TASEKO TEETERING: ANOTHER SCHOLZ VETTED “Mining Metric Original” Accrues Ever More Potential Public Liability While It Struggles With Too Much Debt And Too Little Cash Flow

 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

 

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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

Stonington Maine

contact: lindsaynewlandbowker@gmail.com

 

 

 

 

 

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About lindsaynewlandbowker

Bowker Associates, Science & Research In The Public Interest, is an independent non profit providing self initiated pro bono analysis on key issues with a potential for massive adverse environmental impact . Bowker Associates has been an internationally recognized and cited voice in analysis of the Samarco failure, its consequence, and the possibilties for recovery. In 2015 Bowker Associates collaborated with globally respected geophysicist David M. Chambers to recompile global authoritative accounts of significant TSF failures in recorded history and to analyze these data in the context of gloal mining economics 1910-2010 ( Risk, Economics and Public Liability of TSF Failures, Bowker/Chambers July 2015) In 2014 Bowker Associates commissioned globally respected geophysicist and hydrogeologist Dr. David Chambers to undertake two technical works: (1) development of technical go no go criteria for vetting mine applications tp://lindsaynewlandbowker.wordpress.com/2014/01/05/a-new-statutory-regulatory-framework-for-responble-sulfide-mining-should-this-mine-be-built/ and (2) a case study of Maine's Bald Mountain, an un mined low grade high risk VMS deposit demonstrating the efficacy and accuracy of two risk assessment tools in vetting mine proposals https://lindsaynewlandbowker.wordpress.com/2014/02/28/mountain-x-would-you-issue-a-permit-to-this-mine/ In Maine, Bowker Associates has deeply engaged and been a public voice in the Searsport DCP LPG Tank, The Cianbro proposal for a Private East West Toll Road, JD Irvings rolling pipeline of Bakken crude to its plant in St. John and review of Phase II plans at The Callahan Superfund site in Brooksville, Maine, and Maine's revisitation of mining in statute and regulation... Our only “client”: is always “the pubic interest”. Our model is to focus on only one or two issues at a time so that we have a substantive command of the relevant field as our foundation for ongoing engagement. Our core work is in envirommental risk management, science and technology as well as bringing any available “best practices” models to the fore. The legal and regulatory history/best models are also a major thrust of our work in building and evaluating public policy. Director/Principal Lindsay Newland Bowker, CPCU, ARM is a recognized expert in Environmental Risk Management., Heavy Construction Risk Management and Marine and Transit Risks and has more than 3 decades of engagement in buiding public policy. Appointed by Governor Mario Cuomo to New York State Banking Board (served 1986-1996); President New York Chapter Chartered Property and Casualty Insurers; Environmental Committee, Risk and Insurance Management Society; Director, Convenor/Co-Chair Bermuda Market Briefing "From Captive to Cats" Hamilton Bermuda. Published Articles of Significance The Risk Economics and Public Liability of Tailings Facility Failures, co-authored with David M. Chambers, July 2015 Beyond. Polarization: Superfund Reform in Perspective, Risk & Insurance Managing Risk For Loss Prevention & Cost Control (Jan. 24, 1997). Lead Hazards and Abatement Technologies in Construction: A Risk Management Approach CPCU Journal 1997 Employee Leasing: Liability in Limbo Risk Management June 1 1997 Environmental Audit Privilege and the Public interest Risk & Insurance Managing Risk For Loss Prevention & Cost Control, April 1997 Asbestos:Holes In Abatement Policies Need To Be Plugged, Lloyd’s Environmental Risk International, May 1993 Editor Published Letters Evironmental Risk Management Beware of Facile Policies Like Fetal Protection Business Insurance 1995(?) High Court Review May Increase Sale of Bank Annuities Business Insurances August 8, 1995 Professional Profiles Protecting the Big Apple’s Core Managing Risk For Loss Prevention & Control December 1996 Major Career Highlights First rigorous analysis showing Relationship Between declining ore grades and TSF Failures of increasing consequence ( July 2015) FIrst Documentation that Gentrification Has Same Impacts as Unassisted Displacement from Urban Renewal Sites Direted Court Ordered EIS of FHA Mortgage Scandal Created Nation's First Homeownership Program for Low Income People (SHIP) Created Earliest Geographic Information Systems Using Defense Technology Developed By IBM Designed and Conducted Parallel Census Count to Show Systematic undercount in minority neighborhoods Documented Bias in ISO Territory Rating Plans for Private Passenger Auto Insurance Using ISO's own Rating Techniques Demonstrated Inherent Bias in Mortgage Policies of Banks With Inner City Branches Demonstrated that NY Telephones Plan for Area Code Split To accommodate anticipated cell phone demand was not efficient and would exhaust in 5 years ( which it did) Undertook First Systematic Evaluation of Child Protective Services Caseload Using Multi Variate Analyic Techniques Developed Child Protective Caseload Management and Tracking System (CANTS) and directed implementation in 4 client states including Illinois, Florida and New York Created and Ran Office of Risk Management for NYC DEP the Nations largest Water & Sewer Authority . Designed, Created and Administered Nation's First Owner Controlled Insurance Program (OCIP)for High Risk Tunneling Education Masters NYU Graduate School of Public Administration BSC New School For Social Research Maine Public Schools Deering High School
This entry was posted in B.C. Hydropower Payment Deferral For Troubled Mines, Bowker Associates Science & Research In The Public Interest, Canadian Mine Risk & Loss Profile, Canadian Mining, Causes Of Catastrophic Tailings Dam Failures, Environmental Risk Management, George Ireland, Gibraltar Mine, Global Capital Squeeze In Mining, global cash flow crunch, global copper market outlook, Highly Valued Natural Resources, Imperial Metals, Lindsay Newland Bowker, Measuring Magnitude of Consequence TSF Failures, Metallic Mining, Metallic Mining Risk Management, Metals Price Forcasting, Mine Feasibility, Mining Economics, mining environmental risk management, Mining Financial Feasibility, Mt. Polley, Mt. Polley Tailings Dam Failure Impacts, politics of mining, polluter pays advocacy, Social Premium of Metallic Mining, Taseko, Uncategorized. Bookmark the permalink.

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