Taseko Mines' CEO Presents at CIBC Whistler Institutional Investor Conference (Transcript)

Jan.23.14 | About: Taseko Mines (TGB)

Taseko Mines Limited (NYSEMKT:TGB)

CIBC Whistler Institutional Investor Conference

January 23, 2014 05:05 PM ET

Executives

Russell Hallbauer - President and CEO

Analysts

Tom Meyer - CIBC

Tom Meyer - CIBC

Our next presentation is from Taseko Mines. We have Russ Hallbauer, President and CEO who is going to present on the company and give us an update what’s going on there. Russ, over to you.

Russell Hallbauer

Thanks, Tom. Looks like there is not many, too many copper balls around these days, I mean it’s a pretty skinny room for what’s happening in the business right now. And I think if -- when I walk through this you guys will be happy that you stayed, get a little insight in terms of what we're doing and where we're headed. We like to call this a super factor. I have been in the business for nearly 35 years now and I have yet to see, and maybe Jim is a little older than me but maybe he's seen this line up. But we have the opportunity for production increases, operating cost reductions, Canadian dollar weakness and strong copper prices and where that leads us particularly with this company.

So, like I said we got increase in production, we got a modern world-class mine and low geopolitical risk. If you look on the operating side, we got decrease in operating costs and steady state operations to provide further reductions, big impact now and we'll talk about it little later in this presentation as the weakening Canadian dollar and it’s obviously a significant benefit to Canadian producers. And obviously strong stable metal price regime and that’s supported by decline in inventories both on the concentrate side and in the metal side.

If we look at where we were now in terms of our production profile, 2013, we're just a little over $9 per ton milled, that’s significantly down from where we were in 2008. And in fact our operating costs are back nearly to 2006 levels. You see in the middle there around 2008, 2009, let’s see that forward way barely, that was some of the outcome of the financial crisis when we had to reduce our strip ratio and try and survive period of time. But if you look at the trend line our trend line continues to decrease with our copper production on a quarterly basis increases so obviously the combination of mill throughput and copper production is continuing to drive our cost down.

Let’s go to the next slide here, gives you a little bit of idea of the impact. We’re going to process over roughly 30 million tons through our concentrator a year. If we reduce our operating cost from $10 a ton to $9 a ton, that’s about -- or 75% of it is just under $25 million directly to the bottom line with no increase in cost. So, now you start to see this correct factor or super factor starting to line up, it’s when each horse and a horse race comes in one, two, three, four.

Now obviously the Canadian dollar I guess here is the projections that we’ve got just a week or two ago and obviously we shot through those certainly who knows where it’s going to end up but it certainly looks like that the Governor of the Bank of Canada is sure not going to intervene and the Canadian government is not going to intervene and who knows where copper -- the Canadian dollar is going to end up. But it certainly bodes well for Canadian producers.

Now let’s look a little bit here in sensitivity to foreign exchange. This is effectively our 2013 revenue at $3.20 copper and we haven’t put out our financial numbers yet but this is just a basic estimate and we were somewhere between $0.97 and $0.98 last year. With our new production this year, we’re going to be a little over $400 million in revenue; this is just strictly on the copper side nothing to do with the moly. And as you can see that’s at 103 FX and a $3.30 copper, so a little bit higher price than what we achieved in 2013. But the important thing to look at is what happens if currency reduces based up what we think we’re going to produce this year.

So our revenue from last year will increase by $125 million, a 41% increase. We go to where about the Canadian dollar is today, and that’s a $140 million that’s a 47% increase. And if we go to a $1.15 which the indications are that’s an $0.87 - $0.88 you can see the impact this is going to have on our mining operations or on our cash flow generating ability and our gross revenue. So that little wedge there is all margin because our cost 80% -- of our cost are fixed. So well it’s hard on your vacation going to Hawaii or Palm Springs or Florida with the exchange rate, it certainly boards well for Canadian producers.

So looking just pretty simplistically $0.01 change in the U.S. dollar and this has happened very precipitously as we all know. We’ll add $4 million to our operating cash flow. The dollar is effectively down $0.10 since this time last year over what we saw in 2013. And so that would effectively add nearly $40 million to our bottom line. Like I said earlier $0.25 per ton decrease in our cost per ton milled and that will add $5.5 million and increase in cash flow, again right to the bottom line and a $0.10 copper price increase adds 12 million. So if you combine those things up with no changes from where we were last year, our profitability has significantly increased.

