Sandfire Resources Ltd

ASX:SFR

Earnings Call Transcript

[Operator]

Thank you for standing by, and welcome to the Sandfire Resources March 2025 Quarterly Report. [Operator Instructions] I would now like to hand the conference over to Mr. Brendan Harris, Chief Executive Officer and Managing Director. Please go ahead.

[Brendan Harris, executive]

Good morning, everyone, and welcome to our March quarterly call. Our executive team is here with me today for the Q&A, and they're looking forward to the discussion. But before we start, I'd like to acknowledge the traditional custodians of the land on which we stand, the Whadjuk people of the Noongar Nation as well as the First Nations peoples on the lands of which Sandfire conducts its broader business. We pay our respects to their elders and leaders, past, present and emerging.

Starting with safety, our group TRIP decreased to 1.4 in the March quarter as we remain focused on eliminating high potential incidents and continue to embed our new way of working the Sandfire Way, which, as I've said before, will further strengthen our system of risk management and internal control. Despite unprecedented rainfall at both MATSA and Motheo, we delivered robust production results during the quarter. And the impressive effort of our teams has established the platform for a strong fourth quarter, ensuring we are well placed to achieve group copper equivalent production guidance of 154,000 tonnes in FY '25. If you've been monitoring the weather in Southern Spain and Botswana and seeing some of the images, I'm sure you'll agree this is a great outcome.

At MATSA, given the modest 4% reduction in our milling rate in the March quarter, the delayed extraction of high-grade ore and the progressive loss of productivity that resulted from the persistent heavy rainfall, we now expect contained metal volumes to be strongly weighted towards the final quarter of FY '25 for copper equivalent production of 95,000 tonnes, consistent with the target we set at the start of the year. We also expect a particularly strong increase in copper equivalent production at Motheo in the fourth quarter. As is the case for MATSA, our confidence is predicated on the knowledge that we have high-grade material either already on the ROM pad or exposed for imminent extraction. And we've fully restored access to the A4 open pit and expect to have access to Stage 1 of the T3 open pit in the coming weeks.

Pleasingly, our life of mine planning process has also indicated that copper equivalent production at Motheo should increase to 60,000 tonnes in FY '26 with a smoother production profile in the medium term, bringing forward valuable cash flow and maximizing NPV. Detailed FY '26 guidance will be provided when we report our full year results in August. More broadly, we continue to focus on the things we can control, and we're still working hard to mitigate the broader impacts of inflation at our operations. At MATSA, a marginally lower projected throughput rate for FY '25 and unexpected strength in the euro to U.S. dollar rate has necessitated a modest 4% increase in our underlying operating cost guidance to $78 per tonne of ore processed with the level of underlying expenditure increasing by a more modest $8 million or 2% to $355 million.

Conversely, Motheo's underlying operating costs remain below guidance at $38 per tonne of ore processed despite the level of disruption caused by the floods, and we've retained annual guidance at $39 per tonne. While I can assure you that we're not becoming complacent and are always looking for ways to safely and sustainably squeeze out every penny, the cumulative 1% increase in our forecast underlying costs relative to initial guidance for FY '25 will be more than a respectable outcome given the myriad of challenges faced by our teams. I should also note that we've reduced guidance for total capital expenditure by $11 million, primarily to reflect timing differences at Motheo and increased planned expenditure at Black Butte by $6 million to $18 million to reflect the expanded scope of the successful drilling program that is now nearing completion.

So bringing this together, the proven resilience of our business and strong pricing for our metals delivered unaudited group sales revenue of $283 million and underlying EBITDA of $126 million for a further $45 million reduction in net debt in the quarter to $243 million, bringing the cumulative reduction in net debt over the past 12 months to $238 million, equivalent to a run rate of around $60 million per quarter. Suffice to say, while we've been challenged and will continue to be, our talented team, high-quality operations and increasingly strong balance sheet leaves us well placed to navigate and prosper in the currently volatile macroeconomic environment.

And finally, before I go to questions, I did want to provide a quick update on the page that impacted Spain, Portugal and France just after 12:30 p.m. local time yesterday. While the cause of the outage that temporarily shut down our operations is as yet unknown, I can confirm that power has been restored to -- and Lucia, and we expect to commence a full restart of operations at the start of day shift today. Again, our team has managed the situation well, drawing on emergency generators to provide power to ancillary services as they safely evacuated our mines, which, of course, was the #1 priority in the circumstances. With that, can we please go to questions?

[Operator]

Thank you. [Operator Instructions] Your first question comes from Ben Lyons with Jarden.

