Sandfire Resources Limited (SFR) Earnings Call Transcript & Summary

Welcome to Sandfire Resources First Half FY '25 Financial Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Brendan Harris, Chief Executive Officer and Managing Director. Please go ahead.

Thank you, and good morning, everyone, and welcome to our half year results call. We recognize that today is a very busy reporting day and that we had an extensive operating update and Q&A session only 3 weeks ago. Suffice to say, I will be brief and only focus on the highlights of our first half before handing over to our CFO, Megan Jansen, so she dig into our financial results. But before doing so, I'd like to acknowledge the traditional custodians of the lands on which we stand, the Whadjuk people of the Noongar Nation as well as the First Nations people of the lands on which Sandfire conducts its business. We pay our respects to their elders and leaders past, present and emerging. I should note, of course, that our entire executive team is here with me in Perth, and they look forward to working through your questions. So starting with safety, we have maintained a total recordable injury frequency of 1.6 during the first half of the year. And whilst this is at the lower end of comparable benchmarks, we know there is still much to do before we can be confident that we can sustain an injury-free workplace. The process of instilling our new way of working that we refer to as, The Sandfire Way, is ongoing and we are actively closing gaps to ensure we are operating in accordance with our new policy standards and procedures wherever we work. As I said back in January, a robust first half at our operations delivered a 16% increase in group copper equivalent production to 75,100 tonnes, leaving us on track to achieve annual production guidance at both MATSA and Motheo. Whilst this holds true today, we felt it was important to highlight the emerging risks that particularly heavy rainfall presents at both operations if conditions don't ease in the near future. Our teams are managing the situation well whilst providing support to local communities and we'll provide a further update as required or when we report our next set of quarterly results in late April. Turning to costs. You'd recall that we recently reduced annual guidance for Motheo cost by a material 7% to $39 per tonne of ore processed, and we're also doing relatively well at MATSA, where annual guidance has been retained at $75 per tonne of ore processed, which remains 4% below -- that's 4% below the guidance we set for MATSA at the start of FY '24. Having a major presence in Spain and Botswana has been good to us as we've avoided the hyperinflation experienced by the industry in places like Australia, leaving our operations well positioned on the C1 cost curve. So by doing what we say we will do and focusing on the basics to build resilience and operational consistency, we've increased underlying EBITDA by 87% or $119 million in the half to $255 million for a very healthy EBITDA margin of 45%. And this has meant that we've not only turned profitable, we're throwing the all-important free cash flow on to the balance sheet and we are rapidly degearing toward a net cash position. With that, I'll hand over to Megan to discuss these key financial outcomes and more in greater detail. Welcome, Megan.

