Transcript Taseko Mines Limited (NYSEMKT:TGB) Q2 2019 Earnings Conference Call August 8, 2019 11:00 AM ET
Company Participants
Brian Bergot - Vice President, Investor Relations
Russ Hallbauer - Chief Executive Officer
Stuart McDonald - President
John McManus - Chief Operating Officer
Bryce Hamming - Chief Financial Officer
Conference Call Participants
Orest Wowkodaw - Scotiabank
Joshua Givelber - Nomura
Craig Hutchison - TD Bank
Operator
Good morning. My name is Leone, and I’ll be your conference operator today. At this time, I would like to welcome everyone to Taseko Mines Second Quarter Earnings and Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.
I would now like to turn the call over to your host Mr. Brian Bergot, please go ahead.
Brian Bergot
Thank you, Leone. Welcome, everyone, and thank you for joining us today to review Taseko's second quarter 2019 financial results. The news release announcing our financial results were issued yesterday after market closed and are available on our website at tasekomines.com.
With me today in Vancouver is Russ Hallbauer, CEO; Stuart McDonald, President; John McManus, COO; and Taseko's Chief Financial Officer, Bryce Hamming. After opening remarks by management, which will review the second quarter business and operational results, we will open the phone lines to analysts and investors for question-and-answer session.
Before we proceed, I would like to remind our listeners that our comments and answers to your questions will contain forward-looking information. This information, by its nature is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome.
For further information on these risks and uncertainties, I encourage you to read the cautionary note that accompanies our second quarter MD&A and the related news release, as well as the risk factors particular to our company.
I would now like to turn the call over to Stuart for his remarks.
Stuart McDonald
Okay. Thanks, Brian. Good morning, everyone. Thanks for dialing into our second quarter earnings call. We've changed the format slightly this time. I'll start with a review of the second quarter activity and also give an update on our financing progress at Florence. Bryce will then review the Q2 financials in more detail and Russ will wrap-up and talk about the bigger picture and our strategy going forward.
So operationally we had a solid performance at Gibraltar this quarter producing just under 35 million pounds of copper. Average head grade was 0.256% much below our life of mine average grade. Mill throughput was right around the design capacity of 85,000 tons a day and recoveries were a bright spot at 87% which is slightly better than normal.
But overall at 35 million pounds of quarterly production, we're back to where we should be in terms of average production rates. We were coming off two lower-grade quarters. And if you look back over the last few years, we have had some quarterly ups and downs in terms of production, but that variability always evens out over time and our annual production has been fairly stable.
For the second half of this year, we see fairly stable production rates and we're reiterating our annual production guidance of 130 million pounds plus or minus 5%. Second quarter earnings from mine operations were $19 million and adjusted EBITDA was $15 million. The Gibraltar mine continues to generate positive cash flow, which is funding the rest of our business.
Our financial results were certainly impacted by the decline in copper prices, but a lot of that impact is being offset by improved moly production and moly revenues are significantly higher than they were a year ago. The price remains in the $12 a pound range and so we expect good by-product credit going forward.
On the cost side, we continue to have fairly consistent spending levels at the mine site although with some variability depending on mining rates and timing of maintenance activities. Site operating costs net of by-product were $1.71 a pound, which is 10% lower than the prior quarter. Quarterly changes in our cost per pound continued to be driven by copper production and also our capital strip allocation.
This quarter we capitalized a smaller amount of stripping cost. If you remember, we had a lot of capital strip in 2017 and 2018 for the new Granite pushback, but we're now into that ore and we'll mine out Granite pit over the next year or so. That brings some accounting implications in terms of amortization of the previously capitalized amounts and we saw that this quarter with higher depreciation expense, which affected earnings by about $0.04 per share. Bryce can talk more about that in a minute.
The lower copper prices were certainly affecting our margins in recent months and we face the same situation as many of our peers. But we continue to believe that current prices are not sustainable and sooner or later the supply-demand fundamentals will take over and move prices higher. We just need to continue running our operation well managing our balance sheet properly to see those better times.
