Annual Report 2014 Taseko at a Glance British Columbia CANADA AMA MACKENZIE ACKKENZIE RPR RINCE GEOR PRINCE GEORGE WILLIAMS LAKE VANCOUVER Taseko Mines is focused on creating wealth through the operation, development, and acquisition of mineral properties in North America. UNITED STATES Arizona PHOENIX GIBRALTAR Copper-Molybdenum ALEY Niobium BC, Canada BC, Canada NEW PROSPERITY FLORENCE Copper-Gold BC, Canada Copper Arizona, USA • Second largest open pit copper mine in Canada • 84 million tonne reserve @ 0.50% Nb2O5 • 1.0 billion tonne reserve @ 0.24% Cu, 0.41 gpt Au • In-situ copper recovery project • 700 employees • Anticipated throughput • Anticipated throughput • 340 million ton reserve @ • 85,000 tons/day throughput • 140 million lbs average annual copper production • 24 year mine life 10,000 tonnes/day 70,000 tonnes/day 0.36% Cu • 20 million lbs anticipated average annual niobium production • First fi ve years average production of 300,000 ozs gold and 130 million lbs copper • 75 million lbs anticipated average annual copper production Highlights & Goals 2014 • February: 2013 earnings from mining operations of $77 million and cash fl ow from operations of $33 million from production of 121.5 million pounds of copper and 1.5 million pounds of molybdenum • April: Record quarterly shipments of 40 million pounds of copper and 590 thousand pounds of molybdenum in the fi rst quarter 2014 • • July: Taseko-Gibraltar wins Mining Association of BC’s Mining and Sustainability Award September: Announced proven and probable reserves of 84 million tonnes grading 0.50% Nb2O5 for the Aley Niobium Project • November: Taseko acquires Curis Resources and its wholly owned Florence Copper Project • November: Aley Project Enters Environmental Assessment Process • December: Environmental Protection Agency issues draft Underground Injection Control Permit to Florence Copper 2015 • January: Th e British Columbia Minister of Environment grants Taseko a fi ve- year extension to the Environmental Assessment Certifi cate for the development of the Prosperity Project • January: the Company sells all outstanding copper put options for cash proceeds of $17.4 million • March: Taseko announces annual 2014 earnings from mining operations (before depletion and amortization)* of $52.3 million and cash fl ows from operations of $50.6 million. Total 2014 production at Gibraltar (100%) was 136.5 million pounds of copper and 2.3 million pounds of molybdenum • March: Gibraltar receives the 2014 John Ash Safety Award presented by the Ministry of Energy and Mines • May: Taseko announces an updated, long-term mine plan which focuses on reducing tons mined and maximizing profi tability on a cost per ton milled basis Goals Goals • Continue to reduce operating costs at Gibraltar and maintain steady-state operations to provide further cost reductions • Advance the Aley Project through the BC Environmental Assessment Process • Secure regulatory approval from the Arizona Department of Environmental Quality and the Environmental Protection Agency to operate the pilot test facility President’s Message to Shareholders $150 $100 $50 $0 ) s n o i l l i m , $ C ( Taseko Earnings $4.50 $3.00 $1.50 $0.00 2009 2010 2011 2012 2013 2014 Earnings from Mining Operations LME Copper Price s n o i t r a e p O g n n M m o i i r f i s g n n a E r were also hampered by lower than average grade, speaks to the skill and experience of our employees and the resilient nature and determination of our company. MANAGING THE CONTROLLABLE ASPECTS OF OUR BUSINESS We must remain focused on the things we can control and not be distracted by those beyond our control. Th e price of copper will fl uctuate based on global supply / demand fundamentals and many other drivers which we have no control over. At Taseko, we need to ensure that when the copper price is at bottom-of- the-cycle levels, as it currently is, we can continue to generate positive cash fl ow from our Gibraltar Mine. When the copper price decline accelerated at the end of 2014, we implemented a number of cost-reduction initiatives. It was not until the second quarter of 2015 where we really began to benefi t from these initiatives with lower operating costs. Our