Sandfire Resources Ltd
ASX:SFR
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Sandfire Resources Ltd
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Standing by, and welcome to the Sandfire Resources 2020 June Quarterly Update. [Operator Instructions]I would now like to hand the conference over to Mr. Nicholas Read. Please go ahead.
Thank you, Rachel, and a very warm welcome to everyone. On behalf of Sandfire, thanks very much for joining us on what I know is a busy day for the quarterly activities update following what has been a record quarterly and annual performance for the company. I'd like to refer you at the start to both the June quarterly activities report and an associated quarterly update presentation, both of which were released on the ASX platform this morning. A live webcast of this teleconference and a synchronized slide presentation can be accessed by the BRR Media Service. Just click on the link provided on the front of the presentation, and a recording will be available at the same link shortly following the conclusion of today's call. To run you through the quarterly results, I'd like to introduce the Sandfire team here in Perth. Firstly, we have the company's Managing Director and CEO, Karl Simich. Following that, Sandfire's Chief Operating Officer, Jason Grace; and then the Chief Financial Officer, Matt Fitzgerald. We also have Shannan Bamforth in the room who is available for any questions. Thanks very much. I'd now like to hand over to Karl to kick off today's presentation. Please go ahead.
Thanks very much, Nicholas, and welcome, everyone, to the quarterly presentation for the June quarter and effectively a presentation for the annual results for the company. I'm delighted to be presenting to you. Before we get into the details regarding the performance for the last year and the outlook for the future, I'd just like to dwell or touch on the strategic growth plans and pathway for Sandfire moving on from where we are today in terms of seeking to create value opportunity for our shareholders and value accretion. And I just want to touch on the release that we made, and I call it a watershed release on 1 July 2020, when we did articulate to the market in our announcement on the day our strategic growth plan and a variety of other matters. Essentially, the key pillars of that strategic growth plan are fivefold. Number one is to execute delivery of our existing operating assets. Number two is to build a sustainable production profile, essentially from what we have in creating some production hubs, but also from business opportunities or business development opportunities that may arise or may be targeted by us to pursue that fit within our investment and criteria that we have to have a very much focused attention on accelerating discovery that could be around the operating centers that we are going to develop. And essentially, that is, obviously, in Western Australia, the DeGrussa/Monty operations around what will be the development of T3, together with an expanded operations there, including likely A4. So we call it the T3 hub, the expanding scenario there, but also potentially around the U.S. operations and the Black Butte project there. In doing so, I need to ensure strategic imperative number five, that we have an appropriate system and that we are aligning and empower our people that are properly incentivized and also that we have systems, procedures and practices that will allow us to operate across those 3 jurisdictions in a very focused and efficient manner that by at the same time, keeping absolute strategic and overarching control at a centralized head office. And finally is to ensure in doing these things, we optimize and we make efficient yet prudent our capital management and also return value creation to our stakeholders through capital growth from achieving these initiatives but also our income flows in the form of dividends. So that is the sort of background that we are moving forward on. And effectively, we have drawn the line in the sand as at 1 July as we move forward, and we've adjusted our strategy. We've reset it. And we've adjusted our internal structure and moving forward from that platform. So we're very excited about that as we move forward. The overall objective of this reset strategy plan is essentially to have Botswana operating at an expanded level, to have Black Butte in production and to replace, over the next period of time, essentially the volume from DeGrussa/Monty that we will be losing. And to do that with inside the next 3 to 5 years is our strategic initiatives and then build on that. So with that, I would now like to turn to the June 2020 quarterly and essentially annual highlights. The DeGrussa operations, as Nicholas mentioned, has recorded quarterly and annual record production. For the quarter, over 19,000 tonnes of copper; and for the year, over 72,000 tonnes of copper, so an extraordinary and a pleasing result and records in both fronts. Contained gold for the quarter, 13,000; and for the year, 42,000. And what we have seen certainly for the quarter is exceptionally low operating cost in our C1 at $0.51; and for the year, a record operating cost as low as $0.72 at a C1 level. We continue to also, very much in a focused manner, accelerate our exploration to seek the discoveries that are near-mine and potentially can extend that mine life. With regard to Botswana, our Tshukudu Project, we continue to optimize the T3 Copper-Silver Project in that optimized feasibility study, and we are seeking, and we believe that will essentially be a largest-scope project and create a hub concept in that area. Jason will talk more about that shortly. We are also seeing from the accelerated and quite an aggressive exploration program some very excellent results from the A4 project, and we are in the progress of resource drilling that project, and that's well advanced. We will also be targeting a number of other target areas, exploration target areas, very close to that T3/A4 hub as well as a greater exploration push along that Kalahari Copper Belt in Botswana. We have a number of excellent