Taseko Mines, Ltd.

Good day and thank you for standing by. Welcome to the TSECO Mines Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brian Burgo, Vice President of Investor Relations. Please go ahead.

Thank you, Liz. Welcome, everyone, and thank you for joining TSECO's third quarter 2024 conference call. The news released in regulatory filing announcing our financial and operational results was issued yesterday after market close and is available on our website at tesecomines.com and on CDAR+. I am joined today in Vancouver by TSECO's President and CEO, Stuart MacDonald, TSECO's Chief Financial Officer, Bryce Hamming, and our COO, Richard Tremblay. As usual, before we get into opening remarks by management, I would like to remind our listeners that our comments and answers to your questions will contain forward-looking information. This information by its nature is subject to risks and uncertainties. As such, actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, I encourage you to read the cautionary note that accompanies our third quarter MD&A and the related news release, as well as the risk factors particular to our company. These documents can be found on our website and also on CEDAR+. I would also like to point out that we will use various non-GAAP measures. You can find explanations and reconciliations regarding these measures in the related news release. And finally, all dollar amounts we will discuss today are in Canadian dollars unless otherwise specified. Following opening remarks, we will open the phone lines to analysts and investors for questions. I would now like to turn the call over to Stuart for his remarks.

Thank you, Brian. Good morning, everyone. I'm glad you're able to join us today for our review of Teseco's third quarter operational and financial results. I'll start with our 100% owned Gibraltar mine, which had a solid operating performance in the period, despite the first few weeks of the quarter being impacted by the planned downtime for major mill repairs in one of our two concentrators. This maintenance work and the in-pit crusher move were disrupted by the labour strike in June. But in the third week of July, we were able to restart concentrator number one and ramp back up to full capacity. Third quarter copper production was 27 million pounds on a head grade of 0.23% copper. Although mill availability was below plan for the quarter, we were still able to process 7.6 million tons of ore, which is a good result considering the disruptions. Copper recoveries notched a little higher than the previous quarter at 79%, but are still lower than normal due to oxidized ore in the upper benches of the new connector pit. So when they are running, the mills have been able to consistently run above the design capacity of 85,000 tons a day, which demonstrates the throughput upside we had spoken about previously. And we expect that higher throughput to drive higher copper production in Q4. However, the lower mill availability in the third quarter means that we no longer expect to make up the production that was lost during the labor strike in June. So we're now forecasting current year production to be between 105 and 110 million pounds, compared to our original guidance of 115 million. One significant change this quarter was molybdenum production, which increased to more than 400,000 pounds in Q3. That's more than we've produced in any quarter since 2021. And it's being driven by higher moly grades in the new connector pit. We expect that to continue going forward, and we should be able to get back to producing 2 million pounds per year or more of molly. At today's price of 21 or $22 a pound, that will represent a pretty significant improvement to our cost structure going forward. Total site costs of 111 million in the third quarter was similar to previous quarters, except Q2, which was lower due to the mine being shut down for the labour disruption. Our C1 cash cost of 292 US per pound was impacted by a lower allocation of capitalized stripping costs and lower production volumes, life of mine average. Partially offsetting these higher unit costs was lower off-property costs as we made our initial shipments under the new off-take agreements, which have negative TCRCs. We expect off-property costs to continue to decline as some of our older off-take agreements at higher TCs unwind. And in fact, next year, we're expecting TCRCs to be close to zero compared to about 17 cents a pound last year in 23. TSECO's realized copper price in the third quarter remained a healthy 4.23 per pound, and that helped to drive solid financial results in the quarter. We generated 48 million of adjusted EBITDA, 55 million of earnings from mining operations, and 65 million of operating cash flow. Looking ahead to 2025, we're expecting slightly higher copper grades for the year, higher mill throughput, and also the restart of Gibraltar's SXEW plant, which has been idle since 2016. Copper production is expected to be in the range of 120 to 130 million pounds from Gibraltar. and molly grades and production will also be higher. So we're looking at a strong production year, which is a real positive. But I do want to caution that we expect production to be weighted to the second half of the year, as mill feed in the first half will include some lower grade stockpiled ore. Turning over to Florence now, where construction activities have really ramped up in recent months, and we're very pleased with the progress. The SXEW plant is really starting to take shape We're nearing the end of the bulk concrete pouring for the foundations, and pre-assembly and installation of the structural steel is well underway. In September, we began installation of process equipment, and as of last week, almost all of the settling tanks have been installed. Installation of piping for this new equipment has now started. On the wellfield, we've completed 40 out of the 90 wells that are planned for the construction phase, and that's in line with our schedule. And with four drill rigs now operating, we should see the well completion rates accelerate going forward. Also, from a safety and environmental perspective, pleased to report that we've not had any lost time injuries or reportable environmental incidents so far on the project. Year to date, we've spent $97 million US on construction capital. And as we've previously disclosed, we expect total costs to come in within 10 to 15% of the $232 million estimate. And that's the estimate that we published with our technical report in March 2023 based on costing from 2022. Overall, I'm pleased with how the first nine months of construction has progressed. Our recruiting and other plans for operational readiness are also progressing well, and we remain on schedule for first copper in late 2025. Should be a very exciting year for us ahead. We haven't spoken a lot about Yellowhead recently, but we are preparing to submit the initial project description and enter into the provincial and federal environmental assessment process. We have a few years of permitting work ahead of us, but this remains a very good project in a top tier jurisdiction. As a reminder, the Yellowhead Technical Report from 2020 outlined a project with annual crop production of 180 million pounds over a 25 year mine life. and with significant gold and silver by-product credits that generate a cash cost of $1.67 per pound of copper. That study now is almost five years old and used a long-term copper price assumption of only $3.10 per pound. So it's due for an update and next year we're planning to update it with current metal prices and costs. We'll also be incorporating the recently announced Canadian tax credits for copper mine development, which have the potential to significantly improve that project's economics as well. Even though it's still a few years away from being construction ready, there's a lot of value there to be unlocked. I'll pass the call to Bryce in a minute to talk about the specifics of our financials, but I do want to emphasize that our balance sheet remains in a strong position. with a cash balance of over 200 million Canadian at the end of Q3 and an undrawn credit facility. Our stock price is up about 80% year to date, and over the last four months we utilized our at-the-market equity offering for the first time, issuing a total of 12.1 million shares for net proceeds of 37.3 million Canadian. The strike at Gibraltar over the summer was unexpected and had an impact on our projected cash flows. We also expect increased spending on yellowhead over the next year and will be advancing some growth initiatives at Gibraltar, including restart of the SXEW plant and studies on sulfide leaching. So the extra cash from the ATM will allow us to move forward on these initiatives and still maintain a solid cash balance through the Florence build. With that, I'll turn it over to Bryce.

