Thank you for standing by, and welcome to the Sandfire Resources 2021 December quarterly update conference call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Nicholas Read. Please go ahead.
Thanks very much, Harmony. A very warm welcome to everyone. Happy New Year, and thanks for your time. I'm filling in for Sandfire's Head of Investor Relations, Ben Crowley, who is out of the office on jury duty today. On behalf of Sandfire, welcome to our first investor call and webcast for the year for the company's December 2021 quarterly activities update. With Sandfire set for a transformational year on a number of fronts, I'm very pleased to introduce the team here in Perth to run you through the December quarter results and the outlook for the year ahead. Firstly, Sandfire's Managing Director, Karl Simich, will provide an introduction and an overview and set the scene for the year ahead.
We'll hand over to Sandfire's Chief Operating Officer, Jason Grace, and Chief Financial Officer, Matt Fitzgerald, who will step you through an update on operations, financial performance, and exploration across the company's key assets. I'd like to refer you both to the December quarterly activities report and the associated presentation both released on the ASX platform this morning. The live webcast and synchronized presentation can be accessed through the BRR Media service using the link provided. Just a reminder that, as always, a recording of this webcast will be available following the conclusion of the call. I'd now like to hand over to Karl to kick things off. Karl, please go ahead.
Thanks very much, Nicholas, and hello, everyone, and very much a big welcome, and thanks for joining us here today for this quarterly presentation, and a happy new year for 2022 to all of you. Certainly the start of 2022 marks the Sandfire watershed period. I just want to take a few minutes before we hand over to Jason and Matt to get a little bit more detail is really just to set the scene for what I believe will be an incredibly exciting journey for us over the coming year, but more so probably over the coming decade or so. First and foremost, our strategy is to create a diversified international mining company and build a sustainable production profile.
It's all about really moving up a gear, and it's about to move up that gear with the imminent completion of the AUD 1.865 billion acquisition of the MATSA mining complex in Spain. In a couple of days' time, we will complete this transformational acquisition and take operational control of the MATSA assets. I will be shortly traveling to Spain with a number of key members of our senior team to oversee that completion and also commence that integration process. In one step, the MATSA deal transforms Sandfire into one of the largest copper producers on the ASX, elevating us to an entirely different level in global base metal space and really supercharging our growth strategy. MATSA operations will become the new backbone of our business.
Together with our DeGrussa operations in Western Australia, strong cash flows and our expected businesses now capable of generating will help us to unlock our global development pipeline and accelerate exploration aimed at making new discoveries and growing our resources, our reserves, our mine life across our key assets. There's a lot going on in our business right now. In Western Australia, we've just posted another excellent quarter at our DeGrussa operations with production and costs pretty much in line with guidance, notwithstanding the impact of rising costs and labor shortages. We're seeing, as we're seeing across the WA mining sector at the moment. We're also progressing studies at the Old Highway project to try and assess the possibility of creating further value, leveraging off the existing processing infrastructure and potentially looking at collaborating with others in the region.
In Botswana, construction activities are really gathering momentum at the new AUD 366 million Motheo Copper Mine, which is on track to become a new 5.2 million ton per annum production hub, capable of producing up to 60,000 tons of copper a year in the heart of the Kalahari Copper Belt. Production is expected to commence there in 2023. In the USA, we're continuing to progress pre-development and exploration activities and deal with the legal challenge in a very positive way at our proposed 1.2 million ton per annum underground mining operation at the Black Butte project, which will be targeting somewhere in the order of 20,000-30,000 tons of copper production a year.
We're also looking at a number of other opportunities in terms of exploration to grow those resources and potentially reserves, to look at optimizing the feasibility study and to make it into a much more robust project. Work is continuing there. With the addition of MATSA to our global portfolio, we really now have a world-class operating VMS mine in Europe, and which will become the backbone of our business. This really will underpin our aspirations to grow the company from a production profile of what will be about 150,000 tons of copper equivalent production into our aspirations over the next few years of somewhere in the order of 200,000 tons of copper per annum of copper equivalent, and again, higher again towards the end of this decade.
The global exploration efforts is also stepping up to an entirely new level at the moment. It's in the order of $50 million of an annual budget. We have exploration teams based in Western Australia, Eastern Australia, Botswana, Namibia, USA. At the end of next week, in Huelva, Spain, and also in Portugal with the acquisition of MATSA. This gives us an almost unrivaled exposure as a mid-tier mining company to active exploration in tier one VMS and SEDEX mineral provinces around the globe that we believe are vastly and hugely prospective. All of this is occurring at a particularly an exciting time in the macro environment for metals that we're exploring for and developing and producing.
Structural bull market in base metals appears to be rapidly gaining momentum, with deficits now projected across all refined metals, and several major investment banks and key industry players recently upgrading their price forecast amid tightening supply and recent concerns about the impact of the global energy crisis. Importantly, many analysts are suggesting that the broader inflationary environment means it is unlikely that base metals will be impacted by rising interest rates in the U.S. this year. This is simply a function of the growing realization of the critical nature of these metals to the global economy and the decarbonization push, and increasingly supply side challenges and shortages. Overlaying all of this surging demand for copper from the impending global energy transition looks set to transform the outlook for this cornerstone metal over the next few years.
I don't think in my 35 years, I can recall seeing such a uniform consensus on the outlook for metals over the next few years and decade and potentially even longer. I'd have to say this is a very exciting time to be a base metals company. Against this backdrop, I don't think Sandfire has ever been in a stronger position in its history to move to the next level in terms of our ability to create value and returns for our shareholders and other stakeholders. We have a wonderful team across the global operations. We have a very clear vision and intent of where we want to get to. We have a world-class asset base that is capable of making us one of the major players in the burgeoning demand for green metals over the next decade and beyond. Just from.
