Thank you for standing by, and welcome to the Sandfire Resources June 2023 Quarterly U pdate. 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 one on your telephone keypad. I would now like to hand the conference over to Mr. Brendan Harris, Chief Executive Officer of Sandfire. Please go ahead.
Yeah, hello, and good morning from here in Perth. My name is Brendan Harris, and I'd like to welcome you to our June 2023 Quarterly Conference Call. I must say, I'm very much looking forward to discussing our operational results with you and giving you a feel for the strategy that we believe will energize our people, unlock significant shareholder value, and underpin our future success. This will pave the way for us to discuss the finer details of our simple strategy when we report our financial results at the end of August, when we'll also provide more granular forward-looking guidance for key financial metrics. Before I go further, I should also welcome my team to the call.
We've got Matthew Fitzgerald, our Chief Financial Officer, Jason Grace, our Chief Operating Officer, Richard Holmes, our Chief Growth Officer, and Scott Browne, our Chief People Officer, with us here today. Last time, you may recall, we sought to do something a little different by stepping away from the usual presentation, replacing it with a succinct overview of performance led by Jason, Matthew, and me. On the basis of the feedback we've received, we're going to be even punchier today. I'll briefly talk to the key messages that we think matter, and are helpful to understand, and then we're going to go straight to Q&A and spend even more time as a team on the questions that matter to you. Let's get into it.
We achieved record low TRIFR of 1.6 for the year, marginally exceeded revised production guidance at MATSA, delivering 99,000 tons copper equivalent. We're successfully moving through the commissioning and ramp-up phase of Motheo, and have transitioned DeGrussa to care and maintenance as we assess all alternatives for the operation. The old adage, "A safe business is a productive business," rings true. Let me expand on Motheo, as I'm sure you'd like to know more about our newest mine. It is still early days, but things are going very well. In the most recent 14-day period, to the 22nd of July, we achieved an average processing run rate of 3 million tons per annum and achieved a maximum recovery of close to 90%, while testing and exceeding nameplate across a number of shifts.
That's why we've reiterated prior guidance for Motheo, as we are and should continue to see, a rapid ramp-up in performance with the initial 3.2 million ton per annum processing rate achieved on a sustainable basis in the September quarter of this year, and 5.2 million tons of capacity delivered towards the end of the calendar year, creating the platform to grow copper production to over 50,000 tons in FY 2025. When we report in August, we'll have more operating data in our back pocket and a growing feel for costs. At this stage, and let me be clear, we see no need to adjust our prior assumptions. To MATSA, I feel like we're one quarter into a long process of building consistency, predictability, and credibility. We delivered on a revised production guidance for the year.
We've contained controllable cost inflation, notwithstanding the significant reduction in by-product credit pricing in Q4, and we've stuck to the forward plan we discussed with you in April. Across FY 2024, we will run the processing plant at around 4.5 million tons per annum rate and run the mine at a slightly higher clip while spending incrementally more on development and investing in ventilation. This plan will allow us the space to further build our geotechnical knowledge, minimize dilution, open up more mining fronts, and create much-needed flexibility, all while building around 100,000 tons of stock on the ROM pad, giving the team a fighting chance to optimize the processing blends and deliver an increase in recoveries. It's on this basis that we expect to deliver an important 3% increase in copper equivalent production at MATSA in FY 2024.
That's what we're looking for, frankly, signs of continual improvement, knowing we must push beyond 4.5 million tons per annum sustainably once we've established a solid base. Of course, our big lever continues to be exploration, given our strategic position in the Kalahari and Iberian belts, their prospectivity, for economic mineralized systems, and the drive we have internally to materially extend mine life, unlocking long-term value for shareholders. San Pedro and Olivo at MATSA are prime examples of the potential we see, such that we've focused our exploration effort and will push hard to test near mine potential quickly and efficiently. This means we've made the difficult decision to scale back very early-stage greenfield exploration in Australia, as it doesn't offer the same risk/reward trade-off, and we need to spend our dollars wisely.
I expect we'll spend around $10 million-$15 million less on regional exploration in FY 2024. Lastly, to DeGrussa. The innovation and ingenuity displayed by our team has been quite remarkable, particularly considering the personal uncertainty they faced this year. While the decision to process oxide stocks brought with it increasingly high costs, as it should, a sharp focus on the economics created an additional $18 million of pre-tax cash flow. In parallel, we've been assessing all alternatives for the operation, including closure and rehabilitation, and divestment. In summary, we're primed to deliver. We finished the year on a strong note, generating unaudited $313 million in operations EBITDA at a robust margin of 40%, and the outlook gets stronger from here.
We're working hard to mitigate cost inflation, steering our capital toward the best risk-return trade-offs. We have a fantastic platform that will deliver more than 50% production growth across the next two years, and holds enormous exploration potential to materially extend mine life. Suffice to say, we're motivated, and we have plenty on our plate to keep ourselves busy. With that, can we please have the first question?
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Rahul Anand from Morgan Stanley. Please go ahead.
Hi, team. My question relates to the cost base. You've talked a bit about it in the release today. I just wanted to touch upon some of the key reasons. I mean, is there a bit of a change in the payability side on zinc? Are there any other cost pressures that you're seeing? If we look forward into CY 2025, you're talking about a few more initiatives there in terms of energy, et cetera. Can you help us understand on how we should think about costs for the coming period and perhaps couple of periods ahead?
Yeah, Rahul, thanks. That's a really good question. I'm not surprised we got to costs as quickly as we have. Look, this is something I know Ben will be happy to help anyone with. We know that C1 unit costs are materially higher than what our prior guidance was for the quarter. Hence, that flows through into the differential between what we said. It was guidance of $1.84 a pound, going up over $1.90 for MATSA for the period. Let me be really clear. If you actually go and work through and reconcile, because I've done this work, and the team's done this work, at what absolute costs were in the period, so absolute costs, they're flat. There's no change, no change in the cost that we estimated for MATSA. We obviously delivered on the production front.
