Taseko Mines Ltd (TGB) 2021 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to Taseko Mines Limited Third Quarter Results and Corporate Update presentation. (Operator Instructions)

The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and will publish responses where it's appropriate to do so. These will be available via Investor Meet Company dashboard, and you'll be notified once they're ready for your review. We'd also like to remind you that this presentation is being recorded.

Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Stuart McDonald, CEO of Taseko Mines Limited. Good afternoon.

Hi. Good afternoon, Paul. Thanks for having me. And I'll take it away from here. And yes, the title of the presentation is Building North America's Low-Cost Multi-Asset Copper Producer. And I'm Stuart McDonald, the President and CEO of the company. I'll take you through a bit of a corporate update. And I'll also build in the results and some commentary from our Q3 earnings call that we had last week. We released our third quarter earnings in -- on Wednesday last week, had our earnings call on Thursday, and I'm going to provide basically the latest disclosure, the latest information on the company that we released last week.

But before we get to that, I guess, for those of you that are new to our story, I wanted to provide a brief update here or a brief overview here, I should say, and give you a bit of an introduction. As I said, we're a multi-asset copper producer, building that in the world's top mining jurisdictions being Canada and North America. Principal asset is the Gibraltar copper mine, which currently today is our sole producing asset. And following in the near future, we'll be bringing on our Florence copper mine in Arizona, which will be our second producing asset.

So Gibraltar provides us with a solid base of cash flow. It's a good cash flow generator, as we'll talk about in a minute. It's a large-scale mine. It's actually the second largest open pit copper mine in Canada and is really -- has been our engine and has allowed us to build out a pipeline of projects, which as I mentioned includes Florence copper, but also a portfolio of other longer-term development options, including Yellowhead, Aley, New Prosperity and Harmony.

And each of those are -- I would emphasize, they're not exploration projects. They are development assets with potential for 20-year mine lives. Each of those projects is in some form of permitting and feasibility study. So again, provides a lot of optionality for us in the longer term for growth.

So we're a proven team. Our management team is a proven team of mine builders and operators. I think what we've done at our Gibraltar mine over the last 15 years, since we restarted it, is really a testament to that. We operate, as I said, in top class jurisdictions. We have a strong commitment to environmental, social and governance performance. And particularly on the environmental and safety side, we really have demonstrated that through award-winning success at our Gibraltar mine.

And last, but certainly not least, we participate in the copper market. We're very -- I believe we're very well positioned within that market to benefit from excellent fundamentals in that metal going forward.

And maybe on that note, I think I'll just spend a minute here to talk about the copper markets. We -- it's hard to consider an investment in a company like Taseko without having a view on the commodity. And we certainly have -- we certainly take a long-term perspective, I would say. I mean there's a lot in the media and the press right now about what's going on in the short term. But when we look at the kind of investment decisions, we're thinking about what's going to happen in the next 5 to 10 years, and that long-term view is very bullish, in our opinion.

When you look at the supply dynamics that we have right now in the market, it's very difficult to bring on a new copper mine of scale, whether that be through -- because of the capital requirements because of the long lead times for permitting and the social and political considerations in these jurisdictions, it's just very challenging, and copper is quite unique in that way, in that you can't just turn on the taps and bring on new copper supply.

We have -- for a typical copper mine right now, you're talking about roughly a 14-year lead time between discovery and the exploration stage and actually first production. So the analysts can look at the project pipeline now and see 5, 10 years ahead that there's a big supply gap growing, somewhere in the range of 10 million or 11 million tons of supply gap by the end of this decade. And that's what we see as well. We don't see a way of addressing that other than possibly through some substitution. And that's going to require very high copper prices for the foreseeable future in our view.

And then when you layer on top of that, of course, everybody is familiar with the electrification theme and the whole shift towards renewables and electric vehicles, all of that is electricity and electricity requires copper. So the demand side is solid, and the supply side, we believe, is going to be really challenged going forward.

So it's -- yes, so it's a bullish view, and you've seen some of that in the short term as well where you have -- in the last few weeks, we've seen some very unusual movements in the market. And there are shortages out there. There are low inventories. And so you're seeing that this view start to become more of a market consensus view.

