Taseko Mines Management Discusses Q4 2013 Results - Earnings Call Transcript

Feb.21.14 | About: Taseko Mines (TGB)

Taseko Mines (NYSEMKT:TGB)

Q4 2013 Earnings Call

February 20, 2014 11:00 am ET

Executives

Brian Bergot - Director of Investor Relations

Russell Edward Hallbauer - Chief Executive Officer, President, Director, Chairman of Executive Committee and Chairman of Investment Committee

Stuart McDonald - Chief Financial Officer

John W. McManus - Chief Operating Officer

Analysts

Christopher Chang - Laurentian Bank Securities, Inc., Research Division

Mark Turner - Scotiabank Global Banking and Markets, Research Division

Jackie Przybylowski - Desjardins Securities Inc., Research Division

Adam Low - Raymond James Ltd., Research Division

Adam P. Graf - Cowen Securities LLC, Research Division

Steve Parsons - National Bank Financial, Inc., Research Division

Operator

Good day, ladies and gentlemen, and welcome to Taseko Mines Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr. Brian Bergot of Investor Relations. Sir, you may begin.

Brian Bergot

Good morning, Saeed. Good morning, ladies and gentlemen. Welcome to Taseko Mines Fourth Quarter and Annual 2013 Results Conference Call. My name is Brian Bergot, and I'm the Vice President, Relation -- Vice President for -- Vice President, Investor Relations for Taseko. With me today in Vancouver is Russ Hallbauer, President and CEO of Taseko; John McManus, Chief Operating Officer; and Stuart McDonald, Taseko's Chief Financial Officer.

After opening remarks by management, which will review the fourth quarter business and operational results, we will open the phone lines to analysts and investors for a question-and-answer session. Accompanying management’s discussion will be presentation slides for our webcast participants. Alternatively, the presentation can be found in the Investor Relations section of our website.

I would also like to remind our listeners that our comments and answers to your questions may 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. Please refer to the bottom of our latest news release for more information.

I will now turn the call over to Russ for his remarks.

Russell Edward Hallbauer

Thank you, Brian. Good morning, everyone. Thank you for joining us today to discuss our fourth quarter and year-end results.

We're very pleased with our performance in 2013. We completed our GDP expansion on time and on budget, and we ramped it up to full production capacity much quicker than just about anyone else in the world has done or completed on similar projects. So we feel pretty good about our ability to execute and fulfill the expectations of our shareholders and our employees when it comes to projects.

Our revenue of $290 million increased by roughly $36.5 million over 2012. Our tons mined increased by nearly 23 million tons, and our tons milled increased by 8.2 million tons, which resulted in yearly production out of Gibraltar of a little over 120 million pounds of copper, up from the 89 million pounds produced in 2012, a very notable accomplishment for us.

As a professional mining engineer, looking at our execution with all the moving parts, we did more than a dream job over the year if we look at what's been going on in this business worldwide. Actually, it's kind of a poor reflection, so under my profession, of badly most companies have executed over the past few years. And frankly, it's not the kind of performance that will attract investors to the space.

However, there are companies like ours that stays in their means and fulfill their commitment with respect to capital discipline and execution. We look at the transition of our earnings from operations, i.e. operating profit were metric [ph] right in the company of $25 million in the first quarter, generating cash flows of nearly $33 million, including working capital adjustment in terms of moving forward with our business plan. We are well positioned in following our business and strategic plan laid out by my board a number of years ago.

Turning to the slide presentation, looking at Slide 4. We are experiencing what we've termed internally as a superfecta. In horse racing, where each horse comes in sequentially 1, 2, 3, 4, and we are going to be the benefactors of this superfecta in 2014. And certainly, it's the first time, McManus's and my 35-year career, where it has occurred. We have increasing production that I spoke about earlier, 34% increase in 2013 versus 2012. We have a decreasing operating cost in terms of cost per ton milled, 20% in 2013. We have a weakening Canadian dollar, which we will speak about later in the presentation. And we have a strong and stable copper price regime. So looking back, all in all, a very progressive year.

