Taseko Mines Limited
Q2 2015 Earnings Call Transcript

Published: 13 Aug 2015

[Operator:]

Welcome to the Taseko Mines Second Quarter 2015 Earnings Conference Call. [Operator Instructions]. I would now like to introduce your host for today's program Brian Bergot. Sir, you may begin.

[Brian Bergot:]

Thank you, Janice. Good morning ladies and gentlemen and welcome to Taseko Mines' second quarter 2015 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 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.

[Russ Hallbauer:]

Thank you Brian. Good morning everyone [Technical Difficulty] second quarter 2015 results/ During the second quarter the company generated $26.3 million in earnings for mining operations an increase of $24 million from the $2.3 million achieved in Q1. Adjusted EBITDA was 23.4 million and cash flow from operations came in at 35.2 million. These results generated were generated from the production of 40 million pounds of the copper metal. Our cost [indiscernible] throughput for the quarter averaged an impressive 88,300 tons per day, 3300 tons per day above our designed capacity at a hedge rate of 0.28% copper with average recovery of 85.6%. It is important to note that throughput and recoveries have continued to improve quarter-over-quarter, month over month in 2014 into 2015. Specifically throughput in the end of Q1 to the end of June of this year increased by 4.4% from 86,100 tons per day to 89,900 tons per day with recoveries increasing from 81.4% to 87.9% an 8% increase. Correspondingly, site cost at the end of Q1 were $2 per pound and now reduced to $1.47 per pound in June. [Indiscernible] cost have also fallen to an average of $1.97 per pound for the quarter with cost per ton milled stabilizing around the CAD10 per ton milled range. The outflow of this is obviously impaired in our financial performance as discussed earlier. In the first quarter call I indicated we expect to see site cost in the $150 to $160 per pound range by the end of 2015. We achieved that goal by the end of Q2, a full six months ahead of plan. While exchange rate helped the production metrics that we spoke about earlier were the key drivers in this outcome. As I’ve stated in Q1 we had total cost of metal production will continue to go lower in the month ahead as we work to operate more efficiently, take advantage of decreasing input cost of such things for such things, fuel, [indiscernible] and other consumables as well as we expect to increase our man hour productivity and equipment efficiencies. We also believe that Canadian dollar will further weaken in the months ahead helping to decrease site. The next big step change for us however will be a reduction in our property cost which I spoke about at great length in the Q1 call. As indicated our press release we have idled [indiscernible] doing this we will have no material impact of Q1 cost immediate district as milling prices stay abreast. I expect with the milling price operating around $6 per pound we will see many other mining operations as a byproduct production in the next few months. The rollover to our new mine plant has been seamless and as per our discussions in past quarters our lower strip ratio were materially up or bottom line getting into the future as we develop 43.10 reserves in the lower cut off rate. Stepping forward when we look past operating cost the overall comp spending for 2015 between CAD8 million to CAD10 million exclusive of capital script. Our sustaining capital expenditures are low and will continue to be low with the dollar, our equipment is new. We don’t need added equipment, as our new mining plans and our replacement plans with large equipment expense is well into the future. We expect 2016's bulk capital to be similar this year in the $8 million to $10 million. The engineering and environmental group, we continue to work with the EPA in the Department of Environmental quality and final permits, for a test facility as well we’re continuing to do some preliminary environmental work Aley Niobium Project. We recently concluded another first case agreement with the Soda Creek Indian Band, a band in relative to get involved here. At this time we have three agreements with [indiscernible] bands on whose additional territory with operations and development projects. We’re in a big change to weather this metal price churn and come out the other side stronger both financially and operationally than we have been for the past 24 months, we’re very excited about that. Stuart, I would like to turn the call over to you now.

[Stuart McDonald:]

Thanks, Russ. Well we have had strong operating results relative to this quarter and that resulted into the financial as well. Earnings from mining operations before depreciation were $26 million in the quarter which is a significant improvement over the previous two quarters. Second quarter revenues were a 103 million from sales of £31 million of copper and £290,000 molybdenum and those amounts are reported on a 75% basis. Copper sales volumes were slightly higher than production volumes in the quarter, so our concentrated inventory levels increased by about £2 million of copper. Our realized sales price for the quarter was $2.66 per pound and although the U.S. dollar price of copper has fallen in recent week the impact on Taseko continues to be partially offset by the weak Canadian dollar. On the cost side as Russ described we have maintained a tight spending levels at below achieved in Q1, so the increased copper production has driven down our Q1 cost to below $2 a pound for the quarter. This was achieved with an average Canadian U.S. dollar exchange rate of 1.23 in the second quarter. These are current exchange rate of about 130 we would have achieved the Q1 cost in the range of about £90. So you can see the impact of the weaker Canadian dollar. Russ commented on the idling of the moly circuit, it's important to note that the moly byproduct credit has no impact on our earnings or Q1 cost in the second quarter as the byproduct moly revenues were fully offset by production cost and treatment charges for moly. The GAAP net income for the second quarter was 4 million or $0.02 per pound adjusted for unrealized foreign exchange gains and unrealized derivative losses resulted in adjusted net income of 1.6 million or $0.01 per share. Adjusted EBITDA was 23 million for the quarter the cash flow from operations was also strong at 35 million for the period. CapEx remained at a low level with total spend of $4 million for the quarter, this includes about 2 million for capital stripping at Gibraltar, 400,000 of other sustaining CapEx at Gibraltar and roughly 1 million of capitalized development costs for the Aley Niobium projects. We continue to carefully manage our capital spend to protect the cash balance and we ended the second quarter with 75 million of cash in the bank, the $17 million increase here in Q2. There has been no change in our managing strategy, we continue to buy our copper productions opportunistically and we currently have put options in place for the remainder of the year for £55 million per month at strip devices [ph] of 250 and 240 per pound. All of this options are now in the money that provides with good protection against further price declines. And with that I will turn it back to Russ.

