Taseko Mines Ltd (TGB) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by, and welcome to the Taseko Mines first-quarter 2013 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, today's conference may be recorded.

It is now my pleasure to turn the floor over to Brian Bergot. Sir, please go ahead.

Thank you. Good morning, ladies and gentlemen, and welcome to Taseko Mines' first-quarter 2013 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 today will be presentation slides for our webcast participants. Alternatively the presentation can be found in the Investor Relations section of 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 and to update you on Gibraltar and our other projects.

Gross profit for the quarter was roughly $13 million, and considering the work undertaken over the first three months of the year, we are not disappointed in that performance as it bodes well for how we expect things to unfold in the months ahead.

I think as we present a few slides over the next 10 or 15 minutes, you will all hopefully get an appreciation for where the Company is heading at Gibraltar and what we expect over the next while in our projects at Prosperity and Aley.

As we spoke about in the last year, many folks understand as well that 2012 was a transition year for Gibraltar.

During the first quarter, if we look at slide number four, Gibraltar production, I'd like to draw your attention to the tons mined between Q1 2013 and Q4 2012 where we mined nearly 5 million extra tons of waste, producing 23 million plus pounds of copper.

In spite of moving an extra 5 million tons of waste, our unit cost of production per pound of copper produced decreased from the prior quarter.

Now we have Concentrator #1 heading back to the kind of availability numbers we expect now that we are not being interrupted by our GDP3 tie-ins. And with the addition of Mill #2, there will be no holding the operation back.

So what we have done -- what we have brought into production is a brand new 30,000 ton per day concentrator for roughly $200 million. Most folks do not realize in the $225 million that we originally budgeted and we have spoken about in the past, nearly $30 million of this was spent on a brand new moly plant. So not only have we accomplished all of this in the past 20 months because we have managed the commissioning properly based on our experiences, we have effectively ramped up our new mills and design capacity in a little over six weeks. I cannot find one other mining company that I've reviewed that has done any of that either in the first, i.e. building something on time and on budget, nor ramping to design like we have. That is the difference between what we experienced with GDP1 and 2 and this latest capital undertaking, primarily as a result of us having a less complex project than expanding or operating our old mill and building a new one at the same time.

All the generated knowledge in the past years on SAG mill designed and the #2 construction and operation is helping us immensely today on our second mill.

As you can see in slide number five, we know recovery is very dependent on Mill #1 throughput, and we know over time we will increase the recovery percentage we now have to those we have seen in the past. As you can see, Q1 and Q2 have slightly lower tonnages in 2012, and you can see the recovery percentages compared to where we were as we increased production in Q4 of 2012 and Q1 of 2013. So certainly there is an opportunity for us in that area, and we all recognize that.

In slide six, our strip ratio is rising, while our mining costs decreased, and that is a function of productivity improvements on our haulage routes as a result of finally getting permit approval for a #7 dump. This dump will take roughly 300 million tons of waste over [Lake Tiden]. Short and productive.

So while we have spoken about 2012 being the transition year, the proof is obviously in the pudding, and that is illustrated on slide number seven.

In most cases, executive management pushes [Lake Tack] to announce that their new mine is operational when actually it isn't. In keeping with their plan, we sequentially work back from the tailings pond to the crusher over a 10-week period. This time period ended on March 28 when the new mill was turned over from the construction fellows to operations. And from March 28 to basically the middle of April, Mill #2 ramped up to nearly design capacity for throughput. So not only did we build our machine on team and on budget, we're now operating it at nearly 95% of its capacity within weeks of pushing the green button.

Let's quickly look at the next slide at our production. Turning to slide eight, we suspect Q2 and Q3 when we figure we have both of the mills operating per tons mill throughput. As you can see, there's a dramatic increase at the end of Q3 and into Q4 as we attained our total production capacities.

