Mr. Russell Hallbauer reports
TASEKO REPORTS 2019 FOURTH QUARTER AND ANNUAL FINANCIAL RESULTS
Taseko Mines Ltd. has released financial results for the fourth quarter and full year ended Dec. 31, 2019. For the fourth quarter, Taseko recorded earnings from mining operations before depletion and amortization* of $23.9-million, adjusted EBITDA (net income before interest, income taxes and depreciation and also eliminating the impact of a number of items that are not considered indicative of continuing operating performance)* of $18.2-million and an adjusted net loss of $16.2-million (seven cents per share). For the full year, Taseko reports earnings from mining operations before depletion and amortization* of $70.6-million, adjusted EBITDA* of $51.1-million, and an adjusted net loss of $68.6-million (28 cents per share).
Russell Hallbauer, chief executive officer of Taseko, commented: "Operationally, we are happy with the performance at Gibraltar in 2019. Grade variability was low, and copper production of 126 million pounds met our annual production guidance. Additionally, molybdenum production of 2.7 million pounds was the best ever at Gibraltar and, combined with strong molybdenum pricing, generated an important byproduct credit. For 2020, we maintain guidance of 130 million pounds (plus or minus 5 per cent) of copper production, on a 100-per-cent basis, consistent with the life-of-mine average."
Stuart McDonald, president of Taseko, stated: "Earnings and cash flow were lower in 2019, mainly due to a lower average copper price. Even though the price of copper has been impacted recently by global events, we still believe the supply/demand fundamentals remain intact with the opportunity for a significant positive copper price movement. With our production from Gibraltar, we continue to have significant cash flow leverage to the copper price upside, and on the downside, we have copper put options in place until the end of April at a strike price of $2.60 (U.S.) per pound, which protect our cash flow in the event copper drops from current levels. Offsetting lower copper prices, we are seeing reductions in off-property costs and other input costs. For 2020, benchmark treatment and refining costs are more than 20 per cent lower than last year and, combined with recent fuel price declines and other supplier cost reduction initiatives, represent approximately seven cents per pound of annualized cost savings to begin the year.
"Our Florence copper project is making headway, both from a technical perspective as well as the permitting process. After 14 months of operating the test facility, our knowledge of the in situ leaching operation continues to grow. The well field continues to produce a commercial-grade leach solution, and the SX/EW plant is producing [London Metal Exchange] Grade A copper cathode on a steady-state basis. Detailed engineering for the commercial-scale facility is progressing, benefiting from the many months of test facility operating data. With both the state and federal regulators (Arizona Department of Environmental Quality and U.S. Environmental Protection Agency) actively involved, permitting is advancing and now in the technical review phase," added Mr. McDonald.
"Going forward, our focus will be on maintaining operating cash flow at Gibraltar, given the lower copper pricing currently being realized. While we expect a recovery in copper price, we will operate our company in the most cost-effective manner and manage project and other discretionary spending appropriately in the current environment," concluded Mr. McDonald.
* A non-generally accepted accounting principle performance measure.
2019 annual review:
Earnings from mining operations before depletion and amortization* were $70.6-million, and adjusted EBITDA* was $51.1-million.
Cash flows from operations were $42.6-million, and capital expenditures for the year totalled $50.8-million.
Cash balance at Dec. 31, 2019, was $53-million, which was $8-million higher than the end of 2018.
Site operating costs, net of byproduct credits*, were $1.75 (U.S.) per pound produced, and total operating costs (C1)* were $2.06 (U.S.) per pound produced.
Net loss for the year was $53.4-million (22 cents per share) with depreciation $39-million greater than the prior year due to the amortization of capitalized strip associated with ore mined from the Granite pit. Adjusted net loss* was $68.6-million (28 cents per share) after adjusting for the unrealized foreign exchange gain of $15.2-million.
The Gibraltar mine (100-per-cent basis) produced 125.9 million pounds of copper in 2019, a slight improvement over 2018. Copper recoveries were 86.2 per cent, and copper head grades for the year were 0.245 per cent.
