VANCOUVER Oct 19, 2015 (Thomson StreetEvents) -- Edited Transcript of Taseko Mines Ltd earnings conference call or presentation Thursday, August 13, 2015 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Brian Bergot Taseko Mines Limited - VP, IR * Russ Hallbauer Taseko Mines Limited - President & CEO * Stuart McDonald Taseko Mines Limited - CFO * John McManus Taseko Mines Limited - COO ================================================================================ Conference Call Participants ================================================================================ * Craig Hutchison TD Securities - Analyst * Ian Parkinson JMP Securities - Analyst * Mark Turner Scotiabank - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, ladies and gentlemen, and welcome to the Taseko Mines second-quarter 2015 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Brian Bergot. Sir, you may begin. -------------------------------------------------------------------------------- Brian Bergot, Taseko Mines Limited - VP, IR [2] -------------------------------------------------------------------------------- Thank you, Shanice. Good morning, ladies and gentlemen, and welcome to Taseko Mines' second-quarter 2015 results conference call. My name is Brian Bergot and I am the Vice President, Investor Relations for Taseko. Our financial results were issued yesterday after market closed 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 of Taseko; and Stuart McDonald, Taseko's Chief Financial Officer. After opening remarks by management, which will review second-quarter business and operational results, we will open the phone lines to analysts and investors for a question-and-answer session. I would also 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. Please refer to the bottom of our latest news release for more information. I will now turn the call over to Russ for his remarks. -------------------------------------------------------------------------------- Russ Hallbauer, Taseko Mines Limited - President & CEO [3] -------------------------------------------------------------------------------- Good morning, everyone. Thank you for joining us today to discuss our second-quarter 2015 results. During the second quarter, the Company generated $26.3 million in earnings from mining operations, an increase of $24 million from the $2.3 million achieved in Q1. Adjusted EBITDA was $23.4 million and cash flow from operations came in at $35.2 million. These results were generated from the production of roughly 40 million pounds of copper metal. Our concentrator throughput for the quarter averaged an impressive 88,300 tons per day, 3300 tons per day above our design capacity at a head grade of 0.28% copper with average recoveries of 85.6%. It is important to note that throughput and recoveries have continued to improve quarter-over-quarter, month-over-month from 2014 into 2015. Specifically, throughput from the end of Q1 to the end of June of this year increased by 4.4% from 86,100 tons per day to 89,900 tons per day with recoveries increasing from 81.4% to 87.9%, an 8% increase. Correspondingly, site costs at the end of Q1 were $2 per pound and now have been reduced to $1.40 per pound in June. C1 costs have also fallen to an average of $1.97 per pound for the quarter, with costs per ton milled stabilizing around the CAD10 per ton milled range. The outflow of all of this is obviously apparent in our financial performance as discussed earlier. In the first-quarter call, I indicated we expected to see site costs in the $1.50 to $1.60 per pound range by the end of 2015. We achieved that goal by the end of Q2, a full six months ahead of plan. While the exchange rate helped, the production metrics, which I spoke about earlier, were the key drivers in this outcome. As I stated in Q1, we know our total cost of metal production will continue to go lower in the months ahead as we work to operate more efficiently, take advantage of decreasing input costs for such things as fuel, tires, [grinding media], and other consumables, as well as we expect to increase our man hour productivities and equipment efficiencies. We also believe the Canadian dollar will further weaken in the months ahead, helping to decrease site costs. The next big stepchange for us, however, will be a reduction in our off-property costs, which I spoke about at great length in the Q1 call. As indicated in our press release, we have idled our moly plant. Doing this will have no material impact on C1 costs in the immediate future as moly prices stay depressed. I expect that the moly price hovering around $6 per pound, we will see many other mining operations idling their byproduct production in the next few months. The rollover to our new mine plant has been seamless and as per our discussion in past quarters, a lower sustained strip ratio will materially help our bottom line today and into the future as we develop the updated [43-1] reserves at the lower cutoff rate. Stepping forward, when we look past operating costs, we see overall capital spending for 2015 between CAD8 million to CAD10 million exclusive of capital strip. Our sustaining capital expenditures are low and will continue to be low because all our equipment is new. We don't need added equipment because of our new mining plants and our replacement plants (inaudible) any large equipment expenses well into the future. We expect 2016 to (inaudible) comp similar to this year in the neighborhood of