Taseko Mines Ltd (TGB) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Taseko first-quarter financial results conference call. At this time all participants are in a listen-only mode. (Operator Instructions). Later, we will conduct a question-and-answer session and instructions will follow at that time.

As a reminder today's conference may be recorded.

I would now like to introduce your host for today's conference, Mr. Brian Bergot, Vice President Investor Relations. Sir, please go ahead.

Thank you, Liz. Good morning, ladies and gentlemen, and welcome to Taseko Mines first-quarter 2016 results conference call. My name is Brian Bergot and I'm the Vice President Investor Relations for Taseko.

Our financial results were issued yesterday after market closed and are available on our website, at Tasekomines.com. Before we begin, I would like to introduce everyone on the call today.

We have 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 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 and thank you for joining us today to discuss our Q1 results. During the first quarter of 2016, we effectively broke even in terms of earnings for mining operations with our production cost denominated in US dollars per pound being roughly equivalent to our selling price for the quarter.

These results are consistent with how we do 2016 unfolding with respect to anticipated copper prices and the head grades we would process during the first half of the year. And the effect these would have on our cost structure and our ultimate financial performance. Stewart will speak to those in a few minutes.

We will have as communicated in the past similar type of year in 2016 as we had in 2015. In terms of grade profile. Lower at the beginning of the year increased in the latter part of the year. We have done well on our costs and recovery year to date -- of year to date.

Year to date, our head grades is approximately 0.23% copper and we achieved 84.4% recovery.

Recovery is most certainly influenced by head grades so achieving nearly 85% recovery but they had grade in the mine is pretty impressive. As we move forward over the second half 2016 both head grade and recovery will both increase.

In very simplistic terms, once we get through this path with respect to grade and our grade increases we will see a drop of site cost per pound with the spend being relatively consistent and had grading increasing by 15% to 20% towards year end. And ultimately we can see are on site cost dropping back to the $1.45 to $1.55 range as we've seen in the past.

And in conjunction with significantly declining property costs, which we negotiate in terms of [OceanFreight TCRCs], we are forecasting C1 cost of CAD1.75 to CAD1.85 by year end. All things remaining equal. These costs are exclusive of approximately CAD1.5 million per month of power cost deferral we are not now seeing which is incorporated and which is not incorporated into our C1 cost, but if it was we would have reduced these by approximately CAD0.15 per pound.

We are continuing to see operating cost decline on a per ton basis in the pit, and in total cost per ton milled driven as indicated by shorter hauls and increased productivities. In March we hit CAD8.83 per ton milled, a further reduction from the CAD9.41 per ton milled in Q4 2015.

Where we will end up ultimately is still a question here because we are still seeing input cost decrease in the number of important areas. For example, grinding media which is a very big expense has dropped by roughly 10% over the year over year. This is primarily a response to a drop in world steel prices, aggressive marketing by offshore competitors into the grinding media market in Western Canada.

However, in conjunction with that, a very important and often overlooked aspect of our cost is our ultimate productivity per man hour or truck hour or shovel hour as I spoke about above. For example in March our truck productivity was 16.6% over our budget and in turn, cost for operating hour on the same trucks was 25.4% under budget.

All this is coming about as a result of our new mine plan, pit configuration and working conditions. As a result because we are moving much faster and more efficiently, we are dropping through the orebody faster and we will be approaching higher grade or horizons earlier than anticipated. All good things heading into the back of 2016 and into 2017.

Generally speaking, things are going pretty well operationally and we just have to wait and see where metal prices sort out over the next little while. Are we going to go back to CAD2.00 per pound? Maybe. We are not far from that today. But there's a lot of noise in this market and anything can happen.

We could just as easily be at CAD1.95 to CAD2.30 per pound so we just have to tough it out and keep finding ways to control our lower costs. For some reason, though, moly has perked up even though the steel businesses isn't great, and it looks like maybe [Sierra Garda] and some of the others operations will not produce as much moly as anticipated as the market gets balanced pretty quickly in relation to outside events. Certainly Sierra Garda had a major overhang on what was going to happen in the moly market in 2016 2017 and going forward for a few years.

