Taseko Mines Ltd (TGB) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Taseko Mines first-quarter 2014 earnings conference call. (Operator Instructions). As a reminder, today's conference is being recorded.

I would now like to turn the call over to Brian Bergot.

Thank you, Jamie. Good morning, ladies and gentlemen, and welcome to Taseko Mines first-quarter 2014 results conference call. My name is Brian Bergot, and I'm the Vice President, Investor Relations for Taseko.

With me today in Vancouver is Russ Hallbauer, President and CEO of Taseko; John McManus, COO of Taseko; and Stuart McDonald, 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.

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.

Our revenue of CAD104 million for Q1 2014 is an impressive jump up by CAD40 million from that achieved in the same period in 2013, a 75% increase. Our cash operating profit from mining operations, the real driver of our business, came in at a strong $19.4 million, which confirms the business plan we put together way back in 2006/2007 with our GDP production increases that would enable Gibraltar to be in a position to continue to generate positive operating profit throughout the cycles.

We obviously would have had done better this quarter if we had not been hindered and hampered by several issues, but those are behind us now or at least improved substantially. While our production costs were elevated this quarter because of those several issues, we did accomplish some productive work in terms of work release and waste sequencing, which will hold us in good stead in the months ahead as we get back on track. And like many companies, who when they put low grade material into the stockpile, capitalize it, we do very little of that and take the majority of those costs to the expense side of the ledger.

The Gibraltar concentrator performed very well. We averaged just under 79,000 tons per calendar day, which we are pleased with. If we include the six days down, we would have produced a design capacity of 85,000 tons per day. Since the down, we have averaged over 85,000 tons a day as we get our availability targets, and our recoveries are continuing to move upwards towards design expectations. Grade was somewhat higher than we forecast at 0.29% copper, and so all-in a pretty good quarter, which is setting us up for a good run over the summer and into the fall. We expect to see increased head grades in the second half of this year, something I've spoken about in the past. I will expect you to have some specific questions on operations later in the call that either John or I can answer around what we did particularly on the shovel issue.

Looking forward, as discussed in our press release, we have advanced the metallurgical work in Aley to the point where we can now expect to see the full sheet finalized very shortly. This has been an arduous and long path that's taken nearly 20 months to finalize this, but the work getting to 50% recovery up from the 35% that we initially had equates to a significant increase will ultimately in a significant increase in the MPV of the project when we look at the effect of the higher recoveries in circuit changes we will have on the concentrator capital costs and overall operating costs.

I think once we publish our 43-101 report, many people will be surprised at the overall economics of this project, and if anyone wants a comparable in terms of cash flow generating ability, please just go look at Niobec's impact on IAMGOLD. To put it simplistically, if Aley were a copper ore body, it would equate to one with approximately 300 million tons of ore reserves at roughly 1.1% copper grade. Depending on metal prices of niobium, we would expect to see an MPV in excess of CAD700 million from our preliminary discussions, and correspondingly, we believe this is a fantastic asset, a great ore body, and we bought it into the company for a grand total of CAD5 million. Those are the type of accretive issues we wish to undertake, and they only come with discipline and patience.

Looking forward, we are in preliminary discussions with third parties regarding a joint venture on this opportunity.

Of a more immediate focus is that now we have our Gibraltar mine functioning the way we expect it to. We continue to extract -- and we will continue and want to extract more value from it. Obviously the first priority is to continue to decrease the operating costs, which will have an immediate impact, but secondly is looking at further production increases.

As you may know, our number two SAG mill capacity was designed at 55,000 tons a day and was designed to enable to add bolt-on capacity increases. We believe for a nominal cost of somewhere between -- I don't want to say it's nominal, but certainly a significantly lower cost than brownfields production capacity, somewhere between CAD60 million to CAD80 million, we can increase throughput by another 25,000 tons per day at Gibraltar, producing a further 50 million to 60 million pounds of copper a year. We are looking at our mine plant to see how that can be accomplished operationally and what it would entail on the engineering side. It is too early to say we will be moving forward on this, but certainly we would evaluate it in great detail in the months ahead.

