Taseko Mines Ltd (TGB) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2009 Taseko Mines earnings conference call. My name is Michelle and I will be your coordinator for today. This call is being recorded. (Operator Instructions).

At this time, I would like to turn the call over to Mr. Brian Bergot, Manager of Investor Relations. Please go ahead, sir.

Thank you, Michelle. Good morning ladies and gentlemen, and again, welcome to Taseko Mines' first-quarter 2009 results conference call. My name is Brian Bergot and I'm the Investor Relations Manager for Taseko.

With me today in Vancouver is Russ Hallbauer, President and CEO of Taseko, and Peter Mitchell, Taseko's Chief Financial Officer. After opening remarks by management, which will review first-quarter business and operational results, we will open the phone lines to analysts and investors for a question-and-answer session.

I would also like to remind our listeners that our comments and answers to your questions may contain forward-looking information. This information, by its nature, is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Please refer to the bottom of our latest news release 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 talk about our first-quarter results.

In the period ending March 31, 2009, we were happy to report that we achieved CAD6.6 million in operating profit, resulting in net earnings of CAD3.5 million. This performance is an order-of-magnitude reversal from the CAD40.5 million operating loss we reported at year end. If one looks particularly at our operating and financial performance in March, it should illustrate the path forward for this organization for the foreseeable future.

My discussion today will be relatively short as I think both our press release and our MD&A are pretty straightforward, and we would prefer to answer questions as opposed to repeating a lot that has already been released.

In March, our site costs of production, net of byproduct credits, were approximately $0.85 per pound, down $0.12 from that achieved in January, resulting in quarterly costs, including byproduct credits, of $1.18 per pound. Compare the $1.18 number to that achieved in the same quarter in 2008, i.e. $1.92 per pound, and one will realize how far this organization has come in a very short period of time and how well we have unfolded the business plan we embarked on 24 months ago.

But regardless of the obvious successes we have had most recently, we recognize that many operational improvements to increase metal production need to be front and center for our operational team going forward. And now that winter is behind us, those initiatives will be the number one priority.

We have nearly completed the installation of our next bank of cleaner cells, and we expect to have the regrind mill operational in August. These capital improvements will help in increasing both throughput and recovery. These initiatives will cost approximately CAD4 million. I will speak a little later in the conference call, during the question-and-answer period, with respect to the remaining components of our Phase 2 expansion.

At current metal prices of approximately $2 million, though, and with an operating cost of $1.18, which will fall further as we continue our optimization, our cash flow-generating ability is significant. Every CAD0.01 increase in copper price or in cost reduction adds roughly CAD1 million to our operating profit.

The upside for our Gibraltar operation now that we appear to have a handle on our copper recovery is to chip away at the operational issues that are hindering our ability to move more tonnage through the grinding circuit.

Moving forward to Prosperity, we're continuing to work with regulators in moving through the environmental assessment process on our Prosperity project, and we are well into the public commentary period. We have had over 500 letters of support from the local communities versus 30 that have expressed opposition. We anticipate a busy summer with this process and look forward to receiving our EA approval in the fall.

Certainly we believe that the newly elected government in British Columbia will continue on its path of support for the mining industry, and we look forward to advancing cooperation with both the Ministry of Mines and the other regulatory agencies.

I would like to now turn the call over to Peter to review our financial results and then open the phone lines to questions.

Thanks, Russ. Good morning. Since our year-end conference call, we have seen a boost in copper pricing and a drop in inventories, which continues to work favorably for Taseko when matched against the significant reductions in operating costs that Russ has already discussed.

A few balance sheet highlights -- cash was CAD21.9 million at the end of the first quarter of '09 as compared to CAD4.6 million at year end as a result of the new Credit Suisse term debt facility placed in February netted against cash required for operations and the repayment of our previous operating line. The Credit Suisse financing, as I have mentioned before, is a $30 million facility for three years priced at LIBOR plus 400 and will amortize evenly starting in Q2 of 2010.

Accounts payable will reduce by over CAD10 million in the quarter. Subsequent to the end of the first quarter, we completed a [bond] deal financing for CAD28 million, a private placement for CAD5 million and a warrant exercise for CAD7 million from our December financing. These inflows facilitated the payoff of our $16 million quotational period differential with our former copper trading partner and the facilitated continued reductions in our current liabilities. The cash balance currently is approximately CAD30 million.