CAD8 million to CAD10 million. Our Florence engineering and environmental groups are continuing to work with the EPA and the Arizona Department of Environmental Quality on final permits for our test facility. As well, we're continuing to do some preliminary environmental work on our Aley niobium project. We recently concluded another First Nations agreement with the Soda Creek Indian Band, about in relative close proximity to Gibraltar. At this time, we have three agreements with First Nations bands on whose traditional territory we have operations and development projects. We're in good shape to weather this metal price berm and come out the other side stronger both financially and operationally than we have been over the past 24 months. We are very excited about that. Stuart, I would like to turn the call over to you now. -------------------------------------------------------------------------------- Stuart McDonald, Taseko Mines Limited - CFO [4] -------------------------------------------------------------------------------- Thanks, Russ. Well, we have had strong operating results at Gibraltar this quarter and that translated into the financial result. Earnings from mining operations before depreciation were CAD26 million in the quarter, which was a significant improvement over the previous two quarters. Second-quarter revenues were CAD103 million from sales of 31 million pounds of copper and 290,000 pounds of molybdenum. Those amounts are reported on a 75% basis. Copper sales volumes were slightly higher than production volumes in the quarter, so our concentrate inventory levels increased by about 2 million pounds of copper. Our realized sales price for the quarter was $2.66 per pound and although the US dollar price of copper has fallen in recent weeks, the impact on Taseko continues to be partially offset by the weak Canadian dollar. On the cost side, as Russ described, we have maintained our site spending levels at the low levels achieved in Q1 and so the increased copper production has driven down our C1 cost to below $2 a pound for the quarter. This was achieved with an average Canadian/US dollar exchange rate of 1.23 in the second quarter. Given the current exchange rate of about CAD1.30, we would've achieved a C1 cost in the range of $1.90 a pound. So you can see the impact of a weak Canadian dollar. Russ commented on the idling of the moly circuit and it's important to note there that the moly byproduct credit had no impact on our earnings or C1 cost in the second quarter. As a byproduct, moly revenues were fully offset by production costs and treatment charges from moly. The GAAP net income for the second quarter was CAD4 million, or CAD0.02 per pound. Adjusting for unrealized foreign exchange gains and unrealized derivative losses result in adjusted net income of CAD1.6 million, or CAD0.01 per share. Adjusted EBITDA was CAD23 million for the quarter and cash flow from operations was also strong at CAD35 million for the period. CapEx remained at a low level with a total spend of CAD4 million for the quarter. This includes about CAD2 million for capitalized stripping at Gibraltar, CAD400,000 of other sustaining CapEx at Gibraltar, and roughly CAD1 million of capitalized development costs for the Florence and Aley projects. We continue to carefully manage our capital spend to protect the cash balance and we ended the second quarter with CAD75 million of cash in the bank, a CAD17 million increase during Q2. There has been no change in our hedging strategy and we continue to buy put options opportunistically. We currently have put options in place for the remainder of the year for 5 million pounds per month at strike prices of $2.50 and $2.40 per pound. All of those options are now in the money and provide us with good protection against further price declines. And with that, I will turn it back to Russ. -------------------------------------------------------------------------------- Russ Hallbauer, Taseko Mines Limited - President & CEO [5] -------------------------------------------------------------------------------- Thank you, Stuart. Operator, I would now like to open the line for calls. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions). Craig Hutchison, TD Securities. -------------------------------------------------------------------------------- Craig Hutchison, TD Securities - Analyst [2] -------------------------------------------------------------------------------- Good morning, everyone. Thanks for taking my call. A question on the CapEx. The number of CAD8 million to CAD10 million that you are guiding for this year and next, is that a 100% basis? -------------------------------------------------------------------------------- Russ Hallbauer, Taseko Mines Limited - President & CEO [3] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Craig Hutchison, TD Securities - Analyst [4] -------------------------------------------------------------------------------- It is, okay? And in terms of the capitalized stripping, should we expect a similar amount in 2016 as well and just kind of looking for what kind of strip ratio we should expect? -------------------------------------------------------------------------------- Russ Hallbauer, Taseko Mines Limited - President & CEO [5] -------------------------------------------------------------------------------- Yes, Craig, we are pretty much steady-state, strong (inaudible). -------------------------------------------------------------------------------- Craig