Mr. Russell Hallbauer reports
TASEKO REPORTS $108 MILLION OF ADJUSTED EBITDA FOR 2020
Taseko Mines Ltd. had full-year 2020 earnings from mining operations before depletion and amortization (1) of $119-million, and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (1) of $108-million. For the year, the company had a net loss of $24-million or nine-cent loss per share.
This release should be read with the company's financial statements, and management discussion and analysis (MD&A), available on its website and filed on SEDAR. Except where otherwise noted, all currency amounts are stated in Canadian dollars. Taseko's 75-per-cent-owned Gibraltar mine is located north of the city of Williams Lake in south-central British Columbia. Production volumes stated in this release are on a 100-per-cent basis unless otherwise indicated.
Note: Gibraltar is a contractual, unincorporated joint venture between Taseko Mines (75-per-cent interest) and Cariboo Copper Corp. (25-per-cent interest). All production and sales figures are reported on a 100-per-cent basis, unless otherwise noted.
Russell Hallbauer, chief executive officer and director, commented: "We have witnessed a remarkable recovery in the copper market since March of last year. The price of copper has more than doubled in that time, and even since the end of 2020, the price has climbed a further 70 U.S. cents per pound. Last year, Gibraltar produced 123 million pounds of copper, and our 2021 production estimate is slightly higher at 125 million pounds. Gibraltar has been Taseko's cornerstone asset for over 15 years, generating positive cash flow through the copper price cycles, but it is times like this that we truly benefit from the leverage to copper from our large, steady-state production base. At current copper prices, which are now more than $1.40 (U.S.) per pound higher than last year's average, we would have generated roughly $275-million of adjusted EBITDA (1) in 2020.
"Copper production in the fourth quarter was 25 million pounds, which was below prior quarters due to lower grade and harder ore as mining transitioned into the Pollyanna pit. Mine-to-mill adjustments were made during the fourth quarter, and throughput returned to design capacity in December. The Pollyanna pit, which is about 4 per cent lower grade than the reserve grade, will be the main source of ore for the first half of 2021. In the second half of the year, ore mining will commence in the Gibraltar pit, which is higher grade and has a lower work index (softer ore)," added Mr. Hallbauer.
Stuart McDonald, president of Taseko, continued: "The $108-million of adjusted EBITDA (1) and $106-million of operating cash flow we generated in 2020 was a tremendous accomplishment, and demonstrates the resiliency of our operation in the face of a global pandemic and volatile economic environment.
"Our successes, however, were not limited to Gibraltar. At Florence Copper we have achieved key milestones in recent months which have derisked the project considerably. We received the state permit in December, and we continue to expect the federal permit from the EPA in the coming months. And in February we completed a successful $400-million (U.S.) bond refinancing, which was upsized to provide financing for development of the commercial facility at Florence. We now have a cash balance of approximately $200-million (U.S.), and, with the majority of required funding in hand, we are moving forward with final design engineering and procurement initiatives. This work will facilitate a seamless construction start-up, and we will move forward expeditiously with on-the-ground construction activities as soon as we have the final permits in place.
"Two thousand twenty-one will be a transformational year for Taseko as we take the final steps to unlock the full value of Florence and pave the way to becoming a multiasset copper producer. The addition of Florence will increase Taseko's attributable annual copper production by 85 per cent to approximately 185 million pounds. Florence production will also significantly reduce Taseko's consolidated operating costs given its expected C1 operating costs of 90 U.S. cents per pound of copper. With increased investor focus on sustainability and environmental footprint, we are very proud of the fact that Florence Copper will also be one of the greenest copper production facilities in the world, and will provide high-quality copper to the U.S. domestic market in support of its green infrastructure and electrification initiatives in the years to come," concluded Mr. McDonald.
2020 annual review:
Earnings from mining operations before depletion and amortization (1) was $119.0-million, and adjusted EBITDA (1) was $108.2-million.
Cash flows from operations was $106.2-million, compared with $42.6-million in the prior year.
In response to the COVID-19 pandemic management implemented a number of cost-saving initiatives in 2020, including a revised mine plan for Gibraltar, which reduced total site operating costs by $28.2-million compared with 2019. Site operating costs, net of byproduct credits (1), was $1.62 (U.S.) per pound produced, and total operating costs (C1) (1) was $1.92 (U.S.) per pound produced.
The Gibraltar mine operated continuously through the year, and produced 123.0 million pounds of copper and 2.3 million pounds of molybdenum (100-per-cent basis). Copper recoveries were 84.3 per cent, and copper head grades for the year were 0.243 per cent.
Gibraltar extended its five-year copper concentrate offtake contract, for roughly 50 per cent of its production, for an additional year, which is expected to result in a 30-per-cent reduction in treatment and refining costs in 2021, reflecting the continued tight physical copper concentrate market conditions and the strategic demand for Gibraltar's high-quality concentrates.
On Nov. 17, 2020, Taseko closed an offering of common shares for net proceeds of $34.3-million.