[Ben Lyons, analyst]

Let's just start with the retention of the fiscal '25 production guidance metrics, please. And I appreciate the courageous decision to keep them unchanged despite the numerous challenges that the business has faced at both assets year-to-date. So maybe just sort of teasing out some of the numbers there. It looks like you require about 17,000 tonnes of copper equivalent in BOS and about 26,000 at MATSA for the final quarter. So firstly, at Motheo, just back calculating, it looks like you need a grade of about 1.2% to 1.25% copper, which would be a material step up and retention of those recoveries about 94%. -- not in your introductory comments about having a lot of high-grade ore on the ROM pad or open for imminent extraction. But maybe we can just explore just some of those metrics a little bit further and your confidence in those numbers, please.

[Brendan Harris, executive]

Yes. Look, thanks, Ben, and I'll hand to Jason. Look, the reality is what you've seen, and I think we're seeing in our numbers relative to market expectations is we talked a lot about the floods when we last spoke that, that was sort of a breaking story. And we talked about a degree of risk in the production estimate. We've actually stepped away from that as we sit here today because we've actually dewatered successfully A4. We're back in there. And obviously, we've been operating within Stage 2 of T3 consistently, and we are expecting to get access back to Stage 1 in the coming weeks.

Now of course, you're right, there's not a lot of wiggle room in those numbers, but they are our plans. And I think one of the critical things I know Dave has been talking to people like yourselves this morning is you'll see they're not predicated on a material and unprecedented uplift in throughput. It really is around the grade profile, and it's what we know we have in front of the -- if you like, in front of our excavators on the shop floor, so to speak. And so those plans are robust. Those plans obviously also capture the fact that we lost some incremental tonnes at the start of the quarter with the power outage in Botswana, which impacted temporarily a degree of our throughput.

So again, we wouldn't have obtained guidance if we didn't have confidence in our belief that this could be delivered. And of course, again, it's not predicated on running at a rate that's significantly in excess from a throughput perspective relative to what we've achieved previously. But maybe, Jason, if you can dig into some of that detail a bit more. And I can assure you, Ben, you can imagine these numbers have been heavily scrutinized internally. As I've mentioned, a lot of work to do, but that's what the plan tells us today. J?

[Jason Grace, executive]

Yes. And look, if we focus on Motheo, and if you like, there's a lot of parallels in between that are really significant for both of our sites. And if you look at Q4, it's all about grade and grade delivery to the mill. And particularly if I look at Motheo, processing rate, year-to-date, we've been running at about a 5.53 million tonne per annum rate. So that's as at the end of the March quarter. During Q3, that was lower, given the situation we were dealing with in terms of the extreme rainfall. That was at about 5.48. So that leaves us about 1.35 million tonnes to process in Q4, which equates to a 5.4 million tonne per annum rate. So certainly nothing big or heroic about those numbers. We do note that we do have a planned major shut, which we've already been through. So that occurred during April. So we're through that at the moment, and we're back up processing at full rate. And then on the back of that, if we look at recoveries there as well, we believe they're achievable and they're about in line with what we've achieved there with Q3, so about 94% -- so that kind of leaves us with grade. And on our numbers, it's kind of in that 1.1 to 1.2 range. So once again -- and that is based on our mine plan and the ore that we have sitting in front of us, as Brendan said.

[Brendan Harris, executive]

And as you know, Ben, when you go to Motheo, you move into these areas, which are more bornite prone. And it is part of just the natural sequence of the ore body, which is where you get that temporary grade kicker. And we've always known that high grade has been there. Of course, getting into A4 incremental tonnes will be positive, but we're not really getting grade out of there this year. That will come more next year. And then, of course, as we get back into Stage 1, there is some high-grade material sitting there as well. And as we mentioned, we expect to be back in there in the coming weeks.

:p id="1815171769" name="Ben Lyons" type="A"

[Jason Grace, executive]

Yes. Look, so at this stage, what I think you'll find is that, yes, obviously, the balance of hydro is important for the region broadly. But the additional short-term, call it, stop gap measure has really been vis-a-vis South Africa. I think the critical thing to recognize here in respect of the load shedding that we experienced, which at its peak impacted throughput by about 25% of capacity. And that was across just a number of days. A couple of things. The first one is power costs for our business overall. I think Megan are about 5% of our total cost at Motheo. So they're not significant. And so we do expect some cost pressure coming through on those incremental additional electrons, if you like, that are coming through across from South Africa. But again, it's not expected to be significant, and we've got more than enough capacity sitting in our cost guidance.

