Taseko Mines Limited (TGB) Q1 2016 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to the Taseko First Quarter Financial Results Conference Call. [Operator Instructions]. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, today’s conference may be recorded. I would now like to introduce your host for today’s conference, Mr. Brian Bergot, Vice President-Investor Relations. Sir please go ahead.

Thank you, Lis. Good morning ladies and gentlemen and welcome to Taseko Mines’ First Quarter 2016 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 close 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 investor for a question-and-answer session. I would 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 and thank you for joining us today to discuss our Q1 results. During the first quarter of 2016, we effectively broke even in terms of earnings from mining operations. With the production cost denominated in U.S. dollars per pound being roughly equivalent to our selling price for the quarter. The results are consistent with how we viewed 2016 unfolding with respect to anticipated to copper prices and the head grades we would process during the first half of the year. And the effects it would have on our cost structure and our ultimate financial performance. Stuart will speak to those in a few minutes. We will have as communicated in the past a similar type of year in 2016 as we had in 2015 in terms of great profile, low at the beginning of the year increased in the later part of the year. We have done well on our costs and recovery year-to-date. Year-to-date our head grades is approximately 0.23% copper and we achieved 84.4% of recovery. Recovery is most certainly influenced by head grades we are achieving nearly 85% recovery with the head grade in mine is pretty impressive. And as we move forward over the second half of 2016 both head grade and recovery will both increase. In very simplistic terms once we get through this path we would expect to grade and our grade increases we will see a drop in strike cost per pound, but the spend being relatively consistent and head grade increasing by 15% towards year end. And ultimately we can see our on-site cost dropping back to the $1.45 to $1.55 range that we have seen in the past. In conjunction with the significantly declining property costs which we would negotiate in terms of ocean freight and TCRC’s we are forecasting C1 cost in $1.75 to $1.85 range by year end. So all things remaining equal. These costs are exclusive of approximately $1.5 million per month, power cost deferral we are now seeing which is incorporated which is not incorporated into our C1 cost but if it was we would have reduced these by approximately CAD0.15. We are continuing to see operating cost decline in the per ton basis in the pit and in total cost per ton milled driven is indicated by shorter hauls and increased productivities. In March we hit the $8.83 per ton milled a further reduction from the $9.41 per ton milled in Q4 2015. Where we will end up ultimately is still a question mark because we are still seeing input cost decrease in a number of important areas. For example grey niobium, which is a very big expense dropped by roughly 10% over the year, year-over-year. This is primarily a response to a drop in world steel prices and aggressive marketing by offshore competitors into grey niobium market in Western Canada. However in conjunction with that a very important and overlooked aspect of our costs is our ultimate productivity per man hour or truck hour or shovel hour as I spoke about. For example in March our truck productivity was 16.6% over our budget and it turned cost per operating hour on those same trucks was 25.4% under budget. All of this is coming about us as a result of our new mine plan pit configuration and pit working conditions. As a result because we are moving much faster and more efficiently we are dropping through the ore body faster and we will be approaching higher grade ore horizons earlier than anticipated. All good things heading in to the back of 2016 and 2017. Generally speaking things are going pretty well operationally now we just have to wait and see where metal prices sort out over the next little while. Are we going to go back to $2 per pound may be we are not far from that today. But there is a lot of noise in this market and anything can happen. We could just as easily be at $1.95 as to $2.30 a pound so we just have to tap it out and keep finding ways to control or lower our costs. The summary and though Molly is prepped up even though the steel business isn’t great and it looks like may be Sierra Gorda and some of the others operations won’t produce as much Molly as anticipated as the market gets bounced pretty quickly in relation to outside events. Certainly see our Gorda head a major over hang on what was going to happen in the Molly market in 2016, 2017 and going forward for a few years. Presently Molly at $7 per pound, which is where we are today we have been thinking about firing up our circuit again and that would be an added bonus for us getting to Molly by product credit happening. We continue to pursue opportunities though our value chain to save a $0.01 here, $0.01 per pound here and there. And over time those pennies actually turn into $0.10. And as I've indicated in the past, during times like this, its survival and surviving we’re with adequate liquidity unit declining for stabilizing costs. Regarding our projects, we believe that the final approvals will come in our Florence project in the not to distant future. And once those are received we will determine the next course of action depending on the copper price and our liquidity position. We continue on with our freedom of inspirational quest relating to prosperity and we’re advancing our judicial review and other legal matters on the property. As you know, we just defeated a corporate leader’s proxy pipe, which unfortunately cost our shareholders a fair amount of money to defeat. It was a four-month exercise dealing with liars. It's a pretty unscrupulous in moral characters. It used up an inordinate amount of management and directors time. And I want to thank all of those shareholders who supported us. And now the management team will get back to working through this during copper prices – pricing and get us through a reasonable shape for the next cycle, which will be sure to come in the not to distant future. I’d like now turn the call over to Stuart.

