UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 40-F
☐ |
REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
☒ |
ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2019
Commission File Number: 001-31965
TASEKO MINES LIMITED
(Exact name of Registrant as specified in its charter)
British Columbia | 1040 | Not Applicable | ||
(Province or Other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Code) |
(I.R.S. Employer
Identification No.) |
15th Floor 1040 West Georgia Street
Vancouver, British Columbia
Canada V6E 4H1
(778) 373-4533
(Address and telephone number of Registrants principal executive offices)
Corporation Service Company
Suite 400, 2711 Centerville Road
Wilmington, Delaware 19808
(800) 927-9800
(Name, address (including zip code) and telephone number (including
area code) of agent for service in the United States)
Securities registered or to be registered pursuant to section 12(b) of the Act:
Title Of Each Class |
Name Of Each Exchange On Which Registered |
|
Common Shares, no par value | NYSE American |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
For annual reports, indicate by check mark the information filed with this Form:
☒ Annual Information Form | ☒ Audited Annual Financial Statements |
Indicate the number of outstanding shares of each of the Registrants classes of capital or common stock as of the close of the period covered by the annual report:
246,194,219 Common Shares as of December 31, 2019
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
Yes ☐ No ☐
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.
Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
INTRODUCTORY INFORMATION
Taseko Mines Limited (the Company or Taseko) is a Canadian public company whose common shares are listed on the Toronto Stock Exchange and the NYSE American Exchange (the NYSE American). Taseko is a foreign private issuer as defined in Rule 3b-4 under Securities Exchange Act of 1934, as amended (the Exchange Act), and is eligible to file this annual report on Form 40-F (the Annual Report) pursuant to the multi-jurisdictional disclosure system (the MJDS).
PRINCIPAL DOCUMENTS
The following documents that are filed as exhibits to this annual report are incorporated by reference herein:
Document |
Exhibit No. | |
Annual Information Form of the Company for the year ended December 31, 2019 (the AIF) |
99.5 | |
Audited consolidated financial statements of the Company for the years ended December 31, 2019 and 2018, including the report of independent registered public accounting firm with respect thereto (the Audited Financial Statements) |
99.6 | |
Managements Discussion and Analysis of the Company for the year ended December 31, 2019 (the MD&A) |
99.7 |
CAUTIONARY NOTE TO UNITED STATES INVESTORS CONCERNING
ESTIMATES OF RESERVES AND MEASURED, INDICATED AND INFERRED RESOURCES
As a British Columbia corporation and a reporting issuer under Canadian securities laws, the Company is required to provide disclosure regarding its mineral properties in accordance with Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101). NI 43-101 is a rule developed by the Canadian Securities Administrators that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. In accordance with NI 43-101, the Company uses the terms mineral reserves and resources as they are defined in accordance with the CIM Definition Standards on mineral reserves and resources (the CIM Definition Standards) adopted by the Canadian Institute of Mining, Metallurgy and Petroleum.
The SEC has adopted amendments to its disclosure rules to modernize the mineral property disclosure requirements for issuers whose securities are registered with the United States Securities and Exchange Commission (the SEC) under the U.S. Exchange Act. These amendments became effective February 25, 2019 (the SEC Modernization Rules). The SEC Modernization Rules have replaced the historical property disclosure requirements for mining registrants that were included in SEC Industry Guide 7 (Guide 7), which have been rescinded. The Company is not required to provide disclosure on its mineral properties under the SEC Modernization Rules as the Company is presently a foreign issuer under the U.S. Exchange Act and entitled to file continuous disclosure reports with the SEC under the MJDS Disclosure System between Canada and the United States.
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The SEC Modernization Rules include the adoption of terms describing mineral reserves and mineral resources that are substantially similar to the corresponding terms under the CIM Definition Standards. As a result of the adoption of the SEC Modernization Rules, SEC will now recognize estimates of measured mineral resources, indicated mineral resources and inferred mineral resources. In addition, the SEC has amended its definitions of proven mineral reserves and probable mineral reserves to be substantially similar to the corresponding CIM Definitions.
United States investors are cautioned that while the above terms are substantially similar to CIM Definitions, there are differences in the definitions under the SEC Modernization Rules and the CIM Definition Standards. Accordingly, there is no assurance any mineral reserves or mineral resources that the Company may report as proven reserves, probable reserves, measured mineral resources, indicated mineral resources and inferred mineral resources under NI 43-101 would be the same had the Company prepared the reserve or resource estimates under the standards adopted under the SEC Modernization Rules.
United States investors are also cautioned that while the SEC will now recognize measured mineral resources, indicated mineral resources and inferred mineral resources, investors should not to assume that any part or all of the mineralization in these categories will ever be converted into a higher category of mineral resources or into mineral reserves. Mineralization described using these terms has a greater amount of uncertainty as to their existence and feasibility than mineralization that has been characterized as reserves. Accordingly, investors are cautioned not to assume that any measured mineral resources, indicated mineral resources, or inferred mineral resources that the Company reports are or will be economically or legally mineable.
Further, inferred resources have a greater amount of uncertainty as to their existence and as to whether they can be mined legally or economically. Therefore, United States investors are also cautioned not to assume that all or any part of the inferred resources exist. In accordance with Canadian rules, estimates of inferred mineral resources cannot form the basis of feasibility or other economic studies, except in limited circumstances where permitted under NI 43-101.
For the above reasons, information contained in this Annual Report and the documents incorporated by reference herein containing descriptions of our mineral deposits may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
NOTE TO UNITED STATES READERS REGARDING DIFFERENCES
BETWEEN UNITED STATES AND CANADIAN REPORTING PRACTICES
International Financial Reporting Standards
The Company is permitted under the MJDS to prepare this Annual Report in accordance with Canadian disclosure requirements, which are different from those of the United States.
The Companys Audited Consolidated Financial Statements that are incorporated by reference into this Registration Statement have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (the IASB).
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DISCLOSURE CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures are defined in Rule 13a-15(e) under the Exchange Act to mean controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms and includes, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to the issuers management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Managements Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, our management carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures, as defined in Rule 13a-15(e), were effective as at December 31, 2019.
See Internal and Disclosure Controls Over Financial Reporting on page 26 of the MD&A incorporated herein by reference.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
Internal Control over Financial Reporting
Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act as a process designed by, or under the supervision of, the issuers principal executive and principal financial officers and effected by the issuers board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
|
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; |
|
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and |
|
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the companys assets that may have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Managements Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) for the Company.
With the participation of the CEO and CFO, management carried out an evaluation of the Companys internal control over financial reporting as at December 31, 2019. In making this evaluation, the Companys management used the framework established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon this evaluation, management concluded that the Companys internal control over financial reporting was effective as at December 31, 2019.
A copy of managements report on the effectiveness of our internal controls is included under Managements Report on Internal Control Over Financial Reporting on page 3 of our Audited Consolidated Financial Statements incorporated herein by reference.
Attestation Report of the Registered Public Accounting Firm
The Company is required to provide an attestation report of the Companys independent registered public accounting firm on internal control over financial reporting as of December 31, 2019. In this report, the Companys auditor, KPMG LLP, must state its opinion as to the effectiveness of the Companys internal control over financial reporting as of December 31, 2019. KPMG LLP has audited the Companys internal controls over financial reporting and has issued an attestation report on the Companys internal control over financial reporting as of December 31, 2019 which is included in our Audited Consolidated Financial Statements incorporated herein by reference.
No Changes in Internal Control Over Financial Reporting
There were no changes in the Companys internal control over financial reporting that occurred during the period covered by this Annual Report that have materially affected, or are reasonably likely to affect, the Companys internal control over financial reporting.
NOTICES PURSUANT TO REGULATION BTR
The Company did not send any notices required by Rule 104 of Regulation BTR during the year ended December 31, 2019 concerning any equity security subject to a blackout period under Rule 101 of Regulation BTR.
AUDIT AND RISK COMMITTEE
The disclosure provided under Composition of Audit and Risk Committee on page 91 of our AIF incorporated herein by reference. The Companys Board of Directors has established a separately-designated Audit and Risk Committee of the Board in accordance with Section 3(a)(58)(A) of the Exchange Act.
AUDIT AND RISK COMMITTEE FINANCIAL EXPERT
The Companys Board of Directors has determined that Richard Mundie and Alex Morrison, members of the Audit and Risk Committee of the Board, are audit committee financial experts (as that term is defined in Item 407 of Regulation S-K under the Exchange Act) and are independent directors under applicable laws and regulations and the requirements of the NYSE American Exchange.
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PRINCIPAL ACCOUNTANT FEES AND SERVICES
The disclosure provided under Principal Accountant Fees and Services on page 92 of our AIF incorporated herein by reference.
AUDIT AND RISK COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The disclosure provided under Audit and Risk CommitteePre-Approval Policies and Procedures on page 92 of our AIF incorporated herein by reference.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Companys financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
CONTRACTUAL OBLIGATIONS
The disclosures provided under Commitments and contingencies on page 17 of our MD&A incorporated herein by reference.
CODE OF ETHICS
The disclosure provided under Code of Ethics on page 91 of our AIF incorporated herein by reference.
During the Companys fiscal year ended December 31, 2019, the Company did not (i) substantively amend its Code of Ethics or (ii) grant a waiver, including any implicit waiver, from any provision of its Code of Ethics with respect to any of the directors, executive officers or employees subject to it.
NYSE AMERICAN CORPORATE GOVERNANCE
The Company is subject to corporate governance requirements prescribed under applicable Canadian securities laws, rule and policies. The Company is also subject to corporate governance requirements prescribed by the listing standards of the NYSE American, and the rules and regulations promulgated by the SEC under the Exchange Act (including those applicable rules and regulations mandated by the Sarbanes-Oxley Act of 2002).
Section 110 of the NYSE American company guide permits NYSE American to consider the laws, customs and practices of foreign issuers in relaxing certain NYSE American listing criteria, and to grant exemptions from NYSE American listing criteria based on these considerations. A company seeking relief under these provisions is required to provide written certification from independent local counsel that the non-complying practice is not prohibited by home country law. A description of the significant ways in which the Companys governance practices differ from those followed by domestic companies pursuant to NYSE American standards is contained on the Companys website at www.tasekomines.com
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The Companys governance practices also differ from those followed by U.S. domestic companies pursuant to NYSE American listing standards in the following manner:
Board Meetings
Section 802 (c) of the NYSE American Company Guide requires that the Board of Directors hold meetings on at least a quarterly basis. The Board of Directors of the Company is not required to meet on a quarterly basis under the laws of the Province of British Columbia.
Solicitation of Proxies
NYSE American requires the solicitation of proxies and delivery of proxy statements for all shareholder meetings, and requires that these proxies shall be solicited pursuant to a proxy statement that conforms to applicable SEC proxy rules. Since the Company is a foreign private issuer, the equity securities of the Company are exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Exchange Act. The Company solicits proxies in accordance with applicable rules and regulations in Canada.
Shareholders Approval for Dilutive Private Placement Financings
Section 713 of the NYSE American Company Guide requires that the Company obtain the approval of its shareholders for share issuances equal to 20 percent or more of presently outstanding shares for a price which is less than the greater of book or market value of the shares. This requirement does not apply to public offerings. There is no such requirement under British Columbia law or under the Companys home stock exchange rules (Toronto Stock Exchange (TSX)) unless the dilutive financing:
(i) |
materially affects control of the issuer; |
(ii) |
provides consideration to insiders in the aggregate of 10% or greater of the issuers market capitalization or outstanding shares, or a non-diluted basis, where certain conditions are met; and |
(iii) |
is in respect of private placement or an acquisition where the issuer will issue shares in excess of 25% of its presently outstanding shares, on a non-diluted basis. |
The Company will seek a waiver from NYSE Americans section 713 requirements should a dilutive private placement financing trigger the NYSE American shareholders approval requirement in circumstances where the same financing does not trigger such a requirement under British Columbia law or under the TSX rules.
The Company believes that there are otherwise no significant differences between its corporate governance policies and those required to be followed by United States domestic issuers listed on the NYSE American. In particular, in addition to having a separate Audit and Risk Committee, the Companys Board of Directors has established a separately-designated Compensation Committee that materially meets the requirements for a compensation committee under section 805 of the NYSE American Company Guide, as currently in force.
Copies of the Companys corporate governance materials are available on the Companys website at www.tasekomines.com (under the About Us / Corporate Governance tabs). In addition, the Company is required by National Instrument 58-101 of the Canadian Securities Administrators, Disclosure of Corporate Governance Practices, to describe its practices and policies with regard to corporate governance in management information circulars that are furnished to the Companys shareholders in connection with annual meetings of shareholders.
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MINE SAFETY DISCLOSURE
Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities under the regulation of the Federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977.
The Company did not have any mines in the United States during the fiscal year ended December 31, 2019.
UNDERTAKING
The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.
CONSENT TO SERVICE OF PROCESS
The Company previously filed an Appointment of Agent for Service of Process and Undertaking on Form F-X signed by the Company and its agent for service of process with respect to the class of securities in relation to which the obligation to file this annual report arises.
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EXHIBIT INDEX
(1) |
Filed as an exhibit to the Annual Report on Form 40-F |
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the Company certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 30, 2020 | TASEKO MINES LIMITED | |||||
By: |
/s/ Bryce Hamming |
|||||
Bryce Hamming | ||||||
Chief Financial Officer |
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Exhibit 99.1
CERTIFICATION
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Russell E. Hallbauer, certify that:
(1) |
I have reviewed this annual report on Form 40-F of Taseko Mines Limited; |
(2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
(3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report; |
(4) |
The issuers other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have: |
(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
evaluated the effectiveness of the issuers disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
disclosed in this report any change in the issuers internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuers internal control over financial reporting; and |
(5) |
The issuers other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuers auditors and the audit committee of the issuers board of directors (or persons performing the equivalent functions): |
(a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuers ability to record, process, summarize and report financial information; and |
(b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the issuers internal control over financial reporting. |
Date: March 30, 2020 | ||
By: | /s/ Russell Hallbauer | |
Name: | Russell E. Hallbauer | |
Title: | Chief Executive Officer |
Exhibit 99.2
CERTIFICATION
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Bryce Hamming, certify that:
(1) |
I have reviewed this annual report on Form 40-F of Taseko Mines Limited; |
(2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
(3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report; |
(4) |
The issuers other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have: |
(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
evaluated the effectiveness of the issuers disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
disclosed in this report any change in the issuers internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuers internal control over financial reporting; and |
(5) |
The issuers other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuers auditors and the audit committee of the issuers board of directors (or persons performing the equivalent functions): |
(a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuers ability to record, process, summarize and report financial information; and |
(b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the issuers internal control over financial reporting. |
Date: March 30, 2020 | ||
By: | /s/ Bryce Hamming | |
Name: | Bryce Hamming | |
Title: | Chief Financial Officer |
Exhibit 99.3
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Russell E. Hallbauer, Chief Executive Officer of Taseko Mines Limited (the Company), hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Annual Report on Form 40-F of the Company for the fiscal year ended December 31, 2019 (the Annual Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
By: | /s/ Russell Hallbauer | |
Name: | Russell E. Hallbauer | |
Title: | Chief Executive Officer | |
Date: | March 30, 2020 |
This written statement is being furnished to the Securities and Exchange Commission as an exhibit to the Companys Annual Report on Form 40-F. A signed original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
This certification accompanies this Annual Report on Form 40-F pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Exhibit 99.4
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Bryce Hamming, Chief Financial Officer of Taseko Mines Limited (the Company), hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Annual Report on Form 40-F of the Company for the fiscal year ended December 31, 2019 (the Annual Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
By: | /s/ Bryce Hamming | |
Name: | Bryce Hamming | |
Title: | Chief Financial Officer | |
Date: | March 30, 2020 |
This written statement is being furnished to the Securities and Exchange Commission as an exhibit to the Companys Annual Report on Form 40-F. A signed original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
This certification accompanies this Annual Report on Form 40-F pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Exhibit 99.5
ANNUAL INFORMATION FORM
FOR THE YEAR ENDED DECEMBER 31, 2019
AS AT MARCH 30, 2020
TABLE OF CONTENTS |
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INTRODUCTORY NOTES |
2 | |||
Forward-Looking Statements |
2 | |||
Documents Incorporated by Reference |
5 | |||
Non-GAAP Performance Measures |
6 | |||
Currency and Metric Equivalents |
6 | |||
Resource and Reserve Categories (Classifications) Used in this AIF |
8 | |||
CORPORATE STRUCTURE |
11 | |||
TASEKOS BUSINESS |
12 | |||
Gibraltar Mine |
19 | |||
Florence Copper Project |
29 | |||
Yellowhead Project |
41 | |||
New Prosperity Project |
50 | |||
Aley Project |
52 | |||
RISK FACTORS |
54 | |||
DIVIDENDS |
74 | |||
DESCRIPTION OF CAPITAL STRUCTURE |
74 | |||
Share Capital |
74 | |||
Senior Secured Notes |
75 | |||
Ratings |
76 | |||
MARKET FOR SECURITIES |
77 | |||
DIRECTORS AND OFFICERS |
77 | |||
Committees of the Board of Directors |
79 | |||
Principal Occupations and Other Information |
79 | |||
Cease Trade Orders, Bankruptcies, Penalties or Sanctions |
87 | |||
Potential Conflicts of Interest |
88 | |||
LEGAL PROCEEDINGS AND REGULATORY ACTIONS |
88 | |||
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS |
88 | |||
TRANSFER AGENT AND REGISTRAR |
89 | |||
MATERIAL CONTRACTS |
89 | |||
INTERESTS OF EXPERTS |
89 | |||
ADDITIONAL INFORMATION |
90 | |||
AUDIT AND RISK COMMITTEE |
91 | |||
FIGURES |
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FIGURE 1: LOCATION OF TASEKOS PROPERTIES |
13 | |||
APPENDIX A |
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Audit and Risk Committee Charter |
INTRODUCTORY NOTES
Forward-Looking Statements
This Annual Information Form (AIF), including the documents incorporated by reference, contain forward-looking statements and forward-looking information (collectively referred to as forward-looking statements) which may not be based on historical fact, including without limitation statements regarding our expectations in respect of future financial position, global economic events arising from the coronavirus outbreak which causes the disease COVID-19 (COVID-19), business strategy, future production, reserve potential, exploration drilling, exploitation activities, events or developments that we expect to take place in the future, projected costs and plans and objectives. Often, but not always, forward-looking statements can be identified by the use of the words believes, may, plan, will, estimate, scheduled, continue, anticipates, intends, expects, and similar expressions.
Examples of forward-statements made in this AIF, including the documents incorporated by reference, include:
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our expectations for production at Gibraltar; |
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our expectations for the market for copper and other commodities; |
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our expectations of the results of the Production Test Facility (PTF) at Florence; |
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our expectations for the permitting of commercial scale operations at Florence; |
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the expected timing of commencement, the related cost, and the method of financing, of construction for commercial scale operations at Florence; and |
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our expectations with respect to legal outcome of litigation on the New Prosperity Project. |
Such statements reflect our managements current views with respect to future events and are subject to risks and uncertainties and are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Company, are inherently subject to significant business, economic, competitive, political and social uncertainties and known or unknown risks and contingencies. Many factors could cause the Companys actual results, performance or achievements to be materially different from any future results, performance, or achievements that may be expressed or implied by such forward-looking statements, including, among others:
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uncertainties about the future market price of copper and the other metals that we produce or may seek to produce; |
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changes in general economic conditions, the financial markets and in the demand and market price for our input costs, such as diesel fuel, steel, concrete, electricity and other |
forms of energy, mining equipment, and fluctuations in exchange rates, particularly with respect to the value of the U.S. dollar and Canadian dollar, and the continued availability of capital and financing; |
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uncertainties about the effect of COVID-19 and the response of local, provincial, federal and international governments to the threat of COVID-19 on our operations (including our suppliers, customers, supply chain, employees and contractors) and economic conditions generally and in particular with respect to the demand for copper and other metals we produce; |
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inherent risks associated with mining operations; |
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the risk of inadequate insurance or inability to obtain insurance to cover mining risks; |
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uncertainties related to the accuracy of our estimates of mineral reserves (as defined below), mineral resources (as defined below), production rates and timing of production, future production and future cash and total costs of production and milling; |
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uncertainties related to feasibility studies that provide estimates of expected or anticipated costs, expenditures and economic returns from a mining project; |
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the availability of, and uncertainties relating to the development of, additional financing and infrastructure necessary for the development of our projects; |
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our ability to comply with the extensive governmental regulation to which our business is subject; |
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uncertainties related to the ability to obtain necessary title, licenses and permits for future development projects and project delays due to third party opposition; |
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our relationship with local communities may affect our existing projects and our development projects; |
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uncertainties related to First Nations claims and consultation issues; |
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uncertainties related to unexpected judicial or regulatory proceedings; |
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changes in, and the effects of, the laws, regulations and government policies affecting our exploration and development activities and mining operations, particularly laws, regulations and policies; |
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our dependence solely on our 75% interest in the Gibraltar Mine (as defined below) for revenues; |
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our ability to extend existing concentrate off-take agreements or enter into new agreements; |
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environmental issues and liabilities associated with mining including processing and stock piling ore; |
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labor strikes, work stoppages, or other interruptions to, or difficulties in, the employment of labor in markets in which we operate mines, or environmental hazards, industrial accidents, equipment failure or other events or occurrences, including third party interference that interrupt the production of minerals in our mines; |
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litigation risks and the inherent uncertainty of litigation; |
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the capital intensive nature of our business both to sustain current mining operations and to develop any new projects; |
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our reliance upon key personnel; |
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the competitive environment in which we operate; |
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the availability and effects of forward selling instruments to protect against fluctuations in copper prices, foreign exchange or other key consumables; |
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the risk of changes in accounting policies and methods we use to report our financial condition, including uncertainties associated with critical accounting assumptions and estimates; |
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risks related to our indebtedness; and |
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other risks detailed from time-to-time in the Companys annual reports, MD&A, quarterly reports and material change reports filed with and furnished to securities regulators, and those risks which are discussed under the heading Risk Factors. |
Such information is included, among other places, in this AIF under the headings Tasekos Business and Risk Factors.
Should one or more of these risks and uncertainties materialize, or should underlying factors or assumptions prove incorrect, actual results may vary materially from those described in forward-looking statements. Material factors or assumptions involved in developing forward-looking statements include, without limitation, that:
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the price of copper and other metals will not decline significantly or for a protracted period of time; |
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our mining operations will not experience any significant production disruptions that would materially affect revenues; |
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grades and recoveries at Gibraltar and Florence remain consistent with current mine plans; |
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|
the Production Test Facility at Florence performs as designed; |
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there are no changes to any existing agreements or relationships with affected First Nations groups which would materially and adversely impact our operations; |
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there are no adverse regulatory changes affecting any of our operations; |
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exchange rates, prices of key consumables, costs of power, labour, material costs, supplies and services, and other cost assumptions at our projects are not significantly higher than prices assumed in planning; |
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our mineral reserve and resource estimates and the assumptions on which they are based, are accurate; |
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COVID-19, and the response of governments thereto, will not result in a material slow down or stoppage of our mining operations, disrupt our permitting activities or the timing of the response of government agencies to our permitting activities; and |
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we will have sufficient working capital and be able to secure additional funding necessary for the development and continued advancement of our operations and projects. |
These factors should be considered carefully and readers are cautioned not to place undue reliance on the forward-looking statements. Readers are cautioned that the foregoing list of risk factors is not exhaustive and it is recommended that prospective investors carefully consult the more complete discussion of risks and uncertainties facing the Company included under Risk Factors in this AIF for a more detailed discussion of these risks.
Although the Company believes that the expectations conveyed by the forward-looking statements are reasonable based on the information available to it on the date such statements were made, no assurances can be given as to future results, approvals or achievements. The forward-looking statements contained in this AIF and the documents incorporated by reference herein are expressly qualified by this cautionary statement. The Company disclaims any duty to update any of the forward-looking statements after the date of the AIF to conform such statements to actual results or to changes in the Companys expectations except as otherwise required by applicable law.
Documents Incorporated by Reference
Incorporated by reference into this AIF are the audited consolidated financial statements, together with the auditors report thereon, and Managements Discussion and Analysis for Taseko Mines Limited (the Company or Taseko) for the year ended December 31, 2019. The financial statements are available for review on the SEDAR website located at www.sedar.com. All financial information in this AIF is prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board and expressed in Canadian dollars.
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Non-GAAP Performance Measures
This AIF, including the documents incorporated by reference, includes the following non-GAAP performance measures: (i) total operating costs and site operating costs, net of by-product credits; (ii) adjusted net income (loss); (iii) Adjusted EBITDA; (iv) earnings from mining operations before depletion and amortization. These measures may differ from those used by, and may not be comparable to such measures as reported by, other issuers. The Company believes that these measures are commonly used by certain investors, in conjunction with conventional IFRS measures, to enhance their understanding of the Companys performance. These measures have been derived from the Companys financial statements and applied on a consistent basis. See Non-GAAP Performance Measures in our Managements Discussion and Analysis for the year ended December 31, 2019 for a reconciliation of these measures to the most directly comparable IFRS measure.
Currency and Metric Equivalents
The Companys accounts are maintained in Canadian dollars and all dollar amounts herein are expressed in Canadian dollars unless otherwise indicated.
The following factors for converting Imperial measurements into metric equivalents are provided:
To Convert from Imperial |
To Metric |
Multiply by | ||||
acres |
hectares |
0.405 | ||||
feet |
metres |
0.305 | ||||
miles |
kilometres |
1.609 | ||||
tons (2,000 pounds) |
tonnes |
0.907 | ||||
ounces (troy)/ton |
grams/tonne |
34.286 |
In this AIF, the following capitalized terms have the defined meanings set forth below:
ASCu |
The weight percentage of copper per unit weight of rock that is acid soluble, including native copper. |
|
Common Shares |
The Companys common shares without par value, being the only class or kind of the Companys authorized capital. |
|
Company |
Taseko Mines Limited, including its subsidiaries, unless the context requires otherwise. |
|
Carbonatite Deposit |
Carbonatite deposits are igneous rocks largely consisting of the carbonate minerals calcite and dolomite, which contain the niobium mineral pyrochlore, rare earth minerals or copper sulphide minerals. |
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Concentrator |
A type of mineral processing facility that converts raw ore from the mine into a metal concentrate that can then be sold to a smelter for further processing. |
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Epithermal Deposit |
A mineral deposit formed at low temperature (50 to 200°C), usually within one kilometre of the earths surface, often as structurally controlled veins. |
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Flotation |
Flotation is a method of mineral separation whereby, after crushing and grinding ore, froth created in a slurry by a variety of reagents causes some finely crushed minerals to float to the surface where they are skimmed off. |
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ISCR |
In-situ copper recovery. |
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LSE |
The London Stock Exchange (LSE), being one of the three stock exchanges (together with the NYSE American and TSX) on which the Common Shares are listed. |
|
NSR |
Net smelter return, a general proxy for the gross value of metals derived from concentrates delivered to a smelter for refining. |
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Mineral Deposit |
A deposit of mineralization, which may or may not be ore. |
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Mineral Symbols |
Ag silver; Au gold; Cu copper; Pb lead; Zn Zinc; Mo molybdenum; and Nb niobium. |
|
NYSE American |
The NYSE American, being one of the three stock exchanges (together with the LSE and TSX) on which the Common Shares are listed. |
|
PTF |
The Production Test Facility, a 24-well ISCR operation on the Florence Copper Project designed to prove the feasibility of extracting copper at the Florence Copper Project using in-situ mining methods. |
|
Porphyry Deposit |
A type of mineral deposit in which ore minerals are widely disseminated, generally of low grade but large tonnage. |
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Semi-autogenous Grinding (SAG) |
SAG mills are essentially autogenous mills, but utilize grinding balls to aid in grinding like in a ball mill. A SAG mill is generally used as a primary or first stage grinding solution. |
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Solvent Extraction/ Electrowinning (SX/EW) |
Solvent extraction is the technique of transferring a solute from one solution to another; for example when copper oxide is dissolved into solution, copper becomes the solute. Electrowinning is the process in which an electric current flows between a pair of electrodes (anode & cathode) in a solution containing metal ions (electrolyte). Metal is deposited on the cathode in accordance with the metals ability to gain or lose electrons. Since ion deposition is selective, the cathode product is generally high grade and requires little further refining. |
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Taseko |
Taseko Mines Limited, including its subsidiaries, unless the context requires otherwise. |
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TSX |
The Toronto Stock Exchange, being one of the three stock exchanges (together with the LSE and NYSE American) on which the Companys Common Shares are listed. |
Resource and Reserve Categories (Classifications) Used in this AIF
The discussion of mineral deposit classifications in this AIF adheres to the resource/reserve definitions and classification criteria developed by the Canadian Institute of Mining, Metallurgy and Petroleum (the CIM Council) as required reporting standards in Canada and in accordance with Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101). Estimated mineral resources fall into two broad categories dependent on whether their economic viability has been established and these are namely resources (economic viability not established) and reserves (viable economic production is feasible). Resources are sub-divided into categories depending on the confidence level of the estimate based on level of detail of sampling and geological understanding of the deposit. The categories, from lowest confidence to highest confidence, are inferred resource, indicated resource and measured resource. Similarly reserves are sub-divided by order of confidence into probable (lowest) and proven (highest). These classifications can be more particularly described as follows in accordance with the CIM Definition Standards on Mineral Resources and Reserves (the 2014 CIM Standards) adopted by the CIM Council on May 10, 2014:
A feasibility study is a comprehensive technical and economic study of the selected development option for a mineral project that includes appropriately detailed assessments of applicable modifying factors together with any other relevant operational factors and detailed financial analysis that are necessary to demonstrate, at the time of reporting, that extraction is reasonably justified (economically mineable). The results of the study may reasonably serve as the basis for a final decision by a proponent or financial institution to proceed with, or finance, the development of the project. The confidence level of the study will be higher than that of a pre-feasibility study.
A Mineral Resource is a concentration or occurrence of solid material of economic interest in or on the Earths crust in such form, grade or quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade or quality, continuity
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and other geological characteristics of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling.
An Inferred Mineral Resource is that part of a Mineral Resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. Geological evidence is sufficient to imply, but not verify geological, and grade or quality continuity. An Inferred Mineral Resource has a lower level of confidence than that applying to an Indicated Mineral Resource and must not be converted to a Mineral Reserve. It is reasonably expected that the majority of Inferred Mineral Resources could be upgraded to Indicated Mineral Resources with continued exploration.
An Indicated Mineral Resource is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of Modifying Factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing and is sufficient to assume geological and grade or quality continuity between points of observation. An Indicated Mineral Resource has a lower level of confidence than that applying to a Measured Mineral Resource and may only be converted to a Probable Mineral Reserve.
A Measured Mineral Resource is that part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are estimated with confidence sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of the deposit. Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to confirm geological and grade or quality continuity between points of observation. A Measured Mineral Resource has a higher level of confidence than that applying to either an Indicated Mineral Resource or an Inferred Mineral Resource. It may be converted to a Proven Mineral Reserve or to a Probable Mineral Reserve.
A Mineral Reserve is the economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at Pre-Feasibility or Feasibility level as appropriate that include application of Modifying Factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified. The U.S. Securities and Exchange Commission require permits in hand or their issuance imminent to classify mineralized material as reserves.
A pre-feasibility study is a comprehensive study of a range of options for the technical and economic viability of a mineral project that has advanced to a stage where a preferred mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, is established and an effective method of mineral processing is determined. It includes a financial analysis based on reasonable assumptions on the modifying factors and the evaluation of any other relevant factors which are sufficient for a Qualified Person, acting reasonably, to determine if all or part of the mineral resource may be converted to a mineral reserve at the time of reporting. A pre-feasibility is at a lower confidence level than a feasibility study.
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A Probable Mineral Reserve is the economically mineable part of an Indicated Mineral Resource, and in some circumstances, a Measured Mineral Resource. The confidence in the Modifying Factors applying to a Probable Mineral Reserve is lower than that applying to a Proven Mineral Reserve.
A Proven Mineral Reserve is the economically mineable part of a Measured Mineral Resource. A Proven Mineral Reserve implies a high degree of confidence in the Modifying Factors.
Modifying Factors are considerations used to convert Mineral Resources to Mineral Reserves. These include, but are not restricted to, mining, processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social and governmental factors.
CAUTIONARY NOTE TO UNITED STATES INVESTORS CONCERNING ESTIMATES OF RESERVES AND MEASURED, INDICATED AND INFERRED RESOURCES
The disclosure in this AIF, including the documents incorporated by reference herein, uses terms that comply with reporting standards in Canada in accordance with NI 43-101 and the 2014 CIM Standards. NI 43-101 is a rule developed by the Canadian Securities Administrators that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. Unless otherwise indicated, all reserve and resource estimates contained in or incorporated by reference in this AIF have been prepared in accordance with NI 43-101 and the 2014 CIM Standards.
The SEC has adopted amendments to its disclosure rules to modernize the mineral property disclosure requirements for issuers whose securities are registered with the SEC under the U.S. Exchange Act, effective February 25, 2019 (the SEC Modernization Rules). The SEC Modernization Rules replace the historical property disclosure requirements for mining registrants that were included in SEC Industry Guide 7.
The SEC Modernization Rules include the adoption of definitions of terms, which are substantially similar to the corresponding terms under the 2014 CIM Standards that are presented above under Resource and Reserve Categories (Classifications) Used in this AIF.
We will not be required to provide disclosure on our mineral properties under the SEC Modernization Rules as we are presently a foreign issuer under the U.S. Exchange Act and entitled to file continuous disclosure reports with the SEC under the MJDS between Canada and the United States. Accordingly, we anticipate that we will be entitled to continue to provide disclosure on our mineral properties in accordance with NI 43-101 disclosure standards and CIM Definition Standards. However, if we either cease to be a foreign issuer or cease to be able to entitled to file reports under the MJDS, then we will be required to provide disclosure on our mineral properties under the SEC Modernization Rules. Accordingly, United States investors are cautioned that the disclosure that we provide on our mineral properties in the AIF and under our continuous disclosure obligations under the U.S. Exchange Act may be different from the
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disclosure that we would otherwise be required to provide as a U.S. domestic issuer or a non-MJDS foreign issuer under the SEC Modernization Rules.
United States investors are cautioned that while the above terms under the SEC Modernization Rules are substantially similar to CIM Definitions, there are differences in the definitions under the SEC Modernization Rules and the CIM Definition Standards. Accordingly, there is no assurance any resources and reserves that we may report as measured mineral resources, indicated mineral resources and inferred mineral resources and proven mineral reserves and probable mineral reserves under NI 43-101 would be the same had we prepared these estimates under the standards adopted under the SEC Modernization Rules.
United States investors are also cautioned that while the SEC now recognizes measured mineral resources, indicated mineral resources and inferred mineral resources, investors should not to assume that any part or all of the mineral deposits in these categories will ever be converted into a higher category of mineral resources or into mineral reserves. Mineralization described by these terms has a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. Accordingly, investors are cautioned not to assume that any measured mineral resources, indicated mineral resources, or inferred mineral resources that we report in this AIF are or will be economically or legally mineable.
Further, inferred resources have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically. Therefore, United States investors are also cautioned not to assume that all or any part of the inferred resources exist. In accordance with Canadian rules, estimates of inferred mineral resources cannot form the basis of feasibility or other economic studies, except in limited circumstances where permitted under NI 43-101.
For the above reasons, information contained in this AIF and the documents incorporated by reference herein containing descriptions of our mineral deposits may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
CORPORATE STRUCTURE
Taseko Mines Limited was incorporated on April 15, 1966, pursuant to the Company Act (British Columbia). This corporate legislation was superseded in 2004 by the British Columbia Business Corporations Act which is now the corporate law statute that governs us. Our registered office is located at Suite 1500, 1055 West Georgia Street, Vancouver, British Columbia, V6E 4N7, and our head office is located at Suite 1500, 1040 West Georgia Street, Vancouver, British Columbia, V6E 4H1.
The following is a list of the Companys principal subsidiaries:
Jurisdiction of Incorporation |
Ownership | |||||
Gibraltar Mines Ltd. 1 |
British Columbia | 100 | % |
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Curis Resources Ltd. 2 |
British Columbia | 100 | % | |||
Curis Holdings (Canada) Ltd. 2 |
British Columbia | 100 | % | |||
Florence Copper Inc. 2 |
Nevada, USA | 100 | % | |||
Yellowhead Mining Inc. |
British Columbia | 100 | % | |||
Aley Corporation |
British Columbia | 100 | % | |||
Taseko Holdings Ltd. |
British Columbia | 100 | % |
1. |
Taseko owns 100% of Gibraltar Mines Ltd., which owns 75% of the Gibraltar Joint Venture. |
2. |
Taseko owns 100% of Curis Resources Ltd., which owns 100% of Curis Holdings (Canada) Ltd., which owns 100% of Florence Copper Inc. |
Gibraltar Joint Venture
On March 31, 2010, we established an unincorporated joint venture (JV) between Gibraltar Mines Ltd., and Cariboo Copper Corp. (Cariboo) over the Gibraltar copper and molybdenum mine (the Gibraltar Mine or Gibraltar), whereby Cariboo acquired a 25% interest in the Gibraltar Mine and we retained a 75% interest with Gibraltar Mines Ltd. operating the mine for the two JV participants. Under the related Joint Venture Formation Agreement (JVFA), the Company contributed to the Joint Venture substantially all assets and obligations pertaining to the Gibraltar Mine, and Cariboo paid the Company $187 million to obtain its 25% interest in the JV. Gibraltar Mines Ltd. continues to be the operator of the Gibraltar Mine under the Joint Venture Operating Agreement (the JVOA) which is filed at www.sedar.com. Cariboo is a Japanese consortium jointly owned by Sojitz Corporation (50%), Dowa Metals & Mining Co., Ltd. (25%) and Furukawa Co., Ltd. (25%).
TASEKOs BUSINESS
Taseko is a Vancouver, B.C. headquartered mining company that is focused on the operation of the Gibraltar Mine, and on the development of the Florence Copper Project towards a construction decision, and the advancement of its Yellowhead, New Prosperity, and Aley projects. Taseko 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.
Tasekos mineral properties are summarized in the table below.
Project/Mine |
Ownership
Interest |
Location |
Principal Mineralization |
|||||
Gibraltar Mine |
75 | % |
British Columbia |
Copper/ Molybdenum/ Silver |
||||
Florence |
100 | % |
Arizona, USA |
Copper |
||||
Yellowhead |
100 | % |
British Columbia |
Copper/ Gold/ Silver |
||||
New Prosperity |
100 | % |
British Columbia |
Copper/ Gold |
||||
Aley |
100 | % |
British Columbia |
Niobium |
||||
Harmony |
100 | % |
British Columbia |
Gold |
The map below highlights the location of our mineral properties:
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Figure 1: Location of Tasekos Properties
Gibraltar
Tasekos principal operating asset is its 75% joint venture interest in the Gibraltar mine (Gibraltar) in British Columbia, Canada. Gibraltar is the second largest open pit copper mine in Canada, having produced 126 million pounds of copper in 2019 (on a 100% basis). Gibraltar also produces molybdenum and silver and has an expected mine life of at least 18 years based on Proven Mineral Reserves and Probable Sulphide Mineral Reserves of 564 million tons at a grade of 0.25% copper as of December 31, 2019.
Between 2006 and 2013, the Company expanded and modernized the Gibraltar Mine ore concentrator, added a second ore concentrator, increased the mining fleet and made other production improvements at the mine. Following this period of mine expansion and capital expenditure, Gibraltar has achieved a stable level of operations and the Companys focus is on further improvements to operating practices to reduce unit costs.
Florence
Taseko is proceeding with the development of the Florence Copper Project in Arizona. Taseko completed construction of the PTF for the Florence Copper Project in 2018 and wellfield operations commenced in the fourth quarter of 2018. The PTF operated as planned in 2019,
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producing first copper from the SX/EW plant in April. The PTF wellfield is performing to its design, and the SX-EW plant is producing copper cathode quality equal to LME grade A.
The second phase of the Florence Copper Project will consist of the permitting, construction and operation of the commercial ISCR facility. Completion of the ISCR production facility has an estimated capital cost of approximately US$204 million (plus reclamation bonding and working capital) on a Q4 2016 cost basis. Taseko expects to fund a portion of the required construction costs using debt financing. Taseko may also raise capital to fund construction through equity financings or asset sales, including royalties, sales of project interests, or through a joint venture.
Other Development Projects
Taseko has a diverse pipeline of wholly-owned development projects at various stages of technical and economic feasibility studies, including the Yellowhead copper project, the Aley niobium project, and the New Prosperity gold and copper project.
Taseko also owns the Harmony Gold Project, currently a dormant exploration stage gold property.
Corporate Strategy
Tasekos strategy has been to grow the Company by leveraging cash flow from the Gibraltar Mine to acquire and develop a pipeline of projects. The Company continues to believe this will generate 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. Tasekos project focus is currently on the development of the Florence Copper Project and incurred $16 million in PTF operation and other project development costs.
Three Year Development of Tasekos Business
The following is a summary of the development of Tasekos business over the last three financial years:
2017
In January 2017, the Company completed technical work on the Florence Copper Project which resulted in a significant improvement in project economics. The results are described in the report titled NI 43-101 Technical Report, Florence Copper Project, Florence, Pinal County, Arizona dated February 28, 2017, amended and restated December 4, 2017, and is filed on www.sedar.com.
In September 2017, the Company received all necessary state and federal permits to build and operate the Florence Copper PTF in Arizona, and the Companys board of directors approved the construction of the PTF at an estimated cost of US$25 million.
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In March 2017, the Company completed a US$33 million streaming agreement with Osisko Gold Royalties Ltd (Osisko) for Tasekos 75% share of payable silver production from the Gibraltar Mine. In June 2017, the Company completed an offering of US$250 million aggregate principal amount of 8.75% senior secured notes due 2022 (the 2017 Secured Notes). The Company used the net proceeds of the offering and a portion of its existing cash balance to fund the redemption of its US$200 million senior notes due 2019 and to repay a senior secured credit facility (due March 2019) and the related copper call option.
In July 2017, Gibraltars mining and milling operations were impacted by wildfires in the Cariboo region which limited employees ability to travel to the mine site, due to restrictions on road access and evacuation orders in the region.
2018
In 2018, construction of the PTF for the Florence Copper Project was completed on time and on budget. Wellfield operations commenced in the fourth quarter. The main focus of the PTF phase was to demonstrate to regulators and key stakeholders that hydraulic control of underground leach solutions can be maintained.
In December 2018, the Company entered into an agreement to acquire all of the outstanding common shares of Yellowhead Mining Inc. (Yellowhead) that it did not already own, in exchange for approximately 17.3 million Taseko common shares. The transaction was structured as a plan of arrangement pursuant to the Business Corporations Act (British Columbia) and required the approval of the Supreme Court of British Columbia and Yellowhead shareholders. Yellowhead holds a 100% interest in a copper-gold-silver development project located in south-central British Columbia.
2019
In 2019, commissioning of the PTF SX-EW plant for the Florence Copper Project was completed in the first quarter and first copper was produced in April. The PTF achieved steady state operation and the focus turned to testing different wellfield operating strategies, including adjusting pumping rates, solution strength, flow direction, and the use of packers in recovery and injection wells to isolate different zones of the orebody. PTF operations are ongoing with the wellfield performing to design and the SX-EW plant producing LME grade A copper cathode.
The Company submitted permit amendment applications for the Florence Copper Phase 2 commercial production facilities. The Aquifer Protection Permit (APP) application was submitted to the Arizona Department of Environmental Quality (ADEQ) in June. The Underground Injection Control (UIC) Permit application was submitted to the U.S. Environmental Protection Agency (USEPA) in August. As of March 2020, both permits are advancing through the technical review process. The Company is in active dialogue with the regulators and targeting to have permitting for the Phase 2 commercial facility completed in 2020
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In February 2019, the Company acquired all of the outstanding common shares of Yellowhead that it did not already own, in exchange for Taseko common shares. In January 2020, the Company announced the results of its technical studies on Yellowhead which resulted in a 22% increase in recoverable copper reserves and significantly improved project economics. The Company filed a new NI 43-101 technical report entitled Technical Report on the Mineral Reserve Update at the Yellowhead Copper Project dated January 16, 2020 on Sedar.
In October 2019, the Company announced its intention to seek a listing of the Companys common shares on the London Stock Exchange (LSE) Main Market. The Prospectus, which was approved by the UK Listing Authority in November 2019, can be found on the Companys website and is available under the Companys Sedar profile at www.sedar.com. Admission became effective and unconditional dealings in the common shares commenced on November 22, 2019. The Company did not raise capital in conjunction with the LSE admission.
In December 2019, the Company announced that it entered into a dialogue with Tŝilhqotin Nation as represented by Tŝilhqotin National Government, facilitated by the Province of British Columbia, to try to obtain a long-term solution to the conflict regarding Tasekos proposed gold-copper mine at New Prosperity, and the opposition of the Tŝilhqotin Nation to that project. While the details of this process are confidential, in order to facilitate a dialogue, the parties agreed to a standstill on certain outstanding litigation and regulatory matters which relate to Tasekos tenures in the vicinity of Teztan Biny (Fish Lake).
Competitive Conditions
The average price of LME copper was US$2.72 per pound for the year ended December 31, 2019, compared to US$2.96 per pound for year ended December 31, 2018. Changes in Chinese economic demand, copper supply disruptions, global trade policies, recent developments related to the COVID-19 outbreaks, interest rate expectations and speculative investment activity have all contributed to the recent price volatility. Despite the short-term volatility, management continues to believe that the copper market will benefit from tight mine supply going forward.
The average molybdenum price averaged US$11.36 per pound for the year ended December 31, 2019. The Companys sales agreements specify molybdenum pricing based on the published Platts Metals reports.
Approximately 80% of Gibraltars costs are Canadian dollar denominated and therefore, fluctuations in the Canadian/US dollar exchange rate can have a significant effect on the Companys operating results and unit production costs. The Canadian dollar weakened on average by 2.4% during 2019 compared to 2018.
Environmental Protection Requirements
Tasekos mining, exploration and development activities in Canada are subject to various levels of Canadian Federal and British Columbia Provincial laws and regulations relating to the
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protection of the environment. Similarly, the Florence Copper Project is subject to various levels of US Federal and Arizona State laws and regulations relating to protection of the environment. All of the jurisdictions include requirements for closure and reclamation of mining properties as part of their regulatory framework.
The total liability for reclamation and closure cost obligations for the Companys share of the Gibraltar Mine and its other projects, as calculated in accordance with International Financial Reporting Standards, at December 31, 2019 was $66.4 million. This amount represents the present value of the estimated future costs of planned and anticipated closure and remediation activities, assuming a long-term nominal risk free rate of up to 3.05% and an inflation rate of 1.42%.
