to Richard who will take the next part of the presentation. Thank you.
Thanks, Karl. All right. So safety, we'll start with that. Look, a very, very solid quarter now. For the whole year, we were, obviously, a little challenged at the front end where we had some rising trends down in TRIFR. But it's pleasing to report that we've closed the year at a TRIFR rate of 6.2, down from 7.1 in the previous quarter. And really, it's attributable to the whole team, the effort there and to our contractors, that a lot of focus, a lot of work has gone on over the past 6 months and especially so in the last quarter to bring that focus back on OH&S areas to get a more credible result and still targeting 4.5 into the next year. It's always been our aspiration. So a lot of work there, a lot of focus on our principal hazards as always and continuing our focus on leadership and culture and assurances back through to the operators and the Board, so very good results.Just moving on to operations side of things. Underground production, look, has been satisfying from a personal point of view and a corporate point of view for the results that have achieved for this quarter and for the year. As Karl said, it's been our best performance to date at this operation, and so it's a quite pleasing result to report to. In terms of ore production for the quarter, just under 350,000 tonnes grading at 4.4% from DeGrussa; now seeing Monty now starting to come online, and we produced just over 76,000 tonnes 7.9% copper. So total result for the mining side of the business is 424,000 tonnes at 5% copper delivered, so a good result for the quarter.For the year, 1.6 million tonnes, just over that, at 4.7% delivered to the mill. So another great result, giving the mill the opportunity to produce what we did that I'll get to in the next slide. But in terms of Monty, the grade control drilling continues. And we have updates to the model on an ongoing basis, and we'll do so for the next 6 months as the program of work as we work through the mine and get much more closer drilling density there and detail on what the orebody's doing. And we'll update the market as required as we move forward.So looking forward, the budgets are predicated on the current knowledge, and we'll see some potential changes to what that might look like. The trend at the moment is suggesting that the actual copper tonnes delivered from Monty will be similar to what has been already put to market at this stage, so we don't actually see great changes looking forward at this point on the knowledge we do have.In terms of the grades for Monty in the next half, I think it's just important to note that the first half, there's around about 6% delivered to the mill and in the second half, we would lift up to around 8%, 9%. So that is a slight change in the original feasibility data we put out there, which is really just a consequence of study runs there in the orebody much better with the grade control program that we've got going on at present.Right. I'll move to the processing slide, on the next one. So again, another great quarter. And with Monty coming into the mix now, we've actually seen the filter and thickener upgrade really start to be tested and that has actually stood up quite well to the extra feed coming in from Monty in terms of the change in mineralization, what it previously had just from DeGrussa. And also, the head grades are now starting to climb. So we did test the filter and thickener in terms of a grade basis back at the late first half and early second half when we had some high grades coming out from DeGrussa underground and that stood that test there. So it's been a pleasure to see that capital loop structure be put to work and actually deliver on results for us.In terms of the quarter for mill throughput, 412,000 tonnes; for the annual basis, 1.6 million tonnes at 4.6% feed. So all up there. Against budget, we've talked about a record year. Tonnes-wise, we're down about 1%. But grade-wise, we're up 7%, which has seen the record result, which is also being helped by the increase in recovery that we got, particularly in the latter second half of this year, of an increase of over 1% against the model. And that was a very strong deliberate focus on changing the blending strategies into the mill. And we're seeing that uplift, and there's more work in that area and other areas of the plant to improve that optimization. So that's been a very pleasing year in that sense.From a recovery point of view, just actual numbers for the year, 92.4% against the budget, which is about 1% lower than that; and our gold recoveries were significantly up, which is more a function of the mineralization and how the gold sits in the ore than any particularly deliberate program in the plant itself. The plant is really set up just to focus and optimize copper.For next year, guidance-wise, on the modeling, we expect to see our recoveries lift to 93% on copper and gold