Sandfire Resources Limited (SFR) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Sandfire Resources March 2023 Quarterly Results. [Operator Instructions] I would now like to hand the conference over to Mr. Ben Crowley, Head of Investor Relations. Please go ahead.

Good morning, good afternoon, everyone. Thank you for joining us today on the call to discuss our March 2023 quarter. It's my pleasure today to introduce for the first time, Sandfire's new Managing Director and CEO, Mr. Brendan Harris. Also speaking on today's call will be Jason Grace, our Chief Operating Officer; and Matt Fitzgerald, our Chief Financial Officer. And also in the room for Q&A, we have Richard Holmes, Executive Growth; and David Wilson, our Head of Technical Services. So without further ado, I will hand over to Brendan.

Thanks, Ben, and hello, and good morning from here in Perth. My name is Brendan Harris, and I'd like to welcome you to our third quarter conference call, my first as CEO. As Ben said, I'm joined by Jason Grace, our Chief Operating Officer; and Matt Fitzgerald, our Chief Financial Officer. Before we dig more deeply into the results we provided today, I'd like to make particular mention of Jason. It's never easy leading in an acting capacity, and I'm sure you'd all agree he has done an exemplary job. Thanks, Jason. I'm really looking forward to achieving great things with you and the broader team. In my first 4 weeks, I'm pleased to say that I've been particularly impressed by the energy and enthusiasm of our people, the passion they have for Sandfire and our industry. I've also had the opportunity to visit our MATSA Mining Complex in Spain and was left with a very positive impression of the embedded potential that exists within both the geology and our installed infrastructure. I'm obviously excited to be visiting Motheo in the second week of May, in no small part because Jason assures me copper concentrate will be on the ground. No pressure, Jason. Turning to the formalities of today's call. I'd like to remind you of the various disclaimers that accompany our quarterly materials and the notes were provided to help better understand our disclosures. I should also note, we are trying something a little different today, responding to your feedback. Ben Crowley tells us you'd like less time spent on introductory remarks and more time for Q&A. So we won't be doing a Page 10. Rather, Jason, Matt and I will touch on the critical drivers of our business in around 15 minutes before turning to an extended Q&A discussion. We welcome all feedback following the call as we'd like to use these sessions to focus on your areas of interest. So why Sandfire and why now? Well, as a company, we've established a unique and solid foundation from which to grow. We're playing in the right place at the right time as the emerging global copper producer of significance. Of course, safety and broader risk management will always be at the core. And while I'm not one to celebrate safety outcomes, as we can ill afford to take our eye off the ball, it would be remiss of me not to mention the record low TRIF of 1.8 achieved in the quarter. From a broader risk management perspective, we cannot overstate the importance of the new agreements that have secured attractive fixed-price carbon emission-free power supply to MATSA. These agreements substantially reduced MATSA's exposure to the spot market, particularly from CY24, and Matt will talk to this shortly. From a production perspective, we have given greater prominence to copper equivalent metrics. While we will continue to provide all of the component parts, so you can test and probe all aspects of performance, we feel it is important for us to communicate in a way that reflects how we think about value when making critical decisions running our polymetallic mines. Jason will provide a fulsome update on production shortly. So what's happening right now? Well, as I touched on earlier, we expect first concentrate at Motheo in the coming days in what will be an increasingly important milestone for our company. In parallel, we are fast-tracking the embedded low-cost expansion to 5.2 million tonnes per annum to deliver contained copper production of around 50,000 tonnes per annum from Motheo around the end of CY24. We're also excited about the recent discovery at San Pedro. I won't steal Jason's thunder, but I can confirm I was lucky enough to eyeball core samples from our latest step-out hole on my recent visit. With that, I'll hand over to Jason.

