Taseko Mines Q1 2024 Earnings Call Transcript

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May 2, 2024

There are 6 speakers on the call.

Operator

Good morning. My name is Ina, and I will be your conference operator today. At this time, I would like to welcome everyone to the CECO's First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer Thank you. Mr. Bergo, you may begin your conference.

Speaker 1

Thank you, Ina. Welcome, everyone, and thank you for joining Taseko's Q1 2024 results conference call. The 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 and on SEDAR Plus. I am joined today in Vancouver by Taseko's President and CEO, Stuart McDonald Taseko's Chief Financial Officer, Bryce Hamming and our COO, Richard Tremblay. 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

This information by its nature is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. For further information on these risks and uncertainties, I encourage you to read the cautionary note that accompanies our Q1 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 dollars unless otherwise Following opening remarks, we will open the phone lines to analysts and investors for questions.

Speaker 1

I will now turn the call over to Stuart for his remarks.

Speaker 2

Thank you, Brian, and welcome, everyone. Thanks for joining us today for our quarterly conference call. As usual, I'll start with a brief overview of the quarter and then I'll turn it over to Bryce for some more detailed commentary on our financials. It's obviously been a very busy few months for us here with construction activity ramping up at Florence, the buyout of our JV partners at Gibraltar and also our recent bond refi. But before we get into that, let's start with our brief comments on Gibraltar operations.

Speaker 2

And the mine has been running smoothly and our production results are generally on plan for the Q1. Gibraltar produced £30,000,000 of copper and £250,000 of molybdenum. Grade for the quarter was 0.24%, which is right around where we expect to average for the year. As we've previously talked about, one of our 2 concentrators was shut down for a planned major maintenance in January. The mill was down for about 12 days, but actually since it's come back online, our total mill throughput has been very strong, averaging just over 90,000 tons a day, which is 6% over nameplate capacity.

Speaker 2

Copper recoveries for the quarter averaged 79%, slightly lower than planned on higher throughput and also milling of some partially oxidized material. In terms of cost, our total site costs were consistent with the prior quarter with Q4 last year, but lower copper production and a lower capital strip allocation had an impact on our unit costs. And our source E1 operating cost came in at $2.46 per pound for this quarter. That's U. S.

Speaker 2

Dollars. With a realized sales price of $3.89 per pound, we were able to generate $50,000,000 of adjusted EBITDA and $60,000,000 of operating cash flow. So overall strong financial results and Bryce will provide some further detail on that in a minute. Looking ahead to the next few months, we have a pit transition underway. The Gibraltar pit was the main source of ore in the Q1 and the connector pit supplied about 25% of the mill feed.

Speaker 2

By mid year, the connector pit will become the primary pit and to facilitate that transition, we're getting ready to move the in pit crusher this quarter. Our contractor, Takraf, has begun mobilizing their equipment to site ahead of the move. Mill number 1 will be down for a few weeks and we'll take advantage of that downtime to complete some other proactive maintenance in the mill. Mill number 2 will continue operating normally during that time and mining activity will also continue as normal during that down. The operation remains on track to achieve annual production of £115,000,000 of copper.

Speaker 2

At the end of the Q1, we closed the acquisition of the remaining 12.5% interest in Gibraltar. So the Q2 will be our 1st full period of 100 percent ownership. This is a great transaction for us. It provides immediate cash flow and a deferred payment structure that preserves our liquidity for Florence development over the next 2 years. As part of the deal, we also got back the 30% life of mine offtake contract that was held by our JV partners, Doha and Furukawa.

Speaker 2

Those additional offtake rights have come to us at a time where smelter treatment and refining costs are near record lows. And we've been able to take advantage of that by selling additional spot shipments in the second half of this year at negative TCs. So that's a premium. In other words, Taseko is being paid by traders to take the concentrate, which is something I've never seen before and I don't think we've ever had that in 20 years of operating Gibraltar. But it certainly shows us the value of clean concentrate in the current market.

Speaker 2

And comparing this to our previous benchmark contract, cost savings in the second half of twenty twenty four are about 10,000,000 recently significant additional tons for 2025 and 2026 and that material has also been sold at negative TCs. It's clear that the traders do not see the copper concentrate shortages ending anytime soon. The market for refined copper is also strong and as we've seen the big price move up since quarter end up to the $4.50 a pound range. That's about $0.60 higher than our realized price in Q1. So it's a great time to be bringing on additional production, which is exactly what we're doing at Florence here in the next 18 months.

