Taseko Mines Ltd (TGB) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Taseko Mines' first-quarter 2012 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to turn the conference over to host, Mr. Brian Bergot. You may begin.

Thank you, Mimi. Good morning, ladies and gentlemen, and welcome to Taseko Mines first-quarter 2012 results conference call. My name is Brian Bergot and I am the Director of Investor Relations for Taseko.

With me today in Vancouver is Russ Hallbauer, President and CEO of Taseko; John McManus, Senior Vice President, Operations; and Peter Mitchell, Taseko's Chief Financial Officer. After opening remarks by Management, which will review first-quarter business and operational results, we will open the phone lines to analysts and investors for a question-and-answer session.

Accompanying Management's discussion will be presentation slides for our webcast participants. Alternatively, the presentation can be found on our website.

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 first-quarter results, as well as the ongoing status of the Company's initiatives. We've changed the format today for this call by adding some slides, primarily to help you understand more fully where we are technically with our ramp up at Gibraltar; how we view our capital expansion plan, GDP3; and where we are on the spend and timeline metrics, which obviously are important considerations in evaluating the Company.

Gross profit from our mining operations came in at CAD17 million for the quarter and, as illustrated in our press release, that profit was affected by the fact that 6 million pounds of copper was not shipped and remained on the dock at quarter end. This is a fairly common occurrence for us, whereby quarterly financials can be significantly affected by shipping logistics. And although we'd like to have consistent quarter-over-quarter metrics, a lot of this is beyond our control. If one looks at earnings, certainly the situation is exacerbated by those conditions, in a similar way whereby noncash derivatives give a distorted view of the business on a preadjusted EPS basis.

Hopefully you've had the opportunity to fire up our slide presentation. I'd like to walk you through that for a few minutes. So I'd like everyone to look at the SAG Mill throughput tonnage graph. This first graph gives the SAG tons per operating hour metric from when we fired up the SAG direct feed system last June. You can see on the left-hand side of the slide that when we came up we were producing roughly 1,850 tons per operating hour with the engineered design configuration.

And by mid-July we had analyzed a number of issues affecting throughputs and installed new liners along with 1.5-inch grates. We saw increases in tonnage on the general trend line predicted, with some nice spikes above 2,000 tons per hour in terms of hourly tonnage. However, it was indeterminate if the spikes in tonnage were a change in ore characteristics or because of the physical changes that we'd undertaken in the SAG Mill. You see in mid-August where we rose well above 2,500 tons per hour, which is significantly above our predicted design criteria.

If one follows along the bottom of the chart, you can see the changes that were made from changing shell liners, increasing grate size, changing to larger balls, and each one of these changes resulting in incremental increased mill throughput. At each change you see the inflection point, and from that point on a general trend of increased hourly throughput.

Folks will say why -- didn't engineering show this in the original bench design? Well, the medal -- medical engineering dictates the design at bench scale and going from a bench to a 24-foot SAG is a quantum leap. And every company that owns these machines, or runs SAG mills goes through the similar learning curve.

As was evident in January, we really felt the changes done in early December had taken us to design targets. But in reality, although those changes did help, the real change was ore characteristics and, in particular, size distribution and hardness.

We are heading in a very deliberate, technical path on this matter and see nothing that technically will prevent us from achieving design capacity in the next 3 to 4 months -- 3 to 5 months. Unfortunately in the first quarter we had some minor setbacks and those were probably due mostly to pit operational issues.

As I've spoken in the past, ore types, fineness, hardness and a number of other factors affect mill throughput and from this graph you can see the outliers from the trend lines that are easily identifiable in that context where we rose well over 2,500 tons per hour throughput. Those outliers have to be incorporated in our plans, so not only do we have the long lead times to modify and change the guts of the SAG Mill, we also need to plan accordingly in mining operations. So it is a very complex undertaking.

We changed the metallurgy for the balls months ago because we were going through a lot of steel, as the balls were shattering and not wearing down properly. So instead of the balls reducing in size to be discharged, they turned into potatoes and pancakes and just stayed inside the mill. Approximately 100 tons of those -- of steel charge that did nothing for throughput capacity and, in fact, diminished throughput capacity because it took away from the tonnage that we could actually grind. So now, to remove those redundant steel charge of approximately 100 tons we have to do it at 3 to 4 tons per day, which takes some time.

