MAC Copper - Earnings Call - H2 2024
February 24, 2025
Transcript
Speaker 6
I would now like to hand the conference over to Mr. Mick McMullen, CEO. Please go ahead.
Speaker 0
Thank you, and thank you everyone for joining us. This is our full-year results, which Morné, our CFO, will present here shortly, and the resource and reserve update, which I'll present. This presentation was released on both ASX and NYSE, and you can read all of the disclosures at your leisure. So MAC had a pretty good year last year. Enterprise value right now is just over $1 billion. As we pre-announced, we produce just over 41,000 tonnes of copper at a grade of 3.9% copper. Significant operational cash flows of about $117 million. Lots of liquidity available at the end of the year, $213 million, the vast majority of which was cash at bank, and a strong margin. So we have just under a 50% EBITDA margin, and we convert a lot of that margin to free cash flow.
And as we have previously said in our guidance, we have a pathway to being plus 50,000 tonnes of copper. And perhaps, as you see some of the stuff we're rolling out today, you might get a feeling that we can do a little better than that. Our goals for last year were to operate the mine safely, and I'm glad to say that our safety, our TRIFA, actually improved significantly in Q4. We wanted to continue to deliver a longer reserve life, so we now have reserves that will underpin a 12-year mine life. We had record copper production just over midpoint of guidance. We delivered the balance sheet significantly and simplified it, and our net gearing at the end of December sat at about 15%. We are pushing on through that 50,000 tonnes of copper.
We raised AUD 475 million in equity in two raises on the ASX, and we've got our management team and board built out and in place. So it was a very busy year for us on reflection, but it's really set us up for a strong 2025 and onwards. So in terms of the detail of the numbers, obviously, overall, we had a C1 of about $1.92 U.S. a pound for the year, but Q4 we ended at $1.66, so trajectory was very good. Again, a lot of liquidity and a lot of cash, and our projects were advanced.
Our ventilation project, which is really critical for unlocking the bottom of the mine, is on track for Q3 of 2026, and our QTS South Upper, which forms part of the new Merrin mine we're talking about here, was commenced and on track for sort of first ore out of that by Q4 of this year. And as shareholders will want to do, they want to know what's in the future, so this is all backward-looking stuff. So we've got a couple of quite good tailwinds. Obviously, the Australian dollar has continued to trend down against the US dollar. Broadly, about 80% of our costs are in Australian dollars, and as our offtake terms are on annual benchmark terms, the TCRC reset in early January, which will reduce our C1 by around about $0.16 a pound. So a couple of pretty good tailwinds there on the cost side.
Now, we come to the Merrin Mine. We have been mining here for about 20 months now. The vast majority of our mining happens towards the bottom of the mine. You can see on slide seven there between two ore bodies, QTS North, which is the large one on the right side, and then QTS Central, which is the sort of smaller one about two-thirds of the way down the page, and these are great ore bodies, particularly QTS North. It's got some very high-grade zones in it and is accessed through two haulage shafts down about halfway through the mine and then trucking. However, our current production is limited out of that by ventilation. I touched on this ventilation project we're doing, which should be done by Q3 of next year. That's really critical for opening up the mine.
The ore body can produce a fair bit more ore than we're currently mining, but we need more ventilation to be able to put more fleet in there. When we bought the mine, we knew we had significant mineralization in the top 900 meters of the deposits. They were not in a digital format, all that data. They were not in the resource base. And so the team have spent about 18 months digitizing old data, scanning records, doing some twin drilling, some confirmation work, and that has now allowed us to estimate for the first time some resources in that area up there. We have some internal resources that are not suitable for release just yet, but are sufficient for us to start actually mine planning.
And as we spoke to investors over the last month or so, it became apparent that it was all a bit complex to have multiple different mines, deposits, lenses at the top. So we've elected to call everything from surface down to about 900 meters below surface one name, one new mine. It is a new mine. We're calling that the Merrin Mine in honor of our chair, Patrice Merrin, and that will allow us to distinguish for the marketplace the fact that we have one mine at the bottom of the mine, what we're existing mining, and actually one new mine that's about 1.6 kilometers away from that mine. It just happens to be 1.6 kilometers vertical, not horizontally. The mineralization in this area is for the most part within 100 meters of existing development. It will be accessed separately.
So again, the current mine, we bring the ore out and waste out through the twin shafts. The Merrin Mine we'll access through the existing decline. We have already started development across to the small ore body over on the left there, which is QTS South Upper. We should have production out of that in Q4, but we now have been able to quote an inferred resource for the zinc mineralization up here, which is on one of the following slides. We have substantial copper mineralization in this area, which we have not quoted a public resource for yet, but we have sufficient information to begin mine planning. So we're quite excited about this. This can add some reasonable incremental production. It'll materially de-risk the operation by having separate ventilation and haulage systems to the rest of the mine.