Hutchison, TD Securities - Analyst [6] -------------------------------------------------------------------------------- Okay, so around the 2, 2.5 into next year? -------------------------------------------------------------------------------- Russ Hallbauer, Taseko Mines Limited - President & CEO [7] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Craig Hutchison, TD Securities - Analyst [8] -------------------------------------------------------------------------------- Okay. And then just a question on the moly circuit. With the moly circuit idle, do you think you'll get a better recovery on the copper with that? -------------------------------------------------------------------------------- Russ Hallbauer, Taseko Mines Limited - President & CEO [9] -------------------------------------------------------------------------------- No, no, the recovery for copper is in the main plant before you get to the moly plant. -------------------------------------------------------------------------------- Craig Hutchison, TD Securities - Analyst [10] -------------------------------------------------------------------------------- So no impact there? Okay. -------------------------------------------------------------------------------- Russ Hallbauer, Taseko Mines Limited - President & CEO [11] -------------------------------------------------------------------------------- No, but I expect to see what we were seeing in June for recoveries continue on so long as we're at those grades. Recovery will vary a bit with grade, around that 88 range. -------------------------------------------------------------------------------- Stuart McDonald, Taseko Mines Limited - CFO [12] -------------------------------------------------------------------------------- Craig, we don't have to worry about any penalties with the moly in the copper because it's such a small amount. -------------------------------------------------------------------------------- Craig Hutchison, TD Securities - Analyst [13] -------------------------------------------------------------------------------- I guess one last question. Your guidance, your site guidance of $1.50 to $1.60, what Canadian exchange rate are you using for that? -------------------------------------------------------------------------------- Russ Hallbauer, Taseko Mines Limited - President & CEO [14] -------------------------------------------------------------------------------- We were using -- what were we using for that, Stuart? Do you remember? -------------------------------------------------------------------------------- Stuart McDonald, Taseko Mines Limited - CFO [15] -------------------------------------------------------------------------------- Yes, we achieved that in the second quarter with an exchange rate of about 1.23, I believe, for the quarter, so we're ahead of that today. -------------------------------------------------------------------------------- Craig Hutchison, TD Securities - Analyst [16] -------------------------------------------------------------------------------- All right, thanks very much, guys. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- (Operator Instructions). Ian Parkinson, JMP Securities. -------------------------------------------------------------------------------- Ian Parkinson, JMP Securities - Analyst [18] -------------------------------------------------------------------------------- Good morning. Thanks for taking the call and congratulations on a strong quarter. Russ, just a couple of quick questions. One back in the moly circuit. How long will it take you to restart should market conditions turn in your favor? -------------------------------------------------------------------------------- Russ Hallbauer, Taseko Mines Limited - President & CEO [19] -------------------------------------------------------------------------------- I think John should better answer that. -------------------------------------------------------------------------------- John McManus, Taseko Mines Limited - COO [20] -------------------------------------------------------------------------------- Yes, Ian, it's not very long. What we would have to do is bring in some -- bring some employees back and we've put it to bed in good shape and we'll keep it in good shape. It's on care and maintenance, so the physical start is not a difficulty. But we would need to have some confidence that moly is going to go up and stay up for a while before we do that. -------------------------------------------------------------------------------- Ian Parkinson, JMP Securities - Analyst [21] -------------------------------------------------------------------------------- So it's more than just flicking a switch; you need to recall and put a bit more work into it than just turning it back on? -------------------------------------------------------------------------------- Russ Hallbauer, Taseko Mines Limited - President & CEO [22] -------------------------------------------------------------------------------- Yes, and it wouldn't be an instantaneous decision, a woo hoo, moly is $8 today, let's turn it back on. You'd have to take a look at the long term. -------------------------------------------------------------------------------- Ian Parkinson, JMP Securities - Analyst [23] -------------------------------------------------------------------------------- Okay, then just looking maybe -- we're six weeks into Q3 effectively, so