Condensed Consolidated Interim Financial Statements
September 30, 2022
(Unaudited)
TASEKO MINES LIMITED
Condensed Consolidated Balance Sheets
(Cdn$ in thousands)
(Unaudited)
September 30, | December 31, | ||||||
Note | 2022 | 2021 | |||||
ASSETS | |||||||
Current assets | |||||||
Cash and equivalents | 142,048 | 236,767 | |||||
Accounts receivable | 9,685 | 9,604 | |||||
Inventories | 8 | 67,526 | 79,871 | ||||
Other financial assets | 9 | 30,229 | 7,014 | ||||
Prepaids | 4,023 | 3,971 | |||||
253,511 | 337,227 | ||||||
Property, plant and equipment | 10 | 970,140 | 837,839 | ||||
Other financial assets | 9 | 3,005 | 2,902 | ||||
Goodwill | 5,652 | 5,227 | |||||
1,232,308 | 1,183,195 | ||||||
LIABILITIES | |||||||
Current liabilities | |||||||
Accounts payable and other liabilities | 84,193 | 55,660 | |||||
Current portion of long-term debt | 11 | 13,168 | 18,305 | ||||
Current portion of deferred revenue | 12 | 8,051 | 13,441 | ||||
Interest payable on senior secured notes | 4,797 | 13,312 | |||||
Current income tax payable | 999 | 2,759 | |||||
111,208 | 103,477 | ||||||
Long-term debt | 11 | 549,758 | 513,444 | ||||
Provision for environmental rehabilitation ("PER") | 84,562 | 87,571 | |||||
Deferred and other tax liabilities | 75,738 | 70,186 | |||||
Deferred revenue | 12 | 48,198 | 45,356 | ||||
Other financial liabilities | 13 | 3,093 | 4,643 | ||||
872,557 | 824,677 | ||||||
EQUITY | |||||||
Share capital | 14 | 479,726 | 476,599 | ||||
Contributed surplus | 54,855 | 55,403 | |||||
Accumulated other comprehensive income ("AOCI") | 28,999 | 6,649 | |||||
Deficit | (203,829 | ) | (180,133 | ) | |||
359,751 | 358,518 | ||||||
1,232,308 | 1,183,195 | ||||||
Commitments and contingencies | 16 |
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 | 2022 | 2021 | 2022 | 2021 | |||||||||
Revenues | 3 | 89,714 | 132,563 | 290,991 | 330,306 | ||||||||
Cost of sales | |||||||||||||
Production costs | 4 | (71,144) | (48,882) | (222,427) | (161,830) | ||||||||
Depletion and amortization | 4 | (13,060) | (17,011) | (41,835) | (50,385) | ||||||||
Earnings from mining operations | 5,510 | 66,670 | 26,729 | 118,091 | |||||||||
General and administrative | (2,263) | (2,905) | (8,261) | (13,367) | |||||||||
Share-based compensation expense | 14b | (1,101) | (76) | (2,068) | (4,474) | ||||||||
Project evaluation expense | (91) | 123 | (369) | (325) | |||||||||
Gain (loss) on derivatives | 5 | 16,447 | 2,095 | 35,063 | (1,975) | ||||||||
Other income | 326 | 350 | 981 | 1,146 | |||||||||
Income before financing costs and income taxes | 18,828 | 66,257 | 52,075 | 99,096 | |||||||||
Finance expenses, net | 6 | (11,831 | ) | (11,674 | ) | (35,774 | ) | (40,081 | ) | ||||
Call premium on settlement of debt | 6 | - | - | - | (6,941 | ) | |||||||
Foreign exchange loss | (27,014 | ) | (9,788 | ) | (34,387 | ) | (2,323 | ) | |||||
Income (loss) before income taxes | (20,017 | ) | 44,795 | (18,086 | ) | 49,751 | |||||||
Income tax expense | 7 | (3,500 | ) | (22,310 | ) | (5,610 | ) | (25,041 | ) | ||||
Net income (loss) | (23,517 | ) | 22,485 | (23,696 | ) | 24,710 | |||||||
Other comprehensive income (loss): | |||||||||||||
Items that will remain permanently in other comprehensive income (loss): | |||||||||||||
Loss on financial assets | (1,078 | ) | (759 | ) | (1,933 | ) | (883 | ) | |||||
Items that may in the future be reclassified to profit (loss): | |||||||||||||
Foreign currency translation reserve | 19,731 | 5,881 | 24,283 | 676 | |||||||||
Total other comprehensive income (loss) | 18,653 | 5,122 | 22,350 | (207 | ) | ||||||||
Total comprehensive income (loss) | (4,864 | ) | 27,607 | (1,346 | ) | 24,503 | |||||||
