Taseko Mines Ltd (TGB) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen. We thank you for your patience. And welcome to the First Quarter 2007 Taseko Mines Earnings Conference Call. My name is Bill, and I'll be your conference coordinator for today.

[OPERATOR INSTRUCTIONS]

As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the call over to your host for today's presentation, Mr. Brian Bergot, Director of Investor Relations. Please proceed, sir.

Thank you, Bill. Good morning, ladies and gentlemen. And welcome to Taseko Mines first quarter 2007 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 first quarter 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 to our 2005 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 first quarter 2007 financial results. I'm pleased to report that Taseko recorded cash flow of $25.5 million in the quarter or $0.20 per share, and after-tax earnings of $11.7 million or $0.09 per share. During the quarter, the company sold $16.9 million pounds of copper and concentrates, at an average price of US$2.70 per pound, and 143,000 pounds of molybdenum at US$23.70 per pound.

Total mine and concentrated production at Gibraltar were finally impacted by truck tire shortage spoken about in past calls. During the quarter, roughly 40% of our truck fleet was parked, because we did not have enough tires to operate them, or roughly four out of our 11 numbers of trucks. Correspondingly, from the same period last year, we mined 2.4 million tons less total material in the mine. And it's a credit to our operational staff that we managed to provide the feed to the concentrator we did, considering the type of ore we encountered and the limited flexibility operations had with a truck fleet comprising only seven trucks.

The truck tire problem has been rectified in the last six weeks, and we now have our whole fleet of 11 trucks up and running. Goodyear, since coming off its strike, has delivered to Gibraltar its full tire allotment, as well as extra tires. And we have managed to source tires from other suppliers in the province.

During the quarter, we continued the ongoing drilling program with three drills. At the end of February, we'll decide if we have adequate drilling to upgrade more resources to reserves, or we continue to drill to expand those. We continue to encounter significant intervals of mineralization. And the expanded pit limits, which we were encountering, allow significant reserve expansion in the coming months.

For example, 1,500 feet from our present pit high wall, we have encountered mineralized zones of over 500 feet of greater than 0.5% copper equivalent. This is very exciting for the company. The Essex EW plant is performing as anticipated. And we presently have 145,000 pounds of premium capital copper on site awaiting shipment. The construction of our new SAG mill building and the replacement of the flotation system is going very well. It is on time and budget. If you want to see any of this, we have a photo gallery on the Gibraltar Web page.

We recently issued a purchase order for the purchase of three additional new 240-ton trucks for roughly $10 million. These trucks will be operational in May and will provide the stripping capacity as we begin picking up [blocked lay] stripping from the tire shortage problem we've experienced, and as we prepared for the mine expansion and mill expansion program we are undergoing right now.

Engineering has begun on our new in-pit crushing and conveyance system, which will augment our mill expansion and help further decrease operating costs as we develop the granite pit. Finally, I would like to stress our position with respect to developing our Prosperity property. We're actually moving forward on Prosperity to development. Yes, there are hurdles. Yes, there are challenges. But in the last 14 months, we've spent roughly $5 million on ongoing environmental assessment and environmental review.

We are now into the public meetings with local communities. I believe we have a mine. The 43-101 report we just produced shows we have a mineable ore body. If anyone would like to review what is going on with Prosperity, we have a Web site, prosperityprojects.ca. And I think it's important that you all look at it and to appreciate the scope of work that we have undertaken.

We have 19-year mine life and a recoverable gold reserve of 4.5 million ounces, and a recoverable copper reserve of 2 billion pounds. None of this intrinsic value was shown in our company. Gold resources, not reserves, are being valued and purchased at roughly US$85 per [ounce]. If we use that number as the value of our reserve at Prosperity, the intrinsic value is US$380 million, exclusive of the copper values.

The gold reserve we have at Prosperity is one of the largest proven mineable gold reserves in Canada -- not a resource, but a reserve. To put this in context, Agnico-Eagle today is in the process of completing a transition with Cumberland Resources, whereby Agnico-Eagle is acquiring Cumberland for roughly C$700 million and acquiring 2.9 million ounces of reserves, paying roughly C$244 per mineable ounce.

