Taseko Mines Ltd (TGB) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Taseko Mines fourth quarter 2006 earnings conference call.

[OPERATOR INSTRUCTIONS]

At this time, I would now like to turn the call over to Mr. Brian Bergot, Investor Relations. Please proceed.

Thank you, Alika. Good morning, ladies and gentlemen. And welcome to Taseko Mines' fourth quarter and year-end 2006 results conference call. My name is Brian Bergot, and I am the investor relations contact for Taseko. With me today in Vancouver is Russ Hallbauer, President and CEO of Taseko and Jeffrey Mason, Secretary, CFO and Director of Taseko.

After opening remarks by management, which will review fourth quarter and annual business and operational results, we will open the phone lines to analysts and investors for a question and answer session.

I would also like to remind our listeners that our comments and answers to your questions may contain forward-looking information. This information, by its nature, is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Please refer to the bottom of our latest news release and management's discussion and analysis for more information.

I will now turn the call over to Russ for his remarks.

Thank you, Brian. Good morning everyone. Thank you for joining us today to discuss Taseko's year-end 2006 financial and operating results. I'm pleased to report that Taseko recorded after-tax earnings of $32.9 million and cash flow of $55.4 million for the year ending September 30, 2006, with earnings of $19.1 million in the fourth quarter.

The average realized price for copper of US$2.44 per pound was made up of sales of 16.4 million pounds in Q1 '06 at a $1.88 a pound; 13.2 million pounds in Q2 at $2.06 per pound; 15.6 million pounds in Q3 at $3.03 per pound; and finally 5 million pounds at $3.23 per pound, comprising our roughly 50 million pounds of sales in 2006. We anticipate selling approximately 16 million pounds in Q1 '07 at over US$3.00 per pound. These sales will be a combination of inventory and new mine production.

During the year, site staff increased copper recoveries from 76.2% in 2005 to 79.1% in 2006; and moly recoveries from 23.1% to 49.1%. Concentrated throughput has been an issue that we're actively addressing.

2006 has been a very exciting time for your company. The strides we've made in terms of our long-term future cannot be conveyed on a Webcast or a financial statement, but are reflected by the numerous activities that have been undertaken to ensure the long-life financial stability of this organization. During the quarter, we fully funded our reclamation liability with the Province of British Columbia for $13 million. We terminated the Ledcor Gibraltar JV and Taseko is now 100% operator of the Gibraltar mine. We advanced the feasibility on Prosperity, and we expect to announce 43-101 compliant reserve in early January.

At Gibraltar, we now have mineable reserve of 256 million tons containing 1.4 billion pounds of recoverable copper and 22 million pounds of recoverable moly. And that will be increased this summer when we complete the next round of drilling and have a new reserve valuation.

In terms of production, Gibraltar produced approximately 13 million pounds in Q4. And the mine began the preproduction stripping of the Granite Lake pit. We continue to have variable metallurgical issues with the Pollyanna pit, which at times affects our recoveries and throughputs. Having said that, the mechanical availability of the concentrator is slowly improving, as is our ability to react to varying mineralogy.

We are actively working on initiatives to streamline the milling operations, reducing our costs and increasing productivity. We are happy with the programs on our mill expansion, as we are on time and within our budget. We expect to be producing capital copper from our Essex EW plant any day now.

We began the year wanting to stabilize operations, increase our reserve base and develop accretive initiatives that would grow shareholder value. We believe we have accomplished all that.

On behalf of all our shareholders, I would like to -- all of our employees, I would like to thank our shareholders for your ongoing support. And we look forward to an exciting 2007. Most of you on the call today, I know, want to focus on the financial aspects of the company, as most of the operational information is included in the MD&A. And I will defer getting into any of that. And if there's a specific question regarding operational performance, I will answer that in the Q&A, or you can follow up with me offline.

I would like to now turn the call over to Jeffrey Mason, our CFO. Jeffrey.

