Taseko Mines Limited (TGB) Q4 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Taseko Mines’ 2014 Year End 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, this conference call is being recorded. I’d now like to turn the conference over to Brian Bergot, Vice President, Investor Relations. You may begin.

Thank you, Nickel. Good morning ladies and gentlemen and welcome to Taseko Mines’ 2014 annual and fourth quarter 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, Chief Operating Officer of Taseko; and Stuart McDonald, Taseko's Chief Financial Officer. After opening remarks by Management, which will review 2014 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.

Thank you, Brian. Good morning everyone. Thank you for joining us today to discuss our fourth quarter and yearend results. Cash flow from mining operations of $51 million for the year was affected by a number of mining related factors in the second half of the year, which I discussed at length in our October 2014 conference call. These operational issues affected production in both Q3 and Q4 and our fiscal yearend financial results. To refresh everyone’s memories, the events I referred to were our inability to access higher grade ore in the bottom of the Granite Pit because of geotechnical concerns associated with the pit high well. Higher onetime cost related to the maintenance expenditures for major component replacements in our shovels of roughly $16 million and finally to offset those shovel availabilities and lower waste stripping, we had to mobilize the mining contractor to ensure we maintained ore release and ore feed to the mills. All of these factors came in at a significant cost. In our Q3 call, we believe that we would be able to achieve a head grade of approximately 0.27% depending on how well we manage accessing the higher grade ore below the area of instability in the Granite Pit and how we managed our stockpiles. In Q4, however we continue to have problems accessing the ore in the bottom of the pit and as a result we could not achieve our expected mill head grade targets. [Apparently] [ph] during this period however, was to continue stripping as we had been in Q3 had a 3 to 1 rate and we achieved that level of material movement. During this period, the copper price appeared relatively stable at roughly $3 U.S. per pound and we felt our stripping plan and stockpile plan would see as through. However, when your head grade drops you need to lower your overall cost per ton mill to ensure your cost per pound of copper reflects the prevailing market price, which was beginning to show a lot of volatility. In Q3, cash to concentrate cost were $2.35 per pound while C1 cost were $2.75 U.S. per pound, slightly below LME pricing levels. We were though maintaining the modest Canadian operating margin with these costs being generated from a $12 per ton mill cost base. Moving through Q4, with the ongoing cost containment initiatives and maintaining our long-term mine stripping rate of little over 3 to 1 our site personal reduced the cost per ton mill from $12.10 per ton to $10.13 a 16% reduction on those costs and obviously that the significant achievement in 90 days and it’s the reason, why we effectively broke even on an operating basis in the fourth quarter of 2014. So what does that mean today and going forward? Early in New Year as copper prices continue to drop we unfortunately had to lay off nearly 100 employees. We reduced the strip ratio part way through the quarter from 3 to 1 to approximately 2 to 1. We finished -- we ultimately were finished with our large one-time capital cost associated with our shovels. We terminated the contract with a mining contractor and we’re running our concentrated [heard] [ph] and processing as many tons as we could through it. Our cost per ton milled is now stabilized at approximately $10 per ton and going forward we expect to see increased head grades over the course of the year as we discussed in our press release. This will further lower our cost per production as we maintained a further lowering of our milling cost. We expect the result of the lower milling cost and rising head grades a C1 cost of approximately $2 a pound in the second half of the year. I expect that many of you will have the noticed the brief commentary in our press release around cut off rate and strip ratio. Some of the issues we've faced over the past six months have redirected our thoughts on that issue. For as long as John and I've been in the business, irrespective of copper price, the cut off rate has been roughly 0.2%. Mining cost up until the mid 2000s were in the $1 to $1.10 per ton mine range and have been in that range basically since I started my early -- my career in the early 80s. However, over the past number of years even though equipment has gotten bigger; trucks, shovels, drills contrary to what one would think with those economies of sales, direct mining cost have increased and appeared to have taken a step change and that happened somewhere in the mid 2000s and they don’t seem to be going down anytime soon. We've internally scratched our head and trying to come to grips with this, but to no avail. Engine, tires, boxes, shovel repairs, hall distances have just increased disproportionate to the economies of scale of those larger pieces of equipment. So as I said earlier, relating to mining cost, we think we're never going back to the good old days of a $1 and $1.25 mining cost per ton, but on the flip side, concentrated to their of course appear then even a decade ago. As a result the processing cost per ton has been lower for a whole number of technical, logical reasons tied to better reagents, more efficient plans, lower energies and motors, bigger flotation systems, longer life of the pumps, you