2013-09-17

Torex CEO Fred Stanford was a happy man the day Torex (T.TXG) released its 43-101 compliant resource estimate for its Media Luna project in Mexico. Media Luna is part of the 29,000 hectare Morelos Gold property.

“It’s hard not to be happy when you double your resource in a day.” said Stanford, “We’ve gone from a discovery hole to 5 million gold ounces in 18 months after exploring only 30% of the magnetic anomalies South of the River”

Stanford is quick to credit his geological and drill teams. They are responsible for Torex being able to execute on its promise to “Get the first mine resource up to 5 million ounces, build it, and then find a second mine on the same property, and build that one as well”.

The geology of the Morelos property is not done yet. “We’ve flown a ZTEM and mag- survey over the entire property. This looks down and identifies structural features. We’ve identified structural cracks which is important because the mineralization is structurally controlled. We are finding other areas on the property which show excellent exploration potential.”

This is the second resource on the Morelos property. The initial find is to the north of the Balsas River and has a Measured and Indicated Resource of 4.8 million ounces of gold. This project has advanced steadily since May of 2012. “We’re waiting for final approval of the construction program. We’re down to details such as which plants to transplant and how best to control soil erosion. We expect that by the end of October we’ll be in construction. Everything we need is sitting on the edge of the property waiting for the approvals. We’ll start work the day we are approved.” said Stanford.

The overall project has a tightly scheduled construction program. “Construction to production will take 21 months, commercial production will begin at 30 months and we expect full production in 45 months.” said Stanford. Full production would mean that material from both pits, El Limon and Guajes, being processed at the Torex mill on the property.

All this costs money. CAPEX for the overall project is roughly 700 million dollars. At June 30th, 2013 Torex had cash on hand of 333 million. It put out a term sheet in February 2013 to raise $250 million in project debt and, at time of writing, technical due diligence is underway.

The planned construction is designed to allow Torex to fully exploit the Morelos property, “We’ll have a mill, roads, other infrastructure, water.” explained Stanford. And this investment is designed to pay off over the long term as more of the “South of the river prospective areas are explored and drilled. “South of the river is quite a long way away. For the next couple of years there will be very little capital expenditure on that side of the river.”

The one concern investors have had about Torex are the security issues posed by a gold mine in a fairly remote part of Mexico. In March of 2011 Torex suspended its drilling operations because of security concerns. Stanford recognizes the issue, “This is somewhat of a lawless area. We’ve had to bring in private security and every thing has been fine since activities resumed in May of 2011. The state and federal governments are providing security for ordinary Mexicans as well.” Going forward to mining Stanford is encouraged by the fact that Goldcorp operates a mine only 15 kilometres away.

Having delivered on its promises, Torex counts with “A very supportive group of shareholders, mainly institutional, who have been there in the good times and in the not so good ones” said Stanford, “A little over a year ago they supported us by exercising 83 million dollars in warrants,” he added.

The confirmation of the second, 5 million ounce, resource on the Morelos property suggests this shareholder support will be rewarded over the next few years and, very possibly, for years to come.

The company traded at 1.46 on September 17 for a market capitalization of $885,000,000.

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