Earnings Call Transcript - TGB Q2 2025

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Taseko Mines 2025 Second Quarter Earnings Conference Call. As a reminder, this call is being recorded. With that, I will turn the call over to Mr. Brian Bergot. Sir, you may begin.

Brian Bergot, IR

Thank you, Jeannine. Welcome, everyone, and thank you for joining Taseko's Second Quarter 2025 Conference Call. The news release and regulatory filing, announcing our financial and operational results, was issued yesterday after market close and is available on our website at tasekomines.com. On the call today is Taseko's President and CEO, Stuart McDonald; Taseko's Chief Financial Officer, Bryce Hamming; and our COO, Richard Tremblay. As usual, before we get into opening remarks by management, I would like to remind our listeners that our comments and answers to your questions will contain forward-looking information, and this information, by its nature, is subject to risks and uncertainties. As such, actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, I encourage you to read the cautionary note that accompanies our second quarter MD&A and the related news release as well as the risk factors particular to our company. These documents can be found on our website. I would also like to point out that we will use various non-GAAP measures during the call. You can find explanations and reconciliations regarding these measures in the related news release. Finally, all dollar amounts we will discuss today are in Canadian dollars unless otherwise specified. Following opening remarks, we will open the phone lines to analysts and investors for questions. I will now turn the call over to Stuart for his remarks.

