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 November 3, 2022
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 September 30, 2022 |
| 99.2 | Management's Discussion and Analysis for the period ended September 30, 2022 |
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: November 3, 2022 | By: | /s/ Bryce Hamming |
| Bryce Hamming | ||
| Title: | Chief Financial Officer |
Taseko Mines Limited: Exhibit 99.1 - Filed by newsfilecorp.com
Condensed Consolidated Interim Financial Statements
September 30, 2022
(Unaudited)
TASEKO MINES LIMITED
Condensed Consolidated Balance Sheets (Cdn$ in thousands) (Unaudited)
| September 30, | December 31, | ||||
|---|---|---|---|---|---|
| Note | 2022 | 2021 | |||
| ASSETS | |||||
| Current assets | |||||
| Cash and equivalents | 142,048 | 236,767 | |||
| Accounts receivable | 9,685 | 9,604 | |||
| Inventories | 8 | 67,526 | 79,871 | ||
| Other financial assets | 9 | 30,229 | 7,014 | ||
| Prepaids | 4,023 | 3,971 | |||
| 253,511 | 337,227 | ||||
| Property, plant and equipment | 10 | 970,140 | 837,839 | ||
| Other financial assets | 9 | 3,005 | 2,902 | ||
| Goodwill | 5,652 | 5,227 | |||
| **** | **** | 1,232,308 | 1,183,195 | ||
| LIABILITIES | |||||
| Current liabilities | |||||
| Accounts payable and other liabilities | 84,193 | 55,660 | |||
| Current portion of long-term debt | 11 | 13,168 | 18,305 | ||
| Current portion of deferred revenue | 12 | 8,051 | 13,441 | ||
| Interest payable on senior secured notes | 4,797 | 13,312 | |||
| Current income tax payable | 999 | 2,759 | |||
| 111,208 | 103,477 | ||||
| Long-term debt | 11 | 549,758 | 513,444 | ||
| Provision for environmental rehabilitation ("PER") | 84,562 | 87,571 | |||
| Deferred and other tax liabilities | 75,738 | 70,186 | |||
| Deferred revenue | 12 | 48,198 | 45,356 | ||
| Other financial liabilities | 13 | 3,093 | 4,643 | ||
| 872,557 | 824,677 | ||||
| EQUITY | |||||
| Share capital | 14 | 479,726 | 476,599 | ||
| Contributed surplus | 54,855 | 55,403 | |||
| Accumulated other comprehensive income ("AOCI") | 28,999 | 6,649 | |||
| Deficit | (203,829 | ) | (180,133 | ) | |
| 359,751 | 358,518 | ||||
| **** | 1,232,308 | 1,183,195 | |||
| Commitments and contingencies | 16 |
The accompanying notes are an integral part of these consolidated interim financial statements.
TASEKO MINES LIMITED
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Cdn$ in thousands, except share and per share amounts) (Unaudited)
| Three months ended | Nine months ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| September 30, | September 30, | ||||||||
| Note | 2022 | 2021 | 2022 | 2021 | |||||
| Revenues | 3 | 89,714 | 132,563 | 290,991 | 330,306 | ||||
| Cost of sales | |||||||||
| Production costs | 4 | (71,144) | (48,882) | (222,427) | (161,830) | ||||
| Depletion and amortization | 4 | (13,060) | (17,011) | (41,835) | (50,385) | ||||
| Earnings from mining operations | 5,510 | 66,670 | 26,729 | 118,091 | |||||
| General and administrative | (2,263) | (2,905) | (8,261) | (13,367) | |||||
| Share-based compensation expense | 14b | (1,101) | (76) | (2,068) | (4,474) | ||||
| Project evaluation expense | (91) | 123 | (369) | (325) | |||||
| Gain (loss) on derivatives | 5 | 16,447 | 2,095 | 35,063 | (1,975) | ||||
| Other income | 326 | 350 | 981 | 1,146 | |||||
| Income before financing costs and income taxes | 18,828 | 66,257 | 52,075 | 99,096 | |||||
| Finance expenses, net | 6 | (11,831 | ) | (11,674 | ) | (35,774 | ) | (40,081 | ) |
| Call premium on settlement of debt | 6 | - | - | - | (6,941 | ) | |||
| Foreign exchange loss | (27,014 | ) | (9,788 | ) | (34,387 | ) | (2,323 | ) | |
| Income (loss) before income taxes | (20,017 | ) | 44,795 | (18,086 | ) | 49,751 | |||
| Income tax expense | 7 | (3,500 | ) | (22,310 | ) | (5,610 | ) | (25,041 | ) |
| Net income (loss) | (23,517 | ) | 22,485 | (23,696 | ) | 24,710 | |||
| Other comprehensive income (loss): | **** | **** | **** | **** | **** | ||||
| Items that will remain permanently in other comprehensive income (loss): | **** | **** | **** | **** | |||||
| Loss on financial assets | **** | (1,078 | ) | (759 | ) | (1,933 | ) | (883 | ) |
| Items that may in the future be reclassified to profit (loss): | **** | ||||||||
| Foreign currency translation reserve | **** | 19,731 | 5,881 | 24,283 | 676 | ||||
| Total other comprehensive income (loss) | 18,653 | 5,122 | 22,350 | (207 | ) | ||||
| Total comprehensive income (loss) | (4,864 | ) | 27,607 | (1,346 | ) | 24,503 | |||
| Earnings (loss) per share | |||||||||
| Basic | 15 | (0.08 | ) | 0.08 | (0.08 | ) | 0.09 | ||
| Diluted | 15 | (0.08 | ) | 0.08 | (0.08 | ) | 0.09 | ||
| Weighted average shares outstanding (thousands) | |||||||||
| Basic | 15 | 286,377 | 283,885 | 286,167 | 283,400 | ||||
| Diluted | 15 | 286,377 | 287,678 | 286,167 | 287,202 |
The accompanying notes are an integral part of these consolidated interim financial statements.
TASEKO MINES LIMITED
Condensed Consolidated Statements of Cash Flows (Cdn$ in thousands) (Unaudited)
| **** | Three months ended | Nine months ended | |||||||
|---|---|---|---|---|---|---|---|---|---|
| **** | September 30, | September 30, | |||||||
| Note | 2022 | 2021 | 2022 | 2021 | |||||
| Operating activities | |||||||||
| Net income (loss) for the period | (23,517 | ) | 22,485 | (23,696 | ) | 24,710 | |||
| Adjustments for: | |||||||||
| Depletion and amortization | 13,060 | 17,011 | 41,835 | 50,385 | |||||
| Income tax expense | 7 | 3,500 | 22,310 | 5,610 | 25,041 | ||||
| Finance expenses, net | 6 | 11,831 | 11,674 | 35,774 | 40,081 | ||||
| Call premium on settlement of debt | 6 | - | - | - | 6,941 | ||||
| Share-based compensation expense | 14b | 1,146 | 117 | 2,358 | 4,687 | ||||
| Loss (gain) on derivatives | 5 | (16,447 | ) | (2,095 | ) | (35,063 | ) | 1,975 | |
| Unrealized foreign exchange loss | 28,083 | 9,511 | 35,306 | 1,545 | |||||
| Amortization of deferred revenue | (1,472 | ) | (1,711 | ) | (4,385 | ) | (3,981 | ) | |
| Other operating activities | (1,291 | ) | (2,809 | ) | (2,203 | ) | (2,422 | ) | |
| Net change in working capital | 17 | (2,778 | ) | (8,174 | ) | 26,676 | (11,424 | ) | |
| Cash provided by operating activities | 12,115 | 68,319 | 82,212 | 137,538 | |||||
| Investing activities | |||||||||
| Gibraltar capitalized stripping costs | 10 | (1,121 | ) | (10,881 | ) | (28,151 | ) | (47,127 | ) |
| Gibraltar sustaining capital expenditures | 10 | (7,797 | ) | (7,914 | ) | (17,439 | ) | (17,731 | ) |
| Gibraltar capital project expenditures | 10 | (9,096 | ) | (421 | ) | (21,205 | ) | (3,645 | ) |
| Florence Copper development costs | 10 | (27,256 | ) | (15,387 | ) | (72,439 | ) | (28,105 | ) |
| Other project development costs | 10 | (329 | ) | (543 | ) | (645 | ) | (1,871 | ) |
| Purchase of copper price options | 5 | - | - | (7,269 | ) | (15,837 | ) | ||
| Proceeds from copper put options | 5 | 18,598 | - | 18,598 | - | ||||
| Other investing activities | (489 | ) | (669 | ) | (434 | ) | (531 | ) | |
| Cash used for investing activities | (27,490 | ) | (35,815 | ) | (128,984 | ) | (114,847 | ) | |
| Financing activities | |||||||||
| Interest paid | (18,646 | ) | (18,793 | ) | (38,059 | ) | (24,802 | ) | |
| Repayment of equipment loans and leases | (4,426 | ) | (4,936 | ) | (14,595 | ) | (14,799 | ) | |
| Net proceeds from issuance of senior secured notes | - | - | - | 496,098 | |||||
| Repayment of senior secured notes | - | - | - | (317,225 | ) | ||||
| Redemption cost on settlement of senior secured notes | - | - | - | (8,714 | ) | ||||
| Settlement of performance share units | - | - | (1,927 | ) | - | ||||
| Proceeds from exercise of stock options | - | 57 | 598 | 1,258 | |||||
| Cash provided by (used for) financing activities | (23,072 | ) | (23,672 | ) | (53,983 | ) | 131,816 | ||
| Effect of exchange rate changes on cash and equivalents | 4,819 | 4,578 | 6,036 | (466 | ) | ||||
| Increase (decrease) in cash and equivalents | (33,628 | ) | 13,410 | (94,719 | ) | 154,041 | |||
| Cash and equivalents, beginning of period | 175,676 | 225,741 | 236,767 | 85,110 | |||||
| Cash and equivalents, end of period | **** | 142,048 | **** | 239,151 | **** | 142,048 | **** | 239,151 | **** |
| Supplementary cash flow disclosures | 17 |
The accompanying notes are an integral part of these consolidated interim financial statements.
TASEKO MINES LIMITED
Condensed Consolidated Statements of Changes in Equity (Cdn$ in thousands) (Unaudited)
| Share | Contributed | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| capital | surplus | AOCI | Deficit | Total | |||||
| Balance at January 1, 2021 | 472,870 | 53,433 | 7,674 | (216,605 | ) | 317,372 | |||
| Share-based compensation | - | 2,687 | - | - | 2,687 | ||||
| Exercise of optionss | 2,002 | (744 | ) | - | - | 1,258 | |||
| Total comprehensive income (loss) for the period | - | - | (207 | ) | 24,710 | 24,503 | |||
| Balance at September 30, 2021 | 474,872 | 55,376 | 7,467 | (191,895 | ) | 345,820 | |||
| Balance at January 1, 2022 | 476,599 | 55,403 | 6,649 | (180,133) | 358,518 | ||||
| Share-based compensation | - | 3,908 | - | - | 3,908 | ||||
| Exercise of options | 910 | (312 | ) | - | - | 598 | |||
| Settlement of performance share units | 2,217 | (4,144 | ) | - | - | (1,927 | ) | ||
| Total comprehensive income (loss) for the period | - | - | 22,350 | (23,696 | ) | (1,346 | ) | ||
| Balance at September 30, 2022 | 479,726 | 54,855 | 28,999 | (203,829 | ) | 359,751 |
The accompanying notes are an integral part of these consolidated interim financial statements.
