Condensed Consolidated Interim Financial Statements
September 30, 2017
(Unaudited)

The accompanying notes are an integral part of these consolidated interim financial statements.

Supplementary cash flow disclosures (Note 17)

The accompanying notes are an integral part of these consolidated interim financial statements.

The accompanying notes are an integral part of these consolidated interim financial statements.

The accompanying notes are an integral part of these consolidated interim financial statements.

1. REPORTING ENTITY

Taseko Mines Limited (the Company) is a corporation governed by the British Columbia Business Corporations Act. The unaudited condensed consolidated interim financial statements of the Company as at and for the three and nine month periods ended September 30, 2017 comprise the Company, its subsidiaries and its 75% interest in the Gibraltar joint arrangement since its formation on March 31, 2010. The Company is principally engaged in the production and sale of metals, as well as related activities including exploration and mine development, within the province of British Columbia, Canada and the state of Arizona, USA. Seasonality does not have a significant impact on the Company’s operations.

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting and follow the same accounting policies and methods of application as the Company’s most recent annual financial statements, except as to the accounting policy for deferred revenue as disclosed in Note 13. These condensed consolidated interim financial statements do not include all of the information required for full consolidated annual financial statements and should be read in conjunction with the consolidated financial statements of the Company as at and for the year ended December 31, 2016, prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

These condensed consolidated interim financial statements were authorized for issue by the Company’s Board of Directors on October 26, 2017.

(b) Use of judgments and estimates

In preparing these interim condensed consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

The significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at the year ended December 31, 2016, except for new judgments in the determination of the accounting treatment of the silver purchase and sale agreement presented as deferred revenue (Note 13).

(c) New accounting standards

The Company has not applied the following revised or new IFRS that have been issued but were not yet effective at September 30, 2017:

• In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments to replace IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 includes requirements for recognition and measurement of financial instruments, a forward-looking “expected credit loss” impairment model and significant changes to general hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. The Company plans to adopt IFRS 9 at the date it becomes effective. The Company will evaluate the impact of the change to the financial statements based on the characteristics of financial instruments outstanding at the time of adoption.

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• In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers. The standard is effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. The standard contains a single five-step model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time, when control of the goods or services is transferred to the customer; or over time, in a manner that best reflects the entity’s performance. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. The Company is currently evaluating the potential impact of applying IFRS 15, primarily analyzing its concentrate sales agreements with customers. The Company plans to adopt IFRS 15 in its financial statements for the annual period beginning on January 1, 2018 and is conducting preliminary assessments on the impact of this change on its consolidated financial statements. The Company does not anticipate any significant changes in the gross amounts of revenue recognized from its customers.

• In January 2016, the IASB issued IFRS 16 Leases . IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’). IFRS 16 is effective for annual periods beginning on or after January 1, 2019. A company can choose to apply IFRS 16 before that date but only if it also applies IFRS 15 Revenue from Contracts with Customers . Upon adoption of IFRS 16, the Company anticipates it will record a material balance of lease assets and associated lease liabilities related to leases on the Consolidated Balance Sheet at January 1, 2019. The Company plans to apply IFRS 16 at the date it becomes effective and has not yet quantified the impact of this standard on its consolidated financial statements.

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Cost of sales consists of site operating costs (which include personnel costs, mine site supervisory costs, non-capitalized stripping costs, repair and maintenance costs, consumables, operating supplies and external services), transportation costs, and depletion and amortization.

5. DERIVATIVE INSTRUMENTS

During the three month period ended September 30, 2017, the Company purchased put option contracts for 30 million pounds of copper, at a cost of $2,026. These put options mature in equal monthly amounts over the fourth quarter of 2017 and first quarter of 2018. The outstanding options at September 30, 2017 are summarized in the following table:

The following table outlines the gains and losses associated with derivative instruments:

In June 2017, the Company settled the copper call option obligation with a payment of $15,745 to the senior secured credit facility lender (see Note 12c).

As part of a refinancing completed in June 2017, the Company redeemed its $US200 million senior notes and repaid its US$70 million senior secured credit facility (see Note 12). The settlement of long-term debt resulted in a loss of $13,102, which includes a write-off of $9,203 of deferred financing costs relating to the settled debt and additional interest costs of $3,899 which were paid in lieu of notice to the noteholders and senior secured lender.