Adding a second operation and one with low operating costs continues to be a priority and in that respect we made good progress at Florence this quarter. In April, we produced first copper from the Production Test Facility. And in June, we announced that leach solutions being recovered from the wells will be able to reach commercial grade. So the test facility is going well and the experience we're gaining will be valuable as we move to the commercial scale operation.
Project permitting is advancing as expected. As a reminder, the project is located on privately owned fee simple land and also state land. We need two key permit amendments to move to the full scale commercial operation, one from the ADEQ and another from federal EPA.
Given the performance of the PTF well year-to-date, we don't anticipate any issues in permitting the commercial facility. We're also in active dialogue with town of Florence. We had an important legal ruling there in January, and believe we're very close to putting those issues behind us and moving forward in a constructive way.
I wanted to now take a minute and provide some further color on our financing plans at Florence. First-off, I think it's important to note that we're aiming to fully fund the project prior to the start of construction. So we're targeting to raise in a range of US$200 million as new capital.
The key aspect of that will be debt financing. Based on our initial discussions with lenders, we see a high level of interest and we expect to be able to raise up to approximately US$125 million. Our expectation is that will be project-level debt secured by the Florence Project, but with no additional security granted on Gibraltar.
Florence is a project with very strong economics in a good jurisdiction. We'll produce pure copper cathode on site. And in terms of mining, it's actually a very green project with low impact in terms of surface disturbance, energy consumption and carbon emission. We know we have to use a big focus in the investment community and that aspect actually may also help us in terms of lender interest as well.
The second aspect of our financing strategy is partnering. As we've noted in the past, if we can get the right type of deal with the right partner, we'd be prepared to sell a minority stake in the project, something in the range of 10% to 20% potentially.
We are advancing discussions on that front and there is a good level of interest from potential JV partners. With investment fund potentially coming in after permitting and with the technical side de-risked, we should be able to attract a good valuation.
Keep in mind, the NPV value of a 20% interest would be US$150 million that's an ongoing study. So this could be a significant part of our overall funding package.
The third financing track that we're working on is royalty free for additional royalty upstreams. We're advancing several discussions with several parties on that front and their strong interest for a copper stream or royalty for both Florence and Gibraltar. We are reviewing our options there. We may do something this year in advance of the full project finance package that would bolster our cash position and be a first step towards the construction funding for Florence.
So overall, between debt, partnering and royalties, we think we are very well positioned with respect to Florence financing, and confident that we'll have the funding ready when we receive permits in the first half next year. It will be a matter of finding the right balance between the different alternatives and getting the best deal we can for the company.
And in terms of our liquidity for this year, we are still working on restructuring of our Gibraltar reclamation bonding. You can see on our balance sheet, we have about $37 million of cash tied up for reclamation bonding within the Gibraltar JV.
We are working on a surety bond transaction, which would release that out of JV and allow it to be used for general working capital purposes at the Taseko level. So if we're successful with that initiative and a potential royalty transaction, we could end the year with well over $100 million of cash on our balance sheet.
Engineering work continues on our Yellowhead copper project, which we have acquired earlier this year. We are now reengineering the project, and has commenced discussions with local First Nations and regulators. The work that's been done so far is very encouraging.
When you benchmark Yellowhead against other recent transactions under the copper projects that are being sanctioned, you can see the value. And Russ will talk more about that in a minute. In the meantime, we continue to move the project forward for a very low cash outlay around $1 million this year.
We understand the market is focused on quarterly EBITDA in Gibraltar production and rightly so that's important for us as well, but we also have a great portfolio of development projects that isn't being given value in the capital markets. Recent transactions have shown that long-life copper projects in good jurisdictions are very valuable assets and we have four of them. We'll continue moving forward within our means to unlock that value.
