Condensed Consolidated Interim Financial Statements
September 30, 2021
(Unaudited)
TASEKO MINES LIMITED |
Consolidated Balance Sheets |
(Cdn$ in thousands) |
(Unaudited) |
September 30, | December 31, | ||||||
Note | 2021 | 2020 | |||||
ASSETS | |||||||
Current assets | |||||||
Cash and equivalents | 239,151 | 85,110 | |||||
Accounts receivable | 11,022 | 6,689 | |||||
Inventories | 9 | 62,082 | 58,841 | ||||
Other financial assets | 8 | 17,841 | 3,583 | ||||
Prepaids | 3,539 | 2,975 | |||||
333,635 | 157,198 | ||||||
Property, plant and equipment | 10 | 801,420 | 742,619 | ||||
Other financial assets | 8 | 5,013 | 5,298 | ||||
Goodwill | 5,253 | 5,250 | |||||
1,145,321 | 910,365 | ||||||
LIABILITIES | |||||||
Current liabilities | |||||||
Accounts payable and other liabilities | 55,506 | 51,747 | |||||
Current portion of long-term debt | 11 | 19,334 | 17,617 | ||||
Current portion of deferred revenue | 12 | 7,804 | 5,604 | ||||
Interest payable on senior secured notes | 4,459 | 1,160 | |||||
Current income tax payable | 1,851 | 2,356 | |||||
88,954 | 78,484 | ||||||
Long-term debt | 11 | 520,725 | 345,787 | ||||
Provision for environmental rehabilitation ("PER") | 77,343 | 78,983 | |||||
Deferred and other tax liabilities | 61,805 | 39,060 | |||||
Deferred revenue | 12 | 45,149 | 47,154 | ||||
Other financial liabilities | 13 | 5,525 | 3,525 | ||||
799,501 | 592,993 | ||||||
EQUITY | |||||||
Share capital | 14 | 474,872 | 472,870 | ||||
Contributed surplus | 55,376 | 53,433 | |||||
Accumulated other comprehensive income ("AOCI") | 7,467 | 7,674 | |||||
Deficit | (191,895 | ) | (216,605 | ) | |||
345,820 | 317,372 | ||||||
1,145,321 | 910,365 | ||||||
Commitments and contingencies | 15 | ||||||
Subsequent event | 11b |
The accompanying notes are an integral part of these consolidated interim financial statements.
TASEKO MINES LIMITED |
Condensed Consolidated Statements of Comprehensive Income (Loss) |
(Cdn$ in thousands, except share and per share amounts) |
(Unaudited) |
Three months ended | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
Note | 2021 | 2020 | 2021 | 2020 | |||||||||
Revenues | 3 | 132,563 | 87,780 | 330,306 | 255,869 | ||||||||
Cost of sales | |||||||||||||
Production costs | 4 | (48,882 | ) | (52,075 | ) | (161,830 | ) | (163,905 | ) | ||||
Depletion and amortization | 4 | (17,011 | ) | (23,894 | ) | (50,385 | ) | (76,554 | ) | ||||
Earnings from mining operations | 66,670 | 11,811 | 118,091 | 15,410 | |||||||||
General and administrative | (2,905 | ) | (2,894 | ) | (13,367 | ) | (9,692 | ) | |||||
Share-based compensation expense | 14b | (76 | ) | (2,378 | ) | (4,474 | ) | (3,859 | ) | ||||
Project evaluation expenditures | 123 | (978 | ) | (325 | ) | (1,288 | ) | ||||||
Gain (loss) on derivatives | 5 | 2,095 | (1,278 | ) | (1,975 | ) | 3,690 | ||||||
Other income | 350 | 336 | 1,146 | 1,143 | |||||||||
Income before financing costs and income taxes | 66,257 | 4,619 | 99,096 | 5,404 | |||||||||
Finance expenses, net | 6 | (11,674 | ) | (11,199 | ) | (40,081 | ) | (32,233 | ) | ||||
Call premium on settlement of debt | 6 | - | - | (6,941 | ) | - | |||||||
Foreign exchange gain (loss) | (9,788 | ) | 6,987 | (2,323 | ) | (8,761 | ) | ||||||
Income (loss) before income taxes | 44,795 | 407 | 49,751 | (35,590 | ) | ||||||||
Income tax recovery (expense) | 7 | (22,310 | ) | 580 | (25,041 | ) | 6,372 | ||||||
Net income (loss) | 22,485 | 987 | 24,710 | (29,218 | ) | ||||||||
Other comprehensive income (loss): | |||||||||||||
Gain (loss) on financial assets | (759 | ) | 1,639 | (883 | ) | 8,215 | |||||||
Foreign currency translation reserve | 5,881 | (4,158 | ) | 676 | 4,596 | ||||||||
Total other comprehensive income (loss) | 5,122 | (2,519 | ) | (207 | ) | 12,811 | |||||||
Total comprehensive income (loss) | 27,607 | (1,532 | ) | 24,503 | (16,407 | ) | |||||||
Earnings (loss) per share | |||||||||||||
Basic | 0.08 | - | 0.09 | (0.12 | ) | ||||||||
Diluted | 0.08 | - | 0.09 | (0.12 | ) | ||||||||
Weighted average shares outstanding (thousands) | |||||||||||||
Basic | 283,885 | 246,406 | 283,400 | 246,265 | |||||||||
Diluted | 287,678 | 248,758 | 287,202 | 246,265 |
The accompanying notes are an integral part of these consolidated interim financial statements.