So let's move on a bit here and talk about -- go back to our operations and spend a minute talking about our Gibraltar mine. As I mentioned, this is really a foundation for us. It is a long-life asset. It has a long history and a long mine life remaining of 17 years to be precise. And it's a good -- it's been an excellent cash flow.

We actually acquired the mine in -- for $1 in 1999. And since that time, we didn't spend a bunch of time reengineering the mine. We restarted it in 2004 on a shoestring budget. And we embarked in about 2 -- starting in about 2006, we embarked on a significant expansion and modernization program. So in over about a 7-year period, we invested $800 million of capital.

The result of that is we've got now 2 milling circuits. We've got a total milling throughput capacity of about 85,000 tons a day, and we can produce copper on about -- at around 130 million pounds a year. So that is -- that mine has essentially been running steady state since about 2014. And we've got -- in recent years has a very strong financial results to show for that.

It's a low-cost mine. When we talk about cost in particular, we're talking about our cost per ton milled, where we can mill ore here at about CAD 10 or CAD 11 a ton. And that is comparable and better than most mines in North and South America. The way we achieve that is through particularly -- in particular a very efficient and productive workforce. We have -- we run it with about 750 employees at the mine. Comparable mines in Chile and Peru could run anywhere from 2,000 to 3,000 employees. So we benefit from that. We have a very -- we have access to excellent infrastructure in the center of BC, low-cost hydroelectric power and a number of other geographic advantages that really allow us to run an efficient operation.

And we need to be efficient. We're running a lower-grade mine here at 0.25% copper. And in order to be -- in order to make a margin, we need to be good operators and good at what we do. I think we've demonstrated that through some of the awards that I mentioned. The John Ash Safety Award, we've won 4 in the last 5 years, and that's for the lowest injury frequency rate at a large mine in our province. And so a strong safety record, in my view, is indicative of a well-run operation.

So just a couple of comments on our recent performance. And 2021 has been a very interesting year for us. We started the year with -- in a lower-grade section of our mine plan. And first quarter, we didn't fully participate -- because of those lower grades, we didn't fully participate in the copper price recovery that we saw early this year. But when we hit -- when we knew that was going to improve in our most recent results for Q3, we really showed the improvement in grade, which we expected.

And that, combined with the strong copper price environment, led to very strong earnings for the quarter. So we reported CAD 75 million of EBITDA last week for the 3-month period as Canadian dollars and $68 million of operating cash flow. And that really shows what Gibraltar can do when everything falls into place with grade and high copper prices.

So we're on track for well over $200 million of EBITDA for the year. And next year is looking good as well. We should have a similar production year in 2022. And yes, again, just really taking advantage of this market as best we can. We are seeing a little bit of cost inflation in this market as well, and that's been most notable in terms of diesel prices. We use diesel currently to power our haul truck fleet.

And we've seen -- at current prices, we could see cost increase of a few -- perhaps a few cents a pound. But our costs are running around $1.80 or $1.90 a pound. So a few cents of inflation on that is very manageable for us when we're looking at the copper prices today well over $4 a pound. We have a very strong margin.

On the go forward, a couple of other comments on our longer-term plans at Gibraltar. We're currently looking at rerunning our reserves that are currently calculated based on a $2.75 copper price. With the recent move and the shift in market sentiment that we've seen over the last year, we're now looking at running those at a higher copper price, potentially $3 or higher. And we think that will, on its own without any further drilling, will bring some of our resources into the reserves, into the mine plan and allow us to extend beyond our 17-year mine life. So again, this is a long-life asset. It's a very valuable asset.

We have a replacement value here of well over $1 billion. It's tough to replace a mine like this. The other thing we're doing is an exploration program, and we've got a number of interesting targets that we've identified around the pits, around the mine site. And we identified -- we did some geophysics over the summer, identified some anomalies, which we're now following up on to try to add resources as well. So again, lots of potential here for a long and stable operation.

With that, I'll move on to our second core asset here. And again, this presentation is really focusing just on Gibraltar and Florence. But Florence is a very different type of operation than what we're doing at Gibraltar. It's a -- it's called in-situ leach, and we call actually in-situ copper recovery. You can see here on the screen a picture of our production test facility, which we built in 2018.