Thank you, Brendan. I'm pleased to present our financial results for the first half of FY '25. We have delivered a strong financial result for the half, underpinned by robust operating and cost performance across the business and healthy pricing for our key commodities. At an operational level, the exceptional ramp-up of Motheo, now in its second year of operation, delivered a 16% increase in group production to 75,100 tonnes. This, together with consistent production at MATSA and good cost control underpins a 37% increase in sales revenue and delivered an 87% increase in underlying EBITDA to $255 million and an underlying profit of $49 million for a statutory profit for $50 million. Pleasingly, net debt declined by 27% during the half to $288 million. Our ongoing reduction in net debt demonstrates the cash-generating capability of our high-quality operations and the progress we are making towards our targeted net cash position. Digging deeper, at Motheo, the underlying operations EBITDA margin increased by 17% to 60% or $159.7 million. This was underpinned by strong operating and cost performance and healthy commodity prices. The exceptional ramp-up to 5.6 million tonnes per annum has allowed the operation to realize economies of scale benefits, delivering an operating unit cost of $37 per tonne across the half, 4% below our initial guidance of $42 per tonne, which we since revised down to $39 per tonne in the December quarterly report. At MATSA, the underlying operations EBITDA margin increased by 3% to 44% or $134 million, primarily driven by higher commodity prices and lower treatment charges, which more than offset a modest increase in underlying operating costs, primarily associated with the rise in mine backfill and waste volumes in line with the mine plan. We delivered operating unit costs of $76 per tonne across the half, which is within 1% of full year guidance of $75 per tonne and we maintain this guidance across the full year as we expect to benefit from recent beneficial exchange rate moves. Below the line, our D&A expense of $153 million continues to reflect the acquisition of MATSA in FY '22, and includes a $35 million D&A expense relating to Motheo, which increased by 26% in comparison to the prior corresponding period, in line with the increase in contained copper mines. Our overall underlying net finance expense to $27 million reflects our level of debt and the margin embedded in our various finance facilities, noting that underlying interest expense is expected to reduce in the second half, reflecting a planned reduction of debt and the lower margin associated with our new corporate revolver facility. Our underlying income tax expense increased to $25 million as the group returned to profitability. And whilst the group's underlying effective tax rate in FY '25 is expected to broadly reflect the statutory income tax rate to the jurisdictions in which we operate, it will be impacted by the limited ability to recognize the benefits associated with tax losses in Australia and the U.S.A. Tax payments totaling $8 million are made across the half, largely in relation to MATSA. We are projecting a step-up in tax payments in the second half at MATSA following improved cash generation and a reduction in our interest costs as we pay down our debt. Overall, across the group, capital expenditure remained largely unchanged from the prior corresponding period of $98 million in the half. At Motheo, an increase in waste stripping costs to $27 million as the A4 development wrapped up was largely offset by a decrease in project construction and development expenditure following the completion of plant expansion activities in FY '24. At MATSA, capital expenditure of $57 million was consistent with the prior comparative period as we continue to prioritize underground development. Pleasingly, we have made further progress in optimizing the structure of our debt facilities. Just last week, we received credit approval for a new unsecured $650 million corporate revolver facility, which will be used to repay the remaining balance of our existing facilities totaling $440 million. The new facility that is expected to be executed by the end of March 2025 has an attractive 4-year tenor to March 2029, with no immediate scheduled repayment requirements and reduces ongoing finance costs. The refinancing of our debt facilities fundamentally derisk the financial position of the group and further enhances our balance sheet flexibility. The refinancing will trigger a noncash interest expense of approximately $11 million in the second half of FY '25 to derecognize capitalized costs associated with existing facilities, which will be excluded from underlying earnings. No dividend has been declared in respect of half 1 FY '25 as we continue to prioritize the deleveraging of our balance sheet and ongoing investment in our business. The excellent outcomes across our business continue to give us confidence for the future. With that, I'll hand back to Brendan.

Thanks, Megan. As I reflect upon the last 2 years, the transformation of our business has been remarkable. Consider back then, the world was still emerging from COVID, we were in the midst of a major development project in a new country, and we were transitioning our foundational asset DeGrussa to care and maintenance, all while integrating our large Spanish acquisition during a time of great uncertainty for Europe that was acutely felt in energy markets. Net debt was also rising to ultimately peak at just under $500 million, and we were contending with very hungry project finance facilities that had a number of hooks and bars. Stepping forward to today, say for the weather events I mentioned earlier, Motheo is truly humming as it redefines the potential of the Kalahari, and MATSA is becoming the consistent and predictable operation it needs to be. We're refocused and are now stepping up our exploration efforts in the Kalahari and Iberian belts as we see real potential to attain a minimum 15 years of reserve life at both operations within the next 5 years. And very recently, we received mining authority approval for our new tailings facility at MATSA that has the potential to support mining beyond 2040. And of course, one of our best achievements has been the fundamental transformation of our balance sheet. As Megan said, our new revolver changes the game by providing a longer-dated source of capital at lower cost with no immediate requirement for repayment. Put simply, our strategy is unchanged because it's the right strategy for our shareholders. Safe, consistent and predictable performance will continue to underpin our financial results or focused exploration within close proximity of our existing processing hubs will continue to be the best way we can create value and deliver superior returns to our shareholders. Rest assured, we'll remain disciplined as we rapidly move towards a net cash position. With that, can we go to questions, please.

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

So my question is on capital management. I'm interested here in the rationale today not to have declared an interim dividend -- because it seems like a lot of the goals that drove termination of the dividend have now largely been met and the potential cost today, if you had a declared one, given the old policy would have actually been very comfortable and manageable for the business. I know you've got comments in there talking about moving towards a net cash position. Is this the key hurdle that the Board is waiting for. And if so, why? Because not many of your copper peers actually do run ungeared balance sheets.