Environmental and Sustainability Policy
Taseko is committed to continual improvement towards the protection of human health and the stewardship of the environment. Taseko recognizes that responsible environmental management is critical to our success and has committed that it will:
|
Consider the environmental impacts of its operations and take appropriate steps to prevent environmental pollution; |
|
Comply with relevant environmental legislation, regulations and corporate requirements; |
|
Integrate environmental policies, programs and practices into all activities; |
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Ensure that all employees and service providers understand their environmental responsibilities and encourage dialogue on environmental issues; |
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Develop, maintain and test emergency preparedness plans to ensure protection of the environment, employees and the public; |
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Work with government and the public to develop effective and efficient measures to improve protection of the environment, based on sound science; and |
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Maintain an environmental committee to review environmental performance, objectives and targets, and to ensure continued recognition of environmental issues as a high priority. |
Employees
As at December 31, 2019, the Company had the following employees and contractors:
Location |
Full-time Salaried | Hourly | Contractors | |||||||||
Vancouver |
20 | | 3 | |||||||||
Gibraltar |
154 | 523 | 17 | |||||||||
Florence, USA |
17 | 17 | 1 | |||||||||
|
|
|
|
|
|
|||||||
Total |
191 | 540 | 21 | |||||||||
|
|
|
|
|
|
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Health, Safety and Environmental Policy
Taseko provides safe and healthy working conditions, and has established operating practices which safeguard employees and physical assets.
To achieve this goal, the Company commits to:
|
Meeting or exceeding all industry standards and legislative requirements; |
|
Developing and enforcing safe work rules and procedures; |
|
Providing employees with the information and training necessary for them to perform their work safely and efficiently; |
|
Acquiring and maintaining materials, equipment and facilities so as to promote good health and safety; and |
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Encouraging employees at all levels to take a leadership role in incident prevention by reporting and/or correcting unsafe situations. |
Taseko places a high priority on the continuous improvement of performance in the areas of employee health and safety at the workplace and protection of the environment. In 2019, Gibraltar had five loss time incidents and a loss time frequency of 0.68 (per 200,000 hours worked). This is lower than the British Columbia industry average loss time frequency of 0.78 (per 200,000 hours worked). The Company remains committed to a culture of safety first, ensuring safety is the first consideration in all actions taken.
The Gibraltar Mine and the Companys head office and Florence Copper Project personnel implemented procedures in advance of the national and local health authorities directives to mitigate the risk of COVID-19 impacting our employees and operations. The Companys entire workforce has been fully engaged in this process and in the event illness does occur among some of the Companys employees, these procedures are designed to curb wide-spread infection among other employees. The Company has been extremely diligent and is taking extra precautions at all of its work sites. While the Company has not had any known occurrences of COVID-19 within the organization, it will remain focused on protecting its employees until the risk of this pandemic subsides.
The same priority on health, safety, and environmental performance, as well as the methods and culture at Gibraltar are being imported and implemented at Florence Copper.
MINERAL PROPERTIES
Our material properties are the Gibraltar Mine and the Florence Copper Project. Information regarding the Gibraltar Mine, Florence Copper Project and Yellowhead Copper Project is based on current technical reports available on SEDAR, as updated by the Companys Chief Engineer, Richard Weymark, P. Eng., MBA, (in respect of the Gibraltar Mine and Yellowhead Copper Project) and Vice President Capital Projects, Rob Rotzinger, P. Eng (in respect of the Florence
- 18 -
Copper Project). Information regarding our other projects, New Prosperity and Aley, has been prepared by Richard Weymark.
Gibraltar Mine
Unless stated otherwise, information of a technical or scientific nature related to the Gibraltar Mine contained in this AIF (including documents incorporated by reference herein) is summarized or extracted from a technical report entitled Technical Report on the Mineral Reserve Update at the Gibraltar Mine dated November 6, 2019 (the Gibraltar Technical Report), prepared under the supervision of Richard Weymark, P. Eng., MBA, filed on Tasekos profile at www.sedar.com and updated with production and development results since that time. Mr. Weymark is employed by the Company as Chief Engineer and is a Qualified Person as defined by Canadian securities regulatory instrument NI 43-101.
Project Description, Location, and Access
The Gibraltar open pit mine and related facilities are located 65 kilometres north of the town of Williams Lake and are centered at latitude 52o 30N and longitude 122o 16W in the Cariboo Mining Division. Williams Lake is approximately 590 kilometres north of Vancouver, British Columbia.
Access to the Gibraltar Mine from Williams Lake is 45 kilometres via Highway 97 to McLeese Lake, and then 20 kilometres by paved road to the mine site.
The Gibraltar Mine property consists of 244 tenures held as summarized in Table 1 below.
Table 1: Mineral Tenures Gibraltar Mine
Tenure Type |
Number | Area (ha) | ||||||
Claims |
212 | 19,815 | ||||||
Leases |
32 | 2,275 | ||||||
|
|
|
|
|||||
Total |
244 | 22,090 | ||||||
|
|
|
|
There are 32 mining leases at the Gibraltar Mine which are valid until at least October 2033 as long as renewal fees, which are due on an annual basis, are paid. Rights to use the surface accompany each mining lease. There are 212 claims included in the Gibraltar property tenure package all of which are due to expire in May 2021 or later. It is intended that all leases and claims will be renewed prior to their renewal fees being due (in the case of the leases) and prior to their expiry (in the case of the claims).
There are several land parcels for which surface rights were purchased outright. There is one fee simple lot at the Gibraltar Mine on which the plant site is located and annual taxes are paid. In addition, the Gibraltar Mine holds three other land parcels.
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In March 2017, Taseko entered into an agreement to sell its 75% share of payable silver production from the Gibraltar Mine to Osisko. There are no other royalties, overrides, back-in rights, payments or other agreements to which the project is subject.
There are no significant factors or risks that might affect access, title or ability to perform work on the property.
History
In 1964, Gibraltar acquired a group of claims in the McLeese Lake area from Malabar Mining Co. Ltd.
Canadian Exploration Limited (Canex), at that time a wholly-owned subsidiary of Placer Development (Placer), and Duval Corporation (Duval) had also been exploring on claims known as the Pollyanna Group which they had acquired adjacent to Gibraltars claims. In 1969 Canex and Duval optioned the Gibraltar property. In 1970 Canex acquired Duvals remaining interest to hold both properties.
Placer began construction of the mine in October 1970. The concentrator commenced production in March 1972 and was fully operational by April 1972. A cathode copper plant with an annual capacity of 10 million pounds of market-ready copper metal began operation in October 1986.
In October 1996, Westmin Resources Limited (Westmin) acquired 100% control of Gibraltar and in December 1997, Boliden Limited Westmin (Canada) Limited (Boliden) acquired Westmin. In March 1998, Boliden announced that it would cease mining operations at the Gibraltar Mine at the end of 1998.
In July 1999, Tasekos subsidiary, Gibraltar Mines Ltd., purchased the Gibraltar Mine assets from Boliden and certain of its affiliates, including all mineral interests, mining and processing equipment and facilities, and assumed responsibility for reclamation obligations.
From 1999 to 2004, Taseko geologists and engineers sought to better define known resources and explored for additional mineralized material. The on-site staff completed on-going reclamation work and maintained the Gibraltar Mine for re-start. Operating and environmental permits were kept in good standing. The mine re-opened in October 2004.
Gibraltar has been owned and operated as an unincorporated joint venture between Taseko and Cariboo since March 31, 2010. The Companys wholly-owned subsidiary, Gibraltar Mines Ltd. and Cariboo hold 75% and 25% beneficial interests in the Joint Venture, respectively.
Gibraltar increased design mill capacity to 55,000 tons per day in 2011. Gibraltar further increased design mill capacity to 85,000 tons per day in 2013 through installation of a complete independent second concentrator and a stand-alone molybdenum separation plant.
- 20 -
Total production since 1972 is 646 million tons of ore producing 3.3 billion pounds of copper in concentrate, 102 million pounds of cathode copper and 40 million pounds of molybdenum.
Geological Setting, Mineralization, and Deposit Types
The Gibraltar deposits are hosted by the upper Triassic Granite Mountain batholith, located within a wedge of Mesozoic and Palaeozoic rocks bounded on the west by the Fraser Fault system and on the east by the Pinchi Fault system. The Granite Mountain Batholith is a composite body consisting of three major phases; Border Phase diorite, Mine Phase tonalite, and Granite Mountain trondjhemite. Contacts between the major phases are gradational over widths ranging from two metres to several hundred metres. The regional deformation was accompanied by localized metasomatic alteration and associated sulphide deposition that led to the concentration of copper mineralization in specific areas of the batholith.
There are currently five defined mineralized zones on the Gibraltar Mine property. They are the Granite, Pollyanna, Connector, Gibraltar, and Extension zones. They occur in a broad zone of shearing and alteration.
Two major ore structure orientations have been recognized; the Sunset and Granite Creek systems. Ore host structures of the Sunset system are mainly shear zones, with minor development of stockworks and associated foliation lamellae whereas oriented stockworks with associated pervasive foliation lamellae predominate in the Granite Creek system.
Pyrite and chalcopyrite are the principal primary sulphide minerals. Small concentrations of other sulphides are present in the Gibraltar ores with molybdenite being a minor but economically important associate of chalcopyrite in the Pollyanna, Granite, and Connector deposits.
Exploration
A property-scale Induced Polarization (IP) geophysical survey was designed and initiated in August 2000. Field activities included 237 kms of line cutting and some 220 kms of IP survey. Several deposit scale anomalies external to current reserves were identified and drill tested in 2003.
In 2011, Gibraltar Mines Ltd. had an airborne ZTEM electromagnetic and magnetic survey flown over its then existing claims surrounding the Gibraltar mine. A total of some 690 line kilometres of Z-Axis Tipper electromagnetic and magnetic data was collected.
In 2015, a ground magnetometer survey was performed over 36.6 line kilometres on four mineral claims.
In 2017, two geophysical surveys were conducted over the Gibraltar NW area by Walcott & Associates. The first consisted of an airborne magnetics survey flown over the property. The survey covered a total of 346 line-km flown along northeast orientated lines at 100 m spacings. The second survey consisted of a ground IP survey that covered a total of 41.5 line-km along 11
- 21 -
northeasterly orientated lines with spacing between 200 and 400 metres. The collected data was used to target a diamond drill program which consisted of two exploration diamond drill holes totaling 3,941 feet (1,201.4m) in the area northwest of the current Extension Resource.
Drilling
From 1999 to 2004, Taseko geologists and engineers sought to better define known resources and explored for additional mineralized material. A core drilling program for pit definition for the Granite Lake and PGE Connector deposits and property exploration at the 98 Oxide Zone was carried out between September and November 2005. A further drilling program carried out in 2006 was designed to define the mineral resources between the existing pits by tying together the extensive mineralization zones, and to test for additional mineralization at depth.
The 2007 program tested a number of targets to define further mineralization, provided definition drilling in the Pollyanna-Granite saddle zone and Granite West areas and included condemnation drilling for the proposed extensions of both the #5 and #6 Dump footprints. The targets for further mineralization were Gibraltar South, Pollyanna North IP anomaly, Granite South and the Gunn Zone.
The 2008 exploration program was conducted on the southern and eastern margins of the Gibraltar pit and northwest of the Gibraltar West pit. The objective was to upgrade identified inferred resources to indicated or measured categories through in-fill drilling. Holes drilled in the Gibraltar West pit area were incorporated into the 2008 reserve estimate for the new Gibraltar Extension Pit.
The 2010 program was conducted on the northern and western margins of the Gibraltar Pit, and one hole on the southwest margin. The objective was to define the ultimate limit of the Gibraltar Pit to the north and west. The 2010 drilling program met the objective of delineating mineralization to the north and west of the Gibraltar Pit. A total of 28,129 feet was drilled in 34 drill holes in 2010.
The 2011 program was aimed at identifying mineralization down-dip of the Gibraltar and Granite deposits. A total of 12,229 feet were drilled in 5 holes. A deep zone of anomalous copper and molybdenum mineralization encountered in drill-hole 2011-003 extends from approximately 2,600 to 3,700 feet and consists of intermittent intercepts grading up to 1.3% TCu and 0.4% Mo.
In 2013, there were two drill programs completed, one in the summer and the other in the fall. Both programs targeted the projected mineralization south of the current Granite Pit. A total of 38,068 feet in 31 holes were drilled between the two programs.
In early spring of 2014, a resource drill program commenced targeting the Connector pit and the area between Gibraltar East and Granite Pit. At the same time a geotechnical drill program was undertaken. Between the two programs a total of 38 holes were drilled with a cumulative length of 37,456 feet. The main goals of the drilling programs were (1) to collect high-quality geological, geotechnical and assay data, (2) to improve the geological understanding of the ore body, and (3) to increase the drill density within and confidence level of the resource model.
- 22 -
In late 2015, one exploration drill hole was drilled to expand the current known mineralization northwest of the Extension deposit. The total depth of the hole was 2,507 feet. A significant interval of copper was encountered at above reserve grade. The mineralization to the west, northwest and at depth is open. More drilling is needed to confirm if the Extension pit can be expanded to include this material.
In 2016, two drill programs were completed. The first program targeted the conversion of resource material from inferred to measured/indicated at the Granite and Pollyanna deposits. This reserve definition program totaled 35 holes with a cumulative length of 29,342 feet. The second program was an exploration program that targeted the extension of the mineralization discovered in the 2015 exploration hole. Drilling totaled 14,432 feet in 7 holes. The preliminary exploration results were positive with the best results received from the northwestern most hole.
In 2017, two drill programs were completed. The first program targeted the conversion of resource material from inferred to measured/indicated at the Granite, Pollyanna and Connector deposits. This reserve definition program totaled 38 holes with a cumulative length of 38,961 feet. The second program was an exploration program that targeted the extension of the mineralization discovered in the 2015/2016 exploration drilling with 4 holes with a cumulative length of 7,996 feet. This program had 2 phases: two holes (4,055 feet) drilled between January 4, 2017 and February 14, 2017 and two holes (3,941 feet) drilled between September 15, 2017 and October 3, 2017. The exploration results received have expanded the known mineralization to the west, northwest and at depth with the 2016 and 2017 drilling and remains open in these directions. More drilling is needed to prove up the extent of this mineralization.
In 2019, a single 1,327 foot drill hole was drilled targeting a deeper zone below Granite Pit was completed with the purpose of upgrading and expanding inferred resources to measured/indicated below the Granite Pit. The results received confirmed the presence of mineralization which remains open to the southwest.
Sampling, Analysis, and Data Verification
Over 135,000 samples have been taken for total copper analysis from drilling at Gibraltar since 1965. About 95% of these samples were also assayed for molybdenum, 52% for acid soluble copper, 50% for acid soluble iron, 46% for multi-element ICP and 36% for gold. Essentially all rock drilled and recovered is sampled in 10 ft intervals. Unconsolidated overburden material, where it exists, is generally not recovered by core drilling and therefore not usually sampled.
From discovery in 1965 through mine start-up in 1971, and since mine re-start in 2004, 93% of the assays on exploration drill samples have been performed by reputable, independent third party analytical laboratories. Mine laboratory personnel performed all exploration drill sample analyses from 1979 to 2003.
Well-documented sample preparation, security and analytical procedures used on the Gibraltar drill programs since 1999 have been carried out in an appropriate manner consistent with common industry practice. The results are supported by many years of mine production. A
- 23 -
significant amount of due diligence and analytical QAQC for copper and molybdenum has been completed on the samples that were used in the current mineral resource/reserve estimate. The quality of the work performed on the digital database provides confidence that it is of good quality and acceptable for use in geological and resource modeling of the Gibraltar deposits.
Details of sample preparation, assay laboratories, security, and data verification used in the Gibraltar drill hole sampling and analytical programs is documented in the Gibraltar Technical Report. Sample preparation, security and data verification protocols since the Gibraltar Technical Report continue to apply these same procedures and standards.
Mineral Processing and Metallurgical Testing
Sulphide ore from the Gibraltar deposits has been processed on-site since 1972 and run of mine oxide ore has been leached since 1986. The current mineral reserves are contained within zones which have been significantly mined, with the exception of the Extension Zone. Metallurgical testing associated with the Extension Zone returned results consistent with the rest of the mineralized zones.
The basis for predictions of copper concentrate flotation recovery is plant performance data from both of the existing concentrators based on sulphide and oxide content. Copper recovery is expected to average 86% over the remaining operating period of the reserves.
Molybdenum recovery predictions are based on the average bulk flotation circuit molybdenum recovery, combined with locked cycle testing of molybdenum recovery from the bulk concentrate. The overall molybdenum recovery is predicted to be 50% for the remaining reserves. The basis of the predictions of copper cathode produced from heap leaching and subsequent solvent extraction is based upon historical recovery to cathode. Historical recovery to cathode is 50% of placed copper mass.
Mineral Resource and Mineral Reserve Estimates
The Gibraltar Mine mineral resources and reserves are based on the published reserves as of December 31, 2018, as documented in the Gibraltar Technical Report and reflect depletion due to mining in 2019.
The reserve estimate uses long-term metal prices of US$2.75/lb for copper and US$8.00/lb for molybdenum and a foreign exchange rate of C$1.00=US$0.80.
The proven and probable sulphide reserves as of December 31, 2019, are tabulated in Table 2 below.
Table 2: Gibraltar Mine Sulphide Mineral Reserves at 0.15% Copper Cut-off
Pit |
Category |
Tons
(millions)(1) |
Cu
(%) |
Mo
(%) |
||||||||||
Connector |
Proven | 156 | 0.25 | 0.010 | ||||||||||
Probable | 7 | 0.22 | 0.007 |
- 24 -
Pit |
Category |
Tons
(millions)(1) |
Cu
(%) |
Mo
(%) |
||||||||||||
Subtotal | 163 | 0.25 | 0.010 | |||||||||||||
Gibraltar |
Proven | 146 | 0.25 | 0.008 | ||||||||||||
Probable | 112 | 0.23 | 0.008 | |||||||||||||
Subtotal | 258 | 0.24 | 0.008 | |||||||||||||
Granite |
Proven | 15 | 0.23 | 0.002 | ||||||||||||
Probable | | 0.18 | 0.001 | |||||||||||||
Subtotal | 16 | 0.23 | 0.001 | |||||||||||||
Extension |
Proven | 50 | 0.33 | 0.002 | ||||||||||||
Probable | 1 | 0.26 | 0.001 | |||||||||||||
Subtotal | 51 | 0.33 | 0.002 | |||||||||||||
Pollyanna |
Proven | 75 | 0.24 | 0.007 | ||||||||||||
Probable | 1 | 0.23 | 0.007 | |||||||||||||
Subtotal | 75 | 0.24 | 0.007 | |||||||||||||
Ore Stockpiles |
2 | 0.20 | 0.006 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
|
564 | 0.25 | 0.008 | ||||||||||||
|
|
|
|
|
|
(1) |
Totals may not add due to rounding. |
There are also oxide reserves as shown in Table 3 below. These oxide reserves as of December 31, 2019 are in addition to the sulphide reserves stated in Table 2.
Table 3: Gibraltar Mine Oxide Mineral Reserves at 0.10% ASCu Cut-off
Pit |
Category |
Tons
(millions)(1) |
ASCu
(%) |
|||||||
Connector |
Proven |
1 | 0.16 | |||||||
Probable |
14 | 0.15 | ||||||||
Subtotal |
15 | 0.15 | ||||||||
Gibraltar |
Proven |
| 0.17 | |||||||
Probable |
1 | 0.19 | ||||||||
Subtotal |
1 | 0.19 | ||||||||
Pollyanna |
Proven |
| 0.12 | |||||||
Probable |
1 | 0.12 | ||||||||
Subtotal |
1 | 0.12 | ||||||||
|
|
|
|
|||||||
Total |
17 | 0.15 | ||||||||
|
|
|
|
(1) |
Totals may not add due to rounding. |
The resource estimate uses long-term metal prices of US$3.25/lb for copper and US$12.00/lb for molybdenum and a foreign exchange rate of C$1.00=US$0.80.
The mineral reserves stated in Table 2 and Table 3 above are contained within the mineral resources as of December 31, 2019 indicated in Table 4 below:
- 25 -
Table 4: Gibraltar Mine Mineral Resources at 0.15% Copper and 0.10% ASCu Cut-off
Category |
Tons (millions) | Cu (%) | Mo (%) | |||||||||
Measured |
778 | 0.25 | 0.007 | |||||||||
Indicated |
302 | 0.23 | 0.007 | |||||||||
|
|
|
|
|
|
|||||||
Total (M&I) |
1,081 | 0.25 | 0.007 | |||||||||
|
|
|
|
|
|
The mineral resource and reserve estimations were completed by Taseko and Gibraltar Mine staff under the supervision of Richard Weymark, P.Eng., MBA, Chief Engineer, a Qualified Person under NI 43-101 and the author of the Gibraltar Technical Report. Mr. Weymark 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.
Mining Operations
The Gibraltar Mine is a typical open pit operation that utilizes drilling, blasting, cable shovel loading and large-scale truck hauling to excavate rock. The Gibraltar Mine is planned for excavation of sulphide mineralized material of sufficient grade that it can be economically mined, crushed, ground and processed to a saleable product by froth flotation.
Rock containing lower grade sulphide mineralization or oxide mineralization is also mined but is not immediately processed. The lower grade sulphide material is stockpiled for later processing in the concentrator. In addition, a portion of the low grade sulphide material and all of the oxide material can be leached with a highly diluted sulphuric acid, which is naturally assisted by bacterial action, and the resultant copper sulphate solution can be processed to cathode copper in the Gibraltar Mines SX/EW plant.
The strip ratio over the remaining 18 year operating period of the reserve will average 2.0:1. Strip ratio refers to the ratio of the amount of waste material required to be mined in order to extract a unit of ore. For example, a 2:1 stripping ratio means that mining one ton of ore will require mining two tons of waste rock. While the annual strip ratio generally decreases with time, the strip ratio will vary and be managed over the course of the mine life based on exchange rates, commodity prices, and grade distribution during annual and mid-range mine planning process to optimize the economic performance of the operation.
Processing and Recovery Operations
The processing facilities at the Gibraltar Mine consist of two separate bulk sulphide concentrators, a dedicated molybdenum flotation plant, and a series of leach piles which feed a SX/EW facility.
Run of mine ore is fed to the two sulphide concentrators in parallel at a combined design rate of approximately 85,000 tons per day. These two bulk concentrators, while differing in size, follow the same process path. Ore is fed to primary crushing with the product reporting to a closed circuit SAG/Ball comminution stage. Ground ore is processed through a rougher flotation stage. Tailings from the rougher flotation stage are pumped to a storage facility, while the
- 26 -
concentrate is reground and processed through two further cleaner flotation stages. Final bulk concentrate contains both copper and molybdenum values.
The bulk concentrate from both facilities is combined and processed through a single molybdenum flotation plant. The bulk concentrate is floated in a rougher stage which depresses the copper values and selectively recovers molybdenum. The underflow from this plant is the sites final copper concentrate. This copper concentrate is dewatered and shipped in bulk to market. The rougher concentrate is reground and processed through two further cleaner flotation stages. Molybdenum final concentrate from this plant is dewatered and bagged, and subsequently shipped to market. The molybdenum flotation plant was restarted in September 2016 after being idled in July 2015 during a decline in molybdenum prices.
Oxide ore from the mine is delivered to oxide leach dumps. The SX/EW plant is designed to extract copper from the pregnant leach solutions (PLS) collected from the sites leach dumps. Acidic solution is passed through the leach pile and extracts copper in the form of copper ions in this PLS. This copper laden solution is delivered to the SX/EW plant via collection ditches, ponds and pumping where required. The process takes PLS and selectively extracts the copper ions in solvent extraction mixer-settlers. The copper is transferred from this acid solution to an organic phase and finally to a clean electrolyte. The electrolyte is filtered and heated before being passed through the electrowinning cells where the copper is plated out on stainless steel cathodes. The resultant high quality cathode copper is bundled and sold. The barren solution leaving the plant, raffinate, is pumped back to leach additional copper from the leach piles. The SX/EW facility has been placed in care and maintenance since 2015 due to depleted leach dumps and limited fresh oxide ore feed from the mining activity. The plant will be restarted in 2023 when sufficient oxide ore is mined to justify its operation.
Gibraltars copper concentrate has a nominal 28.5% copper grade and includes silver as a by-product with no significant deleterious elements. Gibraltars molybdenum concentrate has a nominal grade of 48% molybdenum and 1.5% copper which is industry standard grade. Gibraltar copper cathode is nominally 99.9%+ pure copper.
Infrastructure, Permitting and Compliance Activities
The Canadian National Railway (CN) has rail service to facilitate the shipping of copper concentrates to Vancouver Wharves, owned and operated by PKM Canada Marine Terminal LP (or Pembina) in North Vancouver, British Columbia. The Company operates the concentrate rail load-out facility on the CN rail line at Macalister, 26 kilometres from the mine site. Gibraltar owns the buildings and a portion of the land upon which the siding is located and has an agreement in place for the use of CN-owned siding materials.
Electricity is obtained from BC Hydro. Natural gas is provided by Fortis BC. The communities of Williams Lake and Quesnel are sufficiently close to the site to supply goods, services, and personnel to the Gibraltar Mine. The Gibraltar Mine had over 680 active personnel at the end of December 2019. Make-up fresh water for the mine site is obtained from a set of wells on the
- 27 -
Gibraltar Mine property. Process facilities operate using reclaimed water from the existing tailings storage facility.
Dewatering of Pollyanna Pit is ongoing in preparation for future mining. Water is being pumped to Granite Pit for long term storage. Water currently stored in the Gibraltar Pit will be transferred to the completed Granite pit starting in early 2024. This will require the construction of a bulk pit dewatering system.
Relocation of the in-pit crusher feeding concentrator 1 will need to be completed by 2023 prior to starting phase 2 of the Connector Pit.
With the current design parameters and tailings deposition plan, the tailings facility footprint will accommodate tailings storage until at least 2033. Starting in 2034 tailings will be deposited in the mined out Granite Pit.
All material regulatory authorizations and permits are in place to extract the reserves described in this report with the exception of:
|
A small extension of lease boundary to include the Extension Pit by 2032. |
|
Periodic amendments of PE-416 and M-40 for pit wall pushbacks, water discharge, and waste rock and tailings storage. |
Other permit considerations include approvals required for route changes to the access road, hydro transmission line, natural gas line, and water discharge pipeline in order to complete development of the Extension Pit which is scheduled to start in 2032. Approvals will be sought as required.
There have been no material environmental non-compliance incidents since the mine reopened in 2004.
Capital and Operating Costs
As the majority of the mines facilities are in place and operating, the only capital requirements are for the relocation of the in-pit crusher/conveyor system and electrical substation, bulk pit dewatering, realignment of the site access road and utility lines, specific tailings and water discharge related activities, and sustaining capital to maintain the integrity of the mining and processing equipment.
The total anticipated site capital requirements over the next 18 years are summarized in Table 5.
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Table 5: Capital Cost Summary
Area |
Total Capital
(in millions) |
|||
Process Improvements |
2 | |||
Bulk Pit Dewatering |
24 | |||
Tailings and Water Treatment |
32 | |||
Crusher & Substation Relocation |
43 | |||
Road and Utility Realignment |
6 | |||
General Sustaining |
161 | |||
|
|
|||
Total |
268 | |||
|
|
Average estimated unit site operating costs over the next 18 years are summarized in Table 6:
Table 6: Site Operating Cost Summary
Operating Category |
Life of Mine
Cost |
|||
Mine cost/ton milled |
$ | 5.47 | ||
Processing cost/ton milled |
$ | 4.21 | ||
General and Admin cost/ton milled |
$ | 0.90 | ||
|
|
|||
Total Operating cost/ton milled |
$ | 10.58 | ||
|
|
The basis for capital and operating cost estimates is documented in the Gibraltar Technical Report.
Exploration, Development, and Production
Gibraltar is pursuing initiatives to improve recovery, concentrator throughput, and mine cost and productivity. Continued improvement in any or all of these areas will have not only positive economic implications but could increase the size of the reserve pits under current commodity assumptions and/or impact the optimum cut-off grade.
Florence Copper Project
Unless stated otherwise, the information of a technical or scientific nature related to the Florence Copper Project contained in this AIF is summarized or extracted from the technical report entitled NI 43-101 Technical Report, Florence Copper Project, Florence, Pinal County, Arizona dated February 28, 2017, amended and restated December 4, 2017 (the Florence Copper Technical Report) filed on Tasekos profile at www.sedar.com and updated with production and development results since that time.
Competent Persons Report
As a requirement of the LSE listing process in November 2019, the Company engaged an independent report writer to prepare an independent Competent Persons Report (CPR) for the Florence Copper Project. The Florence Copper Project CPR is included with the Companys
- 29 -
United Kingdom prospectus, a copy of which was filed on SEDAR on November 18, 2019. The report conforms to the requirements for a CPR as established by the European Securities and Markets Authority (ESMA) Recommendations on consistent implementation of Commission Regulation (EC) No 809/2004, implementing the Prospectus Directive (the ESMA Recommendations, as revised in March 2013), and was not prepared in accordance with National Instrument 43-101F1. The Florence Copper CPR was based on observations and data collection on site visits to the Florence Copper Project, data provided by Taseko, including interviews with key personnel involved in the operation and management of the assets. The Florence Copper Project CPR contained a number of estimates which are different than the estimates in the 2017 Florence Technical Report dated February 28, 2017, amended and restated December 4, 2017. The authors of the Florence Copper Project CPR applied a more conservative cut-off grades and recovery rates, operating and capital cost escalation from a fourth quarter 2017 basis to a June 2019 basis partly based on indexes and partly on expected results of development, and adjusted some measured resources to indicated. No new scientific or technical information was used in preparing those estimates. The updates to the resource estimate and project economics contained in the CPR are not considered by the Company to constitute a material change either in its assessment of the Florence Copper Project or in relation to the Company as a whole. Accordingly, the Florence Copper Technical Report remains current and continues to be relied upon by the Company.
Project Description, Location and Access
The Florence Copper Project (or Florence Copper) is an advanced-stage oxide copper project controlled 100 percent by Taseko Mines Limited. The project hosts a buried porphyry copper deposit that is amenable to ISCR and SX/EW copper production.
Florence Copper is located in the Sonoran Desert of Pinal County in south-central Arizona at latitude 33° 02 49 North and longitude 111° 25 48 West within the limits of the Town of Florence. The Florence Copper site entrance is 14 miles by paved highway from Interstate 10 and can be accessed from the center of the Town of Florence via 4 miles of highway (AZ-79 and Hunt Highway). The Copper Basin Railway, a federally regulated shortline railroad, is located 100 feet north of Hunt Highway adjacent to the project site and provides rail access between the Town of Winkelman and the Union Pacific Railroad at the Magma loading station near Interstate 10.
The Florence Copper property is 1,342 acres and consists of two contiguous parcels of land, including 160 acres of leased State Trust Land. Florence Copper owns surface and subsurface rights to 1,182 acres of patented land held in fee simple that includes the majority of the project area. The patented land is subject to annual property taxes and falls within the jurisdiction of the Town of Florence for zoning and land use. Florence Copper also holds Arizona State Mineral Lease 11-26500 that includes approximately 160 acres of surface and subsurface mineral rights on Arizona State Trust Lands, which is not subject to the jurisdiction of the Town of Florence for land use. The Arizona State Mineral Lease term is from December 2013 through to December 2033 and is renewable with Florence Copper having the preferred right to renew thereafter. The mineral lease requires annual rent to be paid to the State of Arizona and
- 30 -
includes a royalty requirement on production from the mineral lease land. The Arizona State Mineral Lease is in good standing and the State Trust Lands overlie approximately 42 percent of the targeted copper resource.
There are three separate royalties applicable to Florence Copper. The land subject to Arizona State Mineral Lease 11-26500 is subject to a royalty payable to the State of Arizona based on a percentage (between 2% and 8% according to a Copper Index Price) of the gross value of minerals produced. A 3% Net Returns royalty on the entire property is payable to Conoco Inc. and a 2.5% Net Profits Interest royalty applicable to the patented land is payable to BHP Billiton.
Although there are some limited environmental liabilities on the project site relating to historical mining and exploration activities conducted by previous owners, these are managed by the company and do not pose a risk to access, title or the ability to perform work on the project.
The patented land portion of the project was subject of a legal non-conforming use litigation which was decided in the Companys favour. Further legal details are included in the section of this AIF entitled Legal and Permitting.
History
The project has had four previous owners whose primary business is exploration and mining development including Continental Oil Company (Conoco), Magma Copper Company (Magma), BHP Copper Inc. (BHP) and Curis Resources Ltd. (Curis). BHP conveyed the land constituting the Florence Copper Project to Florence Copper Inc. on May 2000. In the years between 2002 and 2009 the ownership of the private property passed through a number of companies including Roadrunner Resorts LLC, WHM Merrill Ranch Investments LLC, The Peoples Bank, and Merrill Ranch Properties LLC. Ownership of Arizona State Mineral Lease 11-26500 remained with Florence Copper Inc. which was acquired by Felix-Hunt Highway LLC in 2008. Curis purchased the surface rights and all of the mineral rights to the 1,182 acre private land component of the Florence Copper Project in December 2009. In February 2010, Curis obtained assignment of Arizona State Mineral Lease 11-26500 completing the land holdings that form the Florence Copper site. Curis was acquired by Taseko in November 2014.
Conoco discovered the Florence Copper deposit in 1970 while executing an exploratory drilling program southwest of Poston Butte. From 1970 to 1977 Conoco completed approximately 620,000 feet of exploration drilling in 612 drill holes. In 1974, Conoco mined approximately fifty thousand tons of mineralized material from a single-level, underground mine designed to collect samples for metallurgical and geological testing. Metallurgical testing of the recovered material was performed using a small plant built on the property. The mine shafts are now capped at the ground surface and the mine is flooded.
Magma acquired the property from Conoco in July 1992 and initiated a Pre-Feasibility Study to verify the Conoco work and to determine the most effective technology for extracting copper from the deposit. The results from copper resource modeling, metallurgical testing, material
- 31 -
property testing, and financial analysis supported the conclusion that the preferred method for development of the property was ISCR and SX/EW to produce cathode copper. Magma also completed approximately 150,000 feet of exploration drilling in 172 drill holes over the period from 1994 to 1996.
In January 1996, Broken Hill Proprietary Company Limited of Australia acquired Magma and created BHP. In 1998, BHP conducted a 90-day field optimization ISCR test to demonstrate hydraulic control, gather copper recovery and other technical data for a feasibility study. The outcome of the study confirmed to regulatory agencies that production wells could be efficiently installed into the mineralized zone, hydraulic control of the injected and process solutions could be maintained and documented, and that the ISCR method was a viable method for copper extraction at Florence Copper. BHP also completed approximately 17,000 feet of exploration drilling in 21 drill holes in 1997.
After completing the acquisition of Florence Copper in February 2010, Curis conducted approximately 8,000 feet of drilling in 6 drill holes to verify previous results, provide metallurgical samples, and information for further project development. Curis performed detailed data verification and generated a new resource model for the project as well as undertaking a metallurgical program focused on simulating in-situ conditions by using whole core box leach tests.
Geological Setting, Mineralization and Deposit Types
The Florence Copper Project hosts a porphyry copper deposit consisting of a large core of sulfide copper mineralization underlying a zone of oxide copper mineralization. The deposit formed when numerous dike swarms of Laramide granodiorite porphyry intruded Precambrian quartz monzonite near Poston Butte. Hydrothermal solutions associated with the intrusion altered the host rock depositing copper and iron sulfide minerals in the strongly faulted and fractured rocks.
Mid-Tertiary Basin and Range extensional faults subsequently elevated and isolated much of the Florence Copper deposit as a horst block and this block as well as the downthrown fault blocks were exposed to weathering and erosion. The centre of the deposit was eventually eroded to a gently undulating surface and the deposit was buried due to regional erosion processes to a depth of approximately 400 feet. During this period of erosion and deposition, a clay layer was deposited approximately 75 feet above the bedrock surface that impedes the mixing of groundwater between the near surface aquifer and the deeper aquifer hosting the mineralized zone.
Mineralization in the highly-fractured oxide zone consists primarily of chrysocolla with lesser copper wad, tenorite, cuprite, native copper, and trace azurite and brochantite. The majority of the copper occurs as chrysocolla in veins and fracture fillings, while the remainder occurs as copper-bearing clays in fracture fillings and former plagioclase sites. The average thickness of the oxidized zone is approximately 400 feet.
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The main sulfide minerals in the deposit are chalcopyrite, pyrite and molybdenite with minor chalcocite and covellite. The supergene chalcocite blanket is very thin and irregular and in most instances the transition from the oxide zone to the sulfide zone is quite abrupt.
Exploration
Substantial exploration work has been undertaken on the Florence Copper site by previous owners including drilling (exploration, assessment, condemnation, geotechnical and environmental), underground mine development, geophysical surveys and mineralogy studies.
Over the period since Taseko acquired the Florence Copper Project, the Company has not conducted any exploration work on the property, its activities concentrating on permitting, metallurgical testing, engineering, and the construction and operation of the PTF.
Drilling
Drilling on the Florence Copper site has been undertaken by means of core drilling, RC rotary drilling and conventional rotary drilling. Conoco developed a detailed geologic core logging protocol in the early to mid-1970s and subsequent geologists have continued to use this method, with slight modifications, to maintain continuity of the geologic data produced.
Since 2009, work on the property has been focused on the sites potential copper production through ISCR which has included the drilling of 6 holes to obtain samples for metallurgical testing and engineering studies to support planning for project development.
Drilling performed on the property is summarized in Table 7 below.
Table 7: Drilling by Company
Company |
# of Drill
Holes |
Core Length
(metres) |
||||||
Curis Resources (2011) |
6 | 7,752 | ||||||
BHP Copper (1997) |
21 | 16,638 | ||||||
Magma Copper Company (1994-1996) |
172 | 146,891 | ||||||
Conoco (1970-1977) |
612 | 620,483 | ||||||
Other |
6 | 3,716 | ||||||
|
|
|
|
|||||
Total |
817 | 795,480 | ||||||
|
|
|
|
Sampling, Analysis and Data Verification
Sampling protocols were developed by previous owners to ensure consistency and mitigate bias. Sampling consisted of core samples and cuttings from drilling, as well as bulk samples obtained from the underground workings. Core samples as well as conventional rotary and reverse circulation drill cuttings were all assayed, although assays for conventional rotary
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cuttings are considered unreliable and have not been used in the project data set. Core samples provide the most representative, unbiased samples of the mineralized materials encountered in the boreholes.
Assays of drill samples were conducted by various laboratories under the supervision of Arizona-registered assayers and laboratory managers. The San Manuel Method was consistently used by Magma, BHP and outside laboratories contracted for the analysis of percent acid-soluble copper content in the Florence drill and metallurgical test samples.
Data verification has been performed by each company conducting exploration and development at the site and the information and data generated by all prior owners have been reviewed and verified to ensure that the data is of good quality and is suitable for use in mineral reserve estimates. Details of sample preparation, assay laboratories, security, and data verification used in the drill hole sampling and analytical programs is documented in the Florence Technical Report.
Mineral Processing and Metallurgical Testing
The Florence Copper property has a long history of metallurgical testing which establishes the amenability of the site oxide copper mineralization to leaching. Historic test work has included laboratory scale column testing and vat leaching as well as pilot scale vat and agitation leaching. These tests have been conducted on material sourced from drill core as well as a bulk sample from the test underground mining.
Recent metallurgical test work has focused on test methods specific to simulating ISCR performance. This program began in 2011 with box leach tests where whole drill core was leached at near atmospheric pressure to simulate leaching of undisturbed ore. In 2013 development of a pressurized test apparatus led to tests on whole drill core to simulate the hydrostatic pressure in the ore body during leaching and rinsing. This pressurized test apparatus has been refined to more accurately simulate ISCR conditions as the test work has proceeded and a test linking seven pressurized cells in series was completed in 2016. This series leach test passed solutions through approximately 15 feet of whole core with a solution transit time of about 13 days, representing approximately the mid-point of scale-up between a single pressurized test with a solution transit time of less than two days and the full scale well field with an estimated 30 days transit time. The development of the ISCR leach test methodologies culminating in the series leach test has allowed the laboratory to produce mature leach solutions with compositions that closely correspond to those predicted for the full scale operation. All of the ISCR leach testing was conducted in closed circuit and used solvent extraction to recover the leached copper into a proxy electrolyte solution.
The leaching model for ISCR at Florence is based on data from the box leach tests, individual pressurized tests and the series testing. Laboratory data used for modelling is subjected to a validation process based on established industry practice in the copper leaching field. The leach model is then combined with a model of sweep efficiency, which adjusts for the amount of mineralized material that would be contacted by solutions over time in the ISCR well field, and a recovery factor to account for the proportion of copper leached which is plated as cathode
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copper. Recovery to cathode copper is predicted to be 70% over a four year leach cycle for Florence Copper.
Mineral Resource and Mineral Reserve Estimates
The Florence Copper mineral reserves and resources, are based on the Florence Copper Technical Report and reflect depletion due to the operation of the PTF to the end of 2019. The reserve and resource tonnage is unchanged, as leaching has not been completed in any portion of the deposit.
The reserve estimate utilizes a copper price of US$2.50 per pound and the reserves as of December 31, 2019 are presented in Table 8 below.
Table 8: Reserve Estimate at 0.05% TCu Cut-off
Tons
(in millions) |
Grade |
Contained Cu
(in millions lbs) |
||||||||||
Probable |
345 | 0.36 | 2,473 | |||||||||
Note: Contained metal values do not account for metallurgical recoveries. The tonnage factor is 12.5 ft3/ton. |
|
The mineral resource estimate utilizes a copper price of US$2.50 per pound and the mineral resource estimate includes only oxide mineralization in bedrock as sulfide mineralization is considered not recoverable by ISCR methods and is consequently not included in either the mineral resource or reserve estimates.
The Florence Copper mineral resource as of December 31, 2019 is summarized in Table 9 and includes the mineral reserves included in Table 8 above.
Table 9: Florence Project Mineral Resources
Mining Operations
The mining method proposed for Florence Copper is ISCR which is an extraction method used for selected mineral deposit conditions as an alternative to open pit or underground mine methods. The Florence Copper deposit is amenable to the ISCR method due to the high degree of natural fracturing in the oxide zone, connectivity of the fractures, acid soluble copper
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mineralization that occurs on the faces of the fractures, and host rocks as well as deposit hydrologic conditions which are favorable for leaching operations.
The ISCR process involves drilling wells into the mineralized material and circulating a dilute low pH lixiviant solution (consisting of 99% water) through the ore between injection and recovery wells. The lixiviant solution dissolves the copper minerals and the resulting copper rich solution is processed in a conventional SX/EW plant where the copper is removed from the solution and plated as cathode copper.
The ISCR method is highly environmentally efficient, does not require the large scale movement of waste rock or ore and will have minimal impact on the site topography. Using ISCR will result in the project consuming less energy, less water and producing less carbon dioxide emissions and waste per pound of copper produced than a conventional mining operation. The project well field design includes a surrounding network of perimeter wells and monitoring wells to ensure that the process solutions remain in the mineralized zone and, when leaching in an area is completed, the process solutions will be rinsed from the block to restore the ground water quality.
Processing and Recovery Operations
Copper recovery at Florence Copper will utilize conventional SX//EW technology to produce cathode copper from the copper-bearing leach solutions pumped from the ISCR well field. The planned commercial SX/EW plant is designed for a flow of 11,000 gpm with a PLS grade of 2 grams per litre.
The planned processing plant and associated infrastructure will be located on Florence Copper private land to the east of the State Land parcel. The process fluids are piped to and from the process plant in lined trenches.
The process consists of the following elements:
|
ISCR well field; |
|
Lined PLS and raffinate ponds; |
|
SX Plant with four mixer settlers; |
|
Tank farm for handling process liquids; |
|
EW Tankhouse; |
|
Ancillary warehouse and maintenance facilities; |
|
Water treatment plant and solution ponds; and |
|
Existing Administration Office complex. |
Infrastructure, Permitting and Compliance Activities
The Florence Copper area has excellent local infrastructure and vendor resources to support exploration, development, and mining. Service companies for the metals/non-metals, coal, oil and gas industries are located in Phoenix and Tucson as well as, at a greater distance, in
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Albuquerque, New Mexico and Denver, Colorado. Skilled manpower resources are readily available locally due to the areas long history of copper exploration and mining.
The project site has an administration building, warehouse building, equipment laydown yard and core storage facility. The project site is serviced from existing water wells owned by the Company for its potable water needs as well as for future process requirements. The site is also presently serviced with electrical power, trash pick-up, a septic system for sanitary wastes and full communication services including landline telephone, cellular telephone and internet services.
Power for commercial development of the project is available from an Arizona Public Service high-voltage transmission line at the northwest corner of the property. Natural gas is available in the area from Southwest Gas approximately one mile east of the site.
Development of the site is planned to occur in two phases. The first phase is construction and operation of the PTF, which will demonstrate the application of ISCR to the Florence Copper Project. The second phase is the construction and operation of the commercial ISCR facility. The various permits required to authorize the PTF have been issued by the regulators. The status of permitting activities is provided below.
The Temporary Aquifer Protection Permit (TAPP) for the PTF was issued in August 2016 by the Arizona Department of Environmental Quality (ADEQ) and was subject to an administrative appeal and a complaint for judicial review. The Water Quality Appeals Board (WQAB) conducted a hearing on the issues under appeal and dismissed the appeal, upholding the permit. Subsequently the Superior Court in Maricopa County heard the complaint for judicial review and affirmed the decision of the WQAB, upholding the permit. The Superior Courts decision has been appealed to the Arizona Court of Appeals and a ruling is expected later this year.
In February 2016, the United States Environmental Protection Agency (EPA) issued the final Memorandum of Agreement in accordance to the Section 106 National Historic Preservation Act for the archeological work associated with the construction of the PTF. In December 2016, the Company received the final Underground Injection Control (UIC) Permit for the PTF from the EPA. The permit was subject to petitions for review to the Environmental Appeals Board (EAB) and the EAB upheld the permit in September 2017. The EABs ruling was the subject of an appeal to the Ninth Circuit of the U.S. Court of Appeals which was dismissed with prejudice by the appellants ending the appeals of the UIC Permit.
The Company has all of the permits required for the PTF. Construction of the PTF was completed in 2018 and wellfield operations commenced in the fourth quarter of 2018. Operation of the PTF has continued since that time.
Two permits are required to commence construction of the commercial scale wellfield at Florence Copper. These are the APP from the ADEQ and the UIC Permit from the EPA. In June 2019, the Company submitted the APP application for the Phase 2 commercial facility to
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the ADEQ. The UIC permit application for the Phase 2 commercial facility was submitted to the EPA in August 2019. Both permits are advancing through the technical review process. The Company is in active dialogue with the regulators and targeting to have permitting for the commercial facility completed in 2020.
Additional details are available in the Legal and Permitting section.
Capital and Operating Costs
The estimated pre-production capital cost for the Florence Copper commercial production facility is US$204 million in Q4 2016 dollar terms. A summary of the major components of the capital cost estimate is presented in Table 10.
Table 10: Summary of Pre-Production Capital Cost Estimate
Item |
Capital Cost
(millions $US) |
|||
Pre-Production ISCR Well Field |
$ | 42 | ||
SX/EW Plant |
$ | 49 | ||
Utilities, Infrastructure and Ancillaries |
$ | 14 | ||
Indirect Costs |
$ | 61 | ||
Owners Costs |
$ | 21 | ||
|
|
|||
Total Construction Capital Costs |
$ | 188 | ||
|
|
|||
Pre-Production Operating Costs |
$ | 16 | ||
|
|
|||
Total Pre-Production and Capital Costs |
$ | 204 | ||
|
|
Sustaining capital expenditures during the production period were estimated to be US$713 million. This capital will be expended over a 22-year period and consists of US$624 million for well field development and US$89 million for a water treatment plant and construction of process water ponds.
