2008 Annual Report
TSX: TKO NYSE Amex: TGB
Building wealth through developing and
operating major copper and gold mines
Gibraltar Mine
To Taseko Shareholders
Taseko Mines Limited 2008 Annual Report
As I wrote the Message to Shareholders twelve months ago, 2008 was off to an excellent
start as copper prices were over US$3.50 per pound and production at Gibraltar was
steadily increasing. We were anticipating another strong year of earnings and cash fl ow
for the Company and continued success on moving our Prosperity Project through the
Environmental Assessment Process.
No one expected the once in a lifetime collapse of the global fi nancial markets that began
to appear last summer and our optimism for a successful 2008 quickly evaporated. In a
matter of weeks the copper price plunged by nearly one-half while at the same time credit
markets and our ability to access capital disappeared.
The fi nancial crisis was shocking for many companies worldwide and many mining
companies, in particular have not survived, not only as a result of the metal price declines
but also their inability to access credit.
Taseko management, however, heading into 2009 responded decisively and effectively to
both the decline in copper and molybdenum prices and the tight credit markets.
In the fi rst three months of 2009,
(cid:115)(cid:172)
(cid:115)(cid:172)
(cid:115)(cid:172)
(cid:115)(cid:172)
Demonstrating the operating ability and the capacity of the newly expanded
concentrator, Gibraltar produced 19.9 million lbs of copper concentrate in the
fi rst quarter of 2009.
Our operational staff at Gibraltar reduced total cash costs, including off property
costs by the end of March to US$1.18 per pound after a series of rigorous cost
cutting initiatives.
In February our fi nancial department closed a US$30 million term loan facility
with Credit Suisse, a major international bank. The funds from the loan are to be
used for the completion of key capital projects. This debt package was one of
only a few completed for any mining company during the fi nancial crisis.
Executive Management took advantage of a strong copper price, and in April of
this year initiated a hedging program for 50% of Gibraltar’s production for 2009.
As a result, 30 million pounds of copper has been hedged between May and
December, with a minimum price of US$1.88 per pound. This program will protect
our cash fl ows for this year.
(cid:115)(cid:172)
Construction recommenced on the Gibraltar Phase II expansion project with the
goal of completing the upgrades within the next 12 months.
Russell Hallbauer
President and CEO
TSX: TKO NYSE Amex: TGB
Taseko Mines Limited 2008 Annual Report
SAFETY
At Taseko, employee health and safety is the foundation of every thing we do. Our safety
record at the Gibraltar Mine has improved year-over-year but our goal is zero reportable
incidents and we feel this is achievable. First Aid frequencies, a key indicator of safety
performance, decreased by 42% in 2008, unfortunately, the severity of incidents increased
over the same period, as evidenced by a rise in Lost Time Injury frequency.
We will continue to aggressively work on improvement in both of these areas in 2009.
In mid-2008, the SafeStart safety program was implemented at Gibraltar. The purpose of
this course it to train our employees on how to prevent the mistakes or errors that are the
root cause of safety incidents. Our goal with this program, over the next two years, is to
reduce the rate of acute injuries by 50%.
ENVIRONMENT
British Columbia, the province in which we operate, has some of the most stringent
environmental guidelines in the world. I am happy to report that in the last two years,
our Gibraltar Mine has had no reportable environmental incidents. As well, 25 hectares of
tailings beach were seeded and a number of our rock dumps were re-sloped as part of our
ongoing reclamation plan.
Taseko will employ its strict environmental policies and procedures as we move forward
with Prosperity, during both its construction and operation.
EMPLOYEES
The collapse of global commodity markets and the necessity to revise our mine plan had a
serious impact on many of our employees at Gibraltar. It is never an easy decision to reduce
manpower; however, it was necessary to ensure the continued operation of the mine. In late
2008 and early 2009, we laid off 145 employees in an immediate effort to reduce operating
costs, an initiative that had a signifi cant impact on Gibraltar’s ability to produce copper at a
cost that would ensure the mine remained profi table.
The mine currently employs 330 people and we expect to remain at those levels for the
foreseeable future.
TSX: TKO NYSE Amex: TGB
Taseko Mines Limited 2008 Annual Report
GIBRALTAR
Moving ahead through 2009, key initiatives at Gibraltar will include increasing copper and
molybdenum recovery rates and completing the Phase II capital expansion which will result
in increases in both copper and molybdenum metal production. At the same time, we
will continue to address productivity initiatives identifi ed in an operational review program
provided from an external productivity audit. This work will continue to help reduce costs
at Gibraltar and ensure we remain competitive in the years ahead.
Following the completion of the Phase I expansion in 2008, the production capacity of the
Gibraltar concentrator was increased to 46,000 tons per day, which will yield approximately
100 million pounds of contained copper metal per year. To achieve our metal production
forecast, mine operating staff are working on concentrator throughput and metallurgical
recoveries. Our targeted production for 2009 is 80 million pounds of copper. In the fi rst
quarter, the mine produced nearly 20 million pounds of copper indicating we are on target
to achieve that goal.
Molybdenum is a by product at Gibraltar and the revenue generated is a key component of
the cost structure. Engineering designs are currently being completed which will allow us
to upgrade the molybdenum circuit and we expect to have a plan in the coming months.
Targeted molybdenum production for 2009 is 800,000 pounds. In the fi rst quarter, we
produced 187,000 pounds of molybdenum -- on pace to achieve the annual target.
Over the past two years, we have invested $250 million at Gibraltar to modernize and expand
production at this key asset. Investments have included more than $100 million in upgrades
to the concentrator, including a new 34-foot SAG mill and complete replacement of the
fl otation and regrind circuit. In addition, more than $50 million was spent on new mining
equipment, including a new 60-yard mining shovel, seven new 240-ton haulage trucks and
one production drill, all these investments will result in decreased operating costs over the
longer-term. In the Fall of 2008, when global credit and commodity markets crashed, we
suspended our expansion plans, although they were near completion. Following the closing
of the Credit Suisse loan facility in February and the stabilization in commodity markets,
management is again proceeding with those expansion activities. Concerned that there
may still be diffi cult times before the global economy recovers, we are moving ahead with
capital spending very cautiously. We will continue to advance the Phase II project with the
goal of completing it within the next 12 months.
TSX: TKO NYSE Amex: TGB
PROSPERITY
We are also actively working on our other 100% wholly-owned asset, the Prosperity gold-
copper project. After years of collecting data and completing the required environmental
studies, our Environment Assessment Report was presented to the British Columbia
Provincial Government in March 2009. This was a signifi cant step forward, both for the
Company and the Project, as the timeline for completion is 180 days, as mandated by
law. We are more confi dent than ever that we will receive environmental approvals, both
Provincial and Federal, in October of this year.
Raising the $800 million for this project will be a major task for our fi nance team. We
started the process many months ago and continue to pursue a number of different options.
Discussions with potential joint venture partners were initiated last year and are ongoing.
We have also engaged a number of banks which have expressed an interest in working
with Taseko to fi nance the debt portion of the capital investment.
We expect that all necessary permits and fi nancing will be in place by early 2010, and we
will begin construction in the Spring. Production could commence by mid-2012, after an
approximate 24-month construction period.
OUTLOOK
Looking ahead, I am confi dent that the strategy we have in place will allow the Company
to navigate in these turbulent times. Our Gibraltar Mine is very profi table at current metal
price levels, as exhibited by our cost structure, and can remain profi table through the
copper cycle. We will continue to dedicate our energies on extracting value from both our
key assets, Gibraltar and Prosperity and by the end of the year we hope we will be in a
position to announce a production decision on building our Prosperity Mine.
I would like to thank our employees for their commitment and patience over the past few
months and our suppliers and shareholders for their ongoing support, especially over the
past year. I believe the strategy we have in place will create long-term value for all of our
shareholders, adding to a bright future for this Company.
Russell Hallbauer, President and CEO
2008 Financial Highlights
Taseko Mines Limited 2008 Annual Report
(C$ millions, except where noted)
2004
2005
2006
2007
20081
OPERATIONS
Revenue
Net Income
Operating Profi t
FINANCIAL POSITION
Cash and Equivalents
Total Assets
Long-term Debt
OTHER INFORMATION
n/a
(80.7)
n/a
86.6
24.4
13.6
161.9
217.9
258.6
32.9
54.9
48.3
105.7
3.5
28.1
14.9
21.7
89.4
37.6
4.6
141.9
191.0
297.5
377.3
478.2
0.0
0.0
42.8
41.0
30.3
Average Realized Copper Price (US$/lb)
Sales Volume of Copper (million lbs)
Copper Production (millions lbs)
n/a
n/a
n/a
1.48
44.3
54.8
2.44
50.6
49.0
3.30
55.5
51.8
2.68
74.3
76.9
Revenue
Net Income
Operating Profi t
$300
)
s
n
o
i
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$100
$0
2004 2005 2006 2007 2008
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$0
-$50
-$100
2004 2005 2006 2007 2008
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$
C
(
$125
$100
$75
$50
$25
$0
2004 2005 2006 2007 2008
Total Assets
Average Realized Copper Price
Copper Production
)
s
n
o
i
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l
i
m
$
C
(
$500
$400
$300
$200
$100
$0
2004 2005 2006 2007 2008
$4.00
$3.00
$2.00
$1.00
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$
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(
2004 2005 2006 2007 2008
)
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2004 2005 2006 2007 2008
1 Fiscal 2008 relates to the 15 months ending December 31, 2008.
15 MONTHS FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
T A B L E O F C O N T E N T S
1.1
1.2
Date ........................................................................................................................................... 2
Overview ................................................................................................................................... 3
1.2.1
1.2.2
1.2.3
1.2.4
1.2.5
1.2.6
Gibraltar Mine............................................................................................................ 5
Prosperity Project ..................................................................................................... 11
Harmony Project ...................................................................................................... 11
Aley Project.............................................................................................................. 11
Corporate.................................................................................................................. 11
Market Trends .......................................................................................................... 12
Selected Annual Information................................................................................................... 14
Summary of Quarterly Results ................................................................................................ 15
Results of Operations .............................................................................................................. 16
Liquidity .................................................................................................................................. 20
Transactions with Related Parties ........................................................................................... 23
Current Quarter........................................................................................................................ 23
Critical Accounting Estimates................................................................................................. 23
Change in Accounting Policies including Initial Adoption..................................................... 24
Financial Instruments and Other Instruments.......................................................................... 27
Other MD&A Requirements ................................................................................................... 27
Additional Disclosure for Venture Issuers without Significant Revenue................................ 27
Disclosure of Outstanding Share Data .................................................................................... 28
Internal Controls over Financial Reporting Procedures .......................................................... 29
1.3
1.4
1.5
1.6
1.9
1.10
1.12
1.13
1.14
1.15
1.15.1
1.15.2
1.15.3
1.15.4
Disclosure Controls and Procedures........................................................................................ 29
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
1.1
Date
This Management Discussion and Analysis ("MD&A") should be read in conjunction with the audited
consolidated financial statements of Taseko Mines Limited ("Taseko", or the "Company") for the fifteen
months ended December 31, 2008 and twelve months ended September 30, 2007, prepared in accordance
with Canadian generally accepted accounting principles, and is publicly available on SEDAR at
www.sedar.com.
In October 2008, the Company announced that it would change its year end from September 30 to
December 31.
This MD&A is prepared as of March 26, 2009. All dollar figures stated herein are expressed in Canadian
dollars, unless otherwise specified.
This discussion includes certain statements that may be deemed "forward-looking statements". All
statements in this discussion, other than statements of historical facts, that address future production,
reserve potential, exploration drilling, exploitation activities and events or developments that the
Company expects are forward-looking statements. Although the Company believes the expectations
expressed in such forward-looking statements are based on reasonable assumptions, such statements are
not guarantees of future performance and actual results or developments may differ materially from those
in the forward-looking statements. Factors that could cause actual results to differ materially from those
in forward-looking statements include market prices, exploitation and exploration successes, continued
availability of capital and financing and general economic, market or business conditions. Investors are
cautioned that any such statements are not guarantees of future performance and actual results or
developments may differ materially from those projected in the forward-looking statements.
Cautionary Note to Investors Concerning Estimates of Measured and Indicated Resources
This discussion 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 all of mineral deposits in these categories will ever be converted into reserves.
Cautionary Note to Investors Concerning Estimates of Inferred Resources
This discussion uses the term 'inferred resources'. The Company advises investors that while this term is
recognized and required by Canadian regulations, the U.S. Securities and 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 cannot be assumed that all or any part of a mineral resource will ever be
upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not
form the basis of economic studies, except in rare cases. Investors are cautioned not to assume that
any part or all of an inferred resource exists, or is economically or legally mineable.
2
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
1.2
Overview
Taseko is a mining and mineral exploration company with one operating mine and three exploration
projects, all located in British Columbia, Canada. These are the Gibraltar copper-molybdenum mine, the
Prosperity gold-copper property, the Harmony gold property and the Aley niobium property.
In October 2008, the Company announced that it would change its year end from September 30 to
December 31. As a result, this management discussion and analysis deals with the transition period,
comparing the three months ending December 31, 2008 with the three months ending December 31, 2007
and the fifteen month ending December 31, 2008 with the twelve months ending September 30 2007. In
order to provide more meaningful information on the current status of the Gibraltar Mine, the report will
also include information illustrating unaudited operating results in January and February of the current
quarter.
In the fifteen months ending December 31, 2008, Taseko focused on commissioning the first phase of the
expanded concentrator and completing other production improvements at the Gibraltar mine, advancing
the attainment of a Project Approval for the Prosperity project, and reviewing potential acquisitions to
provide for further corporate growth.
Deterioration of global economic conditions during the latter part of the 2008 calendar year resulted in a
significant weakening of base metal prices and high volatility in the exchange traded commodity prices.
As a result of the economic crisis and concurrent decrease in demand for copper, the London Metal
Exchange price declined from US$2.90 per pound at the end of September 2008 to US$1.32 per pound at
the end of December 2008. As well as affecting the price received during the quarter, the rapid decline in
copper prices generated significant negative provisional pricing adjustments for copper sales in the
quarter ended December 31, 2008. Copper prices have improved in the first quarter of 2009, which will
result in positive price adjustments.
Management has been monitoring the effects of the current economic and credit conditions on the
Company’s business and is reviewing discretionary and project capital spending and operating costs.
Plans to move forward with the Harmony and Aley Projects in 2009 have been deferred, as has the Phase
3 expansion of the concentrator at the Gibraltar mine.
A new 24-month mine plan implemented in November 2008 for the Gibraltar mine will sustain a 45,000
tons per day (“tpd”) mill throughput while mining at a significantly reduced strip ratio, which will result
in lower mine equipment hours and manpower requirements. Maintaining mill feed at planned grades and
reduced strip ratio is possible as a result of the pre-stripping investment that was made during 2007 and
early 2008. This new operational plan along with declining input costs, a weaker Canadian dollar and the
finalization of remaining Phase 2 expansion items indicate total cash costs (onsite and offsite costs) will
decline to approximately US$1.15 per pound.
The Gibraltar mine achieved production of 18.8 million pounds of copper in the quarter ended December
31, 2008, which represented a 31% increase over the 14.4 million pounds produced in the same quarter in
2007 as a result of significantly improved mill throughput. Molybdenum production was 0.2 million
3
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
pounds for the quarter ended December 31, 2008 as compared to 0.3 million pounds in the quarter ended
December 31, 2007.
The Prosperity Project continues to have robust economics considering current and expected future gold
and copper prices and the Environmental Assessment process is entering its final stages. The Provincial
Environmental Assessment is mandated by law to be completed 180 days following its acceptance as
complete, which occurred on March 13, 2009.
Non-GAAP Measures
The table and discussion below includes certain non-GAAP performance measures that do not have any
standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by
other companies. The Company believes that these measures are commonly used, in conjunction with
conventional GAAP measures, by certain investors to enhance their understanding of the Company's
performance. The Company's use of these non-GAAP measures is intended to provide additional
information that should not be considered in isolation or as a substitute for performance measures
prepared in accordance with GAAP.
Financial Results and Current Market Conditions
(in millions of dollars)
Gross Revenues 1
Gross Cost of Sales 2
Amortization
Unadjusted Operating Profit
(Loss)
Adjustments:
Quotational Pricing
Inventory Adjustment
Operating Profit as reported
Fifteen months
ending
Twelve months
ending
Three months
ending
Three months
ending
December 31, 2008
September 30, 2007
December 31, 2008
December 31, 2007
258.6
194.7
7.4
56.5
(26.9)
(1.5)
28.1
216.1
109.5
3.2
103.4
2.3
–
105.7
32.5
47.5
2.0
(17.0)
(21.9)
(1.5)
(40.4)
43.7
25.0
0.7
18.0
1.2
–
19.2
1 Gross Revenues is a non-GAAP measure defined as revenues before quotational pricing adjustments.
2 Gross Cost of Sales is a non-GAAP measure defined as cost of sales before inventory net realizable value adjustments.
For the fifteen months ended December 31, 2008, Taseko generated an operating profit before quotational
period and inventory adjustments of $56.5 million compared to $103.4 million during the twelve months
ended September 30, 2007. Additionally, during the fifteen-month period, Taseko generated cash from
operating activities of $46.9 million as compared to $86.0 million for the twelve month period ended
September 30, 2007.
A $26.9 million negative pricing adjustment and a $1.5 million negative inventory adjustment was
recorded in the fifteen months ended December 31, 2008 related to the rapid deterioration in base metal
4
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
prices, including copper and molybdenum, in the quarter ended December 31, 2008. The result of these
adjustments and other expenses was net earnings after tax of $3.5 million for the fifteen months ended
December 31, 2008 as compared to net earnings after tax of $48.3 million for the year ended September
30, 2007. The corresponding loss for Taseko for the three months ended December 31, 2008 was $39.6
million as compared to net earnings after tax of $16.2 million for the three months ended December 31,
2007.
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
periods for copper are either one or 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.
1.2.1 Gibraltar Mine
Taseko’s 100% owned Gibraltar mine is located north of the City of Williams Lake in south-central
British Columbia.
Gibraltar Mine Current Production and Cost Performance
In July of 2008, recognizing the effect that the tightening credit market could have on Taseko’s business
plan, management focused on reducing operating costs and reviewing capital projects. As the crisis
deepened during the summer and fall of 2008 coupled with the dramatic drop in metal prices in
September, management’s actions became entirely focused on cash preservation, which entailed stopping
or deferring all major projects at Gibraltar that were not needed for immediate production requirements.
