Taseko Mines Ltd (TGB) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2009 Taseko Mines earnings conference call. My name is Brendan McNabb, and I'll be your coordinator for today. 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 this conference. 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, Brendan. Good morning ladies and gentlemen, and welcome to Taseko Mines second quarter 2009 results conference call. My name is Brian Bergot, and I'm the Investor Relations Manager for Taseko. Speaking on the call today will be Russ Hallbauer, President and CEO of Taseko who is actually dialed in from out of country today, John McManus, Senior VP of Operations for Taseko and Peter Mitchell, Taseko's Chief Financial Officer, who are both with me in Vancouver. After opening remarks by management which will review second quarter business and operational results, we will open the phone lines to analysts and investors for a question-and-answer session. I would also like to remind our listeners that our comments and answers to your questions may contain forward-looking information. This information by its nature is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Please refer to the bottom of our latest news release for more information. I will now turn the call over to Russ for his remarks.

Thank you, Brian. Good morning, everyone. Thank you for joining us today to discuss our second quarter financial and operating results for Taseko. In the quarter ending June 30, we were happy to report that we achieved CAD16.7 million of operating profit resulting in after tax net earnings of CAD11.7 million or CAD0.07 per share. Peter Mitchell, our CFO, will speak more about the financial results later in the call. Our second quarter operating profit of CAD16.7 million is a significant improvement over the CAD6.6 million we achieved in Q1 and reflects our ongoing operational performance, improvements at Gibraltar, our cost containment initiatives and the strengthening copper price.

In the first quarter of 2009, Taseko averaged realized price was $1.61 per pound. In the second quarter, LME prices have averaged $2.12 per pound and our realized price was $2.10 a pound. Copper appears to be the metal that has rebounded the most since the lows of the past year and since July of this year, that averaged roughly $2.46 a pound and recently traded up to $2.81 a pound. Obviously, if these metal prices continue, we expect even better results going forward for the Company. We're uncertain though about where copper prices may settle out; however, with their ongoing work on both our concentrator upgrade and expansion, we expect to continue to maintain healthy operating margins and increased earnings growth as we continue to reduce our costs and increase our copper production over the next year.

As indicated in our press release yesterday, we've been aggressively working on a business improvement plan. This initiative has highlighted over CAD20 million in annual cost reduction savings, and I express annual savings, not one-time savings that mine management are actively pursuing. This CAD20 million estimated annual savings against the backdrop of our annual copper production capacity should give insight into where we believe we can stabilize our long term cost structure. To keep everything in perspective, we're managing our costs in relation to our net back margins, ie, the price we sell copper for vis-a-vis our costs. In that light, this higher copper price is permitting us to step up waste stripping backed up earlier than we originally planned as well as allowing us to undertake other initiatives, but will set us up in the future in terms of more efficient and cost effective pit development sequencing an access to our release. In essence, what we are doing today will reduce our costs in the future. Now most technical analysts will say, oh, that means the operating costs will rise and as a general side of the steady state, that would be true. But as I spoke about earlier with our business improvement initiatives, our projected recovery increases with addition of the new Vertimill and additional scavengery cell capacity and ultimately, the processing of more ore to our SAG mill and concentrator will offset the cost of the increasing strip ratio.

Generally, from managements perspective in this business, what happens in one quarter to relatively inconsequential in the broader picture is we do not run our business on our operations on a quarterly by quarter basis. We operate to increase earnings on a long term basis in terms of years, not weeks or quarters, which I'd like to stress to everyone with me today. We are well positioned. In March when copper was CAD2 a pound, I indicated that for every CAD0.01 increase in copper prices or cost reductions, Taseko generates roughly CAD1 million additional operating profit. In March, when copper was CAD2 a pound, I indicated that for every CAD0.01 increase in copper prices or in cost production, Taseko generates roughly CAD1 million in additional operating profit. In March, copper was CAD2 per pound; today it is CAD2.75 a pound. Copper price alone will change our economic performance dramatically exclusive of everything else we have on the goal. So one shouldn't get distracted by small quarter-to-quarter fluctuations on cost or production as we're going to be operating Gibraltar for the next 25 years, and that's a lot of quarters. And changes will appear on our quarterly earnings based on how we wish to run the Company. Those companies that try to manage the operations and expectations through their earnings are likely in for a rude surprise sooner or later.