targets that will be followed up quite aggressively. And as Jason will talk to as well, we have a very aggressive exploration program in a number of areas. With respect to the U.S. and the Black Butte project, we're continuing to finalize our feasibility study. We have, as we have talked about before, have received both approvals for our Environmental Impact Statement, and we have received our Record of Decision. So we are at a stage where we've moved towards completing our bonding so that we can move that project forward into the next stages of development. We do note that there has been a legal challenge to the Record of Decision. And we, together with the Department of Minerals and Energy -- or the Department of Environmental Quality in Montana, will work towards dealing with that and successfully defending, in our view, those objections to -- or for that legal challenge. With regard to corporate, it's been obviously a highlight year with -- even through the COVID-19 scenario in operations, which continued throughout a very diligent, disciplined operating level at the site operations, and thank you to all of the people within the management system and also -- and operations, obviously, who did a tremendous job in ensuring the discipline of the well-being and health of all of their fellow workers but achieving revenues of $657 million for the year, and we closed the year with cash at bank of just under $300 million. We have made a small impairment to some oxide stockpiles and regional resources that we acquired via after evaluation during the course of this year, and our focus of attention really in terms of end-of-mine life extensions at DeGrussa will relate to a retreatment of tailings and the possibility of a gold operation coming out of the Doolgunna or the gold -- or the Old Highway gold project up there. So with that, I will just pass over now, but thank you very much.
Starting with health, safety, environment and community. The major focus during the June quarter was Sandfire's response to the COVID-19 global pandemic, which affected all of our business units at different levels. The DeGrussa operations and Doolgunna exploration continued to operate safely throughout quarter with extensive infection control measures in place. Exploration activities in Botswana were suspended for approximately 2 months in compliance with the total lockdown order from the Botswana government, and regional exploration in New South Wales was also suspended temporarily in line with state government travel and work restrictions. The Sandfire America team in Montana complied with the Montana state government's stay-at-home order but also continued to work remotely during this time. Looking at the current situation, I'm very pleased to report that across the group, we are back to pre-COVID activity across all areas and operating safely, utilizing appropriate control measures. Now apart from the COVID-19 response, there are also some other key highlights for the quarter, which included the approval of the Tshukudu T3 mine environment and social impact assessment by the Botswana Department of Environmental Affairs on the 25th of June, and we were very privileged to be able to make a donation of medical supplies to the Ghanzi District Hospital in Botswana to help and assist with their response to the global 19 (sic) [ COVID-19 ] pandemic. Moving on to DeGrussa operations in Western Australia, the June quarter and also starting with mining. Underground mine production at DeGrussa closed out the quarter at 329,000 tonnes at a grade of 4.2% copper and 2 grams per tonne gold. Monty produced just below 96,000 tonnes of ore at a grade of 6.4% copper and 1.4 grams per tonne gold. And when combined, this delivered a total production of 424,700 tonnes at an average grade of 4.7% copper and 1.9 grams per tonne gold. The overall mine production rate achieved for the quarter exceeded the required for processing rates. When this is combined with strong mine production rates at 436,000 tonnes from the March quarter, this enabled us to successfully build surface stockpiles during the period as one of our key controls to address potential production risk associated to COVID-19. Gold processing for the quarter delivered 391,000 tonnes of ore milled at a head grade of 5.3% copper and 2 grams per tonne gold and produced just below 81,000 tonnes of copper concentrate at a grade of 23.9% copper and 5.2 grams per tonne gold. As a result of the strong operating performance across all areas, DeGrussa operations set a new quarterly production record of 19,300 tonnes of copper and 13,500 tonnes of gold and enabled sales of over 84,000 tonnes of concentrate. If we now look at the full year, and again, starting with mining. Underground mine production at DeGrussa delivered on expectations with 1.297 million tonnes of ore mined at a grade of 4.3% copper and 1.9 grams per tonne gold. During the year, Monty successfully ramped up to a full production rate and produced just below 372,000 tonnes of ore at a grade of 6.2% copper and 1.4 grams per tonne of gold. When the overall mine production is combined, they delivered a total production of 1.67 million tonnes of ore at a grade of 4.8% copper and 1.8 grams gold. Consistent with the June quarter results, the overall mine production rate achieved for the year exceeded the required ore processing rate and enabled us to build and maintain very healthy surface ROM stockpiles as one of our controls to address production risk associated with COVID-19. Turning to now ore processing. Ore processed for the year delivered 1.6 million tonnes of ore milled at a head grade of 4.9% copper and 1.8 grams per tonne gold and produced over 303,000 tonnes of copper concentrate at a grade of 23.8% copper and 4.3 grams gold. As a result of the strong operating performance across all areas and the higher grade delivered from Monty and associated with the ramping up of Monty production during the year, DeGrussa's operations set a new annual production record of 72,238 tonnes of copper and 42,263 ounces of gold and enabled sales of over 305,000 tonnes of copper concentrate.