The timing of the pull back on projects allowed the operations management team to fully realize the
benefits of the Phase 1 mill expansion and the newly commissioned mining equipment. These two factors
have allowed Gibraltar to significantly reduce operating costs in a relatively short period of time. Also
allowing substantial operating cost improvements were the successful implementation of the two-year
mine plan along with the cumulative effects of new technology, increased recoveries and throughput,
reduced strip ratio and operation of only the most cost effective mining equipment. As well, reduced cost
of consumables and purchased services such as steel, fuel and ocean freight, in conjunction with the effect
of the weakened Canadian Dollar against the US Dollar, have all supported the significant drop in
operating cost.
5
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following table illustrates detail of Gibraltar’s performance during the last quarter of 2008 plus
January and February 2009:
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)
Foreign Exchange ($C/$US)
Copper production costs per
pound of copper
By-product credit4 per pound of
copper
Copper production costs, net of
by-product credits4, per lb of
copper
Off property costs for transport,
treatment (smelting & refining) &
sales5 per lb of copper
Total cash costs of production
per lb of copper
October
20083
November
20083
December
20083
January
20093
February
20093
3.9
1.2
2.7
0.372
0.010
73.2
20.6
6.9
52
1.18
2.4
0.9
1.6
0.317
0.009
75.1
33.6
5.0
57
1.22
2.3
1.0
1.0
0.404
0.011
80.7
31.4
6.9
71
1.23
2.5
1.1
1.2
0.350
0.009
81.6
39.1
6.4
75
2.2
1.1
0.9
0.352
0.009
82.2
30.1
6.2
57
1.23
1.25
US$1.44
US$1.57
US$1.24
US$1.09
US$1.03
US$0.09
US$0.09
US$0.09
US$0.12
US$0.12
US$1.35
US$1.48
US$1.15
US$0.97
US$0.91
US$0.29
US$0.27
US$0.27
US$0.22
US$0.22
US$1.64
US$1.76
US$1.42
US$1.19
US$1.13
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 Copper production includes concentrate and cathode.
3 The results presented on a monthly basis are unaudited.
4 By-product credit is calculated on a three month total and averaged over the quarter.
5 Off property costs are calculated on a three month total and averaged over the quarter.
Three-Month Sales and Inventory
Copper
(cid:2) Copper in concentrate sales volume increased by 49% to 17.6 million pounds in the three months
ending December 31, 2008 from the 11.8 million pounds of copper in concentrate sold during the
three months ending December 31, 2007.
(cid:2) Copper cathode sales volume doubled in the three months ending December 31, 2008 to 0.90
million pounds compared to 0.44 million pounds in the three months ending December 31, 2007.
(cid:2) Copper concentrate inventory at December 31, 2008 was 4.1 million pounds. Copper in
concentrate in inventory at December 31, 2007 was 6.3 million pounds.
6
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
(cid:2) Copper cathode inventory at December 31, 2008 was 0.4 million pounds. Copper cathode in
inventory at December 31, 2007 was 0.9 million pounds.
(cid:2) The average price realized for sales of copper during the period was US$1.26 (before pricing
adjustments), compared to US$3.16 per pound (before pricing adjustments) realized in the three
months ending December 31, 2007.
Revenue adjustments were incurred during the period related to shipments in prior quarters. The
Quotational Period (QP) for shipments sold to Gibraltar’s concentrate trader in August and September
2008 was four months after month of arrival of the shipment at the designated smelter. As a result, the
close or final QP for these shipments was January and February 2009. These shipments were
provisionally priced when they were shipped, but the copper price dropped dramatically in the beginning
of September 2008 to a copper price at the end of December 2008 of US$1.39 per pound. This resulted in
a negative pricing adjustment of $26.9 million.
Molybdenum
(cid:2) Molybdenum in concentrate sales volume declined by 32% to 143,000 pounds from 210,000
pounds sold in the three months ending December 31, 2007.
(cid:2) Molybdenum in concentrate inventory at December 31, 2008 was 77,000 pounds. Molybdenum
in concentrate inventory at December 31, 2007 was 96,000 pounds.
(cid:2) The average price realized for sales of molybdenum for the three months ending December 31,
2008 declined to US$19.96 per pound, compared to US$32.18 per pound realized in the three
months ending December 31, 2007.
Three-Month Production
The following table is a summary of the operating statistics for the three months ending December 31,
2008 compared to the three months ending December 31, 2007.
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)
Three months ending
December 31, 2008
Three months ending
December 31, 2007
8.6
3.2
1.7
0.365
0.010
76.1
28.0
18.8
179
10.1
2.3
3.2
0.364
0.012
79.3
50.4
14.4
291
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 2008 copper production includes 17.9 M lb in concentrate and 0.9 M lb in cathode.
2007 copper production includes 13.4 M lb in concentrate and 1.0 M lb in cathode.
7
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
Tons mined during the three months ending December 31, 2008 decreased compared to the same period
ending December 31, 2007 as a result of the November implementation of the revised mine plan.
Copper in concentrate production during the three-month period ending December 31, 2008 was 17.9
million pounds, an increase from the 13.4 million pounds produced in the three-month period ending
December 31, 2007. This concentrate production increase is a result of the increased throughput achieved
by completion of the Phase 1 concentrator expansion. Copper and molybdenum metallurgical recoveries
were low in October and November as a result of mechanical problems related to the regrind mill. This is
the original regrind mill and, although it is operational again, it will be replaced in summer of 2009 as
part of the completion of the Phase 2 mill expansion.
Fifteen-Month Sales and Inventory
The following table illustrates the significant changes in the average prices for copper and molybdenum
on a quarter by quarter basis over the past fifteen months:
LME Copper Price Average
$3.27
$3.51
$3.83
$3.49
$1.77
Q1 2008
Q2 2008
Q3 2008
Q4 2008
Q5 2008
Molybdenum Oxide Price Average
$32.50
$33.75
$33.50
$33.75
$17.75
Q1 2008
Q2 2008
Q3 2008
Q4 2008
Q5 2008
Copper
(cid:2) Copper in concentrate sales during the fifteen months ending December 31, 2008 was 73.4
million pounds, compared to sales of 53.4 million pounds in the twelve months ending September
30, 2007.
(cid:2) Copper in concentrate inventory at December 31, 2008 was 4.1 million pounds compared to 4.6
million pounds at September 30, 2007.
(cid:2) Copper cathode sales for the fifteen months ending December 31, 2008 was 4.5 million pounds,
compared to 2.1 million pounds in the twelve months ending September 30, 2007.
(cid:2) Copper cathode inventory at December 31, 2008 was 0.4 million pounds compared to 0.3 million
pounds at September 30, 2007
Molybdenum
(cid:2) Molybdenum in concentrate sales during the fifteen months ending December 31, 2008 was 0.8
million pounds, compared to sales volume of 0.6 million pounds in the twelve months ending
September 30, 2007.
(cid:2) The inventory at December 31, 2008 was 77,000 pounds compared to 18,100 pounds at
September 30, 2007.
8
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
Concentrator Expansion Project
Construction of the Phase 1 mill expansion was completed in February 2008. The ramp up to the rated
processing capacity of 46,000 tons per day (“tpd”) has been ongoing since completion of the construction
phase with sustained periods of operation at the rated capacity becoming more frequent and of longer
duration as mill operations personnel continue to refine the metallurgical performance relating to grind
size at higher mill throughput rates and metal recovery. The improved performance is evidenced by the
recovery increasing from 73.2% in October 2008 to 82.2% in February 2009, a 12% increase.
The Phase 2 expansion program consists of modernizing and increasing the capacity of the regrind,
cleaner flotation, and ancillary circuits along with installation of a two-stage tailings pumping system.
Phase 2 is designed to increase concentrator capacity from 46,000 to 55,000 tpd. The construction
schedule for Phase 2 has been modified as a result of management’s review of capital spending. The
regrind mill and cleaner flotation circuits will be completed in the summer of 2009 as they are not cash
intensive to complete and they provide very robust payback through increased copper and molybdenum
recoveries. Ramp up to 55,000 tpd will occur following completion of the rest of the Phase 2 program and
completion of the in-pit crusher and conveyor.
The Phase 3 expansion was designed to increase throughput capacity by a further 30,000 tpd to 85,000
tpd. The engineering for Phase 3 was well advanced and the estimated capital cost had been confirmed at
$300 million for mill infrastructure and $50 million for mining equipment. With the exception of
upgrading or replacing the molybdenum circuit, the entire project has been deferred as a result of the
credit market conditions and copper market outlook. Once the economic conditions improve, the decision
to move forward on this next phase of expansion will be reviewed.
Labour and Safety
Labour at site was reduced as a result of the 24-month plan to reduce costs in response to significant
decreases in metal prices. The number of active personnel at the end of December 2008 was 397 and at
the end of February 2009 was 320, compared to 450 personnel at the site at the end of September 2008.
There was one lost time accident during the three-month period ending December 31, 2008.
9
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
Mineral Resources and Reserves
Taseko completed a drill program and engineering study on the Oakmont ground of the Gibraltar property
in 2008. These programs have confirmed an extension of the Gibraltar mineral deposit (Gibraltar
Extension) and increased the mine’s mineral reserves by 28% to 472 million tons.
Gibraltar's proven and probable reserves as of December 31, 2008 are tabulated below:
Gibraltar Mine Mineral Reserves
At 0.20% copper cut-off
Pit
Category
Connector
Gibraltar East
Granite
Proven
Probable
Subtotal
Proven
Probable
Subtotal
Proven
Probable
Subtotal
Gibraltar Extension Proven
(new reserves)
Probable
Subtotal
Total
Tons
(millions)
40.4
14.8
55.2
66.8
33.3
100.1
187.0
25.8
212.8
75.4
29.3
104.7
472.8
Cu
(%)
0.296
0.271
0.289
0.286
0.285
0.286
0.324
0.319
0.323
0.352
0.304
0.339
0.315
Mo
(%)
0.010
0.009
0.010
0.008
0.013
0.010
0.009
0.009
0.009
0.002
0.002
0.002
0.008
The mineral reserves stated above are contained within the following mineral resources:
Gibraltar Mine Mineral Resources
At 0.20% copper cut-off
Category
Tons
(millions)
Cu
(%)
Mo
%)
Measured
598.0
0.302
0.008
Indicated
Total
361.1
959.1
0.290
0.008
0.298
0.008
The mineral resource and reserve estimations were completed by Gibraltar mine staff under the
supervision of Scott Jones, P.Eng., Vice-President, Engineering and a Qualified Person under National
Instrument 43-101. Mr. Jones has verified the methods used to determine grade and tonnage in the
geological model, reviewed the long range mine plan, and directed the updated economic evaluation. The
estimates for the Gibraltar Extension used long-term metal prices of US$1.75 per pound for copper and
US$10.00 per pound for molybdenum and a foreign exchange of C$0.82 per US dollar while the
estimates for the balance of the reserves used long-term metal prices of US$1.50 per pound for copper
and US$10.00 per pound for molybdenum and a foreign exchange of C$0.80 per US dollar. A technical
report has been filed on www.sedar.com .
10
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
1.2.2 Prosperity Project
Taseko holds a 100% interest in the Prosperity property, located 125 kilometers southwest of the City of
Williams Lake. The property hosts a large porphyry gold-copper deposit amenable to open pit mining. In
September 2007, the Company announced the positive results of a feasibility study for the Project.
During 2008 detailed engineering was performed in order to reduce capital and operating costs thereby
counteracting the impact of the then rapidly escalating costs being experienced in projects worldwide.
Engineering included a redesign of the plant site layout, concentrator, maintenance shop, primary crusher,
camp/administration complex, miscellaneous infrastructure, and pit development. The revised designs
improve energy and operations efficiency to minimize operating costs. Worldwide pressure on costs and
availability of infrastructure and equipment has softened substantially since the economic decline at the
end of 2008 and the effects of these factors on the project are being evaluated.
The Ministry of Environment of British Columbia accepted Taseko’s Environmental Assessment report
as complete on March 13, 2009 and is moving forward under provisions of the Environmental
Assessment Act with an Environmental Assessment Office (“EAO”)-led review of this Project. The
Canadian Environmental Assessment Agency (“CEAA”) and the B.C. EAO are collaborating on their
respective federal and provincial environmental assessment processes in a coordinated manner. The EA
review is mandated by law to be completed 180 calendar days after the acceptance date noted above.
Federal and provincial government decisions on proceeding with the Project will be made following
completion of the Environmental Assessment process.
1.2.3 Harmony Project
Taseko holds 100% of the Harmony gold project, located on the Queen Charlotte-Haida Gwaii on the
northwest coast of British Columbia. The Company has undertaken property maintenance and
environmental monitoring activities at Harmony since acquiring the project in 2001.
The Company initiated a review of engineering work on the project in late 2007 following the designation
of the area as a mineral development zone under the Queen Charlotte-Haida Gwaii Land and Resource
Management Plan. Plans to move forward with the Harmony Project are currently on hold.
1.2.4 Aley Project
Taseko holds 100% of the Aley niobium project in northern British Columbia. 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. Plans to move forward with the Aley Project are currently on hold.
1.2.5 Corporate
Peter Mitchell was appointed the Company’s Chief Financial Officer on September 15, 2008. Mr.
Mitchell is a Chartered Accountant with degrees in Economics (BA) and Business Administration
(MBA). He has extensive experience with private equity portfolio companies through acquisitions,
integrations and greenfield initiatives and financing activities.
11
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
Convertible Debenture – NVI Mining Ltd (formerly Boliden Westmin (Canada) Limited) ("NVI")
On July 21, 1999, in connection with the acquisition of the Gibraltar mine, the Company issued a $17,000
interest-free debenture (the “Debenture”) to NVI Mining Ltd. (“NVI” or formerly Boliden Westmin
(Canada) Limited). The Debenture was due on July 21, 2009 and was convertible into common shares of
the Company over a 10-year period commencing at a price of $3.14 per share in year one and escalating
by $0.25 per share per year thereafter. NVI had the right to convert, in part or in whole from time to time,
the Debenture into fully paid common shares of the Company from year one to year ten.
On April 2, 2008, NVI issued a notice to the Company to convert the principal amount of the Debenture
of $17,000,000 at an effective conversion rate of $5.14 per common share, which would have resulted in
3,307,393 common shares of the Company being issued to NVI. The Company issued 2,612,971 to NVI
and a cash payment of $3,569,000 in lieu of issuing the remaining 694,422 common shares as full and
final settlement to NVI.
1.2.6 Market Trends
Copper prices had been on an overall upward trend between late 2003 and October 2008, but have
decreased significantly since then as a result of uncertainty in global financial markets. In mid-2008, the
copper market deficit, caused by strong demand growth and struggling production and a lack of new
development projects, reached its peak.
The average price in 2008 was US$3.15/lb, compared to an average price of US$3.22/lb in 2007. In July,
the copper price was as high as US$4.08/lb before the global credit crisis occurred, resulting in a global
economic downturn and a subsequent collapse in the price of copper. In December, the price of copper
retreated to a low of US$1.26/lb. The 70% drop in price over such a short period of time was
unprecedented.
Prices stabilized in January 2009, ranging from US$1.40/lb to US$1.50/lb and averaging US$1.48/lb. By
mid-March copper was trading in the US$1.65/lb range. The average copper price in 2009 to mid March
was US$1.53/lb.
Precious metals prices had been on an overall uptrend for more than three years. Gold prices were volatile
in late 2008, dropping below $800/oz for a two-week period in September, and again from mid October
through November. The average gold price for the year was US$871/oz. Prices in 2009 to mid March
have averaged US$905/oz. As global economic and other market conditions are uncertain, market experts
have forecast strong gold prices through 2009.
Molybdenum prices increased from US$7.60/lb in 2003 and peaked in 2005 at an average price of
US$34/lb. Prices decreased in 2006, averaging US$25.53/lb over the year, and strengthened again in
2007, averaging US$30.47/lb for the year. Molybdenum prices dropped significantly in late 2008, but
averaged US$28.98/lb based on strength earlier in the year. Prices continued to drop in 2009, averaging
US$9.30/lb in January but have stabilized around that price since that time. The average price in 2009 to
mid March is US$9.68/lb.
12
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company sells its products in United States dollars but its expenses are denominated primarily in
Canadian dollars. The twelve-month average at December 31, 2008 for one United States dollar was
1.067 Canadian dollars. During the first nine months of 2008, the Canadian dollar was approximately at
par with the United States dollar. However, in the last three months of 2008, the Canadian dollar has
weakened significantly relative to the US dollar. At December 31, 2008, one United States dollar was
equivalent to 1.218 Canadian dollars. Current forecasts anticipate an average of one United States dollar
to 1.246 Canadian dollars in 2009.
