Sandfire Resources Limited (SFR) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Sandfire Resources FY '20 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Nicholas Read. Please go ahead.

Thank you, Arie, and hello, everyone. Thank you for your time today, and a very warm welcome on behalf of Sandfire to this investor teleconference and webcast for the company's financial results for the 12 months to 30 June 2020. I'd like to begin by referring you to a package of announcements and statutory disclosures released on the ASX platform this morning, including the 2020 Annual Financial Report and Appendix 4E, a financial results announcement and an FY '20 results presentation. A live webcast of this call, together with a synchronized slide presentation, is being broadcast live using the link provided on the front cover of the presentation. A recording of the webcast and call will be available at the same link shortly following the conclusion of today's call. Joining us on the call from Sandfire's office here in Perth, I'd like to introduce the company's Managing Director and CEO, Karl Simich. And joining him in the room here, we have Sandfire's Chief Operating Officer, Jason Grace; and Chief Financial Officer, Matt Fitzgerald. I'd now like to hand over to Karl to kick off today's presentation. Please go ahead, Karl.

Thank you very much, Nicholas, and welcome everyone to the financial results presentation for the year ended June 2020. And it's been a very, very strong year for the company. Before we get into the details with respect to our operating and financial results, I just wanted to quickly touch on the strategic imperatives and growth plan for Sandfire in its quest as we have reset our strategy in creating opportunity going forward. Clearly, today is about -- and the focus of today will be about the elements of us executing our delivery and predominantly those operating and financial results at DeGrussa, but we will also obviously be touching on other key elements. So in executing delivery, we will be talking about that -- of DeGrussa operations. We will give you some information with respect to progress on our other delivery opportunities in the development of the T3/A4 hub in Botswana, our progress in the U.S.A. with respect to the Black Butte project and other interesting gold opportunities potentially around our Old Highway and DeGrussa retreatment -- tailings retreatment opportunities. We're also very active in terms of looking at developing our strategy going forward and building a sustainable production profile. And in that element of our strategy, we continue to look for other interesting opportunities both in operating assets and development opportunities outside of our current portfolio of assets. And that is an active part of the business within Sandfire. As mentioned earlier on in our quarterly report but reiterated today, we continue to accelerate a very aggressive exploration program across all fronts on the business and a significant focus in Botswana with a budget of somewhere in the order of $18 million and in and around the Greater Doolgunna region around DeGrussa and Monty in somewhere in the order of $20 million for a -- and also in the U.S. and in New South Wales for a collective budget for the next 12 months in the order of $45 million. So we're continuing to push very hard on that discovery element of our business, which will also enable us to provide further feed what will turn out to be 3 operating assets in DeGrussa, at Botswana and also in the U.S. in due course. We have done a lot of work with respect to in our strategy reset of ensuring our people are aligned and empowered. And to that extent, we have had a number of adjustments throughout the organization at the executive and also through the senior management and filtering down through the business. And we've completed a lot of that work, and we're very happy with the organizational structure and the team that we have got to move forward into the new strategy that has been put forward. We continue, in that sense, also to ensure through this process, in terms of our finances and capital structure to consider what is the optimized capital structure for our business and strike an appropriate balance between the funding requirements we will have going forward and that balance between debt and equity mixture as well as returns to our supportive shareholders. So we'll continue to work through optimizing that strategy. As we quickly turn through to the headlines of the results for the year, a revenue of $657 million, almost an increase of 11% on last year. And that was received through a record revenue year and received through record production of copper and gold in the last 12 months at the lowest operating cost C1 that we have seen at $0.72 a pound. It was a record group EBITDA for the year of $315 million for the group, up 13%. And that was effectively off a record EBITDA for the DeGrussa operations of some $414 million. And the group achieved a group net profit after tax of $74.1 million. And just interesting to note that in the financial statements for this year, our D&A charges, depreciation and amortization, for the year were over $200 million. And we also made a prudent impairment with respect to some -- an asset for some $24 million. So collectively, in the range of $225 million of noncash charges as an expense in the profit loss for the year. Other key highlights for the year. Clearly, we completed this financial year the acquisition of MOD Resources and the Tshukudu operation and project in Botswana. I believe that will be a significant plank of value and growth in our business over the next multiple decades. And we are advancing very solidly towards achieving our objectives in that region. Also in the U.S., we're very fortunate and we have received our record of decision, the ROD in the U.S. for the Black Butte Copper Project. And another key highlight, that's the first new hard rock mining permit that has been issued in the -- in Montana in the last 24 years. So very proud of our achievements there. And there will be a very considered and thoughtful strategy to take that project into production in the future. So what I would like to do now is hand over to Jason Grace, our Chief Operating Officer, to continue with more detail with respect to the operating results for the year.

