Taseko Mines - Q4 2023

Transcript

Operator (participant)

Good morning. My name is Ina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Taseko's 2023 Fourth Quarter and Year-end Earnings Conference Call. Online participants are muted to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press star, then the number 2. Thank you. Mr. Bergot, you may begin your conference.

Brian Bergot (Head of Investor Relations)

Thank you, Ina. Welcome, everyone, and thank you for joining the Taseko's fourth quarter and full year 2023 conference call. The news release and regulatory filing announcing our financial and operational results was issued yesterday after market close. It is available on our website at tasekomines.com as well as on SEDAR. I am joined today in Vancouver by Taseko's President and CEO, Stuart McDonald; Taseko's Chief Financial Officer, Bryce Hamming; and our COO, Richard Tremblay. As usual, before we get into opening remarks by management, I would like to remind our listeners that our comments and answers to your questions will 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.

For further information on these risks and uncertainties, I encourage you to read the cautionary note that accompanies our fourth quarter MD&A and the related news release, as well as the risk factors particular to our company. I would also like to point out that we will use various non-GAAP measures during the call. You can find explanations and reconciliations regarding these measures in the related news release. And finally, all dollar amounts we will discuss today are in Canadian dollars unless otherwise specified. Following opening remarks, we will open the phone lines to analysts and investors for questions. I would now turn the call over to Stuart for his remarks.

Stuart McDonald (President and CEO)

Thanks, Brian. Good morning, everyone, and thank you for taking the time to join us for Taseko's year-end and Q4 earnings call. It's definitely an exciting and busy time for our company. Today, I can provide an update on recent Gibraltar results and also Florence construction activities. I'll then pass the call over to Bryce for some additional detail on the financials and the financial results and our recent financing initiatives at Florence. Let's start with Gibraltar, as Q4 was another strong production quarter and a great finish to the year. The mine produced 34 million pounds of copper on average grades of 0.27%. It's a great result, and we definitely benefited from the higher grade, higher quality ore in the bottom of the Gibraltar pit. Actually, the result could have even been better if not for slightly lower mill throughput, which averaged 83,000 tons per day.

That's slightly below plan due to lower mill availabilities in the quarter as we prepared for the scheduled maintenance in January. The strong production and a higher capitalized stripping allocation led to lower unit operating costs. C1 cash costs for the fourth quarter were $1.91 a pound. Looking at the year as a whole, Gibraltar produced 123 million pounds at a C1 cost of $2.37 a pound. That production number is a significant increase over 2022 and also above our annual guidance. Certainly, 2023 was a tale of two halves, with lower grades in the first half and higher production in the second half. But for the full year, copper head grade averaged 0.25%, which is right in line with our reserve grade. And with that, we're able to generate CAD 190 million of adjusted EBITDA.

That's indicative of what the mine can achieve in an average year with a realized copper price of $3.84 per pound. It really bodes well for the coming years where we expect higher pricing. For 2024, the Gibraltar pit will continue to be the main source of mill feed until the middle of the year when we transition to the Connector pit, where we've been stripping now for over a year. We expect a smooth transition to the new Connector pit, which will then be the main source of mill feed for the next five years. We previously disclosed two mill downtimes that are going to impact production in 2024. We've already completed one of those, a major component replacement of mill number two, which was planned to be a two-week down, and we successfully completed that ahead of schedule in January.

The capital cost of the new mill equipment should be covered by insurance, and we're also pursuing an insurance claim for the lost production. Those discussions are ongoing, but it could be a significant insurance recovery in the range of $20 million or higher, and we're aiming to finalize that claim in the next few months. The second mill downtime will occur in the second quarter of this year when mill number one will be shut down for about three weeks to allow for the relocation of the input crusher and other maintenance. That crusher currently sits on top of the Connector ore zone, and we've got about $10 million of CapEx left to complete the move. That's a project that we've been working on now for nearly two years at a total cost of $50 million.

These two mill downtimes result in about 7-8 million pounds of lost copper production in 2024. After taking that into account, we expect to produce about 115 million pounds of copper for this year. That's very similar to last year's annual guidance, although we expect a more stable quarterly production profile this year. 2025 should be a much better production year as we won't have the mill downtime, and grades will also increase as we get deeper into the Connector pit. Moving on to Florence now, that was certainly a major permitting milestone that we achieved in Q4. With permits now in hand, the project has transitioned into the construction phase. In recent months, the focus has been on site prep and civil work to prepare for well field drilling as well as procurement and negotiation of key contracts.

