Sandfire Resources Limited (SFR) Earnings Call Transcript & Summary

Thank you for joining us. We're here today to announce a $200 million equity raising, which will strengthen Sandfire's balance sheet, and ensure we are well funded and have the financial flexibility to continue to execute on Sandfire's compelling growth strategy to maximize value for our shareholders. For those of you who don't know me, I am John Richards, I've been a Non-Executive Director of Sandfire for about 2 years and Chair for the last 6 months. I will provide a brief overview of the equity raising and the recent appointment of Brendan Harris as CEO, before handing over to the senior leadership team who will take you through the presentation. In the interest of clarity for anyone listening, we will refer to slide numbers as we progress through the deck. Our aim is to keep this presentation to no more than 20 minutes, so that we can then open the floor and take your questions. Moving through Slides 2 to 5, I note our cautionary statements and disclaimers. Moving to Slide 8, I'll firstly provide an overview of what we are announcing today and why. The equity raising comprises a fully underwritten accelerated non-renounceable entitlement offer to raise $200 million, approximately USD 134 million, providing all eligible shareholders the opportunity to participate for their pro rata share. The proceeds will be used to ensure Sandfire remains well funded to progress ongoing strategic growth initiatives across the portfolio, including funding increased working capital as our Motheo mine in Botswana, progresses from construction to first production and ramp up in the first half of the next calendar year. The equity raising will also strengthen Sandfire's balance sheet and provide enhanced financial flexibility to support deleveraging through this growth phase. More information on the detailed sources and uses of funds will be provided by Sandfire CFO, Matt Fitzgerald. Touching on Sandfire's strategy briefly; we have successfully repositioned the business into a significant diversified and globally relevant multi-asset copper miner. As the growth rewinds down, our portfolio is now focused on newly acquired long life operations in 2 major copper provinces in Spain and Botswana. Last week, we were pleased to announce the appointment of a highly experienced mining executive in Brendan Harris as Sandfire's Managing Director and Chief Executive Officer. Brendan will commence in April 2023. He will continue to execute on Sandfire's strategy once he starts, and I'll speak more about Brendan's appointment shortly. Sandfire's strategy is supported by the robust long-term outlook for copper, a critical metal for the global energy transition. As you would be aware, Sandfire like other copper producers have been impacted by global geopolitical and broader market factors, which, in particular, had an impact on MATSA, including higher energy costs, increased interest rates and a volatile copper price. Sandfire continues to proactively manage our business to respond to these external factors. Importantly, today's equity raising will strengthen our balance sheet to ensure that Sandfire continues to grow the business, including continued exploration and continue to deliver on our strategy across our 2 key assets for a position of balance sheet strength. Moving to Slide 9; Sandfire has a deep and experienced board and management team, with 3 recent appointments, all aimed at ensuring we have the right people to oversee the new business. We've recently undertaken a board renewal process, and we're pleased to secure the services of Sally Martin and Rob Edwards, 2 highly experienced international businesspeople located in Europe, and who can provide important insights and perspectives from that region, which are important, given our operating locations. They have already made major contributions in their short tenure. Last Thursday, we announced Brendan Harris' appointment as CEO and Managing Director. I imagine that most of you are familiar with Brendan, but for any who are not, he is a high-quality mining executive, with extensive and relevant senior experience at South32, BHP and Macquarie across a variety of roles and jurisdictions. The Board is genuinely excited that we've attracted Brendan to Sandfire, and shares our values and have a range of skills which complement those of the existing executive team. You will shortly hear from some of the key members of that team, including Jason Grace, our acting Chief Executive Officer and Chief Operating Officer; and Matt Fitzgerald, our Chief Financial Officer. We also have our Head of Investor Relations, Ben Crowley; and our Executive Growth, Richard Homes here with us. I will now pass on to Jason.

