Taseko Mines Ltd (TGB) 2009 Q4 法說會逐字稿

Good day, everyone and welcome to the Taseko Mines fourth quarter 2009 earnings conference call. Today's call is being recorded.

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

Thank you, Karen. Good morning, ladies and gentlemen and welcome to Taseko Mines fourth quarter 2009 results conference call. My name is Brian Bergot and I'm the Investor Relations Manager for Taseko. With me on the call today 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 fourth quarter and annual 2009 business and operational results, we will open 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'll 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 fourth quarter and year end 2009 financial and operating results. For the year ended December 31st, 2009, the Company achieved operating profit of $48.3 million and earnings before taxes and other items of $27 million. The third and forth quarter results were affected by the geotechnical issue we experienced in the Granite Pit which affected our metal and concentrate production and that in turn flowed through to our cost per pound of copper as we had to take added cost for remediate-- to remediate the mine. Yet we still achieved over the year $1.50 per pound of production costs.

Now that those issues behind us-- are behind us, we're back to a more normalized operating state. We expect Gibraltar to perform at a run rate of over 20 million pounds a quarter in the concentrator exclusive of capital production. And by year end, with the removal of the remaining bottlenecks in the system, Gibraltar will be producing roughly 27 to 28 million pounds of copper and concentrate a quarter-- by the end of the year.

Since October, our metallurgical team at Gibraltar has worked on the most technically challenging driver of our business and that is metal recovery. As illustrated in our MD&A, since October, recoveries have increased in 79.9% to 90.1% in February. That is a very satisfying improvement for us. But the results are not a surprise as our bench test always predicted we could move our recoveries from the historical recoveries of 82% to the new recoveries of between 89% and 90%, so achieving those targets today like I said is very satisfaction-- satisfying.

Once we have our SAG mill operating directly, our regrind mill and our flotation systems all working properly and integrated, the results are apparent. Every day that goes by our operating team is becoming more and more proficient at operating Gibraltar's concentrate-- concentrator to its maximum efficiency.

Now that we have a very good handle in metallurgical performance, everyone is beginning to turn their attention to mill throughput. In January, we milled 42,000 tons per operating day and in February we moved that 43-- up to 43,500 tons per day. And this was accomplished with a-- with the feed system that in the winter months is plagued by hang ups and frozen ore bins. So now that we are heading into spring, we expect to further increase those throughput numbers as the cold weather is behind us. Where is all of this? Well it's leading to where we think our costs will settle out over the longer term.

In 2009 we took our strip rates down to 1:1 and our cost of $1.18 US per pound when copper went to $1.50 a pound. Since that time, and as we've spoken about in the past few months, as copper prices have strengthened we've increased our strip ratio to about 2.8:1, back to the life of mine average. And most recently we're stripping at about 3:1 to insure that as the concentrators throughput increases we're able to feed it the ore it requires. Each stripping cost alone will increase our cost by about $0.35 US per pound and you can throw in the appreciation of the Canadian dollar versus the US dollar, we see our costs settling out in the range of $1.40 to $1.60 US per pound, depending on currency, but offset by our increasing metal production.

With approximately six million pounds of copper hedges remaining, and those unwinding in the next two months, we will be generating a very healthy margin with the present copper metal price regime we see. Either John or myself will be happy to answer questions about our cost structure when we get to the Q&A later in this presentation.

We have about $25 million worth of capital projects to complete this year, four to five million from pressure conveyor system and tailing system and $20 million on our new SAG mill feed system. All this work will insure a continuing lowering of our cost structure going forward.

Stepping ahead, looking at business development, we're in the process of signing off on the final documentation of our JV with Sojitz, which will close at the end of the month. With that initiative complete, we'll have a significant amount of our required equity for the buildout of our Prosperity mine. As well, we're working on other financing initiatives with respect to raising further equity for the project.