So you folks probably most we’re operating the second largest open pit copper mine in Canada, a huge reserve, 880 million tons, we have a mine reserve of 27 years based at 85,000 tons a year for a day. We just completed a big expansion, well, just completed I guess it was a four to five year expansion to get us to 85,000 tons a day and we did that very sequentially and stayed within our means and focused on the end result and here we are today with all the stars aligned $700 million capital investment and we’re ready to reap the benefits of that.

Like I said, when we first proposed our GDP through expansion going from 55,000 tons a day to 85,000 tons a day, we predicted that we’d have a 35% internal rate of return at $1.50 margin and I think we’re not far off that and certainly low capital intensity, $10,800 per ton of installed capacity compared to what was going on in the industry at the time of around $15,000 for other comparable projects. So, we think we’ve done a pretty good job in that respect.

If we look out in terms of our growth strategy, we’ve got two great assets. Our New Prosperity, which obviously has been in the press quite a bit and I was just having a chat with Tom just a process we’re going through and hopefully we come out the other side because this asset certainly there is not 1 billion ton ore-bodies out there that are nearly 0.5 gram gold and 0.25% copper and like I said with respect to the Canadian dollar that just adds to the opportunities that will exist for this ore body when we have the opportunity to develop it.

And our Niobium Project again a lot of people don’t know about Niobium but this is the second largest Niobium Project in the world and we’re proceeding to work on the metallurgy. It’s been a little bit more complicated than we thought it would be but we have attained a 40% recovery rate, we’d like to get it to 50 because it will make the economics that much better. But having said that we’ll be able to take it, we believe to a 43-101 resource and produce a feasibility study on it over the next few quarters.

I think that’s it though, thank you.

Question-and-Answer Session

Tom Meyer - CIBC

Okay Russ, any questions from the audience at this time? Russ let’s think back to 2004 when Gibraltar was taking off care and maintenance is started up. At what point did you see the opportunities for expansions and modernizations, because it was an old mill, some old technology in that mill.

Russell Hallbauer

Well I think we had to -- and you got to credit John McManus because I think if you go back to the early development days of Gibraltar they looked at the size of the equipment, I am not sure what size trucks they were running but in the 1970s they were maybe 100 tonne trucks max, you know Jim? You were there, 85 there, I was off a bit. So what was the economic extraction depth and we saw that they were only going down to 500 or 600 feet in the ore bodies and we knew that with modern mining big equipment you can go down 1,500 to 2,000 feet and so we just looked it. What was down there in terms of a resource and we just reengineered, did a new reserve update and we added a 150 or 175 I can’t remember million tones, right off the bat. And then we added -- then we started to do some drilling and figured this ore body is a lot bigger than we think it is and we added, I think we went to 440 million tonnes with some added drilling.

And then that strategy changed the whole perspective, I think we looked at it as a group, as an engineering group and we said this mill is 1970s technology, if something -- we were thinking about making a margin and if the cooper price cycles down, would we stay in business we just didn’t want to be a swing producer so I managed to convince the Board that we do some investments and we switch over the rod ball mill lines to put a SAG mill in the front end and well mills and that was the start of it. And then as time went on and we generated cash and we stayed within our means the financial crisis kind of really screwed us up but we were fortunate because we had been taking all our stripping costs, we weren’t capitalizing them.

So we were able to take our strip ratio from over 3 to 1 to about 1.8 to 1, that saved us a lot of money in the cost per tonne milled and we’re able to get our all in cash cost down to $1.20 a pound, and we survived that period. It was desperate times mind you but. And now we've invested the rest of the money that we generated, we raised $200 million in a high yield bond, and that bond obviously is very well accepted because we trade right at the coupon level the degrees of risk obviously, I think we’re the best trading high yield bond out there right now. And we’ll invest it back in the property.

So here we are, we got a brand new facility, effectively a new concentrator and a slightly older one and all new mining gear and that’s the cash that we’re going to be able to generate. And if investors are looking for cash and cash flow generating ability that’s the kind of thing we’re interested in.

