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Taseko Mines Limited (TGB)

Q1 2014 Earnings Call· Tue, May 13, 2014

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Transcript

Operator

Operator

Good day, ladies and gentlemen, and welcome to Taseko Mines First 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 be given at that time. (Operator Instructions). As a reminder, today’s conference is being recorded. I would now like to turn the conference over to Brian Bergot.

Brian Bergot

Management

Thank you Jamie. Good morning ladies and gentlemen, and welcome to Taseko Mines First Quarter 2014 Results Conference Call. My name is Brian Bergot, and I'm the Vice President, 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 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

Management

Thank you, Brian. Good morning, everyone. Thank you for joining us today to discuss our first quarter results. Our revenue of $104 million for Q1 2014 is an impressive jump, up by $40 million than that achieved in the same period in 2013, 75% increase. Our cash operating profit from mining operations, the real driver of our business, came in at just around $19.4 million which confirms the business plan we put together way back in 2006-2007 with our GDP production increases. That would enable Gibraltar to be in a position to continue to generate positive operating profit throughout the cycles. We obviously would have done better this quarter if we’d not been hindered and hampered by shovel issues, but those are behind us now or at least improved substantially. While our production costs were elevated this quarter because of those shovel issues, we did accomplish some production work in terms of water release and waste sequencing, which will hold us in good stead in the months ahead as we get back on track. Unlike many companies who when they put low-grade material into the stockpile and capitalize it, we do very little of that and take the majority of those costs to the expense site of the ledger. The Gibraltar concentrator performed very well. We averaged just under 79,000 tons per calendar day which we are pleased with. If we include the six day down, we would have produced a design capacity of 85,000 tons per day. Since the down, we have averaged over 85,000 tons per day as we hit our availability targets and our recoveries are continuing to move upwards towards design expectations. Grade was somewhat higher than we forecast at 0.29% copper and so all in a pretty good quarter, which is setting in us up…

Stuart McDonald

Management

Thanks Russ. And good morning everyone. First quarter earnings from mine operations before depreciation were $19.3 million, a decrease over the previous quarter of $25 million, primarily due to high than normal mining costs as a result of equipment downtime. Revenues for the quarter were $105 million, based on our 75% share of copper sale of 30 million pounds and moly sales of 589,000 pounds. The copper volumes were quarterly record for Gibraltar resulting from strong production and a dry down of inventory levels which are higher than normal at year-end. Total copper inventories declined from 10.1 million pounds at year-end to 4.4 million pounds at the end of the first quarter. And our goal is to maintain this at a normal inventory level going forward. The realized copper price for the period was $3.10 per pound compared to $3.18 per pound in a previous quarter, although the impact of our following copper price was largely offset by a weakening Canadian dollar which benefits us. As Russ mentioned we did have higher than normal operating cost this quarter. Total cost per pound produced was $2.48 per pound, compared to $2.14 per pound in the fourth quarter. First quarter costs were impacted by maintenance on the shovel that had been allocated to waste stripping. As a result of the shovel down time, a decision was made to maximize usage of truck capacity by reallocating waste haul trucks to longer distance ore hauls. This resulted in higher mining costs and less capitalized drilling. Our property costs were also higher this quarter due to the higher sales volumes. It’s important to note that we report total operating costs per pound produced. And therefore our property costs per pound produced is higher in periods where sales volume exceed production volume as was the case…

Russ Hallbauer

Management

Thank you, Stuart. Operator, we'd like to now open the phone lines for questions.

Operator

Operator

(Operator Instructions) the first question comes from Tom Meyer from CIBC.

Tom Meyer - CIBC

Analyst

I only have one question, and it’s on Aley, and I’m curious about the improved recoveries from the previous flow sheet and I would like to know if there is additional complexity that was added to the flow sheet and if that -- or if it is simply just adding more unit operations, i.e., more CapEx to get that 50% level?

Russ Hallbauer

Management

That’s a good question and I think John has been doing all the work on it. So he should answer it.

John McManus

Analyst

What we have been doing for the last year and a half is running different sequences of stages of circuits and putting it all together. At the end of the day what we’ve come to know is not more complex or larger. It’s just we’ve finalized the sequence of circuits which gets us the recovery that we’ve been aiming for.

Russ Hallbauer

Management

Much simpler.