Speaker 2

Initial construction activities and well field development at Florence have been running smoothly. We have 3 drills operating with the 4th to be mobilized in May. Today, 10 new wells have been drilled in line with our planned timing. Earthworks and site prep for the plant and other construct and other surface infrastructure has also been a key focus. And last week, we had the 1st concrete pour in the planned area.

Speaker 2

Last quarter or sorry, in the Q1, we spent US18 $1,000,000 on construction of the commercial production facility out of the original estimate of $232,000,000 from our technical report last year. That spending will continue to ramp up in the coming months as we get into full construction of the SX EW plant. As noted in our MD and A, we also had US15 $1,000,000 of other CapEx at Florence, includes final deliveries of long lead equipment that was ordered in 2022. And also the cost to construct an additional evaporation pond, which was previously planned for year 2 of operations. But we decided to bring that work forward to give us additional flexibility on-site water management.

Speaker 2

So overall, we're very pleased with the progress on Florence. Recruiting is going well. The site operating team continues to prepare for initial well field operations and construct and copper production late next year. We've completed a number of key financings in recent months and we consider the Florence project to now be fully funded. The remaining project costs can be funded by our available liquidity through the remaining installments coming from Mitsui and of course cash flow from Gibraltar.

Speaker 2

Our hedging program has also been extended recently to secure a minimum copper price of $4 a pound for 20.25 and that gives us additional protection through the Florence construction period as well. Last but not least, I wanted to make a few comments on our bond refinancing that was just completed in April. We're very happy with the result and believe it was a significant de risking event for the company. It was something we wanted to complete this year and bond market conditions were such that it made sense to move forward with the refinancing immediately following our the announcement of our Gibraltar transaction. Upsizing the senior notes from $400,000,000 to $500,000,000 provides additional proceeds that can replace more costly bank debt alternatives at Florence and pushing out the maturity date from early 2026 out to 2,030 gives us plenty of time to generate cash flow from Florence and Gibraltar, so we can look to delever our balance sheet in the future.

Speaker 2

And with that, I'll pass the call over to Bryce.

Speaker 3

Thank you, Stuart. Yes, it has been quite a busy start to the year between the various financing, operating and construction initiatives. So just to add a little more information about the bond refinancing to start. We're very happy with the outcome of this process, and we moved very quickly into refinancing mode after closing the second Cariboo transaction in March. Being able to refinance and upsize the new notes to $500,000,000 with an 8.25% coupon is quite attractive, seeing bank debt is more than 9.5% at the moment.

Speaker 3

Originally, we expected that we would be refinancing later this year with the expectation that interest rates may have started to decline by now. As the expectation of lower rates diminished in recent months weeks, we made the decision to move forward sooner as the high yield market was open and constructive. And even though we are in a much higher interest rate environment today as compared to our last bond financing in 2021, the credit spread within the high yield rate is historically low and notably better for us by more than 2% than it was for Taseko in 2021. An important factor looked at was our increased ownership in Gibraltar since our last issue and our flexible payment terms we achieved with those acquisitions. Today, our production and financial metrics are 33% higher than in early 2021 with copper prices more than $1.5 more per pound.

Speaker 3

And the fact that our deal was roughly 4x oversubscribed shows that bond investors are now able to see the credit rerating that will come with Florence cash flow in the not too distant future. Having 2 copper producing cash flowing assets will make significant difference to our credit profile and our objective of deleveraging in the years ahead. The recent Gibraltar acquisition with Dolan Furacao is a great deal for us in several ways. First, we agreed to pay them back their invested capital into Gibraltar of CAD117 1,000,000 but that was on the agreement we would essentially only pay them from cash flow from Caribou, the 25 percent owner of Gibraltar that we acquired. We agreed to a term of 10 years to pay this back with any amounts not paid over that time to be made up in a final balloon payment in 2,034.

Speaker 3

We also agreed a payment framework that was based on copper prices, so that if copper prices are higher, they get a higher annual payment, but we obtain downside protection in lower copper price environments. For example, at $4 copper, we would pay them only $6,000,000 per year And at a $5 copper price, we would pay them no more than $15 a year. We also achieved, most importantly, a 2 year holiday for any payments to ensure we have the runway in the near term to build to Florence. The obvious question is why did they sell it to us on such favorable terms? The answer is simple.