Thank you, John, and moving now to Slide 10. Set out on this page is Sandfire's strategy and values. The purpose of our strategies are to deliver and maximize value for our shareholders. While the first 3 operational strategies are very close to my heart, and are critically important to deliver shareholder value, I do want to note that we could not do any of this without the experience and very high-quality people at Sandfire. And so aligning and empowering them is very important to achieving our overall goals. Our values of honesty, respect, collaboration, accountability and performance are all about ensuring that we go about delivering and maximizing shareholder value in the right way, and across every part of our business. This also includes our commitment to ESG and sustainability, and for those that would like further information on this, please refer to Slide 35 of the pack or Sandfire's 2022 Sustainability report available on our website. Moving to Slide 11; Sandfire has a track record of delivering growth from long-life assets in Tier 1 jurisdictions, highlighted by our decade of strong performance at DeGrussa. As DeGrussa has come to the end of its life, Sandfire has successfully repositioned the business into a significant, diversified, globally relevant multi-asset copper miner, with its future underpinned by long-life assets at MATSA and Motheo. Provided on this slide is Sandfire's indicative production profile through to financial year 2025, which shows Sandfire's annual production increasing to more than 150,000 tonnes of copper equivalent through the acquisition of MATSA and the development of Motheo. MATSA operation, integration and optimization is going very well, with an updated ore reserve and 5 year plan now set. At Motheo, development is proceeding strongly, with first production expected from early in the June quarter of financial year 2023 and subsequent expansion to 5.2 million tonnes per annum, through the development of the A4 open pit. Moving now to Slide 12; Sandfire has a strong portfolio of high-quality assets, which deliver sustainable copper production to feed the global energy transition. As mentioned earlier, the portfolio is cornerstoned by the long life MATSA operations in Spain, and Motheo development project in Botswana. We also have an exceptional exploration portfolio and a strong pipeline of quality development opportunities, that includes the 5.2 million tonne per annum plant expansion at Motheo, which is underpinned by the development of the A4 open pit. The recently announced A1 prospect near Motheo, near-mine resource growth at MATSA and regional exploration in the Iberian Pyrite Belt in Southern Spain and Portugal. In terms of production, we expect MATSA to achieve 60,000 to 65,000 tonnes of copper and 78,000 to 83,000 tonnes of zinc in financial year 2023. While at Motheo, we are expecting to ramp up to production of approximately 55,000 tonnes of copper during financial year 2024 and into financial year 2025. The portfolio is also complemented by the DeGrussa copper operation, which is entering the end of its life, with underground mining recently completed and stockpile processing to continue into early 2023. We also continue to hold 87% of Sandfire Resources America, which owns the Black Butte copper development project in Montana. This project has a mineral resource of approximately 600,000 tonnes of copper across the Johnny Lee and Lowry deposits. Moving now to Slide 13; as a company, we are excited by the robust long-term outlook for copper, a critical metal for the global energy transition to a low-carbon future. You all know this well, so I'll only touch on it briefly. With the growing role for copper to play in green energy, coupled with the long development lead times for new mines, lack of greenfield discoveries, declining ore quality and forecast production deficits beyond 2026, this will almost certainly result in strong long-term dynamics. These thematics underpin Sandfire's long-term strategy, and we expect that this will support strong prices, despite recent market volatility, noting that copper prices bounce back from recent lows over the last month as shown. Moving now to Slide 14; outlined on this page is Sandfire's financial year 2023 production and cost guidance as provided in our recent September quarterly report. Production performance has been strong across the portfolio, with the recent upgrades to group production. Throughout financial year 2023, we expect to produce between 83,000 and 91,000 tonnes of copper and 78,000 to 83,000 tonnes of zinc, in addition to lead, gold and silver. Capital expenditure guidance for the year, for the group is expected to be between USD 320 million and USD 355 million, with the majority supporting the development of Motheo, as previously disclosed. Moving to Slide 15. Here we provide an overview of MATSA's financial year 2023 production and cost guidance. We expect production here to be between 60,000 and 65,000 tonnes of copper and 70,000 to 83,000 tonnes of zinc, in addition to lead and silver. Mining and processing unit costs are being driven by marginally lower copper production, driven higher by large -- marginally lower copper production and higher energy costs, which Sandfire has plans in place to manage. Positively, controllable site costs are generally in line with plans. Moving to Slide 16; as mentioned by John earlier, this equity raising will ensure Sandfire has the financial flexibility to continue funding its strong and exciting near-term growth pipeline. Our Motheo construction activities are well advanced, with first production scheduled from early in the June quarter of financial year 2023. Early stages of the expansion of the processing capacity to 5.2 million tonnes per annum, have already commenced, and this will include the development of the A4 open pit. We're also investing in regional exploration at several highly prospective exploration targets, close to the Motheo processing facility, and as mentioned before, the recent announcement of A1 dome drilling results further demonstrates the prospectivity of the area. Construction of the Motheo project is progressing according to plan, with USD 243 million invested as at 31st of October 2022, against the total forecast CapEx of USD 325 million for the initial 3.2 million tonne per annum development at T3. At MATSA, we have invested in both infill and resource extension drilling to support resource and reserve growth, as well as regional exploration to enhance our understanding of the region. And finally, we are also investing in the development of the most prospective new areas within MATSA, to further extend mine life. I will now hand over to Matt Fitzgerald.

