Torex Gold (TSX:TXG) Resources (OTC:TORXF) Inc. (TXG) reported robust second-quarter results for 2024, with significant progress on its Media Luna project and a strong operational performance. The company announced another record quarter for realized gold prices, solid margins, and cash generation. Torex Gold remains on track to meet its full-year production guidance with 229,000 ounces of gold produced in the first half of 2024. The Media Luna project is nearing completion, expected to produce its first concentrate in the fourth quarter of 2024 and reach commercial production by the middle of the first quarter of 2025.
Key Takeaways
- Torex Gold reported strong Q2 2024 results with record gold prices and solid margins.
- The Media Luna project is 78% complete and on schedule for initial production in Q4 2024.
- The company has a healthy balance sheet with $100 million in cash, and total liquidity stands at $346 million.
- Torex Gold is fully funded for the remaining Media Luna project expenditure.
- Gold production is on target, with 229,000 ounces in the first half of 2024.
- Capital expenditure remains focused on Media Luna, with total project spend finalized at $950 million.
- The company expects a step change in free cash flow in Q3 2025.
Company Outlook
- Torex Gold anticipates improved costs in the second half of 2024, with an all-in sustaining cost margin of 44% in Q2.
- The company plans to invest more in drilling and exploration in the coming years, with $30 million earmarked for 2024.
- Commercial production at Media Luna is expected to commence in mid-Q1 2025, with a return to positive free cash flow by mid-2025.
Bearish Highlights
- Costs have been higher than guidance in the first half of 2024, although they are expected to improve in the second half.
- The Media Luna project has seen an 8.6% increase in capital expenditure over the initial budget due to carryover costs and upgrades.
- Increased costs are anticipated in 2025 due to the transition to underground mining.
Bullish Highlights
- Torex Gold generated over $250 million in free cash flow, excluding Media Luna, over the last 12 months.
- The ELG underground deposit and the Media Luna project show potential for resource growth, extending mine life.
- The weakening Mexican peso could positively impact remaining capital and operational expenses.
Misses
- There have been delays in the delivery of electrical gear for the Media Luna project due to COVID, which poses a risk to the project timeline.
Q&A Highlights
- CEO Jody Kuzenko expressed optimism about the exploration potential around the Media Luna cluster.
- The company is finalizing an agreement to move into Media Luna East and will deploy drills in Todos Santos and El Naranjo in Q4 2024.
Torex Gold's financial strength is evident from its cash balance, which has remained above the targeted $100 million level. The company has also enhanced its credit facility, ensuring a robust funding buffer that is expected to increase throughout the year. Torex Gold's strategic pillars, including talent acquisition, ESG excellence, and exploration strategy, continue to progress well. The company's exploration efforts are particularly focused on the Media Luna cluster, with significant potential to add value to the mine plan. Despite the challenges posed by the COVID-related delays and increased cyanide consumption, Torex Gold is confident in its ability to manage risks and capitalize on opportunities, as evidenced by its comprehensive hedging strategies and engagement with Mexico's new business-oriented administration. With the Media Luna project nearing completion and exploration targets set to enhance the company's asset base, Torex Gold is poised for a bright future as it executes its five-year plan.
InvestingPro Insights
Torex Gold Resources Inc . (TORXF) has shown a noteworthy performance in the market, with a significant price uptick over the last six months, reflecting a 49.38% return. This aligns with the company's operational achievements and the progress of its Media Luna project, as outlined in the article. The InvestingPro Tips suggest that analysts are optimistic about the company's profitability, predicting it will be profitable this year, which is consistent with the company having been profitable over the last twelve months.
InvestingPro Data highlights a solid financial footing for Torex Gold, with a market capitalization of $1.34 billion USD and a P/E ratio that has slightly improved from 12.69 to 12.23 when adjusted for the last twelve months as of Q2 2024. The company's revenue growth remains robust at 9.63% over the last twelve months, with a particularly strong quarterly growth rate of 27.92% in Q2 2024.
The company operates with a moderate level of debt, as per one of the InvestingPro Tips, which is an important consideration for investors looking at the financial health and leverage of the company. Additionally, it's worth noting that Torex Gold does not pay a dividend, which could be a factor for income-focused investors.
