Taseko Mines Ltd
TSX:TKO
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Taseko Mines Ltd
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Good morning, my name is Britney and I'll be your conference operator today. At this time, I would like to welcome everyone to the Taseko Mines Fourth Quarter and Year-End Earnings Conference Call. [Operator Instructions] Brian Bergot, you may begin your conference.
Thank you, Britney and thank you, everyone, for joining us today to review Taseko's fourth quarter and annual 2018 financial results. My name is Brian Bergot, and I'm the Vice President, Investor Relations for Taseko. Our financial results were issued yesterday after market close and are available on our website at tasekomines.com.Before we begin, I would like to introduce everyone on the call today. We have Russ Hallbauer, President and CEO of Taseko; John McManus, COO; and Stuart McDonald, Taseko's Chief Financial Officer. After opening remarks by management, which will review our latest quarter as well as our annual business and operational results, we will open the phone lines to analysts and investors for a question-and-answer session.As usual, before we proceed, I would like to remind our listeners that our comments and answers to your questions may 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. I encourage you to read the cautionary note that accompanies our fourth quarter and annual MD&A and the related results, news release as well as the risk factors particular to our company. I would now turn the call over to Russ for his remarks.
Thank you, Brian. Good morning, everyone. I'd like to thank all of you for joining us today, especially considering the fact that it's a major reporting day for many mining companies, and I'd like to thank those who are on the call. First off, I'd like to speak briefly about Gibraltar. After an up-and-down year in terms of quarterly financial performance, we ended the year in an uptick with cash flow of $44 million in Q4, with adjusted EBITDA of $26.5 million. As a result, we had cash flows for the fiscal year of $94 million and adjusted EBITDA just under $100 million, net $98.2 million. I think this is something that seems to be a little bit understood in the value mining companies, and that is the quarterly swings in production that can make -- materially affect quarterly financial performance. For example, in 2017, our quarterly cash flow from operations ranged from a low of $31 million to a high of $80 million over the course of the year. And this year, it ranged from a low of $12 million in Q1 to a high of $44 million in the most recent quarter. It's an ebb and flow business. We're not like catch-up factories, where no matter what, those catch-up COGS just keep coming out at a steady state. There is a lot of issues that affect our overall quarter-by-quarter production. A real bone of contention for myself over the years is being judged in 90 days of operations quarter-over-quarter when you're mining and milling the kind of volumes a big mine like Gibraltar is. As I said earlier, nearly 1/2 of our cash flow came in the fourth quarter, and that just illustrates this point. Folks really need to take a holistic 40,000-foot level with companies like ours that have a single large mine. It is not a 90-day business, it is a year-over-year, 20-year-plus business.Also, I am in the Warren Buffett camp. He likes quarterly reports, but he does not like guidance. So the only thing we have done and we'll continue to do is provide rough yearly production estimates and not give quarter-by-quarter guidance. Gibraltar is doing what it's supposed to do, and that is to generate cash for us to be able to invest in our growth projects. It is slow, methodical work that doesn't happen in weeks or months, but over the course of years. And that is where we find ourselves today. The cash we have generated from Gibraltar has helped us move our Florence project forward, and I'd like to speak briefly about Florence.First, we completed our build out of the Production Test Facility on time and on budget, and that is a hallmark of our operations and development teams. It took us a little longer than anticipated to debug things in terms of data collection and information from the injection wells, but that's well under control. And now that we are operating, we have complete control over the hydraulic gradings in the aquifer, and in layman terms, we have established the cone of depression, and that means the solution is running downhill to recovery wells. So we're well into the injection operations. At this juncture, our injection rates are as planned. And once we became -- recovering copper in the next short while, we'll be able to ascertain if acid consumption meets design. This is an important facet of the PTF as acid is one of the major cost components related. And that's consistent in either open pit heap leaches or in the in-situ process we are undertaking at Florence. And in the Florence case, acid will be somewhere in the neighborhood of 40% of our overall cost. This whole undertaking and understanding is important in terms of how we approach the commercial operation once it's up and running. As important, it appears our timing for bringing Florence into production, once we begin the commercial production, will definitely coincide with this looming copper deficit that many are predicting. So our growth in copper production continues to move ahead as it has since 2005. With respect to our acquisition of Yellowhead, the proxies