Taseko Mines Ltd (TGB) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2008 Taseko Mines earnings conference call. My name is Gwen and I will be your coordinator for today. Today's call is being recorded. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session toward the end of the conference.

I would now like to turn the call over to Mr. Brian Bergot, Investor Relations. Please go ahead.

Thank you, Gwen. Good morning, ladies and gentlemen, and welcome to Taseko Mines first-quarter 2008 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; and Jeffrey Mason, Secretary, CFO, and Director for Taseko. After opening remarks by management which will review the 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 and 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 first-quarter results for 2008. During the quarter, the Company generated $44.9 million on the sale of $12.2 million pounds of copper and 210,000 pounds of molybdenum, generating an operating profit of $19.9 million resulting in earnings of $0.12 per share. The Company continues to provide consistent earnings growth. Jeffrey Mason, our CFO, will speak to the financial matters later in the call.

Our Gibraltar Mine produced 14.4 million pounds of copper and 291,000 pounds of molybdenum during the quarter and at quarter end, we have 7.2 million pounds of copper and inventory ready for shipment and 96,000 pounds of molybdenum, which at today's price of $3.50 per pound copper and $33 per pound for molybdenum has a value of approximately $30 million. I will speak more about our inventory later in the call.

The first quarter of 2008 can best be described as a transition quarter, where we begin to leave behind the old Gibraltar and enter into a new period of mine production growth for Taseko powered by the opportunity we have created with our investment in the Gibraltar Mine expansion. This is something our shareholders have been looking forward to and certainly we as managers of the Company have been excited about having our Phase I expansion completed on time and on budget.

For the past 18 months, we have been improving our operational performance on key performance indicators at Gibraltar ranging from mill throughput, tons mine, recoveries, and metal produced. I have spoken a great deal about that in the past quarterly calls. Now we are on the threshold of adding to these improvements by having our brand-new concentrator operational and ready to move our Company to the next phase of its growth.

As I spoke to you last quarter, when we achieved production of 16.8 million pounds of copper at a cost of $0.82 per pound, we knew then that our hard work would come together once we began achieving the economies of scale that our SAG mill would provide us. Even though copper production during this transition quarter was lower by 13%, we still achieved an operating cost of $0.98 per pound, and while operating costs on a quarter-by-quarter basis will vary up-and-down for a multitude of reasons depending on spending rates, maintenance downtime, production rates, etc., we now feel very comfortable that our production costs to concentrate in the quarter's ahead will be in the $0.70 to $0.80 per pound range, consistent with that which we predicted before our expansion program was begun.

As I view numerous operating companies reporting their financial results, I see very few with production cost decreases or production increases, but rather the opposite, continued cost increases and production decreases. So as we move forward with our expanding production and decreasing cost structure, I see us moving down the cost curve quite dramatically, which effectively will remove to a large degree the persona that Gibraltar is a high-cost producer.

You will notice that our property costs this quarter have risen to the highest we have experienced, however, this is mostly an aberration that we see as short-lived and as primarily associated with off-property costs assigned to sales volumes versus production; a slightly lower concentrate grade in terms of our shipping, in terms of contained copper; lower capital sales; and the strong Canadian dollar; as well as a significant spike in ocean freight rates that are seen at this time of the year. Going forward, we see off-property costs stabilizing in the $0.35 per pound or lower range.

During this quarter, we managed our sales very strategically and held back metal sales in inventory that could easily have been sold in the quarter. This decision has proven very astute. Historically, during the period October to December, LME copper inventories grow and prices soften, and this has been particularly evident over the past three years. Subsequently in the new year, inventories drop and prices rebound and that is exactly what has occurred.

The London Metal Exchange inventories have dropped by nearly 40,000 tons in the last month and the copper price has moved from roughly $3.00 a pound to $3.55 per pound in the same period. And as a result of extreme weather conditions in many parts of the world affecting both concentrate production and metal production, we find ourselves in a very enviable position with steady and growing production and large metal inventories ready to be sold into what we think will be stronger prices over the next few months.

Being nonhedged, we are fully engaged in managing our concentrate stream, selectively placing sales tonnage and as a result we've achieved a very good price last quarter of $3.26 per pound. But as important as that, as I've indicated earlier, we held 7.2 million pounds in inventory, which has arisen in value by approximately $0.30 a pound in the period since we last sold any metal.

