Cu
Elements f o r
Success
Au
Mo
2006 Annual Report
Elements for Success
Proven reserves
Strong commodity prices
Skilled, motivated workforce
First Nations engagement
Experienced, stable management
Secure financial foundation
Excellent health & safety record
A diverse, knowledgeable Board
Transparent governance
Sustainable development
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8
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Contents
Company at a Glance
Highlights + Goals
President's Message
Commodities
Gibraltar Mine
Prosperity Project
Assets + Growth
Mineral Reserves and Resources
Management’s Discussion
and Analysis
17
29
Auditors’ Report to Shareholders
Consolidated Financial Statements
30
Notes to Consolidated Financial Statements 33
IBC
Corporate Directory
Taseko shares trade on the TSX and AMEX Stock Exchanges under the symbols
TKO and TGB, respectively.
Annual Meeting
The Annual Meeting of Shareholders for Taseko Mines Limited will be held on
March 15, 2007 at 1:30 pm at the Vancouver Convention & Exhibition Centre,
Vancouver, British Columbia, Canada.
Dollar amounts are expressed in Canadian currency unless otherwise stated.
“Taseko,” “we,” or the “Company” refer to Taseko Mines Limited.
TASEKO MI N ES LIM I TED
C O M PANY AT A GLANCE
Creating Wealth in British Columbia
Taseko
Mines
Limited
Taseko Mines Limited is focused
on creating wealth through the
operation, development and acqui-
sition of mineral projects. Our
primary assets are the Gibraltar
Mine, a major source of copper
and molybdenum; the Prosperity
project, where a gold and cop-
per deposit is moving toward
completion of feasibility and a
construction decision; and the
Harmony gold deposit, which
offers future opportunity.
Harmony
Ottawa
Gibraltar
Williams Lake
Prosperity
Vancouver
Copper
Gold
Molybdenum
The Gibraltar Mine in south-central British Columbia, near Williams Lake, is undergoing a
major expansion and modernization. By 2008, annual production capacity will be increased
to 100 million pounds of copper and 1.3 million pounds of molybdenum. Additional resources
could extend the mine’s life from 21 (at current operating parameters) to 30 years.
The Prosperity project, also near Williams Lake, British Columbia, hosts a sizeable
porphyry gold-copper deposit amenable to large scale open pit mining. Extensive exploration,
engineering, environmental and socio-economic studies had been completed prior to 2001. In
late 2005, supported by improved metal prices, project work was re-initiated. Environmental
Assessment of the Project is progressing and the final feasibility study is expected to be
completed in the first half of 2007.
The Harmony property is a gold project on British Columbia’s west coast, providing a
longer-term development opportunity.
EL EME NTS f or SUCCESS
H IG HL IGH TS + GOALS
A Year of Progress and Growth
November 2005
Taseko re-initiates work on the Prosperity gold-copper project.
December 2005
Gibraltar proven and probable mineral reserves increase by
30% to 194 million tons, extending mine life to 15.5 years.
February 2006
Taseko achieves first quarter earnings of $6.7 million and sales
revenues of $41.3 million.
March 2006
Taseko commences trading on the Toronto Stock Exchange.
Board of Directors approves concentrator facility
improvements, which will increase production to 100 million
pounds of copper annually by 2008.
April 2006
SX-EW plant refurbishing initiated. The $3 million
refurbishment of the solvent extraction and electrowinning
(SX-EW) plant at Gibraltar was completed on time and began
production in January 2007. The plant is capable of producing
up to 7 million pounds of LME grade cathode copper per year.
May 2006
Taseko achieves second quarter earnings of $3.1 million and
sales revenue of $37.5 million.
June 2006
Additions to management team announced. Kim Barrowman
named General Manager of Gibraltar Mine, and Scott Jones
named General Manager of Project Development, responsible
for leading the Prosperity project. Both individuals have
extensive operational and management experience in the
mining sector.
July 2006
Taseko announces it has effected a notice of voluntary
withdrawal from the joint venture established with Ledcor
CMI Ltd. After a successful transition, Taseko assumes full
responsibility for Gibraltar operations in November 2006.
August 2006
William Armstrong joins Board of Directors. Mr. Armstrong
is a geological engineer with over 40 years of experience in
the exploration and evaluation of base and precious metals
projects.
Taseko achieves third quarter earnings of $4.1 million and
sales revenue of $59.9 million.
US$30 million in five-year convertible bonds are privately
placed, at 40% over prevailing Taseko stock price.
Taseko wins arbitration dispute against copper concentrate
purchaser. Approximately US$8.5 million in sales proceeds,
which had been withheld, is repaid with interest.
The Company purchases a one-year, $11.5 million convertible
promissory note of Continental Minerals Corporation that pays
16% annual interest.
September 2006
After completion of a successful drilling program, Gibraltar
proven and probable mineral reserves increase by 40% to 256
million tons extending mine life to 21 years.
Taseko achieves record after-tax earnings of $32.9 million for
fiscal 2006.
Financial – Cash & Equivalents + Inventory
12-Month Relative Performance
120
C $, millions
90
60
30
0
300
250
200
150
100
50
Q1/06
Q2/06
Q3/06
Q4/06
Jan 06
Mar 06
May 06
Jul 06
Sep 06
Nov 06
TKO Share Price
Copper Price
S&P Div. Metals & Mining
S&P/TSX Composite
TASEKO M IN ES LI MI T ED
Taseko achieves record after-tax earnings of $32.9 million
for fiscal 2006.
Our Goals for 2007
Improve Gibraltar Mine by:
• Lowering operating costs by increasing throughput
and recovery
• Building on current exemplary safety record and
seeking further improvements
• Increasing reserve base through a focused and
aggressive drill program
• Negotiating a new long-term smelting and
refining contract
• Completing mine modernization and concentrator
expansion, on time and on budget
• Evaluating additional mine expansion opportunities
Advance Prosperity project by:
• Submitting Environmental Assessment to regulatory
authorities and entering panel review
• Completing feasibility study
Build on corporate strength by:
• Initiating a strategic acquisition of a project or company
• Improving corporate and mine management teams
by attracting top notch personnel and implementing
strategic training and compensation initiatives
EL EME NTS f or SUCCESS
P RESIDE NT’S MESSAGE
Creating the Elements for Success
2006 was an exceptional year for Taseko and a breakthrough
year for the commodities market. Copper hit new highs of over
US$4 per pound while molybdenum pricing remained well
above historical averages. The Company ended the year with
record earnings and a substantial list of accomplishments. The
strategies and initiatives that were implemented last year are
bearing fruit and further strengthen our value-focused, growth-
oriented company.
Rewarding our Investors
The year’s results are impressive: at fiscal year end, our share
price stood at $2.40 on the TSX, an 83% gain over 2005. After-
tax earnings for 2006 were $32.9 million, a 40% increase from
2005, and cash flow from operations was $55.4 million. The
Company sold 50.6 million pounds of copper and 798,000
pounds of molybdenum, posting sales revenue of $161.9 million,
surpassing last year’s total of $87.6 million.
In 2006, the Gibraltar Mine produced 49.1 million pounds of
copper in concentrate and 821,000 pounds of molybdenum in
concentrate. The upgrade of the Gibraltar concentrator, once
completed later this year, will increase and stabilize production
over the long run. The project involves installation of a new
semi-autogenous grinding mill and replacement of the flotation
recovery system that will improve metal recoveries and reduce
site costs. Combined with copper cathode production from the
recommissioned solvent extraction and electrowinning plant,
Gibraltar’s efficiencies will be maximized.
Developing our Strengths
Financial and operational performance are only partial measures
of our success. Our long-term future is underpinned by the
numerous initiatives we have launched and which now support
our growth and financial stability.
Mineral reserve expansion at our operations and development
properties is the key ingredient of our strategy.
Long mine life at Gibraltar allows for expansion opportunities
that increase production and reduce overall costs. In 2006,
reserves at Gibraltar were increased by 74 million tons, a 40%
boost from 2005 reserves. Drilling is continuing and we expect
that reserves and mine life will be expanded again in 2007.
Russell Hallbauer
President and Chief Executive Officer
Mr. Hallbauer is a Professional Engineer and has
worked in the mining industry for 30 years. He is
past Chairman of the Mining Association of BC and
past President of the Canadian Institute of Mining
and Metallurgy.
TASEKO M IN ES LI MI T ED
The initiatives we have launched support our growth and
financial stability.
In January 2007, we announced the positive results of a pre-
feasibility study and reserve estimate for our Prosperity project,
another important milestone for Taseko.
One of our goals in 2006 was to improve our capabilities and
foster a dedicated company culture. As a result, Taseko
and Le dcor CMI Ltd. terminate d the joint venture at
Gibraltar and Taseko is now the sole operator of the mine.
We would like to acknowledge Ledcor’s assistance during
pre-production and start-up, and the staff at the mine that
participated in the smooth transition to employment with
Taseko. The Gibraltar site team is now led by Kim Barrowman,
who joined Taseko as General Manager of the Gibraltar Mine,
responsible for overseeing mine operations. Kim is a mining
engineer with 30 years of industry experience in all facets of
mine management.
Building Prosperity
Another key component for Taseko’s growth is the advancement
of the Prosperity project, one of the largest undeveloped gold-
copper deposits in Canada. To help us meet our objectives,
we appointed Scott Jones, General Manager of Project
Development for Taseko, to lead the project. Scott is a mining
engineer with over 25 years of related industry experience.
We continue to advance feasibility and permitting work at
Prosperity. In January 2007, we announced the results of a pre-
feasibility level study for the project, establishing 480 million
tonnes of mineral reserves, and demonstrating Prosperity’s
long-term viability. As we move toward completion of the
feasibility study, we expect that the project’s economics will be
further improved. In parallel with the feasibility studies, we re-
initiated the BC Environmental Assessment process last year.
Work is underway to assemble the data needed to determine
the project’s environmental and socioeconomic
impacts.
Ongoing consultations and dialogue with First Nations and
other members of the local communities are an essential part
of the process.
We cannot talk about Taseko’s growth strategy without
discussing our drive to acquire new projects or companies that
would complement our portfolio of assets. We will continue to
look for acquisitions that enhance our status as an emerging
mining company based in British Columbia.
Achieving Excellence
At Taseko, we strive to continuously improve all areas of our
business. Our objective is to build a stronger company for the
benefit of all our stakeholders.
High on the priority list is the health and safety of our employees,
who are vital to our success. We have a workplace safety
program in place at Gibraltar and I am pleased to report that we
had no lost time accidents at the mine in fiscal 2006. Despite
this excellent record, we remain vigilant and are constantly
seeking to improve our practices.
As stewards of the environment in which we operate, we are
proud of our reputation as a responsible mining company. We
have had no environmental incidents since Gibraltar re-opened
in 2004. In addition, last year Taseko contributed $13 million into
a reclamation trust fund, fully funding its reclamation liability
for Gibraltar.
is
judged not only by
Today, a company
its financial
performance but also by how transparent and accountable
it is to its shareholders and stakeholders. This past year, we
added another independent Board member, Bill Armstrong, a
geological engineer whose specialty over the past 40 years
has been project and resource evaluation. Taseko’s Board
of Directors, with a broad array of experience and diverse
backgrounds, provides leadership and direction to the
management team and helps guide corporate activities. We
have adopted corporate governance practices and a code of
ethics to oversee management decisions and conduct. We
are fortunate to have on our Board individuals who have many
years of experience in finance and the mining sector as well as
a vision of greater success for Taseko.
On behalf of our Board, I want to thank our shareholders for
their continuing support. Our accomplishments are made
possible by a talented and committed group of people who are
dedicated to building a value focused company and optimizing
benefits for all our stakeholders. We have had a very successful
2006 and I am looking forward to an even better 2007.
Russell E. Hallbauer
President and Chief Executive Officer
EL EME NTS f or SUCCESS
C O M MODITIES
World Demand drives Commodity Prices
Western World Copper Consumption – 2004
By Market Sector
Construction
11%
11%
15%
Electronic
Products
Industrial
Machinery
Transport
Consumer
Products
Source: Brook Hunt, 4th Quarter Data Volume 2006
26%
37%
Regional Copper Consumption
kt
300,000
250,000
200,000
150,000
100,000
50,000
0
2002
2006
2008
2011
2017
China
Japan
Asia
Russia
Western Europe
Others
North America
Source: Brook Hunt, 4th Quarter Data Volume 2006
2006 proved to be an exciting year in most commodity markets,
and the base and precious metals markets were no different.
With 2006 gross domestic product (GDP) expected to be
approximately 5%, the world economy had a very strong year
and fueled robust demand for raw and finished goods. Despite
very high commodity prices, interest rates helped to keep
inflation relatively low.
Copper
Most of the copper produced in the world is used in electrical
products. Other uses of copper are everyday items such as
tubing, plumbing fixtures, hardware, and machine tool products.
It is also combined with other metals to form more than 1,000
different alloys.
Continued strength in copper demand, combined with a weak
US dollar, pushed copper pricing to all-time highs by mid-2006.
After hitting US$4 per pound in May, concerns over the US
economy started to grow and the effect was immediately felt in
the commodity markets, and in particular the copper market. By
the end of the year the copper price had dropped significantly
but was still a healthy price at just below US$3 per pound.
These strong fundamentals underpinned a 41% increase in
copper prices in 2006.
What will keep copper pricing strong in 2007 and beyond? It
appears that the global economy will remain robust, even in light
of a slowing US economy. As stated by Brook Hunt, a leading
mining and metal industry consultant, “During the current price
cycle, which is projected to be from 2002 to 2011, we forecast
that global consumption will grow at an average annual rate
of 3.3% per annum compared with an average annual growth
rate of 3.1% in the previous price cycle which ran between 1993
and 2002.”
10-Year Copper Price History
US $/lb
$4
$3
$2
$1
$0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
TASEKO M IN ES LI MI T ED
2006 proved to be an exciting year in most commodity
markets—base and precious metals markets were no different.
Molybdenum
Even though the molybdenum market is relatively small, it is
important in domestic and industrial applications. Its use as
an alloy in stainless and alloy steels accounts for over 50% of
molybdenum consumption. Stainless steels include the strength
and corrosion-resistant requirements for water distribution
food handling equipment, chemical processing
systems,
equipment, home, hospital and
requirements.
Alloy steels include the stronger and tougher steels needed
to make automotive parts, construction equipment and gas
transmission pipes. Molybdenum is also an important material
for the chemicals and lubricant industries.
laboratory
2006 was another exceptional year for molybdenum. The
average price in 2006 for the grey metal was over US$25 per
pound, compared to a 10-year average price of approximately
US$10 per pound.
Global trends suggest that molybdenum demand will remain
robust. Control of greenhouse emissions through its use as a
catalyst, and its use in high-pressure pipelines for long distance
gas and oil transportation are just two examples.
Additionally, risks on the production side persist. Of the top 20
largest mines in world, 16 are located in countries with elevated
political risk and account for nearly 50% of global copper
production. In 2006, a number of supply disruptions occurred,
with the most notable being the lengthy labour strike at the
world’s largest copper mine, Escondida. Going forward, lower
than projected production will result from labour strikes, political
unrest, project slippage and environmental issues. Combined
with healthy demand growth, it appears that the fundamentals
of the copper industry will remain tight for an extended period,
which will result in above average pricing.
Gold
Gold is as popular now as it has ever been: as jewelry, as a
financial asset and as an industrial product. Though jewelry
fabrication accounts for approximately 85% of gold con-
sumption, gold ranks among the most high-tech of metals.
Almost all electronic and computer technologies contain gold,
which is critical to the reliable and efficient functioning of
equipment. Gold performs vital functions in medical applica-
tions, pollution controls, air bags, mobile telephones, laptop
computers, space travel, and many other uses. Approximately
11% of demand for gold comes from industry.
2006 proved to be an exceptionally strong year for gold. The
average price for gold in 2006 was over $600 per ounce—
significantly higher than the $350 average price over the past
10 years.
The outlook for gold continues to be bullish and demand growth
remains strong across all geographies. Even with the elevated
price, gold mining companies are struggling to maintain produc-
tion levels. The mounting problems of cost, politics and finance
are capping how fast gold ore can be mined.
10-Year Gold Price History
10-Year Molybdenum Price History
US $/oz
$700
$600
$500
$400
$300
$200
$100
$0
US $/lb
$40
$30
$20
$10
$0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
EL EME NTS f or SUCCESS
GIB R ALTAR MINE
Progress and Development at Gibraltar
2006 Operational Highlights
• Total Material Mined: 38.4 million tons
• Ore Milled: 10.9 million tons
• Stripping Ratio: 2.44:1
• Average Copper Grade: 0.285%
• Average Molybdenum Grade: 0.009%
• Copper Recovery: 79.1%
• Molybdenum Recovery: 41.2%
• Copper Production: 49.1 million pounds
• Molybdenum Production: 821,000 pounds
2006 Financial Highlights
• Total Revenue: $161.9 million
• Net Earnings: $32.9 million
• Net Earnings per Share: $0.29
• Operating Profit: $54.9 million
• Cash and Equivalents (at September 30, 2006):
$89.4 million
• Production Costs: US$1.50 per pound of copper
• Average Realized Copper Price: US$2.44 per pound
• Average Realized Molybdenum Price: US$23.28
per pound
Investing in our Future
2006 was a year of significant progress and accomplishments. This was the second year of commercial production at Gibraltar
since Taseko restarted the mine in late 2004. Total production for the year was 49.1 million pounds of copper and 821,000 pounds
of molybdenum. 2006 was anticipated to be a lower than average production year, the result of mining lower grade sections of
the Pollyanna pit. As the mine plan progresses through 2007 the average grade improves, and accordingly, the production levels
should rise.
