Condensed Consolidated Interim Financial Statements
March 31, 2023
(Unaudited)
| TASEKO MINES LIMITED |
| Condensed Consolidated Balance Sheets |
| (Cdn$ in thousands) |
| (Unaudited) |
| | | | | | | | | | |
| | | | | | March 31, | | | December 31, | |
| | | Note | | | 2023 | | | 2022 | |
| | | | | | | | | | |
| ASSETS | | | | | | | | | |
| Current assets | | | | | | | | | |
| Cash and equivalents | | | | | 102,265 | | | 120,858 | |
| Accounts receivable | | | | | 16,018 | | | 13,223 | |
| Inventories | | 9 | | | 108,725 | | | 92,846 | |
| Other financial assets | | 10 | | | 5,353 | | | 9,013 | |
| Prepaids | | | | | 4,316 | | | 4,931 | |
| | | | | | 236,677 | | | 240,871 | |
| | | | | | | | | | |
| Property, plant and equipment | | 11 | | | 1,134,920 | | | 1,029,240 | |
| Inventories | | 9 | | | 5,656 | | | – | |
| Other financial assets | | 10 | | | 9,248 | | | 2,989 | |
| Goodwill | | | | | 5,574 | | | 5,584 | |
| | | | | | 1,392,075 | | | 1,278,684 | |
| | | | | | | | | | |
| LIABILITIES | | | | | | | | | |
| Current liabilities | | | | | | | | | |
| Accounts payable and other liabilities | | | | | 77,036 | | | 66,716 | |
| Current portion of long-term debt | | 12 | | | 25,511 | | | 18,409 | |
| Current portion of deferred revenue | | 13 | | | 12,643 | | | 12,065 | |
| Current portion of other financial liabilities | | 14 | | | 15,262 | | | – | |
| Interest payable on senior secured notes | | | | | 4,731 | | | 14,221 | |
| Current income tax payable | | | | | 334 | | | 1,227 | |
| | | | | | 135,517 | | | 112,638 | |
| | | | | | | | | | |
| Long-term debt | | 12 | | | 583,537 | | | 568,160 | |
| Provision for environmental rehabilitation ("PER") | | | | | 131,945 | | | 113,725 | |
| Deferred and other tax liabilities | | | | | 73,722 | | | 76,255 | |
| Deferred revenue | | 13 | | | 47,569 | | | 47,620 | |
| Other financial liabilities | | 14 | | | 59,358 | | | 3,877 | |
| | | | | | 1,031,648 | | | 922,275 | |
| | | | | | | | | | |
| EQUITY | | | | | | | | | |
| Share capital | | 15 | | | 484,209 | | | 479,926 | |
| Contributed surplus | | | | | 52,143 | | | 55,795 | |
| Accumulated other comprehensive income ("AOCI") | | | | | 25,740 | | | 26,792 | |
| Deficit | | | | | (201,665 | ) | �� | (206,104 | ) |
| | | | | | 360,427 | | | 356,409 | |
| | | | | | 1,392,075 | | | 1,278,684 | |
| | | | | | | | | | |
| Subsequent event | | 12b | | | | | | | |
| Commitments and contingencies | | 17 | | | | | | | |
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 March 31, | |
| | | Note | | | 2023 | | | 2022 | |
| | | | | | | | | | |
| Revenues | | 4 | | | 115,519 | | | 118,333 | |
| Cost of sales | | | | | | | | | |
| Production costs | | 5 | | | (74,380 | ) | | (75,560 | ) |
| Depletion and amortization | | 5 | | | (12,027 | ) | | (13,506 | ) |
| Earnings from mining operations | | | | | 29,112 | | | 29,267 | |
| | | | | | | | | | |
| General and administrative | | | | | (3,300 | ) | | (2,701 | ) |
| Share-based compensation expense | | 15b | | | (3,385 | ) | | (3,080 | ) |
| Project related expense | | | | | (325 | ) | | (168 | ) |
| Loss on derivatives | | 6 | | | (4,216 | ) | | (9,833 | ) |
| Other income | | | | | 434 | | | 337 | |
| Income before financing costs and income taxes | | | | | 18,320 | | | 13,822 | |
| | | | | | | | | | |
| Finance expenses, net | | 7 | | | (11,388 | ) | | (11,989 | ) |
| Foreign exchange gain | | | | | 863 | | | 4,450 | |
| Income before income taxes | | | | | 7,795 | | | 6,283 | |
| | | | | | | | | | |
| Income tax expense | | 8 | | | (3,356 | ) | | (1,188 | ) |
| Net income | | | | | 4,439 | | | 5,095 | |
| | | | | | | | | | |
| Other comprehensive income (loss): | | | | | | | | | |
| Items that will remain permanently in other comprehensive income (loss): | | | | |
| Gain (loss) on financial assets | | | | | (385 | ) | | 912 | |
| Items that may in the future be reclassified to profit (loss): | | | | | | | | | |
| Foreign currency translation reserve | | | | | (667 | ) | | (3,577 | ) |
| Total other comprehensive loss | | | | | (1,052 | ) | | (2,665 | ) |
| | | | | | | | | | |
| Total comprehensive income | | | | | 3,387 | | | 2,430 | |
| | | | | | | | | | |