Our cash balances are strong, which Jeffrey will speak about. Our working capital is even stronger at $90 million and we are posed for an exciting period as we head into the spring awaiting our new mine equipment arrivals such as our shovel and our drills and seeing how our new mill facility can perform.

Looking forward with respect to Prosperity, we are working with the federal agencies on the path for developing the necessary protocols to advance the environmental and permitting approval process with a projected completion date of this process being the spring of 2009. We believe that the work we have undertaken over the past decade and in particular the past 18 months, provides the framework to advance this project quickly and expeditiously.

For example, our Gibraltar mine has operated for nearly 30 years with no environmental concerns or issues. It has injected hundred of millions of dollars into the local and provincial economies and employed literally thousands of people over its mine life. Prosperity is no different. It can provide economic stimulus for the next two plus decades in an area that has a long mining history. And an area that will soon need economic stimulus to offset the immediate effect of the pine beetle disaster. There are no environmental obstacles that should stop this property from being developed into a long life mining operation.

We are urging the government to get on with the process. If Prosperity does not get permitted, then it becomes clear that mine development in British Columbia cannot be achieved because the mine building and development process has been stymied by the government's inability to make decisions for the greater good in terms of promoting economic activity and job creation in this important sector of the economy. We have a project that we should be building as we speak. Process is the only thing standing in our way and I am optimistic that we can move expeditiously through that process.

I would like to now turn things over to Jeffrey to discuss our financial results.

Thank you, Russell. Before I go to the specifics of the '08 first fiscal quarter, let's look at the bigger summary picture. First, Taseko has reported 12 straight quarters of positive earnings per share. In Q1, Taseko reported earnings of C$0.12 per share, 20% higher than last quarter and 33% higher than the comparable quarter last year. Taseko continues to take advantage of current copper and moly prices, as Russell mentioned, and we remain 100% unhedged.

In the quarter, shareholders equity increased by C$66 million to C$230 million, of which C$47 million relates to financing completed in the quarter, and C$19 million from net earnings and other contributed surplus adjustments. To note, the C$55 million in cash on hand plus C$4.4 million in restricted cash is invested in cash and equivalents. There are no investments in or losses from asset-backed securities. Capital development projects are on time and on budget which helps the treasury function immensely.

Now turning to the balance sheet, in millions of Canadian dollars, current assets are up $23 million in the quarter, almost entirely explained by movements in cash whereby Taseko started the quarter with million, spent $26.5 million on Gibraltar expansion, $3.5 million on other and raised $47 million in common share equity to finish the quarter with $55 million on hand and $4.4 million restricted cash, overall about $60 million.

Mineral, properties, plant, and equipment are up $26.5 million in the quarter. Additions during the quarter are mill expansion phases 1 and 2 C$12.1 million related to grinding, flotation, and other areas; deferred stripping on granite pit of C$10.7 million; in pit crasher, fleet management system, and mobile equipment, C$2.8 million; and Gibraltar deferred exploration of C$0.5 million. As to the liabilities, current liabilities decreased by C$18 million in the quarter, reflecting essentially the paydown of these liabilities out of the cash flow from operations.

With respect to other liabilities, the total remains net unchanged, however, I will address income taxes and estimated reclamation costs later.

As mentioned, Taseko's 100% owned mineral properties, plant, and equipment increased by C$26.5 million in Q1. The details are one mill expansion, Phase 1 SAG mill grind circuit flotation sales, C$9.6 million in the quarter, compared to last quarter C$16.5 million, for a project to date of C$71.3 million was about C$2.7 million to complete for a total of C$74 million, on budget and on time.

Two, Phase 2 expansion C$2.5 million in Q1 with about C$2.6 million expended to date, and this is scheduled to complete in late '08 at a cost of C$40 million. It is currently focused on engineering and procurement, which will take mill production from 46,000 tons per day under Phase 1 to 55,000 tons in '08 or an additional 20% reduction increase. Phase 2 is on budget and on time.

Mine site equipment purchased in the quarter amounts to C$2.8 million, last quarter C$9.5 million. It is comprised of the intake crusher C$1.3 million and various other items totaling C$1.5 million. Other key equipment expenditures planned for the remainder of the fiscal year are the in pit crusher, C$23.7 million; and the new P&H 4100 shovel at C$14.8 million. Both the shovel and crusher are expected to be operational in the second half of '08 to meet the feed requirements to the mill as the production ramps up.