have all been tabulated with over 99% in favor of the acquisition, and I believe it will close on Friday. With respect to this project and with respect to Yellowhead, I don't think many people really appreciate how this -- how accretive this acquisition is to this company. A project with feasibility-level studies, shovel-ready projects such as Yellowhead, and there aren't many of them in the world if you look at it holistically, are offered and acquired for anywhere between USD 0.05 to USD 0.09 a pound. We acquired Yellowhead for less than CAD 0.05 per pound. Everyone believes Yellowhead is a low-grade ore body, thus the discount -- thus they discount it as not a material asset. But when you look at it more closely, and when one digs into the feasibility study, it's portrayed from the projected yearly production estimates that it has an average head grade copper grade of 0.26%. That is very deceptive. When in fact, the copper head grade for the first 7 years is approximately 0.32% copper equivalent, meaning the in situ ore value over that period is worth roughly USD 22 per ton. That works out to a pretty good margin in terms of large open pit mining rates. In fact, with a very low strip ratio that we see in the feasibility study, less than 1:1, we will have mine operating costs of less than CAD 10 per ton milled. In fact, those with the new technology will be lower than the ones we were experiencing at Gibraltar. So that is positive. We are just starting to rejig the mine plans, and the multitude of inputs with respect to cut upgrades, throughput rates and cost trader design, and soon, we will be able to illustrate that more to the public markets. At present metal prices and operating mines rates, this mine will generate approximately $400 million a year in mine operating margin based off the present feasibility, something that we are going to reengineer and redesign, and there are plenty of opportunities for further economics -- economic enhancements. If you look into the feasibility study, the pit operations design used 240-ton trucks and hydraulic shovels. We will use larger equipment, probably in the 330-ton range, and cable shovels. McManus and I are both cable shovel guys, and we believe that we can move muck a lot cheaper with those pieces of equipment. Speaking about the concentrator, the flotation cells presently are currently designed at 160 cubic meters. The new design is common throughout the industry. Now, we're over 300 cubic meters. So we'll be able to -- we believe we'll be able to reduce the footprint of the concentrator and contain the capital cost, and it's still undetermined at this juncture what may be the ultimate throughput rates that we may see in our new design. So we're just in the process of submitting an updated project description and reengaging in the B.C. environmental and Federal review process. And we believe that will take somewhere between 18 to 24 months to complete. And in that time, we should have an updated environmental assessment. But that time is important in terms of flowing out from the completion of the commercial plant at Florence and in the construction of the mine at Yellowhead. The company, which I think is very important and has been significantly overlooked, has over 7.5 billion pounds of reserves exclusive of new prosperity, which we plan on building a couple of mines around in the next 3 to 4 years. So their operations and development guys are very excited about all these initiatives. With these types of reserves, we'll be able to track many different types of financing options, from JV partners to offtake financing, to various forms of alternative financing, and that is going to be the focus of our group and certainly, Stuart's group over the coming year. So stay tuned. We've got lots of exciting things over the next year. I'd like to now turn the call over to Stuart.
Okay. Thanks, Russ and good morning, everyone. Yesterday, we reported Taseko's fourth quarter and annual financial results. And 2018 was a successful year on many fronts, the highlight being the significant progress that we made at Florence, advancing that project towards production. We generated $98 million of adjusted EBITDA for the year and $94 million of operating cash flow, while continuing to push forward on our growth strategy.In terms of the fourth quarter financials, we had solid results again, with earnings from mine operations before depreciation of $28 million and adjusted EBITDA of $26 million for the quarter. Revenues were $111 million, and all of these results are based on our 75% share of Gibraltar sales volumes, which were 43 million pounds of copper and 738,000 pounds of molybdenum. The excess copper inventory that we built up in the third quarter as a result of rail service issues was sold off in the fourth quarter, and so copper sales volumes were higher than normal in the quarter. The average LNE copper price for the period was $2.80 per pound but the price dropped off in December, actually ending the year at $2.70 per pound. So that declining copper price actually had a pretty big impact on our quarterly earnings, as we recorded negative provisional price adjustments of $3.2 million and also a $1.7 million writedown to the value of our ore stockpile inventory as a result of that lower price at year-end. These two items negatively impacted our earnings by $0.02 per share. Gibraltar molybdenum production has remained strong as well and prices averaged USD 12 a pound in the period, generating revenues of $8.7 million