EX-99.1 2 exhibit99-1.htm EXHIBIT 99.1 Taseko Mines Limited: Exhibit 99.1 - Filed by newsfilecorp.com

Condensed Consolidated Interim Financial Statements

June 30, 2020

(Unaudited)



TASEKO MINES LIMITED

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Cdn$ in thousands, except share and per share amounts)
(Unaudited)

      Three months ended     Six months ended  
      June 30,     June 30,  
  Note   2020     2019     2020     2019  
                           
Revenues 3   106,005     86,521     168,089     156,795  
Cost of sales                          
Production costs 4   (55,669 )   (67,875 )   (111,830 )   (122,420 )
Depletion and amortization 4   (25,512 )   (30,138 )   (52,660 )   (50,322 )
Earnings (loss) from mining operations     24,824     (11,492 )   3,599     (15,947 )
                           
General and administrative     (2,900 )   (3,500 )   (6,798 )   (7,973 )
Share-based compensation expense 14c   (1,297 )   (399 )   (1,481 )   (2,113 )
Project evaluation expenditures     (153 )   (566 )   (310 )   (1,035 )
Gain (loss) on derivatives 5   (887 )   (8 )   4,968     (851 )
Other income     412     343     807     908  
Income (loss) before financing costs and income taxes     19,999     (15,622 )   785     (27,011 )
                           
Finance expenses, net 6   (10,413 )   (9,749 )   (21,034 )   (19,183 )
Foreign exchange gain (loss)     13,485     6,234     (15,748 )   12,310  
Income (loss) before income taxes     23,071     (19,137 )   (35,997 )   (33,884 )
                           
Income tax recovery (expense) 7   (4,326 )   8,125     5,792     14,941  
Net income (loss)     18,745     (11,012 )   (30,205 )   (18,943 )
                           
Other comprehensive income (loss):                          
Gain on financial assets 8   6,770     214     6,576     1,328  
Foreign currency translation reserve     (7,932 )   (3,582 )   8,754     (7,049 )
Total other comprehensive income (loss)     (1,162 )   (3,368 )   15,330     (5,721 )
                           
Total comprehensive income (loss)     17,583     (14,380 )   (14,875 )   (24,664 )
                           
Earnings (loss) per share                          
Basic     0.08     (0.04 )   (0.12 )   (0.08 )
Diluted     0.08     (0.04 )   (0.12 )   (0.08 )
                           
Weighted average shares outstanding (thousands)                          
Basic     246,194     246,094     246,194     241,596  
Diluted     246,582     246,094     246,194     241,596  

The accompanying notes are an integral part of these consolidated interim financial statements.



TASEKO MINES LIMITED

Condensed Consolidated Statements of Cash Flows
(Cdn$ in thousands)

(Unaudited)

      Three months ended     Six months ended  
      June 30,     June 30,  
  Note   2020     2019     2020     2019  
                           
Operating activities                          
Net income (loss) for the period     18,745     (11,012 )   (30,205 )   (18,943 )
Adjustments for:                          
Depletion and amortization     25,512     30,138     52,660     50,322  
Income tax (recovery) expense 7   4,326     (8,125 )   (5,792 )   (14,941 )
Share-based compensation expense 14c   1,321     444     1,567     2,231  
(Gain) loss on derivatives 5   887     8     (4,968 )   851  
Finance expenses, net     10,413     9,749     21,034     19,183  
Unrealized foreign exchange (gain) loss     (12,985 )   (6,258 )   16,762     (12,947 )
Deferred revenue deposit 12   8,510     -     8,510     -  
Amortization of deferred revenue 12   (1,471 )   (976 )   (2,611 )   (1,953 )
Other operating activities     (539 )   121     997     (256 )
Net change in working capital 16   (17,640 )   (3,016 )   (3,204 )   (5,283 )
Cash provided by operating activities     37,079     11,073     54,750     18,264  
                           