Looking across the financial '20 year and really looking at it in 2 halves. For the first half, we ran at a rate of around 70,000 tonnes per annum of copper production, around 38,000 ounces of gold, and particularly looking at C1, that kept us in that range of sort of mid- to high 80s in terms of C1 unit costs. And then the back end of that first half was really dragged down a little by that additional gold production in the December quarter. Moving into the second half. We had a very strong second half. As Jason talked about, we're running at a production rate of around 75,000 tonnes per annum of copper and around 45,000 ounces of gold, which really, really pulled down our C1 headline cost, particularly in that fourth quarter, the June quarter, which we're reporting today, really pulled that down with really what was a perfect storm of high record copper production, record gold production, which was over 40% above the year-to-date average in terms of gold production. And that really pulled down that C1. In effect, over the year, that dragged our C1 down to $0.72, a record which the guys have touched on. Looking into some of the detail of that. In the fourth quarter, as we said, that record of $0.51, predominantly driven really by not only the high gold production -- the high copper production, but also, as I said, that high gold byproduct credit of USD 0.61. We don't expect that sort of level to continue into the future. So that really is a bit of a once-off quarter. And that, as I said, had a significant impact on our results, our C1 headline numbers. In looking at revenue, 85% of revenue for the year and [ audited ] so far has come in about 85% copper, and 15% of that is covered by gold and silver. Also, on the capital side, we completed the year with DeGrussa mine development work, around $40 million. Monty has also been a significant mine development push through the year, which has been the significant drill out of that, and Jason will talk about that a little more coming into the next financial year; and also the development of Monty, which is predominantly finished. Now there's only really a tail of development at Monty coming into the next financial year. Tailings, [ dam lift ] was really what dominated the CapEx for the year. Most of those larger capital programs are in sort of the year before, which were around the back end of the plant preparing for Monty. So this year, really got a number of small -- a number of small capital projects in addition to the tailings dam lift which takes us out beyond current mine life and just adding some current D&A numbers as well for the year in terms of looking forward to our financial results. We have further information, of course, when we released our financial report at the end of August in terms of our financials, but a lot of that should be covered in that disclosure on that page.
Right. If we look ahead to the upcoming year, we're issuing production guidance of 67,000 to 70,000 tonnes of copper production and 36,000 to 40,000 ounces of gold. This is supported by further guidance of processing and sales of 290,000 tonnes of copper concentrate at a grade of -- sorry, at a grade of 24% copper and 4 grams per tonne gold. Total ore tonnes process is at 1.6 million tonnes at a head grade of 4.6% copper and 1.5 grams per tonne gold, with copper recovery at 92% and gold recovery at 48%. Total mining of 1.55 million tonnes of ore at an average grade of 4.7% copper and 1.5 grams per tonne with DeGrussa contributing 1.15 million tonnes at a grade of 4% copper and 1.5 grams per tonne gold and Monty production of 400,000 tonnes at 7% copper and 1.5 grams gold.
So looking forward, as I touched on into the next year in terms of copper -- in terms of cost and capital guidance, so really, C1 costs are expected to return back to what is closer to a life-of-mine average and very much indicative of that first half of financial 2020 and the sort of results that we saw there, both in terms of production rates and also C1, driven by a lower grade -- a lower head grade, so 4.9 moving to 4.6, which is materially in line with the ore reserve. And also, some higher cash costs were expected from mining. So there is an increased number of stopes in 2021 compared to 2020; and also our reduced average stope size, which is also impacting some of the dilution in terms of grade, which was reflected in that ore reserve statement in May. With that, with the lower gold production, we also expect to see a lower byproduct credit. But we should note, historically, we have generally surprised on the upside in terms of gold production. So hopefully, touch wood, that continues. In terms of CapEx, continued development around DeGrussa, which is into C4 and Conductor 5 and also, as we said, falling off in terms of development at Monty with most of that completed. I think it's just the upper zone of Monty that has some of that development remaining at $6 million guidance for next year and in some of our strategic programs, including some of the preparation work and design work for some of the gold projects that we expect to come online, and we'll report more during the September quarter. So headline C1 guidance, $0.90 to $0.95. Of course, we'll try to stick to the bottom or under that, bottom of that range or under that, wherever possible, with our performance during the year; and CapEx, $56 million in terms of guidance for next year.
