Taseko Mines Ltd (TGB) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Taseko Mines second quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions). As a reminder, today's conference is being recorded. I would now like to introduce your host for today, Mr. Brian Bergot, Investor Relations. Sir, please go ahead.

Thank you, Karen. Good morning, ladies and gentlemen, and welcome to Taseko Mines' second quarter 2010 results conference call. My name is Brian Bergot and I am Investor Relations Manager for Taseko. With me today in Vancouver is Russ Hallbauer, President and CEO of Taseko, John McManus, Senior Vice President, Operations; and Peter Mitchell, Taseko's Chief Financial Officer. 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 2010 financial and operating results, and to fill you in on all our ongoing work on Prosperity, while we await the Federal Cabinet's final deliberation on the Federal environmental assessment.

For the quarter ended June 30, 2010, the Company achieved an operating profit of CAD17.4 million, and net earnings of CAD45.4 million, CAD0.24 per share for the three month period. Peter will speak directly to those financial results later in this call, and discuss more fully the elimination of a tax contingency liability that goes back a number of years. As I indicated in both our year-end and Q1 call we expect Gibraltar to perform within a production range of a little over 20 million pounds a quarter until we complete our final expansion projects, and this quarter was not much different than last regarding copper production and recoveries, so we're pleased in that regard. We made some advances on the moly circuit recoveries, and the primary issue there has been the finer grind from the tower mills, that has allowed us to achieve 89% copper recovery as a fact of the moly recovery, but we are making daily improvements in that regard, as we get a better feel on collectors and other reagents and other issues related to the circuit, and at this juncture, moly recovery has moved to over 30% and we expect to have that at 40% in the near future.

With respect to achieving increased throughput, we have now completed the tailings pumping system, and the in-pit crushing system. The only project to finish is the SAG direct feed system, which we anticipate having complete by year end. For example, to illustrate how important the new SAG reclaim system will be going forward, on our primary crushing system we have spent roughly CAD1.3 million year-to-date on operating and maintenance.

On our secondary crushing system, which is the one which we will be replacing but with the new SAG direct system, we have spent over CAD5 million on maintenance and operations year-to-date. Without a doubt, eliminating our secondary crushing and screening system will be one of the most important cost improvement and cost containment initiatives we have ever approved for the mine. In another six months you won't be hearing me speak about those initiatives anymore, which I'm sure will be nice for all of us.

Speaking directly about cost, you will see in our MD&A a more thorough overview of those. Specifically, though, approximately CAD0.40 per pound was attributable to one time events such as inventory adjustments, extra rehabilitation of a pit wall by contractors, added off property costs, associated with higher freight, for example, and a number of miscellaneous items. Generally speaking, our cost structure is a bit like a sinusoidal wave. They go up and down depending on the business plan and our budget. Some quarters up, some quarters down. Overall, on a year-over-year basis, we'll be in a range in terms of the guidance we provide early in the year, based on some broad-based anticipations of our inputs.

But it's important to understand that we are still looking at a 35% increase in our metal production over the next six to eight months, and we have to start doing things now, i.e. spending more money to ensure that we can do that. For example, labor. We've incurred about CAD0.10 a pound direct labor cost increase without an increase in metal production, so obviously cost per pound will increase if the metal production does not. So that is something to remember going forward.

Overall, cost profiles cannot be properly evaluated in a 90 day snapshot, particularly in our circumstances, but one thing I'd like to stress is we have a great opportunity on the cost side before us, irrespective of savings that will be associated with volume increases. Myself or John will be happy to answer questions later on that topic. I would now like to speak about where we are at with Prosperity.

The power report was issued July 2, as we all know. We responded in a conference call to that report, and hopefully many of you had a chance to listen to that call. Since that time, there has been much discussion about the general pound report, but very little has been discussed with respect to the overall recommendations contained in that report. I would like to briefly discuss those recommendations today. Many of you obviously would not appreciate or understand the Province position on what they have termed equivalency of the EA process. It is spoken about as harmonization, but in fact, in effect, those words best -- the best word to describe the go forward position with respect to the Provincial positioning in relation to Federal is equivalency, between what the province undertakes in EAs and what the Federal Government undertakes in EAs.

Looking at the recommendations of the Panel report, out of the 24 recommendations put forward by the Panel, 10 related to environmental issues. Of those 10, 9 were covered off in our Provincial EA, and we have 103 commitments related to those 9 and others, in respect to our environmental certificate and how we are going to handle those issues. Five items identified as affecting First Nations, two are directly identified in our environmental certificate as commitments we have made, while the other three relate to such items as power line realignment to keep the power line corridor out of the (inaudible) First Nations community force and a suggestion that Taseko should consider changing our power line development plan and participate in building a power line to access the TNG's proposed biomass project, A biomass plant which I might add is still only a concept study.