recovery lifting to 48%. In terms of concentrate and metal production, for the quarter, in terms of metal production, 18,519 tonnes of contained copper was produced, so a record year for any quarter or life of mine to date. And in terms of a year productions, that was against a total of 69,000 tonnes against a budget of about 64,000, so up 7% on contained copper production. In terms of gold, we're also significantly up. This has been an excellent year for gold. So we produced just over 44,000 tonnes -- 44,000 ounces, I should say, against a budget of 38,000 ounces, so some 16% up against the budget at this point.I'd just like to move to the next page, on capital programs. So these are the most significant ones that we've got underway at the current point of time. So we are at the back end now of the PFS, of the oxide stockpiles. So we anticipate completing that work in this current quarter we're in now, so in Q1. So that will give us some options about moving forward and delivering copper out of those oxide stockpiles that have been there since the opening of the open cut some several years ago now.Stage 4 tails dam, there's a significant little project out there with the lift. That will be our final lift for the current life of mine. That is underway now, and we'll have that completed by the end of August. And we actually need that capacity from about late October, so we have ample room in our schedules to get that facility put in place. And the other major piece of work is the container storage for concentrate handling. So working with Qube there to increase our capacity there to give us flexibility with the uplift in terms of concentrate produced with Monty coming on and then allowing us that flexibility between the 2 ports that we operate in as well.So they're our major pieces of capital works, and then I'll now hand over on sales to Matt.
Thanks, Richard. Another steady quarter, in the June quarter, with 7 sales completed at just under 74,000 tonnes of concentrate. That's a little bit just under what we did in terms of production, so for the year, 27 shipments for 283,000 tonnes of concentrate. It's about 5,000 tonnes of concentrate below production numbers. So the stockpile -- concentrate stockpile year-on-year going up about 5,000 tonnes of concentrate, and we'll see that reflected in our financial results towards the end of August, that adjustment as well.As I said, 27 shipments for the year and revenue at this preliminary stage unaudited of $592 million. And just a reminder that our revenue numbers now are net of treatment and refining charges, on an unaudited basis, are about $42 million for the year, and QP losses of around $8 million. That's on a year-on-year basis. Adjusting the prior year as well, it's up about $20 million in the revenue basis compared to the year before.Moving across to the operating costs. The strong production for the year, as you'd expect, flowed through and into -- in terms of C1. So for the quarter, a strong production quarter, and also a strong gold -- copper and gold production quarter, has a double impact in terms of C1. So a record in terms of $0.74 per pound on that higher production and record also gold credit has flown through to be a strong finish to the year. So for the year, $0.83 a pound C1 that has been also impacted pleasingly by that large -- or larger-than-expected, I guess, gold credit both in terms of gold production and also net gold price as well, so $0.83, below -- it's come in below our original guidance, as you'd probably expect, given our production has come in just above the updated guidance number.Looking into next year, the C1 guidance for next year as compared -- for 2020 compared to '19, we expect it to go up into the range of $0.90 to $0.95 a pound. We've given some commentary and guidance on expected increases previously, and this is consistent with that. Around half of that relates to the mining side, and I'll go through that in a minute. And around half of it is also an impact on byproduct credits. So if you just want to look at year-on-year, they're the main impacts, mining and byproducts.To go through the individual elements, you would expect a reduction generally in C1 with higher copper production expected next year. However, we do see an increase with the increased number of stopes. And we have some catch-up in terms of the DeGrussa mine void and some paste works, additional paste works to be done there to fill that void and catch up with that.There's also the impact of Monty. Although Monty is high grade, as we've guided in the first half in particular, Monty grade is below life-of-mine grade. It is independently a relatively expensive boutique mining operation at Monty. So when it delivered below life-of-mine grade, that C1 does bump up, so expect that particularly in the first half. There's also the impact, as we've spoken about before, of reducing the mining scale of DeGrussa to allow that Monty ore feed to come