Taseko Mines (TGB) has had a fair amount of positive news in the past few months. It has made progress with the permits for Florence Copper, and received substantial support at the public hearing for one of the permits.

As well, rising copper prices and the revised mine plan have increased margins at Gibraltar to around $1 USD per pound, allowing Taseko to generate a fair bit of positive cash flow and put itself in a better position to refinance its 2022 notes and arrange financing for Florence Copper.

This good news is mostly reflected in its share price though, which has risen above $1 USD. I have closed my position in Taseko for now as a result.

Progress At Florence Copper

Taseko has made substantial progress with the permitting situation for Florence Copper. In August it received the draft Aquifer Protection Permit from the Arizona Department of Environmental Quality. It then received a high level of support at the public hearing for the final Aquifer Protection Permit, with only one speaker (out of more than 30) expressing opposition.

Taseko expects construction for the full Florence Copper project to start in 1H 2021 if permitting is approved. There is also financing to consider, but the outlook for that has improved as copper prices have improved. Taseko is also delivering strong margins at Gibraltar now, which have contributed to its June 2022 secured bonds rebounding to 96 cents on the dollar now.

Source

This indicates that Taseko is in a much better position to refinance the 2022 notes now, and taking care of those notes would make for a cleaner situation for getting financing for Florence Copper.

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Operating Performance At Gibraltar

Copper prices have approached $3 USD per pound, which has substantially helped Taseko’s cash flow in conjunction with cost reductions at Gibraltar. Taseko’s revised mine plan (along with reduced diesel costs) contributed to its cost per ton milled (including capitalized stripping) dropping to $8.94 CAD in Q2 2020, down from around $11 to $12 CAD in previous quarters.

CAD Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Per Ton Milled $11.86 $12.36 $11.20 $11.99 $8.94

Taseko indicated that it expects 2H 2020 costs to be approximately the same as 1H 2020. This would mean that total (C1) operating costs should average a bit under $2.00 USD per pound during 2020, including capitalized stripping. At current copper price, margins would be close to $1 USD per pound.

By 2021, Gibraltar’s cost structure is expected to return to normal, which would result in operating costs of around $2.15 USD per pound, including capitalized stripping.

Valuation

At $1+ USD per share, Taseko appears to be fully valued now. I had noted before that $3.00 USD copper would make Taseko worth around $0.75 USD per share, and that progress with Florence Copper could provide another catalyst. Taseko has achieved some progress with Florence Copper and also managed to reduce the operating costs at Gibraltar for 2020.

Thus a $1 USD share price appears justifiable for the current conditions. Taseko remains somewhat vulnerable to a dip in copper prices, which would complicate its ability to refinance its 2022 notes effectively. A positive catalyst would involve getting the final permits for Florence Copper and arranging financing for the project on reasonable terms.

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Conclusion

Taseko’s outlook has improved substantially since earlier in 2020, with rising copper prices and the lower costs from its revised mine plan combining to improve its margins to around $1 USD per pound. This is helping Taseko to generate a substantial amount of positive cash flow and improve its ability to deal with its 2022 notes and get construction of the full Florence Copper project started.

That being said, Taseko does remain vulnerable to a downturn in copper prices. Its 2022 bonds are yielding around 11% to maturity now, but were still yielding around 15% to maturity a month and a half ago. While Taseko’s financial situation is improved, it only has a limited ability to absorb lower prices. Thus a share price of $1 USD appears to be fair value for near $3 USD copper.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.



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