Sandfire Resources Limited

Thank you for standing by and welcome to the Sandfire Resources December 2022 quarterly results 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 Mr. Ben Crowley, Head of Investor Relations. Please go ahead.

Good morning, good afternoon everyone. Thank you for joining us today for our call to discuss the December 22 quarter. With us today we have Jason Grace, our Acting CEO. Jason will be taking us through the bulk of the presentation today. We also have Matt Fitzgerald here, CFO, and Dave Wilson, our Head of Technical Services. Fair bit to get through today so I'll hand straight over to Jason and we'll get cracking.

Thanks Ben and good morning to all and welcome to the SANFIRE Resources December quarterly results webcast. As we move to strategy and values I draw your attention to the disclaimers. Over the last year SANFIRE's execution of our strategy has delivered an excellent portfolio of high quality operating mines, development and exploration projects. and we have transitioned from being a single operation WA miner to being a genuine international copper producer. Our values of honesty, respect, collaboration, accountability and performance are key to Samphire's culture and they guide our activities across every part of the business. When we consider that Samphire is one of the largest copper focused miners listed on the ASX, that there is an inevitable increase in demand for copper in the future driven by the global energy transition, that we have a dominant presence in four mineral provinces that have excellent organic and inorganic growth opportunities, that Samphire has proven capability as an explorer, developer and operator of copper mines and importantly on the back of the MATSA acquisition and development of the Mateo copper mine to a 5.2 million tonne per annum capacity. Samphire is one of the few copper miners that has a firm production growth pathway over the next three years, growing to around about 110,000 tonnes of copper and over 80,000 tonnes of zinc production per annum. If we look to the December quarter highlights at a company level, consolidated copper production totaled just over 20,000 tonnes with zinc at over 19,700 tonnes for the period. The Mateo copper mine development continues to be on track and construction is now nearing completion. The investment that Samphire is making in resource extension drilling and improving geological knowledge at MATSA is yielding early success with the identification of the San Pedro ore zone at Aguas Tanitas. I will cover this in more detail later, but in summary, it is a new zone of copper-zinc mineralisation that is within 100 metres of existing underground workings and has been defined over initial 400 metre strike length. More importantly, as part of this work, a prospective horizon which is hosting the Aguas Tanitas mineralisation has been newly identified and is interpreted to be around 2 kilometres in extent. Looking now at other key company results for the quarter, sales revenue totaled $217 million with operations EBITDA at $87.7 million, a group EBITDA of $71.3 million and an EBITDA margin of 40%. As mentioned in the last slide, consolidated copper production totaled just over 20,000 tonnes with zinc at just over 19,700 tonnes for the period. C1 costs for the group were lower quarter on quarter at $1.77 per pound of payable copper and cash holdings for the company were just under $264 million with a net debt of $378 million after repayment of the corporate debt facility and $110 million of Matteo debt drawdown. Looking in more detail at group metal production for Q2, Overall performance was in line with the company's expectations, noting that copper was a balance of lower than expected production from Matza, specifically as a result of mine plan changes at Magdalena. This was offset by higher production from Degrassa, and I'll cover this in more detail later in the presentation. Zinc production was on plan due to the benefit of continued reduction in stope dilution, partly offset by changes to the mine plan at Matza, and gold, silver and lead production were generally in line with plan. As a result of this, Samphire is maintaining the previously stated group metal production guidance, noting that due to mine plan changes at Magdalena and the deferral of copper tonnes to the second half, we expect massive production for financial year 2023 to be at the lower end of the 60,000 to 65,000 tonnes guidance range for copper.

Moving across to the cash flow waterfall for the quarter, and I'll just cover it from left to right. It's opening with 190 million of cash at the beginning of the December quarter. We can see some cash flows there from Degrossa and Matza, which are largely, of course, EBIT driven. But just to touch on a couple of points which are in the notes around Degrossa particularly, we did have some sales on either end of that quarter moving to the previous quarter being September, one sale and one fall into the January quarter as well. the reason that the cash flow from the gross operating activities looks low and how it would reconcile back say to EBITDA for example. Moving to the right, the equity raising was completed during the quarter funding growth debt reduction and strengthening our balance sheet. As Jason noted, two drawdowns during the quarter of the Matteo debt as we continue towards completing construction and towards commissioning of the facility production facility in Botswana. The ANZ corporate facility was repaid from the proceeds of the equity raising and funding growth, as we know, largely around the Mateo copper mine in terms of capital construction, as I say, getting ready towards production, but also the normal quarterly MATSA mine development, just under $20 million and a small portion around Degrossa and Black Butte. Income tax a little higher in this quarter at just under $39 million, $30 million of that was the clearance of the financial 22 tax numbers and we've talked about that consistently over the last number of quarters about the really part of the wind down of the GRUSA and it's also covered in the next bar being other which has a $16 million impact of also the once off wind down of the GRUSA. Transitioning to the balance sheet that we've talked about consistently, as I say, over the last couple of quarters. To end the quarter with $263 million US. Moving to the update on debt facilities and hedging. The Matta facility has $532 million outstanding as at the end of December. The next shared repayment is $80 million, which we are positioned to repay at the end of January, and that will take the facility from 650 originally in January 2022, down to 452 million at the end of January 2023, so within the first 12 months of ownership at MATSA. And as we've previously signalled, we will be looking to produce our updated SANFIRE picture of a base case model around MATSA and look for a potential re-sculpting of some of the repayment profiles. So we'll be updating the market store over the next few months with progress towards looking about and making sure that we match that debt facility to our operating plans. The corporate facility, as I said, repaid from the equity raising funds, $50 million Australian, $33 million US. The material facility, the drawdowns as I noted previously, and also just recapping around a targeted $180 million to $200 million total facility, including the $140 million, which will bring us into the A4 development and also into any working capital facilities towards that commissioning and production time. And those facilities have commenced in terms of discussions and are very much progressing in line with expected A4 approvals as well, and obviously engineering studies and assessments. The hedge book we update each quarter, as you know, for the rest of the year, 33,000 tonnes of copper and just under 23,000 tonnes of zinc. And that includes some QP hedging towards the back end of the quarter and also into January, as we know. We've also seen copper increase in recent times and we plan to QP hedge that as we produce over the next couple of months as well.

