6-K
Trekor Metals Ltd (TGB)
UNITED STATESSECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
As at August 4, 2021
Commission File Number: 001-31965
Taseko Mines Limited (Translation of registrant's name into English)
12th Floor - 1040 West Georgia St., Vancouver, BC, V6E 4H1 (Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
[ ] Form 20-F [ x ] Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [ ]
SUBMITTED HEREWITH
Exhibits
| Exhibit | Description |
|---|---|
| 99.1 | Condensed Consolidated Interim Financial Statements for the period ended June 30, 2021 |
| 99.2 | Management's Discussion and Analysis for the period ended June 30, 2021 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Taseko Mines Limited | ||
|---|---|---|
| (Registrant) | ||
| Date: August 4, 2021 | By: | /s/ Bryce Hamming |
| Bryce Hamming | ||
| Title: | CFO |
Taseko Mines Limited: Exhibit 99.1 - Filed by newsfilecorp.com
Condensed Consolidated Interim Financial Statements June 30, 2021 (Unaudited)
TASEKO MINES LIMITED
Consolidated Balance Sheets
(Cdn$ in thousands) (Unaudited)
| June 30, | December 31, | ||||
|---|---|---|---|---|---|
| Note | 2021 | 2020 | |||
| ASSETS | |||||
| Current assets | |||||
| Cash and equivalents | 225,741 | 85,110 | |||
| Accounts receivable | 9,938 | 6,689 | |||
| Inventories | 9 | 48,265 | 58,841 | ||
| Other financial assets | 8 | 15,460 | 3,583 | ||
| Prepaids | 4,512 | 2,975 | |||
| 303,916 | 157,198 | ||||
| Property, plant and equipment | 10 | 779,941 | 742,619 | ||
| Other financial assets | 8 | 5,096 | 5,298 | ||
| Goodwill | 5,110 | 5,250 | |||
| 1,094,063 | 910,365 | ||||
| LIABILITIES | |||||
| Current liabilities | |||||
| Accounts payable and other liabilities | 51,255 | 51,747 | |||
| Current portion of long-term debt | 11 | 19,903 | 17,617 | ||
| Current portion of deferred revenue | 12 | 7,478 | 5,604 | ||
| Interest payable on senior secured notes | 13,496 | 1,160 | |||
| Current income tax payable | 1,496 | 2,356 | |||
| 93,628 | 78,484 | ||||
| Long-term debt | 11 | 510,328 | 345,787 | ||
| Provision for environmental rehabilitation ("PER") | 79,887 | 78,983 | |||
| Deferred and other tax liabilities | 40,883 | 39,060 | |||
| Deferred revenue | 12 | 45,772 | 47,154 | ||
| Other financial liabilities | 13 | 6,036 | 3,525 | ||
| 776,534 | 592,993 | ||||
| EQUITY | |||||
| Share capital | 14 | 474,785 | 472,870 | ||
| Contributed surplus | 54,779 | 53,433 | |||
| Accumulated other comprehensive income ("AOCI") | 2,345 | 7,674 | |||
| Deficit | (214,380 | ) | (216,605 | ) | |
| 317,529 | 317,372 | ||||
| 1,094,063 | 910,365 | ||||
| Commitments and contingencies | 15 |
The accompanying notes are an integral part of these consolidated interim financial statements.
TASEKO MINES LIMITED
Consolidated Consolidated Statements of Comprehensive Income (Loss)
(Cdn$ in thousands, except share and per share amounts) (Unaudited)
| Three months ended | Six months ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| June 30, | June 30, | ||||||||
| Note | 2021 | 2020 | 2021 | 2020 | |||||
| Revenues | 3 | 111,002 | 106,005 | 197,743 | 168,089 | ||||
| Cost of sales | |||||||||
| Production costs | 4 | (56,520 | ) | (55,669 | ) | (112,948 | ) | (111,830 | ) |
| Depletion and amortization | 4 | (17,536 | ) | (25,512 | ) | (33,374 | ) | (52,660 | ) |
| Earnings from mining operations | 36,946 | 24,824 | 51,421 | 3,599 | |||||
| General and administrative | (5,166 | ) | (2,900 | ) | (10,462 | ) | (6,798 | ) | |
| Share-based compensation expense | 14b | (1,608 | ) | (1,297 | ) | (4,398 | ) | (1,481 | ) |
| Project evaluation expenditures | (136 | ) | (153 | ) | (448 | ) | (310 | ) | |
| Gain (loss) on derivatives | 5 | (2,079 | ) | (887 | ) | (4,070 | ) | 4,968 | |
| Other income | 444 | 412 | 796 | 807 | |||||
| Income before financing costs and income taxes | 28,401 | 19,999 | 32,839 | 785 | |||||
| Finance expenses, net | 6 | (11,465 | ) | (10,413 | ) | (35,348 | ) | (21,034 | ) |
| Foreign exchange gain (loss) | 3,539 | 13,485 | 7,465 | (15,748 | ) | ||||
| Income (loss) before income taxes | 20,475 | 23,071 | 4,956 | (35,997 | ) | ||||
| Income tax recovery (expense) | 7 | (7,033 | ) | (4,326 | ) | (2,731 | ) | 5,792 | |
| Net income (loss) | 13,442 | 18,745 | 2,225 | (30,205 | ) | ||||
| Other comprehensive income (loss): | |||||||||
| Gain (loss) on financial assets | 87 | 6,770 | (124 | ) | 6,576 | ||||
| Foreign currency translation reserve | (2,807 | ) | (7,932 | ) | (5,205 | ) | 8,754 | ||
| Total other comprehensive income (loss) | (2,720 | ) | (1,162 | ) | (5,329 | ) | 15,330 | ||
| Total comprehensive income (loss) | 10,722 | 17,583 | (3,104 | ) | (14,875 | ) | |||
| Earnings (loss) per share | |||||||||
| Basic | 0.05 | 0.08 | 0.01 | (0.12 | ) | ||||
| Diluted | 0.05 | 0.08 | 0.01 | (0.12 | ) | ||||
| Weighted average shares outstanding (thousands) | |||||||||
| Basic | 283,449 | 246,194 | 283,153 | 246,194 | |||||
| Diluted | 288,007 | 246,582 | 287,069 | 246,194 |
The accompanying notes are an integral part of these consolidated interim financial statements.
TASEKO MINES LIMITED
Condensed Consolidated Statement of Cash Flows
(Cdn$ in thousands) (Unaudited)
| Three months ended | Six months ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| June 30, | June 30, | ||||||||
| Note | 2021 | 2020 | 2021 | 2020 | |||||
| Operating activities | |||||||||
| Net income (loss) for the period | 13,442 | 18,745 | 2,225 | (30,205 | ) | ||||
| Adjustments for: | |||||||||
| Depletion and amortization | 17,536 | 25,512 | 33,374 | 52,660 | |||||
| Income tax expense (recovery) | 7 | 7,033 | 4,326 | 2,731 | (5,792 | ) | |||
| Finance expenses, net | 6 | 11,465 | 10,413 | 35,348 | 21,034 | ||||
| Share-based compensation expense | 14b | 1,650 | 1,321 | 4,570 | 1,567 | ||||
| Loss (gain) on derivatives | 5 | 2,079 | 887 | 4,070 | (4,968 | ) | |||
| Unrealized foreign exchange (gain) loss | (3,764 | ) | (12,985 | ) | (7,966 | ) | 16,762 | ||
| Amortization of deferred revenue | 12 | (1,283 | ) | (1,471 | ) | (2,270 | ) | (2,611 | ) |
| Deferred revenue deposit | 12 | - | 8,510 | - | 8,510 | ||||
| Other operating activities | 387 | (539 | ) | 387 | 997 | ||||
| Net change in working capital: | |||||||||
| Change in accounts receivable | 16 | 20,595 | (12,147 | ) | (3,249 | ) | (2,833 | ) | |
| Change in other working capital items | 16 | 3,362 | (5,493 | ) | (1 | ) | (371 | ) | |
| Cash provided by operating activities | 72,502 | 37,079 | 69,219 | 54,750 | |||||
| Investing activities | |||||||||
| Gibraltar capitalized stripping costs | 10 | (14,794 | ) | (7,436 | ) | (36,246 | ) | (21,352 | ) |
| Gibraltar capital expenditures | 10 | (8,031 | ) | (1,654 | ) | (13,041 | ) | (3,198 | ) |
| Florence Copper development costs | 10 | (6,367 | ) | (5,117 | ) | (12,718 | ) | (7,140 | ) |
| Other project development costs | 10 | (805 | ) | (348 | ) | (1,328 | ) | (1,109 | ) |
| Purchase of copper price options | 5 | (4,694 | ) | (236 | ) | (15,837 | ) | (734 | ) |
| Proceeds from copper put options | - | 3,236 | - | 6,104 | |||||
| Net proceeds from the sale of marketable securities | - | 7,270 | - | 7,270 | |||||
| Other investing activities | (340 | ) | (378 | ) | 138 | (691 | ) | ||
| Cash used for investing activities | (35,031 | ) | (4,663 | ) | (79,032 | ) | (20,850 | ) | |
| Financing activities | |||||||||
| Net proceeds from issuance of senior secured notes | 11e | - | - | 496,098 | - | ||||
| Repayment of senior secured notes | 11e | - | - | (317,225 | ) | - | |||
| Redemption cost on settlement of senior secured notes | - | - | (8,714 | ) | - | ||||
| Interest paid | (826 | ) | (15,877 | ) | (6,009 | ) | (16,871 | ) | |
| Repayment of equipment loans and leases | (5,086 | ) | (1,824 | ) | (9,863 | ) | (6,165 | ) | |
| Proceeds on exercise of options | 707 | - | 1,201 | - | |||||
| Cash provided by (used for) financing activities | (5,205 | ) | (17,701 | ) | 155,488 | (23,036 | ) | ||
| Effect of exchange rate changes on cash and equivalents | (3,543 | ) | (1,265 | ) | (5,044 | ) | (443 | ) | |
| Increase in cash and equivalents | 28,723 | 13,450 | 140,631 | 10,421 | |||||
| Cash and equivalents, beginning of period | 197,018 | 50,169 | 85,110 | 53,198 | |||||
| Cash and equivalents, end of period | 225,741 | 63,619 | 225,741 | 63,619 | |||||
| Supplementary cash flow disclosures | 16 |
The accompanying notes are an integral part of these consolidated interim financial statements.
TASEKO MINES LIMITED
Consolidated Statements of Changes in Equity
(Cdn$ in thousands) (Unaudited)
| Share | Contributed | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| capital | surplus | AOCI | Deficit | Total | |||||
| Balance at January 1, 2020 | 436,318 | 51,622 | 6,827 | (193,081 | ) | 301,686 | |||
| Share-based compensation | - | 1,090 | - | - | 1,090 | ||||
| Total comprehensive income (loss) for the period | - | - | 15,330 | (30,205 | ) | (14,875 | ) | ||
| Balance at June 30, 2020 | 436,318 | 52,712 | 22,157 | (223,286 | ) | 287,901 | |||
| Balance at January 1, 2021 | 472,870 | 53,433 | 7,674 | (216,605 | ) | 317,372 | |||
| Share-based compensation | - | 2,060 | - | - | 2,060 | ||||
| Exercise of options | 1,915 | (714 | ) | - | - | 1,201 | |||
| Total comprehensive income (loss) for the period | - | - | (5,329 | ) | 2,225 | (3,104 | ) | ||
| Balance at June 30, 2021 | 474,785 | 54,779 | 2,345 | (214,380 | ) | 317,529 |
The accompanying notes are an integral part of these consolidated interim financial statements.
| TASEKO MINES LIMITED<br><br> <br>Notes to Condensed Consolidated Interim Financial Statements<br><br> <br>(Cdn$ in thousands - Unaudited) |
|---|
1. REPORTING ENTITY
Taseko Mines Limited (the "Company" or "Taseko") is a corporation governed by the British Columbia Business Corporations Act. These unaudited condensed consolidated interim financial statements of the Company as at and for the three and six month periods ended June 30, 2021 comprise the Company, its subsidiaries and its 75% interest in the Gibraltar joint venture. The Company is principally engaged in the production and sale of metals, as well as related activities including mine permitting and development, within the province of British Columbia, Canada and the State of Arizona, USA. Seasonality does not have a significant impact on the Company's operations.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of compliance
These condensed consolidated interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting and follow the same accounting policies and methods of application as the Company's most recent annual financial statements. These condensed consolidated interim financial statements do not include all of the information required for full consolidated annual financial statements and should be read in conjunction with the consolidated financial statements of the Company as at and for the year ended December 31, 2020, prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
These condensed consolidated interim financial statements were authorized for issue by the Company's Audit and Risk Committee on August 4, 2021.
(b) Use of judgments and estimates
In preparing these condensed consolidated interim financial statements, management has made judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
The significant judgments made by management in applying the Company's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended December 31, 2020.
