Q4 2021 Taseko Mines Ltd Earnings Call
Good morning, My name is Dennis and I'll be your conference operator today at this time I would like to welcome everyone to the Sika was 2021 year and earning some production 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. If you'd like to ask a question. During this giant simply press Star then the number one on your telephone keypad.
I would like to withdraw your question. Please press Star then number two thank you to say Kelly you may begin your conference.
Thank you Anas.
Welcome everyone and thank you for joining <unk> fourth quarter and annual 2021.
<unk> conference call.
The news release announcing our financial and operational results was issued yesterday after market close.
Available on our website at <unk> Dot com.
On the call with me today is <unk>, President and CEO Stuart Mcdonald to Cecos, Chief Financial Officer, Bryce Hamming, and our senior senior VP of operations Richard crumbling.
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 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.
I encourage you to read the cautionary note that accompanies our fourth 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 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 turn the call over to Stuart for his remarks.
Okay, Thanks, Brian and good morning, everyone and thanks for taking the time to join US today I'm pleased to review.
It was a very successful year for <unk> and in fact in many respects. It was the best year, we've ever had as a company.
Copper markets continue to defy expectations and the price remains.
Near all time highs I don't think there were many analysts a year ago that would have predicted an average copper price of $4 20, a pound for 2021.
Or is that the price would level out near $4 50, a pound going into the new year.
So it is a great environment right now for copper producers and I'm, feeling very optimistic about where to CECO is that and our ability to grow over the next couple of years.
The fourth quarter wasn't without its challenges, but we still managed strong financial returns with 60 with $62 million of earnings from mining operations and $53 million of adjusted EBITDA.
Adjusted earnings of five cents, a share was net of a $6 million loss or <unk> <unk>.
From our ongoing and prudent copper price protection program.
The fourth quarter rounded out a great year, we achieved $200 million of adjusted EBITDA and over $200 million of cash flow from operations before working capital adjustments.
Two separate weather events impacted us in different ways in the fourth quarter.
In November severe rain storms and flooding in southern BC washed out highways and rail infrastructure.
Although it didn't although that didnt affect our mine production. It did prevent us from shipping our copper concentrate to customers at the port of Vancouver.
And that caused a buildup in inventories and impacted our Q4 financials, although that situation will unwind itself.
In 2000 and drilling in 2022 here.
In December the mine was hit with a winter storm, which brought temperatures as low as minus 40 degrees Celsius and an unusually heavy snowfall.
The combination of extreme cold and snow at the same time as unusual and has had an impact on milling operations and mine production into January .
The mine has also been working through issues with our with or in the upper benches of the Gibraltar pit where mining operations are now transitioning to.
Sure.
As described in our production release these upper benches of the of that.
Gibraltar pit contained both oxidized and high pyrite ore that negatively impacts metal recoveries.
We're dealing with some of this ore.
But as mining moves into lower benches in the coming months, the quality and grade of ore we will improve.
From a cost perspective average cash costs at Gibraltar last year were $1 90, a pound, which was very similar to the prior year.
The main item, where we've seen inflationary pressures on diesel costs.
Which have risen again since year end and are currently about seven or eight cents per pound of copper higher than the average in 2021.
In the fourth quarter, we signed a new long term labor agreement at Gibraltar.
It's a three year contract and the agreement escalators are fair and reasonable in the context of the current inflationary environment.
Spot rates for Ocean freight have fallen from the highs of few months ago. When recent we recently took the opportunity to enter into a new long term contracts.
As always we're going to continue to manage the <unk>.
Costs that we can control and that the upside take care of itself.
Looking ahead to 2022, we expect the first quarter will be a low production quarter similar to Q1 last year.
Although as I mentioned, we will get a positive earnings bump from higher sales volumes as we sell off excess inventory.
In the second quarter head grades and ore quality should improve in the back half of the year will be higher production again so.
So really a similar profile to 2021.
In 2023, we should see higher average grades for the year and copper production should trend back towards the life of mine average of 130 million pounds.
We will also be evaluating a potential restart of Gibraltar is sx EW plant in 2024, which could further increase copper production forever fairly nominal capital spend.
Lastly on Gibraltar, our engineering team is now well advanced on our reserve update and we expect to have that finalized in the second quarter.
At that time, we should have more to say about a potential mine life extension.
