Taseko Mines Ltd (TGB) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2008 Taseko Mines earnings conference call. This 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. At this time I would like to turn the conference over to Mr. Brian Bergot, Investor Relations. Please proceed, sir.

Good morning, ladies and gentlemen, and welcome to Taseko Mines' second quarter 2008 results conference call. My name is Brian Bergot, and I'm the Investor Relations Manager for Taseko. With me today in Vancouver is Russell Hallbauer, President CEO of Taseko; Jeffrey Mason, Secretary, CFO and Director of to Taseko; and John McManus, our Senior 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 to discuss Taseko's second-quarter 2008 results.

I would like to break this call into three segments today -- one, to specifically talk about our Q2 results; secondly, to discuss progress on our Prosperity project and to briefly discuss our announcement about a further expansion of Gibraltar.

Firstly, the Company generated record sales revenue this quarter of $65.4 million, resulting in an operating profit of $28 million, generating earnings of $0.12 per share as a result of pricing our copper and molybdenum at US$3.67 and US$33.17 per pound, respectively, as we continued to sell our unhedged production into rises in the spot copper market. Jeffrey will speak to this later in the call.

As I spoke about last quarter, we're transitioning to our new Gibraltar concentrator configuration, and as can be seen by our processing capability rates of 1585 tons per hour or 38,000 tons per day in March, we're on target to achieve concentrator throughputs as designed in our original flowsheets for the phase one expansion during our six-month ramp-up period, of which we are into the fourth month.

We have experienced a number of downstream issues with commissioning of the new concentrator, and that's primarily a result of bottlenecks in the system residual from the old concentrator design. But, we're continuing to make daily advances in understanding the operating parameters of our new facility. As it stands today, balancing the metallurgic conditions with throughput tonnage from SAG mill to our ball mills has been a technical challenge in terms of achieving the correct grind and pumping characteristics.

We're making significant headway in both these areas, and prior to the unexpected failure of a SAG mill transformer last week, the concentrator was operating the 2000 tons per hour, or roughly 48,000 tons per day. As I said earlier, we're on target to achieve our annualized capacity during our six-month ramp-up and commissioning phase.

Turning to operating costs, I'm sure a number of you are concerned about the increase in this quarter over last quarter and in comparison to last year's Q2 on our cost to concentrate. In the last quarter of 2007, production costs were C$0.82 sense a pound when we produced 16.8 million pounds. In the first quarter of 2008, our production costs were C$0.98. We continue to update our models and still believe that our copper production costs net of byproduct credits will be in the C$0.80 range, depending upon decreasing input costs for reagents, fuel and grinding media over the long-term and rising production cost, or rising production rates associated with our SAG mill ramp-up.

As it stands today, we're seeing some significant increases in consumables that are evident throughout the world. This most recent quarter's costs were affected by the fact we are now expensing our stripping to the tune of nearly C$0.04 a pound. We had a one-time major shovel rebuild at roughly C$0.12 that affected costs by roughly C$0.12 per pound. We have seen diesel fuel increases of roughly 40% and grinding media increases based on the price of steel of nearly 40% as well for the SAG mill. And, Canada/US exchange rates added roughly another 15%, or C$0.15 per pound. And in the particular, over last year, Canadian/US exchange has added C$0.22 to our total cost. Jeffrey will likely speak about this later in the call. If we add these and other miscellaneous consumable increases associated with the concentrator ramp-up that had to be expensed, these added up to over C$0.50 a pound. In combination with lower production unit costs, with lower copper production, total unit costs rose to the level of C$1.98, as illustrated in our release.

Operating costs can and will vary quite dramatically on a quarter-over-quarter basis related to copper production, and fluctuations with respect to downtime and one-time major expense items, as I've illustrated above.

Correspondingly, because of the situation we find ourselves with regards to the transformer failure that we had last week, we could see similar type production costs for Q3, but these will be the aberration and not the norm. We believe our total operating costs on a long-term basis will fall in the C$1.20 to C$1.30 per pound range. We still, [at site], have a number of unfinished operational technology improvements ongoing that will result in significant cost-per-pound savings as we move forward.

We believe our new refining and treatment agreement, which we just signed a number of weeks back, will be a key component in achieving our long-term cost structure as well as our continued ability to achieve better operating efficiencies from our moly circuit and our cathode [SX-EW] plant. These will both provide us significant byproduct credits.

