Taseko Mines Ltd (TGB) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Taseko Mines 2010 earnings conference call.

(Operator Instructions). As a reminder, this conference is being recorded. I would now like to introduce your host for today, Mr. Brian Bergot of Investor Relations. Sir, please go ahead.

Thank you, Karen. Good morning, ladies and gentlemen, and welcome to Taseko Mines 2010 fourth-quarter and annual 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 in which we will review business and operational results for 2010, 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 fourth-quarter and year-end 2010 financial and operating results.

Taseko achieved an operating profit of CAD125.5 million and net earnings of CAD148.6 million or CAD0.80 a share in 2010 up from the CAD10.6 million or CAD0.06 per share achieved in 2009. For the fourth quarter, we achieved net earnings of CAD0.14 per share on revenue of approximately CAD58 million.

Earnings were significantly higher in 2010 than 2009 due to a 30% increase in Gibraltar's copper production, increased sales volume as well as an increase in the copper and moly prices. Earnings though have been affected by the strong Canadian versus US exchange rate.

Our margins however remain very healthy and we expect that to continue well into the future. During the year, the Gibraltar mine produced slightly over 90 million pounds of copper and 940,000 pounds of molybdenum.

Total cash costs for the year have averaged roughly $1.70 per pound produced. Our production costs have been affected by approximately $0.17 per pound over the last 18 months by the strong Canadian dollar as I talked about earlier.

However, we've been able to mitigate some of that increase as a result of the operational improvements on the cost side. We've done very well in our metal pricing primarily as a result of the manner in which we have structured our payment terms and our offtake contract.

As a result, we have achieved CAD3.63 average selling price for copper for 2010 versus a yearly LME average of CAD3.42 a pound and we achieved a very good price in the fourth quarter of CAD4.12 per pound. Total tons mined in the year were up a whopping 50% above 2009 levels and mill tonnage increased 15% as we geared up for increased mill throughputs as a result of our completion of our concentrator throughput design changes.

Higher operating costs for stripping, fuel, reagent and grinding media were somewhat offset by reduced operating costs in the mine and the mill by increased byproduct credits and are fully illustrated on page 3 of our press release. Our capital improvement plan has achieved what we set out to accomplish in 2006 and 2007 when we started the program and poised to future successes once we fully de-bottleneck the rest of our processes and our continued investment in plant and equipment.

We've had a very difficult winter in British Columbia, snowy and cold, and that has hampered our ability to commission our new SAG feed system. However, we look forward to completing the tie-in shortly and that will result in another step change for the operation.

We recently commissioned four new 320-ton haul trucks and our new 60-yard mining shovel began operation in October. And going forward, these additions will continue to help reduce our operating costs.

Looking ahead, we are well advanced in procurement and engineering on our GDP3 development and expect to be commissioning the new capacity in December of next year. We've ordered our trucks and have 2010 pricing on those units.

We have a full allotment of tires and we have another new BE495 60-yard mining shovel coming on site next summer. We've entered into an agreement on our SAG mill and have the timelines nailed down on deliveries for it as well as our other major milling equipment.

In terms of capacity increased timelines, I don't see any other organization bringing on roughly an 80% increase in metal production as quickly as we indicated we can once our shovels hit the ground. Our GDP3 SAG mill will be identical to the one we are presently operating and as a result, we have all the engineering design done as we have with the flotation system as it is a similar system to what we are now operating.

We were going to use a 30-foot SAG mill but have decided to standardize our milling capacity and we used a 34-foot SAG. This has a number of advantages for us.

A larger mill however will cost about CAD1 million more in capital, but all the design work with respect to the base structure and the other engineering additions are already complete. So we have no additional engineering costs.

Then we also have similarity of motors as well as a flotation system, and this comes with a very small capital cost increase. On the flip side of this, we will have large installed capacity should the mine be capable of more throughput later in its life.

