WHILE not immune to the fluctuations of the market, Sandfire Resources seems assured of a bright future due in large part to its high-grade, high-margin DeGrussa copper-gold-zinc project.
The world-class DeGrussa project, in the northeast part of Sandfire’s Doolgunna project tenements and about 900km east of Perth, began production from both open pit and underground mining in February 2012, less than three years after its first exploration holes were drilled.
The DeGrussa copper-gold resource was one of Australia’s most exciting recent greenfield discoveries: initial drilling returned some of the best intersections seen in the WA mining industry’s recent history, with
the discovery hole DGDD-001 intersecting a total of 78.3m of high-grade copper-gold mineralisation including 53.2m at 17.3 per cent copper and 2.5 grams per tonne gold in the DeGrussa deposit, and 25.1m at 3.4 per cent copper, 3.4g/t gold and 1.6 per cent zinc in the Conductor 1 deposit.
In addition to in-fill drilling within the main resource envelope, drilling was also undertaken during 2009 to test the immediate surrounds of the DeGrussa deposit for further copper-gold-zinc lodes.
This led to the discovery in October 2009 of the Conductor 4 deposit, immediately adjacent on the eastern flank of the DeGrussa and Conductor 1 deposits, stratigraphically about 120m below Conductor 1. Exploration drilling then continued during 2010, leading to the discovery of the Conductor 5 deposit, about 900m northeast of DeGrussa and Conductor 1.
Sandfire set new benchmarks for rapid and efficient mine development by completing an aggressive resource drill-out, feasibility study, approvals, financing, and the construction and development process for DeGrussa that took the project from discovery drilling to first product sales in just three years. First ore was mined from the DeGrussa open pit on 17 February 2012, with initial underground ore mined less than two weeks later on 29 February.
In December 2012, Sandfire announced that it had completed the sale of the first shipment of copper concentrate from DeGrussa – 4958 dry tonnes of copper concentrate grading about 22 per cent copper that was produced as part of the commissioning process for the 1.5 million tonne per annum DeGrussa concentrator.
“This lower grade commissioning concentrate is being produced and sold on a spot basis ahead of Sandfire’s main copper concentrate sales contracts, which commence in January 2013,” the company reported at the time.
“Shipments of high-grade direct shipping ore (DSO) chalcocite from the open pit continue, with 10 shipments completed to date, totalling 98,489t grading 28 per cent copper containing 27,555t of copper metal.
“Mining of Stage I of the open pit is now complete and all DSO chalcolcite has been mined, with crushing and sales to continue into early 2013. Mining of Stage II will continue into mid-2013, extracting further sulphide and oxide copper material.”
In the same statement, Sandfire advised that it had signed a further three sales contracts for DeGrussa’s copper concentrate production.
“Together with the first sales contract signed in July this year, this increases the total number of sales contracts in place for copper concentrate production from DeGrussa to four. The sales contracts, for up to three-year terms, have been signed with international trading companies and smelters,” the company stated.
“Sandfire’s marketing strategy is for sales contracts covering up to 85 per cent of annual copper concentrate production from DeGrussa, with the remainder available for delivery into the spot market and production
Growth through new discovery As of 31 December 2012, the DeGrussa project’s total mineral resource was 13.8 million tonnes grading 4.8 per cent copper and 1.8g/t gold for 664,000t of contained copper and 777,000oz of contained gold.
In May, Sandfire reported an increased mineral resource for the project, adding 64,000t of contained copper and 93,000oz of gold to its mineral inventory at Conductor 4 and Conductor 5, “following depletion to December 2012”, with the additional inferred mineral resource to be incorporated into the DeGrussa mine plan.
“Depletion totalled 45,000 tonnes of contained copper and 37,000 ounces of gold to 31 December 2012,” the company stated.
“The previously published mineral resource (in situ and stockpiles) stated as at 31 March 2012 was 13.5 million tonnes grading 4.8 per cent copper and 1.7g/t gold for 645,000t of contained copper and 721,000oz of contained gold.
“As a result of some of the key insights gained from structural interpretation from mapping within the underground mine and open pit, Sandfire has developed an enhanced understanding of the lithological sequence, structural setting and, consequently, the positioning of potential accumulations of VMS mineralisation. This information was used to guide a surface diamond drilling program targeting potential extensions of the two deepest, high-grade lenses, Conductor 4 and Conductor 5.
“The majority of the increase in tonnage and contained metal has come from successful surface drilling programs at DeGrussa targeting…Conductor 4 and Conductor 5, with the addition of 56,000 tonnes of contained copper (increased 42 per cent) and 63,000 ounces of contained gold (increased 34 per cent) in total inferred mineral resources for these deposits.
