Q3 2022 Taseko Mines Ltd Earnings Call

Global inventories are low and physical demand fundamentals are strong.

So we remain optimistic about our copper business long term, we have a great portfolio of assets here in in.

In North America and focused on copper.

But in the meantime, with the global economic uncertainty, we are managing capex carefully at.

At Florence this quarter, we spent a further 27 million mainly related to procurement of major components for the Sx EW plant and a few other long lead time items.

Those items were order earlier this year and are now being delivered to site.

We won't be making any more significant capital commitments now until we have a clear view on permit timing.

We've been successful in locking down pricing on long lead items, but we are seeing inflationary pressures on other project costs, including drilling contractors and construction labor Arizona.

And in particular has been a hot market.

But it's also a very volatile market and we will wait until we have a firmer view of the construction schedule before updating our capex estimate.

The balance sheet remains in a strong position with available liquidity of $210 million that includes the undrawn revolver.

We have a solid hedge position in place and improving production from Gibraltar. We're also seeing a lot of interest from a royalty providers, which is a potential additional source of funds for Florence.

And on that note I'll pass things over to price.

<unk>.

Alright.

Thanks Stuart.

Good morning, everyone I'll provide some further details on our third quarter financial results sales for the quarter for Gibraltar out 100% basis with 27 million pounds of copper at a realized price of $3 48 U S per pound, which was similar to the average price.

We only realized negative provisional price adjustments of $5 million in the quarter and this was attributed to a relatively range bound copper price prevailing between $3 <unk> and $3 70, and our longstanding practice and disciplined and fixing the price of substantially all of our concentrate shipments at the time of shipment. This practice reduces copper price exposure in volte.

Utility over quotation periods with our customers, we either fix that price directly with the customer or we enter into a <unk> hedge with banks, which has reduced the volatility in our revenues this quarter compared to some of our peers.

Total site costs, including capitalized strip reduced by $5 million from last quarter, but it's still up $10 million over the same quarter in 2021 higher cost mainly due to the elevated diesel prices and to a lesser extent steel and reagents used in the milling process.

We also only capitalized $1 million of mining cost as capitalized stripping to the balance sheet. This quarter as mining was focused in the Gibraltar pit.

<unk> operating cost per pound of copper dropped 22% to $2 72 per pound in the quarter and this was due to the higher pounds produced and <unk>.

In spite of the fewer mining costs that were capitalized.

Earnings from mine operations before depreciation were $19 million. We also recognized gains on our copper put hedges of $60 million. So those together resulted in adjusted EBITDA of $34 million.

We have in place copper price protection as Stuart mentioned of $3 75 to the middle of next year, we're still gives us copper price upside of copper prices recover as they are today.

The value of this protection and as shown on the balance sheet of $30 million within our other financial assets.

During the quarter. We also purchased diesel call options, which will protect us from further diesel price escalation through to mid 2023.

So with our expectations of further increase production in the fourth quarter and into next year, we should see a further decline in operating costs on a per pound basis adjusted.

Net income for the quarter was $5 million or <unk> <unk> per share and benefited from the $16 million of realized gains on the settled copper put options in the quarter. We had a GAAP net loss of $24 million or <unk> <unk> per share and that was mainly impacted by the unrealized.

Foreign exchange losses associated with our with our U S. Dollar denominated notes the offsetting translation of our U S. Dollar investments influence are obviously not put through the profit and loss statement and so we don't have a.

Perfect match.

We continue to invest in Florence this quarter with further spend of 27 million Canadian dollars, we still expect to incur about U S and U S dollars 15 million for Q4, as we finished receiving the last shipments of our Sx EW equipment by the end of the year.

Our cash balance declined over the previous quarter, but that was really attributed to the continued spending at Florence and certain projects underway at Gibraltar, including the crusher move that feeds mill, one which is expected to be moved in Q3 next year.

By the end of this year to sequel of incurred about $18 million in total on this project for its share to date, we ended the quarter with $142 million in cash and $210 million of available liquidity, we stand in a good position to manage any volatility in the macro environment ahead, as we prepare for Florida.

