Taseko Mines Limited (TKO) Earnings Call Transcript & Summary

As we said in the introduction, the next speaker, Stuart McDonald, President and CEO of mid-cap copper producer, Taseko Mines, not to be missed. Taseko currently operates Gibraltar, the fourth largest open pit copper mine in North America, not to be sneezed at, generating significant revenues and developing a diverse pipeline of large-scale advanced stage mineral properties in North America. At Florence, low carbon copper mine in Arizona is expected to almost double copper production and that comes next year, I believe. Taseko, ticker TKO, do remember that ticker is listed in London's main market, TSX in Canada and the New York Stock Exchange with a market cap of around GBP 590 million with FY '23 revenues coming in at around $520 million. So a pretty hefty mid-cap company. Welcome, Stuart. It's great to have you on this evening.

Yes. Thank you very much for having me on your program today. Great to have the opportunity to talk about our business and talk about copper, which is an exciting time in the market.

Stuart, the pleasure is all ours. Why do you give us your presentation?

Great. Yes, let me get into it here. And I guess the title of our presentation is -- describes what our company is up to. We're building in North America's low-cost, multi-asset copper producer. And currently, right now, we've got the one operating mine, which you referred to a minute ago, it's our Gibraltar open pit copper mine located in Central British Columbia, in Western Canada. This has kind of been our foundational asset. We've been running it for about 20 years since we restarted it in 2004. And the mine still got 21 years of reserves remaining. So lots of mine life ahead of it. And it's really been, as I said, a foundational asset of cash flow -- stable cash flow producing asset that we've used to build out a portfolio of development projects. And I guess the next project, the project that we're most excited about and it's going to become our second mine very shortly is the Florence Copper Project. It's located in Arizona, just between -- about halfway between Phoenix and Tucson, a great jurisdiction there right in the copper belt. It's currently under construction. So it's fully permitted and financed. It's under construction right now, and first copper from that new mine is expected late next year. So it's a great platform. Obviously, focused in North America, very favorable mining jurisdictions. We've stayed away from some of the higher-risk places around the world that have copper, but we like to operate here in North America, and I'm based actually in our corporate head office here in Vancouver on the West Coast of Canada. Obviously, we really like the fundamentals of copper. We're happy to be a pure-play copper miner with the growth profile, and we've got, we believe, a proven team here of mine builders and operators. As I mentioned, we've been operating at Gibraltar Mine now for 20 years. It's a very -- I would say, our culture is, even at the executive level, is very engineering and production oriented, and we're taking that approach to the development of our second mine in Arizona. Commitment to strong environmental performance as well. Obviously, that's part of it, and social and community acceptance. It's a big part of our success in the operating in the jurisdictions that we do. So a little bit about our capital structure. We currently have got a market cap of CAD 1.5 billion, about USD 750 million. We have had a very good run here in our stock price in the last 2 months or so, driven largely by the move in copper price, but also the progress that we've made at Florence recently, which I can talk about in a minute. We're listed on all 3 exchanges, London, Toronto and New York. We've got broad analyst coverage across the 3 markets. Panmure Gordon and also Canaccord are our corporate brokers in the U.K. But generally, our shareholders are primarily North America, but we're making an effort and a push to broaden our base in the U.K. and Europe. Yes. And really, the copper story, I think, today is getting a lot of -- getting a lot of traction, a lot of buzz. Really, I think the story of the supply/demand fundamentals, I mean, it's really a long-term positive story and it comes back to the energy transition, I think. The shift that we're moving that the world is moving away from fossil fuels towards electrification, and we can debate how quickly that's going to happen, but it is a trend. And that trend is very favorable for copper. Copper is a metal of electricity. It's required, it's ubiquitous across any -- across energy. Any energy application requires copper, whether it's electric vehicles or renewable power generation. We've seen recent news about data centers that are in new -- in rapidly growing market for copper as well. All of these new technologies require copper. So the demand outlook is very positive. But equally important, I think, is we're a copper miner, and we see firsthand how difficult it is to bring on new supply but difficulty in how much challenge the industry is having with bringing on new mines and whether that's a focus on social issues, permitting risks, capital constraints, some of the activities of the mining majors. They're very much focused on M&A and dividends rather than actually building new lines. And this is a trend that we've seen for a number of years. And the lead time that it takes to bring on a new copper mine, the analysts now can look ahead 5 years, 7 years with a fair amount of confidence and see that we have this challenge, this looming supply deficit. And this isn't going to be solved. We don't think that we see this a very bullish outlook here out to the end of this decade with a supply deficit. And that means higher copper prices are needed to incentivize new supply. And that's what we're seeing now in the last few months here with the price move, price move approaching $5 a pound now in the COMEX market to [ AC. ] In fact, I think it went over $5 briefly earlier today. So it's a bullish -- very bullish backdrop. We are happy to be -- to have existing production. This is a picture of our open pits at our Gibraltar Mine. It is one of the largest open pit mines in North America. And when you look at copper, we produce on average about 130 million pounds of copper from this operation, that's about 60,000 tonnes a year. Long mine life remaining, as I mentioned, and pretty exciting times for an operation like this with copper prices running as they are today. So we actually put a history, we -- this mine was actually built in the early '70s, and it was shut down for a number of years in the mid-'90s. Taseko actually acquired it in 1999 for a dollar in a period of very low copper prices, restarted the mine in 2004, and that was very well timed with the copper price cycle. Alaska big copper price cycle between about 2006 and 2011. And we were able to generate good cash flow and reinvest that cash flow back into the mine, and we modernize the infrastructure. We actually built a second mill and essentially ramped up our production -- our milling capacity to 85,000 tonnes per day. And we've been running at essentially that rate for the last 10 years. And that gives us a very strong production base of 130 million pounds on average. We've been a little bit lower than that in the last couple of years, which I can talk about in a minute. But essentially, this is a pretty stable operation for us. We believe it's a well-run mine, relatively low cost and efficiently run. In fact, we've been a leader in health and safety performance. And yes, it's a great opportunity for shareholders here. More recently, we've actually increased our ownership in the mine. Going back a couple of years, we own 75% of this mine. A year ago, we bought it at one of our shareholders to move up to 87.5% ownership. And then in March this year, we announced the buyout of our last JV partner and now we -- so that