For those interested in further insights, there are additional InvestingPro Tips available at https://www.investing.com/pro/TORXF, which can provide a deeper understanding of Torex Gold's financial position and market performance.
Full transcript - Torex Gold Resources Inc (TORXF) Q2 2024:
Operator: Thank you for standing by. This is the conference operator. Welcome to Torex Gold's Second Quarter 2024 Conference Call and Webcast. [Operator Instructions] The conference is being recorded. After the presentation, there will be an opportunity to ask questions [Operator Instructions]. I would now like to turn the conference over to Dan Rollins (NYSE:ROL), Senior Vice President, Corporate Development and Investor Relations. Please go ahead.
Dan Rollins: Thank you, operator, and good morning, everyone. On behalf of the Torex team, welcome to our Q2 2024 Conference Call [Operator Instructions] On the call today, we have Jody Kuzenko, President and CEO; A - Andrew Snowden, CFO; as well as A - Dave Stefanuto, Executive Vice President, Technical Services and Capital Projects. Following the presentation, Jody, Andrew and Dan will be available for the question-and-answer period. [Operator Instructions] I'll now turn the call over to Jody.
Jody Kuzenko: Thank you, Dan, and good morning to all on the line. Q2 marked another strong quarter of safe, consistent operational results, and I'm pleased to say that we're on pace to deliver production guidance for the sixth consecutive year. With yet another record quarter for realized gold price, our margins are strong and the cash generation from ELG is fueling us through the last stages of the Media Luna build. While margins have improved quarter-over-quarter, our costs remain a very sharp focus for the entire team, which Andrew will speak to in more detail when he gets on the call. With the strong production results, we remain in an excellent financial position. With only a minimal drawdown on our revolving credit facility, we've maintained our strategic objective of keeping $100 million of cash on the balance sheet and are fully funded for what remains of the Media Luna Project spend. Dave will speak to the project progress in his section, but the headline here is that we're tracking well to deliver on our targets of first concentrate production in Q4 and commercial production in mid-Q1. Before we dive into the quarter, I want to briefly provide an update on where we stand across our 6 strategic pillars set out here on Slide 4. As of the end of June, overall project progress for Media Luna sat at 78% complete across engineering, procurement, underground development, underground construction and surface construction. With engineering and procurement largely complete, our focus now is on ensuring that the remaining deliveries arrive at site on time for the 4-week shutdown of the processing plant planned for Q4. Simultaneously, our operational readiness teams are working hard on integrating Media Luna with ELG to ensure a smooth handover from the project team to the operations team as the project nears the finish line with mine development and production scheduled to be handed over from the project to the operations later on this month. As I mentioned at the outset, we're delivering on our objective of maintaining a strong balance sheet with available liquidity well in hand to complete the project built. On grow reserves and resources, we've become even further advanced on getting the people we need and the systems in place to deliver on the work of this strategic pillar, which is coming along nicely. You'll recall that earlier in the quarter, we released our multiyear exploration strategy. First one ever, with multiple highly prospective targets identified across the Morelos land package. I'll touch more on that and the specific progress we have made on the ELG underground drilling results that were released during the quarter before the end of the call. On talent, work is ongoing to retain our employees during the Media Luna transition and to continue to hire from local communities. Transitioning our open pit miners to the underground is going well with 200 of the 400 people now placed. And systems are in place for technical training progression across various levels of theories, simulator training and field training. And last, but certainly not least, is ESG excellence. In May, we released our 2023 responsible gold mining report. If you haven't had a chance to read the report yet, I'd encourage you to do so it's posted to our website. Now to get into our specific quarterly results set out here on Slide 5. With gold production of 229,000 ounces through the first half of 2024, we're well on pace to deliver full year production guidance. While costs have trended above guidance through the first half of the year, we expect them to improve in the second half as the strip ratio comes off in Q4 and as open pit mining winds