Sandfire Resources Limited (SFR) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Sandfire Resources December 2024 Quarterly Report. [Operator Instructions] I would now like to hand the conference over to Mr. Brendan Harris, Executive Officer and Managing Director. Please go ahead.

Good morning, everyone, and welcome to our December quarterly call. It's great to have the chance to reconnect and we have our executive team here with me today for the all-important Q&A. Before we start, I'd like to acknowledge the traditional custodians on the land on which we stand, the Whadjuk people of the Noongar Nation as well as the First Nations people of the lands of which Sandfire conducts its business. We pay our respects to their elders and leaders past, present and emerging. Starting with safety, we closed the quarter with a TRIF of 1.6, a decrease from the 1.8 reported at 30 September 2024. The work we're doing to embed the Sandfire Way is a multiyear process that starts with policies, standards and procedures and when successful permeates culture. And of course, we must believe it's possible to have a workplace free of all injuries. It's this focus that will further embed our company as a valued member of our communities and enhance our license to operate. This is critically important when it comes to the longevity of our operation and the myriad of approvals we rely on. And that's why it was so pleasing to receive the mining authority approval for our new tailings facility at MATSA. It's a particularly important milestone as the new facility provides the footprint to support mining beyond 2040 and will enable the complex to remain an important contributor to the Andalusian regional economy in Southern Spain. At an operating level, our steady start to the year ensures we are well positioned to deliver on the commitments we've made to you for FY '25. We increased group copper equivalent production by another 5% in the half to 75.1 thousand tonnes to finish the period at 49% of full year guidance, very much aligned to the update I provided in early December. At Motheo, admittedly, we're slightly behind where we expected to be at the start of the year, having achieved copper equivalent production of 28.6 thousand tonnes across the 6-month period. Somewhat ironically, however, our level of confidence in the outlook has only improved. That's because we've shown we can operate Motheo at a 5.6 million tonne per annum rate across the 6-month period, well beyond its design capacity, and we now expect this to be a sustainable rate on average for the foreseeable future. And as we discussed in December at our exploration date, we've also confirmed our new interpretation of the geological controls of mineralization at both T3 and A4 and are adapting our plans accordingly. Collectively, we expect this work and our annual life of asset planning cycle underway now to confirm an incremental increase in forecast copper equivalent production in FY '26 from the circa 58,000 tonnes estimated previously and a smoothing of the production profile into FY '27, bringing forward yet more free cash flow and creating tangible value for our shareholders. Turning to MATSA. It's so pleasing to see our Spanish mining complex sustain an annualized mining and processing rate in excess of 4.6 million tonnes per annum, again in the quarter for copper equivalent production of 22,800 tonnes to sit at 49% of annual guidance at the halfway point of the year. Our continued investment underground is really paying dividends as we've created much more resilience in the mine plan, and this will only improve as we ramp up activity at San Pedro and Olivo in future periods. Arguably, I think you've seen we're doing even better on costs, particularly at Motheo, where we're realizing greater economies of scale such that we have reduced annual guidance by 7% to $39 per tonne of ore processed. At a C1 unit cost level, we see a similar 7% reduction to $1.41 per pound as a result of lower expected treatment and refining charges. We also retained underlying operating cost guidance at MATSA at $75 per tonne of ore processed for FY '25 given the level of improvement observed in the quarter and recent weakness in the U.S. euro rate. And of course, we're converting when and where it counts as our steady start operationally and healthy prices for our commodities combined to deliver unaudited group sales revenue of $290 million and underlying EBITDA of $134 million during the quarter for a further $57 million reduction in net debt to $288 million at 31 December 2024. The cumulative $193 million reduction in net debt that has occurred in as little as 9 months illustrates the cash-generating capacity of our high-quality and low-cost operations and the rapid progress we are making towards our targeted net cash position. We're also well advanced in our efforts to further modernize our debt facilities. And rest assured, we will maintain strict capital discipline as our targeted exploration program gathers momentum and primarily focuses on our MATSA and Motheo hubs. So as I said at the beginning, we're on track to deliver on the commitments we've made to you and our simple strategy is unchanged because it's the right strategy for our shareholders. Thank you. Let's go to questions.

[Operator Instructions] Your first question comes from Levi Spry with UBS.

Nice news at Motheo. Can you just talk me through what the other implications are from running at 5.6. So maybe, I guess, mining -- increased mining rates, how you're prepared there. And also the grade profile and how we should think about that as opposed to just [indiscernible] faster basically?

