Taseko Mines Ltd (TGB) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Taseko Mines first-quarter earnings results. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. (Operator instructions). As a reminder, this conference may be recorded.

I would now like to introduce your host for today, Mr. Brian Bergot. Sir, please go ahead.

Good morning, ladies and gentlemen. Welcome to Taseko Mines' first-quarter 2010 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; 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 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 first quarter 2010 financial and operating results.

For the quarter ending March 31, 2010, the Company achieved in operating profit of CAD33.1 million and adjusted earnings exclusive of one-time non-reoccurring expenses and exclusive of the Sojitz transaction of approximately CAD0.11 per share.

The Company's quarterly revenue of CAD75.5 million is the largest revenue quarter in the history of the Company and is a reflection of strong production and very good copper and moly prices. Our operating profit for all of 2009 was CAD48.3 million, so this quarter's profit of CAD33.1 million is significant in that context and has been driven by our operating performance in terms of throughput and recovery and, obviously, the higher quarter over last year copper price.

As indicated in our year-end conference call, we expect Gibraltar to perform at a run rate of over 20 million pounds a quarter from the concentrator, exclusive of capital production, until we complete our expansion projects. The 23 million pounds produced in this latest quarter is a result of good mill throughput tonnage and very good metallurgical recovery. However, we continue to be disappointed by the performance of the moly circuit, and that is something that we're working on at addressing.

Moving forward, we will continue upon the path that we laid out many months ago. We're completing our final major capital projects, and by the end of the year we expect to have achieved our ultimate production capacity run rate at Gibraltar of 115 million pounds of annual copper, metal and concentrate. Gibraltar's in-pit crushing and conveying system is being commissioned this week. The new tailing system, which is required for the increased throughput, is nearing completion. And shortly, we will break ground on our new SAG mill feed system. Each one of these capital projects will allow us to attain the goal of producing 55,000 tons per day and, along with the production increase, the continued decline in our operating costs.

Our cost structure, while good, however -- while it is good, however, we know we have opportunities to reduce those costs going forward. Specifically, in that regard we have continued to be focused on completing these capital projects on time and budget, which distracts from our ability to really focus on cost containment and cost reductions at the same time. As these capital projects wind down over the next seven to eight months, we will refocus our efforts on efficiency and cost containment, which will be a high priority initiative to extract for the value from Gibraltar itself.

Specifically speaking about our cost structure, one has to remember we are mining one of the lowest-grade copper-moly porphyries in the world and have total operating costs of approximately $1.50 per pound when processing ore with a 0.35% copper head grade. So that is something we are very proud of.

We have lost approximately 15% of our advantage on exchange rates over the last year. However, when we compare its cost structure with the same grades and our double head grades from other operations on a cost per ton milled basis, you will be surprised at how well we are doing. And we know, going forward, we can lower these costs as our production continues to grow.

Our capital projects, as I said, remain on time and on budget with approximately CAD25 million to be spent over the remainder of 2010 with the bulk of that spending being undertaken on our new SAG mill reclaim system. Generally speaking, once our capital work is complete, Gibraltar should operate within a window that will fluctuate marginally on a quarter by quarter basis. We will see slight movements in our year-over-year head grades, which will affect our copper production somewhat. And once we hit our final daily milling tonnage throughput, our copper and moly production will be very consistent and stable. As a result, our financial and operating results will reflect that.

This outlook was one of the major reasons Sojitz and its partners invested in Gibraltar.

The next opportunity for this Company, as we all realize, is tackling our Prosperity development and turning it into an operating mine, and we're up to that challenge. The last time we spoke, the panel hearings were about to commence. That was nearly eight weeks ago. And on May 4 we provided our closing remarks to the panel after nearly six weeks of public meetings across the Caribou.

I urge you all to go to our website and read our final submissions to the panel. From that, you will more fully understand the incredible amount of work we've undertaken to answer all the questions presented to us. The government agencies responsible for finding input to the panel have accepted our responses to those questions. And, with our mitigation efforts, there is little environmental impact other than the impact we will have on Fish Lake, for which we have what we believe is a very detailed compensation plan.

