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Edited Transcript of SFR.AX earnings conference call or presentation 27-Aug-19 2:00am GMT

Full Year 2019 Sandfire Resources NL Earnings Presentation

West Perth, Western Australia Sep 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Sandfire Resources NL earnings conference call or presentation Tuesday, August 27, 2019 at 2:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Karl Matthew Simich

Sandfire Resources NL - MD, CEO & Executive Director

* Matthew Leslie Fitzgerald

Sandfire Resources NL - CFO & Joint Company Secretary

* Richard Beazley;Chief Operating Officer

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Conference Call Participants

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* Daniel Morgan

UBS Investment Bank, Research Division - Director and Analyst

* David Coates

Bell Potter Securities Limited, Research Division - Resources Analyst

* Hayden Bairstow

Macquarie Research - Analyst

* Michael Slifirski

Crédit Suisse AG, Research Division - MD

* Kristie Batten;MiningNews.net

* Nicholas Read

Read Corporate Pty Ltd - Principal & MD

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Presentation

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Nicholas Read, Read Corporate Pty Ltd - Principal & MD [1]

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Thank you, Jesse. And hello, everyone. On behalf of Sandfire, a very warm welcome to today's investor conference call and webcast for the company's financial results for the year ended 30 June 2019.

Today's call follows the release on the ASX platform earlier today of a package of information including an ASX release on the company's annual results, a 2019 annual financial report and appendix 4E of 2019 annual results presentation and other statutory filings.

I'd like to begin by introducing the team here from Sandfire. Leading today's call, we have Karl Simich, the company's Managing Director. And joining him to run you through the financial results, I'd like to introduce Sandfire's Chief Financial Officer, Matt Fitzgerald. Joining them in the room here in Perth, we also have the company's Chief Operating Officer, Richard Beazley; and General Manager of Geology, Shannan Bamforth, here available to take questions.

A live webcast of this teleconference and a synchronized slide presentation are available through the company's website or through the BRR Media service using the link provided on the front cover of the presentation. And the recording of this call will be available at the same link shortly following the conclusion of the call.

To kick off today's presentation, I'd like to introduce Karl Simich to lead us off. Please go ahead, Karl. Thank you.

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Karl Matthew Simich, Sandfire Resources NL - MD, CEO & Executive Director [2]

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Thank you very much, Nicholas, and welcome, everyone, to our financial 2019 results for the last 12 months.

Just before I start, I'll just quickly just highlight where we have come from. It certainly had been an excellent year of operations and profitability and cash flow for the business and its caps off 7 consecutive years of very robust revenues and very robust profits for the business.

We've recorded in the last 7 years just shy of $4 billion worth of revenue. And operating cash flow from DeGrussa essentially not much more than just under $2 billion in the last 7 years, so it's been extraordinary and very positive 7 years.

More specifically, in the last financial year, fantastic operating results, the best we have ever had, producing just under 70,000 tonnes of copper and about 45,000 ounces of gold in the period at a record operating cost of $0.83 per pound at a C1 level. So they are our best physical results ever at our lowest-ever C1 operating costs.

And particularly from profitability for the business, it has been our second best year of profitability and free cash flow. I would like to highlight that as DeGrussa operating mine, in its own right, it has been the best financial performance as well from the DeGrussa operations. Obviously, we're very conservative and have been aggressive in terms of applying our funds to the profit-loss, and we do wash a lot of things through the P&L in terms of accelerated exploration, our share of losses from the U.S., continuing investment in the U.S. So we're ultraconservative in terms of those profit-loss aspects, and therefore, the profit is slightly lower this year. However, it's been, from a DeGrussa perspective, the best we've ever had financially.

Looking at into next year, we'll look at having our best year ever in terms of physical production performance between 70,000 tonnes and 75,000 tonnes of copper and a very good gold and very acceptable C1 costs. We continue to work hard to improve our safety record. And year-on-year, we've improved and we'll continue to look at further improving that as we go forward.

We have completed during the course of this year the acquisition of 30% of the Springfield joint venture. And now Sandfire, as you probably will know, owns 100% of, obviously, Doolgunna; the Springfield joint venture is 100%; and essentially the vast -- well, the entire 2 operating mines we have and the vast majority of the ground in the Greater Doolgunna region.