Thank you, Karl, and welcome to everybody this morning. Operationally, financial year 2020 has been a year of milestones for Sandfire with record copper and gold production for the June quarter and also for the whole year and record low C1 costs at DeGrussa. We also had a strong drive and commitment to accelerate discovery and exploration in the Doolgunna region to not only extend mine life but also to explore opportunities there for DeGrussa to potentially evolve into a gold processing operation following the end of mine life at DeGrussa and Monty. This saw in May this year the commencement of drilling at the Old Highway deposit, which has quickly evolved into a resource drill-out and will underpin future scoping studies for mining operations in the area. In Botswana, following the completion of the merger with MOD Resources, the optimization of the T3-Motheo copper-silver project feasibility study commenced immediately, right? We also, immediately following that in December last year, also commenced our exploration program in-country, which delivered very quick positive results with the discovery of the A4 near-surface potential resource. We've once again -- in line with the Old Highway drilling, we've moved on to resource definition drilling. And this work will see that underpinning the concept of a larger-scale Motheo production hub concept, which we've continued to take into scoping studies and commencement of engineering. At Black Butte Copper Project in Montana, the approval of the environmental impact statement and also the positive record of decision was a big step forward in that project's development. Early this year and moving into FY '21, preconstruction earthworks have commenced in-country, and the feasibility study is nearing completion. If we look forward to this year, the hard work undertaken in FY '20 will ensure that we continue to deliver strong copper and gold production. And despite pressures on costs, they're due to reducing average stope size at DeGrussa and slightly different mining conditions at Monty, we'll continue to deliver that copper production and gold production at a very low C1 cost. We'll also see the completion of the feasibility studies at both Black Butte and also T3-Motheo completed in the first half of this year.

Just moving on to the financial results and adding some more detail sort of to the headlines that Karl ran through. Looking at revenue first, record revenue of $657 billion, 85% of that came from copper and the remaining 15% from our gold and silver resulting from 306,000 tonnes of concentrate sold at just above 24% copper and 4 grams per tonne gold. We also had a positive QP adjustment for the financial year '20 of $11 million, which has, of course, driven that strong operating result. In terms of unit operating costs, they did reduce with the C1 cost coming down USD 0.11 per pound, which is around 13% year-on-year driven down by that increased production -- gold production and also the increased by-product credit with the increased gold production as well. Looking more specifically at DeGrussa costs. The cash costs have actually increased year-on-year. That's mainly driven by the Monty Mine production with more tonnes coming from Monty. And a reduced DeGrussa mining scale to make way for those tonnes given our strategy of keeping the DeGrussa operation at that 1.6 -- around that 1.6 million tonne per annum head feed, offset, though, by some lower energy costs during the year. On to the noncash side. Depreciation and amortization year-on-year increased $60 million really driven as well on the Monty side of the DeGrussa complex and also an impact -- an additional $13 million impact in the year of the implementation of the new lease standard. So brought on around $25 million of leased assets onto the balance sheet under the new standard and 13 -- around $13 million impact on D&A as a result of that through the year. But otherwise, aside from that, really an impact predominantly from Monty being the Monty decline and mine development amortization as well as amortizing along with those tonnes the 30% project acquisition from Talisman Mining a couple of years ago. Karl touched on the impairment charge. That's across 2 areas. One is the oxide stockpiles at DeGrussa for $14 million and also impairment of the Thaduna and some regional resource assets of a further $10 million during the period. And that has hit that bottom line NPAT result. I'll talk about that a little more in a moment. And really reflects that focus, as Jason talked about, in terms of focusing on the combined Old Highway gold resource drilling and the tailings retreatment studies and how those 2 will come together and hopefully form a continuation of some production at DeGrussa past the known copper mine life but into some gold recovery and treatment into the future years. And we'll have some more around that over the next couple of months in terms of the resource drill-out and also talking about some of the scoping and feasibility work around that project. Just as a couple of graphs in here just to waterfall some EBITDA numbers. So revenue of $657 million, as we said, a 63% EBITDA margin at DeGrussa to get down to the -- across to the group EBITDA on the right. Just following from left to right, you see the impact of Black Butte and the work done at Black Butte through the feasibility, permitting work and to get that record of decision and environmental impact statement and that excellent achievement during the year of getting that ROD issued. The Tshukudu work as well, particularly around feasibility studies and progressing that towards a -- and some drilling and progressing that project towards what is shaping up as being the Motheo -- both with Motheo production hub into exploration. We have been aggressive, as we know, in the exploration space particularly around DeGrussa and Doolgunna in terms of extending mine life. We also have our projects on the East Coast and some other international exploration interests that have impacted our group EBITDA by just over $54 million. And the impairment, which we've touched on already, in terms of the oxide and regional resources, $23.6 million. That arrives at that group EBITDA of $315 million, as I said at the start, beginning at a DeGrussa EBITDA of some $414 million for the year. Year-on-year, we've seen an increase in group EBITDA of 7% firstly driven by that increased copper and gold production for an impact on returns of revenue on royalties and gains of $61.8 million in the positive. Those additional operating costs in terms of running Monty, so those tonnes from Monty being more expensive really to mine, of course, we get the production benefit from the high-grade Monty on the revenue side as well. So that's the -- predominantly the impact of that Monty on cost there. Exploration and evaluation, administrative, fairly close to last year. And that impairment pulled it down another $23.6 million. So -- but really, across the 2 sides on the left, ignoring the impairment for a minute, you're around that $45 million, $46 million number in terms of increased group EBITDA impact from DeGrussa. Turning to the balance sheet. We've increased our cash holding to just shy of $300 million. And we've also increased -- in combination with that, the increase in total current assets has been some $81.6 million. And also some pleasing increase in value of some of the investments made into some entities under the Sandfire Ventures has been -- that's been a pleasing basis for the year. We're also set up with a debt-free balance sheet, excluding, as we said, the adoption of the lease liability standard. And that positions us very well for that financing flexibility as we look towards project development decisions across Tshukudu and also into Black Butte. The increase in provisions, there are some on that side. And we expect that to move around possibly a little over next period of time. We have seen increase in provision as a result of the impairment of the oxide stockpile. Effectively, it impacts the stated requirements for rehabilitation. But as we move into the tailings retreat program, we also potentially expect if that all lines up as we're hoping, we'll possibly see that adjust down with the result of some positive decisions in terms of tailings retreat. So that may move around at the moment, probably at the higher end of what it will be over the next 12 months potentially, as I say, with that down -- potential downward adjustment. Looking into dividends. We are very pleased today to announce a further final dividend and a strong dividend payment of $0.14 per share, again, fully franked and wonderful to make that return once again to shareholders. It's based on around 35% of underlying NPAT. We've adjusted back out for the impacts of that impairment to make that distinction. And then the record date, 15 September, and the payment date at the back end of September. That follows the interim dividend of $0.05 per share, which is also fully franked for our full year payout of some $0.19 per share. So as we say, as Karl said, very pleased to be delivering further returns to shareholders. And also, and it will -- into the future, need to make sure that we balance with our strategic imperative of optimized capital structure, as we look to forward dividend payments, project investment decisions, how we choose to fund that between our existing cash holding and potential debt structures into those projects and also some of those projects and other investment decisions. So we will -- as we have done in the past, we will signal about how we're looking towards our capital structure in terms of future dividend payments. But as I said, very pleased today to be announcing a $0.14 per share final dividend for the 2020 financial year. Looking at cash generation and investments. The cash -- in terms of cash flow here, the cash operating margin, around 60% of DeGrussa, obviously sets us up well in terms of capital to be able to achieve some of our strategic imperatives. Over half of that we've signaled in terms of going towards growth. That's the exploration and evaluation work that includes the feasibility studies that we are doing and moving to that next stage of growth in our pipeline, also into some of the investments that we've made and also into increasing those cash and other assets to set us up well for future project funding. Also, the return to stakeholders and shareholders and tax, so tax payments during the year, $60 million, and the combination during the year of the 2 dividend payments that were made, $37 million. So close to $100 million in terms of the shareholder and tax distributions. And then the mine, of course, also requires some -- although now reducing impacts in terms of what it requires in terms of mine properties. And that's really mine development, predominantly moving toward -- around Monty, which was finishing off. And then as we guided at the quarterly, we still have some mine development work to do at DeGrussa. And also a much reduced impact of plant and equipment, really most of our capital works at DeGrussa are now complete subject to any of the results of the studies particularly around the gold project. And we will release some more detail on that as we head into the back end of this calendar year.