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11. PROPERTY, PLANT & EQUIPMENT

During the three month period ended September 30, 2017, the Company capitalized stripping costs of $22,853 and incurred other capital expenditures for Gibraltar of $3,480. In addition, the Company capitalized development costs of $1,820 for the Florence Copper and $564 for the Aley Niobium projects. Non-cash additions to property, plant and equipment include $12,019 for the acquisition of mining equipment under capital leases and $2,188 of depreciation on mining assets related to capitalized stripping.

During the nine month period ended September 30, 2017, the Company capitalized stripping costs of $51,551 and incurred other capital expenditures for Gibraltar of $7,209. In addition, the Company capitalized development costs of $8,516 for the Florence Copper and $1,278 for the Aley Niobium projects. Non-cash additions to property, plant and equipment include $13,059 for the acquisition of mining equipment under capital leases and $4,803 of depreciation on mining assets related to capitalized stripping. The Company also capitalized interest of $2,602 during the nine month period ended September 30, 2017, related to the Florence Copper Project.

The rehabilitation cost asset decreased by $5,182 for the nine month period ended September 30, 2017, as a result of changes in estimates during the period including an increase in estimated costs and market driven discount rate changes.

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(a) Senior secured notes

In June 2017, the Company completed an offering of US$250,000 aggregate principal amount of senior secured notes (“the Notes”). The Notes mature on June 15, 2022 and bear interest at an annual rate of 8.750%, payable semi-annually on June 15 and December 15, commencing on December 15, 2017. The Notes were issued at 99% of par value and the Company incurred other transaction costs of $9,326 resulting in net proceeds from the offering of $317,596 (US$240,468). The net proceeds were used, along with cash on hand, to redeem the senior notes (Note 12b) and to repay the senior secured credit facility and to settle the related copper call option (Note 12c),

The Notes are secured by liens on the shares of Taseko’s wholly-owned subsidiary, Gibraltar Mines Ltd., and the subsidiary’s rights under the joint venture agreement relating to the Gibraltar mine. The Notes are guaranteed by each of Taseko’s existing and future restricted subsidiaries, other than certain immaterial subsidiaries. The Company is able to incur limited amounts of additional secured and unsecured debt under certain conditions as defined in the Note indenture. The Company is also subject to certain restrictions on asset sales, issuance of preferred stock, dividends and other restricted payments. However, there are no maintenance covenants with respect to the Company's financial performance.

The Company may redeem some or all of the Notes at any time on or after June 15, 2019, at redemption prices ranging from 104.375% to 100%, plus accrued and unpaid interest to the date of redemption. Prior to June 15, 2019, all or part of the notes may be redeemed at 100%, plus a make-whole premium, plus accrued and unpaid interest to the date of redemption. In addition, until June 15, 2019, the Company may redeem up to 35% of the aggregate principal amount of the notes, in an amount not greater than the net proceeds of certain equity offerings, at a redemption price of 108.750%, plus accrued and unpaid interest to the date of redemption. On a change of control, the Notes are redeemable at the option of the holder at a price of 101%.

(b) Senior notes

In April 2011, the Company completed a public offering of US$200,000 in senior unsecured notes. On June 14, 2017, the senior unsecured notes were redeemed at 100% of par value plus accrued interest to the redemption date for a total cost of $269,185 (US$203.8 million).

The unsecured notes were scheduled to mature on April 15, 2019 and were bearing interest at a fixed annual rate of 7.75%, payable semi-annually. The notes were unsecured obligations guaranteed by the Company’s subsidiaries and the subsidiary guarantees were, in turn, guaranteed by the Company. The notes were redeemable by the Company at par value after April 2017.

(c) Senior secured credit facility

On January 29, 2016, the Company entered into a US$70 million senior secured credit facility (the “Facility”) with EXP T1 Ltd., an affiliate of Red Kite. Amounts drawn under the Facility accrued interest on a monthly basis at a rate of three-month LIBOR plus 7.5% per annum, subject to a minimum LIBOR of 1% per annum. The loan principal and all accrued interest was payable upon maturity of the Facility on March 29, 2019. The Facility was repayable at any time without penalty and did not impose any off-take obligations on the Company.

The Facility was secured by a first priority charge over substantially all assets of the Company, including the Company’s 75% joint venture interest in the Gibraltar Mine, shares in all material subsidiaries and the Florence Copper project assets. The availability of the Facility was subject to conditions and covenants, including maintenance of a minimum working capital balance (as defined in the Facility) of US$20 million.

