Taseko Mines Ltd (TGB) 2009 Q3 法說會逐字稿

Good day everyone and welcome to Q3 2009 Taseko Mines earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Brian Bergot. Please go ahead, sir.

Thank you, Robbie. Good morning ladies and gentleman, and welcome to Taseko Mines third quarter 2009 results conference call. My name is Brian Bergot, and I am the Investor Relations Manager for Taseko. With me today in Vancouver, is Russ Hallbauer, President and CEO of Taseko, Peter Mitchell, Taseko's Chief Financial Officer, and John McManus, Senior Vice President, Operations. After opening remarks by management, which will review third quarter business and operational results, we will open the phone line to analysts and investors for Q&A 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 it's 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 third quarter financial and operating results for Taseko. In the quarter ending September 30, 2009, we achieved CAD9.4 million of operating profit and earnings before tax and other items of CAD4.7 million. And while the third quarter was affected by the geotechnical issue we encountered in the granite pit, we are extremely pleased with the nearly CAD33 million of operating profit we have generated over the first nine months of this year. And sitting here last year at this time, and thinking that we would have results like that -- that which we have achieved was basically unthinkable. The third quarter as we reported in early October, was affected by the incursion of some unconsolidated material into our working areas, which affected our access to our mining faces, and caused that to deviate from our mine plan. These lower grade faces were problematic for us in a number of ways.

First, recovery, recovery is usually directly related to head grade -- in simplistic terms, it is harder to recover lower grade material. In our case, we were forced to mine the areas where the grade was approximately 40 -- or 20% below our mine average. Attendant with this fact, was that fact that we were and still are in the process of integrating our new tower regrind mill into our concentrator system. Under steady-state operating parameters, optimizing a new mill is a challenge in itself, and with a drop in head grade, it became that much more difficult. Gibraltar is now back mining to average head grades, and we are continuing to work at optimizing our new tower mill into the system. We are stripping back at life of mine average strip ratios, and we believe that all things being equal, with operating efficiencies, proper recovery profiles, and a steady US - Canadian dollar exchange, we should be able to maintain mine site cash costs of roughly $1.00 per pound.

Our construction crew continues on our capital improvements, particularly focused on our new crusher conveyor system, the tailings pumping system, and a concentrate filter systems. We have approximately CAD14 million in capital expenditures, remaining to be spent on these initiatives, with the crusher conveyor scheduled to be completed in February, the tailings in March, and the filter system in June of next year. Completion of each one of these components of our capital campaign will add additional production capacity, and reduce our operating cost. In addition, as I alluded to last quarter we nearly finished the engineering design for a new sag mill stockpile feed system, and we expect that system to be built and operational by the fourth quarter of 2010.

This new sag feed project when complete will give us two crushing systems which will increase our flexibility, and which we will save roughly CAD3 million to CAD4 million in operating costs annually. We will continue to ramp up our production as each of these components becomes operational or integrated into our operational circuits. Looking forward, we have an exciting year in front of us, wrapping up our projects at Gibraltar and achieving our nominal 115 million pound per year operating target. Looking forward, our recent upgrade of the Prosperity Reserves is extremely positive for all our shareholders. And with the Environmental Assessment review report going to the British Columbia of Ministers shortly, we will begin the work on preparing for mine permitting, as we await the final review from the federal panel.

It should be understood that mine permitting is the responsibility of the province, and will move forward on that once we understand the conditions of our environmental review. As well, another exciting aspect of our Company will be the commencement of the feasibility work in the first quarter of 2010 on our 3 million ounce Harmony project located in the Queen Charlotte Islands, British Columbia. With our engineering work nearly completed on Prosperity, we can now turn our focus to Harmony and start working on unlocking the value of this ore body to our shareholders.

So to summarize our balance sheet is in great shape, our mining operations are performing as we've envisioned and we are continuing to move down our optimization and growth path. We're working actively on our Prosperity project, looking forward to getting on with building the mine. And we're extremely excited about the opportunity that Harmony will play with this Company in this new gold price environment. I'd like to now turn the call over to Peter to speak about our financial results.

Thanks, Russ. I'm pleased to be able to report the results for the quarter ended September 30, 2009. We were met with a significant operational issue in the mine, the costs and operational ground work laid in the prior three quarters preserved margin, along with continued favorable copper pricing. A few specific comments on the September 30th balance sheet. Cash stood at CAD41.6 million at September 30th, as compared to CAD4.6 million at year-end, as a result of our term debt facility placed in February, and augmented at the end of the third quarter with a CAD20 million increase, netted against the repayment of our operating line in the completion of the CAD30 million buyback of our convertible. Financing activities included adding CAD20 million to our term debt facility, by bringing Investec Bank into the facility, and a CAD6.5 million royalty.

