Torex Gold Releases Results of Technical Report for the Morelos Complex
For Immediate Release
TOREX GOLD RELEASES RESULTS OF TECHNICAL REPORT FOR THE MORELOS COMPLEX
Media Luna Project extends life of mine through 2033; Attractive operating cost profile maintained (All amounts expressed in U.S. Dollars unless otherwise stated)
TORONTO, Ontario, March 31, 2022 – Torex Gold Resources Inc. (the “Company” or “Torex”) (TSX: TXG) has released an updated technical report (“Technical Report”) for its Morelos Complex, which includes an integrated life of mine plan and economics for the producing El Limón Guajes (“ELG”) Mine Complex (consisting of the ELG Open Pits and ELG Underground) and the development stage Media Luna Project (“ML Project”). Based on the results of the feasibility study included in the Technical Report, and with approval from the Board of Directors on development of the ML Project, the Company also announces 2022 capital expenditure guidance specific to the ML Project as well as an updated multi-year production outlook.
HIGHLIGHTS OF THE TECHNICAL REPORT Key Economics – Base case metal prices
- Morelos Complex: Cumulative cash flow of $1,418M and after-tax NPV (5% discount rate) of $1,040M
- ML Project: After-tax NPV (5%) of $458M and after-tax IRR of 16.1%
- Long-term metal prices: $1,600/oz Au ($1,700/oz in 2022), $21/oz Ag, and $3.50/lb Cu
Key Economics – Spot case metal prices1
- Morelos Complex: Cumulative cash flow of $2,322M and after-tax NPV (5%) of $1,751M
• ML Project: After-tax NPV (5%) of $949M and after-tax IRR of 24.9%
- Spot metal prices: $1,950/oz Au, $25.50/oz Ag, and $4.70/lb Cu as of March 25, 2022
Morelos Complex Summary – Life of Mine
• Life of mine of 11.75 years commencing April 1, 2022 and ending Q4 2033
- Annualized gold equivalent (“AuEq”) sold of 374 koz2 including 280 koz of Au
- Increased exposure to Cu and Ag with annual payable output of 34.8 Mlb Cu and 1,327 koz Ag
- Total cash cost3 of $809/oz AuEq sold and mine-site all-in sustaining cost3 of $954/oz AuEq sold
- Annualized revenue of $605M and mine-site EBITDA3 (excludes corporate items) of $298M
Morelos Complex Summary – Process plant operating at full capacity (through 2027)
• Annualized AuEq sold of 450 koz through 2027 when the process plant is operating at full capacity
- Total cash cost of $779/oz AuEq sold and mine-site all-in sustaining cost of $929/oz AuEq sold
• Annualized revenue of $733M and mine-site EBITDA of $378M
Capital Expenditures
- $848M to develop and bring the ML Project into commercial production
- Includes $85M of underground development during pre-commercial period (Q4 2023 to Q4 2024)
- Total sustaining capital expenditures3 of $545M over life of mine
1 See also Table 10 for After-Tax Sensitivities to Key Factors for the Morelos Complex and Media Luna Project.
2 Gold equivalent (AuEq) sold includes Au and AuEq values for Ag and Cu sold assuming long-term metal prices of $1,600/oz Au ($1,700/oz in 2022), $21/oz Ag, and $3.50/lb Cu. A summary of life of mine payable production values for Au, Ag and Cu can be found in Table 1 including tonnes processed and average processed grades. Expected recovery and payable factors for Au, Ag and Cu can be found in Table 2.
3 These measures, as well as TCC margin, AISC margin, and sustaining and non-sustaining capital expenditures, are forward looking Non-GAAP Financial Performance Measures or Non-GAAP ratios (collectively, “Non-GAAP Measures”). Please see Table 13 for the equivalent historical non-GAAP measure. For the year ended December 31, 2021, the following historic Non-GAAP Measures were reported in the Company’s management’s discussion and analysis (“MD&A”) for the year ended December 31, 2021, dated February 23, 2022, which is available on the Company’s website (www.torexgold.com) and under the Company’s SEDAR profile (www.sedar.com): EBITDA
- $461.6M; TCC - $674/oz Au; TCC margin $1,120/oz Au; AISC – $928/oz; AISC margin - $865/oz Au; sustaining capital costs - $85.3M; and non-sustaining costs -
$152.4M. Please note that the AISC and AISC margin do not include Torex corporate G&A and potential sustaining exploration costs, and mine-site EBITDA does not include Torex corporate G&A. Please also see the Cautionary Notes on Non-GAAP Measures below.
