Operator: Good morning. My name is Allen, and I will be your conference operator today. At this time, I would like to welcome everyone to Taseko’s Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Mr. Bergot, Vice President or Investor Relations, you may begin your conference.

Brian Bergot: Thank you, operator. Welcome, everyone, and thank you for joining Taseko’s third quarter 2023 conference call. The news release and regulatory filing announcing our financial and operational results was issued yesterday after market close and is available on our website at tasekomines.com as well as on SEDAR. I’m joined today by Taseko’s President and CEO, Stuart McDonald; Taseko’s Chief Financial Officer, Bryce Hamming; and our Chief Operating Officer, 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.

Further information on these risks and uncertainties, I encourage you to read the cautionary note that accompanies our third 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 will now turn the call over to Stuart for his remarks.

Stuart McDonald: Thank you, Brian, and welcome everyone to our third quarter earnings call. It’s been a very busy three months since our last call, but we’ve been able to make some great strides forward with our business. We had very strong operating results at Gibraltar, solid earnings as well this quarter. But I’ll start with our most exciting news, and that’s our permitting success at Florence. We announced earlier this week, the EPA confirmed that no appeals have been received and our final UIC permit is now effective. Great result for us and a testament to the work our project team has done over the last 10 years. We’ve methodically worked our way through a very rigorous and detailed permitting process, technically de risked the project with successful test facility operations, and at the same time, we’ve been able to build the strong community support that we enjoy today.

In this day and age to be able to permit a project with no substantive opposition or appeals, as I said, it’s a great result, a big milestone for our company. So, we’re moving forward. We were at Florence site yesterday with our Board of Directors reviewing our construction plans. Next steps will be site preparation and clearing for the well field expansion. That work will start in the next few weeks. Drilling contractors are planned to be on-site and drilling early in the New Year. We’re also working to finalize key vendor contracts and our construction team is going out for firm quotes on the remaining equipment and materials that need to be procured. We’re moving forward in a disciplined way and aware of the inflationary risks and uncertain markets that we’re in today.

We aren’t racing to complete construction. We’re focused on delivering the project on budget and ensuring that we have the right financing package in place. Previously said that we’re targeting to raise US$100 million at the project level consisting of debt and a royalty. We made very good progress on those discussions and we’re now very close to getting firm commitments in place. We should be able to provide additional details on that in the near future. We’re expecting to be able to close those financings early in the New Year before the drilling commences and our construction spending starts to ramp up. At that point, we would have $175 million of committed funding for Florence Construction in addition to our current available liquidity of about $110 million.

Florence’s profile as a low carbon U.S. based copper producer continues to generate a lot of interest from potential customers, investors, and other miners. Few months ago, the U.S. Department of Energy identified copper as a critical material. This opens up the possibility of tax incentives for the project and our preliminary review indicates we could potentially benefit from a tax credit as high as 30% on the SX/EW and copper processing infrastructure at Florence. They’ll need to apply and be accepted, but this has the potential to be a very meaningful piece of funding available to us in 2025. As we’ve said in the past, we have a very unique opportunity here, a low-impact and low-cost project now fully permitted in the Tier 1 jurisdiction.

We’re looking forward to realizing that value over the next couple of years. Markets everywhere are challenged right now, and we’ve seen copper prices impacted recently as well. 2025 looks like a great time to be bringing on a new project. Turning to Gibraltar now, it was a very strong production quarter. As we indicated on last quarter’s call, we had made good progress advancing mining deeper into the Gibraltar pit. We’re now well established in the bottom of that pit. With that setup in place, the mine delivered excellent results this quarter with copper production of over $35 million and C1 cash cost of $2.20 per pound. Copper grades improved as expected, averaging 0.26% for the period. Mining benefited from the large continuous mineralized zones and the softer ore resulted in mill throughput over 87,000 tons per day, which is above design capacity.

A large open-pit mining site, its machinery providing a long-term supply of copper.