In March 2020, the World Health Organization declared a global pandemic related to COVID-19 and the impact on global markets has been significant and far-reaching. Since the initial outbreak, the restrictions on the conduct of business and movement of goods and services across international borders have caused volatility in the commodity, foreign exchange and stock markets.
The Company continues to act to ensure the health and safety of our employees, contractors and the communities in which we operate is paramount and in accordance with public safety direction from governments and public health authorities. The Company continues to evaluate the potential impacts of COVID-19 on all aspects of its business. As of the date of these statements, there has not been any direct impact on the Company's operations as a result of COVID-19.
| TASEKO MINES LIMITED<br><br> <br>Notes to Condensed Consolidated Interim Financial Statements<br><br> <br>(Cdn$ in thousands - Unaudited) |
|---|
3. REVENUES
| Three months ended | Six months ended | |||||||
|---|---|---|---|---|---|---|---|---|
| June 30, | June 30, | |||||||
| 2021 | 2020 | 2021 | 2020 | |||||
| Copper contained in concentrate | 102,571 | 95,786 | 181,321 | 171,714 | ||||
| Molybdenum concentrate | 5,544 | 5,615 | 11,230 | 9,457 | ||||
| Silver (Note 12) | 738 | 968 | 1,465 | 1,964 | ||||
| Price adjustments on settlement receivables | 4,807 | 10,489 | 9,748 | (2,471 | ) | |||
| Total gross revenue | 113,660 | 112,858 | 203,764 | 180,664 | ||||
| Less: Treatment and refining costs | (2,658 | ) | (6,853 | ) | (6,021 | ) | (12,575 | ) |
| Revenue | 111,002 | 106,005 | 197,743 | 168,089 |
4. COST OF SALES
| Three months ended | Six months ended | |||||
|---|---|---|---|---|---|---|
| June 30, | June 30, | |||||
| 2021 | 2020 | 2021 | 2020 | |||
| Site operating costs | 49,753 | 44,032 | 96,909 | 97,579 | ||
| Transportation costs | 4,303 | 5,834 | 7,608 | 10,353 | ||
| Changes in inventories of finished goods | 4,723 | 5,753 | 2,464 | 4,451 | ||
| Changes in inventories of ore stockpiles | (2,259 | ) | 50 | 5,967 | (553 | ) |
| Production costs | 56,520 | 55,669 | 112,948 | 111,830 | ||
| Depletion and amortization | 17,536 | 25,512 | 33,374 | 52,660 | ||
| Cost of sales | 74,056 | 81,181 | 146,322 | 164,490 |
Site operating costs include personnel costs, non-capitalized waste stripping costs, repair and maintenance costs, consumables, operating supplies and external services.
During the six month period ended June 30, 2020, included in site operating costs and general administrative expenses are $4,934 and $300, respectively, for benefits related to claims submitted by the Company for the Canada Emergency Wage Subsidy. No claims were submitted for the six month period ended June 30, 2021.
5. DERIVATIVE INSTRUMENTS
| **** | Three months ended<br>June 30, | Six months ended<br>June 30, | |||||
|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | ||||
| Realized gain on settled copper puts | - | (3,100 | ) | - | (5,697 | ) | |
| Realized loss on settled copper puts | 1,709 | 236 | 3,368 | 326 | |||
| Net unrealized loss on outstanding copper options | 370 | 3,667 | 1,141 | - | |||
| Realized (gain) loss on fuel call options | - | 223 | (470 | ) | 223 | ||
| Unrealized (gain) loss on fuel call options | - | (139 | ) | 31 | 180 | ||
| 2,079 | 887 | 4,070 | (4,968 | ) | |||
| TASEKO MINES LIMITED<br><br> <br>Notes to Condensed Consolidated Interim Financial Statements<br><br> <br>(Cdn$ in thousands - Unaudited) | |||||||
| --- |
The Company recognized a net realized loss of $3,368 on copper put options for 37.5 million pounds with strike prices between US$2.80 and US$3.20 per pound that expired out-of-the-money during the six month period ended June 30, 2021.
During the six month period ended June 30, 2021, the Company received proceeds of $717 on diesel fuel call options that settled during the period. There were no fuel call options outstanding at June 30, 2021.
During the three month period ended March 31, 2021, the Company purchased copper put option contracts for a total of 41 million pounds of copper with maturity dates ranging from July 2021 to December 2021, with a strike price of US$3.75 per pound, at a total cost of $11,143.
In May 2021, the Company purchased copper collar contracts for a total of 43 million pounds of copper with maturity dates ranging from January 2022 to June 2022, with a minimum copper strike price of US$4.00 per pound and a ceiling price of US$5.60 per pound, at a total cost of $4,694.
Details of the outstanding copper price option contracts at June 30, 2021, are summarized in the following table:
| Quantity | Strike price | Period | Fair value | |
|---|---|---|---|---|
| Copper put option contracts | 41 million lbs | US$3.75 per lb | H2 2021 | 2,551 |
| Copper put option contracts | 43 million lbs | US$4.00 per lb | H1 2022 | 13,483 |
| Copper call option contracts | 43 million lbs | US$5.60 per lb | H1 2022 | (3,192) |
| 12,842 |
6. FINANCE EXPENSES
| Three months ended<br>June 30, | Six months ended<br>June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||
| Interest expense | 10,151 | 9,359 | 19,897 | 18,719 | ||||
| Finance expense - deferred revenue (Note 12) | 1,394 | 1,182 | 2,762 | 2,238 | ||||
| Accretion on PER | 104 | (80 | ) | 209 | 275 | |||
| Finance income | (184 | ) | (48 | ) | (259 | ) | (198 | ) |
| Loss on settlement of long-term debt (Note 11a) | - | - | 12,739 | - | ||||
| 11,465 | 10,413 | 35,348 | 21,034 |
As part of the senior secured notes refinancing completed in the first quarter ended March 31, 2021, the Company redeemed its US$250 million senior secured notes on March 3, 2021, which resulted in an accounting loss of $12,739, comprised of $6,941 paid on the call premium, a write-off of deferred financing costs of $4,025 and additional interest costs over the call period of $1,773.
| TASEKO MINES LIMITED<br><br> <br>Notes to Condensed Consolidated Interim Financial Statements<br><br> <br>(Cdn$ in thousands - Unaudited) |
|---|
7. INCOME TAX
| Three months ended<br>June 30, | Six months ended<br>June 30, | ||||
|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | ||
| Current income tax expense | 810 | 644 | 941 | 644 | |
| Deferred income tax (recovery) expense | 6,223 | 3,682 | 1,790 | (6,436 | ) |
| 7,033 | 4,326 | 2,731 | (5,792 | ) |
8. OTHER FINANCIAL ASSETS
| June 30,<br>2021 | December 31,<br>2020 | |
|---|---|---|
| Current: | ||
| Marketable securities | 2,618 | 1,791 |
| Copper price options (Note 5) | 12,842 | 1,514 |
| Fuel call options (Note 5) | - | 278 |
| 15,460 | 3,583 | |
| Long-term: | ||
| Investment in private companies | 1,200 | 1,200 |
| Reclamation deposits | 2,657 | 2,825 |
| Restricted cash | 1,239 | 1,273 |
| 5,096 | 5,298 |
The Company holds strategic investments in publicly traded and privately owned mineral exploration and development companies, including marketable securities and subscription receipts. Marketable securities and the investment in privately owned companies are accounted for at fair value through other comprehensive income (FVOCI).
9. INVENTORIES
| June 30,<br>2021 | December 31,<br>2020 | |
|---|---|---|
| Ore stockpiles | 14,383 | 21,946 |
| Copper contained in concentrate | 5,750 | 7,948 |
| Molybdenum concentrate | 132 | 398 |
| Materials and supplies | 28,000 | 28,549 |
| 48,265 | 58,841 |
During the three months and six months ended June 30, 2021, the Company recorded a recovery of $820 and $4,561, respectively, to adjust the carrying value of ore stockpiles to cost, of which $273 and $1,501, respectively, is recorded in depletion and amortization and the balance in production costs.
| TASEKO MINES LIMITED<br><br> <br>Notes to Condensed Consolidated Interim Financial Statements<br><br> <br>(Cdn$ in thousands - Unaudited) |
|---|
10. PROPERTY, PLANT & EQUIPMENT
The following schedule shows the continuity of property, plant and equipment net book value for the three and six months ended June 30, 2021:
| Three MonthsEnded June 30,<br>2021 | Six MonthsEnded June 30,<br>2021 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Net book value beginning of period | 768,258 | 742,619 | ||||||||
| Additions: | ||||||||||
| Gibraltar capitalized stripping costs | 17,160 | 41,716 | ||||||||
| Gibraltar capital expenditures | 7,670 | 14,114 | ||||||||
| Florence Copper development costs | 7,439 | 17,372 | ||||||||
| Yellowhead development costs | 681 | 1,160 | ||||||||
| Aley development costs | 124 | 168 | ||||||||
| Other items: | ||||||||||
| Right of use assets | 2,323 | 4,252 | ||||||||
| Rehabilitation costs asset | - | 1,082 | ||||||||
| Disposals | (595 | ) | (798 | ) | ||||||
| Foreign exchange translation and other | (2,715 | ) | (5,071 | ) | ||||||
| Depletion and amortization | (20,404 | ) | (36,673 | ) | ||||||
| Net book value at June 30, 2021 | 779,941 | 779,941 | ||||||||
| Net book value | GibraltarMines (75%) | FlorenceCopper | Yellowhead | Aley | Other | Total | ||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| At December 31, 2020 | 504,995 | 203,079 | 18,649 | 13,861 | 2,035 | 742,619 | ||||
| Net additions | 59,322 | 17,334 | 1,160 | 168 | - | 77,984 | ||||
| Changes in rehabilitation cost asset | 1,082 | - | - | - | - | 1,082 | ||||
| Depletion and amortization | (36,488 | ) | 16 | - | - | (201 | ) | (36,673 | ) | |
| Foreign exchange translation and other | - | (5,071 | ) | - | - | - | (5,071 | ) | ||
| At June 30, 2021 | 528,911 | 215,358 | 19,809 | 14,029 | 1,834 | 779,941 |
Non-cash additions to property, plant and equipment include $2,366 and $5,470 of depreciation of capitalized stripping, for the three and six months period ended June 30, 2021, respectively.
Since its acquisition of the Florence Copper Project in November 2014, the Company has incurred and capitalized a total of $120.4 million in project development and other costs, including capitalized interest.
Depreciation related to the right of use assets for the three and six months period ended June 30, 2021 was $944 and $1,886, respectively.
| TASEKO MINES LIMITED<br><br> <br>Notes to Condensed Consolidated Interim Financial Statements<br><br> <br>(Cdn$ in thousands - Unaudited) |
|---|
11. DEBT
| June 30,<br>2021 | December 31,<br>2020 | |
|---|---|---|
| Current: | ||
| Lease liabilities (b) | 10,147 | 8,094 |
| Secured equipment loans (c) | 7,693 | 7,536 |
| Lease related obligations (d) | 2,063 | 1,987 |
| 19,903 | 17,617 | |
| Long-term: | ||
| Senior secured notes (a) | 485,041 | 313,965 |
| Lease liabilities (b) | 10,317 | 11,829 |
| Secured equipment loans (c) | 8,564 | 12,536 |
| Lease related obligations (d) | 6,406 | 7,457 |
| 510,328 | 345,787 | |
| Total debt | 530,231 | 363,404 |
(a) Senior secured notes
On February 10, 2021, the Company completed an offering of US$400 million aggregate principal amount of senior secured notes (the "2026 Notes"). The 2026 Notes mature on February 15, 2026 and bear interest at an annual rate of 7.0%, payable semi-annually on February 15 and August 15. A portion of the proceeds were used to redeem the outstanding US$250 million 8.75% Senior Secured Notes (the "2022 Notes") due on June 15, 2022. The remaining proceeds, net of transaction costs, call premium and accrued interest, of approximately $167 million (US$131 million) are available for capital expenditures, including at its Florence Copper project and Gibraltar mine, working capital and for general corporate purposes.
The 2026 Notes are secured by liens on the shares of Taseko's wholly-owned subsidiary, Gibraltar Mines Ltd., and the subsidiary's rights under the joint venture agreement relating to the Gibraltar mine, as well as the shares of Curis Holdings (Canada) Ltd. and Florence Holdings Inc. The 2026 Notes are guaranteed by each of Taseko's existing and future restricted subsidiaries. The 2026 Notes also allow for up to US$145 million of first lien secured debt to be issued and up to US$50 million of debt for equipment financing, all subject to the terms of the note indenture. The Company is also subject to certain restrictions on asset sales, issuance of preferred stock, dividends and other restricted payments. However, there are no maintenance covenants with respect to the Company's financial performance.
