Torex plans 2015 start-up for Morelos

Torex Gold Resources (TXG-T) was the most actively traded stock on the TSX after publishing a bankable feasibility study for its Morelos project in the prolific Guerrero gold belt, 180 km southwest of Mexico City.  

The study envisions developing two separate open pits to mine the skarn hosted gold and silver mineralization at the project’s El Limon and Guajes deposits. The pits will feed a centrally located cyanide leach or carbon-in-pulp plant, designed to process 14,000 tonnes per day.

Commercial production is expected to start in late 2015, before ramping up to 14,000 tonnes per day in 2017, which would mark the first year of full production. This would be followed by eight and half years of full production, before output sharply drops in the remaining four years, a period known as the production tail.

For the first ten years, starting in 2015, annual output should average 337,000 oz. gold and 211,000 oz. silver. Cash costs net of silver revenue but excluding the production tail are pegged at US$421 per oz. gold.

The feasibility study estimates higher production and lower costs at Morelos, which offset slightly higher capital requirements, observes BMO Capital Market’s analyst Andrew Breichmanas in a note.

Torex forecasts it would cost US$675 million to take Morelos to commercial production, without including revenue credits of US$123 million from initial metal output. The project would require another US$86 million in capex after commercial production.

Commercial production is defined as the mill operating at 60% of its full capacity for one month and should be achieved by October 2015, says Torex.

On an after-tax basis, Morelos has a present net value of US$900 million and internal rate of return of 24.2% using a 5% discount rate and life-of-mine gold price of US$1,276 per oz. The high-grade project, which has a 10.5-year life, is expected to generate a cumulative cash flow of US$1.5 billion.

Torex anticipates recouping Morelos’ capex in less than four years.

Altogether the El Limon and Guajes deposits host reserves of 4.1 million oz. gold and 6.8 million oz. silver from 48.8 million tonnes grading 2.61 grams gold and 4.35 grams silver per tonne.

“BMO Research considers Morelos to be one of the premier development projects in the gold sector due to its relatively high grade resource, meaningful production scale, robust economics, and attractive location,” comments Breichmanas. He has an introduced a $2.50 target price on the stock and rates it as an “outperform-speculative.”

During late afternoon trading, Torex was flat at $1.80 as more than 5.5 million shares changed hands.