OPPORTUNITY REDEFINED 2012 ANNUAL REPORT

Transcription

1 OPPORTUNITY REDEFINED 2012 ANNUAL REPORT

2 CORPORATE DIRECTORY DIRECTORS Derek La Ferla Non-Executive Chairman Karl M Simich Managing Director & Chief Executive Officer W John Evans Executive Technical Director Soocheol Shin Non-Executive Director Robert N Scott Non-Executive Director MANAGEMENT & COMPANY SECRETARY Matthew L Fitzgerald Chief Financial Officer & Company Secretary Martin Reed Project Manager - DeGrussa Robert Klug Commercial Manager - Legal Counsel PRINCIPAL PLACE OF BUSINESS & REGISTERED OFFICE Level 1, 31 Ventnor Avenue West Perth WA 6005 T: F: E: admin@sandfire.com.au W: SHARE REGISTRY Security Transfer Registrars Pty Ltd 770 Canning Highway Applecross WA 6153 T: F: E: registrar@securitytrandsfer.com.au AUDITORS Ernst & Young Ernst & Young Buillding 11 Mounts Bay Road Perth WA 6000 HOME EXCHANGE Australian Securities Exchange Limited Exchange Plaza 2 The Esplanade Perth WA 6000 ABN ASX CODE Ordinary fully paid shares: SFR

3 CONTENTS 2 DIRECTORS AND MANAGEMENT 4 OUR VISION 5 HIGHLIGHTS AND ACHIEVEMENTS 6 CHAIRMAN S LETTER 8 MANAGING DIRECTOR S REPORT 10 OPERATIONS REVIEW 19 ENVIRONMENT AND SOCIAL RESPONSIBILITY 20 HEALTH AND SAFETY 21 OUR PEOPLE 22 SCHEDULE OF EXPLORATION AND MINING TENEMENTS 23 FINANCIAL REPORT 96 CORPORATE GOVERNANCE STATEMENT 102 ASX ADDITIONAL INFORMATION 104 IMPORTANT INFORMATION AND DISCLAIMER

4 BOARD OF DIRECTORS Derek LaFerla Karl Simich John Evans Soocheol Shin Robert Scott Mr Derek La Ferla Non-executive Chairman Qualifications B. Arts, B. Juris, B. Law, Fellow of AICD Mr La Ferla has been a corporate lawyer for over 25 years and is a partner with international law firm, Norton Rose Australia. He is one of two national team leaders for the firm s Corporate Advisory Group (which includes mining and resources). Mr La Ferla also has considerable experience as a company director and is the chairman of Cashmere Iron Limited and OTOC Limited. He has also previously served on the Norton Rose Australia national board (while the firm was Deacons) and listed investment company, Katana Capital Limited. He is a fellow of the Australian Institute of Company Directors. Mr Karl M Simich Managing Director and Chief Executive Officer Qualifications B.Comm, FCA, F.Fin Mr Simich is an experienced international mining executive who has been involved in the financing, construction, development and operation of five mining projects in New Zealand, Australia and Africa. Specialising in resource finance and corporate management, Mr Simich has been a Director of and held senior executive positions with a number of ASX-listed mining companies. Mr Simich is a Fellow of the Institute of Chartered Accountants and a Fellow of the Financial Services Institute of Australasia and has completed post-graduate studies in business and finance. Mr W John Evans Executive Technical Director Qualifications B.Sc Mr Evans graduated from the University of Auckland New Zealand in 1970 with B.Sc. Major in geology. Between 1970 and 1987, he was employed by various divisions of CRA Limited, including being in charge of all field operations for iron ore in the Pilbara, Western Australia and gold and base metals in the Murchison, Western Australia. He was the Managing Director of Marymia Exploration NL for 12 years until 2002 and has been a geological consultant to numerous companies during and since. Mr Soocheol Shin Non-executive Director Qualifications B.Sc Mr Shin is the Managing Director of POSCO Australia Pty Ltd (a wholly-owned subsidiary of the Korean steelmaker POSCO), which holds 15.5 percent of the Company s issued capital. Mr Shin joined POSCO in 1989 and has held a variety of positions throughout his career, including Project Manager, POSCO Australia Pty Ltd; Team Leader, Coal Procurement Group; Team Leader, Steel Making Raw Materials Procurement Group and Group Leader, Raw Materials Transportation Group. He was appointed Managing Director of POSCO Australia in February Mr Robert N Scott Non-Executive Director Qualifications FCA Mr Scott is a Chartered Accountant with 35 years experience as an adviser on corporate services and taxation. He currently consults on corporate structuring and taxation planning for major accounting firm, Gooding Partners Chartered Accountants. Mr Scott holds a fellowship of the Australian Institute of Chartered Accountants and the Taxation Institute of Australia. He is also a member of the Institute of Company Directors. Mr Scott serves on the boards of Amadeus Energy Limited, CGA Mining Limited, Homeloans Limited and Neptune Marine Services Limited. [2] SANDFIRE ANNUAL REPORT 2012

