Torex Gold Resources Inc. (TORXF) Q1 2023 Earnings Call Transcript


Thank you for standing by. This is the conference operator. Welcome to the Torex Gold Resources Inc., First Quarter 2023 Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask the questions. [Operator Instructions].

I would now like to turn the conference over to Dan Rollins, Senior Vice President, Corporate Development and Investor Relations. Please go ahead Mr. Rollins.

Dan Rollins

Thank you, operator, and good morning everyone. On behalf of the Torex team, welcome to our Q1 2023 conference call.

Before we begin, I wish to inform listeners that a presentation accompanying today’s conference call can be found under the Investors section of our website at I’d also like to note that certain statements to be made today by the management team may contain forward-looking information. As such, please refer to the detailed cautionary notes on Page 2 of today’s presentation, as well as those included in the Q1, 2023 MD&A.

On the call today we have Jody Kuzenko, President and CEO; Andrew Snowden, CFO; and as well as Dave Stefanuto, Executive Vice President, Technical Services and Capital Projects. Following the presentation, Jody, Andrew and Dave will be available for the question-and-answer period. This conference call is being webcast and will be available for replay on our website.

Last night’s press release and the accompanying financial statements and MD&A are posted on our website and have been filed on SEDAR. Also note that all amounts mentioned in this call are U.S. dollars unless otherwise stated.

I will now turn the call over to Jody.

Jody Kuzenko

Thank you, Dan, and good morning to all on the line. Welcome to the Torex Gold Q1, 2023 results call. I’ll open my remarks by saying that we delivered another strong quarter which puts us on solid footing to achieve our production and cost guidance in 2023. Opening highlights include the site team. They delivered a strong production result driven by record throughput in the mill and another record quarter from our ELG underground.

The project team made steady progress on the development of Media Luna, which continues to track to schedule and budget, and we also released our updated mineral reserve and resource statement in the quarter, which saw us replace the majority of reserves mined in 2022, as well as add materially to our resource base.

In terms of the agenda for the call, it will be the same as usual. I’ll provide a brief reminder of the strategic pillars which continue to frame our execution plan. Then I’ll step you through the key business and operational highlight specific to the first quarter, then over to Andrew Snowden to provide a review of the financial, and then Dave Stefanuto will provide a progress update on Media Luna and then I’ll close off with an overview of our year-end reserve and resource update and a bit of an update on the status of the new Mexico mining laws. Then we’ll open up the call for questions from our listeners.

Starting on Slide 4, this is a review of our strategic pillars which set out the long-term vision for Torex. Our strategy remains unchanged and you can see on this slide, the five really key areas of focus as we make our way through 2023.

On optimize and extend ELG, the year-end reserve and resource update was a key indicator of the ongoing success of the extent portion of this plan. With reserves updated, with reserves replaced in the ELG underground and an additional 240,000 new ounces added in the ELG open pit.

On derisk and advanced Media Luna, the project is tracking to schedule and budget. We passed the 4 kilometer mark in the Guajes Tunnel and executed purchase orders for the primary underground mining fleet. We’re very much looking forward to showing all of the progress we’ve made on the project to some of you in person next week when we host our analyst visit.

On grow reserves and resources, our good success with our drilling and exploration program in 2022 is shown up in our MRMR update, which I’ll take you through at the end of the deck. On prudent capital management we remain in solid position to fund the development of Media Luna. At the end of the quarter we have $683 million left to spend on the project, against available liquidity of $564 million. This, combined with ongoing free cash flow from ELG, we’re feeling very confident about the balance sheet.

On ESG excellence as announced last week, we’ve entered into a sustainability related loan with our existing lenders, essentially just adding some sustainability targets and incentives for hitting those targets inside the context of our existing credit facilities.

Turning now to Slide 5, we delivered record production of 123,000 ounces during the quarter, delivered by record throughput in the mill and another quarterly record established at ELG underground. The strong production performance underpins strong cost performance, with an average all-in sustaining cost margin of 42% delivered in the quarter. Adjusted EBITDA was $133 million, driven by a realized gold price of almost $1,900 per ounce.

Cash flow from operations was $47 million, which reflects seasonal tax and royalty payments primarily related to fiscal ‘22. The seasonality in cash flow is well known to those who follow Torex and per usual, you can expect operating cash flow to again be strongest in the second half.

