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Taseko Reports Significantly Improved Adjusted EBITDA* of $76 Million for the Third Quarter 2021

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Taseko Reports Significantly Improved Adjusted EBITDA* of $76 Million for the Third Quarter 2021

 

 

 

 

 

Taseko Mines Limited (TSX: TKO) (NYSE American: TGB) (LSE: TKO) reports revenues of $132.6 million, Earnings from mining operations before depletion and amortization* of $83.7 million, Adjusted EBITDA* of $76.3 million and Adjusted net income* of $27.0 million, or $0.10 per share, in the third quarter of 2021.

 

Stuart McDonald, President and CEO of Taseko, stated, “Gibraltar produced 34.5 million pounds of copper in the third quarter, a 29% increase over the prior quarter, as copper grades improved in line with our expectations and the mine plan. Higher metal production led to lower unit costs as Total operating costs (C1)* fell to US$1.57 per pound produced, 22% lower than the previous quarter. Copper markets remained robust through the period, resulting in Adjusted EBITDA* of $76 million, which is 60% higher than the previous quarter and 140% higher than the comparative period last year.”

 

“During the third quarter, the Gibraltar pit started producing ore to supplement existing production from the Pollyanna pit. The combined ore feed is being efficiently processed and the transition to the Gibraltar pit will continue over the next few quarters. We expect a strong fourth quarter and copper production for the year should be in line with the previous guidance of approximately 120 million pounds.

 

At Florence, we continue to advance detailed engineering and have made initial deposits on long-lead equipment orders, which we believe will mitigate the impact of heightening global supply chain issues on the construction schedule. Recent feedback from the US Environmental Protection Agency on the draft Underground Injection Control permit is that no new issues have arisen, but final drafting and review of the permit is taking longer than anticipated. We expect to receive the draft permit from the EPA shortly and once received, will complete our review within the allotted timeframe and look forward to the public comment period commencing,” continued Mr. McDonald.

 

“Our balance sheet remains strong and our cash position increased quarter-over-quarter to $239 million, despite the $15 million of capital spending at Florence and a $18 million semi-annual interest payment on our bonds during the period. We now have approximately $300 million in available liquidity and are well positioned to move into our next phase of growth with construction of the Florence Copper commercial production facility,” concluded Mr. McDonald.

 

Third Quarter Review

  • Third quarter earnings from mining operations before depletion and amortization* was $83.7 million, Adjusted EBITDA* was $76.3 million and cash flows from operations was $68.3 million;
  • Adjusted net income* was $27.0 million ($0.10 per share), a 171% increase from the second quarter;
  • Site operating costs, net of by-product credits* were US$1.28 per pound produced, and total operating costs (C1)* were US$1.57 per pound produced;
  • The Gibraltar mine produced 34.5 million pounds of copper and 571 thousand pounds of molybdenum in the third quarter, increases of 29% and 42% over the second quarter, respectively. Copper recoveries were 84.2% and copper head grades were 0.28%, in line with management expectations;
  • Gibraltar sold 32.4 million pounds of copper in the quarter (100% basis) which contributed to $132.6 million of revenue for Taseko, an increase of 19% over the second quarter.  Average realized copper prices were US$4.26 per pound in the quarter, consistent with the LME average price;
  • The Company has approximately $300 million of available liquidity, including a cash balance of $239 million at September 30, 2021 and a US$50 million revolving credit facility.  The Facility, which closed in early October, was arranged and fully underwritten by National Bank of Canada, will be available for working capital and general corporate purposes, and provides additional financial flexibility as the Company prepares for the construction at Florence Copper;
  • Development costs incurred for Florence Copper were $19.1 million in the third quarter and included  detailed engineering and design of the commercial facility, and initial deposits for major processing equipment associated with the solvent extraction and electrowinning plant.  These activities will allow the project team to efficiently advance into construction upon receipt of the Underground Injection Control permit;
  • The EPA continues to make progress towards finalizing the UIC permit with no significant issues raised to-date, and the Company is expecting to receive the draft permit from the EPA shortly for its review.  Once publicly issued by the EPA, there will be a public comment period;
  • The Company has secured minimum copper price protection for the coming quarters including copper collars for the first half of 2022 which secure a minimum copper price of US$4.00 per pound and a ceiling price of US$5.60 per pound for 43 million pounds of copper; and
  • In September 2021, the Company completed the sale of the Harmony Gold Project (“Harmony”) to JDS Gold Inc. (“JDS Gold”), a newly incorporated company controlled by JDS Energy & Mining Inc. and affiliates. Under the terms of the agreement, JDS Gold became the owner and operator of Harmony, a high-grade development-stage gold project located on Graham Island in Haida Gwaii.  The Company retained a 2% net smelter return royalty in Harmony and a 15% carried interest in JDS Gold.
*Non-GAAP performance measure. See end of news release

