SPOTLIGHT: Torex's Limón-Guajes overcomes challenges

Torex Gold's Limón-Guajes project in Mexico's Guerrero gold belt promises to be one of the world's largest and lowest cost mines, according to the company.

And with around six months to go before the start of production, the Canadian junior appears to have met every challenge head-on while preserving impressive economics.

PROJECT OUTLINE

Limón-Guajes, located in Torex's Morelos Sur concession, is an open pit gold project which will produce 375,000oz/y gold over an 11-year mine life at cash costs of US$504/oz.

The low cost and high production stem from the project's large, high grade measured and indicated resource of 4.95Moz gold at 2.79g/t. Construction began in 2013.

CAPEX, NORTH NOSE

Torex announced an increase in capex in January to US$800mn from US$725mn. However, higher production in 2015 and 2016 means the IRR will not be affected.

The increased early stage output will come from the North Nose pit, which was initially earmarked for production late in the mine life, the company said in a release.

Development of the North Nose cost US$22mn, which was not included in original capex calculations, and will add 72,000oz to stockpiles to be processed in 2015. After-tax IRR is estimated at 24.2% at US$1,276/oz gold.

LABOR, COMMUNITY CHALLENGES

The higher capex also results from costs related to labor and community challenges.

In particular, the US$800mn figure includes US$47mn of contingency, partly due to social unrest in Guerrero state, where authorities are investigating the disappearance of 43 students.

The unrest has impacted the willingness of construction contractors and their employees to come to the state when there is sufficient work elsewhere, Torex said.

"The potential impact of this to cost and schedule is difficult to quantify, which is one of the reasons that, even after effectively finalizing the engineering work, the contingency has been left at a significant level," the company added.

The higher capex also reflects increased costs of relocating residents, with more families than expected requiring new homes and higher costs per home needed to obtain community acceptance, Torex said.

The capex rise also includes higher earthwork and inflationary costs and processing plant adjustments.

TIMELINE, FINANCE

Despite the higher capex, Limón-Guajes remains fully funded, and a US$60mn second draw on the project finance facility was received on January 28.

A loan signed with six banks in August after 18 months of negotiations comprised US$300mn for project finance and a cost-overrun facility of US$75mn, with the remaining funding from a 2012 bought deal financing.

CONCLUSION

Limón-Guajes' economics and timeline appear almost untouched despite an array of challenges linked to inflation, financing, technical, labor and community issues, and the mine will immediately put Torex on the map as a significant Mexican gold producer.

Pictured: Earthworks at Limón-Guajes. (CREDIT: Torex Gold)