Torex Gold Resources Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 11, 2023

There are 8 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the Torex Gold Resources Inc. First Quarter 2023 Results Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded.

Operator

After the presentation, there will be an opportunity to ask I would now like to turn the conference over to Dan Rollins, Senior Vice President, Corporate Development and Investor Relations. Please go ahead, Mr. Rollins.

Speaker 1

Thank you, operator, and good morning, everyone. On behalf of the Torex team, welcome to our Q1 2023 conference call. Before we begin, I wish to inform listeners that a presentation accompanying today's conference Call can be found under the Investors section of our website at www.torrexgold.com. I'd also like to note that certain statements to be made today by the management team may contain forward looking information. As such, please refer to the detailed cautionary notes on Page 2 of today's presentation as well as those included in the Q1 2023 MD and A.

Speaker 1

On the call today, we have Jody Kuzenko, President and CEO Andrew Snowden, CFO as well as Dave Stefanuto, Executive Vice President, Technical Services and Capital Projects. Following the presentation, Jody, Andrew and Dave will be available for the question and answer period. This conference call is being webcast and will be available for replay on our website. Last night's press release and the accompanying financial statements and MD and A are posted on our website and have been filed on SEDAR. Also note that all amounts mentioned in this call are U.

Speaker 1

S. Dollars unless otherwise stated. I will now turn the call over to Jody.

Speaker 2

Thank you, Dan, and good morning to all on the line. Welcome to the Torex Gold Q1 2023 results call. I'll open my remarks by saying that we delivered another strong quarter, which puts us on solid footing to achieve our production and cost guidance in 2023. Opening highlights include the site team. They delivered a strong production result driven by record throughput in the mill and another record quarter from our ELG underground.

Speaker 2

The project team made steady progress on the development of Medialuna, which continues to track to schedule and budget. And we also released our updated mineral reserve and resource statement in the quarter, which saw us replace the majority of reserves mined in 2022 as well as add materially to our resource base. In terms of the agenda for the call, it will be the same as usual. I'll provide a brief reminder of the strategic pillars, which continue to frame our execution plan. Then I'll step you through the key business and operational highlights specific to the Q1, then over to Andrew Snowden to provide a review of Financials and then Dave Stefanuto will provide a progress update on Medialuna.

Speaker 2

And then I'll close off with an overview of our year end reserve and resource update and a bit of an update on the status of the New Mexico Mining Laws. Then we'll open up the call for questions from our listeners. Starting on Slide 4, this is a review of our strategic pillars, which set out the long term vision for Torex. Our strategy remains unchanged. And you can see on this slide the 5 key areas of focus as we make our way through 2023.

Speaker 2

On Optimize and Extend ELG, the year end reserve and resource update was a key indicator of the ongoing success of the extend portion of this plan with reserves updated with reserves replaced in the ELG underground and an additional 240,000 new ounces added in the ELG open pit. On derisk and advanced Medialuna, the project is tracking to schedule We passed the 4 kilometer mark in the Wajes tunnel and executed purchase orders for the primary underground mining fleet. We're very much looking forward to showing all of the progress we've made on the project to some of you in person next week when we host our analyst visit. On Grow Reserves and Resources. Our good success with our drilling and exploration program in 2022 is shown up in our MRMR update, which I'll take you through at the end of the deck.

Speaker 2

On prudent capital management, we remain in solid position to fund the development of Medialuna. At the end of the quarter, we had $683,000,000 left to spend on the project against available liquidity of $564,000,000 This combined with ongoing free cash flow from ELG. We're feeling very confident about the balance sheet. On ESG Excellence, as announced last We entered into a sustainability related loan with our existing lenders, essentially just adding some sustainability targets and incentives for hitting those targets inside the context of our existing credit facilities. Turning now to Slide 5.

Speaker 2

We delivered record production of 123,000 ounces during the quarter, delivered by record throughput in the mill and another quarterly record established at ELG Underground. The strong production performance underpins strong cost performance $133,000,000 driven by a realized gold price of almost $1900 per ounce. Cash flow from operations was $47,000,000 which reflects seasonal tax and royalty payments primarily related to fiscal 'twenty 2. The seasonality and cash flow is well known to those who follow Torex. And per usual, you can expect operating cash flow top left at 123,000 ounces.