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(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 nine month periods ended September 30, 2022 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, 2021, 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 November 2, 2022.
(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, 2021.
(c) IFRS Pronouncements
Several new accounting standards, amendments to existing standards and interpretations have been published by the IASB. Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the new standard.
New standards, amendments and pronouncements that became effective for the period covered by these statements have not been disclosed as they did not have a material impact on the Company's unaudited condensed consolidated interim financial statements.
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
3. REVENUE
| Three months ended<br> September 30, | Nine months ended<br>September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| Copper contained in concentrate | 87,987 | 125,050 | 289,625 | 306,371 | ||||
| Copper price adjustments on settlement | (541) | 1,173 | (5,350) | 7,701 | ||||
| Molybdenum concentrate | 4,416 | 8,972 | 12,190 | 20,202 | ||||
| Molybdenum price adjustments on settlement | 156 | 444 | (126) | 2,684 | ||||
| Silver (Note 12b) | 1,448 | 1,409 | 4,122 | 3,854 | ||||
| Total gross revenue | 93,466 | 137,048 | 300,461 | 340,812 | ||||
| Less: Treatment and refining costs | (3,752 | ) | (4,485 | ) | (9,470 | ) | (10,506 | ) |
| Revenue | 89,714 | 132,563 | 290,991 | 330,306 |
4. COST OF SALES
| Three months ended<br> September 30, | Nine months ended<br>September 30, | ||||||
|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | ||||
| Site operating costs | 69,920 | 50,134 | 194,016 | 147,043 | |||
| Transportation costs | 6,316 | 5,801 | 15,801 | 13,409 | |||
| Changes in inventories of finished goods | (2,042 | ) | (762 | ) | 9,188 | 1,702 | |
| Changes in inventories of ore stockpiles | (3,050 | ) | (6,291 | ) | 3,422 | (324 | ) |
| Production costs | 71,144 | 48,882 | 222,427 | 161,830 | |||
| Depletion and amortization | 13,060 | 17,011 | 41,835 | 50,385 | |||
| Cost of sales | 84,204 | 65,893 | 264,262 | 212,215 |
Site operating costs include personnel costs, non-capitalized waste stripping costs, repair and maintenance costs, consumables, operating supplies and external services.
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
5. DERIVATIVE INSTRUMENTS
The Company recognized a net realized gain of $6,707 on copper collar contracts for 21 million pounds that expired in-the-money during the three month period ended September 30, 2022.
During the three month period ended September 30, 2022, the Company also received proceeds of $9,880 from an amendment of its H2 2022 contracts for a change in the minimum copper strike price from US$4.00 per pound to US$3.75 per pound, for 35 million pounds of copper for the August through December 2022 period.
At September 30, 2022, the fair value of the outstanding copper collar contracts for the next nine months was $28,374.
| Three months ended<br> September 30, | Nine months ended<br>September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| Net realized (gain) loss on settled copper options | (16,587 | ) | 4,722 | (11,894 | ) | 8,090 | ||
| Net unrealized gain on outstanding copper options | (898 | ) | (6,817 | ) | (24,027 | ) | (5,676 | ) |
| Realized loss (gain) on fuel call options | 212 | - | 164 | (470 | ) | |||
| Unrealized loss on fuel call options | 826 | - | 694 | 31 | ||||
| (16,447 | ) | (2,095 | ) | (35,063 | ) | 1,975 |
Details of the outstanding copper price option contracts at September 30, 2022 are summarized in the following table:
| Quantity | Strike price | Period | Cost | Fair value | |
|---|---|---|---|---|---|
| Copper collar contracts | 21.0 million lbs | US$3.75/per lb US$5.40/per lb | Q4 2022 | 2,161 | 9,489 |
| Copper collar contracts | 30.0 million lbs | US$3.75/per lb US$4.72/per lb | H1 2023 | 2,975 | 18,885 |
6. FINANCE EXPENSES
| Three months ended<br> September 30 | Nine months ended<br> September 30 | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| Interest expense | 10,317 | 9,871 | 30,475 | 28,716 | ||||
| Amortization of financing fees | 635 | 489 | 1,876 | 1,541 | ||||
| Finance expense - deferred revenue (Note 12b) | 1,441 | 1,414 | 4,250 | 4,176 | ||||
| Accretion on PER | 92 | 101 | 275 | 310 | ||||
| Finance income | (654 | ) | (201 | ) | (1,102 | ) | (460 | ) |
| Loss on settlement of long-term debt | - | - | - | 5,798 | ||||
| 11,831 | 11,674 | 35,774 | 40,081 |
For the three and nine month period ended September 30, 2022, interest expense includes $263 (2021 - $399) and $882 (2021 - $1,345), respectively, from lease liabilities and lease related obligations.
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
As part of the senior secured notes refinancing completed in February of 2021, the Company redeemed its US$250 million senior secured notes on March 3, 2021, which resulted in an accounting loss of $5,798, comprised of the write-off of deferred financing costs of $4,025 and additional interest costs paid over the call period of $1,773.
The Company also paid a one-time redemption call premium of $6,941 on the settlement of the US$250 million senior secured notes, which is not included in net financing expenses shown above.
7. INCOME TAX
| Three months ended<br>September 30, | Nine months ended<br>September 30, | |||
|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |
| Current income tax expense | 224 | 1,354 | 212 | 2,295 |
| Deferred income tax expense | 3,276 | 20,956 | 5,398 | 22,746 |
| 3,500 | 22,310 | 5,610 | 25,041 |
Effective tax rate reconciliation
| Three months ended<br> September 30, | Nine months ended<br> September 30, | |||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||
| Income tax expense (recovery)<br>at Canadian statutory rate of 36.5% | (7,305 | ) | 16,346 | (6,600 | ) | 18,155 |
| Permanent differences | 7,163 | 4,105 | 8,329 | 6,607 | ||
| Foreign tax rate differential | 8 | - | 44 | 96 | ||
| Unrecognized tax benefits | 3,637 | 1,859 | 3,987 | 109 | ||
| Deferred tax adjustments related to prior periods | (3 | ) | - | (150 | ) | 74 |
| Income tax expense | 3,500 | 22,310 | 5,610 | 25,041 |
8. INVENTORIES
| September 30, | December 31, | |
|---|---|---|
| 2022 | 2021 | |
| Ore stockpiles | 22,478 | 31,845 |
| Copper contained in concentrate | 10,370 | 19,831 |
| Molybdenum concentrate | 583 | 310 |
| Materials and supplies | 34,095 | 27,885 |
| 67,526 | 79,871 |
During the three and nine month periods ended September 30, 2022, the Company recorded an inventory adjustment of $1,533 and $3,042, (2021 - $nil and $4,561 recovery), respectively, to adjust the carrying value of ore stockpiles to net realizable value, of which $462 and $913, (2021 - $nil and $1,501 recovery), respectively, is recorded in depletion and amortization and the balance in production costs.
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
9. OTHER FINANCIAL ASSETS
| September 30, | December 31, | |
|---|---|---|
| 2022 | 2021 | |
| Current: | ||
| Marketable securities | 1,177 | 3,110 |
| Copper price options (Note 5) | 28,374 | 3,904 |
| Fuel call options | 678 | - |
| 30,229 | 7,014 | |
| Long-term: | ||
| Investment in private companies | 1,200 | 1,200 |
| Reclamation deposits | 434 | 434 |
| Restricted cash | 1,371 | 1,268 |
| 3,005 | 2,902 |
The Company holds strategic investments in publicly-traded and privately owned mineral exploration and development companies, including marketable securities. Marketable securities and the investment in privately owned companies are accounted for at fair value through other comprehensive income.
10. PROPERTY, PLANT & EQUIPMENT
The following schedule shows the continuity of property, plant and equipment net book value for the three and nine months ended September 30, 2022:
| Three MonthsEnded <br>September 30,<br>2022 | Nine monthsEnded <br>September 30,<br>2022 | |||
|---|---|---|---|---|
| Net book value beginning of period | 919,862 | 837,839 | ||
| Additions: | ||||
| Gibraltar capitalized stripping costs | 1,278 | 31,973 | ||
| Gibraltar sustaining capital expenditures | 7,838 | 18,062 | ||
| Gibraltar capital projects | 9,096 | 21,205 | ||
| Florence Copper development costs | 27,319 | 79,382 | ||
| Yellowhead development costs | 116 | 553 | ||
| Aley development costs | 213 | 381 | ||
| Other items: | ||||
| Right of use assets | 1,977 | 2,378 | ||
| Rehabilitation costs asset | - | (1,589 | ) | |
| Foreign exchange translation and other | 16,119 | 19,912 | ||
| Depletion and amortization | (13,678 | ) | (39,956 | ) |
| Net book value at September 30, 2022 | 970,140 | 970,140 |
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
| **** <br> **** <br>Net book value | Gibraltar Mines (75%) | Florence Copper | Yellowhead | Aley | Other | Total | ||||
|---|---|---|---|---|---|---|---|---|---|---|
| At December 31, 2021 | 539,641 | 260,934 | 21,252 | 14,316 | 1,696 | 837,839 | ||||
| Net additions | 73,257 | 79,743 | 553 | 381 | (289) | 153,645 | ||||
| Changes in rehabilitation cost asset | (1,589 | ) | - | - | - | - | (1,589 | ) | ||
| Depletion and amortization | (39,541 | ) | (132 | ) | - | - | (283 | ) | (39,956 | ) |
| Foreign exchange translation | - | 20,201 | - | - | - | 20,201 | ||||
| At September 30, 2022 | 571,768 | 360,746 | 21,805 | 14,697 | 1,124 | 970,140 |
For the three and nine month periods ended September 30, 2022, the Company capitalized development costs of $27,333 and $79,382, respectively, **** for the Florence Copper project. Since its acquisition of Florence Copper in November 2014, the Company has incurred and capitalized a total of $255.7 million in project development and other costs.
Non-cash additions to property, plant and equipment of Gibraltar include $3,822 of depreciation on mining assets related to capitalized stripping.
Since January 1, 2020 development costs for Yellowhead of $5,566 have been capitalized as mineral property, plant and equipment.
Depreciation related to the right of use assets for the three and nine month periods ended September 30, 2022 was $1,087 (2021: $1,006) and $3,231 (2021: $2,892), respectively.
11. DEBT
| September 30, | December 31, | |||
|---|---|---|---|---|
| 2022 | 2021 | |||
| Current: | ||||
| Lease liabilities (d) | 5,550 | 9,625 | ||
| Secured equipment loans (e) | 5,354 | 6,539 | ||
| Lease related obligations (f) | 2,264 | 2,141 | ||
| 13,168 | 18,305 | |||
| Long-term: | ||||
| Senior secured notes (a) | 540,101 | 497,388 | ||
| Revolving credit deferred financing fees (b) | (1,029 | ) | (1,352 | ) |
| Lease liabilities (d) | 4,912 | 6,067 | ||
| Secured equipment loans (e) | 2,172 | 6,025 | ||
| Lease related obligations (f) | 3,602 | 5,316 | ||
| 549,758 | 513,444 | |||
| Total debt | 562,926 | 531,749 |
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
(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.
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.
