Taseko Mines Limited (TGB) Q1 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Taseko Mines First Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Brian Bergot, Vice President, Investor Relations. Sir, you may begin.

Thank you, Takia. Good morning, ladies and gentlemen, and welcome to Taseko Mines' First Quarter 2017 Financial Results Conference Call. My name is Brian Bergot, and I am 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'd like to introduce everyone on the call today. We have Russell 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 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, and thank you for joining us today. My comments are going to be brief, as the results speak for themselves as they did last quarter and are clearly illustrated in our press release. However, some important points to notice. Revenue in the quarter was CAD 104 million, up $10 million from the $94 million achieved in Q4 2016 despite sales being similar quarter-over-quarter. Correspondingly, EBITDA was up from $46 million to $53 million. Effectively, in the last six months, we have generated nearly $90 million in earnings from mining operations. And our average selling price over the past 6 months was approximately USD 2.50 a pound at an exchange rate of approximately CAD 1.32 to U.S. dollar over this period, giving an average Canadian selling price of $3.30 a pound. Over the past week or so, we have seen a lot of volatility in the Canadian -- in the copper space. The Canadian-denominated price has been as high as $3.65 per pound. So while we can't predict copper price in U.S. denominated dollars, we have a very good heads in terms of revenue in Canadian dollar terms against the backdrop of U.S. price volatility. Our total spending at Gibraltar has been very consistent over the last 2 years quarter-over-quarter, and we believe that this level of spending will continue. We have very good C1 costs, as is evident from our recent results, where we've seen byproduct credits increase from $0.03 per pound in Q1 2016 to $0.15 per pound in this most recent quarter, after we restarted our moly plant a number of months ago. We anticipate moly prices to remain near the levels we experienced in this quarter. And we expect C1 costs to remain at present levels, depending on moly prices, exchange rates, milling cost performance, all things equal. Recovery was somewhat affected by the processing of some higher-oxidized ores in the period, as we've been in a new pushback. And that, to some degree, also affected mill throughput tonnage. Generally speaking, everything at Gibraltar is working the way we want it to. And we anticipate being able to generate very good cash flows for the foreseeable future. We have complete control over our mining and milling processes and subsequent control of costs. I would bet a dollar that we don't - no other open-pit mine any in the world whose cost per ton milled is roughly USD 6.50 a ton as we do. And this is ultimately what is driving our profitability at Gibraltar. We continue to spend money on our projects, advancing all of them. At Florence, we're drilling point-of-compliance wells, and we anticipate spending a few million dollars per quarter over the next few quarters there. We're excited that we are coming to the end of our permitting process and are looking forward to moving the production test facility towards completion in the months ahead. At Aley, we are working on metallurgical studies, and we expect to have a new 43-101 published in the not-too-distant future. As well, we are in discussions on offtake with Chinese steel representatives, and we'll see where that goes in the months ahead. We are continuing to work with the Province of Government on permits for more work on our New Prosperity project, while at the same time we await the judge's decision on our court challenges to the panel to report findings. With that, I would like to now turn the call over to Stuart.