Turning now to some operational highlights on Slide 6. I’ve already talked about the top left at 123,000 ounces. Top right, a new record milling rate of 13,073 tonnes per day was achieved during the quarter, driven by a real focus on maintenance practices. The bottom left, the process grade was down very slightly during the quarter as we processed some lower grade stockpiles and finally on the bottom right you can see we delivered another record quarter on the underground mining front, hitting more than 1,700 tons per day, on our way to that targeted 1,800 tons per day by year end.

Moving to Slide 7, we’re well on track to achieve full year production and cost guidance. There’s an important note here. There will be some quarter-on-quarter movement this year, so it’s not appropriate to take the Q1 production results and multiply by four, or to assume that cost-delivered in Q1 will continue at the same level throughout the year.

We expect production in Q2 and Q3 to be softer towards the bottom end of the quarterly range, implied by annual guidance, and then it’ll pick back up again in Q4. There are a couple of reasons for this. We’re depleting the Guajes pit this quarter. It’s at the very end of life at the end of May, and mine sequencing in the El Limón and El Limón Sur pits, we’ll see in a period of elevated waste stripping as we move ahead with a plan pushback in both pits, supported by the additional reserves in last year.

The note on cost implications here are that with planned lower production levels and increased waste stripping over the next two quarters, both total cash costs and ASIC in Q2 and Q3 are planned to be above the upper end of the full year guided range. I want to emphasize that things are expected to return to more normal levels in Q4, where production costs will be closer to what we saw in Q1, setting us up to achieve production and cost guidance for the full year.

Turning to Slide 8, we recently announced that we entered into something called a Sustainability-Linked Loan, modifying our existing credit facilities to include incentive pricing terms with respect to interest rates associated with achieving various targets. In the categories of safety performance, climate change and alignment with the world-gold council’s responsible gold mining principles, really just a financial reward for executing on the work we plan to do anyway.

With respect to safety, we have three lost time injuries during the quarter, all amongst our contractors working at the site. All fairly low severity; two finger injuries and a fractured rib. With an increasing level of contractors at the Media Luna project, now over 1000 person mark, our team has really redoubled their efforts to ensure that everyone are safe. Contractors and employees alike, adhere to our safety protocols, safety culture, and managed risk to our standards, and on this note I’m very pleased to report that we had no lost time injuries in April.

I’ll now turn the call over to Andrew to speak to the quarterly financial performance.

Andrew Snowden

Okay, thanks Jody and good morning everyone. As you can see here on Slide 10, Q1 was another remarkable financial quarter for Torex. With a benefit of strong production and sales volume, record mill throughput, and a greater proportion of capitalized waste stripping, our reported total cash costs in the quarter were $709 per ounce, which was better than the lower end of the guided range for the year. Our all-in sustaining costs of $1,079 an ounce came in at the low end of the guided range, and supported the generation of $133 million of adjusted EBITDA in the quarter.

As noted by Jody earlier in the call, this guidance beats on costs are not expected to continue through the year, as we expect that during Q2 and Q3, both TCC and AISC will be above the upper end of the guided range before declining in Q4 as production increases and waste stripping declines.

That being said, we do remain confident we can deliver on our TCC and AISC guidance again in 2023. I do want to highlight though that the key headwind we are facing right now is less about inflation, and more about the strength we’ve been seeing in the Mexican Peso. Our planning for 2023 was based on an assumed peso U.S. dollar exchange rate of 20:1, whereas the average we saw in Q1 was 18.71:1, and this natively impacted our operating costs in the quarter by about $3 million.

And maybe kind of think about the impact of the peso on our full year cost performance. For the full year, each one peso varies in exchange rate. We’ll have about a $10 million impact on operating costs, and so that’s roughly $20 an ounce impact on our cost profile. And just to provide, put that into some broader context, our Mexican peso expenditure represents about 50% of our all-in sustaining costs.

Moving back to our financials, our reported earnings per share was $0.79 per share in Q1, which benefited from a number of items I just briefly wanted to touch on.

Firstly, we benefited from a $24 million gain in deferred income taxes, and that was due to the stronger peso on the value of our peso tax base. In addition, we also recognized a one-off $15 million current income tax gain related to a reassessment of provisions for uncertain tax provisions.