Moving on from there, I would just like to touch on the highlights for this quarter, in particular, in a very pleasing quarter overall. The DeGrussa operations produced just under 19,000 tons of copper and about 8,000 ounces of gold at a reasonably pleasing C1 cost of $1.07 a pound US. And bearing in mind those cost pressures relating to labor and diesel. The guidance for FY 2022 still remains at 64,000-68,000 tons of copper and 30,000-34,000 ounces of gold. We have just provided the opportunity to slightly increase cost guidance from C1 $1.10-$1.20 for FY 2022. Being up from $1-$1.10 per pound previously.
As I said, relating to those diesel and labor cost matters and shipping costs. We've also provided a maiden resource for our Old Highway gold project at just under 3 million tons of 2.45 g per ton gold for a contained 223 ounces of gold there. We will continue to, as I said before, do further work. In Botswana, the Motheo Copper Mine is really making significant progress, and that's very pleasing. We have 750 personnel on site. Substantial concrete has been poured, and when Jason talks to you today, you'll obviously get a further update on all the activities that are occurring there. We continue to expand extensively our exploration activities in the region.
We're looking for enhancing, both in terms of the opportunity for higher grade ore body mineralization, but also a significant increase in quantities of mineralization and potential ore bodies throughout that entire belt. As we know, it is substantial, our land holding in the region. As mentioned earlier, the MATSA acquisition will complete towards the end of this month, and that is transformational for our business. All approvals from all the regulators have been received, and that transaction is now unconditional, and we're moving forward rapidly to completion.
Just to close off from a financial point of view and also to clarify formally, the business closed the end of the half year or the end of the December quarter with AUD 1.6 million in the bank or approximately $1.2 billion. Those numbers disregard or ignore the $300 million deposit that had been made to the vendors of the MATSA transaction as at year-end. It sits on balance sheet as technically a receivable. As we rolled into the back end of this year, there was sort of cash and receivables in a very liquid sense, was about AUD 2 billion. Thank you very much, and I'm looking forward now to handing over to Jason to continue with that operations update.
Thank you, Karl Simich, and welcome to everybody on the call today. Starting with HSEC, across the company, we lost some ground on our total recordable injury frequency rate, which was 6.9 as at the end of the quarter. This was largely driven by a small number of low potential injuries occurring in the Australian operations. On the other hand, as a highlight, the Motheo construction team in Botswana had continued strong safety performance, clocking up over 500,000 worked hours lost-time-injury-free late in the quarter. Our COVID-19 response remained a major HSEC focus during the December quarter. At the company's head office, the DeGrussa operations, and Wiluna exploration in Western Australia, we continue to operate without interruption due to the absence of community transmission of COVID-19 within Western Australia for the majority of the quarter.
Given the likely opening of WA borders on the fifth of February, preparations are underway to deal with the likely escalation of community transmission in the state. In Botswana, after several months of low COVID-19 infection rates, the number of positive cases in the region have increased again with the prevalence of the Omicron variant in Southern Africa. Both the Motheo and Kalahari exploration teams have continued to operate successfully throughout this period, and we expect this to continue in the future. In Montana, U.S.A., COVID-19 infection rates have also risen, again with the prevalence of the Omicron strain. The Black Butte team also continue to work successfully with COVID-19 control measures in place and continue to take that project forward. On the community relations front, Sandfire continues to proactively work with all of our community stakeholders across all regions.
One of the highlights for the quarter being the ongoing success of the beekeeping program in Botswana. This program has now advanced to the stage where local adults and school children are able to take beekeeping skills into their communities for the benefit of all. Moving on to an update on DeGrussa operations for the December quarter and starting with mining. Underground mine production at DeGrussa closed out the quarter at 325,922 tons at a grade of 4.4% copper and 1.57 g per ton gold. Monty produced just below 123,000 tons of ore at a grade of 5.55% copper and 1.35 g per ton gold.
When combined, this delivered a total production of 448,828 tons at a grade of 4.71% copper and 1.51 g/t gold. All processing achieved a mill throughput of 439,959 tons at a head grade of 4.49% copper and 1.35 g/t gold. Concentrate production for the quarter was just above 79,000 tons at a grade of 23.6% copper and 3.48 g/t gold. Concentrate sales were also on target with seven shipments sold for the quarter.
Overall, the December quarter was slightly above expectations, and looking out to the full year, we remain on track to deliver our previously stated production guidance of 64,000-68,000 tons of copper and 30,000-34,000 ounces of gold.
Moving over to costs and capital, December quarter, as is noted, $1.07 U.S. Just add a little bit more detail to that. We are talking, as the other guys have mentioned, around diesel prices, higher energy costs, shipping and demurrage. Probably no surprises there in that way. We did guide at the end of the last quarter that we thought costs were moving up towards the top end of the band, of the previous band, $1-$1.10. We're now looking at being in the band of $1.10-$1.20. This quarter at $1.07 has been very much protected by those high copper production rates during the December quarter. That's what's really keeping it in that band.
Into future quarters, as Jason noted, just under 34,600 tons of copper in the first half implies a second half of, say, somewhere between 30 and 33,000 tons of copper. If we hit those sort of copper production rates as we're expecting into the March and June quarters, we will see that C1 cost go up above $1.10, and hence, our overall yearly guidance of being $1.10-$1.20. In terms of mine development, the growth to DeGrussa and Monty proceed on schedule, 26,000 tons of copper concentrate at the end of the quarter. We should note there was a prepaid shipment in December, so a shipment that went in January was prepaid in December, AUD 33 million that sits within our cash balances.