 

 

HIGHLIGHTS

 

Operating Data (Gibraltar – 100% basis) Three months ended
September 30,
Nine months ended
September 30,
2021 2020 Change 2021 2020 Change
Tons mined (millions) 25.2 23.3 1.9 82.1 72.3 9.8
Tons milled (millions) 7.4 7.5 (0.1) 21.9 22.6 (0.7)
Production (million pounds Cu) 34.5 28.9 5.6 83.5 98.1 (14.6)
Sales (million pounds Cu) 32.4 28.6 3.8 81.1 99.0 (17.9)

    

 

Financial Data Three months ended
September 30,
Nine months ended
September 30,
(Cdn$ in thousands, except for per share amounts) 2021 2020 Change 2021 2020 Change
Revenues 132,563 87,780 44,783 330,306 255,869 74,437
Earnings from mining operations before depletion   and amortization* 83,681 35,705 47,976 168,476 91,964 76,512
Cash flows provided by operations 68,319 31,021 37,298 137,538 85,771 51,767
Adjusted EBITDA* 76,291 31,545 44,746 147,745 87,751 59,994
Adjusted net income (loss)* 27,020 (5,754) 32,774 31,433 (19,066) 50,499
Per share – basic (“adjusted EPS”)* 0.10 (0.02) 0.12 0.11 (0.08) 0.19
Net income (loss) (GAAP) 22,485 987 21,498 24,710 (29,218) 53,928
Per share – basic (“EPS”) 0.08 0.08 0.09 (0.12) 0.21
*Non-GAAP performance measure. See end of news release

 

REVIEW OF OPERATIONS

 

Gibraltar mine (75% Owned)

 

Operating data (100% basis) Q3 2021 Q2 2021 Q1 2021 Q4 2020 Q3 2020
Tons mined (millions) 25.2 24.9 32.0 26.4 23.3
Tons milled (millions) 7.4 7.2 7.2 7.5 7.5
Strip ratio 1.3 2.3 6.0 1.9 1.5
Site operating cost per ton milled (Cdn$)* $8.99 $9.16 $8.73 $11.67 $9.57
Copper concentrate
   Head grade (%) 0.28 0.22 0.19 0.20 0.23
   Copper recovery (%) 84.2 83.3 81.5 83.3 85.0
   Production (million pounds Cu) 34.5 26.8 22.2 25.0 28.9
   Sales (million pounds Cu) 32.4 26.7 22.0 25.0 28.6
   Inventory (million pounds Cu) 4.9 3.5 3.6 3.4 3.6
Molybdenum concentrate
   Production (thousand pounds Mo) 571 402 530 549 668
   Sales (thousand pounds Mo) 502 455 552 487 693
Per unit data (US$ per pound produced)*
   Site operating costs* $1.53 $2.02 $2.23 $2.67 $1.85
   By-product credits* (0.25) (0.25) (0.27) (0.14) (0.14)
Site operating costs, net of by-product credits* $1.28 $1.77 $1.96 $2.53 $1.71
Off-property costs 0.29 0.25 0.27 0.29 0.29
Total operating costs (C1)* $1.57 $2.02 $2.23 $2.82 $2.00

 

Third Quarter Review

 

Copper production in the third quarter was 34.5 million pounds and improved 29% over the second quarter as higher ore grades were mined and processed from the Pollyanna pit.  Copper recoveries also improved with the increasing ore grade.

 

A total of 25.2 million tons were mined in the third quarter in line with the mine plan and the second quarter.  The strip ratio decreased as a result of mining in Pollyanna opening higher grade areas with lower stripping rates.  There was also an increase of 3.7 million tons added to ore stockpiles.  While Pollyanna ore remains the primary mill feed, waste stripping activities also increased in the Gibraltar East pit during the quarter.

 

Total site spending (including capitalized stripping of $10.9 million on a 75% basis) was 4% lower than the prior quarter due mainly to the timing of routine maintenance.  Sustaining capital expenditures at Gibraltar of $8.3 million on a 75% basis in the third quarter was comparable to the second quarter.

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

 

REVIEW OF OPERATIONS – CONTINUED

 

Molybdenum production was 571 thousand pounds in the third quarter and increased due to higher grades of molybdenum in the ore. Molybdenum prices also strengthened in the third quarter and reached a high of US$20.10 per pound in late August.  The average molybdenum price of US$19.05 per pound was a US$4.73 per pound increase over the second quarter.  By-product credits per pound of copper produced remained at US$0.25 in the third quarter despite the increased copper production.