Monty's development ore and also stoping ore was expected during the course of this financial year. And we have now been for some time blending the Monty ore with DeGrussa ore and providing us that enhanced feed grade which will continue to provide us of those greater operating results going forward.

We're working hard and pushing forward on the Black Butte project in

Montana, and we'll look at the final EIS have been issued and our expectation for Record of Decision being lodged towards the end of this calendar year and being received by ourselves and also the completion of a definitive feasibility study. We're looking then to be able to make a final investment decision on that project towards the back end of '19 or early 2020.

We have also agreed as at the end of June to acquire 100% of MOD Resources. And their T3 project in Botswana, that is the subject of a scheme of arrangement and will be a transaction that their shareholders will vote on in early October. Our expectations are that transaction will complete towards the end of October. And we look forward to then working with the team not only to optimizing the project, the T3 project, but then making a decision to mine for that project some time in the first half of 2020 and moving that into development under the banner of Sandfire after we have essentially integrated that within our business. So we're really excited about those 2 elements going forward into 2020.

We continued with a very aggressive exploration campaign. And as you know, we have a wonderful ground-holding in the Greater Doolgunna region. It is a high priority for our business. We are well set up for further significant success if we are fortunate enough to make another organic discovery that is commercial. And during the course of this financial year, we'll invest in the order of $25 million to $30 million in that Greater Doolgunna region. So we're really still very supportive and we're very excited about the prospectivity of that region as we continue to do our work.

Cash holdings. We have no debt as a business, and we've been able to -- even after significant investment over the years in the paying dividends, obviously paying our taxes, investing in exploration, all the business development activities, and we still sit with handsome group cash of about $250 million in treasury as at the end of 30 June '19.

So all in all, it's been a fantastic year. And I will hand across to Matt Fitzgerald, the CFO, to give you some detail on these results for the year. Thank you.

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Matthew Leslie Fitzgerald, Sandfire Resources NL - CFO & Joint Company Secretary [3]

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Thanks, Karl.

Looking at the financial results and the headline numbers for this year, Sandfire again maintains a strong financial performance, as Karl said, from DeGrussa. Revenue up around $22 million up to $592 million. And that is up on payable metal sales of 65,000 tonnes of copper and 39,000 ounces of gold. That delivered a strong cash flow performance from operations $210 million and $267 million prior to exploration and evaluation, and Karl touched on that, not only at DeGrussa and the eastern states but also across that as the evaluation costs at Black Butte come into that number as well.

The DeGrussa Operation, at an EBITDA level $365 million, compares well to the prior year, which was $356 million, so up $9 million year-on-year, an EBITDA level on-site. And in terms of segment earnings, $225 million at an EBIT level at DeGrussa.

Down to profit before finance and income tax, $153 million, as we said, impacted by E&E; income tax expense, $54 million; so down, at NPAT line of $104 million; and $106 million of that attributable to members of Sandfire; earnings per share comes in at $0.65 -- just over $0.65 per share; and cash at the end of the year $247 million in the group.

Moving across to dividends. We're very pleased to once again announce a strong dividend for the final dividend for the financial year 2019 of $0.16, once again fully franked, and this comes on top of the interim dividend that we paid for the half year of $0.07 per share, which was also fully franked. So let's maintain that history that we have around 35% payout ratio. The dividend record date is a little later than normal. We had agreed with MOD that we -- that dividend record date would move back to the latest 15th of November to allow those MOD shareholders hopefully coming in to the group and becoming shareholders of Sandfire have some time to participate in that post hopeful conclusion of the scheme of arrangement in -- during October. So record dividend date -- dividend record date 15th of November, and the payment date for that dividend is the 29th of November.

Moving to the income statement now. That $592 million of revenue is made of around 87% copper revenue, 12% gold and 1% silver. The other comparable numbers are listed there. And as Karl touched on, this does include the impact of Sandfire Resources America results, of which we're an 85% shareholder. These are the consolidated numbers, and the impact that their numbers have had of around $14 million on that on our result.

Again, revenue. Revenue has increased, as we said, year-on-year primarily driven by increased production numbers, so just over 69,000 tonnes of copper and 44,500 ounces of gold, impacted also by the year-on-year copper price. So as we can see in the graph on the top right, copper in the U.S. terms has moved to the band between USD 5,800 and about USD 6,500 and been relatively steady over that time. The currency, pleasingly in this perspective, has been reducing and has moved from a level of around $0.74 down to the sub $0.70 now and around -- it was around $0.70 at the end of the financial year, so that is improving the Aussie dollar copper price. And as you can see in that graph, that has really set the band between $8,000 to $9,000 and settled somewhere of the middle of that band towards the end of the year.