Details of the basis for capital cost estimates can be found in the Florence Copper Technical Report.
The estimated average operating costs for Florence Copper over the life of mine is US$0.90 per pound of copper and the estimated total production cost is US$1.10 per pound of copper produced inclusive of royalties. Details of the estimated operating costs are presented in Table 11.
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Table 11: Summary of Operating Cost Estimate
Item |
Operating Cost
($US per lb copper) |
|||
ISCR Well Field |
$ | 0.33 | ||
SX/EW Plant |
$ | 0.24 | ||
Water Treatment |
$ | 0.07 | ||
General and Administration |
$ | 0.19 | ||
Reclamation |
$ | 0.04 | ||
Off Property Costs |
$ | 0.02 | ||
|
|
|||
Total Operational Costs |
$ | 0.90 | ||
|
|
|||
Royalties |
$ | 0.21 | ||
|
|
|||
Total Production Costs |
$ | 1.10 | ||
|
|
The details of the basis for the project operating cost estimate can be found in the Florence Copper Technical Report.
The main assumptions and inputs to the base case economic analysis of the Florence Copper Project are:
|
Total pre-production capital costs of US$204 million; |
|
Life of project sustaining capital costs of US$713 million; |
|
Copper recovery of 70%; |
|
Total production costs of US$1.10 per pound of copper; and |
|
Long-term copper price of US$3.00 per pound. |
The following after-tax economic indicators are derived from the base case life of mine cash flow assuming the tax rates in effect at the effective date of the Florence Technical Report:
|
Project after-tax net present value of $680 million** at a 7.5% discount rate; |
|
Internal rate of return of 37%; and |
|
Payback period of 2.5 years. |
** |
The Company expects that the reduced U.S. corporate income tax rates, announced in December 2017, will have a significant positive impact on the projects post-tax net present value. |
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Exploration, Development and Production
Development of the site is planned to occur in two phases. The first phase is construction and operation of the PTF which will demonstrate the application of ISCR to the Florence Copper Project. The second phase is the construction and operation of the commercial ISCR facility with a production capacity of 85 million pounds of cathode copper per year and an expected average annual production of 81 million pounds of copper over 21 years.
The main focus of the PTF phase is to demonstrate to regulators and key stakeholders that hydraulic control of underground leach solutions can be maintained and provide valuable data to validate the Companys leach model as well as optimize well design and performance and hydraulic control parameters.
The PTF has been constructed and it commenced operations in the fourth quarter of 2018. In 2019, the PTF operated as planned and produced first copper in April. Steady state operation was achieved, and the focus turned to testing different wellfield operating strategies, including adjusting pumping rates, solution strength, flow direction, and the use of packers in recovery and injection wells to isolate different zones of the orebody. The Florence Copper technical team is using physical and operating control mechanisms to adjust solution chemistry and flow rates and is successfully achieving targeted copper concentration in solution. The PTF wellfield is performing to its design and the SX/EW plant continues to produce LME grade A copper cathode.
Legal and Permitting
Florence Copper has recently received favorable rulings on the legal challenges to the PTF permits and the Companys legal non-conforming right to mine its patented mining land held in fee simple. A summary of each of the cases is included below.
On September 28, 2012, the ADEQ issued Florence Copper a Temporary Aquifer Protection Permit (TAPP) for the development of the PTF. Following a series of appeals, amendments, and a judicial review, the Superior Court of Maricopa County, Arizona ruled on December 18, 2018 affirming the decision of the Water Quality Appeal Board and upholding the TAPP. The Town and two private parties have appealed the Superior Courts decision. Briefing is complete and a ruling by the Arizona Court of Appeals is not expected until later this year.
In 2013, the Florence Town Council authorized the town staff to initiate an eminent domain action against Florence Coppers patented mining land held in fee simple and challenged the validity of an existing development agreement with the town. The action did not include the 160 acre State Trust Land parcel on which Florence Copper will operate the PTF. On July 2, 2015, Florence Coppers motion to dismiss the eminent domain claim was granted. The final issue before the Maricopa County Superior Court was whether a legal non-conforming use (LNCU) right to mine continues to exist on Florence Coppers privately owned land. The issue proceeded to trial in 2018 and the Superior Court ruled on January 2, 2019 confirming Florence Coppers LNCU right to mine on the Companys privately owned land. The Town has appealed the Courts ruling to the Arizona Court of Appeals. Briefing is underway and a ruling by the Court
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is not expected until later this year. Florence Copper is now moving forward on its counterclaims against the Town of Florence in the lower court.
On December 20, 2016, the EPA issued the final UIC Permit to Florence Copper. This permit regulates the operation of Class III underground injection wells at the PTF. Three petitions for review of the Permit were filed with the Environmental Appeals Board (EAB) of the EPA. These petitions were filed by the Town of Florence (TOF) and Southwest Value Partners (SWVP), the Gila River Indian Community (GRIC), and John Anderson, a Town Councilman representing himself. The GRIC withdrew its petition and Councilman Andersons petition was dismissed by the EAB. On September 22, 2017 the EAB dismissed the TOF/SWVP petition and upheld the UIC Permit issued to Florence Copper. The TOF/SWVP appealed the EAB ruling to the Ninth Circuit of the U.S. Court of Appeals. The TOF/SWVP subsequently dismissed with prejudice their petition before the Court on August 2, 2018 ending the appeals of the UIC Permit.
Two permits are required to commence construction of the commercial scale wellfield at Florence Copper. These are the APP from the ADEQ and the UIC Permit from the EPA. In June 2019, the Company submitted the APP application for the Phase 2 commercial facility to the ADEQ. The UIC permit application for the Phase 2 commercial facility was submitted to the EPA in August 2019. Both permits are advancing through the technical review process. The Company is in active dialogue with the regulators and targeting to have permitting for the commercial facility completed in 2020.
Yellowhead Project
Unless stated otherwise, the information of a technical or scientific nature related to the Yellowhead Copper Project contained in this AIF is summarized or extracted from the technical report entitled Technical Report on the Mineral Reserve Update at the Yellowhead Copper Project dated January 16, 2020 (the Yellowhead Copper Technical Report) prepared under the supervision of Richard Weymark, P.Eng., MBA, who is a Qualified Person as defined by NI 43-101 and filed on www.sedar.com under Tasekos profile.
Project Description, Location and Access
The Yellowhead Copper Project is located approximately 150 km northeast of Kamloops at latitude 51°30 north and longitude 119°48 west in the Kamloops Mining Division. The project has paved highway, rail, and power access at Highway #5 within 10 km of the property.
The property consists of 131 mineral claims covering 42,500 hectares. All mineral claims are in good standing and an application has been submitted to the BC Mineral Titles Office to convert 40 claims to a mining lease. There are three parcels of fee simple land located 2.5 km west of the nearest community, Vavenby, where the rail load-out facility would be located.
Six claims are subject to a 2.5% net smelter returns (NSR) royalty to Xstrata while 31 claims are subject to a 3% NSR royalty to US Steel Corp., capped at C$3.0 million, subject to inflation.
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History
Copper mineralization was discovered in the immediate vicinity of the deposit in the mid-1960s. The initial discovery was followed-up by extensive prospecting, line cutting, road building, surface geochemical sampling, geological mapping, geophysics, trenching and diamond drilling programs.
Noranda Exploration Company (Noranda) and Québec Cartier Mining Company (QCM), a 100% wholly owned subsidiary of US Steel, staked claims in the deposit area in 1965 and 1966 respectively. This resulted in the area west of the Harper Creek tributary belonging to Noranda and east of it to QCM. The two companies worked independently on their properties from 1966 until 1970. In late 1970, the companies formed a joint venture, which explored their contiguous properties until 1974.
Further work in the deposit area occurred in 1986 and 1996. This included trenching, core resampling and metallurgical testing and additional drilling.
Historical core drilling took place on the property in 11 different years over a 30-year period between 1967 and 1996. The total length of the 191 holes drilled on the property was 30,800 m. Of these holes, 165 targeted what is now known as the Yellowhead Copper Deposit, for a total of 28,200 m or 92% of the overall drilling.
No further drilling on the deposit area took place until 2006.
YMI formed as a private British Columbia company and obtained control of the project through staking, purchase and option agreements in 2005. YMI undertook their first phase of field exploration on the project in 2006 and completed 65,000 m of drilling from 2006 through 2013.
Historical resource estimates date back to 2007 culminating in a feasibility study completed in 2014 including the establishment of a proven and probable mineral reserve. Historical resource and reserve estimates are summarized in the Yellowhead Copper Technical Report filed by Taseko on Sedar.
In February 2019, Taseko acquired a 100% interest in YMI.
Geological Setting, Mineralization, and Deposit Types
The project is located within structurally complex, low-grade metamorphic rocks of the Eagle Bay Assemblage, part of the Kootenay Terrane on the western margin of the Omineca Belt in south-central BC.
The Eagle Bay Assemblage incorporates Lower Cambrian to Mississippian sedimentary and volcanic rocks subject to deformation and metamorphism. The Eagle Bay Assemblage divides into four northeast-dipping thrust sheets that collectively contain a succession of Lower Cambrian rocks overlain by a succession of Devonian-Mississippian rocks. The Lower Cambrian rocks include quartzites, grits and quartz mica schists (Units EBH and EBQ), mafic
- 42 -
metavolcanic rocks and limestone (Unit EBG), and overlying schistose sandstones and grits (Unit EBS) with minor calcareous and mafic volcanic units. These older units are overlain by Devonian-Mississippian succession of mafic to intermediate metavolcanic rocks (Units EBA and EBF) intercalated with and overlain by dark grey phyllite, sandstone and grit (Unit EBP).
Unit EBA of the Devonian-Mississippian succession hosts the deposit.
The northeast trending Harper Creek Fault separates the deposit into a west domain and east domain. In the west domain, chalcopyrite mineralization is primarily in three copper bearing horizons. The upper horizon ranges from 60 m to 170 m in width and is continuous along an east-west strike for some 1,300 m, dipping approximately 30º north. The middle horizon is not as well developed and is often fragmented. It primarily exists within a graphitic and variably silicified package of rocks that range from 30 m to 40 m in width at the western extent, increasing up to 90 m locally eastward, gradually appearing to blend into the upper horizon. The lowest or third horizon has less definition mainly due to a lack of drill intersections. Commonly hosted within mafic to intermediate volcaniclastics and fragmental rocks, it can range from 30 m to 90 m in width although typical intersections are in the 30 m range. These horizons generally contain foliation-parallel wisps and bands as the dominant style of sulphide mineralization.
In the east domain, mineralization characterized by high angle, discontinuous, tension fractures of pyrrhotite, chalcopyrite ± bornite is frequently associated with quartz carbonate gangue. This style is common within, but not limited to, the metasedimentary rocks and areas of increased pervasive silicification. Mineralization is not selective to individual units and frequently transgresses lithological contacts throughout the area. At the near surface areas in the south and down-dip to the north, widths of mineralization typically range from 120 m to 160 m. In the central area of the east domain where thrust/reverse fault stacking has been interpreted, mineralization thicknesses typically range from 220 m to 260 m with local intersections of up to 290 m.
The deposit type is a remobilized polymetallic volcanogenic massive sulphide deposit, comprising lenses of disseminated, fracture-filling and banded iron and copper sulphides with accessory magnetite. Mineralization is generally conformable with the host-rock stratigraphy as is consistent with the volcanogenic model. Observed sulphide lenses measure many tens of metres in thickness with km-scale strike and dip extents.
Exploration
Exploration work undertaken on the Yellowhead Copper site by historical owners included stream sediment sampling, reconnaissance geological mapping, soil sampling, geophysical surveying and diamond drilling. Subsequent exploration completed between 2005 and 2013 by YMI included diamond drilling and historical core relogging, airborne geophysics (magnetic and electromagnetic), ground geophysics (magnetic, electromagnetic and induced polarization), soil sampling, rock sampling, geological mapping and petrographic and whole rock analysis of drill core and surface rock samples. This work largely focussed on the west-central part of the property in the deposit area.
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Summaries of the exploration work completed are discussed in the Yellowhead Copper Technical Report. There has been no exploration on the property since 2013.
Drilling
A significant amount of drilling has taken place on the Yellowhead Copper Project, totalling 95,735 m by YMI and historical operators in 408 holes. All were cored diamond drillholes. Results from these drill programs are the basis for the mineral resource estimate. There are no drilling, sampling, or recovery factors that could materially impact the accuracy and reliability of the results.
YMI relogged and resampled selected historical core in the deposit area from the Noranda 1968-1971 and American Comstock 1996 drill campaigns with the goal of verifying the historical analytical copper results. Results of this program showed good correlation of copper grades and thicknesses with the historically reported drill core intersections.
Drilling performed on the property is summarized in Table 12 below.
Table 12: Drilling by Company
Company |
# of Drill
Holes |
Core Length
(metres) |
||||||
Québec Cartier Mining Company (1967-1969) |
33 | 5,285 | ||||||
Noranda Exploration Co. Ltd. (1968-1970) |
87 | 12,156 | ||||||
Noranda/QCM Joint Venture (1970-1973) |
48 | 9,012 | ||||||
Other Historical Owners (1983-1996) |
23 | 4,300 | ||||||
Yellowhead Mining Inc. (2006-2013) |
217 | 64,985 | ||||||
|
|
|
|
|||||
Total |
408 | 95,741 | ||||||
|
|
|
|
Sampling, Analysis and Data Verification
YMI and previous project operators systematically sampled and analyzed all potentially mineralized sections of drill core on the Yellowhead deposit for copper, the primary element of interest. Early operators in the 1960s and 1970s, typically only analyzed for copper. This expanded to include gold, silver and several other elements in the programs of the 1980s and 1990s. From 2005 onwards, over 30 elements made up the standard assaying protocol for drill core, including historical core resampled and reanalysed since then. This historical core was from the Noranda, Noranda / QCM Joint Venture and Comstock drilling. Samples taken for copper assay from all historical and modern drillholes number over 55,000 with an average core length of 1.5 m.
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In 2019, the Cohesion Consulting Group (CCG) completed an audit of the Yellowhead project drillhole database. CCG reviewed the digital files comprising the drillhole database, assay certificates, geological models and supporting documents used in the mineral resource and mineral reserve estimates. The audit found no errors, omissions, QA/QC failures or differences between this drillhole database and the supporting documents of significance to the resource and reserve estimate.
Details of sample preparation, assay laboratories, security, and data verification used in the Yellowhead drill hole sampling and analytical programs is documented in the Yellowhead Technical Report.
Mineral Processing and Metallurgical Testing
The basis of process design for the project was informed from feasibility level metallurgical test work program conducted in 2011 and early 2012 at G&T Metallurgical Services Ltd. (G&T), in Kamloops, BC.
This test program consisted of a suite of open circuit batch flotation testing, lock cycle testing, ore hardness testing, a pilot plant campaign, and mineralogical characterization of both a primary master composite representing feed from the earlier phases of mine development along with a suite of composite samples representing variable lithology and discreet spatial zones within the pit. Additional laboratory comminution test work conducted in 2011 at FLSmidth (FLS) of Bethlehem, Pennsylvania, was also used to inform process comminution circuit design and power requirements.
The proposed process for the project consists of a conventional milling circuit to recover copper via grinding, rougher flotation, regrinding of rougher concentrate, followed by a cleaner flotation circuit. All comminution testing conducted to date suggest the ore is soft to moderately soft and very amenable to both SAG milling and ball milling.
Mineralogy characterization on ore samples from the deposit demonstrate that chalcopyrite is the dominant copper bearing mineral making up over 98% of the copper species in majority of the deposit.
Lock cycle testing produced a final copper concentrate grade of 26% copper at about a 90% total copper recovery. The final concentrate produced from lock cycle testing and the pilot plant produced a clean concentrate with deleterious elements below typical penalty limits at smelters, and also containing payable gold and silver values.
Mineral Resource and Mineral Reserve Estimates
The Yellowhead Copper mineral reserve estimate uses long-term metal prices of US$2.40/lb for copper, US$1,000/oz for gold and US$13.50/oz silver and a foreign exchange rate of C$1.00=US$0.80.
The proven and probable reserves as of December 31, 2019, are tabulated in Table 13 below.
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Table 13: Yellowhead Reserve Estimate at 0.17% Copper Cut-off
Tonnes
(in millions) |
Cu
(%) |
Au
(gpt) |
Ag
(gpt) |
|||||||||||||
Proven |
458 | 0.29 | 0.031 | 1.3 | ||||||||||||
Probable |
359 | 0.26 | 0.028 | 1.2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
817 | 0.28 | 0.030 | 1.3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Note: Totals may not add due to rounding |
|
The Yellowhead mineral resource estimate is summarized in Table 14 and includes the mineral reserves included in Table 13 above. The mineral resource uses a copper price of US$3.25/lb for copper, US$1,300/oz for gold and US$17.00/oz silver and a foreign exchange rate of C$1.00=US$0.80.
Table 14: Yellowhead Resource Estimate at 0.15% Copper Cut-off
Mining Operations
The Yellowhead open pit is designed to be mined utilizing conventional truck and shovel mining techniques. The equipment utilized in this operation would be typical of that found in todays large open pit operations. Open pit operations are planned to supply a conventional copper concentrator with 90,000 tpd of ore at a cut-off grade of 0.17% copper at a strip ratio of 1.4 : 1 for 25 years. Ore would be delivered to a primary crusher located at the southwestern rim of the ultimate pit. An ore stockpile would be established during the first five years of operation to maximize ore grade delivered to the mill during that period and provide operating flexibility. Potentially acid generating (PAG) waste rock would be stored inside the TSF while non-acid generating (NAG) waste and overburden would be placed in conventional waste storage locations proximal to the open pit.
Processing and Recovery Operations
The proposed process plant for the project is a conventional sulphide concentrator utilizing three-stages of comminution, sulphide flotation and concentrate dewatering.
The concentrator is designed to process a nominal 90,000 tpd of ore and produce a marketable copper concentrate containing silver and gold. The concentrator would consist of a primary gyratory crusher fed run-of-mine ore from the pit transported via haul trucks. The product from the crusher would be transported via overland conveyors to a coarse ore stockpile. Ore from the stockpile would then be reclaimed and fed to two parallel SAG-ball mill circuits which produce
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feed for a single rougher flotation bank. The rougher flotation concentrate would be reground with two parallel vertical stirred mills prior to being reprocessed in a two stage cleaner flotation circuit which includes both tank and column flotation cells. Sulphide minerals are collected with a conventional xanthate collector and pyrite is rejected using lime.
The final concentrate would be dewatered by thickening followed by filtration prior to being conveyed to the final concentrate stockpile. The final concentrate would be trucked off-site to a proximal rail load-out facility for subsequent transport to the Port of Vancouver or direct rail to other North American markets.
Both rougher and first cleaner flotation tailings would be transported separately to the TSF. Process water from the TSF would be reclaimed and recycled back to the process plant for reuse.
Infrastructure, Permitting and Compliance Activities
Road access proposed to the project site is from Highway #5 at the town of Vavenby via 24 km of existing FSRs. These FSRs will require minor upgrading for operations traffic, such as widening, alignment and surface reparation. A 2.5 km extension from the end of the FSRs will be required to reach the plant site.
A rail load-out facility is designed to be constructed at an existing rail siding on a property owned by Taseko near Vavenby. Concentrate would be trucked from the plant site to the rail load-out facility where it would be loaded onto trains and transported to North American markets and/or to the port of Vancouver for overseas shipping.
Electrical power for the project would be supplied by BC Hydro from the Vavenby substation. The current Vavenby substation would need upgrades from BC Hydro to be able to provide stable power to site. The company proposes to construct a 22 km overhead transmission line to bring power from the Vavenby substation to the project site.
Processing facilities would include a primary crusher located near the crest of the pit and associated overland conveyor; a coarse ore stockpile with a 45,000 tonne capacity; a concentrator building housing the grinding, flotation and dewatering circuits; and a concentrate shed.
The TSF is proposed to be located in the valley on the south side of the plant site, downstream of the concentrator. The main embankment would initially be constructed as a water retaining starter embankment, constructed with a rock fill shell in a downstream fashion. After year 5, cycloned sand would be used to construct centreline raises on top of the starter embankment to a final height of 165 m with a 3.5H : 1V downstream slope.
Two additional embankments will be required to provide storage capacity for operations. The north and northwest embankments would be constructed in years 12 through 16.
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A water treatment plant designed is as a stand-alone plant used for processing site contact water. The initial water treatment plant is proposed for construction in year 2 and commissioning in year 3.
The mobile equipment maintenance shop would be a pre-engineered building. The designed mobile equipment maintenance shop includes a haul truck wash bay, four haul truck service bays, eight medium duty bays, four light duty bays, light duty wash bay and an adjacent welding tent sized for truck box repair and rebuilds.
Various other support facilities are planned including a two-storey administration building, mine dry, warehouse building and associated cold storage laydown, assay lab, mill reagent building, fixed plant maintenance shop and bulk explosives manufacturing and storage. Planned support facilities also include a gatehouse and first aid building, emergency response and training building and a small parking lot for suppliers and visitors.
Taseko has engaged with both the British Columbia Environmental Assessment Office (BCEAO) and the Impact Assessment Agency of Canada (IAC) regarding the Yellowhead project but it is not yet formally in the environmental assessment process. BCEAO is expected to confirm that an assessment is required in order for the project to proceed and an Environmental Assessment (EA) certificate needs to be issued after the review of the EA application.
Federally, the Impact Assessment Act came into effect in August 2019 and applies to projects described in the Physical Activities Regulation. It is expected that the agency will confirm that an impact assessment is required.
Additional detail regarding EA and permitting requirements can be found in the Yellowhead Technical Report.
Capital and Operating Costs
A summary of the pre-production capital costs estimated for the project is provided in Table 15. All costs shown are in Q4, 2019 Canadian dollars.
Table 15: Pre-Production Capital Cost Estimate
Area |
Total
Pre-Production Capital ($ millions) |
|||
Mining Equipment* / Pre-Production Mining Costs |
169 | |||
Processing Facilities |
486 | |||
Tailings & Water Collection Facilities |
132 |
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The sustaining capital estimate includes a water treatment plant (WTP), staged TSF embankment construction, additional water collection systems, additional mining equipment, mining equipment lease payments, and general sustaining capital through the life of the mine. Sustaining capital costs are shown in Table 16.
Table 16: Sustaining Capital Cost Estimate
Details of the basis for capital cost estimates can be found in the Yellowhead Copper Technical Report.
Onsite operating costs comprise mining, processing and general and administration. Average onsite costs for the project are summarized in Table 17.
Offsite costs include copper concentrate transportation costs, smelter fees and deductions, and royalty payments. Average offsite costs are US$0.39/lb.
Table 17: Summary of Operating Cost Estimate
Item |
Operating
Cost ($/t Milled) |
- 49 -
Mining |
4.53 | |||
Processing |
4.65 | |||
General and Administration |
0.79 | |||
|
|
|||
Total Onsite Costs |
9.97 | |||
|
|
The following pre-tax economic indicators are derived from the base case life of mine cash flow:
|
Project pre-tax net present value of $1.3 billion at an 8% discount rate; |
|
Pre-tax internal rate of return of 18%; and |
|
Payback period of 4.2 years |
Results of the valuation are presented on a 100% basis and assume no debt financing costs except for mining equipment leases. Metal prices used are US$3.10/lb, for copper, US$1,350/oz for gold and US$18.00/oz for silver and a foreign exchange rate of C$1.00=US$0.80. All values are in Canadian dollars unless otherwise noted.
Exploration, Development and Production
The Company is focusing its efforts in 2020 on ongoing engagement with local communities including First Nations, environmental assessment work, additional engineering and joint venture partnering discussions with strategic industry offtake groups.
New Prosperity Project
The Company has determined that, in light of the Companys current focus on the Florence Copper Project and the Yellowhead Copper Project, and the Companys assessment of the relative value currently attributed to each of the Companys projects and its current operations, the Company does not consider the New Prosperity Project to be material at this time. The Companys assessment of materiality could change and the New Prosperity Project may again become material in the future. The Company will update this information if the New Prosperity Project once again becomes material to the Company.
Project Description, Location, and Access
The New Prosperity Project is located at latitude 51° 28 N and longitude 123° 37 W in the Clinton Mining Division, approximately 125 kms southwest of the City of Williams Lake, British Columbia.
Access from Williams Lake is via Highway 20 to Lees Corner, then via an all-weather main logging haulage road to the site, a total road distance of 192 kms.
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The New Prosperity Project consists of one mineral lease which is valid until at least June 2035 and 85 mineral claims covering the mineral rights for approximately 190 square kms. All claims are in good standing until at least July 2020. It is intended that all leases and claims will be renewed prior to their renewal fees being due (in the case of the lease) and prior to their expiry in the case of the claims. The claims are 100% owned by Taseko and are not subject to any royalties or carried interests.
History
The New Prosperity deposit was explored and extensively drilled by seven different companies between 1963 and 2007. A total 158,204 m of core and percussion drilling was completed in 481 drill holes during the twenty one years in which active drill exploration took place.
Pre-feasibility and feasibility studies were completed in 1994, 2007, and 2009.
Geological Setting, Mineralization, and Deposit Types
The project is located within the western-most portion of the Intermontane Belt at the boundary between the Intermontane and Coast morphologic belts. The project hosts a large porphyry gold-copper deposit.
Pyrite and chalcopyrite are the principal sulphide minerals in the deposit. They are uniformly distributed in disseminations, fracture fillings, veins and veinlets. Native gold occurs as inclusions in and along microfractures with copper-bearing minerals and pyrite.
Environmental Assessment
Between 2009 and 2010, the British Columbia Environmental Assessment Office (EAO) led a review of the Project in a coordinated manner with the CEAA.
In January 2010, Taseko received the environmental assessment certificate for the New Prosperity Project from the Province of B.C. but in November 2010, the Federal Minister of Environment announced that the Project, as proposed, would not be granted federal authorizations to proceed.
In February 2011, the Company submitted a revised project description for the New Prosperity Project to the Federal Government that addressed the concerns identified during the federal review process.
In June 2011, Taseko submitted an application to the EAO to amend the Environmental Assessment Certificate in accordance with the New Prosperity Project description.
On September 20, 2012, the Environmental Impact Statement (EIS) was submitted to the three-member Review Panel (the Panel) established for the federal environmental assessment of the project. Following a series of public hearings the Panel submitted their report to the Federal Minister of the Environment on October 31, 2013.
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The Panel report found that the proposed project is not likely to cause significant adverse environmental effects in respect of 33 different areas provided effective mitigation was undertaken but found significant adverse environmental effects were likely in relation to three matters: (i) water quality in Fish Lake and Wasp Lake; (ii) fish and fish habitat in Fish Lake, wetlands and riparian ecosystems; and (iii) Tsilhqotin current use of lands for traditional purposes, cultural heritage and archaeological/historical resources.
On November 29, 2013, the Company filed an application for judicial review in the Federal Court, asking the court for a declaration that certain findings relating to seepage and water quality be set aside, and that the Panel failed in certain respects to comply with principles of procedural fairness and the rules of natural justice.
On February 26, 2014, the Minister of the Environment announced her conclusion, based on the Panel report, that the New Prosperity Project is likely to cause significant adverse environmental effects that cannot be mitigated. She referred the matter to the Governor in Council who decided that those effects are not justified in the circumstances.
On March 26, 2014, the Company filed an application for judicial review in Federal Court, seeking to quash the decisions of the Minister and Governor in Council communicated on February 26, 2014.
The two Judicial Reviews initiated by Taseko were heard in federal court in the week of January 30, 2017. On December 5, 2017 each application for judicial review was dismissed by the court.
On January 3, 2018, Taseko filed Notices to Appeal for both decisions. These appeals were heard by the Federal Court of Appeal on January 14 and 15, 2019, and were dismissed by the court. On February 14, 2020, Taseko filed an application for leave to appeal these Federal Court of Appeal decisions to the Supreme Court of Canada. A decision by the Supreme Court of Canada on Tasekos application for leave to appeal is currently pending.
On December 5, 2019, the Company entered into a dialogue with the Tŝilhqotin Nation as represented by Tŝilhqotin National Government facilitated by the Province of British Columbia, to try to obtain a long-term solution to the conflict regarding Tasekos proposed gold-copper mine at New Prosperity, acknowledging Tasekos and the opposition of the Tŝilhqotin Nation to the New Prosperity Project. While the details of this process are confidential and the outcome uncertain, in order to facilitate a dialogue, the parties have agreed to a standstill on certain outstanding litigation and regulatory matters which relate to Tasekos tenures and the area in the vicinity of Teztan Biny (Fish Lake).
Aley Project
The Company has determined that, in light of the Companys current focus on the Florence Copper Project and the Yellowhead Copper Project, and the Companys assessment of the relative value currently attributed to each of the Companys projects, the Company does not
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consider the Aley Project to be material at this time. The Companys assessment of materiality could change and the Aley Project may again become material in the future.
Project Description, Location, and Access
Niobium is a metal used in high strength low alloy steels which are required to manufacture automobiles, bridges, pipes, jet turbines and other high technology applications.
The property is located in the Omineca Mining Division in British Columbia, Canada, centred at latitude 56°27N and longitude 123°13W, approximately 140 kms north northwest of the Municipality of Mackenzie. Logging roads from Mackenzie provide access to the Ospika Logging Camp on the east side of Williston Lake. The property is located about 30 kms from the Ospika Camp and is currently accessed via helicopter.
The Aley property consists of one mineral lease valid until at least December 2045 and one hundred and eleven mineral claims covering the mineral rights for approximately 470 square kms. All claims are in good standing until at least December 2024. The Aley Property is not subject to any royalty terms, back-in rights, payments or any other agreements or encumbrances.
History
Aley Corporation acquired the property from Cominco in 2004. Since Taseko acquired Aley Corporation in 2007, Taseko has completed over 26,000 metres of drilling in 129 holes, metallurgical testwork, project engineering, and environmental baseline data collection.
Geological Setting, Mineralization, and Deposit Type
The Aley region lies within the Western Foreland belt of the Rocky Mountains. The Aley Carbonatite complex intrudes Cambrian to Ordovician sedimentary rocks of the Kechika (limestone), Skoki (dolomite to volcaniclastics) and Road River Group formations (clastic sedimentary rocks). The intrusion is ovoid in plan with a diameter of approximately 2 kms and surrounded by a fenite aureole up to 500 metres.
Niobium (Nb) bearing minerals at Aley are pyrochlore, fersmite and columbite.
Environmental Assessment
In 2014, the Project entered the provincial and federal environmental assessment processes. Under a Substitution agreement with the Canadian Environmental Assessment Agency (CEAA), the province will conduct the assessment and directed Taseko to draft Application Information Requirements (AIR) for the environmental assessment application. The Company is currently preparing the draft AIR.
- 53 -
A drill program completed in the third quarter of 2018 collected samples for further metallurgical testing. Environmental monitoring of surface and groundwater baseline conditions and geochemical characterization of ore, waste rock, and tailings in support of an Environmental Impact Statement are ongoing.
A pilot plant scale program commenced in the second quarter of 2019 on the niobium flotation and converter processes. The pilot plant will provide additional process data to support the design of the commercial process facilities and provide final product samples for marketing purposes.
RISK FACTORS
There are a number of risks that may have a material and adverse impact on the future operating and financial performance of Taseko and could cause the Companys operating and financial performance to differ materially from the estimates described in forward-looking statements relating to the Company.
Changes in the market price of copper, molybdenum and other metals, which are volatile and have fluctuated widely, affect the profitability of our operations and financial condition.
Our profitability and long-term viability depend, in large part, upon the market price of metals, primarily copper and molybdenum, and potentially niobium, gold and other metals and minerals. The market price of copper is volatile and is affected by numerous factors beyond our control, including:
|
copper demand, especially from China; |
|
expectations with respect to the rate of inflation; |
|
the relative strength of the U.S. dollar and certain other currencies; |
|
interest rates; |
|
global or regional political or economic conditions, including interest rates and currency values; |
|
global mine supply of metal; |
|
global demand for industrial products and jewellery containing metals; and |
|
purchases and sales by speculators, producers, and other holders of copper and other metals, in response to any of the above factors. |
The copper market is volatile and cyclical and consumption of copper is influenced by global economic growth, trends in industrial production, conditions in the housing and automotive industries and economic growth in China, which is the largest consumer of refined copper in the world. Should demand weaken and consumption patterns change, in particular, if consumers seek out lower cost substitute materials, the price of copper could be adversely affected, which could negatively affect our results of operations.
A decrease in the market price of copper and molybdenum would affect the profitability of the Gibraltar and our ability to finance the exploration and development of our other mineral
- 54 -
properties, which would have a material adverse effect on our business and results of operations. There can be no assurance that the market price of copper and other metals will remain at current levels or that such prices will improve. If commercial quantities of copper and other metals are discovered, there is no assurance that a profitable market will exist or continue to exist for a production decision to be made or for the ultimate sale of the metals.
The effect of the COVID-19 pandemic on our operations is not yet known.
The outbreak and spread of the novel coronavirus (COVID-19), and any future emergence and spread of similar pathogens, and the actions of local, provincial, state or federal governments to such pathogens, including work stoppages, social distancing measures, lock-downs and quarantines, could have a material adverse effect on global economic conditions which may adversely impact our business and results of operations and the operations of our suppliers, contractors and service providers, including smelter and refining service providers, and the demand for our production. To date, COVID-19 has not spread widely in local areas where we have operations, and has not yet directly affected our operations. If COVID-19 spreads to those areas, however, it may have a significant adverse impact on our workforce, health and safety of our employees, production levels, and our ability to continue operations at Gibraltar Mine and development at Florence Copper Project. Government efforts to curtail the spread of COVID-19 or other pathogens may also result in temporary or long-term suspensions or shut-downs of our operations. The extent to which COVID-19 or other pathogens impact our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of COVID-19 or other pathogens and the actions taken to contain COVID-19 or other pathogens or treat their impact, among others.
Moreover, the actual and threatened spread of the COVID-19 globally has had a material adverse effect on the global economy, could continue to negatively impact stock markets, including the trading price of our shares, could adversely impact our ability to raise capital, could cause continued interest rate volatility and movements that could make obtaining financing or refinancing our debt obligations more challenging or more expensive and could result in any operations affected by COVID-19 becoming subject to quarantine. Any of these developments, and others, could have a material adverse effect on our business and results of operations.
Fluctuations in foreign currency exchange rates could have an adverse effect on our business, results of operations and financial condition.
Fluctuations in the Canadian dollar relative to the U.S. dollar could significantly affect our business, results of operations and financial condition. As our Gibraltar operation is located in Canada, our costs are incurred primarily in Canadian dollars. However, our revenue is based on the market price of copper and other metals and is denominated in U.S. dollars. A strengthening of the Canadian dollar relative to the U.S. dollar will reduce our profitability, materially adversely affect our financial condition, and may also affect our ability to finance our development projects. We do not currently enter into foreign currency contracts to hedge against currency risk.
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Mining is inherently risky and operations are subject to conditions or events beyond our control, which could have a material adverse effect on our business and results of operations.
Mining involves various types of risks and hazards, including:
|
uncertainties inherent in estimating mineral reserves and mineral resources; |
|
environmental hazards; |
|
discharge of pollutants or hazardous chemicals; |
|
industrial or environmental accidents; |
|
machinery breakdown; |
|
metallurgical and other processing problems; |
|
unusual or unexpected rock formations and other geological problems; |
|
structural cave-ins or slides; |
|
flooding; |
|
fire; |
|
metals losses; and |
|
periodic interruptions due to inclement or hazardous weather conditions. |
These risks could result in injury or death, environmental damage, damage to, or destruction of, mineral properties, production facilities or other properties, delays in mining, increased production costs, monetary losses, and possible legal liability. Interruptions to our mining or processing operations may adversely impact our ability to continue production of concentrate at expected rates, with the result that our business and results of operations may be materially adversely affected.
We may not be able to obtain insurance to cover these risks at economically feasible premiums. Insurance against certain environmental risks, including potential liability for pollution or other hazards as a result of the disposal of waste products occurring from production, is not generally available to us or to other companies within the mining industry. We may suffer a material adverse impact on our business and results of operations if we incur losses related to any significant events that are not covered by insurance policies.
We are solely dependent on the Gibraltar for revenues and suspension of production at that mine would materially adversely affect our business, results of operations and financial condition.
Until our development projects are developed and operational and are beginning to produce revenue, we are dependent solely upon Gibraltar for revenues. If Gibraltar were to cease production for any reason, it would have a material adverse effect on our business, results of operations, and financial position.
The Company does not wholly own the Gibraltar Mine.
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The Company is the operator of and owns a 75% joint venture interest in the Gibraltar Mine. Cariboo, a consortium of Japanese companies, holds the remaining 25%. The Gibraltar Joint Venture is governed by a joint venture operating agreement, which outlines the responsibilities of the Company as operator and the decision and approval processes, including those decisions that require the consent of Cariboo.
There is a risk that Cariboo may elect not to approve certain activities or may breach the terms of the Gibraltar Joint Venture. Similarly, there is a risk that Cariboo may default in its obligations to fund capital or meet other funding obligations and, as such, the Company may be required to contribute all or part of any such funding shortfall.
Risks associated with the operation of the Gibraltar Mine.
The Companys future success will be affected by the Companys ability to operate the Gibraltar Mine profitability.
Mining involves various types of risks and hazards and operation of the Gibraltar Mine could experience interruptions, incur increased costs or cease due to a number of factors, including but not limited to:
|
changes in the regulatory environment relating to the operation of the Gibraltar Mine; |
|
industrial or environmental accidents, discharge of pollutants or hazardous chemicals; |
|
inability to attract, train and retain a sufficient number of workers; |
|
increases in extraction costs including energy, diesel fuel, material and labour costs; |
|
metallurgical and other processing problems; |
|
unusual or unexpected rock formations and other geological problems; |
|
lack of availability, breakdown or failure of mining equipment; |
|
catastrophic events such as wildfires and environmental issues which could impact access to the mine site or transportation of concentrate products to the market; or |
|
performance of the processing plant and ancillary operations falling below expected levels of output or efficiency. |
These risks could result in injury or death, environmental damage, damage to, or destruction of, mineral properties, production facilities or other properties, delays in mining, increased production costs, monetary losses, and possible legal liability.
By way of example, in 2017, access to the mine was disrupted for several business days due to nearby wildfires. In 2018, other wildfires in British Columbia impacted transportation reliability. In the first quarter of 2019, the total tons mined was below plan due an extended period of extremely cold weather which impacted shovel availability. Currently, there is considerable uncertainty as to the impact COVID-19 will have on operations at the Gibraltar Mine. On March 18, 2020 the Government of British Columbia declared a province wide State of Emergency in response to COVID-19 and on March 26, 2020 issued orders under the Emergency Program Act to address the COVID-19 pandemic. The orders established restrictions on business operations other than businesses designated as an essential business). While mining was designated as an essential business, and our operations accordingly continued, the situation continues to evolve, there is no guarantee that our operations will be permitted to continue. Moreover, it is impossible to determine the effect of the disruption of business in the communities in which we operate will have on our operations.
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Disruption to the Companys mining and processing operations at the Gibraltar Mine and/or supporting infrastructure for a sustained period would have a material adverse effect on production which may result in lower revenue or cash flows from operating activities until such time, if at all, that the disruption is cured and consequently the Companys business, financial position and results of operations. Further limiting the impact of such risks if they arise may require additional capital or operational expenditure, which may have a material adverse impact on the business and its profitability.
We are subject to risks related to government regulation, permits, licenses and approvals.
Government regulations relating to mineral rights tenure, permission to disturb areas, land use and the right to operate can adversely affect Taseko. Our exploration, development and operations will require permits, licenses and approvals from various governmental authorities.
Our operations and exploration and development activities are subject to extensive federal, provincial, state and local laws and regulations governing various matters, including:
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environmental protection; |
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management and use of toxic substances and explosives; |
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management of tailings and other wastes generated by our operations; |
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management of natural resources; |
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exploration and development of mines, production and post-closure reclamation; |
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exports; |
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price controls; |
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taxation; |
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labour standards and occupational health and safety, including mine safety; and |
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historic and cultural preservation. |
Failure to secure approvals or comply with applicable laws and regulations may result in civil or criminal fines or penalties or enforcement actions, including orders issued by regulatory or judicial authorities enjoining or curtailing operations or requiring corrective measures, installation of additional equipment or remedial actions, any of which could result in the Company incurring significant expenditures. We may also be required to compensate private parties suffering loss or damage by reason of a breach of such laws, regulations or permitting requirements. It is also possible that future laws and regulations, or a more stringent enforcement of current laws and regulations by governmental authorities, could cause additional expense, capital expenditures, restrictions on or suspensions of our operations and delays in the development of our properties.
There can be no assurance that all necessary permits, licenses and approvals will be obtained or updated on a timely basis in order for us to carry out planned exploration, development or operational activities on our properties, including the planned development of our development projects, and, if obtained or updated, that the costs involved will not exceed those that we have estimated. It is possible that the costs and delays associated with the compliance with the
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standards and regulations under such permits, licenses and approvals could result in Taseko not proceeding with the development or operation of its projects.
Although the Florence Copper Project was previously permitted for a period and has obtained a number of the required permits, licenses and approvals, the Florence Copper Project is currently updating and amending certain permits through a well-defined permitting process, but there can be no assurance as to the outcome of this process. There are, and may in the future be, legal challenges to the validity of permits, licenses and approvals obtained by Florence Copper Project, and there can be no assurance that such challenges will successfully be defeated. Obtaining, updating and defending the necessary governmental permits, licenses and approvals is a complex, time-consuming and costly process, the success of which is contingent upon many variables outside of our control. Obtaining, updating, or defending permits, licenses and approvals may increase costs and cause delays depending on the nature of the activity to be permitted and the interpretation of applicable requirements implemented by the permitting authority.
There is considerable uncertainty as to our ability to obtain the required permits for development of the New Prosperity Project. The Federal Minister of the Environment has concluded under its environmental assessment completed under the Canadian Environmental Assessment Act, 2012 that the project is likely to cause significant adverse environmental effects that cannot be mitigated. We disagree with this determination and filed an application in the Canadian Federal Court for a judicial review of the decision of the Minister of the Environment with the objective of obtaining a court order that would quash the Ministers decision. On December 5, 2017, the application for judicial review was dismissed by the court. On January 3, 2018 Taseko filed a Notice to Appeal the decision. The appeal was heard in federal court on January 14 and 15, 2019 and were dismissed by the court. On February 14, 2020, Taseko filed an application for leave to appeal these Federal Court of Appeal decisions to the Supreme Court of Canada. A decision by the Supreme Court of Canada on Tasekos application for leave to appeal is currently pending. We have also filed a civil claim in the British Columbia Supreme Court in which we are seeking damages from the government of Canada in connection with our allegation that it failed to meet the legal duties that were owed to us in carrying out the environmental review process. Given the uncertainty inherent in these legal proceedings and the current decision of the Minister, there is considerable uncertainty as to whether we will be able to obtain the required permitting for the development of the New Prosperity Project. As a result, we no longer consider this project material to our operations.
The Company is reliant on rail transportation of production from the Gibraltar Mine.
Copper concentrate production from the Gibraltar Mine is transported by rail to the Pembina port terminal in Vancouver utilizing the CN rail line. In the event of any interruption to this service, the Company would likely be limited to trucking in order to transport its production to this port terminal. Transporting concentrate production by truck is more expensive and subject to greater scheduling constraints to facilitate the timely loading of ships at the Port of Vancouver.
In the event that the Company is unable to transport its concentrate production by rail on a reliable basis over routine timing intervals, this could lead to increased transport costs and
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variability in the timing of the receipt of revenues which would have a material effect on the Companys business and financial condition.
Disruption to the services provided by the CN rail line or the Port of Vancouver in connection with the shipping of our copper concentrate could have a material adverse effect on our business. While we have not experienced a disruption to these services as a result of COVID-19, there is no guarantee that these services will not experience work stoppages as a result of government intervention to slow the spread of COVID-19.
We may be adversely affected by our inability to control operating costs.
Our profitability depends in part on our ability to control operating costs. Increased demand for and cost of labor, services, equipment and other key inputs, such as diesel fuel, steel, electricity and other operating supplies, could cause operating costs at Gibraltar to increase materially, resulting in delays if services or equipment cannot be obtained in a timely manner due to inadequate availability, and increased potential for scheduling difficulties and cost increases due to the need to coordinate the availability of services or equipment, any of which could materially increase project operating, development or construction costs, result in project delays, or both. Increases in operating costs at Gibraltar may materially adversely affect our business and results of operations.
Our ability to expand or replace depleted reserves and the possible recalculation of our reserves and resources could materially affect our business and results of operations.
Our reported mineral reserves and mineral resources are only estimates. No assurance can be given that the estimated mineral reserves and mineral resources will be recovered or that they will be recovered at the rates estimated. Mineral reserve and mineral resource estimates are based on limited sampling and, consequently, are uncertain because the samples may not be representative. Mineral reserve and mineral resource estimates may require revision (either up or down) based on actual production experience. Market fluctuations in the price of metals, as well as increased production costs or reduced recovery rates, changes in the mine plan or pit design, or increasing capital costs may render certain mineral reserves and mineral resources uneconomic and may ultimately result in a restatement of mineral reserves and/or mineral resources. Moreover, short-term operating factors relating to the mineral reserves and mineral resources, such as the need for sequential development of ore bodies and the processing of new or different ore grades, may adversely affect our profitability in any particular accounting period.
There are uncertainties inherent in estimating proven mineral reserves and probable mineral reserves and measured mineral resources, indicated mineral resources and inferred mineral resources, including many factors beyond our control. Estimating mineral reserves and mineral resources is a subjective process. Accuracy depends on the quantity and quality of available data and assumptions and judgments used in engineering and geological interpretation, which may be unreliable. It is impossible to have full knowledge of particular geological structures, faults, voids, intrusions, natural variations in and within rock types and other occurrences. Failure to identify and account for such occurrences in our assessment of mineral reserves and
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mineral resources may make mining more expensive and cost ineffective, which could have a material and adverse effect on our business and results of operations.
There is no assurance that mineral reserve and mineral resource figures are accurate, or that the mineral reserves or mineral resources can be mined or processed profitably. Mineral resources that are not classified as mineral reserves do not have demonstrated economic viability. You should not assume that all or any part of the measured mineral resources, indicated mineral resources, or inferred mineral resources will ever be upgraded to a higher category or that any or all of an inferred mineral resource exists or is economically or legally feasible to mine.
In addition, since mines have limited lives based on proven and probable mineral reserves, we continually seek to replace and expand our reserves. Mineral exploration, at both newly acquired properties and existing mining operations, is highly speculative in nature, involves many risks and frequently does not result in the discovery of mineable reserves. If proven mineral reserves or probable mineral reserves are developed, it may take a number of years and substantial expenditures from the initial phases of drilling until production is possible, during which time the economic feasibility of production may change.
Any material reductions in estimates of mineral reserves and/or mineral resources, or our ability to extract those resources, could have a material adverse effect on our business and results of operations.
As our existing copper and molybdenum offtake agreements expire, our revenues and operating profits could be negatively impacted if we are unable to extend existing agreements or enter into new agreements due to competition, changing copper and molybdenum purchasing patterns, or other variables.