| Earnings per share | | | | | | | | | |
| Basic | | 16 | | | 0.02 | | | 0.02 | |
| Diluted | | 16 | | | 0.02 | | | 0.02 | |
| | | | | | | | | | |
| Weighted average shares outstanding (thousands) | | | | | | | | | |
| Basic | | 16 | | | 288,007 | | | 285,768 | |
| Diluted | | 16 | | | 291,039 | | | 289,500 | |
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 March 31, | |
| | | Note | | | 2023 | | | 2022 | |
| | | | | | | | | | |
| Operating activities | | | | | | | | | |
| Net income for the period | | | | | 4,439 | | | 5,095 | |
| Adjustments for: | | | | | | | | | |
| Depletion and amortization | | | | | 12,027 | | | 13,506 | |
| Income tax expense | | 8 | | | 3,356 | | | 1,188 | |
| Finance expenses, net | | 7 | | | 11,388 | | | 11,989 | |
| Share-based compensation expense | | 15b | | | 3,609 | | | 3,273 | |
| Loss on derivatives | | 6 | | | 4,216 | | | 9,833 | |
| Unrealized foreign exchange gain | | | | | (950 | ) | | (4,398 | ) |
| Amortization of deferred revenue | | | | | (1,372 | ) | | (1,721 | ) |
| Other operating activities | | | | | (249 | ) | | (577 | ) |
| Net change in working capital | | 18 | | | (8,465 | ) | | 13,565 | |
| Cash provided by operating activities | | | | | 27,999 | | | 51,753 | |
| | | | | | | | | | |
| Investing activities | | | | | | | | | |
| Gibraltar capitalized stripping costs | | 11 | | | (12,721 | ) | | (15,142 | ) |
| Gibraltar sustaining capital expenditures | | 11 | | | (4,691 | ) | | (3,572 | ) |
| Gibraltar capital project expenditures | | 11 | | | (7,338 | ) | | (3,590 | ) |
| Florence Copper development costs | | 11 | | | (9,874 | ) | | (20,958 | ) |
| Other project development costs | | 11 | | | (273 | ) | | (41 | ) |
| Acquisition of Cariboo Copper Corp., net | | 3,14 | | | 2,948 | | | - | |
| Purchase of copper price options | | 6 | | | - | | | (4,295 | ) |
| Other investing activities | | | | | (19 | ) | | (258 | ) |
| Cash used for investing activities | | | | | (31,968 | ) | | (47,856 | ) |
| | | | | | | | | | |
| Financing activities | | | | | | | | | |
| Interest paid | | | | | (20,725 | ) | | (18,678 | ) |
| Repayment of equipment loans and leases | | | | | (5,737 | ) | | (5,049 | ) |
| Revolving credit facility advance | | 12b | | | 13,518 | | | - | |
| Settlement of performance share units | | | | | (1,922 | ) | | (1,927 | ) |
| Proceeds from exercise of stock options | | | | | 291 | | | 534 | |
| Cash used for financing activities | | | | | (14,575 | ) | | (25,120 | ) |
| Effect of exchange rate changes on cash and equivalents | | | | | (49 | ) | | (2,817 | ) |
| Decrease in cash and equivalents | | | | | (18,593 | ) | | (24,040 | ) |
| Cash and equivalents, beginning of period | | | | | 120,858 | | | 236,767 | |
| Cash and equivalents, end of period | | | | | 102,265 | | | 212,727 | |
| | | | | | | | | | |
| Supplementary cash flow disclosures | | 18 | | | | | | | |
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, 2022 | | 476,599 | | | 55,403 | | | 6,649 | | | (180,133 | ) | | 358,518 | |
| Share-based compensation | | - | | | 2,277 | | | - | | | - | | | 2,277 | |
| Exercise of options | | 814 | | | (280 | ) | | - | | | - | | | 534 | |
| Settlement of performance share units | | 2,217 | | | (4,144 | ) | | - | | | - | | | (1,927 | ) |
| Total comprehensive income for the period | | - | | | - | | | (2,665 | ) | | 5,095 | | | 2,430 | |
| Balance at March 31, 2022 | | 479,630 | | | 53,256 | | | 3,984 | | | (175,038 | ) | | 361,832 | |
| | | | | | | | | | | | | | | | |
| Balance at January 1, 2023 | | 479,926 | | | 55,795 | | | 26,792 | | | (206,104 | ) | | 356,409 | |
| Share-based compensation | | - | | | 2,262 | | | - | | | - | | | 2,262 | |
| Exercise of options | | 450 | | | (159 | ) | | - | | | - | | | 291 | |
| Settlement of performance share units | | 3,833 | | | (5,755 | ) | | - | | | - | | | (1,922 | ) |
| Total comprehensive income (loss) for the period | | - | | | - | | | (1,052 | ) | | 4,439 | | | 3,387 | |
| Balance at March 31, 2023 | | 484,209 | | | 52,143 | | | 25,740 | | | (201,665 | ) | | 360,427 | |
The accompanying notes are an integral part of these consolidated interim financial statements.