As illustrated in Slide 5, tons mined up -- are up 21% and tons milled up 81% on a year-over-year basis. In Q4 2013, our tons milled was in 2% of our expected life mine estimation, while, at the same time, mill availability and head grades are well below what we know is achievable. And our efforts are now focused on increasing mill availability and getting recoveries to where they should be. So we have more upside even though we produced 58% more copper year-over-year.

One thing we need to improve on is ensuring that we keep quarter-end inventories at a minimum, which is, we believe, somewhere between 2.5 and 3.5 million pounds. The last 2 quarters have been somewhat problematic for us in a -- for a number of reasons, but we believe we have the solution in the pipeline to get a normal amount of inventory in the transportation pipeline corridor. Obviously, it's not in our economic interest to have this working capital tied up, as we have had in the last 2 quarters.

Moving to Slide 6. Over the back end of 2012 and into 2013, we effectively began to move inventory -- or, excuse me, move recoveries up to estimated levels, achieving roughly 87% in Q3. Then in Q4, when we decided to step on the throughput pedal with our new concentrator, we couldn't quite hold on to recoveries. As soon as we push throughput, we lose recovery, but -- however, it's a little bit more complicated than just that as the trade-off between the 2 can have a significant impact on metal production and profitability, as we all know.

In Slide 7, you can see the step changes with throughput over the course of the year. And when push comes to shove, it shows we have plenty of horsepower on our grinding lines. We can easily grind in excess of 95,000 tons per day. What most folks likely don't understand is we made a conscious decision to design for more horsepower, where more folks have designed for threshold horsepower. So any change in rock hardness, metallurgy, et cetera, you can't meet your throughput. It seems to be a common mistake these days in concentrator designs, so we have then consciously done that. We have consciously overdesigned, and it costs very little extra capital to do that.

In Slide 8. Slide 8 gives you a good appreciation of the relationship between throughput and recovery from July to January, but getting this stabilized and optimized would take a lot of tweaking, training the personnel and understanding of how the circuit could spring. But we will get it. It's just a matter of time. But it's pretty illustrative of what's going on with us.

Moving to Slide 9. You can see we have made great strides with our moly plant. And while January dipped somewhat, that was mostly driven by lower moly head grades, i.e. it's harder to recover 0.06 moly than 0.010 moly. The moly plant, however, is beginning to perform to expectations, as seen in Q4 2013, where we are up 115% over that achieved in Q4 2012.

Slide 10 gives you an idea of where we're going on copper production and the relationship with overall lowering our cost per ton milled, one of the superfecta components. We believe, at this juncture, we should process somewhere within the neighborhood of 28 to 30 million tons through the concentrator in 2014, depending on how we do on mill availability improvements. As I spoke about in the opening slide, a $1 decrease in cost per ton milled equates to roughly $30 million to our bottom line if we process 30 million tons. So getting overall milling cost down is a big focus of our operations team.

Our operating costs in Q4 were USD 1.70 a pound, down from USD 2.30 in Q4 2012, and are function of mining operational efficiency gains, increasing by-product credits, capitalizing some of our strip and general adherence to more disciplined capital. If we look into 2014, the declining Canadian versus U.S. dollar will have a major impact on our profitability, i.e. a $0.01 drop in the Canadian versus U.S. dollar increases our operating cash flow by roughly $4 million.

The spot market for [indiscernible] is changing rapidly as we speak. So by midyear, we expect them to be down dramatically as a result of Indonesia's export down and overall supply disruptions. Having said that, we know that spot terms have dropped to 8 5 and 8.5. And while we are not much influenced by spot terms, it is a good indication of where the long-term market could be. And I think we'll see some big changes in midyear negotiations this year as opposed to last year, and that bodes well for our year-end negotiations on our TC/RC extension negotiations. And we do have a premium with respect to this [indiscernible] pond because it's one of the cleanest ponds in the world.