goal is to reduce Gibraltar’s Site Operating Costs, Net of By-Product Credits to approximately US$1.55 per pound, or 20% lower than the average cost in 2014. Th ere are many factors that contribute to our cost structure, including; Canadian/US dollar exchange rate, mined copper grade, strip ratio and the price of diesel, tires, steel and other key supplies. By the end of the fi rst quarter of 2015, we successfully lowered our Site Operating Costs Net of By-Product Credits to US$1.75 per pound and expect to hit our cost target of US$1.55 by mid-year. We believe operating costs at this level is sustainable and will also provide a comfortable operating margin which will generate free cash fl ow in the current copper price environment. We are unable to control the price of copper, but we can protect the downside. Our hedging strategy, which has been in place since 2009, guarantees a minimum price and helps to maintain positive Russell E. Hallbauer President and CEO Dear Shareholders, Despite a protracted decline in the price of copper which has negatively impacted producers worldwide, we have adapted our business to ensure profi tability in the current pricing environment. 2014 was the fourth consecutive year of lower average commodity pricing in the metals sector. In 2014 alone, the price of copper dropped 15% to US$2.86 per pound. At the same time, global operating costs and capital costs for new projects continued to increase which resulted in weak mining and metals equity markets as investors looked to other sectors to invest their money. It is during times like these, that we must turn to our site employees to improve effi ciencies and reduce spending all while maintaining safety as the fi rst priority. Despite having operational obstacles to overcome in combination with a diffi cult commodity price cycle, our employees came through for us in 2014. Our Gibraltar Mine operated at capacity in terms of throughput, producing 136 million pounds of copper, slightly lower than expectation due to below average grade, but still 12% higher than in 2013. Molybdenum production for the year was 2.3 million pounds, a 61% increase over 2013. Gibraltar Production ) s d n u o p n o i l l i m ( r e p p o C 150 100 50 0 ) s d n u o p n o i l l i m ( m u n e d b y o M l 2.5 2.0 1.5 1.0 0.5 0.0 2009 2010 2011 2012 2013 2014 Copper Molybdenum We were able to generate $52 million of earnings from mining operations (excluding depreciation) and $28 million of adjusted EBITDA. We advanced key development projects as well as adding a near-term copper project to our portfolio through the acquisition of Curis Resources. While our stock price held for eight months of the year, it too gave way to the downward pressure of the entire sector during the last quarter of 2014. I believe most fi nancial analysts would agree that the past four years has been a more diffi cult period for miners than the global fi nancial crisis of 2008/09. Th e long, protracted decline in copper price has taken a toll on the entire sector, from the junior explorers and developers to the mid-tier mining companies right to the largest diversifi ed producers. Th e strong results that we were able to deliver in 2014, especially during a time when we cash fl ow. It is designed to provide liquidity for the Company during times of weak copper pricing. In early 2015, our hedges did just that when we sold fi ve months of copper put options for over $17 million. Since that time, we have purchased put options on fi ve million pounds of copper per month for the second and third quarters of 2015 at a strike price of US$2.50 per pound. We will look for opportunities to buy additional put options for the fourth quarter and into 2016. study and 43-101 compliant proven and probable reserves. After six years of exploration and development work on the project, including thousands of hours of metallurgical test studies, we now have a project with an $860 million net present value. We will continue to optimize technical aspects to further improve the economics of the project as it progresses through the BC environmental assessment process. LME Copper Price $4.00 $3.50 $3.00 $2.50 $2.00 US$/lb C$/lb Apr-13 Oct-13 Apr-14 Oct-14 