Mine operations also include a capitalized prestripping of the granite pit that has an expected mine life of about twelve years. Prestripping in the quarter was C$10.7 million and this compares to C$11.4 million last quarter. Project to date is C$43.6 million and the balance to expand is approximately C$8 million in Q2. Then capitalization will cease in Q2. The prestripping capitalized represents a future non-cash amortization cost of about C$4.5 million per year or about C$0.038 per pound of copper production to commence in late Q2. This will continue over the 12-year life of the granite pit, which hosts approximately 1.5 billion pounds of copper.

This prestripping cost is financed out of current operating cash flows to [some] costs, but will result in a long-term mining cash inflow, hence the capitalization and future amortization. On deferred exploration, we expended C$0.5 million in the quarter, last quarter C$2.1 million. The existing exploration program is now essentially finished.

Taseko is also reviewing other prospective exploration targets on the vast 16,000 hectare Gibraltar property with a view to continued exploration in drilling this summer. No other material changes on balance sheet.

Let's now move to the statement of operations. Net earnings for Q1, C16.3 million, last quarter, C$12.6 million, and Q1 '07, C$11.7 million, a 30% and 40% improvement respectively. Good earnings numbers and even better concerning the mill was in transition to new equipment in the quarter. And I can't help but rementioning that this is the 12th straight quarter with positive earnings.

Now let's look at some of the line item variances to understand the makeup. Copper revenue was down due to less copper sold in the quarter as compared to Q1 fiscal '07 by 4.7 million pounds. However this was somewhat offset by higher copper prices realized of C$3.26 versus '07 at C$2.77 per pound. Moly sales of 210,000 pounds for revenue of C$6.8 million compared to C$3.3 million in Q1 '07 contributed noticeably to the overall revenue.

On-site property costs of sales, as Russ earlier mentioned, net despite the lower copper production of 14.4 million pounds versus 16.8 million pounds in Q4 quarter of fiscal '07, were below C$1.00 per pound for the second quarter in a row at C$0.98, last quarter, C$0.82. Offsite property costs in Q1 were C$0.44, as compared to Q4 '07 at C$0.39. However, the costs have increased due to higher seasonal bulk ocean freight rates which appear to be normalizing lower; additional [row seeding] fees for moly based on throughput and quality levels also appears to be normalizing; foreign exchange, strong Canadian dollar caused the U.S. dollar equivalent to be higher, it seems to be more stable. And slightly lower copper cost concentrate grades shipped resulted in less pounds shipped her wet metric ton. Only a slight variation that is not expected on an ongoing basis.

In essence, all the variables that make offsite property costs worked in tandem to elevate the costs. We expect this to normalize lower going forward. As for TCRC contracts and rates going forward, the Company continues to actively pursue a longer-term favorable contract with traders and smelter groups effective at determination of the existing concentrate contract which is scheduled to end in the last quarter, calendar quarter, of '08.

The rates in the market place appear favorable given the continued deficit of available copper concentrates, particularly based on the growing smelter feed requirements and delays of new mine production. In addition to clean concentrate, which Gibraltar produces, is under even greater demand.

Depreciation, depletion and amortization remained unchanged between Q1 and Q4 '07 at C$0.7 million. The other expenses in Q1 amounted to C$4.2 million; Q4 '07 were C$2.7 million; Q1 '07 were C$2 million. The increase is due to higher levels of staff and activity, stock-based compensation, a non-cash item that reflects black and shoals valuation based on volatility of stock, and normal course annual option grants in Q1 post the release of annual financial results.

Let's move to income taxes. First, let's get clear on what the amounts that were actually paid. In Q1, Taseko paid off in full '07 fiscal year income taxes of C$6.6 million. This was recorded as a current liability at September 30, '07. Income tax expense net relating to Q1 earnings is about C$1.2 million as reflected on the income statement. The actual liability will only be determined after the completion of the fiscal year and hence at this point, it is only an estimate. Taseko is already working diligently with Ernst & Young to optimize taxes -- tax deductions from capital additions, deferred mine stripping costs, and other initiatives in order to minimize the '08 income tax expense.

Now moving to future income taxes, they are a non-cash item that estimates future tax expenses and/or recoveries due to timing differences, i.e. for tax, depreciation deductions can be accelerated, versus for accounting is calculated on a units of production or other basis. There are also permanent differences such as the share equity costs are deductible over five years for tax, whereas for accounting purposes they are netted out in shareholders equity and do not appear on the P&L.