Presently moly is at CAD7.00 per pound which is where we are today, we've been thinking about firing up our circuit again and that would be an added bonus for us getting into moly byproduct of credit [happen]. We continue to pursue opportunities through our value chain to save a penny here, penny a pound here and there and over time most pennies actually turn into dimes.

And as I've indicated in the past during times like this, it's survival and surviving we are with adequate liquidity and declining for stabilizing costs.

Regarding our projects we believe that the final approval is becoming our Florence project in the not-too-distant future and once those are received we will determine the next course of action, depending on the copper price and our liquidity position. We are continuing on with our freedom of integration request relating to the prosperity and advancing our judicial review and other legal matters on the property.

As you know we just defeated a corporate raider proxy fight which unfortunately cost our shareholders a fair amount of money to defeat. It was a form of exercise dealing with liars, it's a pretty unscrupulous and amoral characters. It used up an inordinate amount of management and directors' time and I want to thank all of tin hose shareholders who supported us, and now the management team will get back to working through this [crying] copper price regime and get us through reasonable shape to the next cycle which we will be sure to come in the not-too-distant future.

I would like to now turn the call over to Stewart.

Thanks and good morning, everyone. As Russ already noted, head grades are lower than normal in the quarter and that resulted in lower copper production. And this, combined with a challenging copper price environment that we are in, resulted in breakeven operating margins at Gibraltar for the period.

Total operating costs were US $2.11 per pound produced and the real-life sales price was $2.10 per pound. Earnings from mine operations before depreciation or were a negative $300,000 for the quarter, so effectively breakeven.

Cash flow from operations was negative CAD4.1 million and includes corporate and other costs and also working capital movements. And adjusted EBITDA was a similar number at negative CAD4.5 million for the quarter. Copper revenues were CAD64 million from the sale sales of 22 million pounds of payable copper which is our 75% share of Gibraltar volumes.

The US dollar price of copper was quite volatile in the period, dropped to below $2.00 a pound in mid-January and then recovered in February and March. But much of that US dollar price volatility was offset by currency movements and the Canadian dollar strengthened significantly in February and March.

On the cost side we are able to maintain our site operating costs at the low level achieved in the fourth quarter last year. Off property costs came in at $0.33 per pound which is down from $0.39 a pound a year ago as we benefited from the new long-term contracts for OceanFreight and treatment and refining costs. Other significant items affecting the P&L this quarter included CAD2.8 million of costs related to the proxy contest and special shareholder meeting that was requisition in January. And unrealized foreign exchange gain of CAD19.6 million which relates to the impact of the strengthening Canadian dollar on a US dollar denominated debt, and stock-based compensation expense of CAD1.6 million.

The GAAP net loss for the first quarter was CAD1.5 million or CAD0.01 per share. Adjusting for the unrealized foreign exchange gain of the derivative loss for the cost of the special meeting and other nonrecurring financing costs results in an adjusted net loss of CAD18.1 million or CAD0.08 per share. Capital expenditures remained at a low level with the total spend of CAD1.7 million in the quarter and this includes about CAD900,000 of CapEx at Gibraltar which is mostly for capitalized stripping and CAD700,000 at the Florence project.

At the end of January we entered into a new $70 million senior secured credit facility with an affiliate of Red Kite. The first drawdown on the facility of $33 million was used to repay the [Keris] loan due on May 31st and to pay financing costs. There were no principal interest payments on this debt until the maturity date which is in March 2019, subject to payment of an extension fee prior to June 30, 2017. And as part of the transaction we also issued a copper call option and warrants to the lender. This allowed us to minimize the interest rate and align the lender with shareholders by giving them upside participation when copper prices recover.

Another positive development in the first quarter was our new power rate deferral agreement at BC Hydro. When Gibraltar entered into this program effective March 1 and will be able to defer payment of up to 75% of electricity costs going forward. This equates to a cash savings of about CAD0.15 Canadian per pound. We ended the first quarter with cash balance of CAD66 million and in April we drew down an additional $20 million under the credit facility.

