Torex Gold Resources Inc. (TSX: TXG) reports the Company’s financial and operational results for the three and six months ended June 30, 2021. The Company also announces an expansion of the El Limón open pit and a decision to prepare the Media Luna Feasibility Study on a conventional mining basis.
Jody Kuzenko, President & CEO of Torex, stated:
“Following the excellent performance through the first half of the year, we are well on track to deliver on full year production and cost guidance. The solid operational performance delivered by our team resulted in another strong financial quarter for Torex, with adjusted EBITDA of $122.1 million and adjusted net earnings of $47.4 million. The Company generated $82.4 million in operating cash flow and $21.9 million in free cash flow, even after accounting for the payment of $30 million related to government mandated profit-sharing (“PTU”) accrued during 2020. As a result, cash increased to $196.0 million from $172.0 million the prior quarter. Current total liquidity of over $345 million is expected to improve further in 2021 as the second half of the year is typically a seasonally stronger period for cash flow than the first half.
“A key priority for the Company is to deliver a smooth transition between ELG and Media Luna, in part by extending the life of the ELG open pit operations beyond late-2023. After evaluating various scenarios and options, the Board has approved a pushback of the El Limón open pit, which is anticipated to add approximately 150,000 ounces of gold production and extend open pit mining to mid-2024. As a result of this decision, we have increased sustaining capital expenditure guidance for the second half of 2021 by $15 million, allocated to capitalized waste associated with the pushback. Taking into account the incremental investment, and spend year-to-date, we expect all-in sustaining costs to be at the upper end of the guidance range.
“We are continuing to work on de-risking and advancing Media Luna towards first production in early 2024. As a result, we made the following decisions:
“We believe that these decisions will help mitigate risk to the business while allowing more time for the development and testing of the monorail-based technology. The Company continues to have confidence in the potential of the technology, and management will consider including a PEA level study to utilize monorail-based equipment to develop the smaller EPO deposit near Media Luna as part of the overall Technical Report to be released in Q1 2022.
“Overall, we are focused on executing on our strategy. With robust cash flow generation from ELG, a strong balance sheet, and some key strategic decisions behind us, we are well positioned to deliver on our operational guidance for 2021 as well as our long-term plan to deliver shareholder value. Over the coming weeks, we expect to release a multi-year production outlook for ELG, a project update on Media Luna, and exploration results from the 2021 drill programs.”
SECOND QUARTER 2021 HIGHLIGHTS
PRODUCTION AND COST GUIDANCE REITERATED, SUSTAINING CAPITAL GUIDANCE INCREASED
With the strong start to the year, the Company reaffirms full year production and cost guidance of 430,000 to 470,000 ounces of gold at a total cash cost of $680 to $720 per ounce sold, and all-in sustaining cost of $920 to $970 per ounce. Sustaining capital expenditure guidance has increased by $15 million, reflecting additional capitalized waste for the El Limón pushback. Non-sustaining capital expenditure guidance is unchanged.
The stable total cash cost guidance reflects the strong start to the year as well as lower anticipated PTU in 2021 following recently passed legislation that now caps the PTU at the greater of 3 months of salary or trailing 3-year average PTU payment per employee. These positive factors are expected to offset higher processing costs given increased reagent consumption due to elevated levels of copper and iron in sulphides as mining moves deeper within the open pits. All-in sustaining costs are likely to be towards the upper end of the original guided range, reflecting costs associated with the approval of the El Limón pushback.
Non-sustaining capital expenditure guidance is expected to be at the upper end of the original guided range of $125 to $150 million. The upper end of non-sustaining guidance reflects the year-to-date spend, approval of a second portal south of the river, and an expanded infill drill program at Media Luna.
