Taseko Mines Ltd (TGB) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2010 Taseko Mines earnings conference call. (Operator Instructions) Later we will conduct a question-and-answer session and instructions will be given at that time. I would now like to introduce your host for today's conference, Mr. Brian Bergot, Investor Relations. Sir, you may begin.

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 third-quarter business and operational results, we will open the phone lines to analysts and investors for a question and answer session.

I would like to remind our listeners that our comments and answers to your questions may contain forward-looking information. This information by nature is subject to risks and uncertainties that may cause the stated outcomes 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.

Before I speak today about the company, I just want to say a few words about Remembrance Day in Canada, or Veterans Day, as it is called in the U.S. Here in British Columbia, Remembrance Day is a provincial holiday and a day of remembrance for those who have lost their lives in preserving all we have and are so lucky to have both here in Canada and the United States. Young people are dying today as we speak throughout the world trying to support the democratic principles so many of us take for granted. And I think it would be remiss for me today in not acknowledging that and the contributions before I get into discussing our business today. So thank you everyone for joining us today.

I will just briefly walk through our quarterly performance results. I am sure most folks on the call today are more focused on our path forward with Prosperity, so Peter and I will try to move quickly through our operating results, so we can get to the questions and answers. Our production numbers were excellent for the quarter, at nearly 26 million pounds of copper produced at a total cost of $1.40 per pound. As indicated in our release, our operating profit this quarter of $17.5 million, is nearly 86% higher than the comparable period in 2009, and would've been spectacular had we not gotten jammed up with core congestion in Vancouver, leaving us with 16 million pounds on the dock and in our inventory system, 16 million pounds of copper revenue deferred until Q4 of this year. This quarter is pretty illustrative of the kind of operating performance we can get out of Gibraltar on a go-forward basis and the kind of cash flow generating capacity Gibraltar is capable of achieving in that period. So I think we need to speak in depth -- I don't think we need to speak in-depth about those results. They speak for themselves, and any particular questions on operational manners we can take in the Q&A.

Some shareholders have spoken to us about continued up-scaling of the Gibraltar concentrator and if it makes sense in the price environment and vision going forward with respect to copper. Let me speak briefly to that point. By mid-January, we expect to have our SAG mill direct-feed system complete. Once we have that under control and performing the way we like, we will evaluate what a pebble crusher can for us. A pebble crusher is an additional crushing system added on to the back end of our SAG mill facility, which we believe could increase milling capacity by 5% to 7% - an estimate.

Complementary to that, we will evaluate a further upscaling of the Gibraltar mine site similar to the process we were looking at in 2008 - 2009 before the financial crisis. Our present investment in mining equipment over the last few years and the crushing system easily gives us a capacity for another 20,000 to 30,000 tons potential mill throughput. In the new year, we will evaluate what will be required on the concentrator side of the equation to get another 20,000 to 30,000 tons per day production. We may need a few more trucks, but not significant. The production increase of that size would reduce our present mine life from 25 years to roughly 17 years without increasing reserves. So that could be an important accretive initiative that we need to look at.

Looking further afield, we completed a drill program in Alley over the summer, and we expect to see drill results in the next few weeks. Niobium prices stay strong, and we are hopeful that the Alley deposit works out for us the way we envisioned. But again, that is too early to tell at this juncture.

Moving further afield, we are continuing to look at Harmony very closely given the gold price regime we are in. It is a 3 million ounce resource at 1.6 grams per ton, which is a very appealing for development. So while we were disappointed about Prosperity, we have plenty of organic projects to help grow the company in the interim while we try to sort things out with the province and the Feds how to Prosperity forward.

Moving to Prosperity, we were very surprised, as I'm sure was the government of British Columbia and the people of Williams Lake and the Central Interior with the Environmental Minister's response the panel report. Frankly, I think Minister Prentice did himself a big disservice in his announcement calling the federal panel report "scathing." It was a disservice to the work we put into it, what the provincial government put into it, and really points to how dysfunctional this dual process is when the Federal Environment Minister apparently hasn't taken the time to read the report, the recommendations and the conclusions, and how those conclusions from his own department dovetail between the provincial and federal process. I want to reiterate again, out of the 24 environmental issues raised by the Minister's panel, 22 were covered off by the problems. The only two that were not were fish habitat and grizzly bears. Seeing as grizzly bears are provincial jurisdiction and in fact no one has seen a grizzly in this area in years, and BC has a hunting season, then by deduction it has to be fish and fish habitat. It would be nice if someone from Ottawa told us that.