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The first tranche of the Facility was drawn on January 29, 2016 and the proceeds of $46,444 (US$33.2 million) were used to repay an existing secured loan and to pay the arrangement fee and other transaction costs. The remainder of the Facility in the amount of $47,161 (US$36.8 million) was drawn during the second quarter of 2016. On June 14, 2017, the Facility plus all accrued interest was fully repaid for $104,901 (US$79.4 million).

Upon entering into the Facility in January 2016, the Company issued a call option to the lender for 7,500 tonnes of copper with a strike price of US$2.04/lb. The call option was to mature in March 2019 with an amount then payable to the lender based on the average copper price during the month of March 2019, subject to a maximum amount of US$15 million. On June 14, 2017 the Company settled the copper call option obligation with a payment to the lender of $15,745 (US$11.9 million), based on the cancellation pay-out amount defined in the Facility agreement.

Upon entering in the Facility, the Company also issued share purchase warrants to acquire 4 million common shares of the Company at any time until May 9, 2019 at an exercise price of $0.51 per share. These warrants were exercised by the lender in February and March 2017 (Note 15a,c).

The Company had incurred total deferred debt financing costs of $11,257, which included the initial fair value of the copper call option, warrants and other transaction costs. These costs were initially deferred and were being amortized over the life of the loan using the effective interest rate method. The remaining deferred costs were expensed on repayment in June 2017 (Note 6).

13. DEFERRED REVENUE

On March 3, 2017, the Company entered into a silver stream purchase and sale agreement with Osisko Gold Royalties Ltd. (“Osisko”), whereby the Company received an upfront cash deposit payment of US$33 million for the sale of an equivalent amount of its 75% share of Gibraltar payable silver production until 5.9 million ounces of silver have been delivered to Osisko. After that threshold has been met, 35% of an equivalent amount of Taseko's share of all future payable silver production from Gibraltar will be delivered to Osisko. In addition to the initial deposit, the Company receives cash payments of US$2.75 per ounce for all silver deliveries made under the agreement.

The Company recorded the initial deposit as deferred revenue and recognizes amounts in revenue as silver is delivered to Osisko. The amortization of deferred revenue is calculated on a per unit basis using the estimated total number of silver ounces expected to be delivered to Osisko over the life of the Gibraltar Mine. The current portion of deferred revenue is an estimate based on deliveries anticipated over the next twelve months.

The silver sale agreement has a minimum term of 50 years and automatically renews for successive 10-year periods as long as Gibraltar mining operations are active. If the initial deposit is not fully reduced through silver deliveries at current market prices at time of the deliveries, a cash payment for the remaining amount will be due to Osisko at the expiry date of the agreement. The Company’s obligations under the agreement are secured by a pledge of Taseko’s 75% interest in the Gibraltar Joint Venture.

In connection with the silver stream transaction, the Company issued share purchase warrants to Osisko to acquire 3 million common shares of the Company at any time until April 1, 2020 at an exercise price of $2.74 per share. The fair value of the warrants was estimated to be $1,876 at the date of grant and was measured based on the Black-Scholes valuation model. The fair value was determined using the expected life of 3 years, expected volatility of the Company’s common share price of 61%, an expected dividend yield of 0%, and a risk-free interest rate of 0.9% (Note 15c).

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Deferred revenue is reflected in the condensed consolidated interim balance sheets as follows:

In June 2017 the Company settled the copper call option obligation with a payment of $15,745 to the senior secured credit facility lender (see Note 12c)

As at September 30, 2017, the Company has deferred electricity payments of $8,227 under BC Hydro’s five-year power rate deferral program for BC mines. Under the program, effective March 1, 2016, the Gibraltar Mine is able to defer up to 75% of electricity costs. The amount of deferral is based on a formula that incorporates the average copper price in Canadian dollars during the preceding month. The deferred amount, plus interest at the prime rate plus 5%, will be repayable on a monthly schedule of up to 75% of the monthly electricity billing, if the average copper price during the preceding month exceeds a threshold amount of $3.40 per pound. Any remaining deferred balance will be repayable at the end of the five year term. During the three and nine month period ended September 30, 2017, the Company made net repayments of $1,662 and $2,711 respectively to BC Hydro. The current portion of the amount payable to BC Hydro has been estimated based on recent copper prices, and is recorded as a current liability at September 30, 2017.