We are completing the fill-in grill program on our resources and reserves and will be in a position to upgrade resources to reserves over the next few months. Our original pit designs, we used $1.50 a pound and $1.75. Our new pit designs, we use approximately a $2.25 copper price pit shell and we expect to add a very large component of our resources to reserves.

So, that is a lot of work we're undertaking. Having said that, we will evaluate all of this over the next months and prioritize our approach in each area.

The important aspect of the GDP expansion is not only will we have a new capacity coming along in nine months, we'll have enough grinding horsepower and filtration capacity as I said for the future that would give us the potential to produce more metal should the engineered mine plant permit it, based on long-term strengthening metal prices. We are aggressively pursuing our work on our Aley deposit and I'm very excited about this.

As we recognize internally what a successful development of a niobium mining operation could mean to the future of this Company. If we look at what has occurred with the sale of an interest in CBM's Araxa mine in Brazil in terms of the resource value and compare it to our Aley project, it is clear that Aley is a very important asset for this Company.

We're working with local First Nations and the government on a path forward for a summary exploration program and we expect to be commencing a feasibility study in Q4 of this year. A few weeks back, we submitted a revised project description for our Prosperity project to the Canadian Environmental Assessment Agency.

The federal government's priority is very clear in this matter as is the Prime Minister's office's. On February 22 the communique from the Prime Minister's office was very illustrative of the position of the federal government. Minister Kent is the leader on the Prosperity mine development.

The government has rendered a final decision with regards to the original application. We invited the proponent to redesign the project.

As we have said in the past, if the proponent is interested in proceeding in a way that would respect the environmental concerns that were raised by the assessment, then we are open to assessing that proposal. If we address the concerns raised by the panel, they will review the project as further mandated.

With respect to the process, as I said, we submitted to CEAA a project description and they've asked for more information and we are preparing for that process. Once that is all complete, then we'll have a period of time, a maximum of 90 days, to assess and decide a path forward.

A few days ago, the newly elected Premier of British Columbia publicly endorsed the project and reinforced our commitment to work with the federal government and the Prime Minister on advancement of the project, and we'll work as hard and diligently as possible to ensure that we do the right thing for the project and its many stakeholders.

With respect to the earthquake and tsunami on our off-take agreement, our Japanese partners stopped shipments to their Onahama smelter, one of the two Japanese smelters we ship to.

At this juncture, we have a little more information than that. We do not foresee any problems with respect to concentrate sales revenue in the near term nor any effect on production.

Gibraltar's concentrate is of the highest quality and if deliveries are affected over a longer period of time, we'll have no problem selling into the spot market. But it is premature to think about that at this juncture. I would like to now turn the call over to Peter to talk about our financial results.

Thanks, Russ. Financially speaking, 2010 was a very strong year for Taseko both from an operational and capital activity perspective. On the capital side, we sold a 25% joint venture interest for CAD187 million, prepaid CAD51 million of bank debt, retained downside protection with copper puts and positioned the Company to commence funding of the GDP3 capital project.

Operating profits increased by 260% to CAD125.5 million for the year ended December 31, 2010 based on increased metal prices and sales volumes which more than offset the impact of the 25% joint venture share now being excluded. We have continued our hedging through purchases of copper put options and are covered at [CAD3.00] per pound until mid-2011 and [CAD4.00] in the third quarter of 2011.

The cost of these puts was approximately CAD0.20 per pound and provides significant margin protection for Taseko's 75% share of Gibraltar production. Exploration costs were CAD10.1 million for the year which included the program to advance Aley as well as Prosperity drilling and compares to CAD3.4 million in 2009.

General administration was CAD13.9 million for 2010 compared to CAD8.4 million last year in support of our Company's growth. Interest income was CAD18.3 million reflected the higher cash balances and the lower interest expenses due to the reduction in long-term debt in early 2010.

Earnings after taxes were CAD148.6 million for 2011 versus CAD10.6 million for the same period last year. On an earnings per share basis, this equates to CAD0.80 per share versus CAD0.06 last year.