Thanks, Russ. And good morning, everyone. And we're pleased to report another quarter of strong earnings and cash flow generation. First quarter earnings from mine operations before depreciation were $53 million, and adjusted EBITDA was $48 million. These results represent a second consecutive quarter of strong earnings as a result of improved metal prices and production at Gibraltar. Quarterly revenues were $104 million from the sale of 30 million pounds of copper and just over 600,000 pounds of molybdenum. And those amounts represent our 75% share of Gibraltar sales volumes. Our realized sales price was USD 2.72 per pound, and that includes $0.07 a pound related to the positive provisional price adjustments which arose in the quarter because of the increase in copper price. Total operating costs fell to $1.33 per pound produced, 10% lower than the previous quarter of $1.48 as a result of increased copper production and higher byproduct moly prices. We also capitalized $12 million of stripping costs in the quarter. That's an accounting allocation that will vary from time to time depending on mining activity, but it's important to note that our total site spending, which includes capitalized strip and operating costs, has maintained at a low level in recent quarters. Other significant items on the first quarter P&L include a $2.7 million unrealized foreign exchange gain on our U.S. dollar-denominated debt and a $1.6 million unrealized derivative loss due to increasing copper prices. GAAP net income for the quarter was $16.5 million or $0.07 a share. And after adjusting for unrealized foreign exchange and derivative losses, we're reporting adjusted net income of $15.3 million, which is also $0.07 per share. Turning to cash flows now. Taseko generated operating cash flow of $80 million in the quarter, but that amount is net of $12 million of negative working capital adjustments related to increased accounts receivable. Our operating cash flows also include $44 million of cash proceeds from the sale of a silver stream to Osisko Gold Royalties. The stream transaction effectively monetizes our 75% share of Gibraltar's silver, which immediately strengthens our balance sheet and has a minimal impact on our cost structure going forward. And in fact, you'll see in our Q1 numbers that the increase in molybdenum prices more than offset the lost silver byproduct credit. CapEx in the period included $12 million for capitalized stripping and $3 million of project costs at Florence and Aley. We also spent $5 million on capital lease payments, and we continue to steadily pay that debt down. We ended the first quarter with a cash balance of $149 million, which is a $60 million increase over the quarter. And at current prices, we'll continue generating positive cash flow over the remainder of the year. And with that, I'll turn it back to Russ.

Thank you, Stuart. Operator, we'd like to now open the line to questions.

[Operator Instructions] Our first question comes from Brett Levy with Loop Capital. Your line is open.

Hi guys, very strong quarter. Congratulations. You have capital structure options that I think - talk about your choices, your thoughts on this at this point.

Well, as you say, we - our position has improved significantly over the last six months. I mean basically $90 million of EBITDA in the last two quarters. And cash balances doubled - more than doubled, so we're feeling like we're in a much better position than we were a couple quarters ago. In terms of specific announcements or specific plans, we don't really have any announcements to make, but I'll just tell you that we're certainly continue to look at it, continue to monitor the markets. And we'll do something at the right time when options are there for us. So yes, pretty much -- that's pretty much where we are today.

All right. And with respect to the 4 properties, you want to continue to exercise your option on all 4. Are you starting to get a view that copper is -- well, did relatively well. Looking at other options or something along those lines. Just talk about kind of where you are with respect to the assets you have, the assets you might kind of want to monetize or something along those lines.

Well, that's a -- that is you asked for a lot there.

I'm sorry. It was a very open-ended question.

Yes, it was pretty open ended. Well, as I guess said in my opening remarks, we're continuing to spend money on all our projects, not much because -- you have to remember, 9 months ago, copper was $2.20 a pound or $2.15 a pound. So we were watching our balance sheet, but having said that, we're moving ahead on our most -- our closest project to production, which is Aley - or I'm sorry - which is Florence. Like I said, we're continuing to spend money within the constraints of our permit requirements right now. And when we finalize the final permits, then we will be moving ahead with construction of our production test facility. So that is the next thing on the agenda for us while at the same time we continue to do engineering and other technical work on the other properties.

All right, guys. Thanks for it and apologize for the open-ended questions. Thanks for the answers.

[Operator Instructions] Our next question comes from Derick Ma with TD Securities. Your line is open.

Hi, thank you. Just a quick question on Florence then, I guess. Any time lines right now on the appeals process and how that is coming along?

John, do you want to...

Yes. What we've got right now is the state permit. Appeals process is complete, and we're waiting for -- the appeal was dismissed. We're just waiting for an order to discuss that. So the state aquifer protection permit is done. It can still be challenged in court, but the agency actions are complete. And UIC is in the EPA, Environmental Protection Agency Permit, the federal permit is evident to your process, we think, probably three to six months before that's complete. And we're pretty close to turnout.

The important aspect, I think, of -- with all this permit challenge is they're not challenging the company anymore. Their challenge is on the state agencies. And once the state agencies have done all their work and raise the permits, it's a very difficult matter to have those overturned.

And then a question on the higher strip ratio and capitalized stripping in the quarter at Gibraltar. What should we be expecting in terms of the strip ratio and capitalized stripping going forward for the rest of the year?

So it's -- Derick, I think it's pretty steady through the year.

Yes.

Okay. Thank you.

[Operator Instructions]

I guess that's it. Okay, folks, thanks very much. See you next quarter. Bye-bye.

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