The total cost is the same. The reduction is by-product revenue. It's purely and simply a substantial reduction on the zinc price. That makes up 80%-90% of the differential. That's the first thing. Again, we're very happy to work through that with people. I think what we've talked about here is, as we provide guidance for costs, we will look to provide both the absolute cost numbers for particularly those polymetallic businesses, as well as the unit cost numbers. Again, not only do you have greater visibility and transparency, but you can also track us because, of course, C1 unit cost is largely a function of some of the assumptions that they're outside of our control. In terms of the CY 2025 initiatives, maybe I'll take you first to capital expenditure.
I talked about an incremental increase in development, and that's going to be critical because we are aiming to open up more mining fronts. It means that, you know, it's an underground mine. Not everything will always go swimmingly, evenly, even as we get more control and better geological and geotechnical understanding. Having more degrees of freedom, having more mining fronts open, means you can always keep your equipment productive. That will see us spend, you know, incrementally more on development. I would think that would be, you know, somewhere in the order of probably AUD 5 million-AUD 10 million. It's not a substantial change, but it is an important continuation of that effort. We also talked about ventilation.
As we're going into some of these areas and opening up domains, we've gotta make sure there's good ventilation there for our people, so that they can work safely, and that's going to see us spend incrementally more money as well. You know, I'm thinking somewhere in the order of $10 million or $20 million. Those costs will go through, but again, that will set us up for a period to come. If you then, you know, go beyond that and talk about operating costs, first and foremost, you'll notice that we've talked very clearly about working hard to mitigate cost inflation.
You can take that another way to say, whilst we're finalizing our processes, we currently see no material shift in absolute cost at MATSA into FY 2024, so no material shift in the absolute numbers. There'll always be the things that are outside of our control, but no material shift in mining, processing, and G&A costs. As we, you know, go to energy, you talk to-- We are working hard to finalize the, the, the agreement, dot the I's and T's, moving away from memorandum of understanding with the major provider there on the solar facility that would come in from CY 2025, but we're well advanced, and that final contract will put us in a very good position.
It's not only giving us obviously security of supply, but at a very, very attractive, price. It's not far off half of where the current spot price in the European and Spanish market is, of around, you know, EUR 100 a MWh . I've talked previously on energy that the two other contracts, one was backdated to the start of this year, was around 30% of our demand requirements. That was around 30% of the spot price at the time we talked about previously, again, on a number close to EUR 100-EUR 110 a MWh .
If you look at the second contract, which kicks in from CY 2024, that's that other ± 30% of our requirements was a closer proxy, I should say, to spot. That gives you a bit of a sense on energy. Suffice to say, as we've mentioned in our reports today, it puts us in a very, very good position as we enter 2024. It will put us in an even better position as we enter 2025. Energy costs were closer to 9.5% of our total costs in the period at MATSA. You know, they were over 20% at the peak. Again, feeling very, very comfortable with that.
Look, as I mentioned with Motheo, I know people would love cost guidance, but let's be frank, we've been running it for about a millisecond. It's gonna be more meaningful when we come back in August, and we've actually had another month of operations. Again, as I mentioned earlier, we're not seeing anything at this stage that leads us to believe we'll get outcomes materially different than the feasibility study estimates, which we talked in the past of around the C1 cost in the order of $1.70- $1.80 a pound, and an all-in sustaining cost of incrementally high. Maybe just pause and see if that answers your question.
It does, Brendan. That's very comprehensive and also very helpful. Thank you. Look, for my second question, I'll perhaps stay with MATSA. I just wanted to get some help, understand how we should think about the grade progression for the mine here. You've talked about the 4.7 million tons per annum in today's presentation, which is great. I just perhaps wanted to touch upon the grades and, you know, we are running currently above the reserve grade at the asset. You know, how are you thinking about that? Till what time do you think you can continue to run at those grades, or are you expecting, you know, better definitional drilling to help with the, you know, sustenance of that higher grade?
Yeah, look, that, there's a lot in that, so I'm gonna make a couple of very quick remarks, but I do wanna throw to Jason, who's here with me. I think the first thing is, we've gotta be careful how we propagate, if you like, our assumptions too far. The reason I say that is, you would've seen, we talked about San Pedro again today. San Pedro is shallow in the mining sequence. It's around 300 m-350 m. It's within around 100 m of existing underground development. We can bring that into the mine plan if it continues to prove its merits, potentially as early as 2026. Of course, that's important because not only will it bring us ore shallower to surface, but also it could have impacts on that grade profile.
Of course, if we can find that high grade, we'll bring that into the mix. Equally, you would've heard me again, talk of this new Olivo zone that we've discovered just to the west of Magdalena. The same thing holds true. You know, of course, I'll let you know, eager for Jason to talk about what we see today and to give you a sense for that. I guess what I'm trying to highlight though is, as you'd expect, we're always going to be looking at that mine plan as we evolve with our reserve and resource estimates and recalibrating to chase the maximum, you know, or the value-maximizing plan. Maybe Jason, to you.
Look, thanks, Rahul. Look, from our point of view, grades we expect to hold going into FY 2024 and beyond as well. If you look at it, overall, FY 2023 largely was slightly below our grade expectations that we see, particularly over the next few years. That's in respect, slightly down on copper, but certainly more down on zinc. You would see in our forward projections there for FY 2024 and FY 2025, we are expecting that overall zinc production to step up this year and basically be sustained there beyond that as well. That's largely driven by grade, but there's also contributions, you know, from the areas that we're working on operationally there, which Brendan touched on very well before, which is all about making sure that we're maximizing NSR.
Not pumping through the tons, but we're pumping through the grade, we're minimizing dilution, and we're also maximizing recovery to get the best bang for the buck out of our ore body.
No, that's fair. Thank you for that, Jason. Fair to assume that FY 2026 and beyond, just for modeling purposes here, for spreadsheet junkies, is it fair to assume that you revert back to the reserve grade post that?
That's the best assumption long term.
Brilliant. Okay, that's all from me. Thank you very much.
Thank you. Your next question comes from Levi Spry from UBS. Please go ahead.
Good day, Brendan and team. Hope you're well. Thanks for your time. Yes, I'd like to give you an opportunity to talk a little more about Motheo. It sounds like we're still working on the DFS estimates, but it sounds like also things are going very well. Can you give us a few more tidbits? You know, what sort of grade are you giving us, mining rates and processing rates, but what sort of grades are you seeing? You mentioned the recovery, how sustainable that is. Can you remind us of the capital that was out there for the 5.2? Couple of questions in there.
