Disclosure: I hold SFR. Things are humming at DeGrussa (copper & gold). It looks like they are going to beat their own guidance once again - particularly in terms of coming in with lower costs than previous guidance had suggested. Also, their Tshukudu Project (Botswana) drilling results continue to be very positive for both copper and silver.
17-Apr-2020: Sandfire March 2020 Quarterly Report
Disclosure: I hold SFR shares. They are my preferred copper exposure. When the outlook for global growth improves, copper will lead the way. They don't call it Doctor Copper for nothing. Copper prices are very often a good proxy for the health of the global economy, or the market's view of the near-to-mid-term health of the global economy. In other words, the copper price is often a leading indicator. When sentiment turns positive, copper prices will improve, probably before other base metals like nickel, zinc, tin, alumina/aluminium, lead, etc. The rest will follow. For that reason, I prefer to lock in my copper exposure early, and feel that I can increase my exposure to producers of those other base metals once copper starts to rebound.
03-Feb-2020: Sandfire Investor Presentation - February 2020
Copper and other base metals are being sold down currently on global growth concerns associated with the impacts of the new coronavirus (2019-nCoV) that was first detected in Wuhan City, Hubei Province, China and which continues to expand. This has also obviously been a significant drag on global sharemarkets and has certainly impacted the share prices of miners like SFR.
This new coronavirus outbreak is being compared to SARS, which during 2002 and 2003 infected 8,098 people, with 774 deaths, according to the World Health Organisation (WHO). It means the SARS virus killed roughly one in 10 people who became infected. So far, “2019-nCoV” has resulted in the deaths of just over 2% of those who have been infected, despite spreading more quickly and infecting more people. Most of those that have died as a result of the coronavirus have had underlying health conditions — such as hypertension, diabetes or cardiovascular disease — that weakened their immune systems, according to WHO Director-General Tedros Ghebreyesus.
Coronaviruses are a large family of viruses that usually infect animals but can sometimes evolve and spread to humans. It is thought that the main reason why this new coronavirus has spread more rapidly (from human to human) is that since 2003 Chinese domestic and international travel has increased dramatically. The outbreak began in Wuhan in December, home to 11 million residents. Wuhan is at the centre of China geographically and connected to all major Chinese cities by road and high-speed rail (one of 4 national rail hubs) and is an important engine of the Chinese economy.
Putting aside the human tragedy for a moment, let’s look at the economics. Exact modelling of the impact on the Chinese economy is very difficult, however a two-week shutdown is likely equivalent to >1% of Chinese GDP, a three-week impact is likely equivalent to >2% GDP. The overall impact of the SARS virus in 2003 resulted in over 2% of GDP, but the GDP base was much higher at 11% growth. It is likely that Chinese businesses will halt for a prolonged period, travel will cease which will lead to a plunge in the demand for oil on an already oversupplied market.
There are positives in that this virus has a lower fatality rate (~2%) than both SARS (Severe Acute Respiratory Syndrome - at almost 10%) and MERS (Middle East Respiratory Syndrome), which is thought to have spread from camels and killed roughly 35% of humans who became infected. Bird Flu – H5N1 - a type of influenza virus that causes a highly infectious and severe respiratory disease in birds, does occasionally infect humans, but it is difficult to transmit the infection from person to person. However, when people do become infected by H5N1, the mortality rate is about 60%. By contrast, a 2% to 3% mortality rate has to be seen as a positive.
Another positive is that China is much more open about sharing their own infection and mortality statistics reasonably quickly with the rest of the world than they were back in 2003 during the SARS outbreak. China and other major developed countries around the world are also now better equipped to deal with and respond to these types of outbreaks. This one will also be contained. It is just a matter of time. A vaccine is being worked on and various treatment options for those who have contracted coronavirus 2019-nCoV are being developed and rolled out.
Disclosure: I hold SFR. In relation to this new coronavirus, this too will pass.
01-May-2020: KMT: Sale of Namibian assets to Sandfire Resources
Sandfire continues to pick up assets at bargain prices during this period of lower base metal prices.
[Disclosure: I hold SFR shares, their SP rose +36.7% in April, one of my best performers for the month!]
27-May-2020: Sandfire RRS Investor Forum Presentation
16th Sep 2018: I've posted a few straws here about Sandfire (SFR). I sold them when they did their 4th quarter production report and conference call, which I listened in on live. I thought there was a good chance of analysts downgrading them based on the tone of the questions and responses that Karl gave. That did occur, and the price subsequently dropped a couple of dollars over the next couple of weeks. I've since bought back into Sandfire.