So I'd like to now hand the call over to our CFO, Bryce Hamming. Bryce joined Taseko about a year ago now, and he's been a valuable addition to our senior management team. He brings 20 years of broad experience in banking, corporate finance, tax and accounting. He was appointed CFO in June this year, so this is his first quarter in the role. So over to you Bryce.
Bryce Hamming
Thanks, Stuart. Good morning. I'd like to cover in further detail the second quarter financial results that were released yesterday. We reported earnings from mining operations before depletion and amortization of $18.6 million on a quarterly basis, bringing our year-to-date earnings to $34.4 million.
Earnings from mine operations were impacted by two main factors in the quarter: First, the copper price decreased to a realized price of $2.69 per pound, a notable 14% decrease from the same quarter last year when it was at a realized price of $13 -- or $3.13 per pound.
Second, we capitalized only $2 million of mining cost for capitalized stripping in the quarter compared to $7.7 million in the same quarter last year. In the current quarter ended of June 30 we also began to recognize higher levels of depreciation of previously capitalized stripping cost for the Granite pit as we transition to more ore mining in this pit. This resulted in $30 million of depreciation expense in the quarter, an increase of $10 million or $0.04 per share compared to $20 million in Q1 and $18 million in Q2 of 2018.
This greater depreciation expense of approximately $30 million per quarter is expected to continue over the next year. Revenue in the quarter was $86.5 million, a 23% increase over the first quarter primarily due to the increased copper production to 35 million pounds on a 100% basis that was noted by Stuart.
On a year-to-date basis revenue is $157 million and overall in line with the first half of 2018 which saw $158 million in revenue. Realized copper prices were $0.28 per pound less in the first half of 2019 compared to last year, but this was offset by both a weaker Canadian dollar and increases in moly revenue due to higher moly production, 708 pounds of moly sold compared to only 424 pounds in Q2 last year and moly prices prevailing over $12 this quarter.
Cash from operating activities was $11.1 million for the quarter and $18.3 million on a year-to-date basis. Operating cash flow continue to fund our capital expenditures at Gibraltar and Florence copper and also contributed to our improved cash position which ended the quarter at $42 million, up $7 million from the end of Q1.
Our copper concentrate inventory was 5.5 million pounds at the end of June which was higher than normal which is typically in the 2 million to 3 million pounds range. As in Q1 we had a further unrealized foreign exchange gain on our U.S. dollar-denominated debt, $6.3 million in Q2 or $12.9 million on a year-to-date basis due to closing rates at the quarter end compared to December 31, despite the overall weakening trend of the Canadian dollar.
GAAP net loss for the period was $11 million and after adjustments for the unrealized foreign exchange and derivative gains, we're reporting an adjusted net loss of $17.5 million or $0.07 per share.
We also continue to optimize our borrowings against our equipment fleet at Gibraltar. In particular we executed refinancings on used equipment with relationship banks at attractive rates and tenures between 4 to 5 years and beyond the maturity of our bonds.
Net proceeds from both transactions totaled $22.2 million for Taseko's 75% share and assisted with financing the semiannual interest payment of $14 million on our bonds which is paid in mid-June.
We continue to work on this equipment refinancing initiative on Gibraltar's remaining equipment given that is covenant lite and it is some of our lowest cost of capital. We also continued to make progress on releasing the restricted cash and the reclamation deposits on our balance sheet into working capital.
As at June 30 the total amount we're looking to restructure and make available is $37 million as noted by Stuart. This initiative will substitute cash held in trust and backing letters of credit held by the BC government with alternative forms of security that is more cost effective to us.
With copper production expected to be stable in the last half of the year, we now expect our cash and liquidity position to significantly grow over the next few quarters as Stuart highlighted as we secure external finance interest as part of our preparation for the Florence project, commercial scale capital program.
I'll now turn it over to Russ.
Russ Hallbauer
Thank you, Bryce. Good morning, everyone. Thanks everybody for being here in the middle of a long hot summer, so we appreciate your attendance. I know most of the folks on the call today are focused on how Gibraltar is performing and that's important, but generally speaking Gibraltar has been very consistent with respect to cost and production for the last number of years. And really true economic impact for the company is when copper prices take a run up by 10%, 20%, 30% then the financial returns really accelerate.