Yeah, thanks. Yeah, thanks, Levi. Thanks, Levi. No, that's great. You know, we will obviously provide, continue to provide more and more information as it comes through, in all of those respects. I think if you look at the back of the presentation, you're probably familiar that we do provide, you know, a lot of information on our mines and operations. Motheo is not yet in commercial production. What I can tell you is that the concentrate grade that we're delivering is generating in the order of the 30% that we would've expected, even as we're working through some of this oxidized material. That's been very pleasing.
I think, maybe if we step back, the first thing I wanna say about Motheo is to really, again, commend the team. It's not often, in this industry... I saw one of the analyst notes today, talked about it being atypical for a project to be delivered on time and on budget, and particularly one that was actually being built through the midst of COVID. You know, quite, and also, again, easy to forget, a new country entrant at that. You know, incredibly, good achievement. Jason and I, as I mentioned last time we spoke, were actually on site when the first ore was delivered to the SAG mill, which was, you know, which was a very pleasing experience.
It's not often you sit at a concentrator that's running clean water and has never had dirt through it, and to see that change was wonderful for the team, and an incredibly important milestone. Right now, of course, we've been working predominantly through shallower ore and running low-grade stock through the plant. One of those, of course, is that you tend to find the grind size is much finer, so the teams had to work through and calibrate that. In recent times, we've been introducing high-grade material because as confidence grows, you start putting the high-grade feed into the processing circuit or the flotation cells.
We're seeing the sorts of recoveries as we'd expect, again, given this is slightly oxidized. You know, of course, we're aiming to get up towards the mid to high nineties, so 95%, 96%, but in the planning, we always expected to be at this sort of level through those sufficient ores. You know, what have been some of the challenges? Because I guess it sounds like everything's gone swimmingly. You know, of course, there have been challenges. At the moment, Jason, and I'll ask him to just add in a moment, would tell you that we're actually intentionally capping the throughput rate. We know we can do more. If you look at the charts we've provided in the pack, you know, we've exceeded nameplate capacity. It's really around the filter press.
Both in the plates and the cloth, we haven't got the performance that we would've hoped for. If you're gonna commission a plant, you're always gonna want the bottleneck to sit at the back end. That's where it's at. The OEM's been in, on site. We've got new plates and new cloth literally being installed as we speak, and that's going to get us, I think, into that position where we'll take that next push, if you like. The mine itself is performing very well. We've been ore bound. Again, the mine's been running almost for 12 months, certainly running at a strong clip for the last six to nine months.
You can imagine once you present enough low-grade material to the crusher and put it onto the coarse ore stockpile, as I mentioned, you become ore bound. That's when you start just filling up the ROM pad, which we've done, then you actually start just stripping waste. In the pit itself, we have got a very substantial amount of ore exposed, which puts us in a very good position, if you like, from a risk perspective with the mine, at least for the next 6 ± months, and we're very confident that, again, that gives us a very strong runway as we move ahead. Yeah, look, I think your summary up front was, it is going very well. I can also.
should note that I think we've got 5,000 tons of concentrate currently sitting at the Port of Walvis Bay, which is actually our first shipment, the first parcel. It's there. Trucking operations are now running to plan, and again, it paves, I guess, the way for us to progressively ramp up shipments across the course of this year. Look, I am hopeful that we will be able to declare commercial production at the end of this month, if not the end of this month, the month thereafter, which obviously is important because from that point, we start reflecting the performance of Motheo in the profit and loss statement, rather than, obviously, adjustments to balance sheet. Jason, anything I've missed there? I will hand to Matt in a moment as well, just to talk through capital.
All right. Just to build on Brendan's comments there as well, I'm referring to the graph there shown on slide eight of the presentation pack for the quarterly. Particularly, commissioning and ramp up mill tonnages. You'll note there that we've very quickly ramped up to nameplate throughput rates there, and we've been consistently achieving those since relatively early in June, so roughly around the 12th of June. Since that time, we've been really focusing on, particularly there, plant reliability, just ironing out niggles and also debottlenecking. As we move through into July, we've certainly got flotation and... oh, sorry. Plant reliability is significantly improved. We've been doing a lot of work on recovery and particularly flotation performance.
I will note that we saw once we started feeding higher-grade material, we saw the float circuits really start to settle down and really do what they were designed to do, which has been great. Since that point, we've moved the bottleneck and the overall circuit through to concentrate filtration. We are seeing there at the moment, particularly with some of the material types that we're seeing coming out of the ore body and that partial oxidation of the host rock types, the grind size that we're seeing coming out of the SAG mill is significantly lower than our test work in the feasibility. What that's doing is slowing down our concentrate filtration rates and causing that to be the bottleneck.
You'll note on that chart there as well, from about the 17th of July, we've been deliberately capping those throughput rates because, in essence, we've filled up our concentrate storage tanks as we've become, you know, for want of a better term, a bit constipated through there as well. At this stage, we are fast tracking our additional capacity, ramp up in that filtration infrastructure. We expect to have that in the next few weeks, we'll be consistently, I would say, sitting above target throughput rates or sitting at or above target throughput rates. You made comment about the DFS. Yes, we are expecting to be in line with the DFS, going into FY 2024. We've got a good handle on mining.
Our face position there is slightly ahead of what we expected in the original feasibility study. Overall ore presentation won't be a constraint for us. As I said before, their throughput rates and recoveries are tracking extremely well.
Maybe, Jason, just to Matt then, on capital.
Hi, Levi. Just to run through the Motheo project, and maybe a little bit of a recap to begin, because there are a few numbers in here. Just bear with me. You remember the full program at 5.2 has capital estimates of AUD 397 million?
The first AUD 325 of that is the 3.2 T3 project, and there's another AUD 72 on top of that, to get to 5.2, and also bring in, the new pit at A4. Within those two elements, as we've mentioned, we're largely there in terms of the first one of the AUD 325 on Motheo 3.2, and as the guys have talked about, in very solidly through into ramp-up phase. On the second part, AUD 72 million, which covers the up-upgrade to 5.2 million tons in A4, we're about halfway through that program, particularly in the plant areas and some of the early expenditures into A4.
