Taseko Mines Ltd (TGB) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the Taseko Mines' second-quarter 2014 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 is being recorded.

I would like to turn today's conference call to Mr. Brian Bergot. You may begin, Sir.

Thank you, Kevin. Good morning, ladies and gentlemen. And welcome to Taseko Mines' second-quarter 2014 results conference call. My name is Brian Bergot, and I am the Vice President of 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 second-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 second-quarter results. Our revenue of CAD107 million for the quarter was up CAD3 million over Q1, even though our Canadian-dominated revenue was affected by a 3% stronger Canadian dollar, quarter-over-quarter. Our operating profit from mining operations increased from CAD19.4 million in Q1 to CAD26.7 million this quarter, a 37% increase and a 107% year-over-year increase when compared to the second quarter of 2013.

We expect earnings from operations and cash flow to continue to increase in the back half of 2014, as we move back towards average grades in the granite pit, and as we achieve steady-state throughput from the concentrator of 85,000 tonnes per day. Our shovel performance was much better in this quarter, as the work we have undertaken with our equipment supplier is beginning to pay off. And, as a result, productivity has improved, which will lower mining costs going forward.

Our concentrator, as we have seen, has performed very well, as we averaged 85,000 tonnes per day per calendar day, roughly 93,000 tonnes per operating day. And with grade increasing, we should see some increased metal production -- we should see increased metal production going forward in the second half of the year.

Looking back, when we started off on this path to modernize Gibraltar, and I believe the first year John and I worked for the Company, we produced roughly 48 million pounds of copper for the whole year. And here we are close to producing that in three months. Certainly, things have changed.

We continue to work on both the copper and molybdenum circuits. Recovery on both of these continues to move up. For example, looking back in Q3 2013, we produced 284,000 pounds of molybdenum; this quarter, 667,000 pounds, which is a combination of throughput and recovery going hand-in-hand.

Anyways, we don't have much to say on operations. Life is much easier and controlled than it has been in the past. And this is reflected as our operating -- site operating costs continue to decline from nearly CAD2 in Q1 of 2014 to the CAD1.76 that we achieved this quarter. We expect costs, barring unforeseen issues, to continue to decline, and we expect operating profit to grow as well as cash flow. Specific questions on operational matters can be addressed by John and myself in the Q&A following this presentation.

Last quarter, I spoke briefly about our Aley project. Our team has worked on more detailed process flow sheet investigations and metallurgical test works. And as a result, we have achieved repeatable recoveries of over 60%. This will be very important in terms of capital operating costs as we go into detailed engineering level design. We are in the process of re-costing our flowsheet for our 43-101 Report.

Concurrently with these advancements, we've also filed with both the federal and provincial government our project descriptions. And we expect the Feds will move it over to the Province's EA process. At the same time, we are continuing to gather background environmental assessment data.

We know at this juncture, we will be entering the niobium market in the not-too-distant future. And with niobium trading at roughly CAD50 KG, and with only 20% of worldwide steel production using niobium in their steel manufacturing process, we see basically an unlimited market with only three significant players in it at the present, and barriers to entry very high.

The Aley preserve is frankly huge. We have a 20-year detailed mine development plan, but the ore body has the potential to easily produce for over 75 years. The robust reserve grade, low strip ratio, and a small mine, in relative sense, for an open pit, we are excited about what Aley means for the future of this Company.

As well, the New Prosperity continues to wind its way through the court process. However, the most recent ruling by the Supreme Court of Canada has confirmed New Prosperity is outside the First Nation's title area. And now that that elephant in the room has been removed, we believe we have a clear path forward for ourselves at both levels of government, federal and provincial, to see a way to an agreement that moves New Prosperity forward. I know many folks remain skeptical that New Prosperity will ever be developed; but, quite frankly, the overarching issues with the title issue now being clarified, will have a huge impact on a path forward.

I'd like to -- I will now turn the call over to Stuart to talk about our financial results. Stuart?

Thanks, Russ, and good morning, everyone. As Russ has already highlighted, we have had strong earnings growth this quarter, with both higher revenues and lower production costs in the first quarter. Revenues have increased to CAD107 million in the quarter from sales of 28 million pounds of copper and 548,000 pounds of molybdenum. And those amounts are reported on a 75% basis.

