Sandfire Resources Limited

Thanks very much Melanie. On behalf of Sandfire, a very warm welcome to everyone and thank you for your time today on this final day of reporting season. It's my great pleasure to introduce today's investor call and webcast on Sandfire's financial results for the six months to 31 December 2021. Reflecting the significant changes which have occurred in Sandfire's business over the past six months, today I'm introducing the senior executive team from different locations around the world. Firstly, in Miami, Florida, we have Sandfire's Managing Director and CEO, Carl Simich, and Head of Investor Relations, Ben Crowley, who are attending the BMO Global Metals and Mining Conference. Secondly, from the Mutsa Operations in southwestern Spain, we have the company's Chief Operating Officer, Jason Grace. And finally, here in Sandfire's Perth Head Office, we have the company's Chief Financial Officer, Matt Fitzgerald, and David Wilson, Head of Technical Services and Business Development. The order of proceedings today, Carl, Jason and Matt will firstly run through the December 2021 Half Year Financial Results presentation which is available on the ASX platform and as a synchronised slideshow via the BRR Media Service using the link on the front of the presentation. When we get to question time, Carl will hand over to Melanie from Chorus Call and we'll deal with telephone questions first. In the interest of efficiency and given everyone's location, I will direct questions appropriately as we move through the question queue. Once we've completed the telephone questions, I will deal with any online questions submitted via the webcast browser before handing back to Carl for closing remarks. A recording of the entire webcast will be available following the conclusion of the call. Post-preliminary logistical remarks out of the way, it's now my pleasure to hand over to Carl over in Florida to introduce today's presentation. Carl, please go ahead. Thank you very much Nicholas and welcome everyone to the call and I look forward to presenting a few results and other key matters that have been incurring in the business over the last six months. So great pleasure. to be talking to you today. In terms of the business and Sandfire and where we operate, clearly over the last period of time, we have been doing a lot of work to progress our strategy and to find ourselves now very much in a transformational stage of our business. And we have had the last six months of excellent operating performance, just continuing excellent performance from Degrossa. aggressively moving forward in the development of the Mateo project in Botswana. As mentioned, and where Jason Grace is located at the moment, the acquisition of the transformational transaction tool, that's a complex in Spain, and we continue with an extraordinary and strong push in terms of a key element of our business, our organic exploration globally. In terms of strategy, we are well and truly committed you know, continuing to move forward and execute our business based on the strategic plan that we set out some two years ago and continuing to, one, execute delivery, continue to sustain and grow our production profile, certainly through the acquisition of Matza, aggressively moving to accelerate discovery. We have a very substantial exploration budget on foot in Western Australia, in Spain, in Botswana, and also we're exploring for the first time now in Montana, USA. And we ensure on the strategy that all of our people around the globe are aligned and empowered and have all the resources and tools that they need to execute their work, and as well from a business perspective, ensure that we are optimising our capital structure in terms of debt and equity and engagement. Our values as a business are absolutely core. They really are the DNA behind the business and they drive our behaviours and allow us to bring our international operations together to drive value through growth and what is critical to us is honesty, respect, collaboration, accountability and ultimately also performance. In terms of headline results for the half year and I will just bring to your attention that we have changed our reporting currency into US dollars and Everything we're quoting today will be in US dollars other than one item being the dividend. But sales performance for the half year, once again, an outstanding result of almost $12 million US and a very strong EBITDA for the half year of $161 million. This resulted in a net profit attributable to the equity holders after tax of $55 million. So very strong performance for the period, very strong cash flow of almost $200 million from operating activities. And as well, just to mention, after raising a substantial amount of equity, and that will go through the detail in due course regarding the finances of the business over the last six months, but certainly up until where we sit today, we still sit at the end of, after the much of transaction has been completed. With 321 million US dollars in the bank, we've drawn facilities but we're in a very strong financial position on the balance sheet. In terms of key operating highlights for the six months, outstanding results once again from DeGrasse are nearly 35,000 tons of copper production and over 16,000 ounces of gold in the period. It's still in all circumstances considered. with various input cost pressures, a pleasing C1 operating cost of $1.10 per pound and clearly as we know the copper price is near $4, almost mid $4 a pound, it provides for some very good margins. Production guidance for De Grasse for the period will be at the higher end of guidance of 64,000 to 68,000 tonnes of copper. and 30,000 to 34,000 houses of gold for the year. And cost guidance for De Grasse still remains at 110,000 to 120,000 for a half year. In relation to other key elements, you know, we are pushing very hard on the Mateo Copper Mine and its construction. Substantial number of people on the ground and, in fact, well over 1,000 at the moment. New mining equipment's been arriving on site, been assembled, everything on site. is brand new, world-class, state-of-the-art, so there