Sandfire Resources Limited (OTCPK:SFRRF) Q4 2022 Earnings Conference Call August 29, 2022 10:00 PM ET
Company Participants
Ben Crowley – Head of Investor Relations
Karl Simich – Chief Executive Officer
Matthew Fitzgerald – Chief Financial Officer
Jason Grace – Chief Operating Officer
David Wilson – Head of Business Development and Technical Services
Richard Holmes – Head of Exploration, APAC and AMER
Conference Call Participants
Rahul Anand – Morgan Stanley
David Radclyffe – Global Mining Research
Matthew Greene – Credit Suisse AG
Kaan Peker – Royal Bank of Canada
Levi Spry – UBS
Peter O’Connor – Shaw and Partners Limited
Operator
Thank you for standing by and welcome to the Sandfire Resources FY2022 Results Conference Call. All participants are in a listen-only mode. The will be a presentation followed by a question-and-answer session. [Operator Instructions]
I would now like to hand the conference over to Ben Crowley, Head of Investor Relations. Please go ahead.
Ben Crowley
Good morning, good afternoon, everyone. Thank you for joining us today as we present our FY2022 financial results and also the DFS for the Motheo Expansion. With me today in the room, I have Karl Simich, our MD and CEO; Matt Fitzgerald, our CFO; Jason Grace, Chief Operating Officer; and we also have Richard Holmes, Executive for Growth and David Wilson, our Head of Technical Services. Karl will give us some opening comments and run through the highlights of FY2022 and the DFS, and then Matt will sketch through the financials, and Jason will take us through the high level outcomes of the DFS.
And with that over to you, Karl.
Karl Simich
Thanks, Ben, and welcome, everyone to our year-end financial results 2022 and also pleasingly our announcements today regarding the expansion of the Motheo operations in Botswana to 5.2 million tons. Just as a highlight, we continue executing our vision, creating value through opportunity and our mission to [grow into] an international, diversified sustainable mining company. And as we roll through this presentation today, we remain very focused and marching forward on delivering on our strategy and always ensuring we maintained values at the very core of our business which effectively underline and provide the culture of our business.
In terms of scale, we continue to move forward and as we go through this transition, we will continue to be moving toward being one of the largest copper producers on the ASX and obviously in those future-facing metals and we believe through the jurisdictions that we are in as high-quality jurisdictions, a great ability to pivot off that and also working through those large exploration endowment that we have and a large exploration footprint both in the Kalahari and Iberian Pyrite Belts.
We essentially have earmarked somewhere in the order of 6 million ounces of contained copper-equivalent metal in either resources or Tier-3 inventory that sits within all of the large ground holdings that we have in our various projects. And this is a dramatic change from where we may have been from two years ago, where we were effectively moving towards having very little in the way of resources in our metal inventory and now we are sitting on that pipeline of inventory, so we are really looking forward to then extracting value from that as we transition through our business at the moment.
Flicking into the headline financial results and a lot of this information is pre-released earlier on in the quarterly, but just important to highlight record revenue for the last financial year US$922 million and all these numbers are in U.S. dollars. A very strong group EBITDA margin of almost $450 million and a pleasing second largest profit after tax we have ever recorded of US$111 million. So very pleasing financial results for the year that we’ve just had and the ups and downs and the vagaries of durations in those markets and commodity markets towards the end of that financial year as well. Strong cash position at the end of the year at US$463 million from those very strong cash flow generation through the course of this year and net debt at the end of June 30 of about $320 million.
I would just like to highlight, Matt Fitzgerald would give further detail, but prudently the company believes it’s – as we are going through this large transition of our business and transitioning of our balance sheet of the back of major transaction with MATSA of about US$1.9 billion and the large expansion of Motheo from 3.2 also now up to 5.2 million tons per annum and that – expanded global capital expenditure of about US$400 million prudent to put a pause on dividend. Matt will give you a little bit more detail regarding that.
Look at the financial operating highlights for the last 12 months, we produced order of magnitude of about a 115 kilo tons of copper equivalent between copper and zinc at an all-in C1 cost of US$1.27/lb of payable copper. When we look at the combination of what MATSA will do, that’s 4.7 million ton throughput and ultimately Motheo at 5.2 million tons as we head into the mid financial 24-year will be operating at a combined throughput rate of some 10 million tons per annum and we will be targeting production rate of about 150,000 kilo tons of copper equivalent predominantly made up of copper and also significant quantities of zinc as well.
As I said during the course of this year, we completed the MATSA acquisition for about $1.9 billion. We have done – that’s transformation for our business is probably the single most important thing that’s occurred to this business since the discovery of DeGrussa that is integrating and we are well and truly seeing the benefits of optimization improvements as we work through and getting out our feet on the table with MATSA.
What I would like to highlight today though is the Motheo Copper Mine development and its progress and its expansion. We’ve done lots of work, it’s advancing extraordinarily well and production will be looking to ramp up in the June quarter of financial 2023 and what was approved by the Board yesterday was the formal expansion to 5.2 million tons per annum. The feasibility study has been received. The Board has approved that expansion and credit funding appropriate for that expansion is in place and Matt will also – the CFO will also give you some further detail on that.
We also continue and Richard Holmes today will give you a glimpse into the wonderful opportunities that we see in the Kalahari Copper Belt and he will talk to about our expanded exploration activity there. So we are building these operations for the future and so we would expect many decades to come. If I just quickly turn for a bit of completeness housekeeping, the MATSA acquisition which was completed, it really is just for complete presentation that the [indiscernible] of funding that was used for that transaction, the financing facility and some hedging that we put in place for that.
