Taseko Mines Limited (TSX: TKO) (NYSE American: TGB) (LSE: TKO) reports first quarter 2024 Adjusted EBITDA* of $50 million and Earnings from mining operations before depletion and amortization* of $53 million, 38% and 29% higher than the same quarter in 2023.  Revenues for the first quarter were $147 million. Net income for the quarter was $19 million ($0.07 per share) and Adjusted net earnings* were $8 million ($0.03 per share).

In the first quarter, Gibraltar produced 30 million pounds of copper and 247 thousand pounds of molybdenum. Mill throughput in the quarter was 7.7 million tons, or 84,400 tons per day, processing an average grade of 0.24% copper. Total operating cash costs (C1)* for the quarter were US$2.46 per pound of copper.

Stuart McDonald, President and CEO of Taseko, commented, “Gibraltar operations performed generally in line with plan in the first quarter, generating strong margins on a realized copper sales price of US$3.89 per pound.  The operating team successfully completed a mill component replacement in January and following this maintenance downtime, mill throughput averaged 90,000 tons per day, 6% above the design capacity.  The gradual transition to the Connector pit will continue over the next few months, and the in-pit crusher relocation is planned for the second quarter.”

“In late March we acquired the remaining 12.5% interest in Gibraltar and now own 100% of the mine.  This transaction is a real positive for Taseko, providing immediate cashflow and production growth.  The acquisition cost is spread out over ten years, with the next scheduled payment in 2026, which allows us to focus our financial resources on Florence development.  As part of the transaction, we also acquired additional concentrate offtake rights and, with smelter treatment costs at record lows, the timing could not have been better.  This additional offtake has now been sold at negative treatment costs, resulting in cost savings of $10 million in the second half of 2024,” continued Mr. McDonald.

“At Florence Copper, initial construction and wellfield development activities are progressing smoothly.  There are now three drill rigs operating on the commercial facility wellfield, with a fourth drill to be mobilized in May.  A total of ten new production wells have been drilled to date.  Site preparation and earthworks for the SX/EW plant area are also underway and construction of the plant is expected to begin later this quarter.  It is an exciting time for the Company as we move closer to commercial operations at Florence.

In April, we further strengthened our financial position through the successful refinancing of our senior secured notes.  The maturity of the notes has been pushed out to 2030, and the upsizing provides additional cash proceeds and financial flexibility.  With the bond refinancing complete, 100% ownership of Gibraltar, and the copper price today at US$4.49 per pound, our business is much improved from just a few months ago.” concluded Mr. McDonald.

First Quarter Review

• First quarter cash flow from operations was $59.6 million and net income was $18.9 million ($0.07 per share) for the quarter;
• Earnings from mining operations before depletion and amortization* was $52.8 million, Adjusted EBITDA* was $49.9 million, and Adjusted net income* was $7.7 million ($0.03 per share);
• Gibraltar produced 29.7 million pounds of copper for the quarter. Average head grades were 0.24% and copper recoveries were 79% for the quarter;
• Gibraltar sold 31.7 million pounds of copper in the quarter (100% basis) at an average realized copper price of US$3.89 per pound;
• Total operating costs (C1)* for the quarter were US$2.46 per pound produced;
• On March 25, 2024, the Company completed its acquisition of the remaining 12.5% interest in Gibraltar, and now owns 100%. The Company paid $5 million on closing, with the remaining amounts payable over a 10-year period with the next scheduled payment in March 2026;
• Construction of the commercial production facility at Florence is advancing with recent site activities focused on site preparations and earthworks for the commercial wellfield and plant area. Wellfield drilling commenced in February and ten new production wells have been drilled to date;
• During the quarter, the Company received the first US$10 million deposit from Mitsui & Co. (U.S.A.) Inc. (“Mitsui”) for its copper stream financing and closed its US$50 million royalty financing with Taurus Mining Royalty Fund L.P. (“Taurus”). The Company had a cash balance of $158 million and has approximately $239 million of available liquidity at March 31, 2024; and
• On April 23, 2024, the Company completed an offering of US$500 million aggregate principal amount of 8.25% Senior Secured Notes due May 1, 2030. A portion of the proceeds were used to redeem the outstanding US$400 million 7% Senior Secured Notes due on February 15, 2026. The remaining proceeds, net of transaction costs, call premium and accrued interest, are approximately $110 million.

