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Taseko Mines: Gibraltar Dynamics Improving; Florence UIC Permit Any Day Now

DISCLAIMER: Any written content contained herein should be viewed strictly as observation, analysis & opinion and not in any way as investment advice. No compensation was received for this report. Visitors to this site are encouraged to conduct their own due diligence.

Taseko Mines (TKO, TGB) reported solid Q2/2023 operational numbers which were slightly ahead of our estimates due to higher grades, recoveries and throughput at Gibraltar. Ultimately, the company produced 28.2M lbs of copper, representing an increase of +13% sequentially to approach a production level near a two year high. Despite low mill availability in April and May (throughput of 7.2M tons was lower than expected), mining from more consistent ore zones led to improved copper recoveries (81.9%) given higher head grades (0.24%). As mining progresses deeper into the Gibraltar pit, ore grade and consistency is expected to continue into the remainder of 2023. That said, throughput is expected to remain at or above nameplate capacity of 85,000 tpd. Management re-iterated FY/2023 production guidance of 115.0 lbs of copper.

In terms of financials, given the sale of 26.1M lbs, the company generated total revenues of $111.9M, adjusted EBITDA of $22.2M and cash flow from operations of $33.3M. GAAP net income totaled $0.03 per share however after adjusting for forex differentials and an $8M write down of stockpiled inventory, the adjusted loss amounted to $0.02 per share. Site costs of $105.4M were $7.4M lower sequentially due to lower diesel fuel costs as well as purchased electricity, natural gas and explosives. The C1 cash cost was a marked improvement at US$2.66/lb compared to the US$3.47/lb in Q2/2022. In terms of pricing, recall that the company maintains copper price collar contracts that secure a minimum copper price of US$3.75/lb for 35.0M lbs of copper until December 31, 2023. Coupled with the improved operational performance from Gibraltar which is expected for the remainder of the year, we note that Q2 was capex heavy at the mine ($31M spent). Seeing that only the capital spend is mostly now behind us, future cash flow is expected to increase significantly.

In terms of development projects, management stated that the EPA remains close to issuing the final UIC permit. Once in-hand, the 18-month construction period is expected to begin, culminating with a nearly 20 year LOM copper project located in Arizona. Given ISR recovery, we estimate that the Florence copper project will average 74.0M lbs of copper per year at an AISC of $2.70/lb. We see any Florence related newsflow as the clear near-term value driver given the quality of the deposit and the fact that it is relatively capex light at ~$230M.

Recall that the full Florence Project financing is nearly complete, recall as well that Taseko maintains ~$180M in available liquidity along with current CF from Gibraltar and (if needed) an ATM program in place. Underpinned by a LT $4.35 per lb copper price and using a weighted valuation methodology incorporating a 1.10x NAV7%-8% target (75%) coupled with a 6.5x 2024 EV/EBITDA multiple (25%), we have update out model for the quarter while also incorporating slightly higher costs beyond 2027 at Gibraltar. As such, we have trimmed our 12-month price objective from C$3.80 previously, to C$3.70 per share. This represents upside of +93% from the most recent TSX quote. Select items from our financial projections along with our valuation methodology and sensitivities are below:

Ultimately, the Taseko Mines story is one of consistent copper production from Gibraltar, meaningful, near term ISR production upside from Florence (just about fully financed) along with longer term (heavily discounted) optionality from the billion+ copper reserve projects such as Yellowhead and New Prosperity. All assets are located in the mining friendly jurisdictions of British Columbia or Arizona (Florence). Including the longer term portfolio pipeline which is currently being entirely discounted by the market, the Proven & Probable reserve base exceeds that of numerous much larger copper producing TSX listed peers. Greater detail can be found from our initiation piece, found at this link:


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