Terms and covenants for the term debt are similar to the original facility. The, use of these funds, as Russ suggested, is to complete the mine and mill capital projects, and bring the mill to 55,000 tons per day. The ability of Taseko to complete this debt financing represents a strong endorsement by the still stressed banking sector of the quality of the Gibraltar mine and its Management team. Under the Income Statement, Taseko's revenue for the quarter ended September 30, 2009 was CAD40.1 million, compared to CAD57.6 for the same quarter a year ago. The 30% reduction in 2009 was driven by the reduced production during the quarter, and the lower realized copper price in the 2009 quarter. In contrast the nine month copper sales were 6 million pounds or 14% higher than the same period in 2008.

The cap pricing on the copper hedge was surpassed during the quarter, resulting in a realized loss on derivative instruments at CAD3.6 million for the quarter, reflecting this adjustment in the average realized copper price for the quarter of CAD2.65 per pound reduces the amount to CAD2.39 per pound. Cost of sales for the third quarter was CAD29.1 million as compared to CAD50.4 million for the quarter ended September 30, 2008, representing a 42% reduction in cost due to cost containment initiatives implemented over the past 10 months, as well as lower input costs. Non-production expenses for the quarter ended September 30, 2009, totaled CAD4.7 million compared to CAD6.9 million for the same quarter last year. Items of note include a CAD3.1 million foreign exchange gain, related to translation of US dollar denominated liabilities. This is a non-cash item.

Additionally our copper hedge was in place for all of the third quarter and required payments of CAD3.6 million due to copper prices exceeding cap of CAD2.36 per pound. Our hedge position has been maintained to May 2010, however the cap steadily rises from January to $2.73 per pound. We intend to continue evaluating our copper exposure on a regular basis, to determine a prudent follow-on course of action. The mark-to-market unrealized portion of the hedge at quarter end resulted in non-cash expense of CAD8.8 million. Interest expense was CAD700,000 higher for the quarter versus last year, because of term debt facility interest expense. The income tax recovery book totaled CAD1.8 million for the third quarter of 2009, and resulted in effective income tax rate of 44%.

During the quarter, we made some adjustments to true up our accounting records to our tax returns. If these adjustments were removed, our effective tax rate would have been 30% in line with the statutory tax rate in Canada. The three-month operating profit result was CAD9.4 million as compared to CAD5.2 million for the same period last year. The net loss of CAD2.3 million for the current quarter, reverses to net income of CAD6.5 million or CAD0.04 per share with the add back of the non-cash expense of CAD8.8 million of unrealized loss on derivative instruments. Year-to-date basic earnings per share are CAD0.07 in 2009, and CAD0.14 when the unrealized loss on derivative instruments is added back as compared to CAD0.20 last year-to-date.

In conclusion, the September quarter end has the balance sheet repositioned to complete the buildout of Gibraltar and build on the momentum established in the first half of the year. Solid operating margins and liquidity position provide evidence of the impact of cost -- effective cost management, with improving copper pricing providing additional tail wind. Downside protection remains in place with our hedge position. Managing our margin cash flow and liquidity position will continue to support our growth strategy. Russ?

Thank you very much, Peter. Operator? I'd now like to open the line to calls.

Absolutely.

(Operator Instructions)

We'll go first to Peter Campbell with Jennings Capital.

Good morning, everybody. Thanks for taking my phone call this morning here. First question I had was regarding Prosperity and the approval process here. On December 7th you're expecting the Ministry, sorry, the Environmental Assessment Office to submit the application. Does it typically make an announcement at that time, like as to whether it's done that, and what like -- it's findings are?

Well, no, it won't. They won't make a finding. But they will be in the possession of the draft report, that will be going to all of the participants, to the working groups, and to us, and to government. And we'll have a pretty good idea what the path forward is. Generally, there's a number of I guess it would be called, an order of commitments that we have to apply with. And that will kind of lay out the terms of the permit. So we will know that in advance, and it will say, such and such about fish compensation, such and such about habitat, making new habitat for ungulates and other things. So we'll have a pretty good idea of where things are going, after we see the draft report. And we expect to have the draft report any day now.

Okay. And then, I know just sort of trying to parse through all of those details there, it looks like the Federal panel will be submitting its findings, and the way that I sort of look at it here is like mid April. After that point, after the panel has submitted its findings from the public hearings, this is probably an unfair question, but typically how long does it take for the Fed's to come to a final decision on that?