On Feb. 10, 2021, Taseko closed an offering of $400-million (U.S.) 7 per cent senior secured notes due 2026. A portion of the proceeds will be used to redeem all of the outstanding $250-million (U.S.) 8.75 per cent senior secured notes due 2022 on March 3, 2021, including accrued interest and transaction costs.
The company's cash balance at Dec. 31, 2020, was $85.1-million, and the bond refinancing transaction in February, 2021, provided additional net cash proceeds of $167-million (or $131-million (U.S.)).
Copper prices have recovered strongly, and the current price of over $4.20 (U.S.) per pound is significantly higher than the average London Metal Exchange price of $2.80 per pound in 2020.
The Arizona Department of Environmental Quality (ADEQ) issued the aquifer protection permit (APP) for Florence Copper on Dec. 8, 2020. The company is now moving forward with final design engineering of the Florence commercial production facility and procurement of certain critical components.
Fourth-quarter earnings from mining operations before depletion and amortization (1) was $27.1-million, and adjusted EBITDA (1) was $20.5-million.
Cash flow from operations was $20.4-million.
The Gibraltar mine produced 25.0 million pounds of copper in the fourth quarter. Copper recoveries were 83.3 per cent, and copper head grades were 0.201 per cent.
Gibraltar sold 25.0 million pounds of copper in the quarter (100-per-cent basis), which resulted in $85.9-million of revenue for Taseko. Average LME copper prices were $3.25 (U.S.) per pound in the quarter, and revenue also included positive provisional price adjustments of $8.4-million.
Net income (GAAP) for the fourth quarter was $5.7-million (two cents per share). Adjusted net loss (1) was $7.5-million (three-cent loss per share).
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 2020, Gibraltar produced 123.0 million pounds of copper compared with 125.9 million in 2019. Copper grade for the year averaged 0.243 per cent copper which was consistent with 2019. Copper recovery for 2020 was 84.3 per cent, and was affected by higher iron content in the ore in the first quarter, and increased oxide ore and ore hardness in the initial Pollyanna pit benches in the fourth quarter.
A total of 98.7 million tons were mined in 2020, a slight decrease over the prior year. In response to COVID-19, management implemented a revised mining plan in March, 2020, that reduced operating costs over the second and third quarters of 2020 while still maintaining long-term mine plan requirements. Site operating costs, net of byproduct credit, for the year were $1.62 (U.S.) per pound of copper produced, a decrease of 13 U.S. cents per pound from 2019.
The strip ratio for the year was 2.0 to one compared with 2.6 to one in 2019, reflecting the revised mine plan. In addition, ore stockpiles increased over 2020 by 3.0 million tons from initial mining of ore in Pollyanna.
Molybdenum byproduct credits per pound of copper produced (1) were 13 U.S. cents, compared with 20 U.S. cents in the prior year. The decrease was due to a drop in the average molybdenum price, which was $8.68 (U.S.) per pound in 2020 compared with $11.36 (U.S.) per pound in 2019. Molybdenum production for 2020 was 2.3 million pounds and 400,000 pounds lower than in 2019.
Off-property costs per pound produced (1) were 30 U.S. cents in 2020, and consist of concentrate treatment, refining and transportation costs. These costs are in line with the prior year on a per-pound basis.
Total operating costs per pound produced (C1) (1) were $1.92 (U.S.) for the year compared with $2.06 (U.S.) in 2019 due to the reduction in site spending.
Copper production in the fourth quarter was 25.0 million pounds, and was impacted by lower mined ore grades in November and December. Mining in the Granite pit was completed in early October, 2020. Additionally, increased oxide ore and ore hardness in the initial Pollyanna pit benches affected recoveries and throughput in the fourth quarter.
Total site spending (including capitalized stripping) was consistent with the fourth quarter of 2019 as the mining rate returned to normal levels. The strip ratio for the fourth quarter was 1.9 to one, consistent with the average for the year. Capital expenditures in the fourth quarter included costs associated with the dewatering system for the Gibraltar pit.
Molybdenum production was 549,000 pounds in the fourth quarter, a decrease from the prior quarter due to lower molybdenum grade, which also decreased recovery. Molybdenum prices continued their recovery in the fourth quarter and averaged $9.01 (U.S.) per pound but were still lower compared with $9.67 (U.S.) per pound in Q4 2019. Byproduct credits per pound of copper produced (1) was 14 U.S. cents in the fourth quarter.
Off-property costs per pound produced (1) were 29 U.S. cents for the fourth quarter and consistent with prior quarters.
Total operating costs (C1) (1) costs were $2.82 (U.S.) per pound produced for the quarter. In addition to fewer copper pounds being produced in the fourth quarter, contributing to the increase in C1 (1) costs was a decrease in capitalized stripping costs, which was only $1.2-million compared with $3.6-million in the third quarter, higher operating costs due to mining rates returning to normal levels and a strengthening Canadian dollar.
Environment, social and governance
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.
Nothing is more important to Taseko than the safety, health and well-being of its workers and their families. Taseko is committed to operational practices that result in improved efficiencies, safety performance and occupational health.
