Sandfire Resources Limited

Thank you for standing by and welcome to the Sandfire Resources FY22 results conference call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ben Crowley, Head of Investor Relations. Please go ahead.

Good morning, good afternoon, everyone. Thank you for joining us today as we present our FY22 financial result and also the DFS for the Matheo expansion. With me today in the room, I have Kyle Simich, our MD and CEO, Matt Fitzgerald, our CFO, Jason Grace, Chief Operating Officer, and we also have Richard Holmes, Executive for Growth, and David Wilson, our Head of Technical Services. uh carl will give us some opening comments and run through the highlights of fy 22 and the dfs uh and then matt will step through the financials and jason will take us through the high level outcomes of the dfs uh and with that over to you carl thanks ben and welcome everyone to our year-end financial results 2022

and also, pleasingly, our announcements today regarding the expansion of the Mateo operations in Botswana to 5.2 million tonnes. Just as a highlight, we continue executing our vision, creating value through opportunity, and our mission to build an internationally diversified sustainable mining company And as we roll through this presentation today, we remain very focused and marching forward on delivering on our strategy and always ensuring we maintain values at the very core of our business, which effectively underline and provide the culture of our business. In terms of scale, we continue to move forward. And as we go through this transition, we will continue to be moving the ward being one of the largest copper producers on the ASX and obviously in those future facing metals and we believe for the jurisdictions that we are in as high quality jurisdictions a great ability to pivot off that and also working through those large exploration endowment that we have and a large exploration footprint both in the Kalahari and the Iberian pyrite belts We essentially have earmarked somewhere in the order of six million ounces of contained copper equivalent metal in either resources or tier three inventory that sits within all of the large ground holdings that we have in our various projects. And this is a dramatic change from where we may have been from two years ago, where we were effectively moving towards having very little in the way of resources in our metal inventory. And now we're sitting on that pipeline of inventory. So we're really looking forward to then extracting value from that as we transition for our business at the moment. Flicking into the headline financial results, and a lot of this information was pre-released earlier on. in the quarterly, but just important to highlight, record revenue for the last financial year, $922 million, and all these numbers are in US dollars. A very strong group, even a margin of almost $450 million, and a pleasing second largest profit after tax we've ever recorded of $111 million. So very pleasing financial results for the year that we've just had. and the ups and downs and the vagaries of durations in those markets and commodity markets towards the end of that financial year as well. Strong cash position at the end of the year at US$440 million. Sorry, US$463 million. from those very strong cash flow generation through the course of this year and net debt at the end of 30 June of about $320 million. I would just like to highlight Matt Fitzgerald, the CFO, will give further detail, but prudently the company believes As we're going through this large transition of our business and transition of our balance sheet off the back of major transactions with maps of about $1.9 billion and a large expansion of Mateo on 3.2, also now up to 5.2 million tonnes per annum. And that expanded global capital expenditure of about US $400 million, prudent to put a pause on dividends. Matt will give you a little bit more detail regarding that. I look at the financial operating highlights for the last 12 months. We produced order of magnitude about 115 kilotons of copper equivalent between copper and zinc. at an all-in-sea one cost of 127 a pound of payable copper. When we look at the combination of what, you know, Maxa will do at its 4.7 million tonne throughput and ultimately Mateo at 5.2 million tonnes, as we head into the mid-financial 24 year, we'll be operating at a combined throughput rate of some 10 million tonnes per annum and we'll be targeting a production rate of about 150,000 kilotons of copper equivalent, predominantly made up of copper, but also significant quantities of zinc as well. As I said, during the course of this year, we completed the MATSA acquisition for about $1.9 billion. That's transformational for our business, probably the single most important thing that's occurred to this business since the discovery of the GRUSA. That is integrating, and we're well and truly seeing the benefits of optimisation improvements as we work through and getting our feet on the table with MATSA. what i would like to highlight today though is the material copper mine development and its progress and its expansion we've done lots of work it's advancing extraordinarily well um production will be looking to ramp up in the june quarter of financial 23 and what was approved by the board yesterday was the formal expansion to 5.2 million tons per annum the feasibility study has been received the board has