in. So Monty dropping as it has done for a couple of months already in the back end of this year but will, for the full year, in 2020, dropping below that 1.6 down to about 1.3. There are some inefficiencies expected from that from what is a largely fixed cost operation.The -- I've talked about the gold production so with reduced -- expected reduction in gold production next year compared to the '19 year, we also expect that byproduct credit to be lower by around $0.04 or $0.05 a pound. So individually, quarter-on-quarter as we set up for next financial year, we expect to see a range of C1s for any individual quarter between probably $0.85 and $1 on any individual quarterly basis and for the year, as I said, landing somewhere, we expect, between $0.90 and $0.95 for the full year 2020.We've added some other commentary just to help particularly analysts in terms of putting our expected results together and putting out some of the early numbers for financial '19. Please be aware they are all unaudited at this stage, and there will be a confirmation or otherwise for our financial results in a month's time but some numbers there for mine development and also guidance across DeGrussa and Monty. Our strategic capital program's coming off quite significantly after the planned upgrade programs really into year, as Richard was talking about. A fair bit of that is around the -- next year guidance is around the tails dam with -- and then some other strategic items as well to improve -- further improve costs and efficiencies.Depreciation for the year just finished around $140 million. We will put out some more guidance around that for next year once we have completed that Monty grade control drilling and some more scheduling around next year but safe to say, at this stage, we expect next year to be about $0.80 a pound in terms of D&A of those new guidance -- on those guidance numbers for next year. And also just wanted to highlight, the impact of exploration and valuation expenditure, which will run through -- which does run through our P&L. DeGrussa, Doolgunna projects, around $26 million for the year; Australian exploration around $6 million; our international ventures and exploration programs, around $6 million; and also the consolidation of Black Butte and Sandfire Resources America results with their cash burn for the 12 months, around $14 million. So we will take up the impact of that, and that will have an impact on our financial results.So stronger in a revenue sense, overall unit costs stronger in a cost sense, but we will have some impact of this to arrive at a roughly similar number for this year's result. Particularly at, say, an EBIT level at DeGrussa, we expect it to be similar to last year's result. Tax payments, also just to update cash flows, tax payments for the year, we mentioned early in the year that we had the catch-up from last year's tax payments. We had a particularly strong result last year. We've caught up those payments of about $31 million in the back end of calendar '18. And for the year, our total tax payments, including this year's installments, of $82 million. That's cash tax, not P&L tax.So all in all, pleasing results and, heading into next year, probably on track with what we expected as Monty comes in higher production and a slight bump-up in terms of C1 costs as well.I'll hand to Karl to talk about Black Butte.
Thanks, Matt. Just a quick update with regard to Sandfire Resources America, which Sandfire now owns 86% of.And the Black Butte project, just to refresh our minds, essentially a 600,000 tonne copper resource sitting in Central Montana and essentially, also at a very good grade of around 3.3% of that resource. The draft Environmental Impact Statement has been lodged, it's been commented on, and the commentary period is closed. The regulator is dealing with those comments, and we're expecting to see a draft -- a final Environmental Impact Statement during this half year, in the December half year to 2000 and -- ending in '19. That will enable, in short order thereafter, for a Record of Decision or a ROD to be issued. Our expectation is, once again, towards the back end of this half year to the December 2019 quarter.We are in the process of working through our definitive feasibility study. And our expectation is, in the December quarter, to have the feasibility study with regard to the Black Butte project and something for that Board to consider and, in turn, the parent company Board to deliberate on as well. And so we find ourselves looking for progress there. And as we head in towards the back end of this calendar year is -- and looking into the early part of 2020, being able to make some decisions with regard to the Black Butte project. So we're waiting and we're waiting for progress to be made, but we are getting very much closer to the critical point, so looking forward to that.I would just hand over to Shannan now to give you an update on exploration.
