Full Year 2020 Taseko Mines Ltd Earnings Call
Yeah.
Okay.
Good morning, My name is Veronica and I will be your conference operator today at this time I would like to welcome everyone to the to speak of mines Q4, and year end earnings and production results Conference call.
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Thank you, Brian and welcome everyone and thank you for joining the seacoast fourth quarter and year end 2020 conference call. The news release announcing our financial and operational results was issued yesterday after market close and is available on our web site to see from mines Dot com.
With me today, and Vancouver, as our CEO rest of about our President Stuart Mcdonald <unk>, Chief Financial Officer, Bryce Hamming and also Richard Trombley VP of operations.
As usual before we get into opening remarks by management I would like to remind our listeners that our comments and the answers to your questions will contain forward looking information.
This information by its nature of 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 and I encourage you to read the cautionary note that accompanies our fourth quarter MD&A and the related news risks as well as of 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 and the related news release.
After opening remarks, we will open the phone lines to analysts and investors for a question and answer session.
Now I'd like to turn the call over to Russ for his remarks.
Thank you Brian Good morning, everyone. Thank you for joining us today Mike.
And my comments will be relatively brief as I'm sure you want to listen to Stuart and Grace on both of our operating and financial results as lots of occurred over these and these areas over the last year.
And just generally speak a bit about where we are as a company.
Generally our strategic plan over the years has been to stay within our means and I've spoken many times on these quarterly calls the boat that we run our mining operations.
The highest level, we can and the lowest operating cost we can achieve.
And on top of that we ensure that our capital discipline is.
And the number one priority for us.
Over the years. This in turn should allow us to take advantage of the opportunities that come with the cyclical business such as the one we're in.
We've had some pretty tough times.
And during those tough times, we've acquired a pipeline of assets.
Bought them when copper prices were low and our entry costs were also low so we've always looked for long life low cost assets and we have on large stable of the.
We have a plan to build out and develop them when conditions present themselves.
And we have weighted for the correct time and.
And in this business that is Ah patients is.
It is difficult to come by.
Because of outside forces, but here we are on.
On the customer of some exciting times with the.
With the metal prices.
And those are exciting times square and management team and our shareholders as we enjoyed this present copper price regime.
<unk> been waiting for.
And I don't think generally they were going to see on anything like this in our lifetimes.
I've been on this business for over 40 years, now and while we have seen good prices.
Not seen price levels like this.
Which are expected to be sustained.
For a period of time and so it's not just price, but I think ultimately it's going to be the longevity of the cycle. This is certainly not 2011, when we last saw corridor.
$4 50, copper so the comp.
And he is perfectly positioned to take advantage of this.
And once in a lifetime of event.
With the breadth of continuing to pump out cash our Florence project transitioning to construction or yellow had projected basket and the EIA process, along with our first nation friends and new prosperity sitting on the wings.
And our path forward is bright over the next decade.
How is the mining company built and that's built on the back of long term reserves between all of our operating and development assets. We have 15 billion pounds of reserves I mean, that's not resources that's not the.
And those are all of 43, one on one reserves all with feasibility studies on them.
So if we look at that and the context of the industry that those are more reserves and London has had bay has capstone as the copper mountain and.
In fact, our reserves of 50% greater than capstone and copper mountain combined.
And ours, and those reserved or value of that less than five cents per pound and the ground well.
The lending is valued at 30 capstone at 30.
And copper mountain and the staggering 80.
And so some of the catch up and of these metrics by investors will occur in terms of growth is our growth of our production.
Continues.
Frankly.
And.
And thats going to be in a pretty short period of time next 36 to 48 months of weak.
We continue on this path, that's where we think copper prices.
So frankly, I think we're the best growth story and the copper space, we've been mindful of that because we've had the low cost of.
Operations of your broker, but Gibraltar Gibraltar, it's generated cash for the last 15 years and it's put us instead, where we now can develop of our pipeline of production.