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 month period ended March 31, 2023 comprise the Company, its subsidiaries and its 87.5% effective 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.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of compliance
These unaudited condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting and follow the same accounting policies and methods of application as the Company's most recent annual consolidated financial statements. These unaudited 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 annual financial statements of the Company as at and for the year ended December 31, 2022, prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").
These unaudited condensed consolidated interim financial statements were authorized for issue by the Company's Audit and Risk Committee on May 3, 2023.
(b) Use of judgments and estimates
In preparing these unaudited condensed consolidated interim financial statements, management has made judgments, estimates and assumptions that affect the application of accounting policies, including the accounting for the Cariboo acquisition (Note 3) 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 annual consolidated financial statements as at and for the year ended December 31, 2022.
(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.
3. ACQUISITION OF CARIBOO COPPER CORPORATION
On March 15, 2023 ("Acquisition Date"), the Company completed the acquisition of an additional 12.5% interest in the Gibraltar Mine from Sojitz Corporation ("Sojitz"). Gibraltar is operated through a joint venture which is owned 75% by Taseko and 25% by Cariboo Copper Corporation ("Cariboo"). Under the terms of the agreement, Taseko has acquired Sojitz's 50% interest in Cariboo and now holds directly and indirectly an effective 87.5% interest in the Gibraltar Mine.
The acquisition price consists of a minimum amount of $60 million payable over a five-year period and potential contingent performance payments depending on Gibraltar mine copper revenues and copper prices over the next five years. An initial $10 million has been paid to Sojitz upon closing and the remaining minimum amount will be paid in $10 million annual instalments over the next five years. There is no interest payable on the minimum amounts.
Taseko acquired Sojitz's 50% interest in Cariboo and become a party to the existing Cariboo shareholders agreement with Dowa Metals & Mining Co., Ltd (25%) and Furukawa Co., Ltd (25%). There will be no change to the offtake contracts established in 2010 and Dowa and Furukawa will continue to receive 30% of Gibraltar's copper concentrate offtake. There will be no impact to the operation of the Gibraltar Joint Venture.
The contingent performance payments are payable annually for five years only if the average LME copper price exceeds US$3.50 per pound in a year. The payments will be calculated by multiplying Gibraltar mine copper revenues by a price factor, which is based on a sliding scale ranging from 0.38% at US$3.50 per pound copper to a maximum of 2.13% at US$5.00 per pound copper or above. Total contingent payments cannot exceed $57 million over the five-year period, limiting the acquisition cost to a maximum of $117 million.
The total purchase consideration was discounted to determine fair value and the amounts as at the Acquisition Date are estimated as follows:
| Fixed instalments payable | | 51,387 | |
| Performance payments payable | | 28,010 | |
| Total fair value of consideration payable | | 79,397 | |
The Company has joint control over Cariboo which is a joint arrangement and as such proportionately consolidates its 50% portion of all the Cariboo assets, liabilities, income and expenses. The purchase consideration has been allocated to the assets acquired and liabilities assumed, based upon their estimated fair values at the date of acquisition. The following sets forth the allocation of the preliminary purchase price:
| Cash and cash equivalents | | 13,467 | |
| Accounts receivable and other assets | | 1,525 | |
| Reclamation deposits | | 6,262 | |
| Inventory | | 15,860 | |
| Property, plant and equipment | | 72,304 | |
| Deferred tax asset | | 5,594 | |
| Accounts payable and other liabilities | | (8,535 | ) |
| Debt | | (9,144 | ) |
| Provision for environmental rehabilitation | | (17,936 | ) |
| Total fair value of net assets acquired | | 79,397 | |
From the Acquisition Date to March 31, 2023, $1.3 million of the Company's consolidated net income relates to its share of Cariboo.