Investing activities                          
Purchase of property, plant and equipment 10   (14,555 )   (7,093 )   (32,799 )   (20,471 )
Purchase of copper put and fuel call options 5   (661 )   -     (1,649 )   (851 )
Proceeds from copper put options 5   3,236     -     6,104     241  
Proceeds from the sale of marketable securities 8   7,270     -     7,270     -  
Other investing activities     47     134     224     202  
Cash provided used for investing activities     (4,663 )   (6,959 )   (20,850 )   (20,879 )
                           
Financing activities                          
Interest paid     (15,877 )   (15,138 )   (16,871 )   (15,519 )
Proceeds from equipment financings     -     26,036     -     26,036  
Repayment of equipment loans and leases     (1,824 )   (7,063 )   (6,165 )   (10,869 )
Proceeds on exercise of options     -     90     -     176  
Cash provided by (used for) financing activities     (17,701 )   3,925     (23,036 )   (176 )
Effect of exchange rate changes on cash and equivalents     (1,265 )   (618 )   (443 )   (924 )
Increase (decrease) in cash and equivalents     13,450     7,421     10,421     (3,715 )
Cash and equivalents, beginning of period     50,169     34,529     53,198     45,665  
Cash and equivalents, end of period     63,619     41,950     63,619     41,950  
                           
Supplementary cash flow disclosures 16                        

The accompanying notes are an integral part of these consolidated interim financial statements.



TASEKO MINES LIMITED

Consolidated Balance Sheets
(Cdn$ in thousands)
(Unaudited)

      June 30,     December 31,  
  Note   2020     2019  
               
ASSETS              
Current assets              
Cash and equivalents     63,619     53,198  
Accounts receivable     16,624     13,791  
Inventories 9   40,775     43,620  
Other financial assets 8   549     730  
Prepaids     3,322     2,513  
      124,889     113,852  
Property, plant and equipment 10   754,297     758,006  
Other financial assets 8   6,735     6,783  
Goodwill     5,619     5,355  
      891,540     883,996  
               
LIABILITIES              
Current liabilities              
Accounts payable and other liabilities     40,688     43,685  
Current portion of long-term debt 11   15,319     16,460  
Current portion of deferred revenue 12   7,136     4,558  
Interest payable on senior secured notes     1,242     1,184  
Current income tax payable     2,050     1,406  
      66,435     67,293  
               
Long-term debt 11   373,305     357,025  
Provision for environmental rehabilitation ("PER")     70,295     66,373  
Deferred and other tax liabilities     44,206     50,703  
Deferred revenue 12   47,437     39,433  
Other financial liabilities 13   1,961     1,483  
      603,639     582,310  
               
EQUITY              
Share capital 14   436,318     436,318  
Contributed surplus     52,712     51,622  
Accumulated other comprehensive income ("AOCI")     22,157     6,827  
Deficit     (223,286 )   (193,081 )
      287,901     301,686  
      891,540     883,996  
               
Commitments and contingencies 15            

The accompanying notes are an integral part of these consolidated interim financial statements.



TASEKO MINES LIMITED

Consolidated Statements of Changes in Equity
(Cdn$ in thousands)

(Unaudited)

    Share     Contributed                    
    capital     surplus     AOCI     Deficit     Total  
                               
Balance at January 1, 2019   423,438     49,274     14,064     (139,699 )   347,077  
Fair value of shares issued for Yellowhead acquisition   12,629     -     -     -     12,629  
Share-based compensation   -     1,667     -     -     1,667  
Exercise of options   251     (75 )   -     -     176  
Settlement of performance share units   -     (377 )   -     -     (377 )
Total comprehensive loss for the period   -     -     (5,721 )   (18,943 )   (24,664 )
Balance at June 30, 2019   436,318     50,489     8,343     (158,642 )   336,508  
                               
Balance at January 1, 2020   436,318     51,622     6,827     (193,081 )   301,686  
Share-based compensation   -     1,090     -     -     1,090  
Total comprehensive income (loss) for the period   -     -     15,330     (30,205 )   (14,875 )
Balance at June 30, 2020   436,318     52,712     22,157     (223,286 )   287,901  

The accompanying notes are an integral part of these consolidated interim financial statements.