Stuart McDonald, CEO

Okay. Thank you, Brian, and welcome, everyone, to our second quarter results conference call. I'll start with an update on our operations and projects and then pass it to Bryce for a closer look at our Q2 financials. It's been a busy few months for us, and generally, I think we're making good progress across our business with a few significant milestones achieved at our projects recently. It's also been an interesting time in the copper markets globally, and the picture for U.S. copper tariffs is now clearer. I'll come back to that topic in a minute. But I want to start with a Gibraltar update. So as noted in our last quarter's earnings release, our mining rates at Gibraltar were impacted earlier this year by challenging conditions in the upper benches of the Connector Pit. In the second quarter, mining advanced into better ground and mine tonnages increased dramatically to a total of 30 million tons for the quarter. That's a 31% increase compared to Q1, and in fact, the best mining quarter in the last four years. As a result, we continue to expect a strong rebound in production in Q3 and even better production in the fourth quarter, continuing into 2026. In June and July, production was more than 35% higher than in April and May, as we started to access this higher-grade ore in the Connector Pit. Second quarter copper production was 20 million pounds, which was the same as the prior quarter and in line with plan. Copper grades were 0.20%, and recoveries were 63%. We're through the worst of a low-quality ore and steadily transitioning into better grades with less oxidation, which will also result in higher recoveries. Molybdenum grades and recoveries are expected to improve significantly in the second half. Total cash costs, or C1, reported at $3.14 per pound in the second quarter, will decline in the second half as production levels rise. We reported copper cathode production at Gibraltar in the second quarter as well, as leaching operations commenced on one of the two leach pads, and the Gibraltar SX/EW plant was restarted in late May. After a quick ramp-up, the plant operated at steady state for most of June and July up until a couple of days ago when a transformer issue took the plant down. That issue was just diagnosed yesterday afternoon, and we expect 6 to 8 weeks of downtime for that plant. It's a short-term issue with less than 1 million pounds of production impact. On the plus side, we've continued to see positive ore reconciliations in the Connector Pit to more oxide ore than expected. We're now thinking that SX/EW plant could run for at least 15 years and possibly longer. Turning over to Florence now, as we highlighted with our recent construction update, the project continues to advance smoothly on schedule and with costs continuing to track in line with our previous guidance. I'm really happy with the work that's being done by our Capital Projects team and the key contractors on site. With the overall project completion over 90%, activities will soon be shifting to commissioning. Key systems such as the electrical substation, which was completed last month, are now starting to be released from the construction team and placed under the control of our growing operations team. All of the wellfield drilling that was planned for the construction phase is now complete, and electrical and pumping equipment is being installed into the wells. The next key milestone will be the initial injection of solutions, which we're targeting to achieve in September. This would allow enough time to acidify the wellfield and produce the first copper cathode before the end of the year. Through the first 18 months, construction CapEx is tracking in line with the updated guidance we issued last year. At the end of the quarter, USD 239 million has been incurred, leaving only about 10% of the total capital outstanding. The team is now working on the detailed operating plans for the ramp-up next year, which will require additional wells to be drilled to achieve the design capacity for the plant of 85 million pounds per year. So all this to say, America's next new copper mine is advancing smoothly and nearing completion. We're not there yet; still a lot of work to be done, and we're entering a critical phase here over the next few months to get the startup. Obviously, the recent copper tariff news has driven a lot of volatility in the COMEX copper price, with metal traders and other financial speculators trading in and out of the COMEX market as the COMEX premium disappeared with the tariff announcement last week. Despite all the headlines, the LME copper price, which is the global benchmark, has remained stable and strong. For the U.S. copper market, the current administration is clearly incentivizing U.S.-based manufacturing of finished copper products. This is a very positive development for Florence, which will soon become one of the few U.S.-based suppliers of refined copper. The U.S. will remain a net importer of cathode in the coming years, and our Arizona-based operation will have significant geographic advantages in delivering refined metal to the growing U.S. manufacturing base. Just a reminder that at a copper price of USD 3.75 per pound, that's the price used in our last technical report, Florence has an after-tax NPV of USD 930 million. At today's price of around USD 4.40 per pound, the NPV is closer to USD 1.2 billion to USD 1.3 billion. That's not yet reflected in Taseko's equity, but we're working hard to unlock that value over the next year. In the longer term, Taseko has other growth assets in our portfolio, and we've had some significant developments on those projects in recent months, which I'll touch on now. The New Prosperity Agreement announced in June was a very important milestone for the company. I think it came as a surprise to the market even though we've been making good progress toward an agreement over the previous year. The dialogue actually started about five years earlier, so it was a lengthy process. I want to recognize the commitment and perseverance of both the Province of BC and the Tsilhqot'in National Government to complete that deal in June. The agreement allows all three parties to turn the page on a historical conflict and move forward in a constructive way. It ends years of litigation while providing certainty as to how the significant copper-gold deposit at New Prosperity could be developed in the future. Taseko has received a $75 million cash payment from BC in exchange for a 22.5% equity interest in the project, which has been placed into a trust for the Tsilhqot'in Nation. The trust will only transfer this interest if the Tsilhqot'in consent to pursue mineral development on the property. BC and the Tsilhqot'in will now enter into a land-use planning process, and so the door remains open to future mine development, but only with the consent of the nation. Taseko retains 77.5% ownership of the New Prosperity mineral rights, and we can divest some or all of that interest at any time. I believe if we're patient, there will be a further opportunity down the road to realize significant value from this world-class asset. For our Yellowhead project, we recently announced the results of an updated technical study with significantly improved economics as well as the formal commencement of the environmental assessment process for the project. The new technical report includes updated CapEx, operating costs, and long-term metal price assumptions and describes a mine that would produce 178 million pounds of copper annually over a 25-year mine life at a cash cost of around $1.90 per pound on average. At a copper price of $4.25, the project has an NPV of CAD 2 billion and an after-tax IRR of 21%. That's impressive for a project that we acquired for only $16 million just a few years ago. When you consider the production profile, the mine life, and the project economics, Yellowhead stacks up very well against all the other North American copper development projects, and we will continue to derisk the project as it moves through the permitting process. In early July, the initial project description was accepted by the BC Environmental Assessment Office and the Impact Assessment Agency of Canada. The project is also advancing through the early stages of the Simpcw First Nation's assessment process, and we continue to have an active and ongoing dialogue with them. We've also held a number of well-attended open houses in local communities with more planned as part of the EA process. We have a few years of permitting and engineering work ahead of us at Yellowhead, and we'll continue to maintain a disciplined approach to project spending during that period. So we've got a lot going on and exciting times ahead for our North American copper business. I'll wrap it up there. I want to thank all of our shareholders for their ongoing support. I'll now pass the call over to Bryce for a financial update, and we can then open up the line for questions following that. Over to you, Bryce.

