Taseko Reports $32 Million of Adjusted EBITDA in the Third Quarter 2020

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Taseko Reports $32 Million of Adjusted EBITDA in the Third Quarter 2020

by ahnationtalk on October 27, 202029 Views

October 26, 2020, Vancouver, BC – Taseko Mines Limited (TSX: TKO; NYSE American: TGB; LSE: TKO) (“Taseko” or the “Company”) reports earnings from mining operations before depletion and amortization* of $35.7 million, Adjusted EBITDA* of $31.5 million and Net income of $1.0 million, or $nil per share, in the third quarter of 2020.

Stuart McDonald, President of Taseko, stated, “The price of copper continued its recovery in the third quarter, with the price increasing from an average of US$2.43 in the second quarter to just under $3.00 in the third quarter. This copper price gain contributed to our strong EBITDA and cash flow generation. Taseko’s cash position further increased this quarter to $73 million, up $9 million from the end of June. Sales for the quarter were 29 million pounds and we generated a healthy operating margin of nearly 40%.”

Mr. McDonald continued, “Through nine months, we have produced 98 million pounds of copper at Gibraltar, in line with our original guidance of 130 million pounds (+/-5%). Third quarter copper production was 29 million pounds. While we anticipated copper grade more in line with the life of mine average in the third quarter, the final benches of the Granite pit did not produce the copper grade we were expecting, and head grade for the period averaged 0.23%. Molybdenum production in the third quarter remained strong at 668 thousand pounds, due to both grade and recoveries.”

Russell Hallbauer, CEO and Director, commented, “At our Florence Copper Project, permitting and financing activities are progressing. The public comment period for the Aquifer Protection Permit concluded in October and the state agency is now reviewing and will be responding to submitted comments as required and we expect the final state permit to be issued in the coming weeks. The EPA is advancing their permitting work and we continue to anticipate the Underground Injection Control Permit to be issued in early 2021. On the financing front, discussions are ongoing with multiple parties for various funding opportunities. Financing activities continue to track well with permitting progress.”

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

“In March, after the price of copper dramatically declined, Taseko developed a short-term plan to respond to the lower pricing environment. The plan, which significantly reduced our costs since April, was effective and allowed the Company to maintain strong cash flow and continue to advance our Florence Copper Project. With a strengthening copper price this quarter, we began increasing mining rates in September resulting in slightly higher site spending over the second quarter. Going forward, the Pollyanna pit will be the main source of ore through mid-2021 at which point we expect to begin mining ore from the Gibraltar pit. Ore from the Gibraltar pit will require less energy to grind, resulting in substantial productivity and cost benefits.

Maintaining a healthy operating margin will continue to drive our operational decisions. The rebounded copper price has allowed us to revert to normal mining rates while continuing to generate robust cash flow for the Company. We will balance spending and operating margin with long-term mine plan requirements, as we have always done,” concluded Mr. Hallbauer.

Third Quarter Review

  • Earnings from mining operations before depletion and amortization* was $35.7 million, and Adjusted EBITDA* was $31.5 million;
  • Cash flow from operations was $31.0 million and the Company had an ending cash balance at September 30, 2020 of $72.7 million;
  • The Gibraltar Mine produced 28.9 million pounds of copper in the third quarter. Copper recoveries were 85.0% and copper head grades were 0.23%;
  • In March, management implemented a revised mine plan and budget for Gibraltar which reduced site spending over the last six months. Although total site spending in the current quarter increased from the previous quarter due to higher mining rates, they were still 19% lower than the same quarter in the prior year;
  • Gibraltar sold 28.6 million pounds of copper in the quarter (100% basis) which resulted in $86.8 million of revenue for Taseko. Average LME copper prices were US$2.96 per pound in the quarter and revenue also included positive provisional price adjustments of $4.4 million;
  • Net income (GAAP) for the third quarter was $1.0 million ($nil per share). Adjusted net loss* was $5.8 million ($0.02 loss per share);
  • Gibraltar extended its five-year copper concentrate offtake contract, for roughly 50% of its production, for an additional year which is expected to result in a 30% reduction in treatment & refining costs in 2021, reflecting the continued tight physical copper concentrate market conditions and the strategic demand for Gibraltar’s high quality concentrates; and
  • The Arizona Department of Environmental Quality (“ADEQ”) issued the draft Aquifer Protection Permit for the Florence Copper Project on August 6, 2020, which was followed by a public hearing and a public comment period which ended on October 12, 2020.

