Taseko Mines
Annual Report 2007

Plain-text annual report

continued growthreliabilitysustainabilityprogressionprosperitydevelopmentassetsinnovationexpansionTaseko Mines Limited 2007 Annual Report continued growth Creating Wealth in British Columbia Taseko Mines Limited is focused on creating wealth through the operation, development and acquisition of mineral projects. Gibraltar Mine This mine, located in south-central British Columbia near Williams Lake, is undergoing a major, two-phase expansion Our primary assets are the Gibraltar mine, a major copper and and modernization program. From 2009, annual production will molybdenum mine; the Prosperity project, a gold and copper average 115 million pounds of copper and 1.4 million pounds of project nearing completion of the Environmental Assessment molybdenum for the balance of the 19-year mine life. phase and advancing towards a construction decision; and the Harmony gold and Aley niobium projects, which offer future opportunities. Prosperity This project, also located near Williams Lake, British Columbia, is a large porphyry gold-copper deposit amenable to open pit mining. Extensive exploration, engineering, environmental and socio- economic studies had been completed prior to 2001. In 2007, a feasibility study was completed which confirmed that the project is technically and economically feasible. Environmental Assessment of the project is progressing. Harmony Our Harmony gold project on British Columbia’s west coast provides us with a longer-term development opportunity. Aley Aley is an early-stage niobium project located in north-central British Columbia. Page 1 //Corporate Events Review continued progression November 2006 Taseko assumes full operations at Gibraltar after Ledcor’s withdrawal from January 2007 A $3.5 million refurbishment of the SX-EW plant at Gibraltar is completed and the first September 2007 After the completion of a $10 million drilling program, an additional 128 million the Gibraltar JV. cathode copper since 1998 is produced. tons (or 50%) is added to Gibraltar mineral In an attempt to accelerate our growth, we launch a takeover bid for bcMetals. Ultimately unsuccessful at this acquisition, the Company continues to pursue other targets. December 2006 After completing a successful 2006 drilling program, Gibraltar mineral reserves are increased by 40%, an addition of 74 million tons. May 2007 We commence detailed engineering for a reserves, extending the mine life to 19 years. Contained copper is increased to 2.4 billion pounds and contained second phase expansion at Gibraltar which molybdenum to 69 million pounds. will ultimately increase production from 46,000 to 55,000 tons per day. Upon completion, Gibraltar will be the second- largest open pit copper mine in Canada. June 2007 We acquire the Aley niobium property in Taseko is added to the S&P/TSX Global Mining Index and S&P/TSX Global Gold Index. Results from the Prosperity feasibility study confirm that the project is technically and economically feasible. The mine will north-central BC and complete an initial produce 4.7 million ounces of gold and exploration program on the property during 2 billion pounds of copper over a 20-year the summer. mine life. Page 2 Taseko Mines Limited 2007 Annual Report //2008 Goals 2008 Goals Gibraltar • Complete Phase I expansion (achieved January 2008) and continue Phase II modernization • Continue evaluating opportunities to reduce feasibility study capital and operating costs on all internal growth projects • Evaluate new mining and processing concepts, including mine • Implement new technologies to reduce operating costs development opportunities for Harmony • Evaluate and carry out mine optimization opportunities to • Engage First Nations communities in discussions to advance the maximize profitability of operation Prosperity and Harmony projects • Streamline all management systems – accounting, materials management, cost reporting and health, safety and environment Corporate Initiatives • Strengthen corporate management personnel to facilitate • Negotiate a long-term labour agreement (achieved October 2007) growth opportunities Projects • Complete Environmental Assessment and move through the permitting process for Prosperity • Evaluate and initiate strategic acquisitions that will be accretive to shareholders Page 3 president’s message Continued Success This year was outstanding for Taseko in terms of financial results and operational strategy is Gibraltar, our core asset and the foundation for launching future performance as well as in our ability to move growth initiatives. company. An essential element of our engineering and construction companies we have retained. It is because of their concerted teamwork that we will meet our goals of creating a modern, low-cost, long- life mine at Gibraltar. We realized some time ago that to make Gibraltar a more efficient and productive Yet what is truly remarkable is that while mining operation, we needed to reduce we have been working to expand the mine, costs, increase production and extend we have also been steadily improving the mine life. In the past, Gibraltar was our production output and lowering our affected by the cyclical nature of the production costs. In each fiscal quarter of commodities market and the mine’s 2007, copper production has consistently operation was dependent on high metal increased, from 10.6 million pounds in prices. We have developed a focused the first quarter to 16.8 million pounds long-term strategy to address this situation. in the last quarter. As our production We began by examining effective cost- numbers rose, our copper production costs containment approaches, and then devised decreased, from US$1.19 per pound in a detailed plan that would include a major the first quarter to US$0.82 in the last mine expansion and an aggressive drilling quarter. These numbers illustrate that we program for the Gibraltar deposits. are heading in the right direction and the initiatives we began two years ago are beginning to pay off. On Budget and On Schedule I am pleased to report that we are accomplishing our objectives at Gibraltar. The expansion project is scheduled for completion in 2008 – on budget and on schedule – and Gibraltar’s mine life has increased to 19 years. We have accomplished a great deal in a short amount of time, for which I give full credit to our dedicated staff and to the forward quickly with our Gibraltar expansion and modernization plan. Looking ahead, we see the efforts of the organization over the past year setting the foundation for continued success in the years to come. Strong Financial Results In fiscal 2007, Taseko achieved record revenues of $218 million, a 35 percent increase over 2006 revenues of $162 million. Operating profit was up 93 percent and cash flow from operations increased 55 percent. After-tax earnings for the year improved 47 percent to $48 million, compared to $33 million in 2006. At fiscal year-end, our share price closed at $5.20 on the TSX, an increase of 115 percent for the year, which surpasses last year’s gain of 83 percent. Taseko has now posted two consecutive years of substantial growth and strong financial results, an impressive record. A Focused Long-Term Strategy Over the past two years, we have set in motion our plan for developing Taseko into a leading British Columbia-based mining Page 4 Taseko Mines Limited 2007 Annual Report Continued Growth With Gibraltar as our foundation, we believe Prosperity, Harmony have promoted open communications with First Nations and all stakeholders involved, and have moved the project forward to the and Aley will be our building blocks. These projects, which are all Environmental Assessment stage. Prosperity, when developed, wholly-owned by Taseko, will be crucial to our Company’s continued will add dramatically to the value of our Company and contribute growth and show the greatest potential for generating long-term significantly to the provincial economy, and especially to that of the shareholder wealth. In particular, we see Prosperity as our most promising project. In late 2007, we announced the results of a feasibility study confirming that the project is technically and economically feasible. The deposit has proven and probable reserves of 487 million tonnes and is one of the largest undeveloped gold-copper deposits in Canada. We Cariboo-Chilcotin region, which has been hit hard by challenges in the forest industry, particularly the mountain pine beetle infestation. I believe that we have the expertise and experience to build this mine and we look forward to working with both the federal and provincial governments as well as regional and local communities to see that achieved. Page 5 //President’s Message Upside Potential In addition to Prosperity, we will be advancing the Harmony and An organization is only as good as its people, and at Taseko we are fortunate to have talented employees and a Board of Aley projects. Harmony was considered a longer-term prospect in Directors that continues to guide the Company toward long-term the past, but a recent land use decision has designated the project success. I would like to thank everyone in the Company for their area as a mineral development zone. With that added degree of extraordinary efforts over the past year, and also to acknowledge certainty from the provincial government regarding land use in the our shareholders, stakeholders and local communities for their Queen Charlotte Islands Haida Gwaii, we believe the time is right to willingness to work with us as we continue to build Taseko into advance this gold project. a leading mid-tier mining company. Russell E. Hallbauer President and Chief Executive Officer The Aley project, located in northern BC, was added to our portfolio in 2007. Aley hosts a niobium deposit, which is used to make high strength steels and has many other technological and industrial applications. The metal currently sells for about $30 per kilogram and the market is growing at five to eight percent annually. We believe Aley hosts one of the world’s largest niobium deposits outside of Brazil. As world supply is dominated by only three producers, there is significant upside potential to be realized. Excellence in All Areas Our success as a company is clearly reflected in our employees’ commitment to excellence in all areas. This commitment extends to our relationships with our Board of Directors, investors, employees, suppliers and the local communities where we work, and it is reflected by how we conduct our activities. Safety is an important priority at Taseko and we work hard to ensure that a culture of safety permeates the workplace. This principle includes our environmental policies and we remain vigilant at protecting our surroundings. Page 6 Taseko Mines Limited 2007 Annual Report Page 7 //Expansion continued expansion Assets in Production, Development and Exploration To be successful, a mining company must own properties in Our Prosperity project is the largest active mining project in British Columbia. In mid-2007, we completed a feasibility study demonstrating that the project is economically and technically the production, development and exploration stages. Producing feasible. Our team is currently working with all levels of government assets generate cash and support a company’s growth initiatives. to move the project into the Environmental Assessment review Development stage projects are critical to ensure a company’s phase. We are targeting a 2012 production date for the mine, which medium-term growth prospects. And exploration projects provide is projected to produce 247,000 ounces of gold and 108 million longer-term growth potential. pounds of copper annually for 20 years. Taseko has world-class assets in each of these stages – and all will Harmony, Taseko’s three million ounce gold deposit, is located on be integral in transforming our organization into a leading mid-tier the Queen Charlotte Islands off the coast of British Columbia. Work mining company. Production: One of Canada’s Largest Copper Mines Taseko is a producer. Since the restart of the Gibraltar mine in on the Harmony project was reactivated in 2007 with management focused on updating historical exploration work, reviewing the metallurgical flow sheet and assessing environmental and First Nations issues. With the Land and Resource Management Plan now signed off by the provincial government and First Nations, we have 2004, over 150 million pounds of copper and 1.8 million pounds a starting point to begin discussions with both groups. of molybdenum have been produced. The mine is now halfway through a major two-phase expansion and modernization project that will more than double its 2007 production. The combination of a 19-year mine life and average annual production of 115 million Exploration: Acquiring a Project with High Value Potential In mid-2007, we purchased the Aley niobium project located in pounds of copper and 1.4 million pounds of molybdenum makes north-central British Columbia approximately 140 kilometres north Gibraltar the second-largest open pit copper mine in Canada and a of MacKenzie. This high-grade niobium deposit offers tremendous strong foundation on which to build our Company. potential for Taseko, and we will perform further exploration work Development: Significant Mining Projects in the Works Taseko’s two development projects, Prosperity (gold/copper) and Harmony (gold), offer exciting short- to medium-term growth opportunities. in the summer of 2008. Niobium, similar to molybdenum, is a high value metal used to make high tensile steels. The niobium market is rapidly growing, with only three producers currently dominating global supply. Page 8 Taseko Mines Limited 2007 Annual Report Page 9 //Questions and Answers continued production What can we expect for the cash cost of production in the wake of the Phase 1 and 2 expansions at Gibraltar? Tom Bishop BI Research, Connecticut In 2006, production costs averaged As well, in October 2007 we signed a US$1.25 per pound of copper, and in 2007 they were reduced to US$1.03 per pound. 4.5 year extension to the labour agreement with our employees at Gibraltar. This While an 18 percent cost reduction in the agreement provides long-term labour span of one year is a great accomplishment, stability and locks in a significant portion there still remains significant potential for of our production costs. further reductions. In the fourth quarter of 2007, which was Taseko’s best production When commodity prices are quarter to date, we brought costs down to high, as they are today, many US$0.82 per pound. We are also examining our off-property costs, which include the cost of transporting Gibraltar concentrate to the end markets as well as treatment companies overlook the importance of reducing operating costs. Not Taseko. Cost improvements at Gibraltar are at the top of management’s priority list. Our goal is to reduce Gibraltar’s long-term operating costs so that the mine will always generate positive cash flow, even at the bottom of the cycle. With copper prices in the US$3 range, this may not seem very important today, but as with any commodity, the Looking forward, the first phase of and refining charges. The treatment and the mill expansion and modernization refining contract that has been in place for project is nearing completion. This phase the last four years will expire in 2008. Our will provide an immediate 50 percent goal over the next few months is to lock increase in production and enable us to into a new long-term contract and secure lower costs again. For fiscal 2008, our this component of our cost structure. plan is to produce approximately 80 million pounds of copper and one million pounds of molybdenum. Gibraltar is clearly in a unique position in today’s industry – a large-scale mine capable of producing 115 million pounds price will certainly cycle downwards at In mid-2007, we announced a second of copper and 1.4 million pounds of some point in the future. phase mill upgrade that will cost an molybdenum annually, with a 19-year mine additional $40 million and will increase life and a declining cost structure. production from 2009 onwards. In early 2006, as industry fundamentals continued to strengthen, we recognized the intrinsic value at Gibraltar, a 35-year- old operation with long-life reserves. We decided to proceed with a $75 million expansion and modernization project to increase Gibraltar’s production capacity, upgrade the milling equipment and ultimately reduce operating costs. Page 10 Taseko Mines Limited 2007 Annual Report Page 11 //Questions and Answers continued prosperity