Update: Taseko Mines' Earnings Show Continued Production Growth

Jul.31.14 | About: Taseko Mines (TGB)


Taseko Mines reported a loss of $2.6 million on $107 million in revenue.

Copper production grew and costs came down, showing that the stock has massive upside potential should the copper price rise.

This is largely in line with my July, 2013 investment thesis.

The stock remains a compelling high risk/high reward copper miner with numerous other project that the market is virtually ignoring.

Aggressive copper bulls looking for leverage, growth, and optionality should consider taking a position in Taseko Mines even though it is about 20% higher than when I recommended it.

Taseko Mines (NYSEMKT:TGB) reported second quarter earnings that show why the stock is a compelling high risk/high reward play for copper bulls. The company reported a slight loss of $2.6 million on revenues of $107 million. The company's operating profit from its flagship Gibraltar mine came in at $13 million--3 times larger than it was last year, thanks to rising production and lower costs. Specifically, the mine produced 38 million pounds of copper (27 million pounds attributable) and 667,000 pounds of molybdenum (467,000 attributable) up from 28 million pounds of copper (20 million attributable) and 333,000 pounds of molybdenum (233,000 attributable) in 2013. Production costs (copper net of molybdenum by-products) fell from $2.34/lb. to $2.12/lb.

We see from these figures that the Gibraltar Mine is a cash-flow machine for Taseko, despite the fact that copper has been weak and the fact that the company only owns 70%. However, a great deal of the company's future rests on the fate of its New Prosperity mine, which contains several billion pounds of copper and a multi-million ounce gold deposit. The trouble is that in order to develop this project the company essentially has to move a small lake. If it can get the rights to mine here it can generate over half a billion in cash-flow annually, which would dwarf the company's $460 million valuation.

In my July, 2013 article I argued that the upside potential that New Prosperity offers is so great that Taseko is worth the risk, especially since it has downside protection from its Gibraltar Project, which as we can see is performing extremely well. This thesis is largely in tact except that we have seen continued strong performance from the Gibralter Mine--as the Q2 earnings report indicates--which means that the downside risk is mitigated. But prospective investors should keep in mind that the company has a lot of expenses related to its development stage projects,and it also has nearly $300 million in debt versus just $100 million in cash/equivalents, which means that the stock is for aggressive investors only.

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