Our timing we believe is good. We have Gibraltar stabilized and performing well. We believe as do many other pundits out there that the copper supply definitely will present itself in the next 24 to 36 months again and then a further timely opportunity at metal production to Gibraltar at a very low capital cost could be very accretive to this Company. If we look at comparables for example, at what Copper Mountain undertook for nearly $400 million, 80 million pounds of production, spending $70 million will get us nearly the same metal production as Copper Mountain presently produces to their account. And if we look further afield, if we look at what cash flow paid for Pinto Valley and acquiring that asset with the production of capacity of 120 million pounds, certainly you can see how accretive production increases at Gibraltar will be.

So while we work on recoveries, availabilities, and throughputs, we will also work on engineering and mine design on both of our projects, Aley, and Gibraltar and evaluate certainly the path forward with Gibraltar over the coming months.

Our work with our legal team regarding the new Prosperity panel era is continuing, and I don't have a lot to say on that matter. Folks may have some questions which would be a better way to discuss that later in the call.

So we have lots going on with the Company. Our finances are strong, and our growth strategy is in place with a number of options, and we will move ahead on those as resources present themselves.

I would like to now turn the call over to Stuart. Stuart?

Thanks, Russ, and good morning, everyone.

First-quarter earnings from mine operations before depreciation were CAD19.3 million, a decrease over the previous quarter of CAD25 million, primarily due to higher than normal mining costs as a result of equipment downtime. Revenues for the quarter were CAD105 million based on our 75% share of copper sales of 30 million pounds and moly sales of 589,000 pounds. The copper volumes were a quarterly record for Gibraltar, resulting from strong production and a drawdown of inventory levels, which were higher than normal at year-end. Total copper inventories declined from 10.1 million pounds at year end to 4.4 million pounds at the end of the first quarter, and our goal is to maintain this as a normal inventory level going forward.

The realized copper price for the period was $3.10 per pound compared to $3.18 per pound in the previous quarter, although the impact to the following copper price is largely offset by a weakening Canadian dollar, which benefits us.

As Russ mentioned, we did have higher than normal operating costs this quarter. Total cost per pound produced was CAD2.48 per pound compared to CAD2.14 per pound in the fourth quarter. First-quarter costs were impacted by maintenance on the shovel that had been allocated to waste stripping. As a result of the shuttle downtime, a decision was made to maximize usage of truck capacity by reallocating waste haul trucks to longer distance ore hauls. This resulted in higher mining costs and less capitalized stripping.

Off property costs were also higher this quarter due to the higher sales volumes. It's important to note that we report total operating costs per pound produced, and therefore, off property costs per pound produced is higher in periods where sales volumes exceed production volumes as was the case in the first quarter.

Exploration and evaluation expenses were CAD1.7 million in the quarter, which include costs for the ongoing studies at the Aley project and also the judicial reviews that are ongoing for the New Prosperity project. Other significant items on the first quarter P&L include an unrealized foreign exchange loss of CAD8.5 million due to the impact of the weakening Canadian dollar on a US dollar debt, and we also recognize CAD2 million of share-based compensation expense in the quarter.

Offsetting these losses was other income of $2.2 million, which mainly relates to unrealized gains on copper put options, which increased in value due to the declining copper price. We are continuing to maintain our strategy of purchasing put options as protection against the copper price downturn. We currently hold put options on a total of 43 million pounds of copper with maturity spread over the remainder of the year. Strike prices are $3 per pound for Q2 and Q3 and CAD2.75 per pound for Q4. So with copper prices hovering close to CAD3.00 per pound a day, these put options obviously have significant value for us.

The GAAP net loss for the first quarter was CAD9.1 million. Adjusting that for unrealized foreign exchange losses and unrealized gains on derivatives results in an adjusted net loss for the quarter of CAD2.7 million or CAD0.01 per share.