So Taseko management, over the course of the next year, will attempt to rectify this in the market and this value reflected in the company's net asset value. I want to stress Taseko is not just a single-mine copper company. But we're an expanding company that will develop and mine mineral deposits of all types to add value to our shareholders.

This leads me into corporate development. As you know, we've had much on the go over the past quarter in terms of corporate development. And I'd like to turn things over to Jeffrey Mason to discuss briefly that as well as the financial impact of what we've done in the last three months. Jeffrey?

Thank you, Russell, for summarizing operations, and of course, touching on some of the financial aspects as well. This morning, I'm going to address some of the key highlights. And, as Brian mentioned, more detail can be found in the financial statements, MD&A and news release. And I start with the balance sheet.

Cash remains at $89 million -- no change from the end of December 2006. During the first quarter of 2007, Taseko generated $26 million from operations. $24 million was expended on property, plant and equipment capital additional, with the balance of $2 million used in common share purchases of BC Metals Corp., and that was recorded as marketable securities. Cash flow from operating activities amounted to about $0.20 per common share for the quarter, as compared to $0.49 per share for all of 2006. This continues Taseko's very strong generation of cash per common share from ongoing operations.

In addition, Taseko has $33 million in cash held on deposit to fund future closure costs. Therefore, total cash held by the company remains at a strong $122 million or about $0.95 per share. During the quarter, concentrate inventory was shipped and booked as revenue, thus bringing down inventory current assets and the current liability portion of deferred revenue, each by about $12 million.

This is a good use of working capital, converting inventory into cash. All has to do with the availability and timing of shipments. Naturally over the year, this will tend to normalize. Accounts receivable decreased by $6 million due to concentrate sales collection and settlements, some GST collections and some other normal course activities. While accounts payables decreased by $1 million to $21 million, all in the normal course.

A strategic investment of a one-year convertible debenture with Continental Minerals Corporation for $11.5 million was made in August 2006. This investment earned 16% interest per year or about $155,000 per month, to which Taseko has taken cash in September, October and December. However, in November '06 and January '07, Taseko elected to take about 96,000 and 90,000 Continental shares, respectively, in lieu of cash. They were priced at $1.58 and $1.75 per share. The stock closed yesterday at $1.89.

The $11.5 million investment is convertible into Continental shares at $1.95 in the first six months, and that is ending February 28, 2007, and $2.14 in the second six months, after allowing for a conversion discount of 5%. Note also, importantly, that Continental has the right to pay out with cash the debenture after February 28, 2007.

Taseko also has a preemptive right, and this is a very important right that we have within the convertible debenture, to participate in a Continental financing by way of converting the debt at the financing crisis, taking 105% of the principal amount of the debt divided by the financing price, essentially a 5% discount calculated.

Continental announced that financing on January 30, 2007, followed by a news release on February 12, 2007 stating that Continental financing was fully subscribed as to $25 million. This financing is priced at $1.65 per unit containing one common share, and a full warrant exercisable to purchase additional common share at $1.80 for one year.

Taseko has elected to convert the $11.5 million because of; one, Continental has an advanced copper-gold mine project in China in the feasibility engineering stage with proven resources of 220 million tons at 0.78% copper equivalent, for a total of 2.1 billion pounds of copper and 4.3 million ounces of gold. Production is already potentially planned for 2010.

Two, upside exists for additional deposit discoveries on the 100% owned 121 square kilometer property. Exploration has already encountered comparable grade and length intercepts. More exploration is planned commencing next quarter. Three, the pricing of financing is essentially $1.57 per share after the 5% discount, plus a warrant at $1.80, versus the conversion rate embedded in the verbal debenture of $1.95.

This is 24% better and importantly now comes with a warrant. Furthermore, on conversion, Taseko receives a preemptive right to participate in future Continental financings, up to 50% of each financing, until it reaches 19.9% of Continental -- basically an embedded, creeping larger position can be accomplished from its current starting point at 7.8 million shares or 6.9% Continental.

As part of Taseko's due diligence, Taseko personnel attended the site in China and a two-day feasibility study update session last month. Taseko's assessment is that Continental makes a sound, strategic mine development partner for investment. Note importantly, that the conversion of the debt does not impact Taseko's current cash reserves, as the monies were advanced in August 2006.

