Torex Gold pilots new underground mining system

Torex Gold Resources (TSX: TXG) is trialling a new underground mining system at its wholly-owned Morelos Gold property in Mexico’s Guerrero state, 180 km southwest of Mexico City.

The property is made up of the El Limón Guajes (ELG) mine complex, which features the El Limón, Guajes and El Limón Sur open pits, the El Limón underground mine, including the Sub-Sill, El Limón, Deep and 71 zones, a processing plant and related infrastructure. The ELG mine started production in 2016.

Since 2019, the company has been piloting its proprietary Muckahi mining system at the El Limón Deep zone, a down-dip extension of the El Limon open-pit deposit, which primarily contains gold, with some silver mineralization.

Invented by the company’s president and CEO, Fred Stanford, with input from many others, the Muckahi system uses a two-way system operating on an overhead monorail that combines face drilling and blasting with an ore conveyor system and can also run on steep inclines of 30 degrees or higher in a narrow heading.

“The design of the system is based on the recognition that underground mining is really a material handling logistics business — and what logistics business would want to operate using only a single lane,“ Stanford said in a telephone interview. “It’s a subject I’ve been thinking about for the past 30 years, and it’s taken about 25 years to figure it out.”

The system, he said, could provide continuous material handling of ore from stope to the shaft or surface, with the batch transport of personnel, material and development waste in two-lane decline tunnels half the size of conventional tunnels and four times as steep, thereby reducing their length by three quarters.

Because the system employs fewer processes from stope to processing plant, it could reduce capital expenditure and operating costs by up to 30% and time to commercial production by up to 80%, the company estimates. With the mine becoming fully-electrified, Torex says, greenhouse gas emissions could be reduced by as much as 95%.

By the end of 2019, the first long hole open stope had been blasted and mucked out at the El Limón Deep zone. The results, say the company, indicate that ‘conveyable’ ore fragmentation can be achieved at the zone and that the stope could be mucked with an electric slusher.

Drilling of the second stope commenced in the first quarter of 2020, which the company expects to further validate the fragmentation results and demonstrate the mucking rates with a slusher.

The company is currently developing the 30-degree decline access ramp for the deposit, with the installation of a 30-degree fixed conveyor (where the tramming conveyor will be loaded) slated to commence in the second quarter of 2020, allowing the Muckahi system to be tested as an integrated system.

Torex Gold’s two-way monorail configuration at its ELG complex in Mexico. Photo Credit: Torex Gold.

Torex has a track record of innovation success at the ELG complex, which includes a RopeCon conveyor that generates almost a megawatt of green electricity as it conveys ore from the El Limón open pit to the processing plant.

The company also utilizes a high-pressure tailings filtration system to reduce the tailings moisture content to 17%, which are then conveyed and dry-stacked within the storage facility, further improving the efficiency, operating costs and carbon footprint for the mine.

Torex plans to employ the Muckahi process at its feasibility stage for the Media Luna deposit on the property, where it completed a 175-hole infill drill program last year. Excavation of a 7-kilometre access tunnel under the Balsas River connecting the deposit to the processing plant is scheduled to commence in the second half of 2020.

“In quarter three of this year, we anticipate starting the tunnel to Media Luna, where we anticipate using a hybrid of conventional and Muckahi approaches, which will allow us to double the traditional tunnel advance rate,” Stanford said.

A key focus for the company in 2020 will be to de-risk the deposit by carrying out a $13 million infill program of 100 drill holes, with a target of upgrading an additional 7 to 9 million tonnes of resources from the inferred to the indicated category.

Results from the infill program will be incorporated into the feasibility study, slated for completion in the first quarter of 2021.

The company will continue to mine ELG over the next three to four years and will then transition to production from Media Luna, where it has already commenced infrastructure development.

“By around 2024, we expect to be mining exclusively from our underground resources, primarily Media Luna,” Stanford said. “In the meantime, we will be looking to upgrade our underground resources to reserves.”

Currently, Media Luna has measured and indicated resources of 12.6 million tonnes grading 3.27 grams per tonne gold, 37.7 grams silver per tonne and 1.16% copper, or 5.55 grams gold-equivalent per tonne, for 1.32 million oz. contained gold, 15.3 million oz. silver, and 322 million lb. copper, or 2.24 million gold-equivalent ounces.

The resource estimate represents approximately 30% of the area of the targeted magnetic anomaly, according to the company.

Last year, Torex reported record production of 454,811 oz. gold, a 28% year-on-year increase, generating US$330.3 million in earnings before interest, taxes depreciation and amortization (EBITDA) and free cash flow of US$181.2 million. The company also cut net debt by US$198.6 million year-over-year to US$21.7 million by the end of 2019.

In the first quarter of 2020, the ELG complex produced 108,530 oz. gold.

“This has been a good quarter for production, and before the suspension of operations due to the COVID-19 outbreak, we were on track to achieve our 2020 production guidance of 420,000 to 480,000 ounces of gold,” Stanford said.

BMO Capital Markets has an outperform rating on the gold producer.

“There is a dearth of sizable single-asset gold producers remaining in the intermediate producer group,” BMO mining analyst Ryan Thompson wrote in an April 28 research note.

“We think this gives Torex scarcity value (as a potential acquisition target), but we also see the opportunity for Torex to grow via acquisition as it proves the efficacy of its proprietary Muckahi process,” he stated.

The stock’s valuation, “on all metrics is compelling for an established producer with a robust asset,” Thompson added.

Thompson has a share price target of $29.

At press time in Toronto, Torex was trading at $20.70 per share within a 52-week trading range of $8.79 and $22.45.

The company has around 85 million common shares outstanding for a $1.77-billion market capitalization.