In summary terms for Taseko in the quarter, there was a recovery of C$2.5 million despite positive accounting (inaudible), because for tax purposes, the following occurred. Basically we had the deduction for share issuance of costs, tax rates in B.C. are clearly going down. In '01, they were 45%. In '07, they were 34%. In '08, they are scheduled to move to 31.5%, and by '12, they will be at 27%. Therefore Taseko is deferring its tax liability by making deductions now and paying taxes later at potentially lower rates and this results in a potential savings of C$2.1 million.

Furthermore we have various valuation deductions and the like that account for C$2.7 million which accumulates to a recovery of C$5.7 million. This is offset by deferred stripping exploration deduction, which we take now for tax purposes, but later for accounting purposes it is not available and that amounts to C$3.4 million. So overall on a longer-term, we're going to save C$2.5 million in taxes. So this is a future estimation.

Let's move to asset retirement obligation, we call that ARQ -- ARO, sorry -- has been reviewed and resulted in a change of estimate. Essentially because the mine life has been significantly extended by the increase in reserves, the mine life has moved from 15 to 22 years. The future liability is determined by experts when discounted results on lower balance sheet liability [amount]. This long-term liability is being accreted and charged to operations over the life of the mine from this current present value number to the future liability.

In the current quarter, site closure cost liabilities were reduced by C$3.8 million because of this change of estimate and it was offset by C$0.3 million in accretion in the quarter for an overall net decrease of C$3.5 million in the reclamation obligation liability. It went from C$17.4 million to C$13.9 million in present dollars. Of this C$3.8 million amount, C$2.4 million went to the P&L as a recovery. Think of it as a lessening of future expenses that we recognize now and the C$1.4 million balance reduced the capitalized [mineral] property costs.

As to '08 moving through '12, Taseko could pay similar or lower income taxes provided. Prosperity expenditures commence. Other projects, acquisition targets materialize and we continue the use tax optimized structures and they are continuing to be put in place. Might I add lesser taxes in fact good for the government as Taseko would be investing Gibraltar revenues into the Prosperity project. Saving income taxes, but significantly invigorating GDP in B.C., particularly in North Central British Columbia.

Moving to M&A activity, Taseko continues to actively investigate and monitor several potential strategic alliances with mining companies that would be accretive to add the stock in returning the iris Taseko's enterprise value. Importantly we insure to Benchmark against our organic growth opportunities, particularly advancing the Prosperity project and possibly additional expansion at Gibraltar.

To date, organic growth shows the potential -- greatest potential for long-term shareholder wealth creation, but as expansion expenditures decrease over time and higher production levels are accomplished to over 100 million pounds of copper per year, Taseko's goal is to be fully ready and (inaudible) to leverage off the higher cash flows into accretive acquisitions, mining property development opportunities and importantly, the potential unlocking of the substantial wealth at the Prosperity copper gold project, which has a positive feasibility study reserve of 480 million tonnes. It is conventional open pit mill processing, very similar to what is utilized at Gibraltar. It has projected annual production of 247,000 gold ounces and 108 million pounds of copper for 20 years and it can be financed off of the cash flow from Gibraltar combined with standard debt equities.

Taseko clearly has the projects in-house to add shareholder value. So in conclusion, Taseko continues to invest in Gibraltar property plant and equipment with a very near-term goal of producing over 100 million pounds of copper per year from a modern updated mill over a long mine life of 22 years. At September 30, '07, Taseko remains financially strong, and at December 31 as well with C$91 million in working capital of which C$60 million is a cash, and reclamation liabilities are funded with an additional cash deposit of C$34 million, Gibraltar is turning into a strong, long-life core asset that generates predictable ongoing increasing cash inflows to springboard and finance future project developments including Prosperity and other projects.

Thank you very much, Russ.

Thank you, Jeffrey. Operator, I would now like to open the lines to calls.

(OPERATOR INSTRUCTIONS) [Paul Weiner], AG Edwards.

Things seem to be going very well on the existing project and the Prosperity. I noticed that you have two other projects that I guess are at the back burner, that's the Harmony and the Niobium mine. With the costs to try to move those projects forward, are they also part of your budget?

Yes, Paul, they are part of our budget, but not a significant part. We're going to do some more engineering work on the Aley project, probably do some grass-roots environmental background testing. As far as Harmony does, we've been working on a new flowsheet, looking at the engineering side of it, and trying to keep -- as Jeffrey spoke about, we have significant capital expenditures moving forward at Gibraltar in the next 8 to 12 months. So we are looking at where the best use of our cash is and that would most certainly be Gibraltar as opposed to putting in these other projects. But we do have an amount of money allocated to doing a small amount of work on those other projects.