Gibraltar's capital additions of $24 million in the quarter are broken down as follows; mill expansion, $10.7 million, bringing the total to date to $16 million since the start of the project. We have about another $50 million to complete. And note that the project is on-schedule to complete in December 2007. Two, Essex EW plant refurbishment of $2.9 million, on-budget and on-time; and furthermore production is at target to date.

Granite pit pre-stripping of $5.2 million -- total stripping is expected to amount to about $24 million. And it will be completed some time in September '07. This will importantly expose an 11-year pit mine life for Gibraltar. Mine site equipment of $3.7 million of various items. And now a computer system upgrade for $0.4 million of a $1.7 million planned program to have a fully integrated computer system to facilitate the long-term planning and operation of Gibraltar. Finally, we spent $1 million on exploration, which was capitalized to increase reserves.

Convertible debt on the balance sheet remains unchanged at $43 million and is composed of bonds amounting to $33.6 million due 2011 at an interest rate of 7.125%. And these are convertible at C$3.76 per share into 9 million shares -- a 40% premium at the time of issue. The balance of the convertible debentures are Boliden, now Breakwater Debenture, with a face value of $17 million. It is interest-free, and it is convertible into Taseko shares currently at $4.89 or 3.5 million shares.

Taseko has the right at any time to pay that out in shares or cash at the market prices. Site closure costs, as I mentioned -- each year we review the plan. The next submitted plan is anticipated for February 2008. But naturally we file each year the progressive reclamation.

With the expansion in the mine life to 21 years at the current production levels or 15 years at the new 46,000 tons per day level, starting in 2007, December, the annual amortization rate for plant equipment, accretion expanse and the like has decreased, because of the longer life.

Let me touch on BC Metals investment. Taseko targeted BC Metals, which is the Red Chris project, as a potential project to infill the time period to develop Prosperity, naturally cognizant of the value economics of the project as to NPV, IRR and the potential accretion to market capitalization. The Taseko bidding process started at $1.05 per share on November 23, 2006, but at a bid of $1.70 per share by Imperial and cash, or about $80 million plus of cash, including the American Bullion Purchase who has an interest in the Red Chris project. Taseko decided not to continue the bid.

On this Friday, February 16, Taseko will decide whether to tender its 3.2 million shares on hand, just about 8% of BC Metals, at $1.70 per share for a total of $5.4 million to Imperial Metals for a gain of $1.75 million. This would be reflected in the second quarter.

Importantly, Taseko has numerous other target projects in companies under consideration within its acquisition group to grow Taseko along with the important development of Prosperity project. We are definitely in the game and ready to make the right purchases. Investment bankers have as well confirmed their support for such ventures, increasing the range and size of potential acquisition targets.

Now, I'd like to touch briefly on the statement of operations. The company's pre-tax earnings for the three months ended December 31, 2006 increased by 160% to $17.4 million, compared to $6.7 million for the three months December 31, 2005. The increase in pre-tax earnings is mainly due to higher sales of copper and moly and higher realized metal prices, as Russell mentioned. The company's after-tax earnings for the quarter increased to $11.7 million, compared to $6.7 million in the same period of '06.

Amortization expense decreased, as I mentioned, from $0.8 million to $0.4 million in the period, reflecting the increased life of the mine. Exploration expenses increased to $1.9 million in the first three months, compared to $0.3 million. And this is Gibraltar's goal to continue to increase the reserves and the potential of Gibraltar. We also capitalized $1 million in exploration expenses, because it has already resulted in reserves extended at Gibraltar and expanded.

General administration expenses increased to $1.4 million, compared to $1 million. This mainly reflects our corporate activities, some higher staffing levels and company acquisition and tax planning strategies. We recorded a foreign exchange gain at $1.5 million mainly by converting U.S. dollars to Canadian dollars in the first quarter and the variation there. Interest income increased to $2.8 million, which again shows our strong cash position shining through as compared to $1.6 million last period.