13
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
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
Plant and equipment
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 advances on 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
Stock-based compensation
Change in fair market value of financial instruments
Earnings (loss) before income taxes
Current income tax recovery (expense)
Future income tax recovery (expense)
Earnings (loss) for the period
Other comprehensive income (loss):
Unrealized gain (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 (loss)
Total comprehensive income (loss)
Basic earnings per share
Diluted earnings per share
Basic weighted average number of common shares outstanding
Diluted weighted average number of common shares outstanding
14
As at December 31
2008
$ 41,283
32,610
292,390
111,962
$ 478,245
112,053
131,285
234,907
$ 478,245
Fifteen months
ended December 31
2008
$ 231,678
(196,261)
(7,363)
28,054
As at September 30
2006
2007
$ 149,447
$ 94,619
2,628
18,407
43,817
158,492
101,569
105,745
297,461
$ 377,263
44,589
169,014
163,660
$ 377,263
47,863
148,664
100,934
$ 297,461
Year ended September 30
2006
$ 161,900
(103,628)
(3,412)
54,860
2007
$ 218,426
(109,533)
(3,155)
105,738
1,451
11,864
4,032
(6,917)
862
–
11,034
–
(1,034)
(9,701)
8,284
2,938
6,442
886
$ (2,087)
2,151
3,446
$ 3,510
1,859
(11,295)
(1,152)
1,570
$ (9,018)
$ (5,508)
$ 0.02
$ 0.02
142,062
156,928
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
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
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
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
Plant and equipment
Other assets
Total assets
Current liabilities
Other liabilities
Shareholders' equity
Dec 31,
2008
Sept 30,
2008
Jun 30
2008
Mar 31
2008
Dec 31
2007
Sep 30
2007
Jun 30
2007
Mar 31
2007
Dec 31
2006
41,283
80,250
114,611
124,105
117,251
94,619
97,907
114,756
129,940
32,610
32,095
29,916
19,142
18,941
18,407
15,986
5,468
3,554
292,390
266,872
222,729
202,679
182,342
158,492
120,857
95,627
63,281
111,962
132,977
113,159
112,926
106,873
105,745
104,781
104,677
104,051
478,245
512,194
480,415
458,852
425,407
377,263
339,531
320,528
300,826
112,053
65,663
41,484
29,976
22,439
44,589
35,225
36,426
37,411
131,285
176,456
173,755
182,419
173,042
169,014 155,070
151,799
149,912
234,907
270,075
265,176
246,457
229,926
163,660
149,236
132,303
113,503
Total liabilities and shareholders' equity
478,425
512,194
480,415
458,852
425,407
377,263
339,531
320,528
300,826
Revenue
Mine site operating costs
Transportation and treatment
Amortization
Operating profit
Expenses:
Accretion of reclamation obligation
Conference and travel
Consulting
Exploration
Interest expense and accretion charges
Legal, accounting and audit
Office and administration
Shareholder communications
Trust and filing
10,576
57,615
53,206
65,357
44,924
53,998
55,907
51,624
56,897
(42,021)
(40,924)
(29,633)
(28,854)
(19,810)
(17,062)
(21,399)
(18,962)
(30,809)
(7,054)
(9,500)
(6,042)
(7,194)
(5,229)
(5,220)
(4,714)
(5,062)
(6,305)
(1,979)
(2,029)
(1,563)
(1,091)
(701)
(667)
(1,374)
(677)
(437)
(40,478)
5,162
15,968
28,218
19,184
31,049
28,420
26,923
19,346
183
158
77
1,088
3,839
625
326
135
68
3,363
1,603
101
322
164
66
3,047
1,857
277
313
370
52
2,243
2,032
326
307
157
78
2,123
1,891
219
1,260
1,753
1,566
1,454
1,250
94
6
77
9
78
94
165
105
136
115
760
98
198
2,320
2,042
443
975
99
23
339
72
138
2,188
2,199
130
833
140
20
339
156
167
2,546
2,722
484
905
134
118
339
168
80
1,913
1,906
163
762
113
81
Interest and other income
(1,362)
(1,668)
(1,897)
(2,239)
(2,535)
(2,901)
(2,434)
(2,978)
(2,778)
Loss (gain) on sale of marketable securities
–
Asset retirement obligation change of estimates
(4,504)
Foreign exchange loss (gain)
Stock-based compensation
Loss on equipment disposal
Change in fair value of financial instruments
3,249
1,054
701
–
120
–
1,142
(85)
–
–
Earnings (loss) before income taxes
(46,946)
(1,782)
Income tax expense (recovery)
Earnings (loss) for the period
Earnings (loss) per share – basic
(7,303)
(8,653)
(39,643)
(0.29)
6,871
0.05
(586)
(568)
–
–
–
–
(2,413)
(4,570)
600
(1,000)
40
756
1,103
1,598
2,772
1,817
–
809
–
77
–
617
–
–
(1,509)
–
–
–
(472)
(1,505)
1,454
1,865
–
2,330
–
2,331
(995)
759
–
(28)
22,558
14,967
28,372
19,145
22,976
17,373
6,357
(1,315)
15,727
6,739
11,485
5,653
16,201
16,282
12,645
12,406
11,491
11,720
0.11
0.12
0.10
0.10
0.09
0.09
161
–
9,116
5,317
3,799
0.03
15
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
1.5
Results of Operations
In October 2008, the Company announced that it would change its year end from September 30 to
December 31. As a result, in accordance with National Instrument 51-102CP, “Continuous Disclosure
Obligations”, this management discussion and analysis deals with the transition period, comparing the
three months ending December 31, 2008 with the three months ending December 31, 2007 and the fifteen
month ending December 31, 2008 with the twelve months ending September 30, 2007.
Three months ended December 31, 2008 versus three months ended December 31, 2007
For the three months ended December 31, 2008, Taseko generated operating loss before quotational
period and inventory adjustments of $17 million compared to an operating gain before quotational
adjustment of $18 million during the three months ended December 31, 2007. A $21.9 million negative
pricing adjustment and a $1.5 million negative inventory adjustment was recorded in the three months
ended December 31, 2008 related to the rapid deterioration in base metal prices, including copper and
molybdenum. The result of these adjustments and other expenses was a net loss after tax of $39.6 million
for three months ended December 31, 2008 as compared to net earnings after tax of $16.3 million for the
three months ended December 31, 2007.
The Company recognized revenues of $10.6 million in the three months ended December 31, 2008 (“Q5
2008”), compared to $57.6 million in the three months ended September 30, 2008 (“Q4 2008”) and $44.9
million in the three months ended December 31, 2007 (“Q1 2008”).
The Company is subject to pricing adjustments in its sales contracts. In a declining price environment,
negative pricing adjustment will reduce the revenues realized from products shipped. Likewise, in a rising
pricing environment, sales will be impacted by positive pricing adjustments. As the price of copper
decreased to an average of US$1.39 per pound by the end of December, the Company realized a negative
pricing adjustment on its previous concentrate sales. The negative pricing adjustment in Q5 2008 was
$21.9 million compared with a negative adjustment of $12.5 million for Q4 2008 and a positive
adjustment of $1.2 million for Q1 2008. A significant portion of the negative pricing adjustments in the
three months ended December 31, 2008 was generated from the August and September 2008 shipments.
These shipments were provisionally priced at $3.17 per pound when they were shipped. The quotational
periods declared for these shipments were January and February 2009 respectively when the copper price
dropped to $1.46 per pound in January and $1.50 per pound in February. Consequently, an adjustment
was made to revenues to adjust to the forward price of copper available, resulting in a realized price of
US$0.39/lb. Without these adjustments, the revenue per pound of copper sold during the three months
ended December 31, 2008 was US$1.26 per pound. The comparative realized average price per pound of
copper sold was US$2.99 per pound in Q4 2008 and $3.26 in the Q1 2008.
Due to these negative pricing adjustments and the decline in prices for copper sold during the period,
revenues in the quarter consisted of copper concentrate sales of $7.6 million compared to $51.5 million
for Q4 2008 and $36.6 million for Q1 2008. Molybdenum concentrate sales were $1.2 million in the
quarter compared to $2.7 million for Q4 2008 and $6.7 million for Q1 2008. Silver concentrate sales
were $0.5 million for the quarter compared to $0.3 million for Q4 2008 and $0.2 million for Q1 2008 and
16
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
copper cathode sales were $1.3 million for the quarter compared to $3.1 million for Q4 2008 and $1.3
million Q1 2008.
Cost of production for the quarter was $42.0 million, compared to $40.9 million in Q4 2008, and $19.8
million in Q1 2008. Cost of production consists of total production cost for the period of $30.9 million
(Q4 2008 – $40.6 million; Q1 2008 – $19.7 million); plus concentrate inventory addition of $11.1 million
(Q4 2008 – inventory adjustment of $0.3 million; Q1 2008 – negative inventory adjustment of $1.7
million). Transportation and treatment costs for the quarter amounted to $7.0 million (Q4 2008 – $9.5
million; Q1 2008 – $5.2 million).
Amortization expense of $2.0 million for the current quarter was comparable to Q4 2008 of $2.0 million
and higher than Q1 2008 of $0.7 million. The increase in amortization was the result of capital equipment
additions as well as the utilization of several new pieces of equipment related to the concentrator
expansion. The Company is also currently amortizing deferred stripping costs which had been capitalized
in prior periods. Mining and milling assets are amortized using the units of production method based on
tons mined and milled during the period and divided by the estimated tonnage to be mined and milled in
the mine plan.
Exploration expenses for the quarter were $1.1 million, compared to $3.3 million in Q4 2008, and $2.1
million in Q1 2008 due to a lower level of activity relating to the Company’s exploration projects during
the quarter.
General and administrative (“G&A”) expense for the quarter was $2.2 million, compared to $2.1 million
in Q4 2008, and $2.0 million in Q1 2008, which has been relatively constant throughout the periods.
Stock-based compensation expense for the quarter was $1.1 million, compared to a credit of $0.8 million
in Q4 2008, and $2.8 million of expense in Q1 2008. The expense was the result of immediately
recognizing the stock based compensation for unvested stock options which were cancelled during the
quarter as well as newly granted options.
Interest and other income for the quarter was $1.3 million, compared to $1.6 million in Q4 2008, and $2.5
million in Q1 2008. Interest expense and accretion for the quarter was $3.8 million, compared to $1.6
million in Q4 2008 and $1.9 million in Q1 2008. The increase is due to interest component of capital
lease obligations, the use of the Company’s overdraft facility during the period and interest related to
certain tax provisions on the Company’s balance sheet.
The Company recorded a foreign exchange loss for the quarter of $3.2 million, compared to a loss of $1.1
million in Q4 2008, and a loss of $0.04 million in Q1 2008. As the Company reports in Canadian dollars,
the loss is due to the strengthening of the U.S. dollar and the revaluation of certain US-dollar
denominated liabilities at December 31, 2008.
The Company recorded a gain resulting from the change in estimate of reclamation obligation as a result
of an extension of mine life during the quarter in the amount of $4.5 million, compared to $nil in Q4
2008, and $2.4 million in Q1 2008.
17
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
Fifteen months ended December 31, 2008 (“fiscal 2008”) versus twelve months ended September 30,
2007 (“fiscal 2007”)
For the fifteen months ended December 31, 2008, Taseko generated operating profit before quotational
period and inventory adjustments of $56.5 million compared to $103.4 million during the twelve months
ended September 30, 2007. Additionally, during the fifteen-month period, Taseko generated cash from
operating activities of $46.9 million as compared to $86.0 million for the twelve month period ended
September 30, 2007.
A $26.9 million negative pricing adjustment and a $1.5 million negative inventory adjustment was
recorded in the fifteen months ended December 31, 2008 related to the rapid deterioration in base metal
prices, including copper and molybdenum in the quarter ended December 31, 2008. The result of these
adjustments and other expenses was net earnings after tax of $3.5 million for the fifteen months ended
December 31, 2008 as compared to net earnings after tax of $48.2 million for the year ended September
30, 2007.
The Company recognized revenues of $231.7 million in fiscal 2008, compared to $218.4 million in fiscal
2007. Revenues consisted of copper concentrate sales of $194.6 million (2007 – $191.1 million),
molybdenum concentrate sales of $21.9 million (2007 – $18.6 million), silver concentrate sales of $1.6
million (2007 – $1.4 million), and copper cathode sales of $13.6 million (2007 – $7.4 million). The
increase in revenue was the result of higher copper shipments in fiscal 2008. However, this increase was
offset by lower realized prices on copper sold. For fiscal 2008, 77.9 million pounds of copper
(concentrate and cathode) were sold compared to 55.5 million pounds of copper (concentrate and
cathode) for fiscal 2007. The average price per pound of copper sold decreased to US$2.68 per pound for
fiscal 2008, down from US$3.27 per pound for fiscal 2007 as a result of a drop in copper demand in the
fifth quarter. Molybdenum sales were also higher in fiscal 2008 due to higher volume of sales and
concentrate shipped. Molybdenum shipments increased to 0.8 million pounds for fiscal 2008 from 0.6
million pounds for fiscal 2007. However, a decline in the price of molybdenum in the last half of 2008
decreased the average price of molybdenum realized to US$28.19 per pound for fiscal 2008, down from
US$28.26 per pound for fiscal 2007.
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
periods for copper are either one or 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.
Final settlement is based on the average applicable price for a specified future period, and generally
occurs from one to five months after shipment. Should prices decrease between the time of shipment and
final settlement, a negative pricing adjustment is recorded. As a result of the overall decrease in copper
and molybdenum prices from September to December 2008, the Company had negative pricing
adjustments of $27.0 million in fiscal 2008 compared with $2.3 million of positive pricing adjustments in
fiscal 2007. A significant portion of the negative pricing adjustments in fiscal 2008 was generated from
the August and September 2008 shipments. These shipments were provisionally priced at $3.17 per
pound when they were shipped. The quotational periods declared for these shipments were January and
February 2009 respectively when the copper price dropped to $1.46 per pound in January and $1.50 per
pound in February 2009.
18
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
Cost of sales for fiscal 2008 was $196.2 million, compared to $109.5 million for fiscal 2007. Cost of
sales for fiscal 2008 consists of total production cost of $158.8 million (2007 – $79.0 million) and a
concentrate inventory adjustment of $2.4 million (2007 – $9.2 million). Also included in cost of sales is
transportation and treatment costs, which were $35 million for fiscal 2008 (2007 – $21.3 million). Cost of
sales was higher during fiscal 2008 mainly due to higher production volumes, increases in fuel and ocean
freight charges and the expense of stripping costs which were capitalized in the prior year. In addition,
lost mill production time from the electrical transformer failure in May 2008 also contributed to higher
production costs.
Amortization expense for fiscal 2008 was $7.4 million compared to $3.2 million in fiscal 2007. The
increase is the result of capital equipment additions as well as the utilization of several new pieces of
equipment related to the concentrator expansion. The Company is also currently amortizing deferred
stripping costs which had been capitalized in prior periods. Mining and milling assets are amortized
using the units of production method based on tons mined and tons milled during the period and divided
by the estimated tonnage to be mined and milled in the mine plan.
Exploration expenses increased to $11.9 million in fiscal 2008 compared to $9.0 million in fiscal 2007,
due to a higher level of activity relating to the Company’s Prosperity project and work performed on the
environmental assessment review (see Section 1.2.2). Exploration expenses of $6.2 million (fiscal 2007 –
$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 (“G&A”) costs increased to $11.0 million in fiscal 2008 from $6.5 million in
fiscal 2007, mainly due to an extended reporting period of fifteen months in 2008 compared to twelve
months in 2007. The increase in G&A was also due to higher salaries and benefits (2008 – $7.3 million,
2007 – $3.5 million) resulting from more staff required to support the Company’s exploration projects,
expansion at Gibraltar and general corporate activities. Other G&A costs include conference and travel
(2008 – $1.0 million; 2007 – $0.5 million); consulting (2008 – $0.3 million; 2007 – $0.6 million);
shareholder communication (2008 – $0.6 million; 2007 – $0.5 million) legal and accounting (2008 – $1.5
million; 2007 – $1.2 million); trust and filing (2008 – $0.3 million; 2007 – $0.2 million).
Stock-based compensation was $6.4 million in fiscal 2008 compared to $6.8 million in fiscal 2007. Most
of the stock-based compensation in fiscal 2008 resulted from immediately recognizing the stock-based
compensation for unvested stock options which were cancelled during the period as well as newly granted
options.
Interest and other income decreased to $9.7 million as compared to $11.1 million in fiscal 2007. The
decrease was due to a lower average cash balance in fiscal 2008. Interest expense and interest accretion
increased to $11.2 million in fiscal 2008 compared to $8.9 million in fiscal 2007 mainly due to an
extended reporting period of fifteen months in 2008 compared to twelve months in 2007. In addition, the
Company entered into capital lease obligations as well as used its overdraft facility during the period and
interest incurred related to certain tax provisions on the Company’s balance sheet. The Company recorded
a foreign exchange loss of $4.0 million for fiscal 2008 compared to a gain of $0.2 million in fiscal 2007.
The loss is due to the strengthening of the U.S. dollar and the revaluation of certain US-dollar
denominated liabilities at December 31, 2008.
19
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company recorded a gain resulting from the change in estimate of reclamation obligation as a result
of an extension mine life in fiscal 2008 of $6.9 million, compared to a similar gain of $4.6 million for
fiscal 2007.
Current income tax recovery of $2.2 million (2007 – expense of $4 million) and future income taxes
recovery of $3.4 million (2007 – expense of $35.6 million) were recorded for the fifteen months ended
December 31, 2006. The decrease in taxes is due mainly to a reduction in profitability as a result of the
economic downturn and the use of available tax pools to offset taxable income.
The Company also has a long term tax liability provision of $30.7 million (2007 – $24.6 million)
recorded on the Company’s balance sheet recorded in fiscal 2008 in accordance with Canadian generally
accepted accounting principles.
1.6
Liquidity
At December 31, 2008, the Company had cash and equivalents of $4.6 million, as compared to $37.6
million at September 30, 2007. At February 28, 2009, the Company’s cash and equivalents has increased
to $32.8 million.
Management anticipates that sales from copper and molybdenum concentrate and copper cathode, along
with the US$30 million term facility and $25 million equity financing announced on March 26, 2009 as
disclosed in Section 1.7 Capital Resources, the new 24-month mine plan and implemented cash
management strategies will be sufficient to fund current operations and satisfy obligations as they come
due. Management is actively monitoring all commitments and planned expenditures necessary to maintain
operational objectives for the upcoming fiscal year.
A new 24-month mining plan was implemented in November 2008 for the Gibraltar mine, which includes
a significantly reduced strip ratio and lower equipment hours and manpower requirements. This plan,
along with declining input costs, a weaker Canadian dollar and the completion of the remaining Phase 2
expansion items will reduce operating costs and ensure there is sufficient liquidity and working capital to
manage the current economic downturn.
Liquidity Risk
The Company ensures that there is sufficient capital in order to meet short term business requirements,
after taking into account cash flows from operations and the Company's holdings of cash and equivalents.
The Company believes that these sources will be sufficient to cover the likely short and long term cash
requirements. The Company's cash and equivalents are invested in business accounts bankers
acceptances, which are available on demand for the Company's programs.
20
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following are the contractual maturities of contractual obligations (in thousands of Canadian dollars):
2008
Accounts payable and accrued liabilities
Accrued quotational payments
Bank overdraft facility (repaid in Feb 2009)
Amounts due to related parties
Capital lease obligation
Convertible debt
Royalty obligation
Carrying
amount
$ 27,468
25,568
5,737
1,772
18,900
35,219
64,357
2009
$ 27,468
25,568
5,737
1,772
4,280
–
3,384
2010
$ –
2011
$ –
Over 3
years
$ –
–
4,003
–
4,804
–
4,003
35,219
5,862
–
6,614
–
50,307
Total contractual obligations
$ 179,021
$ 68,209
$ 8,807
$ 45,084
$ 56,921
The Company also has purchase orders in the normal course of operations for capital equipment required
for the Gibraltar expansion project in the amount of $17,375,000. The orders have specific delivery dates
and financing of this equipment will be through existing cash resources.
Other than those obligations disclosed in the notes to its audited annual financial statements for the fiscal
period ended December 31, 2008, the Company had no other material commitments for material capital
expenditures as of December 31, 2008.
Although the Company has implemented the necessary plans to ensure sufficient financial liquidity, the
Company’s ability to repay or refinance its financial liabilities to their contractual maturities depends on a
number of factors, some of which are beyond the Company’s control. There is no assurance that our
expected cash flows from operations in combination with other steps being taken will allow us to meet
these obligations as they become due.
1.7
Capital Resources
The Company’s primary sources of liquidity and capital resources are our cash flow provided from
operations as well as equity and debt financings.