Rather than go into further specifics, I will await any questions you may have with respect to production and/or costs. I'm sure Jeffrey will discuss a number of these particulars in his financial review as well.

Moving to Prosperity, since our last quarterly call, we have been involved in a process with both provincial and federal governments that I can best describe as discouraging for the simple reason that it's a process not to deal with social, environmental or project-specific details in moving the environmental assessment through to permitting, but rather a process about how the [EA] system should work. It is a process to deal with a process. Mining companies such as ours with major projects in this province are caught in a needless bureaucratic [rigormarole] that works irrespective of sense of urgency and timeliness from both levels of government.

Will we get a permit to build Prosperity? -- is the next question. I believe we will. Why wouldn't we? 100 miles from the Prosperity site, we have a mine, i.e., our Gibraltar mine that has operated for nearly 30 years and will likely be operate for another 20. What has Gibraltar done? We have a perfect environmental record. We employ nearly 400 people. We generate hundreds of millions of dollars in economic activity, both for the community and for our shareholders. This activity pays for schools, roads, you name it. So why wouldn't the same be true for Prosperity?

The only reason we aren't building this mine is because of government's inaction and its inability to move to a proper permitting process, plain and simple, in a very timely manner. As I've said to most of our people in our organization, time is our most important ally and our worst enemy in this regard. If we speed up the process, we have a better chance of success in capturing the metal markets as we see them today. So we're continuing to push this point with both levels of government -- let's get on with it. We're optimistic that they hear and understand our message and our sense of urgency, which should be theirs as well.

I wish to now speak briefly about the 30,000 ton per day expansion at Gibraltar that we announced yesterday and that our Board approved. We as a management group have been working on this project very actively for a number of months. Our Board is very supportive of management moving ahead on this project and Jeffrey will speak to the compelling economics that convinced our Board to approve this major capital project.

This company is in a unique position. We have a large reserve and resource base in a stable political jurisdiction. We've just completed a major expansion on time and on budget. We have in front of us a forward copper curve that is extremely attractive for quick line project development. We have sourced equipment that will allow us to get the expansion up and running very quickly.

Most of you have likely heard of the long lead times regarding SAG mill purchases, shovel purchases, truck purchases and other operational equipment purchases. Because of the applicable tonnage that we've chosen for our expansion, i.e., 30,000 tons per day, and this has been generated from the ability of our ore body to release ore consistently over a long period of time at what we believe is a reasonable cost, we were able to go to a slightly smaller SAG mill as a function of those considerations as well as the hardness of the Gibraltar ore, otherwise referred to [work] (inaudible), meaning we could go to a 28-foot SAG mill, which, instead of requiring capped heads, which the larger mills do, which would take up to 40 months to receive, we could go to a machine-head SAG mill and have our SAG mill delivered and on-site in 24 months. That's a significant advantage for us.

Mining equipment, including trucks, shovels and drills can be on-site and operating by next summer, a full year in advance of concentrator completion. We believe we have a very good handle on our capital cost structure from concentrator equipment through the truck shovel fleet as well as delivery schedules, as I just illustrated.

A very important component of this expansion is not only the significant increase in copper production. We are depending on grades in the mine plant. We will be able to produce nearly 220 million pounds of copper. But as importantly as that, the moly production stream will increase from our present 1.5 million pounds per year to 4.5 million pounds per year, and we'll become a significant moly producer. Our construction and engineering teams are excited about this next challenge. The important aspect of this expansion will be that it's not like the last two, which had to be facilitated around our current production -- our current copper production. This expansion will not affect that, so our process and construction teams will not be encumbered by the inefficiencies that we've experienced over the last 16 months while trying to build a new facility and continue to [main] our significant cash flow.

That's the projects, in a high oversight and I'd like to turn the call over to Jeffrey to speak more about the quarter and particulars on the capital expansion and then open the phone lines to calls.

Before we go to the specifics of the 2008 second fiscal quarter, let's look at the bigger picture. First, Taseko has reported 13 straight quarters of positive earnings per share. In Q2, Taseko reported earnings of C$0.12 per share, consistent with last quarter, and 33% higher than the comparable quarter last year. Taseko continues to take advantage of current copper and moly prices by being 100% unhedged.