The remaining nine recommendations refer to such things as early access to the Prosperity Lake and other ideas regarding improvement of other local lake access, boat launching and camping sites, and topics such as post closure issues that will be covered off in the mine permit issued by the Province, but really those are not material recommendations. So in effect, the Panel's recommendations relating to the environment, 9 of the 10 identified environmental recommendations are already covered off by our Provincial environmental certificate. That is what equalization is all about, i.e. avoidance of duplication, and that is why the process we have just endured will be changed in the months and years ahead with respect to these types of projects.

As we all know, relationships between Federal and Provincial governments are always evolving, and that's what makes a confederation like Canada function as well as it does. In the context where we find ourselves with Prosperity, this equivalency type process is clearly evident. In a natural progression of responsibility, we will seek, going forward, the Federal Government accepting the Provincial government's role in many areas, and the environmental assessment will be one of the most important.

In that regard, we look at the Environmental Panel's recommendations and those commitments we have made in our Provincial environmental certificate, it should illustrate to all of those similarities, in fact, those equivalency matters. Looking forward, following the issuance of the Federal Panel report on July 2, the Federal departments have 10 weeks to respond to the report to government and consult with First Nations regarding the report findings. Cabinet will then end up with four documents on which to base a decision. The Panel report, which we've just covered off, First Nations consultation report, based on consultations with First Nations on that Panel report. A memorandum to Cabinet, which will be the departmental responses to the Panel report. The Department of Fisheries and Oceans, Intercan, and Transportation Canada. DFO will deal with fish compensation issues of which we have come up with a fish compensation plan and Transportation Canada will deal with the Navigable Waters Act and the explosives permit. And finally, the Cabinet will receive a summation of the Provincial environmental assessment report.

We expect those reports to be ready for Cabinet by early September, and we expect a decision shortly thereafter. So while all that is ongoing we have submitted our mine permit application to the Mines Development Review Committee and we are working on that as we speak. We are working on an application to have crown land converted to fee simple land, our road access license was granted, and development access along the Portsby access road, in relation to bridges and other access concerns, Our engineering company, which we just signed a contract with a month or so ago, is moving forward on our flow sheet and grinding line analysis and discussions and evaluation of early procurement options.

Economics. If we step back and look at our original plan to keep capital cost down on Prosperity a number of years ago, we were going to go with a single grinding line like we have at Gibraltar and that was primarily driven by consensus metal prices during our regional feasibility study and higher input costs as we work on an acceptable IRR and NPB. Through that development we came up with CAD815 million capital cost. Since that time, we have reviewed our options and I think I've spoken on that a number of times, in light of increasing long-term metal prices and where input costs have gone over the past few years. So with our new reserves, at CAD1.65 copper, and CAD850 gold, we could change our risk profile while increasing the anticipated IRR and NPB, and move from a one SAG mill line to a two SAG mill line. This will initially boost capital outlays from CAD815 million by CAD25 million to CAD30 million so basically in the range from CAD840 million to CAD850 million in terms of total capital but moving from one line to two will reduce apparent mining risk. As this -- as we work through this process, we would decide if we go with new technology -- wrap-around mill technology, that's used in many mining operations in the world, or conventional gear and pinion SAG mill technology.

Wrap-around technology is approximately CAD20 million more expensive than conventional, so we have decided we're going to go conventional and we expect that the motor companies that supply the motors to run these SAG mills will finance the motor purchases of approximately CAD30 million. So our capital outlay will go back to CAD815 million, similar to what we had with a single grinding line. Except now we have two grinding lines instead of one. This financing option with respect to the milling motors, will increase our cost per ton milled by about CAD0.10 per ton, boosting our operating cost from roughly CAD750 per ton milled to CAD760, which is really immaterial in the grand scheme of things, but an important function of keeping upfront capital low.

We have completed pilot plant runs on our ore samples and have prepared concentrate samples that will be forwarded to smelter groups in a few weeks, and we received indicative offers of volume and offtake to be placed in our offtake agreements from a number of smelters and traders. We will announce the final terms over the next few months as our teams go to Europe and other locations to continue those talks.

Generally speaking, we are moving ahead expeditiously on all matters related to mine development, financing our debt while we await the Federal Cabinet's deliberation on the final Panel review. I'd like to now turn the call over to Peter to talk about our financials.

Thanks, Russ. Revenue for the three months ended June 30, was CAD56.5 million versus CAD52.6 million on 100% basis for the comparable 2009 period. This increase reflects higher copper and moly prices and comparable shipping volumes at 21 million pounds of copper. The second quarter results include Taseko's 75% of Gibraltar's proportionately consolidated results, for the first full quarter. Operating profit for the quarter was CAD17.4 million versus CAD16.7 million last year.