From our submission you will be able to ascertain how native rights have been defined by the Supreme Court of Canada and how the government can infringe on those rights for the betterment of our society as a whole. We believe, as do many people of the Caribou, that this project will be approved by the federal minister of the environment and, in turn, endorsed by the federal cabinet, as it was by the province of British Columbia.

As we have stated many times in the past, we anticipate on getting the final approval in September of this year. We have applied to the provincial government to convert our claims to mining leases, and we expect the lease to be issued shortly. Converting from claims to lease is an important step by the province. It is the right to mine given to a claim holder. We are working our mining permit application, and we expect that to come in the next few months.

Obviously, a big endorsement for this Company is the confidence that Franco-Nevada has shown in us and in Prosperity, with their investment of CAD350 million to purchase 22% of our future gold stream. Now, I'm not sure if most folks out there in this day and age, with governments talking about spending billions of dollars in taxpayer-funded bailouts and the infrastructure investments really appreciate what CAD350 million is for a private sector company of our size and how hard it is to get that kind of cash for our businesses. But it is a heck of a pile of money, and executives of companies such as Franco that are investing that kind of money in business ventures have to be extremely confident in the business plan of those ventures they are investing in.

Firstly, you must ensure the business model is sound. Secondly, you have to have confidence in the management team to deliver on that plan. This investment by Franco endorses both of those points. What does this investment by Franco-Nevada mean for this Company? Well, just like what the Sojitz deal did to highlight the value of Gibraltar, this investment validates the value of our Prosperity project. In simplistic terms, if 22% of Prosperity's gold production alone is worth CAD350 million in present-day dollars, 100% of it is worth approximately CAD1.6 billion exclusive of the value of the copper and (inaudible) deposit.

To put this monetization of our gold production into perspective, two years ago I was attempting to sell 40% of the Prosperity project into a joint venture for $400 million. With the closing of this purchase we have sold just 6% of the combined copper and gold revenue for $350 million. Obviously, this transaction today compared to that which we were entering into and entertaining is an order of magnitude better for our shareholders and it's highly accretive to this Company. Base metal miners trade historically at 0.6 on the low end to 1.2 times NAV. We are trading approximately 0.6 to 0.7 of estimated NAV, yet we have monetized this gold product sale at nearly double that, when all the dust settles.

So this transaction is highly accretive to our shareholders in many, many ways. It allows us to move forward with Prosperity's development while giving our shareholders a bigger direct interest, and it helps tell the broader market what your Company's assets are really worth, as validated by this deal. I'm sure everyone will figure that out in the weeks ahead.

Going forward, we have the bulk of Prosperity financed, and we now have numerous options available to us to close the remaining gap. So it's now becoming a matter of implementation for us. Certainly, we have come a long way over the past four years as we work on moving Prosperity through the regulatory process. And while, at times, our mettle was tested, the passage of time has helped to ensure the success of this project. In 2006, when long-term copper prices and gold price projections were much, much lower than today, we believed that we had a (inaudible) developable ore body. Today, that is even more so, and certainly this endorsement by Franco-Nevada confirms that a third party also believes that as well.

So, we continue to unlock value and create growth from Gibraltar. And soon we will be embarking on the next stage of our business plan, and that's building Prosperity.

I'd like to now turn the call over to Peter to discuss our financial performance and, after that, open the phone lines to take your questions. Over to you, Peter.

First quarter includes several items related to the Sojitz transaction. Long-term debt facility was pre-paid CAD50 million without penalty. We now [own] a debt-free balance sheet. Proceeds of CAD187 million for the 25% share of Gibraltar are reflected in the P&L as a gain of CAD97 million with Taseko's fixed assets of CAD260 million reflecting the 75% share. The accounting treatment of Gibraltar's results going forward will be proportionately consolidated.

Our cash balance of CAD195 million reflects funds from the transaction as well as accumulated cash on hand post debt repayment. Focusing on the income statement, revenue for the three months was CAD75 million versus CAD40.2 million last year. Other significant items in the P&L include an unrealized mark to market hedge gain of CAD7.5 million. That's a dramatic reversal from our previous periods with the hedge.

