Q1 2021 Taseko Mines Ltd Earnings Call
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Good morning, My name is on Us and I'll be conference. Operator today are the same we'd like to welcome everyone to the just say co mines first quarter earnings on production results Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
I'd like to ask your question there on this giant simply press Star then the number one on your telephone keypad, if you'd like to withdraw your question. Please press. The Star then the number of true. Thank you Mr. Brian forgot you may begin your conference.
Thank you and welcome everyone and thank you for joining for <unk> first quarter 2021 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 coal mines Dot com.
On the call with me today is to seek co CEO Russ Hallbauer, our President Stuart Mcdonald, John Mcmanus COO to.
To Cecos, 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 answers to your questions will contain forward looking information.
This information by its nature of subject to risks and uncertainties that may cause of the state of the outcome to differ materially from the actual outcome for further information on these risks and uncertainties I encourage you to read the cautionary note that accompanies our first quarter MD&A and the related news release as well as 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 I would now like to turn the call over to Russ for his remarks. Thank you Brian good morning, everyone.
Hope, you're all doing well.
You can see from our quarterly results, it's been quite the ride for us over the last year with the price volatility we've seen over the last year, it's been the customer onto operating.
When you produce 10 million the west Alvin Crawford as the gift this quarter than the comparable quarter of year for.
On may.
$25 million worth of operating profit that's the good thing I suppose.
In simple terms of our plans last year were to go through the early stages of the pandemic on the copper dropped to just over $2 U S per pound.
And we accomplished that by managing our mining plan to make.
The <unk> part of the cash margin of at Gibraltar and the <unk>.
Same weighted on the.
The same manner that we go out for the global financial crisis. In 2008 2009 is on copper price crash in 2016.
As we've spoken of Goldman.
Half of that to move quickly to adjust for the whole mining line to ensure we get by whatever it was going to happen and that was no different during the pandemic guarantees of the Perth element.
On certain times corporate are going to stay around $2 further.
50, or lower recovered quickly who knew.
And the letter of mining operations like Gibraltar, where we're moving to an excess of 100 million tons of waste in order of here. It's a complex engineering undertaking and if you move in one direction. It takes a lot of trying to rectify the.
The metal prices sort of go and Thats here, we are a year later January ourselves of all we've got put into 12 months ago.
But the things have turned out pretty well at the operating profit we need on our operating results and financial will continue the group.
Approval of the rest of the year.
As machine in the path of the overwhelming.
We sequence of the pits and the Resequencing of the pits occur we encountered lower gains on the upper benches of the push backs.
Thats been the historical function of the.
Paperboard volume we have in that.
Come on.
The western on over the past six months.
It is indicative of the Greens are below reserve grade and will always be that effects of all of that will.
We will produce.
And lower grades of equate to the IRC webcast.
However, going forward as we transition.
Transition through the re sequencing, we will have to remain higher grades.
But at the lower scrap of Tim.
Ultimately floors you on cost.
So.
As we've talked about as we move forward for the rest of the year, we will see grades rise quarter over quarter to above of our average reserve grade later in the year.
So that explains the simplest.
<expletive> trims are mining sequencing of results.
Some folks think we should have really cleaned it with copper prices, we have seen and we did with respect of where we were a year ago. So now we just have to look forward to help things unfold for the rest of the year and hopefully with higher copper prices will continue to have.
Very good financial results one.
One thing I'd like to mention is that as we sell metal at ever increasing prices the cost of everything else goes up including our input cost I guess a lot of people are talking about inflation on this could be classified as inflation.
But as we see at this juncture inputs input costs have not been increasing but it's hard to say how long that will last week.
We manage to maintain or cost of relatively stable levels over the years, because we've taken a long term view.
No.
Of the business and locked on our input costs with long term contracts wherever possible tried to take out as much variability as possible for example, ocean freight from Vancouver to Asia in normal times.
Cost of anywhere between $60 to $90 per use per ton and if you look at feasibility studies for western Canadian or other mining operations Youll see.
And most of the feasibility studies.
Fortunately, we've had of contracted is less than half of that price of roughly $30 per ton for a number of years now however, the bike the.
The dry Baltic rate has been very poor for the past five or six years. However that is all changing.