Cash and working capital grew to CAD211.8 million and CAD214.7 million respectively at the end of 2011. Cash generated from operating activities was CAD89.8 million.

We continued to source capital lease financing for the new mining equipment at Gibraltar which added CAD16.5 million on a net basis to Company debt levels. The CAD24.5 million income tax payable reflects primarily the liability related to our joint venture transaction. This liability was paid in cash in February 2011 thereby eliminating the liability.

In summary, Taseko finished 2010 with very strong operating results, a significant cash balance, minimal debt, downside protection on our copper prices, and strong continuing cash flow to reinvest in our significant near-term growth opportunities. Russ?

Thank you, Peter. I would like to now open the lines to calls.

(Operator Instructions)

No questions operator?

(Operator Instructions) Peter Campbell, Jennings Capital.

I have a couple of questions for you here. You're -- or maybe for Peter. The current hedge expires at the end of June. Are there any plans for extending these hedges?

Peter, we actually are hedged out to the end of the third quarter. We took on a subsequent hedge equivalent to our share of production for the third quarter of 2011 at [CAD4.00] and our plan is to continue to opportunistically go out and hedge our share production on Gibraltar. And given the volatility of copper prices and things as you might imagine, the put premiums have been pretty variable as I mentioned in my commentary.

We've come in around [CAD0.20] per pound and when we are able to lock in [CAD4.00] and as Russ talked about, our production cost, CAD0.20 is not a significant amount of our margin to afford us the ability to lock in that protection. So, yes, it is part of our continuing strategy to do that.

Okay, so you've got a put at 4. Is there a call?

No. We are strictly buying puts at this point. We're not doing the zero cost cap collar type strategy anymore. It's one of the benefits of having some additional cash, that we don't have to sell the call because giving up the upside protection is not something that we do willingly.

I understand. Okay, thank you.

Then with respect to your cost per pound for the year. It's $1.70 per pound for the year. I remember about a year ago, round about this time, I think the expectation was for something closer to maybe $1.25 a pound, in that ballpark. Any ways -- is it the case that we've just got some higher input costs here and we're going to be experiencing maybe something closer -- maybe not $1.70 but (multiple speakers)

Peter, I think -- what we had always talked about -- I think that might've been a few years ago when we talked maybe $1.25, $1.30 and that's probably when the Canadian dollar was down around 0.85 or something. But I think we've probably spoken over the last year, 1.5 years, two years that somewhere depending upon what was happening with the Canadian-US dollar exchange rates of somewhere between $1.50 and $1.70.

So if you back out that $0.17 from what's happened over the last year, year and a half, we are right in that area. So we are not far off what we estimate. In fact, we figure we are right on.

Okay, good. Phase 3 CapEx, still CAD325 million?

Yes.

And you're going to be starting the big spend on procurement in Q2?

I think we've got about CAD50 million budgeted this year. The big spend will the next in 2012, won't it, Peter?

Yes, that's right, yes.

So the bulk of the cash will be next year.

And then one final question and then I'll pass it off. The Aley feasibility study, you expect to start that in Q4. When do you expect that might get completed?

I don't know. That's a good question. I don't think it's going to be that -- it's pretty straightforward, should be pretty straightforward mine design, should be very straightforward facility design.

I would imagine that it was probably in the first quarter of 2011 -- what year are we in right now? 2012. I shouldn't imagine it would take more than six months to do something like that.

Thank you very much. That's all that I have.

Imaru Casanova, MLV.

I just have a couple questions. Some were already asked, but I'll move to some other ones here. This is kind of an income statement sort of question.

What do you expect the tax rate going forward -- the effective tax rate going forward? It's been kind of all over the place for the past few quarters. Can you give us any guidance on that?

Yes. I mean, certainly the overarching tax rate is around 27% including BC mineral tax. The difficulty is we've had a number of complicating factors affecting our tax rate, things like the Red Mile royalty on the balance sheet which you are familiar with, the impact of the joint venture sale transaction which was set up as an unincorporated joint venture and had some adverse tax consequences in terms of utilizing our tax pools to shelf as much of that gain as we could.