name it. There has been a huge technical shift in concentrator designs and efficiencies and ultimately the economies of scale. This then brings into play cut off rate. So instead of taking lower grade to a waste dump, getting nothing for or to a longer term stockpile, you can now process and then make money if you have a concentrator like we have at Gibraltar and this decline in cut off grade dramatically affects strip ratio and thus overall cost per ton milled and subsequently cost per pound. In our case lowering the cut off from 0.2 to 0.17 roughly a 15% reduction, reduces our life of mines strip ratio from 3.5 to 1 to 2.4 to 1, a full point, that’s basically 31% reduction in strip ratio that is significant. This reduction in grip has a huge impact on our operating cost; our mine life and our recoverable pounds of copper we expect to produce in our mine pin. This is what we’re have been working on as we speak and have been for the past three or four months. So those that believe that our strip will have to go back up as we progress our mine development will need to better understand that and we expect to have to be able to support that provision of our new operating plan by updating our mine plan reserves over the next few months. Then perfectly at our present plan with a 0.2 cut off, the strip ratio of 3.5 to 1 and a copper grade of 0.3 gives a mine life of 15 years, producing roughly 2.8 billion pounds of copper. At a 0.17 cut off, we’ll have the strip ratio of approximately 2.4 to 1, a full point below our current strip and this will give us a mine life of 20 years producing roughly 2.9 billion tons of copper. And so the trade off then becomes strip ratio, head grade, mine life versus profitability all tied to cost per ton milled has an influence as we well know by mining and milling cost. One of the issues we’ve talked about in the past about expanding Gibraltar further on these calls, has been the ability of the ore body to release sufficient ore in a manner lending itself to economies of scales and efficiencies and not giving by jam by trying to boost too much ore of two tight of a mining sequence and mining area. This has been a big -- this was a big concern for us at a 3.5 to 1 strip ratio. This feature change in our mine plan though could possibly give us the opportunity to revisit how we optimize the profitability of the ore bodies, similar as we engineered our second concentrators horsepower capacity either SAG mill to handle more throughput so that we could add secondary grinding capacity to up total capacity through the SAG mill. Our SAG mills have plenty of horsepower to grind more ore. Time will tell how this all comes together, but after we complete the mine plan update we'll evaluate the over economics of further expansion of our new concentrator. This could coincide with what we believe is a looming copper shortage in 2016 and ’17. Many of you may have noticed in our press release, the impairment charge taken at the JV level as Stuart will obviously speak about this in the financial section the fact is to go out there with $1.1 billion on an after-tax basis as agreed to and approved by our auditors. And likely will be enhanced with the new mine plan -- as the new mine plan develops in the near future. If we look at copper, obviously copper has better fundamentals than most of the commodities out there. While other areas of the resource and industry have been set with over capacity and lower demand copper has been an exception. For example, copper supply has grown by roughly 18% over the last five years. So little over 3% per year where for example Australian iron ore production alone is expanded at 33% little which has gone on Brazil and other areas of the world. Modest copper supply growth has been offset by declining grades, expensive development, permitting delays, and political risk. As a result in our mines, copper remains one of the best commodities over the medium and long term. Obviously lower Chinese growth expectations and the strong appreciating U.S. dollar weighted on the copper price in the back end of 2014 and into 2015, however LME cancelled warrants appear to be lifting sharply and if merchant premiers lift in the next week or so, further momentum could be coming on the price side very shortly and we saw the impact of what the ratings are now doing with the Chilean mining operations and the volatility with respect to the copper price. And as I said, the volatility is apparent from a low of $2.42 of pound in January to high of $2.80 a few days ago. We never used to see copper move $0.05 in a year, now can move in $0.40 in six or seven weeks. So where prices could go in a short term is anybody's guess, but we expect near-term strength as opposed to weakness because of supply-demand fundamentals and shops in the market. Stepping now to our projects, LA is moving forward with the province and first nations on our yearly review. Our team is presently working diligently on that. With respect to curious, we are working on the amendments to our APP permit from the Arizona Department of Environmental Quality and are awaiting the EPA's final review of our underground injections and plans. And after the open houses that have now have been completed, we expect to have our permits for advancing the project enhance sometime in the second half of the year. We're waiting on the Federal Judge's decision on completing our judicial reviews in new [proceedings] [ph] and civil action is something that we anticipated would take a few weeks for the Judge to determine. This has now dragged out for over five months and obviously show us some of the complexity of the legal issues surrounding our compliant. Time will tell on a path forward in that matter. I’d now like to turn the call over to Stuart.