As our copper and molybdenum offtake agreements at the Gibraltar Mine expire, we will compete with other copper and molybdenum suppliers to renew these agreements or to obtain new sales. If we cannot renew these sales agreements with our customers or find alternate customers willing to purchase our copper and molybdenum, our revenue and operating profits would suffer.
Our customers may decide not to extend existing agreements or enter into new long-term contracts or, in the absence of long-term contracts, may decide to purchase less copper and molybdenum than in the past or on different terms, including under different concentrate pricing terms. To the degree that we operate outside of long-term contracts, our revenues are subject to pricing in the concentrate spot market that can be significantly more volatile than the pricing structure negotiated through a long-term copper and molybdenum concentrate supply agreement. This volatility could materially adversely affect our business and results of operations if conditions in the spot market pricing for copper and molybdenum concentrate are unfavourable.
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Our ability to operate our company efficiently could be impaired if we lose key personnel or fail to continue to attract qualified personnel.
We manage our business with a number of key personnel at each location, including key contractors, the loss of a number of whom could have a material adverse effect on us. In addition, as our business develops and expands, we believe that our future success will depend greatly on our continued ability to attract and retain highly-skilled and qualified personnel and contractors. We cannot be certain that key personnel will continue to be employed by us or that we will be able to attract and retain qualified personnel and contractors in the future. Failure to retain or attract key personnel could have a material adverse effect on us.
There is no assurance that we will be able to renegotiate our existing union agreement for Gibraltar when it expires in 2021.
We have a union agreement in place for our unionized employees at Gibraltar which expires in 2021. If we are unable to renew this union agreement on acceptable terms when it becomes subject to renegotiation, we could experience a disruption of operations, higher labor costs or both. A lengthy strike or other labor disruption could have a material adverse effect on our business and results of operations.
We are subject to risks related to environmental matters.
All of Tasekos exploration, development, and mining operations are subject to environmental laws and regulations, which can make operations expensive or prohibit them altogether. Many environmental laws and regulations require Taseko to obtain and update permits for its activities from time to time, which may include environmental impact analyses, cultural resources analyses, and public review processes. Taseko must comply with stringent environmental legislation in carrying out work on its projects. Environmental legislation is evolving in a manner that will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. It is possible that future changes in environmental laws, regulations and permits, or changes in their enforcement or regulatory interpretation, could increase the cost of, or altogether prohibit, carrying out exploration, development, or operation of its projects or any other properties Taseko may acquire. Further, compliance with new or additional environmental legislation may result in delays to the exploration and development activities. It is possible that future changes in applicable laws, regulations and permits or changes in their enforcement or regulatory interpretation could have a significant impact on some portion of Tasekos business, causing those activities to be economically re-evaluated at that time.
Taseko may be subject to potential risks and liabilities associated with the protection of the environment, as a result of its mineral exploration, development and production. To the extent that Taseko is subject to environmental liabilities, the payment of such liabilities or the costs that it may incur to remedy such liabilities would reduce funds otherwise available to Taseko and could have a material adverse effect on Taseko. If Taseko is unable to fully remedy an environmental liability, it might be required to suspend operations or enter into interim
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compliance measures pending completion of the required remedy. The potential exposure may be significant and could have a material adverse effect on Taseko.
Our actual costs of reclamation and mine closure costs may exceed current estimates.
We are required to prepare and file reclamation and mine closure plans for the Gibraltar Mine with the B.C. Ministry of Energy and Mines and to post security for the estimated costs to complete this reclamation and mine closure work. The Gibraltar reclamation and mine closure plans are updated every five years and the amount of security for reclamation bonding is agreed based on this plan. The most recent five year reclamation and closure plan was submitted in March 2017 and security of $50.0 million (100% basis) has been posted as of December 31, 2019 to meet reclamation bonding requirements for the Gibraltar Mine, and this amount may need to be increased in the future. Additional security in the amount of $8.3 million has been provided to meet reclamation bonding requirements for the Florence Project and this amount will need to be increased in the future if the project is developed into a commercial operation. The Company has also recorded total provisions for environmental rehabilitation for all its properties of $66.4 million in its consolidated financial statements as of December 31, 2019, which has been calculated in accordance with International Financial Reporting Standards. There is no assurance that our bonding requirements, the recorded provision for environmental rehabilitation, and the actual costs of reclamation and mine closure for each of our properties will not exceed current estimates or that the estimated costs will not increase in the future when our reclamation and mine closure plans are updated. Accordingly, the amount we are required to spend on reclamation and mine closure activities could be materially different from current estimates. Any additional amounts required to be spent on bonding requirements, reclamation costs, and mine closure activities could materially adversely affect our business and results of operations.
We are subject to risks related to the title of the properties that we own and lease.
Our mining operations are conducted on properties owned, subject to claims or leased by us from provincial and state governments. Although we have exercised reasonable due diligence with respect to determining title to properties we own or lease, there is no guarantee that title to such properties and other tenure will not be challenged or impugned. No assurances can be given that there are no title defects affecting the properties. There may be valid challenges to the title of our properties which, if successful, could make us unable to operate our properties as planned or permitted, or unable to enforce our rights with respect to our properties. In British Columbia, the rights of aboriginal peoples and their claims to much of British Columbias land area are not settled.
In addition, we may not be able to negotiate new leases or obtain contracts for properties containing surface, underground or subsidence rights necessary to develop any of our proven mineral reserves and probable mineral reserves at our development projects. Furthermore, our leasehold interests could potentially be at risk if mining operations are not commenced during the term of the lease.
The Canadian and U.S. governments currently have in place or may in the future implement laws, regulations, policies or agreements that may negatively affect the Companys ownership rights with respect to its mineral properties or its access to the properties. These may restrain or
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block the Companys ability to advance the exploration and development of its mineral properties or significantly increase the costs and timeframe to advance the properties.
Our business requires substantial capital expenditures.
Our business is capital intensive and requires construction of new mines and infrastructure and maintenance of existing operations. Specifically, the exploration, permitting and development of reserves, mining costs, the maintenance of machinery and equipment and compliance with applicable laws and regulations require substantial capital expenditures. While the capital expenditures required to build-out our Gibraltar Mine have been spent, we must continue to invest capital to maintain or to increase the amount of reserves that we develop and the amount of metal that we produce. We make no assurances that we will be able to maintain our production levels or generate sufficient cash flow, or that we will have access to sufficient financing to continue our production, exploration, permitting and development activities at or above our present levels and we may be required to defer all or a portion of our future capital expenditures. Moreover, increases in costs of key inputs may substantially increase our capital expenditures. Our business, results of operations and financial condition may be adversely affected if we cannot make such capital expenditures.
The Florence, Aley, New Prosperity and Yellowhead projects will require substantial financing to be arranged prior to construction and development of these properties. Such financing could include a possible combination of debt and equity financing. On May 12, 2010, the Company entered into a gold stream transaction agreement for the New Prosperity Project with Franco-Nevada Corporation (Franco-Nevada), whereby the Company may receive funding in staged deposits totalling US$350 million. The investment by Franco-Nevada is subject to (among other conditions) the condition precedent that the New Prosperity project plan that we had agreed with them must receive appropriate governmental approval. Because our revised New Prosperity project plan is not the one we agreed with Franco-Nevada in 2010, this condition will not be satisfied, and so Franco-Nevada may currently terminate this agreement on ten business days written notice to Taseko. However, we believe Franco-Nevada currently has no economic incentive to do so. If our revised mine proposal is ultimately accepted by the authorities, we may seek Franco-Nevadas agreement to reconfirm the terms of our gold stream transaction with them, but there is no assurance that Franco-Nevada will agree to provide such reconfirmation. The investment by Franco-Nevada is also subject to certain other conditions precedent which the Company may not be able to satisfy. There can be no assurance that gold stream, debt or equity financing will be available on acceptable terms. Other risks include those typical of large mine development projects, including the general uncertainties inherent in engineering and construction costs, the need to comply with generally increasing environmental regulation, opposition by aboriginal peoples and environmental groups, and accommodation of local and community concerns. The economics of the feasibility study are sensitive to the U.S. dollar and Canadian dollar exchange rate, and this rate has been subject to large fluctuations in the last several years.
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Increased competition could adversely affect our ability to attract necessary capital funding and could adversely affect our ability to acquire suitable mineral properties for development in the future.
The mining industry is intensely competitive. Significant competition exists for the acquisition of properties producing or capable of producing copper, gold or other metals. We may be at a competitive disadvantage in acquiring additional mining properties because we must compete with other individuals and companies, many of which have greater financial resources, operational experience and technical capabilities than we do. We may also encounter increasing competition from other mining companies in our efforts to hire experienced mining professionals. Increased competition could adversely affect our ability to attract necessary capital funding, or to acquire it on acceptable terms, or acquire suitable producing properties or prospects for mineral exploration in the future.
We are subject to risks related to litigation.
The Company is or may be subject to legal proceedings related to the development of its projects, its operations, titles to its properties, environmental issues and shareholder or other investor lawsuits. Given the uncertain nature of these actions, the Company cannot reasonably predict the outcome thereof. If the Company is unable to win or favourably settle any lawsuits, it may have a material adverse effect on the Company.
There is no assurance that any of our expansion or development plans will not be opposed.
There is an increasing level of awareness relating to the perceived environmental and social impacts of mining activities. Opposition to mining activities by communities or indigenous groups, including aboriginal peoples, may have an impact on our ability to proceed with the expansion or development of our projects and the timetable and costs for these projects. While we are committed to operating in a socially responsible manner, there can be no assurance that our community relations efforts will mitigate this potential risk. Opponents of the Florence Copper project have in the past, and may in the future, file legal challenges to the validity of permits, licenses and approvals obtained by Florence Copper project, and there can be no assurance that such challenges will successfully be defeated. Obtaining, updating and defending the necessary governmental permits, licenses and approvals is a complex, time-consuming and costly process, the success of which is contingent upon many variables outside of our control. Obtaining, updating, or defending permits, licenses and approvals may increase costs and cause delays depending on the nature of the activity to be permitted and the interpretation of applicable requirements implemented by the permitting authority.
The planned development of the Florence Copper Project has been subject to a number of unsuccessful challenges, and is currently subject to two active claims.
Opponents of the Florence Copper Project have in the past, and may in the future, file legal challenges to the validity of permits, licences and approvals sought and/or obtained by the Company in relation to the Florence Copper Project, the defence of which can be a complex, time-consuming and costly process and there can be no assurance that such challenges will successfully be defeated, with success being contingent upon many variables outside of the
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Companys control. There are currently two claims relating to the Companys proposed development of the Florence Copper Project:
Town of Florence v. Florence Copper Inc.
The Town of Florence challenged the ability of Florence Copper Inc. (FCI) to operate the ISCR on its property using its power of eminent domain. Eminent domain refers to the power of the government to take private property and convert it into public use. The Fifth Amendment of the U.S. Constitution provides that the government may only exercise this power for certain purposes and it must provide just compensation to the property owners.
The total size of the Florence Project area is 1,182 acres. In addition, 160 additional acres are classified as State Trust Land. State Trust Lands are public lands granted to the state (Arizona) by the United States to be held or sold generally by the state for the benefit of public schools in Arizona. Consequently the Towns use of eminent domain was not applicable to the 160 acres of State Trust Land on which the PTF is located is outside of the Towns jurisdiction.
In addition to the claim of eminent domain, a declaratory judgment was sought against a 2003 Development Agreement between the Town and FCIs predecessor-in-interest, which authorized the property owner to undertake copper mining on the property as a legal non-conforming use within the Town. The Town has asserted that the use of the land as a mine is not in compliance with the relevant zoning on the property. In January 2019, the trial court ruled in FCIs favour on the grounds that its operations were in accordance with the Development Agreement. This ruling is currently the subject of appeal by the Town.
Whilst the Company is confident that the Towns appeal will be unsuccessful, if the appellate court reverses the lower courts ruling and denies FCIs right to legally mine on its private property, mining can only occur on the state trust land parcel where the PTF is located. In this scenario, Florence Copper could appeal the decision to the state supreme court but there is no certainty that the court would agree to hear the case.
If the appellate court upholds FCIs right to mine on its private property, the Town could exercise its power of eminent domain to take the property from Florence Copper. However, under Arizonas Constitution, the Town must pay Florence Copper the fair market value of the condemned property. The value of this property as a copper mine significantly exceeds the Towns annual budget, thus it is unlikely that the Town could take the property through an eminent domain action.
Town of Florence, et al. v. ADEQ, Florence Copper-Intervenor
The Town and SWVP-GTIS MR, LLC (SWVP) unsuccessfully challenged ADEQs grant of a Temporary Aquifer Protection Permit (TAPP) to FCI and have now filed an appeal to the Arizona Court of Appeals. The TAPP is a key operating permit that applies to the public and privately-held lands that make up the Florence Copper Project. Briefing on the appeal is complete. A ruling is expected within the next 12 months.
Under Arizona law, judicial deference is given to appeals of state agency actions. The court reviews the evidence in the light most favorable to upholding the agencys decision and will not
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substitute its judgment for that of the agency regarding factual questions and agency expertise. The challenge of the TAPP involves two technical issues only and no new facts or evidence has been introduced by the appellants. Consequently the Company has been advised that it is unlikely that the appellate court will overturn ADEQs decision to award the TAPP because to do so, the court must conclude that the agencys action is contrary to law, not supported by substantial evidence, is arbitrary and capricious, or is an abuse of discretion.
If the appellate court reverses the trial courts ruling, which upheld the TAPP, the PTF can continue to operate unless an injunction is issued by the court requiring Florence Copper to cease operations. In this scenario, in order to continue development of the Florence Copper Project, the Company would be required to submit another permit application to ADEQ that addresses the issue of concern to the appellate court.
For both of the active cases described above the Company has been advised that the appellate courts are unlikely to overturn the existing judgments. However, both judgments are the subject of appeal, with rulings expected in the next 12 to 24 months and there can be no assurance that the Companys planned development of the Florence Copper Project will not be adversely affected by these claims, including further challenges to the Florence Copper Project. If such appeals are successful the Companys planned development of the Florence Copper Project could be delayed or restricted, or may not occur, which would have a material adverse effect on the Companys business, financial condition and prospects.
Risks associated with the development of the Florence Copper Project.
The development and commencement of commercial production at the Florence Copper Project is key to the Companys future strategy.
The Florence Copper Project, given its unique geological conditions, will deploy an in-situ wellfield recovery method that, while in use in other resource extraction sectors (most notably in uranium), will be one of the first of its kind to extract copper at commercial levels relying solely on this method. This in-situ mining method of the Florence Copper Project presents additional development ramp-up risks and complexity compared to a traditional underground or open pit operation which could result in delays, interruptions, lower recoveries than forecasted and/or increased costs to the development of the Project.
Demonstration of feasibility of the PTF is a key element of any decision to move towards full commercial development at the Florence Copper Project. However, there is no assurance that the PTF will establish that the in-situ extraction of copper at the Florence Copper Project can be completed as currently contemplated in the feasibility study for the Florence Copper Project. Specifically, there is no assurance that the PTF will establish that the recoveries of leach copper solution, known as sweep efficiencies, will be as expected. In addition, the results of the PTF operations may indicate that changes to mining operations at the Florence Copper Project may be required, which may result in delays and/or higher than anticipated construction and operating costs for commercial development of the Florence Copper Project.
Development of the Florence Copper Project could also be delayed, experience interruptions, incur increased operating and capital costs or be unable to complete due to a number of factors, including but not limited to:
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delays in receiving the updated permits required for development of the commercial facility; |
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litigation which could take several years and significant costs to defend and resolve; |
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non-performance by third party consultants and contractors; |
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inability to attract, train and retain a sufficient number of qualified workers; |
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unforeseen escalation in anticipated costs of development, or delays in construction; |
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material decreases in the expected recovery of copper through the in-situ process; |
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increases in expected wellfield costs including the number and scale up of wells, as well as drilling, material and labour costs; |
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shortages or delays in obtaining critical processing equipment; |
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catastrophic natural events such as drought, flooding or storms; or |
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the breakdown or failure of equipment or processes. |
It is not uncommon for mining developments to experience these factors during their construction, commissioning and production start-up, or indeed for such projects to fail or experience significant delays as a result of one or more of these factors occurring to a material extent.
There can be no assurance that the Company will complete the various stages of development necessary in order to achieve its strategy in the timeframe expected by the Company or at all. Any of these factors may have a material adverse effect on the development of the Florence Copper Project and, consequently the Companys business, results of operations and activities, financial condition and prospects.
Our various development projects, which are still under development, will require substantial additional financing for completion, may not achieve anticipated production capacity, may experience unanticipated costs or may be delayed or not completed at all.
The development of a mining project is a complex and challenging process that may take longer and cost more than initially projected, or may not be completed at all. In addition, anticipated production capacity may never be achieved. We may encounter unforeseen geological conditions or delays in obtaining required construction, environmental or operating permits or mine design adjustments. Operating delays may cause reduced production and cash flow while certain fixed costs, such as loan payments, may still have to be paid on a predetermined schedule.
Moreover, completion of the development projects is subject to, among other things, the commercial availability of adequate financing. Even if financing is available, the 2017 Secured Note Indenture contains, and agreements for future financings will likely contain, a number of restrictive covenants that impose significant financial restrictions on us, including on our ability to incur additional debt. These restrictions could significantly limit our ability to obtain adequate financing for the development of the development projects. Without funds available to finance construction and development activities, the development projects may not be completed and the potential benefits of the development projects may never be realized. There can be no
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assurance that the development projects will ever materially contribute to our revenues, and capital expenditures for our development projects may materially adversely affect our business and results of operations.
In addition, there can be no assurance that our exploration efforts will result in the discovery of significant mineralization or that any mineralization discovered will result in an increase of our proven mineral reserves or probable mineral reserves. If proven mineral reserves or probable mineral reserves are developed, it may take a number of years and substantial expenditures from the initial phases of drilling until production is possible, during which time the economic feasibility of production may change. The combination of these factors may cause us to expend significant resources (financial and otherwise) on a property without receiving a return on investment.
The need for infrastructure could delay or prevent us from developing our development projects.
Completion of the development of our projects is subject to various requirements, including government permitting and the need to establish power, water and transportation facilities. The lack of availability on acceptable terms or the delay in the availability of any one or more of these services could prevent or delay development of our projects. If adequate infrastructure is not available in a timely manner, there can be no assurance that:
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the development of our projects will be commenced or completed on a timely basis, if at all; |
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the resulting operations will achieve the anticipated production volume; or |
the construction costs and ongoing operating costs associated with the development of our projects will not be higher than anticipated.
Aboriginal peoples title claims and rights to consultation and accommodation may impact our ability to expand our existing operations and proceed with our development projects.
Provincial and federal governments in Canada are required by law to consult with aboriginal peoples with respect to the issuance or amendment of project authorizations in Canada and to try to accommodate aboriginal peoples needs to the extent considered appropriate. There is considerable uncertainty as to the meaning, implications and use of the word accommodate. In practice, it is extraction industry participants who are often left to engage with affected local aboriginal communities with the goal often being the achievement of an impacts and benefits agreement. Such agreements may provide promises of priority for employment opportunities, the provision of commercial services such as transportation and catering, social, educational and environmental initiatives and cash payments. This consultation and accommodation may affect the timetable and costs of our development projects and may impact the manner in which we proceed with the development of these projects.
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Our high level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under the senior secured notes.
Our total long-term debt was $357.0 million as of December 31, 2019. Our high level of indebtedness could have important consequences to us:
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making it more difficult for us to satisfy our obligations with respect to the senior secured notes and any other existing or future debt; |
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limiting our ability to obtain additional financing to fund development projects, working capital, capital expenditures, acquisitions or other general corporate purposes; |
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requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for investments, working capital, capital expenditures, acquisitions and other general corporate purposes; |
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increasing our vulnerability to general adverse economic and industry conditions; |
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limiting our flexibility in planning for and reacting to changes in the industry in which we operate; |
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placing us at a disadvantage compared to other, less leveraged competitors; and |
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increasing our cost of borrowing. |
In addition, the senior secured note indenture contains, and any future debt may contain, restrictive covenants that limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an event of default, which, if not cured or waived, could result in the acceleration of some or all of our debt and would have material negative consequences for shareholders.
A lowering or withdrawal of the credit ratings assigned to our debt securities by rating agencies may adversely increase our future borrowing costs and reduce our access to capital.
Any credit rating assigned to us could be lowered or withdrawn entirely by a rating agency if, in that rating agencys judgment, future circumstances relating to the basis of the rating, such as adverse changes, so warrant. Any downgrade by a rating agency may result in higher borrowing costs and could decrease earnings. Any future lowering of our ratings likely would make it more difficult or more expensive for us to obtain additional debt financing.
We and our subsidiaries may still be able to incur substantially more debt, which could further exacerbate the risks associated with our high level of indebtedness.
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The terms of the 2017 Secured Note Indenture permit us to incur substantial additional indebtedness in the future, including to finance working capital, capital expenditures, investments or acquisitions and including under any future credit facility, as defined in the 2017 Secured Note Indenture (a Future Credit Facility) or other First Lien Debt, as defined in the 2017 Secured Note Indenture (First Lien Debt). Although the 2017 Secured Note Indenture will limit our ability and the ability of our restricted subsidiaries to incur additional indebtedness, and to incur liens to secure such indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions could be substantial. To the extent that we incur additional indebtedness, the risks associated with our substantial leverage described above, including our possible inability to service our debt, would increase.
To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.
Our ability to make payments on and to refinance our indebtedness, including the 2017Secured Notes, and to fund planned capital expenditures and other general corporate purposes, among other things, will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or that future capital will be available to us in an amount sufficient to enable us to make payments on or to refinance our indebtedness, including the 2017 Secured Notes, or to fund our other liquidity needs. If our cash flows and capital resources are insufficient to allow us to make payments on our indebtedness, we may need to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance all or a portion of our indebtedness, including the 2017 Secured Notes, on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness, including the 2017 Secured Notes, on commercially reasonable terms or at all, or that the terms of that indebtedness will allow any of the above alternative measures or that these measures would satisfy our debt service obligations. If we are unable to generate sufficient cash flow or refinance our debt on favorable terms, it would significantly adversely affect our financial condition, the value of our outstanding debt and our ability to make any required cash payments under our indebtedness.
The terms of existing indebtedness will, and future indebtedness may, restrict our current and future operations, particularly our ability to respond to changes in our business and to take certain actions.
The instruments governing our current indebtedness contain, and agreements governing future indebtedness may contain, a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability to:
|
transfer and sell assets; |
|
pay dividends or distributions on our capital stock, repurchase our capital stock, make payments on subordinated indebtedness and make certain investments; |
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|
incur additional debt; |
|
create or incur liens on our assets; |
|
create restrictions on the ability of our restricted subsidiaries to pay dividends, make loans or sell assets to us or any of our restricted subsidiaries; |
|
merge, amalgamate or consolidate with another company; and |
|
enter into transactions with affiliates. |
The covenants in the 2017 Secured Note Indenture are subject to certain exceptions and qualifications. In addition, if we enter into a Future Credit Facility in the future, it will likely contain financial covenants, including maintenance covenants that would require us to satisfy such covenants on an ongoing basis. Our ability to comply with these financial covenants can be affected by events beyond our control.
A breach of the covenants under the 2017 Secured Note Indenture, or under any agreements for future indebtedness, could result in an event of default under the applicable indebtedness. Such a default may allow the creditors of the defaulted indebtedness to accelerate the related debt and may also result in the acceleration of any other debt which has a cross-acceleration or cross-default provision to the related debt. Furthermore, if we were unable to repay the amounts due and payable under any secured arrangement, those respective lenders could proceed against the collateral securing such indebtedness, which could include our interest in Gibraltar and Gibraltars interest in the JVOA. In the event our lenders or note holders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.
As a result of restrictions contained in the 2017 Secured Note Indenture, and that may be contained in any agreements for future indebtedness, we may be limited in how we conduct our business, unable to raise additional debt or equity financing to operate during general economic or business downturns or unable to compete effectively or to take advantage of new business opportunities.
These restrictions may affect our ability to grow in accordance with our strategy.
Our 2017 Secured Notes are denominated in U.S. dollars, and we may incur additional debt in the future denominated in U.S. dollars.
The 2017 Secured Notes are, and our future indebtedness may be, denominated in U.S. dollars. Fluctuations in exchange rates may significantly increase or decrease the amount of debt and interest expense recorded in our financial statements. We do not currently employ derivative instruments to hedge foreign exchange risk related to our U.S. dollar denominated debt.
We may not have the ability to raise funds necessary to finance any change of control offer required under the 2017 Secured Note Indenture.
If a change of control (as defined in the 2017 Secured Note Indenture) occurs, we will be required to offer to purchase the 2017 Secured Notes at 101% of their principal amount plus
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accrued and unpaid interest. Our ability to repurchase 2017 Secured Notes upon such a change of control would be limited by our access to funds at the time of the repurchase and the terms of our other debt agreements. The source of funds for any purchase of 2017 Secured Notes would be our available cash, cash generated from our subsidiaries operations or other sources, including sales of assets and issuances of debt or equity. In addition, any Future Credit Facility or other debt agreement that we may enter into in the future may contain provisions relating to a change of control. Upon a change of control, we may be required immediately to repay the outstanding principal, any accrued interest on and any other amounts owed by us under any Future Credit Facility or other debt agreement that we may enter into in the future. The source of funds for these repayments would be the same sources noted above to repurchase the notes upon a change of control. However, we cannot assure you that we will have sufficient funds available or that we will be permitted by our other debt instruments to fulfill these obligations upon a change of control in the future, in which case the lenders under any secured debt instruments would have the right to foreclose on our assets, which would have a material adverse effect on us. Furthermore, certain events that constitute a change of control could also constitute an event of default under any future indebtedness, and we might not be able to obtain a waiver of such defaults. In order to avoid the obligations to repurchase the notes upon a change of control, we may have to avoid transactions that would otherwise be beneficial to us.
The 2017 Notes mature in 2022 and will require refinancing.
A substantial portion of the Companys debt matures in 2022 exposing the Company to risks relating to the refinancing of such debt. While the Company currently intends to refinance the 2017 Notes with new bonds, there is no certainty that the Company will be able to refinance the 2017 Notes in their entire amount. Further the Companys ability to obtain debt financing will depend, inter alia, on prevailing financial market conditions at the time and the Companys business performance.
Successful refinancing of the bonds is dependent upon a number of factors many of which are outside of the Companys control including the copper price which directly impacts the Companys profitability and debt capacity and capital market factors including prevailing interest rates at the time of refinance.
Furthermore, any additional debt financing may involve restrictive covenants, which may limit or affect the Companys operating and financial flexibility. In the event the Company cannot refinance its debt on acceptable terms or at all, this could adversely affect its ability to carry out its operations.
Multiple listings on the TSX, NYSE American and LSE may lead to an inefficient market in the Companys shares.
Multiple listing of the Common Shares will result in differences in liquidity, settlement and clearing systems, trading currencies, prices and transaction costs between the exchanges where the Common Shares will be quoted. These and other factors may hinder the transferability of the Common Shares between the three exchanges.
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The Common Shares are quoted on TSX, NYSE American, and the LSE. Consequently, the trading in and liquidity of the Common Shares will be split between these three exchanges. The price of the Common Shares may fluctuate and may at any time be different on the TSX, the NYSE American and the LSE. This could adversely affect the trading of the Common Shares on these exchanges and increase their price volatility and/or adversely affect the price and liquidity of the Common Shares on these exchanges.
The Common Shares are quoted and traded in Canadian Dollars on the TSX, in US Dollars on the NYSE American, and in pounds sterling on the LSE. The market price of the Common Shares on those exchanges may also differ due to exchange rate fluctuations.
Shareholder activism.
The Company has in the past been subject to and may in the future become the target of shareholder activist activities. The effects of shareholder activist activities could have a negative effect on the Company and its business. The Company cannot predict with certainty the outcome of any future shareholder activist activities.
DIVIDENDS
The Company has not paid dividends to date and the Company has no plans to pay a dividend in the foreseeable future.
DESCRIPTION OF CAPITAL STRUCTURE
Share Capital
Tasekos share capital consists of an unlimited number of no par value common shares. As of March 30, 2020, there were 246,194,219 common shares issued and outstanding. In addition, there were 11,578,900 stock options and 3,000,000 share purchase warrants outstanding at March 30, 2020. All shares are required by law to be issued only as fully paid and non-assessable.
The holders of Tasekos common shares are entitled to one vote for each share on all matters submitted to a vote of shareholders.
There have been no changes in the classification of common shares (reclassifications, consolidations, reverse splits or the like) within the previous five years. All common shares of Taseko rank pari passu (i.e. equally) for the payment of any dividends and distributions in the event of a wind-up.
There are no constraints imposed on the foreign ownership of securities of Taseko, however an acquisition of control of Taseko by a non-Canadian would be subject to a review by the Canadian government under its foreign investment laws if the aggregate acquisition price were to exceed certain thresholds all of which are much higher than the Companys current implied value.
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Senior Secured Notes
In June 2017, the Company completed an offering of US$250 million aggregate principal amount of senior secured notes (the Notes). The Notes mature on June 15, 2022 and bear interest at an annual rate of 8.75%, payable semi-annually on June 15 and December 15, commencing December 15, 2017. The Notes were issued at 99% of par value and the Company incurred other transaction costs of $9.3 million resulting in net proceeds from the offering of $317.6 million (US$240.5 million). The net proceeds were used, along with cash on hand, to redeem the senior notes and to repay a senior secured credit facility and to settle the related copper call option.
The Notes are secured by liens on the shares of Tasekos wholly-owned subsidiary, Gibraltar Mines Ltd., and the subsidiarys rights under the joint venture agreement relating to the Gibraltar mine. The Notes are guaranteed by each of Tasekos 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 Companys 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. On a change of control, the Notes are redeemable at the option of the holder at a price of 101%.
Purchase and Sale Agreement with Osisko
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 Tasekos share of all future payable silver production from Gibraltar will be delivered to Osisko. The Company receives cash payments of US$2.75 per ounce for all silver deliveries made under the agreement.
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 Companys obligations under the agreement are secured by a pledge of Tasekos 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.
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Ratings
The following table sets out the ratings of Tasekos senior secured notes by the rating agencies indicated as at March 30, 2020:
Rating Agency |
||||
Standard & Poors Rating Services |
Moodys Investor Services |
|||
Senior Secured Notes |
CCC+ | Caa1 | ||
Trend / Outlook |
Negative | Negative |
Standard & Poors Rating Services (S&P) credit ratings are on a long-term rating scale that ranges from AAA to D, which represents the range from highest to lowest quality of such securities rated. On March 24, 2020, S&P assigned Taseko a corporate credit rating of CCC+/Negative. According to S&P, this rating reflects that Taseko is at risk of depleting its liquidity over the next 12 months, following the sharp deterioration in copper prices and uncertain, but potentially negative, impact of the COVID-19 outbreak. The negative outlook primarily reflects S&Ps view of the risk that Taseko could generate a freecashflow deficit this year that significantly constrains its liquidity position. In their view, copper prices that are sustained near current (March 2020) levels through 2020, and potential operating disruptions related to COVID-19 are key downside risks. The ratings from AAA to D may be modified by the addition of a plus (+) or a minus (-) sign to show relative standing within the major categories. In addition, S&P may add a rating outlook of positive, negative or stable which assesses the potential direction of a long-term credit rating over the intermediate term (typically six months to two years).
Moodys Investor Services (Moodys) credit ratings are on a long-term debt rating scale that ranges from AAA to Caa, which represents the range from highest to lowest quality of such securities rated. On March 24, 2020, Moodys assigned Taseko a corporate family credit rating of Caa1 and a credit rating of Caa1 on the senior secured notes with a negative outlook. Moodys cited that the rapid and widening spread of the COVID-19 outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets and that the combined credit effects of these developments are unprecedented. Moodys also noted that the weaknesses in Tasekos credit profile, including its exposure to copper prices, has left it vulnerable to shifts in market sentiment in these unprecedented operating conditions. The negative outlook reflects the risk that Tasekos performance and credit metrics will continue to weaken unless the price of copper improves and also incorporates Moodys view that Taseko will continue to generate negative free cash leading to a weaker liquidity profile. Moodys appends numerical modifiers 1, 2 and 3 to each generic rating classification from AA through C. The modifier 1 indicates that the security ranks in the higher end of its generic rating category, the modifier 2 indicates a mid-range ranking and the modifier 3 indicates a ranking in the lower end of the generic category.
The credit ratings accorded to the senior notes by S&P and Moodys are not recommendations to purchase, hold or sell the senior notes as such ratings do not comment as to market price or suitability for a particular investor. There is no assurance that any rating will remain in effect for
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any given period of time or that any rating will not be revised or withdrawn entirely by a rating agency in the future if, in its judgment, circumstances so warrant.
MARKET FOR SECURITIES
Tasekos common shares are listed on the Toronto Stock Exchange (TSX), NYSE American Stock Exchange (NYSE American), and the London Stock Exchange (LSE) under the symbols TKO, TGB, and TKO, respectively. The following table shows the price ranges and average daily trading volume (ADTV) traded by month in 2019, based on trading information published by each Exchange.
TSX | NYSE American | LSE | ||||||||||||||||||||||||||||||||||
2019 |
High
(C$) |
Low
(C$) |
ADTV |
High
(US$) |
Low
(US$) |
ADTV |
High
(GBP) |
Low
(GBP) |
ADTV | |||||||||||||||||||||||||||
December |
0.63 | 0.52 | 367,245 | 0.49 | 0.39 | 572,220 | 0.325 | 0.325 | | |||||||||||||||||||||||||||
November |
0.63 | 0.51 | 74,133 | 0.49 | 0.39 | 262,340 | 0.33 | 0.325 | 3 | |||||||||||||||||||||||||||
October |
0.59 | 0.52 | 69,095 | 0.45 | 0.39 | 225,404 | | | | |||||||||||||||||||||||||||
September |
0.73 | 0.54 | 123,155 | 0.51 | 0.40 | 243,995 | | | | |||||||||||||||||||||||||||
August |
0.63 | 0.50 | 181,148 | 0.47 | 0.38 | 430,177 | | | | |||||||||||||||||||||||||||
July |
0.72 | 0.59 | 184,182 | 0.57 | 0.45 | 299,295 | | | | |||||||||||||||||||||||||||
June |
0.74 | 0.61 | 163,820 | 0.56 | 0.46 | 566,775 | | | | |||||||||||||||||||||||||||
May |
0.95 | 0.61 | 143,150 | 0.71 | 0.45 | 317,214 | | | | |||||||||||||||||||||||||||
April |
1.05 | 0.75 | 224,762 | 0.79 | 0.56 | 571,586 | | | | |||||||||||||||||||||||||||
March |
0.92 | 0.74 | 131,414 | 0.69 | 0.56 | 326,824 | | | | |||||||||||||||||||||||||||
February |
0.95 | 0.70 | 291,189 | 0.72 | 0.54 | 589,032 | | | | |||||||||||||||||||||||||||
January |
0.90 | 0.64 | 213,086 | 0.68 | 0.46 | 430,819 | | | |
DIRECTORS AND OFFICERS
As at March 30, 2020, the directors and executive officers of Taseko, as a group, beneficially owned, directly or indirectly, or exercised control or direction over 11,136,589 common shares, representing less than five percent of the total number of common shares outstanding before giving effect to the exercise of options to purchase common shares held by such directors and executive officers. The statement as to the number of common shares beneficially owned, directly or indirectly, or over which control or direction is exercised by the directors and executive officers of Taseko as a group is based upon information furnished by the directors and officers as reflected on SEDI (www.sedi.com).
Name, Position and Office, and
|
Period a Director and/or Officer of Taseko |
|
Directors |
||
Anu Dhir, Director Toronto, Ontario, Canada |
Since September 2017 |
|
Robert A. Dickinson, Director Lions Bay, British Columbia, Canada |
Since January 1991 |
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Name, Position and Office, and
|
Period a Director and/or Officer of Taseko |
|
Russell E. Hallbauer, Chief Executive Officer and Director
West Vancouver, British Columbia, Canada |
Since July 2005 | |
Alex Morrison, Director
Castle Pines, Colorado, USA |
Since April 2011 | |
Richard Mundie, Director
Vancouver, British Columbia, Canada |
Since January 2010 | |
Kenneth Pickering, Director Chemainus, British Columbia, Canada |
Since December 2018 | |
Ronald W. Thiessen, Chairman of the Board and Director
West Vancouver, British Columbia, Canada |
Since October 1993 | |
Executive Officers | ||
Brian Battison, Vice President Corporate Affairs
Tsawwassen, British Columbia, Canada |
Since September 2007 | |
Brian Bergot, Vice President, Investor Relations North Vancouver, British Columbia, Canada |
Since March 2014 | |
Bryce Hamming, Chief Financial Officer
North Vancouver, British Columbia, Canada |
Since June 2019 | |
Scott Jones, Vice President, Engineering
North Vancouver, British Columbia, Canada |
Since December 2007 | |
John W. McManus, Chief Operating Officer
West Vancouver, British Columbia, Canada |
Since October 2005 | |
Stuart McDonald, President
North Vancouver, British Columbia, Canada |
Since September 2013 | |
Robert Rotzinger, Vice President, Capital Projects
West Vancouver, British Columbia, Canada |
Since December 2012 | |
Richard Tremblay, Vice President, Operations Vancouver, British Columbia, Canada |
Since June 2019 | |
Trevor Thomas, Secretary
Vancouver, British Columbia, Canada |
Since August 2008 |
At the annual general meeting held in June 2019, all the directors listed above, were re-elected as directors. All directors have a term of office expiring at the next annual general meeting of Taseko.
All officers have a term of office lasting until their removal or replacement by the Board of Directors. However, there are certain employment agreements in place with respect to these persons which will affect any termination of services.
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Committees of the Board of Directors
Audit and Risk Committee
The Audit and Risk Committee is comprised of Richard Mundie (Chair), Anu Dhir, and Alex Morrison.
Compensation Committee
The Compensation Committee is comprised of Kenneth Pickering (Chair), Anu Dhir, and Alex Morrison.
Nominating and Governance Committee
The Nominating and Governance Committee is comprised of Anu Dhir (Chair), Alex Morrison, and Richard Mundie.
Environmental, Health and Safety Committee
The Environmental, Health and Safety Committee is comprised of Kenneth Pickering (Chair), Anu Dhir, Robert A. Dickinson, and Russell Hallbauer.
Principal Occupations and Other Information
Anu Dhir, B.A. JD. Director
Ms. Anu Dhir is a co-founder and an executive of Wshingwell Inc., a technology company. Prior to establishing Wshingwell, Ms. Dhir spent 19 years in the resources sector. Most recently, she was a co-founder and an executive of ZinQ Mining, a private base metals and precious metals royalty company that focuses on the Latin America region. Ms. Dhir was also the Managing Director of Miniqs Limited, a private group primarily interested in developing resource projects. Prior to ZinQ Mining and Minigs, Ms. Dhir was Vice President, Corporate Development and Company Secretary at Katanga Mining Limited, a major copper and cobalt mining company with assets in the Democratic Republic of Congo.
Ms. Dhir also serves as a non-executive Director for Golden Star Resources and Trillium Health Partners. Ms. Dhir is a graduate of the General Management Program (GMP) at Harvard Business School, she has a law degree (Juris Doctor) from Quinnipiac University and a Bachelor of Arts from the University of Toronto.
Ms. Dhir is, or within the past five years, was a director of the following public companies:
Company |
Positions Held |
From |
To |
|||
Energulf Resources Ltd. |
Director |
August 2013 |
September 2015 |
|||
Frontier Rare Earths Limited |
Director |
November 2010 |
January 2015 |
|||
Golden Star Resources |
Director |
February 2014 |
Present |
|||
Taseko Mines Limited |
Director |
September 2017 |
Present |
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Robert A. Dickinson, B.Sc., M.Sc. Director
Mr. Dickinson is an economic geologist who has been actively involved in mineral exploration and mine development for over 45 years and was inducted into the Canadian Mining Hall of Fame in 2012. He is Chairman of Hunter Dickinson Inc. (HDI) and Hunter Dickinson Services Inc. (HDSI) as well as a director and member of the management team of a number of public companies associated with HDSI. He is also President and Director of United Mineral Services Ltd., a private resources company. He also serves as a Director of Britannia Mine Museum and Trustee of the BC Mineral Resources Education Program.
Mr. Dickinson is, or within the past five years was, an officer and/or director of the following public companies:
Company |
Positions Held |
From |
To |
|||
Amarc Resources Ltd. |
Director |
April 1993 |
Present |
|||
Chairman |
April 2004 |
Present |
||||
Heatherdale Resources Ltd. |
Director |
November 2009 |
Present |
|||
Northcliff Resources Ltd. |
Director |
June 2011 |
Present |
|||
Northern Dynasty Minerals Ltd. |
Director |
June 1994 |
Present |
|||
Chairman |
April 2004 |
Present |
||||
Quartz Mountain Resources Ltd. |
Director |
December 2003 |
February 2019 |
|||
Taseko Mines Limited |
Director |
January 1991 |
Present |
Russell E. Hallbauer, P.Eng. Director and Chief Executive Officer
Mr. Hallbauer graduated from the Colorado School of Mines with a B.Sc. in Mining Engineering in 1979. He is a Registered Professional Engineer with the Association of Professional Engineers of British Columbia. He has been a member of the Canadian Institute of Mining and Metallurgy since 1975 and is a director and former chairman of the Mining Association of B.C.
In 1983, he joined Teck Corporations Bullmoose mine, advancing through Engineering and Supervisory positions to become Mine Superintendent in 1987, and in 1992, became General Manager of Quintette. In 1995, he assumed new responsibilities in Vancouver when he was appointed General Manager, Coal Operations, overseeing Tecks three operating coal mines in the Province. In 2002, he was appointed General Manager, Base Metal Joint Ventures, responsible for Teck Comincos interests in Highland Valley Copper, Antamina in Peru, and Louvicourt in Quebec. Mr. Hallbauer is a director of HDSI (and HDI), a company providing management and administrative services to several publicly-traded companies (including Taseko), and focuses on directing corporate development and financing activities.
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Mr. Hallbauer is, or within the past five years was, an officer and/or director of the following public companies:
Company |
Positions Held |
From |
To |
|||
Northern Dynasty Minerals Ltd. |
Director |
April 2008 |
February 2016 |
|||
Taseko Mines Limited |
CEO/Director |
July 2005 |
Present |
|||
President |
July 2005 |
June 2019 |
Alexander Morrison, CPA, CA - Director
Mr. Morrison is a mining executive and Chartered Professional Accountant with over 30 years of experience in the mining industry.
Mr. Morrison is a citizen of the United States and is a resident of the state of Colorado.
Mr. Morrison has held senior executive positions with a number of mining companies, most recently serving as Vice President and Chief Financial Officer of Franco-Nevada Corporation from 2007 to 2010. From 2002 to 2007, Mr. Morrison held increasingly senior positions at Newmont Mining Corporation, including Vice President, Operations Services and Vice President, Information Technology. Prior to that, Mr. Morrison was Vice President and Chief Financial Officer of NovaGold Resources Inc., Vice President and Controller of Homestake Mining Company and held senior financial positions at Phelps Dodge Corporation and Stillwater Mining Company. Mr. Morrison began his career with PricewaterhouseCoopers LLP after obtaining his Bachelor of Arts in Business Administration from Trinity Western University.
Mr. Morrison is, or within the past five years, was a director of the following public companies:
Company |
Positions Held |
From |
To |
|||
Detour Gold Corporation |
Director |
May 2010 |
December 2018 |
|||
Energy Fuels Inc. |
Director |
August 2019 |
Present |
|||
Gold Resource Corporation |
Director |
March 2016 |
Present |
|||
Gold Standard Ventures Corp. |
Director |
August 2017 |
Present |
|||
Pershing Gold Corporation |
Director |
November 2012 |
February 2018 |
|||
Taseko Mines Limited |
Director |
April 2011 |
Present |
Richard Mundie, CPA, CA Director
Mr. Mundie is a Chartered Professional Accountant with a Bachelor of Commerce degree from the University of British Columbia. Mr. Mundie has held a number of senior leadership positions in the mining sector for over 40 years in key organizations in British Columbia and overseas. From 2005 to 2007, he was Vice President, Asia Affairs and Chief Representative (China), for
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Teck Cominco Limited. In this role, he was active in the international mining community and participated in several joint programs to build stronger relationships with the Chinese Government.
Mr. Mundie also held the position of Vice President Commercial for a period of ten years with Teck Cominco. In this role, he was responsible for marketing the companys commercial mineral products, gaining invaluable experience in Europe, South America, United States, Japan, Korea, and Taiwan.
Between 1983 and 1995, he held a number of financial and leadership positions with Cominco and in 1992, he assumed the role of Director of Business Development with wide responsibilities for mergers, acquisitions and divestitures. Earlier career positions included a number of finance related roles in the resources sector, transport and public accounting with PriceWaterhouseCoopers LLP.
Mr. Mundie is, or within the past five years was, a director of the following public companies:
Company |
Positions Held |
From |
To |
|||
Panoro Minerals Ltd. |
Director |
March 2010 |
September 2016 |
|||
Taseko Mines Limited |
Director |
January 2010 |
Present |
Kenneth Pickering Director
Mr. Pickering is a Professional Engineer and mining executive with 40 years of experience in a variety of capacities in the natural resources industry. He has led the development, construction and operation of world-class mining projects in Canada, Chile, Australia, Peru and the United States, focusing on operations, executive responsibilities and country accountabilities.
Mr. Pickering is, or within the past five years was, an officer of the following public companies:
Company |
Positions Held |
From |
To |
|||
Enaex S.A. Chile |
Director |
May 2011 |
May 2018 |
|||
Endeavour Silver Corp. |
Director |
August 2012 |
Present |
|||
Northern Dynasty Minerals Ltd. |
Director |
September 2013 |
Present |
|||
Pan Aust Minerals |
Director |
October 2011 |
August 2015 |
|||
Teck Resources Limited |
Director |
March 2015 |
Present |
|||
THEMAC Resources Group Limited |
Director |
March 2011 |
December 2016 |
|||
Taseko Mines Limited |
Director |
January 2019 |
Present |
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Ronald W. Thiessen, CPA, FCA Chairman of the Board and Director
Mr. Thiessen is a Chartered Professional Accountant with professional experience in finance, taxation, mergers, acquisitions and re-organizations. Since 1986, Mr. Thiessen has been involved in the acquisition and financing of mining and mineral exploration companies. Mr. Thiessen is a director of HDSI (and HDI), a company providing management and administrative services to several publicly-traded companies (including Taseko), and focuses on directing corporate development and financing activities.
Mr. Thiessen is, or within the past five years was, an officer and/or director of the following public companies:
Company |
Positions Held |
From |
To |
|||
Amarc Resources Ltd. |
Director |
September 1995 |
February 2019 |
|||
President |
September 2000 |
November 2014 |
||||
CEO |
September 2000 |
February 2019 |
||||
Northern Dynasty Minerals Ltd. |
Director |
November 1995 |
Present |
|||
President and CEO |
November 2001 |
Present |
||||
Quartz Mountain Resources Ltd. |
Director |
December 2011 |
December 2017 |
|||
President and CEO |
December 2011 |
December 2017 |
||||
Taseko Mines Limited |
Director |
October 1993 |
Present |
|||
Chairman |
May 2006 |
Present |
Brian Battison Vice President, Corporate Affairs
Mr. Battison is responsible for all matters relating to corporate and public affairs, including government and community relations and external communications. Mr. Battison has many years of experience in both the private and public sectors specializing in policy and program development, strategic planning and issue management.
