• Gold Production: 229,000 ounces in the first half of 2024.

• All-in Sustaining Cost Margin: Increased to 44% from 41% quarter over quarter.

• Cash Generation: $46 million prior to spending on Media Luna.

• Free Cash Flow: Negative $62 million, including $108 million spent on Media Luna.

• Gold Price: Market average of $2,200 per ounce in the first half of the year.

• Capital Expenditure: Media Luna project finalized at $950 million, up from $875 million.

• Cash Balance: Maintained above $100 million target at quarter-end.

• Revolving Credit Facility: $55 million drawn, with total liquidity at $346 million.

• Gold Recoveries: Above 90% for the second consecutive quarter.

• Processing Rates: Above 13,000 tonnes per day for the sixth consecutive quarter.

• Exchange Rate Impact: Year-to-date exchange rate of 17:1 compared to guidance assumption of 18:1.

• Media Luna Project Completion: 78% complete as of June end.

• Warning! GuruFocus has detected 4 Warning Sign with TORXF.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Torex Gold Resources Inc (TORXF) achieved a record quarter for realized gold prices, leading to strong margins and cash generation.

• The company is on track to deliver production guidance for the sixth consecutive year, with gold production of 229,000 ounces in the first half of 2024.

• Media Luna project is 78% complete, with engineering and procurement largely finished, and the company is fully funded for the remaining project expenditures.

• The company maintains a strong balance sheet with over $100 million in cash and minimal drawdown on its revolving credit facility.

• Torex Gold Resources Inc (TORXF) has released a multi-year exploration strategy with multiple prospective targets identified, indicating potential for long-term growth.

Negative Points

• Costs have trended above guidance due to higher stripping requirements and the strength of the Mexican peso, impacting overall cost performance.

• The Media Luna project's capital expenditure has increased to $950 million, up from the initial budget of $875 million, due to currency fluctuations and additional infrastructure requirements.

• Free cash flow was negative at $62 million in the quarter, primarily due to significant spending on the Media Luna project.

• The transition from open pit to underground mining presents challenges, including the need for technical training and hiring experienced personnel.

• Cyanide consumption has increased due to higher iron and copper content in the ore, leading to additional cost pressures.

Q & A Highlights

Q: At Media Luna, is the biggest bottleneck now on the electrical, the e-hoses, or are there any other elements of risk that could result in a timeline delay? A: The current primary risk is the delivery of the electrical gear to be installed within the e-houses. We've been aware of this risk since the start of the project due to extended delivery times post-COVID. We've worked with vendors to mitigate potential slippages and are on track to meet commissioning timeframes. - David Stefanuto, Executive Vice President - Technical Services and Capital Projects

Q: Regarding the transition of the workforce to Media Luna, are there challenges in transitioning primarily open-pit workers to underground operations? A: It's a blend. We are transitioning open-pit miners to lower-level roles, while hiring externally for more technical positions, focusing on in-state and in-country talent. We've already moved our workforce into Media Luna, addressing any proficiency issues early, which positions us well for the transition. - Jody Kuzenko, President & CEO

Q: Can you provide an idea of the targeted conversion rate to reserves used as the basis for the internal PFS at EPO? A: We'll disclose those results in the first week of September during our Analyst Day, where we'll showcase EPO and the first reserve we're taking there. - Jody Kuzenko, President & CEO

Q: With commercial production expected in Q1 2025, should this be seen as the inflection point for positive free cash flow? A: Commercial production is expected mid-Q1 2025, but returning to positive free cash flow will likely occur closer to mid-2025 due to seasonal cash flow impacts and the ramp-up of Media Luna. - Jody Kuzenko, President & CEO

Q: With the recent weakening of the peso, what are the potential benefits for remaining CapEx and OpEx if the peso remains at current levels? A: A MXN1 impact affects operating costs by about $10 million annually. For Media Luna CapEx, each peso movement could impact capital by about $5 million on remaining expenditures. - Andrew Snowden, Chief Financial Officer

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.