5 MANAGEMENT Matthew Fitzgerald Martin Reed Robert Klug Mr Matthew Fitzgerald Chief Financial Officer and Company Secretary Qualifications B. Comm, CA Mr Fitzgerald is a chartered accountant with extensive experience in the resources industry. He began his career in the Assurance & Advisory division of KPMG, before joining ASX-listed Kimberley Diamond Company NL in 2003, where he held the position of Chief Financial Officer and Director until July Mr Martin Reed Project Manager Degrussa Qualifications BE (Mining), Grad Dip Management, AICD Diploma Mr Reed is a highly experienced Mining Engineer with over 30 years experience across a range of commodities and sizes of operations including most recently as Chief Operating Officer for a number of metals companies including St Barbara Limited ( and 2009) and Windimurra Vanadium Limited (2008). In 2007, Mr Reed was also General Manager Development & Operations for Paladin Energy Ltd during the final ramp-up phase of its Langer Heinrich Uranium Mine in Namibia. Prior to these appointments, Mr Reed held a number of senior executive positions in the mining industry including roles where he was responsible for the planning and development of several large mining operations in remote locations. Mr Robert Klug Commercial Manager Legal Counsel Qualifications B.Com, LL.B Mr Klug has held accounting, senior legal and corporate finance roles in his 18 year career. Initially trained as an auditor with KPMG Perth, Mr Klug worked in London as a corporate lawyer after having completed his law degree at Murdoch University in Perth. Upon his return to Perth, he joined Freehills Perth Office, where he worked almost exclusively with small and mid cap resource companies. After a number of years at Freehills Mr Klug worked in corporate finance as a Director of Carmichael Capital Markets, the Corporate Finance arm of DJ Carmichael Stockbrokers. In 2005, Mr Klug became General Manager Business Development with St Barbara Limited until St Barbara relocated its head office to Melbourne in early 2007 when he joined Heron Resources Limited in a senior management role. SANDFIRE ANNUAL REPORT 2012 [3]

6 OUR VISION Deliver superior returns to our owners from the premier high-grade DeGrussa VMS copper-gold mine Discover additional VMS deposits within the emerging Doolgunna mineral field Explore for, develop and mine key raw materials, in Australia and overseas Foster and develop long-term strategic relationships with raw material end-users and traders Maintain the highest standards of safety, integrity and quality at all times Develop a world-class mining company A MULTI-PRONGED GROWTH STRATEGY [4] SANDFIRE ANNUAL REPORT 2012

7 HIGHLIGHTS & ACHIEVEMENTS During 2012, Sandfire became Australia s newest copper producer with the development, construction and commencement of commissioning of its flagship DeGrussa Copper Mine in Western Australia, on time and on budget. The start of production just over three years from the discovery drill-hole represents an outstanding achievement. Shipping of high-grade direct shipping ore (DSO) commenced in May 2012, with cash flows building from the open pit phase of operations as construction of the 1.5Mtpa DeGrussa Concentrator was progressed. First copper concentrate was produced from DeGrussa in early October 2012, with ore commissioning of the processing facility underway and ramp-up to steady-state, nameplate production rates on track for 1H Copper production from open pit DSO and underground sulphides is targeted at 77,000 tonnes for the 2013 financial year. Open pit and underground mining progressed on schedule with over 10 million bank cubic metres of material mined in the open pit and 7.2km of underground development completed to date. The first stoping ore from underground was successfully mined well ahead of schedule in early October Product sales agreements were finalised for 100 per cent of DSO production and the first product sales agreements were secured for copper concentrate. Sales agreements for remaining concentrate are expected to be finalised prior to the end of CY2012. Design studies and statutory approvals commenced for a separate Oxide Copper Processing Plant and infrastructure at DeGrussa following the announcement of a Maiden Oxide Copper Ore Reserve (Proved and Probable) of 2.3% Cu for 23,000 tonnes of contained copper. Processing of oxide copper reserves is targeted to commence during CY DEGRUSSA OPEN PIT Sandfire s achievements in delivering the DeGrussa Copper Mine on time and on budget were recognised with the Company receiving the prestigious Digger of the Year Award at the 2012 Diggers & Dealers Mining Forum in Kalgoorlie as well as the Developer of the Year Award at the 2012 Mines and Money Forum in Sydney. Extensive exploration programs have progressed at DeGrussa and within the broader Doolgunna Project. The Company is employing leading exploration technologies over the 30km strike length of the DeGrussa Mine Corridor, which has been confirmed as a highly prospective VMS mineralised environment. Sandfire expanded its Business Development and Project Generation activities, both in Australia and abroad, securing new exploration projects and farm-in joint ventures for copper-gold and base metals in North Queensland, porphyry copper-gold in the Lachlan Fold Belt of NSW and porphyry copper in Chile and Peru. An in-house Business Development team is actively reviewing growth opportunities. SANDFIRE ANNUAL REPORT 2012 [5]

8 In the space of just threeand-a-half years from the discovery drill hole, Sandfire has completed its impressive transformation from a junior explorer to mid-tier copper producer. Sandfire Chairman, Derek La Ferla CHAIRMAN S LETTER Dear Shareholder, In our 2011 Annual Report, I observed that our performance as a company would ultimately be judged by the way we capitalised on one of Australia s most stunning exploration success stories - DeGrussa. With these words in mind, I trust that you will agree that the past year can be judged, by almost any measure, as a great success. Drawing on a culture of hard work, professionalism, teamwork and commitment which, I am pleased to say, is now firmly embedded in all corners of our growing organisation, we have delivered a new copper-gold mine on time and on budget a rare achievement in the current environment in the Australian resource sector and something we made clear was our primary focus in our 2011 Annual Report. This means that, in the space of just three-and-a-half years from the discovery drill hole, Sandfire has completed its impressive transformation from a junior explorer to mid-tier copper producer. The sequence of project milestones achieved (and outlined later in this Annual Report) is a direct reflection of the quality and depth of our management team. I would like to take this opportunity to thank them for their strong leadership and contribution. In particular, I would like to recognise the efforts of our Managing Director & CEO, Karl Simich, and our Project Manager, Martin Reed, for leading the teams which have brought the DeGrussa Project to fruition with such clinical efficiency. All of our staff, employees and contractors should take great pride in the awards and tributes which have been received by the Company over the course of the year. These have included the prestigious Digger of the Year Award at the 2012 Diggers & Dealers Mining Forum in Kalgoorlie, as well as the Developer of the Year Award at the 2012 Mines and Money Forum in Sydney. [6] SANDFIRE ANNUAL REPORT 2012