TASEKO MINES LIMITED |
Condensed Consolidated Statements of Cash Flows |
(Cdn$ in thousands) |
(Unaudited) |
Three months ended | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
Note | 2021 | 2020 | 2021 | 2020 | |||||||||
Operating activities | |||||||||||||
Net income (loss) for the period | 22,485 | 987 | 24,710 | (29,218 | ) | ||||||||
Adjustments for: | |||||||||||||
Depletion and amortization | 17,011 | 23,894 | 50,385 | 76,554 | |||||||||
Income tax expense (recovery) | 7 | 22,310 | (580 | ) | 25,041 | (6,372 | ) | ||||||
Finance expenses, net | 6 | 11,674 | 11,199 | 40,081 | 32,233 | ||||||||
Share-based compensation expense | 14b | 117 | 2,501 | 4,687 | 4,068 | ||||||||
Loss (gain) on derivatives | 5 | (2,095 | ) | 1,278 | 1,975 | (3,690 | ) | ||||||
Unrealized foreign exchange loss (gain) | 9,511 | (7,512 | ) | 1,545 | 9,250 | ||||||||
Amortization of deferred revenue | 12 | (1,711 | ) | (1,075 | ) | (3,981 | ) | (3,686 | ) | ||||
Deferred revenue deposit | 12 | - | - | - | 8,510 | ||||||||
Call premium on settlement of debt | 6 | - | - | 6,941 | - | ||||||||
Other operating activities | (2,809 | ) | 460 | (2,422 | ) | 1,457 | |||||||
Net change in working capital | 16 | (8,174 | ) | (131 | ) | (11,424 | ) | (3,335 | ) | ||||
Cash provided by operating activities | 68,319 | 31,021 | 137,538 | 85,771 | |||||||||
Investing activities | |||||||||||||
Gibraltar capitalized stripping costs | 10 | (10,881 | ) | (3,761 | ) | (47,127 | ) | (25,113 | ) | ||||
Gibraltar capital expenditures | 10 | (8,335 | ) | (5,848 | ) | (21,376 | ) | (9,046 | ) | ||||
Florence Copper development costs | 10 | (15,387 | ) | (4,231 | ) | (28,105 | ) | (11,371 | ) | ||||
Other project development costs | 10 | (543 | ) | (1,366 | ) | (1,871 | ) | (2,475 | ) | ||||
Purchase of copper price options | 5 | - | (1,009 | ) | (15,837 | ) | (1,743 | ) | |||||
Proceeds from copper put options | - | - | - | 6,104 | |||||||||
Net proceeds from the sale of marketable securities | - | - | - | 7,270 | |||||||||
Other investing activities | (669 | ) | (1,766 | ) | (531 | ) | (2,457 | ) | |||||
Cash used for investing activities | (35,815 | ) | (17,981 | ) | (114,847 | ) | (38,831 | ) | |||||
Financing activities | |||||||||||||
Net proceeds from issuance of senior secured notes | 11f | - | - | 496,098 | - | ||||||||
Repayment of senior secured notes | 11f | - | - | (317,225 | ) | - | |||||||
Redemption cost on settlement of senior secured notes | - | - | (8,714 | ) | - | ||||||||
Interest paid | (18,793 | ) | (1,159 | ) | (24,802 | ) | (18,030 | ) | |||||
Repayment of equipment loans and leases | (4,936 | ) | (3,542 | ) | (14,799 | ) | (9,707 | ) | |||||
Proceeds on exercise of options | 57 | 627 | 1,258 | 627 | |||||||||
Cash provided by (used for) financing activities | (23,672 | ) | (4,074 | ) | 131,816 | (27,110 | ) | ||||||
Effect of exchange rate changes on cash and equivalents | 4,578 | 93 | (466 | ) | (350 | ) | |||||||
Increase in cash and equivalents | 13,410 | 9,059 | 154,041 | 19,480 | |||||||||
Cash and equivalents, beginning of period | 225,741 | 63,619 | 85,110 | 53,198 | |||||||||
Cash and equivalents, end of period | 239,151 | 72,678 | 239,151 | 72,678 | |||||||||
Supplementary cash flow disclosures | 16 |
The accompanying notes are an integral part of these consolidated interim financial statements.
