Taseko Mines Ltd (TGB) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Taseko Mines Second Quarter 2013 Earnings Conference Call. (Operator Instructions)

I'd now like to turn the Conference over to your host, Mr. Brian Bergot, Director of Investor Relations. Please go ahead.

Thank you, Allie. Good morning, ladies and gentlemen, and welcome to Taseko Mines' Second 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.

After Russ's opening remarks, which will be a review of 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 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. I'd like to thank you for joining us today.

Hopefully everyone is having a great summer, as we certainly are here in Vancouver. We've just set a record for the most consecutive days without rain since records have been kept, so that's a pretty important milestone for Vancouverites. So rays of sunshine in an otherwise pretty dreary capital market for metal producers and explorationists.

As illustrated in our view of operations in our MD&A, mill tons for Q2 increased to 5.8 million tons, up from the 4.3 million in the first quarter; a 1.5 million-ton uptick. While copper production increased to 28 million pounds, we're still well short of expected mill operating availability and projected recoveries. But we are pleased with how the new integrated facility is now performing.

As a result of the improved performance, our site operating costs declined from that of the previous two quarters, and we expect that we will continue to reduce those costs as recovery rates and mill availabilities improve and the copper head grade returns to life of mine average. With $28 million of cash flow from operations for this quarter, Taseko was a bright spot on the mid-tier copper production landscape.

Our cash on the balance sheet continues to grow as a result of this quarter's performance, and we presently stand with $93 million on the books. This is also after $21 million having been prepaid to BC Hydro for the hookup for our power facility for GDP3. We will recoup 100% of those funds over the next two years.

As Brian mentioned, there are only two of us on the call today, as our senior folks are in Williams Lake participating in the new Prosperity Panel hearings. As well, we announced last week the appointment of our new CFO, Stuart McDonald. But he won't be joining us until September 1st. So all these folks will be back for the third quarter conference call.

As I indicated in our Q1 presentation, we were getting Gibraltar set up for a long and sustained run, and I think we're starting to see the results. As we review our slide presentation over the next 10 minutes or so, I think you will all appreciate that we have achieved a step change in mill throughput which is reflected in copper production and copper production costs. And while this quarter showed improved results, we expect these to get even better.

We are confident in our ability to build off the recent operational accomplishments as we head into the second half of the year. This is illustrated by the fact that we have milled 2.3 million tons in July, producing over 12 million pounds of copper metal.

If you turn to the first slide, slide four of our presentation, comparing Q2 to Q1, some important indicators pop out with respect to tons milled. We milled 35% more tonnage in Q2, with 9% less mill availability. While copper recoveries increased from the 84.8% achieved in Q1, to 85.8%, it is still well below what we believe is an achievable target of at least 89%. Similarly, while we work on mill recovery improvements on the copper side, we also have a long way to go in improving the new moly circuit from its present operating recovery rate of 26.4% achieved this quarter to the design rate of 50%.

Both recoveries in the copper and moly circuit are a focus of our operational teams, and we expect them to have design parameters by the end of the year. And that is why we firmly believe we are only starting to see how well Gibraltar can perform going forward.

I think slide five -- turning to slide five -- is self-explanatory. We've continued to increase mill throughput and copper recoveries as we spoke of in previous quarters. And as you can see, a step change has occurred in Q2.

Moving to slide six -- you can see how we're performing relative to our internal targets, as the trend line increases week after week on hourly million throughput and as we work to decrease the standard deviation between downtimes, as we achieved early in 2013. That will increase our overall productive capacity and certainly copper production.

Stepping to slide seven -- basically shows the same metrics over the past two years. But on this scale, one can really appreciate the step change that occurred in early April, as we really began to ramp up our new concentrator.

So if you look at the backend, towards June there, you can see those standard deviation ups and downs that I spoke about. But if you look back towards last year and into 2012, or 2012 and 2011, you can see they were much diminished. So that's a function of integration of the new concentrator. And once we get that under control, there'll be significant improvements.