Sales volumes were generally in line with production volumes. And as a result, there were no big changes in inventory in the period. Copper prices have recovered over the course of the second quarter. And our realized copper price was $3.16 per pound compared to $3.10 per pound in our previous quarter. We've also benefited from the increasing molybdenum price, which strengthened to over CAD14 per pound in June, and we generated over CAD10 million of moly by-product revenue in the second quarter.

Turning to costs now, our total operating costs per pound produced was $2.12 in the second quarter, significantly lower than the $2.48 in the first quarter. The mechanical issues from the first quarter were resolved, and the Gibraltar mine fleet returned to normal operating utilization. Also, strong molybdenum sales volumes, combined with the increasing price, have resulted in increased by-product credits, which drove down our unit costs.

Off-property costs per pound produced returned to a more typical level this quarter, as sales volumes were generally in line with production volumes. Exploration and evaluation expenses were CAD2.4 million in the second quarter, which include costs for metallurgical studies and the refining of the flow sheet at the Aley niobium project, and also legal costs related to the judicial reviews for the New Prosperity project.

Other significant items on the second quarter P&L include an unrealized foreign exchange gain of CAD7 million, primarily due to the strengthening Canadian dollar during the quarter and the impact of this on our US dollar debt. We also recognized an unrealized loss of CAD2.7 million on our copper put options, which was expected, given the increase in copper price. And we also reported a non-cash write-down on marketable securities of CAD400,000, due to the decline in value of one of our investments.

GAAP net earnings for the second quarter were CAD2.6 million. Adjusting for the unrealized foreign exchange and unrealized derivative loss results in an adjusted net loss for the quarter of CAD2.1 million or CAD0.01 per share. The Company also generated adjusted EBITDA of CAD19 million in the second quarter and CAD34 million year-to-date.

Turning to cash flow now, cash flow from operations was CAD13.5 million in the second quarter. And it's important to note that this was achieved despite a negative working capital adjustment of CAD6.8 million, which was mainly due to accounts receivable and the timing of cash receipts from customers. So, excluding working capital adjustments, we had operating cash flows of over CAD20 million in the period.

This was offset by cash payments of CAD17 million for debt-service costs, which included a semiannual interest payment on our senior notes in April. We also spent CAD6 million on capital expenditures, including capitalized waste stripping and other sustaining items.

We ended the second quarter with CAD77 million of cash on-hand. And we expect this balance to grow in the second half with increased copper production and lower costs. We are also now working with BC Hydro to arrange a refund of a CAD13 million prepaid deposit in exchange for sureties bonds, and we expect to receive a CAD19 million tax refund in the coming months as well.

In the longer-term, looking at our pipeline of projects -- and specifically, Aley, which Russ talked about -- we've get a number of potential financing options, including joint venture partners, offtake financing, and export development financing. So these are the types of things we will be looking at more closely going forward. And, of course, we've got free cash flow from Gibraltar and strong fundamentals in the copper market, which provides us with a solid foundation as well.

And with that, I will turn it back to Russ.

Thank you, Stuart. Operator, we would like to open the lines to any questions.

(Operator Instructions) Adam Low, Raymond James.

First of all, I just wanted to say congrats on the good operating performance at Gibraltar and the progress on Aley. For Aley, one of the things I'm curious about is that you guys are obviously having great success at starting to get the recoveries into the concentrate. I'm just wondering what the next step in the process of trying to convert the power core concentrate into a fair niobium product, how difficult do you see that stage of the process relative to the one you have just gone through?

Hi, Adam. John here. Thanks for the question. What we've got is, the processes have all been worked out now, including the conversion from concentrate to pure niobium. We are doing some final confirmatory lab work, but all of the research and development section is complete now. We're doing -- we're within a few weeks of being able to say that we've got this with the cost firmed up and the engineering well underway, now that we've got the flow sheet, including the converter.

What's the next stage after you get to that part of the process for you guys? I mean, do you guys need to take this to a pilot plant or something like that?

We are considering a pilot plant for next year. Not sure if we need it or not; we are looking at that. But our next stage is going to be over to Stuart for financing and permitting. We've got the basic science done now, which took longer than we hoped it would, but it's a pretty good result.

(multiple speakers) Yes, and when we talk about a pilot plant, Adam, it's -- we are not going to likely build a specific facility. It will be we were able to likely do it in various components and in different labs across the country, to come out with the final result.

This is a larger scale confirmation of what we've already got.