Thanks and good morning everyone. As Russ has noted, copper production at Gibraltar was impacted by lower grade ores in the fourth quarter and this in turn impacted our financial results for the period. The company generated a loss from mine operations before depreciation of 916,000, which is essentially breakeven for the fourth quarter. For the full year 2014 earnings from mine operations were $52 million and the vast majority of this was generated in the first half of the year, when copper grades were higher. That being said I’d like to focus my comments on the fourth quarter and recent events. Revenues in the quarter were $65 million from the sale of 19.6 million pounds of copper and 360,000 pounds of molybdenum and those amounts are reported on a 75% basis. Copper sales volumes were slightly lower than production volumes in the quarter, so we saw a small increase in concentrated inventories over the period. We've certainly seen a drop in the U.S. dollar price of copper. Our realized sales price in Q4 fell to $2.82 a pound from $3.07 in the previous quarter. But Gibraltar is a Canadian-based operation and we report our results in Canadian dollars, so it's important to note the positive impact of the weakening Canadian dollar has had on us. When we look at the Canadian dollar price of copper over the last 12 months, it's traded in a very narrow range around $3.40 per pound, although it did drop in January. It's recovered since then and is now at about $3.50 per pound. So the Canadian currency movements have been offsetting a lot of the volatility that we've seen in the U.S. dollar copper price. Russ talked about operating costs already, but other items affecting our P&L in the fourth quarter included $2 million of transaction costs related to the Curis acquisition which closed in November, and a $7.3 million unrealized foreign exchange loss as a result of our U.S. dollar denominated debt. The GAAP net loss for the quarter was $26.4 million, and adjusting for unrealized foreign exchange loss, Curis acquisition cost and other items results in an adjusted net loss of $21 million or $0.10 a share. In finalizing our audit financials for the year, we also completed an impairment review of the Gibraltar Mine, and this was required in light of the recent declining copper prices, and also because the significant disconnect we have between the Taseko's market capitalization and the value of our underlying assets. The estimated future cash flows from Gibraltar Mine were discounted to an after-tax NPV of $1.1 billion Canadian dollars and that's on a 100% basis. That amount was credited in Taseko's book value, and so no impairment charge was necessary at the Taseko level. Turning to cash flows now. Although the Gibraltar Mine operated at a breakeven level in the fourth quarter, after taking into account corporate G&A costs, Curis acquisition cost and working capital movements resulted in total cash flow from operations of negative $8 million for the quarter. Cash flows used for investing activities in the fourth quarter included $2 million of cash consideration for the Curis transaction, $2 million to acquire copper put options and $14 million of capital expenditures, which includes capitalized striping. We also spent just under $15 million on debt service payments in the fourth quarter, including an interest payment on the bonds in October. These factors all contributed to a decline in our cash balance to $54 million at year-end. Subsequent to year-end, we sold our copper put options for $17 million, and we also received an $18 million tax refund. These two items have support of our cash balance in the New Year. With our current mine span and cost reductions in place, we believe we have sufficient working capital to get through this period of lower grades and copper prices. Regarding the put option sale in January, I should note that our hedging strategy has not changed. It's designed to mitigate the impact of short-term declines in the copper price. And in that respect, these put options did what they were supposed to do by providing an additional $17 million into our treasury. Although we have no copper put options in place at the current time, we'll look for opportunities to acquire additional puts in the future. And with that I'll turn it back to Russ.

Thank you, Stuart. Operator, we'd like to open the line for calls, please.