Tom Meyer - CIBC

Are there further expansions with the economies of scale that you have between the two mills, because you have two mills there? Are there expansion possibilities beyond what you currently have?

Russell Hallbauer

Almost certainly the size of the ore body we built the second concentrator, so that we could bolt on, we could put another. The SAG mill that we have we’re running at -- well, we're overdesign, we’re running it at about 35,000 tonnes a day but it’s got the same motors and it’s the same size as the one that’s 55,000 tonnes a day, and our older concentrators. So we just have to add some ball mills and half a dozen flotation cells, and we could jack that up to 55,000. The question we have to answer as engineers is will the geometry the ore body allow us to effectively run it, release the ore, can we keep up if we go to that size.

We’re finding a little bit of struggle now because the mills can eat more ore than we are able to produce. So we have to get on the ball and get our stripping up but we know we can run close to 100,000 tonnes a day with the present configuration. All we do is give up recovery. So the trade-off is between pushing the mill and recovery and we've said well we’re doing all this hard work now to open the ore body up, let’s not send it all out to a bunch to the [tailings]. So on the bench scale and design it was 89% recovery, we’re 4% or 5% below that and last year we ran at about 6% under the availability that we believe we should achieve. So there are opportunities there to just run the mill more efficiently and work on recovery.

Tom Meyer - CIBC

And then on the topic of recovery we saw the molybdenum recovery pick up and in most recent quarter, given that moly prices are below $10 a pound and it is still a marginal contributor but what is the plan for 2014 as it relates to just getting the moly up and just adding augmenting the cash flow that you’re already…

Russell Hallbauer

Yes. The moly is going really well. Basically, the moly was just a moly separation plant, it wasn’t really a moly plant like the old moly plant we had. So, the fact that we’re having recovery issues with the main concentrator effect of the moly plant so we reached about 12, 14 weeks ago we started completely over with the moly plant we set it up. So, now we’re seeing recoveries around 40%.

We expect to set hit design targets around 50% here in the next quarter or so. So, that’s -- it adds -- at the lower production it was about somewhere between 8% and 10% of our byproduct credit as we get -- and the price starts to go up, it will be about 10% to 12%. So, it’s significant.

Tom Meyer - CIBC World Market

So, you are throwing out cash from Gibraltar, we know that New Prosperity is out there under kind of a permitting overhang but the proceeds from that cash flow, are you building cash on the balance sheet for New Prosperity or are you looking to get other opportunities between now and when New Prosperity actually gets its permits.

Russell Hallbauer

Well, it’s a dynamic situation. We get permits next week then obviously everything will change. What we decided to do is this year we’re not spending much money. So, our work on Aley is very limited, our work on New Prosperity is very limited. So, we want to put cash on the balance sheet and that’s -- so we've backed off on a lot of those things.

If New Prosperity gets to go ahead then we’ll have to decide how much money we want to spend on engineering and how fast we want to advance that project. And we will see, I guess I have to convince the Board whether they want to go ahead spend a $1 billion and how are we going to finance it, whether it’s going to be a joint venture, whether our stock price response that we do some equity, there is lots of different options there.

Tom Meyer - CIBC World Market

There were a number of presentations earlier today and then my questioning and I think in presentations just around the conference share buybacks, dividends whether its Taseko thinking on…

Russell Hallbauer

We’ve matched out our share buybacks because of the covenants with our high yield we can’t go any further. But I think if we had more cash we would likely do that. Dividends, no we think we can invest the money more appropriately and get a higher return for our shareholders, especially when if you got a growth in front of you, that’s what we’d looked at. We have no thoughts about issuing a dividend.

Tom Meyer - CIBC World Market

And maybe just some general thoughts, you recently deployed capital into the [Florence] project in the U.S. What are you thinking on that project, I’m curious?

