Categories: Base Metals
Topics: General Base Metals

Taseko Mines (TSX: TKO)(NYSE-American: TGB) CEO Stuart McDonald on Being One of the Best-Leveraged Copper Producers in North America at the Right Time in the Copper Commodity Price Cycle

 

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the president & CEO of Taseko Mines — Mr. Stewart McDonald. Stewart, first time on the show. It's great to have you on. How are you today, sir?

Stuart McDonald: I'm very well, thanks, Gerardo. Nice to chat with you for the first time today. Appreciate the opportunity.

Gerardo Del Real: I appreciate the time. Let's get right into it. We talked off air very, very briefly and I mentioned to you, one, that I'm a very, very big proponent of copper and how necessary it's going to be. 

There are a lot of commodities that are pretty and they shine and we want them and they're great to have and they're great hedges. But copper is one of those commodities that's absolutely essential for global net-zero goals, the electrification-of-everything.

And so when I look at potential speculations and investments, there are few companies that offer the near-term, immediate, and future production profile that Taseko has been able to put together. And I want to talk about that here in detail in just a little bit. 

But before I get into that, can you give me a bit of background on you and kind of where you've been? Obviously, you have a pretty storied career, and I think it would be good for everybody to get familiar with that.

Stuart McDonald: Sure, yeah. I've been in the mining industry now coming up on 20 years and trained as a finance background, actually trained as an accountant. But I've been with a couple of different mining companies before I joined Taseko. 

I was CFO of a company called Quadra Mining, and that was also a copper company. We operated about five different copper mines across the US, Chile, and Sudbury, Ontario. So I got a bunch of great experience there and a couple other stops and joined Taseko about 10 years ago as CFO.

It's been a great journey here at Taseko. I think we've built out, over the years, a pretty exciting pipeline of projects, which I've been a part of. And with our CEO retiring a couple of years ago, I've been able to step up and take the reins, I guess. And yeah, it's a really exciting outlook for us in the next five to ten years here. It's a great opportunity for me and for our shareholders too.

Gerardo Del Real: I mentioned myself being a copper bull. I'm very bullish on the copper space, and I want to get your take given your background in finance. But it's clear to me that, and it's very important for me to point out, that you are hyper-focused on making sure that you build out these low-cost assets in jurisdictions that are absolutely top-notch, right? 

And then, we see geopolitical risk around the world continuing to increase seemingly by the day. How much of a focus has that been over this past decade or so as you've put together this portfolio of really robust assets?

Stuart McDonald: Yeah, it's always been a focus for Taseko. We have focused on top jurisdictions; Canada and the US. That's where our operating expertise is. That's where our operators that have built the business have grown up in the industry. And that's where we think we can add the most value. 

We believe we've got a very exciting portfolio of an operating asset and longer dated development assets in BC. And then also, a very exciting near-term opportunity in Arizona with our Florence project.

We like those jurisdictions. There are other places in the world where you can go for high-grade assets and things like that. But those other jurisdictions present other risks, as you noted. So we're very comfortable with where we're located.

Gerardo Del Real: Well, everybody talks about grade being king. I've always said margin is king. The grade means nothing if you can't extract it at a profit. So let's talk about that production profile, what it looks like now, and what you're positioning for and how you're positioning for that.

Stuart McDonald: Yeah, I think you make a very good point there about margin, and that's always been our focus. I think if you look at our Gibraltar Mine, this is a large-scale, large open pit. It's actually the second-largest open pit copper mine in Canada and fourth-largest in North America. 

I would say when you benchmark it against global peers, it's definitely a lower-grade mine but we've been able to operate it successfully by really focusing on cost and being efficient operators. We can mill a tonne of ore now at that mine for $12 or 13 a tonne milled. And that, if you could benchmark those against other mines in the Americas, that's one of the most efficient operations around.

So we can make money at lower grades. If you look at our recent track record, we've had good EBITDA generation. I think it was C$200 million of EBITDA last year out of that operation. It's really been a stable base for us to build out our development assets with that using cash flow from Gibraltar.

Next for us, as I noted, is our Florence copper project. That will become our second mine. We're just awaiting a final permit, which we expect imminently here in the next few weeks or next couple of months at least. And that will go into construction and should be online in early 2025. That will add meaningful growth to our copper production.

At Gibraltar, we're producing maybe 120 to 130 million pounds. Florence is going to add about 85 million pounds to that. So very meaningful growth in the top line. And at the same time, also a very low-cost operation in Arizona. So it's going to bring down our overall costs and increase our margins, which is what this is all about. 

It's a very exciting opportunity. I don't think there are many copper companies around that have that level of production growth ahead of them in the next two or three years. So yeah, it's exciting.

Gerardo Del Real: Well, part of why you're going to be very profitable there is the in-situ copper recovery process. For those that are not familiar with the benefits of that, can you please explain that to the audience?

Stuart McDonald: Yeah, it's pretty innovative. What we're doing there, we're not digging an open pit; we're not tunneling underground. We're actually drilling a wellfield into the ore body and injecting solutions, which recover the copper in-situ. 

There's no drilling and hauling and blasting and crushing and grinding… those typical things you would see at a mine. We recover the copper in solution out of the ground. And then, we process that solution through a conventional SXEW, or electrowinning process. 