There are concerns about their mine life at DeGrussa. They need to find more commercial deposits close to DeGrussa to keep the processing plant operating. They have already achieved this with the Monty deposit, which sits 10 kilometres east of DeGrussa. They are in the process of buying TLM's 30% share of that deposit, which will leave SFR with 100% of that area in addition to their other extensive landholdings. Sandfire are also currently exploring areas to the south of DeGrussa and Monty via JVs with AUR, FEL, ENT & GTE.
They have a high grade deposit in Montana (Black Butte) ready to go, and are progressing the permitting and expect to break ground over there early in calendar 2019.
They also have further exploration assets within Australia:
Karl Simich has also flagged that they are evaluating various other overseas opportunities. He views DeGrussa as the launch pad for Sandfire and expects they will be bigger and better long after DeGrussa has been mined out. Pleasingly, the company has a big pile of cash and no debt and, as Pmonkey has mentioned, Karl is a high quality manager. He can seem a little aggressive at times - and can get annoyed with analysts on conference calls, but he knows his stuff when it comes to managing a copper producer!
The recent copper price falls & the associated negative sentiment towards copper miners generally - & Sandfire more specifically - seems more like a good opportunity to pick SFR shares up at much cheaper levels, or to top up, than to bail out of the stock.
Trump is playing a dangerous game with China, but he is getting pushback from within his own administration now, and it would not be in China's best interests to escalate this either seeing as they export much more to the US than they import from them. A trade war does hurt China more than the US, but it could also stall global growth and will hurt stock markets, and Trump has publically linked his own success as POTUS with the success of the US market, so he doesn't want to crash it.
I hold SFR.
Tuesday 31st July 2018:
"Dr. Copper" is generally regarded as a historically reliable leading indicator of global growth - which means copper companies like Sandfire might be a good way to go if you're bullish on global growth continuing, and probably best to avoid if you're expecting an imminent global recession.
Here's the most recent view from S&P:
Remember that S&P don't always get things right (such as their AAA ratings on dodgy CDOs prior to the GFC)...
Listening to the SFR 4th Qtr results conference call, I can see why the market may have got a little jittery about SFR. On top of trade war fears, the copper price in US$ have been falling recently, SFR is guiding for around the same level of copper production in FY19 as what they achieved in FY18 - but at ~10% higher costs due to having to transport the Monty ore 10km to the DeGrussa plant as well as the lower grades from Monty that will have to be processed before they get to the higher grade ore. While copper production in FY20 is expected to be around 20% higher, with lower costs (as they process a lot more of the higher grade ore from Monty), we have to get through FY19 first. SFR's 78% owned Black Butte (pronouced "Beaut") project in the USA could take longer than expected to get permitted - they don't expect to be breaking ground there until January at the earliest. And SFR's CEO/MD Karl Simich has a little bit of empire-building about him. While SFR do need to grow to remain relevant, and achieve economies of scale, it could be worrying some analysts that he sees a lot of that future growth being in various other countries - rather than here in Australia, and he was clearly prepared to invest in deposits (such as Black Butte) that are clearly inferior to DeGrussa.
Finally, Karl was keen to squash the false rumour that SFR had a capital raising brewing. He stressed 3 times that while Sandfire America (which our SFR own 78% of) would continue to raise capital, mostly via rights issues to fund development, which SFR would participate in, there were NO plans for our ASX-listed SFR to raise capital. They have plenty of cash - and no net debt.
Disclosure: I often hold SFR, but I'm currently not holding. I'll likely buy back in when the copper price starts rising again.
DeGrussa open pit and processing plant.
20-Feb-2020: I've posted links and a results summary (for SFR's FY2020 H1 Results) in a separate straw. The following is their outlook statement (that accompanied their report):
Management Comment and Outlook
Sandfire’s Managing Director, Mr Karl Simich, said the first-half of the 2020 financial year marked the beginning of an exciting new growth chapter as the Company began its transformation from a single-mine company into a diversified and sustainable global metals company operating across multiple jurisdictions.
“Underpinned by another solid operational and financial performance at DeGrussa, we took some important long-term growth steps during this period with the completion of the MOD acquisition, continued progress with the permitting and Feasibility Study for the Black Butte Copper Project in Montana, USA and the commencement of a major new exploration campaign in Botswana.
“At the operational level, the DeGrussa Operation posted another strong set of numbers despite what continues to be a relatively muted global environment for base metals. Another impressive production performance once again drove strong sales revenue, low unit operating costs, robust operating cash flows and strong bottom line earnings – helping us to maintain a period-end cash position of $201.7 million.