9 SANDFIRE SHARE PRICE PERFORMANCE Based on the exceptional progress made by the Sandfire team over 2012, the coming 12 months will see the Company hit fullscale production at DeGrussa, cementing its position as one of Australia s premier new mine developments. This is also an excellent time to commence our high-grade copper mine operations, with copper having been one of the most resilient and best-performing commodities of recent times and the long-term demand outlook for copper remaining strong (in contrast to some other commodities). With an exceptional life-of-mine mine grade of over five per cent copper, DeGrussa remains one of the standout new copper mines in the Asia-Pacific region an exceptionally robust, high-margin project which is projected to generate a level of financial return that would be the envy of many in the mining industry. The strong cash flows generated by DeGrussa will allow us to achieve a balance of organic growth, shareholder returns and business development that will underpin next chapter of Sandfire s growth. As I said last year, our performance will ultimately be judged by the extent to which we are able to build a successful Australian mining company. Delivering the DeGrussa mine on time and on budget was a key first achievement in the realisation of this strategy, and we will continue to work hard to put in place further key pillars for our future growth, both at DeGrussa and elsewhere. The Company has announced some exciting asset-driven exploration and project joint venture initiatives in Australia and overseas, and shareholders can expect to hear more about these activities in the months ahead without losing sight of our core focus on maximising the value and returns from our core asset at DeGrussa. In conclusion, I would like to thank my fellow directors for their support and contribution during the year and once again, congratulate our management team, staff and contractors for their prodigious efforts, which have helped Sandfire maintain its position as one of Australia s most exciting mining success stories. May I also take this opportunity to thank you, our shareholders, for your valued and continued support throughout the year. We look forward to delivering another highly productive and rewarding year for Sandfire and its shareholders. Derek La Ferla Chairman SANDFIRE ANNUAL REPORT 2012 [7]

10 With ore commissioning of the DeGrussa Concentrator now well underway, we are on track to deliver strong, sustained cash flow for many years into the future, providing a strong foundation for our next chapter of growth. Karl Simich, Managing Director & CEO MANAGING DIRECTOR S REPORT I am delighted to report to shareholders on what has been one of the most exciting years in Sandfire s history, during which we have made the all-important transition from explorer to producer at our flagship DeGrussa Copper-Gold Project, located 900km north of Perth in Western Australia. The rapid and efficient development of this mine has transformed Sandfire into Australia s newest copper producer, allowing us to continue to maximise the value of the Company for our shareholders as we ramp-up to full-scale commercial production by early next year. This exceptional achievement would not have been possible without the dedication and hard work of our development and operations team led by our Project Manager, Martin Reed, and the General Manager Operations at DeGrussa, Craig Dawson and I would like to sincerely acknowledge their efforts and those of my executive team and operations group in helping the Company achieve another outstanding year of growth. The sequence of project milestones achieved during the year is worth briefly recapping here: Mining of open pit and underground ore commenced at DeGrussa in February 2012, less than three years after we drilled our first discovery drill hole a truly remarkable achievement. At the time of writing this report, over 10 million bank cubic metres of material had been mined from the open pit and more than 7.2km of underground development had been completed; Our first shipment of high-grade chalcocite Direct Shipping Ore (DSO) mined from the open pit departed Geraldton in May, signalling the start of cash flow from DeGrussa; We secured the first product sales agreement for the sale of copper concentrate in July, following the sales contracts for Direct Shipping Ore finalised last year; Construction of the 1.5Mtpa DeGrussa processing plant progressed on time and on budget through the course of the year, with commissioning of the [8] SANDFIRE ANNUAL REPORT 2012