will be no shortcuts taken there and progress is really quite excellent. Feasibility study for the expanded operation will be completed in June. It's afraid to complete as far as we're concerned in terms of what the results of that will be and effectively where we sit at the moment. We are driving hard as we sit to proceed to a construction of 5.2 million tonne per annum operations. We also have somewhere in the order of 12 drill rigs on the ground in Botswana and we are significantly pushing hard in terms of that continuation of organic exploration and we do believe that province and that substantial footprint that we've got in Botswana will yield other significant results and probably far more significant than we've seen today. And just touching, during the half year we entered into the agreements for the acquisition of Matza that was completed on the 1st of February. And we have done an extraordinary amount of work, which the team will go through, through the balance of this call, in terms of integration and pre-planning for that transaction to complete. And I'm very happy to say that we've put an enormous amount of effort in for its smooth completion and also a very engaged team very engaged implementation of that into our business and I must say that is going very well. So we're putting a huge amount of effort into making sure that there's a smooth transition and a smooth integration. It is a world-class asset without a question of doubt. Three underground mines, a very solid processing facility and we just need to make sure that we optimise that operationally and we're chasing the touch on that but also we believe with the limited amount of exploration that's occurred in the Iberian pyrite belt that is under our control now, there is exceptional exploration opportunity and we'll be spending heavily on exploration to look at greater high quality grade opportunities and also mine life extensions potentially out of there. But what I would say is that where we sit at the moment, Sandfire is in command of two world-class mineral belts, particularly for base metals and for copper. in the Kalahari Copper Belt in Botswana and also in the Iberian Pirate Belt in Spain and Portugal. So we're in a wonderful position to leverage off those situations and I look forward to getting a reward for that, the value inside the business as we continue to disseminate that information and deliver on our strategy. I'll just pass over now to Matt Fitzgerald. Thanks, Carl. Starting with Degrassa, clearly it's driving, as Carl mentioned, our P&L results for the half-year, so we'll step through, firstly starting with Degrassa physicals and really just to recap some of the half-year physicals that we disclosed in the December quarterly. $1.10 C1 costs impacted predominantly by energy and shipping and port costs, and to the full-year guidance, $1.10 to $1.20. Very solid half-year performance, around three-quarters of all coming from De Grasse, just over a quarter of all coming from Monty and some very solid mill throughput rates, just above 1.6 million tonnes on an annualised basis. Looking at how that translated through to segment EBITDA contribution, so as you can see, the De Grasse EBITDA around 65% EBITDA margin against the headline revenue. of $312 million of revenue and then our other segments as we report them, we expense exploration and studies up to the point of definition. So definitive feasibility, so Black Butte and Mateo are both negatively impact group EBITDA in terms of the feasibility studies, drilling and permitting costs and then exploration of course as we know across the different areas of our business. We are strong believers in exploration and its value opportunities. And there's also some costs in there in terms of $4.6 million of the $26.9 million relates to MATSA's acquisition costs incurred up to the end of December. So on a group basis, $161 million group EBITDA coming off a base of $204 million from the GRUSSA. Moving now to a period on period, a group EBITDA comparison. So from 138 million US of EBITDA in the corresponding prior period, EBITDA for this period is some $23 million higher than that. We've just broken that out into a waterfall, that strong production and copper price from De Grasse has of course led that strong EBITDA result as we've talked about on the previous slide and particularly sales price and some volume contributing under $55 million directly to a comparative EBITDA number. On the negative side, as we've guided and have guided through the couple of quarters, September and December, are really being impacted by freight costs. Global freight rates, not surprisingly for all I'm sure, are higher than – significantly higher than they've been in prior periods and have come off historical lows really over the last three or four years. And this is really the flip side of that. And also port congestion and costs associated with that have impacted us during this half year. Really across the page, only some minor movements up to the right and then that $4.6 million to the P&L that we see from the MATSA acquisition costs. I'll talk about that a little bit more when we get to the MATSA slides as well. For an EBITDA for the group, $161 million. Moving across to financial position and we have a very strong balance sheet. It is strengthened of course somewhat by the equity raising and the monies held and funds held at the end of December in preparation for the end of January MATSA acquisition. So certainly very cash heavy looking at that. We've also added some detail across and I'll get to the waterfall in a minute, some detail across some of the other movements in cash. And also just to recap during that period, $145 million US dollar. It is denominated in Australian dollars as a facility, but we're stating it here in US dollars, $145 million US dollars or 200 Australian, drawn down during the period also in preparation for the MATSA acquisition. And that was allowed us to come off what was previously a debt-free balance sheet, excluding lease liabilities, and really allows us, as Carl mentioned, to leverage our balance sheet into being able to take something as impressive