Earnings (loss) per share | |||||||||||||
Basic | 15 | (0.08 | ) | 0.08 | (0.08 | ) | 0.09 | ||||||
Diluted | 15 | (0.08 | ) | 0.08 | (0.08 | ) | 0.09 | ||||||
Weighted average shares outstanding (thousands) | |||||||||||||
Basic | 15 | 286,377 | 283,885 | 286,167 | 283,400 | ||||||||
Diluted | 15 | 286,377 | 287,678 | 286,167 | 287,202 |
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 | 2022 | 2021 | 2022 | 2021 | |||||||||
Operating activities | |||||||||||||
Net income (loss) for the period | (23,517 | ) | 22,485 | (23,696 | ) | 24,710 | |||||||
Adjustments for: | |||||||||||||
Depletion and amortization | 13,060 | 17,011 | 41,835 | 50,385 | |||||||||
Income tax expense | 7 | 3,500 | 22,310 | 5,610 | 25,041 | ||||||||
Finance expenses, net | 6 | 11,831 | 11,674 | 35,774 | 40,081 | ||||||||
Call premium on settlement of debt | 6 | - | - | - | 6,941 | ||||||||
Share-based compensation expense | 14b | 1,146 | 117 | 2,358 | 4,687 | ||||||||
Loss (gain) on derivatives | 5 | (16,447 | ) | (2,095 | ) | (35,063 | ) | 1,975 | |||||
Unrealized foreign exchange loss | 28,083 | 9,511 | 35,306 | 1,545 | |||||||||
Amortization of deferred revenue | (1,472 | ) | (1,711 | ) | (4,385 | ) | (3,981 | ) | |||||
Other operating activities | (1,291 | ) | (2,809 | ) | (2,203 | ) | (2,422 | ) | |||||
Net change in working capital | 17 | (2,778 | ) | (8,174 | ) | 26,676 | (11,424 | ) | |||||
Cash provided by operating activities | 12,115 | 68,319 | 82,212 | 137,538 | |||||||||
Investing activities | |||||||||||||
Gibraltar capitalized stripping costs | 10 | (1,121 | ) | (10,881 | ) | (28,151 | ) | (47,127 | ) | ||||
Gibraltar sustaining capital expenditures | 10 | (7,797 | ) | (7,914 | ) | (17,439 | ) | (17,731 | ) | ||||
Gibraltar capital project expenditures | 10 | (9,096 | ) | (421 | ) | (21,205 | ) | (3,645 | ) | ||||
Florence Copper development costs | 10 | (27,256 | ) | (15,387 | ) | (72,439 | ) | (28,105 | ) | ||||
Other project development costs | 10 | (329 | ) | (543 | ) | (645 | ) | (1,871 | ) | ||||
Purchase of copper price options | 5 | - | - | (7,269 | ) | (15,837 | ) | ||||||
Proceeds from copper put options | 5 | 18,598 | - | 18,598 | - | ||||||||
Other investing activities | (489 | ) | (669 | ) | (434 | ) | (531 | ) | |||||
Cash used for investing activities | (27,490 | ) | (35,815 | ) | (128,984 | ) | (114,847 | ) | |||||
Financing activities | |||||||||||||
Interest paid | (18,646 | ) | (18,793 | ) | (38,059 | ) | (24,802 | ) | |||||
Repayment of equipment loans and leases | (4,426 | ) | (4,936 | ) | (14,595 | ) | (14,799 | ) | |||||
Net proceeds from issuance of senior secured notes | - | - | - | 496,098 | |||||||||
Repayment of senior secured notes | - | - | - | (317,225 | ) | ||||||||
Redemption cost on settlement of senior secured notes | - | - | - | (8,714 | ) | ||||||||
Settlement of performance share units | - | - | (1,927 | ) | - | ||||||||
Proceeds from exercise of stock options | - | 57 | 598 | 1,258 | |||||||||
Cash provided by (used for) financing activities | (23,072 | ) | (23,672 | ) | (53,983 | ) | 131,816 | ||||||
Effect of exchange rate changes on cash and equivalents | 4,819 | 4,578 | 6,036 | (466 | ) | ||||||||
Increase (decrease) in cash and equivalents | (33,628 | ) | 13,410 | (94,719 | ) | 154,041 | |||||||
Cash and equivalents, beginning of period | 175,676 | 225,741 | 236,767 | 85,110 | |||||||||
Cash and equivalents, end of period | 142,048 | 239,151 | 142,048 | 239,151 | |||||||||
Supplementary cash flow disclosures | 17 |
The accompanying notes are an integral part of these consolidated interim financial statements.