 

Off-property costs per pound produced* were US$0.29 for the third quarter and higher than the second quarter due to increased trucking of concentrate in July and August in response to wildfires in the BC interior which impacted railcar movements.  The Company also realized lower treatment and refining charges in the second quarter as a spot tender was delivered at one of the lowest TCRC levels ever seen by the Gibraltar mine.

 

Total operating costs per pound produced (C1)* were US$1.57 for the quarter, 22% lower than the previous quarter. The decrease in C1* costs was primarily due to the significantly increased copper production in the third quarter compared to the second quarter.

 

GIBRALTAR OUTLOOK 

 

Total copper production in the last quarter of 2021 is expected to be similar to the third quarter, as higher-grade areas in the Pollyanna pit are available for processing. The Company continues to expect approximately 120 million pounds of copper production for the 2021 year.

 

Copper prices in the third quarter averaged US$4.25 per pound and are currently around US$4.30 per pound and recently tested record levels again due to depleted warehouse inventories and a unique supply squeeze attributed to smelter closures resulting from an Asian and European energy crisis as well as continued supply chain challenges caused by the economic restart.  High copper prices, and downside protection from copper hedges in place, are supportive of strong financial performance at the Gibraltar mine over the coming quarters.

 

The copper price outlook into 2022 remains quite favorable with many governments now focusing on increased infrastructure investment to stimulate economic recovery after the pandemic, including green initiatives, which will require new primary supplies of copper. Although some analysts predict a balanced market by 2023 based on known projects currently under development, most industry analysts are projecting ongoing supply constraints and deficits, which should support higher copper prices in the years to come.

 

The Company has a long track record of purchasing copper price options to manage copper price volatility.  This strategy provides security over the Company’s cash flow as it prepares for construction of Florence Copper while providing significant upside should copper prices continue at these levels or increase further.  In particular, the Company has copper collars to secure a minimum copper price of US$4.00 per pound for the first half of 2022 for 43 million pounds of copper.

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

 

FLORENCE COPPER

 

The commercial production facility at Florence Copper will be one of the greenest sources of copper for US domestic consumption, with carbon emissions, water and energy consumption all dramatically lower than a conventional mine. It is a low-cost copper project with an annual production capacity of 85 million pounds of copper over a 21-year mine life.  With the expected C1* operating cost of US$1.10 per pound, Florence Copper will be in the lowest quartile of the global copper cost curve.

 

The Company has successfully operated a Production Test Facility (“PTF”) since 2018 at Florence to demonstrate that the in-situ copper recovery (“ISCR”) process can produce high quality cathode while operating within permit conditions.

The next phase of Florence Copper will be the construction and operation of the commercial ISCR facility with an estimated capital cost of US$230 million (including reclamation bonding and working capital). At a conservative copper price of US$3.00 per pound, Florence Copper is expected to generate an after-tax internal rate of return of 37%, an after-tax net present value of US$680 million at a 7.5% discount rate, and an after-tax payback period of 2.5 years.

 

In December 2020, the Company received the Aquifer Protection Permit from the Arizona Department of Environmental Quality.  During the APP process, Florence Copper received strong support from local community members, business owners and elected officials.  The other required permit is the UIC permit from the U.S. Environmental Protection Agency, which is the final permitting step required prior to construction of the commercial ISCR facility.  The EPA continues to make progress towards finalizing the permit with no significant issues raised to-date, and the Company is expecting to receive the draft UIC permit from the EPA shortly.  Once the permit is publicly issued, a public comment period will commence.

 

Detailed engineering and design for the commercial production facility is now approximately 85% complete.  The Company has made initial deposits and awarded the key contract for the major processing equipment associated with the SX/EW plant in the third quarter.  The Company has made purchase commitments of US$25 million as at September 30, 2021 to assist with protecting the project execution plan and mitigating the impact of supply chain disruptions.  Deploying strategic capital and awarding key contracts will ensure a smooth and efficient transition into construction once the final UIC permit is received.

 

At current copper prices, the Company expects to be able to fund construction of the commercial facility from its existing sources of liquidity and cashflows from Gibraltar.

 

LONG-TERM GROWTH STRATEGY 

 

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

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

 

LONG-TERM GROWTH STRATEGY – CONTINUED

 

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. 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 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 entered into a confidential 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 Tŝilhqot’in Nation’s opposition to the project.  The dialogue was supported by the parties’ agreement on December 7, 2019 to a one-year standstill on certain outstanding litigation and regulatory matters that relate to Taseko’s tenures and the area in the vicinity of Teẑtan Biny (Fish Lake).

 

The COVID-19 pandemic delayed the commencement of the dialogue, but the Tŝilhqot’in Nation, the Province of British Columbia and Taseko have made progress in establishing a constructive dialogue. In December 2020, the parties agreed to extend the standstill for a further year to continue this dialogue.

 

Aley Niobium Project

 

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

 

 

 

Posted November 4, 2021

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