How much confidence do you have in the estimated project capital cost for Prosperity provided in the feasibility study, given industry cost pressures? Orest Wowkodaw Canaccord Adams, Toronto There are also other factors that bolster input costs (steel, concrete, labour, etc.) our belief that this capital cost estimate is reasonable and achievable. The project’s associated with a construction project like Prosperity. The in-pit crusher we purchased location is very conducive to construction for Gibraltar is identical to the one we will and mining activities. The climate is use at Prosperity. We also believe we can relatively mild with a nominal amount of reduce the pre-development costs outlined annual precipitation. Additionally, with in the feasibility study by using equipment Prosperity located just 165 kilometres by from Gibraltar for site preparation work. road from the City of Williams Lake, only Rapidly escalating costs are one minimal upgrades are required for project of the largest issues facing the access. Another key advantage is that we mining industry today – both operating and have experience operating in this region, construction capital costs. Taseko, with its as Gibraltar is 225 kilometres north-east Finally, as the expansion at Gibraltar winds down over the next year, we will be able to transfer our in-house expertise for the build-out of Prosperity. world-class assets, is fortunate to have a of Prosperity in an area with a very similar We are therefore very confident in the cost structure that is moving in the opposite climate and landscape. direction to the rest of the industry. Over and above the advantages of In 2007, we completed the feasibility study Prosperity’s location, we benefit from for Prosperity, which is currenlty the largest many other synergies. Now at the halfway mining project in British Columbia. The point of our major $130 million expansion feasibility study, which took more than one at Gibraltar, we are familiar with all the estimated capital cost for this project. In fact, given the synergies and advantages outlined above, we believe we have the potential to reduce the capital costs of Prosperity from the $800 million stated in the feasibility study. year and $2 million to complete, confirmed that the project is technically and economically feasible. While we completed the feasibility study with assistance from a number of engineering firms, Taseko management was heavily involved in the process from start to finish, giving us great confidence in the capital cost estimate of $800 million. Page 12 Taseko Mines Limited 2007 Annual Report Page 13 //Questions and Answers continued reliability of Prosperity, show the greatest potential expertise that we have at Taseko. With our for creating long-term shareholder wealth. Simply put, our own projects keep Prosperity project at an advanced stage, we have an in-depth understanding of the beating any potential external targets input costs associated with large-scale that we’ve evaluated. That being said, as projects that other companies may not expenditures at Gibraltar decrease towards have to the same extent. We continue to the end of 2008, and we achieve higher monitor and assess a number of targets production levels of over 100 million knowing that it is very likely that we may pounds of copper annually, Taseko’s goal be able to add value if the current owners is to be fully prepared to leverage these encounter difficulties with a financing, higher net cash flows into new mining face issues in a feasibility study or development opportunities. struggle operationally. When we analyze other projects, we have Over the past two years, we have entered to put a contingency on buying those into confidentiality agreements and projects – whether they are in different discussions with other companies. We jurisdictions or have infrastructure that approach these dialogues with the view needs to be built out. We also examine that any new mining opportunity must offer different ways that we can add value to greater value than investing in our existing these projects. Specifically, many junior projects: it must maximize our enterprise exploration and development companies do rate of return and contribute to our long- not have the mine building and operating term growth. Taseko’s management team and board of directors have much more experience than Taseko’s three-year operating history would suggest. What are your criteria in seeking merger opportunities, given that many valuable mineral properties are in the hands of less experienced explorers or operators? John Tumazos Very Independent Research, New Jersey Growth is a key element of our strategy. We believe that our diverse portfolio of assets provides an important base for long-term growth. However, beyond growth from these current projects, we continue to actively investigate potential strategic alliances with mining companies that would enhance Taseko’s enterprise value and increase our net present value and net asset value. Our senior management team meets regularly to assess potential targets and to benchmark these against our organic growth opportunities, particularly the rapidly advancing Prosperity project and an additional expansion at Gibraltar. To date, organic projects, such as the development Page 14 Taseko Mines Limited 2007 Annual Report Page 15 //Mineral Reserves and Resources continued commodities Proven Probable Total Recoverable Metal Pounds (billions) 2.1 Pounds (billions) 2.0 Pounds (millions) 31.1 Ounces (millions) 4.7 Mineral Reserves Copper Gibraltar Prosperity Molybdenum Gibraltar Gold Prosperity Mineral Resources Copper Gibraltar Prosperity Molybdenum Gibraltar Tons (millions) 307 Tonnes (millions) 286 Tons (millions) 307 Tonnes (millions) 286 Grade (% Cu) 0.313 Grade (%Cu) 0.25 Grade (% Mo) 0.009 Grade (g/t Au) 0.47 Tons (millions) 77 Tonnes (millions) 201 Tons (millions) 77 Tonnes (millions) 201 Grade (% Cu) 0.296 Grade (% Cu) 0.18 Grade (% Mo) 0.010 Grade (g/t Au) 0.37 Measured Indicated Tons (millions) 320 Tonnes (millions) 547 Tons (millions) 320 Tonnes (millions) Grade (% Cu) 0.307 Grade (% Cu) 0.27 Grade (% Mo) 0.008 Grade (g/t Au) Tons (millions) 209 Tonnes (millions) 463 Tons (millions) 209 Tonnes (millions) Grade (% Cu) 0.311 Grade (% Cu) 0.21 Grade (% Mo) 0.005 Grade (g/t Au) Gold Mineral resources that are not mineral reserves do not have demonstrated economic viability. Prosperity 0.46 463 547 0.34 Tons (millions) 384 Tonnes (millions) 487 Tons (millions) 384 Tonnes (millions) 487 Tons (millions) 529 Tonnes (millions) 1011 Tons (millions) 529 Tonnes (millions) 1011 Total Grade (% Cu) 0.310 Grade (% Cu) 0.220 Grade (% Mo) 0.009 Grade (g/t Au) 0.43 Grade (% Cu) 0.309 Grade (% Cu) 0.24 Grade (% Mo) 0.007 Grade (g/t Au) 0.41 Gibraltar The resource and reserve estimation was completed in 2007 by Prosperity The resource and reserve estimation was reviewed by Scott Gibraltar mine staff under the supervision of Ian S. Thompson, Jones, P.Eng., Vice President, Engineering, for Taseko and a P. Eng., Superintendent of Engineering and a Qualified Person Qualified Person under National Instrument 43-101. Reserves are under National Instrument 43-101. Reserves and resources are estimated at $5.25 net smelter return per tonne cut-off estimated at 0.20% Cu cut-off, based on long-term metal prices of and resources at 0.14% Cu cut-off. Reserves are based on US$1.50/lb for copper and US$10.00/lb for molybdenum and an a 2007 feasibility study that used long-term metal prices of exchange rate of US$0.80/C$1.00. There are also oxide reserves US$1.50/lb for copper, US$575/oz for gold, and an exchange (see Taseko's Annual Information Form for fiscal 2007). rate of US$0.80/C$1.00. 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. Page 16 Taseko Mines Limited 2007 Annual Report //Management’s Discussion and Analysis 1.1 Date This Management’s 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 years ended September 30, 2007 and 2006, prepared in accordance with Canadian generally accepted accounting principles, and is publicly available on SEDAR at www.sedar.com. This MD&A is prepared as of December 13, 2007. 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 Approval for the Prosperity project, and review of potential acquisitions to provide for further corporate growth. During the year ended September 30, 2007, Taseko had an operating profit of $105.7 million, and net earnings after tax of $48.3 million, as compared to an operating profit of $54.9 million, and net earnings after tax of $32.9 million for the same period in fiscal 2006. A $2 million feasibility study on the Prosperity gold-copper Project was completed in the fourth quarter, confirming the technical and economic feasibility of the project. The majority of the work on the Phase One expansion of the Gibraltar concentrator is nearing completion and commissioning of the SAG mill began in mid December. Completion of all stages of the Phase One is scheduled for February 2008 and ramp up to full production planned to occur in the following six month period. The Phase Two expansion is on schedule for completion by late 2008. the expectations expressed in such forward-looking statements In October 2007, the Company closed a bought deal short form are based on reasonable assumptions, such statements are not prospectus offering financing, with an over-allotment option, raising guarantees of future performance and actual results or gross proceeds of $42.6 million. The Company also completed developments may differ materially from those in the forward a private placement financing in November for gross proceeds of looking statements. Factors that could cause actual results to $7.6 million. 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 1.2.1 Gibraltar Mine Taseko’s 100% owned Gibraltar mine is located north of the City of or business conditions. Investors are cautioned that any such Williams Lake in south-central British Columbia. 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 four Fiscal 2007 Sales and Inventory Copper • Copper in concentrate sales for the year were 53.4 million pounds. • Copper cathode sales for the year were 2.1 million pounds. properties located in British Columbia, Canada. These are the • Copper in concentrate inventory at September 30, 2007 was Gibraltar copper-molybdenum mine and three exploration projects: 4.64 million pounds, compared to 8.35 million pounds at the the Prosperity gold-copper property, the Harmony gold property and end of the previous fiscal year. the Aley niobium property. • Copper cathode inventory at the end of the quarter was 0.33 In fiscal 2007, Taseko continued to focus on expansion of the million pounds, as compared to nil at the end of the previous year. concentrator and other production improvements at the Gibraltar mine, completion of a feasibility study and acquisition of a Project Page 17 Molybdenum • Molybdenum in concentrate sales during the year were 0.6 newly opened Granite Pit. In the final two quarters, the strip ratio was maintained to match actual mill throughput. Total tons mined in the latter million pounds. half of 2007 was higher than in the same period of fiscal 2006. • At the end of the year, molybdenum in concentrate inventory was Copper in concentrate production during fiscal 2007 was 49.4 million 18,100 pounds, compared to 32,400 pounds at the end of pounds, an increase from 49.1 million pounds produced in fiscal 2006. Lower mill throughput and copper recovery were offset by higher copper grades. 2.4 million pounds of copper in cathode were also produced from the SX/EW plant that was brought into production during the second quarter. Molybdenum produced in concentrate was 580,000 pounds, a decrease from 821,000 pounds produced in fiscal 2006. Fourth Quarter 2007 Sales and Inventory Copper • Copper in concentrate sales for the quarter were 11.7 million pounds of copper, an increase from the 5.0 million pounds of copper sold during the same quarter in fiscal 2006. • Copper in cathode sales were 1.5 million pounds compared to none in the same quarter of fiscal 2006. the previous year. Molybdenum • Molybdenum concentrate sales in the quarter were 0.16 million pounds of molybdenum, a decrease from the 0.17 million pounds sold in the same quarter of fiscal 2006. • The average price realized for sales of molybdenum in the quarter was US$28.88 per pound compared to US$24.10 per pound received during the last quarter of fiscal 2006. US$1.03 US$1.25 • The average price realized for sales of copper in the quarter was US$3.63 per pound compared to US$3.23 per pound fiscal 2006. Fiscal 2007 Production The following table is a summary of the operating statistics for fiscal 2007 compared to fiscal 2006. 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) ² Molybdenum production (thousands lb) Copper production costs, net of by-product credits³, per lb of copper Off property costs for transport, treatment (smelting & refining) & sales per lb of copper Total cash costs of production per lb of copper Fiscal 2007 35.4 9.5 2.6 0.328 0.011 77.5 29.6 51.8 580 Fiscal 2006 38.4 10.9 2.4 0.285 0.010 79.1 41.2 49.1 821 US$0.35 US$0.25 US$1.38 US$1.50 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 ³ 2007 copper production includes 49.4 M lb in concentrate and 2.4 M lb in cathode. The by-product credit is based on pounds of molybdenum and ounces of silver sold. Total tons mined in the current fiscal year were 3 million less than in fiscal 2006. This measurement has been affected by many factors over the two year period and a direct comparison is not necessarily a meaningful performance indicator. The amount mined in 2007 was kept in line with mill feed in order to maintain the long term mining sequence while controlling expenditures. The amount mined in the first two quarters of 2007 was below plan as a result of mechanical availability of mining equipment and difficult mining conditions in the Page 18 Taseko Mines Limited 2007 Annual Report Fourth Quarter Production The following is a summary of the operating statistics for the fourth of fiscal 2006. Molybdenum in concentrate production in the quarter was 0.15 million pounds, a 25% decrease from 0.2 million pounds in quarter of 2007 (Q4 2007) compared to the same quarter in fiscal the same quarter of fiscal 2006. 