TASEKO MINES LIMITED
Condensed Consolidated Statements of Changes in Equity
(Cdn$ in thousands)
(Unaudited)
Share | Contributed | ||||||||||||
capital | surplus | AOCI | Deficit | Total | |||||||||
Balance at January 1, 2021 | 472,870 | 53,433 | 7,674 | (216,605 | ) | 317,372 | |||||||
Share-based compensation | - | 2,687 | - | - | 2,687 | ||||||||
Exercise of optionss | 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 | |||||||
Balance at January 1, 2022 | 476,599 | 55,403 | 6,649 | (180,133) | 358,518 | ||||||||
Share-based compensation | - | 3,908 | - | - | 3,908 | ||||||||
Exercise of options | 910 | (312 | ) | - | - | 598 | |||||||
Settlement of performance share units | 2,217 | (4,144 | ) | - | - | (1,927 | ) | ||||||
Total comprehensive income (loss) for the period | - | - | 22,350 | (23,696 | ) | (1,346 | ) | ||||||
Balance at September 30, 2022 | 479,726 | 54,855 | 28,999 | (203,829 | ) | 359,751 |
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, 2022 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, 2021, 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, 2022.
(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, 2021.
(c) IFRS Pronouncements
Several new accounting standards, amendments to existing standards and interpretations have been published by the IASB. Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the new standard.
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.
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
3. REVENUE
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Copper contained in concentrate | 87,987 | 125,050 | 289,625 | 306,371 | ||||||||
Copper price adjustments on settlement | (541) | 1,173 | (5,350) | 7,701 | ||||||||
Molybdenum concentrate | 4,416 | 8,972 | 12,190 | 20,202 | ||||||||
Molybdenum price adjustments on settlement | 156 | 444 | (126) | 2,684 | ||||||||
Silver (Note 12b) | 1,448 | 1,409 | 4,122 | 3,854 | ||||||||
Total gross revenue | 93,466 | 137,048 | 300,461 | 340,812 | ||||||||
Less: Treatment and refining costs | (3,752 | ) | (4,485 | ) | (9,470 | ) | (10,506 | ) | ||||
Revenue | 89,714 | 132,563 | 290,991 | 330,306 |
4. COST OF SALES
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Site operating costs | 69,920 | 50,134 | 194,016 | 147,043 | ||||||||
Transportation costs | 6,316 | 5,801 | 15,801 | 13,409 | ||||||||
Changes in inventories of finished goods | (2,042 | ) | (762 | ) | 9,188 | 1,702 | ||||||
Changes in inventories of ore stockpiles | (3,050 | ) | (6,291 | ) | 3,422 | (324 | ) | |||||
Production costs | 71,144 | 48,882 | 222,427 | 161,830 | ||||||||
Depletion and amortization | 13,060 | 17,011 | 41,835 | 50,385 | ||||||||
Cost of sales | 84,204 | 65,893 | 264,262 | 212,215 |
Site operating costs include personnel costs, non-capitalized waste stripping costs, repair and maintenance costs, consumables, operating supplies and external services.