Quickly turning to group production for the year, just really to highlight that we had a very strong finish for the year, it was a very strong year. We achieved our guidance from MATSA of around 3,000 tons of copper equivalent for the year and DeGrussa was at the top-end of its guidance. So very strong year with effectively copper equivalent production of 115,000 kilo tons of copper and about 82% of our production for the last financial year in copper metal as future-facing metals.
I look forward to handing over to Matt Fitzgerald now to continue with the detail of this presentation.
Matthew Fitzgerald
Thanks, Karl. We are just presenting here the EBITDA contribution from the different operations and development projects. As you can see on the left, as we released previously, the DeGrussa, a very strong year, above guidance production for copper and delivered an operations EBITDA of just under $400 million, obviously very pleasing. MATSA, in a first five months of our MATSA ownership from February through to June, $150 million of EBITDA, so combined 543 operations, US$1 million EBITDA, as Karl mentioned.
Continuing our progress of Black Butte in terms of permitting and also, drilling, Motheo as well in terms of exploration interest and exploration and project development particularly as we are looking at A4. And then across our exploration drives across our strategy. To remind everyone, we do expense exploration as we go. And also around a third of the exploration and other costs in there relate to MATSA acquisition costs that went through the P&L. So in total, group EBITDA a very pleasing $447 million for the year as previously announced.
Looking at the comparison year-on-year and not surprisingly from $337 million last year to $447 million this year, the majority of the difference comes from the addition of MATSA, so period-on-period got MATSA coming in as I say, from February to June in terms of its financial results, adding $313 million of revenue and associated and then also, of course on the operating cost, employee benefit side and producing as you can see between those two bars relating to MATSA effectively the EBITDA around the EBITDA number.
Also, some movement exploration fairly minor year-on-year, some additional support costs in terms of administration of moving the business to a more global business and a support structure for that. As I said, also in the P&L for this year, some MATSA acquisition costs, which clearly won’t continue into the future P&L. So year-on-year, pleasingly the increase of EBITDA as said largely driven by the acquisition of MATSA and the contribution of MATSA in those first few months of ownership.
Cash flow we’ve also had this for the June quarter, but just to run from left to right to remind everyone $149 million presented here for the cash used for the acquisition of MATSA. As Karl mentioned, some larger numbers in terms equity raisings and debt, but with net them all off for the purpose of highlighting more of the operational side of cash flow.
DeGrussa cash flow from operations just over $400 million around the EBITDA number. MATSA’s contribution from cash $218 is above its EBITDA number and that has some adjustments coming in terms of cash flow in terms of QP alignment during that year, so that will come through into the September quarter. Although we do note a recovery in copper price, so we will see some offsetting of some of those books QP adjustments of last year, probably coming at this stage, coming into the early part of financial 2023. And we’ll see that when we put out our September results and cash movements for the September quarter during October.
Mine development, as we mentioned before $200 million of mine development and CapEx, $131 of that is developing the Motheo project of 3.2 million ton per annum scenario and Jason will talk shortly about the expanded project. MATSA $36 million larger in the mine development side and accessing new mining areas, DeGrussa and Black Butte make up the difference.
Exploration is also very heavily weighted towards Motheo for the period of the exploration spend $19 million was Motheo, and also the $23 million that we have spent on exploration and the valuation activities at DeGrussa over the financial year. And we sold our investment in Adriatic around the time of the MATSA acquisition, which assisted the balance sheet in terms of entering the MATSA transaction. And into income tax, $132 million paid out in terms of cash flow for the year. Probably just worth noting here, you might know from our financial results, there’s a higher effective tax rate of around 44%.
There is a note in the financials note seven, which takes you through the very, very detailed sections. But in a higher level, DeGrussa’s rehab, future rehab obligations on balance sheet see a $9 million charge through income tax expenses that unwinds and a $10 million impact of the non-deductible costs of the MATSA acquisition given its foreign acquisition and for foreign jurisdiction around $10 million of income tax expense related to non-deductible MATSA acquisition costs.
Dividends during the period are pleasing. We did past US$42.4 million dividends, representing the final dividend of 2021, which we paid just prior to the MATSA acquisition and we also paid a $0.03 interim dividend earlier in the year and I will mention, and talk about capital management and dividends shortly on the next slide. And that over time and other parts – in terms of corporate and other parts of the business. Overall, a $32 million increase in cash and at end of the year, $463 million in treasury.
So moving to dividends and noting that Sandfire has a very proud history of dividend payments, particularly from the strong operating cash flows at DeGrussa and what we expect from strong operating cash flows from MATSA and further into Motheo, and would expect to also continue to be a dividend paying company, and that philosophy certainly hasn’t changed. We have decided at this stage though to pause dividend in this transformative year, transformative not only in terms of the business, but also in terms of the balance sheet transition.
As I did note, before we did pay out $42 million of dividends during this year. Really moving at this stage to a capital management focus, we do need to make sure that we appropriately fund and build the 5.2 million ton per annum Motheo Copper Project, as we’ve announced today, very pleasingly to get credit approval on the first part of that funding facility. And we also, of course, through the MATSA acquisition – said there is some debt that was already in MATSA and took on some additional debt in terms of that. So we want to be sure that we are well positioned to make those aggressive debt repayment. I’ll talk about that in the next slide. Our first repayments, I will talk about that again in the next slide.
The back end of DeGrussa, as DeGrussa finishes processing under our guidance around the end of October or early November, we do have around $70 million of balance sheet movement in terms of DeGrussa’s closure and payout of additional [indiscernible] and final working capital positions as well as the payment effectively, almost entirely DeGrussa-related for the financial 2022 year at the backend of this calendar year. So all of the DeGrussa was – the next six months will see us pay out around $70 million of DeGrussa closure.