There are two key aspects to the development of the commercial facility. We need to drill the initial well field for the ramp-up, and that's about 90 wells to be drilled during the construction phase. We need to build the SX/EW plant and surface infrastructure. The well field drilling is already underway, and the plant construction will begin in the second quarter. We'll be using 4 drill rigs for the initial well field, which should be complete and ready for injection in the third quarter of 2025, about 3 months ahead of the SX/EW plant commissioning. This allows time for pre-leaching of the initial ore blocks so that when the SX/EW plant is ready, we have pregnant leach solution to begin plating copper in the fourth quarter next year.

As we announced in January, we've added a few months to the original 18-month schedule, which we believe reduces execution risk and allows us to spread our spending over an extra quarter where we can benefit from Gibraltar cash flow in 2025, which, as I said, is going to be a strong production year. So we're not racing here. It's a disciplined approach with a focus on delivering an on-budget project and maintaining a strong balance sheet. We recently signed a fixed-price contract for the construction of the plant and surface infrastructure, and that cost represents roughly 40% of the remaining spend, and it's now locked in. We continue to see some inflationary pressure, and it's possible we'll see some modest escalation on our published CapEx number, but we think that will be very manageable.

In the rest of our business and at our other projects, we remain disciplined, and we're not planning any other significant CapEx this year. At Yellowhead, we continue to advance important community discussions ahead of permitting. At New Prosperity, we've recently extended our stance to the agreement again, and the dialogue continues with the goal of finalizing a resolution this year. We have lots on the go, but the key focus is on execution of Florence. It's an exciting time for the company, and in less than two years, we'll be adding 85 million pounds of low-cost copper production. That's 80% production growth in the near term. With that, I'll turn it over to Bryce now for some additional finance commentary.

Bryce Hamming (CFO)

Thank you, Stuart. I'll now expand on the financial performance for the fourth quarter and year as well as some financing updates for Florence. As Stuart mentioned, strong fourth quarter copper production and sales resulted in an overall great finish to the 2023 year. Revenue for the quarter was CAD 154 million, and for 2023, annual revenue was CAD 525 million. It was the highest quarterly and annual revenue we've ever reported as a company. This was due to a steady copper price around $3.85 per pound, good sales volumes at 121 million pounds of copper, and increasing our ownership in Gibraltar by 17% with the acquisition of Cariboo last March from Sojitz. Total site costs in the fourth quarter were CAD 111 million, a slight increase from the third quarter.

For the year, total site costs were $431 million, and were higher than in 2022, mainly due to increased repairs and maintenance costs, labor costs, and partially offset by lower diesel costs and input costs like grinding media. On a cost-per-pound basis, costs in 2023 were $237 per pound, a 20% decrease from last year, mainly due to higher copper production. Adjusted EBITDA of $190 million and cash flow from operations of $151 million were also significantly higher than in 2022, 74% and 86%, respectively. Adjusted net income of $44 million or $0.15 per share and GAAP earnings of $83 million or $0.29 per share were also dramatically higher than the previous year.

GAAP earnings included a $46 million gain that we recognized on the purchase of Cariboo Copper for the difference in the fair value of assets we acquired from Sojitz, being that 12.5% of Gibraltar Mine and the present value of what we estimate the consideration payable will be, which has a contingent element. The contingent payments to Sojitz are based on Gibraltar Mine's copper revenues over the next five years, and none of their payments bear any interest. Total payments are capped at $117 million, so we believe this will be a very accretive transaction to Taseko. The accounting gain is not included in adjusted earnings or Adjusted EBITDA. From an operational, financial, and growth perspective, it was a very successful year for Taseko from Gibraltar Mine. As Stuart already mentioned, the input crusher relocation project will be completed by mid-2024 at a cost of approximately $10 million remaining.

There are no other major capital projects planned at Gibraltar for this year. We ended 2023 with a healthy $176 million of available liquidity, $26 million higher than at the end of the third quarter, and this includes $97 million of cash. We closed our SX/EW equipment facility with Bank of America in the quarter, and subsequent to year-end, we closed two of the previously announced financing transactions for Florence. In late January, we closed the Mitsui Copper Stream, and they funded the first $10 million of their $50 million transaction with us, with the remaining amounts due on a quarterly basis. Last month, we also closed a $50 million royalty with Taurus, a well-known credit fund moving into the royalty space, and the entirety of those funds were received by Taseko in early February.

With $175 million now committed from four different parties, plus our $80 million revolving credit facility, financing is well in hand for the Florence construction, plus the addition of future cash flows from Gibraltar over the next two years. In the near term, cash flows remain protected at Gibraltar with copper puts of $3.25 per pound, and they're in place to the end of June this year. As copper prices rise, we continue to watch the market and look for opportunities to extend our price protection into the back half of this year and into 2025. The price of copper has held up well considering the backdrop of macro news and global events and seems to be gathering the most interest in the industry at the moment.