So, I wish I could say there's just a flat rate that we can use as an effective rate. Our history is certainly some reconciling items. So it's probably a discussion that best goes off-line in terms of our assistance for you as you are modeling that going forward.

Fair enough. The other questions I have, regarding the Gibraltar expansion, do I gather from what you guys just talked about that that's going ahead? You basically already started to order equipment? It's already in process? Is that correct?

Yes. It's been probably in progress for six weeks now. Actually it's been longer than that because we actually started the engineering in the early part of -- late part of 2010.

But as far as actually starting the procurement and construction processes, you guys have already done that.

Yes, yes, yes.

Excellent. My other question is on Prosperity, do you guys have any early indication of what the review process might be?

I know there were a couple of -- three options or so, some more involved than others; panel review, comprehensive and screening studies. Do you guys have any indications of what the path might be?

Well, not at this juncture. We will see what the federal government comes back within the next little while.

And Aley -- this is my last question and then I'll let somebody else ask questions. The program for 2011, are you guys going to continue to drill there? Should we expect to see more results? Any resource that we expect before the feasibility starts? Or what's going to be going on there in specific at Aley this year?

Well, we've got a pit designed on it. So I guess -- I think we have enough engineering work to take it to a resource, but that's kind of fruitless right now especially when we are tight-lining it for a feasibility study. So we'll do some more drilling this summer and that will take us up to enough information to put it into a reserve.

We'll do some geotechnical work as well, decide where the tailings ponds are going to go. We have a number of sites.

We'll likely try and get a major access road in there and do a lot of metallurgical work. A lot of this -- a lot of the path forward is going to be contingent upon our metallurgical work. So, yes. I think arm waving, you could probably say it pretty easily that we've got a 30 million, 40 million ton resource as it looks at right now. But it's not 43-101 compliant. But if you went back 15 years ago, that's what you'd be basing your mine design on before 43-101's legislation.

So we shouldn't expect to see a 43-101 until the feasibility is completed?

It's going to be all tied together. It's going to be a one-stop shop.

Okay, excellent. Well, thank you, guys.

John Tumazos, John Tumazos Very Independent Research.

Congratulations on all the earnings. So on the Aley deposit, do you have any hunches about what the metallurgical recovery might be? Is the mineralization similar to the mineral in Brazil or very different? What's your back-of-the-envelope idea of what it might turn out to (multiple speakers)

Back of the envelope, it's a big carbonatite, John. It's got apatite, magnetite, obviously MB205, so it's pretty similar. In fact, it's very similar.

But, the devil is always in the details once you get it in terms of what we may have to do on grind and flotation and a few other things. But preliminary, large intersections, good continuity, and we think that off the top of our head, that the metallurgy is going to be similar to those encountered at Niobec and at Araxa and [Catelo].

So might that be an 80% or 90% recovery?

In terms of taking it to the concentrate? It's a little complex -- when you turn it into MB205 -- when you turn it into MB and make ferroniobium, it's a little bit of a different sort of beast there, John. And it's a little complicated. But I can get somebody to write you a note and try and explain it to you.

Can you just review for some of us who don't do niobium analysis very often, what is the form that niobium is sold at and price per pound and that you expect to sell it in the same form and the price per pound?

You make a niobium concentrate and then you use like a -- what would be the best description of it? You take the magnetite out with a magnetic separator, you set separate the apatite if that's (inaudible) it either goes to the tailings pond. And then you're left with a niobium concentrate.

That runs about 65% niobium. Then you put it in a sort of like electric furnace type process and you make ferroniobium. Okay? And that ferroniobium is actually the metal and that metal right now is going for a little over [$50] a kilogram.

And what percent niobium, what percent iron does that tend to be?