since the close of the quarter, whether it be off-site costs or other consumables like Russ alluded to, what have you seen on the cost basis from additional savings halfway through Q3? -------------------------------------------------------------------------------- Russ Hallbauer, Taseko Mines Limited - President & CEO [24] -------------------------------------------------------------------------------- Well, we're continuing to see some real pressure on ocean freight costs, so those are in the mid-20s, Ian. Obviously, you've seen some of the market intelligence in terms of what's happening with (inaudible) freight for spot sales, somewhere in the 60s, low 70s. We know, as you well know, that Gibraltar has been a real clean concentrate. So going forward over the second half of the year, we think we will see some positives come out of whatever we do on our offtake agreement. -------------------------------------------------------------------------------- Ian Parkinson, JMP Securities - Analyst [25] -------------------------------------------------------------------------------- Thanks, guys. That's all I have. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- Mark Turner, Scotiabank. -------------------------------------------------------------------------------- Mark Turner, Scotiabank - Analyst [27] -------------------------------------------------------------------------------- Good morning, guys. First, congrats on the strong quarter. I guess my question more just, conceptually, I think here, because we're getting asked a lot of questions in terms of obviously spot FX helping you guys out, but spot copper prices and liquidity positions of our entire coverage universe. With that, the senior secured debt that you acquired with the Curis transaction, what's sort of the thought process there in maintaining I guess liquidity on the balance sheet? Because, yes, it's definitely still a year out from now, but I guess it's probably about half of your current cash position if you were to repay that in full. -------------------------------------------------------------------------------- Stuart McDonald, Taseko Mines Limited - CFO [28] -------------------------------------------------------------------------------- Mark, it's Stuart here. We're certainly thinking about the Red Kite maturity. It's May 2016, so we've got some time, but we are looking at options. I think one of our better options right now is offtake financing. So we are thinking about that, as well as some other options to refinance. We're also optimistic about our business going forward and building cash balances. So repaying it out cash is certainly a possibility as well, but we've got some time to think about that. -------------------------------------------------------------------------------- Mark Turner, Scotiabank - Analyst [29] -------------------------------------------------------------------------------- Absolutely on our price deck and you will generate the cash to do it. I guess people rightfully so stress-testing the balance sheet in sort of all conditions across the coverage universe. Just to your point there, your comment on concentrate offtake, are you speaking to potentially locking in some concentrate sales from Gibraltar or that would be more sort of longer term on potential offtake from Florence? -------------------------------------------------------------------------------- Russ Hallbauer, Taseko Mines Limited - President & CEO [30] -------------------------------------------------------------------------------- Either, Mark, either -- both are options. Those are two possibilities. The current loan from Red Kite was based off Florence offtake, as you know. 19% of that offtake has been committed, so there's additional offtake to offer there, as well as Gibraltar where we have uncommitted offtake beyond the end of this year, so there's several options there. -------------------------------------------------------------------------------- Mark Turner, Scotiabank - Analyst [31] -------------------------------------------------------------------------------- Right, and there's nothing I guess changed in the underlying security. When it says senior secured, that's just secured by the Florence project and that's sort of nothing necessarily back up to Gibraltar and Taseko? -------------------------------------------------------------------------------- Stuart McDonald, Taseko Mines Limited - CFO [32] -------------------------------------------------------------------------------- Secured on the Florence project and guaranteed by Taseko, but (multiple speakers). -------------------------------------------------------------------------------- Mark Turner, Scotiabank - Analyst [33] -------------------------------------------------------------------------------- Perfect. Thanks, guys, and congrats on a strong operational quarter. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- (Operator Instructions). -------------------------------------------------------------------------------- Russ Hallbauer, Taseko Mines Limited - President & CEO [35] -------------------------------------------------------------------------------- Well, looks like that's all the questions. So we look forward to speaking to all you folks next quarter. Have a nice rest of the summer and good fall. Cheerio. -------------------------------------------------------------------------------- Operator [36] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
|