Looking forward in terms of our projects. First, I'd like to speak briefly about Aley. The Aley metallurgy has been a challenging undertaking. Obviously, I have spoken about it for a number of quarters here, and that's mainly because carbonate-type ore bodies are all slightly different throughout the world. Niobec is different from Anglo's mine in Brazil as it is from CBMM's mine. So effectively, we haven't been able to use the off-the-shelves [ph] flow sheet, so effectively had to create our own flow sheet. For us, up to this page, it's been about how we remove the apatite and leave the niobium.

Simplistically, the gravity process we have been using gets us around a 35% recovery. And when we started, we thought it would be higher, but we can't -- couldn't achieve a higher recovery. We couldn't get rid of the apatite. And when we got rid of the apatite in the flotation process and the gravity circuit, we also lose -- lost, sorry -- lost niobium, which is not a great combination. So we have decided that on an engineering perspective, with the impact on NPV of going from a 35% to a 45% recovery, we began thinking technically and differently about how the gravity circuit should interact with the flotation circuit. We discovered that by better collector conditioning, we can modify the gravity circuit by making it smaller and have a larger flotation circuit, which allows us to more effectively deal with the apatite and more easily separate it from the niobium.

So in essence, we believe solving this issue would increase the NPV significantly as we believe we can produce the same metal with a 10,000 ton per day plant versus our ideas of a 15,000 ton per day plant, and this will reduce our capital by approximately $100 million. So ensuring our metallurgy is correct is critical. And moving forward, this will delay our publishing of our 43-101 report. And at this juncture, we believe it should -- could be 12 to 16 more weeks before we have one of those reports ready. But we're pretty excited on what we believe will happen in the circuit now that we think that we have an idea of what we do with the apatite in terms of the gravity circuits and the interrelationship with the collector system.

With respect to Prosperity, we should know where we are going with the project by next Friday when the 120-day period for the minute will decide how to move the project forward comes to an end. Our position has been made clear. The panel teams' on the wrong conclusion on tailings sequence by using incorrect findings on natural resource Canada, contrary to what we put forward in the panel review. This project will not cause adverse environmental effects, and it should be moved back to BC for permitting. Our commitment has always been to install a liner to produce [indiscernible] and ensure Fish Lake remains a viable ecosystem. And we know it's achievable.

I'd like to now turn the call over to Stuart to speak a little bit more about the financials.

Stuart McDonald

Okay. Thanks, Russ, and good morning, everyone. We released our 2013 annual and fourth quarter results yesterday, but I'd like to focus my comments specifically on the fourth quarter.

Financial results for this quarter showed continued improvement as we began to realize the full benefit of the second concentrator at Gibraltar. Fourth quarter earnings from mining operations before depreciation were $25 million, an increase over the third quarter of the year of $19.5 million, primarily due to higher copper sales volume and reduced unit operating cost. Revenues for the fourth quarter were $95 million from copper sales of 27.7 million pounds. Copper concentrate inventories declined over the period but still remained at higher than normal levels due to a delayed shipment at year end. Our 75% shares inventory was 7.6 million pounds of copper at year end. And as Russ mentioned, we expect this level of inventory to further decline in the first quarter.

Turning to cost. The fourth quarter showed a continued downward trend in net operating cost, with total operating costs coming in at USD 2.14 per pound. This is a significant reduction from USD 2.72 per pound on the fourth quarter of the prior year. And in fact, since then, we've had 4 consecutive quarters of declining cost. Operating cost in the current quarter benefited from higher molybdenum by-product revenues and capitalized stripping costs. $8.3 million of waste stripping costs are classified as capital expenditures in the quarter, in accordance with accounting rules. G&A costs were $3.9 million in the quarter, down from $6 million in the same period last year, due to lower stock-based compensation expense and the timing of stock option grants.

Exploration expenses were $2.6 million in the fourth quarter, which includes the cost of permitting initiatives at the New Prosperity project and also expenditures on the and Aley niobium project, which continues to take a conservative accounting treatment and expense to this cost through the P&L. But this may change in the future as we may begin capitalizing these project cost after permitting and feasibility milestones are achieved this year. Other expenses in the fourth quarter included $1.6 million related to the change in fair value of our copper productions. We're continuing to maintain our strategy of purchasing other [indiscernible] put options as protection against a copper price downturn. And we currently hold about 40 million pounds of copper at a strike price of $3 per pound, and those -- maturities of those are spread over the first 3 quarters of 2014.