This quarter we had operational issues in the pit beginning in late March that affected our throughput. But like I said, those were results of mine operations, not the function of SAG Mill, although the ongoing steel will displace tons that could be ground up.

If we turn to the next graph, slide 2, it is more of a zoom-in of really what has been going on and how we are eyeing in on our target throughput rates. And you can see that we expect to have achieved that rate of 2,450 tons per operating hour by August of this year.

Looking forward, all this work on our present SAG system is going to make a big difference on the de-bottlenecking of our GDP SAG, because it's the identical componentry and we will run it very similar to the one we are now operating. John is here with us today. John and myself will answer any more specific technical questions in the Q&A.

Moving forward, if we look at slide 3, with respect to GDP3 construction and we look at the construction schedule, with the red line signifying where we are in that regard, you can see we're nearly three-quarters of the way through our GDP3 process.

Looking at the next slide, I want to clarify where we are with our costing. This Process Facilities Cost Forecast gives you a clear understanding and a clear depiction of where we spend our money, where we continue to spend our money and what is remaining to be spent. We've just completed a week-long costing and review exercise with our EPCM company and this chart illustrates where we are in that spend.

The only significant exposure is on the contract side right now, where it shows an extra CAD11 million spend increase from CAD81 million to CAD91 million, a slight increase in our EPCM costs. But all of this will be fully covered in the overall contingency assigned in the CAD235 million spend, and that contingency is approximately 25% (inaudible.)

We haven't allowed scope change. We have stuck to our engineering design and we look forward to completion of this project on time and on budget. And I would like to say, in this world that we find ourselves today, I think that's a pretty significant accomplishment.

The next two slides show the facility in September of last year and most recently last week. So as you can see, we've progressed along pretty dramatically through the wintertime. The fourth slide shows our SAG Mill in (inaudible,) our SAG Mill Gear and the delivery of the components in the next two slides. So we're pretty happy those have been shipped and they're on their way to the mine site as we speak.

Yesterday was a big day for us. The federal government released the terms of reference with respect to Prosperity, the terms of reference and appointed the panel who will be reviewing our EAS in the coming months. We expect to submit our environmental impact statement sometime next week and then move further along in the environmental process.

If we look to the new legislative changes that are coming to the environmental assessment [path] and to, specifically, the environmental assessment review panel, there are some important considerations to view in the context of our path forward on Prosperity. In Prosperity is a 365-day timeframe which remains intact. There currently remains 235 days on that time clock. If the panel goes beyond its defined time the Minister must turn the EA over to [SIA] to complete. If the Minister thinks the panel will [beyond] its defined line, he will now have the discretion to terminate the panel process and turn the EA over to SIA to complete.

And I think that's just a reflection of some of the panels that have got off stride here for the last 5 or 6 years, whereby the federal panel of the Mackenzie Valley Pipeline was supposed to take 18 months, took 6 years. It was supposed to cost CAD1.8 million, it cost CAD18 million. And then if we look at the Joslyn project in Northern Alberta, it took 6 years. So for panels to sit that long, obviously the government has recognized that this is a significant impact in terms of project proponents.

So there's going to be no degradation, we don't believe, in terms of any of the undertakings that the panels will review. So we think this is a very big commitment by the federal government and certainly will help stimulate economic activity for those in the resource business.

The government decision will now be a defined period of time as well, established by the Minister by which the Minister or Cabinet must make a decision. For projects where there is no finding of significant adverse environmental effect the final decision will be made by the Minister. Where there is a finding by [account] of a significant adverse environmental effect the final decision will be made by Cabinet.

So those are important considerations as we move down the path with respect to our panel undertakings over the next few months at Prosperity.

Yesterday we culminated an agreement with the local First Nations surrounding our Aley deposit. We were excited about the opportunities that this project will have for this company, for the First Nations communities in the area and the Town of Mackenzie. For those of you who haven't seen the press release from ourselves and the Tsay Keh Dene, they are in the final slide. We have in our dealings with the Tsay Keh and Chief Izony been described as being fair and respectful, and that is all we can hope to be judged for with our First Nations engagement.

Aley's engineering work is ongoing. Metallurgically we are seeing no surprises. The Tsay Keh Dene, their construction company has nearly completed the access road for us. We have been working on marketing our product that we expect to come out of the mine when we ultimately complete construction. We've completed a number of preliminary mine designs and the pit looks like it will have a less than a 0.5 to 1 strip ratio. So it's all near surface and it's all pretty exciting stuff that's happening for this company.