Mr. Battison is, or within the past five years was, an officer of the following public companies:
Company |
Positions Held |
From |
To |
|||
Taseko Mines Limited |
Vice President, Corporate Affairs |
September 2007 |
Present |
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Brian Bergot Vice President, Investor Relations
Mr. Bergot was appointed Vice President, Investor Relations in March 2014 and has over 20 years of experience in the natural resources sector. Brian joined Taseko in 2006 and has held roles of increasing responsibility, in both Investor Relations and Marketing & Logistics. Prior to his career in mining, Mr. Bergot spent 14 years at Methanex Corporation, a $7 billion BC-based chemical company. At Methanex, he held a number of corporate and operational roles including investor relations and marketing & logistics. As Vice President, Investor Relations, he is responsible for expanding the Companys shareholder base in the North American and European markets.
Mr. Bergot is, or within the past five years was, an officer of the following public companies:
Company |
Positions Held |
From |
To |
|||
Taseko Mines Limited |
Vice President, Investor Relations |
March 2014 |
Present |
Bryce Hamming, CFA, CPA, CA Chief Financial Officer
Mr. Hamming is a financial executive with over 20 years experience in corporate finance, corporate development, treasury, tax and financial reporting oversight. He was most recently a financial adviser to Seaspan Corporation on various business development and corporate finance initiatives, including high yield bond alternatives. From 2011 to 2019, he was Chief Financial Officer of Northcliff Resources Ltd. and was also employed by the Hunter Dickinson group in corporate finance working on various other mining development projects throughout North America. He worked for the Royal Bank of Scotland in debt capital markets origination from 2007 to 2009 and articled with KPMG LLP (Vancouver) as a senior tax manager.
Mr. Hamming is, or within the past five year was, an officer of the following public companies.
Company |
Positions Held |
From |
To |
|||
Northcliff Resources Ltd. |
Chief Financial Officer |
June 2011 |
March 2019 |
|||
Taseko Mines Limited |
Chief Financial Officer |
June 2019 |
Present |
Scott Jones, P.Eng. Vice President, Engineering
Mr. Jones has over 35 years of experience in the mining industry. Prior to joining Taseko in 2006, he was a Senior Mining Engineer for Teck Cominco where he was involved in property valuation and feasibility studies. He has also held various senior positions in both underground and open pit operations for Teck Cominco and at Barrick Golds Hemlo Operations. He has a B.Sc. in Mine Engineering from McGill University.
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Mr. Jones is, or within the past five years was, an officer of the following public companies:
Company |
Positions Held |
From |
To |
|||
Taseko Mines Limited |
Vice President, Engineering |
December 2007 |
Present |
John McManus, P. Eng. Chief Operating Officer
Mr. McManus holds a Bachelor of Science degree in mining engineering from the Colorado School of Mines and a Technologist Diploma in Mining from the British Columbia Institute of Technology.
Mr. McManus has worked in the mining industry in British Columbia for over 30 years where he gained experience in mine operations, mine engineering and environmental management. Prior to joining Taseko in 2005, he was the General Manager, Coal Mountain Operations at Elk Valley Coal Corporation. Before that, Mr. McManus was the Mine Manager at Teck Comincos coal mining joint venture Bullmoose operation, General Superintendent at the Elkview coal mine and Superintendent of Engineering at the Quintette operation. His past experience also includes five years working in operations and engineering at the Highland Valley and Lornex copper mines and three years working in gold exploration in the Yukon, British Columbia and California.
Mr. McManus is, or within the past five years was, an officer of the following public companies:
Company |
Positions Held |
From |
To |
|||
Taseko Mines Limited |
Senior Vice President, Operations |
December 2007 |
December 2013 |
|||
Chief Operating Officer |
December 2013 |
Present |
Stuart McDonald, CPA, CA President
Mr. McDonald is a mining executive with 25 years of experience in mining, corporate development, financial and management roles. He joined Taseko as Chief Financial Officer in 2013 and was appointed President in June 2019. Prior to Taseko, he held a number of senior roles in the mining industry including CFO of Quadra FNX Mining Ltd. (and its predecessor Quadra Mining Ltd.) and CFO of Yukon Zinc Corp. He was also Corporate Controller at Cumberland Resources Ltd. until its acquisition by Agnico-Eagle Mines in 2007. Prior to joining the mining industry, he spent 10 years in public accounting with Deloitte & Touche and Ernst & Young.
Mr. McDonald is a Chartered Professional Accountant (British Columbia) and a U.S. Certified Public Accountant (Illinois). He holds a Bachelor of Commerce (Finance) degree from the University of British Columbia.
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Mr. McDonald is, or within the past five years was, an officer of the following public companies:
Company |
Positions Held |
From |
To |
|||
Taseko Mines Limited |
Chief Financial Officer |
September 2013 |
June 2019 |
|||
Taseko Mines Limited |
President |
June 2019 |
Present |
Robert Rotzinger, P. Eng. Vice-President, Capital Projects
Mr. Rotzinger has over 20 years of experience in the mining industry with Taseko and predecessor companies. Mr. Rotzinger has been a key participant in the $700 million capital investment program at the Gibraltar Mine including managing the engineering, construction and commissioning of the three phase mine expansion project. In 2014, he was the recipient of the Canadian Mineral Processors Society Mineral Processor of the Year Award and in 2010, he was a co-recipient of the Association of Mineral Exploration British Columbia E.A. Scholz Award for Excellence in Mine Development for the expansion and modernization of the Gibraltar Mine. He has also received PowerSmart Excellence Awards from BC Hydro in 2008 for Outstanding Energy Efficient Project and again in 2010 for the Application of New Energy Efficient Technology.
Mr. Rotzinger is, or within the past five years was, an officer of the following public companies:
Company |
Positions Held |
From |
To |
|||
Taseko Mines Limited |
Vice President, Capital Projects |
December 2012 |
Present |
Richard Tremblay, P. Eng. Vice President, Operations
Mr. Tremblay joined Taseko as General Manager, Gibraltar in July 2014. Mr. Tremblay is an experienced senior level executive with over 30 years in the mining industry. He has a strong operations background in Open Pit Mining as well as Mineral Processing. Prior to joining Taseko Mr. Tremblay held positions as Vice President Operations, Coalspur, General Manager Fording River Operations Teck Coal, General Manager Line Creek Operations, Elk Valley Coal Corporation and Superintendent, Processing Elkview Operations and Coal Mountain Operations, Elk Valley Coal Corporation.
In May 2019, Mr. Tremblay was named Mining Person of the Year by the Mining Association of BC for his work on the BC Health, Safety, and Reclamation Code Committee and the Mining Jobs Task Force. He also served as Chair of the BC Mine Managers Committee from 2007 to 2009. Mr. Tremblay holds an MBA from Simon Fraser University and is a professional engineer with a Bachelor of Science in Chemical Engineering from Queens University.
Mr. Tremblay is, or within the past five years was, an officer of the following public companies:
Company |
Positions Held |
From |
To |
|||
Taseko Mines Limited |
Vice President, Operations |
June 2019 |
Present |
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Trevor Thomas, LLB Secretary
Mr. Thomas has practiced in the areas of corporate commercial, corporate finance, securities and mining law since 1995, both in private practice environment as well as in-house positions and is currently general counsel for Hunter Dickinson Inc. Prior to joining Hunter Dickinson Inc. he served as in-house legal counsel with Placer Dome Inc.
Mr. Thomas is, or within the past five years was, an officer of the following public companies:
Company |
Positions Held |
From |
To |
|||
Amarc Resources Ltd. |
Secretary |
February 2008 |
Present |
|||
Heatherdale Resources Ltd. |
Secretary |
July 2013 |
Present |
|||
Mineral Mountain Resources Ltd. |
Director |
September 2016 |
Present |
|||
Northcliff Resources Ltd. |
Secretary |
June 2011 |
Present |
|||
Northern Dynasty Minerals Ltd. |
Secretary |
February 2008 |
Present |
|||
Quadro Resources Ltd. |
Director |
June 2017 |
Present |
|||
Quartz Mountain Resources Ltd. |
Secretary |
June 2013 |
Present |
|||
Director, President and CEO |
February 2019 |
Present |
||||
Rathdowney Resources Ltd. |
Secretary |
March 2011 |
Present |
|||
RE Royalties Ltd. |
Secretary |
November 2018 |
Present |
|||
Taseko Mines Limited |
Secretary |
August 2008 |
Present |
Cease Trade Orders, Bankruptcies, Penalties or Sanctions
No director or executive officer of Taseko is as of the date of this AIF, or has been within the 10 years before the date of this AIF, a director or executive officer of any company that was the subject of a cease trade order or similar penalty or sanction while that person was acting in that capacity, or was the subject of a cease trade order or similar penalty or sanction after the director or executive officer ceased to act in that capacity and which resulted from any event that occurred while that person was acting in the capacity of a director or executive officer.
Except as disclosed below, no director or executive officer of the Company, or a shareholder holding a sufficient number of securities of the Company to affect materially control of the Company, (i) is, or within ten years prior to the date hereof has been, a director or executive officer of any company (including the Company) that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets, or (ii) has, within ten years prior to the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise
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with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, executive officer or shareholder.
As publicly disclosed at www.sedar.com, Great Basin Gold Ltd. (GBG), a company on whose board Ronald W. Thiessen served became insolvent and was liquidated commencing in 2012. GBG was developing two gold projects using substantial debt financing when gold prices began their precipitous fall. Mr. Thiessen resigned on June 30, 2013.
No director or executive officer of the Company, or a shareholder holding a sufficient number of securities of the Company to affect materially the control of the Company, has been subject to (i) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or (ii) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.
Potential Conflicts of Interest
Several directors of Taseko also serve as directors of one or more other resource companies involved in mineral exploration and/or development. It may occur from time to time that as a consequence of their activity in the mineral industry and serving on such other boards that a director may become aware of potential resource property opportunities which are of interest to more than one of the companies on whose boards that person serves. Furthermore, it is possible that the directors of Taseko and the directors of one or more such other companies may also agree to allow joint participation on Tasekos properties or the properties of that other company. Accordingly, situations may arise in the ordinary course which involves a director in an actual or potential conflict of interest as well as issues in connection with the general obligation of a director to make corporate opportunities available to the company on which the director serves. In all such events, any director who might have a disclosable financial interest in a contract or transaction by virtue of office, employment or security holdings or other such interest in another company or in a property interest under consideration by the Taseko Board, would be obliged to abstain from voting as a Taseko director in respect of any transaction involving that other company(s) or in respect of any property in which an interest is held by him. The directors will use their best business judgment to help avoid situations where conflicts or corporate opportunity issues might arise and they must at all times fulfill their duties to act honestly and in the best interests of Taseko.
LEGAL PROCEEDINGS AND REGULATORY ACTIONS
The Company has not been subject to any securities regulatory authority or other regulatory authority or court penalty or sanction.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
None of the directors or senior officers of the Company, nor any person who has held such a position since the beginning of the last completed financial year end of the Company, nor any
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associate or affiliate of the foregoing persons, has any substantial or material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in any material transaction of the Company other than as set out herein.
On December 31, 2018, the Company terminated the services agreement with Hunter Dickinson Services Inc. (HDSI), which was a related party as three directors of the Company (Robert Dickinson, Ronald Thiessen and Russell Hallbauer) are also principals of HDSI. In 2018 and prior years, HDSI invoiced the Company for their executive services (director fees) and for other services provided by HDSI under a services agreement dated July 2010.
Effective from January 1, 2019, HDSI no longer provides services to the Company, and the Company had no transactions with HDSI, except for a reimbursement of warehouse rental costs in the amount of $0.04 million for the year ended December 31, 2019.
For the year ended December 31, 2018, the Company incurred total costs of $1.3 million in transactions with HDSI. Of these, $0.5 million related to administrative, legal, exploration and tax services, $0.5 million related to reimbursements of office rent costs, and $0.3 million related to director fees for two Taseko directors who are also principals of HDSI.
TRANSFER AGENT AND REGISTRAR
The Companys registrar and transfer agent for its common shares is Computershare Investor Services Inc. at its offices in Vancouver, British Columbia.
MATERIAL CONTRACTS
The following contracts are considered material and have been filed at www.sedar.com:
(a) |
Joint Venture Operating Agreement with Cariboo, dated March 18, 2010, whereby the Gibraltar Mine is operated in a 75:25 joint venture with Cariboo; and |
(b) |
2017 Secured Note Indenture, dated as of June 14, 2017, between the Company and each of the Guarantors Party, and The Bank of New York Mellon, as U.S. Trustee, and BNY Trust Company of Canada, as Canadian Co-Trustee and Collateral Agent. Information on the terms of the 2017 Secured Notes and the 2017 Secured Note Indenture is incorporated by reference from the Companys material change report dated June 14, 2017 filed on SEDAR on June 24, 2017. |
INTERESTS OF EXPERTS
The following is a list of the persons or companies named as having prepared or certified a statement, report or valuation, in this AIF either directly or in a document incorporated by reference and whose profession or business gives authority to the statement, report or valuation made by the person or company:
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(a) |
The Companys independent auditors are KPMG LLP, Chartered Professional Accountants, who have issued independent auditors reports dated February 18, 2020 in respect of the Companys consolidated financial statements as at December 31, 2019 and for the fiscal year ended December 31, 2019 and the Companys internal control over financial reporting as of December 31, 2019; |
(b) |
Richard Weymark, P. Eng., MBA, authored the Technical Report on the Mineral Reserve Update at the Gibraltar Mine dated November 6, 2019 and the Technical Report on the Mineral Reserve Update at the Yellowhead Copper Project dated January 16, 2020; and |
(c) |
Dan Johnson, P.E., authored the NI 43-101 Technical Report, Florence Copper Project, Florence, Pinal County, Arizona dated February 28, 2017, amended and restated December 4, 2017. |
To our knowledge, Richard Weymark and Dan Johnson does not hold, directly or indirectly, more than 1% of our issued and outstanding common shares.
KPMG are the auditors of the Company and have confirmed that they are independent of the Company within the meaning of the relevant rules and related interpretations prescribed by the relevant professional bodies in Canada and any applicable legislation or regulation and also that they are independent accountants with respect to the Company under all relevant US professional and regulatory standards.
Based on information provided by the relevant persons, and except as otherwise disclosed in this AIF, none of the persons or companies referred to above has received or will receive any direct or indirect interests in our property or the property of an associated party or an affiliate of ours.
ADDITIONAL INFORMATION
Additional information, including additional financial information, directors and officers remuneration, indebtedness of officers, executive stock options and interests of management and others in material transactions, where applicable, is contained in annual financial statements, Management Discussion & Analysis (MD&A), proxy circulars and interim financial statements available under the Companys profile at the SEDAR internet web site (www.sedar.com).
The following documents can be obtained upon request from Tasekos Shareholder Communication Department by calling (778) 373-4533:
I. |
this Annual Information Form, together with any document incorporated herein by reference; |
II. |
the annual report and MD&A of the Company and any interim financial statements and MD&A filed with Securities Commissions subsequent to the audited financial statements for the Companys most recently completed financial year; and |
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III. |
the Proxy Circular for the June 13, 2019 annual general meeting of the Company dated May 8, 2019. |
The Company may require the payment of a reasonable charge from persons, other than security holders of the Company, requesting copies of these documents.
AUDIT AND RISK COMMITTEE
The Audit and Risk Committee has adopted a charter that sets out its mandate and responsibilities, and is attached to this AIF as Appendix A.
Composition of Audit and Risk Committee
The Audit and Risk Committee, consisting of Richard Mundie, Anu Dhir and Alex Morrison, reviews all financial statements of the Company prior to their publication, meets with the auditors as part of their review of audit findings, considers the adequacy of audit procedures, recommends the appointment of independent auditors, reviews and approves the professional services to be rendered by them and reviews fees for audit services. The charter has set criteria for membership which all members of the Audit and Risk Committee are required to meet consistent with National Instrument 52-110 Audit Committees and other applicable regulatory requirements. The Audit and Risk Committee, as needed, meets separately (without management present) with the Companys auditors to discuss the various aspects of the Companys financial statements and the independent audit.
Each Audit and Risk Committee member is an independent director and is financially literate. Mr. Mundie is the Audit and Risk Committees Chairman. Messrs. Morrison and Mundie are financial experts.
Relevant Education and Experience
Disclosure respecting the education and experience of the Audit and Risk Committee is provided in their biographies above. As a result of their education and experience, each member of the Audit Committee has familiarity with, an understanding of, or experience in:
|
the accounting principles used by the Company to prepare its financial statements, and the ability to assess the general application of those principles in connection with estimates, accruals and reserves; |
|
reviewing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Companys financial statements; and |
|
internal controls and procedures for financial reporting. |
Code of Ethics
The Company has adopted a code of ethics that applies to all directors, officers and employees of the Company, including the Chief Executive Officer, Chief Operating Officer, Chief Financial
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Officer and other senior finance staff. A copy of the Code of Ethics, which is included as a part of the Companys Governance Policies and Procedures Manual, is available on the Companys website at www.tasekomines.com and at the SEDAR internet web site www.sedar.com.
Principal Accountant Fees and Services
The following table discloses the aggregate fees billed for each of the last two years for professional services rendered by the Companys audit firm for various services.
Services |
Year ended
December 31, 2019 |
Year ended
December 31, 2018 |
||||||
Audit Fees1 |
$ | 601,000 | $ | 502,000 | ||||
Audit Related Fees2 |
| | ||||||
Tax Fees |
| | ||||||
All Other Fees |
| | ||||||
Total |
$ | 601,000 | $ | 502,000 |
(1) |
Audit Fees for the year ended December 31, 2019 include fees related to additional procedures for new accounting standards, transactions and final audit fees of $36,000 related to the 2018 audit. |
(2) |
Audit Related Fees include services that are traditionally performed by the auditor. |
Pre-Approval Policies and Procedures
Management of the Company requests approval from the Audit and Risk Committee for all audit and non-audit services to be provided by the Companys auditors. The Audit and Risk Committee pre-approves all such services with set maximum dollar amounts for each itemized service. During such deliberations, the Audit and Risk Committee assesses, among other factors, whether the services requested would be considered prohibited services as contemplated under Canadian independence standards and by the US Securities and Exchange Commission, and whether the services requested and the fees related to such services could impair the independence of the auditors. No audit-related fees, tax fees or other non-audit fees for such prohibited services were approved by the Audit and Risk Committee.
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APPENDIX A
Audit and Risk Committee Charter
1. |
Purpose: Responsibilities and Authority |
The Audit and Risk Committee (the Audit Committee or Committee) shall carry out its responsibilities under applicable laws, regulations and stock exchange requirements with respect to the employment, compensation and oversight of the Companys independent auditor, and other matters under the authority of the Committee. The Committee also shall assist the Board of Directors in carrying out its oversight responsibilities relating to the Companys financial, accounting and reporting processes, the Companys system of internal accounting and financial controls, the Companys compliance with related legal and regulatory requirements, and the fairness of transactions between the Company and related parties. In furtherance of this purpose, the Committee shall have the following responsibilities and authority:
(a) |
Relationship with Independent Auditor. |
(i) Subject to the law of British Columbia as to the role of the Shareholders in the appointment of independent auditors, the Committee shall have the sole authority to appoint or replace the independent auditor.
(ii) The Committee shall be directly responsible for the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work.
(iii) The independent auditor shall report directly to the Committee.
(iv) The Committee shall approve in advance all audit and permitted non-audit services with the independent auditor, including the terms of the engagements and the fees payable; provided that the Committee Chairman may approve services to be performed by the independent auditors and the fee therefor between Committee meetings if the amount of the fee does not exceed $50,000, provided that any such approval shall be reported to the Committee at the next meeting thereof. The Committee may delegate to a subcommittee the authority to grant pre-approvals of audit and permitted non-audit services, provided that the decision of any such subcommittee shall be presented to the full Committee at its next scheduled meeting.
(v) At least annually, the Committee shall review and evaluate the experience and qualifications of the lead partner and senior members of the independent auditor team.
(vi) At least annually, the Committee shall obtain and review a report from the independent auditor regarding:
(A) the independent auditors internal quality-control procedures;
(B) any material issues raised by the most recent internal quality-control review, or peer review, of the auditor, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm;
(C) any steps taken to deal with any such issues; and
(D) all relationships between the independent auditor and the Company.
(vii) At least annually, the Committee shall evaluate the qualifications, performance and independence of the independent auditor, including considering whether the auditors quality controls are adequate and the provision of permitted non-audit services is compatible with maintaining the auditors independence.
(viii) The Committee shall ensure the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit, the concurring partner responsible for reviewing the audit, and other audit partners as required by law.
(ix) The Committee shall consider whether, in order to assure continuing auditor independence, it is appropriate to adopt a policy of rotating the independent auditing firm on a regular basis.
(x) The Committee shall recommend to the Board policies for the Companys hiring of employees or former employees of the independent auditor who were engaged on the Companys account or participated in any capacity in the audit of the Company.
(xi) The Committee shall oversee the implementation by management of appropriate information technology systems for the Company, including as required for proper financial reporting and compliance.
(b) |
Financial Statement and Disclosure Review. |
(i) The Committee shall review and discuss with management and the independent auditor the annual audited financial statements, including disclosures made in managements discussion and analysis, and recommend to the Board whether the audited financial statements should be filed with applicable securities regulatory authorities and included in the Companys annual reports.
(ii) The Committee shall review and discuss with management (and, to the extent the Committee deems it necessary or appropriate, the independent auditor) the Companys quarterly financial statements, including disclosures made in managements discussion and analysis, and recommend to the Board whether such financial statements should be filed with applicable securities regulatory authorities.
(iii) The Committee shall review and discuss with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of the Companys financial statements, including the independent auditors assessment of the quality of the Companys accounting
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principles, any significant changes in the Companys selection or application of accounting principles, any major issues as to the adequacy of the Companys internal controls over financial reporting, and any special steps adopted in light of material control deficiencies.
(iv) At least annually and prior to the publication of annual audited financial statements, the Committee shall review and discuss with management and the independent auditor a report from the independent auditor on:
(A) all critical accounting policies and practices used by the Company;
(B) all alternative accounting treatments of financial information that have been discussed with management since the prior report, ramifications of the use of such alternative disclosures and treatments, the treatment preferred by the independent auditor, and an explanation of why the independent auditors preferred method was not adopted; and.
(C) other material written communications between the independent auditor and management since the prior report, such as any management letter or schedule of unadjusted differences, the development, selection and disclosure of critical accounting estimates, and analyses of the effect of alternative assumptions, estimates or GAAP methods on the Companys financial statements.
(v) Prior to their filing or issuance, the Committee shall review the Companys Annual Information Form/Annual Report to the SEC, quarterly and annual earnings press releases, and other financial press releases, including the use of pro forma or adjusted non-GAAP information.
(vi) The Committee shall review and discuss with management the financial information and earnings guidance provided to analysts and rating agencies. Such discussion may be specific or it may be in general regarding the types of information to be disclosed and the types of presentations to be made.
(c) Conduct of the Annual Audit. The Committee shall oversee the annual audit, and in the course of such oversight the Committee shall have the following responsibilities and authority:
(i) The Committee shall meet with the independent auditor prior to the audit to discuss the planning and conduct of the annual audit, and shall meet with the independent auditor as may be necessary or appropriate in connection with the audit.
(ii) The Committee shall ascertain that the independent auditor is registered and in good standing with the Canadian Public Accounting Board and the Public Company Accounting Oversight Board (PCAOB) and that the independent auditor satisfies all applicable Canadian independence standards (Canadian Auditing Standard 200), PCAOB Rule 3526 and SEC Regulation S-X, Section 2-01. The Committee shall obtain from the auditor a written statement description of all relationships between the auditor and the Company and persons in a
- 3 -
financial reporting oversight role at the Company as per PCAOB Rule 3526, that may reasonably be thought to bear on independence.
(ii) The Committee shall discuss with the independent auditor the matters required to be discussed by PCAOB Auditing Standard No. 16 and Canadian Auditing Standard 260 relating to the conduct of the audit.
(iii) The Committee shall obtain from the independent auditor assurance that the audit was conducted in a manner consistent with Section 10A of the Securities Exchange Act of 1934 and that, in the course of conducting the audit, the independent auditor has not become aware of information indicating that an illegal act has or may have occurred or, if such an act may have occurred, that the independent auditor has taken all action required by Section 10A(b) of the Securities Exchange Act of 1934.
(iv) The Committee shall make such inquiries to the management and the independent auditor as the Committee members deem necessary or appropriate to satisfy themselves regarding the efficacy of the Companys financial and internal controls and procedures and the auditing process.
(d) |
Compliance and Oversight. |
(i) The Committee shall meet periodically with management and the independent auditor in separate executive sessions. The Committee may also, to the extent it deems necessary or appropriate, meet with the Companys investment bankers and financial analysts who follow the Company.
(ii) The Committee shall discuss with management and the independent auditor the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the Companys financial statements.
(iii) The Committee shall discuss with management the Companys major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Companys risk assessment and risk management policies, and regularly review the top risks identified by management and the policies and practices adopted by the Company to mitigate those risks.
(iv) At least annually and prior to the filing of the AIF/Annual Report to the SEC, the Committee shall review with management and the independent auditor the disclosure controls and procedures and confirm that the Company (with CEO and CFO participation) has evaluated the effectiveness of the design and operation of the controls within 90 days prior to the date of filing of the AIF/Annual Report to the SEC. The Committee also shall review with management and the independent auditor any deficiencies in the design and operation of internal controls and significant deficiencies or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Companys internal controls. As a part of that review, the Committee shall review the process followed in preparing and verifying the accuracy of the required CEO and CFO annual certifications.
- 4 -
(v) At least annually and prior to the filing of the AIF/Annual Report to the SEC, the Committee shall review with management and the independent auditor managements internal control report and assessment of the internal controls and procedures, and the independent auditors report on and assessment of the internal controls and procedures. In connection with its review of interim and annual financial statements and related managements discussion and analysis, the Committee shall confirm with management that the Company (with CEO and CFO participation) has taken all actions required in connection with the certifications required by National Instrument NI 52-109, Certification of Disclosure in Issuers Annual and Interim Filings.
(vi) The Committee shall establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
(vii) The Committee shall discuss with management and the independent auditor any correspondence with regulators or governmental agencies and any employee complaints or reports which raise material issues regarding the Companys financial statements or accounting policies.
(viii) At least annually, the Committee shall meet with the Companys legal counsel and discuss any legal matters that may have a material impact on the financial statements or the Companys compliance policies.
(ix) The Committee shall oversee the preparation of reports relating to the Audit Committee required under applicable laws, regulations and stock exchange requirements.
(x) The Committee shall exercise oversight with respect to anti-fraud programs and controls.
(e) |
Related Party Transactions. |
(i) The Committee shall review for fairness to the Company proposed transactions, contracts and other arrangements between the Company and its subsidiaries and any related party or affiliate, and make recommendations to the Board whether any such transactions, contracts and other arrangements should be approved or continued. The foregoing shall not include any compensation payable pursuant to any plan, program, contract or arrangement subject to the authority of the Companys Compensation Committee.
(ii) As used herein the term related party means any officer or director of the Company or any subsidiary, or any shareholder holding a greater than 10% direct or indirect financial or voting interest in the Company, and the term affiliate means any person, whether acting alone or in concert with others, that controls, is controlled by or is under common control with another person. Related party includes Hunter Dickinson Services Inc., its principals, and their affiliates.
- 5 -
(f) |
Additional duties. The Committee shall perform the following additional duties: |
(i) The Committee shall review and recommend dividend policies.
(ii) The Committee shall oversee the Companys insurance program and approve insurance policy limits.
(iii) The Committee shall review the appointment of senior financial personnel and make recommendations to the Board of Directors regarding the appointment of the Chief Financial Officer.
(iv) The Committee shall recommend to the Nominating and Governance Committee the qualifications and criteria for membership on the Committee.
(v) The Committee shall review and discuss with management the requirement for annual public disclosure pursuant to the Extractive Sector Transparency Measures Act and shall be responsible for approving such disclosures.
2. |
Structure and Membership |
(a) Number and qualification. The Committee shall consist of three persons unless the Board should from time to time otherwise determine. All members of the Committee shall meet the experience and financial literacy requirements of National Instrument NI 52-110 and the rules of the Toronto Stock Exchange and the NYSE American. At least one member of the Committee shall be a financial expert as defined in Item 407 of SEC Regulation S-K.
(b) Selection and Removal. Members of the Committee shall be appointed by the Board, upon the recommendation of the Nominating and Corporate Governance Committee. The Board may remove members of the Committee at any time with or without cause.
(c) Independence. All of the members of the Committee shall be independent as required for audit committees by National Instrument NI 52-110, the rules of the Toronto Stock Exchange and the NYSE American, and SEC Rule 10A-3.
(d) Chair. Unless the Board elects a Chair of the Committee, the Committee shall elect a Chair by majority vote.
(e) Compensation. The compensation of the Committee shall be as determined by the Board.
(f) Term. Members of the Committee shall be appointed for one-year terms. Each member shall serve until his or her replacement is appointed, or until he or she resigns or is removed from the Board or the Committee.
3. |
Procedures and Administration |
- 6 -
(a) Meetings. The Committee shall meet as often as it deems necessary in order to perform its responsibilities, but not less than quarterly. The Committee shall keep minutes of its meetings and any other records as it deems appropriate.
(b) Subcommittees. The Committee may form and delegate authority to one or more subcommittees, consisting of at least one member, as it deems appropriate from time to time under the circumstances.
(c) Reports to the Board. The Committee shall regularly report to the Board with respect to such matters as are relevant to the Committees discharge of its responsibilities, and shall report in writing on request of the Chairman of the Board.
(d) Charter. The Committee shall, at least annually, review and reassess the adequacy of this Charter and recommend any proposed changes to the Board for approval.
(e) Independent Advisors. The Committee shall have the authority to engage such independent legal and other advisors as it deems necessary or appropriate to carry out its responsibilities. Such independent advisors may be regular advisors to the Company. The Committee is empowered, without further action by the Board, to cause the Company to pay appropriate compensation to advisors engaged by the Committee.
(f) Investigations. The Committee shall have the authority to conduct or authorize investigations into any matters within the scope of its responsibilities as it deems appropriate, including the authority to request any Officer or other person to meet with the Committee and to access all Company records.
(g) Annual Self-Evaluation. The Committee shall evaluate its own performance at least annually.
4. |
Additional Powers |
The Committee shall have such other duties as may be delegated from time to time by the Board of Directors.
5. |
Limitation of Committees Role |
While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Companys financial statements and disclosures are complete and accurate and are in accordance with GAAP and applicable rules and regulations. These are the responsibilities of management and the independent auditor.
6. |
Committee Member Independence, Financial Literacy and Financial Expert Requirements |
A. |
Independence |
See Appendix 2 of the Companys Corporate Governance Overview and Guidelines.
- 7 -
B. |
Financial Literacy and Financial Expert Requirements |
NI 52-110
Section 3.1(4) states that each audit committee member must be financially literate.
Section 1.6 defines the meaning of financial literacy as follows:
For the purposes of this Instrument, an individual is financially literate if he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the issuers financial statements.
NYSE American Section 803(B)(2)(a)(iii)
Each issuer must have an Audit Committee of at least three members, each of whom:
is able to read and understand fundamental financial statements, including a companys balance sheet, income statement, and cash flow statement. Additionally, each issuer must certify that it has, and will continue to have, at least one member of the audit committee who is financially sophisticated, in that he or she has past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individuals financial sophistication, including but not limited to being or having been a chief executive officer, chief financial officer, other senior officer with financial oversight responsibilities. A director who qualifies as an audit committee financial expert under Item 407(d)(5)(ii) of Regulation S-K . is presumed to qualify as financially sophisticated.
ITEM 407(d)(5)(ii) OF REGULATION S-K, DEFINITION OF FINANCIAL EXPERT
For purposes of this Item, an audit committee financial expert means a person who has the following attributes:
(A) |
An understanding of generally accepted accounting principles and financial statements; |
(B) |
The ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves; |
(C) |
Experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrants financial statements, or experience actively supervising one or more persons engaged in such activities; |
(D) |
An understanding of internal control over financial reporting; and |
(E) |
An understanding of audit committee functions. |
- 8 -
A person shall have acquired such attributes through:
(A) |
Education and experience as a principal financial officer, principal accounting officer, controller, public accountant or auditor or experience in one or more positions that involve the performance of similar functions; |
(B) |
Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor or person performing similar functions; |
(C) |
Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing or evaluation of financial statements; or |
(D) |
Other relevant experience. |
- 9 -
Exhibit 99.6
Consolidated Financial Statements
December 31, 2019 and 2018
MANAGEMENTS RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated financial statements, the notes thereto and other financial information contained in the Managements Discussion and Analysis have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and are the responsibility of the management of Taseko Mines Limited. The financial information presented elsewhere in the Managements Discussion and Analysis is consistent with the data that is contained in the consolidated financial statements. The consolidated financial statements, where necessary, include amounts which are based on the best estimates and judgment of management.
In order to discharge managements responsibility for the integrity of the financial statements, the Company maintains a system of internal control over financial reporting. These controls are designed to provide reasonable assurance that the Companys assets are safeguarded, transactions are executed and recorded in accordance with managements authorization, proper records are maintained and relevant and reliable financial information is produced. These controls include maintaining quality standards in hiring and training of employees, establishing policies and procedures, a corporate code of conduct and ensuring that there is proper accountability for performance within appropriate and well-defined areas of responsibility.
The Board of Directors is responsible for overseeing managements performance of its responsibilities for financial reporting and internal control over financial reporting. The Audit Committee, which is composed of non-executive directors, meets with management as well as the external auditors to ensure that management is properly fulfilling its financial reporting responsibilities to the Directors who approve the consolidated financial statements. The external auditors have full and unrestricted access to the Audit Committee to discuss the scope of their audits, the adequacy of the system of internal control over financial reporting and review financial reporting issues.
The consolidated financial statements have been audited by KPMG LLP, the Companys independent registered public accounting firm, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States).
/s/ Russell Hallbauer | /s/ Bryce Hamming | |
Russell Hallbauer | Bryce Hamming | |
Chief Executive Officer | Chief Financial Officer | |
Vancouver, British Columbia | ||
February 19, 2020 |
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Companys management, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act) as a process designed by, or under the supervision of, the Companys principal executive and principal financial officers and effected by the Companys Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards. The Companys internal control over financial reporting includes those policies and procedures that:
|
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
|
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
|
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on the financial statements. |
The Companys management, under the supervision of the Chief Executive Officer and the Chief Financial Officer, assessed the effectiveness of the Companys internal control over financial reporting as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act as of December 31, 2019. In making this assessment, it used the criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that, as of December 31, 2019, the Companys internal control over financial reporting is effective based on those criteria.
The effectiveness of the Companys internal control over financial reporting as of December 31, 2019 has been audited by KPMG LLP, the Companys independent registered public accounting firm, as stated in their report immediately preceding the Companys audited consolidated financial statements for the years ended December 31, 2019 and 2018.
/s/ Russell Hallbauer |
/s/ Bryce Hamming |
|
Russell Hallbauer |
Bryce Hamming |
|
Chief Executive Officer |
Chief Financial Officer |
|
Vancouver, British Columbia | ||
February 19, 2020 |
|
||||||
KPMG LLP Chartered Professional Accountants PO Box 10426 777 Dunsmuir Street Vancouver BC V7Y 1K3 Canada |
Telephone (604) 691-3000 Fax (604) 691-3031 Internet www.kpmg.ca |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Taseko Mines Limited:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Taseko Mines Limited (the Company) as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income (loss), changes in equity, and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and its financial performance and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Companys internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 19, 2020 expressed an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2.5 to the consolidated financial statements, the Company has changed its accounting policy for leases as of January 1, 2019 due to the adoption of IFRS 16 - Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. KPMG Canada provides services to
KPMG LLP.
Taseko Mines Limited
Page 2
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Companys auditor since 1999
KPMG LLP (signed)
Chartered Professional Accountants
Vancouver, Canada
February 19, 2020
|
||||||
KPMG LLP Chartered Professional Accountants PO Box 10426 777 Dunsmuir Street Vancouver BC V7Y 1K3 Canada |
Telephone (604) 691-3000 Fax (604) 691-3031 Internet www.kpmg.ca |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Taseko Mines Limited:
Opinion on Internal Control Over Financial Reporting
We have audited Taseko Mines Limiteds (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income (loss), changes in equity, and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements), and our report dated February 19, 2020 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. KPMG Canada provides services to
KPMG LLP.
Taseko Mines Limited
Page 2
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
KPMG LLP (signed)
Chartered Professional Accountants
Vancouver, Canada
February 19, 2020
TASEKO MINES LIMITED
Consolidated Statements of Comprehensive Income (Loss)
(Cdn$ in thousands, except share and per share amounts)
For the years ended December 31, |
||||||||||||
Note | 2019 | 2018 | ||||||||||
Revenues |
4 | 329,163 | 343,870 | |||||||||
Cost of sales |
||||||||||||
Production costs |
5 | (258,550) | (231,867) | |||||||||
Depletion and amortization |
5 | (109,756) | (70,781) | |||||||||
Earnings (loss) from mining operations |
(39,143) | 41,222 | ||||||||||
General and administrative |
(13,804) | (13,957) | ||||||||||
Share-based compensation recovery (expense) |
22c | (2,946) | 1,544 | |||||||||
Project evaluation expenditures |
(3,569) | (1,752) | ||||||||||
Loss on derivatives |
7 | (2,834) | (294) | |||||||||
Other income |
8 | 920 | 1,472 | |||||||||
Income (loss) before financing costs and income taxes |
(61,376) | 28,235 | ||||||||||
Finance expenses |
9 | (40,324) | (38,564) | |||||||||
Finance income |
1,202 | 1,254 | ||||||||||
Foreign exchange gain (loss) |
14,779 | (26,251) | ||||||||||
Loss before income taxes |
(85,719) | (35,326) | ||||||||||
Income tax (expense) recovery |
10 | 32,337 | (448) | |||||||||
Net loss |
(53,382) | (35,774) | ||||||||||
Other comprehensive income (loss): |
||||||||||||
Unrealized gain on financial assets |
13 | 1,229 | 962 | |||||||||
Foreign currency translation reserve |
(8,466) | 12,713 | ||||||||||
Total other comprehensive income (loss) |
(7,237) | 13,675 | ||||||||||
Total comprehensive loss |
(60,619) | (22,099) | ||||||||||
Loss per share |
||||||||||||
Basic |
(0.22) | (0.16) | ||||||||||
Diluted |
(0.22) | (0.16) | ||||||||||
Weighted average shares outstanding (thousands) |
||||||||||||
Basic |
243,914 | 227,866 | ||||||||||
Diluted |
243,914 | 227,866 |
The accompanying notes are an integral part of these consolidated financial statements.
TASEKO MINES LIMITED
Consolidated Statements of Cash Flows
(Cdn$ in thousands)
For the years ended December 31, |
||||||||||
Note | 2019 | 2018 | ||||||||
Operating activities |
||||||||||
Net loss for the year |
(53,382 | ) | (35,774 | ) | ||||||
Adjustments for: |
||||||||||
Depletion and amortization |
109,756 | 70,781 | ||||||||
Income tax (recovery) expense |
10 | (32,337 | ) | 448 | ||||||
Share-based compensation expense (recovery) |
22c | 3,126 | (1,282 | ) | ||||||
Loss on derivatives |
7 | 2,834 | 294 | |||||||
Finance expenses, net |
39,122 | 37,310 | ||||||||
Unrealized foreign exchange (gain) loss |
(15,228 | ) | 28,704 | |||||||
Amortization of deferred revenue |
19 | (3,437 | ) | (3,295 | ) | |||||
Deferred electricity repayments |
- | (4,841 | ) | |||||||
Other operating activities |
(1,199 | ) | (160 | ) | ||||||
Net change in non-cash working capital |
24 | (6,614 | ) | 1,893 | ||||||
Cash provided by operating activities |
42,641 | 94,078 | ||||||||
Investing activities |
||||||||||
Purchase of property, plant and equipment |
15 | (50,751 | ) | (94,866 | ) | |||||
Distribution of reclamation deposits |
13 | 30,000 | - | |||||||
Release of restricted cash |
13 | 6,200 | - | |||||||
Purchase of copper put options |
7 | (2,834 | ) | (1,063 | ) | |||||
Proceeds from copper put options |
7 | 241 | 855 | |||||||
Investment in other financial assets |
- | (253 | ) | |||||||
Other investing activities |
213 | 933 | ||||||||
Cash used for investing activities |
(16,931 | ) | (94,394 | ) | ||||||
Financing activities |
||||||||||
Interest paid |
(32,011 | ) | (30,578 | ) | ||||||
Proceeds from equipment financings |
18c,d | 34,013 | 8,943 | |||||||
Repayment of leases and equipment financings |
(18,920 | ) | (12,293 | ) | ||||||
Proceeds on exercise of options |
176 | 333 | ||||||||
Cash used for financing activities |
(16,742 | ) | (33,595 | ) | ||||||
Effect of exchange rate changes on cash and equivalents |
(1,435 | ) | (655 | ) | ||||||
Increase (decrease) in cash and equivalents |
7,533 | (34,566 | ) | |||||||
Cash and equivalents, beginning of year |
45,665 | 80,231 | ||||||||
Cash and equivalents, end of year |
53,198 | 45,665 | ||||||||
Supplementary cash flow disclosures |
24 |
The accompanying notes are an integral part of these consolidated financial statements.
TASEKO MINES LIMITED
Consolidated Balance Sheets
(Cdn$ in thousands)
December 31, |
December 31, | |||||||||
Note | 2019 | 2018 | ||||||||
ASSETS |
||||||||||
Current assets |
||||||||||
Cash and equivalents |
53,198 | 45,665 | ||||||||
Accounts receivable |
11 | 13,791 | 14,735 | |||||||
Inventories |
12 | 43,620 | 38,986 | |||||||
Other financial assets |
13 | 730 | 3,581 | |||||||
Prepaids |
2,513 | 1,464 | ||||||||
113,852 | 104,431 | |||||||||
Property, plant and equipment |
15 | 758,006 | 821,287 | |||||||
Other financial assets |
13 | 6,783 | 41,380 | |||||||
Goodwill |
16 | 5,355 | 5,625 | |||||||
883,996 | 972,723 | |||||||||
LIABILITIES |
||||||||||
Current liabilities |
||||||||||
Accounts payable and other liabilities |
17 | 43,685 | 41,001 | |||||||
Current portion of long-term debt |
18 | 16,460 | 9,856 | |||||||
Current portion of deferred revenue |
19 | 4,558 | 3,907 | |||||||
Interest payable on senior secured notes |
1,184 | 1,243 | ||||||||
Current income tax payable |
1,406 | 1,427 | ||||||||
67,293 | 57,434 | |||||||||
Long-term debt |
18 | 357,025 | 345,625 | |||||||
Provision for environmental rehabilitation (PER) |
20 | 66,373 | 97,914 | |||||||
Deferred and other tax liabilities |
10c | 50,703 | 83,793 | |||||||
Deferred revenue |
19 | 39,433 | 39,367 | |||||||
Other financial liabilities |
22b | 1,483 | 1,513 | |||||||
582,310 | 625,646 | |||||||||
EQUITY |
||||||||||
Share capital |
21a | 436,318 | 423,438 | |||||||
Contributed surplus |
51,622 | 49,274 | ||||||||
Accumulated other comprehensive income (AOCI) |
6,827 | 14,064 | ||||||||
Deficit |
(193,081 | ) | (139,699 | ) | ||||||
301,686 | 347,077 | |||||||||
883,996 | 972,723 | |||||||||
Commitments and contingencies |
19, 23 | |||||||||
Subsequent event |
27 |
The accompanying notes are an integral part of these consolidated financial statements.
TASEKO MINES LIMITED
Consolidated Statements of Changes in Equity
(Cdn$ in thousands)
Share
capital |
Contributed
|
AOCI | Deficit | Total | ||||||||||||||||
Balance at January 1, 2018 |
422,091 | 47,478 | 389 | (102,878) | 367,080 | |||||||||||||||
Adjustment on initial application of IFRS 15 |
- | - | - | (1,047) | (1,047) | |||||||||||||||
Adjusted balance at January 1, 2018 |
422,091 | 47,478 | 389 | (103,925) | 366,033 | |||||||||||||||
Share-based compensation |
- | 2,809 | - | - | 2,809 | |||||||||||||||
Exercise of options and warrants |
447 | (113) | - | - | 334 | |||||||||||||||
Settlement of performance share units |
900 | (900) | - | - | - | |||||||||||||||
Total comprehensive income (loss) for the year |
- | - | 13,675 | (35,774) | (22,099) | |||||||||||||||
Balance at December 31, 2018 |
423,438 | 49,274 | 14,064 | (139,699) | 347,077 | |||||||||||||||
Balance at January 1, 2019 |
423,438 | 49,274 | 14,064 | (139,699) | 347,077 | |||||||||||||||
Fair value of shares issued for Yellowhead acquisition |
12,629 | - | - | - | 12,629 | |||||||||||||||
Share-based compensation |
- | 2,800 | - | - | 2,800 | |||||||||||||||
Exercise of options |
251 | (75) | - | - | 176 | |||||||||||||||
Settlement of performance share units |
- | (377) | - | - | (377) | |||||||||||||||
Total comprehensive loss for the year |
- | - | (7,237) | (53,382) | (60,619) | |||||||||||||||
Balance at December 31, 2019 |
436,318 | 51,622 | 6,827 | (193,081) | 301,686 |
The accompanying notes are an integral part of these consolidated financial statements.
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
1. REPORTING ENTITY
Taseko Mines Limited (the Company or Taseko) is a corporation governed by the British Columbia Business Corporations Act. The consolidated financial statements of the Company as at and for the year ended December 31, 2019 comprise the Company, its subsidiaries and its 75% interest in the Gibraltar joint venture 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 mine permitting and development, within the province of British Columbia, Canada and the State of Arizona, USA. Seasonality does not have a significant impact on the Companys operations.
2. BASIS OF PREPARATION
2.1 Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
These consolidated financial statements were authorized for issue by the Board of Directors on February 19, 2020.
2.2 Basis of measurement, judgment and estimation
These consolidated financial statements have been prepared on a historical cost basis except those measured at fair value through profit or loss, fair value through other comprehensive income and derivative financial instruments, which are measured at fair value.
These consolidated financial statements are presented in Canadian dollars, which is the Companys functional currency. Foreign currency monetary assets and liabilities are translated into Canadian dollars at the closing exchange rate as at the balance sheet date. Foreign currency non-monetary assets and liabilities, revenues and expenses are translated into Canadian dollars at the prevailing rate of exchange on the dates of the transactions. Any gains and losses are included in profit and loss. The Companys US subsidiary measures the items in its financial statements using the US dollar as its functional currency. The assets and liabilities of the US subsidiary are translated into Canadian dollars using the period end exchange rate. The income and expenses are translated into Canadian dollars at the weighted average exchange rates to the period end reporting date. Any gains and losses on translation are included in accumulated other comprehensive income (AOCI). All financial information presented in Canadian dollars has been rounded to the nearest thousand, unless otherwise noted.