And I think our team have done a good job to pull the resource and mine plans together for this. There is significant mineralization up there, and it's all shallow starting within 200 meters of surface. We like the idea of this as just additional incremental production for a start. So we've got a large fixed cost base, more money, but more importantly, and equally as importantly, I guess, is that as we've spoken to before, we have a small number of very high-grade stopes at the bottom of the mine that have an outsized impact on production. So it does lead to some volatility quarter on quarter. Having some ore that we can pull from up near the top of the mine relatively quickly, separate to the bottom of the mine, allows us to smooth out that sort of quarter on quarter volatility.
We look at our annual production and we go, "Overall, on annual, we always come out where we say we'll be," but quarter to quarter, we do get some volatility driven by those small number of high-grade stopes. This will allow us to offset that and, I guess, smooth out some of that sort of single mine risk that people have sort of spoken about. We've got a little sort of image there on the right side. We can access this down through the existing decline and more than likely eventually a new decline out to the side, but this is right near infrastructure. We can mine it pretty quickly. You can see in the two different colors there the zinc lodes and the copper lodes. Again, we've quoted a zinc resource. We have not quoted a copper resource up there, but clearly we have a block model for it.
So coming on to the broader resource and reserves. Now, last year we had a massive increase, and so I'm not sure we're going to sort of double mine life every year. You can see there that our resources have gone up a little bit. We have increased the reserve life by one year, so we've replaced everything we mined over the first 18 months, and we've added another year to reserve life, so we now have a 12-year mine life on reserves. You'll also note we put it in the detail of the press release we put out. Grade has gone up slightly in the resource through additional drilling, and grade has gone up slightly more in the reserves as a combination of that in-situ grade increase, but also dilution control and changing the modifying factors.
We did our first new reserve last year for a very long time at the mine. We probably went a little bit heavy on the dilution that was included in the modifying factors. We've honed in on sort of what did we actually get in the last year. So our reserve grade actually is about 3.44 now, which compared to, I think, 3.23 last year. So overall, I think a pretty good result. All the ore bodies are open, mostly up and down. We have lots of mineralization in the measured and indicated category, not in the reserves yet. Over 200,000 tonnes of contained copper at 5%-5.5% copper. So there's a fair bit of work going on right now to see what we've got to do to get that material into a reserve.
Our focus has been for the last year really sort of upgrading the quality of the resource, upgrading the M&I, increasing the reserve, and now focusing on this sort of Merrin Mine at the top of the operation, which gives us some opportunity to pull some metal out in a relatively short space of time. Again, if you take midpoint of guidance for 2026, it's about 50,000 tonnes a year. We've clearly said in the press release we put out under the S-K 1300 rules in the U.S., we are not allowed to put non-reserve material into our guidance. Clearly, that material at the top of the mine in the Merrin Mine is not in reserve yet, but we feel very comfortable about going and mining that stuff.
So I would think that you can sort of see we expect to produce a bit more than 50,000 tonnes of copper, and we have not put the zinc on there that we intend to be mining and trucking up the road to the Endeavour processing plant, 40 kilometers to the north of us. We have signed a zinc tolling agreement with that mine, and so I think based on their public disclosure, around the middle of the year they should be up and running there, and we think towards the end of the year we'll be in a position to send them some zinc ore up the road. So guidance, as I said, we haven't changed our official guidance here for this year. The range was relatively wide, so top end of the range is 48,000 tonnes of copper.
Again, the zinc is in Inferred, is not in Reserve, so I can't stick the zinc in there, but we are going to be mining some zinc. And the grade has increased. The range for this year is about 3.8-4. If you went back to last year's technical report, the grade was 3.5, 3.6, I think from memory. That's a combination of, again, better dilution control, better grade in the resource as we've drilled it out, and better sequencing of stopes. And then going into 2026, again, we see the grade again elevated to where it was last year in the plan, but sort of dropping down a little bit. And the top end of the range there, it's sort of 53,000 tonnes of copper, but no zinc and no production at all from the Merrin Mine, actually.
So look, I think we can show some pretty good organic growth here. We can, across the bottom of the mine when the ventilation project is in place, across the Merrin Mine, I think we can basically fill the processing plant, give or take. And so the best IRR we can find right now for our shareholders, apart from the debt that Morné will talk about, the best IRR for us is to develop what we already own. We think we can get a pretty good return for shareholders with very nominal CapEx. All this stuff's more or less within 100 meters of development, and it's sort of known. It's been processed before at the mine. Metallurgy risk is low, and that's by far and away the best return we can get for shareholders. So that's really going to be the focus for us in 2025.
So we're quite excited about this. I'm very pleased to sort of name it after Patrice, and I think that this, again, I come back to the point about the quarter on quarter variance, depending on whether we're in these big high-grade stopes or not in them. We do want the ability to smooth that out a little bit. Again, the March quarter, again, if you refer to the press release, historically the March quarter is a typically softer quarter in the year. We saw that pattern last year. We're going to see that pattern again this year. So sequentially, March quarter will be a bit weaker than the December quarter, and it will be the softest quarter we have during the course of the year.