TASEKO MINES LIMITED |
Consolidated Statements of Changes in Equity |
(Cdn$ in thousands) |
(Unaudited) |
Share | Contributed | ||||||||||||||
capital | surplus | AOCI | Deficit | Total | |||||||||||
Balance at January 1, 2020 | 436,318 | 51,622 | 6,827 | (193,081 | ) | 301,686 | |||||||||
Share-based compensation | - | 1,528 | - | - | 1,528 | ||||||||||
Exercise of options | 955 | (328 | ) | - | - | 627 | |||||||||
Total comprehensive income (loss) for the period | - | - | 12,811 | (29,218 | ) | (16,407 | ) | ||||||||
Balance at September 30, 2020 | 437,273 | 52,822 | 19,638 | (222,299 | ) | 287,434 | |||||||||
Balance at January 1, 2021 | 472,870 | 53,433 | 7,674 | (216,605 | ) | 317,372 | |||||||||
Share-based compensation | - | 2,687 | - | - | 2,687 | ||||||||||
Exercise of options | 2,002 | (744 | ) | - | - | 1,258 | |||||||||
Total comprehensive income (loss) for the period | - | - | (207 | ) | 24,710 | 24,503 | |||||||||
Balance at September 30, 2021 | 474,872 | 55,376 | 7,467 | (191,895 | ) | 345,820 |
The accompanying notes are an integral part of these consolidated interim financial statements.
TASEKO MINES LIMITED Notes to Condensed Consolidated Interim Financial Statements (Cdn$ in thousands - Unaudited) |
1. REPORTING ENTITY
Taseko Mines Limited (the "Company" or "Taseko") is a corporation governed by the British Columbia Business Corporations Act. These unaudited condensed consolidated interim financial statements of the Company as at and for the three and nine month periods ended September 30, 2021 comprise the Company, its subsidiaries and its 75% interest in the Gibraltar joint venture. The Company is principally engaged in the production and sale of metals, as well as related activities including mine permitting and development, within the province of British Columbia, Canada and the State of Arizona, USA. Seasonality does not have a significant impact on the Company's operations.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of compliance
These condensed consolidated interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting and follow the same accounting policies and methods of application as the Company's most recent annual financial statements. These condensed consolidated interim financial statements do not include all of the information required for full consolidated annual financial statements and should be read in conjunction with the consolidated financial statements of the Company as at and for the year ended December 31, 2020, prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
These condensed consolidated interim financial statements were authorized for issue by the Company's Audit and Risk Committee on November 2, 2021.
(b) Use of judgments and estimates
In preparing these condensed consolidated interim financial statements, management has made judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
The significant judgments made by management in applying the Company's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended December 31, 2020.
In March 2020, the World Health Organization declared a global pandemic related to COVID-19 and the impact on global markets has been significant and far-reaching. Since the initial outbreak, the restrictions on the conduct of business and movement of goods and services across international borders have caused volatility in the commodity, foreign exchange and stock markets.
The Company continues to act to ensure the health and safety of our employees, contractors and the communities in which we operate is paramount and in accordance with public safety direction from governments and public health authorities. The Company continues to evaluate the potential impacts of COVID-19 on all aspects of its business. As of the date of these statements, there has not been any direct impact on the Company's operations as a result of COVID-19.
(c) New Accounting Policies
Several new accounting standards, amendments to existing standards and interpretations have been published by the IASB. None of these standards or amendments to existing standards have been adopted early by the Company.
Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the new standard.
TASEKO MINES LIMITED Notes to Condensed Consolidated Interim Financial Statements (Cdn$ in thousands - Unaudited) |
New standards, amendments and pronouncements that became effective for the period covered by these statements have not been disclosed as they did not have a material impact on the Company's unaudited condensed consolidated interim financial statements.