Thank you. [Operator Instructions] Our first question comes from the line of Steve Parsons of National Bank Financial. Your line is now open.

Yeah. Good morning, guys. Thanks for taking my call. Question for you, Russ. Do you guys anticipate putting out an updated technical report when you release your updated results?

Hi Steve, this is John here.

Hi, John.

Yeah. That's what the plan is. We'll do a reserve update based on the 20-year mine plan is what we're looking at. And that would probably come near the end of Q2. That's -- it is preliminary, yet may not be the best what we're intending right now.

Got it. Okay. Thanks. Also, just with respect to capitalized stripping, what do you expect the rate of capitalized stripping to be in, I guess, the first couple of quarters of 2015 as you're still dealing with the remediation efforts?

Separation?

Yes. Go ahead, Stuart.

Markets -- it's Stuart here. I mean, really the capitalized stripping is driven by our strip ratio and about to drop it. And John, if you want to talk a bit about where you see the strip ratio over the next six months or…

Well, the strip ratio over the next six months is going to be around two to one. And that's what we've got in the mine plan for this year with the accounting group. So that shouldn't generate much of the capital strip. Capital strip should be near zero.

Okay. Rather than -- what would you expect your CapEx to be -- capital expenditures to be for the first -- maybe the run rate for 2015?

Very nearly zero. In the circumstances that we're in, we're not spending capital.

Okay. So, I say you spent about $14 million of CapEx in Q4, we should expect that number to be much lower in 2015?

Yes, yeah. There's no major equipment purchases, there's no mill upgrades, there's nothing like that coming at us all. The only thing that might be would be if we get into a capital strip situation, but I don't see that happening here.

All right. Okay. That's it for me. Thank you.

Thanks.

Thank you. And our next question comes from the line of Mark Turner of Scotia Capital. Your line is now open.

Yeah. Thanks guys. Thanks for taking my call. May be just a quick sort of follow-up on Steve's question. So, the strip ratio sort of in the first half being about two to one, and the total mining rate, is that going to be then similar to Q4, just around the 25 million tons now that you have a sort of the reduced work force in the mine and the contracts of minor out of there?

Yeah. That's right.

Yeah. That'd be like we're going to -- 85,000 tons a day…

So, we're right about 250,000 tons a day.

Yeah. 250,000.

Okay. And then, so I guess, sort of over that period you're still going to be drawing from the stock pile of the material roughly in sort of that 15% range to feed the mill, that's still sort of the plan?

It's about 10% of the stock pile, 90% from the pit. But what's going to happen here, it turned in the middle of March. We reached into the higher grade ores in the pit again, so our head grade is going to come up through the year from what we've seen over the last five months.

Right, right. So you're saying -- okay.

We're going to be 2.6 to 2.8 head grade going forward where we've been at that 0.22 which is pretty tough slug.

Yeah. No kidding. So, then I guess the final sort of part to that and with the mining in that -- in their 25 million tons sort of a quarter range, did that sort of push back? And when we were on sight in I guess early part of Q4, the expectation was that'd sort of be back to the more normal sort of 0.3 grades by the start of Q1. But there's sort of that reduced mining rate, and then certainly sort of push that back now that still maybe it will be in this 0.25 to 0.28 also into the first part of 2016?

Yeah. No, Mark, what actually happened there is when you guys were up to see as we still thought we'd be able to access the bottom of the pit while it was moving.

Right.

And we had to move right out of there in December. We haven't been back. We've got to come at it from the top. We're only just now starting to clip the top of that ore, which is why we're assuming great come back up in March. So, we've had to go back to the top and mine our way down. We won't actually be into the heart of that until the end of the year. So that's why we're going stay in the 0.26 to 0.28 for the rest of this year.

Okay. Great. Yeah. Thanks for the color and on that and thanks for clarifying us that $80 million tax refund post the quarter two sort of improving the cash balance. Thanks guys.

Okay.

Thank you. And our next question comes from the line of Craig Hutchison of TD Securities. Your line is now open.

Just a follow-up question on Mark's question there. In terms of 2016, so the grade profile, is it going to be well under the 0.3 or is it 0.29?