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The Company’s authorized share capital consists of an unlimited number of common shares with no par value.

During the nine month period ended September 30, 2017, the Company granted 1,910,500 (2016 – 2,601,000) share options to directors, executives and employees, exercisable at an average exercise price of $1.25 per common share over a three to five year period. The total fair value of options granted was $1,165 (2016 – $442) and had a weighted average grant-date fair value of $0.61 (2016 – $0.17) per option.

The fair value at grant date of share options granted is measured based on the Black-Scholes formula. Expected volatility is estimated by considering historic average share price volatility. The inputs used in the measurement of the fair values at grant date of the share-based payment plans are the following:

The Company has other share-based compensation plans in the form of Deferred Share Units (“DSUs”), and Performance Share Units (“PSUs”).

The continuity of DSUs and PSUs issued and outstanding is as follows:

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During the three and nine month period ended September 30, 2017, 645,559 and 887,792 respectively, of the PSUs issued to executives during the first six months of 2016, in lieu of annual incentive plan payments for 2015, were settled on a cash basis. The 242,233 PSUs that settled during the second quarter were cash-settled at $1.75 per unit, with 645,559 PSUs settled at $2.25 per unit during the third quarter. The settlement amounts were based on the 5-day volume weighted average share price prior to the vesting date.

During the nine month period ended September 30, 2017, 620,000 DSUs were issued to directors (2016 - 714,000) and 400,000 PSUs to senior executives (2016 – 1,349,292). The fair value of DSUs and PSUs granted was $1,301 (2016 - $1,080), with a weighted average fair value at the grant date of $1.27 per unit for the DSUs (2016 - $0.38 per unit) and $1.27 per unit for the PSUs (2016 - $0.60 per unit).

A total share based compensation expense of $2,250 and $5,779 has been recognized for the three and nine month periods ended September 30, 2017 (2016: $253 and $2,300).

16. COMMITMENTS AND CONTINGENCIES

(a) Commitments

At September 30, 2017, capital commitments totaled $2,371 and the Company’s share of contractual operating commitments totaled $11,460.

(b) Contingencies

The Company has guaranteed 100% of certain capital lease and equipment loans entered into by the Gibraltar joint venture in which it holds a 75% interest. As a result, the Company has guaranteed the joint venture partner’s 25% share of this debt which amounted to $10,495 as at September 30, 2017.

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Three directors of the Company are also principals of Hunter Dickinson Services Inc. (HDSI), a private company. HDSI invoices the Company for their executive services (director fees) and for other services provided by HDSI. For the three month period ended September 30, 2017, the Company incurred total costs of $296 (Q3 2016: $320) in transactions with HDSI. Of these, $119 (Q3 2016: $143) related to administrative, legal, exploration and tax services, $107 related to reimbursements of office rent costs (Q3 2016: $107), and $70 (Q3 2016: $70) related to director fees for two Taseko directors who are also principals of HDSI.

For the nine month period ended September 30, 2017 , the Company incurred total costs of $1,092 (2016: $1,115) in transactions with HDSI. Of these, $463 (2016: $495) related to administrative, legal, exploration and tax services, $419 related to reimbursements of office rent costs (2016: $410), and $210 (2016: $210) related to director fees for two Taseko directors who are also principals of HDSI.

Under the terms of the joint venture operating agreement, the Gibraltar Joint Venture pays the Company a management fee for services rendered by the Company as operator of the Gibraltar Mine. In addition, the Company pays certain expenses on behalf of the Gibraltar Joint Venture and invoices the Joint Venture for these expenses.

19. FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value, by reference to the reliability of the inputs used to estimate the fair values.

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and

Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The Company has certain financial assets and liabilities that are measured at fair value on a recurring basis and uses the fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value, with Level 1 inputs having the highest priority.

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There have been no transfers between fair value levels during the reporting period. The carrying value of cash and equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value as at September 30, 2017.

The fair value of the senior secured notes, a Level 1 instrument, is determined based upon publicly available information. The fair value of the capital leases and secured equipment loans, Level 2 instruments, are determined through discounting future cash flows at an interest rate of 4.1% based on the relevant loans effective interest rate.

The fair values of the Level 2 instruments are based on broker quotes. Similar contracts are traded in an active market and the broker quotes reflect the actual transactions in similar instruments.