And we actually produce pure copper cathode right onsite. So it's refined copper that we're producing right on our site in Arizona. That's going to feed into the supply chain in the US for electrification initiatives and renewable energy and all of those electric vehicles — all of those things. We're producing it right in Arizona. 

It's pretty unique. And the production method, of course, is low-cost. We're going to produce copper at around US$1.10/lb, and I think our feasibility was US$1.13/lb. So it's low-cost mining but also a lot of environmental and ESG benefits from that operation and that operating method. 

It's going to be one of the lowest carbon emitting mines, as well, in the world in terms of carbon intensity. There's no surface disturbance; there are no tailings to deal with or anything like that. So there's just a lot of economic and environmental benefits here. We're excited to get going on it for sure.

Gerardo Del Real: That specific project and the technology that you're employing — which, again, I'm glad that you mentioned the lower environmental footprint because that's becoming more and more important as well — but the project itself has attracted some pretty interesting strategic partners and some pretty interesting financing. Can you speak to that a bit?

Stuart McDonald: Yeah, the big announcement we had, I guess it was in December of last year, we announced a strategic partnership with Mitsui & Co., the US division of that Japanese trading company. They have a cathode trading business. 

They were attracted to the project as a US-based supplier of copper cathode, which is going to produce material which they can take the offtake for in the initial years and trade in the US market.

They're providing us US$50 million upfront for the construction capex. And then, they have an option to invest an additional US$50 million. And at that point, they'd be able to obtain a 10% JV interest in the mine at a 10% equity ownership. So it's a great transaction. Mitsui is a great partner. It's great validation, I think, for the technical work that we've done at Florence. We're excited to go forward with them.

And also I think important for your listeners, really, is the validation of the value of that asset. If someone's investing US$100 million for a 10% interest, that implies a value of a billion US dollars for the project. That shows the opportunity that we have in our stock price here in the coming years as we continue to construct and derisk the project.

Gerardo Del Real: You talked about the value. Where's your market cap right now?

Stuart McDonald: Currently we're trading around C$500 million. And really that, in my view, is frustrating for us. We really don't believe we're getting proper valuation for the development assets. 

I think the market has a good understanding of what we're doing at Gibraltar because we report the numbers and the results every quarter. But for whatever reason, we think that if you look at even just Gibraltar and Florence on its own, and knocking off some of our debt, roughly C$2 billion of enterprise value there for those two assets, net of debt, and we're trading at C$500 million. So it shows the upside. 

And we think most of that value gap does relate to the Florence project. I think as we get the final permit here, execute on the construction, and successfully start making money at that mine, we're going to see that value gap close. And that's really, again, the opportunity for people out there.

Gerardo Del Real: And just to be clear, that permit should be, in a perfect world, weeks away, correct?

Stuart McDonald: Yeah, we're very optimistic. We think the EPA is very close to making a decision. We're in regular dialogue with them. We don't believe there's any outstanding issues or concerns that they have. And our belief is they're very close to issuing the permit decision, and we expect that will be a positive decision for Florence.

Gerardo Del Real: And the old Wayne Gretzky saying, "Go to where the puck is going… not where it is” right! But to me, Taseko provides excellent leverage to what I believe is going to be a pretty substantial rising price environment in the copper space here in the years to come. Can you explain to everyone just the leverage that Taseko provides and how you're positioned to take advantage of that?

Stuart McDonald: Yes, in simple terms, we produce just over 100 million pounds to our account at Gibraltar, and we're adding 80% revenue growth here in the next two years. 

And with our existing production, a 10-cent move in the copper price is US$10 or US$12 million to our bottom line. And so that's very relative to our market cap. That's a lot of leverage. 

I would say we're probably the most leveraged copper producer right now, certainly in North America, and with the growth profile too. It's exciting. We're really big believers in the copper story… just the long-term fundamentals are so great.

Gerardo Del Real: I appreciate you being conservative and doing the math on 10 cents. I would encourage everyone to do the math on a US$1 or US$2 increase in spot price!

Stuart McDonald: Exactly. Well, I really think that's where it's going. I think that even just a few years ago, most of the analysts were talking about US$3 per pound as their long-term consensus. Suddenly, in three or four years, that's changed and suddenly it's US$3.75, US$4 per pound that most of the analysts are using.

When you look at how many new mines have to be built to actually meet future demand from electrification and the energy transition, I think we need copper prices much higher than that. I think your US$5/lb is very realistic for us in the coming years, in the next few years here… so it’s exciting!

Gerardo Del Real: I couldn't agree more. Absolutely. Stuart, I think that was an excellent overview of the company and the opportunity. You're in the right jurisdictions. I think you're in the right commodity. I think you're hitting the sweet spot of this copper cycle. And I think you're going to be very, very profitable for many, many years. 

And I would be shocked if, in 12 months’ time, we're looking at the market cap and it's not in the billion dollar range instead of the millions dollar range, right?

Stuart McDonald: Yeah, exactly. 

Gerardo Del Real: Stuart, thank you for your time. Looking forward to having you back on; fingers crossed on the permitting news. And if that does develop within the next few weeks, I would love to have you back on to chat about that.

Stuart McDonald: That’s very good. Thanks again for having me on. And yeah, let's do it again sometime and we'll keep in touch.

Gerardo Del Real: Appreciate it! Thank you again.
Stuart McDonald: Thanks. Bye now.