Thanks, Karl. It's been a busy quarter in exploration with a big focus on the Peak Hill joint venture with Alchemy Resources where we've been hitting the ground with 3 air-core rigs of doing our first pass of exploration through the tenement package in that part of the world. We've also had our moving loop EM surveys being conducted across the Alchemy joint venture, and that's been aided in targeting with the gravity survey that was completed earlier in the year.In the Auris joint venture, we've had reverse circulation and diamond drilling focusing on geophysical and geochemical anomalies to the southeast and southwest of Frenchy's Patch, a long strike down to the southwest from Morck's Well with some prospectives strategically being intersected and, unfortunately, some of the EM targets coming up as crystalline graphite. So we're continuing to work in that area. The alteration and the chemistry that we are seeing is very interesting.Closer, the DeGrussa program of reverse circulation, drilling was completed on the Southern Volcanics in the Springfield package. That is stratigraphy that the gravity survey that we have completed has allowed us to identify that sitting faltered out of the main package of stratigraphy. So it's really prospective stratigraphy that's fully explored to date and being able to pull that out with the gravity survey was definitely a win for us.And then back in nice and tight to Monty, the work that we've been able to do mapping underground and the information and data we've been able to ascertain from the diamond drilling in Monty has led us into a keen pain of exploration targeting in the near-mine environment to Monty, and we'll be scheduling that drilling even hopefully for the latter half of this year. As we can see, the tenement holding has maintained steady at just over 6,700 kilometers square of tenements that we're exploring rapidly, and we will strive in the coming quarter to turn some of our exploration wins into real successes.I'll hand back to Karl.
Thanks, Shannan. Just in summary and outlook, I suppose, once again, just to highlight it's been a fantastic quarter and it has been a fantastic year, financial '19 best of -- best year on record in terms of operating performance. So well done to everyone. We're very happy to be in that position. Guidance for 2020. As we've talked about, essentially, we are really looking at with the better understanding of the grade, of the high-grade Monty and working that through the system, we see a guidance in the middle of 70,000 and 75,000 targeted but we're seeing a smoothing of what was really presented in the 21 June release of the ore resource and reserves statement. So there should be no ultimate surprises in terms of a life of mine scenario. So that's important to note at still very pleasing estimated the predicted C1 costs or guidance on those costs. Black Butte moving steadily and seriously through that permitting process to look for investment decisions later in this year, early next year to move that into a development phase and excited about that part of the next phase of Sandfire. Very excited about the next steps we're taking in terms of business development and acquisition in terms of combining under a scheme of arrangement with MOD Resources to deliver on our longer-term aspirations and our strategic objectives to build a value-accretive mid-tier global mining company that operates in the top quartile of international performance benchmarks and delivering on that. So we're looking forward to the next steps in the chapter of the evolution of Sandfire being able to leverage off the very, very strong base we have in terms of delivery, in terms of resources that we have at our disposal, relationships that we have with our major customers, various stakeholders in this business, so we're looking forward to that. Obviously, continuing to be active explorers and you can see that by the investment that we are making in exploration in a number of fronts. And obviously, a #1 prize for us would be organic success in the Greater Doolgunna region given the facilities that we have available. So we're working hard at that and I still think the secrets are still to be unlocked there. So we're still optimistic about the potential for the Doolgunna province to deliver further valuable fee to the operations. So still work to be done there. So all in all, very excited about where we are, what we've achieved and really, the prognosis and the beginnings of laying the foundations of taking this business to another level and our aspirations in terms of going forward.So thank you very much for listening and we open up the floor now to questions.
[Operator Instructions] Your first question comes from Michael Slifirski, Crédit Suisse.
A good few simple ones I hope. First of all, just want to understand that production guidance is slightly softer. Production guidance and most of this expected, so you're saying it's a smoothing. Is that reflecting the infill drilling and the grade control drilling, so the initial stopes are a little lower grade than what you'd expect? I recognize that ore-contained metal is there, but it's just the distribution? Or is it something else you've actually done in terms of the stoping sequence?
Michael, Shannan here. The variation to the schedule is really just a distribution. There's no gross change in the mineralization as you alluded to. So it's a short-term aberration that we'll see in short scale with high-grade variable deposits.
Okay. So there's no change in the sequence as such, it's just the way with the infill drilling you understand a little bit better?
Correct.
Yes. Okay. Matt, a few for you, if I may. First of all, your commentary around P&L bits and pieces. I just -- I don't recall how you treat all the different forms of exploration; what you actually -- of what you expensed, what you plan to expense. Can you help me with that, please?