TASEKO MINES LIMITED

Notes to Condensed Consolidated Interim Financial Statements

(Cdn$ in thousands)


1. REPORTING ENTITY

Taseko Mines Limited (the "Company" or "Taseko") is a corporation governed by the British Columbia Business Corporations Act.  These unaudited condensed consolidated interim financial statements of the Company as at and for the three and six month periods ended June 30, 2020 comprise the Company, its subsidiaries and its 75% interest in the Gibraltar joint venture since its formation on March 31, 2010. The Company is principally engaged in the production and sale of metals, as well as related activities including mine permitting and development, within the province of British Columbia, Canada and the State of Arizona, USA. Seasonality does not have a significant impact on the Company's operations.

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting and follow the same accounting policies and methods of application as the Company's most recent annual financial statements. These condensed consolidated interim financial statements do not include all of the information required for full consolidated annual financial statements and should be read in conjunction with the consolidated financial statements of the Company as at and for the year ended December 31, 2019, prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

These condensed consolidated interim financial statements were authorized for issue by the Company's Audit and Risk Committee on August 5, 2020.

(b) Use of judgments and estimates

In preparing these condensed consolidated interim financial statements, management has made judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

The significant judgments made by management in applying the Company's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended December 31, 2019. 

On March 11, 2020, the World Health Organization declared the coronavirus ("COVID-19") outbreak a pandemic creating an unprecedented global health and economic crisis. COVID-19's impact on global markets has been significant. The duration and magnitude of COVID-19's effects on the economy, movement of goods and services across international borders, the copper market, and on the Company's financial and operational performance remains uncertain at this time. As of the date of these statements, there has not been any impact on Gibraltar operations or the Florence Copper project as a result of COVID-19.

The Company will continue to closely monitor the potential impact of COVID-19 on its business.  Should the duration, spread or intensity of the COVID-19 pandemic deteriorate in the future, there could be a potentially material and negative impact on the Company's operating plan, its liquidity and cash flows, and the valuation of its long-lived assets due to sustained decreases in metal prices, potential future decreases in revenue from the sale of its products and the profitability of its ongoing operations. Impacts from COVID-19 could also include a temporary cessation of mining operations at the Gibraltar Mine due to a localized outbreak amongst personnel at the mine site or in the Company's supply chain.  The Company's access to financing to support its ongoing operations including the development of its other mineral properties could also be negatively impacted or delayed as a result of COVID-19.


TASEKO MINES LIMITED

Notes to Condensed Consolidated Interim Financial Statements

(Cdn$ in thousands)

3. REVENUE

    Three months ended     Six months ended  
    June 30,     June 30,  
    2020     2019     2020     2019  
Copper contained in concentrate   95,786     86,667     171,714     151,313  
Molybdenum concentrate   5,615     8,511     9,457     17,448  
Silver (Note 12)   968     1,081     1,964     2,093  
Price adjustments on settlement receivables   10,489     (2,612 )   (2,471 )   (1,405 )
Total gross revenue   112,858     93,647     180,664     169,449  
Less: Treatment and refining costs   (6,853 )   (7,126 )   (12,575 )   (12,654 )
Revenue   106,005     86,521     168,089     156,795  

4. COST OF SALES

    Three months ended     Six months ended  
    June 30,     June 30,  
    2020     2019     2020     2019  
Site operating costs   44,032     66,694     97,579     122,124  
Transportation costs   5,834     4,630     10,353     7,918  
Changes in inventories of finished goods   5,753     (3,989 )   4,441     (8,035 )
Changes in inventories of ore stockpiles   50     540     (543 )   413  
Production costs   55,669     67,875     111,830     122,420  
Depletion and amortization   25,512     30,138     52,660     50,322  
Cost of sales   81,181     98,013     164,490     172,742  

Site operating costs include personnel costs, non-capitalized waste stripping costs, repair and maintenance costs, consumables, operating supplies and external services.

Included in site operating costs and general administrative expenses are $4,934 and $300, respectively, of benefits for claims submitted by the Company for the Canada Emergency Wage Subsidy during the six months ended June 30, 2020 (2019 - $nil).