Where the price of copper is today at around $3.90 per pound, our Gibraltar Mine should generate strong cash flow, and the medium to long-term fundamentals remain exceptionally bullish and point to much higher copper pricing in the years ahead. With that, I'll now turn it back to the operator for any questions.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your telephone keypad. Should you wish to cancel your request, please press star followed by the two. If you're using a speakerphone, please leave the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Craig Hutchison from TD. Please go ahead.

Craig Hutchison (Director and Base Metals Analyst)

Hi. Good morning, guys. Thanks for taking my questions.

Bryce Hamming (CFO)

Hey. Good morning.

Craig Hutchison (Director and Base Metals Analyst)

The first question is with regards to Gibraltar. I guess I wasn't expecting the level of capitalized stripping in Q4. I know you guys are still doing some stripping with regards to the Connector pit. Can you give us any sense on what type of capitalized stripping we should assume for 2024, and I assume it will be mostly front-end weighted?

Bryce Hamming (CFO)

Yeah. Hey, Craig. It's Bryce. Yeah, that's right. We did have a higher level in Q4, and part of that was due to the fact that we started stripping activities again in Connector. We were quite slow there in the summer months. So I think as far as this year, we still are obviously doing a fair bit of capitalized stripping to open up the Connector zone, and I think it should be generally in line with what we saw last year as we begin mining in the upper benches there of Connector. So that's sort of in the range of sort of $50 million is kind of our run rate on capitalized strip.

Craig Hutchison (Director and Base Metals Analyst)

$50 million and weighted to the front half of the year. Okay. How about sustaining?

Bryce Hamming (CFO)

Yeah. We don't have a lot of sustaining. I think that's also going to be kind of ordinary. Last year, we had, of course, the stripping work for the crusher move. That's a CAD 50 million project that we spent about CAD 40 million. And as I mentioned, we've got about CAD 10 million to go, so that'll be mostly in Q2 leading up to June when it's actually moved. Other than that, it's just ordinary components.

Craig Hutchison (Director and Base Metals Analyst)

Okay. And you guys are putting some stockpiles ahead of a potential restart of the SX/EW plant. Any kind of context in terms of how meaningful that would be and how many kind of pounds a year you million pounds a year you'd be targeting when that restarts?

Bryce Hamming (CFO)

Yeah. I mean, something in the range of 5 million pounds a year of SX/EW plant might be what we're looking at. Current expectation is that would restart in 2026. And of course, it's a seasonal operation there. It doesn't run through the winter months, so kind of Q2, Q3. Yeah. So we're stacking oxide ore from the upper benches of the Connector pit and need to build up a critical mass of ore on the pad in order to justify the restart, but it's coming.

Craig Hutchison (Director and Base Metals Analyst)

Okay. Great. If I could switch gears to Florence, just curious how the staffing is going. Obviously, it's very tight labor markets. Maybe a follow-up question. Can you give us a sense of how much of the original CapEx budget is still remaining? I know you mentioned that you are seeing some inflationary pressures, but if you could just give us a sense of, as of the end of 2023, how much of the budget still remains to be spent on a cash basis. Thanks. Richard, do you want to address staffing?

Richard Tremblay (COO)

Yeah. So Craig, Richard here. On the staffing side, things have gone actually quite well, continue to get significant interest in the market given the location of the operation and the new commercial operation that's being put together. So quite happy with the level of interest as we go out into the market and recruit the team for commercial operations. So we've had great success so far, and everything shows and indicates that that'll continue for us, so we're quite happy with that.

Stuart McDonald (President and CEO)

So on your second part of your question there, Craig, on the CapEx, Stuart here, yeah. The $232 million number that we published last March, we haven't really spent much of that yet. I think most of the spending that we did on CapEx last year was final installments on the long lead items that we committed to previous to the technical report. So that $232 remaining number is still a reasonable number. We have, obviously, in the last two months, started a little bit of spending against that budget, but it's still pretty close. As I mentioned in my opening remarks there, there's some potential for a little bit of inflation on that number. It's something we're watching closely. Obviously, the fixed-price contract with the general contractor mitigates some of that risk, but yeah, something we're keeping a close eye on.

As we get later into the year, 2024 here, I think we'll probably provide a little more color on where we're at. But at this stage, kind of nothing material to report in terms of a new CapEx estimate or anything like that. So that's kind of where we are.

Craig Hutchison (Director and Base Metals Analyst)

Okay. Thanks, guys. Lots of work.

Operator (participant)

Thank you. Once again, should you wish to ask a question, please press star then the number one on your telephone keypad. Once again, that is star and one to ask a question. There are no further questions at this time. Please proceed.

Stuart McDonald (President and CEO)

Okay. Thank you very much, everyone, for joining our call, and we will talk to you in May for our Q1 earnings call. In the meantime, if there are questions, feel free to reach out to any of us. Thank you.

Operator (participant)

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may now disconnect.