Taseko Mines Ltd (TGB) 2007 Q2 法說會逐字稿

Great day, ladies and gentlemen, and welcome to the Second Quarter 2007 Taseko Mines Earnings Conference Call. My name is Katina, and I'll be your coordinator for today.

At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session toward the end of this conference.

(OPERATOR INSTRUCTIONS)

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

Thank you, Katina. Good morning, ladies and gentlemen, and welcome to Taseko Mines second quarter 2007 results conference call. My name is Brian Bergot, and I am the Investor Relations Manager for Taseko.

With me today in Vancouver is Russ Hallbauer, President and CEO of Taseko; Jeffrey Mason, Secretary, CFO and Director of Taseko; and John McManus, Taseko's VP of operations.

After opening remarks by management, which will review second 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 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 second quarter 2007 financial and operating results.

Taseko generated $51.6 million in revenue for the quarter from the sale of 11.8 million pounds of copper at US$3.13 per pound and 160,000 pounds of molybdenum at US$20.60 per pound, resulting in after tax earnings of $11.5 million or $0.09 per share, an increase of $8.4 million or $0.06 per share from the comparable period in 2006.

The Company continues to produce strong cash flows quarter-over-quarter as we take advantage of our non-hedged metal production and sell strategically into the market, with revenue increasing by $14.1 million compared to the same period last year.

Our strong cash flow has enabled us to continue to invest in Gibraltar without incurring long-term debt, and Jeffrey will speak about this later in the call.

Gibraltar's copper production costs, net of byproduct credits, of US$0.96 per pound are down from US$1.07 per pound on the comparable quarter in 2006, reflecting the declining strip ratio of the Pollyanna pit and increased value of byproduct credits. Our cost structure is moving in the right direction.

Increased mining flexibility and ore blending capabilities will be enhanced in the coming months as ore release begins soon from the Granite pit. Operations staff have worked hard to develop a number of ore phases over to past months, which will help the efficiency of mining operations.

I'm very pleased to report that our first set of four new float cells were operational last week, and we have commenced the removal of the remaining parts of the flotation system and that we anticipate the next five new cells to be operational by the end of July. As a result, our expansion is on time and on budget.

As well, our three new 240-ton haulage trucks have been operating for the past three weeks. When the Board approved the truck purchases and we began looking for new trucks a number of months ago, we thought the delivery would be approximately eight months. We managed, however, to reduce that by six months by purchasing three trucks in Alberta that were available as a result of a purchaser being unable to take delivery.

This advancement on delivery times will be important to the development schedule for our concentrator ramp-up, as we were able to get a significant jump on our waste stripping well in advance of ore requirements and make up for the stripping shortfalls we incurred as a result of the truck tire shortage, which affected our truck fleet size over the past year.

At present, we have 14 haulage trucks in our operating fleet as opposed to roughly seven to eight operating over the last year. As well, with aggressive purchasing, we were able to jump the queue for a primary crusher, when an on-place order fell through with the crusher manufacturer and we filled that spot. This will reduce our delivery time for a new crusher by eight months, from a 24-month lead time to 16 months. We expect to have the new crushing system up and operating by October of '08.

When we announced our mine expansion plans last March, we felt the Gibraltar ore body would continue to expand, and we set the SAG mills accordingly to capture any extra capacity that may be available to us.

Our recent drilling indicates the ore deposit will grow. As a result, we are beginning detailed engineering to increase concentrator throughput from our Phase One upgrade capacity of 46,000 tons per day to 55,000 tons per day.

If we begin this Phase Two work immediately, when it is complementary to the Phase One expansion, we believe we can have Gibraltar's concentrator throughput rate at 55,000 tons per day by the end of calendar year 2008.

By the end of 2008, we expect to have production capacity of 115 million pounds of copper and 1.4 million pounds of moly annually from Gibraltar. Capital costs for the Phase One expansion will be in the order of C$35 million.