Speaker 2

Top right, a new record milling rate of 13,073 tonnes per day was achieved during the quarter, driven by a real focus on maintenance practices. The bottom left, Process grade was down very slightly during the quarter as we processed some lower grade stockpiles. And finally, on the bottom right, you We delivered another record quarter on the underground mining front, hitting more than 1700 tonnes per day on our way to that targeted 1800 tonnes per day by year end. Moving to Slide 7, we're well on track to achieve full year production and cost guidance. There's an important note here.

Speaker 2

There will be some quarter on quarter movement this year, so it's not appropriate to take the Q1 production results And multiply by 4 or to assume that cost delivered in Q1 will continue at the same level throughout the year. We expect production in Q2 and Q3 to be softer towards the bottom end of the quarterly range implied by annual guidance, And then it will pick back up again in Q4. There are a couple of reasons for this. We're depleting the Juarez pit this quarter. It's at the very end of life at the end of May and mine sequencing in the El Limon and El Limon Sur pits will see us in a period of elevated waste as we move ahead with planned pushback in both pits supported by the additional reserves announced last year.

Speaker 2

The knock on cost implications here are that with planned lower production levels and increased waste stripping over the next two quarters, both total cash costs and AISC In Q2 and Q3, our plans to be above the upper end of the full year guided range. I want to emphasize That things are expected to return to more normal levels in Q4, where production costs will be closer to what we saw in Q1, setting us up to achieve production and cost guidance for the full year. Turning to Slide 8. We recently announced that we entered into something called a sustainability linked loan, modifying our existing credit facilities to include incentive pricing terms with respect to interest rates associated with achieving various targets in the categories of safety performance, Climate change and alignment with the World Gold Council's responsible gold mining principles, really just a financial reward for With respect to safety, we had 3 lost time injuries during the quarter, all amongst our contractors working at the site, All fairly low severity, 2 finger injuries and a fractured risk. With an increasing level of contractors at the Medialuna project, now over a 1,000 person mark, Our team has really redoubled their efforts to ensure that everyone at site, contractors and employees alike adhere to our safety protocols, safety culture and manage risk to our standards.

Speaker 2

And on this note, I'm very pleased to report that we had no lost time injuries in April. I'll now turn the call over to Andrew to speak to the quarterly financial performance.

Speaker 3

Okay. Thanks, Jody, and good morning, everyone. As you can see here on Slide 10. Q1 was another remarkable financial quarter for Torex. With the benefit of strong production and sales volume, record mill throughput And a greater proportion of capitalized waste stripping, our reported total cash costs in the quarter was $709 an ounce, Which was better than the lower end of the guided range for the year.

Speaker 3

Our all in sustaining costs of $10.79 an ounce came in at the low end of the guided range and supported the generation of $133,000,000 of adjusted EBITDA in the quarter. As noted by Jody earlier in the call, this guidance based on costs are not expected to continue through the year As we expect that during Q2 and Q3, both TCC and ASIC will be above the upper end of the guided range Before declining in Q4 as production increases and waste stripping declines. That being said, we do remain confident we I do want to highlight though that the key headwind we are facing right now is less about inflation And more about the strength we've been seeing in the Mexican peso. Our planning for 2023 was based on an assumed peso U. S.

Speaker 3

Dollar exchange rate of 20 to 1, whereas the average we saw in Q1 was 18.7 to 1 and this negatively impacted our operating costs In the quarter by about $3,000,000 And maybe you kind of think about the impact of the peso on our full year Cost performance for the full year each 1 peso variance in the exchange rate will have about a $10,000,000 impact on operating costs And so that's roughly $20 an ounce impact on our cost profile. And just to provide put that into some broader context, Our Mexican peso expenditure represents about 50% of our all in sustaining costs. Moving back to our financials, our reported earnings per share was $0.79 per share in Q1, which benefited from a number of items I just Firstly, we benefited from a $24,000,000 gain in deferred income taxes and that was due to the stronger peso On the value of our peso tax base. In addition, we also recognized a one off $15,000,000 current income tax gain related to a reassessment of provisions for uncertain tax positions. And finally, we benefited from the higher interest rates on our substantial cash balance during the quarter, recognizing $4,000,000 of interest income here in Q1.