TABLE 1: 2021 REVISED SUSTAINING CAPITAL GUIDANCE
|In millions of U.S. dollars, unless otherwise noted||Initial 2021
|Gold Production||oz||430,000 to 470,000||No change|
|Total Cash Costs||$/oz||680 to 720||No change|
|All-in Sustaining Costs||$/oz||920 to 970||No change|
|Capitalized Waste||$||40 to 45||55 to 60|
|Other Sustaining Expenditures||$||30 to 40||No change|
|Sustaining Capital Expenditures||$||70 to 85||85 to 100|
|Non-Sustaining Capital Expenditures||$||125 to 150||No change|
South Portal Lower will allow for development of the lower portions of the deposit while providing risk mitigation for the advancement of the Guajes Tunnel from the north side of the river, which is currently underway. South Portal Lower, in conjunction with the previously approved South Portal Upper, will allow for the simultaneous development of the upper and lower portions of the Media Luna deposit ahead of when the Guajes tunnel is expected to reach the orebody. This investment in underground development is expected to provide sufficient stopes to mitigate risks often encountered with the ramp-up of large-scale underground mines.
The infill drilling program at Media Luna has been expanded to 83,000 metres from 44,000 metres and reflects an increased focus on exploration across the entire Morelos property. With eight drill rigs turning at Media Luna, the exploration program is likely to be further extended into 2022, with a dual focus of upgrading additional Inferred mineral resources to the Indicated category as well as step-out drilling targeting to expand the overall resource base at Media Luna.
EXPANSION OF EL LIMÓN OPEN PIT APPROVED
The expansion of the El Limón open pit, via a pushback, is expected to result in approximately 150,000 ounces of additional gold production between late-2023 and mid-2024. The incremental open pit production, together with continued output from the ELG underground and use of stockpiles to top up the mill as required, is expected to support a smooth transition between the ELG open pits and Media Luna. The Company plans to release a multi-year production outlook for ELG over the coming weeks.
As a result of the additional waste removal, the 2021 strip ratio is now estimated at 8:1. The strip ratio is expected to peak in 2022 before declining thereafter. Based on year-end 2020 reserves and including the additional tonnage from the pushback, the average life-of-mine strip ratio is estimated at approximately 7:1.
As a result of the pushback, an additional $15 million has been added to the sustaining capital expenditure guidance in 2021.
PURSUING THE MEDIA LUNA FEASIBILITY STUDY ON A CONVENTIONAL MINING BASIS
After an analysis of the results to date of the Muckahi test program at ELD and an assessment of business risks, the Board has approved a decision to pursue the Media Luna Feasibility Study on a conventional mining basis. While the monorail-based technology has progressed since the beginning of the ELD test program, testing to date of the individual components operating as an integrated system demonstrates that additional process and equipment engineering is required to achieve desired advance rates, cycle times, and associated cost efficiencies, and that there is insufficient available upside in using the technology as it relates to financial or schedule considerations for Media Luna.
In addition, with the monorail-based option, there is no alternative readily available once the decision is taken to drive the two steep ramps at Media Luna, since there would be no access to the ore via any other method without considerable investment and schedule disruption associated with driving conventional ramps. Apart from the technical risks, there are additional business risks that require time and consideration such as permitting and regulatory compliance given there is no precedent for the technology.
As such, the Company has determined that pursuing the Feasibility Study on a conventional mining basis is a more prudent approach in order to mitigate operational and financial risk to the business given Media Luna will be our primary source of feed at our Morelos property after mid-2024.
While the test results to date indicate that the technology is not sufficiently mature for deployment at Media Luna, the Company continues to have confidence in its potential. Aspects of the monorail-based technology are currently being deployed for development of the Guajes Tunnel, and management will consider including a PEA level study to utilize monorail-based equipment to develop the smaller EPO deposit near Media Luna as part of the overall Technical Report to be released in Q1 2022. Potential deployment of the technology at EPO would allow for additional testing of the integrated system within a live production environment. EPO hosts an Inferred resource2 of 1.01 million gold equivalent ounces (8.0 million tonnes at a gold equivalent grade of 3.93 g/t).
ABOUT TOREX GOLD RESOURCES INC.