And as you can see from the graph of the Drybulk its running up to reach not seen for a decade. So producers will come under pressure from those increases in terms of total COVID-19 costs.
Sure.
Our free to.
Right.
<unk> last for over another year.
So we are sheltered from increases in off property costs for some could be for the foreseeable future because of the approach we have taken a look and things we can control, but many companies are exposed Victor I imagine the cost implications of the two to three times create increased any of your ocean freight cost segue from three to four to eight nine or 10.
That's just free cost of getting to your bottom line.
The same is going to occur with refining the treatment charges, everyone knows that the benchmark prices are in the neighborhood of $60.06 per pound, which are the lowest of the past decade as well.
However spot rates are down around 10 to $20 per ton on one to two per pound for high quality copper con.
Like we produce out of you Walter.
We recently sold the spot cargo of 45000 tons in that range for delivery later in the year and with our long term contract any of the gear and we believe that although TCE Archie.
Costs will climb the shortage of concentrate will not allow us to renew the with terms like we have now well below benchmark and those savings are in the millions of dollars of year, which flow straight to our bottom line.
<unk> has over the course of the past 15 years of the best refining treatment contact of any minor of the world bar. None of that has a lot to do with the type of quality of concentrate we produce an ex parte terms confirm that it is a sought after the concentrate.
So while we will finish the out of pressure with respect of grinding media of reagents diesel. We believe we can mitigate those with what we're doing in some of those other areas as I spoken to the above.
Which gives us the distinct advantage over many other producers were also in the process of looking at what we may be able to do with the next evolution of the Gibraltar in the context of what appears to be the future of the copper market over the next year or so.
As we know Gibraltar has a long mine life predicated off of its 500 million tons of reserves, but has the resources or large as well with an additional 500 million tonnes.
We're now planning of the property wide Geophysics program, followed by a detailed real program to find out more of about what we have on what the future may hold for.
Gibraltar mines.
As it stands now just changing the projected long term prices for our reserves. We can bring in between 90 to 100 million tons of incremental ore, which would extend the mine life by over three years and one of that tonnage would support of increasing jumps throughput from <unk>.
Two of 110000 tonnes per day from the rough roughly a 25 per cent increase from the current level, we will feel like something having something in excess of $200 million additional tons, which support the concentrator expansion and Thats, what we are planning on doing.
Trying to add another 150 million plus tons to our reserves and we believe that that is.
More than feasible. So by this time next year. After you have it on a new technical report, we should see of new updated path forward for Gibraltar. So we'll see what happens after the Florida buildup, but we may be in a position to invest something of Gibraltar you all of it we have many menu of options I'd like to now turn of the.
Moving over to Stuart for his comments.
Okay. Thanks, Ross and good morning, everyone. It's hard to believe that the copper price today of around $4 58 of power.
All are higher than at the beginning of the year.
That's the 30% increase on top of what was already a strong price.
Great situation for non hedged producer like the CECO certainly feels like there's been a shift in how many analysts and industry experts are thinking about the market over the next few years.
And we started seeing the impact of that strong market onto CECO share price, which has doubled again over the last six months.
Strong market has also allowed us to refinance and upsize of our bonds in February of a pet attractive terms.
And looking ahead with the large reserve base, we have at Gibraltar and low cost growth coming from our Florence project. We are in an excellent position to benefit from strong copper prices in the coming years.
In terms of the first quarter results that we released yesterday copper production from Gibraltar was 22 million pounds on head grade of one 9% on recoveries of 82%.
The new the grades will be lower in the first half of this year as ore mining transitioned into the upper benches of the pollyanna pit.
The grade was lower than expected on that impacted recoveries as well.
On the positive side, we mined the total of 32 million tons, which is more than 20% higher than the previous quarter as we benefited from shorter hauls and high productivity.
Because of the strong performance in the mind, we now expect to get into the higher grade that was forecast for the second half of the year later in the second quarter.
So we see improved production in the second quarter, and then higher again in the second half of the year as we get deeper in the pollyanna pit.
We have seen an unexpected delay in a routine permanent amendment that we need to access the Gibraltar pit.
And unfortunately that delay resulted in 30 for layoffs.
We believe that situation is temporary and expect to receive permit and begin mining in Gibraltar pit this quarter with aura lease for Matt pit beginning later this year.