In line with the update of the strength of the Sandfire strategic plan, as mentioned by Karl earlier, we've been very active in evaluating potential options to extend the operational life at DeGrussa operations beyond the existing ore reserves at DeGrussa and Monty. This work has progressed to a point where studies have identified that there is potential to economically extract gold from DeGrussa and Monty tailings through the use of a conventional carbon and leach circuit. These study results also prompted a review of potential gold mineralization on the Doolgunna exploration tenement that may be able to be mined and processed along with the tailings. This review identified the previously drilled gold mineralization at the Old Highway deposit as a high priority. The Old Highway deposit is located approximately 20 kilometers away from the DeGrussa site, and in May this year, our resource definition drilling program to define the strike extent of gold mineralization was commenced. As at the 30th of June, a total of 10,148 meters of RCM drilling have been completed on the initial drilling phase, with an infill drilling program at a nominal drill hole spacing of 50 by 50 meters to commence in the September quarter this year. A budget of $4 million has been allocated for Old Highway drilling for FY '21, and it is expected that this work will support mineral resource estimation and inform stoping studies for a potential open-pit mining operation. Expanding out from the Old Highway area, the Doolgunna exploration team continued to execute the exploration program throughout the June quarter, with no material impacts on progress as a result of COVID-19 restrictions. Drilling progress for the quarter was in line with plan, with over 69,000 meters of air core and RAB drilling completed, over 12,300 meters of RC drilling and over 14,000 meters of underground diamond drilling completed. If we drill down to some specific exploration activities completed during the June quarter, work was done on regional air core drilling programs, and they were undertaken to identify and delineate favorable VMS mineralization host horizons and provide valuable geochemical data. RC and diamond drilling was also conducted at Morck Well, targeting a moving loop and geophysical anomaly and to also follow up on anomalous geochemical results from air core drilling. Continued analysis of first pass gold anomalism was identified and continued at Morck Well, and we continued with air core drilling on the Cheroona project joint venture to test the prospective Karalundi sequence. And finally, extensive moving loop and geophysical surveys were completed over the Enterprise JV areas, with some follow-up RC and diamond drilling to commence late in the quarter or commence late in the quarter. Looking at -- looking forward to FY '21, the exploration strategy for Doolgunna will focus on accelerating discovery to extend mine life at DeGrussa operations. To do this, there will be a strong focus on targeting deeper mineralization in close proximity to DeGrussa and Monty, further work on basin scale geological architecture and, in particular, targeting of corridors that are favorable to VMS mineralization; also, the utilization of new geophysical methods to generate new and potentially deeper targets. We will continue with our existing strategy of identifying favorable host geology in new areas of the Bryah Basin. We will also continue regional exploration in New South Wales on our existing tenements in the Macquarie Arc and the Cobar area. To support this exploration strategy, cost guidance for the upcoming year is set at $24 million for DeGrussa exploration and $4 million for Regional East Coast exploration. If we move forward, I'll move on to Botswana and the Tshukudu project. During the June quarter, project development, resource definition and exploration activities continued within the pro-Tshukudu project area. Now this project area covers approximately 11,200 square kilometers in Botswana and covers a large part of the Kalahari Copper Belt. Also, further to Sandfire's market announcement dated 25th of May this year, Sandfire entered into a binding agreement and subsequently completed the acquisition of an additional 6,700 square kilometers of tenements in Namibia from Kopore Metals Limited. And Namibian licenses continue directly along the strike of the Tshukudu project tenement and cover a large, underexplored area of the Kalahari Copper Belt. This clearly demonstrates our long-term commitment to the region and reaffirms our belief in the prospectivity of the Kalahari Copper Belt. As also covered in the March quarterly update and in response to the COVID-19 pandemic, the Botswana government initiated a total lockdown in late March of this year. This continued through until late May and resulted in the suspension of all in-country activities from Sandfire during this time. Following the easing of these restrictions, Tshukudu exploration team has safely resumed work in early June and continue to ramp up drilling at the April discovery through to the end of the June quarter. Now before we move on to further updates on T3 and Tshukudu exploration and further to Karl's comments earlier, I wanted to make some -- I'll provide some information on a larger-scale operating strategy at Tshukudu, which continues to evolve. And firstly, starting with the context of this strategy, and the context for that is, firstly, we are well progressed with the T3 Motheo optimized feasibility study. And this has identified