United. Committed. Open. Annual Report 2016 DIVERSIFIED ASSET BASE BRITISH COLUMBIA MACKENZIE PRINCE GEORGE WILLIAMS LAKE VANCOUVER ARIZONA PHOENIX CANADA CANADA UNITED STATES UNITED STATES GIBRALTAR British Columbia, Canada Copper-Molybdenum Second largest open pit copper mine in Canada 650 employees 85,000 tons/day throughput Average annual production of 140 million pounds of copper & 2.5 million pounds of molybdenum (LOM) 22 year mine life FLORENCE Arizona, USA Copper In-situ copper recovery project ALEY British Columbia, Canada Niobium NEW PROSPERITY British Columbia, Canada Copper-Gold 84 million tonne reserve @ 0.50% Nb2O5 1.0 billion tonne resource @ 0.24% Cu, 0.41 gpt Au 345 million ton reserve @ 0.36% Cu Anticipated throughput 10,000 tonnes/day Anticipated throughput 70,000 tonnes/day 85 million lbs anticipated average annual copper production at full capacity 20 million lbs anticipated average annual niobium production First five years average production of 300,000 ozs gold and 130 million lbs copper HIGHLIGHTS February 2016 Taseko enters into a US$70 million Senior Secured Credit Facility Agreement with an affiliate of RK Mine Finance, one of the world’s largest metal merchants. May 2016 Geoffrey Burns joins Taseko’s Board of Directors as an independent, non-executive director. July 2016 British Columbia Environmental Assessment Office proceeds with Taseko’s request to amend the environmental assessment certificate for New Prosperity. August 2016 Taseko receives permit from the Arizona Department of Environmental Quality that authorizes the construction, operation and closure of a 24 well in-situ copper recovery operation for its Florence Copper Project . September 2016 Taseko Drills 510 Feet of 0.42% Copper Equivalent, including 240 Feet of 0.68% Copper Equivalent in New Copper/Gold/Silver Zone at Gibraltar Mine. December 2016 January 2017 United States Environmental Protection Agency issues Taseko an Underground Injection Control permit, to construct and operate the Phase 1 Test Facility at the Florence Copper Project in Florence, Arizona. Taseko announces record quarterly copper and molybdenum production at Gibraltar, with 40.7 million pounds of copper produced and 0.8 million pounds of molybdenum and total 2016 production of 133.2 million pounds of copper and 0.9 million pounds of molybdenum (100%). March 2017 Taseko closes US$33 million streaming agreement with Osisko Gold Royalties Ltd for Taseko’s 75% share of payable silver production from the Gibraltar Mine. April 2017 Gibraltar signs a new, long-term agreement with unionized employees. PRESIDENT’S MESSAGE TO SHAREHOLDERS Russell E. Hallbauer President and Chief Executive Officer Last year turned out to be a very pivotal year for both Taseko and the copper sector. The year began with depressed copper pricing and a perception of a significant over-supply of copper that would put downward pressure on an already low copper price. There was very little optimism from most industry analysts and experts. While I can’t say that I was overly excited about the prospects for the year, I do know that the long-term price of copper did not decline and was still in the US$2.75 to US$3.00 per pound range. So for every year when the price of copper is US$2.25 per pound, there will be years where the long-term price will be exceeded. To the right is an excerpt from the Copper Handbook which was published in 1903 which sums up the copper market quite well. Even though this is over 100 years old, it continues to hold true and hangs in my office as a daily reminder of how things can rapidly change in the copper business. Gibraltar Mine COPPER PRICING AND GIBRALTAR MINE In the first three quarters of the year, copper pricing drifted between US$1.95 per pound and US$2.25 per pound. At these price levels very few copper producers generate a profit and many are even cash flow negative. We worked diligently at Gibraltar to reduce our cash costs in the face of a weak copper price. Although our efforts were hampered by lower copper grades in the first half of the year, with a concerted effort by all employees, we have steadily reduced our cost per pound every quarter since the first quarter 2016. Our fourth quarter last year brought the long-awaited higher grade ore which increased copper production and decreased cash costs per pound. We knew that even with copper prices at a US$2.25 per pound level, Gibraltar would generate significant cash flow. What we didn’t anticipate was the very sudden copper price increase which took place in November. The combination of improved operating performance and the higher pricing led to great financial results in the quarter, generating $50 million of cash flow. So far in 2017, we continue to benefit from higher grades at Gibraltar and a strong copper price. The first quarter of the 2017 was another great one. Production was again above 40 million pounds and costs were further reduced to a very low US$1.33 per pound. While production levels