Well, that's what we're looking at right now, Craig, is we're running a new 20-year mine plan. And with the differences in what mining ton cost now, it may well be worth a while to reduce our production of copper by 10%, reduce our cost by 20%, because really what our goal is just to make money. And so, we're looking for the optimum in this. We've been at a 0.2 cut off grade for 10 years since we started at the Gibraltar, but the dynamics behind that are changing. So that's remains to be seen. Our reserve, it's out there right now, still valid reserve. But we're doing an optimization. And if we do a 43-101 reserve update, it will be based on this 20-year mine front that we're working on now.

What's the capacity of your mining fleet now? I mean, I know you guys let go 100 people. Is it the 250,000 tons per day that you mentioned earlier, is that the capacity with the force you have now?

With the mining flee we have now. I mean, we'll probably have to bring some guys back and run some more trucks. We've got some trucks in the shovel parked at the moment.

Okay.

We don't have to buy any new gear. And we've got three working phases; top, middle and bottom at the pit, so it's really truck-dependent, how much we can move. And we just balance all that off. And if you go to a slightly lower cut-off grade, you really reduce the strip ratio, like Russ said. So if you're down by one point on strip ratio from 3.5 to 2.5, that's 85,000 tons of mine that you don't have to run every day. So that's where the balance is coming in now, and it's going to take us while to work through out in detail, but early indications are that 0.2 cut-off is going to be lower.

Okay. Thank you.

Yeah.

Thank you. [Operator Instructions] Our next question comes from the line of Steve Parsons. Your line is now open.

Yeah, sorry. Just a follow-up on the new mine plan. So, certainly we know there's been a step change in operating costs for a lot of operations, and there's also been a step change in sustaining cost. And we've seen this significantly for other companies. So, how should we think about your sustaining cost on a go-forward basis?

Well, you know, there's a bunch of different moving parts there too. We bought a bunch of new equipment over the last six or seven years, and our maintenance cost on that equipment for the first four, five years is low. Well, that's a honeymoon period. That's over. So our maintenance cost, like we saw in the shovels, trucks, we've got to change engines and wheel motors now. That's expensive. But again, we bought all new gear. We don't need any more gear. So the sustaining cost becomes dozers, graders…

Which we effectively budget about $0.10, $0.12 a ton.

$0.12 a ton moved.

So, if you take our gross tons of about 85 million tons I think this year, $0.10, $0.12 it'd be $10 million.

Yeah.

Right. But that numbers what you've been using for many, many years. And it seems like -- my other companies I cover, I seem to have suffered from much higher sustaining CapEx and probably higher than $0.10 a ton per ton moved. So are you not seeing pressure on that ratio?

We've got the ability to control that to some degree too. We don't -- everything that it's bought needs to be approved. And you get into a situation like now at lower grades, lower copper prices, guys come and say I need a new grader and you say; well, keep that one running for a while.

Okay. So, if you need a new grader, go look for a second-hand one.

Yeah.

Got it. Okay.

So, there's all those kind of things. So there's more equipment around that's cheaper to buy at auction. There's all kinds of opportunities. We've actually been pretty liberal with our capital expenditures because we actually have, like John said, have relatively new fleet. It's pretty Cadillac. We've got new shovels and new trucks, and till the next phase of this whole effort going forward is to look at every nickel that you have to spend because those are dollars you don't want to spend. So, if you got a truck with 20,000 hours on it that's instead of being worth $5 million new and you can get it for $1.5 million that's what you do because it's still got plenty of life on it.

I think the other thing you'll see from other companies out there too is that it's a lot more expensive to run a copper mine at $4 copper than it is at $3 copper. That's just the way it works in the world for some reason that other people's sustaining capital cost is going to come down too, it's not just us.

Okay. And lastly, I know you're working towards the new mine plan now with lower cut-off grades, but I know the initial plan had a potential to see much higher grades two years out I think in sort of in the mid 3s or 0.34, 0.35, is that still in the plan? Do you still expect to see those higher grades, or I mean can you trim somewhat?

