Taseko Mines Limited
Q1 2021 Earnings Call Transcript

Published: 6 May 2021

[Operator:]

Good morning. My name is Andis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Taseko Mines first quarter earnings and production results conference call. Thank you. Mr. Brian Bergot, you may begin your conference.

[Brian Bergot:]

Thank you, Andis. Welcome, everyone, and thank you for joining Taseko's First Quarter 2021 Conference Call. The news release announcing our financial and operational results was issued yesterday after market close and is available on our website at tasekomines.com. On the call with me today is Taseko's CEO, Russ Hallbauer; our President, Stuart McDonald; John McManus, our COO; Taseko's Chief Financial Officer, Bryce Hamming; and also Richard Tremblay, VP of Operations.

[Russ Hallbauer:]

Thank you, Brian. Good morning, everyone. Hope you are all doing well. As you can see from our quarterly results, it's been quite the ride for us over the last year. With the price volatility we've seen over the last year, it's been a tough environment to operate in. When you produce 10 million less pounds of copper as we did this quarter within in the comparable quarter or year ago to make $25 million worth of operating profit, that's a good thing, I suppose. In simple terms, our plan last year were to get through the early stages of the pandemic when copper dropped just over $2 per pound. And we accomplished that by managing our mining plants to maintain positive cash margin at Gibraltar in the same way -- in the same manner that we got through the global financial crisis in 2008, 2009 and then copper price crash in 2016. As we've spoken about many times in the past, Taseko Mines moved quickly to adjust our whole mining plan to ensure we get by whatever was going to happen, and that was no different during the pandemic. They were uncertain times. copper steel around $2 further to $1.50 or lower or recover quickly, who knew? And our large mining operation at Gibraltar, where we're moving in excess of 100 million tonnes of waste in our year, it's a complex engineering undertaking. And if you move in one direction, it takes a lot of time to rectify once the metal prices sort of develop. And thus, here we are a year later giving ourselves as a whole we into 12 months ago. But things have turned out pretty well with the operating profit we made in our operating results, and financials will continue to improve over the rest of the year. As we've seen in the past, when we resequence the pits and the resequencing of the pits occur, we encountered lower grade in the upper benches of these pushbacks. And that's been a historical function of the type of ore body we have. And what's gone over the past 6 months is indicative of that. Grades are below reserve rates, and that effect metal we produce.

[Stuart McDonald:]

Okay. Thanks, Russ, and good morning, everyone. It's hard to believe that the copper price today at just around $4.58 a pound, $1 higher than at the beginning of the year. And that's a 30% increase on what -- on top of what was already a strong price, a great situation for an unhedged producer like Taseko, certainly feels like there's been a shift in how many analysts and industry experts are thinking about the market over the next few years.

[Bryce Hamming:]