Our convertible bonds are categorized as a current liability because of the August 2009 put option the holders have. We are actively pursuing refinancing options that will facilitate more proper categorization of this debt as long term.

Reviewing Taseko's statement of operations for the quarter ended March 31, 2009, total revenue was CAD40.2 million compared to CAD65.4 million for the same quarter a year ago. The reduction is price-driven and was mitigated by an increase in copper sales volume in the first quarter of 2009 of 18.5 million pounds versus 15.4 million pounds in the same 2008 period.

Cost of sales for the quarter was CAD31.7 million as compared to CAD36 million for the three months ended March 31, 2008. This 13.6% reduction resulted from the revised mine plan and reductions in input costs.

Total nonproduction expenses for the quarter ended March 31, 2009, were CAD7.3 million compared to CAD5.6 million for the same quarter last year. Expense items of note include CAD2.9 million of foreign exchange expense related to the translation of US dollar-denominated liabilities versus an income of CAD1 million in this category last year. This is a noncash item, as is our stock-based compensation expense of around CAD700,000.

Interest expense was CAD1 million higher for the quarter versus last year because of the Credit Suisse debt facility interest expense and the CIBC line of credit interest expense that was paid off during the quarter.

The tax recovery booked of CAD4.2 million for the first quarter of 2009 represents current income tax expense of CAD3.9 million and a future income tax recovery of CAD8.1 million. Current taxes include estimated income taxes of CAD3.3 million and BC mineral tax of CAD0.5 million. The effective tax rate for 2009 is 30%.

The three-month earning results to March 31, 2009, was CAD3.5 million as compared to a profit of CAD16.2 million for the same period last year. This equates to earnings per share of CAD0.02 versus earnings per share of CAD0.10 last year on a basic level.

In conclusion, it was a solid start to the fiscal year in light of a very challenging economic environment. We are well positioned from a liquidity position, and a significant portion of our operating margin is now protected from potential pricing downdrafts as a result of the zero-cost hedge placed for the balance of this year for half of our production. We will continue to manage our margin and liquidity carefully as we work through these difficult times.

Russ?

Thank you very much, Peter. I would like to now open up the phone lines to questions. Operator?

(Operator Instructions). Tom Meyer, Raymond James.

First, on taxes and these reversals that periodically appear, how should we model these things going forward? Because it was a reasonable size in this period. What does the balance of 2009 look like (multiple speakers)?

Candidly, Tom, I haven't modeled it on a quarterly basis. Probably -- I would be happy to work with you on it. The reality is, our taxable income has gone through some significant changes over the past several quarters. And additionally, in British Columbia, the income tax rate has been coming down steadily and is coming down to 25% in a couple of years.

So it is hard for me to give you a very specific answer on the call. But using that average rate long term and probably just doing it as an aggregate income tax expense would be the logical way of approaching it from a modeling perspective.

Okay. And then maybe briefly on production at Gibraltar, it may be just our numbers, but we kind of backed out the most recent month for moly production was a little weaker than the first two months of the period.

Yes. Yes, it was, Tom. What are you -- are you thinking about what our run rate will be on moly?

Yes, like is this just an ore issue?

Yes, I will tell you, it is a little bit -- that moly circuit is very finicky. And we kind of -- we were really focusing on copper recovery. As you can see, our copper recovery, we've really brought that up over the last six months. And the metallurgical department was mostly focused on the copper circuit and kind of let the moly circuit get away from us. So we have assigned particular people to work on that circuit now. And we believe that on a go-forward basis that circuit will generate 70,000 to 80,000 pounds a month.

And then finally, as we head towards the summer months, on this convertible, how far away are you from finalizing the refinancing options on that front?

We are going down several different paths right now. I would say we are a matter of probably a month away from having something clearly credible to talk about. So actually, it comes into play at the very end of August.

All right; I will pass it on. Thanks very much.

Orest Wowkodaw, Canaccord Adams.

Just a clarification question. You mentioned that I think you spent CAD16 million to settle negative provisional pricing adjustments with your offtake partner. Was that in Q1 or was that subsequent to Q1?

Yes, it was paid off in mid-April, actually.

