Taseko Mines (TSX:TKO) — Third Quarter Results and Corporate Update

0:01 Good afternoon, ladies and gentlemen. Welcome to the TKO MINES LIMITED Third Quarter Results and Corporate Update Presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted any time via the Q and A tab situated in the right hand corner of your screen. To click q and a, scroll to the bottom, type your question, and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company review all questions submitted today and will publish responses where it's appropriate to do so. These will be available via your investment company dashboard, and you'll be notified once they're ready for your review. I'd

0:32 also like to remind you that this presentation is being recorded. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Stuart McDonald, CEO of TASEKO MINES LIMITED. Good afternoon. Hi. Good afternoon, Paul. Thanks for thanks for having me. And I'll take it away from here. And, yeah, the present the title of the presentation is Building North America's Low Cost multi asset copper producer. And I'm Stuart McDonald, the president and CEO of the company. I'll take you through a bit of a corporate update, and I'll also build in the results and some commentary from our q three earnings call that we had last week. We released our third quarter earnings in on Wednesday last week, had our earnings call on Thursday, and I'm gonna provide, you know, basically, the latest disclosure, the latest information on the company that we released last week.

1:30 But, you know, before before we get to that, I guess, for those of you that are new to our story, I wanted to provide a brief update here or a brief overview here, I should say, give you a bit of an introduction. As I said, we're a multi asset copper producer, building that in the world's top mining jurisdictions being Canada and North America. Principal asset is the Gibraltar copper mine, which currently today is our sole producing asset. And following in the near future, we'll be bringing on our Florence copper mine in Arizona, which will be our second producing asset. So Gibraltar provides us with a solid base of cash flow. It's a good cash flow generator as we'll talk about in a minute.

2:19 It's a large scale mine. It's actually the second largest open pit copper mine in Canada and has really has been our engine and has allowed us to build out a pipeline of projects, which, as I mentioned, includes Florence Copper, but also a portfolio of other longer term development options, including Yellowhead, Alley, New Prosperity, and Harmony. And each of those are, I would I would emphasize, are not exploration projects. They are development assets with potential for twenty year mine lives. Each of those projects is in a some form of permitting and feasibility study. So again, provides a lot of optionality for us in the longer term for growth. So we're a proven team.

3:05 Our management team is a proven team of mine builders and operators. I think what we've done at our Gibraltar mine over the last fifteen years since we restarted it, you know, is really a testament to that. We operate, as I said, in in top class jurisdictions. We have a strong commitment to environmental, social, and governance performance, and particularly on the environmental and safety side, we really have demonstrated that through award winning success at Archibalda Mine. And last but certainly not least, you know, we participate in the copper market. We're we're, you know, we're very, believe we're very well positioned within that market to benefit from excellent fundamentals, in that metal going forward.

3:53 And, you know, maybe on that note, you know, I think I'll I'll just spend a minute here to talk about the copper markets. We you know, it's hard to consider consider an investment in a company like TASEKO without having a view on the commodity. And, you know, we certainly have you know, we certainly take a long term perspective, I would say. I mean, there's a lot in the media and the press right now about what's going on in the short term. But when we look at that kind of investment decisions, we're thinking about, you know, what's gonna happen in the next five to ten years. And that and that long term view is very bullish in our opinion. When you look at at the supply dynamics that that we have right now in the market, you know, it's very difficult to bring on a new copper mine of scale, whether that be through because of the capital requirements, because of the long lead times for permitting and and, you know, the social and political considerations in these jurisdictions.

