Taseko Mines Limited. (TSX: TKO) is a Canada-based mining company engaged in the production and sales of metals. The group is also actively engaged in mine development and exploration across the province of British Columbia, Canada, and the Stae of Arizona, US. 

Key highlights

• Production updates: On February 22, 2022, the company stated its production from the Gibraltar Mine (major operating site and owns 75% stake), stating the FY21 copper mined rose to 105.4 million tones vs 98.7 million tons in FY20. The company reduced its operating costs for the reported period to USD 2.02 per ounce produced vs the USD 2.67 per ounce produced in pcp.

• Improved financials: For FY21, the company reported a staggering growth in its Adjusted EBITDA of 85% to CAD 200.7 million vs CAD 108.2 million in FY20. The revenue growth for FY21 also increased to CAD 433.27 million from CAD 343.26 million in pcp. For FY21 the average realized copper prices were USD 4.31 per pound which was higher than the London Metal Exchange (LME) average price of USD 4.23 per pound.

• Annual Guidance of FY22: For FY22, the company presented a strong outlook on its Gibraltar mine, stating its estimated production of 115 million pounds within the range of +/- 5%. The rising demand for copper and improving macroeconomic conditions will further boost the sales from the inventory carried over. To protect any headwinds from negative prices, the group already bought 90% of estimated production with collars, protecting a minimum downside in copper prices of USD 4.00 per pound for FY22.

• Strong liquidity and enhanced credit facility:For FY21, the company reported CAD 236.76 million as cash and equivalents as compared to CAD 85.11 million in pcp. It further secured a revolving credit facility of CAD 50 million to carry out its corporate expenses. The strong cash balance and improved credit lines will be a great help to the company to sustain its business activities, including future acquisitions.
  

Risks associated with investment

The company is extensively involved in the mining operation of copper and thereby its revenues and profitability are very much dependent upon the demand and prices of the copper. A few of the key risks also from the rising interest rates, slowing of home demand, delay in construction activities, etc. 

Financial overview of Q4FY 2021 (Expressed in thousands CAD)

Source: Company Filing 

• The company reported an increase in its total revenues for Q4FY21 at CAD 102.97 million as compared to CAD 87.39 million pcp. This rise is primarily attributable to the increase in copper sales of CAD 17.6 million in the same period further supported by a spike in the LME copper prices by USD 1.15 per pound.

• The production cost for Q4FY21 was USD 41.05 million vs USD 60.33 million in pcp. There was a decrease in site operating cost of CAD 10.4 million for a similar period along with the 12% reduced tons mined in the Q4FY21 as compared to the similar period, helping the decline in production cost.

• For Q4FY21 the income before income taxes was reported at CAD 21.06 million vs CAD 2.97 million in pcp.  There was a decline in foreign exchange gain for Q4FY21 to CAD 1.76 million as compared to the gains of CAD 12.87 million in pcp.

• The company reported a Net Income for Q4FY21 at CAD 11.76 million as compared to the CAD 5.6 million in pcp.
  

Stock recommendation 

The company delivered a positive return of 9.24% in past one month and 6.99% returns in the past six months. With the surge in copper prices, along with the rise in its demand because of the improving macroeconomic activities, the company has improved its revenues in FY21 to CAD 433.27 million. Further, it maintained a cash balance of CAD 236.76 million and a credit facility of CAD 50 million to carry on its business operations and further exploration activities. On the valuation front, the stock is measured on the NTM Price to Cash flows multiple based, which hints the stock is still undervalued as compared to its peers, leaving the scope for the stock to match the industry valuations. We have considered Ero Copper Corp., Atalaya Mining PLC, Copper Mountain Mining Corp, etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Hold” rating at the closing market price of CAD 2.60 on March 7, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 7, 2022). Source: REFINITIV, Analysis by Kalkine Group

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