Total Mineral Reserves of 5,123 koz AuEq at an average grade of 3.90 g/t AuEq4
- Initial Mineral Reserves for Media Luna of 3,360 koz AuEq based on 23.0 Mt at 4.54 g/t AuEq
Initiatives underway to realize available upside and build-on on solid base case production/cash flow
- Exploration/Drilling: Significant potential to expand Mineral Reserves in the ELG Underground, within the broader Media Luna area, and across the entire land package, which is 75% unexplored
• Development of EPO deposit: Potential to be a nearby source of incremental feed over and above the levels anticipated from the ML Project • ELG Underground: Potential to increase throughput with the investment in Portal #3 and utilizing bulk mining in specific zones
Jody Kuzenko, President & CEO of Torex, stated:
“Today we achieve a mission critical milestone in our growth journey with the release of the updated Technical Report for our Morelos Complex and approval from our Board of Directors to proceed with the development of the ML Project. With tremendous future exploration potential, advancing this project is fundamental to setting up our wholly owned flagship Morelos Complex for safe and reliable production, strong free cash flow post the construction period, and lasting economic prosperity for all of those who share stakes in Torex. With this investment, the foundation for the future growth plans of Torex will be firmly laid.
“We always knew that the Media Luna Project would be challenging. The deposit is situated 7 km away from our existing infrastructure, on the other side of a river, and hosts challenging metallurgy. True to the Torex brand, the economics shown in the Technical Report are grounded in operating costs, capital costs, and rampup time frames that are both realistic and achievable, accounting for the current inflationary environment, quotes from vendors, and assumptions on sustaining capital expenditures required to responsibly and sustainably operate a 7,500 tpd underground mine.
“Notwithstanding these challenges, it is clear the upside economics of developing the ML Project are compelling. We see significant opportunity to enhance the overall return of the ML Project by filling the mill post 2027 and extending the overall mine life beyond what is implied by reserves. The investment we are making in exploration and drilling in 2022, and going forward, reflects our determination to unlock the resource potential of our entire Morelos Property, and deliver on our goal of developing a multi-decade mining operation.
“Importantly, the ML Project opens up the opportunity for Torex to diversify into becoming a meaningful copper producer – an opportunity that could not have timed the market better. In fact, 20% of revenue of the Morelos Complex is forecast to be attributable to copper, with the percentage increasing as the ML Project ramps up.
“Given the ongoing success of our strategy to cash up ahead of the build, we expect to fund the development of the ML Project using our robust balance sheet, strong forecasted cash flow, and a prudent level of debt. With over $405M of available liquidity at year-end (including $255M in cash), annual projected cash flow from ELG Mine Complex of $190M through year-end 2024 (prior to capital expenditures on the ML Project), and a goal of maintaining a minimum liquidity position of $100M, we are evaluating debt financing in the order of $250M to $300M. Multiple debt financing options are being considered, including a gold prepay, high yield debt, and an expanded credit facility. This financing decision will be made in the months to come.
“There is no doubt that we are well positioned financially, socially, and technically to advance the development of the ML Project while continuing to invest in value accretive exploration – exploration that will both extend the life of mine and continue to further enhance the overall return of the Morelos Complex. The future is here and it’s clear – and in true Torex form, we will now turn our focus onto delivering.”
4 Gold equivalent (AuEq) Mineral Reserves account for underlying metal prices and metallurgical recoveries. Breakdown of Mineral Reserves by metal is outlined in Table 11 and a breakdown of Mineral Resources by metal is outlined in Table 12.
SUMMARY OF TECHNICAL REPORT FOR MORELOS COMPLEX
The Technical Report outlines the updated economics of the Morelos Complex in Guerrero, Mexico. The Technical Report includes an integrated mine plan for the ELG Mine Complex as well as the ML Project. Operational and economic estimates are based on a project period commencing April 1, 2022, unless otherwise noted. References to production and metal sold are based on payable levels unless otherwise stated. All values of economic inputs are nominally based, and all amounts expressed in U.S. dollars unless otherwise stated.