Once we understand that and the issues, maybe we can figure out how to solve the problem Mr. Prentice's successor now has with our project. We want to build a mine and create value for our shareholders, value for the communities in terms of our jobs and economic activities, and we sure don't want to fight with people. If we cannot get clear direction from Ottawa on how to move forward, we will look for opportunities elsewhere. That is our job as managers of this company. So like I indicated many times, if we work together as we are willing to do with cooperation and common purpose with respect to Prosperity, a path forward is possible.

I would like to now turn the call over to Peter.

Thanks, Russ.

Revenue for the three months ended September 30 2010 was $37.5 million versus $40.1 million on a 100% basis for the comparable 2009 period. This change reflects modestly reduced shipping volumes and only 75% of Gibraltar's [inaudible] consolidated results. Revenue was impacted by the delayed shipment of 16 million pounds of copper, as Russ mentioned. The shipping actually occurred four days after quarter end. There was no realized loss on the company's copper hedge in the current quarter. However, there was an unrealized loss on the mark to market of the $3 puts that were purchased in the third quarter, hedging copper revenues for the first half of 2011. These puts protect approximately 100% of Taseko's proportionate share of production at the $3 level for the first six months of 2011. They are purchased versus the zero cost structure we have used historically. The cost was about $0.20 per pound, such that based on our current and expected cost, this hedge provides significant margin protection until mid-2011.

Additionally, as a result of the debt prepayment on our senior debt facility at the end of the first quarter, interest expense declined by 65% to $652,000. Earnings after taxes for the third quarter were $1.4 million versus a loss of $2.3 million for the same period last year. On an earnings per share basis, this equates to $0.01 per share on the current quarter versus the negative $0.01 for the third quarter in 2009. Liquidity and working capital grew to $195.4 million and $181.6 million respectively at the end of the third quarter. Cash generated from operating activities was $35.4 million, which provided most of this increment. Lease financing was sourced for the new mining equipment at Gibraltar, which added $8.2 million on the net basis to company debt levels. In summary, we remain in a strong position with a healthy cash balance, minimal debt, downside protection on copper prices until the middle of next year, and strong cash flow to reinvest in the growth of Taseko.

Russ.

Thanks, Peter. Operator, we would now like to open the line for calls.

Thank you. (Operator Instructions) Our first question comes from Tom Meyer of Raymond James.

On Prosperity, has Ottawa given you any indication when they are going to provide a full explanation for their decision to reject Prosperity as proposed?

Good question, Tom. We have had some conversations with assistant deputy ministers. I am not privy to talk about -- I can't particularly talk about that process openly, but they have given us some indications that they want open discussions and have worked with the provincial and the regulatory authorities in Ottawa and Victoria and how we come to some resolution on the issues. But they have been pretty general as far as I can see right now.

Okay. But is there any sort of formal process where there will be a discussion about the way forward, and then do you reenter the process with I guess your remediation or your view of what needs to be done with respect to the project to make all the stakeholders happy?

Yes. I think what we have to do is understand the path forward now with respect to how the federal agencies or how the elected officials, the cabinet sees the path forward. Is it fish habitat? Is it the lake? Is it native issues? What are those? Once we have a clear understanding of that, working in conjunction with the provincial government, we have meetings with some of the ministers next week, the provincial ministers. I think they will be going to Ottawa to discuss more fully the issues presented to them.

So that we can actually understand, where do we go now? What process do we get into? Is it a comprehensive study? Is it taking all of the background information that we put years and years and we believe that is certainly important. We spent millions and millions, tens of millions of dollars putting together all the technical evaluations with respect to air quality, all those things that were referred to, fish habitat. We should be able to take all of those and put them together and say, okay, tell us what we need to look at so that we can move forward on a technical basis and try to solve these.