Well I guess it depends on how motivated they are with respect to what kind of -- where it goes in to the different ministries. And at this, they have no fixed timeline, as it stands right now. But I think the situation where we find ourselves in this country, that they are going to be pretty spurred on to make a decision. to push it through the Ministry -- the applicable ministries, which will be the Ministry of Transportation, the Ministry of the Department of Fisheries and Oceans. And then they have to make a proposal a recommendation to Cabinet to accept that. So we like to think that it would move expeditiously through the system, but we can't assume that. Having said that, like I said in my comments, the Province is responsible for mine permitting. And there's many many things that can be done in the process prior to approval from the Federal Governments, with respect to their certain jurisdictional issues. So once we get the definition of what we have to do in the provincial EA, then we'll be moving forward in terms of doing everything we can, while we wait in terms of moving the project forward as we can, waiting for those other applications to work through the federal system.

Okay. And just while we're on Prosperity here, are you continuing to like look for a strategic partner in this project?

I think that's, well I'd prefer not to talk about that right now -- about what our plans are.

Okay. And then on a similar vein, there was no mention in the MD&A about the offer that was made for Copper Mountain. And I was just kind of wondering if you had reasons for that offer were, and what that says about your maybe like acquisition strategy, or whatever going forward.

Well I guess we didn't comment on that. That was probably after the quarter end was it not?

No.

(multiple speakers) It was in September?

Yes.

I'd prefer not to speak about what our acquisition strategy is. I mean, I think that's an important aspect that we discuss with the Board. And when we think there's opportunities that present itself then we move expeditiously and that was just one of them.

So this was a case where -- you saw some potential value and thought maybe that was a good opportunity for Taseko?

I think you'd have to assume that, yes.

Okay, thank you. And then I guess just one final question before I hog too much time here. I was just like wondering, Russ, if you could articulate what your disclosure policy is. I was taken aback really, by the geotechnical instability, it seems to have affected mining for about six weeks. I just was kind of wondering about what kind of things you would think--

Well, it was not -- our disclosure policy is open and transparent. And we believe that our forward-looking position with respect to speculating on what we may or may not do with our future production, dependent -- depends on a number of different issues. And we did not feel that, although it affected earnings and it affected our cash flow in the quarter, we did not feel that there was a reportable -- something that we needed to report broadly. Because our grade and head grade and a number of things can vary month by month, and quarter by quarter. And we don't come out with announcements saying, well our head grade is 0.25 or 0.38, and our production will increase or decrease accordingly. So we just felt that we had given guidance at early part of the year that we were going to produce between 70 million to 80 million pounds, and we still believe we're in that range. So like I say we don't run this business on a quarter by quarter basis.

Okay, that's like fair comment, Russ. Thanks, and that's all I have. I'll pass it off to the next person.

Thank you.

We'll go next to Steve Parsons with Wellington West Capital Markets.

Yes, good morning, gentlemen.

Hi, Steve.

Yes, actually just a couple questions on Gibraltar. So first off, on the recoveries. Is -- sort of as you said, generally speaking when the grade drops off, the recoveries drop off. So you're still able to post, what I would say, is a very strong recovery at 79%, given the grade dropped off to 0.26% copper. What's your -- was there anything going on, I guess -- what else are you doing in the mill -- the regrind and the clean filtration circuit that would enable you to achieve sort of a 79% recovery despite the grade dropping off to 0.26?

Hi, Steve, it's John here. That's a good question. We have installed the regrind, and the cleaner circuit during that period of the low grade. And we're still working to get it fully integrated into the rest of the system. But what we've really got going is all of the systems that we've put together in the last couple of years, are starting to work together. The operators really getting a handle on it, so even though we had a tougher ore to deal with than we had anticipated for that period of time, they're able to deal with it better and better. And we see that going forward now as we get back into better grades, we're seeing more improvement in recovery.

Okay, so would it be fair to say that when you get back to more normalized, let's say sort of reserve grades, the potential 84% recoveries is very doable in the near term?

Actually, our design for the mill is plus 85%, when we're in a core deposit average.

Okay, got you. Secondly, on Gibraltar, with the copper prices pretty strong here, I guess at what point do you reconsider doing a much bigger strip in the pit? And I guess are you going to do a larger than expected strip in the independent 2010, and will that sort of mine plan be articulated to the Street?

Well, we went into the larger strip before, because we were anticipating going to what we called at the time, a Phase III expansion, so we're trying to get a jump on it. Right now our mine plan is to mine at deposit average strip ratio going forward, so 2.8 to 1, for the next 25 years is what the mine plan is. If we decide to go with Phase III or some other plan, then we've got the ability to adjust our stripping.

Okay, so irrespective of price, 2.8:1 is the strip we should be using for the next several years?

That's the deposit average, and that's what we're trying to maintain in our planning.

Okay, that's it for me. Thank you very much.

Thanks, Steve.

And with that we have no further questions.

Okay, guys. Thanks very much for joining us today. Look forward to talking to you next quarter, bye-bye.

That does conclude today's call. Thank you for your participation.