“The December 2012 mineral resource also reflects updates to DeGrussa and Conductor 1, with the addition of 8000 tonnes of contained copper and 30,000 ounces of gold, reflecting increased understanding of the orebodies gained from mapping, grade control drilling, and mining activities.”
When the increase was announced, Sandfire managing director Karl Simich described it as “a significant and pleasing” achievement.
“We have been able to more than replace production depletion to December last year… [and] we believe this will add around one year’s copper and gold metal to the mine plan,” he said.
“To put this in context, the majority of this increase has come through just five strategically targeted deep diamond drill holes.
“This drilling marks the beginning of a very exciting new phase of exploration at DeGrussa during which we will systematically target near-mine extensions of the deeper deposits – including positions where isolated high-grade grade intercepts were returned during the discovery days and require follow up.
“Having demonstrated what can be achieved with drilling from surface, we will establish underground drill platforms from later this year to enable us to target further prospective areas.
“We are now very much looking forward to the next phase of deep exploration at DeGrussa, which together with exploration along our prospective corridor will, we believe, unlock the next chapter of growth for Sandfire.”
Following the May announcement, in July the company advised the market that it had extended the DeGrussa mine life to at least late 2020 with an updated mine plan, mineral resource and ore reserve as at 31 March 2013.
“The mine plan is Sandfire’s internal plan which schedules forecasted production parameters, operating and capital works programs. It is developed with the assistance of both internal Sandfire employees and external consultants and includes both mineral resources and ore reserves,” the company stated.
“The company continues to incorporate inferred mineral resources from Conductor 4 and 5 into its mine plan process due to the geological continuity and high copper grade tenor of the deposits.
“Work commenced on the Conductor 4 [and] 5 access decline during June to develop and access these orebodies from 2014 onwards.
As part of this decline development, a drillposition will be established to commence grade control drilling into the [Conductor 4] and [Conductor 5] orebodies which the company expects will result in additional conversion of the [Conductor 4] and [Conductor 5] inferred mineral resource to ore reserve.
“The drilling position will also be used to test down-dip extensions of [Conductor 4] and targets below and down-plunge of [Conductor 5]. Exploration drilling is targeted to commence during the first half of 2014.”
Mr Simich said the inclusion of the additional inferred mineral resources delineated by surface drilling at Conductor 4 and Conductor 5, enabling Sandfire to extend the DeGrussa mine plan, represented a significant return on a relatively limited amount of drilling.
“We will progress our underground exploration push during the second half of 2013 and into 2014 as the new Conductor 4/5 decline progresses towards these high-grade lenses and facilitates the establishment of suitable underground drilling platforms,” Mr Simich said.
“These will be utilised to in-fill and upgrade the inferred mineral resources to indicated category, and also extensional drilling on both deposits, as well as to test the immediate near-mine environment for potential repeats of the mineralisation.
“We are excited by the opportunities which this underground drilling push may open up in the months ahead and we are confident that the mine life extension achieved to date is just the beginning of a significant new growth phase for DeGrussa.
“We intend to maintain a strong focus on organic growth through exploration as we believe this offers our shareholders the greatest and most immediate potential returns.”
Surging ahead
When DeGrussa was officially opened by WA Premier Colin Barnett in early August, it had already produced more than 70,000t of copper metal and 50,000oz of gold – worth more than $500 million since operations started – including 64,017t of copper and 42,697oz of gold for the 2013 financial year.
“The ramp-up to full nameplate production is nearing completion,” Sandfire reported when announcing the mine’s official opening.
“Sandfire has provided production guidance for the 2014 financial year of [between 65,000t and] 75,000t of contained copper-in-concentrate and [between 35,000oz and] 45,000oz of gold. This will cement its position as Western Australia’s largest copper mine.
“Over its initial seven year life, DeGrussa is forecast to deliver significant revenues and pre-tax operating cash flows, generating returns to shareholders and royalties to the State of Western Australia and indigenous communities. The operation provides long-term employment for around 400 people. “Sandfire is spending approximately $20 million per year on exploration in Western Australia. It also has an active business development program both in Australia and offshore with $10 million of committed exploration and business development expenditure.”
Later the same month, Sandfire announced a maiden annual net profit after income tax of $88 million for the year ended 30 June.
“DeGrussa…achieved a strong financial performance in its commissioning and ramp-up year. Sales revenue of $507.3 million, from metal sales totalling 62,154 tonnes of contained copper and 41,725 ounces of gold, drove strong cash flow from operating activities of $250.2 million,” the company stated.
“Profit before net finance and income tax was $142.1 million [and]…the DeGrussa mine segment generated earnings before net finance and income tax of $194.5 million after depreciation and amortisation charges of $123.4 million.”