Torex looks to Mexican gov’t for help securing Morelos after hold-up

After an armed robbery on March 20 at its Morelos gold project in Mexico’s Guerrero state, Torex Gold Resources (TXG-T) is turning to the local government and police to help secure the area and enable the company to continue exploration. Meanwhile, Torex’s 11-rig drill program has been halted indefinitely, and its 127-person exploration crew moved off-site.

While none of Torex’s employees or contracted workers were physically harmed in the robbery, two trucks (a ½ ton and a ¾ ton) were stolen at gunpoint in the field near the drilling activities. 

As Fred Stanford, president and CEO of Torex, explained in an e-mail to The Northern Miner, “There was a growing pattern of the criminal element first victimizing the local community and then moving on to us. I can’t speculate as to whether the criminals were related to a drug cartel, but they are organized and presented a credible threat of violence.”

Stanford said Torex is now working with all three levels of government – federal, state and municipal – and that “discussions are underway as to how best to provide security (going forward).”

Discussions with the Economy Ministry of Mexico as well as other Mexican authorities are advancing in order to put the necessary safeguards and security measures in place. While it remains unclear what those measures might be, Torex’s prior on-site security mainly involved “guards that we had hired to patrol the office and living areas as a deterrent to opportunistic crime.”

The Morelos project is about 200 km southwest of Mexico City in a remote, mountainous part of Guerrero state. While Guerrero isn’t the most dangerous Mexican state (likely considered to be Chihuahua, near the U.S. border), it is a disputed territory of several rival drug cartels vying for control of key smuggling routes. 

The U.S. Department of State has issued a travel warning for the region, stating “U.S. citizens should exercise extreme caution when traveling in the northwestern part of the state of Guerrero, which (has) a strong drug-trafficking organization presence.”

According to the BBC, there were 879 drug-crime-related deaths in Guerrero in 2009 and 1,137 in 2010, the fourth-highest level of any state. Chihuahua topped the list with 4,427 drug-related deaths in 2010.

Even Torex describes Guerrero as a risky place to do business. In the company’s most recent management’s discussion and analysis, it notes, “Risks associated with conducting business in the region include risks relating to the safety of personnel and assets. Such risks may include, but are not limited to: kidnappings of employees and contractors, exposure of employees and contractors to local crime related activity and disturbances, exposure of employees and contractors to drug trade activity, and damage or theft of company or personal assets including future gold shipments.”

The company goes on to state that experienced security experts have completed security assessments for the area, and that Torex has hired “security professionals to assess, prepare for and respond to both personal and property safe-guarding issues.”

Risk and reward often go hand in hand, however. Torex has already delineated a gold resource totaling 2.84 million oz. measured and indicated at Morelos as well as 670,000 oz. inferred, and hopes to add more ounces with further step-out and exploration drilling. 

The project is divided into two main deposits: Guajes, which is potentially open-pittable; and El Limon, which is more suitable to underground mining. Guajes hosts 10.55 million measured and indicated tonnes of 3.01 grams gold per tonne, as well as 2.87 million inferred tonnes of 3.3 grams gold. El Limon hosts 7.45 million indicated tonnes of 6.79 grams gold and 2.35 million inferred tonnes of 5.92 grams gold.

Of the 11 drill rigs on site, seven are devoted to infill and step-out drilling while five are for exploration. The company has budgeted $43.5 million for exploration and development at Morelos this year, including 125,000 metres of drilling.

Torex bought a 78.8% interest in the project from Teck Resources (TCK-T, TCK-N) for US$150 million and a 4.9% equity stake in August 2009. It acquired the remaining 21.2% interest in May 2010 from Goldcorp (G-T, GG-N) for $52 million.

While the long-term effects of recent security-related setbacks are unclear, money isn’t a problem for Torex for now. The company spent $4.4 million on exploration last quarter and had $56.8 million in working capital as at Jan. 31, 2011.  

CEO Stanford couldn’t say when he thought drilling would restart, though he noted that “all parties are treating this matter with the utmost urgency and are working together to bring this matter to a successful conclusion as soon as possible.”

At presstime on March 30, Torex shares were up 5¢ to $1.85. On March 24, after the company disclosed the armed robbery, Torex shares dropped 17¢ to $1.78.