The Company’s metal concentrate sales contracts are subject to provisional pricing with the selling price adjusted at the end of the quotational period. At each reporting date, the Company’s accounts receivable on these contracts are marked-to-market based on a quoted forward price for which there exists an active commodity market.

The subscription receipts, a Level 3 instrument, are valued based on a third party transaction.

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Commodity Price Risk

Provisional pricing mechanisms embedded within the Company’s sales arrangements have the character of a commodity derivative and are carried at fair value as part of accounts receivable. The table below summarizes the impact on revenue and receivables for changes in commodity prices on the fair value of derivatives and the provisionally invoiced sales volumes.

¹ The analysis is based on the assumption that the period-end copper price increases 10% with all other variables held constant. The closing exchange rate for the quarter ended September 30, 2017 of CAD/USD 1.2480 was used in the analysis.
² At September 30, 2017, 10 million pounds of copper in concentrate were exposed to copper price movements.

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This management discussion and analysis ("MD&A") is intended to help the reader understand Taseko Mines Limited (“Taseko”, “we”, “our” or the “Company”), our operations, financial performance, and current and future business environment. This MD&A is intended to supplement and complement the consolidated financial statements and notes thereto, prepared in accordance with IAS 34 of International Financial Reporting Standards (“IFRS”) for the three and nine months ended September 30, 2017 (the “Financial Statements”). You are encouraged to review the Financial Statements in conjunction with your review of this MD&A and the Company’s other public filings, which are available on the Canadian Securities Administrators’ website at www.sedar.com and on the EDGAR section of the United States Securities and Exchange Commission’s (“SEC”) website at www.sec.gov .

This MD&A is prepared as of October 26, 2017. All dollar figures stated herein are expressed in Canadian dollars, unless otherwise specified.

Cautionary Statement on Forward-Looking Information

This discussion includes certain statements that may be deemed "forward-looking statements". All statements in this discussion, other than statements of historical facts, that address future production, reserve potential, exploration drilling, exploitation activities, and events or developments that the Company expects are forward-looking statements. Although we believe the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include market prices, exploitation and exploration successes, continued availability of capital and financing and general economic, market or business conditions. Investors are cautioned that any such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements. All of the forward-looking statements made in this MD&A are qualified by these cautionary statements. We disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except to the extent required by applicable law. Further information concerning risks and uncertainties associated with these forward-looking statements and our business may be found in the Company’s other public filings with the SEC and Canadian provincial securities regulatory authorities.

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CONTENTS

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OVERVIEW

Taseko Mines Limited (“Taseko” or “Company”) is a mining company that seeks to create shareholder value by acquiring, developing, and operating large tonnage mineral deposits which, under conservative forward metal price assumptions, are capable of supporting a mine for ten years or longer. The Company’s sole operating asset is the 75% owned Gibraltar Mine, a large copper mine located in central British Columbia. The Gibraltar Mine is one of the largest copper mines in North America. Taseko also owns the Florence copper, Aley niobium, Harmony gold and New Prosperity gold-copper projects.

*Non-GAAP performance measure. See page 21 of this MD&A.

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HIGHLIGHTS - CONTINUED

Third Quarter Highlights

• Earnings from mining operations before depletion and amortization* were $45.1 million;

• Cash flow from operations was $37.1 million for the third quarter;

• Adjusted net income* for the third quarter was $13.4 million (or $0.06 per share) and net income was $20.1 million (or $0.09 per share);

• Site operating costs, net of by-product credits* were US$0.88 per pound produced, down 44% from the third quarter of 2016;

• The Gibraltar Mine produced 35.1 million pounds of copper and 0.4 million pounds of molybdenum (100% basis) at a total operating cost (C1)* of US$1.18 per pound;

• Total sales for the third quarter were 30.2 million pounds of copper and 0.4 million pounds of molybdenum;

• In July 2017, Gibraltar’s mining and milling operations were impacted by wildfires in the Cariboo region which limited our employees’ ability to travel to the mine site. A temporary shutdown of rail service also affected our ability to get product to the port, and as a result sales volumes were lower than planned;

• On September 25, 2017, the Company announced that the Environmental Appeals Board of the U.S. Environmental Protection Agency (“EPA”) had issued an order denying any further review of the Underground Injection Control (“UIC”) Permit granted in 2016 for Taseko’s Florence Copper Project. All necessary state and federal permits are now in place to build and operate the Production Test Facility (“PTF”), and the Company’s board of directors has approved the construction of the PTF at an estimated cost of US$25 million; and

• The Company’s cash balance at September 30, 2017 was $96 million.