The Company may redeem some or all of the 2026 Notes at any time on or after February 15, 2023, at redemption prices ranging from 103.5% to 100%, plus accrued and unpaid interest to the date of redemption. Prior to February 15, 2023, all or part of the notes may be redeemed at 100%, plus a make-whole premium, plus accrued and unpaid interest to the date of redemption. Until February 15, 2023, the Company may redeem up to 10% of the aggregate principal amount of the notes, at a redemption price of 103%, plus accrued and unpaid interest to the date of redemption. In addition, until February 15, 2023, the Company may redeem up to 40% of the aggregate principal amount of the notes, in an amount not greater than the net proceeds of certain equity offerings, at a redemption price of 107%, plus accrued and unpaid interest to the date of redemption. On a change of control, the 2026 Notes are redeemable at the option of the holder at a price of 101%.
The settlement of the 2022 Notes resulted in an accounting loss of $12,739 (Note 6).
| TASEKO MINES LIMITED<br><br> <br>Notes to Condensed Consolidated Interim Financial Statements<br><br> <br>(Cdn$ in thousands - Unaudited) |
|---|
(b) Lease liabilities
Lease liabilities includes the Company's outstanding lease liabilities under IFRS 16*.*
(c) Secured equipment loans
The equipment loans are secured by existing mining equipment at the Gibraltar mine and commenced between June, 2018 and August of 2019 with monthly repayment terms ranging between 48 and 60 months and with interest rates ranging between 5.2% to 6.4%.
(d) Lease related obligations
Lease related obligations relate to a lease arising under a sale leaseback transaction on certain items of equipment at the Gibraltar mine. The lease commenced in June, 2019 and has a term of 54 months. At the end of the lease term, the Company has an option to renew the term, an option to purchase the equipment at fair market value or option to return the equipment. The lease contains a fixed price early buy-out option exercisable at the end of 48 months.
(e) Debt continuity
The following schedule shows the continuity of total debt for the first six months of 2021:
| Total debt as at December 31, 2020 | 363,404 | |
|---|---|---|
| Settlement of 2022 Notes | (317,225 | ) |
| Foreign exchange gain | (1,075 | ) |
| Write-off of deferred financing charges | 4,025 | |
| Issuance of 2026 Notes | 507,560 | |
| Deferred financing charges | (11,462 | ) |
| Lease additions | 5,764 | |
| Lease liabilities and equipment loans repayments | (9,863 | ) |
| Unrealized foreign exchange gain | (11,954 | ) |
| Amortization of deferred financing charges | 1,057 | |
| Total debt as at June 30, 2021 | 530,231 |
12. DEFERRED REVENUE
On March 3, 2017, the Company entered into a silver stream purchase and sale agreement with Osisko Gold Royalties Ltd. ("Osisko"), whereby the Company received an upfront cash deposit payment of US$33 million for the sale of an equivalent amount of its 75% share of Gibraltar payable silver production until 5.9 million ounces of silver have been delivered to Osisko. After that threshold has been met, 35% of an equivalent amount of Taseko's share of all future payable silver production from Gibraltar will be delivered to Osisko. The Company receives cash payments of US$2.75 per ounce for all silver deliveries made under the agreement.
On April 24, 2020, Taseko entered into an amendment to its silver stream with Osisko and received $8,510 in exchange for reducing the delivery price of silver from US$2.75 per ounce to nil. The amendment is accounted for as a contract modification under IFRS 15 Revenue from Contracts with Customers. The funds received were available for general working capital purposes.
| TASEKO MINES LIMITED<br><br> <br>Notes to Condensed Consolidated Interim Financial Statements<br><br> <br>(Cdn$ in thousands - Unaudited) |
|---|
The Company recorded the deposits from Osisko as deferred revenue and recognizes amounts in revenue as silver is delivered. The amortization of deferred revenue is calculated on a per unit basis using the estimated total number of silver ounces expected to be delivered to Osisko over the life of the Gibraltar mine. The current portion of deferred revenue is an estimate based on deliveries anticipated over the next twelve months.
The following table summarizes changes in the Osisko deferred revenue:
| Balance at December 31, 2020 | 52,758 | |
|---|---|---|
| Finance expense (Note 6) | 2,762 | |
| Amortization of deferred revenue | (2,270 | ) |
| Balance at June 30, 2021 | 53,250 | |
| June 30,<br>2021 | December 31,<br>2020 | |
| --- | --- | --- |
| Current portion of deferred revenue | 7,478 | 5,604 |
| Long-term portion of deferred revenue | 45,772 | 47,154 |
| Total deferred revenue | 53,250 | 52,758 |
13. OTHER FINANCIAL LIABILITIES
| June 30,<br>2021 | December 31,<br>2020 | |
|---|---|---|
| Long-term: | ||
| Deferred share units (Note 14b) | 6,036 | 3,525 |
14. EQUITY
(a) Share capital
The Company's authorized share capital consists of an unlimited number of common shares with no par value.
| Common shares<br>(thousands) | |
|---|---|
| Common shares outstanding at January 1, 2021 | 282,115 |
| Exercise of share options | 1,756 |
| Common shares outstanding at June 30, 2021 | 283,871 |
| TASEKO MINES LIMITED<br><br> <br>Notes to Condensed Consolidated Interim Financial Statements<br><br> <br>(Cdn$ in thousands - Unaudited) | |
| --- |
(b) Share-based compensation
| Options<br>(thousands) | Average price | ||
|---|---|---|---|
| Outstanding at December 31, 2020 | 8,969 | 1.19 | |
| Granted | 2,327 | 1.58 | |
| Exercised | (1,756 | ) | 0.78 |
| Expired | (324 | ) | 2.86 |
| Outstanding at June 30, 2021 | 9,216 | 1.31 | |
| Exercisable at June 30, 2021 | 7,094 | 1.29 |
During the six month period ended June 30, 2021, the Company granted 2,327,000 (2020 - 1,285,000) share options to directors, executives and employees, exercisable at an average exercise price of $1.58 per common share (2020 - $0.69 per common share) over a five year period. The total fair value of options granted was $2,024 (2020 - $475) based on a weighted average grant-date fair value of $0.87 (2020 - $0.37) per option.
The fair value of options was measured at the grant date using the Black-Scholes formula. Expected volatility is estimated by considering historic average share price volatility. The inputs used in the Black-Scholes formula are as follows:
| Six months ended | |
|---|---|
| June 30, 2021 | |
| Expected term (years) | 5 |
| Forfeiture rate | 0% |
| Volatility | 67% |
| Dividend yield | 0% |
| Risk-free interest rate | 0.4% |
| Weighted-average fair value per option | $0.87 |
The Company has other share-based compensation plans in the form of Deferred Share Units ("DSUs") and Performance Share Units ("PSUs").
| DSUs<br>(thousands) | PSUs<br>(thousands) | ||
|---|---|---|---|
| Outstanding at January 1, 2021 | 2,123 | 2,650 | |
| Granted | 198 | 530 | |
| Settled | - | (400 | ) |
| Outstanding at June 30, 2021 | 2,321 | 2,780 |
During the six month period ended June 30, 2021, 198,000 DSUs were issued to directors (2020 - 572,000) and 530,000 PSUs to senior executives (2020 - 825,000). The fair value of DSUs and PSUs granted was $1,235 (2020 - $899), with a weighted average fair value at the grant date of $1.58 per unit for the DSUs (2020 - $0.72 per unit) and $1.74 per unit for the PSUs (2020 - $0.59 per unit).
| TASEKO MINES LIMITED<br><br> <br>Notes to Condensed Consolidated Interim Financial Statements<br><br> <br>(Cdn$ in thousands - Unaudited) |
|---|
Share-based compensation expense is comprised as follows:
| **** | Three months ended<br>June 30, | Six months ended<br>June 30, | ||
|---|---|---|---|---|
| **** | 2021 | 2020 | 2021 | 2020 |
| Share options - amortization | 311 | 178 | 1,497 | 501 |
| Performance share units - amortization | 294 | 295 | 562 | 589 |
| Change in fair value of deferred share units | 1,045 | 848 | 2,511 | 477 |
| 1,650 | 1,321 | 4,570 | 1,567 |
15. COMMITMENTS AND CONTINGENCIES
(a) Commitments
The Company is a party to certain contracts relating to service and supply agreements. Future minimum payments under these agreements as at June 30, 2021 are presented in the following table:
| Remainder of 2021 | 2,341 |
|---|---|
| 2022 | 837 |
| 2023 and thereafter | - |
| Total commitments | 3,178 |
As at June 30, 2021, the Company had outstanding capital commitments of $1,988 (at December 31, 2020 - $2,733).
(b) Contingencies
The Company has guaranteed 100% of certain capital lease and equipment loans entered into by the Gibraltar joint venture in which it holds a 75% interest. As a result, the Company has guaranteed the joint venture partner's 25% share of this debt which amounted to $12,622 as at June 30, 2021.
| TASEKO MINES LIMITED<br><br> <br>Notes to Condensed Consolidated Interim Financial Statements<br><br> <br>(Cdn$ in thousands - Unaudited) |
|---|
16. SUPPLEMENTARY CASH FLOW INFORMATION
| Three months ended<br>June 30, | Six months ended<br>June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||
| Net change in working capital items: | ||||||||
| Accounts receivable | 20,595 | (12,147 | ) | (3,249 | ) | (2,833 | ) | |
| Change in other working capital items: | ||||||||
| Inventories | 2,875 | 6,494 | 8,980 | 3,524 | ||||
| Prepaids | (1,619 | ) | (2,021 | ) | (2,001 | ) | (1,304 | ) |
| Accounts payable and accrued liabilities | 2,097 | (4,989 | ) | (5,178 | ) | (5,043 | ) | |
| Advance payment on product sales | - | (4,467 | ) | - | 2,445 | |||
| Interest payable | 9 | (510 | ) | (2 | ) | 7 | ||
| Income tax payable | - | - | (1,800 | ) | - | |||
| 3,362 | (5,493 | ) | (1 | ) | (371 | ) | ||
| Non-cash investing and financing activities | ||||||||
| Assets acquired under capital lease | 184 | 546 | 1,512 | 1,757 | ||||
| Right-of-use assets | 2,323 | 95 | 4,252 | 1,858 |
17. FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value, by reference to the reliability of the inputs used to estimate the fair values.
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The fair values of the senior secured notes are $519,016 and the carrying value is $485,041 at June 30, 2021. The fair value of all other financial assets and liabilities approximates their carrying value.
The Company has certain financial assets and liabilities that are measured at fair value on a recurring basis and uses the fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value, with Level 1 inputs having the highest priority.
| TASEKO MINES LIMITED<br><br> <br>Notes to Condensed Consolidated Interim Financial Statements<br><br> <br>(Cdn$ in thousands - Unaudited) | ||||
|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | Total | |
| --- | --- | --- | --- | --- |
| June 30, 2021 | ||||
| Financial assets designated as FVPL | ||||
| Derivative asset copper put and call options | - | 12,842 | - | 12,842 |
| - | 12,842 | - | 12,842 | |
| Financial assets designated as FVOCI | ||||
| Marketable securities | 2,618 | - | - | 2,618 |
| Investment in private companies | - | - | 1,200 | 1,200 |
| Reclamation deposits | 2,657 | - | - | 2,657 |
| 5,275 | - | 1,200 | 6,475 | |
| December 31, 2020 | ||||
| Financial assets designated as FVPL | ||||
| Derivative asset copper put options | - | 1,514 | - | 1,514 |
| Derivative asset fuel call options | - | 278 | - | 278 |
| - | 1,792 | - | 1,792 | |
| Financial assets designated as FVOCI | ||||
| Marketable securities | 1,791 | - | - | 1,791 |
| Investment in subscription receipts | - | - | 1,200 | 1,200 |
| Reclamation deposits | 2,825 | - | - | 2,825 |
| 4,616 | - | 1,200 | 5,816 |
There have been no transfers between fair value levels during the reporting period. The carrying value of cash and equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value as at June 30, 2021.
The fair value of the senior secured notes, a Level 1 instrument, is determined based upon publicly available information. The fair value of the lease liabilities and secured equipment loans, Level 2 instruments, are determined through discounting future cash flows at an interest rate of 5.5% based on the relevant loans effective interest rate.
The fair values of Level 2 instruments are based on broker quotes. Similar contracts are traded in an active market and the broker quotes reflect the actual transactions in similar instruments.
The Company's metal concentrate sales contracts are subject to provisional pricing with the selling price adjusted at the end of the quotational period. At each reporting date, the Company's settlement receivable on these contracts are marked-to-market based on a quoted forward price for which there exists an active commodity market. At June 30, 2021 the Company had settlement receivables of $6,485 (December 31, 2020 - $4,676).
The investment in private companies and the subscription receipts, are Level 3 instruments and are valued based on management estimates. As the subscription receipts are an investment in a private exploration and development company, there are no observable market data inputs.