Income taxes of $1.8 million were recorded in the quarter, compared to nil in the same period of fiscal '06. In addition, the company had a future income tax expanse of $3.8 million in the current quarter, compared to nil in the same period of fiscal '06. The increase in income tax is due mainly to the depletion of tax pools as a result of the company becoming increasingly profitable -- profits being a good thing.

Fiscal 2006 -- income taxes to be paid on March 31, 2007, regarding the '06 fiscal year, were originally planned at $4.4 million and booked as such. But Taseko has been researching ways to possibly reduce that amount to as low as $1 million due to refiling of '04 and '05 tax returns with accelerated capital cost allowance claims against the startup capital. This possible savings has not yet been booked, because we have not yet filed our tax returns.

As to '07 and future taxes, the company is facing a marginal tax rate of about 34% on taxable income. But Taseko is actively examining corporate and project opportunities, such as the Red Chris example, as well as tax advantaged investments to minimize taxes actually payable going forward. Long-term income taxes viability sitting on the balance sheet at $21.6 million is essentially increasing for interest accruals.

But the company would like to reiterate comments that have been made in the past that, number one, Taseko does not file tax returns reflecting this liability. The company does not expect, more likely than not, to have to pay this amount. And the amount was booked two years ago in fiscal '04, again reflecting its non-current nature. And no assessments have ever been received. It's the most conservative presentation.

My concluding remarks -- Taseko is financially in a very strong position. Cash of $89 million on hand; closure costs fully funded, $33 million, for a total of $122 million. All mill expansion, equipment purchases, pre-stripping of the granite pit, which has an 11-year mine life, as I mentioned, was financed out of operating cash flow of $26 million in the quarter. All plant equipment, mine and the like is 100% owned.

And finally, Taseko is advancing the Prosperity project through permitting and the feasibility study, actively targeting corporate and project acquisitions and maintaining a very strong cash flow to finance mill expansion, pre-stripping and ongoing exploration to expand existing reserves and resources.

Thank you, Russell.

Thank you very much, Jeffrey. Operator, we would like to now open the call to calls, questions.

Thank you very much, sir.

[OPERATOR INSTRUCTIONS]

And our first question comes from the line of [Kenny McAndres] of Boenning & Scattergood. Please proceed.

Good morning, gentlemen.

Good morning.

My question is on the price per pound of $2.77 that we got for copper. Can you explain how we got to that price when it appears that the price for copper was over $3.00 for, oh, straight up through the middle of December? How did we average to $2.77?

Good question. Let me just go through. I've got -- I don't have the exact, but we did have higher prices. We did accomplish in the $3.00-odd category. I don't have that exactly in front of me. It was over $3.23. I think one shipment went at $3.38, is what I recall. But it was around that number.

But at the end of the quarter, we have some copper that is unpriced. And so we took a more conservative approach. And at the end of the quarter -- about 30 days after the quarter end, the copper price had taken a slump, I think, down to around $2.40, $2.45. And so we were conservative in assessing its price. That copper will be priced in the next little while. Copper has popped up a gain. And so any actual pricing will be reflected in the next quarter.

Hopefully that explains your question. I mean, we did get some high prices. And some of it did not get priced in the quarter. It's carried forward into the next quarter. So we have --

So when you say unpriced, how did you characterize this?

Okay, so what happens is when we deliver the copper, the price of that [day] cash is advanced. And we have up to four months plus month, five months in total -- they're called four [mamas] in the trade -- in which to price the copper. It does not affect our cash flow stream. It just affects what we price -- we actually accomplish for that copper sale.

All right. Thank you.

Thanks.

Thank you very much, sir. Ladies and gentlemen, your next question comes from the line of Tom Bishop of BI Research. Please proceed.

Hi guys.

Good morning, Tom.

With regard to the stripping costs -- that was $4 million in the quarter.

That was --

$5 million?

It was $5.2 million in the quarter.

Okay. Now, if this was happening last year, would that have been put under expense? I'm glad it's being capitalized now. But I'm --

Yes.

... just wondering, for comparability purposes.