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
5. DERIVATIVE INSTRUMENTS
The Company recognized a net realized gain of $6,707 on copper collar contracts for 21 million pounds that expired in-the-money during the three month period ended September 30, 2022.
During the three month period ended September 30, 2022, the Company also received proceeds of $9,880 from an amendment of its H2 2022 contracts for a change in the minimum copper strike price from US$4.00 per pound to US$3.75 per pound, for 35 million pounds of copper for the August through December 2022 period.
At September 30, 2022, the fair value of the outstanding copper collar contracts for the next nine months was $28,374.
Three months ended September 30, | Nine months ended September 30, | ||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||
Net realized (gain) loss on settled copper options | (16,587 | ) | 4,722 | (11,894 | ) | 8,090 | |||||||
Net unrealized gain on outstanding copper options | (898 | ) | (6,817 | ) | (24,027 | ) | (5,676 | ) | |||||
Realized loss (gain) on fuel call options | 212 | - | 164 | (470 | ) | ||||||||
Unrealized loss on fuel call options | 826 | - | 694 | 31 | |||||||||
(16,447 | ) | (2,095 | ) | (35,063 | ) | 1,975 |
Details of the outstanding copper price option contracts at September 30, 2022 are summarized in the following table:
| Quantity | Strike price | Period | Cost | Fair value |
Copper collar contracts | 21.0 million lbs | US$3.75/per lb US$5.40/per lb | Q4 2022 | 2,161 | 9,489 |
Copper collar contracts | 30.0 million lbs | US$3.75/per lb US$4.72/per lb | H1 2023 | 2,975 | 18,885 |
6. FINANCE EXPENSES
Three months ended September 30 | Nine months ended September 30 | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Interest expense | 10,317 | 9,871 | 30,475 | 28,716 | ||||||||
Amortization of financing fees | 635 | 489 | 1,876 | 1,541 | ||||||||
Finance expense - deferred revenue (Note 12b) | 1,441 | 1,414 | 4,250 | 4,176 | ||||||||
Accretion on PER | 92 | 101 | 275 | 310 | ||||||||
Finance income | (654 | ) | (201 | ) | (1,102 | ) | (460 | ) | ||||
Loss on settlement of long-term debt | - | - | - | 5,798 | ||||||||
11,831 | 11,674 | 35,774 | 40,081 |
For the three and nine month period ended September 30, 2022, interest expense includes $263 (2021 - $399) and $882 (2021 - $1,345), respectively, from lease liabilities and lease related obligations.
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
As part of the senior secured notes refinancing completed in February of 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 paid over the call period of $1,773.
The Company also paid a one-time redemption call premium of $6,941 on the settlement of the US$250 million senior secured notes, which is not included in net financing expenses shown above.
7. INCOME TAX
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Current income tax expense | 224 | 1,354 | 212 | 2,295 | ||||||||
Deferred income tax expense | 3,276 | 20,956 | 5,398 | 22,746 | ||||||||
3,500 | 22,310 | 5,610 | 25,041 |
Effective tax rate reconciliation
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Income tax expense (recovery) at Canadian statutory rate of 36.5% | (7,305 | ) | 16,346 | (6,600 | ) | 18,155 | ||||||
Permanent differences | 7,163 | 4,105 | 8,329 | 6,607 | ||||||||
Foreign tax rate differential | 8 | - | 44 | 96 | ||||||||
Unrecognized tax benefits | 3,637 | 1,859 | 3,987 | 109 | ||||||||
Deferred tax adjustments related to prior periods | (3 | ) | - | (150 | ) | 74 | ||||||
Income tax expense | 3,500 | 22,310 | 5,610 | 25,041 |
8. INVENTORIES
| September 30, | December 31, |
| 2022 | 2021 |
Ore stockpiles | 22,478 | 31,845 |
Copper contained in concentrate | 10,370 | 19,831 |
Molybdenum concentrate | 583 | 310 |
Materials and supplies | 34,095 | 27,885 |
| 67,526 | 79,871 |
During the three and nine month periods ended September 30, 2022, the Company recorded an inventory adjustment of $1,533 and $3,042, (2021 - $nil and $4,561 recovery), respectively, to adjust the carrying value of ore stockpiles to net realizable value, of which $462 and $913, (2021 - $nil and $1,501 recovery), respectively, is recorded in depletion and amortization and the balance in production costs.