The preparation of these consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
In the process of applying the Companys accounting policies, significant areas where judgment is required include the determination of a joint arrangement, determining the timing of transfer of control of inventory for revenue recognition, reserve and resource estimates, functional currency, determination of the accounting treatment of the advance payment under the silver purchase and sale agreement reported as deferred revenue (Note 19), provisions for environmental rehabilitation, determination of business or asset acquisition treatment, and recovery of other deferred tax assets.
Significant areas of estimation include reserve and resource estimation; asset valuations and the measurement of impairment charges or reversals; valuation of inventories; plant and equipment lives; tax provisions; provisions for
1
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
environmental rehabilitation, including determination of appropriate discount rates; valuation of financial instruments and derivatives; capitalized stripping costs and share-based compensation. Key estimates and assumptions made by management with respect to these areas have been disclosed in the notes to these consolidated financial statements as appropriate.
The accuracy of reserve and resource estimates is a function of the quantity and quality of available data and the assumptions made and judgment used in the engineering and geological interpretation and may be subject to revision based on various factors. Changes in reserve and resource estimates may impact the carrying value of property, plant and equipment; the calculation of depreciation expense; the capitalization of stripping costs incurred during production; and the timing of cash flows related to the provision for environmental rehabilitation.
Changes in forecast prices of commodities, exchange rates, production costs and recovery rates may change the economic status of reserves and resources. Forecast prices of commodities, exchange rates, production costs and recovery rates, and discount rates assumptions, either individually or collectively, may impact the carrying value of derivative financial instruments, provisions for environmental rehabilitation, inventories, property, plant and equipment, and intangibles, as well as the measurement of impairment charges or reversals.
2.3 Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and controlled entities as at December 31, 2019. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of comprehensive income (loss) from the date the Company gains control until the date the Company ceases to control the subsidiary. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Companys accounting policies. All intercompany transactions between members of the Company are eliminated in full on consolidation.
The Company applies the acquisition method in accounting for business combinations. The consideration transferred by the Company to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests issued by the Company, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred.
The Company recognizes identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognized in the acquirees financial statements prior to the acquisition. Assets acquired and liabilities assumed are generally measured at their acquisition-date fair values.
Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of a) fair value of consideration transferred, b) the recognized amount of any non-controlling interest in the acquiree and c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount would be recognized in profit or loss immediately.
2
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
2.4 Significant Accounting Policies
(a) Revenue recognition.
The Company adopted IFRS 15, Revenue Contracts with Customers effective January 1, 2018 using the cumulative effect method. There was no significant changes in the accounting for copper and molybdenum concentrate revenue as a result of the transition to IFRS 15. Under IFRS 15, revenue is recognized when a customer obtains control of the goods or services and the Company has satisfied its performance obligation. Determining the timing of the transfer of control, at a point in time or over time, requires judgment. Cash received in advance of meeting these conditions is recorded as advance payments or deferred revenue.
Under the terms of the Companys concentrate sales contracts, the final sales amount is based on final assay results and quoted market prices which may be in a period subsequent to the date of sale. Revenues for these sales, net of treatment and refining charges are recorded when the customer obtains control of the concentrate, based on an estimate of metal contained using initial assay results and forward market prices for the expected date that final sales prices will be fixed. The period between provisional pricing and final settlement can be up to four months. This settlement receivable is recorded at fair value each reporting period by reference to forward market prices until the date of final pricing, with the changes in fair value recorded as an adjustment to revenue.
(b) Cash and equivalents
Cash and equivalents consist of cash and highly-liquid investments having terms of three months or less from the date of acquisition and that are readily convertible to known amounts of cash. Cash and equivalents exclude cash subject to restrictions.
(c) Financial instruments
Financial assets and liabilities are recognized on the balance sheet when the Company becomes party to the contractual provisions of the instrument. The classification of financial instruments dictates how these assets and liabilities are measured subsequently in the Companys consolidated financial statements.
The Company adopted the new accounting standard IFRS 9, Financial Instruments effective January 1, 2018. There were no changes to the carrying value of any of the Companys assets or liabilities as a result of this new accounting standard.
Under IFRS 9, on initial recognition, a financial asset is classified as measured at fair value and subsequently at either: amortized cost; Fair Value through Other Comprehensive Income (FVOCI); or Fair Value through Profit or Loss (FVPL). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics.
A financial asset is measured at amortized cost if: (i) it is held within a business model whose objective is to hold assets to collect contractual cash flows; and (ii) its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding; and (iii) it is not designated as FVPL. This category of financial assets is subsequently measured at amortized cost using the effective interest method, and reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investments fair value in OCI. This election is made on an investment-by-investment basis. Equity investments measured at FVOCI are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.
3
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVPL. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset as FVPL if doing so significantly reduces an accounting mismatch that would otherwise arise. Financial assets classified as FVPL are subsequently measured at fair value, with net gains and losses, including any interest or dividend income, recognized in profit or loss.
Financial assets at amortized cost
Financial assets at amortized cost are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, these financial assets are recorded at amortized cost using the effective interest method, except for short-term receivables when the recognition of interest would be immaterial. Accounts receivable are assessed for evidence of impairment at each reporting date, with any impairment recognized in earnings for the period. Financial assets in this category include cash and cash equivalents and accounts receivables.
Financial assets at fair value through other comprehensive income (FVOCI)
Marketable securities, investment in subscription receipts and reclamation deposits are designated as FVOCI and recorded at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.
Financial instruments at fair value through profit or loss (FVPL)
All financial assets not classified as measured at amortized cost or FVOCI are measured at FVPL. Derivative financial instruments that are not designated and effective as hedging instruments are classified as FVPL. Financial instruments classified as FVPL are stated at fair value with any changes in fair value recognized in earnings for the period. Financial assets in this category include derivative financial instruments that the Company acquires to manage exposure to commodity price fluctuations. These instruments are non-hedge derivative instruments.
Financial liabilities
Financial liabilities are initially recorded at fair value, net of transaction costs, and are subsequently measured at amortized cost using the effective interest method. The Company has accounted for accounts payable and accrued liabilities and long-term debt under this method.
Fair value measurement
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).
(d) Exploration and evaluation
Exploration and evaluation expenditures relate to the initial search for a mineral deposit and the subsequent evaluation to determine the economic potential of the mineral deposit. The exploration and evaluation stage
4
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
commences when the Company obtains the legal right or license to begin exploration. Exploration and evaluation expenditures are recognized in earnings in the period in which they are incurred.
Capitalization of development costs as mineral property, plant and equipment commences once the technical feasibility and commercial viability of the extraction of mineral reserve and resources associated with the Companys evaluation properties are established and management has made a decision to proceed with development.
(e) Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is determined on a weighted average basis and includes direct labour and materials; non-capitalized stripping costs; depreciation and amortization; freight; and overhead costs. Net realizable value is determined with reference to relevant market prices, less applicable variable selling costs and estimated remaining costs of completion to bring the inventories into saleable form.
Ore stockpiles represent stockpiled ore that have not yet completed the production process, and are not yet in a saleable form. Finished goods inventories represent metals in saleable form that have not yet been sold. Materials and supplies inventories represent consumables used in the production process, as well as spare parts and other maintenance supplies that are not classified as capital items.
The quantity of recoverable metal in stockpiled ore and in the processing circuits is an estimate which is based on the tons of ore added and removed, expected grade and recovery. The quantity of recoverable metal in concentrate is an estimate using initial assay results.
(f) Property, plant and equipment
Land, buildings, plant and equipment
Land, buildings, plant and equipment are recorded at cost, including all expenditures incurred to prepare an asset for its intended use.
Repairs and maintenance costs are charged to expense as incurred, except when these repairs significantly extend the life of an asset or result in an operating improvement. In these instances, the portion of these repairs relating to the betterment is capitalized as part of plant and equipment.
Depreciation is based on the cost of the asset less residual value. Where an item of plant and equipment is comprised of major components with different useful lives, the components are accounted for as separate items and depreciated separately. Depreciation commences when an asset is available for use. Estimates of remaining useful lives and residual values are reviewed annually. Changes in estimates are accounted for prospectively.
The depreciation rates of the major asset categories are as follows:
Land |
Not depreciated | |
Buildings |
Straight-line basis over 10-25 years | |
Plant and equipment |
Units-of-production basis | |
Mining equipment |
Straight-line basis over 5-20 years | |
Light vehicles and other mobile equipment |
Straight-line basis over 2-5 years | |
Furniture, computer and office equipment |
Straight-line basis over 2-3 years |
5
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
Mineral properties
Mineral properties consist of the cost of acquiring, permitting and developing mineral properties. Once in production, mineral properties are amortized on a units-of-production basis over the component of the ore body to which the capitalized costs relate.
Property acquisition costs arise either as an individual asset purchase or as part of a business combination, and may represent a combination of either proven and probable reserves, resources, or future exploration potential. When management has not made a determination that technical feasibility and commercial viability of extracting a mineral resource are demonstrable, the entire amount is considered property acquisition costs and not amortized. When such property moves into development, the property acquisition cost asset is transferred to mineral properties within property, plant and equipment.
Mineral property development costs include: stripping costs incurred in order to provide initial access to the ore body; stripping costs incurred during production that generate a future economic benefit by increasing the productive capacity, extending the productive life of the mine or allowing access to a mineable reserve; capitalized project development costs; and capitalized interest.
Construction in progress
Construction in progress includes the purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for its intended use. Construction in progress includes advances on long-lead items. Construction in progress is not depreciated. Once the asset is complete and available for use, the costs of construction are transferred to the appropriate category of property, plant and equipment, and depreciation commences.
Capitalized interest
Interest is capitalized for qualifying assets. Qualifying assets are assets that require a substantial period of time to prepare for their intended use. Capitalization ceases when the asset is substantially complete or if construction is interrupted for an extended period. Where the funds used to finance a project form part of general borrowings, the amount capitalized is calculated using a weighted average of rates applicable to relevant general borrowings of the Company during the period.
Leased assets
The Company has adopted IFRS 16, Leases effective January 1, 2019 using the modified retrospective method. Accordingly, the comparative information presented for 2018 has not been restated. The Company assesses whether a contract is a lease or contains a lease, at the inception of a contract. The Company recognizes a right-of-use asset (ROU asset) and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, at the commencement of the lease, with the exception of short-term and low value leases, which are recognized on a straight-line basis over the lease term.
The ROU asset is initially measured based on the present value of lease payments, lease payments made at or before the commencement date, and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. The ROU asset is depreciated over the shorter of the lease term or the useful life of the underlying asset and is subject to testing for impairment if there is an indicator of impairment.
6
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
The lease liability is initially measured at the present value of lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Company uses its incremental borrowing rate. Lease payments include fixed payments less any lease incentives, and any variable lease payments where variability depends on an index or rate. When the lease contains an extension or purchase option that the Company considers reasonably certain to be exercised, the cost of the option is included in the lease payments.
Prior to January 1, 2019, leased assets in which the Company receives substantially all the risks and rewards of ownership of the asset were capitalized as finance leases at the lower of the fair value of the asset or the estimated present value of the minimum lease payments. The corresponding lease obligation is recorded within debt on the balance sheet. Assets under operating leases were not capitalized and rental payments were expensed on a straight-line basis.
Impairment
The carrying amounts of the Companys non-financial assets are reviewed for impairment whenever circumstances suggest that the carrying value may not be recoverable. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. These assessments require the use of estimates and assumptions such as long-term commodity prices, discount rates, future capital requirements, exploration potential and operating performance.
The recoverable amount of an asset or cash generating unit (CGU) is the higher of fair value less costs to sell and value in use. Fair value is determined as the amount that would be obtained from the sale of the asset in an arms-length transaction between knowledgeable and willing parties. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows that are largely independent of the cash flows of other assets or CGUs. If the recoverable amount of an asset or its related CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount and the impairment loss is recognized in earnings for the period.
Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but not to an amount that exceeds the carrying amount that would have been determined had no impairment loss been recognized for the asset or CGU in prior years. A reversal of an impairment loss is recognized immediately in earnings.
The carrying amount of the CGU to which goodwill has been allocated is tested annually for impairment or when there is an indication that the goodwill may be impaired. Any goodwill impairment is recognized as an expense in the profit or loss. Should there be a recovery in the value of a CGU, any impairment of goodwill previously recorded is not subsequently reversed.
(g) Income taxes
Income tax on the earnings for the periods presented comprises current and deferred tax. Income tax is recognized in earnings except to the extent that it relates to items recognized directly in equity or in other comprehensive income. Income tax is calculated using tax rates enacted or substantively enacted at the reporting date applicable to the period of expected realization or settlement.
Current tax expense is the expected tax payable on the taxable income for the year, adjusted for amendments to tax payable with regards to previous years.
Deferred tax is determined using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation
7
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities acquired (not in a business combination) that affect neither accounting nor taxable profit on acquisition; and differences relating to investments in subsidiaries, associates, and joint ventures to the extent that they are not probable to reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent it is no longer probable that the related tax benefit will be realized.
(h) Share-based compensation
The fair-value method is used for the Companys share-based payment transactions. Under this method, the cost of share options and equity-settled performance share units is recorded based on their estimated fair value at the grant date, including an estimate of the forfeiture rate. The fair value of the share options and performance share units is expensed on a graded amortization basis over the vesting period of the awards, with a corresponding increase in equity.
Share-based compensation expense relating to cash-settled awards, including deferred share units, is recognized based on the quoted market value of the Companys common shares on the date of grant. The related liability is re-measured to fair value each reporting period to reflect changes in the market value of the Companys common shares, with changes in fair value recorded in net profit (loss).
(i) Provisions
Environmental rehabilitation
The Company records the present value of estimated costs of legal and constructive obligations required to retire an asset in the period in which the obligation occurs. Environmental rehabilitation activities include facility decommissioning and dismantling; removal and treatment of waste materials, including water treatment; site and land rehabilitation, including compliance with and monitoring of environmental regulations; and related costs required to perform this work and/or operate equipment designed to reduce or eliminate environmental effects. The provision for environmental rehabilitation (PER) is adjusted each period for new disturbances, and changes in regulatory requirements, the estimated amount of future cash flows required to discharge the liability, the timing of such cash flows and the pre-tax discount rate specific to the liability. The unwinding of the discount is recognized in earnings as a finance cost.
When a PER is initially recognized, the corresponding cost is capitalized by increasing the carrying amount of the related asset, and is amortized to earnings on a unit-of-production basis. Costs are only capitalized to the extent that the amount meets the definition of an asset and represents future economic benefits to the operation.
Significant estimates and assumptions are made in determining the provision for environmental rehabilitation as there are numerous factors that will affect the ultimate liability. These factors include estimation of the extent and cost of rehabilitation activities; timing of future cash flows, changes in discount rates; inflation rate; and regulatory requirements.
Other provisions
Other provisions are recognized when the Company has a present obligation (legal or constructive) that has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation. Where the effect is material, the provision is discounted using a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the obligation. The accretion expense is included in finance expense.
8
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
(j) Finance income and expenses
Finance income comprises interest income on funds invested, gains on the disposal of marketable securities, and changes in the fair value of derivatives included in cash and equivalents and marketable securities. Interest income is recognized as it accrues in earnings, using the effective interest method. Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions, the finance component on deferred revenue, losses on the disposal of marketable securities, changes in the fair value of derivatives included in cash and cash equivalents and marketable securities, and impairment losses recognized on financial assets. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in earnings using the effective interest method.
(k) Earnings (loss) per share
The Company presents basic and diluted earnings (loss) per share data for its common shares, calculated by dividing the earnings (loss) attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined by adjusting the earnings attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all dilutive potential common shares, which comprise warrants and share options granted. There is no dilution impact when the Company incurs a loss.
(l) Interests in joint arrangements
IFRS defines a joint arrangement as one over which two or more parties have joint control, which is the contractually agreed sharing of control over an arrangement. This exists only when the decisions about the relevant activities (being those that significantly affect the returns of the arrangement) require the unanimous consent of the parties sharing control.
A joint operation is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities, relating to the arrangement. In relation to its interests in joint operations, the Company recognizes its:
|
Assets, including its share of any assets held jointly; |
|
Liabilities, including its share of any liabilities incurred jointly; |
|
Revenue from the sale of its share of the output arising from the joint operation; and |
|
Expenses, including its share of any expenses incurred jointly. |
2.5 Impact of adoption of new accounting standards
The Company has applied the following revised or new IFRS accounting standards that were issued and effective January 1, 2019:
IFRS 16, Leases
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 that contains a lease arrangement. The Company adopted IFRS 16 effective January 1, 2019 using the modified retrospective method. Accordingly, the comparative information presented for 2018 has not been restated.
IFRS 16 introduces significant accounting changes to the lessee by removing the distinction between operating and finance leases and requiring the recognition of a right-of-use asset (ROU asset) and a lease liability at the commencement of the lease for all leases, except for short-term leases (lease terms of 12 months or less) and leases of low value assets.
9
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
In applying IFRS 16 for all leases, except as noted above, the Company (i) recognizes the ROU asset and lease liabilities in the consolidated balance sheet, initially measured at the present value of future lease payments; (ii) recognizes the depreciation of ROU assets and interest on lease liabilities in the consolidated interim statement of income (loss); and (iii) separates the total amount of cash paid into a principal and interest portion (included within financing activities) in the consolidated interim statement of cash flows. For short-term leases and leases of low value assets, the Company continues to recognize a lease expense on a straight-line basis.
In transitioning to IFRS 16, the Company reviewed its contracts to identify whether they are a lease or contain a lease arrangement and some contracts were identified as containing leases under IFRS 16. The cumulative effect of the changes made to the consolidated January 1, 2019 balance sheet for the adoption of IFRS 16 was an increase to property plant and equipment and lease liabilities by $5,962. The weighted average discount rate for lease liabilities initially recognized on adoption of IFRS 16 was 5.6%.
The following is a reconciliation of the operating lease commitments as at December 31, 2018 to the recognized lease liabilities as at January 1, 2019:
Operating lease commitments as at December 31, 2018 |
4,813 | |||
Leases with a lease term of 12 months or less and low value |
(414 | ) | ||
Leases identified in existing service and supply contracts |
2,144 | |||
Effect from discounting |
(581 | ) | ||
Lease liabilities due to initial application of IFRS 16 as at January 1, 2019 |
5,962 |
ROU assets are included in property, plant, and equipment, and the lease liability is included in debt in the consolidated balance sheet (Note 18).
3. INTEREST IN GIBRALTAR JOINT VENTURE
On March 31, 2010, the Company entered into an agreement with Cariboo Copper Corp. (Cariboo) whereby the Company contributed certain assets and liabilities of the Gibraltar mine, operating in British Columbia, into an unincorporated joint venture to acquire a 75% interest in the joint venture. Cariboo contributed $186,800 to purchase the remaining 25% interest.
The assets and liabilities contributed by the Company to the joint venture were mineral property interests, plant and equipment, inventories, prepaid expenses, reclamation deposits, capital lease obligations, and site closure and reclamation obligations. Certain key strategic, operating, investing and financing policies of the joint venture require unanimous approval such that neither venturer is in a position to exercise unilateral control over the joint venture. The Company continues to be the operator of the Gibraltar Mine.
The Company has joint control over the joint arrangement and as such consolidates its 75% portion of all the joint ventures assets, liabilities, income and expenses.
10
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
The following is a summary of the Gibraltar joint venture financial information on a 100% basis.
As at December 31, | ||||||||
2019 | 2018 | |||||||
Cash and equivalents |
54,454 | 47,707 | ||||||
Other current assets |
77,651 | 72,423 | ||||||
Current assets |
132,105 | 120,130 | ||||||
Non-current assets |
948,873 | 1,122,289 | ||||||
Accounts payable and accrued liabilities |
46,845 | 45,301 | ||||||
Other current financial liabilities |
22,698 | 14,172 | ||||||
Current liabilities |
69,543 | 59,473 | ||||||
Long-term debt |
52,177 | 18,589 | ||||||
Provision for environmental rehabilitation |
80,460 | 128,738 | ||||||
Non-current liabilities |
132,637 | 147,327 |
Years ended December 31, | ||||||||
2019 | 2018 | |||||||
Revenues |
438,204 | 457,600 | ||||||
Production costs |
(344,913 | ) | (311,759 | ) | ||||
Depletion and amortization |
(159,044 | ) | (109,018 | ) | ||||
Other operating expense |
(3,834 | ) | (4,181 | ) | ||||
Interest expense |
(6,031 | ) | (5,116 | ) | ||||
Interest income |
1,157 | 1,119 | ||||||
Foreign exchange gain (loss) |
(1,976 | ) | 1,333 | |||||
Net earnings (loss) |
(76,437 | ) | 29,978 | |||||
Other comprehensive income |
954 | 104 | ||||||
Comprehensive income (loss) for joint arrangement |
(75,483 | ) | 30,082 |
4. REVENUE
Years ended December 31, | ||||||||
2019 | 2018 | |||||||
Copper contained in concentrate |
321,082 | 350,522 | ||||||
Molybdenum concentrate |
31,161 | 26,589 | ||||||
Silver (Note 19) |
3,674 | 3,713 | ||||||
Price adjustments on settlement receivables |
(419 | ) | (10,679 | ) | ||||
Total gross revenue |
355,498 | 370,145 | ||||||
Less: Treatment and refining costs |
(26,335 | ) | (26,275 | ) | ||||
Revenue |
329,163 | 343,870 |
11
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
5. COST OF SALES
Years ended December 31, | ||||||||
2019 | 2018 | |||||||
Site operating costs |
244,611 | 219,104 | ||||||
Transportation costs |
17,832 | 17,163 | ||||||
Changes in inventories of finished goods |
(5,570 | ) | 2,435 | |||||
Changes in inventories of ore stockpiles |
1,677 | 1,078 | ||||||
Insurance recovered |
- | (7,913 | ) | |||||
Production costs |
258,550 | 231,867 | ||||||
Depletion and amortization |
109,756 | 70,781 | ||||||
Cost of sales |
368,306 | 302,648 |
Cost of sales consists of site operating costs (which include personnel costs, non-capitalized waste stripping costs, repair and maintenance costs, consumables, operating supplies and external services), transportation costs, and depletion and amortization.
During the year ended December 31, 2018, the Company had an insurance recovery of $7,913 (75% basis) related to the Cariboo region wildfires in 2017.
6. COMPENSATION EXPENSE
Years ended December 31, | ||||||||
2019 | 2018 | |||||||
Wages, salaries and benefits |
77,869 | 69,633 | ||||||
Post-employment benefits |
1,639 | 2,115 | ||||||
Share-based compensation (recovery) expense (Note 22c) |
3,126 | (1,282 | ) | |||||
82,634 | 70,466 |
Compensation expense is presented as a component of cost of sales, general and administrative expense, and project evaluation expense.
7. DERIVATIVE INSTRUMENTS
During the year ended December 31, 2019, the Company purchased copper put option contracts for 48 million pounds of copper with maturity dates ranging from February 2019 to December 2019, at strike prices between US$2.50 and US$2.80 per pound, at a total cost of $2,834.
During the year ended December 31, 2018, the Company purchased copper put options for 30 million pounds of copper with maturity dates ranging from the third quarter of 2018 to the fourth quarter of 2018, at a total cost of $1,063.
12
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
The following table outlines the (gains) losses associated with derivative instruments:
Years ended December 31, | ||||||||
2019 | 2018 | |||||||
Realized loss on copper put options |
2,834 | 2,264 | ||||||
Unrealized gain on copper put options |
- | (1,970 | ) | |||||
2,834 | 294 |
8. OTHER (EXPENSE) INCOME
Years ended December 31, | ||||||||
2019 | 2018 | |||||||
Management fee income |
1,186 | 1,167 | ||||||
Other operating expense (income), net |
(266 | ) | 305 | |||||
920 | 1,472 |
9. FINANCE EXPENSES
Years ended December 31, | ||||||||
2019 | 2018 | |||||||
Interest expense |
34,593 | 32,077 | ||||||
Finance expense deferred revenue (Note 19) |
4,154 | 4,182 | ||||||
Accretion on PER (Note 20) |
1,577 | 2,305 | ||||||
40,324 | 38,564 |
For the year ended December 31, 2019, interest expense includes $1,709 (2018 - $846) from lease liabilities and lease related obligations.
10. INCOME TAX
(a) Income tax expense (recovery)
Years ended December 31, | ||||||||
2019 | 2018 | |||||||
Current income tax: |
||||||||
Current period expense |
817 | 1,015 | ||||||
Deferred income tax: |
||||||||
Origination and reversal of temporary differences |
(33,145 | ) | (363 | ) | ||||
Deferred tax adjustments related to prior periods |
(9 | ) | (204 | ) | ||||
Deferred income tax recovery |
(33,154 | ) | (567 | ) | ||||
Income tax expense (recovery) |
(32,337 | ) | 448 |
13
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
(b) Effective tax rate reconciliation
Years ended December 31, | ||||||||
2019 | 2018 | |||||||
Income tax at Canadian statutory rate of 36.5% (2018: 36.5%) |
(31,279 | ) | (12,891 | ) | ||||
Permanent differences |
885 | 10,271 | ||||||
Foreign tax rate differential |
(191 | ) | 131 | |||||
Unrecognized tax benefits |
(1,793 | ) | 3,151 | |||||
Deferred tax adjustments related to prior periods |
41 | (204 | ) | |||||
Other |
- | (10 | ) | |||||
Income tax expense (recovery) |
(32,337 | ) | 448 |
(c) Deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
As at December 31, | ||||||||
2019 | 2018 | |||||||
Property, plant and equipment |
(156,669 | ) | (177,664 | ) | ||||
Other financial assets |
2,951 | 3,204 | ||||||
Provisions |
17,009 | 18,279 | ||||||
Tax loss carry forwards |
86,006 | 72,388 | ||||||
Deferred tax liability |
(50,703 | ) | (83,793 | ) |
(d) Unrecognized deferred tax assets and liabilities
As at December 31, | ||||||||
2019 | 2018 | |||||||
Deductible temporary differences: |
||||||||
Debt |
65,024 | 78,035 | ||||||
Other investments |
33,344 | 34,873 | ||||||
Losses and tax pools |
31,823 | - | ||||||
Other financial assets |
17,713 | 21,722 | ||||||
Deferred tax asset: |
||||||||
Debt |
8,778 | 10,535 | ||||||
Other investments |
4,501 | 4,708 | ||||||
Losses and tax pools |
8,592 | - | ||||||
Other financial assets |
2,398 | 3,139 |
Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Company can utilize the benefits. There are no unrecognized deferred tax liabilities.
Losses and tax pools of $31,823 (2018: $nil) relate to non-capital losses in Canada which expire between 2029 and 2039.
14
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
11. ACCOUNTS RECEIVABLE
As at December 31, | ||||||||
2019 | 2018 | |||||||
Trade and settlement receivables |
11,220 | 10,582 | ||||||
Goods and services tax receivable |
1,162 | 916 | ||||||
Other receivables |
1,409 | 3,237 | ||||||
13,791 | 14,735 |
12. INVENTORIES
As at December 31, | ||||||||
2019 | 2018 | |||||||
Ore stockpiles |
6,657 | 8,532 | ||||||
Copper contained in concentrate |
9,055 | 3,166 | ||||||
Molybdenum concentrate |
230 | 549 | ||||||
Materials and supplies |
27,678 | 26,739 | ||||||
43,620 | 38,986 |
During the year ended December 31, 2019, the Company recorded an impairment of $5,830 (2018: $12,573) to adjust the carrying value of ore stockpiles to net realizable value, of which $2,398 (2018: $4,225) is recorded in depletion and amortization and the balance in production costs.
13. OTHER FINANCIAL ASSETS
As at December 31, | ||||||||
2019 | 2018 | |||||||
Current: |
||||||||
Marketable securities (Note 14) |
730 | 3,581 | ||||||
730 | 3,581 | |||||||
Long-term: |
||||||||
Investment in subscription receipts |
2,400 | 2,400 | ||||||
Reclamation deposits |
3,083 | 31,480 | ||||||
Restricted cash |
1,300 | 7,500 | ||||||
6,783 | 41,380 |
The Company holds strategic investments in publicly traded and privately owned mineral exploration and development companies, including marketable securities and subscription receipts. Marketable securities and the investment in subscription receipts are accounted for at fair value through other comprehensive income (FVOCI).
15
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
Marketable securities at December 31, 2018 include an investment in 21% of the common shares of Yellowhead Mining Inc., which was carried at a fair value of $2,810 at December 31, 2018 (Note 14).
The subscription receipts relate to an investment in a privately held company with two directors in common with Taseko and are to be convertible into units comprised of shares, or shares and warrants. The fair value of the investment in subscription receipts is based on public market information of comparable companies.
In November 2019, the Company restructured its reclamation funding within the Gibraltar joint venture which resulted in $6,200 of net cash becoming unrestricted and $30,000 in funds being distributed out of reclamation deposits to the Company. Gibraltar issued to the Province of British Columbia a letter of credit in the amount of $50,000 as security for current reclamation obligations for the Gibraltar mine. The $50,000 letter of credit issued by a Canadian chartered bank is collateralized by a surety bond in the amount of $37,500 for the Companys share and $12,500 for Cariboos share of the letter of credit.
For the Florence Copper project, the Company has provided surety bonds totaling $8,260 to the federal and state regulators. The Company has provided cash collateral of $2,140 to the surety bond provider which is classified as reclamation deposits.
14. YELLOWHEAD ACQUISITION
In December 2018, the Company entered into an agreement to acquire all of the outstanding common shares of Yellowhead Mining Inc. (Yellowhead) that it did not already own, in exchange for approximately 17.3 million Taseko common shares. The transaction was structured as a plan of arrangement pursuant to the Business Corporations Act (British Columbia) and required the approval of the Supreme Court of British Columbia and Yellowhead shareholders. The acquisition closed on February 15, 2019.
The total purchase consideration was calculated as follows:
Fair value of common shares issued (17,300,385 shares at $0.73 per share) |
12,629 | |||
Fair value of previously held investment in Yellowhead |
3,365 | |||
Acquisition related costs |
272 | |||
16,266 |
The Company has incurred acquisition costs totaling $272 for legal and other fees, which have been included in the purchase price consideration.
Prior to the acquisition, the Company held a 21% equity interest in Yellowhead. This investment was previously accounted for as a FVOCI financial asset and was remeasured to its fair value of $3,365 based on the trading price of its common shares on the acquisition date, and that amount was included as part of the purchase consideration.
Yellowhead had cumulative tax pools of approximately $57,000 comprised of non-capital losses and resource deductions at the date of acquisition. A full valuation allowance was provided against the deferred tax assets arising from these tax pools due to uncertainty over the timing of their potential utilization at the time of acquisition.
The acquisition of Yellowhead has been accounted for as an asset acquisition and accordingly, the purchase consideration has been allocated to the assets acquired and liabilities assumed, based upon their estimated fair values at the date of acquisition.
16
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
The following sets forth the allocation of the purchase price:
Cash and cash equivalents |
187 | |||
Accounts receivable and other assets |
14 | |||
Reclamation deposits |
85 | |||
Property, plant and equipment |
16,240 | |||
Accounts payable and other liabilities |
(260 | ) | ||
16,266 |
Yellowhead is in the evaluation phase and does not generate revenues. Yellowhead project related expenditures were $1,653 for the period since acquisition and are expensed as project evaluation expenditures.
15. PROPERTY, PLANT & EQUIPMENT
Cost |
Property
Acquisition costs |
Mineral
properties |
Plant and
equipment |
Construction
in progress |
Total | |||||||||||||||
At January 1, 2018 |
92,378 | 333,638 | 679,352 | 2,728 | 1,108,096 | |||||||||||||||
Additions |
- | 62,849 | 27,783 | 10,507 | 101,139 | |||||||||||||||
Changes in rehabilitation cost asset |
- | (12,374 | ) | - | - | (12,374 | ) | |||||||||||||
Disposals |
- | - | (2,279 | ) | - | (2,279 | ) | |||||||||||||
Foreign exchange translation |
7,494 | 1,391 | 1,308 | - | 10,193 | |||||||||||||||
Transfers between categories |
- | - | 13,047 | (13,047 | ) | - | ||||||||||||||
At December 31, 2018 |
99,872 | 385,504 | 719,211 | 188 | 1,204,775 | |||||||||||||||
Additions (Note 14) |
16,240 | 34,750 | 28,565 | 9,514 | 89,069 | |||||||||||||||
Changes in rehabilitation cost asset |
- | (31,695 | ) | - | - | (31,695 | ) | |||||||||||||
Disposals |
- | - | (6,978 | ) | - | (6,978 | ) | |||||||||||||
Foreign exchange translation |
(4,468 | ) | (1,155 | ) | (2,205 | ) | - | (7,828 | ) | |||||||||||
Transfers between categories |
- | - | 9,702 | (9,702 | ) | - | ||||||||||||||
At December 31, 2019 |
111,644 | 387,404 | 748,295 | - | 1,247,343 | |||||||||||||||
Accumulated depreciation |
||||||||||||||||||||
At January 1, 2018 |
- | 116,690 | 194,141 | - | 310,831 | |||||||||||||||
Depletion and amortization |
- | 44,159 | 30,671 | - | 74,830 | |||||||||||||||
Disposals |
- | - | (2,173 | ) | - | (2,173 | ) | |||||||||||||
At December 31, 2018 |
- | 160,849 | 222,639 | - | 383,488 | |||||||||||||||
Depletion and amortization |
- | 70,265 | 40,501 | - | 110,766 | |||||||||||||||
Disposals |
- | - | (4,917 | ) | - | (4,917 | ) | |||||||||||||
At December 31, 2019 |
- | 231,114 | 258,223 | - | 489,337 | |||||||||||||||
Net book value |
||||||||||||||||||||
At December 31, 2018 |
99,872 | 224,655 | 496,572 | 188 | 821,287 | |||||||||||||||
At December 31, 2019 |
111,644 | 156,290 | 490,072 | - | 758,006 |
17
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
Net book value |
Gibraltar
Mines (75%) |
Florence
Copper |
Yellowhead | Aley | Other | Total | ||||||||||||||||||
At December 31, 2018 |
633,745 | 175,329 | - | 11,998 | 215 | 821,287 | ||||||||||||||||||
Net additions |
47,804 | 16,367 | - | 768 | 912 | 65,851 | ||||||||||||||||||
Property acquisitions |
- | - | 16,240 | - | - | 16,240 | ||||||||||||||||||
Changes in rehabilitation cost asset (Note 20) |
(36,377 | ) | 4,682 | - | - | - | (31,695 | ) | ||||||||||||||||
Depletion and amortization |
(105,425 | ) | (38 | ) | - | - | (386 | ) | (105,849 | ) | ||||||||||||||
Foreign exchange translation |
- | (7,828 | ) | - | - | - | (7,828 | ) | ||||||||||||||||
At December 31, 2019 |
539,747 | 188,512 | 16,240 | 12,766 | 741 | 758,006 |
During 2019, the Company capitalized stripping costs of $25,705 (2018: $52,598) and incurred other capital expenditures for Gibraltar of $20,359 (2018: $10,975). In addition, the Company capitalized development costs of $15,956 (2018: $36,520) for the Florence Copper and $768 (2018: $2,701) for the Aley Niobium projects. Non-cash additions to property, plant and equipment include $2,847 (2018: $3,771) of depreciation on mining assets related to capitalized stripping.
Depreciation related to the right of use assets for the year ended December 31, 2019 was $4,217.
16. GOODWILL
Goodwill was recorded on the Companys acquisition of Curis Resources Ltd. (Curis) in 2014 whose principal asset is the Florence Copper Project. During the year ended December 31, 2019, the carrying value of the goodwill decreased to $5,355 as a result of foreign currency translation.
The Company performed an annual goodwill impairment test and the recoverable amount of the Curis CGU was estimated utilizing a discounted cash flow with the following key assumptions: an after-tax discount rate of 10% (2018 10%); and copper prices of US$3.10 per pound in the projected periods. The recoverable amount of the Curis CGU was calculated to be higher than its carrying amount and no impairment loss was recognized.
17. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As at December 31, | ||||||||
2019 | 2018 | |||||||
Trade payables |
24,171 | 21,861 | ||||||
Accrued liabilities |
19,514 | 19,140 | ||||||
43,685 | 41,001 |
During the year ended December 31, 2018, the Company repaid the remaining balance payable under BC Hydros five-year power rate deferral program for BC mines. Under the program, effective March 1, 2016, the Gibraltar Mine was able to defer up to 75% of electricity costs. The amount of the deferral was based on a formula that incorporated the average copper price in Canadian dollars during the preceding month. The deferred amount, plus interest at the prime rate plus 5%, was repayable on a monthly schedule of up to 75% of the monthly electricity billing, when the average copper price during the preceding month exceeded a threshold amount of $3.40 per pound. Any remaining deferred balance would have been repayable at the end of the five year term.
18
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
18. DEBT
As at December 31, | ||||||||
2019 | 2018 | |||||||
Current: |
||||||||
Lease liabilities (b) |
7,990 | 6,506 | ||||||
Secured equipment loans (c) |
6,626 | 3,350 | ||||||
Lease related obligations (d) |
1,844 | - | ||||||
16,460 | 9,856 | |||||||
Long-term: |
||||||||
Senior secured notes (a) |
317,728 | 331,683 | ||||||
Lease liabilities (b) |
11,107 | 7,604 | ||||||
Secured equipment loans (c) |
18,746 | 6,338 | ||||||
Lease related obligations (d) |
9,444 | - | ||||||
357,025 | 345,625 | |||||||
Total debt |
373,485 | 355,481 |
(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.
The Notes are secured by liens on the shares of Tasekos wholly-owned subsidiary, Gibraltar Mines Ltd., and the subsidiarys rights under the joint venture agreement relating to the Gibraltar Mine. The Notes are guaranteed by each of Tasekos existing and future restricted subsidiaries, other than Yellowhead. 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 Companys 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. On a change of control, the Notes are redeemable at the option of the holder at a price of 101%.
(b) Lease liabilities
Lease liabilities includes the Companys outstanding lease liabilities under IFRS 16. At December 31, 2019, the net carrying amount of leased assets was $37,254 (2018: $46,641).
In July 2019, Gibraltar acquired a new large wheel loader, financed by way of a 7-year lease. The lease is repayable in monthly installments and secured by equipment with a carrying value of $5,537. The lease obligation bears a fixed interest rate of 6.3% with a final maturity date of June 20, 2026.
(c) Secured equipment loans
In May 2019, Gibraltar entered into an equipment loan with the Companys share of proceeds being $13,875. The loan bears interest at an annual rate of 5.2%, is secured by existing mining equipment at the Gibraltar Mine and is repayable in monthly installments with a final maturity date of May 6, 2024. A portion of the proceeds of the loan
19
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
were used to repay an existing equipment loan of $1,362 and the remaining funds were available for general working capital purposes.
In August 2019, Gibraltar entered into an equipment loan with the Companys share of proceeds being $7,977. The loan bears interest at an annual rate of 6.4%, is secured by existing mining equipment at the Gibraltar Mine and is repayable in monthly installments with a final maturity date of August 13, 2023. The proceeds of the loan were available for general working capital purposes.
(d) Lease related obligations
In June 2019, Gibraltar entered into a sale leaseback transaction on some equipment, with the Companys share of proceeds being $12,161. The lease has a term of 54 months. At the end of the lease, the Company can either re-lease the equipment, purchase the equipment at fair market value or return the equipment. The lease contains a fixed price early buy-out option exercisable at the end of 48 months. A portion of the proceeds of the financing were used to settle an equipment lease early in the amount of $2,451 and the remaining funds were available for general working capital purposes.
(e) Debt continuity
The following schedule shows the continuity of total debt for the year ended December 31, 2019:
As at December 31, | ||||||||
2019 | 2018 | |||||||
Total debt as at January 1 |
355,481 | 329,218 | ||||||
Lease additions on initial application of IFRS 16 (Note 2.5) |
5,962 | - | ||||||
Lease additions |
11,295 | - | ||||||
Equipment loan net proceeds |
21,852 | 8,943 | ||||||
Lease related obligations on sale leaseback transaction |
12,161 | - | ||||||
Lease liabilities and equipment loans repayments |
(18,920) | (12,293) | ||||||
Unrealized foreign exchange gain |
(16,654) | 27,428 | ||||||
Amortization of deferred financing charges |
2,308 | 2,185 | ||||||
Total debt as at December 31 |
373,485 | 355,481 |
19. 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 Tasekos share of all future payable silver production from Gibraltar will be delivered to Osisko. The Company receives cash payments of US$2.75 per ounce for all silver deliveries made under the agreement.
The Company recorded the initial deposit as deferred revenue and recognizes amounts in revenue as silver is delivered to Osisko. The amortization of deferred revenue is calculated on a per unit basis using the estimated total number of silver ounces expected to be delivered to Osisko over the life of the Gibraltar Mine. The current portion of deferred revenue is an estimate based on deliveries anticipated over the next twelve months.
The silver sale agreement has a minimum term of 50 years and automatically renews for successive 10-year periods as long as Gibraltar mining operations are active. If the initial deposit is not fully reduced through silver deliveries
20
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
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 Companys obligations under the agreement are secured by a pledge of Tasekos 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 $1,876 at the date of grant and was measured based on the Black-Scholes valuation model. The fair value was determined using the expected life of 3 years, expected volatility of the Companys common share price of 61%, an expected dividend yield of 0%, and a risk-free interest rate of 0.9% (Note 21b).
The following table summarizes changes in deferred revenue:
Balance at January 1, 2018 |
40,952 | |||
Transitional adjustment for IFRS 15 |
1,435 | |||
Finance expense (Note 9) |
4,182 | |||
Amortization of deferred revenue |
(3,295) | |||
Balance at December 31, 2018 |
43,274 | |||
Finance expense (Note 9) |
4,154 | |||
Amortization of deferred revenue |
(3,437) | |||
Balance at December 31, 2019 |
43,991 |
Deferred revenue is reflected in the consolidated balance sheets as follows:
As at December 31, | ||||||||
2019 | 2018 | |||||||
Current |
4,558 | 3,907 | ||||||
Non-current |
39,433 | 39,367 | ||||||
43,991 | 43,274 |
20. PROVISION FOR ENVIRONMENTAL REHABILITATION
2019 | 2018 | |||||||
Beginning balance at January 1 |
97,914 | 107,874 | ||||||
Change in estimates |
(31,644) | (12,374 | ) | |||||
Accretion |
1,577 | 2,305 | ||||||
Settlements |
(1,409) | - | ||||||
Foreign exchange differences |
(65) | 109 | ||||||
Ending balance at December 31 |
66,373 | 97,914 |
The PER represents the present value of estimated costs of legal and constructive obligations required to retire an asset, including decommissioning and other site restoration activities. The majority of these expenditures occur after the end of the life of the related operation. For the Gibraltar Mine, it is anticipated that these costs will be incurred over a period of at least 100 years beyond the end of the current mine life based on known reserves.
21
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
The decrease in the PER during 2019 is primarily due to changes in managements estimated closure costs for Gibraltar and the risk-free discount rates applied against the obligation. There was $4,682 added for the estimated closure cost of the Florence Copper Projects production test facility operation.
As at December 31, 2019, the PER was calculated on a present value basis for closure costs to be incurred in the first 30 years using a nominal risk-free discount rate of 1.93% (2018 2.18%) based on the 30 year overnight index swap (OIS) rate. For discounting annual closure cashflows beyond 30 years, a risk free yield curve was extrapolated from the implied OIS swap rate for liquid, investment grade corporate bonds with durations between 50 to 100 years. A nominal risk free rate of up to 3.05% was utilized in 2019 (2018 - 2.18%) for discounting closure costs up to 100 years from the estimated date of site closure for Gibraltar, based on current reserves. An inflation rate of 1.42% (2018 1.70%) was applied in deriving nominal cash flow estimates
During 2017, the Company submitted an updated decommissioning cost report for the Gibraltar Mine to the BC Ministry of Energy, Mines and Petroleum Resources as a requirement to maintain its permits in good standing. The underlying cost assumptions supporting the 2017 decommissioning report reflect managements best estimate for closure costs and were incorporated into the PER. Estimates are reviewed regularly and there have been adjustments to the amount and timing of cash flows as a result of updated information. Assumptions are based on the current economic environment, but actual rehabilitation costs will ultimately depend upon future market prices for the necessary decommissioning work required, which will reflect market conditions at the relevant time. Furthermore, the timing of rehabilitation will depend on when the mine ceases production which, in turn, will depend on future mineral reserves, metal prices, operating conditions and many other factors which are inherently uncertain.
The Company has provided letters of credit, surety bonds and deposits held in trust to the regulatory authorities for its share of reclamation obligations (Note 13). Security for reclamation obligations is returned once the site is reclaimed to a satisfactory level and there are no ongoing monitoring or maintenance requirements.
21. EQUITY
(a) Share capital
Common shares (thousands) |
||||
Common shares outstanding at January 1, 2018 |
227,000 | |||
Exercise of warrants |
1,024 | |||
Exercise of share options |
407 | |||
Common shares outstanding at December 31, 2018 |
228,431 | |||
Issued to acquire Yellowhead (Note 14) |
17,300 | |||
Exercise of share options |
463 | |||
Common shares outstanding at December 31, 2019 |
246,194 |
The Companys authorized share capital consists of an unlimited number of common shares with no par value.
(b) Share purchase warrants
At December 31, 2019, the Company had 3,000,000 share purchase warrants outstanding at an exercise price of $2.74 per share and with an expiry date of April 1, 2020.
22
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
(c) Contributed surplus
Contributed surplus represents employee entitlements to equity settled share-based awards that have been charged to the statement of comprehensive income and loss in the periods during which the entitlements were accrued and have not yet been exercised.
(d) Accumulated other comprehensive income (AOCI)
AOCI is comprised of the cumulative net change in the fair value of FVOCI financial assets and cumulative translation adjustments arising from the translation of foreign subsidiaries.
22. SHARE-BASED COMPENSATION
(a) Share Options
The Company has an equity settled share option plan approved by the shareholders that allows it to grant options to directors, officers, employees and other service providers. Under the plan, a maximum of 9.5% of the Companys outstanding common shares may be granted. The maximum allowable number of outstanding options to independent directors as a group at any time is 1% of the Companys outstanding common shares. The exercise price of an option is set at the time of grant using the five-day volume weighted average price of the common shares. Options are exercisable for a maximum of five years from the effective date of grant under the plan. Vesting conditions of options are at the discretion of the Board of Directors at the time the options are granted.
Options (thousands) |
Average price | |||||||
Outstanding at January 1, 2018 |
9,281 | 1.40 | ||||||
Granted |
1,724 | 2.84 | ||||||
Exercised |
(407) | 0.82 | ||||||
Cancelled/forfeited |
(161) | 2.25 | ||||||
Expired |
(100) | 2.02 | ||||||
Outstanding at January 1, 2019 |
10,337 | 1.64 | ||||||
Granted |
4,612 | 0.75 | ||||||
Exercised |
(463) | 0.38 | ||||||
Cancelled/forfeited |
(178) | 1.58 | ||||||
Expired |
(3,552) | 2.23 | ||||||
Outstanding at December 31, 2019 |
10,756 | 1.12 | ||||||
Exercisable at December 31, 2019 |
7,242 | 1.16 |
During the year ended December 31, 2019, the Company granted 4,611,500 (2018 1,724,500) share options to directors, executives and employees, exercisable at an average exercise price of $0.75 per common share (2018 $2.84 per common share) over a five year period. The total fair value of options granted was $1,891 (2018 $2,483) based on a weighted average grant-date fair value of $0.41 (2018 $1.44) per option.