I alluded to the impact the weakened Canadian dollar has had on our business but I want to emphasize the importance of the exchange rate. As a Canadian producer, approximately 80% of our operating costs are in Canadian dollars, while 100% of our revenue is in US dollars. So, as the Canadian dollar declined over the past year, our costs, as measured in US$, have declined as well. In Canadian dollar terms, the price of copper today is approximately $3.50 per pound, higher than it was a year ago. Obviously we are unable to predict where the Canadian dollar will be in a year from now, but the average forecasted rate by the large North American banks is for the dollar to remain at today’s level through 2016. GROWTH In late 2014 we completed the acquisition of Curis Resources and its wholly-owned Florence Copper Project. Th e project is one which our management team believes has the potential to be a long-life, low cost copper mine, in the mining friendly jurisdiction of Arizona. Since the deposit was discovered, over $100 million has been spent by previous owners Conoco, Magma and BHP Copper and more recently Curis Resources. Recent work, by both Curis and Taseko, has been mainly permitting related as we move forward with the fi nal approvals for Phase 1 – establishing and operating a production test facility (PTF). Once the last two permits are received, which we expect will be in 2015, we will then have the ability to construct the PTF. Th e decision to build the PTF will depend on our cash fl ow and market conditions at that time. Operating the PTF for 12-18 months will provide us with the data necessary to seek the remaining permits for full production of 75 million pounds of copper per year. Progress continued at our Aley Niobium Project, with the most signifi cant development being the completion of a pre-feasibility EMPLOYEE HEALTH AND SAFETY Employee health and safety is paramount at Gibraltar and is the foundation for this world class operation. Safety is never taken for granted. We make a concerted eff ort every day to put worker safety at the forefront of every decision, every action. In 2014, Gibraltar had the lowest injury-frequency rate of all BC mines, and for it was awarded the John Ash Safety Award from the Government of British Columbia. Th e award goes to the mining operation in the province with the lowest injury-frequency rate that has worked at least one million hours during the year. Gibraltar worked over 1.7 million hours during 2014 with zero lost time accidents. Th is injury free streak continues today and now stands at more than two million worker hours without a lost time accident. We are proud of our employees for this accomplishment and their ongoing commitment to health and safety, an important aspect of their work lives. ENVIRONMENT Following the Mount Polley tailings dam incident in August 2014, the integrity of all tailings storage facilities in BC and around the world were called into question. Unlike Mount Polley’s earth and rock dam, the main Gibraltar dam is constructed from cycloned sand and the majority of the perimeter of the pond is original ground. Most of the recommendations made by the Mount Polley Expert Independent Geotechnical Review Panel are already in place at Gibraltar and have been for many years. Th e method of separating sand and water using cyclones has been the primary method for years at many BC mines, including Gibraltar, and we believe it provides the highest level of dam integrity. In August 2014, all BC mines operating tailings storage facilities were ordered to conduct a Dam Safety Inspection (DSI) by a third party qualifi ed engineering fi rm. Additionally, the DSI was to be reviewed by an independent qualifi ed third party engineering fi rm. Th e DSI at Gibraltar confi rmed that the tailings dam was satisfactory in all areas with no safety or dam structure concerns. Th e third party review confi rmed the DSI results with no additional recommendations. PERSONAL ACHIEVEMENTS I would like to congratulate three members of my management team who have received important industry awards this year. In January, Rob Rotzinger, Vice President, Capital Projects, was awarded the Mineral Processor of the