So some lower year-on-year copper prices in terms of U.S., but that has been assisted by the currency reduction. And that was also assisting our C1 costs. So we expect it to assist our C1 costs if that maintains at that lower and reducing currency level.

Talking about -- speaking of costs, costs are up year-on-year with the mining costs coming in at Monty. And as we've flagged in a few occasions that a lower grade -- lower than life of mine grade coming from Monty means that it doesn't really get that large sort of kicker in the revenue side, so those 3 or 4 months that we had Monty ore coming through. As much as they're profitable, they certainly aren't as profitable as they will be later as we expected it to be as that grade at Monty lifts. So higher revenue and higher costs.

Also here in the results that higher exploration and evaluation costs. We've always had those exploration costs coming out of DeGrussa. The evaluation costs are really around -- predominantly around Black Butte feasibility study and approvals. So EIS process and costs being incurred over there which flow through to our result.

Moving across to the balance sheet now and just to highlight some of these numbers. Cash, relatively flat year-on-year. We have a slide on that, it will go up. At inventory sense, inventory is up, and that's what gives us that credit to cost in the income statement. So ore comes -- ore is up around $3 million in terms of cost and holding of ore and concentrate, up around $8 million. Financial investments are up in our balance sheet which reflects the Sandfire venture strategy and holding of those investments and increase in some of those. At a PPA level, movements with the -- with mine development at DeGrussa as well as Monty and in the year completing the Monty 30% acquisition with Springfield joint venture acquisition to $77 million from Talisman, has been reduced by the D&A. And there's also, just to note been a slight uplift -- or an uplift in terms of the balance sheet of around $24 million, bringing leases on balance sheet. So they'll come on the asset side as well as on the liability side with the adoption of the new leases accounting standards.

Over to the liabilities side, a couple of things to touch on here. In terms of trade payables, running a little higher than previously, and that reflects that increased cost structure with Monty and a couple of mine -- copper, gold mine coming in. And at income tax level, we have the provision or the payable at the end of last year for the catch-up of tax which we guided around to be paid in December 2018. And then we've got higher adjusted provisional rates. So for the year, we paid $82 million of tax payments against -- and $31 million of that is catching up from prior year payments. So we're back on about a level playing field now in terms of not being too far or behind or ahead in terms of tax payments.

And deferred tax liabilities in balance sheet, as we talked about, are reducing with DeGrussa mine development coming to its later stages but increasing in terms of Monty being -- doing quite a lot of that mine development work at Monty at the moment getting ready for that stoping.

In the cash receipts from representatives sort of in a graphical format. So just looking from left to right, cash receipts from customers, $590 million; after payments for suppliers and employees leaves a cash operating margin pretax of about around 57%. It gives us the available funds when we put in some interest earnings and some net proceeds from Sandfire Resources equity raising and auction conversions. So available funds around $350 million.

And just representing where some of that investment has gone. So 40% into growth. As you can see exploration and evaluation, as we said, that took DeGrussa, the eastern states exploration programs as well as the evaluation program at Black Butte in the U.S., $5 million to investments and $73 million in cash terms into the acquisition of the Springfield joint ventures, 35% through to shareholders and tax. So tax during the year, as I said, a bit of a catch-up with tax $82 million paid, and the dividends that were paid during the year from the interim and the prior final dividend for '18 of $41 million total, and the remainder through to operations. So 25% of that available cash through to operations both in direct mine properties, so that mine properties have decline and lateral development into Monty and DeGrussa; as well as some investments into the plant and predominantly getting the plant ready for that higher copper intake and higher head grade. So that works in the plant in the back end for $9.9 million -- predominantly there for $9.9 million.

So all of that in total keeps cash relatively steady year-on-year with those investments into growth and also into the operations and, as we said, pleasingly being able to return -- continue to return strong dividend flows through to shareholders at the same time.

Let's pass back to Karl for the summary.

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Karl Matthew Simich, Sandfire Resources NL - MD, CEO & Executive Director [4]

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Thanks very much, Matt. And once again, ladies and gentlemen, very, very pleasing last 12 months. And in fact, it's extraordinarily pleasing last 7 years.