Our technical team continues to advance our work on the Prosperity project, both in the concentrator and pit designs as well as environmental and permitting aspects, and we are looking forward to timely advancement of the regulatory regime towards a full review and ultimately a production decision sometime over the next year.

The Company has continued to move forward on many fronts technically, operationally and financially. We are complementing our management capabilities at the site with the addition of a new manager of mining operations, who is now responsible for Gibraltar's mine operations, mine maintenance and engineering.

As well, we have hired a new human resources superintendent, who is responsible for enhancing and developing our present workforce.

We understand the government is nearing completion of the land management plan for the Queen Charlotte Islands. And when complete, we will review the implications the plan will have on the future of our Harmony project. It is our understanding that our Harmony property is in an area now designated for mineral development, which is very encouraging.

I would like to now turn the mike over to Jeffrey to review our financial performance.

Thank you, Russell, for summarizing operations and covering some of the financial aspects, as well.

This morning I'm going to address some of the key highlights. Further explanation is, naturally, covered in the statements, MD&A and the comprehensive news release in the public (inaudible).

First off, before I get into the details, I want to mention that I'm extremely proud of the operations personnel as they continue to transition a dated mill and operation to a modern first-class operation, while all along maintaining very positive cash flows.

I'm excited about the near term, as we see the operations and people develop, the very soon substantially higher levels of production and sales, and, importantly, a long-term platform of modern facilities combined with long life reserves and significantly increased production, moving towards doubling existing production.

But let's look at the history as it stands, realizing this is the base, starting with the balance sheet, to which I will talk in millions of Canadian dollars.

The instance of the balance sheet in Taseko's direction is best summarized by, one, investment in the future by way of property, plant and equipment purchases of $34.9 million in the quarter; two, all capital additions financed out of existing cash on hand, which remains strong at $67 million at quarter end; three, Taseko generated $12.3 million in cash from operations in the quarter; and four, after funding capital additions in the quarter and various normal course account balance changes, the overall working capital is $78 million -- that's current assets less current liabilities -- which decreased only by $14 million in the quarter.

Moving to the significant line items on the balance sheet, I'll cover the major changes in the quarter. One, investments increased from 11.5 million to 19.5 million in the quarter. It represents a redemption of the Continental Minerals Corporation promissory note and the reinvestment into equity totaling $11.5 million actual cash.

We both redeemed and then reinvested the moneys. This occurred in February 2007, after Taseko earned interest at 16% per annum over a period of six months. On conversion, Taseko got a 5% bonus by way of getting 12.1 million in Continental units for its $11.5 million investment.

The investment shares are classified as available for sale financial assets under the new financial instruments policy, and I recommend you see Note One to the financial statements, whereas the warrants are deemed a derivative. Hence, both are fair valued at the time of purchase. Plus, the shares on warrants thereafter are mark-to-market at the quarter end.

This resulted in an overall value of $18.5 million. This results in a $5.5 million unrealized gain, of which the share gain, amounting to 5.1 million, is included in comprehensive income, not reflected in the earnings and within the shareholders equity section on the balance sheet, while the warrant gain of 0.4 million is included in net earnings and earnings per share.

From a straight business perspective, Taseko, one, owns 7.8 million shares or 6.5% of Continental purchased at an average price of $1.58 per share. The stock currently trades at about $1.80 or 14% higher than costs.

Two, Taseko owns 7.3 million warrants of Continental exercisable at $1.80 until February 20, 2008, valued under Black and Scholes at $3.5 million. Three, Taseko has a preemptive right to purchase 50% of future equity issuances by Continental until it reaches 19.9% of Continental. And four, Continental is advancing to a feasibility study and permitting in 2007 on the Xietongmen copper-gold pore-free property in China.

On other investments, Taseko acquired one million shares at a $1 per share of the private mineral company, Copper Mountain, for a total of $1 million, to which Copper Mountain is in the IPO process, going public in May 2007, at $1.45 per share. Copper Mountain owns mineral claims covering 18,000 acres over the former Similco copper mine near Princeton, British Columbia.