And as the pandits say and a lot of analysts that time will come again soon, we believe in the not too distant future. In the interim, however our management team is really focusing on how we grow our business, executing our strategic plan, and creating increased value for our shareholders in difficult times. So we have both short-term goals and long-term goals in that respect.
As I said, short term is to ensure Gibraltar continues to generate cash, pay the bills and allow us to advance our projects. Secondly, we've worked for the past decade or so to acquire reserves that would grow our reserve base with minimum -- minimal shareholder dilution and use our core strengths and engineering operations to advance those reserves towards production.
Presently, our executive and operational teams as Stuart indicated are intensely focused on advancing Florence to production. While we've had numerous challenges on the permitting front not because of the environmental issues, but a result of the ability in the U.S. as in many jurisdictions throughout the world to challenge permits as a result of local opposition.
In our case, this has resulted in a number of legal impediments to us advancing the project as quickly as we would've liked. Those legal challenges were primarily not against the company per se, they've mostly been against the government agencies overseeing permitting. Suffice to say those are now behind us and we prevailed -- and the government has prevailed in several legal proceedings and we now have operating permits -- and we've now been operating the PTF for the last six months in full compliance with those permit requirements.
Moving forward as Stuart indicated, we just have submitted the Arizona -- to the Arizona Department of Environmental Quality the ADEQ, a permit amendment for the Aquifer Protection Permit and this week John and his team submitted to the EPA the amendment for the Underground Injection certificate.
As important as those have been, we have been in discussions with the town to determine a path forward, so that any future litigation efforts will end. I believe both parties believe it is ultimately in the best interest of both organizations to move forward collectively. I expect a conclusion to those discussions in the not-too-distant future as Stuart indicated previously.
In conjunction with the permitting and government relations advancement, the project by John's operational team and our understanding of managing of leach solutions in the orebody is actually exceeding our expectations. Although, it is not without its challenges, we're pleased with our understanding of what is going on at depth in the orebody. Every day, we're making refinements to our understanding of the process of in-situ extraction and this work will enhance and speed up copper production when we build the commercial facility.
As Stuart indicated, he and Bryce have been diligently discussing all aspects of financing for Florence from project debt to selling the JV interest with municipalities and those are progressing very well as Stuart said. And we expect a plan in place by year-end.
With respect to Yellowhead, we have done a lot of engineering work on refining the mine plan which will enhance project economics and NPV as well as we're engaged with federal agencies, provincial agencies and the local communities both regional communities and local First Nations to develop a path forward and that will present itself in the weeks ahead.
I'd like to spend a minute and discuss how we view both acquisition cost of reserve and how we ascertain what we can afford to pay and how the overall economics of an operating mine will play out. A number of years ago, in fact over six years ago, we invested $5 million in Yellowhead. At the time, the market cap was roughly $70 million, down from its peak of $120 million which was probably driven primarily by copper price in those days. We took our position and waited to see what would unfold and once satisfied with the entry point, we moved to acquire the company.
Ultimately, the total cost to acquire Yellowhead for Taseko was less than $13 million. And if you take in the tax pools, I don't know if you have spoken about those Stuart, but certainly if you take in the tax pools that would be -- that would go against income from Gibraltar, the net cost was significantly below that $13 million.
So we acquired a 700 million ton ore body with a feasibility study on it, and has a resource of 1.3 billion tons. That feasibility study completed by Yellowhead showed a pretax NPV at 8% of US$684 million, and an unlevered IRR of just under 17%. But this -- please understand this isn't a PEA or PFS. It's a full-blown feasibility study bankable.