Bryce Hamming, CFO

Thank you, Stuart. I'll provide some additional details on the financial aspects of the second quarter. Sales in the second quarter totaled 19 million pounds at an average realized price of $4.32 per pound, generating revenue of $116 million for Taseko. Lower sales and a stronger Canadian dollar contributed to the lower quarter-over-quarter revenue. Net income for the quarter was $22 million or $0.07 per share, mainly driven by an unrealized foreign exchange gain on our U.S. dollar-denominated debt with the strengthening Canadian dollar at quarter-end. On an adjusted earnings basis, we posted a net loss of $13 million or a $0.04 loss per share. As Stuart mentioned, mining rates at Gibraltar in the second quarter were significantly higher than the first quarter. This increased total site cost to $117 million. Despite the increase in mining rates, the strip ratio was lower due to a larger portion of mine tons being oxide ore, which was placed on the heap leach pad. Stuart mentioned the positive ore reconciliations we've been seeing. Capitalized stripping for the quarter was slightly lower at $31 million and remained elevated as waste tons were higher than the average strip ratio for the Connector Pit. We expect that strip ratio to decline significantly in the second half of the year now that we have opened up access to the ore in Connector. Costs on a per-pound basis for the quarter were $3.14 per pound. That's based on copper produced. This was higher than the previous quarter and was due to lower capitalized stripping and lower molybdenum production. It is also impacted by costs associated with the oxide ore that are added to the heap leach pads, which is left inside operating costs, for which production comes in future periods. So it skews that ratio by about $0.40. Adjusted EBITDA in the second quarter was $17 million and was impacted by lower production and sales volumes and higher costs associated with the mid-grade stockpiles, which have a higher cost on a per-pound basis. At Florence, we incurred $33 million of construction costs in the second quarter, as construction has now passed peak spend. To date, $239 million has been incurred on the construction of the commercial production facility, which is still tracking towards our revised estimate and guidance of $232 million plus up to 15%. So we're heading towards around $265 million for total construction costs. Quarterly operating costs have been increasing as management continues to build out the operations team and prepares for commissioning a ramp-up later this year. We ended the quarter with cash consistent with the first quarter with a balance of $122 million, leaving us current liquidity of just under $200 million after factoring in the $55 million that we've drawn revolving credit facility with National Bank and ING. Our quarter-end cash balance also includes that $75 million payment from the BC government as part of the New Prosperity Agreement that we reached in June. As a reminder of our copper price protection in light of some of the volatility we've seen, we still have a minimum price of $4 per pound protection on 54 million pounds of production for the balance of 2025. We are actively looking to extend our price protection into 2026 and have been watching the copper market closely, looking for opportunities to fix that at a reasonable price, primarily to cover the ramp-up of Florence that we have into the first half of next year. So with that, I'll turn it over to the operator for any questions. Thank you.

Operator, Operator

Our question comes from Craig Hutchison from TD Cowen.

Craig Hutchison, Analyst

I was wondering if you guys could give us some commentary on what you're seeing in terms of the grades here for Q3, Gibraltar and also the recoveries.

Stuart McDonald, CEO

Yes. I guess, generally speaking, Craig, we're expecting both grade and recovery to step up meaningfully in Q3 back toward reserve grade averages or better, and probably better than reserve grade in Q4. So yes, that's probably as much guidance as we'd want to give on a quarterly basis. But definitely, we're seeing now getting deeper into the pit higher quality ore and higher-grade ore. So that's positive for the second half. You should see that level, at least, maybe not the Q4 level, but the second half averages kind of continuing into the first few quarters of 2026 as well. We shouldn't see any more of the drop-offs that we've had in the last couple of quarters.