The current income tax provision of CAD32.4 million reflects the taxable nature of the new joint venture and the tax impact of the profitable first quarter. Earnings after-tax for the quarter ended were CAD76.4 million versus CAD3.5 million in the same period last year. Basic earnings per share for the quarter were CAD0.42 compared to CAD0.02 last year.

As a postscript and as Russ has described at length, we announced our CAD350 million gold stream financing with Franco-Nevada this week, which, with Taseko's cash on hand and projected Gibraltar cash flow during construction, we now have 80% of the CAD815 million project financed, which positions Taseko ideally for this next leg of our growth strategy. Russ?

Thank you, Peter. Operator, I'd like to open the lines to calls. So you can proceed, please.

(Operator instructions) Tom Meyer, Raymond James.

I've got not really a question about the quarter, more about Harmony. What will it take for you guys to get jumping up and down over the opportunity that could play out at Harmony?

Well, Harmony has popped up on our radar, obviously, with the increase in the price of gold. Certainly, the fact that we are getting to the back end of the regulatory process with Prosperity -- so we've been talking about it for a number of months of what our next approaches are going to be, so we'll likely start engaging the communities of interest in the near-term about seeing what we can do up there.

We have, I guess, what you could call -- I don't know whether you call it a pre-feas, but it's certainly a pretty detailed scoping study on there, and we had it updated probably about two years ago. So we'll start dusting all those plows off and see what we can do with it in the near-term.

So it sounds like it's more of, you will wait until Prosperity is done and dusted, and then take a closer look?

Well, you know, these things obviously, as you can appreciate, take a lot of regulatory work and working with, like I said, the various stakeholders and talking about the process and getting people up the learning curve. Certainly, most of the staff we have here, like our vice president of corporate and government affairs -- he is not too abreast of a lot of the nuances with respect to that development.

But certainly, when you've got a 3 million ounce, 43-101-compliant resource as an asset of the company, we would have to start exploring opportunities to unlock some of that value for the shareholders.

And then maybe just a comment on the moly circuit. Will it take much to get that balanced?

This is the problem, Tom. You can see we've done a pretty good job in the last six months in terms of copper recovery, and that has come at the expense of the moly circuit. The moly circuit is such a small, little circuit and it has these little reclaimed pipes and all at kind of stuff. And I think what ends up happening is it just doesn't get -- as soon as we put technical people on there working on it, we see the results. And it's just been a matter of focus.

But as you can see, when the price of molybdenum gets to be CAD17, CAD18, CAD19 a pound, it's got some pretty significant byproduct credits for us. So we want to get to it. It's just all about priority.

Steve Parsons, Wellington West Capital Inc.

Just in terms of the federal permits or assuming that you receive federal approval for Prosperity in September, can you hit the ground running there? Do the provincial permits you've applied for in the federal approval allow you to essentially go ahead immediately and mobilize equipment and get to work?

Yes. It's all a question -- and this has been our big deal about when these time line approvals are achieved. And certainly, you don't want to start breaking ground on any of these projects in the middle of winter. So the question will be, what can we do? Can we go in and grub the site? Can we prepare it over the winter? Because usually, lots of times, that's pretty good operating conditions. But start working on the access road, those kind of things.

So, like I said many times before, a lot of people get confused with what a permit actually means. Once you get the overarching environmental certificate, that's dealing with all the environmental issues so that applying for the permit applications for a mine development permit for a right-of-way access -- those are all just processes like if you were building a house in your neighborhood, a new house, and going to the city and getting various permits. It's a matter of process.

So we will start -- I think the most important thing for us is, once we -- probably in September we're starting, we are out for requests for proposals for engineering companies and ECM proposals. And we will really ramp up the engineering quickly. So that's something that we can do immediately so we can hit the ground in the spring running. And the more engineering you do up front, the better you have control on your cost control on the backend on your construction site. So we have the impetus to do it as quickly as we can within the framework that was presented to us.

In terms of the Franco deal, what is the planned accounting treatment for that? Are you treating it as deferred revenue?

Yes, it's essentially a deposit, Steve, and it will be ground down as the gold is shipped over time. Not a taxable event, after the commencement if -- when -- as we draw down the facility during the construction process.

Okay. Secondly, on accounting, just in terms of the CAD32.4 million current tax expense in the quarter, how much of that or was the majority of that attributable to the Sojitz deal, or was any of it as a result of operating gains (multiple speakers) in the quarter?