[Russ Hallbauer:]

Thank you, Stuart. Operator now I would like to open the call for questions.

[Operator:]

[Operator Instructions]. Our first question comes from the line of Craig Hutchison with TD Securities. Your line is open.

[Craig Hutchison:]

Question on the CapEx, the number of 8 million to 10 million that you got it for this year, is that at a 100 basis?

[Russ Hallbauer:]

Yes.

[Craig Hutchison:]

And then in terms of the capitalized stripping, should we expect a similar amount in 2016 as well and just kind of looking for what kind of strip ratio should expect?

[Russ Hallbauer:]

Yes Craig we’re pretty much steady state.

[Craig Hutchison:]

Okay. And around 2 to 2.5 into next year?

[Russ Hallbauer:]

Yes.

[Craig Hutchison:]

And then just a question on the moly circuit, with the moly circuit idle, do you think you will get a better recovery on the copper with that?

[Russ Hallbauer:]

No the recovery for copper is in the main plant if we get into moly plant.

[Craig Hutchison:]

No effect there? Okay.

[Russ Hallbauer:]

No. But I expect to see what we’re seeing in June, fewer recoveries continue on as long both grades - grades will vary with recovery of variability rate.

[John McManus:]

And Craig we don’t have to worry about any penalties in the copper because it's such a small amount.

[Craig Hutchison:]

And maybe just one last question, your guidance of a $1.50 to a $1.60 what community exchange rate are you using for that?

[Stuart McDonald:]

We had in the second quarter an exchange rate of 1.2 or 1.3 for the quarter, so we’re ahead of that today.

[Operator:]

Our next question comes from the line of Ian Parkinson with GMP Securities. Your line is open.

[Ian Parkinson:]

Russ, just a couple of quick questions, going back to the moly circuit, how long will it take you to restart market conditions turn in your favor?

[John McManus:]

It's not very long. What we have to do is bring in some employees back and we have put it to bed in good shape and we will keep it in good shape and under care and maintenance, so if this looks better it won't be a difficult but we will need to have some confidence that moly is going to go up and stay up for a while, I believe we can do that.

[Ian Parkinson:]

Right, it's more than just look at needing to recall and put a bit of work on it.

[John McManus:]

Yes, it wouldn’t be an instantaneous decision, moly is $8 to the [indiscernible] back on, we have to take a look at the long term.

[Ian Parkinson:]

And then just 4 to 6 weeks into Q3 effectively, I mean since the close of the quarter whether it be offsite costs or other consumables that Russ alluded to, what have you have seen on the cost base from an additional savings you know half way through Q3.

[Russ Hallbauer:]

We’re continuing to see some real pressure on those great costs, so those are in the mid-20s and obviously you’ve seen some of the market intelligence in terms of what's happening in the spot sales somewhere in the 60s low 70s. We know that [Technical Difficulty] so going forward over the second half of the year we think we will see some positive outlook, whatever we do on our update.

[Operator:]

Our next question comes from the line of Mark Turner with Scotia Capital. Your line is open.

[Mark Turner:]

I guess my question more just conceptually; we ask a lot of question in terms of this spot effects, helping you guys out but spot copper prices and the liquidity positions of our entire coverage universe. Was that the senior secured debt that you acquired with Curis transaction? What sort of a thought process there and maybe I guess liquidity in the balance sheet because actually it's definitely still a year out from now bur I guess it's probably about half of your current cash position if you were to repay that before.

[Stuart McDonald:]

Yes we’re certainly thinking about the right kind of maturity in May 2016 for about sometime but we’re looking at option. I think one of our better options right now is uptake financing and so we’re thinking about that and as well as some other options to refinance. We’re also optimistic about our business going forward, we built the cash balance so we pay it on cash is certainly a possibility as well. So there is time to think about that.

[Mark Turner:]

Absolutely on our price deck and FX that you’re generally attached to it, just people - many places stress testing the methodology for [indiscernible] coverage of the risk, just to your point there or your comments on concentrating the offtake, speaking to you potential locking into concentrate sales from Gibraltar or there will be more your long term on potential offtake from warrants?

[Russ Hallbauer:]

Mark, either both our options. Those are the two possibilities. The current loans was based on warrants offtake, 19% of offtake is being committed so there is additional offtake to offer there as well as Gibraltar where we have uncommitted offtake beyond the end of this year so there is several options there.

[Mark Turner:]

And there is nothing I guess change in the underlying security with net what it says, senior secured that’s just secured by the warrants project and that’s sort of nothing necessarily back up to Gibraltar and Taseko.

[Russ Hallbauer:]

We’re geared on the Florence project and guaranteed by Taseko.

[Operator:]

[Operator Instructions].

[Russ Hallbauer:]

Well looks like it's all the questions. So we look forward to speaking to you all you folks next quarter. Have a nice rest of the summer and good fall.

[Operator:]

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