And as that Merrin Mine stuff starts coming on in Q4, we expect to see a reasonable tick up in production as we get towards the end of the year. So again, we're pretty happy about this. CapEx, we've given guidance here. So last year we spent, give or take, $50 million of sustaining CapEx. This year will be between $40 million and $50 million, and in addition, between $20 million and $25 million of growth capital, which is really the vent project and that Merrin Mine spend. So moving on to the next slide, I'm going to hand over to Morné Engelbrecht, our CFO, and he can talk to you about the financial metrics. Thanks, Mick. Good evening, morning, everyone. I'll be taking you through the following four slides covering the 2024 financial results, which was released today in the form of the Appendix 4E and the annual financial statements.
I'll first start by recapping our balance sheet position and cash flow waterfall for the year. So on slide 11, the balance sheet is in excellent shape, and we are looking to further simplify it with the repayment of the mezzanine facility as soon as the refinancing process is complete. Overall, as noted previously, we have significantly delevered MAC's balance sheet by reducing our net gearing by over 60% to a company record low of net gearing of 15% as of 31 December, which is only sort of 0.8 times underlying EBITDA for 2024. So very comfortable position at the moment. We also have a very healthy $172 million in cash and cash equivalents, or around AUD 276 million, which is up over 400% since the end of 2023.
This is further supported by an undrawn revolving facility of $25 million, outstanding QP receipts of $6.5 million, unsold concentrate amounting to about $5.5 million, and the investment in Polymetals, which has done really well, amounting to about AUD 6.5 million at 31 December. This brings our total available liquidity at the end of December to $213 million or AUD 340 million, as I said, at the end of December. As you will know, the balance sheet was further boosted by the completion of the successful equity raise during the fourth quarter of around AUD 150 million or $103 million before costs. As announced in December as well, we did reach an agreement with Sprott to repay the mezzanine facility at MAC's discretion from the 1st of January 2025.
To this end, we are in the process of completing our refinancing process, which will not only see us further simplify and strengthen our balance sheet through the retirement of this debt facility, but also provide us with much lower debt cost, ongoing debt cost going forward. With the new facility, we're hoping to save around $14 million of interest per annum. The aim of the refinancing will also be to extend the senior debt facility provided the third repayment schedule and more flexibility with the increase of our revolving facility as well. As soon as we conclude this process, we will definitely make a further announcement to the market. In summary, MAC's got an excellent balance sheet, very strong, very commanding position, the best position since the acquisition of the mine.
And that obviously gives us great flexibility to drive our organic growth agenda as Mick has outlined in terms of the Merrin Mine funding, the Merrin Mine as well. Moving to slide 12, moving on to the all-important cash flow waterfall. So there's a few key drivers to keep in mind that impacted cash for 2024. Firstly, we again have a healthy free cash flow from operations after sustaining CapEx of around $121 million for 2024, which not only formed the basis for the leveraging, but also will form the backbone of our funding going forward. It should be noted that due to delayed shipment at the end of December, we made a sale of concentrates at port, which were recognized in cash, but not able to be recognized in the free cash flow for operations nor revenue until that shipment went in January.
Secondly, we repaid about $57 million of our senior debt in 2024, with that senior facility now sitting at around $158 million, and as I said, net gearing at 15%. The third point I wanted to make on this slide here is that we paid interest of around $38 million for 2024 in cash. With the refinancing that we are looking to complete in the not too distant future now, that will reduce by that $14 million per annum, as I said before. The other key element in the cash flow note is that around $120 million of cash outflow for 2024 was related to once-off sort of cash payments, so that related to the settlement of that deferred consideration to Glencore and then also the stamp duty.
So again, overall, in a very healthy balance sheet position, and we will further strengthen that with the repayment of the mezzanine debt facility, which will drive that significant cash interest savings and further simplify our balance sheet and P&L. Going to slide 13, looking quickly at the financial results now. Look, it's not really helpful to compare to 2023 results to 2024 because obviously 2023 sort of covers six and a half months of the year. But overall, everything has moved in the right direction. Most importantly, our underlying EBITDA margin increased significantly to almost 50% driven by increased production, and obviously that lower C1 and total cash cost that we've reported as well.
So overall, our statutory net loss after tax is $70 million, which has obviously been very heavily impacted by non-cash movements in fair value for the financial instruments of about $81 million, which has mainly been driven by the increase on the copper price over the year and then also the extension of demand life compared to 2023. It should be noted that some of the volatility will drop out because we redeemed those private and public warrants during the year as well. So that will reduce that volatility and that fair value adjustment going forward. So overall, record revenue and underlying EBITDA of $168 million under MAC ownership with a very healthy underlying EBITDA margin of almost 50% and converting about 72% of that to cash flow from operations. Moving to slide 14, we provide a breakdown there of just our statutory net loss and the reconciliation there.