Thank you very much, Brendan. And if we look at operations and projects for the March quarter and starting with MATSA. Mining continued across all 3 mines with the Aguas Tenidas and Sotiel mines delivering production rates that either met or slightly exceeded expectations. At Magdalena, and as previously indicated, high-grade cupriferous ore from the Masa 2 East section of the mine was accessed during the March quarter, albeit at a slower production rate deliberately designed to manage stope stability and minimize dilution. While we saw an improvement in overall mining rates achieved at Magdalena during the period when compared with the December quarter, productivity rates remained approximately 15% below plan and included some additional polymetallic ore from the Masa 2 Central and the Masa 2 West areas of the mine. The lower mine production rate from Magdalena in turn constrained ore processing throughput and resulted in lower copper metal production than planned with zinc, lead and silver production exceeding expectations. Operationally, we also saw further benefits of mining at this slower rate in the Masa 2 East area. This delivered more stability in the mine plan and a more predictable blend for ore processing, which in turn facilitated an increase in copper metallurgical recoveries during the quarter. Looking forward to the fourth quarter and full year, we will continue with this operating strategy at Magdalena. This is forecast to increase the proportion of polymetallic ore being extracted, producing lower annual copper production and offset by higher levels of zinc, lead and silver and is forecast to deliver combined metal production within 1.4% of guidance on a copper equivalent basis. In [Technical Difficulty], we are providing updated financial year 2023 production guidance from MATSA of approximately 98,000 tonnes of copper equivalent tonnes with lower copper production at approximately 56,000 tonnes largely offset by higher zinc at 86,000 tonnes, lead at 9,000 tonnes and silver production at approximately 2.6 million ounces. Moving now to group production. At DeGrussa, operations successfully transitioned to processing of oxide copper stockpiles in mid-February after completing processing of transitional ore and mineralized waste stockpiles. Processing of oxide stockpiles is based on utilizing the existing DeGrussa flotation plant with minimal circuit changes and adopting a simplistic approach to treat stockpiles with oxide reagents. Production for the March quarter was 4,396 tonnes of copper and 5,111 ounces of gold contained. Whilst we expect processing to continue into the June quarter, no formal production guidance is provided beyond the 28,000 tonnes of copper production currently projected for the year. At Motheo, we are very excited that first concentrate production is anticipated to occur within days, and our first concentrate shipment is now scheduled for the middle of the calendar year. Construction activities are now very close to completion with several key milestones achieved during the quarter and included first ore mine from the T3 Open Pit was delivered to the Motheo ROM Pad with over 0.5 million tonnes of ore in our stockpile. The primary crusher and coarse ore stockpile handling system has been commissioned and is now fully operational. A SAG Mill Erection is now complete with the variable speed drive and motor partially commissioned and the operations team are at full strength and more than ready to take control of this site. Based on the combined outlook for all operations, group production guidance for the year has been refined to approximately 87,000 tonnes of copper, approximately 86,000 tonnes of zinc, 9,000 tonnes of lead, 20,000 ounces of gold and approximately 2.8 million ounces of silver for total copper equivalent production of approximately 134,000 tonnes contained. And finally, as Brendan mentioned earlier, we are all very excited about Sandfire's recent discovery at MATSA. On the 24th of January this year, Sandfire announced to the market that underground drilling at MATSA had identified a new zone of volcanic massive sulfide mineralization, which we call the San Pedro Zone. San Pedro is directly adjacent to the Aguas Tenidas Mine with very encouraging widths and grades of mineralization intersected to date. This zone was discovered following a full geological reinterpretation of the Aguas Tenidas geology by the MATSA team, and this represents the first significant exploration breakthrough under Sandfire's ownership. Initial step-out and close-based drilling, infill drilling has defined a strike length already of over 400 meters in extent with step-out drilling approximately 100 meters to the West recently completed. As Brendan touched on previously, we were fortunate enough to be able to see this drill core on a recent visit to MATSA, and we're absolutely delighted to see the extent and tenor of the intersected massive sulfide mineralization. Looking out beyond the initial San Pedro discovery and probably more importantly, the MATSA team through their excellent work have also identified a further 2-kilometer strike length of this untested prospective horizon. I will now hand over to Matt.

Thanks, Jason. Metal production drove lower revenue of $163 million for the quarter and $595 million year-to-date with over 70% of revenue coming from 62,000 tonnes of payable copper from MATSA and DeGrussa and 20% from 50,000 tonnes of payable zinc at MATSA. Year-to-date operations EBITDA has risen to $243 million at a 41% operations EBITDA margin with MATSA contributing $157 million and group EBITDA of $190 million. While MATSA sells its concentrates effectively on a daily basis, DeGrussa's ore build in highly marketable copper concentrate stocks with around 6,000 tonnes of payable copper available for sale in the June quarter with concentrate from oxide processing running at around 35% copper. This impacted March quarter group revenue, EBITDA and cash holdings. We also expect the final 1 or 2 DeGrussa high-grade concentrate sales to occur into the September quarter, impacting cash and working capital at 30 June. Operating costs have stabilized and reduced across mining and processing as energy prices are pleasingly settling towards historical levels as guided, following their peak in the first half of the financial year. We are seeing the impact in terms of price of new long-term power supply agreements. Higher TCRCs came into effect this quarter in line with movements in global benchmarks. Operating cash flows at MATSA at $65 million for the quarter reflected the EBITDA result. MATSA completed its scheduled $80 million debt repayment in January following the $118 million repayment in September last year, while continuing to invest heavily in mine development across the 3 mines. As previously flagged, following the ore reserve extension achieved mid last year at MATSA, we are progressing a resculpting and rescheduling of the remaining $250 million -- $452 million MATSA debt facility to assist the generation of working capital and smooth the remaining schedule across a now much less restrictive ore reserve tail within a significant overall mineral resource. Amendments are progressing well through credit and documentation review processes. In C1 terms, lower than planned copper production impacted unit costs. However, with the scheduled high copper and zinc production in the June quarter, we expecting -- are expecting C1 unit costs at MATSA to move to around $1.50 per pound. Full year C1 guidance at MATSA is largely flat overall with copper -- lower copper guidance, offset by higher zinc driving higher byproduct credits. Q4 production at DeGrussa has further -- has seen further copper production to April. However, any largely unguided production in May and into June will be at a higher C1 cost and lower margin, say, around 10% to 15% at $4 copper due to the processing of the final lower grade and lower expected recovery stockpiles during this time. Production is scheduled to end at DeGrussa in the second half of the June quarter with a formal sales process for DeGrussa progressing in parallel. At our new copper mine, Motheo in Botswana, we drew down the final $30 million tranche of the total $140 million, 3.2 million tonne per annum T3 debt facility with Societe Generale and Nedbank, ahead of now progressing formal discussions around the planned $300 million uplifted facility, which funds the planned A4 Expansion to 5.2 million tonnes per annum processing rate, along with operating cash flows from T3. Closing group cash was $177 million at the end of the quarter with net debt of $415 million. While we expect group net debt to reduce with the generation of positive cash flow MATSA and then Motheo, we'll also see the initial impact of any uplifting facility at Motheo contributing to A4 Expansion capital. In that regard, we look forward to updating the market on the key capital management activities over the coming weeks across both MATSA, Motheo and also DeGrussa, as we continue our balance sheet transition focused on supporting our growth strategy.