3. REVENUES
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Copper contained in concentrate | 125,050 | 82,347 | 306,371 | 254,061 | ||||||||
Molybdenum concentrate | 8,972 | 5,223 | 20,202 | 14,680 | ||||||||
Silver (Note 12) | 953 | 599 | 2,418 | 2,563 | ||||||||
Price adjustments on settlement receivables | 2,073 | 5,106 | 11,821 | 2,635 | ||||||||
Total gross revenue | 137,048 | 93,275 | 340,812 | 273,939 | ||||||||
Less: Treatment and refining costs | (4,485 | ) | (5,495 | ) | (10,506 | ) | (18,070 | ) | ||||
Revenue | 132,563 | 87,780 | 330,306 | 255,869 |
4. COST OF SALES
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Site operating costs | 50,134 | 53,549 | 147,043 | 151,128 | ||||||||
Transportation costs | 5,801 | 4,127 | 13,409 | 14,480 | ||||||||
Changes in inventories of finished goods | (762 | ) | (1,415 | ) | 1,702 | 3,026 | ||||||
Changes in inventories of ore stockpiles | (6,291 | ) | (4,186 | ) | (324 | ) | (4,729 | ) | ||||
Production costs | 48,882 | 52,075 | 161,830 | 163,905 | ||||||||
Depletion and amortization | 17,011 | 23,894 | 50,385 | 76,554 | ||||||||
Cost of sales | 65,893 | 75,969 | 212,215 | 240,459 |
Site operating costs include personnel costs, non-capitalized waste stripping costs, repair and maintenance costs, consumables, operating supplies and external services.
For the nine month period ended September 30, 2020, site operating costs and general administrative expenses include $5,226 and $318, respectively, for benefits related to claims submitted by the Company for the Canada Emergency Wage Subsidy. No claims were submitted for the nine month period ended September 30, 2021.
TASEKO MINES LIMITED Notes to Condensed Consolidated Interim Financial Statements (Cdn$ in thousands - Unaudited) |
5. DERIVATIVE INSTRUMENTS
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Net realized (gain) loss on settled copper puts | 4,722 | - | 8,090 | (5,371 | ) | |||||||
Net unrealized (gain) loss on outstanding copper options | (6,817 | ) | 893 | (5,676 | ) | 893 | ||||||
Realized (gain) loss on fuel call options | - | 222 | (470 | ) | 445 | |||||||
Unrealized loss on fuel call options | - | 163 | 31 | 343 | ||||||||
(2,095 | ) | 1,278 | 1,975 | (3,690 | ) |
Details of the outstanding copper price option contracts at September 30, 2021, are summarized in the following table:
Quantity | Strike price | Period | Cost | Fair value | |
Copper put option contracts | 18.5 million lbs | US$3.75/per lb | Q4 2021 | 6,421 | 1,042 |
Copper collar contracts | 42.7 million lbs | US$4.00/per lb US$5.60/per lb | H1 2022 | 4,693 | 13,895 |
11,114 | 14,937 |
6. FINANCE EXPENSES
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Interest expense | 10,360 | 9,422 | 30,257 | 28,141 | ||||||||
Finance expense - deferred revenue (Note 12) | 1,414 | 1,643 | 4,176 | 3,881 | ||||||||
Accretion on PER | 101 | 138 | 310 | 413 | ||||||||
Finance income | (201 | ) | (4 | ) | (460 | ) | (202 | ) | ||||
Loss on settlement of long-term debt (Note 11a) | - | - | 5,798 | - | ||||||||
11,674 | 11,199 | 40,081 | 32,233 |
As part of the senior secured notes refinancing completed in the first quarter ended March 31, 2021, the Company redeemed its US$250 million senior secured notes on March 3, 2021, which resulted in an accounting loss of $5,798, comprised of the write-off of deferred financing costs of $4,025 and additional interest costs over the call period of $1,773.
The Company also paid a redemption call premium of $6,941 on the settlement of the 2022 Notes.
TASEKO MINES LIMITED Notes to Condensed Consolidated Interim Financial Statements (Cdn$ in thousands - Unaudited) |
7. INCOME TAX
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Current income tax expense | 1,354 | 635 | 2,295 | 1,279 | ||||||||
Deferred income tax expense (recovery) | 20,956 | (1,215 | ) | 22,746 | (7,651 | ) | ||||||
22,310 | (580 | ) | 25,041 | (6,372 | ) |
8. OTHER FINANCIAL ASSETS
September 30, 2021 | December 31, 2020 | |||||
Current: | ||||||
Marketable securities | 2,904 | 1,791 | ||||
Copper price options (Note 5) | 14,937 | 1,514 | ||||
Fuel call options (Note 5) | - | 278 | ||||
17,841 | 3,583 | |||||
Long-term: | ||||||
Investment in private companies | 1,200 | 1,200 | ||||
Reclamation deposits | 2,539 | 2,825 | ||||
Restricted cash | 1,274 | 1,273 | ||||
5,013 | 5,298 |
The Company holds strategic investments in publicly traded and privately owned mineral exploration and development companies, including marketable securities and subscription receipts. Marketable securities and the investment in privately owned companies are accounted for at fair value through other comprehensive income (FVOCI).
