Taseko Mines Ltd (TGB) 2011 Q4 法說會逐字稿

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

Good morning, and welcome to Taseko Mines 2011 fourth quarter and annual results conference call. 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 were review business and operational results for 2011, 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 its nature is subject to risks 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 fourth quarter and 2011 year end results, as well as the ongoing status of the Company's initiatives. Gross profit from our mining operations was CAD99.1 million for the year, exclusive of CAD12.9 million depreciation and amortization.

Gibraltar's metal production on 100% basis was 81 million pounds, versus the 91 million pounds produced in 2010. The decrease was primarily driven by a lower head grade of 0.304% versus 0.338% achieved in 2010, and a slightly lower recovery of 88% versus 89% in that year, as well. Tonnes mined in 2011 were 57.5 million tonnes, an increase of 5 point million tonnes -- 5.2 million tonnes over that of 2010.

We have done a really stellar job in a couple of areas, firstly in the increase in moly recovery of roughly 40%, which has increased our moly revenue by CAD5.5 million over 2010 results, with most of those dollars flowing straight through to the bottom line. The work on the moly recovery really gives us some insight into how well the new moly plant will add to our profitability going forward.

Secondly, our copper sales pricing has been exceptional. If one considers we achieved settled pricing of CAD3.89 per pound versus the average of the LME price over the last year of CAD4.0 per pound, you can appreciate the flexibility of the pricing mechanism we have in our sales contract. We have actually managed sales in a very volatile market, and effectively achieved near the LME average price for the year. The major reason is, we can price copper immediately once it is over the rail of the ship, and we don't have to wait for the final [triquotional] period 3 to 4 months out, unlike so many other producers. It is a big advantage for us in terms of maximizing our revenue.

Operating cost of CAD1.75 per pound in 2011 versus CAD1.36 per pound in 2010 are a result of the increased waste ripping, lower recoveries in the higher US Canadian dollar exchange rate, and lower overall copper production, as 80% of our operating costs -- approximately 80% of our operating costs are fixed. Gibraltar's throughput tonnes per operating day increased over the year from roughly 39,000 tonnes per day in January of last year to 52,500 tonnes per day in January of 2012, with monthly million rates moving from 1.1 million tonnes per month to 1.45 million tonnes at year end.

The Gibraltar concentrator is performing the way it was engineered, with plenty of grinding power, and our staff will continue to optimize it as we move down the line toward the commissioning of our second grinding line and our second concentrator in another eight short months. This addition will give the operation added flexibility in terms of throughput and optimization options.

We have tried to get a handle on where we think operating costs could settle in on what appears to be the new reality of input costs. If we look at capital and operating cost and they stay where they are, the copper business will need over CAD3.0 per pound to support new mine development. One does an evaluation on copper mines in Chile, on one will see that their operating cost per tonne milled is in the neighborhood of CAD19.0 to CAD22.0 per tonne, on site.

That is double the operating costs of our open pit mines in Canada. So, compare ore grade of 0.32% and CAD11.0 per tonne mined, then to have the equivalent orebody in South America, one would need approximately a 0.64% orebody. So it is pretty simple. I believe that a 0.5% to 0.65% copper orebody sub-marginal economics right now in South America. So, that means good things for companies like ours, in terms of long-term price levels.

Looking at labor, we are apparently an outlier with respect to manpower. We presently have over 700 current applications for employment at Gibraltar, and these range from technical personnel, such as engineers through to electricians, metalers, and on down the line to less skilled occupations. Unlike many of our colleagues, we do not presently have manpower issues.

We, though, have cost pressures on the consumables side, and since 2006, those input costs have risen nearly 40%, exclusive of labor issues -- of labor increases. We still believe, though, we have plenty of opportunity to reduce our cost per tonne milled going forward.

In comparison, for example, and a good benchmark for us, Highland Valley Copper, our neighbor down the road 70 miles, which operates the sixth-largest concentrator in the world and having nominal capacity of 150,000 tonnes per day, versus our 55,000 tonnes per day, had operating costs for 2011 of CAD11.0 per tonne milled. And their cost per pound of production was CAD2.18 per pound, so in that context, we believe we are doing pretty well.