4:56 You know, it's just it's just very challenging, and copper is quite unique in that in that way in that you can't just turn on the taps and and and bring on new copper supply. We have for for for a typical copper mine right now, you're talking about roughly a fourteen year lead time between discovery and the exploration stage and actually first production. So the analysts can look at the can look at the project pipeline now and see, you know, five, ten years ahead that there's a big supply gap growing somewhere in the range of 10 or 11,000,000 tons of supply gap by the end of this decade. And, you know, that's that's what we see as well. We don't see, you know, a way of of addressing that other than possibly through through some substitution, and that's gonna require, you know, very high copper prices for the for the foreseeable future in our view. And then when you layer on top of that, of course, you know, everybody's familiar with the the the electrification theme and and the whole shift towards renewables and electric vehicles.

6:02 All of that is electric electricity, and electricity requires copper. So the demand side is is solid, and and the supply side, we believe, is gonna be a really challenge going forward. So it's a yeah. So it's a bullish view, and and you've seen some of that in the short term as well, you know, where where you have in the last few weeks, we've seen some very unusual movements in the market, and, you know, there are shortages out there. There are low inventories. And so you're seeing that this view start to become more of a market consensus view.

6:40 So let's move on a bit here and talk about go back to our operations and spend a minute talking about our Gibraltar mine. As I mentioned, this is this is really a foundation for us. It is a long life asset. It has a long history and a long mine life remaining, about seventeen years to be precise. And it's a it's a good you know, it's a it's an it's been an excellent cash flow. We we actually acquired the mine in for a dollar in 1999. And, you know, since that time, we we then spent a bunch of time re reengineering the mine. We restarted it in 2004 on a shoestring budget, and we embarked in about '2 starting in about 2006, we embarked on a on a significant expansion and modernization program.

7:33 So and over about a over about a seven year period, we invested $800,000,000 of capital. The the result of that is we've got now two milling circuits. We've got a total of milling throughput capacity of about 85,000 tons a day, and we can produce copper on about around a 130,000,000 pounds a year. So that is you know, that mine has essentially been running running steady state since about 2014, and we've got, you know, in recent in recent years, had some very strong financial results to show for that. It's a low cost mine. When when we talk about cost in particular, we're talking about our cost per ton milled, where we can mill ore here at about 10 or $11.10 or 11 Canadian dollars a ton.

8:28 And that is comparable and and better than most mines in in North And South America. The way we achieve that is through particularly, in particular, a very efficient and productive workforce. We have we run it about with about 750 employees at the mine. Comparable mines in Chile and Peru could run anywhere from 2,000 to 3,000 employees. So we benefit from that. We have a very we have access to excellent infrastructure in the center of BC, low cost hydroelectric power, and a number of other geographic advantages that really allow us to run an efficient operation. And we need to be efficient. You know, we're running a lower grade mine here with about point 25% copper.

9:19 And, you know, in order to be in order to make a margin, we need to be good good operators and good what we do. I think, you know, we've we've demonstrated that through some of the awards that I mentioned. The John Ash Safety Award, we've won four of the last five years, and that's for the lowest injury frequency rate of a large mine in our province. And so, you know, a strong safety record, in my view, is is indicative of a well run operation. So just a couple comments on on our recent performance, and and 2021 has been, you know, has been a very, interesting year for us. We started the year within a lower grade section of our mine plan.

10:06 And the first quarter, we didn't fully participate because of those lower grades, we didn't fully participate in the copper price recovery that we saw early this year. But when we hit when we knew that was gonna improve in in in our most recent results for q three, you know, we we really showed the improvement in grade, which we expected. And, you know, that that combined with the strong copper price environment led to very strong earnings for the quarter. So we reported $75,000,000 of of EBITDA last week for the three month period. That's Canadian dollars and $68,000,000 of of operating cash flow. And that really, you know, shows what what Gibraltar can do when when everything falls into place with grade and high copper prices. So, you know, we're on track for well over $200,000,000 of EBITDA for the year, and next year is looking good as well. We should have a similar production year in 2022.

