Q3 2020 Taseko Mines Ltd Earnings Call

And Richard Tremblay.

VP of operations as usual before we get into opening your remarks by management. I would like to remind our listeners that are 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 state 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 third 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 course. You can find explanations and reconciliations regarding these measures in the related news release after opening a remarks. We will open the phone lines to analysts and investors for a question-and-answer session. I would now like to turn the call over to rest for his remarks. Thank you Brian. Good morning everyone else. Thank you for calling us today before this update on the sequel.

A lot of things have been happening in the world over the last six months as we all know and the corporate metal Market is no exception Global copper concentrate production actual metal production from China wage low Cals smelter TC RCS Chinese import export data in stocks and merging onto the Ellen e or a few of the Myriad of details company like to see who have to keep an eye out for the most part. The money business has not been immune to the general volatility that is embracing the world today.

Anyone that says we know what is going on or they know what is going on from where the price is going, but the supply is like and the constraints on it and how the coronavirus could affect this whole business or in my own opinion very naive when it comes right down to it. It's just a big guess no one knows at this time where the market might be in one month six months or a year folks try to forecast supply and demand pricing but it's all just sophisticated guessing. All we know is a company is what Donald Rumsfeld the old Secretary of Defense for the used to say we know there are known unknowns and that took much sums up where we as a company are at even after nearly 40 years in the business. There is no there is plenty of known unknowns for myself. Most of what is in front of us is unknown so plan to protect the downside and let the upside take care of itself.

However, we firmly believe that the copper business is the place to be for the long run long-term and to be specific for DeCicco. The place that we want to be is in North America, which has all the key components to support quality mining Ventures. It is a secure political jurisdiction, which has rule of law fair taxation high-quality Workforce has modern infrastructure and much much more faith in early 2020 when the price of copper come up to a two-year to a two. To the $2 level we were acted quickly and with great purpose to protect our business and balance sheet. This is not the first crisis. We have faced off we've shown in the past or ability to successfully navigate challenging times. I think everyone would agree that we did this very well first with R22 results and now followed by these Q3 results didn't think the carpet price would rise from the lows of March to a two-year high of $3.19 per pound last week not a chance, but what folks should understand is that our business is not driven by the copper prices down.

By our cost and how we met.

New or them to ensure Gibraltar can deliver the results we want to so we continue to build out our business.

Basically, we don't want to stop work on our projects just because the copper price moves up or down we wouldn't extreme circumstances. But we've never had to do that from the 2005 financial crisis onward off the last fifteen years. We have managed through thick and thin to run our business and Advance our projects and this. Over the last eight months has been no different both Florence and Yellowhead are moving ahead and Page very excited about well where these two projects will lead the company in the very near future. If we look at 20 20 vs 2.19 through 9 months. Our revenue is up by $17, but more importantly our earnings from mining operations is up from $47 in 2019, 292 million dollars year-to-date staggering 100% while our cash flow from operations is up from 15 million in the same quarter in 2019 to $31 this quarter a similar percentage and our year-to-date cash flow from operations.

Is that from $53 or is that $53 from $33 to $86 and Bryson and Stuart? I'm sure we'll talk about those numbers off in their presentation. So those are pretty impressive results in this very volatile Market, I would say but let's put this into the context to see goes mining the lowest grade or a deposit down and we're achieving these kinds of results when I speak about our growth projects just around the corner. Just imagine what we were going to be able to do when we have Florence up and running with cash cost of a dollar fifteen per pound and yellow page which has a .34% copper equivalent head grade versus Jim's .25. The future is bright for this company based on where we are with our pipeline of projects where we took cover is going over the next three to four years both on the supply side and the demand side and how that will be reflected in the metal price are $10 billion pounds of copper and reserves in just those three assets dead.

That are or near in production are going to be very accretive for our shareholders. I'd like to now turn the call over to Stuart. Okay. Thanks Russ. Good morning. Everyone. I'll give some more color on our third quarter results and Outlook that we published with our earnings yesterday and and certainly the headline. This quarter is a good one. We generated $32 million of adjusted ebitda. We grew up off balance again, and we did that in a quarter wear head grades of Gibraltar would blow our Reserve grade average.