And finally, we benefited from the higher interest rates on our substantial cash balance during the quarter, recognizing $4 million of interest income here in Q1. Partially offsetting these gains was a $27 million unrealized loss on our forward gold contracts, given the highest forward price at quarter end. And after adjusting for a number of the item I just referenced, our adjusted diluted EPS in Q1 came in at $0.58 per share.

Our net cash generated from operating activities of $47 million during the quarter, which we’ve noted when we reported our Q1 operating results in mid-April. It was impacted by seasonal tax and royalty payments primarily related to fiscal 2022. The impact of these seasonal payments combined with increased spending on Media Luna resulted in negative free cash flow of $54 million in Q1. And with the elevated level of Media Luna Capital planned through the balance of 2023 and into the third half of 2024, we do expect free cash flow to continue to be negative over the next several quarters.

Turning now to Slide 11, I just wanted to provide a bit more context on our 2023, Q1 cost performance. Just working down the chart here you see on Slide 11. Firstly on mining costs, these were higher during the quarter compared to last year given an increased stripping in the pit, as well as a greater amount of stockpile rehandling relative to blending in the mill and the lower run of mine fee delivered from the pits.

On our underground mining costs, these were down modestly year-over-year with record underground mining rates providing economies for scale. And then on processing higher costs here, primarily reflect the increased consumable costs reflecting annual pricing established late last year. A timeline assumption is consistent with prior quarters, about 2.5 kilograms a ton of ore. And finally on profit sharing, this is slightly down versus 2022, with a main difference reflecting an adjustment related to a 2021 PTU which was recognized in Q1 of last year.

With a stronger peso though, cost manage does continue to be a focus and we are continuing to actively review costs in order to provide some relief if the peso were to remain at these levels through the balance of the year.

While we are discussing costs, I do also just want to quickly point out, there was a new line item you may have noticed in our income statement in Q1 labeled Other Expenses. This new line item will report on certain one-off expenditures we will be incurring in 2023 and 2024 to provide transparency, and this relates to an ERP, Enterprise Resource Planning tool implementation, which we are undertaking across the company, and also some training costs related to operational readiness to Media Luna. Both of these costs cannot be capitalized under accounting rules due to their nature. I expect these costs will total approximately $9 million through the course of 2023.

Next, turning to Slide 12, you will see here our cash balance declined by about $54 million during the quarter, and if you can see from the waterfall here, this is primarily driven by season tax and royalty payments and increased capital spending primarily relating to Media Luna.

During the quarter we made over $76 million of tax payments and this included the annual payment on the 7.5% royalty of $30 million. And in addition, we made $10 million of other royalty payments, including the annual payment on the 0.5% royalty of about $5 million and that was paid in Q1.

As a reminder, the first half of the year is always a period of lighter cash flow due to these tax and royalty payments in Q1 and also due to the annual profit sharing or PTU payment we are making in Q2. We actually just made the most recent annual payment last week and that was for $30 million and you will see that show up in our Q2 cash results. More information on cash flow seasonality has been included in the appendix of today’s presentation.

Just as a reminder, I just want to highlight and remind the group of just a few items just to expect and to look out for through the course of 2023. Firstly, monthly tax installments, you can expect they will continue at current levels that you saw in 2022 and so that will approximate between $6 million and $7 million a month.

Accounting depreciation will also be consistent with 2022. We expect the range there to be between $175 million to $200 million, and they are currently trending towards the upper end of that range. And then depreciation for tax purposes are expected to approximate $100 million in 2023. And so with a lower tax depreciation compared to accounting depreciation, that’s the reason for an increase you can expect to see in our deferred tax asset balance, which will increase through the balance of the year.

Turning now to Slide 13, the next few slides are really just focused on the strength of our balance sheet, and you can see here that our balance sheet remains on solid footing, with $322 million of cash at quarter end and no debt beyond some small leases we have in place. Including the $242 million of available credit on our term and revolving credit facilities, we exited the quarter with $564 million of available liquidity.

I do want to highlight here though, that our lease liability will start to increase from Q2 and through to the end of 2024, as we are executing on our plan that was included in our feasibility study to lease the mobile equipment required for Media Luna operations. The first $6 million installment payment on this equipment was made by the lessor earlier this month, and you’ll see that be reported in our Q2 balance sheet.

Just turning now to slide 14, you can see here how this strong balance sheet comfortably supports our ability to fund the remaining Media Luna project capital. This slide highlights our goal of $783 million in required liquidity, to both be able to fund the remaining $683 million of Media Luna capital spend, while achieving our strategic goal of maintaining a minimum $100 million of liquidity on the balance sheet.

