Torex Gold Resources (TSX: TXG) kicked off the new year with encouraging results from a drill program exploring the El Limon Sill on the company’s 290 sq. km Morelos gold property in Mexico’s Guerrero gold belt, 180 km southwest of Mexico City.
The results include 3.4 metres of 317.8 grams gold per tonne; 230.7 grams gold over 2.4 metres; 19.6 grams gold over 9.6 metres; 22.6 grams gold over 13.3 metres; and 83.3 grams gold over 4.3 metres.
The near-surface mineralized intercepts between 43 metres and 276 metres below surface are located in the El Limon Sill, underneath the company’s El Limon deposit. El Limon, along with the company’s Guajes deposit, entered commercial production in March 2016. A third pit, El Limon Sur, has yet to be mined.
The drill results sent the company’s shares up $4.72, or 21%, to $26.75 per share. Over the last year Torex’s shares have traded in a range of $11.50 to $35.17.
Fred Stanford, Torex Gold’s president and CEO, was not available for comment, but in a press release said the results “provide an exceptional start,” and that “3.4 metres of 10 oz. per tonne tends to bring a smile and an imperative to move quickly.”
“These results and the success rate of our exploration programs confirm our belief in the potential for mining in this area for generations to come,” said Stanford, an industrial engineer who started his career at Vale Canada in 1981 as a software designer, and moved into operations management as an underground mine foreman. (Between 2006 and 2009, Stanford served as president of Vale’s Ontario operations.)
In 2011, four exploration holes intersected a skarn zone at Morelos with high-grade gold developed underneath the intrusive that underlies the El Limon deposit.
Torex drilled 34 holes (7,727 metres) between September and December last year — covering an area of 350 by 150 metres — to explore the system’s continuity and mineral potential.
The latest batch of drill results confirm the skarn zone’s continuity and high-grade mineralization, Torex says, and indicate the system remains open downdip to the west and north, and updip to the east.
Structurally the El Limon Sill target area — as well as the El Limon and El Limon Sur deposits — are hosted in a graben bounded by the La Flaca fault to the west and the Antena fault to the east, and the company considers both potential feeders for the mineralization. The mineralization at the El Limon Sill is mostly gold, associated with variable silver and copper.
Torex estimates that 75% of its wholly owned Morelos property remains unexplored.
In the meantime, commercial production at the El Limon-Guajes open-pit mine, north of the Balsas River, is well underway.
In the third quarter of 2016, the mine produced 77,915 oz. gold at total cash costs of US$517 per oz. sold and all-in sustaining costs of US$699 per oz. sold. Net income for the quarter reached US$23.6 million, or 30¢ per share, on a basic and diluted basis.
Once in full production, Torex says, the mine will be among the largest and lowest-cost gold mines in the world, with expected life-of-mine average annual production of 370,000 oz. gold and LOM AISCs of US$616 per ounce. The mine life is estimated at 10 years.
The skarn deposit has measured and indicated resources of 4.12 million oz. gold and 6.79 million oz. silver (48.4 million tonnes grading 2.65 grams gold per tonne and 4.37 grams silver per tonne). Inferred resources add 360,000 oz. gold and 660,000 oz. silver (5.96 million tonnes grading 1.86 grams gold and 3.45 grams silver).
Michael Gray of Macquarie Research revised his target price on the stock after drill results from the El Limon Sill — raising his 12-month target to $27 per share from $26.50.
“While we are cautious on the potential of the El Limon Sill target, the new target exemplifies the district scale and multiple-target nature of the property,” Gray said in a research note. The mining analyst noted that the new high-grade El Limon Sill target “is skarn-related, but interpreted to be different from the disseminated open-pit mineralization at El Limon,” as well as the underground magnetic-bearing mineralization at the company’s Media Luna project.
The Media Luna deposit is a magnetic anomaly on the same land package south of the Balsas River, which was discovered in March 2012.
Media Luna has an inferred resource of 7.4 million equivalent oz. gold (51.5 million tonnes grading 4.48 grams equivalent gold per tonne). The resource is contained in less than 30% of the area of the targeted magnetic anomalies.
Based on a July 2015 preliminary economic assessment, an underground mining operation at Media Luna could produce 313,000 equivalent oz. gold a year at an average AISC of US$636 per oz. over a 13-year mine life.
On Jan. 9, Torex Gold reported its 2016 production figures and guidance for 2017.
In 2016, the first year of operations at its El Limon-Guajes mine, the company poured 279,937 oz. gold and sold 275,613 oz. gold.
This year Torex forecasts production of between 350,000 and 380,000 oz. gold at total cash costs per ounce sold of between US$525 and US$575. AISCs per ounce sold are an estimated US$775 to US$825 per ounce.
Torex plans to spend between US$100 million and US$130 million on capex this year, and US$10 million on exploration.
Management expects finishing the access ramp into the “under the sill” zone by mid-year, and processing the zone’s first tonnes before year-end.
BMO raised its target price on the stock to $30 per share from $26 per share, after news of the company’s 2016 production results and 2017 guidance.