So if you look at it conceptually.
And we grow with Florida, we have of 185 million pounds of production by 'twenty, three 'twenty and 'twenty three a further 170 million pounds by 2025 once Yellowhead comes on line.
And for annual production of over 355 million pounds annually at roughly.
The $1 and 60.
The U S per count.
See you on cost so if we look at the all you guys is the estimation. So your analyst day analyst estimations.
The copper ranging and well above $3 as you can see these are going to be pretty accretive reserves and the ground.
So this does not include any consideration of where we may find ourselves headed on new prosperity discussions with our first nation spreads.
So.
So a year that's been very difficult in many respects for so many of us and the World has set this company up for the future and.
Many many ways everyone seems to be focused on your behalf as I said, but that's the only a small component of this company, albeit is important for the past 15 years and will go on for another 20 or 30 years.
Copper is going over $5 a pound there's no doubt about it.
And both Chile, and Peru are in serious trouble.
On.
And the pandemic from Quebec Youll.
Won't be coming on screen anytime soon nor.
And normal QB or any other Latin American operations.
And putting into perspective treatment and refining charges are slow to flow the smelters of shutting down because they can't afford to be open.
No concentrate no metal.
But there is still metal demand Hello value copper for example, just saw the spot cargoes of 60000 tonnes of concentrate for $23 a tonne and two three cents per pound. So smelters will go down and demand will still be evidenced and copper price increase and stay high for the long term like and I will turn the call of.
And Stuart.
Okay. Thanks, Ross and good morning, everyone and thanks for joining our earnings.
During the call and we did actually announced our recover production and EBITDA estimate and early January.
So that part of it wasn't really news yesterday, but with copper prices now over $4 a pound.
Number of other positive developments on our business recently, it's definitely an exciting time for us.
And I wanted to start.
And a few minutes just to review of the last year and it was certainly a memorable one for many reasons.
Firstly on Gibraltar.
As always our primary focus is on the health and safety of our employees.
And our response to the Covid pandemic and March was evidence of that commitment the workplace protocols that we implemented.
Kept the operations running smoothly and our staff safely employed and while we've had a few COVID-19 cases recently within our workforce and we haven't had any issues and new operational disruptions.
We're also proud of the fact that we had zero lost time incidents at Gibraltar and last year.
When the copper price dropped last March we took quick action to adjust our cost structure and those initiatives resulted in about $30 million of cost savings and Q2 and Q3.
We made those operational adjustments without any impact on copper production without any employee layoffs and without jeopardizing, our long term mine plan.
So it definitely demonstrates the flexibility that we have at Gibraltar and the value of the long life stable operations and a good jurisdiction.
We produced 123 million pounds of copper for the year at a cash cost of $1 92 accounts and that led to operating cash flows of $106 million and adjusted EBITDA of $108 million per the year.
We also made very good progress at Florence over the last year. This is a very valuable asset that is going to dramatically change the seacoast copper production and cost profile and the near future.
The test work that we've completed has been and important derisking step and increasing our operational understanding and also validating many of the key assumptions from the feasibility study.
In December we received the state aquifer protection permit which was a key milestone and followed on from the public consultation process, where we saw strong community support for the project.
The support is now also being reflected the Florence Town Council voted and January not to appeal that permit.
So the community support bodes well for the EPA permitting process, which is ongoing and we expect to receive that permit as well on the next few months.
So we've had successes of both Gibraltar and Florence and with our recently completed financings. We also have a much stronger balance sheet and we've had on the past.
The $400 million bond refi completed earlier. This month was used to repay our $250 million bond, which was due to mature in 2022 and the upsize provides a significant portion of the required funding for Florence at.
At an attractive cost and with no maintenance covenants.
We know how of the cash balance of approximately 200 million U S and no significant debt maturities until 2026.
So we believe we're very well positioned.
And at Gibraltar, we expect to produce 125 million pounds of copper this year, that's a slight increase over 2020.