a base case processing capacity of 3.2 million tonnes per annum. But also, as part of this work, identified a relatively low-cost capital option to expand the processing capacity easily to approximately 5.2 million tonnes per annum. When this is paired with the recent discovery at A4, which is only 7 kilometers from the T3 deposit and the identification of multiple highly prospective exploration targets in the area, this presents significant potential to increase the scale of future operations through the development of an expanded capacity processing hub at T3 Motheo. And this could be designed to service multiple potential new mines from the area. Given the concept of the T3 Motheo processing hub, work on the optimized feasibility study has continued throughout the June quarter and is nearing completion. During this time, work has been undertaken on a revised process plant design to support the T3 processing hub concept and, in particular, designed to support a staged expansion of the T3 mill from an initial base case of 3.2 million tonnes per annum to a 5.2 million tonne per annum processing capacity. We also commenced the formal tender process for the open-pit mining contract with formal tender submissions received late in the quarter. High-voltage preliminary designs were completed and reviewed by Botswana Power. Estimation of capital and operating costs were also well advanced, and negotiations are ongoing for land purchase agreements in the area. On the 25th of June, we also received approval of the security T3 mine environmental and social impact assessment from the Botswana Department of Environmental Affairs and presents another major step forward in project development in the area.With the A4 Dome being the first potential step out for the expanded T3 Motheo production hub concept, resource definition drilling at the A4 area was the highest priority for the Tshukudu exploration team during the quarter. Following the easing of the COVID-19 lockdown, drilling recommenced in early June with 6 diamond drill rigs active as at the end of the quarter and targeting potentially open-pittable copper mineralization as a priority. The first stage of this drilling program is targeting a nominal 50 by 50-meter drill spacing to support mineral resource estimation and scoping studies. It is expected that the first stage will be completed -- of the drilling program will be completed over high priorities of the A4 deposits during the September quarter with assays and mineral resource estimation to follow. Once the first stage of drilling has been completed, some of the drill rigs will be deployed to additional high-priority targets in the T3 area with the goal of further supporting the expanded T3 Motheo production hub concept. Looking forward to FY '21, the Tshukudu exploration strategy will focus on 3 key areas. So firstly, targeting of high-grade satellite discoveries with the potential to expand the scale and mine life of the T3 production hub. Now this work will include RC and diamond drilling on known targets at the A1 Dome, further structural targets of the T3 Dome, our long-strike extensions at A4 and additional targets in the A4 Dome and further works at T1, T2 and the A27 domes. Further reprocessing of existing airborne AEM data, which covers the area, particularly to the northeast of our tenement, will continue, and we're finding that this is a very valuable tool in terms of targeting additional projects. The second key area will be the identification of the next generation of targets, extending further to the southwest along the belt, and this will be through a marginal regional airborne AEM survey covering approximately 7,000 square kilometers and extending our airborne AEM coverage all the way through to the Namibian border. The third key area will be RC drilling of high-priority regional targets that have already been identified. And this drilling program is already underway at the T20 project area, which is further to the southwest of the T3 key project area as well. To support this exploration strategy, cost guidance for the upcoming year is set at $13 million for Tshukudu exploration. And finally, moving on to the Black Butte project. In a quarter that has also seen COVID-19 restrictions in Montana, the Sandfire America team continue to move forward with the feasibility study, which is close to completion. Following the approval of the Environmental Impact Statement and a Record of Decision in the March quarter, our legal challenge to the Montana Department of Environment's -- Environmental Quality's Record of Decision was lodged on the 4th of June by a number of groups that oppose resource development in Montana. Sandfire America has completed a full review of the legal challenge and are currently working cooperatively with the Montana Department of Environmental Quality on a legal defense. During the June quarter, an additional milestone was also achieved for the development of the Black Butte project, and this was the issuing of the stage 1 bond. This initial stage 1 bond covers surface construction earthworks and amounts to a total of USD 4.65 million. A second stage bond will be required to cover the full project, and that will include underground mine development, mill construction and all activities involving beneficial water use. Once Sandfire America secure the stage 1 bond, surface construction works are scheduled to commence in the northern summer, and we are currently finalizing a construction contract for these works to commence.