Thanks and good morning, everyone. As Russ already noted our head grades, lower than normal in the quarter and that resulted in lower copper production. And this combined with the challenging copper price environment that we're in resulted in breakeven operating margins at Gibraltar for the period. Total operating costs were $2.11 per pound produced and the realized sales price was $2.10 per pound. Earnings from mine operations before depreciation were negative $300,000 for the quarter, so effectively breakeven. Cash flow from operations was negative $4.1 million and includes corporate and other costs and also working capital movement. And adjusted EBITDA was a similar number of negative $4.5 million for the quarter. Copper revenues were $64 million from the sales of 22 million pound of payable copper, which is our 75% share at Gibraltar volumes. The U.S. dollar price of copper was quite volatile in the period, dropped to below $2 a pound in mid-January, and then recovered in February and March. But much of that U.S. dollar price volatility was offset by currency movement, and the Canadian dollar strengthened significantly in February and March. On the cost side, we’re able to maintain our site operating costs that the low level achieved in the fourth quarter of last year. Off property costs came in at $0.33 per pound, which is down from $0.39 a pound a year ago, as we benefited from the new long-term contracts for ocean freight and treatment and refining costs. Other significant items affecting the P&L this quarter included $2.8 million of cost related to the proxy contest in the special shareholder meeting that was requisition mid-January. And unrealized foreign exchange gain of $19.6 million, which relates to the impact of the strengthening Canadian dollar on a U.S. dollar denominated debt and stock-based compensation expense of $1.6 million. The GAAP net loss for the first quarter was $1.5 million or $0.01 per share. Adjusting for the unrealized foreign exchange gain, the derivative loss, the cost of a special meeting and other non-recurring financing cost, results in an adjusted net loss of $18.1 million or $0.08 for share. Capital expenditures remained at a low level with a total spend of $1.7 million in the quarter and this includes about $900,000 of CapEx at Gibraltar, which is mostly for capitalized stripping and $700,000 at the Florence project. At the end of January, we entered into a new $70 million senior secured credit facility with an affiliate of Red Kit. The first drawdown on the facility of $33 million was used to repay the Curis loan due on May 31 and pay financing costs. There were no principal or interest payments on this debt until the maturity date, which is in March 2019, subject to payment of an extension fee prior to June 30, 2017. And as part of the transaction, we also issued a copper call option and warrants for lender. This allowed us to minimize the interest rate and align the lender with shareholders by giving them upside participation when copper prices recover. Another positive development in the first quarter was our new power rate deferral agreement, BC Hydro. And Gibraltar entered into this program effect at March 1. And we’ll be able to defer payment of upto 75% of our electricity cost going forward. This equates to a cash savings of about CAD0.15 per pound. We ended the first quarter with cash balance of $66 million and in April, we drew down an additional $20 million under the credit facility. With this facility in place, we believe we now have sufficient liquidities to see us through this period of lower metal prices. We also put options in hand for the second quarter at a strike price of $215 per pound, and we'll continue to look for opportunities to extend the protection later into the year. And with that, I'll turn it back to Russ.

Thank you, Stuart. Operator, we’d like to open the line of calls please.

[Operator Instructions] Our first question comes from the line of Adam Mitchell with Polar Asset Management. Your line is now open.

