Taseko Mines Limited (TGB) Q2 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. And welcome to the Taseko Mines Second Quarter 2018 results. At this time, all participants are in a listen only mode. Later we will conduct a question-and-answer sessions and instructions will be given at that time [Operator Instructions]. As a reminder, today’s conference maybe recorded. I’d now like to turn the call over to Mr. Brian Bergot, Investor Relations. Sir, you may begin.

Thank you, Victor. And thank you everyone for joining us today to review Taseko's Second Quarter 2018 Financial Results. My name is Brian Bergot, and I'm the Vice President, Investor Relations for Taseko. Our financial results were issued yesterday after market closed and are available on our Web site 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 the first quarter business and operational results, we will open the phone lines to analysts and investors for question-and-answer session. As usual before we proceed, 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 risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. I encourage you to read the cautionary note that accompanies our second quarter results, news release, as well as the risk factors particular to our Company. 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. As I stated in our previous call, our first quarter head grade was low and recoveries pull as a result of oxidation of the copper mineralization as we developed our next pushback in the Granite pit. However, near the end of the first quarter, we began to see increased head grades and recoveries back in the high 80s as we transition through those ore zones. And although the higher grades did not affect first quarter performance, we knew things were improving. This trend is continued in the second quarter with increasing head grades and better recoveries. As I indicated in May, as grade and recoveries improve, we’d be returning to good operating earnings and cash flow and that is exactly what has happened. Copper production rose nearly 50% quarter-over-quarter from the 23 million pounds in Q1 to nearly 34 million pounds this quarter. Earnings from mining operations grew from $14 million to $36 million. So we're back on track with our plan and in fact things are progressing quite well into Q3. In July, we produced just over 15 million pounds of 87% recovery while processing just under 90,000 tons of grades who are concentrated. So I will reiterate what we have previously said that we expect the rest of 2018 to be good from a production position and at U.S. $280 to $3 per pound price of copper, which is generating very good operating earnings and cash flow. Certainly, all the noise around the trade around the trade dispute has affected mining companies exporting to Asia, but we believe that is totally overblown. This copper is effectively trading around a mean copper price of U.S. $3 per pound plus or minus, which continues to give us very healthy margins. As the market update specifically dealing with copper, I would like to say a few words. The Chinese imported approximately 430,000 tons of concentrates from the USA in 2017, accounted for roughly 2.5% of total concentrated imports. Those concentrates came from three ports [indiscernible] Mine, Capstone’s Pinto Valley Mine, Lundine’s Eagle Mine and KGHM’s Robinson mine. China only imported 3,000 tons of refined copper from the U.S. in 2017, an insignificant portion of the total of over 3 million tons of refined copper imports into country. China though imported roughly 530 --5,000 tons of scrap from the U.S in 2017, accounted for about 15% of total scrap imports into China. U.S scarp imports in China have not been added to the 25% tariff so far. If that 25% that was put into U.S. -- on to U.S. scarp exports that could potentially get up 15% Chinese scrap imports and refined copper could definitely jump in price. Additionally, Pan Pacific Ccopper one of the largest copper producers in Asia sees no slow down in copper’s consumption in China, and they expect copper to rebound to near the $3.20 from now until year end as the metal deficit grows that we’ve all been talking about. Turning to our projects. Our Florence foreign project is coming along nicely and we expect to be commissioning the plant in the next few weeks. We’ve done a number of tests and these tests are showing our solution moving through the ore body faster than we had predicted which could have major economic impacts on annual copper production once we get the commercial plant running. All technical data we see so far is confirming our feasibility study work. With Florence team one of the few -- only few copper projects coming online in the Continental U.S. in the next few years, its capital production will certainly displace foreign refine copper imports. So it’s advancing towards production at an opportune time for this Company. We’re continuing to work on [Alley] project and we’ve just in the final stages of completing the bulk sample program, which will allow us to produce metal for marketing purposes. So things are going the way we like to see them. I would now like to now turn the call over to Stuart to talk a little bit about our financial.