The majority of it was with respect to the Sojitz transaction. It's a non-incorporated joint venture, so it is a taxable structure. That was a condition of our new partners, that we would follow that structure. But it did drive the majority of the current income tax expense as well.

Peter Campbell, Jennings Capital.

First, I'd like to just quickly say that I don't think 2009 was a great year for Taseko. But 2010 certainly has started off fantastic. I really would like to congratulate you guys for all the fantastic progress you've made on both Gibraltar and Prosperity.

I do have a couple of questions on Gibraltar and Prosperity. Let me quickly start with Gibraltar, first of all. Q1 throughput and recovery was very good, perhaps the best ever since you've installed that SAG mill. I'm wondering if you can comment on how the mill has performed since that time?

Yes. We're seeing these consistent numbers now. We've got, like I said -- and that has been to some of the detriment to what has been the performance in the moly circuit. So we've really got the guys focused on copper recoveries because we're obviously a copper mine. So we're seeing those continued recoveries. And even now, when we say the head grade drop off in terms of the cyclical mining through the benches, and if we see the head grade on a weak period drop down to, say, 0.27, 0.28, we see the recoveries -- because lots of times recoveries is tied to head grade as well; it certainly helps. So once we see the head grade drop we still see the 86%-87% recovery.

So our projections with respect to the bench tests that we originally did pre- this expansion have been very good, and we think there's still more upside, certainly on the grind and maybe the throughput, once we see how the SAG mill reclaim system can perform.

Well actually, that's my second question, Russ, which is on this front-end feed system. I understand that the engineering is complete. You plan to complete construction of it in Q4. Will there be any production downtime we should expect as this new front end system is cut into the current mill circuit?

We don't anticipate such, Peter, but then again, on an as-build basis -- but generally speaking, it will be pretty -- we would likely tie it in with some other mill down, like we are taking the SAG mill down for mill liners because we usually have to do that every couple of six months; every six months, for two or three days. So we'll try and tie it all in at that time. And there may be some teething pains, obviously, when you go from feeding the SAG mill to -- the SAG mill is actually operating like a big ball mill now because it's getting minus 2-inch material. And when it starts to get 5- or 6-inch material, we're probably going to have some teething pains there. But we think that the mills -- the mill draw and the mill motors, it's not way up there, so we think, even when we are running 46,000-47,000 tons a day today, it's not drawing; it's only drawing 80% of the total horsepower. So we've got a lot of upside horsepower in that baby.

And that was actually my third and final question, on Gibraltar. Would it be fair to perhaps assume it might take one or two quarters to balance the SAG mill with that front end like SAG mill feed system?

Well, I hope not to take a couple quarters; that's a long time. But it certainly could take a period of time. But I'm not the mill superintendent, so I won't -- but I'll stick her neck in the noose now. It's not going to take two months, or six months.

And now, if I can just quickly move on to Prosperity, a few questions here. Steve asked about the granting of permits required once you receive the federal approval. And of course, you are expecting that in a September time frame, possibly. Did I understand correctly that you then would apply for certain permits, and in the meantime you would start advanced engineering, and that you would have the permits in hand, ready to be starting construction in the spring? Is that a fair assessment?

Yes, that would be a fair assessment. But we'll likely have the permits well in hand by those -- most of the major permits. Some of the federal permits take a little longer to go through the regulatory process, but like I said before, the important thing is to get in the environmental, overarching environmental certificate. And the rest flows out of that.

And then, quickly, turning to the Franco-Nevada gold stream here, in the Franco-Nevada presentation, yesterday, they mentioned that the stream is on 22% of the gold in concentrate. And I'd like to get some feedback from you on whether that means payable gold or total gold?

It's payable gold.

So you are quite adamant that it's payable gold and not just the gold in the concentrate?

Yes.

And a final --

(multiple speakers) we spent a bit of time on that one.

Okay, I can tell by Peter's response; that was very quick.

Thanks for lobbing the lollipop.

Okay, terrific. And one final question, then, on the gold stream. There's mention in the MD&A of a management fee that Taseko can charge against the gold stream. How is that calculated?

