Good morning, ladies and gentlemen. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to Taseko's third quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star two. I would now like to turn the conference over to Mr. Brian Bergot. Please go ahead, sir.
Thank you, operator. Welcome, everyone, and thank you for joining Taseko's third quarter conference call. The news release and regulatory filing announcing our financial and operational results was issued yesterday after market close and is available on our website at tasekomines.com and on SEDAR. I am joined today in Vancouver by Taseko's President and CEO, Stuart McDonald, Taseko's Chief Financial Officer, Bryce Hamming, and our Senior VP Operations, Richard Tremblay. As usual, before we get into opening remarks by management, I would like to remind our listeners that our comments and answers to your questions will contain forward-looking information. This information, by its nature, is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome.
For further information on these risks and uncertainties, I encourage you to read the cautionary note that accompanies our third quarter MD&A and the related news release, as well as the risk factors particular to our company. I would also like to point out that we will use various non-GAAP measures during the call. You can find explanations and reconciliations regarding these measures in the related news release. Following opening remarks, we will open the phone lines to analysts and investors for a question and answer session. I will now turn the call over to Stuart for his remarks.
Thank you, Brian, and good morning, everyone, and thanks for being on the call today on Taseko's third quarter operational and financial results. Before we get into those details, let's start with an update on our Florence Copper project, as there were a number of positive developments this quarter. In mid-August, the U.S. EPA issued the draft Underground Injection Control permit. This is the final key permit required for the commercial production facility. Although the timing was several months later than we would have liked, the permit wording was as expected. No surprises. The public comment period ended in late September, and the feedback from local residents, community leaders, and statewide organizations was overwhelmingly positive. 98% of the written comments were supportive, and there was no negative commentary at the public hearing.
The positive response we've received through both the state and EPA processes is a direct result of the prudent approach that we've taken in developing the project. The efforts we've made to inform the Florence community and, of course, the low impact nature of the mining operation. For next steps, it's back to the EPA now to respond to the public comments received. We've reviewed all the comments and have had initial discussions with the EPA, and based on that, we're confident they'll be able to address all of the comments before issuing the final UIC permit in the coming months. We'll be ready to begin construction at that time. Switching to Gibraltar now, and the improved copper production in Q3 drove a significant rebound in financial performance.
CAD 34 million of adjusted EBITDA and CAD 19 million of earnings from mining operation, both much stronger than the last quarter. Copper production at Gibraltar increased to 28 million pounds, which is nearly a 40% increase over Q2. Mainly a result of higher copper grades, but also from an increase in mill throughput. In fact, the two mills averaged over 89,000 tons a day for the period. That's 5% above design capacity and our best quarter yet in terms of throughput. We're definitely benefiting from the softer Gibraltar Pit ore as we expected. Head grade, on the other hand, while it did improve over Q2, was lower than where we expected it to be, and that also impacted recoveries. We're seeing higher than normal mining dilution in the Gibraltar Pit, and we have a number of operational initiatives underway to reduce that going forward.
It's a work in progress. Although we do see an improving trend, and we're now into larger, more consistent ore zones. Production in the fourth quarter is forecasted to be roughly 10% higher than Q3 and will continue at those higher rates for the next few quarters. Gibraltar Pit will be the primary source of ore now through the end of 2023. Waste stripping of the new Connector Pit has begun and will continue through next year. In order to get full access to that new ore zone, we need to move an in-pit crusher. That capital project started this summer and is well advanced. We're planning to complete the crusher move in the third quarter next year. Operating costs in the quarter declined quite dramatically, but we're still being impacted by the same inflationary pressures that the rest of the industry is facing.
Diesel costs were up about 55% higher than the same period last year, and that added $0.26 per pound of copper to our cost structure. We have some diesel hedging in place now to protect against further price escalation. Capitalized stripping was also unusually low this quarter, which drove up our unit operating costs. In the present environment, we're obviously very focused on cost control and managing copper price risk. We have a long-standing strategy to opportunistically acquire downside copper price protection through both copper puts and collars. That approach again paid large dividends this quarter. We realized cash proceeds of just under $19 million from copper put options, and we have price protection in place at $3.75 per pound until the middle of next year. On top of that, we have a pricing strategy where we fix prices at around the time of shipment.