9. INVENTORIES
September 30, 2021 | December 31, 2020 | |||||
Ore stockpiles | 27,013 | 21,946 | ||||
Copper contained in concentrate | 6,202 | 7,948 | ||||
Molybdenum concentrate | 442 | 398 | ||||
Materials and supplies | 28,425 | 28,549 | ||||
62,082 | 58,841 |
For the nine months ended September 30, 2021, the Company recorded a recovery of $4,561 to adjust the carrying value of ore stockpiles to cost, of which $1,501 is recorded in depletion and amortization and the balance in production costs.
TASEKO MINES LIMITED Notes to Condensed Consolidated Interim Financial Statements (Cdn$ in thousands - Unaudited) |
10. PROPERTY, PLANT & EQUIPMENT
The following schedule shows the continuity of property, plant and equipment net book value for the three and nine months ended September 30, 2021:
Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | |||||
Net book value beginning of period | 779,941 | 742,619 | ||||
Additions: | ||||||
Gibraltar capitalized stripping costs | 12,818 | 54,534 | ||||
Gibraltar capital expenditures | 8,610 | 22,724 | ||||
Florence Copper development costs | 19,113 | 36,485 | ||||
Yellowhead development costs | 437 | 1,597 | ||||
Aley development costs | 106 | 274 | ||||
Other items: | ||||||
Right of use assets | 143 | 4,395 | ||||
Rehabilitation costs asset | 4 | 1,086 | ||||
Disposals | (71 | ) | (869 | ) | ||
Foreign exchange translation and other | 5,206 | 135 | ||||
Depletion and amortization | (24,887 | ) | (61,560 | ) | ||
Net book value at September 30, 2021 | 801,420 | 801,420 |
Net book value | Gibraltar Mines (75%) | Florence Copper | Yellowhead | Aley | Other | Total | ||||||||||||
At December 31, 2020 | 504,995 | 203,079 | 18,649 | 13,861 | 2,035 | 742,619 | ||||||||||||
Net additions | 80,684 | 36,537 | 1,597 | 274 | 48 | 119,140 | ||||||||||||
Changes in rehabilitation cost asset | 1,086 | - | - | - | - | 1,086 | ||||||||||||
Depletion and amortization | (61,221 | ) | (38 | ) | - | - | (301 | ) | (61,560 | ) | ||||||||
Foreign exchange translation and other | - | 135 | - | - | - | 135 | ||||||||||||
At September 30, 2021 | 525,544 | 239,713 | 20,246 | 14,135 | 1,782 | 801,420 |
Since its acquisition of the Florence Copper Project in November 2014, the Company has incurred and capitalized a total of $142.1 million in project development and other costs, including capitalized interest.
For the three and nine months period ended September 30, 2021, non-cash additions to property, plant and equipment include $1,937 and $7,407 for depreciation of capitalized stripping, respectively.
Depreciation related to the right of use assets for the three and nine months period ended September 30, 2021 was $1,006 and $2,892, respectively.
TASEKO MINES LIMITED Notes to Condensed Consolidated Interim Financial Statements (Cdn$ in thousands - Unaudited) |
11. DEBT
September 30, 2021 | December 31, 2020 | |||||
Current: | ||||||
Lease liabilities (c) | 10,078 | 8,094 | ||||
Secured equipment loans (d) | 7,154 | 7,536 | ||||
Lease related obligations (e) | 2,102 | 1,987 | ||||
19,334 | 17,617 | |||||
Long-term: | ||||||
Senior secured notes (a) | 499,410 | 313,965 | ||||
Lease liabilities (c) | 8,106 | 11,829 | ||||
Secured equipment loans (d) | 7,343 | 12,536 | ||||
Lease related obligations (e) | 5,866 | 7,457 | ||||
520,725 | 345,787 | |||||
Total debt | 540,059 | 363,404 |
(a) Senior secured notes
On February 10, 2021, the Company completed an offering of US$400 million aggregate principal amount of senior secured notes (the "2026 Notes"). The 2026 Notes mature on February 15, 2026 and bear interest at an annual rate of 7.0%, payable semi-annually on February 15 and August 15. A portion of the proceeds were used to redeem the outstanding US$250 million 8.75% Senior Secured Notes (the "2022 Notes") due on June 15, 2022. The remaining proceeds, net of transaction costs, call premium and accrued interest, of approximately $167 million (US$131 million) are available for capital expenditures, including at its Florence Copper project and Gibraltar mine, working capital and for general corporate purposes.
The 2026 Notes are secured by liens on the shares of Taseko's wholly-owned subsidiary, Gibraltar Mines Ltd., and the subsidiary's rights under the joint venture agreement relating to the Gibraltar mine, as well as the shares of Curis Holdings (Canada) Ltd. and Florence Holdings Inc. The 2026 Notes are guaranteed by each of Taseko's existing and future restricted subsidiaries. The 2026 Notes also allow for up to US$145 million of first lien secured debt to be issued and up to US$50 million of debt for equipment financing, all subject to the terms of the note indenture. The Company is also subject to certain restrictions on asset sales, issuance of preferred stock, dividends and other restricted payments. However, there are no maintenance covenants with respect to the Company's financial performance.
