PDAC Q&A: Torex CEO sees Mexico administration ‘tailwinds’ for Media Luna

Canadian gold producer Torex Gold Resources (TSX: TXG) is almost ready to start commercial production this spring at its $950-million (C$1.36-billion) underground Media Luna project in Mexico’s Guerrero gold belt.

Media Luna sits on the Morelos complex, where the company has been operating the ELG mine for almost a decade. Output from ELG has allowed Torex to become Mexico’s biggest gold producer.

Torex CEO Jody Kuzenko sat down with Anthony Vaccaro, president of The Northern Miner Group, during the Prospectors & Developers Association of Canada conference in Toronto earlier this month to discuss prospects for the company and reflect on the opportunities and challenges of mining in Mexico.

Questions and comments in this interview were condensed and edited for clarity.

Anthony Vaccaro: What are the main advantages of operating in Mexico?

Jody Kuzenko: There are two things: one is the rocks, and the other one is the people.

When I think about mining in Mexico, the geology is spectacular. Where we mine in the Guerrero gold belt, we have 29,000 hectares (290 sq. km). To date we have produced about 3.5 million ounces. We still have 10 million oz. in the resource base, and the property remains 75% unexplored. So the geology of the area is one big tailwind for us.

The other thing you need to run an excellent mining company is the people. You can have all the rocks in the world and the best geology, but you need a team to run a mine effectively and manage community relations and the all the externalities effectively.

We have 1,500 direct employees in Mexico. We are finishing our major project here, and we have another 2,000 contractors working on Media Luna.

I don’t think I could build a mine like that in Canada in the timeframe and for the cost that we have. A large reason for that is the availability of trades, particularly for underground mining. All the trades that you need to make a mine run are pretty widely available in Mexico and pretty widely experienced. The labour market in Mexico is nowhere near as tight as what some of my Canadian peers are experiencing.

AV: How confident are you about investing in Mexico now?

JK: It’s no secret that the previous administration wasn’t a good friend to mining.

Claudia Sheinbaum was elected President in June. Her inauguration was in October, and I believe we are going to have some tailwinds with this administration.

President Sheinbaum has demonstrated herself to be more policy oriented, less short-termist, less reactionary and much more thoughtful. She’s willing to enter into a dialogue with the mining industry. That’s very constructive.

She wants to eradicate poverty – or at least work hard to make a dent in that. The communities around us are very poor. About 45% of our workforce is from the local communities. They were subsistence farmers or fishermen, and now they are miners.

She has a big infrastructure agenda, she has a renewables agenda, and as she’s coming to terms with the needs of that agenda, she’s starting to warm up to the idea of mining.

The other thing that’s happening is that permits are starting to move. It does the industry no good in a country when permits aren’t moving. Just recently, one of our peers in Mexico was granted a permit, and our information is that more permits are coming.

Those things taken together leave us in a place of cautious optimism with regards to mining in Mexico. I think we’ve turned a corner politically a little bit in Mexico.

AV: How have your operations in the country evolved?

JK: We started commercial production in 2016. We started in the open pit and in 2017 we transitioned to having underground operations at ELG, on the north side. But the really big transformation is coming for us now. We’re moving from high-volume, lower-grade open pit production – our pits will sunset in the middle of the year – to being a fully underground operator, so lower-volume, higher-grade production.

To date we have been exclusively a gold producer. We are moving into a world where will be a gold and copper producer. We will produce 45 million lb. of copper per year. About 30% of the value of that deposit sits in copper.

People are bullish on the gold market. I remain bullish on the copper market. Over the long term there is no supply scenario that meets demand. Copper will continue to increase as the world starts to wrap its head around the need for energy transition minerals.

AV: How will Media Luna change things for you?

JK: It’s a massive milestone. We get to have 10 years of mine life ahead of us.

We’ve been free cash flow negative for the past couple of years. The market is terribly preoccupied with free cash flowing assets. When we get the asset up and running, the free cash flow on that asset is $400 million a year. That’s free cash.

The vision when we struck this strategy five years ago was to get our cornerstone asset, our flagship asset done, get free cash flow again and then the world opens up for us. We can invest more in exploration, we can return cash to shareholders and we can grow responsibly through M&A.

AV: Why do M&A?

JK: I think more consolidation is needed in the materials space. It derisks assets and it derisks companies. As scale is gained in mining, companies can attract these elusive generalist investors. One of the things I hear over and over from mining investors is that they want the really good management teams running bigger companies. Mining is a risky business.