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Taseko Delivers Solid Operational Performance and $51 Million of Adjusted EBITDA in the Second Quarter

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Taseko Delivers Solid Operational Performance and $51 Million of Adjusted EBITDA in the Second Quarter

 

 

 

 

 

Taseko Mines Limited (TSX: TKO) (NYSE American: TGB) (LSE: TKO) reports earnings from mining operations before depletion and amortization* of $50.3 million, Adjusted EBITDA* of $50.9 million and Net income of $18.7 million, or $0.08 per share, in the second quarter of 2020.

 

Russell Hallbauer, CEO and Director, commented, “In March, in response to a lower copper pricing environment, we seamlessly implemented a modified mine plan at Gibraltar and are very pleased with our operating results for the first half of 2020, and our response to the changing market conditions. The copper price recovery from the lows in mid-March is remarkable and demonstrates how strong the fundamentals for copper really are. With current pricing at US$2.95 per pound, copper is 20% higher than the second quarter average price. This price increase flows straight to Taseko’s bottom line and directly increases cash flow from Gibraltar. While we remain very bullish on the prospects for copper, it is still early days in the recovery and we have no intentions to adjust this current mine plan.”

 

Stuart McDonald, President of Taseko stated, “Strong second quarter production of 36.8 million pounds of copper and 644,000 pounds of molybdenum resulted in a significant uptick in quarterly financial performance. Total operating costs (C1)* of US$1.34 per pound combined with average copper prices for the quarter of US$2.43 per pound provided Taseko with a strong operating margin of $50 million (excluding depletion and amortization) for the quarter. Our cash balance increased to $64 million at the end of June, after making the C$15 million interest payment on our outstanding bonds.”

 

“Copper production for the first half of 2020 was right on plan and in line with the higher end of our original guidance. Production and site spending in the second half of the year is expected to be at similar levels as the first half,” added Mr. McDonald.

 

Mr. Hallbauer continued, “As previously disclosed, we are expecting the draft Aquifer Protection Permit to be issued by the Arizona Department of Environmental Quality tomorrow. This is a very exciting milestone to have achieved and is another important step closer to adding 85 million pounds of low cost copper production to our Gibraltar base.”   

 

*Non-GAAP performance measure. See end of news release.

 

“The US Environmental Protection Agency is nearing completion of their technical review and no significant issues have been identified.  While progress is being made, the COVID-19 situation in Arizona has had an impact on the permitting process and this has extended the timeline by a few months, but we still expect to have a fully permitted project in early 2021.”

 

“Discussions with potential joint venture partners and lenders, as well as streaming and royalty companies, continue. Interest on all fronts remains at a high level and we believe a financing package will be finalized and committed prior to final permits being issued. For the most part, this process has not been hindered by COVID-19,” concluded Mr. Hallbauer.

 

Second Quarter Review

 

  • The Gibraltar Mine (100% basis) produced 36.8 million pounds of copper in the second quarter, a 14% increase over the first quarter. Copper recoveries were 85.2% and copper head grades were 0.281%;
  • In April, management implemented a revised mine plan and budget for Gibraltar which has reduced site spending in the current year while maintaining long-term mine plan requirements.  Total operating costs (C1)* were US$1.34 per pound produced in the second quarter, which is US$0.48 per pound lower than the prior quarter, and in line with the revised operating plan;
  • Earnings from mining operations before depletion and amortization* were $50.3 million, and Adjusted EBITDA* was $50.9 million;
  • Cash flow from operations were $37.1 million and the Company had an ending cash balance at June 30, 2020 of $63.6 million;
  • Gibraltar sold 39.3 million pounds of copper in the quarter (100% basis) which resulted in $106.0 million of revenue for Taseko, a 71% increase from the first quarter.  Revenue included upward provisional price adjustments of $10.1 million;
  • Net income (GAAP) for the second quarter was $18.7 million ($0.08 per share).  Adjusted net income* was $8.3 million ($0.03 per share);
  • On April 24, 2020, Taseko concluded an amendment to its silver stream with Osisko Gold Royalties and received $8.5 million in exchange for reducing the delivery price of silver from US$2.75 per ounce to nil;
  • Gibraltar also concluded a spot tender for copper concentrate in the second half of the year at a TC/RC rate approximately 40% below the 2020 benchmark level as buyers competed for clean, high quality concentrate like Gibraltar’s;
  • With all required production test results completed, Florence Copper made the decision to begin the wind-down of the production test facility and to commence the final phase of rinsing the small section of the orebody where the test wellfield is located.  The Arizona Department of Environmental Quality (“ADEQ”) has informed Taseko it plans to issue the draft Aquifer Protection Permit on August 6, 2020; and
  • In May 2020, Taseko published its first Environmental, Social, and Governance report, which includes an examination of the Company’s sustainable performance, with specific details for 2017, 2018 and 2019.  The report is available on the Company’s website at www.tasekomines.com/esg.
*Non-GAAP performance measure. See end of news release.