The second half of that $72 million, we expect to come into next year in FY 2024, in addition to the A4 pre-strip, which will start as we get mining license approval and also complete the financing. Half of the $72 million, call it $35 million, plus another, say, $40 million, in A4 pre-strip, probably coming to next year, gives you about $75 million, and that is the sort of number we're looking, as you'll see, with the financing uplift. The financing uplift from $140 million to $200 million, it's $60 million, of course. That's contributing to that $75 million of CapEx into next year. There's a few other bits and pieces around sustaining capital and tailings lift.
That gets you through to that sort of, that sort of $397 + million into the back end of A4 pre-strip into next year.
Roger, that's great. Thank you. Thanks, guys.
Thanks, Levi.
Thank you. Your next question comes from Mitch Ryan from Jefferies. Please go ahead.
Good morning, Brendan and team. Thanks. Just to follow on to that question, just with regards to the increased debt facility at Motheo, can you provide an update on sort of expected timing of that completing? At what point would it, you know, do you see it ever constraining the ramp up profile to 5.2?
Yeah, maybe I'll quickly add there. Mitch, good to chat. We're effectively done. The banks, we've worked through the process. There's really a requirement now to just get the final approvals from government. You would have seen, we noted that the ESIA had been approved by the government during the period. We now need to move to the final mining extension approval, which I think we've said we're expecting, you know, in the very near term. Once that happens, it all triggers and flows through. We're not seeing any major concerns. We just need to work through a few issues. Of course, there are other alternatives in terms of ways to make sure we have liquidity. It's a great question, Mitch.
It's frankly, it's the one we're asking here all the time, is making sure we understand our cash flows, and I don't see that becoming a constraint for us, you know, anytime soon.
Thank you. Just my second question: I sort of note you've removed the disclosure of operating costs on an AUD million basis this quarter. Your comment was you're planning to give increased transparency going forward. Should we expect those to come back in future quarters?
Yeah, look, absolutely. I think the thing you'd be aware of, Mitch, is we work through an audit process. You know, personally, very hesitant to provide too much financial information ahead of audit. You know, we'll obviously come back, provide that information at full year result. We'll provide the guidance we've provided in the past once we've got that process behind us, and then we'll continue on, as I said, you know, as we have in the past. I think at half year and full year end, one's got to be, you know, mindful of the level of granularity you provide around financials when you're still in the heart of your audit process.
Okay. Definitely, I totally understand that. Thank you. One very quick last one. The margin of error around the production guidance, you know, previously, you've provided a range, whereas this time it's a straight number. Should we think of sort of ±10% or ±5% to those numbers?
I think you should hold us to account on those numbers, frankly. We've put them out there. I mean, that's got to be our commitment. We do run, you know, particularly at MATSA, it's an underground polymetallic miner. I obviously had a lot of experience with Cannington. These things chop around quarter- to- quarter. They do tend to have a bit more variability. You know, again, we've put this estimate out there because we can, you know, we believe we can deliver it. Rather than me, you know, trying to almost step away from that at this stage, I'd rather you just hold us to account, and that's certainly what I'll be doing internally.
Right. Perfect. Thank you very much for taking my questions.
Thanks, Mitch.
Thank you. Your next question comes from David Radclyffe from Global Mining Research. Please go ahead.
Oh, hi. Good morning, Brendan and team. My first question is on MATSA and the strategy you're talking about here now, where you're talking about more development and building stocks. Just really wondering, first off, you know, a year and a half in, why now, and what's changed? As part of that and the new strategy, you know, are you thinking here to any changes to the right mix from the three mines going forward, and where the opportunities lie to deliver more tons to the mill?
David, good to hear from you. Thank you. First and foremost, you may recall, you know, in the last quarterly when we caught up with people, I sort of emphasized a view that if you look at MATSA and what it had done over a number of periods, is run at around 4.4 million-4.5 million tons per annum, and it was delivering the sorts of metal output that we've talked about today on average. In other words, it, you know, it was performing as it should perform. It was unfortunate, I think, that some of the expectations post-acquisition were possibly overly aggressive. Primarily because, you might recall, I also said that the prior owner was... We are an experienced underground miner and operator of VMS systems... perhaps a little different.
They didn't necessarily prioritize or value geotechnical and geological information the same way we do. From ownership, the team saw enormous amounts of potential to drive improvement. I think it's fair to say that the time that it takes to complete that reinterpretation work, and then start to build it into how you think about your mine plans, at the same time, getting the level of development, getting the ventilation in place, getting the degrees of freedom, takes longer. I think that's primarily where we got to when we spoke to you last quarter. What we're saying is with, you know, this next 12 months is really that, an extra year, I think, of making sure we build that stable platform. Part of that is putting some stock on the surface.
To give you a sense, if, you know, I'm sure this will resonate with many of you. If you've got a processing facility that runs a poly line and a copper line, for one of, you know, simplicity, you need to have really good control over what you're presenting to those circuits. The only way you can do that, is if you're not running hand-to-mouth. You need to have some stock there, so you can manage that.
The second thing that we're doing is, we've actually got a program of work that's now well underway, that is looking to build a much greater level of sophistication into the way we work, compared to what we've had in the past, where we will track effectively every bucket that comes out of a stope, moves its way through the mine, up to the surface, to the ROM pad, into the crusher, to the coarse ore stockpile, and then is presented towards the flotation circuit. Such that again, we're going to get much more control over the blend. Because, again, the conversation that Jason and I particularly had very early on, was, you know, our resources are very, very valuable. I mean, it's the most valuable asset that our shareholders hold.
It's more important that we drive for value rather than drive for throughput. That's really what we've done over the last, you know, quarter. We're starting that, you know, really pushing through that. We're gonna have that extra 12 months. What I do envisage, somewhere in that order, if it's 12, 18 months, we should be where we need to be, and that's when we should be able to not only keep delivering on the, what I call those optimization outcomes, but actually then be in a position to start driving throughput. The last piece, and this is now when I go into theoretical land, is, you know, of course, with Magdalena and the potential we're seeing there with Olivo and some of the down, you know, down plunge, deeper drilling that we referred to today, and of course, with San Pedro.