“It is important to note that this was after making significant investments in our long-term growth pipeline, including $44.6 million on the cash component of the MOD acquisition and $23.1 million on further investments in high-quality base metal opportunities, while also paying out $28.5 million in dividends and $40.0 million in income tax.
“With a debt-free balance sheet we remain in an excellent position to fund the next stage of our growth and diversification. The key focus in the short term is completing the optimisation of the Feasibility Study and permitting for the T3 development project in Botswana, which we expect to be our first new base metal operation outside of DeGrussa. Project funding discussions are underway and we remain on track to make a decision to mine by mid calendar year 2020.
“Meanwhile, our expanded exploration campaign in Botswana has also paid early dividends, with an exciting new copper discovery at the A4 Dome, located just 8km from T3, rapidly taking shape and five diamond rigs currently focused on delineating this zone.
“The delineation of additional resources within close proximity of our proposed first production hub in Botswana would stand us in excellent stead as we begin to unlock the potential of this belt-scale exploration opportunity. I am optimistic about the outlook for this project given that we effectively control the 200km long centre of an emerging sediment-hosted copper province.
“Turning to the macro picture, there is no doubt that 2020 has seen a number of new challenges emerge in commodity markets due to the impact of the coronavirus and potential impact on metals demand and global logistics and trade. Notwithstanding the short-term impacts, which will continue to play out over the next few weeks and months, we remain positive about the medium-term outlook for copper, which remains fundamental as an essential ingredient for a sustainable, low-carbon future.
“Sandfire is getting on with the job of advancing our new mid-tier projects in Botswana and the USA towards development, exploring vigorously for new deposits in Botswana and Australia, and increasing our exposure to high-quality assets around the world.
“I am pleased to say that the second half of the financial year is off to a strong start and we are on track to achieve FY2020 guidance of 70-72kt of contained copper and 38-40koz of contained gold with C1 costs of ~US$0.90/lb.”
Disclosure: I hold SFR shares.
DECEMBER 2019 HALF YEAR FINANCIAL RESULTS
Increasing copper-gold production drives solid interim profit, enabling further investment in long-term growth projects
Sandfire Resources Ltd (ASX: SFR; “Sandfire” or “the Company”) is pleased to report its financial results for the six month period ended 31 December 2019. The Company delivered another strong operational and financial performance underpinned by robust production and cost management at its DeGrussa Operations in Western Australia.
This allowed the Company to maintain strong revenues and operating cash flows, to post a net profit after income tax of $33.3 million (1HFY18: $48.3 million). The interim profit translates to earnings per share of 20.6 cents (basic and diluted).
Total revenue of $313.1 million (1HFY18: $272.3 million) was underpinned by payable metal sales totalling 33,616 tonnes of contained copper (1HFY18: 32,715t) and 18,252 ounces of contained gold (1HFY18: 20,721oz).
The half-year results included production from the new satellite Monty Copper-Gold Mine, resulting in an additional amortisation expense of $34.2 million driven by the amortisation of the Monty CopperGold Mine purchase price, following the acquisition of Talisman Mining’s 30% interest in the project in 2018, as well as amortisation of the decline and mine development. There was also increased investment in exploration and evaluation expenditure of $6.2 million during the period, including exploration at the newly acquired Tshukudu Project in Botswana following its acquisition from MOD Resources Ltd (MOD) in October 2019.
The strong financial performance was achieved despite weakness in the US Dollar copper price during the reporting period, offset by a fall in the USD: AUD exchange rate and a stronger gold price.
The DeGrussa Operations delivered another strong operational performance for the period, with production of 34,988 tonnes of contained copper (1HFY18: 34,813t) and 19,370 ounces of contained gold (1HFY18: 21,567oz), towards FY2020 guidance of 70-72kt of contained copper and 38-40koz of contained gold.
As a result, the DeGrussa Operations segment generated earnings before net finance and income tax expense of $91.4 million (1HFY18: $101.7 million), which included depreciation and amortisation charges of $90.1 million (1HFY18: $61.6 million).
Cash flow from operating activities was $109.1 million (1HFY18: $97.5 million) and $140.3 million prior to payments for exploration and evaluation expenses (1HFY18: $121.9 million).
The Company maintained its strong commitment to shareholder returns during the half-year, declaring an interim fully-franked dividend of 5 cents per share.
The Group cash position at 31 December 2019 was $201.7 million after making significant investments in long-term growth and diversification projects. This included $44.6 million for the cash component of the acquisition of MOD (giving Sandfire 100% ownership of the T3 Copper-Silver Project and adding a new growth platform for the Company in Botswana, southern Africa) and $23.1 million on further investments in early stage, high-quality base metals exploration and development assets through the Company’s Sandfire Ventures program. The Company also paid $40.0 million in income tax payments and $28.5 million in dividend payments during the reporting period.