As mentioned, mineral properties plant and equipment increased by 34.9 million in the quarter. The details are, one, mill expansion, 12.4 million in the quarter. This is comprised of the year-to-date 23 million, project-to-date 29 million, expected remaining expenditures to December 31, 2007, 43 million and important to note, as Russ noted, on time and on budget at about $72 million for the total costs.

The mill expansion in the quarter relates to equipment and contractors for primary, secondary grinding, flotation, surface facilities and building erection.

Two, Granite pit, with a mine life of 11-plus years, extendable potentially under the 2007 current exploration program, pre-stripping 6.8 million in the quarter, project-to-date 12.3 million, balance to expand up to a maximum of 12 million, but sequenced over various quarters as to the east and west Granite pit, as it is exposed, and depending on the actual ore release to the mill.

Three, as Russ mentioned, mine site equipment. Mine site equipment purchased of 12.9 million in the quarter, year-to-date 16.7 million, balance to go, mainly related to the [drove] and the crusher, in the quarter comprised of three 240-ton haul trucks and 11 truck boxes.

For the existing truck fleet, Taseko purchased lighter and bigger boxes, hence, bigger payload, approximately 8% productivity increase or, said another way, 11 truck boxes times 8% productivity gain equates to approximately one free truck on a productivity basis.

In addition, we installed about a half a million worth of computer systems called Foresight Mine System as part of the overall modernization of the operations. And five, importantly, we continued our 2007 exploration program, totaling five million to expand existing reserves.

In the quarter, we expended $2 million, year-to-date $2.9 million, and to finish the 2007 program, $2.1 million.

The other balance sheet fluctuations are essentially due to normal course operating timing differences, such as accounts payable and deferred revenue. I will note that accounts payable and supplies inventory are running at higher levels due to construction activity, in addition to the ongoing operation. The other balances are essentially unchanged, except for taxes, to which I will address later.

Moving to the statement of operations. Operating profit is up 261% to 26.9 million compared to Q2 2006 from unhedged sales of 11.8 million pounds at $3.13 per pound and 155,000 pounds of moly at $26.60 per pound.

Total cash costs of production, importantly, dropped, as Russ mentioned, $1.50 to US$1.33 per pound of copper in the quarter due to lower strip ratios in the Pollyanna pit and the higher byproduct sales prices.

As to an update on the copper cathode business, i.e., the SX-EW plant, which is currently operating, Taseko signed an agreement with a buyer in the quarter covering 5,800 metric tons of copper for approximately two years. Production is currently averaging about 10,000 pounds per day or 300,000 per month, expected to rise over the summer period, and moving gradually to about five million pounds next year.

There were no sales in Q2, but we delivered 550,000 pounds in May Q3, yet to be priced under the contract terms.

Total other net expenses of 3.9 million are comprised of exploration of 2.5 million, consistent of engineering, permitting, et cetera, on the Prosperity project, general administration 2.8 million, reflecting higher legal, accounting, staffing levels, and general or corporate activity, and non-cash stock-based compensation of 2.3 million.

These expenses were offset in the period by a $1.5 million gain on the sale of $3.2 million BC Metals common shares and interest and other income totaling $3 million, resulting in earnings after taxes in the quarter of $11.5 million and year-to-date of $23 million.

Just before I move to income taxes, important to note that Taseko has doubled, doubled, year-to-date earnings per share over last year from $0.09 to $0.18, of which Taseko has earned $0.09 in each of quarter one and quarter two.

Next, I'd like to review income taxes, essentially, from the top level down. First, just to be clear, in fiscal 2006, Taseko utilized almost all its tax goals and did not pay any income taxes in 2006. Two, Taseko did, however, pay mineral tax of about $1 million in 2006.

