Taseko Mines Ltd (TGB) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Taseko Mines Second Quarter 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 is being recorded.

I would now like to hand the conference over to Mr. Brian Bergot from Investor Relations. Sir, you may begin.

Thank you, Saeed. Good morning, ladies and gentlemen, and welcome to Taseko Mines second quarter 2012 results conference call. My name is Brian Bergot, and I'm 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 the second 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 today will be presentation slides for our webcast participants. Alternatively, the presentation can be found on the home page of our website.

Before we get started, 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 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 second quarter results, as well as the ongoing status of the Company's business activities. Continuing with the formula that we developed for this call last quarter, as Brian indicated, we have a slide presentation to help you understand as best as possible, where we are technically with our ongoing operations at Gibraltar. Gross profit from our mining operations came in at CAD16 million for the quarter, generating CAD0.02 per share in earnings. Peter will speak in greater detail during his overview about the particulars of our financial results in that regard.

Our operating metrics we are pleased with in terms of where we found ourselves three to four months ago with mine operating issues. We worked our way through those and are certainly in a better position in understanding what went wrong that affected our mine throughput so dramatically and certainly the fact that we have produced over 9 million pounds in July indicates we're back on track.

If you have our slide presentation in front of you, I'd like to walk through some of the highlights for you.

As discussed last quarter, the SAG mill throughput graph, slide one, indicates in a chronological manner how we performed over the last year. Ups and downs heading towards our ultimate goal and target of achieving 2,450 tons per operating hour.

Effectively, if we look at the last year, we have cycled through a whole pit development sequence over the year and you can easily see encountering and dealing with various ore types, their hardness, how they react in the recovery circuit, and how they ultimately are dealt with in our concentrator in terms of throughput has been challenging.

But for every down, there's been an up, and generally an overall general and sustained improvement. We have this huge ore body with all its variables and we've been fine-tuning our concentrator to deal with all its irregularities, and we believe we are about 98% there.

Now that we believe we finally figured out the guts of our SAG mill and its mechanisms, we are now aggressively focusing on our mine to mill optimization initiatives.

As you can see from about the third week of June, at the right side of the chart, when we began working on mine to mill optimization plans along with new mill liners and ports, incorporating all of that we've learned over the past year, we've moved back up towards 2,450 tons per hour.

Some of you may say that we were there at mid-December, early February, and we were in terms of mill tonnage but we were not entirely sure why we were getting the throughput we were. Was it the pit or the concentrator? What we found out shortly thereafter, our enthusiasm at hitting design targets was more about ore characteristics overall than mechanical modifications.

We felt we have that under control at year-end, but different rock type and other operational issues pushed us back. And even though we cut a larger port -- pebble port at the end of May, because we were still dealing with ore that was blasted two or three months prior, we did not see immediate results.

In slide 2, you can see that the 3.75 inch ball that we are now rejecting, you can see that in the circle, the yellow circle in the right side of the picture. But an important note is that re-circulating load that's coming off the top of the screen decks. That is a very good indication of the performance of the mill.

These 3.75 inch balls are both 70% spent, so now with the discharge ports that we manually cut into our grates, we are now beginning to see the impact of those changes. The mill is more efficient and that is certainly evident in the re-circulating load.

Moving forward, on slide 3, you can see this is the consistency of the material in the pit we want to present to the concentrator. And that is often not always achievable because of changes in blasting design, ore hardness, and a number of other parameters. We've managed to generally achieve this type of muck.

And if we move to slide 4, you can see how the combination of all these initiatives are affecting mill throughput. For the last month or so, in fact, longer than a month or so, a month and a half, the daily throughput is very good and sustained. And as you can see, we've had periods in slide 4 of well over 2,450 tons per hour, but certainly the average is where we want it to be.

So if we look at slide 5, the end of April, you can see where we've done some changes. We've started to move up. And certainly, as indicated in our last presentation, the general trend line is where we want it to be. Looking at slide 6, where we are at the end of -- in early part of August, you can see that we've moved back up to where we effectively were in December of last year, and we think now that with the mill modifications that we're in a very good position to continue to produce like we have over the last six, eight weeks.

Next week, we will be changing the grates again, so these are new grates and a new design, and we'll have engineered 3.75 inch pebble ports, which will allow better operating efficiencies as we're going from those [approximately 10 ports] that we cut in manually to over 30 of these engineered ports. Along with that, we'll have changed grate design, and we expect to up the re-circulating load and push more through our overall SAG mill towards design capacity.

So, I think the results speak for themselves and that we believe we have the majority of our plant issues behind us, and we will work on our pit issues and that bodes well as we head to commissioning of our GDP3 and how we believe that ramp up would go, because we've basically done all the technical work in our present mill.