Russell Hallbauer

Well, its again, it’s a permitting issue, it’s getting the stakeholders, I don’t like that word but getting everybody else online I guess that’s the buzz word these days but I think that was mostly driven by our Board and the Board wanted some diversity out of British Colombia so they had some exposure and we thought that would be pretty low risk entry into the copper market in United States and I think technically our guys did a huge amount of due diligence in conjunction with the [indiscernible] guys and I think that it’s a good -- and only during [uranium] all the time, why shouldn’t be able to do it in the copper business and certainly have an saturated ore body. I think there was some companies just last week up in [indiscernible] in Colorado announced that their economic model on their [indiscernible] ore body worked out pretty well -- has worked out pretty well.

So, low entry point, we got about 15% of the company then we can make a decision. We did take a position in [yellow] head just to stick our toe in the water and that hasn’t been successful as we think it should have been but what we wanted to do is find out whether there was a higher green area for three or four year starter pit and the ore body is very consistent about 0.27, 0.28 head grade.

So it just becomes then, it will be a mine if you use longer term copper prices at Lake 350. But we’re not gambling on that at this juncture. And then we have some other irons in the fire and we look at a lot of things mostly technically driven because we are a technical organization.

Tom Meyer - CIBC World Market

And then can you speak generally on the copper concentrate market because Gibraltar is kind of in an unique position of having one in the cleaner cons out there, are you seeing more or less demand giving that the smelting capacity is somewhat expanded.

Russell Hallbauer

Yes. Well, last year was a very interesting copper market and trying to get some discipline in these smelter markets is really, really difficult because they’re so widely around the world. And I actually think the Chinese conspired I mean anywhere else if you talked about smelter markets, if you try to -- I mean what’s the likelihood of the whole Chinese industry going down for smelter maintenance at the same time. Geez you guys, there is hundreds of smelter, they all take the whole smelters down and then what ends up happening is instead of having a 5% or 6% shortfall in mine site production it falls to 2%. So, that means, there is a lot of excess capacity of concentrate looking for a home and then you throw in the typhoon and then knock down the Pasar smelter and it just set up a perfect storm for the smelters to really grind the hell out of the miners. I think now that you see with Pan Pacific copper I think if you see what BHP has done for them, they’ve taken a holiday on their -- because I think in another six months we’re going to see spot prices come off, and we’re going to see a perfect storm with increased capacity and longer term TCRCs are going to drop. In our situation everybody thought we’re crazy in 2006 when we signed a million ton concentrate deal at fixed terms, but part of those fixed terms is we have an evergreen that gives us a premium against benchmark on all tons in the future, so the tons that we’re selling, the 120,000 tons of concentrate that we’re selling to MRI we get a $12 a ton credit off our benchmark, so if benchmark is 80, we’ll get 68, so it’s a very accretive thing for us. But I think if you look at ocean shipping, TCRCs I think you’re going to see off property cost pretty consistent and maybe even coming down, going out to 2015 or ’16 or ’17.

Tom Meyer - CIBC World Market

I’ll open up to the floor again, any questions from the floor.

Unidentified Analyst

[Question Inaudible]

Russell Hallbauer

Yes, we’re looking at it all the time. Yes, you just have to -- the entry level, I think the expectations are being more realistic from the junior guys, they’ve to a large degree shot their wad and that opportunity may not come back and now they’ve got properties that maybe -- may have potential to be developed and those guys are saying, well jeez how do we do this now. So you have to go to organizations like ours or either bigger ones and try and do deals, so the reality of the situation is they’re thinking more pragmatically than they were a couple of years ago and the valuations are accordingly reflect that.

So I think there are opportunities out there. There are opportunities in the space in British Columbia for the 0.3 to 0.4 ore bodies, there’re not many of them and most of the ore bodies are running 0.32, but you know, we’ve shown in British Columbia we can build these and operate them and make money. When you get down to $8 or $9 or $10 per ton milled and have capital discipline you can really generate some good cash flow for the investments that you put in.

