Sandfire Resources Limited (SFR) Earnings Call Transcript

Thank you for standing by, and welcome to the Sandfire Resources June 2026 Quarterly Report. [Operator Instructions] I would now like to hand the conference over to Mr. Brendan Harris, Chief Executive Officer and Managing Director. Please go ahead.

Good morning, everyone, and welcome to our quarterly call. Our executive team is here with me today for the Q&A, which we'll get to very shortly. But before we start, as always, I'd like to acknowledge the traditional custodians of the land on which we stand, the Whadjuk people of the Noongar Nation as well as the First Nations peoples of the lands on which we conduct our business. We pay our respects to their elders and leaders, past, present and emerging. As always, we'll start with safety. We finished the year with a group TRIF of 1.6 compared to 1.7 at 30 June 2025, and reported 3 high potential incidents in the quarter. And of course, we just can't forget the tragic loss of our colleague, Ivan Manuel Vazquez Garrido from Constructionist Mary, who was fatally injured at our Magdalena mine in Spain on the 25th of February. His loss and our other high potential incidents reinforce just how important the work we have underway to strengthen our safety, broader risk management systems and leadership behaviors is, nothing will ever be more important than the health and well-being of our people. And our people have a lot to be proud of. As you would have seen, we finished the year with very strong momentum. We delivered a 38% increase in group copper equivalent production in the quarter, taking annual production to 154,200 tonnes, comfortably achieving guidance set in July 2025. At MATSA, our team delivered 26,500 tonnes of copper equivalent production in the quarter, taking annual production to 94,500 tonnes on the back of record quarterly mill throughput of 4.8 million tonnes per annum, higher copper grades and recoveries to further entrench MATSA's growing reputation for its consistency and predictability. And the story for Motheo is arguably even more compelling after a somewhat soft start to the year admittedly, our team finished strongly to deliver a 65% increase in copper equivalent production in the June quarter for annual production of 59,700 tonnes to again comfortably achieve guidance. At Sandfire, it's just so important that we deliver on our commitments and do what we say we will do. Having lost face position following the floods of last year and worked hard with our contractors to reset expectations, we're back where we need to be, having moved into the higher grade ore zones within both the T3 and A4 open pits, achieved high metal recoveries with more to come and proven the potential of our processing facility with more than 6 million tonnes of ore processed across the year. And while, like others, we have been impacted by inflationary pressures that are built since February and the onset of war in the Middle East. The quality of our assets again shine through as both MATSA and Motheo operated at a C1 level of less than $1 per pound across the quarter. The temporary, and I said temporary rise in unit costs at Motheo to $54 per tonne of ore processed does, however, require further context. I ask you consider our higher grade and higher cost A4 mine achieved commercial production and its contribution rose in the processing blend as expected. We completed almost 35% of Motheo's annual sales on a contained metal basis in the quarter. And in copper's case, at over $13,000 per tonne, which led to significantly higher royalties and freight charges. And, of course, our fleet, while well supplied, was fueled by higher cost diesel. With this in mind, it's particularly important to note that we expect only an incremental increase in unit costs at both Motheo and MATSA in FY '27. In other words, a rise of around $1 to $2 per tonne from the average unit costs achieved across FY '26. So what I'd really like you to take away from today is that our teams have delivered a suite of quarterly operating and financial records whilst maintaining an eye on the future, ensuring we're set up very well operationally as we move into the new fiscal year with great confidence in the copper equivalent production guidance we provided today of between 150,000 and 166,000 tonnes for FY '27. More broadly, our proven projects team has made rapid progress at Kalkaroo having quickly established key infrastructure, including an 80-person camp and commenced our planned 130-kilometer infill and extension drilling program that underpins our $70 million pre-feasibility study which remains on schedule to be completed in the second half of FY '28. And before I conclude and we move into the all-important Q&A, I should remind you that we will have a number of other important projects on foot through FY '27, including construction of our new tailings facility that will support operations at MATSA beyond 2040. The progression of the Stage 4 cutback at T3 and Botswana that sets up Motheo beyond FY '29 and the DFS for A1, where mining activity is provisionally scheduled to commence in FY '29. We're also looking forward to providing a broader update on our exploration activities when we report in August. And for the avoidance of doubt, I should note that we remain on track to declare a maiden reserve for A1 as promised. So to sum up, we generated record financial outcomes in the quarter as particularly strong operating performance and buoyant commodity markets combined to deliver group sales revenue of $574 million for underlying EBITDA of $343 million at a margin of 60% to finish. The period with unaudited net cash of $353 million, an increase of $277 million in the period. Our report card for the year confirms we have the right strategy. We're producing the base and precious metals the world desperately needs from 2 high-quality assets. Our balance sheet is increasingly strong and we've added an attractive development option that has the potential to deliver the next wave of growth in total shareholder returns. With that, let's go to questions. Thank you.