5. DERIVATIVE INSTRUMENTS

During the six month period ended June 30, 2020, the Company purchased copper put option contracts for 39.5 million pounds of copper with maturity dates ranging from January 2020 to June 2020, at strike prices between  US$2.30 and US$2.60 per pound, at a total cost of $733. The Company recognized a net realized gain of $2,864 and $5,371, respectively, on these settlements in the three and six month periods ended June 30, 2020.

In July, the Company purchased 20 million pounds of copper put options at a strike price of US$2.60 per pound covering the fourth quarter of 2020, at a total cost of $1,009. 


TASEKO MINES LIMITED

Notes to Condensed Consolidated Interim Financial Statements

(Cdn$ in thousands)

During the six month period ended June 30, 2020, the Company purchased fuel call options for diesel with maturity dates ranging from April 2020 to March 2021, at a total cost of $916.  The fuel call options outstanding had a fair value of $513 at June 30, 2020.

The following table outlines the (gains) losses associated with derivative instruments:

    Three months ended
June 30,
    Six months ended
June 30,
 
  2020     2019     2020     2019  
Realized (gain) loss on copper put options   (2,864 )   284     (5,371 )   851  
Realized loss on fuel call options   223     -     223     -  
Unrealized (gain) loss on copper put options   3,667     (276 )   -     -  
Unrealized (gain) loss on fuel call options   (139 )   -     180     -  
    887     8     (4,968 )   851  

6. FINANCE EXPENSES

    Three months ended
June 30,
    Six months ended
June 30,
 
  2020     2019     2020     2019  
Interest expense   9,359     8,559     18,719     16,812  
Finance expense - deferred revenue (Note 12)   1,182     1,038     2,238     2,077  
Accretion on PER   (80 )   451     275     901  
Finance income   (48 )   (299 )   (198 )   (607 )
    10,413     9,749     21,034     19,183  

7. INCOME TAX

    Three months ended
June 30,
    Six months ended
June 30,
 
  2020     2019     2020     2019  
Current income tax expense   644     298     644     408  
Deferred income tax (recovery) expense   3,682     (8,423 )   (6,436 )   (15,349 )
    4,326     (8,125 )   (5,792 )   (14,941 )


TASEKO MINES LIMITED

Notes to Condensed Consolidated Interim Financial Statements

(Cdn$ in thousands)

8. OTHER FINANCIAL ASSETS

    June 30,
2020
    December 31,
2019
 
Current:            
  Marketable securities   36     730  
  Fuel call options (Note 5)   513     -  
    549     730  
Long-term:            
  Investment in subscription receipts   2,400     2,400  
  Reclamation deposits   2,972     3,083  
  Restricted cash   1,363     1,300  
    6,735     6,783  

During the six month period ended June 30, 2020, the Company received net proceeds of $7,270 from the sale of marketable securitites of a publicly traded company and the resulting gain is recognized in other comprehensive income.

9. INVENTORIES

    June 30,
2020
    December 31,
2019
 
Ore stockpiles   7,878     6,657  
Copper contained in concentrate   4,655     9,055  
Molybdenum concentrate   189     230  
Materials and supplies   28,053     27,678  
    40,775     43,620  

During the three and six months ended June 30, 2020, the Company recorded an impairment of $221 and $629, respectively, to adjust the carrying value of ore stockpiles to net realizable value, of which $110 and $284, respectively, is recorded in depletion and amortization and the balance in production costs.


TASEKO MINES LIMITED

Notes to Condensed Consolidated Interim Financial Statements

(Cdn$ in thousands)

10. PROPERTY, PLANT & EQUIPMENT

The following schedule shows the continuity of property, plant and equipment net book value for the three and six months ended June 30, 2020:

    Three Months
Ended June 30,

2020
    Six Months
Ended June 30,

2020
 
Net book value beginning of period   773,422     758,006  
Additions:            
  Gibraltar capital expenditures (includes capitalized stripping costs)   11,197     29,277  
  Florence Copper development costs   4,362     9,126  
  Aley development costs   131     741  
  Yellowhead development costs   217     368  
Other items:            
  Right of use assets   95     1,858  
  Rehabilitation costs asset   (265 )   4,082  
  Disposals   (135 )   (320 )
  Foreign exchange translation and other   (8,159 )   8,101  
  Depletion and amortization   (26,568 )   (56,942 )
Net book value at June 30, 2020   754,297     754,297  