Gibraltar produced 2.7 million pounds of molybdenum in 2019 compared with 2.4 million pounds in 2018. Molybdenum provided a byproduct credit of 20 U.S. cents per pound of copper consistent with 2018.
Sales of copper were 122 million pounds in 2019 with finished goods inventory at Gibraltar (100-per-cent basis), including 5.0 million pounds of copper. This copper concentrate inventory at Dec. 31, 2019, had a sales value of approximately $14-million for Taseko's share.
Taseko continued to advance its production test facility operation at the Florence copper project with the well field performing to expectation. The SX-EW plant continues to produce LME Grade A copper cathode. Commercial permit applications for phase 2 were submitted to the state and federal agencies in the middle of 2019, and permitting initiatives are under way.
In February, 2019, the company acquired the remaining interests in Yellowhead Mining Inc. that it did not already own for consideration of $13-million in the company's common shares. On Jan. 16, 2020, the company published the results of its updated National Instrument 43-101 technical report on the Yellowhead project, outlining a significantly improved development plan and economics.
Fourth quarter review:
Fourth quarter earnings from mining operations before depletion and amortization* were $23.9-million, and adjusted EBITDA* was $18.2-million.
Cash flow from operations was $9.2-million.
Site operating costs, net of byproduct credits*, were $1.69 (U.S.) per pound produced, consistent with the prior two quarters.
Net loss was $9.9-million (four cents per share) after depletion and amortization of $31.4-million in the quarter.
- Adjusted net loss* was $16.2-million (seven cents per share) after adjusting for the unrealized foreign exchange gain of $5.9-million.
Copper production in the fourth quarter was consistent with previous quarters at 33.4 million pounds, and copper sales were 33.3 million pounds (100-per-cent basis).
Molybdenum production was steady at 728,000 pounds in fourth quarter, and molybdenum prices averaged $9.67 (U.S.) per pound during the quarter down from $11.83 (U.S.) per pound in third quarter.
* A non-GAAP performance measure.
Financial data Year ended Dec. 31, Three months ended
($ in thousands, except for per-share amounts) 2019 2018 Dec. 31,
Revenues $329,163 $343,870 $89,932 $111,121
Earnings from mining operations before depletion and amortization* 70,613 112,003 23,921 28,450
Adjusted EBITDA* 51,057 98,217 18,246 26,489
Cash flows provided by operations 42,641 94,078 9,227 44,120
Earnings (loss) from mining operations (39,143) 41,222 (7,459) 10,578
Net (loss) (53,382) (35,774) (9,931) (19,720)
Per share -- basic (EPS) (0.22) (0.16) (0.04) (0.09)
Adjusted net (loss)* (68,610) (8,508) (16,159) (1,310)
Per share -- basic (adjusted EPS)* (0.28) (0.04) (0.07) (0.01)
========= ========= ========= =========
Operating data (Gibraltar -- 100-per-cent basis) Year ended Dec. 31, Three months ended
2019 2018 Dec. 31,
Tons mined (millions) 100.4 111.6 25.8 28.4
Tons milled (millions) 29.9 30.1 7.8 7.1
Production (million pounds Cu) 125.9 125.2 33.4 25.8
Sales (million pounds Cu) 122.4 126.5 33.3 42.7
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* A non-generally accepted accounting principle performance measure.
In 2019, Gibraltar produced 125.9 million pounds of copper compared with 125.2 million in 2018. Copper grade for the year averaged 0.245 per cent copper, slightly below the life-of-mine average grade. Copper recovery for 2019 was 86.2 per cent, an improvement over 2018, as a result of processing improvements and processing less oxidized ore.
A total of 100.4 million tons were mined in 2019, a 10-per-cent decrease over the prior year, due to the mining deeper within the Granite pit, resulting in longer haul distances. Waste stripping costs of $22.9-million (75-per-cent basis) were capitalized in 2019 compared with $48.8-million in 2018 as more waste stripping was performed in the Granite pit in the prior year.