The cash balance we have on hand at the end of the quarter and the availability we currently have on our credit facilities would fund $564 million of this requirement, leaving only $219 million of liquidity to be generated from our ELG operations over the next 24 months. And to put that in perspective, based on our current run rate of generating almost $300 million of free cash flow from ELG over the past 12 months, you can see we have lots of comfort in supporting this funding requirement.

This cash flow generation from ELG is also further supported by our gold price hedge program you can see summarized on slide 15. Just as a reminder, this hedge program is purpose built to provide additional protection during the build-outs of Media Luna.

During the quarter we did add some additional hedges, which commenced in the second half of this year and rolled into the first half of next year, and so we have roughly now 25% of our production hedged in the first half of this year and the second half of next year, and then increases to about 40% for the second half of this year and the first half of 2024. Our gold price hedge program based on these hedges is now complete, and I don’t expect we will add any further to this gold hedge book.

During the quarter we realized a $500,000 gain on these forward contracts, which attributed to $5 an ounce to the realized gold price. We also recognized $27 million as I referenced earlier in unrealized mark-to-market losses on these contracts during the quarter, and that was due to the prevailing gold price at March 31 and the forward curve, and you’ll see this included in our Q1 income statement.

With that, I’ll now turn the call over to Dave Stefanuto, who will provide an update on the Media Luna project.

Dave Stefanuto

Thanks Andrew. Slide 17 shows the progress at Media Luna after the first 12 months of a 33-month build period. The high level takeaway here is that the project is tracking to budget and schedule and our first concentrate production in Q4 of 2024. At quarter end, the project was 24% complete overall, considering procurement, engineering, underground construction and development and surface construction.

While, the completion rate is behind the level in the 2022 technical report, the delays are related to non-scheduled critical procurement and deliverables, and the fact that we have built an additional cushion into the original schedule to mitigate supply chain issues as we finalize the schedule in late 2021.

Both engineering and procurement rates picked up as we issued a number of scheduled critical purchase orders such as our primary underground mining fleet, consisting of a mix of battery electric and diesel equipments, positive displacement pumps and filter presence for the paste plant, gravity concentrator and filter press for the copper concentrate facility, and our reverse osmosis unit for the water treatment plant.

Subsequent to quarter end, we awarded the agreement to supply our underground mining support equipment, and just this week issued the purchase order for the personal transportation equipment. We are also about to award the contracts for both underground construction and vertical alamac developments.

Underground development has kept pace during the quarter with 18 active headings. In Media Luna upper, we have commenced development of the foot wall drift at one of the first production levels. Surface construction continues to ramp up with the last blast completed on the paste plant pad and remediation work on the self-portal upper road was completed. Civil works in preparation for construction activities on the north side also progressed and are tracking the forecasts, following an initial slow start out of the gate. Earth works for the new water treatment plant and 230 kilovolt substation are well-advanced.

During the quarter we spent over $66 million in the development of Media Luna, bringing the total invested during the project period to $191 million. At quarter end we had incurred 22% of the project expenditures and had additional commitments in place of 12%, bringing the committed and incurred levels to 34%.

The actual spend in Q1 was lower than what we had forecast heading into the year, given a number of purchase orders were issued late in the quarter, as were a number of invoices from contractors and vendors and a slightly slower ramp up from our surface construction early in the quarter.

With surface and development activities ramping up monthly, we expect to see project expenditures climb throughout the year. The under run is not a result of productivity issues are performed delays with our underground contractor. Overall, we’re on pace to achieve the guided expenditure of $390 million to $440 million per year.

Slide 18 provides an updated on the critical schedule Guajes Tunnel. In short, tunnel advance rates continue to be exceptional from north to south with advance rates from south-to-north improving materially over the last few months. Now that we’re developing in the host granodiorite, which is a very competent rock compared to the shale and limestone methodologies we encountered last year.

At the end of April, the main Guajes Tunnel had advanced over 4 kilometers having delivered an average daily advance rate of 7 meters per day. South Portal Lower had advanced over 1.8 kilometers with the main spiral decline ramp on track to be completed towards the end of June. Advance rates materially improved averaging 4.3 meters per day over the last three months versus 3.8 meters per day last year, and of note, we achieved 5.1 meters per day during April, a run rate which is maintained so far through May.