Looking at capital projects, we know that a lot of folks have become pretty cynical in the industry's ability to accurately predict capital project spending. It has become a systemic problem, and it is disappointing that our industry as a whole that generally companies cannot adhere to the budget they put forward in the early stages of project kickoff. And the reason it causes me concern is it affects us indirectly, because we all get painted with the same brush.

The only company I know or have seen in the last few years that have completed their project on time and on budget was Jim O'Rourke's building of Copper Mountain. I believe we will be the second such operation with our GDP3 completion. It is kind of interesting that two of the mining companies with the lowest grade orebodies actually have the best capital discipline and generally the lowest cost per tonne milled of anywhere in the world. I guess that begs the question, and certainly it's a function, if you don't exercise capital discipline on these lower grade orebodies, your project is non-accretive to shareholders.

We have budgeted CAD235 million, exclusive of equipment, for GDP3. We have spent CAD75 million presently, and we project in the major areas of fixed equipment materials and our EPCM contract, their maximum risk exposure on the high side is CAD4.6 million in those areas, less than 4% of that CAD75 million. The only area of concern would be in the labor component assigned to our contract -- the only exposure that we see in terms of risk would be in the labor component assigned to our contract portions of the build. And as we have spent CAD26 million of the budgeted CAD80 million, we would have to have some significant scope changes or significant labor cost increases on that remaining CAD54 million to get completely out of whack with our budget.

As it stands today, with 60% of the engineering complete, we see a high-side a capital risk of CAD22 million to the total project on the CAD235 million spent and a CAD7 million underage if all goes according to plan. So, on both sides of that equation, we expect to be on time and on budget, but we are monitoring closely day-by-day and week-by-week. Our sag mill is presently being shipped as we speak, and unless we encounter something beyond our control, we will be ready to go in another eight months.

Aley. We are working on our road access presently, and we expect to expend CAD20 million this year on work to support the feasibility study and ongoing engineering work. We are working with our first neighbor nations -- neighbors on contracting opportunities and other protocols, and we expect to have a new resource number out on Aley in the near future, approximately by the end of the month.

Prosperity. We are continuing to work on the project at present, and at present, we are on site doing geotechnical drilling, environmental background sampling, and other work required for our environmental assessment impact statement. We have submitted comments to the Canadian environmental assessment authority on that environmental impact statement, and we expect to get the final EIS back by the end of the month.

Then we will get to work on that submission and turn it around as quickly as we can. We have settled the outstanding access issue and the dropping of the court injunctions with the local First Nations, and as present, we are proceeding full ahead with our work programs. The federal panel will be struck over the coming weeks, and they will decide on a timeline on public meetings.

Generally speaking, other than the volatility of the markets, operationally things are going very well. Our projects are going well, and we are looking forward to an exciting 2012. I would like now to turn the call over to Peter.

Thanks, Russ.

Revenue for 2011 was CAD251.9 million, which was comparable to the full 2010 year results when one adjusts for the Gibraltar joint venture sale at the end of the first quarter in 2010. Revenue in the fourth quarter of 2011 was CAD60.5 million, compared to CAD109 million in the same period for 2010, a tough comparative with 25.2 million pounds of copper sold in that period versus 15.5 million in Q4 of 2011, based on head grade differences and shipping schedule.

A reminder to listeners, revenue recognition is a function of copper shipments and often results in wide quarter-to-quarter variations in our revenue number. To this point, there was a copper concentrate inventory billed at year end that was shipped in the first week of January of 2012.

For the full year of 2011, G&A costs were CAD21.1 million, up from CAD19.1 million in 2010, due to increased personnel supporting the Company's growth projects and general expense increases. Exploration and evaluation expense of CAD10.4 million for 2011 relates primarily to development activities at the Aley project.

Other operating income for 2011 was CAD5.2 million, comprised of several items, including unrealized gains and realized losses on the derivatives used on our copper price protection program. The unrealized portion of those copper hedges were mark-to-market at the end of 2012, and remain significantly in the money. Also included in other operating income was CAD6.3 million of consulting expenses for the Gibraltar optimization and CAD2.4 million of plant and equipment impairment charges related to equipment which became redundant after the sag direct feed was commissioned in 2011. Finance expense of CAD22.5 million reflects bond interest and realized losses on US dollar money market investments.