So we're happy with the results proud of the way. Our team is managed to business through a challenging in volatile year so far our health and safety protocols have continued to operate effectively and we haven't had any operational disruptions as a result of the COVID-19 situation Gibraltar produced 29 million pounds of copper and 668000 pounds of Mali in the quarter song Copperhead grade average 2.23% which was slightly less than we expected as we had anticipated higher grades in the final benches of the Granite pit, but we're still on track for our annual guide and 730 million pounds plus or minus 5% remaining in the ground up. It was recently completed and Pollyanna pit will now be the primary source of or through the middle of next year.

on the

Outside, I think we've demonstrated this year the flexibility that we have to respond to short-term price changes. The operational plan that was implemented in April is served as very well and allowed us to reduce mining rates temperature without impacting the long-term mind plan.

We think about costs in terms of total site spending which includes operating costs and capitalized strip. And while our third quarter spending was slightly lower than to it was still the lounge where we were in q1 and 19% lower than the third quarter last year. So for us, it's about managing margin both in the short-term and for the long-term our total operating cost per pound increased to $2 us, but that was mostly driven by lower copper production a strong Canadian dollar and a low Capital strip allocation this quarter, so it's not a reflection of increased spending.

Russ talked about copper prices already and they have been strong averaging 296 for the quarter continue to be very optimistic about long-term prices, but we don't take a view on the short-term. We focus on the aspects that we can control being the cost side of the business. We also protect the downside by bank robber put options. This is a strategy we've had in place for many years and it continues to age as well in the first-half. We spent seven hundred thousand on out of the money put options and those generated over six million dollars of cash for us.

We've just extended to put protection into q1 next year at a strike price of two hundred eighty pound again at a relatively low cost below $1000000.

The copper price upside remains open for shareholders and as we've seen this year our stock price has incredible leverage to that upside. Our Equity is up over four times since the Lowe's in March and year-to-date. We're one of them performing copper stocks on Toronto New York or the London exchange Russ talked about jurisdictions where we operate and we like the load these low-risk jurisdiction. We don't have to manage uncertainties in in Chile Peru the DRC or Mongolia. We have a great growth profile right here in North America.

The Florence project in Arizona is a low-cost world-class near-term growth project with an after tax of 40% We've been producing Copper at the test facility for over eighteen months and it's been a valuable do you risking step?

In August the Arizona State regulator the adeq issued a draft permit, which was followed by a public Hearing in September where we saw a strong community support for the project total of 30 speakers at the hearing twenty nine of them spoken in support of the project including local community members business owners and elected officials.

Public comment period is now closed and the adeq will review and respond to comments before issuing the final permit.

The EPA is the other key regulator and it's following a similar process. No significant issues have been identified to date and we continue to expect the project to be fully permitted in early 2021 at which time we expect to move into the construction phase.

Detailed engineering is progressing negotiations with potential JV partners and other Finance providers continue to advance and our tracking well with the permitting process.

And we've talked about this in the past but important to note again that the Institute mining method of Florence makes it a green project with low energy and water consumption minimal surface disturbance and a carbon footprint. That's 90% lower than a conventional mind.

There's also no smelting required as we produce refined copper right on site. So this will be a supply of green copper that can be used for electric vehicles renewable energy and other infrastructure.

And with that, I'd like to know Hannah call over to brace to talk about the Q3 financials.

Thanks Stuart. Good morning, everyone for the third quarter. We reported earnings from mine operations before depletion and amortization of $36 million and adjusted ebitda. Thirty-two million wage earnings. This quarter continued to benefit from the recovering copper price coupled with our revised mine plan implemented in April to reduce site cost.

To seek also had a further four point four million and upward provisional price copper adjustments included in grabbing you resulting in an average realized price of $350 per pound in Revenue agent who are also successful in keeping our concentrate inventory at the end of September lure with the continued focused on our Shipping schedule ending inventory was 3.6 million pounds of copper in concentrate wage compared to three point eight million pounds at the end of Q2. We'd sales of 29 million pounds, which is similar to our production at 29 million pounds as Stewart noted Sade operating costs came in at $2,000 us per pound and we're hired compared to Q2 on a per pound basis as a result of the lower copper production and higher mining rates. We also capitalized less costs in Q3 compared to Q2 as well. And the remaining wore out of the last benches of the Granite pit with an inherently low strip ratio, the strengthening Canadian dollar by $0.06 over the quarter also contributed to hire site club.

And US dollar terms as substantially all our costs at your browser Canadian dollar based, but the year-over-year savings Insight costs in total dollars including capitalized stripping was in nineteen percent Improvement compared to the prior quarter in in 2019, and and we are very pleased with that. We continue to see some ongoing savings heading into Q4 including diesel costs at sites still $0.23 less today than we forecasted at the beginning of the year.