Last week we safely broke through the west added vent, which you can see is denoted in the picture as ventilation tunnels. Overall, the scheduled critical Guajes Tunnel is on schedule for breakthrough in early Q1 if not sooner.

Turning to slide 19, some recent pictures of the project. On the left you can see a portion of the Guajes Tunnel, which participants on the tour will see next week as not only being driven at world beating rates, but being done safely with quality. In the middle top is the recent breakthrough of the West Adit Vent tunnel. Beside that is a picture of the paste plant pad, which is being cleaned up to commence concrete pad pouring, starting at the west side with our backup generation facility.

In the bottom is the first monthly safety alert held at site. The safety alerts are a way of reinforcing our best safety practices with our frontline workers or reminding people of the importance of following procedures properly, being aware of one’s surroundings and ensuring that everyone at site is responsible for safety, so speak up when you see an unsafe work practice.

With that, I’ll turn the call back over to Jodi, who will close with a review of the successful year we had on the drilling front in 2022.

Jody Kuzenko

Thanks Dave and Andrew. The next couple of slides are really just highlighting the success of the 2022 drill program and stuff here through the results of our reserve and the resource update this year.

On the reserves front, we were able to replace more than 60% of reserves depleted last year. Notably at ELG underground, we replaced more than 100% of gold equivalent reserves mined. Drilling success in the El Limón pit added 190,000 ounces of gold equivalent reserves. This is the ore we’re chasing with that pushback we’re now stripping for. Additionally, a small optimization of the El Limón Sur Pit added 50,000 oz.

Recall that the pit addition was for the purpose of ensuring, but we have a production plan that has a comfortable degree of overlap between the pits coming off and Media Luna ramping up in 2025.

The final note here, and I think it’s important, is that the change in reserves was driven by drilling. The gold, silver and copper prices used to estimate reserves remain unchanged.

Turning to slide 22, you can see we’ve had more success on the resource side. Drilling brought in close to 1.1 million oz of gold equivalent measured and indicated resources prior to depletion, so that’s a 16% increase year-over-year. If you think about it after depletion, that’s 8%.

The resource additions came across multiple fronts. At EPO, infill drilling resulted in an initial indicated resource of 670,000 oz, with the benefits of higher grade from the inferred resource. At Media Luna, another 275,000 oz of gold equivalent resources were added, primarily as a result of holes drilled back in ‘21, where we received assays after the cutoff date for the 2022 technical report.

Drilling at ELG Underground added 192,000 oz of M&I resources, with drilling delivering new mining fronts that we’re pretty excited about at Sub-Sill South and El Limón Sur Deep. Similar to the case with reserves, the metal prices used to estimate resources remain unchanged.

Turning now to slide 23 for just a reminder and an update on our drilling plans for this year, drilling at the ELG Underground and near mine targets is well underway. You can expect to have an update on those results later on this year. Drilling at EPO has commenced for the year with a program focused really in two parts.

The first part is infill drilling, as we look to upgrade additional resources to indicate it, to support an internal study to evaluate the potential to develop a new mining front at EPO. We’re targeting this zone as a source of feed for our fill-the-mill work post 2027.

The second part of the program is focused on step-out drilling to the north of EPO. Results from this part of the program are also likely to be released later on this year. And additionally, we’re looking to start wide-space drilling, targeting skarn mineralization in the area between EPO and Media Luna West. We’re anxious to get there. We’re just waiting on some permits to be received.

Before handing the call back to the operator for Q&A, I want to make some final comments on the recent changes to the mining law in Mexico. There’s been much in the mining news about the iterations and evolution of the laws and their implications, and I want to start here by emphasizing that the situation is fluid. There were various drafts of the reforms and the process by which they were ultimately passed by the Senate is also expected by many to be the subject of legal challenges.

Based on our understanding today, the proposed changes to concession terms only impact new concessions. So Torex is pretty well positioned here, as our concessions have terms of 40, but predominantly 50 years, and expire in either 2040, but predominantly 2055. The largest concession we have, which covers all of ELG and Media Luna, has an expiry date in 2055.

The reforms also address water concessions and water permitting. Again, Torex is pretty well positioned here, even with the addition of Media Luna water needs, as we have approval to draw 5 million cubic meters of water per year, and today draw approximately 1 million cubic meters of water per year, so lots of room there for growth.