Changing over to Florence, and we certainly were hoping that the EPA would have publicly issued the UIC permit by now and started the public comment period.
That was certainly our expectation based on the time estimates that you've given to us previously.
It may sound a bit like a broken record when I say that the EPA process is still advancing with no significant issues, but that is in fact the case.
We continue to have frequent communication with our regulator and based on those discussions we believe the remaining work is mainly administrative and that there are no substantive issues outstanding.
We continue to expect a draft permit to be publicly issued very soon.
In the meantime, we continue to advance the technical aspects of the project that we can control.
Detailed engineering is complete and procurement of key long lead time items.
Is well advanced with approximately $45 million U S incurred or committed.
We want to be sure that we're ready to go as soon as our final permit is issued and major components are now being fabricated in Europe Asia and South America.
Looking back at 2021, it was a year of many accomplishments.
Our production base at Gibraltar allowed us to capitalize on the strong copper price and produce the best ever financials for the company.
In February we took advantage of a hot bond market to refinance and upsize of our high yield notes at a reduced interest rate.
And later in the year, we added a $50 million revolver.
These two transactions combined with over $200 million and operating margin and cash flow from Gibraltar in the year.
Put us in a great position to move forward with development of the commercial facility at Florence.
We also recently extended our copper price protection program to secure a minimum price of $4 a pound for almost all of this year's production.
And Bryce can talk more about that in a minute.
Yellow head, we continued important community relations work in preparation for the upcoming environmental assessment process, which we expect to commence this year with the support of local communities.
We spun out the harmony gold project, which is hot idle into CECO for many years now in the hands of Jds, we retained a 15% carried interest in a 2% MSR and I'm optimistic.
But that will create value for <unk> shareholders in the future.
At new prosperity of the confidential facilitate a dialogue with the province, and the <unk> is ongoing.
And while I can't provide any further details at this time I think the fact that all the parties wanted to extend that agreement and continue the dialogue is a very positive sign.
So we've had a lot on the go and very much looking forward to this next year, which we believe will be a pivotal one for the company as we move into construction of our second producing asset.
I'll now turn the call over to Bryce to give you some additional color on our on the financials.
Thanks, Stuart and good morning, everyone.
I'll start this portion of the earnings call with a review of our 2021 annual financial results before talking more specifically about the quarter.
In 2021, we realized $433 million in revenue on sales of 105 million pounds of copper.
26% increase from 2020.
This result was greatly assisted by the copper price we saw in <unk> average price of $4 23 per pound in 2021.
And after factoring in positive provisional payments due to the rising copper price trend our average realized price sector browser was $4 31 per pound.
We also benefited from a Canadian dollar that averaged a U S to Canadian FX rate.
$1 25.
Last time copper we're at these levels a decade ago with the Canadian dollar was at parity with the U S. Dollar. So in Canadian dollar terms. These are truly record high copper prices, which are continuing to benefit us as a Canadian mine into 2022.
We're also very proud of the fact that Covid did not have any notable negative impact on our operations in 2021 or on our supply chains and that we were able to operate Gibraltar mine continuously. Despite many waves of the pandemic that were thrown at us.
As the weather events that Stuart touched on.
Q1 operating costs were steady near our electrical.
<unk> average of $1 90 per pound and benefited from capitalized stripping in Atlanta, and the Gibraltar pit being deferred which was higher at $60 million for the year on a 75% basis.
Sustaining capital also increased by $8 million over 2020 levels.
Due to scheduled component replacements with notable work programs on some of the shovels.
Healthy operating margin contributed to the record adjusted EBITDA of $201 million, which was 85% greater than in 2020, when the average copper price was only $2 80 per pound. This really illustrates <unk> operating leverage to the copper price.
GAAP earnings was <unk> 13 per share and adjusted earnings were <unk> <unk> a share.
Our cash flow statement highlights that our operating cash flows from Gibraltar continued to fund our ongoing financing costs as well as our investment in Florence.
Cash flow from operations was $175 million and funded capital expenditures at GM of $88 million and our Florence copper copper cash spend of $43 million.
Cost per Florence included spend on detailed engineering, which is now complete as well as deposits on lead order equipment items for the commercial scale Sx EW plant.
These purchases from our 2021 financings have allowed us to protect the Florence project execution schedule as well as against inflation and supply chain risks.