Speaker 3

And partially offsetting these gains with a $27,000,000 unrealized loss on our forward gold contract Given the highest forward price at quarter end and after adjusting for a number of the items I just referenced, our adjusted Diluted EPS in Q1 came in at $0.58 per share. Our net cash generated from operating activities was $47,000,000 during the quarter, which is noted when we reported our Q1 operating results in mid April, was impacted by seasonal tax and royalty payments primarily related to fiscal 2022. The impact of these seasonal payments combined with Increased spending on Media Luna resulted in negative free cash flow of $54,000,000 in Q1. And with the elevated level of Media Luna Capital planned through the balance of 2023 and into the first half of twenty twenty four, we do expect free cash flow to continue to be negative over the next several quarters. Turning now to Slide 11, I just wanted to provide a bit more context on our 2023 and Q1 cost performance.

Speaker 3

Just working down the chart here you see on Slide 11, Firstly, on mining costs, these were higher during the quarter compared to last year given increased stripping in the pit as well as a greater amount of stockpile rehandling related to blending in the mill and the lower run of mine feed delivered from the pits. On our underground mining costs, These were down modestly year over year with record underground mining rates providing economies of scale. And then on processing, higher costs here primarily reflect the increased consumable costs, reflecting annual pricing established late last year. Cyanide consumption is consistent with prior quarters at about 2.5 kilograms a ton of ore. And finally on profit sharing, this is slightly down versus 2022 with the main difference reflecting an adjustment related to the 2021 PTU which was recognized in Q1 of last year.

Speaker 3

With a stronger peso though cost management does continue to be a focus We are continuing to actively review costs in order to provide some relief if the peso were to remain at these levels through the balance of the year. While we are discussing costs, I do also just want to quickly point out there is a new line item you may have noticed in our income statement in Q1 labeled other expenses. This new line item will report on certain one off expenditures we will be incurring in 202320 to provide transparency and this relates to an ERP, enterprise resource planning tool implementation, which we are undertaking across the company and also some training costs related to operational readiness for Media Luna. Both of these costs cannot be capitalized under accounting rules due to their nature. I expect these costs will total up approximately $9,000,000 through the course of 2023.

Speaker 3

Next, turning to Slide 12, you'll see here our cash balance declined by about $54,000,000 during the quarter and as you can see from the waterfall here, this is primarily driven by seasonal tax and royalty payments and increased capital spending primarily relating During the quarter, we made over $76,000,000 of tax payments and this included the annual payment on the 7 point And in addition, we made $10,000,000 of other royalty payments including the annual payments on the 0.5% royalty of about $5,000,000 and that was paid in Q1. As a reminder, half the first half of the year is always a period of lighter cash flow due to these tax and royalty payments in We actually just made the most recent annual payment last week and that was $30,000,000 as you'll see that show up in our Q2 cash results. More information on cash flow seasonality has been included in the appendix of today's presentation. Just as a reminder, I just want to highlight and remind the group of just a few items just to expect and to look out for through the quarter 2023. Firstly, monthly tax installments, you can expect they will continue at current levels that you saw in 2022 and so that will approximate between $6,000,000 $7,000,000 a month.

Speaker 3

Accounting depreciation will also be consistent with 2022. We expect the range there to be between $175,000,000 to $200,000,000 and are currently trending towards the upper end of that range. And then depreciation for tax purposes are expected to approximate $100,000,000 in 2023. And so with a lower tax depreciation compared to accounting depreciation, that's the reason for an increase you can expect to see in our deferred tax asset balance, which will increase through the balance of the year. Turning now to Slide 13, the next few slides are really focused on the strength of our balance sheet and you can see here that our balance sheet remains on solid footing with $322,000,000 of cash at quarter end and no debt beyond some small leases we have in place.

Speaker 3

Including the $242,000,000 of available credit on our terms and term and revolving credit facilities. We exited the quarter with $564,000,000 of available liquidity. I do want to highlight here though that our lease liability will start to increase from Q2 and through to the end of 2024 As we are executing on our plan that was included in our feasibility study to lease the mobile equipment required for Media Luna operations. The first $6,000,000 installment payment on this equipment was made by the lessor earlier this month and you'll see that be reported in our Q2 balance sheet. Just turning now to Slide 14, you can see here how this strong balance sheet comfortably supports our ability to fund the remaining Media Luna project capital.