Let's quickly look at our operating costs and how those are affected. $0.22 a pound was assigned to -- others are operating costs, and there's another site here. Look at our overall operating costs between Q1 2013 and Q4 2012, and you can see we are on a path downwards from $2.30 a pound to $2.07 a pound. That's a significant productivity and cross improvement that is apparent of the direction that we are heading in the months ahead.

If we look at the next slide in terms of our costs, I spoke a little bit about this last quarter and the impact that it has on our overall cost structure in terms of our labor unit costs, which was assigned to -- which will be assigned to GDP2 and prior to the expansion of $0.22 a pound. And that was all mostly as a labor component. These dollars will now be spent on producing copper under our new expanded facility.

Our long-term costs for maintenance have also decreased. They have been spent, and going forward, we will not see these expenses from 20,000 to 30,000 more hours.

Another important consideration is obviously diesel, and explosives would nearly make up 20% of our overall costs. And these are heading down thanks to our new waste dump, as I spoke about earlier, and our explosive cost is being managed to deliver optimum materials at the lowest possible cost, and this has taken a number of months to get into this position.

So if you look at all these factors and include the increased life product credit we will get from our new moly plant, you can see objectively where our costs could end up in the next months ahead.

If we look at the broader operational issues that we're focused on, we have committed to work with our First Nation friends in the local area. We signed an agreement, an important agreement last months with the Williams Lake Indian Band, and this is the second cooperation agreement we've entered into with First Nations locally here at Gibraltar and in the north at our Aley project. So we're very happy with that relationship that's continuing to develop.

Looking at slide five -- or sorry looking at slide 12, talking about Prosperity. As we all know, we had 50 information requests submitted back from the panel to us on February 28. The panel reviewed that with the public, and they issued 10 more supplemental information requests to us. Primarily the big considerations were the groundwater interaction between Fish Lake and the design Pit and the effect on navigable waters in Fish Creek. And our folks have been working on those for the last months or so dealing with the Natural Resources Canada and other agencies, and we will be submitting responses shortly back to the panel in that regard. We expect the panel will then determine that everything is done and then proceed to panel hearings in the near future.

Looking at our last slide on Aley. I believe it's the last slide for me. If we look at the last slide, we've been working very diligently on the metallurgical recoveries at Aley. Just recently, probably about six weeks ago, we produced a niobium concentrate as indicated in the slide, and that was shipped to a lab for conversion into metal, and on April 25 we produced our first thorough niobium. And you can see that in the picture. That is the product that ultimately should the rest of the flow sheet come together on Aley, that is the material that we will be producing. We expect to produce and build a small pilot plant in the next coming weeks and further expand on that design requirement.

Along with that, we're working diligently on the fieldwork season and planning for that, which will lead us to the information requirements for EA.

I would like to now turn the call over to Peter to talk about our financials.

Thanks, Russ. Financially the first quarter in 2013 represented the conclusion of the building theme at Taseko with the construction and commissioning of GDP3. Revenue for the first quarter was $60.2 million, a 9% increase over the $55.4 million in the same period last year. As we've talked about, revenue recognition is the function of our copper shipments and varies quarter to quarter based on shipping schedule.

Concentrate inventory at the end of the quarter was $3.3 million. Copper prices have trended down through the quarter as a result of historically high inventory levels and global economics growth concerns. However, today looking at copper, that trend seems to be reversing very suddenly with prices up over $0.10.

Cost of sales was impacted by increased costs associated with mining activity and labor force growth related to the new concentrator. These costs are partially offset by higher production, as well as capitalizing $4.6 million of mining costs under the new IFIC 20 accounting requirements.

G&A costs are $5 million in the quarter, down from $5.4 million in the same period last year due to reductions in stock-based compensation.

Exploration and evaluation expense was $2.6 million in the first quarter compared to $4.3 million in 2012, representing spending on Aley, project development and the EA for new Prosperity. Our accounting treatment continues to be conservative in that we expensed these project costs.