Thanks, Stuart. It was a fairly straightforward quarter, but I'll provide some additional accounting and financial details. We posted gap earnings of nil per share, but on an adjusted basis, we had net income of $0.03 per share or $8.2 million. A couple of key notable items to mention. First off, $4 million of costs were incurred to complete the primary crusher relocation project, including the demolition of the old station. And under IFRS, these costs are expensed. While the physical move of the crusher was done in the second quarter, final tie-ins and that demolition were completed this quarter. We also had $13 million in non-cash accretion on our Caribou earn-out liability and for our Florence royalty obligations. That accretion rises due to the rising copper price trend and also the more positive outlook for copper prices in the years ahead based on bank consensus forecasts. We also had $3 million in mark-to-marks on our derivative adjustment on the Mitsui Stream. So we consider these items unrealized and one-off and is not reflecting the underlying operational performance. So they are adjusted in determining the company's adjusted earnings. So financial performance in the quarter was strong. We had adjusted EBITDA $48 million in earnings from MIME Ops before depletion and amortization of $55 million. And that was just on sales volumes of 26 million pounds. Our realized copper price for the quarter was 4.23, in line with the average for the LME for the quarter. And it was down a bit from last quarter. Copper prices, when they hit, just peaked at $5 in May. Total site spending at Gibraltar was 111 million. in the third quarter, and that's really in line with previous quarters before the strike in Q2. Capitalized stripping in the third quarter was modest at only 3.6 million, so that was down from 10.7 million in Q2, as ore is now being fed from the connector pit into the mills. Unit costs in the third quarter were 292 US per pound, slightly lower than the previous quarter, mainly due to an increase in copper production, but also a decrease in off-property costs due to our first shipments. under our new offtake agreements at the negative tcrc's that stuart just mentioned tcrc's generally speaking make up about one half of our off property costs and we expect to pay no net overall tcrc's in 2025 so that's a major savings to our operating costs going forward cash flow from operations in the third quarter was 65 million we benefited from both stable operating margins and also 26 million in funds associated with the insurance recovery which was taken to earnings in the second quarter and was received this quarter. Cash flow from the financing activities included that amount, and it also included $23 million from the issuance of 7.8 million shares under the ATM program. At Florence, we're now getting into peak construction spending quarters. In the third quarter, we spent $42 million on the commercial production facility. That was an increase of $6 million over the second quarter. And then to the end of the third quarter, we've now spent a total of $97 million US. Looking ahead to our heavy construction period, we will spend about $20 million US a month for the next two quarters before spending tails off. Just to expand upon Stuart's comments on liquidity, our cash position at the end of the third quarter was $209 million. And then subsequent to the quarter end, we also amended our revolving credit facility with National Bank and ING, extending the maturity which was set to mature in mid-2026 out to the end of 2027. We also increased it by 30 million US, so that its overall size is now 110 million US. That facility today is completely undrawn, so we have pro forma liquidity of approximately 360 million Canadian with this higher facility size. The other significant initiative we announced with Florence Construction The update we provided a few weeks ago was our submission to the U.S. Department of Energy's Qualified Advanced Energy Project Credit Program. That's under 48C sub paragraph E. As a critical materials project producing domestic U.S. copper, we believe Florence Copper is a prime candidate for this program. The tax credit we have applied for is for up to $110 million U.S. and is expected to be awarded in just a couple months from now in mid-January. Even if only a partial award is granted, this could be an additional source of funding for us later next year and into 2026. With that, I'll turn it back to you, operator, and open it up for questions. Thank you.