11:11 And, yeah, again, just really taking advantage of this market as best we can. We are seeing a little bit of cost inflation in this market as well, and that's been most notable in terms of diesel prices. We we use diesel currently to power our haul truck fleet. And we've seen, you know, if at current prices, we could see a cost increase of a few perhaps a few cents a pound. But, you know, our our costs are running around a dollar dollar 80 or a dollar 90 a pound. So a few cents of inflation on that is is very manageable for us when we're looking at copper prices today, you know, well over $4 a pound. We have a very strong margin.

12:01 On the go forward, couple other comments on our longer term plans at Gibraltar. We're currently looking at rerunning our our reserves. They're currently calculated based on a $2.75 copper price. With the recent move and the shift in in market sentiment that we've seen over the last year, we're now looking at running those at a at a higher copper price, potentially $3 or higher. And we think that will, on its own, without any further drilling, will bring some of our resources into the reserves, into the mine plan, and allow us to extend beyond our seventeen year mine life. So, again, this is a long life asset. It's a very valuable asset.

12:48 We have, you know, a replacement value here of well over a billion dollars. It's tough to it's tough to to replace, a mine like this. The other thing we're doing is a, an exploration program, and and we've got a number of interesting targets that we've identified around, the pits, around the mine site. And, we identified we did some geophysics, over the summer, identified some anomalies, which we're now following up on, to try to add resources as well. So, again, lots of lots of potential here for a long and stable operation.

13:30 With that, I'll move on to our our second core asset here. And, this presentation is is really focusing just on Gibraltar and Florence. But Florence is a very different different type of operation than than what we're doing at Gibraltar. It's an it's called in situ leach, and we call actually in situ copper recovery. You can see here on the screen a picture of our production test facility, we built in 2018, But it's it's a very different type of mining. We're not digging the hole in the ground. Actually, what we're doing is drilling a well field into the ore body and injecting a mining solutions into the ore body. Those solutions travel through the ore and recover copper in solution, and then we process that solution on surface to actually produce refined copper right on-site.

14:30 So it's an exciting project. We acquired it in 2014. It was previously owned by by a junior company called Curis Resources. But prior to that, going back to the eighties and nineties, it was developed by Conoco and Magma and BHP Copper. So it's got a long, again, quite a long history of study and technical work that's been done on this deposit. Well over a 100,000,000 US had been invested before we acquired it. It's got all the major power transportation and rail infrastructure in place. It's in a great location, actually, just outside of Phoenix, Arizona, about halfway between Phoenix and Tucson, right in the, you know, right in the copper belt there, an area of of with lots of mining activity.

15:22 And it's got, you know, the potential to be one of the greenest sources of copper in The US, and I'll talk a bit more about that that in a minute. But due to the because of the mining method, we're we took the approach to develop the project in two stages, and that was really to allow us to derisk the project through a development and operation of a PTF, which is what is what I was referring to as our production test facility. That's phase one of the development. So that involved building an SXEW plant and 13 production wells, which you saw on the previous screen there. That's phase one. That's gone very well, that test work. We operated and produced copper for about eighteen months. We produced well over a million pounds of copper cathode really has allowed us to move into phase two of the operation with confidence.

16:22 And phase two of the development is the construction of a commercial scale SXEW plant and well field, and we're just on the cusp of starting that now starting that construction. We're expecting that to start that early next year. Excuse me. When we get that running, you can see the economics there. It's a very attractive, economic return. We'll produce a capacity of of up to 85,000,000 pounds of copper cathode over a twenty one year mine life. And, yeah, the capital cost is relatively low at 230,000,000 US, and that gives us a, you know, very strong NPV of 680,000,000 US after tax and very strong IRR and payback, you know, as as I mentioned. So it is really low cost mining because of the mining method.

17:16 We can we can mine here for about 90¢ a pound. So it's gonna be a, you know, it's gonna be a really transformative it's gonna be very transformative for our company when you look at combining the production from from this asset with what we already have at Gibraltar. It's gonna be a big big increase in our in our production base and a big reduction our in our cost profile. I mentioned the some of the environmental advantages of this mining method, and, yeah, it really has a very small footprint, you know, very minimal surface disturbance. As I said, we're not you know, there's no there's no large milling facilities on surfaces. No tailings pond.