What we're obviously aiming to do, is to substantially increase mine life of those two areas. Again, to be proven. Why does that matter? Because if we can do that, we actually start thinking about choke feeding the processing facility with those two ore sources, which will give us a better value outcome. It will mean that we're no longer trucking Sotiel ore 35 km to the process plant. The Sotiel ore is, of the three, is the one that's different, if you like, finer grain, polymetallic. It frees us up, which you've heard us talk about, to complete and undertake, and learn from our concept study at Sotiel, as to whether that could be reconfigured to be a very different operation. Could it be a standalone operation that we run in a different way?
One could argue that is much more of a zinc mine, and if we actually focused on running for zinc recovery rather than copper recovery, we might get a much better economic outcome. It's still too early for us to be certain, but that's the work we need to do. It's obviously a very exciting prospect for the team, but, you know, we're, you know, that is some way off in terms of us getting the level of definition and confidence. You know, I think goes right to the heart of your question, David.
Yeah. No, thank you. That makes a lot of sense. Certainly, it's great color. Maybe if I can have a quick follow-up. Just on slide 21, maybe if you could sort of talk a little bit to that. Talk about, you know, the global growth platform for the business today. Maybe if you could talk to the strategy, you know, and thinking here, do you really need to look outside Botswana and Spain, given the sort of the competition for assets out there at the moment, but also what appears to be, you know, very strong organic potential at both, obviously MATSA and Motheo?
Look, I'll talk more about this at results. You know, bear with me on that, but thank you. I think you're getting right to the crux of how we think we're going to unlock value for the organization. First and foremost, I think Black Butte I touched again on the last call on the fact that, you know, I believe copper is very hard to find, I think we'd all agree with that. Certainly, good economic copper resources. They're hard to develop, it's even harder to buy operating copper assets for value. When you've got one, i.e., a development option that's well advanced, that's well through the permitting process, with work to do, you should understand it.
That is what we're doing at Black Butte, and hence the integration of the Lowry study. We hope in the next 12 to 18 months, we'll at least have a clear pathway as to how we unlock value for shareholders. I mean, my suspicion is that Black Butte's carried at zero in the share price, I'm pretty sure it's not worth zero. You know, we need to do that work, we need to unlock that value. I think as you point out beyond that, you know, we have chosen the Iberian Pyrite Belt and the Kalahari Copper Belt by definition. We've made major investments in both areas, and I think we have two very modern processing facilities in what will be strategically important belts for the world of copper.
The pleasing thing for me is, you know, we think both belts offer enormous exploration upside. I've touched on some of that. When you then think about our business, there's a nuance, if you like, when we look at, say, Sandfire compared to some of the larger companies you may look at and many others as well, where they have 20 years of mine life. You know, the way your spreadsheets work and time value of money. Unless you can grow the business, it's very hard to get anything other than incremental value accretion. The real opportunity for us is when we've got, you know, 7-10 ± years of life.
If we can turn that to 15-20 years of life through very focused, targeted exploration in and around our mine sites, we can fundamentally transform the value of the organization. Again, that's underpinned by the prospectivity, not only that we believe is there, but we're actually seeing in the drill holes that we're completing today. You know, again, I think that's why we need to have a very, very clear focus in those belts, in and around our existing processing hubs, because I've got no doubt that, by definition, has got the greatest prospect to deliver economic returns for our shareholders.
Great. Thank you very much. I'll pass it on.
Thank you. Your next question comes from Daniel Morgan, from Barrenjoey. Please go ahead.
Hi, Brendan and team. Good result on time and budget at Motheo. Why are you not receiving the inflation that we're experiencing elsewhere in the mining industry, particularly WA? Is it labor being more available and productive? I'm also wondering what this means for operating costs going forward. Thank you.
Maybe I'm gonna start with MATSA, and I'll throw to Jason for Motheo. You know, I've just spent three weeks there. Got back last weekend, I think it was. First and foremost, very different setting. It's what's important for someone like me to just go and sit there and enjoy the MATSA. You know, what you recognize is that these people live in and around the mine site. They're not flying in, flying out. They're not bespoke, if you like, workforces. You know, this is an area where they've been mining from prior to Roman times, and it is very much embedded in the lifeblood of those communities. The area also has relatively high unemployment. What we see is we have turnover of around 2%.
You know, whilst we talk about the cost of labor, turnover cost of labor is also something that's a real challenge in a place like Australia. You've got that benefit. The second thing with that is, whilst some people would argue that productivity may not be at the levels we see in some of the underground operations in Australia, and that is probably true, the typical underground worker, you know, comes at a significantly lower cost, again, for a number of reasons. When you look at the cost of that productivity, if you like, I think we've gotta be careful we focus on and make sure we focus on the, you know, the real challenges and opportunities.
I think beyond that, I mentioned previously, if you look at our numbers in the first half, you know, we had the quirk of dealing with the, you know, the Putin-Ukraine issue, where European power prices had moved substantially higher, you know, we had real inflationary pressures coming through from that shock. We now have costs from energy back under, as I said, 10% of the cost base of MATSA. We've had, if you like, at least in the half on half, a deflationary, you know, a factor moving through there. You know, I think there's many reasons with MATSA.
We're also working very hard, of course, to make sure we control these, because just like some of the other mines, you know, underground mines I've dealt with, you know, we have the same issues. Mine's getting deeper. You've got smaller stopes in many areas. You've got faster stope turnover. We've mentioned there's more development, so on. We have to work really hard to try and control our costs, and I think the team is doing a good job. As I said, I left there feeling very, very confident. The only other thing I might just add as an aside is the Andalusian government, and I met with the consejero while I was there, the minister. They just released their mining strategy for the region, and all I can say is it's an incredibly supportive location for mining.
As I've said, it's in the lifeblood. They also recognize the role it can play, along with renewable energy, and in their case, the desire to push into green hydrogen. You know, we had a very good conversation. We did describe, and we haven't touched on this today, but how important that renewable energy is for us. That's one thing I really like about MATSA. If you look at its carbon intensity, very hard to beat. We have 100% renewable energy under the terms of the agreement, zero carbon emissions feeding that site. Perhaps, Jason, if I can just throw to you on Motheo.
