Growing a global copper producer in a terrible market

Growing a global copper producer in a terrible market

It hasn’t been much fun for base metal producers in recent years. As Karl Simich, Managing Director and CEO of Sandfire Resources, puts it bluntly, the price of copper has made the business of mining the stuff “hard work.”

Low oil prices and weak currencies for ex-USA miners offers some reprieve. But they have only softened the blow of copper prices slogging near US$2/lb in recent quarters. "They have been well and truly overshadowed by base commodity prices," Simich, an Australian veteran of the resource sector, says.

It's been especially painful for the big base metal miners with heavy debt loads and juniors with higher cash costs.
But Sandfire, an Australia-based copper miner, is something of an exception in this weak market. It hasn't sought — or had to seek — cover while some other miners are forced to ignore opportunities in slashing costs and focusing primarily on debt repayment. Sandfire finds itself in relatively better shape.

It's an interesting place to be. In growing a copper producer in this terrible market, Simich says his team remains inquisitive in the search for new assets while it advances a pair of exploration projects and drives production at its DeGrussa copper-gold mine in Australia.

"And you might say, ‘Well, we've all been affected by the commodity price,’" Simich says. "But in the relative sense, our purchasing power at $6/share might be better than three years ago when our share price was sitting at $9. What we could purchase with $9 was much less than what we could buy today with a $6 share price."

EMERGING MINER
Sandfire, as producer, is one of those rare junior breeds that can legitimately claim to have discovered and quickly put into production, successfully, a copper-gold deposit. The DeGrussa copper-gold mine is its chief asset. Sandfire discovered the deposit back in 2009 after ballsy — yet diligent — exploration drilling in a region of Australia not well known for volcanogenic massive sulphide deposits, about 1,000 kilometres northeast of Perth.

The discovery was a case of fortuitous re-evaluation of field results. The Sandfire team were looking for oxide gold. But they started to see signs of copper and sulphides and wondered if there might be something deeper. Extending their budget back in the early 2009 — an aggressive gambit amidst an acid market for juniors just after the financial crisis — they drilled deeper and ultimately found a VMS deposit in a complex structural setting.

"And there's nothing more powerful than making an organic discovery," Simich says. "The first hole at DeGrussa basically discovered a $7 billion in-situ resource at that time. That is materially a game changer for anyone."

Sandfire has since brought the deposit to production and resources stand at 10.6 million tonnes @ 3.5% copper and 1.3 g/t gold (December 2014). In its fourth year of commercial production, Sandfire has paid much of its debt down (~zero net debt now).

And, meantime, it has continued exploring and acquiring.

UNDER DEVELOPMENT

Two projects occupy Sandfire's development focus. One is a recent discovery, the Monty deposit, near the DeGrussa mine (70% Sandfire/30% Talisman Mining). It's a relatively small VMS deposit, also in a very complex structural setting. But the grades have been stellar, including intercepts up to 22 metres @ 34.4% copper, which it hit late last year.

It seems the deposit – whose size may be modest so far – is destined to add mine-life to DeGrussa, about 10 kilometres west of Monty (the new deposit is also referred to as Doolgunna.) A first resource is forthcoming around April of this year.

If the tonnage may not be on the scale of DeGrussa at this point, the tenor of copper mineralization will certainly catch the eye. As Simich puts it, "You go, wow. When was the last time you found those grades?"


Recent Cross Section of the Monty Deposit (Source: Sandfire)
In Monty, Simich is perhaps just as excited about what hasn’t been found. Monty shows that the ground beyond DeGrussa is undoubtedly prospective for additional finds for a patient explorer willing to drill under cover in heavily faulted rock.

Monty may be relatively small. "But do you think it’s an opportunity for repetition of those material and lenses in and around what is a very, very complicated and busted-up and structurally complex situation? The answer is yes," he says.

So, much of Sandfire’s exploration resources are focused on just that, exploring on the best-looking targets in the Monty and DeGrussa environs.