The Company may redeem some or all of the 2026 Notes at any time on or after February 15, 2023, at redemption prices ranging from 103.5% to 100%, plus accrued and unpaid interest to the date of redemption. Prior to February 15, 2023, all or part of the notes may be redeemed at 100%, plus a make-whole premium, plus accrued and unpaid interest to the date of redemption. Until February 15, 2023, the Company may redeem up to 10% of the aggregate principal amount of the notes, at a redemption price of 103%, plus accrued and unpaid interest to the date of redemption. In addition, until February 15, 2023, the Company may redeem up to 40% of the aggregate principal amount of the notes, in an amount not greater than the net proceeds of certain equity offerings, at a redemption price of 107%, plus accrued and unpaid interest to the date of redemption. On a change of control, the 2026 Notes are redeemable at the option of the holder at a price of 101%.
The settlement of the 2022 Notes resulted in non-recurring finance expenses as further described in Note 6.
TASEKO MINES LIMITED Notes to Condensed Consolidated Interim Financial Statements (Cdn$ in thousands - Unaudited) |
(b) Revolving Credit Facility
On October 6, 2021, the Company closed a secured US$50-million revolving credit facility (the "Facility"). The Facility is secured by liens against Taseko's rights under the Gibraltar joint venture, as well as, the shares of Gibraltar Mines Ltd., Curis Holdings (Canada) Ltd., and Florence Holdings Inc. The Facility matures on April 3, 2025 and is extendable annually thereafter. The Facility will be available for capital expenditures, working capital and general corporate purposes.
(c) Lease liabilities
Lease liabilities includes the Company's outstanding lease liabilities under IFRS 16.
(d) Secured equipment loans
The equipment loans are secured by some of the existing mobile mining equipment at the Gibraltar mine and commenced between June, 2018 and August of 2019 with monthly repayment terms ranging between 48 and 60 months and with interest rates ranging between 5.2% to 6.4%.
(e) Lease related obligations
Lease related obligations relate to a lease arising under a sale leaseback transaction on certain items of equipment at the Gibraltar mine. The lease commenced in June, 2019 and has a term of 54 months. At the end of the lease term, the Company has an option to renew the term, an option to purchase the equipment at fair market value or option to return the equipment. The lease contains a fixed price early buy-out option exercisable at the end of 48 months.
(f) Debt continuity
The following schedule shows the continuity of total debt for the nine months ended September 30, 2021:
Total debt as at December 31, 2020 | 363,404 | ||
Settlement of 2022 Notes | (317,225 | ) | |
Foreign exchange gain | (1,075 | ) | |
Write-off of deferred financing charges | 4,025 | ||
Issuance of 2026 Notes | 507,560 | ||
Deferred financing charges | (11,462 | ) | |
Lease additions | 5,997 | ||
Lease liabilities and equipment loans repayments | (14,799 | ) | |
Unrealized foreign exchange loss | 2,057 | ||
Amortization of deferred financing charges | 1,577 | ||
Total debt as at September 30, 2021 | 540,059 |
12. DEFERRED REVENUE
On March 3, 2017, the Company entered into a silver stream purchase and sale agreement with Osisko Gold Royalties Ltd. ("Osisko"), whereby the Company received an upfront cash deposit payment of US$33 million for the sale of an equivalent amount of its 75% share of Gibraltar payable silver production until 5.9 million ounces of silver have been delivered to Osisko. After that threshold has been met, 35% of an equivalent amount of Taseko's share of all future payable silver production from Gibraltar will be delivered to Osisko. The Company receives cash payments of US$2.75 per ounce for all silver deliveries made under the agreement.
TASEKO MINES LIMITED Notes to Condensed Consolidated Interim Financial Statements (Cdn$ in thousands - Unaudited) |
On April 24, 2020, Taseko entered into an amendment to its silver stream with Osisko and received $8,510 in exchange for reducing the delivery price of silver from US$2.75 per ounce to nil.
The following table summarizes changes in the Osisko deferred revenue:
Balance at December 31, 2020 | 52,758 | |||
Finance expense (Note 6) | 4,176 | |||
Amortization of deferred revenue | (3,981 | ) | ||
Balance at September 30, 2021 | 52,953 |
September 30, 2021 | December 31, 2020 | |||||
Current portion of deferred revenue | 7,804 | 5,604 | ||||
Long-term portion of deferred revenue | 45,149 | 47,154 | ||||
Total deferred revenue | 52,953 | 52,758 |
13. OTHER FINANCIAL LIABILITIES
September 30, 2021 | December 31, 2020 | |||||
Long-term: | ||||||
Deferred share units (Note 14b) | 5,525 | 3,525 |
14. EQUITY
(a) Share capital
The Company's authorized share capital consists of an unlimited number of common shares with no par value.