as an operation as MATSA into the group. Post balance date, in terms of balance sheet, we took on, as everyone I'm sure is aware, $650 million US dollar MATSA acquisition facility which is drawn in Spain and is separate to the parent so it is effectively ring fenced at the MATSA level. Moving to the cash flow waterfall for the half and really breaking into a couple of sections, starting at $431 million at the open starting position at the start of July, you'll notice that there's the operating cash flow, $193 million positive and then really the rest which relates predominantly to the grosser income tax and also the full year dividend. Moving to the right, there's a section between equity raising, ANZ corporate facility and massive deposits which is really prior cash flow movement up to the end of December, and those three items all match that acquisition related. So up prior to that point, prior to the equity raising, you can see $887 million. Up to that point, our cash would have been at that time around $469 million U.S. Those match-related cash flows, of course, happened up to where you can see closing cash 31 December 2021 of the $1.2 billion U.S., Then the MATSA transaction itself, so the $650 drawdown of debt on a gross basis and then the actual MATSA acquisition of $1.565 which in addition to the $300 million deposits paid prior to 31 December makes up the headline $1.865 billion acquisition price for MATSA. Tapping onto that, some cash flow for January partly due to there was a prepaid sale in December that related to a January shipment. So in net cash and also with capex at Mateo, there's a net cash drop of $15 million. To get us to an end of January or first of every position if you like, $271 million in terms of the waterfall and then tapping onto that $50 million US which was the cash acquired on the acquisition date of MATSA. as at 1 February 2022, $321 million of cash holdings. Moving now to dividends, and we're very pleased to continue our strong record of returns to shareholders. We have acquired in MATSA a cash-generating asset. It's also a low CapEx asset in terms of upfront CapEx. It has, of course, mine development and ongoing and a fairly low burn rate of sustained... of sort of sustainable capex levels, sustaining capex levels. We of course have Botswana lining up well in terms of we're funding it from our balance sheet and then from around mid this year, this mid-calendar year, we expect to be finalising the debt facilities for around $160 million of debt financing into Mateo. So very much a period of change for Sandfire but very, very pleased to have as an interim basis to declare a strong a dividend and continue that strong record of return to shareholders. So 3 cents per share Australian dividend for the interim period, as I said, fully franked and the record date 16 March, payment date 30 March. We are, of course, as Carl mentioned, very, very closely optimising and watching our capital structures as we go. We have taken some debt, of course, and some leverage onto the balance sheet, which we believe is very, very manageable based on the quality of the cash-generating assets that we hold. and future dividends of course will come out as the board determines in the future. But as I say, we'll balance our project development, funding mix, exploration and growth and then as we move into again a more sort of I guess stable operating environment in terms of having at least two producing and cash flow generating assets, then we'll of course and the board will of course revisit our dividends position over time. Moving across to the new operation at MATSA, we'll cover this in three parts between Jason and myself. So firstly the transaction, then a bit of a discussion around optimisation pre and post the transaction date and then finally into guidance for this sort of interim five-month period up until the end of the financial year and the point where we will then be issuing MATSA guidance in line with group guidance. So firstly to the acquisition, just a bit of a recap on some of these items, of course well known and and we've put out announcements covering most of these details before. In terms of the transaction completed on 1st of February with equity, the massive debt, the corporate facility and also our build of cash holdings which really came from our Degrasser operations over the last couple of years and the debt-free Degrasser operations certainly helped in being able to leverage our balance sheet. The financing facility for MATSA at $650 million US is a five-year facility. We have completed the syndication of banks and we have a very high-quality collection of international banks both through Europe and very, very pleasingly specifically in Spain. Some very, very strong support from Spanish banks but also US banks, Australian banks and other European banks. We're very, very pleased with the quality of that banking group and we look forward to working with them on the success of Matza over time and Sandfire more broadly. We've laid out the finalised repayment profile. The first repayment, $118 million for that facility due the end of September this year and $198 scheduled for the financial year of 2023 in total. We'll provide you more detail around these as we go. This is just in financial years. Generally speaking, there's a payment around July and January of each year as we roll through the repayment schedule. Hedging also, as previously advised, hedging is in place across three years of copper and zinc for MATSA, just under 74,000 tonnes of copper at $4.19. Starts in the 2022 year, so in the next five months, around $4.32. By the time we get out to financial year 25, it's $4.04. Zinc, just over 84,000 tonnes of zinc forwards, and that also has a range starting around $1.46 in the financial year 22 and sliding on a sliding scale down to $1.13 in the $25 range. what is picked up in the 25 financial year. So there's three complete calendar years of hedging between February of this year and January in three years' time. There's more detail for that for anyone who needs it in the completion announcement that we put out on the 1st of February this year.