approved that expansion and credit funding appropriate for that expansion is in place and Matt will also the CFO will also give you some further detail on that We also continue, and Richard Holmes will give you a glimpse into the wonderful opportunities that we see in the Kalahari Copper Belt, and he will talk to you about our expanded exploration activity there. So we are building these operations for the future and for, we would expect, many decades to come. If I just quickly change for a bit of completeness housekeeping, the matcher acquisition which was completed, it really is just for a complete presentation, the type of funding that was used for that transaction, the financing facility and some hedging that we put in place for that. Quickly, turning to group production for the year, just really to highlight that we had a very strong finish for the year. It was a very strong year. We achieved over guidance from MATS over around 3,000 tonnes of copper equivalent for the year, and De Grasse was at the top end of its guidance. So a very strong year with effectively a copper equivalent production of 115,000 kilotons of copper. and about 82% of our production for the last financial year in copper metal as future-facing metals. I look forward to handing over to Matt Fitzgerald now to continue with the detail of his presentation. Thanks, Carl. We're just presenting here the EBITDA contribution from the different operations and development projects. As you can see on the left, as we've released previously, DeGrasso, a very strong year above guidance production for copper and delivered in operations EBITDA of just under $400 million. Obviously very pleasing. MATSA, in its first five months of our MATSA ownership from February through to June, $150 million of EBITDA. So a combined $543 million. operations a million EBITDA in US dollars as Carl mentioned continuing our progress of Black Butch in terms of permitting and also drilling Mateo as well in terms of exploration interest and exploration and project development particularly as we're looking at A4 and then across our exploration drives across our strategy Just to remind everyone, we do expense expiration as we go. And also around a third of the expiration and other costs in there relate to MATSA acquisition costs that went through the P&L. So in total group EBITDA, a very pleasing $447 million for the year as previously announced. Looking at comparison year-on-year, and not surprisingly, from 337 last year to 247 this year, the majority of the difference comes from the addition of MATSA, so period-on-period. We've got MATSA coming in, as I say, from February to June in terms of its financial results, adding $313 million of revenue and associated sites, and then also... of course, on the operating cost employee benefits side, producing, as you can see between those two bars relating to MATSA, effectively around the EBITDA number. Also, some movement and exploration, fairly minor year on year. Some additional support costs in terms of administration of moving the business to a more global business and a support structure for that. As I said, also in the P&L for this year, some MATSA acquisition costs, which clearly won't continue into the future P&L. So year on year, a pleasingly increase of EBITDA, as you said, largely driven by the acquisition of MATSA and the contribution of MATSA in those first few months of The cash flow, we've also had this out for the June quarter, but just to run from left to right, to remind everyone, $149 million presented here for the cash used for the acquisition of MATSA. As Carl mentioned, there's some larger numbers in terms of equity raisings and debt, but we've netted them all off for the purpose of highlighting more of the operational side of cash flow the grass to cash flows and operations just over 400 million around the ebitda number uh matt says contribution from cash 200 cash 218 million is above its ebitda number and that has some adjustments uh coming in terms of cash flow in terms of qp alignment and during that year so that will come through into the september quarter Although we do note a recovery in copper price, so we will see some offsetting of some of those books, QP adjustments of last year, probably coming at this stage, coming into the early part of financial 2023. And we'll see that when we put out our September results and cash movements for the September quarter during October. Mine development, as we've mentioned before, 200 million of mine development at CAPEX, 131 of that is developing the Mateo project, a 3.2 million tonne per annum scenario, and Jason will talk shortly about the expanded project. MATSA, 36 million, larger than the mine development site and accessing new mining areas. La Grossa and Black Butte make up the difference. Exploration is also very heavily weighted towards Matteo for the periods of the exploration spend, $19 million was Matteo and also the $23 million that we have spent on exploration and evaluation activities at Degrossa over the financial year. We sold our investment in Adriatic around the time of the MATSA acquisition, which assisted the balance sheet in terms of entering the MATSA transaction. And into income tax, $132 million paid out in terms of cash flow for the year. Probably just worth noting here, you might note from our financial results, there's a higher effective tax rate of around 44%. There is a