TGB

Business Context and Reporting Period

Taseko Mines Limited is a Canadian mining and mineral exploration company incorporated in British Columbia. The company operates the Gibraltar copper-molybdenum mine and holds two exploration-stage properties: the Prosperity copper-gold project and the Harmony gold project. This Form 20-F covers the fiscal year ended September 30, 2005. The company uses the Canadian dollar as its reporting currency.

Key Financial Metrics (Fiscal Year Ended Sept 30, 2005)

Note: Figures are presented in thousands of Canadian dollars unless otherwise noted. The company reported its first annual profit in its history.

Material Changes vs. Prior Period

• Profitability Turnaround: The company recorded a net income of $24.4 million in 2005, a significant improvement from a net loss of $81.4 million in 2004. This shift was driven by the resumption of commercial production at the Gibraltar mine and the recognition of tax benefits.
• Revenue Generation: Revenue increased from $nil in 2004 to $87.6 million in 2005, derived from the sale of copper and molybdenum concentrates. Commercial production commenced on January 1, 2005.
• Working Capital: Working capital improved from a deficit of $22.3 million in 2004 to a positive $6.4 million in 2005.
• Expense Reductions: Exploration expenses dropped to $0.5 million from $4.5 million in 2004. Restart project costs decreased to $6.3 million from $15.0 million as the mine transitioned to commercial operations.
• Non-Recurring Items: Unlike 2004, which included a $28.8 million write-down of the Harmony Gold Property and a $5.1 million premium for the Gibraltar Reclamation Trust, 2005 had no significant non-recurring expenses.

Outlook, Risks, and Management Commentary

Guidance and Outlook

• Mill Expansion: In March 2006, the Board approved a $62 million expenditure to expand the Gibraltar concentrator's grinding circuit and replace the flotation system. This is expected to increase annual copper production by 30% to approximately 100 million pounds by late 2007.
• SX-EW Plant: The company plans to refurbish the solvent extraction and electrowinning (SX-EW) plant at a cost of $3 million, with operations expected to resume in the fall of 2006.
• Prosperity Project: Work was re-initiated in November 2005 to re-assess project economics based on new technologies and higher metal prices.

Risks and Contingencies

• Glencore Arbitration: A dispute exists with Glencore Ltd., the sole purchaser of concentrates, regarding "price participation" deductions. As of December 31, 2005, Glencore had withheld approximately US$3.3 million and claimed an additional US$0.5 million. Arbitration is scheduled for June 2006.
• Commodity Price Volatility: Profitability is highly correlated to copper and molybdenum prices. A strengthening Canadian dollar against the US dollar negatively impacts profitability as revenues are in USD and costs are in CAD.
• Reclamation Obligations: The company has accrued $49.4 million (undiscounted) for reclamation costs. Ultimate costs may exceed estimates due to regulatory changes or unforeseen factors.
• Operational Risks: The company relies on Ledcor CMI Ltd. to operate the mine. Loss of Ledcor's services would halt production until a new operator is engaged.

Investor Verification Checklist

• Glencore Dispute Outcome: Verify the result of the June 2006 arbitration regarding the withheld US$3.8 million in revenue.
• Mill Expansion Funding: Confirm the source of the $62 million capital required for the mill expansion (internal cash flow vs. external financing).
• Reclamation Liability Accuracy: Review the $49.4 million reclamation accrual against current regulatory requirements and inflation assumptions.
• Currency Exposure: Monitor the CAD/USD exchange rate, as a stronger CAD directly reduces reported earnings.
• Production Targets: Track actual copper and molybdenum production against the revised forecasts of 100 million pounds of copper post-expansion.