And we expect that production to be weighted towards the second half of the year as head grade increased head grades increase as we advance and the pollyanna pit and also begin to access ore from the Gibraltar pit later this year.
And of course copper prices are significantly higher than they were in 2020, which means.
<unk> financial results for us.
The giving you an idea of our leverage at these prices, we would've generated roughly $275 million of adjusted EBITDA last year, which is 150% increase.
So with 90% of our revenue coming from non hedged copper production and the copper price recovery is very meaningful for us.
We have the majority of the required Florence funding already on hand, and we recently announced that we're moving forward with final design engineering and procurement activities.
Upfront work will allow us to move smoothly into the construction of commercial facility and we're planning to move forward with on the ground construction as soon as we have of the final EPA permit in place, which we expect to happen around mid year.
That schedule would put us in commercial production and the second half of 2022.
Florence is one of the lowest capex intensity copper projects and the world. It also has the low operating cost of $1 10 of pound and.
And it's a green project that will produce refined copper cathode with 90% less carbon emissions and a conventional mines.
This will become a new U S domestic supply of green metal that fits very well into government plans for renewable energy infrastructure and electric vehicle manufacturing.
Lastly, I wanted to talk about our longer term growth plans beyond Florence, we have two other significant copper projects and the pipeline Yellowhead and new prosperity and we're actively engaged with on both of those projects.
Yellow head, we're focused on the environmental assessment process and engagement with local communities, including first nations.
We've also commenced discussions with potential JV partners for that project.
And as a reminder, the new prosperity were engaged and the confidential dialogue with the BC provincial government and the chilcote and national government to try to find a solution to the conflict around that project.
Over the last year, we've made progress in establishing a constructive dialogue with the choke Houghton and in December we agreed to extend our standstill agreement for an additional year. So the that dialogue can continue.
So this is important work that's happening and the background at both Yellowhead and new prosperity and we understand the equity markets are focused on shorter term catalysts, but development of major projects like this takes time and patience and with successful outcomes either of these projects could become a very meaningful for shareholders and the near future.
And of $4 of copper price environment. There is also expansion potential at Gibraltar and Thats something we are studying as well.
As Russ already mentioned to CECO is close to 15 billion pounds of copper and proven and probable reserves and that reserve base is unmatched in the mid tier copper space.
So we are of great base to build from and we will continue to focus on organic growth to realize the inherent value of those reserves.
And with that.
I'd like to wrap up and hand, the call over to Brian to talk about our Q4 financials.
Thanks, Stuart and good morning, everyone for the fourth quarter, we reported earnings from mine operations before depletion and amortization of $27 million and adjusted EBITDA of $20 5 million.
The earnings this quarter continued to benefit from the recovery and copper price, which averaged $3 25 per pound for the quarter CECO also added further.
$8 million and upward provisional copper price adjustments included in revenue and <unk>.
<unk> and an average realized price of $3 69 per pound and our revenue. We had sales of 25 million pounds, which is similar to our production and we continue to keep our concentrate inventory at the end of December which ended at $3 4 million pounds.
Total site operating cost came in a bit higher this quarter at $2 82 U S per pound and it was higher than the previous quarters on a per pound basis is the result of a few things first we had lower copper production. It was also 36 cents attributed to inventory for our ore stockpiles, which grew over the quarter actually throughout <unk>.
2020, and we also had higher cost in our and our finished goods inventory.
Those together increased by $8 million and the quarter.
There is also less mining costs being capitalized as work focused and the pollyanna pit and only $1 2 million and that was related to work and the Gibraltar pit and last but not least the Canadian dollar also strengthened finished the year at $1 27 per pound.
But at a 369 realized copper price, we still made a notable operating margin of $27 million before depreciation and generated cash flow from operations of $20 million.
Depreciation is at $19 million and it was consistent with our previous guidance of 20 million per quarter, which is what we expect going forward for the pollyanna pit for 'twenty one.