Commodity Price Risk
The Company is exposed to the risk of fluctuations in prevailing market commodity prices on the metals it produces. The Company enters into copper put option contracts to reduce the risk of short-term copper price volatility. The amount and duration of the hedge position is based on an assessment of business-specific risk elements combined with the copper pricing outlook. Copper put option contracts are typically extended adding incremental quarters at established put strike prices to provide the necessary price protection.
| TASEKO MINES LIMITED<br><br> <br>Notes to Condensed Consolidated Interim Financial Statements<br><br> <br>(Cdn$ in thousands - Unaudited) |
|---|
Provisional pricing mechanisms embedded within the Company's sales arrangements have the character of a commodity derivative and are carried at fair value as part of accounts receivable.
The table below summarizes the impact on revenue and receivables for changes in commodity prices on the provisionally invoiced sales volumes.
| As at June 30, | ||
|---|---|---|
| 2021 | ||
| Copper increase/decrease by US $0.43/lb.^1^ | $ | 8,831 |
^1^The analysis is based on the assumption that the period end copper price increases 10% with all other variables held constant. At June 30, 2021, 16.5 million pounds of copper in concentrate were exposed to copper price movements. The closing exchange rate at June 30, 2021 of CAD/USD 1.2394 was used in the analysis.
The sensitivities in the above table have been determined with foreign currency exchange rates held constant. The relationship between commodity prices and foreign currencies is complex and movements in foreign exchange can impact commodity prices. The sensitivities should therefore be used with care.
Taseko Mines Limited: Exhibit 99.2 - Filed by newsfilecorp.com
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis |
|---|
This management's discussion and analysis ("MD&A") is intended to help the reader understand Taseko Mines Limited ("Taseko", "we", "our" or the "Company"), our operations, financial performance, and current and future business environment. This MD&A is intended to supplement and complement the consolidated financial statements and notes thereto, prepared in accordance with IAS 34 of International Financial Reporting Standards ("IFRS") for the three and six months ended June 30, 2021 (the "Financial Statements"). You are encouraged to review the Financial Statements in conjunction with your review of this MD&A and the Company's other public filings, which are available on the Canadian Securities Administrators' website at www.sedar.com and on the EDGAR section of the United States Securities and Exchange Commission's ("SEC") website at www.sec.gov.
This MD&A is prepared as of August 4, 2021. All dollar figures stated herein are expressed in Canadian dollars, unless otherwise specified. Included throughout this MD&A are references to Non-GAAP performance measures which are denoted with an asterisk and further explanation including their calculations are provided on page 22.
Cautionary Statement on Forward-Looking Information
This discussion includes certain statements that may be deemed "forward-looking statements". All statements in this discussion, other than statements of historical facts, that address future production, reserve potential, exploration drilling, exploitation activities, and events or developments that the Company expects are forward-looking statements. Although we believe the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include market prices, global economic events arising from the coronavirus (COVID-19) pandemic outbreak, exploitation and exploration successes, continued availability of capital and financing and general economic, market or business conditions. Investors are cautioned that any such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements. All of the forward-looking statements made in this MD&A are qualified by these cautionary statements. We disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except to the extent required by applicable law. Further information concerning risks and uncertainties associated with these forward-looking statements and our business may be found in the Company's other public filings with the SEC and Canadian provincial securities regulatory authorities.
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis |
|---|
CONTENTS
| OVERVIEW | 3 |
|---|---|
| HIGHLIGHTS | 3 |
| REVIEW OF OPERATIONS | 5 |
| GIBRALTAR OUTLOOK | 6 |
| FLORENCE COPPER | 6 |
| ANNUAL ESG REPORT | 7 |
| PERSONNEL UPDATE | 8 |
| LONG-TERM GROWTH STRATEGY | 8 |
| MARKET REVIEW | 9 |
| FINANCIAL PERFORMANCE | 10 |
| FINANCIAL CONDITION REVIEW | 15 |
| SUMMARY OF QUARTERLY RESULTS | 19 |
| CRITICAL ACCOUNTING POLICIES AND ESTIMATES | 19 |
| INTERNAL AND DISCLOSURE CONTROLS OVER FINANCIAL REPORTING | 20 |
| KEY MANAGEMENT PERSONNEL | 20 |
| NON-GAAP PERFORMANCE MEASURES | 22 |
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis | |
| --- |
OVERVIEW
Taseko is a copper focused mining company that seeks to create long-term shareholder value by acquiring, developing, and operating large tonnage mineral deposits in stable jurisdictions which are capable of supporting a mine for decades. The Company's principal operating asset is the 75% owned Gibraltar mine, which is located in central British Columbia and is one of the largest copper mines in North America. Taseko also owns Florence Copper, which is advancing towards construction with commercial production expected in 2023, as well as the Yellowhead copper, New Prosperity gold-copper, and Aley niobium projects.
HIGHLIGHTS
| Operating Data (Gibraltar - 100% basis) | Three months ended June 30, | Six months ended June 30, | ||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | Change | 2021 | 2020 | Change | |||
| Tons mined (millions) | 24.9 | 20.5 | 4.4 | 56.9 | 49.0 | 7.9 | ||
| Tons milled (millions) | 7.2 | 7.7 | (0.5 | ) | 14.4 | 15.2 | (0.8 | ) |
| Production (million pounds Cu) | 26.8 | 36.8 | (10.0 | ) | 49.0 | 69.2 | (20.2 | ) |
| Sales (million pounds Cu) | 26.7 | 39.3 | (12.6 | ) | 48.7 | 70.4 | (21.7 | ) |
| Financial Data | Three months ended June 30, | Six months ended June 30, | ||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (Cdn$ in thousands, except for per share amounts) | 2021 | 2020 | Change | 2021 | 2020 | Change | ||
| Revenues | 111,002 | 106,005 | 4,997 | 197,743 | 168,089 | 29,654 | ||
| Earnings from mining operations before depletion and amortization^*^ | 54,482 | 50,336 | 4,146 | 84,795 | 56,259 | 28,536 | ||
| Cash flows provided by operations | 72,502 | 37,079 | 35,423 | 69,219 | 54,750 | 14,469 | ||
| Adjusted EBITDA^*^ | 47,732 | 50,860 | (3,128 | ) | 71,454 | 56,206 | 15,248 | |
| Adjusted net income (loss)^*^ | 9,948 | 8,335 | 1,613 | 4,414 | (13,312 | ) | 17,726 | |
| Per share - basic ("adjusted EPS")^*^ | 0.04 | 0.03 | 0.01 | 0.02 | (0.05 | ) | 0.07 | |
| Net income (loss) (GAAP) | 13,442 | 18,745 | (5,303 | ) | 2,225 | (30,205 | ) | 32,430 |
| Per share - basic ("EPS") | 0.05 | 0.08 | (0.03 | ) | 0.01 | (0.12 | ) | 0.13 |
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis | ||||||||
| --- |
Second Quarter Review
- Second quarter earnings from mining operations before depletion and amortization* was $54.5 million, Adjusted EBITDA* was $47.7 million and Adjusted net income* was $9.9 million ($0.04 per share);
- Cash flows from operations was $72.5 million and the Company's cash balance at June 30, 2021 was $225.7 million;
- Site operating costs, net of by-product credits* were US$1.77 per pound produced, and total operating costs (C1)* were US$2.02 per pound produced;
- The Gibraltar mine produced 26.8 million pounds of copper in the second quarter. Copper recoveries were 83.3% and copper head grades were 0.22%. Mining operations transitioned into higher-grade benches in the Pollyanna pit in the latter part of the quarter which resulted in a 20% increase in copper production over the first quarter, in line with management expectations;
- Gibraltar sold 26.7 million pounds of copper in the quarter (100% basis) which resulted in $105.5 million of revenue for Taseko. Average LME copper prices were US$4.40 per pound in the quarter;
- In June, Gibraltar's long-term offtake agreement for copper concentrate was extended with treatment and refining costs priced within a range of a 40% to 50% discount to benchmark levels, reflecting the high quality of Gibraltar concentrate;
- Detailed engineering and design of the commercial facility at Florence Copper is now 60% complete and the Company is preparing to make initial deposits for major processing equipment associated with the solvent extraction and electrowinning ("SX/EW") plant, which will allow Florence Copper to efficiently advance construction activities upon receipt of the Underground Injection Control ("UIC") permit. The Company expects a draft UIC permit to be issued in the third quarter which will be followed by a public comment period;
- During the quarter, the Company extended its copper price protection strategy by purchasing copper collars for the first half of 2022 which secure a minimum copper price of US$4.00 per pound and a ceiling price of US$5.60 per pound for 43 million pounds of copper. These 2022 collar contracts supplement the existing put option protection at US$3.75 per pound in place for the second half of 2021 for 41 million pounds of copper; and
- In July 2021, the Company entered into an agreement to sell the Harmony Gold Project ("Harmony") to JDS Gold Inc. ("JDS Gold"), a newly incorporated company controlled by JDS Energy & Mining Inc. and affiliates. Under the terms of the agreement, JDS Gold will become the owner and operator of Harmony, a high-grade development-stage gold project located on Graham Island in Haida Gwaii. The Company retains a 2% net smelter return royalty in Harmony and a 15% carried interest in JDS Gold.
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis |
|---|
REVIEW OF OPERATIONS
Gibraltar mine (75% Owned)
| Operating data (100% basis) | Q2 2021 | Q1 2021 | Q4 2020 | Q3 2020 | Q2 2020 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Tons mined (millions) | 24.9 | 32.0 | 26.4 | 23.3 | 20.5 | |||||||||
| Tons milled (millions) | 7.2 | 7.2 | 7.5 | 7.5 | 7.7 | |||||||||
| Strip ratio | 2.3 | 6.0 | 1.9 | 1.5 | 1.9 | |||||||||
| Site operating cost per ton milled (CAD)* | 9.16 | $ | 8.73 | $ | 11.67 | $ | 9.57 | $ | 7.66 | |||||
| Copper concentrate | ||||||||||||||
| Head grade (%) | 0.22 | 0.19 | 0.20 | 0.23 | 0.28 | |||||||||
| Copper recovery (%) | 83.3 | 81.5 | 83.3 | 85.0 | 85.2 | |||||||||
| Production (million pounds Cu) | 26.8 | 22.2 | 25.0 | 28.9 | 36.8 | |||||||||
| Sales (million pounds Cu) | 26.7 | 22.0 | 25.0 | 28.6 | 39.3 | |||||||||
| Inventory (million pounds Cu) | 3.5 | 3.6 | 3.4 | 3.6 | 3.8 | |||||||||
| Molybdenum concentrate | ||||||||||||||
| Production (thousand pounds Mo) | 402 | 530 | 549 | 668 | 639 | |||||||||
| Sales (thousand pounds Mo) | 455 | 552 | 487 | 693 | 656 | |||||||||
| Per unit data (US per pound produced)* | ||||||||||||||
| Site operating costs* | 2.02 | $ | 2.23 | $ | 2.67 | $ | 1.85 | $ | 1.15 | |||||
| By-product credits* | (0.25 | ) | (0.27 | ) | (0.14 | ) | (0.14 | ) | (0.11 | ) | ||||
| Site operating costs, net of by-product credits* | 1.77 | $ | 1.96 | $ | 2.53 | $ | 1.71 | $ | 1.04 | |||||
| Off-property costs | 0.25 | 0.27 | 0.29 | 0.29 | 0.30 | |||||||||
| Total operating costs (C1)* | 2.02 | $ | 2.23 | $ | 2.82 | $ | 2.00 | $ | 1.34 |
All values are in US Dollars.
Second Quarter Review
Copper production in the second quarter was 26.8 million pounds and improved 20% from the first quarter as higher ore grades were mined and processed from the Pollyanna pit in the latter part of the quarter. Copper recoveries also improved with the increasing ore grade.
A total of 24.9 million tons were mined in the second quarter in line with the mine plan. Mining rates and strip ratio were lower than the first quarter, which saw shorter hauling distances in the upper benches of the Pollyanna pit. In addition to longer hauls in the second quarter, mining rates were also impacted by a temporary layoff of mining personnel due to permitting delays. Initial waste stripping and dewatering of the Gibraltar pit commenced in May after receipt of the required permit.
Total site spending (including capitalized stripping of $14.8 million on a 75% basis) was generally consistent with the prior quarter. Capitalized stripping in the quarter decreased from the first quarter as a result of the lower strip ratio. Capital expenditures of $8.0 million on a 75% basis in the second quarter was higher than the first quarter due to timing of routine maintenance.
Molybdenum production was 402 thousand pounds in the second quarter. Molybdenum prices strengthened in the second quarter and reached a high of just over US$20.00 per pound in late June. The average price of US$14.32 per pound was a $3.00 per pound increase from the first quarter. By-product credits per pound of copper produced* was US$0.25 in the second quarter, a decrease over the prior quarter due primarily to an increase in copper pounds produced.
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis |
|---|
Off-property costs per pound produced* were US$0.25 for the second quarter and lower than prior quarters due to the benefit of lower treatment and refining charges ("TCRC") on Gibraltar's offtake contracts. In addition, the Company delivered a tender shipment in the quarter at one of the lowest TCRC levels ever seen by the Gibraltar mine.