If we move to the next pictures, speaking of GDP3, in slides 7 and 8, you'll see [somehow an] idea how we are progressing on our SAG and ball mill construction on GDP3, and it is going as planned and as scheduled and we're very happy with what we've seen to this date.

If we go to slide 9, that gives you some idea of the expenditures and this is pretty similar, except more dollars have been allocated since our last quarterly update, and you can see really that we're completely within our budget parameters, and if anything, the only area, as I illustrated in the last quarter, the only area that we could get a little out of block may be on the contract side in terms of labor component of it, but we feel that we have enough in our indirects and our contingencies to solve any of those issues and come in on budget, and certainly we're on time.

Stepping forward, with respect to prosperity, we submitted our draft EIS on prosperity a few weeks back and the government sent us back their comments. We have reviewed and nearing completion on those on responding to them, and we expect [to final our] final Environmental Impact Statement sometime in the next week or so after we've finalized those -- responses to those questions. The panel will then take 30 days to decide that the EIS' satisfactory, then proceed through the regulatory process, respective public comment and public opinions.

Presently, if you go on their website, you will see their notifications, if you're interested, and we expect that final report will be complete before Christmas and submitted to cabinet sometime after the New Year, and then we'll see where we go from there.

We are continuing to work on Aley, doing environmental background studies and advanced engineering in metallurgy, and we are approximately 40%, 50% through our metallurgical testings and we have not experienced any showstoppers. The metallurgy is performing the way we think it should, and we believe that by the New Year, we'll have all the technical data clear as well as project economics on cost and capital, and then we would put out a reserve statement and we would, if all that falls into place, we would anticipate beginning the permitting process shortly thereafter. We believe that this will be a process that will be, not a federal process, but will be completely covered by the provincial government in terms of the provincial environmental assessment process.

The project at this juncture is meeting our expectations. And if all goes according to plans, I would expect we would be in a position to make a development decision sometime in mid-2013.

Aluminum prices have remained steady throughout this period of reduced overall metal volatility, even in the light of reduced steel production and reduced iron ore prices and met coal prices, and that's -- and if you look at the results released from Anglo's South American niobium mine recently, a mine that is less than half the anticipated production capacity of Aley, one can appreciate what kind of impact Aley will have on this Company.

So all things considered, we are in a very good place. Our capital projects are moving forward on time and on budget. We're well financed. We have a strong balance sheet. By the end of this year, Gibraltar will be operating one of the largest copper concentrators in North America. I've been doing a little research. I think, we'll only be surprised by Highland Valley Copper and (inaudible) in terms of daily concentrator throughput, and it will have been built on time and on budget. So we're pretty happy with that. It seems that's a rarity today.

My general view as a professional mining engineer when the capital overruns most of the projects, it's a serious reflection on the professionalism and quality of management. And frankly, it just amazes me that it has occurred catapulting all of us who actually think we know what we are doing in this business and affects not just those companies that screw their projects all up, but tarnishes us all. So what is becoming apparent bigger is certainly not better in terms of both capital discipline and operating acumen, and certainly, we think that in that context, for ourselves, our capital discipline and our operating experience and acumen will be reflected in our return on investments and our return on capital employed as we move forward. So we think we're in a pretty good place here as a Company.

We've two great projects in Aley and Prosperity in our pipeline, and we have shown to our shareholders we have capital discipline that won't destroy their capital and we figure we're pretty good operators and both of these will hold us in good step going forward as we continue to develop this Company's assets in a time of market volatility.

I'd like to just turn the call over to Peter now to discuss our financials.

Thanks, Russ. Revenue for the second quarter was CAD74.4 million, a 54% increase over the second quarter last year of CAD48.4 million, and that's the result of increased volumes, offset by reduced copper unit prices relative to the 2011 period.

Finished goods inventory was reduced to CAD5 million as a result of clearing out our concentrate inventory on quarter-end. Gross profit was CAD16 million for the second quarter as a result of higher production costs, lower selling prices, and a cost of sales adjustment related to the inventory reduction from the end of the prior quarter. G&A costs were CAD4 million compared to CAD4.9 million last year, and that's the result of lower stock-based compensation costs this year.

As Russ talked about, our two projects, New Prosperity and Aley, our spending on those two projects in the second quarter was CAD4.9 million and all of those costs continued to be expensed. Other operating income of CAD0.8 million includes an unrealized gain from our hedge mark-to-market, partially offset by an unrealized loss on the hedge position. The unrealized component is subject to quarterly fluctuations and doesn't affect cash position.