Thanks, Matt. The work you and the team are doing on the balance sheet is clearly a key enabler of our business. So before we move to Q&A, I'd like to leave you with this. We're primed to deliver 25% growth in copper equivalent production in the 3 years to FY '25. To get there, we have defined our immediate priorities: maintain momentum in safety performance, nothing is more important, establish a credible pathway to reduce our carbon emissions, lock in solar energy supply for MATSA, the last pillar in our power supply negotiations, advance underground development and general ore body knowledge at MATSA and optimize our planning processes to minimize dilution and increase recoveries with a focus on value over throughput. And, of course, it goes without saying we must deliver the strong increase in production plan for the fourth quarter, ramp up Motheo safely and sustainably and work to quickly understand the extent of San Pedro mineralization that lies at a relatively shallow depth within 100 meters of Aguas Tenidas. While we'll sharpen our focus on the basics, as that's our ticket to the game, it's our growing understanding of the geology that gets me particularly excited. So with that, can we please have the first question? Thank you.

[Operator Instructions] Your first question comes from Hayden Bairstow with Macquarie.

Welcome aboard, Brendan. Just a couple more for me. Firstly, on MATSA, maybe a question for Grace just based on -- from the site too. Just trying to better understand what's actually going on at Magdalena and how quickly you think you can resolve it or is there going to be a total need for redesigning of stopes to make sure you can get more stable ground conditions to get that ultimate production rate up towards that sort of close to 2.5 million tonnes?

Yes, look, Hayden, I'll throw it to Jason. If I can just make a couple of very quick observations. Again, first and foremost, I guess I can come at this with fresh eyes. And having gone underground at Magdalena only a couple of weeks ago, you can see that we're operating in and around the shear zone. We don't hide from that. What you can also see, though, is that the team is doing a very good job in the circumstances. Remember, when we inherited this mine, there was very little geotechnical understanding and modeling. And so to some extent, it has meant the teams at times are flying a little blind. That is changing and changing rapidly because you've heard us talk about the geological reinterpretation work that's being done, that also translates to a heavy amount of work going on to remodel and understand the geotechnical characteristics of the ore body. And that combined with the focus that we now have on every aspect of our mine planning, I think sets us up well. But again, we're not going to rush to try and drive throughput to 4.7 million tonnes. We'll get there. In fact, the weekend prior to my arrival on site, the team was actually running across a weekend of 4.8 million tonnes per annum throughput rate in the plant. So we know the plant can do it, but it's a matter of driving it at the right time in a way that's reducing that dilution effect, and obviously, as we set maximizing recoveries and that's built into our plan because ultimately, that's going to value as we said, the value of the resource. But Jason, over to you.

Absolutely. And really to reiterate that, that Hayden, we've been talking about this for a while. The ore body knowledge that we had that we inherited there at MATSA was really very, very basic. And for us to be more predictive and have control and stability around -- particularly around delivery of our mine plan, we need to complete that work. Now largely, we're well advanced. But certainly, we've had this plan now for a period of time where we expect to have that full knowledge starting to come into mine plans around late 2024, so probably about another 12 months. So one of the things you're seeing and coming back to your comment there about do we need to redesign Magdalena? The answer to that is no. What we do need to do is run certain areas, which are affected by particularly structures and stability. We need to run them a bit slower. So we're making sure we're not wasting the ore body. We're not over-diluting it. And we're not trying to push a bad position in terms of the production schedule. Now to do that, we need to build up our developed stocks. We've been working on that for a while, but we will see that once again kick in towards the end of next year. So the approach that we've been taking, as Brendan said, is about, if you like, just reacting to the ore body and what we're seeing, getting stability into that mine plan and compliance. And what that allows us to do is actually present a consistent or a predictable blend going to the processing plant and really deliver upside there on improved recovery and overall performance in the plant, which will deliver us better value and better metal production as well.

And Hayden, sorry, I might just add. What we don't want people to take away from that is that, therefore, as we look to next year, we've got significant concerns. We haven't provided updated guidance for FY '24 today because we are working through our planning processes and the team is I think doing some really good work there. But what I can tell you is the preliminary estimates with, I guess, a slightly moderated approach to throughput, we are still seeing the same sorts of level of equivalent metal production with -- as was previously indicated, albeit with copper incrementally higher than what we're expected to see this year. So hopefully, that helps.

Yes, terrific. And then, Brendan, just I mean, I know it's early days, but are you sort of planning, I don't know the full year result or later this year to sort of put a sort of more strategic outlook for what you're thinking in terms of Sandfire, and obviously, the 2 core assets and both will be in production by then. Obviously, you still got a fair bit of debt to deal with. But do you think you'll be in a position later this year or is the focus really just around getting these operations humming and getting that level down?