Okay, now, we have moved -- we are still mining in the Pollyanna pit. But we are, at the same time, moving to a brand new pit called Granite pit. That Granite pit has an 11-year current projected life. And we are stripping over the overburden with respect to that pit to expose the actual ore. We will continue to capitalize until the point in which we expose the ore. And then you're into your normal stripping of waste versus ore. And that will be expensed. But at this point, the benefit of stripping that pit will be enjoyed over the next 11 years.

Now, I believe there's about a year or year and a half -- possibly two, we're going to see here -- in the Pollyanna. And then we will shift to the Granite pit.

Okay. Now, you mentioned that you, I believe, said that 1,500 feet, was it, from the current wall of the --

Yes, from the current high wall, Tom.

Pardon?

Yes, from the current high wall.

You stepped out and encountered 0.5% copper, which is huge for that project up there. What I'm wondering is, is that some new deposit? Or is it continuous from the wall all the way through there?

Well, that's the interpretation that we're doing right now on our drilling. So, we've come up with a new model, a geological model, that we think is indicative of where the mineralization could be. And that is why we continue to drill up to the end of the 2006 drill program, and why we continue to have three drills there right now. So, we are filling. We are stepping up for the high wall of the Granite pit as well as filling in between the Pollyanna and the Gibraltar East pit. So, we continue to count significant mineralization at depth.

Well, I guess what I'm trying to get at, though, is that 1,500-foot away hole. I'm not sure you just covered that in your last statement. But have you drilled in between there and the high wall?

Yes. And that --

So you believe that there's some odds that it's continuous all the way out there?

We believe that we're going to add significantly to our reserves on our next reserve update again. And consequently, we are now looking at a further engineering study to look at expanding the concentrator beyond 100 million pounds once this one's completed. Once our expansion is completed in December, we will continue to look forward in terms of a further expansion to take account of these continuing expanding reserves.

Okay. And you had trouble with the mill feed there. It was too wet, cakey or whatever. And I'm just wondering if the expansion of the new mill, the upgrade, will somehow obsolete that kind of a problem?

It will make -- yes.

Or is this inherent in the business --

No.

... no matter how good the mill is?

You're right, Tom. That will make a significant difference. If we did not have -- if we had a SAG mill right now with respect to the feed that we're now feeding the crushing system, that would be significantly different. Unfortunately we have this ore that we've encountered in the pit has a moisture content. It was from an old -- it looks like an old, ancient aquifer, water system. And so it's more like play dough than it is like ore. And it's really giving us fits.

There no way to avoid that until you've got the SAG mill up and running?

Well, the mineralization in the Granite pit is quite a bit different than the Pollyanna pit. And so we're going to have to struggle through this until we start to release some ore from the Granite pit. And this is exacerbated. I guess the problem is significantly worse in the winter time, as you can imagine. We've had a lot of bad weather, minus 20, minus 30 below. So stuff just goes in there like a big plop of play dough. And we have to try and work it right through the system. So it has really affected our throughput capacity.

But this material is carrying the significantly higher grade than the rest of the deposit. The back end of our mine plan for this year, we're probably at a 0.32 % , 0.33 % copper grade, as opposed to what we've experienced over the last 18, 24 months of about 0.28, 0.29.

Okay, I'll let somebody else go. But come back to you later.

Thanks.

Thank you.

Thank you very much, sir. Ladies and gentlemen, your next question comes from the line of Denise Ching of RBC. Please proceed.

I have two questions. The first one is could you give me the production number to date this quarter? And the second is the production cost which stood at about $1.52 last quarter. Could you give me a little idea as to what that number would be in the forthcoming quarter?

I don't have the production numbers. I don't have the production numbers at my fingertips, Denise, here for this quarter. You're talking about this quarter? January, February?

That's right. Yes.

No, I don't have those here in front of me actually. Now, regarding your second question about the overall total cash back at production?

Yes.

In the Q1? Is that what you're asking?

No, I'd just like to know, in the last quarter, it was about $1.52.

Right.

And is that number that we should be targeted for the forthcoming quarters, or --?

It's too early to say, because if we had gone our throughput through, our cash cost would have been significantly lower than that. You can see we only processed 2.4 million tons of ore this quarter, in the first quarter of '07. And if we produced -- the mill basically ran at just around 30,000 tons per day as opposed to our budgeted numbers of 36 because of the issues that Tom spoke about with the fine ore that we were encountering and mine operations have to adjust their mining rates with respect to ore relief, because of our truck shortages, because we didn't have tires.