Finance expense of CAD3.9 million includes bond interest and accretion on our provision for environmental rehab. We're capitalizing a portion of the bond interest because it was raised for the construction of GDP3.

Income tax expense for the quarter of CAD3.6 million reflects an effective tax rate of 52%. The net earnings for the quarter were CAD3.3 million, or CAD0.02 per share. Adjusted earnings for the usual things, unrealized losses, foreign currency translation and other gains and losses yields adjusted earnings of CAD4 million for the second quarter and adjusted earnings of CAD0.02 per share versus CAD0.01 last year.

Cash and net working capital were CAD246 million and [CAD269.5 million] respectively at the end of the second quarter. In addition to cash and longer term money market investments and other financial assets, we have an additional CAD20 million.

In addition to capital spending for GDP3, we've continued to buy back Taseko's share under our NCIB and spent CAD18.9 million on a year-to-date basis to buy back over 5.5 million shares. We also extended our hedge position in late June with the purchase of CAD3 puts for 2,500 tons per month was approximately 60% of Taseko's estimated share of production during that time. The cost of the puts was slightly more than CAD0.18 per pound.

In conclusion, Taseko remains in a strong financial position in a period of continued uncertainty with over CAD250 million in cash, long-term capital in place and GDP3 fully funded, and our hedge position extended into next year.

There is a few slides I'd like to show on the issue of our capital structure. The first one being -- identifies when Taseko actually issued our high yield debt. We managed to catch a very good window to issue our CAD200 million issuance to finance our GDP3 expansion. And as the point on that slide makes, Taseko was the first Canadian mining Company to access that market, which has become a very significant market for capital projects for mining companies.

Relative to our peers, coupon at issue for us was 7.75%. We've traded very close to that level in the aftermarket as well. And this identifies where we were at the end of June in 2012 at 8.64% and you can see some of our other mining [brothers who] have not been quite as fortune in terms of where the yield has moved and all are reflection of the perceived risk of the property, and Taseko, obviously, in that market is yet to risk price pretty favorably for the Company.

The next slide, again, just tracks graphically where the trading has gone and you can see in the gold bar towards the bottom that the yield for Taseko has moved pretty steadily along the lower realms of this graph compared to several of the other in the highest peer groups. So, again, pretty favorable in terms of a high yield issuance in a market that we would certainly contemplate accessing again with the necessary outcomes in the -- with Aley or Prosperity, but of course, managing our leverage levels very conservatively as well with the focus of ours.

So, with that I'd like to open it up for questions.

Thank you. (Operator Instructions) Orest Wowkodaw, Canaccord.

Hi, good morning. Couple of questions for me. Obviously, you had a very good grade in the second quarter 0.33% copper. Do you expect that to continue into Q3 and Q4? And can you tell us what the grade was for that 9 million pounds produced in July?

Hi, Orest, it's John here. (inaudible) that grade in the second quarter was (inaudible).

John, if I could stop you there, I can't hear you very well. I don't know if you could possibly get closer to the phone?

Sorry, Orest, I'll try again. So we got the 0.32% grade for the second quarter. Gibraltar is a 0.31% ore body. It varies on a 5% to 10% as you move through the ore body, so that wasn't unusual grade. And for the July grade, we actually had 0.34%. So, again, not really particularly unusual, better than average, but not super high or anything like that.

And how do you see that playing out for rest of the year in terms of grade (multiple speakers)?

It's a 0.31% ore body. So, the first half of the year -- first quarter, we're staying on that. Second half of the year, we'll probably average 0.31%. We've got the next month or so as decent grade and then it drops back to [0.3%].

Okay. And then the strip ratio was very high by historic standards in the quarter at 3.4. How do you see that playing out for the rest of the year?

Well, part of what we're doing there, Orest, is we're preparing for GDP3.

Okay.

So we're getting more ore faces opened up. So that's actually going to affect our costs through last half of this year too, as we up our strip ratio.

Okay. (multiple speakers)

When that mill comes on, we want to be able to make sure that we're [feeding that] 85,000 tons.

Okay. So that should continue then through the back half of the year and then we should see kind of unit costs remain relatively high then as well, is that correct?

Yes, they are going to be similar to what you're seeing now. I mean, we're still working on a lot of things to bring our unit costs down, we get our copper production up. That will help, but we are going to be stripping more than the deposit average for the last half of the year.

Okay. And I think during the last conference call Russ had given kind of unofficial guidance, production guidance, for 2013 of 160 million pounds for Gibraltar. Do you still think that's a realistic target, given kind of where we are today?

Absolutely.