Looking forward not only to 2020 but over the next 3 years, certainly going forward, our operating performance is expected to be very good, very high and the best we'll probably see compared to the past. So in the next few financial years, '20, '21, '22 should be extraordinarily strong. So consistent low-cost and very solid production profile, obviously, not only from DeGrussa but with Monty and those higher grades starting to come through cleanly as we go through the next 3 years. So very excited about that.

In terms of the growing cash flows continuing to place -- pay sensible dividends, we are really looking to invest in the development and the growth opportunities within our business. Essentially, that's going to be twofold, obviously continuing with the organic aspect of our business in terms of exploration that we believe is warranted and investing in places like the Greater Doolgunna region and the other aspects that we will have mine centers. We will do other exploration, but obviously, having success and part of the tenets of the work that we'll be doing is looking for further mine life extensions at the Greater Doolgunna -- from the Greater Doolgunna region and from the DeGrussa and Monty complex as if we are so fortunate. So the investment in that area is important to us, and it is significant. So we see that as a great opportunity for us.

And we also see, with -- from more of a business development aspect, with that investment into the Black Butte project by Sandfire America and our 85% interest which, coincidentally, that company's market capitalization at the moment is somewhere in excess of CAD 200 million. So our 85% is probably not reflected compared to the market value of that organization, but nonetheless, the $64 million that we've invested to date in that company and indirectly into that project seems to make some sense. We do fundamentally believe that with that project permitted and moving into a development framework, it is obviously worth more than the investment that we have made. So we're looking forward for that as a business opportunity.

And in addition, with the acquisition proposed of MOD by the Scheme of Arrangement optimizing and developing the T3 project and having a decision on that through in 2020. And then in all of those areas, further enhancements potentially from accelerated and aggressive exploration campaigns, we think are the sort of growth opportunities that will deliver significant value for the shareholders of Sandfire going forward.

And just to touch on the current environment. We do believe in terms of being -- having a longer-term -- medium- to longer-term outlook for copper, we still believe that between the supply and the demand fundamentals, the longer-term -- medium- to longer-term outlook for the product and the metal is very, very strong. We do have looming demand for the EV markets for energy storage and other sectors and, ultimately, on a stable footing in the world economies at some point in time, we do see the demand being extraordinarily strong in the medium to long term. We do believe it creates -- the environment today creates extraordinary opportunities for those willing to make a long-term investment decisions, and that's what we intend to do. So we believe this environment creates very interesting opportunity and one where someone who is well funded, well structured, has access to capital, has strong cash flows, can benefit from making a logical and sensible investments in business development as well as logical and sensible investments into organic opportunities to set ourselves up for the medium and for the longer term.

So once again, thanks very much for your time today. It's been a fantastic year, and we look forward to delivering more and more and more value as we go forward into the future. So we're opening up the floor to questions now, so we look forward to taking them.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Michael Slifirski with Crédit Suisse.

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Michael Slifirski, Crédit Suisse AG, Research Division - MD [2]

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The result was pretty straightforward, so not much to ask here. I guess 2 things I'm interested in. First your comments about MOD hoping to be at a -- in the first half next year, a decision to mine. Maybe I haven't paid sufficient attention, but I thought the sort of opportunity there was really very much exploration. And finding really where the centroid of the ultimate resource might be and locating a plant appropriately for what that exploration potential might reveal. So is your view very much now that just to get on with getting into production and let exploration then sort of follow afterwards?

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Karl Matthew Simich, Sandfire Resources NL - MD, CEO & Executive Director [3]

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I think, Michael, there's been a significant amount of very, very good work that has been done by the management of MOD, and we want to be able to capitalize on that. There is a significant degree of momentum at the moment as well. And from our perspective, what is very important is to continue with that momentum. We believe that in looking at the work that has been done, that is probably a really good opportunity to try and enhance that work to some extent. So we go through a bit of a process in collaboration with MOD. We've got to sort of just juggle it through this period up until we get to ensure the transaction is going to be completed. But essentially, looking at where there might be some opportunities to enhance the proposition that was put forward in the MOD feasibility study, so I think there's some opportunity by us working together to enhance that.