With this facility in place we believe we now have sufficient liquidity to see us through this period of lower metal prices. We also have put options in hand for the second quarter at a strike price of CAD2.15 per pound and we will continue to look for opportunities to extend the put protection later into the year. And with that I'll turn it back to Russ.

Thank you, Stewart. Operator, I would like to open the line for calls please.

(Operator Instructions). Adam Mitchell, Polar Asset Management.

Hi guys, just a quick question. What, if any, plans do you guys have to address the 2019 maturity? Have you thought about it yet? Or --?

We certainly think about it, we are aware of it, we thought still some time obviously before 2019, and we talked to advisors and looked at different things, but nothing we've seen that has made sense yet. So that's kind of where it sits today.

Okay. And second question, if I may. The rationale for drawing the [$20 million] under the secured facility?

We had -- I guess we had a bond interest payment due in April; we are in the lower grades section of the mine plan as Ross described, so just wanted to crystallize that and keep a reasonable cash balance here in the first half of the year.

Okay, thank you.

(Operator Instructions). Orest Wowkodaw, Scotia Bank.

Good morning, guys. Thanks for the cost guidance you gave us. I was wondering if you could also give us some direction on cost per ton in terms of these on-site costs. If you're expecting cost per pound to be in that [CAD1.75 to CAD1.85] by year-end, where do you see cost per ton build on site please?

The cost per ton mill will stay around between CAD9.00 and CAD9.50, that's our plan as we start to get into better grades, we're going to have longer hauls, but we also get better recoveries, so it just balances out at that (inaudible) a ton.

And should we anticipate something similar for 2017?

Yes. We've really stabilized the operation, the guys have got their arms around it and it's a pretty -- day-to-day they've got a pretty good handle on what's going to happen.

We will get back by the time we get to developing our new budget in the next -- by August (technical difficulty) maybe not next call but certainly. Maybe by the next call we should know what we're going to be looking at for grades in 2017. And that we think generally speaking (inaudible) right now we are going to be returning to more that 0.29 to 0.3 head grades area so that will be time before us overall.

That's the 2017, 0.29 to 0.3?

That's what it's looking like, yes. We're working on it now, but it looks pretty good.

Thanks a lot, guys.

Pierre Vaillancourt, Laurentian.

Hi, guys. Wondering if you could just review your CapEx going forward here, just --

So really other than capital stripping, which varies depending on where we are in the pit, there's not much going forward. For this year, we got a bit on some geotechnical dewatering infrastructure less than CAD2 million, and I don't see anything different for next year. We've made the investment into this place, it's done.

So going forward for the year, that number -- (multiple speakers)

We got all the gear we need and it's new. So we don't really need to put a lot more capital investment at this time.

I think I told you -- we talked about it, we do things a little differently than some of the mining companies, but basically we allocate cost per ton (inaudible) in terms of capital. And John and I figure that rate around CAD0.10 per ton. And so this year we are going to do probably -- what are we going to do now? Like CAD5 million or CAD6 million in capital? (multiple speakers) not even that. So next year it will work out over time here. So at the worst, if you say we're going to move 80 million tons or 85 million tons in total material and you say that's a dime, that's CAD8 million.

That's on average. We just came through a high capital spend so we are in the low part of the cycle. (multiple speakers)

John right now has got eight trucks parked. So we don't have to spend any capital on trucks when we -- once we want to ramp up a bit.

So just to summarize, your CAD8 million which is built into your cost per ton. In addition to the CAD2 million or so for capitalized stripping.

It's not built into the cost per ton, it's average over the life of the mine you run about $0.10 capital per ton move. It's just an estimate for sustained capital average.

Okay. But that's the number though? It's [8] and then the capitalized stripping? Of CAD2 million?

We don't have any big capital until we decided to move our infrastructure.

That's 2021. So it's out there a long ways.

Thanks very much.

(Operator Instructions).

It looks like those are all the questions, thanks very much. These are getting shorter and shorter every quarter, so see you at the end of the next quarter, and have a nice summer. Cheers.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great day.