I'd like now to turn the discussion over to Peter and he can talk about our financials.

Thanks, Russ.

Revenue for Q1 2012 was CAD55.4 million compared to 2011 first-quarter revenue of CAD58.8 million, largely as a result of increased copper and moly sales volumes that were more than offset by copper unit pricing on a year-over-year basis.

Finished goods inventory of CAD13.5 million at the end of the quarter includes our share of a copper concentrate shipment at the port which will benefit Q2 revenue since it shipped immediately after quarter end.

Gross profit was CAD17.1 million for the first quarter as a result of higher production costs, including CAD1.3 million of incremental depreciation over Q1 2011.

G&A costs were CAD5.4 million, which was 18% lower than Q1 2011, primarily due to lower stock-based compensation costs. Exploration and evaluation costs were CAD4.3 million in the first quarter in 2012 due to expenditures on New Prosperity and Aley. And all of these costs on these projects are being expensed at this point.

Other operating expense of CAD17 million includes a CAD15.5 million unrealized loss from our copper hedge mark to market and CAD1.7 realized loss on the hedge position. The unrealized component is subject to quarterly fluctuations and neither of these losses affect our current cash position.

Finance expense of CAD4.4 million reflects bond interest and accretion on the provision for environmental rehab. The income tax recovery for the quarter of CAD1.7 million reflects an effective tax rate of 17%.

The net loss for the quarter was CAD8.3 million, or CAD0.04 per share. Adjusting this loss for unrealized losses on derivatives, foreign currency translations, and other gains and losses yields adjusted net earnings of CAD1.2 million (sic - see press release) for the first quarter compared to CAD8 million last year. This corresponds to earnings per share of CAD0.01 versus CAD0.04 for 2011.

Cash and net working capital were CAD318 million and CAD309 million, respectively, at the end of the quarter. In addition to this cash, longer-term money market investments included in other financial assets totaled CAD20 million at quarter end.

Cash flow from operations was CAD52 million, augmented by reductions in noncash working capital of CAD42.7 million.

In summary, Q1 2012 supports the fact that Taseko retains a strong position financially, with over CAD300 million in cash, long-term capital in place, a fully funded Gibraltar expansion and copper hedged through 2012.

Russ?

Thank you, Peter.

Operator, now I'd like to open the phone lines to calls, please.

Thank you. (Operator Instructions) Jerry Kennedy; Kennedy Investment.

I notice that you had an authorization to buy back some of your shares. Have you bought any back yet?

We started the stock buyback in February and as of the end of the quarter had spent about CAD8 million buying back shares.

Okay. And how much more authorization do you have?

The limitations imposed by the restricted cash covenant of our high-yield bond indenture, as of the end of the first quarter we're able to buy back about 30 million in total. So we'd be slightly less than a third of the way there.

Okay. Second question is what do you anticipate your production to go to when your updated mill is completed on kind of an annual basis as far as copper?

That's been presented in our reports. I think it's 2013 -- what is it, John, do you remember?

Well, yes, it will be around 160 million pounds a year on a 100% basis.

160 -- will that be your portion?

No, that's 100% basis.

100% basis okay.

Some years -- it goes to 180 million.

Yes.

And what about your Aley project? Could you give me -- us a little more clue in what this metal here is used for and what the market is and kind of the (multiple speakers) --

Well, I think that that's all illustrated on our website. So we probably have some other people that want to ask some pertinent questions with respect to the finances and other. So it's all on our website and there's plenty of information for you to understand that there.

Tom Bishop; BI Research.

Your income statement is burdened with costs from a lot of other projects that kind of unfairly penalize how well Gibraltar's doing. And in that regard, I was wondering if you could give me the costs in Q1 for Aley, Prosperity and the extra stripping costs that are in preparation for GDP3.

Well, exploration and valuation costs, Tom, the CAD4.3 million, that was the total spend on New Prosperity and Aley. And our total budget for the year for both those projects is a little over CAD30 million. But you're right, as I mentioned in my commentary, we're expensing all of those costs. So that certainly does impact our earnings.

So the exploration line is all Aley and Prosperity related. And in the stripping costs, can you quantify how much -- I mean, what's the life of mine stripping costs? Is it 2 or is it 2.5?

Well, (inaudible) Gibraltar.

Tom, this is John here. The life of mine strip ratio is 3 to 1. So we basically stripped out the life of mine strip ratio for the quarter, so there's no additional costs there.

