Metals Acquisition Corp. II Q4 FY2024 Earnings Call

Thank you for your patience. This is the conference operator. Welcome to the MAC Copper Limited Q4 2024 Conference Call and Webcast. All participants are in listen-only mode, and the conference is being recorded. Following the presentation, there will be a chance to ask questions. I would now like to hand over the call to Mick McMullen, CEO of MAC Copper Limited. Please proceed.

Thank you, and thank you, everyone for joining. Obviously, it's a busy couple of days for quarterlies in Australia. I will try and get through this fairly quickly for people. So there's a presentation online that people can see that's also been lodged on both the exchange platforms and I'll talk to that. Joining me today is Morné Engelbrecht, our CFO. And so as we go through the presentation, there’s the usual disclaimer and forward-looking statements that people can read. In terms of Q4, where did we land? We landed at 11,320 tonnes of copper at a grade of 4.1% milled. So that brings us in just above the midpoint of the guidance that we had for last year. And pleasingly, the grade continues to be good as we continue to work on dilution control. Morné will talk to the financials shortly. But you can also see on that slide that we had a C1 for the quarter of US$1.66/lb, and so that's quite a good result. We saw only about a month of benefit from the lower exchange rate. And so that bodes well for 2025, obviously as the Aussie dollar has fallen significantly. Again, liquidity, we had about US$213 million of liquidity at the end of the year, which in Aussie dollars is actually a very large amount of cash for us, given our operating costs. We continue to run at about a 47% EBITDA margin and we convert about 74% of that to cash for the year. We are well on our pathway to our greater than 50,000 tonnes of copper production by 2026. As per the quarterly report we announced, we will typically announce our resource and reserve and any changes to guidance in about the third week of February, and that work is well underway, going through the final external checks. So if we look back on 2024, I think we delivered on all of the things we said we would. We operated the mine safely, all permits are in place, we increased the reserve life to plus 10 years. So it's about 11 years based on last year’s reserve. We had record copper production. We achieved and beat the midpoint of guidance. We deleveraged and simplified the balance sheet massively. So at the end of the year, we had net gearing of around about 15%. And again, with the cash flows we're generating, we continue to pay down debt and reduce that. We got started on a bunch of growth projects, mainly the Vent project and the QTS South Upper. We raised a fair bit of equity on the ASX in two raises and we built out our management team so that we're set for the future and stability. We have a clear pathway to get to above 50,000 tonnes internally. Whenever we look at stuff, we're always lining up the best options for shareholders in terms of return of capital and certainty. And right now, the best thing we can do apart from deleveraging the balance sheet and reducing our interest-bearing burden, which is well in hand, I might add, is to actually grow organically. We have a lot of opportunities. If we take the midpoint of guidance for next year, it's about 50,000 tonnes. The midpoint of guidance for this year is about 45,500 tonnes. And for those of you that click on the calculator, you'll see that we basically ended Q4 last year at the midpoint of guidance for this year. We continue to optimize the mine. Then obviously, we've got the growth projects like the ventilation project, which really does unlock the bottom of the mine and allows us to try and fill that mill up. We know the mill will run at 80,000 tonnes of copper annually. We have run it at that when we have the ore. And in QTS South Upper, we are well into the development of that now; there's been a big focus on that in the last couple of months of the last quarter, and I'm pleased to say that thing is moving ahead. So we're feeling very confident about this, about actually potentially getting a little bit more than that, 50,000 tonnes, because there are a few things like QTS South Upper, which last year were not in reserve. We've now drilled about and it will be in reserve, which then allows us to start including it into our production plan. Again, highlights for the quarter, so record production under the MAC ownership, record low C1, total cash cost of about $2.31/lb. We averaged just over $4/lb copper, so again in anyone's language, that's a pretty solid margin for us. We continue to drill out, and that’s reduced to 21 and 2.15. So it's a significant impact. It's about a 70% reduction in our C1. So that really is about a $0.16/lb reduction in U.S. dollars in our C1 that comes into effect from the start of January. I touched on the exchange rate earlier somewhere in the quarterly; Morné has got a sensitivity there. But obviously with the Aussie dollar at A$0.62, A$0.63, we've got quite a tailwind as about 80% of our costs are actually in Aussie dollars. Morné, I'm going to hand over to you for the next few slides on the financials.