 

HIGHLIGHTS

 

Operating Data (Gibraltar – 100% basis) Three months ended June 30, Six months ended June 30,
  2020 2019 Change 2020 2019 Change
Tons mined (millions) 20.5 26.6 (6.1) 49.0 50.0 (1.0)
Tons milled (millions) 7.7 7.7 ­­- 15.2 14.5 0.7
Production (million pounds Cu) 36.8 34.7 2.1 69.2 59.5 9.7
Sales (million pounds Cu) 39.3 32.3 7.0 70.4 55.6 14.8
     
Financial Data Three months ended June 30, Six months ended June 30,
(Cdn$ in thousands, except for per share amounts) 2020 2019 Change 2020 2019 Change
Revenues 106,005 86,521 19,484 168,089 156,795 11,294
Earnings from mining operations before depletion 

and amortization*

50,336 18,646 31,690 56,259 34,375 21,884
Adjusted EBITDA* 50,860 14,660 36,200 56,206 24,905 31,301
Cash flows provided by operations 37,079 11,073 26,006 54,750 18,264 36.486
Adjusted net income (loss)* 8,335 (17,471) 25,806 (13,312) (31,890) 18,578
Per share – basic (“adjusted EPS”)* 0.03 (0.07) 0.10 (0.05) (0.13) 0.08
Net income (loss) (GAAP) 18,745 (11,012) 29,757 (30,205) (18,943) (11,262)
Per share – basic (“EPS”) 0.08 (0.04) 0.12 (0.12) (0.08) (0.04)
*Non-GAAP performance measure. See end of news release.          

 

REVIEW OF OPERATIONS

 

Gibraltar Mine (75% Owned)

 

Operating data (100% basis) Q2 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019
Tons mined (millions) 20.5 28.5 25.8 24.7 26.6
Tons milled (millions) 7.7 7.5 7.8 7.5 7.7
Strip ratio 1.9 2.7 2.1 3.0 2.3
Site operating cost per ton milled (CAD$)* $7.66 $9.52 $10.46 $10.83 $11.51
Copper concentrate          
   Head grade (%) 0.281 0.259 0.253 0.249 0.256
   Copper recovery (%) 85.2 83.4 84.5 87.7 87.7
   Production (million pounds Cu) 36.8 32.4 33.4 33.0 34.7
   Sales (million pounds Cu) 39.3 31.1 33.3 33.5 32.3
   Inventory (million pounds Cu) 3.8 6.4 5.0 5.0 5.5
Molybdenum concentrate          
   Production (thousand pounds Mo) 639 412 728 620 653
   Sales (thousand pounds Mo) 656 403 791 518 708
Per unit data (US$ per pound produced)*           
   Site operating costs* $1.15 $1.64 $1.85 $1.88 $1.92
   By-product credits* (0.11) (0.11) (0.16) (0.16) (0.21)
Site operating costs, net of by-product credits* $1.04 $1.53 $1.69 $1.72 $1.71
Off-property costs 0.30 0.29 0.32 0.33 0.30
Total operating costs (C1)* $1.34 $1.82 $2.01 $2.05 $2.01

 

OPERATIONS ANALYSIS

 

Second quarter results

 

To-date, there have been no interruptions to the Company’s operations, logistics and supply chains as a result of the COVID-19 pandemic.  Effective health and safety protocols continue to be implemented.  There have been no known cases of COVID-19 at any of Taseko’s locations in Canada and the US to-date.