Year by the Canadian Mineral Processors (CMP) Group. Th is award was presented to Rob in recognition of the outstanding work he performed on the GDP3 project, for his dedication to the successful advancement of the Gibraltar Mine, and for his commitment to advancing mineral processing solutions at Gibraltar and Taseko as a whole. In May, John McManus, Chief Operating Offi cer, was named Mining Person of the Year by the Mining Association of BC. Th is award publicly recognizes an outstanding individual who has shown leadership in advancing and promoting the mining industry in British Columbia. John was recognized for his work on leading the Mining Association of British Columbia both as Chairman and as a Director during a period when signifi cant changes were occurring with respect to how our industry is perceived by the public, government, media, and First Nations. In May, Tom Broddy, Manager, Engineering Projects received two awards from the Canadian Institute of Mining, Metallurgy and Petroleum (CIM). He was presented the Distinguished Service Award for exemplary eff ort in introducing students to the mining industry and to CIM, as well as the Distinguished Service Medal for his commendable mentoring, his commitment to the Surface Mining Society and his dedication to the CIM Vancouver Branch. APPRECIATION I would like to thank Mr. Barry Coughlan for his many years of service on the Taseko Board. Barry joined our Board in 2001 and his contributions have been important as Taseko was transformed into a multi-asset, producing company. Th is year, Barry will not be standing for re-election. We appreciate his hard work and dedication and wish him the very best in his future endeavors. I would also like to thank our loyal shareholders, many who have been invested since Taseko acquired Prosperity in the 1990’s. It was another challenging year for the mining sector but we believe we are near the end of a long downward cycle. We look to restore the confi dence of our shareholder base as we demonstrate the great asset we have in Gibraltar. Th ank you for your continued support. Russell E. Hallbauer President and Chief Executive Offi cer GIBRALTAR MINE 2014 PRODUCTION STATS • Total Material Mined: 114 M tons • Total Material Milled: 30 M tons • Strip Ratio: 3.0 • Average Copper Grade: 0.265% • Average Molybdenum Grade: 0.010% • Copper Recovery: 83.6% • Molybdenum Recovery: 40.0% Copper Sales 143.4 Million lbs • Copper Production: 136.5 M lbs • Molybdenum Production: 2.3 M lbs • Copper Sales: 143.4 M lbs • Molybdenum Sales: 2.5 M lbs ALEY • Pre-tax net present value of approximately C$860 million at an 8% discount rate • Pre-tax internal rate of return of 17% with a 5.5 year payback • Anticipated operating margin of US$21/kg of niobium (Nb) • Average annual production of 9 million kilograms Nb in the form of FeNb • P&P Reserves grade of 2.50%, 24 year mine life at a milling rate of 10,000 tonnes per day • Total pre-production capital cost of C$870 million, including; $520 million for mine, concentrator and site infrastructure; $180 million for the converter, $100 million for off site infrastructure including the transmission line, and $70 million for pre-stripping Th e study was done using long term metal prices of US$45/kg for niobium and an exchange rate or US$0.90/CAD$1.00. Our Commitments HEALTH AND SAFETY MILESTONES Nothing is more important to Taseko than the safety, health and well-being of our employees. 2014 was a signifi cant year for everyone working at Gibraltar Mine; our workforce achieved several milestones in regards to health and safety that have not been reached since we restarted the Mine in 2004. > At midnight on December 31, 2014 our employees and contractors completed the entire 2014 calendar year without a single LTI. Th is encompasses 1,711,467 person hours worked without a LTI. > On March 23, 2015 Taseko-Gibraltar was awarded the John Ash Award from the Province of British Columbia. TOWARDS SUSTAINABLE MINING HIGHLIGHTS Taseko has been recognized by the mining industry for demonstrating a commitment to responsible development and continuous improvement at all levels of its operation, including community and First Nations engagement, health