It's notable we have very low provisional price adjustments this quarter, whereas many of our peers have larger losses. We're well-positioned from when copper prices rebound, which they inevitably will do. As we see with markets today, when prices move up, it happens quickly. Global inventories are low and physical demand fundamentals are strong. We remain optimistic about our copper business long term. We have a great portfolio of assets here in North America and focused on copper. In the meantime, with the global economic uncertainty, we are managing CapEx carefully. At Florence this quarter, we spent a further CAD 27 million, mainly related to procurement of major components for the SXEW plant and a few other long lead time items. Those items were ordered earlier this year and are now being delivered to site.
We won't be making any more significant capital commitments now until we have a clear view on permit timing. We've been successful in locking down pricing on long lead items, but we are seeing inflationary pressures on other project costs, including drilling contractors and construction labor. Arizona, in particular, has been a hot market. It's also a very volatile market, and we'll wait until we have a firmer view of the construction schedule before updating our CapEx estimate. The balance sheet remains in a strong position with available liquidity of CAD 210 million. That includes the undrawn revolver. We have a solid hedge position in place in improving production from Gibraltar. We're also seeing a lot of interest from royalty providers, which is a potential additional source of funds for Florence. On that note, I'll pass things over to Bryce for financial update. Bryce?
Thanks, Stuart. Good morning, everyone. I'll provide some further details on our third quarter financial results. Sales for the quarter for Gibraltar on a 100% basis with 27 million pounds of copper at a realized price of $3.48 per pound, which was similar to the LME average price. We only realized negative provisional price adjustments of $ half a million in the quarter, and this was attributed to a relatively range-bound copper price prevailing between $3.30 and $3.70, and our long-standing practice and discipline of fixing the price of substantially all of our concentrate shipments at the time of shipment. This practice reduces copper price exposure and volatility over quotational periods with our customers.
We either fix that price directly with the customer or we enter into a QP hedge with banks, which has reduced the volatility in our revenues this quarter compared to some of our peers. Total site costs, including capitalized stripping, reduced by $5 million from last quarter, but is still up $10 million over the same quarter in 2021. Higher costs are mainly due to the elevated diesel prices and to a lesser extent, steel and reagents used in the milling process. We also only capitalized $1 million of mining costs as capitalized stripping to the balance sheet this quarter as mining was focused in the Gibraltar Pit. Gibraltar C1 operating cost per pound of copper dropped 22% to $2.72 per pound in the quarter. This was due to the higher pounds produced and in spite of the fewer mining costs that were capitalized.
Earnings from mine operations before depreciation were $19 million. We also recognized gains on our copper put hedges of $60 million. Those together resulted in adjusted EBITDA of $34 million. We have in place copper price protection, as Stuart mentioned, of $3.75 to the middle of next year, which still gives us copper price upside if copper prices recover as they are today. Value of this protection is shown on the balance sheet of $30 million within our other financial assets. During the quarter, we also purchased diesel call options, which will protect us from further diesel price escalation through to mid-2023. With our expectations of further increased production in the fourth quarter and into next year, we should see a further decline in operating costs on a per pound basis.
Adjusted net income for the quarter was CAD 5 million or CAD 0.02 per share and benefited from the CAD 16 million of realized gains on the settled copper put options in the quarter. We had a GAAP net loss of CAD 24 million or CAD 0.08 per share. That was mainly impacted by the unrealized foreign exchange losses associated with our with our US dollar denominated notes. The offsetting translation of our US dollar investments in Florence are obviously not put through the profit and loss statement, and so we don't have a perfect match. We continued to invest in Florence this quarter with further spend of CAD 27 million. We still expect to incur about $15 million in US dollars for Q4 as we finish receiving the last shipments of our SXEW equipment by the end of the year.
