VvoeVale
Taseko Mines (NYSE:TGB) reported that the public comment period for Florence Copper’s draft Underground Injection Control permit involved comments that were nearly unanimously supportive of the project. This sets the stage for Florence Copper to receive the final UIC permit, although I wouldn’t be surprised at this point if it takes a couple quarters to get that permit.
With copper staying in the mid-$3 range, Taseko will probably need to utilize its US$50 million credit facility (or arrange a similar amount of project financing) to help fund Florence Copper. This is in-line with my previous expectations for Florence Copper funding at that copper price, although Taseko should benefit a bit from the weaker Canadian dollar. Most of Gibraltar’s operating costs are in Canadian dollars, so the move from an exchange rate of US$1.00 to CAD$1.29 to the current exchange rate of US$1.00 to CAD$1.39 has the same estimated effect on Taseko’s cash flow as a US$0.15 per pound increase in copper prices.
Public Comment Period
The public comment period for Florence Copper’s draft Underground Injection Control permit appears to have gone well. Taseko noted that over 98% of the written comments were supportive of the Florence Copper project, while all 27 participants at the public hearing supported the project.
I have a high level of confidence that Florence Copper will receive the final UIC permit given the near unanimous level of support for the project. Although the current federal administration is generally not friendly towards resource projects, there is a need to maintain domestic copper supplies and Florence Copper has a low level of controversy compared to many other potential copper mines/projects.
I am less confident about projecting when Florence Copper will receive the final UIC permit though given the slow past permitting pace. Taseko noted that it completed its review of the draft UIC permit in early December 2021, and the EPA advised Taseko that the public comment period for the draft UIC permit was expected to start in February 2022. Instead, the public comment period started six months later in August 2022.
Thus while I’d hope for the final UIC permit to be issued in late Q4 2022 to Q1 2023, I am setting my expectation more for Q2 2023.
Cash Flow And Copper Prices
Copper prices have been hovering in the mid-$3 range since July. At US$3.50 copper I had estimated that Taseko could generate around US$45 million in positive cash flow between Q3 2022 and Q2 2023. This would give Taseko around US$182 million in cash on hand by the end of Q2 2023, by which point it should have the final UIC permit in hand.
That cash flow estimate was based on an exchange rate of roughly US$1.00 to CAD$1.29 though. Taseko previously mentioned that around 80% of Gibraltar costs were in Canadian dollars, so a weaker Canadian dollar does have some benefit. At US$3.50 copper and the current exchange rate of US$1.00 to CAD$1.39 instead, Taseko’s estimated cash flow would improve by around US$15 million during this period, giving it US$197 million in cash on hand by the end of Q2 2023.
This projection is consistent with Fitch’s view that Taseko can fund Florence Copper’s construction mostly with cash on hand, but may also utilize a modest amount (such as up to US$50 million) in project financing.
Conclusion
Florence Copper is moving along after receiving the draft UIC permit and going through the public comment period with a high amount of support. I expect it to be granted the final UIC permit, although it may still take some time to receive this permit given the slow speed of the EPA process.
Copper prices have stabilized in the mid-$3 range, which allows Taseko to build up a bit more cash while it waits for the final permit. At US$3.50 copper and the current exchange rate, Taseko should be able to build its cash position to nearly US$200 million by mid-2023. This would be a scenario where it should mostly be able to pay for Florence Copper’s construction costs with cash on hand, but probably would also ending up using its credit facility or a small amount of project financing as well.