So, if we -- I ran the numbers yesterday. If we had produced both the copper and moly that we thought we would have, we would have been around $0.95 to $1.00 a pound in terms of production cost exclusive of all property cost. So, we believe we're there. We just got to get the test for the mill.

Thank you.

Thank you very much, ma'am. Ladies and gentlemen, your next question comes from the line of [Matthew Leeden] of Paulsen Investment Company. Please proceed.

And Mr. Leeden disconnected. We'll go to our next question from [Paul Weiner] of A.G. Edwards.

Thank you. On the Prosperity project, my understanding is it's somewhat of a low-level ore. At what prices of gold and copper above which would the project be economical?

Well, we've used $1.50 a pound copper, and $5.50 gold, and an $0.80 Canadian-U.S. dollar exchange.

And at those prices, it would be an economically profitable project?

Yes. Well, if you look in the AIF or MD&A that will be coming -- is out. And it's got our approach and economics there. It's got about a $300 million NPV right now, with those metal prices. Oh, it's actually in this -- is it in there? Or in the --

In the [NDD], it's summarized here.

It's been summarized --

In Section 1.22, we have a pre-tax net present value of $300 million discounted at 7.5%.

So, under 43-101, is the mineable reserve. Now, we have more work to do on the capital cost to increase the project economics. But that's what we're undertaking right now. So basically, if you use the copper equivalent with respect to the gold and the copper, it's probably somewhere about 0.55%, 0.6% copper equivalent.

Okay. And there's nothing strange about the metallurgy?

No. It develops -- it's a medium-grade con. It doesn't have that bad a deleterious substances. The important thing that people have to look at and understand about Prosperity, it's a long-life reserve. And it has a very large resource. I mean, we've got a 480 million-ton reserve. We've got a billion-ton resource. It's got a very low strip ratio -- 0.8-to-1 -- as opposed to most other copper-gold porphyries of 2.2- to 2.5-to-1. It's in an area where there is infrastructure, roads, personnel. It's not in a jungle. It's not in the mountains. It's not in a harsh climate.

So, there's a lot of advantages with respect to the property.

And it certainly would change the look of Gibraltar. We would double our production of copper by -- we would add another 100 million pounds of copper production a year. And more importantly, we'd add 235,000 ounces a year of gold production, which would significantly add to the company.

One of the exercises we went through when we were looking at BC Metals was the bidding war had got itself up to about $80 million dollars. We always look at our spreadsheets again. And we say okay, if we put that $80 million -- rather than give it to shareholders to walk away with the money at BC Metals, let's put the $80 million in Prosperity.

What does it do to the economics? And certainly the economics are there. It is on a timeline with respect to the feasibility and the permitting. We're trying to accelerate that, so that we can realize this net present value and get it reflected in the market cap for the company; because we really just don't think people are recognizing that great asset.

Okay, thank you.

Thank you.

Thank you very much, sir.

[OPERATOR INSTRUCTIONS]

Our next question comes from the line of Tom Bishop of BI Research. Please proceed.

Amongst the many advantages of Prosperity, one that I didn't hear you just give was that it's in North America and not, like you say, in the jungle of some foreign land where who knows what can happen.

Well, we know what's happening now, Tom. Everybody's nationalizing them.

So, I mean that makes it all the more advantageous. What did you say the copper equivalent was for Prosperity?

You know, I don't have it at my fingertips. But I think it's somewhere around 0.55, 0.60 copper equivalent. I can't remember. It depends what price of gold you use. I don't have that number at my fingertips right now, Tom. But it's somewhere...

Well, I mean, that doesn't sound very low-grade to me. I didn't remember it was that high, because Taseko's is only 0.30.

Well, our copper equivalent with the moly -- our copper equivalent at Gibraltar, with the moly credit is probably about 0.34, 0.35 copper equivalent. The new reserves that we're drilling right now is probably going to be just around 0.39, 0.40. But you have to remember that the infrastructure is paid for.