I can. So everything that I've listed there, Michael, we expense. So our policy is to expense, evaluate exploration evaluation up to the point of effectively a decision that a mine will be commercial and go into production. So all of this with P&L. We otherwise only really capitalize acquired exploration. So if we enter into a project and buy grounds, it will go onto balance sheet, but otherwise, it will all go through the P&L.
Terrific. Another one for you, please. The DeGrussa mine development guidance, I was surprised by that number. I guess in the context of your sort of historic guidance around planned meters of development by a year and a halving and a halving and a halving and clearly, something has changed in your schedule because the table I have of what you talked about in the past doesn't seem to reconcile well with a significant step-up in DeGrussa mine development expenditure in '20.
Yes. Sure. Just remember we've got -- we've had -- as we've had the ore reserve extension into Conductor 5 especially, there is some more development to get access to that Upper Zone of Conductor 5. You'll remember that we stayed away from that while we effectively created a barrier while we understood some of the water issues around that area. So as we've now scheduled that in there is some more mine development coming into DeGrussa. And then on the Monty side, of course, we're aggressively developing and that -- most of that Monty development really is finished by the end of this financial year coming up as well.
Okay. So on DeGrussa, how does that look beyond the 20 years of -- will Conductor 5 be pretty much developed? Does that really fall away precipitously from that '20 number?
Drops away about 1/3 into the next year and pretty much nothing in the final year.
Okay. That's terrific.
Your next question comes from Larry Hill, Canaccord.
Good run through there. Michael answered a few of my questions but just on the capital with DeGrussa. I know that your FY '19 program total capital to bring it online and whatnot was 41 -- $42 million. Just trying to put that together with the $21 million that's been flagged here for development. And then is there anything flowing through to FY '20 for the total cost of $46 million? So if I could just get that broken down a little bit more.
Sorry, Larry, I missed the first half. Can you -- you were a bit quiet on the first half. Can you just repeat that, please?
Yes. Sure, Matt. I had been understanding that Monty would cost $42 million over FY '19 to -- in total capital. And I just want to understand the $21 million flagged for development for this year and then if there's anything that's been brought through to FY '20 for the guided $46 million.
Oh sure, yes. Yes, in a loose sense but as we've understood it more, we plan the development further. So we're significantly progressed in terms of a decline down to the Lower Zone of Monty. We've got some development coming up into the Upper Zone of Monty and yes, some of that plan was probably a little bit too front-ended in terms of development spend. So yes, some of that has pushed back into the 2020 guidance.
Your next question comes from Paul Howard, Hartleys Limited.
Great quarter and indeed, a good end to the financial year. A couple of questions. Firstly, exploration 2020 forecast spend, I might have missed what Matt was saying. So what do you guys reckon exploration next year will cost?
We haven't really put out a number in terms of those programs just yet but you'd have to look across where we've been particularly in the year just gone. So we expect Doolgunna to continue to be pretty strong, probably around $25-type million number for Doolgunna and around DeGrussa and around Monty. The Australian international projects will really be dependent on success rates. So it's probably -- we've changed the target around $6 million to $7 million to $8 million a year across those. And then into Black Butte, it will really largely depend on timing. Because we expense those in our group as well for evaluation, it'll depend on timing of completion of those studies and approvals and particularly how we progress into the first -- or the second half of the financial year at Black Butte whether we're able to head into production. So a little loose in terms of guidance in that other end but certainly, probably you're talking the $30 million, $35 million-type range when you're looking at exploration within Australia. And then also some assessment, of course, hoping that the MOD acquisition completes and that we're able to set some plans for our exploration push in Botswana as well. So that's probably something we can update a little bit later in the year as we piece some of those bits together.
Okay. And I suppose a more holistic question perhaps for Karl. Like where next for Sandfire? I mean you've got an asset in WA that's going to cease in 2022 when this exploration comes in. Obviously, the MOD acquisition in Botswana. You've got Black Butte in Montana. You've got investments in Bosnia and Alaska. $250 million cash minus, let's say, $40 million or so from the MOD acquisition. A lot of cash but no operations potentially in Australia post 2022. So are you guys looking at something in Australia? Is that a -- you've got a workforce here, obviously, so what's the sort of plan there?