Thank you, Matt. And just in summary and outlook, once again, a record performance across all the key headline metrics in terms of revenues, EBITDAs, cash flows resulting from those great copper and gold tonnes produced throughout the year. We do have ourselves set up from a financial and balance sheet strength and cash flows to have that flexibility as we move forward into the next phase of strategic implementation through Sandfire obviously in the next 6 months for us through the optimization and results of the T3 Copper-Silver Project study coming to fruition and those -- that information being made available over the next period of time. Scoping that larger production hub profile is something that's critical, I think, to the expansionary capability of that belt in Botswana. And clearly, having almost 12,000 square kilometers and about 300 linear kilometers of the Kalahari Copper Belt is significant in terms of our aspirations long term to be a significant producer of copper in that country. And we think there's great expansionary capacity beyond even what we are talking about now. Clearly, completing key elements of the Black Butte Copper Project's strategic pathway forward have been well received during the course of the year. And we look forward to updating you further during the second half or the first half of this financial year about further strategic developments with respect to that project. So that will be over the next few months. And we continue, as we say, a very active exploration program with an investment proposed some $45 million over this financial year to 30 June next year in terms of a number of key strategic fronts for us both Botswana and clearly in Western Australia at the Greater Doolgunna region where we enjoy making further discovery. So it's going to be a very busy year for us or going to the back end of this calendar year or the first half of this financial year with T3/A4, Black Butte, information and results with respect to the gold project work at Doolgunna. And looking forward to updating on that, and obviously, at any point in time, exploration results from that very intensive program. We believe we're in a very strong position to execute on the strategy that we have got in front of us, and we look forward to doing that. So thanks very much for listening in today. Very pleased with the results that we've put forward for the year in a financial sense. And we now open the floor to questions.

[Operator Instructions] Our first question is from Sophie Spartalis of Bank of America.

Just 2 questions from me. Just firstly, on capital management and dividend, obviously a very strong dividend this year. Can you just maybe talk through in terms of the future funding requirements, is debt available? Can you talk about the access to various debt structures that you would consider? And then would you also consider a strategic partner for any of those offshore projects, i.e., a partial sell-down in the form of a JV arrangement? Can you just talk through sort of your thinking there?

