Taseko Mines Ltd (TGB) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Taseko Mines 2011 first quarter earnings call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded. I will now turn the call over to Taseko Mines.

Good morning, and welcome to Taseko Mines 2011 first quarter earnings conference call. With me today in Vancouver is Russ Hallbauer, President and CEO of Taseko; Peter Mitchell, Chief Financial Officer; and John McManus, Senior Vice President of Operations. After opening remarks by management, in which we will view first quarter business and operational results, we will open the line to analysts and investors for a question-and-answer session. I would like to -- 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.

Good morning, everyone. Thank you for joining us today to discuss our first quarter 2011. This quarter's reporting process has been slowed somewhat by the conversion to IFRS, but we will be back to the normal process next quarter. Our financial group, as part of that process though, has modified our MD&A and other public information in an effort to provide in the simplest form a clear picture of our business so that all our shareholders can easily understand it. At least that's the idea.

Total revenues decreased 22% this quarter to CAD58.8 million, compared to the same quarter last year, which reflects our 75% interest in the Gibraltar mine, as opposed to 100% this quarter last year. Adjusted EBITDA for the quarter was CAD19.9 million, and operating profit continued to be very strong at CAD18.6 million, even though metal production was lower than normal and costs higher. Adjusted net earnings of CAD10.8 million for the quarter were 48% over the CAD7.3 million achieved in the first quarter of 2010.

We averaged an impressive CAD4.28 per pound of copper sales, a very good price. This is a result of our ability to price under our off-take contract rather than wait for the quotational period to close out, as do so many other producers. We can opportunistically price our metal once it is produced and fix the price when we deem appropriate. Achieving CAD4.28 in this latest quarter points to the fact that we're pretty good at doing that. Our gross margin of CAD2.28 -- or CAD2.21 per pound was 51% of gross sales, which is an excellent margin in any business, particularly so in this business.

In April, we completed the CAD200 million senior secured note issuance. As well, we increased the Gibraltar reserves by 80%, and by doing so increased our recoverable metal at the mine to 4.3 billion pounds of copper, which at today's copper price, equates to over CAD16 billion worth of value. We believe that after the GDP3 expansion is complete and running, our forward-looking financial models at the forward copper curve and 225 long-term price, Gibraltar's after-tax MPV is approximately CAD1.3 billion, over CAD300 million more than our present market cap.

Our new SAG mill direct feed system is on-line and operating, and the construction has begun on, as I said, our next expansion GDP3, which will see Gibraltar producing 180 million pounds a year by the end of 2012, a short 17 months from now.

Speaking specifically about our Gibraltar cost structure, if one looks at (inaudible) or our MD&A, you will see the impact of the strengthening Canadian dollar and the effect of low production volumes on our cost structure. Those two variables, one which we control, added CAD0.32 --CAD0.33 to a pound of copper production. 24% of that coming from lower metal production.

In the simplistic form, if our copper production is down 15%, our [off] costs are up approximately 25%. So in terms of cost per pound, it's very important we achieve our quarterly production. But often that can be difficult because of issues we face in terms of great fluctuations, weather, and operational performance. Once, however, we get increased production back up to higher levels, which will be achieved with our new SAG mill feed system, the increased metal production takes care of a large component of the [apparent] increase in this quarter's cost per pound of production, as our fixed components makes up approximately 80% of our total costs.

Looking ahead, we just released our new project description for the development of Prosperity through both levels of government and to the local First Nations. It addresses environmental issues and First Nation issues. There continues, though, to be a lot of misrepresentation in the media by the local First Nations on our project.

First, let me state, First Nations communities have been involved in the Prosperity process going back as far as 1999, or 1995, excuse me. Over that period, we have met with native leaders 804 times. Most recently engaged with them for a number of years providing capacity funding of roughly CAD1 million, and at their beckoning, spent CAD700,000 on an archeological study around Fish Lake. We signed an MOU with them in 2006 to work together and to advance the project, and had mutually agreed on a path forward, and we also offered them an impact benefit agreement.

Somewhere along the way, however, the wheels fell off that process, leaving them to not participate in the provincial environmental assessment, at the beckoning of both us and the province. As a Company, and myself personally, we have written numerous letters asking them to discuss issues and a path forward. We've asked them to join with us to discuss both the old project and lately the new project description, and so have the local political representatives in the area.

