2024-01-18 18:24:51 ET
Summary
- Taseko Mines Limited reported strong production at Gibraltar in Q4 2023.
- It produced 34 million pounds of copper in the quarter, allowing it to exceed its full-year guidance range.
- Taseko is also ramping up construction at Florence Copper.
- First copper production there is expected in Q4 2025.
- Taseko will also likely be looking at refinancing its 2026 notes within the next year or so.
Taseko Mines Limited ( TGB ) reported another quarter of excellent copper production results from Gibraltar in Q4 2023. It produced 34 million pounds of copper (100% basis) in Q4 2023 and close to 70 million pounds of copper (100% basis) in 2H 2023.
The increased copper production translates into improved operational cash flow as Taseko's operating costs at Gibraltar (in total dollars) remain relatively constant as production levels change. This additional cash flow will help fund the development of Florence Copper along with the other financing deals that Taseko has arranged. Currently, Taseko expects first copper production from Florence Copper in Q4 2025 and it will also likely be looking to refinance its 2026 notes in the next year or so.
Compared to my previous expectations , Taseko's Q4 2023 copper production was around 8% higher than I had modeled, while Florence Copper's first production is starting a couple quarters later than I had expected. I believe that Taseko is worth around US$3 per share in a long-term US$3.75 copper scenario once Florence Copper starts production.
This report uses U.S. dollars and an exchange rate of US$1.00 to CAD$1.35 unless otherwise mentioned.
Q4 2023 Copper Production
Taseko reported back-to-back quarters with excellent copper production results from Gibraltar. It reported 35 million pounds of copper production (100% basis) in Q3 2023 and followed that up with 34 million pounds of copper production (100% basis) in Q4 2023. This puts it at 123 million pounds of copper production (100% basis) for the full year, above the high end of its guidance range of 109.25 million pounds to 120.75 million pounds.
I had previously modeled Taseko's Q4 2023 copper production (100% basis) at 31.5 million pounds, which factored a continuation of the strong production from Q3 2023, tempered somewhat by the potential for severe winter weather to disrupt operations. The weather at Gibraltar wasn't extreme during Q4 2023, helping it to average 83,000 tons per day of mill throughput despite some maintenance downtime. Mill throughput was over 87,000 tons per day in Q3 2023. The copper head grade was 0.27% in Q4 2023, slightly higher than the 0.26% in Q3 2023. This was better than Taseko's expectations, as it had previously commented that it expected Q4 2023 copper head grades to be slightly lower than Q3 2023.
Future Outlook From Gibraltar
Going forward, Taseko notes that it expects to have a good start to 2024 with the Gibraltar pit being the main source of ore for 1H 2024. This should result in copper head grades similar to 2H 2023 levels. Taseko is transitioning to Connector pit ore in 2H 2024, which is expected to result in slightly lower copper head grades initially. This is expected to improve as it makes its way deeper into the Connector pit. The Connector pit has a slightly higher copper grade than the Gibraltar pit overall based on the updated 2022 mineral reserves report.
Gibraltar Reserves (tasekomines.com)
Gibraltar escaped the impact of extreme weather in Q4 2023, although there was a period of very cold weather last week in the general area around the mine. Thus, there is some potential for Q1 2024 copper production to be impacted a bit.
If Taseko can end up with around 120 million pounds of copper production (100% basis) from Gibraltar in 2024, that would be a solid result that could probably result in around US$100 million in cash flow for Taseko (based on operational cash flow less sustaining capex and capitalized stripping).
Effect Of Production On Cash Flow
Selling 34 million pounds of copper at an average price of US$3.75 per pound (the current price of copper) would generate the same amount of revenue as selling 31.5 million pounds of copper at an average price of US$4.05 per pound. The site operating costs at Gibraltar (in total dollars) are relatively constant as production levels change, so increased production (from factors such as higher copper grades) can have a significant effect on cash flow.
Florence Copper Updates
Taseko recently signed the US$50 million royalty agreement (announced in November) with Taurus Mining Royalty Fund. Taurus will receive 1.95% of the gross revenue from copper sales from Florence Copper. At expected average copper production levels (from the first ten full years of production at Florence Copper), this would translate into a bit over US$6 million per year to Taurus at US$3.75 copper.
Taseko is using this funding (and other funds such as its Mitsui deal) to help pay for the ramp-up of construction activities at Florence Copper, with first copper production currently expected in Q4 2025. It is finalizing the initial drilling contracts, with the commercial facility wellfield drilling expected to start in February.
Notes On Valuation
The advancing construction of Florence Copper and the increased production at Gibraltar have helped improve the value of Taseko's bonds. Taseko's 7.0% secured notes due February 2026 are currently trading at around 97 cents on the dollar, up from a bit over 90 cents on the dollar in late February 2023. Taseko will likely want to refinance these notes during the next year or so, and the outlook for it being able to refinance the notes at a reasonable interest rate appears to be improving.
I am keeping my estimate of Taseko Mines Limited's value at US$3 per share in a long-term US$3.75 per pound copper environment. This assumes a fully-operational Florence Copper. At long-term US$4 copper instead, Taseko's value would be closer to US$4 per share.
Conclusion
Taseko Mines Limited is ramping up construction at Florence Copper and is targeting first copper production there in Q4 2025. This will be a big milestone, and I estimate Taseko's value at approximately US$3 per share in a long-term US$3.75 per pound copper environment once Florence Copper is fully operational.
Strong recent production from Gibraltar plus the Taurus and Mitsui deals should help Taseko fund Florence Copper's development, while it also will attempt to refinance its 2026 notes relatively soon.
For further details see:
Taseko Mines: Ramping Up Florence Copper After Excellent Q4 2023 Production Results