The other areas of focus for the amendments include payments to communities, guarantees for asset retirement obligations, no different to many other jurisdictions in the world, and indigenous consultation framework. Generally speaking, it appears as though the bill in its current form may impact junior exploration and development companies more than established producers like us.

As I said, there is much left to be clarified. The story is not yet written, and we look forward to continued dialogue with the government as bylaws and operating protocols are written over the coming months and years. In the meantime, we just continue to do what we’re doing and delivering value at Morelos.

With that, I’ll pass the call over to the operator and open the floor for questions.

Question-and-Answer Session


Thank you. [Operator Instructions] The first question comes from Wayne Lam with RBC. Please go ahead.

Wayne Lam

Hey, good morning everyone. Congrats on a good quarter. I just have a question on the pit layback at Limon. I recall that the decision and the plan was done, I think at a much lower gold price around $1,500. Given where gold is today, is there any potential to kind of bring in more material or are there any potential changes to the plan, just given the higher gold price?

Jody Kuzenko

I’ll take that one Wayne, and thanks for the question. We’re executing on the pit layback as designed. My recollection is that it was done at $1,600 gold with sensitivities all the way down to $1,300, at which point it still makes money. If it does, the gold price looks like it’s going to sustain. We’ll factor that into plans as we think about El Limon Sur and additional optimizations and any remnant mining we might do at the El Limon pit.

I wouldn’t expect any changes there to be material. We’re already quite comfortable with the pits getting out to mid-2025, that we have that overlap that we were looking for, but it’s certainly something we’ll keep our eye on as this year progresses.

Wayne Lam

Okay, great. Thanks. And then maybe just on the permitting front, obviously the MIA-Integral was key for you guys in being able to operate. I’m just curious if there’s any additional incremental permits needed for operation that could potentially result in a delay at Media Luna. Just given some of the legislative changes in Mexico recently, I’m just curious if there’s any small items on the permitting front that could potentially impact the start of operations.

Jody Kuzenko

That’s a really good question, Wayne. With the legislative changes being what they are, I would say a general disinclination to issue permits, given the circumstances in Mexico.

That said, we needed two additional MIA-related permits for Media Luna. One is a bit of an adjustment of the footprint, the MIA modification for that. We actually were awarded that permit last week, and so feeling quite happy about that. The other one, that’s ahead of us, yes. Recall that the plan of Media Luna is we’re going to no longer deposit Tailings to our Filtered Tailings Storage Facility. Part of the logic behind concluding mine production in the Guajes pit is that we’re going to transition to in-pit tailings deposition.

We’ve now finalized the science and all of the details of the application for that additional MIA modification. We expect that will be submitted to the regulators this quarter in Q2, and have given ourselves plenty of lead time here to negotiate and discuss and hopefully secure that permit. We have capacity in our filtered tailings storage facility through to the end of ‘26, quite comfortably. We are looking to get that in pit tailings deposition permit before that, but we have a lot of leeway there to be able to secure that permit and work with government productively.

So we are feeling quite comfortable about our permitting situation. Again, permits in Mexico are one of these things that depend on the quality of the project, the quality of the permit application, all of the detailed science around that, the relationships and reputation with regulators, and how you approach the permitting situation. And so while it’s certainly not in the bag, we’re feeling quite comfortable about securing that tailings permit.

Wayne Lam

Okay, great. Thanks. And maybe just last one for me. I was wondering if you might be able to provide a bit more detail on the pricing for the Sustainability-Linked Loan. When does that go into effect, and kind of what are the pricing ranges on the loan relative to the prior facility? Just curious on a bit more detail on how the targets are set, given that you guys already have an industry-leading safety record and commitment on climate change. If those targets are at levels that you’ve already kind of been executing on.

Andrew Snowden

Hi Wayne, Andrew here. Well, I’ll take that question. And look, I think you raised a good point there around our strong safety performance and environmental performance and that did create long discussions to try and finalize the KPIs around our sustainability-linked loan.

And really, where we ended up with were goalposts that made sense based on our current performance and based on our current trajectory. I think our three areas of goals are safety, and really the goal there is staying true and continuing to achieve the leading safety performance that we’re seeing today.