To give a quick update on Gibraltar, as we've indicated our Vertimill installation is complete and we're in the process of early commission. This new regrind mill, along with additional floatation capacity that I spoke about before, will help us increase our metal recoveries. The Vertimill and new cell addition has come in on time and on budget as a very important addition to our concentrator. Additional tailings pumping capa -- work is nearing completion which will allow us to pump over 55,000 tons per day of tailings to our tailings pond. We continue, though, to have a bottleneck on our crushing system primarily associated with the feed chutes on our fine ore bin, even if they were not designed for over 55,000 tons per day. So we need to rectify that issue moving forward. We originally thought that we could put all of the ore up to the 55,000 ton per day limit through the secondary crushing system that we have now in place and after we commissioned our input crusher and conveyer that would continue to be the case that we would move forward on, but we now see that that is impractical. We made the decision to build a new, more cost effective stockpile system for our in pit crusher pressure feed to our SAG mill. We expect to have this new system operating in early 2010. Going forward, then we will have two systems, the present primary/secondary crushing system and the secondary crushing system, primarily only crushing system. That's a lot of crushing systems. The present primary system will be idled and used as a backup and as a result, we expect the same CAD3 million to CAD4 million per year in maintenance costs by doing such. Our new crushing system, however, will allow larger feed to the SAG mill which will negate the feed issues we now have and will take us easily -- allow us easily to process 55,000 tons per day.

Stepping on to the next item, I'd like to illustrate to our shareholders about a few things that are very important for you to understand. When I came to this organization in 2005, I set the path to this Company out five to 10 years, and every year we have laid out that path for everyone to see. I'd just like to refresh everyone's memory. Our first order of business back in 2005 was Gibraltar. We wanted to increase our order reserves, we wanted to upgrade our concentrator, we wanted to upgrade our mining fleet which would result in a reduction of our cost base and finally, we wanted to build our management capabilities. These were just a few of the high level initiatives we laid out for the foundation of the long term growth strategy to build this Company over a period of years. During this time, we have not enhanced short-term earnings to the expense of long term value creation, and I think the results speak for themselves. We survived the quickest commodity drop of all time and we have returned to very good profit in a very short period of time, and we are continuing to move ahead with our plans. We have continued to work our shareholders in a consistent aunt methodical method. Our shareholders should not be distracted by how the capital markets have valued our assets as opposed to the actual physical value of the nuts, bolts and reserves of this Company as that value will be unlocked as we move forward in the months and years ahead.

All we can do as management is run the business efficiently and effectively as possible and let the results ultimately speak for themselves. I've spoken about this issue in the past, and I'll speak about it again today as I want this opportunity to highlight a few topics as I only have this quarterly call to speak to all of our shareholders. To replace Gibraltar, if one was lucky enough, and I mean lucky enough to find a 500 million-ton ore body, put in 10 to 15 years of drilling and permeating environmental assessment and then have the technical expertise to build a 55,000 ton per day mine like we have now, one may be fortunate enough to accomplish that for maybe CAD800 million if all things fell into place. That would be accomplishment for any mining company let alone a company of our size. Having said and understanding that, our market cap is less than one half the value of our Gibraltar assets. Pundits say the capital markets are transparent in the sense they value assets effectively and efficiency, but that premise does not seem to me to be particularly relevant as it relates to this business, our business in particular. So let's step back and look at the Company in that regard.

Taseko has major advantages no one else in our peer group has. The question has to be asked, with as many good things going on with this Company, why is it we are trading at such a discount to our net asset value? We have significant cash flow and earnings at current metal prices, we have planned 45% proper production over the next 12 months which will increase gross cash flows, we have earnings growth, we have five million ounces of gold reserves at CAD1.50 copper and CAD5.75 gold, we have over 16 million ounces of gold resources. We anticipate metal production diversification of copper and gold in the near term and we have five billion pounds of copper reserves and 11 billion pounds of resources and assets, all located in a secure political jurisdiction.

