2023-10-31 01:33:19 ET
Summary
- Taseko reported strong Q3 2023 copper production of 35 million pounds, a 25% increase from Q2.
- August and September saw an average monthly copper production of around 12 million pounds.
- Taseko is on track to reach at least the upper half of its full-year production guidance and could exceed the high-end of its guidance.
- The effect of increased production on production costs per pound should more than offset the impact of currently weaker copper prices.
- Taseko does have a February 2026 bond maturity that it needs to refinance, while Florence Copper should be finished by early 2025 if all goes well.
Taseko Mines ( TGB ) reported very strong copper production from Gibraltar in Q3 2023, putting it on track to end up near the high-end of its full year production guidance and potentially even exceed the high-end of its guidance.
Taseko also received the final permit for Florence Copper , giving it the ability to complete the project around the end of 2024 to early 2025 based on a 18-month timeline. This will give it an asset with relatively low-cost copper production that should significantly increase its cash flow.
Weaker copper prices have recently weighed on Taseko's share price, but I believe the higher copper production levels from Gibraltar (translating into lower costs per pound) should result in solid 2H 2023 margins there. Gibraltar's 2H 2023 copper production should be quite a bit better (potentially 10+%) than what I had modeled for it before , more than offsetting the effect of slightly weaker copper prices.
Strong Q3 2023 Copper Production
Taseko reported 35 million pounds of copper production (100% basis) in Q3 2023. It reported 53.1 million pounds of copper production (100% basis) in the first half of 2023, so Taseko's copper production over the first three quarters of 2023 is approximately 88 million pounds.
Taseko attributed the approximately 25% increase in copper production from Q2 2023's 28.2 million pounds (100% basis) to a combination of increased mill throughput, improved recoveries and higher grades as Taseko mines the lower benches of the Gibraltar pit.
It looks like August and September were very strong months as Taseko had previously mentioned 11 million pounds of copper production in July. This means that August and September copper production would have averaged around 12 million pounds per month.
Taseko appears to be on track to reach its original production guidance of 115 million (+/-5%) for 2023 at Gibraltar. Hitting the midpoint of its full-year guidance range would require it to do around 27 million pounds of copper production in Q4 2023. Hitting the high-end of its original guidance range would require near 33 million pounds of copper production in Q4 2023.
Thus it seems likely that Taseko will end up at least reaching the upper half of its full-year copper production guidance range. A repeat of Q3 2023's production would put it a couple percent above the high-end of its full-year copper production guidance range, but winter weather related disruptions could knock a few million pounds off its production rate. I am currently modeling 2023 copper production (100% basis) at 120 million pounds, which is very close to the high-end of Taseko's full-year guidance.
Notes On Florence Copper
After a lengthy wait, Taseko finally received the final Underground Injection Control Permit for Florence Copper. This is a significant achievement given the challenges getting new copper projects approved in North America . Florence Copper will be in a relatively stable jurisdiction, free from issues such as potential nationalization that are challenging copper producing companies in other areas.
With the permit in hand, Taseko is working on finalizing project financing ahead of a ramp up in spending. Stronger copper prices would help Gibraltar's contribution to Taseko's cash flow, although Gibraltar's margins should be pretty solid with copper production (100% basis) in the 30+ million pounds per quarter range.
Gibraltar Cash Flow
Gibraltar's cost of copper production (including capitalized stripping and maintenance capex) should come down due to the higher copper production volumes in 2H 2023 as well as the weaker Canadian dollar. If copper production (100% basis) can get to around 32 million to 33 million pounds in Q4 2023, I can see Gibraltar's cost of production (including capitalized stripping and maintenance capex) averaging around US$2.50 per pound during the second half of 2023.
This would allow for solid margins at current copper prices. At US$3.70 per pound copper in 2H 2023 (Teck mentioned US$3.79 copper in Q3 2023), Taseko would generate around US$71 million in margins from its 87.5% share of Gibraltar's 2H 2023 production before corporate G&A and interest costs. It should also benefit a bit from its copper collars, which could add several million in value in 2H 2023 if copper prices stay near current levels.
Conclusion
Taseko has delivered some good news over the past few months, with the receipt of its final Florence Copper permit and strong copper production from Gibraltar in Q3 2023.
The higher level of copper production from Gibraltar should offset weaker copper prices by resulting in a lower cost of production per pound of copper. At US$3.70 per pound copper in 2H 2023, there would still be healthy margins for Gibraltar's production.
The market does have some concerns over Taseko's debt level now that copper prices have become a bit weaker, as its 2026 bonds are now trading at around 91 cents on the dollar and yielding 11% to maturity. However, despite the risks around its debt, I believe that Taseko's shares offer considerable upside, with a fully operational Florence Copper potentially boosting Taseko's value to several times its current share price.
For further details see:
Taseko Mines: Strong Copper Production From Gibraltar Should Improve Its Margins