You will note the impact of the non-cash elements there on the earnings impacted by there's about $75 million of interest expense there, $38 million. After $75 million of interest of finance cost, there's $38 million of interest cost. And then we've got realized aging losses of $12 million as well. That's recorded in there, with the remainder made up of the streams and non-recurring interest cost on the Glencore, the third settlement as well. And with that, I'll hand back to Mick.
Thanks, Morné. So I think the company at the end of 2024 was in a vastly different position to the company mid-2023 when we bought the mine. I think we feel pretty good about the way the business is running. You can see here our production trend. We feel very comfortable just given where we ended up in Q4 in terms of getting to our midpoint of guidance. And again, that's without the Merrin mine, which clearly is not going to be negative production. Cash cost, again, we had a strong cash cost result. We've always sort of talked about having a target of around $1.50 U.S. a pound C1. I feel quite confident of getting there. It'd be lovely to have some byproduct credits from some zinc to drive that down a bit further, like a few of our peers do.
And net gearing, we ended the year at about 15% net gearing. We've got a gearing range there of sort of 0%-20%. I like no gearing. But the facilities that Morné has been working on to put in place will incorporate a fairly sizable revolver that we can use as we need. It will also give us there'll be some flexibility for additional mine growth internal funding if and when needed, or to eventually start looking at things like sort of shareholder returns and the like. So yeah, I think the business is looking pretty good compared to where it certainly was. Our goals for this year is, again, consistent, safe, and low-cost copper production. We want to deliver our organic growth projection, open up the new Merrin Mine. Again, that will give us a better IRR than anything else we can do.
Obviously, taking out the higher cost debt within the stack is a guaranteed return, and so that's sort of happening fairly soon and maintain balance sheet flexibility to support our growth. But again, I think for this year, we're very focused on delivering our organic growth projects. We see an ability. We have a large processing plant with a lot of excess capacity. We do now actually, now that we have some resources for that stuff in the Merrin Mine, we actually have a pathway to be able to open that stuff up and to sort of get going towards filling that mill finally. Again, we do see a fair bit of volatility quarter on quarter between production. It's lovely to have 8% stopes. They're great days when you're in them, but you don't have them every single day of the quarter.
And so having some additional sources of production allows us to smooth that out a little bit. We feel very comfortable with our annual guidance, but obviously, month to month, we do see a fair bit of volatility in that copper production, right? So again, the Merrin Mine, absolute production growth, more cash flow, but I think equally as importantly is the ability to smooth those quarters out. And with that, I think we've sort of gotten through the bulk of the information. Happy to turn it over to any questions from anyone, and we'll open the floor up to questions.
Speaker 6
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. And if you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Daniel Morgan from Barrenjoey. Please go ahead.
Speaker 1
Hi, Mick and Morné. First question is referring to Merrin. Is there any copper resources from Merrin which sit within the total resource? I think previously you've had QTS South Upper resources, but I guess I'm referring mainly to the bit that is not QTS South Upper, if that makes sense.
Speaker 0
Yeah. The answer is no. So there's a very small indicated resource up at the QTS South Upper. The significantly larger portion over sort of 500 meters vertical, we have an internal resource. The data, the assay data is relatively old, and so the reason we can't quote it as a resource is we don't have the assay QAQC certificates predominantly. So the answer is no. We have a resource. We have sufficient information for us to start mine planning. The capital hurdle on mining that is very small, and so we are confident enough to go and start mining that. But that is why it's not sitting in a reserve, and that is why it's not sitting in the guidance.
Speaker 1
Okay. Thank you. And I guess related to that, on slide 10, you intimate that the growth CapEx numbers you've given the market includes CapEx for Merrin. Is the Merrin CapEx, is that significant? And it looks like we've got the capital cost to get Merrin online, but obviously you haven't given us the benefits of that yet, which I presume will come at a later point.
Speaker 0
Yeah, that's correct. So we're just working through some plans. So there's a couple of options. One is we could go and mine some stopes quite quickly from more or less just near existing development, and you're talking of a few, two, three million AUD to get into it sort of thing. We could go the other way where we sort of elect to go to ramp up faster, but that's likely to be sort of a few, couple of tens of millions of AUD top sort of thing, which would be decline off the side of the two-level new vent rise, which would allow us to ramp up much faster. But it's, I don't know, it's in that 20-30 million AUD mark sort of thing. So the reality may be somewhere in the middle, something. I don't know.
But it's in that sort of order, right? It's not large amounts of capital.
Speaker 1
Yeah. And so I mean, referring to slide eight and that diagram you've provided, you've got a new decline in there in the red on the right. Is the reason for the location of that decline is the resource opportunity, i.e., the zinc and the copper stopes that you've outlined there. Would they impair the old decline? What's behind the new decline decision?