will fluctuate modestly from quarter to quarter, we anticipate a full year of better than average production. While we are unable to predict where the copper price will be in a year from now, we remain optimistic that we are now in the early stages of an extended period with an under-supplied copper market. The majority of new mines and expansions which pushed the market into a surplus in 2012-2015 are now operating and integrated into today’s supply and demand fundamentals. Improving demand growth has absorbed the new production and supply disruptions already this year have driven the market into a deficit. There remains considerate political risk in many South American, African and Asian copper producing countries which could further exacerbate the copper deficit in the short- and medium-term. We believe this, in turn, will cause upward pricing pressure in the months ahead. * Non-GAPP Performance measure Gibraltar Total Operating Costs (C1)* US$ per Pound Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 LME Copper Price US$ per Pound $2.25 $2.00 $1.75 $1.50 $1.25 $1.00 $2.75 $2.50 $2.25 $2.00 $1.75 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Copper Production Million of Pounds Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 45 40 35 30 25 20 The first quarter of the 2017 was another great one. Production was again above 40 million pounds and costs were further reduced to a very low US$1.33 per pound Gibraltar Mine DEVELOPMENT PROJECTS HEALTH AND SAFETY We continued to advance our development projects in 2016, most notably Florence. Progress was made with permitting and the final two permits required to construct and operate the Production Test Facility were received in the second half of the year. Both permits are currently going through an appeal process which we expect to be resolved later this year. In addition to the permitting work, we announced the results of a two-year in-series pressurized cell leach test. This test was designed to more closely replicate in-situ leaching conditions and provide information on a larger scale than previous leach tests. The results verified and greatly increased the confidence in the metallurgical input data used to simulate the performance of the project once it reaches production. In parallel with the leach test, an optimization of the project well field development sequence was performed and then the entire project was re-simulated and re-costed using updated inputs including the verified leach performance data. Based on the new data, the net present value of the project increased to US$920 million (pre-tax, 7.5% discount rate) with a 44% internal rate of return and a 2.3 year payback. At Taseko, success is dependent on our employees and their health and safety. In this area, our diligence has paid off with a continued strong health and safety track record in 2016. Unfortunately, our extended streak of more than 3.5 million worker hours without a Lost Time Incident came to an end in 2016. But even though our safety record in 2016 took a minor setback, Gibraltar was the recipient of the John Ash Safety Award. The award goes to the mining operating in British Columbia with the lowest injury- frequency rate that has worked at least one million hours during the year. Congratulations to all the employees on this notable achievement. THANK YOU I would like to again thank all of our stakeholders for your support over the past year. We have held ourselves to a long-term strategy for the past ten years, one which I believe will reward all of us as the scarcity of copper supply impacts global copper markets in the years to come. Russell E. Hallbauer President and Chief Executive Officer Florence Copper Project TWO-YEAR FINANCIAL HIGHLIGHTS CONSOLIDATED BALANCE SHEET (CDN$ IN THOUSANDS) ASSETS Current assets Cash and equivalents Accounts receivable Other financial assets Inventories Prepaids Other financial assets Property, plant and equipment Goodwill LIABILITIES Current liabilities For the years ended Dec 31, 2016 Dec 31, 2015 $ $ 89,030 12,905 1,574 60,550 1,268 68,521 13,199 1,602 40,621 1,617 $ 165,327 $ 125,560 48,368 730,208 5,536 48,185 794,758 5,706 $ 949,439 $ 974,209 Accounts payable and other liabilities $ 33,416 $ Current income tax payable Current portion of long-term debt Interest payable on senior notes Long-term debt Provision for environmental rehabilitation Deferred and other tax liabilities Other financial liabilities EQUITY Share capital Contributed surplus Accumulated other comprehensive income (loss) (“AOCI”) Deficit $ $ 889 16,157 4,336 54,798 373,133 98,454 62,202 21,913 $ $ 30,143 1,038 59,801 4,469 95,451 305,401 124,445 78,128 444 $ 610,500 $ 603,869 417,975 45,747 12,357 (137,140) 338,939 417,944 42,558 15,582 (105,744) 370,340 $ 949,439 $ 974,209 CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS (CDN$ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) REVENUES Cost of sales Production costs Depletion and amortization Earnings from