Craig Hutchison, Analyst

Is the higher oxide material you're seeing in the Connector Pit, does that create a risk for recoveries here, especially in Q3? Or do you feel like you're through that and recoveries are back up into the high 70s or low 80s?

Stuart McDonald, CEO

Yes. We're seeing it. The oxide oxidation, it's not a binary thing. It's not black or white. It's definitely a transition. We're pretty confident in our projections. We've got a good geological database, and we're seeing flashes of the higher grade, the better-quality ore now and certainly expecting much more of that in the coming weeks and months.

Craig Hutchison, Analyst

Okay. Great. And then on Florence, as you guys have mentioned on past calls, you're targeting, I think, production somewhere in the range of 40 million to 55 million pounds next year, if I recall correctly. Is that still the case? Or do I have that wrong?

Stuart McDonald, CEO

I don't know. I think the technical report for year one indicated around 40 million pounds. So that's the number we have out there so far. I think as I mentioned in my remarks, we are working through a detailed operating plan now going well by well and doing projections of how the ramp-up is going to go. I expect as we get closer to startup in the fall, we'll have more specific guidance we can talk about for 2026. But yes, that what we're seeing at this point aligns with what we have in the technical report.

Craig Hutchison, Analyst

Okay. Maybe one last question for me. What kind of pricing are you guys seeing right now on sulfuric acid?

Richard Tremblay, COO

Yes. We're seeing in the low $200 range for sulfuric acid right now. We've been in conversations with a number of different suppliers and have secured supply for this year from two different suppliers. So we're seeing in that low $200 range.

Operator, Operator

Our question comes from the line of Duncan Hay from Panmure Liberum. Craig Hutchison, Analyst, asked if there were any updates on the pricing for sulfuric acid. Richard Tremblay, COO, responded that they are currently seeing prices in the low $200 range for sulfuric acid, and they have secured supply for this year from two different suppliers after discussions with various suppliers.

Duncan Hay, Analyst

I have a couple of questions. Firstly, regarding the capital cost, can we expect any more capitalized stripping in the third quarter at Gibraltar? Secondly, about Florence, will the remaining spending be concentrated in the third quarter, with a decrease in the fourth quarter, or will it remain similar across both quarters?

Stuart McDonald, CEO

Yes. Duncan, yes, no, it's definitely. The remaining spend at Florence is definitely weighted to Q3. Q4 is more commissioning and shipping into operations. So yes, you shouldn't see much capital left required after the end of Q3. There's always a bit of a lag when you're discussing cash flow, right, because we don't pay our bills immediately. But in terms of CapEx incurred, most will be done at the end of Q3 at Florence. At Gibraltar, capital stripping will drop off in the second half. We are really going to be mostly an ore operating below the average strip rate, so I wouldn't expect to see much or any capital stripping in the second half.

Duncan Hay, Analyst

Yes. I missed what you said about the SX/EW plant earlier. There has been some downtime. How much production are you anticipating for the rest of the year and into next year from that?

Stuart McDonald, CEO

We're anticipating around 6 to 8 weeks of downtime. This issue was just identified and diagnosed yesterday. The production impact is less than 1 million pounds, primarily affecting Q3. Our previous guidance indicated that the operation produces between 3 to 4 million pounds a year. It's a seasonal operation, expected to continue working until November or December before shutting down for winter in Q1 next year. Additionally, we have two leach pads, with only one currently active, while the second pad is scheduled to begin operations in 2026. You can anticipate a minor increase in production at that operation next year, possibly reaching around 4 to 5 million pounds. That's our outlook.

Operator, Operator

There are no further questions at this time. I will now turn the call over to the management for closing remarks.

Stuart McDonald, CEO

Okay. Thanks, everyone. Thanks, operator. And thank you all for dialing into our Q2 earnings call. We'll talk to you again next quarter. Thanks again. Bye.

Operator, Operator

Thank you for joining the call today. You may now disconnect.