On Monday, the Federal Panel of reviewing the Prosperity mine project will begin. Public forms in Williams Lake and perspective communities, and we expect that in the next four weeks of its work, it will come to the same conclusion as did the Provincial Regulators and we'll receive our Federal approvals. Going forward though, the Prime Minister of Canada has clearly stated in the (inaudible) speech, that the duplication of efforts on environmental work by both the Federal Government and the Provincial Government is not in the best interest of this country, and that Province will be taking the lead in determining the future of these projects, and we're very happy about that as a Company and as a mining industry in British Columbia. So we're working on our, in that context, we're working on our mine development applications from the Provincial Government and we expect to begin work as soon as we receive those. I would like to now turn the call over to Peter to discuss the financial performance of the Company. Peter?

Thanks, Russ. Let me say that financially the Company is as strong as we've ever been. We have about $50 million of cash on hand today as steadily improving in modern and efficient mine in a very robust copper price environment. Additionally, we're close to completing the Sojitz sale as Russ mentioned.

A few comments on our income statement. Revenue for the 12 months December 31st, 2009 was $180.1 million. Fourth quarter revenue was $56 million compared to $40.1 million for the reasons that Russ discussed. Increased concentrate sales and higher average realized copper price was the cause. Operating profit for the year ended December 31st, 2009 was $48.3 million versus $8.9 million in the same period in 2008 primarily as the result of managed reductions in operating costs due to the commodity price environment through the first half of 2009. Operating profit for the fourth quarter was $15.6 million as compared to $9.4 million for the third quarter of 2009 as a result of increased copper production and higher copper price.

Earnings after tax for the year ended December 31st, 2009 was $10.6 million versus a net loss of $12.8 million for the same period last year. The 2009 results include an unrealized mark-to-market of-- on the copper hedge of $15.8 million. Earnings per share for the year end was $0.06 compared to a net loss of $0.09 for the same period in 2008. For the quarter ended December 31st, 2009, there was a net loss of $0.01 or $1.2 million. Excluding the mark-to-market on the copper hedge, earnings were $3 million for the fourth quarter.

The Company's liquidity improved significantly with cash of $38.2 million including the $3.2 million of restricted cash at December 31st, 2009 compared to the $4.6 million on the same date in 2008. The Company is still intending, as Russ mentioned, to close the previously announced joint venture with Sojitz at the end of this month. To refresh everyone, the transaction has a 25% interest in the Gibraltar mine for approximately $180 million, but the proceeds from this transaction plus the $50 million of cash we have on hand, the Company intends to prepay its senior secured debt facility. So aside from capital lease debt, Taseko will be debt free at that point. Additionally, this cash will provide a significant portion of the equity we need to complete or to build the Prosperity project.

In conclusion, 2009 was a challenging year but with improving operating performance in copper prices, we've improved the profitability and liquidity in order to leverage Taseko. Russ?

Thank you, Peter. Operator, now we'll like to open the lines to questions, please.

Thank you. (Operator Instructions). And our first question will come from Orest Wowkodaw with Canaccord.

Hi good morning, guys and congratulations on those higher recoveries in the last couple months. Russ, my question was in terms of production guidance for this year, I was curious whether you'd be willing to put out a number? Obviously, that you've had some two good months of production, where do you see the target for the year?

Well, I think if we, if we look at last year, Orest, and this is arm waving a bit, if we look at last year, we lost four million pounds because of the geotechnical issue. So if we think that the recoveries are up, it's pretty simple to do some math here and figure out that recoveries are throughput estimates, so I think we will be north of 80 million pounds depending on how well the capital plant performs this summer.

Okay, what's your budget for throughput for the year?

In terms of tons milled?

Yes.

What do you got, John? Again, I can't-- I don't have a specific, we're ramping the tonnage up.

Yes, we ramped the tonnage, Orest. We-- through the winter months here, as Russ said in his presentation, we have our feed system which hangs up with fine materials that-- and clogs. But we go into the summer so we'll go up to more of a 48,000 ton a day level and we get in our SAG mills a direct feed system, get rid of that feeder system that we've got by next winter and we should be able to maintain that 48,000 to 50,000 tons a day.

Okay, great. And Russ that cost guidance that you gave us sort of the 140 to 160 pound range, is that your long-term estimate or is that your forecast for this year?