That just added a couple of other details. I know that we're coming up, of course, in a few weeks' time with our half-year financial results. These are certainly the unaudited numbers. But the sort of flavor you'll get out of some of the cash flow reconciliations and costs and shipping numbers, revenue approaching AUD 430 million. In terms of cash flow, we did make a AUD 56 million tax payment in December 2021 relating to the 2021 financial year, as we had flagged in previous quarterlies and also in previous financial results announcements. D&A pushing just over AUD 100 million for the half, we're expecting. Exploration and studies across, particularly across, Australia and into, Botswana, around AUD 30 million for the half.
Importantly, also in C1, just to remind everyone, in terms of by-product credits, we are hedged at DeGrussa at $1,800 per ounce for around 21,000 ounces of future production between January and the end of the currently known scheduled mine life at DeGrussa.
As Karl touched on before, during the December quarter, work continued to assess the potential to transition to gold production at DeGrussa. As a result, on the fifteenth of December, Sandfire released a maiden mineral resource estimate for Old Highway deposit. Indicated mineral resource totals 2.8 million tonnes at a grade of 2.5 g per ton gold and contains 223,000 ounces. To support the reporting of the mineral resource estimate, Sandfire has also completed a number of study elements to assess potential development options for Old Highway. This includes open pit and underground mine design work, including geotechnical and hydrology studies, metallurgical test work, including variability work on different ore host lithologies.
Preliminary design and costing for the addition of a gold recovery plant to the existing DeGrussa copper concentrator, and this would include the addition of a gravity CIL and gold recovery circuits. Baseline environmental work at Old Highway has also been undertaken, and documentation for various approvals is in progress. All haulage options for the transport of ore from Old Highway to DeGrussa have also been investigated. Finally, tailings options, including the use of the existing DeGrussa's tailings storage facility, and the potential for in-pit deposition into the old DeGrussa open pit, have also been investigated. Completion of these studies is on track for late in the March quarter. Following the delivery of the Old Highway mineral resource estimate, drilling has continued on the project, with a 24-hole, 9,100 m diamond drilling program commenced during the December quarter.
This program is focused on extending the high-grade mineralization in the central section of the Old Highway deposit, which is an area known as Central Deeps. This mineralization remains open along strike and down dip, with the deepest holes from this program to test approximately 200 m below the currently defined extent of mineralization. To date, eight holes totaling approximately 3,200 m have been completed, the majority of which have intersected quartz veins in the expected position down dip of known mineralization. Assay results for these holes are pending. Standing out from the Old Highway area, the Bryah exploration team continued to execute the dual-track copper and gold exploration program throughout the quarter. The key exploration activities carried out during this period included air core drilling at the Peak Hill, Morck Well, and Bryah projects.
Reverse circulation drilling at the Enterprise Project to test the potential extension of the Karalundi formation in the area. Soil and lag sampling was conducted at the Yerrida Project as follow-up to the previously identified 10 km long copper gold anomaly in the area. Our Eastern Australia exploration team have also continued to operate, albeit at a lower level of activity due to COVID-19 restrictions in regional New South Wales. During this quarter, diamond drilling and ground magnetic surveys were carried out as part of the Endeavor joint venture in the Cobar region. We now move on to the Kalahari region, starting with the development of the Motheo Copper Mine, work throughout the December quarter has proceeded according to the project plan. Another important milestone was achieved during the quarter, with 750 rooms now available for use in the construction accommodation village.
This increased accommodation capacity is actively supporting the ramp-up of activity required for this stage of the project. On this basis, we are able to confirm that we remain on track for first copper production in the second half of financial year 2023. Leading into this date, the remaining key milestones to be achieved for the remainder of the financial year are construction of the permanent co-accommodation village, mining contract and mobilization and establishment, and also commencement of mining pre-strip in all in the June quarter. If we now look at key progress for the December quarter, this included our mining contractor, AMS, which is a subsidiary of Perenti, has mobilized to site, with mining equipment delivered during the quarter and also now being assembled.
This equipment included components of a Hitachi EX2600 excavator, four Cat 785 trucks, and fully assembled Cat D10 bulldozers, a 992 wheel loader, and a Cat 16M grader. Bulk earthworks are now well advanced, with the main site access road now in use. The civils contractor, as Karl touched on before, mobilized successfully to site early in the quarter and has poured over 1,000 cubic meters of concrete for the SAG mill, primary crusher, and reclaim tunnel foundations. Work on the permanent accommodation facility, which has a total of 750 rooms of capacity, commenced during the quarter, and stage one of the facility occupation is planned for late in the March quarter.
Mechanical and electrical equipment fabrication is also well advanced, with all forecast equipment delivery dates on track for being well ahead of the required dates, according to the schedule. Following the completion of the 5.2 million ton per annum expansion pre-feasibility study in September last year, the team is also continuing to move forward with the feasibility study, and this is on track for completion in the June quarter of this year. Lastly, project debt funding for the project continues to progress well, with credit committee approved offers for debt financing now received from the company's short list of potential international lenders. The selection of the syndicate banks and finalization of terms will be completed in the coming quarter. Moving now to Kalahari Exploration.