2006 (Q4 2006). Total tons mined (millions) Tons milled (millions) Stripping ratio Copper grade (%) Molybdenum grade (% Mo) Copper recovery (%) Molybdenum recovery (%) Copper production¹ (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 & refining) & sales per lb of copper Costs per pound of copper produced were below the same quarter in 2006 due to increased metal production. This was partially offset by increased costs for tires, fuel, and contracted maintenance labour. Concentrator Expansion Project A two phase expansion is underway at the concentrator facility at Gibraltar. The first phase involves installation of a new Semi Autogenous Grinding (SAG) mill as well as installation of ten new flotation cells and various upgrades to increase the ore processing capacity to 46,000 tons per day (tpd). Q4 2007 Q4 2006 10.1 2.6 2.9 0.391 0.012 78.2 22.5 16.8¹ 148 9.6 2.8 2.3 0.293 0.009 79.3 40.3 12.8 197 All components for the SAG mill have been installed and testing of US$0.82 US$1.38 the individual systems began in mid November. Commissioning of US$0.39 US($1.35) ³ One expansion also requires the conversion of the three rod mills to the SAG mill began in the middle of December 2007. The Phase Total cash costs of production per lb of copper US$1.21 US$0.03 ¹ ² ³ 2007 copper production includes 15.8 M lb in concentrate and 1.0 M lb in cathode. The by-product credit is based on pounds of molybdenum and ounces of silver sold. Off property costs includes proceeds from Glencore Ltd arbitration, resulting in a credit for off property costs and reducing the total cash costs for Q4 2006. ball mills which is planned to occur during the January and February 2008. Ramp up to the full 46,000 tpd rate will take place over the following six months. The Phase Two expansion consists of modernizing and increasing Tons mined were higher in the fourth quarter of fiscal 2007 compared the capacity of the regrind, cleaner flotation, and concentrate to fiscal 2006. Ore milled was slightly lower in Q4 2007 compared to circuits, installing a two stage tailings pumping system and adding the same quarter of the prior year as a result of low mill mechanical a pebble crusher to the SAG mill circuit. Phase two is designed to availability in July; however, mill availability was over 90% for August increase concentrator capacity to 55,000 tpd. Work is proceeding and September. on schedule for completion by late 2008. Copper recovery was slightly lower in Q4 2007 compared with the same quarter in fiscal 2006 as the flotation circuit was changed over to the new high volume tank cells during the early part of the quarter. Recoveries in the second half of the quarter were over 80% as the new circuit came on-line. Molybdenum production was lower than fiscal 2006 as a result of mechanical issues in the molybdenum circuit. These issues have now been addressed and molybdenum Labour and Safety The number of personnel at the end of the fiscal year was 357, compared to 281 at the end of fiscal 2006. In October 2007, an extension to the labour agreement at the Gibraltar Mine was successfully ratified by the unionized employees. This new agreement will be in place until May 31, 2012. production is back in line with expectations. There were two lost time accidents during the year. Both were of a Copper in concentrate production during the quarter was 15.8 million pounds of copper, compared to 12.7 million pounds produced in the last quarter of fiscal 2006. Copper in cathode production during the quarter was 1.0 million pounds, compared to nil in the same quarter relatively minor nature and the employees have returned to work. Page 19 2007 Production METAL PRODUCTION FROM THE GIBRALTAR MINE IN FISCAL 2007 (millions pounds) Copper in Concentrate Cathode Copper Total Copper Molybdenum in Concentrate Q1 10.6 0 10.6 0.12 Q2 11.2 0.6 11.8 0.16 Q3 11.8 0.8 12.6 0.15 Q4 15.8 1.0 16.8 0.15 Fourth quarter 2007 production of 16.8 million pounds of copper - 15.8 million pounds in concentrate plus 1 million pounds of cathode copper represents a 58% increase of primary metal production over the first quarter of 2007, and is equivalent to an annualized production rate of 67.2 million pounds of copper. Cautionary Note to Investors Concerning Estimates of Measured and Indicated Resources This section 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. Investors are cautioned not to assume that any part or Mineral Resources and Reserves There were two increases to Gibraltar’s mineral reserves during 2007 which resulted in, as of September 30, 2007, the following tonnage and grades: GIBRALTAR MINE MINERAL RESERVES As at September 30, 2007 at 0.20% copper cut-off all of mineral deposits in these categories will ever be converted Pit Category Tons (millions) Cu (%) Mo (%) into reserves. Cautionary Note to Investors Concerning Estimates of Inferred Resources This section uses the term ‘inferred resources’. The Company advises investors that while this term is recognized and Pollyanna Connector Proven Probable Subtotal Proven Probable Subtotal required by Canadian regulations, the U.S. Securities and Gibraltar Additional Proven Exchange Commission does not recognize it. ‘Inferred resources’ have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It Granite cannot be assumed that all or any part of a mineral resource Probable Subtotal Proven Probable will ever be upgraded to a higher category. Under Canadian Granite Additional Proven rules, estimates of Inferred Mineral Resources may not form the basis of economic studies, except in rare cases. Investors Probable Subtotal are cautioned not to assume that any part or all of an inferred Total resource exists, or is economically or legally mineable. 3.8 0.4 4.2 40.4 14.8 55.2 66.8 33.3 100.1 157.6 23.9 38.1 4.5 224.1 383.6 0.334 0.279 0.329 0.296 0.271 0.289 0.286 0.285 0.286 0.324 0.322 0.329 0.322 0.325 0.310 0.008 0.008 0.008 0.010 0.009 0.010 0.008 0.013 0.010 0.010 0.009 0.002 0.004 0.008 0.009 Page 20 Taseko Mines Limited 2007 Annual Report In addition to the above mineral reserves, Gibraltar has the following An economic analysis of the project, based on the conclusions from mineral resources: the feasibility study, is presented as follows: GIBRALTAR MINE MINERAL RESOURCES As at September 30, 2007 at 0.20% copper cut-off Category Measured Indicated Total Tons (millions) 320 209 529 Cu (%) 0.307 0.311 0.309 Mo (%) 0.008 0.005 0.007 Mineral resources that are not mineral reserves do not have demon- strated economic viability. • A projected exchange rate of US$0.80/C$1.00. • A long term copper price of US$1.50 per pound of copper. • A long term gold price of US$575 per ounce of gold. • Pre-production capital cost of $807 million. • Operating cost of $6.26 per tonne milled over the life of the mine. • Net Present Value (NPV) of $260 million at 7.5% discount rate The mineral resource and reserve estimations were completed by • Internal Rate of Return of 12%. Gibraltar mine staff under the supervision of Ian S. Thompson, The proposed development plan would include a pre-production P.Eng., Superintendent of Engineering, and a qualified person period of two years involving construction of the 124 km long, 230 under National Instrument 43-101. Mr. Thompson has verified kV transmission line; upgrading and extension of current road access the methods used to determine grade and tonnage in the geological and mine site clearing; site infrastructure, processing, and tailings model, reviewed the long range mine plan, and directed the starter dam construction; removal and storage of overburden; and pre- updated economic evaluation. The estimates used long term meta production development. prices of US$1.50/lb for copper and US$10.00/lb for molybdenum and a foreign exchange of US $0.80 per CDN$1.00. A technical report is filed on www.sedar.com. The mine plan contemplates a large-scale conventional truck and shovel open pit mining and milling operation. The processing plant has been designed with a nominal capacity of 1.2.2 Prosperity Project Taseko holds a 100% interest in the Prosperity property, located 70,000 tonnes per day. The plant consists of a single 12-meter diameter SAG mill, two 7.9-meter diameter ball mills, followed by 125 kilometers southwest of the City of Williams Lake. The property processing steps that include bulk rougher flotation, regrinding, cleaner hosts a large porphyry gold-copper deposit amenable to open flotation, thickening and filtering to produce a copper-gold concentrate. pit mining. In September 2007, the Company announced the positive results of a feasibility study for the Project, which further validated the results of an earlier prefeasibility study indicating the following reserves: PROSPERITY MINERAL RESERVES At $5.25 NSR/tonne Cut-Off Category Proven Probable Total Tonnes (millions) Gold (g/t) Copper (%) 286 201 487 0.47 0.37 0.43 0.25 0.18 0.22 The copper-gold concentrate would be hauled with highway trucks to an expanded load-out facility at McLeese Lake, where Gibraltar’s concentrate is loaded, for rail transport to various points of sale, but mostly through the Port of Vancouver for shipment to smelters/refineries around the world. Based on this study, the project would employ up to 450 permanent hourly and staff personnel, and approximately 60 contractor personnel. Page 21 The sensitivity of the project to metals price assumptions is presented in the following table: Pre-tax NPV ($C millions) Internal Rate of Return (%) $US1.40/lb Cu $US550/oz Au $US1.50/lb Cu $US575/oz Au $US1.75/lb Cu $US600/oz Au $US2.00/lb Cu $US650/oz Au 87 9 260 12 594 17 991 22 The feasibility study updated and expanded work done to 2000, and was a combined effort by HATCH, Knight Piesold Engineering, and 1.2.4 Aley Project In June 2007, Taseko acquired 100% of the Aley niobium project in Taseko’s engineering team, completed under the supervision of Scott Jones, P. Eng., Vice President Engineering, Taseko Mines Limited, a northern British Columbia through the acquisition of all of the issued and outstanding shares in the capital of a private company, for qualified person under National Instrument 43-101. A technical report total cash consideration to the acquired company’s shareholders of has been filed at www.sedar.com. The Company believes there are additional opportunities for improved economic performance through further optimization of the concentrator flowsheet and a reduction in indirect costs and work will continue on these aspects of the project. The decision to build the project is dependent on the successful outcome of environmental assessment, permitting, and financing, all of which are ongoing or under development. The Project is currently in Environmental Assessment Process. The federal responsible authorities, the Department of Fisheries and Oceans, Transport Canada, and Natural Resources Canada, have recommended to the Federal Minster of Environment that the project be referred to a Joint Panel Review. Provincially, the Executive Director of the Environmental Assessment Office has also referred the project to $1,500,000 as well as a share issuance to the value of $2,970,000 (consisting of 894,730 common shares). Taseko purchased the residual net smelter royalty from Teck Cominco for total cash consideration of $300,000 and the issuance of units with a value of $835,200 (consisting of 240,000 common shares and 120,000 warrants). Each warrant is exercisable into one common share at $3.48 until June 4, 2009. The Aley property hosts a niobium deposit. Niobium is a metal used in making high strength steels required in the manufacture of automobiles, bridges, pipes, jet turbines and other high technology applications. The metal is currently selling for $30/kg and the market is growing at 5-8% per year. Currently, the world supply is dominated by only two producers: CBMM, a Brazilian miner and Iamgold which operates the Niobec Mine in Quebec. the Provincial Minister of Environment for a decision regarding a Joint Taseko successfully completed an initial exploration program on the Panel Review. Taseko is actively engaged with federal and provincial Aley deposit in 2007, and plans to do an accelerated drilling and regulatory agencies in the review of the Project and are also engaged engineering work program in the summer of 2008 to advance the in discussions with local First Nations and other communities. Aley Project toward a feasibility study. 1.2.3 Harmony Project In late 2007, after the completion of the Queen Charlotte-Haida 1.2.5 Market Trends Overall, copper prices have been increasing since late 2003, Gwaii Land and Resource Management Plan designated the area in averaging US$3.03/lb in 2006. As a result of increasing supply, which the Harmony Project is located as a mineral development zone, prices dropped slightly in early 2007, but have increased again since Taseko initiated a review of the metallurgical flow sheet and prior mid February. The average price to the end of November 2007 is mine development planning to establish further work programs. Plans US$3.23/lb. are being developed to move the Project forward in 2008. Overall, gold prices have been increasing for more than three years. Property maintenance and environmental monitoring activities have The gold price has averaged approximately US$687.57/oz in 2007 continued at Harmony. Page 22 to end of November. Taseko Mines Limited 2007 Annual Report Molybdenum prices increased from US$7.60/lb to US$34/lb in Prices stabilized in 2006, averaging US$25.53/lb over the year, and 2004, and peaked at an average price of US$34/lb in 2005. have strengthened in 2007, averaging approximately US$30.47/lb. 1.3 Selected Annual Information The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles, and are expressed in thousands of Canadian dollars except per share amounts. Balance Sheets Current assets Mineral properties Other assets Total assets Current liabilities Other liabilities Shareholders’ equity Total liabilities & shareholders’ equity Statements of Operations Revenue Cost of sales Amortization Operating profit Accretion of reclamation obligation Exploration Foreign exchange loss (gain) Gain on asset retirement obligation change of estimates Loss on sale of equipment Loss on extinguishment of capital leases General and administration Ledcor termination fee Gain on sale of marketable securities Interest and other income Interest expense Interest accretion on convertible debt Restart project Stock-based compensation Change in fair market value of financial instruments Earnings before income taxes Current income tax expense (recovery) Future income tax expense (recovery) Earnings for the year Other comprehensive income (loss): Unrealized loss on reclamation deposits Unrealized gain (loss) on marketable securities/investments Reclassification of realized gain on sale of marketable securities Tax effect Other comprehensive income Total comprehensive income Basic earnings per share Diluted earnings per share Basic weighted average number of common shares outstanding Diluted weighted average number of common shares outstanding 2007 $ 94,619 18,407 264,237 $ 377,263 44,589 169,014 163,660 $ 377,263 2007 $ 218,426 (109,533) (3,155) $ 105,738 1,777 8,967 233 (4,570) – – 6,501 – (1,508) (11,093) 5,947 2,922 – 6,771 1,925 $ 87,866 3,959 35,645 $ 48,262 (419) 4,710 (1,508) (445) $ 2,338 $ 50,600 $ 0.37 0.36 $ 129,218 142,278 As at September 30 2006 $ 149,447 2,628 145,386 $ 297,461 47,863 148,664 100,934 $ 297,461 Year ended September 30 2006 $161,900 (103,628) (3,412) $ 54,860 1,732 3,544 (289) – – 240 5,286 3,500 – (7,170) 4,594 1,280 – 3,182 – $ 38,961 4,397 1,648 $ 32,916 – – – – – $ 32,916 $ 0.29 0.26 $ 113,554 126,462 2005 $ 58,380 3 132,614 $ 190,997 52,205 109,682 29,110 $ 190,997 2005 $ 87,638 (71,348) (2,657) $ 13,633 1,574 506 34 – 2,161 – 2,412 – – (10,548) 3,175 1,075 6,347 1,129 – $ 5,768 (4,099) (13,423) $ 23,290 – – – – – $ 23,290 $ 0.23 0.21 $ 100,022 110,733 Page 23 1.4 Summary of Quarterly Results Expressed in thousands of Canadian dollars, except per-share amounts. Small differences are due to rounding. Current assets Mineral properties Other assets Total assets Current liabilities Other liabilities Shareholders’ equity Total liabilities and shareholders’ equity Revenue Mine site operating costs Transportation and treatment Amortization Expenses: Accretion of reclamation obligation Conference and travel Consulting Exploration Interest expense and accretion charges Ledcor termination fee Legal, accounting and audit Office and administration Shareholder communications Trust and filing Sep 30 2007 94,619 18,407 264,237 377,263 44,589 169,014 163,660 377,263 (53,998) Jun 30 2007 97,907 15,986 225,638 339,531 35,225 155,070 149,236 339,531 (55,907) Mar 31 2007 114,756 5,468 200,304 320,528 36,426 151,799 132,303 320,528 (51,624) Dec 31 2006 129,940 3,554 167,332 300,826 37,411 149,912 113,503 300,826 (56,897) Sep 30 2006 149,447 2,628 145,386 297,461 47,863 148,664 100,934 297,461 (23,196) Jun 30 2006 68,651 3 134,459 203,113 39,330 97,588 66,195 Mar 31 2006 64,839 3 132,713 197,555 40,815 109,158 47,582 Dec 31 2005 57,067 3 132,684 189,754 41,238 109,528 38,988 203,113 (59,922) 197,555 (37,511) 189,754 (41,271) 17,062 21,399 18,962 30,809 8,829 31,866 22,574 26,047 5,220 667 760 98 198 2,320 2,042 – 443 975 99 23 4,714 1,374 339 72 138 2,188 2,199 – 130 833 140 20 5,062 677 339 156 167 2,546 2,722 – 484 905 134 118 6,305 437 (7,581) 898 339 168 80 1,913 1,906 – 163 762 113 81 433 223 137 (155) 1,678 3,500 (81) (107) 101 55 8,973 812 433 39 104 2,958 2,311 – 1,061 1,047 183 23 6,643 852 433 84 78 471 1,043 – 334 665 97 215 6,277 849 433 71 115 270 1,082 – 363 390 69 21 Interest and other income (2,901) (2,434) (2,978) (2,778) (2,418) (1,579) (1,546) (1,627) Gain on sale of marketable securities Income taxes expense (recovery) Asset retirement obligation change of estimates Foreign exchange loss (gain) Stock-based compensation Change in fair value of financial instruments Earnings for the period Earnings per share - basic – – (1,509) – – – – 15,727 6,739 11,485 5,653 (1,968) 5,603 2,410 (4,570) 756 1,817 617 12,645 0.10 – 1,454 1,865 2,331 12,406 0.10 – (472) 2,330 (995) 11,491 0.09 – (1,505) 759 (28) 11,720 0.09 – (132) 731 – 19,053 0.16 – 323 1,685 – 4,080 0.04 – (448) 535 – 3,071 0.03 – – – (32) 231 – 6,712 0.06 Page 24 Taseko Mines Limited 2007 Annual Report 1.5 Results of Operations Year ended September 30, 2007 (“2007”) versus year ended September 30, 2006 (“2006”) The Company’s pre-tax earnings for 2007 increased to $87.9 million, compared to $39.0 million in 2006 due mainly to higher volume of copper and molybdenum sold and higher realized metal prices for sales during the year. The Company’s after-tax earnings for 2007 increased to $48.3 million, compared to $32.9 million in 2006. The Company reported revenues of $218.4 million, compared to $161.9 million in the previous year. Revenues consisted of copper concentrate sales of $191.1 million (2006 – $139.1 million), molybdenum concentrate