Creating a sustainable, long-term production facility requires an investment of money and time to maintain and upgrade the mine
and equipment. These expenditures and the mill downtime will have an impact on our short-term results, but will create positive
long-term results.
TASEKO MI N ES LIM I TED
People are vital to a company’s success; in 2006, we devoted
a great deal of our attention to human resource matters.
Hiring, training
Integrity
and retaining
our people
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The key to any successful operation or company is its employees.
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In 2006, a great deal of focus and attention was given to
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personnel issues, specifically at the mine. Hiring, training and
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retaining employees are of critical concern at Gibraltar and
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throughout the entire mining and exploration industry. Many
mines are located in remote areas, making it difficult to attract
employees. Gibraltar is less than 45 minutes away from Williams
Lake, a city of approximately 20,000 people. Because the city is
a great place to live and work, and relatively close to the mine,
it makes attracting and retaining employees easier. Several key
management positions were filled this year, including the Mine
Manager and the Manager of Milling positions. By the end of
2006, the employee count at the mine was 282, up from 248 at
the end of 2005. The Gibraltar team was also reorganized to
properly utilize experienced workers in key roles.
When Gibraltar was restarted in 2004, it commenced operations
under a joint venture with Ledcor CMI Ltd. Ledcor provided
financial security that allowed Gibraltar to lease new mining
equipment, mining and earth moving expertise and access to
a skilled workforce. As Taseko built a management team with
a strong mining operations background and became financially
solid, it withdrew from the joint venture.
Looking forward to 2007
As the Gibraltar Mine plan progresses, the ore grade will
gradually increase by approximately 15%, which will help to
boost production in 2007.
Also positively affecting production will be the addition of
copper cathode production from the solvent extraction and
electrowinning (SX-EW) plant. The SX-EW plant was built in
1986 and produced 85 million pounds of copper cathode until it
was shut down in 1998. Since mining operations recommenced
in 2004, oxidized material required for the restart of the SX-EW
plant had been stockpiled. Refurbishing activities began in April
2006 and the first 99.9% pure copper cathode was produced
in January 2007. Production will ramp up and reach annual
capacity of 7 million pounds by mid year. For fiscal 2007, the
plant is expected to produce approximately 3.5 million pounds
of copper cathode.
EL EME NTS f or SUCCESS
GIB R ALTAR MINE
Progress and Development at Gibraltar
Increasing
reserves and
resources
When the mine was restarted in 2004, the mine life was 12 years.
A key objective was to increase reserves and extend the mine
life. A review of the mine plan in 2005 resulted in a portion of the
measured and indicated resources being converted to reserves,
which extended the mine life by 30% to 15.5 years. In March
2006, a $ 2 million drilling program was initiated to upgrade
information on resources located near current reserves and
update the geological and mine models. By the end of 2006, 67
drill holes were completed. Reserves were again increased by
40%, and mine life extended to 21 years at the current operating
parameters of 36,700 tons milled per day. Additionally, the new
reserves have a 5% higher copper grade and an 11% higher
molybdenum grade than the previous reserves.
Based on the success of the 2006 drilling program, the Board
of Directors approved drilling through the spring of 2007,
directed toward a further increase in reserves in 2007. Continued
reserve growth at Gibraltar will allow engineering studies to be
undertaken for additional expansion to the concentrator facility,
providing increased concentrate production and a reduced
cost profile.
Expanding the Gibraltar Concentrator
The concentrator expansion and modernization project that
was announced in spring 2006 will increase Gibraltar’s annual
production capacity to approximately 100 million pounds of
copper and 1.3 million pounds of molybdenum by 2008. At
the end of 2006, work on this project was on schedule and
is expected to reach the commissioning phase by late 2007.
This upgrade will increase throughput, improve operating
performance and reduce costs going forward. A key benefit to
this project is the ability to use existing Gibraltar infrastructure.
Compared to greenfield projects, the capital costs of this
expansion and modernization are relatively low and the capacity
can be built very quickly.
The concentrator expansion will be achieved by adding a
semi-autogenous grinding (SAG) mill to the front end of the
concentrator. This will increase the grinding capacity from
36,700 tons to 46,000 tons per day. Modernizing the concentrator
consists of the complete replacement of the flotation circuit.
The 96 existing 1970s vintage float cells will be replaced with
10 new cells, which will increase flotation capacity and provide
better copper and molybdenum recovery. The first float cell
was installed at the end of 2006 and the remaining nine will be
installed by the third quarter of 2007.
0
TASEKO M IN ES LI MI T ED
Taseko is recognized by industry for its innovative approach
to sustainability and its commitment to the environment.
Sharing benefits
with the community
For Taseko, responsible mineral development is represented
by a set of core values. These values can be summarized
as follows:
• Being good neighbors, and showing respect to the
environment and the people who live in the vicinity of
the development areas
• Maximizing and sharing the benefits of the project with
the community
• Engaging the community with open dialogue and using
local hiring and purchasing whenever possible
Taseko has been actively engaged with local communities
and First Nations band members regarding employment and
training opportunities since the mine restart. Local engagement
is an essential element to working in the region and the
Company strives to form mutually beneficial relationships with
all stakeholders.
The Gibraltar Mine is a major contributor to the economy of
south-central BC. It employs approximately 300 people, pays
an average annual payroll of $23 million in wages and benefits,
and spends approximately $120 million annually in the region
and province wide.
A Commitment to the Environment
Taseko is recognized by industry for its innovative approach to
sustainability and its commitment to the environment, winning
awards from business and environmental groups. One such
example was the partnership between Gibraltar Mine and the
Cariboo Regional District to build a landfill facility at the mine
site during Gibraltar’s standby phase. The landfill, which began
operations in 2003, helps reduce environmental impacts on the
region and complements the mine’s reclamation program. In
recognition of the landfill, Taseko has received awards from
the Mining Association of BC, the Fraser Basin Council, the
Northern BC Business and Technology Awards and the Solid
Waste Association of North America.
The Company is committed to adhering to best practices in
the areas of environmental stewardship and management, and
ensuring total compliance with all governmental regulations.
The goal is to minimize environmental impact on the properties
and to continually improve upon processes while seeking
progressive solutions.
Like all mining operations in BC, Taseko is required to post a
reclamation bond, in an amount sufficient to fully reclaim the
entire site and maintain ongoing maintenance costs long after
mine closure. Last year, the Company contributed a further
$13.8 million into a reclamation trust fund, which already held
$18.2 million, fully funding its reclamation liability.
EL EME NTS f or SUCCESS
P ROS PERITY PROJECT
Preparing for Development of Prosperity
Positive results
from pre-feasibility
study
Positive results from the pre-feasibility level study were
announced in January 2007. The pre-feasibility study was
prepared using long-term metal prices of US$1.50/lb for copper,
US$500/oz for gold and an exchange rate of US$0.80/C$1.00.
Highlights:
• Proven and probable reserves of 480 million tonnes grading
0.43 grams gold per tonne and 0.22 percent copper at a
$4 net smelter return per tonne cut-off
• 19-year mine life at a milling rate of 70,000 tonnes per day
• Annual production of 235,000 ounces of gold and 100 million
pounds of copper
• Life of mine strip ratio of 0.8:1
• Mine site production costs net of gold credits of US$0.48/lb
copper
• Operating cost of $5.78 per tonne milled over the life
of mine
• Pre-tax internal rate of return of 14% with a 6-year payback
• Total pre-production capital cost of $756 million
Focused on Opportunity
In 1991, Taseko purchased the Prosperity property, near
Williams Lake in south-central British Columbia. The
property contains a large gold-copper deposit. From
1991 to 1997, Taseko drilled 275 holes totaling 125,000
metres. In 2000, the project was suspended due to low
gold and copper prices.
In 2006, a preliminary overview and pre-feasibility study
were completed. These focused on opportunities associated
with the redesign of the concentrator, in particular, utilizing a
single, large-diameter, semi-autogenous grinding (SAG) mill as
opposed to multiple smaller SAG mills. An updated feasibility
study, performed by consultants Hatch Ltd., is expected to be
complete by May 2007.
In late 2005, as gold and copper prices strengthened and
the longer-term outlook improved, work was re-initiated
on the Prosperity project. The activities included updating
the previously completed feasibility study and preparing
an environmental assessment (EA) for submission to
government authorities.
TASEKO M IN ES LI MI T ED
Establishing a lasting, respectful and mutually productive
relationship with First Nations is an important objective.
Environmental
Assessment
initiated
The EA process assembles all
aspects of environmental and
socioeconomic impact, including
input and consultation with com-
munities of interest, to allow a fair
and open review by government
and the public. The Prosperit y
project will be reviewed under
both the BC and Canadian Envi-
ronmental Assessment Acts. It is
expected the Prosperity EA will
be submitted before the end of
April 2007.
Ongoing Dialogue with First Nations
The proposed Prosperity project is located in the traditional territory of the Tsilhqot’in First Nation. It is also located in an area
in which the Xeni Gwet’in First Nation (formerly known as Nemiah Indian Band) is engaged in an important rights and title case.
Taseko and the Xeni Gwet’in recognize the special significance of this case and are respectful of its potential impact on current and
future development.
The Company has a well established record of dialogue with the Tsilhqot’in National Government (TNG) and is expanding that dialogue
to include direct discussions with the six First Nation bands that make up the TNG: Nemiah, Stone, Toosey, Alexandria, Anaham, and
Alexis Creek. Similar efforts at relationship-building are underway with the Northern Shuswap Canoe Creek band which is aligned with
the Cariboo Tribal Council and the Alkali band who are also Northern Shuswap First Nation.
Establishing a lasting, respectful and mutually productive relationship with First Nations is an important objective for the Company
and progress in this regard is being made.
EL EME NTS f or SUCCESS
AS SE TS + GROWTH
Creating Value through Growth
Many companies target growth as a key component of their corporate strategy
—but few companies have the growth potential of Taseko. Growth is a key target
for Taseko and our goal is to become a multi-faceted metal producer.
Near- and longer-term growth from
Canadian assets
• Gibraltar—an operating copper-molybdenum mine with an increasing production
capacity, declining cost profile and long-life reserves that continue to expand
• Prosperity—an advanced stage gold-copper project, with long-life reserves
and the potential to be producing within four years
• Harmony—an advanced stage gold deposit that provides a longer-
term opportunity
Financial strength enables growth
through acquisitions
• Strong cash flows
• Nearly $90 million in cash and equivalents
• Very low debt-equity
Experienced, stable management
• Senior management team with depth of experience in mining operations
• Through affiliation with Hunter Dickinson Inc., access to personnel with
world-class experience and success in exploration, engineering and finance
Potential Copper & Gold Production Profile
250
200
150
100
50
0
- Restart of SX-EW
- 15% grade improvement
- Prosperity commences
production
P
P
- 30% mill
expansion complete
P
G
G
P
G
G
G
G
2006
2007
2008
2009
2010
2011
Cu–lbs, millions
Au–ozs, thousands
G=Gibraltar
P=Prosperity
350
300
250
200
150
100
50
0
TASEKO M IN ES LI MI T ED
Mineral Reserves and Resources
MInErAl rEsErvEs
Copper
Tons (millions)
Grade (% Cu)
Tons (millions)
Grade (% Cu)
Tons (millions)
Grade (%Cu)
Pounds (billions)
Proven
Probable
Total
Recoverable
metal
Gibraltar
Prosperity
Gibraltar
Prosperity
217.8
Tonnes
(millions)
280
0.320
Grade (% Cu)
0.25
38.6
Tonnes
(millions)
200
0.305
Grade (% Cu)
0.18
256.4
Tonnes
(millions)
480
0.318
1.4
Grade (% Cu)
Pounds (billions)
0.22
2.0
Tons (millions)
Grade (% Mo)
Tons (millions)
Grade (% Mo)
Tons (millions)
Grade (% Mo)
Pounds (millions)
217.8
Tonnes
(millions)
280
0.010
Grade (g/t Au)
0.47
38.6
Tonnes
(millions)
200
0.011
Grade (g/t Au)
0.36
256.4
Tonnes
(millions)
480
0.010
21.0
Grade (g/t Au)
Ounces (millions)
0.43
4.5
Molybdenum
Gold
MInErAl rEsOurCEs
Copper
Tons (millions)
Grade (% Cu)
Tons (millions)
Grade (% Cu)
Tons (millions)
Grade (% Cu)
Measured
Indicated
Total
Gibraltar
Prosperity
Gibraltar
Prosperity
414
Tonnes
(millions)
547.1
0.284
Grade (% Cu)
0.27
197
Tonnes
(millions)
463.4
0.272
Grade (% Cu)
0.21
611
Tonnes
(millions)
1010.5
0.280
Grade (% Cu)
0.24
Tons (millions)
Grade (% Mo)
Tons (millions)
Grade (% Mo)
Tons (millions)
Grade (% Mo)
414
Tonnes
(millions)
547.1
0.008
Grade (g/t Au)
0.46
197
Tonnes
(millions)
463.4
0.007
Grade (g/t Au)
0.34
611
Tonnes
(millions)
1010.5
0.008
Grade (g/t Au)
0.41
Molybdenum
Gold
Gibraltar: The resource and reserve estimation was completed
in 2006 by Gibraltar Mine staff under the supervision of Ian
S. Thompson, P. Eng., Superintendent of Engineering and a
Qualified Person under National Instrument 43-101. Reserves
are estimated at 0.20% Cu cut-off and resources as 0.16 to
0.20% Cu cut-off, based on long-term metal prices of US$1.50/
lb for copper and US$8.00/lb for molybdenum and a foreign
exchange of C$0.88 per US dollar. There are also oxide reserves
(see Taseko Annual Information Form for fiscal 2006), but these
have not changed from previous estimates.
resource and
Prosperity: The
reserve estimation was
reviewed by Scott Jones, P.Eng., General Manager of Project
Development for Taseko and a Qualified Person under National
Instrument 43-101, and is based on a 2006 pre-feasibility
study done using long-term metal prices of US$1.50/lb for
copper, US$500/oz for gold, and an exchange rate of US$0.80/
C$1.00. Reserves are estimated at $4.00 net smelter return per
tonne cut-off and resources at 0.14% Cu cut-off. The reserve
estimate takes into consideration all geologic, mining, milling,
and economic factors, and is stated according to Canadian
standards. Under US standards no reserve declaration is
possible until a full feasibility study is completed and financing
and permits are acquired.
EL EME NTS f or SUCCESS
The Hunter Dickinson Advantage
Access to
Hunter
Dickinson
professionals
Taseko Mines enjoys both
cost and expertise advantages
through access
to a shared
multidisciplinary team of mining
and
financial professionals
at Hunter Dickinson Inc. This
approach provides Taseko with:
• Management capability
• Geological, engineering and
environmental expertise
• Financial acumen
• Administrative and support
services
Taseko is dedicated to providing its
shareholders with excellent value while
upholding the tenets of socially responsible
mining, an integral part of Taseko and
Hunter Dickinson’s corporate philosophy.
TASEKO M IN ES LI MI T ED
Management’s Discussion and Analysis
1.1
Date
This Management Discussion and Analysis (“MD&A”) should be read
in conjunction with the audited consolidated financial statements
of Taseko Mines Limited (“Taseko”, or the “Company”) for the year
ended September 30, 2006 and 2005.
This MD&A is prepared as of December 15, 2006. All dollar
figures stated herein are expressed in Canadian dollars, unless
otherwise specified.
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 the Company believes 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, 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 that actual results or developments may differ materially from
those projected in the forward-looking statements.
1.2
Overview
Taseko is a mining and mineral exploration company with three
properties located in British Columbia, Canada. These are the
Gibraltar copper-molybdenum mine and two exploration projects: the
Prosperity gold-copper property and the Harmony gold property. In
2006, Taseko focused on production improvements at the Gibraltar
mine and updating a feasibility study on the Prosperity project.
During the year ended September 30, 2006, Taseko’s operating profit
was $54.9 million and earnings were $32.9 million, as compared
to operating profit of $13.6 million and earnings of $23.3 million in
fiscal 2005.
Gibraltar
In fiscal 2006, the Gibraltar mine produced 49.1 million pounds of
copper and 821,000 pounds of molybdenum and realized revenues
of $140.3 million from copper and $21.6 million from molybdenum,
increases from $71.9 million and $15.7 million, respectively, in fiscal
2005. The average price realized for sales of copper and molybdenum
during fiscal 2006 were US$2.44 and US$23.28 respectively. In fiscal
2005, the Gibraltar mine produced 54.8 million pounds of copper and
427,000 pounds of molybdenum and the average price per pound
realized for sales was US$1.48 and US$31.00, respectively.
Work commenced during the year on the expansion and upgrade
of the concentrator facility at the Gibraltar mine with engineering
and procurement on schedule. Engineering is approximately 70%
complete. The upgrade and expansion project will increase the copper
production of the Gibraltar mine to 100 million pounds of copper per
year by 2008.
