Taseko gets US$350M to finance Prosperity

VANCOUVER — Taseko Mines (TKO-T, TGB-X) has signed a gold-stream agreement with Franco-Nevada (FNV-T) that will help finance the development of the junior’s Prosperity gold-copper project near Williams Lake, B.C.

Franco-Nevada has agreed to provide a US$350-million deposit for the construction of the project to secure 22% of the gold produced from Prosperity at US$400 per oz., or the prevailing price if it dips below that. Taseko will have access to the deposit once the project is fully permitted, financed, and agreements are in place to sell 75% of the concentrate for five years. At that time, Franco-Nevada will also provide Taseko with 2 million of its 2017 warrants, exercisable at $75 apiece.

Taseko projects capital costs of $815 million to get Prosperity up and running. Between the US$350 million Franco-Nevada financing, Taseko’s $200 million cash on hand and an expected $100 million in earnings over the next year from its Gibraltar open-pit copper-molybdenum mine, the company has roughly 80% of the funding for Prosperity lined up.

Brian Bergot, investor relations manager for Taseko, says the rest of the funding could be covered through debt, an equity raise, a trade loan, or the sale of part of the asset, though he says the last option looks less likely now.

“The point is we’ve got 80% of the funds committed today, we don’t believe it will be difficult to raise the remaining $165 million, we have some time to work on that,” says Bergot.

Franco-Nevada should not have a problem coming up with the deposit as it had more than US$650 million in working capital as of March.

The Prosperity project is one of the largest undeveloped copper-gold projects in Canada with reserves of 830 million tonnes grading 0.41 gram gold per tonne and 0.23% copper.

The current feasibility study projects 3.6 billion lbs. copper and 7.7 million oz. gold could be extracted over 33 years using a milling rate of 70,000 tonnes per day. Pretax net present value stands at $3 billion and the pretax internal rate of return at 40%, using a 5% discount rate. The project has room to grow, with a total measured and indicated resource of 1 billion tonnes grading 0.41 gram gold and 0.24% copper, which includes current reserves.

The project got a boost in January when the provincial government gave environmental approval. Taseko is now waiting for federal approval after the review hearings wrapped up in early May. The review panel must submit a report to the federal cabinet by July 2 for a final decision. Bergot says the company expects to receive final federal permitting by September.

The Department of Fisheries and Oceans has expressed concerns about how the company plans to mitigate the use of a local lake as a tailings pond, but Bergot says Taseko is confident all concerns were addressed in the 6-week federal review hearing.

Taseko also operates the 75%-owned Gibraltar mine, 125 km northeast of the Prosperity project. Following a major resource upgrade by Taseko, Gibraltar hosted, as of December 2008, 472 million tons (428.1 million tonnes) of reserves grading 0.315% copper and 0.008% molybdenum.

Taseko’s share price jumped 45¢ on the news of the deal to $6.09. The company’s share price has made a steady climb from $1.53 a year ago to the current $6 range. Taseko has 186 million shares outstanding.