Okay. And am I correct based on your language around the hedging for the first half of 2013 that you're guiding for, I think my math is right here, at least I'm hoping it is, basically 74 million pounds of production in the first half of the year on a 100% basis?

We really -- I mean, that -- if you do that 2,500 metric tons of mines [Orest, and divide that] that is the number that you come out with. Yes, candidly it derived more from what our expected costs or what kind of revenue we need to generate to cover our share of costs. So, yes, it's better to use John and Russ' overall guidance [and that's] exactly where we [hedge and an ultimate analogy for guidance].

Okay. And just final question for me. You had previously guided to around CAD30 million of exploration expense, mostly related to Aley. We're not really seeing that come through the statements as of the end of Q2. Should we expect then all of that to come in the second half of the year or has that been capitalized or deferred?

Nothing is capitalized, it's all being expensed and we're tracking to that number. There is a time lag associated with invoicing and things.

Well, it's also where Aley is right now is the time that we get into field.

Okay.

And then the analysis happens in the fourth quarter. The Prosperity, a lot of that expense is going into the environmental assessment (multiple speakers).

Okay. So then we should be anticipating something around CAD20 million of exploration then in the back half of the year?

Yes.

Yes.

I think we're CAD10 million now.

Yes. (inaudible - microphone inaccessible)

Yes.

Yes.

Okay. Thank you very much.

Thanks, Orest.

Thank you. Mark Turner, Scotia Capital.

Yes, good morning, gentlemen. Thanks for taking my call. A few questions here. First on the throughput that we're, I guess, currently seeing in July under GDP2, and so sort of maybe some of the costs associated with that. I was hoping you could give us a sense of some of the additional costs, if there is any, in terms of generating the extra fines in the muck?

And then just relating that too, when you get the new grates in the mill with the 30 ports that are designed, do you expect to see any sort of change in what you need to produce from the mine there, i.e., maybe -- obviously it's going to be variable depending upon the ore type and the hardness, maybe see that sort of come down and what sort of sense that we could get in terms of actual increase in costs in order to achieve the throughput going forward?

Well, Mark, you pretty much explained it. We are -- the grates are going in next week. They've got the larger pebble ports, but we've also opened up the grates themselves for 2.5 inch in order to be able to reduce what we're doing in the pit. That's what Russ was talked about, continuing to optimize the mine to mill.

Our blasting cost right now to take and reduced to 65% less than 2 inch is an expensive project to get that mill throughput. We believe the grates will let us back-off that significantly. At the same time though, as I said, our operating costs because of the additional haulage to keep the strip ratio up, going into GDP3 is going to pretty much balance that out. But what you'll see is, on an operating day basis, we're going be hitting that 2,450 tons an hour in the mill, which is the target and that's where we need to be at going forward.

And I think we've got some extraneous costs, Mark, some of the issues that we had in the winter time, we've had to spend considerable lot more money on our deep well pump systems to help dewater the pits. We don't get in the same situations we got in the last year, so that will be a one-time thing. We'd like to have advanced the delivery of our production drill that would have helped with (inaudible) part of GDP3. So we're stripping more but we don't have the drilling capacity, so we got to bring in some outside drill contractors to help us break that muck, and we've got to keep moving and we've got to get, like John said, we've got to get our strip advance, so that when that [hungry] 30,000 ton a day mill comes up, we got to be able to (inaudible) upward.

So there are some sort of -- you don't want to call them one-time events, because they are there for a while and that are affecting our unit costs, but we don't believe they will ultimately -- in fact, unit costs in terms of our cost per ton mine, we don't believe those will be ongoing and we'll be able to reduce those significantly in 2013 (inaudible) John?

Yes.

Okay, perfect. Yes, thanks for the detail on that. And I guess just my second question still relating to, I guess, a one-line comment, I think, made in the MD&A, just saying that you're giving the guidance 9 million tons to 9.5 million tons processed in the second half of the year with allowance for tie-in for GDP3. Just wondering if you could give us some sort of any sense of what's actually being tied into? I know there are separate concentrators, obviously, there's going to be some link between the two, but I'm just -- I guess, looking for a little bit of clarity. Is it more just getting in the way of GDP or the current concentrator, while you're starting up GDP3, or is it something more than that?

No, the major tie-in is, right now we've got two crushers and conveyor systems which feed the existing mill and we have to split that up. So we've got one crusher/conveyor system for each mill, and that's going to take us about a week to do that changeover. The rest of it is separate.

Okay, perfect.

It comes together again at the [tails], but that's a minor delay.

All right. Okay, perfect. So about a week for that. And then my last question sort of entirely different here. In the quarter, you've made about CAD10 million investment into a private company, that's I guess looking at a copper-moly project. Given that it's private, are you able to give any sort of more details on that at this time?