But it's a very different type of mining. We're not digging the hole in the ground. Actually what we're doing is drilling a well field into the ore body and injecting mining solutions into the ore body. Those solutions travel through the ore and recover copper in solution. And then we process that solution on surface to actually produce refined copper right on site.

So it's an exciting project. We acquired it in 2014. It was previously owned by a junior company called Curis Resources. But prior to that, going back to the '80s and '90s, it was developed by Conoco and Magma and BHP Copper. So it's got a long -- again, quite a long history of study and technical work that's been done on this deposit, well over USD 100 million was -- have been invested before we acquired it.

It's got all the major power, transportation and rail infrastructure in place. It's in a great location actually just outside of Phoenix, Arizona, about halfway between Phoenix and Tucson, right in the copper belt there, an area of -- with lots of mining activity. And it's got the potential to be one of the greenest sources of copper in the U.S., and I'll talk a bit more about that in a minute.

But due to the -- because of the mining method, where we took the approach to develop the project in 2 stages, and that was really to allow us to derisk the project through a development and operation of a PTF, which is what I was referring to as our production test facility. That's Phase 1 of the development. So that involved building an SX/EW plant and 13 production wells, which you saw on the previous screen there. That's Phase 1, that's gone very well, that test work.

We operated and produced copper for about 18 months. We produced well over 1 million pounds of copper cathode and really has allowed us to move into Phase 2 of the operation with confidence. And Phase 2 of the development is the construction of a commercial-scale SX/EW plant and well field. And we are just on the cusp of starting that now, starting that construction. We're expecting to start that early next year.

When we get that running, you can see the economics there. It's a very attractive economic return, will produce a capacity of up to 85 million pounds of copper cathode over a 21-year mine life. And yes, capital cost is relatively low at USD 230 million. And that gives us a very strong NPV of USD 680 million after tax and very strong IRR and payback, as I mentioned.

So it is really low-cost mining because of the mining method. We can mine here for about $0.90 a pound. So it's going to be really transformative. It's going to be very transformative for our company when you look at combining the production from this asset with what we already have at Gibraltar, big increase in our production base and a big reduction in our cost profile.

I mentioned the -- some of the environmental advantages of this mining method, and yes, it really has a very small footprint, very minimal surface disturbance. As I said, we're not -- there's no large milling facilities on surface. There's no tailings pond. There's no waste rock, no drilling and blasting or dust on surface. So this is why it is, I think, from the local community perspective -- you can drive by this mine site and not even know that we're mining here. It's quiet, and we just operate very much under the radar here.

In terms of energy consumption, electricity consumption per pound were 3x lower than a conventional open pit copper mine. Freshwater use were 14x less. And carbon emissions, GHG emissions were 6x lower here than a conventional open pit copper mine. So in terms of GHG emissions, this will be one of the greenest copper operations in the world. So yes, it's something certainly proud of that aspect.

This is the development path that we've been on since 2017, where we received the permits to build the PTF. Built the PTF in 2018, produced first copper from the site in 2019. In 2020, we received our state Aquifer Protection Permit from the state of Arizona. That was the first of 2 key permits that we need to develop the commercial facility. The second permit is in progress right now. It's going to be coming to us from the EPA. And this was something that we talked about and gave an update on last week.

I would say the process has gone a little bit slower than we would have liked, for sure, but I think the key thing from my perspective is that -- and it gives me some comfort here is that no new issues are coming up as part of the EPA process. They've assured us that they're on track and we're going to be receiving the draft permit imminently here in the next couple of weeks.

So first, the process will receive a draft permit. We'll have a period of 2 weeks to comment on that. They will then -- the EPA will then open up a public comment period, which we expect will last about 45 days at the end of that public comment period, and that includes hearing as -- a public hearing as well. The EPA will take any comments received, make any necessary adjustments to the draft and issue as a final, we call it, UIC permit. We expect the final UIC permit early next year. And then at that point, we'll be well positioned to move into construction.

So in preparation for construction, we've started some of the procurement of long lead-time items. In the third quarter, we spent about $19 million of CapEx on the project. A portion of that was for -- to finish up our detailed engineering on the site. But a portion of that was for that procurement that I mentioned. And getting those long lead-time items to site, we believe, is important in this -- in the current environment.