[Operator Instructions] Your first question comes from Paul Young with Goldman Sachs.

Brendan, can we start with just the performance on Motheo and also discuss recoveries at MATSA, which we typically always discuss on the quarterly calls and they're good discussions. But just on the mill throughput at Motheo, which I think was over 7 million tonnes per annum run rate. I know you didn't do any maintenance in the period, but we're now talking about a mill that's running at sort of 40% above nameplate, which is extraordinary in industry terms. So I just want to comment around how that was achieved? And is there anything to call out with respect to your guidance for next year, which might actually start -- appears to be a touch conservative?

Yes. Look, thanks, Paul. Let's start there, and we'll come back to your recoveries question at MATSA, which we always look forward to. Look, you're right, Motheo had an incredibly good quarter. It produced very well. I think it's fair to say it was set up for success. Remember that we shouldn't forget that Q3 for Motheo was probably the most disappointing quarter we've had since Motheo commissioned and primarily because we had the issue with the OEM grade, which really meant that we had an opportunity to bring forward a whole lot of maintenance. And basically, as you should, as good miners, we took advantage of that opportunity. And therefore, again, we came into Q4, knowing that with a pinch of luck, we were going to deliver a very, very strong end of the year, which is why we remain confident that we could achieve guidance. And look, we understand why the market was probably a little bit more skeptical. But look, Jason is probably best placed. He's got quite a lot of detail around this. But particularly, I think the critical thing is to why we don't want people to get ahead of themselves as we move into the next year. Jason?

Right. Thanks, Paul. And Brendan's comment there about Q4 being set up for success is on the money. If we look at it, Brendan touched on it, we had a major shutdown in Q3 that was originally planned for Q4. We did a lot of work in that quarter and opportunely during that period of time to make sure that we did not have to take down the mill on a planned basis for an extended period of time coming into this final quarter of FY '26. The other point I'll make is that we saw very much the increasing proportion of A4 into the blend, right, and processing. And what we are seeing and where we are in that ore body in the upper levels, it is softer than we expect for the overall average of that ore body. So we get an overall throughput improvement there as well. The third point I'll make is that, we've stated before that we've invested in debottlenecking for Motheo plant in FY '26. Those works were completed and largely commissioned during Q4. So we saw the benefits of that work coming in, particularly around tails lines, right, our ability to handle concentrate and store concentrate there at the back end of the float circuit gave us some real advantages there about maximizing throughput in that period of time. So all of those things lined up to deliver what we all consider is an excellent quarter in terms of throughput for Motheo. If I look forward and if we think about it on a sustainable basis, when we factor in major planned shutdown events over an annual basis and going into FY '27, we have 2 of those major shuts planned, right, for that plant. The other thing that we will see, and particularly with the further increase in the proportion of A4 ore going into the blend, we know that ore will get harder at depth, and it is harder than T3 ore. And we had originally identified that in the feasibility study for A4. We know that will have an impact going forward as well. And then from a value point of view, I touched on the debottlenecking earlier, right? What we are seeing at the moment now, particularly with grades -- head grades sitting around about 1% or slightly higher, the overall constraint in that circuit is now moved to the flotation circuit and our ability to be able to cope with the -- if you like, the copper minerals. So from a value point of view, if we run it too hard on the current configuration, we'll start to see a recovery drop. And you will note from Appendix A that we are forecasting 93% recovery going into FY '27.

So sorry. If I could just maybe just sort of your comment there, I think I understand this sort of bent towards a question conservatism. Hopefully, from what Jason said, you'll recognize there's a lot of things that go into this while we think that the guidance we're providing is appropriate. I think it's fair to say, though, that if we look back at the start of FY '26, we knew we needed a lot to go right because we were still recovering from the floods. And the team, I think, has done an incredibly good job to work through that. They've obviously had to reset some expectations with our primary contractor. I think that's now looking like it's more on foot. The critical thing as we go into next year, I think, is -- I don't think it's conservative, but what I would say is it's a lower risk year, and that's primarily because of the face position we have, sitting effectively all bound in both of and T3 and A4.

Yes. Understood. That's comprehensive guys. Look, I'll park the recovery question up on MATSA, Brendan, actually keen to discuss the upcoming resource reserve update. And I know you did a bunch of drilling in the quarter. Looks like you'll release those drill results with the R&R update, but curious around how you think about what copper price you're going to use in your reserve calcs coming up, I know being pretty conservative with MATSA retain on the numbers exactly in front of me, but I think around sort of somewhere between $3.50 and $4 a pound and Black Butte maybe a little higher, but how do you think about this because it's obviously going to play into everything you do with respect to the mine planning and even Kalkaroo, and even decision on Black Butte, where you settle on that. So can you just step through your thinking around how you actually assess what copper price you will use in your estimates?

