In 1999, a Canadian mining company, Taseko, bought a mothballed copper mine in the middle of British Columbia. At the time, copper was trading at 50c (38p) a pound, the mine was uneconomical and the vendors were keen to dispose of it. Taseko paid a dollar for the asset, known as Gibraltar.
Today, the mine produces 140 million pounds of copper a year and is the fourth largest open pit mine in North America. Having sold 25 per cent of the mine to help fund initial construction work, Taseko benefits from the sale of more than 100 million pounds of copper annually.
Prices bumped along at about 50c for a while but have been above a dollar almost continuously since 2004, and today copper is trading at a two-year high of more than $3 a pound. With production costs of between $1.30 and $1.90 a pound, Gibraltar has turned out to be a very canny investment.
Copper-bottomed: The copper price has risen, helping miners such as Taseko, as its use in industry increases
Vancouver-based Taseko is smart at flexing costs too. When copper prices fell as the coronavirus pandemic took hold, president Stuart McDonald focused on areas where extraction was easier and cheaper.
Ultimately, extraction will pivot to a new section of the mine, where production is more costly. However, with copper prices expected to increase steadily through the year, profit margins are likely to remain robust.
Earlier this month, Taseko issued an upbeat statement about the three months from March to June, with sales and production ahead of last year, despite the Covid-19 pandemic. Analysts expect full year sales for the 2020 calendar year of at least C$350million (£201million), up more than 6 per cent since 2019, with further growth pencilled in for next year and beyond.
Gibraltar is Taseko’s only mine that is currently in production, but the group has five other sites 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 deliver 85million pounds of copper a year, almost doubling Taseko’s current production.
The site benefits from highly unusual geological properties so Taseko can adopt a mining process that is widely used to extract uranium but has never been used for copper before – extracting the metal, rather than its ore, directly from the ground, using a solution made from water and sulphuric acid.
The method does not involve any of the usual mining practices, such as blasting, tunnelling and waste dumps, so the carbon footprint is some 90 per cent lower than conventional mining.
The acid is neutralised with alkaline solution once each section of the site has been mined so the environment is protected too. For shareholders, there is another key advantage – at $1.10 a pound, costs are significantly lower than in traditional copper mining.
McDonald has been testing the new method for the past 18 months and results have been highly encouraging. In a major step forwards, Taseko was recently granted a draft environmental permit from the state regulators and a full permit is expected in the next few months, with federal permission set to follow.
In the meantime, McDonald is in active discussions over financing. The group needs $230million to take Florence into production and may well seek to secure the bulk of that from an external investor, in exchange for about 20 per cent of the mine.
The strategy worked well for Gibraltar and Florence is, in many ways, an even more beguiling asset, which has already attracted interest from potential customers.
Further down the line, another asset in British Columbia, Yellowhead, is likely to come on stream with three more Canadian assets waiting in the wings.
Copper has proved a volatile metal over the past 20 years but the outlook for Taseko is bright. Supply from Chile and Peru, the two biggest producers, has been constrained by coronavirus, even as demand has picked up in China, which accounts for around 40 per cent of global demand.
Looking ahead, copper followers are optimistic. Governments worldwide are keen to stimulate economic growth through building works and copper is integral to most construction projects. It also plays a key role in renewable energy and electric vehicles, where demand is likely to increase over the coming years.
Midas verdict: Taseko has been listed in Toronto for years but only joined the London market in November 2019. The shares have done well in recent weeks but they should continue to rise, as copper prices increase and Florence comes closer to production. At 65p, the stock is a long-term buy.
Traded on: Main market Ticker: TKO Contact: tasekomines.com or 001 778 373 4533