Thanks, Russ and good morning everyone. I can provide some further details from our second quarter financials that we released yesterday. And the improved copper production had significant improvement in our financial results over the previous two quarters as Russ described. And we reported earnings from mine operations before depreciation of $36 million and adjusted EBITDA of $32 million for the quarter. Revenues for the period were $94 million from the sale of 24 million pounds of copper and approximately 300,000 pounds of molybdenum. Our realized copper sales prices were $313 per pound, which was in line with the average LME price for the quarter. Moly prices declined slightly in the quarter to an average of 1,165 per pound and we had some technical issues in the moly plant, which impacted recoveries. As a result, Molly production did not increase in line with the increased copper production and byproduct credits per pounds decreased to $0.12 from $0.23 in the previous quarter. The plant is running well again and moly prices are back up above $12 a pound. So we should see increased byproduct credits, going forward. Site operating costs increased in the second quarter primarily because we capitalized the smaller proportion of waste stripping shipping costs this period, but also because of the increased mining rate. We capitalized $7.7 million of waste stripping which shipping costs in Q2 compared to $14.7 million in the previous quarter. Our total operating cost per pound or C1 increased to $198 per pound that’s 15% lower than the first quarter because of the increased grade and copper production. We also recorded $18 million of depletion and amortization expense in the second quarter compared to $15 million in the first quarter and $12 million a years ago. These increases relate to amortization of capitalized stripping costs as majority of ore tons are now being mined from the new section of the Granite pit. Other significant items on the second quarter P&L include $7.7 million unrealized foreign exchange loss on our U.S. dollar and $1 million unrealized gain on copper productions. The GAAP net loss for the second quarter was $4.7 million or $0.02 per share. After adjustments for the unrealized foreign exchange and derivative gains, we are reporting adjusted net income of $2.3 million, which is $0.01 per share. Operating cash flows for the second quarter were $20 million and were negatively impacted by $11 million of non-cash working capital adjustments for increased accounts receivable and inventories. Our operating cash flows were offset by $24 million of cash used for investing activities, which included $7 million of capitalized stripping and $4 million of other capital expenditures for Gibraltar. We also made cash payments of just under $10 million for construction of production test facility at Florence. In terms of financing activities, we made a semiannual interest payment of $14 million in June and equipment lease payments of just under $3 million. And we also supplemented our liquidity with the new $9 million equipment module, which was completed in June. We ended the second quarter with $52 million of cash on the balance sheet a reduction during the quarter as was as expected. And looking ahead to the rest of 2018, spending at Florence will decline as construction of the reduction test facility nears completion. And we expect to finalize an insurance claim for the Cariboo wildfires last year and expect cash proceeds in the range of $4 million to $10 million for that. Copper prices have obviously declined over the last month. With prices as they are today, we should be able to maintain a healthy cash balance going forward. And we also have some downside protection in the form of put options, which protect the minimum price of 2.80 per pounds for 30 million pounds of copper over the second half of the year. And with that, I'll turn back to Russ.

Thank you, Stuart. Operator, now open the line to discussion.

[Operator Instructions] And our first question comes from the line of Craig Hutchinson from TD Securities. You may begin.

Question on strip ratios. Can you give us a sense of what we’re going to be looking at for the back half of this year? I mean, you’re down at 1.9 to 1 now, which I think is your reserve strip. Is that something we can model going forward, or do you think it’d be quite variable from next few quarters?

Well, the actual strip ratio, its John here Craig, actual strip ratio stayed steady at about 2.5 but it gets fogged a bit by the amount of material, which goes in and out of the ore stockpile. So in Q2 we had a couple of million tons of ore within the stockpile, where into Q1 and Q4 of 2017, we had ore coming out of the stockpile. So that effectively calculate strips, but the actual amount of rock being moved should be constant.

So 2.5 is what you -- we're guiding for?

Yes, take out that inventory adjustment, it stays about 2.5.

So I guess an update as we should be modeling $5million to $10 million of deferred stripping costs for quarter?

Yes, I think that’s the range, that's a reasonable range Craig.

[Operator Instructions]

Thanks very much folks. So see you next quarter. Thank you operator.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.