With the higher copper price and the new mine plan, we also invested and the dewatering of the Gibraltar pit and Q4 was $7 million and procurement of the pumping and piping system to move water into the granite pit and 2021 now that we're finished mining and the granite pit. We also spent $4 million on Florence. These caps.
Ex programs were funded from our operating cash flow.
GAAP net income was $6 million and EPS was <unk> share due to the weakening U S dollar with the removal of the unrealized FX gain on our 2022 notes, which are denominated in U S. Dollars. We had an adjusted net loss of seven 5 million of <unk> per share.
Looking back on 2020 and in particular, the cash flow statement, you can see that with everything that COVID-19 threw at us, which Stuart outlined we finished the year with $85 million and cash which is $32 million more and where we started.
The modest equity raise we did in November for net proceeds of $34 million remains and our bank account today and the improved our liquidity.
We also generated $170 million Canadian of net proceeds from a bond refinancing and January that Stuart mentioned that bond was upsized to $400 million, but at a significantly lower interest rate our interest costs have only increased by 6 million of year.
So today, we have $200 million use of cash while we watch the copper price attempt to break and surpass prices not seen for a decade. This is extremely timely as we plan for the construction of warrants and the second half of this year, we have a lot of options available for any remaining funding and we know, Florida is a very valuable asset and the current environment.
Florence makes and extraordinary financial return to given its low capex intensity and expected to see one cost.
Florida is the net present value of $680 million based on our 2017 technical report using of $3 copper price.
With funding substantially and hand, and removing that capex in that model that increases the funded NPV of warrants up to 900 million or $3 25 per share and if I run that funded the warrants model using $3 50, copper price, it's $4 <unk> per share and at today's copper price of $4 30 per pound.
I see and NPV of $5 50 per share of U S. So there is significant appreciation potential and the near term per our shareholders as we prepare and to build and operate warrants.
This is all happening at a time when copper attempts to break New records and the world is planning to recover from the pandemic the finding itself critically short of Hopper.
And with the backdrop of investors hungry for ESG conscious companies and qualify and green investments.
2021 will be a transformational year for CECO I will now turn it back to the operator for any questions.
Thanks.
Thank you very much ladies and gentlemen, we will now begin the question and answer session.
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And please for your first question.
Yeah.
Okay.
Your first question comes from Mike Kozak with Cantor Fitzgerald. Please go ahead.
Yes, good morning, everyone and thanks for taking my questions. A couple from me first is that.
Do you expect to have to wait for Michael Michael Regan, who is I think the new head of the EPA and presumably his new incoming team.
To review all of the in progress approvals before Florence receipts of the UIC and I guess, what I'm asking is that when you say the UIC permit by mid year is that of the assumptions that youre, making.
Yes, Mike its Richard trauma here, so we do not foresee any delays with EPA reviewing are finalizing the permit and and <unk>.
Commencing like the <unk>.
And as soon as it gets issued for draft.
And the draft and the NFL for public comment and then.
And those public at the end of the public comment period, there is the hearing.
Comments are made EPA will adjust the draft permit if required from based on some of the comments received and then we'll issue it but we don't foresee any delay or any.
And any issues there.
Okay. Okay. That's helpful.
And then my second one is just on the Florence.
The financing here. So I just look at the numbers, so initial capex $230 million.
You've got 400 million now less the $2 50 from the bond refi So 150 net.
Call, it and $80 million.
Funding GAAP, excluding what you have on your balance sheet and cash and our just from the last quarter.
And by my estimates at current copper prices basically two quarters of cash flow from Gibraltar. So my question is that over Stuart Stuart and saying over the last probably six quarters. One of the one of the financing options was either a JV partner or even selling of royalty to finance Florence can I can I want to confirm that.
This is this is no longer being considered and I can imagine right given where copper prices are the effect of that funding gap is so small.