and a byproduct credit of $0.30 per pound of copper. On the cost side, the lower grades in copper production led to an increase in our unit operating costs to $2.11 per pound produced, which reduced our operating margin and offsets some of the benefit of the higher sales volumes.Other significant items on the fourth quarter P&L included a $17.9 million unrealized foreign exchange loss on our U.S. dollar debt and a $0.7 million unrealized loss on copper put options. GAAP net loss for the quarter was $19.7 million, and after adjustments for foreign exchange and derivatives, we are reporting an adjusted net loss of $1.3 million or $0.01 per share. Operating cash flows for the quarters increased to $44 million, and that was used to fund CapEx and debt service. Fourth quarter capital expenditures included $6 million for cash payments at Florence for that project's development; and $18.9 million for capitalized stripping at Gibraltar. We also used $18 million for debt service, including the semiannual interest payment to bondholders in December. And we ended the year with a cash balance of $46 million. Our strategy of using copper put options to protect against short-term volatility worked well again in 2018. The [ 280 ] strike put options that we acquired in the second quarter last year have now paid out cash proceeds of $1.1 million. And we recently purchased additional put protection for 15 million pounds, also at a strike price of [ $2.80 ] per pound and that covers us out to April 2019. So we'll continue to be prudent about protecting the down side, also very optimistic about the upside, both in the copper markets and in our project pipeline. And we think Florence in the near-term, and Yellowhead in the longer-term, both represent exciting growth opportunities. As Russ mentioned, our focus in the coming year will be financing for Phase 2 of the Florence project development. We're assessing all of our options, including debt financing, royalties and streams, offtake financing and joint venture opportunities. This work is in the early stages, but we have time and don't need to make any immediate decisions. We will be able to provide everyone an update later in the year. And with that, I'll turn it back to Russ.
Thank you very much, Stuart. Operator, I'd like to open the lines to questions please.
[Operator Instructions] Your first question comes from Don DeMarco from National Bank Financial.
A couple of questions on Florence. What do you guys expect to spend on a quarterly basis in 2019?
What do you got, Stuart?
It's roughly $1 million a month -- Canadian dollars. And $10 million to $12 million for the year.
Okay, sounds good. And obviously, I mean, when I saw the project in the fall, it showed well on the site tour. And a couple of things you highlighted were permitting is underway. So maybe if you could give us a little refresh on what milestones you expect and the timing in 2019 as you progress to permitting?
Don, it's John here. Yes, we've got all our permits, obviously, for PTF. They're all in place. And there's -- our EPA permits are -- and state permits, Federal and state permits, need to be amended for size for the area from where the PTF is to the commercial construction, and we're working on those amendments with the state and with the EPA as we speak. So the permit doesn't really change much, it's just the area that it covers. So we're not expecting to have a whole lot of difficulty with that, but we've begun early. We expect to have those permits and end well before the end of the year.
Okay, fair enough. And in terms of financing, on the site tour, you mentioned a number of different options that you could use to raise the CapEx development. Have you narrowed that down? Do you have any more preferred options at this point?
Don, it's Stuart here again. No, I don't think we've really narrowed it down. I think we're still looking at all of the options. Obviously, a key component of this is the operation of the PTF, which we think is going to derisk the project and give us a lower cost of capital ultimately. So that has to play out over the year, and we'll just continue to kind of be engaged with all the different financing options and not have to make any real decisions until later in the year or even early next year. So everything's kind of on the table right now, whether that's debt financing, royalties.
Yes, we want the best. There's lots of interest, Don. So we're playing it cool and seeing what we can get for the best cost of capital. That's our approach. There's no immediate rush. We're generating enough cash out of Gib, so we'll try and get the best deal we can.
Your next question comes from Craig Hutchison from TD Securities.
You noted in your MD&A that you made a bunch of mine plant adjustments and spending curtailments, I guess, to Gibraltar to adjust the current weaker pricing environment. Can you talk about what some of those cutbacks are? And can you give us a sense of what we're looking at in terms of CapEx, both on a sustaining and annual capitalized strip basis?
Craig, it's John here. It's more of making sure we're managing all of our assets that we have than any one big issue. We made sure that there's, over time, it's under control, that our warehouse inventory is under control, working with our suppliers to make sure that there's not any thing being spent that doesn't need to be spent. It's normal course, but when you're in a situation like this where we're funding a project in Arizona, it becomes even more critical, so...