Over the last six months, we have worked hard to address the issues we heard that the Federal Government and the panel review said. We heard what the native community said what is important, and that is the Fish Lake was spiritual. We've now put forward a plan that we think will address all those issues. I wish to assure everyone that is listening that we are attempting as a Company to do everything we can to engage in a dialogue with the native leaders in a respectful and meaningful way. If we cannot speak face to face, we need to keep moving forward. We would like to believe that their leaders will take it upon themselves to engage. Failing that, we will continue to work with all levels of government to move this project forward for all the stakeholders and the shareholders of this Company.

We are at a great place as a Company. We are unlocking our key assets in a consistent and measured manner. We are not getting caught up in any deal heat or acquisitions that we think would destroy shareholder value by chasing marginal assets that have cost the entry points either here in Canada or in countries that have significant political risk, with respect to property rights, rule of law, taxation or nationalistic intentions in terms of expropriation.

While we face challenges on the permitting side and our First Nations' engagement in this province, I would undertake those challenges any day over dealing with the political situations in countries such as Argentina, Venezuela, Bolivia, Ecuador, and now Peru. Throw in other countries, such as Mongolia and the DRC, with its ever-changing political whims, and Australia with its super royalties, and I can say Canada is a pretty good place to have one's assets. Yes, it's hard, but mines aren't found, they are made, and it takes a lot of hard work and patience to do that.

We are working hard on Gibraltar as we speak. A few days ago, the Taseko Board approved an CAD18.5 million budget to advance Aley over the next six months through to full feasibility. Actually by the fourth quarter of this year. We submitted our new Prosperity project description, and look forward to moving that forward with the appropriate regulators. And finally, we have recently engaged [Ahiida] in discussions on our Harmony gold project.

We have lots on the go, and we are making steady progress. And we look forward to the path before us. I would like to now turn the call over to Peter to talk more about our financial results.

Thanks, Russ. The first quarter results of 2011 represents the first period that Taseko has reported under IFRS. It was a very thorough process, at the end of which the net differences compared to GAAP are not material. However, financial statement presentation differences are fairly extensive, as Russ indicated.

Revenue for the first quarter was CAD58.8 million, down from CAD75.5 million in the first quarter of last year, primarily because of the sale of the 25% joint venture interest at the end of Q1 last year. The impact was mitigated by the increase in realized copper prices in the first quarter of 2011.

Cost of sales was affected by lower production rates, input cost increases, and the strengthening Canadian dollar. However, gross profit percent was a slight increase from last year, again, because of higher copper prices.

Income tax expense was higher as a percent of pretax income, at 56% in Q1 2011. The effect of permanent differences, including share-based compensation and deferred tax adjustments, related to BC Mineral tax, exaggerated the effect, due to the size of the pre-tax income. Adjusting after-tax earnings for unrealized gain/losses on derivatives, the joint-venture transaction, foreign currency translations, and other gains and losses, provided adjusted net earnings of $10.8 million for the first quarter of 2011, as compared to CAD7.3 million in the first quarter of 2010. This corresponds to adjusted earnings per share for the first quarter of 2011 of CAD0.06 versus CAD0.04 last year.

Cash and working capital were CAD193 million and CAD233 million, respectively, at the end of the first quarter. Cash used for operating activities was CAD3 million as a result of a CAD22.5 million income tax payment made during the quarter, which was related to the liability created by the joint venture transaction last year.

On the financing front, we successfully accessed the US high-yield bond market in April, for a CAD20 0 million senior notes offering, due in 2019, with the coupon of 7.75%, and the primary use being to fund GDP3. This has bolstered our current cash position to almost CAD400 million. The debt covenants provide ample flexibility in our capital structure to accommodate our current growth plans. Thus we are fully funded as we commence our GDP3 project and are well positioned financially as we continue to grow Taseko. Russ.

Thank you, Peter. Operator, we'd now like to open the line to calls.

Thank you. (Operator Instructions). Our first question comes from Orest Wowkodaw with Canaccord Genuity.