There's probably -- I think we mostly get rid of the iron, so the iron is about [77%] of the property. So if you are producing sort of 2 million tons a year, you have about 140,000 tons of magnetite.

So you could either decide to recover the magnetite or put it into the tailings pond. Now the advantage we may have up in the north is there's a bunch of big coal mines up there and they use magnetite. They are importing their magnetite from the iron ore range in Minnesota and Michigan. So, we would likely have a market for the magnetite up there to make heavy media.

So if you sell for [$50] a kilogram ferroniobium, what percent iron is in that [$50] product?

There's no iron in that stuff, John. It's already been separated earlier (multiple speakers)

So it's relatively pure metal?

It would be probably about 65%, 70% metal. And it gets a little complicated talking about the -- so we're envisioning producing about 10 million pounds of ferroniobium which sells for 53 -- about $20 a pound.

Now, you are expecting the product from BC then to be essentially the same as the product the customer sees from Niobec or from Brazil?

That's effectively -- now, 10 or 15 years ago, a lot of the specialty metal producers had their -- you used to just be able to sell them concentrate and they would make their own ferroniobium. But over about 10 years ago, they got out of that business, so you can't -- there's no one -- I think there's a couple of places that actually take niobium concentrate and make their own ferroniobium, but it's almost like a value added enhancement. So you want to make your own metal as part of your process.

Alex Terentiew, Credit Suisse.

Just a couple of questions here. First one, on Gibraltar's throughput, when should we expect the 55,000 ton per day rate to be achieved and on a sustained basis?

On a sustained basis, I would say by the summer, Alex. We're going to have some teething pains here when we go from minus 2-inch material that's now going through primary and the secondary crusher and into the fine ore bin when we switch over and then we start going to 4 to 6-inch materials.

So, it's going to be likely some technical challenges of getting our densities right in our SAG mill. So effectively for the last year or two, we've been running the SAG mill as a big ball mill.

Now we're going to have to switch it into a really semi-autogenous grinding facility. That's going to take some time. So we're trying to be pretty conservative about the ramp-up on that. But, I would think run capacity, we should be seeing well over 50,000 by the summer.

That's good. Second question is on cost. Kind of a little bit of a follow-up to Peter's question from earlier. But for 2011, can you give any sort of guidance or color on what you would expect costs to be given where the Canadian dollar is now and fuel and energy prices?

You know, it's hard to say. Because it's -- we think there's still lots of low lying fruit. And our business improvement plan at the mine site indicates that there's lots there for us in terms of just taking care of the processes and the systems.

And so our cost per pound can vary depending on quarter by quarter by what happens with head grade because we just can't -- you're just not capable of producing the total pounds. So what we really focus on, Alex, is cost per ton milled.

And, if we are focusing on cost per ton milled, that's the real ultimate driver because you can't do anything about the denominator. If you've got a 0.28 head grade for a quarter, you're going to produce more pounds even though your tonnage is up.

And that will in turn affect the cost per pound. So, you've got to go back to cost per ton milled and then look over a year over year basis.

So, if we go with the back end of -- and reagents come off and steel comes down and the Canadian dollar gets weaker against the US dollar, our costs will be lower. If not, there's somewhere -- and I don't think we need to vary much off of that sort of $1.50 to $1.70 per pound on a consistent run basis and that puts us in sort of that [$9.00], [$10.00] per ton milled range.

Okay, that's good. A last question, I guess a two-part question. The realized price, you guys got a pretty good price of $4.12 for the quarter which I think that was about $0.20 higher than the LME average. Is there -- how do you guys manage that? Are there some premiums involved in that that you guys get for your metal?

We've got a really good sales and marketing team here.

It sounds like it.

No premiums.

No, there's no premiums. But, that's part of -- we can look at what happens when we get 2500 tons in our sheds, we can look and we can sell it then -- we can recognize the revenue then and it's a very good aspect of our off-take agreement.

Mark Turner, Scotia Capital.