Let's look at our peer group. How many of them have long life reserves of plus 20 years? Does anyone believe that any mining company with any substance has been built with reserves of six, seven or 10 years for that matter? Major mining companies have and will continue to be built on the back of long life quality reserves. Why did Taseko acquire Cominco in 1986? Primarily prior to the Red Dog reserves and the interest in Highland Valley Copper and its reserves. Why did (inaudible) acquire the (inaudible) bankruptcy from the Weststar -- from the Weststar bankruptcy? For its 30 years in metallurgical coal reserves. What does BHP acquire Western Mining? Why did Barrick acquire Placer Dome? All to acquire long life reserves that could continue to grow their companies. Reserves, not (inaudible) are in mining companies' bank account. Not having those is the same as not having any money in your savings account. We however get compared with our peers in many different ways but what is not highlighted enough is the critical aspect of investing a quality mining company, and that is the long term reserve base to insure that the business is sustainable and can generate significant cash or many metal cycles. That is a very important point that investors in this business fail sometimes to recognize.

If one is a day trader, I guess one wouldn't care. But the long term value investor should know and understand that fact, but most times it's never discussed. Furthermore, as an operating entity, we have moved from the 90th percentile of the cost curve to under the 50th, and we prepare to be one of the only few companies I ever searched moving down the cost curve as others move up. We continue to move down as we continue our expansion and all those other improvements I spoke about earlier on this call. Our operating entity at Gibraltar has a 27 year mine life at CAD1.50 copper and CAD10 moly, and our other 100% owned asset has a reserve that is within six to eight months and receiving its environmental assessment approval and has a projected 22 year mine life at CAD1.50 copper and CAD5.70 gold. Imagine what the mine life will be once we do a reserve update at CAD1.90 copper and CAD7.75 gold as per general analyst consensus prices to date. So not only do we have the largest proven and probable reserves of our peers and the largest in both categories in Canada, we also operate on the jurisdiction that has the best infrastructure, rail port roads, best hydropower rates and the lowest tax regime of any jurisdiction worldwide. So for all our shareholders listening today, I have been in the business a long time and if we stick to our plan, this value will ultimately be recognized and reflected in this Company's valuations.

Stepping ahead, the recent re-election of the government of British Columbia could not be understated in terms of the importance it brings to mine development going forward in this province, not only for Taseko and the development at Prosperity but for other projects as well. BC is the gateway to Asia and significant interest has been shown by Asian entities in all areas of resource development in western Canada. The government is continuing to push this initiative, particularly the provincial government and encouraging stronger ties with exploration companies through mine development companies such as Taseko, with these overseas investors and metal purchases. We cannot encourage this without a strong position on mine development and intended economic activity with huge value creating multiples like those associated with mine development. So that is very positive for our industry for our Prosperity development as we move forward on the regulatory work in the months ahead.

A few weeks ago, we released press release regarding the Canadian government's Department of Fisheries and Ocean's stance on disturbance of fish habitat related to our plans to build a new lake to replace Fish Lake. In the past, the biggest single issue this project has faced was how to deal with the loss of the fish habitat related to Fish Lake compensation, and government agencies' willingness to accept compensation and mitigation plans for those impacts. Our work with the provincial agencies responsible for (inaudible) has endorsed our plan as innovative and acceptable in terms of fish enhancement. The fact that we owe now to a large degree will accept the province's approach is very important in moving this project through the environmental assessment to a logical conclusion, so we're very excited about that. I'd like to now turn the call over to Peter to walk you through the financials, then open the line to questions. Peter?

Thanks, Russ. Good morning. I'm pleased to be able to report on the results for the quarter ended June 30, '09. The combination of strong operations and improved pricing conditions has lead to significant improvement in our operating results and liquidity since the beginning of the year. Focusing initially on the balance sheet, cash was CAD33.4 million at June 30 as compared to CAD4.6 million at the year end. As a result of the new Credit Suisse term debt facility, netted against cash required for operations and the repayment of the previous operating line, along with the partial buyback of the convertible bond that has a put value of 100.6 at face value on the 29th of August, actually the 31st. Today, we've repurchased $20 million of the $30 million, at pricing below the put and have sufficient liquidity to complete this purchase with the final $10 million purchase scheduled for the 31st of August. $7.5 million of this $20 million was repurchased prior to the June 30 quarter end.

