Sandfire Resources Limited (SFR) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Sandfire Resources Limited Investor and Analyst Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Karl Simich, MD and CEO. Please go ahead.

Hello, everyone, and thank you for joining us today at such short notice on what is clearly a momentous and historic day for Sandfire, for our employees, contractors and for our shareholders, and for all of our other key stakeholders, partners and associates who followed up on our journey so far. Today, Sandfire is announcing the transformational USD 1.865 billion acquisition of the MATSA Mining Complex in Spain. This is without -- the most important announcement for Sandfire that we have made since our discovery of the DeGrussa deposit over a decade ago. So I suspect it may be one of the most significant transactions to be announced in the mid-tier mining sector in Australia in base metals in recent times. This is without question a company-defining transaction, which immediately elevates Sandfire to the global league of copper producers, leverages our existing skill sets and puts us on an exceptional growth trajectory for decades to come. It's my pleasure to lead you through the presentation to discuss this exciting acquisition. After running you through some highlights of the transaction and the MATSA asset and its impact on Sandfire, I will ask some of our key members in the leadership group to walk you through some other key aspects through this slide pack: Jason Grace, our Chief Operating Officer; and Matt Fitzgerald, our CFO; as well as David Wilson, Head of Business Development and Technical Services. In the interest of clarity for everyone listing, we will refer to the slide numbers as we progress through the slide deck. Despite the length of the slide pack, our aim is to keep the presentation to around 30 to 40 minutes, and then we'll take some questions from the poll. Refer you to Page 9. The key point we'd like to highlight is that MATSA is a cornerstone asset, which we described as Sandfire's new era in the growth as DeGrussa, which has been an exceptional asset for us, is moving towards the end of its life at the back end of next year. The key point I'd like to make is that we have been very disciplined in our approach over the last few years as we've been looking to find something capable of rivaling that exceptional DeGrussa asset, both in quality and scale. And with respect to the MATSA asset, it has been probably in excess of 4 years that we had been trying to prize this asset from its current owners. This has been a long time in the making. We've looked at a lot of assets and something that could add scale and mine life to our portfolio. We have Botswana, which we acquired in 2019. And we believe we have an exceptional long-term growth opportunity, but we had been looking. And our #1 strategic imperative in more recent times in the last 12 to 18 months has been to find a Tier 1 producing asset that could fill this production profile. So we're very excited about the MATSA opportunity. This is a cornerstone asset of scale and quality in the base metal space. And they don't come around very often. So we're delighted to have been successful in securing a project that well and truly ticks all the boxes. It's the first opportunity that we've looked at in a number of years that has got the full and unanimous support from the Board, the executive leadership team and the entire structure within the Sandfire company. So in summary, it is a long-life copper asset comprising of a world-class polymetallic mine with expected production in the order of 120,000 tonnes of copper equivalent in the financial year of '22. We expect a 12-year mine life or longer, and we see multiple decades as being an opportunity for this asset. This asset immediately transforms Sandfire into one of the largest ASX copper producers and financial '22 production guidance on an annualized basis of some 190,000 tonnes of copper per annum. So we're well positioned against our global peers as it fits excellently like a glove within our portfolio, joining our assets across EMEA, our Europe, Middle East and European divisions, and aligns Sandfire's capability and skill set, particularly as this is also a VMS deposit like DeGrussa, where we have significant skills and operational excellence we've developed over a number of years. It's also an asset that we consider to be low-risk, plug-and-play acquisition. And it comes with an extraordinarily highly skilled in-country management team and specialists in each department on that organization. And we look forward to fully integrating their business into our business in this expanding global organization that we have. The acquisition is fully funded through a combination of cash, debt and equity, underpinned by a strong balance sheet and a major equity rating that we have announced today, which is fully underwritten, by 2 leading international global investment banks, Macquarie and Citi and funded by you, the shareholders, substantial natural resource investors as well as Tier 1 banks from Société Générale, Natixis, Citi and Macquarie. This acquisition allows us to rapidly accelerate to what was our strategic vision of becoming 150,000 to 200,000 kilotonnes of copper per annum in the global copper producer states and certainly encompassing one of the leading future-facing metals of production, and certainly, it will be a very sought after exposure to these metals on the ASX. I'd like to turn to Page 10 now and to summarize the details of this transaction and our acquisition of 100% of the MATSA Complex for the price, as I've said, of $1.865 billion. The acquisition will be funded by the equity raising, as announced now, of $1.25 billion and $297 million from cash reserves. In addition, our debt funding will be provided by a $650 million project facility with a 5-year amortizing schedule provided for, as I've said, Citi, Macquarie, Natixis and SocGen. And importantly, it leverages off the wonderful facilities that have been provided to MATSA from their long-term standing bankers, Natixis and Société Générale. $1.25 billion equity placement -- place -- equity rights issue and placement is fully underwritten. And the entitlement offer will be on a 1-for-1 basis to our shareholders, so everyone can maintain their position. We expect this transaction to close around the March quarter, but we will be working as hard as we can to accelerate that as quickly as possible. And with some luck, we may be fortunate enough to close this transaction by December of this year. And we can't wait to get the keys. The key approval matter will be that of the Spanish government to the transaction, which we see no reasons why that won't be expeditiously forthcoming. I'd like now to turn to Slide 11, which summarizes why we like MATSA so much and how well it fits into our strategic growth plan in terms of scale and life and our focus on these future-facing commodities. Our desire to secure quality growth assets, which is exceptional organic upside, its location in a Tier 1 jurisdiction. And finally, its ability to generate genuine value for our shareholders. Later on this presentation, we'll come back to why MATSA hits each of these criteria so well. Turning to Page 12. We provided a short summary of MATSA. It's located near the town of Seville in the region of Andalucia, the southwest of Spain. Interestingly, it sat effectively in private hands for several years. It has been in production for in excess of 10 years since it has restarted by the global trading house, Trafigura, in 2009. There has been no expense spared, and some USD 1.7 billion has been expended over the last period of time to put in place what is without question state-of-the-art infrastructure technology and through a central processing facility that has been expanded over the years from 1.7 million tonnes up to the current nameplate capacity of 4.7 million tonnes. The mining operations consist of 3 underground -- producing underground mines. And Magdalena, a very significant discovery, was made in 2013 and commenced production only taking 2 years from discovery to permitting and was in production in 2015. Copper, zinc and lead concentrate is produced on-site and trucked to the port of Huelva, some 90 kilometers from the site where the product is blended and sold at the Impala port facility essentially owned by Trafigura. And these are world-class blending facilities and an excellent establishment. We have been looking at this opportunity and this process for the last 4.5 months. We have had in excess of 100 people working diligently on every aspect of this opportunity. And we have studied it with granular detail. And we're very comfortable with the decision that we've made and the price that we have paid for this wonderful asset. And recently, we had a site trip to the project with myself and 11 other people in our team, spent 3 days on site, unfitted with total transparency and access to the operators on the ground to comfortably get a good look at those operations and the extensive nature of them. And we were very comfortable and very excited about what we saw there. It was a successful trip. It resonated back to us that this is truly better than what we had thought and it's truly a world-class facility. It has exceptional track record and operating success, and we look to build on that. Guidance for next year, somewhere in the financial '22, is in the order of 100,000 to 120,000 tonnes of copper equivalent. And importantly, there's about a 65% to 70% copper prevalence through this project. So it very much is a copper-focused project at an operating cost of between $0.40 and $0.50 a pound after byproduct credits. I'd like to now quickly step through Slide 13 and 14 in terms of positioning. MATSA at an asset level is truly world-class foundation across all metrics and sits in the top tier in terms of quality, scale. But we believe there is still significant growth potential, particularly with respect to the current resource size and cost positioning. There is somewhere in the order of 122 million tonnes of resources at a copper equivalent grade of 3.1% copper. And for Sandfire, it makes us one of the largest copper-focused producers with a target to achieve a sustainable production profile of 150,000 to 200,000 tonnes of copper equivalent. We're also very excited, and you would have seen from our announcement yesterday, with the expansion of that 5.2 million tonne Motheo copper project in Botswana that is being developed