Morné, I think your line is muted on your end.

Okay. I will handle the financial details until Morné reconnects. We've faced some issues with the phone lines. Over the past year, our net gearing decreased from 41% to around 15%, and our cash and cash equivalents in U.S. dollars increased from approximately $32 million to $172 million. It's worth mentioning that in Australian dollar terms, the growth is even more significant because our cash balance, which is about half of our total, translates to more when the Australian dollar declines. I believe it was around A$277 million at the end of last quarter, which is a substantial amount of cash on the balance sheet. As announced, we have agreed to the early repayment of Sprott and are currently in discussions with our senior lender syndicate to increase our revolver and enhance flexibility regarding technology. However, we're experiencing a significant technical difficulty.

Sorry, Mick. I'm back on. I dropped off for whatever reason. Can you hear me?

Yes. We can hear you, Morné.

All right. Sorry, I'm not sure what you covered already, Mick, but obviously on Slide 8, it's obviously very significantly deleveraged MAC's balance sheet. We've reduced net gearing by over 60% to company record of net gearing of 15% at December 31, so comfortably below 1x EBITDA. We also have a very healthy US$172 million in cash. That's around A$276 million at our disposal at December 31. So that's again over 400% better position since the end of 2023, which is further supported by an undrawn revolving facility of $25 million, outstanding QP receipts of $6.5 million, unsold concentrate of about $5.5 million. And then we've got that investment in Polymetals as well, which is around A$6.5 million at December 31. So that brings our total available liquidity to around US$213 million or A$340 million at December 31. The balance sheet was boosted also by the completion of the successful equity raise we did in October, so A$150 million or US$133 million before costs. So we are therefore well-equipped to further optimize our balance sheet as we announced in December through the retirement of the existing $145 million mezzanine debt facility. As I said to this end, we announced in December that we reached an agreement with Sprott to repay that facility at MAC's discretion, obviously with no additional penalty cost on that. We're also going through a refinancing process to reset our senior debt, which will not only support the repayment of the MAC's facility but also provide a cheaper, longer-dated, and material reductions on our repayment profile as well. So watch this space. So in summary, MAC's balance sheet is in a very strong and commanding position. And frankly, the best position we've been in since the inception of the company. So that, that provides us with great flexibility while we drive our organic growth as Mick has outlined. Moving to Slide 9, we've been focused on simplifying and reducing our balance sheet while using our strong cash flow generation to grow production significantly and lower our interest-bearing liabilities. In terms of operational corporate changes quarter-over-quarter, there are a few points to highlight. First, we achieved a healthy free cash flow from operations with sustained capital expenditures of around US$30 million for the quarter, consistent with Q3. It's important to note that we experienced a delayed shipment at the end of December, leading to the recognition of a partial sale of concentrate at port before the year-end as cash, but not as revenue, which we will recognize in January when the ship is loaded. Had we recognized it in December, our free cash flow would have been approximately US$37 million. Secondly, we made further progress by reducing our senior debt, paying back another US$8 million on that facility, bringing it down to about US$158 million at the end of December, resulting in a pro forma net gearing ratio of 15%, which is a 60% decrease from the end of last year. Thirdly, we paid about $8 million in interest for both the mezzanine and senior facilities, with approximately $4.5 million related to the mezz facility. With the repayment of the mezz facility, we expect to save around US$12 million to US$13 million annually in interest costs. Additionally, sustaining capital expenditures were $12 million, aligning with the previous quarter, resulting in just over $50 million in sustaining capital expenditures planned for 2024. Overall, we maintain a strong and healthy balance sheet and are looking to further enhance it with the repayment of the Sprott facility and our ongoing refinancing efforts.