Yes. Look, I guess I go back to prior experience. In a past life, as you know, I was involved in the formation of a very large company from nothing on day 1. And I think we learned firmly in that process, that there's value in sitting back, listening, observing and making sure you understand your context, but then coming out with real intent. And so for me, I'm very much getting around the grounds, if you like, been to MATSA, I'll get to Motheo, as I said in a couple of weeks' time. I'm going to meet with a number of the analysts and obviously, a number of investors. It's bringing all that together to make sure, again, that I've got the full context, particularly, as I said, hearing from our people, what's working well, where they see the opportunities for improvement and build that in. I would say, however, again, we've got a fantastic growth pipeline. It's organic. It's there. The most important thing for us is to deliver on that in the way that we've outlined. We haven't talked a lot about Black Butte as well. I think you're going to start hearing us talk more about that over the coming 12 months to 18 months. Permitting is -- has been a challenge, but we think we're starting to get some, if you like, we'll see some light at the end of the tunnel there. It is very hard to find copper units. It is very hard to buy them in the environment today for value. And so when you've got them, make sure you understand them and make sure you optimize those resources to the maximum extent possible. And we do need to understand Black Butte. I think there's a substantial opportunity there for us to create value. And again, I look forward to talking about that more in the future. I mean Jason was just in Black Butte. I might just very quickly pass to him and see if there's any observations he wants to make.

Yes. Look, Hayden, as you know, I had a great trip over there. It was about 3 weeks ago, the week before Brendan arrived. And that was deliberate. So it was about us getting an update on where that project is, getting an update on thinking from the team over there, and I'll walk away. I've always been a believer in this project, but certainly, this solidified my belief in the potential over there. I do believe we have a pathway to production over there, but we do need to do some more work to be able to get there. So certainly very excited.

Your next question comes from Rahul Anand with Morgan Stanley.

Brendan, welcome and best wishes for the new opportunity. I've got 2 questions. First one is on MATSA. Just wanted to get some clarity. I mean you -- it's basically a follow-up to Hayden's. I mean I want to get my head around sort of where we can expect the throughput rates to be? I mean, is 4.4 million tonnes the right number to be thinking about future throughput rates as you try to target that reserve grade and you also try to improve recoveries and dilution? And then also as a follow-on, I mean, that 5 million tonne per annum target, is that not really something that you're going to be focused on to begin with, and you're just basically going to try to maximize the ore body value just by looking at that reserve grade and 4.7 million tonnes? That's the first one. I'll come back with a second.

Okay. Look, great questions, and thanks, Rahul, for the earlier remarks as well. So first and foremost, let's be really clear. We see right now the value in actually focusing on recoveries, but particularly managing dilution to make sure we get the best value from those resources via the metal equivalent production we achieve. So in the near term, if you look in recent times, 4.4 million tonnes to 4.5 million tonnes is a good number. But let's be really clear. As I said, only weeks ago, the plant was running at 4.8 million tonnes. So it will be variable depending on where we are in the mine plan. And I can assure you that as soon as we start to see the levels of recovery that we've built into next year's plan and are being refined, and we're starting to see, again, this geotechnical knowledge come through, our absolute objective is to as quickly as we can and as safely as we can, but most importantly, as sustainably as we can is to drive to 4.7 million tonnes per annum. So that's just on that one. Now I think with regards to the 5.2 million tonnes in respective Motheo, it's really important to realize that the way that, that plant is being developed, which is quite unique. The team has actually been building a 3.2 million tonne or nominal 3.2 million tonne per annum project, knowing that we're moving quickly to 5.2 million tonnes. So much of the plant has been designed at a 5.2 million tonne per annum rate. In effect, the largest component we need is the ball mill to go to 5.2 million tonnes per annum, and that work is being run in parallel. So again, we think that's going to deliver us a very rapid and low-cost expansion. Rahul, did that cover off on your questions?

Yes, it did. I mean my 5 million tonne reference was basically in the outer years, I think at the start when the asset was acquired, that's MATSA. It was talked about a potential run rate that, that would be the top of the mine plan and mine is performing perfectly, plant performing perfectly. So that was sort of my question around MATSA.

Yes.

But look, I understand you're probably focusing on that 4.7 million tonnes first up, but if you want to add anything to that, I'd love a bit more color?

Yes. Apologies. I heard the 5.2 million tonnes, so my mistake. Look, it is a good question, as I said. Again, get stability, get consistency, get the recoveries, drive to 4.7 million tonnes and then continue to creep. I mean you're never going to stand still. This is an industry where you have to drive continual improvement. So I don't think we're here to say there's any change in that. But again, I think the critical thing for us is we've got to prove our ability to deliver on these numbers. That starts with the fourth quarter. There's a substantial uptick in production, which will not only drive revenues, it's going to have a significant impact on costs. We need to achieve that so that you start getting the confidence that we believe you should have. Thanks, Rahul.

Okay. Perfect. Just one quick follow-up on that, Brendan, if I may. On my numbers, it doesn't, but is this contingent on your debt restructuring plans, the ability to run at that lower run rate? I mean you did specify that you're expecting similar or better copper production. But does that then impact zinc? And does your debt restructuring plan make this new mine plan contingent in a way?