Very, very good question, Paul. Look, I think in terms of Sandfire's global strategy, or strategy, it essentially is to be an explorer, evaluator and a producer of base and precious metals. That has been a constant theme and flavor that we've had over many years. We are sitting here today 7 years of production operations and, in fact, DeGrussa only ever had 7 years of production. So we're obviously extending that greater than what we had discovered from obviously a very small company many, many, many years ago. And we've created a bit of a platform that we can leverage off the back of at the moment. Our aspirations are to continue to be a mining organization having built the facilities, infrastructure, the systems in place and we want to leverage off the back of that. We do have a strong balance sheet. We do have -- we have developed extraordinarily strong relationships with a variety of different stakeholders across the entire platform of our business in terms of our customers, in terms of our suppliers, in terms of people that do things for us, employees, et cetera. So -- and I'm thinking -- and with our financial providers, both globally shareholders. So I think we would like to think that we can leverage off the back of that. There's an extraordinarily wealth of experience that sits behind the scenes and we have access to.So look, we are looking for -- I suppose the #1 priority for us is trying to secure quality exploration development mining projects and that's a priority for us. Our business development team is essentially very active at the moment and continues to be, looking for opportunities to add into the Sandfire pipeline if there's something that we can wish and pray and hope for organic success and we're very active in exploration, but we can't guarantee it.So whilst we will be very active and we're very passionate about being organic and if you think about some of the areas that now will sit under our control, we sit with control of nearly 7,000 square kilometers. Whether it's a right number or the wrong number, it's relevant. We want prospective ground to explore near our mining operation. Look at DeGrussa; we have a significant facility there. It is in excellent condition. It has recently been upgraded and all it needs is more ore feed. So the team is working vigilantly in a very prospective ground. They've discovered in excess of 5% copper orebody there, an in excess or around a 9% copper orebody and it's probably -- whilst it's a big discovery and a discovery that's eluded us for some time, it doesn't mean the ground is not extraordinarily prospective. The opportunity to create value on our backyard is great. Look at MOD and the bringing that under the umbrella and collaborating with MOD and putting that and putting all of our resources collective together and having a 12,000 square kilometer reach on a potential ground that's never been explored that has prolific in terms of its delivery of copper mineralization at a level for -- as that possibility. If we look at Black Butte, discovery in the mid-'80s and it's never been explored outside the discovery envelope, great opportunity there as well. So there are 3 provinces that we have significant opportunity. And yes, you're correct that we're an Australian base sitting in Perth with all that facilities here and systems that we are interested in opportunities that are also close to home or close to where we are in Australia or in Western Australia, of course, and so, we are continuing to be busy in that regard and looking for opportunities.What I will say is from our perspective, we need to do our due diligence on any opportunity and it needs to make sense. It needs to be value accretive or we believe it has the potential to be value accretive and it needs to meet the criteria that we've set ourselves in terms of our business development opportunity or activity. So yes, we are interested in opportunities and we believe we can, with the resources we have in terms of people, systems, and cash flow, access to capital and the ability to deliver is that we are looking for opportunities.
Great. Great detail there. Just, I mean, given MOD and Black Butte are assets that you acquire and get into development, are you interested in something that is in operation currently that you can perhaps improve on or something like that?
I think the short answer is absolutely. Absolutely.
[Operator Instructions] Your next question comes from Adam Baker, Global Mining Research.
My question's just regarding recoveries. You had an excellent gold recovery in the recent quarter at 49.4%. Just wondering if this is the result at Monty and the mill feed? And is this a trend that we're likely to see continue? And yes, just maybe a bit of background on some metallurgical work you've done on the Monty ore.