Unidentified Analyst

[Question Inaudible]

Russell Hallbauer

Well the problem with Chile and I had a lot of experience in South America is that cost per ton milled is just, it’s double what it is, I mean you can go to look at any big mining project down there, you look at Antamina, you look at Anaquajo, you look at [indiscernible] Los Pelambres, those are -- nobody figures this out, but the costs are all $19-$22 or $23 per ton milled so to make a significant return to $35-$40 rock, and so $35-40 rock you’re talking plus 0.6, 0.7 head grade, depending on what metal prices you’re using. So it’s a big risk, so for a company like us to go down there and try and get some kind of asset we’re only big enough to get tier three assets, we’re can’t go -- we’re not going to go get a barn burner 0.75% of copper and half a gram gold, I mean all the big guys are getting it, so we have to -- we’re sort of the bottom scrapers we got to look and so, we look for where we think we can bring strategic advantages with our skill set and it’s pretty skinny in South America from my perspective and I think it’s going to get harder. They don’t have the productivity, I mean I was at Los Pelambres, Los Pelambres is 55,000 tons a day, it’s one of the flagships, well they’ve expanded it, it’s one of the flagships for Anglo America, they have 55,000 tons a day, they had 3,500 employees, well we’ve got 85,000 tons a day at Gibraltar and we’ve got 700 employees, so and they’ve lost their competitive advantage with respect to labor costs and so you’ve got all these social things around -- so their whole metrics has changed down there over the last 10 or 15 years, but I think in British Columbia there’re opportunities because people aren’t interested in 0.3, but it’s the value of the rock versus your cost to do the work and if you can get it doubled you’re going to get at it and that’s what we look at, so, but investors seem to think about head grade and higher things, I just think about how much money we can make for what we’re going to do.

Tom Meyer - CIBC World Market

So Russ, it really sounds like you’re into a lot of these full tonnage opportunities rather than seeing a high grade underground opportunity that may come across your desk, is that...

Russell Hallbauer

No if it come across and it’s going to -- that’s why New Prosperity is going to change the needle for us, it’s basically going to be double our revenue, if we’re doing 500 million [indiscernible] that’s what it’s going to be at, so it changes the needle it takes us to the next step, but if we came across and found out that we can produce GBP70 million or GBP80 million pounds a year that would be a accretive underground we will go for it. We just mine ourselves.

Tom Meyer - CIBC World Market

But you do prefer the North American jurisdiction.

Russell Hallbauer

Well, yes, I think we understand it, we don't go to Africa, I mean what are we going to show up in Zambia and say hey guys we are here, yes, that’s the end of the story, pretty quickly, let’s take all of your clothes and leave you naked in the bush, okay, thanks for that experience. So, we are pretty pragmatic, it was my 60th birthday yesterday so I am running out of steam actually. After 40 years you just kind of get a little tired, you don’t need that crap.

Tom Meyer - CIBC World Market

And recent change in government which is a bit of a surprise in BC, does that make you more constructive on the opportunities for long term BC mining?

Russell Hallbauer

Yeah, I mean it was a great thing, I mean everybody was freaking out. But for our business now it has to be the greatest thing, like moving forward with resource development and she is mandated to jobs and stuff. And I think we are starting to see an evolution in terms of the mines ministry starting to have some more influence in moving projects forward. We have some issues there is no doubt about it you always have with government, but they are being pretty proactive. And I think you see Red Chris is coming on, Mount Milligan, you are going to see some more porphyries being discovered and being advanced and the ones that are old will get advanced. There is lots out there that people haven’t paid much attention to over the last 20 years.

Tom Meyer - CIBC World Market

And with that constructive view on BC, you envision it running up against constraints whether it’s power infrastructure or just on the labor side getting the guys in the seat to...

Russell Hallbauer

You hear all the stuff about labor shortage, we have nearly a 1,000 applications for jobs at Gibraltar and everybody is saying oh, there is a big labor shortage and we are going, really, I mean where is this coming from. We have no problem with recruiting engineers. We are having problems recruiting metallurgist. So, the day your analyst job ends you can come to the Williams Lake but we are having problems on the metallurgical side. Mining engineers, I don’t see that being an issue and skilled labor, people say well there is a lot of competition from Fort Mac, well Fort Mac they pay you more but you got to pay $500,000 or $600,000 or $700,000 for a house, Williams Lake you can buy a house for 250,000 bucks and you are only making 10% or 15% less in terms of hourly rate. So, I don’t see it.

Tom Meyer - CIBC World Market

Okay, thanks very much.

Russell Hallbauer

Yes, thanks.

Tom Meyer - CIBC World Market

We are out of time, so thank you very much.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!