A couple of additional items on the P&L. Based on the duration of the resource equity market downtrend, we did take a write-down of the Company's marketable securities in Q1 2012 over $9 million of writedown. And this mark-to-market type adjustment had previously been charged to other comprehensive income.

Finance expense was $2.3 million, reflecting bond interest. We've been capitalizing interest during the construction phase, and that will now cease now that we're operational on GDP3.

Income tax expense was $1.5 million, primarily deferred tax on Gibraltar taxable income. Adjusting the after-tax earnings for certain non-cash items yields an adjusted loss of $2.9 million for the quarter compared to earnings of $3.1 million last year, a $0.01 loss this quarter and $0.02 of earnings last year.

Cash position was [$6.9 million] ($69 million - see slides) at the end of the first quarter. Cash decreased by $65.9 million, primarily due to capital spending. We also have $20 million in variable rate notes, which are included in marketable securities and long-term investments, but they are essentially cash equivalents.

In conclusion, Q1 represented the inflection point on Concentrator #2 buildout and production rampup. Taseko is now well positioned to weather difficult periods in capital and commodity markets with strong liquidity, a long-term capital structure and downside copper price protection with the puts that we now have in place to the end of Q1 2014.

And I will turn it over to Russ.

Thanks, Peter. Just to clarify a little bit. Peter indicated $6.9 million in cash. It's actually $69 million (multiple speakers).

I'm sorry (multiple speakers)

It's actually $69 million (inaudible)

Yes, it's actually $69 million plus $20 million.

$69 million plus $20 million. Okay. Thanks, Peter. Okay. Operator, I would like to open up the phone line to questions, please.

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

Yes, good morning, guys. A few questions for you. Just I wouldn't mind starting off with the question on CapEx and getting a bit of a breakdown on what the CapEx spend was for Q1, and it looked like it was about $54 million. I guess that's on 100% basis. What was involved in that?

Steve, it is John here. Really what that is invoices coming in for work that was done in the previous quarter and paying back whole backs as the contractors finished off their work. So it really wasn't $54 million worth of work that was done in Q1. Q1 was commissioning work. We have a lot of technicians and finishing guys in. So that's really a carryover.

What should we be looking for in the way of carryover into Q2, and what are you thinking in the way of sustaining CapEx through the balance of the year?

There's not that much coming into Q2. The bulk of it came in Q1. I don't have a number for you right now. The spend is done.

And what about sustaining CapEx through maybe quarterly run rate versus sustaining CapEx through the balance of the year?

It's also pretty much -- it is low. There's a few small items that we have got to do, but it's not going to be -- we're going to start making money instead of expecting it here with GDP3 construction completed. We have got all new mining equipment. A lot of that has been leased anyway, so that is not going to affect cash. (multiple speakers) -- a few million dollars for the rest of the year. It is not much.

And what else can you -- what can you tell me just in terms of obviously you're pushing tons and doing that exceptionally well with the new mill. If we were to look at total cash costs, when would you expect to see steady-state on total cash costs with the new mill?

Well, I am the optimist. (laughter) We discuss this all the time, Steve. Steady-state? I think it's always a continual improvement process. You know and you got to have your engineering department and you know the causes, the big impact of this new dump is obviously on haulage costs. I mean we are using less diesel and moving more mock. Explosives, John?

Yes, I mean, there's a big focus on productivity at the mine. We have had tons per man hour mines, gross operating hours, how much tons per man hours per ton milled, and (technical difficulty). For the last nine months, we have been carrying a bunch of people to get everybody trained up for this [15%] production increase. Now we've got to put those people to work actually producing copper.

So (multiple speakers) the new mill works amazingly. It's coming out very well. But I -- last half, fourth quarter.

Third and fourth quarter, we should back into the third quarter, fourth quarter, all the stuff that we've got in place.

And is it still sort of a target of $2.00 a pound type number?

Yes, that's the area.

Okay, guys. Thanks a lot. Congratulations.