In the quarter shareholders' equity increased by C$17 million to C$246 million, essentially due to net earnings. To note, of the C$66 million in cash and equipment that's on hand, none of the moneys are invested in asset-backed securities and capital development projects are on time and on budget.

Now turning to the balance sheet in millions of Canadian dollars. Current assets are up C$7 million in the quarter, almost entirely all explained by movements in cash whereby Taseko started the quarter with C$55 million, spent C$21.5 million on the Gibraltar expansion and banked C$32.9 million from operations and other, to finish the quarter with C$66.4 million on hand. Mineral properties, plant and equipment are up by C$21.5 million in the quarter, and the additions during the quarter are -- mill expansion phase I and II, C$6.9 million; grinding, flotation and others, deferred stripping on the granite pit of C$8.9 million, which is now complete; crusher project, a production drill and other, C$5.7 million; and some granite pit deferred [expiration] of C$0.2 million.

Moving to the liabilities, in the current liabilities section, they increased by C$3.5 million in the quarter, reflecting an increase in the current portion of future income taxes and accounts payable. With respect to other liabilities, the total increase of C$13 million is mostly accounted for by future income taxes, referred to as FIT. The FIT increase resulted from mill expansion equipment shifting from under construction to operations and, hence, triggering an accelerated CCA pool -- that's tax depreciation -- which causes a deferral of current income taxes payable.

As mentioned, Taseko's 100%-owned mineral properties, plant and equipment increased by C$21.5 million. I'm just going to go to some of the more specific details. One, mill expansion, phase I SAG mill -- grind circuit and flotation cells, C$4.7 million expended in Q2, compared to last quarter of C$9.6 million, for a project-to-date total of C$76 million, which -- and this is very important -- is only 3% over the budget of C$74 million. Phase I is now complete.

Moving to Phase II expansion, C$2.2 million in Q2 compared to C$2.5 million last quarter, with C$4.7 million expended to date and is scheduled to complete in late 2008 at a cost of C$40 million. It will increase designed mill production by 20% from 46,000 tons per day under phase I to 55,000 tons in 2008. Phase 2 is on budget and on time.

Mine site equip purchased in the quarter amounted to C$5.7 million and is composed of the crusher project, C$2.5 million; production drill, C$2 million; and some various other ones for C$1 million. Other key equipment purchases planned for the remainder of fiscal 2008 include a crusher project, C$23.7 million; a new P&H 4100 shovel amounting to C$14.8 million. Both the shovel and crusher are expected to be operational in the second half of 2008.

Moving to number four, mine operations including capitalized prestripping of the granite pit that has an expected mine life of about 12 years. Prestripping in the quarter amounted to C$8.9 million compared to C$10.7 million last quarter. Project to date now is at C$52.5 million, and the capitalization ceased on February 29th '08. It is now being amortized, commenced in March, at C$160,000 and will be amortized over the 12 years of the granite pit. It represents a non-cash amortized cost of about C$4 million per year or C$0.035 per pound of copper over the 12-year life, which [hosts] 1.5 billion pounds of copper. This prestripping has been financed at a cash flow, ongoing cash flow. It's a [sunk] cost and will remain as a non-cash item going forward.

In the quarter we had some exploration amounting to $0.2 million compared to C$0.5 million. The balance of exploration expenses related to the Prosperity project and other initiatives was expensed through the P&L. Subsequent to the end of Q2, Taseko commenced a 2008 drilling program. It is budgeted for approximately 100 holes at a cost of C$7.9 million on the granite infill and the [Jib] East-West infill program, along with the Jib North. This extends onto the lands whereon Taseko recently purchased Oakmont's NPI for C$5 million by issuing 1 million common shares and no cash. There are no other material changes on the balance sheet.

Now, moving to the statement of operations, net earnings for Q2, C$16.2 million, which is consistent with last quarter of C$16.3 million, and compares to Q2 fiscal '07 of C$11.5 million, a 40% improvement over last year. Good earnings numbers when considering the mill was in transition to new equipment. This is the 13th straight quarter with positive earnings despite that we are rebuilding the mill while maintaining operations.