The values of assets and liabilities acquired are based on preliminary fair values, which are subject to change upon finalization of a complete valuation. Based on the complete valuation, the Company will also determine whether the consideration paid compared to the fair value of assets and liabilities acquired results in a bargain purchase. If the acquisition had taken place at the beginning of the year, the unaudited consolidated revenue for the three-month period ended March 31, 2023 would have been approximately $130,546 and net earnings of the Company would have been approximately $6,507.
4. REVENUE
| | | Three months ended
March 31, | |
| | | 2023 | | | 2022 | |
| Copper contained in concentrate | | 109,123 | | | 114,455 | |
| Copper price adjustments on settlement | | (202 | ) | | 660 | |
| Molybdenum concentrate | | 7,749 | | | 4,070 | |
| Molybdenum price adjustments on settlement | | 1,831 | | | 102 | |
| Silver (Note 13) | | 1,532 | | | 1,519 | |
| Total gross revenue | | 120,033 | | | 120,806 | |
| Less: Treatment and refining costs | | (4,514 | ) | | (2,473 | ) |
| Revenue | | 115,519 | | | 118,333 | |
5. COST OF SALES
| | | Three months ended
March 31, | |
| | | 2023 | | | 2022 | |
| Site operating costs | | 74,438 | | | 59,859 | |
| Transportation costs | | 5,104 | | | 5,115 | |
| Changes in inventories of finished goods | | 399 | | | 7,577 | |
| Changes in inventories of ore stockpiles | | (5,561 | ) | | 3,009 | |
| Production costs | | 74,380 | | | 75,560 | |
| Depletion and amortization | | 12,027 | | | 13,506 | |
| Cost of sales | | 86,407 | | | 89,066 | |
Site operating costs include personnel costs, non-capitalized waste stripping costs, repair and maintenance costs, consumables, operating supplies and external services.
6. DERIVATIVE INSTRUMENTS
During the three month period ended March 31, 2023, the Company purchased zero cost copper collar contracts for 42 million pounds of copper with maturity dates ranging from July through to December 2023, with a minimum copper strike price of US$3.75 per pound and a ceiling price of US$4.70 per pound.
During the three month period ended March 31, 2023, the Company purchased fuel call options for 12 million litres of diesel with maturity dates ranging from July to December 2023, at a total cost of $941.
The Company recognized a net realized loss of $1,488 on copper collar contracts for 15 million pounds with a minimum strike price of US$3.75 per pound and a ceiling price of US$4.72 per pound, that expired out-of-the-money during the three month period ended March 31, 2023.
| | | Three months ended
March 31, | |
| | | 2023 | | | 2022 | |
| Net realized loss on settled copper options | | 1,488 | | | 2,347 | |
| Net unrealized loss on outstanding copper options | | 1,644 | | | 7,461 | |
| Realized loss on fuel call options | | 538 | | | - | |
| Unrealized loss on fuel call options | | 546 | | | 25 | |
| | | 4,216 | | | 9,833 | |
Details of the outstanding copper price option contracts at March 31, 2023 are summarized in the following table:
| | Quantity | Strike price | Period | Cost | Fair value |
| Copper collar contracts | 15 million lbs | US$3.75/per lb
US$4.72/per lb | Q2 2023 | 1,488 | 368 |
| Copper collar contracts | 42 million lbs | US$3.75/per lb
US$4.70/per lb | H2 2023 | Zero-cost | 2,686 |
7. FINANCE EXPENSES
| | | Three months ended
March 31, | |
| | | 2023 | | | 2022 | |
| Interest expense | | 11,541 | | | 10,182 | |
| Amortization of financing fees | | 671 | | | 508 | |
| Finance expense - deferred revenue (Note 13) | | 1,473 | | | 1,373 | |
| Accretion on PER | | 504 | | | 92 | |
| Less: interest expense capitalized | | (1,880 | ) | | - | |
| Finance income | | (921 | ) | | (166 | ) |
| | | 11,388 | | | 11,989 | |
For the three month period ended March 31, 2023, interest expense includes $406 (2022 - $324) from lease liabilities and lease related obligations.