(b) Revolving Credit Facility
On October 6, 2021, the Company closed a secured US$50 million revolving credit facility (the "Facility"). The Facility is secured by first liens against Taseko's rights under the Gibraltar joint venture, as well as, the shares of Gibraltar Mines Ltd., Curis Holdings (Canada) Ltd., and Florence Holdings Inc. The Facility matures on April 3, 2025 and is extendable annually thereafter. The Facility will be available for capital expenditures, working capital and general corporate purposes. Amounts outstanding under the facility bear interest at LIBOR plus an applicable margin and have a standby fee of 1.125%.
The Facility has customary covenants for a revolving credit facility. Financial covenants include a requirement for the Company to maintain a leverage ratio, an interest coverage ratio, a minimum tangible net worth and a minimum liquidity amount as defined under the Facility. The Company was in compliance with these covenants as at September 30, 2022.
(c) Letter of Credit Facilities
The Gibraltar joint venture has in place a $15 million credit facility for the purpose of providing letters of credit (LC) to key suppliers of the Gibraltar Mine to assist with ongoing trade finance and working capital needs. Any LCs issued under the facility will be guaranteed by Export Development Canada (EDC) under its Account Performance Security Guarantee program. The facility is renewable annually, is unsecured and contains no financial covenants. As at September 30, 2022, a total of $3.75 million in LCs were issued and outstanding under this LC facility.
On April 8, 2022, the Company closed a US$4 million credit facility for the sole purpose of issuing LCs to certain key contractors in conjunction with the development of Florence Copper. Any LCs to be issued under this facility will also be guaranteed by EDC. The facility is renewable annually, is unsecured and contains no financial covenants. As at September 30, 2022, a total of US$1 million in LCs were issued and outstanding under this LC facility.
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
(d) Lease liabilities
Lease liabilities include the Company's outstanding lease liabilities under IFRS 16*.*
(e) Secured equipment loans
The equipment loans are secured by some of the existing mobile mining equipment at the Gibraltar mine and commenced between May 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%.
(f) 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.
(g) Debt continuity
The following schedule shows the continuity of total debt for the first nine months of 2022:
| Total debt as at December 31, 2021 | 531,749 | |
|---|---|---|
| Lease additions | 2,528 | |
| Lease liabilities and equipment loans repayments | (14,595 | ) |
| Unrealized foreign exchange loss | 41,350 | |
| Amortization of deferred financing charges | 1,894 | |
| Total debt as at September 30, 2022 | 562,926 |
12. DEFERRED REVENUE
| September 30, | December 31, | |
|---|---|---|
| 2022 | 2021 | |
| Current: | ||
| Customer advance payments (a) | 2,884 | 5,297 |
| Osisko - silver stream agreement (b) | 5,167 | 8,144 |
| Current portion of deferred revenue | 8,051 | 13,441 |
| Long-term portion of deferred revenue (b) | 48,198 | 45,356 |
| Total deferred revenue | 56,249 | 58,797 |
(a) Customer advance payments
At September 30, 2022, the Company had received advance payments from a customer on 1.0 million pounds (100% basis) of copper concentrate inventory.
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
(b) Silver stream purchase and sale agreement
The Company has entered into a silver stream purchase and sale agreement with Osisko Gold Royalties Ltd. ("Osisko"), whereby the Company received upfront cash deposit payments totalling $52.7 million for the sale of an equivalent amount of its 75% share of Gibraltar payable silver production until 5.9 million ounces of silver have been delivered to Osisko. After that threshold has been met, 35% of an equivalent amount of Taseko's share of all future payable silver production from Gibraltar will be delivered to Osisko. The Company receives no further cash consideration once silver deliveries are made under the agreement.
The following table summarizes changes in the Osisko deferred revenue:
| Balance at January 1, 2021 | 52,758 | |
|---|---|---|
| Finance expense | 5,549 | |
| Amortization of deferred revenue | (4,807 | ) |
| Balance at December 31, 2021 | 53,500 | |
| Finance expense (Note 6) | 4,250 | |
| Amortization of deferred revenue | (4,385 | ) |
| Balance at September 30, 2022 | 53,365 |
13. OTHER FINANCIAL LIABILITIES
| September 30,<br><br> <br>2022 | December 31,<br><br> <br>2021 | |
|---|---|---|
| Long-term: | ||
| Deferred share units (Note 14b) | 3,093 | 4,643 |
14. EQUITY
(a) Share capital
| Common shares<br><br> <br>(thousands) | |
|---|---|
| Common shares outstanding at January 1, 2022 | 284,892 |
| Common shares issued under PSU plan | 866 |
| Exercise of share options | 619 |
| Common shares outstanding at September 30, 2022 | 286,377 |
The Company's authorized share capital consists of an unlimited number of common shares with no par value.
In January 2022, the Company issued 866,028 common shares as part of settlement of the performance share units that vested.
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
(b) Share-based compensation
| Options<br>(thousands) | Average price | ||
|---|---|---|---|
| Outstanding at January 1, 2022 | 8,270 | 1.33 | |
| Granted | 2,113 | 2.58 | |
| Exercised | (619 | ) | 0.97 |
| Cancelled/forfeited | (91 | ) | 2.20 |
| Expired | (184 | ) | 1.50 |
| Outstanding at September 30, 2022 | 9,489 | 1.62 | |
| Exercisable at September 30, 2022 | 7,357 | 1.45 |
During the nine month period ended September 30, 2022, the Company granted 2,113,000 (2021 - 2,402,000) share options to directors, executives and employees, exercisable at an average exercise price of $2.58 per common share (2021 - $1.60 per common share) over a five year period. The total fair value of options granted was $2,979 (2021 - $2,114) based on a weighted average grant-date fair value of $1.41 (2021 - $0.88) 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:
| Nine months ended | ||
|---|---|---|
| September 30, 2022 | ||
| Expected term (years) | 5 | |
| Forfeiture rate | 0% | |
| Volatility | 64% | |
| Dividend yield | 0% | |
| Risk-free interest rate | 1.68% | |
| Weighted-average fair value per option | $1.41 |
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, 2022 | 1,786 | 2,780 | |
| Granted | 172 | 595 | |
| Settled | - | (875 | ) |
| Outstanding at September 30, 2022 | 1,958 | 2,500 |
During the nine month period ended September 30, 2022, 172,000 DSUs were issued to directors (2021 - 198,000) and 595,000 PSUs to senior executives (2021 - 530,000). The fair value of DSUs and PSUs granted was $2,532 (2021 - $1,235), with a weighted average fair value at the grant date of $2.58 per unit for the DSUs (2021 - $1.58 per unit) and $3.51 per unit for the PSUs (2021 - $1.74 per unit).
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
Share-based compensation expense (recovery) is comprised as follows:
| Three months ended<br>September 30, | Nine months ended<br>September 30, | |||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||
| Share options - amortization | 442 | 333 | 2,318 | 1,830 | ||
| Performance share units - amortization | 371 | 295 | 1,590 | 857 | ||
| Change in fair value of deferred share units | 333 | (511 | ) | (1,550 | ) | 2,000 |
| 1,146 | 117 | 2,358 | 4,687 |
15. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share, calculated on a basic and diluted basis, is as follows:
| Three months ended<br>September 30, | Nine months ended<br>September 30, | |||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||
| Net income (loss) | (23,517 | ) | 22,485 | (23,696 | ) | 24,710 |
| Weighted-average number of common shares | 286,377 | 283,885 | 286,167 | 283,400 | ||
| Effect of dilutive securities: | ||||||
| Stock options | - | 3,793 | - | 3,802 | ||
| Weighted-average number of diluted common shares | 286,377 | 287,678 | 286,167 | 287,202 | ||
| Earnings (loss) per common share | ||||||
| Basic earnings (loss) per share | (0.08 | ) | 0.08 | (0.08 | ) | 0.09 |
| Diluted earnings (loss) per share | (0.08 | ) | 0.08 | (0.08 | ) | 0.09 |
16. 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 September 30, 2022 are presented in the following table:
| Remainder of 2022 | 1,731 |
|---|---|
| 2023 | 11,762 |
| 2024 | 11,762 |
| 2025 | 4,702 |
| 2026 | 823 |
| 2027 and thereafter | - |
| Total commitments | 30,780 |
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
As at September 30, 2022, the Company had commitments to incur capital expenditures of $16,365 (December 31, 2021 - $37,943) for Florence Copper and $3,150 (December 31, 2021 - $471) for the Gibraltar joint venture.
(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 $6,459 as at September 30, 2022.
The Company has also indemnified 100% of a surety bond issued by the Gibraltar joint venture to the Province of British Columbia. As a result, the Company has indemnified the joint venture partner's 25% share of this obligation, which amounted to $7,313 as at September 30, 2022.
17. SUPPLEMENTARY CASH FLOW INFORMATION
| For the three months ended<br>September 30, | For the nine months ended<br>September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| Change in non-cash working capital items: | ||||||||
| Accounts receivable | (6,015 | ) | (1,084) | 59 | (4,333 | ) | ||
| Inventories | (7,765 | ) | (7,932 | ) | 6,401 | 1,048 | ||
| Prepaids | 1,361 | 738 | (708 | ) | (1,263 | ) | ||
| Accounts payable and accrued liabilities^1^ | 10,038 | 1,070 | 25,094 | (4,108 | ) | |||
| Advance payment on product sales | 19 | - | (2,412 | ) | - | |||
| Interest payable | 21 | 34 | 179 | 32 | ||||
| Mineral tax payable | (437 | ) | (1,000 | ) | (1,937 | ) | (2,800 | ) |
| **** | (2,778 | ) | (8,174 | ) | 26,676 | (11,424 | ) | |
| Non-cash investing and financing activities | ||||||||
| Assets acquired under capital lease | 219 | 151 | 435 | 1,663 | ||||
| Right-of-use assets | 1,977 | 82 | 2,378 | 4,334 |
^1^Excludes accounts payable and accrued liability changes on capital expenditures, for the Florence Copper project, which were $190 and $7,174 respectively, for the three and nine month period ended September 30, 2022.
18. 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 value of the senior secured notes is $436,902 and the carrying value is $540,101 at September 30, 2022. The fair value of all other financial assets and liabilities approximates their carrying value.
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
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.
| Level 1 | Level 2 | Level 3 | Total | |
|---|---|---|---|---|
| September 30, 2022 | ||||
| Financial assets designated as FVPL | ||||
| Derivative asset copper put and call options | - | 28,374 | - | 28,374 |
| Derivative asset fuel call options | - | 678 | - | 678 |
| - | 29,052 | - | 29,052 | |
| Financial assets designated as FVOCI | ||||
| Marketable securities | 1,177 | - | - | 1,177 |
| Investment in private companies | - | - | 1,200 | 1,200 |
| Reclamation deposits | 434 | - | - | 434 |
| 1,611 | - | 1,200 | 2,811 | |
| December 31, 2021 | ||||
| Financial assets designated as FVPL | ||||
| Derivative asset copper put and call options | - | 3,904 | - | 3,904 |
| - | 3,904 | - | 3,904 | |
| Financial assets designated as FVOCI | ||||
| Marketable securities | 3,110 | - | - | 3,110 |
| Investment in private companies | - | - | 1,200 | 1,200 |
| Reclamation deposits | 434 | - | - | 434 |
| 3,544 | - | 1,200 | 4,744 |
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 September 30, 2022.
The fair value of the senior secured notes, a Level 1 instrument, is determined based upon publicly available information.
