Copper price drags down Sandfire profit in otherwise strong financial year

JOHANNESBURG (miningweekly.com) – Despite posting lower profit owing to weaker copper prices, the owner of the DeGrussa copper and gold mine, Sandfire Resources, is satisfied with its performance and upbeat about its prospects as the company turns net-debt free.

The ASX-listed copper and gold miner had delivered its best operating full-year performance since DeGrussa, in Western Australia, started commercial operations four years ago, MD Karl Simich reported on Tuesday.

“Among many highlights for the year, we shipped our one-millionth tonne of copper concentrate and passed $2-billion in product sales, and from a zero start four years ago – a tremendous result,” he said in a statement, announcing the firm’s results for the 2016 financial year ended June 30.

Sandfire made profit of A$48-million in the 12 months to June 30, compared with a net profit of A$69-million for the previous corresponding period, mainly reflecting the lower copper price, which averaged $4 892/t for the year under review, compared with $6 379/t in the previous year.

The mining company’s 2016 performance was underpinned by record copper production, low operating costs and continued strong cash-flow generation. Sandfire reported revenue of A$497.2-million, compared with A$548.6-million in 2015, from metal sales totalling 68 653 t of contained copper and 36 042 oz of contained gold. The company sold 67 903 t of contained copper and 37 194 oz of contained gold in 2015.

The continued strong cash-flow generation of the DeGrussa mine, notwithstanding the lower copper price environment, enabled Sandfire to fully repay its amortising facility with its financier, ANZ Banking, ahead of schedule, with a A$20-million repayment at the end of the June 2016 quarter. This repayment reduced the company’s total outstanding debt to A$50-million as at June 30.

With A$66-million in group cash holdings, Sandfire was in a net cash positive position at financial year-end. The miner has now repaid a total of A$330-million against the original A$380-million project finance facility drawn to fund the construction and development of the DeGrussa mine.

“During the 2016 financial year, we were able to accelerate our debt reduction programme – with the early repayment of the amortising facility putting us in a cash positive position for the first time in over five years – while also continuing to allocate cash in a balanced and considered manner across the other key areas of our business,” Simich said.

“This included ongoing mine capital development, which has seen all four VMS lenses at DeGrussa now on stream, a continued aggressive exploration and organic growth programme and, of course, shareholder returns in the form of dividends.”

Sandfire declared a final fully-franked dividend of 9c a share, which, combined with the interim dividend, takes the full-year payout to 11c a share.

Meanwhile, Simich said the discovery of the new high-grade Monty discovery was one of the key highlights of the year. “We are continuing to work closely with our joint venture partner, Talisman Mining, to advance this high-quality project towards development as rapidly as possible with a feasibility study and mining lease application process under way.

“We have also continued to invest heavily in exploration, and we remain very enthusiastic about the opportunities currently in front of us. The Monty discovery has provided valuable insights to our geological team, and we are making the most of this pivotal breakthrough – which confirms that DeGrussa is an emerging VMS province which is still in the early stages of its discovery history.

“We have major exploration programmes either currently under way or planned along the Monty corridor, at Homer, at the Homestead prospect, at the emerging Conductor 5 East area and elsewhere within our tenement holding,” he said.

Sandfire expects its production to be in the range of 65 000 t to 68 000 t of copper and 35 000 oz to 40 000 oz of gold for the next financial year at a C1 cash cost of $0.95/lb to $1.05/lb. With underground development now tailing off progressively at DeGrussa over the next two years, the company expects to see growing free cash-flows being generated.

“This will put us in a position of growing strength and flexibility, with the optionality to either eliminate our debt completely and deploy more cash to shareholder returns or, should an attractive growth opportunity present itself, move quickly to take advantage of it. We also have a number of high-quality organic growth opportunities in front of us, such as Monty, and we intend to bring these to account as soon as we possibly can,” Simich said.