in the Kalahari Copper Belt. This will initially see a production profile of 30,000 tonnes of copper per annum by quarter 4, 2023, and quickly ramping up to around 60,000 tonnes of copper, including the A4 deposit in addition to the T3 deposit. Recently, in that announcement, we demonstrated that the NPV of that project has gone up by 116% to approximately USD 700 million before tax. We also have some exceptional exploration portfolio that should not be underestimated. And in addition to that, we also have our at Black Butte Copper Project in the USA, which was permitted some 12 months ago, and that will be part of our development pipeline going forward. I'd like to turn to Slide 15. And certainly, we can see here that Sandfire is truly a global diversified copper company and a high-quality portfolio of assets spanning the globe in the Americas, Europe, Middle East and Africa, or EMEA, and Asia Pacific regions. And we believe there's an exceptional outlook from these projects. Before asking to step through -- quickly through Section 2 and covering the rationale of this transaction, I'll quickly point you to Slide 17, which talks about the timetable regarding the equity raising and completion of the acquisition. In terms of rationale, Slide 18, the key takeaways for this transaction is that MATSA is a -- certainly will be a cornerstone asset. It will really be the backbone of this organization as we move into the next chapter of our story and will enable us to add other opportunities of this very strong foundation. You see this mine, as I said, is having a 12-year mine life and keeping us at a production profile between that 150,000 to 200,000 tonnes of copper. And then we can expand and build on that as we go forward. We think we've got numerous expansion opportunities and mine life extension opportunities as well at both at MATSA and the Kalahari Copper Belt in Botswana, where we are the largest tenement holder in that country as well as further opportunities in the USA in Montana. We believe the enhanced scale and market positioning that this transaction gives us, plus a significantly extended mine life of this asset, will give us greater capacity to unlock all of these opportunities and develop these wonderful assets. So in summary, we have a really diversified asset base, copper, gold, zinc, lead and silver production, but also a very diversified jurisdictional base. Turning to Slide 20. Just really touching on the importance of copper and the future-facing metals, and I'm not going to dwell on this slide. But certainly, as we have been seeing over the last period of time, the critical nature of this metal, and importantly, the fact that in a global sense, demand is increasing. It may double over the next 10 to 20 years, if you believe some of market analysts, but also the challenge with declining grades globally. And the resulting factor is the pressure, the upward pressure that will be on the copper price. So we want to be positioned in that area to benefit from that. And we are focused on committing to minerals and a future facing for a decarbonized future. MATSA provides a wonderful increased leverage to long-term production and certainly a focus on the new green technology and decarbonization. Moving on to Slide 20. The exceptional nature of this asset, MATSA sits in the first quartile of cost productions of C1 level after byproduct credits, and as a consequence, has extraordinarily strong cash flow generating ability. And in financial '21, the project generated $387 million in EBITDA. And assessing the value at which we are buying this asset, it implies a ratio of around 4.8x acquisition price to the EBITDA ratio. And by way of some comparison, the average multiples in the market listed companies globally is in the range of 6 to 8x EBITDA multiples in terms of market value of these companies. So if you look at it in that way, this asset has been acquired at a 30% to 40% discount to what the market is generally playing -- paying in the globe for an asset of this nature and cash flow generating ability. Clearly, we know that this asset and the value it creates is obviously something that the copper price has a great impact on. But because it's such a low-cost C1 producer, it has significant cash flow generating ability. I'd just like to highlight that the first half of this presentation, our financial first half '21, operations were severely impacted due to COVID, a 5-day operation suspension for a technical issue. But also, there were substantial fires in the region of Andalucia in the first half of this year. So it significantly impacted production. But if you look at the second half of financial '21, where we didn't see these disruptions, we saw the very strong production profile. I'd also just like to mention that as part of the debt facilities that we are taking on that we will be hedging to dovetail in with that around 30% to 40% of the copper production from MATSA for the years of the debt facility, so over a sculpted period of time over 5 years. Slide 21. We really are looking at the extraordinary potential and the upside that we believe MATSA has. And this is what we're really excited about. And this is one of the significant reasons why being involved in this asset we just think has exceptional potential. And recently, our newly appointed Head of Global Exploration, Richard Homes, who joins us from previously being Head of Global Exploration of OZ Minerals. One of the first jobs he was tasked with was having a look at the exploration potential. His conclusions as well as his team here at Sandfire is that overwhelmingly positive in terms of the opportunity here. The Iberian Pyrite Belt has been a prolific globally mineral province and historically has produced in excess of 2 billion tonnes of massive sulfide ore. So it's extraordinarily substantial. But what we've also seen is that probably hasn't had significant modern-day exploration in a very systematic manner. The last major discovery was Magdalena by MATSA in 2013. We think there is significant potential through the belt. Another point that I'd like to highlight, it is historically, MATSA has had a wonderful record of converting or a substantial high ratio of converting resources to reserves, and we'll look to continue with that. Do note that MATSA has, at the moment, 122 million tonnes of mining resources, and it will be our work to continue to get an excellent conversion ratio to reserve for mining. And if you just were to look at the resources themselves and depending on that resource to reserve conversion ratio, you can easily see how it could be in excess of 20 years of operating production through this mine of facility without further exploration success. And we'll, of course, be working with a very experienced team at MATSA by complementing and from their outstanding work they've done by complementing with our team and combining our forces to really supercharge and accelerate exploration. Interesting to note that through the due diligence process and the -- probably the focus of pre or the current owners is that very much more so focused on concentrate and production in the near term is that Sandfire will really look at, as I said, turbocharging that exploration. And I think one of the intriguing things that we noticed is, in the last 15 years, only $100 million had been spent on exploration, which is about $6 million to $7 million a year. And that includes resource extension or drilling. So not really a lot of money in the context by spend, somewhere in the order of $50 million globally last year [ ourself ]. So in that sense, I think there's been a significant underspending. MATSA holds about 2,500 square kilometers through Spain and Portugal through this Pyrite Belt. And recently, MATSA has also discovered Poderosa and Concepión. So 2 other assets that we'll be following up at great pace. So in short, we think the Pyrite Belt has been well and truly under-explored, and we're very, very excited to get into it. Turning to jurisdiction. And we are focused on world-class jurisdictions where we believe we can operate. And Andalucia in Spain is certainly a Tier 1 mining operating jurisdiction. It is very much like Western Australia in Australia has a number of mining -- mines that are operating in that region. And it's the workforce in that region and the community are extraordinarily supportive of mining. Most of the MATSA workforce, 80% or more, actually live in the local region, in the local towns or cities. And there is, in addition to that, some expat, but really a significant local employment. I just want to quickly touch on what we look like post this transaction and this transformational nature for Sandfire. Clearly, the critical aspect is value. And as I said before, we believe we have been able to secure this asset at a fair and appropriate value. And when you look at the acquisition multiple of somewhere in the order of 4.8% compared to averages Australia and globally, we do see a significant opportunity for that re-rating. Just moving on to what we believe are operational improvements that we can consider on Slide 25. And we think there are a number of aspects that will benefit from a strong mining pedigree and discipline to looking at enhancing this wonderful operation. We think together the combination of the highly capable MATSA team and our Sandfire team working together and collaborating will be really positive. We had marked out a 5-year operational optimization plan. Initially, we'll be looking at ensuring not only does the mill consistently operate 4.7 million tonnes per annum, which has really importantly, needs to be done from having consistent feed from underground, but then looking at minor tweaks to get that to a consistent production profile of 5 million tonnes. And after that, we'll be looking at expanding potentially production above this 100,000 to 120,000 tonnes per annum by continuing that regional exploration push. And we also believe there's an opportunity for a second operating facility to be reestablished at the Sotiel mine, which is about 38 kilometers from the main MATSA complex. And just to note that the Sotiel site or might formally had a processing facility there. So we see there is a great opportunity to be able to reestablish that once further work is done. And generally speaking, generally, exploration through the Pyrite Belt is going to be a high priority. I'd now like to hand over to Matt Fitzgerald, our Chief Financial Officer, to give you some further detail on the transaction financing.