I guess the first question just on the Prosperity, the project description. Are you able to give us maybe just a little bit more information on what the process was in terms of what they are coming back to look for?

Was it administrative? Or is it something more technical detail that they are looking for? And I guess I'm just trying to get a sense of the timeframe?

Is it going to be a week or is it going to be a month before you can get something back to them and start sort of that 90-day process after they've (multiple speakers)

That's a very good question, Mark. Our guys have been working on it. We think we've probably got three weeks of work to go.

Probably by the first week of April, we'll have what they are looking for ready to go. And then, that would start with that 90-day clock for them.

Sounds great. The second question just at Gibraltar and sort of I guess to go back and maybe ask the cost question a different way.

In your MD&A, you had said that about I guess basically $0.23 per pound over all of last year was attributable to increasing efficiencies in mining and the milling process. I guess just doing the simple math on what you had summarized in the table there, it was about $1.00 -- I think it works out to about $1.40 a pound over the year -- sorry, per ton milled over the year. I was just wondering, in the context of per ton milled, do you expect that to come down in terms of what's already been in place for the in-pit crusher?

Well, you know, the in-pit crusher didn't run as well as it should for the period of time while we were debugging it. So we had to run to the other crusher. That would use up more truck capacity, more fuel, all that kind of stuff, more tires.

Like I said when I talked about earlier, there's a lot of low-lying fruit out there that we think our business improvement plan is going to get us. We put new spargers in the moly flotation, so we've seen our moly recoveries go from the low 20s into the -- close to 40%.

If you look at our ongoing moly production, it's getting better and better every month. And I spoke about that a number of months ago.

So there's a whole bunch of initiatives out there that we think will come out that will offset a lot of these other increases that we have no control over, Mark. But it's really tough to get a handle on it. I've talked to our operations guys and I don't want them spending a whole bunch of time just doing analytical work.

I can appreciate that. I guess just to that end then, what copper recoveries -- sorry, what moly recoveries are you assuming and what moly price sort of in that -- I guess your guidance has been sort of long-term between $1.50 and $1.40 net like total cash cost.

I think we're using about 40%. We think we can get to over 50% with the new moly plant. And then we're using long term -- we're only using about $12 moly.

So -- and I think the projections are sort of long-term moly is $15. But, it's such a volatile market. I mean, I don't -- your guess is as good as mine.

We just sort of pick a number that we are happy with and the great thing about GDP3 is when we start ramping that baby up, we go up -- we hit some pretty good moly grades in about the second year after we are going, and I think moly jumps up to nearly 4 million pounds a year. So it becomes a significant component of our total metal production. We go from about it being about a 10% byproduct credit to about an 18% or 19% byproduct credit. So it will have an impact on our cost structure then.

Perfect. Thanks for the answers.

David Cotterell, BMO Capital Markets.

Just a couple of questions for you. The first one, seeing as we're talking about costs, G&A seems to be a bit higher than last quarter. Is that the sort of number we should be thinking about going forward?

I think that's a reasonable run rate. There are some one-off costs in there as well, David, that we had some incremental, legal and audit costs associated with filing the -- at the market issuance in the facility in the fourth quarter.

So, that increased costs. But we have added an office in Williams Lake in support of Gibraltar and certainly Prosperity and our activities generally in that part of British Columbia. If you -- and we've certainly grown our professional staff in Vancouver as well.

We have a new corporate controller and our engineering staff has grown because of the need to have that infrastructure in place to support GDP3 and our other initiatives like Aley as well. So it's a reasonable run rate to use I would say at this point although there is some discretionary spend in there as well.

Thanks, Peter. I'm just wondering the 65 people you were talking about having to maybe lay off from the Prosperity project, did you manage to shift all of them into GDP3?

As a matter of fact, I think a bunch of the folks -- those might've been the construction folks. But certainly a lot of the engineering folks that were in Vancouver with [asenko] we rolled and that's why we were able to -- we made a quick decision on that in terms of GDP3 because they had a very high-quality engineering team that we wanted to keep.