Speaker 3

Last year, both Do and Furukawa exited the Onahama smelter in Japan and sold their interest to Mitsubishi. They no longer needed the concentrates from Gibraltar to feed that smelter. And with the acquisition of Sojits in the prior year, Taseko was the only natural buyer. So Dolan Furukawa agreed to work with us so we could achieve our mutual objectives. But we think this will be a very valuable deal to Taseko in the short term and of course in the long term.

Speaker 3

All this said, this Caribou transaction did create some different accounting in our Q1 financials. I'll talk about that now. When we moved from 87.5 percent to 100 percent ownership, we are required under IFRS to move from joint control, proportionate consolidation accounting to full consolidation. And under IFRS, we need to revalue our existing 87.5% interest on this deemed acquisition date. This required us to write up the book value of our inventory at March 25 to fair value or net realizable value, which resulted in a $15,000,000 gain in the income statement.

Speaker 3

It's noted as a gain on acquisition. But $13,300,000 of that accounting gain was actually realized by the end of March as we had a concentrate shipment in that last week. So $13,000,000 of that was really a realized gain, which otherwise would have been operating margin. We have illustrated this in our adjusted earnings reconciliation, so it's clear to the reader what happened there that this gain on acquisition was substantially just operating margin in the quarter, just reclassified to this other category called gain on acquisition. Sales volumes in the Q1 were £32,000,000 at an average realized price of $3.89 per pound.

Speaker 3

Our share of these sales generated $147,000,000 of revenue in the quarter. Sales exceeded production as we brought down our copper inventories again to a more typical level of less than £5,000,000 While the copper price year over year was very similar, the 25 percent higher revenue was driven by increased production and sales and the increased ownership of Gibraltar. Total site tests at Gibraltar were $110,000,000 in the quarter, in line with the prior quarter and the Q1 last year. Overall site spend at Gibraltar is quite consistent quarter over quarter and we expect this level of spend over the next quarters and for the rest of this year. On a cost per pound basis, our C1 costs in Q1 were $2.46 per pound.

Speaker 3

Adjusted EBITDA for the quarter was $50,000,000 including that $13,000,000 of margin from inventory on hand at March 25 and sold before the end of the quarter. And our cash flow from operations was $60,000,000 significantly higher than the Q1 of 2023. This was driven by increased production and higher sales including that £2,000,000 of inventory that we drew down over our production as well as the increased ownership of Gibraltar. Adjusted net income was $8,000,000 or $0.03 per share, which was also higher than we reported last year. GAAP earnings for the quarter was $19,000,000 or $0.07 per share, and it included that $47,000,000 gain on the Gibraltar acquisition from Dolan for Ocala.

Speaker 3

That's also known as a bargain purchase gain similar to what we had with Sojitz. Capital spending at Gibraltar in the quarter was $22,000,000 including $14,000,000 for capitalized strip and $6,000,000 in general sustaining as well as $2,500,000 for capital projects, mainly that crusher relocation project, which is progressing this quarter. That will wrap up, and we have we expect about another $8,000,000 to go on it for spending. With the Mill 2 downtime in January to replace a major component, we are now in the process of finalizing our insurance claim for that. We have received $3,500,000 on that in U.

Speaker 3

S. Dollars to date, and we expect to receive a total claim of at least $20,000,000 or more still to come in the coming months. We ended the quarter with $158,000,000 of cash, which includes the $50,000,000 received from Taurus and the first $10,000,000 from Mitsui. In April, we received the additional proceeds of CAD110 1,000,000 from the bond refinancing, and we've also now paid down CAD20 1,000,000 that was outstanding on the revolving credit facility. As Stuart mentioned, we've taken advantage of the recent copper price move by adding additional price protection for 2025.

Speaker 3

We now have a minimum price secured for $4 for all of 2025 in addition to the $3.75 per pound we have for the second half of this year for £42,000,000 These 2025 hedges were for copper price collars that we purchased for around $0.03 per pound for premium with the ceiling achieved of 5 dollars for the first half $5.40 for the second half of the year, and we've covered a total of £108,000,000 of copper for 2025. It's important for us to protect the downside with our capital commitments and leverage while retaining upside to fund Florence. The current copper price environment is definitely benefiting us and as we are participating fully in the recent rise, especially now that we own 100 percent of Gibraltar. So with that, I'll turn it over to the operator for questions. Thank you.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question comes from the line of Craig Hutchison from TD Bank. Please go ahead.

