‘Credible threat’: Blockade escalates at Torex Gold’s El Limon-Guajes mine

An illegal blockade of Torex Gold Resources‘ (TSX: TXG) El Limon-Guajes mine in Mexico that started in the first week of November turned uglier on Monday when 35 people — 25% of whom are unknown to the company — entered the mine site and threatened staff.

The group demanded that if the employees did not leave by Tuesday, Nov. 7, they would be forcibly removed. (The staff on site were monitoring the pumps in the open pit and the processing plant.)

In response to what it described as a “credible threat,” Torex evacuated the employees and shut down the company’s off-site accommodation facilities. It also requested that authorities take action to restore law and order.

The news sent the company’s shares down to a 52-week low of $12.50, before closing at $14.15 per share, an 18.86% drop from the previous day’s closing price of $17.44 per share.

Fred Stanford, Torex’s president and CEO, did not return an email request for comment, but stated in a press release that “this escalation will weaken the relationship between employees and the company and between contractors and the company.” Stanford also said that once the issues were resolved, restarting the operation would depend on how many staff choose to return.

The blockade started on Nov. 3, when a group of about 20 unionized workers demanded a change in labour union. Torex had told the workers earlier that day that it did not have the authority to change the union and that any changes had to go through the government.

Without a workforce, Torex shut down its processing plant and since then has focused on “maintaining environmental protections.”

At the time, Stanford explained in a press release that “large-scale industrial activity is new to this area and while illegal blockades are a successful short-term tactic to draw attention to the interests of a select group, it is not a tactic that will attract re-investment and long-term prosperity for the region as a whole.”

He also noted that government officials had been on site and “are working to establish their approved process for resolving disputes as to which union will represent the site workers.”

El Limon-Guajes, Torex’s first mine, started commercial production in March 2016.

The mine is about 180 km southwest of Mexico City in the Guerrero gold belt, and is one of the richest open-pit gold deposits at a resource grade of 2.65 grams gold per tonne.

Once in full production, El Limon-Guajes will be among the largest and lowest cost gold mines in the world, with average production over the mine’s projected 8.5 year mine life of 370,000 ounces of gold a year at all-in sustaining costs of US$616 per oz.

The skarn deposit has measured and indicated resources of 4.12 million ounces of gold at a grade of 2.65 grams gold per tonne, plus 360,000 ounces of gold at a grade of 1.86 grams gold in the inferred category. Proven and probable reserves, included in the resources, stand at 3.63 million ounces of gold at a grade of 2.62 grams gold.

Andrew Breichmanas, who covers the company for BMO Capital Markets, noted that Torex “on the back of extensive community and government relations efforts, has historically been able to resolve similar issues rapidly.”

“However, the escalation of what was seemingly a union-related issue, the participation of unknown individuals, and the apparent severity of threats made to staff, make the current situation appear more concerning and suggest potential for less predictable outcomes.”

The analyst maintains his outperform rating on the company and his target price of $35 per share.

At press time in Toronto, Torex was trading at $14.52 within a 52-week trading range of $12.50 (Nov. 7) and $33.85 (February 2017).