Income tax expense for the year of 23.8% reflects an effective tax rate of 47%. This includes the effect of permanent differences from shared base comp and deferred tax adjustments related to BC mineral tax. Adjusting after-tax earnings for realized gains and losses on derivatives, the JV transaction, foreign currency translations, and other gains and losses yields adjusted net earnings of CAD17.5 million for 2011, compared to CAD57.3 million for 2010. This corresponds to adjusted earnings per share for 2011 of CAD0.09, versus CAD0.31 for 2010.

Cash and net working capital were CAD277.8 million and CAD375.9 million, respectively, at the end of 2011. In addition to cash, money market investments with maturities beyond three months are included in other financial assets, and totaled CAD60.7 million at year-end.

In conclusion, from a financial perspective, 2011 represented a building year for Taseko at Gibraltar and our developmental properties, which is similar to 2012. Our hedged copper strategy provided stability in a period of volatility, and as Russ mentioned, we expect this volatility will continue and therefore intend to continue this strategy. We will also maintain a strong cash position at Taseko as we position ourselves to realize the benefits of our growth strategy, starting with GDP3 at the end of this year. Russ.

Thank you, Peter. Operator, I would now like to open the phones for questions, please.

Thank you. (Operator Instructions). Our first question comes from Mark Turner from Scotiabank.

Thanks, guys. Good morning. My question is more near term. Russ, I missed what you had mentioned there, what the average throughput was for January for the concentrator.

52,500, Mark.

52,500, okay. Any insight into February so far?

Well, the real issue we found is -- remember, I think if we step back a couple of calls, I can't remember which one, whether it was the last one or the previous one -- we started to say that we had found six different ore types and the different mining -- or grinding influences on those. We have narrowed it down to effectively two in the granite pit. One has a very high work index of about 20, and the rest -- which is about 40% -- or about 60% of the orebody -- of that pit, and the other 40% has got about a 12 work index. It is going to take us some time to engineer that in the proper release of those types of ores into the mine plan, and the guys are looking at it right now, trying to figure how we do that for 2012.

If we are down in that 12 to 15 work index material, we can grind north of 60,000 to 65,000 tons per day. If we drop into the higher work index material, our grinding capacity drops down into, say, 49,000 to 51,000, 52,000 per day. We are trying to blend those to really optimize the sag mill. That is why a talked a little bit about that flexibility that the new concentrator is going to give us, because will be able to offset a lot of that with some added capacity there going forward. Right now, I can't give you -- we've kind of seen, hey listen, if everything goes well, we are going to put through the concentrator somewhere between 18.5 million, 19.5 million tonnes to 20 million tonnes. And look at it that way.

Okay, perfect. Thanks again. Definitely an improvement over the last quarter as well.

I think if you look from last year, you can see this general ramp up in daily throughput tonnes, and it's a very fine method. You've got to keep the power drawn, you have to keep your ball mill charged up -- or your broad mill -- or sorry, your sag mill, you have got to keep everything maxed. But the great thing about this is when we originally started looking over the design for GDP2, the metallurgical consultants were saying, hey listen, you should put in a pebble crusher. We said, well, why don't we see how we perform before we spend CAD10 million or CAD15 million on a pebble crusher. We have got a circulating load that indicates we do not need a pebble crusher. Now we just have to optimize how we run that sag mill. With one mill, any little burp or part, and you lose that daily tonnage and it's lost. That's why we are really looking forward to what is going to happen with the addition of the second sag.

Right, where you have excess capacity -- I guess grinding capacity in that sag.

You've got it.

Just another sort of near term, the strip ratio for this year. I am mulling 3.2. I am just wondering if that is still the right assumption under the mine plan.

Yes, that's probably pretty close. Somewhere between 3 to 3.2.

Okay, so a little bit higher than last year.

Yes, we've got to start making a move, because this sag mill is going to come up in eight months, and we have got to make sure that we have got -- are ahead in our strip and be able to feed that concentrator. It is a big step going from where we are today to 85,000 tonnes a day, so we have got to start moving that. You are going to see our strip climb up as we hit the end of the summer, so you are naturally to see our cost per pound is going to increase as well.

Thanks. I just wanted to make sure I was thinking about the mine plan correctly there. Just the final question, a minor detail, but with the CAD2.4 million write-down on redundant equipment, is that all of the redundant equipment written down now?

We went through a thorough analysis, Mark, of fixed assets, and that completes it.