The ore quality also led to improved copper recoveries in the mill, 85% for the quarter, which is a good result. Total site cost was CAD102 million which is generally in line with recent quarters. We benefited from a 60% increase in Moly sales, which generated a byproduct of $0.23 per pound of copper. Through three quarters, Gibraltar mine has produced 88 million pounds of copper and we’re well on track to keep our original production guidance of 115 million pounds plus or minus 5%. We’re hopeful to be on the plus side of that number. Gibraltar pit will continue to be the primary source of mill feed through the middle of next year and then we’ll transition to ore from the new connector pit for the second half of next year. We should continue to see good daily mill throughput from both pits, but metal production will be affected by some planned mill downtime.

Two significant downtimes are planned. Mill number two will be down for two weeks in Q1. Mill number one will be down for about three weeks, in the second quarter. And that’s for the crusher move and a major maintenance. So, that will certainly have some impact on production next year, but taking that into account, we’re generally expecting 2024 copper production to be similar to this year. Still working through some details and we’ll be able to give some more specific guidance with our year-end results in February. With that, I’ll now turn the call over to Bryce for some additional commentary on our financials.

Bryce Hamming: Thanks, Stuart. Good morning, everyone. It indeed was a great quarter for Gibraltar and this is reflected in our financial performance. Revenue in the third quarter was the highest Taseko has ever recorded at $144 million from the sale of 32 million pounds of copper. Higher sales volume, our increased ownership in Gibraltar, a steady realized price of 3.83 per pound, and a weaker Canadian dollar are the drivers of the record revenue. We also had at least 5 million pounds of excess concentrate inventory due to the Vancouver port strike in July at the end of September. We will sell that copper in Q4 and should be back to more normal levels by year-end, so we should see another great earnings quarter to finish the year.

For October, we produced over 11 million pounds of copper, so we continue to be on track. Total site costs were $102 million in the third quarter, a $3 million decrease from the second quarter, but generally in line with our previous quarters and guidance. Even though our mining rates in the quarter were lower than the previous quarters, diesel consumption was 3% higher due to the longer loaded hauls out of the Gibraltar pit, and these diesel prices also increased and were 11% higher compared to Q2. Moly byproduct credit in the quarter was $0.23 per pound, significantly higher than the second quarter as a result of much higher moly production and sales as well as a higher realized moly price of $23 per pound. Lower site costs, higher production, and increased moly byproduct credit resulted in a 17% decrease in C1 costs from $2.66 per pound in the second quarter to $2.20 per pound in the third quarter.

Lower costs and strong sales drove adjusted EBITDA to $63 million for the quarter. GAAP earnings for the quarter were $900,000 or $0.09 per share, and adjusted net earnings after removing unrealized foreign exchange and derivative losses were $20 million, or $0.07 per share. In the third quarter, $18 million was spent at Florence, compared to $13 million in the second quarter. Year-to-date, we have capitalized $45 million of development costs at Florence. Lending as up this quarter due to some additional procurement for the commercial facility and increased cost for our PTF rinsing program. At Gibraltar, work continued on the in pit crusher and the electrical substation relocation projects, and $7 million spent in the quarter. Work has wrapped up for the year now, leaving approximately $9 million to be spent in the second quarter next year on that project when the primary crusher is moved.

Ended the quarter with approximately CAD150 million of available liquidity, including CAD82 million of cash. Last week, we received the first $20 million U.S. tranche from the $25 million Bank of America equipment loan commitment for Florence, which closed after the quarter end, so it’s not included in that liquidity number. We will then work next on closing the Mitsui transaction in the coming months. We’ve also significantly advanced with Endeavor Financial, our financial advisor, on project finance, they’re working on additional Florence project-level financings. We’ll be making further announcements on those in the coming weeks. We are looking for up to $100 million of additional funding, as Stuart mentioned, in debt and royalties, and we have the ability to do more at the Florence project given it’s relatively unencumbered at the moment with robust economics, and that’s if we need to.