Okay. And now given this delay with Prosperity, ultimately, do you -- you mentioned Gibraltar and potential expansion there. Does M&A come into the picture for Taseko Mines, or is it opportunity with another potential expansion at Gibraltar a more likely scenario?

Well, I think we have to look at what is most accretive for the company. We have close to $200 million in our treasury. Obviously, at these metal prices, we are generating significant cash flow like Peter was talking about. So on a go-forward basis, we can put a lot of money in the bank, and then we can look at, you know, once it starts to collapse on the other side with respect to Prosperity, is there going to be -- obviously, there is going to be a delay. How long is that delay going to be? And what can we do in the interim to keep our business moving forward to do creative initiatives for the company? We always look at M&A, Tom.

But as you can appreciate, there's a lot of companies out there that we from our perspective believe that their stock prices is disproportionate with respect to the accretiveness for this company, if we wanted to acquire them or do something with them, especially for non- producing assets that have a big risk profile going forward. So here we've got a big ore body at Gibraltar. We have another two ore bodies that could be potentially be in the pipeline with Alley and Harmony.

You know, we've got Prosperity. I don't think the government -- certainly, the federal government doesn't understand that Prosperity is the seventh largest undeveloped copper gold project in the world of the fiftieth large ones out there. So this is not only very important asset for the people of British Columbia, but it's an important asset for the people of Canada. And you just can't up and walk away from these kinds of things that are going to create such great economic spinoffs, if we can do them in a proper environmental friendly manner that tries to take into considerations all the participants. And when we entered in a panel review, that is what we thought we were doing.

So here we are. We are going to look at every one of these factors. Okay. How long is Prosperity -- we are not going to give up on Prosperity because it is too important of an asset. But we are going to look at other things. If M&A happens to work in it, it works into it, but we are not going to just run out and start M&A activity because of where we find ourselves with Prosperity.

Okay. Perfect. Thank you very much. I will pass it on.

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

Good morning, everybody, and hank you very much for taking my phone call on this particular morning. I have a quick question on the inventory position. You said you were jammed up at the Port of Vancouver. Is this a one-time situation, or is it symptomatic of something that is going to happen again?

We share the berth with other companies, so there was a ship in front of us on the berth. It happens from time to time, Peter. It couldn't be described as a unique situation, but it was an unusual situation for us.

Okay. Thank you very much for that clarification. And if I can just sort of revert back to the SAG mill front-end feed system. Russ, I believe you said it was going to be installed or cut into the circuit in mid-January. Is that approximately right?

Yes. And we will figure -- there is going to be a learning curve, Peter, because obviously, the feed material that is coming from a crusher system now is going to be quite a bit different from the SAG feed direct system. So it may take us a month, six weeks to try and get that feeds stabilize because instead of producing -- , giving the SAG mill minus 2.5-inch to 4-inch, we are probably going to give it 4-inch to 6-inch material. It will be a learning curve for the guys at the site.

Absolutely. I would agree with you. Do you expect any down time while the front end system is cut into the mill circuit?

It's hard to say. There will be. There will be tie-in times. I think we are budgeting about three or four days early sometime in the new year to tie in the feed system, but we think the production targets on the back end going into 2011 we should be able to achieve even with that tie-in.

Okay. Thank you. Let's see now. Oh, at the market offering in the USA, has there been any progress or sales made under that offering?

Peter, a brief answer to that question is no. Further explanation, that obviously was put in place at a time prior to our Prosperity news last week, so the real focus of that facility was on closing the gap at presumably higher equity prices based on a positive outcome on that decision last week, but it's a 25-month facility, so it will be in place. And should our circumstances change, it is there for -- sort of readily available small equity raise.

Okay. Thank you.

And one final question on Prosperity. You know, you've got a $2 million -- a $200 million cash position. You guys have clearly demonstrated your ability to get projects financed. Obviously, with that the Franco-Nevada gold stream deal, your cash position sale of an equity stake in Gibraltar. You know, financing equity within that, the market offering.

Copper is hot right now. Why don't you just forget about Prosperity? I know you've got some dollars in there. I know this is something that you would really like to do, but push on. This is a great time to be raising cash and developing copper projects. You know, let Prosperity lie for a bit. Go out there and make a really a accretive acquisition or even merger.