Can I ask another question?

Sure.

Several mine projects have I guess been postponed because of significant increases in expenditures. I'm thinking of, like, the Nova Gold project. Is your Prosperity project in an area where the cost to develop it are pretty much known in terms of -- they are not going to be any major cost escalations to get that project going?

That is our belief, Paul. Our situation is quite a bit different than a number of the other potential mine operator/builders in the province. If you go to our website, I believe we have a picture of the topography and the area around the Prosperity project. In the summertime, you can drive there in your car, so we don't have to worry about adverse topography influences, any of the kind of issues in terms of stream crossing, river crossing, other influences like that.

So we are very comfortable. The work we have put in in the last 15 months with finalizing our capital costs, based off of what we have undertaken at Gibraltar, we believe gives us a good insight in terms of where we are going to have advantages and disadvantages in terms of moving Prosperity forward in the construction phase. So we are pretty comfortable about our numbers that are starting to unfold for us.

Thank you.

[David Aronstein], [Mammoth Capital].

Quick question. Is your idea of remaining unhedged to both copper and moly prices one that is going to continue or is that something that you are going to revisit in time?

It's Jeffrey Mason. We continue to revisit all the time. We have an active hedging pricing committee. It is executive and independent directors that we continue to electronically and in person meet. We monitor the situation in copper the supply and the deficits and requirements worldwide. There seems to be a fundamental requirement for copper that does not seem to want to cease. They refer to it as the BRIC and that is Brazil, Russia, India, and China. They are continuing to grow worldwide and Credit Suisse even released two days ago that they think there could be a spike in copper as much as $5.44 pound.

So we have continued to go unhedged. What might drive us to consider going hedged is that when we start the construction of Prosperity and we believe that we want to ensure a revenue stream predictable and that we can ensure to finance the completion and startup of Prosperity. And if we were in that situation where we are at elevated copper prices, we may consider a hedge to ensure the proper financing cash funding for Prosperity. But at this point, we remain unhedged and I think the company is enjoying the copper prices and they seem to be by all accounts a prediction of a continuation over the near term.

If I can get you one more question?

Please go ahead.

Different topic. Looking at the general metrics of how your company is valued in the marketplace, it would seem that for a large number of mining companies that are of greater size to take you guys out would be incredibly accretive to their balance sheets. Have you been in contact? Was anybody talking to you? Is that sort of -- or is everybody just sort of trying to scramble in this stock market environment and nobody really has their feet on the ground yet?

It's a very good question and there is a divergence between two things and that is the fundamentals of the enterprise, of our enterprise, we have fundamental strong, growing increasing cash flows. And we have predictable costs. For instance, we have a five-year labor contract that is set in place which accounts for almost 35% of our costs.

So we are potentially a target because fundamentally we are ahead probably of where the stock should reflect. Having said that, some of the other companies are experiencing the same. So they do not necessarily have a share price to execute a takeover and they may or may not have cash. What is critical for us is us to start to realize on the Prosperity value because that needs to be recognized in our share price and that is more of our greater concern is to get that realization through permitting, construction, and eventual production so that our share price can reflect the true value that is contained within the enterprise.

We own 100% of Prosperity and it is a potential double to 2.5 size maker to Gibraltar and that is of concern and certainly we're focused on the fundamental and we have been in dialogue with majors. But it is mainly us looking for other targets to date and we're just trying to keep focused on developing our projects.

Last question, if it's okay, unless there's a big queue.

Go ahead.

On the potential project financing for Prosperity should it [be coming out], would you consider doing a gold loan as opposed to trying to sell a copper stripper or something like that since that seems to be much more easily done? And it's generally really cheap?

That's right. There are some very interesting financial ways to go about Prosperity. One is that we spin out a gold company that takes the 247,000 ounces and we, Gibraltar, Taseko owns a gold company to which does an IPO and gets money in the marketplace. Two is we entertain a gold-producing company to take part of that revenue stream and reflect it onto them and they buy into the financing of build out. Three is we just go strictly with confessional financing. And why would that work? Because we have and will have by the end of '08, we will have little or no capital expenditures occurring on Gibraltar, but operating conditions at higher elevated levels.

So that cash flow can be utilized to collateralize the debt, conventional resource project financing debt, so we could contain it within 100% and thereafter once it's in production and spin it out because it is of greater value at that point in time. Then there's some other ones which are gold loans, future hedge loans on copper and gold. And so there's a lot of variable ways in which to do it, which is very exciting for me in the treasury function and I am looking forward to the production and operation and development team bringing it home so that we can execute the most favorable financing method.