We also do want to keep the momentum in terms of the project and the project development site. I don't -- I see us actually gathering speed and gathering momentum. We do want to ensure that we'd give ourselves flexibility and possibly expandable capacity in those operations. So that is something that is factoring in our mind as we're moving forward in terms of the work that we're doing and give ourselves the greatest flexibility. But we do think of that some nearly just under 12,000 square kilometers is there is significant long-term potential, and we will be looking at -- through going through some organic exploration workshops, just looking at where we can advance aggressively some exploration going into next year, but we have to obviously complete the transaction and get on with it.

What we don't want to do is actually lose the momentum that we've got. We do believe that certainly around T3, what is there today even though there's an opportunity to maybe enhance that and some further value proposition and in other proximal resources that are close to T3: T1 has got some opportunity; A4; and there were some others. They're probably all going to be proximal in the first instance to T3 anyway. So as a starting proposition, we still believe it is worthwhile progressing that and keeping that momentum. It might ultimately turn out 11,000 square -- 700 square kilometers, there are other mine proposition that will warrant their own standalone central processing facilities, and that's to be determined from further exploration success.

So I suppose the key for us in terms of the value move is to continue with the momentum. What we see there is T3 makes sense to progress, to give us some of the greatest flexibility in and around T3 and from further enhancements not only from T3, from around there, but let's not just stop for the sake of stopping. So it's a bit of both. It's actually not losing the momentum at T3, giving ourselves flexibility in and around T3 with those operations in terms of further enhancement if it's warranted from other discoveries or enhancements of what has been discovered but not sort of slowing down because we don't see a need to do that in terms of the value proposition.

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Michael Slifirski, Crédit Suisse AG, Research Division - MD [4]

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Okay. That's very clear, Karl. So decision to mine first half of next year, when would you break ground? And then how does that overlap with your best case or expectation around Black Butte?

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Karl Matthew Simich, Sandfire Resources NL - MD, CEO & Executive Director [5]

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Look, it's still to be determined, the precise timing of something like T3. Obviously, there was a feasibility study prepared. We are looking at -- there were some constraints placed on that feasibility study, so we're looking at reassessing that without constraints and seeing if it can be optimized. So that may have an impact in terms of the sort of timetable that Martin might have indicated to the market. We'll have some clarity on that around probably October when we're getting close to completing the transaction. And we probably will give the markets around time of completion what we believe the time frame looks like in terms of things. But I would suggest that it's got some minor extension to the timetable that MOD might have provided. So we are very much looking forward to making a positive investment decision on the T3 project as soon as we sensibly can, but I would say it's slightly further out than what MOD might have had but not a long time, not a long time.

With regard to the time frame of the Black Butte project, clearly, what is critical for us is to get -- there are 3 things that are critical. Number one is to get the finalized and issued environmental impact statement; number two, following on from that is to have issued to us the Record of Decision. There are 2 things that the regulator must do. The regulator will only do the second of the 2, the ROD, when we have also complied with many things, but importantly, the bonding protocol. So that's what we're working on at the moment. Our expectation for those 2 items is that they'll be completed by calendar quarter 4 this year. So anywhere between September, October, November, December. In there somewhere, we're expecting to see those. And then we are also expecting to complete our definitive feasibility study in quarter -- calendar quarter 4 of this year. So it's all moving towards that point in time when then the Board of that company, supported by its largest shareholder -- but the Board of that company, Sandfire Resources America, can make a decision.

Now clearly, the decision will be dependent upon what other factors are happening extraneous to the business. Is there NGO groups? Do we have to deal with something there? We don't know. So we're sort of boxing at shadows a little bit as to what the outcome might be in terms of the process, but we will ensure that the oversight strategically will come from these offers, that they will be -- if it turns out we are in some sequential development pipeline or similar pipelines independently, both situations will have their own -- even if sequenced, will have their own development directors appointed and operating independent, and oversight will strategically be from our Perth offices essentially. So the precise timing -- we're just -- they could be nearly together, they could be staggered, but it depends on some circumstances. I think probably there will be some degree of sequencing I would have thought, but we are enthusiastic, and we are optimistic about moving both projects forward. We appreciate, give or take, there were 2- to 2.5-year development time frame from the time we broke ground to get to a production profile. That's generally what we expect out of both T3 and Black Butte. So -- and if we look at the prognosis of what the market looks like in 2.5 to 3 years from where we are today or 3 years from today, which is about a production profile, we expect to have better stability at the beginnings of an improved environment after some fairly choppy waters that we've seen over the last 12, 18 months or 2 years. So we want to be continuing to be in a production profile and moving that forward. But the precise timing, I think it will evolve a little bit over the next little bit-- it's going to be a little bit fluid, but we are building our capacity to deal with that as required.