Hi Stuart, mentioned. We purchased copper puts in July to protect against economic downside risk for Q4 in October. We purchased two eighty strikes for fifteen million pounds for significant percentage off of our share of production for q1 20-21. We will continue to review opportunities to purchase further downside protection for 20 21 in the coming weeks and months.

depreciation

That 24 million was consistent with prior quarters and our prior Guidance with Mining and granite pet completed. We expect appreciation for DeCicco to be approximately twenty million per quarter going forward as my phone now moves to the Pollyanna pit gaap. Net income was 1 million DPS would kneel per share to the higher operating margin driven by the stronger copper price. We also have another unrealized gain of 7 and 1/2 million due to the strengthening Canadian dollar since June honor us dollar-denominated Bond after adjustment for this unrealized gains. I just did that lost was 5.8 million or two cents lost for sure our cash flow statement as always illustrates our sources and uses of cash and continues to highlight how to alter continues to wage board our investment into our development properties. We generated cash flow from operations of 31 million, which funded 15 million in capex of which four million related to Florence wage.

Super 1 million related to Yellow Head pop group payment of equipment Debt Service payments. We were able to increase our cash position by a further nine million to 73 million month. We also concluded in nine million revolving credit facility in October the Canadian bank with the backing of export development Canada to assist your browser with trade Finance working capital. The facility will allow us some additional flexibility and the potential to use letters of credit to support key suppliers, which can provide additional liquidity support and uncertain times. I'll now turn it back over to the operator for any questions. Thank you.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please? Press the star followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your quest. If you are using a speakerphone, please lift the handset before pressing any Keys first question.

Your first question comes from Joel Brown, please go ahead.

Okay, it's a grandson another strong quarter. My question is just on grades over the near-term. It was mentioned previously that grades in Q4 and q1 and twenty twenty-five expect to be somewhat lower than what we've seen in the second quarter. Do you expect grades to be somewhere near or at what they were for Q3 or should I expect something between the grades and Q2 and Q3 going for?

Yeah, so, this is Richard Tremblay vice president operations grade through the next few quarters will be similar to Q3 and within the normal variations that we see quarter-over-quarter.

Okay, great. I guess my my second question here just done. It was mentioned in the md&a that the has lived there had been preparations to I'd be gone for incorporating this historical Gibraltar kid just given it's expected productivity and cost improvements. I was just wondering if you could provide a estimate on the capital required to restart operations at that time.

So Richard trolley again, really the main portion of capital is associated with the watering of that pit and it's in the eight to ten thousand dollar range.

Okay, and then my final question here just looking forward to next year. Should we expect copper production to be roughly at the same ballpark for guiding for 2020. Is there any expectations on a on a change in the general twenty Twenty-One capital expenditure program? It's broker.

Yeah, Joe is Stuart here. Yeah, we haven't given in we're not giving any guidance for a 20 21 at this point. We're still working through our budgeting process which we always do and and you know, we do focus on margins as we talked about in the in the call not just on on maximizing production, but you know generally speaking at your browser. We we've talked about with the long-term producing about a hundred and thirty million pounds a year plus or minus 5% You know, those are those are kind of long-term numbers that we can expect so we don't expect anything dramatically different than that next year. So but as I said not not giving kind of official guidance at this point.

Did you did you have a question you had a question to a capex as well? I could you repeat that? Yeah, so I was just wondering if you could provide color on that for next year, but I understand it's numbers aren't second thoughts.

Yeah, I mean generally, you know, there's no there's no major capex requirements to to execute our long-term plan. I think there's as Richard mentioned there is a a little bit of capex off wired to to D water and open up the the Gibraltar pit which will become one of our sources of or later next year. But but no normally, you know, it's generally speaking you can expect similar types of Catholics as what we see in the past anywhere from you know, maybe 15 to 15 to 20 million dollars on an annual basis something like that.

Okay, perfect. Thanks.

Thank you for next question comes from from stifel, please go ahead. Hi. Hi. Good morning. Just wanted to get a little better understanding of the grades wage. You're moving to the Pollyanna pit. Can you talk about what's the low and high grades are through the pit and what sort of variation there is in this in your body.