Now a simple math, what would a reserve of £3 billion of a cup of copper worth? Recently there became a very simple metric with Teck-Sumitomo's deal in Quebrada Blanca. In the Teck deal with Sumitomo, Sumitomo paid 19 -- this is a variable payout between $0.19 and $0.23 per pound of reserve. That would then allow them to spend total $2 billion to have access to £180 million of annual copper production in a project that has a 13% IRR. It shows you the dearth of large copper projects out there, as companies are prepared to accept the 13% IRR and pay those kind of dollars.
We spent less than 0.3% -- $0.03 per pound for acquiring the Yellowhead reserves, not $0.19 to $0.23. So you can see right then we've created value. We expect to produce a comparable amount of copper of Yellowhead. Similar to that which would flow to Sumitomo from QB, which is normally £180 million a year for 20 years. We expect to build the mine with the type of dollars we spent on building Gibraltar i.e. $10,000 per ton of installed capacity and more than -- which is more than one-half the amount Sumitomo will spend where you're talking about Canadian dollars and they're talking about US dollars and we expect the cost structure will be one in the lower one-half cost curve in the world with an internal rate of return of over 20%.
If we take an acquisition and buildup of large mining operation, this acquisition is one of the most accretive of any projects in the world for a company of our size. You can drill and do a feasibility study. If indeed you have a mine or ore body or something this size for under $60 million to $70 million, and we acquired it for $30 million. So we are happy about that, but the market is really not recognizing the inherent value of this asset.
With regard to New Prosperity, we'll be undertaking more investigative work in the property. New Prosperity is by no means dead, defending our legal rights and exercising our rights to access the property have never faltered. And I can assure everybody New Prosperity will be a mine one day, once Taseko governments and First Nations figure out a path forward.
So unlike our peers, we've close to nine billion pounds of copper reserves as Stuart said in four advanced assets. We have 6 million ounces of gold reserves, inside a resource of 13 million ounces, 280 million kg of recoverable Nb reserves and all these are in development stage. They will provide our future growth.
We have a path to growth most people -- folks don't really understand, but reserves are collateral. And when you have collateral in the ground in the reserves you own, you can sell portions of them off get royalties on cut metal streams or bring in partners to help you development. You have a tremendous, tremendous amount of flexibility. If you don't have reserves you don't have much.
Our balance sheet has cash and we have access to what we require when we require it as Bryce was alluding to. So we won't panic. We'll manage our balance sheet as we have our mining assets in a slow process keeping in mind shareholder value at all times.
We can't do a whole lot on our equity at this time with the trade-off in the metal markets because of the ever-changing trade dispute and issues overhanging supply-demand fundamentals with respect to copper and other metals. What we can do is take care of the things we control over the next 12 to 24 months.
A lot is going to happen with this company in the near future as some of it's -- some of it is a result of metal prices, but a lot of it with our growth profile. We've laid the foundation for long-term growth and for every passing day we move down that path.
As a side note, maybe a lot of you won't know this, but in the big recession of 1982 and 1983, copper rose from $0.55 to $0.85 per pound, a 45% increase. In the great financial crisis, which everyone will remember in that period from 2008 to 2009 copper rose from $1.20 to $3.20 a pound, a 140% increase. The major difference in both times the world was in a major recession and there was a very large copper surplus and an oversupply.
Today, we are in a recession -- if we're in a recession the jury is still out copper is in deficit and there is an undersupply, because very few mines have been built to just keep up with even slowing demand growth. Folks need to consider that when thinking about this business.
I'd like to now turn the call back to the operator to open for questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Your first question is from Orest Wowkodaw from Scotiabank. Orest, please go ahead.
Orest Wowkodaw
Hi, good morning guys. A question on recoveries at Gibraltar. They were quite high in Q2 despite pushing throughput and kind of average grade and even Q1 you did pretty good recoveries on arguably very low-grade material. Can you maybe give us some color of what's going on in terms of how are you able to achieve that and then whether we should read anything into that moving forward?