sales of $18.6 million (2006 – $21.6 million), silver concentrate sales of $1.3 million (2006 – $1.2 million), and copper cathode sales of $7.4 million (2006 – Nil). Revenues increased due to significantly higher copper prices and a more pounds of copper sold. The average price per pound of copper concentrate sold increased to US$3.30 per pound, up from US$2.44 per pound in the previous year. The Company also sold 53.4 million pounds of copper concentrate and 2.1 million pounds of copper cathode in 2007 compared to 51.0 million pounds of copper concentrate in 2006. Cost of sales for 2007 was $109.5 million, compared to $103.6 million in 2006. Cost of sales for 2007 consists of total production cost of $79.3 million (2006 – $91.3 million) and a concentrate Exploration expenses increased to $9.0 million in 2007 compared to $3.5 million in 2006, due to a higher level of exploration activity at the Company’s Prosperity and Aley projects. The exploration expenditures were focused mainly on the initial stages of preparing an environmental impact assessment and updated feasibility study for the Prosperity project (completed). Exploration expenses of $7.4 million at Gibraltar were capitalized as the exploration expenditures resulted in the discovery of additional mineral reserves that will allow for increases in future production at the Gibraltar mine. General and administrative costs increased to $6.5 million in 2007 from $5.3 million in 2006, mainly due to salaries and benefits (2007 – $4.3 million; 2006 – $1.9 million) resulting from higher staffing levels to support the Company’s exploration projects, expansion at Gibraltar and general corporate activities. Conference and travel (2007 – $0.5 million; 2006 – $0.4 million); consulting (2007 – $0.6 million; 2006 – $0.3 million) and shareholder’s communication (2007 – $0.5 million; 2006 – $0.45 million) all increased in 2007 due to higher staffing levels and an increase in corporate activities. This was offset by reduced legal fees of $0.4 million in 2007 as legal fees in 2006 were higher due to an arbitration proceeding. Stock-based compensation increased to $6.8 million in the current year compared to $3.2 million in 2006 as a result of share purchase options granted and a higher fair value on the options granted during the year. inventory adjustment of $8.9 million (2006 – ($2.0 million)). Also Interest and other income increased significantly to $11.1 million as included in cost of sales is transportation and treatment costs, which compared to $7.2 million in 2006. The increase was due to interest were $21.3 million for 2007 (2006 – $14.3 million). The increase earned on the Company’s increasing average cash balances. Interest in cost of sales for the year was due to higher transportation and expense and interest accretion increased by $3.0 million in 2007 treatment charges compared to the previous year. due to the Company recognizing a complete year of accretion and Amortization expense for 2007 was $3.2 million compared to $3.4 million in 2006. During 2007, the Company increased its mineral interest payments in 2007 on its convertible bonds, compared to one month in 2006. reserves at the Company’s Gibraltar mine, thereby extending the life Current income tax of $4.0 million (2006 – $4.4 million) and future of the mine. Consequently, the rates of amortization of the Company’s income taxes of $35.6 million (2006 – $1.6 million) were recorded property, plant and equipment, the carrying values of the reclamation during the year. The increase in income taxes is due mainly to liability, and the Company’s future income taxes have been revised to the depletion of tax pools as a result of the Company’s continued reflect the extended mine life. profitability and changes in timing differences on the Company’s tax and accounting assets and liabilities. Page 25 The Company also has a tax liability provision of $24.6 million (2006 – $21.1 million) recorded on the Company’s balance sheet recorded 1.8 Off-Balance Sheet Arrangements None. in fiscal 2004 in accordance with Canadian generally accepted accounting principles. 1.9 Transactions with Related Parties Hunter Dickinson Inc. (“HDI”) is a private company owned equally 1.6 Liquidity At September 30, 2007, Taseko had working capital of $50.0 by nine public companies, one of which is Taseko. HDI has certain directors in common with the Company and carries out geological, million, as compared to a $101.6 million at September 30, 2006. engineering, corporate development, administrative, financial The decrease in working capital was primarily a result of significant management, investor relations, and other management activities for, capital expenditures made during the year on the Company’s mine expansion activities. and incurs third party costs on behalf of, the Company. The Company reimburses HDI on a full cost-recovery basis. Management anticipates that revenues from copper, molybdenum Costs for services rendered and costs incurred on behalf of the and copper cathode, along with current cash balances will be Company by HDI during the year ended September 30, 2007 were sufficient to cover operating costs, working capital, and the Gibraltar $4.9 million, as compared to $2.9 million in the year of 2006. mill expansion. On October 30, 2007, the Company closed the “bought deal” short form prospectus offering of 7,115,385 common shares at a price of The increase over prior fiscal year is due to higher staffing levels required to support the increase in general corporate development and exploration activities. $5.20 per Common share. The Company granted to the underwriters Taseko held a convertible promissory note (“Note”) issued by an over-allotment option to purchase up to an additional 1,067,307 Continental, a public company which is a related party by virtue of common shares at $5.20. The underwriters elected to exercise the certain common directors. The Note had a right to participate in over-allotment option in full at the closing, resulting in an aggregate future Continental equity financings. In February 2007, the Company gross proceeds to the Company of $42.5 million. On November 13, redeemed the Note for cash at 105% of its principal face value and used 2007, the Company completed a private placement financing. The its pre-emptive right to participate in a private placement consisting Company issued 1,455,100 shares at a price of $5.20 per share for of equity units (“Units”) of Continental at a price of Cdn$1.65 per gross proceeds of $7.6 million. Other than those obligations disclosed in the notes to its audited annual financial statements for the year ended September 30, 2007, the Company has no other long term debt, capital lease obligations, operating leases or any other long term obligations. 1.7 Capital Resources The Company had no commitments for material capital expenditures as of September 30, 2007. Unit. Each Unit consists of one common share of Continental and one Continental common share purchase warrant, exercisable at a price of Cdn$1.80 per share for a one year period from the completion of the financing. As a result, Taseko used the proceeds from the Note to subscribe for 7,318,182 Units of Continental. 1.10 Fourth Quarter The Company reported revenues of $54.0 million, compared to $55.9 million in the previous quarter and $23.2 million in the fourth quarter of 2006. The average price per pound of copper concentrate The Company has purchase orders in the normal course of operations sold increased to US$3.63 per pound in the fourth quarter, up from for capital equipment required for the Gibraltar expansion project. The US$3.53 per pound in the previous quarter and US$3.23 per pound orders have specific delivery dates and financing of this equipment in the same quarter in 2006. would be through existing resources. The Company has no lines of credit or other sources of financing. Page 26 Taseko Mines Limited 2007 Annual Report Revenues consisted of copper concentrate sales of $43.7 million These estimates include: compared to $ $47.8 million for the previous quarter and $18.2 million in the fourth quarter of 2006, molybdenum concentrate sales • mineral resources and reserves, of $4.8 million compared to $5.6 million for the previous quarter and • the carrying values of concentrate inventories and supplies inventories, $5 million in the fourth quarter of 2006, silver concentrate sales of $0.3 million compared to $0.4 million for the previous quarter and • the carrying values of mineral properties, $0.1 million in the fourth quarter of 2006 and copper cathode sales • the carrying values of property, plant and equipment, of $5.2 million compared to $2.1 million for the previous quarter. Cost of production for the period was $17.1 million, compared to $21.4 million in the previous quarter, and $8.8 million in the same • rates of amortization of property, plant and equipment, • the carrying values of the reclamation liability, quarter of 2006. Costs of production consist of total production cost • the carrying values of the convertible debentures and conversion rights, for the period of $23.4 million, compared to $20.8 million in the previous quarter and $24.8 million in the same quarter of the previous • income taxes, year; less concentrate inventory addition of $6.3 million, compared • the valuation allowances for future income taxes, to inventory reduction of $0.6 million in the previous quarter and addition of $15.9 million in the fourth quarter of 2006. Transportation and treatment costs for the fourth quarter amounted • the carrying values of the receivables from sales of concentrate, • the carrying values of deferred revenue, to a $5.2 million compared to $4.7 million in the previous quarter and • the assumptions used in determining the reclamation obligation, and a recovery of $7.6 million for the same period last year. The recovery of transportation and treatment costs in the fourth quarter was due to • the valuation of stock-based compensation expense. the August 2006 arbitration ruling in favor of the Company. Actual amounts could differ from the estimates used and, accordingly, Amortization expense of $0.7 million for the fourth quarter compared affect the results of operations. to $1.4 million in the previous quarter and $0.9 million for the fourth During the year ended September 30, 2007, the Company increased quarter of 2006. Amortization during the previous quarter was its mineral reserves at the Company’s Gibraltar mine, thereby significantly higher due to the write-down of the old software used in extending the life of the mine. Consequently, the rates of amortization the Gibraltar Mine which was replaced by a new system. of the Company’s property, plant and equipment, the carrying values 1.11 Proposed Transactions None. 1.12 Critical Accounting Estimates The Company’s significant accounting policies are presented in notes 3 and 4 of the audited consolidated statements for the year ended September 30, 2007. 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. of the reclamation liability, and the Company’s future income taxes have been revised to reflect the extended mine life. Mining and milling assets are amortized using the units of production method based on tons mined and milled divided by the estimated tonnage to be recovered in the mine plan. An increase in recoverable reserves results in higher estimated tonnage to be recovered in the mine plan and hence a reduced annual amortization rate. Page 27 1.13 Change in Accounting Policies including • Available-for-sale financial assets are measured at fair value. Initial Adoption Changes in fair value are included in other comprehensive Effective October 1, 2006, the Company adopted the following new income until the gain or loss is recognized in income. accounting standards issued by the Canadian Institute of Chartered Accountants (“CICA”) relating to financial instruments. As required by the transitional provisions of these new standards, these new standards have been adopted on a prospective basis with no • Held for trading financial instruments are measured at fair value. All changes in fair value are included in net earnings in the period in which they arise. restatement to prior period financial statements. • All derivative financial instruments are measured at fair value, (a) Financial Instruments – Recognition and Measurement (Section 3855) This standard sets out criteria for the recognition and measurement even when they are part of a hedging relationship. Changes in fair value are included in net earnings in the period in which they arise, except for hedge transactions which qualify for hedge accounting treatment in which case gains and closes are of financial instruments for fiscal years beginning on or after October recognized in other comprehensive income. 1, 2006. This standard requires all financial instruments within its scope, including derivatives, to be included on a Company’s balance sheet and measured either at fair value or, in certain circumstances In accordance with this new standard, the Company has classified its financial instruments as follows: when fair value may not be considered most relevant, at cost or • Marketable securities are classified as available-for-sale amortized cost. Changes in fair value are to be recognized in the securities. Such securities are measured at fair market value in statements of operations or accumulated other comprehensive the consolidated financial statements with unrealized gains or income, depending on the classification of the related instruments. losses recorded in comprehensive income. At the time securities All financial assets and liabilities are recognized when the entity becomes a party to the contract creating the asset or liability. As are sold or otherwise disposed of, gains or losses are included in net earnings. such, any of the Company’s outstanding financial assets and liabilities • The Company’s investment in a convertible promissory note at the effective date of adoption are recognized and measured in of Continental Minerals Corporation (“Continental”) contained accordance with the new requirements as if these requirements had an embedded derivative which required separation from the host always been in effect. Any changes to the fair values of assets and contract and was measured at fair value. This change in liabilities prior to October 1, 2006 are recognized by adjusting opening accounting policy resulted in a mark-to-market adjustment of deficit or opening accumulated other comprehensive income. $307 to deficit and a similar increase to the carrying value of All financial instruments are classified into one of the following categories: held for trading, held-to-maturity, loans and receivables, available-for-sale financial assets, or other financial liabilities. Initial the Company’s investment in Continental at October 1, 2006. In February 2007, the Company redeemed the convertible promissory note for cash. and subsequent measurement and recognition of changes in the • Reclamation deposits invested in government backed securities value of financial instruments depends on their initial classification: are classified as available-for-sale securities and are carried • Held-to-maturity investments, loans and receivables, and other financial liabilities are initially measured at fair value and subsequently measured at amortized cost. Amortization of premiums or discounts and losses due to impairment are included in current period net earnings. at fair market value, with the unrealized gain or loss recorded in shareholders’ equity as a component of other comprehensive income. These amounts will be reclassified from accumulated other comprehensive income to net earnings when the investment is sold. Previously, reclamation deposits were carried at cost, less provision for other than a temporary decline in value. Page 28 Taseko Mines Limited 2007 Annual Report • Investment in promissory note relating to the Red Mile Resources of net earnings to be presented in other “comprehensive income” No. 2 Limited Partnership Agreement (“Red Mile”) is classified until it is considered appropriate to recognize into net earnings. This as a loan and receivable. • Convertible bonds and debenture are classified as held-to maturity and are measured at amortized costs. standard requires the presentation of comprehensive income, and its components in a separate financial statement that is displayed with the same prominence as the other financial statements. Accumulated other comprehensive income is presented as a new category in • In accordance with this new standard, deferred financing costs shareholders’ equity. Accordingly, the Company now reports a consolidated statement of comprehensive income and includes the account “accumulated other comprehensive income” in the shareholders’ equity section of the consolidated balance sheet. Financial Instruments and Other Instruments 1.14 Please refer to Section 1.13 above. 