Yes. Look, thank you for the question. For those who have known me at least will know that I've been a big believer that operationally geared mining companies are best placed to running a net cash position and that one should contemplate returning excess capital to shareholders when indeed it sits on the balance sheet, not before. And I think if we look through the last 20 years, it is littered with examples of companies who have done the opposite and ultimately being forced to raise capital in a deep downturn and that is incredibly dilutive to shareholder value. And so we've been consistent across a number of periods now. I think we've been talking about a commitment to moving towards net cash for as long as I can remember since I've been in this seat. And it is something that we talk about at the board and we do recognize as we rapidly approach that position and come towards the full year results. It's likely that we'll come out and talk more about our capital allocation policy, albeit, as I've said before, as someone who established a policy at a prior company. And if you look at that, it will give you a very good idea of how I think about managing the balance sheet to maximize value for shareholders. But yes, thanks for the question, but hopefully, that helps.

Your next question comes from Mitch Ryan from Jefferies.

Just one question. Given the amount of rain at Motheo and the [ Aquis's presence ], just wondering if you could provide any comments just on the sort of the rate of water ingress, the dewatering capacity there and any ability to reinject that water? Any constraints on that system, I guess, would be what I'm asking to comment on.

Yes. Look, good. Thanks, Mitch. And I appreciate the question. It is an important topic. Look, if I can just stress right upfront, and I'll pass to Jason for the detail. We have retained annual guidance. I just stress, we've retained annual guidance. That's not something we do flippantly. We've really noted the risk that rainfall presents at both operations out of an abundance of caution and a commitment to transparency. The teams are doing a very good job. First and foremost, our priority is on keeping people safe and well. And I can confirm that we haven't experienced any injuries during this time while we're dealing with these specific weather events. And more importantly, perhaps we are providing significant support to the local communities as our stakeholders would expect, when it comes to Motheo, things like bedding, emergency food suppliers, emergency medical supplies, and we stand ready to do more. We're in constant engagement with local government authorities, and that's obviously particularly important because it is really us living our values and committing to our purpose. Jason, perhaps if you can go through some of the -- I guess, the critical elements of the rainfall event. Anyone who looks at a radar at the moment of Southern Africa will see that there's been a very, very large system move across Southern Africa. Perhaps you can just dig into that.

Absolutely. And I mean, even as we sit today at the moment, we're not receiving heavy rain up around the mine, but I've been receiving reports overnight of significant flooding in Gaborone, which is about 700, 800 kilometers to the south. So this is very much a live issue for us, and we are right in the midst of responding to the situation. . So firstly, as context, for the rain event, in February alone, Motheo has received its average annual rainfall right just in the month to date. And we've had a number of major storm events that occur over a period of a number of days or basically over the last 10 days at site. As a result, there's significant surface water and localized flooding, and this is currently impacting our broader exploration activities. As Brendan mentioned, our team is actually managing the situation very well. And we are actively supporting the local community. And as Brendan said, we've had around about 300 people -- 350 people evacuated from local towns and villages and the site team there are providing support in terms of food, medical supplies, bedding and shelter as well, because a number of these communities are very impoverished. If we focus on Motheo, importantly, ore processing at the operation has been largely unaffected, and throughput rates for February remain aligned with plan. At the T3 open pit, and we've mentioned this before, prior optimization of the mine plan undertaken to support the expanded processing rate of 5.6 million tonnes per annum has resulted in us accelerating Stage 2 mining in the T3 open pit, and ore extraction is solely focused on Stage 2 across the second half of FY '25. As Stage 2 is higher in the mining sequence, it has been largely unaffected by the rain event and mining remains ongoing today. However, surface water has been diverted from the mine into the deepest Stage 1 of the T3 pit, and we are currently dewatering this area. And from an ongoing operations point of view, certainly, it has no impact on ore supply that we can see in the foreseeable future coming from T3. Conversely, A4 open pit has seen the greatest impact with extensive surface water evident in recent days and saying that we can confirm that our team has the access to the A4 pit as we stand today and dewatering activities have commenced. If we remember that A4's forecast to only provide a modest 2,000 tonnes of metal in half 2 of FY '25, and notably, any loss of ore production has the ability to be replaced by additional ore mining from T3 Stage 2 or in the event that we're unable to do that, which is highly unlikely, we have sufficient low-grade stockpiles. In the absence of additional heavy rainfall, we expect to reestablish mining in the A4 pit in the coming weeks. And as Brendan mentioned, as we sit today, there is risk to annual guidance but this is not material, and we did feel that it was prudent to inform the market.