The second point is one thing the team has done on the back of this, which I think is particularly important from a risk mitigation perspective as we look forward is they've also looked at all of the installed additional, call it, emergency capacity that we have vis-a-vis the generators that we have on site to run the camp facilities, but also the generators that exist on site that have been used through the project construction phase. And they're continuing to work through a process which will enable us to have access to those, which would broadly mitigate the sort of risk that we've seen in the start of this quarter. So I think the combination of those things. And as you said, if we continue to see good hydro out of Zambia, that's positive for the region. But again, I think the team is responding well and building a bit of risk mitigation into this. The critical thing, of course, I know the Botswana government is very focused on it, is getting the maintenance back in train and I guess, getting them back in a good position at their own domestic generators.

[Operator]

Your next question comes from Mitch Ryan with Jefferies.

[Mitch Ryan, analyst]

Just interested to get some more color around the CapEx profile, specifically at Motheo and some of the deferral of the plant debottlenecking activities. How should we be thinking about sort of that revised time frame going forward?

[Brendan Harris, executive]

Yes. Look, I'll pass to Megan. The big one we've talked about a number of times is actually this tank capacity at the back end of the plant, which is really insurance. It's a low-cost insurance policy for the ability to continue to, over time, incrementally add throughput capacity. That's the item that we would expect -- the main item that we expect to pull into the next year. I mean we still, to be honest with you, we'll continue to monitor that and form a view as to how critical it is and whether or not indeed it is the insurance that we need, but that is likely to carry across in the budget. But Megan, perhaps over to you. I think there's also some things related to timing of uplifts of the tailings facility.

[Megan Jansen, executive]

Yes, sure. Look, there's approximately $11 million, which we've moved from financial year '25, which I think is reasonable to expect that will move into financial year '26. Brendan touched on one of the major components within that, and that's the thickening capacity and the tank capacity. And the other component is the tailings storage facility and it's the Stage 3 works, which based on latest estimates in terms of prioritizing our projects to the end of the year, we're comfortable moving that into FY '26. So you should see that $11 million come into the next year. The last quarter for Motheo will be a heavier quarter for capital. And you can see that in the run rate. It's a number we're closely monitoring, but I do expect it is going to be a strong finish to the year and that there's potentially a few million of upside that's sitting in that number. But the team is forecasting a step-up, particularly with mining activity and deferred stripping in the last quarter at A4. So you'll see that come through in Q4. And the other component is the step-up in our sustaining projects that we're currently moving forward with. So I hope that provides a bit more color.

[Brendan Harris, executive]

Yes. And I think, Mitch, if I can, what we've tried to do, particularly in the back data tables, is to provide you the best estimate of how we think we'll be placed by the end of the year. So we've actually updated incrementally quite a lot of the data points. And as I mentioned to Ben just a moment ago, we don't we don't expect to have a lot of wiggle room in those production numbers. We need a strong quarter, but we're well placed because of the grade profile. If there's anywhere where I think there is potential that we can do a little better, it is, as mentioned, on the cost side and capital side of Motheo. So I think if you look at our numbers, the skew of risk is probably to see costs slightly lower than what we've flagged, but not materially so and potentially capital. But given the way things can move around, the potential movements in working capital, you can see the impact on costs, we've left things as they are for now.

[Operator]

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

[Daniel Morgan, analyst]

Just probably an expansion on the questions earlier just on the guidance. Clearly, wet weather impacts have been well telegraphed and you felt them. Just wondering if you've consumed some of your flexibility and that might travel into FY '26, i.e., you might start next year without a lot of flexibility? Or have you robbed anything from FY '26 to '25 at all in terms of flexibility and risk of delivery?

[Brendan Harris, executive]

Yes. I don't know if it's even politically correct to talk about the phrase rob Peter to pay for, but it is something that we talk a lot about here. What we don't want to be doing is making short-term decisions. And it's one of the reasons, if you look at the quarterly, we're really careful to make sure we did update you on the outlook for Motheo for next year. the fact that we felt the 60,000 tonnes we're increasingly confident in versus the 59,000 this year and that smoother production profile. Jason's continued to remind me that the risk year for Motheo was this year because of the staging of the pit shells. And then we've obviously faced the floods in addition to that. Next year is set up in a very good way, where we actually have more flexibility, and we have a high degree of confidence. Still going to do the work. MATS is quite similar. We're into Oliver. We're into San Pedro. We're continuing to invest in the underground. As we look to next year, we feel that the plans that we've just gone through mean that we're well placed to maintain similar type levels of production that we're targeting this year. So we'll provide much more detail on that as we head towards, obviously, our August results and we've got to go through the finalization of our budget processes, et cetera. But excellent question. It's one we ask ourselves a lot. We don't want to be short-term decision-makers and none of the things that we're talking about today in any respect actually are a function of us trying to chase an outcome vis-a-vis guidance. The numbers are what they are, and the plans continue on after this year. Jason, anything you want to add to that?