Thank you, Russell, for covering off the operations and some of the financial aspects as well. This morning I'm going to address some of the key financial highlights. A clearer explanation actually is covered in the financial statements, MD&A and the very comprehensive news release in the public filing.

I'll start off with the balance sheet. And this year, I'm going to talk in millions, because it certainly is growing. Cash is up 68 million on the year to 90 million on hand. Of the 68 million increase, 60 million is explained by 55 million from operating activities, and 5 million is a release from restricted cash account due to Ledcor releasing these monies on termination. The balance of the 8 million was from finances of 64 million, net of investments of 56 million in the year.

Financing activities produced 64 million based on issuance of common shares for warrant, option exercises of 32 million, and a bond issuance of 32 million net. These finances of 64 million were utilized for the following purchases. We bought property, plant and equipment expansion of 16 million in the year. We purchased mine equipment comprising the one shovel and five trucks for 15 million by way of paying out the capital leases. This 15 million was classified as a financing activity but it really is the final step to 100% ownership of the mine mill assets.

Additional cash reclamation deposit, as Russell mentioned, of 13 million, and we are now fully funded all closures costs at this time. In addition, Taseko made an investment of 11.5 million into a convertible debenture promissory note to round out the investments. So the net left over of the finances, less the investments, was 8 million.

More importantly, the cash flow from the ongoing operating activities amounted to $0.49 per common share. This is a very strong generation of cash per common share from ongoing operations. In addition, Taseko has 32 million in cash held on deposit to fund the closure costs. Therefore, the company today sits with $122 million cash on hand. Impressively, its well networking capital has increased by 96 million in the year, from 6 million to 102 million, paving the way to finance ongoing plant expansion and future acquisitions.

In addition, Taseko has been in dialogue with numerous financial institutions to finance additional acquisitions; project buildouts, such as the BC Metals Red Chris; and other accretive investments and activities. We have had very strong and positive feedback to date.

Let me just talk on a few of the minor line items on the balance sheet. Inventories have become relatively static, only up 16% due to increased mine supplies on hand, and a slight increase in in-process inventory. During the year, we made a strategic investment into a one-year convertible debenture with Continental Mineral Corporation for 11.5 million. And this was made in August. The investment earns 16% interest per year or about 153,000 per month, to which Taseko has taken cash in September and October.

However in November, Taseko elected, under its rights, to take 96,000 Continental shares in lieu of cash at $1.58 per share. The stock yesterday closed at $2.28. The investment is essentially convertible into Continental shares at $1.95 in the first six months and $2.14 in the second six months, after allowing for a conversion discount of 5%. Continental has just announced, on December 15, 2006, completion of a merger to own 100% of the Xietongmen Copper-Gold property, which is rapidly advancing to a feasibility study after a very successful drilling campaign. Reserve resource updates are expected in January 2007.

Importantly, and this is the strategic aspect of it, if Taseko converts this debenture to shares, it gets a pre-emptive right as to 50% of any future equity financings until it reaches 19.9% of Continental. At this time, Taseko is monitoring its investment, monitoring Continental, but no decision to convert has been made.

On capital leases, they were reduced by 15 million to 0 in the year in order to save variable floating interest rates of 7% per year, which is higher than the current yields on near-term Canadian cash investments of about 4.3%, taking advantage of the opportunity cost of capital.

Convertible bonds were issued in August 2006 amounting to US 30 million or Canadian approximately 33.6 million due August 2011 at an interest rate of 7.125% convertible at $3.76 Canadian into 9 million shares. At the time of issue, that was about a 40% premium for the price of the stock. In Canadian terms, we divide the debt portion of the bonds, and it is valued at 30 million while the conversion right or the equity component is valued at 4 million. Over three years, the debt portion will be accreted by a non-cash expense, the statement of operations, until it reaches the face value of 33.6 million.

