Taseko Mines Q2 2024 Earnings Call Transcript

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August 1, 2024

There are 7 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 Taseko Second 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 session.

Operator

Thank you. Mr. Brian Bergeau, you may begin your conference.

Speaker 1

Thank you, Ina. Welcome, everyone, and thank you for joining Taseko's Q2 2024 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. 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 As usual, before we get into opening remarks by today, I would like to remind our listeners that our comments and answers to your questions will contain forward looking information. This information by its nature is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome.

Speaker 1

For further information on these risks and uncertainties, I encourage you to read the cautionary note that accompanies our Q2 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 specified. While we will open the remarks, we will open the phone lines to analysts and investors for questions.

Speaker 1

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

Speaker 2

Great. Thanks, Brian, and good morning, everyone. Thanks for taking the time to join us today to review our Q2 operating and financial results. It's been another eventful quarter and a busy first half really. We've had a number of significant accomplishments so far this year, including consolidating 100 percent ownership of our Gibraltar mine, refinancing our bonds, completing Florence project financing and then having a very positive start to construction activities at Florence.

Speaker 2

And more on that in a minute, but I'll start with Gibraltar operations. And the mines produced £20,000,000 of copper and £185,000 of molybdenum in the 2nd quarter. Production was impacted by the planned downtime in mill number 1 for the crush and move project and for maintenance on the SAG mill and also a strike of the mine's unionized workforce which shut down both mills and the whole site for 18 days in June. All of that downtime resulted in total tons milled being about 25% below nameplate capacity

Speaker 3

and that

Speaker 2

of course has a direct knock on effect to copper production. Copperhead grades averaged 0.23%, which was generally in line with our expectations and copper recoveries were 78%, slightly below plan due to the inconsistent mill operating time as well as processing some partially oxidized ore from the upper benches of the connector pit. Mining rates were also impacted by the labor disruption, but our strip ratio remained in line with plan. We started accessing initial sulfide ore from the new connector pit and the transition into that new pit will continue over the next few months. We'll be completely out of the Gibraltar pit this fall.

Speaker 2

Running part of the quarter with only 1 mill obviously has an impact on unit costs and our total operating costs or C1 increased to US2.99 dollars per pound in Q2. The copper prices were very strong with a realized price of almost $4.50 a pound in the quarter. The strike in June was a disappointing outcome for us, but we're pleased to be able to resolve that with a new 3 year union contract and get all operations back to normal in the 3rd week of June. In terms of earnings, it was our 1st full quarter reflecting 100 percent ownership of Gibraltar and we generated $71,000,000 of adjusted EBITDA and $77,000,000 of earnings from mining operations. Those numbers included a $26,000,000 insurance recovery related to repairs that were done earlier in the year.

Speaker 2

Nonetheless, a very good result considering the operational disruptions and it demonstrates the earnings potential when we get Gibraltar back to full production levels here in the second half of the year. I'm happy to say that the in pit crusher relocation was successfully completed in early July without any issues. This was a 2 year $50,000,000 project and a major undertaking for our project team. So congratulations to everyone involved. Concentrator number 1 is back up and with both mills now running at capacity, we're looking forward to a strong second half.

Speaker 2

We obviously lost some production during the strike, but looking at the potential to increase our mining rate slightly in the coming months and we also believe there are opportunities to push mill throughput to get back some of the lost pounds. Overall, we expect total copper production for the current year to come in between £110,000,000 and £15,000,000 and that's slightly below our original guidance of £115,000,000 So that means a 20% to 30% increase in production in the second half over the first half of the year. Looking ahead to 2025, it's shaping up to be a good production year and our concentrate production will be supplemented by additional pounds from the restart of the Gibraltar SX EW plant. That plant was actually built in the '80s and operated for about 13 years, producing on average £6,000,000 to £7,000,000 per year. Taseko then restarted it in 2007 and operated again until 2015.

Speaker 2

So it's a well established operation. Over the last few quarters, we've been stacking new oxide ore from connector pit onto the old leach pads. By next year, we should have well over £50,000,000 of contained copper on the leach dumps, and we have advanced plans to refurbish the plant over the year at a cost of around $8,000,000 and expect to be able to restart cathode production in Q2 next year, which is a year ahead of the previous schedule and our previous thinking. Our updated modeling indicates the plant could provide an additional £4,000,000 to £5,000,000 of copper production annually for many years to come. So it's positive news and a great outlook for the mine going forward.