Yes, well we've got to do is-- I mean well with this Canadian dollar has strengthened from this time last year to where we are now about 16% to 17%, so that obviously when you're reporting US dollars goes right to the bottom.

Yes.

So that's sort of what we say, okay if the Canadian dollar weakens, then we'll be in the $1.40 range and if it stays here we'll be sort of $1.55 to $1.60 we believe. But it's-- but then again, it's the fluctuations, if you look at the quarter-by-quarter numbers you saw that we had nearly a nine million pound month. Well obviously that- and that was a lot driven by grade, so those are going to fluctuate up and down. So it's pretty tough to decide to figure it out within sort of $0.10 or $0.15 depending on what those-- what happens with those other inputs.

Yes, fair enough. Okay, thanks guys.

But we sort of gave a range there. If the Canadian dollar weakens and this happens then it's going to be in the $1.40 range. If other mechanisms happen it could be as high as $1.60.

Thanks a lot.

Okay.

All right. And our next question comes from John Tumazos with John Tumazos Research.

Good morning. You say in your release the proceeds from selling 20%, 25% gold stream might be $350 million. And I calculated that out as $202 per ounce of recoverable reserve or $171 if we included our resources net of recovery loss. How much would you expect to get on the back end per ounce as the gold is produced? Some of the transactions historically have been near $400 an ounce but industry wide costs are slowly inching towards $600.

Russ, I can take that one, it's Peter. $400 is kind of the institutional number, John, and that is the kind of number that we're anticipating. And typically, there's some GPI-- there's CPI escalator along the way as well at some future point on that $400, but it's the lesser of $400 and market price for gold is the recovered number under the stream structure typically.

Now there are multiple publicly traded royalty companies, or want to be royalty companies, there also is a wide array of Asian smelting companies for transactions not unlike the Sojitz transaction you're finalizing. Do you expect the royalty companies pay a fuller price than the Asian copper smelters?

I don't follow that, John.

Do you think this is the best deal you could get?

Yes, probably. Yes, I think it's a good deal because we're looking at a gold multiple with a royalty company.

Well they're looking at getting it, I'm not sure they are looking at paying it. $200 an ounce plus $400 on the back end is not full value. Those companies traded premiums to [NPV].

Well I think we've been pretty good at unlocking value, John. I mean-- and certainly we're not going to do anything to the detriment of the shareholders if we don't think it's fair value. I think that's the bottom line.

Yes (inaudible) said (inaudible) but you might be a little more patient than they were after they bought 40.

You're covering a lot of (inaudible).

Thank you.

Thank you.

For our next question we'll go to David Cotterell with BMO Capital Markets.

Well good morning, guys, good morning, Russ. Just a couple of questions on I guess Prosperity. I'm just wondering in terms of doing an updated feasibility study, will we see something come out around about the same time the Federal Government makes their decision?

Want to take that, John?

Yes. What we've got is we've got a full detailed feasibility study which is done and which we really haven't changed anything in, David. So what we're planning to do is do an updated costing of the study that we've got just to make sure that we-- nothings moved on labor and materials costs before we move ahead with the project. So we're not planning to redo a whole feasibility study.

Okay and in terms of timing would that be around about the middle of the year if we assume that the Fed's make a move?

Yes. Well that's exactly right. I mean we don't just keep doing it. We-- once we're as confident as we can be that it's a go ahead decision, which we believe will be a cabinet decision should come out about the end of the third quarter, that gives us the confidence to go in and do the full recosting, which is a fairly big effort and then we can move forward with our construction costs. We stay in contact with the suppliers of the large equipment, the mills, the mining equipment, so we're confident of the costs and the availability of that. What we need to do at the moment of confidence would be confirm things like steel concrete, that type of thing.

Okay, and John, in terms of maybe locking in some long lead type of items, would you do that around about the same point for the Q3?

Yes. That's what we've got on our schedule. One thing about those long lead items is they're not as long a lead as they were two years ago when we were looking at this. There's a lot more availability of equipment and the purchase price is significantly less than it was two years ago, too.