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 September 30, 2022, the Company had settlement receivables of $1,367 (at December 31, 2021 - $4,885).
The investment in private companies, a Level 3 instrument, is valued based on a management estimate. As this is an investment in a private exploration and development company, there are no observable market data inputs. At September 30, 2022 the determination of the estimated fair value of the investment includes comparison to the market capitalization of comparable public companies.
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
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 and collar 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 and collar option contracts are typically extended adding incremental quarters at established put strike prices to provide the necessary price protection.
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.
| 2022 | |
| Copper increase/decrease by US0.10/lb.1 | 182 |
All values are in US Dollars.
^1^The analysis is based on the assumption that the period-end copper price increases/decreases US$0.10/lb, with all other variables held constant. At September 30, 2022, 1.3 million pounds of copper in concentrate were exposed to copper price movements. The closing exchange rate at September 30, 2022 of CAD/USD 1.3707.
The sensitivities in the above tables 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
Management's Discussion and Analysis
This management 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 condensed consolidated financial statements and notes thereto, prepared in accordance with IAS 34 of International Financial Reporting Standards ("IFRS") for the three and nine months ended September 30, 2022 (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 November 2, 2022. 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
Management's Discussion and Analysis
CONTENTS
| OVERVIEW | 3 |
|---|---|
| HIGHLIGHTS | 3 |
| REVIEW OF OPERATIONS | 5 |
| GIBRALTAR OUTLOOK | 7 |
| FLORENCE COPPER | 7 |
| LONG-TERM GROWTH STRATEGY | 8 |
| MARKET REVIEW | 9 |
| FINANCIAL PERFORMANCE | 10 |
| FINANCIAL CONDITION REVIEW | 16 |
| SUMMARY OF QUARTERLY RESULTS | 20 |
| CRITICAL ACCOUNTING POLICIES AND ESTIMATES | 20 |
| INTERNAL AND DISCLOSURE CONTROLS OVER FINANCIAL REPORTING | 21 |
| KEY MANAGEMENT PERSONNEL | 22 |
| NON-GAAP PERFORMANCE MEASURES | 22 |
TASEKO MINES LIMITED
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 North America 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 will be one of the lowest energy and greenhouse gas-intense sources of mined copper and is advancing towards construction, as well as the Yellowhead copper, New Prosperity gold-copper, and Aley niobium projects.
HIGHLIGHTS
| Operating Data (Gibraltar - 100% basis) | Three months ended<br>September 30, | Nine months ended<br>September 30, | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | Change | 2022 | 2021 | Change | |||||
| Tons mined (millions) | 23.2 | 25.2 | (2.0 | ) | 65.7 | 82.1 | (16.4 | ) | ||
| Tons milled (millions) | 8.2 | 7.4 | 0.8 | 23.0 | 21.9 | 1.1 | ||||
| Production (million pounds Cu) | 28.3 | 34.5 | (6.2 | ) | 70.3 | 83.5 | (13.2 | ) | ||
| Sales (million pounds Cu) | 26.7 | 32.4 | (5.7 | ) | 75.8 | 81.1 | (5.3 | ) | ||
| Financial Data | Three months ended<br>September 30, | Nine months ended<br>September 30, | ||||||||
| (Cdn$ in thousands, except for per share amounts) | 2022 | 2021 | Change | 2022 | 2021 | Change | ||||
| Revenues | 89,714 | 132,563 | (42,849 | ) | 290,991 | 330,306 | (39,315 | ) | ||
| Earnings from mining operations before depletion and amortization^*^ | 18,570 | 83,681 | (65,111 | ) | 68,564 | 168,476 | (99,912 | ) | ||
| Cash flows provided by operations | 12,115 | 68,319 | (56,204 | ) | 82,212 | 137,538 | (55,326 | ) | ||
| Adjusted EBITDA^*^ | 34,031 | 76,291 | (42,260 | ) | 73,854 | 147,745 | (73,891 | ) | ||
| Adjusted net income (loss)^*^ | 4,513 | 27,020 | (22,507 | ) | (5,423 | ) | 31,433 | (36,856 | ) | |
| Per share - basic ("adjusted EPS")^*^ | 0.02 | 0.10 | (0.08 | ) | (0.02 | ) | 0.11 | (0.13 | ) | |
| Net income (loss) (GAAP) | (23,517 | ) | 22,485 | (46,002 | ) | (23,696 | ) | 24,710 | (48,406 | ) |
| Per share - basic ("EPS") | (0.08 | ) | 0.08 | (0.16 | ) | (0.08 | ) | 0.09 | (0.17 | ) |
TASEKO MINES LIMITED
Management's Discussion and Analysis
Third Quarter Review
- Third quarter Adjusted EBITDA* was $34.0 million, earnings from mining operations before depletion and amortization* was $18.6 million, and Adjusted net income* was $4.5 million ($0.02 per share);
- On September 29, 2022, the EPA concluded its 45-day public comment period for the draft Underground Injection Control permit for Florence Copper. The project received overwhelming support from business organizations, community leaders and state-wide organizations in written submissions and as voiced at the public hearing;
- Gibraltar produced 28.3 million pounds of copper for the quarter. Head grades improved over the first half of the year to 0.22% but were still impacted by higher than normal mining dilution;
- Mill throughput exceeded nameplate capacity at an average rate of 89,400 tons per day in the quarter due to the softer ore from the Gibraltar pit. Copper recoveries were 77.1% for the quarter and were primarily impacted by the lower head grade;
- Total site costs* in the third quarter decreased from the previous quarters of 2022 but remained elevated compared to 2021 primarily due to higher diesel prices;
- Gibraltar sold 26.7 million pounds of copper in the quarter (100% basis) at an average realized copper price of US$3.48 per pound;
- GAAP net loss was $23.5 million ($0.08 loss per share) and reflected unrealized foreign exchange losses of $28.1 million on the translation of the Company's US dollar denominated debt;
- Cash flow from operations was $12.1 million which did not include $18.6 million in cash proceeds realized from copper put option contracts in the quarter;
- The Company has copper collar contracts in place to protect a minimum copper price of US$3.75 per pound until mid-2023. The Company also has 18 million litres of fuel call options in place to provide a ceiling cost for its share of diesel over the same period;
- Development costs incurred for Florence Copper were $27.3 million in the quarter and included further payments for the major processing equipment being delivered for the SX/EW plant, other pre-construction activities and ongoing site costs; and
- The Company had a cash balance of $142 million and has approximately $210 million of available liquidity at September 30, 2022, including its undrawn US$50 million revolving credit facility.
TASEKO MINES LIMITED
Management's Discussion and Analysis
REVIEW OF OPERATIONS
Gibraltar mine (75% Owned)
| Operating data (100% basis) | Q3 2022 | Q2 2022 | Q1 2022 | Q4 2021 | Q3 2021 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Tons mined (millions) | 23.2 | 22.3 | 20.3 | 23.3 | 25.2 | |||||||||
| Tons milled (millions) | 8.2 | 7.7 | 7.0 | 7.4 | 7.4 | |||||||||
| Strip ratio | 1.5 | 2.8 | 2.6 | 2.2 | 1.3 | |||||||||
| Site operating cost per ton milled (Cdn)* | 11.33 | $ | 11.13 | $ | 11.33 | $ | 9.94 | $ | 8.99 | |||||
| Copper concentrate | ||||||||||||||
| Head grade (%) | 0.22 | 0.17 | 0.19 | 0.24 | 0.28 | |||||||||
| Copper recovery (%) | 77.1 | 77.3 | 80.2 | 80.4 | 84.2 | |||||||||
| Production (million pounds Cu) | 28.3 | 20.7 | 21.4 | 28.8 | 34.5 | |||||||||
| Sales (million pounds Cu) | 26.7 | 21.7 | 27.4 | 23.8 | 32.4 | |||||||||
| Inventory (million pounds Cu) | 4.2 | 2.7 | 4.0 | 9.9 | 4.9 | |||||||||
| Molybdenum concentrate | ||||||||||||||
| Production (thousand pounds Mo) | 324 | 199 | 236 | 450 | 571 | |||||||||
| Sales (thousand pounds Mo) | 289 | 210 | 229 | 491 | 502 | |||||||||
| Per unit data (US per pound produced)* | ||||||||||||||
| Site operating costs* | 2.52 | $ | 3.25 | $ | 2.95 | $ | 2.02 | $ | 1.53 | |||||
| By-product credits* | (0.15 | ) | (0.15 | ) | (0.18 | ) | (0.30 | ) | (0.25 | ) | ||||
| Site operating costs, net of by-product credits* | 2.37 | $ | 3.10 | $ | 2.77 | $ | 1.72 | $ | 1.28 | |||||
| Off-property costs | 0.35 | 0.37 | 0.36 | 0.22 | 0.29 | |||||||||
| Total operating costs (C1)* | 2.72 | $ | 3.47 | $ | 3.13 | $ | 1.94 | $ | 1.57 |
All values are in US Dollars.
TASEKO MINES LIMITED
Management's Discussion and Analysis
OPERATIONS ANALYSIS
Third Quarter Review
Gibraltar produced 28.3 million pounds of copper for the quarter, a 37% increase over the second quarter. Head grades improved over the first half of the year to 0.22% but still were impacted by higher than normal mining dilution. Grades are expected to continue improving into the fourth quarter as mining advances deeper into the Gibraltar pit, and a number of initiatives are underway to reduce the above normal mining dilution being experienced in this pit.
Mill throughput averaged 89,400 tons per day exceeding the name plate capacity by 5% and the best quarterly average for Gibraltar. Copper recoveries of 77% were primarily impacted by the lower grade and are also expected to improve as consistency and quality of the Gibraltar pit ore improves at depth.
A total of 23.2 million tons were mined in the third quarter as mining operations were focused in the Gibraltar pit. The strip ratio of 1.5 was lower than prior quarter as stripping activity in Pollyanna was minimal and ore stockpiles increased by 1.0 million tons in the third quarter.
Total site costs* at Gibraltar of $71.0 million (which includes capitalized stripping of $1.1 million) for Taseko's 75% share were $10.0 million higher than the third quarter of 2021 due to higher diesel prices (56% higher than 2021) and with grinding media and other input costs also increasing.
Molybdenum production was 324 thousand pounds in the third quarter due to lower grades. At an average molybdenum price of US$16.10 per pound, molybdenum generated a by-product credit per pound of copper produced of US$0.15 in the third quarter.
Off-property costs per pound produced* were US$0.35 for the third quarter reflecting higher ocean freight costs (including bunkers) and increased treatment and refining charges (TCRC) compared to the same quarter in the prior year.
Total operating costs per pound produced (C1)* were US$2.72 for the quarter and were US$1.15 per pound higher than the third quarter last year as shown in the bridge graph below:
Of the US$1.15 variance in C1 costs in the third quarter of 2022 compared to the prior year quarter, US$0.46 was due to decreased copper production, US$0.35 was due to less mining and other costs being capitalized, US$0.11 was due to lower molybdenum production, US$0.26 was due to inflation arising from increased prices for diesel, grinding media, explosives and other site costs, US$0.06 was due to higher treatment and refining charges, and partially offset by a weakening Canadian dollar impact of US$0.09.
