The significant cost-cutting efforts employed by Taseko Mines (TGB, Financial), coupled with a keen focus on producing superior quality grade of ore from its mining pits is believed to improve the company’s top line growth and enhance profitability. However, before investing in this stock, investors need to take a closer look at the company's operations and the challenges that it faces.
The way ahead
Going forward, Taseko has plans to expand the mining operations at Gibraltar by maintaining its strip ratio at 3.5 to 1. This key change in the mining plan is estimated to change the technique employed by the company to enhance the profitability of the ore bodies, similar to its particularly designed second concentrator horsepower capacity through leveraging the SAG mill to achieve greater throughput.
The reduction of cut off from 0.2 to 0.17 which is approximately 15% lowering executed by Taseko Mines, lowers its life of mines strip ratio to 1 from 3.5 which is roughly a significant 31% lowering in strip ratio. This core lowering in grip has a significant impact on the company’s forecasted delivery of recoverable pounds of copper, its mine life and key operating costs.
During the third quarter, Taseko expects to gain a record grade of nearly 0.27% which is believed to mainly depend on the efficient availability of improved grade ore under the unstable area in the Granite Pit and the superior management of its stockpiles.
During the fourth quarter, though Taseko is continuously having problems in drilling the ore from the bottom of the pit and hence, it failed to achieve its estimated mill head grade targets.
In this period, Taseko recorded the copper price being fairly stable at approximately $3 U.S. per pound and its stockpile and stripping plans seems to be working. Still, Taseko’s efforts to reduce its entire cost per ton mill to make its overall cost per pound of copper reflect the current market pricing environment is starting to display lots of volatility.
The problems and more
The huge problems in drilling the ore from the bottom of the mines, along with the tough global ore pricing environment is expected to enhance the vulnerability for the company in expanding the top line growth and in improving shareholder returns.
The well-planned cost-cutting initiatives executed strategically by Taseko mines are forecasted to stabilize the company’s financial position and enable it to plan for future growth investments.
Although, several Canadian companies estimate steady hiring for the coming quarter, mining giants in Western Canada are believed to cut down the headcount. Considering the seasonal adjustments, overall Canadian employment prospect is now 10%, in line with the previous quarter and one percentage point greater than last year.
Copper is believed to be an exceptional metal with no overcapacity and declining demand problems unlike any other key metals produced by Taseko Mines. For instance, copper supply has expanded by approximately 18% over the previous five years.
The significant copper production by Taseko Mines is believed to slightly benefit the company and somewhat offset the declining production of other key ores.
The consensus estimate among 11 polled investment analysts evaluating Taseko Mines Limited suggests investors to hold their position in the company. This rating is held stable since the investment analyst’s sentiments declined on Nov 25, 2014. The earlier consensus estimate suggested the company would outperform the market.
Conclusion
Overall, the investors are advised to avoid investments into the company till a major turnaround occurs and Taseko returns to profitability. The profit margin of -14.52% indicate no profit but loss. Finally, Taseko is hugely debt-laden with a significant total debt of $249.61 million against smaller total cash of $43.19 million only, restricting the company to plan for future growth investments.