In terms of cash, we ended the quarter with a strong balance of approximately CAD87 million. Cash flow from operations totaled CAD23.3 million in the first quarter, but this was partially offset by cash payments of CAD7 million for debt service costs, CAD5.6 million for waste stripping and other sustaining capital and CAD8.1 million for investments in marketable securities and put options.

So all-in-all, it was a solid quarter from a financial perspective, and we expect continued improvement in the results as we realize lower operating costs and increased copper production in the remainder of the year.

And with that, I'll turn it back to Russ.

Thank you, Stuart. Operator, we would like to now open the phone lines for questions.

(Operator Instructions). Tom Meyer, CIBC.

I only have one question and it's on Aley, and I'm curious about the improved recoveries from the previous flow sheet, and I would like to know if there is additional complexity that was added to the flow sheet and if that -- or if it's just simply adding more unit operations, i.e. more CapEx to get that 50% level?

That is a good question, and I think John has been doing all the work on it so he should answer it.

Good morning, Tom. Thanks for the question. What we've been doing for the last year and half is running different sequences of stages of circuits and putting it all together. At the end of the day, what we've come to now is not more complex or larger, it's just we finalized the sequence of circuits which gives us the recovery that we have been aiming for.

Much simpler.

Simpler, yes. It's way simpler and less capital-intensive the truth of. We're pretty happy.

And then can you be more definitive as to when the study update will be released to the market so we can get a sense of what's going on with the Aley flow sheet?

I am reluctant to be too specific because we haven't really completed this last step. We're just doing lifecycles now, Tom, and that will determine -- but I think we're trying to give ourselves some flexibility just in case we had some kind of situation that presented itself unseen, but we are pretty optimistic that we will be publishing this this quarter.

Okay. Great. Thank you very much. I will pass it on.

Mark Turner, (inaudible).

Yes, thanks, guys. I guess congrats on increasing the mining right here. I know obviously it was at a higher cost, but I think between my calcs, it looks more -- that you are closer in line to the ore leased from the mine versus what the mail actually consumed in the quarter.

But just -- I guess there's a few things that are still sort of fuzzy in my mind, and you touched on some of them in the presentation before. But Russ, I guess the -- in the release, it talks about that there was ore added to the ore stockpiles. Just looking at the strip ratio and the time that you had said moved here, I can still get back to that ore was actually drawn from the -- net net, that ore was drawn from the stockpile there. So just I guess looking for a little more clarity on that, and then if there's any color on what the amount of tons in the ore stockpile is right now.

Hi, Mark. It is John here. No, actually, our stockpile at the crusher grew by over 2 million tons during the quarter.

So even at a strip ratio of 2.8 and then mining 25.9 total tons when the mill then processed about 7 million total tons, the crusher stockpile increased?

Yes, we mined over 9 million tons of over, and 2 million of it's still sitting right beside the crusher ready to go. So we get the advantage of that back as we deplete that over the next nine months, and we concentrate on waste movement.

Okay. I guess 9 million tons, but moving 25.9 million tons of total material? I will have to double check that in my calc (multiple speakers)

Strip ratio is calculated on the tons mined, not on the tons milled of ore.

Right. Exactly. So 20 -- I will double check my calc, but just on a strip of 2.8 and total tons mined of 25.9, I guess I was coming back closer to 7 million tons, but just under 7 million tons of ore released. Anyways, okay, so that aside, just looking for any sort of additional color that you can provide in terms of where the actual costs -- or the increase in the costs were? I know you talked about increased haulage distance. I guess I just -- coming back to the numbers that I calculated, it seems like a pretty big increase for just haulage distance alone. So I am wondering if some of that was or what percentage of that was maybe maintenance cost on the actual shovels that has now worked through?

The additional costs was equipment or maintenance on the shovels. We had one shovel down for planned maintenance, major overhaul.

Okay.