Our cash balance declined over the previous quarter, but that was really attributed to the continued spending at Florence and certain projects underway at Gibraltar, including the crusher move that feeds Mill One, which is expected to be moved in Q3 next year. By the end of this year, Taseko will have incurred about CAD 18 million in total on this project for its share to date. We ended the quarter with CAD 142 million in cash and CAD 210 million of available liquidity. We stand in a good position to manage any volatility in the macro environment ahead as we prepare for Florence. Lastly, on the topic of Florence financing, as we mentioned on the previous earnings call, we are continuing to look at ancillary financing opportunities with copper prices pulling back since the first half of this year.
We've been very successful to date since acquiring Florence not to encumber it. We have all financing options available to support our own cash and our cash flow. With that, we are now ready to take questions. Over, back to the operator. Thank you.
Thank you, sir. Ladies and gentlemen, we will now conduct the question and answer session.
If you would like to ask a question, please press star followed by the number one on your telephone keypad. If your question has been answered and you would like to withdraw it, please press star followed by the number two. If you are using a speakerphone, please lift your handset before pressing any keys. Please stand by for your first question. Your first question comes from Orest Wowkodaw of Scotiabank. Please go ahead.
Hi. Good morning. I have some questions about Florence. I guess the old feasibility is now five years old, and the capital cost estimate for that project was $230 million. Can you give us how much of that $230 million has been spent as of the end of Q3? Obviously, we're in an environment of high inflationary pressures. I'm just trying to get a sense of how much has been incurred versus how much is left and what the risk could be to a materially higher estimate than that.
Hi, Orest. It's Stuart here. No, you're absolutely right. We're in an inflationary environment, as I noted in my comments. The original fees from 2017 is definitely a dated number now. We did update that actually in 2019 prior to our London listing, which was a similar number. Since then, we have definitely seen inflationary pressure. As we sit today, we've committed approximately $80 million of the project spend. That hasn't all been spent yet, but in my mind, it's committed, it's gone and the price is fixed. Yeah, on that remaining piece. That spend is primarily on equipment, SX.
Major components for the SXEW, you know, steel and the like. That's been priced, and that came in similar to budget, similar to the original budget, actually. On the remaining piece, yeah, we're seeing inflation on labor, construction labor in Arizona. As you noted, it's a volatile market. We're not gonna put out a new number at this point. You know, things are changing from week to week and from month to month. We don't see a point in putting out a number now and then having to update that again in a few months when we have a construction schedule. We'll wait here. We'll let the dust settle.
I think that as we move into next year, it'll be, you know, who knows, we could be going into a recessionary environment and the number could change. We'll see. Yeah, on the whole, you know, some of the other projects, as you know, you look around, there's inflation in the range of 30%, give or take, on these, on some of these capital projects, and that's the type of number you might expect to see on Florence as things sit today. You know, we're again not a little bit cautious in not putting out anything firm at this point.
Okay. Well, what about the operating costs as well? I mean, we've heard a lot about acid pricing being a lot higher over the last couple of years. You know, any sense on where, you know, given current input costs like acid and labor and everything else, like, where would the cost profile move to on Florence?
Acid right now is up around $200 a ton, I believe, in the Arizona market. I think our original fee was at $120 a ton. You know, yeah, again, it's a volatile market. As you know, prices move up and down. We have actually seen some new supply or potential new supply coming into Arizona. There's actually potentially a new acid plant being built by a third party quite close to Florence. That's positive. Yeah, acid prices are moving. I think as a whole, though, you know, we have obviously a very low cost operation at Florence. I think our 2017 study called for $1.10 operating costs, roughly.
We've got lots of, you know, lots of wiggle room there, without jeopardizing the overall economics. We'll use about 200,000 tons a year of sulfuric acid. When we reach full run rate, you know. You can kind of run a sensitivity off that.
I mean, upon final permits, is the plan then to put out a completely updated sort of feasibility technical study that would have updated CapEx, OpEx production expectation?
Yep. Yeah. That will be the plan.
