Taseko posts Q1 profits, new mine plan

Taseko Mines (TKO-T, TGB-X) saw higher first-quarter profits compared to last year, but still fell below the market’s expectations. 

Taseko reported earnings of $5.7 million, or 3¢ per share, while adjusted earnings were $10.8 million, or 6¢ per share, falling short of the consensus of 10¢ per share. 

Alex Terentiew, an analyst at Credit Suisse, wrote in a June 9 research note that he estimated an adjusted EPS of 8¢, noting the miss was partially due to fewer sales and higher operating costs at the company’s Gibraltar copper mine in British Columbia. 

Gibraltar churned out 19.2 million lbs. copper and sold 17 million lbs. in the first quarter, compared to 23.2 million lbs. produced and 20.5 million lbs. sold a year ago. 

The company says lower production resulted from harsh winter conditions, an unscheduled four-day maintenance shutdown and lower head grade. 

Total cash costs amounted to $2.05 per lb. copper sold, up from $1.71 per lb. last year.

Taseko notes operating cash costs were also affected by a higher strip ratio, lower copper production and a stronger dollar.

However, the company notes that the quarter saw molybdenum production of 316,500 lbs., up 63% compared to the same period of 2010, due to better molybdenum recovery. 

During the quarter, the company unveiled its Gibraltar Development Plan 3 (GDP3) to increase copper production, by building a new concentrator that would increase annual production capacity by 60 million lbs. to 180 million lbs. copper. Taseko also plans to boost molybdenum production with a new molybdenum recovery facility. The total expansion would cost $325 million. 

Terentiew writes that “GDP3 provides the next leg of growth, but not until 2013.” He added that higher copper production and grades are expected next year.  

As the company works on GDP3, it also pushes ahead at other projects in the province. 

On June 6, it submitted a project description to the federal government to seek final approval for its New Prosperity gold-copper project, near Williams Lake. 

The company says the revised proposal preserves Fish Lake, reduces the impact on the environment and addresses other concerns that were identified during the federal review in February. The revision adds $300 million in capital and operating expenses to the original $815-million mine plan.  

Once the Canadian Environmental Assessment Agency confirms the new project description, the federal government would have 90 days to launch an environment assessment review. 

Relations with the First Nations who opposed the draining of Fish Lake still appear strained. A local B.C. newspaper reported on June 9 that the Tsilhqot’in Nation said that it was not consulted during the redesigning of the project. Taseko disputed this by saying it contacted the Tsilhqot’in Nation after its original plan was rejected in November 2010, but was told the Tsilhqot’in Nation wasn’t interested in meeting. 

The company plans a feasibility study on its Aley niobium project by year-end.  

Terentiew of Credit Suisse has an “underperform” rating on the stock, with a lowered target price of $5.25, from $5.50. The valuation excludes the Prosperity project, but if Prosperity is included, another $1.25 would be added to the current target price.  

In comparison, Canaccord Genuity analyst Orest Wowkodaw has a “buy” rating on the stock with a 12-month target price of $7.25. 

Adam Graf of Dahlman Rose in New York has a “buy” on the stock with a full-year estimate of US$9.94, down from US$11.09. 

Graf noted in a telephone interview that “It’s very challenging to say what I expect the stock to do between now and the end of the year . . . But it’s my expectation that there is a lot of value to be unlocked in Taseko, assuming that Prosperity can be permitted at some point, whether that is before the end of this year or sometime beyond there. 

“There is also significant value to be unlocked at their Aley niobium project, and actually their Harmony project as I modelled it – which is quite a ways out there as far as first production, but could generate quite a bit of value at the current forward curves for gold.”

Acquired by the company in 2001, the Harmony gold project sits on Graham Island off B.C.’s West Coast.

Taseko shares dipped 6% to close at $4.52 on the first-quarter results.