The scale up from our laboratory and feasibility testing to the commercial scale has been relatively seamless. With the entire test well field and SX/EW plant now operating as a continuous unit, we will use the coming months to refine operational parameters which will help with the ramp up of the commercial plant.
What's even more encouraging, the proportion of ore contacted underground with leach solution (sweep efficiency) was estimated to reach 55%, after one year of leaching. However, in reality, this level was reached after the first three months. The results are very encouraging and they give a reason to believe that the commercial-scale operation could be even more efficient than projected by the feasibility study.
The Florence deposit contains reserves of 2.5 billion lb copper, out of which 1.7 billion lb are expected to be recoverable. However, the much better than expected sweep efficiency may mean that the real volume of recoverable copper may be higher than that. Moreover, it's also possible to expect that the extraction process will be quicker, which will lead to further improvement of project economics.
According to Taseko Mines, once in full commercial production, the Florence copper mine should be able to produce 81 million lb copper per year on average, over the estimated 20-year mine life. The operating costs should be around $1.1/lb copper. The sustaining capex is estimated at $713 million which equals approximately to $0.4/lb. As a result, the AISC should be around $1.5/lb copper which is a very attractive cost. Also the capex is very reasonable, only $200 million. It means that Florence is one of the least capital intensive copper projects in the world. After the recent U.S. tax changes, the after-tax NPV(7.5%) of the project is estimated at $760 million, at a copper price of $3/lb.
The next steps should include securing the commercial scale facility permits, securing the financing package and start-up of the commercial-scale facility construction over the next 12 months. The construction should take around 18 months, which means that if everything goes well, the commercial production should start sometime in H2 2021.
The main risk seems to be related to the permitting process right now, as Taseko has to face strong local opposition. However, if the test facility manages to keep on operating without any issues, the probability of successful completion of the permitting process will grow. On the other hand, the financing risk is limited. Taseko's 75%-owned Gibraltar mine is able to provide some cash flow that won't be sufficient to finance the Florence mine construction completely, but it should help to avoid share dilution. The mine generated operating cash flow of $94.1 million ($70 million) last year. As of the end of 2018, Taseko held cash and cash equivalents of C$46 million ($35 million). There are no debt maturities until 2022. It means that if the construction starts next year, Taseko should need to raise around $100 million at the current copper prices. Although Taseko already has a debt of C$350 million ($262 million), given the economics of the Florence project, it should be manageable to get an additional loan of $100 million.
As can be seen in the chart above, Taseko's share price has been moving in a tight range between $0.55 and $0.62 for more than a month. Today's news helped the share price to cross the upper boundary of this channel and there's a good chance that an upwards breakout will occur in the near term. However, given the very positive nature of the news, a 5% share price growth is slightly disappointing. It's possible to assume that the reaction was relatively calm because investors are worried about the permitting risks.
The Florence project is located in a safe jurisdiction, it has sizable reserves, the projected CAPEX and AISC are low and the whole extraction process seems to be working better than expected. The main risks are related to the permitting process. After the final permits are obtained, a strong share price growth almost is warranted. The current market value of Taseko Mines is only $150 million. The after-tax NPV(7.5%) of the Florence project alone is $760 million at the current copper price. Not to mention the 75% stake in the producing Gibraltar mine, the recently acquired Yellowhead project, the Aley niobium project or the large New Prosperity gold project. Taseko Mines is a risky investment but the potential upside is several hundred percents.
Disclosure: I am/we are long TGB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.