In April 09, we completed a bought deal financing for CAD23 million, a private placement for CAD5 million and a warrant exercise of CAD7.1 million from our December '08 financing. These in flows facilitated the payoff of the CAD16 million quotational period differential from our former copper trading partner and have helped reduce accounts payable from CAD53 million at year end to CAD15.6 million at the end of the second quarter. The cash balance currently is approximately CAD20 million. Taseko's revenue for the quarter ended June 30, 09 was CAD52.6 million compared to CAD53.2 million for the same quarter a year ago. The similar result is driven by very different reasons. Last year, production was 12.4 million pounds for the quarter as compared to 19.1 million for the quarter ended June 30, 2009. Copper sales were 21 million pounds at an average price of $2.10 per pound for the quarter ended June 30, 2009 as compared to 12.4 million pounds of copper concentrate in the June 30, 2008 quarter at an average price of $3.86 per pound. Cost of sales for the quarter was CAD33.8 million for the three months ended June 30, '09 as compared to CAD35.7 million for the quarter ended June 30, 2008, with production increasing from 12.4 million pounds in the '08 quarter to 19.1 million pounds in the June quarter just ended, reflecting a 5.6% reduction in cost and a 54% increase in production. The 2008 costs include unscheduled down time from a transformer failure which further impacted this base period.

Non-production income/expenses for the quarter ended June 30, '09 totaled an income of CAD700,000 compared to expense of CAD6.9 million for the same quarter last year. Items of note include CAD7.9 million of foreign exchange gain related to the translation of US dollar denominated liabilities versus expense of CAD600,000 last year. This is a non-cash item. Additionally, we hedged half of our production for the period from May to December 2009. This financial instrument was marked-to-market at the end of the June 30, 2009 quarter and resulted in a CAD2.7 million liability and a corresponding non-cash expense. Interest expense was CAD800,000 higher for the quarter versus last year because of the CS facility interest expense. The net income tax expense booked to CAD5.9 million for the second quarter of '09 represents a recovery of CAD1.2 million and a future income tax expense of CAD7.1 million. The effective tax rate for 2009 is 30%. The net tax expense of CAD5.9 million includes adjustments based on the following items, permanent differences, trueup of our '08 numbers based on our actual returns as well as a mineral tax estimate for the second quarter.

The Company is able to utilize its tax pools in certain companies to offset cash tax and thus, we do not anticipate paying cash income taxes in 2009 other than our BC mineral tax. The three months earnings result to June 30, 2009 was CAD11.4 million as compared to a profit of CAD3.8 million for the same period last year. This equates to earnings per share of CAD0.07 versus CAD0.03 last year. Year-to-date earnings per share are CAD0.09 in 2009 as compared to CAD0.14 last year. In conclusion, the June quarter end built on the momentum established in the first quarter. Solid operating margins strengthened Taseko's liquidity position. These operating margins were improved with very effective cost management and continuously improving copper pricing. We'll continue to manage our margin and liquidity carefully as we implement our growth strategy going forward. Thank you.

Thanks, Peter. Now I'd like to open the call to questions.

Thank you. (Operator Instructions) We'll take our first question from Tom Meyer with Raymond James.

Thank you, hi, Russ. Is there going to be a change in the mine plan at Gibraltar.Just going through the text of the MD&A, you're considering looking at the return to a higher strip, and I think I was under the impression from past conference calls that the change in the mine plan was in an optimized mine plan when you went and looked at Phase II and Phase III expansion. So, is there a change in the mine plan?

Why don't you talk about that, John?

Okay. Tom, this is John here. You kind of are hitting a few different points with the same question there. Number one, we came off of our mine plan, which was above the pit average strip ratio back in November in reaction to the reduction of copper prices so that we could maintain margins. So that was a mine plan which was implemented in November. We went back to 1.1, 1.2 to 1 strip ratio to maintain margins. We've now started to step that back up again, back more to mine resource or reserve average which is about 2.8 to 1, so we're walking that back up now. You can see the effect, actually, in the difference between quarter one and quarter two. We went from 1.0 to 1 strip ratio to 1.4 to 1 strip ratio and so long as you see the copper prices hold where they are or going up, we'll continue to take that back up to 2.8.

