Torex hits open-pit target at Morelos

Toronto-based Torex Gold (TXG-T) is navigating the often tricky waters that mark the transition between being an exploration outfit and a mine developer. With an updated resource estimate kicking off in May and a bankable feasibility study pegged for the end of July, the company is anticipating commercial production at its Morelos gold-silver project in Mexico’s Guerrero State by early 2015.

Torex met a company goal by increasing total measured and indicated gold resources to 5 million oz. for its May resource estimate. Morelos holds measured and indicated resources of 54 million tonnes grading 2.8 grams gold per tonne and 4.8 grams silver for 4.8 million contained oz. gold and 8.8 million contained oz. silver. Inferred resources remained relatively unchanged, totalling 10.7 million tonnes grading 2 grams gold and 4 grams silver, for 620,000 contained oz. gold and 1.4 million contained oz. silver.

The updated resource estimate used a US$1,400-per-oz. gold price under an open-pit shell cut-off grade of 0.5 gram gold. Torex’s previous open-pit resource estimates, filed in October 2009, used a US$865 per oz. gold price and a -cut-off grade of 0.9 gram gold.

“These very positive results will allow us to finalize our plans for the mine and 14,000-tonne-per-day mill,” president and CEO Fred Stanford says. “In addition, we can now concentrate the majority of our future drilling efforts on exploration targets south and north of the Balsas River in the search for additional gold deposits.”

Torex has contemplated two different mine strategies at Morelos, recently moving back to a full open-pit model versus a plan that involved an underground strategy designed in 2011. According to Stanford — owing to the gold price holding above US$1,600 — the numbers are there for a full open-pit operation, which would provide access to greater recoverable tonnage.

“We actually designed the underground mine, and we could have mined about three-quarters of the ore faster and cheaper from underground, but there was that other quarter that goes up into the structures above the main deposit that we couldn’t recover,” he comments. “So when the gold price is up there, you end up losing more money on the lost ounces than you gain on the underground cost savings. If the gold price was at US$800 per oz. the project could very well be underground.”

Torex is hoping to begin its -build-out period by the end of the year, and according to the company its feasibility work is already underway, owing to a series of land deals in late March with local communities.

“I’d say it’s a bit ahead of schedule,” Stanford says. “In order to negotiate for the land, you need to know which land you need, which means you need to know where your plant is going, where your tailings are going and where your road is going, and all the details. So we did all that engineering quite early.”

Torex is also wrapping up negotiations with individual landholders around the Morelos site. There are various hereditary holdings the company requires, though Stanford predicts a resolution regarding outstanding parcels in the next two months. 

Resolving all the land-acquisition details is one prerequisite for Torex’s environmental permitting process. The company is getting ready to submit its permit applications as it rounds up land-title registrations.

“They promise you a six-month process, and obviously they don’t promise you a positive answer, but we think we’ve made very good environmental decisions,” Stanford says. “We’ve gone to filtered dry-stack tails, which will take us away from a tailing dam failure in the vicinity of the river, and it also recycles water, so those are very solid environmental decisions.”

As Morelos moves towards feasibility, Torex will turn its focus to early stage gold targets south of the Balsas River, including El Cristo, El Naranjo and Media Luna. The company is also pursuing the Pacifico, Guajes South and Limon Sur targets north of the Balsas. Torex has nine drill rigs at Morelos conducting a program valued at US$32 million and totalling 84,000 metres.

“We know we’re around 10% explored on an asset that’s in the range of 3 grams gold per tonne, so we’re not sure where we’d find a better asset than that,” Stanford explains. “I’d say we have excessive targets lined up for that program. We’re just getting the exploration up and running. Over the second half you should see something from those programs.”

Torex shares have been a mixed bag to start the year. The company held unit prices above the $2-per-share threshold through March, but values declined to $1.66 to start May. The resource offered a marginal 3%, or 5¢ jump, to a $1.71 close on an above-average, 2.6-million-unit trade volume. The market is likely awaiting the final word on the project’s economic viability in July before taking major steps.

“The fundamentals behind gold are still there. Even with the funds and redemptions that are going on, the gold price has been hanging in there,” Stanford comments. “We have no sense of a loss of confidence. The market is bad right now — fortunately, we have enough money to do what we need to do, and so we’ll ride it out and get that price back up. Morelos continues to be the best open-pit gold asset in the hands of a junior.”