11 plant commencing in mid-september with the introduction of crushed rock into the SAG mill; First copper concentrate was produced from the plant in early October with ore commissioning underway at the time of writing this report; and First stoping ore was mined ahead of schedule in the first week of October, with the first stope to be mined containing over 130,000 tonnes of sulphide material with an estimated average grade of 5.1% copper. At a time of significant volatility and uncertainty in global financial markets, Sandfire has been able to maintain and enhance shareholder value, with the market capitalisation of the Company increasing to around $1.3 billion over the past year and its enterprise value rising to $1.7 billion at the time of writing this report. With ore commissioning of the DeGrussa Concentrator now well underway, we are on track to deliver strong, sustained cash flow for many years into the future, providing a strong foundation for our next chapter of growth. With a world-class Mineral Resource inventory containing some 630,000 tonnes of copper and 700,000 ounces of gold, DeGrussa is capable of generating exceptional operating margins. This financial return should allow us to achieve a balanced mix of shareholder returns, organic growth and business development. Our priority remains to complete the ramp-up of production at DeGrussa and to maximise the value of this high-quality asset for shareholders in the months and years ahead to enable us to achieve our primary objective which is to deliver superior returns to our owners. While ramping up production at DeGrussa remains our key immediate priority, we are also building a pipeline of highquality assets to sustain growth over the long term. Our vision is to build a leading diversified mining company. To this end, the Company s Board and senior management team has, with the support and advice of expert independent advisors and consultants, embarked upon a comprehensive strategic review of our future direction. Some of the key pillars of our growth strategy are already beginning to take shape, and they form the backdrop to what we see as a multi-pronged growth strategy. The key elements of this strategy include: Production ensuring that we continue to hit all of our goals and milestones at DeGrussa, successfully ramping copper production to the initial targeted level of 77,000tpa during FY 2013 and maintaining operating costs within targeted levels; Near-mine exploration maintaining a comprehensive and aggressive exploration program targeting additional VMS deposits along the +30km mine corridor extending either side of DeGrussa and within our broader 400km 2 tenement holding at DeGrussa. We are currently spending over $20 million per year on exploration to unlock the next generation of VMS deposits, utilising some of the world s most sophisticated exploration technologies; Australian regional exploration conducting focused exploration programs within a growing portfolio of exploration projects, either held 100 per cent or through farm-in joint ventures, in prospective mineral provinces across Australia with the potential to yield Tier One discoveries. Opportunities secured during the year included the Kennedy Highway Joint Venture and Altia Joint Venture in North Queensland, targeting copper gold and base metal deposits, the Bland Creek Joint Venture in NSW, targeting porphyry copper gold, and a new Gawler Craton exploration initiative in South Australia where we are targeting Prominent Hill-style deposits; International exploration targeting high-quality opportunities with genuine potential to add shareholder value. Activities during the year included project generation in South America, focused on Chile and Peru, where we have secured a significant ground position prospective for porphyry copper systems; and Business development targeting assets which can add genuine value, either through acquisition or corporate opportunities. I am looking forward to continuing to work with the talented and hard-working team of people we have assembled at Sandfire to further develop and then implement this strategy. Given the strength of our assets, the quality of our people and the financial capability that production and cash flow from DeGrussa will give us, I have no doubt that Sandfire is poised to capitalise on our success over the past three years and move on to its next chapter of growth. Karl Simich Managing Director & CEO SANDFIRE ANNUAL REPORT 2012 [9]

12 OPERATIONS REVIEW DEGRUSSA COPPER PROJECT The DeGrussa Project is located 900km north of Perth and approximately 150km north of the regional mining centre of Meekatharra in Western Australia. The tenement package, known as Doolgunna, covers a total area of 400km2 in an emerging copper-gold mineralised belt in the Bryah Basin close to existing mines and infrastructure. Construction & Development Construction and development was the major focus of activity at the DeGrussa Project during the year, as the Project Development Team worked to a rigorous timeline of key milestones and objectives. Significant progress was achieved with the overall project 86 per cent complete by the end of the 2012 financial year and 95 per cent complete by the end of September A key component of the overall DeGrussa Project development was construction of the 1.5Mtpa DeGrussa Concentrator, with direct site construction over 73 per cent completed by the end of the 2012 financial year, commissioning of selected areas of the concentrator commencing in August 2012 and ore commissioning commencing in October Development and construction of key site infrastructure and services was also largely completed during the year. Following is a summary of key infrastructure, construction and development items at DeGrussa over the course of the year, up to the time of writing this report: The engineering, procurement and construction (EPC) contractor, Abesque, mobilised to site during the December 2011 Quarter for the start of plant construction, following completion of all major bulk earthworks for the plant site. All structural concrete and key civil works were completed at the concentrator during the first half of the year, including delivery and installation of all major equipment items. Structural steel erection, piping and electrical work commenced by mid-year, following completion of major concrete foundations for the SAG mill, ball mill and crushed ore bin. The onsite Power Station was connected during April 2012 and installation of the power supply to the process plant was also completed to allow commissioning of the concentrator. Mechanical installation of the milling and flotation areas was undertaken, with the SAG and ball mill drive train alignments and first rotation of the mills completed in August Construction of the Tailings Storage Facility (TSF) was completed during the year. Construction of the Paste Plant commenced and was well advanced at the time of writing this report, due for completion in November The DeGrussa Aerodrome was completed and commissioned and is now fully operational with aircraft now regularly transporting the fly-in, fly-out workforce. The installation of the 600-room mine village was completed. The mobile phone service was fully commissioned and fibre optic communications links were installed. Construction of the sealed access road to the Great Northern Highway was also completed. [10] SANDFIRE ANNUAL REPORT 2012