We finished the year with $300 million in liquidity and our cash balance was $237 million. We started the year with $85 million and benefited from two notable financings first being our $400 million 2026, senior notes, which were issued at 7% coupon that generated $170 million in net proceeds.
After repayment of the 2020 notes and then the closing of the three five year $50 million U S revolving credit facility with National Bank.
And these are all part of our funding clients performance.
At current copper prices and with our ending balance sheet. We're in a very strong position to fully fund Florence and our other capital programs with our own means.
That said, we are still considering ancillary financing options should we need it and where the cost of capital is supportive of us.
Our strategic plans.
For Gibraltar the major capital program in 2022 will be the planning underway for the move in the in pit crusher that that currently sits over the connector pit.
We're planning to spend about $15 million on the 775% basis. This year to prepare for this crusher move.
Which will be moved in 2023.
With respect to the fourth quarter itself as Stuart mentioned, we only sold 24 million pounds at the 29 million pounds that we produced and we carried higher than average inventories at the end of the year, just shy of 10 million pounds.
We are working through the extra concentrate inventory this quarter to get it shipped and expect Q1, ending inventory to be back to more normal levels, which should bolster Q1 earnings relative to Q1 <unk>.
Production.
The challenges with realizing sales, we still achieved $103 million in revenue in the fourth quarter based on a robust copper price, which averaged <unk> 37 per pound our best average.
Price so far.
With operating cost of $1 94 per pound, we were able to generate strong operating margins, albeit on lower sales volumes in the fourth quarter.
Costs in the fourth quarter also benefited from a strong byproduct credit for Mali, which averaged just shy of $19 per pound on just shy of 500000 pounds of sales as well as low offsite costs fully 22 cents per pound due to lower treatment and refining charges on our copper concentrate.
This quarter, we realized some of the lowest TCR sees that the Gibraltar mine has ever seen as a result, the tight physical market conditions and the fact that Gibraltar has a very desirable clean concentrate.
Adjusted EBITDA for the quarter was robust at 53 million, although two due to the growing ending inventory exceeded our cash flow from operations by $16 million.
Our cash position in the quarter was relatively neutral from where it ended in Q3.
With cash flows from operations of $3 7 million funding, our capex of $33 million and our debt service costs of $6 million that Capex included our Florence then.
GAAP net income was $11 8 million or <unk> <unk> per share and after excluding unrealized losses on derivatives and unrealized FX gains adjusted net income was $13 million or <unk> <unk> per share.
Adjusted earnings was realized losses arising from the premiums paid on put protection for the fourth quarter, adding this back would have increased earnings by an additional $6 million or <unk> <unk> per share.
<unk> garages, and the price of the spot copper, which we saw at various times during the year.
We were able to execute on our long standing hedging practice of securing minimum copper prices. We are extremely pleased that as of today, we have at least 90% of our share.
2022 estimated production to be covered with a minimum $4 floor price, we've covered 85 million pound to $4 ceiling of $5 60 to June and then the $5 40 ceiling for the second half of the year.
Through the use of these copper callers, we were able to continue to provide significant upside to our shareholders, while ensuring we can execute on our capital investment program.
We will continue to look for these opportunities in the coming months for further copper price protection for 2023.
Are these similar 2022 levels as we pair prepare for starting the construction of warrants.
With that I'll now turn it back to the operator for any questions.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone you'll hear later on from <unk> question. Your question was to be bold and their other debt received should you issued the collection at bowling process. Please press star followed by Q, if you're using a speaker phone. Please lift the handset before pressing any keys.
One moment. Please for your first question.
Your first question comes from Rs <unk> with Scotiabank. Please go ahead.
Yes. Good morning, I was wondering if you could provide us more color on your 2022 guidance of copper production of 150 million pounds specifically.
If you could give us some of the assumed components in that number in terms of.
Average grade ore throughput would be helpful. Thank you.
Hi, Urs, it's Stuart speaking maybe ill.
Start with that and pass it to Richard but generally we're seeing grades that are going to be slightly below our reserve grade average.
<unk>.
It's a point to five reserve as you know, we will be able to close out this year and in terms of grade and recovery.
I think we want to be a little bit cautious about what we say there is certainly moving into the Gibraltar pit.