Well I think <unk> got a handle on the numbers I mean, we've got as we said on our script, we've got $200 million and use of cash in hand today, and we're generating good cash flow from Gibraltar Capex of Florence is relatively low at only $2 30.
Yes, we think we're in a very strong position, we definitely have the ability to fund this.
The project on our own and one at 100%.
We are continuing.
The discussions with a few select.
J D partners.
And we're going to see how those discussions play out we still think that the potential to maybe sell the minority stake.
And at something based off of NPV margins of $700 million NPV of year higher at today's prices and if we can do a very accretive transaction with the minority stake and that's something we may.
Consider doing but if we don't get the valuation that we won as you say we have many other options to fund this and own it ourselves on the 100% basis. So we're in a much stronger position today, obviously and frankly kind of looks.
Looking back we are glad that we didn't do a transaction last year because of her and a much stronger position today and of many more options. So sometimes it's the it's the deals that you don't do that yet.
That work out well for you. So I completely agree that that's good to hear okay. Thanks, everyone and that's all from me.
Okay.
Thank you very much on your next question comes from Craig Hutchinson with TD Securities. Please go ahead.
Hey, Good morning, guys My question's on Gibraltar, we did see the mining rates pick up here in Q4 can we expect similar mining rates through the balance of of this year that we saw in Q4.
Okay.
Please refer to the mining rates.
Total the material mode.
Yes. The total material moved maybe you can give me some context on the strip ratios of all that'd be helpful.
Yes.
So Craig and Richard drama here, Yes mining rates will continue similar to Q4 rates for this year.
Okay and in terms of grades and I know you guys are guiding for a higher grades and the back half of this year, but just kind of going into Q1 should we expected to be similar to Q4 or are you guys already and of higher grade portion of the pit now.
Yes, so the.
On the production.
Profile for the year of roughly 45% of our production will be and the first half of the year of 55% of the second half.
Okay, great. Thanks.
And then Florence as well just maybe a follow up question on the permitting I know you guys targeted with your Q3 results to have all the permits and hands on early 2021, now and sort of mid year can you just provide some context of why that timeline of slipped on the EPA strength.
Government.
So the risk.
Sure.
The timeline really go of it was impacted by a number of different things, but there is no set timeline and so it's a process that needs to be run through and.
And that's best estimate is really what we look at.
COVID-19 played a factor responses back on the treatment plan for the historic properties.
And that are on site that we have to deal with were slow and coming back from the consulting parties and.
The number of things like that impacted us, but the process continues to advance just not as fast as we originally thought.
Okay.
And maybe just last one question I think the Capex guidance now is around $2 40 U S is that correct.
Okay.
The $2, 30% from there.
And yet you guys are feeling pretty confident about it just given where steel prices have gone recently and the U S. Yes.
And we've looked at that and we're reasonably confident that that would include.
And there is some assumptions and thereabout.
On a reclamation bonding and the a portion of those of the.
Bonding will be covered by surety bonds and there is some working capital and there, but generally we're comfortable with that estimate.
Good morning, guys.
Greg the more engineering, and you're doing the better refinement and get on your cost.
So.
Although we've been delayed with the permitting and all and.
And last year, and certainly the delay and the permanent like Stuart said.
Certainly just blended into the hole.
And where we were and the copper price cycle and that kind of stuff on that.
And by the same time, we were and refining our engineering studies and getting more details in terms of overall engineering costs and when that happens and you can really focus in on your on your capital expenditures.
Okay.
Okay, Great guys. Thank you for taking my questions.
Thank you very much ladies and gentlemen, as a reminder, should you have a question. Please press the star followed by one.
One moment. Please for your next question.
Okay.
Hey.
Okay, operator, yes, yes.
Operator, if there's no further questions we can wrap up the call here and thanks again, everyone for joining and we'll talk to you again in.
In may after our first quarter, thanks again, everyone.
Yes.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Have a good day.