Lastly on the topic Florence financing as we mentioned on the previous earnings call. We are continuing to look at ancillary financing opportunities with copper prices pulling back since the first half of this year, we've been very successful to date since acquiring Florence not too encumbered. So we are all financing options available to support our own cash and our cash flow.

With that we're now ready to take questions over back to the operator. Thank you.

Thank you Sir.

Ladies and gentlemen, we will now conduct a question and answer session.

If you would like to ask a question. Please press star followed by the number one on your telephone keypad.

If your question has been answered and you would like to withdraw it. Please press star followed by the number too.

If you are using a speaker phone please lift your handset before pressing any case.

Please standby for your first question.

Your first question comes from Auris <unk> of Scotiabank. Please go ahead.

Hi, good morning.

Some questions about Florida.

I guess the old feasibility is now five years old and.

The capital cost estimate for that for that project with U S $230 million.

Can you give us how much of that 230 has been spent as of the end of Q3 and obviously, we're in an environment of of high inflationary pressures.

I'm just trying to get a sense of how much has been incurred versus how much is left and what the risk could be to a materially higher estimate than that.

Yeah, Hi, <unk>, it's Stuart here.

No you're absolutely right. We're in an inflationary environment as I noted in my comments.

Yes, the original fees from 2000 Seventeens is definitely.

A dated number now we did update that action in 2000.

19 prior to our London listing.

Which was a similar number but since then we have definitely seen.

Inflationary pressure as we sit today, we've we've committed.

<unk> 80 million U S of the.

The project spend that Hasnt all been spent yet but in my mind. It's committed it's it's gone and the price is fixed.

But yeah on that remaining piece and that the spend is primarily on on equipment Sx at major components for the Sx EW.

Steel and the like so that's.

Priced and that came in similar to budget similar to the original budget actually but on the remaining piece.

Inflation on where we're seeing inflation on labor.

Labor construction labor and in Arizona.

As I noted its a volatile market, we're not going to put out a new number at this point things are changing from from week to week and from month to month. So you don't see a point in putting out a number now and then having to update that again in a few months when we have a construction schedule.

So we'll wait here, we'll let the dust settle I think that as we move into next year it will be.

Who knows we could be going into.

A recessionary environment and that number could change.

So we will see but yes on a whole.

Some of the other projects as you know you look around there is inflation in the range of 30%.

Give or take on these on some of these capital projects and Thats. The type of number you might expect to see on Florence as things sit today, but.

Again, we're not a little bit cautious and not putting out anything firm at this point.

Okay, what about the operating cost as well I mean, we've heard a lot about asset pricing being a lot higher.

Over the last couple of years.

Any sense on where.

Given current input costs like asset and labor and everything else like where what the cost profile moved to Florida.

The asset right now is is up around $200 a ton I believe in the in the Arizona market I think our original fees was at $120 a ton.

So again, it's a volatile market as you know prices prices move up and down.

We have actually seen some new new supply of potential new supply coming into Arizona Theres actually here.

Potentially a new acid plant being being built by a third party quite close to Florence.

That's positive, but yes, its asset prices are moving I think as a whole though.

<unk>.

We have obviously, a very low cost operation at Florence I think are.

<unk> 2017 study called for $1 10 operating costs roughly so we've got lots of.

Lots of wiggle room there.

Without jeopardizing the economics.

Without jeopardizing the overall economics.

We will use 700, <unk> will use about 200000 tons a year of of sulphuric acid. So.

When we when we reach full run rate. So you can kind of run a sensitivity of that.

Okay. So it is giving you.

Upon final permits is the plan then to put out a completely updated.

Feasibility technical study that would have updated capex opex.

Option expectation, yes.

Yes that will be the plan.

Okay.

Okay. Thank you.

Your next question comes from Ed Brucker of Barclays. Please go ahead.

Hey, Thanks for the question today.

First one just on some of the additional funding needs.

Wanted to get if you're able to provide at your favorite source of funding and then.