As we've talked about in the past there are opportunities to to push throughput and push push tons above the 85000 tonnes a day, but.
I would say, we're still working through that and trying to figure out the best way to optimize <unk>.
Foot and recoveries and some of the recovery challenges that we've seen so I don't know Richard if you have anything to add yes, I think that covered it pretty bolstered the only part I would add is the Gibraltar or is definitely softer and there seems to be there is a lot of upside on the throughput piece that we're just working through the best.
To optimize.
The overall copper production.
Okay.
And when I look back over the last couple of quarters. Your throughput has been below 85000 tonnes a day.
Thank for about the last year and a half or so should.
Should we expect that now to approach that.
Throughput design as Youre transitioning pits for what's the timeline on that.
Okay.
Yes, so the previous quarters, the ore was all coming from Pollyanna pit, which is significantly harder more in a more challenging or more energy intensive to grind in process.
As we transition into defaulter pit the limited we will not be power limited there'll be more.
Metallurgical limited in terms of optimizing overall plant performance is what.
That's what's going to be.
Optimum point gross to operator.
Okay.
And then could you also give us an estimate on planned spending related to deferred stripping and sustaining capital at Gibraltar This year.
I think.
In terms of capital strip last year.
2021, I think we are around $80 million for the year give or take and that we are thinking that will be lower moving into 2020 to hear something closer to $60 million on the capital strip.
Yes, and then as Bryce mentioned in his comments.
There is a capital project, we have to take on to move an in pit crusher.
Our share of that is going to be about $15 million this year.
And that move will take place in 2023, but we got to spend money this year to get to get started on that project.
Beyond the beyond that I think are sustained or other sustaining capex will be normal.
The normal levels that you've seen in the last year or two.
Okay, so sort of like $30 million plus the extra 15.
Give or take.
For sustaining capex.
Don't know prices earlier this year, yes, that's probably more on a percent basis just to clarify when Stuart says 80 million for further capitalized strip you just talked about a 100% basis.
We're expecting that down by $20 million on 100% basis, and then sustaining capital.
Levels that we saw previously which would probably be in.
That $25 million to $30 million on 100% basis.
Okay. Thank you.
Thank you. Your next question comes from Ed broker with Barclays. Please go ahead.
Hey, guys. Thanks for the call and thanks for taking my question. So I wanted to ask about the cost.
Fourth quarter.
And kind of explain that out, especially versus the third quarter, which is a bit higher was it all diesel costs are rising input costs or was it mostly from.
Operating leverage from lower production and then should we expect higher costs like that through first quarter of 2022 due to the lower production or could there be some offset from the unwind of inventory.
Yes, I think I think Q3 over Q4, obviously, the big change where there was there was the production so.
Copper production is going to be in the grade and things like that are going to be the biggest driver of our unit cost I think total spending.
It doesn't change much from from quarter to quarter.
Yes, moving and then moving forward into 2022, I think youll see a similar.
Profile, where it kind of mirrors, our our production so we'll have lower.
Lower production in Q1, and therefore higher <unk> costs, and then that will kind of.
Those costs will come down as we get later on in the year.
But something in the range of $1.
<unk> 90, a pound $1 $92, a pound that's kind of where we're going to be on an operating.
Basis here, that's an average level for Gibraltar that youre going to expect to see going forward.
Got it that's helpful and then just.
Could you give US a reminder on.
Thoughts on the cadence of the Florence capital spend.
You've done a bit of work on it but.
Do you plan to us.
Really ramp up production R&R.
Production construction immediately after receiving the UIC permit after the 45 day comment period.
Yes, so after.
We're continuing to advance work to be ready to hit the ground running the minute, we do get the UIC permit so we're really positioning ourselves to be able to do that.
We're continuing to.
To look to do all of the items that we can ahead of time and then when we have the permit to be able to really advance and not have any.
A slow ramp up in construction hit the ground running hard.
Got it and then last one for me just to caution the hedge program.
Should we think about it as kind of the five to 6 million kind of like we saw in this quarter that you just implemented for the.
For the rest of the year of 2022.
Yes, generally we target.
When we look at purchasing put protection, we're generally targeting sort of that 5% to seven.
Per pound range I think the ones that we executed were sort of not at all.
Order of magnitude with the call. So if we're looking beyond 2022.