13 The container terminal facility within the Port Hedland port precinct is underway and is due for completion in November This facility will be used for the export of DeGrussa concentrate. Commissioning of the DeGrussa Concentrator commenced in September 2012 following the introduction of crushed rock to the SAG mill and establishment of slurry flow through to the tailings storage facility. First copper concentrate was successfully produced in early October 2012 with ore commissioning of the processing facility underway. Open Pit and Underground Development Following commencement of the open pit pre-strip and box-cut development during April 2011, mining continued in the DeGrussa open pit and in the underground mine during the year, with excellent progress achieved. A summary of production from the open pit and underground mine is provided below: June 2012 Quarter March 2012 Quarter Project to Date Open pit material mined bcm 2,120,000 1,862,000 8,752,000 DSO copper mined tonnes 13,000 5,000 17,000 Cu % Au g/t Oxide copper mined (>1% Cu) tonnes 103, , ,000 Cu % Au g/t Oxide copper mined (<1% Cu) tonnes 263, ,000 1,208,000 Cu % Au g/t Oxide gold mined (>1.5g/t Au) tonnes 21,000 1, ,000 Au g/t Oxide gold mined (<1.5 g/t Au) tonnes 85, ,000 Au g/t Massive sulphides tonnes 27,000 1,000 28,000 Cu % Au g/t Underground decline development m ,460 Underground lateral development m 1,932 1,365 4,748 Shipped tonnes 6,500-6,500 Cu % Au g/t The first DSO was mined from Stage I of the open pit during February 2012 and 17,000 tonnes of chalcocite DSO grading 28.0% Cu and 4.8g/t gold was mined to the end of the 2012 financial year. In addition, a significant portion of the Oxide Copper Ore Reserve has already been mined and stockpiled (see Oxide Copper Reserve below). Open pit mining remained on schedule throughout the year, with a total of 7.0Mbcm of material mined from Stage I and 1.8Mbcm mined from Stage II to the end of the 2012 financial year. The planned open pit was over 65 per cent complete and at a depth of 85 metres below surface as at 30 June Chalcocite below the DSO cut-off grade and massive sulphide was mined, stockpiled and processed during the commissioning and initial production phases of the 1.5mtpa on-site concentrator commencing in Q3 CY At the base of the planned Stage II open pit is 0.14Mt of massive sulphide ore at a grade of 3.8% Cu, which was originally included within the Underground Ore Reserve, but instead will be mined during the Stage II open pit. The massive sulphide is scheduled to be processed in mid-cy As a result of this massive sulphide ore now being mined as part of the open pit and the maiden Oxide Copper Ore Reserve, the overall Open Pit Ore Reserve for the DeGrussa Project, stated as at 31 March 2012, totals 1.63 million 4.9% Cu and 1.2g/t Au, for 79,000 tonnes of contained copper and 64,000 ounces of contained gold. SANDFIRE ANNUAL REPORT 2012 [11]

14 OPERATIONS REVIEW (continued) Underground mine development also progressed on schedule during the year, with the Evans Decline advancing to 1,460m from the portal and 234m below surface to 30 June A total of 4,748m of lateral and vertical underground development was completed to the end of the 2012 financial year. To the end of September 2012, the Evans Decline had advanced 1,853 metres from the portal with total underground development exceeding 7km. The first stoping horizon in the Conductor 1 orebody was fully developed during the year with development of the second horizon well advanced. The first stoping ore was fired and successfully mined well ahead of schedule in the first week of October 2012, representing a key milestone for the underground mining operations. The first stope to be mined includes over 130,000 tonnes of sulphide material with an estimated average grade of 5.1% copper. Underground mining will now progressively ramp up, with full production rates expected to be achieved in the first half of Sales Agreements During the year, Sandfire secured product sales contracts covering 100 per cent of the direct shipping ore (DSO) to be produced from the DeGrussa Project, on commercial terms in line with normal concentrate agreements. These agreements build on the strong relationships and strategic partnerships Sandfire already has in place globally. The first sales agreement was signed on 4 November 2011 with international trading company MRI Trading AG to purchase 50 per cent of DSO production, up to a maximum of 75,000 dry metric tonnes (dmt), for a 1-year period. MRI purchases DSO on a CIF (Cost, Insurance and Freight) basis with the remaining commercial terms of the contract being confidential. A second agreement was signed with Yunnan Copper Corporation Ltd on 15 December 2011 for the remaining 50 per cent of DSO production. This contract is for the purchase of a minimum of 70,000dmt of DSO between April 2012 and March Yunnan Copper will purchase the DSO on a CIF basis with the remaining commercial terms of the contract being confidential. The first shipments under these contracts occurred during the second Quarter of Subsequent to the end of the financial year, on 20 July 2012, Sandfire concluded its first sales agreement for copper concentrate production from the DeGrussa Project, commencing January This contract, with an international trading house, follows a highly successful off-take marketing process for DeGrussa concentrate, during which firm offers were received from a wide range of smelters and traders short-listed to receive the final invitation to bid. Sandfire is aiming to finalise product sales agreements with 4-5 concentrate customers for up to 3-year initial terms to cover the bulk of its concentrate production, while allowing for delivery of a portion of its production into the spot market with these or other customers. Shipments On 21 May 2012, the first shipment of high-grade DSO from the DeGrussa open pit was loaded on the Flinterland at the Port of Geraldton and departed for customers in China. The shipment comprised 6,500 dry tonnes (7,000 wet tonnes) of DSO grading 34% Cu. This shipment marked Sandfire s transition to producer status from its open pit operations, with regular DSO shipments scheduled over the remainder of CY 2012 as the open pit progresses. Further shipments have continued subsequent to year end. The high-grade DSO mined from the open pit is being sold under the sales contracts secured with MRI and Yunnan Copper as outlined above. Feasibility Studies, Metallurgy, Ore Reserves and Mineral Resources Metallurgical work continued during the year focusing on the oxide resources within the DeGrussa open pit. Investigations into a suitable processing route for the oxide copper ore commenced in 2011, culminating in successful bench-scale processing to produce a saleable concentrate. This has enabled conversion of the higher grade portion of the previously announced Measured and Indicated open pit Oxide Copper Mineral Resources to Ore Reserves. Subsequent to year end, Sandfire announced a maiden Proved and Probable Ore Reserve estimate for the Oxide Copper from the open pit, totaling 2.3% Cu, for 23,000t of contained copper. Following completion of the Ore Reserve estimate, Sandfire has commenced design studies and statutory approvals for an oxide copper circuit at DeGrussa, which is expected to provide a low-cost, high-margin addition to its production profile. First production from the Oxide Copper Ore Reserve is planned to begin in CY 2013, in addition to the annualised production profile in the first three years of operations of 77,000tpa of copper and 36,000ozpa of gold. A significant portion of the Oxide Copper Ore Reserve has already been mined and stockpiled as part of the DeGrussa open pit operations. As at 30 June 2012, 0.58 million tonnes of copper oxide ore grading 1.9% Cu and 1.0g/t Au had been mined from the open pit and stockpiled in close proximity to the planned Oxide Copper Processing Plant. [12] SANDFIRE ANNUAL REPORT 2012

