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 June 2021 Quarterly Report. [Operator Instructions] I would now like to hand the conference over to Mr. Ben Crowley, Head of Investor Relations. Please go ahead.
Good morning, good afternoon, and thank you for joining us today. My name is Ben Crowley, and it gives me great pleasure to be introducing my first quarterly as Head of Investor Relations for Sandfire. As you will hear from our presenters today, it's been a very busy quarter for Sandfire. And with all this activity in mind, I would like to let you know that in addition to this call, Sandfire will be hosting an investor briefing at the upcoming Diggers & Dealers Forum on Monday, the 2nd of August at 2:30 p.m. Western Australian time, so 4:30 p.m. Eastern Time. The event will, of course, be webcast, and details will be posted on the ASX platform prior to the event.On our call today, I'd like to introduce Karl Simich, our Managing Director and CEO; Jason Grace, our Chief Operating Officer; Matt Fitzgerald, our Chief Financial Officer; and Julian Hanna, Director of Growth and External Affairs. Karl, over to you.
Thanks very much, Ben, and welcome, everyone in your morning and afternoon, and I apologize if you're missing any Australian gold medals at the Olympics. But hopefully, we can work through this and tell you about a wonderful quarter that we've just been through and the conclusion of a wonderful year for Sandfire yet again. Very happy to talk to you at a high level regarding the strategy that we put in place at Sandfire and how we're going with regard to that and then pass you to the team, Jason, Matt and Julian to talk to you in a little bit more detail. And certainly, our focus is to create value for opportunity.We reset our strategy in 2020. We are during 2021 well and truly delivering at the first part of that strategy. And we look forward over the next couple of years to actually continuing to achieve some really important milestones and deliverables for us as a business.Our aspirations are we desire 2025 to be the producing or have a clear pathway to a production profile of around 150,000 tonnes of copper at sort of benchmark operating costs and a lot of the work that we're doing in our business is aimed at trying to get us to that point. If we achieve that, we will generate and create a significant amount of value in our view for the various stakeholders that are involved in our business.Our vision as a company is to build an international diversified and sustainable mining company. And our 5 key strategic imperatives are on the page there, to execute delivery in DeGrussa and Monty in our operations, to develop Motheo project in Botswana, in the Kalahari Copper Belt, initially, we see that level set at 3.2 million tonnes per annum of throughput, but we can see that expanding rapidly to a larger level, and Jason will give you a bit more color on that. And Black Butte in the U.S., we are permitted. We had a feasibility study. We are dealing with the legal challenge, but we see great prospects as we go through dealing with the legal challenge, optimizing the feasibility study for the first time ever, exploring in that part of the world since we had our initial investment some 6 years ago, and we're looking forward to that being a sleeper but coming through the system. Under sustainable production, we are busy from our corporate development and business development teams looking at inorganic opportunities to buy an asset preferably, if we could, a quality operating asset, we will continue depending on our other imperatives, look at other potential development assets in due course. Under accelerate discovery, we are aggressive explorers. We have been in the last 12 months, spending almost or just over $60 million, and we will continue to be aggressive explorers and focused on the opportunity in the organic part of that business. It's part of our DNA. We see a little bit of probably some refocusing in certain areas. In Western Australia, we're focused on copper and gold up and around the Greater Doolgunna region in the Kalahari Copper Belt, where we have a master significant ground holding. There are a number of things that we'll touch on today that we are pushing hard on in Botswana, also in Namibia as well.In New South Wales, we have a significant exploration footprint and there's a focus of attention there will be some additional intensity in New South Wales in the areas that we can work in trying to develop potentially a restart at the old Endeavor mine. And we have a number of other exploration opportunities, not only in the U.S. but further afield.In terms of our 4 key strategic imperative is to make sure that we've got the resources, the people, the alignment and our very good skills in the people that make those subjective calls in our business, the people are sitting within a business that has the right culture, has the right values is aligned, and we have systems and procedures and practices that will ensure that we can actually deliver on the objectives that we've set ourselves. So we're really excited about that.We continue to increase our talent pool significantly, and that is throughout the entire organization. So we're very proud of the ability not to only uplift and train the people that we have got and support them in all of their respective developments, but also to bring in new people to our business. And there are a number of new additions throughout the business. And we're very happy to have those people join us and we're really excited about that.And overarching over all of that is ensuring that we can understand the business we're in, we can understand the commerce and finance relating to that. We keep our flexibility, and we have appropriate structures for the situations that we are in and that we optimize the opportunities that might be in front of us.From a highlights perspective, it's been an outstanding quarter. It's been an outstanding year. Pound for pound, I think I said this about this time last year, it's probably been the best year overall that we've had when we added altogether in terms of the things we've achieved, the results that we've got in that period of time. Excellent production at -- the numbers are on the page, over 18,000 for the quarter of copper and nearly 71,000 tonnes of copper for the year. Good gold and really pleasing C1 and all-in sustaining costs and for the year, $0.82 a pound.Our guidance for financial 2022 is strong and solid guidance at between 64,000 and 68,000 tonnes of copper, and a C1 cost in the order of $1. Matt will give you a little bit more color on why those costs are expected to be in that sort of range.We continue to do work up around the DeGrussa province, and we're looking at the possibility of a gold -- transitioning into a gold strategy and we continue to undertake our resource drilling at Old Highway. Studies are ongoing. Jason will give you a bit more color, and we look to being in a position to have an informed assessment of that towards the end of '21 or early '22 calendar years.In Botswana at Motheo Hub project, we well and truly have our eyes set firmly on being able to expand quickly to a 5.2 million production hub very, very quickly. A couple of key milestones that have been delivered, and you will get more