down even further. Although costs are up slightly quarter-over-quarter, margins continue to expand with by-product all-in sustaining cost margins increasing to 44% from 41% quarter-over-quarter, with margins significantly higher than the 38% delivered in 2023. The solid production and strong margins allowed for strong cash generation of $46 million prior to spending on Media Luna Including $108 million spent on Media Luna, free cash flow was negative as would be expected in the quarter at $62 million. However, as I mentioned, our liquidity position remains strong, and we remain very much expecting to return to positive free cash flow mid next year. Slide 6 is a snapshot of our operational performance in the quarter with gold recoveries remaining above 90% for the second consecutive quarter. Production remained consistent quarter-over-quarter at 114,000 ounces. Q2 also marked the sixth consecutive quarter of processing rates above 13,000 tonnes per day in the plant. The bottom left chart shows process grades at similar levels to that of Q1, while the bottom right chart shows that underground mining rates have once again returned above their steady state levels of 2,000 tonnes per day, and we expect this rate to continue going forward. Slide 7 shows a summary of our guidance for the year. One area to note here relates to CapEx on the Media Luna project, which you will have seen at the end of July was finalized at $950 million, up from the $875 million we published years ago with the technical report in early 2022. We have been publicly discussing the impact of the strong Mexican Peso on Media Luna CapEx per month, but we're holding off on finally adjusting the upfront project CapEx until we were very confident in the final number. With 97% of the project expenditure is now committed, we saw this as an appropriate time to publish the final forecast. Now if you normalize to the peso, the $950 million would be $902 million, representing only a 3% increase in CapEx over the original technical report estimate. Everyone listening will have their own view of the CapEx increase. I personally consider 3% on a 33-month build in this supply chain and inflationary environment to be a pretty massive accomplishment. And importantly, I'm very proud of the fact that aside from the nominal amount we plan to draw on our credit facility, we have funded this project entirely on cash flow from ELG without diluting our shareholders and without giving up future upside of areas through a royalty or stream. It's a pretty significant accomplishment for a mining company our size. And with that, I'll pass the call over to Andrew to discuss financials in more detail.
Andrew Snowden: Perfect. Thank you, Jody, and good morning, everyone. I'll begin by discussing our Q2 financial performance, which you can see summarized on Slide 9 of our presentation. Supported by another record quarter with the gold price and our ongoing focus on cost containment, we achieved a 44% all-in sustaining cost margin during the quarter. And although our year-to-date cost performance is tracking over our annual guidance due to the higher stripping requirements of our mine plan in the first half of the year. As Jody mentioned, this stripping will reduce through the balance of the year, supporting a reduction in our cost performance. I do though expect our annual all-in sustaining cost performance to trend towards the top end of our annual guidance, though. And there's 2 real market factors driving this cost pressure. Firstly, the gold price; and secondly, the strength of the Mexican peso. On the gold price, with a market average gold price of $2,200 an ounce through the first half of the year, that compares to a $1,900 an ounce assumption we had included in our guidance. We're seeing as a result of this higher royalty and profit-sharing expense. The simple rule of thumb here, you can think about is the every $100 an ounce move in the gold price, by-product cash and all-in sustaining costs are impacted by about $12 an ounce. That $12 an ounce consists of about $3 an ounce impact due to government royalties and the remainder due to the mandated profit sharing. On the Mexican peso, we have seen a year-to-date exchange rate of about 17:1 through the first half of the year, and that compares to an assumption of 18:1 within our guidance. And as a reminder, every one peso change relative to the U.S. dollar impacts annual operating costs by about $10 million. However, as I'm sure you're all aware, the peso has weakened substantially since the Mexican elections in early June and due to other macro political and economic developments more recently. So we can see this cost pressure reverse during the second half of the year. And this morning, the peso is trading at about 19.3: 1. Our capital expenditure for the quarter remained above $100 million, obviously primarily focused on Media Luna and is expected to remain