Stepping ahead -- to keep up with increased mill throughput, you have to mine more, as shown on slide eight. In Q1, the mining rate was ahead of metal production. And one can appreciate that costs would be impacted by that. But in Q2, costs are significantly improved over Q1 as copper production is now equivalent to applicable waste mining rates.

Slide nine depicts mill throughput on what we estimated in Q1. And slide 10 gives actual production in relation to those projections, a slight improvement.

And that takes us to slide 11, which shows how production increases affected site operating costs net of byproduct credits, which are down by $0.36 since Q4 2012. So we're pretty happy with that performance, and we always knew that it would be coming with time, patience and the unlocking of GDP3.

We now step towards Prosperity. I'd like to speak a minute about that. We're now into the third week of panel hearings. Things are going as we anticipated. NGOs and others are questioning our science-based findings on how we handle water seepage and mitigation measures to ensure the preservation of fish lake quality. Our water modeling, however, has been corroborated by Natural Resources Canada as well as the Federal Ministry of the Environment and the Department of Fisheries and Oceans.

The opponents of the project, commenting on the technical aspects, have been very superficial and nonscientific. And if anyone is really interested, you can find our comments and rebuttals on the Canadian Environmental website related to the Prosperity project.

As important as the corroboration by the federal agencies, the panel hired two independent experts from the University of British Columbia. And they are to provide expert witness understanding to the panel. And those two university professors have also endorsed our plans as achievable and effective. As it stands now, all our technical work has been corroborated by the various federal ministers and the panel's own expert witnesses.

So the panel hearings are now in the communities, both native and non-native, in the Western Caribou. And they will be undertaking that process for the next two weeks, and then returning to Williams Lake approximately August 23rd for the final closing remarks.

With respect to Aley -- we're continuing to work on the metallurgical flow sheet. And awhile back, we reported that we had made Ferro niobium metal from our concentrate. And just last week, we advanced that even further and produced a salable product of 64.5% Ferro niobium versus our target of 65%. So we are pleased with that news to tell you that we've made a salable product.

We are still advanced in the recovery work that I've spoken of in the past to increase recovery from the 30% initially achieved, as we work on our flow sheet, trying to attain our target of 50%. And we believe it's just a matter of time that we do this.

While we continue to believe we'll achieve that recovery target sometime over the course of this quarter, I would be remiss to say it may take longer, as this is a complex undertaking. We do, though, expect to have our 43-101 reserve done by year end, and that will be driven off those recoveries.

If you want a little historical background -- we did a little research on this, last little while -- if one looks at what went on with the Niobec mine -- when tech built in the early '70s, they processed over 700 drill samples over a four-year period to come up with their flow sheet and then spent one year on the pilot plant.

However, we are on a tighter timeline then that process. We are well advanced. We're only 16 months into our metallurgical process. However, we still have a great amount of technical work ahead of us. But as it stands today, it's all going according to plan, and we're very excited with how that's slowly unfolding. As much as you'd like to push these processes more rapidly, the technical considerations far outweigh your need for urgency.

Now, as you know, we have appointed our new CFO, and he'll begin to work at the end of this month. So I will take questions on both operational and financial matters. But forgive me if I [don't] get too specific on some of the balance sheet questions and some of the complex tax things and other things.

So, operator, can you please open the lines for questions?

(Operator Instructions) Brett Levy, Jefferies.

Now that you've shifted into a cash flow-positive mode, can you talk a little bit about sort of what the plans are? Obviously, you need to leave room for Prosperity and that sort of thing. But any plans for bond buybacks, stock buybacks -- anything else along those lines, as you guys shift into this cash flow-positive mode?

No. Tell you the truth, we haven't thought about that. Our focus is just on operations and generating as much cash in this environment that we can.

So just build cash?

Yes.

All right. Thanks very much, guys.

Okay.

Steve Parsons, National Bank.

Couple questions for you, Russ -- just wondering if you could provide some color on the grade profile through the back half of 2013 into 2014.

We should be trending back towards life of mine average grade, Steve. I guess it'll all depend on whether you have any mechanical breakdowns in your shovels and how our stripping goes, or whether we encounter any geotechnical issues. But as to plan looking forward for the next six months, it trends back to life of mine average.

