Taseko secures US$350m from gold off-take at Prosperity

Vancouver – Taseko Mines (TKO-T, TGB-X) has signed a gold-stream agreement with Franco-Nevada (FNV-T) that will help finance the development of its Prosperity gold-copper project near Williams Lake, British Columbia.

Franco-Nevada has agreed to provide a US$350 million deposit for the construction of the project to secure 22% of the gold produced from Prosperity at US$400 per oz., or the prevailing price if it dips below that. Taseko will have access to the deposit once the project is fully permitted, financed, and agreements are in place to sell 75% of the concentrate for five years. At that time Franco-Nevada will also provide Taseko with 2 million of its 2017 warrants, exercisable at $75 a piece.

Taseko projects capital costs of $815 million to get Prosperity up and running. Between the US$350 million Franco-Nevada financing, Taseko’s $200 million cash on hand and an expected $100 million in earnings over the next year from its Gibraltar mine, the company has approximately 80% of funding for Prosperity lined up.

Brian Bergot, investor relations for Taseko, said the rest of the funding could be covered through debt, an equity raise, a trade loan, or the sale of part of the asset, though he said the last option looks less likely now.

“The point is we’ve got 80% of the funds committed today, we don’t believe it will be difficult to raise the remaining $165 million, we have some time to work on that,” said Bergot.

Franco-Nevada should not have a problem coming up with the deposit as it was sitting on over US$650 million in working capital as of March.

The Prosperity project is one of the largest undeveloped copper-gold projects in Canada. Proven and probable mineral reserves are 830 million tonnes grading 0.41 gram gold per tonne and 0.23% copper.

The current feasibility study projects 3.6 billion lbs. copper and 7.7 million oz. gold could be extracted over 33 years using a milling rate of 70,000 tonnes per day. Pre-tax net present value stands at $3 billion and the pre-tax internal rate of return at 40%, using a 5% discount. The project has room to grow, with a total measured and indicated resource of 1 billion tonnes grading 0.41 gram gold and 0.24% copper, which includes current reserves.

The project got a big boost in January when the provincial government gave environmental approval. Taseko is now waiting for federal approval after the review hearings wrapped up in early May. The review panel must submit a report to the federal cabinet by July 2 for a final decision. Bergot said the company expects to receive final federal permitting by September.

The Department of Fisheries and Oceans has expressed concerns about how the company plans to mitigate the use of a local lake as a tailings pond, but Bergot said Taseko is confident all concerns were addressed in the 6-week federal review hearings.

Taseko also operates the Gibraltar open-pit copper mine, 125 km northeast of the Prosperity project. Gibraltar, as of December 2008, hosted 472 million tons (428.1 million tonnes) of reserves grading 0.315% copper and 0.008% molybdenum. The total measured and indicated resource stands at 958.7 million tons (869.7 million tonnes) grading 0.298% copper and 0.008% molybdenum.

Taseko’s share price jumped 45¢ on the news of the deal to close at $6.09. The company’s share price has made a fairly steady climb from $1.53 a year ago to the current $6 range. Taseko has 186 million shares outstanding.