*Non-GAAP performance measure. See page 21 of this MD&A.

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*Non-GAAP performance measure. See page 21 of this MD&A.

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OPERATIONS ANALYSIS

Third quarter results

Copper head grade at Gibraltar was 0.284% in the third quarter and copper recovery for the quarter was 86%. Mill throughput was 7.2 million tons of ore and the mine produced 35.1 million pounds of copper.

A total of 23.3 million tons were mined during the quarter at a strip ratio of 4.1 to 1. Waste stripping costs of $22.9 million (75% basis) were capitalized in the quarter primarily related to a new pushback in the Granite pit.

Mining and milling operations in July were impacted by wildfires in the Cariboo region which limited our employees’ ability to travel to the mine site, due to restrictions on road access and evacuation orders in the region. This resulted in reduced production for periods of time as well as a complete mine shutdown for several days during July. Mill operations returned to normal in early August. During the quarter, approximately 2.6 million tons of ore were drawn from the ore stockpile, which was largely due to the wild fires impact on mine site access and the lack of employees available for mine operations.

Site operating cost per ton milled* was $5.93 in the third quarter of 2017, which is lower than recent quarters due to the increased capitalization of stripping costs and the drawdown of ore stockpiles.

The molybdenum circuit was negatively impacted by a lack of personnel during the wild fires. A total of 0.4 million pounds of molybdenum were produced. By-product credits per pound produced* was US$0.09 in the third quarter of 2017. Site operating costs per pound produced, net of by-product credits* decreased to US$0.88 in the third quarter of 2017 from US$0.97 in the second quarter of 2017.

Off-property costs per pound produced* were US$0.30 for the third quarter of 2017 compared to the prior quarter off-property costs of US$0.34. The decrease is due to lower than planned sales volumes, as treatment and refining and ocean freight costs are recognized at the time of sale.

Total operating costs (C1) per pound* decreased to US$1.18, a 10% reduction from the second quarter of 2017.

GIBRALTAR OUTLOOK

Overall, Gibraltar has maintained a stable level of operations and management continues to focus on further improvements to operating practices to reduce unit costs. Copper prices have continued to strengthen in the fourth quarter of 2017, increasing to US$3.16 per pound as of October 26, 2017, which is US$0.28 higher than the average LME copper price in the third quarter of 2017. Operating margins at Gibraltar are sensitive to the Canadian dollar as approximately 80% of mine operating costs are paid in Canadian dollars.

The Company is pursuing a potential insurance claim related to the Cariboo region wildfires in July, however, the outcome of the claim cannot be determined at this time

*Non-GAAP performance measure. See page 21 of this MD&A.

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REVIEW OF PROJECTS

Taseko’s strategy has been to grow the Company by leveraging cash flow from the Gibraltar Mine to assemble and develop a pipeline of projects. We continue to believe this will generate the best, long-term returns for shareholders. Our development projects are located in British Columbia and Arizona and represent a diverse range of metals, including gold, copper, molybdenum and niobium. During the third quarter of 2017, expenditures of $1.8 million were incurred on the Florence Copper project, and total expenditures of $1.0 million were incurred on the Aley and New Prosperity projects. Taseko will continue to take a prudent approach to spending on development projects.

Florence Copper

On September 25, 2017, the Company announced that the Environmental Appeals Board (“EAB”) of the Environmental Protection Agency had issued an order denying any further review of the Underground Injection Control Permit granted in 2016 for Taseko’s Florence Copper Project. In the September 22, 2017 decision, the EAB found that the petitioners failed to demonstrate that any errors were made in issuing the federal permit. The Company now has all necessary state and federal permits in place to build and operate the Production Test Facility (“PTF”).

The Company is moving forward with the construction of the PTF at an estimated cost of US$25 million. The PTF will include a well field comprised of thirteen (four injection and nine recovery) commercial scale production wells and numerous monitoring, observation and point of compliance wells, and also an integrated SX/EW plant. With major components already on site, the PTF is expected to be operational in the latter half of 2018.