Which will also contribute to improve grades and production in the back half.
So while we were 25% below reserve grade in Q1 that will reverse and we expect to be above reserve grade in the second half.
Those of you that of followed our company know that this is not an unusual occurrence as we do have quarterly fluctuations, but revert back to average grades overtime.
The current copper prices were forecasting over $200 million of operating margin over the next nine months.
And if copper prices go higher then so to what our margins.
With that level of cash flow coming from Gibraltar, we would be in a position to fund Florence with internal sources and without any additional financing of our JV partner.
While we are continuing discussions with a few potential financing partners retaining 100% ownership of Florence is definitely something we're comfortable with as we see good copper prices ahead.
On the regulatory side of Florence, we've continued to make progress in recent months the.
The ATP permit was issued by the state in December and the last remaining appeal was withdrawn in the first quarter. So that permit is in place.
In March we received a favorable appeals court decision, which was fine which is finally resolved the remaining litigation with the town.
While we never doubted of positive outcome on that legal matter, it's good to have it behind us.
We are also now reached the full settlement agreement with the town of Florence, which Theyre Council just approved on Monday, and we view that as a very positive development as well.
And the indicative of the public support that we received through the <unk> permitting process last year.
The final remaining permit will come from the EPA and their work continues to advance, albeit more slowly than we expected.
We have a regular on ongoing dialogue with EPA and based on what they've told US we expect the issue of the draft UIC permit in June.
There will then be of public comment period, including the public hearing, which we expect will lead towards issuance of the final permit later in Q3.
At that point, we'll be ready to move into construction of the commercial facility and the detailed work. The detailed engineering work is on track to support that timeline.
As we've talked about in the past Florence will produce copper with the sustainable and green production method.
And that Green growth story was the big focus of our 2020 sustainable sustainability report, which we released a couple of weeks ago.
We're very proud of our achievements and successes related to two ESG initiatives.
Those are outlined in the report.
For the first time this year, we published Gibraltar scope, one and two of greenhouse gas emissions, which we had independently verified by scarring of associates.
UK based consultancy.
Based on their analysis to broker ranked in the first quartile of global copper producers for ghd emissions intensity.
And when copper production starts at Florence to CECO will drop even lower in the first quartile.
So on that report is available on our website and I suggest you give it a read I think you'll be surprised.
Price that the work our employees do every day to create value for all of our stakeholders.
Lastly, here I wanted to take the opportunity to congratulate our team of Gibraltar as we learned this week that the mine has again, one that John Ash Award for 2020.
This is awarded by the provincial government of BC to the mining operation with the lowest injury frequency rate.
So it's great recognition and we've wanted to now five years out of the last seven years. So that's definitely something to be proud of.
And with that I'll pass it over to price to review the financials.
Thanks, Stuart Good morning, everyone for the first quarter, we reported earnings for mine ops before depreciation of $30 million and adjusted EBITDA of $24 million.
The earnings this quarter continued to benefit from the recovery in copper price, which averaged 386 per pound for the quarter.
I'll also add a further $4 million in upward provisional price adjustments included in revenue, resulting in an average price of 409 per pound.
We had sales of 22 million pounds interest similar to our production as we continue to keep our concentrate inventory level at the end of March ending inventory was $3 6 million pounds of was similar to prior quarters.
<unk> total operating costs came in at 223 U S per pound remained higher than the life of mine average as the result of the lower copper production. The total spending on the site costs, including 21 5 million in capitalized strip were generally in line with previous two quarters since wrapping back up for mining rates in Q4 last year the <unk>.
Canadian Dollar's continued its.
Strengthening trend in line with commodity prices, which is also impacting our cost per pound of U S. Dollar terms, but out of a 409 realized copper price. We still made a notable operating margin of $30 million before depreciation which increased from Q4.
Cash flow from operations, which was negative.
$3 million compared to adjusted EBITDA of $24 million, which simply impacted by an increase of $27 million on working capital due to the timing of the one shipment in the era of balance we carried at the end of the quarter, we did not collect on a provisional invoice.
February shipment until early April which resulted in the our ending the quarter at 31 million compared to $6 million last quarter.