Following Sandfire's acquisition of an additional 11 highly prospective licenses along the Kalahari Copper Belt in the September quarter, the company has now expanded the exploration program in the region with 10 diamond drill rigs now active. This expanded exploration program is focused on two key areas. Firstly, looking for high-grade satellite discoveries within the Motheo expansion project area and with the potential to increase the scale of Motheo production even further. Secondly, we're focused on delineating additional mineral resources with the potential to extend mine life and also target regional discoveries to unlock the Copper Belt's wider potential. During the quarter, work on the Motheo expansion project focused on drilling a large A4 dome to follow up a high-grade vein-hosted copper-silver intersection in hole MOA4207D, which was announced by the company on the 7th of September .
This area is located 1.2 km southwest of the A4 mineral resource, and throughout the quarter, two diamond drill rigs were testing potential extensions of this structure. Exploration on the A1, T1, and T2 East targets, located approximately 30 km east along strike from the A4 dome, also remains a priority. Work to gain access to these areas continued throughout the quarter. Regional exploration along the belt focused on three exploration target areas during the quarter as well. The T4-T23 structural zone, which is about 80 km southwest of Motheo. During the time, we had four drill rigs operating in the area, following up widespread disseminated and local vein-hosted copper mineralization along a major structural design. We're also active at the T5, T14, and T45 targets, which are approximately 50 km north of Motheo.
We had up to two drill rigs being utilized to test the interpreted northern margin of the Copper Belt and testing potential extensions of mineralization up into these areas. Lastly, the D7 target, which is approximately 50 km south of the town of Francistown. We have three drill rigs testing regional-scale structural zones that have been interpreted from magnetic and airborne EM data along the southern margin of the belt. Finally, moving on to the Black Butte project in Montana. Our key areas of focus have been to firstly continue to deal with the legal challenges associated with regulatory approvals. More importantly, we've been undertaking additional work to add value to the project. In line with this, the Sandfire America team continued work on enhancing the Johnny Lee feasibility study outcomes throughout the quarter.
In addition to that, during the quarter, a 14,000 m resource definition diamond drilling program commenced at the Lowry deposit, which is located 1.5 km east of the fully permitted Johnny Lee deposit. This drilling program will support a pre-feasibility study on the Lowry deposit and is expected to be completed by the end of the calendar year. Lowry deposit currently has a reported inferred mineral resource of 8.3 million tons at 2.4% copper. As at the end of the December quarter, three diamond drill rigs had completed just over 4,000 m of diamond drilling and no assay results from the program have been received to date.
Thanks very much, Jason. Really just to conclude the presentation, and thank you very much all for listening. We'll certainly open up the floor for questions in a minute. Once again, thank you very much for your listening in today. We're very pleased here that we've been working quite diligently over the last 12-24 months in terms of executing our strategy, and effectively now moving into a new phase of strategy 2.0 for Sandfire. That strategy effectively is to create value through opportunity, to execute delivery on the assets we do have, to build a sustainable production pipeline through singularly through acquisition, and we're in the process of completing a substantial and transformational acquisition.
We'll also continue to look for other opportunities that fit within our continued to be revised strategy. We will continue to focus on accelerating our discovery efforts and ultimately, you know, looking for those organic successes. We believe with obviously the footprint we've got and the focus and the regions we've got, we've got excellent opportunity. At the same time ensuring that we work hard, invest in our people, have our people aligned, and empower those people. We ensure that also the business has that culture and we operate and very importantly, you know, our five key values, you know, transcend through the whole organization. At the same time, ensuring our balance sheet is solid and capable. We have a good capital allocation strategy.
I do believe in terms of the activities that have been occurring, the balance sheet has been strong. It has been sculpted in a way with the debt funding and the utilization of the available resources that we have got has been well organized and well put together to execute the programs in front of us and to complete both the acquisition, the development in Botswana, and still gives us the flexibility for further opportunities going forward. Clearly through this whole process, we want to make sure that we are engaged with all of our stakeholders under our license to operate. It's been a very pleasing quarter, half year in the last 12 or 18 months in challenging and interesting times.
We really look forward, and we really do believe, as we've arriving at a different platform for this business, we've built it on very strong and solid foundations, and we're really excited about taking it forward from here. I think the next decades to come for this organization are well established off the back of these foundations, and we're really looking forward and excited, as I said, to deliver to all of our stakeholders over the next number of years. Thanks very much everyone for listening, and the floor is now open for questions.
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 Mitch Ryan from Jefferies. Please go ahead.
Good afternoon. Thanks for your detailed run down of your quarterly. Just a quick question, Karl, on a strategic sense, how are, I guess, the integration activities have occurred to date with regards to MATSA, and how are they progressing? I guess if you look forward, what's the first 100 days plan post getting the key to the asset? What does that look like?
Thanks very much, Mitch. I'm gonna pass that to Jason in the first instance. He's very close to all the extensive efforts that are ongoing in terms of integration and then also, as you said, you know, our expectations and plans are for the first 100 days.
Thanks, Mitch. Look, integration is well advanced for the project. One of the things that has been an advantage there with Spanish government's approvals. It has given us a good period of time to make sure that we're ready. Obviously, there's a two-pronged approach to this. You know, we've got the corporate integration, so integration with the parent company with our systems, you know, all of our financial systems, the whole lot there, and that's well advanced and ready to go for day one on 1 February. The operations integration will happen predominantly after day one on 1 February. Obviously, to date, we haven't had the opportunity to have our hands on the steering wheel at this point in time.
We do currently have a small team of Sandfire people that are on-site and just gathering information and have been doing so for a period of time. First 100 days is all about us learning. We are gonna learn how that mine operates, how it operates in Spain, and really get into the detail that you can. We'll take it to the next level of detail that you can't do as part of due diligence. We'll have a very strong team going over there, and we'll work with the existing MATSA team. One of the things or one of the key guiding principles for our integration is that it is a true two-way integration. The site management team that we saw over there and the broader team we thought were very good quality and operating a quality asset.