In mid-April okay. So --

So it was carried -- it was pretty much fully accrued at the end of the fiscal year, at December 31. And it was still included in accounts payable at March 31.

Okay, so that CAD42 million AP balance at the end of Q1 is going to be substantially reduced, then, in Q2?

Correct.

That's what you're saying? Okay. And in regards to the Phase 2 expansion, have you guys approved the CapEx for the in-pit crusher and conveyor to get -- to finish Phase 2?

Short question, yes. Now, we are going to -- we are evaluating all those to find out where the most accretive opportunities are for us in terms of the whole structure. We have a bit of an issue with putting tonnage through our secondary grinding system. So we are working on engineering to see where the best use of this -- of the crusher conveyor system is going forward.

So we don't completely understand it yet, but we know that we could probably eliminate CAD3 million to CAD4 million worth of operating costs right now by doing something with that secondary crusher system. So we are working on that over the next few months.

Okay. And then you guys did basically 20 million pounds of production in the first quarter. Your guidance was 80 million, and you are in a sort of improving ramp-up phase. Should we take that to assume that your guidance is conservative, or am I missing something?

I don't know. I guess you would have to decide that yourself. We think our guidance is reflective of where we find ourselves, taking into account some of the issues that may or may not be before us. If we solve those, if we can get greater throughput through the SAG mill, obviously we are going to have more metal production. But we think those numbers are realistic, but obviously, as you say, there could be some upside and we think there could potentially be significant upside.

Tom Bishop, BI Research.

With regards to revenue in this quarter, last quarter there was a big negative adjustment for the price by the time that they got around to milling it and had to adjust it during this quotational period. What was the effect of that sort of thing on Q1?

There is really -- there was actually a modest upward adjustment from the QPs carried forward from the fourth calendar quarter of '08 by a few hundred thousand dollars. As for Q1 of 2009, really no impact.

How is -- Q2, I should think, would be substantial.

Not really. (multiple speakers)

We have been primarily M plus 1 with our new offtake partner, and copper prices have been, certainly since March, relatively stable.

Okay, so they got up to $2 in March?

Started ramping up and I think hit that level latter part of March, maybe beginning of April.

Yes, I think they went as high as $2.21.

You said something about M plus 1. What does that mean?

It is just -- it is the terminology that is used with our trading partners, where shipments are priced one month after the month of arrival at the port of -- the destination port.

Was that a longer period with Glencore?

It varied, but at the end it was M plus 4.

So that makes these adjustments small now that it is a shorter interval?

Typically, yes.

Okay. And I know somebody touched on the tax rate, but I didn't quite understand why it was CAD4.4 million on a CAD6.6 million operating profit.

Well, basically, a combination of the current and deferred income taxes. The current income tax was CAD3.3 million, mineral tax CAD0.5 million, and then the balance related to future income taxes. And that relates to changes as a result of the deferred income tax having been booked at a higher rate, and rates are coming down, and recovery of the current-year provision as well.

Okay, but you said we could use 30%. Does that allow for all this monkey business the tax accounting goes through?

You know, if you are wanting to replicate, frankly, the complexity of Taseko's tax calculation, no, it doesn't. But for a straight tax allocation, I was really offering that up as a simplification suggestion.

So are we always going to see a higher number than the 30% of operating profit?

No. I think it is a function of some of the nuances with some of the add-backs that we have, etc. I think it is as a result of some of the transition as well from having booked some high deferred income taxes during periods when earnings were extremely high and reversals, etc. So, no, it is not going to continue at that level.

All right. Well, that is beyond the average analyst to figure that stuff out. You mentioned also the in-pit crusher. Do I understand from what you said that you are still evaluating whether it is the best use of your funds at the moment?

Yes, in the near term, yes. We're going to -- that is in the near term. Yes, the in-pit crusher, for us to get a significant production capacity increase up to the maximum of 55,000, we are going to need a new crusher -- added crusher capacity. But where we spend the money and optimize our production versus costs over the next six months is in the engineering stage, and we are evaluating that right now.

All right. You mentioned the secondary crusher. Is that in the mill or is that what you're considering the in-pit crusher?

