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Taseko bets on C$1B copper project with C$15.1M Yellowhead takeover plans

Metals & Mining

Global Mining Industry Outlook - What Are the Expectations?

Metals & Mining

2018 Mining Industry Outlook - What Are The Expectations?

Metals & Mining

Mining Perspectives Panel Discussion

Cost Competiveness Of European Mines

Taseko bets on C$1B copper project with C$15.1M Yellowhead takeover plans

In proposing to buy Yellowhead Mining Inc. for C$15.1 million in shares, copper miner Taseko Mines Ltd. has tapped Yellowhead's chief asset, the Harper Creek property in British Columbia, as a key development project, one which could cost some C$1 billion to build.

Taseko said the project might be "shovel ready" after it builds the Florence copper project in Arizona that is currently undergoing a pilot study as it eyes possible construction beginning in 2020.

Harper Creek, a large low-grade copper project with modest gold and silver credits, is proposed as a 70,000-tonne-per-day mining operation with initial capital costs of about C$1 billion. Yellowhead, in a 2014 feasibility study, estimated a 28-year mine life designed around 716.2 million tonnes of reserves grading 0.26% copper, 0.029 g/t of gold and 1.18 g/t of silver.

Brian Bergot, Taseko vice president of investor relations, told S&P Global Market Intelligence that Taseko did "extensive" due diligence on the project, which has been in its sights for years. Taseko already owns about 21% of the company.

The project still requires extensive permitting.

Yellowhead had started the permitting process in 2015 but hit a snag earlier in 2018. It requested extensions on deadlines after the province asked for additional information about its plans in part related to tailings management. The request was denied.

The application process will have to begin again, Yellowhead said in a regulatory filing earlier this year, noting that the new process is expected to take at least three to four years and will incorporate new proposed federal and provincial regulatory requirements.

The province, Yellowhead said, had requested more information about tailings facilities at Harper Creek that took into consideration the Mount Polley embankment failure in 2014. The tailings disaster released millions of tonnes of waste into nearby lakes and streams and raised questions over the management and design of tailings facilities in British Columbia.

Bergot said Yellowhead, which could not be reached for comment, lacked funds and was unable to meet provincial deadlines on environmental permitting. He said Taseko would, assuming the deal closes, restart the process.

Taseko is familiar with success and failure in the permitting process in Canada, having been working for years to permit the New Prosperity gold-copper project in British Columbia. The company has twice been rejected in its application for environmental approval, most recently in 2014.

The copper project has courted controversy, especially with local First Nations who oppose it, over waste management and the potential for damage to the environment. Taseko continues to push forward with the project in order to boost environmental permitting, but still faces significant opposition to development.

Taseko expects to close the C$15.1 million all-share transaction early next year, Bergot said, with the company locking up a majority of shares in agreements in favor of the deal. It said that Matco Investments Ltd., a shareholder with a 45.5% interest in Yellowhead, entered a "hard lock up" along with its chairman, Greg Hawkins, who owns approximately 7.21% of the company.

Each Yellowhead shareholder other than Taseko is expected to receive 1.1484 Taseko shares for each Yellowhead share held, with Taseko to issue 17.3 million shares. Yellowhead plans a special meeting in January 2019 to seek shareholder approval.

How would Taseko finance Harper Creek, if it went ahead with construction? Bergot said it was too early to consider financing for a project like Harper Creek.

Taseko's market capitalization, just shy of C$200 million as of press time, makes it difficult to finance a mine through equity. But with Florence cash flow possibly adding to its pot in the early 2020s, it may be better placed.

"We'll have more options at that point," Bergot said.

Watch: Global Mining Industry Outlook - What Are the Expectations?

Nov. 12 2018 — In less than 12 minutes, hear experts from S&P Global Ratings,

J.P. Morgan Asset Management, BMO and Altus Strategies discuss their views on the global mining industry outlook at the Mining Perspectives Panel Discussion 2018, held at London in October.

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Watch: 2018 Mining Industry Outlook - What Are The Expectations?


Mining Hot Spots, Growth, and Risk

Demand, Supply, and Mining Costs

Exploration Budgets and Trends

Investment Strategies

S&P Global Market Intelligence recently hosted a panel discussion in London to discuss the mining outlook for 2018. Our panelists include experts from S&P Global Ratings, Anglo American Plc, Bernstein Investment Research, and Management and Investec Asset Management. 

Watch the full video

Topics Covered:

  • Mining Hot Spots, Growth and Risk
    Where are the hot spots in 2018? Which countries are becoming riskier for mining? What will be the impact of politics on corporate strategies, growth, and risk?