Speaker 0
I haven't made the decision yet, but I'm just showing you a couple of endpoints of the spectrum of what we could do. I don't know whether you've driven down there, but we've got a narrow point in the existing decline, I don't know, 300-400 meters down the hole that you need to bypass if you're going to haul ore up there. So we have some stoping areas that are well above that that we can get started on. But if we're going to develop it as a full mine, you will need to bypass that, right? So the question is how much of a bypass do you bother putting in and how much of extra vent do you want to get down that decline in order to ramp up production faster? So it's a bit of a work in progress. We've got two endpoints.
I guess that's the other reason I'm not giving you guidance apart from it's not in reserve. But yeah, there are two endpoints, right?
Speaker 1
And just the last question on slide eight. I know it goes down to 600 meters below surface, and I think Merrin is defined as down to 900. Is there conceptually opportunities in that last 300 meters as well?
Speaker 0
Yeah, we haven't done the resources for that lastly.
Speaker 1
Awesome. Thank you for your perspectives, Mick.
Speaker 0
Thanks. Sorry, I would say the zinc resource that we've quoted isn't all of the zinc mineralization up in that area, but we have enough to sort of make a mine plan and get started.
Speaker 6
Thank you. Your next question comes from David Radcliffe from GMR. Please go ahead.
Speaker 5
Hi, good morning, Mick and Morné. So a couple of more questions on that theme with me. So Teck and Glencore have recently published some pretty positive charts on the zinc market, so you can definitely see the optionality there. But in terms of the value per ton of copper ore versus zinc ore, the zinc ore tolling cost, and then the spare capacity in your own plant, are there higher-grade zinc stopes that can compete with maybe putting through some additional tons of even lower-grade copper ores at Merrin? So how do you think about that in the planning?
Speaker 0
I'd like to take it all as a short answer. The zinc grades are quite high, so we're looking at sort of 9-10% zinc, a couple of % lead. And because that's not going to go through our plant, they ripped out the zinc circuit, I don't know, in the 1980s. So that zinc ore will get mined and get trucked up to Endeavour, the Polymetals zones. And so copper, we think about margin as opposed to grade. So 2.5-3% copper dirt up near surface, that's a pretty short haul and easy mine. If we've got spare capacity in the plant, we should be putting that through as much as we can, right? I must admit, I haven't actually done a comparison of the two because we've sort of looked at it at mining both the zinc and the copper.
I guess at some point, if we get to a point where we're having to pick one of the two, we'll pick whichever one's got the best margin for us.
Speaker 5
Sure. Okay, and then just on picking up on something you said there, I mean, historically, the Western system has had quite a lot of lead in it, but no lead grade was reported today. So is that from just lack of assays or it's not there? How should we think about that?
Speaker 0
In the zinc lode? It's in the press release, somewhere in the press release there, but it's about, I want to say, off the top of my head, 1.6% lead, I think from memory was the number. It's much more rich in zinc than lead. But there'll be some. The tolling agreement we have with Endeavour is they'll produce a zinc concentrate and a lead concentrate.
Speaker 5
Okay. And sorry, lastly then, just to kind of Dan's question, trying to sort of quantify how much of this current inferred resource for zinc is representative of, I guess, what you see as the potential because I guess we can't see from the diagram how much is sort of encapsulated within that. And maybe when you might think about, is there a timeline for actually putting out some zinc reserves?
Speaker 0
We'd like to try and do it during the course of this year because we're going to mine it. Yeah, I think we'll give you some info. But I think we should be able to mine 150, maybe 200,000 tonne of this material a year at 10% zinc top sort of stuff, a couple of % lead. That's what we're, yeah, there's obviously much more tonnage than that, but we'll try and restrict it to a higher-grade core, I think. Cutoff grades are a fair bit lower than that, but we might as well try and mine the better stuff first, I think.
Speaker 5
Great. Thanks. That's really helpful. I'll pass it on.
Speaker 6
Thank you. Your next question comes from Sam Catalano from Wilsons Advisory. Please go ahead.
Speaker 5
Yeah, thanks. Hi, morning, Mick and Morné. Mick, if I could just explore a little bit your guidance. So you've been very clear on the upside potential out of Merrin to current guidance figures. But just on the guidance that you do have, so you mentioned in your comments that the grade for this year's guidance that corresponds to this year's guidance has gone up to 3.84% from somewhere around three and a half. So let's call that a 10% increase roughly in grade, but you kept your overall production guidance flat. So is that you being conservative, or have you sort of reassessed throughput figures as well?
Speaker 0
Probably what we're actually seeing in the mine is we're mining less tonnes, higher grade for the same metal or a little bit more metal. So yeah, ore tonnes maybe a bit less, but it's the same metal, right? It's ore tonnes a bit less, grade's a bit higher.
Speaker 5
Sure. So unit costs should be a bit lower, all things being equal.
