MNN Awards: Sandfire and the Spanish acquisition

SANDFIRE Resources made the boldest move in its history in September 2021 when it announced the acquisition of the MATSA copper complex in Spain.

Sandfire's MATSA asset in Spain

Sandfire's MATSA asset in Spain

The company had long been looking for a producing asset to avoid a gap in production and cashflow in between the end of its DeGrussa copper mine in Western Australia (set to occur this quarter) and the start of its Motheo copper mine in Botswana next year.

The formal four-month process, run by then-owners Trafigura and Mubadala Investment Company, over the MATSA asset was highly competitive and Sandfire is understood to have beaten out companies like Rio Tinto.

Sandfire managing director Karl Simich said the company had coveted MATSA for four years but it had been difficult "trying to pry" it from the hands of its owners.

"We tried every angle we could think of," he said.

The US$1.865 billion deal that was announced marked the largest all-cash offer by an Australian mining company and was one of the biggest mining transactions of 2021.

Simich described it as the most important day for the company since the discovery of DeGrussa in 2009.

The transaction was funded from a combination of cash on hand of $681 million, a new $650 million syndicated debt facility with Citi, Macquarie, Natixis and Societe Generale, an existing undrawn A$200 million facility with ANZ, as well as a A$1.248 million placement, fully underwritten by Citi and Macquarie.

The amount of equity raised was more than Sandfire's market capitalisation at the time.

The raising included a $120 million strategic placement to AustralianSuper, which also agreed to sub-underwrite $150 million of the entitlement offer.

The purchase price implied an acquisition multiple of 4.8x MATSA's FY21 EBITDA of $387 million, which the company said was below average multiples for global base metals transactions of 6-8x.

Based on MATSA's reserve of 2.5 billion pounds of copper equivalent, said Sandfire paid US75c per pound of copper equivalent, representing a 131% and 54% premium to its three and five-year normalised average operational transaction reserve multiples, but much lower than the $1.92/lb Metals Acquisition Corp paid for Glencore's CSA mine in New South Wales months later.

In the weeks following the deal, Sandfire re-joined the ASX 200 after an eight-month absence and earlier this year, the company's market capitalisation passed through A$3 billion for the first time

The deal formally completed in February.

The MATSA mining complex comprises three underground mines, Aguas Tenidas, Sotiel and Magdalena, and a 4.7 million tonne per annum processing plant to produce 100,000-120,000 tonnes of copper equivalent per annum at low C1 costs of just 40-50c/lb of copper due to zinc, lead and silver credits.

The project has a mine life of 12 years with exploration upside and expansion opportunities.

In February, Sandfire announced guidance for the five months to June 30 for MATSA of 26,000 tonnes of copper, 37,000t of zinc, 1000t of lead and 820,000oz of silver at C1 unit costs of 94c/lb of payable copper.

While the guidance disappointed analysts, the company stressed it had only owned the mine for weeks at that stage and optimisation work was only just getting underway.

But MATSA's first two months under Sandfire ownership surprised to the upside.

It produced 12,536t of copper, 16,027t of zinc, 1901t of lead and 551,011oz of silver at C1 costs of 94c/lb in February and March.

Guidance for the asset for the five months to June 30 was lifted slightly to 27,000t of copper, 38,000t of zinc, 3000t of lead and 1.1Moz of silver at C1 unit costs of 98c/lb of payable copper.

Late last month, Sandfire reported a its first resource estimate for MATSA.

The independently verified resource for MATSA, as at December 31, stands at 147.2Mt at 1.4% copper, 3% zinc, 1% lead and 39.6 grams per tonne silver for 2.1Mt of contained copper, 4.4Mt of zinc, 1.5Mt of lead and 187.6 million ounces of silver.

It includes measured and indicated resources of 109Mt at 1.5% copper and 1.5% zinc for 1.6Mt of contained copper and 3.5Mt of zinc with an estimated net smelter return of US$130.86 per tonne.

The measured and indicated resource comprises 73.6Mt of polymetallic material at 1.3% copper and 4.7% zinc and 35.4Mt of cupriferous and stockwork material types at a combined grade of 1.8% copper.

The total resource also includes initial inferred resources for the satellite Concepción, Poderosa and Castillo-Buitrón deposits of 19.8Mt at 1.2% copper and 1.6% zinc, which Sandfire said highlighted the exploration upside.

The acquisition included of ground in the Iberian Pyrite Belt, much of which has been largely unexplored.

It is estimated only about A$100 million had been spent on exploration at MATSA over the past 15 years, equating to only about $6-7 million per annum.

By comparison, Sandfire spent more than $50 million on its global portfolio in the 2021 financial year.

Sandfire's exploration team had identified numerous high-quality targets, both near-mine and regional.

More than 35,000m of resource development drilling is planned in FY23.

Sandfire was advised on the deal by Macquarie, BurnVoir Corporate Finance and Allen & Overy.

Sandfire Resources is a nominee for Deal of the Year in the 2022 MNN Awards.

A growing series of reports, each focused on a key discussion point for the mining sector, brought to you by the Mining News Intelligence team.

A growing series of reports, each focused on a key discussion point for the mining sector, brought to you by the Mining News Intelligence team.

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