at current levels through Q3 before declining significantly in -- slightly, sorry, in Q4 and then more significantly in Q1 as we achieved commercial production. This level of capital expenditure directly impacted free cash flow, and you can see that in the bottom right-hand chart on this slide, and I expect we'll return to positive levels of free cash flow by this time next year. Moving on to unit cost performance on Slide 10. The underlying strength of the Mexican peso had an impact on all of costs during the year so far, with 50% of costs denominated in peso, as I mentioned. In addition now to this peso strength, there were other factors that play the impacted costs in certain areas of the business, and you can see these summarized on this slide. Open-pit mining costs reflected increased diesel consumption and higher maintenance costs as the fleet approaches the end of its life with open pits winding down next year. This approach mitigates the alternative of costlier rebuilds of the fleet. Underground mining costs were driven by increased full requirements, including a crown pillar. And processing cost increases compared to full year 2023 reflects higher signal consumptions through the year-to-date due to higher levels of copper and iron Veneer and Ore. And finally, as PTU is directly related to our profitability. The increase compared to last year is correlated to the higher gold price year-to-date that I mentioned earlier. Turning now to Slide 11. You can see our cash balance remained above our targeted $100 million level at quarter end, supported by our strong cash flow from ELG as well as a $55 million draw on our revolving credit facility while we complete the final months of Media Luna. Other key uses of cash this quarter included the annual PTU payment, which was $24 million this year, and that payment was made in May. And that's included within the change in working capital column within the waterfall chart. In addition, we had quarterly tax payments of about $10 million. Sitting here midyear with the heavy tax royalty and PTU payment cart is now behind us, the second half of the year will be stronger from an operating cash flow perspective as is typical of our cash flow seasonality. Moving now to Slide 12. You can see our June 30 balance sheet and liquidity position summarized here, where we ended the quarter with $346 million of available liquidity with $55 million drawn on our credit facility. Based on current metal prices, we would expect to draw about or up to $150 million of credit on that facility through the year. Similar to last year, as part of our annual credit facility amendment process, we further enhanced our credit facility terms with 3 key updates. Firstly, we collapsed the $100 million term facility into the revolving facility with total capacity unchanged at $300 million. Secondly, we extended the maturity of the credit facility out to year to December 2027 and a limited the amortization period with bullet maturity now at that December 2027 date. And finally, we incorporated a $150 million cordin feature, allowing for an upsize an upsizing of the facility if required, and that's to support strategic priorities beyond Media Luna. With these enhancements, we continue to remain with solid liquidity and to deliver across our strategic priorities. Now turning now to Slide 13. This robust liquidity position of $346 million at quarter end, more than covers off the $224 million remaining on Media Luna and our strategic objective of maintaining $100 million on the balance sheet. This funding buffer is expected to further increase through the remainder of the year given the strong ongoing cash flow from ELG operations. And we did generate free cash flow, excluding Media Luna, of over $250 million over the last 12 months. And at current gold prices, we expect that cash flow to improve even further looking forward. Finally, touching on hedges to summarize here on Slide 14. Firstly, on commodity hedges. As you recall, we placed purpose-built gold hedges to protect against gold price risk during the Media Luna build. These hedges fully roll off by the end of 2024 with now only about 77,000 ounces remaining across Q3 and Q4. We have no plans to add commodity hedges beyond these forwards currently on the books. On foreign exchange, we have added to the hedging book there through the quarter. Firstly, we added some additional Mexican peso collars for Q3 and Q4 of this year, 2024. And in addition, over the last few weeks, we took advantage of recent peso volatility to add about $4 million of monthly collars in 2025 to hedge against movements in the peso on our operating cost exposure. We will consider adding further colors for 2025 when we find opportunities to get prices in line with those experienced prior to the pace of strengthening in early 2023. And with that, I'll hand the call over to Dave for an update on Media Luna progress.