We wanna work with them and continue working with that team into the future to not only continue what they're doing but take that operation to the next level.
Thank you. Second and last question is just interested if you could provide some commentary with regards to any inflationary cost pressures you're seeing with regards to Motheo. Obviously, supply chain tightness globally and all of the, you know, the broader thematics that we're seeing. Are you seeing any cost pressures coming through on that project?
Yeah, Mitch, Jason here again. If you remember going back to the September quarter, we actually recast basically the capital forecast for the project. At this stage, we see the project coming in on time, on budget. There is pressures right across the board around you know around diesel and power, things like that. Overall, I think it's manageable and most of which we forecast in our current assumptions going forward.
Okay. Thank you. I'll let someone else ask some questions.
Thank you. Your next question comes from Paul Young from Goldman Sachs. Please go ahead.
Yeah, good morning, gents. Happy New Year to you Karl, Jason, and Matt. First question I have is on Botswana, and I saw a comment about the permitting for the 5.2 million ton case being required before you can press the button on that. Can you just talk around the timing of the permitting and, you know, when do you actually need to start mining at A4 to sort of fit in with the plan?
Yeah. Thanks for that, Paul. It's Jason here again. You're absolutely right. That ESIA approval timeline is critical for that project development. We've made a very good start on that. We've been working on that for approximately six months. We've done all of the baseline environmental monitoring, all of the work that we need to do, and we're actually currently in a write-up phase at the moment for the final ESIA document. We expect to submit that around about the middle of this year, this current year, and we expect a timeline of around about 12 months for that from the current point we're at at the moment. If we look at the project itself, one of the key points around that ESIA approval will be mining of the A4 open pit.
That is the key. If you like, it's the only real addition to our disturbance footprint that we will be including in the project. Mining of that, we have assumed will occur first pre-strip in the first half of 2023.
Okay. Thanks. Thanks, Jason. Then a third question on the mining side. I mean, you've done a great job clearly mobilizing workforce and, you know, considering the Omicron constraints in Africa as well, as you mentioned, and great that you can absorb the inflation within the AUD 36 million increase that we saw within the PFS. On the mining side, can you just run through the timing on the ramp up of the mining? And what's sort of stockpile on material movements you need to achieve before you push ore through the plant?
Yeah. If you look at it, we will commence our pre-strip mining in Q4 of this current financial year. We've got enough of the start-up fleet. They're almost on site or partially on site to commence mining. That will happen. We'll actually continue mining all of the way through the current calendar year. By the time we start commissioning the mill in the first half of 2023, we'll actually be ramping up to a full mining rate of around about just under 30 million tons per annum total material movements. At stockpiles will be variable depending on. It's a bit fluid where we're at the moment in terms of start-up.
Because one of the things that we are doing at the moment, Paul, is integrating the A4 and the T3 mine plans. We're just trying to make sure that we're optimizing both of those projects and able to get up to that 5.2 million ton per annum rate as quickly as possible.
Yeah, got it. That's great. Then maybe a question to Karl on that around hedging. Just around the timing of the hedging on both the Motheo and MATSA. Like, you know, when are you thinking exactly which quarter, which month you'll put that hedging in place? Can you just remind me just what the percentage of metal that you'll be hedging from both projects?
Yeah, sure, Paul. Matt here. Really, Motheo was a bit of a longer-term decision in terms of hedging at this stage. There's not currently any contemplated in terms of our financing. That'll be more of an internal decision discussion over the next 6- 12 months, looking forward to obviously first production. MATSA, as you'd know, is a different story given it's an operating mine and under some of that financing, acquisition financing that we completed. We have entered into a hedging program at MATSA. I can give some probably further detail when we do the financials. Roughly over the three years we're about 75,000 tons of copper at around $4.20. And around 84,000 tons of zinc over those three years at an overall $1.32.
It sort of starts more like $1.50 and ends more like $1.10-$1.15. Both programs are very much live at the moment. We'll obviously compare that to future mine plans and future guidance as we go along in terms of percentages.
Yeah. That's fantastic, Matt. Thanks for that, those numbers. Appreciate that. I'll pass it on.
See you.
Thank you. Your next question comes from Matt Greene from Credit Suisse. Please go ahead.
Hey, good morning, everyone. Just to follow up on Young's question there on the MATSA hedging, if I may. Matt, thanks for the color on that. Is that delivery schedule quite linear over the next three years, or is it front-loaded?
Slightly front-loaded. Without going through the individual, obviously quarters and months, in the first year in copper, it's about seven. Second year about 6.5. Third year about five in terms of thousands of tons. Zinc over the three years is more 7.5, 7.5, and six in rough numbers. But we can put some more detail to that, as I say, maybe when we do the financials.
Oh, that's great. Thanks for that. Just to keep you on MATSA. I saw in the Spanish press that I presume you're involved with this, that the union there had signed a new multi-year agreement there. Are you able to comment on what sort of wage increases you saw with that?
Yeah, thanks. It's Jason here again. Yes, we're aware that there's a new agreement in place. There is a slight increase in salaries. We don't have the numbers here with us today. But overall it's in line with expectations at the moment. It's a great outcome from the team over there as well to get that done, given the current environment and particularly with the sale process happening in the background as well. We're very pleased with the outcome from the local team there.