Hello, good morning. Obviously a tough quarter in Q1 on the production side. Wondering if -- we're now two-thirds through second quarter. I am wondering if you can give us a flavor on how the tons per day has improved, coming into the second quarter?

I'll let John answer that, Orest. He's responsible for that area.

Good morning, Orest. We tied in the new SAG direct feed system in early May, and we immediately saw tonnage increase through the mill. The system is working very, very well, and the guys at the site are working on taking us up to an average of 2,300 tons per hour, which is where we need to to be to get 55,000 tons a day. It's a process we have to go through as all of the parts of the system need to work together to get there. We don't see any reason that we shouldn't be there by -- within a month or two.

So the expectation is that will you be at that 55,000 ton a day Gibraltar 2 mark, you're saying within two months?

That's what we're working towards, yes.

Okay. And in the revised guidance of 90 million to 92 million pounds for the year, can you just give us a sense of what average grade are you assuming in that, and what throughput for the year?

That 90 million pounds to 92 million pounds is going to count on a ramp-up of the mill throughput to 55,000. What we've got in there right now is reaching that point during Q4. We think we can maybe even do it sooner. That's an upside for us. Grade is going to be in the 0.3 range for the rest of the year. Our recoveries are staying in the 89% to 90%.

So throughput, in terms of ore mill for the year, would be somewhere around -- between 16.5 million tons and 17 million tons?

Yes.

Okay. Thanks very much, guys.

Thanks, Orest.

Our next question comes from the line of Alex Terentiew with Credit Suisse.

Thanks for taking my call. I just wonder if could you give us more color on what you plan to do at Aley over the next year and your spending plans. I know you mentioned a little bit earlier, but if you can give us a bit more, that would be great.

Okay. Well, we're planning on a building road this summer. We plan on starting in the next couple three weeks. That will give us permanent access to the ore deposits. I don't know if you've been on-line and seen the topography, Alex, but the road will come over the back side and then come up into the saddle zone. And that will help our work next year in terms of reducing our costs. Before we get the road built, we will -- we're doing a helicopter-assisted drilling program as we speak, or to start imminently.

We expect to collect as much technical data as we can in the next three months or four months. We're going to start our baseline environmental studies ASAP. We're ascertaining that. We're out for quotes for that from the various folks that do that work. We're working on some preliminary mine modeling designs in terms of what we think -- whether we have the right ovoids and elipsoids to allow us to develop a resource for the project.

Yes. We are doing a lot of metallurgical work from the material that we had last year, plus we'll be doing a fair bit of that on new (inaudible) this year, but --.

Yes, I think we really want to define the size of the ore body to a large extent. We're really not sure. We arm wave between 40 million tons and 100 million plus tons. I think it's important to think about Aley in the context of what some of the other niobium producers are doing in the world. If you look specifically at what Iamgold is suggesting that the Niobec project is worth in terms of what they may be doing, we thought when we entered this program that niobium -- the niobium market could easily absorb 10 million pounds of production. It's looking, according to Iamgold, that it could absorb 20 million to 30 million. So the fact of the matter is we're pushing actively ahead to try and take advantage of that apparent market stream.

Resource updates and feasibility or technical reports. What's your time line for that?

End of this year.

For both of them this year?

That's what we're aiming at, yes.

And was I correct in hearing that you said your budget for the next six months for Aley is CAD18 million?

CAD18.5 for the rest of the year.

Okay. Great. Thanks.

thank you.

Our next question comes from the line of Imaru Casanova with MLV.

Hello, how are you. Some of my questions have already been answered, but I did have a question regarding sales. I understand there's quite a bit of copper sitting in inventory now. I am wondering if you could give us a bit of guidance as to how this inventory is going to be sold? Should we expect most of that to be sold next quarter or the rest of the year. Any guidance on that?

Yes. In Q2, we're really scheduled by the end of this month, Imaru, to have the warehouse cleared out. Right now, it's looking like one of those quarters where we got it together, and it's always an issue of ensuring -- lining ships up around quarter end. And unfortunately, we're not the only mining company competing for dock space and for ships. But it's looking very encouraging for this month, and to having the finished goods inventory down to minimal levels.

Excellent. I don't think I saw it explicitly in the report. What was your realized moly price for the quarter?