Thank you. Hopefully people can hear me. The lines aren't very good today. Another point we want to address is our safety performance. We've always believed we can improve on this. In Q4, we made significant progress, with the TRIFR decreasing from about 14 to just under 11. We see potential for further improvement and aim to lower that number. Our main capital project, alongside the Vent and QTS South Upper, is the stage 10 lift, which is well underway. This work will continue through Q3 and will enhance our tailings capacity until around 2030, putting us in a good position. As Morné mentioned, we indicated around US$50 million in capital spending for last year, and we came in just under that, so no negative surprises. From a copper production standpoint, the trend is improving quarter-on-quarter, driven by higher autumn production and better grade in Q4. C1 and total cash costs show a positive trend over the year as we’ve reduced costs, boosted production, and renegotiated contracts. Currently, C1 stands at 166, and given the average exchange rate, we anticipate saving around $0.15 to $0.16 on our TCRC starting in January. We feel confident about the direction of C1 costs. Looking at our best production quarter, we've achieved the best C1 and total cash costs, along with a strong balance sheet and safety performance. As a company, we've delivered on our commitments, and as we delve deeper into our mine operations, we've identified several organic growth opportunities that require relatively little investment. Over the past three quarters, our mill grade averages around 4%, which reflects both our mining locations and improved dilution control. When we did the reserves last year, we included a significant amount of dilution in the reserve estimate, but we have been mining above that grade. As we update the reserves this year, we may adjust those figures to better align with our actual mining performance. Development has slowed compared to the previous quarter, but it remains relatively flat for the year. The decline has been prolonged and is currently 25 meters vertically above the bottom of the 2023 reserve. We are discovering more ore tonnes per vertical meter, which has allowed us to reduce the amount of development needed. The ore tonnes totaled 286,000 tonnes, with December alone contributing around 103,000 tonnes. This figure comes before the addition of our Ventilation system or the QTS South Upper going online. So yes, we're feeling increasingly confident about delivery in the operation and we can't do the Ventilation fast enough to be able to really unlock that mine. Cost, Morné, I might hand back over to you and you can talk to the dollars.

Yes, no, it's good, Mick. So Slide 13, so processing mining costs per mill and mine tonne there. First, the processing cost per tonne in Q4 was around $26, so slightly down from by around 2% from the previous quarter, mainly impacted by the increased mill tonnes and high grade material being processed for the quarter, but otherwise pretty stable there. On the mining cost per tonne, the comparison, you look there, very positive trend in terms of this metric continues with mining costs reducing by around 21% from Q1, around 12% in the last quarter alone. Obviously, this is mainly driven by that 20% increase in ore mined for the quarter, compared to Q3 which is also a 12% increase on the previous three quarters’ average mine tonnes and as Mick said, just over 100,000 tonnes mined in December alone. So that's driving that cost per tonne much lower. So obviously this not only demonstrates what's possible from a mining perspective but also demonstrates the spreading of a large portion of our fixed cost over increased volumes. So as we previously mentioned on previous calls, our fixed cost is around that sort of 65% to 70% with labor making up about 60% of our mining cost as well. On Slide 14, we cover G&A and development cost per meter. Again pleasingly to see the G&A side of things mainly impacted by milling tonnes, which has increased by 9% with the underlying G&A cost, gross G&A cost largely in line with the previous quarter. Development costs per meter were largely in line as well with previous quarters as well with the overall capital development meters across all capital projects largely in line with previous quarters as well. Slide 15, moving to tonnes milled per employee, so again very pleasing to see much higher by 10% compared to the previous quarter. As noted, the additional tonnes mined in December quarter some 9% compared to the previous quarter drove the increase in tonnes milled per employee. Employee base relatively stable over the quarters as well. Sustaining CapEx decreased slightly over the quarter. But as we said that will sort of end up at the $50 million mark for the year when we report our results. So overall, consistency and increased efficiency in operations increased an increased grade as well, driving our production, free cash flow and decreasing our unit cost and that obviously supported a leaner, more simplified balance sheet and obviously as we deliver more capital development for this year as well and continue to grow the company. Mick, I'll hand back to you for the rest.