John McManus

Analyst

It’s simpler, yes.

Russ Hallbauer

Management

It’s way simpler than less capital intensive. You can believe the truth. We’re pretty happy.

Tom Meyer - CIBC

Analyst

And then, could you be more definitive as to when, like a study update will be released to the market? So we get a sense of what’s going on with the Aley flow sheet?

Russ Hallbauer

Management

I am reluctant to be too specific because we haven’t really completed this last step. We are just doing lock cycles (indiscernible) will determine, but I think we’re trying to give ourselves some flexibility, just in case we had some kind of situation that presented of itself unseen, but we’re pretty optimistic that we will be publishing it this quarter.

Operator

Operator

The next question comes from Mark Turner from Scotiabank

Mark Turner - Scotiabank

Analyst

Congrats on increasing the mining right here. I know obviously it was at a higher cost, but then between my calcs, it looks more, like you’re closer in line to the ore released from the mine versus what the mill actually consumed in the quarter. But I just a few things that are still sort of fuzzy in my mind and you touched on some of them in the presentation before, but Russ, I guess the release, it talks about there was ore added to the ore stockpiles. Just looking at the strip ratio and the tones that you said moved here -- I can still get back to that ore was actually drawn from the stockpile there. So just looking for a little more clarity on that. And then if there is any color on what the amount of time that’s in the ore stockpile is right now?

John McManus

Analyst

Hi Mark, it’s John here. No, actually our stockpile at the crusher grew by over 2 million tons during the quarter.

Mark Turner - Scotiabank

Analyst

So even at a strip ratio 2.8 and then mining 25.9 total tons. When they’re milled and processed, it’s about 7 million total tons, the crusher stockpile increased.

John McManus

Analyst

Yes, we mined over 9 million tons of ore and 2 million of explicit [ph] right inside the crusher ready to go. So we get the advantage of that back as we deplete that over the next nine months and we concentrate on waste movement.

Mark Turner - Scotiabank

Analyst

Okay, I mean, has a 9 million tons, but moving 25.9 million tons of total material. I have to double check, my calc -- if that was at a lower number.

John McManus

Analyst

Strip ratio is calculator on the tons mined, not on the tons milled of ore.

Mark Turner - Scotiabank

Analyst

Right, exactly okay so 20 -- I’ll check my calc, but just on a strip of 2.8 total tons mined of 25.9, I guess I always come back closer to 7 million tons, but just under 7 million tons of ore released. If you look at sort of that aside, just looking for any sort of additional color that you can provide in terms of where the actual increase in the cost were. I know you talked about increased haulage distance. I guess I just -- coming back to the numbers that I calculated, it seems like a pretty big increase for just haulage distance alone. So wondering if some of that was -- or what percent of that was maybe maintenance cost on the actual shovels that has now I guess worked through.

John McManus

Analyst

The additional cost was equipment or maintenance on the shovels. We had one shovel down for planned maintenance, major overhaul. And then we had major component failures on two of the other shovels in the period. So we’ve only got four major shovels. So we had three of them down at one time. We are running some of our lower productivity equipment during the period in order to keep the truck fleet working. We did that by hauling long haul from the pit to the crusher and then we get that back as we deplete that as well.

Russ Hallbauer

Management

And I think we had budgeted about $1.5 million for an under carriage and one of the shovel chunk.

John McManus

Analyst

Yes.

Russ Hallbauer

Management

1.5 million for one of the under carriage, which it gets changed out once every 25,000 hours? And then we had $2 million worth of other unexpected issues, like John alluded to with the other two big diggers and now we’re primarily the Bucyrus shovels that were purchased from Caterpillar and Caterpillar right now has a worldwide issue from Chile to the oil sands to our facility in terms of equipment availability issues primarily around the major components. So we’re trying to -- when Bucyrus was sold to Caterpillar, something happened in the system there. There’s some kind of quality control issues or something has happened and we’re dealing with it at the highest levels as are many companies with respect to trying to get this back on track so that we can have some reliability on the components that we’re using, like a hoist gear which is a very expensive piece of gear inside a shovel. We can’t run without it we put a brand new one in and it failed 10 hours later. So considering the production that we did get with the shovel available we had, it’s pretty -- we were pretty pleased with it but we’ve sure we weren’t pleased with those increased costs obviously.