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
9. OTHER FINANCIAL ASSETS
| September 30, | December 31, |
| 2022 | 2021 |
Current: |
|
|
Marketable securities | 1,177 | 3,110 |
Copper price options (Note 5) | 28,374 | 3,904 |
Fuel call options | 678 | - |
| 30,229 | 7,014 |
Long-term: |
|
|
Investment in private companies | 1,200 | 1,200 |
Reclamation deposits | 434 | 434 |
Restricted cash | 1,371 | 1,268 |
| 3,005 | 2,902 |
The Company holds strategic investments in publicly-traded and privately owned mineral exploration and development companies, including marketable securities. Marketable securities and the investment in privately owned companies are accounted for at fair value through other comprehensive income.
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, 2022:
Three Months Ended September 30, 2022 | Nine months Ended September 30, 2022 | |||||
Net book value beginning of period | 919,862 | 837,839 | ||||
Additions: | ||||||
Gibraltar capitalized stripping costs | 1,278 | 31,973 | ||||
Gibraltar sustaining capital expenditures | 7,838 | 18,062 | ||||
Gibraltar capital projects | 9,096 | 21,205 | ||||
Florence Copper development costs | 27,319 | 79,382 | ||||
Yellowhead development costs | 116 | 553 | ||||
Aley development costs | 213 | 381 | ||||
Other items: | ||||||
Right of use assets | 1,977 | 2,378 | ||||
Rehabilitation costs asset | - | (1,589 | ) | |||
Foreign exchange translation and other | 16,119 | 19,912 | ||||
Depletion and amortization | (13,678 | ) | (39,956 | ) | ||
Net book value at September 30, 2022 | 970,140 | 970,140 |
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
Net book value | Gibraltar Mines (75%) | Florence Copper | Yellowhead | Aley | Other | Total | ||||||||||||
At December 31, 2021 | 539,641 | 260,934 | 21,252 | 14,316 | 1,696 | 837,839 | ||||||||||||
Net additions | 73,257 | 79,743 | 553 | 381 | (289) | 153,645 | ||||||||||||
Changes in rehabilitation cost asset | (1,589 | ) | - | - | - | - | (1,589 | ) | ||||||||||
Depletion and amortization | (39,541 | ) | (132 | ) | - | - | (283 | ) | (39,956 | ) | ||||||||
Foreign exchange translation | - | 20,201 | - | - | - | 20,201 | ||||||||||||
At September 30, 2022 | 571,768 | 360,746 | 21,805 | 14,697 | 1,124 | 970,140 |
For the three and nine month periods ended September 30, 2022, the Company capitalized development costs of $27,333 and $79,382, respectively, for the Florence Copper project. Since its acquisition of Florence Copper in November 2014, the Company has incurred and capitalized a total of $255.7 million in project development and other costs.
Non-cash additions to property, plant and equipment of Gibraltar include $3,822 of depreciation on mining assets related to capitalized stripping.
Since January 1, 2020 development costs for Yellowhead of $5,566 have been capitalized as mineral property, plant and equipment.
Depreciation related to the right of use assets for the three and nine month periods ended September 30, 2022 was $1,087 (2021: $1,006) and $3,231 (2021: $2,892), respectively.
11. DEBT
September 30, | December 31, | |||||
2022 | 2021 | |||||
Current: | ||||||
Lease liabilities (d) | 5,550 | 9,625 | ||||
Secured equipment loans (e) | 5,354 | 6,539 | ||||
Lease related obligations (f) | 2,264 | 2,141 | ||||
13,168 | 18,305 | |||||
Long-term: | ||||||
Senior secured notes (a) | 540,101 | 497,388 | ||||
Revolving credit deferred financing fees (b) | (1,029 | ) | (1,352 | ) | ||
Lease liabilities (d) | 4,912 | 6,067 | ||||
Secured equipment loans (e) | 2,172 | 6,025 | ||||
Lease related obligations (f) | 3,602 | 5,316 | ||||
549,758 | 513,444 | |||||
Total debt | 562,926 | 531,749 |
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
(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.