Yeah, so Richard Tremblay again, it's a great and Pollyanna Pat, you know berries anywhere from The Fulton to 3, but they'll be loathed and it made great range and the .17 and zones that are high grade up to the point three range.

And then on a quarterly basis here. We assume that it should be in the sort of two for range on a just as as the mortgage process. We don't give we don't give quarterly guidance thumb. We stick to the annual 12-month periods. And so, you know, you can you can kind of refer to the previous comments on annual guidance, but we're not going to get into too many details on quarterly production. I think you know, what we have said is that you can expect plus or minus 10% type grades on the reserve average in any particular quarter, but you know over 12 months it's been pretty stable. So that's that's probably as much as we could we would want to say on that.

And then it seems like you got three major things that need to be addressed. First one is permitting you have the JV and you've got the nearing maturity of the 2012-13 notes or those items able to occur independently or is everything hinged upon getting the permitting so you can get a JV so you can refinance the Note 8

No, I mean the way the way that we're thinking about that first on the Florence financing is you know, we don't believe we need the permit in hand to get a Florence financing package in place, but certainly that you know, we don't need to draw down funds until we have the permits and start construction. But you know, we we we can get the package in place and that's our plan to do that faith we have in prior to permits, you know, we think once we have a pack a financing package in place and and potentially permits obviously that puts us in a in a strong position for the boundary Finance, but you know go on markets are strong as well. And so that that is kind of moving that's moving moving independently. So you should we keep an eye on bond markets. We believe that will be in a stronger position when we have a Florence financing package in place to go there. But as I said kind of keep all of our options open Dead

Thank you. That's all I have.

Thank you, and as a reminder, ladies and gentlemen, if you have any questions, please press * 1.

Next question comes from Don DeMarco at National Bank Financial, please go ahead.

Oh, hi, good morning Ross and Stewart and gentlemen question about the $9 credit facility. Can you tell me what the terms of this facility are and and also off how does it rank relative to the first leading bonds? Is it ahead of these bonds or or on like a Pari passu on equal to these bonds off?

Thanks. Yeah, it's race having the nine million facility was entered into by Gibraltar joint venture. So it's structurally senior to the bond is a a demand facility. It doesn't have its revolving term and you know, it's it's user its intended for issuing letters of credit to to suppliers as part of our trade Finance or Capital needs. So that's something that will look to deploy as needs in in that context. It doesn't. Yeah. It's it's a specific car vote under the bonds for two players supplier trade Finance needs.

Yeah.

And so what is the what are the terms on this facility in terms of the cost?

It's it's around, you know, it's it's a relatively cheap facilities or cheapest one or our equipment loans and leases are in the certified to 6% range will be a few percent cheaper than that. It's only there's no standby cost to it. We only pay when we issue letters of credit. So it's something that we're keeping as a tool to manage over the coming coming months and quarters.

Yeah, okay, that makes sense. Yeah, and it's back to a hundred percent guaranteed by EDC unsecured basis, but it is structurally senior to the bonds.

Okay, great. That's all for me. Thank you.

Thank you. And the next question comes from Ben Davis at liberal, please go ahead. Thanks guys for the cool. Just a quick one on Florence. I was just wondering what's happening at the test facility. I think the last we heard it was going thru a rinse phase. How long will that take? And are you planning doing any ramping that back up on another on another set of all holds or you know, is there anything else that can kind of prove up the efficacy of the of the institution model? What are the plans?

So Richard here again. So at Florence were still in the rinsing phase and will be throughout 20-21 as required off the temporary permit that we have. So one of the requirements is to demonstrate to Regulators the rinsing process and and how it works and the effectiveness of it off.

Okay. Okay, right actually just as a as a left-field one. I was just wondering if anyone had any further color on molybdenum prices at this point. I mean, there's been a small recovery, but it's still completely the lockout out there versus the rest of the sort of a spectrum was just wondering if you guys had any further thoughts on it off.

And yeah Stuart here know it's you know, it's not an easy Market to track prices have dropped down to around $8 a month, but we don't have any particular insight into it. We're we're happy to sell the product. Give us a good by-product credit. You know, I guess it's the demand is tied something to pipeline Pipeline and obviously oil and gas has has struggled. But yeah, nothing no, no great insights for either. Unfortunately. Sorry or he's dead.

Thank you. No further questions. I will now turn it back over closing comments.

Okay. Thanks everyone. Yep. Will thanks for everyone's attendance on the call, and we will talk to you again in February for a year-end results. I know.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.