Taseko Mines Ltd
TSX:TKO
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1.59
4.12
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Taseko Mines Ltd
You don't have any saved screeners yet
Good morning. My name is Miranda, and I will be your conference operator today. At this time, I would like to welcome everyone to Taseko 2022 Q1 Earnings and Production Conference Call. [Operator Instructions] Mr. Bergot, you may now begin your conference.
Thank you, Miranda. Welcome, everyone, and thank you for joining Taseko's First Quarter 2022 Conference Call. The news release announcing our financial and operational results was issued yesterday after market closed and is available on our website to tasekomines.com. On the call with me today is Taseko's President and CEO, Stuart McDonald; Taseko's Chief Financial Officer, Bryce Hamming; and our Senior VP of Operations, 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. 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 first quarter MD&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. After opening remarks, we will open the phone lines to analysts and investors for a question-and-answer session.
I will now turn the call over to Stuart for his remarks.
Okay. Thank you, Brian, and good morning, everyone. Thanks for joining us today to review our first quarter 2022 financial and operating results. And it continues to be a great environment for copper miners. And even with the pullback in copper prices over the last week or so, we remain very optimistic about the year ahead.
So in the first quarter, we actually had our highest ever realized selling price of $4.59 per pound of copper and that strong pricing combined with our 75% share of Gibraltar sales volumes resulted in $38 million of adjusted EBITDA and $52 million of cash flow from operations. Sales volumes exceeded production by 6 million pounds, as we were able to move the excess inventory that was carried over from the last year. So it was a lower production quarter, which we anticipated and signaled on the last call, and that was mainly due to lower copper grades.
We've recently transitioned mining operations to the Gibraltar pit, which will be the primary source of ore for the remainder of this year. As is always the case at Gibraltar, the upper zones of the deposit are lower grade with smaller disjointed zones of ore and that's where we were in the first quarter.
As mining advances to deeper benches, the grade and ore quality will gradually improve, and we expect to see much stronger production in the second half of the year. Mill throughput was a real focus for the site operating team in the first quarter. The carryover of weather impacts from Q4 meant that we had a slow start to the year in January and February. And for the first quarter, mill throughput averaged 78,000 tons a day, which is below the designed capacity of 85,000. But with the weather issues behind us and a higher percentage of our ore coming from the Gibraltar pit, we saw a significant improvement over the last 2 months.
In March, we averaged over 80,000 -- 87,000 tons a day and then 90,000 tons for the month of April. So we're now realizing the benefit of softer ore in the Gibraltar pit, which is what we expected based on historical performance.
So we're very pleased with that. Recoveries are still on the lower side of where we'd like them, as the mill operations team works to optimize performance with the new ore from the new Gibraltar pit. We also have a number of improvement initiatives underway in the mill, including a data analytics project, which is showing some positive results so far.
Overall, we expect improved recoveries over the course of this year as grade and ore quality improves. But I'd like to be clear that our original production guidance of 115 million pounds of copper, plus or minus 5% is still our guidance and hasn't changed. On the cost side, we're seeing inflationary pressure like everyone else in the industry. The most significant impact is on diesel prices, which has historically represented about 10% of our total operating costs.
We use over 35 million liters a year at the mine. So when the cost increases from roughly $0.80 a liter, as it was a year ago to around $1.60 a liter today, that has a big impact on us. That translates to about USD 0.20 per pound of copper for additional fuel costs. Grinding Media is the other one, although the dollar impact on that is much smaller.
There were several other factors that drove higher C1 costs this quarter, including production sales volumes and capital strip allocation. Bryce will talk more about those in a minute. What's important to note is that our operating cost per pound will revert to more normal levels, as grades and copper production increases in the coming quarters. For the past 2 years, Gibraltar C1 cost of average devote around $1.90 a pound.
Adjusting for fuel prices and other input costs, as they are today, we can expect something more like $2.20 to $2.30 a pound and that's the range we're expecting to see for the remainder of this year, subject of course to any further changes in input costs. In the first quarter, we also announced a new mineral reserve for Gibraltar, extending the mine life from 16 to 23 years.
This was mainly a result of new -- of running new pit designs using a $3.05 copper price up from $2.75, which our previous reserves were run at. The new plant has the same average copper grade and a slightly higher strip ratio in the back half of the mine life. At a consensus copper price of $3.50 per pound, our share of the mine NPV is now CAD 1.1 billion. At today's copper price at NPV jumps to nearly $ 2 billion. We've now been operating Gibraltar for 17 years since the restart and it has a longer mine life today than we've ever had.