Table 1: Summary of Technical Report
| Metrics as of April 1, 2022 Morelos ELG ML Complex Standalone Incremental | ||||
| Total Processed | ||||
| Life of Mine Total ore processed Gold (Au) grade processed Silver (Ag) grade processed Copper (Cu) grade processed | years kt g/t g/t % | 11.75 39,778 2.89 16.7 0.56 | 3.5 15,931 2.91 4.3 0.12 | 8.25 23,847 2.88 25.0 0.85 |
| Total Payable Sold | ||||
| Gold (Au) Silver (Ag) Copper (Cu) Gold equivalent (AuEq) | koz koz Mlbs koz | 3,294 15,587 409 4,392 | 1,330 661 4 1,347 | 1,964 14,926 405 3,045 |
| Unit Operating Costs (including PTU) | ||||
| ELG Open Pit ELG Underground ML Underground Processing Site support Transport/Treatment/Refining Total operating cost Total operating cost with royalties | $/t mined $/t ore mined $/t ore mined $/t ore milled $/t ore milled $/t ore milled $/t ore milled $/t ore milled | $2.81 $98.19 $34.04 $34.54 $13.47 $5.67 $84.15 $89.08 | ||
| Operating Costs | ||||
| Total cash costs - gold equivalent Mine-site all-in sustaining costs - gold equivalent Total cash costs - by-product Mine-site all-in sustaining costs - by-product | $/oz AuEq $/oz AuEq $/oz Au $/oz Au | $809 $954 $545 $739 | $831 $1,023 $820 $1,015 | |
| Total Capital Expenditures | ||||
| Non-sustaining Sustaining Reclamation and closure | $M $M $M | $850 $545 $93 | $2 $184 | $848 $361 |
| Economics | ||||
| Gross revenue Mine-site EBITDA Cumulative cash flow After-tax NPV (5% discount rate) After-tax IRR Project payback period | $M $M $M $M % years | $7,106 $3,503 $1,418 $1,040 | $2,234 $1,067 $590 $582 | $4,872 $2,436 $828 $458 16.1% 5.8 |
| Base Case Commodity/Currency | ||||
| Gold price Silver price Copper price MXN/USD | $/oz $/oz $/lb | $1,600 $21.00 $3.50 20.00 | $1,600 $21.00 $3.50 20.00 | $1,600 $21.00 $3.50 20.00 |
Notes to Table 1
1. Total cash costs – gold equivalent, mine-site all-in sustaining costs – gold equivalent, total cash costs – by-product, mine-site all-in sustaining costs – by-product, nonsustaining and sustaining capital costs and mine-site EBITDA are Non-GAAP Measures. See footnote 3 above and Cautionary Note below on Non-GAAP Measures.
2. AuEq sold includes Au and AuEq values for Ag and Cu assuming long-term metal prices of $1,600/oz Au ($1,700/oz in 2022), $21/oz Ag, and $3.50/lb Cu.
3. Estimates are based on the project period commencing April 1, 2022. All amounts in U.S. dollars.
The updated mine plan and economics outlined for the Morelos Complex in the Technical Report are based on Proven & Probable Mineral Reserves for the ELG Mine Complex and the Media Luna Project. Differences between Mineral Reserves (tonnes and grade) compared to life of mine totals outlined in Table 1, reflect a project period commencing April 1, 2022 compared with Mineral Reserves which have an effective date of December 31, 2021 for the ELG Mine Complex and an effective date of October 31, 2021 for the ML Project. Details on the Company’s Mineral Reserves and Mineral Resources can be found in Table 11 and Table 12.
Metal Sold
Over an estimated life of mine of 11.75 years, based on Mineral Reserves, the Morelos Complex is expected to deliver annualized payable sales of 280 koz of gold (“Au”), 1,327 koz of silver (“Ag”), and 34.8 Mlb of copper (“Cu”). On a AuEq basis2, annualized payable AuEq sold over the life of the Morelos Complex is forecast to average 374 koz. AuEq sold is calculated by applying the long-term metal prices of $1,600/oz Au ($1,700/oz in 2022), $21/oz Ag, and $3.50/lb Cu assumed within the base case economics set out in the Technical Report. Metal sales are after metallurgical recoveries and payable factors for Au, Ag, and Cu.
During the period in which the capacity of the processing plant is fully utilized (April 2022 through December 2027), annualized AuEq sold is forecast to average 450 koz. Based on current Mineral Reserves, annual sales are forecast to decline post 2027 when the ML Project becomes the sole source of feed for the processing plant. Initiatives to fill the mill beyond 2027 are currently underway (Figure 1).
Figure 1: Annualized AuEq sold of 374 koz estimated over the life of mine; Annual AuEq sold through 2027 is expected to average 450 koz when the capacity of the processing plant is to be fully utilized
Notes to Figure 1:
1. AuEq sold includes Au and AuEq values for Ag and Cu assuming long-term metal prices of $1,600/oz Au ($1,700/oz in 2022), $21/oz Ag, and $3.50/lb Cu.
2. A summary of life of mine payable sold values for Au, Ag and Cu can be found in Table 1 including tonnes processed and average processed grades. Expected recovery and payable factors for Au, Ag and Cu can be found in Table 2.
3. 2022 payable AuEq sold includes Q1/22 versus the Technical Report which incorporates estimates over the project period commencing April 1, 2022.
Over the life of the Morelos Complex, approximately 75% of AuEq sold is attributable to Au, approximately 20% to Cu, and the remainder to Ag. The proportion of AuEq sold attributable to Cu is expected to increase materially commencing with start-up of the ML Project, with annual payable Cu of approximately 45 Mlb forecast between 2025 and 2033, representing close to 28% of AuEq sold over this period.
Mining
Ore for the Morelos Complex will be sourced from the ELG Open Pit operation, ELG Underground operation, and ML Project. Production during the near-term will be predominantly supported by ELG Open Pit while longer term production will be supported by the ML Project. Ongoing Reserve growth could extend the current production profile of the ELG Underground beyond 2027 (Figure 2).