John Pace, Stone Harbor Investment.

Hey, guys. How are you doing? Just two quick questions. Working capital. What are we looking at there? We had a pretty good expansion in the first quarter. Are we looking at further use in 2Q and 3Q as we ramp up commercial production?

Sorry are you talking about working capital, John? I didn't hear the first part of the question.

Yes, we had a $15 million -- or north of $15 million use in the first quarter.

Yes, I think from this point forward in the year, we should be generating net working capital.

So you expect that to ramp down then be a source of cash through the end of the year?

That's correct.

Okay. So you have had the big builds for that GDP3 then?

That's exactly it. And you can see that change in accounts payable from year-end to the end of the first quarter, and that trend is -- John McManus here to guess will it drop even more going forward and really just revert back to operational levels use of working capital.

Okay. Great. And then also you mentioned the $4.6 million of mining costs that are capitalized during the first quarter?

Yes.

Now is that, once they entered major commercial production, will those mining costs in the future then be expensed? Is that how it works?

This is the new -- you being in the US -- probably haven't been quite as close to the different 20 IFRS change that we had this quarter that requires that we break the mine down into components and capitalize during periods when we're stripping above life or at least the strip ratio of that component of the mine. So that $4.6 million that was capitalized in the quarter, that process will stop later this quarter and then get amortized into costs over the balance of that component of the granite hit. So it's sort of an ongoing thing that's going to be up and down and affecting our -- obviously not our cash cost of production but our net cost of production.

So that wasn't really associated with the build of materials for the second concentrator but more just prestripping?

Yes, just following the mine plan.

So as your strip ratio picked up to [3.3] as your prestrip, that reflects that incremental strip ratio in the case of it?

Yes, the pit that we are in right now, John, is the strip is from [2.9 to 3]. So while we're over that average in that pit, that goes to a capitalized stripping.

And that will come back down.

That is good for five or six years.

Okay. So that will come back down as we ramp up, and then periodically it will pop up, and then that will be capitalized. Okay. Fantastic.

Right. That's all I have. Thanks a lot, guys. Appreciate it.

Joseph Gallucci, Dundee Capital Markets.

Hi, guys. Not to beat a dead horse on the CapEx number here, but just looking on the capital commitments, it says in your MD&A $8.6 million left for the rest of the year. Am I reading that right? Like that's it for GDP3? That's the spend that's left to sort of put it into to completed, is that correct?

That's everything. That's anything left to finish off GDP3 plus sustaining capital.

Okay. So that's odd. So 100% basis then, so if we use that number and then add in a couple of million for sustaining, that should cover your CapEx needs for the year. Is that okay?

Sure. Look, the other question I had was on the marketable securities. Is there any way to give a bit of color what those are, what the breakdown is of them?

We haven't historically provided that, Joe, so unfortunately not.

And then the last question on Prosperity, just a bit of color if you guys have it. If BC does move to sort of a NDP government there, does that have any effect you guys think on permitting and Prosperity given their bearish views on mining and things like that?

I don't know whether their views are bearish on mining. If we historically, their performance wasn't the best in mining between 1990 and 2001.

Having said that, looking at where we are today and what the candidates have said, the NDP candidate, Adrian Dix, has not come out and said -- in fact, he's endorsed some of the positions with respect to moving some of the processes forward more quickly than they have been.

So we are optimistic. We think that they have commented that the federal review process is more diligent than the provincial agreement process. So the mere fact is once we get through this federal review process and we get an approval from the feds for environmental assessment, then we believe that it will be significantly easier to modify our amended permit that we now have. So we're cautiously optimistic.

And still no timeline on that? Are we still looking for sort of second half of the year? Is that the best color we have on it?

Yes, we think we will respond here in the next week or two depending on what the panel's time line is. They have up to a maximum of 30 days. They maybe not take 30 days, but they have up to a maximum of 30 days to set hearings, and they may very well set hearings. They likely will set hearings in the next 30 days at some point, and then after that, there's the 30-day panel review period. So yes, it's getting closer.