Speaker 3

This slide highlights our goal of $783,000,000 in required liquidity to both be able to fund the remaining $683,000,000 of Media Luna Capital spend while achieving our strategic goal of maintaining a minimum $100,000,000 of liquidity on the balance sheet. The cash balance we have on hand at the end of the quarter and the availability we currently have on our credit facilities would fund $564,000,000 of this requirement leaving only $219,000,000 of liquidity to be generated from our ELG operations And to put that in perspective, based on our current run rate of generating almost $300,000,000 of free cash flow from ELG Over the past 12 months, you can see we have lots of comfort in supporting this funding requirement. This cash flow generation from ELG is also further supported by our gold price hedge program you can see summarized on Slide 15. Just as a reminder, this hedge program is purpose built to provide additional protection during the build out of Media Luna. During the quarter, we did add some additional hedges, which commenced in the second half of this year and roll into the first half of next year.

Speaker 3

So we have roughly now 25% of our production hedged in the first half of this year and the second half of next year And then that increases to about 40% for the second half of this year and the first half of twenty twenty four. Our gold price hedge program based on these hedges is now complete and I don't expect we will add any further to this gold hedge book. During the quarter, we realized a $500,000 gain on these forward contracts, which contributed $5 an ounce to the realized gold price. We also recognized $27,000,000 as I referenced earlier in unrealized mark to market losses on these contracts during the quarter and that was due to the prevailing gold price at March 31 and the forward curve. You'll see this included in our Q1 income statement.

Speaker 3

With that, I'll now turn the call over to Dave Stefanuto, who will provide an update the Media Luna project.

Speaker 4

Thanks, Andrew. Slide 17 shows the progress at Media Luna after the 1st 12 months of a 33 month build period. The high level takeaway here is that the project is tracking to budget and schedule and our first concentrate production in Q4 of 2024. At quarter end, the project was 24% complete overall considering procurement, engineering, underground construction and development and surface construction. While the completion rate is behind the level in the 2022 technical report, the delays are related to non schedule critical procurement and deliverables and the fact that we have built an additional cushion into the original schedule to mitigate supply chain issues as we finalize the schedule in late 2021.

Speaker 4

Both engineering and procurement rates picked up as we issued a number of schedule critical purchase orders such as Our primary underground mining fleet consisting of a mix of battery electric and diesel equipment, positive displacement pumps and filter presses for the paste plant, gravity concentrator and filter press for the copper concentrate facility and our reverse osmosis unit for the water treatment plant. Subsequent to quarter end, we awarded the agreement to supply our underground mining support equipment and just this week issued the purchase order for the personal transportation equipment. We are also about to award the contracts for both underground construction and vertical Alamec development. Underground development Kept pace during the quarter with 18 active headings. In Media Luna Upper, we have commenced development of the footwall drift at 1 of the first production levels.

Speaker 4

Surface construction continues to ramp up with the last blast completed on the pace plant pad and remediation work on the South Portal Upper Road was completed. Civil works in preparation for construction activities on the north side also progressed and are tracking the forecasts following an initial slow start out of the gate. Earthworks for the new water treatment plant and 230 kilovolt substation are well advanced. During the quarter, we spent over 60 22% of the project expenditures and had additional commitments in place of 12%, bringing the committed and incurred levels to 34%. The actual spend in Q1 was lower than what we had forecast heading into the year given number of purchase orders were issued late in the quarter as were a number of invoices from contractors and vendors and a slightly slower ramp up from our surface construction early in the quarter.

Speaker 4

With surface and development activities ramping up monthly, We expect to see project expenditures climb throughout the year. The under run is not a result of productivity issues or performance delays with our underground contractor. Overall, we're on pace to achieve the guided expenditure of $390,000,000 to $440,000,000 per year. Slide 18 provides an updated on the critical scheduled Guarez tunnel. In short, Tunnel advance rates continue to be exceptional from north to south with advance rates from south to north improving materially over the last few months.

Speaker 4

Now that we're developing in the host granodiorite, which is a very competent rock compared to the shale and limestone lithologies we encountered last year. At the end of April, the main Juarez tunnel had advanced over 4 kilometers having delivered an average daily advance rate of 7 meters per day. South Portal Lower had advanced over 1.8 kilometers with the main spiral decline ramp on track to be completed towards the end of June. Advance rates materially improved averaging 4.3 meters per day over the last 3 months versus 3.8 meters per day last year. And of note, we achieved 5.1 meters per day during April, a run rate which has maintained so far through May.