That material will still arrive at the mill. It just might arrive with some other stuff which is a lower grade, so it will be blended down. And again, what we're going to do is look at what gives the greatest return to the company on dollars per pound and pounds produced, so how much is the profitability of the company, what we're shooting for. So, I don’t really -- this is -- it looks as if the cut-off grade is going to come down. I'm pretty sure it is going to be come down, but we haven't arrived at that decision yet.

Got it. Okay. That's it. Thanks again. That’s it for me.

Okay.

Thank you. And our next question comes from the line of David Olkovetsky of Jefferies. Your line is now open.

Hi. Good morning, guys. My first question, I think you said that you had a workforce reduction of about 100 people. It says in your case that's 12%. I just want to make sure that I'm thinking about this correct. Can you just tell me what the total number of employees and contractors is now and what it was prior to the reduction?

I don't have the exact number. It changes day-to-day. There's turnover. Even in a lay-off situation we're hiring some people for specific positions. So it just changes to much be in more specific than we've been.

Okay. Somebody mentioned that you're expecting not to spend any money on CapEx. I just would like to know what your actual plan is; presumably you guys have a plan in place for dollar spent. Can you let us know what that amount is?

Well, there's a budgeted amount, but it's more of a guideline. Each and every item on it is reviewed at the time and approved or not depending on; one, whether we need it; and two, whether we can afford it. So yeah, it's about $10 million.

Does that include any exploration?

No.

Can I ask what the major parts to that are?

I don't have it in front of me. And it varies, dependent on the need.

Okay. And then, Stuart, perhaps you could walk me through any moving parts with respect to working capital or tax refunds, et cetera, or things like that that might improve or hurt your cash position outside of operations.

Yeah. There's no -- you know, there's no big things happening outside of the operations. Obviously, we're focused on Gibraltar, getting the cost as low as we can. We've got -- we think we've got enough working capital to get through this period we're in with lower grades. And I would -- one point I would make is that we talk -- we really focus on working capital as a whole, so cash inventory and receivables, because at any given time depending on where we are on shipments or on cash receipts from customers, those can fluctuate between each other. But in terms of working capital as a whole, we're pretty comfortable.

Okay. And can you guys give us a cash number for may be a week or two ago?

It's going to be similar. It's going to be similar to what it was at year-end. But again, you know, it's really focused on working capital, so we've got -- for example, the day we've got a pretty big inventory on the dock and we've got the ships in for loading, so when we get to quarter end is that real inventory, it is cash or is it receivable, hard -- too early to say. So can we just look at a working capital as a whole?

Okay. And then, with respect to the put options, I think you mentioned that you took in $17 million from that. I do want to make sure I understand the transaction. I assume that originally you had purchased put options at a dollar price and you just sold them for $17 million, is that correct? Can you let us know what the cost was to buy those puts?

Yeah.

And then also -- and to follow-up on that is there sort of an LME copper price that you have in mind, or a COMEX copper price that you have in mind at which point you would put on additional puts?

Sure, sure. Yeah, just in terms of the trade we've done recently. I mean, we've bought those copper put options in second half last year with a $3 strike. We paid about $3 million for them in total; obviously that was higher copper price environment. We sold them in January. Copper hit a low in late January. That was about $2.45 and we sold them for $17 million, so pretty good result. And the put options in our respect kind of did what they were supposed to do for us. Going forward, we're going to look at putting on additional puts when we get the opportunity. Strike price that we pick it's going to be a function of how we see Gibraltar operating costs and what we think about our spend going forward, but certainly the strategy there hasn’t changed.

Do you guys anticipate being free cash flow positive in 2015 based on current FX and current well, maybe I don’t know take a price $2.75 U.S. for copper something like that. I think we closed, I think right now we're about $2.80, two weeks ago, we were maybe $2.55. Can you give us a little bit of your thoughts with respect to what you think in terms of cash flow generation at whatever sensitivity you reach?

Well, I think a lot of that comes out of the mine plan and out of the grade that we were able to achieve. So we don’t want to get too any specific guidance there, but as I said, I think the balance we have, the current copper price certainly don’t see the working capital dropping from where it is today. But don’t want to get too specific there. It’s a lot of different levers we can pull in the mine plan. We have a lot of different flexibility that helps us manage cash and keep the minimum working capital that we want.

Okay. Thank you very much guys, good luck.

Thanks.

