United. Committed. Open. Annual Report 2013 A Canadian-based company, focused on operating and developing large scale mines Atlin Dease Lake Fort Nelson ALEY Fort St. John Stewart Mackenzie Prince Rupert Smithers HARMONY Prince George Bella Coola GIBRALTAR Williams Lake NEW PROSPERITY Golden Cache Creek Kamloops Kelowna Cranbrook Vancouver Hope 0 0 100 200 Km 100 200 Miles Victoria BC Front Cover: Photo of the entrance to Gibraltar Mine, with historic 1970’s shovel displayed in the foreground. GIBRALTAR MINE Located in south-central British Columbia, near Williams Lake, Taseko’s 75% owned Gibraltar Mine is the cornerstone of Taseko’s growth strategy. The Company has invested ~$700 million since the mine was restarted in 2005 to expand and modernize the operation, which was scheduled for demolition when the Company acquired it in 1999. NEW PROSPERITY A project that holds the potential to dramatically increase shareholder value and improve the economic well-being of local communities. Development of this large-scale deposit will be a major step towards transforming Taseko into a mid- tier mining company. ALEY Located in northern British Columbia, Taseko’s wholly owned Aley project is poised to create long term shareholder value and support the growing global niobium demand resulting from increased stainless steel production. HARMONY A gold project on British Columbia’s longer-term west coast, providing a development opportunity. BRITISH COLUMBIAALASKA Year in Review March 2013 Participation and Cooperation Agreement finalized between the Gibraltar Mine and the Williams Lake Indian Band September 2013 Stuart McDonald joins Taseko as Chief Financial Officer of the Company $77M From Mining Operations February 2014 2013 earnings from mining operations before depletion and amortization of $77 million and cash flow from operations of $68 million from production (100%) of 121 million pounds of copper and 1.5 million pounds of molybdenum April 2013 First concentrate produced from Gibraltar concentrator #2 January 2014 PRODUCTION (100% Basis) 2012 2013 Taseko announces 2013 copper production (100%) of 121 million pounds, a 35% increase over that achieved in 2012, and molybdenum production increased 10% to 1.5 million pounds Cu 88 M pounds 121 M pounds Mo 1.3 M pounds 1.5 M pounds April 2014 Record quarterly shipments announced; total sales of 40 million pounds of copper and 589 thousand pounds of molybdenum from the Gibraltar Mine Gibraltar Mine Mill and Shops 20052014 President’s Message to Shareholders Russell E. Hallbauer President and CEO 2013 was a challenging year for the mining industry around the world. Many companies experienced financing challenges, write downs, permitting delays, cost escalation and construction and capital cost overruns. In this climate, Taseko was able to grow production and sales, reduce our operating costs and increase cash flow. Increased production and decreased operating costs combined with a weakened Canadian dollar and a stable copper price resulted in a very good year for the Company. These four key elements are expected to remain in our favour throughout 2014 and contribute to another successful year. GIBRALTAR: A YEAR OF GROWTH In March of 2013, Gibraltar produced the first copper concentrate from the $325 million Gibraltar Development Plan 3 (“GDP3”) project, following two years of construction and commissioning. Since the first concentrate was produced, we have successfully ramped-up the new facility and at the end of 2013 it was operating at a steady-state level. With steady-state production achieved, the operations teams have been able to focus on incrementally optimizing throughput rates and copper recoveries. 150 200 250 300 100 I know we have spoken about this on a few occasions: about how we completed this major project on-time and on budget. I believe the significance of 50 0 150 of reasons, including: the jurisdiction in which we operate, access to a skilled workforce as well as working with top notch engineering consulting firms. The main reason, however, is the quality of our internal construction management team and their attention to detail. For the most part, we managed the entire project with our own employees, instead of relying on outside consultant and contractors. This, to me, is what sets us apart from the rest. The benefits of the expansion and steady-state production are apparent in Taseko’s 2013 year end results. During 2013, Gibraltar processed 24.5 million tons of ore, a 50% increase over 2012. Copper production for 2013 was 121 120 90 60 30 0 mm C$ 300 250 Gibraltar Revenues $278 $290 $252 $254 this achievement, however, has been overlooked by many. Around the world, Taseko is one of just a few mining companies that have successfully delivered a large-scale project on-time and on budget. I have been asked many times, how Taseko did this when so many others couldn’t. I believe there are a number 200 150 100 50 0 million pounds, a 40% increase over $189 the previous year. And if you look back further, we have tripled production since 2006. 