Mining activities within the ELG Open Pit operations are expected to decline over the coming years with depletion of the Guajes and El Limón Sur pits in H1 2023 and the El Limón open pit in H2 2024.
Mining activities within the ELG Underground are forecast to run through Q3 2027 based on Mineral Reserves and assume an average daily mining rate of 1,370 tpd between 2022 and 2026. The mining method considered in the ELG Underground is cut-and-fill. Opportunities to transition to lower cost bulk mining are currently being studied, which could result in potentially higher output in the ELG Underground and lower unit costs. The Company also sees significant potential to continue to grow the Mineral Reserves of the ELG Underground, which increased 20% in 2021 following a 15% increase in 2020.
Figure 2: ML Project expected to be the sole source of ore post 2027 based on current Mineral Reserves
Notes to Figure 2:
1. Ore mined in 2022 includes Q1/22 versus the Technical Report which incorporates estimates over the project period commencing April 1, 2022.
The ML Project is being developed with six primary mining zones each with designated infrastructure. At steadystate production, the underground mine is expected to deliver an average rate of 7,500 tpd of ore to the upgraded processing plant. The Technical Report assumes a credible ramp-up to steady-state production with first development ore in Q4 2023. Production stoping is expected to commence in Q2 2024 with the mine achieving commercial production in Q1 2025. The ML Project is expected to be operating at 7,500 tpd in Q1 2027, implying a 3-year ramp-up from first production ore or 3.5 years from first development ore (Figure 3).
Figure 3: Credible ramp-up period of 3 years assumed for the ML Project
The predominant mining method at the ML Project will be longhole stoping. Mined stopes will be filled using paste backfill. The paste plant will be located on surface with access from the south side of the Balsas River. Ore will be conveyed through the 6.5-kilometre Guajes Tunnel, which optimizes the use of existing infrastructure by connecting the processing plant on the north side of the Balsas River to the ML Project on the south side.
Processing
Ore mined from the Morelos Complex (ELG Open Pit, ELG Underground and ML Project) as well as surface stockpiles will be processed through the existing facility located on the north side of the Balsas River. Upgrades to the existing processing plant are required to deal with higher levels of soluble iron and recover elevated levels of copper and silver contained within the ML deposit relative to those found within the ELG Mine Complex. Additions to the current processing plant include a Cu flotation circuit, an FeS flotation circuit, water treatment facility, regrind mill, and variable speed drives on the ball mill.
The current processing facility is expected to operate at 13,000 tpd through September 2024. The current plan is to complete the required tie-ins to the processing plant over a 4-week period in October 2024, with wet commissioning to commence in November 2024. The commissioning period for the flotation circuits is expected to be relatively straight forward, and steady-state throughput of 10,600 tpd is expected to be reached by yearend 2024. Depending on the mix of ore types and sources, a portion of feed will be blended, while other portions will be batched processed over the life of mine.
A separate stockpile of ore mined from the ML Project between Q4 2023 and Q4 2024 will be created to facilitate the wet commissioning of the upgraded processing plant (Figure 4).
Figure 4: Exploration and drilling key to ensuring full capacity utilization in the processing plant post 2027
Capacity = 10,600 t/d
Notes to Figure 4:
1. Ore processed in 2022 includes Q1/22 versus the Technical Report which incorporates estimates over the project period commencing April 1, 2022.
The Company sees significant potential to bolster the long-term production profile of the Morelos Complex by extending the life of the ELG Underground, potentially increasing mining rates in the ELG Underground, potentially developing the nearby EPO deposit, and identifying additional sources of incremental feed across the broader Morelos Property. Incremental sources of higher-grade feed would allow the Company to defer the processing of lower grade stockpiles until later in the mine life.
The upgraded processing plant is expected to result in commercially meaningful recoveries for Cu and improved recoveries for Ag, while maintaining Au recoveries at similar levels to those currently being achieved. Metallurgical recoveries over the life of the Morelos Complex are expected to average 89.8% Au, 80.5% Ag, and 86.4% Cu. The life of mine recoveries, including Media Luna, compare favourably to the current plant configuration recoveries of 89.0% Au, 30.0% Ag and 10.0% Cu.
Table 2: Upgraded processing plant expected to deliver significantly higher recoveries for Cu and Ag
Notes to Table 2:
1. Recoveries and payable factors are based on the project period commencing April 1, 2022.
Recovered production is subject to payable factors associated with metal contained in concentrate and to a lesser extent doré. Over the life of mine, total payable factors for metals contained in concentrate and doré/other are forecast to average 99.3% Au, 90.9% Ag, and 96.5% Cu (Table 2).