Rehabilitation of Gibraltar’s solvent extraction and electrowinning
(SX-EW) plant has also progressed. Commissioning will begin in
mid December and full production is expected in January 2007.
The SX-EW plant will add copper production capacity of approximately
3.6 million pounds in 2007 and 7 million pounds, annually,
going forward.
An exploration drilling program was initiated at Gibraltar in the spring
of 2006, with the objective of delineating additional mineralization
adjacent to the walls and beneath the existing open pits. The program
was successful in meeting both of these objectives. In addition to
outlining new volumes of mineralization, the deep holes encountered
copper and molybdenum grades that are significantly higher than
the average grades that have previously been mined, indicating that
the grade is increasing with depth. A second phase of drilling was
initiated in the fall of 2006.
Gibraltar mine staff recently completed an estimate of the additional
mineral resources and reserves based on this year’s drilling,
increasing the reserves by some 74 million tons in the Granite Lake
deposit. Management is currently in the process of updating and
revising its life of mine plan.
On July 1, 2006, Kim Barrowman, P.Eng., was appointed General
Manager of the Gibraltar operation.
The agreement established with Ledcor CMI Ltd. (“Ledcor”) on the
Gibraltar mine has been dissolved. Effective November 5, 2006,
Taseko assumed responsibility for all matters in connection with the
Gibraltar Mine.
Prosperity
An update of the feasibility study for the Prosperity Gold-Copper
Project, being performed by Hatch consultants, is progressing and
is scheduled for completion in May 2007. Updating of optimum
mine plans and input parameters to a pre-feasibility level is nearing
completion, and results are scheduled for release early in January
2007. The Prosperity Project Environmental Impact Assessment
Report will be completed in the spring of 2007.
ELEM ENTS f or SUCCESS
17
Management’s Discussion and Analysis
Convertible Bond Financing
In September 2006, Taseko announced the completion of an issuance
of US$30 million in five year convertible bonds. The bonds, due
in 2011, are convertible into Taseko’s common (ordinary) shares.
Resale of any of the 8,995,224 shares in the capital of the Company,
issuable on conversion of the bonds, will be restricted in Canada until
December 29, 2006.
Investment in Continental Minerals Corporation
Also in September 2006, the Company completed an $11.5 million
convertible note investment into Continental Minerals Corporation
(“Continental”). Continental, a company with certain directors in
common with Taseko, holds a 100% interest in the Xietongmen
copper-gold project in Tibet, China.
The Xietongmen property hosts a significant porphyry copper-gold
deposit. Feasibility-level studies were initiated at Xietongmen in
2006, which are targeted for completion in 2007.
Investment into bcMetals Corporation
In November 2006, Taseko launched a $1.05 per share take-over
bid offer for all of the outstanding shares of bcMetals Corporation
(“bcMetals”). bcMetals holds a 100% interest in the Red Chris copper-
gold project in northern British Columbia. The results of a feasibility
study on the Red Chris project were announced by bcMetals earlier
in 2006.
Taseko’s offer represented an 11% premium over the then current
bid price for bcMetals being made by Imperial Metals Corporation
and, if successful, would cost approximately $45 million for 100%
of bcMetals. The Taseko bid is subject to a number of conditions,
including that at least 66.66% of bcMetals shares are tendered to
the bid, a conditional settlement agreement is reached with certain
minority shareholders of bcMetals’ subsidiary, American Bullion
Minerals Ltd., as well as rejection by bcMetals shareholders of
bcMetals’ Limited Purpose Shareholder Rights Plan and its proposed
joint venture of Red Chris with Global International Jiangxi Copper
Mining Company Limited.
As of December 15, 2006, Taseko purchased, through ordinary
market transactions on the TSX Venture Exchange, 1,791,600
common shares (4.67%) of bcMetals at an average price of $1.007
per share.
GIBraltar MIne
FIsCal 2006 HIGHlIGHts
Copper
• Copper in concentrate production during the year was 49.1
million pounds of copper, 10.4% less than the previous year.
• Copper concentrate sales for the year were 90,230 wet metric
tonnes (“WMT”), containing 51.0 million pounds of copper, an
increase from the 77,695 WMT or 44.0 million pounds of copper
sold during fiscal 2005.
• The average price realized for sales of copper in fiscal 2006
was US$2.44 per pound, compared to US$1.48 per pound in
fiscal 2005.
• Copper concentrate inventory at September 30, 2006 was
13,396 WMT (8.4 million pounds of copper), a decrease in
inventory from the 18,614 WMT of copper concentrate (10.6
million pounds of copper) at the end of the prior fiscal year.
Molybdenum
• Molybdenum in concentrate production during the year
was 821,000 pounds compared to 427,000 pounds in the
previous year.
• Molybdenum concentrate sales during the year were 789 WMT,
containing 798,000 pounds, an increase from the 418,000
pounds sold in fiscal 2005.
• The average price realized for sales of molybdenum in fiscal
2006 was US$23.28 per pound compared to US$31.00 in the
previous fiscal year.
• At the end of the year, molybdenum in concentrate inventory
was 30.7 WMT (32,400 pounds of molybdenum), compared
to 9.4 WMT (9,000 pounds of molybdenum) at the end of the
fiscal 2005.
2006 ProduCtIon results
The following table is a summary of the operating statistics for fiscal
2006 compared to fiscal 2005.
Total tons mined (millions)1
Tons of ore milled (millions)
Stripping ratio
Copper grade (%)
Molybdenum grade (%Mo)
Copper recovery (%)
Molybdenum recovery (%)
Copper production (millions lb)
Molybdenum production (thousands lb)
Copper production costs, net of by-product
credits2, per lb of copper
Off property costs for transport, treatment
(smelting and refining) and sales per lb
of copper
Total cash costs of production per lb of copper
Fiscal 2006
38.4
Fiscal 2005
40.0
10.9
2.44
0.285
0.009
79.1
41.2
49.1
821
11.5
2.31
0.314
0.010
76.2
23.1
54.8
427
US$1.25
US$0.87
US$0.25
US$1.50
US$0.28
US$1.15
1 Total tons mined includes sulphide ore, oxide ore, low grade stockpile material, overburden,
and waste rock which were moved from within pit limit to outside pit limit during the period.
2 The by-product credit is based on pounds of molybdenum and ounces of silver sold. Unit
costs were lower in fiscal 2005 because molybdenum prices and pounds of copper produced
were higher.
18
TASEKO MI NES LI MITE D
Total tons mined in the current fiscal year were lower than in fiscal
2005 as a result of low haulage truck availability due to the industry
wide lack of tire supply. Gibraltar maintains a contract for 80% of
the mine’s haulage truck tire requirements and is working to secure
other sources as well as taking all reasonable measures to extend
tire life. The worldwide ongoing tire supply issue will likely remain
a major issue at least through 2007. Preemptive action taken
includes: examining mine planning options to maintain ore supply,
securing other sources of tires, purchase of lightweight truck boxes,
construction of an in-pit crusher/conveyor and implementing ongoing
tire life extension programs.
The mine worked through a lower grade portion of the Pollyanna
pit and an unexpectedly high percentage of very fine clay type
ore caused by geological faults, affecting mill throughput. As well,
production was further negatively affected by a lower than planned
mill mechanical availability (including fifteen days of primary crusher
down time during May and June). As a result, copper produced in
concentrate during fiscal 2006 was 49.1 million pounds, a decrease
from the 54.8 million pounds produced in fiscal 2005.
Molybdenum produced
in concentrate was 821,000 pounds,
an increase from 427,000 pounds produced in fiscal 2005. The
molybdenum circuit was being commissioned and fine tuned during
fiscal 2005, which accounts for the lower production.
FourtH Quarter 2006 HIGHlIGHts
Copper
• Copper in concentrate production during the quarter was 12.8
million pounds of copper, 26% more than the previous quarter.
• Copper concentrate sales for the quarter were 8,982 wet metric
tonnes (“WMT”), containing 5.0 million pounds of copper, a
decrease from the 29,129 wet metric tonnes (“WMT”), containing
16.0 million pounds of copper sold during the previous quarter.
• The average price realized for sales of copper in the quarter
was US$3.23 per pound compared to US$3.08 per pound in the
previous quarter.
• Copper concentrate inventory at September 30, 2006 was
13,396 WMT (8.4 million pounds of copper), an increase in
inventory from the 1,094 WMT of concentrate (0.6 million
pounds of copper) on hand at the end of the previous quarter.
Molybdenum
• Molybdenum in concentrate production in the quarter was
197,000 pounds, a 17% increase from the previous quarter.
• Molybdenum concentrate sales in the quarter were 169 WMT,
containing 172,000 pounds, a decrease from the 186 WMT,
containing 186,000 pounds sold in the previous quarter.
• The average price realized for sales of molybdenum in the
quarter was US$24.10 per pound compared to US$24.81 in the
previous quarter.
• At the end of the fourth quarter, molybdenum in concentrate
inventory was 30.7 WMT (32,400 pounds of molybdenum),
compared to 7.4 WMT (7,600 pounds of molybdenum) at the
end of the previous quarter.
FourtH Quarter ProduCtIon results
The following table is a summary of the operating statistics for the
fourth quarter of 2006 (Q4 2006) compared to the same quarter in
fiscal 2005 (Q4 2005).
Ore plus waste mined (000’s tons)
Ore milled (000’s tons)
Stripping ratio
Copper grade (%)
Molybdenum grade (% Mo)
Copper recovery (%)
Molybdenum recovery (%)
Copper production (000’s lb)
Molybdenum production (000’s lb)
Copper production costs, net of by-product credits,
per lb of copper
Off property costs for transport, treatment
Q4 2006
9,594
Q4 2005
10,504
2,766
2.47
0.293
0.009
79.6
40.8
12,748
197
2,977
2.42
0.281
0.008
77.7
20.3
13,021
108
US$1.38
US$0.801
(smelting and refining) and sales per lb of copper
US($1.35)2
Total cash costs of production per lb of copper
US$0.03
US$0.34
US$1.14
1 The by-product credit is based on pounds of molybdenum and ounces of silver sold. Unit
costs were lower in fiscal 2005 because molybdenum prices and pounds of copper produced
were higher.
2 Off-property costs includes proceeds of the Glencore Ltd. arbitration award.
Tons mined were lower in the fourth quarter of fiscal 2006 compared
to fiscal 2005 as a result of low haulage truck availability due to the
continuing lack of tire supply, discussed above. (For further details
see 2006 Production Results.)
Ore milled was slightly lower in Q4 2006 compared to the same
quarter of the prior year. Mill mechanical availability improved in
Q4 2006 compared to Q3 2006, even when 48 hours of downtime
attributable to work required to tie-in the mill expansion is included,
but it continues to adversely affect copper production. The most
significant mill availability issues in Q4 were in the secondary crusher
circuit where material handling issues were encountered as a result
of a high percentage of wet and fine ore coming from the Pollyanna
pit. Material handling problems are being addressed by mine planning
and ore type blending. Upon completion of the mill expansion in
December 2007, the secondary crusher will be largely unnecessary
but, in the interim, immediate preemptive action on mill availability
has been taken and includes: ongoing operations and maintenance
procedures reviews and training, root cause analyses and repair/
replacement programs to eliminate or reduce bottlenecks.
ELEM ENTS f or SUCCESS
19
Management’s Discussion and Analysis
Copper recovery has improved in fiscal 2006 compared with the
same quarter in fiscal 2005; however, copper production for the
quarter was lower as a result of lower mill production. Molybdenum
production has improved from fiscal 2005 when commissioning
problems were still taking place related to the new molybdenum
circuit that was completed in early 2005.
Costs per pound of copper produced were above forecast due
to reduced metal production, as explained above, and as a
result of higher than expected expenditures. Cost reductions as
a result of lower production were off set by higher overall input
costs for tires, grinding media, fuel, and contracted maintenance
labour. Expenditures were also higher as a result of accelerating
planned maintenance on
fleet of equipment,
including the $1.5 million rebuild of a shovel performed in
September and repairs and replacement of equipment in the
secondary crushers.
the mining
MIll exPansIon ProjeCt
Work on an expansion and upgrade to the concentrator facility at the
Gibraltar mine commenced in Q3 2006. Engineering and procurement
is proceeding on schedule, with engineering approximately 70%
complete. The upgrade and expansion project will increase the
copper production capacity of the Gibraltar mine to 100 million
pounds of copper per year by 2008.
The mill expansion is fully underway. Outside earthworks and
foundation pours for the 10.4-metre diameter SAG mill and
associated buildings are approximately 60% completed. The focus
of construction activities moved inside the main mill building during
the winter months to continue with the installation of the nine new
160 cubic metre flotation cells. All major components have been
ordered and are confirmed to arrive at the site on time. Contracts
for engineering, procurement and construction management,
earthworks, civil engineering, and building erection have been
let and contracts for mechanical and electrical installation are
pending. Final cost projections are expected by mid-December and
will include detailed estimates for piping, pumping, electrical, and
instrumentation installations.
solvent extraCtIon /eleCtrowInnInG (sx/ew) Plant
restart
All oxide material required for the restart of the SX/EW plant was in
place during the fourth quarter of fiscal 2006 and solvent distribution
systems had been installed. The SX/EW plant is scheduled to
go through hot commissioning on December 15, and the plant is
expected to be in full production in January 2007.
laBour
There were no lost time accidents during the fourth quarter or over
the fiscal year. The number of personnel at the end of the year was
282, compared to 281 at the end of the previous quarter and 248 at
the end of fiscal 2005.
On site full-time staff and hourly Ledcor employees were informed
in July that their employment would be transferred to Gibraltar as a
result of the dissolution of the agreement with Ledcor. The transfers
were completed on November 5, 2006.
MIneral reserves and resourCes
Cautionary Note to Investors Concerning Estimates of Measured and
Indicated Resources: The following section uses the terms ‘measured
resources’ and ‘indicated resources’. The Company advises inves-
tors that while those terms are recognized and required by Canadian
regulations, the U.S. Securities and Exchange Commission does not
recognize them. Investors are cautioned not to assume that any part
or all of mineral deposits in these categories will ever be converted
into reserves.
A 61,500-foot exploration drilling program was carried out in 2006
to define the mineral resources between the existing pits, tying
together the extensive mineralization zones, and to test for additional
mineralization at depth. The work successfully met both objectives,
and additionally encountered copper and molybdenum grades and
copper equivalent values at depth that are significantly higher than
the average 0.30% copper and 0.008% molybdenum grades (0.34%
copper equivalent) mined over the past ten years of operation at the
Gibraltar Mine.
Modeling and mine plan development subsequent to September 30,
2006 resulted in a 40% increase in proven and probable reserves in
the Granite Lake deposit. The mine production plans and economic
analysis meet the requirements of Canadian securities regulations
to upgrade resources to reserves but a life of mine plan has not yet
been formalized and approved by Taseko’s board of directors.
Under present mine operating parameters of 36,000 tons milled per
day, this addition to reserves extends the mine life to 21 years. Upon
completion of the mill expansion in December 2007 to 46,000 tons
per day, the Gibraltar mine life will be approximately 15 years.
20
TASEKO MI NES LI MITE D
Gibraltar Mineral reserves
at october 1, 2006 at 0.20% Copper cut-off
Pit
Pollyanna
PGE Connector
Granite Lake
Granite Lake Additional
total
Category
Proven
Probable
subtotal
Proven
Probable
subtotal
Proven
Probable
Proven
Probable
subtotal
tons
(millions)
17.2
1.4
18.6
43.0
13.3
56.3
97.0
10.5
60.6
13.4
181.5
256.4
Cu (%)
0.335
0.276
0.331
0.297
0.278
0.293
0.318
0.317
0.334
0.326
0.324
0.318
Mo (%)
0.011
0.009
0.011
0.010
0.014
0.011
0.009
0.006
0.011
0.011
0.010
0.010
The resource and reserve estimation was completed by Gibraltar
mine staff under the supervision of Ian S. Thompson, P. Eng., Su-
perintendent of Engineering and a Qualified Person under National
Instrument 43-101. The estimates used long term metal prices
of US$1.50/lb for copper and US$8.00/lb for molybdenum and a
foreign exchange of C$0.88 per US dollar. A technical report will be
filed on www.sedar.com in January 2007.
In addition to the above reserves, the mineral resources are estimated
to be:
Category
Measured
Indicated
total
Gibraltar Mineral resources
at 0.16% to 0.20% Copper cut-off
tons (millions)
414
197
611
Cu (%)
0.284
0.272
0.280
Mo (%)
0.008
0.007
0.008
There are also oxide reserves (see Taseko Annual Information Form for
fiscal 2005), but these have not changed from previous estimates.
With the promising results encountered in the 2006 drilling program,
Hunter Dickinson Inc. exploration specialists have been called upon
to re-evaluate the property for exploration potential and to assist
in devising and managing a focused program to further expand the
Gibraltar mineral reserve. Two diamond drills are currently on the
property continuing to work outwards from existing pits with the
objective of expanding the reserves again in 2007.
2007 ProduCtIon ForeCast
Forecasted metal production for 2007 is 60–70 million pounds
of copper and one million pounds of molybdenum. Total copper
production is expected to increase from that achieved in 2006 through
a combination of improved ore grade, increased mill throughput from
improved mill mechanical availability and the additional production
of cathode copper from the rehabilitated SX/EW plant. With the
expected higher grade and improved mill throughput, molybdenum
production will also increase from 2006.