Thank you. Many of you have seen this slide before. Look, I think hopefully the message has gotten across now that we aren't actually ore body limited. There's been a great track record of replacement of R&R. We clearly grew it a large amount last year. We're starting to see a lot of additional potential in and around the current mine. And as I said we've expanded the main ore body QTS north by 20%, 25% along strike. We have a fair bit of material that hasn't made it into reserve historically measured indicated plus a lot of incurred a lot of the drilling, if you look through the historical drill resource releases last year, much of that's aimed at upgrading inferred mineralized material to measures indicated for conversion to reserve. And again, really we're just limited by drilling when all the ore bodies are open, not just at depth but some up and down. And so there's a lot of potential here to continue to mine for a very long period of time, right? So that we don't really see that as a limiting factor anymore. It's actually getting it out of the hole faster is the key. This long section is useful for us to talk about. So currently we mine 75%, 80% of our ore out of QTS North, a little bit out of QTS Central, and then a couple of other ore bodies not shown there. QTS South Upper, the very top left-hand thing, we're on our way to develop that. Q4 we will have some production out of that and that will turn up in reserve now that we've drilled it out. QTS South, the sort of one on the extreme left there, that is very high grade. The bottom of that’s running about 7% to 8% copper. The very bottom hole sort of at the bottom was 9.5% at about 20%-odd copper. In the current mine plan, that's still a fair way out. We'd like to mine that a bit quicker and that's one of the things if we get a bit more Vent in the mine earlier, we can start looking to get out there and drag some of that material forward. In the very top of the mine there's a red bar and a sort of a yellow-looking thing which is the East and West lenses. We've been doing a fair bit of work in that area up there, looking at historical zinc for a start, but also the copper mineralization. There is significant copper mineralization up there and the zinc we've talked about historically of the ability to truck that to Polymetals. So there's a fair bit of focus on that right now; we put a separate team on that to look at developing what we call the upper mine. We think there's again, when we talk about organic growth opportunities, we see a 400 or 500-meter vertical ore body there in separate zinc and separate copper deposits and that actually has the potential to, for very low capital cost, add a reasonable amount of production. And so that's a high focus for us right now, particularly as we're developing at QTS South Upper. If we can open up a mine in front of the top of the mine that is not connected to the bottom of the mine, not pulling Vent from the bottom of the mine and not coming up the shaft, it's just all incremental production at a very low capital cost. It's all within 50 to 100 meters of existing development and very shallow right starts 150 meters below surface. So we're quite excited about this. We're working away; probably the first thing we'll come out with will be the plan around the zinc. Our investment in Polymetals has done very well and we have the right to put another $2.5 million into it at $0.35 in the Polymetals and they're working away and sort of they'll be in production here in the not too distant future. And so we're quite keen to push our plans forward to be able to truck some zinc ore up there. But actually, we have a pretty substantial copper ore body that looks to be sitting up in our proportion that we can go online as well. So again when we look at all of the things we can do, obviously paying off the spot debt is a guaranteed return at a sort of 12 and change interest rate. So that's a no-brainer. But we have some great opportunities here in terms of advancing the business. So that's really our focus right now. Again QTS South Upper, it's small, it's super high grade. We are mining up towards it now. It was a hive of activity there last week when I went down there. We're pretty excited about this. We have another deposit about 200 meters, 250 past this called Pink Panther. We're actually going to continue to drive out, and we'll use those accesses as drill drives because these ore bodies are sub-vertical; drilling them from surface you can miss them easily, but drilling them from underground is much easier. And so we're quite excited about this. Q4 is when we expect to see the first production coming out of this thing. The Ventilation project, so we get asked about this a lot. The total budget's about A$42 million. We will spend because I think in the U.S., we'll spend around about US$22 million I think on it this year. Target completion date is Q3 of 2026. And so we're well advanced on that. The geotechnical drilling's been done. We're pushing the drives out. Interestingly, one of the drives, I was standing in it last week; that face that you can see on that slide there was running about 15% copper. So they're actually pushing out on a stringer, which will provide us a bit of extra incremental ore and pay for that thing, and then it'll run out, and we'll push out part that. But it does highlight when I went there with some people, and we went to have a look at the Ventilation drive and we turned up to a place that's running 15% copper. That CSA, you can get those things all over the place and it's all about being on your toes, identifying them and mining them and getting them in the mill as quick as you can. So in terms of our plans going forward, we sort of see plus 50,000 tonnes, starting to become a bit more confident about maybe we can do a bit better than that. We sort of see the target for C1 down around the 150, take Q4, 166. We've told you that we'll get about $0.15 or $0.16 off the TCRC improvement this year, so you don't have to be a rocket scientist to work out. But we're feeling quite confident around getting down to that level and net gearing again; end of the year at 15%, Morné would like 10% to 20%. I'm pretty happy with 0%. But once we've paid out the Sprott facility and we've got a bit more flexibility, we can start looking at things like shareholder returns, right, which, in the current structure, we aren't able to do. So again, as we generate cash, self-funding, all of the stuff that we're doing, we see a good pathway for organic growth and we think the balance sheet is in great shape now. So the business, quite frankly, has never been in a better position. I was down the bottom of the mine last week with some investors who've been with us for the journey all along, and I think they were quite surprised at just how much activity we have going on there relative to over the last 18 months. So we're starting to get into a good rhythm and cadence now, and so we feel pretty comfortable about the growth profile of the business. So look, that's our strategy. Deliver operationally, execute organic growth. I think quite frankly, right where we are, it's delever the balance sheet, shareholder returns, and grow the business I think is quite frankly where we are. And we're feeling pretty good about the operation. I'm feeling less good about where my share price sits. But look, CSA has been an amazing operation. The team at site has turned it around. I think they've delivered really well. We can see a great runway now in terms of what else is to come. And when your head grade is 4% copper, it's a pretty good mine. So with that, I'm going to turn it over for any questions, if anybody's got any and happy to take as many as you want.