Total operating costs per pound produced (C1)* were US$2.02 for the quarter. Contributing to the decrease in C1* costs was significantly increased copper production compared to the first quarter, partially offset by lower capitalized stripping costs and a weaker US dollar in the second quarter.
GIBRALTAR OUTLOOK
Mining will continue to be focused on the Pollyanna pit which will be the main source of ore in 2021. Ore release from the Gibraltar pit will commence in the second half of the year. Total copper production in the second half of 2021 is expected to be at least 40% higher than the first half of the year, as higher-grade areas in Pollyanna are opened up and available for processing. Due to the lower production at the start of 2021, annual production is now anticipated to be approximately 120 million pounds, which is within the typical +/- 5% range for annual guidance.
Copper prices rallied to record levels in the second quarter and are currently around US$4.31 per pound. The current copper price and expected production growth is supportive of improved financial performance at the Gibraltar mine over the remainder of 2021.
Many governments are now focusing on increased infrastructure investment to stimulate economic recovery after the pandemic, including green initiatives, which will require new primary supplies of copper. Most industry analysts are projecting ongoing supply constraints and deficits, which should support these higher copper prices in the years to come.
In March 2021, the Company extended its copper price protection strategy by purchasing put options covering 41 million pounds of copper at a strike price of US$3.75 per pound for the second half of 2021. The Company has also purchased copper collars to secure a minimum copper price of US$4.00 per pound for 43 million pounds of copper for the first half of 2022. This approach to managing copper price volatility provides security over the Company's cash flow as it prepares for construction of Florence Copper while providing significant upside should copper prices continue at these levels or increase further.
FLORENCE COPPER
The commercial production facility at Florence Copper will be one of the greenest sources of copper for US domestic consumption, with carbon emissions, water and energy consumption all dramatically lower than a conventional mine. It is a unique low-cost copper project that will have an annual production capacity of 85 million pounds of copper over a 21-year mine life. With the expected C1* operating cost of US$1.10 per pound, Florence Copper will also be in the lowest quartile of the global copper cost curve. The Company has successfully operated a Production Test Facility ("PTF") for the last two years at Florence to demonstrate that the in-situ copper recovery ("ISCR") process can produce high quality cathode while operating within permit conditions.
The next phase of Florence Copper will be the construction and operation of the commercial ISCR facility with an estimated capital cost of US$230 million (including reclamation bonding and working capital). At a conservative copper price of US$3.00 per pound, Florence Copper is expected to generate an after-tax internal rate of return of 37%, an after-tax net present value of US$680 million at a 7.5% discount rate, and an after-tax payback period of 2.5 years.
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis |
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In December 2020, the Company received the Aquifer Protection Permit ("APP") from the Arizona Department of Environmental Quality ("ADEQ"). During the APP process, Florence Copper received strong support from local community members, business owners and elected officials. The other required permit is the UIC permit from the U.S. Environmental Protection Agency ("EPA"). The EPA's technical review for the UIC permit has not identified any issues and the Company expects to receive the draft UIC permit in the third quarter followed by a public comment period.
Detailed engineering and design for the commercial production facility is now 60% complete and the Company is preparing to make initial deposits for major processing equipment associated with the SX/EW plant starting in the third quarter to ensure a smooth and efficient transition into construction once the final UIC permit is received.
With a cash balance of $226 million at the end of June, the Company has the majority of the required funding for construction of the commercial facility at Florence Copper in hand. Coupled with stronger expected operating cash flows from Gibraltar due to higher prevailing copper prices, the Company has numerous options available to obtain any remaining funding.
ANNUAL ESG REPORT
The Company published its annual Environmental, Social, and Governance ("ESG") Report, titled 'Sustainability: Our Low Carbon Future' (the "Report") in the quarter, highlighting Taseko's sustainability performance for 2020.
In this year's Report, Taseko has reported Scope 1 and 2 greenhouse gas emissions for Gibraltar which shows that the mine ranks in the first quartile of all copper mines globally. When commercial operations at Florence Copper commence, the Company's combined greenhouse gas emissions intensity will drop even lower, to an estimated 1.53 tonnes of carbon dioxide equivalent ("CO2e") per tonne of copper equivalent, based on an independent analysis by Skarn Associates.
Sustainability report highlights:
- Rigorous health and safety protocols enabled operations to continue at Gibraltar and at Florence Copper during the COVID-19 pandemic;
- Recognition from the British Columbia Technical and Research Committee on Reclamation with the Jake McDonald Award for outstanding work in mine reclamation and Indigenous collaboration;
- Outstanding safety performance at Gibraltar with zero loss time incidents, zero days lost, zero loss time severity, and zero loss time frequency;
- Continued commitment to a diverse workforce that reflects the communities in which we operate. In 2020 28% of the new hires at Taseko were female and 15% were Indigenous people;
- A priority on securing local goods and services with $116 million and US$2.5 million being distributed to local suppliers from Gibraltar and Florence Copper, respectively; $72 million and US$2.1 million was distributed in wages to local employees from Gibraltar and Florence Copper, respectively;
- Low Scope 1 and 2 greenhouse gas emission of 1.66 tonnes of CO2e per tonnes of copper produced equivalent and 0.09 tonnes of CO2e per tonne of copper equivalent produced, respectively; and
- Continued discussions with our Indigenous neighbours, that included a Framework Agreement with a local Indigenous Nation to begin discussions on the Yellowhead Copper Project, as well as an extension to the standstill agreement with Tŝilhqot'in Nation as both parties seek a long-term solution to the conflict regarding New Prosperity.
The full Report can be viewed and downloaded at www.tasekomines.com/esg/overview.
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis |
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On May 4, 2021, the Gibraltar mine was awarded the prestigious 2020 John Ash Safety Award presented by the Ministry of Energy and Mines for having the lowest injury-frequency rate of any large mine in British Columbia. This is the fifth time Gibraltar has won this award over the last seven years.
PERSONNEL UPDATE
Russell Hallbauer, Chief Executive Officer, retired at the end of June 2021 and will remain a Director of the Company. Stuart McDonald, President of the Company since 2019, also assumed the role of Chief Executive Officer on July 1st.
John McManus, Chief Operating Officer, and Brian Battison, Vice President of Corporate Affairs, both retired at the end of June 2021. Richard Tremblay was promoted to Senior Vice President, Operations and will oversee all operational and engineering matters for the Company. Richard Weymark was appointed Vice President, Engineering.
LONG-TERM GROWTH STRATEGY
Taseko's strategy has been to grow the Company by acquiring and developing a pipeline of complementary projects focused on copper in stable mining jurisdictions. We continue to believe this will generate long-term returns for shareholders. Our other development projects are focused primarily on copper and are located in British Columbia.
Yellowhead Copper Project
Yellowhead Mining Inc. ("Yellowhead") has an 817 million tonnes reserve and a 25-year mine life with a pre-tax net present value of $1.3 billion at an 8% discount rate using a US$3.10 per pound copper price. Capital costs of the project are estimated at $1.3 billion over a 2-year construction period. Over the first 5 years of operation, the copper equivalent grade will average 0.35% producing an average of 200 million pounds of copper per year at an average C1* cost, net of by-product credit, of US$1.67 per pound of copper. The Yellowhead Copper project contains valuable precious metal by-products with 440,000 ounces of gold and 19 million ounces of silver with a life of mine value of over $1 billion at current prices.
The Company is focusing its current efforts on advancing the environmental assessment and some additional engineering work in conjunction with ongoing engagement with local communities including First Nations. A focus group has been formed between the Company and high-level regulators in the appropriate Provincial ministries in order to expedite the advancement of the environmental assessment and the permitting of the project.
New Prosperity Gold-Copper Project
In late 2019, the Tŝilhqot'in Nation, as represented by Tŝilhqot'in National Government, and Taseko entered into a confidential dialogue, facilitated by the Province of British Columbia, to try to obtain a long-term solution to the conflict regarding Taseko's proposed gold-copper mine currently known as New Prosperity, acknowledging Taseko's commercial interests and the Tŝilhqot'in Nation's opposition to the project. The dialogue was supported by the parties' agreement on December 7, 2019 to a one-year standstill on certain outstanding litigation and regulatory matters that relate to Taseko's tenures and the area in the vicinity of Teẑtan Biny (Fish Lake).
The COVID-19 pandemic delayed the commencement of the dialogue, but the Tŝilhqot'in Nation, the Province of British Columbia and Taseko have made progress in establishing a constructive dialogue. In December 2020, the parties agreed to extend the standstill for a further year to continue this dialogue.
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis |
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Aley Niobium Project
Environmental monitoring and product marketing initiatives on the Aley Niobium project continue. The pilot plant program has successfully completed the niobium flotation process portion of the test, raising confidence in the design and providing feed to the converter portion of the process. Completion of the converter pilot test, which is underway, will provide additional process data to support the design of the commercial process facilities and provide final product samples for marketing purposes.
MARKET REVIEW
Prices (USD per pound for Commodities)
(Source Data: Bank of Canada, Platts Metals, and London Metals Exchange)
Copper prices are currently around US$4.31 per pound with continued upside amongst a bullish market backdrop and sentiment. After a dramatic but short-lived drop in copper prices with the onset of COVID-19 in March of 2020, copper prices have dramatically recovered and reached record levels in May. Supply challenges caused by the pandemic and political uncertainty, particularly in Peru and Chile where the largest copper mines in the world are located, saw curtailed operations and project delays which continue to impact supply in 2021. Material changes to taxes and royalty rates in these countries and threats of strikes and civil unrest remain a risk to supply in the near term. At the same time, Chinese demand recovered swiftly in the second half of 2020 with significant restocking taking place resulting in an estimated 2020 deficit of copper of over 500,000 tonnes, the highest in more than a decade. Focus in 2021 is now turning to the expected demand growth and inflation arising from the expected economic recovery in North America and Europe resulting from unprecedented stimulus measures being implemented by central governments. The rollout of vaccine programs should improve the remaining 2021 global demand outlook, further pressuring the copper supply deficit. While some analysts predict a balance by 2023, the longer-term outlook for copper is also favourable with the focus on government investment in construction and infrastructure including initiatives focused on green sources of power and the electrification of transportation which are inherently copper intensive. This increased demand for copper after years of under investment by the industry in new mine supply is expected to support strong copper prices into the middle and latter part of this decade.
The average molybdenum price was US$14.32 per pound during the second quarter of 2021, compared to US$11.32 per pound in the first quarter of 2021. Recent molybdenum prices have reached decade high levels at over US$20.00 per pound in June and are currently around US$18.00 per pound, driven by steel demand from the global recovery and a long awaited rebound in the oil and gas sector. The Company's sales agreements specify molybdenum pricing based on the published Platts Metals reports.
Approximately 80% of the Gibraltar mine's costs are Canadian dollar denominated and therefore, fluctuations in the Canadian/US dollar exchange rate can have a significant effect on the Company's operating results and unit production costs, which are earned and in some cases reported in US dollars. Overall, the Canadian dollar modestly strengthened by approximately 2.7% during the first half of 2021 although rising US bond yields and expected rate increases in the future have strengthened the US dollar since the quarter end.
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis |
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FINANCIAL PERFORMANCE
Earnings
| Three months ended<br>June 30, | Six months ended<br>June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Cdn$ in thousands) | 2021 | 2020 | Change | 2021 | 2020 | Change | ||||||
| Net income (loss) | 13,442 | 18,745 | (5,303 | ) | 2,225 | (30,205 | ) | 32,430 | ||||
| Net unrealized foreign exchange (gain) loss | (3,764 | ) | (12,985 | ) | 9,221 | 5,034 | 16,762 | (11,728 | ) | |||
| Realized foreign exchange gain on settlement of long-term debt | - | - | - | (13,000 | ) | - | (13,000 | ) | ||||
| Loss on settlement of long-term debt | - | - | - | 12,739 | - | 12,739 | ||||||
| Unrealized loss on derivative instruments | 370 | 3,528 | (3,158 | ) | 1,172 | 180 | 992 | |||||
| Estimated tax effect of adjustments | (100 | ) | (953 | ) | 853 | (3,756 | ) | (49 | ) | (3,707 | ) | |
| Adjusted net income (loss) ^*^ | 9,948 | 8,335 | 1,613 | 4,414 | (13,312 | ) | 17,726 |
The Company's adjusted net income was $9.9 million ($0.04 per share) for the three months ended June 30, 2021, compared to adjusted net income of $8.3 million ($0.03 per share) for the same period in 2020. The increased adjusted net income in the current period was primarily due to greater earnings from mining operations before depletion and amortization* which was $54.5 million for the current quarter compared to $50.3 million for the same period in 2020. During the second quarter of 2021, earnings from mining operations was positively impacted by the higher average LME copper price of US$4.40 per pound, an increase of 81% over the second quarter of 2020, an increase in waste stripping costs being capitalized, and lower depletion and amortization expense. These improvements were partially offset by lower sales volumes of copper concentrate due to the lower grade ore being processed from the Pollyanna pit compared to the last phases of the Granite pit. After inclusion of unrealized foreign exchange gains on the outstanding senior secured notes and unrealized losses on derivative instruments, the Company's net income was $13.4 million ($0.05 per share) for the three months ended June 30, 2021, compared to net income of $18.7 million ($0.08 per share) for the same period in 2020.