Net book value   Gibraltar
Mines
(75%)
    Florence
Copper
    Yellowhead     Aley     Other     Total  
At December 31, 2019   539,747     188,512     16,240     12,766     741     758,006  
Net additions   29,084     9,160     368     741     1,697     41,050  
Changes in rehabilitation cost asset   4,082     -     -     -     -     4,082  
Depletion and amortization   (56,713 )   (27 )   -     -     (202 )   (56,942 )
Foreign exchange translation and other   -     8,679     -     -     (578 )   8,101  
At June 30, 2020   516,200     206,324     16,608     13,507     1,658     754,297  

During the three months ended June 30, 2020, the Company capitalized stripping costs of $8,963 and incurred other capital expenditures for Gibraltar of $2,295. Non-cash additions to property, plant and equipment include $1,527 of depreciation of capitalized stripping.

During six months ended June 30, 2020, the Company capitalized stripping costs of $25,014 and incurred other capital expenditures for Gibraltar of $4,390. Non-cash additions to property, plant and equipment include $3,662 of depreciation of capitalized stripping.

Since its acquisition of the Florence Copper Project in November 2014, the Company has incurred and capitalized a total of $101.9 million in project development and other costs, including capitalized interest.


TASEKO MINES LIMITED

Notes to Condensed Consolidated Interim Financial Statements

(Cdn$ in thousands)

Prior to January 2020, Yellowhead was in the evaluation phase and project related expenditures were expensed.  In January 2020, the Company announced the results of its own technical studies on Yellowhead and filed a new NI 43-101 technical report and the project entered the development phase for accounting purposes. Since January 1, 2020 development costs of $368 have been capitalized as mineral property, plant and equipment.

Depreciation related to the right of use assets for the three and six months period ended June 30, 2020 was $1,107 and $2,266, respectively.

11. DEBT

    June 30,
2020
    December 31,
2019
 
Current:            
  Lease liabilities (b)   6,816     7,990  
  Secured equipment loans (c)   6,588     6,626  
  Lease related obligations (d)   1,915     1,844  
    15,319     16,460  
Long-term:            
  Senior secured notes (a)   335,015     317,728  
  Lease liabilities (b)   12,510     11,107  
  Secured equipment loans (c)   17,311     18,746  
  Lease related obligations (d)   8,469     9,444  
    373,305     357,025  
Total debt   388,624     373,485  

(a) Senior secured notes

In June 2017, the Company completed an offering of US$250,000 aggregate principal amount of senior secured notes (the "Notes").  The Notes mature on June 15, 2022 and bear interest at an annual rate of 8.750%, payable semi-annually on June 15 and December 15.

The Notes are secured by liens on the shares of Taseko's wholly-owned subsidiary, Gibraltar Mines Ltd., and the subsidiary's rights under the joint venture agreement relating to the Gibraltar Mine.  The Notes are guaranteed by each of Taseko's existing and future restricted subsidiaries, other than Yellowhead. The Company is able to incur limited amounts of additional secured and unsecured debt under certain conditions as defined in the Note indenture. The Company is also subject to certain restrictions on asset sales, issuance of preferred stock, dividends and other restricted payments. However, there are no maintenance covenants with respect to the Company's financial performance.

The Company may redeem some or all of the Notes at any time, at redemption prices ranging from 102.188% to 100%, plus accrued and unpaid interest to the date of redemption. On a change of control, the Notes are redeemable at the option of the holder at a price of 101%.

(b) Lease liabilities

Lease liabilities includes the Company's outstanding lease liabilities under IFRS 16.


TASEKO MINES LIMITED

Notes to Condensed Consolidated Interim Financial Statements

(Cdn$ in thousands)

(c) Secured equipment loans

The equipment loans are secured by existing mining equipment at the Gibraltar Mine and commenced between May and August of 2019 with monthly repayment terms ranging between 48 and 60 months and with interest rates ranging between 5.2% to 6.4%.