Okay. Great. Thanks, guys.

Adam Low, Raymond James.

And congrats, guys, on a good quarter in what could've been a very challenging one with all the integration work you're doing.

My first question is with regards to capital production sales, I know it is not normally a big item, but looked like this quarter, there actually was next to no cathode sales. Was just wondering what made might have triggered that?

We usually shut the cathode plant down in the winter because you have to keep all of the fluids, so we didn't run cathodes since October.

Do you guys have or could you guys just give us a little bit of color maybe on what you might have for your development and exploration budget for this year, particularly for Prosperity and Aley?

Yes, on Aley, we're not going to be doing any particular field work, other than gathering information for environmental assessment. We will be doing metallurgical work, continuing to finish our flow sheet. So $3 million to $5 million on Aley total for the year, including what we've done already.

Prosperity, we've got to get through the panel process. So I think we've got about $5 million to $8 million earmarked for that. But it's not a big heavy year on exploration expenditures.

And what kind of near-term milestones should we be looking for from Aley? I'm kind of surprised you guys haven't press released some of these recent developments on Aley. It looks like things have been going well in terms of the metallurgical processing and tests in that regard. What are the near-term milestones?

It has gone well, but we haven't quite crossed the finish line yet.

These things you have to -- you know, there's no sense -- I figure your flow sheet figured out, Adam. You can't -- you're not going to put -- you've got make -- you've got the proper recoveries, yes, we meet metal. We made metal. We have got -- we recovered -- our recoveries are about 30%. We know we have to get around 50% to get the flow sheet correct.

So if we don't get 50%, then we likely won't have a facility, won't have a mine. But it's an interim process, though. You know? We're mining guys in technical, so we're not getting ahead of ourselves by announcing something and then have to retract it and say that, jeez, we could get the recoveries. But we are very optimistic that we can. So over probably the next two months, John?

Yes, we're doing bulk testing now rather than the really small bench scale to get us to where we have been with the 30% recoveries. The fact that we have got a 50% concentrate grade and that we've made [faramiopiom], which is saleable product, that is a big milestone. So the next one is for us to say we have got our flow sheet, and we will very quickly -- we're going to come out with the prefeasibility study because we are almost there. But we need to mail that flow sheet down the first; otherwise, it's not real.

Got it. That's helpful. And my last question is with regards to the ramp-up and the existing operations. Clearly it looks like the ramp-up is going very well. I would say it's been ahead of my expectations.

For the month of April, you guys did quote that overall in the month of April you processed about 2 million tons of ore. If I do the calculation on that, that works out to about 67,000 tons per day. And if the new concentrator is doing 28,000 tons over the last couple of weeks, should I be inferring that the old concentrator was maybe interrupted a little and got down to as low as about 40,000 tons per day, or am I reading it wrong?

Well, You can read it that way. The new concentrator has been running at target, but we will have some time on it so reliability. But those were one-off issues with Dr. Dix. It is back up running.

If we took a run rate over the last one or two weeks here, where would you say the existing -- the old concentrator is running at right now on a throughput rate.

When it's running, it is running at 55,000 tons a day. We've had some downtime.

All right. Thank you. That's it for me.

(Operator Instructions). [Ray Levy], Jefferies.

Hey, guys. Most of my questions have been answered. I guess to follow-up on an earlier question, you said you were going to be generating networking capital for the balance of the year. Can you put a magnitude on that, and then I guess the corollary question is, is cash and marketable securities currently at trough levels as you see it for the year?

I'll answer the first question. The answer to that is yes. We're starting to generate free cash. In terms of talking about changes or projected changes in working capital, I'm not going to quantify that. We provide some high-level guidance on throughput, but in terms of unit specific changes in working capital, I'm not going to comment.

Thanks very much, guys.

Okay. Thank you.