Thanks, Stuart. Good morning, everyone. For the first quarter, we reported earnings from mine ops before depreciation of $30 million and adjusted EBITDA of $24 million. Earnings this quarter continued to benefit from the recovering copper price, which averaged $3.86 per pound for the quarter. Taseko also had a further $4 million in upward provisional price adjustments included in revenue, resulting in an average price of $4.09 per pound. We had sales of 22 million pounds, which is similar to our production, as we continue to keep our concentrate inventory low at the end of March. Ending inventory was 3.6 million pounds and was similar to prior quarters. C1 total operating cost came in at $2.23 per pound and remained higher than the life of mine average as a result of lower copper production. The total spending on the site costs, including $21.5 million in capitalized strip, were generally in line with previous 2 quarters since ramping back up to full mining rates in Q4 last year. The Canadian dollar continued its strengthening trend in line with commodity prices, which is also impacting our cost per pound in U.S. dollar terms. But at a $4.09 realized copper price, we still made a notable operating margin of $30 million before depreciation which increased from Q4. Cash flow from operations, which was negative $3 million compared to adjusted EBITDA of $24 million, was simply impacted by an increase of $27 million in working capital due to the timing of one shipment and the AR balance we carried at the end of the quarter. We did not collect on a provisional invoice February shipment until early April, which resulted in the AR ending at -- the quarter at $31 million compared to $6 million last quarter. Depreciation at $16 million was a little lower than our expectation of $20 million per quarter, but that was due to the greater processing of ore from stockpiles, lower throughput and higher waste stripping activity in the next pit sequence in Pollyanna. GAAP net loss was $11.2 million or $0.04 per share and included a $12 million -- or just $13 million loss on settlement related to our 2022 notes which we refinanced in the quarter. That was partially offset by a $4 million net foreign exchange gain on our U.S. dollar-denominated debt. After adjusting for these 2 nonrecurring items, including tax effects on that settlement loss, our adjusted net loss was $5 million or $0.02 per share. With our December 31 cash balance and the net proceeds of the bond refinancing, we started the year with pro forma cash of $250 million. We ended the quarter just shy of $200 million. The working capital decrease of $27 million, which will reverse in Q2, accounted for about half of that use of cash. We also had increased CapEx at both Gib and Florence, and $11 million was used for the purchase of copper put options to protect our Florence price in the second half of this year. We also paid our debt service, including interest. That was around $10 million. So our cash position is set to increase now given the higher copper price. That's over $4.50 per pound, coupled with the copper production expectation in the coming quarters that Stuart and Russ mentioned. Finally, investment in Florence increased to be approximately $10 million in Q1, reflecting the ongoing but increasing detailed engineering work being performed. Loans expenditures will begin increasing further in the coming quarters as we prepare for receipt of the final UIC permit and get ready for construction of the commercial facility. In addition to detailed engineering, this could include deposits on ordering items and initial payments on key contracts to secure pricing. So we are beginning to strategically deploy some of the funds raised from our equity and bond financings for Florence, which begins chipping away at the $230 million capital cost we estimate to build a commercial facility there. I will now turn it back to the operator for any questions. Thanks.

[Operator:]

Your first question comes from Ed Brucker with Barclays.

[Ed Brucker:]

So my first one, just want to ask on the potential infrastructure deal. Do you think you have an advantage kind of being the North America copper producer with a potential infrastructure deal, especially with the Buy American stance the administration is taking? And then on top of that, has it kind of made you want to speed up the time line performance, if at all possible?

[Stuart McDonald:]

Yes. It's Stuart speaking. Yes, absolutely. I mean we are moving, I think, as fast as we can on Florence. We think it's the right time to be bringing on a new mine like that. As you say, it fits perfectly into the Buy American approach out there and delivering a product that's going to be required for some of the infrastructure spending that's planned in the U.S. So we think we're -- it's perfect timing for this project. We're moving as quickly as we can. The constraint right now, as I said, is that EPA permit. But we get that permit in the third quarter, and we'll be -- which is our expectation, and we'll be ready to move into construction as quickly as we can after that.

[Ed Brucker:]

Got it. That actually brings me to my next question. Was there any specific reasons for the holdup in the EPA decision, given your talks with them? I think the previous expectation was that it was going to be mid-2021 decision. I'm just trying to get a sense for why the final decisions seems to be pushed back or at least lower than expected and then wondering if that could be pushed back any further.

[Stuart McDonald:]

Yes. I mean it's definitely -- the process has moved a little more slowly than we would have liked. It's unfortunately a process where there aren't any clearly defined deadlines or time lines. And so the EPA just has to get through their work. I think they're moving slowly and prudently and cautiously, and the important thing I think is that there's no major issues coming up in the process. So they're making progress. It's just taking time. And yes, that's our expectation at the current time is it we'll get that permit sometime later in the third quarter, but no major issues there.

[Ed Brucker:]

Got it. Got it. And then my last question. I just wanted to get an update on where you are in the process at Yellowhead. And the preproduction CapEx, I think I read it was $1.3 billion. It seems pretty big compared to Florence Phase 2 at kind of the $230 million level. So I just wanted to get a sense if you thought about how you're going to pay for that. I know it's further down the line, but would you look at JV partners for that? Or do you think we'll be building free cash flow, et cetera?