And then we had major component failures on two of the other shovels during the. So we've only got four major shovels, so we had three of them down at one time. We were running some of our lower productive equipment during the period in order to keep the truck fleet working.

Right.

And we did that by hauling long-haul from the pit to the crusher, and then we get that back as we deplete thus far.

And I think we had budgeted what, CAD1.5 million for an undercarriage on one of the shovels, John?

Yes.

CAD1.5 million for one of the undercarriages, which only get changed out once every 25,000 hours.

Right.

And then we had a couple of million dollars worth of other unexpected issues like John alluded to with the other two big diggers, and those were primarily the Bucyrus shovels that were purchased from Caterpillar, and Caterpillar has -- right now has a worldwide issue from Chile to the oil sands to our facility in terms of equipment availability issues, primarily around the major components.

So we are trying to -- when Bucyrus was sold to Caterpillar, something happened in the system there where there's some kind of quality control issues or something happened, and we are dealing with it with the highest -- at the highest levels as are many companies with respect to (inaudible) trying to get this back on track so that we can have some reliability in the components that we are using.

Like hoist gear, which is a very expensive piece of gear inside a shovel, we can't run without it. We put a brand-new one in, and it failed 10 hours later. So considering the production that we did get with the shovel available we had, it was pretty -- we were pretty pleased with it, but we sure weren't pleased with those increased costs obviously.

And -- okay. So those increased costs were, I guess, totally unexpected, and it's not as if it was just a premature six months to a year typing where costs that would have been incurred given where at that time pulled forward. It's just -- it was completely unexpected?

No, there was some of that too, Mark. While the shovel is down anyway while you're waiting for parts, you take advantage of that, and you do other maintenance that may be right (multiple speakers) a month or two later, so.

Okay. So some of that was in there, too. Okay.

Yes, it's a double whammy or a triple whammy.

One last question --

Mark, I just want to tell you, we are back on track. If you look at the decline on our operating costs that we experienced from last year to the first quarter or for the -- to the fourth quarter of 2013, we are back online this month in April or we are in April in terms of getting back on track with declining operating costs, once we capitalize some of our waste stripping, which we never had the opportunity to do in Q1.

Okay. So maybe just a little bit of impact in terms of April's direct cash cost numbers, but for the quarter, you are back on track now?

April is pretty good. April was right back in line, and in fact, it's declining from that which we experienced last year. We are on a continual decline with our overall operating costs at the site.

And there wouldn't have been this much impact with the unexpected problems we had if we had all of our shovels running, but we had one all torn apart when we -- on purpose, when the other one is broken.

Right, okay. Yes, sorry, so just one last question there. Russ, you had mentioned sort of CAD60 million to CAD80 million -- rough ballpark CapEx on increasing or potential to increase the throughput at Gibraltar there. Is that just strictly at the mill, or would that be your vision of all encompassing, i.e. sort of additional mining fleet and whatever strip would be needed to line at that increased rate?

It's effectively the mill and the concentrator, but what we've got to evaluate is the productivities of our shovels. We think we have enough digging capacity right now that we may not have to have more digging capacity, but then again, we have to get the productivities up. We have done -- that's why it takes quite a bit of engineering. So we may need some more shovel or truck capacity, but we are uncertain if we do need more digging capacity.

But if we do, it would be -- that's why we gave the ranges between $60 million and $80 million. Maybe there might be three or four more shovels and another -- three or four more shovels, yes. Three or four more trucks and a big loader of some sort just to make up that slack there. But it takes -- we have to look -- that's why I say it's going to take some time. We've got to look at our haul cycle, tip development access, there's all that kind of stuff. But that's ballpark.

Right. Understood. Thanks, guys, and yes, look forward to seeing the costs come down again.

Adam Low, Raymond James.

First question I had was on moly. You guys had pretty good improvement on your moly recoveries during the quarter. Just wondered what is your target for the moly recoveries?

50%, Adam.

Okay. And how soon can you get there?