(d) Lease related obligations

Lease related obligations relate to a lease arising under a sale leaseback transaction on certain items of equipment at the Gibraltar mine. The lease commenced in June, 2019 and has a term of 54 months. At the end of the lease term, the Company has an option to renew the term, an option to purchase the equipment at fair market value or option to return the equipment.  The lease contains a fixed price early buy-out option exercisable at the end of 48 months.

(e) Debt continuity

The following schedule shows the continuity of total debt for the first six months of 2020:

Total debt as at December 31, 2019   373,485  
Lease additions   3,615  
Lease liabilities and equipment loans repayments   (6,162)  
Unrealized foreign exchange loss   16,391  
Amortization of deferred financing charges   1,295  
Total debt as at June 30, 2020   388,624  

12. DEFERRED REVENUE

    June 30,
2020
    December 31,
2019
 
Current:            
  Customer advance payments (a)   2,445     -  
  Osisko - silver stream agreement (b)   4,691     4,558  
Current portion of deferred revenue   7,136     4,558  
Long-term portion of deferred revenue (b)   47,437     39,443  
Total deferred revenue   54,573     43,991  

(a) Customer advance payments

At June 30, 2020, the Company had received advance payments on 1.0 million pounds (100% basis) of copper concentrate finished goods inventory.

(b) Silver stream purchase and sale agreement

On March 3, 2017, the Company entered into a silver stream purchase and sale agreement with Osisko Gold Royalties Ltd. ("Osisko"), whereby the Company received an upfront cash deposit payment of US$33 million for the sale of an equivalent amount of its 75% share of Gibraltar payable silver production until 5.9 million ounces of silver have been delivered to Osisko. After that threshold has been met, 35% of an equivalent amount of Taseko's share of all future payable silver production from Gibraltar will be delivered to Osisko. The Company receives cash payments of US$2.75 per ounce for all silver deliveries made under the agreement.


TASEKO MINES LIMITED

Notes to Condensed Consolidated Interim Financial Statements

(Cdn$ in thousands)

On April 24, 2020, Taseko entered into an amendment to its silver stream with Osisko and received $8,510 in exchange for reducing the delivery price of silver from US$2.75 per ounce to nil. The amendment is accounted for as a contract modification under IFRS 15 Revenue from Contracts with Customers. The funds received are available for general working capital purposes.

The Company recorded the deposits from Osisko as deferred revenue and recognizes amounts in revenue as silver is delivered. The amortization of deferred revenue is calculated on a per unit basis using the estimated total number of silver ounces expected to be delivered to Osisko over the life of the Gibraltar Mine. The current portion of deferred revenue is an estimate based on deliveries anticipated over the next twelve months.

The following table summarizes changes in the Osisko deferred revenue:

Balance at December 31, 2019   43,991  
Finance expense (Note 6)   2,238  
Amortization of deferred revenue   (2,611 )
Deferred revenue deposit (amendment to silver stream)   8,510  
Balance at June 30, 2020   52,128  
Less: current portion   (4,691 )
Deferred Revenue - long term portion   47,437  

13. OTHER FINANCIAL LIABILITIES

 
 
  June 30,
2020
    December 31,
2019
 
Long-term:            
  Deferred share units (Note 14c)   1,961     1,483  
    1,961     1,483  

14. EQUITY

(a) Share capital

    Common shares
(thousands)
 
Common shares outstanding at December 31, 2019 and June 30, 2020   246,194  

The Company's authorized share capital consists of an unlimited number of common shares with no par value.

(b) Share purchase warrants

On April 1, 2020 the Company had 3,000,000 share purchase warrants at $2.74 per share expire unexercised.