ProsPerIty ProjeCt
Taseko holds a 100% interest in the Prosperity property, which
encompasses 196 mineral claims covering approximately 85 square
kilometres. The property, located 125 kilometres southwest of the
City of Williams Lake in south-central British Columbia, hosts a
large porphyry copper-gold deposit amenable to large-scale open
pit mining.
An update of the feasibility study for the Prosperity Gold-Copper
Project, being performed by Hatch consultants, is progressing and
is scheduled for completion in May 2007. Updating of optimum mine
plans and input parameters to a pre-feasibility level with a National
Instrument 43-101 reserve statement is nearing completion. Results
are scheduled for release early in January 2007.
Field work for the environmental impact assessment (EIA) has
essentially concluded and the main task at hand is writing the project
report. The EIA is to be substantially completed by the end of April
2007, at which time it will enter the harmonized Federal/Provincial
evaluation process. The Company is in discussions with local First
Nations groups regarding their involvement in the project and it
is important to note that the project is in an area which has been
involved in a native title claim court case for some time.
HarMony ProjeCt
In 2006, the Company was focused on the Gibraltar mine and the
Prosperity project; therefore only maintenance activities were
performed on the Harmony project. These activities will continue
and assessments will be undertaken as new opportunities arise
for the Harmony project. Taseko anticipates continuing to focus its
resources and its efforts on the Gibraltar mine and the Prosperity
project in 2007.
Market trends
Copper prices have been increasing since late 2003. Copper prices
averaged US$1.30/lb in 2004 and US$1.59/lb in 2005. Copper
prices have continued to increase in 2006, averaging US$3.03/lb to
mid-December.
Molybdenum prices increased from US$7.60/lb to US$34/lb in
2004. The average molybdenum price in 2005 was US$33/lb. Prices
appear to have stabilized since January, averaging US$25.53 to
mid-December 2006.Gold prices have been increasing over the past
ELEM ENTS f or SUCCESS
21
Management’s Discussion and Analysis
two years, and this uptrend has accelerated since September 2005. Overall, the gold price increased from US$410/oz in 2004 to US$445/oz in
2005. The gold price has also increased in 2006, averaging US$604/oz to mid-December.
1.3
SelecteD annual infOrmatiOn
The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles, and are
expressed in Canadian dollars except common shares outstanding.
Balance sheets (as at September 30)
2006
2005 (restated)
2004 (restated)
Current assets
Mineral properties
Other assets
total assets
Current liabilities
Other liabilities
Shareholders’ equity
total liabilities and shareholders’ equity
$ 149,446,742
2,628,000
145,386,341
297,461,083
47,861,378
148,665,895
100,933,810
$ 297,461,083
$
58,380,111
3,000
132,613,767
190,996,878
52,204,979
109,682,344
29,109,555
$ 190,996,878
$
18,064,003
3,000
112,799,415
130,866,418
40,354,912
95,426,763
(4,915,257)
$ 130,866,418
statements of operations (year ended September 30)
2006
2005 (restated)
2004 (restated)
Revenue
Cost of sales
Amortization
operating profit (loss)
Accretion of reclamation obligation
Exploration
Foreign exchange loss (gain)
Loss on sale of equipment
Loss on extinguishment of capital leases
General and administration
Ledcor termination fee
Interest and other income
Interest expense
Interest accretion on convertible debt
Premium paid for acquisition of Gibraltar Reclamation Trust LP
Refinery project
Restart project
Stock-based compensation
Write down of mineral property acquisition costs
earnings (loss) before income taxes
Current income tax expense (recovery)
Future income tax expense (recovery)
earnings (loss) for the year
Basic earnings (loss) per share
Diluted earnings (loss) per share
Basic weighted average number of common shares outstanding
Diluted weighted average number of common shares outstanding
$ 161,900,063
(103,627,678)
(3,412,048)
54,860,337
$
1,732,000
3,544,081
(288,801)
–
240,049
5,286,039
3,500,000
(7,170,301)
4,593,622
1,280,099
–
–
–
3,182,102
–
$ 38,961,447
4,397,000
1,648,000
32,916,447
0.29
0.26
$
$
$
113,553,556
126,462,009
$
$
87,638,300
(71,348,118)
(2,657,165)
13,633,017
1,574,000
505,586
34,080
2,160,992
–
2,411,688
–
(10,547,609)
3,175,353
1,075,478
–
–
6,346,650
1,129,026
–
5,767,773
(4,099,000)
(13,423,000)
23,289,773
0.23
0.21
100,021,655
110,732,926
$
$
$
$
$
$
$
$
$
$
–
–
17,296
(17,296)
1,431,000
4,597,968
–
–
–
2,693,067
–
(5,154,209)
–
977,705
5,095,249
–
14,982,008
5,172,244
28,810,296
(58,622,624)
23,744,000
–
(82,366,624 )
(1.10)
(1.10)
75,113,426
75,113,426
22
TASEKO MI NES LI MITE D
1.4
Summary Of Quarterly reSultS
Expressed in thousands of Canadian dollars, except per-share amounts. Small differences are due to rounding.
sept 30
2006
jun 30
2006
Mar 31
2006
dec 31
2005
sept 30
2005
(restated)1
jun 30
2005
(restated)1
Mar 31
2005
(restated)1
dec 31
2004
(restated)1
Current assets
Mineral properties
Other assets
total assets
Current liabilities
Other liabilities
Shareholders’ equity
total shareholders’ equity and
liabilities
$ 149,447
2,628
$
68,651
$
64,839
$
57,067
$
58,380
$
50,973
$
31,424
$
24,673
3
3
3
3
3
3
3
145,386
134,459
132,713
132,684
132,614
120,522
118,945
115,055
$
297,461
$ 203,113
$ 197,555
$
189,754
$ 190,997
$ 171,498
$
150,372
$ 139,732
$
47,861
148,666
100,934
$
39,330
97,588
66,195
$
40,815
109,158
47,582
$
41,238
109,528
38,988
$
52,205
109,682
29,110
$
46,802
112,550
12,146
$
41,969
108,392
$
40,894
107,764
11
(8,926)
$
297,461
$ 203,113
$ 197,555
$
189,754
$ 190,997
$ 171,498
$
150,372
$ 139,732
$
(59,922 )
31,866
$
(37,511 )
22,574
$
(41,271 )
26,047
$
(27,699 )
20,902
$
(31,520 )
13,263
$
(28,419)
23,635
$
6,643
852
6,277
849
4,401
779
5,300
710
3,848
655
Revenue
Mine site operating costs
Transportation and treatment
Amortization
$
(23,196 )
8,829
(7,581)
898
expenses
Accretion of reclamation obligation
Conference and travel
Consulting
Corporation taxes
Exploration
Interest and accretion charges
Ledcor termination fee
Legal, accounting and audit
Office and administration
Restart project
Shareholder communications
Trust and filing
Interest and other (income)
Loss on sale of equipment
Income taxes
Foreign exchange
Stock-based compensation
earnings (loss) for the period
earnings (loss) per share—basic
$
$
433
223
137
(564 )
(155 )
1,678
3,500
(81 )
457
–
101
55
(2,418 )
–
(1,968 )
(132 )
731
19,053
0.16
8,973
812
433
39
104
434
2,958
2,311
–
1,061
613
–
183
23
(1,579 )
–
5,603
323
1,685
4,080
0.04
$
$
433
84
78
166
471
433
71
115
–
270
393
60
102
(7 )
455
1,043
1,082
1,502
–
334
499
–
97
215
(1,546 )
–
2,410
(448 )
535
3,071
0.03
$
$
–
363
390
–
69
21
(1,627 )
–
–
(32 )
231
6,712
0.06
$
$
–
176
530
–
90
8
(1,324 )
–
(17,522 )
324
401
393
36
83
–
7
933
–
74
237
–
45
8
(1,553 )
–
–
194
170
$
$
16,429
0.17
$
$
11,620
0.11
$
$
–
–
–
512
394
13
64
1
32
906
–
97
164
7,561
53
6
(6,437)
2,178
–
(244 )
165
(5,465)
(0.06)
394
11
66
–
12
910
–
79
237
(1,215 )
112
67
(1,233 )
(17 )
–
(241 )
393
706
0.01
$
$
1 As discussed in Note 4 of the consolidated financial statements the consolidated balance sheet as at September 30, 2005 has been amended to present the liability component and equity component
separately on the balance sheet. The accretion charges that were previously recorded through deficit are now recorded as interest accretion on convertible debt in the consolidated statement of
operations. For the year ended September 30, 2005, this amounted to $1,075,478 (2004—$977,705).
ELEM ENTS f or SUCCESS
23
Management’s Discussion and Analysis
1.5
reSultS Of OperatiOnS
Year ended September 30, 2006 (“2006”) versus year ended
September 30, 2005 (“2005”)
tax planning initiatives. Office and administration (2006—$2.0
million; 2005—$1.2 million);conference and travel (2006—$0.4
million; 2005—$0.1 million); and trust and filing (2006—$0.3
million; 2005—$0.1 million) all increased in 2006 due to higher
staffing levels and an increase in corporate activities.
The Company’s pre-tax earnings for 2006 increased to $39.0 million,
compared to $5.8 million in 2005 due mainly to higher sales of copper
and molybdenum and higher realized metal prices for sales during
the year. The Company’s after-tax earnings for 2006 increased to
$32.9 million, compared to $23.3 million in 2005.
The Company recorded a one-time fee in 2006 of $3.5 million to
Ledcor as a result of the Company voluntarily withdrawing from an
agreement with Ledcor to operate the Gibraltar mine. The Company
has assumed responsibility for all operational matters in connection
with the Gibraltar Mine in November 2006.
The Company reported revenues of $161.9 million, compared to
$87.6 million in the previous year. The average price per pound of
copper concentrate sold increased to US$2.44 per pound, up from
US$1.48 per pound in the previous year. Revenues increased due to
significantly higher copper prices and more pounds of copper sold.
The increase in pounds of copper sold is attributed to having a full
year of sales in 2006 compared to nine months in 2005.
Revenues consisted of copper concentrate sales of $140.3 million
(2005—$71.9 million) and molybdenum concentrate sales of $21.6
million (2005—$15.7 million).
Cost of sales for 2006 was $103.6 million, compared to $71.3 million
in the 2005. Costs of sales for 2006 consists of total production
cost of $92.5 million (2005—$75.0 million), less a concentrate
inventory addition of $2.0 million (2005—$16.3 million), and silver
credits of $1.2 million (2005—$0.9 million). Also included in cost
of sales are transportation and treatment costs of $14.3 million
for 2006 compared to $13.5 million 2005. This increase in cost of
sales for 2006 is due to higher sales quantities compared to the
prior year, and partially offset by an arbitration award discussed in
Section 1.10 below.
Amortization expense for 2006 was $3.4 million compared to $2.7
million in 2005. The increase was due to more depreciable assets
in 2006.
Exploration expenses increased to $3.5 million in 2006 compared
to $0.5 million in 2005 due to a higher level of exploration activity,
mainly at the Prosperity project and focused on the initial stages
of an environmental impact assessment and preparing an updated
feasibility study. Exploration expenses of $2.6 million at Gibraltar
were capitalized as a result of the increase in the mineral reserves.
General and administrative costs increased to $5.3 million in 2006
from $2.4 million in 2005. The main increase was attributable to
legal, tax and accounting fees (2006—$1.7 million; 2005—$0.4
million), which increased in 2006 due to higher corporate activities,
professional fees relating to the Company’s continued efforts to
comply with the reporting requirements under Sarbanes-Oxley and
Stock-based compensation increased to $3.2 million in the current
year compared to $1.1 million in 2005 as a result of a slight increase
in the number of share purchase options granted and a higher fair
value on the options granted during the year.
A current income tax provision of $4.4 million was recorded in 2006,
compared to $4.1 million current income tax recovery in 2005. In
addition, the Company had a future income tax expense of $1.6
million in 2006 compared to a recovery of $13.4 million in 2005. The
increase in the income tax provision is due mainly to the depletion of
tax pools as a result of the Company becoming more profitable.
The Company has accrued a tax provision of a subsidiary company
of $21.1 million (2005—$19.6 million) in the consolidated financial
statements. This provision relates to an income tax expense
recorded in 2004 which management believes is less than likely
of ever becoming payable. The Company would exhaust all appeals
if any taxes were actually assessed against the subsidiary. The
amount represents a potential liability which has been recognized
in a conservative manner in accordance with Canadian generally
accepted accounting principles. It does not represent a payable
amount based on any filed, or expected to be filed, tax return. No
taxation authority has assessed the amount or any portion thereof as
payable. Accordingly, there is no immediate impact on liquidity. The
subsidiary will consider its current and past tax filing positions in
addition to tax planning strategies which might be put in place prior
to the Company’s fiscal year ending on September 30, 2007.
1.6
liQuiDity
At September 30, 2006, Taseko had working capital of $101.6 million,
as compared to a $6.2 million at September 30, 2005. The increase
in cash was primarily a result higher revenues from operations at
the Gibraltar mine, the exercising of share purchase options and
warrants and the issuance of US$30 million convertible bonds during
the year.
On August 29, 2006, the Company purchased from Continental, a
related public company with certain directors in common with the
24
TASEKO MI NES LI MITE D
Company, a Convertible Secured Promissory Note of Continental (the
“Note”) in the amount of $11.5 million. The Note provides for interest
at the rate of 16% per annum payable monthly and is payable in
cash or, at the Company’s election, in Continental common shares.
The Note is secured by an indirect pledge of Continental’s 60%
interest in the Xietongmen property, which security interest will
be subordinated, if necessary, to any security interest granted by
Continental in respect of senior debt, of which none is outstanding
at September 30, 2006. The Company has the right to convert any or
the entire principal then outstanding under the one year Note, plus
a 5% premium into Continental common shares at $2.05 per share
if the conversion right is exercised within the first six months, or at
$2.25 per share if exercised in the second six months.
In September 2006, the Company made a contribution of $13.8
million during the year to a qualified environmental trust in relation
to its site closure and reclamation obligations for the Gibraltar mine.
Management anticipates that revenues from copper and molybdenum,
along with current cash balances will be sufficient to cover operating
costs, working capital, the Gibraltar mill expansion and the proposed
acquisition of bcMetals Corporation for the fiscal year of 2007.
1.7
capital reSOurceS
During the year, the Company exercised its right to acquire certain
of the Company’s mine haul trucks and a mining shovel held under
capital leases for approximately US$12.5 million. The purchase
caused the capital lease obligation to be extinguished and the
assets under capital lease to be reclassified as property, plant and
equipment.
On August 29, 2006, the Company issued US$30 million in principal
amount of five year convertible bonds due in 2011 (the “Bonds”) to
qualified institutional buyers. The Bonds are convertible into Taseko
common shares. The Bonds constitute direct, unsubordinated,
unsecured, general and unconditional obligations of the Company.
The Bonds were issued at 100% and, if not converted, will be
redeemed at maturity at 101%. The Bonds carry a coupon interest
rate of 7.125% per annum. The Bonds are convertible at the holder’s
option after 40 days from issuance until August 19, 2011 at a
conversion price of US$3.35 ($3.76), or up to 8,955,224 common
shares of the Company, which is a premium of approximately 40%
over the recent trading price of the Company’s shares at August
29, 2006. At any time after September 12, 2008, the Company will
have the right to call for the conversion of the Bond into the number
of shares as set out above, if the Company’s shares trade at least
50% above the conversion price for at least 20 business days in any
period of 30 consecutive business days. On August 29, 2009, the
Bondholders have a one time right to redeem the Bonds at 100.60%.
Debt issuance costs of $1.4 million were incurred upon closing of the
transaction and are being amortized over the first redemption term
of the Bonds.
The Company had no commitments for material capital expenditures
as of September 30, 2006.
The Company has no lines of credit or other sources of financing.
1.8
Off-Balance Sheet arrangementS
None.
1.9
tranSactiOnS with relateD partieS
Hunter Dickinson Inc. (“HDI”) carries out investor relations, geological,
corporate development, administrative and other management
activities for, and incurs third party costs on behalf of, the Company.
Taseko reimburses HDI on a full cost-recovery basis.
Costs for services rendered and costs incurred on behalf of the
Company by HDI were $2,869,003 in 2006, as compared to
$1,235,403 in 2005. The increase is due to higher staffing levels
required to support the increase in general corporate development
and exploration activities.
As previously discussed, the Company purchased a note from
Continental, a related party.
1.10
fOurth Quarter
The Company reported revenues of $23.2 million, compared to
$59.9 in the previous quarter and $27.7 million in the fourth quarter
of 2005. The average price per pound of copper concentrate sold
increased to US$3.23 per pound in the fourth quarter, up from
US$3.08 per pound in the previous quarter and US$1.64 in the same
quarter in 2005. Revenues decreased in the fourth quarter as a result
of only completing one shipment of concentrate due to a lack of
available vessels. This was partially offset by an increase in the price
of copper.
Revenues consisted of copper concentrate sales of $18.2 million and
molybdenum concentrate sales of $5.0 million.