Speaker 4

Hi, good morning guys. Thanks for taking my questions. Just a question on the TCRC. It's obviously very positive to see you guys are going to recognize negative TCRCs. But can you give us a sense in terms of what percent of your concentrate you expect to produce say this year, next year in 2026 is actually under contract?

Speaker 2

Sure. Yes. Hi, Craig. It's Stuart speaking here. Essentially, we are we have sold previously sold all of our material for the current year for 2024.

Speaker 2

But what happened with the Caribou deal, we got about 50,000 tons of concentrate back for shipments that were scheduled for the second half. So those have been remarketed at negative TCs. So that's $50,000 this year in the second half. And that's, I don't know, roughly 40% or 50% of our shipments. No, maybe 30% or 40% of our shipments in the second half.

Speaker 2

And then for 2025 and 2026, yes, we've now sold 220,000 tons of concentrate, 160,000 of that in both years was what we've just marketed. So and 60, the other 60 was sold previously under a long term deal. So that gives you an idea of what we've been done. So the new it's pretty significant. It's 75%, 80% of our production in 2025 and 2026 that we've just sold in the current market.

Speaker 4

Great. And just a question on transportation costs, just kind of looking year over year, they're up 100%. I know some of that is just recognizing owning a larger interest in Gibraltar. But can you give us a sense of why they're up so much? And is that something we should be modeling going forward?

Speaker 5

Yes. Hi, Craig. Richard here. Really the story in transportation cost is we've had to utilize trucking to move concentrate from Gibraltar down to the coast over the last few years and has become a regular part of our business. We working hard to get back to being able to rail it all.

Speaker 5

So that's really the, I guess, the objective on a go forward basis. But we'll continue to utilize trucking as a backstop to inefficiencies and being able to rail the concentrate.

Speaker 4

Okay. What's the sort of limitation on the rail side of things? Is it be more cars or gives a sense of what that issue is?

Speaker 5

Yes, it's quite complex, but I guess to simplify it would be, it comes down to how fast the cars are cycling on the route back in back a number of years here to just over 2 years. There was a route change where the cars now started traveling north instead of going south out of Williams Lake and that added cycle time to the cars returning. So that's been one of the challenges. And then the other obvious one is when you get FM events like the flooding or the port strike last year impacted or backed concentrate up at site, which then we had to resort to trucking to be able to move.

Speaker 4

Okay. And just another question for Gibraltar. The decision or the consideration to restart the oxide SX EW plant, what's some of the factors that you're thinking about there? Is it just sulfuric acid prices? And can you give us some kind of sense in terms of what the production would look like if it was to restart?

Speaker 5

Yes, Craig, Richard again. Really the driving factor there is having sufficient oxide ore placed on the dumps to justify the capital investment and the operating costs to be able to kind of restart that plant and then run it sustainably. I think as we've indicated previously, we're 2026 is a timeframe we're looking at, but also looking at with some of the additional tons that have been placed on the dump at the end of this end of last year and through the beginning of this year looking at potentially trying to accelerate that. So that works underway in that regards.

Speaker 4

Okay, great. Maybe one last question for me. Just on foreign suspending, can you maybe talk to the cadence of the spending here throughout the year? Should we expect a significant uplift in Q2 or is it more starting big spend starting in Q3, Q4? Thanks.

Speaker 2

No, I think you're going to see a step up in Q2, probably another step up in Q3 and then

Speaker 5

yes, kind

Speaker 4

of

Speaker 2

steady for a couple of quarters from there and then ramp back down a little bit in as we get later on in 2025. So it's going to pick up here definitely in Q2.

Speaker 4

Great. Thanks guys.

Operator

Thank you.

Speaker 2

I think we're good operator. So we can probably stop it there and look forward to chatting with everyone again next quarter.

Operator

Thank you. That concludes our conference for today. Thank you all for participating. You may all disconnect.

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Earnings Conference Call
Taseko Mines Q1 2024
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