Tailings Management
Tailings from the current processing facility will continue to be deposited in the existing Filtered Tailings Storage Facility. Upon commissioning of the upgraded processing plant, the Company envisions depositing tailings into the depleted Guajes open pit. Over the life of the Morelos Complex, approximately 50% of tailings generated will be deposited into one of the tailings facilities with the remainder used underground as paste back-fill.
Key Infrastructure
The development of the ML Project requires significant investment in infrastructure to access the deposit as well as exploit the deposit, including development of the Guajes Tunnel, South Portal Upper, South Portal Lower and a surface paste plant.
The 6.5-kilometre Guajes Tunnel is a key schedule item as the tunnel will be the primary conduit for moving ore, material, supplies, and personnel between ML on the south side of the Balsas River and the processing plant on the north side. The $76M go forward investment in the Guajes Tunnel, although more capital intensive than concepts outlined in the 2018 Preliminary Economic Assessment (the “PEA”), was selected as the superior option given that it provides unfettered access to the entire south side of the Morelos Property, an area the Company believes offers significant resource upside.
The development of South Portal Upper and South Portal Lower will provide access for personnel, materials, and supplies from the south side of the property. These access points will also allow for the development of the upper, middle, and lower portions of the Media Luna deposit in advance of the Guajes Tunnel being completed. In addition, South Portal Lower will allow the Company to commence development of the Guajes Tunnel from the south side of the Balsas River, which will optimize the overall progress of tunnelling. The Company has budgeted advance rates of 6-6.5 metres/day (“m/d”) from north to south and 4.5-5 m/d from south to north. Development of the two southside portals is estimated at $40M over the project period.
The construction of an appropriate surface paste plant on the south side of the Balsas River is also an upgrade over the PEA conceptual design which envisioned cemented rock fill. Paste backfill is a more suitable option for mining the Media Luna deposit given the predominant mining method will be longhole stoping, average size of stopes, overall scale of the underground operation, and more attractive operating cost profile. Construction of the paste plant and associated tailings pipeline is estimated at $78M.
The increase in power requirements associated with the ML Project and upgraded processing facility will require upgrades to the main power line, substation, and switching centre. Overall power demand is expected to increase to a peak load of 60 MW in 2027 from 25 MW in 2022. Power upgrades are estimated at $19M.
Capital Expenditures
Non-sustaining capital expenditures3 over the life of the Morelos Complex are estimated at $850M, including $848M to bring the ML Project into commercial production. The upfront capital investment in the ML Project includes $85M of underground mine development during the pre-commercial mining period between Q4 2023 and Q4 2024 (Table 3).
The upfront capital required to develop the ML Project excludes $124M of direct project expenditures incurred prior to April 1, 2022, of which $37M is related to the Guajes Tunnel and $28M to the development of South Portal Upper and Lower. In addition to the ML Project, approximately $2M is estimated to complete Portal #3 within the ELG Underground.
Of the upfront capital expenditure to develop the ML Project, approximately 60% is related to direct project expenditures and the remainder is associated with indirect expenditures, including $62M related to freight and IMMEX. Of the direct project expenditures, the largest capital outlays are related to underground mine development ($173M), accessing the deposit via the Guajes Tunnel ($76M) as well as South Portal Upper and Lower ($40M), upgrades to the process plant ($98M), and tailings/paste plant ($78M). Of the indirect expenditures, the largest components are contingency ($100M) and EPCM costs ($82M).
Table 3: The ML Project is expected to cost $848M to develop
Metrics as of April 1, 2022 Total ($M)
Non-Sustaining - Media Luna Project Directs
Guajes Portal & Tunnel $75.8 South Portals & Tunnels $40.2 Underground Mine $172.6 Process Plant $98.3 Tailings and Paste Plant $77.8 On-Site Infrastructure $15.0 Off-Site Infrastructure $25.9
Total Directs $505.6 Indirects
Freight and IMMEX $61.6 Contractor Indirects $20.3 Mobilization, Spares, Vendor Support $26.6 EPCM $81.5 Owners Cost $53.3 Contingency $99.5
Total Indirects $342.8 Total Non-Sustaining - Media Luna Project $848.4
Total Non-Sustaining - ELG $1.7
Total Non-Sustaining - Morelos Complex $850.1
Notes to Table 3:
1. Non-sustaining capital expenditures is a Non-GAAP Measure. See footnote 3 above and the Cautionary Note below on Non-GAAP Measures.
2. Estimates are based on the project period commencing April 1, 2022. All amounts in U.S. dollars.
Sustaining capital expenditures over the life of the project are estimated at $545M, implying an average annual spend of $46M. Sustaining capital expenditures include $94M of capitalized stripping within the ELG Open Pit.