Finance expenses in the fourth quarter were higher than normal, primarily due to a $5 million adjustment to noncash accretion expense on our Red Mile loyalty obligation. This loyalty will be bought out and extinguished in the fourth quarter of 2014 using the proceeds of a promissory note. So all royalty payment is being funded by the promissory note, and therefore, there will be no cash outlay by Taseko in 2014.

The weakening Canadian dollar resulted in an unrealized foreign exchange loss of $6.4 million on our U.S. dollar denominated long-term debt and receivable amount. That has also affected us in the fourth quarter. But the weakening dollar has a very positive impact on our business going forward into 2014, and I can talk about -- a bit more about that in a minute. The oil and gas net loss for the fourth quarter was $9.8 million. Adjusting for unrealized foreign exchange losses, noncash accretion on the royalty obligation and certain other items yields adjusted net earnings of $0.8 million for the fourth quarter, which is essentially breakeven.

In terms of cash, we maintained a strong cash balance of approximately $83 million at year end. Cash flow from operations totaled $33 million in the fourth quarter. And this was offset by cash outflows for capital items and also $15 million for debt service cost. The main capital items in the fourth quarter included $8 million of capitalized waste stripping cost, $5 million of other sustaining capital items at Gibraltar, as well as investment in copper put options and marketable securities.

As we look forward to 2014, it's important to highlight the impact of the recent weakening of the Canadian dollar relative to the U.S. dollar. Given that all of our revenues are U.S. denominated and substantially all of our costs are Canadian dollars, the recent trend had a very positive impact on our margins and also our cash flow. So to put this in perspective, if we have the benefit of the current exchange rate, which is about CAD 1.10, if we have that rate throughout 2013, our operating cash flows would have been about $20 million higher. And with the increased copper production expected in 2014, this sensitivity will be even greater. So that's a positive.

So in conclusion, the fourth quarter earnings and cash flows continue to show positive trends from the ramp-up of the second concentrator at Gibraltar. We're starting 2014 with a strong cash position, positive cash flows, downside copper price protection from put options and no significant capital programs in progress.

And with that, I'll turn it back to Russ.

Russell Edward Hallbauer

Thank you, Stuart. Okay, operator, we'd like to open the phone lines for any calls.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from Chris Chang from Laurentian Bank.

Christopher Chang - Laurentian Bank Securities, Inc., Research Division

My first question is around the lower grade ore of the Granite Pit. Just wondering on how long you plan on mining on that zone or at lower grade at least. And is there actually any thoughts by now, a 2014 guidance on highest throughput production?

Russell Edward Hallbauer

I think we -- and the mine plant is about 5 months, 4 or 5 months, John?

John W. McManus

Yes, we're out of that zone at the end of the first half. I mean, it is difficult if the Gibraltar deposit move through these zones. It can vary by 10% up or down just on the mine plant sequencing.

Christopher Chang - Laurentian Bank Securities, Inc., Research Division

Okay. And thereafter, you plan on bringing back the reserve grade type of thing.

John W. McManus

Yes.

Christopher Chang - Laurentian Bank Securities, Inc., Research Division

Okay. And how about on 2014 guidance, you're kind of putting out a throughput or a copper production level then?

Russell Edward Hallbauer

No, I think there is some -- there is -- if we're looking at around 28 to 30 million tons, then I think that's the guiding factor, Chris. And there's so much -- there is variability in the head grade and that kind of stuff. So I think that's a fair number to look at. If you look at the last quarter, we did 7.6 million tons with the concentrator, and you annualize that to get over 30 million tons. Having said that, it's -- depending on how we are-- our mill availability, there is some upside in this, but...

John W. McManus

Plus, Chris, we're balancing throughput with recovery.

Russell Edward Hallbauer

Right.

John W. McManus

Recovery optimization, getting the right material through each circuit, each mill because they are different. So we don’t have a hard number on that really. We have what we're targeting.