Thanks, Sophie. I think where we are, and we are going through that process at the moment, the balance sheet, as we can see, is in good shape. So that's the first thing. We do want to put ourselves in the best possible position for having success but, in addition to that, having great flexibility. With respect to that flexibility in a sense and what we also know will be the cash generation coming out of DeGrussa/Monty over the next 2-and-a-bit years and putting to one side what may come from the gold operations, we do see order of magnitude of free cash flow after tax of in the order of $600 million or thereabouts coming out of the DeGrussa/Monty complex over the next 2-and-a-bit years. That, together with the current cash in treasury, would almost add up to $900 million or thereabouts, give or take. And essentially, when you look at Sandfire's other liquid investments, which are very liquid and very tradable, potentially, we are looking at a combination of close on nearly $1 billion of available sources of fund. So if I was to think about a source and application of funds, it's order of magnitude in that sort of realm. So that's what's coming in. And then what needs to go out in some organized fashion will be the capital expenditure obviously with respect to Botswana. Those numbers will be -- come through in that optimized feasibility study. So we might have that -- get increased bump at the moment. We also have probably some -- strategically aligned to timing phase, the development of the U.S. But I would think from where we see things today, not that we are concerned with ultimately the legal challenge in the U.S. but that it will have a timing impact. So we can very clearly see in our minds a very active development in Botswana commencing, touch wood, early next year. And then that's working very hard over a 2- year period to get that into a cash flow production situation and then at some stage to be navigated, though, the U.S. being developed. So I think that we're going to see some sequences. So in terms of pressure on cash disbursements, it will be modeled out over a period of time. And then obviously, we have other outflows in terms of exploration endeavors and other opportunities we've got. We will -- we do believe debt is well and truly available certainly from the work we have been doing with international banks, predominantly European and U.K.-based banks, with regard to Botswana. And we will strike a balance to be determined between debt exposure to sensibly, not overgear but sensibly, provide a debt equity funding balance for the next development in Botswana. But at this stage, those numbers are all to be rolled out. I think it's over the next 6 months. But it would be fair to say that we believe that the Botswana project well and truly will carry a level of debt. And the balance will be funded by the very strong cash flow resources and access to equity capital markets that would probably be available for a logical, clear, positive development project. So we also can think about equity market if required. But I think we're in a good balance. With respect to thinking about strategic partners and relationships, we are always open-minded to look at the opportunity to create strategic relationships and partnerships. I would think that's possibly something for us at the moment, having the significant strategic footprint that we have in Botswana of nearly some 12,000 square kilometers and also the adjoining 6,000 square kilometers in Namibia that we have totaling some 18,000 square kilometers of the Kalahari Copper Belt or about 3/4 of it, we would be a little bit reluctant to -- at this stage to think strategically, we need some other strategic partner in that project. We've worked very hard to take essentially control of 100% of that global opportunity in terms of an underexplored mineral belt. So I don't think we would be wanting to dilute ourselves in terms of that opportunity. But at some time, if we are looking at other opportunities, depending what that might be in terms of growth opportunity now, a sustainable production profile quest, which Matt talks about, potential acquisition of operating assets or near-term other development assets at some sensible time frame, yes, we would definitely also look at opportunities where, maybe aligned with other people strategically, would make sense. So long story. But at the end of the day, I think where we are with respect to things within our business at the moment, it's probably a debt/equity mix that we'll be looking at, what's inside of our business today. And if we're looking at things beyond what we know about today, potentially strategic relationships would evolve. And we feel very happy about the history of this business and the relationships that we have developed with a multitude of different people in the base metals space and particularly our customers in terms of being able to develop strategic relationships there. I hope that helps a little bit. But I think, Sophie, we'll get more particular information over the next 6 months that will really help you model all those things up. I just don't have it with me at the moment.

Okay. No, that's great, Karl. I guess just on those strategic partnerships, just in terms of those offshore assets, not just the funding requirements, but do you see that there is any advantage of having more of a local partner with those assets? Or do you feel as though that you guys can close any gaps that are -- that may be there?

I think we feel very strongly, even under the umbrella of the Sandfire business and culture that we have got in corporate, that in each of the jurisdictions that we may be operating, we will ensure that we have a huge local content and a significant local content -- a great local content and that they will also have very strong ties to their own method of business operating and culture within those environments. And clearly, the culture and operations in Botswana may be different from things in Western Australia, which in turn may be different from things in Montana. But fundamentally, the principles and values of the businesses and of the people that operate in those jurisdictions are not any different at all. But we need to be cognizant and respectful of some idiosyncrasies of respective jurisdictions. But at this stage, we're seeing a great collaboration working together. And we have not seen at this point in time any speed humps or issues with being in Botswana or being in the U.S.A. And even though we're an Australian business fundamentally, we're spawned out of an Australian business. So we really want to be ingrained in the local environment. So a strategic partner in each of those at this stage, there is an opportunity, as we know, in Botswana for the government to buy back in for a percentage if they so choose, but I think -- at a refunding of cost. But I think more so, we don't see at this point in time that there's any other need for any other strategic partner at this point in time. That may evolve depending on the scale and the presence and what we are doing. Clearly, if we think about Botswana at the moment, we can feel over that strike and what we are seeing in terms of the results that there is a multi-decade opportunity to develop multiple hubs along that Kalahari Copper Belt. We must remember our neighbor to the Northeast is developing a 4-stage program, starting off with the 100 million tonne Zone 5 deposit, 2% copper and 15 grams per tonne silver being developed. So we'd see this belt as being a really great potential belt. But I think it'll take a bit of time. We need to get things done ourselves first, and then it may open up to being more strategic in relationships in due course. But we're open to any sensible collaborative opportunities that do make sense, but it's not something that we can see as required at this point in time.

Okay. That's interesting, Karl. And just one final question from me. Obviously, you would have seen in the news Pebble Creek in Alaska has been said to be -- or the Trump administration is said to be blocking that mine given it's in a salmon spawning region in Alaska. Just given that Black Butte already has its record of decision and the EIS approvals, is there any risk to an overruling on that if there's any further social unrest? Obviously, you're already in a legal challenge over there.