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.
(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 first 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. Amounts outstanding under the facility bear interest at LIBOR plus an applicable margin and have a standby fee of 1.125%.
The Facility has customary covenants for a revolving credit facility. Financial covenants include a requirement for the Company to maintain a leverage ratio, an interest coverage ratio, a minimum tangible net worth and a minimum liquidity amount as defined under the Facility. The Company was in compliance with these covenants as at September 30, 2022.
(c) Letter of Credit Facilities
The Gibraltar joint venture has in place a $15 million credit facility for the purpose of providing letters of credit (LC) to key suppliers of the Gibraltar Mine to assist with ongoing trade finance and working capital needs. Any LCs issued under the facility will be guaranteed by Export Development Canada (EDC) under its Account Performance Security Guarantee program. The facility is renewable annually, is unsecured and contains no financial covenants. As at September 30, 2022, a total of $3.75 million in LCs were issued and outstanding under this LC facility.
On April 8, 2022, the Company closed a US$4 million credit facility for the sole purpose of issuing LCs to certain key contractors in conjunction with the development of Florence Copper. Any LCs to be issued under this facility will also be guaranteed by EDC. The facility is renewable annually, is unsecured and contains no financial covenants. As at September 30, 2022, a total of US$1 million in LCs were issued and outstanding under this LC facility.
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
(d) Lease liabilities
Lease liabilities include the Company's outstanding lease liabilities under IFRS 16.
(e) Secured equipment loans
The equipment loans are secured by some of the existing mobile mining equipment at the Gibraltar mine and commenced between May 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%.
(f) 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.
(g) Debt continuity
The following schedule shows the continuity of total debt for the first nine months of 2022:
Total debt as at December 31, 2021 | 531,749 | |||
Lease additions | 2,528 | |||
Lease liabilities and equipment loans repayments | (14,595 | ) | ||
Unrealized foreign exchange loss | 41,350 | |||
Amortization of deferred financing charges | 1,894 | |||
Total debt as at September 30, 2022 | 562,926 |
12. DEFERRED REVENUE
| September 30, | December 31, |
| 2022 | 2021 |
Current: |
|
|
Customer advance payments (a) | 2,884 | 5,297 |
Osisko - silver stream agreement (b) | 5,167 | 8,144 |
Current portion of deferred revenue | 8,051 | 13,441 |
Long-term portion of deferred revenue (b) | 48,198 | 45,356 |
Total deferred revenue | 56,249 | 58,797 |
(a) Customer advance payments
At September 30, 2022, the Company had received advance payments from a customer on 1.0 million pounds (100% basis) of copper concentrate inventory.
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
(b) Silver stream purchase and sale agreement
The Company has entered into a silver stream purchase and sale agreement with Osisko Gold Royalties Ltd. ("Osisko"), whereby the Company received upfront cash deposit payments totalling $52.7 million for the sale of an equivalent amount of its 75% share of Gibraltar payable silver production until 5.9 million ounces of silver have been delivered to Osisko. After that threshold has been met, 35% of an equivalent amount of Taseko's share of all future payable silver production from Gibraltar will be delivered to Osisko. The Company receives no further cash consideration once silver deliveries are made under the agreement.
The following table summarizes changes in the Osisko deferred revenue:
Balance at January 1, 2021 | 52,758 | ||
Finance expense | 5,549 | ||
Amortization of deferred revenue | (4,807 | ) | |
Balance at December 31, 2021 | 53,500 | ||
Finance expense (Note 6) | 4,250 | ||
Amortization of deferred revenue | (4,385 | ) | |
Balance at September 30, 2022 | 53,365 |
13. OTHER FINANCIAL LIABILITIES
September 30, 2022 | December 31, 2021 | |
Long-term: |
|
|
Deferred share units (Note 14b) | 3,093 | 4,643 |
14. EQUITY
(a) Share capital
| Common shares (thousands) |
Common shares outstanding at January 1, 2022 | 284,892 |
Common shares issued under PSU plan | 866 |
Exercise of share options | 619 |
Common shares outstanding at September 30, 2022 | 286,377 |
The Company's authorized share capital consists of an unlimited number of common shares with no par value.