[Jason Grace, executive]

No, I think you've covered it well. Look, Brendan has captured it right. This was the high-risk year for Motheo. If you look at all we had with Stage 1, we were transitioning to Stage 2 and T3 open pit. And at A4, we didn't have access to the ore, and we were just getting there in terms of the plan towards the end of FY '25. You fast forward to FY '26, we're in A4 ore body, right? We're right in the middle of T3 Stage 2, and we're starting to transition over to T3 Stage 3 as well. So we're well positioned, particularly over the next sort of 12 to 18 months at Motheo. And if I look at MATSA, we expected high grade to kick in, in half 2 of FY '25. And effect, what we've done is almost defer high grade from Q3 out into Q4. So it's really pushed it out, and it's compressed that into Q4 rather than bringing forward high-grade ore from FY '26.

[Brendan Harris, executive]

And maybe at risk of too much detail, and Jason, you can correct me here where I'm wrong. But one of the reasons that high-grade deferral is some of that high grade is coming out of stopes, which have a high propensity for paste to, if you like, make their way into the ROM stocks because we're mining either crown pillars or tertiary stopes. When it's wet, if you've got ore with paste on the ROM pad, it makes it really hard from a crushing perspective. It just -- it somewhat turns like clay glue. So those decisions, it's hard from an underground perspective, probably for everyone to immediately reconcile why does it make it hard. You don't have the open pits that have a propensity to turn into swimming pools, but there are issues that you face with the way that your ROM stock presents through to your crusher and then through your mill. So that's part of the thinking around that. So hopefully, that provides a little of extra color.

[Jason Grace, executive]

100% correct. And particularly with Magdalena, we are working under fill with the mining method that we've had. So it makes us particularly sensitive to the high-grade poly ore and the ability to put through that through the plant, given that this stuff was, Brendan said, Clague. -- some people describe it as mud. And once it gets on the belts after being crushed, it just rolls back down and makes it very, very difficult to maintain throughput rates and keep stability in the plant.

[Daniel Morgan, analyst]

Maybe just pivoting to Black Butte. Maybe you could just expand on the exploration program that's been underway, the success you've seen to date, what's the next gateway and plan for monetization in some form or the other via project or via sale?

[Brendan Harris, executive]

So obviously, Sandfire America has carriage of the project, which is particularly important from a governance perspective. But from our side, as obviously the majority owner and also the funder of the project, we're really pleased with the progress they've been making on the drilling program. There are literally weeks left in that schedule, and we should see that complete. We would expect somewhere at the conclusion of that process or shortly thereafter that Sandfire America will release the outstanding assay results, which we hope will confirm the continued sort of extension of the lateral extent of that ore body. I've mentioned it many times before in the current cost environment, the higher grade lower zone is increasingly the driver of the economics, which is obviously the critical piece from our perspective.

What I do anticipate coming off the back of that is Sandfire America will make it clear in terms of what the next steps are. I would expect them to move towards either an update of their feasibility study or given the changes we've seen to go back into an accelerated pre-feasibility study. It would be one of the 2. And that would put them, I think, in a good position to provide a detailed update to the market, I think, through the middle part of the second half of this calendar year. Obviously, from our side, I've said all along, we're supporting the project, the funding -- and clearly, we provide critical technical support because we continue to see the project is compelling.

The real question that we as a company and clearly with our Board, we need to work through is whether the project meets various materiality thresholds. One of the other elements that we've certainly suggested is particularly important for that project is to fully assess the ability for the copper concentrates to be processed in country and to look at all alternatives and certainly potential domestic demand, which historically we've known has been there. So that work is also happening in parallel because, of course, in the world where potentially we see COMEX running at a premium to LME, being able to process in country will be also very important from an economics perspective.

So all of that said, Dan, no change to what we said before. I think the critical thing for us is we believe this is an attractive project. We think the work will confirm -- it's our belief the work will confirm that the economics are compelling. The project we built. The critical thing is from our side, determining who is the best party to support the ultimate development of the project. For us, it's how do we maximize net present value and also consider it in the context of the complexity adds to the business relative to the materiality to NPV.