Depreciation at $60 million was a little lower than our expectation of <unk> 20 per quarter, but that was due to the greater processing of ore from stockpiles of lower throughput and higher waste stripping activity.
In the next pit suite sequence and pollyanna.
GAAP net loss was $11 2 million or <unk> <unk> per share and included a 12.
$13 million loss on settlement related to our 2020 of notes, which we refinanced in the quarter.
Was partially offset by $4 million net foreign exchange gain on our U S dollar for.
Dollar denominated debt after adjusting for these two nonrecurring items, including tax effects on that settlement loss, our adjusted net loss was $5 million or <unk> <unk> per share.
With our December 31 cash balance of the net proceeds of the bond refinancing we started the year with pro forma cash of $250 million. We ended the quarter just shy of 200 million the working capital decrease of $27 million, which will reverse in Q2 of the accounted for about half of that use of cash. We also had increased capex at <unk>.
Both Jim and for warrants and $11 million was used for the purchase of copper put options to protect our for price for the second half of this year. We also paid our debt service, including interest that was around $10 million. So our cash position to set the increase now given the higher copper price that's over $4 50 per pound coupled with the.
Copper production expectation in the coming.
Quarters that Stuart mentioned.
Finally investment in Florence increase to be approximately $10 million in Q1, reflecting the ongoing but increasing detailed engineering work being performed.
<unk> expenditures will begin increasing program in the coming quarter on care.
For receiving the final USD permit and get ready for construction of the commercial facility.
In addition to detailed engineering. This could include deposits on lead the ordering items and initial payments on key contracts for secured pricing. So we are beginning to strategically deploy some of the funds raised from our equity and bond financing for Florence.
Which begins chipping away at the $230 million capital costs, we estimate to build out the commercial facility there.
I will now turn it back to the operator for any questions.
Thank you ladies and gentlemen, we will now begin the question and answer session for analysts generally should you have any questions. Please press star followed by one on your judged on so you will hear three Tom Brown, the acknowledging the request and Youre questions will be bold India. The idea received should you wish of decline for the polling process. Please press star followed by.
Two if youre using the speaker phone. Please lift your handset before pressing any keys one moment for the first question. The first question comes from Ed broker with Barclays. Please go ahead.
Hey, Thanks for taking my questions. This morning. So my first one sort of ask on the potential of infrastructure deal. Do you think you have an advantage kind of being in the North America top of producer.
With the potential of infrastructure deal.
Especially with the buy America stance of the administration is taking.
And then.
On top of that has the kind of made you want to speed up the timeline for Florence.
At all possible.
Yes.
Yes.
Hi, It's Stuart speaking yeah, absolutely I mean, we are.
Moving I think as fast as we can on Florence, We think it's the right time to be bringing on a.
The new mine like that as you say it fits perfectly into the the volume of American.
Out there and delivering.
The product that's going to be required for some of the infrastructure spending that's planned in the U S. So we think it's perfect timing for this project for moving as quickly as we can.
The constraint right now as I said is that EPA permit, but we get that permit in the third quarter and we will be.
Which is our expectation will be ready to move.
Into construction as quickly as we kind of after that.
Got it that actually brings me to my next question.
Was there any specific reason.
For the hold up and the EPA decision, giving your talks with them of I think the previous.
Expectation was that it was going to be mid 2021.
The decision I'm, just trying to get a sense for why the final decision it seems to be pushed back or at least slower than expected and I'm wondering if that could be pushed back I can even further.
Yes, I mean, it's definitely the process of moved a little more slowly than we would have liked.
It's unfortunately of process, where there arent any.
Clear.
Clearly defined deadlines of timelines.
So the EPA just has to get through their work.
I think theyre, moving moving slowly and prudently and cautiously in the.
The important thing I think of it.
But there's no major issues coming up on the process, so they're making progress it's just taking time.
Yes, that's our that's our expectation.
At the current time is that we'll get that permit sometime later in the third quarter.
But.
<unk> no major issues there.
Got it and then my last question I, just wanted to get an update on where you are on the process of the at yellow head and the preproduction Capex I think I read it was $1 3 billion it seems pretty big compared the Florence.
The phase two it kind of of the 230 level. So I just wanted to get a sense of if you've thought about how youre going to pay for that I know, it's further down the line, but would you look at JV partners for that or do you think will.