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

Outlook

  • Annual production guidance for 2020 remains unchanged at 130 million pounds (+/-5%); and
  • Preparations to begin mining the Gibraltar pit in 2021 commenced in the third quarter. This new mining sequence will reduce capital costs and provide operating efficiencies and improve operating costs.

HIGHLIGHTS

Operating Data (Gibraltar – 100% basis) Three months ended
September 30,
Nine months ended
September 30,
2020 2019 Change 2020 2019 Change
Tons mined (millions) 23.3 24.7 (1.4) 72.3 74.7 (2.4)
Tons milled (millions) 7.5 7.5 22.6 22.1 0.5
Production (million pounds Cu) 28.9 33.0 (4.1) 98.1 92.5 5.6
Sales (million pounds Cu) 28.6 33.5 (4.9) 99.0 89.1 9.9
Financial Data Three months ended
September 30,
Nine months ended
September 30,
(CDN$ in thousands, except for per share amounts) 2020 2019 Change 2020 2019 Change
Revenues 87,780 82,436 5,344 255,869 239,231 16,638
Earnings from mining operations before depletion and amortization* 35,705 12,317 23,388 91,964 46,692 45,272
Adjusted EBITDA* 31,545 7,906 23,639 87,751 32,811 54,940
Cash flows provided by operations 31,021 15,150 15,871 85,771 33,414 52,357
Adjusted net loss* (5,754) (20,561) 14,807 (19,066) (52,451) 33,385
Per share – basic (“adjusted EPS”)* (0.02) (0.08) 0.06 (0.08) (0.22) 0.14
Net income (loss) (GAAP) 987 (24,508) 25,495 (29,218) (43,451) 14,233
Per share – basic (“EPS”) (0.10) 0.10 (0.12) (0.18) 0.06

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

REVIEW OF OPERATIONS

Gibraltar Mine (75% Owned)

Operating data (100% basis) Q3 2020 Q2 2020 Q1 2020 Q4 2019 Q3 2019
Tons mined (millions) 23.3 20.5 28.5 25.8 24.7
Tons milled (millions) 7.5 7.7 7.5 7.8 7.5
Strip ratio 1.5 1.9 2.7 2.1 3.0
Site operating cost per ton milled (CDN$)* $9.57 $7.66 $9.52 $10.46 $10.83
Copper concentrate
Head grade (%) 0.228 0.281 0.259 0.253 0.249
Copper recovery (%) 85.0 85.2 83.4 84.5 87.7
Production (million pounds Cu) 28.9 36.8 32.4 33.4 33.0
Sales (million pounds Cu) 28.6 39.3 31.1 33.3 33.5
Inventory (million pounds Cu) 3.6 3.8 6.4 5.0 5.0
Molybdenum concentrate
Production (thousand pounds Mo) 668 639 412 728 620
Sales (thousand pounds Mo) 693 656 403 791 518
Per unit data (USD per pound produced)*
Site operating costs* $1.85 $1.15 $1.64 $1.85 $1.88
By-product credits* (0.14) (0.11) (0.11) (0.16) (0.16)
Site operating costs, net of by-product credits* $1.71 $1.04 $1.53 $1.69 $1.72
Off-property costs 0.29 0.30 0.29 0.32 0.33
Total operating costs (C1)* $2.00 $1.34 $1.82 $2.01 $2.05

OPERATIONS ANALYSIS

Third 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. Heightened health and safety protocols continue to be implemented and monitored for effectiveness. In light of the overall economic volatility experienced earlier this year due to COVID-19, management implemented a revised mining plan in March that reduced costs over the last six months while still maintaining long-term mine plan requirements.

Copper production in the third quarter was 28.9 million pounds. Copper grades in the final benches of the Granite pit were lower than expected. Mining in the Granite pit was completed in early October.