Just using kind of the base of the $2 30, and I guess the $150 million left do you have to spend on that how much. Additional funding are you are you looking for.

Yes, it's still obviously a bit of a fluid environment I think we're still.

Absolutely clear exactly when Florence is getting in the U S. The final UIC permit so that's a bit of a moving target obviously copper prices. The other factor how much cash flow we make from Gibraltar.

We again, we finished the quarter good liquidity position, we had $210 million, we do have an undrawn revolving credit facility there.

I think as far as preferences I think again, it's not an encumbered asset.

Don't have.

Any financing today at the Florence level.

So we have we have a number of options and I think.

One that we're looking at it and we've had.

<unk> seen development in the market over the last few years is on the royalty and stream market. So we think actually that would be a market, we'd look to first which would be a good source of flexible capital.

We also have some equipment that we procured that would be eligible for some equipment financing. So we're looking for sort of smaller tranches of financing and really will look to top those depending how those other variables play out.

Got it that's helpful and just on Florence is the timing from the final UIC permit given.

Two.

Production is that still 18 months that you had given previously or or does that timing change your thoughts around the timing change given what's.

What's going on in the market more uncertain times, and I guess lower copper prices too.

And.

I had its Stuart here.

Yes, no. It's an 18 month construction schedule that hasnt changed in.

In fact, it's probably been.

De risked some to some extent because of some of the.

The procurement activities that we've done so we're comfortable with that timeline still.

Got it thanks for the time.

Your next question comes from Craig Hutchison of TD Securities. Please go ahead.

Hey, good morning, guys.

You can follow up question, you mentioned potential for royalties and streams on Florence can can you give us a sense in terms of what percent of the metal that you'd be willing to stream.

Again, we've.

<unk> got a few legacy royalties on the property.

And so there's quite a bit aside from that and Thats included in our.

And our costs that we speak of when we talk about a $1 10 per pound from to our 2017 report so.

I think when we're talking about.

Royalties I think we're talking about sort of in that 2% plus range.

Potential encumbrance.

Obviously, it depends how much we need and.

But that would be something like seven cents a pound.

Yeah.

Yeah.

And if we if we do go into weaker markets next year.

Recessionary situation is there a price for copper, which you would not.

Hit the kind of a green light for Laurence.

Considering obviously there'll be pressure on the margins at Gibraltar at that point.

Craig.

I mean, we look at Florence as a stand alone.

Project right with a strong.

I think even at $3 copper at Hatter.

IRR in the range of 35% on the previous feasibility so as I said, there's lots of.

Room for for copper price movement on the Florence project obviously.

Gibraltar.

We want to make sure that.

We do have levers to pull that Gibraltar to in downside scenarios as we've talked about in the past.

But most important thing we have now I think which is giving us comfort is the hedge position.

Which covers us through the middle of next year.

Okay.

Maybe one last question for me you guys had mentioned the <unk>.

Stripping activities will commence at the new connect.

Connector pit next year at Gibraltar also you've got the primary crusher for no one that'll mean to be move although it's fairly capital intensive projects any sense you can give us in terms of overall stripping for next year cost in that.

Yeah.

No one.

Good.

I guess, maybe on the mining rate.

As a whole.

We are.

Thinking about there will probably be a small increase in our mining rate as we move from 2022 to 2023.

But beyond that it's really on the mining in terms of mining costs, it's an allocation between operating and capital.

In terms of operating costs and capitalized strip, we just came off a quarter with a very low capitalized strip allocation.

Next year, we'll have a much higher portion of our costs being capitalized.

But the overall site costs are won't be that different.

The Crusher project.

Do you want to maybe talk about that Richard.

The timing and the cost around the crusher capex.

Yes.

The crusher.

Work started this past summer.

Crush will actually move.

Next August next Q3 next year in terms of capital cost.

Looking in the.

The $40 million to $45 million.

<unk>.

The total project to be completed.

A good portion of that has already been spent right that's correct yes.

And thats on a 100% basis.

100% basis.