Yes. No, Richard here. Monty has had a very little impact on the overall results to be quite frank because we haven't had the volume go through. It's really to do with just the nature of the mineralization from the various areas we're getting it from DeGrussa is the main driver of that recovery. And as I said earlier, our plan is set out to [ float ] copper and gold comes along as a byproduct with its association with the mineralization. So we've been lucky this quarter to get that big hit. Obviously, we'll take the credit, that's for sure. But that's all that means. There's no other magic in that. We -- in terms of Monty, we'll really start to see Monty influence all aspects of the business in the coming year.
Your next question comes from John Deniz, Paragon.
It's John Deniz from Paragon. Karl, congrats on getting the 11% in Adriatic. On my count, you spent about $10 million and most of that you've done buying on market at current levels. Curiosity, it's -- you've seen what most of others -- most of your peers I suppose have been slow to recognize. I suppose the question, now that Adriatic put out its maiden resource release yesterday, it's clear that's it's very much mineable, it's still open. It's extremely high margin given the polymetallic high-grade nature of the pit. So I'm sure you guys have done the work on realistic parameters, assumptions. It's clearly negative -- all-in sustaining cost negative. Free cash flow is amazing. It's almost NPV USD 1 billion, 5x its CapEx. You've gone to 11%. What's the intent from here? Is that a strategic stake, a blocking stake? You're worried about others starting to see just how prolific this investment is? If you could share your thoughts, please.
I'll do the best I can, John. And I suppose what it is it's been playing a bunch of good drill holes, make no mistake and between the other, put resources on the table. There's a journey between that and then delivering an operating mine. So there's a lot of water to flow in terms of being able to assess that: what resource becomes a reserve; whether it be the capital side of things; the metallurgical side of things; geotechnical; and a variety of different things that turn a resource into a potential mineable reserve; also, I think in-country given with the regulations emerging. So there's a lot of work still to be done. There's no question about that. And that is important and the team at Adriatic I believe are doing a very good job at the moment and hopefully, they will continue to do that. From Sandfire's perspective, we had the opportunity to be involved in that company, if you like, go, which we did take the position. And we also entered into and the parties agreed to a strategic relationship. So -- and a collaborative sort of situation. So we're involved in exchanging of information and being supportive in many of the aspects and things that they're doing. And -- but once again, it is just a -- it's an investment that the company has. It's a strategic investment. There's no question. We also have under that collaborative arrangement the -- a proposition where we have -- above a 10% shareholding, we have the right to appoint a Sandfire representative to the Board. So essentially -- and also, we have a non-dilutive equity shareholder participation right. So for us, it was -- we were sitting at a 7.5% interest or thereabouts, it was important for us, I think, to at least secure for us the right to be -- we want to be close to the development or the progress there. And we think to have the right to exercise our rights to have an independent representative on the Board is a good thing, good for Adriatic, good for Sandfire. And so it leads one to be at that juncture. I think -- and we're looking for further positive progress from the company. But once again, there's a lot of work to be done and we would like to be involved in assisting in them developing and going through that process. So it's early days, we're happy with our investment. We sit at an investment of the position we've got at probably less than 50% of the current share price. So that's good from that perspective and if we can play another greater role involved in the development in that part of the world, we'd be very happy to do that. We want to ultimately and we aspirationally want to secure and find, buy, build and operate quality resource projects, simple as that. We've spent our whole lives, our last 3 decades doing that and we want to continue with that going forward. And if we have the opportunity, we would -- I'd love to be involved. The world's a big place. There's lots of opportunities.
Just a quick follow-up, Karl. Granted, you've got a big cash balance, you're a big company. But most of the money acquiring your stake whilst it's only -- whilst you had, what, 7% or 8%, now you've gone to 11%. The bulk of your $10 million I think you spent about [ $8 million ] very recently at these levels. So you're clearly illustrating your interest here. And I've lost count how much you spent on exploration at DeGrussa you're well over $300 mil since you've had the asset but not really much more. You've had to acquire more at Monty. Really the -- I know you can only say so much on the phone but, I mean, it's about to become -- granted, they've got work to do in terms of metallurgy and permitting and so on, but really, it's about to become very obvious just how strong the economics are. And so how long will you wait before you end up having to pay a lot more for what you clearly [ offer ]?