detail, but we have received our mining license, which is obviously absolutely critical in being able to now take the gloves off and run at 100 -- full steam ahead in terms of the development of that project.We have led our largest contract ever in Sandfire at close to USD 500 million to Perenti, and we're really looking forward to developing our relationship with Perenti for our open pit operation there through their subsidiary, African Mining Services.We continue to have success through our resource and exploration work and looking for improving the quality, not only the quantity but the quality of resources close to what will be the operating center at Motheo, and pleasing to see the additional work. And as snapped off at the point in time and there's potentially a further great opportunity through that A4 resource, which is 8 kilometers away from T3, an increase of 34% in those resources at a much significantly higher grade, around 50% increase in grade copper and silver effectively around there, too. So these become significantly great, valuable tonnes that will be in addition, an ancillary to what the baseload is from T3. So really exciting there, and that work is continuing.And even in A4, we've seen some highlight results of intersections of up to 13% copper, 7% copper, and we're still working our way through to understanding the geology and the opportunity around T3, around A4 and further afield within that near-mine opportunity in addition to the extensive belt we have.In the Black Butte Copper Project in the U.S., very happy that we continue to move that along. Horses for courses, enhancing that feasibility study, doing exploration on the ground there for the first time since we've been involved in that asset, we have confidence of doing that, that we now have a mining permit whilst we're working that through, as I said, the legal challenge. But we have some further results coming from the exploration work we're doing. But essentially looking at enhancing the economics related to the feasibility study of that project.As a business, we sit with a very strong balance sheet. We have almost $600 million in treasury. We do not have any debt as we rest at the end of the quarter. And just to note, we have somewhere in the order of just under $100 million in investments in other listed companies. So we are in a very strong position and at a $1.2 billion market capitalization. We see that enterprise base for the business being a little bit on the low side of where we believe the asset value for this business is. We're in a great position, and we look forward to delivering on our strategy over the next period of time.Look forward to handing over to Jason now, who will pick up the rest of the presentation. Thank you.
Thank you, Karl, and welcome to everybody on the call today. Starting with Page 6, we closed out the financial year very strongly with safety performance and only one recordable injury occurring during the quarter across the whole company. Our TRIFR, which was 4.0 as at the 30th of June, was down from 4.7 as at the end of the March quarter and year-on-year was down 31% at 5.8 at the same time in the last financial year. I want to congratulate the whole Sandfire team on this excellent outcome, and our challenge is to keep this positive momentum going through the upcoming year.Our COVID-19 response remained a major focus during the June quarter. And at the company's head office, we were impacted by a lockdown across the Perth metropolitan area, very late in the June quarter. Staff were able to work from home during this period, and there was no impact to the operation of the company.The flow-on effects to DeGrussa operations and Doolgunna exploration were minimal during this period, and both groups continue to function with heightened infection control measures in place, and despite higher level restrictions applied to FIFO operations during this time.In Botswana, COVID-19 infection rates again continued to rise to a point where government hospitals and isolation facilities in the Ghanzi region are now under great pressure. During this time, the exploration team and our rapidly expanding Motheo project team continue to work safely with increasing levels of control measures, which now includes routine mandatory COVID-19 testing for all employees before returning to work at the start of their rosters, and the establishment of additional medical support and isolation facilities for employees and contractors. In Montana in U.S.A., the COVID-19 vaccination program is now well advanced with infection rates reducing in the area. In response to this, our Black Butte team have now almost fully returned to pre-COVID work routines.From a community perspective, highlights for the quarter were DeGrussa employees giving up their time for the Teach Learn Grow initiative at Meekatharra High School, and we were very pleased to be able to contribute to the fundraising for a new aeromedical aircraft for the RFDS, which will be a huge benefit for all people living in the region.Moving on to an update on DeGrussa operations for the June quarter and starting with mining. Underground mine production at DeGrussa closed out the quarter at 293,579 tonnes at a grade of 3.4% and 1.38 grams per tonne gold. Monty produced just below 111,000 tonnes of ore at a grade of 8.3% and 1.37 grams per tonne gold. And when combined, this delivered total production of 404,000 tonnes at a grade of 4.7% copper and 1.37 grams per tonne gold.Ore processing achieved a throughput rate of 375,000 tonnes at a head grade of 4.8% copper and 1.43 grams per tonne gold and concentrate production for the quarter was slightly above 77,000 tonnes at an average grade of 23.6% and 3.63 grams per tonne gold. Concentrate sales at 62,160 tonnes were below -- were slightly below the production rate, and this is simply a result of the timing of shipments at the end of the quarter.If we now look at the full year and again starting with mining, underground mine production at DeGrussa delivered on expectations with just over 1.1 million tonnes of ore mined at a grade of 3.8% copper and 1.59 grams per tonne gold. During the year, Monty again slightly exceeded plan and produced just over 425,000 tonnes of ore at a grade of 7.2% copper and 1.58 grams per tonne of gold.When the overall mine production is combined, they delivered a total production of 1.54 million tonnes of ore at a grade of 4.7% copper and 1.58 grams per tonne of gold. The overall mine production rate achieved for the year met the required ore processing rate of 1.56 million tonnes of ore milled at a head grade of 4.8% copper and 1.6 grams per tonne gold. And produced just over 300,000 tonnes of copper concentrate at a grade of 23.6% copper and 4 grams per tonne gold.In line with the June quarter, timing of shipments -- sorry, in line with June quarter timing of shipments, concentrate sales for the full year were slightly below the production rate at 293,000 tonnes of concentrate at a grade of 23.4% copper and 4.38 grams per tonne gold. And finally, as a result of another strong year of reliable operating performance at DeGrussa operations, the team exceeded copper production guidance, producing 70,845 tonnes of copper, and we're at the upper end of gold production guidance, producing 39,459 ounces of gold.