has stepped it up to 100% ownership. Those 2 partners are actually Japanese partners. They invested in the mine primarily to get access to our copper concentrate offtake. And there were -- there were -- have been some -- a number of changes in the smelter business and those 2 groups, Dowa and Furukawa, they stepped away from the smelter business in Japan, no longer had need for that offtake. So it was a great opportunity for us as the operator of that mine to step in and step up to 100% ownership. We structured the deal on very attractive terms. Payments are spread out over 10 years in the case of the latest transaction. And yes, it's a great -- it gives us immediate growth, gives us immediate cash flow and production growth of the -- with that -- with, I guess, that the longer-term upside as well as we continue to see copper price growth. Here's the pit we're currently mining in our Gibraltar pit. And you can see we're in the bottom of that pit. We've been there for the last 9 months or so with a good access to ore. We've had a number of good production quarters in a row. This year, production is going quite smoothly as well. We have signaled to the market that we'll have a little bit of mill downtime this year. We've got an in-pit crusher that's actually on top of our next mining area, which is the connector pit. So we'll have a little bit of mill downtime here later this month, but that's factored into our guidance. We're going to produce about 115 million pounds this year. And looking ahead to 2025, we'll probably see -- without the mill -- with the mill maintenance behind us, we'll see our production step up again back closer towards that 130 million life of mine average. And you can see in the chart there, the leverage that we have to copper, right, relative to our market cap, our company produces a lot of pounds. And every $0.10 or every -- actually every $0.25 move in the copper price leads to significant incremental cash flow about $45 million of additional cash flow per year. That leverage is why you see our copper price -- our stock price moving in recent months with the cargo price increases. It's a good operation, stable, as I said. It's -- I would say Gibraltar is a lower grade mine probably when you benchmark it against global peers, but it's also very low cost when you look at how much it costs us to mill a tonne of ore we can mill about, a tonne of ore for about CAD 13 a tonne, and that's very competitive when you benchmark it against any of the big copper mines in South America, or Chile, they could be operating at 2x that cost. So that's why we make it work, predict an efficient and productive workforce, and a strong management team here allows us to make good money. Moving on to Florence, which is going to become our second operation here. This is the project in Arizona. We acquired it about 10 years ago. We are now in construction. This will add very meaningful production to our base at Gibraltar, it producing when we get to capacity here in 2027, we'll be producing about 85 million pounds a year, 40,000 tonnes and also at a much lower unit cost of $1.11 a pound. And -- so that's a very unique thing about this asset is the cost structure. 22-year mine life, again, that gives us a lot of runway here to participate in several copper price cycles ahead of us here. So it's in a great location, as I mentioned, just outside Phoenix in a copper mining built surrounded by mines and smelters. We've got all the major power transportation, road and rail infrastructure in place. And we completed a test program, which I'll talk about in a minute, but it laid out -- I guess the economics of that were summarized in our feasibility study, which is about a year old now, but it identifies a 22-year mine life with annual production capacity of 40,000 tonnes, an after-tax net present value of approaching USD 1 billion and an IRR of close to 50%. And -- and these were done at copper prices of $3.75 a pound, which is much lower than where we are today. So a very unique asset. You don't see copper mines with these kind of CapEx numbers and costs -- low operating costs. And the reason we do that -- the reason we can achieve that is it comes back to the mining method. This is in-situ copper recovery. And what we're doing here is injecting a diluted mining solution into the ore body. We have a highly fractured oxide copper body, which we can leach in situ. We recover copper and solution, and that solution is processed on surface, and we're actually able to produce [indiscernible] copper right on site here, so you can see that our first copper cathode harvest out of our test facility in 2019. So yes, it's very unique mining approach to the mining method. It's low energy consumption, low carbon emissions and very low water use also when you benchmark it against other open pit mines in Arizona. So a number of those, I guess, ESG benefits that we have in addition to, of course, being low cost. We don't have waste rock. We're not grinding and crushing or we don't have tailings or duster. Really, we have very little surface disturbance. So this mining -- this approach and our mining method has been proven in our view, through our Phase 1 test work. We built and operated a production test facility in 2018. We operated it for about 18 months, produced over 1 million pounds of copper. We took all of that data from that test work, updated our feasibility study. It effectively validated our assumptions previously. We then moved into a new permitting process. As I mentioned, we fully permitted and we've got our final permits last fall in 2023, and we've now moved into construction. So we've got about USD 232 million to spend on construction. We've got to do 2 main things. We've got to drill and expand our test well field, so we had over 13 wells running in our production test facility, we'll have about 90 wells when we move into day 1 of the commercial operation. And then, of course, we've got to build our plant on surface. So we've taken a lot of positive steps towards executing this program. We signed a fixed price contractor with TIC Kiewit, the general contractor. We've got all the long lead items on site, and we're well on our way to bringing this thing online late next year. First copper cathode expected in Q4. Funding is well in hand as well. As I mentioned, of the USD 232 million capital requirement, we've got roughly USD 200 million of cash in our balance sheet now. That's pro forma for our recent financing activities that we completed in April. We've got a strategic partnership in place with Mitsui, Japanese trading company. That for us was a pretty important transaction to bring on a partner of that caliber that did a year of diligence on our -- on the technical aspects of our projects and has stepped in. They're contributing $50 million towards the construction, but you also have an option to invest an additional $50 million for a total of $100 million to give them a 10% JV interest. And that 10% interest for $100 million really obviously implies $1 billion value here, which is close to the NPV in our view. So it's good validation. And Mitsui, we're happy to have them on board as a partner. So we also have completed a royalty recently with Taurus, an Australian royalty fund, and we also have [ softgen ] in here that provided a credit commitment in November, and Bank of America as well for -- has provided some lease financing on our plan. So a very, very strong financing package with experienced mining investors stepping up and putting capital to work here -- here some of the initial construction work. This is actually the first drill that came on to our commercial well field in February. We've now got 3 drills running with -- wrapping up to 4 here very shortly. So it's a pretty exciting time to -- after so many years of permitting and financing activity to actually now be building the mine and looking ahead to bringing the mine on in a very positive environment for copper.

