SsMurry
10 years ago
Political News have not Impacted Timeline
Daniel Earle is providing an update on the El Limon-Guajes project and providing his near-term outlook for the company
According to the Mexican attorney general, 43 student teachers participating in a protest in the nearby town of Iguala were abducted by local police in late September and subsequently murdered. While searching for their remains in the area, a number of mass graves were discovered and in the resulting protests a further six people were killed. Authorities believe Iguala's mayor and his wife were behind the atrocity – they subsequently fled, as did the town's police chief.
This incident and related protests did blockade the project briefly but have not impacted the project timeline, accordingly to the company; however, these security issues have reportedly made it more difficult to ramp-up the number of contractor employees on site that are required to meet the construction schedule. Should staffing challenges continue, the company suggested that non-critical work for the ramp-up would be postponed to after the first gold pour.
Daniel Earle calculates that Torex is currently trading at 1.03x, the corporate NAV5%; this is above both the junior producers and its development-stage peers in the coverage universe, which trade at an average of 0.77x and 0.56x NAV5%, respectively
Overall construction of the El Limon-Guajes project was approximately 20% complete (as of September 30) and the project appears to be on schedule for initial production in H2/15. Daniel Earle would suggest, however, that timeline and capex creep occur regularly in the construction of mining projects and particularly ones that are technically challenging (grade/strip ratio risk, metallurgy, topography, etc.), as Daniel Earle believe this one is. These delays and cost overruns are typically disclosed in the later stages of construction, in Daniel Earle's view.
Daniel Earle likes the Morelos project. However, before recommending the stock, Daniel Earle would look for either reduced risks via project advancement or a more attractive valuation relative to producers to compensate for the elevated level of risk at the current stage, with commercial production being approximately a year and a half away. Daniel Earle maintains his HOLD recommendation and his target price remains unchanged at $1.75.
Tommy
11 years ago
$TORXF - TXG.TO - Torex Gold - Is There A Reason To Be Bullish?
http://seekingalpha.com/article/1628262-torex-gold-is-there-a-reason-to-be-bullish?source=email_rt_article_readmore
Introduction
In this article, I'll have a look at Torex Gold Resources (TORXF.PK), a near-term gold mine developer in the Guerrero Gold Belt in Mexico, approximately 180 km south of Mexico City. The company is planning to develop its 5Moz+ gold mine at the El Limon zone of its 29,000 hectare Morelos project. This project is expected to cost $675M and was originally planned to start production in Q1 2015. In this article, I'll have a closer look at the El Limon Bankable Feasibility Study, run some numbers on the expected annual cash flow and talk about the risks, as Torex Gold needs to relocate a village. This will result in my investment thesis at the end of this article.
(click to enlarge)
Torex Gold seems to be fully valued if you only consider the El Limon mine, as the company is currently trading at 92.5% of the project's NPV. The real additional potential will be in defining a viable resource estimate on the Media Luna zone which is just 3 miles south of the El Limon zone. As the Media Luna target seems to be mineralized at depth, I'm afraid it will be an underground operation which would require a substantial capex.
With $325M in cash and an agreement with a consortium of five international banks for a project financing facility of up to $250M, Torex Gold is almost fully financed for its $675M El Limon project, and expects to start construction any day now as the company is awaiting one final acceptance from SEMARNAT regarding its environmental permits.
The El Limon project
Torex's first goal is to bring the El Limon project into production which is located approximately 30 kilometers from Goldcorp's Los Filos mine.
Besides the El Limon zone of the Morelos project, the company has intersected extremely encouraging copper-gold-silver mineralization at the Media Luna Zone, approximately 5km south of the El Limon Zone. As Torex intersected high grade mineralization such as 49 meters of almost 4g/t gold-equivalent and 16.7 meters of 7.6g/t AuEq, the upcoming inferred resource estimate which will contain data of 80,000 meters of drilling could be very interesting. Unfortunately, most of the mineralization is at depth, so I'm doubtful the Media Luna zone can be mined by using an open pit method.
The Bankable Feasibility Study
Torex Gold recently completed a Bankable Feasibility Study on the El Limon project, outlining an operation with an average annual output of 375,000 ounces of gold once the project reaches full production in 2017. As the average grade is expected to be 2.61g/t, the operating cost is quite low at just $421/oz over the life of mine. Keep in mind, this cash cost does not include exploration and G&A expenditures and no sustaining capex (which is expected to be approximately $86M over the life of mine).
(click to enlarge)
The project seems to be very robust, even at the current low gold price. Torex Gold completed a feasibility study with a base case assumption using a gold price of just $1276/oz. Using this scenario, the after-tax NPV5% comes in at $900M, and the after-tax IRR is a very healthy 24.2%. Should gold re-test its highs and average $1750/oz during the life of mine, the after-tax NPV increases to $1.68B and the after-tax IRR goes up to 34.6%.
(click to enlarge)
As you can see, the project won't reach an average production rate of 300,000+ ounces of gold per annum before 2017. This is obviously the reason why the IRR is relatively low despite the moderate capital expenditures.