[Stuart McDonald:]

Yes. I mean it's -- you're right. It's definitely a bigger CapEx bite for us, and it's a few years down the road. We've got obviously some permitting and community work to get done first, which we're focused on right now. But looking ahead, a couple of years when we have Gibraltar and Florence both running, we're going to be a different company. We're going to be a much stronger -- from EBITDA and cash flow generation. So it's a project that we like, we're interested in. And if we can take it on a few years down the road with a JV partner, we think it could be -- we think it could work for us and fits into the whole copper story as well because you're going to need projects like that to be built to fill the supply deficit that's coming. So yes, that's the way we're thinking about it. It's not a decision that needs to be made anytime soon, but it's -- as I said, it's a couple of years down the road.

[Operator:]

Your next question comes from Craig Hutchison with TD Securities.

[Craig Hutchison:]

You touched on earlier that you need a permit to access the Gibraltar East Pit. Just curious, when do you need this permanent place to avoid having any potential impacts on your guidance for 2021?

[Russ Hallbauer:]

Richard, would you be able to take that question?

[Richard Tremblay:]

Yes, yes, for sure. Craig, Richard Tremblay here. Really, we're looking to require that permit here before the end of May. If it goes longer than that, then we'll start seeing impacts in 2021.

[Craig Hutchison:]

Okay. And obviously, I guess you're expecting higher grades from this portion of the pit. Is that correct?

[Richard Tremblay:]

Grades from the Gibraltar pit will be in line with the life of mine average. So yes, it will be higher than what we've seen in Q1. And the other, I guess, comment I'll make is not getting into the Gibraltar pit, we see impacts from that, if we're not in there before the end of May, but there's also opportunities to do some things in the Pollyanna Pit to potentially offset it. So we're currently looking at those variabilities or optionalities as a worst-case scenario. But our expectations is that we should receive that permit here shortly in the coming weeks.

[Craig Hutchison:]

Okay. And just on grades, you guys were pretty clear in the opening commentary that you expect grades in the sort of second half of this year to be above reserve grade. But any clarity you guys can provide on Q2, what kind of grades we're seeing right now? And the same kind of question just on throughput, are you into some softer ore? Can we expect throughput to sort of increase over the Q1 levels?

[Russ Hallbauer:]

Yes. So as mining continues here in Pollyanna, we see less reliance on stockpile material. And with the ore coming out of the pit, we don't expect or don't see throughput as being a restriction anymore as it was in Q1. So we'll see that come up. And then grades, as has been said previously, will start increasing as the quarter progresses. And then into the second half of the year, we'll see the higher grades.

[Craig Hutchison:]

Okay. Just on Florence, I asked this question on the last conference call, but I feel like I had to ask it again. You guys did mention that you're not seeing much inflationary pressure in your existing Gibraltar operation. But just given steel prices in the U.S. are up 50% through Q1, based on the engineering work you're doing, are you starting to see any inflationary pressure in terms of your cost estimates for that project?

[Stuart McDonald:]

Craig, it's Stuart speaking here. And I think the short answer to that is no. We're not seeing major cost increases at this stage in Florence. That's -- we just haven't seen it.

[Craig Hutchison:]

Okay. Great. And then maybe last question for me. You mentioned almost a willingness to go 100% interest in Florence or keeping 100% interest. Can you maybe talk about the partnering interest at this point? And is it your preference to pursue 100%? Or are you still looking at potential JVs?

[Stuart McDonald:]

Yes. I mean it's -- there's still parties that are interested. I think it's just -- we're fortunate with the financings that we have behind us and the copper price environment that we're in that we now have the ability to build it ourselves. If there's an accretive transaction there that's available to us, we could still do something like that. But at this stage, I think we're leaning -- I would say leaning towards a scenario where we own at 100%. But certainly, all options are still on the table.

[Operator:]

[Brian Bergot:]

Okay. Yes, operator, if there's no further questions, yes, thanks, everyone, again for joining, and we'll talk to you next quarter.

[Operator:]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.