Okay, Stuart. We're almost out of time here. If you could wrap up, I'd be very grateful.

Yes. Let me -- yes. Let me go -- let me wrap up really quickly. I just want to -- obviously, the core focus here is Gibraltar and Florence. We do have 2 other projects back in BC, Yellowhead copper and New Prosperity copper and gold. They're very large undeveloped projects, and that gives us a very attractive copper reserve base, which benchmarks very well against some of our peer companies. And our business, we're in the business of really developing those reserves, taking a prudent long-term approach and bringing reserves into production. And that's the approach we've taken at Gibraltar for the last 20 years. That's the approach we're now taking at Florence and realizing the value there. And of course, Yellowhead and New Prosperity are future opportunities. So -- we've got the team to do it. We've got the balance sheet in place now, and now we just have to execute and realize our growth strategy. So yes, I'll wrap it up there, and at least leave a bit of time for questions.

That's a part of -- Stuart, what a fantastic business, you run there.

Sorry, what's that?

Quite a fantastic business, you run there, Stuart.

Yes. No, we do. I think it's pretty unique now in the market to have the existing production with the growth profile and focused in Tier 1 jurisdictions, right? I mean I can't think of any other copper producers that have this profile in front of them. So yes.

You said at the end, you hope to get Florence online in production for our store, however you want to phrase it. At the end of next year, that means you might almost double your copper production by the end of next year?

Yes. We won't -- we'll just start probably late next year. So 2026 will be kind of a ramp-up year. We'll produce probably about GBP 50 million -- GBP 50 million or GBP 60 million pounds in 2026 out of the new operation. And then by 2027, yes, that will be roughly 70% growth from where we sit today.

Okay. Ramp-up -- that's a terrific produce. Now it just takes us naturally to the -- to put -- is usually my final question, but it really is you've really just over the space of 22 or 24 minutes, you've actually -- you framed the investment summary really. Could you crunch that down and give me a short version of it as to why is now a good time for investors to put Taseko Mines on their watch list?

Yes. It's really -- we've had some appreciation, obviously, in our share price, the last couple of months, but we don't believe we're getting the value in our stock now for the new Florence project. When you look at the true kind of DCF value of Gibraltar and Florence, you see on the chart here, there's a big value gap, about CAD 1 billion just between our current market capitalization and the true value of those 2 assets. That, we believe, mainly relates to the Florence project. And as we continue to move that asset towards commercial operations, we're going to see that value gap flows. And that's truly the short-term opportunity here for shareholders. With those 2 assets running Gibraltar and Florence just on any reasonable ratio, we should have a much higher stock price than we do today. So yes, it's pretty exciting.

So what might investors be looking for to derisk Florence? What is it you think that they haven't quite bought into yet, but they simply will because when Florence comes online, it will start to deliver? As you say, ramp up, which is your great phrase?