Okay.

And on New Prosperity -- at what point are you thinking or going to start getting into discussions on financing, joint ventures, off-take partners? You going to wait for the permits before you do that, or are you going to start the process sooner?

Yes. Good question. We are always talking to off-takers. Have been for a number of years. Certainly when we were thinking that we were going to get approval the first time, we had some pretty advanced discussions. We are having discussions with a number of smelter groups. And we have a lot of options open to us -- what we do. Do we raise equity to close a funding gap? Do we sell a joint venture interest, can we take -- just the standard cast of undertakings that anybody would do in our situation. So we're always on the go with those kind of discussions.

Okay. That's it for me. Good job on the ramp-up.

Thanks, Steve.

Mark Turner, Scotiabank.

Congrats on the ramp-up here of GDP2, the mill.

Just looking for, I guess, a little bit more detail -- when I look at your slide six, and sort of the tons per operating hour, more recently since June and July -- and then, I guess, the second half of July, where the standard deviation of your tons per operating hour has come down -- just wondering if you could provide any insight on sort of what was de-bottlenecked or debugged during that period, and if we can be looking for sort of [83,000] per hour and higher going forward here.

Yes, it's a combination of lots of things. We pushed the old concentrator pretty hard before we had the new when running. So there is some -- as you can see, there was a pretty steep step change between April and July, Mark.

Right.

And so there's a lot of complexities. We've been wearing stuff out more prematurely than we have liked to. We've had some conveyor belt issues. So it's just a combination of both concentrators sort of -- sometimes they hiccup at the same time, and sometimes they don't. So I think Dave's getting a pretty good handle in the maintenance crews up there on what needs to be done.

So we think we'll get -- if you look back on slide six, when I talked about from February to March, you see those just little downs -- that's what we want to achieve. So increase our run times, get up to that 93%, 92% availability, and then manage everything accordingly with predictive maintenance.

So it's sort of split. Would it be sort of somewhat split between the two concentrators -- the variance that we saw in June and July, and now more consistent?

Certainly -- and I think everybody can appreciate that older -- the GDP1 concentrator is a much more difficult machine to run than this new one. I mean, we have one sag mill, we have probably 300 or 400 feeds of distribution lines to the splitter boxes on the Cyclones. And we have older technology with the old ball mills there. So unlike the new mill, which is just a beaut -- it's got our sag mill and one ball mill, and the floatation cells -- it's run beautifully. The other one is a little bit more difficult to operate and a little higher-maintenance.

So what we will try and do, likely, is displace tons out of mill one into mill two. Because we know that mill two is more cost-effective to run. But we're not sure whether the optimum rate at mill one is 52,000; the optimum rate of mill two is 32,000. So we have to balance all that with mill feed, our cost to process. And that's going to be an iterative process over the next, I would say, probably six to 12 months, as we try and optimize this whole unit.

No, I definitely appreciate that and think you're doing a great job on balancing the two so far during the ramp-up.

I guess one last question -- more on the CapEx, or, I guess, another way -- what additional sort of equipment do you think needs to be added here or is planned for the second half of the year? I'm just trying to get a sense of sort of sustaining capital.

I don't think we have much. I think we may only have a few million bucks. I haven't actually looked at the budget in a little while. But I haven't -- no, I don't think we have much.

Okay. And --

I can't remember what we've said. Do you remember, Brian?

One drill coming.

Oh yes, the drill coming. The capital lease on the drill. Unfortunately, we haven't been able to -- we got delayed in our drill purchase; nobody could give us one. Probably took us a year to get a drill. It's coming in the -- is it here yet, or coming in -- October. So that'll be up. And so we've had to run contract drillers, which has been pretty expensive in the pit, just to make up some of this tons. Because when that mill is hungry, you better be breaking the rock in front of it to be able to feed it.

So unfortunately, we've had to bring in outside contractors and try and keep the broken reserves in front of it. So that would be -- that's the only thing I think, the big-ticket item. But that'll be a capital lease.

Into the fourth quarter? Okay.

That's all I had. Thanks, guys.

Thanks.

And continue the good ramp-up.