Thank you, Karl. Given Karl has already touched on a lot of this, I'm going to step over the acquisition funding structure on Slide 27, the equity raising details on Slide 28 and also the timetable that you can see on Slide 29 and ask you to turn straight to the overview of the acquisition debt funding package on Slide 30. As part of the funding package, we have secured a new USD 650 million syndicated loan from Citi Macquarie and the existing lenders at MATSA, Natixis and SocGen. Natixis and SocGen are existing lenders to MATSA, as I said, in the current USD 350 million facility. And part of this transaction is that we were able to upsize that facility. We've taken a prudent approach to our funding profile and plan to implement a hedging profile of 30% to 40% of revenue and cash flow over the next 3 years to align with our debt repayment profile. We also plan to significantly deleverage the balance sheet in the first 12 months, which is underpinned by our near-term hedging strategy. So on day 1, our gearing ratio of 23% will be looked to decrease gearing over the next 12 to 18 months. We've also arranged a AUD 200 million facility with an Australian bank, ANZ. This is a short-term corporate facility, and it will be repaid within the remaining DeGrussa mine life to the end of the September quarter of 2022. Sandfire will have a strong balance sheet post acquisition with pro forma net debt at completion of AUD 713 million, representing a pro forma gearing level of 23% and $384 million of cash and liquidity. Importantly, we'll have sufficient funding headroom to maintain our aggressive development timetable at the Motheo mine in Botswana from a combination of existing cash, and as we've previously announced, the planned project financing that is well advanced. Finally, it's important to note the strong forecast cash flows from MATSA are projected to further deleverage our balance sheet. I'll now hand over to our Chief Operating Officer, Jason Grace, to walk you through Section 4 of the presentation slide deck.

Thanks, Matt. And diving into a bit more detail on the operations on Slide 33. MATSA is a modern mining complex with 3 underground mines, Aguas Teñidas, Magdalena and Sotiel. These mines are strongly supported by a central processing facility. Producing the majority of all, the 2 cornerstone mines are Aguas Teñidas, which was only put into first production in 2015. The processing plant is located almost directly above the Aguas Teñidas mine and is approximately 8 kilometers from Magdalena. Ore is transported from Magdalena to the processing plant by a dedicated haul road. The central processing plant is in excellent condition, as you can see from the photo, and frankly, doesn't do it justice. This facility is being built to a first-class standard and is very well placed to support reliable concentrate production for the future. On the operational performance, as shown on Slide 34, the production profile has remained relatively stable over the past few years. Total ore mined has averaged approximately 4.2 million tonnes per annum, producing approximately 540,000 tonnes of contained copper and with little variation in grades or recoveries. From the FY '22 forecast data, you can see production building to approximately 4.5 million tonnes per annum as part of the planned ramp-up ultimately to a 4.7 million tonne per annum rate in the longer term. It is worth noting that ore processing at a rate of 4.7 million tonne per annum has already been achieved for periods of time historically. So it's very good support from MATSA to realize and maintain this uplift. Noticeably, there has also been a drop in the net C1 costs from FY '20 through to FY '21. This has been driven by an increase in the pricing of byproduct credits and partially offset by an increase in the total gross cost over the same period. The increase in gross cost was attributable to higher mining costs and particularly associated with the requirement for additional ground support and rehabilitation during this time. Turning to Slide 35. MATSA is a genuine Tier 1 first cost quartile operation with FY '22 C1 cost guidance of USD 0.40 to USD 0.50 per pound. This is well below current spot prices of circa USD 4.13 per pound. Gross cash costs have been relatively flat since FY '19 on a unit basis, with the decrease in net costs driven by an increase in byproduct credits. Byproducts represent approximately 30% of revenue from MATSA. And Sandfire has identified several opportunities for productivity improvements and cost reductions, which have not been factored into these forecasts. Turning now to Slide 36, which summarizes the infrastructure on site. As stated earlier, MATSA has the world-class infrastructure required to support its mining operations, with over USD 1.7 billion of capital invested since 2005. The 4.7 million tonne per annum central processing facility consists of 2 processing streams, treating both cupriferous and also polymetallic ores. MATSA's power supply is sourced from the Spanish National Grid, with a solar project being explored to reduce emissions and reliance on the overall grid power. Approximately 44% of tailings produced on-site are sent to the state-of-the-art tailings management facility, with the balance utilized for paste backfill at the mines. MATSA has a focused culture on innovation with state-of-the-art technology implemented, including teleremote handling, plant automation and real-time communications with management. MATSA, on Slide 37, and Sandfire have entered into and extended the existing concentrate and life-of-mine offtake arrangements with Trafigura for 100% of production from MATSA with its 4 concentrates. This provides us with a long-term marketing partner, which builds on Sandfire's already well-established relationship with Trafigura during the time of almost 10 years of DeGrussa's mine production and potentially, of course, through our Motheo development plants are in construction and a further plant into Botswana. Trafigura is one of the world's leading independent commodity trading and logistics houses and will facilitate global distribution and access the state-of-the-art port at Huelva blending as well as the extensive marketing network. The main markets for MATSA offtake have historically been into Europe and China, as you can see on the right-hand side of the slide. As outlined on Slide 38, MATSA has significant in-country operating expertise, which Sandfire intends to retain. During our site visit, we were very impressed by the quality of people that we came across and the skill levels of the team that we do have on-site, and we certainly look forward to working together collectively as we move forward with MATSA. This includes an executive team, which collectively has around 50 years of experience working at MATSA, including supporting the expansion of the processing facility and discovery and development of Magdalena. Audra Walsh, the MATSA CEO, is a qualified mining engineer with over 25 years' experience in the industry, including senior executive positions with Barrick and Newmont. The management team is mostly comprised by -- of Spanish locals with a select number of Australian, Canadian and American expats who bring specialized technical expertise. I'll now hand back to Karl to summarize and give you some key takeaways.