And just in summary, once again, thank you for dialing into our quarterly and annual update for the June quarter. I'd just like to highlight the fantastic quarter and year that has, in production performance, a record on both fronts, enabling us to grow very healthy cash balance of just under $300 million, and the business is in a debt-free position. But in addition to its cash balance, its positive cash flow generating capacity from the current operations and access to capital markets, we put ourselves in a very strong and flexible position to further project development and the potential business development opportunities. We will continue to optimize the T3 project and look forward to making announcements with regard to that optimization and the decisions with respect to mining in due course, enabling a production hub to be essentially a central theme due to the numerous opportunities in that belt. And it's worthy to highlight that our neighbor to the northeast has global resources of in excess of 5 million tonnes of copper and 3 million ounces of silver in their numerous resources at the Khoemacau project. We have an area in Botswana that is 2 to 3x of greater extent and I think has had less exploration. So I think the opportunity is something that will continue to grow and be significant. Obviously, in the U.S., with all those approvals coming through, we are navigating our way through the system there and looking forward to making positive steps forward to ensure that we can accrete value in the long term from that project and move that forward into production in due course. And as we have indicated today, obviously, a very extensive exploration program covering a number of our key focuses in the region for further mine life extension opportunity at DeGrussa to expand the Botswana exploration potential and also our New South Wales programs as well, together with some additional exploration work that will occur in the U.S. And we will be expanding in the order of greater than $45 million in exploration and further potentially with success during the next 12 months. So we're very much looking forward to doing that, and we continue to be very active in business evaluation and business development reviews. So thanks very much for your attention to this record quarterly and annual results. And we'd now open the floor to questions.
[Operator Instructions] Your first question comes from Nick Herbert from Crédit Suisse.
Really well done on the FY '20 results. And three questions for me, please. I'd like to start on the mine development CapEx. Do you mind just mapping out what that profile looks like beyond FY '21 guidance? And I know you mentioned it was mostly done, but if you could just sort of talk through how the rate steps down. That's question one, please.
Nick, Matt. Yes, for Monty, really, it's pretty much finished, and there's another zone to go into 2021 and then effectively 0 the year after or very, very minor, probably less than $1 million into next year. DeGrussa, probably around half, I would say, as a general rate into the final year just into that final development, half of the '21 rate.
Okay. Great. And then sustaining CapEx the following year, anything in there?
Pretty much done. Unless really our CapEx programs from now when we expect anything material to be probably around the gold circuit and studies and drill-outs more than any other major program.
Okay. Great. And then when could we expect some details on that tailings retreatment you've spoken to? Do you mind just sort of a reminder on that, what you're seeking from that project, what they can add to the end of life?
Nick, it's Jason here, and thanks for your question. So first of all, we would expect that we will provide an update to the market, particularly on the Old Highway drilling and some of the studies work that's been undertaken on the tailings treatment. We expect to do that probably sometime this quarter. Other than that, it's early days on those studies, in particular, and in particular, assessing the impact of Old Highway, and we'll be able to provide a full update to the market in the upcoming, if you like, in the next couple of months.
Okay. And then maybe finally, just a quick one for you, Matt. Is there any QP adjustment will be -- need to be sort of mindful of as a result? Or is that captured in that provisional or revenue number that you've given?
Yes, pretty much captured, Nick.
Your next question comes from Sophie Spartalis from Bank of America.
Just in terms of Botswana, you talk about that T3 feasibility study will be delivered in due course. What sort of the -- what's the timing around that, please?
Yes. Thanks, Sophie. It's Jason here. Look, we're still working to finalize a number of things on that, but we are close to completion. Some of the time lines are very difficult given the COVID-19 situation, particularly in South Africa. And it is really -- it's an evolving situation over there, as you may or may not know. At this point in time, we will definitely issue that feasibility study by the end of the calendar year. It's just what point in time we're able to do that will depend on the situation.
Okay. That's great. I understand the difficulties there. And then just a few modeling questions for DeGrussa. Just in terms of closure costs for the mine, is that sort of around $25 million, what I have in the model? Is that sort of around the right rate that we should be looking at?
In terms of provision, Sophie, there'll be some numbers in the financial report. It's probably north of that, a bit more like sort of the $30 million to $40 million range. But we'll give some more context around that as well, of course, as DeGrussa plans really for a transition as opposed to a full closure, a transition into those gold programs, hopefully, and also into care and maintenance programs as opposed to full-blown closure.
Okay. So just to be clear on that. So you'll put the mine likely on care and maintenance or you won't really incur that $30 million to $40 million maybe until a couple of years after. What's the sort of timing then?