Yes. Look, thanks, Paul. And again, something that we spend a lot of time thinking about. I think we're also careful to make sure we don't believe that we have some unique insight into the copper market. So we're very careful around that. But we can see all the pressures that are building on the supply side, all the challenges with the aging fleet, rising strip ratios, and I could go on. We've historically used price in our, call it, our business of less than -- well less than $4 a pound. But we acknowledge that the market's view of long-term pricing is rising. And so you won't be surprised if one of the considerations for us is a number that's more in the 4s than the 3s. So now in terms of the impact on our R&R statement, and we've given you a little bit of insight as to where that's headed. You can imagine from a Magdalena perspective and even Aguas Tenidas, that sort of move doesn't have a really meaningful impact. Even at Sotiel, it's not overly significant. It really is only if you start pushing above 5s. Now that's an interesting thing because we also note that a number of commentators in your world are talking of prices in the $5, $5.50 range, that actually starts become quite interesting. Now when we look at Motheo, the comment around broadly replacing depletion, I said earlier on in my speech that we're on track to declare a maiden reserve for A1. We've said historically that, that could be in the order of half a year, sort of, call it, as a function of throughput. I think recently, we said it's looking better than that. A1 will be a big part of that initial replacement of depletion this year. But remember that we've only recently accelerated a lot of infill and extension drilling around T3 and A4. And as you start looking at prices more in the 4s than the 3s, that becomes really important as a potential further extension life. That's why we've accelerated that drilling program in the first half of this financial year. So look, there are a lot of moving pieces. I think the other thing, Paul, the Kalkaroo, I think, from an investment perspective is going to be much less sensitive if we're right. We think that the economics there are compelling at a range of price assumptions. So obviously, again, we mentioned that the existing reserve, if we put the sorts of market type prices into the model now, we basically extract 100% of the mineralization, and that is the challenge there that we need to obviously extend the drilling below 200 meters along strike and hopefully significantly extend and expand the size and life of that ore body. I think, obviously, as we come back to you in August, what I'm looking forward to is providing a bit more detail around that. We're also looking forward to talking about some of the, call it, the more regional and near-mine type drilling that we've been undertaking. We're seeing some level of maturity in that program. I think we're getting more dexterity in our targeting, and there's probably a lot for us to talk about, but we'll leave that till August.

Your next question comes from Daniel Morgan with Barrenjoey.

Just on the Motheo, obviously, a very good run at it, and you've talked at length about that. You mentioned don't annualize this quarter, of course, because you didn't have a shut amongst others, and you mentioned you've got 2 shuts coming up. Could you maybe just talk about when the shuts are scheduled at this stage? I appreciate they can, of course, no.

Yes. Look, I think probably the easier way for us to talk to that is when we look half-on-half, we're expecting a relatively steady sort of profile this year. I think, Jason, we're not expecting a heavy skew from one half to another, but maybe if you can color that sort of quarterly profile in a little bit -- noting that with -- as we said, we're well set up going into this year, and we've started the year well. We're only 20-odd days in, but it's been a good start.

That's it. So at both assets, we expect our production profile to be largely even across all 4 quarters, and even noting that we do have major shuts there at Motheo planned, and they are planned currently for Q2 and Q4.

And just expanding on the optionality question about how different copper prices impact what you do. Are you making sure that in everything you do maintain the optionality of these assets if copper prices are meaningfully higher? What steps can you do to maintain the optionality?

Yes. Look, and I'll ask Jason to color a bit in. So the irony with this is, I actually sort of think of it the other way that we're quite optimistic, no doubt about the future of copper. We're optimistic for the reasons we've mentioned many times that we think there's structural dynamics that are underpinning demand, and we think the supply side is challenged, particularly for the major drivers of the supply side maturing and the pressures that they face. And obviously, the amount of capital that's needed to just get them to stand still. So we believe in that. The one thing we're very mindful is as we start to think about higher longer-term sustainable prices, how do we make sure we don't fall into the trap as other miners that there is volatility in this well. Despite these structural trends, you still have deep volatility in commodity markets and how do we make sure we set ourselves up for success. So what we do, Dan, is we've done a lot of work in our life of mine planning. You've heard us talk about the [ Havilah value ] work we've done. We understand the levers we have. We also understand when we need to take decisions. Now when we think about Motheo, we're starting to build into our thinking, our plans that enable us to optimize into the longer term in the event that we see even higher prices than what the market's long-term numbers are ratcheting up to today, we know that we don't have any major decisions that we have to take with any regret for a number of years from now. So we understand that. And similarly, we do that work with MATSA. And as I mentioned, the big opportunity, call it, with the existing ore bodies of MATSA today is still the down extension of Magdalena because of the NSR of Magdalena, it's really not overly sensitive to higher price assumptions. Jason, anything else there?