The Boliden, now Breakwater, debenture issued in 1999 is 17 million, is interest-free, and is convertible into Taseko shares currently at $4.89 per share or 3.5 million shares. The conversion price rises by $0.25 each year until maturity on July 21, 2009, at which time the conversion is at $5.39 per share into 3.2 million shares. Taseko, during that time, has a right to [pale] the debenture right up until maturity, or issue shares at the then-prevailing prices, should they not convert.

Accounts payable are up somewhat this year by 9 million due to the mill expansion, 2.8 million; Ledcor termination fee of 3.5 million, which was paid at the beginning of November; and prosperity and progress billing, 1.5 million; and some increased business activity rounding out for 1.2 million.

Touching just a bit more elaborately on the site closure costs, the government agreed to a closure plan of 32.7 million, which is reviewed every five years. The next review is scheduled for February 2008, although TKO may file in 2007. Naturally, Taseko files a report each year showing any progressive reclamation performed in the year.

During the year, Taseko deposited 13 million, in fact in September 2006, simply by shifting monies between bank accounts and shifting from current cash to long-term cash, bringing the total on deposit to 32 million. This amount would be commenced to be spent at the end of the mine life currently scheduled for 15 years, but naturally extendable for additional reserve resources discovered. All interest earned on that account, and it's currently invested in five-year plus government bonds, accrues to the company. But most importantly, the $13 million deposit created an income deduction for tax purposes, thereby saving about 4.8 million in taxes otherwise payable in 2006.

And Russ touched on the fact that sales are continuing strong. And in fact, the first quarter of 2007 sales to date are, in October, we sold 6.1 million pounds at US$3.38. In November, we shipped 5.3 million pounds yet to be priced. And December estimated shipments to occur this week, leaving from Vancouver, will bring the total sales to 16.4 million pounds in Q1 2007.

On share equity, issues during the year were for options and warrants with no equity financings in the year. A total of 24.9 million shares were issued at an average price of $1.48 for total proceeds of 36.8 million or an equity change. Part of that amount, 4.8 million, was a non-cash change; a normal course contributed surplus reclassification on options exercised. These warrants and options relate to past financings and options granting. Remaining outstanding stock options are 3.6 million at an average price of $1.78, representing 2.8% of the outstanding share capital. Remaining warrants, none.

Taxes. Cash taxes to be paid based on 2006 operations is 4.4 million or 11% of accounting income. The actual tax return filed may in fact be closer to 4 million, due to some minor offsetting tax credits and adjustments. Hence, when you look on the balance sheet, you'll see a liability of 4 million booked as a current liability. This number represents, 11% as noted, less than a marginal tax rate of 36.6% in 2006 due to tax deductions on hand, such as expiration development tax pools, a deduction as mentioned earlier on the $13 million contribution to the reclamation trust, and certain CCA, which is tax depreciation on fixed assets higher than accounting depreciation and other adjustments.

Future income taxes recovery, a current asset, rose by 7.1 million reflecting management's expectation that unrecognized tax pools on hand would be used in their carry forward period due to expected ongoing profitability. These tax amounts were recognized in the current year and are classified as current assets as they are more likely than not to be utilized.

Current income tax liability of 19.6 million in 2005 was adjusted in 2006 for interest accruals and other minor items to 21 million, and more importantly was reclassified to long-term liability as the company, one, does not file tax returns reflecting this liability. And even though it is booked, currently it is the most conservative approach. Two, the company does not expect -- the more likely than not test -- to pay this amount. And if it was ever under review, it would be beyond one year from now due to various appeal processes available -- hence, a long-term liability by definition.

The amount was booked two years ago in fiscal 2004, thus again reflecting its non-current nature. And no assessments have ever been received on this amount. To repeat, the amount of real taxes payable in 2006 operations amount to about 4 million or 11% of income as compared to accounting income.

Taseko currently is looking into future transactions to reduce potential income taxes going forward, such as depreciation on the current expansion underway at Gibraltar; potential acquisitions of BC Metals Red Chris mine buildout; tax loss acquisitions; and other property acquisitions that are under review.