Operator

And our next question comes from Mark Turner from Scotiabank.

Mark Turner - Scotiabank Global Banking and Markets, Research Division

I just want to, I guess, follow on with the sort of [indiscernible] questions last in terms of the mining rate. Obviously, the mill itself has ramped up really quickly here. Just wondering what's being done to I guess, ensure that the ore supply at the mill is going to keep up with the ramp-up of the mill itself.

John W. McManus

Mark, it's John here. Well, that's kind of what we do as mining engineers, make sure that there is ore available for the mill. I think we talked in the last conference call about this -- some of the things that happened. We've gotten pushed a bit out of sequence, so the whole -- although our strip ratio is at or above the bit average that we're in. We had some availability issues. We did run some stockpile in the fourth quarter, which is fine. That's why stockpile is there. But now we're moving up and pushing back in a part of the pit, which is going to give us better access to be able to improve our productivity. So overall, the strip ratio in the pit runs at 2.6:1. We're going to be doing 3.2, 3.3:1 this year. That above, good average gets pushed into account, where it's stripped through the accounting process. But it's just material, and we had to move anyway. And we've accelerated a bit to give us more elbow room.

Mark Turner - Scotiabank Global Banking and Markets, Research Division

Right. So I mean, I appreciate those. And so last quarter, when you moved to about 21.5 million tons, now later on -- from a [indiscernible] sustainable basis, you need to move around the sort of the 30 million ton mark. Is that to where you see the operations going in? And do you have the equipment to get to that?

John W. McManus

Yes, that's about it, Mark. And we've got the equipment. We just got to get -- we're going to get the productivity where it should be. We have long-hauls during this period too, but that's the other thing. As we move up to the top of the pit and really push on that stripping, it's not a dollar per dollar exchange because that stripping up at the top is a lot cheaper just [indiscernible] put the big shovels there.

Russell Edward Hallbauer

We've had some trouble with availability on our shovels to some degree, and we've lost. We're dealing -- we've started dealing with that in October and -- in October, November and, Mark, in the -- and equipment manufacturers. And the supplier has had a tough time -- have had a tough time responding to it. Our shovels are running about right around, I think, 80% availability, the 2 big -- 2 of our big diggers, and they should be closer to 90%. And that's obviously affecting our waste movement, but those are things we're on big time right now.

Mark Turner - Scotiabank Global Banking and Markets, Research Division

Okay. So at one point, I think there was thought that you might have a contractor coming with smaller equipment to get -- actually have better efficiencies in some of the more constrained areas to help with some of that strip. Are they there now? Or is that still the plan?

John W. McManus

Yes, they got up and running in January. [indiscernible] they're right up at the top and moving back some of the more less productive areas that if we put the big equipment that we've got into. And so actually, what you'll see on a cost per ton or cost per ton will go down as we move more tons.

Mark Turner - Scotiabank Global Banking and Markets, Research Division

We're going to see, what that -- more -- better efficiency on the smaller command [ph] in those areas, okay.

John W. McManus

Yes.

Mark Turner - Scotiabank Global Banking and Markets, Research Division

Okay. Just one other question. I'm just switching gears here. Realized price in the quarter of 3 18, just wondering if that -- if there is anything specific with that or if is just sort of more timing of sales because -- and as you mentioned, the concentrate from Gibraltar is pretty clean and sort of world class.

Stuart McDonald

Yes, it's Stuart speaking here. There is nothing unusual there. I think it was more just to do with timing issues around when those prices were fixed, so nothing unusual we're able to comment on.

Operator

And our next question comes from Jackie Przybylowski from Desjardins Capital.

Jackie Przybylowski - Desjardins Securities Inc., Research Division

I just have a quick question for you on your throughput versus recovery trade-off. I know you said you're targeting 95,000 ton per day throughput and you're targeting 93.5% recovery. But what would maybe as a combination, your optimum? So what maybe could we expect to see a combination of those 2 coming in at?