2013 was still a ramp up year, so there are further increases in production coming in 2014 as we get closer to full 2011 2009 annual throughput of concentrator approximately 31 million tons. 2013 2010 2012 Production Growth Operating costs steadily declined in 2013 as production levels increased and stabilized at the higher levels. This was the premise of our original investment in Gibraltar in 2006, to lower overall costs to ensure we manage our way through any economic cycle. A lower copper price in 2013 offset the operational improvements in terms of our financial performance, and this resulted in a decline in earnings from mining operations to $43 million. Cash flow from operating activities remained flat year-over-year at $68 million. By the end of 2013, our total operating costs had declined to US$2.14 per pound of copper. Managing a mine expansion is a challenging initiative at the best of times. Even more difficult is undertaking such an extensive project while continuing operations. Up until December 2012, this has been the reality at Gibraltar. There is no doubt, that we have not been as efficient as we would be just operating at steady-state. There has been a cost associated with the three phases of expansion. But now the construction projects are behind us, we can now focus on the operational improvements that we know will positively affect our ongoing cost of production. Gibraltar Copper Production mm lbs 150 120 90 60 30 0 17 75 70 21 62 22 67 30 91 2009 2010 2011 2012 2013 Taseko Cariboo (JV Partner) Gibraltar processed 24.5 million tons of ore, a 50% increase over 2012. Copper production for 2013 was 121 million pounds, a 40% increase over the previous year. 300 250 200 150 100 50 0 150 120 90 60 30 0 Financial Growth From a financial perspective, the Company had a strong year, with the successes realized in the second half of the year. Taseko revenues for 2013 on our 75% of Gibraltar production were $290 million from the sale of 85.4 million pounds of copper and 900 thousand pounds of molybdenum, 27% higher than in 2012. Annual earnings from mining operations before depletion and amortization were $77 million, and although this was down slightly from the previous year, the fourth quarter saw a significant step change as a result of steady state production. Gibraltar Revenues New Prosperity mm C$ 300 250 200 150 100 50 0 $278 $290 $252 $254 $189 2009 2010 2011 2012 2013 GROWTH PIPELINE: ALEY & NEW PROSPERITY Aley Taseko’s 100% owned Aley Niobium Project, in northern British Columbia, continues to be a focus of the Company. located lies Given the limited technical information on niobium, our challenge in achieving the targeted recovery levels of 50%. In 2013 significant progress was made on the metallurgical test work and we were able to finalize a process flow sheet, achieving recovery levels of 35%, short of our goal. In early 2014, we had a breakthrough with the metallurgy and a simplified flow sheet allowing higher recovery rates. Progress has been made in updating the process to reflect this and we expect a NI 43-101 compliant reserve to be completed shortly. In addition, the team will continue to advance construction engineering and environmental studies throughout 2014. 30 91 2013 Gibraltar Copper Production 0 67 22 70 21 62 90 60 30 150 120 2012 2011 Taseko Gold-Copper In 2013, Taseko’s wholly-owned New mm lbs Prosperity Project underwent a Canadian Environmental Assessment Review Panel. The Federal Government appointed a three-member 17 independent panel to review the project, 75 conduct public hearings and write a report to be submitted to the Canadian Minister of Environment. 2009 2010 After 30 days of public hearings, a 323 Cariboo (JV Partner) page report was written and submitted to Minister Aglukkaq, the Minister of Environment. The panel found that the proposed project is not likely to cause significant adverse environmental effects in respect of 33 different areas. However, the panel did find likely significant environmental effects on the water quality of Fish Lake, on fish and fish habitat in Fish Lake, on current use of lands and resources for traditional purposes by certain Aboriginal groups, and on their cultural heritage. In November, one of the lead engineering consultants on New Prosperity, Knight Piesold, advised Taseko that Natural Resources Canada (NRCan) used the wrong design in their analysis of seepage rates from the tailings storage facility and that the Review Panel subsequently relied on that incorrect analysis to reach their findings. We made multiple attempts to bring this serious error to the attention of Minister Aglukkaq for her consideration; however, it appears