  • Demand, Supply and Mining Costs
    How will changes in industrial production impact metals demand? What are the forecasts for new mined supply? What are the trends in mined ore grades and operating costs? Which major metal will have the greatest shortfall in supply?

  • Exploration Budgets and Trends
    What trends should we expect in 2018? Which metals and regions will have the highest budget expectations?

  • Investment Strategies
    Which investment strategies will make most sense? What is the consensus forecast for metals prices?

S&P Global Market Intelligence - Director of Metals & Mining Research

S&P Global Ratings - Simon Redmond, Director of Corporate Ratings
Anglo American Plc - Peter Schmitz, Head of Commodity Research
Bernstein Investment Research and Management - Paul Gait, Senior Research Analyst
Investec Asset Management - George Cheveley, Portfolio Manager

Watch: Mining Perspectives Panel Discussion

Cost Competiveness Of European Mines

Jan. 25 2017 — S&P Global Market Intelligence recently explored whether mines based in the European Union are cost competitive with other global producers. We examined operating costs of copper, iron ore, and gold mines in 2015. In considering unit costs for operating mines, figures indicate that the EU28’s mining operations are, and can continue to be, competitive compared to mines in other countries around the world.

The only consistently less competitive component of operating costs at EU28 mines is the labour cost. This is a result of high wage rates in the EU28 Member States compared to less developed countries. Labour costs within the EU28 do compare, often favourably, with those in other developed countries such as Australia, Canada, Chile, and the United States.

With the exception of copper in Poland, royalty and tax costs within the EU28 are generally more competitive than other countries. Other cost elements in EU28 mines are also generally similar to the average costs from other regions of the world. Mines operating within the EU28 benefit from being close to and having access to good infrastructure.

Copper: The EU28 account for 4.6% of global production in 2015, from mines in Bulgaria, Cyprus, Finland, Poland, Portugal, Romania, Spain, and Sweden. Of note is KGHM’s Polish operations, which accounted for nearly 50% of copper production from the EU28, and is one of the biggest copper mining complexes in the world. This complex is also the biggest silver producer in the world, mined as a by-product of copper production.

Figure 1 illustrates the operating costs for copper mines in the EU28 and other regions. In terms of costs per unit, Mexico is the most efficient producer, while Papua New Guinea (PNG) is the highest cost producer. The EU28 are located in the upper quartile of the chart and have costs similar to those of Brazil, Canada, and Zambia.

In terms of individual costs, the EU28 indicates higher ‘royalty and production taxes’ costs in comparison to countries with similar total mine costs (Canada, Brazil, and Zambia). EU28 labour costs are similar to those in Canada and Brazil, while its costs associated with ‘reagents’ are lower.

Figure 1 - Costs and production from primary copper mines in 2015

Iron ore: The EU28 account for 1.3% of global iron ore production, mined in three countries within the EU28: Austria, Germany, and Sweden. By far, the most significant contribution comes from Sweden’s LKAB operations, Kiruna and Malmberget, accounting for almost 90% of total EU28 iron ore production.

The EU28, on the right side of the horizontal axis, faces higher operating costs than Canada, but lower than that of the United States. In terms of individual cost components, ‘energy’ and ‘other onsite’ costs are higher in the EU28 than in Canada or the United States.

Figure 2 - Costs and production from iron ore pellet producing mines 2015

Gold: In 2015, The EU28 account for 0.9%  of global production, from operations in Bulgaria, Finland, Greece, Poland, Portugal, Romania, Spain, and Sweden, with over 80% coming from mines in Bulgaria, Finland, and Sweden.

Figure 3 illustrates the relative position of the EU28 gold producers on the global cost curve. The region is located on the extreme right of the horizontal axis, indicating its relatively high operating costs compared to all other countries reviewed.

TCRC & Shipment costs for gold mines within the EU28 are higher than all the other countries in this study as a result of a number of gold mines in the region producing a concentrate that requires smelting and refining, rather than dore.

Dore is a product comprising gold and silver almost entirely and is the most common product of gold mining operations. Refining dore to finished gold and silver incurs only a small refining charge and, because of its low bulk, transport costs are negligible. For these reasons most non-EU countries have very low TCRC & Shipment costs.

Instead of dore, several EU28 mines produce a concentrate. This concentrate typically has gold grades of hundreds of grams per tonne and requires both smelting and refining to produce finished metal. The additional smelting required compared to dore incurs a significant additional cost.