Equity Financings – Private Placements
On October 30, 2007, the Company closed a "bought deal" short form prospectus offering of 7,115,385
common shares at a price of $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 aggregate gross proceeds to
the Company of $42.5 million.
On November 13, 2007, the Company completed a private placement financing by issuing 1,455,100
common shares at a price of $5.20 per share for gross proceeds of $7.6 million.
21
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
On December 17, 2008, the Company completed a private placement financing of 8,571,429 units (the
“Units”), which each Unit consisting of one common share and one common share purchase warrant (a
“Warrant”), at the issue price of $0.70 per Unit (the “Purchase Price)” for gross proceeds of $6 million.
Each Warrant entitles the holder to purchase one common share of the Company for a period of 24
months at the exercise price of $0.85 per Warrant Share in the first 12 months and $0.95 per Warrant
Share in the second 12 months.
On March 26, 2009, the Company announced it had entered into an agreement with a syndicate of
underwriters under which the underwriters have agreed to buy from Taseko 13,793,104 common shares at
an issue price of $1.45 per common share (the "Offering") for gross proceeds of approximately $20
million. The underwriters will have an over-allotment option, exercisable at any time prior to 30 days
after the closing date, to acquire up to an additional number of common shares equal to 15% of the
number of common shares sold pursuant to the Offering, at the issue price. The Company also announced
it intends to issue, via a non-brokered private placement at the same price as the Offering, approximately
CDN$5 million of common shares (the "Non-Brokered Offering"). Finder's fees will be payable on the
Non-Brokered Offering. The net proceeds from the Offering and the Non-Brokered Offering are intended
to be used for general working capital and corporate purposes.
Debt Financings
During the 2008 fiscal period, the Company signed an overdraft facility with a Canadian financial
institution for up to $10 million. As at December 31, 2008, the Company had drawn $5.7 from the
overdraft facility. The term of the facility bore interest at prime rate plus 1% and was secured against the
Company’s accounts receivable. The facility agreement stipulated that the facility will be terminated in
the event the London Metal Exchange (“LME”) monthly cash price of copper reduces below US$2.00.
The facility was also subject to minimum working capital, interest and debt-to-equity ratio covenants.
Subsequent to year-end, due to the decrease in copper prices below US$2.00, the Company repaid the
facility in full.
In February 2009, the Company entered into a US$30 million 36-month term facility agreement (the
“Facility”) with Credit Suisse repayable commencing 14 months after the first utilization of the
“Facility”. The loan bears interest at LIBOR plus 4 percent. Pursuant to security agreements entered into
in connection with the Facility, the Company has ceded as security, certain equipment of the Gibraltar
Mine and the MRI treatment and refining agreement.
Other Sources
The Company acquired certain mining equipment during the year in the amount of $17.6 million pursuant
to three to four year capital lease agreements. These capital lease obligations are secured by the mining
equipment and are repayable in monthly installments. Interest is charged at rates linked to the prevailing
prime rate.
The Company was permitted by the Government of British Columbia to release $5 million from the
Gibraltar mine reclamation deposit in exchange for security on certain equipment of the Gibraltar mine.
Subsequent to period end, the Company obtained further approval and release $3.9 million from the
reclamation deposit.
22
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
Other than those obligations disclosed in the notes to its audited annual financial statements for the fiscal
period ended December 31, 2008, the Company has no other long term debt, capital lease obligations,
operating leases or any other long term obligations as of December 31, 2008.
1.8
Off-Balance Sheet Arrangements
None.
1.9
Transactions with Related Parties
Hunter Dickinson Services Inc. ("HDSI") (formerly Hunter Dickinson Inc.) is a private company owned
equally by several public companies, one of which is Taseko. HDSI has certain directors in common with
the Company and carries out geological, engineering, corporate development, administrative, financial
management, investor relations, and other management activities for, and incurs third party costs on
behalf of, the Company. The Company reimburses HDSI on a full cost-recovery basis per agreement
dated June 1, 2008.
Costs for services rendered and costs incurred on behalf of the Company by HDSI during the fiscal period
ended December 31, 2008 were $8.9 million, as compared to $4.9 million in the year of 2007. The
increase over prior fiscal year is due to higher staffing levels required to support the increase in general
corporate development and exploration activities.
1.10 Current Quarter
Please refer to section 1.5 Results of Operations.
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 fiscal period ended December 31, 2008. The preparation of consolidated financial
statements in accordance with generally accepted accounting principles requires management to select
accounting policies and make estimates. Such estimates may have a significant impact on the
consolidated financial statements. These estimates include:
(cid:2) mineral resources and reserves,
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
the carrying values of concentrate inventories and supplies inventories
the carrying values of mineral properties,
the carrying values of property, plant and equipment,
rates of amortization of property, plant and equipment
the carrying values of the reclamation liability,
23
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
the carrying values of the convertible debentures and conversion rights,
income taxes,
the valuation allowances for future income taxes,
the carrying values of the receivables from sales of concentrate,
the carrying values of deferred revenue,
the assumptions used in determining the reclamation obligation, and
the valuation of stock-based compensation expense.
Actual amounts could differ from the estimates used and, accordingly, affect the results of operations.
During the fifteen months fiscal period ended December 31, 2008, the Company increased its mineral
reserves at the Company's Gibraltar mine, thereby extending the life of the mine. Consequently, the rates
of amortization of the Company's property, plant and equipment, the carrying values 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 during the period 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.
Due to the recent drop in commodity prices, the Company conducted a review of the carrying values of its
mineral properties, plant, and equipment under Canadian GAAP as at December 31, 2008. The Company
prepared cash flow forecasts for the Gibraltar mine and exploration projects using price assumptions
reflecting prevailing commodity prices and analysts' consensus forecasts, current life-of-mine plans and
forecast operating cost profiles. The long-term price assumptions used were US$1.75 per pound of copper
and US$12 per pound of molybdenum. No impairment was identified for the Gibraltar Mine and the
Company’s other exploration projects.
The Company also conducted a review of its inventory and recorded an adjustment of $1.5 million to
reduce the concentrate inventory to its net realizable value at December 31, 2008.
1.13 Change in Accounting Policies including Initial Adoption
Effective October 1, 2007, 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)
Accounting Changes (Section 1506)
This standard establishes criteria for changing accounting policies, together with the accounting treatment
and disclosure of changes in accounting policies, changes in accounting estimates and correction of
errors. As a result, changes in accounting policies are only permitted when required by a primary source
of GAAP or when the change will result in more reliable and more relevant information.
24
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
(b)
Capital Disclosures (Section 1535)
This standard requires disclosure of an entity’s objectives, policies and processes for managing capital,
quantitative data about what the entity regards as capital and whether the entity has complied with any
externally imposed capital requirements and, if it has not complied, the consequences of such non-
compliance.
(c)
Financial Instruments – Disclosure (Section 3862) and Presentation (Section 3863)
These standards replace CICA 3861, "Financial Instruments – Disclosure and Presentation". These new
standards require entities to disclose quantitative and qualitative information that enable users to evaluate
the significance of financial instruments on the Company’s financial performance, and the nature and
extent of risks arising from financial instruments to which the Company is exposed during the year and at
the balance sheet date. In addition, disclosure is required of management’s objectives, policies and
procedures for managing these risks.
(d)
Inventories (Section 3031)
This standard replaces the existing Section 3030 with the same title and will harmonize accounting for
inventories under Canadian GAAP with International Financial Reporting Standards ("IFRS"). This
standard requires that inventories be measured at the lower of cost and net realizable value, and includes
guidance on the determination of costs, including the allocation of overheads and other costs. The
standard also requires that similar inventories within a consolidated group be measured using the same
method. It also requires the reversal of previous write-downs to net realizable value when there is a
subsequent increase in the value of inventories. The Company adopted this standard during the current
period and determined that there was no significant impact on the financial statements.
(e)
Going Concern – Amendments to Section 1400
CICA Section 1400, "General Standards of Financial Statement Presentation", was amended to include
requirements to assess and disclose an entity's ability to continue as a going concern. The Company has
assessed its ability to continue as a going concern and concluded that it will be able to continue as a going
concern. The Company has made the following disclosure in the notes to the financial statements:
The consolidated financial statements are prepared on the basis that the Company will continue as
a going concern which contemplates the realization of assets and settlement of liabilities in the
normal course of operations as they come due. As at December 31, 2008, the Company had cash
and equivalents of $4,587,000 and a working capital deficit of $70,770,000.
Deterioration of global economic conditions during the latter part of the 2008 calendar year
resulted in a significant weakening of base metal prices and high volatility in the exchange traded
commodity prices. As well as affecting the commodity price received on the Company’s sales,
the rapid decline in copper and molybdenum prices generated significant negative provisional
pricing adjustments for sales in the final quarter of 2008, resulting in an increase in accrued
liabilities as the price adjustment features are treated as embedded derivatives for accounting
25
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
purposes and are marked-to-market at each period end. The Company has US$30 million in
convertible bonds (note 14) that have a “put” right to be redeemed at 100.6% by the Bondholders
in August 2009. Due to this “put” right, the bonds have been accordingly classified as current
liabilities as at December 31, 2008. Subsequent to year-end, the Company secured a US$30
million 36-month term facility agreement (note 21(b)) and announced a $25 million “bought-
deal” equity financing (note 21(c)). The Company is also committed to equipment purchases in
relation to its expansion activities at the Gibraltar Mine in the amount of $ $17,375 (note 20 (a)).
Although the Company has had a history of operating profit, recent economic events have also
impacted the profitability of the Company’s operations. The Company is monitoring all
expenditures and implementing appropriate cash management strategies to ensure that it has
adequate cash resources to fund identified commitments. The Company has implemented a new
24-month operational mine plan which will sustain current mill throughput while mining at a
reduced strip ratio, resulting in reduced operating costs. Furthermore, certain expansion projects
have been deferred until improvements occur in the credit and commodity markets. While there
can be no assurances that the Company’s plans to address the current economic events will be
successful, management believes that there is sufficient funding through our current resources,
credit facilities and cash flow from operations to continue as a going concern.
If the Company is unable to maintain profitable operations and generate sufficient cash flows to
meet obligations as they come due, the Company may have to reduce or curtail its operations and
exploration activities or obtain financing at unfavorable terms. Furthermore, failure to continue as
a going concern would require that the Company’s assets and liabilities be restated on a
liquidation basis which would differ significantly from the going concern basis.
New Accounting Standards Not Yet Adopted
(f)
International Financial Reporting Standards ("IFRS")
The Canadian Accounting Standards Board ("AcSB") has announced its decision to replace Canadian
generally accepted accounting principles (“Canadian GAAP”) with International Financial Reporting
Standards ("IFRS") for all Canadian publicly-listed companies. The AcSB announced that the changeover
date will commence for interim and annual financial statements relating to fiscal years beginning on or
after January 1, 2011. The transition date for the Company to changeover to IFRS will be January 1,
2011. Therefore, the IFRS adoption will require the restatement for comparative purposes of amounts
reported by the Company for the year ended December 31, 2010. The Company is currently in the
process of developing an IFRS conversion plan and evaluating the impact of the transition to IFRS.
26
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
(g)
Section 3064 – Goodwill and Intangibles
The AcSB issued CICA Handbook Section 3064, which replaces Section 3062, “Goodwill and Other
Intangible Assets”, and Section 3450, “Research and Development Costs”. This new section establishes
standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its
initial recognition and of intangible assets. Standards concerning goodwill remain unchanged from the
standards included in the previous Section 3062. The section applies to interim and annual financial
statements relating to fiscal years beginning on or after October 1, 2008. The Company is currently
evaluating the impact of this new standard and anticipates this standard will have no significant impact on
the financial statements.
1.14
Financial Instruments and Other Instruments
Please refer to note 6 of the accompanying audited consolidated financial statements.
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.
27
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
1.15.2 Disclosure of Outstanding Share Data
The following details the share capital structure as at March 26, 2009, 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
153,187,116
March 27, 2009
March 27, 2009
Feb 14, 2010
July 03, 2010
September 28, 2010
September 28, 2010
September 28, 2010
Feb 24, 2011
Feb 24, 2011
March 28, 2011
April 22, 2011
August 22, 2011
February 24, 2012
February 24, 2012
December 10, 2011
December 10, 2013
January 12, 2014
$ 2.18
$ 2.68
$ 3.07
$4.03
$1.15
$ 1.15
$ 2.07
$4.50
$ 2.18
$ 2.63
$5.45
$ 4.09
$ 3.07
$ 4.50
$1.00
$1.00
$1.15
90,000
20,000
66,000
60,000
348,334
780,000
70,000
98,000
442,000
40,000
10,000
28,334
165,000
135,000
2,022,050
3,413,000
2,175,000
9,962,718
Warrants
December 17, 2010
$0.85
9,085,715
9,085,714
Convertible bonds
August 29, 2011
US$3.35
8,955,224
8,955,224
Preferred shares redeemable into Taseko Mines Limited common shares
12,483,916
28
FIFTEEN MONTH FISCAL PERIOD ENDED DECEMBER 31, 2008
MANAGEMENT'S DISCUSSION AND ANALYSIS
1.15.3 Internal Controls over Financial Reporting Procedures
The Company's management is responsible for establishing and maintaining adequate internal control
over financial reporting. The Company’s internal control system was designed to provide reasonable
assurance to the Company’s management and the board of directors regarding the preparation and fair
presentation of published financial statements. 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
assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company, and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial statements. All internal control
systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined effective can provide only reasonable assurance with respect to financial statement
preparation and presentation.
The Company’s management, with the participation of the Chief Executive Officer and the Chief
Financial Officer, has evaluated the effectiveness of internal control over financial reporting based on the
framework and criteria established in Internal Control – Integrated Framework, issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management
has concluded that internal control over financial reporting was effective as of December 31, 2008 to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements in accordance with GAAP.
There have been no significant changes in internal controls over financial reporting during the fiscal
period ended December 31, 2008 that could have materially affected or are reasonably likely to materially
affect the Company's internal control over financial reporting.
1.15.4 Disclosure Controls and Procedures
Disclosure controls and procedures are those controls and procedures that are designed to ensure that the
information required to be disclosed in the filings under applicable securities regulations is recorded,
processed, summarized and reported within the time periods specified. As at December 31, 2008, under
the supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of
the Company’s disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer
and the Chief Financial Officer have concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were effective.
There have been no significant changes in the Company's disclosure controls and procedures during the
fiscal period ended December 31, 2008 that could have materially affected or are reasonably likely to
materially affect the Company’s disclosure controls and procedures.
29
CONSOLIDATED FINANCIAL STATEMENTS
FISCAL PERIODS ENDED
DECEMBER 31, 2008, SEPTEMBER 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars)
(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:7)(cid:3)(cid:6)
(cid:8)(cid:9)(cid:10)(cid:11)(cid:12)(cid:13)(cid:11)(cid:13)(cid:14)(cid:6)(cid:15)(cid:16)(cid:16)(cid:17)(cid:18)(cid:19)(cid:12)(cid:10)(cid:19)(cid:12)(cid:20)(cid:6)
(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:4)(cid:8)(cid:9)(cid:10)(cid:11)(cid:12)(cid:4)(cid:4)(cid:13)(cid:13)(cid:13)(cid:4)(cid:14)(cid:15)(cid:16)(cid:17)(cid:18)(cid:15)(cid:19)(cid:20)(cid:4)(cid:21)(cid:22)(cid:20)(cid:23)(cid:23)(cid:22)(cid:4)
(cid:24)(cid:25)(cid:16)(cid:26)(cid:6)(cid:15)(cid:27)(cid:23)(cid:20)(cid:4)(cid:4)(cid:5)(cid:28)(cid:4)(cid:4)(cid:24)(cid:13)(cid:29)(cid:4)(cid:8)(cid:30)(cid:31)(cid:4)
(cid:28)(cid:25)(cid:16)(cid:25) (cid:25)(cid:6)
(cid:4)
!(cid:23)"(cid:23)#$(cid:6)(cid:16)(cid:23)(cid:4)
)(cid:25)(cid:7)(cid:4)
*(cid:16)(cid:22)(cid:23)(cid:20)(cid:16)(cid:23)(cid:22)(cid:4)
%(cid:12)(cid:9)(cid:10)&(cid:4)(cid:12)’(cid:8)((cid:31)(cid:9)(cid:9)(cid:9)(cid:4)
%(cid:12)(cid:9)(cid:10)&(cid:4)(cid:12)’(cid:8)((cid:31)(cid:9)(cid:31)(cid:8)(cid:4)
+++,-#(cid:18).,(cid:26)(cid:25)(cid:4)
AUDITORS' REPORT
To the Shareholders of Taseko Mines Limited
We have audited the consolidated balance sheets of Taseko Mines Limited (“the Company”) as at
December 31, 2008 and September 30, 2007 and the consolidated statements of operations and
comprehensive income (loss), shareholders’ equity and cash flows for the fifteen month period ended
December 31, 2008 and for the years ended September 30, 2007 and 2006. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards 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 December 31, 2008 and September 30, 2007 and the results
of its operations and its cash flows for the fifteen month period ended December 31, 2008 and for the
years ended September 30, 2007 and 2006 in accordance with Canadian generally accepted
accounting principles.