TASEKO MINES LIMITED
Management's Discussion and Analysis
GIBRALTAR OUTLOOK
Ore from the Gibraltar pit will be the primary source of mill feed for the fourth quarter and for 2023. Copper production in the fourth quarter is expected to improve by approximately 10% over the third quarter and continue at those higher production rates into 2023 as mining progresses deeper into the Gibraltar pit. Stripping activities for the new Connector pit will also commence in 2023. The primary crusher for Mill 1 which overlays the Connector zone is scheduled to be moved to its new location in the third quarter of 2023.
The Company currently has copper price collar contracts in place that secure a minimum copper price of US$3.75 per pound for a substantial portion of its attributable production until June 30, 2023. The Company has also executed price caps for its share of diesel purchases. Improving production combined with this copper hedge and diesel price protection program should continue to provide the foundation for stable financial performance and operating margins at the Gibraltar mine over the coming quarters.
FLORENCE COPPER
Once in commercial production, Florence Copper is expected to have the lowest energy and greenhouse gas-intensity ("GHG") of any copper producer in North America, and will contribute to reducing the United States' reliance on foreign producers for a metal considered to be foundational for the transition to a low-carbon economy. It is a low-cost copper project with 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 be in the lowest quartile of the global copper cost curve and will have one of the smallest environmental footprints of any copper mine in the world with carbon emissions, water and energy consumption all dramatically lower than a conventional mine.
The Company has successfully operated a Production Test Facility ("PTF") since 2018 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) based on the Company's published 2017 NI 43-101 technical report. 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.
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 Underground Injection Control permit ("UIC") from the U.S. Environmental Protection Agency ("EPA"), which is the final permitting step required prior to construction of the commercial ISCR facility. On September 29, 2022, the EPA concluded its public comment period on the draft UIC it issued following a virtual public hearing that was held on September 15, 2022. Public comments submitted to the EPA have demonstrated strong support for the Florence Copper project among local residents, business organizations, community leaders and state-wide organizations. Over 98% of written comments to the EPA were supportive of the project and supplement the unanimous public support voiced at the EPA's public hearing. Taseko has reviewed all of the submitted comments and is confident they will be fully addressed by the EPA during their review, prior to issuing the final UIC permit.
Detailed engineering and design for the commercial production facility was substantially completed in 2021 and procurement activities are well advanced with the Company having awarded and procured the key contract for the major processing equipment associated with the solvent extraction and electrowinning ("SX/EW") plant. The Company has incurred $79.6 million of costs for Florence in the nine month period ended September 30, 2022 and most of ordered SX/EW plant equipment is expected to be on site by the end of year. Florence Copper also has outstanding purchase commitments of $16.4 million as at September 30, 2022. Deploying this strategic capital and awarding key contracts has assisted with protecting the project execution plan including against supply chain challenges, mitigated inflation risk and should ensure a smooth transition into construction once the final UIC permit is received.
TASEKO MINES LIMITED
Management's Discussion and Analysis
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 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 based on the Company's 2020 NI 43-101 technical report. 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 preparing to advance into the environmental assessment process and is undertaking some additional engineering work in conjunction with ongoing engagement with local communities including First Nations. The Company is also collecting baseline data and modeling which will be used to support the environmental assessment and permitting of the project.
New Prosperity Gold-Copper Project
In December 2019, the Tŝilhqot'in Nation, as represented by the Tŝilhqot'in National Government, and Taseko entered into a confidential dialogue, with the involvement of the Province of British Columbia, to try to obtain a long-term resolution 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 standstill was extended on December 4, 2020, to continue what was a constructive dialogue that had been delayed by the COVID-19 pandemic. The dialogue is not complete but it remains constructive, and in December 2021, the parties agreed to extend the standstill for a further year so that they and the Province of British Columbia can continue to pursue a long-term and mutually acceptable resolution of the conflict.
Aley Niobium Project
Environmental monitoring and product marketing initiatives on the Aley niobium project continue. The converter pilot test is ongoing and is providing additional process data to support the design of the commercial process facilities and will provide final product samples for marketing purposes.
TASEKO MINES LIMITED
Management's Discussion and Analysis
MARKET REVIEW
| Copper | Molybdenum | Canadian/US Dollar Exchange |
|---|
Prices (USD per pound for Commodities)
(Source Data: Bank of Canada, Platts Metals, and London Metals Exchange)
Copper prices are currently around US$3.50 per pound and have stabilized from a dramatic sell off in June that was triggered by global recession fears and an expected slowdown in China. In March 2022, copper reached a record high of US$5.09 per pound due to uncertainty arising from the Ukraine conflict, rising inflation rates and low warehouse inventory levels. Copper prices have steadily recovered since the onset of COVID-19 due to tight physical market conditions, ensuing supply chain bottlenecks, inflation pressures caused by economic stimulus measures and from geopolitical challenges. Europe's imminent need to transition away from Russian energy dependence and invest further in alternative energy should also accelerate growth in the demand for copper in the medium term.
Electrification of transportation and the focus on government investment in construction and infrastructure including initiatives focused on the renewable energy, electrification and meeting net zero targets by 2050 are inherently copper intensive. According to S&P Global's copper market outlook report published in July 2022, titled 'The Future of Copper: Will the looming supply gap short-circuit the energy transition?', global demand for copper is expected to double from 25 million metric tonnes today to roughly 50 million tonnes by 2035. All of these factors continue to provide unprecedented catalysts for higher copper prices to continue. Short-term volatility is expected due to macroeconomic uncertainty and the risk of a US and global recession. While some analysts predict a potential copper market balance by 2023 based on current development projects under construction and the recession caused pullback in demand, the medium to longer-term outlook for copper remains extremely favorable. This increased demand for copper after years of under investment by the copper industry in new primary mine supply, coupled with inherently low recycling rates, is expected to support strong copper prices over the coming decade to incentivize new supply.
Approximately 6% of the Company's revenue is made up of molybdenum sales. During 2021, the average molybdenum price was US$15.94 per pound and reached above US$20.00 per pound for a period. Molybdenum prices are currently around US$18.75 per pound, with demand and prices driven by steel demand and a boom in the oil and gas sector due to the Ukraine conflict. The Company's sales agreements specify molybdenum pricing based on the published Platts Metals reports.
Approximately 80% of the Gibraltar mine's costs are Canadian dollar denominated and therefore, fluctuations in the Canadian/US dollar exchange rate can have a significant effect on the Company's operating results and unit production costs, which are earned and in some cases reported in US dollars. Overall, the Canadian dollar weakened throughout the quarter due to a strengthening US dollar caused by global recession concerns.
TASEKO MINES LIMITED
Management's Discussion and Analysis
FINANCIAL PERFORMANCE
Earnings
| Three months ended<br>September 30, | Nine months ended<br>September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Cdn$ in thousands) | 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||
| Net income (loss) | (23,517 | ) | 22,485 | (46,002 | ) | (23,696 | ) | 24,710 | (48,406 | ) | ||
| Net unrealized foreign exchange loss | 28,083 | 9,511 | 18,572 | 35,306 | 14,545 | 20,761 | ||||||
| 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 gain on derivative instruments | (72 | ) | (6,817 | ) | 6,745 | (23,333 | ) | (5,645 | ) | (17,688 | ) | |
| Estimated tax effect of adjustments | 19 | 1,841 | (1,822 | ) | 6,300 | (1,916 | ) | 8,216 | ||||
| Adjusted net income (loss) ^*^ | 4,513 | 27,020 | (22,507 | ) | (5,423 | ) | 31,433 | (36,856 | ) |
The Company's adjusted net income was $4.5 million ($0.02 per share) for the three months ended September 30, 2022, compared to adjusted net income of $27.0 million ($0.10 per share) for the same period in 2021. Earnings in the third quarter were impacted by lower copper production and sales volumes, lower average LME copper prices, higher site costs due to the rising input costs such as diesel and a decrease in waste stripping costs being capitalized compared to the same prior period. Positively impacting earnings this quarter was net realized gains of $16.6 million from the Company's copper price protection program and $4.0 million less in depletion and amortization compared to the same prior period.
Net loss was $23.5 million ($0.08 loss per share) for the three months ended September 30, 2022 after inclusion of the $28.1 million in unrealized foreign exchange losses on the outstanding senior secured notes due to the strengthening US dollar in the quarter.
The Company's adjusted net loss was $5.4 million ($0.02 loss per share) for the nine months ended September 30, 2022, compared to adjusted net income of $31.4 million ($0.11 per share) for the same period in 2021. The adjusted net loss in the nine month period was primarily due to lower average LME copper prices, higher site costs due to the rising input costs such as diesel and a decrease in waste stripping costs being capitalized. Partially offsetting these impacts was $11.9 million in net realized gains from copper put options and $8.6 million less in depletion and amortization than the same prior period
The Company's net loss was $23.7 million ($0.08 loss per share) for the nine months ended September 30, 2022 after deduction of $35.3 million in unrealized foreign exchange losses on the outstanding senior secured notes due to the stronger US dollar, partially offset by unrealized gains on copper put options of $23.3 million (less tax effects) for copper collars that remain outstanding at the end of September 30, 2022.
Net income in the first nine months of 2021 was also negatively impacted by a net foreign exchange loss of $1.5 million arising from the revaluation of the new 2026 Notes due to the weakening US dollar trend in the first quarter of 2021 and settlement of the US$250 million 8.75% Senior Secured Notes ("2022 Notes"). The $12.7 million settlement loss recorded upon repayment of the 2022 Notes also decreased the GAAP net income in the first half of 2021.
No adjustments are made to adjusted net income (loss) for negative provisional price adjustments in the quarter.
TASEKO MINES LIMITED
Management's Discussion and Analysis
Revenues
| Three months ended<br>September 30, | Nine months ended<br>September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Cdn$ in thousands) | 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||
| Copper contained in concentrate | 87,987 | 125,050 | (37,063 | ) | 289,625 | 306,371 | (16,746 | ) | ||||
| Copper price adjustments on settlement | (541 | ) | 1,173 | (1,714 | ) | (5,350 | ) | 7,701 | (13,051 | ) | ||
| Molybdenum concentrate | 4,416 | 8,972 | (4,556 | ) | 12,190 | 20,202 | (8,012 | ) | ||||
| Molybdenum price adjustments on settlement | 156 | 444 | (288 | ) | (126 | ) | 2,684 | (2,810 | ) | |||
| Silver | 1,448 | 1,409 | 39 | 4,122 | 3,854 | 268 | ||||||
| Total gross revenue | 93,466 | 137,048 | (43,582 | ) | 300,461 | 340,812 | (40,351 | ) | ||||
| Less: Treatment and refining costs | (3,752 | ) | (4,485 | ) | 733 | (9,470 | ) | (10,506 | ) | 1,036 | ||
| Revenue | 89,714 | 132,563 | (42,849 | ) | 290,991 | 330,306 | (39,315 | ) | ||||
| (thousands of pounds, unless otherwise noted) | ||||||||||||
| Sales of copper in concentrate^1^ | 19,229 | 23,423 | (4,194 | ) | 54,677 | 58,622 | (3,945 | ) | ||||
| Average provisional copper price (US$ per pound) | 3.51 | 4.21 | (0.70 | ) | 4.13 | 4.17 | (0.04 | ) | ||||
| Average realized copper price (US$ per pound) | 3.48 | 4.26 | (0.78 | ) | 4.05 | 4.29 | (0.24 | ) | ||||
| Average LME copper price (US$ per pound) | 3.51 | 4.25 | (0.74 | ) | 4.11 | 4.17 | (0.06 | ) | ||||
| Average exchange rate (US$/CAD) | 1.31 | 1.26 | 0.05 | 1.28 | 1.25 | 0.03 |
^1^ 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 September 30, 2022 decreased by $37.1 million compared to the same period in 2021, with $22.6 million of the decrease due to lower sales volumes of 4.2 million pounds (75% basis) and $17.0 million due to lower copper prices, partially offset by $2.5 million due to the favorable impact of a stronger US dollar. Negative provisional price adjustments in the current quarter were only $0.5 million attributed to the Company's practice of fixing prices at the time of shipment directly with customers or through quotational period hedges.
