Taseko Mines Q3 2023 Earnings Call Transcript

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November 2, 2023

There are 7 speakers on the call.

Operator

Good morning. My name is Alan, and I will be your conference operator today. At this time, I would like to welcome everyone to Taseko's 3rd Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, There Will Be A Question and Answer Q and A.

Operator

Mr. Bergo, Vice President of Investor Relations. You may begin your conference.

Speaker 1

Thank you, operator. Welcome everyone and thank you for joining Taseko's Q3 2020 3 conference call. News release and regulatory filing announcing our financial and operational results was issued yesterday after market close and is available on our website at tasekomines.com as well as on SEDAR. I am joined today by Taseko's President and CEO, Stuart McDonald Taseko's Chief Financial Officer, Bryce Hamming and our Chief Operating Officer, Richard Trompoy. As usual, before we get into opening remarks by management, I would like to remind our listeners that our comments and answers to your questions will contain forward looking information.

Speaker 1

Information by its nature is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Further information on these risks and uncertainties, I encourage you to read the cautionary note that accompanies our Q3 MD and A and the related news release, as well as the risk factors particular to our company. I would also like to point out that we will use various non GAAP measures during the call. You can find explanations and reconciliations regarding these measures in the related news release. And finally, all dollar amounts we will discuss today are in Canadian dollar unless otherwise specified.

Speaker 1

Following opening remarks, we'll open the phone lines to analysts and investors for questions. I will now turn the call over to Stuart for his remarks.

Speaker 2

Great. Thank you, Brian, and welcome everyone to our Q3 earnings call. It's been a very busy 3 months since our last call, but we've been able to make some great strides forward with our business. We had a very strong operating results at Gibraltar, solid earnings as well this quarter. But I'll start with our most exciting news and that's our permitting success at Florence.

Speaker 2

We announced earlier this week the EPA confirmed that no appeals have been received and our final UIC permit is now effective. Great result for us and a testament to the work our project team has done over the last 10 years. Methodically worked our way through a very rigorous and detailed permitting process, technically derisked the project with successful test facility operations. And at the same time, we've been able to build the strong community support that we enjoy today. In this day and age, to be able to permit a project with no substantive opposition or appeals.

Speaker 2

As I said, it's a great result, a big milestone for our company. So we're moving forward. We were at Florence site yesterday with our Board of Directors reviewing our construction plans. Next steps will be site preparation and clearing for the well field expansion. Network will start in the next few weeks.

Speaker 2

Drilling contractors are planned to be on-site and drilling early in the New Year. We're also working to finalize key vendor contracts and our construction team has gone out for firm quotes on the remaining equipment and materials that need to be procured. We're moving forward in a disciplined way and aware of the inflationary risks and uncertain markets that we're in today. We aren't racing to complete construction. We're focused on delivering the project on budget and ensuring that we have the right financing package in place.

Speaker 2

Previously said that we're targeting to raise US100 $1,000,000 at the project level, consisting of debt and a royalty. Made very good progress on those discussions and we're now very close to getting firm commitments in place. And we should be able to provide additional details on that in the near future. We're expecting to be able to close those financings early in the New Year before the drilling commences and our construction spending starts to ramp up. At that point, we would have US175 $1,000,000 of committed funding for Florence Construction, in addition to our current available liquidity of about $110,000,000 Florence's profile as a low carbon U.

Speaker 2

S.-based copper producer continues to generate a lot of interest from potential customers, investors and other miners. Few months ago, the U. S. Department of Energy identified copper as a critical material. This opens up the possibility of tax incentives for the project And our preliminary review indicates we could potentially benefit from a tax credit as high as 30% on the SXEW and copper processing infrastructure at Florence.

Speaker 2

You'll need to apply and be accepted, but this has the potential to be a very meaningful piece of funding available to us in 2025. As we said in the past, we have a very unique opportunity here, a low impact and low cost project now fully permitted in the Tier 1 jurisdiction. We're looking forward to realizing that value over the next couple of years. Markets everywhere are challenged right now And we've seen copper prices impacted recently as well. 2025 looks like a great time to be bringing on a new project.

Speaker 2

Turning to Gibraltar now. It was a very strong production quarter. As we indicated on last quarter's call, we had made good progress advancing mining deeper into the Gibraltar pit. We're now well established in the bottom of that pit. That set up in place, the mine delivered excellent results this quarter with copper production of over £35,000,000 and C1 cash costs of $2.20 per pound.