In January 2017, the Company announced that completed technical work on the Florence property has resulted in a significant improvement in project economics. On February 28, 2017, the NI 43-101 technical report documenting these results was filed on www.sedar.com.

New Prosperity

On July 18, 2017, Taseko received approval from the Province of British Columbia to undertake a site investigation program to conduct exploratory work at the New Prosperity project site. The Province issued a Notice of Work, which is a multi-year permit from the Ministry of Energy & Mines that allows the Company to gather information for the purpose of advancing mine permitting under the British Columbia Mines Act.

Taseko is proceeding with its request to amend the British Columbia environmental assessment certificate for the New Prosperity Project.

The two Judicial Reviews initiated by Taseko were heard in federal court over a five day period in the week of January 30, 2017. Both Judicial Reviews focus on the principles of administrative and procedural fairness. Taseko’s allegation is that the Government of Canada, through the conduct of the environmental assessment and the decisions which resulted from it, failed in their obligation to uphold those fundamental principles.

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MARKET REVIEW

Prices (USD per pound for Commodities)

Global economic uncertainty has led to significant copper price volatility over short periods of time. The U.S. trade policies, Chinese economic demand, copper supply disruptions, and interest rate expectations have all contributed to the recent price volatility.

The average price of London Metals Exchange (“LME”) copper was US$2.88 per pound in the third quarter of 2017, which was 12% higher than the second quarter of 2017 and about 33% higher than the third quarter of 2016. Management believes that the market will continue to benefit from improving global copper demand and tight mine supply going forward.

The Company’s agreement for the sale of molybdenum concentrate specifies molybdenum pricing based on the published Platts metals reports. The average published molybdenum price was US$8.13 per pound in the third quarter of 2017, which was slightly higher than the second quarter of 2017.

Approximately 80% of the Gibraltar Mine's costs are Canadian dollar denominated and therefore, fluctuations in the Canadian/US dollar exchange rate can have a significant effect on the Company’s operating results and unit production costs, which are reported in US dollars. The Canadian dollar strengthened by approximately 7% during the third quarter of 2017.

FINANCIAL PERFORMANCE

Earnings

The Company’s net income was $20.1 million ($0.09 income per share) for the three months ended September 30, 2017, compared to a net loss of $15.6 million ($0.07 loss per share) for the same period in 2016. The increase in net income was primarily due to higher copper prices, higher production and sales volumes, lower production costs, as well as unrealized foreign exchange gains on the Company’s US dollar denominated debt.

The Company realized net income of $41.9 million ($0.19 income per share) for the nine months ended September 30, 2017, compared to a net loss of $36.5 million ($0.16 loss per share) for the same period in 2016. The increase in net income was primarily due to higher copper prices, higher production and sales volumes, and lower production costs at the Gibraltar Mine.

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Earnings from mining operations before depletion and amortization* was $45.1 million and $145.0 million, respectively, for the three and nine months ended September 30, 2017, compared to earnings of $11.6 million and $8.1 million, respectively, for the same prior periods in 2016. The increase in earnings from mining operations was a result of higher copper and molybdenum revenues and lower production costs.

Included in net income (loss) are a number of items that management believes require adjustment in order to better measure the underlying performance of the business. The following items have been adjusted as management believes they are not indicative of a realized economic gain/loss or the underlying performance of the business in the period:

*Non-GAAP performance measure. See page 21 of this MD&A.

In the three and nine months ended September 30, 2017, the Canadian dollar strengthened in comparison to the prior period ends resulting in unrealized foreign exchange gains of $10.3 million and $19.2 million, respectively. The unrealized foreign exchange gains were primarily driven by the translation of the Company’s US dollar denominated debt.

A write-down of mine equipment of $3.6 million was recorded in the third quarter to adjust the carrying value of certain Gibraltar mine equipment to its estimated recoverable value. This mine equipment was replaced by equipment acquired under capital leases during the third quarter.

Loss on settlement of long-term debt of $13.1 million in 2017 relates to the write-off of deferred financing costs and additional interest expense incurred upon the settlement of the senior notes and the senior secured credit facility in June 2017.

The other non-recurring expenses in 2016 relates to special shareholder meeting costs and other non-recurring financing costs. For the nine months ended September 30, 2016, the Company incurred total costs of $4.9 million on legal and other advisory costs associated with a special shareholder meeting, a proxy contest and related litigation, and $0.6 million on other non-recurring financing costs.

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