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. relating to the issuance of the convertible bonds are no longer presented as a separate asset on the balance sheet and are now included in the carrying value of the term loan, and are amortized to interest expense using the effective interest rate method. The carrying amounts of cash and equivalents, accounts receivable, restricted cash, reclamation deposits, and accounts payable and accrued liabilities approximate their fair values due to their short term nature. The fair values of the Boliden convertible debenture 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. (b) Hedging (Section 3865) This new standard specifies the circumstances under which hedge accounting is permissible and how hedge accounting may be performed. The Company currently does not have any financial instruments which qualify for hedge accounting. (c) Comprehensive Income (Section 1530) Comprehensive income is the change in the Company’s shareholder equity that results from transactions and other events from other than the Company’s shareholders and includes items that would not normally be included in net earnings, such as unrealized gains or losses on available-for-sale investments. This standard requires certain gains and losses that would otherwise be recorded as part Page 29 1.15.2 Disclosure of Outstanding Share Data The following details the share capital structure as at December 13, 2007, 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 140,246,830 March 27, 2009 March 27, 2009 March 27, 2009 February 24, 2010 July 3, 2010 September 28, 2010 September 28, 2010 September 28, 2010 March 28, 2011 March 28, 2011 March 28, 2011 August 22, 2011 February 24, 2012 $ 2.07 $ 2.18 $ 2.68 $ 3.07 $ 4.03 $ 1.15 $ 2.07 $ 2.18 $ 2.18 $ 2.63 $ 2.68 $ 4.09 $ 3.07 30,000 153,000 110,000 909,000 130,000 1,128,334 70,000 100,000 442,000 360,000 90,000 338,500 1,818,000 5,678,834 Warrants Convertible debenture, Boliden Westmin (Canada) Limited Convertible bonds Preferred shares redeemable into Taseko Mines Limited common shares June 4, 2009 $ 3.48 120,000 120,000 July 21, 2009 August 29, 2011 $ 5.14 US$ 3.35 3,307,393 8,955,224 3,307,393 8,955,224 12,483,916 Page 30 Taseko Mines Limited 2007 Annual Report 1.15.3 Internal Controls over Financial Reporting Procedures procedures. Gibraltar’s financial statements constitute approximately 52% of the Company’s total assets and 100% of net sales as of the year The management of the Company is responsible for establishing and ended September 30, 2007. Other than the system implementation at maintaining adequate internal controls over financial reporting. The Gibraltar, no other changes in internal controls over financial reporting Company’s internal control system was designed to provide reasonable occurred during the most recent fiscal quarter that have materially assurance to the Company’s management and the board of directors affected or are reasonably likely to materially affect the Company’s regarding the preparation and fair presentation of published financial internal control over financial reporting. statements. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company, (2) provide reasonable 1.15.4 Disclosure Controls and Procedures As of the end of the period covered by this report, our management carried out an evaluation, with the participation of our Chief Executive assurance that transactions are recorded as necessary to permit Officer and Chief Financial Officer, of the effectiveness of our preparation of financial statements in accordance with GAAP, and that disclosure controls and procedures (as defined in Rule 13a-15(e) and receipts and expenditures of the Company are being made only in 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange accordance with authorizations of management and directors of the Act”)). Based upon that evaluation, our Chief Executive Officer and Company, and (3) provide reasonable assurance regarding prevention Chief Financial Officer concluded that, as of the end of the period or timely detection of unauthorized acquisition, use or disposition of covered by this report, our disclosure controls and procedures were the Company’s assets that could have a material effect on the financial effective in recording, processing, summarizing and reporting, on a statements. All internal control systems, no matter how well designed, timely basis, information required to be disclosed by us in reports have inherent limitations. Therefore, even those systems determined that we file or submit under the Exchange Act. effective can provide only reasonable assurance with respect to financial statement preparation and presentation. It should be noted that while our Chief Executive Officer and our Chief Financial Officer believe that our disclosure controls and procedures The Company’s management, with the participation of the Chief provide a reasonable level of assurance that they are effective, they Executive Officer and the Chief Financial Officer, has evaluated the do not expect that our disclosure controls and procedures or internal effectiveness of internal control over financial reporting based on the control over financial reporting will prevent all errors and fraud. A framework and criteria established in Internal Control – Integrated control system, no matter how well conceived or operated, can Framework, issued by the Committee of Sponsoring Organizations of provide only reasonable, not absolute, assurance that the objectives the Treadway Commission. Based on this evaluation, our management of the control system will be met. has concluded that internal control over financial reporting was effective as of September 30, 2007 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. During the year ended September 30, 2007, the Company completed the implementation of a new Enterprise Resource Planning (ERP) system at one of its subsidiaries, Gibraltar Mines Ltd (“Gibraltar”). In connection with this ERP system implementation, the Company updated its internal controls over financial reporting, as necessary, to accommodate modifications to its business processes and accounting Page 31 KPMG LLP Chartered Accountants PO Box 10426 777 Dunsmuir Street Telephone 604 691 3000 Fax 604 691 3031 Internet www.kpmg.ca Vancouver BC V7Y 1K3 Canada AUDITORS’ REPORT To the Shareholders of Taseko Mines Limited We have audited the consolidated balance sheets of Taseko Mines Limited (“the Company”) as at September 30, 2007 and 2006 and the consolidated statements of operations and comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended September 30, 2007. 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 and the standards of the Public Company Accounting Oversight Board (United States). 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, 2007 and 2006 and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2007 in accordance with Canadian generally accepted accounting principles. Chartered Accountants Vancouver, Canada December 13, 2007 Page 32 Taseko Mines Limited 2007 Annual Report //Consolidated Financial Statements Consolidated Balance Sheets (Expressed in thousands of Canadian Dollars) ASSETS Current assets Cash and equivalents Restricted cash (note 10) Marketable securities and investments (note 6) Accounts receivable Advances to related party (note 11) Inventory (note 5) Prepaid expenses Current portion of future income taxes (note 15) Current portion of promissory note (note 8(e)) Deferred financing costs Mineral properties, plant and equipment (note 9) 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 deferred revenue (notes 3(b) and 8(e)) Current portion of royalty obligation (note 8(e)) Income taxes Current portion of future income taxes (note 15) 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) Future income taxes (note 15) Shareholders’ equity Share capital Equity component of convertible debt (note 12) Tracking preferred shares (note 7) Contributed surplus Accumulated other comprehensive income Deficit Subsequent event (note 17) Commitments (note 8) September 30 2007 September 30 2006 $ 37,636 4,400 18,542 12,021 807 18,058 1,069 – 2,086 94,619 – 176,898 33,396 72,350 – $ 377,263 $ 30,435 175 2,086 6,573 5,320 44,589 24,645 63,330 1,050 41,008 17,441 21,540 213,603 205,040 13,655 26,642 8,633 2,338 (92,648) 163,660 $ 89,408 – 11,500 9,342 – 24,218 1,221 11,601 2,157 149,447 1,382 43,445 32,004 71,009 174 $ 297,461 $ 21,962 19,759 2,157 3,985 – 47,863 21,058 64,632 1,225 42,774 18,975 – 196,527 197,592 13,655 26,642 3,648 – (140,603) 100,934 See accompanying notes to consolidated financial statements. Approved by the Board of Directors. $ 377,263 $ 297,461 Russell E. Hallbauer Director Jeffrey R. Mason Director Page 33 Consolidated Statements of Operations and Comprehensive Income (Expressed in thousands of Canadian Dollars, except for per share and share amounts) Revenue Copper Molybdenum Cost of sales Depletion, depreciation and amortization Operating profit Expenses (income) Accretion of reclamation obligation Exploration Foreign exchange Asset retirement obligation change of estimates (note 13) Loss on extinguishment of capital leases Loss on sale of equipment General and administration Gain on sale of marketable securities (note 6) Ledcor termination fee (note 8(a)) Interest and other income Interest expense Interest accretion on convertible debt (note 12) Restart project Stock-based compensation Change in fair value of financial instruments Earnings before income taxes Income tax recovery (expense) (note 15) Future income tax recovery (expense) (note 15) Earnings for the year Other comprehensive income (loss) Unrealized loss on available-for-sale reclamation deposit Unrealized gain on available-for-sale marketable securities / investments (note 6) Reclassification of realized gain on sale of marketable securities Tax effect 2007 $ 199,872 18,554 218,426 (109,533) (3,155) 105,738 1,777 8,967 233 (4,570) – – 6,501 (1,508) – (11,093) 5,947 2,922 – 6,771 1,925 17,872 87,866 (3,959) (35,645) $ 48,262 (419) 4,710 (1,508) (445) Other comprehensive income Total comprehensive income Earnings per share (note 14(d)) Basic Diluted Weighted average number of common shares outstanding (in thousands) Basic Diluted $ 2,338 $ 50,600 $ 0.37 0.36 129,218 142,278 See accompanying notes to consolidated financial statements. Years ended September 30 2006 $ 140,341 21,559 161,900 (103,628) (3,412) 54,860 1,732 3,544 (289) – 240 – 5,286 – 3,500 (7,170) 4,594 1,280 – 3,182 – 15,899 38,961 (4,397) (1,648) $ 32,916 – – – – – $ $ 32,916 $ 0.29 0.26 113,554 126,462 2005 $ 71,946 15,692 87,638 (71,348) (2,657) 13,633 1,574 506 34 – – 2,161 2,412 – – (10,548) 3,175 1,075 6,347 1,129 – 7,865 5,768 4,099 13,423 $ 23,290 – – – – – $ $ 23,290 $ 0.23 0.21 100,022 110,733 Page 34 Taseko Mines Limited 2007 Annual Report Consolidated Statements of Cash Flows (Expressed in thousands of Canadian Dollars, except for per share and share amounts) Operating activities Earnings for the year Items not involving cash Asset retirement obligation change in estimate 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 loss (gain) Gain on sale of marketable securities Change in fair value of financial instruments Changes in non-cash operating working capital Accounts receivable Advances to related parties 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 in) operating activities Investing activities Purchase of property, plant and equipment Purchase of mineral property interest (note 8(f)) Proceeds received on sale of property, plant and equipment Restricted cash Reclamation deposits Accrued interest income on reclamation deposits Investments Proceeds from redemption and disposal of investments Investment in convertible promissory note Cash provided by (used in) investing activities Financing activities Principal repayments under capital lease obligation Bank operating loan Common shares issued for cash, net of issue costs Convertible bonds issued, net of issue costs Cash provided by financing activities Increase (decrease) 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. 2007 $48,262 (4,570) 1,777 3,155 2,922 – – 6,771 35,645 (3,307) (1,508) 1,925 (2,679) (833) 6,160 152 (1,270) 8,499 (19,759) (1,371) 6,175 (167) 85,979 (127,032) (1,800) – (4,400) (20) (1,791) (21,564) 16,999 – (139,608) – – 1,857 – 1,857 (51,772) 89,408 $ 37,636 Years ended September 30 2006 $ 32,916 1,732 3,412 1,280 240 – 3,182 1,648 49 – – (2,596) 89 (3,344) 693 (4,311) 8,789 4,836 1,463 5,399 (71) 55,406 (16,146) – – 5,000 (13,000) (723) – – (11,500) (36,369) (15,077) – 31,893 31,826 48,642 67,679 21,729 $ 89,408 2005 $ 23,290 1,574 2,657 1,075 – 2,161 1,129 (13,423) – – – (3,980) – (20,874) (1,704) (4,145) (1,301) 14,398 1,433 (4,099) – (1,809) (8,264) – 22,068 (5,000) – (634) – – – 8,170 (7,274) (1,857) 9,606 – 475 6,836 14,893 $ 21,729 Page 35 Consolidated Statements of Shareholders’ Equity (Expressed in thousands of Canadian Dollars, except for per share and share amounts) Year ended September 30, 2007 Year ended September 30, 2006 Year ended September 30, 2005 Number of shares 128,388,175 – – – – – – 409,833 75,000 – – – – 233,300 244,000 20,000 27,500 48,000 Number of shares 103,457,316 – – – – 1,500,000 – 451,833 60,000 1,970,000 3,405,500 10,000 – 33,333 7,500 – – – $ 197,592 – – – – – – 471 97 – – – – 483 532 53 74 147 Number of shares 94,767,619 50,000 100,000 20,000 22,500 610,000 45,000 – – 270,000 44,500 – 10,000 – – – – – $ 160,830 – – – – 825 – 520 77 2,679 4,768 15 – 69 16 – – – 1,134,730 3,805 – – – – – – – – – 1,786 – – – – – – 375,000 3,913,332 8,000,000 5,204,361 4,869 150 2,935 11,200 8,639 – – 2,313,336 – – – – 5,204,361 $ 150,481 13 30 8 9 336 36 – – 367 62 – 17 – – – – – – 743 – 1,735 – – 6,994 130,580,538 $ 205,040 128,388,175 $ 197,592 103,457,316 $ 160,830 13,655 – $ 13,655 $ 26,642 3,648 6,771 (1,786) $ 8,633 – (419) 4,710 (1,508) (445) $ 2,338 (140,603) (307) 48,262 $ (92,648) $ 163,660 9,823 3,832 13,655 $ $ 26,642 5,335 3,182 (4,869) $ 3,648 – – – – – – $ (173,519) – 32,916 $ (140,603) $ 100,934 9,823 – 9,823 $ $ 26,642 4,948 1,129 (742) $ 5,335 – – – – – – $ (196,809) – 23,290 $ (173,519) $ 29,111 Common shares Balance at beginning of 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 $1.15 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 $1.65 per share Share purchase options at $2.07 per share Share purchase options at $2.18 per share Share purchase options at $2.63 per share Share purchase options at $2.68 per share Share purchase options at $3.07 per share Share issued for the purchase of mineral property interest (note 8(f)) 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 Private placement at $1.45 per share, net of issue costs Balance at end of the year Equity component of convertible debt Balance at beginning of the period Convertible bonds - August 2006 Balance at end of the year Tracking preferred shares Balance at beginning and end of the year Contributed surplus Balance at beginning of the year Stock-based compensation Fair value of stock options allocated to shares issued on exercise Balance at end of the year Accumulated other comprehensive income Balance at beginning of the year Unrealized loss on reclamation deposits Unrealized gains on available-for-sale marketable securities (note 6) Reclassification of realized gain on sale of marketable securities Tax effect Balance at end of the year Deficit Balance at beginning of the year, as originally reported Adjustment to opening deficit - change in accounting policy (note 4) Net earnings for the year Balance at end of the year TOTAL SHAREHOLDERS’ EQUITY See accompanying notes to consolidated financial statements. Page 36 Taseko Mines Limited 2007 Annual Report //Notes to Consolidated Financial Statements 1. NATURE OF OPERATIONS Taseko Mines Limited (“Taseko” or the “Company”) is a public recorded on final settlement. Cash received in advance of meeting these revenue recognition criteria is recorded as deferred revenue. company incorporated under the laws of the Province of British At September 30, 2007, the Company had deferred revenues of $Nil Columbia. At September 30, 2007, the Company’s principal business (2006 – $19,584) pertaining to cash received in advance of title activities related to the operations of the Gibraltar Copper Mine, and and risk passing to the customer. exploration on the surrounding properties as well as exploration on the Company’s 100% owned Prosperity Gold-Copper Property, Harmony Gold Property and Aley Niobium 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. The Aley Niobium property is located in north eastern British Columbia, near the city of Mackenzie. 