15 DEGRUSSA OPEN PIT Table 1: DeGrussa Copper-Gold Project - Open Pit Ore Reserve stated as at 31 March 2012* Reserve Classification Treatment Destination Deposit Material Tonnes (Mt) Copper (%) Gold (g/t) Contained Copper (t) Contained Gold (oz) Proved Ore Sale Laterite Gold ,000 Proved Oxide Processing/ Oxide Copper ,000 11,000 Concentrator Probable Oxide Processing/ Concentrator Oxide Copper ,000 7,000 Probable Direct Sale Ore Chalcocite ,000 12,000 Probable Massive Sulphide Chalcocite ,000 7,000 Concentrator Conductor 1 MS ,000 9,000 DeGrussa MS ,000 8,000 Total Proved & Probable ,000 64,000 * Ore Reserves contained in this table have been updated from the Ore Reserve Statement disclosed by the Company on 29 March Mining activities, including stockpiling, and sale of product have continued since 31 March Table 2: DeGrussa Copper-Gold Project Ore Reserve Statement stated as at 31 March 2012* SANDFIRE ANNUAL REPORT 2012 [13]

16 OPERATIONS REVIEW (continued) Deposit Reserve Category Mining Method Tonnes (Mt) Copper (%) Gold (g/t) Contained Copper (t) Contained Gold (oz) Laterite Gold Proved Open Pit ,000 Copper Oxide Proved Open Pit ,000 11,000 Copper Oxide Probable Open Pit ,000 7,000 DeGrussa Probable Open Pit - DSO ,000 12,000 DeGrussa/C1/ Chalcocite Probable Open Pit ,000 25,000 DeGrussa Probable Underground ,000 90,000 Conductor 1 Probable Underground , ,000 Conductor 4 Probable Underground ,000 30,000 Total Proved ,000 20,000 Total Probable , ,000 Total Proved & Probable , ,000 * Ore Reserves contained in this table have been updated from the Ore Reserve Statement disclosed by the Company on 29 March Mining activities, including stockpiling, and sale of product have continued since 31 March A cut-off grade of 8.5% Cu is applied on the Chalcocite to provide a targeted 26% Cu direct sale product. All other material within the defined deposit boundaries has been included in the reporting of Ore Reserves with any sub-economic grade material being treated as internal dilutents. These Ore Reserves include an overall assumption of 2.5% mining dilution at nil grade for all grade categories along with an assumed 2.5% mining loss of ore tonnes when mined. Calculations rounded to the nearest 10,000 tonnes; 0.1% Cu grade, 0.1 g/t Au grade; 1,000 tonnes Cu metal and 1,000 ounces Au metal. Errors of rounding may occur. The in-situ Ore Reserves occur within an open pit design containing 14Mt of total material, resulting in a waste to ore strip ratio of 12:1. Low grade laterite gold stockpiles are not included in reserve % Cu lower cut-off grade has been applied to the copper oxide open pit in-situ Ore Reserves. The reported copper oxide stockpiles only include existing stockpiles with an estimated average grade above 1.0 % Cu. 3 Mining recovery factor of 95% applied to diluted stoping blocks, with cut-off grade of 1.5% Cu and minimum stope size of 2,000t. Calculations rounded to the nearest 1,000t, 0.1%, 0.1g/t and 1,000 ounces; errors of rounding may occur; assumes commodity prices of US$7,673/t for copper and US$1,300/oz for gold with a USD/AUD exchange rate of $0.86; assumes 91% metallurgical recovery rate. Table 3a: Total in situ Mineral Resources stated as at 31 March 2012 Zone - in situ Resource Category Tonnes (Mt) Copper (%) Gold (g/t) Contained Copper (t) Contained Gold (oz) Competent Person Au Laterite Measured ,000 1 Copper Oxides Measured ,000 1,000 1 Indicated ,000 16,000 1 Supergene Chalcocite Indicated ,000 19,000 2 Inferred ,000 7,000 1 Primary Massive Sulphides Indicated , ,000 1 Inferred , ,000 1 Total , ,000 [14] SANDFIRE ANNUAL REPORT 2012