8. INCOME TAX
| | | Three months ended
March 31, | |
| | 2023 | | | 2022 | |
| Current income tax expense | | 544 | | | 519 | |
| Deferred income tax expense | | 2,812 | | | 669 | |
| | | 3,356 | | | 1,188 | |
9. INVENTORIES
| | | March 31, | | | December 31, | |
| | | 2023 | | | 2022 | |
| Ore stockpiles | | 61,913 | | | 45,306 | |
| Copper contained in concentrate | | 11,350 | | | 12,105 | |
| Molybdenum concentrate | | 773 | | | 417 | |
| Materials and supplies | | 40,345 | | | 35,018 | |
| | | 114,381 | | | 92,846 | |
Included in the ore stockpiles inventory is oxide ore at a cost of $5,656 that is classified on the balance sheet as a long-term asset.
10. OTHER FINANCIAL ASSETS
| | | March 31, | | | December 31, | |
| | | 2023 | | | 2022 | |
| Current: | | | | | | |
| Marketable securities | | 2,183 | | | 2,568 | |
| Copper price options (Note 6) | | 3,054 | | | 6,184 | |
| Fuel call options (Note 6) | | 116 | | | 261 | |
| | | 5,353 | | | 9,013 | |
| Long-term: | | | | | | |
| Investment in private companies | | 1,200 | | | 1,200 | |
| Reclamation deposits | | 6,696 | | | 434 | |
| Restricted cash | | 1,352 | | | 1,355 | |
| | | 9,248 | | | 2,989 | |
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.
11. PROPERTY, PLANT & EQUIPMENT
The following schedule shows the continuity of property, plant and equipment net book value for the three months ended March 31, 2023:
| | | Three months
ended March 31,
2023 | |
| Net book value January 1, 2023 | | 1,029,240 | |
| Additions: | | | |
| Gibraltar capitalized stripping costs | | 14,408 | |
| Gibraltar sustaining capital expenditures | | 4,758 | |
| Gibraltar capital projects | | 7,338 | |
| Cariboo acquisition (Note 3) | | 73,611 | |
| Florence Copper development costs | | 14,520 | |
| Yellowhead development costs | | 130 | |
| Aley development costs | | 143 | |
| Other items: | | | |
| Right of use assets | | 5,959 | |
| Rehabilitation costs asset | | 36 | |
| Disposals | | 27 | |
| Foreign exchange translation and other | | (704 | ) |
| Depletion and amortization | | (14,546 | ) |
| Net book value at March 31, 2023 | | 1,134,920 | |
Net book value | | Gibraltar
Mine | | | Florence
Copper | | | Yellowhead | | | Aley | | | Other | | | Total | |
| At December 31, 2022 | | 610,399 | | | 380,987 | | | 21,950 | | | 14,873 | | | 1,031 | | | 1,029,240 | |
| Cariboo acquisition (Note 3) | | 73,611 | | | - | | | - | | | - | | | - | | | 73,611 | |
| Net additions | | 32,490 | | | 14,520 | | | 130 | | | 143 | | | - | | | 47,283 | |
| Changes in rehabilitation cost asset | | 36 | | | - | | | - | | | - | | | - | | | 36 | |
| Depletion and amortization | | (14,480 | ) | | 23 | | | - | | | - | | | (89 | ) | | (14,546 | ) |
| Foreign exchange translation | | - | | | (704 | ) | | - | | | - | | | - | | | (704 | ) |
| At March 31, 2023 | | 702,056 | | | 394,826 | | | 22,080 | | | 15,016 | | | 942 | | | 1,134,920 | |
For the three month period ended March 31, 2023, the Company capitalized development costs of $14,520 for the Florence Copper project, which includes $1,880 of capitalized borrowing costs. Since its acquisition of Florence Copper in November 2014, the Company has incurred and capitalized a total of $292.4 million in project development and other costs.
Non-cash additions to property, plant and equipment of Gibraltar include $1,687 of depreciation on mining assets related to capitalized stripping.
Since January 1, 2020, development costs for Yellowhead of $5,840 have been capitalized as mineral property, plant and equipment.
Depreciation related to the right of use assets for the three month period ended March 31, 2023 was $2,249 (2022: $1,057).
12. DEBT
| | | March 31, | | | December 31, | |
| | | 2023 | | | 2022 | |
| Current: | | | | | | |
| Lease liabilities (d) | | 10,590 | | | 7,613 | |
| Secured equipment loans (e) | | 9,373 | | | 8,489 | |
| Lease related obligations (f) | | 5,548 | | | 2,307 | |
| | | 25,511 | | | 18,409 | |
| Long-term: | | | | | | |
| Senior secured notes (a) | | 533,626 | | | 534,118 | |
| Revolving credit facility (b) | | 12,396 | | | (925 | ) |
| Lease liabilities (d) | | 11,023 | | | 7,408 | |
| Secured equipment loans (e) | | 26,492 | | | 24,550 | |
| Lease related obligations (f) | | - | | | 3,009 | |
| | | 583,537 | | | 568,160 | |
| Total debt | | 609,048 | | | 586,569 | |
(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 due on June 15, 2022. The remaining proceeds, net of transaction costs, call premium and accrued interest, of approximately $167 million (US$131 million) were 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. On a change of control, the 2026 Notes are redeemable at the option of the holder at a price of 101%.