Speaker 2

Copper grades improved as expected, averaging 0.26% for the period. Mining benefited from the large continuous mineralized zones and the softer ore resulted in mill throughput over 87,000 tonnes per day, which is above design capacity. The ore quality also led to improved copper recoveries in the mill, 85% for the quarter, which is a good result. Total site cost was CAD102 1,000,000 which is generally in line with recent quarters. We benefited from a 60% increase in moly sales, which generated a byproduct of $0.23 per pound of copper.

Speaker 2

Through 3 quarters Gibraltar mine has produced £88,000,000 copper and we're well on track to achieve our original production guidance of £115,000,000 plus or minus 5%. We're hopeful to be on the plus side of that number. Gibraltar pit will continue to be the primary source of mill feed through the middle of next year Then we'll transition to ore from the new connector pit for the second half of next year. We should continue to see good daily mill throughput from both pits, But metal production will be affected by some planned mill downtime. 2 significant downtimes are planned.

Speaker 2

Mill number 2 will be down for 2 weeks in Q1. Mill number 1 will be down for about 3 weeks in the second quarter, And that's for the crusher move and a major maintenance. So that will certainly have some impact on production next year, but taking that into account, we're generally expecting 2024 copper production to be similar to this year. Still working through some details and we'll be able to give some more specific guidance with our year end results in February. With that, I'll now turn the call over to Bryce for some additional commentary on our financials.

Speaker 3

Thanks, Stuart. Good morning, everyone. It indeed was a great quarter for Gibraltar, and this is reflected in our financial performance. Revenue in the Q3 was the highest Taseko has ever recorded at $144,000,000 from the sale of £32,000,000 of copper. Higher sales volume, our increased ownership in Gibraltar, a steady realized price of $3.83 per pound and a weaker Canadian dollar are the drivers of the record revenue.

Speaker 3

We also had at least £5,000,000 of excess concentrate inventory To the Vancouver port strike in July at the end of September. We will sell that copper in Q4 and should be back to more normal levels by year end. So So we should see another great earnings quarter to finish the year. For October, we produced over £11,000,000 of copper, so we continue to be on track. Total site costs were $102,000,000 in the 3rd quarter, a $3,000,000 decrease from the 2nd quarter, but generally in line with our previous quarters and guidance.

Speaker 3

Even though our mining rates in the quarter were lower than the previous quarters, diesel consumption was 3% higher due to the longer loaded hauls moly byproduct credit in the quarter was $0.23 per pound, significantly higher than the 2nd quarter lower site costs, higher production and increased poly byproduct credit resulted in a 17% decrease C1 costs from $2.66 per pound in the second quarter to $2.20 per pound in the 3rd quarter. Lower cost and strong sales drove adjusted EBITDA to $63,000,000 for the quarter. GAAP earnings for the quarter were $900,000.09 per share and adjusted net earnings after removing unrealized foreign exchange and derivative losses were $20,000,000 or $0.07 per share. The Q3, dollars 18,000,000 was spent at Florence compared to $13,000,000 in the second quarter. Year year to date we have capitalized $45,000,000 of development costs at Florence.

Speaker 3

Pending was up this quarter due to some additional procurement for the commercial facility and increased cost for our PTF rinsing program. At Gibraltar, work continued on the impact crusher and the electrical substation relocation projects, dollars 7,000,000 spent in the quarter. Work has wrapped up for the year now, leaving approximately $9,000,000 to be spent in the Q2 next year on that project when the primary crusher is moved. We ended the quarter with approximately CAD150 1,000,000 of available liquidity, including CAD82 1,000,000 of cash. Last week, we received the first US20 $1,000,000 tranche from the US25 $1,000,000 Bank of America equipment loan commitment for Florence, which closed after the quarter end, so it's not included in that liquidity number.

Speaker 3

We will then work next on closing the Mitsui transaction in the coming months. We've also significantly advanced with Endeavor Financial, our financial advisor on project finance, and they're working on additional Florence project level financings. We'll be making further announcements on those in the coming weeks. We are looking for up to $100,000,000 of additional funding, as Stuart mentioned, debt and royalties, and we have the ability to do more at the Florence project given it's relatively it is relatively unencumbered at the moment with robust economics and that's if we need to. The operation of the PTF facility has not only allowed us to obtain the permits for Florence, But has also made the project bankable.