17 Table 3b: Total Stockpiles stated as at 31 March 2012 Stockpile Resource Category Tonnes (Mt) Copper (%) Gold (g/t) Contained Copper (t) Contained Gold (oz) Laterite Gold Measured ,000 Copper Oxide Measured ,000 16,000 Supergene Chalcocite Measured ,000 - Total Measured ,000 28,000 Notes to Table 3a and 3b: Resources are stated inclusive of Ore Reserves. Refer to the Competent Person s Statements Mineral Resources: 1 Competent Person for these zones of resource was Diederik Speijers of McDonald Speijers. 2 Competent Person for these zones of resource was David Slater of Coffey Mining. VMS Exploration Sandfire has an annual exploration budget of $20-25 million for exploration programs targeting additional high-value VMS copper-gold deposits immediately along strike from the DeGrussa Project and within the broader surrounding Doolgunna Project. The rapid discovery and development of the four VMS lenses at DeGrussa, combined with the application of sophisticated exploration technologies, has enabled Sandfire to develop a detailed regional geological model and close understanding of the structure and controls on the Volcanogenic Massive Sulphide (VMS) style of mineralisation in the region. The Company has identified a 30km long, 1.2km wide prospective corridor that is yet to be fully explored at depth. Of this corridor, only 1.2km strike length has been intensively explored to 600m vertical depth with only minimal drilling conducted below 50m depth outside of the central mine corridor. Most significant VMS deposits occur in clusters that define major mining camps and major sources of global copper, zinc and lead production. Based on this knowledge, Sandfire believes there is strong potential to identify major new discoveries within the Doolgunna Project area. Sandfire conducted a comprehensive near-mine and regional exploration program during the year aimed at identifying repeats of the DeGrussa VMS copper-gold deposits. The Company has adopted a systematic and scientific approach to exploration of the Doolgunna Project. Key elements of this have included: Extensive regional drilling to define prospective VMS sequences; Re-logging and spectral scanning to define alteration systems; and Systematic drilling of regional targets, with over 150,000m of diamond, RC, RAB and aircore drilling completed during the 2012 financial year. Sandfire has developed a robust structural model to assist with near-mine exploration while also applying innovative new techniques to establish baseline data over known deposits. VMS mineralising environment confirmed over +30km long, 1.2km wide corridor; Minimal exploration below 100m host sequence at depth still to be explored; DeGrussa deposit extends has a strike length of just 1.2km, small footprint, high value. A combination of mapping, geochemistry, structural geology, geophysics and extensive regional drilling has confirmed that the VMS mineralising environment at DeGrussa extends over a strike length of more than 30km, within a 1.2km wide corridor. The DeGrussa deposit itself has a strike length of just 1.2km. Numerous priority target areas have been identified over the course of the year, which are being systematically tested by a combination of aircore, RC and diamond drilling, as well as down-hole electro-magnetic surveys. As part of ongoing regional drilling to test priority copper and gold anomalies within the Doolgunna Project, drilling at the DGAC1042 gold anomaly, located 11km south-west of DeGrussa, returned significant widths and grades of gold mineralisation. SANDFIRE ANNUAL REPORT 2012 [15]

18 OPERATIONS REVIEW (continued) AUSTRALIAN REGIONAL EXPLORATION Borroloola Project, Northern Territory (100%) The Borroloola Project comprises a total area in excess of 10,000 square kilometres of tenements and tenements under application in the Northern Territory. The tenements are located north of the McArthur River Mine (Xstrata), the second largest SEDEX base metal deposit in the world. The McArthur River deposit initially contained 230 million tonnes at a grade of 13% combined lead and zinc. Sandfire s tenements cover a strike length of approximately 100km of the Emu Fault Zone, which is the controlling structure of the McArthur River deposit. The Borroloola tenements are also prospective for sedimentary manganese mineralisation, similar to the world-class Groote Eylandt manganese deposits (BHP) in the Gulf of Carpentaria, uranium and iron ore. Sandfire conducted a significant exploration program during the year with drill testing of a number of priority base metal targets. The previous field season concentrated on testing a number of copper targets at tawallah, Lead-Zinc targets at Rosie Creek and regional targets identified by regional geophysics and a review of the regional geology. The Rosie Creek prospect, along the Emu Fault Corridor was highlighted as the highest priority region for the 2012 field season and a number of diamond holes will test prospective SEDEX lead-zinc targets along the active fault systems. Drilling commenced in the third quarter of Kennedy Highway Project, Queensland The Kennedy Highway Project includes five exploration licences in the Eastern Succession of the Mount Isa Block, south of Cloncurry. The tenements are prospective for Broken Hill Type lead-zinc-silver deposits similar to the high grade Cannington mine (BHP) to the north and Iron Oxide Copper-Gold deposits similar to the Ernest Henry Mine (Xstrata). The project includes a number of prominent magnetic and gravity anomalies related to large magnetite-rich deposits considered to be prospective for copper and gold mineralisation or more subtle anomalies prospective for lead-zinc-silver deposits. An option agreement for a Joint Venture is in place on one granted licence with Global Resources Corporation Ltd, whereby Sandfire can earn up to an 80 per cent interest by funding exploration. A further four tenement applications, to be 100%-owned by Sandfire, are expected to be granted shortly. [16] SANDFIRE ANNUAL REPORT 2012