No. No, not at all. In fact, what we expect that this new mine plan is just going to deliver us better outcomes, both in terms of, as Jason said that predictability, but it's going to flow through into the financials as well. If you're producing similar levels, broadly the same levels of metal equivalent production at lower throughput rates, that's a good story. No, look, I think as Matt said, and I've had quite a lot of, if you like, oversight of this as well. We're progressing very well with the conversations with the banks. And we don't want to go too far because obviously, you never done until you're done. But as Matt said, the syndicate is working through credit approvals as we speak. So we'll provide an update again, as Matt said, in the coming weeks. But there's no linkage between these 2 things. Again, coming with fresh eyes, looking at what the team is doing, this is the right way to run the business for shareholder value. And again, don't think for 1 minute, we're taking our eye off the ultimate price, which is getting those throughput rates up, but with better underlying performance.

Understood. Okay.

Your next question comes from Paul Young with Goldman Sachs.

Brendan, Jason, and team, Brendan, good to connect on the call. Interested in some of your further thoughts on MATSA, Brendan, saying is it -- there's clearly lots of exploration upside, but the mine complex has sort of struggled to get consistently above sort of 4.2 million tonne run rate since the acquisition. I see you've left it -- to your point, you've left FY '24 and FY '25 guidance unchanged. So I'm just curious about the next sort of firm update on the medium-term mine plan. You're doing the Geotech remodeling at the moment. When can we expect an update on the medium-term plan?

Yes. Thanks, Paul. Look, we would expect having completed the annual cycle to provide a full update in the fourth quarter report. But particularly, obviously, when we get around the grounds and manage to see people and talk about results at the full year. So again, we look forward to that opportunity. Hopefully, as I indicated earlier, we're not seeing a shift in metal equivalent production relative to what we've talked about previously, nothing material, albeit, as I said, you will likely see a slower -- marginally slower throughput rate for that period. So Paul, that's probably all I can add at this stage.

No, that's fine, Brendan. And switching over to down South to Botswana and Motheo. Just far as -- you're just about to start up and produce first copper. As far as referencing the DFS and costs within that study and where we sit, we all know there's been industry cost inflation. I think your last estimate life of mine for C1 cost is about USD 1.50 a pound. I guess the question is, are you happy with that estimate? And -- or will you update the market also with the full year result?

Yes. Look, Jason is living and breathing the commissioning and ramp-up profile of Motheo. So maybe I'll throw to him to have the first shot.

Yes, Paul. Look, from our point of view, we did provide an update there when we completed the 5.2 million tonne per annum feasibility study, which is fairly recent. We've not seen a lot of movement in costs there in Botswana at this point in time, noting that there is fairly healthy inflation rates there occurring. It does impact our labor rates, but labor rates aren't say as high a proportion as they would be here in Australia. So overall, that $1.58 that we quoted on that C1 cost, at this point in time, that's the latest information we have. As we start to go into production, we will be updating those costs, particularly for the fourth quarter and our estimates for next year once we start to see particularly what the processing plant is doing over the next couple of months.

Yes, Paul, I think one of the things for me, we're obviously going to need to watch and see how that progresses, getting the tonnes is going to be the critical piece, as you know. But for me, what I'm going to be looking at most closely is everything that I've read in all of the study work when it points to the mineralization at being relatively course and it should float well. The team is very hopeful that it should be relatively uncomplicated barring anything unforeseen for us to ramp up this operation. Again, it's not metallurgically complex. So we will provide a further update, obviously, with the fourth quarter and then into the full year.

Yes. Last one, just on Slide 25, the area -- aerial sort of map of Motheo and yes, just noticing obviously the [indiscernible] copper project and the proximity to Motheo. I know you said that you've got a lot of organic growth and exploration upside at MATSA and Black Butte, wishing your comments there actually, I think it's been tough going. But I guess the question is that you've got a lot of work to do and you've got to ramp up Motheo, first and foremost. But I guess there's an opportunity there with potentially lots of synergies. So maybe the question is that has this opportunity maybe come a little bit too soon for Sandfire based on where you're at?

Yes. Look, excellent question, Paul, and I knew it wouldn't be lost on you when you looked at the math that there is a party that sits obviously proximal to our Motheo operation. And I think the first thing I'd say is if you look at our landholding in the belt, we have a substantial landholding. So we already have the majority, if you like, of that acreage. And our areas are relatively underexplored. So we see significant potential there. And as I said earlier, this is about establishing a strategically valuable production hub. On the flip side, as again, you repeated, we have a wonderful organic growth pipeline. The most important thing for shareholders is that we don't get distracted and we deliver on our promises, and we think through that. We'll obviously release substantial shareholder value. If the [indiscernible] asset comes to the market, as people are suggesting it will, of course, we need to look. But again, I will never take my of shareholder value. I've always believed that M&A is a nice to have, if it makes sense, it's never have to have, and even more so when you've got a business like ours with such strong embedded growth potential. So again, will we have a look, sure. Are there synergies potentially? Would it likely be a competitive process? Richard Holmes sitting here with me. I think he'd suggest it will be. But it's never a problem to go in and see what you can learn. So I hope that's not too vague, Paul, but that's probably all I'll add at this stage.

Your next question comes from Kaan Peker with RBC.