18:03 There's no waste rock. You know, no drilling and blasting or dust on surface. So this is why, you know, it is I think from, you know, from the local community perspective, you could you can drive by this mine site and not even know that we're that we're mining here. It's it's quiet, and we just we just operate very much under the radar here. In terms of energy consumption, electricity consumption per pound were three times lower than a conventional open pit copper mine. Freshwater use were 14 times less, and carbon emissions, GHG emissions, were six times lower here than a conventional open pit copper mine. So in terms of GHT emissions, this will be one of the greenest copper operations in the world.

18:56 So, yeah, something certainly proud of that aspect. This is the the development path that we've been on since 2017 where we received the permits to upbuild the PTF. Built the PTF in 2018, produced first copper from the site in 2019. In 2020, we received our our state aquifer protection permit from the state of Arizona. That was the first of two key permits that we need to develop the commercial facility. The second permit is in progress right now. It's gonna be coming to us from the EPA, and this was something that we talked about, gave an update on last week.

19:44 I would say the process the process has gone a little bit slower than we we would have liked for sure, but I think the key thing from my perspective is that and it gives me some comfort here is that no new issues are are coming up as part of the EPA process. They've assured us that, they're on track, and we're gonna be receiving the draft permit, imminently here in the next in the next couple weeks. So the first the the process will receive a draft permit. We'll have a period of two weeks to comment to comment on that. They will then the EPA will then open up a public comment period, which we expect will last about forty five days. At the end of that public comment period, and that includes a hearing as public hearing as well, the EPA will take any comments received, make any necessary adjustments to the draft, and issue as a final, you know, we call it a UIC permit.

20:41 We expect the final UIC permit early next year, and then at that point, we'll be well positioned to move into construction. So in preparation for construction, we've started some of the procurement of long lead time items. In the third quarter, we spent about $19,000,000 of of CapEx on the project. A portion of that was for to finish up our detailed engineering on the site, but a portion of that was was for that procurement that I mentioned. And and and getting those long lead time items to site, we believe, is important in this in the current environment. You know, we've seen some supply chain issues around the world. We've got some very specialized equipment that needs to be imported from Asia and South America and Europe, and we wanna get all that on-site so that we don't have any disruptions when we start construction next year.

21:36 And the other the other benefit of of locking in some of that long lead stuff was was to protect us against inflationary pressure as well, which we're which we're aware of aware of as a risk, and we're doing everything we can to mitigate that at the project level. So we've got, you know, we've got the permits coming. We've got we've got started on our procurement. We're well advanced on our engineering, and, you know, the other key thing here is is, you know, we've really got the balance sheet in place to execute this project. We finished the third quarter with about 300,000,000 Canadian dollars of available liquidity. That includes our cash balance of about 240,000,000, and then and then a revolving credit facility on top of that, which

22:25 which is available to us, but which we haven't drawn on drawn on yet. And that was a facility that we just put in place in September. So we're gonna you know, we've got a good balance sheet now. We're gonna continue to produce good cash flow from our Gibraltar mine, and we really believe that at current prices at least that we'll be well positioned to complete the development of Florence without any further financings. So why why invest into TKO? Yeah. I think, you know, I I think when we look at the the NPV value of our assets and and the intrinsic value of those assets, we really continue to see a significant gap between that value and our current market capitalization.

23:18 It's about over CAD 500,000,000 gap right now. And we think most of that gap relates to our Florence project. And as we build as we receive the final permit, you know, builds and and operate that asset, we think that gap will close. And that that represents, you know, we believe, an attractive growth proposition for for shareholders over the next eighteen months to two years that are in our in our stock. So we've got a lot of potential for short term growth. And I should emphasize too that those values that you see on the waterfall chart there, those are based on $3 copper prices and and, you know, well below where we are today. We're at roughly $44.30 a pound.