our efforts were unsuccessful. In light of these extraordinary circumstances Taseko initiated a Federal Judicial Review in December 2013 seeking a declaration from the court that certain panel findings are invalid and are quashed or set aside, and that the Panel failed to observe principles of procedural fairness in its conduct of the public hearing process. On February 27, 2014 Minister Aglukkaq announced she accepted the Panel report and its findings and that the Government of Canada would therefore not be the Federal Authorizations granting necessary for the project to proceed. Consistent with our concerns with both the process and the Panel report, Taseko filed a second Judicial Review in March 2014 asking the court to quash the Minister’s decisions and that of the Governor in Council. We maintain that the Federal Review Panel failed in their duty to deliver a fair process and the consequence of their failure resulted in the Minister of Environment and Governor in Council making the wrong decision. the Company, While along with its employees and shareholders, are extremely disappointed by this outcome, we remain committed to New Prosperity and will continue to take whatever steps necessary to protect the value of this asset. With New Prosperity facing a longer time horizon to potential development, the Company will now review its growth strategy with an eye to more near- term opportunities. We are fortunate to have such a great cornerstone asset in Gibraltar which provides long term stability and affords us the ability to act quickly when those opportunities knock. We will continue to maximize returns from Gibraltar for just such a purpose. The combined medical aid and lost time incident frequency rate has steadily improved since restarting the mine and in 2013 was reduced by nearly 60% over 2006. OUR PROMISE In addition to our commitment of advancing of our Company’s assets, we are also committed to our workforce, the environment, and the communities in which we operate. Employees In order to grow the company and achieve our collective potential, we are committed to our employees’ health and safety, skills and knowledge, and ensuring a passionate and dedicated work environment. Safety continues to be an important priority at Taseko and we work hard to ensure that a culture of safety permeates the workplace. The combined medical aid and lost time incident frequency rate has steadily improved since restarting the mine and in 2013 was reduced by nearly 60% over 2006. Environmental Stewardship As members of The Mining Association of Canada (MAC) and the Mining Association of British Columbia, we are committed to working towards best management practice standards, known as Towards Sustainable Mining, a comprehensive benchmark for the industry. Towards Sustainable Mining is designed to improve the industry’s performance and practices in environmental, social and economic aspects in 6 key areas, one of which is biological diversity. Towards Sustainable Mining’s Guiding Principles for biological diversity includes the integration of biological conservation, including respect for critical habitat, into mine, land use and reclamation planning. As a company, we strive to positively contribute to the conservation of biological diversity through all stages of the mining life cycle. Interesting 2013 Environmental Facts: 21.6 Giga watt hours (GWh) was saved which is equivalent to $1,589,760, all due to the upgrades put in place with respect to new energy efficient systems. 222,000 liters of oil were recycled and 19,475 Liters of Grease/Oil Products were recycled. $1,142.43 was donated to local teams and clubs from the cans and bottles recycling program at Gibraltar. Gibraltar’s Komatsu 930E fleet (300 ton haul trucks) was upgraded with Cummins engines to the Tier 2 engine (improved emissions controls) with 3 units changed out during 2013 and the last truck before April 2014, thus saving 219,331 litres of diesel and reducing emissions by 599,000 kg of greenhouse gas CO2 equivalent per year. THANK YOU I’d like to thank Mr. Wayne Kirk for his service on the Taseko Board since 2004. This year, Mr. Kirk will not be standing for re-election. We appreciate his hard work and wish him good luck in his future endeavors. In addition, I would like to thank all our stakeholders for persevering through these challenging times and for their continued support of Taseko and its management team. Although the Company experienced setbacks, specifically in the decision from the Federal Government regarding New Prosperity, I remain very excited about the near- term prospects for Taseko. Kind regards, Russell E. Hallbauer President and Chief Executive Officer Two-Year Financial Highlights Consolidated Balance Sheets (Cdn$ in thousands) ASSETS Current Assets Cash and Equivalents Accounts Receivable Other Financial Assets Inventories Current