Yes. Great question, Levi and happy new year to you and everyone else on the call as well. I think maybe I'll make a couple of very quick remarks and then pass to Jason to talk about perhaps the medium and longer term. I think one of the critical elements in our guidance, and I talked about this confidence we have. Obviously, we've now run the facility consistently at rates well above design capacity. It's a new mine. Every day, we can achieve that. The confidence grows. The amount of work that Richard, his team combined with the local exploration and mine geological teams, the work they've done to reinterpret the -- I guess the genesis of mineralization and the structural controls, all of these things just are additive to our knowledge. Again, at a business that it's not long ago, we were talking about first production. And so that really starts feeding into that long-term planning process. And I mentioned that LOA process is very much underway now. But as we look to the second half, 1 great thing is not only is the facility performing well, but the mine plan is, to a large degree, derisked as we look to the second 6 months because we're all bound, we're all bound now. So we've really removed any of that potential risk around execution from a mining perspective. And so we have a high degree of confidence in the projections that we have provided for you. Of course, we need to continue to execute well but this is a team that we've got a very high degree of confidence in. But maybe, Jason, if you can talk to some of the nuances around how grade has sort of evolved, how things have varied a little in the first half and why we have that growing confidence for the future.

That's right. Thanks, Brendan, and thanks, Levi. Firstly, if I might just start with the high level. And look, if you cast your mind back, we had previously given an indication to the market that we were preparing and making sure that we were prepared if the Motheo plant was able to be operated at a higher than nameplate throughput rate, which is now -- we are very confident that we can take that forward and be able to sustain that 5.6. We have previously indicated that our mine plan had been designed particularly over the first 2 years, so FY '25 and FY '26 to be able to largely cope with a higher processing rate to give us that optionality should we be able to realize that upside. So that strategy has continued. So to firstly answer your question in terms of mining rates and what does that mean for us? If you look at it and with reference to Appendix A, overall, we're still planning on doing the same TMM overall for the year. But coming back to Brendan's point there as well, what we've seen, particularly with the -- in conjunction with the higher processing rate of 5.6 and the recent updates that we've done on the understanding of our geological interpretation, we've shifted a bit of metal around and what we've done, particularly in Q2, and that strategy will continue throughout Half 2 for FY '25. Where we will -- we've actually accelerated mining in Stage 2, right? And we've slowed down Stage 1, and we're maintaining our overall throughput rate or our TMM over at day 4 there as well. So what that will do is make sure that we deliver the tonnes that were required for the year at a slightly lower grade. And once again, I refer to Appendix A, where we provided updated information in there in terms of ore mined, our ore processed, our grades for the year and our recoveries as well. So given that we are doing slightly lower grade, which is going from 1.1% copper full year, to 1%, and that's driven by those 2 factors. We've got a slightly lower recovery rate there for both or mainly for copper. So overall, I think that supports a really robust year. And as Brendan said, definitely sets up Motheo for a really strong longer term.

Yes. And maybe Levi, those of you who know, Jason, now he's incredibly humble individual. I'd just stress that from the day I walked into the organization, Jason was talking to me about the fact that there was the possibility and potential for us to extract greater performance out of Motheo. And so from that moment, they were already planning and making sure that the mine was configured in a way that it could respond. So it's not anything other than I'd say the team is well ahead of the challenge that running at a faster rate presents, and they're doing it in a way, therefore, that's very well planned, very measured and very much focused on value, which I think is very pleasing. And I think the only other element I'd add is it goes back to the exploration day that we obviously discussed back in December. And clearly, it is the right time for us to be accelerating the drilling activity, the drilling activity that's needed to discover those new ore sources. We've literally in recent weeks, we've just commenced drilling the fold repetition at A4. We're drilling out A1 through the infill program to obviously look to bring it into the mine plan. And of course, we're really accelerating the work regionally to identify not only those new targets, but hopefully identify those new discoveries that we can then work very hard on to also add to the future mine plan from Motheo.

Next question comes from Ben Lyons with Jarden.

I'd like to extend Levi's questioning, if I may, please, and possibly push it out into fiscal '26. Again, just looking at the interplay between the TMM and the grade profile and obviously, as the second ore body becomes more prevalent in the ore makeup. Brendan or Jason, you're talking to the same TMM for fiscal '25. But as you look into fiscal '26, is there any opportunity to accelerate the mining rates here? Obviously, the outperformance of the mill is putting pressure on the mining sequence. So is it as simple as the contractor throwing a bit more yellow gear at it? Or does it just not justify the additional costs that would come from those kind of changes?

Yes. Look, I'll pass to Jason in a moment. But I think a couple of things, Ben. We're being very mindful of the fact that this is still a new facility. We want to make sure we're running it in what we think is a very sustainable way thinking for the long term. As we said, we've been working in the background, reconfiguring where we can, pit shells and so on. And we've been, I guess, describing that along the journey, which is -- I think we've just described sets us up very well. Part of the reason we're not getting that higher volume metal production, if you like, contain metal this year is somewhat of an artifact of that first 6-month period, and we're really well positioned as we move forward. Now we've always said, however, that as we run at a faster rate, before that A4 fit sequence really gets into gear, we're going to need to rely, to some extent, on lower grade stocks to supplement the -- if you like, the ROM production that you're referring to. And that is why we use the words very carefully, and we're very pleased with this, by the way, that we think there is incremental upside to the '26 number we provided previously at 58,000 tonnes. And when we say incremental, you're talking 59,000, 60,000 tonnes is probably how we see it, which is consistent with what we talked about before. The other thing, though, Ben, that I think not only that we're doing that in a way, and I'm sure it's not lost on a lot of you, we're achieving that high throughput rate at the same absolute operating cost, which is what's delivering the significant reduction in the units cost basis. So we're really realizing those economies of scale. And then as you look into FY '27, we'd always said the challenge is how do we make sure we bring forward metal production through resequencing such we smooth that production profile. And we're still not quite certain exactly how that's going to look. But certainly, we'd envisage that FY '27 will also show improvement and important improvement when we come back and talk to you at the full year. Jason, I don't know if there's anything you want to add to that?