Okay, that's great. Thanks. Look, just lastly on Motheo. I think it was around mid last year, you mentioned the Botswana government was conducting some studies into the expanded Motheo case there. And if I remember, you expected a possible decision by the end of last year. Are you able to give us a bit of an update on how that's progressing? And are you assuming you fund 100% of the project with your current discussions with your project finance providers?
Yes. Look, we're able to confirm that the Botswanan government has confirmed with us that they won't take up a stake, or their option to take up a stake in the mining operation and ownership. We will take forward the project on a 100% ownership basis, and we will fund the project at a 100%.
That's great. Thanks for that. That's all for me. Thanks, Jason.
All right. Thank you.
Thank you. Your next question comes from Kaan Peker from Royal Bank of Canada. Please go ahead.
Happy new year to you, Karl and team. Just a few questions from me. Just the first one. I think there's around 26,000 tons of concentrate stockpiled. Just wanted to get an idea of, I suppose, will that be cleared next quarter? I think it was either Jason or Matt mentioned that.
There may have been some prepayments, maybe half. Is that included in that roughly AUD 430 million revenue that was mentioned before?
Yeah, thanks, Kaan. Matt here. Just to step through those, 26,000 tons of concentrate is not unusual for us. That's about 2.5 shipments. We make between two and three shipments a month, roughly call it about a month's of concentrate holding. We did have a ship go in early January, which will have, of course, dropped that down by around 10,000 tons, back to more like 16. That cashflow was received as a prepayment in December, but no, it doesn't count into the revenue number. The revenue number will come in in January. Cash in December, revenue January.
Yeah, thank you. Very clear. Just on a second question, more around the cost guidance. I mean, I understand it's increased, but I think the freight rates that were indicated, I think they've been declining since straight through last year. Does the diesel really relate to site cost power? Lastly on cost, I suppose, in terms of labor, are you seeing increased costs in terms of retention payments? Thanks.
Yeah, Kaan. Matt again. Really diesel, as you'd expect with these high diesel assumptions, affect a number of areas from mining through to transport through to all sorts of areas that are in sometimes quite almost difficult to analyze to a great deal of detail. We do understand the diesel cost pressures are obviously pushing this up. I think, as I noted, we're already seeing these cost pressures in the back end of the first half. It's just they've been a little bit, I guess, disguised by the higher copper production, so that's really why that C1 rate is still in that $1.00-$1.10 rate during that quarter. Certainly energy costs, we have already seen and are seeing those move.
The shipping side is also about energy costs, but also a market that for a number of years effectively lost money, for a number of years and in this period of time is making money. That's the sort of swings and roundabouts that we get in global shipping. In terms of labor, yes, there are labor pressures in Western Australia, partly because of, obviously, border restrictions. We do have a number of retention schemes and things with our existing workforce at DeGrussa to ensure that we continue to optimize the operations there and complete them to the currently known mine life. Yes, there's some cost pressures. I wouldn't have said they were extreme at this stage, but there's certainly some pressure for people, certainly a labor shortage, if you like, which makes it difficult.
Sandfire is a very attractive business, sort of on the up, so we're seeing some very positive signs when we do go out for key recruits. A labor shortage at this stage I wouldn't have said is impacting us much, and neither is really labor rates at this stage in Western Australia at least.
Cool. Thank you. I'll pass it on.
Thank you. Your next question comes from Tim Hoff from Canaccord. Please go ahead.
Hey, thanks, guys. I was just looking at the last 12 months, and it appears like you've got a bit of a stockpile build in terms of ore stockpiled. Is that just a differential or is that something you guys are consciously building?
Well, look, Tim, it's Jason here. It's a bit of both. We actually had really strong performance, particularly out of DeGrussa, in the last two months of the last quarter. Monty's been consistently overperforming in terms of mine production rates, above plan pretty much now for probably close on 12 months. The team's doing an excellent job. They just go from strength to strength to strength. The other one is in the back of our minds as well. We're conscious the WA borders are opening up on the fifth of February, so we are trying to build some buffer up on surface there, depending on what happens with, you know, community transition of COVID-19 once we reopen.
in terms of, you know, the end date, just noting DeGrussa has been mining really well, have you guys got a date set in the calendar where you're expecting to turn it off or is it still a little bit in the air as you scrape the barrel?
Yeah, sorry, Tim. Look, at this stage we're forecasting finishing underground mining in September this year, and with processing to extend partway through October this year.
Just to go back to Mitch's or just to follow up on Mitch's earlier question, are you in a position to give a, I guess, percentage on what the power cost is to the cost base at MATSA ?
Matt here. I don't have a number in front of me in terms of percentages, but safe to say that it is, you know, a base metals mine with a processing facility with three mines. Clearly energy costs, it is sensitive to energy costs, and we know that, and globally energy costs are clearly rising. When we are certainly there on the ground and we can work and on what we understand from due diligence and then what we can also learn on the ground, we'll be in a position then to talk forward in terms of obviously production and costs, hopefully relatively quickly after that.
Okay, excellent. Thank you very much, guys. I might pass it on.
Thanks, Tim.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced.
The next question comes from Lyndon Fagan from J.P. Morgan. Please go ahead.
Thanks, guys. Just with MATSA about to close, I wanted to revisit the grade profile, if possible. I'm wondering if you are able to articulate that particularly for copper and zinc over the next few years.
Yeah, Lyndon, thanks for that question. Look, we are at the moment still waiting to see, if you like, production forecast or updated production forecast going out into the future. We'll be able to get into that information in detail after day one, and we'll be providing market updates to the market there as soon as possible after that.
All right. Just at Black Butte, I'm wondering if you can maybe give us a bit of a rundown of what's going on, and is there any line of sight to actually bringing it into production at some point?