The operation of the PTF facility has not only allowed us to obtain the permits for Florence, but has also made the project bankable. Just to finish up, the price of copper has declined in recent weeks, but now sitting in the $3.60 to $3.70 range. But thanks to our price protection program, we will receive a minimum price of $3.75 per pound through the end of the year for most of our production. We’ve also recently extended our price protection into 2024. We have purchased put option contracts for 21 million pounds from January to March with a strike of $3.25 per pound. This was undertaken to prevent any copper price surprises given the uncertainty in the world at the moment. We’ll look to add more to that in the coming months to cover more of 2024 as we prepare for construction.

With that, I’ll turn it over to the operator for questions. Operator?

Operator: [Operator Instructions]. Your first question comes from Craig Hutchison of TD Securities. Your line is already open.

Craig Hutchison: I wanted to clarify. You mentioned there’s a potential tax credit for Florence. If I’m not mistaken, you said it was a potential source of funding in 2025. Can you just maybe elaborate on that? Is that it’s something you could potentially monetize if you get that credit?

Bryce Hamming: Yes, that’s our understanding based on the preliminary work we’ve done is there’s potentially a 30% tax credit there, that related to our CapEx. On the processing infrastructure, so obviously the main piece being SX/EW plant. And on top of that, yes, as you said, there’s potential to actually monetize that, the tax rules allow for that. So yes, early days, but a good opportunity and I think a result of the DOE bringing in copper as a critical mineral over the summer.

Craig Hutchison: Okay. That’s interesting. And maybe just on Gibraltar, you guys are on track to get your guidance for the year. Can you provide any clarity just in terms of Q4 on kind of grades you’re seeing, are you still at sort of the bottom of the pit? And then just some clarity perhaps on some capitalized stripping here for the next couple of quarters. It was quite low in this quarter. Thanks.

Richard Tremblay: Good morning Craig, Richard here. Grades in Q4 are going to be slightly lower than Q3 but very much in line with kind of how we’ve operated in Q3, but slightly lower a bit. And then capitalized stripping, we do see an increase in capitalized stripping in Q4 as we’re deploying more shovels in connector pit and getting that pit ready for future ore release.

Operator: Your next question comes from Alex Bedwany of Canaccord Genuity. Your line is already open.

Alex Bedwany: Good morning guys. Thanks for taking my question. First question is just how quickly can the working capital build unwind over the next quarter? Obviously, it was about CAD34 million. How much of that do you think will unwind with the sales, and now that the port issues have been resolved? And for the second question, for the second half of next year from connector pit. What can you tell us about the ore hardness and, the grade as it compares to what you’re currently mining dollars from Gibraltar? Just trying to get a sense of throughput levels and grades.

Bryce Hamming: Maybe I’ll take the first part of that question just with the working capital. We had excess inventory at the end of the quarter. We’re expecting we’ll be through that by the end of November. So, we should realize the sales of excess copper inventory into the Q4 results. And more normal levels for the end of the year at this stage.

Richard Tremblay : And then the second part of the question for connector pit. In terms of ore hardness, it is the ore from connector pit is showing that it’s more similar to the Gibraltar pit ore. A little bit harder but still quite soft compared to other ores that we processed on the property previously. Then grade wise, as we start, we’ll see a little bit lower grade than what we’re currently processing, but then it will increase as we get deeper, similar to the same sequence we’ve experienced historically.

Alex Bedwany : And last one, if I may. What are the strip ratios going to look like, for the next quarter three quarters as you finish up at Gibraltar?

Richard Tremblay: Strip ratios for the next three quarter actually continued to be quite low given being at the bottom of the pit and essentially in a very low strip ratio area with high amounts of ore available to mine.

Operator: There are no further questions at this time. I would hand over the call to the management team. Please proceed.

Brian Bergot: Great. Okay. Thanks everyone for dialing in and we will talk to you again in February at our next earnings call. Thanks very much.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation and you may now disconnect.

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TASEKO MINES LTD

Q3 2023

Earnings Transcript

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