 

However, the COVID-19 situation has had a significant impact on the global economy which has led to increased volatility in commodity prices.  In light of the volatility, management has reviewed a number of mine plan options for Gibraltar and commencing in April implemented a revised mining plan for 2020 that will reduce spending in the near term while still maintaining long-term mine plan requirements and flexibility, and without negatively impacting 2020 copper production. Copper production in the second quarter was 36.8 million pounds as a result of grade and recovery as higher grade ore was mined from the bottom of the Granite pit.

 

The strip ratio for the second quarter was 1.9 to 1 and was lower than previous quarters due to less waste rock remaining in the Granite pit, but in line with the life of mine average strip ratio.  The lower overall mining rate resulted in reduced costs and the operation also benefited from falling input costs, including diesel fuel which was 35% lower than 2019 average prices.  As a result, total site spending (including capitalized stripping costs) was 24% lower than the previous quarter. Shorter haul distances in the Pollyanna pit also contributed to lower spending. 

 

Molybdenum production was 639 thousand pounds in the second quarter, an increase from the prior quarter due to higher molybdenum grade, which also increased recovery.  Molybdenum prices averaged US$8.37 per pound over the second quarter compared to US$9.63 per pound in the prior quarter and US$12.18 per pound in Q2 2019.  By-product credits per pound of copper produced* was US$0.11 in the second quarter, consistent with the prior quarter.

 

Off-property costs per pound produced* were US$0.30 for the second quarter of 2020 and consist of concentrate treatment, refining and transportation costs. These costs are in line with recent quarters relative to pounds of copper sold.

 

*Non-GAAP performance measure. See end of news release.

 

GIBRALTAR OUTLOOK 

 

Production guidance for 2020 remains unchanged at 130 million pounds (+/-5%), although management expects production to be at the higher end of that range based on its revised plan and the strong first half of 2020.  The new operating plan and other identified cost savings will continue to result in lower site spending in the coming months. Total site spending in the second half of the year is expected to be at similar levels as the first half of 2020.  Operating a large, open pit mine such as Gibraltar requires adaptability thus management will continue to monitor market conditions and adjust operating plans as required to respond to copper price movements.

 

Mine site engineering has found opportunities in changing the pit development sequencing by incorporating the Gibraltar pit after completion of the current mining phase of the Granite pit. The Gibraltar pit has not been mined since the 1970s and is the lowest work index ore (softer ore) on the Gibraltar property. Access to, and processing of, this ore type will provide substantial productivity and cost improvements to the operation once developed and active.

 

Copper prices have recovered swiftly due to recovery in Chinese demand and supply disruptions, most notably in South America.  The medium to long-term fundamentals for copper remain strong despite recent volatility caused by uncertain global economic demand arising from the COVID-19 pandemic.  Most industry analysts are projecting supply constraints after an economic recovery, which should bring higher copper prices in the coming years.

*Non-GAAP performance measure. See end of news release.

 

REVIEW OF PROJECTS 

 

Taseko’s strategy has been to grow the Company from the operating cash flow and credit quality of the Gibraltar Mine to assemble and develop a pipeline of complimentary projects.  We continue to believe this will generate long-term returns for shareholders. Our development projects are focused primarily on copper and are located in stable mining jurisdictions in British Columbia and Arizona.  Our current focus is on the near-term development of the Florence Copper Project.