Look, I think there's been an extensive amount of work with respect to completing the EIS, which we've obviously done. And it's been completed by the regulator, the Department of Environmental Quality in Montana. And the legal challenge to the record of decision is something against the regulator themselves as the primary defendant, and we become the codefendants or we are joined in that. So I think as we look through that, and we have seen -- certainly, what we have seen with regard to -- I think people can sometimes try and draw connections. And then I look at where are the differences, well, the differences also for us is that it's not anything -- it's not in that spawning sort of environment that -- where they're talking about at Pebble. To that extent, it's not the scale of Pebble. And I think what we also have got in terms of the extensive work that's being done, a very clear pathway scientifically in terms of the impact of the operations and the mitigating factors with regard to that. We've -- also have commenced early stage 1 works on the ground. And we have not seen any action against those early-stage works in terms of an injunction against the works that we have undertaken. So there is a legal challenge that will be dealt with in due course. But it hasn't seemed to arouse a degree of urgency that's been challenged with a form of injunction. So I suppose to some extent, we can't call what's going to happen there, but we feel confident that the government have done their work thoroughly. We feel confident that we have done our work thoroughly. There is no scientific reason and no other reason why this project should not be granted in our view, certainly in the government's view. And that's why we have got that permit. So we feel confident that we will work through the elements of the challenge and that ultimately it will prevail with respect to that record of decision. But we have to go in and have the discussion. And so the process for that is that legal challenge.

Our next question is from Lyndon Fagan of JPMorgan.

Look, I guess I think there's still a lot of uncertainty on how to value these projects and quite amazed at the lack of information in the presentation today. I'm just wondering if you could maybe help us a bit with some key milestones like timing for first production. What would be your best guess both at Black Butte, notwithstanding the uncertainties there, but also over in Botswana and also when you think construction will start to allow us to try and model some of the CapEx? As the studies that are out there are quite stale at the moment, in some cases, years old. So it'd just be great to get a bit more information there.

Thanks, Lyndon. And yes, you will get more information when we've got that information at our disposal. As I said earlier on, we are working towards -- we have had -- we have acquired MOD recently. We have absorbed that into our business. We have obviously been through a period of COVID-19 and still dealing with that, as you can imagine. That has had an impact in terms of being able to do certain things. And certainly, with regard to development projects and getting people to complete works and feasibility studies and infill drilling and various other things, it has consequences. So you, like me, we would like more information sooner rather than later. We must be reasonably patient because we will be doing a diligent and a thorough job. And that information will come to bear and be disclosed publicly when we've got it. And we can't disclose it before we've got it. So there's just no point in the world in us actually disclosing information that we're actually uncertain of or unclear of. It's not going to help me, and it's not going to help you. So in the next few months -- and we are in the end of August, so we've got 4 months to the end of the year. There is expectation from us, as we've said, to be releasing the feasibility study for the Botswana project, the T3/A4 hub. And then you will have that. And then it will talk about time frames, it will talk about capital expenditure estimates, and it will talk about those things. With respect to the Black Butte project that is completing once we've gone through this permitting, completing its feasibility study, we will also then have that information in the market. And we'll have a strategic pathway as we sit through to development of that project or how that project could come to fruition. So I think whilst we're all sitting here going, wham-bam, thank you very much, we'd love all the information at the fingertips at a click, it just doesn't happen like that. We need to do the work, and we are doing work. The work is nearly complete. And when it is complete, the information will be disclosed publicly, and you'll have, I think, the information that you need. So there's no point in me speculating today on what CapEx is and what time frames are until the work has been done by the professionals. And then you will be able to complete the analytical work that you would like to do. But what I would say, while you're sitting there, Lyndon, and trying to work it out, is we have $300 million in the bank. We have close to $600 million in free cash coming after tax from DeGrussa/Monty in the next 2 years. We've got nearly $100 million in liquid investments. So that's about $1 billion. And that's why due to some of the parts valuation, which I know there are multiple ways of trying to value our business, that basically says the market is valuing Botswana at 0, which we paid $160 million or $170 million for, and is looking better and better and better. It's valuing Black Butte or Montana at 0, which at the moment, that company for -- whether you believe it or not, has a market capitalization of over CAD 200 million, of which we own 85%. As I said, we have $100 million in liquids. It also values DeGrussa exploration or Doolgunna exploration at 0, New South Wales exploration at 0 and anything else at 0. So I think the answer, from my perspective, it's worth more than where it is trading. But the results will all come out. And then you will have the information that you need to be able to do sort of further analytical work at the right time when we have got it. I hope that helped.

No, so you can't put even a rough range on at least that mine...

I don't think it's appropriate at this point in time given that we're about to release information over the next few months. So if you want to speculate, that's fine, but we don't like to do that.

Our next question is from David Coates of Bell Potter Securities.

Just a quick one from me. You've touched on the timing of projects. Just also coming back to DeGrussa, can you just -- you've talked about the Old Highway project and gold production at DeGrussa. Can you just give a -- can you just talk about a high level sort of concept of what that might look like as copper production winds down?

It's Jason here. So in terms of the Old Highway project, so what we're looking at, at the moment is potentially looking at installing a conventional CIL circuit at DeGrussa. And that would look at processing the existing tailings material from both DeGrussa and Monty. So we know that, that has gold contained in that, that is not recovered as part of the rotation process that we currently use to recover copper and gold. The Old Highway's deposit itself is about 20 kilometers away from DeGrussa Mine site. It's a near-surface oxide gold deposit. And we're currently doing a resource drill-out on that at the moment. So we would envisage a blend of those 2 ore sources going through a conventional CIL plant and producing gold ore.

Great. Any -- when might we see some updates on that like first half, second half?

Yes. We expect to actually publish our maiden mineral resource estimate by the end of this calendar year. And then we'll get in immediately into scoping studies on that as well.