Brendan, Jason, Matt and team, and congrats and welcome Brendan. Just first question is on the power agreement at MATSA. I think previously, there was indications that it would be backdated to the start of CY23. But it looks like on the presentation sort of talking about CY24 now. And I just wanted to check if all that -- the power agreement covers MATSA's needs and how that solar is sitting?

Yes. Great question, Kaan. So let me have a go at that and the team can chip in as needed. So when you think about this negotiation, as I mentioned earlier, an absolutely critical negotiation at that. There's limited spot availability of excess power in the market currently. And so when you look at CY23 and the agreements have been put in place, there are a number of tranches. So the first tranche, which is, call it, roughly 30% of the operation's power requirements covers CY23 at a fixed price, that's actually obviously attractive at a competitive level when we look at the current market rates. You then have another tranche that comes in CY24. And that gets you up to something close, rough numbers, around 60% of the operation's power requirements. So again, that's why from CY24, you've got much less exposure to the spot market. The final piece in the puzzle is this -- the solar agreements that they are at an advanced stage, I might add, that would get you up to around 80% coverage, hopefully from around that CY24 period or through that time horizon. That's really what I wanted you to take away. You're absolutely right. The first tranche that is impacting and having an effect this year was backdated to the start of 2023. Now why are you seeing costs going up? It's not because of power. We're seeing -- if you look at the increments, you can see the benefit coming through rather obviously lower production, but you also had a step-up in treatment and refining charges. Does that help, Kaan?

Yes, sure. And just a follow-up on the TCRCs.

Sorry, Kaan. Kaan, if I can, just to, I think stress. So when you look at the component of energy in the numbers that we've talked about today, the cost base, it's down below 10% now as a proportion of costs. So it's around -- I think it was around 9%, in fact, and it was over 20% in the peak. So really, it emphasizes how we are absolutely now seeing that translate into an improvement in processing costs.

Yes. Understood. Just a follow-up on the TCRCs, that's coming mainly from copper as far as I understand. I think the charges were set just recently and from memory, Sandfire's TCRCs will roll off annual benchmark? Is that correct?

Yes, it's correct, Kaan. It's mainly from copper. So it drives about 30% of an increase in the copper side and not much on the zinc side.

And just a second question. I know we talked about quite at length. But just with -- on MATSA's throughput, I think maybe Jason mentioned it, but -- talked about increased development over the year and possibly, I think the words you used was kicking in towards the end of the year. If everything goes to plan, is throughput rate at, I suppose, the base case expected to increase to 4.7 million tonnes at the end of FY '24?

Yes. Look, again, I don't think we want to be drawn on that today. I get what you're trying to do is work out what to put in to sell in your model. Again, what I'm focused on is what the metal equivalent output is. And to be brutally honest, I'd rather we get more metal at less throughput. So that's why I don't really want to be drawn on that today, of course, in time to get to that 4.7 million tonnes number. We'll come out with more clarity as we approach the full year. The team is right in the middle of that annual planning cycle. Unashamedly, I'm 4 weeks in. You can imagine I want to probe quite deeply beyond what I've had a chance to do today, indeed, all going well, I'm hoping to spend a month in MATSA from mid-June into July. And again, we'll be well placed to come back to you in due course.

Sure. If I can squeeze one more in, and it's just on the expansion to 5.2 million tonnes. I think over the last couple of quarters that T4 dewatering seems to have been pushed out. I mean, does that need environmental approval?

No. Look, environmental approvals are still on track. We've actually moved through a consultation period and we're out for public comment at the moment. So everything, as we understand, at the moment, is largely on track. The dewatering in terms of the timing on that, there hasn't been a lot of movement, but that won't slow us down at all.

Sure.

Your next question comes from Daniel Morgan with Barrenjoey.

Brendan and team. The first question just relates to Motheo. When do you expect to be exiting run rates of 3.2 million tonnes per annum on Phase 1?

We expect to be there in July.

Okay. Very clear. And when you say there's going to be a concentrate shipment midyear, will it sneak in before 30 June? Is that the expectation or after? And I imagine that you won't have commercial production this fiscal year. So no earnings to come through. Is that assumption correct?

Yes. Look, I think at this stage, Matt's nodding, we have been a bit cute with the comment we've put on sales. It's -- we've played around with that, it intentionally says midyear for good reason. There is a reasonable probability that it slips into the next year. It's very hard for us to predict. It could get right down to the wire. So in some respects, I think what we'd prefer is you assume it creeps into the next year and that there is obviously a build in working capital. But at the end of the day, we're obviously focused on the bigger price.

Yes. Very, very sensible. And then further, I mean, Brendan, congratulations on the new role, you are near to the business. Just curious on what is your plan or ambition ultimately with the Sandfire platform? What is the mandate that you sought and got from the Board when you got hired?