Tax Receivables Prepaids Other Financial Assets Property, Plant and Equipment Prepaids Other Receivable LIABILITIES Current Liabilities Dec. 31, 2013 Dec. 31, 2012 $ 82,865 $ 134,995 4,532 69,729 47,174 18,284 6,354 28,966 29,865 27,450 2,309 5,123 228,938 228,708 38,272 678,580 10,543 13,895 102,737 647,542 4,500 12,961 $ 970,228 $ 996,448 Accounts Payable and Accrued Liabilities $ 26,864 $ 42,938 Current Portion of Long-term Debt Interest Payable Other Financial Liabilities Long-Term Debt Other Financial Liabilities Provision for Environmental Rehabilitation Deferred Tax Liabilities EQUITY Share Capital Contributed Surplus Accumulated Other Comprehensive Income (Loss) (“AOCI”) Retained Earnings (Deficit) 22,625 3,435 63,985 116,909 259,515 565 69,673 97,350 18,067 3,213 10,995 75,213 234,793 57,862 106,517 76,482 $ 544,012 $ 550,867 372,274 38,507 4,943 10,492 426,216 368,128 37,487 (5,365) 45,331 445,581 $ 970,228 $ 996,448 Consolidated Statements of Comprehensive Income (Cdn$ in thousands, except per share amounts) Dec. 31, 2013 Dec. 31, 2012 Revenue Cost of Sales $ 290,056 $ 253,607 Production Costs Depletion and Amortization (213,056) (34,067) (172,267) (21,026) Earnings from Mining Operations $ 42,933 $ 60,314 General and Administrative Exploration and Evaluation Other Operating Income (Expenses) Write-down of Marketable Securities Income (Loss) before Financing Costs and Income Taxes Finance Expenses Finance Income Foreign Exchange Gain (Loss) Earnings before Income Taxes Income Tax Recovery (Expense) (16,236) (10,294) (2,880) (13,984) (19,084) (17,807) (29,158) - (461) (5,735) (25,399) 6,214 (12,534) (32,180) (2,659) (14,211) 12,092 (701) (8,555) (584) Net Income (Loss) for the Year $ (34,839) $ (9,139) Other Comprehensive Income (Loss) Unrealized Gain (Loss) on Available- for-sale Financial Assets, Net of Tax Reclassification for Permanent Impairment on Available for Sale Financial Assets, Included in the Net Loss Reclassification of Realized Loss (Gain) on Available for Sale Financial Assets Total Comprehensive Income (Loss) for the Year Total Other Comprehensive Income for the Year Earnings Per Share Basic Diluted Weighted-Average Shares Outstanding Basic Diluted 2,095 (2,726) 8,213 - - (1,241) $ 10,308 $ (3,967) $ (24,531) $ (13,106) (0.18) (0.18) 192,222 192,222 (0.05) (0.05) 192,599 192,599 Mineral Reserves and Resources (As at December 31, 2013) GIBRALTAR Category (@ 0.20% Cu Cut-Off 1) Size M Tons Grade Recoverable Metal Contained Metal Cu (%) Mo (%) Cu (B lbs) Cu (B lbs) P & P Reserves M & I Resources 752 900 0.300 0.300 0.008 0.008 4.0 - 4.5 5.1 1 The resource and reserve estimation was 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 used long term metal prices of US$2.25lb for copper and US$14.00/lb for molybdenum and a foreign exchange of US$0.85/C$1.00. Reserves and Resources were updated as of December 31, 2013. NEW PROSPERITY Category (@ C$5.50 NSR/t Cut-Off 1) Size M Tonnes Grade Recoverable Metal Contained Metal Au (g/t) Cu (%) Au (M oz) Cu (B lb) Au (M oz) Cu (B lb) P & P Reserves M & I Resources Total 830 181 1,011 0.41 0.40 0.41 0.23 0.30 0.24 7.7 3.6 - - - - 11.0 2.3 13.3 4.2 1.1 5.3 1 The mineral resource and reserve estimations were completed by Taseko 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 reserves used long term metal prices of US$1.65/lb for copper and US$650/oz for gold and a foreign exchange of C$0.82 per US dollar. ALEY Category (@ 0.20% Nb2O5 Cut-Off 1) Size M Tonnes Grade Contained Metal Nb2O5 (%) Nb (M kgs) M & I Resources 285 0.37 739 1 The 0.20% Nb2O5 cut-off assumes a niobium price of US$50/kilogram and a 50% process recovery rate. G & A, processing and ore mining costs were assumed to be US$30/tonne milled plus waste mining costs of US$2.00/tonne. A 45° pit wall slope was generated to constrain the resource within the block model. The resource estimate was prepared by Ronald G. Simpson, P.Geo. with Geosim Services Inc., a Qualified Person independent of Taseko. Corporate Information Head Office 15th Floor - 1040 West Georgia St. Vancouver, BC V6E 4H1 Toll Free: (877) 441-4533 Main Phone: (778) 373-4533 Facsimile: (778) 373-4534 Website tasekomines.com Email investor@tasekomines.com Transfer Agent Computershare Investor Services Inc. 3rd Floor, 510 Burrard Street Vancouver, BC Canada V6C 3B9 Annual General Meeting June 11th, 2014 1:00 pm Metropolitan Hotel Vancouver BC Canada Shares Listed TSX: TKO NYSE MKT: TGB Senior Officers Russell Hallbauer I President, CEO and Director Ron Thiessen I Chairman John McManus I Chief Operating Officer Stuart McDonald I Chief Financial Officer David Rouleau I Vice President, Mining Operations Brian Battison I Vice President, Corporate Affairs Scott Jones I Vice President, Engineering Rob Rotzinger I Vice President Capital Projects Brian Bergot I Vice President, Investor Relations Authentically Ambitious