Look, building on Brendan's comments there as well. So as part of our annual life of mine planning cycle, we run multiple scenarios. And a number of those scenarios are at higher pricing assumptions. So we make sure actively that we know what optionality we have in a higher pricing environment. And as Brendan said, we know exactly when we need to act on those things, if required. If I drill down a bit there at Motheo, so given that it's an open pit operation, we stockpiled separately high, medium and low grade, right? Our low-grade material basically factors in, and we stockpile that separately, right, material that's currently not economic, right, but it's possibly economic in the future. If we look at our pit staging designs, right, and particularly Brendan touched on there, the extensions of both T3 and A4, right, we've got enough geological knowledge to know at what price they start to come in and exactly when we need to start mining those areas if we're going to pre-strip it in time and make sure that they have got a meaningful contribution to the life of mine production profile. If I go on to MATSA, if you look at Magdalena, it's high NSR, basically, we're mining pretty much everything there. Whereas both Aguas Tenidas and Sotiel have more of a low-grade halo around that, and we do run a variable cutoff grade in our tactical planning to make sure we're not sterilizing too much about that ore, particularly at Aguas Tenidas, and we're aware of potential additional ore sources that tend to sit more at depth, right? And on the periphery there associated with our stockwork mineralization. And we've got ongoing studies there to unlock further potential at Sotiel.

I think, Dan, I've talked about in the past that my analogy for MATSA is a bit like [indiscernible] in the Kambalda belt, obviously, the nickel industry. The prior owners sold out of them in the early 2000s. They ran for 20 more years. I think it's easy for us to skip over the fact that 3, 4 years in, we're continuing to replace depletion. And we also still have a lot of belief in the work we're doing to substantially improve that position. We need to prove that to you that we need to prove that to ourselves. But we haven't stepped away from the belief that the objective for us is to have 15 years of reserve life ahead of the face. And we're working really hard from an exploration perspective to try and unlock that. As I said, we'll hold a lot of that discussion off until August to give you a bit of feel for how that's coming together.

Your next question comes from Levi Spry with UBS.

Thanks for the extra detail on some of the stuff. Maybe I can just push a little bit harder without going too far. So just on the broadly replacing depletion point, that's a price change, I assume.

I think the point that I was making is that it's not an overly big driver in the numbers this year into next year, with the infill extension work at Motheo, it's got potential to bring more. It's not a big driver, but it's built into our R&R statement, and we'll talk to that in August. As you know, the problem with all these things, Levi, is there's a whole lot of lags in this. So work that we were doing 18 months ago, we drill, if you remember, 100-plus-odd kilometers of infill extension last year, right, not '26, '25, we're only seeing that come into our R&R statement this year that we'll release in August. The work we've done in the last 12 months is actually going to come through next year. The work we're doing -- a lot of it, the work we're doing and accelerating at Motheo is only going to come through again in the next statement, not the one we released in August. So that's one of the challenges with all of this, as you know.

Yes. And then just back to the throughput piece, thanks for the detail there, Jason. But I get the hardness piece and also the major shuts and stuff, but they are very good numbers. So is extra flow for consideration?

Look, we've done the engineering and the metallurgical test work to test that. There are some options. And we are looking at do we really -- we are evaluating at the moment about is there a good business case to go and invest further capital.

And I think the way I think about that, Levi, and again, I love the question is that these things are linked, right? So the work we're doing on these extensions at T3 and A4, the work we're doing, declaration of maiden reserve at A1, the DFS at A1, understanding some of the proximal opportunity that potentially exists at A1, understanding some of the opportunity we're seeing around A4. All of these things are really important because I think what you can take away from the results today is as we uncover and as we define new reserve opportunities, we absolutely have the potential at relatively low capital cost to bring on more throughput capacity at Motheo, loath to do it until we've actually unlocked that potential.

Yes. And just last one. So on Black Butte, can you just remind us of the next steps? Or previously, I think you said you might be talking a bit more about the results. What's the next step there?

Yes. Look, keep that one really simple. Again, I'm always respectful of the fact that Sandfire America is a public listed company on the Canadian exchange. Jason is actually the chair of that entity. So again, very mindful of that. Our strategic review, the engagements we have with Sandfire America are very, very constructive as you'd expect. We are effectively the major shareholder with an 87% interest. We are the sole financier. So you'd expect us to have a very good relationship and the support that we provide them. We would expect that we'll have more to say prior to or at the time of our August results with regards to the strategic review. We do expect to have I guess, a clear way forward at that point.