Speaker 4

Last week, we safely broke through the West Addit vent, which you can see is denoted in the picture as ventilation tunnels. Overall, the scheduled critical wide s tunnel is on schedule for breakthrough in early Q1, if not sooner. Turning to Slide 19, some recent pictures of the project. On the left, you can see a portion of the Juarez tunnel, which participants on Tour we will see next week as not only being driven at world beating rates, but being done safely with quality. In the middle top Is the recent breakthrough of the West Additives Vent Tunnel.

Speaker 4

Beside that is a picture of the paste plant pad which is being cleaned up to commence concrete pad pouring Starting at the west side with our backup generation facility. In the bottom is the 1st monthly safety alert held at site. The safety alerts are a way of reinforcing our best safety practices with our frontline workers, reminding people of the importance of following procedures properly, being aware of one's surroundings,

Speaker 2

of the 2022 drill program and step you through the results of our reserve and resource update this year. On the reserve Friends, we were able to replace more than 60% of reserves depleted last year. Notably, at ELG underground, we replaced more than 100% of gold equivalent reserves mined. Drilling success in the El Limon pit added 190,000 ounces of gold equivalent reserves. This is the ore we're chasing with that pushback we're now stripping for.

Speaker 2

Additionally, a small optimization of the El Limon Sur pit added 50,000 ounces. Recall that the pit additions are for the purpose of ensuring that we have a production plan that has a comfortable degree of overlap between the pits coming off and Medialuna ramping up in 2025. The final note here, and I think it's important, The change in reserves was driven by drilling. The gold, silver and copper prices used to estimate reserves remain unchanged. Turning to Slide 22, you can see we've had more success on the resource side.

Speaker 2

Drilling brought in close to 1,100,000 of gold equivalent measured and indicated resources prior to depletion. So that's a 16% increase year over year. If you think about it after depletion, that's 8%. The resource additions came across multiple fronts at EPO. Infill drilling resulted in an initial indicated resource of 670,000 ounces with the benefits of higher grade from the inferred resource.

Speaker 2

At Medialuna, another 275,000 ounces of gold equivalent resources were added, primarily as drilled back in 'twenty one where we received assays after the cutoff date for the 2022 technical report. Drilling at ELG Underground added 192,000 ounces of M and I resources with drilling delivering new mining fronts that we're pretty excited about at Sub Sill South and El Limon Sur Deep. Similar to the case with reserves, the metal prices Used to estimate resources remains unchanged. Turning now to Slide 23 for just a reminder to have an update on those results later on this year. Drilling at EPO has commenced for the year with the program focused really in 2 parts.

Speaker 2

The first part is infill drilling as we look to upgrade additional resources to indicated to support an internal study to evaluate the potential to develop a new mining front at EPO. We're targeting this zone as a source of feed for our fill the mill work post-twenty 20 7. The second part of the program is focused on step out drilling to the north of EPO. Results from this part of the program are also likely to be released later on this year. And additionally, we're starting to we're looking to start wide space drilling, targeting Skarn Mineralization in the area between EPO and Medialuna West.

Speaker 2

We're anxious to get there. We're just waiting on some permits to be received. Before handing the call back to the operator for Q and A, I want to make some final comments on the recent changes to the mining law There's been much in the mining news about the iterations and evolution of the laws and their implications, and I want to start here by emphasizing that the situation is fluid. There were various drafts of the reforms and the process by which they were ultimately passed by the Senate is also expected by many to be the subject of legal challenges. Based on our understanding today, the proposed changes to concession terms only impact new So Torex is pretty well positioned here as our concessions have terms of 40, but predominantly 50 years And expire in either 2,040, but predominantly 2,055.

Speaker 2

The largest concession we have, which covers all of ELG and Medialuna, has an Fiery date in 2,055. The reforms also address water concessions and water permitting. Again, Torex is pretty well positioned here Even with the addition of Medi Luna water needs, as we have approval to draw 5,000,000 cubic meters of water per year And today draw approximately 1,000,000 cubic meters of water per year. So lots of room there for growth. The other areas of focus for the amendments include payments to communities, guarantees for asset retirement obligations, no different to many other jurisdictions in the world and indigenous consultation framework.