John McManus
Hi, Orest, John here. Yes, what's happened there is we're down in the bottom at the Granite pit. So there is really little acid soluble or oxidized material. When you see these recoveries drop off, I think it was Q4 last year we had low recoveries that was because we're in top of orebody, where you've got more oxidation. So for the next year most of our feed is going to be coming from the Granite pit when we get into the top of Pollyanna pit…
Orest Wowkodaw
Okay. So they should expect -- so we should expect then a trend kind of above average for the next year.
John McManus
Yes, that's the way I see it coming, yes.
Orest Wowkodaw
Okay. Great. And then in terms of the strip ratio, it came down pretty hard in Q2. Should we expect that 2.3 is that a good kind of number for the back half of the year or do you think it comes down more?
John McManus
No, that's another result of the same function of being down at the bottom of Granite pit. We've had a really long haul that's a deep pit now. So most of our trucks lot of our truck power is eaten up just moving ore from the bottom of Granite up to the mill. As the Pollyanna pit picks up you will see more stripping at the top, you'll see more higher strip ratio and as Stuart mentioned then the capital strip will swing back into a higher number two. So all of those are really recoveries the low strip ratio all driven by the length of the haul.
Orest Wowkodaw
Okay. Thanks. And then just finally on the balance sheet. I mean, as you are progressing on Florence, do you -- should we anticipate any refinancing plans with respect to the existing corporate debt? I know it matures in 2022, but I'm just wondering if you're already thinking about extending that before taking on more debt related to Florence?
Stuart McDonald
Well we keep an eye on that market obviously, but -- it's Stuart speaking here Orest. But still three years we're only two years into kind of a five-year bond, so still lots of time there's still a pretty healthy call premium on that bond. So I think the first priority for us is getting a funding package in place for Florence and then we'll think about the bond in the coming years, so no immediate….
Orest Wowkodaw
Okay. Thanks guys.
John McManus
Thanks, Orest.
Operator
Thank you. [Operator Instructions] Your next question is from Joshua Givelber from Nomura. Joshua, please go ahead.
Joshua Givelber
I note that you just said operating cost $66 million seems a little bit high to me. Some of that's probably from less capital strip so more kind of expense -- more of that goes into expense, but any other factors that were driving this cost high?
Stuart McDonald
Yes, Josh, it's Stuart here. I think you're right. I think the low capital strip makes our operating cost on the P&L appear to be higher this quarter. We look at it in terms of total spending at the site including capitalized amount and the amounts are relatively stable.
We do get some fluctuations with our mining rate. I think we mined a few more tons this quarter than the prior quarter. And then the other piece might be, if we have some maintenance items that can be bigger ticket items and we kind of try to schedule those through the year, but those would be two factors that will give us a little bit of fluctuation, but generally pretty consistent total spend.
Joshua Givelber
Great, great. And then, on Florence, did I hear right that you expect by year-end to have everything in place?
Stuart McDonald
No, no I think -- I mean, I think, we want a plan in place by the end of the year. And in terms of actually drawing financing or closing transactions for Florence, I think, that will be dependent on permitting timing. And so, we're talking about first half of 2020. And at that point we would be kind of completing or execute -- actually executing the financings that we're getting organized this year.
Joshua Givelber
And how quickly -- once Florence is, I guess, ready to go, like how quickly does it achieve commercial production?
John McManus
Hi, Josh, John here. We will be at 80% detail design by the end of Q1, it's our target for next year. And then, if we get the go on permits, we should be able to construct the facility in under a-year-and-a-half, and then it will be a little while before production comes on. So you add all that up and we're about two years away from commercial production.
Joshua Givelber
Thank you.
Operator
Thank you. Your next question is from Craig Hutchison from TD Bank. Craig, please go ahead.
Craig Hutchison
Hi, guys. Thanks for taking my call. Just in terms of the elevated depreciation that we saw in Q2, can we essentially assume that will be similar in the next, say, two to three quarters, based on your mine plan, where you are in the Granite Pit?
Bryce Hamming
Yeah. Hi, Craig, it's Bryce. I think that's reasonable. I think if we look four quarters out, we were mining most of the ore from the Granite Pit, we'll see levels commensurate with current quarter of $30 million.