Moving to 2007, on a year-to-date basis for the first six months, Taseko's 2007 earnings-to-date before taxes are $40.4 million. You add back the non-cash items and other differences in tax deductibles versus accounting deductibles, now it's about $6.6 million, and results in a taxable income for accounting purposes of $47 million.

You then apply tax, both current and future income taxes, and they amount to about $17 million, and that produces a tax rate of 36%. But currently we do have tax shield that's being created by pre-stripping, mill expansion. And consequently, current taxes or the amount that Taseko will actually pay based on year-to-date earnings amount to about $8.5 million as at the end of March 2007.

This amount, you will see, is reflected as a current liability on the balance sheet. The balance to get to the $17 million total provision for taxes is made up of non-cash future income tax expense.

Taseko is continuing to monitor this situation going forward with a view to minimize taxes actually paid, the true cash of the door, one, by maximizing tax deductions based on mill expansion, pre-stripping, other acquisitions; two, potential Canadian property acquisitions; and three, tax favorable strategic investments.

Taseko continues to investigate and monitor several potential strategic alliances with mining companies that will be accretive to Taseko's enterprise value and fundamentally sound NPV and NAB transitions.

The Taseko investment group meets regularly to assess these targets, also to ensuring benchmarking against organic growth opportunities, including the Prosperity project and additional expansion at Gibraltar, i.e., GIB-2.

At this point, I'd just like to summarize the great accomplishments this year by the operational personnel by going over just the magnitude of the additions on a year-to-date basis in fiscal 2007, just rounded to millions, just to give you an idea.

Mill expansion $23 million, mine site equipment $17 million, pre-stripping Granite pit $12 million, SX-EW plant rehabilitation $4 million, exploration targeting expanding reserves $3 million, total capital projects to date $58.7 million.

Note that all these items have a very significant long-term positive production impact of over 11-plus years. All plant equipment and the mine is 100 percent owned by Taseko and the capital additions, for the most part, have been financed out of cash flow from the very short-term period of only six months of fiscal 2007, whereby operational cash flow amounted to $37.8 million.

In percentage terms, 65% of the capital additions have been financed out of operational cash flow this year. The balance of $20.9 million has come from existing cash on hand.

In conclusion, Taseko continues to remain financially strong, with $78 million in working capital, of which $67 million is in cash, and reclamation liabilities, importantly, are funded with additional cash of $33 million on hand.

Thank you very much, Russell.

Thank you, Jeffrey. I'd like to open the phone lines now, Operator, for questions and answers.

Thank you. (OPERATOR INSTRUCTIONS)

Your first question will come from the line of John Tumazos, representing Prudential. Please proceed.

Good morning. This is sort of a minutia question, but could you explain the moly recovery circuit and mineralogy? And I see the recovery rates were about one-third in the quarter.

And could you explain what are the factors that influence the copper and the moly recovery rates and whether a finer grind or a longer retention time or any of the usual bells and whistles would help?

Yes, okay. That's a good question, John, because it's kind of apparent what's happening with recovery in that circuit. I'll let John answer that a little bit because he's more up to speed on it, but we did have some issues there, but a very good question.

Hi, John, it's John McManus here. The moly recovery in the quarter was affected partially by the fine ore that we were getting, which slowed down the whole system, and then that didn't allow the moly to get to the moly circuit.

At the same time, we had mechanical issues in the moly circuit, where some of the maintenance on the secondary backup systems had gotten behind, and when we needed to switch to them, they weren't available. We've gone in and we've rebuilt that entire secondary backup system during the quarter. So our moly recoveries are back up where they're supposed to be now.

Even the 43% last year was not the highest recovery rate, I guess, whatever, C. Are there some mineralogical constraints in terms of the molecules the moly is encapsulated in?

Well, yes, the difficulty is in separating the moly from the copper, with the mineralogy that we've got at Gibraltar. What our target is for this year is 43%, and we think we can improve on that, but we're going to have to do some significant circuit changes, which is going to be part of the mill expansion two, when we get to that.