Yeah. Motheo, we've got the benefit of having quite a recent feasibility study on Motheo, which takes into account some of the inflationary pressures that we have seen over prior years. The other benefit that we're seeing, and particularly, you know, I'll give the site team a good rap, they're taking accountability and ownership of those outcomes. They are seeing particularly, you know, Brendan touched on it before. We've now been mining there, so open-pit mining there since March last year, so well over 12 months. We're starting to see productivity increase, and that's offsetting some of the cost increases that we are seeing coming in from external factors in particular.
You know, what we are doing, particularly, and the team over there is doing a lot of work on, is keeping those costs down, but at the same time, lifting productivities to make sure that we're offsetting things out of our control as well.
Thank you. Now that you've got Motheo into production and you've got an asset base there, can you run through your exploration strategy? I mean, you are re-tilting it towards where your plants are. You know, what do you think the plan and opportunity is, between... well, particularly Motheo? Thank you.
I'll pass to Richard in a second. He might talk to some of the work we've done recently to fundamentally review our understanding of the geological setting across the whole of the Kalahari Belt. More specifically, there's a couple of things that are really important this year. We think A4, remember, that's that pit that's gonna come in to support the 5.2 million ton per annum expansion. It's got grade that comes with it. We've got to drill a potential extension, an open area where we're targeting something like a one to two year sort of extension there. That's really important, of course, the role that it plays. We've got the A1 resource that was discovered.
We want to do enough work there to be able to bring it into some sort of inferred category, most likely. You know, that's just to build our understanding because that's absolutely an opportunity we think that can fill out the, if you like, the right-hand side of the spreadsheet in terms of mine life. We have, Richard, this is where I'll pass to you. You know, we have, and it changes daily, to be honest, around 12 targets that we've identified within 70 km of the, of the processing facility. The reason I mentioned 70 km, it's a crude number.
It's got science behind it, but it's roughly the, the distance that we think sort of represents, you know, the ability to have an economic if you like, resource that can be exploited and transported back to the centralized processing facility, bases the sorts of grades that the deposits have that we see in the Kalahari. So, you know, we will run one drill week continually through this year, working on both A4 extension opportunity, A1 definitional work, and then testing these 12 targets. Richard, maybe if you can talk to some of the, the sort of progressive thinking around the geological belt.
A lot of the work that we've been doing recently is around building a 3D structural and basin model. Well, we're almost completed the large scale AGG survey, around 50,000 line km. It's taken three or four months to run. Incorporating that data into our big picture thinking, enables us to build a really detailed model around the structure. Also we've increasingly, the depth of the basin and the sedimentary horizon is really important control of mineralization. Trying to work out where these mini basins are, is a really important aspect.
Focusing on that for the next 12 months, then as Brendan has said, we'll spend the next three months drilling out A1, so bringing that through to an inferred resource status, so we can hand that on to a team to complete a concept study. Then the balance of the year will be just testing these regional targets within 70 km of the headframe, to try and find economic mineralization that will support a much longer mine life at Motheo.
Thank you for your perspectives.
Thanks, Dave.
Thank you. Your next question comes from Kaan Peker from RBC. Please go ahead.
Hi, Brendan and team. Two questions from me. I think prior there was talk about recovery improvement projects at MATSA. I think you partially touched on this with Dave's question, with stockpiles being part of this. Just wondering what near-term initiatives are being worked on outside of, I suppose, the longer term Sotiel processing initiative. What's been the initiatives that be worked on and what commodities? It seems like zinc recoveries were previously stated.
Yeah. Look, okay. Thanks for that. I'll pass to Jason. Probably not a lot more I'd add from what I said, in the sense that a range of those issues, particularly the sophistication of understanding how the ore is flowing through our chain, is critical in terms of getting that control in the ROM pad, in the coarse ore stockpile, and then enabling us to manage the way it presents to the different processing lines. It's absolutely critical. As I said, I was walking through the processing plant with the team circa a week and a half ago, and they have a laser focus on this.
Of course, you know, we'll talk more about this, but what we're aiming for is something like a 2%- 3% increase in recovery through the polymetallic line for copper, in this year. Perhaps Jason, if you want to dig a little deeper into that'd be great.
Yeah, Kaan, from our point of view, there's three key areas that we're working on, and we've already seen some benefits of some of these kicking in as well. Firstly, I'll touch on, you know, Brendan mentioned it earlier, our strategy about maximizing NSR. Stability of feed going into the plant, managing a blending, right? We've got that, which will enable us to improve recovery as well as improving overall concentrate characteristics as well. There's a double benefit there. That work has started, but we'll see that really start to kick in during FY 2024. The work that you mentioned before, that we had previously stated around reagent regimes and optimizing that for the ore, and particularly we expect that to deliver further benefits in zinc recoveries. We have seen some benefits there as well.
What we do see is, particularly when we've got a variable feed, a lot of that benefit is being masked by the variation in feed that we get coming out of the ore body. Once again, sort of circling back to that blending and optimization and stability of feed to the plant, will enhance that even further. Then the third key area there as well is really understanding our ore body. You know, Brendan, once again touched on that earlier. It's a key part of our mine planning aspect. That's, there's aspects of that relate to geotech, right? And predictability of mining conditions. There's aspects of that as well that relate to geology and also ore body extensions.
There's a really important part that quite often gets almost overlooked by a number of operators, and particularly in polymetallic ore bodies, where we see a variation in mineralogy and a variation in the ore types that we're feeding through and being able to predict that as part of the mine plan. In particular, we've done a lot of work on understanding that, and we're seeing that we've got parts of the ore body that contain a very reactive version of pyrite. We see once that goes into the plant, our recoveries they go down significantly, almost immediately. Understanding those types of things in terms of drivers, getting those into our mine plan, and being able to proactively manage that through blending and configuring the mill, is gonna deliver significant benefits for us.
Just sort of building on that, any of these initiatives built into the current proper guidance for MATSA?
I think, as I mentioned, if you look at the 58,000 tons this year, you've got an improvement coming through in recovery, particularly for that polymetallic line and particularly in the copper circuit. As we start to see the results of this work, we'll continually optimize and then update our guidance. Yes, we need to get some runs on the board to deliver these numbers so they're not soft targets. Going back to the question now as to whether, you know, what's the level of risk around these? You know, we've got work to do, but the plans are in place and we're confident that we can deliver.