Yes. Thanks, Dan. It's a good way to ask the question actually. Look, I came in here on day 1. And what I said to the team is I don't have a fundamental change mandate. And the main reason for that is, as I engaged with the Board and the management team in those early discussions, I could actually see very strong alignment. This is a business, as I said, that is primed for growth. It's primed for growth in a commodity that the world, I think, is really only coming to grips with how much is going to be required to decarbonize the global economy, obviously, through the major electrification process that's underway. So we have all of the right hallmarks here. The critical thing for me is obviously getting to know our people, making sure we embed the right culture. I think we need to find a way to embrace the culture in Spain, whilst making sure the things that we hold there, those standard core common systems and processes are absolutely reflected there. The same goes for Botswana. And as I said, Dan, understanding what the potential is of Black Butte. The reality is I love the fact that we operate polymetallic mines. As you know, the major, major basin providing copper units in the world today is in South America, and many of those very large mines don't have large byproduct credits. So if you can get the productivity rates out of your polymetallic mines, optimize those throughput rates and then benefit from byproducts, you're going to be firmly entrenched again in the cost curve below that major slate of production. And that in the environment that I see playing out over the coming years, I think positions Sandfire particularly well. I mean, fundamentally, our objective is not about scale. It's about how we grow shareholder value, and that's what I look forward to coming back and talking with you about when we meet at the full year. Thanks, Dan.

And [Technical Difficulty] Paul Young asked a similar question earlier. But is M&A within the mandate you have? And obviously, there's [indiscernible] nearby, but more broadly, could you set out what might be considered, what not -- sorry, what might be considered and what might not be? And then what is in, do you think Sandfire's DNA to add value to any opportunities?

Look, I think it goes without saying that, again, through delivering on the commitments we've made around MATSA, that will increasingly build the confidence of our shareholders in our operating capability. We have that unique ability to operate underground and obviously, now with Botswana moving into an open cut setting, proving that gives us a wonderful platform. I really don't like to get drawn on do you do M&A or don't you do M&A? Because frankly, I'll be honest with you, I think shareholders expect us to do everything and anything to create and maximize shareholder value. And therefore, our job is to understand the landscape both internally and externally and make the right decisions and obviously, we'll be judged in the fullness of time. And again, I wouldn't expect within Sandfire, I'd take any different approach to that.

Your next question comes from Ben Lyons with Jarden Securities.

Brendan, welcome back. Very much looking forward to that catch-up for a cup of tea that you flagged. So please add me to your list, and obviously regards also to Jason, Matt, Ben and the broader team, of course. Just a couple on Motheo from me, please. Firstly, just a little surprised that the SAG Mill is not fully commissioned at this juncture. Yes, it was looking pretty good there in early February, albeit I recognize that the commentary was struck at 31 March, and it's, yes, another 4 weeks gone by since then. So can you talk to any specific issues in commissioning that critical bit of kit or is it pretty much online for commissioning as we speak?

Thanks, Ben. Look, you're right on our numbers and on our detailed schedules, we're about 3.5 weeks behind where we had hoped to be, particularly at the start of the year. It doesn't relate particularly to anything in the SAG Mill itself. SAG Mill is looking good. The reason that we can't commission that is we're still completing construction on the flotation circuit. So basically, it is the last thing that needs to be completed and everything else is either imminently ready or already completed. So the one thing that -- one advantage that we've had is that we've been able to commission as we go through progressively, and we expect that to ramp up fairly quickly once we get somewhere for that SAG Mill slurry to actually go to after it goes through that mill.

Awesome.on. Appreciate that. Maybe just moving across to the ROM Pad. Yes, really pleasing to see that you've got almost a month of high-grade ore sitting on the ROM now, 1.1% copper. Just maybe a 2-part question. Firstly, can you clarify if that 1.1% is total contained copper or recoverable copper, obviously, excluding those oxides, which have never been considered recoverable? And then the second part of the question would be on the commissioning strategy, whether you stack the mill on the float tanks with the low grade, the 0.6% or you kind of blend it with the high grade or will you guys stack for the high grade?

Yes. So I might start with that one, Ben. We have been crushing low-grade ore, so we will be commissioning on low-grade, basically, all the way through May and at least part the way through June on current plans. We expect to be basically starting to feed some of that high-grade material coming into late June and July. We expect as well to ramp up and further to the questions before, we expect throughput to ramp up very quickly, like a [ Podium ] that have been -- who's been our EPCM contractor has built almost the exact same plant elsewhere in Africa. So we have good benchmarks in terms of ramp-up schedules, commissioning and ramp-up schedules on this exact plant. So we expect that, that will -- throughput will ramp up very quickly, and then it will come down to basically management of the grind and the float circuit to get recoveries up. So we expect to be there pretty much in July. In terms of the copper grades on stockpile, they are total copper, right? So -- but we have estimated recoverable copper or acid soluble copper in there as well. So -- but overall, we are seeing that level of oxidation decrease very rapidly as we progress down through the ore volume.

Excellent. That's really helpful. Maybe just a final one on Bots. You've just gone through the wet season over there. You had the added complication of Cyclone Freddy, which was building in the East Coast of Africa at the same time. Just any observations you can make about what happened on the ground versus your expectations for the wet season, whether you suffered any impact to site access, for example, or, yes, excess surface water or any complications with the TSF, et cetera?

No, Ben. Look, overall, it's been really quite robust. Site access has been really good, so no issues whatsoever. There's a real advantage there having the A3 Highway basically within 15 kilometers of the site. So no issues in terms of supply chain and supply routes. If we look at it, no issues around water around the site at all. But what we did do was particularly in March, where we did see higher rainfall, it did slow down mine production slightly, right? But overall, we're seeing that even that mine production is quite robust.