Dave Stefanuto: Thanks, Andrew, and good morning. Beginning on Slide 16, I'd like to start off by walking through the details behind the capital expenditure increase for the project, which Jody and Andrew noted has been finalized at $950 million. This represents an 8.6% increase over the initial budget of $875 million. Jody has already spoken to the Peso impact, which amounted to $48 million or 5.5% of the increase. The remaining $27.5 million or 3% of the increase is divided between 2 key areas. Firstly, we have consistently messaged that commercial production would be achieved in Q1 2025. We recently completed a detailed assessment of the schedule and CapEx, including the expected timing to commission the flotation circuits and time needed to deliver steady state production recovers in the rotation circuits in order to declare commercial production. Based on these results, we expect commercial production to be mid-Q1, which has resulted in an additional carryover costs. The second area is related to out-of-scope upgrades to the regional power infrastructure as requested by the power authority as part of the permitting approval received in 2023. As we see Torex has been a key community member for decades to come. It was the right thing to do to agree to these requests, resulting in an additional $8.5 million to the project budget. The remaining costs as previously noted, primarily related to those slightly longer project periods. The overarching message here is that we're comfortably funded by the strong cash flow from ELG to cover these additional costs. So there's very limited risk to the project at this time. Turning to a progress update on Slide 17. At the end of June, the project sat at 78% complete across procurement, engineering, underground development and construction and surface construction, procurement and engineering are nearly complete, sitting at 89% and 96% completion. All major purchase orders and contracts have been awarded, engineering teams are focused on finalizing remaining detailed drawings based on receipt of final vendor information and field support for the construction team. All eyes are on the remaining e-houses for delivery. Of the 8 required for the project 4 are now on site, 2 are expected to be delivered in August, 1 in September and 1 in early October. If the vendor meets their obligations, all year houses are expected to be delivered prior to the process plant commissioning in Q4 2024. In reality, if a couple of key pieces of equipment had been delivered in June versus July quarter-end progress, progress would have been closer to 80%. Great progress was made on the installation of the wires conveyor belt with the majority of the tables now installed and the belt itself beginning to be fed onto the conveyor, commissioning is set to begin in late Q3. A noteworthy achievement is to highlight that all underground development is now being executed solely by our Torex workforce. After completing the Waha tunnel ahead of schedule, we redeployed our teams to begin working on Media Luna proper, and they're doing a great job in that regard, derisking the ramp-up as our own crews become proficient in the underground. We're tracking a plan with respect to development or for Media Luna and expect to commence stope mining later this quarter. Definition drilling for the 7 stopes planned for 2024 is now complete, and drilling of the 40 stopes planned for next year is on track to be completed by year-end. In tandem with the first stope Ore operational control of underground mining at Media Luna is expected to be handed over to the operations team this quarter, all this with the aim of reducing risk during the initial ramp-up period. Finally, on Slide 18, I'd like to share some pictures of the work that's being done at site. The installation of the Wise conveyor belt that I just mentioned can be seen in the left-hand picture. On the top right is the conveyor drive located outside the wires tunnel portal on the north side of the Balsas River. At the bottom right photo shows the pace like construction on the sell side of the Balsas River. Steel erection began in May and progress was made on the binder silo and tailings thickener adjacent to the filter building. The plant is expected to be commissioned in Q1 of 2025. With that, I'll hand the call back over to Jody.
Jody Kuzenko: Thanks, Dave. Before we open up the call for questions, I wanted to touch briefly on the exploration updates we provided during the quarter, the first being the multiyear strategy we released summarized here on Slide 20. For the past 3 years, our exploration strategy has been focused squarely on near-term business needs we had to. First, we wanted to focus on ensuring consistent production from the ELG open pits and underground during the transition from the pits to Media Luna; and second, focus on drilling off EPO with the intent of supporting our fill the mill plan beyond 2027. With the first objective completes and the second objective, very well advanced, our focus has turned to the broader Morelos Property and the prospectivity that we see there in the 29,000-hectare land package. You can expect over the coming years that we'll make many, many references to the exploration pipeline set out on the slide, which really sets the stage for the numerous targets that we see across the property and how we truly expect we will be mining there for decades to come. The pipeline is focused on 3 key areas: first, extending the mine life of ELG underground in Media Luna; second, expanding resources within the Media Luna cluster; and third, advancing targets through the growth pipeline, all with the aim of discovering the next Media Luna. We've enhanced the depth of the exploration team. We've undertaken a technical reinterpretation of geological work done in the region and applied a comprehensive process to evaluate and rank the targets discovered to date. Our goal here is to systematize our ranking process to determine which targets to advance up the pipeline based on geological and economic factors and the company's business priorities. Slide 21 shows where these targets are situated within the Morelos Property with the colors