Common shares (thousands) | |||
Common shares outstanding at January 1, 2021 | 282,115 | ||
Exercise of share options | 1,809 | ||
Common shares outstanding at September 30, 2021 | 283,924 |
TASEKO MINES LIMITED Notes to Condensed Consolidated Interim Financial Statements (Cdn$ in thousands - Unaudited) |
(b) Share-based compensation
Options (thousands) | Average price | |||||
Outstanding at December 31, 2020 | 8,969 | 1.19 | ||||
Granted | 2,402 | 1.60 | ||||
Exercised | (1,809 | ) | 0.79 | |||
Expired | (324 | ) | 2.86 | |||
Outstanding at September 30, 2021 | 9,238 | 1.32 | ||||
Exercisable at September 30, 2021 | 7,066 | 1.29 |
During the nine month period ended September 30, 2021, the Company granted 2,402,000 (2020 - 1,285,000) share options to directors, executives and employees, exercisable at an average exercise price of $1.60 per common share (2020 - $0.69 per common share) over a five year period. The total fair value of options granted was $2,114 (2020 - $475) based on a weighted average grant-date fair value of $0.88 (2020 - $0.37) per option.
The fair value of options was measured at the grant date using the Black-Scholes formula. Expected volatility is estimated by considering historic average share price volatility. The inputs used in the Black-Scholes formula are as follows:
| Nine months ended |
| September 30, 2021 |
Expected term (years) | 5 |
Forfeiture rate | 0% |
Volatility | 67% |
Dividend yield | 0% |
Risk-free interest rate | 0.4% |
Weighted-average fair value per option | $0.88 |
The Company has other share-based compensation plans in the form of Deferred Share Units ("DSUs") and Performance Share Units ("PSUs").
DSUs (thousands) | PSUs (thousands) | |||||
Outstanding at January 1, 2021 | 2,123 | 2,650 | ||||
Granted | 198 | 530 | ||||
Settled | - | (400 | ) | |||
Outstanding at September 30, 2021 | 2,321 | 2,780 |
During the nine month period ended September 30, 2021, 198,000 DSUs were issued to directors (2020 - 572,000) and 530,000 PSUs to senior executives (2020 - 825,000). The fair value of DSUs and PSUs granted was $1,235 (2020 - $899), with a weighted average fair value at the grant date of $1.58 per unit for the DSUs (2020 - $0.72 per unit) and $1.74 per unit for the PSUs (2020 - $0.59 per unit).
TASEKO MINES LIMITED Notes to Condensed Consolidated Interim Financial Statements (Cdn$ in thousands - Unaudited) |
Share-based compensation expense is comprised as follows:
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Share options - amortization | 333 | 144 | 1,830 | 645 | ||||||||
Performance share units - amortization | 295 | 294 | 857 | 883 | ||||||||
Change in fair value of deferred share units | (511 | ) | 2,063 | 2,000 | 2,540 | |||||||
117 | 2,501 | 4,687 | 4,068 |
15. COMMITMENTS AND CONTINGENCIES
(a) Commitments
The Company is a party to certain contracts relating to service and supply agreements. Future minimum payments under these agreements as at September 30, 2021 are presented in the following table:
Remainder of 2021 | 595 | ||
2022 | 860 | ||
2023 and thereafter | - | ||
Total commitments | 1,455 |
As at September 30, 2021, the Company had outstanding capital commitments of $32,015 (December 31, 2020 - $2,733).
(b) Contingencies
The Company has guaranteed 100% of certain capital lease and equipment loans entered into by the Gibraltar joint venture in which it holds a 75% interest. As a result, the Company has guaranteed the joint venture partner's 25% share of this debt which amounted to $11,414 as at September 30, 2021.
TASEKO MINES LIMITED Notes to Condensed Consolidated Interim Financial Statements (Cdn$ in thousands - Unaudited) |
16. SUPPLEMENTARY CASH FLOW INFORMATION
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Net change in working capital items: | ||||||||||||
Accounts receivable | (1,084 | ) | 1,847 | (4,333 | ) | (986 | ) | |||||
Inventories | (7,932 | ) | (5,825 | ) | 1,048 | (2,301 | ) | |||||
Prepaids | 738 | 630 | (1,263 | ) | (674 | ) | ||||||
Accounts payable and accrued liabilities | 1,070 | 5,676 | (4,108 | ) | 633 | |||||||
Advance payment on product sales | - | (2,445 | ) | - | - | |||||||
Interest payable | 34 | (14 | ) | 32 | (7 | ) | ||||||
Income tax payable | (1,000 | ) | - | (2,800 | ) | - | ||||||
(8,174 | ) | (131 | ) | (11,424 | ) | (3,335 | ) | |||||
Non-cash investing and financing activities | ||||||||||||
Assets acquired under capital lease | 151 | 2,334 | 1,663 | 4,091 | ||||||||
Right-of-use assets | 82 | 1,219 | 4,334 | 3,077 |
17. FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value, by reference to the reliability of the inputs used to estimate the fair values.