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Michael Slifirski, Crédit Suisse AG, Research Division - MD [6]

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Great, Karl. And secondly, the comments in the text around the Oxide Copper Project, the comments specifically which referred to pressure oxidization, is that a real consideration? Or is that just one of those things you do to see whether that's a lower cost of asset? Intuitively, just seems an extraordinary proposition.

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Richard Beazley;Chief Operating Officer, [7]

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It's Richard. I'm going to answer that, Michael. Now it is a consideration. Our, in fact, priority is now releasing internally (inaudible) on that project. First of all, oxidation, while it sounds a little bit out there the way you put it for the oxide resource, it is actually going to be linked in with the -- potentially their production, retreatment of the tailings dam. So whilst we're doing a (inaudible) on the oxide, it will be also linked quite directly with the tails program. So in terms of scale, then you start to get an appreciation of the appropriateness of the process.

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Michael Slifirski, Crédit Suisse AG, Research Division - MD [8]

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Interesting. So they are not fully across the tails opportunity. Can you sort of scope how broadly what that tails opportunity is?

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Richard Beazley;Chief Operating Officer, [9]

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It's fairly early, but essentially, we'll end up at end of mine life normally around 7 million tonnes of tails, of which we'll have in the order of just over 1 gram per tonne gold in there, 0.4% copper. It's just due to the fact that we've done a floatation process and collected normally about 50% of the gold through the flow. We haven't had any inner process at the back end to extract the rest of the gold and which by the way hasn't been straightforward, and that's why it's sitting at the tailings at this point.

So that notionally would -- one would think, without getting into any of detail that we've got to at this stage about a 1 million tonne production unit for the year one would think on the tailings at this stage. But again, early days yet with that, Michael, but that's the longer-term vision to re-treat tails. And the processing will be interlinked with the oxide treatment as well. So from capital overall and get a better recovery of the gold.

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Operator [10]

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Your next question comes from Daniel Morgan with UBS.

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Daniel Morgan, UBS Investment Bank, Research Division - Director and Analyst [11]

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Karl and team, so most of my questions have been asked by -- earlier, but can I just ask, post the acquisition of MOD, so you have Black Butte which you're progressing. You've got MOD you look to progress. You've got potentially these tails retreatment option. Does that mean that you're happy with the portfolio, you're done on acquisitions, and there's enough going on for you guys?

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Karl Matthew Simich, Sandfire Resources NL - MD, CEO & Executive Director [12]

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Look, I think, Daniel, we're -- foremost, we're in the business of looking for value creation, value accretion. I think that we've been obviously sitting here operating between 60,000 and now will be up to 70,000, 75,000 tonnes of copper. We would, one, like to remain as an operating business. That's really important to us. We've built up a lot of skill sets and some intellectual property that we want to continue to be able to utilize. We've got one for relations with bankers, our investment bankers, our customers, our suppliers, our internal network, our starter systems, our procedures. There's a lot of significant investment that's being made over the last 7 years of operations and 10 years as a business since we made the discovery. And we want to be able to utilize that.

We're obviously building up our capacity in the U.S. We have 3 Sandfire Resources America, a complement of probably 30 to 31 people who are amassing at the moment, being able to be totally and utterly independent to go and develop that project as it achieves its milestones. So we -- rather than shying away and saying, oh, that's going to be a complicated, difficult process, we are looking at an operation that is to go in a well-planned-out execution process there to build a 1 point -- 1 million, 2 million, 3 million tonnes per annum plant. It's not rocket science. You know what I mean? It is not. And if you look at the team assembled underneath here, yes, give or take, I have been involved over the last 33 years in building anywhere between 8 and 10 mines depending on how you define them. And I think it's just a process of going through a very disciplined and diligent approach in terms of how you want to execute. So we're not trying to reinvent the wheel, whether it's to build an open pit processing facility around T3 at -- in Botswana or, alternatively, building a higher-grade underground mine in the U.S. And I don't think that means that we are unable to consider other opportunities if they make sense, if they fit our strategic criteria and if we feel comfortable that we have the capacity and the capabilities to move something forward. So I wouldn't -- on the one hand, we're not aggressively out there doing it, but by the same token, we will continue to look for opportunities if opportunities are available. And I think in this environment where -- I don't know how we -- how often we'll expect to see copper around the $2.50, $2.60 a pound type of number and how realistic that is for the longer term in terms of [pallet] grades, cost to develop these mines, capital imposition or capital thresholds to get into them in the longer term, I think it is countercyclical. This is where I would like to be buying copper particularly at the moment for the medium- and longer-term scenarios. So I would say it's -- we are open for business essentially.