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. Under the Company’s concentrate sales contracts, final copper and molybdenum prices are set based on a specified future quotational period and the market metal price in that period. Typically, the quotational period for copper is four months after the date of arrival at the port of discharge and for molybdenum is one month after the month of shipment. Revenues are recorded under these contracts at the time title passes to the buyer and are based on the forward price for the expected settlement period. The contracts, in general, provide for a provisional payment based upon provisional assays and quoted metal prices. Final settlement is based on the average applicable price for a specified future period, and generally occurs from one to five months after shipment. The price adjustment features in the Company’s receivables are treated as embedded derivatives for accounting purposes and as such, are marked-to-market through earnings from the date of sale through the date of final pricing. 3. SIGNIFICANT ACCOUNTING POLICIES (a) Cash and equivalents Cash and equivalents consist of cash and highly liquid investments, (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 and net realizable having maturity dates of three months or less from the date value. Production costs include the cost of raw materials, direct of acquisition, that are readily convertible to known amounts of labour, mine-site overhead expenses and depreciation. cash. At September 30, 2007, of the $37,636 cash and cash equivalents held by the Company, $34,717 (US$34,898) were held in United States-dollar-denominated cash and equivalents (2006 – $81,560 (US$72,959)). (b) Revenue recognition Revenue from the sales of metal in concentrate is recognized when 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 persuasive evidence of a sales agreement exists, the title and risk is replacement cost. 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 Copper cathode inventory consist of finished goods in the form of copper cathode sheets. Copper cathode inventory is valued at the lower of average production cost and net realizable value. Page 37 (d) Plant and equipment Plant and equipment are stated at cost less accumulated amortization. amortized over the estimated life of the property, or written off to operations if the property is abandoned, allowed to lapse, or if there Mining and milling assets are amortized using the units of production is little prospect of further work being carried out by the Company or method based on tons mined and milled, respectively, divided by the its option or joint venture partners. estimated tonnage to be recovered in the mine plan. During the year, the Company extended the life of its Gibraltar mine. Consequently, the useful life over which the Company’s mining and milling assets are depreciated has been extended to reflect their additional use from an extended mine life. 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 Mineral property acquisition costs include 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. are charged to operations as incurred. Major improvements and Costs related to feasibility work and the development of processing replacements which extend the useful life of the asset are capitalized technology are expensed as incurred. Costs incurred subsequent to as incurred. The costs of removing overburden material to access mineral reserve the determination of the feasibility of the processing technology will be capitalized and amortized over the life of the related plant. deposits, referred to as “pre-stripping costs” are accounted for as Administrative expenditures are expensed as incurred. variable production costs to be included in the cost of inventory produced, unless the overburden removal activity can be shown to be a betterment of the mineral property, in which case these costs are capitalized. Betterment occurs when the overburden removal activity provides access to additional sources of mineral deposit reserves that will be produced in future periods which would not have otherwise been accessible in the absence of the pre-stripping activity. These deferred costs are amortized using the units of production basis to cost of sales over the life of the mineral deposit reserves. (e) 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 The amount presented for mineral property interests represents costs incurred to date and accumulated acquisition costs, less write- downs and accumulated amortization, and does not necessarily reflect present or future values. (f) 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. mining operations are charged to operations as incurred. Exploration These obligations are measured initially at fair value and the resulting expenditures incurred subsequent to the mining operations which do costs are capitalized to the carrying value of the related asset. In not increase production or extend the life of operations are expensed subsequent periods, the liability is adjusted for the accretion of the in the period incurred. The Company capitalizes development expenditures which have (a) a probable future benefit which the Company can obtain, (b) result from a past transaction, and (c) occur on property controlled by the Company on mineralized ore bodies that have, or are determined to have as a result of these costs, economically mineable mineral reserves. Acquisition costs and development expenditures are 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 Page 38 Taseko Mines Limited 2007 Annual Report asset. In the event the required decrease in the asset retirement cost is in excess of the carrying value, the excess amount is recorded as Income taxes (j) The Company uses the asset and liability method of accounting for a change in estimate in the statement of operations. income taxes. Under this method, future income tax assets and liabilities are computed based on differences between the carrying (g) Impairment of long-lived assets Long-lived assets, including mineral properties, plant and equipment, amounts of assets and liabilities on the balance sheet and their corresponding tax values, generally using the substantively enacted are reviewed for impairment whenever events or changes in or enacted income tax rates expected to apply to taxable income circumstances indicate that the carrying amount of an asset may in the years in which those temporary differences are expected to not be recoverable. Recoverability of assets to be held and used is be recovered or settled. Future income tax assets also result from measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated unused loss carry forwards, resource-related pools, and other deductions. Future tax assets are recognized to the extent that they by the asset. If the carrying amount of an asset exceeds its estimated are considered more likely than not to be realized. The valuation of future cash flows, an impairment charge is recognized by the amount future income tax assets is adjusted, if necessary, by the use of a by which the carrying amount of the asset exceeds the fair value of valuation allowance to reflect the estimated realizable amount. the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount and (k) Functional currency and foreign currency the fair value less costs to sell, and are no longer amortized. translations (h) Share capital The Company records proceeds from share issuances net of issue The Company’s functional currency is the Canadian dollar as the Canadian dollar is the currency of the primary economic environment in which the Company operates. While the Company receives its metal costs. Shares issued for consideration other than cash are valued at sales revenues in United States dollars, the majority of the Company’s the quoted market price on the date of issue. supplies, labor, and services are denominated in Canadian dollars. All The proceeds, net of issue costs, from common shares issued pursuant to flow-through share financing agreements are credited to of the business operations of the Company are located in Canada. A majority of the Company’s financings are in Canadian dollars. share capital and the tax benefits of these exploration expenditures Foreign currency monetary assets and liabilities are translated into are transferred to the purchaser of the shares. Canadian dollars at the exchange rate in effect at the balance sheet (i) Stock-based compensation The Company has a share option plan which is described in note translated into Canadian dollars at the rate of exchange prevailing on the respective dates of the transactions. Foreign exchange gains and losses 14(b). The Company records all stock-based payments granted on are included in earnings. date. Non-monetary assets, liabilities, revenues and expenses are or after October 1, 2002 using the fair value method. For operations considered self-sustaining, of which the Company has Under the fair value method, stock-based payments are measured none, foreign currency assets and liabilities are translated into Canadian at the fair value of the consideration received or the fair value of the dollars at the exchange rate in effect at the balance sheet date. Revenues equity instruments issued or liabilities incurred, whichever is more and expenses are translated at the average rate for the fiscal period. reliably measurable, and are charged to operations over the vesting The resulting foreign exchange gains and losses are accumulated in period. The offset is credited to contributed surplus. a separate component of shareholders’ equity until there has been a Consideration received on the exercise of stock options is recorded as share capital and the related contributed surplus is transferred to share capital. realized reduction in the net investment in such operations. Page 39 (l) Earnings per common share Basic earnings per common share is based on the weighted average (o) Segment disclosures The Company operates in a single reportable operating segment, the number of common shares outstanding during the period. exploration, development and operation of mineral property interests, Diluted earnings per share is calculated using the treasury stock method, whereby all “in the money” options, warrants and equivalents are assumed to have been exercised at the beginning of the period and the proceeds from the exercise are assumed to have been used to purchase common shares at the average market price during the year. Dilution for convertible bonds and debentures is calculated on an if-converted basis. (m) 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 within the geographic area of British Columbia, Canada. (p) Comparative figures Certain of the prior years’ comparative figures have been restated to conform with the presentation adopted for the current year. 4. CHANGES IN ACCOUNTING POLICY Effective October 1, 2006, the Company adopted the following new accounting standards issued by the Canadian Institute of Chartered Accountants (“CICA”) relating to financial instruments. As required by the transitional provisions of these new standards, these new standards have been adopted on a prospective basis with no restatement to prior period financial statements. (a) Financial Measurement (Section 3855) Instruments – Recognition and majority of the VIE’s expected losses, receive the majority of its This standard sets out criteria for the recognition and measurement expected residual returns, or both. (n) Use of estimates The preparation of financial statements requires management to make of financial instruments for fiscal years beginning on or after October 1, 2006. This standard requires all financial instruments within its scope, including derivatives, to be included on a Company’s balance sheet and measured either at fair value or, in certain circumstances estimates and assumptions that affect the reported amounts of assets when fair value may not be considered most relevant, at cost or and liabilities and the disclosure of contingent assets and liabilities amortized cost. Changes in fair value are to be recognized in the at the date of the financial statements and the reported amounts of statements of operations or accumulated other comprehensive revenue and expenses during the reporting year. Significant areas income, depending on the classification of the related instruments. requiring the use of management estimates relate to the impairment of mineral property interests and plant and equipment, the balances of reclamation liability, 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. All financial assets and liabilities are recognized when the entity becomes a party to the contract creating the asset or liability. As such, any of the Company’s outstanding financial assets and liabilities at the effective date of adoption are recognized and measured in accordance with the new requirements as if these requirements had always been in effect. Any changes to the fair values of assets and liabilities prior to October 1, 2006 are recognized by adjusting opening deficit or opening accumulated other comprehensive income. All financial instruments are classified into one of the following categories: held for trading, held-to-maturity, loans and receivables, Page 40 Taseko Mines Limited 2007 Annual Report available-for-sale financial assets, or other financial liabilities. Initial • Reclamation deposits invested in government bonds and and subsequent measurement and recognition of changes in the treasury bills are classified as available-for-sale securities and are value of financial instruments depends on their initial classification: carried at fair market value, with the unrealized gain or • Held-to-maturity investments, loans and receivables, and other financial liabilities are initially measured at fair value and subsequently measured at amortized cost. Amortization of premiums or discounts and losses due to impairment are included in current period net earnings. • Available-for-sale financial assets are measured at fair value. Changes in fair value are included in other comprehensive income until the gain or loss is recognized in income. • Held for trading financial instruments are measured at fair value. All changes in fair value are included in net earnings in the period in which they arise. • All derivative financial instruments are measured at fair value, even when they are part of a hedging relationship. Changes in fair value are included in net earnings in the period in which they arise, except for hedge transactions which qualify for hedge accounting treatment in which case gains and closes are loss recorded in shareholders’ equity as a component of other comprehensive income. These amounts will be reclassified from accumulated other comprehensive income to net earnings when the investment is sold. Previously, reclamation deposits were carried at cost, less provision for other than a temporary decline in value. • Promissory note relating to the Red Mile Resources No. 2 Limited Partnership Agreement (“Red Mile”) is classified as a loan and receivable. • Convertible bonds and debenture are classified as held-to maturity and are measured at amortized costs. • In accordance with this new standard, deferred financing costs relating to the issuance of the convertible bonds are no longer presented as a separate asset on the balance sheet and are now included in the carrying value of the term loan, and are amortized to interest expense using the effective interest rate method. recognized in other comprehensive income. The carrying amounts of cash and equivalents, accounts receivable, In accordance with this new standard, the Company has classified its financial instruments as follows: • Marketable securities are classified as available-for-sale securities. Such securities are measured at fair market value in the consolidated financial statements with unrealized gains or losses recorded in comprehensive income. At the time securities are sold or otherwise disposed of, gains or losses are included in net earnings. restricted cash, reclamation deposits, and accounts payable and accrued liabilities approximate their fair values due to their short term nature. 