As far as the longer term of going, there was a Phase III expansion, which is why we were doing the above reserve strip ratio prior to November. That Phase III expansion has been put on hold until we're really confident in our long term copper prices and also, it's a CAD350 million expansion to go to 85,000 tons a day and we need to make sure that that's still our best investment when we make the decision to go forward. So what you'll see over the next year is an increase back to 2.5 to 1 strip ratio for Gibraltar rather than what we switched to in November, which was down to 1.4 to 1 strip.

Okay, and does that involve adding bodies at Gibraltar mine site?

Yes, it is. We've got all of the equipment to do it. What we did was when we went to the lower strip ratio mine plant, we parked, not decommissioned, but parked some of our mining fleet, the trucks mostly, shovels, drills. Now -- and we laid off a number of people. We were actually over manned up for what we needed to do to mine at 55,000 tons a day because again, we're preparing for the 85,000-ton a day rate, so we've brought back at this point about 25 people, so we're at 340 employees. We're reviewing exactly how we're going to bring this back as we bring equipment back into the fleet and how we man up, but there will be more employees.

Okay, and then with respect to the payment of the convertible, there's another $10 million to be paid August 31. That payment combined with commitments on purchases, does that limit flexibility with respect to how you pay? I think you mentioned earlier or Russ mentioned the redesign of the crushing system. Are you limited or constrained on the cash front?

Our view is that we aren't, Tom. It's Peter. We have approximately 20 million in treasury today. We're having some purposeful discussions with a lender in conjunction with our Credit Suisse facility and anticipate drawing down some incremental funds on that. It will not be at a level that -- it will be below the level that we were at when you combine the existing Credit Suisse facility and the convertible bonds, but -- and that will give us adequate funding to -- we have adequate funding now to meet the put at the end of the month if the remaining money and this additional cash will fund our CapEx going forward as well. Okay. And then finally, on Prosperity, I think we understand the provincial side of it.

On the federal side, are there hard dates that we can look to in the early part of 2010 where the Fed's have to come back to you with their view or opinion on Prosperity?

Do you want me to take that Russ?

Yes, go ahead.

Okay Tom, what we've got there is Prosperity is being managed on the federal side under the federal major project management office which is the deputy ministers federally which are the highest bureaucrats in those ministries, and they have set -- there's no legislative timelines, but the deputy ministers group under this major project management office has set timelines for their ministries as the chief of staff for those ministries. Those timelines are set to be completed with the assessment, I believe January 2010. and then the ministers have a specific amount of time that they've got to respond back to their staffs recommendation. So that puts it into Spring 2010 for the federal environmental assessment.

And you're kind of behold to that bureaucracy and you can push to get an answer if there is a delay, but unlike the provincial where I think there's 180 day, there is -- it's kind of open ended with respect to the federal process?

Well it's open ended legislatively, but we've got, and it's posted publicly, a timeline which is laid out by the senior staff of these different ministries on the federal side. So they have committed to this and they've committed their staff to meeting those timelines and we're in pretty good communication with these ministries, including the deputy ministers and the head of the major project management office. There's only three projects, I believe, right now that are in the Canadian Major Project Management office, that's Prosperity and two nuclear power projects back east, so very, very high priority. Very, very high profile and public commitments to meeting timelines. So you can't get in a much better position than that with the federal bureaucracy.

Okay, great. Thanks. I'll pass it on.

Okay.

We'll take our next question from Orest Wowkodaw with Canaccord Adams.

I was wondering if we could touch on the cost for a minute. Are you dropping your cost guidance for the year?

Are we dropping our, what was that, Orest?

I notice that you're not reiterating your cost guidance that you gave last quarter for the year. Can you provide a new guidance at this point?

Well, maybe, John you can talk a little bit about that point with respect to what's happened with FX and a few other things?

Sure. Orest, it's like Russ talked about in his opening remarks there. What we're working on is containing our costs and controlling those things that we can control. And you take a look at what happened between quarter one and quarter two and we reported $1.18 all in costs for quarter one and 1.30 all in costs for quarter two, so it looks like our costs went up but actually, if you look at it in Canadian dollars, it was only a slight increase. And at the same time, we stripped an extra -- or stripping was 25% higher than it was in quarter one and our copper production was a little bit lower because of grade and some down time in the middle for shell liners. So our cost performance is actually, in a lot of ways, improved over the two quarters, but there's these other factors which make it difficult to give any kind of exact cost guidance because we don't have any control on them.