Those are all good points. But like I said many times, we are a British Columbia company. We have made a commitment to the people of Williams Lake and the Central Caribou. We have made a commitment to the provincial government. If you look, Peter, at what this provincial government has done for the mining industry in British Columbia over the last 10 years under the Premier's leadership, I mean, we brought this providence back from the brink that was in place under the NDP regime. No one would invest in this province. Everybody escaped and went to other jurisdictions.

Now we are not just going to abandon this province easily just because we have had some delays. I think it is important that we show our commitment to all those people in the Williams Lake area and to British Columbia. And this is a great asset. It is something that we should not easily give up on. And I don't think the federal government or the provincial government wants us to give up on it either.

One final point then on that. If I take it then that you are pretty much focused on British Columbia , period, and that, in terms of any sort of -- you know, whether it is an acquisition or merger or any other M&A activity, you are pretty much focused on British Columbia, you wouldn't consider other jurisdictions like maybe north, south, maybe Yukon, down into Mexico, something like that?

No, we look at all of these projects right from the tip of South America, right up to the Yukon border. We look on how they would impact and be accretive to our shareholders. We just don't make decisions randomly. We look at all the assets out there, whether they are in South America. But I am a mine guy, and I think that South America has its huge challenges right now. None of you guys ever talk about cost per ton milled. And that's what you have to look at.

Here we are mining British Columbia for $8.50 per ton milled, and when you look through all of the analysis, go see what they are mining -- what the mining costs are in Chile and South America. They are all $10, $15, $20 per ton milled, and their economics are changing. Like I said many, many times, we have a great political regime here. I mean, security of tenure, we know what the taxes are. It's the lowest tax in the 28% corporate income tax rate. We've got 4% power. We've got many, many opportunities here that remain to be uncovered, but we will look elsewhere.

Russ, you make some very good points there, and I would generally agree with you. I just fear you are going to be missing a copper boat that is sailing here, and that would be -- my vote is to push on for something else, but you make some very good points, Russ. I'll leave it with that and push on to other analysts who may have some questions.

Thanks, Peter.

Thank you. Our next question comes from Orest Wowkodaw of Cannacord.

Hi, good morning. A couple of questions, if I may. First, just a financial question. Your cash cost reported this quarter, the off-property costs of $0.21 a pound, is that just unusually low because of the delay in shipments? You know, sort of the TC/RCs being applied against a higher production base. Would you expect that to go back up to normal sort of $0.30, $0.40 a pound level, beginning next quarter?

Orest, you are correct. That number is actually a reflection of our low shipping volume in the quarter. We report those numbers based on tons produced, so we would expect that to revert back to more normal levels in future quarters.

Okay. And just on Gibraltar, Russ, given that the upgrades are coming along here, it sounds like you are going to be there within a few months. Is it reasonable for us to start thinking that Gibraltar will be up at sort of that 55,000 ton a day level, say by the end of the second quarter?

I think that would be reasonable, Orest. If we sat here and looked out, I mean, I'm not sure what kind of issues we will have once we -- like I spoke about earlier about commissioning the SAG mill feed system. Our new Vice President of Operations, Dave Rouleau, and the guys at site, have made some significant improvements in eliminating and reducing the bottlenecks. We are seeing some very good numbers on an hourly basis for the SAG mill production rates, and we just have to convert -- so we are getting -- the standard deviation of our shutdowns is becoming less and less and less. It is just an interim process, and the guys are getting better and better at pushing tonnage through the concentrator. Like I said, that mill is capable of really performing. We are going to see how it is going to perform in the next year with some of the issues that I've spoken about.

Okay. And just on Gibraltar, just finally, before the financial crisis, your board had approved the phase three expansion. At the time it was $350 million expansion to go up to, basically, 180 million pounds of copper a year. Is that project sort of in its scope still applicable today given the upgrades that you have done? Or are we looking at something with less CapEx at the same type of tonnage?