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 • The Company’s investment in a convertible promissory note market for such instruments. of Continental Minerals Corporation (“Continental”) contained an embedded derivative which required separation from the host contract and was measured at fair value. This change in accounting policy resulted in a mark-to-market adjustment of $307 to deficit and a similar increase to the carrying value of the Company’s investment in Continental at October 1, 2006. In February 2007, the Company redeemed the convertible promissory note for cash (note 6). Page 41 (b) Hedging (Section 3865) This new standard specifies the circumstances under which hedge statement that is displayed with the same prominence as the other financial statements. Accumulated other comprehensive income is accounting is permissible and how hedge accounting may be presented as a new category in shareholders’ equity. performed. The Company currently does not have any financial instruments which qualify for hedge accounting. (c) Comprehensive Income (Section 1530) is Comprehensive the change income in the Company’s shareholder equity that results from transactions and other events from other than the Company’s shareholders and includes items that would not normally be included in net earnings, such as unrealized gains or losses on available-for-sale investments. This standard requires certain gains and losses that would otherwise be recorded as part of net earnings to be presented in other “comprehensive income” until it is considered appropriate to recognize into net earnings. This standard requires the presentation of comprehensive income, and its components in a separate financial 6. MARKETABLE SECURITIES AND INVESTMENTS Accordingly, the Company now reports a consolidated statement of comprehensive income and includes the account “accumulated other comprehensive income” in the shareholders’ equity section of the consolidated balance sheet. 5. INVENTORY Copper concentrate Ore in process Materials and supplies Copper cathode September 30 2007 September 30 2006 $ 6,623 2,320 8,510 605 $ 16,213 2,114 5,891 – $ 18,058 $ 24,218 Continental Minerals Corporation – Common shares Continental Minerals Corporation – Warrants Investment in other public companies Continental Convertible Promissory Note Cost $ 9,880 3,118 4,574 $ 17,572 Cost $ 11,500 Unrealized Gain/(Loss) As at September 30, 2007 Fair Value $ 2,566 (2,232) 636 $ 970 $ 12,446 886 5,210 $ 18,542 Unrealized Gain/(Loss) As at September 30, 2006 Fair Value $ – $ 11,500 At September 30, 2006, the Company held a convertible promissory proceeds were used to subscribe for 7,318,182 equity units (“Units”) note (“Note”) of Continental Minerals Corporation (“Continental”), a of Continental at a price of $1.65 per Unit. Each Unit consisted of one public company which is a related party by virtue of certain common common share of Continental and one Continental common share directors. The Note contained a right to participate in Continental’s purchase warrant, exercisable at a price of $1.80 per share for a equity financings at a 5% discount to the price paid by other parties in one year period from the completion of the financing, thus expiring the financing. In February 2007, the Company redeemed the Note and February 20, 2008. The proceeds paid for the Units were allocated exercised its pre-emptive right to participate in Continental’s equity to the common shares and warrants received of Continental based on financing. The Company received the principal amount of the Note the pro-rated fair value of the common shares ($9,880) and warrants ($11,500) plus a 5% premium, for total proceeds of $12,100. The ($3,118) at the time of the financing. Page 42 Taseko Mines Limited 2007 Annual Report At September 30, 2007, the estimated fair value of the Continental then average 20 day trading price of the common shares of Taseko warrants was estimated at $886 (using an expected volatility of 48%, and $10.00. The Taseko common shares to be issued to Continental a risk free interest rate of 3.90%, expected dividends of nil and a upon a realization event will in turn be distributed pro-rata, after remaining life of approximately 0.4 years). Consequently, a mark-to- adjustment for any taxes, to the holders of redeemable preferred market adjustment of $2,232 was charged to operations. shares of Continental that were issued to Continental shareholders at As at September 30, 2007, the Company held 7,827,726 common shares and 7,318,182 share purchase warrants of Continental. In February 2007, the Company sold 3,234,900 common shares of bcMetals Corporation (“bcMetals”), a public corporation listed on the TSX Venture Exchange for $5,500 and a realized gain of $1,508. The shares of bcMetals were acquired over the period from November 2006 to February 2007. 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 the time of the Arrangement Agreement. 8. MINERAL PROPERTY INTERESTS Gibraltar Copper Mine (note 8(a)) Prosperity Gold-Copper Property (note 8(b)) Harmony Gold Property (note 8(c)) Aley Niobium Property (note 8(f)) September 30, 2007 September 30, 2006 $ 10,062 $ 2,626 1 1 8,343 $ 18,407 1 1 – $ 2,628 Property and related assets from Continental, for 12,483,916 series “A” non-voting tracking preferred shares of Gibraltar and $2,230 (a) Gibraltar Copper Mine In July 1999, the Company acquired a 100% interest in the Gibraltar cash. The tracking preferred shares were recorded at $26,642 and Copper Mine mineral property, located near Williams Lake, British are designed to track and capture the value of the Harmony Gold Columbia, Canada from Boliden Westmin (Canada) Limited (“BWCL”) Property and will be redeemed for common shares of Taseko upon for $3,325. The acquisition of the Gibraltar mine, which had been a realization event, such as a sale of the Harmony Gold Property on care and maintenance since 1998, included plant and equipment to a third party or commercial production at the Harmony Gold and supplies inventory of the Gibraltar mine, and $8,000 of funds set Property or, at the option of Gibraltar, if a realization event has not aside for future reclamation. As part of its 1999 operating permits, the occurred within ten years. Accordingly, the tracking preferred shares Company had agreed to incur a total of $4,000 on reclamation and have been classified within shareholders’ equity on the consolidated environmental programs during the six year period July 1999 to July 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 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 $4,000 reclamation obligation required under the 1999 operating permits. $0.25 per year, currently at $5.14 (as of September 30, 2007). If The agreement contained certain indemnification clauses. The a realization event does not occur on or before October 16, 2011, $8,000 of funds set aside for future reclamation were considered a Gibraltar has the right to redeem the tracking preferred shares for “Qualified Environmental Trust” for Canadian income tax purposes. Taseko common shares at a deemed price equal to the greater of the Page 43 During the year ended September 30, 2003, the Government of In May 2005, the Company entered into an option agreement with British Columbia released these funds from the Trust, which resulted Amarc Resources Ltd ("Amarc"), a public company with certain in an income inclusion to the Company, and consequently resulted in directors in common with Taseko, for Amarc to earn a 50% interest the Company utilizing $3,570 of tax pools otherwise available to it. in the Wasp and Anvil properties currently held by Taseko, which The Company has made a claim to BWCL for this estimated tax liability are located approximately 15 kilometers southeast of the Company's under the indemnification terms of the agreement. No amount has Prosperity project. Amarc was the operator and could have acquired been recognized in these consolidated financial statements related to its interest by incurring $150 of exploration expenditures over a two 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 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. and the operating of the mine in addition to other aspects of mine The Company does not believe there has been a fundamental operations, including drilling, blasting, loading and hauling of ore and change in the nature of the Harmony Gold Property; however, as the waste as well as the recruitment of personnel and the maintenance Company had not conducted significant exploration or development of equipment and facilities. Pursuant to the agreement, the Company on the property in the last several years the Harmony Gold Property was required to maintain a bank account with a balance of at least was written down to a nominal value of $1 during the year ended $5,000 in a “product revenue account”, for the purposes of providing September 30, 2004. 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 $5,800 and a second charge on certain mine (d) Gibraltar Reclamation Trust Limited Partnership (“GRT Partnership”) equipment with an appraised fair value of at least $5,800. In December 2003, the GRT Partnership completed a private placement of limited partnership units for aggregate proceeds of $18,600, 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 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 assumed responsibility as operator of the Gibraltar mine and paid to Ledcor a termination fee of $3,500. This termination fee was accrued for in the consolidated financial statements for the year ended September 30, 2006 and was paid during the year ended September 30, 2007. (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 $28,660 cash and share consideration to acquire the Prosperity property was written down to a nominal $1 value in fiscal 2001, to reflect the extended depressed conditions in the metals markets at that time. Page 44 Taseko Mines Limited 2007 Annual Report In March 2004, the Company issued 7,967,742 common shares at Annual royalties will be payable by Gibraltar to Red Mile at rates $2.79 per share for total consideration of $22,230 to acquire all of ranging from $0.01 per pound to $0.14 per pound of copper produced the units of the GRT Partnership. In conjunction with this agreement, during the period from the commencement of commercial production certain directors and officers of the Company personally guaranteed (as defined in the agreement) to the later of (i) December 2014 and certain obligations to third parties on behalf of the Company to the (ii) five years after the end of commercial production from the mine. extent of $4,500. In consideration for the guarantee, the Company For the year ended September 30, 2007, Gibraltar paid a royalty of issued 225,000 common shares at $2.00 per share to those $0.0555 (2006 – $0.0607) per pound of copper produced to Red directors and officers. Mile. Gibraltar is entitled to have released to it funds held under the promissory note and interest thereon to fund its royalty obligations to (e) Royalty Agreement (promissory note and the extent of its royalty payment obligations. 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 cash, which cash was received on September 29, 2004. These funds were subsequently invested in a promissory note with a trust company and the Company pledged the promissory note along with interest earned and to be earned thereon for a total of $70,200 to secure its royalty obligations under the agreements. At September 30, 2007, the promissory note amounted to $74,436 (2006 – $73,166), of which $2,086 (2006 – $2,157) is current, while the royalty obligation amounted to $65,416 (2006 – $66,789) of which $2,086 (2006 – $2,157) is current. The Company has a pre-emptive 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 pre-emptive 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 Pursuant to the agreements, the Company received an aggregate of copper averages US$2.75 to US$2.99 per pound and 4% if the of $10,500 in fees and interest for services performed in relation price of copper averages US$3.00 per pound or greater for any to the Red Mile transaction, of which $5,250 was received in each year during that period. The US-dollar pricing amounts specified of September and December of 2004, and included in interest and above are based upon an exchange rate of US$0.75 for Cdn$1.00, other income. The amount of $5,250 received in September 2004 included $1,750 for indemnifying an affiliate of Red Mile from any claims relating to a breach by Gibraltar under the royalty agreement. The funds received 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, 2007. in respect of the indemnification are presented as deferred revenue, In accordance with AcG15, the Company has determined that the and are recognized over the expected remaining life of the royalty royalty agreement created certain variable interest entities for which agreement, with $1,225 (2006 – $1,400) remaining as deferred the Company holds a variable interest. However, as the Company is as at September 30, 2007, of which $175 (2006 – $175) is classified not the primary beneficiary under the agreement, it is not required to as current. consolidate any of such entities. Page 45 (f) Aley Niobium Property In June 2007, the Company completed the acquisition of all the issued Cash and outstanding shares in the capital of a private company with a Issuance of 1,134,730 common shares project in northeastern British Columbia, Canada (“the Transaction”), Issuance of 120,000 warrants for a total cash consideration to the acquired company’s shareholders Total purchase consideration Amount (in 000’s) $ 1,800 3,642 163 $ 5,605 of $1,500 as well as a share settlement to the value of $2,970 (consisting of 894,730 common shares). In the above Transaction, the Company also purchased the residual net smelter royalties from Teck Cominco Metals Limited (“Teck”) for a total cash consideration to Teck of $300 and the issuance of units with a value of $835 (consisting of 240,000 common shares and 120,000 warrants). Each warrant is exercisable into one common share at $3.48 until June 4, 2009. The following table summarizes the total purchase consideration of Aley and the NSR: The total acquisition price has been allocated to the net assets Current assets Mineral property interests Current liabilities Future income taxes Total consideration paid, being cash, common shares and units Amount (in 000’s) $ 79 8,343 (123) (2,694) $ 5,605 The results of operations of this acquired company have been included in the Company’s consolidated financial statements from the date of the acquisition. 9. MINERAL PROPERTIES, PLANT AND EQUIPMENT Plant and equipment - Gibraltar Mine Buildings and equipment Mine equipment Plant and equipment Vehicles Computer equipment Land Cost $ 6,115 62,056 73,260 1,511 3,178 402 Deferred pre-stripping costs 32,949 Asset retirement costs (note 13) 1,426 September 30, 2007 Accumulated Amortization Net Book Value September 30, 2006 Accumulated Amortization Cost $ 1,905 $ 4,210 $ 6,060 $ 1,443 9,216 1,698 753 2,225 – – – 52,840 71,562 758 953 402 32,949 1,426 35,680 14,637 992 1,766 152 285 – 7,494 1,223 498 915 – – – Net Book Value $ 4,617 28,186 13,414 494 851 152 285 – Total Gibraltar mine $ 180,897 $ 15,797 $ 165,100 $ 59,572 $ 11,573 $ 47,999 Mineral property interests (note 8) Net asset retirement obligation adjustment Mineral properties, plant and equipment $ 18,407 $ (6,609) $ 176,898 $ 2,628 $ (7,182) $ 43,445 As at September 30, 2007, approximately $94,656 (2006 – $8,600) of plant and equipment is under construction and not being amortized. Page 46 Taseko Mines Limited 2007 Annual Report 10. RESTRICTED CASH In February 2007, Taseko issued a standby letter of credit, (b) Hunter Dickinson Group Inc. is a private company with certain directors in commonthat provided consulting services to collateralized by cash in the amount of $4,400, to British Columbia the Company. Hydro and Power Authority (“B.C. Hydro”) to provide security for costs to be incurred by BC Hydro relating to the electrical system reinforcements required for the Gibraltar Expansion Project in accordance with “Credit Support Agreement” between Gibraltar and B.C. Hydro. Under the agreement, the Company is required to submit a standby letter of credit as a guarantee in the amount of $4,400 in order for B.C. Hydro to initiate procurement of major equipment as part of systems reinforcements. The letter of credit will be released over time, as Gibraltar consumes power. 11. RELATED PARTY TRANSACTIONS AND ADVANCES Related party transactions not disclosed elsewhere in these consolidated financial statements are as follows: Years ended September 30 Services rendered and expenses reimbursed Hunter Dickinson Inc. (a) $ 4,936 $ 2,869 $ 1,223 Hunter Dickinson Group Inc. (b) – – 13 Advances to related party Hunter Dickinson Inc. (a) (c) September 30 2007 $ 807 September 30 2006 – (c) Advances are non-interest bearing and due on demand. 