Thanks, Jason. I think it's important to note on Slide 41, as we think about people and the organizational structure, really at the heart of our business and core to us is actually the capabilities and the collaboration of the people within the team. And I think that we've been able to assemble an extraordinary depth of talent that is -- has been achieving remarkable things. And that's certainly what we're seeing in this transformation of a business, and we're really excited about that. We will operate in a very much decentralized, in-country management specialists in each of those key areas. And we know that what is absolutely critical is that on the ground, where the operations or developments are, we need to have the right women and men there, they need to be well supported and have all the tools at their disposal. So we're not going to be trying to run the mines from sitting in our head office. They will have all the capabilities, and we will sit here and collaborate and strategically overlay to ensure that we can optimize those results and they have the tools at their disposal. We've had, as I said, a depth of talent pool, and we continue to enhance that. But we really have some strategically really key people in addition to the people you might know that are in Sandfire. But as I mentioned, recently adding 2 people, like the executive committee, we have got people like Rob Scargill in the USA; Julian Hanna that has joined us when we acquired MOD Resources. Ian Kerr that's been with us for a long time is responsible for building the Botswana project. Audra Walsh, who Jason has just mentioned, at the helm at MATSA has done a remarkable job through her stewardship. But including Richard Holmes, as I've said, Head of Global Exploration has joined us from OZ Minerals and has done a wonderful job there, and we hope he replicates that here with us. David Wilson, Head of Business Development and Technical Services, has done a remarkable job since he's been in the seat and testament to where we are today. Ben Crowley who has come from Macquarie to join us, wonderful exploration geologist with 10 years of analytical work at Macquarie and very much across it. And also Dale Burgess, who's joined us from Barrick, is our Country Manager already repositioned in Botswana well in advance or when basically we need to be there. So we're prepared, and we are planning for the future with much bigger. So really, when we put it all together in terms of this talent pool and experience and the integration of the MATSA team into the Sandfire team, I think it's a wonderful backdrop to achieve the results that we're looking to achieve. So touching on Slide 42. It's important to note from an ESG perspective that the values -- and we're very much a values-driven organization. And the values of Sandfire, MATSA are aligned, and importantly, to ensure that we safeguard our people and ensure that we have sustainable and low-impact operations. An important element for us, and I think it drives all many aspects of the business and the operational excellence, and we want to ensure that our health and safety is one of the key elements in our decision to acquire MATSA. We think together, we will strengthen MATSA's focus on safety and continue to improve it. So in summary, I just want to touch on the business and what we look like at Slide 43. And really we have a portfolio of an asset base of copper, gold, zinc, lead and silver production and really a bit of a diversification, and it reduces the risk profile to any one individual commodity. But particularly, it's important to note that we do have a strong focus, and we'll continue to have a strong focus on what we believe is a critical metal for the future of the human race in copper and its unique properties. Touching again on Slide 44. We believe the MATSA acquisition is accretive to Sandfire across a number of metrics, including reserves, resources, production and copper equivalent grade. The acquisition will be value-accretive expected financial '23 once we get a full year of MATSA into production and a time when Motheo moves into production in Botswana. And as I said before, our aspirations are to be operating at the level of 150,000 to 200,000 tonnes of copper inside 5 years, which we'll be achieving a lot earlier. And from that base, we're looking at growing, and we have some ideas for that in the future. And just to close up, I refer you to Slide 46. And really, just to highlight those key points. This is a cornerstone asset. This will be the framework and the backbone upon which we can leverage off. It has long life, high grade, high margins, and it is a Tier 1 asset. The transformational opportunity for Sandfire, and I refer you to our reset strategy presentations commencing from 1 July last year, where we said the most important thing that we wanted to do and our strategic imperative #2 was to buy a high-quality, sustainable long-term operating asset, and MATSA is bang on strategy. So we're delighted to be able to achieve that element of our strategy and something of such scale at this point in time. Wonderful job done by the current owners, has really made it extraordinary plug-and-play opportunity, starting with our exceptional quality of people, exceptional infrastructure and excellent condition. And really, we can -- we are hitting the ground running flat out, but we do believe they can do so much more. It does complement and enhances what we've already got, and we'll continue to accelerate at a greater pace, I have no doubt, from where we are at the moment. And we will move into being a global producer of this future-facing metals as we look forward into the new era of metal demand. I'd like to thank you all for listening today, and we're going to open the floor to questions now and look forward to receiving those. Thanks for listening.

[Operator Instructions] Your first question comes from David Radclyffe with Global Mining Research.

I've got a couple of questions. So maybe firstly at a high level, in beating, obviously, competition, maybe you could provide some more color in what you see is the real key opportunity, if you could distill it down here, to add value through the transaction. It sounds like lifting capacity might be one of these. And I'm just wondering how much work the previous owners had looked at it?

Right. Thanks, David. It's Jason Grace here. Firstly, having visited the site, and we've done, as Karl said, a mountain of work on the due diligence there. And we're very impressed with the quality of the asset. It's a well-capitalized site, as we mentioned multiple times in the presentation there. And so we see a number of opportunities, and they range from as far out as exploration, adopting, if you like, a concerted and very proactive exploration push into the region there. We believe there's significant upside in terms of future discoveries and not just in and around Aguas Teñidas and Magdalena, also on a regional basis. And we bring very strong capability in terms of adopting modern exploration techniques and using the latest technologies that we think will be highly successful there. If we start to step back towards the resources and reserves, you can see from the numbers there, there is real opportunity to convert more of the existing resources into reserves and start to bring them into the mine plan. And particularly when we've got high-quality ore sources, that all 3 mines are high quality, but if we look at Magdalena in particular, it's higher grade and higher value than the others. So particularly proving up more reserves in that ore body is highly likely to add value and increase our production rate in terms of metal produced if we can start to bring some of this into the mine plan earlier. If we step down to the operations, yes, there's significant upside there, particularly around utilizing the strong investment that the previous owners have made and making sure that what is a well-resourced and state-of-the-art facility is -- brings an operator -- more of an operator's mindset to it to try and get most -- the most that we can out of those assets and really start to focus there on really lifting that performance and getting the most out of everything.