Moving on to the operations review and outlook and starting with our health and safety snapshot. The Samphire Group TRIFR closed out the quarter at 2.1, which is significantly lower than 3.0 at the end of the September quarter. This was mainly a result of strong safety leadership and a focus on positive safe behaviours at all of our operations during the lead up to the Christmas season. As a highlight, our Mateo team commemorated World AIDS Day with the Hansi community in support of Botswana's approach to ending inequalities against AIDS. Activities and information focused on health advice, counselling sessions, free voluntary confidential screening for members of the community. Looking now at group sustainability, during the quarter there was a strong focus on engagement and planning to put substance around our long-term plans for our ESG pillars of communities, our people, water, climate change, biodiversity and business integrity. This included an assessment of critical habitats at Mateo to ensure the protection and conservation of biodiversity, maintaining ecosystem services and managing living natural resources in the region. As a further highlight for the quarter, Samphire, in conjunction with the Hunzee District Council, commissioned a solar streetlight project at the Kuki Village in Botswana. These solar streetlights will improve safety for the village community, which is located beside a main highway. If we now look out to the full year, as mentioned before, at a group level, we are providing group guidance that includes Metal production guidance for copper, zinc, gold, lead, silver guidance is maintained for the full year. Forecast full year C1 costs are $1.74 per pound of payable copper for the year. For capital, we are refining the mine development forecast to 82 to 92 million and maintaining sustaining exploration and studies capital guidance. Mateo Development Capital is in line with the previously announced approval of the 5.2 million tonne per annum Mateo Expansion Project and Matza and DeGrasse DNA are forecast to be $250 million and $16 million respectively. Looking now at group production throughout the full year, we are also providing a quarter by quarter outlook for metal production. You will note from this slide that copper and gold production peaked in the first quarter This trend is driven predominantly by run of mine production at De Grasse only occurring during the first four and a half months of the year, followed by processing of lower grade and transitional ore stockpiles through to February 2023. Gold production throughout the year follows the same path and also for the same reasons. Following the completion of processing of lower grade and transitional ore stockpiles at De Grasse in February, Processing of oxide stockpiles will commence and will be subject to ongoing reviews of technical and economic outcomes. Due to the technical uncertainty of processing of this ore, no further formal production guidance is provided for De Grasse. Copper production also shows an increase into the June quarter. This is a result of higher copper grades coming into the mine plan at Matza, as well as first production from Mateo. Zinc production has a different trend to copper with lower production expected from Q1 to Q3 than stepping up in the June quarter. The main reason for this is the progression of the mine plan at Matza. And I will also cover all of these points in more detail later in the presentation. Moving now to Matza operations. With the first anniversary of Sandfire's ownership of Matza now very close, we are firmly committed to getting the best out of MATSA and ultimately establish a solid base for a multi-decade operation. To deliver this, we will continue to improve safety performance through development of the right culture and fit for purpose systems. We will continue the recent improvements made in mine productivity and stabilise and reliably deliver a 4.7 million tonne per annum production rate. We will use our technical knowledge and skills to extend mine life through execution of an expanded inner and near mine resource extraction drilling program and undertake technical studies to confirm mineral resources or reserves and also establish a pipeline of new ore sources through investment in regional exploration. Looking now at the December quarter, massive production for the period was challenged by lower mine production from the Magdalena underground mine. This was a result of localised poor ground conditions in the main production areas scheduled for this period. The resulting changes to the mine plan restricted the supply of cupriferous ore, delivered an increased supply of poly ore at a lower zinc grade and deferred mining of higher value cupriferous and poly ore to the second half of the financial year. This in turn restricted processed tonnes for the December quarter due to lower supply of cupriferous ore to the plant. As a result, opportune maintenance was undertaken on processing line one, which is a dedicated cupriferous processing line during December to bring forward planned maintenance scheduled for the June quarter and to ensure plant availability is maximised for the second half of the year. As a result of this situation, copper production closed out the quarter below plan with close to 12,700 tonnes of production. and zinc production was in line with expectations at 19,755 tonnes for the period. Payable metal sales were in line with production for the period and this delivered an operations EBITDA of 55 million with a very good EBITDA margin of 40%. If we now look forward to the full year and in particular the impact of changes to the mine plan at Magdalena on guidance, I would like to draw your attention to the graph displayed on this slide. As I mentioned previously, one of the key impacts of the localised poor ground conditions at Magdalena is the deferral of higher grade cupriferous and poly ore to the second half of the financial year. The waterfall chart shown illustrates a comparison between financial year 2023 first half and second half copper production variance by ore source. This clearly shows the impact of changes to the mine plan at Magdalena with copper production from both cupriferous ore and poly ore increasing by 33% and 51% respectively. This change is driven predominantly by the changes to the mine sequence at Magdalena to mine high value or high grade ore originally planned for the first half to now be mined in the second half of the year. And looking now at match of production on a quarter by quarter basis for the year, this again illustrates the deferral of higher copper grade ore at Magdalena from half one to half two through increased copper production for the period, which is again driven predominantly by higher mine grades. Zinc is a similar story where we started the year at a lower production rate and we'll step up in the final quarter. This trend in zinc production is driven by mine grade and in particular mine production at Aguas Tanitas, transitioning from a high to low tonnage rate from the stockwork ore body early in the year, which is a low zinc grade part of the ore body. This ramp down in stockwork ore production is now well advanced and is being progressively replaced by increasing production from massive sulphide ore from the down plunge western extension of the main Aguas Tanitas ore body. Now looking at the full year, production and guidance at MATSA remains unchanged at 60,000 to 65,000 tonnes of copper, 78,000 to 83,000 tonnes of zinc, 6,000 to 10,000 tonnes of lead and 2 to 3 million ounces of silver. However, and as mentioned before, in light of the changes to the mine plan at Magdalena and the deferral of high-grade copper or production to the second half, We expect MATSA production for FY23 to be at the lower end of the 60,000 to 65,000 tonne guidance range for copper.