It's a great asset for us, and we'll continue to generate good cash flows for many years to come. Switching to Florence now. And unfortunately, we're in a similar position as we were last quarter, and that is waiting for the EPA to issue the draft underground injection control permit. I wish I could offer more or provide some new details, but the regular updates we're getting from the EPA haven't changed. They're making progress, but at a slower pace than they expected.
They continue to assure us that there are no issues with the permit and that the process is moving towards the start of the public comment period. We continue to expect the draft UIC permit to be issued shortly, and then we can get into the public comment period. In the meantime, we continue to advance other aspects of the project to prepare for construction.
In the first quarter, we incurred CapEx of $25 million, which included further payments for major processing equipment and other preconstruction activities plus the ongoing site operating costs. The expenditures to date are reducing execution risk on the construction project and mitigating the risk of shipping delays out of China and other ports around the world that we see right now.
The upfront procurement of long lead items is also reducing the risk of CapEx inflation. Florence is a relatively small construction project without the large equipment and infrastructure requirements of a conventional copper mine. And we've now locked in over -- about -- actually about USD 60 million of the project costs, including the major plant components and other items.
But we do still expect some inflation on the other aspects of the construction budget, including contractor labor and well drilling costs. It's a volatile market, and we're monitoring it closely. And as we get closer to the construction start date, we will be updating the original $230 million CapEx estimate. But we believe any increases will be manageable and offset by higher copper prices, and we continue to expect to be able to fund the construction from our existing liquidity and Gibraltar cash flows.
As a final note on the first quarter, I also wanted to mention that I attended a signing ceremony with the Williams Lake First Nation in February, and that was for the renewal of the Gibraltar Mines participation and cooperation agreement. The original agreement was actually signed in 2013 and it provides a framework for how the mine and Williams Lake First Nation work together to achieve environmentally responsible and economically beneficial mine development.
So we're happy to get that done and look forward to further strengthening our relationship. We also continued our community engagement work at our Yellowhead project, as we prepare for the environmental assessment project at a process at that -- at our Yellowhead project. And at the New Prosperity project, we continue to advance our facilitated dialogue with the Tsilhqot'in National Government and the B.C. provincial government. Our senior management team has spent a lot of time on community and indigenous relations for all of our projects, as it's an essential element to move our business forward and create long-term value for all stakeholders.
We're in the process of finalizing our third annual ESG report, which will provide a lot more detail on our approach to the environment, communities, our employees and other sustainability topics. So look for that report to be released later this month.
And with that, I'll now turn the call over to Bryce for a review of the first quarter financials, and then we can open up the call for questions. But over to you, Bryce.
Thanks, Stuart, and good morning, everyone. I will discuss in further detail the financial results for the first quarter earnings release yesterday. We realized sales of 27 million pounds at Gibraltar at a record copper price of $4.59 per pound and with an average FX rate of 1.27x. This resulted in total revenue of $118 million. This is the second highest quarterly revenue we have achieved at Gibraltar since its restart 18 years ago.
This contributed to adjusted EBITDA of $38 million and earnings from mine operations of $43 million. Our operating margin relative to our other recent quarters in 2021 were impacted by increased site costs. As Stuart mentioned, we did see the total site cost increase by approximately $7 million relative to Q4 and Q1 2021, which was substantially related to diesel costs for the mining fleet in the rising oil price and to a lesser extent some other site costs like grinding media, which is driven by steel prices.
But a similar increase of $6 million in cost of sales was simply IFRS accounting related, as we had significantly less mining costs allocated to capitalized stripping and deferred on the balance sheet this quarter compared to Q1 last year. As we finish mining in the current phase of Pollyanna, that difference in capitalized stripping quarter-over-quarter was a difference of $0.30 a pound.
It's probably worth noting that we've included a new table in our MD&A to show total site costs, including capitalized stripping to compare our total site operating spend more easily quarter-over-quarter. We expect total quarterly site operating costs including capitalized stripping of approximately $75 million per quarter for our share or 75% share to be consistent for the remainder of the year, assuming that diesel prices remain at these current elevated levels.
We also have higher costs on a per pound basis that naturally arise as our sales volume exceeded production by almost 30% in Q1. You will recall that our inventories were higher at the end of last year due to the extreme flooding events in southern BC last fall. We sold an additional 6 million pounds of finished inventory in the quarter and brought our concentrate inventory back to more normal levels. Our offsite charges, which are tied to sales volumes and not production volumes, comprised half of the $0.23 C1 cost variance attributed to the lower copper production.
