With copper prices dropping below $2 per pound, Taseko may just be trying to keep afloat during 2016. It has an estimated $65 million USD in cash at the end of 2015, and requires approximately $2.25 per pound copper to break even as a company. At current copper prices, Gibraltar’s production is very marginally profitable after factoring in off-property costs.
There is some hope that copper prices may rebound somewhat, as many analysts believe that the current copper price does not accurately reflect the supply/demand picture. However, there is quite a bit of uncertainty around copper prices, and Taseko needs to carefully weigh the need to bolster its liquidity versus increasing its interest costs too much when refinancing its Red Kite loan (and potentially taking on more debt). Seeking Alpha 2016
Board member George Ireland, a highly regarded and well informed mining investor recently dumped over 7 million shares at $us0.30/share.
As of January 22, 2016 Taseko had a market cap of only $us98 million. It has $32 million due in May from the Curis transaction financed at 11%. Copper prices have continued to decline since Taseko last discussed refinancing at a lower rate. “Interest costs are approximately $19 million per year including the estimated interest cost from the new secured debt.
This results in estimated cash flow in 2016 ranging from approximately negative $45 million at $1.75 copper to positive $39 million at $2.75 copper. These estimates incorporate the effect of the Canadian dollar exchange rate varying in conjunction with copper prices.
Continuing a general alert about Taseko throughout the investor community Taseko was further downgraded by Standard and Poors from a B- to a CCC+.
“The downgrade reflects our view that Taseko’s capital structure appears unsustainable due to very high leverage and interest costs, although we do not envision a specific default scenario at this point,” said Standard & Poor’s credit analyst Jarrett Bilous. S&P expect Taseko’s high ongoing debt servicing obligations and maintenance capital expenditures will result in cash flow deficits that gradually weaken the company’s liquidity position…
The agency estimates the company has sufficient cash to fund its operations beyond the next 12 months, with an additional cushion from its recently announced secured credit facility. “However, we believe the company’s capital structure is likely unsustainable in the long term, barring a pronounced and sustained rebound in copper prices. As a result, we view the company as vulnerable and dependent on favorable business, financial, and economic conditions to meet its financial commitments, which is consistent with our criteria for issuers we rate ‘CCC+’.” Taseko derives all production from its 75%-owned Gibraltar mine, which exposes the company to copper market fluctuations and unexpected production disruptions that can impair operating results, as witnessed in late 2014 to early 2015
All of this and the economic history of this mine, an original Scholtz acquisition setting out to prove that very low grade ores can be profitably mined, was known and knowable at the time B.C. Ministry of Mines recently approved the highly controversial supernatant discharge. The Gibraltar was originally permitted as a zero discharge facility. In 2008 Taseko applied for and received a permit for discharge to the Fraser. The latest, recently approved doubled the allowed discharge. Taseko threatened they would have to close the mine if the discharge were not approved.
This week B.C. Ministry of Mines announced “relief” for the B.C.’s troubled mines essentially through more debt. Miners on shaky ground financially will pay 12% and those more stable 8% to defer hydro payments for two years. Of course energy costs have been a key factor in increasing mine unit costs of production but the problem is so much bigger than that and it is that bigger problem that B.C. Ministry of Mines and all other regulatory agencies need to take into account in reassessing the present and future place of their mineralized assets in the global market place. Two years is not going to bring any good news to B.C.s existing permit holders or to mining affected communities in B.C. This is just ducking the problem , deferring the ultimate consequence to lost jobs and possibly accepting a loss on debt added where debt is already a huge part of the financial risk that will translate to public liability.
The economics of a mine and its possible implications for accrual of unfunded unfundable public liability are simply not taken into account and rarely, if ever, addressed in public advocacy. On both sides the envirnonmetal security threats are considered strictly in terms of the volume and quality of the sought release and the flow and quality of the receiving public waters, in this case the Fraser River. The liklelihood and implications of a sudden standby are never specifically reviewed and taken into account by experts in mine risk finance or mine valuation. The conditions promptng the discharge application, a dramatic increase in production pushing beyond the capacity of the exiting TSF, its drainage systems and the associated water management infrastructure to handle the projected volume of production is never explicitly evaluated from the point of view of the “increased social premium” in the event of failure or public costs which will be incurred to avert failure should the miner not perform on its obligations ( e.g. Golden Cross in New Zealand).
This is the story not told or even acknowledged by the Mt Polley Dam Committee. This is the story of the Gold Ridge in the Solomon Islands hovering on the verge of collapse. This the story of Samarco. This is the story of many superfund sites including the $1 billion public liability of the Yellowknife. and the now abandoned Wolverine.
“Although there are alternatives to management of increased supernatant levels a substantial increase of mine throughput requires, law does not require a consideration of such alternatives all of which would add both to cost and to ongoing costs to produce
At a minimum, it would seem that wise public policy needs to insist on a proof of “no likely increase in the social premium” by at least showing economic feasibility in a global context through the stated increased throughput stage as well as demonstrating the the pre existing full capacity to manage the additional wastes and minewaters” Bowker Associates Science & Research In The Public Interest 2016
The Gibraltar mine attained a throughput of 100,000 tpd, the lower range of throughput envisioned by the Pebble mine. ( 100 Ktpd). With only one 4 year period in stand by (1997-2004) the very low grade Gibralter mine has operated continuously since 1971, 44 years, approximately half the projected life of the Pebble. It has s a center line conventional slurry deposition tailings facility that is now 452 feet ( 140 m) high with a foot print of 546 hectares, some 6 miles across. (will add source and re verify these figures). It’s hazard ranking is “extreme”, ie in the event of failure lves would be lost and the damages would be non recoverable according to the 2014 Klohn Crippen dam inspection report.. Mt Polley at failure was only 50 m high with a much smaller foot print not as well engineered and constructed as the present Gibraltar TSF. From the outset the Gibraltar has had a sand cyclone system which is still considered best available technology for slurry deposition.
The waste from the mine has filled three valleys generated mostly at throughput 1972 to 1997 that had averaged only 37Ktpd at an average head grade of 0.313 cu. So we have yet to see what sustained production at 100ktpd and to an even lower grade (.20 cu the cut off grade at Gibralter) actually means to the surrounding potentially receiving environment. The review of mine expansions never considers whether the technology that presently exists can keep these mines profitably producing over their very long lives without more and more accommodation on the public side and higher and higher levels of environmental and public risk.
We will be adding more to this post, one of a series we hope to do on Scholtz vetted mines and the actual economic and environmental performance of very low grade mines in history.
Every economic failure of a large mine translates to a “social premium” that comes right off the top of GDP. Treating these losses as “insured” by simply leaving the often non remediable damages does not change that. The damages themselves impair present and future GDP. They have a very long “tail”.
Lindsay Newland Bowker, CPCU ARM, Environmental Risk Manager
Director, Bowker Associates Science & Research In The Public Interest