Like I said, this is all technology, Tom. So not only you go from a primary crusher right through to your SAG mill, because we didn't replace the old system, we will -- from a primary crusher into a secondary crusher into our fine ore bit. So we are evaluating whether to replace that whole secondary crusher system.

And that may be where we say, hey, listen, it is more accretive to us over the next eight months to replace that as opposed to increasing our tonnage right up to the maximum of 55,000 tons a day by putting another primary crusher in. But that takes quite a bit of work to understand that.

Okay. All right, thank you.

(Operator Instructions). Peter Campbell, Jennings Capital.

I had a couple of questions about Phase 2. Phase 2, upon its completion, should be affecting your recoveries of copper and moly and also your throughput. Your copper recovery is presently in the plus 80 range. What do you see it moving to with like your Phase 2 completion?

We think, Peter, it could probably get up to 85%, 86%.

And then the moly also?

Well, like I said, that moly circuit, I think ideally when the -- it can be -- it's got a lot to do with your grade, the head grade of the moly coming in. But ideally, if you look at byproduct property running moly plants out of copper porphyries, they should be in the 50% range. And we have been running sort of anywhere from a low of 28%, 25%, up to 40%. So we know that we've got to push that up towards -- more up towards 50%. So we've got some work to do here.

And we can expect these recovery improvements to start to take effect, say, when the Phase 2 expansion project is --?

Yes. That next couple percent, we should start to see that once we get some more cleaner capacity and we get that VERTIMILL working so that we can get the proper grind.

Okay, perfect. And then my final question, then, is the throughput improvements from Phase 2, where are you going to move it from 46,000 to 55,000 tons a day, is it fair to say that you probably won't realize that until you get the in-pit crusher and a conveyor in, or should you start to see some improvement also with overall throughput when Phase 2 is complete?

Yes, I think -- well, really, we have to try and get ourselves up to see what the SAG mill can actually do with just the componentry that we are putting in now, the new cleaner cells and the scavenger -- or -- and the VERTIMILL. And once we see that and we push this up to sort of what we expect to get out of the first Phase 1, then we will evaluate what incremental tonnage comes after the fact.

Maybe, like I say, maybe it is more -- like what I was talking about before, maybe it's more cost-effective and more -- and better for the overall profitability of the operation, is to work on the next phase in terms of replacing that secondary crushing system. So those are things that are still in limbo right now.

But I think we've probably in the last four months have been averaging, when we are running on the SAG mill, say, around 39,000, 40,000 tons a day. Well, the immediate improvement is to get that up to 45,000, 46,000 tons a day. So right then, there will be more copper production coming out by us, with us doing that.

Okay, Russ. Well, thank you very much and congratulations on a good quarter there, a good job. Keep it up.

Steve Parsons, Wellington West Capital Markets.

My question is along the lines of -- there's a lot of talk on Phase 2 getting to 55,000 tons a day. I would actually like to focus on how do we get to 46,000 tons a day, because I'm just looking at what's happening in January, February and March. It looks like tons milled is kind of plateauing a bit, about 1 million tons a month, which is kind of 36,000 tons a day. It's still a lot of work to get to 46,000. Can you sort of lay out your plans on how to get there?

Yes. That is a very -- you know, Steve, those are very good points. And that is what we are reading when I talked in this -- earlier in this discussion about the optimization that we have to get. And we believe that the physical componentry is there, obviously, with the SAG mill, the grinding circuit, the flotation circuit, once we get the VERTIMILL done and the added cleaner capacity.

So it is mostly an operation problem, like, you know, having consistency of operation with the feeds that is coming in and minimizing the operational downtime through -- and those are just -- you have been at concentrators before. You know how they work. And you've got to get -- we've got to get that operating capacity up to 91%, 92%, 93% -- I can't remember the exact budget number -- as opposed to 86%, 87%.

So that is what we are going to focus on. And that is our aim, to get this up, like I said earlier, to 45,000, 46,000 tons range. And copper production will come accordingly.

You are sort of -- if you were to lay out a plan on when you can hit 46,000 tons a day on a steady basis, is that kind of a Q3 timeline?

That is a very hard thing to say, because we have really good runs. We can have a couple -- two or three weeks where we are well -- we're 46,000 47,0000 42,0000 43,000 tons a day, and you think you've got it nailed, and then something happens. The densities change, and sand out a few things, and then all hell breaks loose. It's like somebody needs -- the mill needs a good shot of Pepto-Bismol or something.