Russell Edward Hallbauer

Jackie, I think you may have taken my promise a little up. We can push that concentrator to over 95,000 tons a day. That is not what we're proposing to target for the year. So there is a trade-off between what John and James and Jeffrey's recoveries within 4,000, 5,000 tons per day versus we may run at 82% or 82,000 tons a day and get 88%, 89% or 89.5% recovery. Or we may push it to 85 and get 87% recovery. But that's all this tweaking that we were talking about. So I've optimized the 2 circuits.

John W. McManus

I think -- Jackie, John here. The other numbers that got mixed up there was when Russell said 93.5, that's availability for the mill, mechanical availability.

Jackie Przybylowski - Desjardins Securities Inc., Research Division

Oh, yes. Sorry about that, yes. You're right.

John W. McManus

Yes, our target for recovery is 87% to 89%.

Jackie Przybylowski - Desjardins Securities Inc., Research Division

87% to 89%, okay. And your guidance that you just gave, the 28 to 30 million ton for 2014, what's the mill availability that you're assuming in that case for this year?

John W. McManus

For this year, we're using 90% overall also. That's because we still started to ramp up.

Operator

[Operator Instructions] And our next question comes from Adam Low from Raymond James.

Adam Low - Raymond James Ltd., Research Division

First question I have is -- just curious as to what your projects might be for various items this year, in particular, spending on Aley exploration in and around Gibraltar and sustaining CapEx at Gibraltar.

Russell Edward Hallbauer

Why don't you answer that, John?

John W. McManus

Yes. Adam, I mean, as far as Aley goes, I mean, we're kind of -- we've put a certain amount aside for other than Gibraltar expenditures, and a lot of it depends on how things go on New Prosperity. We don't have clarity there yet on where we're going to be putting our major efforts. I think it's going to be New Prosperity, but I don’t know for sure. So between the 2, we're about $10 million in the budget. But I mean, if New Prosperity gets approval and a board approval and Stuart gets the financing things accelerate, we may spend more in New Prosperity. So yes, I can't really answer that one that well. Sustaining capital at Gibraltar is -- we're through the capital investment there, big ones. Basic sustaining capital is going to be about $0.10 per ton mined. It's the way we...

Russell Edward Hallbauer

$10 million to $13 million.

John W. McManus

Yes.

Russell Edward Hallbauer

Or 90%.

John W. McManus

And if there is anything extraordinary above that, it has to be justified in the short term. So that's $10 million to $13 million.

Adam Low - Raymond James Ltd., Research Division

And then are you guys planning any exploration in and around Gibraltar?

John W. McManus

We do a bit of infill drilling every year, and that's included in that sustaining capital.

Adam Low - Raymond James Ltd., Research Division

Okay, all right. Maybe one last -- I have one last question. It's an accounting question. I just wondered when you guys do capitalize your stripping, which line in the cash flow statement is that included in?

Stuart McDonald

It comes through as capital expenditures. So it comes through as additions to property, plant and equipment. So yes, as I said, in the fourth quarter, the strip -- the capitalized strip was about $8 million, $8.3 million actually.

Operator

And our next question comes from Adam Graf from Cowen.

Adam P. Graf - Cowen Securities LLC, Research Division

Just a couple of quick questions, and I missed the beginning of the call, in case you guys did, it's out already, but just as far as full year 2013, could you -- Russell, could you maybe break out your cost per ton, mining cost per ton milled?

Russell Edward Hallbauer

Mining cost? Sorry -- cost per ton milled, Adam, or cost per ton mined?

Adam Low - Raymond James Ltd., Research Division

Yes, cost -- your cost -- your mining cost per ton or your -- and then your milling cost per ton ore?

Russell Edward Hallbauer

Yes, John will answer that one.

John W. McManus

Adam, it's -- the total between the 2 is just over $10 to $11 per ton milled. That's site cost, includes G&A, mining and milling, but that changed during the year dramatically as we got the Mill 2 up and running, right. So it was a step change here. Cost per ton mined is about $1.50. And that should get better because we were in low productive areas. And as Russ mentioned, we had some mechanical availability problems, where you spend more on equipment when you're working on it and you're doing -- you're running it. So we see both of those to improve this year.