That's a good question, Orest. You see, as we had to ramp up for the phase two expansion, as you see, we bought some bigger trucks, 330-ton trucks. We are starting to get rid of our smaller equipment. We've got two -- three very big shovels now. So our stripping capacity is far out [inaudible] our ability of the concentrator right now. If we look at it holistically and say, okay, well, we got a bunch of mining equipment that's capable of producing X, but we have a concentrator that is producing Y, then if we increase Y, then we don't have to buy new mining equipment or very little mining equipment to fill up another side of the concentrator. So, it's too early to predict, but I think that capital costs would be lower. I am not prepared to say how much, because we haven't looked at it. We don't understand that whole system yet. We have talked about this off and on ever since the financial crisis ended our phase 3. After we got through that year and a half of the financial crisis, we always look at, hey, listen we have 450 million, 500 million-ton ore body, what we do in terms of increasing copper production out of it? So we've done some things, and we think there may be an opportunity to see something else at very good capital cost per ton exposure.

Do you see sort of initiating a feasibility study on that, or is that something that you guys can just sort of look at over the next call it six months and kind of go forward?

Yes, I think we can look at it, because we did a lot of work, so now we just have to ascertain -- you don't have to do a feasibility study on everything. You just have to do a study from the mining side and the production side and how that will relate into what you have to do on a concentrator. You see, we can't push any more through our concentrator after we get that pebble crusher in. So that would be maximum. So we would have to look at a new grinding line, and that would probably be a smaller SAG mill and maybe two ball mills and some flotation system. How much can we do that for? Whether we have the room at the mine right now to do that and tie into our present crushing system is something we have to look at. I wouldn't think it would take six months.

And do you sort of see yourself waiting to see the fallout on Prosperity in terms of where you go on a project before you move forward on that with Gibraltar? Or would you think you can do these both sort of concurrently?

Yes. We haven't had a lot of discussion on it internally, but listen. Let's say we are delayed for a year, year and a half on Prosperity. I mean, I have no idea, but let's hope it is shorter than longer. We could start looking at the stuff internally and saying, okay, where are we going to deploy the cash that we have on hand, and how much cash are going to make in the next year? At today's price at $4.00 per pound, I think it was $4.04 or $4.05 this morning, and let's say $1.50. I mean, that's $2.55 margin. Coming to our account is 80 million pounds, let's say. That's a lot of money, a lot of cash flow that we have to deploy. So we could be sitting here on the delay with Prosperity having the same amount of cash in the bank after we have built out an expansion and upgraded [inaudible]. That's the things we have to look at.

Would you think at all about giving the dividend?

That all depends on how we see -- we've talked about it internally as well, where we see our other alternative investments.

Okay. Thanks a lot, guys.

Thanks.

Thank you. Our next question comes from John Tumazos.

Thank you. Maybe I am being a little bit duplicative, but given the potential further expansion at Gibraltar and the current hiatus at Prosperity, by how many dollars do you consider yourself over-financed, having raised money for the project now delayed?

I would said this at this point, not at all. We are certainly sitting with a healthy cash balance. The Franco-Nevada financing was contingent on all the permits being in place for Prosperity, federally, provincially, et cetera, so I think we are in a strong position to develop where Prosperity ultimately goes and monitor that. The Franco financing sees in place but at no cost to us at this point, and Franco is very supportive of the project, obviously. We have done nothing with the shelf financing or the aftermarket financing at this before, but we sit in a position to pull the trigger on that should the landscape start to develop in a more positive way for us.

Hadn't you sold a quarter of Gibraltar and possibly -- I guess you don't think of that as part of the Prosperity funds?

I don't follow the question, John.

Hadn't you sold a one-quarter stake of the Gibraltar mine to a partner?

Yes, we sold that to Sojitz, and the anticipation was that we would be using that money today to help fund Prosperity, but, obviously, with this decision, we are going to be delayed on that, so how do we deploy that cash, I think what Peter was saying. We will look at how we deploy that and if we deploy it depending on what we get back from the federal government in terms of the timelines we may have to look at. Maybe we just keep putting more cash in the bank and growing that pot of cash from $200 million to $300 million by the end of this year, and only got less equity that we have to raise or debt or whatever we have to do in terms of the Prosperity build-out should we get positive response from the federal government.

We still live in a world of tremendous volatility. Fortunately, over the last 18 months it's been an upward trend, but having some excess cash to weather the Epson Downs, there is nothing, you know, it is not a bad strategy for us at this point.