Our next question is from Daniel Morgan of UBS.

Just wondering, I know these things, it's -- can be pretty hard to predict. But maybe you could share with us your advice or your thinking that you've received on the legal processes at Black Butte. Can you just explain a little bit more what the legal process you are, I guess, a party to? When is that exhausted? Or when might that be exhausted? And just how that translates to thinking on the project?

So it's Jason here again. If we look at the record of decision and the legal challenge on that, so we're -- currently at the moment, we have submitted our response to the courts at the moment, and we expect a hearing date sometime early in the new year. In terms of that process, we believe it could range from about 12 months to 2 years. So as you understand and as you made the comment, it is very hard to put hard time lines on those. But as we progress through this process, we'll gain a better insight in terms of the overall risk that it poses. But I will say at this point in time that the legal advice that we have certainly supports the very rigorous work that was undertaken as part of the permitting process and the process followed by the Montana state government and in particular the DEQ has been extremely rigorous and very, very thorough. And the advice is that it's expected to hold up in a court process.

And then is that subject to an appeal to a higher court body potentially?

Yes. That 2-year time line, the time lines I mentioned would take into account a potential appeal.

Right. Okay. And with respect to, I mean, Lyndon's question earlier on the feasibility studies, which are -- on that project, which is now, you would say, dated. I imagine on what you've applied to do -- because of the rigorous environmental process that you've had undertaken in Montana, I imagine that the scope of the project of what you're trying to do is broadly similar in nature to what you're trying to -- what you outlined in the earlier feasibility study. And it just may be that costs and CapEx items may have moved up and down and around. Is that a fair way to look at it? Or could the scope change materially?

No, the scope won't change materially. If you look at it, a lot of the permitting process was basically supported by the previous work completed in the PEA. So yes, the comments you made there is certainly very fair.

Yes. Okay. And so it would sound that in terms of a permitting legal environmental framework, Botswana is far more the advanced project even though more work has been done to date, it would seem, on the Black Butte?

That's correct. And I will say at the moment, Karl touched on it earlier, there's been no application for a temporary injunction on any works at Black Butte. So that as we stand today, there's nothing stopping us from developing a mine. We could undertake and we are currently undertaking surface construction works.

Our next question is from Nick Herbert of Crédit Suisse.

Just one clarification question for me. Just on that Black Butte legal challenge, do you need an outcome there before you will release your updated feasibility study? Or is that independent so we can still expect that this year regardless of how the legal challenge progresses?

Nick, it's Jason here again. That is independent, and we will release the results of the feasibility study. And we expect to do that in the calendar year.

Our next question is from Angus Kizil of Citi.

Just have a quick one on tax. So it looks like you paid a 35% effective tax rate in FY '20. Should we expect a similar rate in '21 and '22?

Yes. I guess it probably will be similar. We have slightly overpaid, so you'll see there is an income tax receivable number in the balance sheet as well. But there is that unwinding of the DTL as well. So we've got -- we've taken some upfront tax deductions in terms of mine development. And they -- that unwinds over time. So yes, our cash tax is probably closer to 35% than it is to 30%.

Our next question is from Rahul Anand of Morgan Stanley.

I might start with some of your introductory comments for the presentation today. I just wanted to get a bit more detail or understanding of how you view these inorganic growth opportunities that you mentioned at the start and how you balance them against Black Butte and T3, please. That's the first one.

Sure. Thank you. Look, I think as a business at the moment, we have some objectives to maintain and increase our current production profile beyond the current 70-odd thousand tonnes of copper production that we have. So as we have assessed our business and our business capabilities and the resources that we have got, we believe that we have the ability over the next 3 to 5 years to bring Botswana into production and also Black Butte into production. So when we add those things together and depending on the expansion and nature of T3, there's a quantity that potentially lends yourself to being able to replace the production profile that we have presently got. So we see that they -- those 2 opportunities are opportunities that we have capabilities of doing in our stride at the moment as long as we are disciplined and diligent and well organized and well planned to then execute those. In terms of our aspirational profile as a business, we are seeking to achieve a greater production profile than simply replacing what we have got. And to that extent, we continue to look for inorganic opportunities that might meet our investment criteria as a business and also the stage of where our business is at, at the moment. So we talk about, in our strategic imperative #2, developing a sustainable and building a sustainable production profile. So one is delivering on the things we have got, and the other key element is to look at other inorganic opportunities. That's in our criteria. Now clearly, if we were looking at an operating asset, it would have its operating criteria. It would have its revenues, its margins or whatever they may be. And it's possible that you might see, if you took what we've got and put it together with what someone else has got, it might make a better-looking, more robust, larger entity. And that could be attractive. So it's trying to consider where we are at the moment and the pathway we're going through. That development of projects internally, that takes time, it takes capital, but also the possibility of scaling up by either combining with another business or acquiring another business or another entity, that has a current operating mine or mines for that matter. So that is an element. And within looking at that element of our business, we have got a range of investment criteria that we have identified is meaningful and logical and acceptable to us. And hopefully, if something like that came across, came to bear, that -- something like that could work for us. In addition to that, as the second limb of building a sustainable production profile, we are explorers, we are developers, and we are operators. So we are -- also have an open mind to other potential longer-term development opportunities that we don't need today because we are busy with some things, but we are still receptive to other development opportunities. So -- and they might be sitting somewhere in a development cycle that could -- they could be enhanced. They could be improved. They could benefit from working together under the umbrella or within or strategically collaborating with Sandfire, with our resources, with our technical capabilities, both geological -- from an engineering perspective, metallurgical perspective, from a sales and marketing perspective, where we've built all these very, very strong relationships with a multitude of different people throughout the entire business profile of base metals. We're working together with some other people, we might be able to accelerate their value capture. And so they're the things we're looking at. So it's obviously a -- difficult to -- there are no specific things I can mention. But we are looking -- outwardly looking for those opportunities at the moment.