In conclusion, I am very proud of Taseko, more importantly the strong team of talented personnel that have made Taseko's financial position very strong and set the stage of the continuation of the same and additional accretive activities under the stewardship of Russell Hallbauer. In summary, cash on hand is 90 million; working capital, 102 million; closure costs already fully funded with cash of 32 million, separate from the 90 million; for a total cash on hand of 122 million; all equipment, plant and mine 100% owned; cash flow from operations 55.4 million in 2006 and growing.

Thank you for supporting Taseko to get to this great position. Over to you Russell. Thank you.

Thanks very much, Jeffrey. Operator, we'd like to now open the lines for calls.

[Operator Instructions]

Your first question comes from the line of Tom Bishop with BI Research. Please proceed.

Hi guys.

Hi Tom.

Congratulations on a nice quarter.

Thank you.

I've got a couple of question here; I'll ask a few and then step aside for a minute. But the 60 to 70 million next year is a fairly wide range. What's the variables there? It's about 20 to 40% production growth. And you know, I know there's still the tire shortage. So maybe you can talk about that as well.

Well I think, Tom, the variability between quarter to quarter with respect to mill throughput, the tie-in of the concentrator expansion. It's very hard to predict what we could do on a quarter-by-quarter basis with respect to all the changing variabilities of the mine. So we think it's better to just provide a broad brush guidance with respect to what our global production could be for the year, as opposed to specifically by quarter. I think that that will provide investors with a little more comfort, if things go better than we anticipate with the tie-in of the concentrator expansion.

If the mill performs up to the expectations that we expect it can, if we solve some of the operational issues with respect to the secondary crusher system, then we should be able to achieve the production capacity inside that range. But I think it's been a little misleading in terms of the quarter-by-quarter projections that we've given before. And I don't think it's advantageous to anyone.

Okay. And about the tires?

Well Goodyear, I believe, is still on strike. I know they have some individuals crossing the picket lines in the United States now with some of their plants. It's getting to be a very contentious issue. There is no doubt about it that the tire situation is at some point going to manifest itself in a shortage of tires. We are taking initiatives now to secure extra rubber for our trucks as well as quickly advancing our expansion opportunities with our in-pit crusher and a conveyance system to alleviate that going forward.

So the jury's still out on when the tire shortage is going to affect us. But we think that, with the declining strip in the Pollyanna pit, what we're doing for the development in the Granite Lake pit that we should be able to weather the storm.

This conveyor system though, could that possibly be up and running in a --?

Well, we've got two. We've got a short-term issue with the tire situation with Goodyear, plus a longer term situation with respect to longer term tire supply as well. So it's a combination of both. So we're going to make short-term initiatives with respect to acquiring tires, changing our haul routes, help doing different things with the stripping if that is deemed necessary, as well as putting in the conveyor belt to deal with the longer term tire situations. Because we're actually, right now -- no, I don't think anybody is sure of when this may finally come to a head. And there's enough supply out there to go over a longer period of time, say 2008, 2009.

So that would take the ore right up out of the pit to the top somewhere?

That's right.

Oh. So that might have a financial payback just in its own way.

It will, absolutely. We believe it'll save two or three haul trucks anyway. So --

How long has this Goodyear strike gone on?

Over two months now.

So in other words, the tire situation was supposed to get better. But this is throwing a monkey wrench into it.

Well, certainly for Goodyear it does.

Okay. All right. I'll let somebody else go.

Thanks Tom.

Come back to me.

Your next question comes from the line of [Mel Zumack] from [ASDEP] Holdings. Please proceed.

Yes, congratulations for a great quarter for you and your team and the workers at Gibraltar. A lot of talk about copper dropping considerably in 2007, getting all kinds of analyst reports on 2.40 -- possibly 1.80 to 2.40. Some say it's staying at 3.00. Do you intend to hedge any production during 2007?

I'll let Jeffrey talk a little bit about that.