We keep working at it.

Tom Bishop, BI Research.

The marketable security thing -- what was that? Was that just hedging, or was there some actual investment you'd made that you sold for loss?

We haven't sold them. I think we just did an accounting write-down on them. And some of that was assigned to our investment in Yellowhead, and a few other things. Pretty minor.

Okay.

The SX/EW plant -- is the commentary saying that this is not a seasonal shutdown; this is more of a kind of -- every six years, you got to take it down and do some maintenance to it, or --?

No, there was no maintenance. We just got to let the dump season a little bit. We were getting less and less recovery out of the dump. We weren't producing a lot of copper out of it, Tom -- three million pounds a year. So we wanted to focus our maintenance and everybody on it, on GDP3 and the rest of the concentrators. So we just said it's not worth it right now. The margins were -- a couple million bucks margin is not worth it, we'll just fire it up next year.

Right. In the meantime, it just has to sit? Or you have to actually do something to it?

Just has to sit.

Okay.

I see that consumables added -- at least, according to that chart on page six, or whatever it is -- five --

[Tires]. Haul truck tires. Haul truck tires and major spares for the -- critical spares for the new concentrator. So we had to buy --

That would add [$0.50] a pound to your cost of production.

Yes. It's expensive. But it's also expensive if you go down and you don't have a main motor.

The other issue was -- in the old days, 10 or 15 years ago, tire manufacturers used to put tires onsite as consignment inventory. Now you have to buy them. So I think we bought 52 truck tires at over $60,000 US each, for a hit of $3.5 million nearly.

Did you get a good quantity discount, or what?

Unfortunately, no. It's not like the old days. So that's --

(Multiple speakers)

-- were in short supply, and even hard to get tires, I don't know, five, six years ago.

Yes. Well, not anymore.

What's the problem with the moly circuit? I mean, that's really way below the targeted rate. What --

Yes, it's a much more complex circuit than the other one. We took our old circuit back offline to try and concentrate on this circuit. So we've got a bunch of the design engineers and the metallurgists in now working on it full time, trying to figure it out. It's a finicky thing, and we just got to get it fine-tuned.

We've produced moly, but unfortunately it's been a little off-spec, it's had too much copper in it. So that moly that we produced has had to sit on the sidelines there. And we'll have to reintroduce it into the system and clean it up, take the copper out. Because you get such a big penalty for it if you have too much copper in it. So it's just an iterative process. We will get it, I'm not sure when. But it is a relatively complex circuit.

Well, all these little things -- like $0.15 on maintenance, and the SX/EW not kicking in a few million pounds, and the moly circuit -- it all kind of chips away at that average cost of production [out]. What target are you shooting for, as far as operating costs -- cash operating cost of production?

Target? As low as possible, how's that sound? I don't know. Because there's so many things that affect it. Right now, crude is at $106 a barrel. And West Texas Intermediate is nearly the same as Brent. But the Canadian dollar has weakened a little bit. There's just so many variables there. So usually copper price is tied to -- if you track it -- is tied to oil price. But it has sometimes a disconnect. But I figure we can probably -- if we get everything running properly, we can be in the CAD1.50 to CAD1.65, CAD1.70 range, depending on what happens with Canadian dollars. But again, I'm not going to come out and say yes, we're going to get to CAD1.50. Because the Canadian dollar goes to CAD1.10, then you're not getting to CAD1.50.

So there's just a whole bunch of variables. We just got to run the place and get the lowest possible cost we can, irrespective of anything else.

Okay.

Did you say that you hope to get to design parameters by the end of the year on the copper, on --

Yes, we expect to be producing their design of 85,000 tons a day.

Okay, thank you.

Okay, Tom.

(Operator Instructions) Adam Low, Raymond James.

Congrats so far on the good, solid progress on the ramp-up of GDP3.

Thanks.

My first question is with regards to the availability rate on GDP3. You did focus a bit there on the standard deviation of the operating uptime. And you guys did provide the details that you had about an 83% availability in 2Q. Where is that availability right now?

About 88%, 89%, I believe -- the last numbers I saw.