Thanks, Jason. Moving to Slide 17. Throughout calendar year 2022, like all companies, Sandfire has had to proactively manage and address several external macroeconomic and market factors. We believe these to be predominantly short-term external challenges. Energy costs saw material increases post the Russian invasion of Ukraine and associated Nordstream gas pipeline disruptions, as well as weather impacts. Sandfire is working towards a long-term supply contract, which we are targeting to have in place later this year. We're also progressing the 20-megawatt solar farm in Sotiel and have commenced concept studies into the development of a 20-megawatt solar plant at Aguas Tenidas. Importantly, there has been a material decrease in current energy costs in Spain compared to the peaks in August this year, as summer loads have decreased and there have been improvements in wind availability in the north of Spain. Gas stocks also remain high. Global Central Bank monetary policy tightening, has increased interest rates globally and has also impacted Sandfire's cost of funding. We continue to focus on deleveraging the balance sheet post the acquisition of MATSA, while also investing in growth at Motheo and our broader portfolio. So as equity-raising will further strengthen the balance sheet, providing additional working capital and financial flexibility to maintain this growth plan. Broader market factors have also resulted in increased volatility in commodity markets. The commodity hedge book in place at the time of the MATSA acquisition remains to support operating cash flows and our debt repayment profile. Moving to Slide 19, I'll now talk through the details of the equity raise. The accelerated non-renounceable entitlement offer to raise $200 million will result in issuance of approximately 46.6 million new shares, which represents approximately 11.4% of shares on issue. The offer price of $4.34 per share represents a 9.3% discount [indiscernible] and a 10.2% discount to Sandfire's last close price. The entitlement offer is fully underwritten by Macquarie. Importantly, the entitlement offer provides the opportunity for all eligible shareholders at the record date to participate for their pro rata of the equity raising. Details in respect of the retail entitlement offer will be distributed to our retail shareholders on 25th November, 2022, which we encourage our retail shareholders to consider with their professional advisors. Moving now to Slide 20; and as discussed earlier, the proceeds raised from the equity raise were primarily being used to strengthen Sandfire's balance sheet to improve financial flexibility, and support ongoing growth initiatives across the portfolio. This includes repayment of the outstanding USD 33 million corporate facility, USD 40 million will be allocated to support our growth and exploration projects, in particular, the MATSA mine extension drilling and ore reserve growth. Motheo A4 progress in Kalahari Copper Belt near-mine exploration, including A1 drilling. The balance of the funds raised of USD 60 million will be used to strengthen the balance sheet, fund working capital -- and fund working capital as Motheo ramps up and provide greater financial flexibility to support deleveraging through this growth phase. In the context of the above, it is important to note that a number of our near-term capital and financial commitments are supported by our $162 million existing cash on hand, prior to today's equity raising and our future operating cash flows. USD 80 million will be used to make the repayment against the MATSA facility due at the end of January 2023. DeGrussa wind down and tax payments, as we've previously disclosed, are