Now let's look at some of the line item variances to understand the makeup. Copper revenue was up by C$9.7 million due to 3 million more pounds of copper sold in the quarter as compared to second-quarter fiscal '07, and an increase in copper prices realized at [US$3.67] versus US$3.13 per pound. As compared to Q1 '08, copper revenue was up by C$18.3 million due to 4.2 million pounds of copper sold and an increase in copper prices from US$3.26 to US$3.67. Moly sales of 257,000 pounds for revenue of C$8.8 million compared to C$6.8 million in Q1 fiscal 2008 and contributed noticeably to the overall revenue.

On-site property cost of sales were at US$1.48 per pound versus US$0.98 in Q1 and US$1.12 in fiscal 2007. The increase per pound was a result of the following factors -- ceasing capitalization of the stripping costs, hence, internal pit stripping is now a mining cost; lower production due to decreased mill availability and SAG mill transition commissioning; higher consumption and prices for steel grinding material; fuel consumption and price increases; and major equipment rebuild and higher maintenance.

Most of these additional expenses are nonrecurring and are expected to stabilize and normalize, whereupon achieving additional production, i.e., increasing the denominator, will result in a decrease in production cost per pound as experienced in previous quarters already; and importantly, moving to a lower average cost per pound over time, due to economies [to] scale.

Off-site property costs in Q1 were C$0.44 and are unchanged from Q1 '08. Costs have remained consistent, due to the following. Bulk ocean freights appear to be normalizing at higher levels, much higher than seen in the past. Foreign exchange -- a relatively strong Canadian dollar appears to be stable at around par. And, [TCRC] are consistent under the existing contract. As for the TCRC contract and rates going forward, the Company entered into a six-year agreement, six-year fixed agreement, with a Swiss-based metal trading house subsequent to the end of Q2. Under the terms of the agreement, Taseko has secured long-term, fixed, low-cost rates for processing approximately 1.1 million tons of copper concentrate. The agreement becomes effective in the last calendar quarter of '08, and it extends to December 31, 2014. The Company importantly has a right to price payable copper within the concentrate, based on a quotational period declared prior to and covering each ensuing year.

Depreciation in Q2 was C$1.1 million versus Q1 '07 at C$0.7 million. The increase is explained by the commencement of amortization of capitalized stripping on the granite pit and the amortization on the commissioned SAG mill circuit equipment. Total other expenses in Q2 are at C$5.6 million. Q1 '08 compares at C$4.2 million, and Q2 '07 at C$3.9 million. The increase is explained by higher levels of staffing activity and a change in the fair value of financial instruments which reflects the expiration of the out-off-the-money continental warrants, a non-cash expense.

Moving to income taxes, in Q2 Taseko filed on time its 2007 corporate tax returns and was able to take advantage of certain accelerated tax deductions available, resulting in a recovery of tax installments totaling C$6.3 million that had been recorded as a current liability at September 30th, '07. This accounts for the income tax receivable of C$6.3 million on the balance sheet. The net taxes actually paid for '07 amount to C$0.3 million. Clearly, the phase 1 and phase 2 deductions did their job, and deferred taxes otherwise payable to later years by creating a tax shelter.

Income tax expense relating to Q2 earnings is about C$0.4 million after taking into account a recovery of the '07 income taxes of C$6.3 million. This results in a recovery for the six months to March 31 of C$6 million as reflected on the income statement for the six months, of which C$7.2 million was the adjustment required in the quarter. The actual liability will only be determined after the completion of the '08 fiscal year, and hence at this point, it is simply an estimate. Taseko is already working diligently with Ernst & Young to optimize tax deductions from capital additions, deferred mine stripping costs and other initiatives in order to minimize '08 income taxes, much like '07.

Moving to future income taxes, or FIT, FIT is a non-cash item that estimates future tax expense and recoveries due to timing difference. For example, in tax, depreciation deductions can be accelerated versus for accounting, it is calculated on units of production or other basis. And, there are numerous other permanent differences, such as equity costs, our deductible over five years for tax, whereas for accounting purposes they are netted out in shareholders equity.

In summary terms, for Taseko in the six months ended March 31, '08, there was a FIT expense of C$11 million, primarily derived from the Company's ability to deduct accelerated tax [CCA] -- that's the depreciation -- in excess of the accounting depreciation, resulting in increased FIT liability and expense. The current-quarter FIT expense was C$13.5 million in order to adjust for the year-to-date estimates. The overall -- and this is important, just to get an idea on the overall -- the overall second-quarter effective tax rate was about 28%, accounting for FIT and the current taxes.