Okay. When you guys do see some unplanned downtime, what kinds of areas are you seeing it? And then, are there any major fixes that you're seeing that are recurring?

Major downtime -- I think it might be the conveyor system. So the conveyor systems, in terms of reliability and availability. So we're doing some big internal audits on that. We've brought in outside folks to ensure -- I mean, if your conveyors go down. We've got pretty good surge capacity. But if you lose the overlying conveyor from the pit for GDP2, we don't have -- because we put in that direct feed stockpile, we don't have a real large surge capacity -- we've got 30,000 tons. So if you're cranking through it at 2,500 tons an hour, you don't have a lot of time if you have some problem that lasts you 10 hours or something, and you're nearly out of ore, right? And then you've got to fill the tile up. It's a little bit of a logistical problem.

So we're working on that -- just preventive maintenance, and just getting a real handle on the hours you need to replace pumps, and all that kind of stuff.

That's a good, detailed answer, thank you.

And on the strip ratio -- I think 3.3 is pretty low. It looks lower than what I think I was expecting for the first part of the year. Do you guys expected to stay this low through the back half of the year, or do you have a little bit of catch-up to do?

Well, our reserve is right around 3. So I'm not sure what you mean by low

I thought that while you guys were preparing the mine to be able to provide the increased feed that's needed for the increased capacity, you needed to have a higher strip ratio.

I think that's around the 3.3. We balance strip ratio right now with production, copper production. You see we're at 3.3. So we haven't gone ahead, but we haven't gone behind.

Okay. I mean, when I'm looking at -- I'm actually just looking at your life of mine reserve, and I think it's 4.2 to one. Is that kind of still what you guys are expecting?

No. You got to -- are you a mining engineer? Adam?

Sorry?

Are you a mining engineer?

No, why do you ask?

Okay. We don't have enough time to explain it all to you in this Conference Call.

Okay, I'll move on then.

Yes, good. Yes, I can do it all offline for you, the back end.

Sure. No problem with that.

On GDP3, do you guys have any remaining supplier or contractor payments -- maybe you know, for work that was done in 1Q or 2Q -- but for the invoices just coming in now?

No, I think we're pretty well cleaned up. We might -- maybe a couple million bucks, if that. Not much. Nearly all done.

Got you.

And then, last question for me -- given the timeline you guys have laid out for the Prosperity hearings that are going on right now, and then the panel recommendation, and then the ministerial review that comes in at the end of that -- is a 1Q '14 decision for a ministerial outcome kind of the right timeline to be thinking of?

Yes. When they're finished, the panel's got 70 days past August 23rd to write and submit their report. Then the minister -- the government has a 120 days to make their decision. They can make it in 10 days, they can make it in 90 days, they can make it in 120 days. But if you take it out to the 120 days, I think that becomes the middle of February or something. I can't remember the specific date, Adam.

Yes, I got the same calculation. Just wanted to double-check.

Yes. So that's basically it. So somewhere from November to February. I mean, I don't see any reason why they have to take a full 120 days. But who knows? They're government.

Right. Okay. Much appreciate it, thanks.

Thanks, buddy.

Chris Chang, Laurentian Bank.

I'm just looking in the quarter, and I think I saw that you guys converted about $20 million of the money market instruments in the quarter. And I'm just wondering if --most of your capital is in spend, and there's no payments due in the near term -- what was the decision to convert that based on this quarter versus any other quarter?

That was in some kind of US -- we liked the rate, I think. That was some kind of US-denominated deal that Peter put in. And we like the rate. I think we got -- I can't remember the specifics, Chris. But it was something to do with that, converting it into Canadian dollars. We weren't sure where the Canadian dollar was going to go.

Okay.

I think we guessed right on it, actually, that it was going to strengthen. And it did.

Okay, thanks.

You're welcome.

There are no further questions at this time. I would like to turn the Conference back over to management for any closing remarks.

Okay. Thanks, everybody, for listening to us on this midsummer day. And look forward to chatting to you next quarter.

Have a nice rest of the summer. Bye-bye.

Ladies and gentlemen, this does conclude today's Conference. You may all disconnect.