Speaker 0
Yeah. Yeah, that's right. Yeah, that's right. And look, it's a range. It's a pretty wide range. So maybe this time last year, we were sort of giving you a range, and maybe we're coming in towards the bottom of the range, and maybe we're not coming in towards the bottom of the range now, right?
Speaker 5
Sure. Okay. That's great. And just to clarify, I think in your answer to Dave's question just before, were you suggesting potentially as a rough order of magnitude, 150-200,000 tons of zinc bearing ore is what you're thinking in terms of order of magnitude?
Speaker 0
Yeah. Yeah. The planning engineers will tell you you can do more, but I think that's a reasonable sort of range. The Endeavour mill's got plenty of capacity for that. If you look at his public disclosure, I think he should have it up and running mid-year, maybe a little earlier. He'll have a bit of time to sort of troubleshoot. I think that's fair. So really, we're hoping to get some of that out by Q4 of this year and then really get going into it next year, right? So again, I think it's a useful byproduct credit for us, some decent cash flow. And if we ever get to the point where we're having to pick or choose copper or zinc ore, I guess we'll just take the stuff that gives you the best margin.
Speaker 5
A mining cost per tonne up there, wildly different from lower down in CSA?
Speaker 0
It'll be cheaper because it's just so much quicker to get to it and no one here has much ground support and not as much double handling. It's probably slower. We're going to have to be like we're going to be probe drilling up and around that area as well. So that'll be a negative. I would imagine it would be somewhat cheaper than what we're currently mining. I think we're at $75 a tonne in Q4 for the overall mining cost. I would have to. I'm not going to give you the exact number, but if I net-net everything out, it's definitely got to be cheaper than that.
Speaker 5
Okay. That's great. Thanks, Mick.
Speaker 6
Thank you. Your next question comes from Ben Lyons from Jarden Securities. Please go ahead.
Speaker 3
Good morning, everyone. Just like to get a feel for the capital pipeline as we look into calendar 26, please, Mick. Obviously, you've got the ongoing vent rise projects, which will carry through into next year. Just whether there's any other major projects to bear in mind as we sort of cast our mind forward? Thank you.
Speaker 0
Well, we haven't given guidance, but the short answer is we sort of drop stuff off. So in this year, 2025, we're executing the stage 10 tailings lift. That's about $12 million in total. I don't know. I think we spent $2 million or $3 million last year on it. Once that's completed by end of Q3, early Q4. So I don't know. What are we spending this year? Maybe $9 million on that this year, give or take. That's sort of the end of that. We then have tailings capacity till 2030. So that'll drop away. Obviously, if we start producing like I can't produce a lot more copper and zinc with no extra capital. So there'll be a little bit of marginal sustaining capital up in the top of the mine and the Merrin Mine, but it won't be that much. It won't be $9 million.
And then the growth capital, I would think that'll sort of gradually trickle down. There's a fair bit of spend this year on that vent rise as well in there. So I would sort of expect to see sustaining capital trending down next year, maybe by $5 million, and growth capital flat to down a little bit, I would think.
Speaker 3
Great. That's very helpful. Thank you. I'll pass it on.
Speaker 6
Thank you. Once again, if you do wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Eric Winmill from Scotiabank. Please go ahead.
Speaker 5
Great. Hi, Mick and team. Thanks for taking my question. Just looking at some of the year-over-year cost comparisons, I see energy cost is up quite a bit. Also, contractors up a little bit. How do you see those two line items shaping out into the year ahead?
Speaker 0
That might be a question for Morné. Do we have that? I'm not sure we have that in the detail here, but I'll let Morné handle that one.
Speaker 2
Yeah. No, look, it's from, in terms of the cost you sort of mentioned there, Eric, the power cost, the power cost. It's been very variable. So that contract, we sort of inherited from Glencore when we bought the mine. And that's a spot contract on buying power on market. So in the east coast of Australia, it's a pretty volatile market. So what we've been doing is sort of looking to hedge that. So we've hedged a fair amount of that coming out to the contract end, which ends sort of June of next year, which we will then sort of renegotiate that and try and enter into a fixed price contract. But there has been some sort of some volatility during the year, especially in that sort of March, April, June sort of period, where that's contributed to a bit of an increase in cost for 2024.
But for 2025, like I said, we've hedged out 80% of that volume for the year, or most of it already. So that should actually come down for 2025 from that perspective. And then contractors on the contractor side, we have been going through a bit of a process. And I think Mick has spoken to this before. Initially, when we bought the mine, we reduced the numbers from about 700 to 500 employees. And then that sort of reduced to about 450, 460, which is probably a bit low to where we want to see numbers. So 500 is probably that sort of running rate. So during the year, some of those positions were sort of filled by contractors while we then get more permanent employees to fill those roles at obviously a bit of a lower cost as well. So again, for 2025, that should come down.