depicting their various stages within the pipeline. What's interesting here about this map is that it speaks to the untapped potential we see across the entire property. Exploration conducted to date has been limited. As I said, only 25% of the property has been explored. We have mined more than 3 million ounces and have 10 million ounces in the resource space, and all of what we've discovered to date comes solely from ELG, the main Media Luna deposit and EPO. What you can see here in this plan view is that there is incredible potential in so many other areas that we plan to explore thoroughly in the coming years. Recall that $30 million has been set aside for drilling and exploration in 2024, while the level of spending has been slow to start the year as we switched over drilling contractors, the pace of activity is expected to materially increase in the second half, and we plan to complete the full year program by year-end. With the return to positive free cash flow next year, I expect we will begin to invest even more in the drill bit over the coming years. And finally, on Slide 22, we summarized the initial results of the 2024 drilling and exploration program focused on ELG underground. Currently, this program is in the reserve definition, resource delineation and advanced exploration stages depending on what areas of the trends we're drilling. This year's program is targeting the extensions of high-grade mineralization along the identified trends and the results to date show that we're doing just that. Mineralization has been confirmed beyond the boundary of known resources to the south and at depth at the Alimos Sur trend to the west along the Alimo deep trend and to the north along the Sub-Sill trend. This indicates the strong potential to grow resources within our year-end reserve and resource update, potentially further extending mine life, building off the success we had extending mine life by 2 years in 2023. And this further exemplifies that we continue to see ELG underground as a deposit where we mine a year and replace a year or 2 year after year for the foreseeable future. And it's just one example of what we think lies ahead as we execute against our new long-term exploration strategy. With that, operator, I'd like to open up the call for questions.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] First question comes from Wayne Lam with RBC (TSX:RY).
Wayne Lam: I guess at Media Luna, I was curious or I want to confirm, is the biggest bottleneck now on the electrical the e-houses or are there any other items or elements of risk that you could see resulting in some sort of time line delay?
Dave Stefanuto: Yes, right now, our current primary risk is delivery of the electrical gear that actually will be installed within those houses. And we've known this has been a risk since the start of the project as we came through the period of COVID deliveries of electrical gear and technological components, if you will, have been extended. So that's primarily what we've been working on with our vendors, and we've successfully been able to find alternative vendors to mitigate any potential slippages. So far, we're tracking on par to meet our commissioning time frames.
Wayne Lam: Okay. Great. And then maybe on the transition of the current workforce to Media Luna, I guess with half the workforce in place now, is there also a significant number of personnel being brought in externally with the existing underground experience. Just given the scale of the underground operation, just curious what the -- if you envision any challenges trying to transition a primarily open pit workforce underground and how that might impact the ramp-up?
Jody Kuzenko: Yes. It's a blend, Wayne. I mean, in the lower-level areas of work like production helpers and production drillers, that is where we are transitioning the open pit miners into those dots and those stencils. Where we need more technical level work or technical supervision, then we're hiring those miners from outside of the company, but still trying to maintain ourselves true to our commitments about hiring in state and in country. And there's plenty of talent in country for long-haul open stoping. In Mexico, we're certainly among many mines that operate that way there. And so it's a real blend. The other thing I would say about risk relating to personnel transition from the open pits and Dave touched on it in his commentary. Given that we displaced our development contractor early, we displaced them starting in January of this year at the Media Luna mine. That enabled us to move our own workforce in early. So any bumps, any proficiency issues, any efficiency gains that we were stumbling with happened through February, March and April. And now that we've taken that, we feel like we're in a very good position as we take over the rest of the mine. And I know the operating team is chomping at the bit here late August. We're transitioning production and development to the ELG operating team away from the project, which marks our first step in concluding an aspect of the project period and transitioning it to operations.
Wayne Lam: Okay. Perfect. And then maybe moving to EPO. In the past, you guys have been fairly upfront in disclosing targeted conversion rates like the 50% inferred or the 25% indicated. Are you able to give us an idea of the targeted conversion rate to reserves used as the basis for the internal PFS?
Jody Kuzenko: Yes. I'm going to sit on that one, Wayne. You'll see those results in the first week of September. As you know, we're hosting an Analyst Day where we'll showcase EPO and the first reserve we're going to take there, and we'll explain all of the details of that to you then.
Wayne Lam: Okay. Got it. Looking forward to that. Maybe last one for me. Just wondering on the cyanide consumption, the usage intensity seems to be trending higher versus the past couple of years. Just wondering if that's a function of what you've seen a few years ago with the increased iron content as you get further down to the pit? And just wondering if that's kind of been according to plan or also expected to provide some pressure on costs through the end of the year?