Mark Turner - Scotiabank

Analyst

And okay so those increased costs were I guess totally unexpected. It’s not is if it was just a premature six months to like a year type thing where costs would have been incurred given where at that time were pulled forward. It’s just it was completely unexpected?

Russ Hallbauer

Management

No there were some of that too Mark. While the shovel was down anyways, while you’re waiting for parts, you take advantage of that and you do other maintenance that maybe would have been a month of two later. So…

Mark Turner - Scotiabank

Analyst

Okay, so some of that was in there too, okay.

Russ Hallbauer

Management

Yeah, it’s a double whammy, a triple whammy.

Mark Turner - Scotiabank

Analyst

One last question and…

Russ Hallbauer

Management

Mark, I just want to tell you, we are back on track. If you look at the decline in our operating costs that we experienced from last year to the first quarter or for the fourth quarter of 2013, we are back on line this month in April or were in April in terms of getting back on track the decline in our operating cost, once we capitalize some of our waste stripping which we never we had the opportunity to do in Q1.

Mark Turner - Scotiabank

Analyst

Okay, so maybe just a little bit of impact in terms of April’s direct cash cost numbers but for the quarter it’d be -- your back on track now.

Russ Hallbauer

Management

April is pretty good April is right back in line and it’s not just a claim from us which we experienced last year. We’re on a continual decline with our overall operating cost at the site.

John McManus

Analyst

And there wouldn’t have been as much impact with the problems, the unexpected problems we had if we had all of our shovels running but we had one important part with when we [indiscernible] on purpose when the other ones broke.

Mark Turner - Scotiabank

Analyst

Right, okay. Yes, so just one last question, Russ you mentioned sort of 60 to 80 in the rough ballpark CapEx on I guess increasing or potentially increase the throughput at Gibraltar there. Is that just strictly at the mill or would that be so your vision of all-encompassing i.e. sort of additional mining fleet and whatever strip would be needed to mine sort of at that increased rate?

Russ Hallbauer

Management

It’s effectively the mill and the concentrator but what we got to evaluate is the productivities of our shovels. We think we have enough gain capacity right now that we may not have to have more gain capacity but then again we have to get the productivities up. That’s why it takes quite a bit of engineering. So we may need to more shovel or truck capacity but we’re uncertain if we do need more staging capacity. But if we do it would be -- that’s why we gave the ranges between $60 million and $80 million, maybe there might be three or four more shovels in another --

John McManus

Analyst

Three or four more shovels…

Russ Hallbauer

Management

Yeah, three or more trucks and a loader of some sort just to make up that slack there. But it takes -- we have to look -- that’s why I say it’s going to take some time. We’ve got to look at our hull cycle, pit development access. There’s all that kind of stuff. But that’s ballpark.

Operator

Operator

The next question comes from Adam Low from Raymond James.

Adam Low - Raymond James

Analyst

First question I had was on moly. You guys had pretty big improvement on your moly recoveries during the quarter. Just wondered what is your target for the moly recoveries?

Russ Hallbauer

Management

50% Adam.

Adam Low - Raymond James

Analyst

Okay. And how soon do you think you can get it there?

Russ Hallbauer

Management

I would say right now all the pieces are there. It’s operational and getting the still the operators to perform where they need to. They’ve done a great job but it’s getting that last 5%.

Adam Low - Raymond James

Analyst

One other question from me, just little bit more clarity on the shovels. When were they repaired and placed back into service in April? Just wondering if it was early April, late April, or mid-April?

Russ Hallbauer

Management

March, and it wasn’t like they were all down at the same time. They’re up and down. The availability during the period, during the quarter was very low on to beside the shovels waiting for parts.

John McManus

Analyst

They didn’t break all at the same time, they didn’t come up all the same time Adam. They came up sequentially.

Russ Hallbauer

Management

So it’s disruptive. You yourself offset -- have to do something -- one of your main pieces of equipment is suddenly down for 10 days.

Adam Low - Raymond James

Analyst

So for the month of April you for the most part had all four shovels working?

Russ Hallbauer

Management

Well, we’re back in normal availability assuming -- the equipment always had some downtime. You have to maintain it but yes, we’re back to normal availabilities.

Operator

Operator

The next question comes from Craig Hutchison from TD Securities.