(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 will be available for capital expenditures, working capital and general corporate purposes.
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 March 31, 2023.
On February 1, 2023, the Company entered into an agreement to extend the maturity date of the Facility by an additional year to July 2, 2026. In addition to the one-year extension of the Facility, the lender has also agreed to an accordion feature, which will allow the amount of the Facility to be increased by US$30 million, for a total of US$80 million, subject to credit approval and other conditions.
Amounts outstanding under the facility bear interest at the Adjusted Term SOFR rate plus an applicable margin and have a standby fee of 1.00%. As at March 31, 2023, a total of $13,518 was advanced under the Facility, which was subsequently repaid on April 17, 2023.
(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 March 31, 2023, a total of $3.75 million in LCs were issued and outstanding under this LC facility (December 31, 2022 - $3.75 million).
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.
(d) Lease liabilities
Lease liabilities include the Company's outstanding lease liabilities under IFRS 16.
(e) Secured equipment loans
The equipment loans as at March 31, 2023 are secured by some of the existing mobile mining equipment at the Gibraltar mine and commenced between August 2019 and December 2022 with monthly repayment terms of 48 months and with interest rates ranging between 6.4% to 8.9%.
(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 three months ended March 31, 2023:
| Total debt as at January 1, 2023 | | 586,569 | |
| Revolving credit facility advance | | 13,518 | |
| Lease additions | | 6,043 | |
| Lease liabilities and equipment loans repayments | | (5,737 | ) |
| Lease and equipment loans from Cariboo acquisition (Note 3) | | 9,144 | |
| Unrealized foreign exchange gain | | (1,160 | ) |
| Amortization of deferred financing charges | | 671 | |
| Total debt as at March 31, 2023 | | 609,048 | |
13. DEFERRED REVENUE
| | | March 31, | | | December 31, | |
| | | 2023 | | | 2022 | |
| Current: | | | | | | |
| Customer advance payments (a) | | 6,882 | | | 6,456 | |
| Osisko - silver stream agreement (b) | | 5,761 | | | 5,609 | |
| Current portion of deferred revenue | | 12,643 | | | 12,065 | |
| Long-term portion of deferred revenue (b) | | 47,569 | | | 47,620 | |
| Total deferred revenue | | 60,212 | | | 59,685 | |
(a) Customer advance payments
At March 31, 2023, the Company received advance payments from a customer on 1.7 million pounds (100% basis) of copper concentrate inventory (December 31, 2022 - 2.0 million pounds).
(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 December 31, 2022 | | 53,229 | |
| Finance expense (Note 7) | | 1,473 | |
| Amortization of deferred revenue | | (1,372 | ) |
| Balance at March 31, 2023 | | 53,330 | |
14. OTHER FINANCIAL LIABILITIES
| | March 31,
2023 | | | December 31,
2022 | |
| Long-term: | | | | | | |
| Fixed consideration payable to Sojitz (Note 3) | | 41,387 | | | - | |
| Performance payments payable to Sojitz (Note 3) | | 28,010 | | | - | |
| Deferred share units (Note 15b) | | 5,154 | | | 3,877 | |
| Restricted share units (Note 15b) | | 69 | | | - | |
| Balance at March 31, 2023 | | 74,620 | | | 3,877 | |
| Less current portion: | | | | | | |
| Fixed consideration payable to Sojitz (Note 3) | | 9,346 | | | - | |
| Performance payments payable to Sojitz (Note 3) | | 5,916 | | | - | |
| Long-term portion of other financial liabilities | | 59,358 | | | 3,877 | |
15. EQUITY
(a) Share capital
| | | Common shares
(thousands) | |
| Common shares outstanding at December 31, 2022 | | 286,493 | |
| Common shares issued under PSU plan | | 1,597 | |
| Exercise of share options | | 327 | |
| Common shares outstanding at March 31, 2023 | | 288,417 | |
The Company's authorized share capital consists of an unlimited number of common shares with no par value.
In January 2023, the Company issued 1,597,177 common shares as part of settlement of the performance share units that vested.