Look, I think you've covered it well. I think the key point here is that this work is still in progress, but we're well advanced enough to know that -- Look, if we look at the final pit design, we don't expect that to vary greatly. There's slight changes here in there. With the due geological interpretation, however, it has shifted metal around in terms of locations spatially. So we have been doing a lot of work, particularly on staging designs and using this new and much better geological interpretation, right, to really refine that life of mine plan and set us up for even further success. So I think Brendan's captured it at this stage, particularly in FY '26. We expect incremental improvement. Confident, as we've indicated before, that we'll fill that gap or that reduction that we saw in later years in the original mine plan. And we expect to finalize that work during this quarter and support that with an updated ore reserve as part of an annual update sometime in Q4.

Hoping to just squeeze another one here if possible, please. Maybe just turning to North America, possibly a bit of hidden value in the portfolio. Clearly, there's a rapidly changing environment over there under the new administration, which maybe it's putting a bit more value on North American copper units. So in that context, great to see the potential incremental capital being directed at Black Butte later this year. Just wondering if you can just broadly talk through the scope of the updates that you're looking at for the feasibility study. And similarly, working towards that timeline for a potential FID at the end of next fiscal year.

Yes. Good one, Ben. And I think you described it well, and it's something that we've been talking about is, I guess, some of the winds that are blowing in the external environment would potentially suggest that copper units in America, as you've described, potentially more valuable. The way I see that is it just really further emphasizes why we need to move forward with discipline, but with real intent. And that's what the toll gate that we expect Sandfire America to come back to us as their major shareholder imminently is to seek approval to move through into that tollgate to basically complete the work required to go to FID and the time horizon that you've talked to. We have said we think that program is going to require around $20 million. Part of that is still drilling the Lower Zone to extend the lateral area of that high-grade ore that is we know now is very much more critical to the economics of the project given the current cost environment that we see in North America. I think from there, we've always said that as the major shareholder, we retain all options. The main job for us is maximizing the value of that, as you call it, embedded option. And I think the environment that you've just described externally just if you like, increases the options that we have, and that's something that we're going to work through very closely. I think the most important thing that needs to happen is that a new mine is developed in the White Sulphur Springs district because it's going to bring valuable jobs. We think it's going to be a very attractive boutique copper mine. But again, we'll continue to assess all of our options in terms of longer-term participation with a focus on our own shareholders and value.

[Operator Instructions] Your next question comes from Kaan Peker with RBC.

Just another follow-up question on Motheo. Just if you can give an indication of that initial A4 ore fleet, how has that gone through the plant? My understanding was that essentially A4 feed would increase into FY '26 and that was a higher grade. So is the approach now to have a consistent feed of 1% to 1.5% -- 1% to 1.1% copper into Motheo at that increased rate?

Yes. Look, so Jason can give you the detail. But I think the answer is broadly yes. And yes, what you're saying. So A4 is now in that position feeding first ore, but it's really incremental. And we've said that it won't be a meaningful contributor this year. It's really ramping up into next year, and it does bring that great benefit. But of course, as we've said, we've resequenced T3, we've got the 2 states operating, and it's that blend of A4 bringing higher grade combined with T3, which will give the average outcome out of, we believe, a 5.6 million tonne per annum rate is what we'll be targeting to get you somewhere in the high 50s and hopefully, 60,000 tonnes of copper equivalent, and that's probably the way you should think about it. But Jason, anything to add?

Look, our strategy there is -- particularly for this year is largely the same and for next year. We're still forecasting to be just over 200,000 tonnes of ore mined from A4. We have completed the grade control on the upper levels of the upper tip of the ore body. And it's looking good. We're getting some very good high-grade material coming out there. Now I do note that in Q2, we only mine just below 14,000 tonnes of ore. So in terms of performance through the mill in a 5-point -- at a 5.8 million tonne per annum rate, it's really too early to tell, but everything is looking good and particularly when we look at asset soluble copper, which is our indicator of level of oxidation and in turn translates through to recovery in the mill, it's all looking as expected.

And maybe, Kaan, just to make sure we avoid any doubt. Same ore bodies, slightly higher grade, bornite, chalcopyrite, very core sulfides, same characteristics of T3, just slightly higher grade. We expect it to perform at a larger scale in exactly the same way where we get a very high level of recovery in the very early stages of the float circuit. I mean these are very, very nice rocks to process.

I understood very clearly. Secondly, on MATSA. Just wondering what was causing the fluctuations in copper recoveries on the poly line?