Highlights

On March 15, 2023, the Company increased its effective interest in Gibraltar from 75% to 87.5% through the acquisition of a 50% interest in Cariboo Copper Corporation from Sojitz Corporation. On March 25, 2024, the Company increased its effective interest in Gibraltar from 87.5% to 100% through the acquisition of the remaining 50% interest in Cariboo from Dowa Metals & Mining Co., Ltd. and Furukawa Co., Ltd.

The financial results reported in this MD&A include the Company’s 87.5% proportionate share of Gibraltar mine income and expenses for the period March 16, 2023 to March 24, 2024 (prior to March 15, 2023 – 75%) and  100% of Gibraltar mine income and expenses for the period March 25, 2024 to March 31, 2024.

The Company finalized the accounting for the acquisition of its 50% interest in Cariboo from Sojitz and the related 12.5% interest in Gibraltar in the fourth quarter of 2023.  In accordance with the accounting standards for business combinations, the comparable financial statements as of March 31, 2023 and for the three months then ended have been revised to reflect the changes in finalizing the consideration paid and the allocation of the purchase price to the assets and liabilities acquired.

Highlights

Gibraltar Mine

Operations Analysis

First Quarter Review

Gibraltar produced 29.7 million pounds of copper for the quarter. Copper production and mill throughput in the quarter were impacted by Concentrator #2 downtime in January for a planned major component replacement which reduced operating time by ten days.

Copper head grades of 0.24% were in line with management expectations. Copper recoveries in the first quarter were 79%, lower than the recent quarters due to lower head grades and increased milling of partially oxidized material.

A total of 22.8 million tons were mined in the first quarter. The strip ratio of 1.7 was higher than the recent quarters as stripping continues in the Connector pit, and 2.0 million tons of oxide ore from the upper benches of the Connector pit were also added to the heap leach pads in the period. There was 1.1 million tons in mill feed from ore stockpiles.

Operations Analysis – Continued

Total site costs* at Gibraltar of $109.5 million (which includes capitalized stripping of $18.5 million) was comparable to the previous quarter.

Molybdenum production was 247 thousand pounds in the first quarter. At an average molybdenum price of US$19.93 per pound, molybdenum generated a by-product credit per pound of copper produced of US$0.17 in the first quarter.

Off-property costs per pound produced* were US$0.42 for the first quarter reflecting higher copper sales volumes relative to production volumes and additional trucking costs for concentrate movements compared to the same quarter in the prior year.

Total operating costs per pound produced (C1)* was US$2.46 for the quarter, compared to US$2.94 in the prior year quarter as shown in the bridge graph below:

Gibraltar Outlook

The Gibraltar pit will continue to be the main source of mill feed for the first half of 2024 before mining of ore transitions into the Connector pit in the second half of the year. Stripping activity will continue to be focused in the Connector pit, and further oxide ore from this pit is expected to be added to the heap leach pads this year. Management is currently reviewing the potential to restart Gibraltar’s SX/EW facility next year.

Concentrator #1 is scheduled for three weeks additional downtime in the second quarter for the in-pit crusher relocation and other mill maintenance.  After taking into account the reduced mill availability for scheduled down times, total copper production at Gibraltar for 2024 is expected to be approximately 115 million pounds.

The estimated remaining capital cost of the crusher relocation project is $10 million, and no other significant capital projects are planned for Gibraltar this year.

With the component replacement in Concentrator #2 completed in January 2024, the Company is finalizing its insurance claim for associated property damage and business interruption as a result of the component failure. This insurance claim is expected to be finalized in the coming months.

The Company has recently tendered Gibraltar concentrate to various customers for the remainder of 2024 and for significant tonnages in 2025 and 2026.  In 2023, Treatment and Refining Costs (TCRCs) accounted for approximately US$0.17 per pound of off-property costs. With these recently awarded offtake contracts, the Company expects off-property costs to reduce by approximately US$0.10 to US$0.20 per pound from the second half of 2024 through 2026 due to these fixed, lower TCRCs.