Site operating costs* for the year were $1.95 (U.S.) per pound of copper produced, an increase from 2018, due primarily to the greater capitalization of stripping costs in the prior year. There were also higher mining costs per ton mined in 2019, arising from greater haulage distances.
Molybdenum production for 2019 was 2.7 million pounds compared with 2.4 million pounds in 2018. This additional production was offset by a decrease in the average molybdenum price, which was $11.36 (U.S.) per pound in 2019 compared with $12.20 (U.S.) per pound in 2018. The resulting byproduct credits per pound of copper produced* of 20 U.S. cents remained consistent with the prior year.
Off-property costs* were 31 U.S. cents per pound of copper produced, consistent with 33 U.S. cents per pound produced in 2018. The decrease was attributed to improved TCRCs (concentrate treatment and refining charges) on spot tenders in 2019 compared with 2018.
Total operating costs (C1)* were $2.06 (U.S.) per pound of copper produced for the year compared with $1.93 (U.S.) per pound in 2018 due to the difference in site operating costs as noted herein.
Fourth quarter results
Copper production in the fourth quarter was 33.4 million pounds. Copper grade for the quarter averaged 0.253 per cent, which was in line with the life-of-mine average grade. Copper recovery in the mill was 84.5 per cent during the quarter, which was lower than the first three quarters, as a higher percentage of oxide ore was processed. The decrease in recovery was offset by an increase in mill throughput during the quarter.
A total of 25.8 million tons were mined during the period, an increase of 1.1 million tons over the previous quarter, and the ore stockpile increased by 500,000 tons. The strip ratio for the fourth quarter was 2.1 to 1 as more mining took place in Granite. This resulted in less overall waste stripping of Pollyanna in the quarter.
Capitalized stripping costs totalled $4.3-million (75-per-cent basis) compared with $8.6-million in the prior quarter and $18.9-million in fourth quarter 2018. The capitalized stripping costs are substantially attributable to advancement into the Pollyanna pit and associated waste stripping costs while no ore from Pollyanna has been mined yet. Total site spending (including capitalized stripping costs) was slightly lower than the previous quarter. The remaining decrease in site operating cost per ton milled*, which was $10.46 for the quarter, was due to greater throughput.
Molybdenum production was 728,000 pounds in the fourth quarter. Molybdenum prices averaged $9.67 (U.S.) per pound over the fourth quarter compared with $11.83 (U.S.) per pound in the prior quarter and $12.04 (U.S.) per pound in fourth quarter 2018. Byproduct credits per pound of copper produced* were 16 U.S. cents in the fourth quarter.
Off-property costs per pound produced* were 32 U.S. cents for the fourth quarter of 2019 and consist of concentrate treatment, refining and transportation costs. These costs are in line with recent quarters relative to pounds of copper sold.
Health, safety and environment
Health and safety have always been a high-level commitment for Taseko, Gibraltar and Florence management. Taseko is committed to operational practices that result in improved efficiencies, safety performance and occupational health. Nothing is more important to the company than the safety, health and well-being of workers and their families.
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 2019, Gibraltar had five lost time incidents and a lost time frequency of 0.68 (per 200,000 hours worked). This is lower than the B.C. industry average loss time frequency of 0.78 (per 200,000 hours worked). The company remains committed to a culture of safety first, ensuring safety is the first consideration in all actions taken.
The same priority on health, safety and environmental performance, as well as the methods and culture at Gibraltar, is being imported and implemented at Florence copper.
* A non-GAAP performance measure.
Gibraltar is expected to produce approximately 130 million pounds (plus or minus 5 per cent) on a 100-per-cent basis in 2020.
The fundamentals for copper remain strong, and despite short-term volatility caused by global events, including the coronavirus, most industry analysts are projecting a continued supply constraint and higher copper prices than current levels in the coming years. Expansion of overseas copper smelting capacity and tighter supply conditions resulted in a reduced benchmark for 2020 for concentrate treatment and refining charges (TCRC), which were set 23 per cent below 2019 benchmark levels.