Are you sure that's not the Sojitz deal?

Oh, I'm sorry, I'm sorry. Yes, (multiple speakers) --

It sure would be nice if we could have a management fee on that one, but I don't remember reading it. So it might come as a surprise to the Franco guys.

Sorry about that.

No problem -- yes, we get a management fee to run the partnership.

And is that like a percentage of the actual fee, or is it on a per-pound basis, or how is that calculated?

It's a percentage of the revenue. It's about CAD4 million a year, or something.

With a floor.

With a floor, yes.

Okay, CAD4 million a year, percentage of revenue, with a floor. Thank you very much, and those are all the questions that I have.

John Tumazos.

Good morning, John Tumazos, John Tumazos Very Independent Research. I want to congratulate you on the seven-year warrants for about 2% of Franco-Nevada. They are a good-sized company. It's almost like getting a few percent back of the 22% of the gold stream you sold, in terms of taking stock back in their company.

That was our thesis.

Forgive me; I haven't calculated historical volatilities on the Franco-Nevada common stock, but economically, using a Black and Scholes model, how much value do you assign to the seven-year warrants? And then on the balance sheet, will there be a left-hand side entry for the asset and a right-hand side entry lumped into the liability for the prepaid deposit cash? Would that be the accounting treatment of it?

The actual advance from Franco, that's correct.

So how much falls out of the Black and Scholes for the seven-year warrant?

I have not done that calculation.

Oh, I bet your financial advisors did. And as a CFO, you'd be remiss if you didn't know that. You must be too embarrassed to say how good a deal you got.

We can always get you that number, if you want it.

Just (inaudible) me an email, thank you.

Is that it?

That's all, that's all. I was just wondering how sweet a seven-year warrant is on a gold stock, because they are generally high volatility.

Well, so are we. So we'll find out, I guess.

David Cotterell, BMO Capital Markets.

The first one I have for you is on the realized moly price. It's considerably higher than I've seen moly for a while. Is that just an anomaly?

Yes. I think it just popped up there for a while. We managed to sell it at that price, so good on us. I think right now, Dave, it's about CAD17, CAD17.25, somewhere in that neighborhood, because we usually -- and we are fortunate because it's not going out all the time. We kind of -- I don't want to say stock pile it, but we kind of accumulate it in relatively large batches and then ship it out. So it's not like a couple thousand pounds is going every day or so.

The other ones I had for you, on the Franco deal, just in terms of the premium structure -- I know you said it was in stage cash deposits -- when does it kick in? Is it on the receiving of the permits from the federal government in terms of the environmental certificate? Or, is it a permit to actually construct the mines?

All material permits have to be in place, David, so we're anticipating that's March-April next year that we'll be able to draw down. But under the formula, there will be a cumulative effect of that drawdown at that point in time. We'll be funding it out of our cash flow, cash reserves, etc., the disbursements up to that point.

Okay. In terms of Prosperity, can you remind me -- can you expand it at all? Like is it open at depth or a long strike at all?

Well, there's -- yes, I think the total resource is about 1.1 billion, and in our last reserve update, we got about 850 million tons -- 830 million tons. So I guess that's in the future to be decided.

I guess the point I was coming from, Russ, was that, considering how long your mine life is, and I guess it's a bit like Gibraltar, too; if there's any way of bringing it forward a bit, 70,000 tons per day is quite a reasonably big operation. But if you could expand it, I guess, a little bit down the track, I imagine you will get into production and then maybe think about these things?

Yes, we have to. We are a long ways -- first we've got to build it. Then we've got to run it for a while. Then we've got to think -- you have to remember, we also have some constraints with respect to the environmental certificate and what the regulators have approved in terms of tonnage size and mine life. So those are the kind of things that will be evaluated later in the project. But there's always that opportunity, yes.

Just in terms of First Nations, what are they entitled to, or what aren't they? Is it more of they have to extract stuff from the federal government or the provincial government (technical difficulty) you guys?

Like I said it earlier, there's quite a commentary with respect to -- on our closing submission. So if you go to our website, rather than me try and reiterate all that, you can understand the legal and technical issues around that. So if you've got five minutes, it's probably about 20 pages, 25 pages long. And it's very illustrative of the whole issue, not just here in British Columbia, but across all of Canada, with respect to native rights and title, in reference to the (inaudible) and Delgamuukw.