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Daniel Morgan, UBS Investment Bank, Research Division - Director and Analyst [13]

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And maybe just a follow-up on the timing of various project streams, it sounds like Black Butte, very much a lot of news flow or the expected news flow targeted for Q4 of this year. MOD, we're going to be closing when that closes in a few months. And then that's second half of this year. And then tails retreatment, is that something we might hear about next year? Or what's the timing on studies regarding it?

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Richard Beazley;Chief Operating Officer, [14]

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Study-wise, we'll get -- seriously getting on the tailings itself in the back end of this calendar year now. So depending on test work, we should have a position hopefully mid-next year of a PFS done on that, and then on those results delivering on the fees within 12 months after that. We're under a little bit of pressure from a tailings retreatment process because we seriously can't get started on that. One would logically think until we finish the normal sulfide treatment process from DeGrussa or Monty, which we need that tailings there for that processing, so we're got time up our sleeve on the tails side.

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Operator [15]

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Your next question comes from David Coates with Bell Potter Securities.

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David Coates, Bell Potter Securities Limited, Research Division - Resources Analyst [16]

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All my interesting questions have been asked, so I've got a couple of boring ones for you. So just first for Matt, your outlook on D&A charges; and two, what are your foreign exchange rate assumptions on the cost?

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Matthew Leslie Fitzgerald, Sandfire Resources NL - CFO & Joint Company Secretary [17]

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David, yes, D&A, we -- as I said at the last quarterly, we're going to have a look-through any adjustments in the reforecasting at Monty. So it's one of the big drivers of D&A next year. So if I can pause that one until the September quarterly, generally speaking, that will be up because we'll have traditional areas being mined.

And in terms of currencies, so we looked early in the year as we set some of our numbers in the low 70s in terms of FX. And clearly, we've got now a different scenario, so that will -- we're around $0.04, $0.05 below where we set our target numbers. So that will -- as I said before, will probably help us -- certainly will help us on a C1 level, all things being equal, but we just need to see how that progresses through the year.

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Operator [18]

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Your next question comes from Hayden Bairstow with Macquarie Group.

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Hayden Bairstow, Macquarie Research - Analyst [19]

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Karl, just a couple from me. Firstly, on Black Butte, I mean you're obviously progressing the study work. How's the pressure on costs? We're seeing more likely that there's CapEx cost pressure as opposed to OpEx assumption pressure. And just a follow-on on that, I mean the Aussie dollars are obviously much lower than when you thought of them. And in terms of the A dollar commitment, so that capital budget is obviously going up. How are you thinking about that? And then just on Adriatic, when you're sort of slowly creeping there, what's the thought process on that? I mean are you at a point now where you get a Board seat, you're looking -- pushing for 2 Board seats, so you get 15% on stock, and what's the sort of process there?

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Karl Matthew Simich, Sandfire Resources NL - MD, CEO & Executive Director [20]

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Look, Hayden, on the Black Butte project, without preempting it, I think we are -- there's good diligent work going on with the feasibility study at the moment, so I don't really want to preempt that because I don't have that information to hand. The guys are working through the process of compiling that and putting it together and testing a few things. So I think we just need to see that roll out in terms of where that will come to in terms of feasibility.

In terms of Aussie dollar, in effect, the Aussie dollar impacts, well, at the end of the day, it's a little bit of a circular argument because, ultimately, the project is going to be producing. It might be more in terms of the balance sheet disclosure of Aussie dollars to the CapEx, but at the end the day, it's going to be producing U.S. copper and U.S. gold. So it's effectively going to be a self-fulfilling argument. It's going to probably -- if it has some debt that will be localized debt in U.S. dollars. It will be ultimately getting U.S. revenue streams, and it will be dealing with itself. So I think it's a self-insured situation to a large extent. And really, the U.S. project's being consolidated back into the Australian company is one purely of a financial compliance more than anything. So I don't think it necessarily makes any difference other than the disclosure -- dollar value disclosure.