The Company has a prudent hedging program in place to protect a minimum copper price during the Florence construction period.  Currently, the Company has copper put contracts to secure a minimum copper price of US$3.25 per pound for 21 million pounds of copper covering the second quarter of 2024, copper collar contracts that secure a minimum copper price of US$3.75 per pound for 42 million pounds of copper covering the second half of 2024, and copper collar contracts that secure a minimum copper price of US$4.00 per pound for 108 million pounds of copper for 2025.  The copper collar contracts also have ceiling prices between US$5.00 and US$5.40 per pound (refer to the section “Hedging Strategy” for details).

Acquisition of Remaining 12.5% Interest in Gibraltar

On March 25, 2024, the Company entered into an agreement to acquire the remaining 12.5% interest in Gibraltar from Dowa and Furukawa. Under the terms of the agreement, Taseko will acquire Dowa and Furukawa’s shares in Cariboo and will then own 100% of Cariboo shares and have an effective 100% interest in Gibraltar.

The acquisition price consists of a minimum amount of $117 million payable over a period of ten years and potential contingent payments depending on copper prices and Gibraltar’s cashflow. An initial $5 million was paid to Dowa and Furukawa ($2.5 million each) on closing and the remaining amounts will be settled with annual payments commencing in March 2026.

The annual payments will be based on the average LME copper price of the previous calendar year, subject to an annual cap based on a percentage of cashflow from Gibraltar.  At copper prices below US$4.00 per pound, the annual payment will be $5 million, increasing pro-rata to a maximum annual payment of $15.25 million at copper prices of US$5.00 per pound or higher.  The annual payments also can not exceed 6.25% of Gibraltar’s annual cashflow for the 2025 to 2028 calendar years, and 10% of Gibraltar’s cashflow for the 2029 to 2033 calendar years.  Any outstanding balance on the minimum acquisition amount of $117 million will be repayable in a final balloon payment in March 2034.

Total consideration is capped at $142 million, limiting the contingent consideration to a maximum of $25 million.  In addition, Taseko has the option to settle the full acquisition price at any time prior to 2029 by making total payments of $117 million.

The Company’s minimum payment obligations for the acquisition are in the form of loans from Dowa and Furukawa to Cariboo.  The loans are non-interest bearing, are guaranteed by Taseko, and a portion of the loans are secured by Cariboo’s 25% joint venture interest in Gibraltar. The loans contain minimum protective covenants including the requirement not to amend the joint venture agreement for Gibraltar, or sell Cariboo’s 25% interest in the joint venture.

Under the Cariboo offtake arrangements entered into in 2010, Dowa and Furukawa were entitled to receive 30% of Gibraltar’s copper concentrate offtake for the life of mine at benchmark terms.  Upon closing of this acquisition, the Cariboo offtake agreement was terminated and Taseko retained full marketing rights for 100% of Gibraltar’s concentrate offtake going forward.

Florence Copper

The Company has all the key permits in place for the commercial production facility at Florence Copper and construction has commenced.  All the major SX/EW plant components are on site and previous work on detailed engineering and procurement of long-lead items has de-risked the construction schedule.  First copper production is expected in the fourth quarter of 2025.

The Company has a technical report entitled “NI 43-101 Technical Report Florence Copper Project, Pinal County, Arizona” dated March 30, 2023 on SEDAR+. The 2023 Technical Report was prepared in accordance with NI 43-101 and incorporated the results of testwork from the Production Test Facility as well as updated capital and operating costs (Q3 2022 basis) for the commercial production facility.

Florence Copper – Continued

Project highlights based on the 2023 Technical Report:

• Net present value of US$930 million (at $US 3.75 copper price, 8% after-tax discount rate)
• Internal rate of return of 47% (after-tax)
• Payback period of 2.6 years
• Operating costs (C1) of US$1.11 per pound of copper
• Annual production capacity of 85 million pounds of LME grade A cathode copper
• 22 year mine life
• Total life of mine production of 1.5 billion pounds of copper
• Remaining initial capital cost of US$232 million (Q3 2022 basis)

Site activities in the first quarter of 2024 have focused on site preparations and earthworks for the commercial wellfield and plant area, and the hiring of additional personnel for the construction and operations teams.