Also that corporate facility has been now also related to the MATSA acquisition to $138 million or AU$200 million and we have that cash sitting aside ready for the end of September bullet repayment. Really an objective in terms of the next sort of six to 12 months is that capital position to support our ore reserve growth particularly around MATSA, our exploration pushes around MATSA and Motheo and our capital development programs, and also working to build – make sure we build an appropriate working capital position in the business after debt repayments to make sure that we are able to do all of the things that we are looking to do in terms of our strategy. So as I said, pausing dividends for now, but obviously hope to bring them back in the not too distant future.
Looking at debt facilities and hedging now, as we know, 650 facility at MATSA is related to the acquisition, we have those repayments due during the year. Our corporate facilities, I’ve mentioned. Our current repayment profile has us returning around 43% of our debt balance to repaying those during the financial 2023 year. So clearly, leveraged up for the MATSA acquisition, which we are very pleased with and this is a time of balance sheet transition and consolidation.
Motheo facility supporting the initial T3 3.2 million ton per annum base case and we are very pleased to say today, we have credit approval from the banks for $140 million facility that’s out of what we’re scoping around a combined $180 million to $200 million facilities support, what is the larger operation of 5.2 million tons at Motheo producing up to 55,000 tons per annum of copper. So say scoping $180 million to $200 million and as the initial stages is the credit approval received and pleasingly received and Board approved in terms of the $140 million facility, which would be a seven-year facility at this stage. And we are very close to finalizing the documentation and then signing those documents hopefully in the next few weeks.
A hedge book is again, protecting our cash flow to a certain extent, as we saw towards the end of the financial year, we saw copper and zinc have both come down, zinc has recovered very strongly and copper has also commenced its recovery. The last, when we put out the quarterly, I think our copper hedging for the next financial year is around 25% above spot. It currently sits about 15% above spot. So that relates to the recovery in copper and recent recoveries in copper prices and we also have that copper price protection in terms of cash flows and debt repayments and working capital into the future exactly as designed.
Jason Grace
Now moving on to the development of the Motheo Copper Mine in Botswana. Firstly, as a quick update on the development of the 3.2 million ton per annum project. Construction continues to proceed on schedule with first production expected in the June quarter of 2023. Construction activities are now around their peak levels with over 1,700 personnel currently on site, over 9,200 cubic meters of structural concrete has been poured and a total of 950 tons of structural steel has been erected to date.
In addition to this, Sandfire has now achieved another important milestone in the company’s plans to establish a major new long-term copper mining hub in the Kalahari Copper Belt. This is through the completion of the definitive feasibility study for the 5.2 million ton per annum Motheo expansion project. This project includes the development of the A4 Open Pit mine and delivers outstanding project economics, including a pretax NPV of US$548 million and an IRR of 29%.
Finally, Sandfire is also very pleased to announce that Motheo funding has also taken a major step forward. The selection of the syndicate of international banks now completed and credit committee approvals received for a US$140 million project debt facility. If we now look in more detail at the 5.2 million ton per annum definitive feasibility study, completion of this work has confirmed a very strong business case for the development of the A4 deposit as part of an expanded 5.2 million ton per annum Motheo production hub. And this is underpinned by a combined ore reserve for both the A4 deposit and the T3 deposit of 49.6 million tons at 1% copper and 14 grams per ton silver for close to 500,000 tons of contained copper and over 21 million ounces of contained silver.
As mentioned before, the project delivers very robust economics over a 10-year mine life, which is scheduled to produce a total of 440,000 tons of copper and 18.4 million ounces of silver and an average all-in sustaining costs of US$1.79 per pound. Total development capital for the expansion project is estimated to be $397 million and this includes development costs for the A4 Open Pit and 5.2 million tons per annum plant expansion of $47.9 million.
Subject to contract award timing, site construction activities for the process plant expansion are scheduled to commence in the March quarter of financial year 2023 and increased plant throughput at a 5.2 million ton per annum rate expected to commence in the March quarter of financial year 2024.
As part of the definitive feasibility study, the life-of-mine plans for both the T3 Open Pit and the A4 Open Pit have been integrated and optimized for a combined ore production rate of 5.2 million ton per annum. This yields a peak annual copper production of approximately 55,000 tons and maintains around a 50,000 tons per annum production rate over a six-year period.
Subject to the approval of the Environmental and Social Impact Assessment and granting of the mining license for A4 by the Botswana government, pre-strip mining at A4 is anticipated to commence by the March quarter of financial year 2024. Formal submission of the Environmental and Social Impact Assessment to the Department of Environmental Affairs in Botswana is planned for the December quarter of financial year 2023, with final approval anticipated by the middle of next year.
Looking now at key definitive feasibility outcomes. As mentioned before, the project’s economics are definitely very robust and makes a major difference to the overall project and these are withstood the significant increases currently seen in input pricing for mining costs, diesel supply, reagents, grinding media and labor. If some of these numbers have been covered before, I won’t go through all of them as shown on the slide, but I will touch on the estimated operating costs with the C1 cash costs over the life-of-mine and on a payable copper basis, is estimated to be approximately US$1.47 per pound of copper. And this includes $0.84 per pound in mining costs, $0.56 per pound in processing inclusive of power and site administration, offsite logistics costs of $0.23 per pound, $0.19 per pound in treatment and refining charges, and a silver by-product credit of $0.35 per pound of copper.
If we now look at the expanded mine layout, in completing the DFS, Sandfire has been able to leverage of the work currently underway for the development and construction of the 3.2 million ton per annum project as well as the prior work completed on the 3.2 ton per annum feasibility study.
Mine facilities for the expanded project includes surface mining operations at the A4 Deposit, expansion of the processing plant and supporting infrastructure. New infrastructure for A4 includes a light vehicle access road linking the Open Pit mine to the already constructed access road for the Motheo site, a dual lane heavy vehicle haul road to be constructed directly from A4 to the Motheo Processing Plant, workshops, fuel facilities, crib and office facilities along with electrical and water supplies.