As costs for this excess inventory were incurred last quarter, this explains where our cash flow from operations of $52 million was higher than our EBITDA of $38 million. Earnings also benefited from lower depreciation in the quarter given the new Gibraltar reserve updated that we published at the end of March and decreased by $2 million quarter-over-quarter due to the extended mine life and additional units of quarterly production.
We expect depreciation of $14 million per quarter at these new lower rates for the balance of the year. Lower moly revenue was also impacting earnings as we produced only 236,000 pounds of moly this quarter due to lower grades in the Gibraltar pit ore, but this was partially offset by the strong moly price, which still hovered around $19 per pound for most of the quarter. We had an unrealized loss on derivatives of $7.5 million at the end of the quarter, and this was really timing related and due to the copper price closing at a high level on March 31.
With the decrease in the copper price since then, this unrealized loss has been mostly eliminated or reversed. Derivatives relate to the copper collar contracts that we have entered into that secure a minimum $4 per pound copper price with a ceiling between $5.40 and $5.60, and that covers 90% of copper production for Taseko share for the remainder of the year.
GAAP and adjusted earnings in the quarter was $0.02 a pound and would have been $0.01 higher, but for the cost of the copper collar contracts that expired out of the money in the quarter. Our cash flow statement highlights that our operating cash flow from Gibraltar continue to fund CapEx at Gibraltar and debt service. And the debt service included USD 14 million for our February bond interest payment. Our cash position decreased overall this quarter due to the continued investment at Florence Copper, which included $25 million in total development expenditures this quarter, and that primarily relates to the long lead equipment purchases that are continuing for the commercial SX facility.
We are also beginning to receive shipments of the SX/EW equipment in April to the Florence site, which is exciting to see. We finished the quarter with $273 million in liquidity and our cash balance was $213 million. At current copper prices and with our strong balance sheet, we continue to be in a position to fully fund Florence within our own means.
That said, we are still considering ancillary financing options where the cost of capital and synergies with the financing party are supportive of our strategic plans.
I'll now turn it back to the operator for any questions. Thank you.
[Operator Instructions] First question will be coming from Ed Brucker with Barclays. Please go ahead.
So I know you may not be able to give us this, but I just wanted to ask what is the reason that the EPA is giving you for taking while -- taking longer than, I guess, I expected to get the UIC draft. Previously it was COVID kind of holding them up, and there's a backlog for them, but I imagine that would have been worked through and we would have been able to get that draft and go into the comment period. So I just wanted to get your thoughts on that. And then kind of your best case scenario time line.
Yes. It's Richard Tremblay. Really, the message from EPA continues to be the same. There's nothing specific that's causing them to not get into the public comment period. It's just going through the administrative processes and getting the final kind of things arranged to be able to launch into the public comment period. So unfortunately, yes, there's nothing specific that they're providing or pointing to talk about everything from manpower levels and stuff like that being a bit of a challenge for them. But those are kind of normal things that occur. Just the process is going quite slow and -- but is advancing.
And in terms of the timing, we continue to expect very soon any moment now to get notification on exactly when the public comment period will start, which they've committed to giving us.
Got it. That's helpful. And then excited to see your ESG report come out to. I saw some news reports that Florence received some -- I think it was nominations for some environmental awards in Arizona. I just wanted to get your thoughts on kind of the disconnect between that getting nominations for environmental awards versus some of the doubters that have issues with in situ mining practices being hazardous?
Stuart McDonald here. I can take that one. Really, in our view, there aren't many doubters left. If you look back at the history going back 10 years, perhaps there was some questions about the projects and some opposition from the town council. Really over the last 10 or 12 years, we've worked through that. The test facility that we operated for 2 years has obviously been a big contributor to that.
And then if you look back in 2020, when we went through our state APP permitting process, we had a public hearing and a public comment period, and it was overwhelmingly positive commentary. I think there was only 1 negative comment at the whole hearing. So we're very happy with the support we have for the project. The environmental award is reflective of the good work that we're doing at the site. And so yes, we just look forward to getting the permit and getting going on the project.
And then one more for me. And congrats on the extension of Gibraltar. So with the improved mine life and then the increased NPV, does that affect your plans at all? Probably not for Florence in the short term, but maybe longer term, thoughts on Yellowhead and your confidence in -- or maybe the funding of that project.
Sorry, I didn't quite understand the question there. You're referring to the Gibraltar reserve or the funding of Yellowhead?
Just Gibraltar reserve and the improvement of the mine life, increasing the NPV over time? And just thoughts on how you're looking at funding on over -- on Yellowhead in that context?