Cost of production sold for the period was $8.8 million, compared
to $31.9 million in the previous quarter, and $20.9 million in the
same quarter of 2005. Costs of production sold consist of total
production cost for the period of $24.8, compared to $22.8 million
in the previous quarter and $33.2 million in the same quarter of the
previous year; less concentrate inventory addition of $15.9 million,
ELEM ENTS f or SUCCESS
25
Management’s Discussion and Analysis
compared to inventory reduction of $9.6 million in the previous
quarter and addition of $12.1 million in the fourth quarter of 2005;
and silver credits of $0.1 million, compared to $0.2 million in the
previous quarter and $0.2 million in the previous fourth quarter.
Transportation and treatment costs for the fourth quarter amounted
to a recovery of $7.6 million compared to an expense of $9.0 million
in the previous quarter and $4.4 million for the same period last
year. The recovery of transportation and treatment costs in the fourth
quarter was due to the August 2006 arbitration ruling in favor of the
Company. The Company sells the whole of the copper concentrates
produced by the Gibraltar mine to Glencore Ltd. (“Glencore”)
pursuant to the terms of a written contract. During the year, Gibraltar
and Glencore had a dispute over the interpretation of the contract.
Glencore asserted that the contract provides that the price to be
paid for the concentrates should be reduced by a deduction referred
to as “price participation”. Gibraltar asserted that the contract does
not provide for any such deduction. Both parties agreed to binding
arbitration to settle this dispute. In August 2006, the arbitrator ruled
in favor of Gibraltar and awarded the Company approximately US$8.5
million in amounts previously withheld by Glencore. At September
30, 2006, the Company had received substantially all of the withheld
amounts and had been reimbursed for $0.8 million of legal costs
associated with the arbitration.
Amortization expense of $0.9 million for the fourth quarter was
comparable to the previous quarter and the fourth quarter of 2005.
1.11
prOpOSeD tranSactiOnS
In November 2006, Taseko launched a $1.05 per share take-over
bid offer for all of the outstanding shares of bcMetals Corporation
(“bcMetals”). bcMetals holds a 100% interest in the Red Chris copper-
gold project in northern British Columbia. The results of a feasibility
study on the Red Chris project were announced by bcMetals earlier
in 2006.
Taseko’s offer represented an 11% premium over the then current
bid price for bcMetals being made by Imperial Metals Corporation.
The Taseko bid is subject to a number of conditions, including that
66.66% of bcMetals shares are tendered to the bid, the conditional
settlement agreement with certain minority shareholders of
bcMetals’ subsidiary, American Bullion Minerals Ltd., and rejection
by bcMetals shareholders of bcMetals’ Limited Purpose Shareholder
Rights Plan and its proposed joint venture of Red Chris with Global
International Jiangxi Copper Mining Company Limited.
1.12
critical accOunting eStimateS
The Company’s significant accounting policies are presented in note
3 of the audited consolidated financial statements for the year ended
September 30, 2006. The preparation of consolidated financial
statements in accordance with generally accepted accounting
principles requires management to select accounting policies and
make estimates. Such estimates may have a significant impact on
the consolidated financial statements. These estimates include:
• mineral resources and reserves,
• the carrying values of concentrate inventories and supplies
inventories,
• the carrying values of mineral properties,
• the carrying values of property, plant and equipment,
• rates of amortization of property, plant and equipment,
• the carrying values of the reclamation liability,
• the carrying values of the convertible debentures and
conversion rights,
• income taxes,
• the valuation allowances for future income taxes,
• the carrying values of the receivables from sales of
concentrate,
• the carrying values of deferred revenue,
• the assumptions used in determining the reclamation
obligation, and
• the valuation of stock-based compensation expense.
Actual amounts could differ from the estimates used and, accordingly,
affect the results of operations.
1.13
change in accOunting pOlicieS incluDing initial
aDOptiOn
Effective October 1, 2005 the Company adopted certain new
provisions of
the CICA Handbook Section 3860, “Financial
Instruments—Disclosure and Presentation”, which came into effect
on that date. The standard requires that convertible debentures
which may be settled in cash, or by a variable number of common
shares of the Company at the Company’s discretion, be presented
as a liability. This change has been applied retroactively. The
consolidated balance sheet as at September 30, 2005 has been
amended to present the liability component and equity component
separately on the balance sheet. The accretion charges that were
previously recorded through deficit are now recorded as interest
accretion on convertible debt in the consolidated statement of
operations. For the year ended September 30, 2005, this amounted
to $1,075,478 (2004—$977,705). For the year ended September
30, 2006 this amounted to $1,183,024. This change had no effect
on earnings (loss) per share.
26
TASEKO MI NES LI MITE D
1.14
financial inStrumentS anD Other inStrumentS
None.
1.15
Other mD&a reQuirementS
Additional information relating to the Company, including the Company’s Annual Information Form, is available on SEDAR at www.sedar.com.
1.15.1
aDDitiOnal DiSclOSure fOr venture iSSuerS withOut Significant revenue
Not applicable. The Company is not a Venture Issuer.
1.15.2
DiSclOSure Of OutStanDing Share Data
The following details the share capital structure as at December 15, 2006, the date of this MD&A. These figures may be subject to minor
accounting adjustments prior to presentation in future consolidated financial statements.
Common shares
Share purchase option
expiry date
exercise price
number
number
128,388,175
September 28, 2007
December 14, 2007
March 27, 2009
March 27, 2009
March 27, 2009
September 28, 2010
September 28, 2010
September 28, 2010
March 28, 2011
March 28, 2011
March 28, 2011
$ 1.15
$ 1.29
$ 2.07
$ 2.18
$ 2.68
$ 1.15
$ 2.07
$ 2.18
$ 2.18
$ 2.63
$ 2.68
$ 4.89
166,500
75,000
90,000
316,500
137,500
1,346,667
236,667
170,000
475,000
380,000
90,000
3,483,834
3,476,483
3,476,483
Convertible debenture, Boliden Westmin (Canada) Limited
July 21, 2009
Convertible bonds
August 29, 2011
US$3.35
8,955,224
8,955,224
Preferred shares redeemable into Taseko Mines Limited common shares
12,483,916
1.15.3
management’S repOrt On internal cOntrOl Over financial repOrting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal
control system was designed to provide reasonable assurance to the Company’s management and the board of directors regarding the preparation and fair
presentation of published financial statements.
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 statement preparation and presentation.
ELEM ENTS f or SUCCESS
27
Management’s Discussion and Analysis
An internal control significant deficiency is a control deficiency,
or combination of control deficiencies, that adversely affects the
Company’s ability to initiate, authorize, record, process, or report
external financial data reliably in accordance with generally accepted
accounting principles such that there is more than a remote likelihood
that a misstatement of the Company’s annual or interim financial
statements that is more than inconsequential will not be prevented
or detected. An internal control material weakness is a significant
deficiency, or a combination of control deficiencies, that results
in more than a remote likelihood that a material misstatement of
the Company’s annual or interim financial statements will not be
prevented or detected.
Management of the Company conducted an assessment of the
effectiveness of the Company’s internal controls over financial
reporting as of September 30, 2006. Based on its assessment,
the Company did not have
management concluded
effective review procedures associated with the Company’s
accounting for income taxes and related disclosures. As a
result, the Company recorded adjustments, including a material
adjustment related to the future income tax asset valuation
that
to correct errors
allowances,
fairly
present its financial statements as of and for the year ended
September 30, 2006.
in accounting and
to
identified
to remediate
the material weakness
In order
in
Management’s Report on Internal Control Over Financial Reporting,
we have retained tax consultants who are skilled in the area of
taxation and related financial reporting. The consultants have
assisted the Company in the preparation of its financial statements
as of and for the year ended September 30, 2006 and will continue
assisting the Company in its quarterly and annual financial
statements with respect to income tax reporting.
Other than the material weakness discussed above, management
concludes that the Company maintained effective internal controls
over financial reporting as of September 30, 2006.
28
TASEKO MI NES LI MITE D
kPMG llP
Chartered Accountants
PO Box 10426, 777 Dunsmuir Street
Vancouver, BC V7Y 1K3 Canada
(604) 691-3000
(604) 691-3031
T:
F:
W: www.kpmg.ca
auDitOrS’ repOrt tO the SharehOlDerS
We have audited the consolidated balance sheets of Taseko Mines Limited as at September 30, 2006 and 2005 and
the consolidated statements of operations, deficit and cash flows for each of the years in the three-year period ended
September 30, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require
that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position
of the Company as at September 30, 2006 and 2005 and the results of its operations and its cash flows for each
of the years in the three-year period ended September 30, 2006 in accordance with Canadian generally accepted
accounting principles.
Chartered Accountants
Vancouver, Canada
December 8, 2006
KPMG LLP, a Canadian limited liability partnership is the Canadian
member firm of KPMG International, a Swiss cooperative.
ELEM ENTS f or SUCCESS
29
Consolidated Balance Sheets
(expressed in Canadian dollars)
assets
Current assets
Cash and equivalents
Accounts receivable
Inventory (note 5)
Prepaid expenses
Investment (note 6)
Current portion of future income taxes (note 15)
Current portion of promissory note (note 8(e))
restricted cash
deferred financing costs
Mineral properties, plant and equipment (note 9)
assets under capital leases (note 10)
reclamation deposits (note 13)
Promissory note (note 8(e))
Future income taxes (note 15)
lIaBIlItIes and sHareHolders’ eQuIty
Current liabilities
Accounts payable and accrued liabilities
Current portion of capital lease obligation (note 11)
Current portion of deferred revenue (notes 3(b) and 8(e))
Current portion of royalty obligation (note 8(e))
Income taxes (note 15)
Capital lease obligation (note 11)
Income taxes (note 15)
royalty obligation (note 8 (e))
deferred revenue (note 8 (e))
Convertible debt (note 12)
site closure and reclamation costs (note 13)
shareholders’ equity
Share capital (note 14)
Equity component of convertible debt (note 12)
Tracking preferred shares (note 7)
Contributed surplus (note 14(e))
Deficit
Subsequent event (note 18)
Commitments (note 8)
See accompanying notes to Consolidated Financial Statements.
approved by the Board of directors
september 30, 2006
september 30, 2005
(restated−note 4)
$
$
$
89,407,801
9,342,044
24,217,881
1,221,297
11,500,000
11,601,000
2,156,719
149,446,742
–
1,381,577
43,444,943
–
32,004,138
71,009,683
174,000
297,461,083
21,960,232
–
19,759,131
2,156,719
3,985,296
47,861,378
–
21,058,378
64,632,443
1,225,000
42,774,663
18,975,411
196,527,273
197,591,937
13,654,673
26,641,948
3,647,716
(140,602,464)
100,933,810
$
$
$
21,728,789
6,746,378
20,874,231
1,914,214
–
4,479,000
2,637,499
58,380,111
5,000,000
–
9,916,992
20,794,000
18,281,420
69,680,355
8,944,000
190,996,878
13,082,146
2,092,334
14,748,000
2,637,499
19,645,000
52,204,979
12,984,805
–
66,153,298
1,400,000
11,830,241
17,314,000
161,887,323
160,829,442
9,822,462
26,641,948
5,334,614
(173,518,911)
29,109,555
$
297,461,083
$
190,996,878
Russell E. Hallbauer
Director
30
Jeffrey R. Mason
Director
TASEKO MI NES LI MITE D
Consolidated Statement of Operations
(expressed in Canadian dollars)
years ended september 30
2006
2005
(restated−note 4)
2004
(restated−note 4)
revenue
Copper
Molybdenum
Cost of sales
depletion, depreciation and amortization
operating profit (loss)
expenses (income)
$ 140,340,929
21,559,134
161,900,063
(103,627,678)
(3,412,048)
54,860,337
Accretion of reclamation obligation
Exploration
Foreign exchange
Loss on sale of equipment
Loss on extinguishment of capital leases (note 11)
General and administration
Ledcor termination fee (note 8 (a))
Interest and other income
Interest expense
Interest accretion on convertible debt
Premium paid for acquisition of Gibraltar Reclamation Trust Limited Partnership
Restart project
Stock-based compensation
Write down of mineral property acquisition costs (note 8 (c))
Earnings (loss) before income taxes
Income tax recovery (expense) (note 15)
Future income tax recovery (expense) (note 15)
earnings (loss) for the year
earnings (loss) per share
Basic
Diluted
weighted average number of common shares outstanding
Basic
Diluted
$
$
1,732,000
3,544,081
(288,801)
–
240,049
5,286,039
3,500,000
(7,170,301)
4,593,622
1,280,099
–
–
3,182,102
–
15,898,890
38,961,447
(4,397,000)
(1,648,000)
32,916,447
$ 71,945,925
15,692,375
87,638,300
(71,348,118)
(2,657,165)
13,633,017
1,574,000
505,586
34,080
2,160,992
–
2,411,688
–
(10,547,609)
3,175,353
1,075,478
–
6,346,650
1,129,026
–
7,865,244
5,767,773
4,099,000
13,423,000
$ 23,289,773
$
–
–
–
–
(17,296)
(17,296 )
1,431,000
4,597,968
–
–
–
2,693,067
–
(5,154,209)
–
977,705
5,095,249
14,982,008
5,172,244
28,810,296
58,605,328
(58,622,624)
(23,744,000)
–
$ (82,366,624)
0.29
0.26
$
0.23
0.21
$
(1.10)
(1.10)
113,553,556
126,462,009
100,021,655
110,732,926
75,113,426
75,113,426
Consolidated Statements of Deficit
(expressed in Canadian dollars)
deficit, beginning of year
Earnings (loss) for the year
deficit, end of year
See accompanying notes to Consolidated Financial Statements.
years ended september 30
2006
2005
2004
$ (173,518,911)
32,916,447
$ (140,602,464)
$ (196,808,684)
23,289,773
$ (173,518,911)
$ (114,442,060)
(82,366,624)
$ (196,808,684)
ELEM ENTS f or SUCCESS
31
Consolidated Statements of Cash Flows
(expressed in Canadian dollars)
operating activities
Earnings (loss) for the year
Items not involving cash
Accretion of reclamation obligation
Depreciation, depletion and amortization
Interest accretion on convertible debt
Loss on extinguishment of capital leases
Loss on sale of equipment
Stock-based compensation
Future income taxes
Unrealized foreign exchange
Write down of mineral property acquisition costs
Premium paid for acquisition of Gibraltar Reclamation Trust Limited Partnership
Shares issued for loan guarantee
Shares issued pursuant to farmout agreement
Changes in non-cash operating working capital
Accounts receivable
Inventories
Prepaids
Accrued interest income on promissory note
Accounts payable and accrued liabilities
Deferred revenue
Accrued interest expense on royalty obligation
Income taxes
Site closure and reclamation expenditures
Cash provided by (used for) operating activities
Investing activities
Purchase of property, plant and equipment
Proceeds received on sale of property, plant and equipment
Restricted cash
Funds advanced on promissory note
Reclamation deposits
Accrued interest income on reclamation deposits
Investment in convertible promissory note
Cash provided by (used for) investing activities
Financing activities
Principal repayments under capital lease obligation
Bank operating loan
Common shares issued for cash, net of issue costs
Proceeds on sale of royalty
Advances from Gibraltar Reclamation Trust Limited Partnership
Convertible bonds issued, net of issue costs
Cash provided by financing activities
Increase in cash and equivalents
Cash and equivalents, beginning of year
Cash and equivalents, end of year
Supplementary cash flow disclosures (note 16)
See accompanying notes to consolidated financial statements.
years ended september 30
2006
2005
(restated−note 4)
2004
(restated−note 4)
$ 32,916,447
$ 23,289,773
$ (82,366,624)
1,732,000
3,412,048
1,280,099
240,049
–
3,182,102
1,648,000
48,901
–
–
–
–
(2,595,666)
(3,343,650)
692,917
(4,311,069)
8,878,086
4,836,131
1,460,886
5,398,674
(70,589)
55,405,366
(16,145,999)
–
5,000,000
–
(13,000,000)
(722,718)
(11,500,000)
(36,368,717)
(15,077,139)
–
31,893,495
–
–
31,826,007
48,642,363
1,574,000
2,657,165
1,075,478
–
2,160,992
1,129,026
(13,423,000)
–
–
–
–
–
(3,980,194)
(20,874,231)
(1,704,199)
(4,145,474)
(1,301,169)
14,398,000
1,433,797
(4,099,000)
–
(1,809,036)
(8,263,188)
22,067,711
(5,000,000)
–
–
(634,364)
–
8,170,159
(7,273,554)
(1,857,740)
9,606,013
–
–
–
474,719
67,679,012
21,728,789
89,407,801
$
6,835,842
14,892,947
21,728,789
$
1,431,000
17,296
977,705
–
–
5,172,244
–
–
28,810,296
5,095,249
450,000
935,000
(1,792,899)
–
–
–
12,750,113
1,750,000
–
23,744,000
–
(3,026,620)
(26,928,697)
–
–
(68,172,380)
(401,311)
(488,471)
–
(95,990,859)
–
(135,656)
27,167,069
67,357,000
17,097,792
–
111,486,205
12,468,726
2,424,221
14,892,947
$
32
TASEKO MI NES LI MITE D
Notes to Consolidated Financial Statements
1.
nature Of OperatiOnS
Taseko Mines Limited (“Taseko” or the “Company”) is a public
company incorporated under the laws of the Province of British
Columbia. At September 30, 2006, the Company’s principal business
activities related to the operations of the Gibraltar Copper Mine, and
exploration on the surrounding properties as well as exploration on
the Company’s 100% owned Prosperity Gold-Copper Property, and
Harmony Gold Property. The Gibraltar property and the Prosperity
gold property are located in south central British Columbia, Canada,
near the City of Williams Lake. The Harmony gold property is located
on Graham Island, Queen Charlotte Islands (also known as Haida
Gwaii), British Columbia.