Speaker 2

Generally speaking, it appears as though the bill in its current form may impact junior exploration and development companies more than established producers like us. As I said, there is much left to be clarified. The story is not yet written And we look forward to continued dialogue with the government as bylaws and operating protocols are written over the coming months years. In the meantime, we just continue We're doing and delivering value at Morelos. With that, I'll pass the call over to the operator and open the floor for questions.

Operator

Thank you. We will now begin the question and answer session. The first question comes from Wayne Lam with RBC. Please go ahead.

Speaker 5

Hey, good morning everyone. Congrats on a good quarter. Just had a question on the pit layback at Limon. I recall that the decision and the plan was done, I think at a much lower gold price around 1500. Given where gold is today, is there any potential to kind of bring in more material?

Speaker 5

Or are there any potential changes to the plan just given the higher gold price?

Speaker 2

I'll take that one Wayne and thanks for the question. We're executing on the pit laid back as designed. My recollection is that it was done at $1600 gold with sensitivities all the way down to $1300 at which point it still makes money. If and as the gold price looks like it's going to sustain, we'll factor that into plans. As we think about El Limon Sur and additional optimizations and any remnant Mining we might do at the Alimond pit.

Speaker 2

I wouldn't expect any changes there to be material. We're already quite comfortable with the pits getting out to mid-twenty 25 that we have that overlap that we were looking for, but it's certainly something we'll keep our eye on as this year progresses.

Speaker 5

Okay, great. Thanks. And then maybe just on the permitting front, Obviously, the EMEA Integral was key for you guys in being able to operate. I'm just curious if there's any additional incremental permits need for operation that could Potentially result in a delay at Medea Luna. Just given some of the legislative changes in Mexico recently, Just curious if there's any small items on the permitting front that could potentially impact the start of operations?

Speaker 2

That's a really good question, Wayne, with the legislative changes being what they are, there is, I would say, a general disinclination to issue permits given the That said, we needed 2 additional EMEA related permits for Medialuna. 1 is A bit of an adjustment of the footprint, the MIA modification for that. We actually were awarded that permit last week And so feeling quite happy about that. The other one that's ahead of us, yes. Recall that the plan of Medialuna is we're going to no longer deposit tailings to our filtered tailings storage facility.

Speaker 2

Part of the logic behind concluding mine production in the Waha Had Pit is we're going to transition to in pit tailings deposition. We've now finalized the science and all of the details of the application for that additional EMEA modification. We expect that will be submitted to the regulators this quarter in Q2 and have given ourselves plenty of lead time here To negotiate and discuss and hopefully secure that permit, we have capacity in our filter tailings storage facility through to the end of quite comfortably. We are looking to get that in pit tailings deposition permit before that, So we have a lot of leeway there to be able to secure that permit and work with government productively. So We are feeling quite comfortable about our permitting situation.

Speaker 2

And again, permits in Mexico are one of these things that depend on the quality of project, the quality of the permit application, all of the detailed science around that, relationships and reputation with regulators and how you approach permitting situation. And so, while it's certainly not in the bag, we're feeling quite comfortable about securing that tailings permit.

Speaker 5

Okay, thanks. And then maybe just last one for me. Just wondering if you might be able to provide a bit more detail on the pricing for the Sustainability Linked loan. When does that go into effect and kind of what are the pricing ranges on the loan relative to the prior facility? Just curious On a bit more detail on how the targets are set, given that you guys already have an industry leading safety record and commitment on climate change.

Speaker 5

If those Targets are at levels that you've already kind of been executing on.

Speaker 3

Hi, Wayne. Andrew here. So I'll And look, I think you raised a good point there around our strong safety performance and environmental performance and that did create Long discussions to try and finalize the KPIs around our sustainability linked loan. And really where we ended up with were goalposts there that made sense based on our current performance and based on our current trajectory. I think our three areas of goals are safety and really the goal there is staying True and continuing to achieve the leading safety performance that we're seeing today.

Speaker 3

On the environmental goals, that's really all linked towards the 2013, sorry, carbon reduction plan that we released late last year and the steps that we're taking towards that. And then thirdly, on the responsible gold mining principles, under our membership position under the World Gold Council, We are required already to achieve full compliance under the RGMPs. And so the Sustainability Linked loan Have that as a 3rd pillar of targets and so all very achievable targets. The financial benefits of The loan, I'll say, is very modest. The credit facility as designed, the pricing on that have not changed at 2 50 basis points plus SOFA.