So those are something that I think as the experience of the operating crews move along, and it is changing every quarter, but it is really hard to sit here and say, okay, by the third quarter or by -- we think we've got it, and we step back. So it is sort of two steps forward, one back, three forward, two back. But we are inching along.

Okay. So would it be fair to say, then, that you sort of pulled back on pushing tons through the mill so that you can optimize copper recoveries, contain costs, and then once we feel like you've got that stabilized, then start pushing tons?

That is exactly what we are doing.

Okay. And also, on the strip ratio, it looks like it's, again, hovering around 1. I understood from the last conference call that the average for the year was expected to be about 1.4.

Right. We are a little light. We've commissioned our new 4100, so it can move a lot of muck off the hill pretty quickly. What we are doing, I think John has got plans -- John and Kim, the general manager up there, have got plans to fire up another truck and not let that stripping get too far behind. But that 4100, that shovel suite we have now, that 4100, like I say, can move 120,000 tons a day. So if we want to get our stripping in line quickly, we can get it in line pretty quickly. So that shouldn't be a concern for anyone.

Okay. And I guess lastly, grade also seems to be 0.3, or is it 0.36, wherever -- it's well above reserve grade. Are we going to be moving back towards more normalized grades in Q3 and Q4 as well?

You know, that is very interesting, because we are really happy with the way that -- some of those grades that we found on the bottom of the pit. And this was unexpected, because that reserve model really has hung together for 35 years, and we're finding at the bottom of the pit that the grade is just getting better at depth. So the area of influence on the lipsoids is, in terms of the model, is probably missing this. So we are pretty happy with that. But we are still looking at that 0.32, 0.33 ore body, but we will take the good stuff when we can. That helps out a lot.

Great. Well, that is good news.

Yes, it is good.

Orest Wowkodaw, Canaccord Adams.

Just a couple more financial questions. Do you have any cash tax yields if you're given some of the operating losses you had last year?

Certainly we have tax yield in terms of all of the capital expenditures that have been made over the past several years. We have got over CAD100 million of undepreciated capital costs at this point.

So if you're calling for an effective tax rate of 30% on the income statement, what should we expect flowing through the cash flow statement in terms of actual cash outflow?

Cash outflow other than the BC mineral taxes and things over the next couple of years is going to be pretty minimal.

Minimal? Okay. And just getting back to the convertible that is I guess likely to be called, can you go into a little more color in terms of what your thinking is there? Do you think you need to -- you said you are looking at alternatives to refinance that. Are you looking for something around, say, CAD20 million from the debt market, or what sort of options are you looking at, and how big do you think you need it?

Well, probably the direction that I'm thinking, that we are thinking at this point is really along a couple of paths. We are having discussions with the original market maker about doing a rollover -- in terms of the amount, probably something similar to what was in place as long as the terms are reasonable.

We are also looking at the possibility of terming it out and are talking with a couple of financial institutions on that possibility, just combine it more or less with the facility that we have, kind of a club type deal and treat it as term debt and not a convert, and take the sort of dilutive overhang of the conversion element out of it is another option.

And then we're looking at a couple of other sort of royalty trust-type convertible instruments as well as a possibility of taking it out. And we are close to sort of bringing all three of those possibilities into executable form. And it's going to take a few more weeks before we are ready to do that. Obviously, the environment that we have been working in in terms of sourcing credit and trying to manage credit has been extremely challenging.

Sure, but in your view, your balance sheet as it stands now couldn't, at today's metal prices, couldn't carry the likely early call if you had to?

I would prefer -- well, yes, my attitude is in this environment, really, there is a very, very strong need to continue to have significant liquidity on the balance sheet as well. I mean, in a worst-case scenario, could we? Yes. Would it be prudent to do that with where we are in terms of base metal prices and the outlook for the economy overall? I don't personally think so.

Fair enough. Thank you.

And that does conclude today's question-and-answer session. I would like to turn the conference back over to Mr. Russell Hallbauer. Please go ahead, sir.

Well, thanks, everyone, for joining us today. We look forward to talking to you later in the summer. Have a good long weekend. Bye-bye.

And that concludes today's presentation. Thank you for your participation.