I would say right now. Not all the pieces are there. It's operational, getting the -- still the operators to perform where they need to. They've done a great job, but it's getting that last 5%.

One other question for me. Just a little bit more clarity on the shovels. When were they repaired and placed back into service in April? Just wondering if it was early April, late April, mid-April?

March. And it wasn't like they were all down at the same time. They're up and down -- the availability during the period, during the quarter was very low on the two Bucyrus shovels, waiting for parts.

Yes, they didn't break all the same time, and they didn't come up all at the same time, Adam. They came up sequentially.

So it's disrupted. You have yourself all set up to do something, all but one of your main pieces of equipment is suddenly down for 10 days.

So for the month of April, you for the most part had all four shovels working?

Well, we are back to normal availabilities. The equipment always has some downtime. You have to maintain it, but yes, we are back to normal availabilities.

All right. Thank you.

Craig Hutchison, TD Securities.

My questions regards the strip ratio going forward. I actually have the same math as Mark Turner. I see you have got -- I thought you guys drew down a bit on your stockpile this year, this past quarter, but going forward, what do you see for your strip ratio for 2014?

About 3.5 to 3.7.

And you have all the mining equipment to achieve that?

Absolutely, yes.

Okay. And a follow-up question maybe on recoveries. The trends at the end of Q1 I think for copper were 80%? Are those trends continuing?

Yes, yes. That's right. So we did an 84%, I believe, for copper for the quarter, but it was 82%, 83%, 88% when you look in January, February, and March. And so there was a real -- a much better understanding of what's required in order to get the high copper recoveries, and the guys are implementing it now. So we see that continuing.

Same haul? I think you guys were at 51% at the end of March?

Copper recovery?

Moly, moly.

A yes, moly two. And they come together. The moly plant is really a separation of Procter and moly, so you have to get the moly recovered in the number one and number two concentrator to get it to the moly plant where they can get 50%. So that's why they come together.

Okay. Maybe one last question, what's your cost per ton mined these days?

Yes, it's about [115] coming down. Again, the quarter we just went through was much higher because we moved ore long haul with less productive equipment. So [150] is where we should be.

Yes, and I think our target is a little lower than that, isn't it? It's like (inaudible)

Yes, we are moving towards [130].

So depending on haul cycles -- if you look at our -- I think if you look at our overall cost per ton milled, we're somewhere around CAD11. I think we're around CAD11 or CAD11.5, maybe CAD11.26 for April, so.

Okay. Great. Thank you.

(Operator Instructions). Tom Bishop, BI Research.

I had a question about -- well, this long hauling -- using the trucks for long haul of the ore, you do have a conveyor system there as well, right? So was this supplementing that, or am I off-base there?

Well, the crusher, Tom, is halfway between the pit and the mill, so -- and so is the stockpile. So we long haul from the pit -- from the bottom of the pit up to stockpile by the crusher as opposed to the waste movement that we -- if we had our shovels running -- were up at the top of the pit and the short-haul to the waste out. So that's the difference in the long haul.

Okay. (multiple speakers)

Waste is much cheaper to move than ore.

I guess that's the bottom line. Okay. So you're on this fifth stage with regards to the metallurgy. You said something about block cycles. Is this something that could jeopardize that 50% recovery, or is this just one more step you've got to do? In other words, we pretty much -- can we lock in on 50% recovery that you have gotten there?

Yes, I'm fully confident that we will get there. It is just we've got to actually prove it and have it completed in the metallurgical testing in order to be able to rely on that 50% --

Or our 43-101.

43-101. So we've done each of the different circuits. That's now tying them altogether, and there is one last piece that I'm pretty confident we've got it figured out, but we need to run the tests for a couple of weeks to ensure that it's stable in that circuit.

Okay. And then you said you thought you would table something during Q2. Was that the flow sheet or -- I guess part of my question is how -- what's the timing on a feasibility study or a prefeasibility study?