Okay. Perfect. And I guess a quick one then on perhaps the funding side of things. And if we look at Monty to start with, I mean you've -- obviously, you're producing there. You've got T3 currently, you're doing work there, and probably that comes to construction first off. You did mention debt. Would you be able to outline perhaps how you view debt, what you think are appropriate metrics to look at debt for you in terms of perhaps a target net debt or a net debt to EBITDA? Or how do you look at that proposition?

I think if we were to just look at going into Botswana at the moment in that project, we have some objectives that we would like to achieve as a business. Because we are still looking at other developments as in Black Butte and other potential opportunities, we would like to look at the potential debt profile on any project relative to that project for us at the moment. So rather than a business as an entirety is to look at the project, for example, T3/A4 hub. And once we have those feasibility numbers that come to bear and we have robust numbers with respect to resources and A4 is then determine what that project can sensibly bear without putting it under extraordinary pressure but also keeping the "project" on us from a business perspective. So it's not a lazy project that doesn't have to work to pay its way. So I think we would look for an appropriate debt/equity balance on the project itself. And then we, as the corporate mother ship in a sense, look at funding the equity component essentially in advance of the debt. So I don't know what the numbers are. But if you sort of went along and you said, the project's got a certain profile, it might allow for a certain percentage of debt relative to that project and using the project as security for that debt rather than just tying up the balance sheet. And I think as a model for us at the moment, that would be something that we would pursue rather than just saying corporately, we would just have this debt to net equity or debt to EBITDA, and that's what we run. I think we'd like to look at a project-by-project at this point in time. Now if we turn out in 5 years' time to have 7 mines around the world and they're all operating and we want to have a global corporate debt profile, that might be a different story. But it's not where we are today.

Understood. Okay. And then a final question for me. Just in the introductory comments, again, there was a mention of obviously cost next year being a bit higher, and slightly different conditions at Monty were mentioned. So what are these slightly different conditions? Could you elaborate, please?

Yes. Matt here. We've guided that costs are back into probably more life of mine-type range, USD 90 to 95 per pound based on our guidance band of copper and gold and the FX rate we stated. Really, it's around the number of stopes and the reduced stope sizes. As that Monty ore comes up, the DeGrussa scale also reduces. So that Monty ore body is complex, as we understand it. And that will drive, as I say, higher number of stopes and smaller sizes. That inherently brings a higher mining cost per tonne and then, of course, the trucking across to DeGrussa. So then we've guided in that range. Hopefully, we'll end up more towards the bottom end, but USD 90 to USD 95 per pound for 2021 at this stage.

Okay. So the updated reserve, everything is going in accordance with that in terms of reconciliation, et cetera?

Yes. We're well lined up with that, with the reserve that we issued in, I think, April or May of this year.

Our next question is from Peter O'Connor of Shaw and Partners.

Three questions, Matt, first for you. D&A rate FY '21, did I miss that? Or is it -- have you guided somewhere that rate?

Yes, probably similar type numbers there to 2020, yes, around that $200 million range.

Okay. Great. Jason, 2 questions. Firstly, on Black Butte, thanks for your answer about the court proceedings and your ability to develop. So I take it as unless there's an injunction, you can push developing. And how does that injunction look? And how far would you push developing? Because it's kind of like sticking your finger in the face of some of these people. So how do you push that 2-year time frame? How far are you going?

From our point of view, so at this stage, we're committed to do some early works, which is surface construction works on it. So that includes construction of the portal pad and also some runoff ponds as well to make sure environmentally, we're in compliance with all construction. Now both of those items are on a critical path for construction. So it does give us a head start. That's the only work that we have committed to until we've seen the full feasibility study and basically looking at the results and making a decision about where to go from there. If a temporary injunction was applied for, it would be considered by courts as a high priority. But it would have the potential to stop us doing some of those works as we currently stand today. I will note, though, however, that there has been no application to date for a temporary injunction on those surface works.

Okay. Back to Australia, thinking about Old Highway and tailings at the DeGrussa complex, building a CIL plant scale, scope, what are you thinking in terms of throughputs and outputs from that?

Yes. So it's very early days particularly given that we haven't got a resource estimate on Old Highway at this point in time. So we've really only got half of the equation with the known gold rate in the TSF. So really too early to, if you like, comment on likely production rates. In terms of throughput, the studies that we've got so far, it would certainly support a processing rate of around about where we sit at the moment with DeGrussa, so around that 1.5 million tonnes per annum.

Okay. And Karl, I've got 3. Firstly, and I've asked this question before, that production gap, which is looming somewhere around post-FY '23, it kind of feels like with Black Butte legal issues and even with Botswana going ahead quickly, that gap is potentially deeper and longer. Thoughts on that?

