Taseko Mines: Q3 Ore Grade Improvements and a Potential Near-Term Catalyst (NYSE:TGB)

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Taseko Mines Limited (TSX:TKO:CA, New York Stock Exchange: TGB) has been struggling with lower ore grades in S1’22. Third quarter 2022 results released today confirmed management guidance of an expected significant improvement in ore grade, leading to an increase in production and lower cash costs.

Following the completion of the public comment period for the draft UIC permit in Florence, where the company received overwhelming support from the community, a final decision is expected from EPA. In the meantime, long-term purchasing and other pre-construction activities are taking place.

Taseko is still trading well below estimated NPVs for the Gibraltar operating mine and the Florencia short-term production project. Management has mentioned that there are well advanced discussions with third parties regarding possible minority share or royalty/transmission deals in Florence. I see this as a potential catalyst in the short term, as the value of the project will be guaranteed by a third party.

Third quarter summary

As I mentioned in my previous Taseko article, below average head grades were a serious problem for the already low grade Gibraltar mine. Fortunately, as management has indicated, the copper content of mined material improved significantly from 0.17% in the second quarter of 2022 to 0.22% in the third quarter of 2022.


Taseko Operating Summary (Taseko Mines)

This has led to a 36.7% QoQ increase in production to 28.3Mlbs of copper, but is 12.7% below the 3Q’21 result, when head grade was 0.28%. 26.7Mlbs of copper were sold during the quarter (32.4Mlbs in 3Q’21) at an average realized price of US$3.48/lb (-18.3% YoY). As a result, revenues for the quarter amounted to CAD$89.7M (-32.3% YoY). Cash costs improved 21.6% quarter-on-quarter to US$2.72/lb, but were 73.2% higher than a year earlier.

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cash costs

Taseko Cash Cost Structure (Taseko Mines)

US$0.92/lb of the Q3’21 cash cost increase was production related, while US$0.23/lb was non-production related, mainly due to inflation. Ending result for the quarter was negative CAD$23.5 million or negative EPS of CAD$0.08. However, when an unrealized foreign exchange loss of CAD28.1 million was taken into account, adjusted EPS was positive at CAD0.02 per share. Taseko benefited from its hedging program as CAD$16.6 million of realized gains on settled copper options were recorded.


The overhanging hedgerows of Taseko (Taseko Mines)

Looking ahead, Taseko has hedged 30 million pounds of its copper production in the first half of 2023 at prices below US$3.75/lb. Assuming normal annual production of £97.5 million (75% basis) in Gibraltar, the downside protection is for just over 60% of production.

Update on the Florence project

Following the conclusion of the public comment period, regarding EPA’s draft UIC permit, Taseko has provided a to update, stating that 98% of the comments were positive. The company is very confident that a final permit will be issued, the only question is when. Current expectations are that this could happen at the end of this year or early next year. Meanwhile, Taseko continued with acquisition activities, as development costs for the Florence project reached C$79.4 million year to date (C$27.3 million in Q3 2022 alone).


The Florence Project (Taseko Mines)

Meanwhile, Taseko continued with acquisition activities, as development costs for the Florence project reached C$79.4 million year to date (C$27.3 million in Q3 2022 alone). While I believe current cash and cash equivalents, along with the cash flow generated in Gibraltar and the $50 million undrawn credit line, are sufficient for the construction of Florence, in a recent interview, Brian Bergot (Vice President of Investor Relations of the company) has outlined another interesting option. According to him, management is in very advanced discussions with third parties regarding an asset-level type of transaction in Florence. This transaction could be a minority shareholding or some form of streaming/royalty agreement.

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I think such a deal, depending on the terms, could bolster Florence’s value and strengthen Taseko’s bottom line. Recall that in 2009, Taseko sold out a 25% shareholding in Gibraltar to Sojitz Corporation (OTCPK:SZHFF) for C$180 million.

Stock price and valuation

Data by YGraphics

Looking at the YTD performance of Taseko shares, the price is down 47.8%, which is much worse than the US Copper Index Fund (CPER). This shows the influence that Taseko has on the price of copper. Taseko’s current EV of approximately $610 million (using a CAD/USD exchange rate of 1.37) remains well below Gibraltar and Florence’s combined estimated NPV of around $1.5 billion. Given a current net debt level of just over US$300m, this would involve almost a quarter of the share price to reach an EV of US$1.5bn.

In addition to the final UIC issuance, I see the potential for an asset level transaction in Florence as a potentially significant bullish trigger. Looking back at 2009, the share price rose more than 30% in the week, following the announcement of the deal with Sojitz for the 25% stake in Gibraltar.


Risk of lower copper prices – Due to its hedging program, Taseko is partially hedged against declines in copper prices until June 2023. Given the importance of copper in the energy transition, I think that in the longer term, copper prices should rise, as that the demand is expected to outbid.

Inflation risk – Cost pressures have already hurt Taseko’s results, especially given the low-grade nature of Gibraltar (therefore more sensitive to cost increases). The best remedy would be to move Florence forward, as the project has a much higher cost profile. As for the potential effects of inflation on Florence’s construction costs, Taseko is trying to mitigate them by purchasing long-term items in advance. However, such negative effects could not be completely eliminated.

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allow risk – The Florence project has already undergone a lengthy permitting process in the US. Now that only the final UIC permit is to be issued and given the overwhelming public support for the project, I believe that delays are unlikely significant after 1H23.


Taseko has posted significant quarter-over-quarter improvements to its results, due to improvements in head grade, which are expected to continue towards an average head grade of 0.25% in the fourth quarter of 2022. The company is awaiting the final permission from the UIC of Florence to start construction. Taseko’s current share price appears to be well below potential, implied by the estimated NPVs of Gibraltar and Florence, while an asset-level transaction in the latter could be a short-term catalyst.

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