around $39 million remaining, predominantly taxed. And also to fund CapEx and increased working capital requirements at Motheo, as it approaches processing its first ore from early in the June quarter of financial year 2023. It is important to note that we run our balance sheet at each country project level as well, as an overall corporate level, and during this phase of growth, it is critical for us that each of our projects and our corporate center is self-sufficient from a cash flow perspective. Moving to Slide 21; Sandfire has been successfully and progressively deleveraging the balance sheet since the MATSA acquisition, with operations performing well and positive operating cash flows generated, despite the volatility in commodity prices and cost inflation, including energy. This significant deleveraging has included USD 216 million of debt repayments, with USD 565 million of MATSA acquisition debt outstanding. Following completion of the placement, Sandfire's net debt will reduce from USD 458 million to USD 324 million or gearing of 16% of Sandfire's pro forma enterprise value. This deleveraging will continue through financial year 2023, with the outstanding $32 million corporate facility repaid in December, and a further $80 million repayment of the MATSA scheduled repayment in January. Sandfire has an additional USD 140 million project finance facility to support the development of Motheo. The first drawdown of $55 million of this facility was made in October, with a further $85 million available and to be drawn down in the coming months. As previously disclosed, Sandfire is targeting a further $40 million to $60 million facility at the Motheo project level, to fund A4 expansion to 5.2 million tonnes per annum. And once secured, this will take the total targeted Motheo facility to USD 180 million to USD 200 million. Repayment of the Motheo facility will be funded from Motheo's operating cash flows from late calendar 2023, through its 7-year life to financial year 2029. Moving to Slide 22; as shown in the table on the right, the equity raising will support a significant decrease in Sandfire's leverage and gearing, enhancing balance sheet flexibility. We also have multiple levers to ensure future funding flexibility, including working capital, a strong hedge book profile above spot prices, and undrawn MATSA working capital facilities, as well as other options noted. Post entitlement offer, Sandfire is in a strong capital management position over the medium term, enhancing optionality to future deleveraging with production and cash flow profile. In respect to this alignment, it is important to note that the MATSA facility documents expressly contemplate an annual base case financial model review. The first of these annual reviews will be in the March quarter, which will provide the opportunity for Sandfire to engage with the MATSA facility lenders, to continue further aligning future debt payments to incorporate the revised MATSA ore reserve production profile and other recent financial parameters. Specifically, this will provide the opportunity to extend and restart the facility repayment schedule to incorporate the July 2022 ore reserves, increase the limit, providing us further financial flexibility through this exciting growth phase of the company. Moving to Slide 23; highlighted on this page is an indicative timetable for the equity raising. I don't propose to go through this in detail, noting the institutional entitlement offer book build is being run by the Macquarie team and the timetable will also be included in other communications to eligible shareholders. I will now pass back to Jason Grace to conclude today's presentation.