Greater transport costs are also incurred within the EU28 due to gold concentrate’s greater bulk compared to dore. This discrepancy in mass is due to gold concentrate’s comparatively low gold content. In addition, Chelopech gold mine in Bulgaria, which accounted for approximately one-third of the EU28’s gold production from primary gold mines in 2015, produces a concentrate with high arsenic content that incurs significant additional costs at the smelting stage. As a result, gold mines within the EU28 have high combined TCRC & Shipment costs. 

Figure 3 - Costs and production from primary gold mines 2015

Individual cost components

Labour: Labour costs from the EU28 mining operations are above average. Despite being above average, the EU28 labour costs are comparable to, and often lower than, developed nations such as Australia, Canada, Chile, and the United States. It is important to note that high salaries do not necessarily equate to high labour costs. 

A good example can be seen in iron ore (Figure 2), where the EU28, comprising LKAB’s Swedish mines Kiruna and Malmberget, has a lower labour cost than Australia, the United States, Canada and Chile. This is despite these mines being two of the only underground iron ore mines in the world, which are generally more labour intensive than open pit mines, and Sweden having relatively high wages. The reasonable labour costs here are a result of the mine’s efficient operation, which has been driven by LKAB over a number of years.

The converse of this can be seen in gold (Figure 3), where South Africa has the highest labour cost despite having relatively low wage rates. This is a result of many South African mines exploiting deep, difficult ore bodies using outdated techniques and equipment, which leads to low productivity rates.

Energy costs: In all commodities covered, the energy cost within the EU28 was generally close to the global average and sometimes lower. In general, consumption of both electricity and fuel is dictated by the equipment in use at each mine site rather than its geographical location. Mines operating within the EU28 generally benefit from having access to good infrastructure and therefore are usually able to source their electricity from national grids where electricity prices are reasonable. The countries with the lowest energy costs tend to be those with access to cheap electricity such as Russia, which has access to electricity generated using cheap natural gas, whilst the countries with the highest energy costs are those with poor infrastructure or remote mine sites where diesel generators are commonly used as a source of electricity.

Reagent costs: Reagent costs heavily depend on the type of ore being processed and the processing technique, as these factors dictate what chemicals are needed and how much is required. The price of chemicals does vary by region, but as this cost covers such a variety of products, no clear regional patterns can be distinguished. The reagent cost of mines operating within the EU28 will benefit from the good infrastructure in the region, as this will help reduce transport costs of any chemicals required whilst this same factor has an adverse effect on reagent costs in the countries with poor infrastructure or remote sites.

Other onsite costs: As these costs comprise a variety of components, it is difficult to draw any conclusions from regional figures. It should be noted that the EU28 mines covered in this study have approximately the same average onsite costs as other countries. There appears to be no benefit or detriment of these costs for mines operating within MS.

TCRC & shipment and offsite costs: These offsite costs for mines operating in the EU28 are close to the average cost for other countries covered for all commodities, with the exception of gold (Figure 3). Treatment and refining charges tend to be relatively consistent across the commodities, with facilities that undertake these processes charging the same price irrespective of the product’s origin. The presence of several integrated operations, were the mine is integrated with a smelter/refinery operated by the same company that operates the mine, within the EU28 appears to have had minimal impact, either positively or negatively, on these costs. The main variable is the cost of transporting the mine product to the treatment facility, with the mines in the EU28 benefiting from close proximity to multiple smelting/refining facilities. EU28 mines also benefit from access to good infrastructure, namely roads, rail, and ports. For this reason, countries with poor infrastructure or remote mine sites tend to have higher TCRC & Shipment and offsite costs, as transporting their products to the end customer or smelting/refining facilities is more expensive.

Royalty & production taxes: Costs from royalty and production taxes are below average for all commodities, with the exception of copper, due to state royalty systems that are favourable to mining in most of the EU28 Member States. In particular, Finland and Sweden have no royalties on commodities covered in this study, which leads to zero royalty and production tax costs for iron ore (Figure 2), as both operations covered here are in Sweden.

The relatively high royalty cost in copper (Figure 1) is a result of the mining tax introduced in Poland in 2012, which impacts the biggest copper producer in the EU28, KGHM’s Polish operations. Although this cost can be influenced by fees paid to private landowners or other companies, by far the biggest contributor to this cost is mining royalties and tax policies of individual countries.

As part of its STRADE [1] research project, S&P Global Market Intelligence’s Metals & Mining consulting team is investigating how to translate the EU28’s competitive advantages for mining operations into a strategy to promote mining investments into the region


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