Yes.

Got you. So it's not something that would require a whole lot of upfront capital?

No.

No.

No, we're quite -- no.

No.

Okay. Switching gears to Gibraltar, you started up the SX EW; it looks like you got pretty good production out of it to start up here. How sustainable is it to do 0.9 million pounds in a quarter? And also, I'm just curious as to what kind of copper inventory is in the dumps?

It's sustainable for about six months of the year, Adam. We shut it down in the winter months because the power draw of trying to keep the solutions warm. But -- so, we will run it essentially Q2 and Q3; shut down Q4 and Q1.

Okay.

And when it's running, it should run at those levels that we've seen this quarter.

And in terms of the inventory, I mean your last resource reserve statement on the dumps, is it still fairly accurate?

Yes. No change there. We've got -- we took a year out, I guess, and didn't run it last year. I'm trying to think -- it was only one year. And then we've got enough reserves to run it, like I say, six months a year for the foreseeable future.

Okay. One other question on Gibraltar here. I was just curious as to what your mill availability was in the second quarter and where it currently stands right now?

Well, the number 2 mill, the new one? The new concentrator was on target, and number 1 mill was below number 2, but we've reduced the targets for the number 1 mill, too. So, our overall -- 92.2 for the two. (multiple speakers) So we're on target.

(multiple speakers) Is that pretty close to your target?

It is on target, yes.

Okay. All right, perfect. Thank you.

Chris Chang, Laurentian Bank.

Guys, just a quick question -- I jumped on the call a bit late and I'm not sure if you mentioned this. But the end of last quarter, you highlighted that there is a potential for the expansion at Gibraltar. I was wondering if you had any more visibility on what that could look like? And secondly, of -- would you require more analysis there before you made a decision on Aley?

Yes. Our engineering team has been pretty busy. We haven't put a lot of time and effort into that, Chris. So, we will have all these various levels of the projects identified, in terms of where we think we will deploy our expertise and our capital going forward. And that will -- something that will evolve as we head into the budgetary process for 2015 over the next few months. So, yes, we don't have a lot of insight into that at this juncture.

Okay. Thanks.

Brett Levy, Jefferies.

With a call date coming up in 2015 and a mode where you could potentially be delevering here, kind of where do you see yourself going in terms of target capital structure? And have you any thoughts about that first call date or subsequent call dates with respect to the notes?

Yes. Hi, Brett, it's Stuart here. Yes, in regards -- I think generally speaking right now, we are comfortable with the leverage we've got on Gibraltar. We're not looking at that call date at this stage. As you know, we've got a couple of good projects in the pipeline too, and we need to spend a bit of time and move those forward, and look at how we might finance those. But at this point in time, there is no big changes expected on the notes or on the balance sheet for the near future, anyway.

And then in terms of -- I mean, you obviously do have these projects. Are you continuing to be inquisitive? Or are you focusing on what you've got in front of you right now?

Well, we look at everything. So, we can be acquisitive one day and looking at what we have in front of us the other day. So, it depends on what presents itself.

All right. It sounds good, guys. Thank you.

Thanks.

(Operator Instructions) Tom Bishop, BI Research.

Hi, Russ. (multiple speakers) Just to remind us all, what is average grade? Is it 0.30 for copper or 0.31 or 0.305 --?

The department average is 0.31, Tom.

(multiple speakers) Is that a reasonable number for the near-term as well? I mean --?

Yes, it is. I mean, it varies, but it's -- the average is 0.31. We'll bury 10% either way on (multiple speakers) a quarter-per-quarter basis.

And the recovery rate that you've been hitting lately hasn't really gotten too much above 0.85, 0.86 maybe. What's the target there on the copper?

It's 0.89 -- 89%.

You've got a ways to go there, but do you think you can hit that any time soon?

Yes. Yes. There's a number of things going on there; the guys are focused on it. There's things we believe that we can do to move it forward. And it is getting better. We are improving so we are on an upward trend. But the goal is 89%. Will we get there tomorrow? No. But we will get there.

Okay. And the same for moly. As I recall, the life-of-mine grade on that was 0.011, is it?

Yes, thereabouts. I can't remember exactly; I'd have to look.

And you're targeting a 50% recovery, so --. (multiple speakers) On the off-property costs, it was commented that the average -- that Q2 was more normal, but you also said that there was some credits in Q2 that didn't sound ordinary. What is -- what are all property costs expected to average per pound?