The recently completed Motheo mining accommodation facility requires no expansion as provision for additional personnel numbers where incorporated in the scope of the original Motheo project. Planning is also well advanced for a 22 megawatt solar power facility and battery energy storage system. The solar plant will be located next to the processing plant, with the potential to supply up to 34% of the project’s future energy needs and will reduce carbon emissions by 475,000 tons over the life-of-mine. The capital for the solar plant is currently not included in the life-of-mine capital as firm pricing submissions are currently being sought.
If we now drill down on the processing plant area, as you can see the expansion to 5.2 million ton per annum will be a very simple process with the addition of a 4.5 megawatt Ball Mill being the only major piece of infrastructure required. The reason for this simplicity and overall efficiency is due to Sandfire’s discovery and drill out of the A4 Deposit during the period when the original Motheo definitive feasibility study was being completed. This allowed us to design processing plant exactly for this outcome, which was to be readily scalable to 5.2 million tons per annum.
And finally, looking at construction and development capital. The total development capital for Motheo is now estimated at US$397.4 million. This includes $47.9 million for the future development of the A4 Open Pit and the 5.2 million ton per annum plant expansion and also includes the $29.5 million increase in capital cost forecast for the 3.2 million ton per annum project as disclosed in the company’s June 2022 quarterly report. Please note as shown on the slide, that the $71.9 million includes $24 million of pre-approved capital. Life-of-mine capital is estimated at US$499 million. And as at the 31 of July, 2022, the company had invested $185.4 million of the total $397.4 million of the development capital.
Richard Holmes
And now moving on to the Motheo exploration. Let’s talk a little bit about our dominant position in an emerging belt. The Kalahari Copper Belt probably one of the most underappreciated belts around the globe and putting that into context that the known endowment of this belt already is 9 million tons of contained copper, and that sits in around 20 deposits. The reason why we like this belt is the average grade of those deposits is around 1.4% copper.
And if you look around the globe in operating mines, the average grade around the world at the moment is around 0.5% copper. If you look at the pipeline [indiscernible] coming on again is around 0.4% to 0.5% copper. So we think we’ve got an amazing opportunity in this belt to bring on high grade deposits into the Motheo exploration portfolio. Motheo itself is the little exploration of around 15 years, so just over 600 holes drilled.
If you look at our landholding sitting around at 26,000 square kilometers, equates to one hole every 40 square kilometers. So we think we’ve got a real opportunity here to build out our large regional dataset, build our targeting models to really push forward exploration and bring on those new discoveries.
So big focus going forward for the year will be A1, so A1 is a prospect that sits around 19 kilometers from Motheo is the growth lines, a significant amount of work has been undertaken here already. We’ve done a fair amount of drilling and some IP and GM. We’ve identified a prospect that’s got about nine kilometers of strike. Previous operators, more resources discovered significant width of copper mineralization at the NPF contact, so relatively deep. We have a slightly different approach and different geological model. And our challenge now is to locate high-grade economic mineralization near surface in the D’Kar formation. So we are working hard on that at the moment.
So the exploration going forward for the year for the Kalahari Copper Belt will be around US$13 million and a significant portion of that will be aimed at A1 in helping build out mineral inventory to support the Motheo Processing Plant.
Karl Simich
Thanks, Matt, Jason and Richard. And just really to wrap up, thanks everyone for attending today. We are very pleased with the very strong financial results for the last financial year, June 2022. We are delighted to be announcing today, the expansion, the Board approval and funding appropriately for the Motheo facilities to 5.2 million tons as we continue to transform our business and work towards that global vision of having those global capabilities as we build a diversified international sustainable mining company.
Look forward to your questions and we’ll open the floor now to that. Thanks very much for your time.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] The first question today comes from Rahul Anand from Morgan Stanley. Please go ahead.
Rahul Anand
Hi, Karl, Matt and Jason. Look, two questions for me. First one is around dividends. Obviously, you’ve chosen to suspend them today and you’ve talked about how you can reinstate them going forward. So I wanted to get a bit of a framework perhaps. How are you viewing your target net debts? I mean on my numbers, you are basically sitting at 1x to 1.5x net debt-to-EBITDA next year 20% to 25% gearing. What kind of level do you want to get that down to before you can recommence dividend? That’s the first one. And I will come back with the second.
Karl Simich
Thanks, Rahul. Karl here. I think Rahul, just at the moment, what we need to do is going – as we go through this transformation is deal with what we have in front of ourselves. Clearly, the acquisition of MATSA was a transformational transaction and we put the balance sheet to work. And at the same time, we are working towards that expansion to Motheo, which is in the best economic interest of all shareholders to do that and to accelerate that expansion. So I think with that, we don’t have – we have not set a target ratio at this point in time Rahul. We will work through I suppose through the financial 2023 year to attend to those debt structure and repayments as they’re currently anticipated and build that up. And I think when we see things roll out, then we’ll start to put together target numbers and target ratios. But I think as we go through this period of significant transformation and change, we just need to work through that. So we don’t have target numbers in front of us at the moment for those numbers.
Rahul Anand
Sure. Okay. No worries. And then Karl, look a good result in terms of that expansion study at T3. I perhaps wanted to touch upon potential to extend life. I mean, there’s an additional five years sitting in the resource as opposed to the reserves. If some of the drilling work that you mentioned just towards the end of that presentation, is that targeted towards life extension? Or is this, I mean, infield or is that more exploratory drilling to basically expand the resource base? I just wanted to get an understanding when we can start giving you a bit more credit in terms of the life of the asset beyond sort of the 10 years that we currently have?
Karl Simich
I will pass it to Jason. One second, other than to say, I think some of the highlighted points that Richard made is that we have 26,000 square kilometers of tenure in the Kalahari Copper Belt and to just to rehighlight again, just the endowment that is there at a very under explored province. So I think, that is a very, very long journey here and we’re at the very early stages. Over to you, Jason.