TASEKO MINES LIMITED

Notes to Condensed Consolidated Interim Financial Statements

(Cdn$ in thousands)

(c) Share-based compensation

      Options
(thousands)
    Average price  
Outstanding at December 31, 2019   10,756     1.12  
  Granted   1,285     0.69  
  Cancelled/forfeited   (7 )   0.78  
  Expired   (1,949 )   1.02  
Outstanding at June 30, 2020   10,085     1.09  
Exercisable at June 30, 2020   7,722     1.20  

During the six month period ended June 30, 2020, the Company granted 1,285,000 (2019 - 4,611,500) share options to directors, executives and employees, exercisable at an average exercise price of $0.69 per common share (2019 - $0.75 per common share) over a five year period. The total fair value of options granted was $475 (2019 - $1,891) based on a weighted average grant-date fair value of $0.37 (2019 - $0.41) per option.

The fair value of options was measured at the grant date using the Black-Scholes formula.  Expected volatility is estimated by considering historic average share price volatility.  The inputs used in the Black-Scholes formula are as follows:

 

Six months ended

 

June 30, 2020

Expected term (years)

4.8

Forfeiture rate

0%

Volatility

64%

Dividend yield

0%

Risk-free interest rate

1.4%

Weighted-average fair value per option

$0.37

The Company has other share-based compensation plans in the form of Deferred Share Units ("DSUs") and Performance Share Units ("PSUs").

       
    DSUs
(thousands)
    PSUs
(thousands)
 
Outstanding at December 31, 2019   2,354     1,675  
  Granted   572     825  
  Settled   -     (400 )
Outstanding at June 30, 2020   2,926     2,100  

During the six month period ended June 30, 2020, 572,000 DSUs were issued to directors (2019 - 682,000) and 825,000 PSUs to senior executives (2019 - 875,000). The fair value of DSUs and PSUs granted was $899 (2019 - $1,696), with a weighted average fair value at the grant date of $0.72 per unit for the DSUs (2019 - $0.78 per unit) and $0.59 per unit for the PSUs (2019 - $1.33 per unit).


TASEKO MINES LIMITED

Notes to Condensed Consolidated Interim Financial Statements

(Cdn$ in thousands)

Share-based compensation expense (recovery) is comprised as follows:

    Three months ended
June 30,
    Six months ended
June 30,
 
  2020     2019     2020     2019  
Share options - amortization    178     462     501     1,160  
Performance share units - amortization   295     253     589     507  
Change in fair value of deferred share units    848     (271 )   477     564  
    1,321     444     1,567     2,231  

15. COMMITMENTS AND CONTINGENCIES

(a) Commitments

The Company is a party to certain contracts relating to service and supply agreements. Future minimum payments under these agreements as at June 30, 2020 are presented in the following table:

Remainder of 2020   1,358  
2021   5,519  
2022   920  
2023   -  
2024   -  
2025 and thereafter   -  
Total commitments   7,797  

As at June 30, 2020, the Company had no outstanding capital commitments.

(b) Contingencies

The Company has guaranteed 100% of certain capital lease and equipment loans entered into by the Gibraltar joint venture in which it holds a 75% interest. As a result, the Company has guaranteed the joint venture partner's 25% share of this debt which amounted to $16,190 as at June 30, 2020.


TASEKO MINES LIMITED

Notes to Condensed Consolidated Interim Financial Statements

(Cdn$ in thousands)

16. SUPPLEMENTARY CASH FLOW INFORMATION

    Three months ended
June 30,
    Six months ended
June 30,
 
  2020     2019     2020     2019  
Change in working capital items                        
Accounts receivable   (12,147 )   2,064     (2,833 )   8,904  
Inventories   6,494     (2,577 )   3,524     (8,218 )
Prepaids   (2,021 )   (1,476 )   (1,304 )   (1,171 )
Accounts payable and accrued liabilities   (4,989 )   (89 )   (5,043 )   (3,874 )
Advance payment on product sales   (4,467 )   -     2,445     -  
Interest payable   (510 )   (51 )   7     (37 )
Income tax payable   -     (887 )   -     (887 )
    (17,640 )   (3,016 )   (3,204 )   (5,283 )
Non-cash investing and financing activities                        
Assets acquired under capital lease   546     539     1,757     539  
ROU assets    95     1,256     1,858     9,446  

17. RELATED PARTIES

Gibraltar Joint Venture

Under the terms of the joint venture operating agreement, the Gibraltar joint venture pays the Company a management fee for services rendered by the Company as operator of Gibraltar. Net management fee income for the three and six month period ended June 30, 2020 was $300 and $601 (2019: $291 and $583) respectively.

