It’s been a busy few months in Mexico for Torex Gold Resources (TSX: TXG), which is advancing two projects on its Morelos property, a 290 sq. km landholding in Guerrero state.
In June the junior received final acceptance of its environmental impact assessment and land-use change permits for the Guajes and Limon proposed open pits on the north side of the Balsas River. In September the company put out an inferred resource estimate on the Media Luna deposit, 5 km from Guajes-Limon and south of the Balsas River.
Torex discovered Media Luna 18 months ago and completed 165 holes (94,200 metres of drilling) to come up with an inferred resource of 39.9 million tonnes grading 2.63 grams gold per tonne for 3.38 million contained oz. gold, 24.46 grams silver per tonne for 31.39 million contained oz. silver and 0.97% copper for 853 million contained lb. copper. The average resource grade is 4.55 equivalent grams gold per tonne. The resource numbers are calculated using a 2-gram-gold-per-tonne cut-off grade.
The deposit’s value is 60% gold, 20% silver and 20% copper, and the resource is contained within a single, continuous, strongly mineralized system that remains open in several directions.
Management says Media Luna has proportions comparable to some of the larger skarn-hosted gold-silver-copper deposits, and was found by drill testing a portion of one of three magnetic anomalies in the Media Luna area. Management notes that the portion that was drill tested represents just a third of the traditional area covered by the three anomalies.
The strong magnetic anomalies that characterize the Media Luna deposit persist southeast and northwest of the resource estimate area, and the company says that the magnetic anomalies can be explained by massive magnetite and magnetic pyrrhotite, which are associated with gold-silver-copper mineralization.
“The key thing to understand is that Media Luna is a tabular orebody, so the resource only covered 30% of the magnetic anomalies. As we continue to drill the rest of the anomalies we expect to enlarge it,” Fred Stanford, the company’s president and CEO, said in an interview. “It’s really just the opening effort to understand this particular set of three anomalies . . . it stands to be an extraordinary deposit.”
There are three drill rigs turning at Media Luna.
Based on preliminary metallurgical test work, recoveries at Media Luna are estimated at 87% for gold, 73% for silver and 89% for copper. The company says an underground mining scenario is likely, and depending on the thickness of the mineralization, cut-and-fill and transverse stoping methods may be used.
Drilling has identified a 1.6 by 1.2 km gold-silver-copper-mineralized skarn ranging from 4 metres to more than 70 metres thick.
Pierre Vaillancourt and Darren Wiebe of Macquarie Equities Research write in a research note that the resource figure exceeded their expectations and confirms that the deposits south of the Balsas River have potential.
They say the part that was drill tested and measured for a resource represents 30% of the area covered by three magnetic anomalies in the Media Luna area, and that there is “more work to do and ounces to discover,” adding that the company does not expect to develop Media Luna “for at least another year, given the time to acquire land and permits.”
In the meantime, the priority is to get the Guajes and Limon open pits on the north side of the Balsas River into production as quickly as possible.
Torex has the primary permits in place for Guajes and Limon, and is waiting for some of the company’s construction programs to be approved, which it expects to sort out by the end of October. “The crews are there, the bulldozers are there — everything is ready,” Stanford said.
Under the mine plan the Guajes pit would be brought into production first, 21 months after construction begins. Both pits would be in production within 45 months of receiving the construction go-ahead, Stanford said.
Proven and probable reserves at Guajes and Limon stand at 48 million tonnes grading 2.61 grams gold per tonne for 4.1 million contained oz. gold.
But Stanford says there is an opportunity to extend the current 10.5-year mine life of the two combined open pits with another 1.3 million oz. that have not yet been upgraded into the proven and probable reserve category.
“If that happens,” he said, “there’s potential for another four years of mine life.”
Stanford said the two pits now being developed will rank among the top-20 largest gold producers in the world and grab eighth spot in terms of lowest cost production.
And Torex will keep looking north of the Balsas River to find more feed for the mill.
“After we finish drilling out the strike lengths at Media Luna there are other targets we’d like to test to understand the sources of feed,” Stanford explained. “We’ll move the drills back to the north and test some of the magnetic anomalies in the vicinity of the Guajes and Limon pits that have not been tested in the path.”
At press time the company’s shares were trading at $1.59 apiece within a 52-week range of $1.12 to $2.20.
Vaillancourt and Wiebe of Macquarie have a 12-month target price on Torex of $2.50 per share.
Torex has 607 million shares outstanding.
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