Table 4: Annual sustaining capital expenditures expected to average $46M over life of the Morelos Complex
| Metrics as of April 1, 2022 | Total ($M) | Total ($/t ore) | Total ($/oz AuEq) |
| Total ore processed (kt) Total payable gold equivalent sold (koz AuEq) Sustaining ELG Open Pit - Capitalized Stripping ELG Open Pit - Other ELG Underground Media Luna Underground Process Plant Support equipment leases Total Sustaining - Morelos Complex | $93.7 $24.8 $33.8 $266.0 $92.8 $34.0 $545.1 | 39,778 $2.4 $0.6 $0.8 $6.7 $2.3 $0.9 $13.7 | 4,392 $21 $6 $8 $61 $21 $8 $124 |
Notes to Table 4:
1. Sustaining capital expenditure is a Non-GAAP Measure. See footnote 3 above and Cautionary Note below on Non-GAAP Measures.
2. AuEq sold includes Au and AuEq values for Ag and Cu assuming long-term metal prices of $1,600/oz Au ($1,700/oz in 2022), $21/oz Ag, and $3.50/lb Cu.
3. A summary of life of mine payable sold values for Au, Ag and Cu can be found in Table 1 including tonnes processed and average processed grades. Expected recovery and payable factors for Au, Ag and Cu can be found in Table 2.
4. Estimates are based on the project period commencing April 1, 2022. All amounts in U.S. dollars.
Reclamation costs over the life of the project are estimated at $93M.
Operating Costs
Total cash costs (“TCC”)3 and mine-site all-in sustaining costs (“AISC”)3 are expected to average $809/oz AuEq sold and $954/oz AuEq sold over the life of mine. On a by-product basis (net of Cu and Ag credits), TCC and mine-site AISC are expected to average $545/oz Au sold and $739/oz Au sold, respectively.
Table 5: Attractive cost profile maintained with the development of the ML Project
| Metrics as of April 1, 2022 Metal Sold Total payable gold equivalent sold (AuEq) Total payable gold sold (Au) Operating Costs Operating expenses Treatment/Refining/Transport Royalties Total cash costs - before adjustments Silver revenue (by-product) Copper revenue (by-product) Total cash costs - after adjustments Capitalized open pit waste mining Sustaining capital expenditures Reclamation Mine-site all-in sustaining costs | LOM ($M) | AuEq ($/oz) 4,392 $711 $51 $47 $809 $0 $0 $809 $21 $103 $21 $954 | Au ($/oz) 3,294 $947 $69 $63 $1,079 ($99) ($435) $545 $28 $138 $28 $739 |
| $3,122 $226 $206 $3,554 ($1,432) ($327) $1,795 $94 $451 $93 $2,433 |
Note to Table 5:
1. Total cash costs and mine site all-in sustaining costs are Non-GAAP Measures. See footnote 3 above and Cautionary Note below on Non-GAAP Measures
2. AuEq sold includes Au and AuEq values for Ag and Cu assuming long-term metal prices of $1,600/oz Au ($1,700/oz in 2022), $21/oz Ag, and $3.50/lb Cu.
3. A summary of life of mine payable sold values for Au, Ag and Cu can be found in Table 1 including tonnes processed and average processed grades. Expected recovery and payable factors for Au, Ag and Cu can be found in Table 2.
4. Estimates are based on the project period commencing April 1, 2022. All amounts in U.S. dollars.
At base case metal prices, the Morelos Complex is expected to deliver a TCC margin3 of 50% over the project period and a mine-site AISC margin3 of 41%. Mine-site AISC and margins exclude corporate level costs.
Operating expenses include approximately $25/oz AuEq sold of profit sharing (“PTU”) over the life of the Morelos Complex. PTU has been allocated to mining costs, processing costs and site administration costs. PTU is mandated by the Government of Mexico and is based on taxable profits generated by the mine in Mexico. The breakdown of key unit costs, with and without PTU, is summarized in Table 9.
The Company sees opportunities to reduce unit costs by filling the mill, as fixed costs associated with processing and site general and administrative costs (“G&A”) would clearly benefit from higher capacity utilization in the processing plant post-2027.
Economics
The after-tax NPV (5% discount rate) of the Morelos Complex is estimated at $1,040M assuming long-term metal prices of $1,600/oz Au ($1,700/oz in 2022), $21/oz Ag, and $3.50/lb Cu. The after-tax NPV (5%) of the ML Project is estimated at $458M with a projected after-tax IRR of 16.1%.
At spot metal prices, the Morelos Complex has an estimated after-tax NPV (5%) of $1,751M. The after-tax NPV (5%) of the ML Project is estimated at $949M with an implied after-tax IRR of 24.9%. Spot case economics (as of March 25, 2022) assume metal prices of $1,950oz Au, $25.50/oz Ag, and $4.70/lb Cu.
The NPV and IRR estimates outlined in the March 2022 Technical Report are predicated on a project period commencing April 1, 2022 (Table 6).