(click to enlarge)
Sensitivity Analysis
Let's now have a look at the cash flow based on different gold prices. In this simulation, I'll use the average annual output of 375,000 ounces of gold per annum at a cash cost of $500/oz (a 20% increase versus the expected $421/oz cash cost in the Bankable Feasibility Study).
Gold Price
Cash Flow
1000
187.5M
1100
225M
1200
262.5M
1300
300M
1400
337.5M
1500
375M
1750
469M
2000
562.5M
As you can see, at the average annual output of 375,000 ounces of gold, the El Limon project would generate approximately $300M per annum in operational cash flow. Unfortunately, the output of the mine is quite erratic as you could see in a previous image, so it's very difficult to make a detailed cash flow guesstimate per annum, as the cash costs will also fluctuate based on the output. The next table provides an estimate of the annual cash flows based on the output as calculated in the feasibility study and a $500/oz cash cost. The fixed gold price in this scenario is $1300/oz.
Y1
102M
Y2
196M
Y3
266M
Y4
253M
Y5
259M
Y6
276M
Y7
265M
Y8
347M
Y9
395M
Y10
339M
As you can see, the peak annual cash flow occurs in the final years of the current mine plan, and this is the main reason why the IRR and NPV remain relatively modest. If the peak annual cash flow would occur in the first years of operation, the IRR would increase to approximately 40% and the NPV5% would exceed the one billion dollar mark, using the company's base case $1276/oz scenario.
The Risks
A project of this size obviously carries some risk with it. In the El Limon case, Torex Gold had to relocate an entire village. Whilst this usually isn't an easy task to complete, Torex seems to have managed this well as the villagers have accepted the new location and the housing prototypes. This means the relocation continues to be on schedule to be completed by the end of 2014.
The permitting risk seems to be very low as the company received the final acceptance of the Environmental Impact Statement and the Change of Land Use. SEMARNAT requested Torex to submit environmental protection programs. Upon the acceptance of this submission, construction works at the El Limon zone can finally start as the company also already completed a collective bargaining agreement for the construction stage.
The final potential risk is the financing risk. This risk seems to be fairly low as well for Torex Gold, as the company has a working capital of $324M and no long-term debt. Torex Gold also mandated a consortium of major banks (consisting of ING, Société Générale, BNP Paribas, BMO and the Commonwealth Bank of Australia) to provide a $250M project finance facility without any mandatory gold hedging. The fact the company won't be forced to hedge gold at $1300/oz can be a blessing if the gold price goes up again.
The current working capital and the expected debt facility total approximately $575M, which is more than the required $552M capex up to commercial production net of revenue credits during the commissioning phase. Unfortunately, I don't think this will be sufficient (as the gold price is currently lower than the price anticipated by Torex Gold in the first two years of operation) and I think Torex Gold will have to raise more money during the construction or commissioning phase. A possible solution could be to open a $30-50M credit facility to provide working capital during the commissioning process, which should be sufficient to cover all costs.
Investment Thesis
Torex Gold could be an interesting investment for people who believe in a slightly higher gold price. As you can see in the next table, there isn't much value for fundamental investors, as the upside potential to the NPV/share based on a $1276/oz gold price is quite limited. For the following calculation, I used 625M shares outstanding compared to the current amount of 606.5M outstanding shares.
So as you can see, the upside potential at this moment using the $1276/oz base case scenario is just 7.5%. The real additional value and potential of the company and project will not be generated through the El Limon zone as the company is already trading at 92.5% of the El Limon NPV. The potential additional value creator will be in the further discovery of more viable deposits on the 29,000 hectares of land. Torex Gold expects to release a maiden NI43-compliant resource estimate on the Media Luna project in Q4 of this year, and I'm keen to see those preliminary tonnage and grade numbers.
Tommy
12 years ago
$TORXF - TXG.TO - Torex On A Roll, Even If Stock Is Not
http://seekingalpha.com/article/1384191-torex-on-a-roll-even-if-stock-is-not?source=yahoo
Torex (TORXF.PK) stands out because it has two high value targets at its Morales project in the Guerro gold belt, right next door to Goldcorp's (GG) low cost Los Filos mine. Torex's Todos Santos is shaping up to be of the same genre. It is expected to run 2.6 grams of gold throughput at a low cash cost of $421, gearing up from a start up 128,000 oz in 2015 to 375,000 oz from 2017 on. There are 4.8 million oz of M&I and 0.6 inferred. Capex net of revenue credits is $552 million, for a 28.9% IRR at 1500 POG. Payback is 3.2 years.
Torex has $405 million in cash on hand, and $250 million in debt financing to independently build this mine. Market cap is $800 million, leaving an enterprise value of only $395 million. Warrants are well out of the money 47.5 million at 2.65 average. The are 25.5 million management options slightly out of the money at 1.48. With the stock at 1.32, I treat this as marginal dilution as cash needs to be paid for the shares.