The Company's adjusted net income was $4.4 million ($0.02 per share) for the six months ended June 30, 2021, compared to an adjusted net loss of $13.3 million ($0.05 loss per share) for the same period in 2020. The increased adjusted net income in the current six month period was primarily due to greater earnings from mining operations before depletion and amortization* which was positively impacted by the higher average copper price which more than offset the lower copper production and sales in the first six months of 2021 compared to the same period in 2020. Net income was also positively impacted by lower depletion and amortization expense partially offset by the realized gain on copper puts in first half of 2020 compared to a realized loss on copper puts purchased covering sales for the first half of 2021.
The Company's GAAP net income can be materially impacted by the foreign currency translation of the Company's US dollar denominated senior secured notes. The $3.8 million net unrealized foreign exchange gain in the current three month period relates to the weakening US dollar impact on the new 2026 senior secured notes issued in February.
Net loss (GAAP) for the first half of 2020 was impacted by the sharp decrease in the Canadian dollar following the onset of COVID-19 which resulted in an unrealized foreign exchange loss of $16.8 million for the six months ended June 30, 2020, compared to a weakening US dollar trend in the six months ended June 30, 2021 which reported a $7.5 million net foreign exchange gain, of which $13.0 million was realized on repayment of the 2022 senior secured notes ("2022 Notes"). The $12.7 million settlement loss recorded upon repayment of the 2022 Notes from the February 2022 Note refinancing also decreased GAAP net income in the six months ended June 30, 2021.
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis |
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No adjustments are made to adjusted net income (loss) for positive or negative provisional price adjustments in the quarter as these adjustments normalize or reverse throughout the year.
Revenues
| Three months ended<br>June 30, | Six months ended<br>June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Cdn$ in thousands) | 2021 | 2020 | Change | 2021 | 2020 | Change | ||||||
| Copper contained in concentrate | 102,571 | 95,786 | 6,785 | 181,321 | 171,714 | 9,607 | ||||||
| Molybdenum concentrate | 5,544 | 5,615 | (71 | ) | 11,230 | 9,457 | 1,773 | |||||
| Silver | 738 | 968 | (230 | ) | 1,465 | 1,964 | (499 | ) | ||||
| Price adjustments on settlement receivables | 4,807 | 10,489 | (5,682 | ) | 9,748 | (2,471 | ) | 12,219 | ||||
| Total gross revenue | 113,660 | 112,858 | 802 | 203,764 | 180,664 | 23,100 | ||||||
| Less: treatment and refining costs | (2,658 | ) | (6,853 | ) | 4,195 | (6,021 | ) | (12,575 | ) | 6,554 | ||
| Revenue | 111,002 | 106,005 | 4,997 | 197,743 | 168,089 | 29,654 | ||||||
| (thousands of pounds, unless otherwise noted) | ||||||||||||
| Sales of copper in concentrate^*^^*^ | 19,280 | 28,436 | (9,156 | ) | 35,199 | 50,913 | (15,714 | ) | ||||
| Average realized copper price (US$ per pound) | 4.48 | 2.70 | 1.78 | 4.31 | 2.42 | 1.89 | ||||||
| Average LME copper price (US$ per pound) | 4.40 | 2.43 | 1.97 | 4.12 | 2.49 | 1.63 | ||||||
| Average exchange rate (US$/CAD) | 1.23 | 1.39 | (0.16 | ) | 1.25 | 1.37 | (0.12 | ) |
** This amount includes a net smelter payable deduction of approximately 3.5% to derive net payable pounds of copper sold.
Copper revenues for the three months ended June 30, 2021 increased by $6.8 million compared to the same period in 2020, primarily due to higher prevailing LME copper prices by US$1.97 per pound in the current quarter, partially offset by decreases in the volume of payable copper sold by 9.2 million pounds (75% basis). The Company also recognized positive net price adjustments of $3.0 million for provisionally priced copper concentrate due to increasing copper price trends following shipment. Partially offsetting the higher copper price this quarter was the weakening US dollar, which decreased 12% from the prior year average exchange rate.
Copper revenues for the six months ended June 30, 2021 increased by $9.6 million compared to the same period in 2020, primarily due to higher prevailing LME copper prices by US$1.63 per pound in the current period, partially offset by decreases in the volume of payable copper sold by 15.7 million pounds (75% basis). The Company also recognized positive net price adjustments of $6.5 million, for provisionally priced copper concentrate due to increasing copper price trends following shipment, compared to negative price adjustments of $3.5 million in the prior year period which reflected the sharp drop in the copper price seen last March with the onset of COVID-19. Partially offsetting the higher copper price for the six months ended June 30, 2021 was the weakening US dollar.
Molybdenum revenues for the three months ended June 30, 2021 decreased by $0.1 million compared to the same period in 2020, as the impact of higher average molybdenum prices of US$14.32 per pound, compared to US$8.37 per pound for the same prior period was offset by the lower molybdenum sales volumes by 151 thousand pounds (75% basis). During the three months ended June 30, 2021, positive net price adjustments of $1.8 million were recorded for provisionally priced molybdenum concentrate due to the rising molybdenum price.
Molybdenum revenues for the six months ended June 30, 2021 increased by $1.8 million compared to the same period in 2020, primarily due to higher average molybdenum prices of US$12.80 per pound, compared to US$9.02 per pound for the same prior period, partially offset by lower molybdenum sales volumes by 39 thousand pounds (75% basis). During the six months ended June 30, 2021, positive net price adjustments of $3.2 million were recorded for provisionally priced molybdenum concentrate.
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis |
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Cost of sales
| Three months ended<br>June 30, | Six months ended<br>June 30, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Cdn in thousands) | 2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||
| Site operating costs | 49,753 | 44,032 | 5,721 | 96,909 | 97,579 | (670 | ) | ||||||||
| Transportation costs | 4,303 | 5,834 | (1,531 | ) | 7,608 | 10,353 | (2,745 | ) | |||||||
| Changes in inventories of finished goods | 4,723 | 5,753 | (1,030 | ) | 2,464 | 4,451 | (1,987 | ) | |||||||
| Changes in inventories of ore stockpiles | (2,259 | ) | 50 | (2,309 | ) | 5,967 | (553 | ) | 6,520 | ||||||
| Production costs | 56,520 | 55,669 | 851 | 112,948 | 111,830 | 1,118 | |||||||||
| Depletion and amortization | 17,536 | 25,512 | (7,976 | ) | 33,374 | 52,660 | (19,286 | ) | |||||||
| Cost of sales | 74,056 | 81,181 | 7,125 | 146,322 | 164,490 | (18,168 | ) | ||||||||
| Site operating costs per ton milled* | 9.16 | $ | 7.66 | $ | 1.50 | $ | 8.95 | $ | 8.58 | $ | 0.37 |
All values are in US Dollars.
Site operating costs for the three months ended June 30, 2021 increased by $5.7 million, compared to the same prior period primarily due to 21% more tons being mined, partially offset by greater mining costs being capitalized in 2021 ($14.8 million) compared to 2020 ($7.4 million) due to the higher strip ratio. Fuel and other input cost savings also reduced site costs in the second quarter of 2020. Transportation costs decreased from the prior year due to lower copper concentrate shipment volumes.
Cost of sales is also impacted by changes in copper concentrate inventories and ore stockpiles. Finished copper inventory decreased by $1.0 million in the second quarter due to both a decrease in finished inventory by 0.1 million pounds over the second quarter and a lower average production cost per pound due to increased copper production compared to the first quarter of 2021. There was also an increase of 0.3 million tons in the ore stockpiles in the current quarter as well as a recovery to adjust the carrying value to its cost given the rise in net realizable value during the quarter, which resulted in a decrease in production costs of $2.3 million. For the six months ended June 30, 2021, there was an overall decrease of 2.4 million tons in the ore stockpiles during the first half of 2021, which resulted in an increase in production costs of $6.0 million.
Depletion and amortization for the three and six months ended June 30, 2021 decreased by $8.0 million and $19.3 million over the same prior periods. Ore tons that were mined from the Granite pit in the first half of 2020 had a higher depreciation cost per ton compared to the current ore being mined from the Pollyanna pit.
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis |
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Other operating (income) expenses
| Three months ended<br>June 30, | Six months ended<br>June 30, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Cdn$ in thousands) | 2021 | 2020 | Change | 2021 | 2020 | Change | |||||
| General and administrative | 5,166 | 2,900 | 2,266 | 10,462 | 6,798 | 3,664 | |||||
| Share-based compensation expense | 1,608 | 1,297 | 311 | 4,398 | 1,481 | 2,917 | |||||
| Project evaluation expenditures | 136 | 153 | (17 | ) | 448 | 310 | 138 | ||||
| Realized (gain) loss on derivative instruments | 1,709 | (2,641 | ) | 4,350 | 2,898 | (5,148 | ) | 8,046 | |||
| Unrealized loss on derivative instruments | 370 | 3,528 | (3,158 | ) | 1,172 | 180 | 992 | ||||
| Other income, net | (444 | ) | (412 | ) | (32 | ) | (796 | ) | (807 | ) | 11 |
| 8,545 | 4,825 | 3,720 | 18,582 | 2,814 | 15,768 |
General and administrative expenses have increased in the three and six months ended June 30, 2021, compared to the same prior periods, primarily due to employment and consulting services provided by retiring executives as part of the Company's succession plan.
Share-based compensation expense is comprised of the amortization of share options and performance share units and the expense on deferred share units. Share-based compensation expense increased for the three and six months ended June 30, 2021, compared to the same prior periods, primarily due to the revaluation of the liability for deferred share units resulting from an increase in the Company's share price during the periods. More information is set out in Note 14 of the June 30, 2021 Financial Statements.
During the three months ended June 30, 2021, the Company realized a loss of $1.7 million for premiums paid for copper put options covering second quarter production at a strike price of US$3.20 per pound that settled out-of-the-money during the period. The realized gain of $2.6 million in the second quarter of 2020 primarily relates to copper put options with a strike price of US$2.60 per pound that settled in-the-money during that period when copper prices dropped in April 2020 following the onset of COVID-19. For the three months ended June 30, 2021, the net unrealized loss of $0.4 million relates to the fair value adjustments on the outstanding copper put and collars. The net unrealized loss of $3.5 million in the second quarter of 2020 relates substantially to the fair value adjustment for copper put options that expired in the three months ended June 30, 2020.
During the six months ended June 30, 2021, the Company realized a net loss of $2.9 million for its derivatives instruments, which consists of $3.4 million for premiums paid for copper put options that settled out-of-the-money during the period and a $0.5 million gain on fuel call options. The net realized gain of $5.1 million in the first half of 2020 relates primarily to copper put options that settled in the money during the period. For the six months ended June 30, 2021, the net unrealized loss of $1.2 million relates substantially to outstanding copper options. The net unrealized loss of $0.2 million in the first half of 2020 relates to the fair value adjustments on outstanding fuel call options.
Project evaluation expenditures represent costs associated with the New Prosperity project.
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis |
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Finance expenses and income
| Three months ended<br>June 30, | Six months ended<br>June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Cdn$ in thousands) | 2021 | 2020 | Change | 2021 | 2020 | Change | ||||||
| Interest expense | 10,151 | 9,359 | 792 | 19,897 | 18,719 | 1,178 | ||||||
| Loss on settlement of long-term debt | - | - | - | 12,739 | - | 12,739 | ||||||
| Finance expense - deferred revenue | 1,394 | 1,182 | 212 | 2,762 | 2,238 | 524 | ||||||
| Accretion of PER | 104 | (80 | ) | 184 | 209 | 275 | (66 | ) | ||||
| Finance income | (184 | ) | (48 | ) | (136 | ) | (259 | ) | (198 | ) | (61 | ) |
| 11,465 | 10,413 | 1,052 | 35,348 | 21,034 | 14,314 |
As part of the senior secured notes refinancing in February, the Company redeemed its US$250 million 2022 Notes which resulted in a loss on settlement of $12.7 million, comprised of $6.9 million paid in call premium, interest costs over the redemption call period of $1.8 million and a write-off of deferred financing costs of $4.0 million.
Finance expense on deferred revenue adjustments represents the implicit financing component of the upfront deposit from the silver sales streaming arrangement with Osisko Gold Royalties Ltd. ("Osisko").