Yeah. Jason here again, Lyndon. Where we're at the moment is we are looking to add value to that project, but at the same time, working our way through some of the legal challenges that are currently in play. As we mentioned earlier on this call, we do wanna add value to the project and we see particularly the Lowry deposit, which is about 1.5 km away from Johnny Lee, has real potential there to increase ore reserves and also bring in some higher grades into the mine plan there a bit earlier. That we expect will have a really positive impact on the financials for that project. We expect to complete that pre-feasibility study on Lowry by the end of this calendar year.
Then depending on those results, we would assume that we would take that into feasibility and that would inform any future decisions. Personally, I still remain very optimistic about that project. I'm very, if you like, I believe at some stage that project will be developed.
Thanks. Just a final one, is there any rehabilitation expense that will be incurred at DeGrussa over the next year or two that we need to think about?
Yeah, look, at this stage, Lyndon, as we're working through the options and the studies on Old Highway, we are hopeful that there'll be an ongoing operating footprint at DeGrussa. Once we complete those studies, we'll be able to make some decisions on what that looks like. At this stage, we are just assuming that we're either going into operations or we may have a period of care and maintenance before something happens with Old Highway. Obviously, if something doesn't, we would then have to start to basically work through the rehabilitation for DeGrussa. At this stage, our thinking is that we would not incur large costs associated with rehab in the next 12 months.
Great. Thanks very much.
No worries.
Thank you. Your next question comes from Peter O'Connor from Shaw and Partners. Please go ahead.
Hi, Karl, Matt, Jason. Happy New Year, and I hope you're triple vaccinated 'cause Omicron is coming to get you. Yeah, a couple of clarifications first. Timing, Jason, going back to the comment about the 5.2 million ton approval process, you mentioned you'd be submitting the documentation for the ESIA around mid-year with a 12-month timeline for approval, but then you ended by saying you're pushing the pre-strip starts in the first half calendar year 2023. Can you start the pre-strip before the approval?
No, we won't be able to do that. We'll need the ESIA approvals prior to that. The one thing that is in our favor for this ESIA, if you like, it's not a greenfield project, this. It is pretty much a brownfield project and the environmental's associated with that. The other complexity as well in Botswana is landownership, which was quite an item for us, particularly in the T3 project. We own all of the land currently that the project footprint requires as part of that, and we own that on a freehold basis.
We expect from a government point of view and all of our interactions with the government is that it seems to be quite a simple and should be quite an expeditious process through that.
Okay. Potentially shorter than the 12-month timeframe you mentioned. Got it.
Very much.
Matt, was I quick enough to get all the numbers you mentioned re the tax payment due and the D&A for the period as well as that revenue number? two months rent, remind me again.
Revenue for the half, we're expecting, you know, obviously unaudited, approaching AUD 430 million.
Mm-hmm.
Just to note for your cash reconciliations, AUD 56 million tax payment was paid in December, which we had flagged from the financial 2021 year. D&A, at this stage, around AUD 105 million, just as an indication based on the two quarterly C1 exploration.
Got it. Jason, back to you. Looking at MATSA and thinking about that first 100 days and beyond, and going back to when you first announced the deal and a lot of the feedback in the market was about the short resource/reserve life. What's the priority? Is it integrating and running the Sandfire way or is it getting drills turning as quickly as possible to add resource reserve?
That's a very good question, and the short answer is both. We are conscious, we wanna increase the resource to reserve conversion rates. We've actually got some real geological strength going in there for day one, and that will be a key focus for them and also for the company in the short term.
Thought you'd say that. Hey, on the U.S. and Black Butte, you made an interesting comment about your attractiveness to the project, and it will be developed, but you didn't say you'd be developing it.
Look, I think we're
You think Sandfire will be developing it?
That's probably a question for Karl. Look, I like the project and, personally, I think it just needs a little bit more high grade to come in in the first five years, and I think we've got a good mine to develop there.
I agree with Jason. Peter, sorry. Go on.
Does the U.S. Critical Minerals Trust of last year so does that make it more attractive and make it more developable? Or therefore make it.
I think so. I think about two years ago, you had a strategic minerals footprint or white paper. I think the most recent paper at COP has been elevated in terms of its critical nature to the U.S. in terms of their sustainability and that. It is getting more time in the sunlight, so to speak. Yes. I also think that, as Jason has said, that, you know, clearly, that feasibility study, which we wanted to draw a line in the sand for the Johnny Lee deposit, which was about a year or so ago, was important for us to reach that milestone. It was important. If you think about the strategic development and pathway forward, we had to reach some milestones strategically. That was critical.
We had to be able to prove to ourselves and to the stakeholders that a permit could be issued, which it has been. Under the system there, it is, you know, a government-approved system. The legal challenge is, in fact, against the regulator, not against the company, for issuing the permit. The regulator is very confident in the work they've done. We've done all of our work. We are joined in the action with the regulator. It is a process. We just need to go through that process. It's a bit drawn out. It is what it is in that part of the world.
With other activities occurring in our business strategically, it actually is working relatively well for us and giving us the opportunity, which is the critical component now, strategically, of adding value. We know we can get a permit. Yes, we appreciate there's a challenge. We believe from the work that we've done, that challenge will ultimately be dealt with in a positive manner with respect to the development in favor of development of the project. What's more important, as we roll forward is that it makes economic sense. The process at the moment of enhancing that economic opportunity is looking at, you know, things that are close that will allow that Black Butte project to have better economic enhancements.