Okay, cool, I'll take a look at that then, Russ. Is that one of the things that Franco were most concerned about, was the first Nations and what they could stick their claws into, so to speak?

No. I don't think -- I think they were relatively comfortable with that because we explained our position. We had our legal counsel talk over that issue with them. Their issue obviously was on the viability of the operation. That's what they focused on, our ability to deliver on our -- like I said, on our business plan and our business model. So that was -- obviously the First Nations issues were one of the discussion points, but like I said, that's all tied to what Peter talked about in terms of us receiving the permits before others are advanced.

In terms of, just finally, the last piece, I guess you could say, of financing, is there any sort of idea how long you want to work out -- like if you were going to get another partner in, have you got a time frame of where you were thinking of trying to put that together?

I would say, over the next four to six months; Peter?

Yes, I think that's a pretty accurate time frame. We want to have all of our money lined up, certainly, prior to the end of (inaudible).

In terms of -- if you went down the road of debt financing, what is the reception like in terms of banks for that type of -- obviously, you've got a lot of cash now, so it alleviates some of that issue. But is it easier to do a debt financing rather than doing an equity financing or getting another partner in?

Well, we both can speak to that. There are all complications. Certainly, I think the debt market still is pretty constrained in terms of covenants and what you have to do. And I think, certainly for our shareholders, there are alternative means of closing that last CAD150 million to CAD200 million worth of gap; ay, Peter?

Yes, absolutely, and it's sort of a mantra, during -- the sourcing of our financing is not wanting to hamper ourselves. I think we talked about it a little bit on the last conference call, not wanting to have major constraints in terms of hedging restrictions and covenants, etc. So there's certainly no straightforward, simple solution; it's going to be a combination of being opportunistic, somewhat, as well as what's the lowest cost of capital in terms of putting things together and what gives us the ability to continue to invest and grow in Taseko overall, along with getting Prosperity built.

Yes. We want to have a great balance sheet, so that may entail a couple things. It might entail equity. It might, like I said in our presentations, equity. It might include a debt component, like Peter just spoke about, and some trade debt so that we have a really good balance sheet so that we can also look at other opportunities, like Tom talked about. What are we going to do with Prosperity? Well -- or, not Prosperity; excuse me, Harmony -- what are we going to do with Harmony?

Well, if we start moving some work along on Harmony, that's going to suck cash out of the system. And if we are always on the look for assets that we think fit into our portfolio model going forward. So we've been pushing Prosperity forward here for the last four or five years. Now we are getting -- now the thing, like I said, is implementation. Well, where do we go past that? What's the next step for this Company in the growth profile that fits into our wheelhouse? So that's all part and parcel of what we may do going forward, David.

So, in terms of the banks wanted you to hedge, that would probably turn you off going down that line of financing, I'm guessing?

It would me.

It would me, too, because not only do they take the debt from you, they take the hedge from you. So, Jesus, they put all the covenants on you and say this is what you have to do. And then they say, by the way, just to mitigate your risk, we will take your hedge and we'll make you hedge, but then -- so they've got both sides of the fence covered there.

So we're fortunate as a business -- if you look 20 years ago, it used to be all project debt. There was no other alternative abilities to finance these projects. And now there's many different -- like I said, there's the appetite for equity investments, there's all kinds of different methods of financing this as opposed to the traditional project financing package.

Not that we are totally opposed to hedging, but we would have -- to have been required to hedge in Q1 of 2009 or something would have had terrible implications for the Company. So it's something that we use, but it's judiciously and based on prevailing price environment and outlook.

One final question is, in terms of your growth, where would that kick in? I know that Tom was talking about Harmony before, and you mentioned it. If you are going to, say, take another run at Copper Mountain nor such, would (multiple speakers) fit into your growth strategy, would it be (multiple speakers) after Prosperity is bedded down, or are we certainly talking like next year?