Thanks, Jason. On this slide, we're looking at the operating costs of six quarters of actuals and two quarters of forecasters through to the end of FY23. Just draw your attention to the tail columns on the right. You'll see that this quarter we saw a significant decrease in absolute costs in euro terms. If you look at the processing column, you'll see that it's largely in the processing area. Hence, that is to do with power costs, which I'll cover a little more on the next slide. Just to cover one other area, our offtake agreement, the treatment refining charges and freight rollback reset the benchmark every calendar year, so this quarter. We note that, in proper terms at least, the TCRC has been reports of agreements between miners and smelters, as of today, benchmark hasn't been reported by Woodmac. Once it is, that'll flow through to our cost for our agreement. But what we have factored in going forward is our view of what that will be. On the freight side, what we're seeing at the moment is that sea freight market conditions have improved compared to when we last negotiated the freight rollback. So you'll see in our transport costs going forward, we see an improvement in that in the coming quarters. Moving to power. Once again, we're showing the Spanish daily power prices. You'll note that there's been significant moderation of the power price in this last quarter, which has been welcome. And in fact, the average spot price for the three months that assembled was 140 euro megawatt hour, comparing to 270 for the previous quarter. Farther through to milder winter conditions and much higher renewable generation through this period, which is a welcome change. Current forecast going forward for the next quarter is the 150 to 170. Euro to megawatt hour, including the forecast of the compensation charge under the Spanish gas price cap arrangement. What this change in power price has done for MATSA is the electricity costs have reduced from being just over 20% of our C1 unit cost to about 12% in this quarter. In terms of our future plans for power, we have the Sotio Solar Farm is in progress by the third party in the study for construction of the second solar facility to be built near the Aguas Tanitas mine is in progress and proposals are due early this year. We're in the final stages of negotiating the ongoing power supply agreement. While that is concluded, ongoing supply will be at the spot. Our aim in this power agreement is obviously to secure long-term power and de-risk the business to the type of price spikes we've seen over the last 12 months. So that looks like really from the current peak with at least a proportion of the power locked in under a fixed price, a PPA style agreement, and making sure we leave capacity for renewable PV power to get long-term low carbon power into our power mix. As I say, most negotiations are drawing to a close and we hope to be able to update the market in due course.

Moving to Matt, so unit costs for the quarter. So as Dave was mentioning, lower energy costs clearly have brought C1 down. We've also had some pleasingly higher by-product credits predominantly from the production and value of zinc. That is offset, of course, by a lower production quarter in terms of quarter-on-quarter copper production. So that would ordinarily have dragged the C1 up. Pleasingly, we see margins increasing, particularly in recent times, through December, January, with increasing copper prices. So we look forward to those continuing and being able to report on some increasing margins, hopefully for the March and June quarters and ahead. And then across to the right, as you can see, that reduction in unit costs between the first quarter and second quarter, and full-year guidance has been set at $1.82 per pound of payable copper for Matza.