Copper revenues for the nine months ended September 30, 2022 decreased by $16.7 million compared to the same period in 2021, with $20.8 million of the decrease due to lower sales volumes of 3.9 million pounds (75% basis) and $2.9 million of the decrease due to lower copper price in the first nine months of 2022, partially offset by $7.0 million due to the favorable impact of a stronger US dollar. Negative provisional price adjustments in the first nine months of 2022 were $5.4 million due to a decreasing copper price environment during the period, compared to a rising copper price trend in the prior year period. The majority of the provisional price adjustments during the nine month period relate to Q1 and Q2 shipments.
Molybdenum revenues for the three months ended September 30, 2022 decreased by $4.6 million compared to the same period in 2021 due primarily to lower sales volumes by 160 thousand pounds (75% basis) and lower average molybdenum prices of US$16.10 per pound, compared to US$19.05 per pound for the same prior period.
Molybdenum revenues for the nine months ended September 30, 2022 decreased by $8.0 million compared to the same period in 2021 due primarily to lower sales volumes by 586 thousand pounds (75% basis), partially offset by higher average molybdenum prices of US$17.83 per pound, compared to US$14.94 per pound for the same prior period.
TASEKO MINES LIMITED
Management's Discussion and Analysis
Cost of sales
| Three months ended<br>September 30, | Nine months ended<br>September 30, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Cdn in thousands) | 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||
| Site operating costs | 69,920 | 50,134 | 19,786 | 194,016 | 147,043 | 46,973 | ||||||||||
| Transportation costs | 6,316 | 5,801 | 515 | 15,801 | 13,409 | 2,392 | ||||||||||
| Changes in inventories of finished goods | (2,042 | ) | (762 | ) | (1,280 | ) | 9,188 | 1,702 | 7,486 | |||||||
| Changes in inventories of ore stockpiles | (3,050 | ) | (6,291 | ) | 3,241 | 3,422 | (324 | ) | 3,746 | |||||||
| Production costs | 71,144 | 48,882 | 22,262 | 222,427 | 161,830 | 60,597 | ||||||||||
| Depletion and amortization | 13,060 | 17,011 | (3,951 | ) | 41,835 | 50,385 | (8,550 | ) | ||||||||
| Cost of sales | 84,204 | 65,893 | 18,311 | 264,262 | 212,215 | 52,047 | ||||||||||
| Site operating costs per ton milled* | 11.33 | $ | 8.99 | $ | 2.34 | $ | 11.26 | $ | 8.96 | $ | 2.30 |
All values are in US Dollars.
Site operating costs for the three months ended September 30, 2022 increased by $19.8 million compared to the same prior period due to less capitalized stripping costs in the current quarter and input price increases. There was $5.0 million more in diesel costs and $5.0 million more in other costs including grinding media. There was also $9.8 million less in mining costs being capitalized in the third quarter ($1.1 million) compared to the third quarter in 2021 ($10.9 million).
Site operating costs for the nine months ended September 30, 2022 increased by $47.0 million compared to the same prior period primarily due to increased costs comprised of $22.0 million more in diesel costs and $6.1 million more in other costs including grinding media. There was also $18.9 million less in mining costs being capitalized in the nine months ended September 30, 2022 ($28.2 million) compared to the same period in 2021 ($47.1 million).
Cost of sales is also impacted by changes in copper concentrate inventories and ore stockpiles. During the third quarter, copper in finished goods inventory increased by 1.6 million pounds, which contributed to a decrease in production costs of $2.0 million for Taseko's 75% share. In addition, there was a net decrease in production costs of $3.1 million for the increase of ore stockpiles by 1.0 million tons during the third quarter of 2022, partially offset with a write-down of ore stockpiles to net realizable value due to the decline in copper prices.
Due to extreme flooding events in southwest BC in the fourth quarter of 2021, there was 6.0 million pounds of additional copper in finished goods at the 2021 year end that was sold in the first quarter of 2022, which contributed to the increase in production costs of $9.2 million in the first nine months of 2022. The ore stockpile also decreased by 2.2 million tons during the nine months ended September 30, 2022, which resulted in an increase in production costs of $3.4 million.
Depletion and amortization for the three and nine months ended September 30, 2022 decreased by $4.0 million and $8.6 million, respectively, over the same prior period due to increases in the remaining mine life and units of production arising from the Gibraltar reserve update which extended the mine life by an additional 7 years. Furthermore, ore tons that were mined from the Pollyanna pit in the first half of 2021 had a higher depreciation cost per ton compared to the current ore being mined from the Gibraltar pit.
TASEKO MINES LIMITED
Management's Discussion and Analysis
Other operating (income) expenses
| Three months ended<br>September 30, | Nine months ended<br>September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Cdn$ in thousands) | 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||
| General and administrative | 2,263 | 2,905 | (642 | ) | 8,261 | 13,367 | (5,106 | ) | ||||
| Share-based compensation expense | 1,101 | 76 | 1,025 | 2,068 | 4,474 | (2,406 | ) | |||||
| Realized (gain) loss on derivative instruments | (16,375 | ) | 4,722 | (21,097 | ) | (11,730 | ) | 7,620 | (19,350 | ) | ||
| Unrealized gain on derivative instruments | (72 | ) | (6,817 | ) | 6,745 | (23,333 | ) | (5,645 | ) | (17,688 | ) | |
| Project evaluation (recovery) expenditures | 91 | (123 | ) | 214 | 369 | 325 | 44 | |||||
| Other income, net | (326 | ) | (350 | ) | 24 | (981 | ) | (1,146 | ) | 165 | ||
| (13,318 | ) | 413 | (13,731 | ) | (25,346 | ) | 18,995 | (44,341 | ) |
General and administrative expenses have decreased in the three and nine months ended September 30, 2022, compared to the same periods in 2021, primarily due to executives that retired in 2021 as part of the Company's executive succession plan.
Share-based compensation expense is comprised of amortization of share options and performance share units and the expense on deferred share units. Share-based compensation expense decreased for the nine months ended September 30, 2022, compared to the same period in 2021, primarily due to decreases in the Company's share price during the period and its impact on the valuation of the deferred share units. More information is set out in Note 14 of the Financial Statements.
For the three months ended September 30, 2022, the Company realized a net gain on derivative instruments of $16.4 million primarily due to the copper collars covering production for the quarter that settled in-the-money, net of expensing of premiums paid, compared to a realized loss of $4.7 million in the third quarter of 2021.
For the nine months ended September 30, 2022, the Company realized a net gain on derivative instruments of $11.7 million primarily due to the copper collars covering the third quarter production that settled in-the-money, net of expensing of premiums paid, compared to a net realized loss of $7.6 million for the first nine months of 2021. The net realized gain for the nine month period includes $0.2 million of realized loss on fuel call options.
For the three months ended September 30, 2022, the net unrealized gain on derivative instruments of $0.1 million relates primarily to the fair value adjustments on the outstanding copper price collars covering the remainder of 2022 and first half of 2023, partially offset by the unrealized loss on the fuel call options, compared to a net unrealized gain of $6.8 million for the third quarter of 2021.
For the nine months ended September 30, 2022, the net unrealized gain on derivative instruments of $23.3 million relates primarily to the fair value adjustments on the outstanding copper price collars of $24.0 million, partially offset by the unrealized loss on the fuel call options of $0.7 million, compared to a net unrealized gain of $5.6 million for the third quarter of 2021.
Project evaluation expenditures represent costs associated with the New Prosperity project.
TASEKO MINES LIMITED
Management's Discussion and Analysis
Finance expenses and income
| Three months ended<br>September 30, | Nine months ended<br>September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Cdn$ in thousands) | 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||
| Interest expense | 10,317 | 9,871 | 446 | 30,475 | 28,716 | 1,759 | ||||||
| Amortization of financing fees | 635 | 489 | 146 | 1,876 | 1,541 | 335 | ||||||
| Finance expense - deferred revenue | 1,441 | 1,414 | 27 | 4,250 | 4,176 | 74 | ||||||
| Accretion of PER | 92 | 101 | (9 | ) | 275 | 310 | (35 | ) | ||||
| Finance income | (654 | ) | (201 | ) | (453 | ) | (1,102 | ) | (460 | ) | (642 | ) |
| Loss on settlement of long-term debt | - | - | - | - | 5,798 | (5,798 | ) | |||||
| 11,831 | 11,674 | 157 | 35,774 | 40,081 | (4,307 | ) |
Interest expense for the three and nine months ended September 30, 2022 increased from the prior year period due to higher overall interest accrued on the new senior secured notes issued in February 2021.
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").
As part of the senior secured notes refinancing completed in February 2021, the Company redeemed its US$250 million senior secured notes on March 3, 2021, which resulted in an accounting loss of $5.8 million, comprised of the write-off of deferred financing costs of $4.0 million and additional interest costs paid over the call period of $1.8 million. The Company also paid a one-time redemption call premium of $6.9 million on the settlement of the 2022 Notes which is disclosed separately from finance expense.
Income tax
| Three months ended<br>September 30, | Nine months ended<br>September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| (Cdn$ in thousands) | 2022 | 2021 | Change | 2022 | 2021 | Change | ||
| Current income tax expense | 224 | 1,354 | (1,130 | ) | 212 | 2,295 | (2,083 | ) |
| Deferred income tax expense | 3,276 | 20,956 | (17,680 | ) | 5,398 | 22,746 | (17,348 | ) |
| Income tax expense | 3,500 | 22,310 | (18,810 | ) | 5,610 | 25,041 | (19,431 | ) |
| Effective tax rate | (17.5)% | 49.8% | (67.3)% | (31.0)% | 50.3% | (81.3)% | ||
| Canadian statutory rate | 27.0% | 27.0% | - | 27.0% | 27.0% | - | ||
| B.C. Mineral tax rate | 9.5% | 9.5% | - | 9.5% | 9.5% | - |
TASEKO MINES LIMITED
Management's Discussion and Analysis
Effective tax rate reconciliation
| Three months ended<br>September 30, | Nine months ended<br>September 30, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (Cdn$ in thousands) | 2022 | 2021 | Change | 2022 | 2021 | Change | ||||
| Income tax expense (recovery) at | ||||||||||
| Canadian statutory rate of 36.5% | (7,305 | ) | 16,346 | (23,651 | ) | (6,600 | ) | 18,155 | (24,755 | ) |
| Permanent differences | 7,163 | 4,105 | 3,058 | 8,329 | 6,607 | 1,722 | ||||
| Foreign tax rate differential | 8 | - | 8 | 44 | 96 | (52 | ) | |||
| Unrecognized tax benefits | 3,637 | 1,859 | 1,778 | 3,987 | 109 | 3,878 | ||||
| Deferred tax adjustments related to prior periods | (3 | ) | - | (3 | ) | (150 | ) | 74 | (224 | ) |
| Income tax expense | 3,500 | 22,310 | (18,810 | ) | 5,610 | 25,041 | (19,431 | ) |
The overall income tax expense for the three and nine months ended September 30, 2022 was due to deferred income tax expense recognized on income for accounting purposes. The effective tax rate for the third quarter is negative and less than the combined B.C. mineral and income tax rate of 36.5% due to the non-taxability of unrealized foreign exchange losses on revaluation of the senior secured notes and as certain expenses such as finance charges, derivative gains and general and administration costs are not deductible for BC mineral tax purposes.