Okay, okay.

I think, David, just as a quick comment I'd make is that if you think about the owners in Trafigura and Mubadala, and particularly Trafigura, their objective every day is to get as much concentrate as they can effectively. But they probably don't -- at any point in time, we don't need to continue to expand the resource base at any point in time or reserves as long as they've got a sufficient view at on resources or reserves to satisfy that requirement that they've got for concentrate. So -- and it's not -- and they're not in the marketplace. So they don't need to try and do anything with respect to that. So I think it brings a different approach to it when you bring it into a publicly-listed mining company that is in that market. And I think that the focus will be different, and probably be valued slightly differently. And as Jason said, there's a number of areas. There's a long list of opportunities that we think just aligning, specialist mining people working with excellent people on the ground to open it up really, give an opportunity to open up a lot more in so many -- on so many fronts.

Thanks, Karl. I mean, maybe as a follow-on to that then would be, in conjunction with DD, could you maybe talk to the capital the project might require in the midterm? So beyond that sort of 1-year guidance you provided, so be it debottlenecking development versus resource conversion that you've talked about or even ESG projects, up and beyond what looks like sort of pretty typical sustaining capital of sort of $100 million to $120 million a year?

Yes, David, it's Jason again. If you look at it, sustaining capital is fairly -- should be fairly flat and consistent as we move forward in the mine plan. We mentioned several times that there's been a big capital investment on this site over the years, and it really is in very good condition. There are some opportunities to invest capital to get more out of the assets. So I might hand over to David Wilson here in a minute to talk about potential plant upgrades. But really looking forward, there's probably a bit of extra sustaining capital that will need to go into the Tailings dam sort of going out beyond or around 2025 and beyond to make sure that there's ongoing capacity. But other than that, probably the only thing that might be looked at is potential ore handling system at Magdalena to increase the production rates there. And Dave will touch on some of the opportunities in the processing plant.

Yes. Thanks. As Jason and Karl have said, obviously, first priority is to sustainably get 4.7 million tonnes in front of the mill, and we're confident the mill can process that. But the MATSA team have done some conceptual studies to debottleneck that to 5 million tonnes per annum. So that's something we see very closely when we complete the transaction and take ownership. That would have fairly modest capital based on the work that MATSA have done. It's largely small incremental bottlenecking within the current footprint of the process plant, with also some increase in the incoming power supply, which MATSA have already started the process to get that permanent and put in place. To give you an idea of order of magnitude for that, the project was between EUR 18 million to EUR 19 million on a matter of estimate at a conceptual level. Clearly, we need to do some more work to firm that up, but it's a high priority to foresee that.

Okay. And look, if I could sneak just one more in. How does the transaction change the priorities of the business? And we think to the potential transition to gold at DeGrussa and then in time with permitting Black Butte. Are these still core to the business? Or has the business with this transaction stepped pass those smaller opportunities?

I think, David, just at a strategic level, the business is continuing to lift. So if you look at it across the key drivers, Western Australia has been extraordinary, and we continue to explore it. But with Botswana, our expansion in Botswana has been announced and the acquisition here today. At some -- as we move forward in the U.S., that is something that we believe its own unique asset, but certainly something that we'll be moving into. So we're lifting the business higher. But I think -- I would think that, let's say, the potential gold transition opportunity in West Australia is also an important strategic situation because if we're able to continue to operate those facilities, it's much better than not, whilst we continue to explore to look for repeats of DeGrussa or Monty. And you can just imagine the impact that would have in any event and particularly if those operations will continue to operate. So I think it doesn't detract from our focus there, it gives us more capacity to do things. But importantly, at the end of the day, we are looking at things that will move the dial and as we continue to grow, those things change. But obviously, strategically to keep DeGrussa running, if it makes sense to run it, would be a great strategy to give us the best optionality if we are to be successful in making a repeat discovery there.

And really just building on Karl's comments, we're well advanced on the feasibility study there for Old Highway and we're going to continue with that work to try and get the most out of all of our assets.

Your next question comes from Mitch Ryan with Sandfire (sic) [ Jefferies ].

Congratulations on a transformational deal, and thank you for the comprehensive information you've provided. It may be there, but I couldn't say it. Can you just talk us through any break fees that may be associated with the deal?

Thanks, Mitch. So you'll notice in the documents, we have paid a $100 million deposit on signing of the share purchase agreement this morning. Within 10 business days, we'll pay a further USD 300 million towards the acquisition of this asset. And then as we progress towards, as Karl noted, really with the quality of our underwriting -- of the equity underwriting, with the quality of the project debt facility that we've got in place and then with also of course, the significant cash holding that we've built up over the last couple of years and very much for the benefit of looking towards business development opportunities of things up to say this scale, we are very well positioned to complete the transaction, and then we'll do that over the next couple of months. Those deposits are very important towards enabling Sandfire to secure this opportunity. And as I said, we look forward to completing it.

Okay. My next question refers to the production profile you've outlined on Slide 18 of the deck. Just wondering -- obviously, it's concerned. I just wanted to understand the assumptions that have gone into that? Because I guess the production profile appears to step back gradually or incrementally at matter over the coming years. Could you provide any clarity to the assumptions that have gone behind there? And how conservative they may or may not be?

Yes. So thanks for that, Mitch. If you look at it from a processing capacity point of view, we've assumed that we start to ramp up to about an average of 4.5 million tonne per annum rate in FY '22. And then moving in FY '23, up to 4.7 million tonne per annum rate and sustaining that out basically for the life of mine. So where you see the step down in basically copper equivalent production there, it typically just relates to grade or different components there of copper, zinc contribution or byproduct contributions as well. So I touched on it before there as well. The resource to reserve conversion that we currently see on the resources and reserves for the combined mines, there's real opportunity there to promote further resources and particularly in areas like Magdalena, which is higher grade and higher value, higher NSR ore and also in Aguas Teñidas. And we will have a strong focus on that in the short term because our ability to promote that, bring it into the mine plan, has the ability to really address some of that trend, if you are over extending the mine life there and potentially improve it over time as well.

Okay. My next question is, I note that there was 2 fatalities at the site in 2020. In your due diligence, do you think that, that -- does that speak to a safety culture that needs reforming? Or were they extremely unfortunate incidents that were beyond the control of management at the time?

Yes, Mitch. Jason here again. That was a key part of our due diligence, and we did have extensive discussions with the existing management group. And it was a real focus as we made our observations as we went around the mine site. I can absolutely assure you that management at MATSA and order particularly are 100% committed to preventing these unfortunate incidents from occurring again. But there's no real trend in terms of the type of incident. So there's a combination of underground and surface relating to some of them. But they do point towards overall some issues in terms of culture of compliance, particularly at frontline level. So the existing team over there has done a lot of work, particularly on safety leadership, compliance. Their safety systems are very good. So our view is that they've got a very strong foundation there to really prevent these from going forward. And we certainly back what they're doing at the moment.

