Torex ends work contracts at ELG mine in Guerrero

Torex Gold Resources (TSX: TXG) has suspended the employment contracts for its workforce in Mexico in response to an illegal blockade at its El Limon-Guajes (ELG) gold mine, 180 km southwest of Mexico City in the Guerrero gold belt.

Until the Dec. 16 suspension of contracts, Torex had been paying wages to all workers who were not amongst the 15% of its workers it estimates have participated in the blockade, which has been blocking the mine entrance since Nov. 3.

“It is time for government authorities to remove the illegal blockade, as they have committed to do, and restore the rule of law,” Torex said. At press time the blockade remained, with Torex vowing to reconsider the employment suspension decision if the blockade is lifted by Dec. 20, allowing operations to resume after Christmas.

“It tends to be about 30 people on the blockade, and they run on a day and night shift.” said Fred Stanford, Torex president and CEO, in an interview with The Northern Miner. “They’re frequently not employees.”

“We’ve been able to keep track of who showed up at the blockade. And if they were seen at the blockade we put them on the list and didn’t pay them,” Stanford said.

However, Torex, with just one producing asset, said it can no longer continue to pay employees while operations are stopped.

The blockade began when a group of 20 unionized workers demanded a change in labour union, Torex said. The company had told the workers earlier that day that it did not have the authority to change the union and that any such changes had to go through a government-sanctioned process.

The conflict escalated Nov. 6 when 35 people — 25% of whom were unknown to Torex — entered the mine site and told employees if they did not leave by the next day, they would be forcibly removed, Torex said. The on-site staff were monitoring the pumps in the open pit and the processing plant. In response to what it described as a “credible threat,” Torex evacuated the employees and shut down the company’s off-site accommodation facilities.

Without a workforce, Torex shut down its processing plant and since then has focused on “maintaining environmental protections.”

Torex Gold Mining’s ELG gold mine in Guerrero state, Mexico. Credit: Torex Gold

At the heart of the conflict is a union that seeks to represent 520 unionized employees at the mine. The workers are legally represented by Mexico’s largest labour association the Confederacion de Trabajadores Mexicanos (CTM). The other union claims that workers want to switch, and have supported the blockade to facilitate a change in representation to the Sindicato Nacional de Trabajadores Mineros, Metalurgicos, Siderurgicos y Similares de la Republica Mexicana (Los Mineros). Los Mineros is affiliated with the United Steelworkers (USW) and said it represents workers at Goldcorp (TSX: G; NYSE: GG) and Leagold (TSX: LMC) operations in Mexico.

Torex had hoped Los Mineros and its supporters would give up after a Dec. 14 vote where unionized workers rejected the blockade. The company reported that of the 520 eligible workers, 274 turned out for the vote and all but two people voted for ending the blockade immediately.

“We tried to phone every single employee [about the vote], all 520, sent emails and texts, we put it on Facebook, we put up notices in the community,” Stanford explains. “Some were intimidated and prevented from coming.”

Stanford said multiple tempory blockades have been erected at the entrances to Atzcala and other local towns at various times since Nov. 3, which may account for many of the workers who didn’t show up to vote. Stanford said that the vote still saw a slim majority of the 520 workers vote against the blockade.

“The vote was an effort to give the union-eligible employees a chance to speak for themselves, rather than have their voice co-opted by this [Los Mineros] union,” Stanford said. “The ones that were able to get there were very proud to stand up and say ‘we’re not getting bullied here, we want this thing to end.’”

Dispute enters NAFTA debate

In mid-November the tensions at ELG captured international attention after two brothers were shot dead on Nov. 18 in the town of Atzcala, 15 km from ELG, where some Torex workers live.

One of the brothers was a contractor who had done work for Torex. He was “not a routine contractor, and certainly not in the union,” Stanford said.
“We are told the gunmen were brought to Atzcala to supposedly disarm the community police. This has nothing to do with the company. We haven’t even been contacted by the local police authorities about it,” Torex said.

Nevertheless, after the violence, Los Mineros, as well as some Canadian unions, were quick to connect the incident with the ongoing strife down the road at ELG. Labour leaders seized on the incident to call for changes in Mexican labour law and influence the ongoing NAFTA renegotiations.

In a bulletin posted on Los Mineros’ website, union leader Napoleon Gomez Urrutia said that “a group of thugs” from the CTM union killed the two men, Victor and Marcelino Sahuanitla Pena, who were “on strike” since Nov. 3. “They were calling for better pay and employment conditions, respect for their dignity and the freedom to belong to the trade union that they had democratically chosen.”

Urrutia also claimed the killers are related to the people behind the 2014 killing of 43 university students in Guerrero state.

A pylon and tire mark the locations where where two brothers were shot dead in the town of Atzcala, 15 km from the ELG mine. Unifor president Jerry Dias stands directly behind the pylon. Credit: Unifor

Jerry Dias, who heads Canada’s largest private-sector union, Unifor, was in Mexico City for NAFTA talks at the time and visited the location where the shooting occurred.

“Striking Mexican miners were brutally murdered because they wanted to join a free union,” Dias said in a press release on Nov. 21. “Workers’ rights must be included in the body of any new trade deal.”

In a press release the United Steelworkers of Canada called for political action from Canadian Prime Minister Justin Trudeau in response to murdered “striking miners.” USW said Torex is at fault for signing an agreement with CTM, which it calls Mexico’s largest confederation of “protection unions” that doesn’t actually advance workers’ interests.
Torex maintains that the two victims were not miners and that there is no workers strike, but rather an illegal road blockade.

On Nov. 30 Unifor’s Dias met privately with Torex’s Stanford to discuss the situation in Mexico.

“The meeting lasted eight minutes,” Stanford said, adding that Dias proposed an “illegal solution” — a binding vote on union representation — which would not comply with Mexican labour laws, before walking out of the meeting. The next day Unifor activists held a protest outside Torex’s headquarters in Toronto.

Strife sinks stock

ELG, Torex’s first mine, started commercial production in March 2016.

Once in full production, ELG will be among the largest and lowest-cost gold mines in the world, with average production over the mine’s projected 8.5-year mine life of 370,000 oz. gold a year at all-in sustaining costs of US$616 per ounce.

The open-pit skarn deposit has measured and indicated resources of 4.12 million oz. gold at a grade of 2.65 grams gold per tonne, plus 360,000 oz. gold at a grade of 1.86 grams gold in the inferred category. Proven and probable reserves, included in the resources, stand at 3.63 million oz. gold at a grade of 2.62 grams gold.

After the blockade Torex expects to finish 2017 with less than 300,000 oz. gold produced, which is below its guidance of 350,000 to 380,000 ounces.

Andrew Breichmanas, who covers the company for BMO Capital Markets, lowered his target price for Torex on Dec. 15 from $35 to $25, but maintains his ‘outperform’ rating on the company.

“We have lowered our estimates to account for the impact of the blockade, which we now expect to affect operations through January,” Breichmanas said. “However, we maintain our outperform rating, as we expect current issues to eventually be resolved, leaving the stock price attractively heading into a catalyst-rich year.”

At press time, Torex was trading at $11.82 per share in a 52-week trading range of $11.25 (Dec. 19) and $33.85 (Feb. 8).

— With files from Trish Saywell.