2.
BaSiS Of preSentatiOn
These financial statements have been prepared in accordance
with Canadian generally accepted accounting principles. These
consolidated financial statements include the accounts of the
Company and all of its subsidiaries. All material intercompany
accounts and transactions have been eliminated.
3.
Significant accOunting pOlicieS
(a) Cash and equivalents
Cash and equivalents consist of cash and highly liquid
investments, having maturity dates of three months or less
from the date of acquisition, that are readily convertible
to known amounts of cash. At September 30, 2006, of
the $89.4 million cash and cash equivalents held by the
Company, $81.6 million (US$73.0 million) were held in United
States-dollar-denominated cash and equivalents (2005—
$21.1 million (US$18.2 million)).
(b) revenue recognition
Revenue from the sales of metal in concentrate is recognized
when persuasive evidence of a sales agreement exists, the title
and risk is transferred to the customer, collection is reasonably
assured, and the price is reasonably determinable. Revenue
from the sales of metal may be subject to adjustment upon
final settlement of shipment weights, assays and estimated
metal prices. Adjustments to revenue for metal prices are
recorded monthly and other adjustments are recorded on
final settlement. Cash received in advance of meeting these
revenue recognition criteria is recorded as deferred revenue.
At September 30, 2006, the Company had deferred revenues
of $19.6 million (2005—$14.6 million) pertaining to cash
received in advance of title and risk passing to the customer.
(c)
Inventory
Concentrate inventory consists of finished goods, work-in-
process inventories and stockpiled ore. Concentrate inventory
is valued based on the lower of average production cost or
net realizable value. Production costs include the cost of raw
materials, direct labour and mine-site overhead expenses
and depreciation.
The costs of removing waste material in the process of mining
ore, referred to as “stripping costs”, are considered costs
of the extracted minerals and recognized as a component
of concentrate inventory to be recognized in cost of sales
in the same period as the revenue from the sale of the
concentrate inventory.
Supplies inventory is valued at the lower of average cost and
replacement cost.
(d)
Investment
Investment consists of a convertible promissory note with a
maturity date of less than one year, which is carried at the
lower of cost and estimated realizable value.
(e) deferred financing charges
Deferred financing charges consist of expenses related to
debt financing transactions and are amortized over the life of
such debt facilities.
(f) Plant and equipment
Plant and equipment are stated at cost less accumulated
amortization. Mining and milling assets are amortized using
the units of production method based on tons mined and
milled, respectively, divided by the estimated tonnage to be
recovered in the mine plan. Amortization for all other assets is
calculated using the declining balance method at rates ranging
from 10% to 50% per annum. Repairs and maintenance
expenditures are charged to operations as incurred. Major
improvements and replacements which extend the useful life
of the asset are capitalized as incurred.
The costs of removing overburden material to access mineral
deposits, referred to as “pre-stripping costs”, are deferred
and amortized using the units of production basis to cost of
sales over the life of the mineral deposit accessed.
(g) Mineral property interests
The Company capitalizes mineral property acquisition costs
on a property-by-property basis. Exploration expenditures
and option payments incurred prior to the determination of
the feasibility of mining operations are charged to operations
as incurred. Exploration and development expenditures
ELEM ENTS f or SUCCESS
33
Notes to Consolidated Financial Statements
3.
Significant accOunting pOlicieS, continued
incurred subsequent to such determination, to increase
production, or to extend the life of existing production are
capitalized, except as noted below. Such acquisition costs
and deferred exploration and development expenditures are
amortized over the estimated life of the property, or written off
to operations if the property is abandoned, allowed to lapse,
or if there is little prospect of further work being carried out
by the Company or its option or joint venture partners.
All costs incurred by the Company during the standby care
and maintenance period and restart at the Gibraltar mine
were expensed as incurred, net of revenues earned during
such period.
include
Mineral property acquisition costs
the cash
consideration and the fair market value of common shares,
issued for mineral property interests, pursuant to the terms
of the relevant agreement. Payments relating to a property
acquired under an option or joint venture agreement, where
such payments are made at the sole discretion of the
Company, are recorded in the accounts upon payment.
Costs related to feasibility work and the development of
processing technology are expensed as incurred. Costs
incurred subsequent to the determination of the feasibility of
the processing technology will be capitalized and amortized
over the life of the related plant.
Administrative expenditures are expensed as incurred.
for mineral property
The amount presented
interests
represents costs incurred to date and accumulated acquisition
costs, less write-downs, and does not necessarily reflect
present or future values.
(h) site closure and reclamation costs
The Company accounts for site closure and reclamation
costs in accordance with Canadian Institute of Chartered
Accountants
(“CICA”) Handbook Section 3110, “Asset
Retirement Obligations” (“HB 3110”). HB 3110 requires
the recognition of any statutory, contractual or other legal
obligation related to the retirement of tangible long-lived
assets when such obligations are incurred, if a reasonable
estimate of fair value can be made.
These obligations are measured initially at fair value and the
resulting costs are capitalized to the carrying value of the
related asset. In subsequent periods, the liability is adjusted
for the accretion of the discount and any changes in the
amount or timing of the underlying future cash flows. The
asset retirement cost is amortized to operations over the
life of the asset. Changes resulting from revisions to the
timing or the amount of the original estimate of undiscounted
cash flows are recognized as an increase or a decrease in
the carrying amount of the liability, and the related asset
retirement cost is capitalized as part of the carrying amount
of the related long-lived asset.
(i)
Impairment of long-lived assets
Long-lived assets, including mineral properties, plant and
equipment, are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of
the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset.
If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the
amount by which the carrying amount of the asset exceeds
the fair value of the asset. Assets to be disposed of would be
separately presented in the balance sheet and reported at the
lower of the carrying amount and the fair value less costs to
sell, and are no longer amortized.
(j) share capital
The Company records proceeds from share issuances net of
issue costs. Shares issued for consideration other than cash
are valued at the quoted market price on the date of issue.
The proceeds, net of issue costs, from common shares
issued pursuant to flow-through share financing agreements
are credited to share capital and the tax benefits of these
exploration expenditures are transferred to the purchaser of
the shares.
(k) stock-based compensation
The Company has a share option plan which is described
in note 14(c). The Company records all stock-based
payments granted on or after October 1, 2002 using the fair
value method.
Under the fair value method, stock-based payments are
measured at the fair value of the consideration received or
the fair value of the equity instruments issued or liabilities
incurred, whichever is more reliably measurable, and are
charged to operations over the vesting period. The offset is
credited to contributed surplus.
Consideration received on the exercise of stock options is
recorded as share capital and the related contributed surplus
is transferred to share capital.
34
TASEKO MI NES LI MITE D
(l)
Income taxes
The Company uses the asset and liability method of
accounting for income taxes. Under this method, future
income tax assets and liabilities are computed based on
differences between the carrying amounts of assets and
liabilities on the balance sheet and their corresponding tax
values, generally using the substantively enacted or enacted
income tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to
be recovered or settled. Future income tax assets also result
from unused loss carry forwards, resource-related pools,
and other deductions. Future tax assets are recognized
to the extent that they are considered more likely than not
to be realized. The valuation of future income tax assets is
adjusted, if necessary, by the use of a valuation allowance to
reflect the estimated realizable amount.
(m) earnings (loss) per common share
Basic earnings (loss) per common share is based on the
weighted average number of common shares outstanding
during the period.
Diluted earnings (loss) per share is calculated using the
treasury stock method. Under the treasury stock method, the
weighted average number of common shares outstanding
used for the calculation of diluted earnings per share includes
the underlying common shares related to the tracking
preferred shares and convertible debt on an if-converted
basis and assumes that the proceeds to be received on the
exercise of dilutive share options and warrants are used to
repurchase common shares at the average market price of
the common shares for the year.
In periods of loss, under the treasury stock method, the basic
and diluted loss per share are the same as the effect of
common shares issuable upon the exercise of warrants and
stock options of the Company would be anti-dilutive.
(n) variable interest entities
The Company accounts for variable interest entities (“VIE”) in
accordance with CICA Accounting Guideline 15, “Consolidation
of Variable Interest Entities” (“AcG15”). AcG15 prescribes the
application of consolidation principles for entities that meet
the definition of a VIE. An enterprise holding other than a
voting interest in a VIE could, subject to certain conditions, be
required to consolidate the VIE if it is considered its primary
beneficiary whereby it would absorb the majority of the VIE’s
expected losses, receive the majority of its expected residual
returns, or both.
(o) Fair value of financial instruments
The carrying amounts of cash and equivalents, accounts
receivable, reclamation deposits, and accounts payable and
accrued liabilities approximate their fair values due to their
short term nature.
The carrying values of the promissory note, convertible bonds
(note 12(a)) and the royalty obligation approximate their
fair values.
The fair values of the Boliden convertible debenture (note
12(b)) and the tracking preferred shares are not readily
determinable with sufficient reliability due to the difficulty in
obtaining appropriate market information. It is not practicable
to determine the fair value of the investment and advances
from related parties because of the related party nature of
such amounts and the absence of a secondary market for
such instruments. Details of the terms of these financial
instruments are disclosed in these notes to the consolidated
financial statements.
(p) use of estimates
The preparation of financial statements requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses
during the reporting year. Significant areas requiring the use
of management estimates relate to the impairment of mineral
property interests and plant and equipment, the balances of
reclamation liability and capital lease obligation, income
taxes, valuation allowances for future income tax assets, rates
for depletion, depreciation and amortization, the assumptions
used in computing stock-based compensation, the fair value
of the option to convert the debenture into common shares
and future cash flows related thereto, receivables from sales
of concentrate and valuation of concentrate inventory, and
the determination of mineral reserves and mine life. Actual
results could differ from these estimates.
(q) segment disclosures
The Company operates in a single reportable operating
segment, the exploration, development and operation of
mineral property interests, within the geographic area of
British Columbia, Canada.
(r) Comparative figures
Certain of the prior years’ comparative figures have been
restated to conform with the presentation adopted for the
current year.
ELEM ENTS f or SUCCESS
35
Notes to Consolidated Financial Statements
4.
change in accOunting pOlicy
Effective October 1, 2005 the Company adopted certain new provisions
of the CICA Handbook Section 3860, “Financial Instruments—
Disclosure and Presentation”, which came into effect on that date. The
standard requires that convertible debentures which may be settled
in cash, or by a variable number of common shares of the Company
at the Company’s discretion, be presented as a liability. This change
has been applied retroactively. The consolidated balance sheet as
at September 30, 2005 has been amended to present the liability
component and equity component separately on the balance sheet.
The accretion charges that were previously recorded through deficit
are now recorded as interest accretion on convertible debt in the
consolidated statement of operations. For the year ended September
30, 2005, this amounted to $1,075,478 (2004—$977,705). For the
year ended September 30, 2006, this amounted to $1,183,024. This
change had no effect on earnings (loss) per share.
5.
inventOry
(as at September 30)
Copper concentrate
Ore in process
Materials and supplies
6.
inveStment
(as at September 30)
Continental Convertible Promissory Note
2006
$ 16,212,600
2,114,200
5,891,081
2005
$ 16,284,800
–
4,589,431
$ 24,217,881
$ 20,874,231
2006
$ 11,500,000
2005
–
$
On August 29, 2006 (“Closing”), the Company purchased from
Continental Minerals Corporation (“Continental”), a related public
company with certain directors in common with the Company, a
one-year Convertible Secured Promissory Note of Continental (the
“Note”) in the amount of $11.5 million.
The Company has the right to convert any or the entire principal
then outstanding under the Note, plus a 5% premium into Continental
common shares at $2.05 per share if the Note is converted within the
first six months or, at $2.25 per share if converted in the second six
months after the Closing. In addition, upon conversion of the Note,
the Company will acquire a right of first refusal (the “Pre Emptive
Right”) for up to five years, during which time the Company may
purchase up to 50% of any equity or convertible securities, except
certain normal course securities offerings and strategic alliances,
offered by Continental in a subsequent financing until a maximum
of 19.9% of Continental’s then outstanding shares on a fully diluted
basis is held by the Company. If the Company fails to exercise the
Preemptive Right in regards to any offered securities under a future
financing, the Preemptive Right thereupon expires.
The Note provides for interest at the rate of 16% per annum payable
monthly. Interest is payable in cash, or at the Company’s election,
in Continental common shares based upon the higher of the five
day volume weighted average of the closing price of Continental’s
common shares at the time the interest payment is due or at closing,
being $1.55. The Note is secured by an indirect pledge of Continental’s
60% interest in the Xietongmen property, which security interest will
be subordinated, if necessary, to any security interest granted by
Continental in respect of senior debt of which none is outstanding
at September 30, 2006. Continental retains the right to pre-pay the
Note on 10 days notice, after 180 days from Closing.
7.
arrangement agreement (tracKing preferreD
ShareS anD harmOny gOlD prOperty)
In October 2001, the Company and its subsidiary Gibraltar Mines Ltd.
(“Gibraltar”) completed the acquisition of the Harmony Gold Property
and related assets from Continental, for 12,483,916 series “A” non-
voting tracking preferred shares of Gibraltar and $2.23 million cash.
The tracking preferred shares were recorded at $26,641,948 and
are designed to track and capture the value of the Harmony Gold
Property and will be redeemed for common shares of Taseko upon a
realization event, such as a sale of the Harmony Gold Property to a
third party or commercial production at the Harmony Gold Property
or, at the option of Gibraltar, if a realization event has not occurred
within ten years. Accordingly, the tracking preferred shares have
been classified within shareholders’ equity on the consolidated
balance sheet.
As previously noted, the Gibraltar tracking preferred shares are
redeemable for common shares of Taseko upon the occurrence
of certain value realization events for the Harmony Gold Property.
The tracking preferred shares are redeemable at specified prices
per common share of Taseko starting at $3.39 and escalating by
$0.25 per year, currently at $4.64 (as of September 30, 2006). If
a realization event does not occur on or before October 16, 2011,
Gibraltar has the right to redeem the tracking preferred shares for
Taseko common shares at a deemed price equal to the greater of the
then average 20 day trading price of the common shares of Taseko
and $10.00. The Taseko common shares to be issued to Continental
upon a realization event will in turn be distributed pro-rata, after
adjustment for any taxes, to the holders of redeemable preferred
shares of Continental that were issued to Continental shareholders at
the time of the Arrangement Agreement.
36
TASEKO MI NES LI MITE D
8.
mineral prOperty intereStS
(as at September 30)
Gibraltar Copper Mine (note 8(a))
Prosperity Gold-Copper Property (note 8(b))
Harmony Gold Property (note 8(c))
(a) Gibraltar Copper Mine
2006
$ 2,626,000
1,000
1,000
2005
$ 1,000
1,000
1,000
$ 2,628,000
$ 3,000
In July 1999, the Company acquired a 100% interest in the
Gibraltar Copper Mine mineral property, located near Williams
Lake, British Columbia, Canada from Boliden Westmin
(Canada) Limited (“BWCL”) for $3.3 million. The acquisition of
the Gibraltar mine, which had been on care and maintenance
since 1998, included plant and equipment and supplies
inventory of the Gibraltar mine, and $8 million of funds set
aside for future reclamation. As part of its 1999 operating
permits, the Company had agreed to incur a total of $4
million on reclamation and environmental programs during
the six year period July 1999 to July 2005. The Gibraltar
mine final reclamation and closure plan is updated every five
years. The most recent reclamation plan and closure report
was approved by the British Columbia Ministry of Energy
and Mines in 2004. Pursuant to this approved closure plan,
the Ministry agreed that the Company had satisfied the
$4 million reclamation obligation required under the 1999
operating permits.
The agreement contained certain indemnification clauses.
The $8 million of funds set aside for future reclamation were
considered a “Qualified Environmental Trust” for Canadian
income tax purposes. During the year ended September 30,
2003, the Government of British Columbia released these
funds from the Trust, which resulted in an income inclusion
to the Company, and consequently resulted in the Company
utilizing $3.57 million of tax pools otherwise available to it.
The Company has made a claim to BWCL for this estimated tax
liability under the indemnification terms of the agreement. No
amount has been recognized in these consolidated financial
statements related to this claim.
During the year ended September 30, 2004, the Company
commenced restart activities and entered into an agreement
with Ledcor CMI Ltd. and Ledcor Mining Ltd. (together
“Ledcor”), whereby Ledcor would finance certain equipment
and commission, restart, and operate the Gibraltar mine.
Ledcor’s primary responsibility was the commissioning and
the operating of the mine in addition to other aspects of mine
operations, including drilling, blasting, loading and hauling of
ore and waste as well as the recruitment of personnel and
the maintenance of equipment and facilities. Pursuant to
the agreement, the Company is required to maintain a bank
account with a balance of at least $5 million in a “product
revenue account”, for the purposes of providing a working
capital reserve for operations and general administrative
costs. The Company granted a general security agreement in
favour of Ledcor in the amount of $5.8 million and a second
charge on certain mine equipment with an appraised fair
value of at least $5.8 million.
