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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.