Yes, I think -- and the other point, Jason, whilst I think over the next week, we're watching closely. We do note that the wet season is coming to an end. So ultimately, whilst the flooding is particularly damaging for some of the local communities, water is a very scarce resource in Botswana, so I'm sure the fact that it's recharging the aquifers is actually welcomed. But hopefully, Mitch, that provides you with a good sense for what's going on at Motheo.

Your next question comes from Ben Lyons from Jarden Securities Limited.

Apart from, whether 2025 actually looks to be a great year to be a copper and zinc miner, particularly with reference to copper TC/RCs settling way lower. And spot zinc treatment charges close enough to 0 but as far as I'm aware, not actually settled for calendar '25. So a pretty simple 1 from me. Just given the historical offtake with 1 of the vendors of MATSA, I'm just wondering if there's any reason why you wouldn't experience the majority of the benefit from these lower copper and zinc treatment charges?

Yes. Look, thanks, Ben. I'll pass to Megan, but it's a good call out. As you know, Motheo has been largely uncontracted. So we've been selling predominantly on spot -- conversely, of course, MATSA, we sell into that specific contract with Trafigura, which is related to benchmark. Just as I feed on to Megan, we are progressively putting some more of that tonnage into contracted positions with multiple shipments tied to them. In 1 instance, recently, I think we've got a series of shipments across the remainder of this year that are struck at around 10 and 1. And we have had a spot deal that's been close to 0, and that's been certainly benefiting Motheo. Of course, we know that one of the things the industry more broadly is thinking deeply about is there is a level where treatment and refining charges get to some of the traditional smelters come under pressure, Europe, Japan, Korea, et cetera, which possibly is not good for industry structures. So we're also mindful of that, and I think that's a pretty important consideration as we move forward, particularly for the larger players. Megan?

Thank you, Brendan. And maybe just to round out on Motheo and when we released our December quarterly results, you'll recall that we did revise our C1 guidance at the time for Motheo downwards and that really reflected the line of sight that we have around the treatment charges for the sales that we have contracted at Motheo across the second half. So we're reasonably comfortable on the Motheo side. At MATSA, as you understand, we do have our sales subject to a long-term offtake agreement. The team is currently working through alignment on what the benchmark rate for calendar year 2025 is. We expect that, that will play out across March, and we're hopeful that we'll be in a position in the March quarterly to actually confirm the outcome of those discussions. But we do recognize that there's some benefit that we can expect to come through our financials in our C1 in that regard, particularly on the zinc front at MATSA.

Your next question comes from Daniel Morgan from Barrenjoey.

Brendan and team, you've called out weather at both operations. Now I imagine that the weather concerns are in order of magnitude larger at Motheo than they are at MATSA. But could you just expand a little bit on any impacts that MATSA experienced at all?

Yes. Look, again, I'll pass to Jason because I think it's best for him to provide the flavor. I think it's fair to say they're different. The Motheo event has been particularly intense through February. And as Jason alluded to, in the last week. So it is an active situation we're managing as we speak. Whereas MATSA has been a progressive buildup of just high levels of rainfall. Remember the floods that were heavily reported around the world in Spain through the latter part of FY -- or calendar year '24 -- calendar '24 was a particularly wet year. And it started off as another wet period through January. And it's that accumulation of rainfall and -- as you know, if you get supersaturated soils, it just leads to more runoff and that has other broader consequences. But perhaps I'll let Jason talk through the details.