Table 6: NPV of Morelos Complex $1,040M at base case prices; NPV rises to $1,751M at spot prices
Metrics as of April 1, 2022 Morelos ELG ML Morelos ELG ML Complex Standalone Incremental Complex Standalone Incremental Base Case Metal Prices Spot Case Metal Prices Economics
| Gross revenue | $M | $7,106 | $2,234 | $4,872 | $8,738 | $2,626 | $6,112 |
| EBITDA | $M | $3,503 | $1,067 | $2,436 | $4,969 | $1,428 | $3,541 |
| After-tax NPV (0%) | $M | $1,418 | $590 | $828 | $2,322 | $823 | $1,499 |
| After-tax NPV (5%) | $M | $1,040 | $582 | $458 | $1,751 | $802 | $949 |
| After-tax NPV (10%) | $M | $778 | $572 | $206 | $1,355 | $781 | $575 |
| After-tax IRR | % | 16.1% | 24.9% | ||||
| Project payback period | years | 5.3 |
| 5.8 | ||
| $1,600 $21.00 $3.50 | $1,600 $21.00 $3.50 | $1,600 $21.00 $3.50 |
Long-Term Metal Prices
| Gold price | $/oz | $1,950 | $1,950 | $1,950 |
| Silver price | $/oz | $25.50 | $25.50 | $25.50 |
| Copper price | $/lb | $4.70 | $4.70 | $4.70 |
Notes to Table 6:
1. EBITDA is a Non-GAAP Measure. See footnote 3 above and the Cautionary Note below on Non-GAAP Measures.
2. Estimates are based on the project period commencing April 1, 2022. All amounts in U.S. dollars.
Owing to the intermingled nature of the ML Project with the existing ELG Mining Complex (ELG standalone case), the NPV and IRR had to be calculated with a view to fairly illustrating the value of the ML Project. The after-tax NPV of the ML Project was calculated as the difference between the NPV of the Morelos Complex and the NPV of the ELG standalone case using constant discount rates. The IRR and payback period for the ML Project were calculated using the differential between the after-tax cash flow of the Morelos Complex and the ELG standalone case. The calculation of NPV and IRR under all cases include reclamation/closure costs.
The ELG standalone case excludes a portion of underground Mineral Reserves, which would be processed after Q3 2025. This is because, without the development of the ML Project, it would not be economic to process the remaining Mineral Reserves, as the ELG Underground would not be able to support the overhead of operating the processing plant and site administration post depletion of open pit reserves and surface stockpiles.
Given the underlying exploration potential of the broader Morelos Property, including a number of well supported targets, Torex expects to build on the point in time economics set out in the Technical Report by extending Mineral Reserves within the existing deposits, potentially bringing new deposits such as the nearby EPO deposit into Reserves, and identifying new sources of incremental feed beyond the ML Project. The focus on drilling is not only to extend the current life of the Morelos Complex, but to bolster medium-term production by filling the mill beyond 2027; on the current reserve case, this is when the ML Project becomes the sole source of feed, and the processing plant will be under utilized.
The economics of the Morelos Complex and the ML Project are highly sensitive to changes in metal prices as well as estimated operating and capital costs (see Table 10 for a detailed sensitivity analysis).
ESG & Permitting
As the Morelos Complex evolves, Torex will continue to build on its reputation as an industry leader in ESG. The health and safety of the Company’s workforce and surrounding communities will be attended to in all aspects of the design and construction of the ML Project. The Company’s robust environmental and social management systems will extend from the ELG Mine Complex to the ML Project, with a commitment to meet or surpass environmental regulatory requirements while doing zero harm to the natural environment. The planned hybrid mining fleet (battery electric and diesel) at the ML Project will also contribute to the Company’s ongoing efforts to reduce its carbon footprint.
All required surface rights to land for ongoing operations at the ELG Mine Complex and for the direct development of the ML Project have been secured through long-term lease agreements. Relationships with local communities remain positive and productive on both the north and south sides of the Balsas River, through the implementation of 11 unique community development agreements (CODECOPs) that promote local community and economic development.
The ELG Mine Complex has all necessary permits allowing for operations. An environmental permit modification (“MIA Modification”) was granted in March 2021 to allow for early works outside of the existing permit boundary to access the Media Luna deposit on the south side of the Balsas River. In July 2021, the Company applied for a ‘MIA-Integral’ to allow for integrated operations at the ELG Mine Complex and the ML Project. There are no major technical or social risks that have been identified, and approval is expected in the first half of 2022. In addition, the Company will require authorization from utility authorities to increase the power draw for the ML Project, through a connection to the regional 230kV power line system for the higher electricity loads for the ML Project. An environmental permit modification is also planned for submission in the second half of 2022 for the future in-pit tailings storage facility.
The Company will continue to achieve compliance with voluntary ESG performance standards such as the World Gold Council Responsible Gold Mining Principles, the International Cyanide Management Code, and the Mexican federal environmental agency’s “Industria Limpia” (Clean Industry) certification. In addition, the future in-pit tailings storage facility is being designed in accordance with the new Global Industry Standard on Tailings Management.