24:07 So, you know, a lot of a lot of upside even at 3 even at a conservative $3 copper price. So short term growth, you know, through through more production, through lowering our costs, and then also long term growth as well. We do have beyond Florence, as I mentioned, a pipeline of projects. And just indicatively, we've shown in 2026 our Yellowhead mine coming on as well and what that could do for us. That is another, you know, excellent prospect that we have here in Central BC as an open pit mine that can be developed. We're highly levered to copper prices. You can see that, you know, a 100% of our revenues come from copper.

24:57 We've got we do have a put price protection program in place to protect the downside, but that upside to copper is is open for shareholders. And, you know, that is you know, that you could see if you look at our our stock price performance that we've been closely tied to copper, and we believe now that with Florence coming online, we're going to outperform the metal as well. As I mentioned off the top, we are a proven operator and builder. We've done this in the past, you know, with the success we've had at developing and expanding Gibraltar and bringing that asset to what it is today, we're gonna replicate that at Florence. And, you know, really, again, being an industry leader in safety and environmental performance is so important today. And and, you know, we've we've always treated it with you know, as as being job one is to have a safe safe work site and and do what we need to do to protect the environment. So that that will continue to be a focus going forward. And I think our Florence production method that we have there is gonna be another step towards producing low cost and and efficient or environmentally friendly coffee production.

26:15 Just to wrap up, a couple of comments here on our share capital structure and our analyst coverage. So we've got $284,000,000 shares outstanding today, a market cap of roughly 750,000,000 Canadian. As I said, we've got 239,000,000 of of cash on the balance sheet that is earmarked for our Florence development and then the revolver as well, which which is currently undrawn and may not may not need to be drawn. We'll see we'll see how the the construction goes and how copper prices perform over the next year. We do have also a one other piece of debt on our balance sheet. It's a $400,000,000 US high yield note, which matures in five years, matures in 2026.

27:06 That's got a coupon of about of of 7%, And you could see some of the credit ratings on the slide there and some of the other details. But, you know, it's overall, we believe with the lack of you know, with no debt maturities until essentially 2026, we believe we're well positioned, as I said, to execute our growth plans. Some of the analyst coverage are major shareholders. We don't I wouldn't say we don't have any dominant shareholders. Benefit Street would be the largest, and management is also close to 4% in a number of other institutions on there. So we have we have listed before the pandemic, we listed on the London Stock Exchange, and so that's something that's been a focus of us. But, unfortunately, during the over COVID, we haven't been able to get to The UK as much as we would have liked, but we're hoping to change that in the coming weeks and months and try to try to build out our our UK shareholder register.

28:11 So I think with that, I'll wrap it up and perhaps hand it back to Paul to start off before we do some Q and A. That's fantastic. Stuart, thank you very much indeed for such comprehensive presentation. Ladies and gentlemen, do please continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. So Stuart takes a few moments to review those investor questions submitted already. I'd like to remind you the recording of this presentation, along with a copy of the slides and the published Q and A, could be accessed via your investor dashboard on the investor meet company platform. I'd also like to remind you that your feedback is important to the company. And immediately after the presentation has ended, you'll be redirected for the opportunity to provide your feedback in order that Stuart and the team can better understand your views and expectations. Stuart, if I may, we've had several questions submitted by investors during the presentation. If I could ask you just to click on that q and a tab, and where appropriate to do so, if you could just read out the question and give your response, please.

29:08 Sure. Okay. Thanks, Paul. Yeah. So the first question here from Andy is what scope is there to increase production out of our current facilities and take advantage of the pricing, or are we already at capacity? And also, what's our hedging policy? So in terms of production increases at our current facilities at being Gibraltar, we are operating that mine at at capacity. You know, we are trying to get as much copper out of that as as we can in the current environment. As I said, we we have milling facilities there to process 85,000 tons a day of ore, and we are focused on on keeping that running at capacity.