Sure. Thanks. Just the second one is on costs. Slide 12 of the presentation, that normally increase quarter- on- quarter in EUR terms. You know, the TCRCs, I think they were well flagged and should have been understood, but maybe, just can you talk around the increase in mining costs? What's driven that? Thanks.
Yeah, look, I think, perhaps if I can just reiterate what I said before, that we actually haven't seen an increase in absolute mining costs relative to plan. We've obviously had a degree of volatility in the mine over the last 12 months, as we will, as I mentioned, these polymetallic underground open stope operations will tend to do that to you. Relative to our plan, our numbers have basically come in absolutely where we had anticipated. You know, of course, the opportunity, as we touched on earlier, as we get, if you like, better ventilation, we open up more mining areas, we've got more degrees of freedom.
We should be able to improve productivity, because at the moment where we find ourselves, you know, recently we blasted a stope, and we had a major issue with a legacy paste fill that sat obviously above this particular area. That created one of these big issues with dilution. It slows everything down because you've then got to remedy, rectify, and you've got really nowhere else to go. That is really what we're trying to resolve by having more development and more open mining fronts. I don't know, Jason, if there's anything you wanted to add?
No, I think that's covered it well.
Thank you. Appreciate it.
I think the simplest way to think about this is, you know, as I mentioned earlier, is if everything stays equal and all you see is the zinc price mean revert to people's long run view of price, our C1 costs are gonna fall substantially without anything else happening. It's, it's really a remnant of revenue for byproducts, which is a pricing artifact.
Yeah. Understood. Thanks. Appreciate it.
Thanks. Great. Appreciate it.
Thank you. Your next question comes from Paul Young, from Goldman Sachs. Please go ahead.
Yeah. Morning, Brendan. Good to connect. Enjoying this discussion around the technical aspects of MATSA in particular. First question is on MATSA. The zinc guidance for the next two years, and particularly FY 2025, the wide range there of 80,000-100,000 tons. It can only be tons grade and recovery. Just stepping through, you know, what you think maybe the one largest variable there is of that, of that range. Is it simply just mining rates?
Look, I think, what I'd encourage you to do is it's a way of sort of trying to describe on the left how that operation is evolving. If you actually look at the chart, it's a specific number. It's not a range of guidance, and apologies if that's confusing. I'd look to the chart on the right, and again, we can help you and understand the breakdown of how you get there, albeit it's pretty easy because we've actually put a percentage in the bubble, which tells you the contribution of Motheo. Motheo, it's got obviously the silver credits, but it's obviously the copper is primary, so the delta is around that. Which gives you, I think, in the order of 92,000 or 93,000 tons of copper equivalent.
We're happy to break that down for you. I don't think there's any issue with that.
Okay. That's okay, Brendan. I can get the ruler out and have a look at that. Sorry, I missed that. That specific on the chart on the right. I can do that analysis.
Yep.
All right.
We'll make it clearer. Sorry about that.
No, that's fine. Okay. The, I guess the next question is, again, back on the drive to increase mining rates and spending more on development obviously makes sense. Well, certainly does make sense, sorry. Just to clarify, the five to 10 more development and ventilation at 10- 20, that's in addition to what we saw in FY 2023? Just adding those two together, so, you know, 15-3 0.
Yeah, I guess what I'm trying to do there, and I've got a sense that, you know, I understand the challenge with public information, there's only so much. If you look at all the capital expenditure guidance, you know, for last year, you know, it was in the order of AUD 322 million-AUD 352 million, if I, if I remember correctly. I guess what I'm saying is simplistically, you've got, you know, that sort of increment of development, and you've got an increment that's going to come through in terms of ventilation. You know, you would expect to see those sorts of numbers flow through into guidance.
Yep. Yeah. Okay. Okay, no problem. Not to lament on or spend too much time on this blending, but it sounds, is this quite a manual process, this blending and building this 100,000 tons of stocks, just simply modeling stocks, you know, where the, you know, where the tons are coming from, which stock, what the grades are. When it gets to the ROM stockpile and the coarse ore stockpile, what are we doing? Are we doing any sampling, any on-stream analysis here? Or we simply, is it a manual process, just tracking those tons coming through the system?
I would say the simplest way to think about this is you're moving towards something that's more sophisticated, where actually you have very good visibility of how this is flowing through the chain and how it's presenting, such that it's more moving towards an automated approach rather than a manual approach. You still need to move the material. I think that's the key thing. you know, there's no two ways about that. This is actually. I sort of think about it, you know, a lot of people on the call will be very familiar around an iron ore stockpile. You've got very, very significant differences in some of those feeds, with different contaminants of alumina, silica, et cetera, and the way your reclaimer is recovering those to manage a blend.
In a way, I guess, similar to what we're trying to do at MATSA. The difference is we wouldn't today have the level of control that they would have to understand all of those elements. It's really around how we're presenting that, the material to those different, those different stockpiles and how it's feeding from crusher to coarse ore stockpile, and then how we can, if you like, recover that and feed it into the flotation circuit. Jason, I don't know if you want to add to that.
No, I think you've captured it well. The only thing I'd add is that MATSA has an existing live control room and dispatch system there that covers the underground mines. That dispatch system, we're actually looking to expand that capability to use its full functionality and have a modern ore tracking system that goes from the face or the stope all the way through to the surface stockpiles. That will be really important, backing that up with increased stock levels, as well as the predictive work that we're doing on ore body characteristics there as well. All of those things will come together nicely to give us more control on how we manage the plant and maximize NSR.
One other thing, Paul, that's quite unique about MATSA, and, you know, I've said to people that after I've been quite surprised, you know, how well capitalized this business is. I mean, it's a modern processing facility. You know, it is a very well-capitalized site. You've only got to go to the head office and see something that I've never seen at a mine site in terms of what's there. Everything is undercover, so the whole concentrator is enclosed. The coarse ore stockpile is enclosed. There are dozers that are used to move that material around within those enclosures.
Again, it's the sampling process, what we're trying to move towards is something that's much more sophisticated and is really, if you like, it's pit through to, through to ROM, through to coarse ore stockpile into the, into the circuit itself.
Yep. Yep. Thanks, guys. Understood. Just last one quickly, the AUD 784 revenue, Brendan, any PPA adjustments to call out in that in a half?
