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
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