He had a good story to tell, with Sandfire’s recent US$1.86 billion acquisition of the MATSA copper-zinc-lead complex in south-west Spain, and the Motheo copper development in Botswana, to more than cover the pending end to production at the DeGrussa copper-gold mine in WA.
All up, Sandfire is moving from 70,000t of copper and 30,000oz of gold annually from DeGrussa alone to more than 170,000tpa of copper equivalent from MATSA and Botswana, and potentially more than 190,000tpa once environmental clearance for the Black Butte mine in the US is secured.
The BMO conference is no different to any other in that the investors loved to hear a growth story in copper, now more of green metal than a red metal because of its pivotal role in the electrification of everything to decarbonise the world.
Among other things, Simich argued the long cycle nature of copper supply mandates large deficits for the metal in the middle of the decade, and that Sandfire’s copper production profile post-MATSA and Botswana puts it in the global big league of producers.
While Simich’s presentation was as enthusiastic as ever, there had to be an acknowledgement that Sandfire’s share price was beaten up something shocking in its home market in the two days following the release of its interim profit result on Monday.
The shares fell 15.4% from A$7 to $5.92 by the market close on Tuesday, not because of the DeGrussa-based profit figures, but because twitchy investors did not like what they were being told about MATSA, which become Sandfire’s all of a month ago.
Sandfire provided a five-month guidance to June 30 on MATSA which was not in line with expectations, with those expectations based on what Sandfire said at the time of the transformational acquisition last September.
Production under the new guidance, based on the previous owners’ mining plan designed to capture some lower grade ore in response to bumper metal prices, was about 10% lower, and the C1 cost forecast was increased from US40-50c/lb at the time of the acquisition to 94c/lb (net of by-product credits), due mainly to increased power costs and general inflation.
Some context on the cost increase to 94c/lb. The copper price is well above last year’s average at $4.57/lb, leaving a $3.63/lb margin. So MATSA remains well-positioned on the cost curve (OZ Minerals’ C1 cost for Carrapateena is 70-80c and for Prominent Hill it’s 90c-$1/lb).
It has to be said the market never likes production/costs downgrades, particularly when as is the case with MATSA, the guidance given at the time of the acquisition is not exactly long in the tooth.
But the reality is that Sandfire has only had the keys to MATSA for a month and is now working on its own optimised mine plan, with a reserve/resource update, and MATSA’s medium-term outlook, to be released early in the new financial year.
It will be then that the market will have a better feel for how MATSA should be priced within Sandfire. And the assumption has to be that Sandfire is working on a bigger and better MATSA for the future.
Read more at https://www.miningnews.net/barry-fitzgerald/opinion/1427524/sandfires-grand-vision-for-matsa-in-the-works