The significant item affecting earnings this quarter was the reversal of the tax contingency related to the 2004 Red Mile royalty financing and related tax position. This reversal results in a credit to our current tax provision of CAD22.5 million, and interest income credit of CAD8.1 million. That's a one-time non-cash event. Another notable item is the unrealized mark-to-market on the copper hedge which resulted in an CAD8.9 million gain in the quarter. Gibraltar's hedge runs for the balance of 2010, and is 100% allocable to Taseko.

Additionally, as a result of the debt prepayment of the senior debt facility last quarter, interest expense declined by 66% to CAD731,000 in the quarter. Earnings after taxes for the second quarter were CAD45.5 million, versus CAD11.4 million in the same period last year, on an EPS basis that equates to CAD0.24 in the current quarter versus CAD0.07 for the second quarter in 2009. Liquidity remains strong at the end of the second quarter, with the cash position of CAD175 million, and very modest capital lease debt. As previously disclosed, the Company signed a gold stream deal in May with Franco-Nevada, which along with our cash and Gibraltar's future cash flows, will provide 80% of the capital necessary to build Prosperity.

Thus, we remain in a strong position to reinvest cash flow to enhance the productivity and growth of Taseko. Russ?

Thank you very much, Peter. Operator, I'd now like to open the call to questions, please.

Certainly. (Operator Instructions). Our first question comes from the line of Steven Parsons of Wellington West.

Good morning, guys.

Good morning, Steve.

Quick question as relates to a couple of these items that affected cost in the quarter. I guess, notably, the truck shovel and crusher rehab work and the granite pit wall stabilization. Any of those costs going to extend into the next one to two quarters?

Hi, Steve, it's John here. No, those won't. The truck shovel and crusher repairs, those were repairs on equipment that we're in the process of replacing but that we need to utilize for the next three, four, six months until the new shovel trucks and crusher are in place and running. The new crusher is in place but we had to do repairs on the old one in April to get us through until the new one was up. The high wall rehabilitation was just -- there was a weak spot in the wall that we needed some specialized equipment to come in and get that done. That cost about CAD1 million. And those other repairs was about CAD2 million. So that's CAD3 million that we took in the quarter that won't be repeated.

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

Thanks.

Thank you. And our next question comes from the line of Tom Meyer of Raymond James.

Thank you. Okay. First question, on the cash balance. Of that CAD175 million, what fraction of that sits at the Taseko mine level as opposed to the JV level at Gibraltar?

That CAD175 million is all 100% our money. We've accounted for any money that is 25% allocable to our partner at Gibraltar.

How much money would be sitting at Gibraltar JV?

At the end of the month? Sitting at the Gibraltar, we basically at the JV level we fund our operating cost on a monthly basis, so basically whatever at the end of the month, whatever is needed to fund operating costs we draw our operating costs mid-month, so it's not -- the vast majority is sitting at Taseko.

Okay. So it's pretty easy to move money back and forth so if there's a capital program at the Gibraltar JV level, it's easy to contribute and then if there's excess cash it's easy to draw that out without having to have like a Board approval at the JV level?

We have a very defined cash call process for capital and operating costs and you're right, it is easy.

Okay. And then the last question, on your hedges, where do they sit? Do they sit at the JV level or are they at the Taseko Mines?

Actually, our partner does not participate so the hedge position we have for the balance of the year is 100% allocable to Taseko. It's actually at the Gibraltar mines, limited level who is the corporate partner in the Gibraltar JV.

Okay. Perfect. Thank you very much. I'll pass it on.

Thanks, Tom.

Thank you. Our next question comes from the line of Peter Campbell of Jennings Capital.

Good morning, everybody. I just have a few operational questions here. With respect to the four trucks that have been purchased, is this the first disclosure of the actual purchase of like four new trucks? I know we've always been talking about replacing the old equipment.

Well, Peter, yes, we've been purchasing new equipment as we've gone along since start-up in 2005, we've bought five, nine -- 12 new trucks. These are the first ones that we've bought in the 320-ton class.

Okay.

So the purchase agreement was only made in July, so yes, I guess this is our first disclosure.

Okay. Thank you. Is this going to be a capital lease or is this a purchase?

Capital lease.

Okay. And does this result in the retirement of a certain number of old trucks or will you still keep them around?

No, that's exactly right. We're going to turn out some of the old 240-ton trucks. We've got some 20-year-old trucks out there that will be retired.

That was a problem, Peter, that we had to -- we recognized that these trucks costs were escalating and we had to replace them. That's why John was referring to earlier on, we had to put nearly CAD2 million into keeping those trucks running, the older trucks before we got the new trucks here. So unfortunately, the time was irrelevent, cost us some money, it was like trying to keep your car running before you buy your wife a new one.

We'll have all of those four trucks up and running by the end of the year.