Jody Kuzenko: Yes. It's a bit of a double whammy for us, Wayne. It's a function of iron locked in sulfides in the area that we're mining in EV3, which is the pits that we are predominantly in now. It's also a function of limited feed for blends. We can't mix it up in the way we used to, to suppress iron sulfide and soluble copper in the feed. It's almost like what we get is what we have to put through the plant. And so what happens when you do that is that you have peaks and valleys in your soluble iron content and your soluble copper content, and then you have to dose cyanide for the peak. So it's an unfortunate situation. It's going to be remedied right away here soon with the pits coming off and the copper flotation circuit coming on. So we're in short-term pain here on cyanide consumption for the balance of the year, and then we'll open up to some processing optionality as we move forward, and we're going to turn that soluble copper into a moneymaker.
Wayne Lam: Okay. Great. Looking forward to it. Looking forward to the Investor Day, and thanks for answering my questions.
Operator: The next question comes from Don DeMarco with National Bank Financial.
Don DeMarco: Thank you, operator, and good morning, Jody. So first question, the reporting indicates that commercial production is expected to be declared towards the middle of the first quarter of 25%. Now should we take this as the inflection point for positive free cash flow? Because I recall previous statements were indicating an expectation to return to positive free cash flow by mid-2025.
Jody Kuzenko: That's right. I mean you should think about those two things a bit separately. In terms of the declaration of commercial production, mid-Q1 2025 is just a refined project schedule outcome given the work the project team did to refine the CapEx and refine the schedule leading up to the declaration of the CapEx increase to $950 million. Returning to free positive cash flow as a business enterprise will likely occur closer to mid-‘25. Recall the seasonality we have in our cash flow. We have big royalty and tax true-ups coming out in Q1. That happens every year. And then we have our PTU payment, which is not insignificant in Q2. And so the combination of the carryover of CapEx as we ramp up to commercial production and the ramp-up of the Media Luna mine, together with the big draws on our cash seasonally normally in Q1 and Q2, see us feeling quite confident the return to free cash flow will occur middle of the year as opposed to in a way that's concurrent with the declaration of commercial production.
Don DeMarco: Okay. That's helpful because we know that there's going to be some development CapEx carried over into 2025. But with commercial production being declared, we would assume then that all of that development CapEx will be spent within Q1 and then Q2 will just be weighed by other factors, as you mentioned, as well as the ramp-up of the mine.
Andrew Snowden: Yes. That's the right way to think about it, Don. I mean the one other maybe just item I'll flag, and we will talk about this a little bit at the Investor Day coming up in September is the working capital impact of the transition from being a primary Doré producer to producing copper concentrate where the collection terms on those sales are a little bit longer than the collection terms on Gold Dore as well. And so that will impact free cash flow somewhat through that transitionary period in the early part of next year.
Don DeMarco: Okay. So just closing the thread then, would we then expect maybe a step change in free cash flow heading into Q3 next year, if you reach that sort of midyear target of turning free cash flow positive?
Jody Kuzenko: The short answer to that is yes.
Don DeMarco: Okay. Great. We'll move on to my next question then. Okay. So the peso has weakened recently, can you remind us or quantify the potential benefits for remaining CapEx and OpEx going forward if the peso remains at the current weekend levels or if it even weakens further?
Andrew Snowden: Sure. And so I talked on the earnings script about a 1 M$ impact having about a $10 million impact to operating costs. And so that's the way you should think about that. We've averaged 17:1 in the first half of the year. If we were to average 19:1 in the second half of the year, that would be an 18:1 average through the year, which is exactly in line with our guidance. And so the average rate in the second half of the year would have to be stronger than 19:1 or weaker, sorry, the 19:1 for it to be a benefit there. And then on Media Luna CapEx, I think based on the numbers that we released a couple of weeks ago, every peso movement that could impact Media Luna capital by about $5 million on remaining CapEx. And so that's the way to think about remaining CapEx. And in the past, we talked about $50 million plus, given what we've got left to spend on the project, there's not much opportunity there, but in the range of $5 million.