Speaker 2

Moving to Florence, construction of the commercial facility is advancing on schedule. Construction activity really ramped up in the Q2. We now have over 200 contractors at site in addition to our owners team and site management. Well field drilling has gone according to plan so far with 18 wells completed at the end of June. We had 2 rigs drilling the production wells during the Q2 and we added a 3rd drill in July.

Speaker 2

Now assessing the need for potentially adding a 4th. At the plant site, construction focused on earthworks and pouring the concrete foundations for the SX EW plant and related infrastructure like tank containment systems. Construction CapEx in the Q2 was US37 $1,000,000 US55 $1,000,000 year to date. In the next few months, earthworks will be complete and we expect to begin mechanical installations and structural work on the SX. We've recently added some construction photos to the Florence section of our website and I'd encourage everyone to keep an eye on that and we'll be adding more in the coming months, so you can follow our progress.

Speaker 2

But pretty exciting to see things happening on the ground, so it's great. On the recruiting side, we've been very successful at building the permanent operating team for the project. We'll eventually have about 170 full time staff and operators for the commercial production phase. Right now, we've hired so far hired about 70 of those positions. Florence is in the middle of the great copper belt in Central Arizona.

Speaker 2

There's a lot of highly qualified candidates already living in the region. And we have a very innovative exciting mining project that's getting a lot of attention. So there's a lot of interest in applicants for all of our job searches and postings. That's all going very well. I was actually down in Florence not too long ago and had an opportunity to see the progress and meet some of the new team members of the Florence team.

Speaker 2

And yes, very impressive with everything that's taking place on-site. A great project happening, supported by an experienced and dynamic team and we're now less than 18 months away from First Copper. As we've talked about in the past, we believe Taseko is in a very unique position with a low cost copper project in the Tier 1 jurisdiction and now so close to first production. Despite the pullbacks in prices over the last couple of months, we believe that the medium to long term fundamentals for copper have never been stronger. There continues to be very little in the way of new copper supply available to come online in the next 5 years.

Speaker 2

We saw some significant financial flows into and then out of the copper markets over the last 6 months. And I think it's a matter of time before we have a real supply deficit. And then the financial players will really move and it's going to be interesting at that time to see where prices go. The short term predictions are always difficult and that's why we continue to keep our price protection program in place. To remind everyone, we have a minimum price of $3.75 a pound protected for the rest of this year and a minimum price of $4 a pound protected for all of next year.

Speaker 2

These are copper collars, but the ceiling prices are high and provide Taseko with a lot of upside over the next 18 months. Just one more topic before I pass the call over to Bryce, just regarding our Yellowhead project. Certainly, let's not forget about it. It's a large open pit copper project in the great location just north of Kamloops, BC. We updated the feasibility study a few years ago, which outlined a project that will produce an average of £180,000,000 of copper a year over a 25 year mine life.

Speaker 2

That would make it one of the largest copper mines in North America. We're getting ready to initiate the EA process. In connection with that, we've recently opened a project office to support community engagement. And we're also doing a small field program this year, which includes geotech drilling and test pitting to gather data that we're going to use going forward as we move through permitting. So on that note, I'm going to pass the call over to Bryce who can provide some more color on our financials.

Speaker 4

Thanks Stuart. And yes, there were a few accounting one off events during the Q2 making it somewhat complicated from an accounting standpoint. So I'll start with explaining these further. We posted a GAAP net loss of $11,000,000 but on an adjusted basis, we derived adjusted net income of $30,500,000 or $0.10 a share. So some notable key items that were expensed in the quarter for GAAP over and above our usual unrealized derivative and FX losses.

Speaker 4

These additional items that we adjusted for in our adjusted earnings order, I've got a list here. So the first was a $10,400,000 in other operating costs that we incurred in Q2 that related to the cost for the actual physical move of the primary crusher. Those are expensed under IFRS, although they relate to the overall capital project. And then we also had site care and maintenance, while the operations were suspended in June for that 18 day strike that we had. We also had $8,000,000 in inventory costs that were written up back in March when we acquired the remainder of Caribou.

Speaker 4

And when we sold or processed those in the current quarter, we charged that write up to cost of sales and had higher costs, which we reversed in our adjusted earnings. We also had $10,500,000 in accretion on our Caribou liability for our deferred consideration and for our Florence royalty obligations and that arose due to the rising copper trends as well as the more positive outlook for copper prices in the years ahead. And we also had a $10,000,000 onetime call premium that we paid on our bond refinancing as well as a $3,000,000 write off of our deferred financing costs related to the 2026 notes. So we consider all those items as either not reflecting the underlying operational performance of our business, extraordinary or unrealized and definitely not indicative of future operating results. So therefore, we adjusted them.