In January 2022, the Company issued 866,028 common shares as part of settlement of the performance share units that vested.
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
(b) Share-based compensation
Options (thousands) | Average price | |||||
Outstanding at January 1, 2022 | 8,270 | 1.33 | ||||
Granted | 2,113 | 2.58 | ||||
Exercised | (619 | ) | 0.97 | |||
Cancelled/forfeited | (91 | ) | 2.20 | |||
Expired | (184 | ) | 1.50 | |||
Outstanding at September 30, 2022 | 9,489 | 1.62 | ||||
Exercisable at September 30, 2022 | 7,357 | 1.45 |
During the nine month period ended September 30, 2022, the Company granted 2,113,000 (2021 - 2,402,000) share options to directors, executives and employees, exercisable at an average exercise price of $2.58 per common share (2021 - $1.60 per common share) over a five year period. The total fair value of options granted was $2,979 (2021 - $2,114) based on a weighted average grant-date fair value of $1.41 (2021 - $0.88) 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, 2022 | |
Expected term (years) |
| 5 |
Forfeiture rate |
| 0% |
Volatility |
| 64% |
Dividend yield |
| 0% |
Risk-free interest rate |
| 1.68% |
Weighted-average fair value per option |
| $1.41 |
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, 2022 | 1,786 | 2,780 | ||
Granted | 172 | 595 | ||
Settled | - | (875 | ) | |
Outstanding at September 30, 2022 | 1,958 | 2,500 |
During the nine month period ended September 30, 2022, 172,000 DSUs were issued to directors (2021 - 198,000) and 595,000 PSUs to senior executives (2021 - 530,000). The fair value of DSUs and PSUs granted was $2,532 (2021 - $1,235), with a weighted average fair value at the grant date of $2.58 per unit for the DSUs (2021 - $1.58 per unit) and $3.51 per unit for the PSUs (2021 - $1.74 per unit).
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
Share-based compensation expense (recovery) is comprised as follows:
| Three months ended September 30, | Nine months ended September 30, | ||||||||
2022 | 2021 | 2022 | 2021 | |||||||
Share options - amortization | 442 | 333 | 2,318 | 1,830 | ||||||
Performance share units - amortization | 371 | 295 | 1,590 | 857 | ||||||
Change in fair value of deferred share units | 333 | (511 | ) | (1,550 | ) | 2,000 | ||||
1,146 | 117 | 2,358 | 4,687 |
15. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share, calculated on a basic and diluted basis, is as follows:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Net income (loss) | (23,517 | ) | 22,485 | (23,696 | ) | 24,710 | ||||||
Weighted-average number of common shares | 286,377 | 283,885 | 286,167 | 283,400 | ||||||||
Effect of dilutive securities: | ||||||||||||
Stock options | - | 3,793 | - | 3,802 | ||||||||
Weighted-average number of diluted common shares | 286,377 | 287,678 | 286,167 | 287,202 | ||||||||
Earnings (loss) per common share | ||||||||||||
Basic earnings (loss) per share | (0.08 | ) | 0.08 | (0.08 | ) | 0.09 | ||||||
Diluted earnings (loss) per share | (0.08 | ) | 0.08 | (0.08 | ) | 0.09 |
16. 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, 2022 are presented in the following table:
Remainder of 2022 | 1,731 |
2023 | 11,762 |
2024 | 11,762 |
2025 | 4,702 |
2026 | 823 |
2027 and thereafter | - |
Total commitments | 30,780 |
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
As at September 30, 2022, the Company had commitments to incur capital expenditures of $16,365 (December 31, 2021 - $37,943) for Florence Copper and $3,150 (December 31, 2021 - $471) for the Gibraltar joint venture.