Perfect. That's all the questions I have for now. Thanks, guys.

Thanks, Mark.

Thank you. (Operator Instructions). Our next question comes from Peter Campbell from Jennings Capital.

Good morning, everybody. A few questions here. First of all, your moly recovery seems to have done well in the last four quarters, whereas the previous four quarters, it was well under 30, I would say. Is this a result of a concentrated effort that you are putting on that moly circuit, or is this some other phenomenon that's in the mill?

Concentrated effort on the moly circuit, Peter.

Okay. So we can sort of expect a plus 30 moly recovery until you get that new moly circuit built?

Yes, I think we are targeting 40% this year, 38% to 40%. So, with these numbers we see no reason, if we pay attention to that circuit. It's a finicky little circuit, but if we pay attention to it and put the right technical people on it, then it will perform like that. So yes, we are pretty happy, like I said earlier on in the presentation, we are pretty happy with the performance of that.

Just to that point that you just mentioned, are you intending to put out any sort of 2012 operational guidance?

No. Other than that 18.5 million to 20 million tonnes that's -- through the concentrator, that's what we will do, what we will guide to.

Okay.

If everything goes well and the head grade -- because the head grade by quarter to quarter can move up and down 10% or 15%. We lay a mine plan out, I give projections on what our pounds are going to be, and then we have some issue, we have a geotechnical issue, we have to move up our mine plan, the head grade drops and it changes, and then we don't meet projections, and then we have got a whole hill of -- can of worms to deal with. So I would just rather say, hey listen, we are going to produce this tonnage that we think we can put through our concentrator. Here is the average head grade of the orebody, and these are the recoveries. And ultimately what should pop out is some type of number that is close to what we can produce for the year, as opposed to being specific. You guys like to look at us quarter by quarter, and that makes it very difficult on our end.

I understand. You have made -- the last couple of quarters, you have made incremental and sequential improvements on your cash cost. I am assuming that that has -- is somewhat attributable to these consultants that you have had in for the last six months.

Yes. That is true. They have really helped on the processes. The real thing that we are exposed to is because such a large component of our costs are fixed, if we don't at the pounds through, if say, for example, we have 24 or 36 hour down in the concentrator for some reason and we lose that 300,000 or 400,000 or 500,000 pounds by the end of the month, you are down 600,000 pounds. It just flows right through to your cost per pound of production and pushes up your off costs.

If you look at back when we started, we had some pretty good off take agreements. And you look back a couple of years, our off property costs were CAD0.32 or CAD0.33 per pound. Well, now they're up at CAD0.40 per pound, and we are fortunate we are offsetting, and not because the natural transition you have seen higher refining of treatment charges. We may get lucky with the dry Baltic index being at a 25-year low. We should be able to get lower freight rates, but we are finding that the West Coast of Canada here that this seems to be a -- the freight rate for Panamex size, vessels taking bulks into China, Japan, and Southeast Asia is a pretty sort of cloistered market. We are finding it's very hard to compare or get competitive bidding for ship -- cheaper ship rates. So you are seeing our off property costs being around CAD0.40 a pound. That's nearly CAD0.10 higher than it was a couple, 3 years ago.

Did you say previously that it was 70% to 80% of your costs on site are fixed?

Yes, about 80%.

Thanks. Just one final question here regarding Aley. I understand that you are on track to produce a feasibility study on Aley by the end of the year. I was kind of expecting to see some metallurgical test results in Q1. Are those forthcoming, or is that just going to be part of the feasibility?

That is going to be part of the feasibility study, Peter. It's actually -- we have been working on the metallurgical work for about four or five, six months. We would probably figure we've got another four to six months. It is all incremental. We get to the rockers and then the cleaners -- so we have to do a bunch of -- it's an interesting metallurgical process in terms of figuring all this stuff out. We are hard at it right now, and it is probably going to take another six months.

Okay.

But the orebody -- I can tell you the orebody is nearly the same as CBMM's in Brazil, except we do not have the oxidized material on top of the orebody. We are pretty comfortable that the metallurgy is going to work out very similar to that.

You are not going to produce a preliminary economic assessment or anything first?

No.

You're just going to go straight to the feasibility.

Yes. There is no sense in fooling around.

Okay. That's all the questions that I have.

Thank you.