Okay. Thank you.
Your next question comes from Ed Brucker of Barclays. Please go ahead.
Hey, thanks for the question today. First one, just on some of the additional funding needs. I just wanna get, if you're able to provide it, your favored source of funding. Then, just using kind of the base of the CAD 230, and I guess the CAD 150 million left you have to spend on that, how much additional funding are you looking for?
Yeah, it's still obviously a bit of a fluid environment. I think, we're still, you know, not absolutely clear exactly when Florence is getting the final UIC permit. That's a bit of a moving target, obviously. Copper price is the other factor, how much cash flow we make from Gibraltar. You know, again, we finished the quarter in good liquidity position. We had CAD 210 million. We do have an undrawn revolving credit facility there. You know, I think as far as preferences, I think again, it's not an encumbered asset. You know, we don't have any financing to date at the Florence level.
We have a number of options and I think, you know, probably one that we're looking at, and we've just seen development in the market over the last few years is on the royalty and stream market. We think naturally that would be a market we'd look to first, which would be a good source of flexible capital. We also have some equipment that we've procured that would be eligible for some equipment financing. We're looking for sort of smaller tranches of financing and really we'll look to top those depending how those other variables play out.
Got it. That's helpful. Just on Florence, is the timing from the final UIC permit given to production, is that still 18 months that you had given previously? Or does that timing change? Or your thoughts around the timing change given what's going on in the market more uncertain times, and I guess lower copper prices too?
I know, I had it. It's Stuart here. Yeah, I know it's an 18-month construction schedule. That hasn't changed. In fact, it's probably been de-risked somewhat to some extent because of some of the procurement activities that we've done. We're comfortable with that timeline still.
Got it. Thanks for the time.
Your next question comes from Craig Hutchison of TD Securities. Please go ahead.
Hey, good morning, guys. Just a follow-up question. You mentioned potential for royalties and streams on Florence. Can you give us a sense in terms of what percent of the metal you'd be willing to stream?
You know, again, we've got a few legacy royalties on the property. There's quite a bit aside from that, and that's included in our cost that we speak of when we talk about $1.10 per pound from our 2017 report. You know, I think when we're talking about royalties, I think we're talking about sort of in that sort of 2%+ range of potential encumbrance. It obviously depends how much we need and that, but that would be, you know, something like $0.07 per pound.
If we do go into weaker markets next year with potential recessionary situation, is there a price for copper which you would not hit the kind of green light for Florence? Just you know, considering obviously there'd be pressure on the margins at Gibraltar at that point.
Craig, no, it's. I mean, we look at Florence as a standalone project, right? With a strong IRR. I think even at $3 copper, it had an IRR in the range of 35% on the previous feasibility. You know, there's, as I said, there's lots of room for copper price movement on the Florence project. Obviously, Gibraltar, you know, we wanna make sure that you know we do have levers to pull at Gibraltar too, in downside scenarios as we've talked about in the past. The most important thing we have now, I think, which is giving us comfort, is the hedge position, which covers us through the middle of next year.
Okay. Maybe one last question for me. I know you guys are mentioning the stripping activities will commence at the new Connector Pit next year at Gibraltar. Also, you've got the primary crusher for Mill One that'll need to be moved. Are those fairly capital-intensive projects? Any sense you can give us in terms of overall stripping for next year costs and the movement of Mill One? I appreciate it.
I guess maybe on the mining rate, you know, as a whole, we are thinking about there will probably be a small increase in our mining rate as we move from 2022 to 2023. Beyond that, it's really in terms of mining costs, it's an allocation between operating and capital, right? In terms of operating costs and capitalized strip. We just came off a quarter with a very low capitalized strip allocation. Next year, we'll have a much higher portion of our costs being capitalized, you know. The overall site costs won't be that different. The crusher project, do you wanna maybe talk about that, Richard? The timing and the cost around the crusher CapEx?
Yeah, the crusher work started this past summer, and the crusher will actually move next August or next Q3 next year. In terms of capital cost, looking in the CAD 40 million-CAD 45 million range for the total project to be completed.