As a reminder, if you'd like to ask a question at this time, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Again, that is star 1-1 if you'd like to ask a question. Our first question comes from Alex Bedwani with Canaccord Genuity.

Hi all, thanks for taking my question. Just a couple from me today. So the first one is I'm just trying to get a sense of what the throughput is going to look like in Q4. So what was the exit rate in Q3 for September, for example? And then the second thing is just related to the oxidization of the ore in the upper benches connector. Is that going to continue through to Q1 or do you see that sort of subsiding in Q4?

Yeah, I mean, Alex. Hi, Alex. It's Stuart here. I'll start. In terms of mill throughput, I mean, what we've seen in the last couple of two, three months here, we've been running over design capacity, as I mentioned, in the range of 88,000, 89,000 tons a day. There is upside potential on that. We'll see how it goes. But those are opportunities that we're always thinking about. Yeah, and sorry, what was the other ask?

On the transition ore, so just as Richard here, on the transition ore, so that will, you know, as we continue to mine deeper, we'll continue to see improved kind of or reduced oxidation of the ore that we're mining, and we'll continue to see performance improve as we progress through fourth quarter and into next year.

Okay. And what's the reason for the running over design capacity? Is it just the softness of the OR connector at the moment?

Yeah, sorry, I didn't get the last part of that question.

Yeah, the question was, why are we able to run over design capacity? And it does, yeah, it goes to the softness of the OR and connector, exactly. What we're seeing is that OR is is similar to what we had in Gibraltar Pit. That's right. Okay.

Thanks, guys. I appreciate that.

Our next question comes from the line of Nicholas Clark with TD Cowan.

Thanks, operator. Hi, Stuart. Hi, team. Nick Clark here on for Craig Hutchison. Just a quick question, if I could, on Florence. I understand that the budget's still tracking within that 10 to 15 percent estimate of the 232. I'm just wondering if you could ballpark a figure for us on what percentage of that overall expected budget has been committed at this point.

Commitment? Ballpark? I mean, we're up in the range of 75 percent committed at this point. Yeah.

Great. Okay. Thank you. That's helpful. And then just one more on one of your growth projects. I know we don't talk about it too much, but at New Prosperity, you guys mentioned in your release that you are hoping to get a First Nations agreement at that project by the end of this year. If that is successful, what will be the next steps for that project going forward?

Yeah, I mean, it obviously... is is heavily you know the future of that project is heavily dependent on on the negotiations that we're in now um which are which are kind of confidential i know we've signaled that we're still aiming to um or hopefully we'll have a deal by the end of the year obviously um here in bc we've had a provincial election in october which has kind of disrupted that schedule a month or two um you know but we're still hopeful we'll get a deal um of some kind and uh yeah be able to in the longer term i think you know remain optimistic that at some point we'll be able to move that forward but there's no clear no clear schedule or no clear plans at this point. I would describe it as a longer-dated option for shareholders.

Great. Okay. Thanks, Stuart. Appreciate the color. And good luck, guys, in Q4. Thanks.

That concludes today's question and answer session. I'd like to turn the call back to Seco Management for closing remarks.

OK, thank you very much everyone for joining and if you have any other questions or you know where to reach us and otherwise we'll talk to you next quarter. Thanks.

This concludes today's conference call. Thank you for participating. You may now disconnect.