Yes. I mean I think what we have at Gibraltar and what we've shown over time is just the value of a long-life asset, right? And if you look back at the history, when we restarted it, we had a 4-year or 5-year reserve when we did and that was in 2005. When we did the GDP extension in about 10 years ago -- GDP3 extension, we had a vote of -- I think we had close to 15- or a 20-year mine life. And then today, with 10 years later, we still have a 23-year mine life.
So the value of long-life assets is great. That NPV does not depreciate. It's still there. And actually, with copper prices, as you see, it's is growing in value over time, not depreciating. So Gibraltar is a great asset, and we think Yellowhead has that potential as well. We've got some work to do on permitting, but it's a valuable asset as well. And these are rare. These are unique assets that can be built.
And we think Yellowhead is a type of project that needs to get built and financed to fill the supply gap in copper in the coming years.
So when we get Gibraltar and Florence running, I think that the company is going to be in a very different place financially, and we'll be in a good position to take on a project like Yellowhead potentially. And certainly, JV partners will be interested in that type of asset as well, and that's an option for funding as well. So -- but we've got a few years before we have to make any decisions on that one.
Your next question will be coming from Alex Terentiew with Stifel.
A couple of questions just on Florence first. I appreciate that you're going to give us an update on CapEx when you move forward with that project. But now that you're spending some money on it, -- can you -- to the extent you can, how are costs looking relative to the prior expectations?
And the second question on the spending there is I think I can take the spending as you know your confidence that you will get the UIC drop and sole process going forward. But I guess the question is, should there be material delays of any sort? Is there any sort of recourse or refund effectively that you can use to kind of recoup some of the capital that you've been spending?
Sure. Yes. Ed -- sorry, Alex, it's Stuart here, and thanks for the question. It's -- yes, I mean, most of the spending that we've done and most of the commitments we've made relate to major components for our SX/EW plant. We've committed -- as I said in the notes there, we've committed about USD 60 million in total, and that would be the vast bulk of it. So that's equipment that is on route now to our site in Arizona, and it's going to be ready when we get into construction.
It's specialized equipment. I mean I assume that might have some sale value, but it has been designed for our plants, specifically and what comes out of the detailed engineering work that we've done. Yes. So it's -- you're right. As you said, it's a sign of -- I believe, we wouldn't be spending that money and our Board wouldn't have approved those expenditures unless we were very confident that we're going to get the permit and move forward. So we're ready to get going.
Okay. And then just on costs, I mean, how they're tracking so far?
The cost piece of the money that we have committed we're essentially -- it's essentially on budget. It's essentially in line with the 27 -- with the numbers in the 2017 feasibility study. So we haven't seen any inflation on those pieces.
But as I said in my comments, we are expecting some inflation on the pieces that we haven't committed to yet, and that relates to some of the labor market in Arizona, which is pretty hot, contractors and things like that are in high demand and well drilling costs as well where we expect to see higher numbers. But yes, as we get closer, we can give some more specifics on that.
Okay. Great. And then maybe just 1 question for Gibraltar. I understand moly -- sorry, copper grades were low. But did that impact moly grades as well? I mean, I guess the question is, can we get back to the 500,000 pounds or so of moly per quarter that you saw in the past. Is that a reasonable number to expect going forward?
Yes. So the moly grade in the Gibraltar pit is lower -- is a little bit lower. Essentially on the Gibraltar, as you move to the west side of the property, the moly grade is -- goes a bit lower than the east side of the property. So we'll see similar grades that we saw this past quarter with maybe some slight improvements, as we mine through the -- into the deeper zones in Gibraltar pit.
[Operator Instructions] Your next question is going to be coming from Craig Hutchison from TD Securities.
I actually have a question on moly as well. So just if we kind of model the same grades as Q1, are we assuming production is sort of in the order of 1 million pounds this year or is that a fair estimate?
No, we'll see production less than 2021, but probably more in the mid-range and 1.5 million pounds to 2 million pounds range.
And then just a follow-up question on grade themselves copper grades at Gibraltar. Can we expect you guys to shift back towards reserve grades in Q2? Or is that more likely going to happen in kind of Q3 or Q4?
Yes, it's going to be more second half of the year. We'll see grades going to return more towards the reserve levels in Q3, Q4. Q2 will see some improvements, but not back to the reserve grade levels.
Are you guys fairly confident just given the fact that you're milling softer ore that you can be operating at design rates for, say, the balance of the year?
Yes. We -- as Stuart mentioned in his comments, we're quite pleased with the throughputs we've been able to run at and still maintain the optimum mill performance and don't see any reason that's going to change.
There are no further questions at this time. Please go ahead.
Okay. Thanks, everyone, for dialing in and for your questions, and we will talk to you next quarter in early August. So thanks again. Bye now.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you to please disconnect your lines.