On Nov. 6, 2019, the company published an updated National Instrument 43-101 technical report on the Gibraltar mine. Based on this updated technical report, sufficient mineral reserves exist to support an approximate 19-year production plan out to 2038 with annual average copper production of 130 million pounds. Mineral resource potential exists to potentially further extend the mine life beyond the known reserves.
Review of projects
Taseko's strategy has been to expand the company from the operating cash flow and credit quality of the Gibraltar mine to assemble and develop a pipeline of projects. The company continues to believe this will generate long-term returns for shareholders. Its development projects are focused primarily on copper and are located in stable mining jurisdictions in British Columbia and Arizona. Its current focus is on the near-term development of the Florence copper project.
Florence copper project
The production test facility (PTF) operated as planned during 2019. Steady-state operation was achieved, and the focus turned to testing different well field 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 orebody. The Florence copper technical team is using physical and operating control mechanisms to adjust solution chemistry and flow rates, and is achieving targeted copper concentration in solution. The PTF well field is performing to its design, and the SX-EW plant continues to produce LME Grade A copper cathode.
The main focus of the PTF phase is to demonstrate to regulators and key stakeholders that hydraulic control of underground leach solutions can be maintained and provide valuable data to validate the company's leach model, as well as optimize well design and performance and hydraulic control standards. Successful operation of the in situ leaching process will allow permits to be amended for the full-scale commercial operation, which is expected to produce 85 million pounds of copper cathode annually for 20 years.
Two permits are required to commence construction of the commercial-scale well field at Florence copper. 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). In June, 2019, the company submitted the APP application for the phase 2 commercial facility to the ADEQ. The UIC permit application for the phase 2 commercial facility was submitted to the EPA in August, 2019. Both permits are advancing through the technical review process. The company is in active dialogue with the regulators and targeting to have permitting for the commercial facility completed in 2020.
The company has continued to advance various project financing options from debt providers, royalty companies and potential joint venture partners for the phase 2 commercial development of the Florence copper project. Management is targeting to have the project financing committed in advance of both the APP and UIC permit amendments being issued by the ADEQ and EPA, respectively.
Total net expenditures at the Florence project for the year ended Dec. 31, 2019, were $16.0-million, including the PTF operation and other project development costs.
Yellowhead copper project
On Feb. 15, 2019, the company acquired all of the outstanding common shares of Yellowhead Mining Inc. that it did not already own, in exchange for 17.3 million Taseko common shares. Yellowhead holds a 100-per-cent interest in a copper-gold-silver development project located in south-central British Columbia.
In January, 2020, the company announced the results of its technical studies on Yellowhead, which resulted in a 22-per-cent increase in recoverable copper reserves and significantly improved project economics. The company filed a new NI 43-101 technical report ("Technical Report on the Mineral Reserve Update at the Yellowhead Copper Project" dated Jan. 16, 2020) on SEDAR.
The updated 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 pretax net present value of $1.3-billion at an 8-per-cent discount rate using a $3.10 (U.S.) 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 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 efforts in 2020 on continuing engagement with local communities, including first nations, environmental assessment work, additional engineering and joint venture partnering discussions with strategic industry offtake groups.
New Prosperity gold-copper project
On Dec. 5, 2019, the company announced that the Tsilhqot'in Nation as represented by the Tsilhqot'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 Tsilhqot'in Nation to the project. While the details of this process are confidential, 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. A pilot-plant-scale program commenced in the second quarter on the niobium flotation and converter processes. The pilot plant will also provide final product samples for marketing purposes. Aley project expenditures for the year ended Dec. 31, 2019, were $800,000.
The company will host a telephone conference call and live webcast on Feb. 21, 2020, at 11 a.m. Eastern Time (8 a.m. PST or 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 6, 2020, and can be accessed by dialling 888-390-0541 within North America or 416-764-8677 internationally and using the passcode 966107 followed by the number sign.
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