 

Florence Copper Project

 

The Production Test Facility operated continuously without disruption during the second quarter of 2020.  Steady state operation was achieved in 2019 and the focus turned to testing different wellfield operating strategies, including adjusting pumping rates, solution strength, flow direction, and the use of packers in recovery and injection wells to isolate different zones of the ore body. The operating team has used physical and operating control mechanisms to adjust solution chemistry and flow rates and has successfully achieved targeted copper concentration in solution. Pregnant leach solution (“PLS”) grade in the centre recovery well (most representative of the performance of the commercial wellfield) has been stable at roughly two grams per litre since November and in June and July the SX/EW plant produced at a rate of approximately one million pounds of copper cathode per year, mainly from the centre recovery well. 

 

The PTF has provided valuable data to validate the Company’s modelled assumptions and operating parameters, and this data is being used to refine operating plans for the commercial phase.  With all of the required data in hand, we recently made the decision to wind down the production phase of the test facility and commence rinsing the small section of the orebody where the wellfield has been operating. 

 

Two permits are required to commence construction of the commercial scale wellfield at Florence Copper, which is expected to produce 85 million pounds of copper cathode annually for 20 years.  These are the Aquifer Protection Permit from the Arizona Department of Environmental Quality and the Underground Injection Control Permit from the U.S. Environmental Protection Agency. The Company has been informed by the ADEQ that it will issue the draft APP on August 6, 2020.  After the draft permit is issued there will be a 30-day public comment period and public meetings before the final APP permit is approved.  The EPA is also nearing completion of its technical review for the UIC permit, and no significant issues have been identified.  While progress is being made, the COVID-19 situation in Arizona has had an impact on the EPA process and this has extended the timeline by a few months, but management still expects the project will be fully permitted in early 2021.

 

During the second quarter, the Company continued to advance discussions with interested parties regarding the potential sale of a minority interest in the Florence project, and the proceeds of any such sale could fund a significant portion of the capital required to develop the commercial operation.  Discussions with potential lenders and other finance providers are ongoing. The Company targets having a committed financing package in place prior to receipt of the permits.   

 

Total net expenditures at the Florence Project during the first half of 2020 were $9.1 million including operation of the PTF and other project development costs.

 

Yellowhead Copper Project

 

In January 2020, the Company announced the results of its technical studies on Yellowhead Mining Inc. which resulted in a 22% increase in recoverable copper reserves and significantly improved project economics. The Company filed a new NI 43-101 technical report (dated January 16, 2020) on Sedar. Yellowhead holds a 100% interest in a copper-gold-silver development project located in south-central British Columbia.

 

The Technical Report outlines a new development plan for the project, which includes an 817 million tonne reserve and a 25-year mine life with a pre-tax NPV of $1.3 billion at an 8% discount rate using a US$3.10 per pound copper price.  This represents a $500 million increase over the 2014 Feasibility Study completed by the previous owner. Capital costs of the project are estimated at $1.3 billion over a 2-year construction period.  Over the first 5 years of operation, the copper equivalent grade will average 0.35% producing an average of 200 million pounds of copper per year at an average C1 cost, net of by-product credit, of US$1.67 per pound of copper. The Yellowhead Copper Project contains valuable precious metal by-products with 440,000 ounces of gold and 19 million ounces of silver with a life of mine value of over $1 billion at current prices. 

 

The Company is focusing its current efforts on advancing the environmental assessment and some additional engineering work in conjunction with ongoing engagement with local communities including First Nations.  A focus group has been formed between the Company and high-level regulators in the appropriate Provincial Ministries in order to expedite the advancement of the environmental assessment and the permitting of the project. Management also commenced joint venture partnering discussions in 2020 with a number of strategic industry groups that are interested in potentially investing in the Yellowhead project in combination with acquiring the significant copper offtake rights.

 

In May 2020, the Company announced it has entered into an agreement with an Indigenous Nation regarding Taseko’s intentions to commence the regulatory approval process of the Yellowhead Copper Project. The agreement represents Taseko’s commitment to recognize and respect the Nation’s inherent right to govern its lands, and the importance of assessing the Yellowhead Copper Project in accordance with its values, laws, and community aspirations to make an informed decision on the project.