[Operator]

Your next question comes from Ben Wood with Wilsons Advisory.

[Unknown Analyst]

Congratulations on executing the controllables. I know that there were many things out of your control this quarter. But I had just 2 questions, if you don't mind. With the new debt facility, I know that you've released the obligation repayments. Is there any possible repayments that can be made before that bullet maturity? Or is that fully defined as there will be absolutely no repayments until that time? Or is it the sort of an optional clause there for early payout if that's how you want to proceed?

[Brendan Harris, executive]

Yes. Great question, Ben. And from our side, we think about it as a liquidity facility as much as anything, but maybe Megan.

[Megan Jansen, executive]

Yes. Thanks, Ben. And the structure of the facilities is important to note. So it's a full revolving structure. And so with that structure, it has a number of benefits, one of the key ones being that you can make repayments and draw upon it at any time during the 4-year period of that facility. And so to the extent there's excess cash in the business, you can pay that down off the drawn amount under the revolver. And when you need it in future, if you need it in future, you can draw down upon it at the same time. So it's quite different from the previous project debt facilities we had in place that had to set debt repayment schedules in that way. So hopefully, that gives you a little bit of flavor. We continue to dogear during the quarter just gone. And I think broadly, we're on average dogearing $60 million per quarter. We've spoken about that consistently is something we're going to continue to focus on. And the benefit of this structure is that it enables us to continue to pay down the debt, but you've got liquidity available there over the term of the facility in the event that you ever need it.

[Daniel Morgan, analyst]

I appreciate the extra color there, guys. And my last sort of question was just about looking at sort of byproducts. I know that there was the copper equivalent 60 kilotonnes of sort of guidance at Motheo next year, but there sort of wasn't anything for MATSA. Just thinking about sort of byproducts and going into next year, noting that we saw the decrease and fall in the lead this quarter. Is there anything we should sort of, I guess, carrying on from Dan's point before, be carrying into our FY '26 forecast just at this stage about any of the byproducts to expect?

[Brendan Harris, executive]

Yes. Look, I think -- so firstly, just going back to the debt question, as I said, good question. The thing I would just stress from our side is I noticed some people focusing on our cash balance. I would steer people away from that because if we're building cash, we'll pay down debt. And therefore, the best number to -- I always said the one truth serum for mining companies is the net debt line. That is where you can really see whether people are generating cash or not. Everything else is pardon me, but accounting. So then going back to the other question around the 60,000 tonnes at Motheo, we don't expect a significant differential in the sort of ratio of copper to silver. -- and MATSA, I think, similar. The thing I would stress, you'll notice that we're running Sotiel at a slightly lower clip and we're running, obviously, the combination of Aguas Tenidas and Magdalena at a slightly higher clip. That is the sort of strategy that you should expect from us in the medium term, barring something under same. Sotiel continues to provide us with a great backup, but the NSR and the economic rent equation dictates that outcome. And so again, if we're extracting in that similar ratio, then you'd expect on average, the similar sort of ratio of byproducts that we've seen in the past. Jason, anything to?

[Jason Grace, executive]

Really just to add to your point on lead, which is a good pickup. If we look at that Q3 or March quarter was a bit of an anomaly. So we were mining some older areas in Aguas Tenidas, where we saw -- we had very high-grade poly ore coming out. So it was anomalous in terms of it was both high-grade copper as well as very elevated levels of lead. So from an NSR point of view, what we continually do, particularly at all sites, but particularly at MATSA is maximize NSR. So in this case, given the high levels of copper we had in that ore, our goal or our strategy was to actually suppress lead and send that out to the tail and maximize copper recoveries, and that delivered us the better outcome. Now certainly, looking forward, I don't expect that to be a big part of our mine plan going forward, but we will be at time to time, mining some of that material, but typically small tonnages.

[Operator]

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

[Brendan Harris, executive]

Again, I've said this -- I know today is a really busy day for you all with obviously the ANZA holiday and Easter sort of coalescing a lot of quarterly has been pushed into this week. So we do really appreciate your interest. We appreciate your time. I did want to just take the opportunity again to thank our broader team and particularly at operations. It's been very challenging, continues to be as we saw in Spain overnight. But under Jason's Julie, the teams are responding incredibly well. And most importantly, they're keeping our people safe and delivering on our commitments. And as I've said, we've got a very, very big quarter ahead of us. We've started well, but there's a lot of work to do. So we look forward to providing an update when we discuss the fourth quarterly in July. So thanks again for your time.

[Operator]

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