First question comes from Daniel Morgan with Barrenjoey. Please go ahead.

Hi, Mick and Morné. First question, just on achieving your production outcomes you'd like in 2025, what is the key driver versus 2024? Is it more tonnes mined or grade or both? Thank you.

Yes, I believe the grade will be around four, possibly just below that. The main point is we're aiming for more tonnes and greater consistency in how we achieve that. We are confident that this mine can produce significantly more than 45,000 tonnes of copper per year on a weekly basis. The goal is to eliminate the weeks where production falls to half that amount. We've previously discussed the importance of consistency, and that's central to our strategy. We've never had more working areas available or more opportunities for production. Our haulage system is well-organized, and our team is fully prepared. So, Dan, the emphasis is really on maintaining that consistency.

So to that end, I mean, it was pleasing to see the lift in mined ore tonnes in the quarter. Is that something we should expect for the March quarter, for example, another lift or stability, or what's the…?

Yes. Well, we're not really. We've got to come out with our guidance in about three weeks. But I think overall for the year, we're not really in the business of giving quarterly guidance. But overall for the year, we expect to see a bit more tonnes, more tonnes. Similar-ish grade, and that's where your production lift comes from. But again, we exited last year in the quarter at the midpoint of this year's guidance already. So it's really about doing what we did in Q4.

Thank you. And just on the resource reserve up there coming in Feb, what is in scope, your various ore bodies, what's in scope to be considered for that and what is too early with regard to the drilling on cutoffs or anything to be considered. Could you maybe talk through the various areas?

Yes, so QTS North, QTS Central, East, West, QTS South, and QTS South Upper will all be included. The only new addition is QTS South Upper. However, there have been expansions through drilling for all of them, focusing on both total resource expansion and converting to measured and indicated for reserves. We are working towards potentially obtaining a zinc resource. As for the copper resource in the upper portion of the mine, it is unlikely to be included. We have an internal estimate, but it's not quite ready; it will require a few more confirmatory test holes before we can finalize that, possibly around mid-year. We are currently in the finalization phase and have sent information out for external validation. The Board is expected to sign off on this in two or three weeks.

Thank you. And…

We would like to be in there. We have an internal number, but it's probably not quite ready yet. It needs probably a few more test holes into it, just confirmatory holes before we can roll that out that may be a mid-year update. So yes, in an ideal world we're literally going through the finalization right now. The external checks, we send it out to external for checks. So we're in that phase right now, right. So the Board will sign off in two or three weeks. Daniel Morgan, Analyst, Thank you. And…

Sorry.

We would like to get a zinc resource out, but at least then we can talk about what that production plan looks like.

Yes, I understand Poly's plans indicate that they expect to be operational again by mid-year. However, it seems it will take some time for you to complete the necessary work on your end to contribute to that zinc ore in the joint venture.