Craig Hutchison -TD Securities

Analyst

My question regards the strip ratio going forward. Actually I have the same math as Mark Turner. I thought you guys drew down a bit your stockpile this year or this past quarter. But going forward what you see for your strip ratio for 2014?

Russ Hallbauer

Management

About 3.5 to 3.7.

Craig Hutchison -TD Securities

Analyst

And you have all the mining equipment to achieve that?

Russ Hallbauer

Management

Absolutely yes.

Craig Hutchison -TD Securities

Analyst

And a follow-up question maybe on recoveries. The trends at the end of Q1 I think for copper were 88%. Are those trends sort of continuing?

Russ Hallbauer

Management

Yes, yes, that’s right. So, we did an 84.5 for copper for the quarter but it was 82, 82, 88 when you look at January, February and March. And so there is a real - a much better understanding of what’s required in order to get the high comp recoveries and the guys are implementing it now. So, we see that continuing.

Craig Hutchison -TD Securities

Analyst

Let’s say moly I think you guys were 51% at the end of March?

Russ Hallbauer

Management

Copper recovery?

Craig Hutchison -TD Securities

Analyst

Moly, moly.

Russ Hallbauer

Management

Oh yes, moly too. And they come together. I mean the moly plant is really a separation of copper and moly. So you have to get the moly recovered in the number one and number two concentrator to get to the moly plant where they can get 50%, so that’s where they come together.

Craig Hutchison -TD Securities

Analyst

Okay. Maybe one last question, what’s your cost per ton mined?

John McManus

Analyst

It’s about 150 and coming down. Again the quarter we just went through was much higher because we moved ore long haul with less productive equipment. So, 150 is where it should be.

Russ Hallbauer

Management

Yes, and I think our target is a little lower.

John McManus

Analyst

Yes, we are moving towards 130.

Russ Hallbauer

Management

So, dependent on hull cycles, right. So if you look at our overall cost per ton, it somewhere around 11 points. I think we are around $11 or $11.5, may be $11.26 for April.

Operator

Operator

(Operator Instructions) The next question comes from Tom Bishop from BI Research.

Tom Bishop - BI Research

Analyst

I had a question about this long haul using the trucks for long haul. You do have a conveyor system there as well right. So was this supplementing that or am I off base there?

John McManus

Analyst

The crusher Tom, is halfway between the pit and the mill, and so as the stockpile, So we long haul from the bottom of the pit up to stockpile by the crusher as opposed to the waste movement that we had with shovels running were up at the top of the pit and a short haul to the waste dump. So that’s the difference in long haul. Waste is much cheaper to move than ore.

Tom Bishop - BI Research

Analyst

It’s actually bottom-line. Okay, so you are in this fifth stage with regards to the metallurgy. You said something about block cycles. Is there something that could jeopardize that 50% recovery or just one more step you got to do? In other words are we pretty much, can we lock in on 50% recovery that you’ve gotten there?

John McManus

Analyst

Yes, I am fully confident that we will their assist. We have got to actually prove it and have it completed in the metallurgical testing in order to be able to rely on that 50%. 42 on 1. So, we have done each of the different circuits, it’s now tying them all together and there’s one last piece that I am pretty confident. We’ve got it figured it out but we need to run the tests for a couple of weeks to ensure than its stable house circuit.

Tom Bishop - BI Research

Analyst

Okay. And then you said you thought you would table something during Q2. Was that the flow sheet or I guess part of my question is what’s the timing on a feasibility study, a pre-feasibility study?

John McManus

Analyst

Well this will be a 43-101 compliant reserve is what we’re planning to publish in Q2.

Tom Bishop - BI Research

Analyst

Okay. And then how long until we can get a feasibility study?

Russ Hallbauer

Management

We have already done the PEA.

John McManus

Analyst

Yes, there is a PEA. You need to be at pre-feasibility study level in order to publish 43-101 compliant reserve. So, that’s the level of confidence that’s there.

Tom Bishop - BI Research

Analyst

Okay. And you said the NPV was what?

John McManus

Analyst

I think it’s going to be north of -- well I know exactly what it is but I really can’t illustrate it yet until we publish 43-101 but it will be north of $700 million.