Income tax
| Three months ended<br>June 30, | Six months ended<br>June 30, | ||||||
|---|---|---|---|---|---|---|---|
| (Cdn$ in thousands) | 2021 | 2020 | Change | 2021 | 2020 | Change | |
| Current income tax expense | 810 | 644 | 166 | 941 | 644 | 297 | |
| Deferred income tax expense (recovery) | 6,223 | 3,682 | 2,541 | 1,790 | (6,436 | ) | 8,226 |
| Income tax expense (recovery) | 7,033 | 4,326 | 2,707 | 2,731 | (5,792 | ) | 8,523 |
| Effective tax rate | 34.3% | 18.8% | 15.5% | 55.1% | 16.1% | 39.0% | |
| Canadian statutory rate | 27.0% | 27.0% | - | 27.0% | 27.0% | - | |
| B.C. Mineral tax rate | 9.5% | 9.6% | (0.1)% | 9.5% | 9.6% | (0.1)% |
The overall income tax expense for the three and six months ended June 30, 2021 were due to deferred income tax expense recognized on income for accounting purposes. The effective rate for the second quarter is similar to the combined B.C. mineral and income tax rate of 36.5%.
As foreign exchange revaluations on the senior secured notes are not recognized for tax purposes until realized, and in the case of capital losses, when they are applied, the effective tax rate may be significantly higher or lower than the statutory rates, as is the case for the three and six months ended June 30, 2020 and 2021, relative to net income (loss) for those periods.
The current income tax expense represents an estimate of B.C. mineral taxes payable for the current periods.
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis |
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FINANCIAL CONDITION REVIEW
Balance sheet review
| At June 30, | At December 31, | **** | ||
|---|---|---|---|---|
| (Cdn$ in thousands) | 2021 | 2020 | Change | |
| Cash and equivalents | 225,741 | 85,110 | 140,631 | |
| Other current assets | 78,175 | 72,088 | 6,087 | |
| Property, plant and equipment | 779,941 | 742,619 | 37,322 | |
| Other assets | 10,206 | 10,548 | (342 | ) |
| Total assets | 1,094,063 | 910,365 | 183,698 | |
| Current liabilities | 73,725 | 60,867 | 12,858 | |
| Debt: | ||||
| Senior secured notes | 485,041 | 313,965 | 171,076 | |
| Equipment related financings | 45,190 | 49,439 | (4,249 | ) |
| Deferred revenue | 45,772 | 47,154 | (1,382 | ) |
| Other liabilities | 126,806 | 121,568 | 5,238 | |
| Total liabilities | 776,534 | 592,993 | 183,541 | |
| Equity | 317,529 | 317,372 | 157 | |
| Net debt (debt minus cash and equivalents) | 304,490 | 278,294 | 26,196 | |
| Total common shares outstanding (millions) | 283.9 | 282.1 | 1.8 |
The Company's asset base is comprised principally of property, plant and equipment, reflecting the capital intensive nature of Gibraltar and the mining business. Other current assets primarily include accounts receivable, inventories (concentrate inventories, ore stockpiles, and supplies), prepaid expenses, and marketable securities. Concentrate inventories, accounts receivable and cash balances fluctuate in relation to transportation and cash settlement schedules.
Net debt has increased by $26.2 million in the six months ended June 30, 2021, primarily due to the senior secured notes refinancing in February including related transaction costs and the Company's investment in copper price protection extending out to June 2022.
Deferred revenue relates to the advance payments received from Osisko for the sale of Taseko's share of future silver production from Gibraltar.
Other liabilities increased by $5.2 million primarily due to an increase in deferred tax liabilities and the liability related to the deferred share units outstanding.
As at August 4, 2021, there were 283,871,191 common shares and 9,216,366 stock options outstanding. More information on these instruments and the terms of their exercise is set out in Note 14 of the June 30, 2021 Financial Statements.
Liquidity, cash flow and capital resources
Cash flow provided by operations during the three months ended June 30, 2021 was $72.5 million compared to cash flow provided by operations of $37.1 million for the same prior period. Operating cash flow for the three months ended June 30, 2021 include accounts receivable for shipments made in the first quarter which was received in the second quarter. Cash flow provided by operations during the six months ended June 30, 2021 was $69.2 million compared to cash flow provided by operations of $54.8 million for the same prior period.
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis |
|---|
Cash used for investing activities during the three months ended June 30, 2021 was $35.0 million compared to cash used for investing activities of $4.7 million for the same prior period. Investing cash flows in the second quarter includes $14.8 million for capitalized stripping costs, $8.0 million for other sustaining capital expenditures at Gibraltar, and $6.4 million of expenditures for Florence Copper. Also included in investing activities is the $4.7 million purchase of copper collars in the quarter covering production for the first half of 2022.
Cash used for investing activities during the six months ended June 30, 2021 was $79.0 million compared to cash used for investing activities of $20.9 million for the same prior period. Investing cash flows in the first half includes $36.2 million for capitalized stripping costs, $13.0 million for other sustaining capital expenditures at Gibraltar which includes the Gibraltar pit dewatering system costs, and $12.7 million of expenditures for Florence Copper. Also included in investing activities is the purchase of copper put options covering production for the second half of 2021 and copper collars covering the first half of 2022 for the Company's share of Gibraltar's production.
Net cash used for financing activities for the three months ended June 30, 2021 was $5.2 million. Net cash provided by financing activities for the six months ended June 30, 2021 was $155.5 million. The Company received gross proceeds of $507.6 million and incurred financing charges of $11.5 million from issuance of the US$400 million 7% senior secured notes ("2026 Notes") due in February 2026. A portion of the proceeds were used to redeem the outstanding 2022 Notes for $317.2 million and payment of redemption related costs of $8.7 million. There are no principal payments required on the 2026 Notes until the maturity date in February 2026 and the first interest payment of US$14.4 million is due on August 16, 2021.
Principal repayments for equipment loans and leases were $9.9 million and interest paid was $6.0 million for the six months ended June 30, 2021. The Company continues to make monthly principal repayments for equipment loans and leases.
At June 30, 2021, the Company had cash and equivalents of $225.7 million (December 31, 2020 - $85.1 million).
Liquidity outlook
Florence Copper has an estimated capital cost (including reclamation bonding and working capital) of approximately US$230 million (based on the Company's 2017 NI 43-101 technical report). Cash flow from operations was $72.5 million in the second quarter of 2021, and operating margins are expected to improve over the remainder of this year due to higher copper production. At current copper prices and with a cash balance of $226 million at June 30, 2021, the Company should be able to substantially fund the Florence Copper project from available cash flow.
To address any remaining project funding requirements for Florence Copper or other capital spend, in addition to cash flow from the Gibraltar mine, the Company may raise additional capital through equity financings or asset sales, including royalties, sales of project interests, or joint ventures or additional credit facilities, including additional notes offerings. The Company evaluates these financing alternatives based on a number of factors including the prevailing metal prices and projected operating cash flow from Gibraltar, relative valuation, liquidity requirements, covenant restrictions and other factors, in order to optimize the Company's cost of capital and maximize shareholder value.
The Company does not have any significant capital plans for its other development projects over the next 12 months. Should plans for these other development projects materially change, the Company may require additional external funding.
Future changes in copper and molybdenum market prices could also impact the timing and amount of cash available for future investment in the Company's development projects, debt obligations, and other uses of capital. To mitigate commodity price risks in the short-term, copper put options are entered into for a substantial portion of Taseko's share of Gibraltar copper production and the Company has a long track record of doing so (see "Hedging Strategy").
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis |
|---|
Hedging strategy
The Company's hedging strategy is to secure a minimum price for a significant portion of copper production using put options that are either purchased outright or funded by the sale of call options that are significantly out of the money. The amount and duration of the hedge position is based on an assessment of business-specific risk elements combined with the copper pricing outlook. Copper price and quantity exposure are reviewed at least quarterly to ensure that adequate revenue protection is in place. Hedge positions are typically extended adding incremental quarters at established put strike prices to provide the necessary price protection. The Company's hedging strategy is designed to mitigate short-term declines in copper price.
Considerations on the cost of the hedging program include an assessment of Gibraltar's estimated production costs, anticipated copper prices and the Company's capital requirements during the relevant period. In March 2021, the Company purchased 41 million pounds of copper put options at strike price of US$3.75 per pound covering the second half of 2021. In May 2021, the Company acquired copper collars. These contracts secure a minimum copper price of US$4.00 and a ceiling copper price of US$5.60 per pound for 43 million pounds of copper over the first half of 2022.
From time to time, the Company will look at potential hedging opportunities to mitigate the risk of rising input costs, including foreign exchange and fuel prices where such a strategy is cost effective.
| Notional amount | Strike price | Term to maturity | Original cost | |
|---|---|---|---|---|
| At August 4, 2021 | ||||
| Copper put options | 34 million lbs | US$3.75 per lb | August to<br><br> <br>December 2021 | $9.8 million |
| Copper collars | 43 million lbs | Floor<br><br> <br>US$4.00 per lb<br><br> <br>Ceiling<br><br> <br>US$5.60 per lb | January to<br><br> <br>June 2022 | $4.7 million |
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis | ||||
| --- |
Commitments and contingencies
Commitments
| Payments due | **** | ||||||
|---|---|---|---|---|---|---|---|
| (Cdn$ in thousands) | Remainder of 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total |
| Debt: | |||||||
| 2026 Notes ^1^ | - | - | - | - | - | 495,760 | 495,760 |
| Interest | 17,834 | 34,703 | 34,703 | 34,703 | 34,703 | 17,352 | 173,998 |
| Equipment loans: | |||||||
| Principal | 3,793 | 6,491 | 4,648 | 1,375 | - | - | 16,307 |
| Interest | 407 | 507 | 197 | 18 | - | - | 1,129 |
| Lease liabilities: | |||||||
| Principal | 5,141 | 9,500 | 2,531 | 1,319 | 1,305 | 898 | 20,694 |
| Interest | 469 | 566 | 269 | 180 | 100 | 24 | 1,608 |
| Lease related obligation: | |||||||
| Rental payment | 1,313 | 2,627 | 5,636 | - | - | - | 9,576 |
| PER ^2^ | - | - | - | - | - | 79,887 | 79,887 |
| Capital expenditures | 1,988 | - | - | - | - | - | 1,988 |
| Other expenditures | |||||||
| Transportation related services ^3^ | 2,341 | 837 | - | - | - | - | 3,178 |
^1^ In February 2021, the Company closed its offering of the 2026 Notes and a portion of the proceeds was used to redeem all of the 2022 Notes.
^2^ Provision for environmental rehabilitation amounts presented in the table represents the present value of estimated costs of legal and constructive obligations required to retire an asset, including decommissioning and other site restoration activities, primarily for the Gibraltar mine and Florence Copper. The Company has provided a surety bond of $37,500 for its 75% share of Gibraltar's reclamation security. For Florence Copper, the Company has provided to the federal and state regulator surety bonds totaling $12.2 million as reclamation security.
^3^ Transportation related services commitments include ocean freight and port handling services, which are both cancellable upon certain operating circumstances.
The Company has guaranteed 100% of certain equipment loans and leases entered into by Gibraltar in which it holds a 75% interest. As a result, the Company has guaranteed the joint venture partner's 25% share of this debt which amounted to $12.6 million as at June 30, 2021.
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis |
|---|
SUMMARY OF QUARTERLY RESULTS
| 2020 | 2019 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Cdn in thousands, except per share amounts) | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | ||||||
| Revenues | 86,741 | 87,398 | 87,780 | 106,005 | 62,084 | 89,932 | 82,436 | ||||||
| Net income (loss) | (11,217 | ) | 5,694 | 987 | 18,745 | (48,950 | ) | (9,931 | ) | (24,508 | ) | ||
| Basic EPS | (0.04 | ) | 0.02 | - | 0.08 | (0.20 | ) | (0.04 | ) | (0.10 | ) | ||
| Adjusted net income (loss)* | (5,534 | ) | (7,473 | ) | (5,754 | ) | 8,335 | (21,647 | ) | (16,159 | ) | (20,561 | ) |
| Adjusted basic EPS* | (0.02 | ) | (0.03 | ) | (0.02 | ) | 0.03 | (0.09 | ) | (0.07 | ) | (0.08 | ) |
| Adjusted EBITDA* | 23,722 | 20,478 | 31,545 | 50,860 | 5,346 | 18,246 | 7,906 | ||||||
| (US per pound, except where indicated) | |||||||||||||
| Realized copper price* | 4.09 | 3.69 | 3.15 | 2.70 | 2.06 | 2.82 | 2.56 | ||||||
| Total operating costs* | 2.23 | 2.82 | 2.00 | 1.34 | 1.82 | 2.01 | 2.05 | ||||||
| Copper sales (million pounds) | 16.5 | 18.8 | 21.4 | 29.5 | 23.3 | 25.0 | 25.1 |
All values are in US Dollars.
Financial results for the last eight quarters reflect: volatile copper and molybdenum prices and foreign exchange rates that impact realized sale prices; and variability in the quarterly sales volumes due to copper grades and timing of shipments which impacts revenue recognition.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's significant accounting policies are presented in Note 2.4 of the 2020 annual consolidated financial statements. The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
In the process of applying the Company's accounting policies, significant areas where judgment is required include the determination of a joint arrangement, determining the timing of transfer of control of inventory for revenue recognition, provisions for environmental rehabilitation, reserve and resource estimation, functional currency, determination of the accounting treatment of the advance payment under the silver purchase and sale agreement reported as deferred revenue, determination of business or asset acquisition treatment, and recovery of other deferred tax assets.