Speaker 3

The benefits of achieving these targets is really a 5 basis points saving on that pricing And so a fairly modest potential saving there and that saving would be available to us through the course of 2024 2025 Based on the current term of the credit facilities. So hopefully that gives you a bit more color there, Wayne.

Speaker 5

Okay. No, that's great. Thanks. And good to see you guys put that in place and kind of hold yourselves accountable to the targets you've set. That's all for me.

Speaker 5

Thank you very much for answering my questions.

Speaker 2

Thanks, Brian.

Operator

The next question comes from Don DeMarco with National Bank Financial. Please go ahead.

Speaker 6

Hi. Thank you, operator, and good morning, everyone. Hi, Jody. Great quarter. One of the drivers is the record throughput.

Speaker 6

Can you add some color on how you choose this 13,000 tons plus tons per day? And there is some variability quarter over quarter and how should we think about the throughput Going forward for the rest of the year.

Speaker 2

Yes. And so great question, Don. 13,073 tonnes per day To be precise, in the mill was achieved in the quarter and every one of them is just a grind, pardon the pun. But I will say the emphasis on our business process framework, which has been long in the tooth and implementation more than 2 years now, which in a very short description is a really precise way of planning, scheduling and executing maintenance work. And so what is happening is that it's really coming to start to pay its dividend.

Speaker 2

And so we had a very good quarter in terms of, A, staying on plan for the planned shutdown period. When you have a planned shutdown period for 80 hours, you want to come in at 80 or less and conclude all scope on the cost that you've identified for your shutdown. Those are the 3 and safety for sure, but those are the metrics to which we hold ourselves to account. And the other area where BPF is paying dividends is that The unplanned downtime is now slowly reducing. And so hit your planned downtime and reduce to the point of eliminating unplanned downtime.

Speaker 2

That's the trick. The other area where we had a bit of an increase is in tons per hour. So throughput in the mill and that's just again a function of good maintenance of the seg mill and ball mill.

Speaker 6

Okay, that's great. That's encouraging. So you actually achieved this record despite the fact that you had your 80 hours of maintenance, planned maintenance. Looking ahead to Q2, Q3 and Q4, do you have maintenance every quarter or is there potential that you maybe set a new record?

Speaker 2

We have maintenance every month.

Speaker 6

Okay. Every month.

Speaker 2

Yes, it's quarter by quarter dependent. So we have planned maintenance every month And forecasting on setting a new record, for me, an excellent carry on of the year would be holding levels at above 13,000 tonnes a day. That would be an excellent outcome for the milling team for this year.

Speaker 6

Okay. Thank you. And so we're looking at the messaging that was provided here that The costs are going to be above the top end of the AISC guidance range over the next couple of quarters and that top end is 11.30 And then it's going to be lower than the bottom of the range in Q4. Can you give us an idea of how much higher Or how much lower that swing might be over the next two quarters and then rebounding at year end?

Speaker 3

Look, Don, I try and stay away from giving quarterly cost guidance. I think it's really difficult to be able to predict that with accuracy. And I think the way to think about it is looking at Q4 4 to be fairly consistent with Q1. And so if you're looking at modeling it and put that in consistently, I think as you look at and think about AISC, a couple of things I'll think about that. One is obviously the impact of lower production.

Speaker 3

And so if you kind of look at modeling Q2, Q3, I'm looking at kind of lower end of the production range from a guidance perspective And playing that out in terms of an expectation of Q2, Q3 production that will obviously have an impact on our cost profile. And And then some higher stripping through Q2, Q3. Obviously, we had some high stripping, high capitalized stripping In Q1, it will be higher still in Q2 and Q3. I'm hesitant to kind of give out specific guidance there Because of the challenge of doing that on a quarter to quarter basis, but I should give you just a general flavor of how to think about that.

Speaker 6

Okay. Thanks, Andrew. And then just finally, a quick question on EPO. I mean, we see the resource estimate, the grades are looking good. We've seen some impressive intercepts.