Thank you. Our next question comes from the line of Joseph Gallucci of Dundee. Your line is now open.

Thanks I got one question on Gibraltar, then one on Florence, that long term number $2 cost per pound that you mentioned in the MD&A, what is the using spot oil and spot Canadian dollar for that guidance?

Well no, we don’t use spot oil. We buy refined diesel in Canadian dollars. So it’s not -- the effect that you see in the newspaper of a 50% drop, we don’t see that at the mine site, but copper price recent at $1.25 doesn’t matter on the cost though. The $2 per pound production cost is what we're shooting for based on our operating cost.

One of the important things to consider Joe and I don’t think too many folks recognize it, over the years our property cost have increased from below $0.30 a pound to close to $0.50 a pound where we are today. A lot of that now if we look at and that's refining and treatment charges and obviously shipping charges, ocean freight, well ocean freight right now -- the Baltic Index is at an all time low. We're getting proposals from shipping companies for term contracts considerably lower than what we've had in the past and those have ranged from $50 to $70 and up per ton into Southeast Asia. We're looking at potential long-term contracts that could be in the low 30s. So that will have a significant impact on our shipping cost. In the same context and I’m sure most of you folks are aware of the discussion around high quality concentrates and what kind of premium they are generating in the marketplace, that’s a very important consideration for Gibraltar, we know for well that one of our spot shipments this year was sold to a trader that ultimately blended that with Codelco like the Codelco con coming out of higher concentrate coming out of South America. So we believe and I think if you look at all the trade rigs right now, we believe that there is going to be a significant change in the marketing of concentrates. We're seeing that there is a very difficult time selling poor quality concentrates. You're having a okay time selling mediocre concentrates, but you’re having no problem selling concentrates like Gibraltar and having value in some of the other clean concentrates in Western Canada. So that bakes the question where could ultimately could TCRC charges go? Right now even with our weighted average between our trading company and our joint venture partners, we are probably close to $90 a ton, $90 a ton and $0.09 a pound, where we know spot is like ADME per clean concentrates and we know that that is coming down. So we look at C1 cost as a total, but a lot of people don’t talk about what could ultimately happen with the off property cost in that equation. So we could conceivably go, let’s say we could go down from $0.49, $0.50 a pound to $0.40 or $0.42, well that flows right through to our bottom line. So those are important considerations going forward too and it's just starting to unfold as we speak with respect to the concentrate market in 2015.

Okay then how about for the first half of the year? What can we expect I mean as those things start to materialize in the second half of the year, what's a good run rate we can use for cost on a per pound basis for the first half of the year, Q4 indicative of what Q1 and Q2 would look like?

I don’t know, it’s still too early, it's still too early to predict, but we believe it will be lower. As soon as head grade comes back up Joe, if we've got exactly the same spend as we did in Q3 and Q4, or if we got $10 per ton mill and then your head grade goes up from 0.22 to like John said to 0.25 or 0.26, cost per pound comes down pretty dramatically.

Okay. And then the other question is on Florence. I know you mentioned there is negligible spending on Gibraltar, but once you get the permit which I think obviously you will on Florence, what's the spend there and do you need to draw down on that old Red Kite facility that Curis had in place to fund any spend on Florence?

That will just depend on what our financial condition is like in terms of what we spend. So it's too early to say. If copper is $3.30 a pound and John's cost are $2 a pound and John and his cost are $2 a pound, well that changes the dynamics with respect to the cash that we made generally put into Florence and is like the previous question was, are we going to be cash flow positive? Well all those things are going to come into play as we move forward in the year. So there is a lot of like moving levers. The first thing to do is get the permit. Then we can decide what we want to do. Another thing that we're looking at in Florence right now is when we round the original feasibility study and all the research, there has been quite a dramatic change as you all know with respect to the drilling rig activity in the United States. Those are pretty similar drill rigs that we would be using and one of the big expenditures at Florence was the dollar spend in drilling holes. So we're working through that whole process to find out the potential impact that it could have on our -- both on our capital cost structure and our final MPV once we start moving forward. So there is a lot of things like I said, there is a lot of things at flux right now. So we will just evaluate as they're presented to us.