All right. Thanks. Look, overall, the site at MATSA has been experiencing very heavy rainfall for a number of months. January alone was 4x the average monthly rainfall on record, and this has been the wettest winter that the sites ever received in its time. Importantly, the team like the Motheo team has responded very well. And last week, we had Rob Scargill go down and was presented an award from the regional government, recognizing MATSA's support to local communities, particularly during some emergency events due to local flooding and dam stability in the local area. If we look at it operationally, we've had very, very wet ROM stockpiles and this presented a number of challenges to us, particularly late in January and early in February, and particularly for our crushing and processing operations during the wettest weeks. Processing continued during that time, but with some overall timing differences. We also lost around about a day or probably just over 24 hours at Magdalena in late January, as the incident that I mentioned before, our government-owned dam presented risk to the local community and had the potential to impact one of our access roads that goes between Aguas Tenidas and Magdalena. But at no stage was there any risk to any of our mine infrastructure other than one crossing on that road. We should also note that particularly the management of our tailings facility over this period has been excellent. And we've -- that overall facility is in very good shape and managing the water that we're seeing very, very well. And look at it -- I mean, if we look at this year, it's been a challenging winter for them overall, but our latest plan does have us achieving annual guidance, but recognizing if we get further continuity of intense rain, it does present a risk, as Brendan mentioned, because the overall area and a lot of the ground up there is fully saturated and all of the key water storage facilities are basically at 100% or greater. And as with Motheo, thankfully, we're getting pretty much to the end of our forecast wet season.

So would it be fair to say across both sites that you need from this point as we stand, you would need a continuation of very bad wet weather to put guidance at risk. Is that a fair comment to say?

Yes. Look, that is the case. So firstly, we often reflect, open pits provide a lot of flexibility. I think Jason and the team, we shouldn't forget made a decision around 12 more months ago to accelerate the development of Stage 2 at Motheo, primarily to enable it to accommodate higher rates of throughput. But that also provides significant flexibility. And as we said, sitting here today, all of the ore that we're planning to extract from T3 is coming out of Stage 2 in the second half. So that, again, gives us a lot of confidence and we are mining there today. So we have access, we're mining today. And as we said, the processing rates across the months are doing well. A4 is the primary risk. Jason said it's around 2,000 tonnes of metal that would be at risk if we didn't regain access. We certainly don't expect that to be the case. If there is any loss as mentioned, we think we can recover that either from T3 or low-grade stockpiles. So it would be an order of magnitude less than that, which in the scheme of full year guidance at this stage is immaterial. But of course, if we had significant additional localized storms, we would have to reassess because all of those impacts could be exacerbated. And MATSA, I think, again, Jason summed it up well based on what we know today and where we're at today, and it's very different than what we're dealing with in Botswana as we speak. Our latest planning sees us achieving our annual guidance. So we just felt, as I said right up front, out of an abundance of caution and transparency. And by the way, the fact that social media means you'll probably see some of the photos out of [indiscernible] and elsewhere that it's a good thing to ensure that you're aware of the situation.

It sounds like it's a support for the view to have a very strong balance sheet and capitalized assets as well. Thank you for your perspectives.

Yes. Look, Dan, whilst we wait for the next question, I think you just summed it up well. It's a core belief of ours of mind that when you're an operationally geared mining company with exposure to volatile commodity markets and operational risk, it's a good thing to have a strong balance sheet. And then once we've got that in place, we just drive value through incremental improvement, and of course, the exploration work we have underway.

[Operator Instructions] Your next question comes from Matt Chalmers from Bank of America Securities.

Brendan and Megan, thanks for today and congrats on a strong results, nice to see a profit return. Just a quick question for me on the tailing facility at MATSA. So great to see the approvals there in place. Perhaps you could, Brendan, if you could just step through some of the next kind of immediate milestones on that project for the next kind of 12 to 18 months, so we can get a better feel of what to keep an eye for?

Yes. Look, a critical thing. The mining approval was the last of the major approvals. We now have a local approval, municipal approval that we need to work through. And then obviously, it's about moving towards initial construction. So clearing of land before we get into construction. We do have the opportunity for another incremental lift on the existing tailings facility. And there are actually arguments as to why we might do that to help us better manage our closure obligations there as well. But really, the primary objective is to get into this new area. I visited it when I was there recently. And the team is roaring to go. Again, this has been a multiyear process planned almost to the minute of these approvals towards construction. So I'm really proud of the team that -- and it's not always easy that they've actually navigated this over a long period of time, and they're pretty much bang on schedule. Jason, just in terms of construction and time?