Well, this will be a 43-101 compliant reserve is what we're planning to publish in Q2.

Okay. And then how long until we can get a feasibility study?

We've already done a PEA.

Yes, there's a PEA -- you need to be a prefeasibility study level in order to publish a 43-101 compliant reserve. So that's the level of confidence that is there.

Okay. And you said the NPV was what?

I think it's going to be north -- well, I know exactly what it is, but I really can't illustrate it yet until we publish the 43-101. But it will be north of CAD700 million.

Okay. What sort of timing are we talking about overall with Aley in terms of getting --

Well --

Getting niobium out of the plant?

Well, it all depends on how we make our way to the regulatory process. We do not see that many complications with it. It will be a function of finding a partner, talking to off takers. There's just a -- there's a bunch of work, but let's say that schedule -- we could be in construction if all that comes together sometime in 2016?

Yes, I think that's possible.

And 18 to 24 months of that, so somewhere in the back end of 2018, 2019.

Okay. So you might -- I guess that's look a little further out, but to submit a proposal to the regulators to get approved, what are we looking at there, roughly?

It depends on how much money we want to spend out of this year? We want to -- we've got to balance what we're doing in other areas and how much money we want to spend? I think we've conveyed to our shareholders that we are going to be prudent, so we are going to watch in terms of how much money we spend on these projects in evaluating what the copper market is like and other internal opportunities.

Are you leaning a little bit more towards the Gibraltar expansion then if you had to allocate money or would you be (multiple speakers)

Well, you know, one is going to be an expensive buildout and one's going to be a less expensive buildout. So you have to look at that in the context I would say of where we see the metal markets on the copper side and what we want to accomplish with it with the Company. So it will have its rent internally, and in discussions with the Board, we will figure out the best path forward for us.

In your prefeasibility study, did you have a price for the Aley project? I forget. I haven't --

We haven't published that. That's why we have to finish the metallurgy -- finish the metallurgy then we cost -- we finish costing the concentrator.

Right. There was 194 million shares out at the end of the quarter, what was the diluted number? Nothing I printed out had that on it.

I don't know that number. (multiple speakers)

Before GAAP for accounting purposes, for calculating earnings per share, what diluted number was used in Q1?

We actually had a loss that we didn't report diluted EPS. But we bought (multiple speakers) yes, so we don't report that when we've got a loss.

And last question, what exactly is the status of these court cases? Because it seems like you filed one many months ago, and I haven't heard boo from it, and now apparently there is a second filing which I'm not clear on why that was.

They are both still in preliminary phases. This is a long process, Tom. There's preliminary hearings going on just setting up the structure of the court case itself.

Yes. Is this like a year out?

Yes. Or maybe a decision in the year, maybe you start giving the mills and before the judge sometime late summer, early fall? We are predicting, but who knows, it's court.

But the arguments will go in in front of the judge probably late summer, and then the hearing itself maybe the end of the year, and the decision, who knows. (multiple speakers)

It always amazes me because it sounds like it's a simple issue of, did you submit a proposal with a liner in it or not?

Well, nothing is simple these days. Where do you live, in Westchester?

Close.

Yes, well, I was talking to a guy there and he says, Jesus, you guys still have in the ground, oil facilities around your heaters, oil tanks. We try and replace one of those these days and you'll find out. A simple procedure.

Yes.

(multiple speakers) and burn it.

Yes, we would like it to be simple unfortunately, but unfortunately it's not. Everything is complex these days.

Well, in any event, Prosperity is not anytime in the near future, so we can look to that. (Multiple speakers)

No, but it's (multiple speakers)

Aley and Gibraltar expansion.

And other things that we may have in the system.

Oh, a little teaser. Okay. Thank you.

Okay. Operator, I think that's about it. We would like to thank everybody for joining us today, for taking time out, so see you next quarter. Cheers.

Ladies and gentlemen, that does conclude the conference for today. Again, thank you for your participation. You may all disconnect. Have a good day.