As it turns out, despite the timing differences, this is not far off the overall corporate tax rate, which is set at 31% for '08, moving down incrementally as it is enacted into law, to 25% in 2012. Clearly, we want to defer taxes to the lower tax rates further out.

As to the period '08 through '12, Taseko could deferred tax payments due to Gibraltar expansion, expanded [share tax shield], Prosperity and exploration expenditures, other projects, acquisition targets materialized and further optimized tax structures are put into place. Might I add, lesser tax is in fact good for governments, as well as companies. As Taseko continues to invest Gibraltar revenues into the Gibraltar and Prosperity project, saving income taxes but significantly invigorating GDP and increasing jobs in B.C., particularly in North Central B.C.

On M&A activity, Taseko continues to effectively investigate and monitor several potential strategic alliances with mining companies that will be accretive to Taseko's enterprise value while ensuring to benchmark against organic growth opportunities, particularly advancing the Prosperity project and the additional expansion in Gibraltar. To date, organic growth shows the greatest potential for long-term shareholder wealth creation as higher production levels under phase 1 and 2 provide capacity of 115 million pounds of copper per year, thereby providing an internal generated funding to build out Gibraltar III. Furthermore, Taseko continues to advance the Prosperity copper/gold project through the permitting process, as Russ has mentioned.

Prosperity has a positive feasibility study reserve of 480 million tons to be mined using conventional open-fit mill processing, very similar to Gibraltar. Projected annual production of 247,000 ounces of gold and 108 million pounds of copper for 20 years is planned for Prosperity. Taseko clearly has the projects in-house to add shareholder value, to which Taseko just announced the approval of the Gibraltar III expansion.

And moving to that, in summary, the Gibraltar III expansion has these following key ingredients to make it a success. The Hatch LTD engineering firm has been retained and is working on engineering and procurement, leveraging off its experienced building phase of 1 and 2. 90% plus of the team, external and internal personnel to build phase 1 and 2, are continuing and/or returning. The team was responsible for building phase 1 within 3% of budget. Mine planning is well advanced, based on developing reserves and resources, including Gibraltar North, much like our historic record to date. The milling facility will be separate. It will be integrated as it comes on stream to the existing facilities, and thus will enjoy economies of scale such as existing crushing, tailings line, et cetera.

Importantly, the new facility will be built without the interruption to existing operations. Cash flow will be continuing. Estimated time to complete the construction is 27 months from now, by August 2010 or earlier.

And, let's move to the metrics. Cost, C$350 million; ROI, greater than 30%; payback, less than three years; NPV, greater than C$100 million. Financing will be approximately 30% from conventional debt and 70% from internal generated funding. There is no share equity raising planned.

Commodity prices were determined based on a discount to the price curve and longer-term consensus. Other inputs and costs are as per historic operations, to which we have lots of records, and/or as per contracted. Milling capacity increases by 30,000 tons per day. Capital, copper and copper and concentrate production capacity moves up to 180 million pounds, moly production capacity to 4.5 million pounds of moly.

In conclusion, Taseko continues to invest in Gibraltar property, plant and equipment with the near-term goal of producing over 180 million pounds of copper and 4.5 million pounds of moly per year from a modern, updated mill. At March 31, '08, Taseko remains financially strong with C$94 million in working capital, of which C$66 million is in cash and we have reclamation liabilities that are funded with an additional cash separate from the C$66 million of C$35 million on deposit. Gibraltar is a strong, expanding core asset that generates predictable ongoing increasing cash flows to spring forward and finance future organic development projects, including the newly announced [Jib 3] expansion. Thank you very much, Russell.

Thank you very much, Jeffrey. Operator, I'd now like to open the phone lines for calls.

(OPERATOR INSTRUCTIONS) Tom Meyer, Raymond James.

On the Gibraltar mill, which is down now, will you guys be up and running in the next two weeks? I'm thinking, you will be up by May 25th?

Yes, I think -- when, John?

(technical difficulty) we're scheduled to be up and running on the 21st of May. The new transformer that we've purchased is on its way.

Then, the reference to the convertible debenture in the press release -- where are those shares now? Where do they fit?