Yes. So if we look at it -- so we have one remaining permit that we need, which is effectively what it translates to an urban license. The analogy here in Australia is like getting a building permit from your local government. So given the approvals that we already have, legally, the local government must issue that license to us. And we do expect to get it sometime pretty much in the next quarter. So, that's on track. We are gearing up to make sure that we are starting construction very, very quickly. So we're finalizing all of the tenders on that work. and we expect to start particularly earthworks and land clearing pretty much within a few weeks of getting that urban license. And we're finalizing all of the final construction contracts to commence immediately after that. So we should see that overall that earthwork is completed by the end of this financial year and going into full-blown construction for FY '25 and pretty much completing it. Most of it during FY '26 and in operation early the following year.

And importantly, whilst it's a stage design ultimately getting into this new area with this new facility creates the pathway to underpin mining in this region, as we've said in our announcement today beyond 2040, which is a really important step for the local community and although the people we employ, both the employees and contractors.

I appreciate that. And then just lastly, if we just switch to Motheo, obviously, a great job being done there on the cost with the ramp-up in volumes. But just beyond that and putting aside potential impact from the weather over the next few months, are there any additional initiatives you could undertake on the cost side to potentially drive those costs even lower as any kind of still some juice left to squeeze there? Or how are you thinking about that going forward?

Look, I think the first thing, if I can, I'd just take you to the slide in our presentation deck whereby we talk about bringing forward metal production. I think that's the best thing we can do in the immediate future is to make sure we deliver on the 60,000 tonnes next year. Obviously, that's going to be the best thing we can do, if you like, from an economies of scale and a margin perspective. This is still a relatively new mine. One of the things that -- you'll notice in our guidance, it implies that costs actually rise a little into the second half, and that's primarily because, again, we're moving more into a sort of normalized maintenance cycle. And so we will see an uptick in maintenance in the second half and of course, as these things settle, stressing again, this is a very new operation, it will give us an opportunity to step back and look for all the opportunities. I think no doubt, the work we're doing on recoveries has been good, but we're still not where we want to be relative to the DFS. And of course, that's going to help incrementally as well. So there's no specific initiative. You can imagine where we're at the moment. First step was let's drive it hard. Let's test and work at what we think the sustainable rate is at the moment, it feels like plus or minus 5.6 million tonnes per annum. Now it's about the mine scheduling, which we've been working very hard on to try and enable us to bring forward metal production. We think we're tracking well. We're expecting that our life of asset planning cycle will confirm that towards the latter part of this financial year such that when we come back to at the full year, we're very hopeful that we'll be able to commit to a circa 60,000 tonne copper equivalent number for FY '26. And then obviously, as part of that, we'll also be able to show progressive improvements in recovery as we start to get a better handle on just those nuances in the processing plant. So look, again, nothing specific. It doesn't mean we won't find something but we're really working on a number of fronts at the moment.

Your next question comes from Adam Baker from Macquarie.

Obviously got a large infill drill program going at A1 and targeting maiden reserve in the fourth quarter of FY '26. I understand that you've got a pre-feasibility underway, but just wondering if you could talk through potential sequencing for this settle up it.

Yes. Look, so it's still early. Based on the experience we've had elsewhere, we're still very hopeful that indeed we'll have an economic reserve there. And we would expect that, that will sequence in towards the back end of the current mine plan. So into the late 2020s and early -- particularly the 2030s, and be blended with existing ore sources. That's by virtue of its distance from the processing plant scale and other things and a strip ratio, that's the best way to configure A1 and of course, that all depends on Richard and his drilling program and what other ore sources that we discover in the interim. But I can't see a scenario where A1 is not getting developed unless we get some particular surprise in the drilling program in the next few months. But my suspicion is that there is 100% likelihood that A1 ultimately gets constructed, gets developed and comes into the mine plan towards the back end of the current sequence.

That's great. And maybe one for Megan. First half FY '25 implied tax rate of about 28%. You mentioned MATSA tax payments have ramped up in the second half. Just wondering if there's any lumpy nature to these tax payments and should we expect similar rates moving forward?

Thanks, Adam. It's a good question. And I did touch on an expectation that the MATSA cash tax payments will ramp up in the second half. And there is a range around that. It could be an additional 50% to 100% of the amount we paid in the first half. That really comes off the back of the improvement in that cash generation, and at the same time, a reduction in our interest expense aligned with our reduction of debt. Now with the sort of cash tax payments going forward, looking beyond FY '25, these are things we'll look to provide guidance on in terms of FY '26. As you'd expect, there's a lot of thought that goes into the tax planning. And in Spain, in terms of upfront capital allowance, there's elections ranging from between 0% and 100% in terms of how much of your capital allowance did you take up front. And so that does make it a little more complicated to sort of provide a longer-term outlook on what that looks like. But we will look to provide something more firm for future financial periods, Adam.