Yes. We won't -- in terms of financial reporting, we put the closure in, but the planning around care and maintenance and those other programs, we'll put some more commentary on that when we put out some of the gold commentary.
Okay. But sorry, just to clarify, so that gold potential, is that -- are you talking sort of 12 to 18 months, and therefore, those closure costs would be likely after that? Is that how we should think about it from a modeling perspective?
Yes. Any closure costs will come at the back of any gold program. [ As earlier said ], that comes up positive with a reasonable life. Of course, that pushes any closure, hopefully, significantly better.
Okay. And then just a really quick modeling question again, just on depreciation. For FY '20, it was around that $200 million mark. We expected, even though your production is sort of coming off, is depreciation also expected to come off or should sustain around that $200 million level?
I expect pretty similar levels. Monty has a higher rate of amortization coming through, so expect something similar into next year.
Your next question comes from Daniel Morgan from UBS.
Just wanted to talk about maybe the grade that's underpinning the guidance for the 2 mines next year. Are you still having a little bit of dilution or grade issues at Monty versus the reserve drilling and the update you provided in May? Or can you just update us on the performance versus that drilling and reserve update, please?
Daniel, it's Jason here. So firstly, all of our forecasts and even our existing production are in line with ore reserve estimates for both DeGrussa and Monty. As you alluded to, we did provide an update to the market and publicly report and updated ore reserve on Monty. And that was based on pretty much a 10 by 10 meter drill hole, diamond drill hole spacing, which has really defined the Monty ore body in both shape and grade and at a high level of detail out to the end of mine life. So in essence, all the grades that we're seeing at the moment and the guidance that we've provided for FY '21 are very much consistent with current ore reserves.
Okay. And then just can you help us step through what FY '22 might look like? I mean you talked a little bit about the CapEx, but is it more of the same in terms of the -- so 1.6 million tonnes at similar grades, should we -- is that still what we should think about?
Yes, you're absolutely right. At this stage, FY '22, all of our plans indicate that we can continue to fill the mill at a 1.6 million-tonne per annum processing rate out into the end of FY '22. Grades, if you look at the ore reserve grades, pretty much our guidance there for next year are in line with the average ore reserve grades. So they should be consistent.
Yes. And then I guess, based on reserves, it's in that -- early in that FY '23 year that the -- that you would run out of reserves, it would appear to me.
Yes. It's in that September quarter is on our current forecast.
Okay. And just a follow-up question on Sophie's closure cost remarks. Can you just step through when that is triggered, what needs to be done exactly to close the site? What are the things you need to do?
So it's in 2 parts, really. In terms of actual closure, you have your legislative requirements, so you have rehabilitation and removal of gear and all that sort of thing. That's clearly not the plan for us in terms of DeGrussa. We're signaling more our plan of going into, hopefully, a tail program, a tailings program and potentially a gold program with Old Highway and looking at what the site looks like in terms of operating and exploration level while also keeping the plant on care and maintenance and keeping it all in excellent condition for our -- hopefully, our next VMS discovery. So I guess, yes, 2 parts to the answer.
Your next question comes from Matt Keane from Argonaut.
Two very quick ones for me and to do with the life extension. And the first one, on the Old Highway prospect, in terms of gold, what are you looking to do there? I doubt you're going to obviously build a gold processing circuit. Are you looking to sell at concentrate? And the second question is around the tails treatment. What are you required to do? Do you need a fine grind circuit? And I suppose a follow-on from that, are you looking at something which is value-neutral to keep the plant running and people employed and the sites operating? Or is there a point where this is actually value-accretive and generates a positive NPV?
Matt, it's Jason here again. So I might just start with the tails treatment component of your question. So all of our test work done to date is looking at not regrinding the tailings facility but actually looking at alternative processing methods to extract the gold. And the work done to date, we've assessed a number of opportunities, but the one that we're really starting to focus on at the moment is a conventional CIL circuit, which we could put right next to our existing DeGrussa mill. Now in terms of Old Highway, if we have a CIL circuit at DeGrussa and existing combination circuit there from the existing DeGrussa mill, it does give us the potential to process additional or other gold ore sources that may be at a slightly higher recovery or higher grade. And we're doing a lot of that work, particularly around Old Highway to improve that overall project economics. And yes, it's early days in terms of trying to assess how solid that business case is going to be, but we are expecting it will be a contributor in terms of cash generation at just at what levels we need to work through.