That's kind of typically the budget, we kind of set aside when the opportunities arise and then we set the calls depending on what what that amount of budget can bias.
Great. Thanks for the question and Greg Congratulations on the Goodyear.
Thank you, ladies and gentlemen, as a reminder, if you have any questions. Please press star one.
Your next question comes from Craig Hutchinson with TD Securities. Please go ahead.
Hi, good morning.
I can follow up question is on Florence I think the budget is U S $230 million can you just sort of clarify how much of that budget has already been deployed.
And the spending that you guys.
In 2021.
Sure Yeah, Craig Hi, its Stuart here I mean as I.
We've committed to about $45 million U S on the long lead time items.
We made those commitments most of those commitments in the fourth quarter.
Not all of that money is actually flowed through as capex, yet it'll it'll it'll kind of dribble through.
Over the next quarter or two here in the new year, but I consider that $45 million essentially.
And then beyond that we've spent some money on detailed engineering, which is part of the original budget.
Would probably be in the range of $10 million $10 million 10 million U S. So that's essentially where we are on the overall.
Spend.
Somewhere in the order of I guess 55 million U S.
Yes, yes, okay.
And then just.
Assuming you guys get the permits.
So the first half of this year.
How long would it take to get to commercial production from the moment, you guys or break ground on full construction.
Yes, we're looking at in <unk>.
18 months.
Kind of schedule.
To start happening.
Completing construction and having production starting to ramp up at that point.
Okay.
Maybe just one last quick question for you. So I just wanted to clarify you said that the <unk> costs for Gibraltar for this year, you think are going to be in the range of one <unk>.
90 to $2 is that correct.
Yes.
You're going to pin me to that that was a general kind of comment, but yes I think.
That's the range, we're not expecting any kind of cost.
Prices I think you look at the last two years, we have been $1 $91 92, So yes somewhere.
Somewhere in that range Youll see you should see it continue.
Okay, great. Thanks, guys.
Yes.
Thank you. Your next question comes from Mike Kozak with Cantor. Please go ahead.
Good morning, everybody. Thanks for taking my questions.
Florence from the day, you get the draft UIC. It then starts to 45 day public comment period. My first question is after that 45 day period concludes how long does it take for the draft UIC permit to convert to a final UIC permit is that something that youll have to be waiting on the EPA again, four or is it just an automatic.
Yes, it's really going to be a function of the comments received and how substantive or material. They are an EPA will go through a process of reviewing the comments received or comments made at the public hearing.
That occurs in both the 30 day Mark of the 45 day public comment period.
So thats going to take them. Some time if they received no comments then the draft permit issued for public comment essentially.
Ideally converts and has issued us a final permit.
Do you expect there to be some comments in the EPA will take time to assess those in.
That's all going to be dependent on what level of comments they've received and what issues are raised if any.
Understood Okay.
And then second question, Craig just asked it but so youre not going to be formally putting out 2022 cost guidance, but informally expected around Buck 92 Bucks per pound is that correct.
Yes, that's correct, yes, okay, great and then the last one here I think the last <unk>.
<unk> calculation you did at Gibraltar, you used a copper price of $2 75 per pound for the reserve pit shelf.
How are you thinking about the recalculation is coming in Q2 do you are you going to keep it there or maybe move it up a little bit because I, presumably there'd be a lot of slightly lower grade material that would convert.
Yes. There is there is a lot of other material.
That's in resort currently classified as resource outside of our reserve, it's there's about 500 million tons of of that.
And certainly the engineering exercise that we're going through is to look at that material.
With the higher copper price and with the new World that we're in.
What portion of that.
Our resource can be brought over.
Into reserve and we believe Theres, a great opportunity there to extend the mine life.
And Thats what were working on now and optimistic as I said in my notes they are optimistic that we can.
Several years average add several years onto the end of the mine life without without a major impact on.
On life of mine grade either the greater that resources.
Fairly similar.
Perfect.
That's it for me thanks, guys.
Yeah.
Thank you Darrin there are further questions at this time to seek co you May proceed.
Great. Okay, well thanks, everyone for joining this morning, and we will talk to you again after the first quarter. Thanks.
Ladies and gentlemen, this concludes your conference call for today, we thank you all participating and ask that you. Please disconnect your lines have a great day.