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

Brendan, Megan, Jason and team. Two questions from me. The first on MATSA. The operational approach was to build ROM stocks over FY '25, but this seems to be going a little slow. Should we expect the ROM stocks to increase also in the second half?

Kaan, thank you. Maybe best way to contemplate this, we've always said that ideally, if we could get 200,000 tonnes thereabouts of stock on the ROM pad, that would be a good thing, and it will fluctuate for various reasons, of course. You shouldn't expect it to be significantly more than that. But for those of you who are familiar with the Iberian Pyrite belt, it is called the Pyrite belt for a reason. There's a lot of sulfur in the ore. And if you leave it exposed for too long, it can catch on fire. So there's never been a desire to build a large stockpile. It's really about having just that level of stock on average over time that helps us manage the blend of our ore sources going into the processing facility because ultimately, that's part of an opportunity for us to maximize the chance of having better recoveries. Jason, anything to add?

Kaan, if you reflect back, it was FY '24, it was our goal to build up to that plus 200,000 tonnes of stock by the end of that year. We achieved that in the second half, and we've maintained that all the way through FY '25. So once we got to that level, our strategy, as Brendan mentioned, we can't continue to build up stocks all right, it will affect us metallurgically. So -- but our plan is to maintain that level and basically match our mining and processing rates, which we're pretty much doing for this financial year.

And maybe the second question is around your comments around the verification of the TC/RC market, pretty interesting. Just wondering if how Sandfire's actively approaching this? Is there an approach of sort of making sure that you get the most of the TC/RCs? Or you are actually encouraging the non-Chinese refineries to come in at better rates.

Yes. Look, I think my comments reflect very much the sentiment of LME Week in October of last year. This was a very, very significant talking point that balance of the short versus the long-term industry structure. As a company where all of our MATSA concentrate, so that's the large part of our volume are already committed to a third party. We have a very small volume, i.e., Motheo, that we have available, if you like, to look at how we contract and track. We're not going to be the people that set the market price. I think that is very much a question for the bigger players that are the large suppliers of concentrate, particularly into China and elsewhere, and particularly those who set the benchmark. And maybe just to give you a feel for that. We said when we released our quarterly -- that the guidance we've provided for MATSA C1 cost probably has downside as in -- it's probably going to fall and be better than what we've suggested because at some point the benchmark TC/RCs will be set. But we didn't want to put a forecast out there because it's not for a small player like us to try and indicate where we think the benchmark will land. Does that help?

Yes, sure. Yes, the Motheo concentrate will be done at spot. So...

Yes. So we -- if you look at Motheo, mentioned earlier that we've put a multi-parcel agreement in place with a smelting customer at around 10 and 1. So that's a series of parcels over the course of the second half. And we have sold parcels effectively at 0 across the prior period. And you can imagine there's sort of everything in between. So we're very much responding to the market dynamic at the same time as we're trying to build the brand for our concentrate. So there are other nuances for us. We have to take into account customers who are willing to accept load port versus dispatch because there's real value in that for us in terms of mitigation of risk and of potential disparities around sampling and the risk that represents to us from a margin perspective. So there's a lot to take into account. But I think it's an excellent question. But I think for me, it's something the industry has to be mindful of, but as a player with a relatively small amount of concentrate, that's not already spoken for, we're unlikely to be the player that's going to drive the outcome.

As there are no further questions at this time, I'll now hand back to Mr. Harris for any closing remarks.

Look, thank you. Really good questions. We appreciate it because I have a pretty good sense for how busy you all are. We've had very good participation on the call, and we don't take that for granted. Look, we think we've had a very good first half, the business is transformed. Our operations are high quality. They're spinning up a lot of cash and that cash is going to the balance sheet. And as I've said many times, rest assured, we'll remain disciplined. We look forward to seeing you on the road, whether that's in Miami next week or whether that's on the East Coast of Australia the week after, and elsewhere in the world. Thanks again for your time.