CAD17.83.

Great. Thank you, guys.

Our next question comes from David Cottrell with BMO Capital Markets.

Good morning, everyone. Russ, I had a question for you on GDP3. You were talking about the fact that your major equipment had been secured. I'm just wondering what percentage of that total 325 CapEx would that have been, and what else have we got committed, or what have we got to spend going forward?

Over this year, committed on GDP3 so far? Right now, we're committed about CAD50 million committed so far. Half of that is on the [MPCM] contract. By the end of the year, we will be at about CAD150 committed. We've already purchased the mill shelves, (inaudible) trimmings, gears, all of that been purchased. We've got mining equipment ordered, but we don't receive that until next year.

So you're basically in the [queue] for your mining equipment. You put down a deposit, but you won't pay the full amount until you get it delivered?

Sorry, Dave, can you speak up a little bit?

I was just saying, you've already ordered your mining equipment, so you've put down the deposit but you don't pay the rest of it until you get it next year?

That's right. So we've ordered a shovel and eight trucks.

Okay. And you are going to see our production continue to ramp up as we try and do some pre-stripping anticipation of both increasing volumes going through GDP2 and preparing ourselves for GDP3. So we will be trying to optimize our fleet, the present fleet we have, so I think the strip ratio does rise up over the next few months.

Yes, we will be at a strip ratio of three to one or better for the rest of this year.

In terms of your JV partner, are they come back to you? I know it's pretty much a done deal, but have they come back and said they're quite happy doing this?

Yes. John spent two days in Tokyo, John and our technical crew, two days in Tokyo a couple weeks ago. We just had our JV meeting Tuesday. We more fully discussed the mechanics of bringing them up to speed. They have some questions on the technical side, but there seems to be no impediment for them ultimately improving this by sometime over the next two or three months. So we're effectively just carrying them until they get their final approvals.

Sure. Russ, I know we spoke of it, unfortunately with the smelter situation in Japan, have you guys seen any updates as to -- I know you were talking about it being back on-line in July, but it looks like that may be delayed.

On the (inaudible) smelter, which is Mitsubishi, I think you guys, a lot of people probably saw that the force majeure was put to Copper Mountain. They're going through the same smelter as we do with our concentrate. So our force majeure has not been lifted, but they are beginning to accept concentrate, and our joint venture partners are accepting concentrate and taking it to other locales.

Thanks very much for the details.

Okay.

Our next question comes from Steve Parsons with Wellington West.

Good morning, everybody. A couple questions for you. Perhaps first off on Prosperity, in terms of the revised -- or the new mine plan that's been issued for federal approval, it sounds like the CapEx and operating costs have increased by CAD300 million. Could you talk a little bit about what the new mine plan looks like, to the extent you can elaborate on that? Perhaps what the new resource? Are you going back to the 20-year resource, or do you have something a little bit larger than that?

You want to talk about that?

Sure. What we've gone to in our permit, Steve, is the 20-year mine plan. The reserve hasn't changed. It's the 33-year mine plan. The mine plan and the 20-year plan is the same as we put forward in the original permit application and environmental assessment. What has changed is we've moved the tailings down the facility about two kilometers further up the valley, and that's where the extra expense comes in. We've got to haul all the material up there to build the dam. We've got to pump all the tailings that extra two kilometers.

So more pumping equipment, more haulage equipment and more operating costs. I believe it's $100 million extra operating costs to run the pumps and the trucks. But the rest of the mine plan is the same. The mill is in the same place, power lines, roads. The mine, of course, is in the same place. And what does it is it moves it up far enough from Fish Lake that there's a spawning habitat in the stream above Fish Lake.

Okay. So in terms of the next 90 days with the Canadian Environmental Assessment Agency, presumably they have to make a decision on which environmental assessment review process will be used. Obviously last time they chose the panel process. Do you get the sense they're going to choose the panel process again, or is it going to be the comprehensive review this time?

We believe it's a comprehensive review, and they just need to focus on those changes to this new project description that are different from the original one. And then under -- there's specific sections in the Canadian Environmental Assessment Act that refer to how those operations are actually handled, so that we don't have to go back to the drawing board on old growth forests or (inaudible) populations, for example, or some investigation into stuff that we've already spent tens of millions of dollars reviewing that are not fundamentally germane to anything moving forward.