That's positive.

For us, yes.

I guess the other one I had was probably more for Peter. Just in terms of the $200 million financing that you had as part of the total financing package for Prosperity, is that-- would that likely just be with the bank or is that something that you may do say with the Sojitz type of deal where you just sell a portion of the project? Is that the type of thing I should be thinking?

At this point, David, we're leaning more towards the former where we would look for some fairly modest project financing, maybe a convert or something like that as well as we're looking at some specific equipment financing as well. I think one of those sort of operative considerations that we've had is we did not want to have sort of a $500 million project financing holding up the entire project for six months or a year with very restrictive covenants and hedging requirements.

Okay, excellent. I'll leave it there. Thank you very much.

Thanks, David.

Thank you.

Thank you. For our next question we'll go to Craig Miller with TD Securities.

Good morning, everyone. First of all I want to compliment you on the clarity of your reporting. It's great to see and it's great to see Q4 shown separate from year end results. My question is really on the strip ratio. You said 2.8:1. I think that's going to be the life of mine for the current reserves. Do you see that fairly steadily 2.8 or do you see some lumpiness in that over time?

No, that's our intention is to maintain it at 2.8:1. That way you get the best utilization of your equipment and your workforce, you don't-- you can have a steady state. You can see we've maintained that and if there is something that happens like the copper price pull back that happened in 2008, we have the ability to adjust to a lower strip ratio for awhile but with the 30 or a 25-year mine life, the best most prudent way to approach that is to mine at the deposit average strip ratio.

Good. Well that's all the questions I had.

Thanks.

For our next question we'll go to Tom Bishop with BI Research.

Good morning, guys.

Good morning, Tom.

Good morning.

Was that $1.40 to $1.60 cost of production, is that the mine cost of production or is it-- should we find above and beyond that?

No, that's all in including our property cost. We're seeing that freight rates are starting to rise a bit too, they're probably up what $0.07, $0.08 a pound now, Brian?

Yes, in that range.

In the last six or eight months as the world economy starts to recover and you start to see the ships being more actively utilized, so--

You're locked in until 2014 or something?

Yes with-- on the TCRC we are locked in but the freight rates we're not.

Ocean freight.

That's in the $1.40 to $1.60. I was afraid maybe costs were heating up.

No.

Also, could you tell us what cash flow per share was for the year in Q4? I assume that's how you want to be judged, but I couldn't find it.

Tom, that's a number I'm going have to get back to you with. I haven't calculated it.

Okay, one question I had also was January and February your mill throughput was 1.2 million tons, your recoveries though were in the 89% to 90% in both months, which is excellent. But for some reason you show 8.7 million pounds of copper but only six million pounds in February.

It's the--

What all the parameters seem to be saying, what am I missing there?

Grade, we're at higher grade in January. And what happened there was when we got pushed off the mine plant with the geotechnical instance last summer there was material that we would have taken during the third and fourth quarter of 2009 which we weren't able to get because of the geotechnical. And so that came to January instead, so we had pretty good grade in January.

Okay. Also I noticed moly recoveries were only 20%. That seems low. What do you target there?

Yes, we should be getting 40%. One of the things that happened with the regrind circuit, we concentrated on getting our copper recovery and you can see we were pretty successful with that. It did change the grind of the concentrate and so we had some difficulties with moly, but in March now we're back in the 40% range.

That's good to hear. Okay, I'll let somebody else go.

Next we'll go to Peter Campbell with Jennings Capital.

Good morning, everybody and thank you very much for taking my phone call this morning. I just have a couple of questions. Just to circle back for a moment to the 2010 CapEx, I understand that you said that it was, you plan to spend $4 million to $5 million in 2010 to complete the in-pit crusher and conveyor project; is that correct?

That's correct.

Okay, and what's the total CapEx on that project?

Well the whole thing came in at about, it was $35 million for the total project.

Okay, great. Thank you very much. And then I understand that the-- I believe you said it was the SAG direct feed system was going to cost $20 million, is that correct in 2010?