One last question, if I may, and then I'll yield the line. Can you just talk to the land use? From the satellite picture in the presentation, it looks to be green, potentially forestry. Is it -- can you just talk to what the -- I guess, the landholding is? And how permitting works in Spain?

Yes. So if you look at it, those satellite images, there are, if you like, government-owned forestry in the region there. So finally enough, a lot of the forestry is actually eucalypts. So it does look like -- a bit like Australia when you're driving into the mine. Close into the mine there as well, you'll see some very green trees planted in a patent. That's actually part of the very important community initiative that MATSA has been working on for a while. And it's an orange orchard, which is benefits for training and development and also, like economic development for the local community. David, I don't know if you want to add anything there?

Yes. Thanks, Jason. Look, there's also agriculture in the region, as you would expect. In terms of your question on permitting, look, I can perhaps give you a high-level overview, but in some ways, similar to Australia. The mining tenure overlaps sometimes the land users, and there's a land access process that you go through with the owner of the [Technical Difficulty] to get access. So our team have looked at that and particularly when we look at it in the context of what Karl and Jason said before about exploration potential, just how that will work through. And yes, it will be a new environment for us, but we have a really good local team there that understand that process well. And they're getting access to those exploration targets we mentioned earlier now. So we see no reason why won't be able to continue that.

Congratulations on a great deal.

Your next question comes from [indiscernible] with Royal Bank of Canada.

Two questions from me. The first one, maybe if you can talk around the timing of the deal? I mean, that has achieved copper price is high so to copper asset valuation. And it seems like a competitive bidding process was held, which included companies which already operate in Spain. So more around the time of the deal? Why cash deal now? And was this in part driven by Sandfire's share price? And I'll turn around for a second question.

Certainly -- thanks for the question. Certainly -- look, I think to some extent, we don't know precisely why the current owners want to sell or not sell. But Trafigura, at the end of the day and initially having acquired the asset from a small Canadian company many years ago that was potentially struggling in the region, and they were the offtake partner, saw an opportunity to concentrate by actually buying the mine and then bought another one and put the 2 together, subsequently made a third discovery. When you have 3 mines, 15 years later, it's $1.7 billion worth of expenditure and still continuing to have prolific growth opportunities. Somewhere along the way, they invited Mubadala to become, I believe, an investor for 50%. I believe Mubadala paid somewhere in the order of nearly $700 million -- high $600 million for their 50%. And I've been there for about 5 years. At the end of the day, I think Trafigura predominantly wants to deal with product and offtake and not necessarily be an owner of mining assets, not necessarily. That's not really their priority as such. I know their own mines. And I do know Trafigura with some of the order of over $200 billion worth of revenue in the last 12 months, a profit of somewhere in the order of USD 7 billion to USD 8 billion and 2/3 of their business comes from oil, 1/3 from mining and metals. And you put it sort of in context and you settle there in half of this project, which they've had for a long time, it is a neat little project, but I'm not sure how it fits in their profile. So I have no doubt they looked at the commodity market and thought it was an interesting opportunity to look at a divestment and to receive that capital amount rather than getting it over a long, long period of time. So I think -- I'm not exactly sure what caused them to do it. And by the way, as I said earlier on, we've been trying to buy half of this asset from one of the owners for about 4 years. So we've tried every angle that we could think of to do that. So -- and in terms of pricing, I think it's a -- if you could look at the numbers, we've looked at the numbers, backwards and forwards, we've looked at the potential and we wanted to make sure we're competitive. And so effectively, we had a bottom-up net present value approach to a large extent and then a component for some upside. But really, to a large extent, not a huge amount sitting in there. And we're using long-term consensus pricing, a bit of spot and then long-term consensus in that valuation opportunity. So yes, look, it's an interesting one to think of. It was competitive. But I think the important thing for Sandfire, we were agile. We were proactive. We could meet an extraordinarily short timetable, which was -- made us very, very competitive. I think we paid a reasonable price. And in fact, my view would be in a market context, we're paying a very, very good price compared to what the multiples in the market are for such an asset, such quality tonnes or quality margins, it should seek good premiums. So on balance, but I think it suits the sellers clearly and it suits the buyer. So it's a wonderful situation and in fact, that it's been private for such a long time, the market as general investors are not than aware of the asset. But I think the mining industry is extraordinarily aware of the asset and it's what it's done and its capabilities. So maybe it's just one of the unique situations that we've got also, and I do believe there was a very, very, very strong first round of bidding from multiple people, but the vendors were very quick to move to a second stage and create -- and they wanted -- they had a fast time frame they wanted to achieve. And we accommodated that. We accommodated -- we were very interested, and we did a lot of work in a short period of time and we understood what we're buying.

Sure. I just wanted to touch on that. You mentioned that Trafigura sold 50% for something around $700 million, was high $600 million. I think you said 2015 sort of that would -- the regulatory value for, let's say, 100% would be $1.4-odd billion, and you guys have been looking at it for 4 years. So what's changed between 2015 for a read-through value of $1.4 billion and now pay $1.86 billion?

I think we've got fundamentally a different commodity price that I think will be sustainable at a very different level for many decades to come. I think what has also changed is the ability for the first time anyone has been able to look under the hood and to really get an assessment. And I think let's look at the context of the owners and what was important to them. They wanted to make sure predominantly, and the passive owner is Mubadala. The interested offtake owner is Trafigura, and they're interested in getting a tonne of concentrate every single day. So they're probably not that intrigued or interested in growing those resources at any great rate and reserves. So I think that's it. I think the other thing which Jason will touch on, what has also happened is some obviously significant resource enhancement in that period of time. Jason?

Absolutely. Karl's 100% correct. We've touched on it a number of times in this presentation. So firstly, we've got a plant that's been upgraded in that time and now capable of doing 4.7 million tonne per annum rate. We had Magdalena, which was just starting production at that point in time. Now it's a fully established mine producing at around about a 2 million tonne per annum rate. And the Sotiel acquisition was just happening at 2015. And now once again, a fully functioning mine that's making a positive contribution, not just to the production profile, but also to the margin of the asset. So materially, I think it's a much better and well set up and resource asset than it was back in 2015.

And just on my second question, just a quick one. Just wanted to understand if you could talk through how you expect to keep some of that experience in-house post the acquisition? It seems to be a key area of concern that you touched on?

Yes. Look, there's a number of factors there. We've been decided -- we've had discussions with a lot of the key management people over there. We touched on it before. Most of them are locals. So they live in the area. Their kids go to school in the area. And they enjoy living in Andalusia in Southern Spain. The other one, MATSA is seen as the premium mine in that whole region. People want to work there. And I'm sure that people would want to continue working there with Sandfire as the owner. We've absolutely no doubt about that. But it has very, very low turnover. It's a very, very different labor environment in Spain compared to Australia. So over there, that workforce has about 1.5% turnover. And it just does reflect that people live there. They work there. They're locals and it's their home, and it's a good place to work. So we've seen nothing changing. And in fact, we hope to improve it over time and make an even better place to work and make sure that we continue to do great things at that site.