Moving to costs and that strong operating performance, along with very solid cost management has delivered again strong margins during the June quarter and build that cash flow balance up as we expected. For the full year, $0.82 a pound is very, very pleasing in terms of C1 costs, and that brings us in just to the bottom end of our revised $0.80 to $0.85 a pound for the year. That very strong quarter was also developed -- through development and mine development setting us up well for the financial year to come.As Jason touched on, 25,000 tonnes of concentrate represents around 2.5 shipments of concentrate holding at the end of the year, impacted by the ship that left in early July. And as we've previously released, we did receive a prepayment for that shipment in June. So that did bump up our cash balance at the end of the year. There'll be some more detail, of course, in the financial results to be released at the end of August, and we also have a slide coming up in terms of year-on-year comparison.Looking at full year guidance for next year, a very similar story to financial year 2021 with 1.2 million tonnes coming from DeGrussa of ore, 400,000 tonnes targeted coming from Monty. The Monty grade, slightly lower than what it was in the financial previous year, which really is the key factor that drives some lower production numbers for the year. Recovery assumptions around 92%, continuing to be strong and also continuing to have that planned transitional material processing through the plant during that time.Jason has talked through the guidance. And in terms of the quarter-on-quarter guidance, as we've provided in prior years, really quarter 1 and quarter 3 -- if we're looking at a quarterly range of, say, 15,000 to 18,000 tonnes of copper production, quarter 1, quarter 3, both look to be at the lower end of that range and quarter 2, quarter 4 at the upper end of that range. So the next quarter, that September quarter, we expect to be, as I say, at the lower end, more towards 15,000 tonnes of copper. And moving through the year, really driven predominantly by grade of stopes as they come through. That grade for the year moves around between 4% and 5% as a general guidance.Looking at the comparison financial year 2021 to '22, we want to just give a little bit more color in terms of some of the key movements. Two key drivers, the product -- the lower projected copper production. So at the midpoint of guidance, we're looking year-on-year producing around 7% lower copper production. That's a key driver, of course, to C1 unit costs, and also just shy of 20% lower gold production. So that drives our C1 costs up in terms of copper production and also that lower -- with the lower by-product credit coming through. In gold, you'll see at the gold level down the second -- last line, the gold credit down around 20% directly in line with the gold production numbers.Otherwise, there's some external factors that we are seeing in the market we've seen in the -- particularly in the back half of the year and also during the COVID period, with an increased assumption of diesel price coming in the back of the year. Generally speaking on these items, whether it's copper, gold or diesel, we tend to work on a spot end of June rate to project our guidance forward and we've done that this year. Also, we've seen over the -- in recent times, international shipping rates move from historic lows and very, very strongly grow in terms of shipping costs that's driving our transport costs up. Some movements in labor, although we feel those are relatively well controlled in our workforce, we already have -- we already paid well in terms of salary bands. So not too much on the labor side, but we are seeing some labor market pressures as others are seeing and longer-term benchmarks moving in terms of treatment and refining charges as well.Our guidance, just to state it for you, our guidance is based on 17,600 for gold, and FX of 0.75.
In line with the strategic plan, as mentioned by Karl earlier, we've continued to work to assess the potential to transition to gold production at DeGrussa. And during the quarter, resource estimation activities on the Old Highway deposits have continued and will provide support for a feasibility study on the project. We expect to be in a position to progressively provide further updates to the market following the completion of mineral resource estimation and as the study progresses through to completion.In the meantime, Sandfire has also undertaken further drilling in 2 areas. Firstly, in the Central Deeps area, where we are about to commence a 7,630-meter drilling program to test down Deep extensions of mineralized zones in that central area. And in the area, we call the Central-East Links zone, a drilling program totaling 6,780 meters is planned to delineate probable a long strike extensions or connections between 2 previously drilled areas. Both of these programs are considered to be high priority and will commence early in the September quarter.Expanding out from the Old Highway area, the Doolgunna exploration team continued to execute the dual-track copper and gold exploration program throughout the quarter. The key components of exploration activities for the June quarter included deep diamond drilling at Red Bore to test the conceptual feeder structure for the DeGrussa ore body. This hole intersected target lithologies but no VMS-related sulfide mineralization was observed in any of the core. Follow-up downhole EM surveys are now in progress, and we'll continue to provide updates on that.Infill aircore drilling was also undertaken at the Morck Well project and also at the Cuba gold prospects, and late sampling was also completed at the Yerrida project and specifically at providing first pass overview of the regular geochemistry overlying the historically unexplored Killara Volcanics of the Yerrida Basin.Looking forward to financial year 2022, the dual-track exploration strategy will focus on accelerating discovery to extend mine life at DeGrussa operations through either our copper or gold processing strength. To do this, there will be a strong focus on targeting deeper mineralization in structurally favorable locations in the area around DeGrussa and Monty. It will also include further work on basin scale geological architecture and, in particular, targeting corridors that are favorable to VMS mineralization; utilization of new geophysical methods to generate new and potentially deeper targets; and continuing with our existing strategy of identifying favorable host geology in new areas of the Bryah Basin. Finally, we will also have a strong focus on regional exploration in New South Wales and particularly on our tenements in the Cobar area and to a lesser extent in the Macquarie Arc.We now move on to the Kalahari region. During the quarter, project development and exploration activities continued within the Kalahari region. This covers an extensive area in Botswana and Namibia and runs approximately 400 kilometers along the Kalahari Copper Belt. The Kalahari Copper Belt is a major zone of stratabound copper and gold -- silver deposits, extending from North Botswana through to Central Namibia. The belt holds approximately 7 million tonnes of contained copper and resources grading from 0.9% to 2.2%, and at an average grade overall of 1.4% copper. The T3 and A4 resources sit towards the Northeast and of Sandfire's tenements and are surrounded by several high-priority exploration targets, which we collectively call the Motheo Expansion Project. Given the enormous potential of the Motheo Expansion Project area and in particular, Sandfire's discovery of the A4 deposit, we have not limited our project development work to the T3 deposit alone. In addition to the completion of the definitive