And forgive me, as an American, who doesn't know all the procedures in Ottawa. Is there provision for appeal for these decisions, and is there a timetable by which the government has to respond?

That's a very good question, John. Actually, there is not an appeal process per se. The panel work is extensively done. It is complete. They put the report in to the government, and the government has chosen for whatever reasons to not accept our plan as proposed. That's part of the bigger question that we have to answer. Do we start over again? I don't think so, because we've put years and years of work on that, so that would be, obviously not. We've got provincial environmental work that supports all the other work, so now what we have to do is get the government to say, okay, provincial government -- or the federal government, excuse me, what are the real issues and where do we fit and what kind of timeline do we need to undertake to evaluate those initiatives? And, no, there is no prescribed time limit as we know right now, but we anticipate that the government won't want to delay this. They will want a resolution sooner than later.

Russ, one last question. How many people in Ottawa involved in this process actually went to the site and saw the body of water called Fish Lake whose name seems to be, I think, a big part of the problem .

I can't comment, but I know members of the panel did, but I can't -- I don't think any federal elected official did. I certainly don't think the Minister of Natural Resources did. I don't think any of the ministers that are responsible authorities went. They just let the panel do all of their work. And then came back. So I don't know if anybody saw anything, frankly, the elected officials.

Thank you, and good luck.

Thanks, John.

Thank you. Our next question comes from Adam Graf of Dahlmann Rose.

Thank you. Just a couple quick questions regarding the inventory at Gibraltar. Given the end of the Q4, can you guys at this point give a forecast to if you are going to have any remaining inventories at the end of Q4?

We normally run our inventory about couple million pounds at the end of the quarter, don't we? 2 to 4 million pounds, Adam.

So the expectation is that you will pretty much do a full catch-up and get back to normal.

Well, that's our anticipation. You know, depending on what happens, again, with the weather situation, if there is no disruption to the rail lines and all that kind of stuff, yes, you can anticipate that, everything being status quo, that is how it would work.

And then, unrelated, maybe if you guys could just give a minute and talk about the implications of transition to IFRS.

Really nothing major at this point, Adam. We are still going through the final throes of the conversion process, but nothing that is going to affect our financials that materially or won't be readily explainable at this point.

Great. Thank you very much.

More detail to follow on that one.

Okay. Great. Thank you.

Thank you. Our next question comes from David Cotterell of BMO Capital Markets.

Well, good morning, guys. I just got a couple questions for you. In terms of what's happened with a decision on Prosperity, is that type of decision or permitting issue likely to apply to Harmony and to Alley as well, in terms of never doing -- a different process, not doing a combined provincial environmental assessment?

Well, it depends. On Alley, any project that does not can trigger any kind of federal review, i.e. with respect to -- the biggest thing is obviously fish and fish habitat, so if you're fortunate enough to have a property that doesn't have any water near it, you are in pretty good shape. And you don't have to deal with the feds so much. You'd have to deal with the feds maybe on the transportation, the Minister of Transportation with respect to explosive storage. So on Alley, we are not going to be impacting watersheds or particularly water as we speak. We think that it is, certainly -- we think that is an advantage. On the Harmony, obviously, there is a different set of dynamics with respect to the Queen Charlotte Islands, or as we now know it, Haida Gwaii, and the native communities there, and the watersheds that are effective there. So we are -- it is too early to understand all of those particular questions, but those are good questions to raise, and those are things that we will be looking at going forward.

Now that you are doing a bit more work on both of them -- I guess into 2011 are we going to see that more progress from that?

Yes, I think so. Like I said, we are waiting for the [inaudible] results. I forget how much we spent up there on exploration this summer.

A couple million dollars.

Between $2 million and $3 million on Alley, so we will see what pops out of that in the next two or three weeks, probably before Christmas. We may have an announcement on that. In Harmony, we are just starting to remodel the economics and look at the preliminary economic analysis on that, but we think that long-term metal prices as a goal, but we've probably got about a $250 million MPV from our side of the equation.

Russ, is there a preference in terms of those if you've gotten to the point of developing each or whatever? Would you go with Alley versus Harmony?