Thanks, Matt, and moving to Slide 24. Sandfire's a significant and globally relevant copper producer, with a robust growth strategy, which is expected to strengthen our position amongst domestic and international peers. As many of you have previously commented, there are limited ways to invest in the copper thematic, and we represent the second largest copper-focused company by market capitalization and production on the ASX after OZ Minerals, and in the top 10 largest by market capitalization, including our peers on the ASX. Sandfire is also a constituent of the ASX 200. Moving to Slide 25 and in closing, I will leave you with a few key investment highlights for Sandfire and this equity raising. Sandfire has been repositioned into a diversified, sustainable global copper producer. Post equity raising, we will have increased the financial flexibility and capacity to fund further growth. We have a refreshed and highly experienced board and management team, including the recent appointment of Brendan Harris as our Managing Director and CEO. Our strategy is supported by a robust long-term outlook for copper, critical for feeding the clean energy transition. Sandfire has a diversified asset base, with 2 long-life production hubs in MATSA and Motheo in leading copper provinces, and we have a strong and exciting growth platform across both development opportunities and exploration targets. Thank you for listening, and I'll now hand over to the moderator for questions.

[Operator Instructions] Your first question comes from Daniel Morgan with Barrenjoey.

Firstly, interested in your comments regarding the opportunity to extend the facility or renegotiate the terms of the facility and payment schedule in light of higher ore reserves in March, there has been [indiscernible] facility, of course. Just wondering what might the cost of that be, or is there costs that maybe we should be thinking about in any negotiation there?

Yes. So what we're really flagging here, is a process that will be -- we expect to be really an annual process in terms of updated base case models. Nothing specifically on cost. The opportunity with ore reserve is to present Sandfire's ore reserve that we put out mid this year, in terms of market, that will make its way into those models and become part of those discussions. It's safe to say at MATSA, with such a large mineral resource and the ore reserve being not a large -- not a large portion of that resource, that it's quite -- the facilities are quite driven by the ore reserve and ore reserve tail. So we do see some opportunity there to look at the length of that facility. I don't think that's a new opportunity. I think that one will be there all the way along the time of the facility. Cost-wise, no, not necessarily. I think we're looking at an opportunity as part of our capital management and balance sheet transition. It's really the next step of that opportunity. is to make sure that each of the projects is well aligned to its repayment profiles, and the banks certainly have been incentivized to do that as well. We're not saying that that's absolutely critical, we're not saying that it's anything else, it's simply saying it's an opportunity into next year, and I expect that we will look at those repayment profiles and base case models every year.

And at that time, is there a requirement for an impairment test on the MATSA acquisition price? Is that something that might happen at that time, and does that impact your debt facility at all, or does an impairment test happen annually with your audit in process of full year accounts?

Sure. 2 separate processes. There's no impact of anything noncash like that on any of our facilities. And we -- as normal under accounting rules, we'll always have to have impairment -- assess for any impairment triggers and impairment tests, as we go through the life of all of our various assets.

And just last question, can you refresh us on power costs in Spain, specifically what is assumed within the guidance, and what is the market right now or market expectations right now?

Daniel, Dave Wilson here. Look, the guidance for the quarter was between EUR260 to EUR270 per megawatt hour for the quarter. And as Matt said, through the presentation, through October, we had slightly better power costs for now, just below EUR200, and at the back end of October, in particular, with the conditions in Europe, with warmer weather and good wind generation that was running a fair bit lower than that. We do expect that to revert at the back end of the quarter, so we haven't changed our guidance at this stage, noting that for the first part of the quarter, we're certainly doing better than guidance.

Your next question comes from Kaan Peker with Royal Bank of Canada.

Just on the raise. Just a few questions on the MATSA project finance, debt covenants. Just wanted to understand if they are actually breached or was the raise preemptive to a breach? Or is just the raise providing balance sheet flexibility? And I think Matt mentioned that there's an annual base case review every March, is this when the covenants are assessed as well?

This is not certainly in response to that note, or anything like that. And no, we're not -- we're in compliance with our facilities. This is all about balance sheet strength and looking at this period of time, we're sort of -- in our minds about halfway through a balance sheet transition period. It really started probably mid-calendar year or probably covers the '23 financial year, if you wanted to put a big loop around it. Really, the first part of that has been looking at the back end of DeGrussa, and also funding the corporate balance sheet into Motheo. And then the second part of it becomes making sure that the corporate balance sheet is strong and making sure that the MATSA facility is also equally well matched to MATSA's cash flow going forward. So that annual -- the facility compliance is, as you'd expect, normally, there's quarterly compliances, it's not really linked to the base case model update. The base case model update is a specific part of the MATSA facility, which says -- on an annual basis, we'd put in a base case model and we would expect that an updated base case model, updated ore reserves, updated production profile, those sorts of things. This will be the first time that we have put forward a 12-month update for base case model. This is the first time we will have done that since the acquisition -- effectively the acquisition was a model certainly driven and controlled by previous owners of MATSA. So this will be Sandfire's first base case model presented to those banks.