And how about just on the last question on the Red Kite facility, is that something that you would want to retire at some point or would you still look to draw down on it if you needed money to spend on Florence?

Yes look, we're still a year away from the maturity on the Red Kite. It is higher cost debt. It's 11% debt and like we there is probably better options or at least lower cost options to finance our project going forward. But as Russ said, it's early days and we've got some work to do and some decisions to make before we get to that point and who knows maybe we will be funding the PTF out of Gibraltar cash flow. So it's just a little too early to say.

Okay. Perfect thanks guys.

Thank you.

Thank you. Our next question comes from the line of [Matt] [ph] of Barclays. Your line is now open.

Yes thanks guys. Thanks for taking my questions. Just a couple of follow-ups, I guess with regard to the earlier question on cash flow just so I understand it correctly, it sounds like you got $18 million from tax refund and the $17 million from the put sales, but I think you mentioned that cash as of few weeks ago was essentially flat. So is that just working capital and cash burn from operations in Q1 that makes you flat after the $35 million inflow?

Yes, working capital is a big factor as I mentioned. So where cash sits at a given point in time on March 31 is a big -- can fluctuate based on inventory and timing of shipments and stuff. But yes, roughly speaking its similar levels of working capital to what we have there or similar levels of cash I guess is what we had at year end based on what we see today. But we will end the quarter with probably bigger receivables, bigger inventory. So one of the things in it you just have to look at the whole picture.

Yes that's fair and so Stuart just big picture here, as we think about 2015 obviously a lot of moving parts, some uncertainty as there always is in mining and commodities. How do you feel overall about your liquidity just going through these times of with some uncertainty, it sounds like you feel better about the back half of '15 but just big picture overall liquidity today you feel okay or?

Yes. I think we feel comfortable with it as I mentioned earlier it's something we focus on. We're really focused on cost at the mine, but getting our C1 cost as low as possible, but big picture I’m comfortable with our working capital right now.

And then maybe that just dovetails into another big picture question I guess from a balance sheet perspective, each quarterly report that comes out, there is certainly a lot to talk about Aley and Prosperity and always got Florence. How do you think about pursuing these projects with your current -- your current leverage and current balance sheet? What should bondholders be thinking about the CapEx needed to pursue these projects? Is it still few years off in your mind or how do we think about that?

Well in terms of timing there is some permitting timeframes that we have to meet and as Russ mentioned, decisions to move forward on any projects, once we have the permits are going to be made based on the circumstances and copper prices and a bunch of other factors in play at the time. So we don’t have a CapEx, clear CapEx schedule right now, but recognize those are -- if we do move forward, those are big projects and we have to look at how we finance them. The other thing we thought about on all of our projects is the potential to bring in JV partners and not the way of mitigating some of that risk as well.

And assuming debt would be some component of large project financing, do you have a sense for what your existing bonds permit for additional debt, would you view these bonds in place of seven and three quarters as being restrictive on that front?

Yes, I think that's public info. The bond have covenants on them that further restrict us taking on additional debt. So if I want to finance a bigger project, then those bonds are going to need to be dealt with at some point. But in terms of restructuring or refinancing or something like that and that's if we're blasting ahead on major CapEx spend. But in short term, I think if we do the PTF or we move forward on permitting on the other projects there is no issues there with the bonds and we can do that.

Great and just a last housekeeping question on the exploration side just for the income statement, what's a good number? I think it was about $6 million of exploration in '14? It sound like it's going to be much or you're not going to do a whole lot of exploration. What should we be modeling for '15?

Yes. We've certainly cut back our planned expenditures on those areas, but one point I would make here Matt is results obtained in Q4 there has been an accounting change in the way that we do that. We've had an Aley reserve statement come out and that's changed the way we account for that. We're now capitalizing those project development cost going forward and also I am curious our expectation as most of those project cost will be capitalized as well. So there will be -- as I mentioned there will be small account and for the most part they will be capitalized, it won’t affect EBITDA.

Thanks helpful. Thank you.

Thank you. I’m showing no further questions at this time. I will hand the call back over to Management for any closing remarks.

Thank you very much everybody. We look forward to talking to you in six weeks, eight weeks. Okay. Thanks, bye.

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Have a great day everyone.