Yes. You're right. There's analyst reports that show both sides actually. We've seen reports by Credit Suisse that indicate there may be pinch points next year that would cause copper to go well beyond $4.00. What is interesting this year on the hedging side is two things have occurred. One, the curve itself, going out into the future has gone flat, which means that, in the past if you went out a year or two, you had a severe discount to current copper prices. Now it's much flatter. If you go out a couple years, you're 10 to 15% off the current prices.

Number two, because the volatility of the copper price has stabilized somewhat, the pricing, i.e. the financial institution or the metals trader in the case of Glencor is cheaper, because there's less risk viewed on their books. So we have been in dialogue with three financial institutions and two metal traders as to a potential hedge going forward. We have not done anything yet. We are, as you know, in discussions or moving along towards an acquisition, which would more or less potentially double Taseko's production profile, which would lead to some decisions about hedging. So we are waiting about another month as that situation unfolds and make a decision thereafter.

On the short term, we see in January, February, there could be some pinch points in copper. There are some concerning situations in Latin America and otherwise, we've talked to smelter groups. There's an extreme shortage. We've had three smelter groups in here. We've had extreme shortage of concentrate in the world. So they're not able to produce the copper.

So we're always analyzing it. We like the way it's unfolding. And we certainly love the hedge above $3.00. We see a beautiful production profile. And if we can see that we can find accretive activities, i.e., to double, triple or otherwise the production of our profile at Taseko, then we look to a hedge at the security to make that accretive activity or finance it in the future. But at this point, nothing done, but very ready to go to get the right position.

Great. Sounds like we're in good hands. Have a good day.

Thanks.

[OPERATOR INSTRUCTIONS] Your next question is a follow-up question from the line of Tom Bishop with BI Research. Please proceed.

Great. The production rate -- I was thinking it would slowly get better and better as you kept tweaking the process and improving the mill and repairing things that were breaking down and probably having more backup stuff ready to go. And that didn't really happen. And I don't know why. Can you help us there?

Well, that's kind of all it comes to, Tom. We think it has. We think we made dramatic improvement with respect to what we're trying to accomplish in the concentrator with all the various aspects that we're facing today, and especially in this last quarter. I don't know if you've noticed it from the national news and the States. But we've had severe weather in western Canada.

Vancouver's been decimated with windstorms. And those have gone all through the province, and both affecting our operations in the interior at Gibraltar. We've had sustained winds at over 100 kilometers an hour. We've had snow -- all those kind of issues. And that's why when I refer to talking about what our yearly production is going to be, as opposed to the quarterly numbers, that has an influence on it.

And so while we're progressing, we've moved through the concentrator. We now have some issues with the secondary crusher. The crew at site has made significant progress. So --

Do you have production by quarter there? Does somebody just --

No. We're not giving productions by quarter. No.

No, I mean last year.

Yeah, we did. We did guidance by quarter.

No, no. I mean, last year.

Yeah, we did. We did guidance by quarter.

No, no. I mean, do you have the actual production by quarter?

Well, do I have the actual right here in my -- I gave the sales by quarter. I didn't give the production, Tom. But I can get that offline for you if you need it.

Okay. The cost per pound in 2007 as far as the expected mining costs -- and also that may be a little complicated to come up with, but the smelter rate, I guess, is a scheduled amount. So could you talk about those two points, so we can get some idea what the costs look like?

I don't have those actual numbers in front of me in our forward projections, Tom. But I believe they're published on our Web site. Are they not, Brian? So if you want those, they're there. I don't think they're going to change too much.

Well, I can't even tell what the smelting rate was in Q4, because of the adjustment.

Yes, no. We're well below market. And I will add that we've had discussions with some of the smelter groups, and in particular Glencor. And we do have, even despite the fact that we had an arbitration, a very good relationship with Glencor. They're a much bigger beast now, because they have Xstrata/Falconbridge and the like. But the current market standards based on Escondido settlements during this year are moving towards $60.06. We're below that rate. But that seems to be the world standard that's coming into play right now with no price participation.