feasibility study in December 2020, we have also completed the engineering to identify a pathway for rapid and low-cost expansion of processing capacity to a 5.2 million tonne per annum rate and -- which will support the concept of the Motheo Production Hub. The Motheo Production Hub has the potential to provide processing capacity for potential new mines at A4 and any other future discoveries in the area. And to support this, in December last year, Sandfire announced that in addition to approving the construction of the T3 Motheo copper mine at a 3.2 million tonne per annum rate, a further commitment of USD 20 million was also approved to increase the capacity of several key components of the plant and readily enabled future expansion.If we now focus on the T3 Motheo development time line, Sandfire was very pleased to announce on the 7th of July that the government of Botswana granted the mining license for the Motheo copper mine. The granting of this license represents the final major permitting milestone required for full-scale construction of the project to commence. Following the granting of the mining license, the project team has updated the project development time line, and we're able to confirm that we remain on track for first copper production in half 2 of financial year 2023. Leading into this state, the key milestones to be achieved in financial year 2022 include finalizing the environmental management plan and approval of that by the end of the current quarter; completion of the process plant detailed engineering and preconstruction works. And as we stand today, we're at 78.5% completion on that works and well on track to achieve that target.Accommodation facilities are in construction as we speak at the moment, with completion of the construction-related accommodation facility due by the end of the quarter. And the permanent 750-bed accommodation facility due basically by the end of the year.The other key items there include the commencement of the process plant construction, which will happen in early October. And following the letting of the mining contract to Perenti, we are currently underway with mobilization and design for establishment on site, and we will be mining and doing the pre-strip for the T3 open pit operation there basically in Q4 of this financial year.Now if we look specifically at key progress areas in mine development, we've touched on the T3 mining license and granting of that. In addition, we have announced on the 7th of July -- sorry, on the 9th of June, that the T3 mining contract was awarded to AMS. We've appointed all of our senior leadership roles that will work on the project and manage the business in that. So we've now appointed the country head of Botswana and also the GM of operations. Both of those roles will start in this quarter or commence with Sandfire in this quarter.Project debt funding is well underway, and we're down to a short list of key banks. The A4 Mineral Resource updates, it continues to support the feasibility and engineering studies, which are -- they're currently being fast tracked. And as touched on before, as we stand today, the detailed process plant engineering is 78.5% complete.Design of the Tailings Storage Facility is now completed, and we're now out for tender for construction contractors. Apart from that, other key contracts that have been awarded in the last quarter include the Access Road contracts, construction of the Permanent Accommodation facility, the high-voltage substation design and construct have all been lead.As the first potential additional ore source for the Motheo production house, Sandfire was very pleased to announce an updated mineral resource for A4 on the 21st of July. When reported at a 0.5% copper cutoff grade, the updated A4 resource totaled 9.8 million tonnes, at 1.4% copper and 21 grams per tonne gold -- silver for 134,000 tonnes of contained copper and 6.6 million ounces of contained silver. This represents a 34% increase in the contained copper. And importantly, 93% of the contained copper is now reported in a higher confidence indicated mineral resource category and available for inclusion in Ore Reserves.The feasibility study program for A4 has continued throughout the June quarter, and we are on track for a maiden -- to report a maiden Ore Reserve for A4 in the December quarter and also completion of the feasibility study is scheduled for the March 2022 quarter. We're very confident this will provide a very clear development pathway for the integration of A4 into the proposed 5.2 million tonne per annum Motheo Production Hub.Stepping out to the Motheo expansion area, recent work by our exploration team has significantly increased the geological and structural understanding of the area. During the June quarter, diamond drilling continued to target structurally hosted copper mineralization, which is similar in Genesis to T3 and A4 along with deeper NPF contact mineralization, which is similar in Genesis to Khoemacau Zone 5 deposit in the area. And in particular, a substantial diamond drilling program has now commenced on the 9-kilometer long A4 Dome, which has delivered not only the A4 resource, but has demonstrated the potential for very high-grade copper mineralization which is significantly higher than all other known areas in the Kalahari Copper Belt.Looking forward to financial year 2022, diamond drilling with high priority targets in the T3 and A4 areas will continue throughout the year. And when land access negotiations are finalized, drilling will step out to a high-priority exploration targets at A1, A13, T1 and T2.Finally, moving on to the Black Butte project in Montana. Our key areas of focus have been to firstly continue to deal with the legal challenges associated with regulatory approvals. But more importantly, we've been undertaking additional work to add value to the project. In line with this, the Sandfire America team have now completed all early surface earthworks for the project. We have continued to work on enhancing the Johnny Lee feasibility outcomes. And for the first time since Sandfire has been involved with the project, we've undertaken exploration for potential extensions to copper mineralization at Johnny Lee and Lowry deposits. As part of this, an 8-hole diamond drilling program totaling 5,267 meters has now been completed. And on the 27th of May, Sandfire America was very pleased to announce hole SC21-256, which intercepted 12.45 meters intercept at 3.4% copper and 6.5 grams per tonne silver. And this zone included a 4.65 meter intercept at 6% copper and 14.6 grams per tonne silver.Looking forward into FY '22, we will continue with all of these activities and also continue to move forward and build value for the Black Butte project.
Thank you, Jason. Thank you, Matt. And just really to close up the quarter before we go to questions is, we're very happy that we've reset our strategy, and we're now delivering on those strategic imperatives. We have the foundations. We are developing a longer life production profile hub, a number of significant prospective exploration opportunities in Western Australia through the Kalahari, New South Wales, U.S.A. We do have a team, as I've talked about, that is we're building on, we're developing, we're lifting up and we do have certainly a significant increase in the talent pool and capacity and capabilities. And I believe we have a very strong platform to create a value proposition from where we are in this continuing very solid rise in copper market. And as we look towards the future facing metals, and a positive net zero carbon emission world. So we have begun transformation into a diversified and sustainable mining company which is our vision.Thank you very much for listening, everyone, and I'll now open the floor to questions.