No.

Okay. Thanks [for the address].

(inaudible)

And that's all I had. Thanks, gentlemen.

Let you know about that next year sometime.

Thank you. (Operator Instructions) Steve Parsons, National Bank Financial.

Yes, hi, good morning. Thanks for taking my call. In fact, most of my questions have been asked, but a couple of things. Just on the ramp up of GDP3, could you explain, maybe this question is for Peter, just what the plan is for, I guess, commissioning production on that? And I guess when you would look to go commercial on that additional production? What's the plan for accounting for the GDP3?

Well, continuing to capitalize all of the existing costs as well the pre-strip for all the stripping that's going on right now, as John talked about is being expensed at this point. So really it's analogous to a large capital project, but not a sort of new start-up type situation. So the commissioning process, we're not going to be capitalizing the initial costs related to that at this point, Steve, or anything along those lines, if that's what you are sort of wondering.

Yes, right. I mean, essentially the question was what would the milestones be for recognizing revenue on the P&L, but it sounds like once you put the switch, you're going to be recognizing revenue and costs. Is that correct?

Correct.

Okay. All right. I guess, the next question is just looking out, I mean, just following on Orest's question on ramp up and really my question more is about steady state costs. I guess, you are looking at getting [daily] 5,000 tons a day. Based on the cost profile you're seeing right now and input costs as you see them, where do you see steady state costs on-site and total cash costs settling out?

Go ahead, John. You are the operator.

Well, when we look at -- the total cash cost is vulnerable to the foreign exchange rate, so right now we've got pretty much a par exchange in that that pushes our total operating costs up. But on-site, we should be in Canadian dollars, CAD1.50, CAD1.60, leaves CAD0.40, CAD0.45 off-site, take us to around CAD2 steady state. And then, you've got the -- copper price comes down, so do all of our input costs and foreign exchange adjusts, so we maintain margin plus with Peter's hedging, it's more about maintaining the margin. We do everything that we can to control those things that we control.

That's good.

Does that answer the question at all?

[So that does]. Thanks a lot, John. That's good. That's it for me. Thanks, guys.

Thank you. Orest Wowkodaw, Canaccord.

My question has already been answered. Thank you.

Okay.

Thank you. Tom Bishop, BI Research.

Good morning.

Hi, Tom.

I recognize that you've learned a lot by all the tinkering with Phase II and that you are nearing getting that coming. But it's hard to get my mind around the ramp-up being that much more successful with GDP3 that you could produce 160 million ton -- 160 million pounds of copper in that, with GDP3 up and running in the first year, out of a, I think, that's a possible 180 million pounds. So am I missing something here or maybe not hearing it right?

Well, Tom, if you look at it and just imagine that this was just a Greenfield and we were -- our GDP3 was just a Greenfield site which we were starting like in the top of GDP2 a year ago and you see GDP2 to get to where we are today, it's taken us a year. If you look chronologically on that graph that we put out in terms of we started out with I think [1.5 inch discharge ports] that we --

Yes, that's right.

(inaudible) While our discharge ports, there are different types of lifters and you go through that whole thing and that is -- it's a mirror image of what we are going to be doing on GDP3 ramp up. So when John puts in his grates into the new SAG mill, he's going to have 3.75 inch port, he's going to have the grates that we are installing here next week, he's going to have the same type of lifters that we have in our present SAG mill (inaudible). We are going to have all those things, to a large degree, complete or we understand what they mean. So we think we've been pretty conservative in the ramp-up [field. Are we not, John]?

Well, the other thing too, Tom, is this is an identical SAG mill to the one that's in GDP2. I think that we're pushing 55,000 tons a day through that. We're only going to have 30,000 tons a day from the GDP3 mill for now.

Right.

Until if we add another ball mill, that SAG mill is designed to take 55,000 tons (inaudible). We don't see any issue with the SAG on GDP3 ramp-up. That's going to be more about making sure fine-tuning all the flotation of ball mill circuits which of course, is not as difficult.

Okay. Well, that's very exciting, I guess, I'm hearing it right. And just to be sure, the 160 million pound is your expectation for 2013, not a exit rate or anything, right?

Yes, that's our expectation for --

Yes.

And that will put about 120 million pounds [that are accounted 75%, John?]

Yes.

That's a good point, yes. Well, that's very exciting. It looks like we may be catching up to [this carrot here]. Thank you.

Thanks, Tom.

Thank you.

Well, operator, if there are any more -- I don't there's any more questions. So, folks, thanks for joining us today and have a nice rest of the summer, and we'll speak to you in the fall. Bye-bye.

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