Chartered Accountants
Vancouver, Canada
March 27, 2009
(cid:4)
(cid:4)
(cid:30)(cid:2)/0(cid:4)11(cid:2)2(cid:4)(cid:25)(cid:4)(cid:28)(cid:25)(cid:16)(cid:25) (cid:19)(cid:25)(cid:16)(cid:4)"(cid:19)(cid:18)(cid:19)(cid:22)(cid:23) (cid:4)"(cid:19)(cid:25)3(cid:19)"(cid:19)(cid:22)4(cid:4)#(cid:25)(cid:20)(cid:22)(cid:16)(cid:23)(cid:20)(cid:17)$(cid:19)#(cid:4)(cid:19)(cid:17)(cid:4)(cid:22)$(cid:23)(cid:4)(cid:28)(cid:25)(cid:16)(cid:25) (cid:19)(cid:25)(cid:16)(cid:4)
(cid:18)(cid:23)(cid:18)3(cid:23)(cid:20)(cid:4)5(cid:19)(cid:20)(cid:18)(cid:4)(cid:6)5(cid:4)(cid:30)(cid:2)/0(cid:4)*(cid:16)(cid:22)(cid:23)(cid:20)(cid:16)(cid:25)(cid:22)(cid:19)(cid:6)(cid:16)(cid:25)"2(cid:4)(cid:25)(cid:4)(cid:21)+(cid:19)(cid:17)(cid:17)(cid:4)(cid:26)(cid:6)(cid:6)#(cid:23)(cid:20)(cid:25)(cid:22)(cid:19)(cid:27)(cid:23),(cid:4)
TASEKO MINES LIMITED
Consolidated Balance Sheets
(Expressed in thousands of Canadian Dollars)
ASSETS
Current assets
Cash and equivalents
Restricted cash (note 11)
Marketable securities and investments (note 7)
Accounts receivable
Advances to a related party (note 12)
Inventory (note 5)
Prepaid expenses
Advances for equipment (note 20(a))
Current portion of promissory note (note 9(d))
Restricted cash (note 11)
Advances for equipment (note 20(a))
Reclamation deposits (note 15)
Promissory note (note 9(d))
Mineral property interests, plant and equipment (note 10)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 13)
Accounts payable and accrued liabilities
Amounts due to a related party (note 12)
Convertible debt (note 14)
Current portion of lease liability (note 16)
Current portion of deferred revenue (note 9(d))
Current portion of royalty obligation (note 9(d))
Income taxes payable
Current portion of future income taxes (note 18)
Income taxes (note 18)
Royalty obligation (note 9(d))
Deferred revenue (note 9(d))
Convertible debt (note 14)
Capital leases (note 16)
Site closure and reclamation obligation (note 15)
Future income taxes (note 18)
Shareholders' equity
Share capital (note 17)
Equity component of convertible debt (note 14)
Tracking preferred shares (note 8)
Contributed surplus
Accumulated other comprehensive income (loss)
Deficit
Continuing operations and going concern (note 1)
Commitments (note 20)
Subsequent events (notes 15 and 21)
December 31
2008
(note 2)
September 30
2007
$
$
$
$
4,587
4,400
3,138
4,606
–
20,340
329
499
3,384
41,283
–
5,882
32,396
73,684
325,000
478,245
$
$
5,737
53,036
1,772
35,219
3,324
175
3,384
937
8,469
112,053
30,685
60,973
831
–
13,100
10,366
15,330
243,338
285,690
3,832
26,642
14,561
(6,680)
(89,138)
234,907
37,636
–
18,542
12,021
807
18,058
1,069
–
2,086
90,219
4,400
–
33,396
72,350
176,898
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
$
478,245
$
377,263
See accompanying notes to consolidated financial statements.
Approved by the Board of Directors
/s/ Russell E. Hallbauer
Russell E. Hallbauer
Director
/s/ Ronald W. Thiessen
Ronald W. Thiessen
Director
TASEKO MINES LIMITED
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Expressed in thousands of Canadian Dollars, except per share amounts)
Revenue
Copper
Molybdenum
Cost of sales
Depletion, depreciation and amortization
Operating profit
Expenses (income)
Accretion of reclamation obligation (note 15)
Asset retirement obligation change of estimates (note 15)
Change in fair value of financial instruments (note 7)
Exploration
Foreign exchange loss (gain)
Gain on sale of marketable securities
General and administration
Interest accretion on convertible debt (note 14)
Interest and other income
Interest expense
Ledcor termination fee (note 9(a))
Loss on extinguishment of capital leases
Stock-based compensation (17(c))
Earnings (loss) before income taxes
Current income tax expense (recovery) (note 18)
Future income tax expense (recovery) (note 18)
Fifteen Months Ended
December 31, 2008
Year Ended
September 30, 2007
Year Ended
September 30, 2006
$
209,784
21,894
231,678
(196,261)
(7,363)
28,054
$
$
199,872
18,554
218,426
(109,533)
(3,155)
105,738
1,451
(6,917)
886
11,864
4,032
(1,034)
11,896
2,938
(9,701)
8,284
–
–
6,442
30,141
(2,087)
(2,151)
(3,446)
1,777
(4,570)
1,925
8,967
233
(1,508)
6,501
2,922
(11,093)
5,947
–
–
6,771
17,872
87,866
3,959
35,645
140,341
21,559
161,900
(103,628)
(3,412)
54,860
1,732
–
–
3,544
(289)
–
5,286
1,280
(7,170)
4,594
3,500
240
3,182
15,899
38,961
4,397
1,648
Net earnings for the period
$
3,510
$
48,262
$
32,916
Other comprehensive income (loss)
Unrealized gain (loss) on available-for-sale reclamation deposit
Unrealized gain (loss) on available-for-sale marketable securities
Reclassification of realized gain on sale of marketable securities
Tax effect
Other comprehensive income (loss)
1,859
(11,295)
(1,152)
1,570
(9,018)
$
(419)
4,710
(1,508)
(445)
2,338
$
–
–
–
–
–
$
Total comprehensive income (loss)
$
(5,508)
$
50,600
$
32,916
Earnings per share
Basic
Diluted
Weighted average number of common shares outstanding
Basic
Diluted
See accompanying notes to consolidated financial statements.
$
$
0.02
0.02
$
0.37
0.36
$
0.29
0.26
142,062
156,928
129,218
142,278
113,554
126,462
TASEKO MINES LIMITED
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian Dollars)
Operating activities
Net earnings for the period
Items not involving cash
Reclamation obligation change in estimate
Accretion of reclamation obligation
Depreciation, depletion and amortization
Interest accretion on convertible debt
Loss on extinguishment of capital leases
Stock-based compensation
Future income taxes
Unrealized foreign exchange loss (gain)
Loss (gain) on sale of marketable securities
Change in fair value of financial instruments
Changes in non-cash operating working capital
Accounts receivable
Advances to a related party
Inventory
Prepaid expenses
Accrued interest income on promissory note
Accounts payable and accrued liabilities
Deferred revenue
Accrued interest recovery (expense) on royalty obligation
Income taxes
Site closure and reclamation expenditures
Cash provided by operating activities
Investing activities
Purchase of property, plant and equipment
Purchase of mineral property interest
Reclamation deposits
Funds released from reclamation deposits
Accrued interest income on reclamation deposits
Restricted cash
Investment in marketable securities
Proceeds from sale of marketable securities
Advance payments for equipment
Investment in convertible promissory note
Cash used for investing activities
Financing activities
Proceeds from bank indebtedness
Principal repayments under capital lease obligation
Common shares issued for cash, net of issue costs
Capital lease payments
Convertible bonds issued, net of issue costs
Settlement of convertible debenture (note 14(b))
Cash provided by financing activities
Increase (decrease) in cash and equivalents
Cash and equivalents, beginning of period
Fifteen Months Ended
December 31, 2008
Year Ended
September 30, 2007
Year Ended
September 30, 2006
$
3,510
$
48,262
$
32,916
(6,917)
1,451
7,363
2,938
–
6,442
(3,446)
6,334
(1,034)
886
7,415
2,579
(2,282)
741
(2,632)
22,603
(219)
(1,060)
2,358
(183)
46,847
(134,186)
–
(109)
5,000
(2,032)
–
(254)
3,360
(6,381)
–
(134,602)
5,737
–
53,599
(1,061)
–
(3,569)
54,706
(33,049)
37,636
(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)
(20)
–
(1,791)
(4,400)
(21,564)
16,999
–
–
(139,608)
–
–
1,857
–
–
–
1,857
(51,772)
89,408
–
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)
–
(13,000)
–
(723)
5,000
–
–
–
(11,500)
(36,369)
–
(15,077)
31,893
–
31,826
–
48,642
67,679
21,729
89,408
Cash and equivalents, end of period
$
4,587
$
37,636
$
Suplemental cash flow disclosures (note 19)
See accompanying notes to consolidated financial statements.
TASEKO MINES LIMITED
Consolidated Statements of Shareholders' Equity
(Expressed in thousands of Canadian Dollars, except for per share and share amounts)
Common shares
Balance at beginning of the period
Share purchase options at $0.05 per share
Share purchase options at $1.15 per share
Share purchase options at $1.29 per share
Share purchase options at $1.36 per share
Share purchase options at $1.40 per share
Share purchase options at $1.50 per share
Share purchase options at $2.07 per share
Share purchase options at $2.18 per share
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 purchase options at $4.09 per share
Share purchase options at $4.50 per share
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
Shares issued for the purchase of mineral property interest
Fair value of stock options allocated to shares issued on exercise
Shares issued for the purchase of royalty interest (note 9(f))
Shares issued for debt conversion (note (14(b))
Equity financings at $5.20 per share, net of issue costs (note (17(b))
Equity financings at $0.70 per share, net of issue costs (note (17(b))
Balance at end of the period
Equity component of convertible debt
Balance at beginning of the period
Convertible debenture conversion adjustment (note 14(b))
Balance at end of the period
Tracking preferred shares
Balance at beginning and end of the period
Contributed surplus
Balance at beginning of the period
Stock-based compensation
Fair value of stock options allocated to shares issued on exercise
Balance at end of the period
Accumulated other comprehensive income
Balance at beginning of the period
Unrealized gain (loss) on reclamation deposits
Unrealized gain (loss) on available-for-sale marketable securities
Reclassification of realized gain on sale of marketable securities
Tax effect
Balance at end of the period
Deficit
Balance at beginning of the period
Adjustment to opening deficit
Net earnings for the period
Balance at end of the period
Fifteen Months Ended
December 31, 2008
Year Ended
September 30, 2007
Year ended
September 30, 2006
Number of shares
Number of shares
Number of shares
130,580,538
–
–
–
–
–
–
30,000
145,500
–
7,500
78,500
3,600
5,000
–
–
–
–
–
–
1,000,000
2,612,971
9,637,792
9,085,715
153,187,116
$
205,040
–
–
–
–
–
–
62
317
–
20
241
15
23
–
–
–
–
–
514
5,220
21,318
46,945
5,975
285,690
13,655
(9,823)
3,832
26,642
8,633
6,442
(514)
14,561
2,338
1,859
(11,295)
(1,152)
1,570
(6,680)
(92,648)
–
3,510
(89,138)
128,388,175
–
409,833
75,000
–
–
–
233,300
244,000
20,000
27,500
48,000
–
–
–
–
–
–
1,134,730
–
–
–
–
–
130,580,538
$
197,592
–
471
97
–
–
–
483
532
53
74
147
–
–
–
–
–
–
3,805
1,786
–
–
–
–
205,040
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)
103,457,316
1,500,000
451,833
60,000
1,970,000
3,405,500
10,000
33,333
7,500
–
–
–
–
–
375,000
3,913,332
8,000,000
5,204,361
–
–
–
–
–
–
128,388,175
$
160,830
825
520
77
2,679
4,768
15
69
16
–
–
–
–
–
150
2,935
11,200
8,639
–
4,869
–
–
–
–
197,592
9,823
3,832
13,655
26,642
5,335
3,182
(4,869)
3,648
–
–
–
–
–
–
(173,519)
–
32,916
(140,603)
TOTAL SHAREHOLDERS' EQUITY
$
234,907
$
163,660
$
100,934
See accompanying notes to consolidated financial statements.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
1.
CONTINUING OPERATIONS AND GOING CONCERN
Taseko Mines Limited ("Taseko" or the "Company") is a public company incorporated under the
laws of the Province of British Columbia. At December 31, 2008, the Company's principal
business activities related to the operations of the Gibraltar Copper Mine, and exploration on the
surrounding properties as well as exploration on the Company’s 100% owned Prosperity Gold-
Copper Property, Harmony Gold Property and Aley Niobium Property. The Gibraltar property
and the Prosperity property are located in south central British Columbia, Canada, near the city of
Williams Lake. The Harmony 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.
The consolidated financial statements are prepared on the basis that the Company will continue as
a going concern which contemplates the realization of assets and settlement of liabilities in the
normal course of operations as they come due. As at December 31, 2008, the Company had cash
and equivalents of $4,587 and a working capital deficit of $70,770.
Deterioration of global economic conditions during the latter part of the 2008 calendar year
resulted in a significant weakening of base metal prices and high volatility in the exchange traded
commodity prices. As well as affecting the commodity price received on the Company’s sales,
the rapid decline in copper and molybdenum prices generated significant negative provisional
pricing adjustments for sales in the final quarter of 2008, resulting in an increase in accrued
liabilities as the price adjustment features are treated as embedded derivatives for accounting
purposes and are marked-to-market at each period end. The Company has US$30,000 in
convertible bonds (note 14) that have a “put” right to be redeemed at 100.6% by the Bondholders
in August 2009. Due to this “put” right, the bonds have been accordingly classified as current
liabilities as at December 31, 2008. Subsequent to year-end, the Company secured a US$30,000
36-month term facility agreement (note 21(b)) and announced a $25 million “bought-deal” equity
financing (note 21(c)). The Company is also committed to equipment purchases in relation to its
expansion activities at the Gibraltar Mine in the amount of $17,375 (note 20 (a)).
Although the Company has had a history of operating profit, recent economic events have also
impacted the profitability of the Company’s operations. The Company is monitoring all
expenditures and implementing appropriate cash management strategies to ensure that it has
adequate cash resources to fund identified commitments. The Company has implemented a new
24-month operational mine plan which will sustain current mill throughput while mining at a
reduced strip ratio, resulting in reduced operating costs. Furthermore, certain expansion projects
have been deferred until improvements occur in the credit and commodity markets. While there
can be no assurances that the Company’s plans to address the current economic events will be
successful, management believes that there is sufficient funding through our current resources,
credit facilities and cash flow from operations to continue as a going concern.
If the Company is unable to maintain profitable operations and generate sufficient cash flows to
meet obligations as they come due, the Company may have to reduce or curtail its operations and
exploration activities or obtain financing at unfavorable terms. Furthermore, failure to continue as
a going concern would require that the Company’s assets and liabilities be restated on a
liquidation basis which would differ significantly from the going concern basis.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
2.
BASIS OF PRESENTATION
In September 2008, the Company’s Board of Directors approved a resolution to change the
Company’s year end from September 30 to December 31. Accordingly, these financial statements
are prepared as at December 31, 2008 and September 30, 2007 and for the fifteen months ended
December 31, 2008 and the years ended September 30, 2007 and 2006.
These financial statements have been prepared in accordance with Canadian generally accepted
accounting principles. These consolidated financial statements include the accounts of the
Company and all of its subsidiaries. All material intercompany accounts and transactions have
been eliminated.
3.
SIGNIFICANT ACCOUNTING POLICIES
(a)
Cash and equivalents
Cash and equivalents consist of cash and highly liquid investments, having maturity dates of three
months or less from the date of acquisition, that are readily convertible to known amounts of
cash. At December 31, 2008, of the $4,587 cash and equivalents held by the Company, $2,169
(US$1,756) were held in United States dollar denominated cash and equivalents (September
30, 2007 – $34,717 (US$34,898)). It excludes cash subject to restrictions under supplier
guarantee arrangements (note 11).
(b)
Revenue recognition
Revenue from the sales of metal in concentrate is recognized when persuasive evidence of a sales
agreement exists, the title and risk is transferred to the customer, collection is reasonably assured,
and the price is reasonably determinable. Revenue from the sales of metal may be subject to
adjustment upon final settlement of shipment weights, assays and estimated metal prices.
Adjustments to revenue for metal prices are recorded monthly and other adjustments are recorded
on final settlement. Cash received in advance of meeting these revenue recognition criteria is
recorded as deferred revenue.
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 periods for copper are either one or 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.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
(c)
Inventory
Concentrate inventory consists of metal in concentrate, ore-in-process and stockpiled ore.
Concentrate inventory is valued based on the lower of average production cost and net realizable
value. Production costs include the cost of raw materials, direct labour, mine-site overhead
expenses and depreciation.
The costs of removing waste material in the process of mining ore, referred to as "stripping
costs", are considered costs of the extracted minerals and recognized as a component of
concentrate inventory to be recognized in cost of sales in the same period as the revenue from the
sale of the concentrate inventory.
Materials and supplies inventory is valued at the lower of average cost and net realizable value.
Copper cathode inventory consists 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.
(d)
Financial Instruments
All financial instruments, including derivatives, are included on the Company’s balance sheet and
measured either at fair value or, in certain circumstances when fair value may not be considered
most relevant, at cost or amortized cost. Changes in fair value are recognized in the statements of
operations or accumulated other comprehensive income, depending on the classification of the
related instruments.
All financial assets and liabilities are recognized when the entity becomes a party to the contract
creating the asset or liability. 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 and subsequent measurement and recognition of
changes in the value of financial instruments depends on their initial classification:
(cid:2) 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 (loss).
(cid:2) Available-for-sale financial assets are measured at fair value. Changes in fair
value are included in other comprehensive income (loss) until the gain or loss is
recognized in net earnings (loss).
(cid:2) Held for trading financial instruments are measured at fair value. All changes in
fair value are included in net earnings (loss) in the period in which they arise.
(cid:2) 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 (loss) in the period in which they arise, except for cash flow hedge
transactions which qualify for hedge accounting treatment in which case gains
and losses are recognized in other comprehensive income (loss).
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
In accordance with this standard, the Company had classified its financial instruments as follows:
Financial Instrument
Classification
Measurement
Cash and equivalents
Restricted cash
Held for Trading
Held for Trading
Marketable securities and investments (i)
Available for Sale
Fair Value
Fair Value
Fair Value
Amounts receivable
Loans and Receivables
Amortized cost
Advances to a related party
Loans and Receivables
Amortized cost
Reclamation deposits (ii)
Available for Sale
Fair Value
Promissory note (iii)
Bank indebtedness
Loan and Receivable
Amortized cost
Held for Trading
Fair Value
Accounts payable and accrued liabilities
Other Financial Liability
Amortized cost
Advances from a related party
Other Financial Liability
Amortized cost
Convertible debt (iv)
Other Financial Liability
Amortized cost
i.)
ii.)
iii.)
iv.)
v.)
Marketable securities are classified as available-for-sale securities and are
measured at fair market value with unrealized gains or losses recorded in
comprehensive income (loss). At the time securities are sold or otherwise
disposed of, gains or losses are included in net earnings (loss)
Reclamation deposits invested in government bonds and treasury bills are
classified as available-for-sale securities and are carried at fair market value,
with the unrealized gain or loss recorded in shareholders’ equity as a
component of other comprehensive income (loss). These amounts will be
reclassified from accumulated other comprehensive income (loss) to net
earnings (loss) when the investment is sold.
The Promissory note relating to the Red Mile Resources No. 2 Limited
Partnership Agreement (“Red Mile”) is classified as a loan and receivable.
The debt component of the Convertible bonds and debenture are classified as
other financial liability and are measured at amortized cost.
The Company’s investment in a convertible promissory note of Continental
Minerals Corporation (“Continental”) contained an embedded derivative
which was separated from the host contract and measured at fair value.
Continental repaid this promissory note during fiscal 2007.