No, I think it's too early. I think we want to look at what would be the best economic investment that we put in. We always look at internal rates of return and cash flow ability. If the niobium market's strong, we have an project there that has low capital cost intensive but generate superior economic returns. If it is Harmony and that makes the same sense there, then we'll go there and begin discussions with those communities of interest there. But we'll just have to see.

Okay. Sure. And just coming back to the decision with the feds, if you do talk to them and you can work some stuff out in terms of changing, you know, project diameter, parameters, whatever, does this mean you have to go back to the whole process, or is this sort of like who knows, we haven't got to this stage yet, no one has done it before, so we might have to do a whole new environmental review. Or the feds might just go, change this, this and this, and we'll be happy enough to approve you?

You know, that's a very good question. You know, the footprint ultimately would not change. Inside the footprint, which the provincial government gave us the environmental certificate for, it would be how we try and manage inside that footprint to do what the feds figure is important. What we have to look at in terms of the past environmental work, what came up, it said there were no significant environmental effects to air or water quality, no risk to fish in the Taseko River, no risk to human health associated with the project. Those are pretty all-encompassing , environmental impacts. Now what are the particular impacts that are causing concern to the federal government? There was, out of the 24 -- like I said, 24 environmental impacts identifying the conclusion of the panel report, 22 were covered off in the provincial deal.

Certainly common sense says that we should not have to go back to the start. We may have to do some particular evaluations if we have to reconfigure a [inaudible] or if we have to have maybe different locations for where we put the tailings pond and those particular impacts, but our thoughts and our undertaking with both those government levels will be, hey, listen, let's deal with the particular issues with any potential redesign as opposed to getting all caught up in all the other issues that are not germane, because if the panel -- or the federal government has already identified and the provincial government has identified those.

Yes, okay. And maybe just one more on the Franco deal. Am I right in thinking that they've got two years from when they signed the deal with you guys where they signed the agreement and then they can choose whether or not to extend that? And do you guys have a similar type of option if we get to two years from whenever it was made, you guys can pull out? Is it something like that?

There is a stipulation, David. I'll have to go back and double check it. It's certainly extended, but certainly the business relationship is such that whatever it says, I think they have absolute interest in the project and seeing it go forward as well Irrespective of what the legal interpretation is.

All right, sure. Thank you very much. Thanks, Russ.

Thanks.

Thank you. Our next question comes from Tom Bishop of BI Research.

Hi. Good morning.

Good morning, Tom.

I apologize. I got on the call of little late. Did you discuss what EPS would've been if that 16 million pounds had shipped?

No, we didn't.

Do you have some sort of calculation?

Yes. I mean, my off-the-cuff number is pretty much in line with consensus at $0.10.

If it had shipped, EPS would have been about $0.10.

Yes.

Again, I apologize if you discuss this. Is another 26 million pounds of production likely for Q4, or was there something unusual in Q3?

[ laughter ] You are asking me to give you the production for the full quarter. Well, that is all dependent on what we put through the concentrator and what measures like, what the variability in the ore body is like. You have been on a call enough, you know I don't give quarterly projections on production. So as much as I'd like to tell you what it could be, or would be, I won't.

Okay. Last time copper was at $4.00. Everything needed to make copper went into short supply and costs went through the roof. Earlier you mentioned, cost in the $1.50 to $1.60 range. Is that reasonable for the year ahead, or are we going to see this cost creep and short supply ratio?

That's a good question. You know, it seems a little bit different than the last time. We are not seeing material increases or cost of supplies yet, so maybe that's the -- I don't know, either the mixed signals between whether we've got deflationary pressures or inflationary pressures. One day it is inflation, next day it's flat or deflation. I don't know. You are not seeing the price of cars go up very much. In fact, I think you see them go down. Maybe the price of steel is under pressure. We are not seeing some material increases as we speak, but that does not preclude the fact that they may come.

Maybe last time when this happened people did add some additional capacity that is now, you know, there to supply any additional demand that comes with this current $4.00 copper price.

Yes. I think that might be true, Tom. It could very well be true. I mean, it looks like the steel industry is pretty robust. There's lots of steel companies producing steel. That could change the dynamics, and that's a big cost issue for us, the grinding media. We are not seeing -- we could see some increase in power costs this year, but relatively speaking, you know, we haven't seen a big bump on the consumer side yet.