That's really the work we're doing, and I think we'll be working very diligently with the team there over this forthcoming 12 months to get it to that point. Hopefully, everything's gonna, you know, coincide with each other, where we deal with the legal challenge, we have a better economic situation, we've got better underlying commodity prices, we can recut models of possibly better long-term consensus. We get some more tons, we get a better grade, we reschedule, and all of a sudden the economics of that project work really well in terms of, you know, return on investment and internal rate of return. Then we go, right, we move to stage.
Yes, from our perspective, our intention, where we sit here at the moment is for Sandfire, which owns 85% of Sandfire America, so in turn, it's Sandfire that is developing that project, you know, and, you know, it clearly won't be in 2022, but, you know, in, you know, moving forward, you know, we'd love to be in a positive position to be able to press the button on that in 2023 or 2024. You know, it would be wonderful for our... and fit within our strategic plan. We think geologically, that environment, there is opportunity. There is other opportunity. But we've got to get the sequencing of delivering of those key milestones in the right order.
Thanks, Karl. Karl, quick one to Matt. Matt, given debt's effectively free in the world at the moment, when you're thinking about the Motheo project finance facility, how should we think about a coupon and a structure of a facility in the current world of finance?
Thanks, Peter. Certainly not free. Nothing's free. Debt's certainly never free. Yeah. We're getting some attractive rates. Obviously, we're in a process now where we have credit approvals from a number of banks, and we need to work through to a final list. Some of that, the selection will be around pricing. Have to be a little bit, obviously, careful. The financing costs at the moment for a project in Africa run by Sandfire, we're quite pleased with the rates. You can certainly see sub sort of 4% margins, 3.5%-4% margin. I think that's pretty solid for a project that we're looking at in Motheo.
Also, just to touch on that, while we're on the subject of Motheo debt, we obviously need to look at. We've framed our debt around, debt structuring around the T3 project and the feasibility that exists. We'll form a bank syndicate around that. And then, of course, there's some further, potentially some further work to do as we bring in A4 and the larger project into that syndicate as well. That'll come over the next probably, you know, 6-9 months.
That sort of thing, given the size of the company now, compared to what it was?
Sorry, I missed the start of that.
Given the size of the company and the cash flow and the balance sheet you've got now compared to, say, a year ago, does that give you more wiggle room when you're negotiating things like cash sweeps and access to cash flow?
Oh, yes. I think we come in as in a position of strength, no question. In an emerging business with quality assets, quality cash flow, and we've attracted
It's a track with the sort of who's who of banks, particularly that new to us, what is that sort of new European banking market as well, also importantly into Southern Africa. We do also certainly support the idea of supporting and having banks support us and us supporting banks that are local to the projects and areas around which we operate as well. That goes into Southern Africa and also Europe with Motheo and MATSA.
Thanks, Matt.
Thank you. There are no further phone questions at this time. I'll now hand the conference over to Nicholas Read.
Thanks, Harmony. Just to wrap up, we did have one online question, which I'll just put to the team here. It's from Steven Tonkin, and he asks, "Can you please explain what the exact or specific topic for the Montana court challenge is? For example, does it relate to wastewater purity? And if you can explain what the nature of the case is, can you also give us some understanding of what Sandfire's response to that is based on the advice of our technical specialists?
Well, thanks for the question, Steven. Look, firstly, just to clarify that there's absolutely no concerns about water clarity coming up in any of the legal cases. There are two legal actions that are in progress at the moment. The first of which is legal action about the granting of the record of decision. A record of decision is, in effect, a mining license, so the Montana version of that. It's a legal action actually against the government of Montana and the regulators there on the validity of the granting of that mining license. Advice that we have, and that is it had its first hearing. That action was started, I think it was close to the start of last calendar year, and it's quite well advanced at the moment.
The first hearing was held, I think back in July last year, and we are waiting on the decision from District Court Judge Bidegaray, and we expect to have that in the coming months. To be honest, we actually expect to have that decision prior to the end of the year. The second one is around water rights, which is probably up more along the lines of your question there. It is more of a technicality, and it is a challenge from NGOs at the moment, basically challenging the validity of the regulators granting us a change to the nature of our water licenses to go from basically to what they call beneficial use.
We would use those licenses to make sure that there was no loss of water going down into the river system, where the mine is located. Once again, it's more of a technicality, and NGOs are using some of these actions there to try and push agendas and are not so much about the impact of the mine, but also just challenging some of the precedents or potentially setting precedents there in the U.S.
Thanks very much, Jason. I'll just hand back to Karl for closing comments.
Once again, thanks very much, everyone, for listening in to the quarterly 31 December 2021 quarterly report. It's been a wonderful quarter for the company. It's been very transformational as we move forward with this massive transaction, and we're looking forward to completing that soon. Obviously, as well as with all of that, a lot of work on the ground in Botswana in terms of project development and also, you know, exploration ramping up. We're really launching ourselves onto a new platform as we go into 2022. We've got some very solid foundations. We're looking forward to continuing to execute our strategy in a very positive way in the future-facing minerals and markets, which are also looking very strong.
Off these foundations, we're really looking forward to creating, further creating value for all of our stakeholders in our business, and particularly our shareholders. Once again, thanks very much, and we look forward to updating you as when we complete the massive transaction. Really, it's just a bit of a nod to, it'll be the last quarter that we've got independent and isolated results from the DeGrussa and Monty operations. The next quarter we report, we'll be starting to dial in the MATSA operations. There'll be two main things to talk about. Once again, a nod to DeGrussa, and thanks very much for all the team up there.
Thanks very much everyone today for listening, and we look forward to further success off the back of what we're doing at Sandfire. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.