Taseko places a high priority on the continuous improvement of performance in the areas of employee health and safety at the workplace, and protection of the environment. In 2020, Gibraltar's days lost, loss time incidents, lost time frequency and loss time severity were all zero. The British Columbia mining industry averages for 2020 were 0.68 for loss time frequency (per 200,000 hours worked) and 105.7 for loss time severity.
The same priority on health, safety and environmental performance, as well as the methods and culture at Gibraltar, are being implemented at Florence Copper as it prepares for construction.
Gibraltar is expected to produce approximately 125 million pounds on a 100-per-cent basis in 2021, compared with 123 million pounds in 2020. Copper prices are currently over $4.20 (U.S.) per pound, compared with the average LME copper price of $2.80 per pound in 2020. Molybdenum prices are currently 44 per cent higher than the average price in 2020. All of these factors are supportive of improved financial performance at the Gibraltar mine in 2021.
With a strong copper price backdrop, mining rates have returned to more normal levels. Mining has transitioned to the Pollyanna pit, which will be the main source of ore in 2021. Copper production is expected to be greater in the second half of 2021 as higher-grade areas in Pollyanna are opened up. Mining of the Gibraltar pit will commence in the first part of 2021 with ore release commencing in the second half of the year. Ore from the Gibraltar pit is relatively softer and is expected to require less energy to grind, which will provide opportunities for increased mill throughput in the future.
Copper prices have recovered swiftly since March, 2020, and are reaching multiyear highs 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 economic recovery after the pandemic, including green initiatives, which will require new primary supplies of copper. Most industry analysts are projecting continuing supply constraints and deficits, which should support higher copper prices in the years to come.
Florence Copper represents a low-cost growth project that will have an annual production capacity of 85 million pounds of copper over a 21-year mine life, and the expected C1 operating cost of 90 U.S. cents per pound puts Florence Copper in the lowest quartile of the global copper cost curve. The commercial production facility at Florence will also be one of the greenest sources of mined copper, with carbon emissions, water and energy consumption all dramatically lower than a conventional mine. The company has successfully operated a production test facility (PTF) for the last two years 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 include the construction and operation of the commercial ISCR facility with an estimated capital cost of $230-million (U.S.) (including reclamation bonding and working capital). At a long-term copper price of $3.00 (U.S.) per pound, Florence Copper is expected to generate an after-tax internal rate of return of 37 per cent, an after-tax net present value of $680-million (U.S.) at a 7.5-per-cent discount rate and an after-tax payback period of 2.5 years.
On Dec. 8, 2020, the company received the aquifer protection permit (APP) permit from the Arizona Department of Environmental Quality (ADEQ). The APP permit was issued following a public comment period and public hearing in August, 2020, where the project received strong support from local community members, business owners and elected officials. The other required permit is the underground injection control (UIC) permit from the U.S. Environmental Protection Agency (EPA). The EPA's technical review for the UIC permit has identified no significant issues, and the company expects to receive this permit in the coming months.
With the recently concluded equity and bond financings, the company now has the majority of the required Florence Copper construction financing in hand. Discussions with potential joint venture partners continue to advance, and, with the improved cash position and stronger expected cash flows from Gibraltar due to higher prevailing copper prices, the company has numerous options available to obtain the remaining financing.
Management is now moving forward with final design engineering for the commercial production facility as well as procurement of certain long-lead critical components.
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. The company continues to believe this will generate long-term returns for shareholders. Its other development projects are focused primarily on copper and are located in British Columbia.
Yellowhead copper project
Yellowhead Mining Inc. has an 817-million-tonne reserve and a 25-year mine life with a pretax net present value of $1.3-billion at an 8-per-cent discount rate using a $3.10-(U.S.)-per-pound long-term copper price. Capital costs of the project are estimated at $1.3-billion over a two-year construction period. Over the first five years of operation, the copper equivalent grade will average 0.35 per cent producing an average of 200 million pounds of copper per year at an average C1 cost, net of byproduct credit, of $1.67 (U.S.) per pound of copper. The Yellowhead copper project contains valuable precious-metal byproducts 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 continuing 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 significant copper offtake rights.
New Prosperity gold-copper project
In late 2019 the Tsilhqot'in Nation, as represented by Tsilhqot'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 Tsilhqot'in Nation's opposition to the project. The dialogue was supported by the parties' agreement on Dec. 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 Teztan Biny (Fish Lake).
The COVID-19 pandemic delayed the commencement of the dialogue for several months, but the Tsilhqot'in Nation and Taseko have made progress in establishing a constructive dialogue. In December, 2020, they agreed to extend the standstill for a further year so they can 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, which is under way, will provide additional process data to support the design of the commercial process facilities and provide final product samples for marketing purposes.
The company will host a telephone conference call and live webcast on Thursday, Feb. 25, 2021, at 11 a.m. ET (8 a.m. PT, 4 p.m. GMT) 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 dialling 888-390-0546 within North America or 416-764-8688 for international callers. The conference call will be archived for later playback until March 11, 2021, and can be accessed by dialling 888-390-0541 within North America or 416-764-8677 internationally, and using the passcode 585262 followed by the number sign.
We seek Safe Harbor.
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