Torex is an intermediate gold producer based in Canada, engaged in the exploration, development, and operation of its 100% owned Morelos Gold Property, an area of 29,000 hectares in the highly prospective Guerrero Gold Belt located 180 kilometers southwest of Mexico City. The Company’s principal assets are the El Limón Guajes mining complex comprising the El Limón, Guajes and El Limón Sur open pits, the El Limón Guajes underground mine including zones referred to as Sub-Sill and El Limón Deep, and the processing plant and related infrastructure, which commenced commercial production as of April 1, 2016, and the Media Luna deposit, which is an advanced stage development project, and for which the Company issued an updated preliminary economic assessment in September 2018. The property remains 75% unexplored.
TABLE 2: OPERATING & FINANCIAL RESULTS SUMMARY
|Three Months Ended||Six Months Ended|
|Jun 30,||Mar 31,||Jun 30,||Jun 30,||Jun 30,|
|In millions of U.S. dollars, unless otherwise noted||2021||2021||2020||2021||2020|
|Lost time injury frequency||/million hours worked||0.26||0.15||0.00||0.26||0.00|
|Total recordable injury frequency||/million hours worked||2.83||2.96||3.12||2.83||3.12|
|Total cash costs 1||$/oz||637||580||740||606||774|
|All-in sustaining costs 1||$/oz||897||854||1,015||874||990|
|All-in sustaining costs margin 1||$/oz||919||924||697||922||633|
|Average realized gold price 1||$/oz||1,816||1,778||1,712||1,795||1,623|
|Cost of sales||$||119.7||131.9||91.4||251.6||235.5|
|Earnings from mine operations||$||86.2||99.3||17.7||185.5||45.6|
|Net income (loss)||$||60.7||55.0||3.8||115.7||(43.2||)|
|Per share – Basic||$/share||0.71||0.64||0.04||1.35||(0.51||)|
|Per share – Diluted||$/share||0.69||0.62||0.04||1.31||(0.51||)|
|Adjusted net earnings 1||$||47.4||57.2||3.6||104.7||23.5|
|Per share – Basic 1||$/share||0.55||0.67||0.04||1.22||0.28|
|Per share – Diluted 1||$/share||0.55||0.66||0.04||1.22||0.28|
|Adjusted EBITDA 1||$||122.1||144.9||49.3||267.0||116.7|
|Cost of sales||$/oz||1,074||1,022||1,447||1,046||1,375|
|Cash from operating activities||$||82.4||65.2||2.2||147.6||31.7|
|Cash from operating activities before changes in non-cash working capital||$||98.4||79.2||28.1||177.6||49.9|
|Free cash flow (deficiency) 1||$||21.9||9.3||(28.5||)||31.2||(26.4||)|
|Net cash (debt) 1||$||191.5||167.3||(53.5||)||191.5||(53.5||)|
TABLE 3: MINERAL RESOURCE ESTIMATE – MEDIA LUNA (APRIL 30, 2021)
|As of April 30, 2021||Tonnes||Au||Ag||Cu||Au||Ag||Cu||AuEq||AuEq|
|Resources – Media Luna|
|Total Media Luna|
Notes to Mineral Resource Estimate Table:
1) The effective date of the estimate is April 30, 2021.
2) Mineral Resources are reported above a 2.0 g/t gold equivalent (AuEq) cut-off grade; AuEq = Au (g/t) + Cu % * (77.16/49.83) + Ag (g/t) * (0.64/49.83).
3) The assumed mining method is from underground.
4) Mineral Resources are reported using a long-term gold price of US$1,550/oz, silver price of US$20/oz, and copper price of US$3.50/lb.
5) Costs per tonne of mineralized material (including mining, milling, and general and administrative) used is US$75/t.
6) Metallurgical recoveries average 85% for gold, 75% for silver, and 89% for copper.
7) Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.
8) Mineral Resources are classified in accordance with applicable Canadian Institute of Mining, Metallurgy and Petroleum Standards.
9) Rounding as required by reporting guidelines may result in apparent summation differences between tonnes, grade, and contained metal content.
10) Mineral Resources are reported as undiluted; grades are contained grades.
11) The estimate was prepared by Dr. Lars Weiershäuser, P.Geo., a former employee of and currently a consultant to the Company, who is a “Qualified Person” under NI 43-101.
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