So for the time being, 43% is what we expect to reasonably be able to achieve.

And it gets pretty difficult. Recovery is proportional to the grade. And once you start to drop below .010% moly in the feed, in the ore, it becomes a very difficult task to recover that, John.

Thank you.

Thanks very much.

Your next question will come from the line of Tom Bishop, representing BI Research. Please proceed.

Good morning, everybody.

Good morning, Tom.

What was the fully diluted share count for the quarter?

The amount of shares outstanding, diluted?

Well, as far as the number that was used to get the $0.08 per share fully diluted.

144,882,000.

So that was the average fully diluted share count for Q2?

Yes. We call that weighted average because -- for the time effect.

Okay. Also, with regards to the $0.96 for the quarter, that was due to the Pollyanna strip. Could you explain that a little bit more? And then, also, what do you expect that we can get to on that line -- expansion?

Well, in the Pollyanna pit, we've experienced -- the ore body is coming near the base of the pit, and consequently, our actual tons of waste moved have decreased. So for every shovel that we go in there, two of the three shovels tend to be ore rather than waste. So we are delivering more tons of ore compared to waste moved from the Pollyanna pit. So we're simply, on a motion economy basis, saving money, and that will continue.

The only hampering point has been the fine grains and slightly higher moisture content, although we expect to get some gains going into the summer months on that respect.

Next, moly, we've seen lots of very successful enterprises out there, Blue Pearl and others. Moly prices continue to be very strong. And during the quarter, we were, through our supplier, Rafael, to realize higher moly offset prices, and silver as well has continued to be strong. We have some modest silver production, which reduces our cost per pound.

Now, moving forward, we are going to continue to enjoy modest cost decreases in the Pollyanna pit. But ultimately, our real savings is going to come through the Granite pit, and that's going to be a total modern mill setup, i.e., crusher, conveyors, modern trucks, new boxes. And that's going to marry and complement with our mill expansion.

And so I think those kind of targets that you're seeing we accomplished in the quarter, despite all the expansion and the like, are going to continue in the following quarters and even increase. And I don't want to say too much on a forward basis, but going into 2008, when everything is live, we're going to see those kinds of numbers come forward.

What kind of numbers going forward?

Well, the kind of numbers that you've seen in this quarter. We've seen some -- despite some of the issues on productivity.

If we had had slightly higher pounds of production, we would have had a knockout, blow-them-down quarter. It was just simply a throughput issue that narrowed it down to the results that we showed this quarter.

You're thinking of the future that's different from what I am. I'm thinking of after the mill is in place, the expansion, what can we get to in terms of production costs?

And when you talk production costs, Tom, just let me clarify it. Are you talking on-site or including off-site as well?

Well, I guess if you know, roughly, how that cost of off-site will increase as we approach 2009, I guess there's a certain schedule for that, right? It goes up.

That's right. Okay. So I'll tell you two things. One is on the on-site net of credits, we've got a range that's developing. We don't have the technology fully installed.

But if we wanted to try to make an estimate today, we're going to be in the range of, I would say, about $0.80 to $1, $1.05 range, with an optimistic target of $0.75 per pound on-site, excluding refining and toll charges off-site related to processing concentrate.

That's a wider range than I thought I was going to hear.

We'd like to narrow it, but we don't want to give guidance at this point. We are, as we're doing the construction, doing lots of tweaking and modern install. And we're not yet convinced what we can get to.

We are being quite optimistic. For instance, we plan, in the next quarter and the following quarter, we're going to experience some ore release from Granite pit, and that will give us a better flavor to what kind of recoveries and throughput that we can accomplish, even with, say, the new float cells.

So we're almost on a test run basis going forward here. And so it is a little bit too early. We do have the specs of what the equipment says it can deliver. A lot of times with this equipment, you can beat those specs, depending on other parts within the plant. So it's just too early, Tom, to give that kind of numbers.