We might sell and make a lot of money. John, we're in the process of obviously being in business as well. At the end of the day, the capital will go where the capital makes sense. So I don't think there's any necessarily thought process that we will or we won't do anything. The Board will look at these at every situation and they might find that there's an opportunity. There is a lot of work still to be done. There's a lot of permitting work still to be done. There hasn't been a new mine development in that part of the world. You've got 3 rules of government and 3 sets of laws, essentially, government regulators dealing with just running the country. You can go and do any homework and research you want to do on that part of the world. It's not without many aspects that need to be gone through and I'd like to have a look at when was the last time any new project was taken to branches in that part of the world. You could also go and have a look at how many people are exploring in that part of the world. It's not without its challenges. So I think we don't need to get in front of ourselves. I do agree that the results in that resource is great but there's a lot of work still to be done. I think at the end of the day, if we can be involved and part of that process, that would be great. But also, we are as a -- we're not a big company, we're not a small company, we're a $1 billion company that's well-resourced that's going to have a cash flow generated that is very handsome from a wonderful project in DeGrussa and we're looking at redeploying that to where we can see situations and opportunities where they're value accretive for our business. And you've got to make sure whatever investment one makes, you believe that you're going to generate value for your shareholders. So we have to size up many, many different criterias. And essentially, at the end of the day, if we see situations come along through that pipeline while we've got a very active business development team, we will pursue those where we believe they are value accretive to our stakeholders and particularly our shareholders. So I think at the end of the day, you've got a company that is reasonable with this, because it's got some great results. There's a lot of work still to be done. They have fantastic market price appreciation but a lot of Ts have got to be crossed, a lot of Is have got to be dotted to be able to actually realize that into a cash flow. And we are mining people. We are not stock market people. We don't really care about the data, the aberrations of share prices going up and down. We have a strategic plan. We have a process of looking forward in a 5-year horizon, 10-year horizon, a 20-year horizon and we need to smooth out all the vagaries of share market prices that fluctuate wildly. So -- and there's got to be assets that ultimately are deliverable, deliverable into a real cash flow scenario. So I think there are many, many aspects that need to be gone through in that process. And the market, the market knows everything and the market has got a value proposition on the company and the project and the market understands everything. You've also got a situation where the key promoters and stakeholders are all in escrow. So you -- it would indicate that it has got a significant amount of free float in the stock. Sandfire is -- has been a better shareholder that has gone through a strategic position and that's good. And -- but the question might also be the market sense, well, what happens when there is -- that all the stock, 30%, 34%, 40% is not escrowed and is free to trade in the market. What will happen then? I don't know. Time will tell. We'll see that because I think that's something that's happening sometime in the early part of next year. So I think we can't give any more guidance or clearance or whatever. We don't necessarily have any grade or further explorations other than to say we've been there. We've been very strong supporters. We like what's happening and we want to be close to the company and be engaged and involved. Okay. Thank you, everyone, for tuning in and listening to our June quarterly update and obviously, results for the full year. It's been an outstanding year for the company in an operating sense, probably the best operating results we've ever seen in our 7 years of operations and likely -- to be confirmed but likely to be our second best financial results. And last year is our second best operating results and probably our best financial. However, we're looking forward to establishing and leveraging off the base that we have got to build a global mid-tier base that is a mining company and a number of elements in terms of our development, business development, certainly with regard to completing on the MOD transaction and also with regard to pursuing and developing the Black Butte project in the U.S.A. and critical to our development pathway. And we continue to be aspirational looking for other exciting, value-accretive business opportunities to leverage off what we have established as a business. So we look forward to updating you with our full year financial results when that comes to bear and then also updating you further during the second half of this financial year, the next few quarters, which I think are going to be the foundations and a very strong platform for the business to reset itself to leverage to look at the next chapter in the evolution of a value-accretive company in Sandfire Resources. I thank you very much for spending your time with us today.