Yes, we've just got our detailed engineering back in the last few days and the price of some of the earthworks and concrete work in the feed system underneath the new ore stockpile, those rows in value are in cost, so we were predicting $15 million but when we got to the end of the day it looks like $20 million.

Okay. And that would pretty much represent the total cost of the direct feed system?

That's correct. It's a new stockpile, a new set of feeders and two new belts.

Yes.

But it is (inaudible) underneath the stockpile, which cost more than we expected.

And so that brings us to $25 million CapEx for Gibraltar in 2010. Are there any other CapEx numbers for any uncompleted projects in the mill?

Yes. We've got to complete the tailing system, which is going to be another, well between the tailing system and the filters and drying system that's another $6 million.

Okay. And then that should just about like wrap it up for Gibraltar then?

Yes, we do have a shovel coming in as well which was an item that's been on order that will be delivered mid-year. We're going to capital lease that shovel so it's going to be an offset really from a cash flow perspective for about $25 million, it's a large (inaudible) shovel.

All right, great.

Yes, it replaces two older shovels and the pay back is almost the same rate as the (inaudible), where (inaudible).

Okay. And then operationally, I just have one question on the throughput. John, you were talking about like reaching 48,000 to 50,000 tons per operating day. What sort of mechanical availability should we be putting on that like on a quarterly basis?

Right now we're using 94.5%.

Okay.

And our target is 55,000 tons a day, but it takes a while to get there. Your operators are (inaudible).

Yes, it does.

So that's why we're only using 48,000 to 50,000 for this year. We've got to actually get there before I can use that 55,000 ton a day.

Okay, and then is it fair to say that at the end of 2010 with these capital projects completed, you'd be hoping to exiting 2010 at 55,000 tons per day?

That's the ultimate target but like I say, I mean we will go into the end of 2010 with a brand new SAG mill direct feed system which should take us to 55,000 tons a day, but I'm not going to say we can get there until we've actually achieved it.

Okay, that's fantastic. That's all that I had. Thank you very much.

Great, thanks.

(Operator Instructions). We'll now go to Ryan Walker with Wellington West Capital Management.

Hi guys. Good morning. Thanks for the call. Just a couple questions here. Just wondering with stronger copper prices here lately, is there any thought to accelerating waste stripping, or are we just back to kind of life of mine averages for 2010?

No. We're going to stay with life to mine average. We had gotten into accelerated stripping when we were looking at going to 85,000 tons a day at Gibraltar. That project is still possible but we're focusing more on getting Prosperity built right now than going to 85 with Gibraltar.

Okay. And I wonder if you could just kind of maybe detail the format of the public review meetings as far as who attends, will Company Management, is the Federal Panel at all these meetings, and to what extent it's a technical review and or is it more just a discussion of environmental management?

Well it starts-- it's a road show. They do I believe four days in Williams Lake and then it moves to 100 Mile House, which is another town south of Williams Lake, then it moves to a group of local villages, I think it's five different villages, and then it comes back to Williams Lake for a week at the end of the five weeks. And that is where the technical meetings are is at the end of the five weeks. Until then, it's more people and groups who get up and make statements to the Federal Panel on their view of the value of the project to them and what they want to see out of it. So really the first four weeks is public hearings and then the last week is a technical review.

So the Federal Panel members are at all of these meetings?

Federal Panel members are there every day and so are we.

Okay. And just one last-- I guess the geotechnical issue, I mean has-- is this totally remediated now? Is there any chance we're going to need anymore work for this?

No, it's done. It was an old lake bottom that we came into the site of and the material that was there was so weak that it moved, it had no strength whatsoever. It was mud, just pure oozing mud. So we brought in a contractor with specialized equipment and they've removed all of that material is gone. So it's done.

Okay, great. Thanks very much.

Yes.

Thanks.

And it does appear that there are no further questions at this time. I would now like to turn the conference back over to your speakers for any additional or closing remarks.

Well thanks very much, Operator. Folks we look forward to chatting with you in the next quarter. Have a nice day. Bye-bye.

Once again that does conclude today's conference. Thank you again for your participation.