So you're going to have to have a higher grade for Prosperity to carry the economics. But with the tonnage that we think we're going to put through there -- 60,000 to 70,000 tons a day at overall milling cost of just under $6.00 a ton -- I think -- and with the pretty conservative forward-looking metal price numbers for both gold and copper, I think it's a pretty good-looking project.

Yes, it sounded like we could almost get the current stock price if people would give us some value to Prosperity. Again --

Well certainly. Yeah, that's the real concern that management has, like Jeffrey spoke about it. The underlying intrinsic value is not being recognized in the company. We're just being valued at the straight one-line copper company with respect to Gibraltar Productions. And going forward, that's -- the management's responsibility is to rectify that.

Well, I hope maybe more road show work or something might help to get the story out. Let me ask about this future income tax expense. I'm not quite clear on what that means.

Okay. The future income tax expense is not a cash movement within the company. It's an estimation based on the pools that you have, i.e., the deductions that you have or the expenses you'll have in the future. What liabilities and future income taxes will you be facing? So there is an adjustment each quarter, each year, to reflect that. That is going to be a moving target. And one of the advantages of us completing --

So, you didn't in the current quarter, though. I don't get that.

In the current quarter? Well, that is the fact that we are getting profitable, and we are drawing down our ability to use future pools, because they just do not exist. And so that's what's happening, is we are drawing down those income tax recoveries. I mean it's getting quite technical. But if you go to the balance sheet under the current assets section, the current portion of future income taxes, which is an asset -- I don't want to make anybody too complex. But we are drawing that down, because we are right now starting to utilize those deductions.

Now, having said that, really, the nub of the issue is we are doing the expansion plans, which is a $60-odd million expansion program. That will provide shield, taxable shield, to the company. We had hoped we would get the Red Chris out, so that would have. We are looking at other tax planning.

I feel comfortable that we have adequate time to accomplish something in the year. We are spending money on Prosperity, which is deductible. We are doing exploration expenses. We're going to acquire a couple more trucks, which will have capital cost allowance. Our goal is not to give the government the money. We'd rather reinvest it within Gibraltar, Prosperity or otherwise and make the company grow. So, I don't see any panic buttons yet. We're paying a modest amount. We're making some adjustments through the income statement. But all systems are still very much go.

Okay, so the tax -- with regards to this exploring tax alternatives, that's pretty much on the tax side, though. It looks like, though, that for book purposes, you'll be booking a -- even if it's a non-cash, but a pretty full tax provision on the income statement.

Yes. Unless something changes dramatically -- but I will say that when we finish the expansion, we will get some shield. The marginal tax rate is about 34%. I think if you add those two tax provisions there, I think it's less than 34. It might be 32%, because there are differences between accounting book versus tax returns. But we cannot take any booking today for the shield that's going to come from the expansion. That's one of the things we can't anticipate. We're not allowed to book for, because it hasn't been incurred yet.

The pre-stripping -- similarly, we'll be getting certain tax advantages to that, because in the tax world, that's called D, or development expenses. And you can accelerate the capital cost on allowance on that. So, I know it's a number people grapple with. I think the number is 34% on the marginal rate. But we think we can get it lower by various methods of tax planning, expansion and the like at Gibraltar.

Well, I think it's important to point out to everybody, then, that the company would have really earned $0.12 diluted roughly on the, more or less -- much lower book tax division that you had been showing up until now.

Correct.

That's right. Or another way to say it, our cash flow or income adjusted for cash flow is significantly higher. I mean, cash flow was $0.20. But you could take out that future income tax expense, which is a non-cash item and we were definitely in the teens, the low teens in earnings.

Okay. Could you remind me what the current mill expansion capital expenditure is expected to be?

Okay, we are targeting -- the original budget was around the mid-60s -- 62, 64, is the category. There are some adjustments there depending on what we actually put in as a scope-wise. We feel much confident about making sure we put in the right equipment, because we had such a good year drilling. We know we have the reserves to deal with it.

So, we have got about $50 million more to spend at this point, moving forward from the first quarter. And we've spent $16 million. So that puts it at $66 million. But you know that $50 million is variable, plus or minus a couple of million.