In addition, the Company pays certain expenses on behalf of the Gibraltar joint venture and invoices the joint venture for these expenses. For the three and six month period ended June 30, 2020, net reimbursable compensation expenses and third party costs of $53 and $224 (2019: $16 and $39) respectively, were charged to the joint venture.

18. FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value, by reference to the reliability of the inputs used to estimate the fair values.

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and

Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair values of the senior secured notes are $287,892 and the carrying value is $335,015 at June 30, 2020. The fair value of all other financial assets and liabilities approximates their carrying value.

The Company has certain financial assets and liabilities that are measured at fair value on a recurring basis and uses the fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value, with Level 1 inputs having the highest priority.


TASEKO MINES LIMITED

Notes to Condensed Consolidated Interim Financial Statements

(Cdn$ in thousands)


    Level 1     Level 2     Level 3     Total  
                         
June 30, 2020                        
Financial assets designated as FVPL                        
  Derivative asset fuel call options   513     -     -     513  
    513     -     -     513  
Financial assets designated as FVOCI                        
  Marketable securities   36     -     -     36  
  Investment in subscription receipts   -     -     2,400     2,400  
    36     -     2,400     2,436  
December 31, 2019                        
Financial assets designated as FVOCI                        
  Marketable securities   730     -     -     730  
  Investment in subscription receipts   -     -     2,400     2,400  
  Reclamation deposits   3,083     -     -     3,083  
    3,813     -     2,400     6,213  

There have been no transfers between fair value levels during the reporting period. The carrying value of cash and equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value as at June 30, 2020.

The fair value of the senior secured notes, a Level 1 instrument, is determined based upon publicly available information. The fair value of the lease liabilities and secured equipment loans, Level 2 instruments, are determined through discounting future cash flows at an interest rate of 5.5% based on the relevant loans effective interest rate.

The fair values of Level 2 instruments are based on broker quotes. Similar contracts are traded in an active market and the broker quotes reflect the actual transactions in similar instruments.

The Company's metal concentrate sales contracts are subject to provisional pricing with the selling price adjusted at the end of the quotational period. At each reporting date, the Company's settlement receivable on these contracts are marked-to-market based on a quoted forward price for which there exists an active commodity market. At June 30, 2020 the Company had settlement receivables of $13,540.

The subscription receipts, a Level 3 instrument, are valued based on a management estimate. As the subscription receipts are an investment in a private exploration and development company, there are no observable market data inputs.

Commodity Price Risk

The Company is exposed to the risk of fluctuations in prevailing market commodity prices on the metals it produces.  The Company enters into copper put option contracts to reduce the risk of short-term copper price volatility. The amount and duration of the hedge position is based on an assessment of business-specific risk elements combined with the copper pricing outlook. Copper put option contracts are typically extended adding incremental quarters at established put strike prices to provide the necessary price protection. 

Provisional pricing mechanisms embedded within the Company's sales arrangements have the character of a commodity derivative and are carried at fair value as part of accounts receivable.


TASEKO MINES LIMITED

Notes to Condensed Consolidated Interim Financial Statements

(Cdn$ in thousands)

The table below summarizes the impact on revenue and receivables for changes in commodity prices on the provisionally invoiced sales volumes.

    As at June 30,  
    2020  
Copper increase/decrease by US$0.27/lb.1   4,790  

1The analysis is based on the assumption that the period end copper price increases 10% with all other variables held constant. At June 30, 2020, 13 million pounds of copper in concentrate were exposed to copper price movements. The closing exchange rate at June 30, 2020 of CAD/USD 1.3628 was used in the analysis.

The sensitivities in the above table have been determined with foreign currency exchange rates held constant. The relationship between commodity prices and foreign currencies is complex and movements in foreign exchange can impact commodity prices.  The sensitivities should therefore be used with care.