Speaker 6

Can you just tell us the pathway to potentially putting this into production in 2027? And is there an opportunity to even Given some of the grades that you've encountered to have a higher grade portion of it mined out, so maybe thinking about CapEx or whatever is necessary to get this into production?

Speaker 2

Yes, it's such early days on EPO, Don. And so we just upgraded 670,000 ounces. And as you point out, that grade came up, right? The inferred grade was about 4 gram a tonne gold equivalent. The indicated grade is 5.16 grams

Speaker 5

on

Speaker 2

gold equivalent. So we're really quite pleased about that. I mentioned in the call the 2 areas of focus for drilling around EPO. That continued upgrade I've inferred to indicate it is important to us, so that Dave and his technical team can really start at a very PEA level to wrap a mine plan around it. Some big questions, yes, do we tie into the Waha's tunnel?

Speaker 2

Do we tie the infrastructure back into the structure back into Eddy Luna main deposit. And so we expect to have a better line of sight on that in the early part of Next year, and then I can probably with a greater degree of specificity give you some idea about what we're doing with EPO, When it could come on, what size it could be, where it's going to tie in and a PEA level idea of capital costs, But it's still pretty early days. I will say it's showing up nicely. We're very excited about it, Not just EPO, but EPO North and the zone between Medialuna West and EPO. This deposit, we're thinking about it as a cluster now And it just does not disappoint.

Speaker 6

Okay. We'll look forward to updates on that then. That's all for me. Thank you very much.

Speaker 2

Thanks,

Operator

The next question comes from Eric Windmill with Bank of Nova Scotia. Please go ahead.

Speaker 7

Hi, morning. Thanks for taking my questions. I just want to follow-up. You had a comment in your disclosures about the community development agreements that you signed Earlier this year, just wondering if you have any additional details in terms of what some of the hot button issues are and assuming All the local communities have now been signed to the annual agreement, I think?

Speaker 2

Yes. So we have 11 community development agreements. Some of them are on the north side of the river. We've got some new ones on the south side of the river with Medi Luna coming online. I wouldn't describe the issues as hot button.

Speaker 2

Eric, there is sort of a continuation of what our commitments have been in the community all along. Education for kids, Medical, dental, healthcare, good paying jobs that are safe for community members. We have very specific community committees for employment, both on the contracting side and then the direct employment side. As you can imagine with the promise of Medialuna on the south side, Those labor committees are really starting up in earnest and people are very, I would describe it as excited, receptive, wanting to work with Torex And create some value for themselves and their communities on the south side. The one new item for us on is that we're relocating a very small community near Medialuna called San Miguel.

Speaker 2

We've budgeted about $6,000,000 for that. We've had many, many meetings with the community on it. I would describe people as quite excited about what their houses could look like and where they're going to go and the prospect of clean running water and electricity and things that we tend to take for granted. So More of the same on our community development agreements on the north side of the river, some new and interesting stuff on the south side, but I wouldn't characterize that as hot button or contentious and I'm looking forward to you seeing some of that when you come to site next week, Eric.

Speaker 7

Yes, fantastic. Definitely looking forward to that. Maybe a good segue to the next question too, Apologies if you already touched on it. In terms of the regional exploration, just wondering if you can comment on what's required there in terms of roads and Support and what we might expect there in terms of the regional program?

Speaker 2

Yes. The regional program really is limited, I would describe that. Over the next couple of years, our exploration dollars and attention are primarily focused on ELG Underground, EPO and Medialuna. Why? Because the business priority is to fill the mill post And so we want to make sure that we're spending money in a way that supports the overall strategy.

Speaker 2

To the extent that we're doing some regional exploration, primarily on the north side of the river in areas of Tecate, Carranque, you'll see maps on that when There will be permits required from either IHITAs or existing individual land owners And then something called a COOST, changes of land from the regulators depending on where we go. Early days, we're not looking at a whole bunch of investments on roads and Things like that. From my perspective, you want to be skinny on your dollars until you know that there's something there. But I would say that's quite a few years ahead of us Because really the focus now is very near to areas that are really coming up in ways that we're pleased with and excited about.

Speaker 7

Yes, fantastic. Well, thank you very much for that. And yes, definitely looking forward to getting down to site next week. Appreciate it.

Speaker 2

Thanks, Eric.

Operator

As there appear to be no more questions, this concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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Earnings Conference Call
Torex Gold Resources Q1 2023
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