So we have been fortunate once again that, if we're going towards a trough of the smelter rates, when we last set up this contract, we were at the extreme trough -- never, ever seen before. And we got a 40-month contract. Our contract with Glencor will extend currently, under its current contract, until about July, August 2008. So we still have quite a distance yet to go on that contract. But we have been in dialogue with them to extent it, because the rates are so favorable.

And number two is the smelter groups themselves are desperate to get supply. They have a plant that's a billion, $2 billion. And it has to secure feed. And Gibraltar feed, I might add, is a non-deleterious, a very sweet as far as the sulfur content in the lake feed. And smelter groups like to blend it with the hotter feeds that are around the world, because they can get it to run through their mill better. So we're actually in a very good situation with respect to the offsite property costs.

Well, isn't the rate per pound kind of scheduled?

No, it's a rate -- what sticks with the smelter group is a rate per ton of concentrate that's processed. And that's what we refer to as the $60. And then you pay per pound of copper, which is the $0.06 I quoted to you. It's their complicated way of explaining what it costs to get through their smelter. But they're very favorable. We really are in a very excellent position.

And we had Glencor in here two weeks ago and spent a whole day with them discussing what they want to do. They own a smelter in the Philippines. They like processing our feed through it. We had another trading group from Switzerland in. And we've actually had a smelter group in here as well to trade directly with the smelter.

What we're really gearing for is we're going to have expanded production starting in January 2008. And that is more or less pretty close to a double of what we currently have today, moving towards 100 million pounds. And so we want to secure where that concentrate's going to go to.

Thanks Tom.

In other words, you're already in negotiations for 2008 to line that up? Your all prices are favorable?

Yes.

Exactly, because you know it's a pull-push thing. They're desperate to secure feed. We like the pricing, because Escondido and the like have set pricing. And that's what the world standard [called] benchmark is. So, Tom, maybe we can move to some other questions. I would be glad to talk to you on more specifics on that topic and others. There are some questions lined up if you don't mind.

Yes, fine. Thank you.

Thank you very much, Tom.

The next question comes from the line of [Richard Stillman] with Dundee Securities. Please proceed.

Yes, good morning, Russ.

Hi Richard.

A couple of questions. The in-pit crusher, when do you expect that to be commissioned?

We're working on the engineering as we speak. I would probably think that -- we have to decide. It gets a little complicated. We have to decide right now whether the ore reserves that we are continuing to drill off will support a further expansion of our concentrator. That will be tied in. Thereby, we'd have to decide what size of a crusher we would like to put in place in our in-pit, because there's no sense putting a crusher that's not big enough to supply a concentrator that could potentially get bigger.

So we're right in the process now of trying to ascertain from the early drill results that are coming in whether the likelihood of a further reserve expansion greater than 265 million tons -- or 256 million that we have now, up to 350 or 400 will support a further expansion of our concentrator. And subsequently what we would then do with the crushing system in the in-pit. So we haven't completely finalized that yet. It's a work in progress, so to speak.

And the next question -- your recovery rate on copper, is that expected to continue to improve? Or is it flattening out?

No we expect -- you know, there's two distinct ore bodies here, particularly with respect to the difference in the mineralogy, like I spoke to in the Pollyanna pit versus the Granite Lake pit. Historically, the Gibraltar recoveries have been in this 82 to 84% range. This year, we did 79%. And that's a function of changing mineralogy, plus not being able to stabilize the concentrator feed.

Going forward with the SAG mill expansion opportunities, that's going to really make the feed to the main regrind mills a lot more consistent. And we anticipate moving the recoveries from where we are now, say ostensibly 80 to 83%, up into that 87 to 89%, more like traditional copper porphyries. So the SAG mill is going to not only give us greater throughput, it's also going to give us increased opportunities for recovery.

Final question -- what would the cash position today be? Is that the 90 million? Or is it a higher cash today point?