Torex is now drilling out a new nearby target called Media Luna. As you can see this target is three times that of Todos Santos, and so far the results are every bit as promising. Click through and look at the grades and clusters in the Media Luna west zone target and northeast zone running hot.
With 100 holes drilled so far, the hunt with 12 rigs is for new inferred resources to be announced in 1Q 2014. Analysts generally feel that 4 million oz will be added to Torex's kitty from Media Luna.
But judging from the sniffs (see second to last graphic) from the initial Media Luna West target, Torex may have a third windfall on its hands. The good news about this district is Torex has been able to convert 85% of resources to reserves. Like at Todos Santos, the gold is found in magnetite skarn formations with the best hits located in the dips or "pools" between the marble overlay and the granodiorite underlay. These darker magnetite outcrops make for excellent targets (last graphic). This orientation is well suited for low cost flat room and pillar mining. There is potential for ramp access on the hillside rather than a shaft.
A 115 kn powerline crosses the property and there is ample water. Torex is involved with a village relocation. I am not aware of any serious mine opposition in this historic mining district. The permitting process in Mexico is not onerous, although can be bureaucratic. Torex submitted the EIA in early September 2012, which is undergoing a 6-9 month review. Expectations are that the company will receive the construction permits in mid-2013.
Tommy
12 years ago
$TXG.TO - Torex On A Roll, Even If Stock Is NotTorex On A Roll, Even If Stock Is Not
http://seekingalpha.com/article/1384191-torex-on-a-roll-even-if-stock-is-not?source=email_rt_article_readmore
Torex (TORXF.PK) stands out because it has two high value targets at its Morales project in the Guerro gold belt, right next door to Goldcorp's (GG) low cost Los Filos mine. Torex's Todos Santos is shaping up to be of the same genre. It is expected to run 2.6 grams of gold throughput at a low cash cost of $421, gearing up from a start up 128,000 oz in 2015 to 375,000 oz from 2017 on. There are 4.8 million oz of M&I and 0.6 inferred. Capex net of revenue credits is $552 million, for a 28.9% IRR at 1500 POG. Payback is 3.2 years.
Torex has $405 million in cash on hand, and $250 million in debt financing to independently build this mine. Market cap is $800 million, leaving an enterprise value of only $395 million. Warrants are well out of the money 47.5 million at 2.65 average. The are 25.5 million management options slightly out of the money at 1.48. With the stock at 1.32, I treat this as marginal dilution as cash needs to be paid for the shares.
Torex is now drilling out a new nearby target called Media Luna. As you can see this target is three times that of Todos Santos, and so far the results are every bit as promising. Click through and look at the grades and clusters in the Media Luna west zone target and northeast zone running hot.
With 100 holes drilled so far, the hunt with 12 rigs is for new inferred resources to be announced in 1Q 2014. Analysts generally feel that 4 million oz will be added to Torex's kitty from Media Luna.
But judging from the sniffs (see second to last graphic) from the initial Media Luna West target, Torex may have a third windfall on its hands. The good news about this district is Torex has been able to convert 85% of resources to reserves. Like at Todos Santos, the gold is found in magnetite skarn formations with the best hits located in the dips or "pools" between the marble overlay and the granodiorite underlay. These darker magnetite outcrops make for excellent targets (last graphic). This orientation is well suited for low cost flat room and pillar mining. There is potential for ramp access on the hillside rather than a shaft.
A 115 kn powerline crosses the property and there is ample water. Torex is involved with a village relocation. I am not aware of any serious mine opposition in this historic mining district. The permitting process in Mexico is not onerous, although can be bureaucratic. Torex submitted the EIA in early September 2012, which is undergoing a 6-9 month review. Expectations are that the company will receive the construction permits in mid-2013.
canucklehead80
12 years ago
‘High Grade Is A Wonderful Thing’
Fred Stanford Talks About Torex’s $380M Financing and Bankable Feasibility
Kevin Michael Grace
November 6, 2012 - Torex Gold Resources Inc T.TXG announced October 23 it had closed a $380-million bought-deal share offering (including a $30-million oversubscription) to finance its Morelos Gold Project, 180 kilometres southwest of Mexico City, and working capital.
Morelos contains proven and probable reserves of 48.8 million tonnes grading 2.61 grams per tonne gold and 4.35 g/t silver for 4.09 million ounces gold and 6.81 million ounces silver. According to a bankable feasibility study announced September 4, based on $1,276-per-ounce gold, Morelos is scheduled to begin production in 2015 and produce 3.47 million ounces over 10.5 years at $421 per ounce, with cumulative cashflow of $1.56 billion. The initial CAPEX is $552 million; the aftertax net present value (NPV) is $900 million (at a 5% discount); the aftertax internal rate of return (IRR) is 24.9%; and the payback period is 3.6 years.
President/CEO Fred Stanford was interviewed by Kevin Michael Grace October 30, read it here. http://resourceswire.com/2012/11/high-grade-is-a-wonderful-thing/
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