Speaker 3

Just to finish up, the price of copper has declined in recent weeks, but now sitting in the 3.60 to 3.70 range. But thanks to our price protection program, we will receive a minimum price of 3.75 through the end of the year for most of our production. We've also recently extended our price protection into 2024. We have purchased put option contracts for £21,000,000 from January to March with a strike of £3.25 per pound. This was undertaken to prevent any copper price surprises given the uncertainty in the world at the moment.

Speaker 3

We'll look to add more to that in the coming months to cover more of 2024 as we prepare for construction. With that, I'll turn it over to the operator for questions.

Operator

Q and A session. One moment please for your first question. Question. Your first question comes from Craig Hutchison of TD Securities. Your line is already open.

Speaker 4

Hi, good morning guys. Thanks for taking my questions. Good morning, Stuart. You mentioned a couple of things. I wanted to clarify, you mentioned there's a potential tax credit for Florence.

Speaker 4

If I'm not mistaken, you said it was a potential source of funding in 2025. Can you just maybe elaborate on that? Is Is it something you could potentially monetize if you get that credit?

Speaker 2

Yes. That's our understanding based on the preliminary work we've done is there's potentially a 30% tax credit there that Related to our CapEx, the processing infrastructure, so obviously the main piece being SXEW plant. And on top of that, yes, as you said, there's potential to actually monetize that. The tax rules allow for that. So Yes, early days, but a good opportunity.

Speaker 2

And I think a result of the DOE bringing in copper as a critical mineral over the summer.

Speaker 4

Okay. It's interesting. And maybe just on Gibraltar, you You guys are on track to get your guidance for the year. Can you provide any clarity just in terms of Q4 on kind of grades You're seeing are you still sort of the bottom of the pit? And then just some clarity perhaps on some capitalized stripping here for the next couple of quarters It was quite low in this quarter.

Speaker 4

Thanks.

Speaker 5

Yes. Good morning, Craig. Richard here. Grades in Q4 are going to be Slightly lower than Q3, but very much in line with kind of how we've operated In Q3, but slightly lower a bit. And then capitalized stripping, we do see an increase in capitalized stripping in Q4 as We're deploying more shovels in the connector pit and getting that pit ready for future release.

Operator

Your next question comes from Alex Badwani of Canaccord Genuity. Your line is already open.

Speaker 6

Good morning, guys. Thanks for taking the questions. First question is just how quickly Can the working capital build unwind over the next quarter? Obviously, it was about C34 million dollars How much of that do you think will unwind with the sales and now that the port issues have been resolved. And for the second question, for the second half of next year from connector pit, What can you tell us about the ore hardness and the grade as it compares to what you're currently mining from Gibraltar?

Speaker 6

Just trying to get a sense throughput levels and grades.

Speaker 3

Yes, it's Bryce. Maybe I'll take the first part of that question just with the working capital. We had excess inventory at the end of the quarter. We're expecting we'll be through that by the end of November. So we should realize sales of excess copper inventory into the Q4 results, get more normal levels for the end of the year at this stage.

Speaker 3

And then the second part

Speaker 5

of the question for Connector Pit, Richard here. In terms of ore hardness, it is the ore from connector pit is showing that it's more similar to the Gibraltar pit ore, A little bit harder, but still quite soft compared to other ores that we've processed on the property previously. Then grade wise, as we start, we'll see a little bit lower grade than what we're currently processing, But then it will increase as we get deeper similar to the same sequence we've experienced historically.

Speaker 6

Okay. Very clear. And last one, if I may. What are the strip ratios going to look like For the next quarter or the next three quarters as you finish up at Gibraltar.

Speaker 5

Strip ratios for the next 3 quarter actually continue to be quite low given Being at the bottom of the pit and essentially in a very low strip ratio area with high amounts of ore available to mine.

Operator

There are no further questions at this time. I would hand over the call to the management team. Please proceed.

Speaker 2

Great. Okay. Thanks, everyone, for dialing in, and we will talk to you again in February at our next earnings call. Thanks very much.

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Taseko Mines Q3 2023
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