Going forward, that should stabilize more so.
Speaker 5
Okay. Great. That's very helpful. Yeah, I appreciate it, Morné. I think that's about it for me. I think most of my other questions were answered. So yeah, appreciate it. I'll hop back in the queue. Cheers.
Speaker 0
Yeah. I think on cost control, again, C1's come down to about $66 a pound in Q4. I think we've had a pretty good effort given the backdrop of cost escalation in the Australian mining industry, particularly West Australian mining industry. We locked in a four-year wage deal in November at 3.25% per annum for the bulk of the employees. So that's sort of locked down our biggest cost. Our second biggest cost is power. And as Morné said, we're hedging that now. So we're, again, not trying to get the lowest, lowest possible power price, but we're trying to hedge out the extreme spikes. There's probably a bit more room to go on absolute cost, but really where we are now is the biggest bang for our buck is going to be about growing the production line.
And so that's what we're doing and growing it through cheap add-on type sort of in-the-mine type expansions. That'll give us the best bang for our buck. We've got so much of our costs are fixed that that actually will give us a fairly substantial cost benefit on a unit basis.
Speaker 6
Thank you. Your next question comes from Paul Hissey from Moelis Australia. Please go ahead.
Speaker 3
Hi, thanks, moderator. Maybe just a question for Morné first, a little bit specific around freight or transport. I mean, the terms are notionally interchangeable. But just am I right in thinking that there's a freight charge or a freight credit you give up to your off-taker, and that's what we see recognized effectively as an expense at the revenue line, and then there's additional transport costs? Is that transport of the con from the site to the port? Morné, are you just able to give us a bit more granularity on the distinction between those two things, please?
Speaker 2
Yeah. No, we've got. I mean, from our site to the Newcastle port, I mean, that's the cost per tonne that we move from the cost straight from site to the port. And then from, obviously, in terms of going on a ship to the delivery of to a market, that's obviously another cost to us. And then there's the normal TCRCs that's offset against the revenue that Mick has referred to previously that's reduced by 70%. So you get a combination of those costs that's reflected either as a net revenue or as a separate cost as the freight cost.
Speaker 3
Yeah. Just to be clear, though, the shipping cost is netted off against the revenue, and the rail cost is taken as a cost, as a traditional expense, yeah?
Speaker 2
Yep. Yep. As a separate cost. That's correct.
Speaker 3
Perfect. Yeah. Okay. No worries. And just, I guess, perhaps a bit more of a high-level question for you, Mick, just around I mean, clearly, it's frustrating that you can't incorporate your additional copper tons from the high levels of the mines because you don't have a reserve yet. I guess I just wanted to ask you, I know that MAC has been born out of the SPAC listing in the U.S., but do you think that listing still fulfills its purpose, or is it more of a pain than you get benefit from it? And what might that mean for the future of your sort of dual-listed structure?
Speaker 0
Yeah. Look, good question. The reality is that 70% of our liquidity is all on the New York line. I'm pretty sure the New York line sets the price. And again, we're in a few indexes over in the US that have bought substantial amounts of stock, right? So the wisdom when we did the ASX listing was that all of the stock would move to Australia, all the liquidity would be on Australia, and that US listing would become irrelevant. Well, the reality is, actually, yes, we've listed on the ASX, we've raised a bunch of money. 70% of our liquidity is in the US still. And so what we found is some of our shareholders want to hold the stock where there's the most liquidity. Maybe that's their rules or that's what they just like to do.
Actually, we've seen some stock move back to the U.S. line. It's fully fungible. Yeah, if it had have worked out the way that everyone sort of indicated it would, and actually, I thought it would, then yeah, that U.S. listing would be probably not very relevant, but that's not actually the case. For now, we're dual-listed. Unless something changes, I think that's likely to be the case.
Speaker 3
Great. I appreciate that commentary.
Speaker 6
Thank you. Your next question comes from Daniel Morgan from Barrenjoey. Please go ahead.
Speaker 1
Hi, Mick. I thought I'd come back around. Just probably following up from that point, I understand you've got QA/QC issues on resource and reserve from very high up in the mine in the Merrin piece. But you also are very confident enough to look to mine it. It appears you're a bit hamstrung by SEC guidance rules when it comes to guiding on this. Just wondering, how will this evolve in news flow? i.e., will you be doing more work on drilling and assays to get into a position to declare reserves in the upper portions of the mine in Merrin, and then that would logically give you a potential upgrade if appropriate later this year? Or will Merrin be a mining area where it will be hard to perpetually give guidance under SEC guidelines?
Speaker 0
No, I think our goal will be to sort of switch some of our drilling. Well, in fact, we have switched our drilling to be drilling stuff up near surface. So of our exploration spend, I'm just going back to see if I can find so on this slide that I've shown here, if we haven't started, it'll be starting in this week. There's a small deposit called Pink Panther, which is right up at the very top there, just off to the left of what is QTS South, up at that little blob there. We're drilling that from surface because the plan is to push the decline on from there and go and mine that thing as well. We'll then come back and actually, probably from underground, I suspect, drill out some of these zinc and copper stoping areas in the Merrin Mine.