Adam P. Graf - Cowen Securities LLC, Research Division

That $1.50, that's Canadian?

John W. McManus

Yes.

Adam P. Graf - Cowen Securities LLC, Research Division

And that's the cost per ton to move a ton of rock, and waste and ore is about the same?

John W. McManus

This year, it was, yes, because we have long waste float. Once you get into a better waste float like we're going to -- we're in right now. And your cost per ton mined for waste goes way down, and then you got 3 tons of waste mined per every ton of ore mined. So again, your cost per ton mined goes down.

Adam P. Graf - Cowen Securities LLC, Research Division

And then the -- so that's -- so you're at about $1.50 now? Or that -- what the average was for 2013?

John W. McManus

That was 2013. We're beating it now.

Adam P. Graf - Cowen Securities LLC, Research Division

You're beating that now. Is that just lower diesel price or weaker Canadian dollar?

John W. McManus

Higher productivity.

Adam P. Graf - Cowen Securities LLC, Research Division

Right, okay. And could you guys sort of give a guess or where you think the total cost per ton milled will fall in 2014?

Russell Edward Hallbauer

Between $10 and $11 per ton, we believe.

Adam P. Graf - Cowen Securities LLC, Research Division

Okay. So that's 2014?

Russell Edward Hallbauer

Yes.

Adam P. Graf - Cowen Securities LLC, Research Division

Okay, great. And on a slightly different subject, on the molybdenum recovery side, I have -- I had in my note that you guys have a target ultimately of getting up to 50% moly recovery?

Russell Edward Hallbauer

Yes.

Adam P. Graf - Cowen Securities LLC, Research Division

What sort of a goal in 2014 and the path to get to there -- to get that 50%?

John W. McManus

It's -- the goal is 50%. The issue that we brought here that we've had is, we started up a new circuit, we built a new moly plant. So it's got new concentrator, old concentrator, new moly plant, and getting all 3 to work together to achieve the targets that we have. First, we went for throughput then we went for copper recovery. Now we're on moly recovery, and we're achieving it on a regular basis. So the place is designed to do 50% moly recovery, and I believe we'll get there.

Adam P. Graf - Cowen Securities LLC, Research Division

Do you think you'll get there by the end of the year or sometime next year? Or what sort of your -- what -- how do you envision that?

John W. McManus

Well, I have to be careful. What I think is employees are listening. I want it now, but it's a process. It's a process you have to work through with these new circuits. And we've had some very good success with it. Some of the things, that Stuart talked about it, you have variation and grade. If you have a 0.06, you do -- you can't get 50% recovery. But our target is 50% recovery, 0.01 moly head grade, and we're in a 0.01 head grade.

Adam P. Graf - Cowen Securities LLC, Research Division

And given -- is 2014 and beyond sort of all expected to be sort of an average, 0.01 grade, where you've got significant variations in there that you can see in the mine plant?

John W. McManus

No, in the next 5 or 6 years. I can't remember exactly how far end, but next 5 or 6 years is the 0.01, and some variability, but is a huge variable.

Russell Edward Hallbauer

Yes, if the copper grade goes up, I think the moly grade goes up a little bit, too.

John W. McManus

Yes, they come together.

Russell Edward Hallbauer

Yes.

Operator

And our next question comes from Steve Parsons from National Bank Financial.

Steve Parsons - National Bank Financial, Inc., Research Division

I just wanted to go back a little bit on the business of the sustaining CapEx again. It looks -- my understanding is the guidance was for about $0.10 per ton mined and $13 million. Does that include the somewhat accelerated strip?

John W. McManus

No, that's on top of that, but it's not capital stripping. It's not like a pushback or anything like that. The accelerated strip and the capital stripping really comes in as an accounting function. We're going to move an extra 15 million tons above what the -- 15 million or 20 million tons above what the pit strip ratio is. So that incremental amount goes as a capital strip. It's not -- if we get that at $1 a ton moved, it's $15 million to $20 million that we put in cash into deposit and throughput capital workings and through...