John McManus
I think, that is the most optimal price like per capital Gibraltar and Pollyanna which we're adjusting now.
Bryce Hamming
That's right. So we'll start Pollyanna and start capitalizing some of the Pollyanna strip. But as far as depreciation, that will be elevated as a result of the capital strip we have on our balance sheet, which will be amortized over four quarters.
Craig Hutchison
Okay, perfect. And then in terms of sustaining capital, it was obviously quite low in the quarter. I think it was about $1.5 million. Do you anticipate that sort of picking up over the back half of the year? Is there any major programs with respect to lift of the tailings dam, et cetera, that we should sort of factor into our estimates?
John McManus
Hi, Craig. No, there is nothing significant. We have some work to do at the tailings facility, but we're not mining Gibraltar. We're well set up. Got a new fleet out there, so our sustaining capital rates will be similar to what you see now.
Craig Hutchison
Okay. And then question on the financing for Florence. You guys gave a fair bit of color there. You talked about raising approximately US$200 million in new capital and if I understand correctly $125 million of that will come from project-level debt and then the balance is going to come from a possible partnership 10% to 20% of Florence and then a possible stream. I mean, would you not want to raise a little bit more than US$200 million, just given I think that is roughly the CapEx of the project, do you assume any kind of working capital overruns, et cetera?
Stuart McDonald
Yes. Craig, it's Stuart here. I think we will certainly for reclamation bonding required in Arizona. So we will -- our plan is to fully fund it and not -- and kind of not rely on Gibraltar cash flow to help fund projects.
So that's our plan. And in terms of the components, I mean, I would say, we'll see how the negotiations go. In terms of how we allocate that total funding between the three components, I mentioned.
We could do up to $125 million I think. So maybe if we get a great deal from a JV partner perhaps it's -- we need less than that, in terms of project debt. But time will tell, to see how that all with go.
Craig Hutchison
Is there anything you have seen so far at Florence that would suggest capex could be less than the $200 million or possibly more than the $200 million, based on just what you've seen to date?
John McManus
We're in the middle of detailed engineering right now, Craig. And we're not really seeing any major changes. We see the price of drilling has gone down. The price of labor has gone up a bit. But those will fluctuate by the time we actually get into it. There is really no significant difference that we can see.
Craig Hutchison
And maybe one last question for me. I thought I heard in the opening remarks that, you're looking at potentially doing a royalty or stream on Gibraltar as well as Florence, is that correct?
Stuart McDonald
Yeah. I would say we're looking at copper streams and royalties generally, on both Florence and Gibraltar. And so, we've got, we think kind of a few options that we're reviewing there.
And so we could do -- we could do a transaction on either of those projects in terms of royalty this year before Florence -- find that before Florence permit, Now as the way we view that is it, I mean both our working capital a little bit builds cash a little bit in order -- so that we head into the Florence Copper Project next year with a solid balance sheet.
Craig Hutchison
Can you give us a sense of in terms of the percentage or the metal that you would sell from Gibraltar or would it be -- would you sell a stream on the copper or will it be molybdenum?
Stuart McDonald
There is copper, there is moly, it's roughly $500 million of revenue at Gibraltar last year. So, on a 100% basis, so it's a big mine there is lots of metal. We don't have to sell a high portion of that to realize a lot of -- a large value on royalty. So, that's one of the things we're looking at.
Craig Hutchison
Yeah, thanks.
Stuart McDonald
I wouldn't want to be too more -- too specific than that at this point.
Craig Hutchison
I understood. Thanks.
Operator
Thank you. There are no further questions, at this time. Please proceed.
Stuart McDonald
Okay. Thank you. Thanks everyone for dialing in. And we will talk to you next quarter.
Russ Hallbauer
Thanks.
Operator
Ladies and gentlemen, this concludes your conference call today. We thank you for participating. And ask that you please disconnect your lines.