[Operator Instructions] Our first question is from Lyndon Fagan of JPMorgan.
Well, thanks very much. Just on Botswana and the move to 5.2 million tonnes processing. I'm wondering if you're able to share any sort of color on what CapEx that might entail. And when you say quickly like how quickly is that are you looking to get to steady state from just T3 for a few years? Or is this something that you'll consider doing straight away while the construction workforce is in place?
Lyndon, thanks for the question. It's Jason here. So firstly, look, previously, we have provided some broad guidance there on capital estimates for it. From memory, we've actually provided the order of about USD 50 million, but not including the mine increase strip. So we're actively working on refining that at the moment. But given where we're at, at the moment of what we've done, particularly with the additional $20 million that was approved as part of the T3 project, it really does position us very well to go straight into production there as soon as we install the additional ball mill. Now in terms of timing of that, our time line at this point in time is looking at basically in the first half or very early in 2024 calendar year in terms of first production.
Sorry, that gross production from the 5.2 million tonnes or just -- I'm just looking for the timing around the expansion.
That's it. So we're actually looking at first production at a 3.2 million tonne per annum rate in the first half of calendar year 2023. And basically then first production at a 5.2 million tonne per annum rate very early in calendar year 2024. If you work back from that in terms of looking at capital expenditure, probably work back and spending the bulk of that $50 million in the 12 months in the lead up to that.
That's very helpful. And then -- Just a bit more on the A4 resource, when is there another update of that likely to be? So I guess 9.8 million tonnes is helpful, maybe another just under 2 years. Do you expect all of that material to be economic? Or are we sort of waiting for the size of this to grow before seeing the reserve?
No. We'll actually do an ore reserve on this existing updated resource. And I would expect that we would announce that prior to the end of this calendar year.
Our next question is from Sophie Spartalis of Bank of America Merrill Lynch.
Just following on from Lyndon's question. So just to be clear, to go from the 3.2 million tonnes to the 5.2 million tonnes in terms of the additional kit, is it just that 4 million that's needed to be added?
Yes. That's basically the $20 million of additional expenditure will already basically increase the capacity of the crusher. And in fact, the crusher will do above that 5.2 million tonne per annum rate. We have already included basically the additional capacity in all the belts, motors, the float circuit and thickeners as well. And we've even been able to bring forward -- we were planning on an additional expansion of the concentrate storage shared as part of the 5.2 million tonne upgrade. We'll bring that forward and put that into the 3.2 million tonne original construction. So it literally is, apart from a few shoots and a bit of piping, it will be the installation of the ball mill.
Okay. Great. And then just in terms of earlier commentary you provided in a main part of the call, you talked around even potential expansions beyond the 5.2 million tonne. Would that be, again, adding more kit to that existing plant? Or are we really looking at depending on exploration success, this modular addition to plants as the problems grow?
Yes. If we look at step changes or what are the logical steps for increasing processing capacity, we're probably not far off the maximum capacity of that processing infrastructure as it stands. So conceptually, what we're thinking about at the moment, and it will depend on exploration success and the location of those new deposits, you could either put a second processing train at the Motheo Hub or we look at a dedicated processing facility that's at another location along the belt.
Okay. And then just in terms of CapEx pressures, we've seen that come through as a major thematic for a lot of your peers. Can you just talk around the capital pressures you're seeing, particularly over in Botswana as you're looking at all these design programs?
Yes. Yes. Well, we've seen some movements in steel prices and other commodity prices like copper associated with wiring. Project teams -- we actually placed a lot of these orders a while ago as part of the rapid ramp-up and transition from the feasibility study. So at this point in time, there's no material impact that we're forecasting to the overall project budget.
Our next question is from David Radclyffe of Global Mining Research.
Just a couple for me then. Maybe starting at DeGrussa. Outside of the gold opportunity, which you said you're going to expand on and the near-mine drilling you've just mentioned. If we come back to the current price of plus $4 a pound, just wondering if there's any sort of opportunities there now, maybe in some disseminated zones or the like that previously would have been more marginal, but now would make sense and maybe you could even underwrite with hedging to extend [ lot ]?
David, thanks, it's Jason here again. Look, one of the key things that we've got, the mine planning team and the geology team up at DeGrussa is doing at the moment is squeezing every last tonne of copper production out of those assets. It has been a strong focus for us over the last 12 months and will continue to be right until the end. We have brought in some additional tonnes outside the Monty ore reserve, and they are currently into the schedule. That will probably come in, in the next financial year, so FY '23. And there's a few other areas around the place that are being evaluated at the moment, but they're likely to -- it might be a month -- order of magnitude, a month-type extension, but nothing sort of more really other than that.
Yes. Okay. Then I think in terms of guidance of spending for this year, you've given us some development numbers for DeGrussa, whether there's any sustaining that needs to be included on top of that, maybe that's starting to wind down now? And then maybe if you could give us a bit of an idea of the quantum for spending this year in both Botswana or in the U.S. as well.
Thanks, David. Matt here. Really, CapEx at the gross, as you say, is really tailing off at the back end. It's in the sort of $1 million to $2 million range in terms of sustaining CapEx outside of mine development, as you said. The Old Highway drilling, for example, really sort of goes into development and studies depending on where -- how you model those. Into Botswana, as Jason said, we've set that project schedule for the next 12 months. We'll give some more guidance around the timing of that CapEx in our results call at the end of August as we line up the rest of that program between now and first production.
Okay. And then maybe just a last one on the debt funding. Obviously, you're coming from a very strong position with the balance sheet the way it is. Are the banks asking for hedging in this market? And as you think to the project today, given where prices are, is that something you would consider?