Jason Grace
Yes. Rahul, look, there’s a number of things that are happening at the moment. We believe there’s still some more tons to be add or reserves to be add at A4. So we have factored into our budget this year and for next year as well, resource extension drilling that may or may not extend the A4 Open Pit. But all indications are at the moment that that is highly perspective and there’s a good likelihood. And particularly, I’ll hand over to Richard, but the work being done around A1 and up at T1, T2 and in particular that area that we’ve called in the past, the Motheo project area is particularly exciting and I think highly perspective.
Richard Holmes
Thanks. So yes, Rahul, – talked about is greenfield exploration is obviously focused on A1, A2, which are easily been [indiscernible] the Motheo processing plant.
Rahul Anand
Okay. Final question for me then around MATSA and solar. Obviously gas prices, energy price is very volatile at the moment and perhaps improving economics for additional solar, I guess, by the hour, rather than by the day. How are you viewing that opportunity? What is the update there? Is there a change in scope? Can we make that bigger? I just wanted to sort of get an idea of how we are thinking about energy costs that the asset going forward? Thanks.
David Wilson
Rahul, thanks. Dave Wilson here. Look, we have plans at MATSA and solar [indiscernible] we have an initial 20 megawatt facility which there’s a – agreement, that one is expandable to 40 megawatt, which we’re looking at over there. So that project is the most advanced and that one we based at the – for Tier-1, Southern part of the MATSA operations. We’re also the team over there working through an additional 20 megawatt facility at [indiscernible] concentrator. That one is a little bit early stage. So all-in-all, we got 40 megawatt capacity in the pipeline. And just to put that, I guess, as a reference point now, a big demand where some of it around 37 and 39 megawatt. So that would [indiscernible] obviously they are generating 100%, beyond that we need to look at the storage and other things which is [indiscernible].
Rahul Anand
Okay. That’s helpful. And how should we think about timing of these coming online?
David Wilson
The first one were timing to be towards the end of quarter three of FY2023, [the latest state] and the other one, we’re still working through to get a firm date…
Rahul Anand
Perfect. That’s all for me. Thank you. Thank you all.
Karl Simich
Thank you.
Operator
Thank you. The next question comes from David Radclyffe from Global Mining Research. Please go ahead.
David Radclyffe
Hi. Good morning, Karl and team. My question just comes really to the balance sheet and as you put the aggressive debt repayment profile this year, just trying to understand why you really chose not to restructure the maturity profile to better suit the needs of the business given that it seems to costing a token dividend here. And then in the absence of sort of debt targets as you were asked before, how should we think about – what you are thinking here, are we being just conservative? Or we see other opportunities you want to present the position of the balance sheet…
Karl Simich
David, Karl here. Look, just very quickly, I think, initially when we look at the transaction of MATSA, which has then ended up with the structure that we’ve got. If we just go back one step, MATSA transaction with the order of magnitude is about US$1.9 billion. Clearly, transformational for us in terms of scale and what we believe it will ultimately deliver over a – put a hand on heart and a say in just a 20 to 30-year mine life, lots of exploration potential and significant footprint in the Iberian Pyrite Belt. And if we sort go through the bouncing ball, we maximize the quantity of debt equity that we could raise on a one-for-one equity raising with ASX approved waiver for a 30% placement. So there was not one more share we could issue. We inherited the – with the blessing of the previous windows, the debt facility that was within the project of MATSA itself and so that just got rolled over.
And then we looked at what our cash requirements were from our expanded large treasury or just our normal business requirements for the Motheo expansion. At the time, we also had a sense that there might be requirements for further expansion recapital for Botswana, so we had that factored into our modeling. And therefore, there was a quantum that we could – we were happy to release out of our treasury. And then the balance was extra debt that we wanted to secure. That debt had to be secured above the MATSA asset in a holding company. And that was a balance of debt to take the gross net debt up to $650 million. So it was really out of necessity as to be able to complete the transaction at the time extraordinarily quickly with effectively limited options available to achieve it without going to information being leaked to the market or any of that sort of other stuff. So we sort of got what we got.
And things what we grew down also in a corporate facility with the ANZ bank for couple of hundred million Aussie, and that was all to complete the transaction. It was what it was, and it would enable us to be competitive and complete that transaction. So we didn’t sit here and luxuriate around going around in circles about what amortization looked perfect for the project, that will all occur over a period of time as we’re going through balance sheet. So I think we need to go through this period of time. It’ll be the next, six, nine, 12 months.
As Matt said earlier, we are on 43% of the current debt profile is repayable within this current financial year, which is not normal, smooth amortization of debt facilities, but it is what is required to get the job done back on settlement of 1 of February of this year. So it is what it is, and that’s what we are dealing with. There’s no problems, we knew about it and we’re catering for it, and the business is set up to deal with that and complete all the other strategic imperatives that we have got without compromising this strategy that we have got on table.
What will occur through the course, I have no doubt of this year and as we get time to integrate all these things into our business and complete the Motheo construction and ramp it up is that we’ll start to then be able to modify and work within having targeted ratios, and all the rest of it. So it really is as a matter of necessity to get something done that we’re in this position. And as we see things roll out, we will start to be able to look at how we want to miss out, where we want working capital to be what our dividend, our philosophies is going to be, what our target debt ratios are going to be. That is not something that we need to focus on because we’ve got far more important things right here right now to focus on, which is, the completion with integration, which is going well with MATSA, fantastic expansion optimization, and for the completion of construction and expansion of Motheo.