Well should we anticipate that costs might go up the next couple quarters as you increase the strip before this 20 million of cost savings is realized?

Well if we held everything the same and we increased the strip ratio yes, you'd see our costs go up, but at the same time we're implementing, like Russ said, on our business improvement plan the cost reduction measures, operating cost reduction measures, long term measures which will offset some of that. If holding everything the same, if we increase strip by one point, you would see our operating costs go up by about CAD0.25 a pound. We're still in a position where we don't have to increase the strip, but we're taking advantage of the fact that the copper prices are there so it puts us in a better position to actually have a better mine and decrease our operating cost long term, so I'm not trying to evade your question. It's just not a real clear answer. Our long term cost objectives remain the same but like Russ said, you're going to see fluctuations from quarter to quarter dependent on many different things. As we mine in different parts of the pit and you see different grades. These are part of the mine plan you have to deal with it as you go through, so you're going to see a variation fluctuation from quarter-to-quarter, but the long term is to get to where we are and stay there.

Okay and finally I notice that part of your debt facility with Credit Suisse, there's a covenant on production cost. What is that level of production cost?

Production cost, it's a three-month running average for the first half of the year, there was CAD1.70 and it drops to CAD1.56 starting actually in the month of July.

And that's Canadian.

Canadian trailing.

CAD1.56. Okay. Oh, finally, what kind of CapEx guidance -- you changed some of your plans. What can we anticipate for this year total CapEx spending?

Okay, John here again. We have completed essentially, we're still commissioning the regrind mill and all of the rougher circuit reconfiguration, cleaner circuits now installed, that was about CAD5 million. The installation of the crusher and conveyer system is going to be about CAD9 million to complete, and that should be done by the end of December, all things coming together as they should. The other things that we're talking about, the tailings and concentrate dryer systems and the direct feed system for the SAG mill, those will come in next year, those costs.

Okay. Thank you.

Yes.

We'll take our next question from John Tumazos with John Tomaszos Very Independent Research.

Hello, if you could in a very simple way describe the issues of jurisdiction to BC and the issues of federal jurisdiction and the potential judicial challenges as a not BC resident, it could be a little confusing as to what is the turf of the province and how the province signs off so much sooner than the federal government. And there's the distant memory to the early 90s of Alcan showing up CAD600 million with permit in hand and then a judicial challenge saying the permit was granted incorrectly. So could you -- I'm sure you're dotting a thousand I's and crossing a thousand T's so there will never be a judicial challenge, but could you just explain the different jurisdictions to someone who is a little bit far away and not intimate with the procedures there?

You're intimate, John. (inaudible)

My problem is I have a difficult time answering simply. The jurisdiction over resources development is provincial, so our mining permits, all of that, is provincial. Jurisdiction over the fishery and land and British Columbia is officially federal, but it has been deputized to the province to look after non-salmon species which -- where we are is the case where the Prosperity mine is, will only be trout species so that is a provincial fishery responsibility. So really, 99% of the jurisdiction is provincial and the permits that we receive will be provincial. What takes us into a federal environmental assessment review process is three particular things.

One is the Department of Fisheries and Oceans becomes a regulatory authority because there is a disturbance of fish habitat. Not the fishery ,but fish habitat. So we've been working with them and as Russ said, we've come up with a compensation plan that they are at least amenable to considering us as acceptable, which doesn't sound like much, but it really is a big thing. There's Department of Transportation, because -- and Coast Guard, because the lake is considered navigation waters. So there's a navagable waters regulatory authority federal and because of the explosives plant, there's a federal issue there. So really, the federal side is not anything which is a large regulatory jurisdiction, but because of the fact that we have these things, it requires federal review. The Fed's have decided that it has to go through the highest level of review which is the panel, and that is done largely to be able to deal with judicial review which comes afterwards, which -- they're expecting a challenge, so the thousands of I's and thousands of T's that are being crossed, that's part of the reason that we're in the panel review on Fed side. Does that--

Is there a judicial review option at the provincial level?