All right. If we now look at Master Optimisation, Operational integration is now well underway with the SANFIRE integration team on site and working very well with the SANFIRE MATSA team. Initial work for integration extends across the key areas of operational excellence, alignment of policies and standards, and reporting systems and governance. Near-term key projects have focused on the period to June 2022 and supporting the issuing of interim guidance as Matt touched on before for the remainder of this financial year. The key work in this area has included the confirmation of near-term operational plans and budgets, reviewing commencement of updates of mineral resources, which in turn will support updates of the life and mine plan and ore reserves, significant work on plant resinous recovery and concentrate product optimisation, and mining production and delivery. Looking out longer term and following the completion of this initial important work, we expect to issue financial year 2023 guidance in the middle of this calendar year and at the same time continue to establish strong base at MATSA for multi-decade operations that will be underpinned by a strong safety culture at MATSA, alignment with SAMHSA's values, an in-depth understanding of the key drivers of value and a commitment to operational excellence, a focus on ongoing growth of mineral resources and ore reserves, and in line with Sandfly's DNA as an explorer, a commitment to long-term investment in exploration right across the Iberian pyrite belt. Circling back to the current financial year and looking at MATSA interim guidance, we're very pleased to be able to issue production guidance for the five months of June 2022. And this includes approximately 26,000 tonnes of copper, approximately 37,000 tonnes of approximately 1,000 tonnes of lead and approximately 820,000 ounces of silver. Please note that we've also included guidance on the payable percentages for all elements. Finally, noting the complexity associated with the production of both copper ore and polymetallic ore across the mining operation, we have included a breakdown of production tonnes and grade for each of three underground mines. And when combined, the guidance is Copper ore production of approximately 450,000 tonnes at a grade of 1.8% copper and polymetallic ore production of approximately 1.45 million tonnes at a grade of 1.9% copper and 3.4% zinc and with total production expected to be approximately 1.9 million tonnes for the period. Now moving to base metals concentrate production guidance. We note that MATSA produces four concentrate products that includes a cupriferous copper concentrate, a polymetallic copper concentrate, a zinc concentrate and a lead concentrate. You will note the breakdown of expected concentrate production and grades for each of these products, with the combined concentrate production expected to total between 200 and 220,000 tonnes for the period. The expected revenue split is also shown, and unsurprisingly, the lion's share of value is driven by Copper and Zinc.

Looking now at Matt's unit cost guidance, and as we mentioned before, strong margins have commenced from day one of ownership. So at an indicative level, around $3.40 US per pound of direct copper margin against the one pre-development CapEx. Headline C1 costs for the five months. We expect to land around 94%. cents per pound and they are higher driven by global cost pressures. Just to point out one of those, so from around mid last year up until now, on a processing basis, costs are up around 25 cents per pound. I'm guessing no surprise to anyone around higher energy costs and global inflation which includes labour inflation costs and pressures in Europe. So certainly on a margin basis, much stronger than any of our prior analysis that we had worked through. Looking at group guidance, so combining the two together, De Grasse across the 12 months of the financial year and MATSA for the guidance that we've just put out today in terms of five months to June 2022 and pulling them together. We're approaching £200 million of copper production for the full year. We're guiding for the second half costs, so the second half combining De Grasse and MATSA together. of around $1.05 to $1.15, so the midpoint of that is around the same number as we looked around the first half which was just the grosser, so similar second half to the first half. Acquisition costs, importantly, total around $50 million. Around a third of that we expect to finally go through the P&L for the full financial year, so around $17 million to the P&L and around two-thirds of that $50 million of match of trend acquisition costs. go to the balance sheet against the debt and equity numbers. So headline production, 90,000 to 95,000 tonnes of copper and then around from Matzah, so that would be combined Matzah and De Grasse and then just from Matzah is the zinc and lead numbers shown there and also the silver numbers and then De Grasse contributing on the gold side, 30,000 to 34,000 ounces of gold expected for the full year. CapEx across Degrassa and Matza, around $80 million in terms of mine development. For the full year, around $145 million expected, and we'll get to that in a minute, around Mateo, around $145 million for the full year, and around $17 million in the group as quite a low sustaining CapEx type burn rate. Exploration, evaluation and studies to wrap those together, around $55 million expected for the group for the full financial year.