Well, I think -- yes, you're right, there was a small credit that went through this quarter which probably helped us by a couple of cents per pound. But I think going forward, something in that CAD0.40 a pound range is typical. That's where we've been and we don't see any changes to that kind of going forward.

But it will vary on a quarter-over-quarter basis, Tom, depending on who we are shipping to. We have a lower TCRC cost going into China versus going into Japan, so they're blended. So if we ship more to Japan in the quarter than we do to China, then that cost will be up. And therefore, our off-property costs will be up. So it's almost by grade it will vary. And that will depend on the shipping schedules that are before us.

Okay. Can you identify how much the Company spends on Prosperity and Aley? They're not really representative of what it cost to do business at Gibraltar, but do you have any figures on those two?

In the period, in the quarter, we spent about -- just over CAD2 million on those projects. Is that what you were asking?

Yes. And what is the next date for Prosperity? I mean, you've got this court case, and you said you were more optimistic on approval because of the land title issue. But it seems like the bigger issue is the tailings and the liner and all that, which amazes me still that there is an issue there. Either it was in the proposal or it wasn't. But what's going on there? What's going to happen next and why are you so -- more optimistic (multiple speakers) about it?

Well, certainly if you step back, Tom, and look at what the Prime Minister said when this thing came forward, when they made their decision, they said there was two overarching issues. One was it was in an area of unresolved land claim issues; that has been resolved by the Supreme Court of Canada. And the other was the scientific process with respect to the environmental issues.

And we are proving in court right now that our rigorous scientific process was not followed, and that the federal government erred, both at the Panel level and at the decision level before the Minister of Environment. And what are the next thresholds? Time will tell us that, before the courts. (multiple speakers)

Are you saying you presented briefs, something like that, to explain your side?

Yes. Well, in these judicial reviews, yes, it's very intense; we've been at it for months with affidavits and the government has to counter those affidavits, our affidavits, from our technical people. And they go before the courts, and the court has to decide who is correct and who isn't.

But we don't have any timeline at this point?

Well, no, it's -- like it's in the courts; we expect that sometime in the fall will be the first court appearances, some time in October. But there's lots of things that can happen between now and the fall, in terms of someone coming to their senses.

I mean, litigation and going to the courts is the last thing you want to do. But somehow we have to follow through in a process that ensures that the government has -- ultimately, has reviewed this process that we were in objectively and fairly, taking into account everything that was -- and it appears that that has not gone on. And they may come to their senses (multiple speakers) --

Hopefully, they will sit back in their chairs and go, you know what? They're right. Let's just short-circuit this process. (laughter)

Well, that is what happens when you go to court. And there's lots of times -- and it makes people pause and look. And the last process through the Panel and going into the Minister of Environment for review is a very -- at arm's length; you can't talk to anybody. So, therefore, there is lots of areas in that process that can be bypassed and not followed correctly. And that's what ultimately has happened, in our opinion.

You know, Russ, just one last question. If Prosperity and Aley were approved tomorrow, is it real clear which way you'd go?

No, at this juncture, not yet. No, it's absolutely not. (multiple speakers)

Well, it seems like a pretty juicy plum that you are holding on to there.

Yes, we think -- like I said -- and it hasn't been reflected in any of the discussions in this Company yet, but we worked it for 2 1/2 years on the metallurgical side. John and his team and the technical team and all the consultants have put a lot of work into this stuff.

This isn't -- these are -- the barriers to entry on these opportunities are very, very high. Because not all carbonic types are created equal and each one is different. Ours is as different from CBMM as niobium is to ours. And so there's going to be a lot of broken picks on these things. But ours is not broken. And we've got it to a point now where this is truly a very good asset. And I know a lot of people haven't accepted that yet, but time will show it out.

So we have two very good assets there with New Prosperity and Aley. And we'll just have to decide which has the best economic return for the shareholders.

Not to mention Gibraltar #4. So -- okay. (multiple speakers) Thank you, Russ.

Okay, Tom.

And I'm not showing any further questions at this time. I'd like to turn the conference back over to Taseko for closing remarks.

Okay. Thank you very much, everybody. Hope you have a good rest of the summer, and we look forward to talking to you in the fourth quarter -- or the third quarter, excuse me. Bye bye.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.