Great, thanks very much.

(OPERATOR INSTRUCTIONS) John Tumazos, John Tumazos Very Independent Research.

Congratulations on all the good progress. Two questions. First, while you have projects already, particularly given the big sell off on the smaller cap mining sector since (inaudible) Creek, are you willing and open to new properties or a change in priority if something develops first? Then second, could you break down the $0.35 off property costs in terms of transportation NBC to port, ocean transportation, traditional TCRCS, and any other costs?

I'll speak to the first question. I'll let Jeffrey speak to the second question. It's Russ, John. How are you?

Good, good, thank you, Russ.

Yes, we are -- as Jeffrey alluded to earlier, in his discussions here on the financials, we are always looking at accretive opportunities. Whether we acquire advanced stage projects that could increase our production screen quicker than we anticipate could be done with our internal organic growth opportunities, i.e., a further expansion of Gibraltar and/or the buildout of Prosperity. Of course all that will be dependent, as Jeffrey indicated, on terms of our internal analysis with respect to where the particular projects could be if they are in North America or another jurisdiction in Europe or South America or Africa, for that matter.

So we weigh all those. Then we look at our expertise in terms of those areas and how we could facilitate moving something forward in a more expeditious manner than we could here in British Columbia. So we always have that on the goal. And our corporate development group is looking at it on a day-to-day basis and in fact, I think we have a couple that we are looking at right now. So that's what we plan to do in that area and have continued to do for the last 18, 24 months.

Absolutely and I think we could even do an acquisition and maintain going Prosperity, but it always is competing capital requirements and what can return the most to the shareholders. And to date the predictability of expansion and the cost of expansion in Gibraltar has been fantastic. We build at half what other people are building at because we have infrastructure in place, power lines, tailings, dams, roads, and the like similar to Prosperity in a very favorable place. Again, when it puts up against other projects, it tends to beat them. But that doesn't say we are not after it. So that is very accurate, Russell.

Moving to the off property costs, really we are in an enviable place. We can ship by rail to back East or in North America and we can also ocean freight. We have been doing a lot of ocean freight and unfortunately, we have been facing higher rates in ocean freight because there's been a shortage of commodities in the world and likewise the people who run the ships haven't been building ships, so there's a shortage of freight vessels out there. However, there is an indication that those are dropping both the three-year, one-year, and spot has been dropping on the [TIDY] rates and so we expect to experience that.

On a break down of the cost, on the TCRCs, roughly half the cost goes to TCRC and half goes to the freight handling and the like as far as costs go. What we're trying to do is discuss with Canadian Pacific, which is the old B.C. Rail, the wharf handling and vessel charter companies, as to trying to lock down more predictable rates. As rates have been dropping, those people are actually more invigorated to try to lock up rates and get longer-term contracts, so we're trying to do that.

On the TCRCs, we have been in dialogue with various groups to date and every time we talk we are faced with even more favorable viewpoints, their smelters have been expanding or they want to offset more what we call hot feed from South America or the light with our sweet feed from Gibraltar. So we have a lot of options that are underway. We expect to conclude something in the next quarter or so on that, and then we will have a more definitive. But even at today's benchmark and benchmark less a premium which our product commands, it still will make up about half of our off-site property costs or slightly less.

So the freight becomes really the unknown, but I think overall we can get that under control. We are very lucky. [Consonary] has been shipping for 25 years on that rail passageway and it is very well proven, very predictable. We don't have any surge, so we got consistent and it can take elevated production. So Gibraltar will produce 180,000 tons of con. It will find its way down there. Prosperity would produce 200,000 tons of con. We could have those both ways of transportation. There wouldn't be any frozen rivers, no pipelines, no surge. It would be consistent monthly production which the smelter and trader groups really like because then it's a predictable.

So I am not going to give you any particular specifics on it because there in dialogue right now, but roughly the take away is half and half freight as TCRCs.

Thank you.

(OPERATOR INSTRUCTIONS) There are no other questions at this time. I would like to turn the conference back to our speakers for any additional or closing remarks.

Thank you very much, operator. Everyone on the call, thank you for joining us today. We look forward to an exciting quarter and look forward to speaking to you on the next conference call. Goodbye.

Thanks, everyone. That concludes today's conference. You may now disconnect.