Okay, it was a $17 million convertible debenture. They had the right to convert at $5.14, no warrant attached, not too far off the most recent, and going back a ways, financing we did at C$5.20. They elected -- Boliden, formerly Boliden; it's NVI, is the company now -- elected to convert at C$5.14. We converted all the shares, less C$3.5 million, and delivered those shares to them. So we retained back C$3.5 million in value as an offset against latent tax liabilities that we have filed action against, whereby, on the purchase of the assets, dating back to 1999, we believe and continue to believe is a [right of] offset.

And the timing -- will this go back and fourth for a few months, or should we be looking for years?

Well, first of all, the majority of the C$17 million was disbursed, less the C$3.5 million, in shares. We are carrying on two tracks; one, a business solution. We are in dialogue with them to try to resolve this amicably. Number two is, we will go to the court system and have been active in that court system for over three years, with our claim. That is a due process and will continue on that process and not release, as long as we can, with respect to the legal abilities that we may have before us.

I can't give young an outcome, a potential outcome, other than our lawyers believe that it is a case well-documented. It appears to be clear, and it will be for the courts to decide if we eventually get to that point.

Finally, can you give us a sense of production guidance for the next few quarters, not so much Q2, but -- or calendar year Q2, but the second half of this year?

Well Tom, we thought, before this transformer failure, that we were going to get up to that annualized 70, 80 million pounds that we referred to in the past, and I think that pretty much sums it up. I think we should be able to easily do 20 million pounds a quarter, once we get the SAG mill running. And, as I illustrated there briefly, before the transformer failed, we were at 48,000 tons per day, which exceeded the target that we had set in the original engineering scope of work. So, you can use that as guidance, I guess.

And then the recoveries, copper and moly -- are you comfortable with what you've seen so far, or is there opportunities for improvement just with the tweaking or balancing (multiple speakers) --

Yes, and I think that's what we've thought about, we've indicated. Once we stabilize the rheology and the circuit, then we'll see the full advantage of those [O and K] cells. Because we haven't had a balanced circuit, you know it's ebbing and flowing and the pump rates, we haven't really been able to get that recovery. But as you can see, John has got it, what, up to 80 -- just under 82%, John, the guidance of 82%, on the copper circuit. And because that moly circuit is such a small little circuit and there's difficulty in balancing that. But we think we can ultimately get that moly circuit close to 60%, don't we, John?

Yes, that's exactly right, Russ. With the transition to the new equipment that we're installing into the mill, it is difficult to stabilize all of the circuits and get them working together. But we see no reason not to be able to hit our targets closer to 90% in copper, up into the 60s in moly.

Mike Collison, Dundee Securities.

I know you can't get into the details on your [off-peak] here. But I was wondering if you could give me some idea on where the right to price payable copper, based on a quotational period and covering each ensuing calendar year -- could you give me an example of that, to -- ?

Yes, and this is a very important point. When we lock down the TCRC trends, which is the cost to process the concentrate -- but as it turns out, because of the volatility in copper price, actually, the pricing of copper has become far more important. For instance, this last -- in April, we sold 3.1 million pounds, and we were able to sell those at C$3.92 because there happened to be a spike in copper, and we took advantage of that spike, and then pulled the trigger on the pricing.

So what we have been able to retain in the contract going forward is the flexibility to call the point, the timing at which we execute the trigger on pricing the copper that's contained in the concentrate. How much flexibility do we have? Well, each year at the trader makes an election whereby we will have somewhere between two and four months of window in which to make an election on that copper, whereby you ride and look at the copper pricing and make that election.

If you do not make an election, then you fall into the average, which is called the quotation period, the elected month, which ensues thereafter. I know this is quite tricky, but this is the way the industry works.

Now, what is really more important is this, is that you have predictable months in which you price copper, and the flexibility remains with the seller, being Taseko. So if you decide to hook on a hedge program, you can match up your paper hedge with the physical hedge. If you lose control of the pricing mechanism and the buyer or the trader takes it, it is much more difficult to hook on a hedging program, if the Company decides to do that. So if we got a pinch point in copper, the Board felt they wanted to reduce risk and fixed copper price and they so choose, it's much easier to hook it on. And, when we set this contract in place, we sat with several hedge group -- a Swiss bank and other major banks around the world -- and said, how is it best to hook on a hedge program? Just not to do it, but just to understand what the flexibility is. And that's a very important thing.