In July 2006, the Company effected a notice of voluntary
withdrawal from the agreement established with Ledcor.
Under this notice and effective November 2006, the
Company will assume responsibility as operator of the
Gibraltar mine and will pay to Ledcor a termination fee of
$3.5 million. This termination fee has been accrued for in
the consolidated financial statements for the year ended
September 30, 2006.
(b) Prosperity Gold-Copper Property
The Company owns 100% of the Prosperity Gold-Copper
Property, consisting of 196 mineral claims covering the
mineral rights for approximately 85 square km in the Clinton
Mining Division in south central British Columbia, Canada. The
$28.66 million cash and share consideration to acquire the
Prosperity property was written down to a nominal $1,000
value in fiscal 2001, to reflect the extended depressed
conditions in the metals markets at that time.
In May 2005, the Company entered into an option agreement
with Amarc Resources Ltd (“Amarc”), a public company with
certain directors in common with Taseko, for Amarc to earn a
50% interest in the Wasp and Anvil properties currently held
by Taseko, which are located approximately 15 kilometers
southeast of the Company’s Prosperity project. Amarc was
the operator and could have acquired its interest by incurring
$150,000 of exploration expenditures over a two year
period. During the year ended September 30, 2006, Amarc
terminated the option agreement on these properties.
(c) Harmony Gold Property
Under the terms of an arrangement agreement (note 7), the
Company acquired a 100% interest in the Harmony Gold
Property in fiscal 2002.
The Company does not believe there has been a fundamental
change in the nature of the Harmony Gold Property; however,
as the Company had not conducted significant exploration
or development on the property in the last several years the
Harmony Gold Property was written down to a nominal value
of $1,000 during the year ended September 30, 2004.
ELEM ENTS f or SUCCESS
37
Notes to Consolidated Financial Statements
8.
mineral prOperty intereStS, continued
(d) Gibraltar reclamation trust limited Partnership
(“Grt Partnership”)
In December 2003, the GRT Partnership completed a private
placement of limited partnership units for aggregate proceeds
of $18.6 million, and entered into a joint venture arrangement
with Gibraltar, with the purpose of restarting the Gibraltar
mine with the funds raised. Gibraltar, as its contribution to the
joint venture, was to contribute the use of its mine assets and
fund the start-up expenses of the Gibraltar mine, and the GRT
Partnership funded a qualifying environmental trust (“QET”),
which consequently allowed Gibraltar to access other funds
then held by the Government of British Columbia as a security
for the mine’s environmental reclamation obligations. Under
the joint venture agreement, the GRT Partnership was to be
entitled to certain revenues or production share from the
Gibraltar mine following the resumption of production.
In March 2004, the Company issued 7,967,742 common
shares at $2.79 per share for total consideration of $22.23
million to acquire all of the units of the GRT Partnership. In
conjunction with this agreement, certain directors and officers
of the Company personally guaranteed certain obligations to
third parties on behalf of the Company to the extent of $4.5
million. In consideration for the guarantee, the Company
issued 225,000 common shares at $2.00 per share to those
directors and officers.
(e) royalty agreement (promissory note and royalty
obligation)
In September 2004, the Company entered into agreements
with an unrelated
investment partnership, Red Mile
Resources No. 2 Limited Partnership (“Red Mile”). Gibraltar
sold to Red Mile a royalty for $67.357 million cash, which
cash was received on September 29, 2004. These funds were
subsequently loaned to a trust company (and a promissory
note received) and the Company pledged the promissory note
along with interest earned and to be earned thereon for a
total of $70.2 million to secure its royalty obligations under
the agreements.
At September 30, 2006, the promissory note amounted to
$73,166,402 (2005—$72,317,854), of which $2,156,719 is
current, while the royalty obligation amounted to $66,789,162
(2005—$68,790,797) of which $2,156,719 is current.
Pursuant to the agreements, the Company received an
aggregate of $10.5 million in fees and interest for services
performed in relation to the Red Mile transaction, of
which $5.25 million was received in each of September
and December of 2004, and included in interest and
other income.
The amount of $5.25 million received in September 2004
included $1.75 million for indemnifying an affiliate of Red
Mile from any claims relating to a breach by Gibraltar under
the royalty agreement. The funds received in respect of the
indemnification are presented as deferred revenue, and are
recognized over the expected remaining life of the royalty
agreement, with $1,400,000 (2005—$1,575,000) remaining
as deferred as at September 30, 2006, of which $175,000 is
classified as current.
Annual royalties will be payable by Gibraltar to Red Mile at
rates ranging from $0.01 per pound to $0.14 per pound of
copper produced during the period from the commencement
of commercial production (as defined in the agreement) to
the later of (i) December 2014 and (ii) five years after the end
of commercial production from the mine. For the year ended
September 30, 2006, Gibraltar paid a royalty of $0.0607 per
pound of copper produced to Red Mile. Gibraltar is entitled to
have released to it funds held under the promissory note and
interest thereon to fund its royalty obligations to the extent of
its royalty payment obligations.
The Company has a preemptive option to effectively
purchase (“call”) the royalty interest by acquiring the Red
Mile partnership units at a future date in consideration of
a payment which is (i) approximately equal to the funds
received by the Company less royalty payments to date, or (ii)
fair value, whichever is lower. Under certain circumstances,
the investors in Red Mile also have a right to sell (“put”) their
Red Mile partnership units to the Company at fair value;
however such right is subject to the Company’s preemptive
right to exercise the “call” in advance of any “put” being
exercised and completed.
The Company has granted to Red Mile a net profits interest
(“NPI”), which survives any “put” or “call” of the Red Mile
units. The NPI is applicable for the years 2011 to 2014 and
is 2% if the price of copper averages US$2.50 to US$2.74
per pound, 3% if the price of copper averages US$2.75 to
US$2.99 per pound and 4% if the price of copper averages
US$3.00 per pound or greater for any year during that
period. The US-dollar pricing amounts specified above are
based upon an exchange rate of US$0.75 for Cdn$1.00,
and shall be adjusted from time to time by any variation of
such exchange rates. No NPI is payable until the Company
reaches a pre-determined aggregate level of revenues less
defined operating costs and expenditures. No NPI is payable
at September 30, 2006.
38
TASEKO MI NES LI MITE D
In accordance with AcG15, the Company has determined that the royalty agreement created certain variable interest entities for which
the Company holds a variable interest. However, as the Company is not the primary beneficiary under the agreement, it is not required to
consolidate any of such entities.
9.
mineral prOpertieS, plant anD eQuipment
Plant and equipment—Gibraltar Mine
(as at September 30)
Buildings and equipment
Mine equipment (note 10)
Plant and equipment
Vehicles
Computer equipment
Land
Deferred pre-stripping costs
Total Gibraltar mine
Mineral property interests (note 8)
net asset retirement obligation adjustment
Mineral properties, plant and equipment
Cost
6,059,655
$
35,679,559
14,636,690
992,245
1,765,921
152,230
285,426
2006
accumulated
amortization
$ 1,442,256
7,493,428
1,222,963
498,480
915,385
–
–
$ 59,571,726
$ 11,572,512
2005
accumulated
amortization
929,212
$
3,237,581
986,814
311,281
384,467
–
–
Cost
$ 6,059,655
11,259,369
4,434,090
916,288
1,057,681
–
–
$ 23,727,083
$ 5,849,355
net book
value
$ 4,617,399
28,186,131
13,413,727
493,765
850,536
152,230
285,426
$ 47,999,214
$ 2,628,000
$ (7,182,271)
$ 43,444,943
net book
value
$ 5,130,443
8,021,788
3,447,276
605,007
673,214
–
–
$ 17,877,728
$
3,000
$ (7,963,736)
$ 9,916,992
As at September 30, 2006, approximately $8.6 million (2005—nil) of plant and equipment is under construction and not being amortized.
10.
aSSetS unDer capital leaSeS
(as at September 30)
Mine equipment
Cost
–
$
2006
accumulated
amortization
–
$
net book
value
–
$
Cost
$ 22,350,693
2005
accumulated
amortization
$ 1,556,693
net book
value
$ 20,794,000
In fiscal 2004, the Company purchased a mining shovel and five mine haul trucks for approximately $23.7 million. In October 2004, the
Company sold the mining equipment for approximately $22.0 million, of which approximately $17.5 million was received, net of a 20% down
payment (approximately $4.5 million) which was funded by the Company. The purchaser leased the mining equipment to a subsidiary of Ledcor,
and this equipment was used at the Gibraltar mine. The Company accounted for this transaction as a sale-leaseback transaction, and recorded
a loss on sale of approximately $2.2 million during the year ended September 30, 2005.
In April 2006, the Company re-acquired the mining shovel and five mine haul trucks for approximately $14.5 million and extinguished the lease
obligations to which they relate (note 11).
11.
capital leaSe OBligatiOn
(as at September 30)
Total capital lease obligation
Less: principal amounts due within one year
Capital lease obligation—long term
2006
–
–
–
$
$
2005
$ 15,077,139
(2,092,334)
$ 12,984,805
ELEM ENTS f or SUCCESS
39
Notes to Consolidated Financial Statements
11.
capital leaSe OBligatiOn, continued
The Company had certain mining equipment which it acquired
pursuant to a sale-leaseback arrangement in October 2004 (note 10).
The associated capital leases were payable in US dollars at variable
floating interest rates ranging from approximately 6% to 10%. These
capital leases had terms of 48 months, and were secured by the
mining equipment to which they relate. In April 2006, the Company
agreed with the lessor to acquire the equipment for approximately
$14.5 million and consequently, the remaining lease obligations
were extinguished and the Company recorded a loss on the early
lease extinguishment of $240,049.
12.
cOnvertiBle DeBt
(as at September 30)
liability Component
Convertible Bonds—August 2006
Convertible Debenture—Boliden
2006
2005
(restated−note 4)
$ 29,761,398
13,013,265
$
–
11,830,241
Convertible Debt—Liability Component
$ 42,774,663
$ 11,830,241
equity Component
Convertible Bonds—August 2006
$ 3,832,211
$
–
Convertible Debenture—Boliden
9,822,462
9,822,462
Convertible Debt—Equity Component
$ 13,654,673
$ 9,822,462
(a) Convertible Bonds—august 2006
(the “Closing”),
On August 29, 2006
the Company
issued US$30 million in principal amount of five year
convertible bonds due in 2011 (the “Bonds”) to qualified
institutional buyers. The Bonds are convertible into the
Company’s common shares. The Bonds constitute direct,
unsubordinated, unsecured, general and unconditional
obligations of the Company.
The Bonds were issued at 100% and, if not converted, will
be redeemed at maturity at 101%. The Bonds carry coupon
interest rates of 7.125% per annum. The Bonds are convertible
at the holder’s option after 40 days from issuance until
August 19, 2011 at a conversion price of US$3.35 ($3.76),
or up to 8,955,224 common shares of the Company, which
is a premium of approximately 40% over the recent trading
price of the Company’s shares at the time of Closing. At any
time after September 12, 2008, the Company will have the
right to call for the conversion of the Bond into the number
of shares as set out above, so long as the Company’s shares
trade at least 50% above the conversion price for at least 20
business days in any period of 30 consecutive business days.
On August 29, 2009, the Bondholders have a one time right to
redeem the Bonds at 100.60%. Debt issuance costs of $1.4
million were incurred upon closing of the transaction and are
being amortized over the first redemption term of the Bonds.
For accounting purposes, the Bonds contain both a liability
component and an equity component, being the holder’s
conversion right, which have been separately presented in
the consolidated balance sheets. The Company has allocated
the US$30 million face value of the Bonds to the liability and
equity components. At issuance, the Company estimated the
fair value of the conversion option by deducting the present
value of the future cash outflows of the Bonds from the
face value of the principal of the Bonds. The fair value of
the liability component was determined by discounting the
stream of future payments of interest and principal at the
estimated prevailing market rate of 10.5% for a comparable
debt instrument that excluded any conversion privilege by the
holder. The residual carrying value of the Bonds is required to
be accreted to the redemption value of the Bonds to the first
redemption date of the Bonds based on an effective annual
interest rate of 12%. For the year ended September 30, 2006,
interest and accretion relating to the debt totaled $296,165.
The continuity of the Bond is as follows:
(year ended September 30)
Present value of convertible bonds
2006
Beginning of period, August 29, 2006
$ 29,398,789
Unrealized foreign exchange loss
Accretion for the year
End of year, September 30, 2006
Conversion right
Convertible bonds
Convertible Bonds (as at September 30)
summary of the convertible bond terms
265,534
97,075
29,761,398
3,832,211
$ 33,593,609
2006
Principal amount of convertible debenture
Price per common share of the unexercised
US$ 30,000,000
US$
3.35
conversion right
Number of common shares potentially issuable
under unexercised conversion right
8,955,224
(b) Convertible debenture—Boliden
On July 21, 1999, in connection with the acquisition of the
Gibraltar mine, the Company issued a $17 million interest-
free debenture to BWCL, which is due on July 21, 2009, but
is convertible into common shares of the Company over a 10
year period commencing at a price of $3.14 per share in year
one and escalating by $0.25 per share per year thereafter
($4.89 per share as at September 30, 2006). BWCL’s purchase
of the convertible debenture was receivable as to $4,000,000
in July 1999, $1,000,000 on October 19, 1999, $3,500,000
40
TASEKO MI NES LI MITE D
on July 21, 2000, and $8,500,000 by December 31, 2000, all
of which were received. BWCL has the right to convert, in part
or in whole from time to time, the debenture into fully paid
common shares of the Company from year one to year ten,
but has not requested any conversions to date.
From the commencement of the sixth year to the tenth year,
the Company has the right to automatically convert the
debenture into common shares at the then-prevailing market
price. The Company has the right and the intention to settle
the convertible debenture through the issuance of common
shares, notwithstanding the Company’s right to settle the
debenture with cash.
Accounting standards in Canada for compound financial
instruments require the Company to allocate the proceeds
received from the convertible debenture between (i) the
estimated fair value of the holder’s option to convert the
debenture into common shares and (ii) the estimated fair
value of the future cash outflows related to the debenture.
At issuance, the Company estimated the fair value of the
conversion option by deducting the present value of the future
cash outflows of the convertible debenture, calculated using
a risk-adjusted discount rate of 10%, from the face value
of the principal of the convertible debenture. The residual
carrying value of the convertible debenture is accreted to
the face value of the convertible debenture over the life of
the debenture by a charge to earnings. The continuity of the
convertible debenture is as follows:
(year ended September 30)
2006
2005
Present value of convertible debenture
Beginning of period
Accretion for the period
End of period
Conversion right
$ 11,830,241
$ 10,754,763
1,183,024
13,013,265
9,822,462
1,075,478
11,830,241
9,822,462
Convertible debenture
$ 22,835,727
$ 21,652,703
Boliden convertible debenture
(as at September 30)
summary of the convertible debenture terms
Principal amount of convertible
2006
2005
debenture
$ 17,000,000
$ 17,000,000
Price per common share of the
unexercised conversion right
Number of common shares
potentially issuable under
unexercised conversion right
$
4.89
$
4.64
3,476,482
3,663,793
ELEM ENTS f or SUCCESS
41
Notes to Consolidated Financial Statements
13.
Site clOSure anD reclamatiOn OBligatiOnS
The continuity of the provision for site closure and reclamation costs
related to the Gibraltar mine is as follows:
Balance, september 30, 2003
Changes during fiscal 2004:
Impact of adoption of new accounting policy
Accretion expense
Balance, september 30, 2004
Changes during fiscal 2005:
Accretion expense
Balance, september 30, 2005
Changes during fiscal 2006:
Reclamation incurred
Accretion expense
$ 32,700,000
(18,391,000)
1,431,000
15,740,000
1,574,000
17,314,000
(70,589)
1,732,000
site closure and reclamation obligations, september 30, 2006
$ 18,975,411
The estimated amount of the reclamation costs, adjusted for
estimated inflation at 2.5% per year, in 2017 dollars, is $49.4 million
(September 30, 2005—$49.4 million) and is expected to be spent
over a period of approximately three years beginning in 2017. The
credit-adjusted risk free rate at which the estimated future cash
flows have been discounted is 10%, to arrive at a net present value
of $18,975,411 (2005—$17,314,000). The accretion of $1,732,000
(2005—$1,574,000) is charged to the statement of operations.
As required by regulatory authorities, at September 30, 2006, the
Company had cash reclamation deposits totaling $32,004,138
(2005—$18,281,420) comprised of $31,813,796
(2005—
$18,091,078) for the Gibraltar mine, $15,342 (2005—$15,342)
for the Prosperity project, and $175,000 (2005—$175,000) for the
Harmony project. These deposits are invested in government backed
securities and bear interest at rates ranging from 3.89% to 4.54%
per annum.
14.
Share capital
(a) authorized
Authorized share capital of the Company consists of an
unlimited number of common shares (2005—200,000,000)
without par value.