Drilling of the commercial facility wellfield commenced in February and there are currently three drills operating, with a fourth drill to be mobilized in May.  At the end of April, a total of ten new production wells have been drilled, and a total of 90 new production wells will be drilled during the construction of the commercial facility.

The Company has a fixed-price contract with the general contractor for construction of the SX/EW plant and associated surface infrastructure.  The general contractor continues their mobilization.  Plant earthworks is underway with a focus on bulk excavation of the various facility ponds and preparations for the initial concrete pour in the plant area.

Florence Copper Quarterly Capital Spend

The estimated remaining capital costs in the 2023 Technical Report for construction of the commercial facility was US$232 million, of which US$18.0 million has been incurred in the first quarter of 2024.  Other capital costs of US$15.7 million include final payments for delivery of long-lead equipment that was ordered in 2022, and to bring forward the construction of an evaporation pond to provide additional water management flexibility.  Approximately US$10 million of these other capital costs remain to be incurred in the next two quarters.

The Company has closed several Florence project level financings to fund initial commercial facility construction costs. On January 26, 2024, the Company received the first US$10 million deposit from the US$50 million copper stream transaction with Mitsui. The remaining amounts will be paid on a quarterly basis. On February 2, 2024, the Company also closed a US$50 million royalty with Taurus, which was funded in one lump-sum payment at that time.

The Company considers that the construction of Florence Copper is now fully funded, and remaining project costs are expected to be funded with the Company’s available liquidity, remaining instalments from Mitsui, and cashflow from its 100% ownership interest in Gibraltar.

Long-term Growth Strategy 

Taseko’s strategy has been to grow the Company by acquiring and developing a pipeline of projects focused on copper in North America. We continue to believe this will generate long-term returns for shareholders. Our other development projects are located in British Columbia, Canada.

Yellowhead Copper Project

Yellowhead Mining Inc. has an 817 million tonnes reserve and a 25-year mine life with a pre-tax net present value of $1.3 billion at an 8% discount rate using a US$3.10 per pound copper price based on the Company’s 2020 NI 43-101 technical report. Capital costs of the project were estimated at $1.3 billion over a 2-year construction period. During 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 produced. The Yellowhead copper project contains valuable precious metal by-products with 440,000 ounces of gold and 19 million ounces of silver production over the life of mine.

The Company is preparing to advance into the environmental assessment process and is undertaking some additional engineering work in conjunction with ongoing engagement with local communities including First Nations. The Company is also collecting baseline data and modeling which will be used to support the environmental assessment and permitting of the project.

New Prosperity Gold-Copper Project

In late 2019, the Tŝilhqot’in Nation, as represented by Tŝilhqot’in National Government, and Taseko Mines Limited entered into a confidential dialogue, with the involvement of the Province of British Columbia, seeking a long-term resolution of the conflict regarding Taseko’s proposed copper-gold mine previously known as New Prosperity, acknowledging Taseko’s commercial interests and the Tŝilhqot’in Nation’s opposition to the project.

This dialogue has been supported by the parties’ agreement, beginning December 2019, to a series of standstill agreements on certain outstanding litigation and regulatory matters relating to Taseko’s tenures and the area in the vicinity of Teẑtan Biny (Fish Lake).

The dialogue process has made meaningful progress in recent months but is not complete. The Tŝilhqot’in Nation and Taseko acknowledge the constructive nature of discussions, and the opportunity to conclude a long-term and mutually acceptable resolution of the conflict that also makes an important contribution to the goals of reconciliation in Canada.

In March 2024, Tŝilhqot’in and Taseko formally reinstated the standstill agreement for a final term, with the goal of finalizing a resolution before the end of this year.

Aley Niobium Project

Environmental monitoring and product marketing initiatives on the Aley niobium project continue. The converter pilot test is ongoing and is providing additional process data to support the design of the commercial process facilities and will provide final product samples for marketing purposes. The Company has also initiated a scoping study to investigate the potential production of niobium oxide at Aley to supply the growing market for niobium-based batteries.