Significant areas of estimation include reserve and resource estimation; asset valuations and the measurement of impairment charges or reversals; valuation of inventories; plant and equipment lives; tax provisions; provisions for environmental rehabilitation; valuation of financial instruments and derivatives; capitalized stripping costs and share-based compensation. Key estimates and assumptions made by management with respect to these areas have been disclosed in the notes to these consolidated financial statements as appropriate.
The accuracy of reserve and resource estimates is a function of the quantity and quality of available data and the assumptions made and judgment used in the engineering and geological interpretation, and may be subject to revision based on various factors. Changes in reserve and resource estimates may impact the carrying value of property, plant and equipment; the calculation of depreciation expense; the capitalization of stripping costs incurred during production; and the timing of cash flows related to the provision for environmental rehabilitation.
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis |
|---|
Changes in forecast prices of commodities, exchange rates, production costs and recovery rates may change the economic status of reserves and resources. Forecast prices of commodities, exchange rates, production costs and recovery rates, and discount rates assumptions, either individually or collectively, may impact the carrying value of derivative financial instruments, inventories, property, plant and equipment, and intangibles, as well as the measurement of impairment charges or reversals.
There were no changes in accounting policies during the three and six months ended June 30, 2021.
INTERNAL AND DISCLOSURE CONTROLS OVER FINANCIAL REPORTING
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting and disclosure controls and procedures.
The Company's internal control system over financial reporting is designed to provide reasonable assurance to management and the Board of Directors regarding the preparation and fair presentation of published financial statements. Internal control over financial reporting includes those policies and procedures that:
(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
The Company's internal control system over disclosure controls and procedures is designed to provide reasonable assurance that material information relating to the Company is made known to management and disclosed to others and information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by us under securities legislation is recorded, processed, summarized and reported within the time periods specified in the securities legislation.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined effective can provide only reasonable assurance with respect to financial reporting and disclosure.
There have been no changes in our internal controls over financial reporting and disclosure controls and procedures during the period ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting and disclosure.
KEY MANAGEMENT PERSONNEL
Key management personnel include the members of the Board of Directors and executive officers of the Company.
The Company contributes to a post-employment defined contribution pension plan on the behalf of certain key management personnel. This retirement compensation arrangement ("RCA Trust") was established to provide benefits to certain executive officers on or after retirement in recognition of their long service. Upon retirement, the participant is entitled to the distribution of the accumulated value of the contributions under the RCA Trust. Obligations for contributions to the defined contribution pension plan are recognized as compensation expense in the periods during which services are rendered by the executive officers.
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis |
|---|
Certain executive officers are entitled to termination and change in control benefits. In the event of termination without cause, other than a change in control, these executive officers are entitled to an amount ranging from 9-month to 12-months' salary. In the event of a change in control, if a termination without cause or a resignation occurs within 12 months following the change of control, these executive officers are entitled to receive, among other things, an amount ranging from 12-months' to 24-months' salary and accrued bonus, and all stock options held by these individuals will fully vest.
Executive officers and directors also participate in the Company's share option program (refer to Note 14 of the Financial Statements).
Compensation for key management personnel (including all members of the Board of Directors and executive officers) is as follows:
| Three months ended June 30, | Six months ended<br>June 30, | |||
|---|---|---|---|---|
| (Cdn$ in thousands) | 2021 | 2020 | 2021 | 2020 |
| Salaries and benefits | 975 | 1,037 | 4,529 | 4,653 |
| Post-employment benefits | 628 | 258 | 1,227 | 516 |
| Share-based compensation expense | 1,526 | 1,241 | 4,063 | 1,330 |
| 3,129 | 2,536 | 9,819 | 6,499 | |
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis | ||||
| --- |
NON-GAAP PERFORMANCE MEASURES
This document includes certain non-GAAP performance measures that do not have a standardized meaning prescribed by IFRS. These measures may differ from those used by, and may not be comparable to such measures as reported by, other issuers. The Company believes that these measures are commonly used by certain investors, in conjunction with conventional IFRS measures, to enhance their understanding of the Company's performance. These measures have been derived from the Company's financial statements and applied on a consistent basis. The following tables below provide a reconciliation of these non-GAAP measures to the most directly comparable IFRS measure.
Total operating costs and site operating costs, net of by-product credits
Total costs of sales include all costs absorbed into inventory, as well as transportation costs and insurance recoverable. Site operating costs are calculated by removing net changes in inventory, depletion and amortization, insurance recoverable, and transportation costs from cost of sales. Site operating costs, net of by-product credits is calculated by subtracting by-product credits from the site operating costs. Site operating costs, net of by-product credits per pound are calculated by dividing the aggregate of the applicable costs by copper pounds produced. Total operating costs per pound is the sum of site operating costs, net of by-product credits and off-property costs divided by the copper pounds produced. By-product credits are calculated based on actual sales of molybdenum (net of treatment costs) and silver during the period divided by the total pounds of copper produced during the period. These measures are calculated on a consistent basis for the periods presented.
| (Cdn$ in thousands, unless otherwise indicated) - 75% | Three months ended June 30, | Six months ended <br>June 30, | ||||||
|---|---|---|---|---|---|---|---|---|
| basis | 2021 | 2020 | 2021 | 2020 | ||||
| Cost of sales | 74,056 | 81,181 | 146,322 | 164,490 | ||||
| Less: | ||||||||
| Depletion and amortization | (17,536 | ) | (25,512 | ) | (33,374 | ) | (52,660 | ) |
| Net change in inventories of finished goods | (4,723 | ) | (5,753 | ) | (2,464 | ) | (4,451 | ) |
| Net change in inventories of ore stockpiles | 2,259 | (50 | ) | (5,967 | ) | 553 | ||
| Transportation costs | (4,303 | ) | (5,834 | ) | (7,608 | ) | (10,353 | ) |
| Site operating costs | 49,753 | 44,032 | 96,909 | 97,579 | ||||
| Less by-product credits: | ||||||||
| Molybdenum, net of treatment costs | (6,138 | ) | (4,252 | ) | (11,742 | ) | (7,483 | ) |
| Silver, excluding amortization of deferred revenue | 64 | (28 | ) | (174 | ) | (382 | ) | |
| Site operating costs, net of by-product credits | 43,679 | 39,752 | 84,993 | 89,714 | ||||
| Total copper produced (thousand pounds) | 20,082 | 27,576 | 36,766 | 51,894 | ||||
| Total costs per pound produced | 2.18 | 1.44 | 2.31 | 1.73 | ||||
| Average exchange rate for the period (CAD/USD) | 1.23 | 1.39 | 1.25 | 1.37 | ||||
| Site operating costs, net of by-product credits (US$ per pound) | 1.77 | 1.04 | 1.85 | 1.27 | ||||
| Site operating costs, net of by-product credits | 43,679 | 39,752 | 84,993 | 89,714 | ||||
| Add off-property costs: | **** | **** | **** | **** | ||||
| Treatment and refining costs | 1,879 | 5,676 | 4,293 | 10,632 | ||||
| Transportation costs | 4,303 | 5,834 | 7,608 | 10,353 | ||||
| Total operating costs | 49,861 | 51,262 | 96,894 | 110,699 | ||||
| Total operating costs (C1) (US$ per pound) | 2.02 | 1.34 | 2.11 | 1.56 | ||||
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis | ||||||||
| --- |
Adjusted net income (loss)
Adjusted net income (loss) removes the effect of the following transactions from net income as reported under IFRS:
- Unrealized foreign currency gains/losses;
- Unrealized gain/loss on derivatives; and
- Loss on settlement of long-term debt, including realized foreign exchange gains.
Management believes these transactions do not reflect the underlying operating performance of our core mining business and are not necessarily indicative of future operating results. Furthermore, unrealized gains/losses on derivative instruments, changes in the fair value of financial instruments, and unrealized foreign currency gains/losses are not necessarily reflective of the underlying operating results for the reporting periods presented.
| Three months ended June 30, | Six months ended<br>June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| (Cdn$ in thousands, except per share amounts) | 2021 | 2020 | 2021 | 2020 | ||||
| Net income (loss) | 13,442 | 18,745 | 2,225 | (30,205 | ) | |||
| Unrealized foreign exchange (gain) loss | (3,764 | ) | (12,985 | ) | 5,034 | 16,762 | ||
| Realized foreign exchange gain on settlement of long-term debt | - | - | (13,000 | ) | - | |||
| Loss on settlement of long-term debt | - | - | 12,739 | - | ||||
| Unrealized loss on derivatives | 370 | 3,528 | 1,172 | 180 | ||||
| Estimated tax effect of adjustments | (100 | ) | (953 | ) | (3,756 | ) | (49 | ) |
| Adjusted net income (loss) | 9,948 | 8,335 | 4,414 | (13,312 | ) | |||
| Adjusted EPS | 0.04 | 0.03 | 0.02 | (0.05 | ) |
Adjusted EBITDA
Adjusted EBITDA is presented as a supplemental measure of the Company's performance and ability to service debt. Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the industry, many of which present Adjusted EBITDA when reporting their results. Issuers of "high yield" securities also present Adjusted EBITDA because investors, analysts and rating agencies consider it useful in measuring the ability of those issuers to meet debt service obligations.
Adjusted EBITDA represents net income before interest, income taxes, and depreciation and also eliminates the impact of a number of items that are not considered indicative of ongoing operating performance. Certain items of expense are added and certain items of income are deducted from net income that are not likely to recur or are not indicative of the Company's underlying operating results for the reporting periods presented or for future operating performance and consist of:
- Unrealized foreign exchange gains/losses;
- Unrealized gain/loss on derivatives;
- Loss on settlement of long term debt (included in finance expenses);
- Realized foreign exchange gain on settlement of long-term debt; and
- Amortization of share-based compensation expense.
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis | ||||||||
|---|---|---|---|---|---|---|---|---|
| Three months ended <br>June 30, | Six months ended <br>June 30, | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (Cdn$ in thousands) | 2021 | 2020 | 2021 | 2020 | ||||
| Net income (loss) | 13,442 | 18,745 | 2,225 | (30,205 | ) | |||
| Add: | **** | **** | **** | **** | ||||
| Depletion and amortization | 17,536 | 25,512 | 33,374 | 52,660 | ||||
| Finance expense (includes loss on settlement of long-term debt) | 11,649 | 10,461 | 35,607 | 21,232 | ||||
| Finance income | (184 | ) | (48 | ) | (259 | ) | (198 | ) |
| Income tax (recovery) expense | 7,033 | 4,326 | 2,731 | (5,792 | ) | |||
| Unrealized foreign exchange (gain) loss | (3,764 | ) | (12,985 | ) | 5,034 | 16,762 | ||
| Realized foreign exchange gain on settlement of long-term debt | - | - | (13,000 | ) | - | |||
| Unrealized loss on derivatives | 370 | 3,528 | 1,172 | 180 | ||||
| Amortization of share-based compensation expense | 1,650 | 1,321 | 4,570 | 1,567 | ||||
| Adjusted EBITDA | 47,732 | 50,860 | 71,454 | 56,206 |
Earnings from mining operations before depletion and amortization
Earnings from mining operations before depletion and amortization is earnings from mining operations with depletion and amortization added back. The Company discloses this measure, which has been derived from our financial statements and applied on a consistent basis, to provide assistance in understanding the results of the Company's operations and financial position and it is meant to provide further information about the financial results to investors.
| TASEKO MINES LIMITED<br><br> <br>Management's Discussion and Analysis | ||||
|---|---|---|---|---|
| **** | Three months ended<br> June 30, | Six months ended<br> June 30, | ||
| --- | --- | --- | --- | --- |
| (Cdn$ in thousands) | 2021 | 2020 | 2021 | 2020 |
| Earnings from mining operations | 36,946 | 24,824 | 51,421 | 3,599 |
| Add: | ||||
| Depletion and amortization | 17,536 | 25,512 | 33,374 | 52,660 |
| Earnings from mining operations before depletion and amortization | 54,482 | 50,336 | 84,795 | 56,259 |
Site operating costs per ton milled
| Three months ended<br> June 30, | Six months ended<br> June 30, | ||||||
|---|---|---|---|---|---|---|---|
| (Cdn in thousands, except per ton milled amounts) | 2021 | 2020 | 2021 | 2020 | |||
| Site operating costs (included in cost of sales) | 49,753 | 44,032 | 96,909 | 97,579 | |||
| Tons milled (thousands) (75% basis) | 5,429 | 5,748 | 10,831 | 11,370 | |||
| Site operating costs per ton milled | 9.16 | $ | 7.66 | $ | 8.95 | $ | 8.58 |
All values are in US Dollars.