29:55 We do have some exploration programs underway, and we've got some engineering work that I mentioned to try to increase our reserve base. Those efforts will potentially increase our mine life beyond the seventeen year reserve. But in order to expand our mill throughput above 85,000 tons a day would would require a fairly significant capital investment. We've we've looked at some of those opportunities, and they're there. But, you know, really, for us, we think the best use of our capital is to bring on a second operation, and that's what we're focused on doing at Florence. And, really, you know, to get two operations running with a diversified base of of of cash flow is we think the best thing to do for shareholders.

30:48 So if we can have Florence permitted permitted early next year, it'll be about an eighteen month construction period, and that puts Florence into production in the middle of twenty twenty three. And at that point, it's essentially 85% production growth from where we are today. So it's it's a very meaningful step change that's coming for us in the next two years. But, certainly, there's there's nothing we can do tomorrow, to increase production. Otherwise, you know, we certainly would've we would've done it because this is a fantastic market. But, anyways, that that's where we are on growth. In terms of hedging policy, we do buy put options to protect the downside, and we do also have an in place for the first half of twenty twenty two.

31:42 We have actually a copper collar in place, and that's gonna protect most minimum price for most of our production at $4 a pound for the first half of next year. And then the ceiling on that collar is $55 and 60¢ US a pound. So we're we're normally don't like to lock in or cap the upside, but at a price of $5.60, we felt that was so far out of the money that we were fine doing that in order to get that downside protection during a during a capital program. So that is, that's our approach to hedging. So the next question is is would we look to sell any of the Florence project to strategic partners?

32:31 Now that's that's a good question, and it it is something that we talked about a couple of years ago, potentially selling a a JV interest in Florence to to a partner. And and if you look at our Gibraltar mine, that's that's the approach we took there as a financing approach was sell 25% of Gibraltar to a to a Japanese JV partner ten years ago. But at Florence, it's a lower capital requirement. And with the move that we've seen in copper prices over the last year or so and the performance we've had from our Gibraltar mine with our balance sheet today, we just don't see the need to bring on a JV partner at Florence anymore. We think we can do it ourselves, and we've got the balance sheet now to do it. So that's the you know, essentially, we're we're moving forward on that basis.

33:26 Sure. I think you've covered off those questions you can that we've had through from investors. Investors. And on that basis, if any further questions do come through, you will have the ability to review those questions and submit responses where appropriate to do so. Perhaps, Joe, I could just ask you just for a closing snapshot on that basis before we redirect investors to give you some feedback. Great. Okay. Well, thanks, Paul. Yeah. And thanks again for having us on the Investor Meet platform today. And I just just wanna reemphasize, you know, how well positioned and how uniquely positioned we think TASEKO is right now, you know, with one cash flow producing asset in a stable jurisdiction. Coming off the quarter, we had with $75,000,000 of EBITDA and going into a construction of our second operation at at Florence, you know, which is an attractive low cost environmentally friendly copper asset.

34:21 It's gonna transform the company, give us 85% production growth, and we don't think there's companies out there with that profile. So we think it's a unique opportunity for investors. We've got the team in place to do it. We've got the balance sheet to do it. It's a financed growth profile. And, yeah, we're happy to be happy to be producing copper in the current market, and we think it's a great commodity and, you know, excellent time to be investing in a company like ours. So thanks again for having us on the platform, and, yeah, appreciate it. Fantastic. Sure. Thank you indeed for updating investors today. Could I please ask investors not to close the session? You'll be automatically redirected for the opportunity to provide your feedback in order that management can better understand your views and expectations.

35:11 This will only take a few moments to complete and is greatly valued by the company. On behalf of Stuart and TASEKO MINES LIMITED, we'd like to thank you for attending today's presentation. That now concludes today's session. Thank you very much, and good afternoon.