Sure, understood. And the second question is on the use of funds, [indiscernible] for growth on exploration, can you maybe expand on that? It feels that most of the initiatives were previously announced. So as MATSA extension going -- being accelerated, or has there been any change to plans at Motheo? And also, is the repayment of the corporate finance facility of $50 million, if that facility is extended, is that amount actually needed?

Yes. So on the growth part, Kaan, you're right, they are ongoing programs that are very, very important to our business strategy and our execution of, not only across Motheo and MATSA, [indiscernible] operations, but also making sure we're adequately exploring across our belts, and also ore reserve work around MATSA. So you're right, these are existing programs, and there are programs that we have intended to fund into the future. We just need to make sure that the business is appropriately funded and has the appropriate working capital in the right places around the globe, across the different assets, to make sure that we continue to chase that growth, and make sure that we're able to appropriately fund those. So we're balancing, of course -- we're optimizing a project at MATSA, we are building a project at Motheo and DeGrussa is clearly coming to the end of its life. So amongst all of that and amongst our strategy, which makes sure that this is a strengthening exercise, to make sure that the group stays -- capital stays very strong, and is able to continue to deliver on those really important strategic initiatives. On the corporate facility side, it is $50 million or USD 33 million, as currently due at the end of December. It has a very close link to DeGrussa. So we have flagged in the presentation that, that may roll back 1 quarter to the end of March. We just flagged that, but that doesn't change the use of funds.

Sure. And just last one, in terms of the sale of the DeGrussa facilities, is there sort of a quantum that you can share with us that you're sort of expecting or targeting?

Hi Kaan. Look, at this stage, we're keeping our options open. We don't have any firm views on what that will be and what it looks like, because there's a number of factors come into play there. But we are going into that process, and we expect to firm up those expectations over the next probably a couple of quarters.

[Operator Instructions] Your next question comes from Ben Lyons with Jarden.

John, there was a number of mentions on the call about the commitment of the Board and management to maximizing shareholder value. So I imagine in that context, it was probably a pretty difficult decision this morning to pursue a dilution you've raised. And the key question for me, I guess, is, is this enough to put the balance sheet issue to bed? Like clearly, fiscal '23 is a negative free cash flow year. Matt talked about calendar '23 being the key period of expenditure. So I guess inherent in that question is, are you expecting the business to be free cash flow positive at a group level in fiscal '24, given current visibility on commodity prices, operating performance, et cetera?

Thanks, Ben. I'll let Matt deal with much of it. But your first point, look, we would always prefer not to raise equity. Equity permanent, and as you point out, it is diluted. We tried to do it in the fairest way possible, but we needed some more balance sheet flexibility. Matt, can you deal with the other aspects of Ben's question?

Yes, sure. Thanks, Ben. Yes, I would break it into 2 parts. So the financial year '23 is -- in the financial year sense, is the majority of the balance sheet transition, it's also the majority of the capital outflow, as I think Jason talked about, upwards to almost mid-$300 million type numbers of capital investment, going around 2/3 of that into Motheo, another 1/3 of it, as we know, going into MATSA as well. So clearly, a capital-intensive period of financial 2023, while the operations are running -- and that those operations clearly also have their own debt obligations. And we have our corporate obligations. Financial '24 is a different story, that's why we've got, as we project, 2 completely operating mines, of course, once Motheo has ramped up into mid calendar year of next year. So 2024, as we see it, is when the business starts to really generate -- starts to regenerate, I guess, that balance sheet strength and cash flow, because it doesn't have those draws as much on it, certainly in terms of a capital sense because of also, of course, got the Motheo funding in place, and we're also looking at that extension to the funding. So even through the A4 expansion period, we're quite optimistic about how we will work that in the '24 financial year as well, which is obviously critical to the ultimate scale of Motheo. So as I said, we are not putting those 2 halves [Technical Difficulty].

Okay. Great. Maybe just one follow-up. So in the deck, you put out some pro forma balance sheet ratios, so 18% gearing leverage ratio of 0.72. I can't recall if you've got a formal position on target balance sheet metrics or not, but maybe you can share some broad parameters around what your absolute comfort level is or a target level?