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

Good morning, Russ, Peter.

Hi, Tom.

With regards to the consultant, I know it -- did the cost of it, for one, go up from CAD4 million to CAD6 million, or was it always CAD6 million? Maybe it was just CAD4 million in the last quarter.

That's right, and of course, that's our 75%. It was a fixed fee. It didn't escalate.

I see. The full cost was CAD6 million something, but your cost was less?

Our cost was CAD6 million, the full cost was CAD8 million. Our JV partner picked up the other CAD2 million.

Have you quantified the savings they have identified?

Yes, you can quantify the savings. I think it was -- as much as quantifying the savings and looking where the opportunities are, Tom, it was getting the whole technical operational crew starting to march to the same piper. So they all understood the different -- you've got the mine, you have got the mill, you have got all those processes in between the drilling block and the loading, hauling. They are all integrated. It's like a big rock factory. And one portion of the factory cannot be doing something that is at odds with the other, with our overall aim of trying to make as much money as possible and get at the lowest possible cost. So I think we know kind of what's out there in terms of cost savings, and it is in the neighborhood of CAD30 million if we do everything properly, if we achieve our throughput tonnages through the concentrator, we produce the metal that we think and concentrate that we think and all those sequential steps. When I talk about -- we think our operating costs can get lower, those are the kind of things that we are focusing on.

Is that an annual figure, that CAD30 million?

Yes, it should be CAD0.25 to CAD0.30 per pound as we stand right now.

It sounds like money well spent. With regards to the 18.5 to 20 million tonnes that you expect to mine in -- mill in 2012, that translates into about 52,000 a day, just taking the straight division. But what are the realities of that? I guess what I'm trying to do is relate the 52,000 to the nominal capacity of 55,000 tonnes a day. I know it's variable in the grinding index and everything. But is 52,000 kind of as close as we expect to get to that rated capacity of 55,000 that was expected from Phase 3, or how does that work?

Like I say, Tom, the hardest thing for us now is to predict or to try and engineer those components of the various ore types that we have got to get through. As you can imagine, we are doing another push back now, and as we go down through the orebody, there is about four to six benches. That's 106 benches, 40 meters high. So we are going down 160 meters and making sure that we can blend accordingly to try and get that 55,000 tonnes a day that was -- that came off of the feasibility study.

It takes some time, and we may be in an area right now, which I know we are in an area where we are below 50,000 tonnes a day. But we are going to be cycling through. So back into the stuff where we can get 60,000 tonnes a day. But trying to figure it out on a daily, weekly basis is pretty difficult when you are looking out for a year. So if you want to be conservative, yes, use 52,000 tonnes a day, if you want it. And that will -- at the average head grade, that will dictate what potential pounds are that we could produce.

If you were in the softer ore, you could be up to 60,000. It all depends.

Yes, we had a 2.5, 3 week period where we were doing 62,500.

Russ, aren't there two shovels there? Can't one be doing one -- the harder stuff and one be doing the softer stuff so it's a fairly constant blend? What are the realities of that?

That would be nice, Tom. But we are stripping 200,000 tonnes a day to get 50,000 so there is a lot of rock in front of that 18 million tonnes that we have to put through the concentrator. So if you take 18 million tonnes through the concentrator, add to it we have another 40 million to 50 million tonnes of other stuff that's just waste. So no, we can't -- unfortunately, we cannot do that. We would like to be able to do that, but you just can't open your work. We could say okay, well, let's put a big pre-strip in. Let's strip like the dickens and invest CAD30 million or CAD40 million in pre-strip and then try and have different working faces so that we can make a blend. But it's a kind of a loss leader if you do that.

Peter, do you have some sort of an estimate for what cash flow per share was in Q4?

I have not run that number, but I can get that for you, Tom.

I would appreciate it. I know the Company likes to be evaluated on that basis. It would be a useful number to have. Thank you.

Thanks, Tom.

Thank you. I am showing no further questions at this time. I would like to hand the conference back over for any closing remarks.

Thank you very much, everybody, for joining us today. I look forward to talking to you during the next call, and spring and summer is hopefully coming down the road here pretty shortly. And we should be seeing our throughput tonnages come up, and all our activity on our property is moving forward. We will really kick off in the next few months. So, see you next time. Bye-bye.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect, and have a wonderful day.