Yes. I think realistically, towards the end of the year, around Q4, we need to get the upper part of the model running at QTS South, and then we can focus on the development for the zinc. The development work for the zinc is relatively small, so we're close to starting that. We just need to ensure we are doing things in the correct order. But yes, that will be around Q4.

The next question comes from Sam Catalano with Wilsons Advisory. Please go ahead.

Yes. Hi, good day, Mick. I rarely give the congratulatory thing from analysts, but excellent quarter. So well done to everyone. Two questions, just to probably ask the questions that Dan was asking, perhaps in a slightly different way. So let's assume you get that consistency on grade and output levels through 2025, then that annualizes roughly around that midpoint of your existing guidance. I know that's due an update, but if we think about what might get you to the top end of the current guidance range, what's it likely to be in 2025? Would it be surprise grade bump or is it likely that you can see an avenue where the output will materially move up and you could get towards that 48-type figure?

Yes. The important factor is QTS South Upper, which is not included in the current guidance range at all, because it was estimated last year. This represents about 1,500 tonnes of copper per quarter, possibly more as we delve deeper into it. If we can advance that a bit, it’s still not considered in the midpoint of guidance, as there is no contribution from QTS South Upper in that projection.

Yes. Okay. And on that…

If we can secure a full quarter, we are looking at 1,500 tonnes of copper. This is why we included it in everyone's bonuses for this year; the sooner we can get the first ore out of QTS South Upper, the better. I visited the site last week and it was very active. For us, this is crucial. I believe Q4 is when we can expect to produce more, though it is not included in our current guidance to reach the midpoint. If we aim for the top end of our guidance, that would be the swing factor. Additionally, as we progress, there are smaller lenses that we might come across. If luck is on our side and we discover something we can mine, there's a possibility for that as well.

Got it. And just to clarify what specifically, my second question was on QTS South Upper. You've talked about first ore this year. Is that just development or are you actually talking about first doping ore?

The metric we've stuck in everyone's bonus is first doping ore.

Got it. Thank you.

It is narrow but of very high quality. You don't require a large amount of ore to produce 1,000 or 2,000 tonnes of copper. We have faced some delays as we sought out contractors to handle this task. Unfortunately, due to their commitments elsewhere, we were unable to secure one. This resulted in a loss of about three months, so we decided to take matters into our own hands and began executing the plan ourselves. Our goal is to use the same team for this project; the QTS South Upper site is at a similar elevation and about 600 meters from the Upper West and Upper East ore bodies, where we find zinc and copper. Ideally, I would like that same team and equipment to move between these areas to optimize our resources. That is why we defined QTS South Upper, and we are currently following through with our plan while also preparing to outline plans for the other areas and make the most of our fleet.

Okay, so just to add a final point, if everyone meets the first doping ore target in Q4 and receives their bonus, then it’s possible that in the quarter or two leading up to that, you might see a small amount of additional development material from there.

Yes, we may. As I mentioned, there are various drill hits and smaller lenses along the way. If we're fortunate, we might gain a little from that as well. As I showed you in the photo from the Vent level that we're working on, we've encountered a face that is running at 15% copper. At that site, you can find those small lenses, and it's important to be opportunistic and take advantage of them.

The next question comes from Paul Hissey with Moelis Australia. Please go ahead.

Good day, guys. Just a couple of quick questions from me. Firstly, sorry if I missed it. Just the potential on your balance sheet restructure, not so much the Sprott pay down, but just the remaining, I guess, discussions around alternative facilities. I might have missed it at the very start. Did you have a potential timeline if we could put Morné's feet to the fire on that one, Mick?

Morné, you can…

Yes. April, just on the refinancing, we're going through that process now; probably take another sort of six to eight weeks to finalize that. Sort of looking to obviously extend that debt and obviously convert. If we repay the next facility, then all the remaining debt to sort of that low-7s interest rate and looking to sort of have a bigger sort of rolling facility as well. So it gives us a bit more flexibility in terms of managing our balance sheets from that point of view. We don't pay a lot of money for that. So that's sort of the main things we're sort of aiming for, but that's probably sort of six to eight weeks away in terms of getting there. But we actively engage with all the banks and also looking to add a few Australian banks to the facility as well.