If you look at it in a simplistic -- we're saving the lake, which is -- and I think when the government ultimately releases this to the public, they will see it's a pretty impressive undertaking that we've done, and obviously that's been reflected in the cost of the whole initiative, but we saved 94% of the lake habitat. So if you say that Fish Lake was 118 hectares, and Little Fish Lake was 6.6 hectares, we've saved 111 hectares of those, of lake habitat, which is about 94%. Fish-bearing stream habitat, we saved just under 50%. Non-fish bearing habitat, we saved over 60%. And repairing habitat along the streams is nearly 80%, so there's been significant, significant changes to this plan in terms of fish and fish habitat.

We'll have to wait and see which way the feds decide, but sounds like there's a good chance they might go towards the comprehensive review, rather than the panel. But, we'll see I guess. Last question, maybe for Peter. The G&A looks like it's about CAD6.6 million in the quarter. What's the new run rate now that maybe you're adding bodies for GDP3, doing some permitting work on Prosperity?

It's going to be coming up a little bit. You have to understand also, Steve, that that G&A is not comparable to what we've included separately, historically, included in that is share-based compensation. So that's a big change from the way we disclosed it historically.

Also included in that number is a small depreciation -- the depreciation number related to depreciation of fixed assets away from the mine production assets, which are included in cost of sales. But I think that's a reasonable run rate to use. Percentage-wise, we are going to be adding some people to the Taseko team, from an engineering perspective and a project management perspective. But it's not going to have a huge effect on that number from a run rate perspective, I don't think.

Most of those people are included in our owners cost, outside of project costs.

Thank you very much. That's it for me.

(Operator Instructions). And next in line we have Mark Turner with Scotia Capital.

Thanks. Good morning, guys. Most of my questions have been answered. I just have one. Looking at the breakdown that you have provided on the changes in the cash costs over the past year, and looking at -- I want to call a little more in your control, but maybe a little out of your control as well, the labor costs, and about CAD0.10 per ton. Just looking -- I guess what trends are you seeing now, and was that specific to acquiring specific talent in terms of the expansion? Or is that more of a retention-type cost to keep the operating guys around?

No, it's not a growth -- there is some. With our bargaining unit, there's annual increase (inaudible). But that's only a few percent. Really what we're seeing there is we're brining on staff and training. So we've got more people per unit at the moment, as we increases units they'll come back.

Aggregate, adding staff as opposed to maintaining?

That's correct. Perfect. Thanks. Just I guess a follow-up question on Dave's before, in terms of the GDP3 expansion. With your JV partner, is there any mechanism or time frame that they have to come back with a definitive decision for you? Obviously, assume they're leaning, and you said committed to that way, but just in terms of a timing cash flow from what I'm looking at in terms of what you might have to up front before they actually come back and start funding.

Well, they say it's going to be by the end of the summer, and that's about it in terms of formality. We haven't pushed them on that. We know the process the Japanese have to go through for approvals, and when they say they're going do something, that likely means that they're going do it, but it's going to take longer than you or I may take to do it. The process they have to go through is a due diligence, which starts next week, which is required for their bank plans. They're very keen on moving forward as quickly as they can, but they have a process to go through.

Perfect. Thank you. Thanks.

Our next question is a follow-up from Orest Wowkodaw with Canaccord Genuity.

Thanks for taking my follow-up. Just a question on -- sorry, can you hear me?

Yes.

Just a follow-up. Given your spending on Gibraltar 3 and the niobium project, and assuming that you're funding only 75% of Gibraltar 3, what's the CapEx budget for the year?

This year? Can you remember?

About 80 million, I believe, including GDP3. I don't have with it me. I tend to look at the whole project, rather than just this year on CapEx.

That's a good number.

CAD80 million, that includes the CAD18 million you just mentioned for Aley?

Yes.

Okay, thank you very much.

Okay, thanks. At this time I'm showing no more questions in the queue. I'd like to turn it over to our speakers for any closing remarks.

Okay, thanks very much, operator. Gentlemen, ladies, thank you very much for joining us today. Look forward to talking to you at the end of next quarter. Cheers.

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