And I think one of the things, Craig, a lot of people forget, and they don't -- when they're looking at these and see your cost incrementally increase per pound, people lose sight of what actually are non-controllable costs that have been, I don't like to say poised and honest, but they have been put upon us by government. There was a big change in the health spending accounts. We've added $1.5 million to our costs this year when the new provincial government added certain costs to our employee costs. The carbon tax has gone up by $0.10 a ton -- or $10 a ton. Hydro rates have increased. So overall, there's probably about anywhere from $0.08 to $0.12 a pound year-over-year that we have to mitigate for. And so we look at all these kinds of things as [indiscernible]. That's $0.10 a pound on 130 million pounds is a lot of money. It's $1 million a month. So those are the kinds of things that John and his team are working at. So we try and figure out how to mitigate those and hope that the price of copper rises and that we can get that margin back.
Some of the things we do is we lock in longer-term contracts to -- like we did a contract agreement for ocean shipping. We got a good price on that for the next few years. So those are the type of things that Russ has mentioned in the MD&A.
And on CapEx for this year?
Well we've bought a loader. It will arrive in the middle of the year. But other than that, there's nothing specific. There's CapEx stripping.
Yes, there's a bunch of little stuff in there.
Yes. It's a very light year CapEx. I mean, we basically replaced all the mine fleet and rebuilt the mill at Gibraltar over the last 5-or-so years, so there is not a big capital replacement that we need. The loader is coming in to replace quite an old shovel from back in the old Gibraltar days, but that's it for this year.
So we -- I think I've talked to you in the past about it, John, and I basically used about $0.10 a ton moved for our ongoing capital expenditures after budgeting purposes. And sometimes that might be -- you might spend $6 million a year. In some years, we might spend $15 million. But major capital, if you're looking for major capital, $30 million or $40 million, or for something, it's not there, we're not...
It's the same thing with the projects. We're not looking at any major expenditures on Aley. Florence, the expenditure's in place, we're just operating. So there's not much more than normal operating expenditures for Gibraltar and Florence now for 2019, very little CapEx.
In terms of -- Craig, in terms of capital strip, we're going to see Q1 likely continue along the same levels that we saw in Q4, roughly $18 million to $19 million-ish, let's call it $15 million to $20 million as a wider range. But then it should drop off later in the year, back to more normal levels. $5 million to $10 million a quarter maybe. But it is -- that one -- that particular number is a little harder for us to give guidance on. It does tend to fluctuate on a number of different factors and accounting assumptions.
The operative word is accounting.
Maybe just, Russ, you touched on a couple of milestones for Yellowhead once it closes. But can you just kind of reiterate those? Just maybe timing on a possible updated feasibility study. You said you're updating the project description. I would imagine feasibility study would come first, possibly. But maybe just give us a sense of what you're looking at for the next 12 months for milestones.
I'll let John do that because it's his crew doing all that hard work.
Craig, yes, we're ready to submit the project description to both the Federal and provincial governments. And the project description just describes what is the project, and it says it's a mine. So we -- in the same time, we will be working on redesigning and redoing all the things that Russ spoke about earlier, and then we'll do an updated 43-101 report later in the year. And then that will go into what is actually in the environmental assessment, what's called an EIS, environmental impact statement, which is where you get more specific about things like throughput rates. It's mostly to get the process started on the year.
Yes. And we only started to really illustrate to the investment community how -- what a good project this is. I mean, when you get an opportunity to come up and visit us, it's only, I think, 12 or 14 kilometers from Vavenby. That's -- the power line is only, I don't know, 20 kilometers long. We already got a rail load-out facility. The Yellowhead -- excuse me, the Yellowhead -- the previous Yellowhead management had purchased a rail siding just in Vavenby for ore concentrate shipments. The railway goes right by there. There's just a lot of positive things that really have not been -- and it was a junior company. It was really hard to get any traction on that. And that gave us this great opportunity. And like I said, this was a 6- or 7-year process for us, to get our toe in the door and really evaluate the opportunities that presented itself. And then ultimately, because of this demise of the junior market in Canada, that gave us this opportunity to get this great -- how many people get a 700 million-ton asset or ore body for, to our account, $15 million. And when you take in some of the tax pulls, it's virtually a 0 acquisition -- 0 cost acquisition to us. So it's going to be very accretive for our shareholders, ultimately.Okay, everybody. I guess there's no more questions. So thank you very much.
There are no further questions at this time, please proceed.
So thanks very much, operator. We look forward to seeing everybody in the spring. Everybody stay warm. Cheers.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.