A good portion of that's already been spent, right?
That's correct.
Yeah. That's on a 100% basis.
On a 100% basis, yeah.
Okay, great. Thank you.
Your next question comes from Alex Terentiew of Stifel. Please go ahead.
Yeah. Hi, everyone. I have a lot of questions on Florence already asked, and as I got answers there.
One of my questions is, if you get the permit, UIC permit, say Q1, are you ready to, you know, hit the ground running, right away? I mean, I would imagine you've already done a lot of the internal studies on updated CapEx and so forth, but you're just, you know, I understand, kind of waiting to update the market based on timing. Should the permit be received in the next few months, are you ready to begin, you know, immediately thereafter?
I think operationally, we're ready. You know, we have our engineering well advanced. We have our procurement well advanced. You know, as we've noted here, we have a bit of, you know, likely a financing to complete here in the next few months. Yeah, then we'll be ready to go.
Okay. Okay, good. I just want to follow up a comment you just made on the crusher spend for next year. CAD 45 million is the full cost of the project. You said a good portion of that's already been spent. I'm just trying to get a sense of spending on that then for next year. What sort of numbers should we think about?
Yeah, I think as Richard said, it's on a 100% basis of the total projects in that sort of 40-45 range, and we will have incurred about half of that this year. I think the end of this year, it'll be about CAD 25 million completed on a 100% basis.
Okay, that's good. Okay, that's it for me. Thank you.
Your next question comes from Alex Bedwany of Canaccord Genuity. Please go ahead.
G'day, guys. Good to see the grades up again in the last quarter, so congratulations. I think all of my questions have been answered except one. Just on the amount of ore that's being milled. So that was obviously up quite a bit in this quarter. How sustainable do you think that is, and what was the key driver of the uptick in that? Is it that the ore is softer that you're going through at the moment and it's the conditions are gonna go back to what you would call sort of steady state or normal in the coming quarters?
Yeah, this is Richard. The ore from Gibraltar Pit is softer, which allows the higher throughput rate. With 2023 being the source of ore for the site, gonna see continued high throughput continue into 2023. As long as we're mining, the Gibraltar Pit ore is much softer and it processes through the grinding circuit quite well.
Okay. How does Connector look, in comparison?
Sorry, say that again.
How does the Connector Pit look in comparison to Gibraltar?
Connector Pit will not be as soft as Gibraltar Pit, but it'll be more typical of our historical granite Pollyanna Pit areas.
Okay. Thank you, guys.
Your next question comes from Mike Kozak of Cantor Fitzgerald. Please go ahead.
Yeah. Morning, guys. Congrats on the solid quarter. You've already answered all the questions I had on Florence, so thanks for that. Just one left for me on Gibraltar. On the mining dilution you flagged in the quarter, what exactly is that? Is that an ore rehandling issue, something, you know, maybe related to blast pattern design or just more selectively mining with smaller excavators? Just could you give more detail on what you mean when you say, you know, initiatives are underway to lower the mining dilution? Thanks.
Yeah. It's really around which is a process we began early in Q3, just reviewing all our controls and procedures and seeking to identify opportunities to reduce the dilution that we're incurring. It's a function of the ore cuts, the ore orientation. We're actually gonna bring in a third party to assist us to ensure you know, we're not missing anything or there's not improvements or better tools that we could bring into play and assist us with you know, just dealing with this. We've already seen some improvements and I'm hopeful we're gonna be able to continue to see further improvements as we go. We also benefit as we mine deeper.
The ore zones become more consistent and less irregular in terms of what we have to deal with when we make the ore cuts.
Got it. Thank you.
At this time, there are no further questions from the telephone lines. I would like to turn the conference back to management for any closing remarks.
Okay, thanks everyone for joining us. We'll wrap it up there and talk to everyone next quarter. Okay, thank you. Bye.
Ladies and gentlemen, this concludes your conference call for this morning. We would like to thank you all for participating, and you may now disconnect your lines.