Finally for MATSA, SANFIRE was very pleased to announce this morning that a new zone of copper-zinc mineralisation called San Pedro has been identified at the Aguas Tanitas mine. We have always held the view that MATSA is a world-class VMS system and we have always had a high degree of confidence in the potential to find both extensions of existing deposits and to make new discoveries near mine and further afield. This potential was one of the several key drivers for SANFIRE's decision to acquire the asset. Our investment in resource extension drilling and the excellent work being undertaken by the Massageology team on the reinterpretation of existing geological models has delivered an early success at San Pedro. Drilling to date has defined copper-zinc mineralisation over an initial 400 metre strike length within approximately 100 metres of existing underground workings at the Aguas Tanitas mine. More importantly, the geological reinterpretation has identified a prospective horizon, which is hosting the Aguas Tanitas ore body, and this is interpreted to be around two kilometres in extent. Step-out drilling at San Pedro is currently underway. Moving now to De Grosser operations, and if we start by looking at the December quarter, Following the completion of mining at Monte Underground late in the first quarter and underground mining at De Grasse was completed on schedule early in the December quarter, processing of run of mine stockpiles continued until November, after which processing of low-grade sulphide stockpiles and transitional ore stockpiles commenced. This operating strategy has advanced well and processing of low-grade and transitional ore stockpiles is expected to be completed by mid-February. Following this, Samphire will take a further transition to processing of oxidised stockpiles that date back to the original open pit mining phase at De Grasse. Laboratory test work and a full plant scale trial completed in the December quarter has confirmed a potential opportunity to process up to approximately 600,000 tonnes of ore at approximately 2% copper However, due to uncertainty on stockpile homogeneity of mineralogy and grade and metallurgical recovery, processing of oxide stockpiles will be subject to ongoing reviews of technical and economic outcomes. In light of this, no further formal production guidance is provided for De Grasse. Before I move on to the next slide, Sandfly also announced to the market on the 9th of that a formal sale process for the Degrassi Copper operations and related exploration tenure in Western Australia had been initiated. This process is ongoing and is likely to continue throughout the current financial year. Looking now at Degrassi production for the December quarter, copper production was above plan at 7,343 tonnes and gold production was 4,562 ounces for the period. Metal sales volumes were higher than production as a result of timing of shipments and this delivered an operations EBITDA of 32.7 million with a very good EBITDA margin of 41%. Looking now at the second production, digressive production for the second half, cockle production was again above plan and exceeding guidance at 21,652 tonnes Gold production was just under 12,800 tonnes for the period. Metal sales volumes were lower than production as a result of timing of shipments. And this delivered, again, an operations EBITDA of 80 million with a strong EBITDA margin of 46%. I would like to reiterate that given our transition to processing of oxide stockpiles in the March quarter, no further formal guidance is provided for De Grasse.

I'm going to unit cost for Degrasse, so Q2, $1.41 per pound of payable production versus $1.34 in the first quarter. Clearly two different operating stories across the two, as Jason mentioned, around the predominantly sulphide in the first quarter and then moving into the low grade in the second quarter. So as much as there's lower copper production, there's of course lower costs in terms of not having those upfront mining costs given their existing stockpiles. So into the second half, as we've mentioned, We're not guiding in terms of oxide stockpiles and any production impacts from those, but fair to say that into the second half we would expect C1 to be significantly higher than these numbers based on processing oxide as we go. But we'll report those as we deliver costs in those areas.

Moving now to the Mateo copper mine in Botswana. Firstly, as a quick update on development of the Mateo 3.2 million tonne per annum project, construction is nearing completion and continues to proceed on schedule. with first production expected early in the June quarter of 2023. In addition to this, SANFIRE has also progressed the 5.2 million tonne per annum material expansion project with the environmental and social impact assessment being submitted to the Botswana Department of Environmental Affairs during the quarter. The bull mill was delivered to site late in the quarter The engineering design for the 5.2 million tonne per annum expansion is now 70% complete. The balance of minor additional equipment orders have been placed during the quarter and the Bull Mill civil contract has been awarded with work commencing in January 2023. And finally, as Matt mentioned earlier, during the quarter, the first two tranches of the $140 million Mateo project finance facility have been received. with the balance to be drawn in the March quarter of this year. The development of the 5.2 million tonne per annum Mateo expansion project approved by the SAFIRE Board in the September quarter will transform the Mateo mine into a significant copper producer. With a full oil production rate of 5.2 million tonnes per annum supported by mining of both the T3 and the A4 open pits, peak annual copper production will reach approximately 55,000 tonnes and will be maintained around 50,000 tonnes per annum production rate over a six-year period. Subject to the approval of the environmental and social impact assessment and granting of the mining licence for A4 by the Botswanan government, pre-strip mining at A4 is anticipated to commence by the March quarter of financial year 2024. Looking now at the Mateo development timeline, Work throughout the December quarter has continued to proceed according to the project plan, with some of the key development errors being process plant structural, mechanical and piping works are now approximately 90% complete. The process plant electrical and instrumentation contractor is now approximately 75% complete. The tail and storage facility lining works has progressed well during the quarter, with 90% of the lining completed. and the tailings pipeline installation is now underway. The high voltage switching station has been commissioned and connected to the Botswana Power Corporation grid in late December 2022. The primary crusher structure has been fully completed and all crusher mechanicals are now nearing completion. The sag mill has been fully assembled, alignments completed and mill lining to be completed in January 2023. And finally, the commissioning team is now mobilised and commenced commissioning activities in early January. Looking now at construction development and capital, the total development capital for Mateo is estimated at $397.4 million. This includes $47.9 million for the future development costs for the A4 infrastructure and the 5.2 million tonne per annum plant expansion. Please note that the $71.9 million shown here includes $24 million of pre-approved capital. Life of mine capital is estimated at $499 million, and as at the 31st of December, 2022, the company had invested approximately $280 million of the total on development capital. And finally, looking at Kalahari Copper Belt exploration, Drilling continued to focus on the Mateo hub, with several prospects tested. At A1, drilling has outlined copper mineralisation over a strike length of almost two kilometres, and the team has now moved on from drilling to data interpretation and geological modelling. At the T1 prospect, where MOD Resources previously published a small resource estimate, two holes were completed and assays are yet to be received. Preparations also continue during the quarter for large-scale airborne gravity survey and collaboration with neighbouring exploration and mining companies will result in almost complete geophysical coverage of the Kalahari Copper Belt and enabling our team to build a comprehensive structural and basin model to aid exploration targeting. Finally, in closing, I won't go through all of these points, but I would like to reinforce my points again from the start, which is to again remind everyone that on the back of the EMATSA acquisition and the development of Mateo to a 5.2 million tonne per annum capacity, Samphire is one of the few copper miners that has a firm production growth pathway over the next three years, growing to over 110,000 tonnes of copper and over 80,000 tonnes of zinc production per annum. I will now hand back to the moderator for questions.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Khan Pekka with Royal Bank of Canada. Please go ahead.