Once we get a sufficient number of sort of new drill holes with new QA/QC on them to allow us to sort of then upgrade the classification. It's really about classification. It's not about we're confident of space and grade and volume. It's just classification, right? Then yeah, we'd clearly, because obviously, I'd rather not have to tap dance around what we think we're going to mine up there. I'd rather be able to just come out and tell you what it is, but I can't. So yep, we literally got these resources the week before Christmas. So we have moved pretty quickly to run through our optimizations to see what's economic up there. Now we're looking at designs. That's why I say there's sort of two endpoints on the design of what we can do.
But I figured I might as well tell you what I know right now. And what I know right now is the capital hurdle is very low, so we are going to mine some of this stuff by the end of this year. And yep, I'd like to get a rig in there, and I'd like to be drilling it, and then I'd like to be able to quote it into an indicated or better resource and then sticking it into our guides. Absolutely.
Speaker 1
And then just to be clear, when you talk about mining it this year, are you saying you expect to get a stope out of Merrin, not QTS South Upper? I'm referring just to the Merrin piece that's not QTS South. Will you have a copper stope out of there this year? Is your expectation?
Speaker 0
I'd like to. Probably a zinc stope first, I reckon.
Speaker 1
Okay. Thank you very much.
Speaker 0
Yep.
Speaker 6
Thank you. Your next question comes from Hayden Bairstow from Argonaut. Please go ahead.
Speaker 4
Good evening, Mick and Morné. Just a couple of things. Your comments around just the first quarter being softer, obviously, when we look at this year or last year and the year before, it was like 20% of production or something last year. Are you talking about that sort of metric or more sort of it's a bit softer, but not quite as dramatic as it was last year?
Speaker 0
We haven't finished the quarter yet, but I think under 10,000 tons of copper, for sure. All I can just tell you is that it will be weaker. We're very comfortable with our annual guidance. I'm letting people know that the first quarter will be softer. So when we put it out, I'm telling you ahead of time. We're very comfortable for our annual production. Normally, we don't guide quarter by quarter, but I'm just telling you so that it doesn't come as a surprise. But we feel very comfortable with our annual guidance, right?
Speaker 4
Is that something that's just going to be ongoing, that every now and then you'll just have a softer quarter, and then you'll be plus 4% for the rest of it, and hence the pathway to mid-50s is still quite relaxed in terms of how you get there?
Speaker 0
Yep. Yeah. Look, again, I've talked about the fact that we have a small number of very high-grade, somewhat sizable stopes that drive a lot of our production, right? It used to be something like the top six stopes were more than a third of our production. And so just depending on where you are in the sequencing, that has a big impact on your quarterly production, right? And so as I've said, Merrin Mine, yeah, I want more production out, but I also want the ability to smooth that out a bit, right, so that shareholders can go, "Okay. We can sit here and see it. We can see the month-by-month schedule going out. We can see what the stope profile looks like. We're comfortable with our annual guidance." But shareholders like to see consistent, same number every quarter, right?
Or shareholders like to see 50% increasing every quarter, but that's not going to happen. So yeah, it'll be under 10,000 tons of copper.
Speaker 4
Yeah. I guess we're starting to look. As long as there's no surprises, it's all good. And then just on the Merrin stuff, I mean, you've given as much as you can, I guess, but how have we split the volume here? Is it sort of, I don't know. Visually, it looks pretty similar between copper and zinc. Is that right, or is it more zinc in here?
Speaker 0
No. There's about double the amount of copper tons, resource tons, as there is zinc tons. But the grade in the zinc is pretty high, right?
Speaker 4
Yeah. Yeah. So.
Speaker 0
So.
Speaker 4
And still open. We still haven't done all the way down. There's still another zinc lens to go. But we have what we have, and this is the time when we're talking about R&R, so we can tell you what we know about it. We know there's enough to go. We're going to go and mine this stuff. Yeah. Perfect. Okay. Beautiful. Thanks.
Speaker 6
Thank you. There are no further questions at this time. I'll now hand back to Mr. McMullen for closing remarks.
Speaker 0
Well, look, thanks, everyone. I appreciate it's a busy time for everyone. We're pretty excited about all the developments here. The team at the site have done a really good job last year, and I think they can continue to execute pretty well through this year, and we're pretty happy. Our investment in Polymetals has done very well. I think he's doing a good job there getting this thing going up the road. It gives us a great outlet for our zinc. And we look forward to continuing to engage with people, and we like to take people through the mine. It's a bit of we like to showcase it. It's a fantastic operation.
Speaker 6
Thank you. That does conclude our conference for today. Thank you for participating. You may now just connect.