(b) Share-based compensation
| | | Options
(thousands) | | | Average price | |
| Outstanding at January 1, 2023 | | 9,288 | | | 1.62 | |
| Granted | | 2,629 | | | 2.38 | |
| Exercised | | (327 | ) | | 0.89 | |
| Cancelled/forfeited | | (72 | ) | | 2.44 | |
| Expired | | (1,166 | ) | | 2.86 | |
| Outstanding at March 31, 2023 | | 10,352 | | | 1.69 | |
| Exercisable at March 31, 2023 | | 7,950 | | | 1.47 | |
During the three month period ended March 31, 2023, the Company granted 2,629,000 (2022 - 2,113,000) share options to directors, executives and employees, exercisable at an average exercise price of $2.38 per common share (2022 - $2.58 per common share) over a five year period. The total fair value of options granted was $3,575 (2022 - $2,979) based on a weighted average grant-date fair value of $1.36 (2022 - $1.41) 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:
| Expected term (years) | | 5.0 | |
| Forfeiture rate | | 0% | |
| Volatility | | 66% | |
| Dividend yield | | 0% | |
| Risk-free interest rate | | 2.9% | |
| Weighted-average fair value per option | | $1.36 | |
Deferred Performance and Restricted Share Units
| | | RSUs
(thousands) | | | DSUs
(thousands) | | | PSUs
(thousands) | |
| Outstanding at January 1, 2023 | | - | | | 1,958 | | | 2,500 | |
| Granted | | 350 | | | 343 | | | 830 | |
| Settled | | - | | | - | | | (1,375 | ) |
| Outstanding at March 31, 2023 | | 350 | | | 2,301 | | | 1,955 | |
During the three month period ended March 31, 2023, 342,750 DSUs were issued to directors (2022 - 172,000) and 830,000 PSUs to senior executives (2022 - 595,000). The fair value of DSUs and PSUs granted was $4,344 (2022 - $2,532), with a weighted average fair value at the grant date of $2.38 per unit for the DSUs (2022 - $2.58 per unit) and $4.25 per unit for the PSUs (2022 - $3.51 per unit).
During the three month period ended March 31, 2023, the Company established a non-executive employee Restricted Share Units ("RSUs") plan for employees as long-term incentive compensation and granted 350,000 units, with a weighted average fair value at grant date of $2.38 per unit for the RSUs.
Share-based compensation expense is comprised as follows:
| | | Three months ended
March 31, | |
| | | 2023 | | | 2022 | |
| Share options - amortization | | 1,718 | | | 1,430 | |
| Performance share units - amortization | | 545 | | | 848 | |
| Restricted share units - amortization | | 69 | | | - | |
| Change in fair value of deferred share units | | 1,277 | | | 995 | |
| | | 3,609 | | | 3,273 | |
16. EARNINGS PER SHARE
Earnings per share, calculated on a basic and diluted basis, is as follows:
| | | Three months ended
March 31, | |
| | | 2023 | | | 2022 | |
| Net income attributable to common shareholders - basic and diluted | | 4,439 | | | 5,095 | |
| (in thousands of common shares) | | | | | | |
| Weighted-average number of common shares | | 288,007 | | | 285,768 | |
| Effect of dilutive securities: | | | | | | |
| Stock options | | 3,032 | | | 3,732 | |
| Weighted-average number of diluted common shares | | 291,039 | | | 289,500 | |
| Earnings per common share | | | | | | |
| Basic earnings per share | | 0.02 | | | 0.02 | |
| Diluted earnings per share | | 0.02 | | | 0.02 | |
17. 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 March 31, 2023 are presented in the following table:
| Remainder of 2023 | | 9,760 | |
| 2024 | | 13,586 | |
| 2025 | | 5,463 | |
| 2026 | | 960 | |
| 2027 | | - | |
| 2028 and thereafter | | - | |
| Total commitments | | 29,769 | |
As at March 31, 2023, the Company had commitments to incur capital expenditures of $7,372 (December 31, 2022 - $9,265) for Florence Copper and $3,785 (December 31, 2022 - $2,795) 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 an 87.5% interest. As a result, the Company has guaranteed the joint venture partner's 12.5% share of this debt which amounted to $5,228 as at March 31, 2023.
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 12.5% share of this obligation, which amounted to $7,313 as at March 31, 2023.
(c) Mitsui Financing
On December 19, 2022, the Company signed agreements with Mitsui & Co. (U.S.A.) Inc. ("Mitsui") to form a strategic partnership to develop the Company's Florence Copper project (the "Project"). Mitsui has committed to an initial investment of US$50 million conditional on receipt of the final Underground Injection Control permit from the Environmental Protection Agency, with proceeds to be used for construction of the commercial production facility. The initial investment will be in the form of a copper stream agreement (the "Copper Stream") on 2.67% of the copper produced at Florence Copper and Mitsui to pay a delivery price equal to 25% of the market price of copper delivered under the contract.