mining operations General and administration Share-based compensation Exploration and evaluation Gain (loss) on derivatives Other income (expenses) Loss before financing costs and income taxes Finance expense Finance income Foreign exchange gain (loss) Loss before income taxes Income tax recovery Net Loss for the year For the years ended Dec 31, 2016 Dec 31, 2015 $ 263,865 $ 289,298 (209,150) (52,939) (238,464) (49,514) $ 1,776 $ 1,320 (11,299) (3,619) (2,087) (6,360) (4,072) (25,661) (30,007) 1,084 8,475 (46,109) (13,892) (1,885) (928) 13,268 1,437 (680) (25,923) 1,371 (42,725) (67,957) 14,713 5,605 $ (31,396) $ (62,352) Other comprehensive income (loss), net of tax: Unrealized gain (Loss) on available-for-sale financial assets Foreign currency translation reserve Total comprehensive income (loss) for the year 484 (3,709) (3,225) (1,964) 10,713 8,749 Total comprehensive loss for the year $ (34,621) $ (53,603) Loss per share Basic and diluted (0.14) (0.28) Weighted average shares outstanding (thousands) Basic and diluted 221,828 221,809 MINERAL RESERVES & RESOURCES (AS AT DECEMBER 31, 2016) GIBRALTAR Category (at 0.20% Cu Cut-off) P&P Reserves M&I Resources Size (M Tons) 688 1031 Grade Recoverable Metal Contained Metal Cu (%) Mo (%) Cu (B lbs) Cu (B lbs) 0.26 0.25 0.008 0.008 3.1 - 3.6 5.2 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$2.75/lb for copper and US$11.00/lb for molybdenum and 0.85 C$/US$ foreign exchange. Mr. Jones has reviewed this release. Reserves and Resources were updated as of Dec 31/16. FLORENCE Class Millions tons %TCu Grade Billion lb Copper All Oxide in Bedrock Reserves Resources Probable Measured Indicated M + I Inferred 345 296 134 429 63 0.36 0.35 0.28 0.33 0.24 2.5 2.1 0.7 2.8 0.3 The resource and reserve estimation was completed by Dan Johnson PE, Vice-President/General Manager for Florence Copper, Inc., and a Qualified Person under National Instrument 43-101. The updated Mineral Reserves are based on engineering performed by SRK Consulting incorporating the measured and indicated resources established in 2010, metallurgical work completed by SGS Inc. and T. McNulty and Associates, process facility designs by M3 Engineering as well as well field designs by Haley and Aldrich Inc. 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 financing 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 Nb205 (%) 0.50 0.37 Contained Metal Nb (M kgs) 293 739 The reserve estimation was reviewed by Scott Jones, P.Eng., Vice- President Engineering for Taseko 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 study was done using long term metal prices of US$45.00/kg for niobium and an exchange rate of US$0.90/C$1.00. The NI 43-101 compliant reserve estimate takes into consideration all geologic, mining, milling, and economic factors, and is stated according to Canadian standards (NI43-101). (Under US standards no reserve declaration is possible until a full feasibility study is completed and financing and permits are acquired.) NEW PROSPERITY Mineral Reserves @ C$5.50 NSR/t Cut-Off1 Size M Tonnes 830 181 1,011 Grade Recoverable Metal Contained Metal Au (g/t) Cu (%) Au (M oz) Cu (B lb) Au (M oz) Cu (B lb) 0.41 0.40 0.41 0.23 0.30 0.24 7.7 - - 3.6 - - 11 2.3 13.3 4.2 1.1 5.3 P&P reserves M&I Resources Total 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. CORPORATE INFORMATION Head Office Head Office 15th Floor - 1040 West Georgia Street 15th Floor - 1040 West Georgia Street Vancouver, British Columbia Canada V6E 4H1 Vancouver, British Columbia Canada V6E 4H1 Toll Free: (877) 441-4533 Toll Free: (877) 441-4533 Main Phone: (778) 373-4533 Main Phone: (778) 373-4533 Website Website www.tasekomines.com www.tasekomines.com Email Email investor@tasekomines.com investor@tasekomines.com Transfer Agent Transfer Agent Computershare Investor Services Inc. Computershare Investor Services Inc. 3rd Floor, 510 Burrard Street 3rd Floor, 510 Burrard Street Vancouver, British Columbia Canada V6C 3B9 Vancouver, British Columbia Canada V6C 3B9 Annual General Meeting Annual General Meeting June 8th, 2017 at 2:00 pm June 8th, 2017 at 2:00 pm Metropolitan Hotel, Vancouver BC Canada Metropolitan Hotel, Vancouver BC Canada Shares Listed Shares Listed TSX – TKO NYSE MKT – TGB TSX – TKO NYSE MKT – TGB Senior Officers Senior Officers Russell Hallbauer Russell Hallbauer President & CEO and Director President & CEO and Director Ron Thiessen Ron Thiessen Chairman Chairman John McManus John McManus Chief Operating Officer Chief Operating Officer Stuart McDonald Stuart McDonald Chief Financial Officer Chief Financial Officer Brian Battison Brian Battison Vice President, Corporate Affairs Vice President, Corporate Affairs Scott Jones Scott Jones Vice President, Engineering Vice President, Engineering Rob Rotzinger Rob Rotzinger Vice President, Capital Projects Vice President, Capital Projects Brian Bergot Brian Bergot Vice President, Investor Relations Vice President, Investor Relations Gibraltar Mine Authentically Ambitious