2023-08-19 04:19:29 ET
Summary
- Taseko continues to wait for the final UIC permit for Florence Copper.
- I had expected the permit to be issued in Q2 2023, but the process has been quite slow.
- Florence Copper remains the key catalyst for Taseko.
- Gibraltar's results should be improved in 2H 2023, with expanded margins and higher production levels.
Taseko Mines (TGB) is still waiting for the final UIC permit for Florence Copper. I had previously expected this permit to take a long time to be issued, but had assumed that the permit would be issued in Q2 2023. The slow permitting process is now pushing Florence Copper's projected first commercial production into 2025.
Taseko's should see increased copper production from Gibraltar in the second half of the year, helped by higher copper grades. This is expected to result in a 15% increase in copper production in 2H 2023 compared to 1H 2023. The higher copper grades will also reduce Taseko's cost of copper production per pound. This should result in increased margins per pound of copper production despite current copper prices being a bit lower than the average for the first half of the year.
Copper Production
Taseko reported 28.2 million pounds (100% basis) of copper production in Q2 2023, up from 24.9 million pounds of copper production in Q1 2023. This increase was primarily due the increase in copper grades.
Copper grades at Gibraltar ended up at 0.24% in Q2 2023 after it reported a copper grade of 0.22% in Q1 2023 and during the last two quarters of 2022. Going forward, Taseko expects the copper grade to remain at approximately 0.24% during the remainder of the year.
Taseko also expects copper production to increase by approximately 15% in the second half of 2023 compared to the first half of the year. This would result in just over 61 million pounds of 2H 2023 copper production, bringing its full-year production to 114 million pounds. This is in-line with Taseko's full-year guidance for approximately 109 million to 121 million pounds of copper production.
To get to 61 million pounds of 2H 2023 copper production with a copper grade of 0.24% (and Q2 2023's 81.9% copper recovery) would require mill throughput to average approximately 84,500 tons per day during the second half of the year.
Gibraltar's design capacity is 85,000 tons per day, although it averaged slightly under 80,000 tons per day in Q2 2023 due to maintenance downtime. On the other hand, Taseko noted that it was able to operate with mill throughput closer to 90,000 tons per day since early June due to softer ore.
Commodity Prices And Costs
Gibraltar's production is expected to be stronger during the second half of the year, and this should contribute to its per pound margins improving as well.
Site costs at Gibraltar (in total dollars) are relatively constant from quarter-to-quarter, so a 15% increase in copper production in 2H 2023 may result in around a 13% decrease in production costs per pound compared to 1H 2023, all else equal.
Copper prices averaged US$3.95 per pound during the first half of 2023. The current price of copper is approximately US$3.72 per pound. Taseko also has copper collars covering approximately 57% of its production at a floor price of US$3.75 per pound, so that provides some protection against further copper price decreases. Including the effect of its copper collars, at current prices Taseko may realize around US$0.21 per pound less for its copper production in 2H 2023 than what it realized in the first half of 2023.
Molybdenum prices have rebounded from Q2 2023 levels, but are also currently slightly lower than the first half average.
Despite slightly weaker copper and molybdenum prices, the effects of a 15% increase in production on production costs per pound should result in expanded per pound margins in the second half of the year.
Florence Copper
Taseko continues to wait for the EPA to issue the final UIC permit for Florence Copper. This has taken longer than I expected since I had mentioned in October 2022 that Q2 2023 was when I generally anticipated the permit to be issued.
While it is disappointing that the final UIC permit hasn't been issued yet, it isn't that surprising given the very slow pace of the whole permitting process around Florence Copper. The required permits have always been issued in the end, just with a lengthy wait to receive them. Florence is now likely to see first commercial production in 2025.
In the last few months, Taseko has made a couple more moves to help it properly finance Florence Copper's development. It announced a US$50 million at-the-market equity offering, although it has not yet sold any shares via that offering.
Taseko also made an additional silver stream sale to Osisko Gold Royalties that gave it another US$10.25 million. This results in Osisko increasing its effective silver stream percentage for Gibraltar to 87.5%, matching Taseko's increased stake in Gibraltar.
Other Projects
I attribute relatively minimal (such as a few cents per share) current value to Taseko's other properties, such as Yellowhead, Aley, New Prosperity and its carried interest in Harmony/JDS Gold. The main reason is that there is a high level of uncertainty about whether those projects will be successfully developed, and even if they get brought to production it could be many years in the future.
For example, Harmony was acquired by Taseko in 2001 before being sold to JDS Gold in 2021, while Aley was acquired in 2007. New Prosperity remains quite unlikely to be approved.
Yellowhead is the project that is most likely to be developed by Taseko next, but Taseko will need to get Florence going before it can consider turning its focus towards Yellowhead. The capex costs for Yellowhead were estimated at close to USD$1 billion in 2020, so it will be a massive financial undertaking (beyond any permitting issues) to get that into production.
Conclusion
Taseko is still waiting for the final UIC permit for Florence Copper. This wait has been very long and has taken longer than the Q2 2023 expectation that I had. This is likely to push first commercial production for Florence Copper into mid-2025.
That being said, getting Florence Copper into operation will be a major boost for Taseko that should greatly boost its cash flow and potentially make it worth several times its current share price. In the meantime, the results at Gibraltar should be improved in the second half of 2023 due to expanded margins and increased copper production compared to the first half of the year.
For further details see:
Taseko Mines: Waiting For The Final UIC Permit For Florence Copper