In addition, Mitsui has acquired an option to invest an additional US$50 million for a 10% equity interest in Florence Copper (the "Equity Option"). The Equity Option is exercisable by Mitsui at any time up to three years following completion of construction of the commercial production facility. If Mitsui elects to exercise its Equity Option, the Copper Stream will terminate. If the Equity Option is not exercised by Mitsui by its expiry date, the Company will have the right to buy-back 100% of the Copper Stream, otherwise, it will terminate when 40 million pounds of copper have been delivered under the agreement.
As part of the arrangement, Taseko and Mitsui have entered into an offtake contract for 81% of the copper cathode produced at Florence during the initial years of production. The initial offtake agreement will cease and be replaced with a marketing agency agreement if the Equity Option is exercised by Mitsui. Mitsui's offtake entitlement would also reduce to 30% if the Equity Option is not exercised by its expiry date until the Copper Stream deposit has been reduced to nil.
For accounting purposes, the Mitsui agreements include derivatives that are required to be fair valued at each reporting period. The Company has determined that the fair value of the derivatives is negligible as of March 31, 2023 based on the contingent nature of the Mitsui agreements and the consideration of other relevant factors.
18. SUPPLEMENTARY CASH FLOW INFORMATION
| | | Three months ended
March 31, | |
| | | 2023 | | | 2022 | |
| Change in non-cash working capital items: | | | | | | |
| Accounts receivable | | (1,546 | ) | | 2,862 | |
| Inventories | | (5,612 | ) | | 8,194 | |
| Prepaids | | 672 | | | 1,028 | |
| Accounts payable and accrued liabilities1 | | (1,090 | ) | | 8,341 | |
| Advance payment on product sales | | 426 | | | (5,297 | ) |
| Interest payable | | (130 | ) | | (63 | ) |
| Mineral tax payable | | (1,185 | ) | | (1,500 | ) |
| | | (8,465 | ) | | 13,565 | |
| Non-cash investing and financing activities | | | | | | |
| Cariboo acquisition, net assets (Note 3) | | 65,930 | | | - | |
| Assets acquired under capital lease | | 69 | | | 164 | |
| Right-of-use assets | | 5,959 | | | 122 | |
1Excludes accounts payable and accrued liability changes on capital expenditures.
19. 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 $492,531 and the carrying value is $533,626 at March 31, 2023. 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.
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| March 31, 2023 | | | | | | | | | | | | |
| Financial assets designated as FVPL | | | | | | | | | | | | |
| Derivative asset copper put and call options | | - | | | 3,054 | | | - | | | 3,054 | |
| Derivative asset fuel call options | | - | | | 116 | | | - | | | 116 | |
| | | - | | | 3,170 | | | - | | | 3,170 | |
| Financial assets designated as FVOCI | | | | | | | | | | | | |
| Marketable securities | | 2,183 | | | - | | | - | | | 2,183 | |
| Investment in private companies | | - | | | - | | | 1,200 | | | 1,200 | |
| Reclamation deposits | | 6,696 | | | - | | | - | | | 6,696 | |
| | | 8,879 | | | - | | | 1,200 | | | 10,079 | |
| December 31, 2022 | | | | | | | | | | | | |
| Financial assets designated as FVPL | | | | | | | | | | | | |
| Derivative asset copper put and call options | | - | | | 6,184 | | | - | | | 6,184 | |
| Derivative asset fuel call options | | - | | | 261 | | | - | | | 261 | |
| | | - | | | 6,445 | | | - | | | 6,445 | |
| Financial assets designated as FVOCI | | | | | | | | | | | | |
| Marketable securities | | 2,568 | | | - | | | - | | | 2,568 | |
| Investment in private companies | | - | | | - | | | 1,200 | | | 1,200 | |
| Reclamation deposits | | 434 | | | - | | | - | | | 434 | |
| | | 3,002 | | | - | | | 1,200 | | | 4,202 | |
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 March 31, 2023.
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 March 31, 2023, the Company had net settlement payables of $100 (December 31, 2022 - settlement payables of $209).
The investment in private companies, a Level 3 instrument, are 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 March 31, 2023, the determination of the estimated fair value of the investment includes comparison to the market capitalization of comparable public companies.
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 March 31, |
| 2023 |
Copper increase/decrease by US$0.10/lb.1 | 510 |
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 March 31, 2023, 3.8 million pounds of copper in concentrate were exposed to copper price movements. The closing exchange rate at March 31, 2023 of CAD/USD 1.35.
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.