 

New Prosperity Gold- Copper Project

 

On December 5, 2019, the Company announced that the Tŝilhqot’in Nation as represented by Tŝilhqot’in National Government and Taseko have entered into a dialogue, facilitated by the Province of British Columbia, to try to obtain a long-term solution to the conflict regarding Taseko’s proposed gold-copper mine currently known as New Prosperity, acknowledging Taseko’s commercial interests and the opposition of the Tŝilhqot’in Nation to the Project. While the details of this process are confidential, in order to facilitate a dialogue, the parties have agreed to a standstill on certain outstanding litigation and regulatory matters which relate to Taseko’s tenures and the area in the vicinity of Teztan Biny (Fish Lake). 

 

Aley Niobium Project

 

Environmental monitoring and product marketing initiatives on the Aley Niobium project continue. The pilot plant program commenced in the second quarter of 2019 has successfully completed the niobium flotation process portion of the test, raising confidence in the design and providing feed to begin the converter portion of the process. Completion of the converter portion of the pilot plant will provide additional process data to support the design of the commercial process facilities and provide final product samples for marketing purposes.

 

Note: Gibraltar is a contractual, unincorporated joint venture between Taseko Mines Limited (75% interest) and Cariboo Copper Corp. (25% interest). All production and sales figures are reported on a 100% basis, unless otherwise noted.


NON-GAAP PERFORMANCE MEASURES

 

This document includes certain non-GAAP performance measures that do not have a standardized meaning prescribed by IFRS. These measures may differ from those used by, and may not be comparable to such measures as reported by, other issuers. The Company believes that these measures are commonly used by certain investors, in conjunction with conventional IFRS measures, to enhance their understanding of the Company’s performance. These measures have been derived from the Company’s financial statements and applied on a consistent basis. The following tables below provide a reconciliation of these non-GAAP measures to the most directly comparable IFRS measure.

 

Total operating costs and site operating costs, net of by-product credits

 

Total costs of sales include all costs absorbed into inventory, as well as transportation costs and insurance recoverable. Site operating costs are calculated by removing net changes in inventory, depletion and amortization, insurance recoverable, and transportation costs from cost of sales. Site operating costs, net of by-product credits is calculated by subtracting by-product credits from the site operating costs. Site operating costs, net of by-product credits per pound are calculated by dividing the aggregate of the applicable costs by copper pounds produced. Total operating costs per pound is the sum of site operating costs, net of by-product credits and off-property costs divided by the copper pounds produced. By-product credits are calculated based on actual sales of molybdenum (net of treatment costs) and silver during the period divided by the total pounds of copper produced during the period. These measures are calculated on a consistent basis for the periods presented.

 

 

  Three months ended

 June 30,

Six months ended

 June 30,

(Cdn$ in thousands, unless otherwise indicated) – 75% basis 2020 2019 2020 2019
Cost of sales 81,181 98,013 164,490 172,742
Less:        
  Depletion and amortization (25,512) (30,138) (52,660) (50,322)
  Net change in inventories of finished goods (5,753) 3,989 (4,441) 8,035
  Net change in inventories of ore stockpiles (50) (540) 543 (413)
  Transportation costs (5,834) (4,630) (10,353) (7,918)
Site operating costs 44,032 66,694 97,579 122,124
Less by-product credits:        
  Molybdenum, net of treatment costs (4,252) (7,243) (7,483) (15,062)
  Silver, excluding amortization of deferred revenue (28) (93) (382) (279)
Site operating costs, net of by-product credits 39,752 59,358 89,714 106,783
Total copper produced (thousand pounds) 27,576 26,020 51,894 44,661
Total costs per pound produced 1.44 2.28 1.73 2.39
Average exchange rate for the period (CAD/USD) 1.39 1.34 1.37 1.33
Site operating costs, net of by-product credits (US$ per pound) 1.04 1.71 1.27 1.79
Site operating costs, net of by-product credits 39,752 59,358 89,714 106,783
Add off-property costs:        
  Treatment and refining costs 5,676 5,839 10,632 10,105
  Transportation costs 5,834 4,630 10,353 7,918
Total operating costs 51,262 69,827 110,699 124,806
Total operating costs (C1) (US$ per pound) 1.34 2.01 1.56 2.10

 

Adjusted net income (loss)

 

Adjusted net income (loss) remove the effect of the following transactions from net income as reported under IFRS:

  • Unrealized foreign currency gains/losses; and
  • Unrealized gain/loss on copper put and fuel call options.