42
TASEKO MI NES LI MITE D
(b)
Issued and outstanding
Common shares
Balance, september 30, 2003
Issued during the year
Share purchase options at $0.50 per share
Share purchase options at $0.40 per share
Share purchase options at $0.25 per share
Share purchase options at $0.55 per share
Share purchase options at $0.65 per share
Fair value of stock options allocated to shares issued on exercise
Share purchase warrants at $0.58 per share
Share purchase warrants at $0.55 per share
Share purchase warrants at $0.40 per share
Share purchase warrants at $0.50 per share
Share purchase warrants at $0.75 per share
Private placement at $0.60 per share, net of issue costs
Private placement at $2.00 per share, net of issue costs
Private placement at $1.25 per share, net of issue costs
For acquisition of GRTLP at $2.79 per share, net of issue costs (note 8(d))
Loan guarantee at $2.00 per share (note 8(d))
Farmout agreement at $2.79 per share (note 8(e))
Balance, september 30, 2004
Issued during the year
Share purchase options at $0.25 per share
Share purchase options at $0.30 per share
Share purchase options at $0.38 per share
Share purchase options at $0.40 per share
Share purchase options at $0.55 per share
Share purchase options at $0.81 per share
Share purchase options at $1.36 per share
Share purchase options at $1.40 per share
Share purchase options at $1.65 per share
Fair value of stock options allocated to shares issued on exercise
Share purchase warrants at $0.75 per share
Private placement at $1.45 per share, net of issue costs
Balance, september 30, 2005
Issued during the year
Share purchase options at $0.55 per share
Share purchase options at $1.15 per share
Share purchase options at $1.29 per share
Share purchase options at $1.36 per share
Share purchase options at $1.40 per share
Share purchase options at $1.50 per share
Share purchase options at $2.07 per share
Share purchase options at $2.18 per share
Fair value of stock options allocated to shares issued on exercise
Share purchase warrants at $0.40 per share
Share purchase warrants at $0.75 per share
Share purchase warrants at $1.40 per share
Share purchase warrants at $1.66 per share
Balance, september 30, 2006
ELEM ENTS f or SUCCESS
number of shares
amount
53,880,973
$ 99,446,319
4,265,000
152,500
75,000
380,000
25,500
276,596
414,850
302,250
7,393,751
473,332
6,700,000
3,900,000
8,000,000
7,967,742
225,000
335,125
94,767,619
50,000
100,000
20,000
22,500
610,000
45,000
270,000
44,500
10,000
2,313,336
5,204,361
103,457,316
1,500,000
451,833
60,000
1,970,000
3,405,500
10,000
33,333
7,500
375,000
3,913,332
8,000,000
5,204,361
128,388,175
2,132,500
61,000
18,750
209,000
16,575
290,000
160,426
228,168
120,900
3,696,876
354,999
3,910,728
7,323,943
8,933,206
22,193,039
450,000
935,000
150,481,429
12,500
30,000
7,600
9,000
335,500
36,450
367,200
62,300
16,500
742,000
1,735,002
6,993,961
160,829,442
825,000
519,608
77,400
2,679,200
4,767,700
15,000
68,999
16,350
4,869,000
150,000
2,934,999
11,200,000
8,639,239
$ 197,591,937
43
Notes to Consolidated Financial Statements
14.
Share capital, continued
(c) share purchase option plan
The Company has a share purchase option plan approved by the shareholders that allows it to grant a maximum of 10% of the issued and
outstanding common shares of the Company at the time an option is granted, less common shares reserved or issued in the plan, subject
to regulatory terms and approval, to its employees, officers, directors and consultants. The exercise price of each option may be set equal
to or greater than the closing market price of the common shares on the TSX Exchange on the day prior to the date of the grant of the
option, less any allowable discounts. Options have a maximum term of ten years and terminate 30 to 90 days following the termination of
the optionee’s employment or term of engagement, except in the case of retirement or death. Vesting of options is at the discretion of the
Board of Directors at the time the options are granted.
The continuity of share purchase options is as follows:
Opening balance
Granted during the period
Exercised during the period
Expired/cancelled during period
Closing balance
Average contractual remaining life (years)
2006
2005
number of
shares
9,280,500
2,159,500
(7,438,166)
(423,000)
3,578,834
average
Price
$ 1.17
2.24
1.21
0.91
$ 1.78
3.70
number
of shares
8,627,500
2,040,000
(1,172,000)
(215,000)
9,280,500
average
Price
$1.13
1.15
0.75
1.47
$ 1.17
1.69
2004
number of
shares
4,685,000
8,855,500
(4,898,000)
(15,000)
8,627,500
average
Price
$ 0.48
1.12
0.50
1.36
$ 1.13
1.93
Range of exercise prices
$ 1.15 − $ 2.68
$ 0.55 − $ 1.50
$ 0.25 − $ 1.65
The following table summarizes information about share purchase options outstanding at September 30, 2006:
range of exercise prices
$1.15 to $1.29
$2.07 to $2.18
$2.63 to $2.68
number
outstanding
at sept. 30 2006
1,643,167
options outstanding
weighted
average remaining
contractual life
3.60 years
1,328,167
607,500
3,578,834
3.67 years
4.04 years
3.70 years
weighted
average
exercise price
$ 1.16
$ 2.15
$ 2.65
$ 1.78
options exercisable
number
exercisable
at sept. 30 2006
800,833
weighted
average
exercise price
1.16
$
521,339
130,005
1,452,177
$
$
$
2.15
2.63
1.65
As at September 30, 2006, 1,452,177 (2005—8,053,834) of the options outstanding had vested with optionees and were exercisable.
The exercise prices of all share purchase options granted during the year were equal to the market price at the grant date. The weighted
average assumptions used to estimate the fair value of options during the years ended September 30, 2006, 2005, and 2004 were:
Risk free interest rate
Expected life
Volatility
Expected dividends
2006
4%
2005
3%
2004
3%
3.93 years
2.75 years
2.4 years
71%
nil
90%
nil
95%
nil
44
TASEKO MI NES LI MITE D
(d) share purchase warrants
The continuity of share purchase warrants during the year ended September 30, 2006 is as follows:
expiry dates
January 8, 2006
December 31, 2005
September 28, 2006
September 18, 2006
exercise
price
$ 0.40
outstanding
sept. 30 2005
375,000
$ 0.75
$ 1.40
$ 1.66
3,913,332
8,000,000
5,204,361
17,492,693
Issued
–
–
–
–
–
exercised
(375,000)
(3,913,322)
(8,000,000)
(5,204,361)
(17,492,693)
expired
–
outstanding
sept. 30 2006
–
–
–
–
–
–
–
–
–
The continuity of share purchase warrants during the year ended September 30, 2005 is as follows:
expiry dates
January 8, 2006
December 31, 2005
March 10, 2005
September 28, 2006
September 18, 2006
exercise
price
$ 0.40
outstanding
sept. 30 2004
375,000
$ 0.75
$ 2.25
$ 1.40
$ 1.66
6,226,668
3,900,000
8,000,000
–
18,501,668
Issued
–
–
–
–
5,204,361
5,204,361
exercised
–
(2,313,336)
expired
–
outstanding
sept. 30 2005
375,000
–
3,913,332
–
–
–
(3,900,000)
–
–
–
8,000,000
5,204,361
(2,313,336)
(3,900,000)
17,492,693
The continuity of share purchase warrants during the year ended September 30, 2004 is as follows:
expiry dates
October 19, 2003
December 27, 2003
January 8, 2006
December 31, 2003
December 31, 2004
December 31, 2005
March 10, 2005
September 28, 2006
exercise
price
$ 0.58
outstanding
sept. 30 2003
276,596
$ 0.55
$ 0.40
$ 0.40
$ 0.50
$ 0.75
$ 2.25
$ 1.40
414,850
375,000
302,250
7,393,751
–
–
–
Issued
–
–
–
–
–
6,700,000
3,900,000
8,000,000
exercised
(276,596)
(414,850)
–
(302,250)
(7,393,751)
(473,332)
–
–
8,762,447
18,600,000
(8,860,779)
(e) Contributed surplus
Contributed surplus, September 30, 2003
Changes during fiscal 2004:
Non-cash stock-based compensation
Fair value of stock options allocated to shares issued on exercise
Contributed surplus, September 30, 2004
Changes during fiscal 2005:
Non-cash stock-based compensation
Fair value of stock options allocated to shares issued on exercise
Contributed surplus, September 30, 2005
Changes during fiscal 2006:
Non-cash stock-based compensation
Fair value of stock options allocated to shares issued on exercise
Contributed surplus, September 30, 2006
ELEM ENTS f or SUCCESS
outstanding
sept. 30 2004
–
–
375,000
–
–
6,226,668
3,900,000
8,000,000
18,501,668
$
65,344
5,172,244
(290,000)
4,947,588
1,129,026
(742,000)
5,334,614
3,182,102
(4,869,000)
$ 3,647,716
45
Notes to Consolidated Financial Statements
15.
incOme taXeS
Income tax expense (recovery) differs from the amount which would result from applying the statutory Canadian income tax rates (2006—
36.6%, 2005—39.5%) for the following reasons:
Earnings before income taxes
Expected tax expense based on statutory rates
Permanent differences
Adjustment to tax reserve
Deductions allowable for tax purposes
Recognition of previously unrecognized tax assets
Other
Tax expense (recovery) for the year
Presented as:
Current income tax expense (recovery)
Future income tax expense (recovery)
2006
2005
(restated– note 4)
$ 38,961,447
$
5,767,773
14,268,000
2,403,000
2,028,000
(1,360,000)
(12,172,000)
878,000
2,278,000
871,000
–
(2,912,000)
(17,351,000)
(408,000)
$
6,045,000
$ (17,522,000)
$
4,397,000
1,648,000
$
6,045,000
$ (4,099,000)
(13,423,000)
$ (17,522,000)
As at September 30, 2006 and 2005, the estimated tax effect of the significant components within the Company’s future tax assets were as
follows:
Mineral properties
Loss carry forwards
Royalty obligation
BC mining taxes
Other tax pools
Valuation allowance
Future income tax assets
Lease equipment and related lease obligation
Partnership deferral
Reclamation obligation
Plant and equipment
net future income tax asset
Current portion
Long term FIT liability
net future income tax asset
$
2006
4,907,000
154,000
20,181,000
9,850,000
720,000
35,812,000
(13,937,000)
21,875,000
–
(4,288,000)
(4,286,000)
(1,526,000)
$
2005
4,513,000
154,000
23,458,000
9,062,000
2,388,000
39,575,000
(23,709,000)
15,866,000
(1,949,000)
–
(494,000)
–
$ 11,775,000
$ 13,423,000
$ 11,601,000
$ 4,479,000
174,000
8,944,000
$ 11,775,000
$ 13,423,000
46
TASEKO MI NES LI MITE D
At September 30, 2006 the Company’s tax attributes included capital losses totaling approximately $0.9 million (2005—$0.9 million) which are
available indefinitely to offset future taxable capital gains, and resource tax pools totaling approximately $16.8 million (2005—$13.3 million)
which are available indefinitely to offset future taxable income.
The Company has accrued a tax provision of a subsidiary company of approximately $21.1 million (2005—$19.6 million). This provision reflects
an amount which management believes is less than likely of ever becoming payable. In addition, the subsidiary would exhaust all appeals
if any taxes in connection with this accrual were actually assessed against the subsidiary. The amount represents a potential liability which
has been recognized in a conservative manner in accordance with Canadian generally accepted accounting principles. It does not represent a
payable amount based on any filed, or expected to be filed, tax return nor has any taxation authority assessed the amount or any portion thereof
as payable.
16.
Supplementary caSh flOw DiSclOSureS
In addition to the non-cash operating, financing and investing activities primarily disclosed, the Company’s non-cash operating, financing and
investing activities were as follows:
(as at September 30)
Issuance of common shares on acquisition of Gibraltar Reclamation Trust Limited Partnership (note 8 (d))
$
Acquisition of assets under capital lease (note 10)
Advances under capital lease (note 11)
Issuance of common shares for loan guarantee (note 8(d))
2006
–
–
–
–
Fair value of stock options transferred to share capital from contributed surplus on exercise of options (note 14(e))
4,869,000
2005
–
$
(22,350,693)
22,350,693
–
742,000
2004
$ 22,230,000
–
–
450,000
290,000
(as at September 30)
supplemental cash flow information
Cash paid during the year for:
Interest
Taxes
17.
2006
2005
2004
$ 1,557,034
$ 1,188,436
$
$
1,046,568
554
$
$
49,294
45,352
relateD party tranSactiOnS anD aDvanceS
Related party transactions not disclosed elsewhere in these consolidated financial statements are as follows:
transactions
Services rendered and expenses reimbursed
Hunter Dickinson Inc. (a)
Hunter Dickinson Group Inc. (b)
advances from related parties (as at September 30)
Hunter Dickinson Inc. (a)(c)
years ended september 30
2006
2005
2004
$ 2,869,003
$ 1,222,603
–
12,800
2006
26,430
$
$ 806,970
12,800
2005
$ 105,067
(a) Hunter Dickinson Inc. (“HDI”) is a private company owned equally by nine public companies, one of which is Taseko. HDI has certain directors in common with the Company and provides geological,
corporate development, administrative and management services to, and incurs third party costs on behalf of, the Company and its subsidiaries on a full cost recovery basis pursuant to an agreement
dated December 31, 1996. The liability is recorded in accounts payable and accrued liabilities.
(b) Hunter Dickinson Group Inc. is a private company with certain directors in common that provides consulting services to the Company.
(c) Advances are non-interest bearing and due on demand.
ELEM ENTS f or SUCCESS
47
Notes to Consolidated Financial Statements
18.
SuBSeQuent event
Subsequent to year-end in November 2006, the Company launched
a C$1.05 per share take-over bid offer for all of the outstanding
shares of bcMetals Corporation
(“bcMetals”). bcMetals holds
a 100% interest in the Red Chris copper-gold project in northern
British Columbia.
The Taseko bid is subject to a number of conditions, including
that at least 66.66% of bcMetals shares are tendered to the bid, a
conditional settlement agreement is reached with certain minority
shareholders of bcMetals’ subsidiary, American Bullion Minerals Ltd.,
as well as rejection by bcMetals shareholders of bcMetals’ Limited
Purpose Shareholder Rights Plan and its proposed joint venture of
the Red Chris project with Global International Jiangxi Copper Mining
Company Limited.
48
TASEKO MI NES LI MITE D
Our Corporate Directory
Officers and Directors
Russell E. Hallbauer
President & Chief Executive Officer
Director
John W. McManus
Vice President, Operations
Ronald W. Thiessen
Chairman, Director
Jeffrey R. Mason
Chief Financial Officer, Secretary, Director
William P. Armstrong
Director
David J. Copeland
Director
T. Barry Coughlan
Director
Scott D. Cousens
Director
Robert A. Dickinson
Director
David Elliott*
Director
Wayne Kirk
Director
*Audit Committee Chairman
Forward Looking Statements
This annual report includes certain statements that may be deemed “forward-looking statements”.
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 information relating to a project’s potential and the other information such as capital and operating
costs, production summary, and financial analysis, are “forward looking statements” within the definition
of the United States Private Securities Litigation Reform Act of 1995. Factors that could cause actual
results to differ materially from those in forward-looking statements include market prices, exploitation
and exploration successes, continued availability of capital and financing and general economic, market
or business conditions. For more information on the risks inherent in the Company’s business, investors
should review the Company’s annual Form 20-F filing with the United States Securities Commission at
www.sec.gov and its home jurisdiction filings that are available at www.sedar.com.
Cautionary Note to U.S. Investors Concerning Estimates of Measured and Indicated Resources
This annual report also uses the terms “measured resources” and “indicated resources”. The Company
advises investors that while those terms are recognized and required by Canadian regulations, the U.S.
Securities and Exchange Commission does not recognize them. U.S. Investors are cautioned not to
assume that any part or all of mineral deposits in these categories will ever be converted
into reserves.
EL EME NTS f or SUCCESS
Corporate Office
Taseko Mines Limited
1020 – 800 West Pender Street
Vancouver, British Columbia
Canada V6C 2V6
Telephone: 604-684-6365
Facsimile: 604-684-8092
Toll-Free: 1-800-667-2114
E-mail: info@hdgold.com
Website: www.tasekomines.com
Investor Relations
Brian Bergot
Manager, Investor Relations
Telephone: 604-684-6365
Transfer Agent
Computershare Investor Services Inc.
3rd Floor, 510 Burrard Street
Vancouver, British Columbia
Canada V6C 3B9
Attorneys
Lang Michener LLP
Barristers & Solicitors
1500 Royal Centre, PO Box 11117
1055 West Georgia Street
Vancouver, British Columbia
Canada V6E 4N7
Auditors
KPMG LLP
Chartered Accountants
777 Dunsmuir Street
Vancouver, British Columbia
Canada V7Y 1K3
Bank
Canadian Imperial Bank of Commerce
400 Burrard Street
Vancouver, British Columbia
Canada V6C 3A6
Listed
Toronto Stock Exchange (TKO)
American Stock Exchange (TGB)
Share Capitalization (as at September 30, 2006)
Common Authorized: Unlimited
Issued: 128,388,175
1020 - 800 West Pender Street
Vancouver, BC
Canada V6C 2V6
Telephone: 604-684-6365
Facsimile: 604-684-8092
Toll-Free: 1-800-667-2114
E-mail: info@hdgold.com
www.TasekoMines.com
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