2023-08-03 17:18:09 ET
Summary
- Taseko Mines' Q2 results show improving head grades and significant production growth, despite lower mill throughput.
- Revenue jumped 34.9% YoY, driven by higher grades and increased sales.
- Taseko's liquidity remains strong, with various sources available to meet capital outlay for the Florence project.
- The final decision of the EPA, regarding the UIC permit at Florence may be close.
I’ve written a number of articles about Taseko Mines (TSX:TKO:CA, NYSE:TGB) with the latest one being available here . In short, I’m bullish on copper and for me Taseko offers the perfect balance between existing production and clear path to increasing its output substantially in the next few years. Now that the company has reported its Q2’23 results , it’s worth taking a look as to how the business has been developing and whether there are positive news regarding the long-awaited UIC permit for the Florence project. Overall, the results are decent, with improving head-grades just as management has indicated. However, cash and equivalents fell by CAD16.7M to CAD$85.6M QoQ as sustaining CAPEX at Gibraltar increased during the quarter on some one-off events. Still, the company has available various sources of liquidity, which should be sufficient to meet initial capital outlay for the Florence project, once construction begins. Regarding the latter, management reported progress towards receiving the final permit by the EPA. Overall, I deem the Q2’23 release a positive, which reaffirms my bullish stance on Taseko.
Q2 overview
Q2'23 highlights (Taseko Mines)
Taseko’s Q2’23 was market yet again by lower mill throughput (7.2M tonnes; -6.5% YoY), as maintenance downtime was longer than expected. However, this was overshadowed by significant improvement in the head grade – 0.24%, compared to 0.22 in Q1’23 and just 0.17% in Q2’22. As a result, production grew significantly to 28.2Mlbs (100% basis) – 36.2% higher YoY. Actual sales, though, were lower than production at 26.1M tonnes (+20.3% YoY) as Taseko had increased levels of inventory in transit by the end of June. Consequently, I expect in Q3’23 sales to catch up and eventually exceed production in the quarter as the backlog gets cleared.
Revenue and realized prices (Taseko Mines)
The higher grades, alongside the increased stake in the Gibraltar mine (87.5% in Q2’23, compared to 75% last year) were more than enough to offset the lower average realized price of copper (US$3.78/lbs; -7.4%) and revenue jumped to CAD$111.9M (+34.9% YoY). It has to be noted that molybdenum revenue, although higher YoY (CAD5.7M; +54.2% YoY), was lower on a quarterly basis by 26.3%. The reason for this is the decline in molybdenum prices, which has also resulted in negative price adjustment of a little less than CAD1.3M during the Apr-June period.
C1 cost structure (Taseko Mines)
In term of costs, Taseko marked a great YoY improvement as C1 costs fell 23.3% YoY to US$2.66/lbs. While the main reason for the improvement was the higher ore grade, thus more copper production, the strengthening of the US$ and decrease in energy prices also played their part. As a result, operating income from mining operations turned positive at CAD$12.1M, compared to a loss of CAD$8.0M last year. Net income for the quarter was CAD$10M (EPS of CAD$0.03), compared to a loss of CAD$5.3M a year ago. However, the weakening of CAD$ relative to its US counterpart led to Taseko reporting a CAD$11M of unrealized loss, related to its US$400M notes, which are due in 2026. Consequently, adjusted net income was negative at CAD$4.4M.
Liquidity update
cash and equivalents (Taseko Mines)
In light of the improved performance, Taseko generated CAD33.3M (+81.4% YoY) of operating cash flow during the quarter. However, cash and equivalents still fell down by 16.7M from their level on 31 March and ended at CAD$85.6M as of 30 June. The main reason for the decline was the quite large CAPEX spent on Gibraltar, which although classified as sustaining, included a major component replacement – one of the mining shovels for approximately CAD$10M. Still, Taseko has available other sources of liquidity – the remaining US$70M out of the up to US$80M credit facility , the US$50M of financing under the Mitsui deal , contingent on the construction of Florence and up to US$50M under a ATM offering facility .
Florence CAPEX and funding sources (Taseko Mines)
The latter obviously would cause dilution, but the company intends to use it only if the need arises. I anticipate that even in the current copper price environment of a bit less than US$4.00/lbs, if head grades are maintained or even further improved, Gibraltar could also generate considerable cash flow during the 18 month indicated construction period of Florence. What’s more, in a recent presentation , management indicated the desire to enter into some kind of additional royalty/streaming agreement for Florence, securing more funding. So in the end, the ATM offering may not be resorted to.
Florence project update
Florence project highlights (Taseko Mines)
On Aug 15, Taseko will mark a 1-year anniversary since it received a draft UIC permit from the US EPA. Since then, the public comment period has long been completed, but the EPA is still not issuing the final permit, which is the last roadblock to be overcome before construction at Florence begins. However, the Q2’23 report reveals that likely the final decision of the EPA will be taken soon:
On June 12, 2023, the EPA issued the Programmatic Agreement (“PA”) for signature which is a key step required to finalize the NHPA Section 106 process and precedes issuance of the final UIC permit.
- Taseko’s Q2’23 report
When a decision, which I think there is a high likelihood to be positive, is taken, this should be a major catalyst for the stock. As I’ve written before, the Florence project should be a game changer for Taseko as it will increase substantially production and reduce the overall cost profile, as it uses the cost-superior ISR mining method.
Conclusion
Taseko Mines reported a decent quarter with ore-grades continuing to improve. This had a major effect on both production and revenue. Although the company still recorded a net cash outflow during the quarter, due to larger sustaining CAPEX at Gibraltar, Q2’23 demonstrated that Gibraltar could bring operating cash flow north of CAD$30M per quarter even in a copper price environment around US$3.80/lbs. The news regarding Florence are encouraging as the final decision of the EPA regarding the UIC permit may be close. This should be a major catalyst for the stock once announced.
For further details see:
Taseko Mines Q2: Grades Continue To Improve