Hi Jason, Matt and team. Just a quick couple of questions. The first one on that, I think last quarter you flagged lower backfill rates of Magdalena and this quarter ground condition issues. Just wondering if they were related.

Look, partly related. If you look at particularly stope availability around there, this has been the impact of ground conditions on that. Now it does not only slows down our production rate, it's also meant that we've had to alter our mine sequence to bring in additional ore, and it also impacts on our ability to actually backfill stokes in a logical manner to support ongoing production there as well. So some of these ground conditions that we've seen have particularly come to a head there probably early December, but we were starting to see the impacts of those late in Q1 as well.

So in that backfilling rate, that's back to what is expected?

Yeah. So the team has done a lot of work about basically implementing a new mine sequence and stabilising that sequence. There is an adjustment period as we go through that because obviously we needed to change particularly development priorities and where we deploy resources throughout the mine. The team's done a lot of that work, particularly during the last quarter, And we have developed to the levels below the areas that were impacted by poor ground conditions. And we've seen a significant improvement in those ground conditions in those areas.

Sure, thanks. Maybe a second one. We talked about the trial processing of stockpiled oxide ore at De Graça. Can you share some of the recoveries that you achieved during that trial process?

Yeah, so look, recoveries are significantly lower than what we've seen previously with sulphide ores. So obviously our plant is geared towards processing of sulphide ore in particular. The new reagent regime that we've got and based on the plant scale trials, we're seeing recoveries around and just above that 50% mark. So generally we work on around about 50 to 60% Now, one of the issues with us is given the age of these stockpiles, and not so much from an oxidation point of view because it's already oxide mineralogy, it's more to the tune that these stockpiles were mined right back at the beginning of mine life at the Grasser. And there is some uncertainty around, particularly on grade distribution through the stockpiles, and particularly, you know, potential variations in metallurgy that may impact on recoveries. So given that uncertainty, that's largely why we've decided not to provide any further guidance for Degrassa. So we'll process this material opportunely. We'll monitor it very closely and make sure that it's making money. And we'll react either way, given the results that we start to see coming out of the plant.

Thanks. I'll just squeeze one last one in. I mean, SANFY has owned MATSA for some time now. Has there been any improvements or learnings that you can share with us with processing polymetallic ore, specifically around recoveries?

Thanks. Yeah, look, thanks, Kahn. And look, I'll start and then I'll throw to Dave. Look, Dave's team and particularly with the MATSA team have been doing a lot of work, particularly on recovery improvements. So there's two key projects that are currently on the way at the moment, which is firstly around control of the blend and getting a more stable blend going to the plant. And the second one is we've been doing a lot of work, particularly on optimizing our reagent regime and control of metallurgical parameters like pH, which we now expect will deliver a significant recovery improvement with copper, but certainly to a higher extent there for zinc. Now we've got plant trials, particularly on those new reagent regimes, starting later this month and going out throughout this quarter. So we expect to get some positive results of that in the near future.

Dave, did you want to add anything? Yeah, maybe just to add, it's really on the back of, as Jason said, we're coming up on the anniversary of Aunty Matza. What we've done through that period is really a back to basics and really that's understanding characteristics in the feed which is very important in flotation and what's the efficiency been within that flotation circuit in terms of misreporting of gang minerals into concentrate and loss of valuable minerals. We're starting to get a lot of that data back now which is really indicating some opportunities to improve and as Jason said, next month we will be kicking off on some trials and we're quite hopeful we'll see some improvement.