23
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
Range of exercise price |
Options (thousands) |
Average life
(years) |
||||||
$0.38 to $0.68 |
1,323 | 1.06 | ||||||
$0.69 to $1.02 |
6,222 | 2.16 | ||||||
$1.03 to $1.64 |
1,674 | 1.69 | ||||||
$1.65 to $2.86 |
1,537 | 2.56 | ||||||
10,756 | 1.91 |
The fair value of options was measured at the grant date using the Black-Scholes formula. Expected volatility is estimated by considering historic average share price volatility. The inputs used in the Black-Scholes formula are as follows:
At December 31, | ||||||||
2019 | 2018 | |||||||
Expected term (years) |
5.0 | 4.4 | ||||||
Forfeiture rate |
0% | 0% | ||||||
Volatility |
64% | 64% | ||||||
Dividend yield |
0% | 0% | ||||||
Risk-free interest rate |
1.8% | 1.8% | ||||||
Weighted-average fair value per option |
$0.41 | $1.44 |
(b) Deferred Share Units and Performance Share Units
The Company has adopted a Deferred Share Unit (DSU) Plan (the DSU Plan) that provides for an annual grant of DSUs to each non-employee director of the Company, or an equivalent cash payment in lieu thereof, which participants have agreed would in the first instance be used to assist in complying with the Companys share ownership guidelines. DSUs vest immediately upon grant and are paid out in cash when a participant ceases to be a director of the Company. A long-term financial liability of $1,483 has been recorded at December 31, 2019 (2018 - $1,513), representing the fair value of the liability, which is based on the Companys stock price at the reporting period date.
The Company has established a Performance Share Unit (PSU) Plan (the PSU Plan) whereby PSUs are issued to executives as long-term incentive compensation. PSUs issued under the Plan entitle the holder to a cash or equity payment (as determined by the Board of Directors), at the end of a three-year performance period equal to the number of PSUs granted, adjusted for a performance factor and multiplied by the quoted market value of a Taseko common share on the completion of the performance period. The performance factor can range from 0% to 250% and is determined by comparing the Companys total shareholder return to those achieved by a peer group of companies.
24
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
DSUs (thousands) |
PSUs (thousands) |
|||||||
Outstanding at January 1, 2018 |
1,943 | 1,219 | ||||||
Granted |
385 | 400 | ||||||
Settled |
- | (409) | ||||||
Outstanding at January 1, 2019 |
2,328 | 1,210 | ||||||
Granted |
682 | 875 | ||||||
Settled |
(656) | (410) | ||||||
Outstanding at December 31, 2019 |
2,354 | 1,675 |
During the year ended December 31, 2019, 682,000 DSUs were issued to directors (2018 - 385,000) and 875,000 PSUs to senior executives (2018 400,000). The fair value of DSUs and PSUs granted was $1,696 (2018 - $2,982), with a weighted average fair value at the grant date of $0.78 per unit for the DSUs (2018 - $2.86) per unit) and $1.33 per unit for the PSUs (2018 $4.70 per unit).
(c) Share-based compensation expenses
Share based compensation expense (recovery) is comprised as follows:
Years ended December 31, | ||||||||
2019 | 2018 | |||||||
Share options amortization |
1,786 | 2,182 | ||||||
Performance share units amortization |
1,015 | 736 | ||||||
Change in fair value of deferred share units |
325 | (4,200) | ||||||
3,126 | (1,282) |
23. COMMITMENTS AND CONTINGENCIES
(a) Commitments
The Company is a party to certain contracts relating to service and supply agreements. Future minimum payments under these agreements as at December 31, 2019 are presented in the following table:
2020 |
8,513 | |||
2021 |
5,260 | |||
2022 |
877 | |||
2023 |
- | |||
2024 |
- | |||
2025 and thereafter |
- | |||
Total commitments |
14,650 |
As at December 31, 2019, the Company had no outstanding capital commitments (2018: $298).
25
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
(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 partners 25% share of this debt which amounted to $16,889 as at December 31, 2019.
24. SUPPLEMENTARY CASH FLOW INFORMATION
For the year ended December 31, |
||||||||
2019 | 2018 | |||||||
Change in non-cash working capital items |
||||||||
Accounts receivable |
713 | 7,018 | ||||||
Inventories |
(4,634) | 653 | ||||||
Prepaids |
(1,326) | 7 | ||||||
Accounts payable and accrued liabilities |
(463) | (1,778) | ||||||
Interest payable |
(17) | 40 | ||||||
Income tax payable |
(887) | (4,139) | ||||||
Income tax received |
- | 92 | ||||||
(6,614) | 1,893 | |||||||
Non-cash investing and financing activities |
||||||||
Assets acquired under capital lease |
1,780 | - | ||||||
ROU assets (Note 2.5) |
9,355 | - |
25. FINANCIAL RISK MANAGEMENT
(a) Overview
In the normal course of business, the Company is inherently exposed to market, liquidity and credit risk through its use of financial instruments. The timeframe and manner in which the Company manages these risks varies based upon managements assessment of the risk and available alternatives for mitigating risk. The Board approves and monitors risk management processes, including treasury policies, counterparty limits, controlling and reporting structures.
(b) Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of risk: commodity price risk; interest rate risk; and currency risk. Financial instruments affected by market risk include: cash and equivalents; accounts receivable; marketable securities; subscription receipts; reclamation deposits; accounts payable and accrued liabilities; debt and derivatives.
The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. The Company buys copper put options in order to reduce commodity price risk. The derivative instruments employed by the Company are considered to be economic hedges but are not designated as hedges for accounting purposes.
26
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
Commodity price risk
The Company is exposed to the risk of fluctuations in prevailing market commodity prices on the metals it produces. The Company enters into copper put option contracts to reduce the risk of short-term copper price volatility. The amount and duration of the hedge position is based on an assessment of business-specific risk elements combined with the copper pricing outlook. Copper put option contracts are typically extended adding incremental quarters at established put strike prices to provide the necessary price protection.
Provisional pricing mechanisms embedded within the Companys 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 provisionally invoiced sales volumes.
As at December 31, | ||||||||
2019 | 2018 | |||||||
Copper increase/decrease by US$0.28/lb. (2018: US$0.27/lb.)1 |
7,992 | 7,485 |
1The analysis is based on the assumption that the year-end copper price increases/decreases 10 percent with all other variables held constant. At December 31, 2019, 22 million (2018: 20 million) pounds of copper in concentrate were exposed to copper price movements. The closing exchange rate at December 31, 2019 of CAD/USD 1.30 (2018: 1.36) was used in the analysis.
The sensitivities in the above tables have been determined with foreign currency exchange rates held constant. The relationship between commodity prices and foreign currencies is complex and movements in foreign exchange can impact commodity prices. The sensitivities should therefore be used with care.
Interest rate risk
The Company is exposed to interest rate risk on its outstanding debt and investments, including cash and cash equivalents, from the possibility that changes in market interest rates will affect future cash flows or the fair value of fixed-rate interest-bearing financial instruments.
The table below summarizes the impact on earnings after tax and equity for a change of 100 basis points in interest rates at the reporting date. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. This assumes that the change in interest rates is effective from the beginning of the financial year and balances are constant over the year. However, interest rates and balances of the Company may not remain constant in the coming financial year and therefore such sensitivity analysis should be used with care.
Years ended December 31, | ||||||||
2019 | 2018 | |||||||
Fair value sensitivity for fixed-rate instruments |
||||||||
Senior secured notes |
(1,768) | (2,365) | ||||||
Lease liabilities |
(149) | (175) | ||||||
Lease related obligations |
(44) | - | ||||||
Secured equipment loans |
(134) | (56) | ||||||
(2,095) | (2,596) | |||||||
Cash flow sensitivity for variable-rate instruments |
||||||||
Cash and equivalents |
386 | 382 | ||||||
Reclamation deposits |
- | 211 | ||||||
386 | 593 |
27
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
Currency risk
The Canadian dollar is the functional currency of the Company and, as a result, currency exposure arises from transactions and balances in currencies other than the Canadian dollar, primarily the US dollar. The Companys potential currency exposures comprise translational exposure in respect of non-functional currency monetary items, and transactional exposure in respect of non-functional currency revenues and expenditures.
The following table demonstrates the sensitivity to a 10% strengthening in the CAD against the USD. With all other variables held constant, the Companys shareholders equity and earnings after tax would both increase/(decrease) due to changes in the carrying value of monetary assets and liabilities. A weakening in the CAD against the USD would have had the equal but opposite effect to the amounts shown below.
Years ended December 31, | ||||||||
2019 | 2018 | |||||||
Cash and equivalents |
(2,803) | (1,928) | ||||||
Accounts receivable |
(824) | (812) | ||||||
Accounts payable and accrued liabilities |
587 | 562 | ||||||
Senior secured notes |
23,790 | 24,987 | ||||||
Equipment loans |
527 | - | ||||||
Lease liabilities |
62 | 45 |
The Companys financial asset and liability profile may not remain constant and, therefore, these sensitivities should be used with care.
(c) Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages liquidity risk by holding sufficient cash and equivalents and scheduling long-term obligations based on estimated cash inflows. There were no defaults on loans payable during the year.
(d) Credit risk
Credit risk is the risk of potential loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company is exposed to credit risk from its receivables, marketable securities and investments, and derivatives. In general, the Company manages its credit exposure by transacting only with reputable counterparties. The Company monitors the financial condition of its customers and counterparties to contracts. The Company deals with a limited number of counterparties for its metal sales. The Company had two significant customers in 2019 that represented 87% of gross copper concentrate revenues (2018: two customers accounted for 86% of gross copper concentrate revenues). The trade receivable balance at December 31, 2019 is comprised of three customers (2018: two customers). There are no impairments recognized on the trade receivables.
(e) Fair values of financial instruments
The fair values of the senior secured notes is $285,931 and the carrying value is $317,728 at December 31, 2019. The fair value of all other financial assets and liabilities approximates their carrying value.
The Company uses the fair value hierarchy described in Note 2.4(c) for determining the fair value of instruments that are measured at fair value.
28
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
December 31, 2019 |
||||||||||||||||
Financial assets designated as FVOCI |
||||||||||||||||
Marketable securities |
730 | - | - | 730 | ||||||||||||
Investment in subscription receipts |
- | - | 2,400 | 2,400 | ||||||||||||
Reclamation deposits |
3,083 | - | - | 3,083 | ||||||||||||
3,813 | - | 2,400 | 6,213 | |||||||||||||
December 31, 2018 |
||||||||||||||||
Financial assets designated as FVOCI |
||||||||||||||||
Marketable securities |
3,581 | - | - | 3,581 | ||||||||||||
Investment in subscription receipts |
- | - | 2,400 | 2,400 | ||||||||||||
Reclamation deposits |
31,480 | - | - | 31,480 | ||||||||||||
35,061 | - | 2,400 | 37,461 |
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 December 31, 2019.
The fair value of the senior secured notes, a Level 1 instrument, is determined based upon publicly available information.
The Companys 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 Companys settlement receivable on these contracts are marked-to-market based on a quoted forward price for which there exists an active commodity market. At December 31, 2019, the Company had settlement receivables of $9,006 (2018 - $10,326).
The subscription receipts, a Level 3 instrument, are valued based on a management estimate. As the subscription receipts are an investment in a private exploration and development company, there are no observable market data inputs. At December 31, 2019 the determination of the estimated fair value of the investment includes comparison to the market capitalization of comparable public companies.
(f) Capital management
The Companys primary objective when managing capital is to ensure that the Company is able to continue its operations and that it has sufficient ability to satisfy its capital obligations and ongoing operational expenses, as well as to have sufficient liquidity available to fund suitable business opportunities as they arise.
The Company considers the components of shareholders equity, as well as its cash and equivalents, credit facilities and debt as capital. The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may issue or buy back equity, issue, buy back or repay debt, sell assets, or return capital to shareholders.
29
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
As at December 31, | ||||||||
2019 | 2018 | |||||||
Cash |
(53,198) | (45,665) | ||||||
Current portion of long-term debt |
16,460 | 9,856 | ||||||
Long-term debt |
357,025 | 345,625 | ||||||
Net debt |
320,287 | 309,816 | ||||||
Shareholders equity |
301,686 | 347,077 |
In order to facilitate the management of its capital requirements, the Company prepares annual operating budgets that are approved by the Board of Directors. Management also actively monitors the covenants on its long-term debt to ensure compliance. The Companys investment policy is to invest cash in highly liquid interest-bearing investments that are readily convertible to known amounts of cash. There were no changes to the Companys approach to capital management during the year ended December 31, 2019.
26. RELATED PARTIES
(a) Subsidiaries
Ownership interest as at December 31, |
||||||||
2019 | 2018 | |||||||
Gibraltar Mines Ltd. |
100% | 100% | ||||||
Curis Resources Ltd. |
100% | 100% | ||||||
Curis Holdings (Canada) Ltd. |
100% | 100% | ||||||
Florence Copper Inc. |
100% | 100% | ||||||
Aley Corporation |
100% | 100% | ||||||
Yellowhead Mining Inc. |
100% | 21% | ||||||
672520 BC Ltd. |
100% | 100% |
(b) Key management personnel compensation
Key management personnel include the members of the Board of Directors and executive officers of the Company.
The Company contributes to a post-employment defined contribution pension plan on behalf of certain key management personnel. This retirement compensation arrangement (RCA Trust) was established to provide benefits to certain executive officers on or after retirement in recognition of their long service. Upon retirement, the participant is entitled to the distribution of the accumulated value of the contributions under the RCA Trust. Obligations for contributions to the defined contribution pension plan are recognized as compensation expense in profit or loss in the periods during which services are rendered by the executive officers.
Certain executive officers are entitled to termination and change in control benefits. In the event of termination without cause, other than a change in control, these executive officers are entitled to an amount ranging from
9-month to 12-months salary. In the event of a change in control, if a termination without cause or a resignation occurs within 12 months following the change of control, these executive officers are entitled to receive, among other things, an amount ranging from 24-month to 32-months salary and accrued bonus, and all stock options held by these individuals will fully vest.
30
TASEKO MINES LIMITED
Notes to Consolidated Financial Statements
(Cdn$ in thousands)
Executive officers and directors also participate in the Companys share option program (Note 22).
Compensation for key management personnel (includes all members of the Board of Directors and executive officers) is as follows:
Year ended December 31, | ||||||||
2019 | 2018 | |||||||
Salaries and benefits |
6,757 | 6,467 | ||||||
Post-employment benefits |
1,639 | 2,061 | ||||||
Share-based compensation (recovery) expense |
2,710 | (1,914) | ||||||
11,106 | 6,614 |
(c) Related party transactions
On December 31, 2018, the Company terminated the services agreement with Hunter Dickinson Services Inc. (HDSI), which was a related party as three directors of the Company are also principals of HDSI. In 2018 and prior years, HDSI invoiced the Company for their executive services (director fees) and for other services provided by HDSI under a services agreement dated July 2010.
Effective from January 1, 2019 HDSI no longer provides services to the Company, and the Company had no transactions with HDSI, except for a reimbursement of warehouse rental costs in the amount of $10 and $39 for the three and twelve month period ended December 31, 2019.
For the year ended December 31, 2018, the Company incurred total costs of $1,344 in transactions with HDSI. Of these, $537 related to administrative, legal, exploration and tax services, $527 related to reimbursements of office rent costs, and $280 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 Gibraltar. Net management fee income in 2019 was $1,186 (2018: $1,167). In addition, the Company pays certain expenses on behalf of the Gibraltar joint venture and invoices the joint venture for these expenses. In 2019, net reimbursable compensation expenses and third party costs of $95 (2018: $141) were charged to the joint venture.
27. SUBSEQUENT EVENT
Subsequent to December 31, 2019, the Company purchased copper put option contracts for a total of 27.5 million pounds of copper with maturities between January and April of 2020, at a strike price of US$2.60 per pound. The total cost of these put options was $496.
31
Exhibit 99.7
TASEKO MINES LIMITED
Managements Discussion and Analysis
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 International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board for the year ended December 31, 2019 (the Financial Statements). You are encouraged to review the Financial Statements in conjunction with your review of this MD&A and the Companys 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 Commissions (SEC) website at www.sec.gov.
This MD&A is prepared as of February 19, 2020. 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, global economic events arising from the coronavirus outbreak, 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 Companys other public filings with the SEC and Canadian provincial securities regulatory authorities.
TASEKO MINES LIMITED
Managements Discussion and Analysis
CONTENTS
OVERVIEW |
3 | |||
HIGHLIGHTS |
3 | |||
REVIEW OF OPERATIONS |
5 | |||
GIBRALTAR OUTLOOK |
7 | |||
REVIEW OF PROJECTS |
8 | |||
LONDON STOCK EXCHANGE LISTING |
9 | |||
MARKET REVIEW |
10 | |||
FINANCIAL PERFORMANCE |
10 | |||
FINANCIAL CONDITION REVIEW |
14 | |||
SELECTED ANNUAL INFORMATION |
18 | |||
FOURTH QUARTER RESULTS |
19 | |||
SUMMARY OF QUARTERLY RESULTS |
25 | |||
CRITICAL ACCOUNTING POLICIES AND ESTIMATES |
25 | |||
CHANGE IN ACCOUNTING POLICIES |
26 | |||
INTERNAL AND DISCLOSURE CONTROLS OVER FINANCIAL REPORTING |
26 | |||
FINANCIAL INSTRUMENTS |
27 | |||
RELATED PARTY TRANSACTIONS |
28 | |||
NON-GAAP PERFORMANCE MEASURES |
30 |
2
TASEKO MINES LIMITED
Managements Discussion and Analysis
OVERVIEW
Taseko Mines Limited (Taseko or Company) is a mining company that seeks to create long-term 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 Companys sole operating asset is the 75% owned Gibraltar Mine, which is located in central British Columbia and is one of the largest copper mines in North America. Taseko also owns the Florence Copper Project, which is advancing towards production, as well as the Yellowhead copper, New Prosperity gold-copper, Aley niobium and Harmony gold projects.
HIGHLIGHTS
Financial Data |
Year ended December 31, |
Three Months Ended December 31, |
||||||||||||||||||||||
(Cdn$ in thousands, except for per share amounts) | 2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||||||||||
Revenues |
329,163 | 343,870 | (14,707 | ) | 89,932 | 111,121 | (21,189 | ) | ||||||||||||||||
Earnings from mining operations before depletion and amortization* |
70,613 | 112,003 | (41,390 | ) | 23,921 | 28,450 | (4,529 | ) | ||||||||||||||||
Adjusted EBITDA* |
51,057 | 98,217 | (47,160 | ) | 18,246 | 26,489 | (8,243 | ) | ||||||||||||||||
Cash flows provided by operations |
42,641 | 94,078 | (51,437 | ) | 9,227 | 44,120 | (34,893 | ) | ||||||||||||||||
Earnings (loss) from mining operations |
(39,143 | ) | 41,222 | (80,365 | ) | (7,459 | ) | 10,578 | (18,037 | ) | ||||||||||||||
Net loss |
(53,382 | ) | (35,774 | ) | (17,608 | ) | (9,931 | ) | (19,720 | ) | 9,789 | |||||||||||||
Per share - basic (EPS) |
(0.22 | ) | (0.16 | ) | (0.06 | ) | (0.04 | ) | (0.09 | ) | 0.05 | |||||||||||||
Adjusted net loss* |
(68,610 | ) | (8,508 | ) | (60,102 | ) | (16,159 | ) | (1,310 | ) | (14,849 | ) | ||||||||||||
Per share - basic (Adjusted EPS)* |
(0.28 | ) | (0.04 | ) | (0.24 | ) | (0.07 | ) | (0.01 | ) | (0.06 | ) | ||||||||||||
Operating Data (Gibraltar - 100% basis) |
Year ended December 31, |
Three Months Ended December 31, |
||||||||||||||||||||||
2019 | 2018 | Change | 2019 | 2018 | Change | |||||||||||||||||||
Tons mined (millions) |
100.4 | 111.6 | (11.2 | ) | 25.8 | 28.4 | (2.6 | ) | ||||||||||||||||
Tons milled (millions) |
29.9 | 30.1 | (0.2 | ) | 7.8 | 7.1 | 0.7 | |||||||||||||||||
Production (million pounds Cu) |
125.9 | 125.2 | 0.7 | 33.4 | 25.8 | 7.6 | ||||||||||||||||||
Sales (million pounds Cu) |
122.4 | 126.5 | (4.1 | ) | 33.3 | 42.7 | (9.4 | ) |
*Non-GAAP performance measure. See page 30 of this MD&A.
3
TASEKO MINES LIMITED
Managements Discussion and Analysis
HIGHLIGHTS - CONTINUED
2019 Annual Review
● |
Earnings from mining operations before depletion and amortization* was $70.6 million and Adjusted EBITDA* was $51.1 million; |
● |
Cash flows from operations was $42.6 million and capital expenditures for the year totalled $50.8 million; |
● |
Cash balance at December 31, 2019 was $53 million, which was $8 million higher than the end of 2018; |
● |
Site operating costs, net of by-product credits* was US$1.75 per pound produced, and total operating costs (C1)* was US$2.06 per pound produced; |
● |
Net loss for the year was $53.4 million ($0.22 per share) with depreciation $39 million greater than the prior year due to the amortization of capitalized stripping costs associated with ore mined from the Granite pit. Adjusted net loss* was $68.6 million ($0.28 per share) after adjusting for the unrealized foreign exchange gain of $15.2 million; |
● |
The Gibraltar Mine (100% basis) produced 125.9 million pounds of copper in 2019, a slight improvement over 2018. Copper recoveries were 86.2% and copper head grades for the year were 0.245%; |
● |
Gibraltar produced 2.7 million pounds of molybdenum in 2019 compared to 2.4 million pounds in 2018. Molybdenum provided a by-product credit of US$0.20 per pound of copper consistent with 2018; |
● |
Sales of copper were 122 million pounds in 2019 with finished goods inventory at Gibraltar (100% basis) including 5.0 million pounds of copper. This copper concentrate inventory at December 31, 2019 had a sales value of approximately $14 million for Tasekos share; |
● |
Taseko continued to advance its production test facility operation at the Florence Copper project with the wellfield performing to expectation. The SX-EW plant continues to produce LME grade A copper cathode. Commercial permit applications for Phase 2 were submitted to the state and federal agencies in the middle of 2019 and permitting initiatives are underway; and |
● |
In February 2019, the Company acquired the remaining interests in Yellowhead Mining Inc. that it did not already own for consideration of $13 million in the Companys common shares. On January 16, 2020, the Company published the results of its updated NI 43-101 Technical report on the Yellowhead project outlining a significantly improved development plan and economics. |
Fourth Quarter Review
● |
Fourth quarter earnings from mining operations before depletion and amortization* was $23.9 million, and Adjusted EBITDA* was $18.2 million; |
● |
Cash flow from operations was $9.2 million; |
● |
Site operating costs, net of by-product credits* was US$1.69 per pound produced, consistent with the prior two quarters; |
● |
Net loss was $9.9 million ($0.04 per share) after depletion and amortization of $31.4 million in the quarter. Adjusted net loss* was $16.2 million ($0.07 per share) after adjusting for the unrealized foreign exchange gain of $5.9 million; |
● |
Copper production in the fourth quarter was consistent with previous quarters at 33.4 million pounds and copper sales were 33.3 million pounds (100% basis); and |
*Non-GAAP performance measure. See page 30 of this MD&A.
4
TASEKO MINES LIMITED
Managements Discussion and Analysis
|
Molybdenum production was steady at 728 thousand pounds in Q4; molybdenum prices averaged US$9.67 per pound during the quarter down from US$11.83 per pound in Q3. |
REVIEW OF OPERATIONS
Gibraltar Mine (75% Owned)
Operating data (100% basis) |
Q4
2019 |
Q3
2019 |
Q2
2019 |
Q1
2019 |
Q4
2018 |
YE
2019 |
YE
2018 |
|||||||||||||||||||||
Tons mined (millions) |
25.8 | 24.7 | 26.6 | 23.3 | 28.4 | 100.4 | 111.6 | |||||||||||||||||||||
Tons milled (millions) |
7.8 | 7.5 | 7.7 | 6.8 | 7.1 | 29.9 | 30.1 | |||||||||||||||||||||
Strip ratio |
2.1 | 3.0 | 2.3 | 3.2 | 5.1 | 2.6 | 2.7 | |||||||||||||||||||||
Site operating cost per ton milled (CAD$)* |
$10.46 | $10.83 | $11.51 | $10.88 | $9.16 | $10.92 | $9.71 | |||||||||||||||||||||
Copper concentrate |
||||||||||||||||||||||||||||
Head grade (%) |
0.253 | 0.249 | 0.256 | 0.216 | 0.222 | 0.245 | 0.251 | |||||||||||||||||||||
Copper recovery (%) |
84.5 | 87.7 | 87.7 | 84.6 | 81.3 | 86.2 | 82.7 | |||||||||||||||||||||
Production (million pounds Cu) |
33.4 | 33.0 | 34.7 | 24.9 | 25.8 | 125.9 | 125.2 | |||||||||||||||||||||
Sales (million pounds Cu) |
33.3 | 33.5 | 32.3 | 23.3 | 42.7 | 122.4 | 126.5 | |||||||||||||||||||||
Inventory (million pounds Cu) |
5.0 | 5.0 | 5.5 | 3.1 | 1.6 | 5.0 | 1.6 | |||||||||||||||||||||
Molybdenum concentrate |
||||||||||||||||||||||||||||
Production (thousand pounds Mo) |
728 | 620 | 653 | 738 | 727 | 2,739 | 2,366 | |||||||||||||||||||||
Sales (thousand pounds Mo) |
791 | 518 | 708 | 770 | 738 | 2,787 | 2,304 | |||||||||||||||||||||
Per unit data (US$ per pound produced)* |
||||||||||||||||||||||||||||
Site operating costs* |
$1.85 | $1.88 | $1.92 | $2.23 | $1.92 | $1.95 | $1.80 | |||||||||||||||||||||
By-product credits* |
(0.16 | ) | (0.16 | ) | (0.21 | ) | (0.32 | ) | (0.30 | ) | (0.20 | ) | (0.20 | ) | ||||||||||||||
Site operating costs, net of by-product credits* |
$1.69 | $1.72 | $1.71 | $1.91 | $1.62 | $1.75 | $1.60 | |||||||||||||||||||||
Off-property costs |
0.32 | 0.33 | 0.30 | 0.30 | 0.49 | 0.31 | 0.33 | |||||||||||||||||||||
Total operating costs (C1)* |
$2.01 | $2.05 | $2.01 | $2.21 | $2.11 | $2.06 | $1.93 |
*Non-GAAP performance measure. See page 30 of this MD&A.
5
TASEKO MINES LIMITED
Managements Discussion and Analysis
OPERATIONS ANALYSIS
Full-year results
In 2019, Gibraltar produced 125.9 million pounds of copper compared to 125.2 million in 2018. Copper grade for the year averaged 0.245% copper, slightly below the life of mine average grade. Copper recovery for 2019 was 86.2% and an improvement over 2018 as a result of processing improvements and processing less oxidized ore.
A total of 100.4 million tons were mined in 2019, a 10% decrease over the prior year due to the mining deeper within Granite pit resulting in longer haul distances. Waste stripping costs of $22.9 million (75% basis) were capitalized in 2019 compared to $48.8 million in 2018 as more waste stripping was performed in the Granite pit in the prior year.
Site operating costs* for the year were US$1.95 per pound of copper produced, an increase from 2018, due primarily to the greater capitalization of stripping costs in the prior year. There was also higher mining costs per ton mined in 2019 arising from greater haulage distances.
Molybdenum production for 2019 was 2.7 million pounds compared to 2.4 million pounds in 2018. This additional production was offset by a decrease in the average molybdenum price, which was US$11.36 per pound in 2019 compared to US$12.20 per pound in 2018. The resulting by-product credits per pound of copper produced* of US$0.20 remained consistent with the prior year.
Off property costs* were US$0.31 per pound of copper produced, consistent with US$0.33 per pound produced in 2018. The decrease was attributed to improved TCRCs on spot tenders in 2019 compared to 2018.
Total operating costs (C1)* were US$2.06 per pound of copper produced for the year compared to $1.93 per pound in 2018 due to the difference in site operating costs as noted above.
Fourth quarter results
Copper production in the fourth quarter was 33.4 million pounds. Copper grade for the quarter averaged 0.253%, which was in line with the life of mine average grade. Copper recovery in the mill was 84.5% during the quarter which was lower than the first three quarters as a higher percentage of oxide ore was processed. The decrease in recovery was offset by an increase in mill throughput during the quarter.
A total of 25.8 million tons were mined during the period, an increase of 1.1 million tons over the previous quarter and the ore stockpile increased by 0.5 million tons. The strip ratio for the fourth quarter was 2.1 to 1 as more mining took place in Granite. This resulted in less overall waste stripping of Pollyanna in the quarter.
Capitalized stripping costs totaled $4.3 million (75% basis) compared to $8.6 million in the prior quarter and $18.9 million in Q4 2018. The capitalized stripping costs are substantially attributable to advancement into the Pollyanna pit and associated waste stripping costs while no ore from Pollyanna has been mined yet. Total site spending (including capitalized stripping costs) was slightly lower than the previous quarter. The remaining decrease in site operating cost per ton milled*, which was $10.46 for the quarter, was due to greater throughput.
*Non-GAAP performance measure. See page 30 of this MD&A.
6
TASEKO MINES LIMITED
Managements Discussion and Analysis
Molybdenum production was 728 thousand pounds in the fourth quarter. Molybdenum prices averaged US$9.67 per pound over the fourth quarter compared to US$11.83 per pound in the prior quarter and US$12.04 per pound in Q4 2018. By-product credits per pound of copper produced* was US$0.16 in the fourth quarter.
Off-property costs per pound produced* were US$0.32 for the fourth quarter of 2019 and consist of concentrate treatment, refining and transportation costs. These costs are in line with recent quarters relative to pounds of copper sold.
Health, Safety, and Environment
Health and safety have always been a high-level commitment for Taseko, Gibraltar, and Florence management. Taseko is committed to operational practices that result in improved efficiencies, safety performance and occupational health. Nothing is more important to the Company than the safety, health and well-being of our workers and their families.
Taseko places a high priority on the continuous improvement of performance in the areas of employee health and safety at the workplace and protection of the environment. In 2019, Gibraltar had five loss time incidents and a loss time frequency of 0.68 (per 200,000 hours worked). This is lower than the British Columbia industry average loss time frequency of 0.78 (per 200,000 hours worked). The Company remains committed to a culture of safety-first, ensuring safety is the first consideration in all actions taken.
The same priority on health, safety, and environmental performance, as well as the methods and culture at Gibraltar are being imported and implemented at Florence Copper.
GIBRALTAR OUTLOOK
Gibraltar is expected to produce approximately 130 million pounds (+/-5%) on a 100% basis in 2020.
The fundamentals for copper remain strong and despite short-term volatility caused by global events including the coronavirus, most industry analysts are projecting a continued supply constraint and higher copper prices than current levels in the coming years. Expansion of overseas copper smelting capacity and tighter supply conditions resulted in a reduced benchmark for 2020 for concentrate treatment and refining charges (TCRC) which were set 23% below 2019 benchmark levels.
On November 6, 2019, the Company published an updated NI 43-101 Technical report on the Gibraltar Mine. Based on this updated technical report, sufficient Mineral Reserves exist to support an approximate 19-year production plan out to 2038 with annual average copper production of 130 million pounds. Mineral Resource potential exists to potentially further extend the mine life beyond the known reserves.
*Non-GAAP performance measure. See page 30 of this MD&A.
7
TASEKO MINES LIMITED
Managements Discussion and Analysis
REVIEW OF PROJECTS
Tasekos strategy has been to grow the Company from the operating cash flow and credit quality of the Gibraltar Mine to assemble and develop a pipeline of projects. We continue to believe this will generate long-term returns for shareholders. Our development projects are focused primarily on copper and are located in stable mining jurisdictions in British Columbia and Arizona. Our current focus is on the near term development of the Florence Copper Project.
Florence Copper Project
The Production Test Facility (PTF) operated as planned during 2019. Steady state operation was achieved and the focus turned to testing different wellfield operating strategies, including adjusting pumping rates, solution strength, flow direction, and the use of packers in recovery and injection wells to isolate different zones of the ore body. The Florence Copper technical team is using physical and operating control mechanisms to adjust solution chemistry and flow rates and is successfully achieving targeted copper concentration in solution. The PTF wellfield is performing to its design and the SX-EW plant continues to produce LME grade A copper cathode.
The main focus of the PTF phase is to demonstrate to regulators and key stakeholders that hydraulic control of underground leach solutions can be maintained and provide valuable data to validate the Companys leach model as well as optimize well design and performance and hydraulic control parameters. Successful operation of the in-situ leaching process will allow permits to be amended for the full-scale commercial operation, which is expected to produce 85 million pounds of copper cathode annually for 20 years.
Two permits are required to commence construction of the commercial scale wellfield at Florence Copper. These are the Aquifer Protection Permit (APP) from the Arizona Department of Environmental Quality (ADEQ) and the Underground Injection Control (UIC) Permit from the U.S. Environmental Protection Agency (EPA). In June 2019, the Company submitted the APP application for the Phase 2 commercial facility to the ADEQ. The UIC permit application for the Phase 2 commercial facility was submitted to the EPA in August 2019. Both permits are advancing through the technical review process. The Company is in active dialogue with the regulators and targeting to have permitting for the commercial facility completed in 2020.
The Company has continued to advance various project financing options from debt providers, royalty companies, and potential joint venture partners for the Phase 2 commercial development of the Florence Copper Project. Management is targeting to have the project finance funding committed in advance of both the APP and UIC permit amendments being issued by the ADEQ and EPA, respectively.
Total net expenditures at the Florence Project for the year ended December 31, 2019 were $16.0 million including the PTF operation and other project development costs.
Yellowhead Copper Project
On February 15, 2019, the Company acquired all of the outstanding common shares of Yellowhead Mining Inc. (Yellowhead) that it did not already own, in exchange for 17.3 million Taseko common shares. Yellowhead holds a 100% interest in a copper-gold-silver development project located in south-central British Columbia.
8
TASEKO MINES LIMITED
Managements Discussion and Analysis
In January 2020, the Company announced the results of its technical studies on Yellowhead which resulted in a 22% increase in recoverable copper reserves and significantly improved project economics. The Company filed a new NI 43-101 technical report (Technical Report on the Mineral Reserve Update at the Yellowhead Copper Project dated January 16, 2020) (the Technical Report) on Sedar.
The updated Technical Report outlines a new development plan for the project, which includes an 817 million tonne reserve and a 25-year mine life with a pre-tax NPV of $1.3 billion at an 8% discount rate using a US$3.10 per pound copper price. This represents a $500 million increase over the 2014 Feasibility Study completed by the previous owner. Capital costs of the project are estimated at $1.3 billion over a 2-year construction period. Over the first 5 years of operation, the copper equivalent grade will average 0.35% producing an average of 200 million pounds of copper per year at an average C1 cost, net of by-product credit, of US$1.67 per pound of copper. The Yellowhead Copper Project contains valuable precious metal by-products with 440,000 ounces of gold and 19 million ounces of silver with a life of mine value of over $1 billion at current prices.
The Company is focusing its efforts in 2020 on ongoing engagement with local communities including First Nations, environmental assessment work, additional engineering and joint venture partnering discussions with strategic industry offtake groups.
New Prosperity Gold- Copper Project
On December 5, 2019, the Company announced that the Tŝilhqotin Nation as represented by Tŝilhqotin National Government and Taseko have entered into a dialogue, facilitated by the Province of British Columbia, to try to obtain a long-term solution to the conflict regarding Tasekos proposed gold-copper mine currently known as New Prosperity, acknowledging Tasekos commercial interests and the opposition of the Tŝilhqotin Nation to the Project. While the details of this process are confidential, in order to facilitate a dialogue, the parties have agreed to a standstill on certain outstanding litigation and regulatory matters which relate to Tasekos tenures and the area in the vicinity of Teztan Biny (Fish Lake).
Aley Niobium Project
Environmental monitoring and product marketing initiatives on the Aley Niobium project continue. A pilot plant scale program commenced in the second quarter on the niobium flotation and converter processes. The pilot plant will also provide final product samples for marketing purposes. Aley project expenditures for the year ended December 31, 2019 were $0.8 million.
LONDON STOCK EXCHANGE LISTING
In October 2019, the Company announced its intention to seek a listing of the Companys common shares on the London Stock Exchange (LSE) Main Market. In November 2019, the Company announced that its Prospectus for the listing of the Companys common shares to the standard segment of the Official List and the LSEs Main Market for listed securities (Admission) was approved by the UK Listing Authority. The Prospectus is published on the Companys website and is available under the Companys Sedar profile at www.sedar.com. Admission became effective and unconditional dealings in the common shares commenced on November 22, 2019. The Company did not raise capital in conjunction with the LSE admission.
9
TASEKO MINES LIMITED
Managements Discussion and Analysis
MARKET REVIEW
Copper Molybdenum Canadian/US Dollar Exchange
Prices (USD per pound for Commodities)
(Source Data: London Metals Exchange, Platts Metals, and Bank of Canada)
The average price of London Metals Exchange (LME) copper was US$2.67 per pound in the fourth quarter of 2019, which was slightly higher than the third quarter of 2019 and is approximately 4.6% lower than the fourth quarter of 2018. The average price of LME copper was US$2.72 per pound for the year ended December 31, 2019, compared to US$2.96 per pound for year ended December 31, 2018. Changes in Chinese economic demand, copper supply disruptions, global trade policies, coronavirus outbreaks, interest rate expectations and speculative investment activity have all contributed to the recent price volatility. Despite the short-term volatility, management continues to believe that the copper market will benefit from tight mine supply going forward.
The average molybdenum price averaged US$11.36 per pound for the year ended December 31, 2019. Molybdenum price averaged US$9.67 per pound in the fourth quarter of 2019, which was 18% lower than the average price in the third quarter of 2019. The Companys sales agreements specify molybdenum pricing based on the published Platts Metals reports.
Approximately 80% of Gibraltars costs are Canadian dollar denominated and therefore, fluctuations in the Canadian/US dollar exchange rate can have a significant effect on the Companys operating results and unit production costs, which are reported in US dollars in this MD&A. The Canadian dollar strengthened by 4.8% for the year ended December 31, 2019.
FINANCIAL PERFORMANCE
Earnings
The Companys net loss was $53.4 million ($0.22 per share) for the year ended December 31, 2019, compared to a net loss of $35.8 million ($0.16 per share) for 2018. The increased net loss was primarily due to lower average realized copper prices in 2019 of US$0.10 per pound, higher depreciation expense and higher production costs due to the effects of capitalized stripping. The year ended December 31, 2018 also benefited from the insurance recovery of $7.9 million. These net loss variances were partially offset by a $15.2 million unrealized foreign exchange gain in 2019 due to an overall strengthening Canadian dollar as compared to a $28.7 million loss for the same period in 2018 which saw a weakening Canadian dollar as measured at December 31 for each year.
Earnings from mining operations before depletion and amortization* was $70.6 million for 2019, compared to $112.0 million for 2018.
*Non-GAAP performance measure. See page 30 of this MD&A
10
TASEKO MINES LIMITED
Managements Discussion and Analysis
Included in net income (loss) are a number of items that management believes require adjustment in order to better measure the underlying performance of the business. The following items have been adjusted as management believes they are not indicative of a realized economic gain/loss or the underlying performance of the business in the year:
Year ended December 31, |
||||||||||||
(Cdn$ in thousands) |
2019 | 2018 | Change | |||||||||
Net loss |
(53,382 | ) | (35,774 | ) | (17,608 | ) | ||||||
Unrealized foreign exchange (gain) loss |
(15,228 | ) | 28,704 | (43,932 | ) | |||||||
Unrealized gain on copper put options |
- | (1,970 | ) | 1,970 | ||||||||
Estimated tax effect of adjustments |
- | 532 | (532 | ) | ||||||||
Adjusted net loss * |
(68,610 | ) | (8,508 | ) | (60,102 | ) |
*Non-GAAP performance measure. See page30 of this MD&A
The unrealized foreign exchange gain or loss is substantially driven by the translation of the Companys US dollar denominated senior secured notes of US$250 million due in 2022 due to fluctuations in the foreign exchange rate.
Revenues
Year ended December 31, |
||||||||||||
(Cdn$ in thousands) |
2019 | 2018 | Change | |||||||||
Copper contained in concentrate |
321,082 | 350,522 | (29,440 | ) | ||||||||
Molybdenum concentrate |
31,161 | 26,589 | 4,572 | |||||||||
Silver |
3,674 | 3,713 | (39 | ) | ||||||||
Price adjustments on settlement receivables |
(419 | ) | (10,679 | ) | 10,260 | |||||||
Total gross revenue |
355,498 | 370,145 | (14,647 | ) | ||||||||
Less: treatment and refining costs |
(26,335 | ) | (26,275 | ) | (60 | ) | ||||||
Revenue |
329,163 | 343,870 | (14,707 | ) | ||||||||
(thousands of pounds, unless otherwise noted) |
||||||||||||
Sales of copper in concentrate* |
88,462 | 91,426 | (2,964 | ) | ||||||||
Average realized copper price (US$ per pound) |
2.74 | 2.84 | (0.10 | ) | ||||||||
Average LME copper price (US$ per pound) |
2.72 | 2.96 | (0.24 | ) | ||||||||
Average exchange rate (US$/CAD) |
1.33 | 1.30 | 0.03 |
* This amount includes a net smelter payable deduction of approximately 3.5% to derive net payable pounds of copper sold.
Copper revenues for the year ended December 31, 2019 decreased by $29.4 million compared to the same period in 2018, primarily due to lower realized copper prices in the current period by US$0.10 per pound and lower sales copper volume of concentrate sold, partially offset by the weakening of the Canadian dollar relative to the US dollar.
During the year ended December 31, 2019, positive net price adjustments of $0.3 million was recorded for provisionally priced copper concentrate due to copper price trends following shipment. These adjustments were
11
TASEKO MINES LIMITED
Managements Discussion and Analysis
less pronounced than in 2018, which saw a cumulative negative price adjustment of $11.3 million on a year to date basis in 2018, which resulted in a US$0.09 per pound decrease in the average realized copper price for 2018.
Molybdenum revenues for the year ended December 31, 2019, increased by $4.6 million compared to the prior year, as sales volumes were greater by 483 thousand pounds (100% basis). Molybdenum prices for the year ended December 31, 2019 averaged US$11.36 per pound, compared to US$11.94 per pound for the same prior period. During the year ended December 31, 2019, net price adjustments of negative $0.7 million were recorded for provisionally priced molybdenum concentrate (2018 net positive price adjustment of $0.6 million).
Cost of sales
Year ended December 31, |
||||||||||||
(Cdn$ in thousands) | 2019 | 2018 | Change | |||||||||
Site operating costs |
244,611 | 219,104 | 25,507 | |||||||||
Transportation costs |
17,832 | 17,163 | 669 | |||||||||
Insurance recovered |
- | (7,913 | ) | 7,913 | ||||||||
Changes in inventories of finished goods |
(5,570 | ) | 2,435 | (8,005 | ) | |||||||
Changes in inventories of ore stockpiles |
1,677 | 1,078 | 599 | |||||||||
Production costs |
258,550 | 231,867 | 26,683 | |||||||||
Depletion and amortization |
109,756 | 70,781 | 38,975 | |||||||||
Cost of sales |
368,306 | 302,648 | 65,658 | |||||||||
Site operating costs per ton milled* |
$ | 10.92 | $ | 9.71 | $ | 1.21 |
*Non-GAAP performance measure. See page 30 of this MD&A
Site operating costs for the year ended December 31, 2019, increased by $25.5 million, compared to the same prior period substantially due to less costs being capitalized in 2019 as the mine transitioned to mining more ore from the latest pushback in the Granite pit in 2019. For the year ended December 31, 2019, capitalized stripping costs were $22.9 million, compared to $48.8 million for the same period in 2018.
For the year ended December 31, 2018, the Company had recognized an insurance recovery of $7.9 million (75% basis) related to the Cariboo region wildfires in 2017.
Cost of sales is also impacted by changes in copper concentrate inventories and ore stockpiles. Inventory of copper concentrates increased by 3.4 million pounds for the year ended December 31, 2019 due to a rail strike in late November 2019 and associated backlog of freight, resulting in an increase in copper concentrate inventories (decrease in cost of sales) of $5.6 million.
Depletion and amortization for year ended December 31, 2019, increased by $39.0 million over the same period in 2018 due to increased depreciation of capitalized stripping costs for ore tons being mined from the Granite pit.
12
TASEKO MINES LIMITED
Managements Discussion and Analysis
Other operating (income) expenses
Year ended December 31, |
||||||||||||
(Cdn$ in thousands) |
2019 | 2018 | Change | |||||||||
General and administrative |
13,804 | 13,957 | (153 | ) | ||||||||
Share-based compensation expense (recovery) |
2,946 | (1,544 | ) | 4,490 | ||||||||
Project evaluation costs |
3,569 | 1,752 | 1,817 | |||||||||
Realized loss on copper put options |
2,834 | 2,264 | 570 | |||||||||
Unrealized gain on copper put options |
- | (1,970 | ) | 1,970 | ||||||||
Other income |
(920 | ) | (1,472 | ) | 552 | |||||||
22,233 | 12,987 | 9,246 |
General and administrative costs for the year ended December 31, 2019 was comparable to the prior year period.
Share-based compensation expense increased for the year ended December 31, 2019, compared to the same period in 2018, primarily due to the revaluation of the liability for deferred share units in 2018 resulting from a decrease in the Companys share price during the year. Share-based compensation expense is comprised of amortization of share options and performance share units and the expense for deferred share units. More information is set out in Note 22 of the December 31, 2019 consolidated financial statements.
Project evaluation costs for year ended December 31, 2019 represent costs associated with the Yellowhead project, which was acquired in the first quarter of 2019, and the New Prosperity project.
During the year ended December 31, 2019, the Company paid $2.8 million in copper put option premiums that settled during the year, compared to $2.3 million in 2018. The unrealized gain in 2018 of $2.0 million relates to the reversal of the fair value adjustment of copper put options that carried over from 2017.
Finance expenses
|
Year ended
December 31, |
|
||||||||||
(Cdn$ in thousands) |
2019 | 2018 | Change | |||||||||
Interest expense |
34,593 | 32,077 | 2,516 | |||||||||
Finance expense deferred revenue |
4,154 | 4,182 | (28 | ) | ||||||||
Accretion of PER |
1,577 | 2,305 | (728 | ) | ||||||||
40,324 | 38,564 | 1,760 |
Interest expense increased for the year ended December 31, 2019, primarily due to the $0.7 million foreign exchange impact on US dollar denominated interest payments, $0.8 million on additional equipment related debt borrowed during the year, and $0.7 million of interest related to lease liabilities now recognized under IFRS 16.
Finance expense on deferred revenue represents the implicit financing component of the upfront deposit from the silver sales arrangement with Osisko Gold Royalties Ltd. (Osisko).