(e)
Comprehensive Income (Loss)
Comprehensive income (loss) 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 (loss), such as unrealized gains or losses on
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
available-for-sale investments. This standard requires certain gains and losses that would
otherwise be recorded as part of net earnings (loss) to be presented in other “comprehensive
income (loss)” until it is considered appropriate to recognize into net earnings (loss). This
standard requires the presentation of comprehensive income (loss), and its components in a
separate financial statement that is displayed with the same prominence as the other financial
statements. Accumulated other comprehensive income (loss) is presented as a category in
shareholders’ equity.
Accordingly, the Company reports a consolidated statement of operations and comprehensive
income (loss) and includes the account “accumulated other comprehensive income (loss)” in the
shareholders’ equity section of the consolidated balance sheet.
(f)
Plant and equipment
Plant and equipment are stated at cost less accumulated amortization. Mining and milling assets
are amortized using the units of production method based on tons mined and milled, respectively,
divided by the estimated tonnage to be recovered in the mine plan. 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 are
charged to operations as incurred. Major improvements and replacements which extend the
useful life of the asset are capitalized as incurred.
The costs of removing overburden material to access mineral reserve deposits, referred to as
“stripping costs”, are accounted for as 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.
(g)
Mineral property interests
The Company capitalizes mineral property acquisition costs on a property-by-property basis.
Exploration expenditures and option payments incurred prior to the determination of the
feasibility of mining operations are charged to operations as incurred. Exploration expenditures
incurred subsequent to the mining operations which do not increase production or extend the life
of operations are expensed 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 amortized over the estimated life of the property, or written off to operations if
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
the property is abandoned, allowed to lapse, or if there is little prospect of further work being
carried out by the Company.
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.
Costs related to feasibility work and the development of processing technology are expensed as
incurred. Costs incurred subsequent to the determination of the feasibility of the processing
technology will be capitalized and amortized over the life of the related plant.
Administrative expenditures are expensed as incurred.
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.
(h)
Site closure and reclamation costs
The Company recognizes any statutory, contractual or other legal obligation related to the
retirement of tangible long-lived assets when such obligations are incurred, if a reasonable
estimate of fair value can be made. These obligations are measured initially at fair value and the
resulting costs are capitalized to the carrying value of the related asset. In subsequent periods, the
liability is adjusted for the accretion of the discount and any changes in the amount or timing of
the underlying future cash flows. The asset retirement cost is amortized to operations over the
life of the asset. Changes resulting from revisions to the timing or the amount of the original
estimate of undiscounted cash flows are recognized as an increase or a decrease in the carrying
amount of the liability, and the related asset retirement cost is capitalized as part of the carrying
amount of the related long-lived asset. In the event the required decrease in the asset retirement
cost is in excess of the carrying value, the excess amount is recorded as a change in estimate in
the statement of operations.
(i)
Impairment of long-lived assets
Long-lived assets, including mineral property interests, plant and equipment, are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately
presented in the balance sheet and reported at the lower of the carrying amount and the fair value
less costs to sell, and are no longer amortized.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
The Company prepared cash flow forecasts for the Gibraltar mine and development projects
using price assumptions reflecting prevailing commodity prices and analysts' consensus forecasts,
current life-of-mine plans and forecast operating cost profiles. The analysis was based on a life of
mine of 24 years, using long-term price assumptions of US$1.75 per pound of copper and US$12
per pound of molybdenum as well as a long-term foreign exchange of $1.23 CAD to $1 USD. No
impairment was identified for the Gibraltar Mine and the Company’s other exploration projects as
at December 31, 2008.
Management estimates of mineral prices, recoverable reserves, and operating, capital and
reclamation costs used in impairment tests are subject to certain risks and uncertainties that may
affect the recoverability of mineral property costs. Although management has made its best
estimate of these factors, it is possible that changes could occur in the future that could adversely
affect management’s estimate of the net cash flow from its assets.
(j)
Share capital
The Company records proceeds from share issuances net of issue costs. Shares issued for
consideration other than cash are valued at the quoted market price on the date of issue.
The proceeds, net of issue costs, from common shares issued pursuant to flow-through share
financing agreements are credited to share capital and the tax benefits of these exploration
expenditures are transferred to the purchaser of the shares.
(k)
Stock-based compensation
The Company has a share option plan which is described in note 17(c). The Company records all
stock-based payments using the fair value method. Under the fair value method, stock-based
payments are measured at the fair value of the consideration received or the fair value of the
equity instruments issued or liabilities incurred, whichever is more reliably measurable, and are
charged to operations over the vesting period. The offset is credited to contributed surplus.
Consideration received on the exercise of stock options is recorded as share capital and the
related contributed surplus is transferred to share capital.
(l)
Income taxes
The Company uses the asset and liability method of accounting for income taxes. Under this
method, future income tax assets and liabilities are computed based on differences between the
carrying amounts of assets and liabilities on the balance sheet and their corresponding tax values,
generally using the substantively enacted or enacted income tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled.
Future income tax assets also result from unused loss carry forwards, resource-related pools, and
other deductions. Future tax assets are recognized to the extent that they are considered more
likely than not to be realized. The valuation of future income tax assets is adjusted, if necessary,
by the use of a valuation allowance to reflect the estimated realizable amount.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
(m)
Functional currency and foreign currency translations
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 sales revenues in United States dollars, the majority of the Company’s supplies,
labor, and services are denominated in Canadian dollars. All of the business operations of the
Company are located in Canada. A majority of the Company’s financings are in Canadian
dollars.
Foreign currency monetary assets and liabilities are translated into Canadian dollars at the
exchange rate in effect at the balance sheet date. Non-monetary assets, liabilities, revenues and
expenses are translated into Canadian dollars at the rate of exchange prevailing on the respective
dates of the transactions. Foreign exchange gains and losses are included in earnings.
For operations considered self-sustaining, of which the Company has none currently, foreign
currency assets and liabilities are translated into Canadian dollars at the exchange rate in effect at
the balance sheet date. Revenues and expenses are translated at the average rate for the fiscal
period. The resulting foreign exchange gains and losses are accumulated in a separate component
of shareholders’ equity until there has been a realized reduction in the net investment in such
operations.
(n)
Earnings (loss) per common share
Basic earnings (loss) per common share are based on the weighted average number of common
shares outstanding during the period.
Diluted earnings (loss) per share is calculated using the treasury stock method, 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.
(o)
Variable interest entities
The Company accounts for variable interest entities (“VIE”) in accordance with Canadian
Institute of Chartered Accountants (“CICA”) Accounting Guideline 15, “Consolidation of
Variable Interest Entities” (“AcG15”). AcG15 prescribes the application of consolidation
principles for entities that meet the definition of a VIE. An enterprise holding other than a voting
interest in a VIE could, subject to certain conditions, be required to consolidate the VIE if it is
considered its primary beneficiary whereby it would absorb the majority of the VIE’s expected
losses, receive the majority of its expected residual returns, or both.
(p)
Use of estimates
The preparation of financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenue and
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
expenses during the reporting year. Significant areas requiring the use of management estimates
relate to the impairment of mineral property interests and plant and equipment, the balances of
reclamation liability, income taxes, valuation allowances for future income tax assets, rates for
depletion, depreciation and amortization, the assumptions used in computing stock-based
compensation, the fair value of the option to convert the debenture into common shares and future
cash flows related thereto, receivables from sales of concentrate and valuation of concentrate
inventory, and the determination of mineral reserves and mine life. Actual results could differ
from these estimates.
(q)
Segment disclosures
The Company operates in a single reportable operating segment, the exploration, development
and operation of mineral property interests, within the geographic area of British Columbia,
Canada.
(r)
Comparative figures
Certain of the prior years’ comparative figures have been reclassified to conform with the
presentation adopted for the current year.
4.
CHANGES IN ACCOUNTING POLICY
The Company adopted the following new accounting standards issued by the 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)
Accounting Changes (Section 1506)
This standard establishes criteria for changing accounting policies, together with the accounting
treatment and disclosure of changes in accounting policies, changes in accounting estimates and
correction of errors. As a result, changes in accounting policies are only permitted when required
by a primary source of GAAP or when the change will result in more reliable and more relevant
information. Changes in accounting estimates during the period resulting from the increase in the
life of the Gibraltar mine are disclosed in notes 10 and 15.
(b)
Capital Disclosures (Section 1535)
This standard requires disclosure of an entity’s objectives, policies and processes for managing
capital, quantitative data about what the entity regards as capital and whether the entity has
complied with any externally imposed capital requirements and, if it has not complied, the
consequences of such non-compliance. These disclosures are presented in note 6(a).
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
(c)
Financial Instruments – Disclosure (Section 3862) and Presentation (Section 3863)
These standards replace CICA 3861, "Financial Instruments – Disclosure and Presentation".
These new standards require entities to disclose quantitative and qualitative information that
enable users to evaluate the significance of financial instruments on the Company’s financial
performance, and the nature and extent of risks arising from financial instruments to which the
Company is exposed during the year and at the balance sheet date. In addition, disclosure is
required of management’s objectives, policies and procedures for managing these risks. These
disclosures are presented in note 6(b) and (c).
(d)
Inventories (Section 3031)
This standard replaces the existing Section 3030 with the same title and harmonizes accounting
for inventories under Canadian GAAP with International Financial Reporting Standards
("IFRS"). This standard requires that inventories be measured at the lower of cost and net
realizable value, and includes guidance on the determination of cost, including the allocation of
overheads and other costs. The standard also requires that similar inventories within a
consolidated group be measured using the same method. It also requires the reversal of previous
write-downs to net realizable value when there is a subsequent increase in the value of
inventories. The Company adopted this standard during the current period and determined that
there was no significant impact on the financial statements.
(e)
Going Concern – Amendments to Section 1400
CICA Section 1400, "General Standards of Financial Statement Presentation", was amended to
include requirements to assess and disclose an entity's ability to continue as a going concern. The
Company has assessed its ability to continue as a going concern and concluded that it will be able
to continue as a going concern (note 1).
New Accounting Standards Not Yet Adopted
(f)
International Financial Reporting Standards ("IFRS")
The Canadian Accounting Standards Board ("AcSB") has announced its decision to replace
Canadian generally accepted accounting principles (“Canadian GAAP”) with International
Financial Reporting Standards ("IFRS") for all Canadian publicly-listed companies. The AcSB
announced that the changeover date will commence for interim and annual financial statements
relating to fiscal years beginning on or after January 1, 2011. The transition date for the Company
to changeover to IFRS will be January 1, 2011. Therefore, the IFRS adoption will require the
restatement for comparative purposes of amounts reported by the Company for the year ended
December 31, 2010. The Company is currently in the process of developing an IFRS conversion
plan and evaluating the impact of the transition to IFRS.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
(g)
Section 3064 – Goodwill and Intangibles
The AcSB issued CICA Handbook Section 3064, which replaces Section 3062, “Goodwill and
Other Intangible Assets”, and Section 3450, “Research and Development Costs”. This new
section establishes standards for the recognition, measurement, presentation and disclosure of
goodwill subsequent to its initial recognition and of intangible assets. Standards concerning
goodwill remain unchanged from the standards included in the previous Section 3062. The
section applies to interim and annual financial statements relating to fiscal years beginning on or
after October 1, 2008. The Company is currently evaluating the impact of this new standard and
anticipates this standard will have no significant impact on the financial statements.
5.
INVENTORY
Copper concentrate
Ore in process
Materials and supplies
Copper cathode
As at
December 31
2008
6,508 $
1,120
12,100
612
20,340 $
As at
September 30
2007
6,623
2,320
8,510
605
18,058
$
$
At December 31, 2008, the Company recorded an adjustment of $1,504 to reduce the concentrate
inventory to its net realizable value (2007 – $nil).
6.
CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENTS
(a)
Capital Management Objectives
The Company's primary objectives when managing capital are to safeguard the Company's ability
to continue as a going concern, so that it can continue to provide returns for shareholders, and to
have sufficient funds on hand for business opportunities as they arise.
The Company considers the components of shareholders' equity, as well as its cash and
equivalents, credit facilities and convertible debt as capital. The Company manages its capital
structure and makes adjustments to it in light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or adjust the capital structure, the
Company may issue equity, sell assets, or return capital to shareholders as well as issue or repay
debt. As at December 31, 2008, the Company is subject to externally-imposed capital
requirements in the form of bank covenants relating to the bank indebtedness (note 13) and
restrictions on certain of its cash balances (note 11).
In order to facilitate the management of its capital requirements, the Company prepares annual
expenditure budgets that are approved by the Board of Directors.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
The Company’s investment policy is to invest its cash in highly liquid short-term interest-bearing
investments, having maturity dates of three months or less from the date of acquisition, that are
readily convertible to known amounts of cash.
There were no changes to the Company's approach to capital management during the fifteen
months ended December 31, 2008 and the Company expects it will be able to raise sufficient
capital resources to carry out its plans of operations for fiscal 2009 as disclosed in note 1.
(b)
Carrying Amounts and Fair Values of Financial Instrument
The fair value of a financial instrument is the price at which a party would accept the rights
and/or obligations of the financial instrument from an independent third party. Given the varying
influencing factors, the reported fair values are only indicators of the prices that may actually be
realized for these financial instruments.
The fair values of 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.
The fair values of the promissory note are not readily determinable with sufficient reliability due
to the uncertainty around the maturities and the future cash flows associated with the promissory
note.
Aside from the financial assets mentioned above, the carrying amounts of the Company's other
financial assets approximate their fair values. The following tables show the estimated fair values
of the financial assets:
Cash and equivalents
Restricted cash
Held for trading
Accounts receivable
Loans and receivables
Marketable securities and investments
Reclamation deposits
Available for sale financial assets
Estimated fair value as at
December 31, 2008
September 30, 2007
$ 4,587
4,400
$ 8,987
$ 4,606
$ 4,606
$ 3,138
32,396
$ 35,534
$ 37,636
4,400
$ 42,036
$ 12,021
$ 12,021
$ 18,542
33,396
$ 51,938
Total financial assets
$ 49,127
$ 105,995
The fair value of marketable securities and investments and reclamation deposits represents the
market value of quoted investments.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
The fair values of financial liabilities are as follows:
Bank Indebtedness
Accounts payable and accrued liabilities
Advances due to a related party
Convertible debt
Estimated fair value as at
December 31, 2008
September 30, 2007
$ 5,737
53,036
1,772
33,329
$ 93,874
$ –
30,435
–
41,008
$ 71,443
At December 31, 2008, all the Company's financial liabilities were classified as other financial
liabilities and carried at amortized cost. The fair values of the convertible debt were determined
by discounting the stream of future payments of interest and principal at 12.5% which
approximates the Company’s current borrowing rate.
(c)
Financial Instrument Risk Exposure and Risk Management
The Company is exposed in varying degrees of financial instrument related risks. The Board
approves and monitors the risk management processes, including treasury policies, counterparty
limits, controlling and reporting structures. The types of risk exposure and the way in which such
exposure is managed are provided as follows.
(i)
Credit Risk
Credit risk is the risk of potential loss to the Company if the counterparty to a financial
instrument fails to meet its contractual obligations. The Company's credit risk is primarily
attributable to its liquid financial assets including cash and equivalents, restricted cash,
reclamation deposits, promissory note and accounts receivable. The Company limits
exposure to credit risk on liquid financial assets through maintaining its cash and
equivalents, restricted cash and reclamation deposits with high-credit quality financial
institutions. The Company does not have financial assets that are invested in asset
backed commercial paper.
Substantially all the Company's cash and equivalents are held with one major Canadian
financial institution and its subsidiaries. The reclamation trust and the promissory note
are each held at different financial institutions from the cash and equivalents.
(ii)
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial
obligations as they fall due. The Company ensures that there is sufficient capital in order
to meet short term business requirements, after taking into account cash flows from
operations and the Company's holdings of cash and cash equivalents. The Company
believes that these sources will be sufficient to cover the likely short and long term cash
requirements. The Company's cash and equivalents are invested in business accounts and
bankers acceptances, and are available on demand for the Company's programs.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
The following are the contractual maturities of financial liabilities:
2008
Accounts payable and
accrued liabilities
Bank overdraft facility
Amounts due to a related
party
Convertible debt (note14(a))
Carrying
amount
2009
2010
2011
Over 3
years
$ 53,036
$ 53,036 $ –
$ – $ –
5,737
5,737
1,772
35,219
1,772
–
–
–
–
35,219
–
–
Total liabilities
$ 95,764
$ 60,545 $ – $ 35,219
$ –
2007
Accounts payable and
accrued liabilities
Convertible debt
Total liabilities
Carrying
amount
2008
2009
2010
Over 3
years
$ 30,435
41,008
$ 71,443
$ 30,435
–
$ 30,435
$ – $ –
–
–
$ –
41,008
$ – $ – $ 41,008
(iii) Market Risk
The significant market risk exposures to which the Company is exposed are commodity
price risk, foreign exchange risk, and interest rate risk.
(a)
Commodity Price Risk
The value of the Company's mineral resource properties is dependent on the price
of copper, gold, molybdenum and niobium and the outlook for these minerals.
The Company does not have any hedging or other commodity based risks with
respect to its operations.
Market prices for these metals historically have fluctuated widely and are
affected by numerous factors outside of the Company's control, including, but not
limited to, levels of worldwide production, short-term changes in supply and
demand, industrial and retail demand, central bank lending, and forward sales by
producers and speculators.
The profitability of the Company's operations is highly correlated to the market
price of copper and molybdenum. If copper prices decline for a prolonged period
below the cost of production of the Company's operating mine, it may not be
economically feasible to continue production.
As at December 31, 2008 and September 30, 2007, the Company had no
commodity hedges in place, and consequently, hedge accounting is not used.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
(b)
Foreign Exchange Risk
The Company's revenues from the production and sale of copper and
molybdenum are denominated in US dollars. The Company's concentrate
treatment, refining, and transportation costs are substantially denominated in US
dollars. However the Company's operating expenses are incurred primarily in
Canadian dollars and its liabilities are denominated primarily in Canadian
dollars. Consequently, the Company's operations are subject to currency
transaction risk and currency translation risk.
The operating results and the financial position of the Company are reported in
Canadian dollars. The fluctuation of the US dollar in relation to the Canadian
dollar will, consequently, have an impact upon the reported profitability of the
Company and may also affect the value of the Company's assets and liabilities.
As at December 31, 2008 and September 30, 2007, the Company had no foreign
currency hedges in place, and consequently, hedge accounting is not used.