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The fair values of the senior secured notes are $517,285 and the carrying value is $499,410 at September 30, 2021. The fair value of all other financial assets and liabilities approximates their carrying value.
The Company has certain financial assets and liabilities that are measured at fair value on a recurring basis and uses the fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value, with Level 1 inputs having the highest priority.
TASEKO MINES LIMITED Notes to Condensed Consolidated Interim Financial Statements (Cdn$ in thousands - Unaudited) |
Level 1 | Level 2 | Level 3 | Total | |||||||||
September 30, 2021 | ||||||||||||
Financial assets designated as FVPL | ||||||||||||
Derivative asset copper put and call options | - | 14,937 | - | 14,937 | ||||||||
- | 14,937 | - | 14,937 | |||||||||
Financial assets designated as FVOCI | ||||||||||||
Marketable securities | 2,904 | - | - | 2,904 | ||||||||
Investment in private companies | - | - | 1,200 | 1,200 | ||||||||
Reclamation deposits | 2,539 | - | - | 2,539 | ||||||||
5,443 | - | 1,200 | 6,643 | |||||||||
December 31, 2020 | ||||||||||||
Financial assets designated as FVPL | ||||||||||||
Derivative asset copper put options | - | 1,514 | - | 1,514 | ||||||||
Derivative asset fuel call options | - | 278 | - | 278 | ||||||||
- | 1,792 | - | 1,792 | |||||||||
Financial assets designated as FVOCI | ||||||||||||
Marketable securities | 1,791 | - | - | 1,791 | ||||||||
Investment in subscription receipts | - | - | 1,200 | 1,200 | ||||||||
Reclamation deposits | 2,825 | - | - | 2,825 | ||||||||
4,616 | - | 1,200 | 5,816 |
There have been no transfers between fair value levels during the reporting period. The carrying value of cash and equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value as at September 30, 2021.
The fair value of the senior secured notes, a Level 1 instrument, is determined based upon publicly available information. The fair value of the lease liabilities and secured equipment loans, Level 2 instruments, are determined through discounting future cash flows at an interest rate of 5.5% based on the relevant loans effective interest rate.
The fair values of Level 2 instruments are based on broker quotes. Similar contracts are traded in an active market and the broker quotes reflect the actual transactions in similar instruments.
The Company's metal concentrate sales contracts are subject to provisional pricing with the selling price adjusted at the end of the quotational period. At each reporting date, the Company's settlement receivable on these contracts are marked-to-market based on a quoted forward price for which there exists an active commodity market. At September 30, 2021 the Company had settlement receivables of $ 1,994 (December 31, 2020 - $4,676).
The investment in private companies and the subscription receipts, are Level 3 instruments and are valued based on management estimates. As the subscription receipts are an investment in a private exploration and development company, there are no observable market data inputs.
Commodity Price Risk
The Company is exposed to the risk of fluctuations in prevailing market commodity prices on the metals it produces. The Company enters into copper put option contracts to reduce the risk of short-term copper price volatility. The amount and duration of the hedge position is based on an assessment of business-specific risk elements combined with the copper pricing outlook. Copper put option contracts are typically extended adding incremental quarters at established put strike prices to provide the necessary price protection.
TASEKO MINES LIMITED Notes to Condensed Consolidated Interim Financial Statements (Cdn$ in thousands - Unaudited) |
Provisional pricing mechanisms embedded within the Company's sales arrangements have the character of a commodity derivative and are carried at fair value as part of accounts receivable.
The table below summarizes the impact on revenue and receivables for changes in commodity prices on the provisionally invoiced sales volumes.
As at September 30, | |||
2021 | |||
Copper increase/decrease by US $0.43/lb.1 | $ | 2,464 |
1 The analysis is based on the assumption that the period end copper price increases 10% with all other variables held constant. At September 30, 2021, 6.0 million pounds of copper in concentrate were exposed to copper price movements. The closing exchange rate at September 30, 2021 of CAD/USD 1.2741 was used in the analysis.
The sensitivities in the above table have been determined with foreign currency exchange rates held constant. The relationship between commodity prices and foreign currencies is complex and movements in foreign exchange can impact commodity prices. The sensitivities should therefore be used with care.