Well, I think, Peter, where we are at the moment, we would see that once we -- if we, let's say, get to the stage where we press the button on Botswana and basically a staged project with expansion coming hot on the heels of the initial development, if you can think of it rolling out, now we're keen to move Botswana forward obviously. And if we can make decisions on that reasonably soon, then we've got a bit of a sense of that development profile and when it could be in production. And so those dates will come through. But essentially, it's probably an order of magnitude a 2-year period from decision to mine to production or thereabouts. So -- and we also see that production profile expanding not long after commencement, whether it's a year later or thereabouts type of thing, it might be 12 or 18 months to a pretty chunky level. So hopefully, when we've talked about it before being a 3 going to 5 or a 3 and a bit going to 5 and a bit and head grades of around 1%, and you sort of can see 30 might become 50 and those things. And then if it's going for a decade, well, that's a nice sort of operation. So we can only go as fast and as hard as we can. And clearly, things like the realities of the world in COVID has had an impact and probably slowed a lot of things down in terms of development from a number of people. We've been caught up in that a little bit. I don't think it's made a massive impact. We're still hoping to make decisions during this calendar year. And I would have said that if it wasn't -- if it was pre-COVID, maybe we would have made the decision by now. But we hope still to make it inside the year. It'll be what it'll be, Peter. We can't invent -- we're not magicians here, and we can't do that. So we are optimistic, I would say, about there being a gold processing opportunity and for it to continue to at least complete. We do appreciate and recognize the -- navigating our way through the American and Montana system. It is the nature of the beast there. And that is why also we have got this great strong interest in looking at other operating opportunities that might be in the marketplace today or not actually in the marketplace but operating today, that, that would look good in our business essentially or potentially within our business. So we have to deal with what we've got with. And it'll be what it'll be. So if DeGrussa comes off before other things really ramp up, it is what it is. And I can't -- I've got no magic words for that. However, what I will say, talked about earlier on, the inorganic part of our business is something that we're very active in.

I'm going to cover that next. But I just want to just round this one out. So if I gave you 5 years of numbers, it's kind of like 70,000 tonnes this year, 70,000 next year, I know 15-ish the year after. And then it depends on what happens after that on how quickly Botswana gets FID and built?

Yes. I think within a -- that's right. I think we are in a -- certainly within a 5-year cycle that we would see where we will be heading back towards and in excess of 70,000 tonnes of copper production. We -- aspirations, we think we can be at a higher number. Exactly where it sits within that curve from today inside the next 5 years, but certainly, we think inside the next 5 years with what we can see and feel on feasibility studies for Botswana and scoping studies but also just the geological opportunity in that region, together with the U.S. -- and bear in mind, we've also mentioned earlier on that we are embarking upon some exploration work in the U.S., which we have never done since we invested in that project. And what we didn't want to have is a bigger project that we could never permit. So what we focused our attention on strategically in the U.S. was permitting the project. There may be further opportunity there. But also, I think certainly, once again, just exploring around DeGrussa, we still are very optimistic about the opportunity for further mineral resources there. The timing might be the thing that's a bit of a trick for us. But we're still optimistic that there are other DeGrussa, other Monty opportunities in that region as well as potentially the gold opportunity as well especially at the gold prices we're seeing.

Adriatic and inorganic, do they fit the same thing?

Adriatic, we've got an investment in Adriatic. We're about -- we own about 16% of Adriatic. Unfortunately, we've had to resort to taking a legal action against the company because they are not complying as far as we're concerned with the terms of our strategic collaborative arrangement and our agreements. So we are taking legal action in the WA Supreme Court to rectify the dilution we have suffered under the antidilution clause, which they're clearly defending. So that's disappointing from our perspective, very disappointing, and we wish that was not the case. But that's the choice that their CEO and their Board has made, which is very disappointing. But we do sit there, and we think there is obviously a good opportunity. Clearly, they're moving from -- as a business, they're moving from a scoping study to a pre-feasibility and then, in due course, I presume, a definitive feasibility study. And we're hopeful that those things will come through positively. And as the largest shareholder, we will continue to create value over and above the value that we've presently got from our investment. So I think we will be sitting and watching and really sitting with our investment as the largest shareholder. And it is an investment. I would just leave it at that for the time being, and we'd like to ensure they honor their part of the bargain at the moment.

And last for me, financing offshore streaming, is that included as an option?

I spoke to someone yesterday, and I said I know about streaming as a concept, but -- and this person was an expert in streaming. And they said to me, "Don't ever do it." So look, I don't know. What I would say about streaming is that it has not been something that as a financial person and having looked at all the various financial mechanisms that there might be available, I don't think that would actually necessarily sit high in our list of funding options or alternatives. But in saying that, if I -- when you look at the mix and the matrix of things, I would never say no to anything. My understanding of it, depending on what the terms and conditions are of the funding -- obviously, if you're giving away a potential upside of ore bodies or exploration opportunities for a period of time, if those terms are very open-ended, that might not be acceptable. However, if there are streams that relate to defined frameworks, they might be totally acceptable. So I think the devil is in the detail with any funding, whether it be debt, equity, convertible notes, God knows, whatever it could be streamed. And that's the key thing. So the concept of stream itself is probably okay as long as it's either restricted or you know what your detailed terms and conditions are, I think. So it's certainly not at the top of our list, but I would say that we're open and we're flexible. But we would be microscopic in terms of understanding detail.

Mr. Simich, there are no further questions at this time. Would you like to make some closing comments?

Basically, I would like to thank everyone for their attendance today and listening into our financial results, our year-end performance. Been a fantastic year for the business on all fronts, and we look forward to executing our strategic plan that we talked about on 1 July this year in our announcement. And we look forward to updating you at the next quarter. Thanks very much for your time.

Thank you for joining us. You may now disconnect your lines.