We've seen some supply chain issues around the world. We've got some very specialized equipment that needs to be imported from Asia and South America and Europe. And we want to get all of that on site so that we don't have any disruptions when we start construction next year. And the other benefit of locking in some of that long lead stuff was to protect us against inflationary pressure as well, which we're aware of as a risk, and we're doing everything we can to mitigate that at the project level.

So we've got the permits coming. We've got started on our procurement. We're well advanced on our engineering. And the other key thing here is we've really got the balance sheet in place to execute this project. We finished the third quarter with about CAD 300 million of available liquidity. That includes our cash balance of about CAD 240 million and then a revolving credit facility on top of that, which is available to us, but which we haven't drawn on yet. And that was a facility that we just put in place in September.

So we're going to -- we've got a good balance sheet now. We're going to continue to produce good cash flow from our Gibraltar mine. And we really believe that at current prices at least that we'll be well positioned to complete the development of Florence without any further financings.

So why invest in Taseko? Yes, I think when we look at the NPV value of our assets and the intrinsic value of those assets, we really continue to see a significant gap between that value and in our current market capitalization. So over CAD 500 million gap right now, and we think most of that gap relates to our Florence project. And as we build -- as we receive the final permit, build and operate that asset, we think that gap will close. And that represents, we believe, an attractive growth proposition for shareholders over the next 18 months to 2 years in our stock.

So we've got a lot of potential for short-term growth. And I should emphasize, too, that those values that you see on the waterfall chart there, those are based on $3 copper prices and well below where we are today. We're at roughly $4.30 a pound. So a lot of upside even after -- even at a conservative $3 copper pricing.

So short-term growth through more production, through lowering our cost and then also long-term growth as well. We do have beyond Florence, as I mentioned, a pipeline of projects. And just indicatively, we've shown, in 2026, our Yellowhead mine coming on as well and what that could do for us. That is another excellent prospect that we have here in Central BC as an open pit mine that can be developed.

We are highly levered to copper prices. You can see that 100% of our revenues come from copper. We've got -- we do have a price protection program in place to protect the downside, but that upside to copper is open for shareholders. And that is -- that you can see if you look at our stock price performance that we've been closely tied to copper. And we believe now that with Florence coming online, we're going to outperform the metal as well.

As I mentioned off the top, we are a proven operator and builder. We've done this in the past with the success we've had at developing and expanding Gibraltar and bringing that asset to what it is today. We're going to replicate that at Florence. And really, again, being an industry leader in safety and environmental performance is so important today. And we've always treated it with as being job one is to have a safe work site and do what we need to do to protect the environment. So that will continue to be a focus going forward.

And I think our Florence production method that we have there is going to be another step towards producing low-cost and efficient, environmentally friendly copper production platform.

Just to wrap up, a couple of comments here on our share, capital structure and our analyst coverage. So we've got to 284 million shares outstanding today, a market cap of roughly CAD 750 million. As I said, we've got $239 million of cash on the balance sheet. That is earmarked for our Florence development and then the revolver as well, which is currently undrawn and may not need to be drawn. We'll see how the construction goes and how copper prices perform over the next year.

We do have also a -- one other piece of debt on our balance sheet. It's a USD 400 million high-yield note, which matures in 5 years, matures in 2026. That's got a coupon of about -- of 7%. And you could see some of the credit ratings on the slide there and some of the other details. But it's -- overall, we believe with the lack of -- with no debt maturities until essentially 2026, we believe we're well positioned, as I said, to execute our growth plans.

Some of the analyst coverage. Our major shareholders, we don't -- I wouldn't say we don't have any dominant shareholders, Benefit Street would be the largest. And management is also close to 4% and a number of other institutions on there. So we have listed -- before the pandemic, we listed on the London Stock Exchange. And so that's something that's been a focus of us. But unfortunately, during the -- over COVID, we haven't been able to get to the U.K. as much as we would have liked, but we're hoping to change that in the coming weeks and months and try to build out our U.K. shareholder register.

So I think with that I'll wrap it up and perhaps hand it back to Paul to start off before we do some Q&A.