 

Management believes these transactions do not reflect the underlying operating performance of our core mining business and are not necessarily indicative of future operating results. Furthermore, unrealized gains/losses on derivative instruments, changes in the fair value of financial instruments, and unrealized foreign currency gains/losses are not necessarily reflective of the underlying operating results for the reporting periods presented.

 

 

  Three months ended

 June 30,

Six months ended

June 30,

($ in thousands, except per share amounts) 2020 2019 2020 2019
Net income (loss) 18,745 (11,012) (30,205) (18,943)
  Unrealized foreign exchange (gain) loss (12,985) (6,258) 16,762 (12,947)
  Unrealized (gain) loss on copper put and fuel call options 3,528 (276) 180
  Estimated tax effect of adjustments (953) 75 (49)
Adjusted net income (loss) 8,335 (17,471) (13,312) (31,890)
Adjusted EPS 0.03 (0.07) (0.05) (0.13)

 

Adjusted EBITDA

 

Adjusted EBITDA is presented as a supplemental measure of the Company’s performance and ability to service debt. Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the industry, many of which present Adjusted EBITDA when reporting their results.  Issuers of “high yield” securities also present

Adjusted EBITDA because investors, analysts and rating agencies consider it useful in measuring the ability of those issuers to meet debt service obligations. 

 

Adjusted EBITDA represents net income before interest, income taxes, and depreciation and also eliminates the impact of a number of items that are not considered indicative of ongoing operating performance. Certain items of expense are added and certain items of income are deducted from net income that are not likely to recur or are not indicative of the Company’s underlying operating results for the reporting periods presented or for future operating performance and consist of:

 

  • Unrealized foreign exchange gains/losses;
  • Unrealized gain/loss on copper put and fuel call options; and
  • Amortization of share-based compensation expense.

 

  Three months ended

June 30,

Six months ended

June 30,

($ in thousands) 2020 2019 2020 2019
Net income (loss) 18,745 (11,012) (30,205) (18,943)
Add:        
  Depletion and amortization 25,512 30,138 52,660 50,322
  Finance expense 10,461 10,048 21,232 19,790
  Finance income (48) (299) (198) (607)
  Income tax expense (recovery) 4,326 (8,125) (5,792) (14,941)
  Unrealized foreign exchange (gain) loss (12,985) (6,258) 16,762 (12,947)
  Unrealized loss (gain) on copper put and fuel call options 3,528 (276) 180
Amortization of share-based compensation expense 1,321 444 1,567 2,231
Adjusted EBITDA 50,860 14,660 56,206 24,905

Earnings from mining operations before depletion and amortization

 

Earnings from mining operations before depletion and amortization is earnings from mining operations with depletion and amortization added back. The Company discloses this measure, which has been derived from our financial statements and applied on a consistent basis, to provide assistance in understanding the results of the Company’s operations and financial position and it is meant to provide further information about the financial results to investors.

 

 

  Three months ended
 June 30,
Six months ended
 June 30,
(Cdn$ in thousands) 2020 2019 2020 2019
Earnings (loss) from mining operations 24,824 (11,492) 3,599 (15,947)
Add:        
  Depletion and amortization  25,512 30,138 52,660 50,322
Earnings from mining operations before depletion and amortization 50,336 18,646 56,259 34,375

 

Site operating costs per ton milled

 

  Three months ended
 June 30,
Six months ended
 June 30,
(Cdn$ in thousands, except per ton milled amounts) 2020 2019 2020 2019
Site operating costs (included in cost of sales) 44,032 66,694 97,579 122,124
         
Tons milled (thousands) (75% basis) 5,748 5,794 11,370 10,890
Site operating costs per ton milled $7.66 $11.51 $8.58 $11.21

 

Posted August 5, 2020

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