12. CONVERTIBLE DEBT September 30 2007 September 30 2006 Liability Component Convertible Bonds – August 2006 Convertible Debenture – Boliden $ 26,693 14,315 Convertible Debt – Liability Component $ 41,008 Equity Component Convertible Bonds – August 2006 $ 3,832 Convertible Debenture – Boliden 9,823 Convertible Debt – Equity Component $ 13,655 $ 29,761 3,013 $ 42,774 $ 3,832 9,823 $ 13,655 (a) Convertible Bonds – August 2006 On August 29, 2006 (the “Closing”), the Company issued US$30,000 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. Advances from related party September 30 2007 Hunter Dickinson Inc. (a) (c) – September30 2006 $ 26 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) Hunter Dickinson Inc. (“HDI”) is a private company owned equally a conversion price of US$3.35, or up to 8,955,224 common shares by nine public companies, one of which is Taseko. HDI has certain of the Company, which was a premium of approximately 40% over directors in common with the Company and provides geological, the trading price of the Company’s shares at the time of Closing. At corporate development, administrative and management services any time after September 12, 2008, the Company will have the right to, and incurs third party costs on behalf of, the Company and its to call for the conversion of the Bond into the number of shares as set subsidiaries on a full cost recovery basis pursuant to an agreement out above, so long as the Company’s shares trade at least 50% above dated December 31, 1996. The liability of advances from related the conversion price for at least 20 business days in any period of 30 party at September 30, 2006 was recorded in accounts payable consecutive business days. On August 29, 2009, the Bondholders and accrued liabilities. have a one time right to redeem the Bonds at 100.60%. Page 47 For accounting purposes, the Bonds contain both a liability component component was determined by discounting the stream of future and an equity component, being the holder’s conversion right, which payments of interest and principal at the estimated prevailing market have been separately presented in the consolidated balance sheets. rate of 10.5% for a comparable debt instrument that excluded any The Company has allocated the US$30,000 face value of the Bonds conversion privilege by the holder. The residual carrying value of to the liability and equity components. At issuance, the Company the Bonds is required to be accreted to the redemption value of estimated the fair value of the conversion option by deducting the the Bonds to the first redemption date of the Bonds based on an present value of the future cash outflows of the Bonds from the effective annual interest rate of 12%. face value of the principal of the Bonds. The fair value of the liability For the year ended September 30, 2007, interest and accretion relating to the debt totaled $3,989 (2006 – $296). The continuity of the Bond is as follows: Year ended September 30, 2007 Year ended September 30, 2006 Present value of convertible bonds Beginning of period Unrealized foreign exchange loss (gain) Finance cost reclassification (note 4(a)) Accretion for the year End of period Conversion right Convertible bonds Convertible Bonds Summary of the convertible bond terms Principal amount of convertible debenture Price per common share of the unexercised conversion right Number of common shares potentially issuable under unexercised conversion right $ 29,761 (3,306) (1,382) 1,620 26,693 3,832 $ 30,525 $ 29,399 265 – 97 29,761 3,832 $ 33,593 September 30, 2007 September 30, 2006 US$ 30,000 US$ 3.35 8,955,224 US$ 30,000 US$ 3.35 8,955,224 (b) Convertible Debenture – Boliden On July 21, 1999, in connection with the acquisition of the Gibraltar 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 mine, the Company issued a $17,000 interest-free debenture the Company from year one to year ten, but has not requested any to BWCL, which is due on July 21, 2009, but is convertible into conversions to date. 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 ($5.14 per share as at September 30, 2007). BWCL’s purchase of the convertible debenture was receivable as to $4,000 in July 1999, $1,000 on October 19, 1999, $3,500 on July 21, 2000, and $8,500 by December 31, 2000, all of which 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. Page 48 Taseko Mines Limited 2007 Annual Report Accounting standards in Canada for compound financial instruments 13. SITE CLOSURE AND RECLAMATION require the Company to allocate the proceeds received from the OBLIGATIONS convertible debenture between (i) the estimated fair value of the The continuity of the provision for site closure and reclamation costs holder’s option to convert the debenture into common shares and related to the Gibraltar mine is as follows: (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, 2007 September 30, 2006 Year ended Present value of convertible debenture Beginning of period Accretion for the period End of period Conversion right Convertible debenture $ 13,013 1,302 14,315 9,823 $ 24,138 $ 11,830 1,183 13,013 9,823 $ 22,836 Boliden convertible debenture Year ended September 30, 2007 September 30, 2006 Year ended Summary of the convertible debenture terms Principal amount of convertible debenture Price per common share of the unexercised conversion right Number of common shares potentially issuable under unexercised conversion right Balance, September 30, 2004 Changes during fiscal 2005: Accretion expense Balance, September 30, 2005 Changes during fiscal 2006: Reclamation incurred Accretion expense Balance, September 30, 2006 Changes during fiscal 2007: Reclamation incurred Accretion expense Additional site closure and reclamation obligation recognized Reduction in the present value of reclamation liability due to an extension in mine life Balance, September 30, 2007 $ 15,740 1,574 17,314 (71) 1,732 18,975 (167) 1,777 4,449 (7,593) $ 17,441 During the year ended September 30, 2007, the value of the underlying site closure and reclamation obligation was revised to reflect an increase in the life of the Gibraltar mine. This change resulted in a revision to the timing of undiscounted cash flows associated with the carrying amount of the liability and a reduction in the present value of the site closure and reclamation obligation. Also during the year ended September 30, 2007, the Company increased its estimated reclamation costs to reflect higher than anticipated costs, a higher market risk premium and an increased area of disturbance during the $ 17,000 $ 17,000 $ 5.14 $ 4.89 year. The impact of these changes in estimates are: 3,307,393 3,476,482 • an increase to asset retirement costs included in mineral properties, plant and equipment and corresponding increase to reclamation obligation of $4,449 (2006 – $Nil). • a decrease of $7,593 (2006 – $Nil) in the present value of the reclamation obligation due to an extension in the mine life. • a gain of $4,570 (2006 – $Nil) resulting from a decrease in the asset retirement cost in excess of its carrying value. Page 49 The new estimated amount of the reclamation costs, adjusted for 14. SHARE CAPITAL estimated inflation at 2.2% to 2.5% per year, in 2022 dollars, is $68,400 (2006 – $49,400) and is expected to be spent over a period of approximately three years beginning in 2022. The credit- adjusted risk free rates at which the estimated future cash flows have been discounted at 7.1% to 10%, which results in a net present value of $17,441 (2006 – $18,975). The accretion for the year ended September 30, 2007 of $1,777 (2006 – $1,732) is charged to the statement of operations. (a) Authorized Authorized share capital of the Company consists of an unlimited number of common shares without par value. (b) Share purchase option plan The Company has a share purchase option compensation plan (the “Plan”) approved by the shareholders that allows it to grant options, subject to regulatory terms and approval, to its directors, As required by regulatory authorities, at September 30, 2007, the employees, officers, and consultants. The Plan is based on a maxi- Company had cash reclamation deposits totaling $33,396 (2006 – mum number of eligible shares equaling a rolling percentage of up $32,004) comprised of $33,186 (2006 – $31,814) for the Gibraltar to 10% of the Company’s outstanding common shares, calculated mine, $30 (2006 – $15) for the Prosperity project, $175 (2006 from time to time. Pursuant to the Plan, if outstanding options are – $175) for the Harmony project and $5 (2006 – $Nil) for the Aley exercised, or expire, and/or the number of issued and outstand- Niobium Project. These deposits are invested in government bonds ing common shares of the Company increases, the options avail- and treasury bills and bear interest at rates ranging from 3.05% to able to grant under the Plan increase proportionately. The exercise 11% per annum. price of each option is set by the Board of Directors at the time of grant and cannot be less than the market price (less permissible dis- counts) on the Toronto Stock Exchange. Options may have a term of up to ten years and typically terminate 30 days following the termina- tion of the optionee’s employment, except in the case of retirement or death. Vesting of options is at the discretion of the Board 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) Number of shares 3,578,834 3,301,500 (1,057,633) (115,334) 5,707,367 2007 Average Price $ 1.78 3.21 1.76 2.20 $ 2.60 3.40 Number of shares 9,280,500 2,159,500 (7,438,166) (423,000) 3,578,834 2006 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 2005 Average Price $ 1.13 1.15 0.75 1.47 $ 1.17 1.69 Range of exercise prices $1.15 - $4.09 $1.15 - $ 2.68 $0.55 - $1.50 Page 50 Taseko Mines Limited 2007 Annual Report The following table summarizes information about share purchase options outstanding at September 30, 2007: Range of exercise prices $1.15 $2.07 to $2.18 $2.63 to $3.07 $4.03 to $4.09 Number outstanding at September 30 2007 Options outstanding Weighted average remaining contractual life Weighted average exercise price 1,128,334 807,533 3,303,000 468,500 5,707,367 3.00 years 2.90 years 3.62 years 3.58 years 3.40 years $ 1.15 $ 2.17 $ 3.00 $ 4.07 $ 2.60 Options exercisable Number exercisable at September 30 2007 1,128,334 495,866 1,231,000 – 2,855,200 Weighted average exercise price $ 1.15 $ 2.18 $ 2.94 – $ 2.10 As at September 30, 2007, 2,855,200 (2006 – 1,452,177) 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, 2007, 2006, and 2005 were: Risk free interest rate Expected life Volatility Expected dividends 2007 4% 2006 4% 2005 3% 4.20 years 3.93 years 2.75 years 68% nil 71% nil 90% nil c) Share purchase warrants The continuity of share purchase warrants during the year ended September 30, 2007 is as follows: Expiry dates June 4, 2009 Exercise price $3.48 Issued 120,000 – Exercised Expired – – 120,000 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 Outstanding September 30, 2005 Issued Exercised Expired $ 0.40 $ 0.75 $ 1.40 $ 1.66 375,000 3,913,332 8,000,000 5,204,361 17,492,693 – – – – – (375,000) (3,913,322) (8,000,000) (5,204,361) (17,492,693) – – – – – – – – – – Page 51 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 Outstanding September 30, 2004 Issued Exercised Expired Outstanding September 30, 2005 $ 0.40 $ 0.75 $ 2.25 $ 1.40 $ 1.66 375,000 6,226,668 3,900,000 8,000,000 – – – – – 5,204,361 – (2,313,336) – – – – – (3,900,000) – – 18,501,668 5,204,361 (2,313,336) (3,900,000) 375,000 3,913,332 – 8,000,000 5,204,361 17,492,693 d) Earnings per share The following table sets forth the computation of diluted earnings per share: Earnings available to common shareholders Effect of assumed conversions: Accretion on convertible debenture/bonds Interest on convertible bonds Tax effect on interest on convertible bonds 2007 $ 48,262 1,608 2,368 (820) Earnings available to common shareholders including assumed conversion: $ 51,418 Basic weighted-average number of shares outstanding (in thousands) 129,218 Effect of dilutive securities: Stock options Warrants Tracking preferred shares Convertible debenture/bonds Diluted weighted-average number of shares outstanding (in thousands) Earnings per share Basic Diluted 1,438 2 2,664 8,956 142,278 $ 0.37 0.36 2006 $ 32,916 97 199 (73) $ 33,139 113,554 3,332 2,626 2,664 4,286 126,462 $ 0.29 0.26 2005 $ 23,290 – – – $ 23,290 100,022 1,431 2,952 2,664 3,664 110,733 $ 0.23 0.21 The following table lists the stock options and share issuable under convertible debentures excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive for the periods presented (in thousands): Stock options Share purchase warrants Shares issuable under convertible bonds 2007 3,302 – 3,308 2006 2,025 – – 2005 570 5,204 – Page 52 Taseko Mines Limited 2007 Annual Report 15. INCOME TAXES Income tax expense (recovery) differs from the amount which would result from applying the statutory Canadian income tax rates (2007 – 34.1% 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 not allowable (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) 2007 $ 87,866 29,980 3,119 – 8,289 (324) (1,460) $ 39,604 $ 3,959 35,645 $ 39,604 2006 $ 38,961 14,268 2,403 2,028 (1,360) (12,172) 878 $ 6,045 $ 4,397 1,648 $ 6,045 2005 $ 5,768 2,278 871 – (2,912) (17,351) (408) $ (17,522) $ (4,099) (13,423) $ (17,522) As at September 30, 2007 and 2006, 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 Partnership deferral Reclamation obligation Plant and equipment Mineral properties and deferred stripping Unrealized foreign exchange gain Unrealized gain recorded in comprehensive income Net future income tax asset (liability) Current portion – future income tax asset (liability) Long term future income tax asset (liability) Net future income tax asset (liability) $ 2007 – 52 19,128 1,839 733 21,752 (13,613) 8,139 (5,320) (5,344) (11,543) (11,856) (491) (445) $ (26,860) $ (5,320) (21,540) $ (26,860) 2006 $ 4,907 154 20,181 9,850 720 35,812 (13,937) 21,875 (4,288) (4,286) (1,526) – – – $ 11,775 $ 11,601 174 $ 11,775 At September 30, 2007 the Company’s tax attributes included capital losses totaling $nil (2006 – $900) which are available indefinitely to offset future taxable capital gains, and resource tax pools totaling approximately $14,000 (2006 – $16,800) which are available indefinitely to offset future taxable income. The Company also has non-capital losses of $169 to offset future taxable income which expire in 2027. The Company has accrued a long term tax provision of $24,645 (2006 – $21,058) related to various tax pools. Page 53 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: Acquisition of assets under capital lease Advances under capital lease Increase in asset retirement costs included in mineral properties, plant and equipment (note 13) Shares and units issued for the purchase of mineral property interests (note 8 (f)) Fair value of stock options transferred to share capital from contributed surplus on exercise of options Supplemental cash flow information Cash paid during the year for Interest Taxes September 30 2007 $ – 1,426 3,805 1,786 September 30 2006 $ – – – September 30 2005 $ (22,351) 22,351 – 4,869 742 September 30 2007 September 30 2006 September 30 2005 $ 2,138 $ 63 $ 1,557 $ 1,188 $ $ 1,045 1 17. SUBSEQUENT EVENTS (a) On October 30, 2007, the Company closed a “bought deal” short (b) On November 13, 2007, the Company completed a private placement financing. The Company issued 1,455,100 shares at a form prospectus offering of 7,115,385 common shares at a price of price of $5.20 per share for gross proceeds of $7,566. $5.20 per Common share. The Company granted to the underwriters an over-allotment option to purchase up to an additional 1,067,307 common shares at $5.20. The underwriters elected to exercise the over-allotment option in full at the closing, resulting in an aggregate gross proceeds to the Company of $42,550. (c) On October 25, 2007, the Company announced an extension to the labour agreement at its Gibraltar Mine was successfully ratified by its unionized employees. This new agreement will be in place until May 31, 2012. Page 54 to be continued ... 1020 - 800 West Pender St. Vancouver BC V6C 2V6 Canada telephone 604 684 6365 facsimile 604 684 8092 toll free 800 667 2114 www.tasekomines.com info@hdgold.com Design and production by: Creative Spirit Communications Inc. - www.creativespirit.bc.ca 

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