In The Spotlight

Mining Journal: Canada copper miner Taseko becomes the latest to join LSE

December 04, 2019

Canada-based Taseko, which operates the Gibraltar mine in Canada, has its sights set on using a technique more commonly associated with uranium mining, to mine copper in the US. Tired of being under-appreciated by a home market seemingly populated by investors more interested in tech firms and fads, it has also decided to seek London’s deep pool of investor capital.

“We don’t feel the equity markets are valuing our assets right now,” Taseko president Stuart McDonald told Mining Journal. There’s a big gap right now between the Taseko valuation and the value of our assets.”

Taseko is very much not the only overseas mining company to have made a listing on the LSE in recent years. Others to have joined this year include PureGold, Resolute Mining, IMC Exploration and others set to list in 2020 include the Australian miner TNG, which is seeking funding for its Mount Peake vanadium-titanium-iron project.

“It’s about access to capital and attempts to broaden our investor base,” said McDonald. “In Canada we’ve seen broad trends away from mining investment. We have these other sectors, whether cannabis, crypto currencies or tech companies, that are taking capital away.

“We have also seen the growth of passive investing and ETFs. It’s really had a big impact on the availability of funding in Canada for resource mining. Ten years ago, we had about $30 billion of resource funds in Canada. That number’s down below $3 billion now. That’s a dramatic change in a fairly short period. And we’ve got 1,200 mining companies on the Toronto exchange chasing that.”

McDonald pointed to London’s mix of capital including UK small cap funds and generalist fund investors. At the same time, he suggested there aren’t many small cap copper producers listed on the London market - there are only two in the range $1 million to $100 million - so the company sees an opportunity to establish itself in the London market without getting crowded out by similar companies.

Ironically, despite the London listing, the company is relatively sanguine about the importance of raising debt finance as well as equity for the Florence project in the US. The company has calculated it will need US$225 million to build out the asset. One idea is to bring in bank debt to fill out the funding. McDonald is also looking to sell a minority interest in the asset, rather than using more equity by issuing new shares.

“We don’t get value for that project in our equity right now. So it makes sense to sell at the asset level and take capital from that joint venture partner to put towards the $225 million.”

The company is also thinking about royalties.

“Florence is a high margin project, the operating costs are about $1.13/lb so we have lots of margin in there where we can sell a royalty and still have a low cost. We are focusing on locking down a partner.”

The project itself uses in-situ mining, a method commonly used in uranium mining but not as commonly used in copper mining. However, Taseko built a $25 million test facility in 2018, which produced its first copper in April. The test facility is a proof of concept, designed to demonstrate that the company can produce LME ‘grade A’ copper at the site.

Taseko’s plan is to firm up its financing for phase two construction in the first half of 2020. Around the middle of the year, management is expecting to receive the necessary permits to build. After that, the usual 18-month construction period applies, with production pencilled in for 2021.

The method of mining will also affect the site’s environmental impact. Taseko estimates carbon emissions from the Florence site will be ~90% lower than a typical open pit copper mine.

“It’s the method,” said McDonald. “We drill a well field into the ore body. In a normal mine you dig the ore out and leach it on a pad. We’re actually leaching it in situ. There’s no surface disturbance, no drilling or blasting, no haul trucks, no dust. When we finish with this operation, you can have a golf course on top of it.”

Asked about the company’s ESG, McDonald suggested the relationship with the community would be a key indicator of how well a mining company is doing - not just in terms of corporate citizenship but also in terms of running a business and having attention to detail.

“ESG is very relevant - arguably it’s even more relevant in the developed economies, it’s more important than ever to have acceptance of the community, and we recognise that. We do our part. Our operation in William’s lake is a good example - we are the largest employer in that community. At Gibraltar - the last three years we’ve won the provincial government award for lowest injury frequency rate among large mines in the region. That demonstrates we are operating our mines properly.

“Safety is a key indicator - if you’re keeping people safe, you’re probably going to have good production and low costs, if you’re running things properly.”

Another aspect of the company’s hopes conceerns the copper price. Since 2017, copper has usually traded at $5,800 or above. Its current price is therefore bang on the average for the past two years. However, for most of the past 13 years copper was significantly above $6,000, often in the vicinity of $7,000. The real kicker for copper miners, though, must be the realisation that prices are lower than they were 13 years ago, even though everyone knows that as renewables and electrical vehicles are set to gain in prominence, the amount of copper we consume will inevitably have to increase.

According to Taseko, a 25 US cents per pound (lb) copper price rise would increase the company’s cash flow from its Gibraltar copper mine by C$33 million. A US$1 per (lb) copper price increase from US$2.50 to US$3.50 would increase its annual operating margin from C$92 million to C$223 million.

“In 2017, when we had a recovery in copper price, the copper price went from 2.25/lb up to over $3/lb, our stock went from 50c to $3, so it was a six times return on our stock with a relatively small recovery in copper prices,” said McDonald.

He added that market analysts typically suggest a consensus copper price somewhere around $3/lb for the long term. Taseko is banking on electrification, the rise of EVs and solar power, the expansion of the electrical grid and the rise of batteries to boost copper.

“Electric vehicles use about four times as much copper as a conventional engine. In Tesla vehicles it’s in the motor itself. Then the charging infrastructure to charge that battery is another source of incremental copper usage. We feel we are at or near the bottom of the copper cycle.”

Ultimately though the key thing for Taseko is the hope both that market valuations will improve to reflect assets being developed, and the hope that the potential of copper as the global economy decarbonises in the coming years will be recognised.

“With Florence it’s a billion dollar project, and we don’t think we have any value for it in our stock price today, so as we continue to de-risk and move towards production, some of that has to be reflected in our stock price,” said Brian Bergot, VP investor relations at Taseko. “We may not get to a billion any time soon, but it should certainly be a lot higher than zero.”

“We had a billion dollar market cap a few years ago, we weren’t producing nearly as much copper, and we didn’t have a development project close to completion. Our company is a lot better and we’re trading at a fraction of what we used to trade at

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