19 An option agreement was signed with Global Resources Ltd in November 2011 in which Sandfire can earn an initial 60% interest by spending A$3 million on exploration over a three-year period, and can then elect to increase its stake to 80% by spending a further A$3 million over the subsequent three years. Sandfire can withdraw after spending a minimum of A$0.4 million within the first year of the Joint Venture. A drilling program commenced on the Kennedy Highway Joint Venture project in June 2012 to test two combined magnetic and gravity targets under deep cover. The holes were completed with a total of 2,420m of drilling completed. The holes intersected strong skarn style alteration with associated secondary magnetite but did not intersect significant mineralisation. The holes explained the geophysical target anomalies with results pending. A further drilling program will be conducted during 2013 to test further high priority targets in the region. Altia Joint Venture, North Queensland The Altia Project is located 70km south-east of Cloncurry in north-west Queensland. The project includes an option to Joint Venture into two areas encompassing 43.7 km2 with Breakaway Resources Limited (ASX: BRW) to earn up to 80% of the project. The tenements are prospective for Broken Hill style lead-zinc-silver deposits such as the nearby Cannington deposit (BHP) to the south and the Ernest Henry Iron Oxide copper-gold deposits (Xstrata) to the northwest. The Joint Venture area includes the Altia Deposit, where previous exploration has defined an Inferred Mineral Resource and a number of regional targets. Subsequent to the end of the financial year, Sandfire reached agreement with Breakaway Resources in which Sandfire can earn an initial 60% interest by spending A$4 million on exploration over a three-year period, and can then elect to increase its stake to 80% by spending a further A$4 million over the subsequent three years. Sandfire can withdraw after spending a minimum of A$1 million within the first year of the Joint Venture. The Altia deposit is part of a broad mineralised system and Sandfire intends to drill test a number of targets along strike including the Altia South, Altia North, Boralis and Capricorn anomalies. Detailed exploration will also target the prospective stratigraphy to define further drill targets. Bland Creek Project, New South Wales The Bland Creek Project lies 50 kilometres south-east of West Wyalong, New South Wales in the Lachlan Fold Belt of New South Wales. The tenements are prospective for porphyry copper-gold mineralisation as found at Northparkes (Rio Tinto), Cadia (Newcrest) and Cowal (Barrick). The Company holds an interest in three exploration licence. One granted license, EL 5792, is held under a farm-in agreement to earn up to 80% with Straits Resources Ltd and the two applications are 100% owned by Sandfire. Under the terms of the farm-in agreement with Straits Resources Ltd, Sandfire has the right to earn up to 80 per cent of the project area by sole funding $8 million over six years with the following terms: Sandfire may earn a 65% interest by sole funding $4 million on exploration in respect to the tenement within a period of three and a half years; After earning the minimum interest, Sandfire may elect to continue to sole fund (a further $4 million) and gain exclusive control by earning a further 15% interest. Drilling is underway subsequent to year end. INTERNATIONAL EXPLORATION During the year, Sandfire initiated project generation in South America, focused on Chile and Peru, targeting large-scale mineralisation systems prospective for copper. In the Lima Province of Peru, the Company has applied for 10 contiguous tenements totalling 55 square kilometres through a wholly-owned and incorporated Peruvian registered company. The applications cover areas of potential large scale alteration systems identified on Aster spectral imagery and occur within a known belt of mineralisation, south of the large Toromocho porphyry copper system. The applications are prospective for porphyry copper and hydrothermal polymetallic systems. Project generation is continuing in Chile and Peru with negotiations on further projects in progress. SANDFIRE ANNUAL REPORT 2012 [17]

20 OPERATIONS REVIEW (continued) CORPORATE Cash balance Cash on hand was $100.4 million at the end of the 2012 financial year. Of that balance, $28 million was held in restricted debt service and cost overrun accounts in accordance with the Group s finance facility. Board and management On 28 February 2012, the Company announced the appointment of Mr Soocheol Shin as non-executive director, following the resignation of Mr Jonghun Jong as non-executive director. Investment in White Star Resources Limited On 8 July 2011, the Company announced that it had subscribed for a 17.4% stake in junior explorer White Star Resources Ltd (ASX: WSR), formerly Whinnen Resources Ltd (ASX: WWW), a South American-focused copper-gold explorer. The Company was issued 26.5 million shares at $0.07 per share, for a total cost of $1.855 million, as part of the $7.28 million share placement undertaken by White Star to sophisticated investors. In addition, the Company was issued with 17 million White Star shares and 14.5 million options with an exercise price of $0.20 per share and an expiry date of 30 April 2014 as part of Technical Services Agreement between the companies. During the year, White Star completed the acquisition of Mystic Sands Pty Ltd, a privately owned company which holds an extensive portfolio of high-quality copper-gold and gold projects in the Atacama region of Chile and commenced exploration activities at its Nany- Varas Gold Project and established its exploration team and infrastructure in Chile. Investment in Breakaway Resources Limited On 4 September 2012, Sandfire entered into a Subscription Agreement with Breakaway Resources Limited (ASX: BRW) under which it will has made a strategic investment by subscribing for 26,086,956 fully paid ordinary Breakaway shares at an issue price of A$0.023 per share for a total investment of A$600,000. Following completion of the transaction, Sandfire has become Breakaway s third largest shareholder with a 6.3% stake. This strategic investment was made in parallel with the Altia Joint Venture (see above). Finance facilities The Company executed a fully secured $390 million project finance facility in September 2011 to fund the development and construction of the DeGrussa Mine, including $380 million in project construction and working capital funding and $10 million for environmental bonding. This complemented the equity funding secured in late 2011 for drilling, feasibility studies and the order of long lead capital items. Following the successful completion of conditions precedent, the first drawdown under the finance facility was completed in November 2011, followed by a series of further drawdowns up to year end in line with project requirements. At 30 June 2012, $350 million had been drawn under the facility and used to fund project development and construction or held in treasury for further projected cash payments, with $95 million disclosed within current liabilities prior to offset for capitalised finance establishment costs, representing the March and June 2013 scheduled repayments. During August 2012 and subsequent to year end, a further $30 million was drawn for working capital funding to assist with inventory build-up, sales timing and plant commissioning costs. The environmental bond facility was drawn to $4.2 million at balance date. First scheduled repayment of the project facility for $50 million is due at the end of March 2013, with rolling repayment funds to be deposited in the debt service reserve account in the Quarter prior to scheduled repayment. Further quarterly repayments continue until the facility end date of 31 December [18] SANDFIRE ANNUAL REPORT 2012