(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 $6,459 as at September 30, 2022.
The Company has also indemnified 100% of a surety bond issued by the Gibraltar joint venture to the Province of British Columbia. As a result, the Company has indemnified the joint venture partner's 25% share of this obligation, which amounted to $7,313 as at September 30, 2022.
17. SUPPLEMENTARY CASH FLOW INFORMATION
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||
Change in non-cash working capital items: | |||||||||||||
Accounts receivable | (6,015 | ) | (1,084) | 59 | (4,333 | ) | |||||||
Inventories | (7,765 | ) | (7,932 | ) | 6,401 | 1,048 | |||||||
Prepaids | 1,361 | 738 | (708 | ) | (1,263 | ) | |||||||
Accounts payable and accrued liabilities1 | 10,038 | 1,070 | 25,094 | (4,108 | ) | ||||||||
Advance payment on product sales | 19 | - | (2,412 | ) | - | ||||||||
Interest payable | 21 | 34 | 179 | 32 | |||||||||
Mineral tax payable | (437 | ) | (1,000 | ) | (1,937 | ) | (2,800 | ) | |||||
(2,778 | ) | (8,174 | ) | 26,676 | (11,424 | ) | |||||||
Non-cash investing and financing activities | |||||||||||||
Assets acquired under capital lease | 219 | 151 | 435 | 1,663 | |||||||||
Right-of-use assets | 1,977 | 82 | 2,378 | 4,334 |
1Excludes accounts payable and accrued liability changes on capital expenditures, for the Florence Copper project, which were $190 and $7,174 respectively, for the three and nine month period ended September 30, 2022.
18. 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 value of the senior secured notes is $436,902 and the carrying value is $540,101 at September 30, 2022. The fair value of all other financial assets and liabilities approximates their carrying value.
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
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.
| Level 1 | Level 2 | Level 3 | Total |
September 30, 2022 |
|
|
|
|
Financial assets designated as FVPL |
|
|
|
|
Derivative asset copper put and call options | - | 28,374 | - | 28,374 |
Derivative asset fuel call options | - | 678 | - | 678 |
| - | 29,052 | - | 29,052 |
Financial assets designated as FVOCI |
|
|
|
|
Marketable securities | 1,177 | - | - | 1,177 |
Investment in private companies | - | - | 1,200 | 1,200 |
Reclamation deposits | 434 | - | - | 434 |
| 1,611 | - | 1,200 | 2,811 |
December 31, 2021 |
|
|
|
|
Financial assets designated as FVPL |
|
|
|
|
Derivative asset copper put and call options | - | 3,904 | - | 3,904 |
| - | 3,904 | - | 3,904 |
Financial assets designated as FVOCI |
|
|
|
|
Marketable securities | 3,110 | - | - | 3,110 |
Investment in private companies | - | - | 1,200 | 1,200 |
Reclamation deposits | 434 | - | - | 434 |
| 3,544 | - | 1,200 | 4,744 |
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, 2022.
The fair value of the senior secured notes, a Level 1 instrument, is determined based upon publicly available information.
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, 2022, the Company had settlement receivables of $1,367 (at December 31, 2021 - $4,885).
The investment in private companies, a Level 3 instrument, is valued based on a management estimate. As this is an investment in a private exploration and development company, there are no observable market data inputs. At September 30, 2022 the determination of the estimated fair value of the investment includes comparison to the market capitalization of comparable public companies.
TASEKO MINES LIMITED
Notes to Condensed Consolidated Interim Financial Statements
(Cdn$ in thousands - Unaudited)
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 and collar 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 and collar option contracts are typically extended adding incremental quarters at established put strike prices to provide the necessary price protection.
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, | ||||
2022 | ||||
Copper increase/decrease by US$0.10/lb.1 | 182 |
1The analysis is based on the assumption that the period-end copper price increases/decreases US$0.10/lb, with all other variables held constant. At September 30, 2022, 1.3 million pounds of copper in concentrate were exposed to copper price movements. The closing exchange rate at September 30, 2022 of CAD/USD 1.3707.
The sensitivities in the above tables 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.