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

Total site spending (including capitalized stripping) increased by 10% over the previous quarter as the mining rate increased in accordance with the revised operating plan, but remained 19% lower than the third quarter of 2019. Gibraltar has benefited from continued lower input costs, including diesel fuel which remained 25% lower than 2019 average prices in the quarter. Shorter haul distances in the Pollyanna pit also contributed to lower spending. The strip ratio for the third quarter was 1.5 to 1 and was lower due to less waste rock remaining in the Granite pit.

Molybdenum production was 668 thousand pounds in the third quarter, an increase from the prior quarter due to higher molybdenum grade, which also increased recovery. Molybdenum prices were lower in the third quarter and averaged US$7.71 per pound compared to US$8.37 per pound in the prior quarter and US$11.83 per pound in Q3 2019. By-product credits per pound of copper produced* was US$0.14 in the third quarter, an increase of US$0.03 over the prior quarter.

Off-property costs per pound produced* were US$0.29 for the third 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.

Total operating costs per pound produced (C1)* increased to US$2.00 from US$1.34 in the prior quarter, which was primarily due to lower copper production, a stronger Canadian dollar exchange rate, and a lower allocation of costs to capitalized stripping in the current quarter.

GIBRALTAR OUTLOOK

Annual production guidance for 2020 remains at 130 million pounds +/-5%.

With the Granite pit now complete, mining has transitioned to the Pollyanna pit which will be the main ore source in 2021. Gibraltar pit mining will commence in the first part of 2021. With a strengthening copper price, mining rates have been increased to normal levels. . Ore from the Gibraltar pit is expected to require less energy to grind which will provide substantial productivity and cost improvements when processed.

Copper prices have recovered swiftly due to recovery in Chinese demand coupled with continued supply disruptions, most notably in South America. Many governments are now focusing on increased infrastructure investment to stimulate growth following the pandemic and the need for metals such as copper should result in increased near term demand. The medium to long-term fundamentals for copper remain strong and most industry analysts are projecting ongoing supply constraints and deficits in the years ahead after the economic recovery, which should bring higher copper prices. Molybdenum prices have also started to recover since August, as demand has improved in key steel-making regions.

*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

Management is pleased with the results of its Production Test Facility (“PTF”) which has provided valuable data to validate the Company’s modelled assumptions and operating parameters. This data is being used to refine operating plans for the commercial operation. Detailed engineering for the commercial facility is ongoing with the objective that it will be substantially completed ahead of the receipt of final permits and a final construction decision.

Steady state operation of the PTF 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) achieved targeted levels and the SX/EW plant was producing at an annualized rate of one million pounds of copper cathode per year prior to switching to the rinsing phase of testing in late June 2020. Data collected during this final rinsing phase will further inform commercial operations.

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 (“APP”) from the Arizona Department of Environmental Quality (“ADEQ”) and the Underground Injection Control (“UIC”) Permit from the U.S. Environmental Protection Agency (“EPA”).

On August 6, 2020, the draft APP was issued by the ADEQ and a public comment period was initiated. As part of the public comment period, a public hearing was held by the ADEQ on September 9. During this hearing, the Florence Copper Project received overwhelming support from local community members, local business owners, elected state officials and city councillors, a state senator and representatives from the technical services sector. The public comment period ended on October 12 and the ADEQ is reviewing comments received before issuing the final permit.

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.

The Company continued to advance discussions with interested parties regarding the potential sale of a minority interest in the Florence Copper 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 Copper Project during the first nine months of 2020 were $13.3 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. (“Yellowhead”) 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 (the “Technical Report”) 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, which is underway, 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.

The Company will host a telephone conference call and live webcast on Tuesday, October 27, 2020 at 11:00 a.m. Eastern Time (8:00 a.m. Pacific) to discuss these results. After opening remarks by management there will be a question and answer session open to analysts and investors.

The conference call may be accessed by dialing (888) 390-0546 in Canada and the United States, or (416) 764-8688 internationally.

The conference call will be archived for later playback until November 13, 2020 and can be accessed by dialing (888) 390-0541 in Canada and the United States, or (416) 764-8677 internationally and using the passcode 277617 #.

For further information on Taseko, please see the Company’s website at www.tasekomines.com or contact:

Brian Bergot, Vice President, Investor Relations – 778-373-4554, toll free 1-800-667-2114

Russell Hallbauer

CEO and Director

NT4

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