Maybe, Ben, if I can. I just want to really take the opportunity to again reiterate the amazing job, I think that the team has done. I've read a number of analyst reports today, and I think a few have made mention of what almost a remarkable effort is to deliver a project as they have within budget in the current climate. So firstly, I just wanted to acknowledge that. I think just sort of to the heart of your question, I think we would have even been slightly ahead of where we are today, if not for one of those sort of teething issues that you have towards the end of a project, whereby some of the workforce, if you like, is not necessarily as motivated to complete if they don't have a job to go to. I think the team responded to that very quickly because we started to see a slight drop-off in productivity rates, like productivity rates in the project, they responded very quickly by putting in certain sort of milestone bonuses, et cetera, nothing material, but actually to get people focused on the price again to make sure we get to that first production. So whilst I don't think weather had an impact, there was arguably a labor productivity impact that just probably pushed us 3 weeks or 4 weeks beyond where we actually hope to be. Indeed, we were hopeful only probably around 1.5 months ago prior to my commencement as I understand it, that we'd actually be talking about first concentrate production in the quarterly.

Yes. No, I got it. That's really helpful. Brendan, I hope you enjoy embracing the culture in Spain and Botswana over the coming weeks.

Thanks for that. Appreciate it, Ben.

Your next question comes from David Radclyffe with Global Mining Research.

Brendan and team, so sorry for laboring the point here on MATSA capacity, but I just want to ask the question in a different way, given your fresh eyes, because we seem to be locked in here to the 3 current mines, which obviously, the issue here is that you've got a hungry mill. So looking forward and in the long-term, are we really missing here a fourth mine either found or acquired or would it make sense maybe to think about toll-treating some of the regionals around, given that your plant might actually be better suited to them?

Look, that's really appreciated. And I think it wouldn't surprise you that the thread of your question is indeed something we talk a lot about here. And that is the fact that I think many people think of MATSA as one mine. The reality is we have 3 mines with a centralized processing facility. And with obviously, Motheo coming on, we'll have 4. That gives me a lot of comfort because we all know that mining is inherently volatile. So first and foremost, it gives us some, if you like, diversity in the portfolio, first and foremost. But to your point then, the real question for us, as we start to understand mineralization like San Pedro, as we test the down plunge extension of Magdalena and too early to say, but the potential for an extension of high-grade copper. The question then is, what do you do with that 4.7 million tonnes and possibly 5 million tonnes of throughput capacity. How do you feed that material into the mill to optimize value, because it may be that the way that you want to run that facility not only to maximize the contained metal, but also to assist you with how you manage just that overall flow sheet, your reagents and your recoveries, it may change. And then the question is, well, what do you do with some of these other deposits and resources, things like Sotiel, which is clearly not running at an optimized rate, and how does that play into a broader strategy. So I don't want to be drawn on that too much right now. But you're absolutely right that I think that is a critical question that we need to understand and particularly understand in the manner in which we could potentially unlock value that's hidden at the moment. So thank you for raising that. It is on our obviously focused list, and it's right in the crosshairs of where I think there could be value creation. But it's just too early because some of that depends on this geological knowledge that we've been talking about, understand the mineralization, the potential, but, yes, a great, great challenge for us.

Your next question comes from Lyndon Fagan with JPMorgan.

Congratulations, Brendan. Look, the first question I had was just a follow-up on the depreciation at MATSA. And I'm wondering if you're able to give any color yet on how to calculate cash tax and the depreciation we should be using as a tax shield versus the guided depreciation of $250 million?

Matt?

Yes. Thanks, Lyndon. I think as we've mentioned before, you're best to probably model it on an EBITDA minus CapEx basis for tax -- for cash tax. And also the depreciation side, as you said, we've guided about $250 million for the year. We're probably in that range, we think as we get there. They may -- depending on the achievement of our targets in the June quarter, given the ore that we're accessing in there that may be $250 million to $260 million on the depreciation side. But as I say, on the cash tax side, I think you're best to stick in EBITDA minus CapEx. And we can add some more color to that as you wish.

Easy, done. Okay. And then the other one, maybe just to briefly touch on copper TCs. They have gone up a fair bit in the quarter. I'm just wondering if this is the new run rate going forward or whether there was something unique about the quarter?

Yes. Look, I don't think so. I think the reality is it's reflective, as we've said in the note of market rates. Unfortunately, given our size, we're unlikely to influence those. But I don't know, Matt, if there's anyone just like to add any additional color.

Yes, Lyndon, Dave Wilson here. The -- I guess our treatment and refining charges in our costs are largely driven by MATSA is where the volume is in this quarter and the MATSA offtake agreements linked to the benchmark. And you've probably seen during the quarter, the copper benchmark went from [ 65 to 6.5 to 88, 9.9 ]. So that's largely, I mean the shift in TCs. And as someone mentioned in an earlier question, the zinc TC has been released early in this quarter, which will flow through our contract resets on a calendar year basis.

Thank you. There are no further questions at this time. I'll now hand back to Mr. Harris for closing remarks.

Well, thanks, everyone. Really appreciate the questions and the challenges. As I said, we look forward to getting around and seeing as many of you as possible in the coming weeks and months. It's a pleasure to obviously be able to present the first quarterly as the CEO of Sandfire. I'm incredibly excited about the potential. It's a marathon, not a sprint. We're going to be working hard. And again, our objective is literally to see how much shareholder value we can extract from what I think is a very attractive asset portfolio. So thank you again, and have a good day.

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