On the environmental goals, that’s really all linked towards the 2030 carbon reduction plan that we released late last year, and the steps that we’re taking towards that. And then thirdly, on the responsible gold mining principles, under our membership position, under the World Gold Council, we are required already to achieve full compliance under the RGMPs. And so the Sustainability-Linked Loan has that as a third pillar of targets, and it’s all very achievable targets.

The financial benefit of the loan I’ll say is very modest. And the credit facility as designed, the pricing on that had not changed at 250 basis points plus SOFR. The benefits of achieving these targets is really a five basis point saving on that pricing, and so a fairly modest potential saving there. And that saving would be available to us through the course of 2024 and 2025 based on the current term of the credit facilities. So hopefully, that gives you a bit more color there Wayne.

Wayne Lam

Okay. No, that’s great, thanks. And good to see you guys put that in place and kind of hold yourselves accountable to the targets you set. That’s all for me. Thank you very much for answering my questions.

Jody Kuzenko

Thanks Wayne.


The next question comes from Don DeMarco with National Bank Financial. Please go ahead.

Don DeMarco

Hi. Thank you, operator, and good morning everyone. Hi Jody! Great quarter. One of the drivers is the record throughput. Can you add some color on how you achieved this 13,000 plus tonnes per day? And there is some variability quarter-to-quarter, and how should we think about the throughput going forward for the rest of the year?

Jody Kuzenko

Yeah, and so great question Don. 13,073 tonnes per day to be precise, the mills achieved in the quarter, and every one of them is just a grind, part of the pun. But I will say, the emphasis on our business process framework, which has been longing [inaudible] in implementation, more than two years now, which in a very short description is a really precise way of planning, scheduling and executing maintenance work.

And so what is happening is that it’s really coming to start to pay its dividends. And so we had a very good quarter in terms of, (a) staying on plan for the planned shutdown period. When you have a planned shutdown period for 80 hours, you want to come in at 80 or less and conclude all scope on the cost that you’ve identified for your shutdown. Those are the three, and safety for sure, but those are the metrics to which we hold ourselves to account.

The other area where BTF is paying dividend, is that the unplanned downtime is now slowly reducing. And so hits your planned downtime and reduce to the point of eliminating unplanned downtime, that’s the trick.

The other area where we had a bit of an increase is in tonnes per hour, so throughput in the mill. And that’s just again a function of good maintenance of the SAG mill and ball mill.

Don DeMarco

Okay, that’s great. That’s encouraging. So you actually achieved this record despite the fact that you had your 80 hours of planned maintenance. Looking ahead to Q2, Q3 and Q4, do you have maintenance every quarter or is there potential to maybe set a new record?

Jody Kuzenko

We have maintenance every month.

Don DeMarco

Okay, every month.

Jody Kuzenko

Yes, it’s quarter-by-quarter dependent. So we have planned maintenance every month and forecasting on setting a new record, for me an excellent carry-on of the year would be holding levels at above 13,000 tonnes a day. That would be an excellent outcome for the milling team for this year.

Don DeMarco

Okay, thank you. And so we’re looking at the messaging that was provided here that the costs are going to be above the top end of the AISC guidance range over the next couple of quarters, and that top end is 11.30, and then it’s going to be lower than the bottom of the range in Q4. Can you give us an idea of how much higher or how much lower that swing might be over the next two quarters, and then rebounding at year-end?

Andrew Snowden

Look Don, I try and stay away from giving quarterly cost guidance. I think it’s really difficult to be able to predict that with accuracy. I think the way to think about it is looking at Q4 to be fairly consistent with Q1, and so if you’re looking at modeling it, put that in consistently.

I think as you look at and think about AISC, a couple of things I’ll think about there. One is obviously the impact of lower production, and so if you kind of look at modeling Q2, Q3, looking at kind of lower end of the production range from a guidance perspective and playing that out in terms of an expectation of Q2, Q3 production, that will obviously have an impact on our cost profile.

And then some higher-stripping through Q2, Q3. Obviously we had some high stripping – high capitalized stripping in Q1. It will be higher still in Q2 and Q3. I’m hesitant to kind of give out specific guidance there, just because of the challenge of doing that on a quarterly basis, but that should give you just a general flavor of how to think about that.

Don DeMarco

Okay. Thanks, Andrew. And then just finally, a quick question on EPO. I mean we see the resource estimate, the grades are looking good. We’ve seen some impressive intercepts. Can you just tell us the pathway to potentially putting this into production in 2027? And is there an opportunity to even, given some of the grades that you’ve encountered, to have a higher grade portion of it mined out? So maybe thinking about CapEx or whatever is necessary to get this into production.