Tom Bishop - BI Research

Analyst

Okay. What sort of timing are we talking about overall with LI in terms of getting the LBM out of the plant?

Russ Hallbauer

Management

John McManus

Analyst

Yes, I think that’s.

Russ Hallbauer

Management

You know that’s 18 to 24 months. So somewhere at the backend of 2018.

Tom Bishop - BI Research

Analyst

Okay I guess that’s looking a little further out, but to submit a proposal to the regulators to get approved, what are we looking at there, roughly?

Russ Hallbauer

Management

It depends how much money was spent on this year. We’ve got to balance what we’re doing in other areas and how much money we borrow and spend. I think we’ve conveyed to our shareholders that we’re going to be prudent. So we’re going to watch in terms of how much money we spend on these projects and evaluating them, what’s the copper markets like and other internal opportunities.

Tom Bishop - BI Research

Analyst

Are you leaning a little bit more towards the Gibraltar expansion than if you had to allocate money or would you be….

Russ Hallbauer

Management

You know -- one’s going to be an expensive build out - one’s going to be a less expensive build out. So you have to look at then in the context, I would say, where we see the metal markets on the copper side and what we want to accomplish with the Company. So it will have its ranking internally and in discussions with the board we’ll figure out the best path forward for it.

Tom Bishop - BI Research

Analyst

One thing, the feasibility study, did you have a price for LA project that you got and.

John McManus

Analyst

We haven’t published that. That’s why we have to finish the metallurgy, finish the metallurgy and then we finish costing the concentrator.

Tom Bishop - BI Research

Analyst

There is 194 million shares out at the end of the quarter. What was the diluted number, it looks like (indiscernible) had bid on it.

Russ Hallbauer

Management

I don’t know that number.

John McManus

Analyst

The diluted number?

Tom Bishop - BI Research

Analyst

Well the before GAAP for accounting purposes for calculating earnings per share, what diluted number was used in Q1.

John McManus

Analyst

Well we actually had a loss. So we didn’t report diluted EPS.

Tom Bishop - BI Research

Analyst

Oh, oh, oh.

John McManus

Analyst

But we brought -- yes, so we don’t report that when we’ve got a loss.

Tom Bishop - BI Research

Analyst

And last question, what exactly is the status of these court cases? Because it seems like you filed one many months ago. I haven’t heard boo from it, and now apparently there’s a second filing which I’m not clear on why that was.

John McManus

Analyst

They’re both still in preliminary phases. This is a long process Tom. This preliminary hearings going on, just setting up the structure of the court cases.

Tom Bishop - BI Research

Analyst

It’s like a year out?

Russ Hallbauer

Management

Yes.

John McManus

Analyst

Yes, or maybe decision in a year, maybe starting -- during the submittals and before the judge sometime late summer, early fall.

Russ Hallbauer

Management

We’re predicting that we’ll know this quarter.

John McManus

Analyst

The arguments will go in in front of a judge probably late summer and then the hearing itself maybe at the end of the year and the decision, who knows.

Tom Bishop - BI Research

Analyst

Maybe it’s just me, because it sounds like it’s a simple issue of did you submit a proposal with a liner in it or not.

John McManus

Analyst

Tom, nothing’s simple these days. Where do you live in West Chester?

Tom Bishop - BI Research

Analyst

Close.

John McManus

Analyst

Yes well I was talking to a guy there. He says, you guys still have in the ground oil facilities around your heaters, oil tanks. Try and replace one of those these days and you’ll find out.

Russ Hallbauer

Management

Simple procedure.

Tom Bishop - BI Research

Analyst

Yes, I’m also like in Burnett.

John McManus

Analyst

Yes, we’d like it to be simpler fortunately. But unfortunately it’s not, everything is complex these days.

Tom Bishop - BI Research

Analyst

Well in any event prosperity is not any time in the near future. So we can look….

Russ Hallbauer

Management

No but it’s…

Tom Bishop - BI Research

Analyst

Rely in deep water expansion.

John McManus

Analyst

And other things that we may have in the system.

Russ Hallbauer

Management

Okay operator I think that’s about it. We’d like to thank everybody for joining us today for taking time out. So, see you next quarter. Cheers.

Operator

Operator

Ladies and gentlemen that does conclude the conference for today. Again thank you for your participation. You may all disconnect. Have a good day.