And then just a follow-on question. With these four rather large trucks and your new shovel, obviously you have an expectation that your cost per ton mined is going to be improved. Do you have any sort of a guidance you'd like to offer as to in terms of the cost per ton, how much -- and also, I guess like throwing in the in-pit crusher and conveyor system, how much of a cost improvement we should be looking at for the mining from the pit?

Well, it's just exactly what Russ said earlier in the call, is that we have to invest in this equipment now in order to get to the forecast cost in the long term of CAD1.50, CAD1.60 that we've been talking about all along. So these trucks, the shovel, all along we've been buying equipment and putting it in place in anticipation of going to a larger truck fleet. It's just now the time for the transition. So all of this is a long-term plan which is coming together.

Sure, but you don't have a target in mind in terms of a certain sort of improvement to be made on your cost per ton mined?

I think we got a target but it's just a little premature to talk about it right now, Peter. I mean, we've got 4100 shovels. We transitioned from 205 trucks and smaller 2300 shovels. We've got a 4100 shovel. We're going to have a 495. Our equipment fleet is going to be nearly double the size in terms of productive capacity, AC drive trucks, shorter -- like you say, shorter ore haul to the crusher. There's going to be this replacement with the SAG mill. So we're still working through that but we know that these all have a very good payback and are ultimately going to reduce our cost significantly.

Terrific. Then two more quick questions, if I could. Could I get a bit of a more of a detailed update on the status of the front end feed system? Construction has been started. The design work is complete. Is there anything else on that?

I guess the only thing I can say is the construction schedule is to complete right at year end, the way we're set right now. There is going to be a three or four day transition period over to the new system. So we probably won't actually do that until early into 2011. But yes, the capital costing and construction schedule, engineering's all done. We've begun excavation for the stockpile. Materials are ordered. All of the feeders and everything, all the big parts, orders are placed and they're on their way.

One final question then. It appears from the quarterly disclosure that offsite costs appear to be sort of like steadily increasing by a few cents every quarter. Is that a fair assessment and what might be the cause of this? Because this is -- you've got a TCRC contract for your cons, so I'm just kind of wondering why we see the escalation in the offsite costs.

I guess the key function on that, we do have a contract on our TCRCs but we're seeing more activity on overseas shipping, our shipping costs have gone up. That's the main factor.

Okay. Great. That's it. Thank you very much.

Thanks.

Thank you. And our next question comes from the line of Alex Terentiew of Credit Suisse.

Hi, guys. Just two quick questions. When it comes to Gibraltar's operating cash forecast, what metal prices are you using there? And this is I guess because you often talk about it relating to generating or financing for the Prosperity project.

You mean in terms of that CAD80 million that we say that we're going to have going forward?

No, sorry. So when you talk about Prosperity, you say with cash on hand and other financings, operating cash flow you expect to have 80% of Prosperity financed already. So--?

We're using 2.25.

I'm sorry, how much?

2.25.

2.25 Okay. My next question, could we expect any sort of throughput expansion over the next one or two quarters and when could we expect the mill to get to 55,000 tons per day?

The 55,000 tons a day will come on probably Q2 2011 once we finish the SAG mill direct feed and get that fully commissioned and operating.

Between now and then, it's probably going to stay where about it is now?

No, I see us gradually increasing to the 55,000, and achieving that Q2.

Okay. Great.

If you look at the SAG mill draw right now, we're probably only using 80% of the power draw on it, Alex. We know that we can probably, if we get the right feed and the right metallurgy, we can keep pushing that tonnage up. So John and his crew and the guys at site have gone the last eight months 39,000, 40,000 to about 42,000, 43,000 tons a day on a nominal rate and we keep pushing that through. So we see some days at 47,000, 48,000.

There's lots of grinding capacity in that SAG mill and we just have to keep training our operating crews and the folks at site to just keep pushing that because there's lots of capacity at that. So there is upside even before we get to the reclaim system. The question is, we just don't know how much that is. But the mill right now is easily capable of 55,000 tons a day if you could get the feed to it.

That's exactly right.

Okay.

So all the downstream stuff is -- we've got flotation capacity, we've got tailings capacity. We've got regrind capacity. It's just getting the material through the hole and into the SAG mill.

Okay. Perfect. Thanks.

We're aiming at working on that.

Thank you, sir. Does that conclude your question?

Yes, thank you.

Thank you. We have no further questions in the queue at this time. I'd like to turn the conference back to our speakers for any further remarks.

Okay, guys. Thanks very much. As soon as we hear the deliberations from the Federal Cabinet and anticipation of our final approval for Prosperity build, then we'll have a conference call to update everybody on the path forward. So look forward to anticipation of the next six, eight weeks of receiving a confirmation of the opportunities for this Company, so thanks very much. Talk to you soon. Bye-bye.

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