FUNDING AND LIQUIDITY
Torex plans to fund the development of the ML Project through internal cash flow as well as a prudent level of long-term debt. The Company has also taken initiatives to reduce price uncertainty during the development of the ML Project. At year-end, Torex had $256M of cash, no long-term debt and total liquidity of $406M, including $150M available on the Company’s undrawn credit facility.
Leveraging the base case economics outlined in the Technical Report, the Company expects to generate average annual cash flow of approximately $190M (approximately $290M at spot case metal prices) prior to capital expenditures on the ML Project between 2022 and 2024. The projected cash flow through 2026 includes annual corporate G&A of $20M and an assumed annual exploration/drilling scenario of $35M, expenditures which were not included in the asset level economics in the Technical Report.
Figure 5: Debt financing expected to support strategic priorities during build-out of the ML Project
Notes to Figure 5:
1. Projected year-end cash balances based on cash flow profile outlined in March 2022 Technical Report using base case metal prices of $1,600/oz Au ($1,700/oz in 2022), $21/oz Ag and $3.50/lb Cu.
2. Cash flows adjusted to reflect an additional $20M annually of Corporate G&A and $35M annually of exploration/drilling through 2026.
3. Debt of $275MM assumed within funding scenario and includes debt servicing costs (interest rate of 7%), a four-year term, and a bullet repayment in 2026.
Based on the current projections, assumptions noted previously and a desire to maintain $100M of liquidity throughout the build, Torex plans to finance the remaining expenditures through long-term debt. The Company plans to be in a position to execute on a debt financing in H2 2022 assuming favourable market conditions and pricing. Debt options currently being investigated include a gold prepay, high yield debt, and/or expanded credit facility. Depending on the debt vehicle chosen, Torex anticipates debt financing in the range of $250M to $300M.
The Company recently executed monthly forward price contracts on future gold production to reduce downside price risk during the build-out of the ML Project. The hedges represent approximately 25% of forecast gold production between Q4 2022 and Q4 2023. Details of the forward contracts are as follows:
- Q4 2022: 30 koz in total at an average gold price of $1,910/oz
- FY 2023: 108 koz in total at an average gold price of $1,924/oz
Management will continue to monitor market conditions and may enter into additional contracts to minimize downside price risk during the build-out of the ML Project.
2022 CAPITAL EXPENDITURE GUIDANCE FOR ML
With Board approval granted for the development of the ML Project, the Company anticipates investing $220M to $270M in the development of the ML Project with an additional $20M of non-sustaining capital expenditures3 related to infill drilling at the ML Project and other expenditures. Annual production and cost guidance for 2022 remains unchanged from the levels outlined in January 2022 (Table 7).
Table 7: Torex expects to invest $220 to $270M towards the development of the ML Project in 2022
| 2022 Guidance 2022 Guidance Updated Original | |||
| Gold Production Total Cash Costs All-in Sustaining Costs Sustaining Capital Expenditures Capitalized Waste ELG Sustaining Total Sustaining Non-Sustaining Capital Expenditures ELG Non-Sustaining Media Luna Project Media Luna Infill Drilling/Other Non-Sustaining Capital Expenditures | koz $/oz $/oz $M $M $M $M $M $M $M | 430 to 470 $695 to $735 $980 to $1,030 $50 to $60 $35 to $45 $85 to $105 $15 to $20 $220 to $270 $20 $255 to $310 | 430 to 470 $695 to $735 $980 to $1,030 $50 to $60 $35 to $45 $85 to $105 $15 to $20 na na Pending |
Notes to Table 7:
1. Total cash costs, all-in sustaining costs, sustaining capital expenditures and non-sustaining capital expenditures are Non-GAAP Measures. See footnote 3 above and Cautionary Note below on Non-GAAP Measures.
3-YEAR OUTLOOK
Based on the results of the updated Technical Report, the Company has updated its 3-year production outlook to incorporate AuEq payable production2 from the ML Project commencing in 2024. The updated outlook forms the new base case for production from the Company’s Morelos Complex. Initiatives to further improve upon the mine plans are underway, including further potential optimizations at the ELG Mine Complex (Table 8).
Table 8: Multi-year outlook bolstered by production from the ML Project starting in 2024
| Payable Production Guidance Multi-Year Outlook 2022 2023 2024 2025 | |||||
| Updated Outlook (Morelos Complex) Gold Gold equivalent Prior Outlook (ELG Complex standalone) Gold | koz koz koz | 430 to 470 - 430 to 470 | 420 to 460 - 400 to 450 | - 385 to 425 300 to 350 | - 415 to 455 - |
Notes to Table 8:
1. Gold equivalent (AuEq) payable production includes Au and AuEq values for Ag and Cu assuming long-term metal prices of $1,600/oz Au, $21/oz Ag, and $3.50/lb Cu.