Yes. The project economics are very strong and they're getting stronger clearly, as things like A4 come in. A4 is upside for banks until we have things like ore reserves and feasibility studies, they'll look at it like that. The economics certainly look like they will comfortably carry around USD 160 million of debt. So we gauged that at about half of what CapEx and working capital requirements are over there.In terms of the detail in some of those -- in the banking discussions, we'll probably leave that for another time when we announce -- we're potentially only a couple of months away, we think, from announcing our debt transactions. We're working with the banks now around things like hedging. We will look at hedging. Generally speaking, we like to -- our view on copper is very, very strong. And we'll balance that with our discussions with the bank.
Our next question is from Hayden Bairstow of Macquarie.
Just a couple from me. Just on Old Highway, I just want to get an understanding of sort of what the game plan is here. We're sort of targeting small low-grade open pits more sort of bespoke higher-grade sort of binding. What's the sort of base plan for what's in the scoping study for Old Highway?And then just in Botswana, just keen to understand the impact -- I mean you sort of said the CapEx at the moment is still okay. But just to understand the hurdles you're facing at the moment with COVID restrictions and getting people in and out of the country and how that's tracking so far.
Thanks, Hayden. It's Jason here again. Look, from an Old Highway point of view, we're looking at this point in time, as you say, a series of smallish open pits. They're mining selectively these high-grade shoots. We think the average grade is of the order of around about 1.5 gram, I think, ultimately, that's taking dilution into account for that as well. Processing rate will be around about 1 million tonnes per annum. And I think previously, we've said to the market as well. It will be sort of up to about 50,000 ounces a year type production. So that's the concept that we're looking at, at the moment. We'll know more once we finalize this mineral resource estimate, which is really not that far away. And then we'll be able to get full blown into mining studies, which I think will give us a really good line of sight on what potential that project has.In terms of COVID restrictions, particularly in Botswana, there's no restrictions at this point in time in getting in and out of Botswana. Obviously, flight availabilities with a lot of airlines sort of scaling back is a bit of problematic. But at this point in time, we have got people going into Botswana. It's probably more problematic getting people back into Australia given the cap that the federal government and the state governments have in terms of allowing people to come back into the country.So other than that, really, in terms of labor over there, the borders are open between South Africa and Botswana. And a lot of our contractors, particularly in construction, will either come out of Botswana itself or from South Africa. And we're really not having any issues with that at the moment. It's really -- it's a very different situation over there compared to here in Australia, where it truly is working with COVID over in particularly Southern Africa, is now part of just doing business over there and it's part of the normal going forward.
Our next question is from Matt Greene of Goldman Sachs.
Just a couple from me, please. Firstly, just on Botswana. With the -- Congratulations on the mining license. But my question is just on the sell-down to the government. How long is that -- firstly, how long is that option open for the sell down there? And then just on the -- I guess is there any more deliverables that Sandfire is expected to deliver before that decision is made? And then just on valuation, have you -- is there some sort of pre-agreed valuation that you will sell down based on? Or is this determined, and I guess independently when the government decides to call on that option?
All right. Thanks, Matt. Firstly, in terms of the time line for that, there's no, if you like, official time line. We have been advised that the Botswana government's due diligence will be completed very soon. So we expect to hear back from the government, I think, in the coming months. Certainly, I would have thought well before the end of the year.In terms of deliverables, we provided all of the information that is required for that due diligence and for the government to be able to make an assessment on their investment decision. And the valuation will be discussed, but it basically will include costs already directly incurred by the project. And also, it will look forward, particularly using the feasibility study outlook and are fully funding their proportion or whatever of what they may end up choosing or not choosing to take in the project.
Okay. So just to be clear on that, there's no -- you'll be funding their share by a shareholder loan of some sort. There won't be a cash injection from the government?
No, the government has to fund this, whatever stake in the project, and that potential stake is capped at a maximum of 15%.
15%, okay. And then just if I could just squeeze one more in. Just was there any provisional pricing tailwinds in the quarter or the half? And do you have any tonnes, I guess, exposed to QP as we move into FY '22.
Yes. Matt, we had a strong QP year, if you want to put it that way, of around 45 million for the year. It's settled pretty well the copper price towards the end of the year. So there wasn't major changes in that back end of the June quarter. And we have a normal sort of level of around -- we usually have around 9,000 to 10,000 tonnes of copper exposed to QP. So we have seen a little bit of copper growth into July. At this stage, that's sort of exposure into that with QP finishing across a period of sort of July, August, September for those 10,000.
Our next question is from Mitch Ryan of Jefferies.
A couple for me. Firstly, just a follow-up from Matt's question there. Did -- when Khoemacau was mined, did the Botswana government elect to take up the 15%?
No, they didn't.
Okay. Great. Secondly, with regards to Motheo, you've talked about the ramp-up of the milling capacity over calendar year '23 and then stepping up with '24. I guess, given the grade profile of A4, you see a potential that that comes into the production profile earlier than the milling capacity is available?
Yes. Look, we would love to. Yes, it is a high grade, and it is slightly near its -- closer to surface as well. Our timing constraint on that will be on permitting. So we'll be working with the government to compress that as much as possible. But realistically -- yes, we do have realistic time lines on that, but we will be actively trying to work towards bringing those forward as well.
And then thirdly, with regards to Black Butte, you've obviously started spending exploration money again there. What is -- what are you seeing in your legal process that's giving you comfort to start spending again there?
So look, we are progressing through the legal process. The feedback from our lawyers is consistently positive. And it's almost, to be honest, a part of doing business in the U.S. that we have to go through this process. So we remain confident. So Montana -- the regulators in Montana there went through a very exhaustive process during the approval of the record of decision. So all of the mining permits. And they're very confident as well that their work will hold up against any legal challenge.