Speaker 4

So financial performance in the quarter was strong. We had adjusted EBITDA of $71,000,000 and earnings from mine ops before depletion of $77,000,000 Sales volumes were strong at £23,000,000 that's 100 percent of Taseko's account now that we own 100% and it exceeded our production, we were able to draw down inventories by $2,400,000 We also benefited from a strong copper price in the quarter. We realized just shy of $4.50 a pound and that was 60% sorry, dollars 0.60 higher quarter over quarter from Q1 and nearly 20% higher than the same quarter last year in 2023. So one notable positive impact on financial performance was the $26,000,000 insurance claim that Stuart mentioned. We did finalize that in June with the adjuster and we recorded it in the Q2 and we had mentioned that on previous calls.

Speaker 4

Given Gibraltar is our only producing asset, we carry business interruption insurance on top of our property insurance, and that protects our gross profits should any of our milling or machinery at the Gibraltar mine break down. And so we're working with our adjusters. We determined that Gibraltar would have produced an additional 8,000,000 copper pounds last year if not for a component that we needed to replace and mill to. This insurance is being received as we speak. We've received about 30% of it already in July, and we expect the rest of it in the Q3.

Speaker 4

Total site spending at Gibraltar was $91,000,000 in the Q2, and that's $20,000,000 lower than the previous quarter. And our general run rate, this is mainly due to the 18 day labor strike. During those 2.5 weeks in June, we significantly reduced our cost at the Gibraltar mine as we put it on temporary care and maintenance. Going forward, we expect Gibraltar's total site cost to revert back to more normal levels, which are usually between CAD 100,000,000 to CAD 110,000,000 per quarter, including capitalized strip. Unit costs in the 2nd quarter were CAD 2.99 per pound.

Speaker 4

Biggest driver of the increase from prior quarter was obviously lower copper production and that should decrease obviously in the 3rd Q4 as production increases as Stuart outlined. Starting in the Q3, we'll also benefit from the new copper offtake agreements we signed. They have extremely low TCRCs, the treatment and refining charges we pay to our customers. And some of these contracts are even negative. This will have notable impact on our C1 costs, reducing our off-site costs by $0.15 or more per pound produced.

Speaker 4

Cash flow from operations was impacted by the downtime in Q2, but we still generated $35,000,000 in the quarter, which was higher than the same period in 2023 as due to the higher copper prices, but also we drew down the finished inventory. In June, we submitted a concept paper to the U. S. Department of Energy for a tax credit under Section 48. We believe Florence Copper may qualify as a critical mineral processing facility given that we will be producing finished copper cathode for use in the United States.

Speaker 4

We expect to hear back from the DOE later this month at the end of August and whether we'll be eligible for it. And then the application we'll hear later in the year. The award itself would be in early 2025. The credit is transferable, and we can monetize it. This incentive funding could further assist with funding our Florence spend in 2025.

Speaker 4

Last but not least, while we spoke a bit about it last quarter was our bond refinancing. That was important refinancing transaction that did not close until this Q2. So the impact of that $500,000,000 refinancing, which is now due in 2,030 and pushes our debt maturity out, was included in our 2nd quarter financial results as well as our cash position. So factoring that as well as the $10,000,000 we've received from Mitsui on their installments, We ended the quarter with a cash position of CAD 199,000,000 and we have available liquidity over CAD 300,000,000 when we factor in our CAD80 1,000,000 undrawn revolving credit facility. So from a liquidity and funding perspective, we're in a very comfortable position as we continue the construction spend at Florence over the coming quarters.

Speaker 4

And with that, I'll turn it over to the operator for questions. Thank you.

Operator

Thank Your first question comes from the line of Craig Hutchison from TD Cowen. Please go ahead.

Speaker 5

Hi, good morning guys. Thanks for taking my question.

Speaker 2

Good morning, Craig. Yes.

Speaker 4

A couple

Speaker 5

of questions in Gibraltar. Just the recoveries have been trending lower for the last few quarters and I know it's partly due to the connector pit. But can you give us some guidance in terms of what the kind of recoveries look going forward? Is it going to be similar to what we saw in Q2? Or is that impacted by the disruptions with the labor strikes?

Speaker 6

Yes. Craig, Richard here. Yes, I know you're right. The recoveries have been impacted by the move in the connector pit and similar to what we've seen in other when we transitioned to other mining areas, the ore at the top of the deposit is more of a transition in nature, and connector pit has higher degrees of oxidation. So as we mine through that ore, we'll continue to see the recoveries improve as we go forward and get back in more line with what we've seen in the past when we're into the heart of the ore zones.