We will be building free cash flow et cetera.
Yes.
You're right, it's definitely a bigger capex.
Bite for us and it's a fee.
Few years down the road.
We've got obviously, some permitting and community community work to get done in the first which we're focused on right now, but looking ahead a couple of years, when we have Gibraltar and Florence, both running we're going to be a different company, we're going to be a much stronger.
For EBITDA and cash flow generation. So it's a project that we like we're interested in and if we can take it on a few years down the road with the JV partner.
We think it could be.
We think it could work for us and fits into the comp of the whole copper.
Story, as well because youre going to need projects like that to be built the film to fill the <unk>.
The supply deficit is coming so.
That's the way we're thinking about it it's not a decision that needs to be made anytime soon but it's as I said, it's a couple of years down the road.
Okay.
Got it thank you very much.
Thank you, ladies and gentlemen, as a reminder, should you have any questions. Please press star one.
Your next question comes from Craig Hutchinson with Gd Securities. Greg. Please go ahead.
Hey, good morning, guys.
You touched on it earlier that you need a permit to access of the Gibraltar East pit.
Just curious when do you need the permit in place to avoid having any potential impacts on your guidance for 2021.
Okay.
Richard Richard would you be able to take that question.
Yes, yes for sure.
Craig Richards problem on here really we're looking for.
Require that permit here before the end of May.
If it goes longer than that then we will start seeing impacts in 2021.
Okay.
And obviously I guess, you know youre expecting higher grades from this portion of the pit is that correct.
Grades from the Gibraltar pit will.
We'll be in line with the life of mine average so yes, it will be higher than what we've seen in Q1 in the us.
I guess comment I'll make is.
Not getting into the Gibraltar pit we.
We see impacts from that please.
Not in there before the end of May, but there's also opportunities to.
Do some things on the pollyanna pit the potentially offset it so.
We're currently looking at though is variability of our Optionality for us.
Worst case scenario, but our expectations is that we should receive that permit here shortly.
Coming weeks.
Okay.
And just on grades you guys were pretty clear in the opening commentary that you expect grades in the sort of second half of this year to be above reserve grade but.
Any clarity you guys can provide on Q2, you know what kind of grades were seeing right now at the same kind of question just on throughput or you anticipate softer or can we expect to parts of sort of increase over the Q1 levels.
Yes.
The mining continues here in pollyanna.
We see less reliance on stockpile material with the.
The ore coming out of the pit, we don't expect or don't see throughput as being of restriction anymore. As it was in Q1, So we'll see that come up and then grades.
As has been said previously we will start increasing as the quarter progresses.
And then into the second half of the year, we will see the higher grades.
Okay.
Just on Florence asked this question on last conference call, but I feel like that's the asking again you guys had mentioned that youre not seeing much inflationary pressure on your existing Gibraltar operation, but just given steel prices for the U S are up 50% through Q1.
Based on the engineering work Youre doing are you starting to see any inflationary pressure in terms of your cost estimates for that project.
Hey, Craig It's Stuart speaking here and I think the short answer of that is no we're not seeing a.
The major cost increases at the stage.
In Florence.
And we just haven't seen it.
Okay great.
And then maybe last question for me.
Mentioned almost of willingness to go to 100% interest in Florida, and sort of keep 100% interest.
Can you maybe talk about the party partnering interest at this point and is it your preference to pursue of 100% of are you still looking at potential jb's.
Yes.
Look theres still parties that are interested I think it's just we're fortunate with.
Of the financings that we have behind us in the copper price environment that we're in the.
We now have the ability to build it ourselves.
If there is an accretive.
Transaction area, that's available to us we could still.
Do something like that but at this stage I think for leaning I would say leaning towards a scenario, where we own it of 100%.
But certainly all options are still on the table.
Hey, guys. Thanks for taking my questions and good luck.
Okay. Thanks.
Thank you.
Ladies and gentlemen, as the final reminder, should you have any questions. Please press star one.
Okay.
The operator, if there's no.
No further questions. Thanks, everyone again for joining and we'll talk to you next quarter.
Ladies and gentlemen, this concludes your conference call for two day with.
Thank you for participating and I said you. Please disconnect your lines.
Okay.