13
TASEKO MINES LIMITED
Managements Discussion and Analysis
Income tax
Year ended December 31, |
||||||||||||
(Cdn$ in thousands) | 2019 | 2018 | Change | |||||||||
Current income tax expense |
817 | 1,015 | (198 | ) | ||||||||
Deferred income recovery |
(33,154 | ) | (567 | ) | (32,587 | ) | ||||||
(32,337 | ) | 448 | (32,785 | ) | ||||||||
Effective tax rate |
37.7% | 1.3% | 36.4% | |||||||||
Canadian statutory rate |
27.0% | 27.0% | - | |||||||||
B.C. Mineral tax rate |
9.6% | 9.6% | - |
The overall income tax recovery for the year ended December 31, 2019 was mainly due to an increase in deferred income tax recovery. Deferred income taxes were recognized on losses for accounting purposes and timing differences arising from lower depreciation for tax purposes at Gibraltar. The effective tax rate is slightly above the statutory rates as foreign exchange revaluations on the senior secured notes are not recognized for tax purposes until realized, and in the case of capital losses, when they are applied.
The current income tax expense represents an estimate of B.C. mineral taxes payable for the current period.
FINANCIAL CONDITION REVIEW
Balance sheet review
As at December 31, | ||||||||||||
(Cdn$ in thousands) | 2019 | 2018 | Change | |||||||||
Cash and cash equivalents |
53,198 | 45,665 | 7,533 | |||||||||
Other current assets |
60,654 | 58,766 | 1,888 | |||||||||
Property, plant and equipment |
758,006 | 821,287 | (63,281 | ) | ||||||||
Other assets |
12,138 | 47,005 | (34,867 | ) | ||||||||
Total assets |
883,996 | 972,723 | (88,727 | ) | ||||||||
Current liabilities |
50,833 | 47,578 | 3,255 | |||||||||
Debt: |
||||||||||||
Senior secured notes |
317,728 | 331,683 | (13,955 | ) | ||||||||
Equipment related financings |
55,757 | 23,798 | 31,959 | |||||||||
Deferred revenue |
39,433 | 39,367 | 66 | |||||||||
Other liabilities |
118,559 | 183,220 | (64,661 | ) | ||||||||
Total liabilities |
582,310 | 625,646 | (43,336 | ) | ||||||||
Equity |
301,686 | 347,077 | (45,391 | ) | ||||||||
Net debt (debt minus cash and equivalents) |
320,287 | 309,816 | 10,471 | |||||||||
Total common shares outstanding (millions) |
246.2 | 228.4 | 17.8 |
14
TASEKO MINES LIMITED
Managements Discussion and Analysis
The Companys asset base is comprised principally of property, plant and equipment, reflecting the capital intensive nature of the mining business. Other current assets primarily include accounts receivable, inventories (concentrate inventories, ore stockpiles, and supplies), prepaid expenses, and marketable securities. Concentrate inventories, accounts receivable and cash balances fluctuate in relation to transportation and cash settlement schedules.
Net debt has increased by $10.5 million in the year ended December 31, 2019. Total long-term debt increased by $18.0 million for the year ended December 31, 2019, due to two new equipment loans, a sale leaseback transaction on mining equipment at Gibraltar, a new lease for a large wheel loader, and the recognition of $5.9 million of additional lease liabilities under the new IFRS lease accounting standard as of January 1, 2019. These increases were partially offset by unrealized foreign exchange gains on the Companys US dollar denominated debt and ongoing principal and lease repayments. The increase in the cash balance in the year ended December 31, 2019 reflects the release of restricted cash and return of reclamation deposits arising from the new form of reclamation security provided by the Company for Gibraltar.
Deferred revenue relates to the advance payment received in March 2017 from Osisko for the sale of Tasekos share of future silver production from Gibraltar.
Other liabilities decreased by $64.7 million mainly due to the decrease in the provision for environmental rehabilitation (PER) and deferred tax liabilities arising from the deferred tax recovery recognized for the accounting net loss for the year. The decrease in the PER during 2019 is primarily due to changes in closure cost estimates and estimates of the long-term risk free rate. Given the long time frame over which environmental rehabilitation expenditures are expected to be incurred (100 years), the carrying value of the PER provision is sensitive to changes in inflation and discount rate assumptions. More information on the PER is set out in Note 20 of the December 31, 2019 consolidated financial statements.
As at February 19, 2020, there were 246,194,219 common shares outstanding. In addition, there were 11,551,900 stock options and 3,000,000 warrants outstanding at February 19, 2020. More information on these instruments and the terms of their exercise is set out in Notes 19 and 21 of the December 31, 2019 consolidated financial statements.
Liquidity, cash flow and capital resources
Cash flow provided by operations during the year ended December 31, 2019, was $42.6 million compared to $94.1 million for the same period in 2018 which was impacted by the lower copper price and sales volumes in 2019 and more stripping costs being treated as capital expenditures in 2018. Cash used for net investing activities during the year ended December 31, 2019 was $16.9 million compared to $94.4 million for the same period in 2018.
Investing cash flows for the year ended December 31, 2019 includes $13.7 million of expenditures at the Florence Project, $22.9 million for capitalized stripping costs and $13.4 million for other capital expenditures at Gibraltar. Investing activities includes release of cash from other financial assets arising from the new form of reclamation security provided by the Company to Gibraltar.
Net cash used for financing activities for the year ended December 31, 2019, was $16.7 million. Gibraltar entered into three equipment re-financings during 2019 with the Companys share of proceeds being $34.0 million. Principal repayments for leases and equipment loans were $18.9 million and interest paid was $32.0 million for the year ended December 31, 2019.
At December 31, 2019, the Company had cash and equivalents of $53.2 million (December 31, 2018 - $45.7 million). The Company continues to make monthly principal repayments for leases and equipment loans, however, there are no principal payments required on the senior secured notes until the maturity date in June
15
TASEKO MINES LIMITED
Managements Discussion and Analysis
2022. The next semi-annual interest payment of US$10.9 million is due on June 15, 2020 on the senior secured notes.
Liquidity outlook
The Company has a pipeline of development stage projects, including the Florence Copper Project, and additional funding will be required to advance these projects to production. The Florence Copper Project has an estimated capital cost (based on the Companys 2017 NI 43-101 technical report) of approximately US$204 million (plus reclamation bonding) and the Company expects to fund a portion of these costs with debt financing. The US$250 million senior secured notes (due in June 2022) allow for up to US$100 million of first lien secured debt to be issued as well as up to US$50 million of debt for equipment financing, all subject to the terms of the note indenture. To address project funding requirements for Florence or other projects, the Company may also raise capital through equity financings or asset sales, including royalties, sales of project interests, or joint ventures. The Company may also redeem or repurchase senior secured notes on the market. The Company evaluates these alternatives based on a number of factors including, the prevailing market prices of its common shares and senior secured notes, metal prices, liquidity requirements, covenant restrictions and other factors, in order to determine the optimal mix of capital resources to address capital requirements, minimize the Companys cost of capital, and maximize shareholder value.
Future changes in copper and molybdenum market prices could also impact the timing and amount of cash available for future investment in development projects, debt obligations, and other uses of capital. To mitigate commodity price risks, copper put options are entered into for a substantial portion of Tasekos share of Gibraltar copper production and the Company has a long track record of doing so (see section below Hedging Strategy).
Hedging strategy
The Companys hedging strategy is to secure a minimum price for a significant portion of copper production using put options that are either purchased outright or funded by the sale of call options that are significantly out of the money. The amount and duration of the hedge position is based on an assessment of business-specific risk elements combined with the copper pricing outlook. Copper price and quantity exposure are reviewed at least quarterly to ensure that adequate revenue protection is in place. Hedge positions are typically extended adding incremental quarters at established put strike prices to provide the necessary price protection. The Companys hedging strategy is designed to mitigate short-term declines in copper price.
Considerations on the cost of the hedging program include an assessment of Gibraltars estimated production costs, anticipated copper prices and the Companys capital requirements during the relevant period. In February 2019, the Company spent $0.9 million to purchase copper put options that matured evenly between February and April of 2019. In August 2019, the Company spent $2.0 million to purchase copper put options that matured between September and December of 2019. In January 2020, the Company spent $0.5 million to purchase copper put options that matured between January and April 2020. The following table shows the commodity contracts that were outstanding as at the date of this MD&A.
Notional amount | Strike price | Term to maturity | Original cost | |||||||||||||
At February 19, 2020 |
||||||||||||||||
Copper put options |
22.5 million lbs | US$2.60 per lb | February to April 2020 | $0.4 million |
16
TASEKO MINES LIMITED
Managements Discussion and Analysis
Commitments and contingencies
Commitments
Payments due | ||||||||||||||||||||||||||||
($ in thousands) | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | |||||||||||||||||||||
Debt: |
||||||||||||||||||||||||||||
Senior secured notes |
- | - | 324,700 | - | - | - | 324,700 | |||||||||||||||||||||
Interest |
28,411 | 28,411 | 14,206 | - | - | - | 71,028 | |||||||||||||||||||||
Equipment loans: |
||||||||||||||||||||||||||||
Principal |
6,626 | 7,006 | 6,134 | 4,441 | 1,299 | - | 25,506 | |||||||||||||||||||||
Interest |
1,246 | 868 | 483 | 187 | 17 | - | 2,801 | |||||||||||||||||||||
Lease liabilities: |
||||||||||||||||||||||||||||
Principal |
7,983 | 4,943 | 3,286 | 761 | 810 | 1,314 | 19,097 | |||||||||||||||||||||
Interest |
1,007 | 500 | 254 | 159 | 110 | 66 | 2,096 | |||||||||||||||||||||
Lease related obligation: |
||||||||||||||||||||||||||||
Rental payment |
2,627 | 2,627 | 2,627 | 5,634 | - | - | 13,515 | |||||||||||||||||||||
PER 1 |
- | - | - | - | - | 66,373 | 66,373 | |||||||||||||||||||||
Other expenditures |
||||||||||||||||||||||||||||
Transportation related services 2 |
8,221 | 5,260 | 877 | - | - | - | 14,358 | |||||||||||||||||||||
Other |
292 | - | - | - | - | - | 292 |
1 The provision for environmental rehabilitation amounts presented in the table represents the present value of estimated costs of legal and constructive obligations required to retire an asset, including decommissioning and other site restoration activities, primarily for the Gibraltar Mine and the Florence Copper Project. The Company has provided a surety bond of $37,500 for its 75% share of Gibraltars reclamation security. For the Florence Copper Project, the Company has provided to the federal and state regulator surety bonds totaling $8.3 million for reclamation security for the PTF being operated.
2 Transportation related services commitments include ocean freight and port handling services, which are both cancellable upon certain operating circumstances.
The Company has guaranteed 100% of certain capital lease and equipment loans entered into by Gibraltar in which it holds a 75% interest. As a result, the Company has guaranteed the joint venture partners 25% share of this debt which amounted to $16.9 million as at December 31, 2019.
17
TASEKO MINES LIMITED
Managements Discussion and Analysis
SELECTED ANNUAL INFORMATION
For years ended December 31, | ||||||||||||
(Cdn$ in thousands, except per share amounts) | 2019 | 2018 | 2017 | |||||||||
Revenues |
329,163 | 343,870 | 378,299 | |||||||||
Net income (loss) |
(53,382 | ) | (35,774 | ) | 34,262 | |||||||
Per share basic |
(0.22 | ) | (0.16 | ) | 0.15 | |||||||
Per share diluted |
(0.22 | ) | (0.16 | ) | 0.15 | |||||||
As at December 31, |
||||||||||||
2019 | 2018 | 2017 | ||||||||||
Total assets |
883,996 | 972,723 | 988,710 | |||||||||
Total long-term financial liabilities |
358,508 | 347,138 | 323,662 |
18
TASEKO MINES LIMITED
Managements Discussion and Analysis
FOURTH QUARTER RESULTS
Consolidated Statements of Comprehensive Loss |
Three months ended December 31, |
|||||||
(Cdn$ in thousands, except per share amounts) | 2019 | 2018 | ||||||
Revenues |
89,932 | 111,121 | ||||||
Cost of sales |
||||||||
Production costs |
(66,011 | ) | (82,671 | ) | ||||
Depletion and amortization |
(31,380 | ) | (17,872 | ) | ||||
Earnings (loss) from mining operations |
(7,459 | ) | 10,578 | |||||
General and administrative |
(3,520 | ) | (3,127 | ) | ||||
Share-based compensation recovery (expense) |
(678 | ) | 321 | |||||
Project evaluation costs |
(823 | ) | (371 | ) | ||||
Loss on derivatives |
(684 | ) | (873 | ) | ||||
Other income (expense) |
(461 | ) | 266 | |||||
Income (loss) before financing costs and income taxes |
(13,625 | ) | 6,794 | |||||
Finance expenses |
(10,109 | ) | (9,691 | ) | ||||
Finance income |
113 | 314 | ||||||
Foreign exchange gain (loss) |
6,147 | (16,492 | ) | |||||
Loss before income taxes |
(17,474 | ) | (19,075 | ) | ||||
Income tax recovery (expense) |
7,543 | (645 | ) | |||||
Net loss for the period |
(9,931 | ) | (19,720 | ) | ||||
Other comprehensive income (loss): |
||||||||
Unrealized income (loss) on financial assets |
(70 | ) | 2,297 | |||||
Foreign currency translation reserve |
(3,456 | ) | 8,759 | |||||
Total other comprehensive income (loss) for the period |
(3,526 | ) | 11,056 | |||||
Total comprehensive loss for the period |
(13,457 | ) | (8,664 | ) | ||||
Loss per share |
||||||||
Basic |
(0.04 | ) | (0.09 | ) | ||||
Diluted |
(0.04 | ) | (0.09 | ) | ||||
Weighted-average shares outstanding (thousands) |
||||||||
Basic |
246,194 | 228,406 | ||||||
Diluted |
246,194 | 228,406 |
19
TASEKO MINES LIMITED
Managements Discussion and Analysis
Consolidated Statements of Cash Flows |
Three months ended December 31, |
|||||||
(Cdn$ in thousands) | 2019 | 2018 | ||||||
Operating activities |
||||||||
Net loss for the period |
(9,931 | ) | (19,720 | ) | ||||
Adjustments for: |
||||||||
Depletion and amortization |
31,380 | 17,872 | ||||||
Income tax expense (recovery) |
(7,543 | ) | 645 | |||||
Share-based compensation expense (recovery) |
712 | (288 | ) | |||||
Loss on derivatives |
684 | 873 | ||||||
Finance expenses, net |
9,996 | 9,377 | ||||||
Unrealized foreign exchange loss (gain) |
(5,850 | ) | 17,887 | |||||
Amortization of deferred revenue |
(507 | ) | (486 | ) | ||||
Other operating activities |
(172 | ) | 45 | |||||
Net change in non-cash working capital |
(9,542 | ) | 17,915 | |||||
Cash provided by operating activities |
9,227 | 44,120 | ||||||
Investing activities |
||||||||
Purchase of property, plant and equipment |
(13,714 | ) | (26,032 | ) | ||||
Distribution of reclamation deposits |
30,000 | - | ||||||
Release of restricted cash |
6,200 | - | ||||||
Proceeds from copper put options |
- | 454 | ||||||
Other investing activities |
(187 | ) | 438 | |||||
Cash provided by (used for) investing activities |
22,299 | (25,140 | ) | |||||
Financing activities |
||||||||
Repayment of leases and equipment financings |
(3,936 | ) | (3,309 | ) | ||||
Interest paid |
(15,503 | ) | (15,134 | ) | ||||
Proceeds on exercise of options |
- | 11 | ||||||
Cash used for financing activities |
(19,439 | ) | (18,432 | ) | ||||
Effect of exchange rate changes on cash and equivalents |
(766 | ) | (175 | ) | ||||
Increase in cash and equivalents |
11,321 | 373 | ||||||
Cash and equivalents, beginning of period |
41,877 | 45,292 | ||||||
Cash and equivalents, end of period |
53,198 | 45,665 |
Earnings
The Companys net loss was $9.9 million ($0.04 per share) for the three months ended December 31, 2019, compared to net loss of $19.7 million ($0.09 per share) for the same period in 2018. The decreased net loss in the current period was primarily due to the $5.9 million unrealized foreign exchange gain as compared to a $17.9 million foreign exchange loss for the same period in 2018. Contributing to the change in the current period net
20
TASEKO MINES LIMITED
Managements Discussion and Analysis
loss is lower realized copper prices, and higher depreciation of capitalized stripping costs attributed to the greater ore tons being mined from the Granite pit in 2019.
Earnings from mining operations before depletion and amortization* was $23.9 million for the three months ended December 31, 2019, compared to $28.5 million for the same period in 2018.
Included in net income (loss) are a number of items that management believes require adjustment in order to better measure the underlying performance of the business. The following items have been adjusted as management believes they are not indicative of a realized economic gain/loss or the underlying performance of the business in the period:
Three months ended December 31, |
||||||||||||
(Cdn$ in thousands) | 2019 | 2018 | Change | |||||||||
Net loss |
(9,931) | (19,720) | 9,789 | |||||||||
Unrealized foreign exchange (gain) loss |
(5,850) | 17,887 | (23,737) | |||||||||
Unrealized (gain) loss on copper put options |
(518) | 716 | (1,234) | |||||||||
Estimated tax effect of adjustments |
140 | (193) | 333 | |||||||||
Adjusted net loss* |
(16,159) | (1,310) | (14,849) |
*Non-GAAP performance measure. See page 30 on this MD&A.
The unrealized foreign exchange gain or loss is substantially driven by the translation of the Companys US dollar denominated senior secured notes of US$250 million due in 2022.
Revenues
Three months ended December 31, |
||||||||||||
(Cdn$ in thousands) | 2019 | 2018 | Change | |||||||||
Copper in concentrate |
85,347 | 113,790 | (28,443) | |||||||||
Molybdenum concentrate |
7,755 | 8,697 | (942) | |||||||||
Silver |
517 | 544 | (27) | |||||||||
Price adjustment on settlement receivables |
3,249 | (2,954) | 6,203 | |||||||||
Total gross revenue |
96,868 | 120,077 | (23,209) | |||||||||
Less: treatment and refining costs |
(6,936) | (8,956) | 2,020 | |||||||||
Revenue |
89,932 | 111,121 | (21,189) | |||||||||
(thousands of pounds, unless otherwise noted) | ||||||||||||
Copper in concentrate* |
24,080 | 30,839 | (6,759) | |||||||||
Average realized copper price (US$ per pound) |
2.82 | 2.72 | 0.10 | |||||||||
Average LME copper price (US$ per pound) |
2.67 | 2.80 | (0.13) | |||||||||
Average exchange rate (US$ per pound) |
1.32 | 1.32 | - |
* This amount includes a net smelter payable deduction of approximately 3.5% to derive net pounds of copper sold.
21
TASEKO MINES LIMITED
Managements Discussion and Analysis
Copper revenues for the three months ended December 31, 2019 decreased by $28.4 million compared to the same period in 2018, primarily due to a decrease in copper volume of concentrate sold by 6.8 million pounds, partially offset by the higher realized copper prices by US$0.10 per pound in the current period.
During the three months ended December 31, 2019, positive price adjustments of $4.4 million was recorded for provisionally priced copper concentrate due to increasing copper price trends following shipment. These adjustments resulted in a US$0.14 per pound increase to the average realized copper price for the three month period.
Molybdenum revenues for the three months ended December 31, 2019 decreased by $0.9 million compared to the same period in 2018. The decrease for the three months period was due mainly to lower molybdenum sales volumes by 53 thousand pounds (100% basis) compared to the same prior period. Molybdenum prices for the three months ended December 31, 2019 averaged US$9.67 per pound, compared to US$12.04 per pound for the three months ended December 31, 2018. During the three months ended December 31, 2019, price adjustments of negative $1.2 million were recorded for provisionally priced molybdenum concentrate.
Cost of sales
Three months ended December 31, |
||||||||||||
(Cdn$ in thousands) | 2019 | 2018 | Change | |||||||||
Site operating costs |
61,219 | 49,120 | 12,099 | |||||||||
Transportation costs |
5,025 | 4,656 | 369 | |||||||||
Insurance recovered |
- | (38) | 38 | |||||||||
Changes in inventories of finished goods |
1,193 | 20,028 | (18,835) | |||||||||
Changes in inventories of ore stockpiles |
(1,426) | 8,905 | (10,331) | |||||||||
Production costs |
66,011 | 82,671 | (16,660) | |||||||||
Depletion and amortization |
31,380 | 17,872 | 13,508 | |||||||||
Cost of sales |
97,391 | 100,543 | (3,152) | |||||||||
Site operating costs per ton milled* |
$ | 10.46 | $ | 9.16 | $ | 1.30 |
*Non-GAAP performance measure. See page 30 on this MD&A.
Site operating costs for the three months ended December 31, 2019 increased by $12.1 million, compared to the same prior period as the mine continued to mine more ore from the latest pushback in the Granite pit in 2019 with less stripping costs occurring in the Pollyanna pit.
For the three months ended December 31, 2019, capitalized stripping costs were $4.3 million, compared to $18.9 million for the same period in 2018 due to the mining phases noted above.
Cost of sales is also impacted by changes in copper concentrate inventories and ore stockpiles. Inventory of copper in concentrate at the end the fourth quarter of 2019 was comparable to the end of the third quarter. Finished goods inventory decreased in the fourth quarter of 2018 as excess product held at Q3 2018 was sold and copper concentrate inventories returned to normal levels by the end of the year ended December 31, 2018. Inventory of copper in concentrate was reduced by 16.8 million pounds in the prior period, resulting in a decrease in inventories (increase in cost of sales) of $20.0 million.
22
TASEKO MINES LIMITED
Managements Discussion and Analysis
Depletion and amortization for three months ended December 31, 2019 increased by $13.5 million, over the same period in 2018. These differences are primarily due to increased depreciation of capitalized stripping costs for ore tons being mined from the Granite pit.
Other operating (income) expenses
Three months ended December 31, |
||||||||||||
(Cdn$ in thousands) | 2019 | 2018 | Change | |||||||||
General and administrative |
3,520 | 3,127 | 393 | |||||||||
Share-based compensation expense (recovery) |
678 | (321) | 999 | |||||||||
Project evaluation costs |
823 | 371 | 452 | |||||||||
Realized loss on copper put options |
1,202 | 157 | 1,045 | |||||||||
Unrealized (gain) loss on derivative instruments |
(518) | 716 | (1,234) | |||||||||
Other income (expense) |
461 | (266) | 727 | |||||||||
6,166 | 3,784 | 2,382 |
General and administrative costs have increased in the three months ended December 31, 2019, compared to the same prior period primarily due to increases in employee compensation from new executive appointments in the middle of 2019.
Share-based compensation expense increased for the three months ended December 31, 2019, compared to the same period in 2018, primarily due to the revaluation of the liability for deferred share units in 2018 resulting from a decrease in the Companys share price in 2019.
Project evaluation costs for the three months ended December 31, 2019, represent costs associated with the Yellowhead project, which was acquired in the first quarter of 2019, and the New Prosperity project.
During the three months ended December 31, 2019, the Company incurred realized losses of $1.2 million from copper put options that settled during the period. The unrealized gain of $0.5 million in the fourth quarter of 2019 relates to the fair value adjustment of the copper put options that matured in the period.
Finance expenses
Three months ended December 31, |
||||||||||||
(Cdn$ in thousands) | 2019 | 2018 | Change | |||||||||
Interest expense |
8,914 | 8,157 | 757 | |||||||||
Finance expense deferred revenue |
1,038 | 1,020 | 18 | |||||||||
Accretion of PER |
157 | 514 | (357) | |||||||||
10,109 | 9,691 | 418 |
Interest expense increased for the three months ended December 31, 2019, primarily due to $0.5 million on additional equipment related debt and capital lease liabilities, and $0.1 million of interest related to lease liabilities now recognized under IFRS 16.
Finance expense on deferred revenue represents the financing component of the upfront deposit from the silver streaming arrangement.
23
TASEKO MINES LIMITED
Managements Discussion and Analysis
Income tax
Three months ended December 31, |
||||||||||||
(Cdn$ in thousands) | 2019 | 2018 | Change | |||||||||
Current income tax expense |
365 | 245 | 120 | |||||||||
Deferred income tax recovery |
(7,908) | 400 | (8,308) | |||||||||
(7,543) | 645 | (8,188) | ||||||||||
Effective tax rate |
43.2% | 3.4% | 39.8% | |||||||||
Canadian statutory rate |
27% | 27% | - | |||||||||
B.C. Mineral tax rate |
9.6% | 9.6% | - |
The overall income tax recovery for the three months ended December 31, 2019 was mainly due to an increase in deferred income tax recovery. Deferred income taxes were recognized on losses for accounting purposes and timing differences arising from lower depreciation for tax purposes at Gibraltar. The effective tax rate is slightly above the statutory rates as foreign exchange revaluations on the senior secured notes are not recognized for tax purposes until realized, and in the case of capital losses, when they are applied. Current income tax expense represents an estimate of B.C. mineral taxes payable for the current period.
Liquidity, cash flow and capital resources
Cash flow provided by operations during the three months ended December 31, 2019 was $9.2 million compared to $44.1 million for the same period in 2018. Cash provided by investing activities during the three months ended December 31, 2019 was $22.3 million compared to cash used by investing activities of $25.1 million for the same period in 2018.
Investing cash flows in the fourth quarter includes $3.8 million of expenditures at the Florence Project, $4.3 million for capitalized stripping costs and $5.4 million for other sustaining capital expenditures at Gibraltar. The increase of cash from investing activities includes the release of restricted cash and return of reclamation deposits arising from the new form of reclamation security provided by the Company for Gibraltar.
Net cash used by financing activities for the three months ended December 31, 2019 was $19.4 million. Principal repayments for leases and equipment loans were $3.9 million and interest paid was $15.5 million for the three month period ended December 31, 2019.
At December 31, 2019, the Company had cash and equivalents of $53.2 million, an increase of $11.3 million from the prior quarter.
24
TASEKO MINES LIMITED
Managements Discussion and Analysis
SUMMARY OF QUARTERLY RESULTS
2019 | 2018 | |||||||||||||||||||||||||||||||
(Cdn$ in thousands, except per share amounts) |
Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||
Revenues |
89,932 | 82,436 | 86,521 | 70,274 | 111,121 | 74,297 | 94,273 | 64,179 | ||||||||||||||||||||||||
Net earnings (loss) |
(9,931) | (24,508) | (11,012) | (7,931) | (19,720) | 7,098 | (4,671) | (18,481) | ||||||||||||||||||||||||
Basic EPS |
(0.04) | (0.10) | (0.04) | (0.03) | (0.09) | 0.03 | (0.02) | (0.08) | ||||||||||||||||||||||||
Adjusted net earnings (loss) * |
(16,159) | (20,561) | (17,471) | (14,419) | (1,310) | 1,464 | 2,337 | (10,999) | ||||||||||||||||||||||||
Adjusted basic EPS * |
(0.07) | (0.08) | (0.07) | (0.06) | (0.01) | 0.01 | 0.01 | (0.05) | ||||||||||||||||||||||||
Adjusted EBITDA * |
18,246 | 7,906 | 14,660 | 10,245 | 26,489 | 31,940 | 32,251 | 7,537 | ||||||||||||||||||||||||
(US$ per pound, except where indicated) |
||||||||||||||||||||||||||||||||
Realized copper price * |
2.82 | 2.56 | 2.69 | 2.91 | 2.72 | 2.63 | 3.13 | 2.98 | ||||||||||||||||||||||||
Total operating costs * |
2.01 | 2.05 | 2.01 | 2.21 | 2.11 | 1.58 | 1.98 | 2.33 | ||||||||||||||||||||||||
Copper sales (million pounds) |
25.0 | 25.1 | 24.2 | 17.5 | 32.0 | 21.6 | 24.2 | 17.1 |
*Non-GAAP performance measure. See page 30 of this MD&A.
Financial results for the last eight quarters reflect: volatile copper and molybdenum prices and foreign exchange rates that impact realized sale prices; and variability in the quarterly sales volumes due to copper grades and timing of shipments which impacts revenue recognition.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Companys significant accounting policies are presented in Note 2.4 of the 2019 annual consolidated financial statements. The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
In the process of applying the Companys accounting policies, significant areas where judgment is required include the determination of a joint arrangement, determining the timing of transfer of control of inventory for revenue recognition, provisions for environmental rehabilitation, reserve and resource estimation, functional currency, determination of the accounting treatment of the advance payment under the silver purchase and sale agreement reported as deferred revenue, determination of business or asset acquisition treatment, and recovery of other deferred tax assets.
Significant areas of estimation include reserve and resource estimation; asset valuations and the measurement of impairment charges or reversals; valuation of inventories; plant and equipment lives; tax provisions; provisions for environmental rehabilitation; valuation of financial instruments and derivatives; capitalized stripping costs and share-based compensation. Key estimates and assumptions made by management with respect to these areas have been disclosed in the notes to these consolidated financial statements as appropriate.
The accuracy of reserve and resource estimates is a function of the quantity and quality of available data and the assumptions made and judgment used in the engineering and geological interpretation and may be subject to revision based on various factors. Changes in reserve and resource estimates may impact the carrying value of
25
TASEKO MINES LIMITED
Managements Discussion and Analysis
property, plant and equipment; the calculation of depreciation expense; the capitalization of stripping costs incurred during production; and the timing of cash flows related to the provision for environmental rehabilitation.
Changes in forecast prices of commodities, exchange rates, production costs and recovery rates may change the economic status of reserves and resources. Forecast prices of commodities, exchange rates, production costs and recovery rates, and discount rates assumptions, either individually or collectively, may impact the carrying value of derivative financial instruments, inventories, property, plant and equipment, and intangibles, as well as the measurement of impairment charges or reversals.
CHANGE IN ACCOUNTING POLICIES
The Company has adopted IFRS 16, Leases effective January 1, 2019 using the modified retrospective method. Accordingly, the comparative information presented for 2018 has not been restated. The Company assesses whether a contract is a lease or contains a lease, at the inception of a contract. The Company recognizes a right-of-use asset (ROU asset) and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, at the commencement of the lease, with the exception of short-term and low value leases, which are recognized on a straight-line basis over the lease term.
The ROU asset is initially measured based on the present value of lease payments, lease payments made at or before the commencement date, and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. The ROU asset is depreciated over the shorter of the lease term or the useful life of the underlying asset and is subject to testing for impairment if there is an indicator of impairment.
The lease liability is initially measured at the present value of lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Company uses its incremental borrowing rate. Lease payments include fixed payments less any lease incentives, and any variable lease payments where variability depends on an index or rate. When the lease contains an extension or purchase option that the Company considers reasonably certain to be exercised, the cost of the option is included in the lease payments.
Prior to January 1, 2019, leased assets in which the Company receives substantially all the risks and rewards of ownership of the asset were capitalized as finance leases at the lower of the fair value of the asset or the estimated present value of the minimum lease payments. The corresponding lease obligation is recorded within debt on the balance sheet. Assets under operating leases were not capitalized and rental payments were expensed on a straight-line basis.
INTERNAL AND DISCLOSURE CONTROLS OVER FINANCIAL REPORTING
The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting (ICFR) and disclosure controls and procedures (DC&P).
The Companys internal control system over financial reporting is designed to provide reasonable assurance to management and the Board of Directors regarding the preparation and fair presentation of published financial statements. Internal control over financial reporting includes those policies and procedures that:
(1) |
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
26
TASEKO MINES LIMITED
Managements Discussion and Analysis
(2) |
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
(3) |
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on the financial statements. |
The Companys internal control system over disclosure controls and procedures is designed to provide reasonable assurance that material information relating to the Company is made known to management and disclosed to others and information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by us under securities legislation is recorded, processed, summarized and reported within the time periods specified in the securities legislation.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined effective can provide only reasonable assurance with respect to financial reporting and disclosure.
There have been no changes in our internal control over financial reporting and disclosure controls and procedures during the 2019 financial year that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting and disclosure.
The Companys management, under the supervision of the Chief Executive Officer and the Chief Financial Officer, assessed the effectiveness of the Companys internal control over financial reporting as of December 31, 2019. In making this assessment, it used the criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that, as of December 31, 2019, the Companys internal control over financial reporting is effective based on those criteria. The Companys certifying officers have evaluated the effectiveness of the ICFR and DC&P at the financial year end and concluded that ICFR and DC&P are effective as at December 31, 2019 based on the evaluation.
FINANCIAL INSTRUMENTS
The Company uses a mixture of cash, long-term debt and shareholders equity to maintain an efficient capital allocation and ensure adequate liquidity exists to meet the ongoing cash requirements of the business. In the normal course of business, the Company is inherently exposed to financial risks, including market risk, commodity price risk, interest rate risk, currency risk, liquidity risk and credit risk. The Company manages these risks in accordance with its risk management policies. To mitigate some of these inherent business risks, the Company uses commodity derivative instruments that do not qualify for hedge accounting treatment. These non-hedge derivatives are summarized in Note 7 to the consolidated financial statements. The financial risks and the Companys exposure to these risks, is provided in various tables in Note 25 of the consolidated financial statements. For a discussion on the methods used to value financial instruments, as well as significant assumptions, refer also to Notes 2 and 25 of the consolidated financial statements.
Summary of Financial Instruments | Carrying Amount | Associated Risks | ||||||
Financial assets |
||||||||
Amortized cost |
||||||||
Cash and equivalents |
53,198 | Interest rate | ||||||
Accounts receivable |
13,791 | Credit Market | ||||||
Fair value through other comprehensive income (FVOCI) |
||||||||
Marketable securities |
730 | Market |
27
TASEKO MINES LIMITED
Managements Discussion and Analysis
Investment in subscription receipts |
2,400 | Market | ||||||
Financial liabilities |
||||||||
Accounts payable and accrued liabilities |
43,685 | Currency | ||||||
Senior secured notes |
317,728 | Currency | ||||||
Leases |
19,097 | Interest rate | ||||||
Lease related obligation |
11,288 | Interest rate | ||||||
Secured equipment loans |
25,372 |
|
Currency
Interest rate |
|
RELATED PARTY TRANSACTIONS
Key management personnel
Key management personnel include the members of the Board of Directors and executive officers of the Company.
The Company contributes to a post-employment defined contribution pension plan on the behalf of certain key management personnel. This retirement compensation arrangement (RCA Trust) was established to provide benefits to certain executive officers on or after retirement in recognition of their long service. Upon retirement, the participant is entitled to the distribution of the accumulated value of the contributions under the RCA Trust. Obligations for contributions to the defined contribution pension plan are recognized as compensation expense in the periods during which services are rendered by the executive officers.
Certain executive officers are entitled to termination and change in control benefits. In the event of termination without cause, other than a change in control, these executive officers are entitled to an amount ranging from 9-months to 18-months salary. In the event of a change in control, if a termination without cause or a resignation occurs within 12 months following the change of control, these executive officers are entitled to receive, among other things, an amount ranging from 24-months to 32-months salary and accrued bonus, and all stock options held by these individuals will fully vest.
Executive officers and directors also participate in the Companys share-based option program (refer to Note 21 of the consolidated financial statements).
28
TASEKO MINES LIMITED
Managements Discussion and Analysis
Compensation for key management personnel (including all members of the Board of Directors and executive officers) is as follows:
Year ended December 31, | ||||||||
(Cdn$ in thousands) | 2019 | 2018 | ||||||
Salaries and benefits |
6,757 | 6,467 | ||||||
Post-employment benefits |
1,639 | 2,061 | ||||||
Share-based compensation expense (recovery) |
2,710 | (1,914 | ) | |||||
11,106 | 6,614 |
Other related parties
(a) Termination of Service Agreement with HDSI
On December 31, 2018, the Company terminated the services agreement with Hunter Dickinson Services Inc. (HDSI), which was a related party as three directors of the Company are also principals of HDSI. In 2018 and prior years, HDSI invoiced the Company for their executive services (director fees) and for other services provided by HDSI under a services agreement dated July 2010.
Effective from January 1, 2019, HDSI no longer provides services to the Company, and the Company had no transactions with HDSI, except for a reimbursement of warehouse rental costs in the amount of $10 and $39 for the three and twelve-month periods ended December 31, 2019.
For the year ended December 31, 2018, the Company incurred total costs of $1,344 in transactions with HDSI. Of these, $537 related to administrative, legal, exploration and tax services, $527 related to reimbursements of office rent costs, and $280 related to director fees for two Taseko directors who are also principals of HDSI.
(b) Gibraltar Joint Venture
Under the terms of the joint venture operating agreement, Gibraltar 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 Gibraltar and invoices the Gibraltar for these expenses
For the year ended December 31, 2019, net management fee income for $1,186 (2018: $1,167) and net reimbursable compensation expenses and third party costs of $95 (2018: $141) were charged to the joint venture.
29
TASEKO MINES LIMITED
Managements Discussion and Analysis
NON-GAAP PERFORMANCE MEASURES
This document includes certain non-GAAP performance measures that do not have a standardized meaning prescribed by IFRS. These measures may differ from those used by, and may not be comparable to such measures as reported by, other issuers. The Company believes that these measures are commonly used by certain investors, in conjunction with conventional IFRS measures, to enhance their understanding of the Companys performance. These measures have been derived from the Companys financial statements and applied on a consistent basis. The following tables below provide a reconciliation of these non-GAAP measures to the most directly comparable IFRS measure.
Total operating costs and site operating costs, net of by-product credits
Total costs of sales include all costs absorbed into inventory, as well as transportation costs and insurance recoverable. Site operating costs are calculated by removing net changes in inventory, depletion and amortization, insurance recoverable, and transportation costs from cost of sales. Site operating costs, net of by-product credits is calculated by subtracting by-product credits from the site operating costs. Site operating costs, net of by-product credits per pound are calculated by dividing the aggregate of the applicable costs by copper pounds produced. Total operating costs per pound is the sum of site operating costs, net of by-product credits and off-property costs divided by the copper pounds produced. By-product credits are calculated based on actual sales of molybdenum (net of treatment costs) and silver during the period divided by the total pounds of copper produced during the period. These measures are calculated on a consistent basis for the periods presented.
Three months ended December 31, |
Year ended December 31, |
|||||||||||||||
(Cdn$ in thousands, unless otherwise indicated) 75% basis | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Cost of sales |
97,391 | 100,543 | 368,306 | 302,648 | ||||||||||||
Less: |
||||||||||||||||
Depletion and amortization |
(31,380) | (17,872) | (109,756) | (70,781) | ||||||||||||
Insurance recovered |
- | 38 | - | 7,913 | ||||||||||||
Net change in inventories of finished goods |
(1,193) | (20,028) | 5,570 | (2,435) | ||||||||||||
Net change in inventories of ore stockpiles |
1,426 | (8,905) | (1,677) | (1,078) | ||||||||||||
Transportation costs |
(5,025) | (4,656) | (17,832) | (17,163) | ||||||||||||
Site operating costs |
61,219 | 49,120 | 244,611 | 219,104 | ||||||||||||
Less by-product credits: |
||||||||||||||||
Molybdenum, net of treatment costs |
(5,205) | (7,643) | (25,223) | (23,419) | ||||||||||||
Silver, excluding amortization of deferred revenue |
30 | (118) | (557) | (327) | ||||||||||||
Site operating costs, net of by-product credits |
56,044 | 41,359 | 218,831 | 195,358 | ||||||||||||
Total copper produced (thousand pounds) |
25,047 | 19,372 | 94,428 | 93,888 | ||||||||||||
Total costs per pound produced |
2.24 | 2.13 | 2.32 | 2.08 | ||||||||||||
Average exchange rate for the period (CAD/USD) |
1.32 | 1.32 | 1.33 | 1.30 | ||||||||||||
Site operating costs, net of by-product credits
(US$ per pound) |
1.70 | 1.62 | 1.75 | 1.60 | ||||||||||||
Site operating costs, net of by-product credits |
56,044 | 41,359 | 218,831 | 195,358 | ||||||||||||
Add off-property costs: |
||||||||||||||||
Treatment and refining costs |
5,520 | 7,764 | 21,417 | 22,381 |
30
TASEKO MINES LIMITED
Managements Discussion and Analysis
Transportation costs |
5,025 | 4,656 | 17,832 | 17,163 | ||||||||||||
Total operating costs |
66,589 | 53,779 | 258,080 | 234,902 | ||||||||||||
Total operating costs (C1) (US$ per pound) |
2.01 | 2.11 | 2.06 | 1.93 |
Adjusted net income (loss)
Adjusted net income (loss) remove the effect of the following transactions from net income as reported under IFRS:
|
Unrealized foreign currency gains/losses; and |
|
Unrealized gain/loss on copper put options. |
Management believes these transactions do not reflect the underlying operating performance of our core mining business and are not necessarily indicative of future operating results. Furthermore, unrealized gains/losses on derivative instruments, changes in the fair value of financial instruments, and unrealized foreign currency gains/losses are not necessarily reflective of the underlying operating results for the reporting periods presented.
Three months ended December 31, |
Year ended December 31, |
|||||||||||||||
($ in thousands, except per share amounts) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Net loss |
(9,931) | (19,720) | (53,382) | (35,774) | ||||||||||||
Unrealized foreign exchange (gain) loss |
(5,850) | 17,887 | (15,228) | 28,704 | ||||||||||||
Unrealized (gain) loss on copper put options |
(518) | 716 | - | (1,970) | ||||||||||||
Estimated tax effect of adjustments |
140 | (193) | - | 532 | ||||||||||||
Adjusted net loss |
(16,159) | (1,310) | (68,610) | (8,508) | ||||||||||||
Adjusted EPS |
(0.07) | (0.01) | (0.28) | (0.04) |
Adjusted EBITDA
Adjusted EBITDA is presented as a supplemental measure of the Companys performance and ability to service debt. Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the industry, many of which present Adjusted EBITDA when reporting their results. Issuers of high yield securities also present Adjusted EBITDA because investors, analysts and rating agencies consider it useful in measuring the ability of those issuers to meet debt service obligations.
Adjusted EBITDA represents net income before interest, income taxes, and depreciation and also eliminates the impact of a number of items that are not considered indicative of ongoing operating performance. Certain items of expense are added and certain items of income are deducted from net income that are not likely to recur or are not indicative of the Companys underlying operating results for the reporting periods presented or for future operating performance and consist of:
|
Unrealized foreign exchange gains/losses; |
|
Unrealized gain/loss on copper put options; and |
|
Amortization of share-based compensation. |
31
TASEKO MINES LIMITED
Managements Discussion and Analysis
Three months ended December 31, |
Year ended December 31, |
|||||||||||||||
($ in thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Net loss |
(9,931) | (19,720) | (53,382) | (35,774) | ||||||||||||
Add: |
||||||||||||||||
Depletion and amortization |
31,380 | 17,872 | 109,756 | 70,781 | ||||||||||||
Finance expense |
10,109 | 9,691 | 40,324 | 38,564 | ||||||||||||
Finance income |
(113) | (314) | (1,202) | (1,254) | ||||||||||||
Income tax expense (recovery) |
(7,543) | 645 | (32,337) | 448 | ||||||||||||
Unrealized foreign exchange (gain) loss |
(5,850) | 17,887 | (15,228) | 28,704 | ||||||||||||
Unrealized (gain) loss on copper put options |
(518) | 716 | - | (1,970) | ||||||||||||
Amortization of share-based compensation expense (recovery) |
712 | (288) | 3,126 | (1,282) | ||||||||||||
Adjusted EBITDA |
18,246 | 26,489 | 51,057 | 98,217 |
Earnings (loss) from mining operations before depletion and amortization
Earnings from mining operations before depletion and amortization is earnings from mining operations with depletion and amortization added back. The Company discloses this measure, which has been derived from our financial statements and applied on a consistent basis, to provide assistance in understanding the results of the Companys operations and financial position and it is meant to provide further information about the financial results to investors.
Three months ended December 31, |
Year ended December 31, |
|||||||||||||||
(Cdn$ in thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Earnings (loss) from mining operations |
(7,459) | 10,578 | (39,143) | 41,222 | ||||||||||||
Add: |
||||||||||||||||
Depletion and amortization |
31,380 | 17,872 | 109,756 | 70,781 | ||||||||||||
Earnings from mining operations before depletion
and
|
23,921 | 28,450 | 70,613 | 112,003 |
Site operating costs per ton milled
Three months ended December 31, |
Year ended December 31, |
|||||||||||||||
(Cdn$ in thousands, except per ton milled amounts) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Site operating costs (included in cost of sales) |
61,219 | 49,120 | 244,611 | 219,104 | ||||||||||||
Tons milled (thousands) (75% basis) |
5,855 | 5,361 | 22,405 | 22,569 | ||||||||||||
Site operating costs per ton milled |
$10.46 | $9.16 | $10.92 | $9.71 |
32
Exhibit 99.8
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Taseko Mines Limited
We, KPMG LLP, consent to the use of our reports, each dated February 19, 2020, with respect to the consolidated financial statements and the effectiveness of internal control over financial reporting included in this annual report on Form 40-F. Our report on the consolidated financial statements refers to changes in accounting policies for leases in 2019 due to the adoption of IFRS 16 Leases.
//s// KPMG LLP
Chartered Professional Accountants
March 30, 2020
Vancouver, Canada
Exhibit 99.9
March 30, 2020
VIA EDGAR
To: |
United States Securities and Exchange Commission |
Re: |
Taseko Mines Limited (the Company) |
Annual Report on Form 40-F
Consent of Expert
This consent is provided in connection with the Companys annual report on Form 40-F report for the year ended December 31, 2019 to be filed by the Company with the United States Securities and Exchange Commission (the SEC) and any amendments thereto (the Annual Report). The Annual Report incorporates by reference, among other things, the Companys Annual Information Form for the year ended December 31, 2019 (the AIF).
I hereby consent to the use of my name in connection with reference to my involvement in the preparation of the following technical reports (the Technical Reports):
|
Technical Report on the Mineral Reserve Update at the Gibraltar Mine, British Columbia, Canada dated November 6, 2019 |
|
Technical Report on the Mineral Reserve Update at the Yellowhead Copper Project, British Columbia, Canada dated January 16, 2020 |
and to references to the Technical Reports, or portions thereof, in the Annual Report and the AIF and to the inclusion and incorporation by reference of the information derived from the Technical Report in the Annual Report and the AIF.
Yours truly,
/s/ R. Weymark |
Richard Weymark, P.Eng., MBA, Chief Engineer |
1
Exhibit 99.10
March 30, 2020
VIA EDGAR
To: |
United States Securities and Exchange Commission |
Re: |
Taseko Mines Limited (the Company) |
Annual Report on Form 40-F
Consent of Expert
This consent is provided in connection with the Companys annual report on Form 40-F report for the year ended December 31, 2019 to be filed by the Company with the United States Securities and Exchange Commission (the SEC) and any amendments thereto (the Annual Report). The Annual Report incorporates by reference, among other things, the Companys Annual Information Form for the year ended December 31, 2019 (the AIF).
I hereby consent to the use of my name in connection with reference to my involvement in the preparation of the following technical reports (the Technical Reports):
|
Florence Copper Project, NI 43-101 Technical Report, Florence, Pinal County, Arizona, USA dated February 28, 2017, amended and restated December 4, 2017 |
and to references to the Technical Report, or portions thereof, in the Annual Report and the AIF and to the inclusion and incorporation by reference of the information derived from the Technical Report in the Annual Report and the AIF.
Yours truly, |
/s/ Dan Johnson |
Dan Johnson, P.E. |
1