The Company's financial assets held in the US dollars (stated in Canadian
dollars) were:
Carrying value
December 31, 2008
September 30, 2007
Cash and equivalents
Accounts receivable
Total financial assets
$ 2,169
-
$ 2,169
$ 34,717
6,909
$ 41,626
The Company's financial liabilities held in the US dollars (stated in Canadian
dollars) were:
Carrying value
December 31, 2008 September 30, 2007
Accounts payable and accrued liabilities
Convertible debt
Total financial liabilities
$ 13,227
$ 765
35,219
26,693
$ 48,446
$ 27,458
The following exchange rates applied during the periods ended December 31,
2008 and September 30, 2007:
CAD vs. USD
1.0501
Dec. 31
2008
Average rate
Sept. 30
2007
1.1135
Period end spot rate
Sept. 30
Dec. 31
2007
2008
0.9948
1.2180
A 10 percent weakening of the Canadian dollar against the US Dollar at
December 31, 2008 and September 30, 2007 would have increased net earnings
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
by the amounts shown below. This analysis assumes that all other variables, in
particular interest rates, remain constant.
Net Earnings
Dec. 31, 2008
$ 12,613
Sept. 30, 2007
$ 14,447
A 10 percent strengthening of the Canadian Dollars against the US Dollar at
December 31, 2008 would have had the equal but opposite effect on the amounts
shown above, on the basis that all other variables remain constant.
(c)
Interest Rate Risk
In respect of financial assets, the Company's policy is to invest cash at floating
rates of interest in cash equivalents in order to provide liquidity while achieving a
satisfactory return for shareholders. Fluctuations in interest rates impact on the
value of cash equivalents and reclamation deposits, which are invested in
Canadian provincial bonds.
The convertible bonds carry a fixed interest rate of 7.125% per annum and as
such are not subject to fluctuations in interest rate. The bank indebtedness carries
a variable interest rate at prime rate plus 1%.
The exposure of the Company's financial assets to interest rate risk as at
December 31, 2008 is as follows:
Financial assets subject to floating
interest rates
Financial assets subject to fixed
interest rates
Equity investments
Trade and other receivables
Total
$ 8,987
109,464
3,138
4,606
Total financial assets
$ 126,195
Weighted
average
effective
interest rate
(percent)
Weighted
average
period for
which the
interest rate is
fixed (years)
4.0%
6.3%
N/A
N/A
N/A
7.02
N/A
N/A
The exposure of the Company's financial assets to interest rate risk as at
September 30, 2007 is as follows:
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
Weighted
average
effective
interest rate
(percent)
Total
$ 42,036
5.4%
107,832
18,542
12,828
$ 181,238
5.7%
N/A
N/A
Weighted
average
period for
which the
interest rate
is fixed
(years)
N/A
7.81
N/A
N/A
Financial assets subject to floating
interest rates
Financial assets subject to fixed
interest rates
Equity investments
Trade and other receivables
Total financial assets
The exposure of the Company's financial liabilities to interest rate risk at
December 31, 2008 is as follows:
Weighted
average
effective
interest rate
(percent)
Total
$ 5,737
4.0%
35,219
7.1%
54,808
$ 95,764
N/A
Weighted
average
period for
which the
interest rate
is fixed
(years)
N/A
2.6
N/A
Weighted
average
period until
maturity
(years)
N/A
2.6
N/A
Financial liabilities subject to
floating interest rates
Financial liabilities subject to
fixed interest rates
Other liabilities
Total financial liabilities
The exposure of the Company's financial liabilities to interest rate risk at
September 30, 2007 is as follows:
Weighted
average
effective
interest
rate
(percent)
Weighted
average
period for
which the
interest rate
is fixed
(years)
Weighted
average
period until
maturity
(years)
7.1%
N/A
N/A
3.86
N/A
N/A
3.86
1.83
N/A
Financial liabilities subject to
fixed interest rates
Non-interest bearing debt
Other liabilities
Total financial liabilities
Total
$ 26,693
14,315
30,435
$ 71,443
A 10 percent decrease of the prime rate for the year ended December 31, 2008
and September 30, 2007 would have increased net earnings by the amounts
shown below. This analysis assumes that all other variables, in particular foreign
exchange rates, remain constant.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
Net earnings
Dec. 31, 2008
$ 142
Sept. 30, 2007
$ 515
A 10 percent increase of the prime rate for the year ended December 31, 2008
and September 30, 2007 would have an the equal but opposite effect on net
earnings on the basis that all other variables remain constant.
7. MARKETABLE SECURITIES AND INVESTMENTS
Continental Minerals Corporation – Common shares
Investment in other public companies
As at December 31, 2008
Cost
$ 9,880
409
$ 10,289
Unrealized
Gain/(Loss)
$ (7,297)
146
$ (7,151)
Fair Value
$ 2,583
555
$ 3,138
As at September 30, 2007
Continental Minerals Corporation – Common shares
Continental Minerals Corporation – Warrants
Investment in other public companies
Cost
$ 9,880
3,118
4,574
$ 17,572
Unrealized
Gain/(Loss)
Fair Value
$ 2,566 $ 12,446
886
5,210
$ 18,542
(2,232)
636
$ 970
At September 30, 2006, the Company held a convertible promissory note (“Note”) of Continental
Minerals Corporation (“Continental”), a public company which is a related party by virtue of
certain common directors. The Note contained a right to participate in Continental’s equity
financings at a 5% discount to the price paid by other parties in the financing. In February 2007,
the Company redeemed the Note and exercised its pre-emptive right to participate in
the principal amount of
Continental’s equity
the Note ($11,500) plus a 5% premium, for total proceeds of $12,100. The proceeds were used to
subscribe for 7,318,182 equity units (“Units”) of Continental at a price of $1.65 per Unit. Each
Unit consisted of one common share of Continental and one Continental common share purchase
warrant, exercisable at a price of $1.80 per share for a one year period from the completion of the
financing, thus expiring February 20, 2008. The proceeds paid for the Units were allocated to the
common shares and warrants received of Continental based on the pro-rated fair value of the
common shares ($9,880) and warrants ($3,118) at the time of the financing.
financing. The Company
received
In February 2008, the Continental warrants expired unexercised. To reflect this expiry, a mark-
to-market loss of $886 (year ended September 30, 2007 – loss of $2,232) was charged to
operations. As at December 31, 2008, the Company held 7,827,726 common shares (September
30, 2007 – 7,827,726) and Nil (September 30, 2007 – 7,318,182) share purchase warrants of
Continental.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
8.
ARRANGEMENT AGREEMENT (TRACKING PREFERRED SHARES AND
HARMONY GOLD PROPERTY)
In October 2001, the Company and its subsidiary Gibraltar Mines Ltd. ("Gibraltar") completed
the acquisition of the Harmony Gold Property and related assets from Continental, for 12,483,916
series "A" non-voting tracking preferred shares of Gibraltar and $2,230 cash. The tracking
preferred shares were recorded at $26,642, being their then fair value, and are designed to track
and capture the value of the Harmony Gold Property and will be redeemed for common shares of
Taseko upon a realization event, such as a sale of the Harmony Gold Property to a third party or
commercial production at the Harmony Gold Property or, at the option of Gibraltar, if a
realization event has not occurred by 2011. Accordingly, the tracking preferred shares have been
classified within shareholders’ equity on the consolidated balance sheet.
As previously noted, the Gibraltar tracking preferred shares are redeemable for common shares of
Taseko upon the occurrence of certain value realization events for the Harmony Gold Property.
The tracking preferred shares are redeemable at specified prices per common share of Taseko
starting at $3.39 and escalating by $0.25 per year, currently at $5.14 (as of December 31, 2008).
If a realization event does not occur on or before October 16, 2011, Gibraltar has the right to
redeem the tracking preferred shares for Taseko common shares at a deemed price equal to the
greater of the then average 20 day trading price of the common shares of Taseko and $10.00. The
Taseko common shares to be issued to Continental upon a realization event will in turn be
distributed pro-rata, after adjustment for any taxes, to the holders of redeemable preferred shares
of Continental that were issued to Continental shareholders at the time of the Arrangement
Agreement.
9.
MINERAL PROPERTY INTERESTS
Gibraltar Copper Mine (note 9(a))
Prosperity Gold-Copper Property (note 9(b))
Harmony Gold Property (note 9(c))
Aley Niobium Property (note 9(e))
Oakmont Royalty Interest (note 9(f))
(a)
Gibraltar Copper Mine
December 31
2008
16,743 $
1
1
8,343
7,520
32,608 $
September 30
2007
10,062
1
1
8,343
-
18,407
$
$
In July 1999, the Company acquired a 100% interest in the Gibraltar Copper Mine mineral
property, located near Williams Lake, British Columbia, Canada from Boliden Westmin (Canada)
Limited ("BWCL") for $3,325. The acquisition of the Gibraltar Mine, which had been on care
and maintenance since 1998, included plant and equipment and supplies inventory of the
Gibraltar Mine, and $8,000 of funds for future reclamation. As part of its 1999 operating
permits, the Company had agreed to incur a total of $4,000 on reclamation and environmental
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
programs during the six year period July 1999 to July 2005. The Gibraltar mine final reclamation
and closure plan is updated every five years. The most recent reclamation plan and closure report
was approved by the British Columbia Ministry of Energy and Mines in 2004. Pursuant to this
approved closure plan, the Ministry agreed that the Company had satisfied the $4,000 reclamation
obligation required under the 1999 operating permits.
The acquisition agreement contained certain indemnification clauses. The $8,000 of funds set
aside for future reclamation was considered a "Qualified Environmental Trust" for Canadian
income tax purposes. During the year ended September 30, 2003, the Government of British
Columbia released these funds from the Trust, which resulted in an income inclusion to the
Company, and consequently resulted in the Company utilizing $3,570 of tax pools otherwise
available to it. The Company has made a claim to BWCL for this estimated tax liability under the
indemnification terms of the agreement. No amount has been recognized in these consolidated
financial statements related to this claim.
During the year ended September 30, 2004, the Company commenced restart activities and
entered into an agreement with Ledcor CMI Ltd. and Ledcor Mining Ltd. (together "Ledcor"),
whereby Ledcor would finance certain equipment and commission, restart, and operate the
Gibraltar Mine. Ledcor’s primary responsibility was the commissioning and the operating of the
mine in addition to other aspects of mine operations, including drilling, blasting, loading and
hauling of ore and waste as well as the recruitment of personnel and the maintenance of
equipment and facilities. Pursuant to the agreement, the Company was required to maintain a
bank account with a balance of at least $5,000 in a "product revenue account", for purposes of
providing a working capital reserve for operations and general administrative costs. The
Company granted a general security agreement to Ledcor for $5,800 and a second charge on
certain mine equipment with an appraised fair value of at least $5,800.
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 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.
(c)
Harmony Gold Property
Under the terms of an arrangement agreement (note 8), the Company acquired a 100% interest in
the Harmony Gold Property in fiscal 2002.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
(d)
Royalty Agreement (promissory note and royalty obligation)
In September 2004, the Company entered into agreements with an unrelated investment
partnership, Red Mile Resources No. 2 Limited Partnership ("Red Mile"). Gibraltar sold to Red
Mile a royalty for $67,357 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 December 31, 2008, the promissory note amounted to $77,068 (September 30, 2007 –
$74,436), of which $3,384 (September 30, 2007 – $2,086) is current, while the royalty obligation
amounted to $64,357 (September 30, 2007 – $65,416) of which $3,384 (September 30, 2007 –
$2,086) is current.
Pursuant to the agreements, the Company received an aggregate of $10,500 in fees and interest
for services performed in relation to the Red Mile transaction, of which $5,250 was received in
each of September and December of 2004, and included in interest and 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 in respect of the indemnification are presented as deferred revenue, and are
recognized over the expected remaining life of the royalty agreement, with $1,006 (September 30,
2007 – $1,225) remaining as deferred as at December 31, 2008, of which $175 (September 30,
2007 – $175) is classified as current.
Annual royalties will be payable by Gibraltar to Red Mile at rates ranging from $0.01 per pound
to $0.14 per pound of copper produced during the period from the commencement of commercial
production (as defined in the agreement) to the later of (i) December 2014 and (ii) five years after
the end of commercial production from the mine. For the year ended December 31, 2008,
Gibraltar paid a royalty of $0.0566 (September 30, 2007 – $0.0555) per pound of copper
produced to Red Mile. Gibraltar is entitled to have released to it funds held under the promissory
note and interest thereon to fund its royalty obligations to the extent of its royalty payment
obligations.
The Company has a 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 of copper averages
US$2.75 to US$2.99 per pound and 4% if the price of copper averages US$3.00 per pound or
greater for any year during that period. The US-dollar pricing amounts specified above are based
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
upon an exchange rate of US$0.75 for Cdn$1.00, and shall be adjusted from time to time by any
variation of such exchange rates. No NPI is payable until the Company reaches a pre-determined
aggregate level of revenues less defined operating costs and expenditures. No NPI is payable at
December 31, 2008.
In accordance with AcG15, the Company has determined that the royalty agreement created
certain variable interest entities for which the Company holds a variable interest. However, as the
Company is not the primary beneficiary under the agreement, it is not required to consolidate any
of such entities.
(e)
Aley Niobium Property
In June 2007, the Company completed the acquisition of all the issued and outstanding shares in
the capital of a private company with a project in north-eastern British Columbia, Canada (“the
Transaction”), for a total cash consideration to the acquired company’s shareholders 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 (“NSR”)
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:
Cash
Issuance of 1,134,730 common shares
Issuance of 120,000 warrants
Total purchase consideration
Amount
$ 1,800
3,642
163
$ 5,605
The total acquisition price has been allocated to the net assets acquired and liabilities assumed as
follows:
Current assets
Mineral property interests
Current liabilities
Future income taxes
Total consideration paid, being cash, common shares and units
Amount
$ 79
8,343
(123)
(2,694)
$ 5,605
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
(f)
Purchase of Oakmont Ventures Ltd.
On May 2, 2008, the Company completed the acquisition of all the issued and outstanding shares
in the capital of a private company, Oakmont Ventures Ltd. (“Oakmont”), whose sole asset is the
30% net profits interest in certain claims that are part of the Gibraltar mine property located
adjacent to the Gibraltar East pit. The acquisition was completed through the issuance of
1,000,000 common shares of the Company at the value of $5,220. The acquisition was accounted
for under the purchase method.
The following table summarizes the total purchase consideration of Oakmont:
Issuance of 1,000,000 common shares
Payment of Oakmont’s liabilities
Total purchase consideration
Amount
$ 5,220
302
$ 5,522
The total acquisition price has been allocated to the net assets acquired and liabilities assumed as
follows:
Mineral property interests
Current liabilities
Future income taxes
Total consideration paid, being cash, common shares and units
Amount
$ 7,520
(43)
(1,955)
$ 5,522
The results of operations of this acquired company have been included in the Company’s
consolidated financial statements from the date of the acquisition.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
10.
MINERAL PROPERTY INTERESTS, PLANT AND EQUIPMENT
Plant and equipment - Gibraltar Mine
Buildings and equipment
Mine equipment
Plant and equipment
Vehicles
Computer equipment
Social assets
Deferred pre-stripping costs
Construction in progress
Assets under capital lease
Asset retirement costs (note 15)
Total Gibraltar mine
Other equipment and leasehold
improvements
December 31, 2008
Accumulated
Amortization
$ 2,421
9,900
4,126
1,086
2,870
–
2,358
–
13
–
$ 22,774
Cost
$ 6,115
58,659
97,867
1,864
3,390
402
52,535
82,542
17,521
–
$ 320,895
Net book
value
$ 3,694
48,759
93,741
778
520
402
50,177
82,542
17,508
–
$ 298,121
September 30, 2007
Accumulated
Amortization
$ 1,905
9,216
1,698
753
2,225
–
–
–
–
–
$ 15,797
Net book
value
$ 4,210
46,313
25,202
758
953
402
32,949
52,887
–
1,426
$ 165,100
Cost
$ 6,115
55,529
26,900
1,511
3,178
402
32,949
52,887
–
1,426
$ 180,897
$ 386
$ 103
$ 283
$ –
$ –
$ –
Mineral property interests (note 9)
Net asset retirement obligation adjustment
Mineral properties, plant and equipment
32,608
(6,012)
$ 325,000
18,407
(6,609)
$ 176,898
As at December 31, 2008, approximately $82,542 (2007 – $52,887) of plant and equipment is
under construction and not being amortized. Amortization recorded during the period reflected
changes in accounting estimates during the period resulting from the increase in the life of the
Gibraltar mine.
11.
RESTRICTED CASH
In February 2007, Taseko issued a standby letter of credit, collateralized by cash in the amount of
$4,400, to British Columbia 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.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
12.
RELATED PARTY TRANSACTIONS AND ADVANCES
Related party transactions not disclosed elsewhere in these consolidated financial statements are
as follows:
Transactions
Services rendered and expenses reimbursed
Hunter Dickinson Services Inc.
2008
2007
2006
$ 8,934
$ 4,936
$ 2,869
15 months ended
December 31
12 months ended
September 30
Advances to related party
Hunter Dickinson Services Inc.
Amounts due to a related party
Hunter Dickinson Services Inc.
As at
December 31
2008
$ –
As at
December 31
2008
$ 1,772
As at
September 30
2007
$ 807
As at
September 30
2007
$ –
Hunter Dickinson Services Inc. ("HDSI") (formerly Hunter Dickinson Inc.) is a private company
owned equally by several public companies, one of which is Taseko. HDSI has certain directors
in common with the Company and provides geological, corporate development, administrative
and management services to, and incurs third party costs on behalf of, the Company and its
subsidiaries on a full cost recovery basis per agreement dated June 1, 2008. Advances are non-
interest bearing and due on demand.
13.
BANK INDEBTEDNESS
During the fifteen months ended December 31, 2008, the Company signed an overdraft facility
with a Canadian financial institution for up to $10,000. As at December 31, 2008, the Company
had drawn $5,737 from the overdraft facility. The term of the facility bore interest at prime rate
plus 1% and was secured against the Company’s accounts receivable. The facility agreement
stipulated that the facility will be terminated in the event the London Metal Exchange (“LME”)
monthly cash price of copper reduces below US$2.00 per pound. The facility was also subject to
minimum working capital, interest and debt-to-equity ratio covenants. Subsequent to year-end,
due to the decrease in copper prices below US$2.00, the Company repaid the facility in full.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
14.
CONVERTIBLE DEBT
Liability Component
Convertible Bonds – August 2006
Convertible Debenture – NVI
Convertible Debt – Liability Component
Equity Component
Convertible Bonds – August 2006
Convertible Debenture – NVI
Convertible Debt – Equity Component
(a) Convertible Bonds – August 2006
December 31
2008
September 30
2007
$ 35,219
–
$ 35,219
$ 26,693
14,315
$ 41,008
$ 3,832
–
$ 3,832
$ 3,832
9,823
$ 13,655
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
“Bondholders”). The Bonds are convertible into the Company’s common shares. The Bonds
constitute direct, unsubordinated, unsecured, general and unconditional obligations of the
Company.