Today, we're sitting at about the 90 million. And the 32 million sitting in the reclamation trust. We do have a shipment scheduled to go out this week. We've got a vessel lined up that is yet to ride there, but it's expected to ride and get loaded. And then we would get cash advance on that. So we've gone a little up and down in cash, but we're very stable in these 90 million plus the 32 million, 122 million on hand.

Thank you very much.

Thanks.

As a reminder, ladies and gentlemen, if you wish to ask a question, please press Star 1. Your next question comes from the line of [Paul Wainer] with AG Edwards. Please proceed.

Yes, thank you. My question concerns one of your investments in other companies, the Continental Mineral. Am I correct, first of all, that this is the project -- the main project is in China?

That's correct.

Okay. This is I guess basically a philosophy question. Given what's happening in Russia with significantly restricting the ability of foreign ownership of mineral deposits, what is your feeling of the similar situation potentially happening in China? And if it is, are you protected by insurance on your investments over there with the company -- protected by insurance?

Okay, into China, there's two elements that came to be. They did bring in new mineral laws two years ago. And they set out what they call prescribed or scheduled investments that foreigners are allowed to invest in. One of the ones they are not is a direct high-grade gold deposits. And the reason they did that was they were concerned about foreign reserves -- not that they really need to be, because they have over a trillion in U.S. dollars. But they were concerned that foreigners would get control of gold resources, high-grade resources.

They then said that, for copper and other metals, they were able to be invested by foreigners -- no issue at hand. And in this particular deposit, it is a pore-free copper-gold. The majority is in copper. The production is not [doray]. It is in fact a concentrate that would go to a Chinese smelter group for processing. The Continental company itself is in a schedule permitted by foreign investors.

Finally, they repealed the investment stream into China. And they invented what they call WOFE, which is a wholly owned foreign enterprise, which is the right of a foreigner to have an enterprise owned in China without restriction as to the movement of cash in and out of China. This is because you have now Chrysler and Mercedes and Dell Computer and all the major large corporations in the world moving to China to take advantage of the lower cost labor. Continental set up on a WOFE, which is a right of ownership. It is a permitted statutory corporation that allows free movement of cash inside and outside of the country.

The other final element is the grade of Continental effectively is about 0.93 effective copper. It is a pore-free, which is similar to Lake Gibraltar. The current tonnages they talked about is 40,000 tons a day, exactly like Gibraltar. We're very familiar. It was easy for us to do a due diligence. We sent a team across there, including our vice president of operations, who toured the site, the infrastructure and the like. He reported back to the board. It is connected with rail, power and a highway.

There are four smelter groups that are on the rail connecting to the site of [Lhasa], just down the road actually, that are very hungry to get feed. From what we understand, they've had discussions with the smelter groups. And these are the same smelter groups that take Escondido, Latin America and the like and are world competitive. And in fact, they tend to be even less than some of the other smelter groups in the world, because they're so hungry to get at the feed.

So we did our due diligence. We sent our team across there. And China is hungry for metals. And they realized that investments going to come in. And in the same hand, I'm going to mention that China has come across to Canada and bought various mineral assets. And so there's kind of a to and fro going on. They want to acquire assets. One of the groups in particular, the [Zhuzhou] smelter group has bought assets in Canada. And they don't want to be precluded from making investments in Canada or the states. And so they've had to open their doors to people coming in.

So I think it is better than Russia, certainly from what I've read and what I've seen. There have been some successful developments in there. And they have got a history of smelting and mining. The smelter group I'm talking about, they are the largest nickel producer in China. And they do take concentrates from Canada.

Thank you.

Thanks very much.

At this time, there are no questions in queue. I would now like to turn the call over to Mr. Russ Hallbauer for closing remarks.

Thank you very much, operator. Thank you very much everyone for attending today. We look forward to an exciting 2007 and look forward to talking to you at the end of the next quarter. Have a Merry Christmas. Bye, bye.

Ladies and gentlemen, this concludes the presentation. You may now disconnect. Thank you and have a good day.