No, I mean, we're still going through, to be honest, these numbers are, you know, you can imagine financials during the audit process, you're still doing some of the analysis. No, there's nothing, I think, overly surprising. I know some people do have some challenges trying to work out on revenue. I think that if I can just give you an example, I'm glad you asked, I'll take the opportunity. If you think about MATSA and you look, you know, across a year into the guidance, you'd have something like 53,000 tons of payable copper. You know, if you look at the hedge book at the back end of the slide deck, you've got around 16,000 tons of forward sales.
That tells you there's around 30% currently forward sold at a price of around $9,000 a ton. The remainder is sold at a market price. One thing, and again, Ben's happy to help. We're all happy to help if needed. You've got to then back out freight because the copper is sold, if you like, into China, so there's a, there's a rollback and you've got to back out the freight for the Mediterranean China price. These things are all available, they're benchmarks. For zinc, the material is effectively going from. It's priced on a basis of Mediterranean to, into Europe, and you've got to back that out as well. They're possibly two things that I'd just encourage people to look at.
I don't know if that answers your question, Paul, but hopefully it helps.
Yep. A bit more work today. Thanks, Brendan. Pass it on.
Thank you.
Thank you. Your next question comes from Ben Lyons, from Jarden. Please go ahead.
Thank you. Good morning, everyone. Just two quick ones from me. Sticking with slide 11 there, firstly, Brendan, just referring to the EBITDA disclosure, just trying to reconcile between that operational number of 313 and the corporate level, 246. A AUD 67 million delta between those two amounts is pretty significant. Maybe there's an element of Motheo costs that are actually coming through, unless they're all being capitalized still, otherwise, there's some chunky stuff at the corporate level. Understanding that you're still going through that audit process, as you've mentioned, did you want to get ahead of the result by just calling any of those larger amounts out?
Look, so, and Matt might help me, but to give you a sense. What we try and do, is actually provide, if you like, a really simple way of thinking about what's the EBITDA as a proxy for cash coming specifically out of the operations. Beyond that, you've got some of the centralized costs, so some of the exploration that doesn't accrue to site, so exploration and studies, and then you've got corporate and business development. I think if, I, if you go back to the half year slide, I don't have it in front of me, but I think we talked around AUD 40 million of guidance for exploration and studies, and around AUD 30 million for corporate and business development, which is effectively AUD 70 million, and that would be the biggest delta, Ben.
Yeah. Look, now, one thing I might flag is, and I've, you know, been working with the team on this, you would know many companies in our space would report some version of an underlying earnings metric, particularly as you become a global company where you've got functional currency differences that can flow through either through your P&L, in above the line, above EBITDA, but then you've got impacts on interest and tax. We're working hard to be in a position to also provide an underlying estimate. Just for completeness, what I'm seeing at this stage, at least through the process, is that that group EBITDA number and the underlying number, wouldn't be that dissimilar for us, at least for this period. You know, hopefully when we start providing that will help.
Ben, I hope that answers your question of the major delta that sits between the two.
Yep, yep, that's helpful. Thanks, Brendan. Just a quick second one, just on the operating environment in Botswana. You know, clearly there's some great advantages to operating in that jurisdiction, but possibly also some challenges. Just noting that the broader regional Southern African power matrix remains relatively unstable, and there was a particularly eventful day in Botswana in early May. Just if you can talk to your experience with the power supply coming over the fence from the BPC to date, and your current thinking about possibly putting in some captive redundancy on the site, whether it's solar or diesel gen sets or whatever? Thank you.
Thanks, Ben. Great question. I know you've made the effort to spend quite a bit of time on Botswana, which we appreciate. When we think about this, you're right, and one of the key questions is understanding that balance in terms of Botswana and its reliance on the South African grid. What we do see is that there's a strong both motivation and desire to prioritize industrial users of power because of obviously, the criticality of the employment. Remembering this is an area that despite the benefits, as you say, about operating in Botswana, and the fact that, you know, it is deemed to be a, you know, a very good place to do business with respect to Africa, it does have high unemployment.
It does have challenges in its, I guess, socioeconomic, fabric. We're really pleased to be trying to help and do our bit there to support and improve people's lives. I think we're starting, you know, to deliver on that. We therefore feel quite comfortable with regards to the certainty and, you know, I guess, availability of power supply. The one point I would make, though, is, you know, I did talk about the wonderfully green energy that we have at MATSA. Botswana has one of the highest carbon grid factors in the world. It does come with, you know, its fair share of carbon emissions. We're motivated for two reasons, Ben.
For one, as you said, security of supply to build other alternatives. Secondly, we're motivated because we want to have, obviously, greener concentrate. We've currently got a tender process underway to actually have a dedicated solar facility on site. We need to work with government, because obviously there's policy changes that would be required, but there, you know, that's advanced discussions that are underway. That would be a first step. We would need quite more substantial change from a policy setting to move towards a combination of more solar with battery storage. There's that question around the grid in terms of its ability to receive that power when you're in an excess position, which is important, obviously, to justify the economics.
I think that's probably a long way of saying then, that we're doing a lot of work in this area, primarily because we do want to deliver a greener concentrate. It will have the ancillary benefit of also providing some degree of security, more so because it probably takes the load that we present off the grid for the Botswana government.
That's very helpful. Thank you very much for addressing the questions.
Thanks, Ben.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Harris for closing remarks.
Yeah, look, thank you. Appreciate everyone making the time. I've seen how many notes have been coming out and how many companies are reporting, so thank you for joining. I know we had a really good number of people on the call. I did just wanna make mention, and I'll make more of a mention around this, when we present our results in August. You know, Matt Fitzgerald, you know, obviously has decided it's time to do other things. Matt's been with the company well over a decade. You know, he's seen Sandfire move from being, you know, a West Perth explorer to now being increasingly, I think, seen as a meaningful copper producer, a global producer of significance.
You know, of course, I just wanted to make mention of that. We wish him very well. I know he's not going yet, thankfully. He's gonna see us through this audit process and to results. You know, obviously his corporate memory will be lost, but he's also committed to help us through the transition process. You know, I didn't wanna finish the call without making mention of that, Matt, and we'll do so more so in August when we present our financials. Thank you, everyone. I wish you well. I know you're busy. Have a great day.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.