Your next question comes from David Radcliffe with Global Mining Research. Please go ahead.

Hi, good afternoon, Jason and team. First question's on MATSA. So you still look to be targeting the process of 0.6 million tonnes. I know you've only done 2.1 in the first half, so that looks like a bit of a stretch. So maybe could you give us some more colour on how you can make back these tonnes? It does look to be a reasonable step up of volumes you've achieved since you've earned the mic.

Yeah. Look, you make a valid point there, David, and you're 100% correct. So we've taken two opportunities during the first half of the year to take planned maintenance shutdowns as well for items that were planned originally for the second half. So firstly, that does give us a higher availability and, you know, by... by default a high utilization of that plant going into the second half. The other area there as well is that I've mentioned before, we are looking at some blended stockpiles going into the plant, which we believe once we control that blend and get more of a consistent feed, there's benefits there in recovery, but potential benefits in throughput.

Okay, thanks. Then maybe just following up on the new discoveries, San Pedro obviously looks really prospective and now highlights that prospective horizon, which I think you've seen sort of over a kilometre long. How do you think about testing that horizon now going forward? Have you seen enough here to push out some development? And I guess within that, is this physically a blind discovery or are you now seeing things that could help you target with further success?

Firstly, we are currently undertaking step-out drilling on this at the moment. We're able to do that from existing underground workings. We are pushing this out and seeing how far we believe it extends. We are at the stage as well where we are starting to look at planning of drilling to test further that prospective horizon. The thing you need to understand, this is literally hot off the press, and particularly the geological reinterpretation work that the team's been doing has really given some really important insights to controls on mineralization, particularly at Aguas Penidas, but also that give us some insights there at Magdalena and also beyond further along the belt. So we are particularly excited about this initial success. We're very excited about potential on that prospective horizon. And, yeah, we'll be moving very quickly to try and test as much of that as we can. Now, on the geophysics, so we are doing some geophysics from underground drilling, and the team has already identified some off-hole EM conductors that require further follow-up drilling as well.

Okay, great. Thank you. I'll pass it on.

Your next question comes from Paul Young with Goldman Sachs. Please go ahead.

Yeah, morning, Jason, Matt and Dave. First question is on MATSA again, and sorry to harp on about, I guess, digging into the performance of Magdalena in particular, but you look at the last four quarters and production from Magdalena has been coming down. You know, each quarter now grades improve and they're expected to improve in the June half. but from a multi-year perspective at Magdalena, how do you, and you alluded to a little bit on the development of the lower parts of the mine, but how do you actually lift volumes at Magdalena sustainably in a multi-year view? Just came to understand the turnaround, I guess, strategy for Magdalena in a multi-year view.

Yeah, so there's two key areas of focus, particularly at Magdalena, but also for Aguas Penitas. So our mine development rates are, are still not what we would expect to achieve here in Western Australia or in Australia in general. So that is a constraint given the overall morphology of the ore body. So we've got quite a flatly dipping, flatly plunging ore body that does, particularly opening up new areas, does require significant amounts of development rates. And we are seeing that that is an overall constraint there, both at Magdalena and Aguas Tanitas. So we're doing a lot of work at the moment to lift our basically development rates that we're able to achieve, and particularly working with our Spanish contractors to get some insights in terms of how, say, Australian contractors approach and get much higher rates in there as well. So that will unlock further tons and unlock better production potential. The other area that we've been working around is particularly around stoke turnaround times. So the start turnaround, and we've got some valuable insights from the work that we've done at DeGrasse historically to basically minimize that without incurring additional dilution and without delivering on all body or loss during the period as well. So we've done a lot of work on that sequence. Now that delivered improvements that we reported back in Q4 of FY22. So if you remember back to that rate, we were actually mining I think for over a month there, so it was almost two months of that quarter on a combined basis of around about, I think it was about 4.8, 4.9 million tonnes per annum. So that's what we believe we can achieve out of Magdalena and Aguas Tanitas longer term. Once we get beyond some of these localised poor ground conditions and start to see some more inroads into some of these improvements, we do expect that those production rates will sort of sustain the plant at a 4.7 million tonne per annum rate.

Yeah okay, thanks Jason. And then just on the CAPEX year-to-date at MATSA of around $50 million versus the four-year guidance of $120 million to $140 million, is that underspend I guess on an annualised basis versus guidance, just a reflection of the lower development rates we've seen in the first half?

Look, partly it's more around, if you like, sustaining capex around equipment, things like that as well. So lead times on that and obviously we don't have to pay for some of those equipment and services until that's incurred. So a lot of it is simply timing.

Yeah, okay, great. And then moving south to Botswana, yeah, really good outcome, guys, on executing this project on time and It actually appears to be a little bit early. So congratulations. That's a huge effort considering the challenge in the last couple of years. And one question I did have is around the commentary around the expansion of 5.2 million tonnes per annum. And I know construction crews don't like commissioning crews and vice versa, but you've obviously got a few tie-ins involved with that expansion. But is there any possibility of actually bringing the 5.2 million tonne expansion forward a little bit?