The Bonds were issued at 100% and, if not converted, will be redeemed at maturity at 101%. The
Bonds carry coupon interest rates of 7.125% per annum. The Bonds have a “put” right in August
2009 to be redeemed at 100.6%. Due to this “put” right, the Bonds have been accordingly
classified as current liabilities as at December 31, 2008. However, the Company has not received
any indication from the Bondholders with regards to their intention to exercise the “put” right to
date.
The Bonds are convertible at the holder’s option after 40 days from issuance until August 19,
2011 at a conversion price of US$3.35, or up to 8,955,224 common shares of the Company,
which was a premium of approximately 40% over the trading price of the Company’s shares at
the time of Closing. At any time after September 12, 2008, the Company will have the right to
call for the conversion of the Bonds into the number of shares as set out above, so long as the
Company’s shares trade at least 50% above the conversion price for at least 20 business days in
any period of 30 consecutive business days.
For accounting purposes, the Bonds contain both a liability component and an equity component,
being the holder’s conversion right, which have been separately presented in the consolidated
balance sheets. The Company has allocated the US$30,000 face value of the Bonds to the liability
and equity components. At issuance, the Company estimated the fair value of the conversion
option by deducting the present value of the future cash outflows of the Bonds from the face
value of the principal of the Bonds. The fair value of the liability component was determined by
discounting the stream of future payments of interest and principal at the estimated prevailing
market rate of 10.5% for a comparable debt instrument that excluded any conversion privilege by
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
the holder. The residual carrying value of the Bonds is required to be accreted to the redemption
value of the Bonds to the first redemption date of the Bonds based on an effective annual interest
rate of 12%. For the period ended December 31, 2008, interest and accretion relating to the debt
totaled $4,999 (September 30, 2007 – $3,989).
The continuity of the Bonds is as follows:
Present value of convertible bonds
Beginning of period
Unrealized foreign exchange loss (gain)
Finance cost reclassification
Accretion for the period
End of period
Conversion right
Convertible bonds
Convertible Bonds
15 months ended
December 31,
2008
Year ended
September 30,
2007
$ 26,693
6,328
–
2,198
35,219
3,832
$ 39,051
$ 29,761
(3,306)
(1,382)
1,620
26,693
3,832
$ 30,525
December 31,
2008
September 30,
2007
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
US $30,000
US$ 3.35
US $30,000
US$ 3.35
8,955,224
8,955,224
(b)
Convertible Debenture – NVI Mining Ltd (formerly Boliden Westmin (Canada) Limited)
On July 21, 1999, in connection with the acquisition of the Gibraltar mine, the Company issued a
$17,000 interest-free debenture (the “Debenture”) to NVI Mining Ltd. (“NVI” or formerly
Boliden Westmin (Canada) Limited). The Debenture was due on July 21, 2009 and was
convertible into common shares of the Company over a 10 year period commencing at a price of
$3.14 per share in year one and escalating by $0.25 per share per year thereafter. NVI had the
right to convert, in part or in whole from time to time, the Debenture into fully paid common
shares of the Company from year one to year ten.
On April 2, 2008, NVI issued a notice to the Company to convert the principal amount of the
Debenture of $17,000 at an effective conversion rate of $5.14 per common share, which would
have resulted in 3,307,393 common shares of the Company being issued to NVI. The Company
issued 2,612,971 to NVI and a cash payment of $3,569 in lieu of issuing the remaining 694,422
common shares as full and final settlement to NVI.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
The continuity of the Debenture is as follows:
Liability component:
Present value of convertible debenture
Accretion, net of interest, for the period
Balance
Conversion
Liability component
Equity component:
Conversion right
Conversion
Equity component
15 months ended
December 31,
2008
Year ended
September 30,
2007
$ 14,315
$ 13,013
750
15,065
1,302
14,315
(15,065)
–
–
14,315
9,823
9,823
(9,823)
–
–
9,823
Convertible debenture
$ –
$ 24,138
NVI convertible debenture
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
December 31
2008
September 30
2007
N/A
N/A
N/A
$17,000
$5.14
3,307,393
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
15.
SITE CLOSURE AND RECLAMATION OBLIGATIONS
The continuity of the provision for site closure and reclamation costs related to the Gibraltar mine
is as follows:
Balance, September 30, 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 obligation due to a revision in mine life
Balance, September 30, 2007
Changes during the 15 months ended December 31, 2008:
Reclamation incurred
Accretion expense
Additional site closure and reclamation obligation recognized
Reduction in the present value of reclamation obligation due to a revision in mine life
Balance, December 31, 2008
$ 17,314
(71)
1,732
$ 18,975
(167)
1,777
4,449
(7,593)
$ 17,441
(183)
1,451
366
(8,709)
$ 10,366
During the 15 months ended December 31, 2008, 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. The impact of these changes in estimates are:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
an increase to asset retirement costs included in mineral properties, plant and equipment
and corresponding increase to reclamation obligation as at December 31, 2008 of $366
(September 30, 2007 – $4,449).
a decrease of $1,426 (2007 - $Nil) in asset retirement costs included in mineral
properties, plant and equipment
a decrease as at December 31, 2008 of $8,709 (September 30, 2007 – $7,593) in the
present value of the reclamation obligation due to an extension in the mine life.
a gain for the 15 months ended December 31, 2008 of $6,917 (year ended September 30,
2007 – $4,570; year ended September 30, 2006 – $nil ) .
The new estimated amount of the reclamation costs, adjusted for estimated inflation at 2.5% per
year, in 2032 dollars, as at December 31, 2008 is $90,000 (September 30, 2007 – $68,400) and is
expected to be spent over a period of approximately three years beginning in 2032. 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 as at December 31, 2008 of $10,366 (September 30,
2007 – $17,441). The accretion for the fifteen months ended December 31, 2008 of $1,451 (year
ended September 30, 2007 – $1,777; year ended September 30, 2006 – $1,732) is charged to the
statement of operations.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
As required by regulatory authorities, at December 31, 2008, the Company had cash reclamation
deposits totaling $32,396 (September 30, 2007 – $33,396) comprised of $32,152 (September 30,
2007 – $33,186) for the Gibraltar mine, $30 (September 30, 2007 – $30) for the Prosperity
project, $175 (September 30, 2007 – $175) for the Harmony project and $39 (September 30, 2007
– $5) for the Aley Niobium Project. These deposits are invested in government bonds and
treasury bills and bear interest at rates ranging from 3.33% to 5.85% per annum. During the 15
months ended December 31, 2008, the Government of British Columbia permitted the Company
to withdraw $5,000 from the Gibraltar mine reclamation deposit in exchange for security on
certain equipment of the Gibraltar mine. Subsequent to period-end, the Company obtained further
approval and withdrew $3,900 from the reclamation deposit.
16.
CAPITAL LEASE OBLIGATIONS
Included in property, plant and equipment are mining equipment that the Company acquired
pursuant to three to four year capital lease agreements.
Capital lease obligations as detailed above are secured over plant and equipment and are
repayable in monthly installments. Interest is charged at rates linked to the prevailing prime rate
of the relative financial institution mentioned above.
Future minimum lease payments are as follows:
2009
2010
2011
Thereafter until 2013
Total minimum lease payments
Less: interest portion
Present value of capital lease obligations
Current portion
Non-current portion
$ 4,280
4,003
4,003
6,614
$ 18,900
(2,476)
$ 16,424
(3,324)
$ 13,100
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
17.
SHARE CAPITAL
(a)
Authorized
Authorized share capital of the Company consists of an unlimited number of common shares
without par value.
(b)
Private Placements
In October 2007, the Company completed a short form prospectus offering of 7,115,385 common
shares at a price of $5.20 per common share, and also granted to the underwriters an over-
allotment option to purchase up to an additional 1,067,307 common shares at the same price,
which over-allotment option was exercised in full, for aggregate gross proceeds to the Company
of approximately $42,500. Financing fees of $2,553 were paid to the underwriters.
In November 2007, the Company completed a private placement financing of 1,455,100 common
shares at a price of $5.20 per share for gross proceeds of $7,600. A finder’s fee of $205 was paid
in conjunction with the private placement.
In December 2008, the Company completed a private placement financing of 8,571,429 units (the
"Units"), with each Unit consisting of one common share and one common share purchase
warrant (a "Warrant"), at the issue price of $0.70 per Unit for gross proceeds of $6,000. Each
Warrant entitles the holder to purchase one common share of the Company (a "Warrant Share")
for a period of 24 months at the exercise price of $0.85 per Warrant Share in the first 12 months
and $0.95 per Warrant Share in the second 12 months, subject to an acceleration of the expiry
date to 30 days in the event the Company's common shares trade at a price of $1.50 or higher for
a period of 10 trading days. A finder's fee of 6% of the proceeds of the private placement
financing was paid in equivalent Units.
(c)
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, employees, officers and consultants. The Plan is based on a maximum number of
eligible shares equaling a rolling percentage of up to 10% of the Company’s outstanding common
shares, calculated from time to time. Pursuant to the Plan, if outstanding options are exercised, or
expire, and/or the number of issued and outstanding common shares of the Company increases,
the options available to grant under the Plan increase proportionately. The exercise 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 discounts) on the Toronto Stock Exchange. Options may have a term of
up to ten years and typically terminate 30 days following the termination 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.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
The continuity of share purchase options is as follows:
2008
Opening balance
Granted during the period
Exercised during the period
Expired/cancelled during period
Closing balance
Average contractual remaining life (years)
Range of exercise prices
of shares
5,707,334
8,472,050
(270,100)
(6,091,566)
7,817,718
Number Average
Price
$ 2.60
2.19
2.48
3.67
$ 1.33
3.47
$1.00 - $5.45
of shares
3,578,834
3,301,500
(1,057,633)
(115,367)
5,707,334
2007
Number Average
Price
$ 1.78
3.21
1.76
2.20
$ 2.60
3.40
$1.15 - $4.09
2006
Number Average
Price
of shares
9,280,500 $ 1.17
2.24
1.21
0.91
3,578,834 $ 1.78
3.70
$1.15 - $2.68
2,159,500
(7,438,166)
(423,000)
The following table summarizes information about share purchase options outstanding at
December 31, 2008:
Range of exercise
prices
$1.00 to $1.15
$2.07 to $2.18
$2.63 to $3.07
$4.03 to $4.09
$4.50 to $5.45
Number
outstanding at
December 31
2008
6,588,384
602,000
291,000
93,334
243,000
7,817,718
Options outstanding
Weighted
average
remaining
contractual life
3.77 years
1.88 years
2.37 years
1.91 years
2.71 years
3.52 years
Weighted
average
exercise
price
$ 1.03
$ 2.17
$ 2.98
$ 4.05
$ 4.54
$ 1.33
Options exercisable
Number
exercisable at
December 31
2008
2,948,234
568,699
220,666
58,400
166,995
3,962,994
Weighted
average
exercise
price
$ 1.06
$ 2.17
$ 2.95
$ 4.05
$ 4.56
$ 1.51
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
1,128,334
807,500
3,303,000
468,500
5,707,334
Options outstanding
Weighted
average
remaining
contractual life
3.00 years
2.90 years
3.62 years
3.58 years
3.40 years
Weighted
average
exercise
price
$ 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 December 31, 2008, 3,962,994 (September 30, 2007 – 2,855,200) of the options
outstanding had vested with optionees and were exercisable.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
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 periods ended:
Risk free interest rate
Expected life
Volatility
Expected dividends
d) Share purchase warrants
2008
2.4%
3.52 years
65%
nil
2007
4%
4.20 years
68%
nil
2006
4%
3.93 years
71%
nil
The continuity of share purchase warrants during the period ended December 31, 2008 is as follows:
Expiry dates
December 17, 2010
February 22, 2008
Exercise
price
$0.85*
$3.48
Outstanding
September 30
2007
–
120,000
Issued
9,085,715
–
Exercised
–
–
Expired
–
120,000
Outstanding
December 31
2008
9,085,715
–
* Exercise price increases to $0.95 per share purchase warrant after December 17, 2009.
The continuity of share purchase warrants during the year ended September 30, 2007 is as follows:
Expiry dates
February 22, 2008
Exercise
price
$3.48
Outstanding
September 30
2006
–
Issued
120,000
Exercised
–
Expired
–
Outstanding
September 30
2007
120,000
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
e) 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
Earnings available to common shareholders including
assumed conversions:
Basic weighted-average number of shares outstanding
(in 000’s)
Effect of dilutive securities (in 000’s):
Stock options
Warrants
Tracking preferred shares
Convertible debenture/bonds
Diluted weighted-average number of shares outstanding
(in 000’s)
Earnings per share
Basic
Diluted
2008
2007
2006
$ 3,510
$ 48,262
$ 32,916
–
–
–
1,608
2,368
(820)
296
–
(73)
3,510
51,418
33,139
142,062
129,218
113,554
5,142
7,060
2,664
–
1,438
2
2,664
8,956
3,332
2,626
2,664
4,286
156,928
142,278
126,462
$ 0.02
$ 0.02
$ 0.37
$ 0.36
$ 0.29
$ 0.26
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
Shares issuable under convertible bonds
2008
2007
2006
2,626
8,956
3,302
3,308
2,025
–
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
18.
INCOME TAXES
Income tax expense (recovery) differs from the amount which would result from applying the
statutory Canadian income tax rates (2008 – 31.4%, 2007 – 34.1% 2006 – 36.6%) for the
following reasons:
2008
2007
2006
Earnings (loss) before income taxes
$ (2,087)
$ 87,866
$ 38,961
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
(657)
4,044
-
2,746
(13,613)
1,883
$ (5,597)
29,980
3,119
-
8,289
(324)
(1,460)
$ 39,604
14,268
2,403
2,028
(1,360)
(12,172)
878
$ 6,045
Presented as:
Current income tax expense (recovery)
Future income tax expense (recovery)
$ (2,151)
(3,446)
$ (5,597)
$ 3,959
35,645
$ 39,604
$ 4,397
1,648
$ 6,045
As at December 31, 2008 and September 30, 2007, the estimated tax effect of the significant
components within the Company’s future tax assets were as follows:
Loss carry forwards
Royalty obligation
BC mining taxes
Unrealized foreign exchange loss
Unrealized loss recorded in comprehensive income
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 liability
2008
$ 5,260
17,966
3,867
503
1,125
230
28,951
-
28,951
(6,944)
(7,690)
(16,784)
(21,332)
-
-
$ (23,799)
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)
Current portion – future income tax liability
Long term future income tax liability
Net future income tax liability
$ (8,469)
(15,330)
$ (23,799)
$ (5,320)
(21,540)
$ (26,860)
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
At December 31, 2008 the Company’s tax attributes included capital losses totaling $1,406
(2007 – $Nil) which are available indefinitely to offset future taxable capital gains, and resource
tax pools totaling approximately $7,102 (2007 – $14,000) which are available indefinitely to
offset future taxable income. The Company also has non-capital losses of $18,277 (2007 - $169)
to offset future taxable income which expire in 2027 and 2028 respectively.
The Company has accrued a long term tax provision of $30,685 (2007 – $24,645) related to
various tax pools.
19.
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
Conversion of convertible debenture (note 14(b))
Increase in asset retirement costs included in mineral
December 31
2008
$ 17,484
$ 21,318
September 30
2007
$ –
$ –
September 30
2006
$ –
$ –
properties, plant and equipment (note 15)
$ –
$ 1,426
$ –
Shares and units issued for the purchase of mineral
property interests (note 9 (e) & (f))
Shares issued for finders fee
Fair value of stock options transferred to share capital
from contributed surplus on exercise of options
$ 5,220
$ 360
$ 3,805
$ –
$ –
$ –
$ 514
$ 1,786
$ 4,869
Supplemental cash flow information
Cash paid during the year for
Interest
Taxes
December 31
2008
September 30
2007
September 30
2006
$ 2,844
$ 315
$ 2,138 $
$ 63 $
1,557
1,188
20.
COMMITMENTS
(a) Advances for equipment
As at December 31, 2008, the Company paid $6,381 in advance deposits for equipment to be
received in next fiscal year, of which $499 has been classified as current. The Company is
further committed to equipment purchases in relation to its expansion activities in the amount of
$17,375.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
For the fifteen months ended December 31, 2008 and years ended September 30, 2007 and 2006
(Expressed in thousands of Canadian Dollars, except for per share and share amounts unless stated otherwise)
(b) Treatment and refining agreement
In April 2008, the Company entered into a six-year agreement commencing in the first fiscal
quarter of 2009 and ending on December 31, 2014, with MRI Trading AG (“MRI”), a Swiss-
based metal trading company, for the treatment and refining of Gibraltar copper concentrate.
Under the terms of the agreement, Taseko has secured long-term, fixed, low cost rates for
processing approximately 1.1 million tons of copper concentrate. The Company has the right to
price payable copper within the concentrate based on a quotational period, declared by the buyer
prior to, and covering each ensuing calendar year.
21.
SUBSEQUENT EVENTS
(a)
Options grant
On January 12, 2009, the Company granted 2,175,000 options to directors. The options were
granted with an exercise price of $1.15 expiring 5 years after grant.
(b) Credit Suisse Facility Agreement
In February 2009, the Company entered into a US$30,000 36-month term facility agreement (the
“Facility”) with Credit Suisse repayable commencing 14 months after the first utilization of the
“Facility” in equal bi-monthly installments. The loan bears interest at LIBOR plus 4 percent.
Pursuant to security agreements entered into in connection with the Facility, the Company has
ceded as security, certain equipment of the Gibraltar Mine and the MRI treatment and refining
agreement along with a corporate guarantee.
(c) Equity Financings
On March 26, 2009, the Company announced it had entered into an agreement with a syndicate of
underwriters under which the underwriters have agreed to buy from Taseko 13,793,104 common
shares at an issue price of $1.45 per common share (the "Offering") for gross proceeds of
approximately $20,000. The underwriters will have an over-allotment option, exercisable at any
time prior to 30 days after the closing date, to acquire up to an additional number of common
shares equal to 15% of the number of common shares sold pursuant to the Offering, at the issue
price. The Company also announced it intends to issue, via a non-brokered private placement at
the same price as the Offering, approximately $5,000 of common shares (the "Non-Brokered
Offering"). Finder's fees will be payable on the Non-Brokered Offering. The net proceeds from
the Offering and the Non-Brokered Offering are intended to be used for general working capital
and corporate purposes.
TSX: TKO NYSE Amex: TGB
300 - 905 West Pender Street
Vancouver, British Columbia
Canada V6C 1L6
Tel: 778-373-4533
Fax: 778-373-4534
TF: 1-800-667-2114
www.tasekomines.com