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 nine months ended September 30, 2021 and 2022, relative to net income (loss) for those periods.
Current income taxes represent an estimate of B.C. mineral taxes payable.
TASEKO MINES LIMITED
Management's Discussion and Analysis
FINANCIAL CONDITION REVIEW
Balance sheet review
| At September 30, | At December 31, | **** | ||
|---|---|---|---|---|
| (Cdn$ in thousands) | 2022 | 2021 | Change | |
| Cash and equivalents | 142,048 | 236,767 | (94,719 | ) |
| Other current assets | 111,463 | 100,460 | 11,003 | |
| Property, plant and equipment | 970,140 | 837,839 | 132,301 | |
| Other assets | 8,657 | 8,129 | 528 | |
| Total assets | 1,232,308 | 1,183,195 | 49,113 | |
| Current liabilities | 98,040 | 85,172 | 12,868 | |
| Debt: | ||||
| Senior secured notes | 540,101 | 497,388 | 42,713 | |
| Equipment related financings | 22,825 | 34,361 | (11,536 | ) |
| Deferred revenue | 48,198 | 45,356 | 2,842 | |
| Other liabilities | 163,393 | 162,400 | 993 | |
| Total liabilities | 872,557 | 824,677 | 47,880 | |
| Equity | 359,751 | 358,518 | 1,233 | |
| Net debt (debt minus cash and equivalents) | 420,878 | 294,982 | 125,896 | |
| Total common shares outstanding (millions) | 286.4 | 284.9 | 1.5 |
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.
Property, plant and equipment increased by $132.3 million in the nine months ended September 30, 2022, which includes $79.6 million for Florence Copper development costs as well as capital expenditures at Gibraltar (both sustaining and capital projects).
Net debt increased by $125.9 million in the nine months ended September 30, 2022, primarily due to investment of cash in the development of Florence Copper, ongoing debt repayment and the effect of a weakening Canadian dollar against US dollar net borrowings.
Deferred revenue relates to the advance payments received from Osisko for the sale of Taseko's share of future silver production from Gibraltar.
As at November 2, 2022, there were 286,401,919 common shares and 9,386,166 stock options outstanding. More information on these instruments and the terms of their exercise is set out in Note 14 of the Financial Statements.
Liquidity, cash flow and capital resources
At September 30, 2022, the Company had cash and cash equivalents of $142.0 million (December 31, 2021 - $236.8 million).
TASEKO MINES LIMITED
Management's Discussion and Analysis
Cash flow provided by operations during the three months ended September 30, 2022 was $12.1 million compared to $68.3 million for the same prior period. The decrease in cash flow provided by operations was due primarily to lower copper sales volumes and copper prices, increased site operating costs and lower capitalized stripping in the third quarter of 2022.
Cash flow provided by operations during the nine months ended September 30, 2022 was $82.2 million compared to $137.5 million for the same prior period. The decrease in cash flow provided by operations was due primarily to lower copper sales volumes and copper prices, lower molybdenum sales volume, increased site operating costs and lower capitalized stripping. Also cash flow provided by operations in the current nine month period was positively impacted by the timing of working capital items.
Cash used for investing activities during the three months ended September 30, 2022 was $27.5 million compared to $35.8 million for the same prior period. Investing cash flows in the third quarter includes $18.0 million for capital expenditures at Gibraltar (which includes $1.1 million for capitalized stripping costs, $7.8 million for sustaining capital, and $9.1 million for capital projects), and $27.3 million of cash expenditures for development costs at Florence Copper. The Company spent $1.4 million for the purchase of diesel call options that cover the period from October 2022 to June 2023. Also during the three month period, the Company received $18.6 million from its copper put option contracts that settled in the money.
Cash used for investing activities during the nine months ended September 30, 2022 was $129.0 million compared to $114.8 million for the same prior period. Investing cash flows in the period includes $66.8 million for capital expenditures at Gibraltar (which includes $28.2 million for capitalized stripping costs, $17.4 million for sustaining capital, and $21.2 million for capital projects), $72.4 million of cash expenditures for Florence Copper and $7.3 million for the purchase of copper collars covering production from July 2022 to June 2023. During the nine month period, the Company received $18.6 million from its copper put option contracts that settled in the money.
Net cash used for financing activities for the three months ended September 30, 2022 was $23.1 million comprised of interest paid of $18.6 million and principal repayments for equipment loans and leases of $4.4 million.
Net cash used for financing activities for the nine months ended September 30, 2022 was $54.0 million comprised of interest paid of $38.1 million, principal repayments for equipment loans and leases of $14.6 million, and $1.9 million to settle performance share units that vested in January 2022. Net cash provided by financing activities for the nine months ended September 30, 2021 was $131.8 million and included the net proceeds from the issuance of the US$400 million 7% senior secured notes ("2026 Notes") due in February 2026.
Liquidity outlook
The Company has approximately $210 million of available liquidity at September 30, 2022, including a cash balance of $142 million and an undrawn US$50 million revolving credit facility.
In the third quarter of 2022, the Company realized cash proceeds of $18.6 million, with $8.7 million from settlement of its July, August and September collar contracts and $9.9 million from the amendment of its copper price collar contracts from August to December for 35 million pounds of copper by lowering the strike floor price from US$4.00 per pound to US$3.75 per pound.
With a minimum US$3.75 per pound floor price for 51 million pounds of copper production until June 2023, continued stable operating margins and cash flows are expected from Gibraltar over the next several quarters. In addition to ongoing sustaining capital at Gibraltar, the Company has commenced a capital project to relocate the crusher for Mill 1 at the Gibraltar mine to a new location which is scheduled to be moved by the third quarter of 2023. The Company does not have any significant capital plans for its other development projects over the next 12 months.
TASEKO MINES LIMITED
Management's Discussion and Analysis
The Company intends to develop the commercial facility at Florence Copper once the final UIC permit is received from the EPA. The Company could raise additional capital if needed through equity financings or asset sales, including royalties, sales of project interests, or joint ventures or additional credit facilities, including additional notes offerings. Also 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.
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 price 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").
Hedging strategy
The Company generally fixes all or substantially all of the copper prices of its copper concentrate shipments at the time of shipment. Where the customer's offtake contract does not provide a price fixing option, the Company may look to undertake a quotational period hedge directly with a financial institution as the counterparty in order to fix the price of the shipment.
To protect against sudden and unexpected copper price volatility in the market, the Company's hedging strategy aims to secure a minimum price for a significant portion of future copper production using copper put options that are either purchased outright or partially funded by the sale of copper call options that are significantly out of the money. The amount and duration of the copper 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 regularly to ensure that adequate revenue protection is in place.
Hedge positions are typically extended by adding incremental quarters at established floor prices (i.e. the strike price of the copper put option) to provide the necessary price protection. Considerations for the cost of the hedging program include an assessment of Gibraltar's estimated production costs, copper price trends and the Company's fixed capital requirements during the relevant period. During periods of volatility or step changes in the copper price, the Company may revisit outstanding hedging contracts and determine whether copper put (floor) or call (ceiling) levels should be adjusted in line with the market while maintaining copper price protection.
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. Since the onset of the Ukraine war earlier this year, diesel prices have increased dramatically. To protect against a potential operating margin squeeze that could arise from oil and diesel price shocks, the Company purchases diesel call options to provide a price cap for its share of diesel that is used by its mining fleet. Taseko has in place diesel price protection to June 2023 which caps its site landed diesel cost to an estimated $1.75 per litre. The Company will continue to look to extend this protection into 2023 in the coming quarters.
TASEKO MINES LIMITED
Management's Discussion and Analysis
A summary of the Company's outstanding hedges are shown below:
| Notional amount | Strike price | Term to maturity | Original cost | |
|---|---|---|---|---|
| At November 2, 2022 | ||||
| Copper collars | 14.0 million lbs | US$3.75 per lb<br>US$5.40 per lb | November to<br>December 2022 | $1.4 million |
| Copper collars | 30.0 million lbs | US$3.75 per lb<br>US$4.72 per lb | January to June 2023 | $3.0 million |
| Fuel call options | 4.0 million ltrs | US$1.05 per ltr | November to<br>December 2022 | $0.2 million |
| Fuel call options | 12.0 million ltrs | US$1.05 per ltr | January to June 2023 | $1.1 million |
Commitments and contingencies
Commitments
| Payments due | **** | ||||||
|---|---|---|---|---|---|---|---|
| (Cdn$ in thousands) | Remainderof 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total |
| Debt: | |||||||
| 2026 Notes | - | - | - | - | 548,280 | - | 548,280 |
| Interest | - | 38,380 | 38,380 | 38,380 | 19,190 | - | 134,330 |
| Equipment loans: | |||||||
| Principal | 1,361 | 4,804 | 1,375 | - | - | - | 7,540 |
| Interest | 97 | 200 | 18 | - | - | - | 315 |
| Lease liabilities: | |||||||
| Principal | 2,365 | 3,717 | 2,048 | 1,357 | 899 | 1 | 10,387 |
| Interest | 147 | 396 | 214 | 103 | 24 | - | 884 |
| Lease related obligation: | |||||||
| Rental payment | 657 | 5,497 | - | - | - | - | 6,154 |
| PER ^1^ | 84,562 | 84,562 | |||||
| Capital expenditures | 15,197 | 4,302 | 16 | - | - | - | 19,515 |
| Other expenditures | |||||||
| Transportation related services ^2^ | 1,731 | 11,762 | 11,762 | 4,702 | 823 | - | 30,780 |
^1^ 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. As at September 30, 2022, the Company has provided surety bonds totaling $59.4 million 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 $13.4 million for reclamation security.
^2^ Transportation related services commitments include ocean freight and port handling services, which are both cancellable upon certain operating circumstances.
The Company has made capital expenditure commitments relating to equipment for the Florence Copper project totaling $16.4 million at September 30, 2022.
TASEKO MINES LIMITED
Management's Discussion and Analysis
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 $6.5 million as at September 30, 2022.
The Company has also indemnified 100% of a surety bond issued by the Gibraltar joint venture to the Province of British Columbia. As a result, the Company has indemnified the joint venture partner's 25% share of this obligation, which amounted to $7.3 million as at September 30, 2022.