Look, critical path. Look, we could actually have the bull mill and the plant done earlier than we've guided. The critical path here for development or for that expansion is really around mining and pre-strip at A4. So particularly if you look at it, we've got first production there forecast from the A4 open pit in FY25. So even during that period of time, it doesn't fully meet the expanded plant requirements. So we actually make up, if you like, that shortfall from T3 all and changes to that schedule as well as drawdown of T3 stockpiles. So if we work back from that, that critical path in terms of that pre-strip on A4 is the time limiting factor, which is almost in sequence with the permitting of the ESIA and the granting of the mining licence. So if that can be brought forward, there is an opportunity to potentially bring forward some of that expansion and some of that production earlier. But at this stage, what we have seen with Botswana is permitting timelines can be quite variable, and we're certainly not counting on that at this point in time.

Yeah, great. Okay, that's all very clear. Thank you very much.

Your next question comes from Daniel Morgan with Aaron Joey. Please go ahead.

I just wanted to follow up on the last question from Paul. When is a date at which you could get the permit that could unlock this potential benefit that you were talking about? Like when is a drop-dead date when a permit becomes a problem or when could it happen to bring forward benefits?

Yeah, if we look at this, and I'll just refer you to the timeline slide in the pack there as well. So particularly, we are looking to commence mining around the middle of... Yeah, so basically... So this is page 35 of the PEC. Yeah, so commencement of mining there around about the end of Q3 FY24. So if you look at that, and particularly there as well, we've got the A4 environmental approvals and mining licence. At this stage, we've assumed that that continues for three quarters and is available early in FY24. If that can be compressed, there is potential opportunity. But we've also given ourselves around about a quarter leeway for overruns on that permitting process before it hurts the overall project timeline.

Okay, thank you very much.

And just could you expand a little bit On your strategy, this is Matza, sorry, this question is Matza. Can you explain your strategy with regards to a power purchase agreement at Matza? You know, how long a contract are you targeting, you know, and for how much of your needs? And then also, you know, the pricing outcome longer term versus what's in your existing guidance.

Thank you.

Yeah, thanks Daniel. Obviously this is still under negotiation so it's very limited to what we can say but I guess just reiterating the comments we had, what we're aiming to do is to get some relief from this current period of high power price. So to do that we expect to have a proportion of our power locked at a fixed price and as we work through that we'll disclose to the market what we can. But at the same time we're conscious of the risk of locking in too much for too long. All the points you raised are what's in the balance for this negotiation and this process, but right now I guess we're not in a position to say much more. In terms of your comment on longer term power prices, I guess if you look at the link this year, we've truncated that chart a bit. If you look at the historical power prices in Spain, they've historically been in the 50 to 80 megawatt hour. That's certainly one of the key markers we're looking at going forward that we don't preclude us from being able to achieve that in the long term. where power prices revert to over time. So all those things are in the mix.

And then your guidance, I think on page 24, is 150 to 170 euro a megawatt hour.

But that's from the market operator, which you'll find on the internet, the OMIE or OMIP page. But added to what you'll find on the internet is that our current provider has given an estimate of the gas cap compensation price, which is part of the Spanish arrangement at the moment, which is not currently found. So we've put that in to help people find that online.

Okay, thanks Royale.

Once again, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. Your next question comes from Lyndon Fagan with JPMorgan. Please go ahead.

Thanks. Just wanted to touch on Matt's costs. Looks like your unit mining cost has hovered around that $40 a tonne mark for the last four quarters, which is a great outcome. Just wondering if you're able to talk to that. There doesn't seem to be any inflation coming through.

Yeah, thanks, Lyndon. Look,

I'm not sure what else I have. They're the actuals. Obviously, one of the things we've found in Mesa and probably in Europe more generally is that we experienced inflation very early on in our period of ownership. Since then, things have settled down, particularly with power starting to revert. There is a proportion of our power costs. I think it's something in the order of 30%, 40% goes into mining as well. So I guess, yes, I guess the data speaks for itself. Our costs have trended pretty flat.

And I think in rate-wise, Linda, it's probably affected also by programs that Jason and his team are working on with things like dilution and that sort of stuff. You'll get an impact through in unit costs, but you'll also get an impact in terms of contractor efficiency and some improvements we're making there. So a bit two-factor, but yeah, you're right. It's actually fairly stable after that initial kick. You'll notice that in a number of areas, some of our costs have really stabilized over the last two or three quarters.

Great. Yeah, no, good outcome. And then the other question I had was I'm wondering if you can touch on all-in sustaining costs at all, whether you've got any thoughts on reporting that and what they would be, whether it's around that $3 type mark.

It's not something we report on.

We tend to separate it out between C1 and CAPEX. So we do C1 on a unit basis and then we prefer to do capex on a whole dollar basis, something that can of course be back calculated and put together, not as we report at the moment, so I won't quote a number, but certainly a consideration we can have into the future about how we wish to put those two together. But the story is complete in any event in the way we do it in whole dollars in terms of capex.

Great. Okay. Thanks, guys.

Your next question comes from Ben Lyons with Jarden. Please go ahead.