Okay. But I think maybe I heard it wrong then because you gave a range, I thought, that went up to $1.05. I assume that's U.S., and that compares to $0.96 this Q2, which you were sort of saying could have been better.

Look, I'll just tell you, quite frankly, if moly continues at these kind of numbers and silver, we could see $0.75. But we have been conservative in our estimates of moly and silver byproduct offset.

Oh, I see.

So it's a big variable. Moly has been a big contributing factor. It's continued to be. It's continued to be strong. But on a budget basis, we have not been as aggressive on that budgeting forward.

Your next question will come from the line of [Eric Sol] representing Raymond James. Please proceed.

Good morning, everybody. I just have a few questions regarding costs. Relating to the fleet replacement, was that expansion or replacement? So were you just adding to the existing fleet or replacing old trucks?

On the trucks, that was additional to the existing fleet.

Okay, additional.

Additional.

Okay, good. And I'm not sure if I caught it, but just an aggregate number for the remaining capital cost for the Gibraltar expansion.

That is remaining expenditures to December 31 of '07, and that, starting from April 1, is $43 million.

Okay.

And those additional trucks, what that is is that is the ramp-up leading to the fact that we are going to have higher throughput rates running through the mill. So we're complementing the mine fleet and productivity of the new trucks with the expansion in the mill so that the mine and the mill are running in concert as to ore delivered to the mill and ore processed through the mill. All part of the expansion program.

Okay, good. Thank you.

(OPERATOR INSTRUCTIONS) Your next question will come from the line of [Mel Zumik] representing [Esdev] Holdings. Please proceed.

Yes, guys, congratulations on a good quarter. One thing I was wondering is Taseko doesn't seem to have a lot of exposure. I don't know what it is. I was in Saskatchewan, and people were asking what I was buying (inaudible). They had never even heard of it. I found that kind of strange. That was on the prairie, mind you.

But I was just wondering. Are you intending to, say, list on the German exchange or the AM Exchange or something like that to get more visibility?

We've come up with a marketing plan to tell the story a little broader based. Certainly, we think the exposure on the TSE and on the AMEX is enough in terms of that. We have a strong shareholder base in the United States and certainly in Canada here.

So I think it's just a question of making the rounds and explaining the story, and that's what I plan on doing in the next six to eight months.

Good luck, guys. Bye-bye.

Thanks very much.

Your next question will come from the line of Richard Stoneman representing Dundee Securities. Please proceed.

Yes, good morning, Russ. Just a question on the planned expansion to 115 million pounds. What percentage would that likely lower your operating costs?

I guess John could better answer that one. We just started the preliminary engineering.

What we get out of that expansion is an increase in throughput. So we would -- probably a 20% increase in throughput, 20% increase in production.

Our operating costs would not go up proportionately. So the total would bring us down by 5% to 10% on a cost per pound basis.

So that would take your cost per pound, depending on the byproduct prices, down to $0.70 to $1, in that range?

Yes, that's right. And we haven't completely finished the engineering on this. So some of the things that we're going to have to run with the expansion will change our cost structure a little bit, but that's the right ballpark.

And the second question, the first quarter of next year, what sort of production rate do you think you'll be at in Q1?

In Q1, we don't have our mill expansion completed. So our production rate will be in line with what we're doing right now, except our RFE will be a little bit different. I think we'd have better throughput.

Our actual mill expansion isn't in place until the end of Q1, which is fiscal Q1. So mill expansion will be January. We'll see our production surge increase.

We have the full-scale test in mid-December. So we expect to have it operating full bore sometime in the first quarter of calendar 2008, Richard.

So it's going to be dependent on how we interrelate those operating components tied to the SAG mill with respect to our presenting operating system right now. We've got to change over the rod mills to ball mills. It becomes very, very technical.

In our plans right now, we show ourselves getting to full production by April of 2008.