Yes. Thanks we haven't set a target as such, we more think about it on the individual elements at this stage. As I say, while I've got a business that has 3 very different speeds, running in it. So certainly, as I say, not a target in that sense, but we are very conscious that we do wish to delever MATSA we've been saying, and even during this period where we've had lower commodity prices, higher energy, higher costs and a reduced margin, we've been able to reduce that leverage at the MATSA site. We're deleveraging at MATSA, while we're leveraging at Motheo, while we're deleveraging corporately, and while we're investing corporately into Motheo for that first $240 million odd of investment. So not targets as such of that, but we're always conscious of course, around what that leveraging level looks like and how we balance that, particularly during our growth phase. So probably more into mid next year, that we will start to have more of a continuous and constant, I guess, and more sort of regularity, I guess, to the business and to the balance sheet, and that's the sort of time that I think we'll be able to really properly set some of those types.

Yes. Cool. That's helpful. Maybe just one final one, on the specific MATSA facility. Clearly, the company believes that they'll be mining there for a couple of decades, but the facility has got that really rapid payback period. what's your view on the optimal structure of that facility? Is it termed out to like a 10-year kind of amortization schedule, or is that possible with the current syndicate, is that a subject of current discussions, et cetera?

Yes, certainly very important for us to have an eye on what drives that facility. It's a [indiscernible] operation, as you say, we expect it to go for decades. So we don't have any ultimate concerns about its ability to carry leverage. We will be quite quickly reducing that facility under these sort of profiles to USD 300 million to USD 400 million, and that is how it has historically also been held in those sorts of levels in the past, with previous owners. What we are really -- what we're really looking at, in terms of the facilities, is making sure that the ore reserve picks up, it is important that, that ore reserve. And as I say, that is really one of the -- one of the restrictions of a facility at MATSA is the ore reserve. And as you know, and as mentioned on the call, as a percentage of ore reserve, as a percentage of mineral resource, the ore reserve is in the 20%, 30%, 40% sort of range we're talking there. So it's important over the next period of time that we continue that ore reserve work, as we continue to convert to ore reserve, then that will naturally assist the facility to continue to roll out. Yes, as a target, I think there's a good level of leverage able to be kept in the MATSA business. And I would say, aside from the obvious things like commodity prices and production levels, the major dial really on that facility in terms of its life, is the ore reserve conversion. That's why Sandfire is looking so strongly to invest in ore reserve drilling. Not just for our business and operations, but also the impact that it has on the ability to leverage the operation as well.

Your next question comes from Kate McCutcheon with Citi.

Brendan and team, welcome to the new role. Just on the raise, what was the catalyst here? Is this something that's been on the table for a while, or since your 10-year [indiscernible]? I mean copper prices have come back a bit, you've said energy prices are looking more favorable. You've said it wasn't debt covenants that was an issue here. So just kind of wondering what was the trigger?

Sorry, Kate. Brendan hasn't started with us yet. He starts in April. So we've got myself, Jason, as acting CEO and...

Oh, my apologies.

And John here. Yes. So look, believe me, we're all very much looking forward to him starting with the company. So look, from our point of view, and look, Matt will come in a bit more -- here in a bit more detail as well. But Matt said it several times, this is about us strengthening our position and our ability to fund further growth. We have considered a number of options, and have the best way to do that. And as John said before, we don't take these decisions lightly. But we believe in the strategy. We believe in the outlook for copper, and we believe this is the best way to continue to take forward the company as well.

Okay. And you're spending a chunk of the raise on drilling, et cetera, it seems, and you've also got the Motheo facility. I think you said you're looking to draw more there as well. And sorry, on balance, you see that the dilution outweighs the benefits of drilling and spending that CapEx? Is that fair? How do you think about that?

Short answer on that one is, yes. The outlook for copper, the prospectivity that we have, particularly in the Kalahari Copper Belt and also the Iberian Pyrite belt and the opportunity to sort of continue to grow both of those key assets, does represent a lot of value and growth opportunity for the company.

Thank you. There are no further questions at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.