That's fantastic. Stuart, thank you very much, indeed, for such comprehensive presentation. (Operator Instructions) And Stuart, if I may, we've had some of the questions submitted by investors during the presentation. So if I could ask you to just click on that Q&A tab and where appropriate to do so if you could just read out the question and give your response, please.

Sure. Okay. Thanks, Paul. Yes, so the first question here from [Andy] is what scope is there to increase production out of our current facilities and take advantage of the pricing? Or are we already at capacity? And also what's our hedging policy?

So in terms of production increases at our current facilities, at being Gibraltar, we are operating that mine at capacity. We are trying to get as much copper out of that as we can in the current environment. As I said, we have milling facilities there to process 85,000 tons a day of ore, and we are focused on keeping that running at capacity.

We do have some exploration programs underway, and we've got some engineering work that I mentioned to try to increase our reserve base. Those efforts will potentially increase our mine life beyond the 17-year reserve. But in order to expand our mill throughput above 85,000 tons a day would require a fairly significant capital investment.

We've looked at some of those opportunities and they're there. But really, for us, we think the best use of our capital is to bring on a second operation. And that's what we're focused on doing at Florence. And really to get 2 operations running with a diversified base of cash flow is, we think, the best thing to do for shareholders.

So if we can have Florence permitted really next year, it'll be about an 18-month construction period, and that puts Florence into production in the middle of 2023 and at that point, essentially, 85% production growth from where we are today. So it's a very meaningful step change that's coming for us in the next 2 years. But certainly, there's nothing we can do tomorrow to increase production. Otherwise, we certainly would have -- we would have done it because this is a fantastic market.

But that's where we are on growth. In terms of hedging policy, we do buy put options to protect the downside. And we do also have in place, for the first half of 2022, we have actually a copper collar in place. And that's going to protect most -- minimum price for most of our production at $4 a pound for the first half of next year.

And then the ceiling on that collar is USD 5.60 a pound. So we normally don't like to lock in or cap the upside. But at a price of USD 5.60, we felt that was so far out of the money that we refine doing that in order to get that downside protection during a (inaudible) program. So that is -- that's our approach to hedging.

So the next question is, would we look to sell any of the Florence project to strategic partners? No, that's a good question, and it is something that we talked about a couple of years ago, potentially selling a JV interest in Florence to a partner. And if you look at our Gibraltar mine, that's the approach we took there as a financing approach was to sell 25% of Gibraltar to a Japanese JV partner 10 years ago.

But at Florence, it's a lower capital requirement. And with the move that we've seen in copper prices over the last year or so and the performance we've had from our Gibraltar mine with our balance sheet today, we just don't see the need to bring on a JV partner in Florence anymore. We think we can do it ourselves, and we've got the balance sheet now to do it. So that's the -- essentially, we're moving forward on that basis.

Sure. I think you've covered those questions you can that we've had through from investors. And on that basis, if any further questions do come through, you will have the ability to review those questions and submit responses where appropriate to do so. Perhaps I could just ask you just for a closing snapshot on that basis before we redirect investors to give you some feedback.

Great. Okay. Well, thanks, Paul, and thanks again for having us on the Investor Meet platform today. And I just want to reemphasize how well positioned and how uniquely positioned we think Taseko is right now with one cash flow-producing asset in a stable jurisdiction, coming off the quarter we had with $75 million of EBITDA; and going into construction of our second operation at Florence, which is an attractive, low-cost, environmentally friendly copper asset, it's going to transform the company, give us 85% production growth.

And we don't think there's many companies out there with that profile. So we think it's a unique opportunity for investors. We've got the team in place to do it. We've got the balance sheet to do it. It's a financed growth profile. And yes, we're happy to be producing copper in the current market. And we think it's a great commodity and excellent time to be investing in a company like ours.

So thanks again for having us on the Investor Meet platform. And yes, I appreciate it.

Fantastic. Stuart, thank you indeed for updating investors today. And can I please ask investors not to close the session? You'll be automatically redirected for the opportunity to provide your feedback in order the management can better understand your views and expectations. This will only take a few moments to complete and is greatly valued by the company.

On behalf of Stuart and Taseko Mines Limited, we'd like to thank you for attending today's presentation. That now concludes today's session. Thank you very much and good afternoon.