and safety, environmental stewardship and operational effi ciencies, with the most recent recognition from the Mining Association of BC as a co-recipient of the annual Mining & Sustainability Award. In addition, as members of the Mining Association of British Columbia, Taseko is 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. FLORENCE COPPER • A pre-tax net present value (NPV) of US$849 million (7.5% discount rate) with an internal rate of return (IRR) of 38% • A post-tax NPV of US$585 million with an IRR of 31% and a 3.0-year payback • An estimated initial capital cost of US$210 Pre-Tax NPV Post-Tax NPV 849 US$ Million 7.5% Discount Rate 585 US$ Million 3.0 Year Payback 38% IRR (internal rate of return) 31% IRR (internal rate of return) million and life-of-project direct operating costs of US$0.80/lb of copper recovered • Base case study parameters include a US$3.00/lb long-term copper price, an average copper recovery of 70%, and a 340 million ton probable reserve1, containing 2.42 billion lb of copper in the Florence copper oxide deposit. • Permitting for a Phase 1 Production Test Facility is well advanced; the Environmental Protection Agency issued a draft Underground Injection Control Permit in December 2014 1 Average grade 0.358% TCu at a cut-off grade of 0.05% TCu March 2013 Florence Copper Prefeasibility Study Technical Report, Independent Qualifi ed Persons are Richard Zimmerman, RM-SME, M3 Engineering & Technology Corp.; Michael Young, RM-SME, Haley & Aldrich; Corolla Hoag, CPG, RM-SME, SRK Consulting, Dr. Terence McNulty, PE, TP McNulty and Associates; Dennis Tucker, PE, ARCADIS, and Richard Frechette, PE, Knight Piesold. NEW PROSPERITY • One of Canada’s largest undeveloped copper-gold projects • Th e Prosperity deposit is a gold-copper porphyry with a one billion tonne measured and indicated resource containing 5.3 billion pounds of copper and 13.3 million ounces of gold • Pre-tax net present value of C$3 billion and a 40% pre-tax internal rate of return (at US$1,000/ounce gold and US$3.15/pound copper) Three-Year Financial Highlights Consolidated Balance Sheets (Cdn$ in thousands) ASSETS Current assets Cash and equivalents Accounts receivable Other fi nancial assets Inventories Current tax receivables Prepaids Other fi nancial assets Property, plant and equipment Prepaids Other receivable Goodwill LIABILITIES Current liabilities Accounts payable and accrued liabilities Current portion of long-term debt Interest payable Other fi nancial liabilities Long-term debt Other fi nancial liabilities Provision for environmental rehabilitation Deferred tax liabilities EQUITY Share capital Contributed surplus Accumulated other comprehensive income (Loss) (“AOCI”) Retained earnings (defi cit) Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 $ 53,299 12,618 $ 82,865 4,532 $ 134,995 28,966 6,554 36,094 27,153 913 69,729 47,174 18,284 6,354 29,865 27,450 2,309 5,123 136,631 228,938 228,708 41,484 793,659 15,985 4,783 $ 992,542 38,272 678,580 10,543 13,895 102,737 647,542 4,500 12,961 $ 970,228 $ 996,448 $ 42,541 20,157 $ 26,864 22,625 $ 42,938 18,067 3,746 3,435 3,213 $ 66,444 63,985 $ 116,909 10,995 $ 75,213 293,506 110 110,136 259,515 565 69,673 234,793 57,862 106,517 100,071 $ 570,267 97,350 $ 544,012 76,482 $ 550,867 417,944 40,890 6,833 (43,392) 372,274 38,507 4,943 10,492 368,128 37,487 (5,365) 45,331 422,275 $ 992,542 426,216 445,581 $ 970,228 $ 996,448 Consolidated Statements of Comprehensive Income (Cdn$ in thousands, except per share amounts) Revenue Cost of sales Production costs Depletion and amortization Earnings from mining operations General and administrative Exploration and evaluation Other income (expenses) Curis acquisition cost Write-down of marketable securities Income (loss) before fi nancing costs and income taxes (21,693) Finance expenses Finance income Foreign exchange (loss) Income (loss) before income taxes Income tax recovery (expense) Net income (loss) for the year (27,423) 4,182 (17,737) (62,671) 8,787 (53,884) Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 $ 371,196 $ 290,056 $ 253,607 (318,931) (213,056) (172,267) (47,163) $ 5,102 (34,067) $ 42,933 (21,026) $ 60,314 (16,085) (5,945) (1,096) (2,517) (1,152) (16,236) (10,294) (2,880) (13,984) (461) (25,399) 6,214 (12,534) (32,180) (2,659) (34,839) (19,084) (17,807) (29,158) (5,735) (14,211) 12,092 (701) (8,555) (584) (9,139) Other comprehensive income (loss), net of tax Unrealized gain (loss) on available-for-sale fi nancial assets 2,766 Reclassifi cation of gain/(loss) on available for sale fi nancial assets, included in the net loss Foreign currency translation reserve Total other comprehensive income (loss) for the year (2,296) 1,420 1,890 2,095 8,213 (2,726) (1,241) 10,308 (3,967) Total comprehensive income (loss) for the year (51,994) (24,531) (13,106) Earnings (loss) per share Basic Diluted Weighted average shares outstanding (thousands) Basic Diluted (0.27) (0.27) 197,658 197,658 (0.18) (0.18) 192,222 192,222 (0.05) (0.05) 192,599 192,599 Mineral Reserves and Resources (As at December 31, 2014) GIBRALTAR Category (@ 0.20% Cu Cut-Off ) Size (M Tons) Grade Recoverable Metal Contained Metal Cu (%) Mo (%) Cu (B lbs) Cu (B lbs) P & P Reserves M & I Resources 752 900 0.256 0.254 0.008 0.008 3.3 - 3.8 5.5 Th e resource and reserve estimation was completed by Gibraltar mine staff under the supervision of Scott Jones, P.Eng., Vice President, Engineering and a Qualifi ed Person under National Instrument 43-101. Mr. Jones has verifi ed the methods used to determine grade and tonnage in the geological model, reviewed the long range mine plan, and directed the updated economic evaluation. Th e estimates used long term metal prices of US$2.75/lb for copper and US$11.00/lb for molybdenum and 0.85 C$/US$ foreign exchange. Mr. Jones has reviewed this release. A technical report will be fi led on www.sedar.com. Reserves and Resources were updated as of Dec 31/14. FLORENCE COPPER All Oxide in Bedrock Class Millions Tons %TCu Grade Billion lb Copper Reserves Probable Resources Measured Indicated M+I Inferred 340 296 133 429 63 0.36 0.35 0.28 0.33 0.24 2.44 2.10 0.74 2.84 0.30 QP for the 2011 resource estimate is Russell White, RM-SME, RG. QP for the 2013 reserve estimate is Michael Young, RM-SME, Haley & Aldrich Based on 577,317 feet of drilling in 502 holes. Mineral Reserves and Mineral Resources at a 0.05% TCu cutoff . Mineral reserves are contained within the measured and indicated mineral resources. Mineral resources that are not mineral reserves do not have demonstrated economic viability (Under US standards no reserve declaration is possible until a full feasibility study is completed and fi nancing and permits are acquired.) ALEY Category P&P Reserves (@ 0.30% Nb2O5 cut-off ) M&I Resources (@ 0.20 Nb2O5 cut-off ) Size (M Tonnes) 84 286 Grade Contained Metal Nb2O5 (%) Nb (M kgs) 0.50 0.37 293 739 Th e 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. Th e resource estimate was prepared by Ronald G. Simpson, P.Geo. with Geosim Services Inc., a Qualifi ed Person independent of Taseko. NEW PROSPERITY Mineral Reserves @ C$5.50 NSR/t Cut-Off 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 Th e mineral resource and reserve estimations were completed by Taseko staff under the supervision of Scott Jones, P.Eng., Vice-President, Engineering and a Qualifi ed Person under National Instrument 43-101. Mr. Jones has verifi ed the methods used to determine grade and tonnage in the geological model, reviewed the long range mine plan, and directed the updated economic evaluation. Th e 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. Note: Technical reports have been fi led on www.sedar.com. Corporate Information Head Offi ce 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 St., Vancouver, BC Canada V6C 3B9 Annual General Meeting June 11th, 2015 1:00 pm Metropolitan Hotel, Vancouver BC Canada Shares Listed TSX: TKO / NYSE MKT: TGB Senior Offi cers Russell Hallbauer, President, CEO and Director Ron Th iessen, Chairman John McManus, Chief Operating Offi cer Stuart McDonald, Chief Financial Offi cer Brian Battison, Vice President, Corporate Aff airs Scott Jones, Vice President, Engineering David Rouleau, Vice President, Mining Operations Rob Rotzinger, Vice President Capital Projects Brian Bergot, Vice President, Investor Relations
Continue reading text version or see original annual report in PDF format above