Stuart McDonald

I'm ready to say it.

Russell Edward Hallbauer

Stuart?

Steve Parsons - National Bank Financial, Inc., Research Division

Meaning the cap strip ratio would be lower next year or lower...

Russell Edward Hallbauer

At some future date, it rotates. There's a difference between capital strip and capitalized strip. So if there was a big amount of material there, we had to move to get it down the average strip, that would be a capital strip investment. Steve, this is just capitalized strip under -- over the average life of the [indiscernible], above the average strip. And I think there is a lot of confusion about what that means just because it's got the connotation of capital in front of it. They're 2 distinct things.

Steve Parsons - National Bank Financial, Inc., Research Division

That helps me good, probably jamming like a $15 million more CapEx in that lower strip in the future. So that's helpful.

Russell Edward Hallbauer

Yes, that's -- if the strip will cycle back down because I think right now, at the bottom of the pit there, were probably mining at 0.7:1 strip. The average strip of the pit is about 2.6:1, and we're mining at 2.9. So it's just a scheduling issue and then that stuff over life of mine comes back at some point in the proper sequencing of the mining plant. Basically, in a simplistic world -- not in simplistic world -- in the actual world, it's just the opportunity cost that we're spending today versus what we would spend down the road. So that's really the incremental, little, tiny cost because we're going to move that much anyway. It's got to be moved.

Steve Parsons - National Bank Financial, Inc., Research Division

Okay, got it, okay. Next question...

Russell Edward Hallbauer

Is that clear?

Steve Parsons - National Bank Financial, Inc., Research Division

Got it, clear for me, Russ. [indiscernible] and when the recovery did lower in the first concentrator cost? Maybe several years ago, you put in these [indiscernible] mills or the -- I don’t know whatever it was [indiscernible].

John W. McManus

[indiscernible] that's right. You're right.

Steve Parsons - National Bank Financial, Inc., Research Division

Is there a chance to put something like that into the new concentrator or maybe add to it and keep throughput rates up or close to the higher throughput rate of 95,000 tons a day?

John W. McManus

No. I think what we're driving is an operating thing and training and supervision issue to get the equipment that we've got to perform to the designed level. We've got all the regrind circuit in the new mill. It's identical to the regrind circuit in Concentrator 1. And the gear is there, but we went really from one location circuit to 3 by putting in the new concentrator plus a moly plant. And so we went from one group of flotation operators to 3 groups of flotation operators. And it takes a while to get them to the level they need to be at. Some of these things that we are doing to help, we're installing cameras on location cells in order to monitor the float [ph] performance, and that gives the operators another tool in order to optimize performance in the flotation. So that's a change that we've got now to the technology. But other than that, there is no reason that. The lower recoveries we had are not because we're missing some gears.

Russell Edward Hallbauer

Yes. And I think the new work in Prosperity -- or you know that there is float operators and there is technology, and you know that there is real good floatation operators and there's guys that aren't so good. And we have to train up the guys that aren't so good. We -- and they -- and between the quality of the people, I mean, shift and they -- and we can see when we do the analysis that with shift change, we lose recovery. The mill feed changes a little bit, and the guys are a little reluctant to use the technology at their fingertips to react. And so we find that when we have more homogeneous feed coming out of the pits with respect to the stockpiles and an overall better and more consistent feed and less variability in the feed, we see a recovery. So it's a big sequential thing that I was talking about, about training and tweaking the systems. But once we get our crews all trained up to same expectations, then we'll see more consistency in our recoveries. And we know that we had 89% when we had the old mill, the old concentrator. Now we got a double concentrator, we know that that's -- it's just something -- it's just going to take some time in training, like John was talking about.

Operator

I'd now like to hand the conference back over to Mr. Russ Hallbauer for closing remarks.

Russell Edward Hallbauer

Well, thanks very much for the questions, folks. We look forward to talking to you at the end of next quarter. Cheers. Hope you guys in Toronto are not freezing too badly anymore. Bye-bye at least.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect, and have a wonderful day.

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