With regard to Adriatic, we have -- we had a strategic -- we've got a strategic arrangement with Adriatic that was put in place when we put in our initial investment into the IPO and assisted that company listing on the market. And part of that is a strategic collaborative information where we assist them in terms of some of the things that they do. And then also, it allowed for, if we had a shareholding in excess of 10%, to then be able to nominate an independent to their Board or someone to their Board. So the reason in the first instance that we improved our shareholding from -- I think it was just under 8% to over 10% is to ensure that we could be there, but not only be there but also be closer in terms of having a nonexecutive appointed to the Board. And we're in the process of working through that with Adriatic at the moment, so we're looking forward to having an independent nonexecutive appointment to the Board. And look, at the end of the day, we think they have done a very good job, they continue to do a very good job, and we're very supportive. And basically, we want to have a strategic connection there. So that's sort of where it is. And I think there's a lot of time that still is required in terms of that project achieving the various milestones needs to achieve to ultimately become a project that may go into a final development sort of thing. So there's a lot of work still to be done in terms of what needs to be done there. But we would like to be just as we are, a slightly bigger shareholder than we've got without anything that dramatic.

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Operator [21]

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The next question comes from Kristie Batten with MiningNews.net.

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Kristie Batten;MiningNews.net, [22]

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I was just wondering, there's -- it's obviously been reported that Glencore is considering divesting the CSA mine again. Is that something you would have a look at?

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Karl Matthew Simich, Sandfire Resources NL - MD, CEO & Executive Director [23]

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We had a look at it in the past. It was on the -- it was up for sale through a process, Kristie, some time ago, and we're involved in that process. Obviously, I think Glencore, probably through the process, changed their mind a little bit. You know what I mean? I think they wanted to sell it, then they weren't so sure they wanted to sell it, so it went away. And then I think more recently, there was another organization that I think made approaches to them about looking to sell it, and that deal collapsed. I don't quite know how serious it was I suppose to some extent. I don't know if they've actually got it up for sale or there's just general gossip and scuttlebutt , and the rumor is that it's for sale. But I think like anything, all of these things' potentially up for sale for a price. And would we look at it? Well, it's certainly something that it would be remiss of us not to have a look if it was for sale. So -- and we do have a presence in the New South Wales region, in the sort of Cobar region. We're already exploring in that region. We have some 1,300, 1,400 square kilometers that we are doing some exploration work in that region. So we're receptive and optimistic about that. So I would think in the first pass, if it was a genuine sale, we would undertake a review at least if we're invited or allowed to. And then depending on what came out of that, may or may not cause a decision or otherwise. You know what I mean? It would just be obvious it would be mad for us not to look at it if it was potentially for sale.

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Operator [24]

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

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Karl Matthew Simich, Sandfire Resources NL - MD, CEO & Executive Director [25]

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Once again, thanks very much, everyone, for listening. And I just appreciate your attention. It's been a wonderful, as I said, operating year, the best we've ever had this year. Next year will be better. The current financial year we're in, in terms of financial performance for the business as a corporation, the second best we've ever had and essentially only, and that was the reason, that was a lot of commodity price. So really pleasing and continue to be a strong dividend payer. And I think once again, even in the -- given the turmoils of these geopolitical markets, I think it's actually a great opportunity to reset in this environment, and that's exactly what we are planning to do with these strategic initiatives that we are taking to build a platform for the future and to give ourselves 3 operating centers to which to leverage off. And we're looking forward to: one, obviously, operating at DeGrussa; if we are so fortunate to make further discoveries there in a region where we are built for success, we will continue to look at other avenues of continuing the operations even if we don't have organic success to extend those out, to give us the optionality there; looking forward to closing on MOD, so we can develop that project and aggressively explore in Botswana, in and around that project at a significant ground-holding of 11,000 square hundred -- 11,700 square kilometers of underexplored ground; and obviously, getting the green light in U.S.A. with the Black Butte project, to moving that into a investment decision and looking forward to taking that into development over the next period of time.

So I think we are laying the foundations for a very strong base to then leverage off having 3 operating centers to leverage off over the next couple of years. And I think it's exactly the right time frame to be moving forward if you've got the capacity, which I believe we have, to do those things.

So once again, thanks very much for your time, and we look forward to updating you at the end of next quarter again. Thank you.