Okay, great. Thank you.

Your next question comes from Alex Paris of Stifel. Please go ahead.

Yes, hi, everyone.

I have a bunch of quite a lot of questions on Florence already asked and does it got answers here, but.

One of my questions is if you get there.

The permit UIC permit say say Q1.

Are you ready to hit the ground running right away I mean, I would imagine.

You've already done a lot of the internal studies on updated Capex and so forth, but you just you know I understand kind of waiting to to update the market based on timing, but should the permit would be received in the next few months are you ready to begin immediately thereafter.

I think I think operationally we are ready.

We have our engineering well advanced we have our procurement while advanced.

As we've noted here we have.

A bit of a problem.

Likely a financing to complete here in the next.

In the next few months, but.

Then we'll be ready to go.

Okay.

Okay. Good and then I just wanted to follow up the question sorry comment you just made on the crusher spend for next year.

Well $40 million to $45 million is the full the full cost of the project you said a good portion of that has already been spent so I'm just trying to get a sense of spending on that then for next year.

What sort of numbers should we think about.

Yes, I think as Richard said, it's 100% basis, the total projects and that sort of 40 to 45 range and we will have incurred about half of that this year I think I think at the end of this year it'll be about 25 million completed on 100% basis.

Okay. That's good.

Okay. That's it for me thank you.

Your next question comes from Alex <unk> of Canaccord Genuity. Please go ahead.

Good day, guys get to say the grades up again in the last quarter. So congratulations.

Thank all of my questions have been answered except one.

Just on the amount of ore that is being milled.

So that was obviously up quite a bit in this quarter.

How sustainable do you think that is and what was the what was the key driver.

The uptick in that is it that the ore is softer that you're going through at the market conditions.

Conditions again I go back to.

What you would call sort of steady state of normal in the coming quarters.

Yes.

Richard.

The ore from Gibraltar pit is softer which allows the higher throughput rates, so with 23 being the source of ore.

For the site going to see continued high throughput.

We enter 2023.

As long as we're mining at the <unk> pit or as much softer and processes through the grinding circuit quite well.

Okay, and how does collector look in comparison.

Sorry, say that again, how does the collective look in comparison to chipotle.

Connector pit will not be as soft as Gibraltar pit.

B.

More typical of our historical.

Granted.

Pollyanna pit areas.

Okay. Thank you guys.

Your next question comes from Mike Kozak of Cantor Fitzgerald. Please go ahead.

Yes, good morning, guys. Congrats on the solid quarter, you've already answered all the questions I had on <unk>. So thanks for that just one left for me on Gibraltar.

On the mining dilution you flagged in the quarter. What is what exactly is that does that and re handling issue something maybe it related to blast pattern design or just more selectively mining with smaller excavators just could you give more detail on what you mean, when you say initiatives are underway to lower the mining dilution.

Okay.

Yes, it's really around.

Which is a process we began.

Early in Q3, just reviewing all of our controls and procedures and seeking to identify opportunities to reduce the dilution that.

That we're incurring as a function of.

The word cuts orientation.

We're actually bringing a third party to assist us to ensure.

We're not missing anything or there's not.

<unk> or <unk>.

<unk> tools that we could bring into play.

And assist us with.

Just dealing with us.

We're already seeing some improvements in.

Len.

Hopefully, we're going to be able to continue to see further improvements as we go in and we also benefit as we mine deeper <unk> zones become more consistent.

Less irregular in terms of what we have to deal with when we make the world Cups.

Got it thank you.

At this time there are no further questions from the telephone lines I would like to turn the conference back to management for any closing remarks.

Okay. Thanks, everyone for joining us and we will wrap it up there and talk to everyone next quarter. Thank you bye.

Ladies and gentlemen. This concludes your conference call for this morning, we would like to thank you all for participating and you may now disconnect your lines.

Okay.

Yes.

Yes.

Yes.

Okay.

Okay.

Okay.

Yes.

Okay.

Yes.

Thank you.

Yes.

Yes.

Yes.

Yes.