Hi guys. Just a quick question, what if any plans you guys have to adjust the 2019 maturity? Have you thought about it yet or…

Certainly. It’s Stuart speaking here. We certainly think about it, we've got still some time obviously before 2019. And we talk to advisors and look for different things, but nothing – nothing, we've seen it has made sense yet, so that’s kind of where it is today.

Okay. And second question if I may, the rational for driving that $20 million under the secured facility.

Yes. We had – I guess we had bond interest payment due in April. We’re in the lower grade section of the mine plant as Russ described, and so just one has to crystalize that and keep a reasonable cash balance here in the first half of the year. So…

Okay, thank you.

Yes.

[Operator Instructions] Our next question comes from the line of Orest Wowkodaw with Scotia Bank. Your line is now open.

All right, good morning, guys. Thanks for the cost guidance that you gave us. I was wondering if you could also give us some direction or cost per ton in terms of these onsite cost. If you are expecting cost per pound to be in the $1.75 to $1.85 by year-end, where do you cost per ton milled onsite please?

Hi, Orest. This is John here. The per ton milled will stay around the $9 – between $9 and $9.50, that’s our plan. As we start to get into better grades we’re going to go through calls, but we also get better recovery. So it just balances out of that $9 to $9.50 a ton.

And should we anticipate something similar for 2017?

Yes. We’ve really stabilized the operation out, the guys have got there, their arm is around it and it’s a pretty – day-to-day they’ve got pretty good here and what’s going to happen.

Look, I think by the time we develop our new budget for the next…

By August we’ll probably get some – maybe in our next call.

Yes, certainly. Yes, maybe by the next call, we should know what we’re going to be looking at the grade in 2017 or so. And we think generally speaking John said right now we’re going to be returning to more of that $0.29 to $0.3 head grade area. So that will be timely for us overall.

And then that’s for 2017, the $0.29 to $0.3?

Yes…

That’s what it’s looking like, yes, we’re working on it now, but it looks pretty good.

All right. Thanks a lot guys.

Yes.

[Operator Instructions] We have a question from the line of Pierre Vaillancourt with Laurentian. Your line is now open.

Hi guys, I’m wondering if you could just review your CapEx going forward here just.

Hi, it’s John here. So really other than capital stripping which varies depending on where we are in the pit, there is not much going forward. But this year we got a bit time some geo technical, the watering infrastructure less than $2 million and then I don’t see any different for next year. I mean we’ve made the investment into this place, it’s done.

Okay. So going forward for the year, that number when…

Yes. We’ve got all the gear we need in this new, so we don’t really need to put a lot of more capital investment into…

Yes, absolutely. I think I’ve told you. I think we’ve talked about it. We do things a little differently than some of the other mining companies, but basically we allocated cost per ton mined in terms of capital. And John and I figured that it’s right around $0.10 per ton. And so this year we’re going do probably – what we’re going to do now like $5 million or $6 million of capital?

No, no, not even.

Not even that.

No.

So next year, it will work all over time here. So at the worst if you say that we’re going to move $80 million or $85 million ton, that’s all material and you say that’s a $0.10 there, CAD$8 million.

Yes. That’s on average. We’ve just come through a high capital spend so we’re in a low part of the cycle…

Yes.

Okay.

But that’s later on.

We got – John right now got eight truck part, so we don’t want to spend any capital on truck, when we get – once we want to ramp up a bit.

Okay. So just to summarize, you’re roughly $8 million which is built into your cost per ton in addition to the $2 million or so for our capitalized stripping?

No, no. It’s not built into cost per ton. It’s an average over the life of the mine, you run about $0.10 capital.

Okay, okay.

It’s just an estimate for sustaining capital average.

Okay, okay. But that’s the number though?

Yes.

It’s $8 million in the capitalized stripping.

Right, yes.

Up $2 million?

I don’t – we don’t have any big capital until we decide to move our …

That’s right, that’s 2020, 2021, I think.

Yes. So we feel like they are long ways.

Okay, thanks very much.

[Operator Instructions]

Okay, folks. It looks like those are all the questions. Thanks very much. These are getting shorter and shorter every quarter. So see you at the end of the next quarter and have a nice summer.

Cheers.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect. Everyone have a great day.