Jody Kuzenko

Yeah. Its such early days on EPO, Don and so we just upgraded 670,000 ounces. And as you point out, that grade came up, right? The inferred grade was about 4 grams a tonne gold equivalent. The indicated grade is 5.16 grams a tonne gold equivalent. So we’re really quite pleased about that.

I mentioned in the call the two areas of focus for drilling around EPO. That continued upgrade of inferred to indicated is important to us, so that Dave and his technical team can really start at a very PEA level to wrap a mine plan around it.

Some big questions. Yes, do we tie into the Guajes Tunnel? Do we tie the infrastructure back into the Media Luna main deposit? And so we expect to have a better line of sight on that in the early part of next year. And then I can probably, with a greater degree of specificity, give you some idea about what we’re doing with EPO, when it could come on, what size it could be, where it’s going to tie in, and a PEA level idea of capital costs, but it’s still pretty early days.

I will say it’s showing up nicely. We’re very excited about it. Not just EPO, but EPO North and the zone between Media Luna West and EPO. This deposit, we’re thinking about it as a cluster now, and it just does not disappoint.

Don DeMarco

Okay. We’ll look forward to updates on that, then. That’s all for me. Thank you very much.

Jody Kuzenko

Thanks, Don.


[Operator Instructions] The next question comes from Eric Winmill with Bank of Nova Scotia. Please go ahead.

Eric Winmill

Hi! Morning. Thanks for taking my questions. I just wanted to follow-up your comment and your disclosures about the community development agreements that you signed earlier this year. Just wondering if you have any additional details in terms of what some of the hot-button issues are, and assuming all the local communities have now been signed to the annual agreement, I think?

Jody Kuzenko

Yeah. So we have 11 community development agreements, some of them are on the north side of the river. We’ve got some new ones on the south side of the river with Media Luna coming online.

I wouldn’t describe the issues as hot-button. Eric, there’s sort of a continuation of what our commitments have been in the community all along: education for kids, medical, dental, healthcare, good-paying jobs that are safe for community members. We have very specific community committees for employment, both on the contracting side and in the direct employment side.

As you can imagine with the promise of Media Luna on the south side, those labor committees are really starting up in earnest, and people are very, I would describe it as excited, receptive, wanting to work with Torex and create some value for themselves and their communities on the south side.

The one new item for us on the south side is that we’re relocating a very small community near Media Luna called San Miguel. We’ve budgeted about $6 million for that. We’ve had many, many meetings with the community on it. I would describe people as quite excited about what their houses could look like and where they’re going to go, and the prospect of clean, running water and electricity and things that we tend to take for granted.

So more of the same on our community development agreements on the north side of the river, some new and interesting stuff on the south side, but I wouldn’t characterize it as hot button or

Contentious, and I’m looking forward to you seeing some of that when you come to site next week, Eric.

Eric Winmill

Yes, fantastic, definitely looking forward to that. Maybe a good segue to the next question too.

Apologies if you already touched on it. In terms of the regional exploration, just wondering if you can comment on what’s required there in terms of roads and support and what we might expect there in terms of the regional program.

Jody Kuzenko

The regional program really is limited, I would describe that. Over the next couple of years, our exploration dollars and attention are primarily focused on ELG Underground, EPO and Media Luna. Why? Because the business priority is to fill the mill post-2027. And so we want to make sure that we’re spending money in a way that supports the overall strategy.

To the extent that we’re doing some regional exploration, primarily on the north side of the river in areas of Tecate, Querenque, you’ll see maps on that when you come next week. There will be permits required from either [inaudible] or existing individual landowners, and then something called the CUS, change of use of land from the regulators, depending on where we go.

Early days, we’re not looking at a whole bunch of investment on roads and things like that. From my perspective, you want to be skinny on your dollars until you know that there’s something there. I would say that’s quite a few years ahead of us, because really, the focus now is very near to areas that are really coming up in ways that we’re pleased with and excited about.

Eric Winmill

Fantastic! Well, thank you very much for that. Yeah, definitely looking forward to getting down to the site next week. Appreciate it.

Jody Kuzenko

Great! Thanks, Eric.


As there appear to be no more questions, this concludes today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day!