Absolutely, it’s on schedule, on budget, when I say on budget time-wise, there’s been a little bit of an uplifting cost, which is relatively insignificant comparable to what’s happening in the rest of the industry and we’ve had a 10% uplift. And during this period of supply chain disruption part of it, it is relatively low that we’ve had to find that from our treasury to fund that clearly. But importantly, for that asset to optimize that business unit is to accelerate that development into double – two, three and four as quickly as possible because the returns are significantly greater than that otherwise would be and at the same time, not to prejudice our organic growth development at MATSA, but also exploration of Botswana.
So there are number of moving parts at the moment. And I think at an appropriate time, it won’t be too far away down in the future. We will be able to get back to those more mainstream things of ratios and what’s your sense of that after we’ve gone over the transitional hump. So it doesn’t pinpoint and answer your question. It gives you a sense of what is going on. And the importance of being – we’re focused at the task at the hand at the moment, doing exactly what we said we’re going do and dealing with – and achieving our targets and milestones and delivering back on the requirements of our syndicates and hit ratios and repayments and all those other things.
And then going back to the dividend, just prudent not to go and say, well, we’re doing that when we’re in the middle of doing extraordinary transitional transaction, 3x the size of the company and doing a large development that’s expanding as we’re going along, which is all on track. So it’s just sensible Board management being sensible and prudent for where our business is today. This is general sense of where we are as an organization.
David Radclyffe
Okay. Great. Thanks. I’ll pass it on.
Karl Simich
Thanks.
Operator
Thank you. The next question comes from Matt Greene from Credit Suisse. Please go ahead.
Matthew Greene
Hi. Good morning, Karl and team. I just had some questions on the Motheo study. Just to start with on the economics. The NPV, the reference date to that – for the PFS versus the feasibility study are using the same reference date to that?
Karl Simich
I mean, is the feasibility study.
Matthew Greene
The feasibility study NPV as of today, whereas the PFS is as of 12 months to that.
Karl Simich
The PFS and the feasibility pretty much the same date. They are the same date.
Matthew Greene
Okay. So that’s September last year. I take it. I’m just trying to bridge the gap between what’s driving that $0.20 drop in NPV. We know the CapEx has stepped up a bit and you’ve mentioned some of the cost pressures, but I’m just trying to get a sense as to how much of those costs because it does seem like the profile at T3 has changed a fair bit. I think the PFS [indiscernible] copper production profile 2027, 2028 you’re reaching 60,000 tons a year, but now it seems like you’re peaking up at 50. So if you just perhaps talk about what’s changed on the profile. The growth doesn’t seem to change great deal. So is this more about managing the strip?
Karl Simich
No. That’s absolutely correct. So if you look at it, our ore reserve hasn’t changed at all from basically pre-feasibility through to feasibility study on that. So that’s for both A4 and also the updates that we’ve used on T3. One thing, I’m not sure if you’ve seen the ASX word release or the broader report, it does do a reconciliation there about changes or key changes and assumptions between the pre-feasibility study and the feasibility study. So that hopefully might give you some more insights in there as well. But if you look at metal production in particular, what we have done is integrate the two mine plants and we’ve also optimized those mine plants for actually that blending configuration and also our open pit mining schedule.
Now, the only thing that has shown some metal around in terms of changing of timing, we actually changed our staging designs in the A4 Open Pit between the, prefease and the final feasibility study. The prefease actually used a three stage pit on A4. But when we looked at that in more detail from a mining efficiency and a cost point of view, it was actually a more efficient to actually change that back to a two stage open pit.
Matthew Greene
Okay. Thanks. And the T3 staging hasn’t changed.
Karl Simich
No, it hasn’t.
Matthew Greene
That’s great. Thanks for the color there. And Matt, just on the project finance facility 140, you said its first part, hoping to get it up to 180 to 200. If you can increase this, when do you expect the balance of that facility to flow through?
Matthew Fitzgerald
Yes. Matt, we’re targeting probably somewhere around the middle of calendar year next year. So the process now will be – the banks clearly are aware of A4. I mean they also have in head of 5.2 million ton per annum project as a full project given now the completion of the DFS and approval of the DFS. The funding banks will have a look at that combined model. As Jason mentioned, it does reschedule and does optimize T3 and A4 together. So there will be an impact on their models as well of that. So I’d expect that probably something like a six to nine-month process in terms of engineering, experts and those sort of things to run over the combined model. But as I say, Sandfire and those banks can safely say, have a 5.2 million ton per annum project ultimately in their mind.
Matthew Greene
Okay. Thanks. That’s helpful. And I heard you mentioned it’s a seven-year term. Sorry, if I missed this. But when do the repayments commenced? And is this a pretty flat amortization schedule?
Matthew Fitzgerald
Yes. Seven year-term, we’re currently sculpting the repayments under the model and the final debt facility documentation. So that’ll come out I’m guessing at this stage during September. We’ll have a bit more detail, but that’s not exactly final yet, they’ll be sculpted based on the final agreement. At this stage, debt repayments would start towards the backend of calendar 2023.
Matthew Greene
Understood. Thanks. And just lastly, Karl. I forgot, maybe correct me, you said you inherited the $650 million facility at MATSA.
Karl Simich
The MATSA facility, when we completed the acquisition, there was an initial facility within MATSA of US$313 million. So we effectively rolled that over. And in addition to that, we secured a further facility for MATSA above the project level at the holding company above. So our holding company into – of $337 million, and the two of them collectively what we call the MATSA facility or the project facility for US$650 million. So really the MATSA facility in your hedge, it’s almost – we inherited the project for debt facility related to MATSA and we’ve got an additional acquisition facility, if you want to sort of think about it in two parts of $337 million, which was to assist us in making the acquisition of MATSA together with the ANZ facility for AU$200 million or US$140 million as well as money out of our treasury, as well as the funding from the equity raising that we did at the time.
Matthew Greene
Yes. Thanks for clarifying, Karl. That’s all for me. Thanks very much.