So, that's mostly -- I don't think it was 65 because I think we were gearing up for other on-the-ground personnel up there in Williams Lake. But a lot of the technical people in Vancouver rolled into the GDP3 project.

Thanks for that. Just in terms of Prosperity, Russ, what hypothetically -- how soon do you think you could -- if everything goes smoothly with the environmental process, all the rest of it gets approved, how soon do you think you could start construction?

Well, I guess if we took 15 months and got an approval a year from is now next March, add on three months; you could hypothetically start going in the summer or fall next year, and I think I've spoken quite a bit about this about starting into the fall and winter time. But that will be all dependent. So optimistically, it could be 15 to 18 months from now. Pessimistically, it would be the spring of 2013.

So you'd basically finish GDP3 and then move into doing this build?

Right. Well, you see, that's the other problem. That's another problem.

We've done a bunch of engineering but we haven't done advanced engineering, the detailed engineering. So, that would delay -- could delay that on Prosperity too.

So, I'm generally seeing publicly that it was a two-year delay because of the windows of weather and when you get a permit. We're not building a mine in Arizona or California, somewhere where you can do it all year round. There's a big impact on weather here in terms of your construction schedules.

Sure. Is there any thoughts to maybe putting in some long-lead items just on the off chance that -- not even the off chance, sorry -- on the chance that it gets all approved and I's dotted, and if you don't actually end up getting any of that happening, you can easily fill in your order or your options.

Yes, we will consider all that. We are going to try and advance the project as we as fast as we can, seeing we've been in this preliminary EA process for four or five, six years now.

The last one I had for you was what do you think in terms of production for this year? Should we be thinking sort of 95 million pounds or 100 million pounds just in terms of 100% (inaudible)?

I'd say somewhere between 90 million and 100 million, Dave. It's going to fluctuate between head grades and our development plans.

But, I think that's probably a half decent number. I think last year we had some quarters that were down around 20 million and then we came up at 25 million a quarter; so, you know, give or take.

And then again, it could be dependent upon how -- it's going to be really dependent on how get that throughput tonnage ramping up. I said that we should have it up -- I think I told Alex or somebody there -- we could have it running by maybe up to 55,000 tons a day by the summer if we can move that ahead a month.

Great, that adds more metal production. And, if it's not -- you know, if you can get another couple, 3% either in operating time or any of those kinds of things, recoveries, any of those kinds of things, and that just adds to everything. So -- but I would use 90 million to 100 million and see where it sorts out.

Steve Parsons, Wellington West.

Quick question I guess -- sorry, a lot of guys were harping on cost this morning. Just as well I have maybe a question on that as well.

Maybe a year and a half, two years ago, you guys talked about diesel prices being about sort of 10% or so of your on-site operating costs. Is that still a reasonable number to use or is that sort of 10% in a normalized diesel price environment and you're running maybe slightly higher than that now given diesel prices?

Yes, that would be right. So that's probably about an $80, $82 barrel. So if you go to $95, what's that? It's a 10% increase on 10%, so it's a 1% increase. So now maybe it's 11% or 12%.

Thanks for that. Secondly, maybe more a question for Peter. Can you just describe a little bit about the reclassification of the derivative instruments that was reflected on the quarterly balance sheet? Sorry, on the quarterly income statement.

Sorry, the reclassification of what?

It sounds like you -- there was some sort of reclassification between realized and unrealized gains and losses on the derivative instruments.

No, it really -- it's just the method that we are accounting for, the derivative instruments. There is nothing significant about it.

The nature of our derivatives themselves has changed as a result of us moving out of the serial cost cap collar structure and into the -- just buying pure put. So, I think that's the extent of it.

Okay, and it sounds like there was sort of a CAD15.1 million realized gain, unrealized of CAD18.3 million. How much of that was actually in Q4? It sounds like a lot of that was settlements over the course of the year. Just trying to wrap my head around it.