Okay. And I guess given where some of these drill results are coming in the Lowry lower, though I not probably mispronounced that. But if you were to delineate a deposit there that you would bring into the mine life, what additional approvals would you require to do so?
Yes. We are working through that at the moment, but we would have to go through an approval process. But the good thing about, say, a potential development at Lowry would not require an expansion of our existing surface footprint. So i.e., we could access that deposit for underground mining from our existing decline that would go down to -- the decline that would go down to Johnny Lee. So in terms of a permitting process, it will be a much simpler and hopefully a shorter process.
[Operator Instructions] Our next question is from Tim Hoff of Canaccord.
A couple of quick questions. First one, some of the civil unrest in South Africa has interrupted supply chains in that region of the world. Has this changed your view on how you're looking at your logistics plans?
No, not at this point in time. We're monitoring it very closely. The good thing being in Botswana, we have alternatives to supply chains that aren't limited to South Africa. So certainly, our proximity to Namibia and particularly Walvis Bay port certainly give us a lot of other options there. So at this point in time, we're currently not seeing the impact of it at all. And -- but we'll continue to monitor it, and we do have other options.
And just a couple of financial questions. Do you envisage any abnormals coming through the financials of the full year account?
None that we can see at the moment. No.
All right. And how should we start thinking about dividends? I think last year was about $0.14 for the -- for this divvy. You've got capital spend coming up. Could you pare it back a little bit? Do you think you can hold it?
Yes, certainly, a decision for the Board end of August with our financial results. Clearly, a strong year. So we would certainly like -- we'd like to continue strong returns to shareholders. As you say, we do need to balance that with capital requirements. But we do have a very, very strong balance sheet that allows us to explore, to develop, and we also think to return funds to shareholders. So decision for the Board, but we're well placed to be able to achieve a number of things without having to offset any individual one.
All right. And perhaps lastly on strategy. You've run the ruler over a lot of assets price or copper pricing has come up, base metals pricing has come up, no doubt, pricing expectations have come up in terms of what those assets are worth. Is there a point that you consider share buybacks given that you're trading at a fairly substantial discount to where I think you're worth?
Well, thanks, Tim. It's a pleasure to hear that. Look, I think where we are -- obviously, it's something that in terms of capital management, the business will always continue to look at where it can sensibly and appropriately apply its resources. It's a variety of assets, including the cash that it has got. And it is something that we will consider and think about from time to time. I think where we are in terms of our particular business strategy is that I would say that we're more focused on continuing to work hard in our corporate development, business development to look for opportunities where we can enhance the assets under our management, increase that, improve that, extend that, whether they be operating development, advanced development, feasibility assets or potentially exploration opportunities. And we have built and building a team of people that are able to cope with more rather than less and in more jurisdictions rather than less jurisdiction.So I would say, whilst we will continue to look at that and always balance those things up. I don't think it's a high priority just at the moment in terms of how we see the strategy of our business unfolding. But if it was to adjust dramatically, then clearly, it will be something that would be front of mind again. But I hear your point about -- our objective will probably be over the next -- a short period of time, 6 months, 12 months, 18 months, delivering on the strategy is that we will be derisking any discount that the market is putting there. And that will be attained a better value -- reflective value in the share price relative to the underlying -- our sense of the underlying value of those assets. And also, I suppose, the sense from a number of analysts of the underlying value of our combined assets.So that's our job to deliver on getting a greater percentage of the underlying value in front of us rather than looking at potentially a large focus on something like a buyback. But we always look at it in capital management, and we do have our independent directors and management always asking to make sure we're good stewards of capital and managing it properly. So we do get asked the question.
Our next question is from Peter O'Connor of Shaw and Partners.
Three questions. Jason, firstly, the $20 million additional spend as part of the Botswana development, that -- is that part of the $50 million, that additional spend? So is $20 million part of $50 million? Or is it $20 million plus $50 million to get to the 5.2 rate?
Thanks. Yes, just at this point in time, assume the $50 million, in addition to that, the $20 million.
Okay. So -- and Matt, assuming Black Butte does go ahead at some point, the legal impasse is resolved. Are you're talking about dusting off the economics of the project, which have always been a little bit skinnier? What makes this thing better? Is it grade? Is it more tonnes? Is it life? What are the levers? And what are you trying to juggle at the moment?
I would give it to Jason, in terms of the objective of the feasibility study optimization, I think in the first instance of what we're hoping and what are the key value drivers for the project. They're probably going to be the obvious ones, but I'll let Jason jump in.
Sorry, I missed part of that. Just to check, that's in the reference to Black Butte.
Yes.
All right. So some of the key levers. So if you look at it, a lot of the optimization that we're doing on the feasibility study are to remove some of the costs out of this. So we -- our permitting and our -- basically, our record of decision there will basically require us to build a mine that's at the highest environmental standards. And we want to maintain that, but actually look at opportunities to reduce some capital and operating costs at the same time. Now the other work that we are doing at the moment is the one thing we know is that life of mine plan is that we can maintain around about a 3.5% copper grade for about the first 4 years. And then after that, it starts to reduce down to sort of in that 2% to 2.5% copper range -- head grade. So we are looking for additional high grade that will actually inflate the back end of that mine plan. And that particularly will add a lot of value to this project given its scale and given the [ refinance ] debt and unit cost in CapEx.
Okay. That makes sense. And finally, Karl, the inorganic business development you talked about in your opening remarks and thinking about that opportunity to take you beyond what happens with Black Butte Botswana and Western Australia, DeGrussa, et cetera, and potentially in New South Wales. Can I ask you where you're looking or what you're doing, but how many data rooms are alive and active today or in the near term, either in Australia or in other jurisdictions?