So far so good. I know you have a conveyor coming out of the pit now, so that shouldn't hurt.

Yes, that's taking care of about two and a half trucks in the hauling system, and like I said, I think it is going to be a pretty big cost in savings for us once we eliminate the old crusher system and deal with our direct drag conveyor system. It was costing us about $3.5 million a year in maintenance costs maintaining that system, so we know there's going to be cost savings there.

Last question, does the 55,000 ton per day rate that you hope to get out of Phase 2 here by hopefully some time in the first half, does that still translate into about 110 million to 115 million pounds of copper per year based on the grades that you see?

Yes. Like I said, with 55,000 tons a day going forward over the next three or four or five years, we would see copper production, depending on head grades, will fluctuate somewhere between 115 million pounds a year to 125 million, exclusive of those kinds of initiatives I've talked before about getting more tons through the concentrator, it's a normal capacity of 55,000 tons per day. What happens if we get 56 or 57 and then we at the pebble crusher and we get another 5% or 6% or 7%? So normally that is what we are seeing it is. We will improve on that, try to improve on that.

The pebble crusher is part of Phase 2?

No, it is separate. It is something we will evaluate one's we get our direct feed system running.

What's the cost of that if you do it?

Probably $8 million to $10 million.

Okay. All right. Thank you.

Okay, Tom.

Thank you. Our next question comes from Steve Parsons of Wellington West Capital.

Hey, Russ.

Morning, Steve.

Just a couple questions left here. The last time I guess copper prices were sort of nearing this level, you guys sort of prudently made the decision to increase the stripping ratio to give yourself more flexibility in the pit. With these copper prices, do you see that being a possibility for next year, to strip closer to three to one?

I think we are budgeting about 2.8 to 1, Steve, which is -- you know, we are always looking at the model and moving it back and forth and trying to figure out the most optimum to make sure we have flexibility, so I think 2.8 is probably pretty close, 2.7, 2.8.

Got it. The mine average is what again question Mark.

It's right around that. If you look at the long-term mine plan, the strip accelerates -- there is sort of a stripping bubble way out there in about year 20, so we have to manage that back towards -- year 20 is a long ways from now, so we manage that all back in terms of where we think we are going. That is, ultimately, what pushes the life of mine strip ratio up. What happens in the back end in terms of year 20 to 25. So we will be managing that in terms of maximizing the cost structure, or minimizing the cost structure in the front end of the plant.

Understood. Next question. If Phase 3 ends up being back on the table, how does it work with Sojitz? As your 25% partner, is it going to be -- they have to fund there 25% share? What is the process there?

I'll let Peter talk to that.

I think under our joint venture agreement, Steve, we would have to mutually agree on the project. They have certain limited veto rights and certainly capital expenditures at that level would be included in those. So we would have to work our way through it and then we would be responsible for jointly funding pro rata 75/25 to share the capital expenditure associated with that.

Okay. Okay. That's it for me. Thank you.

Thanks, Steve.

Thanks, Steve.

Thank you. Our final question comes from Orest Wowkodaw.

Hi. Thank you for taking my follow-up. Just two questions from your cash flow statement. First of all, you spent quite a bit of CapEx this quarter, $26 million. How much is still left to spend do you think for sort of Phase 2 outside of this pebble crusher?

Really, Orest, the only significant remaining item related to Phase 2 is the SAG direct feed, and I think we've probably got another $15 million, $14 million, $15 million left to spend on that.

You think that will be incurred this year still, or is that a 2011 event?

Balance of this year and maybe a small tail into 2011.

Okay. Sort of going on beginning next year then, you are really just looking at maintenance capital before any of these upgrades to Phase 3?

Yes, just sustaining capital.

Finally. It looks like you generated $14 million from selling marketable securities in the quarter. Is that -- can you offer any comment? Did you guys sell your shares of Copper Mountain?

[overlapping speakers ]

Okay. Thanks very much.

Okay, operator. Thanks, everybody, for joining us today. We appreciate you taking the time out of your busy schedules. Look forward to talking to you on the next call or earlier. Cheers.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all now disconnect. Thank you and have a nice day.