Yes, we see the opportunity to take advantage of some things that will help us on the metallurgical side, Tom. Then we'll do that and add that at the same time. There's no sense doing it and then -- or not doing it now. You know, like Jeffrey said, it could be plus or minus a few million dollars.

But, you know, we really started this process at the right time. If you wanted to order a ball mill today, it's 33 months. Our ball mill is currently under construction now, assembly and the like, and will be shipped on time. We finished all the form works, the concrete pour and the like. Structural steel's on site. We have all the floatation cells on site.

A whole bank has been installed already. So, we got on this thing early before the massive expansion started to occur at various places. And we're on-time, on-budget, on-schedule. December '07, we'll step up; moving to '08, that is calendar '08, into the higher production rate of 46,000 tons per day.

Okay. And just the last question, can you -- you've mentioned a bunch of things. But can you just focus our brains on what's going on in Q1, like as to whether we're -- I mean, and that will impact how good Q2 is or isn't?

Yes, that's correct, Tom. We're continuing to experience cold weather. We're continuing to experience -- we have some very good days through the concentrator. And the grade is there. You know we have grades -- days of 0.35, 0.33. And then we have other days when, like yesterday, it went down to minus 15, minus 20, and we had some operational issues.

So, we're just dealing with them the best we can. We're trying to contain our cost side, and just working through this.

Well, the trucks -- I mean, you said -- I mean, I'm amazed that big slug of tires just suddenly come out of the blue, and...

Yes, well that's credit to Goodyear. They're supporting their customers that hung tough with them. Obviously, they know that, you know, we have 80% of our tire contract is with Goodyear. And they knew that we were suffering big time. So as soon as the strike got over, their customers got first dibs on the tires that came out. So --

But I'm wondering how much, still, the tires will affect this March quarter.

Well, there will be some residual. You know, we're still -- it's a very difficult scheduling problem. We've got to work on the ore, work on the waste, and make sure that we have the proper feed. And with this fine feed, we have to have enough coarse stuff to go with it to make sure we can get it through the concentrator. We can't just be straight fine ore. But the guys are doing a pretty good job under the circumstances.

I think there are some things that are undeterminable or variable. But in general, we've moved way ahead. We've got the tires. We've got the trucks. The Essex EW plant is working. We are producing sheets of copper on site. And it's 10,000 pounds a day. We had expected to be less at this point.

As the spring weather comes, we should probably be able to get that up to 15,000 pounds a day. We think the ore will carry its grade. It certainly has. The float cells have gone in. That will help a lot, because I think we can float it. And I'd say it's got better rims and everything else. It's quite impressive, the cells themselves. I've seen them being on site.

All ten are in?

No. Just the one bank. We put in one bank already. And they are quite state-of-the-art. They're conventional in their design and standard. But they're state-of-the-art float cells. It really is moving from old look technology -- it's the same kind of technology, how you float it -- to very much modern, a lot of surface area, a lot of rim area to cause float.

So, all this is up. That's what I like to see. I did visit the mine site recently. Everything is moving forward -- new computer system, new trucks, tires on site, float cells going in, Essex EW plant going. The guys are working hard out in the construction. It's on-time, on-budget. So, you know, the quarter's going to be variable, the next one. But it's all better moving forward, each quarter, until we move to December, when we shift right over completely.

Okay, guys. Well, hoping for you to get a little value out of this thing that the shareholders would love to see.

Thanks, Tom.

Well, it's still a good quarter. We financed 100% the expansion and acquisitions and like out of cash flow. And cash remained unchanged.

I know. You've had tremendous demands on that cash over the past year, which I have -- I enumerated in my last report. And yet you still generate a ton of cash. So, this is -- you run a good place here.

Yes.

I'm not sure of the stock price yet, but hopefully we'll get there. Thanks.

Thank you.

Thank you, very much, sir.

[OPERATOR INSTRUCITONS]

Okay, thank you very much, operator. Thanks very much, everyone, for joining us. We really appreciate it. Talk to you next quarter. Bye-bye.

Thank you very much, gentlemen. And thank you, ladies and gentlemen, for your participation. And today's conference calls conclude your presentation. And you may now disconnect. Have a good day.