SUMMARY OF QUARTERLY RESULTS
| 2021 | 2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Cdn in thousands, except per share amounts) | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | ||||
| Revenues | 82,944 | 118,333 | 102,972 | 132,563 | 111,002 | 86,741 | 87,398 | ||||
| Net income (loss) | ) | (5,274 | ) | 5,095 | 11,762 | 22,485 | 13,442 | (11,217 | ) | 5,694 | |
| Basic EPS | ) | (0.02 | ) | 0.02 | 0.04 | 0.08 | 0.05 | (0.04 | ) | 0.02 | |
| Adjusted net income (loss) * | (16,098 | ) | 6,162 | 13,312 | 27,020 | 9,948 | (5,534 | ) | (7,473 | ) | |
| Adjusted basic EPS * | (0.06 | ) | 0.02 | 0.05 | 0.10 | 0.04 | (0.02 | ) | (0.03 | ) | |
| Adjusted EBITDA * | 1,684 | 38,139 | 52,988 | 76,291 | 47,732 | 23,722 | 20,478 | ||||
| (US per pound, except where indicated) | |||||||||||
| Provisional copper price | 4.33 | 4.57 | 4.40 | 4.21 | 4.34 | 3.92 | 3.30 | ||||
| Realized copper price | 4.08 | 4.59 | 4.37 | 4.26 | 4.48 | 4.09 | 3.69 | ||||
| Total operating costs * | 3.47 | 3.13 | 1.94 | 1.57 | 2.02 | 2.23 | 2.82 | ||||
| Copper sales (million pounds) | 16.3 | 20.5 | 17.9 | 24.3 | 20.0 | 16.5 | 18.8 |
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 2021 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.
TASEKO MINES LIMITED
Management's Discussion and Analysis
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.
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 nine months ended September 30, 2022.
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 September 30, 2022 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting and disclosure.
TASEKO MINES LIMITED
Management's Discussion and Analysis
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.
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 12-months' to 18-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 endedSeptember 30, | Nine months ended<br>September 30, | ||||
|---|---|---|---|---|---|
| (Cdn$ in thousands) | 2022 | 2021 | 2022 | 2021 | |
| Salaries and benefits | 841 | 961 | 6,539 | 5,490 | |
| Post-employment benefits | 178 | 258 | 552 | 1,495 | |
| Share-based compensation expense (recovery) | 959 | (5 | ) | 1,325 | 4,058 |
| 1,978 | 1,214 | 8,416 | 11,043 |
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.
TASEKO MINES LIMITED
Management's Discussion and Analysis
| (Cdn$ in thousands, unless otherwise indicated) -<br>75% basis | 2022<br>Q3 | 2022<br>Q2 | 2022<br>Q1 | 2021<br>Q4 | 2021<br>Q3 | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| Cost of sales | 84,204 | 90,992 | 89,066 | 57,258 | 65,893 | |||||
| Less: | ||||||||||
| Depletion and amortization | (13,060 | ) | (15,269 | ) | (13,506 | ) | (16,202 | ) | (17,011 | ) |
| Net change in inventories of finished goods | 2,042 | (3,653 | ) | (7,577 | ) | 13,497 | 762 | |||
| Net change in inventories of ore stockpiles | 3,050 | (3,463 | ) | (3,009 | ) | 4,804 | 6,291 | |||
| Transportation costs | (6,316 | ) | (4,370 | ) | (5,115 | ) | (4,436 | ) | (5,801 | ) |
| Site operating costs | 69,920 | 64,237 | 59,859 | 54,921 | 50,134 | |||||
| Less by-product credits: | ||||||||||
| Molybdenum, net of treatment costs | (4,122 | ) | (3,023 | ) | (3,831 | ) | (7,755 | ) | (8,574 | ) |
| Silver, excluding amortization of deferred revenue | 25 | 36 | 202 | (330 | ) | 300 | ||||
| Site operating costs, net of by-product credits | 65,823 | 61,250 | 56,230 | 46,836 | 41,860 | |||||
| Total copper produced (thousand pounds) | 21,238 | 15,497 | 16,024 | 21,590 | 25,891 | |||||
| Total costs per pound produced | 3.10 | 3.95 | 3.51 | 2.17 | 1.62 | |||||
| Average exchange rate for the period (CAD/USD) | 1.31 | 1.28 | 1.27 | 1.26 | 1.26 | |||||
| Site operating costs, net of by-product credits<br>(US$ per pound) | 2.37 | 3.10 | 2.77 | 1.72 | 1.28 | |||||
| Site operating costs, net of by-product credits | 65,823 | 61,250 | 56,230 | 46,836 | 41,860 | |||||
| Add off-property costs: | ||||||||||
| Treatment and refining costs | 3,302 | 2,948 | 2,133 | 1,480 | 3,643 | |||||
| Transportation costs | 6,316 | 4,370 | 5,115 | 4,436 | 5,801 | |||||
| Total operating costs | 75,441 | 68,568 | 63,478 | 52,752 | 51,304 | |||||
| Total operating costs (C1) (US$ per pound) | 2.72 | 3.47 | 3.13 | 1.94 | 1.57 |
Total Site Costs
Total site costs is comprised of the site operating costs charged to cost of sales as well as mining costs capitalized to property, plant and equipment in the period. This measure is intended to capture Taseko's share of the total site operating costs incurred in the quarter at the Gibraltar mine calculated on a consistent basis for the periods presented.
| (Cdn$ in thousands, unless otherwise indicated) -<br>75% basis | 2022<br>Q3 | 2022<br>Q2 | 2022<br>Q1 | 2021<br>Q4 | 2021<br>Q3 |
|---|---|---|---|---|---|
| Site operating costs | 69,920 | 64,237 | 59,859 | 54,921 | 50,134 |
| Add: | |||||
| Capitalized stripping costs | 1,121 | 11,887 | 15,142 | 12,737 | 10,882 |
| Total site costs | 71,041 | 76,124 | 75,001 | 67,658 | 61,016 |
TASEKO MINES LIMITED
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 and call premium, 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.
| (Cdn$ in thousands, except per share amounts) | 2022<br>Q3 | 2022<br>Q2 | 2022<br>Q1 | 2021<br>Q4 | ||||
|---|---|---|---|---|---|---|---|---|
| Net income (loss) | (23,517 | ) | (5,274 | ) | 5,095 | 11,762 | ||
| Unrealized foreign exchange (gain) loss | 28,083 | 11,621 | (4,398 | ) | (1,817 | ) | ||
| Unrealized (gain) loss on derivatives | (72 | ) | (30,747 | ) | 7,486 | 4,612 | ||
| Estimated tax effect of adjustments | 19 | 8,302 | (2,021 | ) | (1,245 | ) | ||
| Adjusted net income (loss) | 4,513 | (16,098 | ) | 6,162 | 13,312 | |||
| Adjusted EPS | 0.02 | (0.06 | ) | 0.02 | 0.05 | |||
| (Cdn$ in thousands, except per share amounts) | 2021<br>Q3 | 2021<br>Q2 | 2021<br>Q1 | 2020<br>Q4 | ||||
| Net income (loss) | 22,485 | 13,442 | (11,217 | ) | 5,694 | |||
| Unrealized foreign exchange (gain) loss | 9,511 | (3,764 | ) | 8,798 | (13,595 | ) | ||
| Realized foreign exchange gain on settlement of long-term debt | - | - | (13,000 | ) | - | |||
| Loss on settlement of long-term debt | - | - | 5,798 | - | ||||
| Call premium on settlement of long-term debt | - | - | 6,941 | - | ||||
| Unrealized (gain) loss on derivatives | (6,817 | ) | 370 | 802 | 586 | |||
| Estimated tax effect of adjustments | 1,841 | (100 | ) | (3,656 | ) | (158 | ) | |
| Adjusted net income (loss) | 27,020 | 9,948 | (5,534 | ) | (7,473 | ) | ||
| Adjusted EPS | 0.10 | 0.04 | (0.02 | ) | (0.03 | ) |
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:
TASEKO MINES LIMITED
Management's Discussion and Analysis
- Unrealized foreign exchange gains/losses;
- Unrealized gain/loss on derivatives;
- Loss on settlement of long-term debt (included in finance expenses) and call premium;
- Realized foreign exchange gains on settlement of long-term debt; and
- Amortization of share-based compensation expense.
| (Cdn$ in thousands) | 2022<br>Q3 | 2022<br>Q2 | 2022<br>Q1 | 2021<br>Q4 | ||||
|---|---|---|---|---|---|---|---|---|
| Net income (loss) | (23,517 | ) | (5,274 | ) | 5,095 | 11,762 | ||
| Add: | ||||||||
| Depletion and amortization | 13,060 | 15,269 | 13,506 | 16,202 | ||||
| Finance expense | 12,481 | 12,236 | 12,155 | 12,072 | ||||
| Finance income | (650 | ) | (282 | ) | (166 | ) | (218 | ) |
| Income tax expense | 3,500 | 922 | 1,188 | 9,300 | ||||
| Unrealized foreign exchange (gain) loss | 28,083 | 11,621 | (4,398 | ) | (1,817 | ) | ||
| Unrealized (gain) loss on derivatives | (72 | ) | (30,747 | ) | 7,486 | 4,612 | ||
| Amortization of share-based compensation expense (recovery) | 1,146 | (2,061 | ) | 3,273 | 1,075 | |||
| Adjusted EBITDA | 34,031 | 1,684 | 38,139 | 52,988 | ||||
| (Cdn$ in thousands) | 2021<br>Q3 | 2021<br>Q2 | 2021<br>Q1 | 2020<br>Q4 | ||||
| Net income (loss) | 22,485 | 13,442 | (11,217 | ) | 5,694 | |||
| Add: | ||||||||
| Depletion and amortization | 17,011 | 17,536 | 15,838 | 18,747 | ||||
| Finance expense (includes loss on settlement of long-term debt and call premium) | 11,875 | 11,649 | 23,958 | 10,575 | ||||
| Finance income | (201 | ) | (184 | ) | (75 | ) | (47 | ) |
| Income tax (recovery) expense | 22,310 | 7,033 | (4,302 | ) | (2,724 | ) | ||
| Unrealized foreign exchange (gain) loss | 9,511 | (3,764 | ) | 8,798 | (13,595 | ) | ||
| Realized foreign exchange gain on settlement of long-term debt | - | - | (13,000 | ) | - | |||
| Unrealized (gain) loss on derivatives | (6,817 | ) | 370 | 802 | 586 | |||
| Amortization of share-based compensation expense | 117 | 1,650 | 2,920 | 1,242 | ||||
| Adjusted EBITDA | 76,291 | 47,732 | 23,722 | 20,478 |
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
Management's Discussion and Analysis
| **** | Three months ended<br> September 30, | Nine months ended<br> September 30, | ||
|---|---|---|---|---|
| (Cdn$ in thousands) | 2022 | 2021 | 2022 | 2021 |
| Earnings from mining operations | 5,510 | 66,670 | 26,729 | 118,091 |
| Add: | ||||
| Depletion and amortization | 13,060 | 17,011 | 41,835 | 50,385 |
| Earnings from mining operations before depletion and amortization | 18,570 | 83,681 | 68,564 | 168,476 |
Site operating costs per ton milled
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 Company's site operations on a tons milled basis.
| (Cdn in thousands, except per ton milled amounts) | 2022<br>Q3 | 2022<br>Q2 | 2022<br>Q1 | 2021<br>Q4 | 2021<br>Q3 | ||||
|---|---|---|---|---|---|---|---|---|---|
| Site operating costs (included in cost of sales) | 69,920 | 64,237 | 59,859 | 54,921 | 50,134 | ||||
| Tons milled (thousands) (75% basis) | 6,172 | 5,774 | 5,285 | 5,523 | 5,576 | ||||
| Site operating costs per ton milled | 11.33 | $ | 11.13 | $ | 11.33 | $ | 9.94 | $ | 8.99 |
All values are in US Dollars.