Operator
Thank you. The next question comes from Kaan Peker from Royal Bank of Canada. Please go ahead.
Kaan Peker
Hi. Good morning, Karl and team. Thanks for taking the questions. Just wanted to clarify one thing, second line income across [indiscernible] of expenditure at DeGrussa on rehabilitation and sort of safety issues also in cashing and the timing around that?
Karl Simich
Kaan, I think you are referring to the $70 million on Slide 12, we talk about capital management. Is that right?
Kaan Peker
Just earlier on the call, I think you are mentioning $70 million expenditure.
Karl Simich
Yes. So really $70 million in terms of cash flow more than sort of expenditure side. So certainly some cost in terms of closure. We do have our attention still at the DeGrussa to make sure that our employees are well incentivized to remain and continue to perform strongly to the end of the current mine life. But most of that $70 million is in cash flow rather than in P&L and relates to the final clearance of creditors. So the start of operation, you start in that working capital position where creditors are 30, 60 days later. At the backend, we do have some catch up to do in terms of the last month or the month after in terms of clearing creditors balance. There’s also the set of tax plan that is in the balance sheet as a provision already sort of the expense financial year 2022 tax plan. So majority of that $70 million that I talked about is really a cash movement and most of that will hit during the September and December quarters of this current financial year.
Kaan Peker
Thank you. Very clear. Just also on the debt facilities and specifically the project financing, the credit. Are there specific causes that impact Sandfire’s ability to pay dividend? Or is that – is it self imposed?
Karl Simich
The Motheo facility you are talking about?
Kaan Peker
Either or I mean both them. Is there anything specifically in the closure in the debt that impacts…
Karl Simich
So neither of them has any restriction on the corporate entity paying dividends, but the MATSA facility does have a restriction in terms of it needs to – the MATSA debt facility needs to make its initial debt repayments before it is able to send. MATSA is able to send dividends within the group. So is that answers your question. There is restrictions on the ability to move cash, but there is no ultimate restrictions on the paying dividends.
Kaan Peker
Sure. Make sense. Thank you. And just also with the CapEx increase, I think most of it has come from the 3.2 million ton base case. Can you please – I think you mentioned that only – that 72 million only includes processing capacity. Is there any other – it seems very low in terms of capital intensity for balance extensions. Is there any other CapEx, like mine pre-strip that isn’t included in that growth CapEx, but maybe included in other CapEx components?
Karl Simich
No. Short answer on that one, no, there’s not. It’s all included. I think Kaan, if you recall, when we did the 3.2 million ton process facility, it had a certain amount of CapEx and there was a pre-approved additional amount for pre-work for A4 work, et cetera, et cetera. And if you have a look at the CapEx, then subsequently what happened in the June quarterly, we announced the quarterly results, but then also the CapEx adjustment fundamentally relating to T3. And there was that lift in that CapEx, which was about 10% or 12%, I think, thereabouts. But given the extent of – and most of that related to a lot of energy prices, diesel for the pre-strip for T3 predominantly in that uplift, there are other bits and pieces, but most of the capital componentry for the expanded 5.2 million ton facility other than what was essentially in that T3 expenditure anyway. And I think the balance that sits in there of that $70 million includes then the balance of all of those cost relating to get. And Jason, I think you confirming pre-strip of A4 as well. There’s nothing else that’s – there’s nothing missing.
Kaan Peker
Sure. Okay. Thank you. And just finally, the ESIA, I think was mentioned that now in 2Q, I think previously indications that we submitted in 1Q, essentially a 12-month process. But I think now guidance is for June for the approval process to be achieved June quarter FY2023. That would suggest six to nine months turnaround, how confident are you with that timeframe?
Jason Grace
Yes. Look, we’re very confident. Obviously it is out of our control once we submit the ESIA documents. But what we have seen from the Botswana government is very strong support for the project. And at all levels within government, we’re getting a lot of cooperation and we’re working really well there. So at this point in time, there’s no reason that we would see that that would extend. And even if I touch on the scope of the ESIA, there’s really nothing complex or there’s nothing really controversial associated with the A4 project from an environmental or social point of view, so all indications are really quite good – very good at this stage.
Kaan Peker
Thank you very much. Very helpful. I will pass it on.
Operator
Thank you. The next question comes from Levi Spry from UBS. Please go ahead.
Levi Spry
Hi. Thanks for the call. Two quick questions. One for Matt. Just to confirm the Motheo project facility, you said six to nine months. Was that for the extra 60? What about the first 140? Can you draw that soon probably this quarter or next quarter?
Matthew Fitzgerald
Yes. Levi, my comment was around the uplift to the target – full target 180 to 200. Yes, 140, we expect at this stage to draw between September and March, September 2022 and March 2023.
Levi Spry
Okay, perfect. That’s what I was after. Thank you. And maybe one for Jason. I have to ask about Spanish power prices. So what are they today? What did you use in the guidance? And what percentage of your costs are they at the moment?
Jason Grace
Levi, I’m going to hand over to Dave to answer that one.
David Wilson
Yes. Levi, today they’re sitting about 250 right now, since we spoke, 257 to be exact. I think we said in the quarterly that for the five months of June last year, we averaged 52 megawatt hour and we got it going forward 180 to 280 to 270 I think from my memory. So that’s still in line. And then just probably also to refresh that current contract, which is linked to run through to end of December this calendar year and we’re at [indiscernible] different options going forward, we will probably stick with that. So the plans are going forward, but also look around prices. And your question on percent of total costs, it’s been around 20% to 25%.
Levi Spry
20% to 25%, yes. And any complications from your customer in terms of high power prices impacting their business?
Karl Simich
No, no, nothing.
Levi Spry
All right. Thanks guys. Thank you.