Okay. And maybe just a quick follow-on from that. In terms of -- there's obviously ounces within the region outside your tenure. But within your tenure, I mean what's the target in terms of ounces you think you can divide to find that Old Highway and other areas? Is it -- I don't know, are we talking million ounces, a couple of hundred thousand? What's sort of the rough target?
Matt, Shannan here. The exploration of the gold is still in fairly embryonic forms. We've got a number of targets, one of which is Old Highway, that we can work up. But from an Old Highway, we're not approaching that at this stage, thinking that it's in that 1 million ounce perspective and looking hopefully in that hundreds of thousands of ounces to get us going.
[Operator Instructions] Your next question comes from Paul Young from Goldman Sachs.
A follow-up question on unit cost guidance for FY '21. The gold price assumption is probably a big part of that. What gold price assumption have you assumed, please?
17 70, which looked pretty spot on when we first looked at it, but it's a little bit light at the minute, isn't it?
Okay. All right. That's important. And then next one is if we adjust for that and just look at the mining cost component -- thanks for the color on this end, adding that the average stope size is getting smaller and there's more stopes. But can you share what your assumption is on mining costs, whether it be on a dollar-per-tonne basis or on an absolute cost basis for FY '21?
Really, it's back into the per pound because there's so similar numbers. We're probably moving into the mid-40s as opposed to in the past, we've been more in the sort of low 40s, and that is really driven by those production rates. So in terms of equipment and mining method, it's all very, very similar. It's just that you've got more stopes, smaller stopes and a bit more complexity in terms of underground support and those sorts of things in development. So it's really about doing more and more work to get the same results. That's why that mining unit rate is expected to go up.
Okay. Last question, just on Adriatic Resources and your investment there and decision to withdraw your director nomination. How do we read into that? Have you changed your view on that project? Are you now realizing the Botswana, which is shaping up better on exploration, that, incrementally, that's where the time should be spent?
Look, I think from our point of view, I think it's -- removing the director was really from our -- certainly, our strategic focus is one still on DeGrussa/Monty, certainly on Botswana is accelerating and, obviously, the U.S. and they sit as the key priorities as well as key business development opportunities that we are looking at. Adriatic sits into a portfolio of other strategic investments that we have got. There are a number of others. It is the biggest of those. I wouldn't read too much into it in terms of there's no corporate action. There's no other sort of weird and wonderful things that I've seen people speculate about that. I think these projects tend to have -- and it's an interesting part of the world that I think there are various hurdles and hoops that one needs to get through and challenges and that things will take time and potentially more time, and many aspects still need to be resolved. So I think we are just sitting in a strategic position. It's an interesting, tactical position, I suppose, at being around 16%. So it's an important cornerstone, being the largest shareholder position. But I think we've got a lot other higher priorities on our books at the moment to create value for the business. But we're sort of sitting there as a shareholder, and as long as Adriatic do everything that they're supposed to, we'll be very, hopefully, a happy shareholder.
There are no further questions at this time. I'll now hand back to Karl for closing remarks.
Thanks, everyone, for dialing in for the report for the June quarter and year. And it's been an extraordinarily pleasing year for the company and especially in light of the pressures placed on all of us during the COVID pandemic and, obviously, a situation that is continuing in front of all of us and I have no doubt will continue to have impacts. So we will just need to manage possibly our way through that as most of the businesses around the globe. It may turn out to be a new normal, but hopefully, we can adapt to that. We're very comfortable and very happy, and I draw your attention once again to our 1 July announcement in terms of our strategic imperatives and the fact that we have drawn the line in the sand, and we are moving forward on a very clear, coherent strategy. We have the resources and the capabilities, the determination and the dedication to achieve that. And as I said at the beginning, our aspiration for the next 3 to 5 years is to replace the DeGrussa scale of operations in terms of volume by one measure or another, to have Botswana operating at an expanded capacity as -- and I think as Jason articulated, at the level of 5 million tonnes-odd per annum, we believe that, that part of the world and that belt has much more significant potential. And obviously, to move and establish operations in Botswana -- in Montana at the Black Butte project, is a critical element and platform to us establishing that three-pronged strategic approach in those 3 global hubs that we're seeking to do. So thanks once again for that. We'll continue to pursue our clear and coherent strategy. We're very excited about it, and we look forward to reporting again to you in the next quarter and the next half year, which I think with, hopefully, positive results in terms of our development and programs going forward and laying those foundations to build and accrete value for our shareholders and other stakeholders. So thanks very much and look forward to talking to you again in the future.