Speaker 5

Okay. And maybe as a follow-up, to get to your guidance, the 110 to 115, like what should we be assuming here for throughput and grade to the back half of this year? I know you had lost some throughput in the beginning of July just completing the work you guys were doing there. But should we assume your backup is a full design 85,000 tons a day and kind of 0.24 percent copper grades for the back half of this year? Yes,

Speaker 2

I think certainly had a little bit of continued downtime in the 1st part of July. But since concentrator number 1 came back online, we ramped up for a week or so, but it's been running very well. And yes, we see good opportunity there to potentially push throughput over 85,000 tonnes a day for the next couple of quarters. So yes, pretty optimistic on the throughput side. Grades generally, I think should stay fairly consistent with what you saw in the first half.

Speaker 2

I think the opportunity obviously comes from having continuous mill operating time and with both mills repaired and running well. It should be good upside on the throughput. So we've given a range. We don't like to be too precise in our the different components of the guidance, but that's hopefully that's helpful.

Speaker 5

Okay. Thank you. And then just on the SXEW, could you expect to come back online next year? Any sense in terms of what the cash costs are at this point that kind of level of protection?

Speaker 2

I mean, something in the range of $2 a pound is what we're seeing. Obviously, yes, not dissimilar from the rest of the operation based on what we're seeing at this point.

Speaker 5

Okay. Then one last question for me. Just on the Florence, you mentioned the potential to get the credits in the U. S. Government.

Speaker 5

Are we talking what's the level of credits we're talking about? Is it like 30% of the cost of the SX EW facility? And can you kind of give us the magnitude of what it could potentially be?

Speaker 4

Yes. We're looking at that closely, Craig. I think the real question is how much of it is eligible and then at what rate is the tax credit. I think conservatively, like we're probably looking at about a $20,000,000 credit based on our spend. That's based on a 6% tax credit rate.

Speaker 4

There's ability for it to go as high as 30%. So it could be up to 5x that. But exactly where we land on that, we'll probably have better guidance on it in Q3 once we've submitted the application.

Speaker 5

Thanks guys. I'll turn it over to some guys.

Speaker 3

Thanks, Greg.

Operator

Thank you. And your next question comes from the line of Ben Davies from Panmure Liberum. Please go ahead.

Speaker 3

Thanks guys. Thanks for the call. A couple of questions from me. Simple one, firstly just on the wage agreement. Was that did that cover the whole workforce?

Speaker 3

And then secondly, another one on just kind of system inventories, obviously, a bit of a drawdown with more sales and production over the past couple of quarters. Do you expect to rebuild those? And at what pace kind of going forward? Thanks.

Speaker 2

Hi Ben, it's Stuart speaking here. Generally on the workforce, I mean these are rough numbers, roughly 7.50 employees at the mine and roughly 550 of those are in the union. So the new contract applies to that $550,000,000 portion of the total. Yes, so we're happy to get that deal behind us. That will be in place for the next 3 years.

Speaker 2

On the inventory side, yes, on finished goods we had a bit of a drawdown this quarter. I suppose that some of the mill downtime allowed us to move out a little bit of extra inventory perhaps, But it's not unusually low inventory at quarter end. So we should see something in those ranges continue for the future. Yes. So nothing no surprises coming, I don't think, on in terms of finished goods inventory in the next few quarters.

Speaker 3

Okay, great. That's helpful. And actually just following up on the SXEW. So cash costs hopefully around the $2 mark. But with the restart, was it thinking about basically securing enough?

Speaker 3

Or was that also a price equation within that as well?

Speaker 6

Sorry, Ben. Richard here. The question was what's triggering the restart?

Speaker 3

Yes. Is this just now you've rebuilt stockpiles sufficiently that it now makes economic sense to do a restart of the SX EW?

Speaker 6

Yes, that's correct. The connector pit release is a significant portion of oxide ore that's now been placed on the dump and allows its economic now to restart the plant because we basically replenished the leach pads.

Speaker 3

Got you. Okay, great. That's all for me. Thanks.

Operator

Thank you. That concludes our question and answer session. I will now hand the call back to the CECO management for any closing remarks.

Speaker 2

Okay. Thank you very much everyone for joining our call and we'll talk to you again next quarter and enjoy the rest of the summer. Bye now.

Operator

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

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Earnings Conference Call
Taseko Mines Q2 2024
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