I'm not -- I don't know specifically, Peter. But it would be fair to say that we have been involved in looking at situations. We'll continue to do that. It's obviously difficult to say anything in particular when you're possibly looking at stuff. Other than just to say, look, we are busy. And I think from a strategic point of view, it's looking at -- there might be other assets around the globe. And I think we do see that as being a global thing. We are building our capabilities in a number of jurisdictions. We've set the strategy. And I think some things might not necessarily been also the most obvious. And you go, well, if it's a good business deal, it doesn't matter. It can be next door, it might not be next door. It might be on the other side of the globe, which is a relatively small place from a business perspective. And if it's a value-accreting forward-looking proposition, it might be doing well in its own right, but it might actually be potentially an asset that does even better underneath the umbrella and the structure that we've built and the securitization of this equity in the listed public space, where there are other opportunities. Or the combination potentially of other assets that might rather than having organizations with singular assets, having -- you're building a bigger horsepower globally over multiple assets and that could be even -- so it's a whole range of things been without sort of picking anything in between.So it's not a -- not pinpointing anything, but it's how long is a piece of string in terms of looking at sensible business opportunities that we believe under Sandfire and what we've got could potentially add value, and it could be a number of different things. Forward-looking commodities definitely, but -- and we are looking around the globe. And I don't think -- it's not necessarily just being obvious things. We obviously see that a neighboring mine that recently listed in Australia, EMR with its 29Metals IPO, which was well supported by the market in terms of being able to raise that level of capital, over $500 million for some assets that have been around for a long time. And it just shows the demand for a sensible execution of a strategy with confident and capable people I think, in a logical pathway, I think there's great support for that. So a bit hard to sort of answer particularly. I know we are probably active in a number of situations at the moment and will continue to be for quite some time.
Our next question is from Matt Greene of Goldman Sachs.
Just a follow-up for me, just on A4. The -- on the resource update, the 1.4% copper, are you -- is that sort of in line with expectations? I seem to remember that A4 was always viewed as a high-grade underground feed for T3. And once you apply some modifying factors to that when you convert it to your reserves, that will come down a bit, I presume. So have you been able to identify any higher-grade zones in there, which you can perhaps bring forward in the mine schedule there to supplement T3?
Thanks, Matt. So firstly, A4 Resource as quoted the moment will -- it is able to be mined by open pit methods. And that is the concept that we are taking forward into the feasibility study. You're 100% right that we have seen some extremely high grades in our drilling there at A4. And those grades sort of almost Monty-like grades, which just simply -- quite honestly, we've just nobody has ever seen before in the Kalahari Copper Belt. So we remain very excited about the potential for that. And I know Julian and his team are very active at the moment looking at extensions for this structurally controlled or structurally hosted copper mineralization. And we're very excited about further underground and open pit potential there at A4 and in that Motheo expansion area. Julian, do you want to add anything to that?
Just to put it in a context, I guess, A4 Dome as we know it today is at least 9 kilometers long. And then it sort of plunges beyond our sort of visibility based on the EM that's defined in the first fleet. We are extremely excited by the potential there. We've got a couple of rigs drilling now. And I think as we put in the quarterly, we have had some strong indications of other vein hosted mineralization outside -- well outside of the A4 Resource, the open pit resource that is. So...
So I think, Matt, just as a layman, Karl here, I do recall in the early stages of our acquisition of MOD, there was not A4 but T1 was a small high-grade resource of somewhere in the order of 50,000 tonnes of copper that was talked about at that time as a possible little high-grade underground proposition may be to develop. And [indiscernible] side, A4 is quite different at this stage in terms of being an open pit proposition, but some other great opportunities, as Julian just articulated. But also, I think when we talk more regionally about the other targets, we do need to go back and we're looking to go back to some high priority targets even in addition to A4 and its extensions in the areas like A1, T1, et cetera, et cetera, et cetera. So there are other great opportunities as well.
So just on T1, then you mentioned earlier, you need land access to that. Is this something you -- are you going to have to acquire that access? Or is this just, I guess, a regulatory and approval process?
Definitely, we don't need to acquire it to drill it. We've drilled it prior. There's just a bit of pushback from a driller and the government is assisting us with getting an access permit there. So we can start drilling at T1 and A1 as well, which is its nearest neighbor. A1 is based on only 8 holes and some wonderfully interesting to a geologist here, [indiscernible]. It's like A4 Dome but bigger in terms of the extent. So there's plenty of fun to be had in that immediate area around Motheo in the future. So we're very active in that region currently, but we plan to step up the drilling in the second half of this year which is on track.
Our next question is from Michael McNeilly of Metal Tiger.
Just a quick question. I noted in your release on A4 that you were looking to extend the holes down to the NPF contact. Could you maybe give some color as to the strategy around that?
Michael, good to hear from you. Yes, the -- we certainly do want to test that NPF contact. As we know it hosts most of the deposits in the Eastern end of the belt or something like 6 million tonnes of copper and resources sitting on that contact. It's extensively mineralized with very wide space drilling to that to the NPF contact. And clearly, we're looking for grade again and tonnes and something that really could be very attractive potentially for underground. It does come to the surface at T1. It comes to the surface at Zone 5. Elsewhere in the region, it's generally -- it's viewed as an underground target, gutting the high-grade core of that extensively mineralized contact. So I'm sure you're aware of the potential of the NPF in other areas as well.
Thank you. There are no further questions at this time. I'd like to hand the call back to Mr. Simich for closing remarks.
Thank you, everyone, today for listening into our June quarterly report and the end of that quarter in the year. It's been an outstanding year for the business, pound for pound, the best we've had. And we're really happy with the strategy that we've set and the very significant achievements that we've made to date. And we really do look forward to continuing to deliver on the pathway of the strategy that we have set with the ultimate objective of creating significant value for our numerous stakeholders and importantly, our shareholders.So thanks once again for your time, and we look forward to updating you soon with our year-end financial results and any other important information as it comes to -- available. Thanks, once again.
Thank you. That concludes today's call. You may now disconnect your lines.