I'm a little surprised. I thought it was less than that. I thought it was -- and is that after GDP3 or before GDP3 (inaudible)?

No, GDP3 would just go through the ore deposit faster. It's the same ore body.

That's always been 3 to 1?

Yes, the first 10 years is 3 to 1 and then it goes up, actually, after that.

But didn't you say that you were picking up the stripping ratio in order to get ready for GDP3? Or has that not happened yet?

No, that won't happen -- that happens in the fourth quarter. We bring in some more equipment and operators in the fourth quarter. And so that hasn't happened yet.

Okay. So the main impact of getting ready for these other three projects is just the CAD4.3 million?

Yes, for the first quarter, that's correct.

Okay. Also, there was a CAD42 million figure there in the source and app titled proceeds from financial assets. What was that for and parenthet --

I don't think that's the specific nomenclature, but that's all right. So that was a combination of reduction in accounts receivable and also there were money market investments that we had included in other financial assets because they had maturities beyond three months. The majority of those have shifted to being less than three months, so they're now included in cash. So those two items caused that swing in cash flow from operations, Tom.

I didn't understand that accounts receivable reference, because that's also in the working capital change, is about CAD52 million, correct?

Yes.

(Inaudible) on accounts payable, but this CAD 42 million is --

Exactly. The other financial assets change is what that number represents.

Okay. And, again, the other financial assets are -- ?

Money market investments with maturities beyond three months.

Moving to the cash line?

Correct.

All right. Thank you.

(Operator Instructions) Peter Campbell; Jennings Capital.

Just a few quick questions here if I can. Just to go back to that chart showing your SAG Mill throughput there. What is the current availability of the SAG Mill, say, over the last six months or the last year? And then, what's your target availability for the SAG Mill?

Hi, Peter. The target is 93%. And we're hitting right in that area except in the first quarter, where we took a 5-day down at the end of the month and we ended up, I think, 85% for the quarter because of that.

Okay. So long term then, 93% is the target availability for the SAG Mill. Got it. A second question here -- you had that management consultant on site since I guess it was about September. I just was wondering; I hadn't heard much about that. What's the status of that consultant and its efforts to help you reduce your site operating costs?

The bulk of the work of establishing the management operating systems that they were brought in to do is done. It was completed in December. We still have them on site helping implement with the people on site who have to operate. They need training and you need to keep [the thing] going. So it's not something that's ever over and done. You build an operating system and then you use it.

Okay. And so I'm just thinking more in terms then of costs for this consultant going forward.

Cost is done.

Cost is done.

Okay, good. So that's taken care of. And then finally, Russ, you did quickly go through the timing of the Prosperity review by the federal review panel. Did I hear you say that there's 235 days left on the application for the panel? Is that correct?

235 days on the clock, because when you take time out then that stops the clock.

I see. So 235 days from now there's a deadline looming for the review panel to deliver its findings. Correct?

Right.

And then from that point forward, I believe that -- is there a 60-day clock that clicks in at that point for the Cabinet to make their -- or the Minister to make their approval?

No.

So it's open ended at that point?

Well, I don't know whether it's open ended. I would think that if they've gone through all this process that they're going to expedite the decision pretty quickly.

Sure.

Then, again, who knows?

Okay.

Our under- -- we've been at this for a long time. We want a yea or nay, so get on with it, basically.

Exactly.

So we expect that report from the panel. There's plenty of room in there for the panel to complete their undertakings, look at all the work, and I think you just have to go and look at the terms of reference and what was issued yesterday and see what is in -- what they have to review. And what they're going to review, as much of the material has not changed since the old Prosperity review. So that should speed up the overall review pretty dramatically. And our position that the timeline for the panel to have all its work done and issue its report by November is more than adequate.

I see. And as part of this process there are no more public hearings or anything?

Yes, there will be public hearings. The panel will convene public hearings sometime, we believe, in the summertime.

Okay, that's perfect. Thank you very much, Russ.

Tom Bishop, BI Research.

Okay. Last time you mentioned -- well, two questions. One is the cost of production -- I remember when CAD1.99 was on the high side and now it's CAD1.99 plusCADCAD0.50 for transportation and TRCs. What can we expect that to do? I mean, that seems high to me. Is there any chance it's trending lower? I mean, I see the cost of sales was higher which -- so if the cost of production is lower I would assume it's trending lower, but can you --

We would like to think that it could go lower, but -- and we're working to do that. What's important for us, Tom, is our expenses, what we expect it to be budget, we've just tons through the concentrator. And if we do that, the costs will come down. It's not rocket science. So we need to get to those operating tonnages.