Operator
Thank you. The next question comes from Peter O’Connor from Shaw and Partners. Please go ahead.
Peter O’Connor
Hey, Matt. Just to push back on the dividend comment. Small thing that – its time with incredible granularity, the debt facilities that you had and your knowledge of the cash flows and repayments. So it’s hardly surprised that you’re not paying dividends, but you haven’t flagged it before and thinking through anything that’s really changed the copper price, which I think in April. So the June quarterly just went through my notes into word. You didn’t mention dividends, dividend payments or anything like this. Why did you just land upon us now?
Matthew Fitzgerald
I think, Peter I’ll go first. I think really the philosophy of Sandfire has always been to assess dividend payments at a better point in time. We’ve very deliberately not come out with a mathematical dividend policy that has percentage of revenue, percentage of anything else. We’ve assessed it as we go. We always, I guess, wanted to come through the first period of MATSA ownership. We’re very pleased, as we said about what we’ve been able to achieve at MATSA in terms of throughput rates.
We’ve seen some copper price movement in recent months and recovery in recent times, but really I think it comes back ultimately back to a balance sheet question of saying, what obligations are there, how do we need to build to support our strategy. How do we make sure we make have enough working capital in the business to have higher dividend payments, let’s say into the future. So not something that we, as I say, necessarily message every month or every quarter, it’s really something at a point in time where we look at, the Board looks at and says where are we positioned and how is the next 12 months of transformative growth and balance sheet transition look.
As I said, we have a very proud history of dividend payments. I think we find that through the [indiscernible]. And as MATSA continues to perform and as we get Motheo into cooperation and into positive cash flow, then, I personally have been out and we’ll return to repayments, but I think it’ll just be a transitional year first, and that’s how the company looks at.
Peter O’Connor
It feels like Matt it always been a transitional year and again, the detail you’ve given reflects that. So the only thing that changes the copper price, I’m just surprised that your lack of – I’ll move on. So just to be quick on that effective tax rate, you talked about the MATSA non-deductible, is that one-off or should we expect non-deductibles going forwards if so at what level and what would the effective tax rate be?
Matthew Fitzgerald
Yes. One-off sort of high rate, I think I said 44%, the high rate non-deductibles. And the rate had the details on one in terms of – one-off. I would expect we still have an effective tax rate of probably 35%. There is some detail when you have a minor [indiscernible] detail out that the actual differences between 30% tax rate and the tax rate and the financials, but yes, as I said, largely, one-offs in terms of the acquisition costs and also the DeGrussa impacts. But we shouldn’t – we also are conscious that we have international operations after October, November of this year and partly international operations. There will be some non-deductibles…
Peter O’Connor
Just leave that back to the dividend. So franking is that what balance do you have remaining and will it be paid out – going forward zero franking balance or zero franking credit from dividend?
Matthew Fitzgerald
Certainly, no. We have a very health franking credit. I do not have in front of me. I will come back to you with it. But now that remains on foot as well, and it’s very, very healthy, given the profitability of DeGrussa over the last eight or nine years. And then we had over that time probably [indiscernible] very, very healthy franking credit. I will come back to you with all that numbers.
Karl Simich
And Peter, it’s Karl, to just your question on dividend, and whilst I heard you trail off – of I’ll get on with things. I think just to recognize and Matt made the comment, but essentially we sit down and we talk about dividends and we discuss them as a Board. When we look at our half year results and we look at our full-year results, we don’t sit – and we consider all the things that are in front of us. I think it would be fair to say, if you looked at the history of this organization and what we have done, and if you looked at the last 12 months and what has occurred and what is occurring, I think it would be fair to say that I’m balanced, a lot has changed in a relatively short period of time. If you can’t see that, I would be very, very surprised.
So prudently the Board has decided given all of the moving parts and bits and pieces, also I’m sure there could be a modest amount of dividend that would paid, the Board decided in being prudent. And I see it’s a word that has been used occasionally recently, but it didn’t make sense to pay dividend and so it resolved not to pay dividend. So I wouldn’t get too hung up about it. And your comment about, well learning itself didn’t – we know everything. And so because we know it, we think it’s important to be prudent and to ensure that as we go through transition, we transition well. And I think the shareholders will appreciate that. And I recognize that. So I don’t think there’s any surprises and I don’t think need to be talking about things before they need to be talked about. Just make sense to make.
Peter O’Connor
Thanks for the clarity.
Karl Simich
Chat longer – chat if you want.
Peter O’Connor
Okay. Matt, long-term corporate, you talked about the step up in [indiscernible] during the year of MATSA, how do we expect those numbers to play going forward or the corporate charge be now global business?
Karl Simich
Yes. About $30 million a year, we’re predicting.
Peter O’Connor
And any more color you can give us on the QP, we should see drop in September quarter, how that look to quantum et cetera?
Karl Simich
I will say that for the quarter, I just want to say how the copper price moves and how they readjust, so modeling those at the moment. My comment was really saying towards the backend of the year, we sort of QP adjustment down, copper has recovered not back to the same level clearly as we able to know, but that bounces back, we will also have an impact on QP. I would rather do as we do the quarterly.
Peter O’Connor
Okay. Thanks, Karl. Thanks, Matt.
Operator
Thank you. At this time, we’re showing no further questions. I’ll hand the conference back to Karl for any closing remarks.
Karl Simich
Thank you, everyone, for listening today to our financial – 2022 financial results and the announcement of the Motheo Expansion Project to 5.2 million tons, and we’re very pleased with the results for the last financial year, and we are particularly pleased with the continuation of the execution of the transformational strategy, which is on track. So once again, thanks very much for listening. We look forward to updating you at the next public release, which will likely be our next quarterly report. I wish you all a very pleasant day. Thank you.
Operator
Thank you. That does conclude our conference. Thank you for participating. You may now disconnect.
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