And I would say that, in fact, it's the opposite of what you've mentioned. It's the go-to destination for a province that one of the major earnings of the region is MATSA mining complex. It is the #1 place to go and work if you want to be in that industry. And there's a history of mining in that region that spans back 2,500 years, by the way. So it's always been the mining district. So I think -- yes. So that's it?

Your next question comes from Sam Berridge with Perennial.

Just on those guidance, are the tonnes going to be broken out for FY '22? Or do we have to sort of back out the zinc tonnage, et cetera, from the percentages on Page 43?

Yes. Sam, at this stage, we are just issuing copper equivalent guidance for the year. Those proportions are probably the best thing that you'll use in terms of information that we have at hand or able to provide to the market. As we move through the process and go through the transition and do become the owner, we'll be in a much better position there to firm that up as we go forward.

Really, I mean, the majority of tonnes that come out of this operation are zinc. And for what reason can you not disclose what it is? I mean, you obviously know where it is. Why can't that number be disclosed for calendar FY '22?

Yes. As you can imagine, we're not in control of the asset at the moment. So we have rights under the purchase agreement to observe and also to potentially put people over there, but we can't control the asset in this interim period. So that's why we're keeping guidance, if you like, of that type of information at this level?

Maybe just to add to that. The -- all coming -- the production out of the mine, yes, is majority polymetallic ore, but it is the polymetallic ore it is important to point out also makes a copper concentrate as well as zinc concentrate. So the metal production is actually you'll see on one of the other slides the mines that come to handy is about 63% to 65% copper metal, and the remaining being zinc, et cetera. So it is predominantly copper.

Well, we'll hang on. The reserves of this deposit, as I'm looking at the moment on a consolidated basis is 3.6% zinc, 1.8% copper, Page 65. Is it the majority of zinc assets or copper assets? I'm talking times, not revenue.

Jason?

Basically, we were talking on a value basis.

Okay. Clear on that one. Next, just on the recovery for FY '21. 75% copper, 71% zinc, 27% lead -- I mean, versus other polymetallic mines. I mean, they look slightly on the low side. I'm just curious, is there a reason for that? And is there sort of any work being done on how those can be improved?

Yes, thanks. I'll take that one. David here. You're correct. The recovery perhaps compared to some of the peers are perhaps on the lower end. It's important to note that really reflects the -- obviously, the geology and the mineralogy of the ore that we're trading. So it is a massive power ore body. It's fairly fine-grained nitrates on the mineral side. We have had a detailed look for a due diligence at the metallurgical performance of the plant. We engaged Mineralis to help us with that, external consultant. And really, our assessment is that, again, it's perhaps one of the good things of picking up this asset in this part of the world. What we have here is the concentrate of that is set up and has a track record of trading that ore type. Our assessment during due diligence is that there might be some slight improvements in recovery, but largely the MATSA team are running it pretty close to as good as you can expect, there's potentially some upside, as I said, but we're not making that at this stage. It's something we'll look at more when we take ownership.

Got it. No worries. And just lastly from me. On the power, I'm just curious what's the power generation source for the asset at present and likely to be? I'm just sort of asking that in the context of gas prices in Europe, it appears to be spiking and probably going to stay elevated for a while?

The power source matter is predominantly -- is off the grid. So it's exposed to the mix of electricity generation in Spain, which is a mixture of -- there's gas, there's renewables and also nuclear and coal. It's mix of all energy types. So there is some exposure there as you've spoken about. We have had a bit of a look at the power costs and tried to make sure we put conservative estimates in our forward view so that we're not reflecting some of the risks that you talk about. There's also -- the MATSA team has been developing a number of projects to have some solar power on site that would help offset some of the exposure to the group. So we'll continue to pursue those.

Your next question comes from Lyndon Fagan with JPMorgan.

Yes, just got some modeling questions. Similar to Sam, struggling a bit with the copper equivalent references. Are you able to give us a bit of a sense of the grade profile for the various commodities over the next 6 years in that Slide 18?

Currently, you're talking about the feed grade in that period?

Yes. I'm just trying to model the grades for MATSA. And just wondering how they change over the coming years?

Yes, we can perhaps take that on note -- we'll get some information plus back through then in terms of what more information to give to break that up. And I guess just in front of me, I don't quite have that. But obviously, a good place to start is the breakdown in grades in the reserve statements. But we'll get some more information when it is maintenance available.

Yes. Lyndon, if you refer to Page 65, a good place to start there would be the ore reserve grades and there's a breakdown of copper, zinc, lead and silver.

Yes. I've seen the reserves. So does it stay at reserve grade pretty much through the mine life?

Like all our mine plans, you're prioritizing higher value ore at the start of the plan, and that probably also points to some of the reason on that Slide 18, while the production profile does decline slightly going forward. So yes, there is a profile there as you would expect. So again, we can go and look at more information we can provide to help you with your modeling.

Okay. Great. And the other big one is payabilities. So I haven't -- unless I've missed it, I haven't seen a reference to the payability factors. Are we able to go through what they look like for copper, zinc or lead?

Yes, Lyndon, if you can refer to the job tables. So we've included some of that information there in that supporting information.

Okay. I'll check that. And then in terms of royalty and tax rates, any quick rule of thumb there for some news?

Yes, very, very friendly jurisdiction in terms of tax rate, 25%, very mining-friendly. As I said, jurisdiction as well and a 0 government local royalty structure. Just while we're there, I do have a couple of those numbers and you'll find them in the job tables, I think in terms of payabilities are around that sort of 95% level for the copper and poly, silver and leads are in the sort of mid to high 80s and zinc, I think is run at sort of the 85 top end. But as Jason said, some more detail in that table, but there's some sort of guidance-type ends for you.

Yes. Lyndon, if you refer to, that information is on Page 56 of our release from this morning.

Great. Yes, I'll check that. And so I guess, the combined TC/RC costs, so we've got a lot of different concentrates here and different commodities. Is there any simplified way to think about TC/RC? I can see they're not listed separately in the cost breakdown. So I assume they're being netted off revenue. Anything you can help us with on that?

Yes. So once again, if you refer to the job tables, so Page 56 is a breakdown of TC/RCs there by concentrate type.

Okay. I'll check that. And another quick one. Is there any hedging that sits over the top of this?

Yes. So under the financing facility, the upsized financing facility with the 4 banks of the MATSA, we're targeting around 30% to 40% hedging range, and we'll roll that out over a rolling 3-year period.

So just to be clear, you're going to hedge 30% to 40% of production at today's prices roughly? And so we need to put that in our model basically. Is that it?