Thank you very much.

Your next question comes from the line of [Jay Dade] representing [Zane]. Please proceed.

Are you there, Jay? We can't hear anybody, Operator.

(OPERATOR INSTRUCTIONS)

Your next question will come as a follow-up from the line of Tom Bishop, representing BI Research. Please proceed.

Hi. That's BI Research. I wanted to ask about the crusher. Did you say that's coming in October of 2007 or 2008?

2008.

You said the expansion would be done by the end of calendar 2007, no?

That's right, Tom. The crusher that we've got can handle the expansion, the primary crusher. But what we're doing is we're putting another crusher into the Granite it which is several kilometers from the mill, a crusher and conveyor system.

So during the interim between the time that the mill expansion is completed and the new crusher is in place in October, we will truck to the mill. Once the crusher is in place, then we'll crush and convey, and then we're ready for the mill expansion two.

So is there a conveyor up out of the pit as part of the second phase?

Yes.

Yes.

How much does that cost?

Well, we already have the conveyor component itself. What we didn't have was the crusher and we're going to have to construct the facility.

So the total of putting the crusher, conveyor and the whole system into place is going to be over $20 million and that'll happen in 2008.

But the whole Phase Two expansion is $35 million.

We are spending $72 million in total.

Phase One, right?

Yes, Phase One. That's correct.

Tom, part of the crusher expansion or the crusher in the pit and the conveyor system is to avoid the additional cost of buying new haul trucks. So it's not just --

A portion of it is included as part of the expansion.

Right, a portion of it will be part of the expansion.

We needed to put a crusher and conveyor in regardless of the second expansion, but putting the larger crusher in is the portion which is the expansion. So I think it's about eight million that we've allotted to the mill expansion under the crusher.

Phase Two, right?

In Phase Two, yes.

And when the flotation cells are all in in July -- well, the next five, is that part of the project done?

That's the rougher flotation section done. In mill expansion two, we redo the cleaner sections. Same idea, we go from small, difficult to control, high maintenance square cells to larger tank cells.

And going back to these off-property costs, are you renegotiating that yet and what's going to come out of that?

We have got a contract to the close of 2008. We are less than benchmarked in the marketplace, but that's benchmark, Escondido and the like that currently pay. We are currently locked in at less than those numbers for the balance of 2008.

We have been in dialogue with Smelter Groups, as well Glencore, their current contract holder, for extension and we've had numerous discussions.

The marketplace is continuing to move to lower TCRC terms, and we are just simply trying to get to the best rates possible and be competitive with the marketplace.

What we are finding is with our additional production profile and continuing, that it's very sweet concentrate two blend with other hot deleterious metal type concentrates, that there is a premium that people are willing to pay for our concentrate. It's roughly $10.01 on the TCRC terms, which is one-sixth.

So it's almost like 15% premium on our type of materials. So we believe we're in a very good marketing position to conclude a transaction or contract extension with one of the parties.

One of the discussion points is do we lock up this greater feed all with one party or do we go to multiple parties. So that's going to be determined over the next few months. We will have a deal in 2007, which will be a 2009 continuing contract.

What we have in -- what I'd really say is the Granite pit is an 11-plus year pit. They are doing exploration. They are doing reserve calculations. There's a billion pounds of copper there that's going to be released when this all comes together.

And so this is a really large forward-moving plan and that certainly gets a lot of attention from the concentrate handlers. Our last pit, the Pollyanna, was about a 48-month pit, just to give you an idea.

Great. Okay. Well, I'll get back in the queue.

Thank you, Tom.

There are no further questions at this time. I would now like to turn the call back to Mr. Russell Hallbauer for closing remarks.

Well, thank you, everyone, for joining us this quarter. We look forward to an exciting summer and going into the fall as we complete our expansion projects and move through with all the capital projects that Jeffrey has spoken about.

So we'll see you next quarter. Thanks very much.