Don DeMarco: Okay. So if you're budgeting at a pace of 18 and then it's a 19 now, that implies OpEx going forward is about $10 million benefit. What period is that $10 million? And then you also have some hedges with a ceiling of 20. So is that sort of $10 million? Does that account for the hedge ceiling and then it maybe diminishes above 20%?
Andrew Snowden: Yes. So 2 parts to that question. The first part, on the $10 million impact across the full year. And so just to recap a 19:1 rate over the second half of the year would result in the average rate for the full year being 18:1, which is exactly in line with guidance since you would need half that rate that's weaker than 19:1 for there to be a benefit compared to our guidance. And then on the hedges, you're right that there are those colors in place through the balance of this year. For 2024, though, the way we've looked at those colors, they're ready to protect Media Lunar capital. And so that was really the strategy around those colors. The colors we've just entered into over the last week, which was summarized on one of the slides relating to 2025, that was through the lens of managing operating cost risk. And so that's the way that at least we've planned our hedging strategy there.
Don DeMarco: Okay. And then just a final question. So Claudia has been in the seat now for a few months. It's still early, but have you met with the new administration? And is there any areas of risk that might be of concern or emerging at this point?
Jody Kuzenko: We've had a number of meetings with her administration. Our senior Mexican team has. And I would say, Don, as a general statement, I believe we're in for some political tailwinds in the country. Claudia selected a cabinet that has been repeatedly shown to us and characterized to us as technical, capable, business-oriented, and willing to enter into dialogue with the mining industry. And so I think that departure from what we've seen over the last 6 years under the AMLO administration will serve Torex well and serve other Mexican miner as well.
Operator: The next question comes from Alison Carson with CIBC (TSX:CM).
Alison Carson: Most of my questions have been asked. So I just have one. In terms of exploration, like you said, there are a lot of targets. Can you talk about what you're most excited about and why?
Jody Kuzenko: Alison, it's hard to delineate what I'm most excited about, but I would say the areas right around Media Luna, which we're calling the Media Luna clusters. So that includes Media Luna West, Media Luna East, Todos Santos and Naranjo. We're dropping drills in Todos Santos and El Naranjo in Q4 of this year, and we're finalizing an agreement with the local agita that we need to move into Media Luna East. And the reason I'm most excited about these areas is less about the geology, although our exploration team would tell you that they're geologically very interested. The reason I'm most excited about them is that anything that we find there will be able to wrap mine plans around and bring them into the mine plan so capital efficiently, given that all of the heavy lift associated with the Media Luna cluster from a CapEx perspective, will be behind us as at the end of this year. And so I think that our backfill solution will be concluded, our pace plant for Media Luna is designed at 50% capacity. Our ore and waste handling system will be largely done. We'll now just move all of this material in through the Media Luna or in waste handling system in through the Waha Tunnel. Our power solution will be done and paid for. Our water is in place. And so I'm really excited not only about the prospectivity of what we see there, but about how much business value we can unlock as we execute against our 5-year plan, particularly in and around that Media Luna cluster.
Alison Carson: Great. That's it for me. I'm looking forward to the Analyst Day and getting to see the EPO results.
Jody Kuzenko: Yes. Thanks. We're looking forward to showing them to you, Allison.
Operator: [Operator Instructions] The next question comes from Jeremy Hoy with Canaccord Genuity (TSX:CF). Please go ahead.
Jeremy Hoy: Most have been answered. And on EPO, I had something around that, but we'll wait for that Investor Day. The last one I had was just on costs in 2025 with the introduction of contract labor on site as the transition to underground takes place, you're expecting some increased costs in 2025. Could you just update us on how you're thinking about those costs next year, please?
Andrew Snowden: Look, you're absolutely right. 2025 will be a year where we're under a bit more cost pressure, the transitionary year through to Media Luna won't be as efficient as later years for sure. The way that I think I would guide you to start thinking about all-in sustaining cost is something in and around that $1,300 an ounce level for next year before coming back down in 2026. So that's not a level you should expect is it will be sustainable at that will just be a 1-year increase just given this kind of transition every year before it comes back down to levels closer to that $1,200 an ounce range of alone. Just to clarify that, you should be thinking about that gold equivalent as well.
Operator: Since there appears to be no more questions, this concludes today's conference call. [Operator Instructions]. Thank you for participating, and have a pleasant day.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.