I don't -- well, I'm sure it can be attempted, but I don't know of any cases where it has. The provincial level has been challenged before, but I don't think it's ever been a big issue. It's never been a successful challenge. Challenges seem to be on the federal side.

Thank you for the explanation of process. Thank you.

Okay.

We'll take our next question from John Boris with SIA Funds.

Hi. Just one question. In terms of the impact in costs of the appreciation of the Canadian dollar, if you take the costs in US, does it translate directly or do you have any advantage because of some input costs being in US dollars?

Well, certainly net-net we do have an advantage because a significant portion of -- over 70% of our costs are really tied to Canadian dollars. So a weaker Canadian dollar certainly does provide benefits for us, but we certainly know there's a very strong correlation as copper prices increase, the Canadian dollar typically has strengthened against the US dollar/ But there is an inherent benefit against -- from a cost perspective with a weaker Canadian dollar.

So it would be like 30% US dollars denominated?

From a cost perspective?

Less than that. Actually, we bring in some of our parts, our US dollar, but it's probably, maybe 15% of our cost at the site is in US dollars. Our shipping costs are US dollars, but all of the rest of our transportation cost is in Canadian dollars.

Fuel, oil, steel, et cetera.

Wages, salaries, all of that is Canadian dollars.

Thanks.

Yes.

The difference that you see is really in the reporting. If we would reported our all in costs in Canadian dollars between quarter one and quarter two for example, it would have been almost the same but because of the foreign exchange difference, it looks as if our costs went up from $1.18 to $1.30, but that's almost purely an exchange function.

All right, perfect, thanks.

We'll take our next question from Peter Campbell with Jennings Capital.

Good morning, everybody. Just a couple of questions. One is could you give me some additional color on your throughput? It appears as if you've perhaps have gotten up to the 45,000-ton a day level for June. I'm wondering what the outlook is for being able to keep that sustained on an ongoing basis?

Hi, Peter, John here. Yes, we did hit -- we maintained 45,000 tons a day through June, and that rate is continuing into August here. We're actually beating it on a regular basis. When we go into winter, the feed system issues that Russ was talking about could be a problem but I think at 45,000 tons a day, we can maintain with those feeders. 55,000 would be not achievable, so we're going to stay at 45,000 tons a day through next winter and then take it up to 55,000 during the summer next year.

Okay, I'm looking at some charts that you've provided here. The -- it's quoted tons milled per operating day. On a quarterly basis how many operating days do you normally run the SAG Mill at?

Well, for instance, the difference between operating days in quarter one and quarter two, we didn't have to take the mill down for reline in quarter one and we did in quarter two. So -- but that's a planned maintenance, and we take it out of our operating days so we can measure against what we're really accomplishing. We take the mill down for three days about every four months for relining, so you get three quarters in a row that you'll have three days out for reline, and then the fourth quarter, you get a holiday from that. The other things that we have on operating days on planned maintenance is we take the whole mill down for 12 hours every two weeks, once every two weeks, so one full day per month and we remove those from the total days, so your operating days per quarter are going to be -- if there's a shell liner that month, it's going to be 84 days. If there's no shell liner, it's going to be 86 days.

Oh, okay. So I would say then that going forward then, if we have all of this worked out properly, we should be looking for like 4 million tons a month kind of a thing, sorry, like 4 million tons a quarter. Is that about right?

Yes, that's ballpark, yes.

Okay. And second question I have is just kind of a forward-looking one here. With the improvement in the price of moly, I'm wondering if you're planning to make any improvement to your moly circuit?

Yes, indeed we are. We have a new chief metallurgist and one of his main goals to get the moly -- the moly plant that we've got will perform when you maintain the focus on it. So first we're going to get the moly plant we've got performing back up to the 40% recovery that we should be getting. We're also looking at designing a new moly plant and the justification of it. Current moly prices it would be justified to build a new moly plant, probably about $10 million, but that's still on the books -- or it's on the design phase. We should be getting 40% or better recovery on the moly plant we've got, though.

Yes, that was the other thing, was that moly recovery tends to be quite variable and even if you could somehow nail that down a little bit, I think you'd get a much nicer by-product credit on that.

