Joanne Hart, Financial Mail on Sunday
In 1999, a Canadian mining company, Taseko, purchased a mothballed copper mine in central British Columbia. At the time, copper was trading at 50 cents a pound, the mine was unprofitable and the sellers were eager to get rid of it. Taseko paid a dollar for the asset known as Gibraltar.Today, the mine produces 140 million pounds of copper per year and is the fourth largest opencast mine in North America. After selling 25 percent of the mine to finance initial construction work, Taseko is benefiting from the sale of more than £ 100 million of copper per year.
Prices have been climbing around 50c for a while but have been almost continuously above a dollar since 2004, and today copper is trading at a two-year high of over $ 3 a pound. With production costs between $ 1.30 and $ 1.90 per pound, Gibraltar has proven to be a very smart investment.
Ultimately, the extraction will turn to a new part of the mine, where production is more expensive. As copper prices are expected to rise steadily throughout the year, profit margins are likely to remain robust.
Earlier this month, Taseko made an optimistic statement for the three months from March to June, with sales and production higher than last year, despite the Covid-19 pandemic. Analysts expect calendar year 2020 sales of at least C $ 350 million (£ 201 million), an increase of more than 6 percent since 2019, with further growth for next year and beyond.
Gibraltar is Taseko’s only mine currently in production, but the group has five other locations in its portfolio, one of which, Florence Copper, should start making money in 2022. Located in the Arizona desert, an hour and a half from Phoenix, Florence is expected to supply 85 million pounds of copper per year, nearly doubling Taseko’s current production.
The site takes advantage of very unusual geological features, allowing Taseko to apply a mining process that is widely used to extract uranium but has never been used for copper before – by extracting the metal, rather than the ore, straight from the ground. extract using a solution made of water and sulfuric acid.
The method does not include any of the common mining practices, such as blasting, tunneling, and landfills, so its carbon footprint is about 90 percent lower than conventional mining.
The acid is neutralized with an alkaline solution once each section of the site has been mined, thus protecting the environment as well. For shareholders, there is another significant benefit: at $ 1.10 per pound, the cost is significantly lower than traditional copper mining.
McDonald has been testing the new method for the past 18 months and the results have been very encouraging. In a major step forward, Taseko recently obtained a draft environmental permit from national regulators and a full permit is expected in the coming months, with federal approval following.
Meanwhile, McDonald is actively discussing funding. The group needs $ 230 million to put Florence into production and will likely try to get most of it from an outside investor in exchange for about 20 percent of the mine.
The strategy worked well for Gibraltar, and Florence is in many ways an even more enticing asset, which has already sparked interest from potential clients.
Ahead, Yellowhead, another British Columbia asset, is likely to open with three more Canadian assets in the wings.
Copper has proven to be a volatile metal for the past 20 years, but the outlook for Taseko is bright. The supply from Chile and Peru, the two largest producers, is limited by the coronavirus, even though demand has increased in China, which accounts for about 40 percent of global demand.
Looking ahead, Copper Followers are optimistic. Governments around the world want to stimulate economic growth through construction, and copper is an integral part of most construction projects. It also plays a key role in renewable energy and electric vehicles, where demand is likely to increase in the coming years.
Midas verdict: Taseko has been listed in Toronto for years, but didn’t hit the London market until November 2019. Shares have been doing well in recent weeks, but they should continue to rise as copper prices rise and Florence gets closer to production. At 65p, the stock is a long-term buy.