Mark Turner, Scotiabank.

Congrats, guys, on the ramp-up there. Obviously going pretty well. Most of my questions on that have been asked and answered. And then I guess maybe a little more detail on the Prosperity. The additional or the supplemental information request, you'd mentioned, Russ, you sort of aim to have the response to that within the next two weeks.

Have you then -- am I reading too much into that to think that you sort of sat down with the regulatory authorities that had sort of so many issues with the groundwater or the potential groundwater interaction with Fish Lake and sort of maybe addressed a lot of those concerns already? Because I guess one of the options I think they had proposed or the panel had proposed was additional drilling and conductivity work there. To me, that would have a longer time horizon. So I was just wondering if there's any color you could provide on that?

You have to look in the context of the information that the panel has to support what their requests are. And our position is that we have a lot more information than they have, and where our understanding of it is far up the learning curve and the understanding curve than somebody having a cursory overview of it, including the federal agencies.

So, you know, the panel urged us to talk to Inter-Can and these other people, and we've had to talk to them about them. And a lot of this stuff is not a start and stop date, you know? If there's concerns that are raised about this, certain issues that they're not going to be significant environmental impacts, and those are kind of concerns that are raised in permitting processes in terms of what you do for mitigation, how do you ensure that there's no groundwater issues? All of that comes into play, and that does not have to be specifically focused on during these panel review discussions and the public commentary period. The public doesn't know anything about the technical sides of these questions. The regulating agencies do.

So you have to work through this. It's just not -- these are not sequential things where you say you do A, then you follow with B, then you follow with C, D and E and F. You may go from A to D or you may go A-Z in this process and say, okay, well, you can follow that through when you get into the actual mine development process.

So that's our approach on this. None of these are going to stop. None of these are any fatal flaws in terms of our understanding of groundwater or any of the other stuff. So that's why these things become very difficult when you're dealing with just a panel because you want to be able to talk to the regulators. So normally in April assessed, our folks and the regulators would be sitting around a big table, and you would hash all this out. But now we've got to go through this intermediate system with the panel and the panel saying, well, you better go talk to such and such because they control the whole overall agenda.

Yes, to me it sounds with your comments that you'd looking to put in a response the next two weeks or somewhere around that timeframe seems pretty positive to me. Because it seems, hey, you would've sat down and been able to at least walk through or talk to a lot of the potential concerns there. So it seems (multiple speakers) pretty positive.

Yes, you know, it's an interim process. So whether we put it in at two weeks or three weeks, we'll just put it in when we are comfortable that we have the answers that are applicable to the question that is raised. Somebody can ask an innocuous question, and they can take two weeks to explain it. Because you've got to be absolutely clear in your response because if you don't give a clear response and understanding, then off you go on another question and then off you go into another question. It's just a (inaudible) of questions that actually don't get you anywhere unfortunately. That's the problem with this process.

Perfect. Well, congrats to you and the team on the ramp-up of GDP3 #2 Concentrator there so far.

Great. Thanks.

Matthew Gibson, CIBC.

Most of my questions have been answered. I just have a quick question about your contingencies. It looks like you at the project level you're carrying about $84 million in debt. I am just wondering how that is accounted for on the balance sheet, and what the repayment terms on that debt at the project level is?

Capitalized lease debt, I think, is what we're talking about, and that the repayment terms, most of those amortizations are in the five-year range. Cost of money is in the sort of 4% to 5% range on that.

Okay. Perfect. Thank you.

Thank you and that does appear to be our time for questions. I would like to turn the call back over to Russ Hallbauer for any additional or closing remarks.

Thank you very much, operator. Thanks, everybody, for joining us today and look forward to chatting with you in the weeks and months ahead. Have a good day. Bye-bye.

Thank you, sir, and thank you, ladies and gentlemen. This does conclude today's conference. Thank you for your participation, and have a wonderful day. Attendees, you may disconnect at this time.