Yes, sure. And just with the Sprott facility, that we expect to see that closed out or getting the cash out the door prior to the end of this quarter.

Look again, it sort of depends on how we sort of move through that refinancing process. But that's sort of the same sort of finally six to eight weeks to sort of close that out.

Okay. Yes, sure. And then I have another question regarding the overall strategy. The Vent is expected to come online around the middle of the second half of next year, reaching 1.7 million tonnes, although this does not include QTS Upper. Can you remind me of the mill's throughput and how you can achieve 1.7 from the legacy operation? Obviously, QTS Upper's high-grade material can replace any lower-grade output. What is the medium-term strategy regarding overall throughput in relation to your plant's capacity?

Sure. Yes. Well, look, that plant, it depends on what you put into it, but 1.8 million to 2 million tonnes a year is about what you could put into at the front end. The back end will do about 80,000 tonnes of copper. And look, we've run it at that when we had the ore high grade, we run it at that. We're capped at about 1.7 million tonnes per annum on the water, so our own water, 1.45 million tonnes. The deal we did with Polymetals to secure that extra 150 megaliters of water that gets to 1.7. And so we sort of think about 1.7-ish, 1.8 as our target to get there from all sources. And you've got to think it's not necessarily high grade.

I'm not sure if it's mine or your end, Mick, but yes, breaking up quite a bit here.

I'm not sure if it's my end or your end, Mick, but yes, there's a lot of breaking up here.

Yes, yes. Look, maybe I guess you've confirmed that sort of 1.8 is the magic number for the plant. So I guess it boils down to where you get the material from to fill that 1.8. The line's really bad. I'll check the transcript after the call, Mick, and if I have any other questions on that, I'll just give yourself or Morné a call directly. Apologies.

The next question comes from Eric Winmill. Please go ahead.

Great. Thanks for taking my question and congrats, Mick and team. Hopefully you can hear me okay. There's definitely the lines breaking up a bit here but just a quick question on the reserve and resource update, perhaps you mentioned it, but how much new drilling do you think is going to go into that or where's the cutoff on the drilling for that?

Sure. I managed to get it back online. There'd be 30,000, 35,000 meters of drilling in the new resource update. The data was cut off; I think it was at the end of September, October.

Okay. Fantastic. Thank you. And maybe just a question on the tailings, you're doing this stage 10 embankment now. How long is that going to set you up for and what do you see as the CapEx around that?

Yes. So the CapEx on that’s about US$12 million-ish in total. I got A$18 million. It might come out to be a little bit less because obviously the Aussie dollar's dropped. I'm just trying to find the slide; and once that's built at the end of sort of Q3 early Q4 this year, that takes us out to about 2030. So the sales end is done until 2030. There we go. So we're spending that money now and then we're set up for the next five years.

Fantastic. Thank you. And maybe just one more question on the upper portion there. I know you said that we'll make in the resource, but I know some of the initiatives there in terms of digitizing and obviously a little more zinc. Anything you're seeing there you want to follow-up on and maybe kind of catch your interest here that you might want to look out for.

We have completed the historical drilling and have digitized all the old level plans and geo-referenced them. There's a significant high-grade zinc ore body at the top, along with a lower grade but still relatively good copper deposit compared to other mines. We believe we can increase production from this sizeable copper deposit. The current work is progressing, and I genuinely think we have a more promising project than other undeveloped copper assets in Australia.

All right. Fantastic. Thanks for that. Appreciate it. And yes, congrats again. I'll hop back in the queue. Cheers.

Thank you.

This concludes the question-and-answer session. I would like to turn the conference back over to Mick McMullen for any closing remarks. Please go ahead, Mick.

Okay. Thank you, everyone. I think we feel very proud, like the team at site has done a great job for the quarter and for the year. It's been a very strong result. I think the company has never been in a better position and we look forward to continuing to deliver. And I guess, we'd like to think that we're as advertised on the team. We've delivered on what we said we would deliver and then some. And we're feeling pretty confident about that mine out there now about our pathway to organic growth and that's it. Thanks everyone for your time.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.