Oh, absolutely. And the moly plant that we've got, like I say, will perform, but it's not an easy plant to operate. It's difficult to maintain stability on it and -- but it is one of our main focuses.

Okay, thank you very much. That's all for me. Thanks, bye-bye.

Okay.

(Operator Instructions) We'll take our next question from David Cotterell with BMO Capital Markets.

Good afternoon guys. Just a quick one on your recoveries. Are you seeing an improvement over that 83% that you had in the first half?

Yes. We should see an improvement. It's somewhat grade related, but we should achieve an improvement of about three recovery points. So instead of an 83, we would get an 86 on the feed that we had in the first half because of the regrind mill and the cleaner circuit installation, which is just being completed right now.

So we can sort of basically towards the second half of this year or coming into early next year, we should see about 86% is not related to putting in the secondary crusher or bypassing that to do the direct feed system you were talking about.

No, that's right. Those other systems just give us better throughput. They allow us to mill more tons where the regrind and the cleaners gives us the ability to get a better recovery.

Okay, excellent. And my other question was on Prosperity. I know you guys probably don't want to talk about it but in terms of partnerships for this project, it seems you're still looking at a JV partner. Is it likely or do you think it may be likely to get this resolved before you get the final permit?

Russ, you there?

Sorry, (inaudible) I apologize. Why don't you take that question, Peter or John.

Yes, I think that it's reasonable to expect that. We continue to have some discussions on that front of sourcing the right strategic partner on Prosperity and realistically, against our timeline, something fairly close to the timing during which we get EA approval and federal approval, it's certainly matching our kind of internal schedule.

Okay. Excellent. Thank you very much, guys.

We'll take our next question from Steve Parsons with Wellington West Capital Management.

Good afternoon guys. A quick question for you, one on Gibraltar and one on Prosperity. On Gibraltar, I can see you're stepping up the strip ratio which is something you had talked about before but on the grade side, you'd been running sort of .369% copper, then dropped down to .33% copper in Q2. So where do you see it going into the remainder of the year and into 2010 on the grade side?

Well, the overall grade for Gibraltar is .32, always has been and always will be, so you see fluctuations as you move through. That quarter one was not -- it was actually an anomaly. We got into an area there which was really above the copper grade for the deposit, so you're going to see fluctuations between .33 and .29, .3 as you go forward over the years, that's going to be normal.

Okay. That's fine. And on Prosperity, Russ had kind of alluded to the potential to look at the reserves that Prosperity using a higher gold price and a higher copper price. Is this an exercise you're contemplating doing?

We're actively on it right now, Steve.

Okay.

And we've got -- we don't have to do more drilling. The deposit is very well drilled off. The resource is very well known, so you change those basic parameters of what you design the mine itself around. If you increase the expected copper and gold prices, not only does your pit shelves move back and you get more material, some of the material within the pit shelves becomes ore rather than low grade or waste, so we're in that process right now, probably be another, I don't know how long it will take us to finish the process, but we are looking at it right now.

Okay, and is this, sort of a, call it revised feasibility study, if you will, are you sort of looking at cost element as well and something you are going to release to the market?

Well it's not really revised feasibility study because we don't anticipate changing the mill or the tailings layout or any of that. It's -- this is a normal function of a mine, I think, as you build it to a certain set of assumptions, and then Gibraltar is a perfect example. When Placer built it in 1971, they were going to mine the Gibraltar East pit, and I think they had a 15 year mine life. It's now what, 35 years later and it's still running. And so really what we're doing with Prosperity is saying the world, the chances of copper standing at $1.50 for the next 20 years is probably lower. What is our actual reserve to us with the higher copper price and run the mill longer.

Okay, so sorry, again, presumably this is a document you want to go negotiate with smelters with and again, is that something you intend to put out into public distribution?

I think if it's -- anything material should be in the public domain we'll put it out, Steve.

Okay, that would be good. Thanks guys.

Yes.

Thanks.

And Mr. Hallbauer and Mr. Bergot, we have no further questions at this time.

Well, thank you very much, everyone. I look forward to talking to you next quarter, bye-bye.

Thanks, everybody.

Thank you.

That does conclude today's call. Thank you for your participation and have a good day.