This information should be read in conjunction with Sandfire’s December 2019 Half-Year Financial Report and accompanying notes.
[See separate straw for outlook statement.]
Copper Production is lower, as expected, as they process the lower grade ore from Monty that they have to process to get to the higher grade ore later in the year. However, the good news is that they have maintained their full year production guidance, saying they will likely hit the top end of that guidance, and they have lowered their C1 cost guidance to US$0.90-$0.95/lb (previously US$1.00-$1.05/lb).
Karl Simich continues to impress. He gives conservative guidance which is easy to achieve and allows him to improve (upgrade) the guidance as the year progresses. My favourite companies tend to do that. It's much better to under-promise and over-deliver than to over-promise and under-deliver. SFR is up around 6% today (so far) in early trade.
SFR remains debt free, with a nice pile of cash, and is involved in some M&A, with a current offer in the market for MOD Resources (ASX:MOD) at 38 cents per share.
Disclosure: I hold SFR shares.
July 2018: Sandfire are growing via exploration in surrounding tenements (to DeGrussa) via farm-in agreements where SFR do the drilling (spend the money) in exchange for earning a share of the tenement if something is found. This worked well with TLM (Talisman Mining) when they found the Monty deposit. It worked out really well for TLM who have now agreed to sell their minority 30% stake in Springfield (the tenements that host Monty) to SFR for $72m plus a 1% NSR royalty on any future discoveries at Springfield. Sandfire are currently exploration drilling through tenements belonging to Auris Minerals (AUR), FE Ltd (FEL), Enterprise Metals (ENT), and have plans to also drill out areas of the Great Western Exploration (WTE) tenements to the east of the ENT tenements. Any of these tenements could host another commercial deposit such as DeGrussa or Monty. Sandfire are also developing the high-grade Black Butte Copper Project, located in central Montana in the United States.
January 2019: The SFR/TLM transaction completed in October 2018, TLM declared and paid a special dividend in December, and are expected to also pay a capital return to their shareholders early this year (2019).
Since the Monty discovery - which was on TLM (Talisman Mining) land, now bought and owned by SFR, the various JVs that SFR are involved in have not yielded any further commercial metal/mineral discoveries to date, but they're still drilling.
Disclosure: I hold SFR and TLM shares.
08-Jul-19: Update. I no longer hold TLM shares. Still hold SFR. Still think SFR is a decent copper play, if you're bullish on copper.
SANDFIRE RESOURCES NL ((SFR)) Upgrade to Hold from Reduce by Morgans and Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/4/1
Sandfire Resources has agreed to buy MOD Resources ((MOD)) for a cash and scrip equivalent of $167m. The cash component is $42m and the scrip component is 45c per share.
Morgans says, at first glance, the deal offers exploration upside and strategic value given the provincial tenure. Morgans increases its target price to $6.96 from $6.84, primarily to reflect lower $A forecasts.
The broker upgrades to Hold from Reduce to reflect the share-price retreat following the announcement.
Ord Minnett has upgraded to Accumulate from Hold on the news Sandfire Resources intends to acquire MOD Resources ((MOD)), noting the proposed deal will increase the company's share count by about 12%.
Clearly, the broker likes the deal, citing net addition to Net Present Value of potentially up to $1 per share, an internal rate of return of 15% post acquisition costs and upside from further exploration.
The analysts do acknowledge there now is additional geopolitical risk along with added development risk associated with a project based in Africa (Botswana). Target price unchanged at $8.
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Disclosure: I hold SFR shares.
21 June 2019: DEGRUSSA ORE RESERVE AND MINERAL RESOURCE UPDATE
13-Nov-2018: Sandfire have presented at the UBS 2018 Australasia Conference yesterday or today and have released a copy of their presentation to the ASX announcements platform this morning - see here.
25-Oct-2018: SFR September 2018 Quarterly Report Presentation and Webcast - see here.
SFR have also now completed their acquisition of MOD Resources (ASX:MOD) and MOD will now be delisted from the ASX. In this announcement (on October 23), SFR explained the next steps they will take to develop the T3 Mine in Botswana. Sandfire are also developing the Black Butte (pronounced "Beaut") Project in the USA, and are actively searching for further commercial copper deposits in various tenements around their De Grussa and Monty mines in WA. Karl Simich is well on his way to growing Sandfire into a significant global copper miner. He's a shrewd operator and manager, and I'm backing him to keep making good decisions (I hold SFR shares).
18-Apr-19: SFR March 2019 Quarterly Report
Production and Operations
Corporate and Financial