At a simplistic level, yes, I think that's the idea. It's particularly recognizing that debt repayment profile. That is also recognizing that MATSA, as Jason touched on and Karl touched on, I think MATSA is an asset that has had around only sort of 50% or 60% of sort of resource life is represented in reserves, and that's really because of that sort of drilling profile and proving up those reserves. And that debt profile is very much had to follow that, as you know. Those ore reserves become a critical component of a debt and profile. So that has driven our hedging profile. It's also, I think, a good capital and balance sheet management exercise for us as we have taken on some leverage on to our balance sheet. And as we drop that over the first projected 12, 18, 24 months, we will, of course, revisit.

I was going to touch on that. What's driving the big difference between resources compared to reserves? Why isn't there a bigger conversion?

Yes. Look, there's probably history as a bit of a legacy to some of those numbers. So if you look at it being a privately owned asset, there hasn't really -- well, there hasn't been any requirement for public reporting of resources and reserves. And if you look at it quite simply, the team there had been playing catch-up over the last 12 months, and I suspect largely driven by the sale process that we've just gone through. In terms of that conversion, we've had a good look at that. And we expect very quickly at least to significantly increase our reserves and our overall conversion. And there will be further work that we will undertake to do some more infill drilling to increase the confidence levels of those additional resources and be able to promote them through the reserves. But short answer on that is just further work is required.

Your next question comes from Sophie Spartalis with Bank of America.

Just some follow-up questions, if I can. Just in terms of the disclosures around each of those commodities. If you can make them more widely available given, I think we're all struggling with the same modeling issues there, that would be most appreciated? I just also wanted to have a sort of more detail around 3 different mines. Obviously, Sotiel is a newer mine. Can you just talk around the intentions there given the grade is obviously not as big as Magdalena? But what the potential is in having more of, I guess, equal weighting of feed coming from the 3 mines and therefore, that flexibility?

Yes. Look, Sophie, that's a very good question. So certainly, it's going up to 4.7 million tonne per annum rate. We see largely even contributions there from Aguas Teñidas and Magdalena. So sitting just above that 2 million tonne per annum annualized rate. Sotiel, we see as flow. It is a slightly -- well, it is a lower grade ore body and a lower value in terms of that. But one of the things that we did identify as part of our DD was that there is real opportunity there to actually bring forward some of the higher [Technical Difficulty] and typically, that's the more preference ore which will definitely add value to the production profile in the short term. If we look at it longer term, so probably going out in that 2- to 3-year plus, there's 2 advanced exploration targets that's close proximity to Magdalena. So they're called Poderosa Concepcion. So there's real opportunity to start to promote those through being an advanced target up into resources and hopefully, reserves, which will actually potentially give us some additional high-grade ore sources that are actually closer to the plant in Sotiel. And once again, if we can actually fill the 4.7 million tonne per annum processing rate from those closer ore sources, it starts to give us optionality to look at more regional expansions more in that Sotiel area.

Okay. So how far away is Sotiel from the plant?

As the crow flies, it's just over 20,000. But via road, it's about 38 kilometers.

Okay. Okay. And then just in terms of synergies, I'm imagining there to be -- it'd be pretty minimal. But can you just talk around -- you talked around lowering costs through a number of initiatives. Can you just talk through sort of head office potential savings, labor redundancies and any other synergies that we need to be aware of?

No. Look, we're not going in with that mindset. We want to get operational efficiencies. We want to drive value, but we're not going in with the view that we're going to start to cut in headcount. We will look at optimizing the mine plan. That will be one of our key priorities upfront and really setting that up for the future as well. So we can bring a lot to the table in terms of Sandfire's capability, our technical capability, our geological capability like our mine design and planning and also our exploration where we can add real value. Other areas there, particularly there's some real opportunities there around stope design, and maximizing that reserve recovery as well as minimizing dilution. So some of the underbrake and overbreak that we see from the mining operations there, we do think there's some real opportunity to improve. And it's not about us just walking through the door and going right, let's do it all differently. We've said it a number of times, we've got a highly capable team over there, and we're really looking forward to working with them. So we can adopt some of the things that we're good at and also learn from a lot of the things that the MATSA team are also very good at.

And Sophie, there is no head office. The head office is the mine site. Everyone's on the mine site. That's it.

Okay. And then just in terms of royalties, just I think it was Lyndon's question. You said that there was a 0% royalty to the local government. But what about Trafigura and that 100% offtake agreement? And obviously, you they are your banking partner as well. Should we be aware of any service agreements that will be probably more pronounced given that you've got more feed going to them?

Sophie, Karl. Just I suppose that is strategic and high level. The really significant thing, I suppose, and having been to the site and also being to the world-class blending facilities that comes with Port of Huelva, the best place for this concentrate to go to is the Port of Huelva and through and those blending facilities. It's best for everyone. And that is the reason why if you just go back a little bit, the Trafigura owned 100% of the mine originally when they put it all together. They then realized that there's so much concentrate that would benefit from blending in the region. So I took the initiative as cleverly as I did and built these extraordinary facilities, state-of-the-art, and enabled them to import shipping product from land or by sea to the facilities to blend, to then move it out, and I've got significant flexibility. So what that does is they get to optimize it from a number of mine sources. Now this is the core mine source. So that was an important element to understand that. And so we do, and we wouldn't want to send it anywhere else is #1. #2 is when Butler came in as a shareholder, one of the very important things that occurred is to ensure that those contracts, in terms of offtake and the way they're established, have got various mechanisms to make sure they're effectively aligning in most of the part, along the way with what's happening in the marketplace, practice and those things. So what we've done recently in the works for the acquisition is to work through those in great detail with Trafigura to ensure that sort of see-through capacity, that sort of checking market, sort of benchmarking, all those sorts of things are pretty much in line with what we're seeing generally. But the important thing is from Trafigura, they -- the critical thing for them is life of mine offtake. The best place for this product to go is there, so we can -- we understand that. We think it's fantastic, and it's making sure that really when you think about it, we're in a more collaborative relationship and viewing it in that sense. And it's just a fair price for a fair product at that port. So it's very efficient, very efficient.

Okay. So in short, do we assume there's some royalty income is being paid to Trafigura? Or is that included in the TC/RCs?

It's not royalties. There's no -- there's just offtake on the terms and the contracts, and that's it. There's no special charges or any comment. No.

Thank you. Unfortunately, we have reached our allocated time. I would now like to hand back to Mr. Simich for closing remarks.

Thank you, everyone, for listening today in what has been a monumental event in the life of Sandfire. Since 10 years ago, we made that DeGrussa discovery of some nearly 6% copper. That's been a long presentation today, and I'm sure there might be many of you that have still got question. So please, if you do, can you get in contact with the company and certainly in the first instance, direct to Ben Crowley, Head of Investor Relations. And really, just to finish off from me, this transaction is significant, it is transformational, and it lays the foundation squarely for the future of this company as we move into the next phase of our growth and long-term development and really will be the basis for decades of work from us in operations as we optimize this operation as well as building the Motheo hub in Botswana and expanding that. So we're really, really excited about it. We, once again, thank you for dialing in and listening. We look forward to communicating further information on the various extraordinary business opportunities we believe we've got in front of us in the near future. So thanks once again for dialing in, and I wish you all the very best of the day. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.