Yes, the vast majority of that, Steve, was over the course of the entire year.

Got it. So last question on the terms of I guess on your off-take deal with MRI and trying to understand the implications if any on this -- on descending concentrate to the Onahama smelter in Japan. Right now is there a provision in the off-take deal for the concentrate to go anywhere? Can it go anywhere in Asia or does it have to go to -- a certain percentage of it go to this Onahama smelter?

No. It can go -- it's -- it can go to whoever they decide -- we decide in conjunction with our JV partner.

Okay. And the payment from MRI, you said you receive payments on loading onto the ship or is there -- could you just describe the payment there?

Brian can describe that for you.

We receive payment on a number of -- a couple different options. Sometimes we can receive payment when the products in the shed have anchor rewards. If we do not elect that option, we receive payment within a couple of days after the vessel sails.

Right, okay. And what about sort of provision? Did you have any concentrate sitting on the ground at that smelter in Japan? Would that affect future payments?

No.

Alright, that's it for me. Thanks, guys.

Adam Graf, Dahlman Rose.

Just a quick question regarding CapEx and the Canadian dollar. Just for the CapEx planned for the expansion at Gibraltar, how much of that is exposed to the Canadian dollar and are you guys hedging the Canadian dollar there to hold those CapEx costs fixed in US dollar terms?

That's a good question. Peter and I talk about that on a regular basis.

I can't cite a significant or specific number in terms of -- a significant amount of it is US dollar denominated and the answer is, at this point we have not hedged the -- our US dollar -- US-Canadian exposure. It's something that we are looking at.

From a consensus perspective, we don't really feel a tremendous sense of urgency. But, Adam, it is the one situation where in my mind, it makes sense to look at currency hedging.

For us, from an operational perspective, we've always taken the view that there's such a strong correlation between copper and the US-Canadian exchange rate that we are -- we sort of de-risked a lot of the business by continuing our put acquisition strategy. But, in terms of the US dollar exposure on our CapEx and making the commitments from an FX standpoint is something that we're looking at but it's not something that we've acted on at this point.

I would say that probably outside of the mobile equipment which is all US dollar denominated, because we get all that stuff out of the states -- the shovels, the trucks, the drills -- if we look at the site, the physical buildings up there, the SAG mill comes from Europe, the motors are US or Canadian-made.

I would say the exposure on the physical side might be 20% US dollars, so 200 million because one of the big costs will be obviously labor. Labor is probably 60% of the total build cost and that's all in Canadian dollars; and then, the concrete. So, our exposure on that not in US dollar denominated terms is not big, Adam.

And just remind me again, you guys discussed earlier about what's your current projected forecast on the total expansion at Gibraltar again?

325. And about 90 million is -- 90 million of that is --

Mining equipment.

Mining equipment leases.

Great, thanks, guys.

Peter Campbell, Jennings Capital.

Thanks for taking my follow-up question, gentlemen. Just a quick question on GDP3.

I wanted to make sure I understood that you are going to be installing a second SAG mill. It will be identical to the SAG mill that you currently have. And, did I hear you say that the expansion will have excess capacity?

Yes, you did.

Okay, so like you are going to be like basically like running it at 30,000 tons per day even though it's got a capacity of 50,000 or 55,000 tons a day?

Yes.

Okay and then one final question on GDP3. Will all of the moly circuit be contained within the like new like second line or will you be having any moly circuits in the old concentrator line?

It will all go to a new recovery plant, both feed streams.

Oh, I see, okay. I didn't understand how that was going to work.

These are separate brand-new moly recovery plants. So both the streams that will head to that -- and we expect to see that's where we're going to get our recovery improvements.

Yes, for sure. So it's two copper lines all feeding into like one moly line?

You got it.

All right. Thank you very much.

Okay, gentlemen, thanks very much, ladies and gentlemen, for calling in today. Look forward talking to you at the end of next quarter. Cheers. Thank you, operator.

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