Thank you. G'day, everyone. Maybe just bringing together a couple of those prior questions on MATSA. As you approach the close of this PPA negotiating period, is it fair to say that you'd expect a material step down on that C1 operating cost? The current guidance is fiscal 23, $1.82 per pound of copper payable, I think it is.

Thank you.

So Ben, do you mean into the future in terms of forward guidance on C1? Is that your question?

Yeah, so I mean, my understanding is that you currently have guidance in the market for fiscal 23, which includes the March and June quarters. And if you get this PPA dealt in the next days, weeks, whatever, that it should have an impact on the remainder of fiscal 23. So can we expect a step down in that US 182 per pound of copper payable?

Sure, without giving any future guidance, we'll give that mid-year, of course, but you're right. So any impacts in power will, of course, particularly any long-term locked-in impacts on power will assist long-term C1 versus this year, assuming other things equal, of course, around, say, copper production. There'll also be an impact, as Jason talked about, the mine plan looks at increasing zinc production over the three years so that all things being equal in terms of zinc price, if we've got higher zinc production, we'll clearly have a larger by-product credit as well. Yeah, I'd say on balance, there's pressure downward in terms of C1, all things being equal over the next couple of years.

Yeah, awesome. That's what I've asked her. Thank you, Matt. Cheers, Matt.

Your next question comes from Hayden Bairstow with Macquarie. Please go ahead.

Good morning, guys. Just a couple of things just on approvals, I guess. Just about noticing that mine approval in Botswana. I mean, it's Is that taking longer than the original approvals? Are they starting to stretch out a bit like they are in every other part of the world?

No, look, thanks Hayden. Look, from our point of view, we went through this process with T3 and the 3.2 million tonne per annum project. If you look at it publicly stated timelines for approvals from the Botswana government, they state seven weeks. Now, if you look at it, the T3 approvals took pretty much seven months. So as I said before, we've basically allowed about nine months for approval and we've put about another three months or a quarter in their float before it starts to impact on the mine plan.

Okay. And I guess a similar sort of question to Matt's. I mean, there is some regional targets and some other stuff. I mean, how long do you think that process would be if you could drill this thing out into some sort of resource system? in the next six months that you can actually get approval online at San Pedro and then obviously more regionally?

Yeah, if we look at Magdalena, from discovery through to resource and reserve, it was around about two to three years. So it was actually a two-year period. So there's a real recent, if you like, case study where we can actually move these things through the process and get them into production quite quickly in southern Spain.

Okay, and just one final one, just on the power, the forward power hedging sort of potential. I mean, how much of your power would you think you'd look to lock in and how much would you be on spot and how much sort of variability in that thought process have you had?

The last part of your question is there's been quite a lot of variability in that thought process. I guess at this stage we're probably not in a position to say too much given where we're at with negotiations, but that's all the things we're wrestling with, I guess, Hayden, is that It's tempting during a really high price sort of environment like this bike that we've had to lock in a large chunk of power at a price that's perhaps a saving on the current price spike, but still above the sort of historical long-term average. I guess we're reticent to get ourselves into that position.

Perhaps that gives you a little more colour. Great. Thanks very much.

Your next question comes from Matt Green with Credit Suisse. Please go ahead.

Hi, good morning, all. Matt, I've got a question for you on the hedge book, if I may. First of all, I presume all the copper hedge is in relation to MATSA. So could you just walk me through some of the movements in the hedge book from the September quarter to where it sits today?

Well, I don't have the exact details in front of me in terms of the start of the quarter and the end of the quarter. But there is actually some Degrassa QP hedging in there as well. So that has propped up some of the the copper book, I'd have to go back to a comparison quarter on quarter for you though, unfortunately.

Okay, so just looking at you, Matt, for realized pricing, it sounds like in the December quarter, most of your sales were directly into the hedge at the higher price, and obviously some QP adjustment.

Turns out about 40% goes into the longer term hedging that we did on acquisition. Any other hedging comes through the rolling QP. So no, I wouldn't have expected that sort of percentage in the December quarter. I expect it to be higher moving into the March and potentially June quarters because of that hedging at the back end of the year, which has a, call it four, five month QP. So I'd expect the percentage to be high, but no, not that high in the December quarter. But I can come back to you on some more specifics if we need to.

Okay, that'd be great, thanks. And just lastly, At Magdalena, when do you intend, what's the timeline on moving away from the stock work to the massive sulphide? Is that next two years or more near return?

Look, we're largely through it now. So we've really got some remnants coming through pretty much this quarter. So beyond that, we're moving more into the massive sulphide there basically from now.

And is it your expectations that ground conditions will improve with the massive sulphide?

Yeah, look, Magdalena can be challenging in places in terms of ground conditions. We do have a heightened ground support regime in there and we're constantly reviewing that as well. But what we are seeing, particularly the issues that we saw in Lake Q1 and Q2, we are moving through that and we are seeing a significant improvement. Overall, it will be something that needs to be managed, Magdalena, in the longer term. And some of the work that I mentioned there about higher developed stocks to support basically production, that's one of our key focus areas there to make sure that we can maintain the target production rate at Magdalena.

That's great. Thanks very much.

There are no further questions at this time. And that does conclude our conference for today. Thank you for participating. You may now disconnect.