note in the financials, Note 7, which takes you through the very, very detailed sections. But in a higher level, DeGrasse's future rehab obligations on balance sheet see a $9 million charge to income tax expenses that unwinds. and a $10 million impact of the non-deductible costs of the MATSA acquisition, given it's a foreign acquisition, it's a foreign jurisdiction, around $10 million of income tax expense relates to non-deductible MATSA acquisition costs. Dividends during the period, pleasingly, we did pay $42.4 million US in dividends, representing the final dividend of 2021, which we paid just prior to the NAPSA acquisition. And we also paid a $0.03 interim dividend earlier in the year. And I'll mention, talk about capital management and our dividends shortly on the next slide. That overtime and other parts that come into that in terms of corporate and other parts of the business. Overall, a $32 million increase in cash and at the end of the year, $463 million in treasury. So moving to dividends and noting that Sandfire has a very proud history of dividend payments, particularly from the strong operating cash flows at the Grasser. What we expect from strong operating cash flows from Matzer and further into Mateo, and we'd expect to also continue to be a dividend-paying company. That philosophy certainly hasn't changed. We have decided at this stage, though, to pause dividends in this transformative year. Transformative not only in terms of the business, but also in terms of the balance sheet transition. As I did note before, we did pay out $42 million of dividends during this year. We're really moving at this stage to a capital management focus. We do need to make sure that we appropriately fund and build the 5.2 million tonne per annum material copper project, as we've announced today, very pleasingly to get credit approval on the first pass of that funding facility. And we also, of course, through the MATSA acquisition, took on some debt that was already in MATSA and took on some additional debt in terms of that. So we want to be sure that we are well positioned to make that aggressive debt repayment. And I'll talk about that in the next slide. Those repayments, I'll talk about that again in the next slide. The back end of De Grasse, as De Grasse finishes processing under our guidance around the end of October or early November, We do have around $70 million of balance sheet movement in terms of DeGrasse's closure and payout of creditors and final working capital positions, as well as the payment effectively almost entirely DeGrasse-related for the financial 2022 year at the back end of this calendar year. So all of DeGrasse-wise, the next six months will see us pay out around $70 million of DeGrasse closure. We also have our corporate facilities, we know, also related to the MATSA acquisition. It's $138 million or $200 million. It's been nominated in Aussie dollars at Aussie $200 million, and we have that cash sitting aside ready for the end of September bullet repayment. Really an objective in terms of the next sort of six to 12 months is that capital position to support our all-reserve growth, particularly around MATSA, our exploration pushes around MATSA and Mateo, and our capital development programs, and also working to build, make sure we build an appropriate working capital position in the business after debt repayments to make sure that we are able to do all of the things that we are looking to do in terms of our strategy. So as I said, pausing dividends for now, but obviously hope to bring them back in the not too distant future. Looking at debt facilities and hedging now, as we know, a 650 facility at MAPSA related to the acquisition. We have those repayments due during the year. Our corporate facilities I've mentioned. Our current repayment profile has us returning around 43%. of our debt balances to repaying those during the financial 2023 year. So we clearly leveraged up for the MATSA acquisition, which we're very pleased with, and this is a time of balance sheet transition and consolidation. Materia facility supporting the initial T3, 3.2 million tonne per annum base case. And we're very pleased to say today that we have credit approval from the banks for 140 million facility. That's out of what we're scoping around a combined 180 to 200 million dollar facility to support what is the larger operation of 5.2 million tonnes at Mateo, producing up to 55,000 tonnes per annum of copper. So, as I say, scoping 180 to 200, and at the initial stages is the credit approval received and pleasingly received and board approved in terms of the 140 facility which would be a seven year facility at this stage and we're very close to to finalizing the documentation and signing those documents hopefully in the next a few weeks a hedge book um is again protecting our cash flow to a certain extent as we saw towards the end of the financial year we saw copper and zinc both come down zinc has recovered very strongly and copper is has also commenced its its recovery The last, when we put out the quarterly, I think our copper hedging for the next financial year is around 25% above spot. It currently sits about 15% above spot. So that relates to the recovery in copper, recent recoveries in copper prices. We also have that copper price protection in terms of cash flows and debt repayments and working capital into the future, exactly as designed. Okay.