So this quotational period is a flexible period in which you can determine when you price after the date on which you ship.

Okay, and for example, on the April pricing you did there, how long -- does that cover the entire year?

No. What that does is, the window, the length of the window is set prior to the year commencing. So, the buyer or the trader makes an election for the ensuing year, whether you are going to have two or four months in which to elect to take the pricing. And each time you ship -- so, let's assume it's 60 days, the window established at the beginning of the year. If I ship in April, I have 60 days in which to pull the price trigger.

For that shipment?

For that shipment. Then, the next shipment that comes along, I have another 60 days.

Okay, perfect, I've got it now.

And sometimes, the trader can make an election to make it four months for the entire year. So you've got a predictability for that whole year of what your window is.

Right on, okay, thanks very much.

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

With the C$350 million for the next phase at Gibraltar, roughly how do you see -- what portion of that do you see being funded externally as opposed to from your retained cash flow? And when will you be ready for Prosperity, Harmony or new properties and ventures as you see opportunities unfold?

I'll handle the first one, certainly, on the financing. We've been entertaining various parties here over the financing. Currently, we've targeted that 30% of the 350 we finance at a conventional bank financing or lines of credit. The reason is, we're leveraging off our current cash flow ability to service that debt. So, that would amount to roughly $105 million of the C$350 million. The remainder would be generated by internal cash flow.

We actually can do better than that, probably, even have less debt. But we've pegged that as, that would be a suitable amount. The key ingredient to make it a success is to order the long lead-time item. We have C$66 million on hand. We have currently a C$30 million line of credit that is with our trader, so we have C$96 million available in which to ensure that John and his group, along with Hatch Engineering, can order that equipment, and put the necessary deposit incentives so that our time lines are in place.

So we're not waiting for anything on the loan side; we can escalate this project right away and move to construction.

Moving to Prosperity --

John and I were down at [Chisco] a couple -- a month or so ago. We met with 12 smelter groups to discuss various forms of participation and tried to understand their interest in providing a portion of equity financing and/or debt or a combination thereof of both, to facilitate them participating in the development of Prosperity, along with taking a certain amount of the offtake, which is a pretty normal feature these days. The groups that we met with were probably, I think, probably the top 10 to 12 largest smelter groups in the world, ranging from Japanese to Europeans to Chinese smelter groups. So their interest is very high, and we are proceeding with those negotiations in the coming months to ascertain what would be the best business decision for us in terms of how this will all fit with our Gibraltar expansion and the timeliness of us getting a permit for Prosperity.

I will add, there are some other avenues of finance, which include spinning the Goldstream, which is 247,000 ounces per year. The timing of that is very important. There's a couple of key stages there. But spinning that into a gold company and/or to an actual -- our own company, which is a subsidiary, and then floating an IPO onto that, or to an actual gold company, whereby they pay the cap costs and a portion of op in order to enjoy that revenue stream off the gold.

Finally, we have talked to some banking groups on a consortium of banking groups to finance that under conventional debt financing, but with an equity component and/or a smelter participation. So we've got about three different avenues in which to undertake that, but we are still in dialogue and discussions. All of them are very positive, and the reason is, they like that we are moving to a second operation and we have the established cash flow off the existing operation.

In your discussion of the different smelting companies met around the [Chisco] program in Chile, are you suggesting that a 10% or 20% slug of Gibraltar or Prosperity might be sold to an Asian smelter to help finance the next projects?

That could be one option, John.

I don't want to put words in your mouth, but I think that's --.

Don't worry, you won't. But those are certainly opportunities. And like Jeffrey said, there's many, many different avenues out there that we will investigate and trying to understand which we believe are the best for the organization.

And whether it's at the project level, that 10% or 20%, or whether it's at the Corporation level hasn't been determined. And whether they will enjoy some of the increased Gibraltar offtake that gets derived from Gibraltar 3 expansion is also in the mix. So we've got a lot of moving parts that we can induce or incentivize these groups to participate because there remains to an extreme concentrate deficit in the world for the smelter groups.

That does conclude today's question-and-answer session. At this time I would like to turn the conference back over to the speakers for any additional or closing remarks.

Thank you very much, gentlemen, for joining us. Have a good day and we look forward to chatting with you next quarter.

Ladies and gentlemen, this does include today's conference. We thank you for your participation. You may --.