Well, I think we have to put that all together and approach our board and say, this is what we think and this is where we've got to do it. It's not like we haven't tried to find other projects, but I think we've got a pretty good team here looking at advanced stage projects, feasibility levels and then unlocking the ability of our engineering group and our mine management group to look at these lower-grade ore bodies that a lot of people can't make operate. And I think we've got the team that can do that, and obviously I think we've proven it at Gibraltar. So if we can find the right mix -- because we'll have to -- it's a pretty competitive business out there trying to find assets to develop. So we'll just -- we'll be patient and look for things that will hopefully be accretive to our shareholders and that are complementary to our business.

Alex Terentiew, Credit Suisse.

Thanks for taking my call; I know there's been a lot of really great questions already this morning, but I just have two quick follow-up questions. One, I guess, is for Prosperity, with the gold stream transaction at CAD350 million. Are there any tax implications on that? So, would you guys get CAD350 million, or is it like CAD350 million minus something for other fees or taxes?

That's structured -- it's a non-taxable gold stream. So no; it's structured as a deposit, and there's specific features in the structuring of the transaction that makes it not subject to tax.

And I guess this is for either of you, but Russell, at the beginning of the call you mentioned something about -- and I'm not sure if I heard you correctly here -- like an adjusted EPS for the quarter of around CAD0.11 a share. Can you just go over that really quickly again for me, how you got that number? I know, what the --

I just wrote it down. Somebody else calculated it.

That's a good one for us to do off-line, maybe.

Tom Bishop, BI Research.

Russ, I want to question you about your math. On the gold with the Franco-Nevada, you said that the -- my point is, don't you also get CAD400 an ounce?

What, didn't I talk about that?

Well, yes -- above and beyond the CAD350 that Franco pays you. So when you are doing your calculation of CAD1.6 billion, I don't think that considered the CAD400 per ounce that you also get.

Yes, it did not. Thanks very much for illustrating that (multiple speakers). But the 6% does.

The number is bigger than that, and then there's all the copper, too, which just doubles it.

Yes.

The average grade of 0.355 in the quarter -- is that going to last? I see it was even higher a year ago. But is that typical of the current pit, or are we going to see some falloff there?

Well, some of this is a carryover from last year, when we got all off our mine plan, right, because of the geotechnical issue we had. So we are just cycling back through some of these areas that are a little higher. I think we've got a budget. In the back end of this year we are thinking -- well, from the mine plan, it looks about 0.34, for the next month.

So there was some areas there that, when we did our exploration drilling, about -- remember, we did our exploration drilling and moved the reserves up a couple-three years ago? Well, there were some areas there that we got into mining that we didn't expect some of this head grade that we got, and we have done some more preproduction drilling to get a better handle on where we are at. But we are going to be 0.33 to 0.34, maybe, maybe a little bit higher. But the model's pretty consistent. So I'd say the last six months of the year, if we stay on schedule and on our mine plan, we're looking at probably 0.34 in the last two quarters.

But in general, like next year and beyond, are we talking going into lower numbers, closer to 0.31 or something?

Yes, we'll probably be at 0.32. Like the ore body is pretty consistent. But then a couple years from now, I think we go up to about 0.35. Don't we, Brian? I can't remember. And that tonnage, we'll probably do about 120 million-125 million pounds.

So like what I illustrated in that discussion, in my commentary earlier, I said we'll stay in a window but there will be some fluctuations with head grade, and most of it is -- the average run rate is 115 million pounds. And there will be some years where it will be, at the back end of the model, it's 110, and the front end it's 125. So it will move up and down, dependent on head grade.

Okay, but it sounds like pretty good grade. If you get approval in September, how many months do you have for site work? And if you got approval in September, can you drop the bulldozer blade and crank up the chainsaw, or is there still more rigmarole?

Well, we could. We'll have to figure that out. That's what we're doing right now. If we start at certain times, what do we do? Do we do site prep so the camp is ready to go? Do we do it in the wintertime so you can get the camp already to go, first time -- first thing breakup happens in spring, say March or April, so you get your people in there and on the ground? So those are all mechanics that we're working on right now, trying to figure that all out.

Okay. Well, things are heading in a good direction here in this deal with Franco-Nevada. I really laud you on that; that was excellent.

Well, operator, I think that's it for the day. Thank you very much, everyone, for joining us. And I look forward to talking to you next quarter, have a nice spring and early summer. Cheers.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.