I think Peter alluded to that a little earlier. If you take 2,450 tons per hour and multiply that by 24 hours and then times that by our availability, that's where we get 55,000 tons a day. If we started getting 55,000 tons a day, we'll be below CAD2.00 per pound, especially if you consider where input costs are going.

Oil's gone down from CAD110 a barrel to CAD95. All those things will help us. And I think if you look at our MD&A you can see the sensitivity to those input parameters on one of the charts that we have there. So we --

Okay.

Okay?

That's a good point. Higher tonnage will help. But also, the consulting contract, you had identified a pretty big number of potential annual savings that would result from that. Clearly not in evidence yet, but what was that amount and when do you expect that to start coming through the income statement?

Well, I think that's just a -- we get, like John alluded to, if we get the processes and the procedures and people follow what is laid out, then the place becomes easier to run. You meet your production targets and the costs come down. And maybe the costs come down offset the increases in consumables and those other kinds of things.

So it's a pretty volatile market out there as we well know in terms of consumables. So you've got steel costs fluctuating. You've got reagents going up and down. You've got oil and stuff. It gets pretty difficult to try and figure out exactly where we may settle out. But we believe -- you know, 5 years ago when we started this process we said, well, if we can get our all-in costs down to CAD1.25 to CAD1.30 a pound and long-term copper prices are going to be CAD1.50, we've still got a good margin.

Well, now it looks like there's been a paradigm shift and you're looking at long-term copper prices maybe CAD2.50 to CAD2.75. Well, that means everything else is going to be higher so if we get to CAD1.80 to CAD2.00 a pound all in. And that's a pretty good position to be in in terms of what you're selling your final product for.

Is that CAD1.80 with the TRCs and transportation or just production?

Yes, we think we should be somewhere in that neighborhood.

With transportation and TRCs?

Yes, that's what we believe. When we sit back and pragmatically look at our business that's where we think we should be, with the sort of CAD1.95 to CAD1.97, input costs where we think they are, power, rail, ocean freight, ba-da-da-da-da, where we think it's going to be long term. Then that's where we think we should be.

But, hey, listen, we thought ocean freight would come really down. Well, you've seen ocean freight rates come down on the big bulk carriers, like the big capesize vessels. But on the West Coast here, the freight rates have not really decreased as dramatically as they have worldwide. But in an ideal world you would think that those freight rates would drop. But they have not dropped. Where all the other freight rates have dropped by 50%, 60%, these freight rates have dropped by 10% or 15%.

That's frustrating.

But this is the reality.

Well, there's too much reality for me here.

There's 163 million, that figure for GDP3, that was the first time I'd heard that. Is that sort of like the mill can run at 180 in theory or if everything is -- if the stars are aligned, but more likely you should expect 160 million pounds a year?

No. The capacity will be 180 million pounds. You've got to remember, the grade changes. Tom, it doesn't stay; there's areas where the grade will go up [ a point 32] or [.33, .35]. And so the pounds will come up. So if you want to look at a long-term run rate, there's going to be years where we're going to be 150 and there's going to be years we're going to be 190.

So the average you expect to be somewhere closer to 160 than 180 in reality?

No, I can't -- I don't have it in front of me. I'd have to look at the mine plan. I don't look -- you know, I'm not giving guidance out --

No, no, no. I don't mean in any one year. I'm just saying, you threw out a number of 160 million pounds of copper that I didn't recognize. And I'm trying to figure out what that number represents relative to --

Tom, that was me and that was thinking about the first year where we've got to ramp up, in 2013 -- me being, John, sorry.

I think next year we're assuming 160 pounds.

That's what we've got in the plan right now. We haven't worked out -- we haven't finished the details.

Right.

If you can accomplish that in your ramp up, you'll get some kudos from me, I'll tell you that. Good.

Okay, well then, we'll do it.

Thank you.

Thank you. I'm showing no further questions in the queue at this time. I'll hand the call back to Management for closing remarks.

Okay. Thank you very much, everybody. Thank you for joining us today and have nice summer, spring -- talk to you soon. Bye, bye.

Thank you. Ladies and gentlemen, this concludes the conference for today. You may all disconnect and have a wonderful day.